The Most Influential Book I’ve Ever Read

Richest Man in Babylon by George Samuel Clason

I read this book when I was 15, and it changed my perspective on finances ever since.

I won’t give away all the juicy stuff, just in case you haven’t already read this book full of “golden” personal money management wisdom. This is a financial education book, written in 1926, and the story is based in the times of ancient Babylon.

The wealth of knowledge in this book, even as it relates to ancient Babylonian citizens (and the fact that it was written in 1926), it is very applicable to the financial obstacles we face today.

This book is made up of fictional characters that inquire upon their wealthy friend about his secrets to amassing such a fortune. And it is then, the financial wisdom starts to pour all over the pages in parables, short stories, and priceless quotes bursting with simple brilliance.

It’s a quick read, only about 150 pages, and the knowledge you’ll gain from it will put into perspective just how simple money management really is. There’s no dazzling tips or tricks in this book, just old fashioned saving, investing, protecting and multiplying.

I highly encourage everyone to read this book if you haven’t already, it is a timeless masterpiece that has become ever more resourceful in it’s straightforward and uncomplicated approach to personal money management, especially this day and age. Give it to your kids, as my dad gave this book to me, and plant a seed in their minds that will ensure a financially prosperous future.

Here are some really awesome “Babylonian” financial wisdom excerpts from the book:

 

Start thy purse to fattening

         Control thy expenditures

Make thy gold multiply

    Guard they treasures from loss

             Make of thy dwelling a profitable investment

                Insure a future income. 

                     Increase thy ability to earn.

 

The 5 Laws of Gold – From The Richest Man in Babylon

  1. Gold comes gladly and in increasing quantity to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family
  2. Gold labours diligently and contentedly for the wiser owner who finds for it profitable employment, multiplying even as the flocks of the field
  3. Gold clings to the protection of the cautious owner who invests it under the advice of men wise in its handling
  4. Gold slips away from the man who invests it in business or purposes with which he is not familiar or which are not approved by those skilled in its keep
  5. Gold flees the man who would force it to impossible earnings or who follows the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment

wealth-like-a-tree-grows-from-a-tiny-seed-quote-george-s-clason

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Investing Like Warren Buffett w/High Dividend Emphasis

The most successful investor in history has some very solid, fundamental and simple guidelines for the way he chooses stocks. I plan to implement the same guidelines with an emphasis in seeking high dividend stocks.

 

I’ll use 5 rules that Mr. Buffett uses, and add my own high-yield investor twist.

 

1. Ensure The Business Is Solid & Consistent w/Dividends

Mr Buffett seeks companies that he’ll feel comfortable investing in if “the stock market closed for 5 years”. This means that he invests in companies that show promising growth, earnings and overall performance in the forward projecting years. For finding high-yield stocks, you’d want to implement this same strategy. However, besides strong overall performance, you want to make sure the company your investing in has a strong past history of paying dividends at stable, consistent rates. This means try to find companies that haven’t drastically changed their dividend payouts, or ever stopped paying dividends. Always check a company’s fundamentals through your own due diligence, but also ensure that their dividend payouts are consistent and reliable.

2. Emerge Yourself In The Company’s Business

Investing is businesses that you understand is a critical component of Mr.Buffett’s investing strategy. This is an important element for successful investing for us beginning investors also.  We must understand the fundamentals of the businesses we invest in, because once you invest in the stock, you are now an owner. Does it make any sense for an owner not to understand the business to which he holds financial interest in?

The answer is: NO, it makes absolutely no sense.

Also, it will make reading financial reports easier if you understand how they make money, and it will enable you to project your own analysis of their future earnings, growth, etc. You need to understand how the company makes money to know where the value of the stock is derived from, and their cash flow is a good predictor of future earnings and dividend payouts.

 

3. Trust The Shot-Callers

Warren Buffett is a firm believer in strong management. It makes a lot of since to want capable and intelligent managers to be in charge of the business you’re investing in.

The way I envision it, is that the company I’m investing in IS my own business that I’ve entrusted to the hands of managers. This helps me make it personal, and from there, I’ll seek and destroy all available information, news, or social profiles I could find on the executive management. Using a website like LinkedIn, and further investigation with Google, should give you a basic understanding of the managers’ past history, their prior works and other important information.

 

4. Look For The Cigar Butts

Actually a term coined by Benjamin Graham, Warren Buffett has put it in excellent practice and it is now regarded as a pillar to his investing style. In simple terms, cigar butt = cheap stock. Keep in mind, that just because it is cheap doesn’t mean it’s a good deal.

