10 Reasons to Protect your Money Printing Machine in Your Corner

The importance of protecting your income.

Just because your health suffers a setback, your financial wellbeing doesn’t have to. When illness or an accident leaves you unable to work, income protection can protect you and your family from the financial consequences.

There are a number of insurance products designed to alleviate your financial concern should you suffer an illness or accident that prevents you from working. Consider the following options available to you and your family:

Critical Illness Insurance pays a lump sun on the occurrence of a defined critical condition covered by your policy. Examples of these include serious cancer, heart disease and stroke. With this type of policy, you can save money by combining it with your life insurance policy.

Income Protection provides a monthly income if you are unable to work due to sickness or injury. Policies can include a number of features that can be used for rehabilitation or occupational retraining. Some occupations cannot be covered by income protection – if this affects you, choose a policy that will insure you in the event of your being disabled as a result of one of a specified number off critical health events. Many insurers are now offering income protection for the newly self-employed, which requires no financial records.

Permanent Income Protection pays a lump sun in the event of total and permanent disablement, such as paraplegia and quadriplegia, caused by accident or illness. Choose a policy that’s right for you, as some are available for individuals with businesses, and others for individuals with families.

Business Expenses Protection pays the owner of partner of a small business a monthly benefit to cover the continuing expenses incurred should the owner become totally disabled. This monthly business income can be paid according to a pre-determined timeframe.

Locum Cover provides funds to help your business maintain operation if you become totally disabled. It reimburses the costs of replacing you, either permanently or with a locum, and it also provides cover for eligible business overheads.

If you were out of action for an extended period, how would you be able to maintain your current lifestyle and still cover expenses such as:

1. MORTGAGE REPAYMENTS
2. MEDICAL EXPENSES
3. DAILY LIVING EXPENSES
4. INSURANCE PREMIUMS
5. HIRE PURCHASE PAYMENTS
6. A PLANNED HOLIDAY
7. BUSINESS OVERHEADS
8. CHILD CARE SCHOOL FEES
9. RETIREMENT SVINGS

Don’t become a “Help me help Kelly”please.
http://financialpictures.com/2009/06/23/help-me-help-kelly/

Diana Clement: Panicking is bad for your wealth

4:00AM Saturday Sep 27, 2008
By Diana Clement

Panicking is bad for your health and your wealth. If our investments are increasing in value irrational exuberance often takes over. At this point, many people forget that investment involves risk.

But when money disappears before our eyes – as it has with the credit crunch – it causes anxiety, anger, fear, disillusionment and a range of other emotions, few of them positive.

If you do respond to your ancestral brain, however, the chances are that you’ll do the wrong thing for your finances.

When we feel the emotions related to a financial crash, our biological protection mechanism steps in, says international behavioural finance expert Michael Falk, who was speaking to members of the CFA Society of New Zealand this week.

When the performance of our investments doesn’t meet expectations, the feel-good chemical dopamine stops flooding into our brains and our levels of serotonin drop, says Falk.

“This is a new field of research, but it could be argued that we have a biological context and a chemical context that drives our behaviour.”

It is perfectly natural, therefore, to panic.

“The trick is not to act on these impulses,” says Falk. After all, ups and downs in the market are a natural part of the cycle, in the way a bush fire in Australia clears the way for new growth.

Providing you have your investments well spread, a crash is a time to sit back and take stock. A crash can be a “veritable cornucopia of opportunity” if you have cash in the bank.

But don’t expect just because an investment has crashed through the floor against all the fundamentals that it will automatically be a good buy. “The Chinese character for crisis is the same as the character for opportunity.”

It’s also worth remembering, as US researcher Ned Davis Research found, that the average bull run in the markets lasts 57 months, and recessions 10 months. We’re not used to the latter.

Markets are ruled by psychology as much as fundamentals and there are other factors at play. During a crash, investors act irrationally or sell off whatever they can, says Falk, which can depress prices.

When the credit crunch first hit, he says crude oil fell in price at one point against all odds. It was because hedge funds were cashing up the only investments they had that were trading at a profit.

Behavioural finance and neuro-science can also explain why when an investment has dropped by 20 per cent the urge is to sell, or when it has risen by 20 per cent that humans want to buy. “When investments rise [in value] they are like a shiny object for a kleptomaniac.”

It’s this combination that makes us buy high and sell low – one of the most typical mistakes made by investors in equities, property, and other investments. We follow the herd, says Falk.

Our pre-programming combined with chemicals in the brain explains why some investors behave as they do. I had a conversation with a Blue Chip investor days after the collapse of the company. She panicked and sold her property to the first person who came along.

The trouble was it was part of the hotel lease and by selling it the way she did without taking advice, she put herself in the position of having to pay 12.5 per cent GST on the property to the Inland Revenue Department as well as taking a capital loss.

There is fear on the streets. A steady flow of investors have been calling their financial advisers – especially so last week, says John Rowley, head of Macquarie Financial Services Group in New Zealand.

“There is not a single investor in the world who hasn’t had something go wrong,” says Rowley.

“We took a policy a few months ago of calling as many clients as we can. But last week clients thought ‘what is going on’ [with the markets].”

Each portfolio is different. But if the spread is good, Rowley advises that investors ride it out. In other cases there has been room for rebalancing – but not for rash decisions.

“This is a good time for hugging your adviser,” says Rowley. “It is not a time to make decisions on your own.” He likens it to having a serious illness. Few people would do without specialist advice in that situation.

Instead of panicking, it’s a good idea to make the recession a good one by:

1. Taking the time to review current holdings.

2. Not letting the market’s short-term gyrations distract you from your long-term goals.

3. Rebalancing if your portfolio is out of kilter to reflect your long-term asset mix.

4. Diversifying risks if you aren’t already. Holding all your wealth in one class of asset such as property, equities or – dare I say it – finance companies, isn’t smart.

5. Harvesting your tax losses if they can be used.

6. Remembering that even the scariest of bear markets are a normal part of the cycle.

7. Keeping investing and not bailing out of everything.

Panic isn’t just hitting equities and other investments. Property investors and homeowners are feeling jittery and some have made bad decisions when fixing mortgages.

Many have been panicked into re-fixing their home loans, which could prove costly. Back in the first quarter of this year, many homeowners and investors fixed their rates for five years – because it was the lowest rate available, says William Cairns, director of non-bank lender General Finance.

Now, thanks to two successive rate drops, those rates, which were between 9 per cent and 9.5 per cent, are starting to look expensive.

Many have been told that if they refix on the date of expiry that they won’t have to pay refixing fees. But this is a tactic to get them to sign up, say brokers.

“Banks do charge a refix fee,” says Stuart Wills, director of MortgageLink West. “But 90 per cent of the time they waive it if you ask, and brokers ask.”

Floating for the short term is a good option, says Cairns, especially if you believe that rates could be as low as 7.5 per cent early next year.

Finally, all that anger, angst and other emotions related to investment panic aren’t good for your health. Yoga and deep breathing might be the best short-term solution for some investors.

