Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Last week I was featured on MyOwnAdvisor.ca by its creator, Mark.
It was a great privilege to share my financial independence journey with his readers.

One of the most useful skills I’ve explained in the interview is the ability to use leverage. For long time readers of this blog, you already know I’m very fond of financial leverage. But that’s only one type of leverage. There are many more.

Some are more outdated while others take advantage of newer trends. So in today’s post I’d like to share the last part of the interview detailing all the different ways you can use leverage to create prosperity, especially in 2022 and beyond.

Leverage As A Mental Model

You can think about anything in the world through the lens of leverage. The purpose of doing this is to work smarter, not harder.

Normally you get paid 1 time your regular wage. Maybe 1.5 times if you work overtime. But imagine getting paid 10 times, or even 100 times for putting in the same working hours. 😀

Here are a list of ways you can multiply your productivity using leverage.

Labour

This is the oldest leveraging method in the book. People were leveraging labour thousands of years ago. That’s how the pyramids were built.

Instead of doing all the work yourself you hire other people to help you build and produce faster. This is how businesses start.

Facebook would not be such a large company today if Mark Zuckerberg didn’t hire other engineers to help him grow the platform.

Instead of writing blog articles yourself to earn $100 per post. You can outsource your work and pay someone else $50 per post. All you have to do is the editing and formatting and keep $50 for yourself. Find 10 people willing to write and you can make $500 instead of $100.

Human labour is the most common way for this type of leverage. But you can also use animal labour like many countries still do.

Financial

As an introvert this is my personal favourite because it doesn’t require people skills. I can simply use other people’s capital to invest and increase my own investment returns. I bought my first condo using 17x leverage. The value of the property has went up by roughly 100% since my purchase. But my unrealized profit sits at about 1,700% thanks to using other people’s money.

Expertise or Specific Skill

You might have skills or knowledge that put you in the top 1% at something. It doesn’t have to be related to your career. Once you discover what that is you can look for ways to monetize it and change the trajectory of your financial life.

Similarly you can leverage the expertise of other professionals to help you. For example I used a knowledgeable real estate agent to buy my home. She is an expert at negotiation and knows the seller’s mentality. She even spoke to the head listing agent to convince her to get the sellers to agree. With my agent’s help I would have paid at least $50,000 more than my actual purchase price. A good professional is worth their weight in gold.

Consulting is another service to leverage. If you spend some money to get suggestions on how to run your business better, and save many times what you paid the consultants then it’s worth it.

New Technology

The final way to multiply your output is to leverage technology.

For example if you use a chainsaw, you could probably fall 10 times as many trees as simply using an axe.

But at one point in history an axe was a much better tool than anything else at the time.

New technology is simply a tool that is not yet widely used by the population.

In today’s world, most new technology revolves around computers and the internet. If you learn programming you can leverage your software skills in any industry to create digital tools for others to use. Perhaps you have a very particular set of skills. Don’t be taken by surprise if others want to learn from you.

Maybe you can offer an online course and sell it to millions of people around the world instead of giving individual lectures to a limited audience each time. The democratization of technology means anyone can become a creator, an influencer, an entrepreneur.

You don’t need to implement any of this right away.

But just being open to the possibility of using leverage can increase your future income potential when the right opportunity comes along.

Of course leverage necessarily comes with added risks and responsibilities. With labour, your employees may end up costing you more than the value they produce. With capital, you may lose other people’s money or struggle to pay back the debt. And new technology may fail, or even backfire if used incorrectly. This is why before implementing any kind of leverage, you first have to be confident in your ability to make excellent decisions.

If you have good judgment, and somehow find a way to make use of all three types of leverage, then you will be unstoppable.

______________________________________
Random Useless Fact:

Human history was filled with violence. But the 21st century has been mostly peaceful. 🙂

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Do you enjoy looking at people’s online traffic statistics? If so, today’s post is for you. 🙂

One year ago on January 17, 2021 I began my YouTube journey uploading my 1st video on leveraged investing.
Drawing from my own experience I explained how borrowing to invest can accelerate your path to FI.

Since then I have uploaded another 42 videos, including YouTube shorts.
YouTube has taught me a lot over the last year.

But what I didn’t expect when I started was how long each video takes to produce.

Some videos take more time than others, but on average it takes me 1 hour of work per 1 minute of playtime.
So a 12 min long YouTube video takes me about 12 hours to make. This typically breaks down as follows.

• 2 Hours – Pre-production – research on the video topic, and script writing.
• 1 Hour – Recording and editing the voice over.
• 8 Hours – Editing the video, including stick figures, sound fx, music, etc.
• 1 Hour – Uploading, sharing, and optimizing search results for the video.

Good thing I only upload once a week. 🙂

Some YouTubers make videos every day. I don’t know where they find the time unless it’s their full time job, lol.

In today’s post I will share I learned about YouTube over the last 12 months, show some interesting analytics, and give my projections going forward. 🙂

My journey making YouTube videos – Year 1 Review

At the end of December 2021 I had 602 YouTube subscribers.
I didn’t have a goal when I started but I’m pleasantly surprised by this number. 🙂

I’m so grateful for everyone who has subscribed to my channel. 😀 It’s hard to believe over 600 people like my content enough to manually click on a button because they want to see more of what I make in the future.

600 is quite a lot. I’m picturing what that many people looks like in a room and it’s pretty crowded, lol.

To be able to influence that many individuals feels like a true privilege. 🙂

2021 statistics and progress

Here are some graphs from YouTube’s analytics and vidIQ over the course of my first year.
These figures seem accurate from what I can tell.

Views

Out of 20,000 views, roughly half came from Canada.

The typical viewer is in my age group. Go figure. 🙂

Here is a breakdown of the views over time.

I shared my first video on social media and my YouTube channel was off to a great start.
Then it stagnated for several months, and started to grow again in the summer. 🙂

My 2 most viewed videos are:
1) XEQT vs VEQT – All-in-one ETF portfolio comparison (2,795 views)
This video has mass appeal and provides valuable insights for Canadian investors.

2) TFSA: How to build a $1 billion tax free portfolio (1,865 views)
This is a silly concept. I’m glad other people found the idea of a $1 billion TFSA as entertaining as I did, lol.

My 2 least viewed videos are:
1) How to buy stocks using Interactive Brokers Client Portal (119 views)
I uploaded this tutorial video recently. It needs some time to build more views.
2) What does negative real rates mean for your portfolio? (161 views)
I’m surprised this video didn’t perform well. The subject matter itself is intriguing. So maybe I did a poor job of explaining it. 🤔

Watch time

This is how many hours of videos were watched per week. 1,309 hours in total. Wow. 🙂

Again, January was a great month. And then no growth for awhile. There was a bump in June, but that did not sustain itself and dropped soon after.
It wasn’t until September that people spent more time watching my videos. I assume part of the reason is simply because I have more videos to watch, lol.

Goals for year 2

I plan to continue making weekly videos. The end of 2022 will mark my second year as a YouTuber, and I have the following targets to aim for:

• 1,500 total subscriber.
  If I convinced 600 people to subscribe in my first year, I believe I can manage 900 more for my second year.
  I will break this goal down into 2 parts:
  1) Reach 1,000 total subscribers by the end of June 2022.
  2) Reach 1,500 total subscribers by end of year 2022.
• 3,000 hours total watch time.
  This would be amazing if my videos were watched this much. It’s the equivalent of streaming content for 24 hours a day for 125 days straight.
• Collaborate with other YouTubers.
  This sounds fun. But I’m not yet sure how I can do this.

