Inspired by that time I told y’all about my biggest financial mistakes, let’s take a look at some of the biggest investment or money moves I almost made, and whether they would have worked out.
Tried to buy a rental
21-year old Nelson had it all. Okay, maybe not it all, but he did have a job,plenty of forearm stamina, and a reliable internet connection, which is really all a man needs. He was also a budding real estate guy, owning a couple of rental properties.
My real estate agent took me to see a place that was small, but in a nice location and was fixed up reasonably well. The list price was a whole $31,000, and I anticipated being able to get $500 per month for rent. Knock off 20% of my rent for other expenses, and I was looking at a net return of approximately 15.4%.
Yes, those were the kinds of returns you could get buying real estate in 2004.
I had a system for buying these types of houses. I’d make a cash offer with no conditions, with a quick possession date. Normally, since I was buying places that had sat on the market for a little while, I’d make my initial offer a good 10-20% less than the list price, depending on other factors.
This house was priced well, and I knew it. My agent had a cash offer for $29,000 about 20 minutes later.
A few hours later he phoned me to let me know there was another offer on the table. I wasn’t allowed to hear the details of it, but I could bump up my offer if I wanted. I declined, and ended up losing out on the place over $1000.
These days, it would have been worth approximately $80,000 and would be easily renting for $550-$600 per month.
Lesson learned: Don’t be so cheap when it comes to buying investments. It was a good solid house and was worth paying up for.
Around the same time as the potential rental debacle, I was just beginning to get interested in the stocks. I’d wake up each morning and watch Kevin O’Leary on ROBTV, which is called BNN these days. He was the “investor at large”, which was really just code for “I’d like to be on TV, please.”
Both Kevin and I had our eye on McDonald’s shares, which were reeling because Morgan Spurlock decided to gorge himself on the chain’s food for a month. They fell to $20, then $15, and finally to $13. I decided I’d back up the truck at $12, when shares yielded 2%.
They never reached $12. Five years later, they traded at more than $60 each, and these days the stock trades above $100. Oh, and the dividend is now $3.40 per share.
Lesson learned: Just buy a stock that you think is undervalued, dammit. Don’t nibble.
Shorting the U.S. Treasury bond
In 2010, I was convinced the U.S. was on the verge of some major inflation. The Federal Reserve printed money like crazy (excuse me, it’s called Quantitative Easing) and the laws of supply and demand dictate inflation would follow. I researched the ways to do this, and decided I would buy one of the inverse ETFs.
Right at the last moment I decided to not bother. I realized that the smartest investors out there consistently get big macro issues wrong, so what chance did I have to figure out something like this?
Lesson learned: Don’t bet on macro issues. Stick to analyzing companies.
Shorting Canadian housing
Like many other pundits, I think Canada is in the middle of a massive housing bubble. If you want to read a whole bunch of words of why I think that’s the case, here you go.
As part of that thesis, I decided to buy long-term put options on some of Canada’s largest banks. The thought process was that a housing collapse would certainly be bad news for the banks. My options were long dated until January, 2016. I also contemplated shorting Home Capital, the largest of the subprime lenders.
It didn’t work out so well. I ended up selling the options a few months later, losing some pretty good coin in the process. If I were to have shorted Home Capital, I’d be about even right now, less any borrow fees.
Lesson learned: The market can stay irrational longer than I can remain solvent.
Want to share your near misses in the comments? Go ahead. Let ol’ Nelly be your proverbial crying towel.