How should a Real Estate Professional invest in the Stock Market?

[James Park]

I understand that any stock market discussion would be frowned upon within the Bigger pockets community as many may perceive the equities market as a loser's game. Since my early 20s, I've always been fascinated by understanding cycles in the equity market and demographics changes in the real estate market.

Below you will see the 110 years of 18 years of secular bull and bear markets. You can also see the 40 year Dollar chart where the dollar rises between 6-7 years and drops 9-10 years every cycle. The commodity cycle peaks every 30 years in 1920, 1950, 1980, 2010. With Gold peaking in the spring of 2011 aligns perfectly with the U.S. dollar bottoming around the same time at an index of 72, starting is 6-7 year bear market rally which aligns with the 2018, the end of the 18 year secular bear market. We are currently 14 years into the secular bear market.  

1930 - 1948 - Secular Bear
1948 - 1964 - Secular Bull
1964 - 1982 - Secular Bear
1982 - 2000 - Secular Bull
2000 - 2018 - Secular Bear
2018 - 2036 - Secular Bull  

DOW 1900 - 1920

DOW 1920 - 1940

DOW 1940 - 1960

DOW 1960 - 1980

DOW 1980 - 2000

DOW 2000 - 2014

40 year Dollar Chart.
 

[Michael Evans]

Here is the law of forecasting (specially any financial market):  Past performance is no indication of future performance.  I have a degree in Economics and studied econometrics and have over 20 years of creating predictive models.  Here is the issue with any predictive model:  its accuracy is directly correlated to the amount of historical data and how far out in the future you are trying to predict.  So if you have 100 historical data points that show some correlation, then the accuracy of your predictive model will increase with the shorter time frame you are trying to forecast.  If those 100 data points cover 100 years, your model will be more accurate predicting the next single year than trying to predict the next 2-5 years.

So I don't recommend trying to use an predictive model to try to forecast the next cycle (years), but I would rather use a predictive model to forecast the next short-term movement of the current cycle.  When I traded stocks and options, my data points we days and minutes and I was trying to predict movement in the 15-30 minutes or the next day or two.  I would never try to predict movement over a month.  There are too many non-financial variables that affect financial markets that you can't account for in a year plus predictive model.  You have to remember that financial markets are influenced my news and human behavior more than anything.  Stock prices are reflective of what people believe is the future value of a company, not the past or present value.

Rather than timing the market, I would suggest that you be an passive long term investor if you don't need the money for more than 10 years from now and invest in an ETF that mimics the SP 500 (SPY) and use dollar-cost averaging to build up stock assets to at least $100K.  Once you reach that point, use covered calls and straddles (options) to "rent" out your stock and earn an average of 1% - 2% per month in returns above and beyond the value of the underling stock.

Hope this provides some insight.  Just my two cents based on my 20 years experience in the field of forecasting and money management (I was also a semi-professional Black Jack gambler).

God Bless You.