Here’s a story on how an anchor of value helped me hold onto my wealth back when the dotcom bubble burst. I recall that our pension manager was surprised that the investments in the pension I managed rose so much the pension was over funded.
That was the only one of 600 pensions, he looked after, that had not lost value.
The reason Merri and I did not lose during that 2000 panic, nor did we lose in the 2009 panic was our anchor of value. This is such and important investing tool that I am repeating a report I sent at this time last year.
This site just concluded a three part report that showed how the world is investing in a scenario that I don’t think we have ever stumbled across before. Fear is pushing the US stock market higher.
Normally fear pulls markets down and greed pushes them up. Normally fear based appreciation only comes via hoarding… when panic is the ruling emotion.
Merri’s and my secret investing weapon has been a personal anchor of value.
Learn how to get a FREE report, on how to earn and live through good value, below.
See how that anchor helped me buy this manor house in the Cotswold.
This huge, old manor house, built over a century,beginning in the 1700s… had wonderful views and our next door neighbor was Princess Anne at Gatcomb Park. Buying it was a pretty big step for a middle class American from Rockwood Oregon, but I was able to do so due to my anchor of value.
Last year as part of our 5oth year anniversary I was interviewed on an investment webinar and the moderator asked me this question:
There are a lot of real estate investors who have been successful buying, selling and holding real estate in their own backyards. A few have been successful investing in 2-3 markets in the USA.
But it is rare to find a successful real estate investor who has been investing in real estate all over the world.
And even more rare to find a real estate investor who has been successfully investing all over the world for FIFTY (50) years!
You are that guy! What’s the secret?
My secret to freedom has been to use an anchor of value that I developed to invest in American residential real estate. Though I created this anchor in the 1960s it has helped me invest in real estate, stocks, bonds and business around the world to this day.
The philosophy behind this strategy and tactics can be used to create your own anchor for investing in shares, bonds, currencies or commodities as well as real estate.
Let’s look at value first. The anchor helps me understand that I am investing for profit, not to be right.
Based on the “profit rather than pride” principle there are two (and only two) reasons why we invest in real estate. To rent for income or to resell the property for more than we had invested.
Based on this reasoning, there are three ways to spot value in residential property.
#1: The first way to spot value is based on how much NET income can the property generate after taxes, insurance, maintenance and management costs.
#2: The second method is based on relative comparables. Calculate how much similar properties in the area are selling for. Also find out how much similar properties in other areas are selling for.
#3: The third method is to calculate how much a property would cost to replace with new construction.
What is the anchor?
We can build an understanding of residential value by understanding the monthly mortgage payment or rent a buyer or renter can pay. In the USA, for example, the typical bank limit on monthly mortgage payments is about 28 percent of your gross monthly income. Banks generally will let a borrower devote up to 28 percent of their household income in a mortgage payment and expenses (including taxes, insurance and HOA dues).
If there are many families in an area who earn an average of $4,000 a month, then this will be a good market for rentals at $1,000 a month.
This simple formula provides a basis from which all dependable value can be measured. This is the science of the valuation.
Using this approach, years ago, Merri and I have been able to spot dozens of contrasts, distortions & trends in real estate value, everywhere.
An added factor to add into the mix is appeal. You could call appeal the art of the valuation.
Sometimes an investment can be a really good value, but a hard sell. The best investments are underpinned by appealing good value products and services.
Investing in what you know (and enjoy) helps you understand appeal and makes it easier to mesh the art and the science of valuation.
For example, Merri’s and my background have a lot in common. Merri’s formative years were in Georgia and mine in Oregon. There were many differences between these states. Yet as baby boomers we have much in common. We saw the same shows on TV, Howdy Doody, the Cisco Kid, Ed Sullivan, Gunsmoke. Roy Rogers, etc. We read the same books in school such as the Bridge over San Luis Rey, the Red Badge of Courage. We saw the same movies, heard the same radio , listened to the same Golden Oldies, read the same news, the same magazines, so it is not surprising that our tastes are pretty much the same.
