Category Archives: #BrownleeGlobal

Annual Black Investor Survey by Ariel Investments Charles Schwab

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“Black Americans are already behind the eight ball, and it is disheartening to see that at current savings and investing rates, the wealth gap will continue to expand, endangering our futures and leaving our families exposed.” Mellody Hobson, co-CEO & President of Ariel Investments

The annual Black investor survey by Ariel Investments and Charles Schwab was recently released.

This year, the survey revealed that Black Americans continue to have less opportunity to benefit from stock market growth than white Americans at similar income levels, according to Ariel Investments. The data also showed signs of hope, including increased young investor engagement.

For more than 20 years, the Ariel-Schwab Black Investor Survey has compared attitudes and behaviors on saving and investing among Black and white Americans.

This year’s results show the deep-rooted gap in participation between the groups persists. The survey conveyed several important trends:

  • Growing engagement in the stock market by younger Black Americans, with 63% under the age of 40 now participating in the stock market, equal to their white counterparts
  • The closing of this gap among younger investors is being driven by new investors: 3 times as many Black investors as white investors (15% vs. 5%)
  • A wide investing gap exists overall – 55% of Black Americans and 71% of White Americans reporting stock-market investments

It is encouraging to view that younger African Americans are investing in greater numbers. Yet, a significant gap persist in the overall number of who invests by race and ethnicity.

More Black Americans became first-time investors in 2020 than in any other year, according to the results of a new survey by Ariel Investments and Charles Schwab. The rise has primarily been driven by younger investors: 63% of Black Americans under 40 now report participating in the stock market, equal to their white counterparts.

On the whole, however, wide gaps remain, with 55% of Black Americans and 71% of white Americans reporting stock-market investments. “This disparity, compounded over time, means that middle-class Black Americans will have less money saved for retirement and less wealth to pass onto the next generation,” the report’s authors write.

The ongoing pandemic has only exacerbated the imbalance, according to the report. In 2020:

  • More than twice as many Black 401(k) participants (12% vs. 5%) borrowed money from their retirement accounts.
  • Almost twice as many Black Americans (18% vs. 10%) dipped into an emergency fund.
  • Nine percent of Black Americans (vs. 4% of white Americans) say they asked family or friends for financial support.

“Financial literacy is a great equalizer, and a life skill that everyone needs.” Carrie Schwab-Pomerantz, President of Charles Schwab Foundation

Financial literacy and education are desperately needed in the African American community. And, it needs to start at a very early age before the vestiges of debt and negative spending behaviors becomes a difficult to break habit.

Trust Remains an Issue

Trust in the financial services industry continues to affect stock market participation among Black Americans. While similar proportions of Black and white investors believe that financial services institutions are not trustworthy, only 35 percent of African American investors feel they are treated with respect by financial institutions versus 62 percent for white investors. As a result, Black Americans are less likely to work with financial advisors.

Additionally, what works against new African Americans investors is that most wealth and financial advisors will not work with you if you don’t already have large amounts of money you either earned or inherited. This leaves the vast majority of American (Black, White, etc) out of the financial advisory equation.

There will be a conversation among leading financial services experts from Ariel Investments, Charles Schwab, and CNBC discussing the challenges driving the racial wealth opportunity gap. This group will discuss the research findings, broader trends, and how the financial services industry can challenge the status quo.

The The Racial Wealth Opportunity Gap Widened in 2020 conversation will occur on Tuesday, March 2, 2021, 3:00 – 4:00 p.m. EST.

References:

  1. https://www.aboutschwab.com/ariel-schwab-black-investor-survey-2021
  2. https://blackinvestorsurvey.swoogo.com/ariel-schwab/979446?ref=swbh?SM=URO&sf243370044=1

COVID-19 Pandemic End is in Sight

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“When it comes to COVID-19, we are optimistic that the end of the beginning is near.” Bill Gates

Billionaire philanthropist and Microsoft Founder Bill Gates believes that we will get COVID-19 under control in calendar 2021. What he means by “under control” is that America and the world will be heading back to something approaching normal again.

Gates is optimistic that the number of cases and deaths will start to go down—at least in wealthy countries—and life will be much closer to normal than it is now for two main reasons:

  • One is that masks, social distancing, and other interventions can slow the spread of the virus and save lives while vaccines are being rolled out.
  • The other reason is that in the spring of 2021, the vaccines and treatments will start reaching the scale where they’ll have a global impact.

