Where’s The Premium?

Posted on October 31, 2007 by Nirav

Penn West Energy Trust (PWE) announced that it would be buying Canetic Energy Trust (CNE). They’re both Canadian Income Trusts that payout a decent yield. However, there’s almost no premium offered to CNE holders. Well okay, there is a 7% premium offered to CNE holders but compared to the 30% premium that was offered to PrimeWest Energy Trust (PWI) by the state run utility company of Abu Dhabi, its pretty sad.

I can understand, why Abu Dhabhi is keen to get its hands on $5 Billion dollars worth of Gas. They simply want to get rid of their US Dollars! And afters today’s rate cut and the subsequent drop in the Dollar Index, I want to bail too!

I have a rather small stake in CNE and I’m happy with its 15% yield. In comparison, PWE only yields 13%. On the surface, I’d rather not exchange my shares. However, yield isn’t the only variable in this equation. You need to consider payout ratio and reserve life. There’s a good chance that PWE scores better on these criteria than CNE does. In that case, it would make sense to vote in favor of the take-over.

Earlier this year, Advantage Energy Trust (AAV) took over Sonic Energy Trust for almost no premium. But that was before the PWE deal and before energy prices were so high. And being a shareholder of AAV, I was extremely happy with the outcome. But now the shoe is on the other foot!

Being a shareholder in the acquired company, I think the premium is too small and I’ll probably just vote against it anyway. Let PWE come back with a better offer!

Gold Breaks $800/Oz

Posted on October 31, 2007 by Nirav

Reacting to the Federal Reserve’s rate cut today, gold surged past the $800 barrier for the first time since 1980! I’ve been hawking gold as an investment for 2 years and no one’s been listening to me!

According to a press release today:

Gold last topped $800 an ounce in 1980, when prices reached as high as $875 an ounce in January. Adjusted for inflation, an $800 ounce of gold in 1980 would be worth more than $2,000 today.

I think that gold will probably hit atleast $2,200 if not more. Some people are predicting higher amounts, like $3,500. I’m not sure. But I do know the US Dollar is a lousy investment right now.

Oil closed at $94.51 and the Canadian Dollar now cost $1.06!

Buying A Stock For Its 16% Yield

Posted on October 31, 2007 by Nirav

Since I decided to kick the old job (which was a hard habit to break), I’m going to be more reliant on my passive income. Part of my passive income comes from Canadian Income Funds, some of which pay out over 16% in annual yields. They pay out the dividends on a monthly basis and after tax (which the Canadian Government takes out at source) it still works out to over 1% per month. This is about 3 times what I get in my savings account!

Also, being enrolled in the dividend-reinvest program (also called DRIP) my dividends are used to buy more stock every month without paying a commission. Any best of all, some stocks offer a discount to the prevailing market price.

I added to my position in Harvest Energy Trust (HTE) yesterday. I calculated I have too much money in savings, even if I don’t have a job for the next year. So I decided to take a little bit of money (from my Bank of America account, which pays half a percent in interest) and buy something that yields 16.5% per year (just over 14% if you consider the Canadian Tax). While the monthly increase in my cashflow is not significant, its still a good optimization of my resources. And after all, leveraging and optimizing one’s resouces is how you get rich. Their DRIP offers a discount too.

If it drops a bit from here, then I’ll probably buy more, else I’ll buy Australian Currencyshares Trust (FXA), which pays out ~5.5% yield. If the Federal Reserve cuts the rate tomorrow and the Reserve Bank of Australia boosts it next week, we could see parity between the USD and AUD in fairly short order.

In the long run I think energy prices are heading higher and the USD is heading lower. Having the conviction to follow through with your beliefs is also an important factor to becoming rich. Either way, I’m pretty sure exchanging my USD for something else is a good idea.

Goodbye Cruel Job!

Posted on October 30, 2007 by Nirav

Tomorrow is the last day at my job. I gave my notice 2 weeks ago.

No, I don’t have another job lined up.

No, I didn’t win the lottery.

No, I don’t have a back-up plan or any idea what I’m going to do next.

So why am I quitting?

Because I don’t feel 100% committed. Not being fully committed isn’t fair to the company and it isn’t fair to me. Life is too short to be working at a job that you don’t love and aren’t willing to commit 110% too.

Besides, working for someone else will rarely make you rich. One of the reasons is that you get paid for the number of hours you put in. Having a finite number of hours is your limiting factor here. As an employee, you also pay the highest amount of tax since you have almost no tax deductions unlike business owners and the self-employed.