The fact we are NOT special gives us the ability to understand appeal. There are 60 million baby boomers who have that same background. This gives us confidence that if we like a house, others will like it as well. This gives us good judgement (from an investing point of view) when it comes to appeal.
Our strategy is to buy houses that appeal to us which have a reasonable potential to return a decent income (and likely appreciate) based on rent in the $1000 a month range.
For example, we recently looked at a nice house just offered and with access to a wonderful lake, 2 bedroom, 2 bathroom, in very good shape with an asking price of $169,000. The house fit the $1,000 profile and because it had a very nice guest cottage as well, meant we could likely charge $1,200 a month rent. Merri and I looked the place over and felt just fine offering $140,000, knowing we could go up to $145,000.
How did we come to such a price?
The math worked like this. The house will rent for $1,200 a month. The rental market is strong and at this price it will rent quickly. That creates an income of $14,400 a year. Our target ratio of price to rent is 10%. We want a 10% cash flow, so $14,400 a year rent justifies a $14,400 price.
First, the area where we are buying is in a bit of a bubble. Prices have started to rise beyond a reasonable expectation of return. We did not think the house would rent for $1,300 or $1,400 a month so we were not willing to rise to the $169,000 price.
We did not get that house. In fact this was the fifth house in a row on which we were outbid. Because faith is vital to successful investing, we need to stick to our strategy, and our strategy is based around that 10% cash flow. That percentage is sufficient to give us a reasonable return on our investment.
Just because everyone else is paying too much for houses, does not mean we should make this error as well.
Anchors of value help us remain logical so we don’t invest in trends that are turning into bubbles. Anchors of value help us avoid giving back profits because we stayed in a trend for too long.
For example, my real estate anchor of value first created in Portland, Oregon in the 1960s helped me successfully understand good real estate trends in Hong Kong, Fiji and London, then the Isle of Man, Naples, Dominican Republic and Ecuador and eventually led Merri and me to invest in Smalltown USA in Mount Dora, Florida.
Real estate has always been in our blood. I do not know why but by the age 21, I had already built a $2,000 windfall into seven duplexes and a house on 14th Ave (mortgaged then to the hilt) in the small town of Gresham, Oregon. I could have continued to buy, sell and rent real estate in Oregon but the wanderlust bug bit me and when I was offered a job to sell mutual funds in Hong Kong, I began to travel throughout Asia.
Owning those duplexes and that house left me with an anchor of value. I understood rents (at that time the 1960s) from $125 in Smalltown USA to $250 a month in cities.
When I arrived in Hong Kong in 1968 real estate rentals were about the same as in downtown Portland.
Fear had created good value in Hong Kong. In 1968 there were communist riots and bombs being set off in the streets. The first day I arrived a motorcycle policeman had his leg blown off by a terrorist bomb. The Chinese army was massed on the border and there were continual talks about an invasion. Hong Kong businessmen were fleeing. Real estate was literally being given away.
Life went on. We all figured out the fastest route to the British and American war ships in the harbor for a quick exit in case the Chinese decided to invade. We watched out for boxes in the street that could be bombs. Then we just got busy with life, working and earning so we could pay our rent.
I rented a huge apartment on Shouson Hill Road overlooking the ocean and the village of Aberdeen. The owner wanted to sell this block of apartments but I had no money or experience then. He was so desperate that he made a deal. Instead of paying him $250 a month rent I invested $250 into mutual funds for him.
Then in 1970 the company I worked for sent me to London to spend a year at its headquarters developing a European sales training program. I rented a nice house near Golders Green tube station on Finchley Road. The rent was the equivalent of $250 a month.
In 1971 I was moved to work in San Francisco and I purchased a home in Petaluma, California.
I bought this house in Petaluma California for $33,000 and assumed a 5% GI mortgage. Payments were about $175 a month.
