Category Archives: Financial Planning

Investing Principles and Rules

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Value investing is one of the most preferred ways to find strong companies and buy their stocks at a reasonable price in any type of market.

Value investors, such as Warren Buffett and Monish Pabrai, use fundamental analysis and traditional valuation metrics like intrinsic a value to find companies that they believe are being undervalued intrinsically by the stock market.

A stock is not just a ticker symbol; it is an ownership interest in an actual business with an underlying value that does not depend on its share market price.

Inflation eats away at your returns and takes away your wealth. Inflation is easy to overlook and it is important to measure your investing success not just by what you make, but by how much you keep after inflation. Defenses against inflation include:

  • Buying stocks (at the right prices),
  • REITs (Real Estate Investment Trusts), and
  • TIPS (Treasury Inflation-Protected Securities).

The future value of every investment is a function of its present price. The higher the price you pay, the lower your return will be.

No matter how careful you are, the one risk no investor can ever eliminate is the risk of being wrong. Only by insisting on a margin of safety  – by never overpaying, no matter how exciting an investment seems to be – can you minimize your odds of error.

Knowing that you are responsible is fundamental to saving for the future, building wealth and achieving financial freedom. It’s the primary secret to your financial success and it’s inside yourself. If you become a critical thinker and you invest with patient confidence, you can take steady advantage of even the worst bear markets. By developing your discipline and courage, you can refuse to let other people’s mood swings govern your financial destiny. In the end, how your investments behave is much less important than how you behave.

Every investment is the present value of future cash flow. Everything Money

Three things to know is that it’s important to understand and acknowledge that a stock is a piece of a business. Thus, it becomes essential to understand the business..

  • Principle #1: Always Invest with a Margin of Safety – Margin of safety is the principle of buying a security at a significant discount to its intrinsic value, which is thought to not only provide high-return opportunities but also to minimize the downside risk of an investment. No matter how careful you are, the one risk no investor can ever eliminate is the risk of being wrong. Only by insisting on a margin of safety  – by never overpaying, no matter how exciting an investment seems to be – can you minimize your odds of error.
  • Principle #2: Expect Volatility and Profit from It – Investing in stocks means dealing with volatility. Instead of running for the exits during times of market stress, the smart investor greets downturns as chances to find great investments. The guru of value investing Benjamin Graham illustrated this with the analogy of “Mr. Market,” the imaginary business partner of each and every investor. Mr. Market offers investors a daily price quote at which he would either buy an investor out or sell his share of the business. Sometimes, he will be excited about the prospects for the business and quote a high price. Other times, he is depressed about the business’s prospects and quotes a low price. The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). The intelligent investor is a realist who sells to optimists and buys from pessimists.
  • Principle #3: Know What Kind of Investor You Are – Graham advised that investors know their investment selves. To illustrate this, he made clear distinctions among various groups operating in the stock market.1 Active vs. Passive Investors Graham referred to active and passive investors as “enterprising investors” (requires patience, discipline, eagerness to learn, and lots of time) and “defensive investors.”1 You only have two real choices: the first choice is to make a serious commitment in time and energy to become a good investor who equates the quality and amount of hands-on research with the expected return. If this isn’t your cup of tea, then be content to get a passive (possibly lower) return, but with much less time and work. Graham turned the academic notion of “risk = return” on its head. For him, “work = return.” The more work you put into your investments, the higher your return should be.

Because the stock market has the emotions of fear and greed, the lesson here is that you shouldn’t let Mr. Market’s views dictate your own emotions, or worse, lead you in your investment decisions. Instead, you should form your own estimates of the business’s value based on a sound and rational examination of the facts.

References:

  1. https://www.investopedia.com/articles/basics/07/grahamprinciples.asp
  2. https://jsilva.blog/2020/06/22/intelligent-investor-summary/

Americans Anxious about their Financial Situation

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According to the Mind over Money survey by Capital One and The Decision Lab, 77% of Americans report feeling anxious about their financial situation.

Financial decisions are some of the most stressful, complex and impactful choices we make. More than three in four Americans (77%) report feeling anxious about their financial situation, according to a new Mind over Money survey by Capital One and The Decision Lab.

Financial worries include a broad range of issues from savings and retirement to affording a house or child’s education.

The study found that financial stress caused:

  • Feelings of fatigue (43%)
  • Difficulty concentrating at work (42%) 
  • Sleep interferences (41%) 

Stress is also linked to worse financial attitudes and practices. Even when controlling for household income and FICO scores, Americans who experience higher level of stress are: 

  • Less likely to save on a regular basis
  • Less likely to plan their spending
  • Less likely to feel in control 
  • More impulsive with how they spend their paycheck 
  • Less likely to agree that success comes to those who work hard

Right Money Mindset

The right money mindset may improve Americans’ financial decision making, mitigate effects of stress according to Mind over Money survey. Research shows that a change of perspective can have a positive impact on your financial wellbeing. 

A smarter money mindset for people must include creating a positive financial outlook by implementing healthy financial rituals. Money is less stressful when you’re able to see your current situation a bit more clearly. Tips include: 

Practice These Tips to Develop a Smarter Money Mindset 

1. Make important decisions under low stress – Next time you have to make a financial decision—like booking a vacation—you could try to schedule the decision at a time when you’re naturally more relaxed and have the cognitive bandwidth to consider the long term impact of your decisions. You can’t choose to be less stressed right now, but you can choose to put off your decision until a moment when you’re less stressed.

2. Focus on values over features – One of the more interesting findings is that thinking more abstractly makes you better with money. Unfortunately, in your daily lives, you can often get bogged down in details. For example, you get lost comparing products to each other and lose track of how the products compare to your core values and goals. Next time, you find yourself absorbed in comparing different products, you can ask yourself: “How will this purchase affect my long-term goals? Is it consistent with what I want in life?”