Copyright ©2008, APN Holdings NZ Limited

Ignore the Doomsday Headlines

Continue to flex your networking muscles.
By Dr. Ivan Misner, BNI Founder and Chairman

Today’s news is full of economic soap operas. In the United States, Congress, the White House, and the pundits are debating the so-called bailout of yet another pillar of Corporate America. European nations and others around the globe are struggling with recessionary pressures. Voices everywhere seem to be spouting economic doom and gloom.

Now, please, lean in close and listen carefully. I’m going to ask you to do something difficult, yet very important: Ignore all those doom and gloom voices.

It’s not that I want to deny reality. Nor am I judging whether all those important voices are right or wrong.

What I am saying is, all those voices are sending you useless information. Not only are they urging you to be afraid … very afraid … they are completely ignoring the solutions on which you need to focus. There’s nothing like good old fashioned fear to freeze an entrepreneur in his or her tracks!

When Franklin Delano Roosevelt wisely said during America’s Depression that the only thing we have to fear is fear itself, he left something out. When you are in business, at any time in any nation, the other thing you have to fear is inaction. Not very poetic, I know, but it’s true.

Let others worry about the macro economic picture. You have a micro economy in which you are a vital and central player. Does the government or an economist know the ins and outs of your business better than you? Have you received any calls lately offering to bail you out with taxpayer money if your business slides to the brink of ruin? I’m guessing the answer is “no” to both questions!

You already know this in your gut: No bailout is coming your way … unless you do it yourself. No rescue plan is being prepared for your business … unless you prepare it yourself. And no solutions to your problems will be developed … unless you develop it yourself.

The more you focus on fear, the more afraid you will become. The more you focus on obstacles, the larger they will loom. And the more you focus on today’s global economic doom and gloom headlines, the less time, energy, and faith you’ll have to focus on building the prosperous, successful, well-networked business you really want.

A close friend of mine recently got hit by a car and spent weeks in hospitals and rehab centers. He says he learned a few things about fear during this time. When he tells himself, while perched on one leg to perform some ordinary task, “Wait … I might fall over,” sure enough, he falters.

But when he tells himself, “I have perfect balance,” something funny happens: He remains steadily upright longer than he thought possible.

Your business is not much different. If you tell yourself, “I can’t succeed in this economic downturn,” you probably won’t. But if you focus on specific solutions to the particular issues and challenges and opportunities of your business—your niche market, your current and prospective customers—you are likely to enjoy more success than all the naysayers put together would have predicted.

What the bigwigs of Wall Street, Pennsylvania Avenue, the London Financial District and the European Central Bank don’t seem to understand is this: Out here in the real world of entrepreneurial small business, “Givers Gain.”

Want to help the economy? Just turn to your BNI network, find someone who needs help, then give them all the referrals you can.

By sticking together and helping one another, we can face down the doom and gloom; we can build our businesses despite the headlines; and, we can show others around the world the economic power of persistent, skillful, and generous networking.

Confessions of a sub-prime mortgage baron

The former loan company boss now sees himself as little better than a mid-rank drug dealer

• Andrew Clark in Dallas
  
• The Guardian,
  
• Friday September 19 2008
  
• Article history
  

As a sub-prime mortgage lender, Richard Bitner has not done too badly. He lives in a huge mock Tudor house in a wooded suburb on the edge of Dallas, complete with miniature turrets, an oversize fireplace and wood-panelling. But he is a little bit, shall we say, tortured.

Bitner was co-founder and president of Kellner Mortgage Investments, a firm which specialised in providing high-risk loans of the sort that triggered America’s mortgage meltdown and credit crunch. Now out of the game, he compares himself to a drug dealer, acknowledging that his trade has achieved pariah status in the public eye.

“I almost look at the mortgage industry kind of like the drug trade. Wall Street and the investment banks are the Bolivian drug lords,” he says. “You look at this and you go: What were we doing? Who doesn’t want the feeling of euphoria? Who doesn’t like to get money?”

He continues: “Wall Street, the drug lords, were creating this product. Lenders and brokers are the street dealers who were largely making it available based on a consumer desire; a want for it.”

A trim, bearded 41-year-old with a small medallion on a chain around his neck, Bitner has lifted the lid on the mortgage industry’s excesses in a book called Confessions of a Subprime Lender which is packed with tales of crooked brokers, deceitful customers, avaricious Wall Street banks and all too obliging credit rating agencies. Thanks to appearances on television discussion shows across the US, he is becoming the human face of a loathed industry.

He reckons his firm, which peaked with 65 employees, put him at the level of a mid-ranking narcotics fiend: “I’m probably the guy who is in the city distributing it to all the people on the corners, and it is ultimately going to the consumer – the wholesaler.”

Across the US, an estimated 2.5 million people are in danger of losing their homes to foreclosure this year as a result of the sub-prime mortgage crisis. Bitner’s description of day-to-day business at Kellner is an eye-watering glimpse of the industry’s slide into anarchy.

His company was in effect a middle man, taking applications from independent brokers and providing them with loans funded by big finance houses, then selling the finished articles on to Wall Street for securitisation.

Bitner bankrolled Kellner’s creation by persuading his parents to mortgage their house in 2000 and he stayed in the game for five years, watching the types of loans on offer from financial institutions get steadily riskier.

Dishonesty became endemic in loan applications. By the end, Bitner reckons that 70% of submissions to the company from brokers were deceptive. Properties, supposedly objectively appraised, were spectacularly overvalued. He estimates that half of loans were on homes over-egged by up to 10%, a quarter had prices exaggerated by 11% to 20% and the rest were “so overvalued they defied all logic”.

Tricks

“The industry lost its mind,” says Bitner. “It went from borderline stupid to downright insane.” The notion of “acceptable risk” simply went out of the window: “I watched the margins compress in the industry and I realised no one was providing for the risks.”

In his book, Bitner recounts a seemingly endless list of tricks used by brokers to push dubious loans. Many simply withheld information, such as the fact that a homebuyer was getting an additional loan to pay for a deposit or that a couple, buying on the basis of joint income, were actually planning to divorce. Others would manipulate figures by knocking up ersatz payslips using desktop publishing programs.

“I don’t want to say I became desensitised to it, but it gets to a point that you feel like you can’t trust anybody,” says Bitner. “I’ve always operated from the perspective that I’ll give anyone the benefit of the doubt until they prove me wrong, but I’ve gotten to a point in business where I’ve become a little more jaded.”

Members of the public were urged to stick to one broker rather than shopping around because each broker would check their credit record, and, through the sheer fact of being officially checked, fragile credit scores often fall. In one case, Bitner recalls that a loan came across his desk for a single family residence, depicted in a blurred long-distance photo. On closer inspection, it turned out to be part of a multi-occupancy office park.

The industry was barely regulated: in Texas, mortgage salespeople had to be sponsored by a registered broker. Bitner describes how 250 different loan officers were attached to a single one-man office measuring about 1 square metre, with licences pinned to every surface.

