The Exceptional Wealth Accumulation Ideas and Thinking Thread

[matty2.0]

Wanna know my "Exceptional Wealth Accumulation Idea?"

Save your money more, and don't spend it on luxurious items.
Get rich slow.

 

[tech/a]

Not sure about that, as Governments have and are distorting the markets at the moment with stimulis, and qaunt & algo traders are distorting the equity markets? It's all about getting on the right gravy train or insider? As long as Big Kev keeps pumping then the freak show will continue. What happens when the music stops is where the big money will be made ie extreme wealth? Go short....

No my charts actually showing 2 bars--literally.
My data is currently corrupt and cant fix until I get a history disk!

I wasn't being cryptic

 

[matty2.0]

Regarding inflation ... I can see where you're all coming from, but there are arguments against too. What makes you so sure that we'll have massive inflation?

The only big reason why people think we're gonna have inflation is b/c the US is printing their bills.
However here's the thing;
- not every country in the world has zero interest rates and is printing ... it's an American phenomenom. Aussie rates are at 3% ... and rba looking to increase if prices get out of hand.
- and two, Japan never experienced any inflation after their "quantitative easing" programs in the 90s, infact they experienced further deflation after all the money they printed.

you can bet on your gold but there's huge downside risk given how far it's run up.

 

[Ato]

- and two, Japan never experienced any inflation after their "quantitative easing" programs in the 90s, infact they experienced further deflation after all the money they printed.

As far as Japan vs the US go, there were some fundamental differences between the position Japan was in and the position the US is in with regard to QE. Imho about the only similarity between the two places is that they used QE. Here is a link to get you started on reading:
http://www.financialsense.com/editorials/lee/2009/0702.html
After you can search around for various articles on the web, or in books that go into more detail.

As far as Oz, I dunno. Again, it's in a very different place to either Japan or the US. At a very rough and newbie guess I'd say Oz will continue to have strong growth, which I guess means a bit of inflation. But very different from the US may go through. Dunno?

 

[So_Cynical]

Regarding inflation ... I can see where you're all coming from, but there are arguments against too. What makes you so sure that we'll have massive inflation?

The only big reason why people think we're gonna have inflation is b/c the US is printing their bills.
However here's the thing;
- not every country in the world has zero interest rates and is printing ... it's an American phenomenon.

The Europeans are printing to...and the whole 1st world is borrowing, well except the
Chinese and Japan....anyway the debts will have to be somewhat inflated away, there's
just no other road to go down.

Now back to the exceptional Wealth Accumulation Ideas and Thinking.

 

[beerwm]

First of all, GREAT thread tech/a.
-weatlh of knowledge

Yes you CAN do this.
And no its not gambling.

lets say I buy a 10c stock with a 1c risk.
It trades to 13c I raise the stop to 10.5c I now have NO RISK.

More later.

wow, i cant believe no one called you out on this;
you have 13c - SL ( 10.5 ) = 2.5c risk.

-saying you have NO RISK, in this circumstance is just a mind game you are playing with yourself.

---------

I'm aware most equate leverage to increased RISK.This is just plain wrong.

did you mean, the ratio of Reward:Risk remains the same,

eg 5:1 x2(leverage) = 5:1

---------

duplication I believe is a great point you meantioned-

exposure is the term i would use,

great stuff,

 

[Mr J]

wow, i cant believe no one called you out on this;
you have 13c - SL ( 10.5 ) = 2.5c risk.

There was one just after his post. Not only is the profit at risk, there was an initial risk of 1c.

I didn't address leverage, but I also disagree with it. Increased leverage brings increased risk unless the amount risked remains static, but all that would serve is to magnify the movement with potential drawbacks.

Example, I trade 1 SPI contract risking 10 ticks. If I leverage to 5 contracts then my risk becomes 50 ticks. To maintain my initial level of risk I must drop down to risking 2 ticks per contract, for the initial 10 ticks of risk overall. I don't gain anything by using leverage (in fact it may hurt me, as the 10 ticks will probably outperform the 5x 2 ticks ), and I still leave myself open to the 'black swans' (such as stops not triggering, broker going down etc).

