{"id":248,"date":"2010-04-27T19:33:40","date_gmt":"2010-04-28T02:33:40","guid":{"rendered":"http:\/\/privatemoneysource.com\/blog\/?p=248"},"modified":"2010-04-27T19:33:40","modified_gmt":"2010-04-28T02:33:40","slug":"dont-put-all-your-egg-baskets-in-one-egg-truck","status":"publish","type":"post","link":"https:\/\/privatemoneysource.com\/blog\/?p=248","title":{"rendered":"Don’t put all your egg baskets in one egg truck"},"content":{"rendered":"

Clay Sparkman<\/em><\/p>\n

Colloquialisms are funny things.\u00a0 We use them pretty much every day in our speech and in our writing and yet most of us, I suspect, though we know the meanings of the expressions, frequently don\u2019t know why the individual words have come to mean what they mean.\u00a0 Take for example: \u201cDon\u2019t look a gift horse in the mouth.\u201d\u00a0 I must have been in my forties before I looked up one day, scratching my head, and mumbled to myself, \u201cWhat the heck does that really mean?\u201d\u00a0 I remember asking my Dad, and having grown up on a farm he was able to explain to me without hesitation that it was a little like what tire kicking is to automobiles.\u00a0 So there you go.\u00a0 It all makes sense–if you know something about farms and horses, that is.\u00a0 And while we\u2019re on that topic, does anybody really do that: kick tires I mean?\u00a0 I have purchased maybe ten cars in my life, and I\u2019m pretty sure I never actually kicked the tires on any of them out on the showroom floor.\u00a0 And still, it is a great image.\u00a0 I wish I were that kind of guy who could pull it off.<\/p>\n

So with regard to investing, the egg analogies are kind of funny.\u00a0 First of all, there is \u201cthe nest egg,\u201d which seems to refer to ones entire savings or investments.\u00a0 It is singular however you will note.\u00a0 You don\u2019t have nest eggs.\u00a0 You have a nest egg.\u00a0 But given the fate of Humpty Dumpty and the fragility of eggs as such, we almost can\u2019t bear the thought of our entire fortune being so fragile.\u00a0 (And yet, if we don\u2019t invest intelligently, maybe it is.)<\/p>\n

And so of course to that end, we attempt to diversify our investments\u2014and pretty much everyone is familiar with the expression, \u201cDon\u2019t put all your eggs in one basket,\u201d which immediately makes sense as an analogy\u2014that is until you stop to think about it.\u00a0 Follow me here: if each egg represents a single investment, then perhaps each egg basket in the analogy represents an investment type or sector, and if you think about it, you still don\u2019t have a secure investment strategy here.\u00a0 Say you have ten baskets, each with a handful of eggs in them.\u00a0 Are you going to keep those baskets stored all in one place, and how are you going to transport them?\u00a0 Surely you must never put them all in the same egg truck!\u00a0 I would like to propose thus a revised version of the expression.\u00a0 Can we all get on board with \u201cDon\u2019t put all your egg baskets in one egg truck?\u201d<\/p>\n

So what is your point, you ask?\u00a0 Well I do have one, and it is about diversification as it relates to trust deed investing.\u00a0 Most investors\u2014dare I say\u2014view trust deed investing as a single egg truck, and put many of their egg baskets (but certainly not all) in their \u201ctrust deed\u201d egg truck.\u00a0 And this is where we need to get really specific about this whole issue of egg security.\u00a0 Almost all the investors I have worked with over the years have been quite certain that they didn\u2019t want to put all of their trust deed money into one single trust deed investment.\u00a0 That is practically a given.\u00a0 Typically, an investor with say, one million to invest in trust deeds will look to put that into somewhere in the range of 5-10 separate trust deed investments.\u00a0 So we are all agreed that a dedicated \u201ctrust deed\u201d egg truck is needed.<\/p>\n

However, I would go a step further and suggest that if you are seriously involved in trust deed investing, you may want to deploy a small fleet of egg trucks just for trust deed investing.\u00a0 And how does one do this?\u00a0 Well, I used to think that this could be accomplished nicely by putting some into subdivision projects, some into home construction projects, and some in standing homes and commercial buildings.\u00a0 But now I\u2019m not so sure: when the real estate market for residential property tanked, residential subdivisions, residential construction, and finished homes all began to merge into one big thing.\u00a0 Yes, they were all at different stages of the production process, but ultimately they all became one thing: residential homes.\u00a0 And those homes all had to be sold or refinanced ultimately at the level of the individual homes.\u00a0 (The residential river flows in one direction, and always comes to the same point where the river meets the sea.)\u00a0 And in retrospect, commercial vs. residential didn\u2019t provide as much real diversification as I would have hoped.\u00a0 Though residential property was the first to fall, commercial seems to have more or less followed along (lemming-like) on its heels, and really not so far behind.\u00a0 So: perhaps this type of versification was more like putting different types of egg baskets in the same “trust deed” egg truck (as opposed to deploying multiple “trust deed” egg trucks).<\/p>\n

I would suggest that perhaps the best way to obtain effective diversification in trust deed investments is to invest in multiple geographic locals.\u00a0 And in particular, I am thinking on a state by state basis.\u00a0 For many investors, this goes against their fundamental instincts because they feel safer investing close to home, where they know something about values and where they can deal more effectively (they feel) with the property if they have to take it back.\u00a0 Those are valid issues and such instincts should not be ignored, but it is important to weigh against them the fact that the massive depreciation in home prices which continues to occur nationwide, happened at widely varying times and to vastly different magnitudes in varying states across this nation.<\/p>\n

So not to pick on anyone in particular, but If you think about it: when sub-prime hit the fan in 2007, if your only \u201ctrust deed\u201d egg truck was a sixteen wheeler with “SoCal” printed in large letters on the sides, you and your egg baskets were in for a long, rough, treacherous ride down the mountain-side.<\/p>\n

— Clay (clay@privatemoneysource.com)<\/p>\n","protected":false},"excerpt":{"rendered":"

Clay Sparkman Colloquialisms are funny things.\u00a0 We use them pretty much every day in our speech and in our writing and yet most of us, I suspect, though we know the meanings of the expressions, frequently don\u2019t know why the individual words have come to mean what they mean.\u00a0 Take for example: \u201cDon\u2019t look a […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_s2mail":""},"categories":[26],"tags":[40,41,42,43,49,50,51,53,54,58,59,60],"_links":{"self":[{"href":"https:\/\/privatemoneysource.com\/blog\/index.php?rest_route=\/wp\/v2\/posts\/248"}],"collection":[{"href":"https:\/\/privatemoneysource.com\/blog\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/privatemoneysource.com\/blog\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/privatemoneysource.com\/blog\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/privatemoneysource.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=248"}],"version-history":[{"count":0,"href":"https:\/\/privatemoneysource.com\/blog\/index.php?rest_route=\/wp\/v2\/posts\/248\/revisions"}],"wp:attachment":[{"href":"https:\/\/privatemoneysource.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=248"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/privatemoneysource.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=248"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/privatemoneysource.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=248"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}