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What to read #5: Real estate investing

I usually publish lists of books about architecture that I recommend to read. All of them are important to understand the value of a house. This article suggest books, minimally required to understand value of a house.

A Pattern Lnaguage, Kristopher Alexander

read it before investing or buying a house. This book describes how the space affects our way of living: how each type of city should look like, how the houses in the neighborhood should be placed and how it affects the ways people behave with each other. Even how the shadows, floor level, density of people, age difference and green parking affects the living in a house and society.

I read the Russian translated version of the book made by ArtLebedev Studio with great illustrations. If you speak Russian, I insist reading this book. This is my favorite book that I recommend to everyone.

Real estate investing 101, Michele Cagan

A dictionary that explains most of the termins and concepts you should know to master in the real estate.

All other books will be added soon. To¬†learn more about the¬†architecture and¬†real estate, read my blog. Write a¬†keyword by¬†clicking on¬†a¬†search button and¬†find ‚Äúreal estate‚Äė, ‚Äėarchitecture‚Äė, investment‚Äė or¬†other tags that you are interested in.

Remember, I can‚Äôt explain in¬†a¬†blog the¬†same information that is written in¬†huge books¬†‚Äď the¬†books I share are written by¬†professionals and¬†scientists who spent years for¬†each book¬†‚Äď they provided as¬†much knowledge as¬†they could in¬†the¬†best way. I can only share their knowledge by¬†sharing the¬†book or¬†by¬†taking the¬†main ideas from it. Some books cost 100$, but¬†after reading such books you will learn everything you should know about this theme.

Aug 13   Books   english   Investment

Alternative investments as a hobby

I love alternative investments¬†‚Äď they are inflation-free and¬†are increasing in¬†price due to¬†scarcity and¬†age premium. Alternative investments are more than just looking at¬†different numbers in¬†financial reports, using, and¬†analyzing macroeconomics. It is a¬†hobby.

lifestyle

When you make alternative investments, you invest in the stuff you like or something about that you want to know more about. People invest in art not only because the picture can cost 3 times more in 10 years, but because they learned that this author made a masterpiece. They read books, go to art galleries and exhibitions, and told to people who are also interested in it.

People did not just get value from keeping the picture in the collection, they have got fun. They were traveling, meeting people, who became friends. They became a part of the art society.

Any type of¬†thing can be an¬†alternative investment¬†‚Äď people buy rights for¬†the¬†music, gemstones, houses, wine, violins, and¬†cellos (that are rented out, after which the¬†price and¬†the¬†quality of¬†sound get higher), exotic cars, books with signatures or¬†even boots.

How to learn

Get knowledge by reading books, journals, and blogs. I am interested in wine, art, and real estate, and I give tips about them. All of them are interesting differently: wine is the most profitable, art is the most inspiring and risky, residential real estate is the safest, and, commercial real estate is the most expensive, but profitable and slightly riskier than residential real estate.

books to read

Risks

During the recession, fewer people are ready to spend money because they need first all solve problems with business and a family budget. Some people must sell their investments, just because they don’t have enough money to pay for the bills. Therefore, the demand falls, and the amount of people willing to sell grows. Then the price also falls.

Investors say that stable cash is the¬†most expensive stuff at¬†this time because you get less money after selling your investment (image the¬†price of¬†the¬†stocks in¬†a¬†crisis). Fortunately, it does not¬†last long¬†‚Äď the¬†government makes huge inflation so that people buy more because later everything will be more expensive. If there is deflation, people keep cash, companies sell much less. Companies become bankrupt, the¬†market fails and¬†the¬†currency gets to¬†0 due to¬†the¬†printing of¬†cash for¬†the¬†social and¬†governmental sector and¬†payments for¬†the¬†state debts.

