BennyEast.Com/Blog The official blog of Kenny West

Surf Formula

So, I've come up with a surf formula.  It took a while, but I finally figured out a trading method that works for me... Here's how it goes...

I start with my core cash.  Core cash then is actively traded in one stock and one stock only.  These are same day or double or sometimes triple day trades... If I'm right on the trade I make money.

If I'm wrong?  I hold.  My hold could be as long as a year or two... Who knows...

I trade 100 shares exactly and 100 shares only of one stock.  I repeat that over and over and over again.

That stock, is Realty Income Corp.  It's a REIT.  It pays monthly dividends.  If I'm right, like I was 2 days ago, I make 20 bucks.  I made 20 bucks on a two day trade two days ago... It was literally 30 seconds of my time to make 20 bucks.

And I do it all from my phone.

Tap in... 100 shares bought, price changes over night, tap out... 100 shares sold.

15 seconds to buy, 15 seconds to sell.

I used 5600 dollars in capital and bought 100 shares, let the price go up and sold.

Now, what happens if I'm wrong?  I keep my shares.  And I take another 100 share lot and buy again at a lower price.

If I'm wrong again... I buy again.

What happens to the shares I hold?

For every 100 shares I hold, on the 15th of every month I get paid 21 dollars in income, and I keep my shares.

So, either I make 20 bucks over night, same day, or over the course of 2 or 3 days, if I'm right... and if I'm wrong, I make 21 bucks a month, month... after month... after month... after month...

If I'm wrong once, I make 21, if I'm wrong twice, I make 42, 3 times, I'm now getting 63 dollars a month.

Let's say I'm wrong 5 times in a row on catching a short term bottom for one of these small technical swing trades...

Now I just sit... and I collect 5 x 21... Or 104 dollars a month.  Eventually, one of those 5 trades will go green and I'll sell it... Then I start trading in and out again.

It's a bit like waiting for a parking space to open up in a parking lot... 4 of those 5 spots might be taken, or even 5 of the 5... But all you need is one free spot to open up that gate.

More like a parking garage I guess... If you had a garage with 100 spaces... Eventually, one of those spaces will open up.

But how do I know that Realty Income Corp will keep paying you?  And how do you know it will come back?

There's no 100 percent guarantee.  Yes, the company could go bust, and it could slash its dividend... GE just did.  And look at Sears.

It's a bit like using a shovel to dig... Right now, the shovel is in good condition.  It can be used to dig in the sand.  Eventually, the shovel will probably break.  Then I'll find another stock that pays regular dividends and is relatively stable.

The thing about active trades and holds on Realty Income Corp... Is that they have been in business and paying dividends for quite some time.  They are a REIT, which means they pass most of their earnings off as income... they are a triple net leasing company... Basically they don't care if your company goes bust.  They just rent space to you.  If your company goes out of business... They put a sign in that window that says "space available" and a new tenant moves in.

They are diversified in tenants that they rent to, well anyone really.... And the only way a REIT goes out of business is if they run out of tenants to rent to... Just like if a parking garage has no cars looking for spots... The question in 2017 in business is simply now, not how good of a business you run, but... Can Amazon put your company out of business?  They are pretty much THE ONLY competition that anyone cares about at all now.

It's basically every company in the world... Against Amazon.

How likely is Amazon to put ALL of the tenants out of business that Realty Income Corp rents to?  They could.  But, not likely.  Some of the tenants are gas stations.... Some are Walgreens... Some are Dollar General stores... Some is office space.  Movie theaters...

I imagine that a lot of these companies are forming business plans and models to Amazon proof themselves.  Pretty much every company is teaming up now to fight against Amazon.

And at any rate... Amazon themselves don't even own most of the property they use.  Offices, even Whole Foods rents... Most companies don't own the property in which they run their business out of.  They lease it... Longer term 10 or 20 year lease agreements... And... You guessed it... Pay monthly rent.

As a REIT Realty Income Corp basically builds the 4 walls and the roof... And charges rent.  They maintain minimal exterior property maintenance... and pass the rest of the rent money on to the shareholders.

Since their stock is traded on an exchange, the price fluctuates from day to day.  It's these price fluctuations that I run technical trades on... 100 shares in... 100 shares out... In... Out... In... Out.

If I'm right on the technical indicator... I surf the stock wave and make money.

If I'm wrong?  I become part landlord for commercial property and sit back and collect my rent check on the 15th of every month.

That's part one.

Part two:

This part is the income and surf profits.

We'll call this my second beach shovel.

Now, since I ladder my shares... The idea is that now I have these 100 share trades combined with my holds producing monthly income for me... Either in the form of active trading, OR in the form of rental income...

I take that rental income and active surf trade income... and reinvest it.

But, I don't reinvest it back into Realty Income Corp.

