Should You Become a landlord?

With commercial property prices lower the past year, many smaller would-be landlords are considering buying rental properties as a means of making better returns than possible from other investments.

Diversified corporate bond funds of lower credit ratings, but without outlandish credit risks, still offer decent yields, as do REIT mutual funds, those which invest in real estate equity trusts.

Yet, individuals who are familiar with small properties may find bargain real estate that will offer a decent return and possible capital enhancement.

But there is a danger in holding real estate on a small basis. It may be on the form of local regulations which you should know intimately. And you must be prepared to do most of your own small repairs which can be costly when assigned to outside mechanics.

FINRA and Your Investments

FINRA, the independent Financial Industry Regulatory Authority, operates from Washington, DC, and New York City, with 15 District Offices.

FINRA is involved with registering and educating industry participants. It examines securities firms; along with writing and enforcing securities rules.

FINRA also attempts to inform and educate the investing public, and provides trade reporting and other industry utilities. The Authority administers the dispute resolution forum for investors and registered firms.

The organization performs market regulation under contract for the NASDAQ Stock Market, the American Stock Exchange, the International Securities Exchange and Chicago Climate Exchange.

However, they are of help only to those who constantly are aware of investment principles on their own.

A Quick Test for a Financial Adviser

I never considered the use of financial advisers a must for most investors.

For three basic reasons. First and foremost, investing principles are easy for most individuals to master. Secondly, what securities to buy is simple in the age of index funds. There is no reason to attempt to buy individual securities. I have explained why in much of my past comments and books.

What is more, adviser fees eat too much out of investment earnings. I repeat this constantly. Fees can account for as much as 20% and more of annual investor earnings.

Only those investors who have estate and tax questions need legal advisers.

Most importantly, the garden variety of advisers, that is the bulk of them, are not worth the money because their expertise is run-of-the-mill.

Want a quick test? Ask them about buying bonds with the threat of inflation. When they start talking TIPS, (for inflation-protected Treasury bonds) without asking how long you intend to hold the bonds, they have flunked the first step.

Want my answer to that question? Ask me.

When Short Selling Can Be Restricted

In a previous report I mentioned the utility and usefulness of short selling, the practice of selling borrowed securities, in the hope of buying back and repaying the borrowed security at a lower price in the future.

Without short selling, markets would become overheated and overvalued and would not be priced as rationally as they generally are.

During catastrophic financial meltdowns or other emergencies which may affect markets from functioning, it may be necessary to stop short selling just temporarily.

Currently, the SEC has unwisely placed restrictions on the use of short selling after a security is off 10% on the day. Unwise, because of the difficulty of policing that restriction in the age of lightning-fast computers.

Short Selling is Not Evil

Listen to populist politicians and the bulk of the media, and you get the impression that short sellers are bad. And short selling is what causes much of financial problems we have.

There are times when it does. But short selling usually has its place and has a proper function in the securities business.

This is the practice of selling borrowed securities, in the hope of buying back them back at lower prices in the future.

Without allowing short selling, over heated, overvalued securities would continue rising and add to dangerous bubbles and thus prevent markets from being priced more rationally.

Short selling generally keeps markets honest. Finding ways to dictate when to stop or retard its use will only exaggerate market extremes.

Ponzi Schemes In Collectibles?

The idea behind a Ponzi scheme is to pay off old investors with proceeds of funds received from new sources.

Most investors have no idea how easy it is to become a victim of a Ponzi scheme in art collectibles. Some of the art that has been peddled over the past fifty years, particularly work of celebrities rather than true artists, have been subjects of these activities.

Talent was purely and solely in the mind of agents and handlers. Many so-called “experts” have made careers out of these artistic “would-be’s.”

You could have a house painter cover a sheet of canvas with white or red paint and create millions of dollars worth of art that questionable experts will fawn over.

The values of such art can be actually nil. Everyone relies on what I refer to as the Bigger Fool Theory. That someone dumber than they will come along and bail them out by buying their fantasy.

Ponzi rules beyond just the financial world.

Economics 101, Part 2

You cannot borrow forever without hurting economic expansion because you crowd out funds required for private business to operate normally.

Every dollar taken by government crowds out a dollar that can be used in private industry. Stagnation along with out-of-hand inflation results. The proof of this has been shown over and over for centuries, around the world.

Heavy government spells disaster, after the politicians who cause this are far out of the picture.