I believe leverage is really only used for two things:
1. To minimise the amount needed for a trade/account, allowing simultaneous trades or investments, to use otherwise unused funds.
2. To magnify movement, allowing a move of x size to become meaningful. Effectively boosting volatility artificially. E.g. I may usually trade 10 tick moves, but 200% leverage allows me to trade 5 tick moves for the same profit.

 

[beerwm]

I dont think the use of leverage in itself should change a system's dynamics

-ie, just magnify losses/gains; - allow greater exposure.[even diversification]

Ofcourse the availibility of leverage can lead to the creation on shorter term systems - which make smaller moves meaningful,

-which i think you were getting at;

just found tech/a's comment intriguing

 

[MR.]

I'm moving to Hong Kong to earn Chinese Yuan before they pull their fingers out of the dyke and the flood gates break open.

What do people think about buying the Yuan ..... Will their currency be worth a lot more in 5 years time than it is today? I am tempted to use a bit of capital to but the Yuan now.

Ahh the Yuan..... Not easily purchased though..... However, I bet the Yen strengthens with any strengthening of the Yuan. Holding the Yen is also government guaranteed. There's a bit of a build up behind that Chinese finger, yes, but they're hardly going to remove the finger on purpose with their faces so close. So in the mean time wonder how much stronger the AUD will become?

So cash is now king in Yen at 0% interest?

 

[MRC & Co]

However, I bet the Yen strengthens with any strengthening of the Yuan.

Why?

 

[Mr J]

I dont think the use of leverage in itself should change a system's dynamics

-ie, just magnify losses/gains; - allow greater exposure.[even diversification]

Ofcourse the availibility of leverage can lead to the creation on shorter term systems - which make smaller moves meaningful,

-which i think you were getting at;

just found tech/a's comment intriguing

Yep, magnifiy the smaller moves. Even then, if the risk size is kept consistent, our risk is still really larger since our stops and exit are not completely secure. If they don't execute for some reason, we're exposed to greater losses.

 

[ducati916]

Regarding inflation ... I can see where you're all coming from, but there are arguments against too. What makes you so sure that we'll have massive inflation?

The only big reason why people think we're gonna have inflation is b/c the US is printing their bills.
However here's the thing;
- not every country in the world has zero interest rates and is printing ... it's an American phenomenom. Aussie rates are at 3% ... and rba looking to increase if prices get out of hand.
- and two, Japan never experienced any inflation after their "quantitative easing" programs in the 90s, infact they experienced further deflation after all the money they printed.

you can bet on your gold but there's huge downside risk given how far it's run up.

matty

First, the current policies will need to remain or continue to expand. Should the Federal Reserve change course and start withdrawing the created liquidity, then an inflation might be avoided. That potential window of opportunity is fast closing currently.

Currently, we are still seeing Bank failures amongst banks deemed too small to save. This while patently unfair, is simply what really should have happened to the larger failures that have been propped up, Citi et al.

Eventually the bank failure rate will slow and end. At that point we will be left with healthy banks that survived on their own merits, primarily the smaller regional banks and the large, artificially saved money centre banks that are puppets of the Federal Reserve, itself a puppet of government.

Capital will be assigned to the relatively more profitable stages of production. Unless we continue to see sustained voluntary saving from the consumer, that area will be consumer goods. Even in a heightened saving environment, consumer goods will be relatively more profitable.

That being the case, we should expect in the future to see some increase in employment within this sector.

Within the initial data series we can see that retail/food sales dropped significantly. While the employment picture was also bad, it has held up relatively well when compared and contrasted within two capital goods intensive industries, consumer durable goods and mining.

Profits, while they may well be diminished within consumer goods, will remain higher relatively than they are in capital intensive industry due to the tighter credit conditions imposed by the banking sector. Labour will relative to capital become cheaper. Thus, the increased profitability of the consumer goods will attract a relative expansion in this sector, and a severe contraction in stages of production furthest from consumption.