The¬†commercial real estate investment in¬†such times may lose the¬†renters because some companies close. Then you should find new renters and¬†give them 2 months for¬†free. These are renting holidays, that are given to¬†make renovations and¬†to¬†find employees. In¬†Russia renting holidays is not¬†obligatory, but¬†it is a¬†common practice. There are ways to¬†lower the¬†risks: For¬†example, my family rents out an¬†office to¬†the¬†municipal administration¬†‚Äď they are not¬†subject to¬†bankruptcy and¬†they stay in¬†one place for¬†decades. Therefore, you don‚Äôt need to¬†have an¬†administrator, who does HR, PR, and¬†finances, because you have a¬†constant client.

When to invest

The recession is also the best time to invest. If you have enough cash, just buy as much as you want. Usually, alternative investments weigh 5-15% of an investor’s portfolio (excluding real estate). I don’t recommend investing more if you don’t know too much about the sector and the item you invest in.

For¬†example, if you invest in¬†wine, you may be deceived about the¬†quality. You can also spoil wine by¬†keeping it at¬†the¬†wrong temperature and¬†in¬†the¬†sun. If you invest in¬†art, the¬†seller can sell a¬†picture for¬†double a¬†fair price. The¬†author of¬†a¬†picture may become less interesting to¬†the¬†public. That is why you should know the¬†sector by¬†reading books and¬†consulting with professionals. And¬†don‚Äôt keep all eggs in¬†one basket¬†‚Äď diversify.

If you are interested in art investment, or real estate investment, write me at daniil@koveh.com, and I will help you to make the right decision, buy the art in the EU and help with legal stuff. I will find the best real estate investment in Russia and Austria based on my experience, and the experience of my family, who through 4 generations were constructing real estate all over Russia.

Aug 13   alternative investment   Art   english   Investment

What to read #4: Politics

Empire USA, Illegale Kriege, Danielle Ganser

Danielle Ganser is a¬†swiss historian, who analysed NATO expansions and¬†crimes. He wrote 3 main books: ‚ÄúImperium USA: Die skrupellose Weltmacht‚ÄĚ, ‚ÄúIllegale Kriege : Wie die NATO-LaŐąnder die UNO sabotieren. Eine Chronik von Kuba bis Syrien‚ÄĚ, ‚ÄúNato-Geheimarmeen in¬†Europa : Inszenierter Terror und verdeckte KriegsfuŐąhrung‚ÄĚ.
The books are available in german and french for now, but they may be translated in the time you read it.

there are other books, that are available in¬†English, for¬†example: ‚ÄúNATO‚Äôs Secret Armies: Operation Gladio and¬†terrorism in¬†Western Europe‚ÄĚ. You can also read some scientific papers. The¬†last one is about Russia and¬†the¬†USA in¬†the¬†Ukrainian conflict

I also recommend listening to his lectures, for example, the illegal revolution in Ukraine 2014, or Turkey revolution 1980. They are available in German and Russian.

In these lectures, Danielle explained the NATO hierarchy and its expansion. NATO became the largest military alliance that does not care about any agreements between non-allies. For example, the agreement of non-expansion to the east, which was signed at the beginning of 1990-th, was broken.

NATO is the best alliance in world history. This is because of the hierarchy: The pentagon is the center of NATO. Danielle says that the ministry of defense in the USA is more like the ministry of offense. In each country of NATO American soldier is always the decision maker, only he decides what NATO does.

The USA, and therefore NATO, like to make 2 similar nations hate each other. They do it by showing the greatness, and dominance of one nation over another. America makes people think that people from another nation are no one, that they are not even the people so that they don’t have any rights and may be easily killed. It happened in Turkey vs Kurds, Christians vs Muslims, Albanians vs Serbians, North vs South Koreans, Russians vs Ukrainians, and even Republicans vs Democrats.

By doing so, America does not need to start a war themselves and make Americans dead. Instead, they supply one of the nations with weapons (Americans sell the weapons by giving credits, that some countries can’t pay out. Therefore, America dictates a country what to do in exchange for restructuring a credit. That is what will happen with Ukraine if Ukraine does not vanish from maps). In the end, one country loses by giving up territories and being dependent on the winner, and America gets control and loyalty over the winner. (the credit idea was made by me, Danielle was not talking about it).