Wrapping up

My YouTube channel doesn’t generate any income right now.
New creators can’t access ad revenue until they have 4,000 hours of watch time within the last 365 days.
As you can see above, I’m only at 1,309 hours. So that’s still far away from monetization, lol.

And that’s okay. I was already FI before starting YouTube so I don’t need my videos to make any revenue.
I just want to have another way to share my thoughts about money with the world other than blogging.

Back in 2020 I conducted an audience survey.
The results? Readers of this blog suggested I should start making finance videos. So I did, lol. 😀

Again, thank you everyone for supporting my new venture into YouTube over this past year.
I literally wouldn’t have any subscribers if it weren’t for amazing folks like you.

Every like 👍, share, comment, and subscription helps me a lot and I’m grateful for each one.
My wife Pearl and I plan to celebrate once I hit 1,000 subscribers. 🙂

Starting YouTube has given me another source of purpose and joy.

I love the interaction with people in my new YouTube community tab which I recently unlocked at 500 subs.
And I look forward to making more videos throughout this year. 😀

______________________________________
Random Useless Fact:

Camping is offensive to homeless people. 😂

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

What’s new in the new year

Last year I set out 5 goals and accomplished 4 of them. Not bad overall. 🙂
The act of writing down goals, and tracking them over time has helped me so much.

This year I have 6 new goals.

You can check out my new video explaining each one, or continue reading this post for a summary. 🙂

2022 goals

• Increase household net worth by $300,000
  This is $50,000 more than last year’s target. As usual most of the heavy lifting will be produced by our existing assets.
• Borrow $130,000+ on margin
  Right now I have roughly $110,000 CAD of margin debt. I want to increase my borrowing to $130,000 total. I’ll elaborate on this below.
• Read at least 5 books
  I managed to read 4 books in 2021. So this year I want to try reading one more.
• Meditate for 60 minutes a day for 60 consecutive days
  I heard this is good for you and lots of highly productive people do it so I’m going to try it out.
• Make 10% return in my margin account
  Higher if possible because inflation is running pretty hot these days.
• Earn $20,000 in net premiums from trading options
  In 2021 I earned about $10,000 in premiums. This year I plan to double that figure because I feel more comfortable making riskier trades with higher returns since I can manage them now.

Why I want more margin debt

Normal people have goals to pay down their debts. But I’m anything but normal, haha.

Here’s how much debt I currently owe in my margin account.

I want my total margin debt balance to exceed $130,000 CAD because that would give me the privilege to borrow at more favourable interest rates.

IBKR has tiers of borrowing. Any additional debt I take on after the $130,000 threshold will be charged an interest rate of only 1 percent. 😀

Yes. That’s insanely low, lol.

As long as inflation stays above 1%, I would be essentially getting paid to borrow new money.

What’s the catch? Borrowing more on margin adds to the risk of receiving a margin call if my stock holdings fall precipitously. This means I need to put the proper insurance in place to make this work. With liquidity being so readily available there are multiple strategies I can use to make sure I don’t lose my shirt. For example, I could tap into my unused HELOC to cover any unexpected margin requirements. I look forward to this new challenge of managing more debt. 🙂

______________________________________
Random Useless Fact:

Prevention is often better than cure.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

December options trading review

I received $1,586 in premiums selling options in December.

This brings my total premiums earned to $10,732 for the entire year. 🙂

I made one bad trade in October, selling a TD covered call. That move cost me $358 this month as I rolled my TD call option from $88 strike to $92, and extended the expiration by a month. This roll resulted in a net debit of $358 because I paid $721 to close my short position, and sold another call for $363.

Transaction details below:

Light teal = Roll
Light purple = Short Strangle

Despite the negative cashflow from the TD roll, I made a lot of premiums during this period.
And overall my net income from options reached a new high for the month of December. 🙂

I traded short strangles on 2 Canadian companies

Aecon Group (TSE:ARE). This is a construction company. I initially sold a put option with a strike price of $18. And it got assigned. So I decided to sell a covered call at $20, and sell another naked put at $16. This allows me to collect premiums from 2 options essentially. 🙂 ARE is currently trading at $16.99/share. Hopefully the stock stays within the $16 to $20 range.

Stella-Jones (TSE:SJ) is a lumber company. I initially sold a put option on this as well with a $40 strike price. That was in November. It expired in-the-money in December. So I wrote another put option at $38, and sold a call option at $43. Hopefully it stays within this range so both options expire worthless. 🙂 SJ is currently trading at $39.58/share.

What is the point of using short strangles? It’s so I can do my “wheel strategy,” but at the same time continue to buy stocks when they dip lower and become cheaper.

The wheel is when you sell puts to buy stocks if they fall in price. And then you sell a covered call on those assigned shares to sell stocks at a higher price.

A short strangle is basically the part of the wheel strategy where you sell calls, with the addition of writing another put option at the same time.

As mentioned I hope ARE and SJ continue to trade within defined ranges. This strategy is neutral, and should be used when I believe the underlying stocks will not move up or down significantly. 🙂

2021 options summary

I’ve made a total of 133 option trades in 2021. That’s a lot of transactions. lol.

24 of those were call options, but the majority at 109 were put options.

My initial positions are always short. I look for options I can sell to earn a premium that’s worth the risk.
I only “buy” an option for the purpose of closing or rolling it out.

Out of 133 options, only 5 expired ITM and got assigned. 🙂

The growth has been pretty steady throughout last year.
But it appears I am reaching a plateau and will probably stay around $1,600 a month moving forward.

I made just over $10K in net premiums trading options for 2021.

This year in 2022 I want to double my options income and reach $20K in net premiums. 🙂
This is after any losses and commission costs.

Will I be able to hit my goal? Only time will tell. 😀

______________________________________
Random Useless Fact:

They don’t music like they used to.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

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So long 2021

What a year it has been. No matter if you switched jobs, made money in the markets, or faced financial hardships, it’s fitting to say that this has been a year of change for many people.

Personally it has been an incredible year for myself and my wife. In terms of income we both made more than 2020. My wife is self employed and works in the mortgage industry. Her business did better this year. It was a great year overall for the financial industry. Her friend, a financial advisor at RBC, received a $15,000 bonus this month.

However, there is more risk now than before as the precarious financial system is more reliant now than ever on cheap money. And that’s something everyone needs to be aware of.

2021 a year in review

Roughly one year ago I wrote down 5 goals I wanted to accomplish in 2021. Now that we are at the end of the year let’s see how things are going.