“There was a tremendous amount of ignorance. The entire industry – brokers and lenders – are largely looking to the guidelines that are being brought to us from up above, from Wall Street, to say this is an acceptable level of risk,” he says.

Fast-talking, articulate and animated, Bitner blames the fragmented nature of mortgage lending for the industry’s dramatic fall to earth. Like a drug ring, he says a hierarchical structure allowed players to continue passing on risk at a faster and faster pace, without anybody pausing for thought.

“It used to be one bank that did everything [on a loan]: underwrote it, securitised, wrote on it, foreclosed on it,” he says. “Securitisation allowed us to break it up into so many components where nobody in the chain really had a strong, vested, monetary interest in how that bond performed over time except for the bondholders.”

He reserves his greatest ire for credit rating agencies that continued to attach high marks to packages of high-risk mortgages until the mortgage market had begun to collapse in 2007. “The rating agencies were supposed to be the independent arbitrators, the umpires. But the only referee in this entire match is largely dysfunctional; it might as well have been sitting on the sidelines drinking a fifth of gin and tonic.”

As a sub-prime lender, Bitner accepts that he was far from blameless. He was, at times, knowingly marketing unrealistic loans. Bitner viewed one common product, providing 95% finance to people with ultra-low credit scores, as “absurd”. But he defends the principle of sub-prime lending and maintains that in his five years he did more good than harm.

Gratifying

“My job felt amazingly gratifying. I don’t think I’ve ever felt as gratified in work that I did. You are seeing loans that are performing. You are seeing people who would not otherwise qualify.”

Yes, he admits, things ran badly out of control and everybody – from consumers to brokers, lenders, banks and the Federal Reserve – shares responsibility. But he insists that underlying intentions were sound: “There’s something very empowering about this business. It’s helping those people who are trying to achieve the dream of home ownership. Or, forget about the dream, they’re just trying to get their family into a house. Why is that such a bad thing, if we can manage the risk?”

CV

Age 41

Education Katella high school in Anaheim, California; Northern Arizona University; masters degree in communication from Cornell University

Employment Worked for mortgage, insurance and finance companies including EquityLink Financial, GE Capital and GMAC Residential Funding before co-founding sub-prime lender Kellner Mortgage Investments in 2000; left in 2005 and now works for an online news provider, HousingWire

Family Married with two sons

Hobbies Scuba diving; supporting the Dallas Cowboys football team

guardian.co.uk © Guardian News and Media Limited 2008a

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10 mistakes that made flipping a flop

