A Backdoor Roth IRA is a clever strategy used by high-income earners who find themselves ineligible to directly contribute to a Roth IRA due to income limits. Let’s break it down:

1. Traditional IRA: First, you contribute to a traditional IRA. This contribution is made with pre-tax dollars, meaning you get an immediate tax deduction for the amount you put in. Essentially, you’re reducing your taxable income for the year.
2. Conversion to Roth: Next comes the “backdoor” part. You convert the funds from your traditional IRA into a Roth IRA. This conversion is done after the initial contribution. Keep in mind that when you convert, you’ll owe taxes on the amount you’re moving over. So, it’s not a tax-free maneuver.
3. Why Do It?: The backdoor Roth IRA strategy allows high earners to bypass the income limits that typically prevent them from directly owning a Roth IRA. While it may result in higher taxes initially, the long-term benefit lies in the future tax savings of having a Roth account.
4. Passing It On: Another advantage is that if you anticipate having funds left in your traditional IRA, you can pass that money on to your heirs in a Roth IRA. Roth IRAs have no required minimum distributions during your lifetime, making them a useful estate planning tool.

Remember, this strategy is entirely legal and not a tax evasion scheme. It’s a way for high earners to access the benefits of a Roth IRA despite income restrictions. 🌟

“If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.” – Warren Buffett

“Historically, the stock market has doubled on average every 10 to 12 years,” according to Ron Baron. Thus, staying invested in equities over longer periods increases the likelihood of positive returns.

Never forget, when you sell a stock, the taxman will be at the head of the line for their cut of the profit

Historically, the U.S. economy has grown on average 6%-7% nominally per year, or doubling every 10 or 12 years, and the stock markets have closely reflected that growth.

As GDP Has Grown, So Has the Stock Market

U.S. GDP in 1968 was $968 billion, 55 years later it is $27.9 trillion. That’s over 28 times greater than it was in 1968.

The Dow Jones Industrial Average was around 944 and the S&P 500 was 104 in 1968. They are now 37,690 and 4,770, respectively.

Not taking risk is the greatest risk!

Belief before ability! Self belief is immensely powerful, the most successful people believe in themselves almost to the point of delusion!

References:

https://www.baronfunds.com/sites/default/files/baron-investor-baron-growth-fund-12.31.23.pdf

By Charles Alexander, Former TIME Editor

The policies long advocated by Republicans — relentless tax cuts, massive reductions in government spending and tight monetary policy — are not good for the economy or business.

Basically , the wealthy don’t need more tax breaks.

There’s only so much stuff they can buy. While they are indeed big spenders, they spend a much smaller percentage of their income than the middle class does.

The problem with our economy is a lack of demand from the middle class because it doesn’t have enough money. The middle class is being severely squeezed.

Republicans argue that tax breaks for wealthy job creators will benefit everyone; Democrats deride that as trickle-down economics. The Bush tax cuts are still in place, but the “job creators” have not created many jobs since there is not enough demand for the products of industry.

Democrats have usually been better at expanding the middle class and stimulating demand. As President Clinton pointed out, recent Democratic presidents have presided over much more job creation than Republican ones.

While Republican economic policies gave the wealthy tax breaks, they also hurt the wealthy by derailing the economy and crashing the stock market. Those policies hurt business by lowering demand.

On balance, tax cut policies probably hurt investors and the wealthy. Would it be better for investors and the wealthy to get more tax cuts or to benefit from a growing economy and rising stock market.

But what about the federal deficit? What about the risk of inflation? Those are good questions.

The fact is that in the last few decades, bankers and governments have issued so much bad debt that we are in a very deep hole, like in the 1930s.

Probably the only we can get out of that hole is to slowly reflate our way out of it — to make the debt worth less. A faster rate of inflation than we have now is probably inevitable.

Many economists see inflation coming, and they are not afraid of it.

Inflation has always gone hand in hand with a growing American economy and a rising stock market. Inflation can get out of control, as it did in CY2023.

Inflation erodes the value of savings and reduces the purchasing power of money. Yet, investments in the stock market could help you keep up with inflation.

Let’s not strangle the economy to protect the value of the wealthiest Americans savings. We want the economy to grow and inflate, as it has in the past, so that future generations can keep their jobs and build their own wealth.

Source:  https://www.huffpost.com/entry/baron-investment-conference_b_1966879

“In life, you don’t soar to the level of your hopes and dreams, you stay stuck at the level of your self-worth. ~ Jamie Kern Lima, author of new book, Worthy: How to Believe You Are and Transform Your Life.

New York Times Best-Selling author Jamie Kern Lima, is author of new book, Worthy: How to Believe You Are and Transform Your Life. In her book, she states aptly   “You don’t become what you want, you become what you believe you’re worthy of: in life, in love, in friendships, in your career, and in your hopes and dreams.”