The outcome will be a gradual absorbtion of inventory levels, which currently are still high. This high inventory level will cap currently any inflationary pressures within the consumer goods.

We can see from the PMI data however that purchases are starting to pick-up from the plunge initiated from the credit freeze-up.

As this trend continues, we will hit a snag. Productivity will have been hamstrung via the poor choices manifested via the manipulated interest rates. The demand will start to exceed the supply, thus prices will start to rise to reflect this imbalance. Capital will have been consumed. The productivity cannot just be switched back on. Therefore the shape and depth of productive capability are inappropriate for the emerging and artificially stimulated consumer demand.

The stimulus packages by creating a new and increased money supply underpin this demand for consumer goods. The stage is set for a rapidly escalating inflationary scenario and new problem for the Federal Reserve – whose traditional response is to raise the short-end of interest rates, thus pushing up the long-term interest rates.

Various raw commodities also act as consumer goods, viz. oil [coal, gas] that produces petrol, electricity, heating etc. In an inflationary environment, they will maintain their exchange values, thus matching and in another potential speculative frenzy, possibly exceeding [again] real exchange values.

In summary, inflation always is insiduous, markets are always hyper. That there is little detectable inflation currently, although it is already there in some commodities – oil, agriculture, it has not yet invaded the public domain in CPI based calculations. Due to forces already in play, launched via the Federal Reserve and government, these forces are set to increase.

For associated charts: http://leduc998.wordpress.com/2009/07/05/where-will-the-inflation-manifest/#respond

jog on
duc

 

[ducati916]

No , Just price levels with different probabilities,,

And in reference to the popular press sentiment
( Bit wary of the visibility of the Gold theme all the rationales )

Smaller scale chart 50 pt

Just focusing on the "correction" from the high

I note the actual shape of demand and supply
and where the volume is

Positions are being taken
A zone of expectations is here

Lows seem rejected

IF price accelerates from this "High Pressure" system

then



Low risk is as the train leaves the station..

Differences of opinion
build the stations and the destinations

Value itself is slippery

Too much of the expected "fundamentals" are just linear projections

motorway

motorway

So your probabilities exceed the 50/50 probability, or stated another way, random outcome?

Herein lies one problem with technicals. Their existence without a fundamental context, pretty much always boil down to random, as that is the only way you can get paid.

Value in gold is subjective which I am using in a fundamental analysis context. Thus, at these levels of $900oz, fundamentals are not providing much if any insight. The same could be argued at any price level.

However, if we add to our subjective analysis, an additional objective metric then, at certain levels, lower levels, we can start to offer some probabilities that exceed random. These would be based on the proposition that government will continue to expropriate property, and partake in general theft via inflation.

The problem then is simple. We have seen the last credit expansion collapse. It collapsed so badly, that government has embarked on immediately attempting to expand credit again.

There is no way that I am aware of in which we can subjectively, objectively measure an accurate price for gold currently. Further, it is near impossible to state that gold is either fairly valued, or, conversely overvalued.

We are left with T/A which is random.

Thus, in the context of this thread, which is the recognition [early] of new trends and the capitalization thereof to create wealth, is gold, for the newer trader, an appropriate vehicle?

jog on
duc

 

[ducati916]

My aim is to show how (In a practical way) everyone can move away from conventional thinking and FEAR moving toward recognising and placing yourself in a position to take advantage of opportunity----before it becomes opportunity in HINDSITE.

By the application of
(1) Risk mitigation and Control.
(2) Leverage
(3) Compounding
(4) Time
(5) Duplication


Firstly Property (as my database is currently showing 2 bars on a chart!).

Everything you invest in is governed by Supply and Demand,and always on a micro and macro scale.

Its the macro scale we look to be in sync with.
In the 2 times I have caught the Macro scale once in property and once in trading,I had no idea they were coming.
I did know I had to be exposed to opportunity.

