Author Archives: Edward Brownlee

Discounted Cash Flow

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The concept of discounted cash flow (DCF) and how it relates to investing.

Discounted Cash Flow (DCF) is a powerful valuation method used to estimate the value of an investment based on its expected future cash flows. Here’s how it works:

Future Cash Flows: DCF analysis considers the expected future cash flows generated by an investment. These cash flows can include revenue, profits, dividends, or any other financial inflows.

Time Value of Money (TVM): The core idea behind DCF is the concept of the time value of money. Essentially, a dollar received today is worth more than the same dollar received in the future. Why? Because you can invest that dollar today and earn returns on it.

Conversely, if you receive a dollar in the future, you miss out on potential investment opportunities.

Discounting: DCF “discounts” these future cash flows back to their present value using a discount rate. The discount rate accounts for the opportunity cost of not investing that money elsewhere. It reflects the risk associated with the investment.
Present Value Calculation: The present value of expected future cash flows is calculated as follows:

Present Value=Future Cash Flow(1+Discount Rate)Time PeriodPresent Value=(1+Discount Rate)Time PeriodFuture Cash Flow​

  • Future Cash Flow: The expected cash flow in a specific time period.
  • Discount Rate: The rate used to discount the future cash flow.
  • Time Period: The number of years until the cash flow occurs.

Decision Making: If the DCF value calculated is higher than the current cost of the investment, it suggests that the opportunity could result in positive returns and may be worthwhile. Conversely, if the calculated value is lower, more research and analysis may be needed before proceeding.

Estimations and Risks: DCF relies on estimations of future cash flows, which can be challenging. Additionally, the choice of discount rate affects the outcome. Companies often use the weighted average cost of capital (WACC) as the discount rate because it considers the return expected by shareholders11.

Remember that DCF is a valuable tool, but it’s essential to make informed assumptions about future cash flows and select an appropriate discount rate. Always consider the risks associated with any investment decision.

Get Back on the Bus

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One morning, a mother was seeing her 8-year-old son off to school. She walked him to the bus stop, where they waited patiently. The bus came, and her son boarded. The mother then proceeded to go home so she could get ready to go to work.

About 15 minutes later, the doorbell rang, and her son was at the front door. She was shocked to see him since she had just gotten him on the school bus, and then she noticed the school bus with its door open in front of her house.

The mother asked her son, “What are you doing back home?”

Her 8-year-old son said, “I’m quitting school. It’s too hard, it’s too boring, and it’s too long.”

The mother looked at him and said, “That’s life, now get back on the bus.”

Lesson: Life experiences touch all, no matter how young or old.

May Is Mental Health Awareness Month

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Mental Health Is Health

Mental health is an important part of how we feel every day.

Unlock Your Mind’s Full Potential This May

In a world that often prioritizes physical health above all else, you sometimes forget that your mental well-being is just as crucial to living a truly fulfilling life.

This May, as you celebrate Mental Health Month, it’s time to shatter the stigma and embrace the fact that mental health is health.

Your state of mind impacts every aspect of your daily existence – from your relationships and productivity to your overall sense of happiness and purpose. When you neglect your mental health, you risk feeling weighed down by stress, anxiety, and negativity, unable to fully appreciate the beauty that surrounds you.

But when you prioritize your mental well-being, you open the door to a world of possibilities. You gain the clarity and resilience to tackle life’s challenges head-on, the confidence to pursue your dreams, and the ability to truly savor each moment.

So, this May, let’s embark on a journey of self-discovery and self-care. Let’s learn to quiet the inner critic, cultivate gratitude, and embrace the practices that nourish your minds, bodies, and souls. Because when you prioritize your mental health, you unlock your full potential to thrive.

Your mental health affects what you think about yourself, how you interact with the world around you, and how you generally approach each day. Changes in our mental health can get in the way of our routines, and—much like a sprained ankle, a lingering cough, or chronic pain—should be treated with the help of a healthcare provider.

MVP research supports the future of mental health care.

Just like your physical health, mental health combines different factors. Veterans in MVP help researchers study those factors to find ways to improve mental health care.

Researchers are using information from MVP to study posttraumatic stress disorder (PTSD), suicide prevention, depression, anxiety, substance use disorders, and other mental health conditions.

