

Ask HN: what are your best (relatively) passive, non-stock-market investments? - gregcohn


======
TamDenholm
I bought myself a "lifestyle business". Its a cleaning business that already
had a number of long term clients and revenue as well as staff. I've
rearranged the staff, automated the administration side of it and while i did
the cleaning myself (with the existing staff) for the first 2 weeks of
takeover, that now goes on without my involvement too.

I've only had it a month, i spent about £6k to buy it, i spent a further £2k
buying a van and other one off supplies and my monthly profit after staff
wages and other recourring expenses is around £800 a month. So if i left it at
that i'd see a 100% ROI in 10 months.

However I intend to spend around £10k on advertising and marketing in the next
3-4 months to expand the business, i expect a conservative £25k a year revenue
for that £10k.

Of course being a geek has helped immensely, especially with automating things
like invoicing, payments, accounting and building the website, phone system,
business cards, designs etc.

I urge all geeks here to think about applying your high tech skills to low
tech businesses, you'll often find massive opportunity, especially if the
space is typically occupied by non-tech literate people.

Also, as a side note, this is now my new strategy for my consulting too,
instead of being a PHP Developer doing boring but well paid jobs like facebook
apps and wordpress sites, i'm now positioning myself to be a business
consultant that makes businesses money by applying technology where its
severely lacking, and i already have my first client, a taxi company.

If anyone wants to ask me questions, feel free to reply here if you dont mind
if being public or email me: contact@[myHNusername].com

~~~
gregcohn
this is great. how did you identify and qualify this opportunity?

~~~
TamDenholm
This sounds a bit crazy, but I saw the opportunity on Gumtree, a guy wanted to
sell this part of his business. I went over his historical figures, did as
much due diligence as i could and considered the figures to see if it was
worth it. I have kind of a rule, if i can get a 100% ROI in 1 year, its worth
doing, I initially thought i'd get a 100% RIO in 8 months, i figured i'd miss
something (which i did) but i thought there was enough room for a little bit
of error and decided to go for it.

------
ruswick
In my opinion, passive investing rarely has the capacity to earn someone a
substantial amount of money. Large, stable returns occur in only two
situations: 1) You invested a huge amount of initial money, so even a low
yield returns a lot of money. (This is, from my understanding, how a lot of
super-wealthy people do it. Stored wealth perpetually generates income. If one
has a massive amount of stored wealth, they earn a massive amount of passive
income.) or 2) You invest over long periods of time.

Making large amount of money in short periods of time through investing
necessitates either making a very active, labor-intensive investment (like
buying a small company or flipping houses), or resorting to speculation.
Obviously, this is not passive.

The market is self-correcting. It's absurd to believe that one can earn
prodigious amounts of money quickly, predictably, and effortlessly.

However, you should take this with a huge grain of salt. I am not an
experienced investor. (In fact, I'm fairly sure that the law prohibits someone
my age from investing. Even if it didn't, I wouldn't be in a financial
position to invest anyway.)

~~~
gregcohn
Yes but there's such a thing as leverage on labor. E.g., you could start a
coffee cart & hire someone to manage it; be primarily a financial partner in
purchasing a small business or house-flip; etc.

------
scottkduncan
I've had pretty good results with peer-to-peer lending. Prosper is the
platform I use (Lending Club is the other big player in the U.S. but not
available to investors where I live). It can be a bit high maintenance as an
investor as you'll need to invest in 100+ loans to be diversified (and you'll
have to reinvest proceeds over time), but I find it to be manageable. If you
really want to get into it, both platforms allow you to download all past loan
data so you can analyze past performance and come up with your own approach.

~~~
thingylab
I like those platforms in principle, but I don't think investors reallly
understand what's in it. The truth is, you're creating your own asset-backed
security based on loans originated to refinance credit card loans or finance
personal projects for what is (I assume) a pretty narrow slice of the
population.

Just like banks and other players ( _ahem_ rating agencies) before the
financial crisis assumed ABS were safe because they were diversified ("the
housing market cannot collapse uniformly accros the country"), they can
actually become _very_ correlated in a very short amount of time.