Yesterday

Its happened twice in my lifetime where purchasing a fully established home is far cheaper than purchasing a new home.
Where rent exceeds the repayments on the property holding costs.
Even on zero down.
Where demand way outstrips supply.
Where the balance is clearly out of whack.
We can achieve positive gearing today with 50% or more down but at times in your life you'll find Perfect conditions.
Clearly the less down to hold an investment at zero or very low cost the better the investment.

Whilst holding positively geared property I noticed blocks rising dramatically in price and getting smaller!
600 square meters had gone from $80k to $160k in my area.
Commercial Land was $35/ square meter so 4000 square meters was $140K
Clearly there was an in balance Domestic $260/square meter and Commercial $35 Again it was clear
a balance was to return.



Today.

Builders are screaming for work.
Project builders are being offered amazing deals on product.
In SA the average,average building cost was/is around $1000 to $1200 per square meter.
Today Project builders are offering $490 (Single story)-$660(Double story)/Square meter.
I look for corner blocks 1100 square meters or more for a 3 duplex development. 2 will work but you want to be very good.

Land with or without house in my area. Allow $270K
allow 3 Duplex development $92K each land value.
2 story 240 square meters $158K building cost.
45K each for other costs (holding Cost,Sub division,Landscaping) that's $295K each.
Selling for $395K at the low end and $495K at the top end in my area
Its a no brain er.


So looking at the opportunities.
No problems with control---no one else involved.

Risk
"Yesterday"
3 and 4 bed homes were 90-120k with rent of $220/week
Interest 6.5% so it wasn't hard to Positively gear.
By having a larger portfolio its possible to sell off the weaker performing properties
and invest back into those better performing. Exposure can be dramatically diminished.
Rents of course rise and the average is now $300-340/week.
Very large drops in the market price can be sustained as can considerable increases in
interest rates.

More importantly what about "TODAY!"?

I like 3 or more dwelling developments.
with 20% down initially finance isn't an issue.

270K less $50k initial outlay at say 6.5% for ease of calculation
gives an initial holding cost of $14,300 a year.
Other costs will amount to around 40K if your sub dividing.
Plus of course building costs.
I have standard designs from my builder ready for application.
I also have a performance clause with liquidated damages if not adhered to.
As soon as the approval is granted I place the development for sale.
I only want to sell 2 and I work on an option to purchase after 14 mths
to minimise capital gains tax. I'll keep 1.

Clearly you can see after 1 yr the holding costs and risk are almost zero.
I wont go through the exact figures but hope you see how to virtually
eliminate risk.

We can see pretty easily where we are in cycles.In property we are at in the down trend
stage with many areas in a consolidation stage. If my holding costs are negligible I know that at some
time in the future demand and inflation are going to affect my holdings.I want to have holdings
exposed to these influences WELL before they come into play.

So we can see that we utilize.
Risk mitigation
Leverage
Compounding
Duplication and
Time

tech/a

Everything you invest in is governed by Supply and Demand,and always on a micro and macro scale

For the moment, let's say I agree. How then will you analyse in relation to your example in Property [I assume residential]:

*Drivers of Supply
*Drivers of Demand
*In a micro/macro context.

The example you provide is not an analysis of supply/demand. It is simply an exposition of projected costs and revenues.

jog on
duc

 

[tech/a]

tech/a

Everything you invest in is governed by Supply and Demand,and always on a micro and macro scale

For the moment, let's say I agree. How then will you analyse in relation to your example in Property [I assume residential]:

*Drivers of Supply
*Drivers of Demand
*In a micro/macro context.

The example you provide is not an analysis of supply/demand. It is simply an exposition of projected costs and revenues.jog on
duc

Duc

Its not meant to be.
All I need to know is in MY AREA
(1) Rentals have 30 or so at opens often tenants out bid each other.
(2) Average sale time here is 46 days
I don't procrastinate and analyse a deal to death.
I do it.

I'm just adding carriages to the train.

How people quantify their own investments are up to them----just create your own train!

wow, i cant believe no one called you out on this;
you have 13c - SL ( 10.5 ) = 2.5c risk.

-saying you have NO RISK, in this circumstance is just a mind game you are playing with yourself.