In Gates’ view, the coronavirus is somewhat seasonal. He suggests that once the Northern Hemisphere gets into summer, the numbers should go way down, and he expects that countries will not experience another COVID-19 wave in the fall.

He stresses that vaccinations by the fall should be “bearing the brunt” of ending the pandemic. He feels that there will still be some COVID restrictions on public gatherings, because, as “long as the disease is out there in other countries, you can still get big chains of infection anywhere on the globe”.

But if we get the vaccination levels up within the communities and across the globe this fall, all the schools will be able to reopen under some protocol. Moreover, entertainment, travel and hospitality will be open. And, the economy will be on the mend in a big way. The good news according to Bill Gates is that the pandemic, as bad as it’s been, the end is in sight.

“Humans have never made more progress on any disease in a year than the world did on COVID-19 this year”, Gates wrote in a recent Gatesnote. “Under normal circumstances, creating a vaccine can take 10 years. This time, multiple vaccines were created in less than one year.”

The Bill and Melinda Gates foundation has invested more than $1.75 billion in the fight against COVID-19. Most of that funding has gone toward producing and procuring crucial medical supplies. For example, the foundation backed researchers developing new COVID-19 treatments including monoclonal antibodies, and they worked with partners to ensure that these drugs are formulated in a way that’s easy to transport and use in the poorest parts of the world so they benefit people everywhere. Which is pretty remarkable—especially considering that COVID-19 was a virtually unknown pathogen at the beginning of 2020 and how rigorous the process is for proving a vaccine’s safety and efficacy. The vaccine still had to meet strict guidelines before being approved.

References:

  1. https://www.gatesnotes.com/About-Bill-Gates/Year-in-Review-2020?WT.mc_id=20201222100000_YIR2020_BG-TW_&WT.tsrc=BGTW
  2. https://www.pbs.org/newshour/amp/show/bill-gates-on-tackling-climate-change-and-the-ongoing-pandemic-response?__twitter_impression=true

Take a Break from Social Media

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“The Joneses are in debt…Make your lifestyle and purchasing decisions based on what you can afford, not what your peers are buying, and instead of coveting thy neighbor’s car, try to feel smug about your fat retirement account, your zero credit card balances, and the car you own free and clear.” Jean Chatzky

Taking a multi-week break from social media and not comparing yourself to others can be immensely beneficial to your wallet and for your financial anxiety and stress levels. People that on the surface appear to be doing very well for themselves and have all the trappings of success and everything society attributes too modern success to look like, such as the nice cars, big houses and luxury holidays when they have wanted.

Unfortunately for some of these people it has merely been a way of projecting a false success which is unsustainable. They’re living a lie and making you miserable at the same time with their false trappings of success.

“It’s possible that some of your financial stress could be a result of comparison syndrome”, says Choncé Maddox, founder of My Debt Epiphany. “If you’re struggling to pay your bills right now, you don’t need to be worried about trying to keep up with a brand new spring wardrobe or kitchen renovations that your friend is spending money on. If you struggle with this, take a little social media break to avoid unrealistic comparisons, and practice gratitude instead.”

“Make sure you make the most of your money,” says Howard Dvorkin, CPA & chairman of Debt.com. “Don’t buy stuff you don’t need.” Knowing where your money goes and actively tracking your spending habits might leave you surprised and bewildered how your money is actually spent or wasted. This week, start tracking your spending and expenses, and see what you might need to rein in a little bit or a lot.

“Too many people spend money they haven’t earned to buy things they don’t want to impress people they don’t like.”  Will Rogers, a famous American performer

Spending your money on material possessions might make you feel better in the short term, but it won’t make you happy in the long term or help you reach your future financial goals.  Buying new stuff might make you feel good, but that feeling has a way of fading quickly. However, having money in the bank for emergencies and savings for retirement offers a kind of security you can’t get anywhere else. Better yet, the feeling that comes with having savings and building long term wealth is not fleeting at all, but rather long-lasting.

New cars, shoes, vehicles, and boats you buy to impress your friends depreciate rapidly as well, which means you’re likely throwing money down the drain when you buy all this stuff as well.  Your savings and investments, on the other hand, will grow over time – giving you the type of financial security that will help you sleep at night.