In 1972 I returned and worked in Hong Kong for another four years.
The early 1970s was a time of serious inflation. During that time I watched the prices and rents of real estate at the duplexes in Gresham, the house in Petaluma, and especially in Hong Kong rise… a lot!
In 1976, when I moved from Hong Kong back to London and noticed that London real estate was priced about the same as it had been in 1970. This puzzled me. Why had London property prices remained flat despite inflation?
On investigation, I learned that there had been a huge real estate crash in 1970 continued to distort and dampen real estate prices six years later despite the rampant global inflation. The British pound had also collapsed dropping 35% versus the U.S. dollar from 2.4 dollars per pound to a new all time low of 1.52 dollars per pound and at one point hit a low of one dollar per pound. To my way of thinking, London houses, which I thought were already very cheap by world standards, just became 35% cheaper.
The house in Bedford Park.
I could not resist and began property shopping and eventually bought a five bedroom house in Bedford Park in West London. I made a 10,000 pound down payment and took a 25,000 pound loan to meet the 35,000 pound asking price.
First, I was right. London property had been under priced. I was able to sell the house four years later for 115,000 Pounds. I made a profit of 80,000 pounds. But the currency change helped enormously too. The pound had risen to over 2.2 dollars per pound. My 80,000 pound profit was now worth $215,000.
I was willing to make this purchase because I could rely on a mental anchor of value… a residential property that a working person could rent in the $250 a month range. I was investing in what I knew and was comfortable with.
Manx real estate came next. In the 1980s I had an offshore corporate formation business and noticed that Isle of Man overseas companies were as good as Jersey and Guernsey structures, but cost less than half. This led me to believe that the Isle of Man would increase in popularity as a financial center. While visiting, Merri and I discovered that a long depression had forced over 2,000 properties onto the Island real estate market (population was only 60,000). We began taking real estate buying tours to the Isle of Man because rents and house prices were so low. Some delegates purchased remodeled beach front condos for $12,000.
Then while conducting a seminar in Florida, we saw that real estate in Naples, Florida was much less expensive than on the East Coast of Florida. Rents in Miami and Ft. Lauderdale seemed really high to us, but Naples prices were much lower. Merri had been living in Naples for some time and found a wonderful old large house just off the beach. We bought it for a song (compared to the price we sold it for!)
Naples prices skyrocketed while we were living there and in 1995 we visited Ecuador. Merri and I saw Ecuadorian beach front lots that would cost two million dollars in Naples that were selling for $5,000. We saw we could buy a house on Ecuador’s beach for a price that we understood and were comfortable with.
A hotel we purchased in Ecuador.
By 2009 Ecuador prices has skyrocketed and Florida real estate faltered. We began selling out our Ecuador real estate and buying again in Florida.
In Florida we saw great rental value. We also wanted to live closer to our children and grandchildren. We knew that studies had shown that 80% of adults 45 and older believe it is important to live near their children and grandchildren. Those 60 million people, just like us, were thinking differently about where they would buy and/or rent a home.
We selected Mt. Dora as a small town to buy rental real estate for numerous reasons, but the first feature was its proximity to our daughter and grandson.
I can look back through this 50 year travel and real estate adventure and see that my decisions and investments have all been linked to that original anchor of value.
We live in a turbulent world and can expect rapid change, hidden agendas, huge shifts in communication. When we are caught in the currents of such rapid shifts, our anchors of value can help us remain steady and secure.
Get the FREE report: How to be of Value – Lead a Life of Freedom and Adventure in Good Times & Bad
Gain From Pandemics – Riots & Election VolatilityOn top of the pandemic… and the riots, another election on its way… all the robo calls from politicians… the dirty tricks and the innumerable amounts of nonsense this vital process brings.
However America’s politics turn out, one thing is sure, there will be volatility in stock markets during the election process.