• Increase household net worth by $250,000 (done)
  This target is $50,000 more than last year’s. I’m happy we were able to reach it. 🙂 We are a duel income, no kids household, so we saved a lot of money this year. But surprisingly most of our net worth increase in 2021 actually came from investment gains. Our stock portfolio alone experienced nearly $200,000 of appreciation excluding any new contributions. We are heavily invested in the tech and financial sectors.
• Create personal finance videos (done)
  Year to date I’ve uploaded 39 videos. These are created to explain financial topics that are easier to explain with visual and audio support.
  You can find my latest video here where I share 7 productivity tips that I use to increase my net worth.
• Invest in the psychoactive drug market (done)
  I put some money towards small companies in making or selling psychedelics. You can read about which stocks I chose in this previous post.
  So far I am down 20% in this space. This is a long term investment for me so I may add more to my positions in 2022.
• Reassess my investments for a potential deflationary environment (done)
  I purchased a lot more defensive stocks than growth stocks this year. But it looks like we didn’t see much deflation in the economy. Instead we got inflation instead. Companies that can maintain pricing power are what you should own when inflation is high. Also, real estate is always a good bet. And about half of my portfolio is real estate.
• Diversify away from North America (WIP)
  This one is still a work in progress. I’ve been selling monthly puts on Emerging Market ETFs. But so far none have expired in the money, haha. I’ve made about $400 on Vanguard’s ETF (VWO) but do not own any shares yet. Maybe I have to get more aggressive with my options positioning. 🙂

Liquid net worth – Oct through Dec

Here’s a summary of my liquid net worth changes for the last quarter of the year.
The last stretch has been amazing. The stock market is at all time highs.
A few put options got assigned so I was obligated to purchase some new stocks. But most are performing quite well so far.
Technically there’s a few more days remaining in this period, but I don’t expect it to move the needle much.

Liquid Assets:
Cash = $25,000 (+$4,000)
Canadian stocks & bonds = $386,000 (+34,000)
US stocks & bonds = $234,000 (+12,000)
Retirement = $235,000 (+7,000)
P2P lending = $27,000 (unch)
Mortgage funds = $45,000 (unch)
Total = $952,000

Liquid Liabilities:
Margin loan = $115,000 (+2000)
Total = $115,000

Liquid Net Worth = $837,000 (+$55,000) + 7.0%

All numbers are rounded to the nearest $1,000 and in $CDN at 0.78/USD

That is a pretty substantial increase over last quarter. 🙂 It also represents a 30% increase of liquid net worth year over year.

I am only $48,000 away from having $1 million in liquid assets. I’m hoping to become a liquid millionaire in Q1 of 2022. 🙂

No Stopping the Real Estate Boom

In terms of fixed assets I’m expecting my real estate holdings to grow by over $100,000 next year as the new government assessed values release early next month in January. If you own BC property, you will probably be pleasantly surprised with your new assessment as prices have increased a lot in 2021. I’m certainly excited to see what my rental properties are worth. 😀

According to the Canadian Real Estate Association, prices in November across the country was up 20% year over year. I don’t think we’ll see another 20% increase in 2022. But due to a continued shortage of supply, and more residents moving into large Canadian cities, I expected average housing prices to continue to climb another 12% to 14% in 2022. At least that’s what my analysis shows.

The cryptocurrency roller coaster ride

This year Bitcoin has gone up to $88,190 and down to $33,100 CAD. That’s a huge amount of volatility. My plan is just to continue holding it for now.

I try to shake my phone every day and get free Bitcoin. So far I have collected 0.00183055 BTC total for simply shaking my phone, lol.
That’s over $100 of free Bitcoins at today’s price. It’s not much, but it’s free money. 🙂

You can get up to 1000 free Satoshis every day by spending 2 seconds to shake your phone.

Feel free to use my referral link here, if you want to sign up for Shakepay and get free Bitcoins as well. I think the holiday $30 cash bonus is still valid for the time being.
Basically we’ll both get $30 if you sign up with that link and deposit $100 into your new account.

Besides Bitcoin and Ethereum I have bought some additional alt coins as well. So far I keep these in my Binance wallet.

I also have roughly $150 worth of Floki Inu, which has not done very well since I bought it haha.

My plan moving forward is to keep cryptocurrencies between 2% to 5% of my investment portfolio. That way if they all go to $0 it doesn’t have a large impact on my overall finances. But if they 10x in value (unlikely), then it will be substantial enough that I can sell a portion and make some meaningful contributions to dividend growth stocks, earning future passive income. 🙂

Closing out 2021

I’m fortunate to have been well positioned when this year started. Most of the gains are just from buying quality companies and wait patiently as they do all the work.
My non-registered stock portfolio is almost worth $300,000 now.

I think once you have a fairly large enough portfolio, it might be worth your time to look for ways to increase your returns instead of relying solely on a passive investment approach.

My margin account performed very well in 2021, thanks in part to my options strategy.
I was able to net $10,000 in option premiums, after accounting for commission and losses. Next year I hope to double this amount. 🙂

It’s possible we’ll see a market pullback next year. Statistically we get a 10% or larger market drawdown about once a year. But if that happens then it’s just another opportunity to buy more. Despite the stock market being overpriced in general, there are still value to be found. For example, last week I uploaded a YouTube video showing how I purchased Richards Packaging (RPI.UN) an Ontario company operating across North America.

The total purchase price was $6,059 for 100 units. After I released the video this investment shot up, and is currently worth $6,515 today.
Its P/E ratio was trading below its historical average, and I think it’s a good long term hold. It’s also a very thinly traded stock so many people know about it.

Same thing in real estate. Yes, the overall market in Canada is expensive. But there are still pockets of opportunity where you can reasonably expect 10%+ annual returns, assuming you’re willing to hold the property for 7 or more years. Never interrupt compounding unnecessarily as Charlie Munger would say. 🙂

______________________________________
Random Useless Fact:

Santa Claus only worn red since he started shilling for Coca-Cola

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

This true story I found in an online journal depicts the magic of compounding and the impact behavior has on our finances.

Grace Groner and Richard Fuscone

Grace Groner was orphaned at age 12. She never married.
She never drove a car. She lived most of her life alone in
a one-bedroom house and worked her whole career as a
secretary. She lived a humble and quiet life. This made the
$7 million she left to charity after her death in 2010 at age
100, all the more confusing. People who knew her asked:
Where did Grace get all that money?

Grace took humble savings from a meager salary and
enjoyed eighty years of hands-off compounding in the stock
market. That was it.

Weeks after Grace died, an unrelated investing story hit
the news.

…

Richard Fuscone, former vice chairman of Merrill Lynch
declared personal bankruptcy, fighting off foreclosure on
two homes, one of which was nearly 20,000 square feet
and had a $66,000 a month mortgage.

Fuscone was the opposite of Grace Groner; educated at Harvard
and University of Chicago, he became so successful in the
investment industry that he retired in his 40s to “pursue
personal and charitable interests.”

But heavy borrowing
and illiquid investments did him in. The same year Grace
Groner left a veritable fortune to charity, Richard fled for
bankruptcy.

It is the study of how people behave with money.

And behaviour is hard to teach.

______________________________________
Random Useless Fact:

The first calculator was invented in the mid 17th century.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Abundance starts with intention

They say how you spend your days is how you spend your life.
That’s why it’s important to stop and reflect on your habits once in awhile. 🙂

Here are some things to help attract wealth into your life.
Maybe you’re already familiar with them. But here’s a friendly reminder that many good things in life are free.

1. Say “no” more often.
Warren Buffett says, “the difference between successful people and really successful people is that really successful people say no to almost everything.” It’s so much easier to focus on accomplishing your goals if you have fewer distractions.

2. Make to-do lists.
What gets measured and tracked gets done. And what gets prioritized gets done faster. Organize your tasks for better productivity.

3. Believe you can shape your own life.
Things can either happen to you, or you can make things happen. The latter will put your focus on things you can actually control.

4. Know when you have enough.
It’s great to play the money making game. But the point of playing is to win and then get out. The purpose of learning to fight is so you don’t have to fight. Life is short. There has a be a better way to spend it than endlessly chasing money.