Danielle said, that the UN cannot force any sanctions against 5 major countries: the USA, Russia, Great Britain, France, and China. These countries have Veto rights, the right to cancel any decisions. Therefore, such countries can do terrorism, and start wars with anyone and the UN can’t do anything against it.

Danielle also argues about the 9/11 event. The government prohibits discussions about the event. Some scientists and architects dispute the way, how the third building fell. this house fell straight down, that may only happen if all metallic walls are blown. The way, that the government does not want to analyze this case and share the data makes people create conspiracy theories.

Moreover, after 9/11, all Muslims seem to Americans as terrorists and Americans demand revenge. It seems like a reason to start a war with Muslim countries. I want to remind, you that Islam is a more peaceful religion than Christianity, but at the end of the 20th century and the beginning of the 21st century, the perception of Muslims changed.

The prisoners of geography, Tim Marshall

The natural landscapes: rivers, mountains, hills, floods, and even waterfalls affect the civilisation. The location decides whether rhe countries have a war with each other of make a trade.

We will analyze 10 regions: Russia, China, the USA, Europe, Africa, the Middle East, India and Pakistan, Korea and Japan, Latin America and Arctic.

The book explains with examples how geography affects the relationships between nations. It also tells about the dilemma between Ukraine and Russia even though that the book was written in 2017.

Why are we polarized, Ezra Klein

The book tells about American society. The split between Republicans and democrats grows bigger. Before the internet time, people chose the side based on the leader of a party and based on the changes, that each party does. The democrat could choose a Republican president.

Today people are polarized. They are so polarized, that republicans hate democrats and otherwise. People are sure about their point of view and don’t want to discuss or take into account the other point of view. People decided, that there is one truth. Because people talk more with people with their point of view, they make the bias, that only their point of view is logical and right. It goes so far, that one family with different points of view on government can just split.

Ezra Klein explains how that happen, that people became polarized.

Aug 13   Books   english   Politics

Plans for the next months

Austrian Heritage

I traveled around Austria with UNESCO. It was a 15-day trip. We visited Vienna, Graz and Salzburg, and towns nearby. We learned about restoration, world heritage, materials, and culture. Even though I have been living in Austria for 2 years I learned a lot of new things that I want to share with you.

Architecture

We will learn about the architecture of each region

We will learn about the¬†Voralberg region¬†‚Äď the¬†western part of¬†Austria. It was the¬†poorest hard accessible region. The¬†citizens Used materials efficiently, and¬†they created some techniques, that we can learn from them.

Materials

We visited the¬†open-air museum of¬†wooden architecture, where I found my loveliest material¬†‚Äď shingled wood, 30-50 years lasting tactile material.

You will also learn about the technologies used for sustainable design, such as solar panels in the window.

Restauration

How much does it cost to restore a pucture, what if you spilled a coffee on the cup, and do we need to repair the puctures, that were damaged during a war?

Finance

How to save money during a recession? What happens with startups? Do we need to invest in art and wine? In NFT and crypto? What are swaps? What does the price for futures on gas and wheat mean for us? What happens with Russian, European, American, Chinese and Arab countries now and in the future?

Aug 2   english

Options

An option is a paper, that gives you a right (not duty) to buy stocks (or anything else) on a specific day. For example, you bought an option for 5$ which gives you the right to buy 1 share of Apple in one year for today’s price of 150$. You expect Apple stocks to rise by more than 5$. Let’s see 3 scenarios of Apple price in one year:

170$, we realize the option and get a profit of 170-150-5 = 15$. This is a 200% return. If we invested in a share, we would have got 170-150 = 20$ profit, 13%.

130$, we don’t realize an option, because now the shares cost less, than in the contract (150$). We lose 5$ (the cost of an option) instead of 130-150=-20$ if we bought a share.

150$-155$, we may realize an option and get a small loss. 153-150-5=-2$. We lost 40$ instead of 2% profit.

If we had bought the shares, we would have risked losing all the share costs. Here we risk losing only the option price of 5$.