Posted 10/22/2006 9:32 PM ET By Noelle Knox, USA TODAY SACRAMENTO — If there’s a poster child for everything that went wrong in the real estate boom, it just might be Casey Serin. In one year, the 24-year-old website-designer-turned-real estate-flipper bought eight homes in four states — and in every case but one, he put no money down. At his peak, in April, Serin had $93,000 he’d taken out of the homes as he bought them. By July, he was broke, desperate for one last deal. Now? Serin has $140,000 in credit card and credit-line debt and five houses in foreclosure. Last month, he started iamfacingforeclosure.com, a blog that’s drawn both notes of condolence and expletive-laced condemnation. “I did some stuff shady, but I’m not going to hide from it,” he says. “Somebody can learn from it. I’ve already had people contact me and say, ‘Hey, I’m in the same place.’ “ The rise and fall of Casey Serin is a tale with moral and financial lessons for real estate buyers, lenders and regulators. Having consumed real estate guides and seminars, Serin made just about every mistake a newbie could make — most of them, he admits, were no one’s fault but his own — from fudging loan applications to buying homes sight-unseen. That he began with bold dreams of class mobility makes his fall a peculiarly American saga. Serin didn’t know much about real estate at 19, when he bought his first condo. As a website designer, Serin was earning $35,000 a year at S.M.A.R.T. Association, a maker of marketing systems for health care providers. He quit to start his own Web-design company but couldn’t earn enough to cover his mortgage. So he moved in with his parents and sold the condo a few months later. His profit: $30,000. “My goal was to reinvest that money,” Serin says. “But I also needed a car. My car was falling apart. I used some of it to keep me going, and for living expenses and things. And I used some of it to go on dates.” He also stopped working for three months. By the time he married in 2004, the money was gone. He and his wife used credit cards to cover living costs because Serin’s business wasn’t bringing in enough money. When he found a job that summer as a Web designer, the couple had piled up nearly $20,000 in card debt, half of which they’d spent on real estate courses. He bought Carleton Sheets’ No Down Payment real estate program and attended seminars by Russ Whitney, author of The Millionaire Real Estate Mindset, and others. “Sure, they used pressure sales tactics to get you into it, but looking back on it, I don’t regret it,” he says. “They told me how to start safe, but I really didn’t start safe. I went all out. So it was my own fault.” As with all investors, Serin’s goal was to build wealth. He was intrigued by Robert Kiyosaki’s Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money — That the Poor and Middle Class Do Not! “My eyes were opening up: ‘Oh, OK, this is how the world works.’ “ Mistake No. 1 Using ‘liar loans’ In October 2005, Serin was desperate to pay off credit cards. But he was eager, too, to put his real estate training to use. He sought “a motivated seller — someone who wants to sell quick and doesn’t mind giving a discount to get the deal done.” He found a Sacramento couple who’d twice cut the price on their home and were asking $360,000. Aware that the market was softening, Serin successfully bid $330,000, including his closing costs. But he also wanted to pay off his credit cards. So he took out a $360,000 mortgage and asked the sellers to give him $30,000 in cash once the deal closed. “I was able to qualify for the loan at 100% financing,” Serin says. “I used a ’stated-income loan.’ It was really higher than I was making, so it was a ‘liar loan’ — that’s what they call them in the industry.” Stated-income loans were created to help people with variable incomes, like commission-sales jobs, qualify for mortgages. Lenders require little or no proof of income, but they charge a higher interest rate to compensate for the risk. Stated-income loans have grown in pricey areas where traditional buyers are stretching past debt-to-income lending ratios, and some lenders turn a blind eye. In California, 75% of purchase loans this year have little or no documentation of income, up from 34% in 2000, First American LoanPerformancesays. But Serin also deceived the bank by saying he’d live in the home. Banks typically charge higher rates and require larger down payments for investment properties. “Lying on a mortgage application is a federal crime,” says Joseph Falk of the National Association of Mortgage Brokers. “It includes bank fraud, wire fraud and mail fraud and potentially a host of state offenses. This can result in jail time.” At the time, though, Falk says some lenders were willing to ease their criteria for borrowers because, with housing prices surging, they knew they likely wouldn’t lose money even if the loan went bad. Mistake No. 2 Overpaying Serin flipped the Sacramento house immediately, and agreed to purchase the buyer’s old house. But Serin’s buyer needed to put 20% down and had to pay a penalty to the bank for paying off his mortgage early. So Serin helped him out at his own expense. “I paid too much for his house,” he concedes. And since he’d already used cash from the first house to pay off credit cards, Serin took out a $10,000 credit line for repairs on the buyer’s old house. Mistake No. 3 Lacking cash Serin put the second house on the market but lacked the money for the $2,500 monthly mortgage, plus his rent and payments on the credit line. So he rented the house with an option to buy it later. Acting in haste, he rented to tenants who could pay just $1,400 a month. “I got desperate,” he says. “I couldn’t flip it, and I had to stop the bleeding.” Mistake No. 4 Quitting your day job “Now, I’m thinking I’ve got negative cash flow, I’ve got the credit line. I need to do more deals.” As the California real estate market hit the skids in late 2005, investors began looking in such states as New Mexico, Texas and Utah, where prices were still climbing. Serin, with dreams of becoming a full-time investor, decided to take three weeks off work in January and go to New Mexico. “My goal was this: to find enough deals in three weeks that I could put under (a sales) contract … so I could have enough in the pipeline so that it’s safe for me to quit my job. If I can’t get anything out there, then I go back to my job. But in my mind, I was already succeeding, and I wasn’t looking back.” He bought two homes in New Mexico with no money down and liar loans. He took back $20,000 in cash — enough to carry his payments for a while. Back in Sacramento, he gave two weeks’ notice. Mistake No. 5 Hiring an unlicensed contractor Serin next bought a house in Modesto, Calif., that he’d found through the Internet. The deal was packaged by a “wholesaler.” A wholesaler finds an under-priced home, puts it under contract and then transfers it to an investor in exchange for a fee of $5,000 to $15,000. The house was appraised at $380,000; Serin paid $323,000, including closing costs and $15,000 he got back from the seller. The wholesaler “told me the repairs that needed to be done, but it was a lot more than he described.” Serin hired a contractor, but when he sought the license number, he couldn’t find any records. The contractor said the work would take a month or two. After three months, the job was only half done and the contractor wanted more money. Mistake No. 6 Buying sight-unseen The sixth home Serin bought was in Utah. A developer had subdivided a tract and sold off the lots for custom homes. The last lot had a 25-year-old house on it. “I bought it sight-unseen,” Serin recalls. The developer “told me, ‘It’s outdated; you just have to update everything.’ I didn’t realize, not only is it outdated; it’s awkward looking. … Every room had a different color carpet. Some rooms had a photo-type wallpaper with nature scenes.” He realized that the $18,000 in cash he pulled out of the deal wouldn’t begin to cover the renovation needed. He put the house back on the market and left town. Mistake No. 7 Buying out of state On the trip to see the Utah property, Serin stopped in New Mexico. One of the homes he’d bought there was rented; the other was on the market but not selling. Fearing he’d soon have to start paying the mortgage, Serin tried to rent it out with an option to buy. “I was even saying, ‘You don’t need to put anything down, just show me you have a good job, good credit and take over,” he says. “But I couldn’t do it fast enough. I was only there a week and a half.” Mistake No. 8 Buying too many properties too fast The seventh house was near Sacramento. “I basically used up all of the equity… and the market is already going down,” Serin says. “But it made sense to me at the time because I’ll take the $50,000 (cash back from the seller). I’m finding it takes a lot more money than I thought, and what if I run out of the money I already took out?” The mounting financial pressure was getting to the young flipper. “I’m thinking about how to use the cash (backs) wisely and keep everything afloat,” Serin says. “I realize I’m buying way too much. I’m not able to manage it all. And it just sort of happened. By April, I had six houses.” But he didn’t stop buying. He was caught up in the frenzy. Mistake No. 9 Underestimating remodeling costs In May, he snatched up a house in Dallas. “I thought it was going to be my best deal so far, because of the spread,” he says. The wholesaler said the property was appraised at $310,000, and the owners would sell it for $190,000, but it had to close quickly. Unable to get another loan so fast, Serin went to a private lender, who appraised the property at $275,000. To get the loan, Serin had to put down $30,000 and put $30,000 more into escrow to cover the needed repairs. Sight unseen, Serin went for it. When he finally saw it, he said, “The layout was weird. There was a garage conversion, which I knew about, but because of my inexperience I didn’t know the garage conversion kills it because very few people want an extra room. Most people want the garage.” Serin thought he could renovate the property for $15,000. “I ended up spending $30,000,” he said. “It ended up being a monster.” His bank balance was dwindling. Serin was also burning cash traveling between his properties. He purses his lips and inhales sharply. “That’s the sound I was hearing.” Mistake No. 10 Having a poor exit strategy Having just read How to Sell Your Home in 5 Days by Bill Effros, Serin flew to New Mexico in June and auctioned the vacant house in one week, eking out a tiny profit. He tried it a week later in Texas. A disaster. Just three low bids. By July, Serin was out of cash and living off credit cards. He took out more lines of credit to try to keep pace with his mortgages. He wanted to go for one last deal in New Mexico. His wife saw copies of the letters he’d written to the banks. “She’s like, ‘I don’t want no fishy business.’ “Part of me is like, ‘Well, I know it’s not right. I know I’m lying to the banks, but I’ve got to do what I’ve got to do. I got into this mess. I’ve got to get out somehow.’ And it was like, once you make one lie, you’ve got to keep lying, in a way.” His last loan was rejected, and Serin hit bottom. The bills for his mortgages and other debts total $20,000 a month. He’s says he’s determined to pay off his loans. He’s considering bankruptcy, restructuring the loans and trying to get another Web-design job. Serin’s current situation is bleak. He is currently unemployed as is his wife, who has gone back to college to get an accounting degree. They rent an apartment and have $140,000 in debt, and the remaining five houses he owns are facing foreclosure. Yet, ever the optimist, he says, “There might be some other possibilities in the works right now for some additional real estate deals that would be completely aboveboard and allow me to make some money. “There are some wholesaling opportunities where you find a contract and sell it to another investor. You can make 5, 10 or 15 grand on that stuff. That’s enough to almost carry it for a month.”

 

Find this article at: http://www.usatoday.com/money/economy/housing/2006-10-22-young-flipper-usat_x.htm

From Geek to Freak: How I Gained 34 lbs. of Muscle in 4 Weeks

Written by Tim Ferriss Topics: Physical Performance, The 4-Hour Body

After holding off for nearly two years, I’m posting this because too many people have asked for it. The lasses should read it, too, as the same principles can be applied to bodyfat loss.

I weighed 152 lbs. for four years of high school, and after training in tango in Buenos Aires in 2005, that had withered to 146 lbs. Upon returning to the US, I performed an exhaustive analysis of muscular hypertrophy (growth) research and exercise protocols, ignoring what was popular to examine the hard science. The end result? I gained 34 lbs. of muscle, while losing 3 lbs. of fat, in 28 days.

Before and after measurements, including underwater hydrostatic weighings, were taken by Dr. Peggy Plato at the Human Performance Laboratory at the San Jose State University, and I had blood tests taken on September 30 and October 20. Though this ridiculous experiment might seem unhealthy, I also dropped my total cholesterol count from 222 to 147 without the use of statins. No joke.

