LIVING OFF DIVIDENDS & PASSIVE INCOME

I remember being in college back in 1998, when Yahoo! (NYSE: YHOO) was the leading search engine.

Around the same time, two graduate students at Stanford came up with a better way to search the internet. They started Google (NYSE: GOOG).

Now, Google is the number one internet search engine. Every day, Google processes 1 billion search requests. It’s also the leader in online advertising.

And Google’s always looking for new opportunities. Over the past decade, they’ve bought nearly 100 companies Almost every time they enter a new market, they become the dominant player.

Three things contributed to their success…

1. They buy the best company in the sector.

In 2006, they paid $1.65 billion for YouTube. It seemed like a lot of money at the time for a free service. But they’ve been able to monetize it with online advertising. YouTube also started renting movies, just like Netflix and Amazon.  Read more... (529 words, 8 images, estimated 2:07 mins reading time)

I remember the good ol’ days of the Internet Bubble in late 1999, early 2000. I bought Qualcomm (QCOM) at around $300 a share and watched it skyrocket to $800 a share in less than a year. Valuations didn’t matter, only the stories behind the stocks. I had lofty ambitions of early retirement and life of luxury. Warren Buffett was widely derided (amongst my friends) as an old fool who didn’t understand the new economy – this time it was surely different.

Sadly, no one told me the party was going to end and I rode that pony all the way back down the hill.

And then my brokerage called me and informed me that not only was my investment account worth zero, I also owed them an additional thousand dollars! Yeah, leverage works both ways.  Read more... (1015 words, 9 images, estimated 4:04 mins reading time)

My investments are well diversified. I’m invested in foreign and domestic real estate, commodities, precious metals, domestic and international equities and foreign sovereign debt. However, I haven’t spent much time analyzing my portfolio allocation. While making money through investments is good, protecting what you have is paramount. As I grow older each year, volatility becomes a greater issue. In a few more years I”m not sure I ’ll be able to stomach a 40% loss that the market experienced in 2008. (Luckily, I my retirement account was down only 4% that year so I didn’t have to stomach anything!)

There are tons of great books available on the subject of portfolio allocation, but I wanted something easy to understand (and thus, remember). One of the better models I can across was Harry Browne’s Permanent Portfolio.

The basic premise is to cover all possible scenarios in your porfolio:  Read more... (412 words, 9 images, estimated 1:39 mins reading time)

Some of the best advice is timeless. Here’re some nuggets of wisdom from the late Harry Browne.  Read more... (176 words, 9 images, estimated 42 secs reading time)

• Your career provides your wealth
• Don’t assume you can replace your wealth
• Recognise the difference between investing and speculating & speculate only with money you can afford to lose
• No one can predict the future
• No one can move you in and and of investments consistently with precise and profitable timing
• No trading system will work as well in the future as it did in the past
• Don’t use leverage
• Don’t let anyone make your decisions
• Don’t ever do anything you don’t understand
• Don’t depend on any one investment, institution or person for your safety
• Create a bulletproof portfolio for protection
• Keep some assets outside the country in which you live
• Beware of tax-avoidance schemes
• When in doubt, err on the side of safety

I’m always in search of good books to read and a few people recommended Michael Lewis’ new bestseller The Big Short. I put off reading it because I didn’t really want to read yet another book about the subprime mortgage meltdown. However, I finally got the kindle version to read on my new iPad and was pleasantly surprised by how good it was. Actually, I wish I had read it earlier – the book was rather amazing. It was as fast paced and entertaining as his first book, Liar’s Poker.

Lewis describes the financial industry collapse induced by subprime mortgage bond derivative market from the point of view of a couple of hedge fund managers who shorted them. Not very large hedge funds either. Instead of focusing on well known managers like John Paulson, he focuses on relatively unknown and minor investors, with interesting personalities.  Read more... (426 words, 9 images, estimated 1:42 mins reading time)

In my last post, I hinted at using QE2 to your advantage by investing in companies that benefit from a steepening yield curve. But I didn’t have time to get in to specifics. Which is what I’ll do right now, seeing that I have a couple of hours to spare at the Fort Lauderdale airport.

The Federal Reserve let the market know that it plans to keep short term interest rates at extremely low rates for the next few quarters (if not longer). Companies that can borrow short term, can do so at very low rates. So long as you have AA-rated collateral, you can borrow money at about 0.30% on a 30 day basis. If you plan to borrow for a longer term, you just need to keep “rolling” your loan every 30 days or so.  Read more... (645 words, 8 images, estimated 2:35 mins reading time)