Investments... What Expats Like in 2021

I wrote a post some time ago for expats in the GCC.  Some concepts may still be relevant to others:

https://www.expat.com/forum/viewtopic.php?id=885444

Since there is no value generated on the stock market (except dividends, which are miniscule), one person's gain is always coming from somebody else's pocket (and is thus often that person's loss). Investing in shares is therefore more like gambling than a prudent store of money. Even the few who could consistently outperform the market (because they know rather than believe how the market will develop), are called "insider traders" and banned.
I have most of my money in houses that I rent out to socially disadvantaged people at below market rents. Enough income for me - plus they like me and I like them (can you say the same about your stocks?).

Beppi,

A significant proportion of my retirement income comes from dividends, and as the years pass and inflation eats away at the pension portion, they'll become more important still; they're not miniscule if chosen well.

While I agree that no value is generated in stock market trading,  that doesn't mean that no  value is represented there.  For traders, perhaps one person's gain is another person's loss, though there's nothing unfair in transactions between willing buyers and willing sellers.  But for investors who buy and hold, especially over the long term, gains tend to reflect the real increase in value of the underlying companies.

I have friends like you who invest in rental properties; I certainly respect their industriousness, and yours.  I'll stick with the stock market.  The work and risk involved in rental properties is not the kind that appeals to me, and, as I tell my friends, stocks and bonds never call you at 3 AM because the toilet is backed up and flooding!  I like that just fine.

Well to each his own.

I have a wide range of diversified investments which includes property and stocks.  It is really about playing each investment for it's relative strengths.

On your comments about the stock market, the way you need to look at it is:  While you are right that there is no value generated on the stock market on a stand-alone basis but the pricing is future focused on the basis of the value generated or to be generated by the company whose stock is being traded.  So when the prices are being driven up, this is creating an image for the company which makes their life easier in ultimately attaining that value e.g. access to sources of funding, investor attention, opportunities etc.   Think of it as a movie that people want to watch once it has been given an Oscar - prior to that, you would have never bothered with it.   Also, it is not a zero sum game i.e. someone has to lose and if that happens, it is through willing market participants.

Also in terms of returns, you don't have to be an insider to make money on the stock market.  Just don't do silly things like trying to bet on "sure wins".   Pick stocks of companies whose business model you understand, do due diligence on market dynamics, read analyst reports.....in short research.....and when you do go in, go for the long haul i.e. don't day trade or play the market, you will lose unless you are a broker whose job it is to monitor this on a day to day basis.

Just to give some examples:

1) I bought some stocks 3 years ago, the prices for which have doubled now (of course, they went down during Covid but I held) and I get a dividend yield of 5% per year.  So all in all, if I were to adjust the gains YOY, I am looking at 10-15% YOY.  This is plain vanilla investing i.e. no leverage, no day trading, no options, no calls
2) I have higher risk investments through leverage in monthly dividend mutual funds.  The return (excluding price movements) in pure cash is 15-20% YOY.  I clear around $40K a year in net cash after interest payments on leverage. I have explained the mechanics in the thread
3) My rental properties at the same time give me 5-7%

I do agree with you that stocks are not an altruistic investment when compared with renting properties to socially disadvantaged people at below market rates.  But I disagree with the assertation that you can't get a return without resorting to insider trading.   Granted that it is a riskier investment vs. property but that there, is the risk and return concept.   It is not gambling as gambling is super high risk with either zero or super high return i.e. deals in extremes.  Stock trading does not deal in extremes UNLESS you choose for it to do so i.e. go for options trading or taking big bets on unknown start up companies.

Well, it is just my gut feeling that there is something substantially unreal (and morally wrong) in earning money without working or giving something for it.
Friends can of course call me at 3 AM if they need help. And our tenants are my friends.

beppi wrote:

Well, it is just my gut feeling that there is something substantially unreal (and morally wrong) in earning money without working or giving something for it.
Friends can of course call me at 3 AM if they need help. And our tenants are my friends.

Ahh see that's the point.   You are not making money without working or giving something for it.   You are looking at it from the labor perspective only.  In economics, for labor to be productive, it must be accompanied by capital and entrepreneurship.

In the market, you are putting capital on the table.  The companies you invest in bring labor and entrepreneurship.   It is a combination of these that drive the value.   

And the fact that you put capital and not labor should not cheapen the output - your capital is derived from labor.........YOUR LABOUR i.e. your job or business or other means.   

It's economic theory  .

beppi wrote:

Well, it is just my gut feeling that there is something substantially unreal (and morally wrong) in earning money without working or giving something for it.
Friends can of course call me at 3 AM if they need help. And our tenants are my friends.