Options are the profit guarantee for a seller

A¬†seller wants to¬†have a¬†profit from a¬†share. Instead of¬†thinking about whether the¬†stock price will be as¬†high as¬†he wants or¬†not, he can just say: ‚ÄúI want to¬†get 20$ profit in¬†one year from Apple shares that cost 150$, everything that is higher is yours‚ÄĚ. To¬†do so, he sells the¬†option for¬†20$. A¬†seller immediately gets a¬†profit of¬†20$ and¬†can invest then in¬†something else. Even if the¬†share price drops by¬†20$ to¬†130$, he does not¬†lose anything, as¬†well as¬†a¬†buyer.

Companies also issue options¬†‚Äď Warrants. Companies give premiums to¬†employees as¬†an¬†option for¬†buying a¬†share of¬†a¬†company. For¬†example, Elon Musk gives Tesla employees options for¬†buying tesla at¬†a¬†huge discount, that they can realize at¬†any time. So that when employees save enough, they can invest money in¬†a¬†company. It is an¬†alternative to¬†convertible bonds.

European and American Options

European call (put)option is the right to buy(sell) a unit of an underlying asset at a strike (=pre-specified) price at a specific point in time.
American call (put)option is the right to buy(sell) a unit of an underlying asset at any time on or before an expiration date of an option. European options can also be without an expiration date.

American options are also traded in Europe, in the Netherlands stock exchange, Euronext.liffe, for example. These options are traded primarily on equities: FTSE-100, CAC40, Bel-20.

Price and problems with options

It is hard to estimate the price of an option. There are parameters, such as risk-free rate, time to expiration, and volatility (variance, or price fluctuation). For example, low-volatility options cost less over time, while high-volatility options cost a lot.

Formulas of option pricing

Binomial formula for pricing European options.

  • K = strike price (end price, agreed before signing contract)
  • N = periods of¬†expiration
  • S0 = current price of¬†an¬†asset
  • rf = risk-free return per¬†period
  • ŌÄ= risk-neutral probability of¬†an¬†up move
  • u = ratio of¬†the¬†share price to¬†the¬†prior share price, given that the¬†upstate has occurred over a¬†binomial step
  • d = ratio of¬†the¬†share price to¬†the¬†prior share price, given that the¬†downstate has occurred over a¬†binomial step.

Let’s understand each part of the equation:

The U and D are the possible outcomes (in $) of events. We assume, that there are always two scenarios in one period of time: positive and negative. Some traders use 1 second as a period, but then in 1 minute, there are 2^60, more than 1 billion scenarios. We assume 1 period as a quarter, half, or a full year.

We put all possible outcomes in¬†a¬†binomial tree¬†‚Äď a¬†graph, with 2 inherited sub-elements on¬†each node. Let‚Äôs see the¬†binomial tree example of¬†Apple stock, which can either double or¬†halve, and¬†we also assume, that the¬†risk-free rate is equal to¬†0 for¬†simplicity:

now we count the path to each final node:

1 path
2 paths

It is 1 to UU, 2 to UD, and 1 to DD. Now we find the probability of each of the nodes.

The¬†probability of¬†the¬†last one is 1¬†‚Äď 0.22¬†‚Äď 0.44 = 0.34. Yes, the¬†probability of¬†the¬†nodes is neither 25% nor 33%, it is not¬†similarly distributed. It can only be similarly distributed if ŌÄ=0.5

Finally, we find the option price. We will assume that we need the strike price at the moment (ATM), that is equal to the spot value (S0):

The option price is equal to 99$.

Black Sholes Formula for American and European Options, with no-arbitrage:

  • N = CDF of¬†the¬†normal distribution
  • St = spot price of¬†an¬†asset (current price at¬†time t)
  • K = strike price (end price)
  • rf = risk-free interest rate
  • t = time to¬†maturity
  • ŌÉ = volatility of¬†the¬†asset (variance)

arbitrage is a risk-free profit, that happens when tracking a portfolio (or a share) costs more (or less) than the derivative (forward or an option). If the share price is higher than the forward strike price (end-price) + the cost of a forward, then we short the share and buy a forward or an option.