The Truth About the Joneses

The Joneses are the envy of social media. They throw the best parties, drive the nicest cars, have big screen TVs in every room, sport the latest smartphones, and go on the most Instagram-worthy vacations. But the question is . . . how can they afford it?

“I had to come to terms with the fact that I was caught up in comparisons. I was chasing someone else’s life instead of enjoying my own. I was letting someone I had never met influence not only how I was going to spend my money, but how I was going to live my life.”  Rachel Cruze, Love Your Life Not Theirs

The truth is that the Joneses are broke and in debt. Remember—the grass isn’t always greener on the other side. Sure, it may look greener, but are you willing to go into thousands of dollars of debt each year for the nicest lawn in the neighborhood?

Here’s the thing: 78% of Americans are living paycheck to paycheck, according to a CareerBuilder Survey.  Furthermore, the study highlights:

  • Nearly one in 10 workers making $100,000+ live paycheck to paycheck
  • More than 1 in 4 workers do not set aside any savings each month
  • Nearly 3 in 4 workers say they are in debt today – more than half think they will always be
  • More than half of minimum wage workers say they have to work more than one job to make ends meet

Basically, that means almost 8 out of 10 people probably can’t afford the home they’re living in and the car they’re driving. They do not even have the cash to cover the next emergency that pops up.

You Have Nothing to Prove

Life is a journey, not a race. Those who collect the most material possessions don’t win a race or earn a prize. So, why does it feel like we need to compete?

Because every commercial on television, on social media, and the radio is aimed at parting us from our money. Every ad campaign was created to convince us that what we have is not enough, and that we need this item or that service — and that we’re depriving ourselves and our families if we don’t buy it.

Don’t believe the hype. You have nothing to prove, and you’ll be a lot better off if you ignore the commercials, social media narratives, your friends, and the hype, and do what is best for you.

When it comes to money, not caring what other people think can actually make you rich. Think how much more money you would have if you didn’t feel compelled to buy brand-name clothes, get the latest tech device, or if you had chosen your home based only on your family’s actual needs.

Now imagine how much more cash you would have if you quit worrying about how much money you look like you have, and focused that attention on what was in your bank and investment accounts ––if you took every ounce of energy you spent trying to look rich, and used it to become rich instead.

When you stop caring what other people think and focus your attention on improving your life in tangible ways instead of superficial ones and saving for the future, you might find that the stars align in your favor.

As Dave Ramsey likes to says “No one accidentally wins at anything. You have to pay a price to win, and you don’t win if you don’t pay a price. And the price of getting out from under those chains of debt might seem high now, but in the end, it’ll be well worth it.”

Instead of spending time on social media, you should always be looking for opportunities to improve your life, remembering that money won’t necessary make you happier, but could provide you choices that will make you happier.

Additionally, it’s important to be grateful of those things that you already have, which are probably those things that money can’t buy.

References:

  1. https://www.hermoney.com/connect/confessionals/7-ways-to-stop-money-stress-forever/
  2. https://www.thesimpledollar.com/save-money/stop-spending-money-to-impress-people/
  3. https://www.daveramsey.com/blog/tired-of-keeping-up-with-the-joneses/

Daily COVID-19 Infections, Hospitalizations and Deaths Declining

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COVID-19 Cases Are Dropping Fast. Four reasons: social distancing, seasonality, seroprevalence, and shots.

COVID-19 is in retreat in America. New daily cases have plunged, and hospitalizations are down almost 50 percent in the past month. The reason for the decline range Americans’ good behavior in the past month combined with (mostly) warming weather across the Northern Hemisphere has slowed the pandemic’s growth; at the same time, partial immunity and vaccines have reduced the number of viable bodies that would allow the coronavirus to thrive.

The current decline of COVID-19 is crystal clear.

There has been a five-week downward trend in cases, according to data collected by the Centers for Disease Control and Prevention. The highest 7-day moving average occurred on January 11, 2021 and was 249,048. The current 7-day average is 77,385 cases, which is a 68.9% decline.

