Exotic Car Flipping as a Strategic Investment? (US-CAN)
"You can greatly reduce the risk if you can line up a buyer prior to purchasing the car.  That kind of thing is common in business, one example is drop shipping.  Also there are sales companies that specialize in these kinds of things bringing manufacturers of goods together with customers.  The sales companies never take delivery of the product, just a commission on the sales.   From this the manufacturers are served as they have gained a customer for their goods.  The buying company is served as they can make a ""better"" end product.  The two parties may have not been brought together had it not been for the sales company so on some level both are happy to pay for the service. Can you find market inequalities and profit from them?  Sure.  I missed a great opportunity recently.  I purchased a name brand shirt from a discount store for $20.  Those shirts typically sell on ebay for $80.  I should have cleaned out that store's inventory, and I bet someone else did as by the time I went back they were gone.   That kind of thing was almost risk-less because if the shirts did not sell, I could simply return them for the full purchase price.  That and I can afford to buy a few hundred dollars worth of shirts. Can you afford to float 45K CDN?  What if it takes a year to sell the car?  What if the economy goes sour and you are left ""holding the bag""?  Why are not car dealers doing exactly what you propose? Here in the US this type of thing is called ""horse trading"" and is very common.  I've both lost and made money on these kind of deals.  I would never put a significant amount of my net worth at risk."
The ROI percentage becomes a meaningless figure at that point and would either be infinite or a very large number if you assume an equity investment of $1 or $0.01.   At that point it's obviously a lucrative deal *as long as it works out* so the bigger question is what are the risks of it not working out and what's the ROIC. "I would say that you should keep in mind one simple idea.  Leverage was the principal reason for the 2008 financial meltdown.  For a great explanation on this, I would HIGHLY recommend Michael Lewis' book, ""The Big Short,"" which does an excellent job in spelling out the case against being highly leveraged. As Dale M. pointed out, losses are greatly magnified by your degree of leverage. That being said, there's nothing wrong with being highly leveraged as a short-term strategy, and I want to emphasize the ""short-term"" part.  If, for instance, an opportunity arises where you aren't presently liquid enough to cover then you could use leverage to at least stay in the game until your cash situation improves enough to de-leverage the investment.  This can be a common strategy in equities, where you simply substitute the term ""leverage"" for the term ""margin"".  Margin positions can be scary, because a rapid downturn in the market can cause margin calls that you're unable to cover, and that's disastrous. Interestingly, it was the 2008 financial crisis which lead to the undoing of Bernie Madoff.  Many of his clients were highly leveraged in the markets, and when everything began to unravel, they turned to him to cash out what they thought they had with him to cover their margin calls, only to then discover there was no money.  Not being able to meet the redemptions of his clients forced Madoff to come clean about his scheme, and the rest is history. The banks themselves were over-leveraged, sometimes at a rate of 50-1, and any little hiccup in the payment stream from borrowers caused massive losses in the portfolios which were magnified by this leveraging.  This is why you should view leverage with great caution.  It is very, very tempting, but also fraught with extreme peril if you don't know what you're getting into or don't have the wherewithal to manage it if anything should go wrong. In real estate, I could use the leverage of my present cash reserves to buy a bigger property with the intent of de-leveraging once something else I have on the market sells.  But that's only a wise play if I am certain I can unwind the leveraged position reasonably soon. Seriously, know what you're doing before you try anything like this!  Too many people have been shipwrecked by not understanding the pitfalls of leverage, simply because they're too enamored by the profits they think they can make.  Be careful, my friend." That's not 100% correct, as some leveraged vehicles choose to re-balance on a monthly basis making them less risky (but still risky).  If I'm not mistaken the former oil ETN 'DXO' was a monthly re-balance before it was shut down by the 'man' Monthly leveraged vehicles will still suffer slippage, not saying they won't.  But instead of re-balancing 250 times per year, they do it 12 times.   In my book less iterations equals less decay. Basically you'll bleed, just not as much.  I'd only swing trade something like this in a retirement account where I'd be prohibited from trading options. Seems like you can get higher leverage with less risk trading options, plus if you traded LEAPS, you could choose to re-balance only once per year. "It's not my industry so I may be wrong, but I don't believe there are any transactions or companies that would provide a worthwhile comparable, hence my problem with the valuation attempt. For the same reasons you wouldn't use a P/E multiple or DDM model on a startup, you don't just pick tangential comparables and slap a value on it. If you're seriously advising companies, that shit will land you in court defending your valuation.  