LIVING OFF DIVIDENDS & PASSIVE INCOME

I managed to get accepted in the UCLA Anderson School of Management. Since I applied in the third round I think thats quite an achievement. Of course, applying so late virtually guarantees no funding or fellowships. This kind of sucks since I did get a 740 on my GMAT which typically helps in getting MBA fellowships (unless you’re going to the top 5 schools). But on the other hand UCLA is ranked #12 for the full-time MBA program.

I was looking forward to not having any student loans when I graduate, especially after receiving a fellowship from UCSD. But UCLA’s program is much more highly ranked so the question is whether its worth spending the extra $60,000.

Of course, if we go through a period of hyperinflation (which I think we’re already in the beginning stages of) then in 10 years, $60,000 might only seem like $10,000! In which case, going to even the most expensive school will look like a good investment in hindsight.

The meeting started off with a humorous cartoon video of Charlie Munger running for US president. There was also a short video of Warren Buffett playing a role on tv-soap “Days of our lives” and Susan Lucci actually appeared live at the meeting.

Rather than a boring annual meeting discussing the various aspects of BRK’s business, Warren Buffett instead started fielding questions from the audience, which went on for several hours. Except for which stocks BRK was buying, no question was taboo.

Here’s some interesting points from meeting:

1. Most of what you learn about Business school is crap.

You only need 2 courses, how to value a business and how to think about stock market fluctuations. Unfortunately most professors end up teaching what they know, which consists of complex formulas and other useless stuff.

I kind of knew this, even though I am going to start B-school in the fall.

I finally made in to Omaha. Unfortunately I missed my connecting flight in Denver due to inclement weather and was informed that I’d have to spend the night there. Luckily I was able to track down a high-school friend of mine and catch with her after nearly 15 years. Of course with the 1 hour commute each way and my early morning flight, there wasn’t much time to catch-up or sleep, but if it hadn’t been for the sudden snow storm, I probably wouldn’t have seen her or her artist boyfriend for another 5 years!

This year there’s an estimated 27,000 Berkshire shareholders descending on the town of Omaha (population of approximately 400,000). The place is swarming with visitors. i went to the Borshiems Cocktail Reception which was a mall that was closed off to regular visitors and opened only to shareholders. It featured live music, food and a huge selection of alcohol. It was completely packed to the seams.

Oil dropped below $114 today after hovering around $117 per barrel. But I still think the long term trend is up.

According to Kevin Kerr, editor of a commodities investment newsletter,

“The U.S. is filled with gas hogs, but the developing world is catching up. Last year, Chinese drivers bought 5.5 million cars, minivans and SUVs and 3 million commercial vehicles, up from just 1.6 million vehicles sold in 1997. Sales are expected to grow 15-20% this year. Looking down the road, China’s auto sales are expected to grow by 1 million vehicles annually through 2015.

“Meanwhile, India is poised to rocket past China as the world’s fastest-growing car market. Sales of passenger cars in India increased 12.17%, to 1.5 million, in this past year.

I’d like to announce that I’m part of the new of The Wealth, Money & Life Network (WML-Net), a new personal finance network.

The WML-Net is made up of a diverse group of individuals. The ages span across the 20s, 30s and into the 40s. They’re located in geographically diverse parts of America; ranging from the east coast to the west coast, from the midwest to the southwest to the deep-south. Their backgrounds are as varied as their careers, education, income streams and lifestyles. Some have debt, while others do not. There are those who are married, with and without children, while others are single. Some have a college degree and there are those who do not.

Considering that that no one situation is alike, the group’s diversity should provide different insights based on everyone’s own personal financial experiences.

The Annual Shareholder Meeting for Berkshire Hathaway is this Saturday on May 3rd in Omaha, Nebraska. I finally got my meeting credentials from the company. I had been waiting to book my tickets until I got them. It seems I could’ve gotten them in Omaha itself, but I didn’t want to take that risk. It would be pretty stupid if I showed up and they didn’t grant me admission!

