Why I Can’t Stop Investing in Facebook:

I Can’t Stop Investing in Facebook:

Almost a year ago to the day, I published my first book How to Leverage Your Real Estate Business With Facebook. Before I started researching for my book, I was already an avid user of Facebook. I considered myself a late adopter of Facebook, as late as someone could be who was in college during the college-only years of Facebook.

Half-way through writing my book I made my first investment into Facebook. The more I read, and the more I wrote, the more I invested.shut up and take my money

Today it is by far my largest holding. No, it does not pay a dividend. But for someone like myself (early 30’s) who is investing for the next 10-50 years, Facebook has a LOT of benefits. Imagine being able to invest in Google 10 years ago. That is where I see Facebook today. Much like Google, who began as a search engine, Facebook is much more than just a place to stalk your highschool exes.

The Biggest Misconceptions Regarding Facebook:

Facebook is just for teenage girls looking to share photos:
This is the hurdle Facebook faced during its first 3-5 years of INSANE growth. In addition to its incredible user acquisitions, its ability to monetize these users has been even more impressive.

Teenage girls are no longer using Facebook:
What once was considered its biggest problem, critics now maintain the opposite to be true. But hey, critics gonna criticize.

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All the young people are using Snapchat now:
Snapchat Snapchat Snapchat. AKA: Tha Facebook Killa. Except that its not. The biggest threat Snapchat poses to Facebook is that its attracting all the young people. When I tell people I am investing in Facebook over the next 10-50 years, their biggest concern is always Snapchat.

Tell me honestly, do you really think Snapchat is going to destroy Facebook and make them obsolete? Myspace is the common reference here, but remember who won that battle. I have mentioned previously why I think Instagram Stories is not a Snapchat killer, but still poses a threat to its growth, so I won’t touch on that here. (Don’t forget who owns Instagram)

What it all comes down to is this: The world is big enough for Facebook AND Snapchat. Much like the world needs Coke, Pepsi AND RC Cola. If you could go back in time to the invention of Soda, which one would you bet on?

If it isn’t clear by now, I feel that Facebook is Coke. Or using the television analysis, I think Facebook is CBS. Snapchat is currently MTV, but they are trying to become NBC. Will they? Maybe. Will it affect CBS value? I don’t think so.

If your argument against Facebook continuing to become a successful company is the existence of Snapchat, then I suppose you shouldn’t invest in any company ever, for fear of a competitor putting them out of business.

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Facebook isn’t cool anymore.
So what? Neither is Microsoft. Neither is Apple. What companies are cool anymore? What companies can stay cool from one generation to another? Is Snapchat going to be cool in 5 years after it monetizes its users, seeks rapid growth, and creates unique partnerships like its recent deal with NBC to stream episodes of The Voice?

The hardest thing for any company to do is monetize its customers without alienating them. Even the people who claim to hate Facebook still check their accounts 3x an hour.


What I love about Facebook:

REAL ESTATE– As someone who cut their investing teeth in the real estate business, I will always have a soft spot for this industry. Today, I believe the most valuable real estate in the world is the home screen on your smartphone.

How many apps do you have on your phone? How many do you actually use? How many do you use daily? How many are there on your home screen?

This is like being one of the first 3 channels on your TV. Can you put a value on this? Ask CBS, NBC and ABC.

Right now, Facebook owns 3 of these channels- err, apps on your home screen. Maybe not yours, but globally, Facebook occupies three of the most used apps: Facebook, WhatsApp, Instagram. Facebook messenger is also growing rapidly and soon they will allow money transfers through your account.

Thats like owning three huge blocks of prime real estate in the world’s fastest growing and most valuable city.

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GENIUS– Is it safe to call Mark Zuckerberg a genius yet? Yes, yes it is. In fact, one of the smartest things I think he has done is surround himself with any and all of the other geniuses he can find. Either by hiring them, or acquiring them.

When Facebook buys a company like Instagram or Occulus Rift, he isn’t just buying the company. He is buying the people. These are some of the smartest people in the world.

Then, he gives them unlimited resources and more smart people to interact with. This may not always lead to optimal results, but over time will lead to more positive returns than negative. I am literally willing to bet on this.

