Adnan Rafique M.D.
Many great investors believe that you build wealth in hard times. Simply means those who take advantage of the fear in the market and buy quality assets whether it has equity in the stock market or tangible assets like real estate and hold it for a long time like 5-10 years, only those investors come out as winners and they build wealth for generations to come.
The stock market is in turmoil these days. These ups and downs are part of normal market behavior, it should not deter investors from taking risks and building a great portfolio with solid businesses which offer great products and services for the masses. Very few of these companies provide an opportunity to be a part of your stock portfolio at a discounted price when the market is significantly lower and these great companies come down with not much fault of their own.
Buying a stock is like buying a business. Investors should do their homework and know the financials of the company and future demand before buying those stocks at a discount. Solid value and growth companies with tons of cash on the balance sheet should be the first in your portfolio, this includes but is not limited to GOOG, AMZN, AAPL, Broadcom, NVDA, COST, OXY, HD, DE, etc.
Acquiring stocks with decent dividend payout history is also a great way to develop a source of another passive income. Getting a 4-5% dividend consistently for a long time with stock price appreciation is a great strategy to sail through rough times with some income coming every quarter. When you keep these quality dividend stocks for the long run, you accumulate some serious cash in 5-10 years. Some names like KO, TGT, BHP, DLR, AMT, AVGO, etc.
Every investor should have a strategy to build different sources of income in the next 5-10 years. Both quality stocks and real estate can provide investors the opportunity to reach their goals over time and enjoy the fruits of passive income well before retirement age. The two vital traits to achieve this goal are to be patient and consistent. Delayed gratification is long-lasting and also protects your wealth. Trying to get rich quick with risky investments doesn't work for most investors
Real estate syndication is the best way to acquire commercial real estate. Multifamily investing is the least risky and usually considered recession-proof. Depending on the location of the property, it provides investors an opportunity to own a large property with multiple tenants under one roof. As compared to a single-family home, multifamily is easier to manage by a good management company which you can easily afford because of the income it generates.
General partners (GP) or sponsors or managers are the groups of people who raise funds from Passive investors like you and me (LP, Limited Partners), locate the property, buy it with investors' money, maintain and manage the property and distribute funds every quarter as a part of rental income. One multifamily apartment creates three sources of income for its investors.
1- Rental income,
2- Capital Gain after the property is sold and
3-Tax benefits are also significant and it puts money back into your pocket.
When you include all these sources of income from a multifamily apartment, it gives you an average annualized return of 15-20% over 5 years.
The drawback of this kind of investment is that your money is locked for 4-5 years and you don’t have any control or say in the day-to-day management of the property.. Sponsors or Managers of the property do day-to-day management. Passive investors are totally passive and have no responsibility towards daily management or even towards the loan on the property. As an investor, your only liability is your portion of the investment. Please read about multifamily syndications and take advantage of this hidden gem to create wealth over time.
You can also own a business in partnership with people who are trustworthy and experienced in the field in which you would want to invest. Never invest in any business or stock which you don't understand. No matter if you invest in a business or real estate, make sure it has cash flow.
If you buy a stock in a company, the rule is the same, cash flow. Learn how to read the financial statement so you know if the property or the stock is cash flow positive.
If you are investing in new construction, make sure you know there will not be any cash flow until the property is built and has tenants. Which will take 3-5 years on average. I like to create different sources of passive income so for that reason, I'm not a fan of new construction where I have to wait for several years before I see the return.
Now coming back to the stock market, I believe we are either in the recession already or going towards it soon. I don’t invest for a year or two, my time horizon is long term so this volatility in the market is nothing but an opportunity for me to acquire good stock at a discount and hold it for future growth. If you buy great companies when the market is down, you will be in great shape in the next 3-5 years. The key to success is patience.
Below are some more names which look attractive to own at this point, considering you already have the stocks I mentioned above in my examples like GOOG, AAPL, etc.
AVGO: Broadcom Inc. is a great company with decent cash on the balance sheet and pays out dividends to its investors. Stock prices of tech companies are coming down due to rising interest rates. Feds are not done hiking interest rates, in the next few weeks to months, this company can come down further in price and become very attractive to be a part of your portfolio.
TGT: With the recent drop in price due to inflation and oversupply of inventory, Target is becoming attractive to own at a price range of 150 or lower. When inflation starts trending down and the supply chain issue resolves, this stock can go significantly higher.
RH: Restoration hardware is a Warren Buffet favorite. With the recent housing downtrend, these names are feeling downward pressure. RH Can be a good name to own for a long-term hold if the price comes down another 10%.
SQM: Sociedad Quimica y Minera de Chile SA is a mineral play and the largest producer of Minerals in Chile. With rising EV numbers and Battery needs, Lithium stocks are enjoying the boost and they will continue gaining value with time. There will be hiccups along the way but over the next 10 years, you will see these companies benefiting tremendously. SQM pays a decent dividend and can be another income play in rough times.
GTLB: Gitlab Inc, develops software for the software development lifecycle in the USA, Europe, and the Asia Pacific. In a recent financial report, the revenue was better than expected and guidance was positive for next year due to rapidly growing numbers of contracts.
ADBE: Adobe inc is another solid growth company with a very successful business model and services. Adobe has a 20% year-to-year cash flow increase which is above average in the industry. The recent purchase of FIGMA caused the stock price to drop significantly. It gives the investors an opportunity to buy the stock and hold it for future growth.
“ Wealth isn’t primarily determined by investment performance, but by investor behavior” ~ Nick Murray.
High Risk /High Reward: Here are a few names for investors with a greater appetite for risky stocks. I personally don’t like to buy too many risky names especially when so many great companies are on sale.
Snap
S (Sentinelone,Inc)
Evgo (Evgo, Inc)
RBLX ( Roblox Corporation)
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