Here are a few comparative shots. Oh, and I forgot to mention, all of this was done with two 30-minute workouts per week, for a total of 4 HOURS of gym time:

How did I do it?

First, some select stats on the 4-week change (9/21-10/23):

Bodyfat %- 16.72 to 12.23
Suit Size- 40 short to 44 regular (measured at Brooks Brothers at Santana Row in San Jose by a professional tailor)
Neck- 15.8″ to 18″
Chest- 37.5″ to 43″
Shoulders- 43″ to 52″
Thigh- 21.5″ to 25.5″
Calf- 13.5″ to 14.9″
Upper Arm- 12″ to 14.6
Forearm- 10.8″ to 12″
Waist- 29.5″ to 33.1″
Hips (Ass at widest)- 34″ to 38.23″

Here are the six basic principles that made it happen:

1. Follow Arthur Jones’ general recommendations for one-set-to-failure from the little-known Colorado Experiment, but with lower frequency (maximum of twice per week) and with at least 3 minutes between exercises.

2. Perform every repetition with a 5/5 cadence (5 seconds up, 5 seconds down) to eliminate momentum and ensure constant load.

3. Focus on no more than 4-7 multi-joint exercises (leg press, trap bar deadlift, overhead press, Yates bent row, dips, incline machine benchpress, etc.) and exercise your entire body each workout to elicit a maximal hormonal (testosterone, growth hormone + IGF-1) response.

4. Eat enormous quantities of protein (much like my current fat-loss diet) with low-glycemic index carbohydrates like quinoa, but drop calories by 50% one day per week to prevent protein uptake downregulation.

5. Exercise less frequently as you increase strength and size, as your recovery abilities can only increase 20-30%, while you can often increase fat-free muscle tissue up to 100% before reaching a genetic set-point.

6. Record every workout in detail, including date, time of day, order of exercises, reps, and weight. Remember that this is an experiment, and you need to control the variables to accurately assess progress and make adjustments.

For the ladies not interested in becoming the Hulk, if you follow a “slow-carb” diet and reduce rest periods to 30 seconds between exercises, this exact workout protocol can help you lose 10-20 pounds of fat in the same 28-day time span.

Once again, questioning assumptions leads to the conclusion: less is more. Detox from TV twice a week and put in your 4 hours a month!

How to Lose 20 lbs. of Fat in 30 Days… Without Doing Any Exercise

Written by Tim Ferriss Topics: Physical Performance, The 4-Hour Body

It is possible to lose 20 lbs. of bodyfat in 30 days by optimizing any of three factors: exercise, diet, or drug/supplement regimen. I’ve seen the elite implementation of all three in working with professional athletes. In this post, we’ll explore a variation of the “slow carb” diet as used by Dean Karnazes, an ultramarathoner famed for completing 50 marathons on 50 consecutive days in 50 different states. The most impressive part of this, for me, is that he did so, not with the typical anemic marathoner build, but with a well-muscled mesomorph body.

In the last six weeks, I have cut from about 180 lbs. to 165 lbs., while adding about 10 lbs. of muscle, which means I’ve lost about 25 lbs. of fat. This is the only diet besides the rather extreme Cyclical Ketogenic Diet (CKD) that has produced veins across my abdomen, which is the last place I lose fat (damn you, Scandinavian genetics). Here are the four simple rules I followed…

Rule #1: Avoid “white” carbohydrates

Avoid any carbohydrate that is — or can be — white. The following foods are thus prohibited, except for within 1.5 hours of finishing a resistance-training workout of at least 20 minutes in length: bread, rice, cereal, potatoes, pasta, and fried food with breading. If you avoid eating anything white, you’ll be safe.

Rule #2: Eat the same few meals over and over again

The most successful dieters, regardless of whether their goal is muscle gain or fat loss, eat the same few meals over and over again. Mix and match, costructing each meal with one from each of the three following groups:

Proteins:
Egg whites with one whole egg for flavor
Chicken breast or thigh
Grass-fed organic beef
Pork

Legumes:
Lentils
Black beans
Pinto beans

Vegetables:
Spinach
Asparagus
Peas
Mixed vegetables

Eat as much as you like of the above food items. Just remember: keep it simple. Pick three or four meals and repeat them. Almost all restaurants can give you a salad or vegetables in place of french fries or potatoes. Surprisingly, I have found Mexican food, swapping out rice for vegetables, to be one of the cuisines most conducive to the “slow carb” diet.

Most people who go on “low” carbohydrate diets complain of low energy and quit, not because such diets can’t work, but because they consume insufficient calories. A 1/2 cup of rice is 300 calories, whereas a 1/2 cup of spinach is 15 calories! Vegetables are not calorically dense, so it is critical that you add legumes for caloric load.

Some athletes eat 6-8x per day to break up caloric load and avoid fat gain. I think this is ridiculously inconvenient. I eat 4x per day:

10am – breakfast
1pm – lunch
5pm – smaller second lunch
7:30-9pm – sports training
10pm – dinner
12am – glass of wine and Discovery Channel before bed

Here are some of my meals that recur again and again:

Scrambled Eggology pourable egg whites with one whole egg, black beans, and microwaved mixed vegetables

Grass-fed organic beef, pinto beans, mixed vegetables, and extra guacamole (Mexican restaurant)

Grass-fed organic beef (from Trader Joe’s), lentils, and mixed vegetables

Post-workout pizza with extra chicken, cilantro, pineapple, garlic, sundried tomotoes, bell peppers, and red onions

Rule #3: Don’t drink calories

Drink massive quantities of water and as much unsweetened iced tea, tea, diet sodas, coffee (without white cream), or other no-calorie/low-calorie beverages as you like. Do not drink milk, normal soft drinks, or fruit juice. I’m a wine fanatic and have at least one glass of wine each evening, which I believe actually aids sports recovery and fat-loss. Recent research into resveratrol supports this.

Rule #4: Take one day off per week

I recommend Saturdays as your “Dieters Gone Wild” day. I am allowed to eat whatever I want on Saturdays, and I go out of my way to eat ice cream, Snickers, Take 5, and all of my other vices in excess. I make myself a little sick and don’t want to look at any of it for the rest of the week. Paradoxically, dramatically spiking caloric intake in this way once per week increases fat loss by ensuring that your metabolic rate (thyroid function, etc.) doesn’t downregulate from extended caloric restriction. That’s right: eating pure crap can help you lose fat. Welcome to Utopia.

The Colorado Experiment

The Colorado Experiment – High Intensity Training

Casey Viator, Arthur Jones

Before and After photos of Casey Viator taken 28 days apart during Arthur Jones Colorado Experiment

The Colorado Experiment

by Arthur Jones

The following is a brief, preliminary report of an experiment conducted at Colorado State University in May of 1973.

Location . . . Department of Physical Education, Colorado State University, Fort Collins, Colorado.

Supervision . . . Dr. Elliott Plese, Director of Exercise Physiology Lab., Colorado State University.