SMART GROWTH- Zuckerberg, and Facebook, understand the growth model better than anyone. They wrote the book on it.

Step one– Acquire users through exclusivity (college kids only)

Step two– Age up (grow with that demographic and then acquire older users)

Step three– create so much value for users that when you monetize they are too addicted to change.

Step four– grow grow grow.

Facebook and Instagram are both in step four. Most competitors don’t make it past step one. Some make it to step two and start to get offers from Facebook (as part of their step four). Snapchat is a unicorn currently struggling with step three (after turning down offers from Facebook).

I personally think Snapchat will succeed. I think they will find unique ways to monetize and will occupy a space on your home screen for many years.

But I don’t believe this is a zero sum game affecting Facebook. I would be more worried if I owned a television studio like NBC, ABC, CBS. Sure, they held a monopoly on your attention for several decades. But so did Radio and Newspapers.

In the battle for customers, clients and audiences, the fight between Snapchat and Facebook is all for show.

The real fight is for space on your smart phone home screen. Facebook and Snapchat are already there. While other media conglomerates are slow to realize this shift in your attention, companies like Twitter, Instagram, Snapchat, YouTube (google) and Facebook are solidifying their positions and investing in the next ones: Augmented and Virtual Reality.

Oh, and did I mention that Facebook owns Oculus Rift? Currently the biggest name in this space?

Investing in Real Estate Vs. Stocks: Which is Better and Where Do I Start?

Real Estate vs. Stocks: The Final Showdown?

Facebook Question

The problem with answering this question is like asking a person which is better: sports or music? For each individual the answer will vary based on experience, preference and/or internal desires.

Additionally, how broad of a statement this: Which is better: sports or music? Better at what? Better how?

Same goes for Real Estate and Stocks.

Confused yet? Let me explain:

Advantages of Real Estate over Stocks:

Real estate is one of the best, if not the best, ways to build wealth in America. This is due to 2 important factors. Leverage and tax breaks. No other investment option provides these two factors which allows an individual to build wealth faster than any other investment.

But to clarify, these tax breaks and leverage opportunities for the individual only apply to your personal primary residence. Or in other words: your home. However, the term ‘Real Estate’ includes commercial properties, industrial, retail, apartment buildings, in addition to residential real estate. So when someone asks me “Which is better, stocks or real estate?” the first thing I have to do is explain the myriad differences.

  1. Buying your first home
    1. FHA loans 3.5% down payment
    2. 10-20% down payment conventional
    3. Investment properties 20% typically
    4. Mortgage limits, much tougher after 4 mortgages
  2. Buying investment properties vs. trading up your primary residence (2 years)
  3. Power of Leverage
  4. Tax Breaks of Home Ownership (Mortgage Interest Deduction)
  5. 1031 Exchanges.

The same broad confusion goes with stocks.

  1. ETFs
  2. Mutual Funds
  3. Stocks
  4. REITS
  5. MLPS
  6. Index Funds.
  7. Tech Stocks, Retail, Energy, Consumer.
  8. Dividend Stocks vs Growth Stocks.

Advantages of Stocks over Real Estate

To start: you can begin investing in stocks at a much lower cost than real estate. Investing in any type of real estate requires more capital, but with stocks you can open up a brokerage and begin investing with a few hundred dollars.

Stocks are also liquid investments, meaning you can liquify, or sell,  your stock portfolio quickly if you need to. However, this can be both good and bad. In times of panic everyone can liquify. This is why the stock market is more volatile than real estate, meaning it can rise and fall at a much faster rate.

“If the biggest investment you ever make is purchasing your home, then you are doing it wrong.” Your home will be a very large investment indeed, but it cannot be your biggest and/or only investment.

There is no one piece of perfect advice to give, when it comes to starting your investment portfolio, because times change markets, and regions impact results.

For example, the Phoenix Real Estate market is much different than that of New York City. And while I may like certain stocks today that I would adivse others to get into, you may be reading this a year from now and new information may have presented itself to change market conditions and provide better opportunities elsewhere.

This is what makes The Cash Flow Lifestyle such a crucial concept in your path to financial freedom. There are a few guiding principles to live by, thus a lifestyle, but there is no “end all be all” way to live it.

