This is chapter two of a guide
to REIT stocks. Begin here.
Unexpectedly in June of last year, I was asked to manage little over a quarter million dollars. I had saved about the same amount of cash and decided that I would pool and manage the two funds together.
Initially I planned to buy an Exchange Traded Fund (ETF). The ETF would track the market performance of large-cap stocks. Vanguard's S&P 500 ETF would have been a suitable solution. It would cost $150 per year (merely 3 basis points of the half million).
Then, looking for higher returns than market, I thought of buying shares in a mutual fund or an investment fund such as a private equity or hedge fund. But here management costs were pricey, between $10,000 and $20,000 (1% to 2% of the half million).
The third option was to buy real estate. With a conservative leverage of 50%, I could buy a 15-unit, multi-family property. The property manager would charge about $6,000 a year (5% of the annual revenue of $120,000).
But I decided on a fourth option: to manage the money myself. While I never seriously observed or understood the stock market, I was always interested in learning more it. Since early childhood, I was fascinated with commerce: how business worked and how the competitive landscape affected pricing. I also thought I had a decent grasp of finance theory since I had earned the Chartered Financial Analyst designation and had worked in commercial banking for ten years.
It was a risky decision, though. I was warned of many concerns such as: the U.S. equity market was overpriced, a recession was looming, I would surely buy and sell stocks at the worst possible time and that I would neither find the time nor the will to learn and research the companies.
I was also no expert. I was given the quarter of a million dollars to manage because of a general thriftiness. I drive a Subaru when I could afford an Audi. When I was 6 years old, I bragged to friends that I found a pencil to buy at a discount in a VAT-free part of southern Israel. And when my girlfriend asked our waiter to pack the leftover food, I knew she was a keeper.
Perhaps what drove the decision to invest on my own was no intellectual curiosity or deep fascination with business. Rather, I wanted to be accountable for my (financial) well-being. Or viewed differently - and I will let cognitive psychologists analyze why - I simply could not put a leap of faith in others to manage the money.
Seven months ago, my older brother Dori began to follow the stocks I was buying and selling. He allocated at first $10,000 in the same stock I had bought. I continue to write to him once or twice a month - whenever I buy or sell a stock.
Dori says this process works for him. He always wanted to invest money in the U.S. stock market but had zero interest in reading and researching companies.
He liked that I was personally invested in each of the stocks I wrote to him about. He also liked that he was the ultimate decision maker and that he was in control of his funds
In April of this year, I opened the service to other investors. I ask subscribers to first read the Guiding Principles. These are the same principles my brother had read seven months ago. I also have an introductory call with new subscribers to get a better sense of their investing goals and whether my investing philosophy aligns with their risk and return objectives.
The feedback I've been getting is great. Subscribers tell me that they are learning a great deal about stocks and businesses. And, like Dori, they feel more comfortable investing in positions in which I am personally invested, and that, in general, they have someone to write questions to.
My goal is to make money in the stock market - but not from you. Initially, I imagined the service to be free, but I quickly saw that free subscribers were not paying attention to my emails. Charging money, in short, is a mechanism to filter out uncommitted investors. Besides, I don't take people seriously when they offer something for free (and neither should you).
There is no growth strategy. And I have no aspirations to grow the subscription service. I spend zero dollars in advertising the service.
I would not want to manage a team of research analysts nor to manage anyone's money for that matter. To continue with the "I don't want" list: I don't want followers. I don't want to be on CNBC. I don't want to speak at investing conferences or to spend time networking.
I am also not a bond guy, nor am sophisticated enough to trade in derivative instruments such as futures, options or currency or cryptocurrency instruments. My focus is on bottom-up research, focused on U.S. based, small-cap companies.
So this is my story. How unexpectedly I was tasked with an assignment for which I had not planned for - but ended up immensely enjoying. How I shared my investing ideas with my brother, which led to opening the subscription service. It is also the story of not following conventional wisdom.