Portfolio Update: Dinoriffic Investing Advice

This blog is supposed to be about money, but I haven’t shared my portfolio since the end of 2015. Today, I lay it all out for you.

Chart from Personal Capital. Perhaps you can tell where my bias lies?

 

Before we get to the juicy details, note the following:

  • My portfolio has lots of individual stocks. These are mostly a relic to my days as a stock picker. I’m mostly an index investor now.
  • This isn’t investment advice! You’d be crazy to follow the lead of some crazy dude on the Internet. If you dare consider following in my footsteps, remember that I play with toy dinosaurs:

That’s me riding on the back of Spinosaurus. And yes, I totally racked myself. I appreciate your concern. Hey wait, are you laughing? Go to hell!

Let’s get on with it.

 

Real Estate!

There has been a significant change in my portfolio; real estate! No, I haven’t bought any new properties. They are just too expensive in my neck of the woods. Instead, I’ve been buying them for others. We have four real estate holdings:

  • Hard money loan #1: $95,000
  • Hard money loan #2: $100,000
  • Private equity (syndicator): $50,000
  • Hard money loan #3: $50,000

Hard money is basically a private loan to an individual. We are in the first lien position, so the worst case scenario (borrower default) is that we own a home in Washington state. Two loans are short-term (one year or less in duration) and the third has a term of 8 years. I funded all of them through my self-directed, solo 401(k).

The private equity is a longer term investment. I helped fund an investor who bought an apartment complex in need of a little TLC. His goal is to fix it up, increase rents and sell within 8 years. We get quarterly income with a big payout at the end.

The reason I funded the real estate deals can be summed up in one word:

Diversification.

I don’t mind that the stock market indices are at all time highs. However, I do mind that P/E ratios are exuberant:

Jack Bogle, the founder of Vanguard, predicts stock market returns of 5% over the next decade. I expect my real estate investments to return at least 10 percent. I’m just following the money. If the stock market takes a huge dump tomorrow, future money will change course and start working for VTI instead.

 

Break it Down

Finally, let’s get down to business!

Quick Stats

  • Total value of investments including real estate and cash (excluding primary home and dinosaurs): $1,331,865
  • Real estate loans: $295,00
  • Funds: $572,083
  • Stocks: $424,782
  • Cash: $40,000

 

Funds (mostly index)

Funds are the core of my portfolio. BOR-ING. Don’t fall asleep yet. I still like to play a bit, especially with technology. My biggest fund holding is VGT, Vanguard’s information technology index fund.

I haven’t written about the Asset Class Experiment/Battle in a while. For new readers, here is what it’s about:

I rolled my 401(k) over in 2015. Instead of just putting it all into VTI, I decided to get crazy and roll it into different assets. Nothing like experimenting with almost $300,000, right? What could possibly go wrong!?! Why do I do this!?

For you, the Readers.

Always for You.

Bleh! I hope you didn’t lose your lunch. This isn’t a cheesy Hallmark movie. Hell, I’m not even drinking. I am thinking about it though. Hey wait, look at the time:

11:08am. Too early for beer? Does my “retired” status mean anything?

Sappy sentimentality and beer aside, I did this because I’m curious to see how these assets play out (pay out?) over the long term. It’s one thing to say, “Buy VTI!” It’s quite another to see how it performs in real time. And here are the results:

VTI (same thing as VTSAX), which represents the Total Market strategy espoused by Jim Collins, is proving its value. Only the dividend and information technology funds are doing better while the managed fund (Fidelity Contrafund) is lagging. Over the long term, I expect VTI to remain near the top.

And then there is VXUS:

Stocks

There is a huge elephant dinosaur in the room and it is Facebook:

Facebook, at over 15% of my portfolio, has grown out of control. I originally bought 1,000 shares shortly after the IPO. My hypothesis was that Mark Zuckerberg would be able to monetize the platform and when he did, the money would flow in.

Something wonderful happened shortly after the IPO; the stock price dropped through the floor. I bought another 1,000 shares. The average price for my shares was just under $30 for a total outlay of $60,000. I have since sold 550 shares, but Facebook continues to fire on all cylinders. I’ll continue to sell my shares, but will do it slowly to keep the tax bill in check.