Every major real estate investor I know also has a very large and diversified stock portfolio. Same goes for all the major stock and bond investors I deal with in regards to owning real estate.

There are a few younger stock investors I know that still prefer to rent and stay out of the real estate market, but when I talk to them about why, its usually because they are still waiting on they type of home they want to buy  to become available, and also because their way of life depends on having a large ammount of capital working for them in the market.

Similarly, fix and flip investors I have worked with have so much money tied up in their projects that they have yet to diversify into more liquid investments, like the stock market.

However, keep in mind these are two examples of people still working for their money as opposed to their money working for them. There is money that can be made fixing and flipping houses, but no matter what anyone says, it is very capital and time intensive work. I know.

And for those who argue day-trading is a path to working your own hours and setting your own schedule, this is true if the schedule you want to set for yourself is 8-10 hours a day of studying and researching the markets.

There are easier and better ways to make moey, but society has an obsession with house flippers and day traders. But remember, these are jobs, not passive investment opportunities.

One question I often struggle with is when a  person I have never met asks me what it is I do. This is because I do a lot of different things, mostly looking for market inefficiencies and then capitalizing on them. But this is too much to explain at a cocktail party. The most positive response I ever got were the years I was flipping houses. It was as if I told them I was a cowboy from the wild west.

“Isn’t that dangerous?” They would ask.

“Isn’t that risk?y”

“Do you have your own TV show?”

“Yes, Yes, and no. What I do is too dangerous for TV.”

I am not too proud to admit that there were times I wanted to keep flipping houses just for the mystique that came along with it. Even as margins were dropping and I was working longer hours for less money. But don’t be fooled by the late night infomercials or the scammy-looking Facebook ads.

Even the successful day-traders and home flippers work long hours, spend a lot of time researching, and have a lot of their personal wealth tied up in their investing. Oh, and of all the people I have met who tried day trading and flipping houses, very very few were successful over time. And all of them have at one point or anther lost a lot of money. No successful investor hasn’t.

So which is better: Stocks or Real Estate?

Hopefully I have explained how impossible this is to answer. Remember the analogy of which is better music or sports?

The answer is too subjective.

Athletes listen to music and entertainers sit courtside at sporting events. A good mix of both is best.

Stock investors own homes and a real estate portolio and real estate investors keep liquid assets to fund their businesses.

Finding the right balance is key. But balance is difficult when you are first starting out.

Real Life Advice:

Too many books and blogs out there spend too much time dodging actual advice. Although I spent the last 20 minutes explaining how this question really cannot be answered, let me know explain what I would if I were starting from scratch today:

I am opening a brokerage account (e-trade is what I use) and putting at least 10% of my income into stocks every month. If I am very risk adverse, I am buying Vangaurd Index Fund. If I am more educated and searching for cash flow, I am buying dividend stocks, starting with energy companies followed by REITS. (I am investing in energy companies with a proven track record of growth and dividends. This can include producers, transports and pipelines. I am not investing in new tech like renewables and solar/wind.)

I am also looking to buy my first house, 3 bed 2 bath single family home somewhere close to where I work or maky my living. Depending on the numbers (purchase price, taxes, interest rates, going rents) I am purchasing it as my primary residence to get the best loan and tax breaks out there, and then I am going to rent out the two spare rooms.

After 2-3 years I am going to look for another home and do the same thing. When I move I am going to continue to rent my first home out, but this time all three bedrooms. This only works if the rents are covering all my my expenses, however. So its very important you run all of these numbers and scenarios from day one. It might make more financial sense to put more money down on your purchase, so that your monthly expenses are lower (usually avoiding mortgage insurance premium is your best bet.)

All the while I am putting 10% of my income into the same stocks.

I am going to continue to do this for 10 years. This means after 10 years I should own three houses, and a cash flow producing dividend stream in my stock portfolio. The stock market has most likely risen and fallen 5-25 times during this period.

I didn’t notice though, because I was just focusing on my 10% into stocks every month and looking for my next real estate investment. There are times where I will fund my real estate investments with money or income from my stock portfolio. This is why I have my stock portfolio.

