Best Investment Advice: Be Careful With The Financial Media

When it comes to making investment decisions, the “talking heads” on television financial shows really don’t know much more than you do if any more than you do.

They do have more immediate ongoing research and information delivery in the background, but much of the time they’re parroting dialogue via their earpiece.

Here is what you really need to know.

The only reliable talking heads were the Talking Heads, an American rock band formed in 1975 in New York City and active until 1991, composed of David Byrne, Chris Frantz, Tina Weymouth, and Jerry Harrison.

Given raw data from a corporate balance sheet, income statement, or more comprehensive 10K, many of the media journalists couldn’t do a good job of evaluating a company. It’s possible the Talking Heads could do as well.

This sounds like I’m knocking the media pundits, but I’m not. They’re doing a job and following a script prepared in producer/director staff meetings. But, I am saying buyer beware when it comes to making stock share purchase decisions based upon anything heard on cable business shows.

A personal case in point involves Annaly Capital (NYSE: NLY). Annaly is a mortgage real estate investment trust – REIT – that owns a portfolio of real estate-related investments in the United States.

Annaly invests in various types of agency mortgage-backed securities and related derivatives to use as an investment hedge. It also invests in residential credit investments, such as credit risk transfer securities and non-agency mortgage-backed securities.

I recall a well-known person on a prominent cable financial show talking up Annaly as a great business model with strong, competent management. And, best of all, the stock was a buy, buy, buy! Less than six months later the stock was a sell, sell, sell.

Why? The reason given was that the company was not fully transparent and “we don’t know what’s in their mortgage portfolio”.

Did management become less competent within six months time? Did their portfolio change materially? Did macroeconomic concerns or other conditions change? Not as I could tell.

I owned shares in Annaly during the period related to above and didn’t sell on the strong advice of the show host. I did eventually sell Annaly, and for my own reasons. During my multi-year holding period, the stock and its dividends also rewarded me very well.

Now, my point is not to get you to consider shares in Annaly Capital. In fact, it is a risky investment if you don’t understand and keep a sharp eye on U.S. interest rates and Libor changes. Nor would I want you to consider the financial pundit wrong in what he was saying.

My point is I made a that was right for me based upon my own due diligence.

My very best point is that you have to buy shares in good companies with sound management when the stock sells at fair value or less. This is the true path to personal financial security. And, you have to consider long-term holding as part of the wealth building plan.

You also must always conduct your own due diligence because too often financial show hosts have their own agendas or those of the producer. The business that they’re in is all about talk-talk and ratings. You may pick up a few tips or tidbits, but ultimately it’s your money you’re spending.

As an alternative to “talking heads”, the internet is full of good information covering any publicly traded stock on all market exchanges. Informative beginning sources include Morningstar, Seeking Alpha, and Google Finance.

With some basic financial knowledge and applied practice, you can learn to make good personal decisions before spending hard-earned cash.

My best advice: do your own research keeping with your own personal goals. At all costs, beware the pundits and talking-heads.

I have been an active investor for over 35 years. My lifelong interest in personal finance has led to teaching community classes to a variety of groups. My investment experience is in Equities, REITS, Oil & Gas Royalties, Utilities, and Varied Fixed Income. JG is not a registered investment representative. The opinions of the author are not recommendations to either buy or sell any security. Prior to investing, please conduct your own due diligence and talk to your financial advisor or security professional.

Picking the Right Qualified Intermediary for Your Next 1031 Exchange

One of the key players of every valid 1031 exchange will be the qualified intermediary (often referred to as the “QI”). This is the individual who will hold proceeds from the sale of your relinquished property until you close on your replacement property. In the case of a reverse exchange, he or she will hold title to your new property while you sell your old property. This individual will also advise you along the way as to deadlines and filing requirements. As such, the person plays in invaluable role in ensuring your exchange goes smoothly and meets the strict IRS rules to ensure a valid exchange.

Despite the importance of this role, many investors are unclear on exactly what the QI does and, more importantly, how to select a competent individual for the role.

Who is the Qualified Intermediary?

When you are executing a 1031 exchange, you will usually require the services of a qualified intermediary (QI). Also known as an exchange accommodator or 1031 exchange facilitator, the role is the same – it is the neutral, disinterested third-party who will:

(a) Prepare the exchange legal agreements and related transaction paperwork so that the exchange is properly structured;

(b) Receive, hold and safeguard the 1031 exchange funds during the pendency of the transaction; and

(c) Advise you during the process to ensure your compliance with all IRS code, regulations and procedures.