Furthermore, the 24.5% decrease in the 7-day average number of daily cases reported compared with the prior week also provides an encouraging sign of recent progress. Even with these declines, however, the 69,165 cases reported on February 17 remains higher than what was seen during either of the first two peaks in the pandemic.

Daily Trends in COVID-19 Cases

The numbers of new hospital admissions of patients with confirmed COVID-19 have decreased from the national peak of 18,006 admissions on January 5, 2021 to 6,841 admissions on February 16 (a 62% decrease). The average number of daily admissions fell by 21.8% compared to the previous week.

Nationally, the number of COVID-19 deaths continue to fluctuate. There has been over 500,000 total COVID-19 deaths reported with 2,601 new deaths reported as of February 23, 2021. The 7-day average number of new deaths decreased by 9% to 2,708** new deaths per day compared to the previous 7-day period.

Why the decline?

Americans’ good behavior in the past month combined with warming weather across the Northern Hemisphere to slow the pandemic’s growth; at the same time, partial immunity and vaccines have reduced the number of viable bodies that allow the coronavirus to thrive.

According to a piece that ran in the Atlantic.:

1. Behavior: Americans finally got on board with wearing a mask and social-distancing thing.

Officials pointed to Google mobility data that demonstrated that Americans withdrew into their homes after the winter holidays and hunkered down during the subsequent spike in cases that grew out of holiday season socializing. New hospital admissions for COVID-19 peaked in the second week of January—another sign that social distancing during the coldest month of the year bent the curve.

2. Seasonality: The coronavirus is perhaps seasonal and destined to decline.

Behavior can’t explain everything regarding the decline. Mask wearing, social distancing, and other virus-mitigating habits and behaviors had some impact. But bottomline, COVID-19 is in retreat across North America and Europe. Since January 1, daily cases are down 70 percent in the United Kingdom, 50 percent in Canada, and 30 percent in Portugal. This raises the possibility that SARS-CoV-2, the virus that causes COVID-19, is seasonal.

Many viruses fare best in cold and dry conditions; they’re not well designed to thrive in warmer, sunnier, and more humid outdoor areas, Harvard epidemiologist Michael Mina told New York magazine. Each virus is a bundle of genes and protein encased in a fatty lipid molecule. This fatty shell breaks down more easily in warmer and more humid environmental conditions.

3. Partial immunity: The virus is running out of bodies to infect

The coronavirus needs bodies in order to survive and replicate, and it now has access to fewer welcome hosts. Fifteen to 30 percent of American adults have already been infected with COVID-19, according to CDC estimates.

America’s seroprevalence—that is, the number of people with coronavirus antibodies from a previous infection—is probably concentrated among people who had little opportunity to avoid the disease.

This is partial immunity among the very populations that have been most likely to contract the disease, perhaps narrowing the path forward for the original SARS-CoV-2.

4. Vaccines: Despite naysayers and a few reluctant family members, the shots work.

The vaccines are highly effective at preventing infection. But preventing infection is not all they do. Among those infected, they also reduce symptomatic illness. And among those with symptoms, they reduce long-term hospitalization and death to something like zero.

It’s simple to show why this period of declining hospitalizations should keep going. Assuming the CDC is correct that about 25 percent of adults have COVID-19 antibodies from a previous infection and add to that number the 10 percent of adults who have received vaccine shots since December, that would mean one-third of adults currently have some sort of protection, either from a previous infection or from a vaccine. Thus, sometime this spring, half of American adults should have some kind of coronavirus protection.

Although the pandemic is far from over, the U.S. has reached the beginning of the end of COVID-19 as a threat to the health-care system and the senior citizen population.

References:

  1. https://www.cdc.gov/coronavirus/2019-ncov/covid-data/covidview/index.html
  2. https://www.theatlantic.com/ideas/archive/2021/02/why-covid-19-cases-are-falling-so-fast/618041/

Overcoming Your 5 Biggest Retirement Challenges | Morgan Stanley Financial Advisor

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While saving for a retirement is an important topic, it’s also important what your plan of action once you enter retirement. No matter how well you save during the accumulation phase, it’s critical to plan how you convert those assets to income.

Other than Social Security, many retirees have no source of guaranteed income other than retirement savings. Plus, unlike previous generations, you may not be covered by a pension plan at work, so chances are you’re going to have to rely on your own efforts to overcome the following five challenges:

Challenge #1: Longevity

According to the Society of Actuaries, a man in his mid-50s today has about a one-in-three chance of reaching age 90, while a woman of the same age has a roughly 50% chance.

