Living off passive income

So you've got savings just sitting dormant in a "high interest" savings account. What are you making? 1-2% max if you're lucky? 

Meanwhile, you're busy working a full-time job, continually adding to this pile of cash that is losing value every day.

What's the problem we need to identify first?

If there are two terms the rich always measure themselves against, it's inflation and returns on investment. As in, you can have a return on investment, but if it doesn't beat inflation, you don't actually become wealthier. Your wealth stays the same, just in the future.

Why is that? - Because the cost of living, continually goes up, and money continually becomes de-valued. This is why I always get fascinated by people who think they've "done well" in the real estate market when their houses go up in price. They think they've gotten wealthier simply because they "built" equity and a larger gap between their mortgage and the current value of their property.

The reality is, the price of their home has gone up, but so has the cost of meat, potatoes, gas, and snickers bars.

Let me break the biggest misconception people have about real estate, and what's become the largest self-fulfilling prophecy in people thinking of "financial freedom."

Unless, you know some head-honcho in the city council which you live in, who has been given instructions from the federal government that there is a "massive" expansion plan for the said city, and that the federal government will be investing into that expansion plan (normally via foreign investment and issuing of residency in return to those foreigners), your investment in a real estate market, is nothing more than a wealth-preserving savings plan. As in, you are simply putting a down payment into a property, and mortgaging debt, to protect yourself against inflation. You're not actually getting richer. Owning your property is an illusion because you are simply part-owner.

Can you guarantee income for the next 30 years? Can you guarantee you won't lose your job or that your career won't go extinct in those 30 years?

No?

Then the likelihood of your investment is already a gamble. A massive gamble.

"Well Eisa, nothing in life is a guarantee..." oh how I love the unconsciousness of mankind when they throw quotes like this out... In fact... I agree, there are no guarantees in life.

So why do I call this unconsciousness of mankind? 

Because ask the same man-kind to get involved in the stock market, and they'll tell you "oh no.. trading and investing is gambling with your money" ... lol do you see for a moment what I see through my lens every day? Welcome to the first level of financial consciousness. Societal Hypocrisy. 

In fact, life is a huge gamble, but how people gamble with their real estate plans, is nothing more than going all IN on black, and hoping it works out. It's no strategy. It's ignorant. It's nothing more than people copying each other because they don't know what else to do.

So, now that my rant is done... what can one do if they are "saving" for a house or have "savings" tucked away in a savings account...

Private Placements:

Historically, the worst companies trade on the stock market. As in the entire business of the stock market, highly revolves around:
- Creation of hype
- Getting people to believe that hype
- Dropping of "good news" to justify investors to "buy into" the stocks with their money
- Dumping of the stock price through issuing more shares after the price has gone up (dilution of the stock with more shares, drives the price down) because the company insiders actually have no cash and rely on this pump and dump scheme to continually raise money, and feed themselves and their merry band of insider degenerates.
- Rinse and repeat, every single day, week, month, quarter, and year.

Welcome to the Ferris Wheel. Lol 

How do Private Placements differ from the aforementioned scheme that the majority of companies rely on? 

Unlike selling (issuing) more shares to the public, and crashing the stock price as a result of the dilution of shares, through private placements the company insiders have to convince shareholders, that further investment in the company is actually a good thing. 

How can a company convince shareholders of that? They have to lay out their business plan, their next immediate steps, and the exact activities which they would be legally liable to carry out if they were able to raise the capital. This is a means for a company to truly gain shareholder trust and sentiment, in order to get the product or service of the said company off the shelf, and into a marketable business that typically increases stock price value. 

While the company can't really comment on many insider information, one VERY telling sign that the stock price, after a private placement will go up rests with the pricing of the warrants* they issue to the shareholders who infuse money into the company privately during a private placement.

What are warrants*? - Warrants are the right for a shareholder to buy "x" amount of shares at a pre-determined price. Why are warrants attractive? Because if the price of the stock is currently trading higher than the exercise price of the warrant, those warrants are extremely valuable, aren't they? You can just buy those warrants, and turn around and sell them for an instant profit. Warrants also have an expiry date or period. Meaning, if the shareholders don't exercise their right to buy within say 2 years, they can't buy those warrants anymore. This makes the accountability of the company even more paramount, to raise the stock price so the valuation of those warrants remain high.

So going back to what I was saying, how you can tell a company is bullish about the valuation of their company and the future of the stock price, lays in how they issue these warrants to the shareholders who privately infuse cash into the company through a private placement.

If the warrant price is significantly higher than the current stock price, and the expiration period of those warrant prices are in short order (less than 24 months), it's an indication the company has enough happenings in the pipeline, to believe the stock price will be worth a heck of a lot more than the price of those warrants. This means the stock would be worth a lot more than its current price as well. 

Additionally, this gets you the chance to understand the inner workings of what the company is actually going to do with the capital you infuse into the private placement, as opposed to just buying "AAPL" and "TSLA" because every tom dick and harry thinks that's the next play.

How do you get involved by infusing money into private placements? It's called INVESTOR RELATIONS. Every company has an investor relations phone number and contact email. And most companies doing private placements will publicly announce that they are doing so, allowing you to get more information.

View this example: 

In the case of Canadian stocks, you can go to websites like https://www.thecse.com/ and search for various companies.