Since, there is always the possibility that Realty Income Corp would be entirely wiped out by Amazon... The only competition that any one in business has to worry about these days...

Basically, the shovel could break on me... I'll be using that money to build a second sand shovel.

The second shovel is a different type of trade, in fact, it's not a trade... It's a buy and hold, forever.

So, the money coming in off Realty Income Corp all gets shoveled into dividend paying stocks.  Basically, I'm just going down the list... there are about 800 or so stocks that have been increasing their dividends for longer than 5 consecutive years.

http://www.dividendkingdom.com

I start with the longest dividend increase streak... American States Water... and then work my way down the list.  I buy 100 shares in the first one... Then go on to the second one... Buy 100 shares in the second one... Then go to the third.

Every time I shovel enough money off Reality Income Corp to buy 100 shares in another company... I reinvest the cash.

I never touch my original capital.  That money just keeps getting dipped in and out and in and out of Realty Income Corp...

Now... Once the money goes into the dividend paying stocks... I buy 100 shares, no more, no less... Of dividend paying companies... THAT dividend income from THOSE diversified holdings...

Is my surf salary.

Obviously, I have to pay taxes first... But after that... That's money I can spend.

Off to vacation in some far away island?

Not so much.

Possibly one day, yes... But right now?  I'm using that money to live.

Basically, most months, I spend more money than I make at my day job.  It's a non-profit I work for... So... I don't get paid very well.

So, I've been using this extra money to basically cover my living costs that my paycheck doesn't cut.

Most people just get a second job somewhere... Part time in retail, or bar tend... I've got dividends.

It will be interesting to watch it play out... But basically depending on how many companies Amazon puts out of business... I'll just keep that trading/investing model.

Active trade Realty Income Corp... Hold my mistakes and collect rent when the stock price goes down, and cash out on my winnings when the stock price goes up.  Then put those profits into an ever expanding diversified portfolio of dividend paying stocks.

Once that portfolio has generated a hearty dividend income paycheck... I'll possibly use some of that money to get into riskier stocks that don't pay a dividend but may be going up in value... This is my third shovel...

Part 3:

Part 3 is to take any of the income that comes off the second layer of dividend stocks, that I don't use... Any unused income coming off the diversified dividend layer, can be either spent as discretionary income... Or reinvested into a third shovel.

So, the sand from Realty Income Corp trades and rent checks is shoveled into dividend stocks... The sand coming off dividend stocks can then be shoveled into bills, or, reinvested into a third layer...

Growth stocks.

So, if you go on a website called Bar Chart... https://www.barchart.com/stocks/highs-lows?timeFrame=alltime

You can find the all-time high stocks.

This third shovel is stocks that are much riskier.  Again, the 100 share buy and holds start again.

Any income or profits that come off this sand shovel go to be spent... These profits are luxury profits... These are the ones where you bought Netflix day one and made 40 thousand percent.... You gambled on that new idea.

This is where my international travel income comes from... New music equipment...  A hot tub... New car.

Etc. etc.

But let's say I don't want to buy anything or travel?

Is there a 5th shovel?  Yes.

The 5th shovel is private equity.  This is money where I have a friend who has some hot new idea... Some start up... Or wants to start their own business... It's the most risky type of investment.

It's not very liquid as in you can't sell shares on an exchange... Lawyers need to be involved... You could get screwed out of the entire investment.

This is why it's sand from the 5th shovel.

Because if I have 5 people in a row shoveling sand to the next person down the line... If the last person gets their sand castle washed away by a wave... All I have to do is wait long enough and that sand bucket will eventually fill back up.

If you just go right into giving all your money to some random idea... You get burned.

The idea is adding layers of risk protection and layers of income generation... If any one thing breaks... You're diversified enough to start again.

I suppose the very first shovel could actually be the 9-5 job, or your initial savings or trade capital.

My goal in all of this isn't so much to completely replace my 9-5 salary.... It's more to give me a security blanket.

Companies and organizations go out of business... People get canned... One of the biggest fears that most people have is having their source of income cut.

It's a scary prospect.... Causes stress....

But if you're banking your salary and it's all discretionary income that you spend on leisure... And it can be matched by a diversified source that regenerates on its own...

Stress goes out the window because you no longer really care what happens to that salary.  If you get fired... Who cares... All your bills are paid for.  You could sleep all day and you still get paid.

That's the idea.  To work just because working is something to keep you busy... Not to stay up late at night wondering if you'll be able to afford life in general.

So, that's my surf salary.

Shovel sand... Use the shovels to buy more shovels... Use those shovels to buy more shovels... Use those shovels to buy an exponentially increasing number of shovels.

If a shovel or two breaks, or gets carried out by the tide... Who cares.  I've got so many shovels I don't even know what to do with them all.