The first reason markets will bounce has nothing to do with politics or policies. A market correction was due regardless of the party or the person in office and COVID-19 was a pretty good excuse for it to suddenly drop. Expect plenty more volatility. Whether the economy recovers slowly or quickly, history suggests that the US market will do a lot of moving up and down.
Second the new politics has created an uncertain era. Everyone has been shaken over the past three years whether they are pleased with the government or not.
Nothing frightens markets like uncertainty.
What more could we ask for… an uncertain COVID-19 future and riots in 30 major cities.
Well interest rates could be a dark horse. I the massive government handouts create inflation, interest rates will rise and rising interest rates will push stock market prices down.
Despite these pitfalls, there is a way to profit using the strong US dollar and undervalued non dollar stock markets to pick up good value shares.
During nearly five decades of global investing I have noticed found that good value strategies are the best way to profit long term, through good politics and bad. The steps to take are simple.
The first tactic is to seek safety before profit.
We can look at Warren Buffett’s investing strategy as an example. Buffett success is talked about a lot, but rarely does anyone explain how he make so much money. That was the fact until some researchers really stripped his operation bare. They looked at everything and learned the deepest of Buffett’s wealth management secrets. Fortunately they published all in a research paper at Yale University’s website. that reveals important truths about extending wealth.
This research shows that the stocks Buffett chooses are safe (with low beta and low volatility), cheap (value stocks with low price – to – book ratios), and high quality (stocks of companies that are profitable, stable, growing, and with high payout ratios).
The second tactic is to maintain staying power. At times Buffet’s portfolio has fallen, but he has been willing and able to wait long periods for the value to reveal itself and prices to recover.
A 45 year portfolio study shows that holding a diversified good value portfolio (based on a good value strategy) for 13 month’s time, increases the probability of outperformance to 70%.
However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%.
Time is your friend when you use a good value strategy. The longer you can hold onto a well balanced good value portfolio the better the odds of outstanding success.
The Buffett strategy integrates time and value for safety and profit.
A third tactic is using limited leveraging, tactic in the strategy boosts profit. Buffett leverages his portfolio at a ratio of approximately 1.6 to 1. The Yale published research paper shows the leveraging methods used by Warren Buffett to amass his $50 billion fortune. The researchers found that the returns from Buffett’s investment company, Berkshire Hathaway, far outweighed those achieved by any rival that has operated for 30 years or more. The research shows that neither luck nor magic are involved. Instead, the paper shows that Buffet’s success hinges on using leverage at the rate of 1.6.
To sum up the strategy, Buffet uses limited leverage to invest in large purchases of “cheap, safe, quality stocks”. He limits leverage so he can hold on for very long periods of time, surviving rough periods where others might have been forced into a fire sale or a career shift.
Stated in another way buffet uses logic (buy good value) to have the conviction, wherewithal, and skill to invest with leverage over many decades.
What do we do when we are not Warren Buffett?
May I introduce the Purposeful Investing Course (Pi) for those who want to invest like Warren Buffet, but know they are not. This course is based on my 50 plus years of investing experience combined with wisdom gained from some of the world’s best investment managers and economic mathematical scientists.
Enjoy Extending Wealth
Pi’s mission is to make it easy for anyone to create a three point strategy, like Buffett’s even though they do not have a lot of time for or knowledge about investing.
Pi reveals investing secrets and the sciences that make investing easy, safer, less time consuming and increases the chances of profit.
One secret is to invest with a purpose beyond the cash. One tactic as mentioned is staying power. This means not being caught short and having to sell during a period of loss. This also means having enough faith in a strategy that we stick to the plan. When we invest with purpose, doing what we love, we enjoy the process more and are more likely to hold on during down times, when most poor investors panic and sell.
Slow, Worry Free, Good Value Investing
Stress, worry and fear are three of an investor’s worst enemies. They create the Behavior Gap, a trait exhibited by most investors, that causes them to underperform any market sector they choose. The behavior gap is created by natural human responses to fear. Pi helps create profitable strategies that avoid losses from this gap.