This research helps us understand more about mental health conditions, which could lead to improved screenings, preventions, interventions, and treatments for Veterans.
The Veterans Crisis Line offers 24/7 confidential crisis support for Veterans and their loved ones. Dial 988, then press 1.

One in a Million: Meet the Veterans of MVP

“It’s the right thing to do. If it’s going to help one person, it’s worth it. It’s worth my time; it’s worth everything.”

– Joseph Gurin, Army Veteran

The Anxious Generation

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“Parents are overprotective in the real world and underprotective in the virtual world.” ~ Jonathan Haidt

In his book The Anxious Generation, author and social psychologist Jonathan Haidt lays out the facts about the epidemic of teen mental illness that hit many countries at the same time. He argues that smartphones and social media are impairing children’s mental health.

Haidt contends that children need play and independent exploration to mature into competent, thriving adults. Haidt shows how the “play-based childhood” began to decline in the 1980s, and how it was finally wiped out by the arrival of the “phone-based childhood” in the early 2010s.

He explains why social media damages girls more than boys and why boys have been withdrawing from the real world into the virtual world, with disastrous consequences for themselves, their families, and their societies.

Most important, Haidt proposes the following four simple rules that parents, teachers, schools, tech companies, and governments can take to end the epidemic of mental illness and restore a more humane childhood:

  • No smartphones until high school
  • No social media before age 16
  • Phone-free schools
  • More independent and free play 

Source: The Anxious Generation: How the Great Rewiring of Childhood Is Causing an Epidemic of Mental Illness

 

Investing in Great Companies

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All investing is the discounted value of all future cash flow. 

Investing in great companies at reasonable prices is a smart strategy.

Below are nine promising stocks that you might consider for your investment portfolio. Keep in mind that investing always carries risks, so it’s essential to do thorough research and consider your own financial goals and risk tolerance.

Here are some stocks that have caught the attention of experts at Forbes:

  1. Alphabet, Inc. (GOOG, GOOGL): Alphabet, the parent company of Google, has a forward price-to-earnings (P/E) ratio of 22.1. It’s a leader in technology and advertising, making it an attractive choice for long-term investors.
  2. Citigroup, Inc. ©: With a low forward P/E ratio of 8.4, Citigroup is a major global bank. It offers financial services and has the potential for growth.
  3. Fidelity National Information Services, Inc. (FIS): FIS provides financial technology solutions. Its forward P/E ratio is 15.3, and it’s well-positioned in the industry.
  4. Intuitive Surgical, Inc. (ISRG): A pioneer in robotic-assisted surgery, Intuitive Surgical has a forward P/E ratio of 60.9. It’s a high-growth company with significant potential.
  5. The Kraft Heinz Company (KHC): With a forward P/E ratio of 12.2, Kraft Heinz is a food and beverage giant. It’s known for its iconic brands and steady performance.
  6. The Progressive Corporation (PGR): Progressive is an insurance company with a forward P/E ratio of 23.3. It has been consistently growing and is well-regarded in the industry.
  7. Spotify Technology S.A. (SPOT): Spotify, the popular music streaming service, has a forward P/E ratio of 98.0. It’s a high-risk, high-reward stock due to its competitive market.
  8. Tapestry, Inc. (TPR): Tapestry, which owns luxury brands like Coach and Kate Spade, has a forward P/E ratio of 8.7. It’s an interesting play in the retail sector.
  9. TopBuild Corp. (BLD): TopBuild, a construction services company, has a forward P/E ratio of 20.8. It benefits from the housing market and construction industry growth.

Remember that these are just suggestions, and it’s crucial to conduct your own research and consult with a financial advisor before making any investment decisions.

Additionally, consider diversifying your portfolio to spread risk across different sectors and asset classes. Happy investing! 📈👍

References:

  1. https://www.forbes.com/advisor/investing/best-stocks-to-buy-now/

Bourbon: America’s Native Whiskey

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All bourbon is whiskey, but not all whiskey is bourbon.

Whiskey is made all across the world, but Bourbon is a type of American whiskey, made with at least 51% corn.

“Bourbon is America’s take on whiskey that came over with the original European colonists and immigrants,” says Heather Wibbels, managing director of Bourbon Women, a female-centered, consumer-based bourbon organization.