Essentially, in your business, leadership, relationships, friendships and ambitions, you don’t rise to what you believe is possible, you fall to what you believe you’re worthy of.

When you build your self-worth, you change your entire life.

Jamie Kern Lima, who has been on Forbes’ list of America’s wealthiest self-made women for six years, started “IT Cosmetics”

• Redefine and embrace rejection – I’m one of the brave and courages ones to go for it  
• Rejection is God’s protection!!!
• You were not rejected, I hid your value from them because they are not assign to your destiny.
• Things are happening for you, not to you!

If you have doubt, then you lack Faith. Self-doubt and  Faith cannot coexist. Feeling Worthy means your trusting God’s word; having self-doubt means your listening to your own voice.

“I was born for greatness!” ~ Oprah Winfrey

The bottom-line is “No matter how vividly you visualize your goals and dreams, no matter if you take action toward making them happen, if deep down inside you don’t actually feel like you are deserving or worthy of those dreams and goals, then you won’t achieve them.”

Reference:

1. https://podcasts.apple.com/us/podcast/oprahs-super-soul/id1264843400?i=1000645265849

FinChat provides a simple screener to find High Quality Small-Caps:

1.) Market Cap: $50M-$3B
2.) 10-Year Average ROIC: 15%+
3.) 10-Year Revenue & EPS CAGR: 10%+
4.) Net Debt/EBITDA: Less than 5x

Here are a few companies that make the cut

Simulation Plus $SLP – The company’s primary software solution (GastroPlus) simulates the absorption and drug interaction of compounds administered to humans and animals.

10-Year Return: 690%
Market Cap: $823 million
EV/Operating Income: 56x

CoreCard Corp. $CCRD – Sells software solutions that allow companies to offer various types of transacting account or card issuing programs, as well as installment and revolving loans.

10-Year Return: 409%
Market Cap: $102 million
EV/Operating Income: 14x

VirTra $VTSI – Provides force training simulators & firearms training simulators for law enforcement and the military.

10-Year Return: 764%
Market Cap: $113 million
EV/Operating Income: 11x

DLH Holdings $DLHC – Provides business process outsourcing, program management solutions, and public health research & analytics services in the US.

10-Year Return: 568%
Market Cap: $227 million
EV/Operating Income: 15.1x

Source:  https://x.com/finchat_io/status/1762890129847542220

The Future Investors presents the 25 highest-quality stocks in the market, listed from A to Z. High-quality criteria:
– EPS & Revenue next 3Y >10%
– ROIC >15%
– Gross margin >50%
– Net/FCF margin >20%
– Altman Z >3
– Mcap >10B

🖼️ 1. $ADBE – Adobe
💚 2. $ADYEN – Adyen
🏭 3. $ASML – ASML
🛜 4. $ANET – Arista Networks
🖥️ 5. $AVGO – Broadcom
✏️ 6. $CDNS – Cadence Design
👞 7. $DECK – Deckers Outdoor
🎰 8. $EVO – Evolution AB
🧐 9. $FICO – Fair Isaac
🔐 10. $FTNT – Fortinet
🔍 11. $GOOGL – Google
👜 12. $RMS – Hermès
🔗 13. $MANH – Manhattan Assoc.
💳 14. $MA – Mastercard
🧑🏻‍🔬 15. $MEDP – Medpace
🛒 16. $MELI – MercadoLibre
👤17. $META – Meta
💻 18. $MSFT – Microsoft
🥤19. $MNST – Monster Beverage
🏦 20. $MSCI – MSCI
💊 21. $NVO – Novo Nordisk
🎮 22. $NVDA – Nvidia
🪙 23. $PGHN – Partners Group
💸 24. $PAYC – Paycom
💳 25. $V – Visa

Source:  https://x.com/ftr_investors/status/1762905584330740205

Here are these super investors’ top 10 most widely owned stocks, according to Brian Feroldi on X:

$AMZN – Amazon
$BRK.B – Berkshire Hathaway
$GOOG – Alphabet
$V – Visa
$META – Meta Platforms
$MSFT – Microsoft
$MA – Mastercard
$UNH – United Health Group
$AAPL – Apple
$WFC – Wells Fargo

“Historically, the stock market has doubled on average every 10 to 12 years.” – Ron Baron

Staying invested in equities over the long term increases the likelihood of positive long term returns, says Ron Baron. Historically, the economy has grown on average 2%-6% nominally per year, or doubling every 10 or 12 years, and the stock markets have closely reflected that growth.

Effectively, as GDP has grown, so has the stock market.

U.S. GDP in 1968 was $951 billion, 55 years later it is $27.6 trillion. That’s over 29 times greater than it was in 1968.

The Dow Jones Industrial Average was around 936 and the S&P 500 was 103 in 1968. They are now 33, 507 and 4,288, respectively.