5. Cultivate passion and obsession.
Don’t just want something, actually commit to it. Prioritize your time around whatever it is you seek and show the world how much you really want it. It doesn’t matter who you are. You have the potential to be the top 1% at something. Find it. Immerse yourself in it. Change your life.

6. Focus on opportunities, not obstacles.
Both are constantly around you. What you pay attention to is what you will find more of, always. Successful people rarely complain or criticize – probably because they’re too busy looking for new opportunities.

7. Become comfortable being uncomfortable.
Saving money should not feel effortless. If you’re not somewhat uncomfortable with your savings rate, it probably isn’t high enough. If you don’t move out of your comfort zone you will stagnate and get left behind. Being uncomfortable is necessary to get ahead in your career, and in investing for your future.

8. Associate with already wealthy people.
If you secretly despise money or resent the rich, then wealth will elude you. Instead, admire and learn from others who are already where you want to be.

9. Think “both” instead of “either or.”
Try to find a solution where all parties can win. Learn to compromise and negotiate.

10. Focus on your net worth more than your income.
Wealth is what you’re really after. Income is just a way to transfer stored wealth from one person to another. If you have control over wealth you can create sustainable income. If all you have is income you will have to depend on someone else’s wealth.

There you have it. Take some time to reflect on these habits.
Time is a currency you can only spend once.
So just like money, make the most of it by spending it intentionally. 🙂

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

November options trading review

I received $1,579 in premiums selling options in November. 😀 This is a new record high for me. Yay!

For the first time ever I had my options assigned. I will discuss what those were, and what I plan to do with those stocks next. 🙂

First, here are the detailed trading transactions below. 🙂 This table is the same as in previous months, except I added a new column on the right (Implied Volatility) because a reader requested it.

The implied volatility indicates how volatile the underlying stock is, and directly correlates with how much premium you can earn from selling its options.

I rolled TD and WISH options forward because I didn’t want them to get assigned, lol.

I also made some pretty bold moves in November. Near the end of the month I sold a put option on Sea Ltd, a large gaming company. I earned $288 in options income. And as you can see under the initial delta column, there was only a 6% chance this option would expire in the money.

However, within just 3 weeks SE shares fell 12%. Now there is a good chance I will have to spend $24,000 to buy 100 shares of this stock this Friday. We’ll see what happens.

My first time getting assigned a stock

If you’ve been reading these monthly updates you might remember in October I sold a 2 put options on Aecon Group (ARE), a Canadian construction company. My strike price was $18 and it closed at $17 per share on expiration date.

This means I spent 200 x $18 = $3,600 to buy 200 shares.
The carrying cost on the margin debt I used to buy it is 1.66%.
ARE is currently paying a 4.28% dividend yield. 🙂

Lightspeed (LSPD) is another stock that was assigned. This 42 day option initially had a 12% chance of expiring in the money. I thought 12 is conservative. But apparently it closed on expiration date so deep in the money it’s going to be hard to recover financially from this trade, lol.

Here’s a refresher of what my October’s trades looked like. I’ve highlighted the two stocks mentioned (ARE) and (LSPD) which both expired in the money on November 19th, hence the assignments.

So what am I going to do with these 2 stocks?

For ARE I plan to use a short straddle.

The reason is because ARE is a resilient company with a positive EPS growth rate of 4.7%. The CEO of the company just bought $318,000 worth of ARE shares last week. That shows confidence of upper management in the business. The P/E ratio of 16.7 is below the 5 year average of 23.2.

All in all, Aecon Group isn’t an expensive company given its historical growth and future financial projections.

This is why it’s important to do your research into a stock before selling a put. I am comfortable buying ARE at $18/share because I’m pretty sure it’s worth $20 today. However, it’s not super cheap either.

This is why a short straddle should work very well here.

My Short Straddle strategy for ARE

How this works is I will sell both a put option and a call option at the same time on ARE.

The put option means if ARE goes down lower in price I will buy even more of the stock. This makes sense. If I’m already happy to buy ARE at $18/share. Then I would be even more excited to buy it at $16 or $14 per share. 😀 The underlying business probably isn’t going to change. But the markets can be irrational sometimes, which leads to undervalued stocks.

Meanwhile, the call option I sell means if ARE goes up higher in price I will sell my shares. This essentially completes the wheel, which is an amazing options strategy that I wrote about before. Since I bought ARE at $18, if I am forced to sell it at – let’s say $20 – then I essentially lock in a profit of 11%. 🙂 ARE was trading at $20 just a few months ago.

And finally if ARE shares stays relatively flat then I continue to hold the 200 shares I currently have, keep the premiums earned, and nothing happens. 🙂 This strategy works great on a stock like ARE right now where it’s not over priced, but not dramatically oversold either.

It allows me to maximize the premiums I can collect by earning income from both a call and a put option, at the same time.

I don’t see how this can possible end badly. 🙂 Which is not something I can say for my Lightspeed Commerce stock assignment, lol.

I bought 100 LSPD shares for US $70 each, which was my strike price. In retrospect my strike was kind of high. Today LSPD is trading at just US $44/share, oops. 😅

Selling a covered call for LSPD

At first I was concerned when the stock fell 28% in a single day in early November. What the heck happened? Then I was somewhat relieved when insiders started to buy more of the stock. But my relief was short lived, because most recently insiders are dumping their shares, lol. What a roller coaster ride. I have no idea what they’re trying to do now. 😂

My only source of confidence now is the company’s growth. Hopefully it does not slow down. According to 11 analysts that cover this stock, the average price target prediction is $106 with the gloomiest analyst putting the stock at $80 in 1 year from now.

So what is my plan with LSPD? Will as you might have seen in my November trades table in this post I have sold a $80 call option. If the stock rises back up above $80 then it will get called away from me. As of today there is only a 6% chance for this option to expire in the money. So I don’t think it will be exercised.

But then again, that SEA Ltd option also had a 6% chance, and now it’s up to 30%, so who knows?

My mistake with LSPD was underestimating just how much this stock can fall within a short period of time.

I learned that for next time, with high volatility technology stocks I will pick a strike price that has a less ambitious delta. I think around -5% would be a good target. The delta for LSPD was -11.9% and that was clearly too aggressive.

Either that, or I should just stay away from high growth companies with negative earnings, lol.

LSPD was trading at $58 per share when my option expired and I paid $70 per share. This means I left 100 x $12 = $1,200 on the table. But it’s more like $1,000 after accounting for the premiums I already earned.

This is the most I’ve lost with options so far. $1,000 is a lot of money. But luckily it’s still manageable. And I’m pretty fortunate nothing has blown up in my face yet despite the recent market pull back.

I also had 2 call option get exercised. One for CNQ, and one for SUM.

I’ve earned $10,000 in options premiums so far this year, which has been phenomenal. 😮

My goal for 2022 is to make $18,000 or more from trading options. Let’s see what happens. 😉

______________________________________
Random Useless Fact:

Netflix is currently worth $1 billion more than Disney by market capitalization.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Becoming a low wage homeowner

Are you making low wages in an expensive city and want to buy a property? If so, this new video is for you.

It focuses on a hypothetical couple in Vancouver, but could be relevant to any other growing city.

You can watch it here (first time home buyer) , or see below.

Also in the video are some money saving tips to increase your savings rate.  🙂

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Learning to build wealth – from the pros

If you talk to enough successful investors you’ll find they share some common ways of thinking.

I reached out to some prominent individuals on Twitter.
Each has a large online following and considerable experience in their “circles of competence.”