Anyway, I’ve been following the online airline prices for flights to Omaha. Two weeks ago, the flights cost around $350 round-trip to Omaha from San Diego. Last Friday and Saturday the cheapest tickets on Orbitz were going for $505. Today, however, the price dropped down to $240! That’s half-price from just two days ago. Now of course, the next challenge is getting accomodation.

GoDaddy currently has a great promotion on .info domains. They’re currently selling for only $0.99 instead of the usual $9 dollars. That’s about 90% off the regular price, and I spent the past several days getting about 15 domains that I think I might be able to monetize in some form or the other.

People might feel more comfortable or might more easily remember .com domains, but if you’re targeting search engine traffic it probably shouldn’t matter very much. A lot of the domains have dashes in them (example Arts-Antiques-Artifacts.info, but again, for visitors coming from a search engine it shouldn’t matter too much.

I also got a few domains that I think are pretty cool like Discount Ipod.info, Cheap Nano Ipod.info and Buy Cheap Paintball Guns.info.

Today I got a letter from the University of California, San Diego’s Business School. They’ve offered me a full fellowship for the MBA program! I think it was based on my GMAT score.

It consists of a complete waiver of all tuition and professional fees for both the years of the course. Getting this means I won’t need any student aid, nor will I have to sell any of my investments to fund my education. Considering that I have a very pessimistic outlook on the direction of the US economy, I believe the unemployment rate will be a lot higher when I graduate in 2 years time. I’d rather save up my money for the rainy days ahead (which means they’ll be more opportunity for good investments at that time). Not having to sell my investments also means I’ll be able to use the income they generate for living expenses.

Here’s an incredibly interesting video about how the Federal Reserve Chairman Alan Greenspan directly helped the rich become Super Rich by keeping interest rates artificially low. The low interest rates and easy liquidity caused a spike in asset prices.

I’ve long maintained that globally, assets are no longer a function of value but a function of liquidity. The video explains how leverage has helped home borrowers become incredibly wealthy. I didn’t become super wealthy, but I did profit by using the same idea. Unfortunately, instead of growing a million into a billion, I started out with Zero and made proportionally less. (although technically, I made an infinite return of return!).

In England there are currently 30,000 people earning over half a million pounds a year, and over 50 Billionaires. All of them work in finance related industries like hedge funds and private equity firms.

If you’ve ever switched jobs and contributed to a 401k plan, chances are you just the old plan at the old company. Unless of course it was under $5,000 and they told to take it with you!

I have 2 such 401k’s that are currently orphaned. If both the companies went bankrupt, I’d have to jump to a lot of hoops to get my money back. It wouldn’t be impossible, but it would be an unnecessary  hassle and waste of time. Better to liquidate the positions and transfer the cash in to what’s known as a roll-over IRA. Or if you’re not planning to work in the year of the transfer, you might opt to convert it into a ROTH IRA because you’d be in a lower tax bracket and wouldn’t much taxes on the conversion.

Oil just broke through $115 per barrel today. While this may come as a shock to many , I’ve been preparing for it for the past 2 years. All the signs of an oil shortage have been visible in the media, but most people have either been ignoring it, been in denial or been too focused on what Paris Hilton or Brittany Spears have been up to!

China and India together have  a third of the world’s 6.66 billion people. If 10% of these 2.2 Billion people start buying cars, that’s 220 million new cars on the planet ready to start guzzling more gasoline. I think thats the current number of cars in the US, so effectively the demand on oil is set to double over the next few years. And along with Tata Motors new $2,500 car, you can be sure that eventually atleast 20% or more of India’s and China’s population will be driving cars instead of cycles or mopeds that give 247 miles/gallon. That 247 number is  not an exaggeration. Owners of Suburbans should refrain from crying right now.

Since this is tax season and this site is dedicated to earning passive income, I thought I should post something about the taxation of passive income. From the IRS’s point of view passive income is any income that you get without having to to materially participate in. Examples of passive income include rental properties and partnership returns.