Dates … May 1, 1973 through May 29, 1973 for one subject (Casey Viator), an elapsed period of 28 days . . . and May 23, 1973 for the second subject (Arthur Jones), an elapsed period of 22 days.

lean body-mass and fat contents determinations for both subjects were produced by the whole body counter under the supervision of James E. Johnson, Ph.D., Associate Professor, Department of Radiology and Radiation Biology, Colorado State University.

purpose of the experiment . . . it is the author’s contention that the growth of human muscular tissue is related to the intensity of exercise; increases in strength and muscle-mass are rapidly produced by very brief and infrequent training, if the intensity of exercise is high enough.

It is the author’s second contention that increasing the amount of training is neither necessary nor desirable . . . on the contrary, a large amount of high intensity training will actually reduce the production of strength and muscle mass increases.

It is the author’s third contention that “negative work” (eccentric contraction) is one of the most important factors involved in exercise performed for the purpose of increasing strength and muscle-mass.

It is the author’s fourth contention that nothing in the way of a special diet is required . . . so long as a reasonably well-balanced diet is provided.

It is the author’s fifth contention that the use of the so-called “growth drugs” (steroids) is neither necessary nor desirable … on the contrary, repeated tests with animals and double-blind tests with human subjects have clearly demonstrated that the use of such drugs is strongly contraindicated.

It is the author’s sixth contention that maximum-possible increases in strength and muscle-mass can be produced only by the use of full range, rotary form, automatically variable, direct resistance.

full-range resistance is provided only when the involved body-part is moved through a full range of possible movement against constant resistance . . . from a starting position of full muscular extension (a “pre-stretched” position) to a finishing position of full muscular contraction.

rotary-form resistance is an absolute requirement for full-range exercise … since muscular contraction produces a rotary-form movement of the related body-part, it is necessary for the resistance and the body-part to rotate on a common axis.

automatically variable resistance is an absolute requirement for high-intensity exercise . . . since movement produces changes in usable strength, it is necessary for the resistance to vary in proportion to the resulting changes in strength.

direct resistance is also required in order to avoid the limitations imposed by the involvement of smaller, weaker, muscular structures. The resistance must be “directly” imposed against the body-part moved by the muscles being exercised.

Conventional forms of exercise provide none of these requirements; the results being that . . . muscles are not worked throughout a full range of possible movement . . . resistance is limited to an amount that can be moved in the weakest position . . . little or nothing is done in the way of improving flexibility, since there is no resistance in the fully extended position . . . and no resistance is provided in the fully contracted position.

Only Nautilus equipment was used in the Colorado Experiment; equipment designed to provide all of the requirements for full range, rotary form, automatically variable, direct resistance.

RESULTS . .
First subject (Casey Viator), 28 days
Increase in bodyweight……..45.28 pounds
Loss of bodyfat…………..17.93 pounds
Muscular gain……………..63.21 pounds

Second subject (Arthur Jones),22 days
Increase in bodyweight …….13.62 pounds
Loss of bodyfat……………1.82 pounds
Muscular gain……………..15.44 pounds

It should be clearly understood that neither of the subjects was an “average” subject, and there is no implication that subjects of average or below average potential will all produce equal results from a similar program of exercises.

Casey Viator has trained on a fairly regular basis for a period of several years; with barbells and other conventional training equipment until June of 1970, at which point he placed third in the Mr. America contest . . . and with both barbells and Nautilus equipment until June of 1971, when he won the Mr. America contest.

From September of 1971 until September of 1972, he trained primarily with Nautilus equipment . . . with limited use of a barbell, primarily the performance of barbell squats.

From September of 1972 until December 23, 1972, he trained exclusively with Nautilus equipment . . . limiting his exercises to “negative only” movements. At the end of that period of training he weighed 200.5 pounds.

In early January of 1973, he was involved in a serious accident at work and lost most of one finger as a result . . . and almost died from an allergic reaction to an anti-tetanus injection.

For approximately four months, most of January through April of 1973, he did not train at all; and since his level of activity was low, his diet was reduced accordingly. During that period of four months, he lost approximately 33.63 pounds . . . but 18.75 pounds were lost as a direct result of the accident and the near-fatal injection. So his loss from nearly four months out of training was only 14.88 pounds … less than a pound a week.

The second subject (the author, Arthur Jones) has trained on a very irregular basis for a period of thirty-four years … and reached a muscular bodyweight of 205 pounds at one time, nineteen years ago.

The author did no training of any kind for a period of approximately four years until late November of 1972 … and then trained on a fairly regular basis in the “negative only” fashion for a period of approximately six weeks. Training was ceased entirely in early January of 1973 … and no training was done again until the start of the Colorado Experiment.

The author’s bodyweight has varied from approximately 145 to 160 over the last ten years . . . briefly reaching a level of 190 at the end of approximately six months of steady training that was concluded four years prior to the start of the Colorado Experiment.

So both of the subjects have demonstrated the potential for greater than average muscular mass and both subjects were rebuilding previously existing levels of muscular size.

A certain percentage of a group of random subjects would undoubtedly produce equal results, a very low percentage might produce better results; a few subjects would produce little or nothing in the way of results but average results would probably be less than those produced by the two subjects in this experiment. The primary determining letters being (1) individual potential for muscular size, (2) age, (3) general health, and (4) the intensity devoted to the training.

Actually high-intensity training is not easy . . . the training sessions are brief, indeed must be brief, but there is an apparently natural inclination on the part of most subjects to hold back.” Most exercises are terminated at a point well below an actual point of muscular failure, then, in an effort to compensate for the reduction intensity, the usual practice is to add more exercise to the program.

However, in fact, no amount of additional exercise will compensate for a reduction in the intensity of exercise … and if carried to extremes, which such training frequently is, the subject may actually prevent growth by exceeding the recovery ability of the system.

As stated previously, it is the author’s contention that very rapid and large scale increases will be produced in strength and muscular mass by a brief program of high-intensity exercise; and it was the purpose of this experiment to demonstrate that such results can be produced in practice as well as in theory.

At the moment. in athletic training circles, it is well accepted that supplemental strength training can be of very great value to athletes involved in any sport. But in practice, a seemingly natural inclination to equate “more” with “better” is actually preventing athletes from producing the results that could be produced.

Many coaches avoid supplemental strength training because they “don’t have time” . . . but in fact, very little time is required; if the exercises used are high-intensity exercises properly performed. Nor is it the author’s contention that using the proper equipment is the entire answer in itself. . .on the contrary, good results can be produced with a barbell or with conventional training such as the Universal Machine, or with any equipment that does both negative and positive work. The demonstrated superiority of Nautilus equipment will be largely wasted if the equipment is improperly used . . . Nautilus equipment is designed to provide a level of intensity that is impossible in any other fashion, but it must be used properly in order to produce maximumpossible results.

Proper training will produce rapid but very steady increases in both strength and muscular mass . . . and this was demonstrated very clearly by the results of the Colorado Experiment.

For example, during the first l4 days, Viator gained 28.93 pounds, a daily average of 2.06 pounds. During the next 3 days, he gained 3.92 pounds, a daily average of 1.3 pounds. During the following 5 days, he gained 6.09 pounds, a daily average of 1.2 pounds. And during the final 6 days, he gained 6.34 Pounds, a daily average of 1.05 pounds.