I have the most confidence in Google and Amazon. I’m holding these two like they’re my firstborn, maybe even tighter (firstborn has been cranky lately). Both companies have incredible moats. Consider Google. It not only controls information (indexing the internet), it controls how you access the information. If you use the Chrome browser, have an Android phone or use a Chromebook, you know what I mean. Google is incredibly powerful.

And I can’t talk about success without talking about failure too. I sold all of my Apple shares back in January. Since then, Apple has gone from about $120 to $144. I’ve missed out on over $20,000 in gains. I sold Apple because its moat has been eroded by Android. However, I should have held the stock through the next iPhone refresh cycle which will be massive. Apple may still be the first company to attain a trillion dollar market cap. I’m not perfect.

 

Real Estate

I already mentioned my hard money loans and private equity investment:

We’d like to own more property directly. I have some ideas including a home in Florida (Hello snowbirds!) and building a cabin in the mountains near Nederland, close to my primary home (Hello Airbnb!).

 

The Future (and Dinoriffic Advice)

If I was starting over with a blank slate, I’d stick to indexing. I love technology stocks, but the ever quickening pace of disruption makes them a risky proposition. As much as I like Google, I have no idea if it will be relevant in 10 years.

People ask me all the time what my investing strategy is and I always defer to Jim Collins. If you haven’t yet, take a look at his Stock Series or consider purchasing his book. I asked the dinosaurs their opinion of it and they had the following to say:

GRRRRRRR!! ROOOOOAAAARRRR!!!!

Translation: Jim’s tome is the definitive source for learning about sound investing. He manages to present dry subject matter with wit and humor. He’s a gifted and thoughtful writer. Buy it now or we’ll eat you.

Frugalsaurus and Spendosaurus enjoy some quiet reading time. Spendosaurus only reads at a 3rd grade level, so it will be a while before he finishes.

Join the 10s who have signed up already!

Subscribing will improve your life in incredible ways*.

*Only if your life is pretty bad to begin with.

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43 Responses to Portfolio Update: Dinoriffic Investing Advice

  1. Wow you hit it big when it comes to Facebook. Great buy and that’s awesome that you’ve been able to hold on so many shares for so long. I probably would have chickened out when they doubled let alone where they are now.

    On top of that it looks like you have 3 out of 4 of the FANG stocks which have been on a tear.

    I have a friend that invests similarly and he picked up some SNAP because he’s certain that it will perform just like Facebook. I told him I think it’s closer Twitter. But I guess we’ll see.
    Mustard Seed Money recently posted…How Rising Interest Rates Affect YouMy Profile

    • SNAP! That one scares me, but then again, most stocks do.

      And yeah, FANG stocks have been killing it. They’re the big reason I’ve beaten the market for years. Thanks Google!

  2. Mr. Tako says:

    Very interesting about the hard money loans Carl. I’d like to hear more about this in the future.

    Thanks for sharing your stock portfolio too! I kinda-sorta mentioned selling Apple might not be the best idea…thankfully good ‘ol Warren eventually came round to my ideas. 😉

    That Facebook holding is big (15%), but probably nothing to worry about. I have over 28% of my taxable account in one stock… you’re a Safe Sally by comparison!

    Totally agree with your thinking about Google and Amazon’s moats. Those companies are going to be around for a very long time. Again, I wouldn’t recommend selling. 😉
    Mr. Tako recently posted…Angry Phone RantMy Profile

  3. Count me as another whom is curious about the hard money loans. Beyond that I think your actually smart to hold more then just VTI. It’s too concentrated on the larger players. It’s good for diversification to have a bit more gen it provides in small caps and of course internationals.
    FullTimeFinance recently posted…The Right and Wrong Reasons to become and EntrepreneurMy Profile

  4. Dave says:

    Interesting stuff. Regarding the face palm for VXUS, I consider that a good reason to load up on international stocks as they are relatively cheap now with lower CAPE. My equity holdings are over 50% international (Dimensional index funds in my case). I do want to expand my real estate investments outside of REITs.

    • “Interesting stuff. Regarding the face palm for VXUS, I consider that a good reason to load up on international stocks as they are relatively cheap now with lower CAPE.”