It's not a ""floor"" just because you know it's inaccurate.. it's irrelevant. Quite frankly, I don't think they released any value, let alone $1bn.  It's merely a PR move, with the hope that Tesla's technology will become the standard for all EVs.  At best, major companies decide to use some of their patents ""in good faith"" and leverage the infrastructure that Tesla has already put in place.   At worst, Tesla still did not give away $1bn in value. How much have they made off of licensing their patents? How much have others offered for their patents? How many companies are infringing, and how many lawsuits have they won from going after them? If you can't put a hard figure on any of those, or a solid rationale on how the patents are the only reason they'll be able to gain market share, then I don't see how we can conclude on $1bn given away." "I have a friend who had went on a seminar with FortuneBuilders (the company that has Than Merrill as CEO). He told me that one of the things taught in that seminar was how to find funding for the property that you want to flip. One of the things he mentioned was that there are so-called ""hard money"" lenders who are willing to lend you the money for the property in exchange for getting their name on the property title. Last time I checked it looked like here in Florida we had at least Bridgewell Capital and Fairview Commercial Lending that were in that business. These hard money lenders get their investment back when the house is sold. So there is some underlying expectation that the house can be sold with some profit (to reimburse both the lender and you for your work). That friend of mine did tell me that he had flipped a house once but that he did not receive the funding to that from a lender but from an in-law, however it was through a similar arrangement." Look at Price/book value and there are more than a few stocks that may have a P/B under 1 so this does happen. There are at least a couple of other factors you aren't considering here: Current liabilities - How much money is the company losing each quarter that may cause it to sell repeatedly. If the company is burning through $100 million/quarter that asset is only going to keep the lights on for another 2.5 years so consider what assumptions you make about the company's cash flow here. The asset itself - Is the price really fixed or could it be flexible? Could the asset seen as being worth $1 billion today be worth much less in another year or two? As an example, suppose the asset was a building and then real estate values drop by 40% in that area. Now, what was worth $1 billion may now be worth only $600 million. As something of a final note, you don't state where the $100 million went that the company received as if that was burned for operations, now the company's position on the asset is $900 million as it only holds a 90% stake though I'd argue my 2 previous points are really worth noting. The Following 6 Stocks Are Trading At or Below 0.5 x Book Value–Sep 2013 has a half dozen examples of how this is possible. If the $100 million was used to pay off debt, then the company doesn't have that cash and thus its assets are reduced by the cash that is gone. Depending on what the plant is producing the value may or may not stay where it is. If you want an example to consider, how would you price automobile plants these days? If the company experiences a reduction in demand, the plant may have to be sold off at a reduced price for a cynic's view here. As BobbyScon said in the comments, invest in a company that is developing in that field. Or invest in a company which supplies that field. The people who got rich in the California gold rush were those selling shovels and other miners' supplies. Or bet against whatever you think this will displace. If automobiles are the hot new thing, it might be a bad time to invest in harness leather. Or ... figure out how else it might impact the economy and invest appropriately. But you have to do that evaluation yourself. Or ignore it and stick with your existing strategy, which should have been diversified enough to deliver reasonable results whether this sector takes off or not. Remember that if someone gives you a free tip, they are probably just hoping to pump up the value of their own stock rather than help you. "No. Suppose you have 100 Canadian dollars and the exchange rate is 2 CAD = 1 USD.  You use your 100 CAD to purchase 50 USD (in your bank account that is in USD).  Some time later the Canadian dollar grows stronger, so that now 1 CAD = 1 USD.  If you now withdraw your 50 USD and get Canadian dollars, you will receive 50 CAD.  You have lost half your money. If you want to make money on currency exchange rates (which is a risky plan), you should buy the currency that is cheap (i.e., ""weak"").  If, say, oil is very cheap, you don't make money by selling oil; you buy it and sell it later when the price goes up.  Likewise, if the Canadian dollar isn't worth much and the US dollar is, you should buy Canadian dollars, not US dollars, hoping to sell them later when the exchange rate is more favorable.  See also this similar question." My current strategy is long equity in blue chips with limited growth but large profits... Some call that value investing.  GM, AAPL, BRK.B have done very well for me. VZ is a notable straggler. Regardless, my overall positions have grown considerably :)  Not a fan of shorting... but TSLA would be my short of choice since it is very expensive to short SHLD. "You need to negotiate with your broker to allow you to do more exotic order types.  