What this means is that you may very well spend as many years in retirement as you did during your career. That means generating enough income to meet day-to-day expenses for possibly 30 years or more—an especially daunting challenge in an environment where few sources of guaranteed income are available to you.

Challenge #2: Volatility

Market swings and “Black Swan” events are always a possibility. Black Swan events are best described as 9/11, the real estate bubble that led to the Financial Crisis and the coronavirus pandemic. In short, Black Swan events are those that defy our ability to predict them.

When they occur, they can have a profound impact on financial markets. These days, trading is often conducted electronically at lightning fast speeds among numerous participants around the world. In addition, trading doesn’t stop when the market closes, and the advent of social media has accelerated the speed at which decisions are made. Put it all together and the climate is conducive to greater volatility than we’ve experienced in the past.

Challenge #3: Inflation

Inflation is the rate at which the prices of goods increase on an annual basis. It’s hard to believe, but on January 1, 1981, the U.S. inflation rate was a whopping 13.9%. Fortunately, in recent years it’s been hovering between 0.5% and 2.5%.2 But, even today’s relatively low rate can have a harmful effect on your purchasing power over time.

For example, $1,000 today will only be able to purchase $552 in goods 30 years from now with a 2% annual inflation rate. With a 3% rate, that $1,000 will only buy you $412 worth of goods. And if inflation goes up to 5% or 6%, the results could be far more drastic.

For many retired people, higher inflation is especially difficult because they may be living on a fixed income that can’t support rising costs. In addition, many of the goods and services most often used by retirees are already experiencing greater-than-average price inflation.

Health care costs, for instance, can be particularly onerous. On average, a 65-year-old couple in good health who retired in 2019 with Medicare Parts B and D and supplemental insurance coverage could expect to pay $387,644 for healthcare costs for the remainder of their lives, according to HealthView Services.3

Challenge #4: Taxation

If you’re in a high tax bracket, you have to be especially aware of how your assets are invested. Many hedge funds and mutual fund managers, for example, fail to consider taxes when they’re seeking profits. Portfolio turnover can be high and short-term capital gains, which are taxed as ordinary income, are often generated in abundance.

Mutual funds may also throw off what is sometimes called “phantom income.” These are distributions of dividends and/or capital gains that are reinvested in additional fund shares. You never really see them, but you’re taxed on them anyway. In fact, many investors find themselves paying taxes on capital gains distributions even while their fund shares have declined in value for the year.

Challenge #5: Leaving a Legacy to Loved Ones

For many Americans, even if they have enough income to comfortably meet retirement expenses, leaving a legacy is still a primary concern, particularly as it relates to estate taxes. Federal estate tax alone can reduce the bequest you hope to leave someday. Depending on which state you live in, erosion can be even more profound.

What to Do in Retirement

Years ago, once in retirement, an oft-used strategy was to reallocate your portfolio from predominantly equities to predominantly fixed income and to live on the interest generated by these holdings. With today’s interest rates near record lows and life expectancies expanding, this strategy may no longer be viable.

Consider How You’ll Pay for Care

Nobody wants to think about having to rely on others for care, but it’s essential to plan ahead for such a possibility, especially for later in life. The cost of long-term care services—whether provided in the home, at a community facility or in a nursing home—may not be covered under major medical plans or Medicare and often exceeds what the average person can pay from income and other sources, particularly in retirement. One alternative to paying entirely out of your own pocket is long-term care insurance.

References:

  1. https://www.morganstanley.com/articles/retirement-challenges?cid=smsp-23846713277230660_2940782372618971_23847035077960660_23847056332980660

When Markets Dip, Don’t Drop Out

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“Just stay the course. Don’t do something, just stand there. This is speculation that we’re seeing out there, and you can’t respond to it.” Jack Bogle, Vanguard Investment

When the market gets jumpy, so do many investors.

In periods of volatility, anxious stock market investors can be tempted to take money off the table, fearing a potentially major slide in their portfolio. Selling off stocks when the market dips and returning only when things calm down is emotional, not rational or successful investing strategy. Data has proven that over the long term investors are always able to overcome dips and recessions successfully.

