How I Made $150, Lost $200, and Re-learned a Valuable Lesson

The following is by Tony Chou, who runs an investment blog where he shares his thoughts on the financial markets. Image via Wikipedia It all started in early 2011. As regular readers might know, I had an SLV position back then. I was bullish about silver, and heavily long. I was also interested in seeing how buying physical silver (in the form of bullion bars) would work. So I went to the nearest coin dealer, and bought 10 ounces of .999 silver, just to see what it was like investing in real silver that you can feel. So I bought it at – I think silver was at $30 an ounce back then. Here’s what happened. 1 – Silver was at $30 an ounce in Febuary 2011, but they charged me $35 an ounce. That’s a 17% markup. So right away, I just lost 17% on my investment. 2 – Silver starts getting really hot. This was early April 2011, and everyday, silver was setting a new high. This was when silver crossed the $40 an ounce barrier. 3 – I considered selling my 10 ounces. I was already almost 100% out of my SLV position. I went to the dealer, and asked them, on the spot, how much they would pay me for my 10 ounces. “Oh, just 10% below the spot price.” Just great. Not only did they charge me 17% when I bought it, now they’re also charging me an additional 10%. Percentage wise, this investment is starting to get expensive. 4 – As April drew to a close, it seemed like there would be no end to the silver bubble. While my real portfolio was sitting on the sidelines, just looking at the markets, my 10 ounces of physical silver was still gaining in value. A tiny bit of comfort at least. 5 – I got somewhat caught into the silver bubble. I was thinking “hell, how far can silver fall?” 6 – And we all know what happened after that. Silver fell from $49 an ounce to the mid-30s. So from $35 to $49, I made almost $150 on those 10 ounces. And now that silver has drifted to almost $30 an ounce, I lost $200 from my peak. So what has this taught (or rather, re-taught) me? Never, ever get caught up in a bubble. Every time, it will seem like there’s no end to the bubble. Every time, you will have the “how far can my investment, if it does fall, fall?” A great line from a famous investor is “The more markets move in one extreme, the faster and harder they will move in the other extreme.” The greater the bubble, the scarier and faster it’s bursting will be. Never buy physical gold or silver as an investment! Absolutely the worst idea ever. Ever. For one thing, you can’t go short. For another, the bullion dealers charge a huge markup. [Kevin] Personally I have a bit of gold bullion, which I consider as a longer-term investment and alternative to holding cash. Otherwise I agree with Tony — physical isn’t for short-term trading or chasing bubbles! This was a guest post by Tony Chou, who runs an investment blog where he shares his thoughts on the financial markets.

