Category Archives: Investing

What this man regrets about going from $2.26 to $1 million in five years

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BY MARKETWATCH — 12/12/2019 3:37 PM ET

Achieving financial independence took time and sacrifice — and came with some regrets
In five years, Grant Sabatier went from having just a few bucks in his bank account to more than $1 million — and he did it through side hustles, sacrifice and investing. But if he had to do it all over again, he said he probably wouldn’t have done it quite the same way.
He made many trade-offs, and a few mistakes, like “making money my God and chasing the next thing, no matter what,” he admitted.
The young millionaire, who blogs at MillennialMoney.com (https://millennialmoney.com/) and is the author of “Financial Freedom,” accomplished financial independence by making small goals for himself — first, shooting to save $1,000, then $2,000, then $4,000. As he reached his goals, he’d double them. “We usually focus on the million-dollar goal or retiring early, and while it is important to set goals, don’t let those goals distract you from taking the next step,” he said. Starting small and consistently doubling his figures made the goal accessible, mentally and physically. “If you are completely in debt and you don’t have anything saved, just save your first $1,000, and see how it makes you feel,” he said. “You’ll feel better than you thought you would.”
But there needs to be balance, something he did not account for on his path to $1 million. That means enjoying life, and that looks differently for everyone (http://www.marketwatch.com/story/its-time-to-stop-judging-people-for-drinking- lattes-and-getting-regular-haircuts-2019-05-14). Stripping yourself of experiences and items that are meaningful can backfire. Sabatier said he had to detox after five years of working 100-hour weeks and traveling, for example.
Hitting a financial goal should be less about quantitative reasons, like having $1 million in an investment portfolio, and more about qualitative reasons, like leaving a job you hate or paying for an annual family trip. “It’s about looking at your life. Do you feel like you’re growing? Do you feel like you’re in a place you like and you have friends you like? Do you like your life?” Sabatier said. “If the answer to that question is no, then the first place you need to look is your money.”

— Read on www.marketwatch.com/story/what-this-man-regrets-about-going-from-226-to-1-million-in-five-years-2019-12-12

IPO Stocks Luckin Coffee, Dynatrace, Progyny, Datadog, Ping Identity Near Buy Points | Investor’s Business Daily

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IPO stocks are hot right now, with several 2019 new issues acting bullishly, trading near buy points. Chinese Starbucks (SBUX) rival Luckin Coffee (LK) is one of five IPO stocks worth adding to your watch list this week. Dynatrace stock, Progyny stock, Datadog stock and Ping Identity stock round out the quintet.

Fertility services specialist Progyny (PGNY), cybersecurity play Ping Identity (PING) and app monitoring software maker Dynatrace (DT) are all profitable, while cloud software name Datadog (DDOG) is barking at the door of profitability. Luckin Coffee stock is a big money loser, but has tremendous sales growth.

— Read on www.investors.com/news/ipo-stocks-luckin-coffee-dynatrace-progyny-datadog-ping-near-buy-points/

