Investing for Indepedant wealth

[TaoJones]

Originally Posted by Reality Check

Actually in most situations the secret is knowing when to Buy. When you Buy correctly... selling is generally not a problem.

As a Broker in Real Estate... I have always observed that many wantabee investors always target making the largest profit percent on the sale... when the highest profits are almost always available at the point of purchase... While possible more difficult to determine... it is the target for most real investors... ask Warren!!

This is the correct approach, in my opinion. You make your profit when you buy, you realize your profit when you sell.

Many investors make the common mistake of closely watching a potential investment as it rises, thereby proving to them its worth. When they're finally confident enough to take the plunge, they're generally pretty close to the top. When the investment starts falling, they watch as it falls . . . and falls, hoping against hope that it can't keep falling. When it does anyway, they finally throw in the towel, absorbing a huge loss, and crawl away to lick their wounds. This point is generally pretty close to the bottom.

Buffet and Munger, on the other hand, are true contrarians. They move in and take big positions in an investment that has been falling consistently, but which their metrics show has proven value. They, and others like them, are most often the ones that the defeated, depressed investors are selling out to at the bottom.

When the market turns, and their investment begins to rise, they're getting a free lift from the mob that want into the "next new thing." When the mob have pushed it up to euphoric levels, they're the ones who sell out to the "greater fools," and the cycle begins again.

TaoJones

[Islandmike]

"Covered Calls" You can make 5-7% per month being very conservative and not using margin. It is reletively safe, so safe, that you are allowed to trade inside a Roth. Make no mistake, there are downsides... be informed. This method is really for monthly income not making a big kill.

[TaoJones]

Originally Posted by Island Mike

"Covered Calls" You can make 5-7% per month being very conservative and not using margin. It is reletively safe, so safe, that you are allowed to trade inside a Roth. Make no mistake, there are downsides... be informed. This method is really for monthly income not making a big kill.

Well, yes, you can generate monthly income from writing covered calls. One possible downside is that if the call expires in-the-money, your stock will be called away. This isn't necessarily a bad thing, of course, as it will be called away at a price higher than it was when you wrote the call (if you know what you're doing), but if you actually want to keep the stock you either have to buy your call back at a premium to protect your stock, or replace the stock with a new purchase at a, potentially, much higher price.

As with most things, a person will probably get better at writing covered calls at the correct strike price and the correct option month as he/she acquires more experience.

I agree with you that writing covered calls is a pretty benign strategy. Most of the big brokerages, though, don't see it that way. Merrill Lynch "qualifies" investors on the same basis as if they were adding the option of selling naked puts to their account.

Go figure.

TaoJones

[cat man do]

My cunning plan for retirement at 45

We have a flock of houses that were bought, moved and built over the last 3 years,(most with future development potential) that are paying their own way and have gone up considerably (100% +) in val since purchase.

They are all 700 Klms from home and the boat project.
(This is why the boat project has ground to a halt over the last 12 mths.)

When I launch the boat (no borrowed funds) we will have a unencumbered (or very close to) house which we will sell and dump the cash into some form of managed fund to live off, (hopfully buying low in 2 years time) leaving the property to do it's thing in the background.

The plan is to purchase that fund through a Vanuatan company name (legal) and use Australian Non-Residency tax law so as not to pay tax on earnings fom that fund (legal). Vanuatu has no personal or company income tax, and there are accoutancy and legal firms there who will handle all of the transactions and mail for us for a reasonable fee.

The Australian Tax Dept. say as long as I am deemed non-resident (No residence in Oz and out of country 300+ days of the year will cover that) and the fund is not an Australian one, it is all above board.(fine tuning may be required)

We will have to pay a higher rate of tax on earnings from the property in Oz, but that will be negligable for a few years yet and mitigated by the lack of tax on other earnings

Just need to figure out what that managed fund will be.

Dave

[Charlie]

Cat man do:

I like your plan. that's b/c I understand real estate. In the US there are some good ways to defer paying taxes on capitol gains of selling. One of the most common is called the 1031 exchange where you jump thru a bunch of hoops while holding one leg up in the air and then trade what you have sold for something of greater value. It is a very effective way to take multiple houses and trade them for a larger apartment building (block) that can be run by a property manager and you can manage the paperwork that comes across your desk and cash the checks.