That's an interesting perspective.  I'm more of XTang's point of view myself, but I imagine that all three of us sleep well at night, and with good reason.

Your last statement would concern me a bit:  personal relationships with business associates (like business transactions with friends!) can go seriously wrong, or at least become unnecessarily complicated.   I'm glad that it's worked for you so far, and hope that it continues to do so.  Not at all my cup of tea.

XTang wrote:

While you are right that there is no value generated on the stock market on a stand-alone basis but the pricing is future focused on the basis of the value generated or to be generated by the company whose stock is being traded.  So when the prices are being driven up, this is creating an image for the company which makes their life easier in ultimately attaining that value e.g. access to sources of funding, investor attention, opportunities etc.   Think of it as a movie that people want to watch once it has been given an Oscar - prior to that, you would have never bothered with it.   Also, it is not a zero sum game i.e. someone has to lose and if that happens, it is through willing market participants.

Of course, the stock market greatly benefits the companies, by and for whom it was created. All others (i.e. the investors) participate because of a belief that this or that company will create a certain value in future. In this, it has some similarity with a medieval religion.

abthree wrote:

Your last statement would concern me a bit:  personal relationships with business associates (like business transactions with friends!) can go seriously wrong, or at least become unnecessarily complicated.

You are right - and that's why I won't do business with friends.
Being a friendly landlord for people who the become friends is not business. But putting heart before profit actually works, and is more satisfying, too.

Landlording can take a special personality to work.

I found this out when I bought and ran an apartment building in Connecticut.

When tenants changed and normal-wear-and-tear meant expensive rehabbing .. when a once-in-a-century snowstorm hit while I was traveling and my manager couldn't take the 'heat' from angry tenants .. when bedbugs spread from one apartment to the next to the next despite remediation efforts .. when the Great Recession caused my property and many others to drop in value -- it all became too much.

I was glad to get out although I sold the building at a loss.

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I am much happier with my current investments -- buy and hold as XTang advises, sleeping well at night as abthree says -- and have zero issues with the idea that investing primarily in market-basket stocks is somehow unethical.

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beppi wrote:

You are right - and that's why I won't do business with friends.
Being a friendly landlord for people who the become friends is not business. But putting heart before profit actually works, and is more satisfying, too.

Yes, that makes sense.  If I were a landlord, I would feel obliged to be the same way ... which is why I'm not. 

A link provided by XTang earlier in this thread discusses the importance of not trading stocks on margin or leverage.

For all but the most sophisticated investors, a serious problem occurs with margin trading when the market goes against you -- you have to put up more capital, possibly having to wire additional funds into your brokerage account.

I once allowed a cautious non-broker adviser to trade in an account I had that was authorized for margin trading.  When he made a couple of favorable trades on my behalf and he took his percentage, all of a sudden he got greedy.  He started gambling in my account, the trades didn't work out and before long I received a margin call from the brokerage.

Within a couple of weeks the adviser admitted that he was financially strapped because of his own stock trades going South.  I blocked him from my account .. and just left alone the stocks against which he'd been writing options. 

Eventually, the stocks rebounded all the way back.  But I was left with a sour taste and a lesson about margin trading.  I never did it again.

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Nobody can time the markets, XTang advises.  I consider that a true and important statement.  (Insider trading excepted.). Important enough to repeat it here.

Buy low, sell high .. seems like a sound strategy .. until an investor realizes that timing the market is required .. and is not possible.  The anecdotal successes sometimes reported in the press or in online promotions, notwithstanding.

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There was also a caution against day trading.  Most day traders who think they can ride a trend to success are usually poorer at market-timing than they suppose.

cccmedia

XTang, just minutes ago I received an email from Interactive Brokers offering to include my trading account in their Stock Yield Enhancement Program or SYEP.  I have been an Interactive client for several years and my principal portfolio is with this brokerage.

The concept is for IB to borrow my shares and provide me with half the interest accruing from lending the borrowed shares.  My ability to trade my shares is not diminished, the IB email said.

There is more to it than this and IB provides a link to that information. 

Perhaps you received the same notification, XTang.  What do you think about SYEP?

cccmedia

These are basically used by IB for short sales.   If you are not planning to trade them or sell them, it is not a bad option to get interest.   If you do sell these shares, the loan interest will be terminated.   It is worth it if you are holding long positions that you are not planning to exit out of anytime soon - the risk element of the shares is covered by a cash collateral deposited by IB in your account when they take the shares.