Becoming a Better Investor

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  1. The secret to great investing is patience. Take the time to study, to learn and to practice. There is no rush. Make a Wish List of liked companies and wait for them to go on sale.
  2. Best investors often do best during market panics, when investors dump shares in fear, or when there’s unusual volatility, such when stocks soar to unrealistic levels.
  3. Take advantage of the greed and fear of other investors. Investors can profit by avoiding panics, picking up stocks for cheap in sudden selloffs and keeping emotions in check, even during volatile markets.
  4. Human emotion inevitably causes the prices of assets — even worthwhile assets — to be transported to levels that are extreme and unsustainable: either vertiginous highs or overly pessimistic lows.
  5. Focus on a company’s actual earnings, revenues and cash flow, and do not succumb to rosy projections and predictions about the distant future. Ignore the sometimes-enticing stories spun by bankers, analysts and others, the kinds that have led to huge losses for even sophisticated investors in recent years on high-profile companies.
  6. Security prices should generally fluctuate not much more than earnings and revenues. The reasons they fluctuate more are largely psychological, emotional and non-fundamental. The truth is that financial facts and figures are only a starting point for market behavior; investor rationality is the exception, not the rule; and the market spends little of its time calmly weighing financial data and setting prices free of emotion.
  7. Pick your spots, and only invest in areas you have a competitive advantage, perhaps due to a unique industry expertise. For all their skill, the firm only profits on barely more than 50% of its trades, a sign of how challenging it is to try to beat the market.
  8. “It’s different this time” are four of the most dangerous words in the business world — especially when applied, as is often the case, to something that has reached what in prior times would have been called an extreme. People’s decisions have great influence on economic, business and market cycles. And people don’t make their decisions based on science, facts or fundamentals.
  9. There are more factors and variables influencing financial markets and individual investments than most realize or can deduce. Investors tend to focus on the most basic forces, such as earnings, interest rates or short-ratios, but there are dozens of factors, perhaps whole dimensions of them, that are missed.
  10. Cycle positioning is the process of deciding on the risk posture of your portfolio in response to your judgments regarding the principal cycles. It primarily consists of choosing between aggressiveness and defensiveness: increasing and decreasing exposure to market movements. The recipe for success consists of (a) thoughtful analysis of where the market stands in its cycle, (b) a resulting increase in aggressiveness or defensiveness, and (c) being proved right. These things can be summed up as “skill” or “alpha” at cycle positioning.
  11. Detecting and exploiting the extremes of market cycles is really the best anyone can hope for. Between the extremes of “rich” and “cheap” — when the cycle is in the middle ground of “fair” — the state of the relationship between price and value is, by definition, nowhere as clear-cut as at the extremes. If you frequently try to discern where we are in the cycle in the sense of “what’s going to happen tomorrow?” or “what’s in store for us next month?” you’re unlikely to find success. I describe such an effort as “trying to be cute.
  12. A backcast is an exercise where you imagine having reached a goal and then you work backward to figure out what happened to get you there. Backcasting is a more instinctive exercise. After all, we generally plan for success. 
  13. A premortem imagines the opposite — failing to reach your goal — and asks “how did that happen?” Imaging failure, on the other hand, doesn’t feel good. But failing to do a premortem can ruin even well-thought-out strategies for long-term success. If we anticipate later actions that can undermine our plans, we can improve the likelihood of staying on course.

Source: https://www.marketwatch.com/story/turn-yourself-into-a-better-investor-by-learning-from-hedge-fund-star-jim-simonss-successes-and-failures-2019-11-07?mod=home-page

Source: https://www.marketwatch.com/story/oaktrees-howard-marks-has-5-tips-to-make-you-a-superior-investor-2018-10-02

Source: https://www.marketwatch.com/story/this-champion-poker-player-says-a-premortem-can-make-you-a-better-investor-2018-03-07

Why 30 Stocks Are Better Than 100 Or 500: How The Dow Beat The Nasdaq 1999-2019 – SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) | Seeking Alpha

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Since its ETF’s launch in early 1999, the Nasdaq-100 actually underperformed the Dow Jones Industrial Average on a total return basis for most of 20 years, until last week.

Both the Dow and Nasdaq have outperformed the S&P 500 on a total return basis, leaving the Dow as the clear winner on a risk-adjusted basis.

Fundamentals point to the Nasdaq’s recent catch-up as a repeat of the late 1990s run-up, meaning the Dow is likely to outperform again over the next 20 years.

The Dow’s greatest advantage is its simplicity, and this should make it a leader in the trend towards direct indexing.

If I were to ask 80 investors under the age of 80 to describe the Dow Jones Industrial Average in one word, chances are the answers would include words like “narrow”, “outdated”, or even “irrelevant”.

I’m also sure a vast majority of that same sample of “young” investors would never have guessed that this old Dow index has actually outperformed the much more modern and sexy Nasdaq-100 Index on a total return basis over most of the past 20 years. In this article, I explain: the surprising past outperformance of the Dow over the Nasdaq, and advantages I believe will make the Dow a better starting point than Nasdaq or S&P for outperformance over the next 20 years.
— Read on seekingalpha.com/article/4310588-why-30-stocks-are-better-100-500-how-dow-beat-nasdaq-1999minus-2019

Financial Literacy – A Critical Skill

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What is financial literacy?

Financial literacy is about teaching Americans how to manage their personal finances and helping them understand money issues they’re likely to face in their lifetimes.

It is an important skillset missing in most Americans financial tool boxes and often become lessons that are improperly or painfully learned by trial and error.

Basically, financial literacy is about effectively managing one’s money. It is an essential personal skill that will benefit individuals throughout their lives – and it is not skill that everybody learns.

With money, such as wages, coming in and expenses going out, with due dates, finance charges and fees attached to invoices and bills, and with the overall responsibility of making the right decisions about major purchases and investments consistently, managing money can be challenging for most Americans.