So it is clear that his “rate of gaining was slowing down at the end of the experiment . . . but it is equally clear that his actual growth was very steady.

In the author’s case, the pattern was much the same. During the first 7 days, 4.08 pounds were gained, a daily average of .58 pounds. During the next 7 days, 4.95 pounds were gained, a daily average of .7 pounds. And during the final 8 days, 4.6 pounds were gained, a daily average of .57 pounds.

There were no “sudden spurts” of growth in either case…so we obviously were not putting back weight lost from dehydration; instead growth was very steady throughout the periods of training.

During a period of 22 days, the author trained a total of 12 times. Three workouts in a row during the first three days in order to quickly get over any resulting muscular soreness, then workouts spaced approximately 48 hours apart.

Total “training time” (in and out of the gym) was exactly 298 minutes…4 hours and 58 minutes, an average of 24.8 minutes per workout.

122 “sets” were performed during the 12 workouts . . . an average of just over 10 sets per workout.

Out of the total of 122 sets, 54 were performed in a “negative only” fashion . . . 14 were performed in a “negative accentuated” fashion . . . and 54 were performed in a normal (negative-positive) style.

Negative only means that the resistance was “lowered” only, involving eccentric contraction.

negative accentuated means that the resistance was raised with both arms (or both legs), and then lowered with only one arm or leg.

Normal means that the resistance was raised with both arms (or legs) and lowered in the same fashion.

Only one “set” of each exercise was performed in almost all workouts, and when two sets of an exercise were performed they were never performed in sequence.

When two sets of any particular exercise were performed, they were done at different points in a workout . . . and were done for different reasons. For example: a type of “dipping” exercise was sometimes performed for two different purposes . . . this exercise would be used immediately following a direct triceps exercise in order to involve the chest muscles for the purpose of working the already pre-exhausted triceps muscles to an even higher level of intensity … then, at another point in the workout, an almost exactly opposite purpose was served when the same exercise was used in order to provide an even higher intensity of work for the previously pre-exhausted chest muscles.

While the above paragraph may be rather confusing at first glance, this style of training is actually quite simple, as the following example will show.

When worked to a point of momentary failure against direct and isolated resistance imposed only against the triceps, the triceps can be forced to continue to a point of even greater intensity if a second exercise is performed immediately after the first exercise.

But the second exercise must bring into use other muscular structures that make it possible for the triceps to continue.

So we first worked the triceps in a direct exercise, to a point of failure … and then immediately performed a second exercise, a “dipping” type of movement with variable resistance, The second exercise (the dipping movements) also involved the chest muscles . . . which permitted the triceps to be worked far beyond a normal point of failure.

Thus, in that case, the dipping exercise was performed for the purpose of totally exhausting the triceps.

But at another point in the workout, the same dipping exercise was used to totally exhaust the chest muscles. In this case, the chest was worked first … to a point of failure, then the dipping exercise was performed immediately afterwards, bringing the strength of the triceps into use in order to permit the chest muscles to be worked beyond a normal point of failure.

However, in general, we performed only one set of each exercise during each workout, the author’s gains from this very brief program were as follow . . . an average of 1.28 pounds per workout … an average of .126 pounds per set … an average of 3.06 pounds per hour of training.

The other, much younger, subject’s gains were much greater. During a period of 28 days, as a result of 14 workouts involving a total training-time of 7 hours, 50 minutes, an average of 33.6 minutes per workout, his gains were as follow . . . an average muscle mass increase of 4.51 pounds per workout . . . or .36 pounds per set . . .an average gain of 8.04 pounds from each hour of training.

But what about strength gains?

Prior to the start of the experiment (approximately an hour before the first workout), initial strength tests to a point of failure were performed on a Universal Machine. And at the end of the experiment (three days after the last workout), a final strength test was again performed on a Universal Machine.

During the first test, Viator performed 32 repetitions in the leg-press with 400 pounds . . . 28 days later, having done nothing even close to a leg-press in the meantime, he performed 45 repetitions with 840 pounds. And was forced to quit at that point because of pain, rather than muscular failure.

So his leg-strength more than doubled in the leg-press . . . even though he did not perform that exercise during the experiment. His other strength increases were of a very high order . . . clearly proving that his increased muscular mass was functional.

Flexibility? Near the end of the experiment, at a bodyweight well over 200 pounds, this subject clearly demonstrated a range of movement far in excess of that possible by any member of the Colorado State University wrestling team. In fact, his demonstrated range of movement is so far in excess of “average” range of movement that it literally must be seen to be appreciated . . . clearly proving that great muscular size does not have to limit flexibility, if it is produced by exercises that provide full-range movement.

The “pace” of the workouts was very fast . . . but not continuous throughout the workouts, some brief rest-periods were involved between some exercises. And these rest-periods are included in the listed times of the workouts. Times were measured from the start of the workouts to the end of the workouts.

All exercises were carried to a point of momentary failure . . . except in the cases of “negative only” exercises, which were terminated when it was no longer possible to control the downwards movement of the resistance.

In general, approximately ten repetitions were performed in each set; but in all cases, the maximum possible number of repetitions were performed . . . stopping only when it was impossible to perform another repetition in good form.

The “form” or style of performance was as strict as possible, the resistance was moved in a smooth fashion, and was briefly stopped in the position of full muscular contraction. Jerking and sudden movements were totally avoided.

Several members of the Denver Broncos Professional Football Team visited the lab for the purpose of observing the workouts, and then started training in an identical fashion during the last two weeks of the experiment . . . after the experiment, the Broncos placed an order for several Nautilus machines and drastically reduced their previous training schedule.

And while we were training in Colorado, members of several other professional football teams were training at our facility in Florida. . . in an identical fashion, three brief weekly workouts involving only one set of approximately a dozen exercises, with as much emphasis on the “negative” part of the work as possible.

Results?

One member of a Canadian professional team became so strong in the pullover exercise that he was using 675 pounds for several repetitions in good form . . . having started two months earlier with 275 pounds.

Lou Ross of the Buffalo Bills added 20 Pounds to his 6 foot, 7 inch frame … cut a full two-tenths from his already fast time in the 40 yard dash … added five and one-half inches to his high jump … and doubled his strength in many areas of movement. These figures having been provided by the Buffalo Bills coaching staff, who tested Lou before and after a two month Nautilus training program in Florida.

Mercury Morris of the World Champion Dolphins weighed-in 7 pounds above his previous highest weight and still ran the fastest 40 yards of his life when he was tested . . . following two months of Nautilus high-intensity training.

Dick Butkus of the Chicago Bears visited us in Colorado during the experiment, trained with us several days there . . . and then trained on Nautilus equipment in Deland for a month before reporting to training camp and signing a five-year contract with the Bears.

All together, twelve professional football teams and hundreds of professional athletes are now training with Nautilus equipment . . . having learned that they can produce far better results from much less training.

