The Arbitrageur System

Before walking you through the different steps required to build an Income Portfolio based Dividends and Distributions, I would like to talk to you about market expectations. In my opinion, the best asset portfolio in the United States is the one managed by the California Public Employees’ Retirement System (CalPERS), which is the nation’s largest public pension fund. In my opinion, CalPERS is the best and the benchmark for the industry because of its excellent management, fiduciary responsibility, size, time horizon, diversification, and sophistication not to mention the kind of investments that it is able to make and the pricing power it has, which regular investors don’t.

pension-buck-front-large calpers

Rule of 72

Years = (72 / Interest Rate)

To determine at what percentage or in how many years capital will double, you have to bring to mind the rule of 72.  Example: When the interest is 6 percent per year, 72 divided by 6 is 12, and in 12 years the capital will doubled. [Summa de Arithmetica (Venice, 1494. Fol. 181, n. 44) of Luca Pacioli (1445–1514).]

CalPERS, even with its virtues, understands that performance (capital appreciation) over a benchmark of 7.75% is very hard to achieve.

The number 7.75% sound familiar, doesn’t it?

rule72

However, the main goal of this post is to teach you how to create an income-producing portfolio by unveiling the biggest secrets on Wall Street.

However, critical to our income producing portfolio is opening a corporate brokerage account. Not any  brokerage account. Your provider must offer you low commission cost, good price execution, and competitive margin rates, to fully exploit the benefits of interest rate arbitrage.

The portfolio should be built by the end of your first corporate year. That’s because we want to be fully invested to start generating income as soon as possible, but not by buying everything at once. When prices are down (with the DJIA down triples digits, 1% or more) is when we buy our income producing assets.

Arguably, the Dow Jones Industrial Average (DJIA) is not a very accurate representation of the overall market performance. Most people prefer the S&P 500, and so do I.

sp500 vs dija

Now is probably a good time to talk about the following things:

Dollar-cost averaging is a very popular investing technique of buying securities in increments and not all at once.Reminiscences of a Stock Operator, by Edwin Lefèvre

There is what is called averaging cost down, when shares are bought while prices go down, and there is also averaging cost up, which is what the real pros do. Real pros buy shares while prices follow a steady trend up.

In our arbitrage portfolio, average cost down is only allowed if the fundamentals of the security you choose to accumulate remain sound.

AVERAGING COST DOWN IS NEVER ALLOWED ON MARGIN

For a better understanding of this technique, I encourage you to read Reminiscences of a Stock Operator.

Reminiscences of a Stock Operator, by Edwin Lefèvre; recounts the story of Jesse Lauriston Livermore, a famous stock trader on Wall Street. 1923. 

Before buying any type of security, you must understand its real value first. When arbitraging, use the following guidelines and  key metrics. Always do your homework before buying any shares and use limit orders only.

Learn more about it inside… The Arbitrageur Investing System.

arb books

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November ReportOn May 2015, I rebalance my portfolio to continue to have open long positions on Apple and Disney, but with less risk exposure.

As you already known I share my results with you mainly for three reasons:

  • The Benefit of Full Disclosure
  • Share the Knowledge
  • Track Performance

 Because “no one should talk about investing if they are not willing to show their actual holdings and performance.”

[Read More…]

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Imagine a person who manages to arbitrage a commercial loan (5%) and commercial certificate of Deposit CD (2%) with a (Delta of 3%). Then he uses that same money to invest in preferred shares of Bank of America (BAC.PRL 7.25%). Will his performance be 7.25% – 3% = 4.25% or more?

Will he effectively be doubling his money every 16.94 years, risk-free?

If this trade sounds familiar, it is because somebody in the street is already doing it. Can you guess whom?

Yeah, you got it right. Legendary investor Warren Buffett. Executed this same trade to Bank of America and Goldman Sachs, resulting in more than 300 millions dollars of yearly profit.

cnbc warren buffett

Want to learn how to execute this exact same trade by investing in securities like these:

GS.PRB

BML.PRI

WFC.PRJ

JPM.PRB

C.PRP

Click here to learn more…

arb books

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