So even though peer-to-peer lending is an interesting proposition, it is
important to understand that it can potentially become ugly and sticky...

~~~
gregcohn
Yes. After a quick look at this (very interesting) suggestion, my intuitive
reaction is that a lot of the borrowers are likely to repay based on their
credit histories and the desire to protect them.

My #1 question, however, is what makes people turn to a source like this?

~~~
thingylab
Well, a credit history tells you whether a borrower paid his credit card bill
last month, not if he is going to have a job next month. My point is not that
people will try to run away with your money, but that holding 100+ notes from
Lending Club might not be the diversified investment it appears to be,
especially when some macro event happens.

Peer to peer lending being somewhat new, I would say some of the borrowers
think it's cool. Some of them might also be making a principled choice ("banks
are evil"). But ultimately, if you have a reasonnably good credit profile it
should be noticeably cheaper than the average traditional lender with its
branch network etc.

------
gmays
Real estate. My wife and I own five homes (live in one of them). One is in
South Carolina near Hilton Head (I bought it when I was single) and the other
four are condos around San Diego, CA.

We bought in when the housing market was at its low. The credit markets were
crap so we had to buy all of them cash except the one we live in now which was
a bit more expensive. After expenses (HOA and property management) our average
returns are about $900/mo. ($10,800/yr.) for every $100,000 invested. That's
not too bad considering housing prices and rental rates will continue to climb
over time (or that's the plan at least). We're fortunate enough to live
frugally and just happened to have the money lying around when the housing
market sucked so we bought a couple homes a year over the past few years.

For the house in South Carolina we're losing about $200/mo., but it's a 15yr
mortgage. We'd be making a bit if it were a 30yr. I bought that one when I saw
21 so I didn't know anything about anything. Some would say I still don't.

The real estate is nice because the extent of my involvement is manually
paying real estate taxes on the homes without mortgages, answering a couple
emails a year about high dollar ($200+) repairs or signing new lease
agreements.

As one of the other posters mentioned, we also invest in Lending Club. Our
investment was more just play money to see how things worked, but returns so
far have been surprisingly good, around 14% annually. I like it because it's
so diversified with only $25/loan. You can maximize returns by picking better
loans.

The passive income is nice because it'll allow me to quit my job next year and
work on my startup full-time. I want to apply to Y Combinator and even if I
don't get accepted I'd be able to bootstrap my startup indefinitely with our
passive income. Hopefully it doesn't come to that, but if it does maybe I'll
pivot around year 25 (year 50 at the latest).

------
syedkarim
I swing trade, which is just stock speculation (aka gambling with equities). I
think I made about 30 trades all year. I've been averaging over 40% annual
returns over the last four years.

As much as I hate to admit this, I am a much better trader than an
entrepreneur.

~~~
gregcohn
That's an interesting number of trades -- less than one a week. Can you
elaborate on your methods for identifying, holding/monitoring, and exiting
trades? How many hours a week are you spending on this?

~~~
syedkarim
This year was low (number of trades) because I was patient on a trade that
went south. It eventually turned around, but locked up all my capital until it
did.

Basically, I refuse all conventional stock investing advice. I never
diversify; at most my portfolio has two positions at a time. And I invest
upwards of 90% of my cash on most trades. I do not trade on margin (well,
technically I do because I don't wait for trades to clear before taking my
next position)--but I don't buy stock than cash I have in the account. I only
buy heavily traded equities; trading volume over a million shares and over a
billion dollar market cap. And I focus on stocks with more or less sound
fundamentals that are showing recent swings in price. Apple is a good example.

But as for a being highly methodical and data driven--I'm not. I have a few
simple rules and am patient. I generally exit positions after 1-3%. And then I
have a few that I let ride. It doesn't take much to hit 40% that way.

I spend less than an hour a week doing research and monitoring my position. I
don't have any magic edge. But I'm making money, so continue chug along. A
bull market definitely helps, but I've also done ok in a bear.

~~~
gregcohn
Do you trade long only, or short too? Ie, are you trading pure volatility, or
more looking for situations where there's a temporary dip in pricing relative
to fundamentals?

Do you monitor daily, > daily, and/or use any automated tools to stop out of
or otherwise monitor your trades?

It seems like you could make consistent small wins here but would also be
subject to occasional big losses.