3. Use goal-directed accounts – To help focus on your long-term goals, one simple way to do this is to set up goal-directed banking accounts. For example, you can name an account after a big life goal such as “buying a house,” and then use this account for your savings pool.

4. Don’t punish yourself for the past—be kind to yourself when reviewing purchases – Stress can push us to make decisions based on whatever feels most satisfying at the moment. In some cases, these decisions can lead to regret, which can lead to further feelings of stress, and so on, creating a vicious circle. Next time you are thinking about past purchases, and there is one you are not happy about, you can try to accept it, acknowledge that it was a mistake, and formulate a plan to avoid it next time. However, try not to stress too much about it—because the stress itself can make you less likely to do better.

5. Use the good times to shift your habits to support your mindset change – Research shows that stress causes us to engage in more habitual behaviors instead of deliberate ones. However, since stress can’t always be avoided, forging good habits when times are better can protect us when things get tough. Examine your habits critically when you are in a relaxed state. In particular, think about what positive changes to your habits are most likely to carry over to your actions when you encounter stress again.

6. Focus on what you can control instead of what you can’t – While you cannot immediately change your financial situation, you can change the way you think about it to improve the decisions you make about your finances. The next time you are faced with a financial decision, try not to get caught up thinking about what you wish you had—instead, you can try to focus on what is within your control and what you can change.

7. Go from problem to solution oriented – When you’re under a lot of financial stress, it is easy to get caught up in the problem and all its details. Our research has demonstrated that part of feeling in control (which predicts financial anxiety) is knowing how to overcome the problem—and this has to do with identifying clear solutions. The next time you’re faced with a difficult financial situation, try to spend your bandwidth coming up with strategies to overcome it. This may not only help you take action faster, but it could help you feel more in control of the situation (which in turn could reduce your financial stress!). 

8. Keep your goals in front of you – To overcome present bias, you can try keeping your goals salient so that whenever you are confronted with a decision, you will be forced to consider how it will affect your financial goals. For example, you can write your goals out on a piece of paper and stick it by your bedside or your door or you can put it as a screensaver on your phone—these small reminders will ensure that your goals are always top of mind, especially when making financial decisions. 

9. Share your goals with people who might have similar goals – Research has demonstrated that people are more likely to follow through on their goals when the goals are shared publicly with others. Under financial stress, making your goals more social, especially with others who might share them, can help to make them more real. By surrounding yourself with people who know and share your goals, you are creating a virtuous circle that will make your goals easier to achieve.

10. Do something kind for someone – Shifting your focus from yourself to other people can go a long way in changing your mindset, reducing stress and making you feel good about yourself while helping others. The next time you feel yourself getting overwhelmed by a financial decision, you can try to shift gears and see what you can do to help out a friend, family member or stranger. Most people have their own challenges—seeing that reality can be a powerful reminder that you are not alone. Now that you’ve shifted your focus, you can go back to your problem with a different perspective.

  • Keep your goals in front of you: People have a tendency to discount better future rewards for short-term gains and gratification. To overcome this, you must try to keep your financial goals front and center, like making them a screensaver on your phone or posting them on your refrigerator.
  • Focus on the values and don’t sweat the details: People get lost comparing products to each other and lose track of how the products compare to our core values and goals. Next time you get absorbed in comparing a whole aisle full of different coffee makers or TVs, you can ask yourself: “How will this purchase affect my long-term goals? Is it consistent with what I want in life?”
  • Don’t punish yourself for the past—be kind to yourself when reviewing purchases: Next time you are thinking about past purchases you are not happy about, try to accept it, acknowledge that it was a mistake, and formulate a plan to avoid it next time.

Financial education program are needed to help you plan out your goals in life—and think through how your financial behaviors connect to those goals. You can work towards achieving your financial well-being.

References:

  1. https://www.capitalone.com/about/newsroom/2020-capitalone-mindovermoneystudytips/
  2. https://www.capitalone.com/about/newsroom/mind-over-money-survey/

The Mind over Money Study was conducted by The Decision Lab on 1,011 nationally representative US adults over the age of 18. The study took place between March 10 and March 11, 2019.

Mindset Matters

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“Mindset is everything because it touches, impacts, and influences quite literally every aspect of your life.”

Your mindset is the filter through which you see the world. It is comprised of your beliefs, attitudes, emotions, and perceptions that inform your thoughts, habits* and decisions. Mindset encompasses both your conscious and unconscious thoughts as well as how you view yourself. It, your mindset, determines how you spend your time, who you spend your time with, what decisions you make, and where you invest your resources (time, talent and treasure).

Your mindset is an important part of your toolkit for success. Like glasses, they can either obscure your path or bring clarity to the road ahead. Thus, taking an active approach to understanding and crafting a positive mindset is important. Most people don’t realize that they’ve been programming their mindset through their experiences and perceptions. If you constantly feed your mindset with negative perspectives, your outlook will be negative. Garbage in, is garbage out.

On the other hand, cultivating a healthy wealth mindset will help you stick to your financial goals and you find ways to increase your earning potential. And, there are two key inputs that shape your mindset: the environment (or people) you spend time with and the media (written and verbal) you consume daily.

There’s an old saying in financial circles that you’re the average of the five people you spend the most time with. If you want to be fit, hang out with friends who exercise. If you want to think big and aspire to build wealth and change the world, then you must consume inspiring positive media and hang out with people who have great purpose and big audacious goals.

Just as you are the average of the five people you spend the most time with, the same is true for your ideas and aspirations.