I distilled their combined knowledge into short, digestible quotes in today’s post.

I asked all of them to answer one simple question:

What has helped you the most in your investing journey?

Below are the curated responses.
All answers are surprisingly personal and concrete. No text book hypotheticals or theories.

On having a long term mindset

https://www.stephenwealthy.com

Having a long term goal and investment horizon has helped me get through market volatility and downturns. On top of this, because of the goal, I was able to see the pullbacks or crashes as opportunities to buy assets and accelerate my goals. Having that long term view is critical for building wealth – regardless of the underlying asset or investment style.

www.reversethecrush.com/

Sticking to an investment strategy that keeps me invested for the long term is key. One strategy that keeps me invested regardless of what happens in the stock market is dividend investing. It’s easy to stay motivated since the progress is measurable and trackable. As an income investor, I actually get more excited when stock prices are lower because that means dividend yields are higher. In turn, I can increase my income faster.

https://www.passivecanadianincome.ca/

Having the mentality that it’s a long game and recording / watching the income & portfolio grow, just gets me hyped. It’s working, I gotta keep feeding it. Mentality First – opm 2nd. =)

On being a perpetual learner

https://www.myownadvisor.ca/

Be curious. What I mean by this is to ask yourself some questions from time to time – what makes something or someone do something. Take time to reflect. Why does this or that happen? Through the power of “why” if you will, learning takes place. Learning is an important life skill and that life skill applies directly to financial literacy. You don’t need to know how everything works. Rather, you just need to know enough to apply your learnings as part of some simple rules that work for you. Simple is usually better when it comes to investing.

On committing to process

https://www.dividendgrowthinvestor.com/

Sticking to a process has definitely been helpful for me in achieving my goals. I work on improving my process by analyzing transactions, identifying mistakes and hopefully learning from them. Staying diversified to minimize the impact of mistakes is part of my process. It prevents me from catastrophic loss when I make errors. My process also involves investing regularly so I can compound my money right away, rather than try to time the markets and miss out. Finally I focus on reducing costs, which helps me max out tax deferred accounts and save a ton on taxes.

On using critical thinking to make quality decisions

https://clint-robert-murphy.com/

The key to being a successful investor is similar to a scientific approach:
– Think deeply
– Develop a hypothesis
– Be convicted in your thinking
– Take action on your convictions
When thinking deeply, seek out experts who have differing views: whether bullish or bearish on your thesis, and learn from them. Read as much as you can, whether online, articles, or books. By doing this, my real estate acquisition process has changed over time and I have been able to generate oversized returns relative to the average real estate investor and grow a $9 million portfolio.

On tracking your journey

https://www.anotherloonie.ca/

The key to success in my investing journey has been tracking my expenses and net worth every month. Doing so has allowed me to see where my money is going and learn what moves the needle as I progress towards my retirement goals. It has helped me focus my spending on what I value, and motivated me to contribute even more to my investment accounts.

On knowing what you own

https://allaboutthedividends.wordpress.com/

Invest in what you know and invest in what people use. This is a strategy that I use and follow and I’ve had good success following this. I invest in company’s that provide services that we need or use on a daily basis such as banks, telecom, utilities, energy etc….

On keeping emotions in check

https://www.tawcan.com/dividend-stock-transactions-2020/

The one key thing that I’ve learned along my investment journey over 15 years is to separate emotion from investing. When emotion is involved, we often make short term, knee-jerk decisions that will hurt us in the long run. It’s always tough to see the value of the portfolio take a significant hit, but we must ignore short-term noises. In March 2020 our portfolio was down by $250,000. Rather than freaking out and selling, we actually purchased $115,000 more stocks throughout the year. Thanks to not getting emotional with short term volatility, we now have a sizable paper gain.

On leveraging your existing assets

https://eatsleepbreathefi.com/

I constantly search for ways to make our money work harder for us. Doing this has led me to one of the most powerful way to supercharge our wealth: leveraged investing using our home equity. Leveraged investing turned our house from an illiquid, highly concentrated investment into a diverse portfolio of wealth-building stocks. Plus, even better—it helped my husband and I reach FIRE years sooner! We plan to continue our leveraged investing strategy indefinitely. We’ll also teach our kids about it so that they can continue the strategy (even after we’re long gone)!

On acknowledging luck

https://cutthecrapinvesting.com/

I’d have to say that luck carried me through until I figured out how to stay out of my own way. Early in the investment process I shaded to gold and commodities during that previous commodities super cycle. That was only due to the fact that I had a gold client at the time (in my advertising work). I was influenced let’s say, ha. I harvested most of the profits as I switched to a more passive approach. A few good picks also helped the cause, including Apple, BlackRock, and Tim Hortons. Do your research. And then the less you do, the better.

On using the right systems

https://handfulofthoughts.com

Creating and following systems with my real estate investments has accelerated my path to financial independence. As a mom and full-time teacher, there are always demands on my time. But creating a system for self-managing my rental portfolio helps make things easier. Every time there is a task to do, I can just follow the system and not have to overthink it. Having a system also helps keep my emotions in check which would be the second thing that’s helped the most on my investment journey.

On finding the right motivation

https://www.thewealthbuildingacademy.com/

Understanding the large wealth gap between men and women has helped me focus on maximizing my returns and educating other women to close the gender wage gap. Knowing that on average women hold only 30% of the assets that men do is fuel to ensure I’m always earning 10%+ on my money.

On staying out of your own way

https://filledwithmoney.com/

Saving myself from myself was the most profitable move in investing for me. I used to day trade very often and lose money until I started reading personal finance blogs. When I graduated college, I contributed most of my money to the S&P 500 in my 401k. I actually do not know how to buy and sell securities in my 401(k) because their user interface is so complicated. Therefore, I literally do not and cannot day trade because I don’t know how to use the interface. By making my investments 401(k) heavy, I profitably saved myself from myself.

On taking calculated risks

https://www.youtube.com/firewego

Since we started our journey to financial independence the goal was to retire in 2028. What helped us the most is the willingness to take risks. Using the equity from our home, we were able to jump start the investment portfolio, which gave us access to borrow even more money from the broker. As a result, we can see an increase in our portfolio that put us on track become financially independent in 2024.

On trusting your decisions and looking ahead

https://figarage.ca/

Set it and forget it. I like to learn as much as I can about an investment before I jump in. But once I have done all the due diligence and considered all the known unknowns, and decided to accept the risk vs reward – I invest and move on. I don’t spend any time obsessing over the daily or monthly fluctuations. Free your mental bandwidth up for new opportunities and let your investments have time to work and compound.

On the benefits of practicing patience

https://jessicamoorhouse.com

While time is your biggest asset, patience should be your biggest virtue. Too often investors think that in order to build wealth, it needs to be complex and time-consuming. It can be if you want it to be. But as decades of successful index investors have shown, investing can also be simple and boring and still make you a millionaire.

https://fisquirrel.gumroad.com/l/MMsheet

Patience has played a major role in my investing success. I have achieved life changing results by finding asymmetric investment opportunities and HOLDING. I was able to do this in cannabis stocks and uranium stocks (fuel for nuclear power). Most investors either jumped on these trends late, or missed out on massive gains by trading in and out. Deep research is important to build conviction because you may need to sit on dead money while your thesis plays out. This isn’t easy when you see others making quick money in fads. But if you are correct, you will be handsomely rewarded.

