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Wealth Building Strategies

This billionaire’s “$5 million test” will make you a way better investor

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Posted by Simon Black - Sovereign Man

on Thursday, 19 October 2017 19:16

supertankIn 1982, a man named Jim Tisch bought seven supertankers for $42 million. He found them by cold calling companies he found in the Yellow Pages. 

Yes, $42 million is a lot of money… but these tankers were each four football fields long. That’s a lot of steel. And they could carry between 2-3 million barrels of oil. 

And these ships were built just eight years earlier at a cost of $50 million apiece. 

Jim Tisch is the son of the legendary Laurence “Larry” Tisch, the late billionaire founder of Loews. Corp – a conglomerate that has owned hotels, movie theaters, insurance, cigarettes, oil and watches over the years. 

And like his Dad, Jim had a nose for value… 

Low oil prices in the early 1970’s (around $3 a barrel) caused demand to soar. To keep up with the growing demand, everyone rushed to build supertankers (which can take years to complete).   

Then the Arab oil embargo in 1973 sent oil prices soaring to $12 a barrel by 1975. 

The Iranian Revolution (and ousting of the Shah) followed in 1979… And Iran drastically slashed its output. Oil jumped to over $37 a barrel. 

Now there was much less oil coming out of Iran (and a year later, Iraq), but the tankers were still floating in the water. 

Tisch started sniffing around for tankers in the early 80s, when, according to Tisch, only 30% of the global fleet was necessary to meet demand. 

That’s why he was able to buy at an almost 90% discount. As he said at a 2006 speech at Columbia University: 

[S]hips were trading at scrap value. That’s right. Perfectly good seven-year-old ships were selling like hamburger meat – dollars per pound of steel on the ship. Or, to put it another way, one was able to buy fabricated steel for the price of scrap steel. We had confidence that with continued scrapping of ships and increased oil demand, one day the remaining ships would be worth far more than their value as scrap. 

By 1990, the market for tankers was turning around… too many ships were scrapped and the volume of oil coming from the Persian Gulf was increasing. 

Noting the strength, Tisch sold a 50% interest in his ships for 10 times his initial investment.
 
He still maintained half ownership… and collected enormous cashflows from operating those ships. 
 
When he first stepped foot on a supertanker, Tisch said he formulated the “Jim Tisch $5 million test.”


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Wealth Building Strategies

How Much Money Do You Need To Retire On Dividends Alone?

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Posted by Contrarian Outlook

on Wednesday, 18 October 2017 08:12

This is a better question to ask than the typical “magic number” formula that most “first-level” thinking firms tout. Let’s review why their approach is fatally flawed, so that we can derive a more reliable method of our own based in actual reality (and funded by actual dividend payments.)

Fidelity Says What?

You should aim to have 10 times your final salary in savings.

But why? I suppose they are claiming that, if you earned $100,000 in your final year working, that you’ll want to earn this much in income every year for the rest of your life.

So, Fidelity says save a million bucks and you’re in good shape.

But how exactly is $1,000,000 supposed to throw off $100,000 in excess income annually?

Fidelity’s Strategic Dividend & Income Fund (FSDIX) pays 2.38% today. Which means, if you follow their advice to a tee, and buy their flagship income fund, you are earning $23,800 per year in income from your million-dollar stake.

That’s a start. But where exactly is the other 76.2% of you income supposed to come from?

Apparently this is up to us to figure out, because we’ve run out of sage advice from this respected investment firm. So let’s see if we can piece together a full retirement ourselves.

Shall We Also Withdraw 4% Annually?

We saved a million like they said, and we’re earning less than our neighborhood coffee barista. I presume we’re now supposed to sell shares to make up the difference. Most mainstream-following financial advisors say that we can sell 4% of our portfolio annually for income, so let’s try this.

FSDIX has returned 7.54% annually since inception, so a 4% yearly drawdown appears sustainable. However, we see three glaring pitfalls.

First, another 4% means another $40,000 per million for a total of $63,800. Still not what we are looking for.

Second, this particular fund has underperformed the S&P 500 over the last year, three years, five years and ten years. It’s also underperformed the broader market since inception (2003).

So what exactly was the point of buying a dividend fund when we were going to have to sell shares anyway? And see them appreciate less than a dumber, cheaper index fund?