An investor in a product that tracks the S&P 500 Index would have had a 69% chance of generating a positive return during any given quarter between 1926 and 2023.

Increasing the investment horizon to 10 years would have resulted in a 95% chance of a positive return. And investing over any 20-year or 30-year period would have produced positive returns 100% of the time.

Long-Term Investors Have Had Better Chances of Positive Returns

An investor in a product that tracks the S&P 500 Index would have had a 69% chance of generating a positive return during any given quarter between 1926 and 2023.

Increasing the investment horizon to 10 years would have resulted in a 95% chance of a positive return. And investing over any 20-year or 30-year period would have produced positive returns 100% of the time.

A Few Missed Days May Be Costly

Since we cannot predict when economic and market cycles start or end, there is no good time to time the market.

Over the past five market cycles, missing the best five days would have resulted in a 38% lower value of a hypothetical $10,000 investment, and missing the best 10 days would have resulted in a 55.3% lower value.

As big down days are often closely followed by big up days, those who panic and sell on the down days are likely to miss out on the ensuing up days.

“Compounding [interest] is the most powerful force in the universe” – Albert Einstein

The purchasing power of the dollar has fallen about 50% every 17 years over the past 55 years. While inflation causes currencies to lose value over time, it has a positive impact on tangible assets, businesses, and economic growth.

Inflation causes currencies to lose value over time. However, it has a positive impact on tangible assets, businesses, and economic growth. This means stocks are the best hedge against the devaluation of your money.

While the simple answer to combat inflation is to invest your money over the long term, the concept of compounding tells us why. When your savings earn returns (e.g., bank interest, dividends), compounding allows these returns to earn even more returns.

Over time, this effect snowballs, and earnings grow at an increasingly fast rate. Given a small initial investment, in year one the amount you earn on your investments will not be a lot. However, in year 10…or 20…or 30… you will not believe the impact of the “power of compounding.

References:

1. https://www.baronfunds.com/sites/default/files/the-power-of-active-long-term-investing-9.30.2023_0.pdf

“Strong free cash flow generation, a long runway of free cash flow growth, and the price we pay for it are all that matters to long-term investing success.” ~ Motley Fool

Return on invested capital (ROIC) is the most important financial metric because:

• An increase in ROIC always increases intrinsic business value, but revenue growth does not always increase intrinsic value. Revenue growth only increases the intrinsic value when ROIC exceeds the weighted average cost of capital (WACC).
• Companies with high ROIC outperform the stock market by a country mile.
• Companies with rising ROIC (and high incremental returns on invested capital) outperform the market even more!

While profit, gross margin, operating margin, and revenue are all important, they are still only pieces to the ultimate scores: free cash flow and return on invested capital.

Free cash flow can be calculated from an income statement and balance sheet. Below is the equation.

Free Cash Flow (FCF) =

Earnings Before Interest & Taxes (EBIT) x (1 – Tax Rate)
+ Depreciation and Amortization
– Changes in Working Capital (Growth in Assets – Growth in Liabilities)
– Capital Expenditures (Property, Plant, and Equipment)

This free cash flow is what we care most about because it can be used to reward shareowners by either (1) paying down debt (which reduces the claim that debtholders have on the business and strengthens the company’s financial position), (2) paying a dividend, or (3) buying back stock at attractive prices. Then, any leftover free cash that isn’t used to pay down debt, pay a dividend, or repurchase stock can sit on the balance sheet and be used later (i.e., large cash and net cash positions create optionality value).

Free cash flow margin measures a business’s true economic profitability and cash-generating power. It is simply the number of pennies of FCF a company generates for every dollar of sales.

Free cash flow yield is the inverse of the enterprise value-to-FCF multiple. Thinking in terms of yield allows investors to compare a stock’s FCF yield to the risk-free rate (the yield on the 10-year U.S. Treasury bond), to the yields of other stocks and bonds, and to the yields from investing in real estate (a real estate’s cap rate is calculated as annual net cash flow divided by the purchase price of the property).

FCF yield is the amount of cash (as a percentage of the firm value) a sole owner could take out of the business every year to pay themselves. This is the excess, unencumbered free cash that is left over after investing to maintain and grow the business, and it is calculated as NOPAT less new invested capital, where invested capital is any form of investment including working capital, capital expenditures (property, plant and equipment), or acquisitions.

Return on Invested Capital is usually represented as a percentage or ratio and is calculated as follows:

Return on Invested Capital (ROIC) =

Earnings Before Interest & Taxes (EBIT) x (1 – Tax Rate)
÷ (Total Assets – Cash – Total Liabilities)

References:

1. https://www.stratechi.com/fcf-and-roic/
2. https://www.fool.com/investing/2022/06/29/companies-with-high-free-cash-flow-margins-and-hig/