On the importance of planning

https://www.genymoney.ca/the-5-best-canadian-dividend-stocks-to-invest-in

One thing that helped me the most when it comes to investing is to come up with a consistent plan. Over the years my investing approach has evolved and I am very comfortable with what I am doing now which is a hybrid ETF and individual dividend stock approach. I dollar cost average each month and it takes some of the emotion out of investing. Math shows that putting in a lump sum is a better total return, but the DCA approach helps me sleep at night. Knowing who you are as an investor is very important when executing your plan.

On screening for quality

https://nelsonsmith.substack.com/

When I first started investing, I put my cash into terrible assets that were optically cheap. I posted lackluster overall results that were saved by a terrific savings rate. After a while, I finally figured out the benefits of investing in quality companies that generated gobs of cash flow. That switch to quality increased my returns, helped me sleep better at night, and protected my portfolio during the 2020 crash.

So much to consider

Thanks to all the amazing investors above for sharing their thoughts. 🙂

I like how their different backgrounds provide a wide range of perspectives.
I’m lucky to have so many insightful peers online.
If any of these speak to you, consider following them on Twitter.

If you got anything novel out of this post, you can apply it to your own life.
Think about what a successful investor would do.
Improve your investor identity. Tweak your world view. Change your investment outcome.

Personal finance is 20% head knowledge, and 80% psychology.
You already have the knowledge. 😉 Now it’s just a matter of applying that investor psychology.

As for myself reading has helped me the most on my investing journey. I don’t think it’s possible to read a lot and not become successful in one way or another. I’ve already read so many good books and can’t wait to consume more. Reading teaches me how to think and connects me with some of the greatest minds throughout human history.

Feel free to share your ultimate idea for investment success in the comments below. 🙂

______________________________________
Random Useless Fact:

Hollywood perpetuates stereotypes.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

In a rapidly changing world

Environment and social issues are shaping how policy makers, consumers, and corporate executives behave.
Therefore, investors also have to understand how these issues impact economies and financial markets. 🙂

In today’s post I’ll explain what those changes are, and what I’m doing to position my finances accordingly.
As usual I don’t plan to sell any of my existing holdings. I just rebalance by adding new investments to my portfolio.

There are 2 primary themes impacting global markets right now.

The world is transitioning away from carbon to address climate change. This means that people will use less oil and more copper.

Copper is used to build the underlying infrastructure needed to operate electric vehicles, wind mills, solar panels, and electric charging stations.

In terms of social issues, income inequality and populism are at the top of what’s driving policy changes. Unfortunately both issues feed off one another and create greater problems. A rising disparity between the haves and have-nots puts pressure on governments and corporations to level the playing field. This often leads to hasty decisions that appear useful in the moment, but often have long term negative consequences.

Sure. Giving more money to the poor helps them right now. But usually after some time that money gets transferred in one way or another into the hands of the wealthy where it remains in their control and earns them interest. Plus, the printing of extra money without the goods/services/productivity to soak it up creates inflation.

This hurts the financially vulnerable the most because they are the least likely to afford a cost of living increase. This exacerbates inequality even more. Populism and division set in. The mentality is us vs them. New misguided policies are put in place to address the problem. Too bad it’s just about appearances, not what people actually need. And the cycle continues, debasing the currency further, benefiting those who are properly hedged (mostly rich people.)

Where to go from here

Given that I’m conscious of those environmental and social issues, investing in hard commodities makes sense.
The valuations for commodity based stocks are cheap compared to technology stocks.
And it’s a good way to hedge against inflation.

The last 18 months proved that mere monetary stimulus isn’t enough for the economy. Fiscal policy must also be used.

Instructure projects are a popular use of government spending. As more cash is created, base metals such as copper and nickel as well as iron ore will be in high demand.

This is why I have written a put option on Rio Tinto (NYSE:RIO), one of the world’s largest mining companies.
My put has a strike price of $55. The stock is trading at $60/share today.

Additionally I have recently bought some Copper Mountain Mining stock (CMMC) as well as Ivanhoe Mines (IVN). Both are on the TSX.

Copper Mountain primarily produces copper and gold in Canadian mines. The stock has fallen from its highs earlier this year, and insiders have been buying on the way down. That’s usually a good sign that the executives running the company are confident in its future growth. 🙂

Out of 10 analysts the lowest expected 12 month price target is $4.25/share. That’s a 15% positive return from today’s price of $3.70/share. And Morningstar’s research report calculates the fair value of the stock should be at $6.02/share today. CMMC’s 5 year average P/E ratio is 12. But it’s currently trading at only 10.

So overall this is not an expensive company to buy at the moment. 🙂 #valueinvesting

And of course it does have growing revenue and earnings over time.
However, it doesn’t have the consistent growth I usually like to see like from a BlackRock or National Bank.

Ivanhoe is more of a speculative pick. My biggest concern is the geopolitical risk in South Africa.
But it can really take off if the price of copper continues to climb.
Who knows? Sometimes it pays to take a risk, right? 🙂

Buying a new cryptocurrency

Speaking of speculation. I recently bought 1.2 million Floki Inu coins.

This is a YOLO trade. I don’t expect to make any money from it. However, there is a tiny chance it will 10 x over the next year or so, lol.

Named after Elon Musk’s new puppy, Floki has a lot of potential to gain popularity. Plus, it’s really cute. 🙂

Floki has arrived pic.twitter.com/2MiUKb91FT

— Elon Musk (@elonmusk) September 12, 2021

This isn’t just another meme coin… it’s a movement. At least that’s how they’ve marketed this thing, haha.

#FLOKI is my way to participate in the Web 3.0 space which is just starting to take off.
I’m also continuing to invest in the Ethereum network and Binance (BNB.)
You can buy Cryptocurrencies in Canada using Shakepay which I’ve written about here.

As usual, do your own diligence before making any investment decisions. I’m not an expert when it comes to picking out mining stocks or digital tokens. There are probably better alternatives to Copper Mountain, Ivanhoe, and Floki Inu out there. I’m just sharing what I’m doing personally, and the reasons behind my choices. 🙂

Asset allocation update

All the recent purchases are part of a larger investment plan to grow my net worth over time.

Here’s an update of my current asset allocation. This pie chart does not include my primary residence.

For a deep dive into my portfolio, you can watch my latest video here, where I describe each asset class in detail.

I also share the lessons learned building up this $1.8 million portfolio. 🙂

______________________________________
Random Useless Fact:

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Yes, rates will probably be higher in 2022. But not as much as people might think.

Inflation is stubbornly high.

We’ve been above the Bank of Canada’s target rate of 2% since March, and the rising cost of living doesn’t seem to be even slowing down.

This prompted the top economist at Scotiabank, Derek Holt to predict interest rates will grow 8 times in 0.25% increments over the next 2 years.

That seems like an aggressive move. And he’s not alone.
Financial advisor Garth rates-are-going-up-soon Turner, mentions that “most economists” also believe in 8 rate hikes.

Personally I think that’s all baloney. 😂

How did they come up with 8 hikes? Why not 7 or 10? I don’t know what model these economists are using, but I find it very hard to believe rates can go up more than 4 times before 2024.
The reason is obvious. There’s too much debt.

Household debt has ballooned past $2 trillion.
Provincial net debt as a percentage of GDP has doubled in BC and Ontario since 2008.
The Federal debt to GDP is now 30% higher than it was in 2017, when the BoC started to raise rates.
And it only managed to get 5 hikes in before the economy needed further stimulus again. 😅

We couldn’t handle more than 5 rate hikes before. I don’t see how we can possibly withstand 8 rates hikes now, when there’s more private and public debt than ever.