I will use AMPD Ventures Inc as an example (you can type AMPD in the search on the website above and see the same thing).

That brings you to this page: https://www.thecse.com/en/listings/technology/ampd-ventures-inc

Scroll down to where it says "SEDAR Information" which stands for System for Electronic Document Analysis and Retrieval 

Scroll down on the list where it says "Material change report - English" on Nov 19, 2020, and you can see how a company pre-announces a private placement and also provides contact information at the bottom of the announcement. 

Then I would take a look at what the stock price was on Nov 19, 2020, and compare it to the information of the private placement and specifically the warrants, and it makes perfect sense why after the private placement closed, the stock price massively spiked afterward into today (Oct 2021) where it has now moved upwards of 300% in price since the closing of the private placement.

I must fully disclose that I am a shareholder of AMPD and that this blog is in no way a recommendation for you to buy AMPD securities. But I just wanted to explain to you, how private placements, are a great place to do some due diligence as to where a stock price can predictably go. Combine this with a good product/service, and it usually can be a good outcome. How does a 300% return inside of a year, on a portion of your savings sound? Pretty sweet passive income instead of sitting in a bank account. 

The skeptics will say "well yea, but you could also lose your money..." recall the quote above where I made a clear example of the hypocrisy of people who think like this? So if this is you, I have this to say: You have no problem going all-in on ONE real estate that could be worthless by the end unless you do similar due diligence with the city council, but THIS is the gamble? Time to wake up and call a spade a spade.

Another example is looking at $GROM (an American company), check out the announcement of the closing of their private placement announced on September 15th. https://finance.yahoo.com/news/grom-social-enterprises-inc-closes-223000892.html

In the details, you can see that the warrants would expire within 40 days from Sep 15, and the price of the warrants was almost 100% higher than the stock price of GROM on Sept 15th. Does the massive explosion to $6/share appear more predictable now? I hope you're seeing a pattern.

Investing in DIA, SPY and QQQ

Most people think that investing has to be hard. It really doesn't. The three tickers above are the depositary trusts of the Dow Jones (DIA), SP500 (SPY), and Nasdaq (QQQ). It doesn't take a rocket scientist to study the long-term chart to see that this graph is always going up. The earlier you start, the faster passive income begins due to compounding. 

Compounding is the effect where if you get a 10% annual return on $100, it doesn't simply go up $10/year. It goes up $10 the first year, $21 the next year, $33 the following year, and 10 years later has gone up to $159 as opposed to $100 if we just applied straight 10% return. That's the beauty of compounding.

So while your money is sitting in a bank account, and making you feel nice and cozy, it's losing value, where it could be continually going up an average of 10% / year. Which guess what, BEATS INFLATION between 3-5 fold every year. But most people still rather invest in real estate or have "savings" to feel a certain way. Boggles my mind.

What about when the market crashes?

Excellent question. Have cash reserves, so that you can buy up even more, so that the rate of your compounding is way more than 10% a year. As an example when the pandemic stock market crash rebounded, it ran 97% in one year when it recovered. Imagine the compounding effect of that over time when you fast-forward this rate of return? Did your real estate or savings account go up 100% in value in the last year? 

Learn how to trade the stock market

If financial freedom is the game you want to achieve, and it's something you want to achieve sooner than later, and you don't have a lot of money to your name. Then learning to trade is one of the fastest ways to grow enough capital, so that the compounding effect I was talking about above, gives you meaningful returns to actually live off of.

See unlike investing, trading has the potential to grow your account by hundreds, if not thousands of percent per year. Why? Because unlike investing where you are holding through dips and new price highs, trading relies on buying and selling the price action as it goes up and down. What's the result? Massive returns on your account.

What's the biggest risk? Managing your emotions, which in itself is a graduation you need if you plan on being someone who transitions to living off passive income. Something most people never ever develop enough fortitude to learn and is a problem most don't want to solve. They rather "work hard" and complain about it, so they feel better about their unconscious life. The same hypocrisy also affects the same people who don't want to master their emotions with money, and in turn end up hating the rich, complaining that they don't have enough money, and living with a chip on their shoulders every time they log into their bank account.

There's a way to come out profitable with trading, and it's the best way (in my opinion) for the middle class to grow capital faster than anything the market can give them. Private placements can also be very good, but I prefer trading as it allows more money to be put into private placements anyway.

With trading, you are simply learning how the market ebbs and flows so that you can benefit from trading the price action. And the nice thing is that you can do this anywhere with a laptop and computer. Make your home your office. Make the beach your office. Make your chalet your office. Make your train commute to your office. That's why I love it. 

We live in an age where financial freedom is no longer an excuse. It's possible. So if you're not someone who has it, it has got to do with your awareness, not what's really possible.

See it's through trading, that I was able to grow enough capital before my 30th bday so that I can live on passive income and diversify meaningfully and not have to work another day in my life if I don't choose to. In my case, I love flying planes and playing drums, so I do those as activities. But not because I need their income. I do it because I love it. Living on passive income has helped with that dream life becoming a reality. Read more about that here.

 I hope you learned something from this article. If you want to learn more from me, I do run a 6-month financial literacy coaching program. Before you contact me, please understand that it is expensive, but it's also a life-changing program that has helped many professionals. So the price is justified.

To book a call with me to see if you want to enroll, go here.

To see what people say about me after working with me, go here.

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