      Yep. I’ve thought that too. But I also wonder if their are some fundamental issues with the rest of the world compared to the United States. Just look at all the innovation that comes out of a very small region of California (Google, Apple, Tesla).

      I fully admit my biases and would love to hear a counterpoint.

      • JJNL says:

        Well, if you are living in the US I think it makes sense to have most of your stock there. For us non-US-investors it still makes sense to carry a large amount of US stock: if you want a portfolio that’s balanced internationally, you can’t avoid owning a lot of Uncle Sam’s stock. But there are valid reasons for not wanting to own EVERYTHING in the US:
        – currency: if you are living somewhere that’s on the euro, or any other currency than the US dollar, it makes sense to NOT have all your holdings in US dollars. Especially the euro has recently had periods where it is stronger than the dollar. I would argue that could also work in an American investor’s favour: if you were holding some part of your portfolio in funds denominated in (for example) euros, you could hold them as a currency hedge. This becomes more relevant should you decide at some point to not live in America anymore.
        – I do not agree with your analysis that the rest of the world has issues compared to the USA. Yes, you have Silicon Valley, the rest of the world has definitely not yet replicated that. However, that doesn’t mean the rest of the world is somehow structurally less innovative – but I agree that the next big IT-related innovation is probably going to come from there. This may come as a shock to you, but there is more to this world than IT and IT-related technological innovation. And I also think that there is way too much money sloshing around in Silicon Vally right now, hence being invested in increasingly risky (and stupid) ventures – Juicero, anyone? I think we’re inside a second tech bubble. And they tend to burst. If I’m right, the US markets will be probably be the hardest hit when it does. The previous tech bubble was barely a blip if you were in Europe at the time – yes, some investors in a small number of hip tech companies that went belly-up lost their shirt, but there were very few real-economy consequences, and stock indeces didn’t dip nearly as much as in the US. Same with the US housing bubble. Yes, it caused a worlwide economic crisis and lots of bank bailouts, also on this side of the ocean, but judging from where I am reading the newspaper (the Netherlands) things weren’t nearly as severe out here as they were in the US. So that’s another good reason to own non-US-stock: as a hedge agains US-centric bubbles bursting. Also, there are things the rest of the world simply does do better than the US. Build cars, for example. Yes, you have Tesla – but I think the biggest future seller of electric cars will not be an American company, but a company from a country where innovation toward greener forms of transport is spurred on by government regulation and subsidies and/or high fuel prices. Like Germany. Or Japan. Or Korea. Same with lots of green economy related inventions: they are a lot more spread out across the world and definitely do not all come from Silicon Valley. Same with climate mitigation – the US is definitely not the best at that (I mean come on – you can’t even keep Wall Street from flooding in the here and now, let alone after a few feet of sea level rise. That’s a laughably pitiable effort compared with where I live), but it will need it in the near future, and that knowledge will probably come from Abroad.
        – Plus, you being relatively young are in it for the long haul. 40 or 50 years ago nobody could have predicted what Silicon Valley is now. I wouldn’t want to stake my pension on being able to predict where the most innovative / high growth spot in the world is in 40 or 50 years. However, there are valid reasons to not want to bet 100% that it will be in the USA. Why? You had a big competitive advantage then with a highly educated population and room for a lot of innovative companies clustering together in a place that has very good universities and is really nice to live in, hence attractive to prospective high flyers. However, your population is no longer the world’s most educated. By far. Plus California is rather sensitive to the consequences of climate change, so who says it will still be at all nice to live there in 40 years? Geesh, there is a real risk that climate-wise, it will be a godforsaken desert by then. And Silicon Valley is such a booming place because it is easy to immigrate there from anywhere in the world if you are smart an talented enough: Silicon Valley’s innovative capacity is very much an international effort, fed by immigration of the world’s best and brightest. Who says the US government is going to keep it that way? I woul not trust your current president to do so, an I would also not trust your people to reliably NOT elect such a totally incompetent bunch at the helm of their government again (to be clear: this is not a partisan argument – it is not about Trump being a Republican at all. This is about him and an alarming number of people he brought with him being spectacularly bad at governing – and I work in government, so I know of what I speak. A government doing the right things and doing things right is a BIG factor in competitive advantage between countries – it’s mainly how Singapore became such an Asian tiger, despite having 0 natural advantages). Maybe Silicon Valley will remain as it is, but then again, maybe not – maybe the next Silicon Valley is in Asia somewhere. Like I said, I won’t be staking my pension money on either outcome, I prefer being a winner regardless through diversification.