Unlike earned income, passive income has great tax benefits. Earned income is subject to self-employment tax which is just over 15.5% (if you’re W2 employee, your employer pays half of this). Your passive income isn’t subject to this tax. If you own rental property, you also claim depreciation. Depreciation is the replacement cost of equipment used in a business and is spread out over its useful life. For residential real estate, the IRS deems the useful life to be 27.5 years. However, the useful life of a house could well exceed 60 years. This results in you being able to claim a tax loss which doesn’t really result in any loss to you. Because of this, depreciation losses are sometimes termed as phantom losses.

Finally I’m getting some traction with my passive income! After all, that’s what this blog is all about. The total for March 2008 is $2, 667.18, and I’m ecstatic to have broken the $2,500 per month barrier. If I can sustain it at $2,500 per month, thats $30,000 per year. While I’m not living in luxury, it’s definitely a great safety net to have. This represents a 11.9% jump from February’s passive income and it has been growing at a steady clip for quite a while now. Hopefully, I shouldn’t have a problem maintaining it.

Here’s the breakdown:

• Online Income: $1645.30
  • Adsense: $339.28
  • Linkworth: $456.70
  • TLA: $103.61
  • Kontera: $62.07
  • Direct Ads: $330
  • Prosper Referrals: $175
  • Amazon: $117.82
  • Domain Embarking: $60.82
• Savings Accounts: $133.10
• Real Estate Trust Deed: $0
• Direct Oil Drilling Investment: $270
• Dividends from Canroys: $517.71

Not exactly fresh news, but its been reported that Dick Cheney, our beloved vice-president is betting against the US Dollar. He has tens of millions of dollars in foreign government bond and currency funds and international and emerging market stocks. His excuse is that it’s in a blind fund and he doesn’t know what his advisers invest in. That sounds like complete rubbish to me. I can’t imagine someone as intelligent as Dick Cheney not knowing what a huge chunk of his reported $95 million networth is invested in.

I’ve believed for sometime now that the government actually wants a weaker dollar and have been investing accordingly, but having the vice-president profit from it is a bit too unethical. The fact that he’s been profiting from the war in Iraq through no-bid contracts to Halliburton (in which he still retains a large amount of shares) is bad enough. If this had been China, he’d have been executed for bringing dishonor to his country!

As regular readers know, I’m quite keen on getting my MBA. I gave my GMAT late last year and when I scored 740, I thought getting into a top MBA program seemed feasible.

The only problem is that a top MBA program costs about $100,000 plus living expenses. Also there’s the opportunity cost of lost wages which increases the total cost of the MBA program to nearly $250,000!

With the country looking like its heading in to a severe recession, I’m wondering if there will be any jobs when I graduate and have all these student loans to pay. I’ll still probably go for the MBA program , but hopefully, I’ll get some sort of scholarship to defray the expenses. Also, if we see hyperinflation like I think we will, in 15 years $250,000 will be worth only $25,000 in purchasing power and it might not seem like a big deal at all!

Here’s a hilarious skit about the subprime mess. Even if you don’t follow the financial acronyms like SIV and RMBS, you’ll really enjoy this one. They’ve really simplified the causes and the results.

Popularity: 8% [?]

While Jim Rogers has never had a good opinion of Fed Chairman Ben Bernanake, he seems particularly upset with his latest actions. He thinks that he had no right to bail-out Bear Stearns (BSC) to the tune of $230 Billion of the US taxpayers money. He claims that if BSC had filed bankrupcy,the billions of dollars of bonuses paid out in January would have to be returned. So effectively Bernanke facilitated a bail-out so that his pals on Wall Street could continue to drive their Maseratis! Sounds a bit too conspiracy-theory to me, but in principle I agree with him. It’s not fair that the Wall Street guys take huge risks to make huge amounts of money, but when they mis