Mulzar.com

I am on the hunt for good DRIPs and I love Tim Hortons.  I am a true coffee lover.  Tim Hortons is a typical Peter Lynch type of company, “Buy what you know”. It doesn’t take a genius to understand that Tim Hortons is a very popular franschise. Just go to your nearest Tim Hortons and look at how many customers they have.

Starbucks is nothing compared to Tim Hortons, if you don’t believe spend a few hours trying both Starbucks and Tim Hortons. You will realise how overvalued Starbucks is relatively to Tim Hortons after your first hand experience. If you decide to invest in Tim Hortons I strongly recommend going to your nearest Tim Hortons cafe and see it for yourself first. 

I haven’t opened a DRIP account yet at Tim Hortons but I am going to open a drip account. Is $28.01 per share a resonable price to pay?

14.98 forward P/E and 1.30% dividend with a spectacular dividend growth potential. I will watch where THI goes and jump on it when it feels right.

The market and the media has certainely calmed down. The high volative movements are gone and the confidence for the economy seems to be recovering. I think it’s quite odd that the market “only” declined about 50% from all time high and then headed slowly up again.

The dow jones is at 9210 right now. I thought it would be at most 5000 by now. This was nothing like the great depression. Almost all the mainstream economists kept comparing this financial crisis to the great depression, where is the starvation? the 30% unemployment ? 86% dow jones decline?

Investing in REITs is a common way for the income investor to get hands on juicy dividends.  REITs in my opinion aren’t bad or good. There are so many REITS, so many bad ones and good ones. It’s hard to say if investing in REITs is good in general. A REIT usually fits in on these two criterias:

- High dividend

- Stable and reliable. If you forget the financial crisis, REITs and real estate companies have historically proven to be safe.

 Real Estate Investment Trusts are required to pay 90% of its profit to the shareholders, that’s why the dividend yield on most REITs are high compared to average stocks.  Since real estate slumps has a tendency to be long and slow I would avoid investing in real estate trusts in general for now.

I’ve talked about this before, should I count my website’s value to my net worth?

I think I should because a website is almost like an income property.  The similiarities with real estate are many:

- Steady cash flow. Ads revenue income for website. Tenants paying rent every month.

- Appreciates in value over time. There has been a study that shows that a typical website with an active webmaster gains about 10-15% value a year. That’s a high average but you have to remember that’s not a passive return on capital. Real estate traditionally goes up in value with inflation.

If I take my site for example and compare it to real estate:

I created my website for $96 the first year, both the domain and web server costed $96. That’s $96 in total costs. I won’t count the hours I’ve worked on the site as a cost because frankly it is a hobby. The first year I actually exceeded $100 in ad revenue. I think it was $127 exactly the first year in ad revenue. That’s sligthly over $10 a month in ad revenue. This year I don’t know much I will make but it will be definatley over $127. This blog is only 1,5 years old.

So I made $31 dollar profit on a $96 investment. My return on capital was approximately 32% and I haven’t even calculated selling the website with a profit yet! The return is very high compared to both stock and real estate “average” returns.

My conservative income growth prediction is around 30% ( it will most likely be a lot more ). That might sound high for stock / real estate investors but for new started blogs that’s considered very low. So how much is my website worth if I want to sell it:

-Forget about growth and expected growth when evaluating a website.

-The simple valuation model is 10-12x month revenue.

- 30% more this year means around $13,5 a month. This website you are surfing on right now is worth between $135 - $162 . But let’s be pessimistic and say $135. That $127 in revenue and a selling price of $135.

$135 + $127 - $96 ( the cost ) =  $166 profit on $96 investment. That’s a 173% return on capital after one year. I don’t care if you are real estate guru who has made a deal with the devil you won’t beat that kind of return on capital.

It might sound like it’s easier to make money in flipping websites than flipping real estate, but it’s not that simple. Just take my example above, it’s easy to have a high growth the first years of a blog but you will never make any real money in absolute dollars. Because your initial investment is only around $100.   

Comparing websites to stocks won’t do you any good because websites requires you to be active, stocks gives you a passive income. I have written over 100 articles since this blog started. Having 173% return on capital during a financial meltdown is actually quite bad given the amount of work I’ve sacrificed.

Many people are pessimistic but that doesn’t mean that they share they same opinions on how our economy is going to crash and burn. Some think we will go into hyperinflation and gold will be an excellent investment. Some think we will go into deflation. Yes, take that gold bugs, deflation might become very real. Gold will be in a big bubble phase if deflation comes.

Deflation is very bad, according to some economists it’s even worse than hyperinflation. Many people haven’t experienced deflation and I think many are taken by surprise to hear that deflation is even worse than high inflation. But hyperinflation is the worst thing that could happen to the economy according to the majority of economists. The reason to why deflation is also bad is simple:

An evil circle is created when deflation occurs. People save money because they know that cash is gaining value. When there is less and less consumption in a economy, productiviy goes down. This is very bad news for real estate/stock investors. Stocks will dwindle down in value aswell as real estate. How to make money in deflation might seem hard but it’s easier than you think, usually requires that you don’t do bad things. You will understand what I mean in a sec.

So what should you during deflation?

Investing during a deflation leaves you with few options. You can’t buy commodities, stocks, real estate, corporate bonds. The only real choices you really have are:

Save your cash.  This is what I meant, don’t do anything with your cash and you will make money because cash rise in value during deflation.

Buy government bonds. If the government goes bankrupt, well my friend than the big problem isn’t your financial situation because the entire society is falling down and your biggest priority should be obtaining food so you don’t die in starvation.

I know the above advices seem bad but that’s my point, deflation is a very scary thing because there isn’t much to do.  High inflation is a blessing compared to deflation.

A majority of gold investors are doomsday preachers. That is why I consider investing in paper gold to be a bit paradoxal. The reason why many buy paper gold is because buying physical gold can lead to headache. First of all you need a safe place to store it. You can store it safely in a bank but then you have to pay a montly/year fee. Just storing it costs. A problem most investors face when investing in physical gold is the spot price. You won’t get a market spot price for gold when buying gold unless you buy in big volumes. Buying alot of gold isn’t exactly easy for the small time investor. You might be looking at spending 100, 000 $ to get a fair market spot price.  Selling your physical gold can be harder than you think, you have to find a seller willing to buy at a market price.

GLD might sound like a blessing. It’s easy to buy and sell, just as simple as trading a regular stock. You can find buyers easily in the market and buy easily at market price. You avoid all the difficulties that physical gold has.  But it’s still just paper gold. If the economy would crash do you really expect GLD to back up your paper certificates with actual physical gold? Yes I didn’t think so either.