        • I think you’re right about a lot of things, but I’d appreciate some clear examples. The one I can think of is China and green technology. China has a bustling electric car business including one company that Charlie Munger invested in (BYD).

          • JJNL says:

            I was also thinking about China and green technology. Not only electric cars, but also solar power (pretty much the only reason why solar power can compete with ‘grey’ electricity in Europe these days even without subsidies is the fact that the Chinese have gotten very good at producing ever-cheaper, ever-more-efficient solar panels). Some more examples:
            – both South Korea and China on a lot of things Silicon Valley is doing right now. Korean and Chinese tech companies, like Samsung and Huawei, have progressed in leaps and bounds over the past 10 years. Right now, they can already compete with the Apples of this world when it comes to selling hardware. And not just knock-offs of what American companies have designed either, they are really developing their own stuff these days. That was unthinkable 10 years ago. I think that we aint seen nothing yet: there is a reason why I would not be surprised to find that the next Silicon Valley is in fact in Asia.
            – Switzerland apparently has one of the worlds most fertile innovation ecosystems – according to this https://www.weforum.org/reports/the-global-competitiveness-report-2016-2017-1 Global Competitiveness Report they even outperform the USA, they score best on innovation. Singapore is also more competitive than the USA, by the way, though not on innovation specifically. The USA is in 3rd place overall, mainly because it is still very innovative and has a sophisticated business environment, but it lags behind on basically all the things we Europeans tend to think of as the basic funtions of government: infrastructure, education, health care, and strong institutions. I agree with the analysis in this report that the USA risks that becoming a drag in the near future – you are still coasting on the achievements of yesteryear, before Big Government became such a ubiquitous buzzword. I think in the long run a country needs both the 21st century innovative stuff and good old 20th century things like a well-educated populace and well-functioning infrastructure in order to keep ahead economically. BTW, if you want to nerd out for an afternoon this report is not such a bad read. If you look at page 61, you will note that when it comes to innovative potential, the USA is not only outranked by Switzerland, but also by Sweden, the Netherlands, Germany and Denmark. Another tip: the OECD website, for lots of other comparisons between OECD countries. Like here: http://www.oecd.org/innovation/.
            – Now, I don’t have examples for all of those countries, but when it comes to the Netherlands I would say we are leading when it comes to agricultural innovation (we are actually the 2nd biggest agricultural exporter in the world when measured in the monetary value of total agricultural exports – after only the USA. Even though our whole country is barely bigger than Rhode Island. That’s because we export a lot of high value crops that are grown very efficiently in small spaces, like flowers and hothouse vegetables. If you buy flowers anywhere in the USA, chances are they’ve been flown in from Holland. Also, there are actually lots of countries that actively try to convince Dutch farmers to move there, because they are at the forefront of farming technology. With a growing world population and climate change occurring already, agricultural innovation is going to become a lot more important, I think). We are also very good at what we would call water technology: how to prevent floods, clean up polluted water, process sewerage (our sewerage processors these days no longer see sewerage as a waste product but as a resource: there are lots of innovative projects going on that basically mine sewerage for useful components and/or turn it into electricity) etc. Oh, and we’ve been quietly building a mini Dutch equivalent of Silicon Valley in the south of the Netherlands, around companies such as ASML (a company manufacturing chips and machines that make chips) and Philips (which started off as a lighting company but is now mostly into health technology). I would never claim that the Netherlands is going to be the next Silicon Valley – it isn’t, if only because our country is just too tiny to make such a big difference, but I do think there are some good examples of innovation in technology that’s going to become very important in the future going on.

  5. The past decade has been very kind to investors in US companies. The pat decade has been good for those that invest in dividend growth companies. Tech companies have crushed most anything though over the past decade.

    International stocks look like a terrible investment in retrospect ( past decade). I see plenty of investors shunning international companies for one reason or another. Perhaps this is the time to buy.