Spanning the Behavior Gap
Behavior gaps are among the biggest reasons why so many investors fail. Human evolution makes fear the second most powerful motivator. (Greed is the third.) Fear creates investment losses due to behavior gaps. Fear motivates us more strongly than desire. By nature investors are risk adverse.
Winning investors though embrace risk because they have a plan based on good value.
Purpose is the most powerful motivator, stronger than fear and greed, so a strategy with purpose is the most powerful of all.
Combine your needs and capabilities with good value secrets and the math to back up your value selections through the Pifolio – The Pi Model Portfolio
Lessons from Pi are based on the creation and management of a Primary Pi Model Portfolio, called the Pifolio. There are no secrets about this portfolio except that it ignores the stories (often created by someone with vested interests) and is based entirely on good math.
The Pifolio is a theoretical portfolio of MSCI Country Benchmark Index ETFs that cover all the good value markets using my (almost) 50 years of global experience and my study of the analysis of four mathematical investing geniuses (and friends).
The Pifolio analysis begins with a continual research of international major stock markets that compares their value based on:
#1: Current book to price
#2: Cash flow to price
#3: Earnings to price
#4: Average dividend yield
#5: Return on equity
#6: Cash flow return.
#7: Market history
We follow this research of a brilliant mathematician and have tracked this analysis for over 20 years. This is a complete and continual study of international major and emerging stock markets.
This analysis forms the basis of a Good Value Stock Market Strategy. The analysis is rational, mathematical and does not worry about short term ups and downs. This strategy is easy for anyone to follow and use. Pi reveals the best value markets and provides contacts to managers and analysts and Country Index ETFs so almost anyone can create and follow their own strategy.
A country ETF provides diversification and cost efficiency by spreading one simple, even small investment into a basket of equities in a good value stock market. The costs are low and this type of ETF is one of the hardest for institutions to cheat. Expense ratios for most ETFs are lower than those of the average mutual fund.
Little knowledge, time, management or guesswork are required. The investment is simply a diversified portfolio of good value indices. Investments in an index are like investments in all the shares of a good value market.
Pi matches this mathematical certainty with my fifty years of experience. This opens insights to numerous long term cycles that most investors miss because they have not been investing long enough to see them.
For example in the 1980s, a remarkable set of two economic circumstances helped anyone who spotted them become remarkably rich. Some of my readers made enough to retire. Others picked up 50% currency gains. Then the cycle ended. Warren Buffett explained the importance of this ending in a 1999 Fortune magazine interview. He said: Let me summarize what I’ve been saying about the stock market: I think it’s very hard to come up with a persuasive case that equities will over the next 17 years perform anything like—anything like—they’ve performed in the past 17!
I did well then, but always thought, “I should have invested more!” Now those circumstances have come together and I am investing in them again.
The circumstances that created fortunes 30 years ago were an overvalued US market (compared to global markets) and an overvalued US dollar.
The two conditions are in place again! There are currently ten good value (non US) developed markets, plus 10 good value emerging markets.
Pi shows how to easily create a diversified, worry free portfolio in some of these good value markets using Country Index ETFs.
The current strength of the US dollar is a second remarkable similarity to 30 years ago. The dollar rose along with Wall Street. Profits came quickly over three years. Then the dollar dropped like a stone, by 51% in just two years. A repeat of this pattern is growing and could create up to 50% extra profit if we start using strong dollars to accumulate good value stock market ETFs in other currencies.
This is the most exciting opportunity I have seen since we started sending our reports on international investing ideas more than three decades ago. There is so much more to write and the trends are so clear that I have created a short, but powerful report “Three Currency Patterns For 50% Profits or More.” This report shows how to earn an extra 50% from currency shifts with even small investments. I kept the report short and simple, but included links to 153 pages of Good Value Stock Market research and Asset Allocation Analysis.