That means if an Apple share costs 160$ and the forward cost is 0$, and the strike price is 150$, then we short apple stock and buy forwards. We get 160-150=10$ profit. Moreover, when we short a stock, we get the cost of a share to our account, that we can put in a bank. That brings a lot of profit.

Let’s use an option in the example above. Let’s assume that an option is free. We have the same profit if the cost of apple stock is higher than 150$. If apple costs less than 150$, we just don’t exercise the option and get profit from shorting a stock. If the cost of an option was 10$, then we just have a profit of 160-150-5 + 160*(risk-free rate, such as a bank deposit).

As a result, we get risk-free profit from such operations. In a world with unlimited buyers and sellers, we could do the operation over and over again and become the richest people immediately, or in the end of a period.

Put-Call parity Price of a call (buy) and put (sell) options is different. that is because of a risk-free rate. We use an equation:

Call price - Put price = Current price - Present value of a Strike price
Call price - Put price = Current price - Strike price / (1 + risk-free rate)^periods
# usually, a period is equal to 1 year and is named "t" 
C0 - P0 = S0 - K/(1 + rf)^t

Due to the always non-negative risk-free rate (because otherwise, you don’t put money in the bank account), the price of a call is higher than the put.

2022   english   Finance   WU

Statistics: What media to trust?

Since the Russia-Ukraine conflict, most media have become opinionated and taken one of the two sides. Some media judged one of the sides without having enough proof, which does not correspond to the presumption of innocence. Conflict-participating countries enforced censorship. Posting videos with military groups is illegal. Whom then to believe?

I found reliable sources based on¬†historical reliability and¬†bias¬†‚Äď the¬†declination to¬†the¬†left or¬†right party. The¬†information is based on¬†statistics:

Reuters

Reuters is a¬†London-based news agency with 2500 employees founded in¬†1851 (170 years ago). ‚ÄúReuters Connect‚ÄĚ has a¬†partnership with 17 news agencies, still including TASS (Russian state-owned media). Reuters has a¬†reputation as¬†the¬†neutral (bias of¬†-1.83 to¬†the¬†left side, for¬†example, NBC News, PBS, and¬†CNN have a¬†bias from -5 to¬†-8) and¬†highly reliable (48 out of¬†64 points) source. Reuters is free to¬†use.

The company adfontesmedia made a report about Reuters, where Reuters was treated as a reliable but a middle-biased source.

Popular western sources, based on parameters form Adfontesmedia.

Media name Country Reliability < 64 Bias Party
Retuers UK 48 -1.83 Left
AP News US 48.82 -1.89 Left
PBS US 48.36 -4.76 Left
Washington Post US 42.87 -8.44 Left
Wall street journal US 45.35 5.17 Right
CNN US 42.89 -8.61 Left
Algazeera Qatar 45.68 -4.39 Left

The most reliable sources, based on statistics, appeared to be on the left party, The most unbiased are Reuters and AP news.

If you want to¬†find another reliable resource, use Adfontesmedia Interactive Media Bias Chart¬ģ, that compares 1662 sources based on¬†the¬†bias and¬†reliability score.
Note, the Adfontesmedia was criticized by the Association of College and Research Libraries and others, meaning that the statistics can also be biased.

The live map of events

liveuamap.com is a map of events developed by Ukrainian software engineers from Dnipro Rodion Rozhkovskyi and Oleksandr Bilchenko. Although Ukrainians manage the website, it is a trustworthy resource with constant and fast updates. I have been using the website daily since the 24th of February. Unfortunately, liveuamap.com mentions all Russian news as propaganda and relies mainly on western media.

Telegram

Telegram is the leading news platform nowadays. The media can post violent content, videos from different angles, and freedom to write anything without censorship. Such freedom attracts young people and citizens of conflict states. Hundreds of Russian and Ukrainian telegram channels have millions of subscribers each.