You do want to further assess the stock’s value by implementing some valuing metrics, like this one as an example:

If: Price/Earnings X Price/Book Value IS LESS THAN 22.5

Then: This company may be worth investing into after further analysis.

This is an actual metric Warren Buffett used while working with his mentor, Mr. Graham. It could prove a useful starting point into your analysis of company’s under your radar.

 

5. Invest It & Forget It (and happily collect the dividends!)

Once you’ve completed your thorough analysis of a company, and have finally decided to invest into a business THAT YOU NOW OWN a part of, you must be prepared to let it conduct it’s business. Warren Buffett stresses that successful investors do not keep their portfolio at the mercy of the media or market and public opinion.

Just because your company endured a horrific public relations attack or scandal does not mean that you have to sell it, if it doesn’t directly affect the means to which the business makes money. We must remember that the market has a very short term memory, and more often than not, any PR disaster eventually flies by the wayside and normal routines go on.

Find a company you are confident in after some intense analysis, and trust yourself enough to not get wrapped up in the buy, sell, buy, sell emotional and financial destruction that you will cause yourself.

Also, keeping in mind that we are dividend investors, and we could not reap dividends if we do not own the stock for a certain time.

 

buysellbuysellbuysell

Buy & Hold FOREVER.

 

Thanks for reading,

Andrew

 

 

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Fundamental Value Investing Has Never Changed – Video

I wanted to archive this video and share it, as it highlights the important underlying message of investing. Investing HAS NOT changed. Long term, value investing has always been the road to true wealth.

This video illustrates (in old fashioned cartoon style) how a small amount invested, in a strict monthly plan (Monthly Investment Plan) that will snowball into a very respectable and highly-valued portfolio. Also, that we should be reject get-rich-quick schemes like the plague.

The beginning of the video after the respectable family man earns a $60 dollar raise (oh, great inflation has been to us), shows him being conned into investing into a fake company with fake promises of ultra-wealth. It is important that as respectable and educated investors, we ensure we do not get taken advantage of by buying into deals that seem too good to be true. Stay clear of OTCC markets and Pink Sheet stocks, this is merely a large roulette table that offers too much risk.

This video really is impressive in how it shows the true and meaningful approach to investing. That is, investing a little bit, each month, will eventually grow into a valuable portfolio. This is the approach I plan to take, because I know it is reliable and realistic. Instead of risking my cash to get rich quick schemes, I’ll invest my money into something that will give me returns over a long period of time. Investing in companies only after I’ve thoroughly evaluated them, and go through my checklist of “acceptable” stocks.

Take a blast into the past by checking out this video, it will be humorous and insightful. I’m sure by the time you’re done watching it, you will realize how sometimes the simplest approach is the most profitable.

My Broker – Robinhood (No Commission Fee’s)

I’ve used many brokerage accounts: eTrade, Scottrade, Ally, etc…

By far the best (and newest) is Robinhood.

The Pro’s (The Best: It’s Free!)

It is a relatively new brokerage, however it is a brokerage platform based solely on mobile devices. The biggest and most attractive component of this new brokerage is their $0 commission trading. Also, Robinhood provides almost instant deposits from your personal banking account into their investing platform, along with settings adjustments to enable weekly and monthly deposits to ensure consistent payments into your investing portfolio.

Some Cool Features:

You could also utilize push notifications for updated information on stock order fulfillment’s. Along with a very simple and easy-to-navigate interface, you’ll have access to some basic stock information. Such information includes: real-time stock quotes, your current holdings position on that stock, news on the company, basic statistics, volatility and a pretty cool earnings chart. You’ll also get a snippet of information of the company’s underlying business, under the “About” category, and their means of making money.

There Are Some Downsides:

Although the mobile application isn’t perfect. It’s simplicity is not enough to make informed, educated and worthy decisions for investment. For instance, the mobile application doesn’t offer any SEC filing information, dividend history, or stock screening platforms, among other important investing needs.

How To Utilize Robinhood

So as a free brokerage, it is absolutely perfect. However, it is just that, a brokerage. You must do your own due diligence on  company’s under your radar. Robinhood is only a nexus for a quick snapshot on your portfolio health, and executing stock orders. For truly in-depth and educational gathering tools, you must search elsewhere.

Other Tools I Use

The two most visited stock researching tools I use are zacks.com and also etrade (I keep my brokerage account open with a small amount just to use their research tools).