[Islandmike]

TaoJones,

You are correct, however, when I am dealing with covered calls I dont get married to the stock, if I lose it I move on. It is about making 5-8% per month on my money. There is no other place you can do it, most are taling about 5-8% per year, this is per month. No doubt you need to be careful, I can atest to that for sure. But as long as you dont get married and emotional about the stock and arent looking for the big kill it can be nice. Sometimes I can ride a stock for a number or months, Im riding HOKU now, although it really went up this month and I will probably loseit . I had the $10 strike on that one, oh well- Good Luck

[TaoJones]

Originally Posted by Island Mike

TaoJones,

You are correct, however, when I am dealing with covered calls I dont get married to the stock, if I lose it I move on. It is about making 5-8% per month on my money. There is no other place you can do it, most are taling about 5-8% per year, this is per month. No doubt you need to be careful, I can atest to that for sure. But as long as you dont get married and emotional about the stock and arent looking for the big kill it can be nice. Sometimes I can ride a stock for a number or months, Im riding HOKU now, although it really went up this month and I will probably loseit . I had the $10 strike on that one, oh well- Good Luck

I don't disagree with you at all, Mike. I just wanted to point out that to write a covered call, you must have the stock in your account. It is the stock that's covering the call.

If your call is executed, the stock is sold out of your account at the strike price of your call, an effective way to realize more for your stock than if you just sell it (every percentage point counts, in the bigger picture). But if you're writing calls to generate monthly income, your "inventory," in effect, has been sold. You must replenish your "stock" of stock (sorry, couldn't resist ) so that you have cover for your calls in the next month.

Otherwise, you're writing naked calls, a prescription for financial disaster.

And, in replenishing your inventory, you incur additional commissions and fees - so, again, those little percentage points come into play, only against you. I know that it's a dance that can be fun and exciting (and rewarding), and I congratulate you for undertaking it. You're doing mental gymnastics, trying to calculate the correct strike price/month to reap the greatest premium without losing your inventory.

Sometimes you've dangled the carrot just far enough out in front of the donkey to keep him constantly striving for it, never quite getting there, while you doze contentedly in the cart, reaping premium. Ahh, the trader's life.

TaoJones

[Islandmike]

TaoJones,

Yes you are so correct and per the Admiral I am no longer permitted to trade anything but covered calls and cannot use margin. The nice thing about the covered call is I can do a little research at work, make the trade, and let it sit until the next month, not sexy, but can be $rewarding.

[TaoJones]

Your prudent, conservative approach to trading (covered calls, no margin) will serve you well, Mike. And who needs "sexy," when "rewarding" is the point, after all?

Continued success in the markets, Mike. You may well be the last man standing when the dust finally settles.

TaoJones

[Jackstee]

Hi Guy's

Anyone know a site that I can get more information about this. Have absolutly no Idea what your talking about, " Covered Calls" ??

Steve

[cat man do]

A simple search for "covered calls" gets me this list

Covered Calls - Dogpile Web Search

Dave

[Steve Rust]

Originally Posted by ssullivan

What's cool is that I FINALLY find this thread interesting! ha ha ha

I tend to agree with all TaoJones posted. Also, I have some capital (FINALLY!) from selling the boat I'm getting ready to dump into the market. Personal feeling is I'll wait until the current "turbulence" shows signs of being at its worst before diving in.

Anybody else have their cash on the sidelines for the moment waiting a bit?

Sean
Timing the market is notoriously difficult. One way to lessen the risk when investing a large sum is to divide it up into smaller amounts and invest it on a regular basis over a set period of time. It is called dollar cost averageing and will generally give you a better return than trying to time the market.

"Covered Calls" You can make 5-7% per month being very conservative and not using margin. It is reletively safe, so safe, that you are allowed to trade inside a Roth. Make no mistake, there are downsides... be informed. This method is really for monthly income not making a big kill.

5-7%/month! 5% compounded that’s about 79.5%/year! My question is why would anyone do anything else? Nearly 80%/year using a “conservative” approach. Man that’s sweet.

[S/V Elusive]

Jones5962 ... Not everyone is a winner. Those that are lucky (and I've always said I would rather be lucky than skillful) can indeed make that for a few months .. but doubtful all the time every time. Remember that the stock market has to consist of people selling and people buying. If ONE side wins ... guess what happens to the other? Now that is a pretty simplified example, but you get the idea (yes guys, I KNOW that in some cases both sides can win as long as the market wants to flow in one direction).

[Islandmike]

Be careful, be informed.... dont get married to the stock and dont get greedy, dont get greedy...