But¬†most of¬†the¬†channels are anonymous. That means¬†‚Äď no¬†one has a¬†responsibility for¬†the¬†words said. Enormous influence and¬†impunity (being unpunished) make the¬†owners extremely powerful. For¬†example, no¬†one knows who owns Ukrainian channels, such as¬†‚ÄúReal Kyiv‚ÄĚ or¬†‚ÄúF***ing Kiyv,‚ÄĚ and¬†channels with other cities in¬†the¬†title. These channels spread nationalistic and¬†extremist information. These channels want Ukrainians to¬†hate ethnic Russians and¬†also Russian citizens. Such sources escalate the¬†war.

Ukrainians are subscribed to¬†tens of¬†such channels. Ukrainians spend their free time reading the¬†news. The¬†majority of¬†the¬†channels bring the¬†same information, and¬†some provide opinions. Opinions are scary¬†‚Äď a¬†person can claim any opinion and¬†forecast anything. In¬†stressed situations, people believe in¬†any lie. The¬†problem is if the¬†media keep posting lies for¬†a¬†long time, then everyone believes in¬†a¬†lie. Such lies happen on¬†Russian TV channels¬†‚Äď that is why this is the¬†least reliable source. People who regularly listen to¬†other people‚Äôs opinions stop thinking, and¬†they rely on¬†others. People lose control over themselves.

Help with the mind

Read facts, Reduce opinions. People want to keep updated, moreover if the theme concerns them. People read news agencies, youtube bloggers, and telegram channels. The media also shares opinions and experts’ thoughts. Every opinion is biased and based on experience.

The¬†same fact or¬†an¬†event is commented on¬†by¬†thousands of¬†influential experts. Reliable experts have own view on¬†a¬†situation¬†‚Äď they have a¬†plan of¬†action. Reliable experts are well educated and¬†they project a¬†situation that they have before in¬†the¬†future and¬†current events. Listening to¬†2-3 experts, who have different strategies may help to¬†educate yourself. Listening to¬†tens of¬†experts weekly makes a¬†person anxious and¬†costs time.

For¬†example, I am interested in¬†economics and¬†people‚Äôs lives. I chose 4 channels, where I consume information (in¬†Russian): @market_tweets posts economic, stock market facts, graphs, and¬†governors‚Äô quotes. @Varlamov posts videos about people‚Äôs lives and¬†documentaries about different themes. Dengi_ne_spyat (Tinkoff bank media) posts 2 videos about the¬†stock market weekly¬†‚Äď aggressive and¬†conservative investors with 20-year knowledge tell about stock markets based on¬†news, data, speakers, and¬†experience. Reuters posts trustworthy articles.

I took the graph idea from the psychology agency Zigmund.online, and its telegram channel.

If a person subscribes to tens of channels, he will be lost in opinions. He will spend all his free and working time keeping updated. I was in such a situation at the beginning of a conflict.

In the end, a person burns out. A person becomes angry or scared, and he can make hasty (rash, unthoughtful) decisions.

If the event is not escalating, you lose interest in it. For example, if ten soldiers were killed last week, you would be astonished and expect more. If today, hundred of the soldiers were killed, you would be even more curious to know what happened. But if next week there will be 5-10 deaths, you will lose interest in this event.

News agencies want you always to¬†be astonished¬†‚Äď they increase the¬†importance of¬†each following event. Remember how news agencies talked about killing a¬†couple of¬†civilians, Mariupol, Chornobyl, exploding of¬†a¬†hospital, theater, Bucha, train station, ship sunk¬†‚Äď each event was seen as¬†a¬†bigger and¬†bigger event. But¬†no¬†one cares nowadays about the¬†tank explosions and¬†deaths of¬†tens of¬†civilians. News agencies will do whatever they can to¬†escalate the¬†conflict; otherwise, people forget about the¬†event.

News agencies are real winners in this conflict. They have got huge influence: new readers, paid subscribers, more time spent on a website. News agencies became rich due to advertisements and paid subscriptions. They don’t want you to leave but keep you updated for the long term.

Fake News

My team from the¬†Vienna University of¬†Business and¬†Economics and¬†I made a¬†presentation and¬†a¬†paper about fake news¬†‚Äď types of¬†fake news, history, how to¬†spot and¬†prevent spreading fake news.

2022   english   statistics
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