A wealth mindset is a set of beliefs, habits, and behaviors that separates the wealthy from the rest. A wealth mindset will guide you to make the most of the money you have. It is essential to effectively and successfully save for the future, invest for the long term, build wealth and achieve financial freedom. A wealth mindset means spending less than you earn, making wise investments in assets, and looking for ways to improve financial well-being with minimal risk.

A wealth mindset matter matters because 60 percent of Americans live paycheck to paycheck, according to Dave Ramsey. And as of 2018, 175 million Americans actively use credit cards. A majority of these credit card holders engage in impulsive spending behavior, wasting money they don’t have on items they don’t need.

“Wealth is a mindset!”, writes Shynna Key, author of “Wealth Is a Mindset”. She encourages you to “keeping it real” with your current financial position, identifying challenges, and taking responsibility for changing the way you view wealth. She opines that you must begin by examining “…what we have been taught as it relates to money and wealth. Though finances are a very private area for most to discuss, it is a crucial topic that will help us to understand the root of our financial ‘woes’ as well as the fruit of our financial ‘favor’; which is essential to our overall growth of wealth.”

“If you correct your mind, the rest of your life will fall into place.” – Lao Tzu

To accumulate wealth and achieve financial freedom, you must first be and think like the wealthy. By doing so, you will develop the habits and take the necessary actions to attract the resources to you. You must be someone first; someone who has what he or she needs in order to take the inspired action. To become a wealthy, you must be an individual who thinks and manages money like the wealthy. For example, “the average wealthy person spends 10 times more time planning their finances than the average middle-class individual”, explains Thomas J. Stanley, author of “The Millionaire Next Door”.

Money and wealth can buy freedom…financial freedom. Very few wealthy people became wealthy overnight. Building wealth is a deliberate process that requires patience and planning.

If you want to be wealthy, you’ll need to develop a wealth mindset. Start by defining your financial goals: how much money do you want to have in a year’s time? Five year’s time?

To realize your financial goals, you’ll need to develop a wealth mindset, create and follow a plan, and continue to learn and grow. And remember, the road to wealth is bumpy and filled with detours and misconceptions.

In many ways, the health of your finances, as well as your physical health, depends on your mindset and emotional well-being. Thus, it’s important to make it a priority and to take time for you. When you focus on purpose, potential, curiosity and collaboration, you will experience increased energy and well-being. Because, what you focus on…expands!

“We are what we think. All that we are arises with our thoughts. With our thoughts, we make the world.” – Unknown

References:

  1. https://wealthfit.com/articles/wealth-mindset/
  2. https://wealthconnecters.com/wealth-mindset
  3. https://www.audible.com/pd/Wealth-Is-a-Mindset-Audiobook/B07MWHKS46
  4. Draper, Taylor, “Mind Matters”, Costco Connection, May 2021, pg. 17.
  5. https://bydeze.com/why-mindset-is-everything/
  6. https://nevadapartners.org/2021/05/21/12-real-differences-between-a-wealthy-mindset-vs-a-poor-mindset/

“Be kind, for everyone you meet is fighting a hard battle.” – Socrates

* Habits are consistent, unconscious patterns. They constantly express our character and result in our effectiveness or ineffectiveness. Habits are deeply ingrained and we are constantly pulled in their direction.

Tai Chi

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“We are what we think. All that we are arises with our thoughts. With our thoughts, we make the world.” – Unknown

Originally developed as a martial art, Tai Chi is typically taught as a series of slow, low-impact movements that integrate the breath, mind, and physical activity to achieve greater awareness and a sense of well-being.

Tai chi is an ancient Chinese tradition that is currently practiced as a graceful form of exercise. It involves a series of movements performed in a slow, focused manner and accompanied by deep breathing. Each posture flows into the next without pause, ensuring that your body is in constant motion.

Tai chi has many different styles. Each style may subtly emphasize various tai chi principles and methods. There are variations within each style. Some styles may focus on health maintenance, while others focus on the martial arts aspect of tai chi

Tai chi is low impact and puts minimal stress on muscles and joints, making it generally safe for all ages and fitness levels. In fact, because tai chi is a low-impact exercise, it may be especially suitable for an older adult who otherwise may not exercise.

Although tai chi is slow and gentle and doesn’t leave you breathless, it addresses the key components of fitness — muscle strength, flexibility, balance, and, to a lesser degree, aerobic conditioning. Here’s some of the evidence:

  • Muscle strength. Tai chi can improve both lower-body strength and upper-body strength. When practiced regularly, tai chi can be comparable to resistance training and brisk walking. It strengthens both the lower and upper extremities and also the core muscles of the back and abdomen.
  • Flexibility. Tai chi can boost upper- and lower-body flexibility as well as strength.
  • Balance. Tai chi improves balance and can reduce falls. Tai chi also improves muscle strength and flexibility, which makes it easier to recover from a stumble.
  • Aerobic conditioning. Depending on the speed and size of the movements, tai chi can provide some aerobic benefits.

When learned correctly and performed regularly, tai chi can be a positive part of an overall approach to improving your health and overall well-being. The benefits of tai chi include:

  • Decreased stress, anxiety and depression
  • Improved mood
  • Improved aerobic capacity
  • Increased energy and stamina
  • Improved flexibility, balance and agility
  • Improved muscle strength and definition

While more research is needed to determine the health benefits of tai chi. Some evidence indicates that tai chi may also help:

  • Enhance quality of sleep
  • Enhance the immune system
  • Help lower blood pressure
  • Improve joint pain
  • Improve symptoms of congestive heart failure
  • Improve overall well-being
  • Reduce risk of falls in older adults

During the past 50 years more than 500 trials and 120 systematic reviews have been published on the health benefits of Tai Chi, according to National Institute of Health. Systematic reviews of tai chi for specific conditions indicate:

    There is excellent evidence of benefit for preventing falls, osteoarthritis, Parkinson disease, rehabilitation for chronic obstructive pulmonary disease, and improving cognitive capacity in older adults.
    There is good evidence of benefit for depression, cardiac and stroke rehabilitation, and dementia.
    There is fair evidence of benefit for improving quality of life for cancer patients, fibromyalgia, hypertension, and osteoporosis.