“People arriving in America brought their distilling traditions with them and adapted them to the grains and materials at hand to create a new kind of whiskey,” Wibbels continues. “Corn thrived in the U.S. more than rye and barley, so the colonists and early immigrants pivoted toward it as a base for their whiskies.”

Today, bourbon—America’s native whiskey—remains one of the most popular spirits categories.

To be classified as Bourbon, it needs to be made in the U.S. That means that everything—the mashing, distilling and aging—must be conducted on American soil.

In contrast, Whiskey/whisky, more broadly, can be made anywhere.

In addition, not all American whiskeys are bourbon

Bourbon is made from a mash bill with at least 51% corn. The remaining grains in the mix can range widely. High-rye bourbons contain a high concentration of rye grain, while wheated bourbons contain a high concentration of wheat. Other bourbons might include oats, barley or rice-based varieties. Some are 100% corn.

Whiskey is a broader category, and the grains will vary depending on the type of whiskey. For example, Scotch whiskey is made from malted (germinated) barley, while American rye whiskey contains at least 51% rye grain.

To be called bourbon, the whiskey must be aged in new charred barrels made from American oak.

Whiskeys from other regions may have different rules about the vessels. Most allow for used oak barrels—and used bourbon barrels often are used for aging other spirits, including non-bourbon whiskeys.

Although bourbon doesn’t have to be made in Kentucky, 95% of all bourbons are, according to the Kentucky Bourbon Trail.

Well-known bourbon producers from the state include Bulleit, Evan Williams, Four Roses, Heaven Hill, Jim Beam, Maker’s Mark, Michter’s, Old Forester, Wild Turkey and Woodford Reserve.

References:

  1. https://www.wineenthusiast.com/culture/spirits/bourbon-vs-whiskey/

Roth IRA

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The Roth IRA has become a darling of retirement savings accounts. Although funded with after-tax dollars, Roths offer tax-free withdrawals of contributions and earnings in retirement (so long as the account holder is 59½ or older and has held the account for at least five years). Plus, such funds can continue to accrue tax-free indefinitely during the owner’s lifetime because they’re not subject to the required minimum distributions (RMDs) starting at age 73 that are mandated from tax-deferred retirement accounts.

But there’s a catch: For 2023, only savers with incomes at or below $153,000 ($228,000 for married couples filing jointly) can contribute to a Roth IRA. And even then, contributions are limited to $6,500 per year ($7,500 if age 50 or older), though that limit is reduced if your income falls between $138,000 and $153,000 (between $218,000 and $228,000 if married).

The income limits on Roth contributions increased for 2024, which means savers with income at or below $161,000 ($240,000 for married couples filing jointly) can contribute to a Roth IRA. Also, for 2024, the contribution limit increased to $7,000 per year ($8,000 if age 50 or older), though that limit is reduced if your income falls between $146,000 and $161,000 (between $230,000 and $240,000 if married).

“Unfortunately, the income limits on Roth IRAs make it difficult for many higher-income individuals to contribute directly to these accounts,” said Hayden Adams, CPA, CFP®, director of tax and wealth management at the Schwab Center for Financial Research. However, with some planning, even high earners can contribute to a Roth account and reap its benefits. Let’s look at four strategies to consider.

1. Roth 401(k)

If your employer offers this option with no income limits, you can set aside up to $23,000 ($30,500 if age 50 or older) in after-tax contributions in 2024. Unlike Roth IRAs, Roth 401(k)s require RMDs—at least for 2023 and earlier. Starting in 2024, you’ll no longer need to take annual distributions under the SECURE 2.0 Act.

2. Roth conversion

Like a traditional IRA, those with savings in a tax-deferred account can convert some or all of that balance to a Roth IRA and pay ordinary income tax on the converted amount.1 As a result, you might choose to spread out the conversion over multiple years to manage the associated tax bill better. (If your traditional IRA includes both pre- and after-tax contributions, the converted amount will be taxable in proportion to the pretax value of the account, known as the pro rata rule.2)

“But before doing a Roth conversion, remember that once done, it can’t be undone,” said Hayden, “and each conversion will be subject to a separate 5-year holding period rule.”

3. Backdoor Roth

If you earn too much to make deductible contributions to a traditional IRA, you can still make after-tax contributions up to the annual limit and then convert them to a Roth. As with all Roth conversions, the pro rata rule applies.