There is no reason that this strategy will not work. If it won’t work in your part of the country then move. If you can’t invest 10% of your income every month then stop spending money on other crap. This strategy does work, but only if you are committed.

This is a 10 year plan that anyone can follow. This was my first ten year plan. It works.

Some mistakes I made along the way that you can avoid, and also advice to adhear to:

Avoid condos. Maybe there is an instance where they make sense, but they will never appreciate as well as single family homes and you are always at the risk of the HOA raising its costs. This cuts into your cash flow deeply and is tough to predict.

Work with people and professionals that have your best interest in mind. Then question why they might have your best interest in mind. Usually only you will have your best interest in mind, which is why you need to invest in yourself.

Never stop educating. If you are in a career, attend every conference, seminar, read every book and watch every youtube clip on your profession. Be the best at it,  most educated and most driven. Become irreplaceable. Become the person people want to follow. Whether you leave companies, careers, it doesn’t matter. You are being paid to learn, so invest a little extra in yourself.

Learn other skills as well. Learn how to write better. Or learn how to make youtube videos. Learn how to understand Facebook or other new technologies. There are hundreds of books on every topic. Read them. Get an amazon kindle unlimited subscription and read ebooks all the time.

Your industry has changed, is changing, and will change much more, in the next 10 years. Be prepared for it. Or better yet, be the reason it changes.

Keep the focus on your why. Sometimes times get tough, stick to the plan. Sometimes times get really easy. Stick to the plan. Sometimes you get so tied up in your sucess and achieving goals you may forrget why you are working so hard in the first place and instread just work hard to get better or to beat your competition. Remember your why.

So Real Estate vs. Stocks, which is better?

They both are.

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The End of The 6 Year Bull Market? And Which Stocks To Keep An Eye On

Don’t look now, but we are in the midst of a 6 year bull market. What does that mean? Stocks have been rising for 6 years straight. Have you noticed? Has anyone noticed? Does the economy feel strong?

On the ground floor, the short answer is no, the economy does not feel strong. But maybe thats because we forget how weak it was just 6 short years ago.

In the heart of the recession (they say when your neighbors lose their jobs its a recession, but when you lose your job its a depression) the US Government did what governments always do, and that is print money and then print more money. In this case they introduced QE 1, QE 2 and then QE Infinity.

Long story short, during the real estate debt bubble, big banks were leveraged to the hilt (borrowed over $30 dollars for every $1 they had). This led to inflated prices because money was easy to borrow and everyone wanted to buy the same things. More money + Low Supply = High Demand, or high prices (ALWAYS followed by increase in supply for people chasing more dollars).

We all remember what happened. We thought the economy would improve forever, until it didn’t, and then we thought the economy would never recover, and then it did.

Now we are here.

The question you need to ask yourself, has all the printing of money fixed the problem, delayed another problem, or created a new problem. Basic economics teaches us about supply and demand. When there is low supply, this creates a high demand. When there is high demand, suppliers rush to create more supply. Its in human nature, or in economic terms, when rational agents act in their best interest, booms and busts are inevitable.

If you follow Warren Buffett, you are familiar with his mid-west charm, and ability to make complicated matters seem simple. 2 important phrases come to mind.

1. “Be fearful when others are greedy, and greedy when others are fearful.”

2. “Rule #1, never lose money. Rule #2, see Rule #1.”

So who is being greedy right now? Well, do you think Uber is worth $41 Billion? Is Snapchat worth $15 Billion? An Pinterest worth $15 Billion?

Maybe they are? But maybe they aren’t. And here is why: Investors are back to valuing companies on user eyeballs and future revenue. This never ends well.

Who else is being greedy? Ask Mark Cuban about the inevitable collapse of the college education system. 

And maybe you are thinking, “so what, that doesn’t affect me.” But lets say worst case we are in another tech bubble, fueled by 8 years of low interest rates. These investors aren’t paying cash when they are investing in these companies at high valuations, they are borrowing it from somewhere.

If these investors lose money on bad investments, credit will tighten up, and margin calls will be made to collect on bad debts. Most of these margin calls will force investors to sell their stock in companies that aren’t struggling, usually in high volume.