Further systematic reviews of general health and fitness benefits show:

  • There is excellent evidence of benefit for improving balance and aerobic capacity in those with poor fitness.
  • There is good evidence for increased strength in the lower limbs.
  • There is fair evidence for increased well-being and improved sleep.

There is abundant research and scientific evidence supporting the health and emotional well-being benefits of Tai Chi, according to the National Institute of Health.

“Health is our greatest possession. Contentment is our greatest treasure. Confidence is our greatest friend.” Lao Tzu

References:

  1. https://pubmed.ncbi.nlm.nih.gov/28661865/
  2. https://www.mayoclinic.org/healthy-lifestyle/stress-management/in-depth/tai-chi/art-20045184

Inflation – The Elephant Affecting the Economy

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Historic inflation and interest rates hike fears are sinking many high growth technology stock prices. Inflation in 2021 was the consequences of rapidly rebounding demand in a supply-constrained world.

The fear of inflation and the the fear of subsequent Federal Reserve interest rate hikes are creating concern and panic among some investors. Rising interest rate and skyrocketing inflation worries are pressuring stocks. And by the Fed signaling raising rates in the future, it unsettles and sends both Wall Street and Main Street into a panic.

But, what is inflation?

Inflation is when consumer prices rise, goods and services become more expensive, and money loses value. Inflation reduces your purchasing power, eats away at your investment returns, and chips away at your wealth. Currently, Americans are experiencing the pernicious effects of inflation, especially in the areas of escalating food and energy prices.

2021 was one of the worst years for inflation that Americans have seen recently, with a 7% increase, the highest since 1982. For consumers, this means $1 at the beginning of the year was roughly worth only $0.93 at the end. While the impact might seem small when examining it on a dollar level, it represents a change in the purchasing power of retirement savings from January 2021 to December 2021. The Wall Street Journal’s Gwynn Guilford writes: “U.S. inflation hit its fastest pace in nearly four decades last year as pandemic related supply and demand imbalances, along with stimulus intended to shore up the economy, pushed price up at a 7% annual rate.”

American economist and Nobel prize laureate Milton Friedman opined that: “Inflation is always and everywhere a monetary phenomenon.”  In other words, inflation is invariably a case of too much cheap money and capital chasing too few goods, services and assets.

In the last twenty years, the United States witnessed a large accumulation of federal public debt under Presidents Bush, Obama, Trump, and Biden administrations. Federal debt climbed from 55% of GDP in 2002 to 105% in 2019. Additionally, the U.S. has also endured a decade plus of loose monetary policy overseen by the Fed which has pumped up asset prices.

As a result of the escalating public debt and loose monetary policy, the Federal Reserve most important immediate task, of its dual mandates, must be to get inflation under control and reduced. Since 1977, the Federal Reserve has operated under a mandate from Congress to “promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates”—what is now commonly referred to as the Fed’s “dual mandate.”

The Labor Department stated that the consumer-price index — which measures what consumers pay for goods and services — rose 7% in December from the same month a year earlier, up from 6.8% in November. That was the fastest growth in inflation since 1982 and marked the third straight month in which inflation exceeded 6%.”

Three sectors–energy/materials, financials and technology–may be viewed as inflation beneficiaries or, at the very least, inflation-agnostic assets:

  • Energy and materials are commodity-based, and oil, gas, and most commodities rebounded from prices that had fallen to a fraction of their pre-pandemic levels.
  • Financials, especially banks, are often viewed as inflation hedges since interest rates historically climb when inflation heats up. This reflects the eroding effect of higher prices on a currency’s value in the future, which is remedied by rate hikes on debt.
  • Technology is a more nuanced winner in the inflation game. The large tech players and most software companies have tremendous economies of scale. As their revenues scale, their costs, particularly labor, do not grow at nearly the same degree, cushioning profit compression from wage escalation.

In a book called “The Great Inflation”, the authors wrote, “Inflation is not an Act of God…inflation is man-made and can be started, prevented, regulated and stopped by human action.”

“To think that a stimulus of this magnitude wouldn’t cause inflation required believing either that such a huge adjustment was possible within a matter of months, or that fiscal policy is ineffective and does not increase aggregate demand. Both views are implausible”, says Jason Furman, former chair of President Obama’s Council of Economic Advisers.

Thus, slowing down in aggregate federal debt growth per capita, tightening monetary policy, and raising interest rates could be effective tools in stemming runaway inflation.

“If I was Darth Vader and I wanted to destroy the US economy, I would do aggressive spending in the middle of an already hot economy… What are you going to get out of this? You’re going to get a sugar high, the higher inflation, then an economic bust.” — Billionaire investor Stanley Druckenmiller, July 23, 2021

References:

  1. https://www.cnbc.com/2021/12/13/op-ed-these-3-market-sectors-shone-even-as-investors-grew-weary-of-hearing-about-inflation.html
  2. https://www.americanthinker.com/blog/2021/12/is_joe_manchin_right_about_inflation.html
  3. https://seekingalpha.com/article/4479557-how-to-better-understand-inflation-and-predict-its-direction
  4. https://www.marketwatch.com/story/why-did-almost-no-one-see-inflation-coming-11642519667

Sugar – Detrimental to Your Immune System Health

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The ‘worst food ingredient for your immune system’— sugar. Most Americans consume between 19 and 25 teaspoons of added sugars daily.