Americans would think that because the financial stakes are so high and the skills of managing money are so essential that this would be a skill that gets taught in high school or even college. Unfortunately, personal finance is not taught in educational institutions at any level in the United States. It is not taught in K-12 education, undergraduate or even post graduate levels unless an individual is majoring in finance.

Financial literacy and managing money require a fundamental understanding of personal cash flow, net worth, debt, inflation, the purchasing power of money, and a willingness to embrace personal responsibility. That means paying bills in a timely manner, saving for emergencies and retirement, and avoiding excessive debt. It is important that individuals accept the fact that sometimes they have to sacrifice immediate demands and desires for long-term gain.

Countless stories exist regarding Americans being taken advantage of by bad actors, criminals and financial professionals pushing ill-suited products to unsuspecting individuals. Recently, a story was told how an unscrupulous stock broker convinced an unsuspecting individual, when he was younger, to invest their nest egg in a sure thing stock tip. Unfortunately, the only sure thing regarding the tip was that the unsuspecting victim would watch their nest egg shrink and ultimately disappear.

Personally, the author, as a young Naval Officer, fail victim to a well-meaning financial adviser selling high front loaded fee mutual funds to military officers. After a week of mulling over the thought of ten cents of every dollar invested would go to the adviser and the financial firm he represented, I overturned the decision to invest and pulled my capital from the company, minus the ten percent. Subsequently, I invested my hard earned capital in a no-load fund mutual fund. Fortunately, the financial lesson learned came at a reasonably small cost.

Thus, a key take away is that financial literacy is an essential skill for Americans; a skill that is not thought in our schools, but should be. And, financial literacy is critical for individuals if they desire to get their personal finances on track.

What follows are a few financial literacy tips that can help a person get started.

  • Create a budget. The first step toward taking control of one’s financial life is to find out how much money one takes in and how much one spends.
  • Pay yourself first. Consider automatically depositing a certain amount of wages into ones savings account each payday.
  • Build an emergency fund. Set aside three to six months of savings in a bank account or money market account to cover unplanned expenses such as automobile repairs or medical bills. Avoid using credit cards.
  • Eliminate credit card debt. Incidental purchases on credit add up. Paying only the minimum amount due each month on credit cards can result in finance charges that quickly make small purchases become very costly. If possible, pay the full balance every month or cut up your credit cards.
  • Protect personal information. Take steps to reduce the risk of identity theft. Be skeptical and know whom your sharing your personal information; store personal information securely or dispose of by shredding. Maintain appropriate security on computers and other electronic devices. Check out the warning signs that someone might be using your personal information.
  • Order credit report. Make sure the information is accurate, complete, and up-to-date. If errors are found, dispute them.
  • Comparison shop for home mortgages. A mortgage is a product, just like a car, so the price and terms are negotiable. Compare all the costs involved in obtaining a mortgage. Shopping, comparing, and negotiating can save thousands of dollars.

Bottom line, to be financially literate means having the ability to not let money – or the lack of it – get in the way of one’s happiness as one works hard to build an American dream complete with financial security and a fulfilling retirement.

Net Worth and Measures of Financial Health

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Source: MyMoney.gov

For many households, financial health is measured by income. While income is an important component of financial health, it is only part of the equation.

Some experts and academics believe that an individual’s net worth is a better measure of financial health than income. Net worth or wealth can determine if a family has the wherewithal to deal with a financial crisis, such as the loss of employment or long-term sickness.  And it also allows for investments in a home, small business and higher education. In other words, a household with no wealth or negative net worth may not be financially healthy despite a high salary.

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Photo by Pixabay on Pexels.com

The type of assets held by a household also affects its financial health, with illiquid assets and short-term liabilities a greater potential risk than liquid assets and long-term debt.

For many financial educators and households, assessing a household’s net worth is the start of the conversation. It allows financial advisers or households to create a financial plan that considers assets and liabilities which can lead to better financial health and outcome.

Net worth considerations would also provide policymakers with a more accurate picture of financial health to assess middle class economic security across different demographic populations.

There are other reasonable approaches to considering overall financial health or well-being. For example, the Center for Financial Services Innovation (CFSI) looks at four components (spending, saving, borrowing, and planning) and eight indicators of financial health as well as data that can be collected to make the financial health assessment. The data collected to measure the financial health for each component range from the difference between income and expenses (for spending) to the debt-to-income ratio (for borrowing) to the type and extent of insurance coverage (for planning).