Markets tend to overshoot in both directions,” the late financier Leon Levy wrote in his memoir, The Mind of Wall Street. “Just as we saw stock prices rise far above the value of the companies, we are likely to see the reverse. Stocks will then be undervalued, and there will be new opportunities for investors.”

“During the last 20 years alone, there have been 25 months (i.e. more than every tenth month) where the S&P 500 index dropped by more than 5% in a month, with the decline averaging -7.9% among those 25 months. Despite this, over this time period the annualized compound growth rate on the index has been +6.3% per year. “ Jakub Jurek, Wealthfront Advisers’ VP of Research explains.

The Charles Schwab infographic explains how staying the course during market dips can be healthier for an investor’s portfolio.

It considers three types of investors over the course of 40 years:

  • The Stalwart – a discipline investor who sits tight and continues to invest, no matter how the market is performing.
  • The Reactor – an investor who reacts and pulls his money out of a bear market. He continues to save 10 – 15 percent of his income in hopes recouping some of his losses, but didn’t invest it.
  • The Waffler – during a year with negative returns, a waffling investor will move all his money out of the market and will sit on the sideline in cash. And, if the market rises up after a few years, he would finally get back into the market.

“If you take money out of your accounts in anticipation over a market downturn, it’s hard to know when you should put your money back in,” says Celine Sun, Wealthfront’s Director of Research. “This means that most likely, you’ll miss the upside returns more than you’ll avoid the downside.” Exiting stocks amid a turbulent market may help assuage your anxiety, but you’re likely to miss out on substantial gains while you sit on the sidelines.

Stay the course

“Stay the course” is a phrase that means to continue with your current investment plan. Investing should be for the long term. The stock market will always have turbulence, so it’s important that you ride out market cycles. If you are invested in high quality equities and your investments are based on a solid financial plan, don’t sell anything that you wouldn’t sell when there isn’t crashing. The only exception is when it’s clear that a company or niche industry isn’t going to recover, and then it may be time to cut your losses.

“In the short run, listen to the economy; don’t listen to the stock market,” Vanguard Group founder Jack Bogle said during an interview in the midst of a rather severe market turmoil. “These moves in the market are like a tale told by an idiot: full of sound and fury, signalling nothing.”

Whether the market recovers quickly or years from now, the most important thing to remember is, it will recover. And so will you. According to Carlos Slim Helu, “Courage taught me no matter how bad a crisis gets … any sound investment will eventually pay off.”

References:

  1. https://www.schwab.com/resource-center/insights/sites/g/files/eyrktu156/files/Q120_When_Markets_Dip_fina%401x_72dpi_0.jpg
  2. https://blog.wealthfront.com/what-should-you-do-when-markets-dip-hint-nothing/
  3. https://www.marketplace.org/2009/01/05/history-rewards-stalwart-investor/
  4. https://www.forbes.com/sites/lizfrazierpeck/2020/03/12/three-things-to-do-during-a-stock-market-crash/?sh=185db9a54c78

Note: Investors simply don’t experience FOMO (Fear of Missing Out) as much as they experience FOLO (fear of losing out). Consequently, the fear of losing lingers far beyond the crisis period and investors are left worse off than if they had done nothing at all. For those investors who sold during a market crash, it is important that they get back into the market and not engage in the destructive speculation.

Jeremy Siegel: Stimulus Guarantees Economic Boom in 2021

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President Biden’s proposed $1.9 Trillion stimulus package will help move the economy forward, according to Jeremy Siegel, the Russell E. Palmer Professor of Finance at the Wharton School of the University of Pennsylvania and a senior investment strategy advisor to Wisdom Tree Funds.

As a result of the fiscal stimulus and the continued rollout of the COVID-19 vaccine, Siegel remains bullish on the U.S. economy and expects equities and inflation to rise in 2021. Additionally, he believes inflation rate will run well above the Federal Reserve’s 2 percent target rate and will do so for several years which he opined “is not good for bondholders”. In his opinion, U.S. Treasury bondholder, because of rising inflation and bonds rates, will be paying for the unprecedented President’s fiscal and Federal Reserve’s monetary stimulus.

Investors should avoid bonds

Bottomline, he believes interest rates are heading “higher in 2021 and, as a result, bonds are not a good place for investors to put their money”.