So I think the best option is to quit the job and refocus my long term goals and strategies. The best way to do this is when you’re totally relaxed and in a good mood. So in early December I’m going to Thailand and India for about 5 weeks.

Once I get back, I should be in a more clearer frame of mind to plan the next stage of my working career. I’m very keen on getting an MBA. It may not be the smartest decision financially, but its one of the things I’d definitely regret not pursuing.

Not having a job will free up my time to pursue other ventures. Like investing and writing about investing. And like MoominHouse, I may even take up trading as a side hobby.

My only concern is that either boredom or insecurity (about not having a steady paycheck) will set in and I’ll go back and get a job again!

In the meanwhile, I expect to make approximately $1,200/month from advertising revenue, trust deeds and dividends. While its not a lot, the wife’s income will supplant the short-fall. But it looks like I’ll be going from a job to literally “living off dividends!”.

Wish me luck!

Goodbye TDAmeritrade, Hello Izone!

Posted on October 29, 2007 by Nirav

I just closed down my account with TDAmeritrade. I transferred everything to Izone.com.

Funnily enough, Izone is owned by TDAmeritrade and offers EVERYTHING that my regular TDAmeritrade account offered. Infact, the user-interface is identical. Its so identical, that the new username and password I created at izone.com even works at tdameritrade.com!!!!

So whats the difference? All the commissions are half-priced as compared to TDA.

But whats the catch? There’s no phone support and you need to have a couple of years online trading experience in order to open an account. Actually, I’m not sure about the ‘no phone support’ policy – I suspect that if you call up the customer support number for TDA and give them your izone username, it just might work. In any case, I usually asked my questions via email at TDA, so there’s no difference for me. And izone also has a live ‘customer support chat’ feature during normal business hours which has less wait time than the phone lines.

I did an internal transfer since my old account was at TDA. It took place at 11:45 pm so my regular trading wasn’t affected at all! Now thats some decent service!

Let me know if you want to open an account and I’ll send you a referral email. I think we both get 10 free trades.

Prioritizing The Important Stuff

Posted on October 28, 2007 by Nirav

Here’s an inspiring story I received via email from a friend. Enjoy!

When things in your life seem Almost too much to handle, When 24 Hours a day is not enough, Remember the mayonnaise jar And 2 cups of coffee.

A professor stood before his philosophy class And had some items in front of him When the class began, wordlessly, He picked up a very large and Empty mayonnaise jar And proceeded to fill it with golf balls.

He then asked the students If the jar was full. They agreed that it was. The professor then picked up a box of pebbles and poured them into the jar. He shook the jar lightly. The pebbles rolled into the open areas between the golf balls.

He then asked The students again If the jar was full, They agreed it was. The professor next picked up a box of sand And poured it into the jar. Of course, the sand filled up everything else.

He asked once more if the jar was full. The students responded with a unanimous “yes.”

The professor then produced Two cups of coffee from under the table And poured the entire contents Into the jar, effectively Filling the Empty space between the sand. The students laughed.

“Now,” said the professor, As the laughter subsided, “I want you to recognize that This jar represents your life. The golf balls are the important things- God, family, children, health, friends, and favorite passions- Things that if everything else was lost and only they remained, your life would still be full. The pebbles are the other things that matter Like your job, house, and car. The sand is everything else- The small stuff.”

“If you put the sand into the jar first,” He continued, “there is no room for the pebbles or the golf balls. The same goes for life. If you spend all your time And energy on the small stuff, You will never have room for the things that are Important to you. So- Pay attention to the things That is critical to your happiness. Play with your children. Take time to get medical checkups. Take your partner out to dinner. Play another 18. There will always be time To clean the house And fix the disposal. Take care of the golf balls first- The things that really matter. Set your priorities. The rest is just sand.”

One of the students raised her hand And inquired what the coffee represented. The professor smiled, “I’m glad you asked.”

It just goes to show you that no matter how full your life may seem, There’s always room For a couple of cups of coffee with a friend.”

Buffett Hates The Dollar Too!

Posted on October 26, 2007 by Nirav

Its not often that Warren Buffett offers investing advice that’s easily to implement. According to an email I just got yesterday,

“We are still negative on the dollar,” Buffett continued, shifting his focus to Berkshire’s strategy for dealing with the troubled U.S. currency. “We bought stocks in companies that are earning their money in other currencies. We are gaining foreign currency exposure.” His comments echo Jim Rogers’ and Julian Robertson’s bearishness from yesterday.