    On the real estate front, I was wondering, why would someone pay 10% for a loan? Aren’t banks charging less? I know nothing about real estate loans, so any input (comment or future article) would be appreciated from the perspective of someone who knows nothing ( or even less than nothing)
    Dividend Growth Investor recently posted…Stockpile Brokerage ReviewMy Profile

    • I meant that this article should be targeted at novice RE enthusiasts like myself, not that you know nothing ( I am the one knows nothing about RE)

    • Chad Carson says:

      DGI,
      Real estate investors would all LIKE to pay less than 10%, but many are willing to on short-term, fix-and-flip deals because traditional mortgage investors won’t make those loans. The remodel project is too big for those lenders.

      There is also a lot of profit in those flips to cover the interest (if all goes well!). For example, $100,000 loan x 10% for 6 months = $5,000. Profit before interest may be $30,000. So, $25,000 net is better than not getting the deal at all because of lack of funds. Some of these borrowers are doing 2-3 deals at a time, so they have their own cash in 1-2 and need a hard money lender for the 3rd deal.

      The problem on hard money loans (from a lender’s perspective) is what happens if the market craters so your borrower can’t resell. You’d hope they could just dump the property at a loss and move on. But I know hard money lenders who got stuck with properties in the last down turn. They had to rent them (ok returns) or just cut losses and move on. That and lending to an untrustworthy or incompetent borrower are the biggest risks I see. But you can definitely mitigate them with low loan to values and choosing good borrowers.

    • “On the real estate front, I was wondering, why would someone pay 10% for a loan?”

      Great question! The guy taking these loans is an experienced investor, but there is some rule with banks that require him to season a property for a year with a tenant before the bank gives him a loan. At the end of the year, he pays us back and then the bank bundles it into a portfolio loan at a lower rate. Mrs. 1500 actually knows a lot more about this, so I’ve asked her to chip in.

      And the short period is the bad part for us. Since it’s only a year, we’ll have to think about how to redeploy the money in short order. Luckily, I enjoy this exercise, so I look forward to it!

      • That’s good information to know. Thank you for sharing. And I would assume Mrs 1500 learns about those deals through her contacts at BP?

        The short maturity is good, because you have some visibility that you will have the money available soon. Plus, if we get a high amount of inflation overnight ( very unlikely), you will not lose purchasing power.

        I would be interested in the process of how you evaluate credit risk/project risk.

        DGI
        Dividend Growth Investor recently posted…Seven Companies Giving Their Owners A RaiseMy Profile

  6. Thanks for the detailed post. Couldn’t agree more with you on VTSAX. That’s where my money is going. Also, nice job adding real estate to the mix. This is something I am considering more and more lately.

  7. Ooo, thanks for sharing! I love looking into other people’s portfolios. I’m with you on passive investing. My professor talked about Efficient Market Hypothesis last night! I’m totally in agreement that most investors can’t outperform the market on a consistent basis. But you’ve certainly done very well 🙂

    • “I’m totally in agreement that most investors can’t outperform the market on a consistent basis. But you’ve certainly done very well.”

      Yeah, and one thing I want to strongly emphasize is that I’m one of them! I have done very well, but I’ve only been investing for a little over a decade and luck had a lot to do with it. For example, I bought Google at IPO (my best financial move of all time) because I thought it was a cool company (worst reason ever!).

  8. RocDoc says:

    I haven’t invested in hard money loans yet so I’ll be interested in how they work out for you. Is the income from hard money loans taxed at regular marginal rates?

  9. Not a bad idea on the hard money lending. I’ve had a bad experience with peer to peer lending, and wouldn’t lend money without an asset backing the loan. But I have been considering some real estate investment loans. At least you end up with something if they default.

    Great pic for the VXUS! I feel the same way. On the bright side, a lot of foreign stocks are cheaper PE wise than US stocks right now, and we haven’t always crushed the international markets. It’s not a huge portion of my portfolio, and I’ll keep holding on 🙂

  10. I love real estate investing myself, but I’ve never considered lending. That would be interesting to see a post outlining how you went about doing that.
    Primal Prosperity recently posted…Why You Need a Balance Sheet for Your SoulMy Profile

  11. Wade says:

    One interesting insight is you added the real estate deals for “diversification”, yet you own a home worth north of $450k.

    One could say you are over-invested in real estate as a total of your net worth.

