Either write something worth reading or do something worth writing. - Benjamin Franklin
Last month, Portland had a string of semi-warm, sunny days-a rarity for Oregon in February. I was fortunate enough to bring my two youngest children out to the bottom of our hill to watch them ride their bikes. My youngest was new to the whole game. It took him some time to acclimate to the idea of pushing off one foot after the other to propel the bike forward in an even fashion. Like any parent, I tried to coach the fundamentals of bicycle riding (i.e. keep your eyes up and focused on the road, put your hands on the handlebars, and push with your legs.) Despite his determination to “ride” the bike, my son continued to fall down.
Although, the design and capabilities of bikes have advanced from when we were young and riding for the first time, the fundamentals still apply. Regardless of how much the bikes, roads and rules have evolved, the fundamentals of biking have not changed. The same concept applies to investing. I believe in utilizing fundamental investing habits as a great way of establishing key investment policies and principles for your overall financial plan. The minute you take your eyes off the road, you may very well end up in a financial fall.
In the following article, I will be discussing the fundamental concepts of investing. These are the same rules, policies, and discipline that Lifelong College Savings instills in our clients. Additionally, Amber Orton will cover some of the key changes in the real estate/mortgage market.
Fundamentals of Investing – Part 1
The four most dangerous words in investing are ‘This time it’s different’ — John Templeton, short description of who JT is.
Let’s face it. The world of finances is complicated. You watch CNBC, Fox or Bloomberg and hear a lot of jargon about buying and selling on technical’s, positive/negative job growth, profits are short/have met/or exceeded analyst expectations, etc. What does it all really mean? ABSOLUTELY NOTHING if you are merely making a speculative play in the market.
The over-simplified purpose of investing is to allocate a portion of your overall assets into a vehicle in hopes of a future return. However, too many investors have taken a very simplistic approach and turned it into a form of gambling called, “speculation.” There are many different levels and aspects of speculation. Some of which can be disguised as what seems like a great investment.
In my personal opinion, one of the greatest basketball players of all time was Michael Jordan. Outside of endorsements, Michael Jordan made over $2,762,500 for the first four years of his career. In his last year alone, he made over $33,140,000. Although, Michael Jordon was a great basketball player, do you think the Chicago Bulls should have paid him $33,140,000 for his first year of basketball? Most likely not. Regardless of how great the investment, an investor needs to evaluate the intrinsic value of an investment and invest accordingly.
Unfortunately, many investors choose to buy stocks that are fundamentally overpriced. It is crucial to not blindly follow the trends of the market. Investors are too quick to jump on the next best fad or hottest trading stock.
An example of this happened on December 20, 1999. Juno Online Services announced an offering for FREE email and internet along with spending millions on advertising. Subsequent to this announcement, their stock price went from $16.37 –> $66.75 in 2 days. Today, the company has merged with NetZero and has become United Online (trading at $4.76/share – 3/13/2013).
The overall lesson is that fundamentals and value investing should be placed into your overall investment philosophy. Quotational values (daily pricing) matters much less, than if the intrinsic value of the investment is higher than what it is trading at. Thus, the first rule of fundamental investing is to not speculate but to invest intelligently.
For more information on portfolio management, please contact Lifelong College Savings at 503-747-6534
Refinance, Buy, or Sell? The Time is Now
Thinking about Refinancing, buying, or selling? With record setting low rates, it is inevitable that the time to refinance and take advantage of new home programs is now. However, many borrowers have been shot down due to high loan-to-value, debt-to-income, existing private mortgage insurance (PMI), or another overlay in the current guidelines. There is talk of the new HARP 2.0 program, yet thousands of people are still twirling their thumbs in anticipation of how this program will actually help them save money or better their current position.
HARP 2.0 is the Home Affordable Refinance Program that the Obama administration has revised from the original HARP program. The original program was designed to help those who are current on mortgage payments, yet have underwater properties, refinance into a fixed loan with a lower monthly payment. The key condition in the program is the loan must be owned by either Freddie Mac or Fannie May. Unfortunately, the program has had many overlays in its current guidelines, including using a loan-to-value(LTV) constraint of between 80-125%. These overlays have lead to a less than optimal result in providing relief where it is needed most.
In order to address this inefficiency, the Obama Administration released the HARP2.0 program. The main benefits of the new program are the following:
- Appraisals are no longer needed for a majority of applicants
- The cap on the loan-to-value has been lifted from 125%, which means borrowers can qualify regardless of how far their home values have fallen
- Elimination of some risk based and underwriting fees
- The deadline for the program has been extended to December 31, 2013
Along with the new HARP2.0 program, there are many other loan assistance programs that are hitting the marketplace. One in particular we would like to elaborate on is the “DU Refinance Plus with MI” program. This program is noteworthy because it has opened the gates for those who have recently been turned away, even though eligible in every other aspect for the current HARP and HARP2.0 programs. Countless borrowers have been rejected based off existing private mortgage insurance (PMI) on their home loan, therefore making it virtually impossible for these borrowers to refinance. This particular “DU Refinance Plus with MI” program offers a new niche for borrowers to refinance at exceptional rates.
At LLWM, we strongly aspire to be of assistance to those in need, in whatever marketplace that may be. We are constantly on the lookout for new niche programs that may benefit our clientele. Whether you’re in the market to buy, sell, or refinance, take advantage of exceptional rates and new home loan programs today. For more information on home loan programs or to learn more about your options, please contact Lifelong College Savings at 503-747-6534.