Metabolic disorders, like obesity and diabetes, have surged in the U.S. over the past several decades. Experts believe that sugar consumption is the major cause of obesity and chronic diseases, such as type 2 diabetes.

According to many immunologist, having diabetes means your body is in a chronic low-grade inflammatory state, which stresses the body’s innate immune system and makes it slower to jump on pathogens, like COVID19, when they enter the body. Chronic inflammation is an unhealthy and abnormal immune reaction in the body and added sugars are a key diet component known to exacerbate this type of inflammation.

When it comes to your immune system, it important that you understand that what you eat does matter a lot. And no ingredient is more detrimental to your immune system and physical health than added sugar.

From marinara sauce to peanut butter, added sugar can be found in even the most unexpected products. According to the Food and Drug Administration (FDA), added sugars include sugars that are added during the processing of foods (such as sucrose or dextrose), foods packaged as sweeteners (such as table sugar), sugars from syrups and honey, and sugars from concentrated fruit or vegetable juices. They do not include naturally occurring sugars that are found in milk, fruits, and vegetables. The Daily Value for added sugars is 50 grams per day based on a 2,000 calorie daily diet. For most Americans, the main sources of added sugars are sugar-sweetened beverages, baked goods, desserts, and sweets.

The American Heart Association (AHA) states individuals should limit their sugar intake to six to nine teaspoons each day, which is roughly the same amount of sugar in a single can of sugary soda: eight teaspoons.

Sugar is not just bad for your teeth. Too much sugar can contribute to chronic diseases, can affect the pH levels within the body, and can impact heart health and brain health. Basically, sugar can affect the health of both your mind and body.

In the US, added sugars account for up to 17% of the total calorie intake of adults and up to 14% for children, according to AHA. The 2020-2025 Dietary Guidelines for Americans recommend that you limit your added sugars consumption to 10% of total calories, making the current average consumption by Americans significantly higher than recommended.

Eliminating excess added sugar from your diet can not only help end this cycle of increasing metabolic disorders, but it can reverse it completely. Dialing back your sugar consumption is one of the most effective ways to improve your immune system and your overall health.

Preventative care, especially when it comes to an insidious disease like diabetes, it is recommended that the first step you take in your nutrition journey is to ask your health care provider to perform a fasting hemogoblin A1c test, even if your fasting blood glucose is normal.

Hemogoblin A1c tests measure average blood sugar over the previous three months, so even if your blood sugar is normal the day you see your doctor, the test can catch underlying issues.

According to Dr. Heather Moday, a board-certified allergist, immunologist and functional medicine physician, once you have an idea of where you stand on the blood sugar spectrum, you can take the steps below for better health:

  1. Cut back on added sugars. – This means eliminating candy, soda, cake and those seasonal flavored lattes from your diet. These foods and drinks don’t provide any nutritional value, and they contain massive amounts of sugar.
  2. Read the labels. – It is essential to check the amount of added sugar in every item in your pantry. The average American takes in about 17 teaspoons (71 grams) of added sugar a day, but the American Heart Association recommends no more than six teaspoons (25 grams) of added sugar a day for women, and nine teaspoons (36 grams) for men.
  3. Eat more fiber. – If sugar is bad, then fiber is the good. Fiber not only keeps your digestion regular, it also helps slow the absorption of sugar into your bloodstream, which protects you from sugar spikes. Lack of fiber is another reason why sodas, fruit juices and sugared coffee drinks are so detrimental to your health. They contain a ton of sugar and none of the blood-sugar-protecting fiber that fresh whole plant-based foods have. The best high-fiber foods are black beans and lentils, steel-cut oats, avocados, buckwheat, pears, raspberries, barley and flaxseeds.
  4. Chose nutrients over calories. – Instead of worrying about cutting calories, focus on adding more nutrient-dense foods to your diet, with lots of proteins and healthy fats. You don’t need to go low-carb, just choose the “right” carbs. In fact, eating carbs in the form of vegetables, beans, whole fruits, and nuts and seeds — all mineral- and vitamin-rich foods — is a great way to keep those hunger pangs at bay.

Sugar does occur naturally in all foods that contain carbohydrates, such as fruits and vegetables, grains, and dairy. Consuming whole foods that contain natural sugar is okay, according to Harvard Medical School. Plant foods also have high amounts of fiber, essential minerals, and antioxidants, and dairy foods contain protein and calcium. Since your body digests these foods slowly, the sugar in them offers a steady supply of energy to your cells.

However, problems do occur when you consume too much added sugar — the sugar that food manufacturers add to products to increase flavor or extend shelf life. “Excess sugar’s impact on obesity and diabetes is well documented, but one area that may surprise many men is how their taste for sugar can have a serious impact on their heart health,” says Dr. Frank Hu, professor of nutrition at the Harvard T.H. Chan School of Public Health.

Bottomline is that too much added sugar can be one of the greatest threats to cardiovascular disease and metabolic health. And, your consumption of added sugar must be drastically reduced or eliminated from your diet to improve both your cardiovascular and metabolic health.

The goal isn’t to completely eliminate dessert or sweets from your life, but to bring your added sugar intake into a healthier range.