~~~
syedkarim
90% of my trades are long. I should be shorting more often, but I seem to have
an irrational apprehension towards it, which is just plain dumb.

It depends on the trade. If I have time to get a better feel of the way the
stock has been moving, I'll trade volatility. That's when I'm setting lots of
limit orders in a short period of time, which is uncommon for me. If I knew
how to trade programmatically, I'd be doing a lot more of this. It's something
I should learn this year. But most of my trading is based on what I feel are
fundamental flaws I pricing.

I make it a point not to actively monitor. I have Google Finance up all day,
but I'm not glued to it. I just set a limit order to close my position as soon
as I get into it. No real automated trading tools and don't stop out (which is
really bad practice I should change). I've looked at autotrading via
subscriptions, but since I'm booming gains as high as these pros, I see no
point to encumber myself with complexity. For now, I'm a profitable simpleton.
Of course, I fully understand my days are numbered. I'd much rather I didn't
trade, but I can't any other activity with this kind if return in time
invested.

You're right--I should be coming against a big loss. Actually, I have seen big
losses, but I just never realized them. That's what I mean by being patient. I
just wait it out until the company turns around.

The sites I use for insight are: Google Finance and Trefis. And I see what is
going on in the order book--I use Interactive Brokers, which offers access to
almost tick by tick trading.

------
cfinke
If you purchase farmland, at least in the upper Midwest, you'll earn a 5-8%
yearly dividend by renting it out, and there is little to no maintenance that
you need to do yourself (depending on your rental contract).

~~~
gregcohn
This is an unlikely avenue for me given my geography, but out of curiosity and
for the purposes of the discussion, are you basing the return on equity
invested or on total value of the land?

~~~
cfinke
Total value. Rental price per acre per year in my area of Minnesota is about
7% of the sale price per acre.

------
faramarz
Precious Metals. Gold and Silver Specifically.

edit: If you're in Canada, you can use ScotiaMocatta (division of ScotiaBank)
as your broker Buy. online and they will deliver the metal right to your
doorstep, or keep it with them in a safety box.

[https://www.scotiamocatta-
estore.scotiabank.com/stores/scoti...](https://www.scotiamocatta-
estore.scotiabank.com/stores/scotiamocatta/catalog/FeaturedProducts.aspx)

~~~
cynicalkane
That's a speculation. Investments are returns on real value. Speculations are
bets on unrealized value. The OP asked about investments.

~~~
rexreed
Does this make angel "investing" more like angel "speculation"? Or even more
so, Venture Capital primarily speculation versus investment? A legitimate
question.

~~~
cynicalkane
A little of both. Buying index funds is investing and buying gold is
speculation, but there's not an excluded middle.

------
kylered
I invested in a CrossFit gym three years ago with 2 partners and we've done
about 40x our original investment in dividends over the last three years. It
was a lot of work the first 18 months, but now it's a solid business with good
recurring revenue and a staff that runs it very well.

~~~
gregcohn
Are you opening additional locations? Was it a full-time job for the first 18
months?

~~~
kylered
No, for a variety of reasons. Mainly we always wanted it as a lifestyle
business, but also due to location factors and not wanting to put in that much
time again.

I'd say about 15 to 20 hours a week for the first 9 months, then declining to
about half that after 18 months.

------
kingkool68
My personal blog <http://www.russellheimlich.com/blog/>

I run 2 Google Adsense ads on individual post pages and it more than pays for
the cost of my shared hosting account. I haven't blogged in over a year after
a pretty good run.

I also run <http://dummyimage.com> with a single ad which covers the increased
monthly VPS cost to keep it running.

~~~
StavrosK
Shared hosting is $50/yr, tops. I made more than that while reading your
comment. That doesn't sound like much of an investment :P

~~~
kingkool68
I invested the time getting it set-up, writing content, yadda yadda... In the
past 12 months it has earned me ~$300. It's enough to fund other side
projects.

------
jstanley
I expect bitcoins to become significantly more valuable in the coming years,
so I own about 100BTC.

