Individual Alpha

Time to get SHORT

2012-02-21T21:15:00.004-05:00

It's time to get short the market or reduce your long positions, while the indexes are making new highs against the odds and it may not last much longer.

Market technicians and traders are expecting a pullback from the market's current levels due to extreme overbought levels, a lack of positive economic news, and possible headwinds to come (Greece, rising oil prices, & soft employment numbers). Bespoke Investment Group was out with a post on the divergence of the Dow Transports vs. the Dow Industrial Average, which can be taken as a leading indicator of a pull back. In a market trending higher the Transports would confirm the moves higher by the DJIA.

Current U-note investment opportunities

2012-02-21T19:51:00.000-05:00

Below is a partial list of the current investment opportunities on U-Haul Investors Club:

Term Interest Rate Collateral

2 years 3% New Furniture Dolly

3 years 4% New Appliance Dolly

5 years 5.05% New Tow Dolly

7 years 6.1% Existing AV Trailer

a full list of current opportunities can be found on the site under Investment Opportunities

U-Haul Investors Club

2012-02-19T00:02:00.002-05:00

U-Haul Investors Club was set up by Amerco, the parent of U-Haul and a publicly traded company with a market cap of over $2 billion and assets in excess of $4 billion (yahoo finance: UHAL).

Traditionally the company would finance asset purchases with funds borrowed from lenders (banks) or through debt security issuance (corporate bonds), with a reliance on the banks and financial intermediaries for funding. As a do-it-yourself organization the company was inspired by social lending and set up a process to borrow direct from individuals via their U-notes which are backed directly by U-Haul company assets.

How it works

Investors sign up at the U-Haul Investors Club site.
Invest as little as $100 in any U-note offering with varying maturities, which will be backed by a specific asset such as trucks, equipment, or real estate.
The company uses the full investment (no underwriting, sales, or broker fees) and pays back interest and principal directly to the lender.
U-notes are a Full-Recourse Obligation of Amerco

"AMERCO® (the issuer) is required to repay you the full amount of principal and interest owed. Your recovery is not limited to the value of the collateral securing your U-Note, as would be the case in a limited-recourse or non-recourse scenario. The collateral provides you with a security interest and lien on the specified asset(s) you select with your investment, and the full recourse nature of the U-Note means that AMERCO® is required to repay you in full."

The company's site has a good overview of the process with some videos explaining what the Investors Club is, why it was created, how it works, and answers to some frequently asked questions. Visitors can also browse the current investment opportunities available to members which are updated one or two times per month.

Check out the presentation on the U-Haul Investors Club site and leave any questions or comments in the comment section below.

U-Haul Investors Club video 01:

P2P Lending Returns

2012-02-18T23:08:00.001-05:00

Peer to Peer lending sites LendingClub and Prosper have been around several years now and have logged a pretty good record of returns for lenders.

Loans have provided stable, predictable returns for lenders. As of this writing LendingClub has originated more than $520 million in loans with average returns ranging from 5.83% to 13.47% depending on the borrower credit rating.

Investors in LendingClub loans are able to diversify investments across notes by investing as little as $25 in any individual note. Lenders investing in 800 or more notes over any time period have earned positive returns 100% of the time, with 93% of investors earning impressive returns of anywhere between 6-18% annualized returns.

Investors in Prosper loans have also fared well with over $300 million in loans issued through the site since its inception. The Prosper experience is very similar to LendingClub with the company rating each loan and assigning an interest rate based on the site's proprietary credit scoring. Prosper showcases returns based on "seasoned" loans which are loans that have been originated 10 or more month ago. They feel this gives the most accurate representation of what lender returns will be. As the graphic below shows the returns are similar to those on LendingClub. Lender returns have ranged from 5.18% to 17.71% depending on credit rating.

The Individual's Advantage

2012-01-31T22:54:00.003-05:00

We have pointed out the many reasons that institutional investors have advantages over the individual investor, but there are some important advantages that the individual does have.

Flexibility

Individuals have more flexibility in their asset allocation than institutional investors with a mandate to stay fully invested within their asset class. An individual with some insight into the market can pull money out of stocks when he or she senses overvaluation in the market while an institutional investor, say a mutual fund being bench marked against the S&P 500, doesn't have the freedom to reduce exposure or stray too far from their fund's stated style.

Individuals are also not forced to diversify their investments across hundreds of stocks. An individual who takes an active role in managing their investments can earn superior returns by picking 5 to 10 stocks to initially research, invest in, and follow closely. This is the approach followed by Warren Buffett (who prefers to buy whole companies, but does make large investments in individual stocks like KO, IBM, and others) and many hedge fund managers who are seeking absolute returns (vs. many mutual funds who invest to simply beat the S&P 500 by a slim margin).

Small Cap Stocks

Individuals can do their research on under-covered small cap stocks that could be significantly undervalued given their fundamentals. Most large institutions aren't be able to make meaningful allocations to the small cap stocks without "moving the market" against them and large ownership stakes in a single company come along with additional filing requirements. It's easier for the institutions (and investing public who place their funds with them) to blindly follow the Efficient Markets Hypothesis and invest in the market as a whole while largely ignoring small cap stocks that have traditionally outperformed even on a risk adjusted basis.

Options Strategies

Individuals can employ options strategies on a small scale that institutional investors wouldn't be able to utilize where there are small contract volumes. The individual can take a view on a particular stock without actually buying (or shorting) the stock using options strategies to gain exposure or even reduce exposure to a stock in their portfolio. My personal favorite are strategies that pay me a premium to take some defined risk over a short time period and with a comfortable margin of safety.

Alternatives to the Stock & Bond Markets

There are also a number of alternatives to investing in the stock market that are available to individuals, some can be time consuming while others don't take much more effort than making your 401k or IRA allocations. Some of the popular asset classes besides stocks and bonds are: Real Estate (Income Property), Commodities, Loans (to individuals or businesses), or an investment in a real business. Investing in these alternatives often requires a large amount of capital upfront and/or some knowledge of how to execute an investment which most individuals don't have.

There have been some innovations in this area helped along by the social web (and there are more to come I am sure). One of these innovations I have been following closely over the last 5-6 years is P2P or Person to Person lending which involves individuals lending in small increments to other individuals (here in the US Prosper & LendingClub are the leaders), there are even some "Crowdfunding" websites on the way (pending a bill currently before Congress) that will let individuals invest in start ups in small increments.

Please feel free to leave your comments, topic suggestions, or questions and I will answer what I can either in the comments or with a new post. There will be more to come on all these opportunities to earn great returns, stay tuned!

The Investing Landscape

2012-01-20T00:31:00.000-05:00

It's clear to see that the investing landscape is biased against the ordinary individual investor. There are investment options available to institutional and accredited high net worth individual investors that are not available to the ordinary individual. They can invest in hedge funds, private equity, and venture capital and have an edge in the stock and bond markets due to their advantages in access to information and technology.

The typical individual investor is limited to investing in:

Individual stocks or bonds that come along with trading commissions and other trading costs like wide bid/ask spreads and company specific risk.
ETF's or index tracking mutual funds that are subject to the sometimes extreme volatility of the stock market.
Actively managed mutual funds whose managers take a fat fee off the top in addition to being exposed to the same market volatility (the average actively managed mutual fund returns LESS than the market).
Bank savings accounts or CD's which are failing miserably at even keeping up with inflation.

The goal of this blog is to uncover the best investment opportunities and strategies available to the ordinary individual investor that will offer an attractive return to risk ratio.