Private debt is now over 300% of GDP. This includes mortgages.

So how can we get out of this mess?

Well we’ve been in a similar situation before. Post World War 2 there was also a lot of debt.

The country reduced its debt burdens by financial repression. This basically means allowing for inflation to run a little high, while keeping interest rates relatively low. The 10 year government bond had its yield suppressed for over a decade after the war ended. Eventually the economy grew and the debt-to-GDP ratio declined.

History has a tendency to at least rhyme. So I wouldn’t be surprised if savers get hurt, and debtors get help this time too. 🙂

So what does this mean?

I don’t know about you, but here is what I’m doing.

Continue to choose variable rate mortgages over fixed rate.

Fixed rate mortgages stink.

Why?

Because they never change. 😀

But also because historically speaking borrowers end up paying more for choosing fixed over variable. The difference between the two right now is about 1.00%. That means rates will have to rise 4 times (0.25% each time) in order to just break even. Personally I think 4 hikes is the max over the next few years.

Negative real interest rates are probably here to stay for awhile

If policy makes choose the financial repression path then expect real rates to be suppressed for years to come. They need the cost of borrowing to stay low to allow economic growth to catch up. 🙂

A change in focus into value and commodity stocks.

I’ve mentioned it earlier this year, but I’m buying more value stocks and less growth/tech stocks. I think over the next 10 years value stocks should provide better risk adjusted returns. These are companies such as Berkshire Hathaway, Fortis and other utility companies, and financial institutions like banks.

I’m also buying more commodity stocks, and cryptocurrencies such as ETH and Floki Inu. 🙂 I will write about these investments in next week’s post.

Of course I could be wrong, and by the end of 2023 interest rates could be a full 2.00% higher than today. But I just don’t see that happening, lol.

Here’s another way to look at it. My mortgage payments would go up by about $2,000/month after 8 rate hikes.
My wife and I are fortunate enough to be financially independent and we can afford the extra cost. But many other mortgage payers can’t.

Even for those who can, they may not have any disposal income left over for discretionary spending like ordering take-out, or going shopping.
Lower consumer spending will lead to recession which the BoC certainly does not want. 🙂 That’s why I only see 2 to 3 rate hikes over the next couple of years.
Maybe 4 at most.

______________________________________
Random Useless Fact:

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

October options trading review

This month I received $1,485 in premiums from selling options.

The biggest premium earned this month was from BlackRock, a whole $259.
I did an in-depth video explainer here in case you missed it.

My options trades and other investments were discussed in a recent episode of the Explore FI Canada podcast.

An Alternative Investment Path to FI

I had a fun conversation with Chrissy and Money Mechanic on how to reach financial independence by using alternative investments.

What all 3 of us have in common is we invest with borrowed money to leverage our assets and create higher investment returns.

And huge congrats to Chrissy because she and her husband recently achieved FIRE. 🙂
It’s especially impressive since they have 2 children and only relied on the income of one working spouse.

The podcast episode touched on a lot of different topics including precious metals and meme stocks, haha.
If any listeners want additional details about my research strategies, risk management, or how I find asymmetric opportunities let me know.

If you’re a relatively new reader here you may find some interesting trivia in the episode about myself and my wide interest in investable assets.

And check out their other episodes as well, as they interview lots of amazing folks across the country. 😀

Options progress so far in 2021

Altogether I have made over $7,500 selling call and put options in my non-registered margin account.

The more options I trade the easier it becomes to manage larger positions. 🙂

October trading breakdown

Here are some key points from this month.

• I sold 13 options. 1 Call and 12 Puts.
• I bought 2 call options to close my positions.
• My total trading commission was $24.
• I rolled my $WISH option forward so nothing expired in-the-money in October. 🙂

Below is a table summarizing my transactions.

• Initial underlying price – The market price of the underlying stock/ETF when I made the options trade.
• Price difference % – How much the underlying will have to rise or fall to be In-The-Money (ITM).
• Initial days to expiry – How many days remain until the option expires, from the day that I traded it.
• Initial Delta – Measures the initial probability of an option expiring ITM. eg: if a put option has a Delta of -10%, there is a 10% chance it will be exercised, and a 90% chance it will expire worthless.

Once again none of my options have been assigned in October. However, I have a couple of call options sold in September that are currently in the money.

Expecting November assignment

I have 2 CNQ.TO calls with a strike price of $48, and 1 TD.TO call with a strike price of $86.

Both expire in November, so maybe this will be the first time my options get assigned.

What’s funny is that most of my options are Puts. However, the 2 options that are likely to be assigned 18 days from now are actually Calls. This speaks to how overvalued the stock market is. It just keeps going up with no signs of falling. Maybe being forced to sell right now isn’t so bad. I can reduce my margin debt, and lock in some profits for the year, which helps to spread out my tax burden across time. 🙂

If my TD and CNQ stocks get called away my plan is to sell put options to buy them back again, hopefully at a lower price than I sold them at.

Let’s see how things play out. 🙂

______________________________________
Random Useless Fact:

Scenes in movies are not always in real time.

“I bet I can beat him.”

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

How should you invest in today’s bubble-like environment?  One strategy I’m using is to sell put options on high quality companies.

It lets me buy the stocks that I like, without overpaying for them. I first determine the fair value of a stock, and then use a put option to make sure if and when I do buy the stock, I pay a reasonable price for it, and not the current overvalued market price.

BlackRock – Fundamental Analysis 

In this week’s video I breakdown how to calculate a stock’s intrinsic value using BlackRock as an example.

And demonstrate what a put option looks like. At the end of the day I made US $259 from this single options trade. 🙂

Click here to watch the video or see below.

BlackRock is certainly a company worth investing in because it has strong revenue and earnings growth. 🙂
It’s the world’s largest investment management company and I think it will continue to grow over time.

But here’s the problem: The stock is currently too expensive.
BlackRock’s historical P/E ratio is around 19x. But today it is trading at 24x. This makes it about 26% overvalued.

So instead of buying the stock directly at the current inflated price, I have given myself the option to buy it at a more reasonable (lower) price point. Keep in mind this lower price may not be reached, and there are other risks involved with this trade.  I talk about all the details in the video, which is broken down into 2 sections.

The first part of the video shows how to analyze a stock and find its fair price.
The second part walks through how to sell a put option using IB’s trader workstation desktop client.

If my $740 put options gets assigned, I will be borrowing $74,000 on margin to pay for the shares.
IB will charge me a 1.58% interest rate on this debt.
Luckily, my dividend yield from BlackRock will be 2.23% which is enough to cover my cost of borrowing.

Let me know if you have any questions. 🙂

______________________________________
Random Useless Fact:

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Recent changes to my Tax Free Savings Account

I sold all 175 units of my BMO Long Corporate Bond Index ETF (TSE:ZCM)
I don’t think long term bonds are a good place to be over the next 5 to 10 years.
Bond yields are so low right now. And if interest rates move higher, existing bond prices will fall.
People also seem to gain weight after a Fed increase. 😀

Next, I sold all 152 units of Brookfield Renewable Partners (TSE:BEP.UN)
I blogged about buying this company back in 2015.
It has performed well. I’m up about 150% total return including new units added via DRIPs.
Thankfully the returns are tax free. 🙂 But I feel like BEP.UN is way overvalued now.
The latest Return on Equity is -5.8%. And it has a forward PE ratio of 83 times, which seems very expensive.