~~~
kitcar
IMHO that's speculating and not investing, if you subscribe to the Benjamin
Graham school of thought. If we classify investing as betting on anything that
could go up in value in the future, my best investment ever was at the
roulette table, made 36x my money in under 30 seconds :)

Maybe the original poster should clarify more what they're after, - i.e.
something that returns dividends/returns of some sort other, or just a capital
gain at the end of the tunnel, or both, etc... would enable the community to
provide more focused answers.

~~~
gregcohn
OP here: I don't have a hard time horizon or criteria on outcomes, just some
idle assets that I don't want to put all into the stock market.

I believe there are lots of ways to generate returns on assets in compounding
ways, and I'm interested in ways people in the HN community are using their
skills, knowledge, and analytical brains to do this.

I'm not so interested in pure speculation per se -- in fact, one of my reasons
for looking for alternatives to the stock market is that many stocks
themselves meet the characteristics of speculation to me. (Just because you
wrap it in quantitative comparisons to related-industry multiples and so on
doesn't mean the whole market isn't overvalued.)

Thus precious metals, bitcoins, etc. aren't very interesting to me either,
though they're interesting enough suggestions (as alternatives to leaving
assets in dollars, if nothing else) for the purposes of this discussion.

That all said, I'm willing to take lots of risk in small doses, if the return
dynamics are there.

Angel investing meets a lot of the criteria for me (and I've done some), but I
don't have enough capital to make many bets of typical angel investment size,
ie to have a sufficiently diversified portfolio to get EV returns.

------
vnorby
Domains - have my portfolio at hackernames.com. It's a good way to exercise
your hacker knowledge and you can always use them yourself if you aren't able
to find a buyer.

~~~
peeters
Forgive my bluntness, but my impression of domain sitting is essentially the
same as patent trolling. It's not contributing anything to the economy or
society, it just seems like legalized extortion of companies who just want to
do business.

Is there something I'm missing about this?

~~~
charleshaanel
This couldn't be further from the truth. Have you read Edward Bernay's book
called "Propaganda"? Do check it out. Your impression of things is no doubt a
result of a good spin job.

Domain investments are a proper alternative asset class and many people (some
of whom have gone to the best schools in the world) are active players.

~~~
peeters
It seems like a bit of deflection to point me to a book written in 1928. My
impression of domain sitting might be the result of spin, but domains didn't
exist in 1928, so that book is not going to explain why what I said "couldn't
be further from the truth."

I didn't say that domains aren't an asset; that has little to do with what I
was talking about. I'm not saying they're not a good investment, I'm just
saying my impression is that they're a kind of investment which does nothing
to further society, like other sorts of investments do.

~~~
charleshaanel
My comment was about the source of your "impression". I'm sure you'd agree
that you weren't just say strolling along the banks of the Danube
contemplating m-theory, when out of the blue - BAM! A thought came upon you -
quite randomly - giving you the impression that you now contend you own.

So rather than post an emotional response, why not engage that no doubt
massive neocortex of yours and investigate. I give it to you to decide. And of
course I'm being snarky here, it's a shortcoming of mine ;)

On a different note, this firm has good research on the matter
<http://www.fairwindspartners.com/Why-It-Matters/FAQs/> (NB: I'm not
affiliated in any way)

~~~
peeters
I'm a bit flabbergasted by your comments, but a quick look at your comment
history doesn't indicate that you're trollish, so I'll try to answer under the
assumption you comment in good faith.

I started by stating that my opinion was an "impression". Obviously by using
the word "impression," which by definition means "an opinion (esp.) formed on
the basis of little evidence," I was allowing that my opinion was influenced
by external and implicit sources. I then asked for more informed input on the
possibility that I was lacking an understanding of the issue.

Your response started with "this couldn't be further from the truth," from
which I assumed you would go on to challenge the content of what I had said.
Instead of countering what I said, or even providing input (which I would
value, since you present that you know about this subject) you resorted to
challenging the source of my opinion...the very opinion I'm _trying_ to become
more informed about. This is a red herring, and I tried to say as much. If you
considered my response "emotional" then I'm sorry, but you misread my tone.

