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Omicron Uncertainty Lessons for Stock Market and Real Estate Investors

by Marc Halpern

Part Time Investors LLC

November 26, 2021

Someone challenged me yesterday saying that the “$1 million self-directed 401(k) doing 1-2 real estate deals per year” that I described in my article yesterday is insufficient to retire. If the plan was to build a 401(k) in a $1 million stock portfolio that is spent down, then the critic is right. But if the 401(k) is invested in real estate, then the $1 million can last essentially forever. This message was put in great focus after the news this morning.

Just a few hours ago this afternoon, we learned about another letter in the Greek alphabet, Omicron, that may (not yet sure) become part of our daily language. Omicron is the name given by the World Health Organization for a new COVID variant that has a whopping 30 mutations relative to the COVID variants we have been dealing with for nearly two years.

The stock market fell by 2.5% today, a short Black Friday trading day, due to Omicron, even though at this very moment we know very little about Omicron. We woke up this morning and heard that there is a new variant that appears to be very transmissible, has a lot of mutations and was found in South Africa, the UK, Belgium and Israel. Now it has a name, Omicron.

That’s all we know. We now know that Omicron put more uncertainty in our lives. So, the stock market immediately fell by 2.5%, oil prices fell by a dramatic 13% in just 3.5 hours while Zoom stock increased by 5.7% in those same hours in case we have to meet more virtually. All that in 3.5 hours.

What happened to real estate since Omicron today? I don’t know.

As I wrote yesterday, before Omicron, my self-directed 401(k) owns more than $1 million in real estate-related assets in the form of rentals, agriculture, land development funding and notes secured by real estate. All of these assets are generating thousands of dollars per month (mostly tax-free) of passive income and have done so throughout the pandemic.

I also have a traditional IRA that is invested exclusively in stocks, mostly in the form of mutual funds, that I use to diversify my retirement investment portfolio.

While I watched the effects of Omicron over 3.5 hours today, I was reminded of the differences between my 401(k) portfolio in real estate and my IRA portfolio in stocks.

Passive Income: Real estate provides substantial monthly passive income and positive cash flow regardless of whether the value of the underlying assets go up in price, go down in price or stay the same. That means that in retirement, I can take thousands of dollars every month out of my self-directed 401(k) WITHOUT EVER HAVING TO TOUCH THE PRINCIPAL. In contrast, the stock holdings throw off very little passive income in the form of dividends, that are also very low relative to the value of the underlying principal.

Deep Discount: Real estate is one of the few assets that can be bought at a deep discount to current retail value while taking very little risk since the market would typically have to drop by about 30% to break even, assuming that the investor would be distressed enough to be forced to sell at the bottom of the market. Stocks can be bought at a discount using options but it is not possible to reliably create instant equity on every transaction. Therefore, the stock market can and does fall periodically or go sideways as it did for the long 13 years from 2000 to 2013. If someone had to retire then, they would have had a disastrous retirement if everything was in the stock market.

Reliability & Due Diligence: Before my self-directed 401(k) buys into an apartment syndication, a single-family rental, a note or a PPM fund (requiring a “private placement memorandum”), I am able and actually perform deep due diligence on the details of each aspect of the investment AND the fund managers (where applicable) to confirm the present value, the value after repairs/repositioning and cash flow of the investment with a 95% confidence level. There is no amount of due diligence I can do on stocks to achieve that high level of confidence since there are so many factors beyond control that can affect the performance of the stock. With real estate, we can even buy insurance to protect against the majority of the downside risk. Such insurance is not available for stocks.

The Flawed Accumulation-Deaccumulation Model: The classical model for retirement promoted by the big brokerage houses is based on building a nest egg in stocks, bonds, other investments and cash with 8% per year compounded return and spending down these assets at 4% per year. The flaw is that it doesn’t take a lot of down years in the stock market with bad timing to greatly reduce the value of the portfolio to the point that if you live long enough, you could outlive your resources and find yourself in a devastating position. This is covered in great detail in my article shown here []. In contrast, a proper real estate portfolio throws off enough positive cash flow can cover household expenses essentially forever, even ignoring long term appreciation of the real estate assets.

In summary, life is full of uncertainty. Omicron reminds us of this. Our financial lives are full of even more uncertainty. However, when preparing for retirement or financial freedom before retirement, it makes sense to minimize uncertainty by investing in assets that with only a $1 million fund will [1] provide enough passive income to cover all household expenses without spending down a penny of the underlying assets so you would not run out of money and [2] not put at risk the fund’s principal by always buying a deep discount to current retail value upon purchase after performing deep due diligence.

Another reality is that I successfully planned and successfully executed my excellent plan to achieve a comfortable and reliable retirement AS A PART-TIME INVESTOR.

Now buy the Smarter Investing Home Study Course so you too can be a successful part-time investor and achieve financial freedom, just like I did. Contact me directly to learn of any special discounts that may be offered (such as the once per year Black Friday sale in November).


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