4. Mega-backdoor Roth IRA

Before you begin, could you verify with your employer’s retirement plan administrator that your plan allows contributions of after-tax dollars above and beyond the annual contribution limit and withdrawals while you’re still working (which are required to perform the final step below)? If it does:

  • First, max out your normal 401(k) contributions.
  • Next, contribute after-tax dollars up to the overall limit of $69,000 ($76,500 if age 50 or older) in 2024, regardless of income. Take note: The rules will change in 2026 under the SECURE 2.0 Act, which mandates that those earning more than $145,000 a year (indexed to inflation) will have to put their catch-up dollars in a Roth 401(k)—which means those contributions will be after-tax, though their withdrawals in retirement will be tax-free.3
  • Finally, make an irrevocable transfer of the after-tax funds into a Roth IRA—the sooner, the better, since any earnings will become taxable once rolled over.

“Some of these strategies, especially the mega-backdoor Roth, can be complex, so I recommend seeking the assistance of a tax or financial professional if you’re interested in pursuing them,” said Hayden.

1Pre-tax contributions to your traditional account and any income or appreciation from those funds will be subject to taxes when converted to a Roth account. After-tax contributions will not be taxed upon conversion.

2Pro rata rules may apply. Please take a look at the IRS Notice 2014-54 for more.

3If you take a distribution of Roth IRA earnings before you reach age 59½ and before the account is five years old, the earnings may be subject to taxes and penalties.

Chop Wood; Carry Water

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The phrase “chop wood, carry water” has deep wisdom and multiple layers of meaning, according to Copilot:

  1. Enlightenment Happens on the Inside:
  2. Value of Hard Work and Persistence:
  3. Mindfulness and Gratitude:
  4. Yearning for Escape:
  5. Before and After Enlightenment:
    • The quote contrasts life before and after enlightenment. The external actions—chopping wood and carrying water—remain the same. However, the internal shift transforms how we perceive and experience these actions. It’s a reminder that true change occurs within5.
    • Takeaway: Seek inner transformation alongside external tasks.
  6. Embracing the Journey:
    • Whether mundane or profound, every task contributes to our journey. Chopping wood and carrying water symbolize life’s ordinary moments. Embrace them fully, knowing they shape your path toward greater understanding and enlightenment.
    • Takeaway: Every step matters; find purpose in the journey.

Remember, these meanings intertwine, and the phrase invites personal reflection. So, as you go about your day, consider the wisdom of “chop wood, carry water.” 🌿

Be Healthier and Live Longer by Eating Less

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Researchers at the Longevity Institute of the Leonard Davis School of Gerontology at the University of Southern California have been able to predict the significant risk reduction and life-extending power of periodically mimicking a fasting diet.

According to their study, published in the scientific journal Nature, the potential health benefits gained from moderate, intermittent near-fasting are quite impressive. By periodically following a fast-mimicking diet, they say, it’s possible to delay the biological or physical aging process and have an extended disease-free period of life.

The fast-mimicking diet is a five-day (per month), plant-based diet low in calories and protein, followed by a normal diet supporting new or more functional cell growth. The fast-mimicking diet for study participants included vegetable-based soups, energy bars and drinks, chip snacks, tea, and a high-level vitamin, mineral, and essential fatty acid supplement.

Study participants included 100 men and women ages 18 to 70 and excluded anyone with major physical health conditions or mental illness.

The researchers found that just three monthly cycles of the fast-mimicking diet reduced biological aging by an average of two and a half years. Study participants also experienced weight loss, total body fat loss, reduced abdominal and liver fat, lower blood pressure, reduced triglycerides and cholesterol, lower fasting glucose levels, and reduced insulin resistance, especially in those with higher rates of these risk factors at the beginning of the study.

While ongoing calorie restriction alone can help reduce weight and control disease risk factors, it’s well-documented how difficult it is for most people to maintain a low- to very low-calorie diet for any significant time. For many, a periodic fast-mimicking plan may provide the same, if not more, risk-reducing benefits while less burdening the individual.

References:

  1. https://www.psychologytoday.com/intl/blog/cravings/202403/be-healthier-and-live-longer-by-occasionally-eating-less