But all that said, I _have_ given this independent thought and have come to
the same conclusion: that by all I've come to understand about domain sitting,
the act of buying domains that you don't wish to develop in order to sell them
at outrageous markup later _does not_ provide value to society, and in fact
has negative value as it raises the cost of doing business without
compensating by contributing value elsewhere.

Perhaps you misunderstand what I mean by domain-name sitting, which would seem
to be true given the completely irrelevant link you provided above. The
Fairwinds Partners' FAQ talks about having a cohesive domain-name strategy as
part of a greater branding and trademark initiative. I fail to see its
relevance to domain-name sitting.

~~~
charleshaanel
" _the act of buying domains that you don't wish to develop in order to sell
them at outrageous markup later does not provide value to society_ ".

First of all friend (may I call you that?), please chilax. No need to be
flabbergasted.

A couple of points I'd like to make. To begin with, in my belief system, as
the owner of an asset, you (me or WHOMEVER), has the right to do with that
asset whatever you wish.

If you buy something - for whatever intention - I have no right to project my
beliefs about what is or isn't appropriate use for YOUR PRIVATE PROPERTY.

As an example, if you were to buy a plot of land (whatever your intention),
does someone have the right to say, "you're not adding value to society"
because you don't develop it?

I'm a firm believer that if a person doesn't know or appreciate the value of
something, they are not the best owner of it.

But that's another issue.

Imagine this. You and I both have an equal amount of free time per week - say
20 extra hours to do what we so desire.

I decide to play online scrabble, write random HN posts and yell at the screen
when people get answers wrong on Jeopardy.

You on the other hand, decide to use your time doing other things. You spend
hours: -reading through scientific journals (a good source of emerging
technologies and future generic domain names that will be popular) -analyzing
data from keyword research tools -charting data you found on DNSalesPrice.com

etc etc After putting in the work, you find and invest in a small portfolio of
domain names.

Now, one day I read The Lean Startup and decide I want to have a go at this
thing called a "start up".

Doing whatever research I so decide, I think up a domain name.

Now, it turns out that the domain name has been registered.

By whom?

By none other than you.

So, I send an email and ask you to quote me a price.

When I get an email from you quoting a price that's in my mind at an
"outrageous markup" - I start blasting you on forums.

Forget the fact that: a) neither of us had some kind of unfair advantage. You
decided to put in the work it takes to find and acquire these assets - I on
the other hand decided to enjoy my leisure time

b) Another party comes along who sees the value in your "outrageous markup"
and happily pays you. Not only that, they turn the investment they made into
the asset they bought from you into a 25+% ROI (or more....far better than the
stock market, wouldn't you agree?)

c) They also substantially lower their customer acquisition costs via their
media buys with the right strategic domain investment (content on this
relationship here - [http://www.ozdomainer.com/domain-names-podcast-
episode-19-wi...](http://www.ozdomainer.com/domain-names-podcast-
episode-19-with-perry-marshall-google-adwords-guru/) 15:30 difference between
good domain and a bad one is [approx] 4 to 1)

One could go on, but I'll stop here.

I find it shocking when people blame other people for "extortion" for making
smart business decisions that, had they had either the foresight or the work
ethic, they could also have done.

It's one thing if one fraudulently stole someone's domain then demanded they
pay you for its return. Bu when one party takes on the inherent risk involved
in ANY kind of investment - then have others lambast them for doing so?

That I can't understand. Having said that, I'll end with a favorite quote of
mine (paraphrased Emerson) - "I may not agree with what you say, but I shall
defend to the death your right to say it".

------
hiddenstage
Poker. A good player has a pretty huge advantage over average players given a
decent sample size.

~~~
gregcohn
Do you have a way to make money from poker that isn't a linear function of the
hours you spend at a poker table?

~~~
zeidrich
Open a casino?

------
frozenport
Buy a house and live in it.

~~~
TamDenholm
Personally i think a house you live in is a liability rather than an asset, it
costs money, ties up a hell of a lot of capital and these days is a gamble on
whether you'll get your initial investment back again.

~~~
thingylab
I would tend to agree with that.

This being said, investing in real estate is the only way for a regular person
to achieve a high leverage ratio, which is probably why people see it as such
a good investment.

~~~
syedkarim
Joe Sixpack can also have high leverage through options contracts.