References:

  1. https://www.ft.com/content/6536113f-f509-41e2-bee0-597ed90843b6
  2. http://searchbeat.com/whartons-jeremy-siegel-investors-should-avoid-bonds/business/

Defining the Problem

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“If I had an hour to solve a problem, I’d spend 55 minutes thinking about the problem and five minutes thinking about solutions.” Albert Einstein

This enlightened quotation by Albert Einstein points to the reason for the failings of many modern innovation and solutions. “Twenty-five percent of failures were due to people trying to solve the wrong problems,” says inventor Darrell Mann, CTO of consulting agency Blackswan, former chief engineer at Rolls-Royce, where he studied innovation duds and dynamos for 15 years.

What organizations struggle with is not solving problems but figuring out what the true problems are they’re trying to solve. Essentially, individuals and organizations are bad at problem diagnosis. Spurred by a penchant for action, corporate and organization executives tend to switch quickly into problem solving mode without checking whether they really understand the problem.

Well-defined problems lead to well aligned and breakthrough solutions. Most companies and organizations aren’t sufficiently rigorous in defining the problems they’re attempting to solve and articulating why those issues are important. Without that rigor, organizations miss opportunities, waste resources, and end up pursuing innovation initiatives that aren’t aligned with their strategies or mission.

Many companies and organizations need to become better at devoting the time and resources to ask the right questions so that they can define and tackle the right problems.

References:

  1. https://www.inc.com/thebuildnetwork/you-cannot-solve-what-you-dont-understand.html
  2. https://hbr.org/2017/01/are-you-solving-the-right-problems?ab=at_art_art_1x1
  3. https://hbr.org/2012/09/the-power-of-defining-the-prob

Never invest in something you don’t understand.

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Many successful investors follow one extremely important rule of thumb: Never invest in something you don’t understand.

Selecting the right companies to invest is very difficult and the decision shouldn’t be taken lightly. When you invest in the stock market, you will be tempted often to buy companies or products that you don’t truly understand.

Consequently, if you can’t understand the investment and understand how it will help you save for the future, build wealth over the long term or achieve your financial goals, do not buy the asset. You need to resist temptation, and focus on the only question that counts:

“Do I understand the business of this company well enough so that I am reasonably confident that it is going to be a good investment?”.

Warren Buffett famously said he has three boxes for investment ideas: in, out and too hard. If a company’s business or product is too difficult to understand, it’s better to just file it in the “too hard” category and move on to another opportunity.

Investors should always remember that a share of stock represents partial ownership of a company. “Just as you would never purchase a private business from someone else without at least looking at its sales, profits, debt and trends of all three of those things at a bare minimum, you need to do the same thing before purchasing stock in a company,” Cornerstone Wealth chief investment officer Chris Zaccarelli says. “If you are doing anything else, you are just hoping what you bought will go higher – and hope is never a good strategy.”

Be sure to always read an investment asset’s prospectus or disclosure statement carefully. And, if you are still confused, you should think twice about investing.

The bottom line for investors is simple: If you don’t completely understand how an investment works, or creates revenue, earnings and cash flow, then don’t buy it.

References:

  1. http://www.mymoneyworks.de/back-to-basics/dont-buy-what-you-dont-understand/
  2. https://money.usnews.com/investing/articles/2017-05-11/never-invest-in-something-you-dont-understand

Bill Gates: Avoiding a Climate Disaster

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“Do what you can to help keep the planet livable for generations to come.”  Bill Gates

With a new book ‘How to Avoid a Climate Disaster,’ Bill Gates is obsessed with developing clean technology and innovative solutions to combat climate change through his philanthropic work and alongside cadre of billionaire partners.  Additionally, in his new book, he proposes an action plan based on employing technology, innovation and global cooperation to tackle climate change and for ending the world’s carbon dependency.

Gates argues that “world leaders need to shift their focus to long-term strategies aimed at creating a zero-carbon future, a task that scientists warn must be accomplished in a handful of decades to head off catastrophic changes.”

For 20 years, Gates has been studying the twin global afflictions of disease and poverty. These efforts led him to consider climate change and its vexing impact on civilization.  Gates, who is 65, has already confronted intractable problems, like trying to eradicate polio. The co-founder of Microsoft also sounded the alarm early about the need to prepare for a global pandemic. Climate change is yet another challenge Gates used his bully pulpit to sound the alarm.