There is going to be nothing life chaging about small gains on small capital bases. We all look at the immediate picture and rarely (Most never) join the ride on the bigger picture.

If I have massive capital on the bigger picture with a maximum downside of as close as possible to B/E then I can allow the bigger picture to play out without stress.

It only has to play all the way out once or twice in a lifetime to PERMIN ENTLY ALTER your life.

Most think Micro
The Money comes from Macro thinking.

 

[beamstas]

wow, i cant believe no one called you out on this;
you have 13c - SL ( 10.5 ) = 2.5c risk.

-saying you have NO RISK, in this circumstance is just a mind game you are playing with yourself.

Risk is what you stand to lose on a trade.
If your s/l is in profit you can't lose any capital on the trade. You are risking open profit but that occurs in any trade.

If you open a position with a $100k account and risk 1% of your account you stand to lose $1000. if you make the stop loss even you stand to lose $0 of your capital, hence no risk.

did you mean, the ratio of Reward:Risk remains the same,

eg 5:1 x2(leverage) = 5:1

---------

No, he means Risk stays the same.

 

[Temjin]

There was one just after his post. Not only is the profit at risk, there was an initial risk of 1c.

I didn't address leverage, but I also disagree with it. Increased leverage brings increased risk unless the amount risked remains static, but all that would serve is to magnify the movement with potential drawbacks.

Example, I trade 1 SPI contract risking 10 ticks. If I leverage to 5 contracts then my risk becomes 50 ticks. To maintain my initial level of risk I must drop down to risking 2 ticks per contract, for the initial 10 ticks of risk overall. I don't gain anything by using leverage (in fact it may hurt me, as the 10 ticks will probably outperform the 5x 2 ticks ), and I still leave myself open to the 'black swans' (such as stops not triggering, broker going down etc).

I believe leverage is really only used for two things:
1. To minimise the amount needed for a trade/account, allowing simultaneous trades or investments, to use otherwise unused funds.
2. To magnify movement, allowing a move of x size to become meaningful. Effectively boosting volatility artificially. E.g. I may usually trade 10 tick moves, but 200% leverage allows me to trade 5 tick moves for the same profit.

In essential, I think that's what he meant. Increased leverage does not necessary equate to higher risk if you can manage your position properly.

If I had the ability to play an account with a leverage ratio of 1000, it does not mean it has to be ultra risky if I can adjust my position size properly. Like you said, with that kind of ratio, I would be able to create more positions and diversify with a less starting capital.

In the old days (at least from the books I've read), a lot of the legendary traders say you need a minimum account size of $100,000+ to trade futures in order to be "economically" viable or to utilise their position sizing strategy properly. It's no longer the same nowdays when leverage has become easily accessible to a lot of retail traders and that commission has been competitively driven down so low.

I guess you know what I mean here since you already mentioned it.

 

[beerwm]

Risk is what you stand to lose on a trade.
If your s/l is in profit you can't lose any capital on the trade. You are risking open profit but that occurs in any trade.

If you open a position with a $100k account and risk 1% of your account you stand to lose $1000. if you make the stop loss even you stand to lose $0 of your capital, hence no risk.



No, he means Risk stays the same.

13c - SL 10.5c = 2.5c - what you stand to lose.

make a million $$ and lose it all... - and tell yourself you've lost nothing.

 

[beamstas]

13c - SL 10.5c = 2.5c - what you stand to lose.

make a million $$ and lose it all... - and tell yourself you've lost nothing.

A stop at breakeven means a no risk trade, tell me how you are going to lose your capital. My 14 year old brother could probably even work that one out.

All trades risk open profit.

If you could get all trades to break even you'd be a squillionaire, because you're not risking any of your capital to trade.

 

[beerwm]

A stop at breakeven means a no risk trade, tell me how you are going to lose your capital. My 14 year old brother could probably even work that one out.

All trades risk open profit.

If you could get all trades to break even you'd be a squillionaire, because you're not risking any of your capital to trade.

capital/open profit;

open your eyes- they are the same thing.