The type of assets also matters for financial health. For example, CFSI distinguishes between liquid and illiquid assets by pointing out that liquid assets are “important for coping with an unexpected expense,” while [illiquid] long-term savings promote financial security.27

Financial well-being has been identified as a common outcome goal of financial education efforts.28 CFPB has developed a robust and validated scale to measure a person’s sense of financial well-being, which CFPB defines as the “state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future and is able to make choices that allow them to enjoy life.”29 While this measure is subjective, a number of trackable and objective factors are strongly associated with a person’s level of financial well-being, most notably having liquid savings.

27. Parker, Sarah, Castillo, Nancy, Garon, Thea, and Levy, Rob,“Eight Ways to Measure Financial Health”,Center for Financial Services Innovation, May 2016, available at: https://s3.amazonaws.com/cfsi-innovation-files-2018/wp-content/uploads/2016/05/09212818/Consumer-FinHealth-Metrics-FINAL_May.pdf.

28. For example, see Financial Literacy and Education Commission, “Promoting Financial Success in the United States: National Strategy for Financial Literacy 2011”, available at: https://www.treasury.gov/resource-center/financial-education/Documents/NationalStrategyBook_12310%20(2).

29. “Financial Well-being: What it means and how to help”, Consumer Financial Protection Bureau, 2015, available at: https://www.consumerfinance.gov/ data-research/research-reports/financial-well-being/.

Animal Spirits

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Animal spirits refers the state of confidence or pessimism held by consumers, businesses and investors. Regarding financial markets, they represent the emotions of confidence, hope, fear, and pessimism that can affect an investor’s financial decision making, which in turn can fuel or hamper economic growth.

If spirits are low, then confidence levels will be low, which will drive down a promising market—even if the market or economy fundamentals are strong.

Likewise, if spirits are high, confidence among participants in the economy will be high, and market prices will soar.

According to the theory behind animal spirits, the decisions of investors and business leaders are based on intuition and the behavior of their competitors or other investors rather than on fundamental analysis.

Famous British economist, John Maynard Keynes believed that in times of economic upheaval, irrational thoughts might influence people as they pursue their financial self-interests. In 1936, Keyne published, The General Theory of Employment, Interest, and Money, where he postulated that trying to estimate the future yield of various stocks, companies, or financial activities using general knowledge and available insight “amounts to little and sometimes to nothing.”

Keynes referred to these psychological factors that make investors jump into the equity market — in the face of deep uncertainty and volatility, as animal spirits. He thought, only a manic, driven, strong-willed person would put capital at risk in periods of high uncertainty and volatility.

When animal spirits are strong, investment is sufficient to maintain aggregate demand; when they lag, aggregate demand falls, and the economy lapses into depression.

It is assumed that the only way people can make investment decisions in an uncertain and extremely volatile environment is if animal spirits guide them.

Source: CARLA TARDI, Animal Spirits, Investopedia, Updated Apr 20, 2019

What Are Cyclical v. Defensive Stocks? – TheStreet

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Cyclical companies are those that see higher revenue growth when the economy is growing and lower revenue growth – sometimes contractions — when the economy is in recession.
 
Defensive companies keep humming along whether or not the economy is growing.

— Read on www.thestreet.com/video/-what-are-cyclical-v-defensive-stocks–15178611

7 Low-Risk Investments With High Returns in 2019 | TheStreet

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Low-risk is a relative term when it comes to investing. The classic risk-free investment is Treasury securities, but even they carry some degree of price risk. For those looking for low-risk investments, here are some to consider….

— Read on www.thestreet.com/personal-finance/low-risk-investments-with-high-returns-15170504

John Bogle – The 7 Rules For Successful Stock Market Investing

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Stay the course.

Regardless of what happens in the markets, stick to your investment program. Changing your strategy at the wrong time can be the single most devastating mistake you can make as an investor. (Just ask investors who moved a significant portion of their portfolio to cash during the depths of the financial crisis, only to miss out on part or even all of the subsequent eight-year—and counting—bull market that we have enjoyed ever since.)

“Stay the course” is the most important piece of advice Jack Bogle can give you.

John Bogle, founder of the Vanguard Group, provides his seven investing rules for successful stock market investing.

— Read on www.valuewalk.com/2017/06/john-bogle-7-rules-successful-stock-market-investing/amp/