So where will the $52 billion man be putting his money?

“My impression is that the Korean market is modestly cheaper than other markets in the world. I think the Korean market will do better for the next 10 years,” said Buffett. The Oracle of Omaha is currently visiting the TaeguTec facility in Daegu, South Korea. TaeguTec is a subsidiary of Iscar — a company Berkshire Hathaway bought a $4 billion stake in last year. While there, he voiced his approval of South Korean steelmaker Posco.

“It’s a great company,” Buffett said of Posco, “and great companies get worth more and more all the time.”

I had recently sold half my PTR stake and bought ICON Asia-Pacific Region S Fund(ICARX), which has quite a few korean companies in it. But if you want to get a pure Korean play, iShares MSCI South Korea Index (EWY) is a good buy. Its up 40%+ YTD!

Another good buy is the Korea Fund (KF). Like EWY, its also up 40%+ YTD. I bought a little bit today since its paying a crazy 32% dividend and today its going ex-dividend (which means its the last day to buy it and get the dividend).

If you’d like to buy it, it should trade at a 32% discount on Monday (since it’ll be ex-dividend, it will most likely drop by the amount of the dividend) even though the dividend won’t be paid out until end of November.

The advantage to buying right before the dividend is that sometimes stocks don’t drop the full amount of the dividend or they quickly make up the loss in share price. The disadvantage is you’re slapped with a dividend and a tax liability immediately.

Maybe I’ll sell the other half of PTR and buy EWY as well. Although, according to ETFConnect, KF trades at a 5% discount to NAV, while EWY trades at a 1% premium.

But regardless of what you buy, you’ve been given a chance to invest like Buffett.

California Properties Overvalued By 40%

Posted on October 25, 2007 by Nirav

According to Andrew Blackman of Bloomberg:

Californian homes are overvalued by as much as 40 percent and stricter lending standards will probably contribute to “material” price declines, according to analysts at Goldman Sachs.

Prices in the state “have proven surprisingly resilient, given the severe curtailment of credit availability and rising unemployment,” the analysts said in a note to investors. “However, we believe that a downturn is imminent.”

In August, the median price for houses in California was $589,000, though economic conditions only support prices of $350,000 to $380,000, the analysts said. The average U.S. home is 13 percent to 14 percent overvalued, the report estimated.

For the past 2 and half years, I’ve been harping on about how over-priced California real estate is and how the National Association of Realtors is completely clueless about real estate cycles, valuations and trends. Here’s a funny video about David Lereah who wrote a book “Are you missing the real estate boom” right at the peak of the cycle in 2005. Lereah is Chief Economist of NAR. (Hey, maybe I should apply for that job!)

Get Advertising Revenue From Prosper

Posted on October 25, 2007 by Nirav

I’ve been lending money on Prosper.com for nearly a year now. I’ve been getting a pretty decent rate of return, despite having had a couple of borrowers default.

I’ve also made over $200 from referrals fees! Whenever anyone signs up using the referral link and funds atleast $50, we both get $25. If a borrower signs up, I get $125.

And to add to that, Prosper is now a paid advertiser on my blog. Not only are they offering referrals rewards, but they’re also paying me to put their link up!

I guess they’ve had such success with the program that they can afford to be extremely generous. If you have a blog you can start making extra money by doing just 3 very simple things:

Sign up using this referral link.
Fund your account with $50 and lend it out. (ok, you don’t need to do this, but considering you get $25 almost immediately, where else are you going to get a 50% return on your money?)
Email me at livingoffdividends$$gmail.com (replace the $$ with @) with “prosper referral advertiser” in the subject field, and I’ll put you touch with the rep at Prosper.com

Not only will you get a check from Prosper for advertising, but you’ll still get the referral rewards too!

If you don’t have a blog, you can do steps 1 and 2 and get a referral link or an image button from Prosper.com which you can put in your email signature to generate some extra money.

Achieving financial freedom through passive income

Monthly Archives: October 2007

Where’s The Premium?

Gold Breaks $800/Oz

Buying A Stock For Its 16% Yield

Goodbye Cruel Job!

Goodbye TDAmeritrade, Hello Izone!

Prioritizing The Important Stuff

Buffett Hates The Dollar Too!

California Properties Overvalued By 40%

Get Advertising Revenue From Prosper