The report shows 20 good value investments and a really powerful tactic that shows the most effective and least expensive way to accumulate these bargains in large or even very small amounts (less than $5,000). There is extra profit potential of at least 50% so the report is worth a lot.
This report sells for $29.95 but you’ll receive the report “Three Currency Patterns For 50% Profits or More” FREE when you subscribe to Pi.
Pi also explains when leverage provides extra potential without undo risk. For example in 1986 I issued a report called “The Silver Dip” that showed how to borrow 12,000 British pounds (at almost 1.6 to 1 dollars per pound the loan created US$18,600) and use the loan to buy 3835 ounces of silver at around US$4.85 an ounce.
Silver had crashed, I mean really crashed from $48 per ounce. As prices decreased from early 1983 into 1986, total supply had fallen to 449.7 million ounces in 1986. Mine production was restricted by the low prices at this time, with silver reaching a low for this period of $4.85 in May 1986. Secondary recovery also was constricted by these low prices.
Then silver’s price skyrocketed to over $11 an ounce within a year. The $18,600 loan was now worth $42,185.
The loan was in pounds and in May 1986 the dollar pound rate was 1.55 dollars per pound. So the 12,000 pound loan purchased $18,600 of silver. The pound then crashed to 1.40 dollars per silver. The loan could be paid off for $13,285 immediately creating an extra $5,314 profit. The profit grew to $47,499 in just a year.
Here’s how you can create your own good value strategy.
I would like to send you, on a no risk basis, a 130 page basic training course that teaches the good value strategy I use. You learn all the Pi strategies, what they are, how to use them and what each can do for you, your lifestyle and investing.
You also begin receiving regular emailed Pifiolio updates and online access to all the Pifolio updates of the last two years. Each update examines the current activity in a Pifolio, how it is changing, why and how the changes might help your investing or not.
You also receive a 100+ page PDF value analysis of 46 stock markets (23 developed markets and 23 emerging stock markets). This analysis looks at the price to book, price to earnings, average yield and much more of all 46 markets.
This year I will celebrate my 52nd anniversary of global investing and writing about global investing. Our reports and seminars have helped readers have better lives, with less stress yet make fortunes during up and down markets for decades. This information is invaluable to investors large and small because even small amounts can easily be invested in the good value shares we cover in the Pi course.
Time is your friend when you use a good value strategy. The longer you can hold onto a well balanced good value portfolio, the better the odds of outstanding success.
A 45 year portfolio study shows that holding a diversified good value portfolio (based on a good value strategy) for 13 month’s time, increases the probability of out performance to 70%. However those who can hold the portfolio for five years gain a 88% probability of beating the bellwether in the market and after ten years the probability increases to 97.5%.
Subscribe to the first year of The Personal investing Course (Pi). The annual fee is $299, but to introduce you to this online, course that is based on real time investing, I am knocking $124.50 off the subscription.
Enroll in Pi. Get the basic training, the 46 market value report and access to all the updates of the past two years, plus all new updates over the next year.
I guarantee you’ll learn ideas about investing that are unique and can reduce stress as they help you enhance your profits through slow, worry free, easy diversified investing.
If you are not totally happy, simply let me know in the first two months for a full no fuss full refund.
You have nothing to lose except the fear. You gain the ultimate form of financial security as you reduce risk and increase profit potential.
Due to the COVID-19 pandemic we have cut the subscription to $174.50. You save $124.50!
Then because this global recovery from the pandemic is going to take years, we’ll maintain your subscription at just $99 a year rather than $299. Your subscription will be autorenewed in 2021 at $99, though you can cancel at any time.
Subscribe to Pi today and you get a year’s subscription to Pi now, get the 130 page basic training, the 120 page 46 market value analysis, access to over 100 previous Pifolio updates, plus begin receiving regular Pifolio updates throughout the year.