Investing business profits

Discussion in 'Building Your Business' started by James, Jan 5, 2016.

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  1. James

    James Member

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    Apart from the obvious of investing back in to your business, what do you guys do with excess profits within your business structure?

    Here's where my breakdown ended up by the end of 2015:

    80% Exchange traded funds aka ETFs
    • 10% following Canadian bond index
    • 30% following Canadian equities index
    • 60% following broad global equities index excluding Canada

      This didn't go too well in 2015 given Canada's economy, portfolio took a loss but I ended up roughly breaking even thanks to dividend payments.
    15% Tech stocks

    Did all Amazon this year, only wish I bought more.

    5% Real estate

    Only just started getting in to it and this has been a huge pain for me, have to incorporate new properties for liability purposes and the extra headaches and accounting fees that come along with it are annoying - let's hope it turns out to be lucrative.



    I find that I veer towards much more risky/volatile investments through my corp for some reason... my personal investments are way more conservative.
     
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  2. cardine

    cardine Administrator Staff Member

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    Honestly my investment strategy is currently very poorly thought out considering how much money I have in cash right now. I have a little bit in some mutual funds but have been using most of it as business operating capital. In the long run all money is business operating capital, but in the short run there is some money that won't be spent in at least the next 6 months that should be somewhere collecting a little bit more interest than it currently is.

    I really wanted to do something like Prosper or Lending Club which I still think is one of the best ways to make a very reliable return regardless of market conditions, but none of them are legal in Maryland. So with that being said I want to invest in a high quality hedge fund. I know little about stocks and would rather focus on my business and let someone who lives and breathes investments handle my investments. So right now I'm looking for something along the lines of Renaissance Technologies, but without the $5 million minimum they have.

    Eventually I want to get into the business of AI fueled investments myself as I think there are a lot of things that our AI could analyze that other hedge funds aren't spending as much time looking at, but for now I'll leave it to the people who do spend all day thinking about those sorts of things.
     
  3. darnoldi

    darnoldi Active Member

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    My approach is a little bit more high risk, I invest in a new business.

    Any business I start is designed from day 1 to be scaleable. Early in the business I will usually take on an assistant with the intention of grooming them to take over day to day operations. Then I give them a healthy share of the business and start looking for my next project.

    It has its risks definitely and I have lost some money over the years, but generally my returns are higher than most traditional investments and it's a hell of a lot more fun!

    Having said all that, I have been giving some serious thought over the last year or so to starting up a more secure investment portfolio in preparation for retirement "just in case". So I am keen to see what ideas are discussed here.
     
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  4. cardine

    cardine Administrator Staff Member

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    Although I called it "working capital" this is mostly what I am doing. If you look through the goals I set for 2016 a lot of them involve setting up new products, and those products are all being funded entirely by the profits of existing profits. Right now I am looking for places to put my money that provide good short term returns, but in the long run I don't think there are any investments out there which can outpace me re-investing in new products and growing existing products.
     
  5. KS1905

    KS1905 Active Member

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    Robo-Advisors have been a hot sector in the last couple of years and people are dumping billions into it and letting "the bots" direct their investments. https://www.betterment.com/

    Now that the markets are starting correct/cool-off, especially in the commodity and currency markets there will be a lot of washout of the bad hedge funds because a lot of them play in those areas. It's much easier being a hedge fund in a bull market.

    I've been staying out of the market for the last 2 years, I thought it was way too hot. I've been paying off debt and saving my money, the way I was looking at it was that I could pay down my 4.85% mortgage and not risk any fluctuations in a bloated stock market. I also built up a rainy-day fund. I'll probably change this in the next 3-6 months and start reinvesting in the markets.
     
  6. cardine

    cardine Administrator Staff Member

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    I'm more looking at something like Renaissance Technologies or Winton for me. Betterment is intriguing but it looks like it is catered very specifically towards individuals saving for retirement.
     
  7. Hernan

    Hernan Member

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    This is an amazing discussion. I usually pour 80% of everything I make back into the business, and that 20% has grown enough now to sustain my lifestyle (I'm a frugal guy) and left some for investing. I think that the real deal of wealth generation is business creation/scaling.

    Bonds, stocks, real estate are all nice vehicles to MANTAIN wealth, not to create it.

    That being said, I like to invest in non-IM businesses. My last project includes building some acres of land and grow bees, silk worms and lavender fields. Of course there's absolutely no chance I would be taking care of that, so it'd would be sort of what @darnoldi is doing but outside the IM-digital space.
     
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  8. Andrey

    Andrey New Member

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    Do you guys not read zerohedge.com? Do you expect the American dream to keep on going? Look the whole world is bent over backwards just to keep US afloat. It cannot keep going long-term..

    Invest into yourself, into your health, into your food, hard things that can actually make your life better. Double or tripple your food budget, buy organic food, stop eating GMOs.

    Just my uneducated opinion. :)
     
  9. cardine

    cardine Administrator Staff Member

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    I agree with this entirely. I generally avoid most investment vehicles because to me the most effective way to scale is to invest back in yourself.
     
  10. cardine

    cardine Administrator Staff Member

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    I disagree with that assessment, but even if that were true, a good hedge fund will be diversified enough that it will perform well no matter what the market conditions are.

    So for instance, Winton has the following historical performances which include great performance during each down year:
    upload_2016-2-8_14-13-18.png

    Renaissance Technologies meanwhile had a 98.2% return in 2008 when the S&P lost 38.5% and continually outperforms the S&P:
    [​IMG]

    So regardless of your opinion on the US or the economy, your wealth will likely do better in a high quality hedge fund (or at the very least your own diversified portfolio) than it will just about anywhere else.
     