How to Find the Home of Your Dreams

Image via Wikipedia I moved into my first home with my girlfriend in January, this year. We had been looking for a place for nearly a year before that, and there were many questions that came to mind as we were searching: What is the area like? What will the commute be like? Will we be able to afford it? Purchasing our first home was definitely no small feat. We spent a lot of time looking at different properties and I even talked to a buyer’s agent (who I found through another blog, funnily enough) about properties. We looked at condos, small homes, and we even considered a duplex so that we could rent out the other section. When we first started shopping, I thought we’d look at different places, eventually fall in love with one and decide to go for that. The reality was actually somewhat different! We ended up striking off one place after the other because they didn’t meet one of our criteria, even if we did like the place. Eventually we were left with just a few choices, picked the best choice, and we’ve been happy since then. Find an area that you’ll be happy with. We looked at all sorts of areas: Downtown, the suburbs, new areas, old areas, hipster areas, gentrifying areas, and regular middle-class neighbourhoods. Here are some areas that we considered, but ultimately decided against: Downtown The good side of living downtown is that you have convenient access to the universities and a short commute to work (if you work downtown), and there are tons of restaurants, cafés, and shops. Downtown is where things happen. The downside is that the property prices are sky high, and the taxes are extortionate. Living downtown means you will be up to your neck in expenses, and you will be tempted to go out and spend with all of the shops and stuff around. In the end, I was firmly against living downtown because the marginal advantages of a slightly shorter commute did not make up for the added expenses. I don’t go out all of the time, and downtown is not that far away for the festivals and stuff, anyways. The outer suburbs The advantage of the suburbs is that property prices are more relaxed than in other areas, though you would be surprised with the high housing market that we have up here in Canada. The greatest downside is that depending on where you live, the commute can be an absolute nightmare. My grandmother lives in a suburb that is perennially gridlocked, even on the weekends! I’d hate to live in a place where everything requires a long car-trip and is a nightmare to get out during the working day just so I can save a couple hundred bucks a month on the mortgage (that I will be paying back in additional car maintenance, repairs, and trips to the shrink to deal with the added stress!) Not all suburbs are the same though, and some areas may have just enough added quality of life and a decent enough road network to make up for it. It also depends on if you have kids or not, which we don’t at the moment. The hipster areas We also looked at new developments in gentrifying areas as well as older properties. The interesting thing here is that if you get a duplex, you can rent out the other unit and get some help on paying down the mortgage. This could be a rapid route to accelerating your net worth. The problem is that it’s already a bit too late for this strategy. Prices in these areas have skyrocketed, and you may be paying sky-high prices to live in a run-down building that’s 80 years old and needs a lot of work. At the same time, these areas might be close to downtown, but don’t always have a well-developed local economy or public transportation network due to their history as industrial areas or working-class neighbourhoods. The ones that have developed a local economy are even more expensive, with property taxes to match. Some of these areas are also somewhat dangerous, and I find it a bit strange to see affluent new projects next to areas that are known for gang activity, drug abuse and prostitution. We ultimately decided to live in a new condo, in the inner suburbs. After crossing off all of the alternatives, we decided on a new condo project in the inner suburbs. The building is conveniently located next to a subway station and a university, and because of the subway there is a flourishing local economy and the area is rapidly developing. At the same time, the area is in the middle of an older suburb so it is still relatively quiet, and there are parks and greenery in the area. I am only a 20 to 30 minute ride from downtown, yet the prices and property tax are already significantly lower. We are still paying more than I would have preferred, but we are also staying within the 33% rule. Even though the mortgage is large, we save a lot of money by not having to buy a second car and driving only on the weekends. We also save a lot of time in not having a yard to rake, a driveway to shovel, etc…. and since we both work and we both study on the side, this is a huge timesaver. The biggest downside is probably the fact that we are surrounded by highways in all 4 directions, so the area is noisy. With the windows closed it’s not that bad, but the trucks can still be heard. There is also no visitor parking and the city is making some ill-conceived “traffic calming” changes to the local road network that make it a real pain to get in and out. The good thing is that I don’t drive during the week, so I don’t have to deal with most of the hassle. The other downside is that while the area is solidly middle-class and student, some strange things have happened recently: someone was pushed off the balcony of a neighbouring apartment by his girlfriend a couple years back, and he fell to his death. A construction worker was found dead in the middle of the night at our very own building during construction, and of course we found that out after we had already signed. There are also other things that I’ve heard about, such as a rape in the neighbouring parking lot, and those massive unlit highway pillars seem like the perfect place to conduct a shady deal in the middle of the night. My imagination is probably getting carried away though, and I feel very safe in this area. I love the easy commute, easy maintenance, and affordable prices in contrast to downtown which is only a few kilometers away. Make sure that you can afford it. Ultimately, you have to make sure that you can afford it. We were in love with a condo downtown before we decided to go for the one we live in now, but the place was expensive. Just one parking space cost almost $50,000. We would have been paying thousands of dollars more in property taxes and fees, and we wouldn’t have had the view that we do now. We also would have been in pretty much the worst unit in that building, while now we’re in one of the best units in our current building. The building is also in a gentrifying area, but also an area that is host to massive festivals, with all the garbage and noise that brings. At other times of the years, there are also prostitutes and punks just a short distance away. It’s interesting to see that when you pass through downtown, but having to live next to it is another thing, especially if you have to pay a fortune to do so. My own rules for making sure that you can afford it are pretty simple: First, ensure that you are following my 33% rule. This helps to ensure that you avoid becoming house poor. Also ensure that you have at least 20% down. That way, you won’t have to pay a surcharge for mortgage insurance. It’s been more than a year since I last wrote about it, but you can check out my thoughts in “Purchasing Your First Home: Questions and Decisions to Consider“. That was written long before we had moved into the place. Almost a year and a half later, I’m still happy with the decision overall. Good luck on your next home purchase!

Invest It Wisely: Gain Time And Money Through Outsourcing And Trade

Image by cseeman via Flickr I have a guest post up on the Yakezie today, titled “Gain Time And Money Through Outsourcing And Trade”. It’s about the advantages we all gain when we trade with each other and specialize at the things we are good at and enjoy. When I started out blogging, I was taking care of everything myself. I was writing 2-3 posts a week, submitting to carnivals, writing up weekend editions, guest posts, hosting carnivals, etc…. I was working a full-time job, and I had school on the side for at least half of the time, so the bit of time I had left was split in many different ways. There've been a few points when I nearly approached burnout in my short blogging career. I remember seeing the visitor count and subscriber count stay stagnant, day after day, and I remember being stuck at PR 0 for the longest time when Google wasn't making updates! It was a little frustrating to see, and I wondered why I was spending so much time on something that didn't seem to be going anywhere. One of the reasons I was approaching burnout is because I simply had too many tasks on my plate. There are parts of blogging that I really enjoy, such as writing and interacting with the readers, but I'll be honest with you: I'd rather listen to screeching nails on a blackboard than submit my posts to a bunch of carnivals, week after week after week. I simply find it a chore, and it's when you don't enjoy something that you are at risk of burnout.

Invest It Wisely: Happy Thanksgiving!

Image via Wikipedia For my American readers to the south, happy Thanksgiving! (We celebrated it more than a month ago here in Canada, because it is simply too cold at this time of year. There is already snow cover on the ground now.) What are your plans for this Thanksgiving weekend, and Black Friday? I don’t think we have a Black Friday up here, but we do have Boxing Day, which is the day after Christmans when the stores get absolutely jam-packed.