Let’s Get Some Free Stocks!

If you’d like to check out Robinhood, do you and I a favor and use the link below. We will both get a free stock! Disclaimer: It may not be a stock with a dividend, but you could sell the company your gifted after 2 days of holding the stock and then sell it and purchase a company with those delicious dividends.

http://share.robinhood.com/andrewb1452

Thanks for reading,

Andrew

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Personal Financial Report & M.I.P (Monthly Investment Plan)

Here I’m going to illustrate my personal financial report followed by my monthly investing allotment “plan” (M.I.P.)

My income:

I earn approximately $5,000 a month. $60,000 a year, approximately. I am fortunate that I have a stable and reliable income at my age to use as a foundation to build my investment portfolio. But there are expenses…

 

My current (approximated) monthly expenses: 

Vehicle & Insurance – $650 (wonders of driving in my age in California)

Rent – $750 (small studio apartment)

Utilities – $200

Food & Gas – $450

Education – $350

Miscellaneous – $300

Total Expenses = $2,700

Income After Expenses: $5,000 – $2,700 = +$2,300

Not bad. Realistically, my expenses monthly vary because I do provide financial support for my mother and some other family members from time to time, but it still approximates to what was stated above.

 

Savings:

Also, I dedicate $500 a month to my “Buy A House” fund (important asset), and an additional $500 a month to a “Oh Shit!” fund.

 

Actual Dollar Amount for Investing:

This leaves me with about $1,300 a month. Leaving the $300 for a buffer of safety, I plan to invest $1,000 a month to build a high-yielding portfolio. About 20% of my total net income.

 

Projection:

In theory, in 5 years X $1,000 monthly investment with an average 5.5% dividend yield (since I’m personally seeking the highest yielding stocks on the market) – I’ll be raking in $3,300 annually/$825 quarterly from dividends.

Seems like a good starting point. Although I know plans don’t always go, well, according to plan, I’d rather have one than not. Especially with finances, it is easy to get swept away in the consumerism and spend all of our hard earned money. But those days are over for me, it’s time I start making my money work hard!

 

What is your M.I.P.?

 

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Portfolio Update – 07/14/2017

I’ll kick this site off by giving a quick look into my current holdings. I know my current holdings are rather weakish, however, I had to start somewhere. I’ve been rather passive on my recent investing habits, but that is going to change. I am developing a realistic and passive financial-plan to invest more heavily into dividend stocks, which I’ll write about soon.

Here is my current portfolio snapshot (yes, it’s currently only one stock):

Stock Ticker: ABR – Arbor Realty Trust (REIT)

Currently: 179 Shares, purchased @ $8.30 w/ Yield @ 8.75%

Total Cost: $1,485.70

Estimated Annual Dividend: 128.88 / Quarterly: 32.22

 

Why REIT’s?

I did a lot of research into REIT’s, and I really liked what I found. First of all, they are income-producing real estate companies that pay out at least 90% of their profits as dividends. They also have very solid overall performance. Despite the 2007-08 real estate market crash, they’ve generated a 14% annual return. That is better than the S&P 500’s return between the same time period, which was only 12%.

But as with everything good, there is always a downside. The dividends paid by REIT’s are subject to taxation as ordinary income, not capital gains tax. So, if you’re in a high tax bracket, this may not be favorable. However, in my current position, it is still beneficial. Secondly, REIT’s are known to be volatile, often acting with non-traditional market behaviors. However, as an investor, ups and downs shouldn’t be all that concerning. We are in it for the long haul, reaping those delicious dividend rewards.

Why Arbor Realty Trust?

It’s shown decent and promising growth reflected in the financial reports, along with solid fundamentals such as assets, net profits, liabilities, etc. Numerous analyst’s have concluded that ABR is undervalued, and has tremendous growth potential. Ivan Kaufman, the CEO is personally heavily invested in the company, which I always see as a good indicator of the company’s overall promising future. With all that aside, what I really love is the cheap price, with the very high yield and it’s growth potential. ABR has shown steady and maintainable growth since it’s bottom in 2009, I believe the company will come back stronger than ever.

Here’s just a chart I grabbed off of capitalcube.com, highlighting ABR’s undervaluation and high earnings momentum.

Earnings Momentum Vs Relative Valuation

As you could see, on the top right ABR-US, ranks high on the Undervalued/High Earnings Momentum chart.

Thanks for reading, I’ll provide more updates soon, just thought I’d provide a little insight into what I’m working with so far. Thanks for reading.

-Andrew

 

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