  11. BigDog

    BigDog Member

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    My family has always invested in commercial property, mainly strip centers and office buildings. Its an incredible way to increase your wealth as long as you structure your financing to your benefit.
     
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  12. cardine

    cardine Administrator Staff Member

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    Besides leasing commercial office space I have no experience in this - do you know what type of returns you could expect to get from something like this?
     
  13. cardine

    cardine Administrator Staff Member

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    I just came across an article that described a bet that Warren Buffet had with Protégé Partners (a money manager). It was a $1 million bet where Warren Buffet bet that the S&P 500 would outperform a sampling of hedge funds. As of right now Warren Buffet is dramatically winning the bet - over seven years the S&P 500 is up 63.5% while the five hedge funds are only up 19.6%.

    Although seven years is hardly statistically significant and a major recession could change the current "score", it is some evidence that hedge funds, especially with their expensive fees, might not be worth it after all since they tend to be unable to outperform even the S&P 500.
     
  14. BigDog

    BigDog Member

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    Commercial real estate usually has a capitalization rate of between 5%~8% within my market. A 5% cap rate is typically a triple net lease (tenant pays everything including real estate taxes, insurance, etc) and the tenant is a publicly traded company like Walgreens or CVS. An 8% cap rate is typically a strip center with the owner paying everything except water and electric (modified gross) and the tenants are small mom and pop shops. To get into commercial real estate you typically need 20% down. The beauty of commercial real estate is you typically don't get many calls from your tenants and over time they pay off your building for you. Its as close to passive income that I've found that also has some decent stability.
     
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  15. cardine

    cardine Administrator Staff Member

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    Most of my commercial leases are full service, but even in that case it is still very passive if you are sourcing that out. I'm in Class A space right now and I can definitely vouch for how infrequently I ever call my landlord!

    That's not a bad return, especially if you are doing it all with someone else money anyways. For my own money I think I'd get better (and just as stable) returns with something like Lending Club.
     
  16. Nicky Papers

    Nicky Papers Member

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    I'm in the same boat, which isn't a bad boat to be on. Even if I'm getting little to no return on cash sitting I can pull the trigger on pretty much any business expansion idea I can dream up. Being smart and calculated, of course.

    Since no investment vehicle I've found will ever beat my ability to deploy cash within my own businesses and get the returns I'm getting, I'm going to stick to doing exactly what I know - just that! :cool:

    Any investment advisor I'd come across always tells me "i'm losing out" which I pay no attention to because I wouldn't have the cash I have today without managing the flow of it through my businesses. They can't beat my returns.

    Also, I'm reluctant to invest (traditionally, in the market) because I don't want to lose any of my post-tax money and I don't want to pay capital gains taxes on investments which would appreciate. For me, it's not a tax efficient way of taking advantage of upside while the downside is disproportionate if I were to go in the red.

    Strategy: Invest back into my businesses, invest in amazing people, invest in cashflow streams, invest in experiences, invest in deepening relationships with clients, invest in my personal knowledge, and stick with what I know best: Internet businesses.

    Liquidity will always remain king. ;)
     
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  17. cardine

    cardine Administrator Staff Member

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    That's pretty much exactly what my investment strategy has been right now.

    Right now cash is being invested in the new products and teams of people we are creating. I'm technically losing money right now, but I don't really see it that way. Each business is extremely profitable, and those profits are being invested into creating new businesses and growing existing businesses.

    For instance, well into 6 figures has been invested into Article Forge so far, and I know in the end the returns will be higher than a bank or investment firm could ever dream of offering. I don't see the ability to turn cash into more ambitious businesses disappearing or changing or reaching saturation for us any time soon so I expect that trend to continue for a long time. So once Article Forge is profitable that will enable us to reinvest and sustain an even bigger team of people that can create even more ambitious (and profitable) products.

    With that being said I still am looking for extremely liquid ways to invest my working capital that generate stable above inflation returns but I am not 100% sure what I want that to be. It might be as simple as owning US Bonds, which are completely liquid, completely stable, and have very small (but real) returns.
     
  18. ...

    ... Established Member

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    When you say invest in cashflow streams do you mean buying other websites, or do you just mean marketing costs to acquire more customers?
     
  19. Bender Bending Rodríguez

    Bender Bending Rodríguez Senior Member

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    I've been researching rental properties. It'll be at least 2 more years before I can buy one but, in my situation, they look great.

    I qualify for the VA loan which gives me a low interest rate, no down payment, and no need to buy mortgage insurance. The VA loan lets one buy property that can house up to 4 families (so duplexes, triplexes, and quadplexes in addition to a single family home).

    I didn't know about this until a month ago. For me, it's dumb NOT to do this. I can basically buy a property for 3.5% of the value (to cover the VA's admin fee) + the closing fee and then rent it out to cover the mortgage. What's left over is profit.

    There's a clause in the loan that says the veteran must live in the property, so I'll have to move into the du-tri-quadplex until I pay off the loan, which isn't that bad.
     
  20. Cheshire

    Cheshire New Member

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    I used to dabble in the stock market but I have this sneaking suspicion all that shit is going to fall apart over the next few years. With that said I do still have some stocks, I just don't invest more than 10% of my cash in them. I always re-invest in other businesses. I try and stay in businesses that will do well rain or shine. Gas stations, real estate, liquor stores, guns, and media / entertainment. The 2008 recession (almost a depression!) showed me that when people are jobless, broke and desperate they will still spend money on gas, rent, liquor, weapons and entertainment.... most of the time in higher numbers than when they were employed.
     
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