One in particular I recommend is a ""hidden"" aka iceberg order.  You enter two numbers.  The first is the number of shares for your entire order, the second is the amount that will be displayed in the book (this is the tip of the iceberg, the remaining shares are hidden below the surface). The maker/taker rule applies as follows: The amount displayed will receive the rebate for providing liquidity.  The amount hidden will be charged the fee for taking liquidity. Example: You want to sell 10,000 shares total.  You enter a hidden order for 10,000 shares with 1,000 displayed.  On the level 2 screen traders will see 1,000 shares, and those shares will stay displayed there until the entire order is filled.  You receive a rebate for 1,000 shares, you pay the brokerage fee for 9,000 shares. Also, like one of the previous posters mentioned, only trade high liquidity stocks.  Large market cap companies with high volume.  This is why day traders love Tesla, Amazon, Netflix, etc. Large market cap, high volume, and high volatility.  Easy to catch $10+ moves in price. Hope this helps Happy trading" With $7 Million at stake I guess it would be prudent to take legal advise as well as advise from qualified CA. Forex trading for select currency pair [with one leg in INR] is allowed. Ex USDINR, EURINR, JPYINR, GBPINR. Forex trading for pairs without INR or not in the above list is NOT allowed. "Thanks for the article. A couple questions:  - Is your basic investment premise that as defaults rise, investors will demand higher rates, and thus loans will become more expensive for borrowers? Why can't the lenders include a larger reserve to offset defaults (making loans less profitable for them?), or why doesn't this just wipe out the riskiest tranches of abs? Does it have to result in an implosion in supply?  - ""Since 2009, car loans have exploded over $1.1 Trillion""- wouldn't car loans increase significantly from the bottom of the Great Recession as the economy recovered? Also, the graph shows the billions of car loans. I think you'd have to look at an inflation adjusted loan origination, as cars do not cost the same today as they did 1970, so, you'd expect the total dollar value of loans to be much higher.  - ""How many borrowers are using their cars as collateral for new debt?"" Are you asking how many are refinance their cars? I don't think this is a thing. Cars depreciate and most of the time, the value of the car is less than loan. People may be rolling over into a new car and loan but I don't think they are re-mortgaging their cars. I could be wrong but there has to be information available on this  - ""We do this through purchasing long dated 1-2 year out-of-the-money PUT options on first order stocks""- How do you know where the strike price on these stocks will be? If your very confident, you can sell a call above to offset the cost of the put. Or alternatively, why don't you buy a credit default swap on the abs tranches?" "I don't think that there is a generic answer that will apply to this question across all goods.  The answer depends on how the related businesses work, how much insight you have into the true value of the goods, and probably other things.  Your car example is a good one that shows multiple options - There are dealers who will buy as a single transaction, sell as a single transaction, or do a simultaneous sell with trade-in.  I had a hot tub once, on the other hand, where I could find people who would do a trade-in, but there was no dealer who would just buy my used tub.  There's not much parallel between the car and the tub because the options available are very different. To the extent that there is a generic answer, I generally agree with the point in @keshlam's answer about trying to avoid entrapment, but I take a slightly different view.  If you want to get your best deal, you need to have an idea going into the process of what you want in net and keep focused on meeting your goal. If for some reason, it's convenient for the dealer to ""move money around"" between the new car and the trade-in, I'm ok with that as long as I'm getting what I want out of the deal.  If possible, I prefer to deal with both transactions at once because it's simpler.  At the same time, I'm willing to remove the trade-in from the deal if I'm not getting what I want. (Threatening to do so can also give you some information about where the dealer really puts the value between the new car and trade-in since, if you threaten to pull the trade-in, the price on the car will probably change in response.)" "Not necessarily. Shorting XOM is saying that EM (china + india) are going to have a ""slowdown"" (not neg growth but slower) and that US is going to pick up a lot slower.  Selling JNJ means the manager is overall bearish but doesn't have that much conviction (otherwise he would sell XOM or SPY), but still wants that negative exposure.  Personally, both are just plays on SPY with increased risk (XOM) or decreased risk (JNJ)." &gt;Something to watch out for if you are analyzing this stuff though is the influx of used cars into the market. Remember, more defaults means more repossessions which means more used cars on the market.  I think Morgan Stanley said they expect to see up to a 50% decline in used car prices over the next four years.  Edit: [Can't find the report, but here's the Market Watch summary](http://www.marketwatch.com/story/how-much-morgan-stanley-thinks-used-car-prices-will-crater-in-one-chart-2017-04-03)