Archive for March, 2007

I’m starting a new 10 post series entitled, “Why You Aren’t Getting Rich” and it is a compilation of the top excuses I’ve heard from friends, family, co-workers, and people I’ve met over the years as to why they aren’t getting rich.

The #10 excuse I’ve heard over the past decade has been “I don’t have a college degree.

While a college degree is important, it is not the primary requisite for becoming wealthy. I can name a few billionaires that didn’t graduate college such as Bill Gates (Microsoft), Michael Dell (Dell Computers), Larry Ellison (Oracle) off the top of my head.

These men did however have a high level of education in their areas of expertise. Bill Gates had a passion for software and computers so he learned everything he could about computers and programming to ultimately found Microsoft.

Michael Dell had a passion for hardware and started Dell Computer out of his garage building PCs for friends and businesses. He became highly self educated in the hardware design and development business.

It is clearly possible to achieve phenomenal wealth and success without a college degree so when I’ve counseled people over the years I’ve always encouraged them to pursue their passions first and acquire the skills, training, knowledge and education in that field as they pursue those passions.

I have many passions that have made me fairly successful in life and one of my passions right now is investing via Exchange Traded Funds & Covered Calls. To learn more about my passion that is making me Get Rich Slick, click on over to http://www.etfcoveredcall.com.

Tune in next week for Excuse #9 – You don’t have well connected friends to get a high paying job.

In part one of the Sub Prime lender mess, I outlined how the whole real estate industry preyed upon the innocent home buyer. Today, I’m going to tell you how the Investment industry preys on the innocent investor.

First let’s make sure you understand the analogy to the real estate industry. A quick cast of characters:

  • Real Estate Agent is similar to a Financial Adviser
  • Mortgage Broker is similar to a stock broker
  • Bank officer is similar to Mutual Fund Manager
  • Appraiser is similar to Analyst

So now that we have a cast of characters, let’s see how the play unfolds:

A person has some money and they want to invest it. Person seeks out financial adviser. Financial adviser, in theory, should do what is in the best interest of the client but he also wants to MAXIMIZE his profit so his judgment becomes a little cloudy and recommends broker that gives him the biggest kick back.

Broker should do what is in clients best interest but decides to push stocks and investment vehicles that give him the biggest kick backs to MAXIMIZE his profit so he suggests various mutual funds run by certain companies.

Mutual funds should do what is in the best interest of their client but they stray from their primary duties and with the help of Analysts, they bloat the value of worthless stocks because of some conflicts of interest from the underwriters of IPOs, their bosses and the Analysts.

The Analysts want to MAXIMIZE their profitability so they form a perverted partnership with mutual funds managers to give glowing recommendations to stocks that aren’t worth crap. Mutual Fund managers make decisions based on analysts recommendations and presto both profit off the client.

The real deterrent to the real estate scammers and investment scammers is education. Unfortunately, people would rather watch 60 minutes of TV garbage than spend 60 minutes reading prospectus or loan documents and hence you have the fleecing of the innocent.

In real estate, things like Zillow.com, Buy Owner, Redfin are disruptive technologies that help the consumer. The real estate industry does everything it can to block innovations that make them more honest.

In the investment world, things like Exchange Traded Funds, hedging strategies, and even PF Blogging can bring some transparency and make the investment industry a little more honest. There is some really great content out there in the PF Blogger world from capitalist bloggers. I hope you give them and Get Rich Slick a few moments of your time each day.

I rarely invest in mutual funds and stick to ETFs and other investment vehicles.

I read an interesting story on MSNBC regarding the Sub-prime lender mess. The article tells a sad tale of a family undergoing foreclosure because their mortgage loan ballooned into uncontrollable repayment plans. I have friends in the real estate industry and I can tell you first hand about the cascading scam in real estate; It goes something like this…

It all starts with a person interested in buying a home. Person goes to real estate agent to seek help buying a home. Real estate agent wants to MAXIMIZE commission on sale so he points person to highest priced real estate agent thinks person can afford.

Person settles on home and then the scam unfolds…..Real Estate agent wants to “double dip” by scoring the commission on the sale but why stop there. Real Estate gets buddy mortgage broker to fund loan and gets a little referral kick back on the loan. Mortgage broker wants to MAXIMIZE his profit by suggesting bank with the best referral cash back reward.

The scam doesn’t stop there because the bank loan officer wants to make his cut as fat as possible so he’ll push the terms that MAXIMIZE his commission/bonus. He also wants to “double dip” by “suggesting” which Title company, Appraiser and other services are purchased from so he can get his kick back.

The appraiser wants to MAXIMIZE his profit and he receives incentives from his bank loan buddy to price the real estate as high as possible which serves a three fold purpose:

  1. The higher the appraisal, the higher the amount the real estate agent gets on his commission.
  2. The higher the appraisal, the higher the loan amount (interest) the bank officer (and bank) will get on the loan.
  3. The higher the appraisal, the higher the “Fees” will be on the rest of the services on the loans.

From the perspective of the real estate agent, the mortgage broker, the banker, and the appraiser it’s all a win-win situation. Throw in a developer and contractors and it’s even more money on top of that.

The real loser of course is the home buyer. I ONLY buy a home when interest rates are high. I purchased my first home when interest rates were at 7% and got a great deal. I saw a lot of suckers snapping up properties when interest rates were low and I knew they’d be in trouble. Low interest rates (a.k.a cheap money) bring out the sharks to feast on the fish.

Interest rates are cyclical, when I bought at 7%, I knew that interest rates would cycle back down eventually and that’s when you refinance! You see, when interest rates are high, home prices drop because people can’t afford the higher premiums & payments. When interest rates are low, real estate is high and suckers get in. It’s the old “buy low, sell high” that you need to look out for in real estate like with anything else.