References:

  1. https://www.cnbc.com/2022/01/15/this-is-the-worst-ingredient-for-your-immune-system-says-immunologist-and-health-expert.html
  2. https://www.fda.gov/food/new-nutrition-facts-label/added-sugars-new-nutrition-facts-label
  3. https://www.eatingwell.com/article/7869775/what-happens-to-your-body-when-you-cut-out-sugar/
  4. https://www.sugar.org/diet/diet-sugar-in-moderation/
  5. https://www.cnbc.com/2022/01/15/this-is-the-worst-ingredient-for-your-immune-system-says-immunologist-and-health-expert.html
  6. https://www.health.harvard.edu/heart-health/the-sweet-danger-of-sugar
  7. https://www.niddk.nih.gov/health-information/diagnostic-tests/a1c-test

The Purpose of Education

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“Education must enable one to sift and weigh evidence, to discern the true from the false, the real from the unreal, and the facts from the fiction. The function of education, therefore, is to teach one to think intensively and to think critically. We must remember that intelligence is not enough. Intelligence plus character–that is the goal of true education.”

– Dr. Martin Luther King Jr., Excerpted from Morehouse College Student Paper, 1947

Dr. King believed “…education has a two-fold function to perform in the life of man and in society: the one is utility and the other is culture. Education must enable a man to become more efficient, to achieve with increasing facility the ligitimate goals of his life.”

Moreover, he stated, “Education must also train one for quick, resolute and effective thinking. To think incisively and to think for one’s self is very difficult. We are prone to let our mental life become invaded by legions of half truths, prejudices, and propaganda. At this point, I often wonder whether or not education is fulfilling its purpose. A great majority of the so-called educated people do not think logically and scientifically. Even the press, the classroom, the platform, and the pulpit in many instances do not give us objective and unbiased truths. To save man from the morass of propaganda, in my opinion, is one of the chief aims of education. Education must enable one to sift and weigh evidence, to discern the true from the false, the real from the unreal, and the facts from the fiction.”

“The function of education, therefore, is to teach one to think intensively and to think critically. But education which stops with efficiency may prove the greatest menace to society. The most dangerous criminal may be the man gifted with reason, but with no morals.”

Each year on the third Monday of January, the nation observes Martin Luther King, Jr. Day and reflect on the work that still needs to be done for racial justice and equality in America.

MLK Day is the only U.S. federal holiday designated as a National Day of Service to encourage all Americans to volunteer to improve their communities and to improve themselves.

Dr. Martin Luther King, Jr. was a man of deep and abiding faith, compassion, and dedication.  He reminded us all that “human progress never rolls in on wheels of inevitability,” and that “the time is always ripe to do right.”  He challenged all Americans to live up to the ideals enshrined in our founding documents – that we are all created equal, endowed with unalienable rights to life, liberty, and the pursuit of happiness.

In 1963, Reverend Dr. Martin Luther King, Jr., stood on the National Mall and shared a dream that has continued to inspire a Nation:  To bring justice where there is injustice, freedom where there is oppression, peace where there is violence, and opportunity where there is poverty. 

As we remember and celebrate Dr. King’s life and legacy, let’s recommit ourselves to embracing the standard he set, to honoring the legacy that lives on, and to solving the challenges that remain.

“If you can’t fly then run, if you can’t run then walk, if you can’t walk then crawl, but whatever you do… you have to keep moving forward.” Dr. Martin Luther King, Jr.

References:

  1. https://www.whitehouse.gov/briefing-room/presidential-actions/2022/01/14/a-proclamation-on-martin-luther-king-jr-federal-holiday-2022/
  2. https://kinginstitute.stanford.edu/king-papers/documents/purpose-education
  3. https://www.dodea.edu/dodeaCelebrates/MLK.cfm
  4. https://gettingpeopleright.com/resources/10-martin-luther-king-jr-quotes-about-leadership/

Cathie Wood Dislikes Investing in Chinese Stocks

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“Pouring billions of dollars into China now is a tragic mistake.” George Soros

Cathie Wood, the CEO of Ark Invest, has slashed her company’s investment exposure to China in 2021. Her actions came as Beijing’ tightened its authoritarian grip on domestic businesses and the economy. These actions has rattled global investors, wiping trillion of dollars off the value of Chinese stocks and triggering fears about the future of innovation in China, especially with China experiencing serious economic slowdown and real estate turmoil.

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Wood revealed that her Ark Innovation ETF has significantly reduced its exposure to China. Sweeping regulatory changes have made the investment environment riskier in,China, according to a Financial Times report.  Additionally, the Chinese government has been accused by the U.S. and the international community of committing genocide specifically against the Muslim Uyghurs and other minorities which has resulted in several countries boycotting the 2022 Beijing Winter Olympics because of these allegations.

Almost every week late last year, China announced a regulatory crackdown aimed at reasserting its absolute control of its economy. The crackdowns included a banned on the ride-share company Didi from app stores a day after it listed on the New York Stock Exchange.

With Chinese authorities apparently focusing on social issues and social engineering at the expense of capital markets, Wood said, “We own very, very few stocks there [in China] because they’re unpredictable. They are grappling with what most governments are grappling with: the gap between rich and poor.”

Furthermore, Chinese authorities have been cracking down on cheap credit in an effort to cool the country’s real estate market that has been driven by speculation. These actions has caused China’s Evergrande Group, the world’s most indebted property developer, and other large property developers to default on bond payments. Wood is concerned that 75% of consumer savings in China is held in real estate, and real estate values have fallen in recent months. Her analysis: That the Chinese government is willing to risk the decline in real estate values and wipe out real estate investors in order to address the wealth gap.

Angel investor and entrepreneur Jason Calacanis commented: “I think the mad king is circling his wagons because he feels threatened. I’m talking about [Chinese President] Xi Jinping.”