Bill Gates Has a Master Plan for Battling Climate Change

Bill Gates has confidence in the world’s collective ability to avoid the earth’s descent into a landscape of scorched rainforests and liquefying glaciers, yet his proposed prescription is daunting.  Gates is worried that people will get sick of hearing from him sounding the alarm on the perils of climate change as he flies around the globe in his private jet trying to save the planet.

“This is, you know, a harder problem than ending the pandemic or getting rid of malaria,” Bill Gates says of tackling climate change. But “lots of idealistic people [are] pushing the cause forward.”

“I’ve learned from my work at Microsoft and in philanthropy that the best way to encourage others to take action is to start by doing it yourself’, Gates said. “President Biden has already taken an important first step by rejoining the Paris climate accord. Now the United States can build on that step by adopting a concrete plan that checks several boxes at once: eliminating emissions while adapting to the warming that is already happening, spurring innovative industries, creating jobs for the post-pandemic recovery, and ensuring that everyone benefits from the transition to a green economy.”

In the 15 years that Gates has been learning about and investing in clean energy, he states that he has “benefited from many discussions with scientists, policy experts, and elected leaders from across the political spectrum, in the United States and around the world”.

Drawing on those conversations, he proposes four actions that America and other countries can take to advance their leadership on climate change this year and put the world on a path to zero emissions by 2050:

1.  Increase the supply of innovation.

We need breakthroughs in the way we generate and store clean electricity, grow food, make things, move around, and heat and cool our buildings, so we can do all these things without adding more greenhouse gases to the atmosphere. We have some of the tools we need, like solar and wind power, but far from all of them. And we won’t develop new tools without a dramatic infusion of investment and focus from the federal government.

2.  Increase the demand for innovation.

“I learned the hard way at Microsoft that simply making a great product doesn’t guarantee that you will beat the competition”, Gates explained. “Sometimes there’s just not enough demand for what you’re selling.”

The lesson for climate change is that the world can’t avoid a climate disaster through technological innovation alone. We need policy innovations to make sure that scientists’ breakthroughs make it from the lab to the market, and that they’re affordable enough for developing countries as well as rich ones.

That means doing things like setting standards for how much electricity or fuel must come from zero-carbon options. Governments can also use their procurement power to create demand for cleaner options—for example, buying only electric buses, as the city of Shenzhen, China has done. They can build the infrastructure that allows for green options: charging stations for electric vehicles, or new transmission lines to deliver clean energy from the places where it’s generated to the places where it’s consumed.

Finally, governments can level the playing field so it’s easier for clean alternatives to compete on price.

The idea isn’t to punish people for their greenhouse gases. It’s to create incentives for inventors to create competitive carbon-free alternatives and for consumers to buy them.

3.  Work globally.

Climate change is the definition of a global issue. Temperatures won’t stop going up in Texas unless emissions stop going up in India.

That is why governments need to work together to develop common goals, share knowledge, and make sure that clean technologies developed in one country will spread quickly to others. This cooperation can happen on a bilateral basis—between two countries talking directly to each other—as well as among many governments through venues like the United Nations.

4.  Prepare for a warming world.

“We’re already seeing the impact of climate change”, Gates announced. “So even as we develop and deploy ways to prevent future warming, we also need to adapt to the effects that higher temperatures are having around the world.”

Countries will need to invest in climate-proofing infrastructure to cope with more severe weather and rising sea levels. This includes upgrading electrical grids, expanding storm water drainage systems, and building or expanding seawalls. And two of the best ways for wealthy countries to help low- and middle-income ones is to invest in primary health care and make sure smallholder farmers can grow enough food to feed everyone.

References:

  1. https://www.wsj.com/articles/bill-gates-interview-climate-change-book-11613173337?tesla=y&mod=e2twmag
  2. https://www.politico.com/news/2021/02/15/bill-gates-climate-change-468928
  3. https://www.gatesnotes.com/Energy/4-ways-the-US-can-reassert-leadership-on-climate-change
  4. https://www.gatesnotes.com/Energy/How-to-Avoid-a-Climate-Disaster-announcement