Tomorrow, I’m going to tell you how Financial Advisors, Mutual Funds and the investment industry operate in almost the exact same manner to the sub prime lender mess.

I’m unwinding 25k of credit card arbitrage this week and I’m wondering if the credit card arbitrage farm is closed permanently. There is lots of talk about fee free balance transfers going away and my own analysis of the situation seems to confirm that it’s a possibility.

I did get balance transfer checks from BOA that capped the BT fee at $90 but others don’t seem to limit the fee. There is a discussion about Citibank doing that here.

If I recall correctly, Bank of America, Chase, and Citibank are all key members of the Federal Reserve System so BOA may be next on the BT fee cap if this is the Feds way of tightening credit. Conspiracy theorists can come up with ideas as to why this is happening….. 😉

WATCH OUT!

I received two sets of balance transfer checks from Chase Bank this week and they both included the usual low teaser rates of 0.99% for 6 months or 4.99% for the life of the loan but what caught my eye on both of these offers however was the 3% balance transfer fee but no cap!

Usually the fee is capped at $75 or $90 dollars on these offers but these new checks don’t have any limit which means that a balance transfer of 30k with 3% transfer fee would cost $900!

Is this the end of the arbitrage game?

In my lifetime, there is one principle that I’ve come to believe as a universal truth and that’s Pareto’s Principle. Most people know this as the 80-20 rule and originated with Pareto’s observance that 20% of the populous controls 80% of the wealth in any given society.

I’ve seen the practical reality of this principle at every company I’ve worked at over the past decade. Here are some examples of some of the conclusions from executives I’ve worked with, “80% of your sales come from 20% of our clients” and “80% of our complaints come from 20% of our clients” and finally “20% of the staff is causing 80% of the problem at our company.”

I could go on but I think you get the point. As it pertains to PF Blogging and readers, only 20% of the bloggers and readers out there seem to get it. I would guesstimate that out of every 100 readers, only 20 will actually research what I teach more thoroughly and seriously consider the methodology and possibly apply it as a path to greater riches. The remainder 80% will shrug it off as “too risky” or “too unconventional” or “too unproven” and leave it at that.

A few months ago, I went to a real estate investing seminar and sure enough, when the host asked how many people were seriously interested in real estate investing nearly 100 hands went up but when he asked how many people were ACTUALLY actively investing in real estate only 20 hands went up. I’d guess that the same 80 people were going to these seminars over and over again and only 20 would ever really do it; the rest were simply spectators.

So for the 20% out there that are interested in learning how to make some extra money, click on over to http://www.etfcoveredcalls.com to check out how I’m making money month after month.

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Opportunity is knocking, will you open the door?

I’ve recently been accepted to an Executive MBA program and school starts this fall. I applied for admission back in November when my job began to get a bit boring and I wanted something a little challenging. Unfortunately, now that I’ve been accepted I’m really debating on whether sinking 50k into an Executive MBA program is really worth it.

The average MBA graduate I think makes 80k or more but I’ve been way above that for quite some time now that I don’t think monetary returns justify the program.

An argument could be made that an MBA program will help secure an executive or upper management position but I’ve held those positions for the past 10 years so I’m not sure that is a selling point either.

Networking with peers is also a selling point for MBA programs and while I certainly wouldn’t mind getting to know other professionals and executives, is it worth 50k to do so? Couldn’t I do similar things in other venues: charities, community activities, political events, etc?

Lastly, my wife has decided that she’d like to return to school to possibly pursue an MBA and perhaps it may be better for her to do so since she’ll likely receive a great benefit from it that I would.

I have a couple of more months to decide but I’m leaning against it for now.

My ETF Covered Call options expired worthless this past Friday during Options Expiry.  I’ve posted a chart for your review to illustrate how profitable ETF Covered Call writing can be.

smh2007_Mar.png

According to the options information over on http://finance.yahoo.com/q/op?s=SMH, the May $35 call strike are selling for $1.01 so selling 10 contracts would generate a cool $1000.00 and would generate 3% return on my original investment to bring my total return from December through May to 7.5% which isn’t bad for 5 months.  If I were to get called at $35, I would make an additional $750 to bring my total return for the 5 month period to 9.8%!

I may just wait until SMH breaches $35 and sell May $37.50 options to bring my total return up to 12% if things pans out right.

SMH_1000.png

This of course is just a few of the flexible options with Exchange Traded Funds and covered call writing.  I hope you’re making money today.

Exciting news on two fronts today of the ETF Covered Call Strategy. My SMH Options expired worthless today so I’ll have another cash harvest in the upcoming weeks. I also planted another money tree in China. I bought 100 shares of FXI for $98.00 and sold the May 07 $98 Strike Calls for a cool $600. I’ve pocketed a 6% return in a 60 day window. If FXI drops, I’ll keep my shares and write more calls for August or January Calls!

If you want to learn more, click on over to http://www.etfcoveredcalls.com where the ETF-Cashinator crunches numbers all day long to find profitable opportunities for me. Learn how it’s done.

I opened a credit card account that allows you to track your FICO score month to month back in December and I’ve been tracking my FICO score ever since.  So far, I’ve received my scores for January and February, and in a few weeks I’ll get my score for March.

I didn’t pull my score before I began my 50k arbitrage deals but one of those deals is about to unwind over the next week and I’m really curious to see how that will impact my FICO score.  I’ll essentially unload 25k of debt in a few days and I’m assuming this will be reflected at month-end close for March.  My debt utilization will go from 50% of 100k credit lines to 25% of 100k.

As soon as I receive my scores, I’ll report the jump (if any).  As of today, my FICO score hovers at 720.