President Xi Jinping’s has talked about “common prosperity” as a policy goal in China, and called on high-income Chinese enterprises to “return more [of their profits] to society”. These policies have been particularly focused on cracking down on the power of big private companies, such as e-commerce giant Alibaba and ride-hailing app Didi. Beijing’s policies have prompted investors to sell Chinese assets in 2021.

Moreover, Chinese companies in the technology, education and gaming sectors have faced an onslaught of draconian new rules relating to data privacy and workers’ rights in recent months. Chinese authorities have told the companies to “break from the solitary focus of pursuing profit or attracting players and fans.” Within the past several months, China barred online gamers under the age of 18 from playing on weekdays and limited their play to just three hours on weekends.

Cathie Wood is also circumspect about China’s demographics. China has been confronting the lowest fertility rates it has experienced in seven decades as well as a material gender imbalance. This is a growing concern to the Communist authoritarian government.

“I think President Xi is very unsettled that China’s three-child policy is not working. And that’s very forecastable,” Wood said.

Multinational U.S. companies have come under increased pressure both within China and internationally as they aim to comply with Xinjiang-related trade sanctions while simultaneously overlooking Chinese government’s crimes against humanity while continuing to operate in China. These companies issued marketing statements condemning the murder of George Floyd in the U.S. while turning a blind eye and remaining mute regarding genocide and mass murder in China.

Billionaire investor George Soros said BlackRock’s and other U.S. businesses who are investing billions of dollars into China now is a “mistake” and will likely lose money for the asset manager’s clients, according to an opinion piece in the Wall Street Journal.

“Pouring billions of dollars into China now is a tragic mistake,” Soros wrote in the op-ed. “It is likely to lose money for BlackRock’s clients and, more important, will damage the national security interests of the U.S. and other democracies.”

References:

  1. https://www.forbes.com/sites/kerryadolan/2021/12/03/investor-cathie-wood-on-bitcoin-why-she-sold-stocks-in-china-and-what-her-firm-is-buying-now
  2. https://www.cnn.com/2021/09/09/investing/cathie-wood-ark-china/index.html
  3. https://www.afr.com/markets/equity-markets/how-jack-ma-treatment-prompted-cathie-wood-to-quit-china-20211020-p591ia
  4. https://www.reuters.com/business/finance/soros-says-blackrocks-china-investments-likely-lose-money-wsj-2021-09-07/
  5. https://www.cnbc.com/2022/01/11/intel-deletes-reference-to-xinjiang-after-backlash-in-china.html

Diversification and Performance Over Ten Years

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Diversification comes from a very simple idea…don’t put all your eggs in the same basket.

2021 Performance Chart represents asset allocation quilt over the past 10 years:

EW = an equal-weighted portfolio of every asset on the quilt

The gap between the best and worst performing asset classes is huge. The best performing asset class (REITs) outperformed the worst (Emerging Markets (EM)) by more than 44% in 2021.

The average difference between the best and worst performer of the 10 asset classes used here since 2012 is 20.2%. The biggest difference between top and bottom performers came in 2013 when small cap stocks outperformed commodities by more than 52%.

This tells us diversification is not dead by a long shot but it also shows how many opportunities investors have to be either really right or really wrong if they go to the extremes in any one asset class or region.

The consistency of the S&P 500 is impressive over the ten year period. For this entire 10 year period large cap U.S. stocks have been in the top 3 of these asset classes every single year, including the top slot for two of the past three years.

And the crazy thing about the outperformance is the volatility of annual returns is lower for the S&P than its equity counterparts:

  • S&P 500: 12.3%
  • Small caps: 14.7%
  • Mid caps: 14.0%
  • Foreign stocks: 14.8%
  • Emerging markets: 18.8%

Every type of investment has risk attached to it. This risk can evolve over time, but it exists. Risk is something an investor should always consider.

For investors, one of the most important considerations is how to manage investing and portfolio risk. Diversification is a proven and efficient way to manage investment risks.

Diversification is the practice of building a portfolio with a variety of investments that have different expected risks and returns. Diversification aims at spreading investments across a variety of asset classes.

The benefit of diversification in your investment portfolio is that it helps smooth portfolio returns over time: as one investment increases, it offsets losses from another investment, thereby providing more regular returns on investment under various economic and market conditions.

You can diversify your portfolio by investing an equally-weighted return for all 10 asset classes (minus EW) listed in the Performance Chart. These asset classes have varying levels of risk and returns, so including investments across asset classes will help you create a diversified portfolio. Diversified investment portfolios generally contain at least two asset classes.

Diversification can help protect you against events that would affect specific investments. Yet, diversification means that every year you miss out on both home runs and strikeouts regarding your investments. Thus, diversification means that your portfolio is never going to be the best performer in a given year. The equal-weight portfolio is basically always in the middle of the pack.

But a fully diversified portfolio of all ten asset classes is never the worst performance either.

This is the trade-off you make when trying to control for risk. Being diversified means always investing in both the best and worst performers each year. But, you will never having the best or worst performance in your portfolio.

Most investors know diversification is a smart move and is a key part of risk management, with the goal to preserve your portfolio’s value.

Diversification does not guarantee returns or protect against losses and can help mitigate some, but not all, risk. For example, systematic risks – which include inflation, interest rates or geopolitical events – can cause instability in markets and affect the broader economy and market overall.