FSDIX (Purple Bar) Underperforms – Always
FSDIX-Always-Underperforms-Graphic



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Wealth Building Strategies

Chart: The Trillion Dollar Club of Asset Managers

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Posted by Visual Capitalist

on Tuesday, 10 October 2017 07:00

$1T+ CLUB IS DOMINATED BY U.S. BASED ASSET MANAGERS

In the late 1700s, it was the start of the battle of stock exchanges: in 1773, the London Stock Exchange was formed, and the New York Stock Exchange was formed just 19 years later. 

And while London was a preferred destination for international finance at the time, England also had laws that restricted the formation of new joint-stock companies. The law was repealed in 1825, but by then it was already too late.

In the U.S., exchanges in New York City and Philadelphia took full advantage by dealing in stocks early on. Eventually, for this and a variety of other reasons, the NYSE emerged as the most dominant exchange in the world – helping propel New York and Wall Street to the center of finance.

THE CENTER OF FINANCE

Wall Street, and the U.S. in general, is now synonymous with finance – and most of the world’s largest banks, funds, and investors maintain a presence nearby. The biggest asset management companies, which pool investments into securities such as stocks and bonds on behalf of investors, are no exception to this. 

Today’s chart shows all global companies with over $1 trillion in assets under management (AUM).

Not surprisingly, all but 17.1% of assets managed by this $1 Trillion Club are overseen by companies based in the United States.

trillion



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Wealth Building Strategies

FT: Japan's Robotic Future Offers Investment Bonanza

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Posted by Financial Times

on Thursday, 28 September 2017 06:26

80247e5b-d274-4caf-864c-38beb7a27d1dInvestors are being urged to not overlook Japan’s robotic future as unfavorable demographics reportedly are fueling innovation and investment opportunities.

“Japan, simply put, is in the midst of a robotics revolution that will transform nearly every aspect of society and be replicated, in some shape or form, around the world given the aging populations of Europe, the U.S. and even China,” the Financial Times reported.

Japan has been pushing on the robotics frontier for years. As a result, the use of robotics has expanded beyond the Japanese factory floor to include schools, hospitals, nursing homes, airports, train stations and even temples, the FT explained.

No other country in the world has strategically embraced robots as much, with the state’s revised Japan Revitalization Strategy seeking to achieve “a new industrial revolution driven by robots,” the FT said.

The FT explained that the best way to invest is by either directly owning leading Japanese robotics manufacturers and service providers, or through the ROBO ETF, with Japanese companies comprising roughly 30 per cent of the total market capitalization.

....continue reading HERE

....also:

Steve Forbes: 'Automation Actually Enriches the Economy'

 

 



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Wealth Building Strategies

Build Your Economic Storm Shelter Now

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Posted by John Mauldin - Mauldin Economics

on Monday, 25 September 2017 05:45

Local Mess
The Uneven Distribution of Pension Problems
Personal Storm Planning
Change Your Scenery
Chicago, Lisbon, Denver, Lugano, and Hong Kong

If you’re idly conversing with someone you don’t know well, the weather is usually a safe topic. It affects everyone in some way, so it’s a shared experience – but there’s something else, too. The weather is no one’s fault. It is what it is, so you need not worry that the other person will blame you for it. None of us can control the weather. And lately, the weather has been interesting, unless you had to live through its more extreme manifestations. Then it’s been hell. Before this week, I would’ve said that Harvey and Irma wrought devastation in Texas and Florida. But then Maria thrashed Puerto Rico and took devastation to a whole new level. I have a lot of friends who live in Puerto Rico, and I’m not sure how things are going to go for them over the next few months.

We can prepare for storms when we know they’re coming, but we can’t stop them in their tracks or change their path. That’s true for both hurricanes and the public pension problem I wrote about last week. Where pensions are concerned, we have the financial equivalents of weather satellites and hurricane hunter aircraft feeding us detailed data. We know the barometer is dropping fast. The eyewall is forming. But we can’t do much about the growing storm, except get out of the way.

170923-01

Problem is, the coming pension and unfunded government liabilities storm is so big that many of us simply can’t get out of the way, at least not without great difficulty. This holds true not just for the US but for almost all of the developed world.



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