This causes strong and healthy companies to have their stock prices fall, or as Mr. Buffett would say, “Mr. Market is on sale today.”

When this happens you will be ready. Now get ready!

Take a look around and keep track of stocks you want to buy. What would you buy if it were on sale?

Here is one I particularly have an eye on:

Disney:

If you have a child, or know someone who does, you have probably heard about this thing called Frozen. Well, it has made Disney a lot of money, so of course Frozen 2 is right around the corner. But this is just a fraction of why Disney is a great company to own.

Espn, owned by Disney, was one of the first to realize how important live content is. In the world of Twitter, no one records a sports game to watch later. While millenials keep ‘cord-cutting’, the one thing holding many back is live sports, or ESPN. Even with the high costs of securing the rights, advertising during sporting events keeps rising.

Additionally, as more and more people start cutting the cable cord, content is king. And more than ever. Netflix is a great company, and has a huge head start. But what makes me nervous about Netflix is all the competition it still faces, and how one wrong move can set them back a few years. So far they have made all the right moves, but with Hulu, Amazon Prime, HBO Go, I really cannot predict what the future of content delivery will look like.

What I can predict is that how ever the content is delivered, CONTENT IS KING. And no one has access to more content over the next decade than Disney!

In addition to pumping out remakes of fairy tales, new cartoon movies and sequals, Disney essentially owns not only every comic book movie (Iron Man, Avengers etc) but Freaking Star Wars!


This movie doesn’t even need to be good to make a gazillion dollars (my estimate). First they will be in the theaters, then on movie channels, then maybe Netflix, Hulu or HBO. Who knows? So instead of betting on who may win the highly competitive content delivery game, just bet on good content for the time being.

At this writing, Disney trades around $105 with a P/E Ratio of 23. Historical averages of healthy companies are around 16. Traders have a saying “Buy at 10, sell at 20” which refers to a companies PE Ratio (Price to Earnings).

Depending on your time horizon, Disney is still a tough company to not want to buy even at a PE of 23. But if we see a correction and Disney falls… well you know what I would do.

Also on my ‘Watch List’ should stocks go on Sale:

Nike and Under Armour: Both of these are in essentially the same markets, so if one does well they both will. There is an increase of health awareness and fitness throughout the US and everyone knows the first thing you need to do before you go back to the gym is buy all new clothes.

Additionally, both are heavily involved with basketball and the NBA in general. Under Armour was especially smart for jumping into this sphere and locking up the likes of Steph Curry. Basketball is currently the most global sport we have (obviously soccer is number one, but that isn’t an American sport first.)

As the NBA enters new markets, Nike and Under Armour do as well. Domestic growth can remain consistent, but their growth overseas could be exponential. They are, much like Disney, very well run companies will great CEOs. This is important and always something to consider.

Thing sports: the teams that have a culture of winning and continue to win all have great ownerships. Teams that continue to struggle and have a culture of losing… well look at the ownership.

The Energy Sector:

Which ever company succeeds, and which ever country grows, and whether you drive more or less the world is going to need more energy, all the time, every year. Don’t fight it. And right now the energy sector as a whole is on sale!

Oil, Natural Gas and Nuclear. Learn to love it.

Conclusion:

I am not a ‘trader’, I am merely an investor. I do my best to be greedy when others are fearful and fearful when others are greedy. From 2008-2010 I bought as many single family homes as I could. I have purchased Apple every time there was pullback, and then just recently sold a portion when it touched $129. If it drops I will buy more.

I am currently buying US Energy companies, pipelines, and oil and gas producers. I buy more every single week. I do this because I have a list of companies I want to own before I have the money to buy them. Then when I have the money, I already know what I am buying. When I reach the limit, I cross that company off and go on to the next one.

I also own both Nike and Disney, and if stocks go on sale I will buy more.

 

 

 

4 Mistakes Young Investors are Making

Ever since the celebrations at the beginning of the new millennium, investors have had to deal with turbulent markets. For young investors just getting started with managing their money and trying to make it grow, the experience of the Lost Decade of stagnant stock-market returns and the 2008 recession’s impact on the entry-level job market have combined to make it even harder for those just beginning their careers to get employed at all — let alone get a good enough job to be able to invest.
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