But I repeat … the secret, if there is one, is high-intensity; and when you are actually training with high intensity, you don’t need a large amount of training.

 
 

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Arun Abey: Why shares are safer than houses

Share markets have generally produced higher investment returns than residential property over the long term. Theoretically, if you rent a property and invest your money in quality shares you should be wealthier than those paying off their homes.

However, the discipline of meeting regular mortgage payments and gradually taking ownership of a tangible asset means homeowners usually do better financially than those who rent.

Beware though: a strong preference for property can lead to over-investment and low diversification.

New Zealanders have more than 75 per cent of their assets tied up in relatively illiquid property, including their homes and investment properties. Investing in residential property other than your family home is likely to result in higher risk and lower returns than investing in quality shares.

Over recent years, the Kiwi dream of owning a home has led to a financial windfall for many people.

Spicers’ Quarterly Household Savings Indicators report shows house prices from late 2001 have delivered an improvement in net worth of more than $188,000 per household over that period.

However, this impressive performance has given some blurred vision.

The past five years have mistakenly led many to believe rapid gains from housing have always been the norm. In fact they have been the exception and, in the chase for capital gain, the risks have been downplayed.

While property often delivers adequate, real returns over the long term, this is not always the case.

There have been prolonged periods where house prices have stagnated and even declined.

House prices declined in real terms during the 20 years spanning the 1960s and 1970s. The next 10 years brought us back to positive territory, but only just. During the 30 years ending 1991, national house prices delivered an average real annual gain of only 0.4 per cent per year.

After seven years of booming prices, the property cycle is once again heading down. Housing sales turnover is running significantly below levels of the previous year and prices have started to fall. Ordinary homeowners and prospective homebuyers are feeling the effects of higher mortgage interest rates and a tightening in lending standards.

People who jumped into the hyped-up market with little or no deposit, scared they may be unable to afford a home if they waited, have stretched their debt servicing capabilities to their full limit, leaving little buffer for the unexpected. People needing to sell are selling below expectations. It’s therefore no surprise that a new trend of investing in shares over property is emerging among Generation Y, people born in the early 1980s to late 1990s.

The main reason is they have been priced out of the housing market.

Historically, depending on the market, shares have outperformed property by an average of around 3-5 per cent annually. On average, the risks of investing in property are understated and returns from property overstated. As a result, investors pour too much money into residential property, forcing prices higher than if they accounted fully for the potential risks and returns for investors.

So, why are property risks understated? Behavioural theory provides some useful insights. The main reason is property is tangible and seems easy to understand, so investors have a perception of control. The truth is property is able to elicit an emotional response, unlike shares or bonds which lack the same sense of substance and permanence.

The pricing of residential property is infrequent and informal. Property investors never see red ink on a statement unless it is on the day of the sale. And most property investors never formally evaluate the performance of their investments at all.

Returns from property are also generally overstated, which has the effect of further narrowing the risk/return trade-off for the asset. Indices measuring property market performance generally capture only the increase in sale price of existing dwellings but fail to take into account major developments in a nation’s housing stock.

Share investors can effectively “buy the market” and participate in its long-term performance because of the ready availability of broadly-based share funds, including those designed to track the market index. But investors can’t “buy” the return of the residential property market as a whole. The indices purporting to track the market tend to grossly overstate the returns because they do not adjust for the costs of maintaining and renovating property over time, nor for the improved quality and cost of new developments.

The one main advantage of investing in residential property is individual investors with time on their hands have a greater ability to add value to their investment.

For many, buying a family home is their one means of saving. But for the amateur investor, investing in a residential property is likely to be expensive and riskier than investing in a well-run, diversified share portfolio. And it will probably yield a lower return, too.

Investment myths
*Property values are not as volatile as share prices.
*Property prices never fall.
*Property prices might fall occasionally but never as far as share prices.
*Property prices rise with the cost of living, so investment in property always keeps you ahead of inflation.
*The only way to lose money on property is to buy in a declining population centre or a house on the main road.

Arun Abey is executive chairman of financial planning firm Ipac, head of strategy for AXA in the Asia Pacific and a director and advisory board member of Spicers Portfolio Management. He is also the author of “How Much is Enough?”

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Warren Buffets’ Advice to Students

Warren Buffet addressing a group of students:
Success and Elective Qualities :
“If there’s one thing that you leave here with today, it should be this: And I’ll start with a question to get to my point. If you could pick 10% of one person in this room to own or ‘go long’ for the next 30 years, who would it be? It wouldn’t be the person with the highest IQ; it wouldn’t be the star athlete; you would look for certain other qualities… And if you had to pick one person to ’short’ for the next 30 years, who would it be? Now ask yourself why you have made those selections. If you’ve considered these questions properly, the person you’ve gone long is probably someone who is honest, courageous, and dependable; the person you’ve shorted is probably someone who is egotistical and likes to take the credit. The point is that success is mostly dependent upon elective qualities, not anything with which you are born. You ! can choose to be dependable or not. And it’s not easy to change, so choose correctly now. Bertrand Russell once said, ‘The chains of habit are too light to be felt until they’re too heavy to be broken.’ So ask yourself, ‘Who do I want to be?’ At theend of this process you should determine that the person you want to buy is yourself. You all are holding winning tickets.”
The System:
Consider this: in 1790, the first global census was conducted; there were 290m people in China, 100m in Europe, and 4m in what is now the U.S. Now the U.S. holds 4.5% of the world’s population but is responsible for 30% of global GDP. I believe the great American book is yet to be written and will be the one that manages to capture how spectacular this growth has been; again 214 years is just an instant. When we think about such growth, I don’t believe the causal factors are the people; it must be the system. The smartest people in Guam are as smart as the smartest people in Iceland are as smart as the smartest people in the U.S. Being born in the U.S. is more important to my success than anything that has happened since.
“Getting on the Right Train”
The most important thing about where you work is that you admire/love it. So it sounds like you liked your experience, and that’s great. But we come to my second recommendation, which is to get on the right train; that is, moving in the right direction. There’s no course in business school called “Getting on the Right Train”, but it’s really important. You can be an average passenger but if you get on the right train it will carry you a long way. You want to learn from experience, but you want to learn from other people’s experience when you can. Managing your career is like investing – the degree of difficulty does not count. So you can save yourself money and pain by getting on the right train.
Leaving a Legacy
I think an example is the best thing you can leave behind. If what I’ve done with Berkshire Hathaway – running a unique and independent company in true pursuit of shareholder value – persists and people learn from it to improve the way they invest and run their companies, that would be a fine legacy to leave.
Considering an Acquisition
Well, what do you look for in a girl? Seriously, you look for the logical things – passion, an interest in running the business, honesty.
Change and Technology
I don’t know how to spot durable competitive advantage in technology. To get rich, you find businesses with durable competitive advantage and you don’t overpay for them. Technology is based on change; and change is really the enemy of the investor. Change is more rapid and unpredictable in technology relative to the broader economy. To me, all technology sectors look like 7-foot hurdles.