References:

  1. https://awealthofcommonsense.com/2022/01/updating-my-favorite-performance-chart-for-2021/
  2. https://www.usbank.com/financialiq/invest-your-money/investment-strategies/diversification-strategies-for-your-investment-portfolio.html

A Stock’s Price vs. a Company’s Intrinsic Value

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“Stock prices fluctuate unpredictably.  But company values stay relatively steady.” Kenneth Jeffrey Marshall,

Value investing is one of the most popular ways to find great stocks in any market environment. Value investing represents an approach to investing, where investors evaluate the fundamentals or intrinsic values of companies rather than estimating the future market prices of stocks. The definition of a value stock, for our purposes, is a stock that is underpriced by the market or due to volatility relative to its worth or fundamentals.

Value investing is about finding stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value (or intrinsic value). According to Investopia, intrinsic value is a measure of what an asset is worth. In short, it’s the underlying value of a company and its cash flow.

The idea of value investing involves purchasing great stocks of companies priced by the market well below their intrinsic values, which can give investors a margin of safety. The margin of safety comes from buying good companies at cheap prices. It comes from buying good companies that you understand, and to do so at a discount to companies estimated intrinsic value. That discount is where the margin of safety comes from.

Great stocks shouldn’t get cheap. But sometimes they are.

Value investing also allows traders to detach from their emotions of fear and greed when stock prices fluctuate. It enables them to hold the stocks for long-term rather than buying and selling if they’re feeling wildly optimistic or pessimistic because of stock price and market volatility.

Price and value differ:

  • Price is what something can be purchased or sold for at a given time. Price fluctuates.
  • Value is what something is worth, it fluctuates less.
  • Identify the right price at which to buy stock
  • Hold quality stocks fearlessly during market swings

Value investors understand that over time, the market price of a stock will converge with its actual fundamental worth or intrinsic value. But at a single point in time, it may not. And those single points are enough to purchase good companies cheap or below its intrinsic value.

Value investors also understand that there always comes a time when glamorous businesses stop getting priced like rock stars, and start getting priced like businesses.

Over time, the average price of an asset does converge to the average worth of that asset. But in the short term they can be wildly different, since stock prices fluctuate unpredictably.  But company values stay relatively steady.  This insight is the basis of value investing, according to Kenneth Jeffrey Marshall, author of the investing book, “Good Stocks Cheap: Value Investing with Confidence for a Lifetime of Stock Market”.

The occasions when a stock price is far away from a company’s intrinsic value is when a patient value investor acts.

Value investing is buying companies for less than they’re worth…their intrinsic value. According to the Kenneth Jeffery Marshall, professor, value investor, and the author of “Good Stocks Cheap”, best value investing procedures to utilize include:

  • Do you understand the company
  • Is it a good company:
    • Has it been historically good
    • Will it be good in the future
    • Is it shareholder friendly
  • Is the stock price cheap or at what price will the company’s stock become cheap (margin of safety)

The secret of successful investing: Staying invested and patience. Stock prices can be volatile and can fluctuate unpredictably in the short term.  But the intrinsic values of companies stay relatively steady. Thus, you should chose to invest in companies selling for less than they are worth (intrinsic value) and not over pay for a company.

One way to find companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. There are several key metrics that value investors look at, which include:

  • Price to Earnings Ratio (PE). PE shows you how much investors are willing to pay for each dollar of earnings in a given stock. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
  • Price/Sales ratio. P/Sales compares a given stock’s price to its total sales, where a lower value is generally considered better. This metric is preferred more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings. The best use of P/S ratio to compare it to the S&P 500 average. Also, you can evaluate the trend of the stock’s P/Sales over the past few years.
  • Price/Earnings to Growth ratio (PEG). PEG ratio is another great indicator of value. PEG ratio is a stock’s price-to-earnings (P/E) ratio divided by the growth rate of its earnings for a specified time period. The PEG ratio is used to determine a stock’s value while also factoring in the company’s expected earnings growth, and it is thought to provide a more complete picture than the more standard P/E ratio. A lower PEG may indicate that a stock is undervalued.

The reality is that some of your selected stocks will lose money. That’s why it is important to diversify your investments, so that losses in a stock may be outweighed by gains in other stocks.

Strength of value investing

Deep value factors, such as book-to-price or tangible book-to-price, usually rally first, when actual levels of rates are still low, says Boris Lerner, Global Head of Quantitative Equity Research. Other value factors, such as earnings yield or free-cash-flow yield, tend to pick up later, as rates rise above trend.

Rising interest rates are the primary reason value investing has staying power. When inflation and rising interest rates are trending higher, it can clip the wings of pricey growth stocks, whose valuations are predicated on future returns, which make pricier growth stocks less appealing. When rates go up, it instantly raises the bar on far-out profits needed to justify today’s stock prices.

Because value names are typically mature companies with valuations based on current cash flow, rising rates don’t have the same impact. At the same time, many traditional value sectors, such as financials, directly benefit from rising rates.

Put the strength of value investing to work for you. In a nutshell, the basic tenet of value investing is paying less for a company than its worth.

  • References:
  1. https://growthwithvalue.com/wp-content/uploads/2020/12/Good-Stocks-Cheap-Book-Summary.pdf
  2. https://finance.yahoo.com/news/10-cheap-value-stocks-buy-140144393.html
  3. https://www.entrepreneur.com/article/397977
  4. https://www.morganstanley.com/ideas/value-stocks-forecast-2021
  5. https://www.gurufocus.com/news/949267/interview-holding-stocks-forever-with-professor-kenneth-jeffrey-marshall

Kenneth Jeffrey Marshall teaches value investing in the Masters in Finance program at the Stockholm School of Economics in Sweden, and at Stanford University. He also teaches asset management in the MBA program at the Haas School of Business at the University of California, Berkeley. Marshall is a past member of the Stanford Institute for Economic Policy Research; he taught Stanford’s first-ever online value investing course in 2015. He earned his MBA at Harvard Business School.