Despite the importance of the qualified intermediary’s role, you may be surprised to learn that QIs are not required to be licensed, regulated, audited or otherwise monitored by any regulatory body. Likewise, they are normally not obligated to be bonded, insured or maintain any other safeguards for client protection.

Surprisingly, anyone can call themselves a qualified intermediary and start administering 1031 exchanges. This puts investors in a potentially risky position. Yet once you understand the key factors to scrutinize as you select your own QI, you will be in a strong position to select a QI who is competent and proven.

Due Diligence During the Selection Process

Now that you understand the true scope of the QI role, it is time to identify the key questions to ask as you perform due diligence. You should know the answers to all of the following before selecting your next QI.

1) What is the knowledge, expertise and experience of the qualified intermediary? The best way to safeguard against unexpected issues in a 1031 exchange is by partnering with a QI who has the technical depth, experience and knowledge to catch problems before they arise. Be sure to ask about the QI’s background and past 1031 exchange experience.

2) What internal policies, procedures and safeguards are in place? A competent and seasoned QI will welcome your inquiry as to the audit controls he or she has in place to ensure a smooth transaction. If you ask and are met with vague statements, it is a possible sign that the QI is not as detail-oriented as necessary to ensure a streamlined process.

3) Does the QI maintain separate, segregated qualified trust or escrow accounts? A responsible QI will keep all client funds clearly separate from his or her own funds at all times. The safest way is by using dedicated trust or escrow accounts for all client funds.

4) Is the QI bonded and insured? Given the reality that your QI will hold a significant amount of your money for a potentially lengthy amount of time, you want to make sure that your assets are protected against catastrophic loss. To best safeguard your resources, ensure that your QI is both bonded and insured, and ask to know about his or her claims record, too, for good measure.

5) Does the QI have Errors & Omissions Insurance? At the end of the day, qualified intermediaries are only human and human beings make the occasional mistake. Be sure to understand if your potential QI has appropriate insurance in place to safeguard against mistakes during the 1031 exchange process.

While not even the most stringent due diligence process can promise 100% safety, you will be much further ahead if you take the time to ask prudent questions before selecting your next qualified intermediary.

The Concept and Significance of the Investment Property in the Modern World

What is Investment Property?

It is important to understand the concept of investment property. A real estate property is purchased with the intention of making money either through future resale of the property or through rent. In some instances, both reselling and renting goes side by side. A property can be a long time or a short time endeavor. Examples of long-term plan include building apartments whereas short time plans incorporates flipping where a property is bought, then renovated and then sold at a profit.

The objective of such property

The objective of such property is to generate profits. In the case with real estate, buyer buys land at a certain rate and then sells off the land when the price value of the property enhances. In most cases, it has been observed that the cost price is far less as compared to the selling price of the land. All this makes the venture very much profitable for the seller. Often investors, in order to get the best value on sales, conduct studies to calculate the best and the most profitable use of any property. There are properties that are developed in multiple ways. The commercially zoned property is the best example that can be cited in this regard. By ascertaining the best use of such properties, investors can maximize their returns.

Significance of real estate among investors

In most countries the real estate markets are disorganized and therefore locating a property in such markets is very difficult. Individual properties cannot be interchanged and therefore seeking to calculate the prices and search for other investment opportunities is a major challenge for the investors. There are many players in the real estate sector, the competition is significant and the issue with locating the appropriate real estate property complicates the situation. It is because of this that the individual players use their network and skills to search for investment opportunities.

The process in which the real estate items are transacted

Once real estate investment property is located then the status and the condition of the property is verified. After such process, investors negotiate the sale price and the terms, conditions with the seller. In most cases, the investors hire agents and attorneys to handle the acquisition process. Property acquisition implies the venture capitalist makes a formal offer of purchase to the seller by giving him an earnest money.

If the price of the property, in this case the real estate properties, and the terms are negotiated properly then the capitalist completes the transaction. If the investor is discontented with the property within the contingency period then he can revoke the offer without any penalty, obtain a refund and ask for refund of earnest money. Once contingency period is over revoking the offer implies forfeiture of the earnest money as well as imposition of other penalties on the investor.