    But then, I don’t think if you had your portfolio in all cash right now that you would buy what you have now. You mention that over and over…don’t do this..:-)

    One interesting comment was that VTI (Total US) was too concentrated on the big stocks. It hold 3,601 stocks with large, mid and small and in market cap weights. I’m not following that logic. Now, owning both S&P 500 and VTI certainly does up your concentration of the top 500. You are doubling up on the 500 that are also part of the 3,601 in Total US. 100% overlap.

    For newbies, start with Total US Stocks, Total International Stocks and a Total US bond fund. You can add to this, but fully understand the reasons for doing it. Tilt to small cap, adding REIT.

    Thanks for the peek under the covers.

    • Dave says:

      “For newbies, start with Total US Stocks, Total International Stocks and a Total US bond fund … Tilt to small cap, adding REIT” <- This (and throw in some Emerging Markets)

    • VTI/VTSAX is based on market cap. It is true that you own a lot of stocks, but it is biased towards large caps: https://www.bogleheads.org/forum/viewtopic.php?t=176485

      The S&P 500 holdings are mostly a relic. If I was starting over, it would be mostly VTSAX.

      Real estate: Yep, I own an expensive house. Based on a sale this month, I think it’s worth north of $500,000 now. But, I only paid $176,000 for it. I did put $100,000 into it, so count that too. I’d never pay that much money for a house to begin with and I don’t consider a primary house to be an investment.

      If I had it my way, I’d have half of my net worth in investment real estate. I’ll get there some day, but it may take decades.

  12. Oooh, thank you for sharing this! Mr. Picky Pincher and I are trying to plan our investments for once we pay off our student loans. It’s always good to see what FIRE-people have done. 🙂
    Mrs. Picky Pincher recently posted…How To Frugally Own A PetMy Profile

  13. just a thought says:

    I think your growth and trajectory has been amazing. However, for folks that are just tuning in and see this page I think they get the wrong picture of your gains. From someone that follows you, I know that you have been packing a ton of money away…money that truly juiced your NW over the last few years.

    Without too much work, is it worth showing the audience the total amount of contributions compared to growth? Even when you discuss your house value of 450k, it doesn’t take into account the cost of materials, time, sanity and other various opportunity costs.

    As someone more important than I has been quoted saying “there is no such thing as free lunch” and I would hate for folks to think you got a free lunch along the way.

    • Yeah, good point. I need to write a post like: How I went from -$60,000 (college debt) to $1,800,000 in 18 years. It would take a while to figure out, but a worthwhile exercise.

      Most of our money did come from growth and house flipping. Our net worth is greater than all of the money we’ve made in our lives.

  14. Mrs. BITA says:

    Yay! I’m not the only one that is holding more individual stock than is normally recommended.

    I have been wanting more real estate exposure so I recently signed up for Fundrise and I’m investing in their heartland REIT – small amounts and baby steps. This is in addition to my Vanguard REIT. Why heartland? For diversification. I own property on the West Coast, and it cost a bundle, so I don’t feel that more exposure here makes sense.
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  15. This would have been a lot more informative if you listed your dinosaurs as a percentage of assets…
    Financial Velociraptor recently posted…Calls assigned early – PSECMy Profile

  16. Thanks for the update.

    The hard money loans are interesting. I’ve never heard of anyone doing this over in the UK but it sounds like something that is fairly common over there? Is there a company or website that matches lenders with borrowers or do you just have to be in the know/in the right circles and hook up more casually (that sounds weird, haha!)

    • It’s less formal than that. I don’t know if folks abroad use BiggerPockets, but it’s a great resource.

      Also, we’ll be near London 8/10 and 8/11. Hope to see you!

      • Ah yes I’ve heard of that but never had a proper look at it. Will Check it out, thanks for the tip!

        That works out really well actually, I’m at work but that means I’ll actually be in London. We can arrange something for either evening whatever suits you, just drop me an email nearer time? Thanks for letting me know 🙂

  17. ambertree says:

    Thx for sharing.

    I look forward to rent the cabin on AirBNB! That would be a good reason to take the kids on an overseas trip.

  18. Melissa says:

    (Yet another) commenter interested in more details about the hard money loans. Specifically, how you identified and vetted experienced investors and structured the loan as a first lien.

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