The proceeds from selling these 2 holdings is about $13,000.
I normally don’t sell my stocks, but I think there are better opportunities out there.

My new purchases for October

I have used part of this new cash to buy one share of Constellation, and 50 shares of Copperleaf.

Constellation Software (TSE:CSU) is an international vertical market company and offers services to governments, as well as commercial customers. It’s trading at 35 times forward PE which isn’t cheap. But this stock never is, lol. It has about 125,000 customers in over 100 countries and a proven track record of solid growth. I think Constellation is in a strong position to provide shareholders with great returns over time. 🙂

Copperleaf Technologies (TSE:CPLF) provides asset investment planning and management solutions. For example, BC Hydro uses Copperleaf’s decision analytics software to determine where the best place is to spend money, and locate inefficiencies. This stock just went public last week so not much is known about its financials. But its revenue is growing at 62% a year, and the company boasts a 100% client retention rate. 🙂 It’s certainly a more speculative pick, but it appears management knows what they’re doing. Copperleaf is a business worth keeping an eye on.

This still leaves me with about $10,000 in cash sitting in my Tax Free Savings Account. I haven’t decided what I will do with this money just yet. Holding cash short term isn’t always a bad idea if you want to hedge against stock market risk. 🙂 I do want to buy some Blackrock (BLK) but I plan to do that in my margin account.

Is the correction over?

Earlier this year I mentioned on Twitter that stocks would fall 5 to 10 percent.

The S&P 500 did fall 5% last month, for the reason I mentioned. What I didn’t expect however, was how quickly it rebounded. I do think we’re going to see another dip in the markets before the end of the year. But it will probably be short lived also. There’s simply too many people with too much money right now. An extended period of high CPI will force people to invest their money into the stock market. I still maintain that hard assets, commodity stocks, and fast growing technology companies are the best place to invest right now.

Emerging market stocks and US value stocks are also worth considering, which is why I sold put options on ETFs that track these sector indexes. For example, If the Vanguard Emerging Markets ETF, (VWO) falls about 10%, I’ll have no choice but to buy 200 units to start. 🙂

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Random Useless Fact:

You might be overleveraged if you find yourself using one type of credit to cover another.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Should you compare yourself to others?

My wife compares me to Ryan Reynolds sometimes.
She says, “you’re nothing like Ryan Reynolds.” 😂

There will always be someone with more success and money than you.
Maybe it’s better to compare yourself with who you were in the past, than with who someone else is today.

Comparison is the thief of joy after all.

But I don’t like the saying “never compare yourself with others.” I think there’s a time & place for comparison.

Personal finance is relative

If your income grows by 5%, but everyone else grows their income by 20% then you’re getting left behind.
Yes, you’re doing better relative to your past self. But that’s not what really matters.
Since we live in a society with others, we have to make an effort to keep up with societal norms.

Maybe it was the norm in 2001 to pay $1,000/month to rent a 1 bedroom apartment.
But the norm today is to pay $2,000/month to rent that same apartment. The cost doubled.
Isn’t there some utility to track how the norm changes over time, since shelter is important?

I think in some sense it does help to know how rich other people are getting. The price of labour in a community impacts the cost of living for everyone. Just look at the Bay Area, Seattle, or any other city that has become a tech hub over time.

The problem is if you don’t keep up with society’s changes your standard of living could suffer over time.

Comparisons can have other benefits as well.

If you’re doing similar work as others, but getting paid less, I think it’s in your best interest to know you are getting underpaid so you can look for ways to improve your situation.

Comparison can also help you figure out if you’re good or bad at something so you know what you should pursue and what you shouldn’t.
Comparing your situation against others allows you to make more informed decisions.

It’s hard to learn new skills, or improve yourself if you don’t consider how others are doing things differently.
But to reveal those differences & make improvements you necessarily have to compare yourself, and what you’re doing to others, and what they’re doing.

You can’t run a business successfully without doing market research and looking at your competitors once in awhile. 🙂

Can you compete without comparing yourself to others? 

You can certainly compete only against yourself. But sometimes that’s not enough.
If your net worth grew 100%, how do you know if that’s good or bad if you don’t compare with others?

It’s difficult to maintain your purchasing power if you don’t have any external standard to measure against.

Is comparison a necessary evil you have to do in order to live a decent life within mainstream society?

Maybe one solution is to compare with others when you want to improve your situation.
But do not compare when you want to relax and not stress.

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Random Useless Fact:

You’ve probably seen a spork. But this is what a fpoon looks like.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)

In today’s post I’ll share my finances and investment performance over the last 3 months. 🙂
My liquid net worth does not include my home, digital currencies, or rental properties.

Liquid net worth – July through September

Both the TSX and S&P 500 remained relatively flat as they fell last month, wiping out the gains of the previous 2. Here’s a summary of my liquid net worth changes.

Liquid Assets:
Cash = $21,000 (-$1,000)
Canadian stocks & bonds = $352,000 (+3,000)
US stocks & bonds = $222,000 (+5,000)
Retirement = $228,000 (+3,000)
P2P lending = $27,000 (+1000)
Mortgage funds = $45,000 (+1,000)
Total = $895,000

Liquid Liabilities:
Margin loan = $113,000 (-4000)
Total = $113,000

Liquid Net Worth = $782,000 (+$16,000) + 2.1%

All numbers are rounded to the nearest $1,000 and in $CDN at 0.80/USD

Year to date performance

My liquid net worth has grown by $136,000 so far this year. Wow. 🙂

My Interactive Brokers portfolio has returned 30% year to date.
For context, the total world stock market index is up about 11%.

I attribute my portfolio’s outperformance to holding businesses with a history of relatively high return on capital, and revenue growth. These are companies like Couche-Tard, or Descartes Systems Group, or other stocks I’ve written about over the years.

Another contributing factor to my gains this year is trading options. So far I’ve made about $6,000 by selling call and put options.

Events, and analysis

In global news one of China’s largest real estate developers, Evergrande, is facing liquidity challenges and could go bankrupt. The U.S. is about to hit a debt ceiling. There’s a shortage of supplies and workers around the world.  Energy costs spiked in parts of the world. And inflation is stubbornly high at 4% to 5%. None of this is good for the financial markets. That’s why stocks have fallen in September. And it’s why the volatility index (VIX) increased from 15 to 21.

Most of these problems will take many months, if not longer to resolve. That’s why it always pays to be prepared. 🙂 You could make a decent living like musician Johann Sebastian Bach did. But if you don’t manage your money properly, you could still end up Baroque.

Looking ahead

In last quarter’s net worth update I predicted financial markets would pull back due to the unsustainable growth in the first half of the year. That’s why I didn’t invest in any new stocks from July to September. I was paying down debt and buying more Bitcoin.

For the final stretch of 2021, I expect the stock market to either continue falling or remain relatively flat and move sideways for awhile. I will be buying on every 5% pullback in stocks. But otherwise I will build up liquidity, continue to sell options, and research the companies on my watch list such as BLK, and NA.TO. 🙂

Twitter poll results 

Money is like water. 💦 With sufficient volume, it can erode the foundations of the traditional work schedule, and cut its own path.

I recently conducted a poll on Twitter to find out if people would prefer to work 4 days a week, rather than 5.

The results are surprisingly split.

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Random Useless Fact:

According to special relativity time travel is possible.

Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)