By now you have heard about it. One of the biggest bank collapses occurred recently, with Silicon Valley Bank basically getting wiped. The FDIC came in to aid the depositors of this bank, up to the standard number of $250,000. What is important to remember though is that the FDIC gave this money to the customers, not the banks themselves.
This is very different compared to 2008 where the banks were getting bailed out by the government, which is what made the situation so catastrophic. The FDIC covers those working with banks all the time. Now though, individuals are not harbored for the malpractice of the bank, like 2008. However, the argument made by many economists is that since the FDIC was giving almost the max amount of the $250,000 to the customers of SVB, this was a bailout. The average American wishes they could have $250,000 in their bank account, but a wide majority do not. Thus, the FDIC was bailing out Venture Capitalists, one of the more common customers of Silicon Valley Bank.
Setting this precedent is very dangerous due to the fact that now it seems that banks don’t need to be as cautious. Danger arises even more with this scenario because Venture Capitalists are already in a risky business, where they store their money should not be risky too.
Yes, there is.
First Republic Bank is currently feeling dangers of a bank run, as customers are now just fearful of not having their money with a major player such as JP Morgan or Bank of America. This is no fault of the practice of First Republic, but they are now being infused with $30 billion to stay afloat with money from their rivals. Big banks like the two aforementioned and 9 others such as Goldman Sachs, Wells Fargo, Citigroup, etc. came together to provide First Republic with funds. This shows how valued smaller regional banks are in the industry by other banks, but also how fickle they are by the opinion of customers.
First Republic stock has cratered over the past two days while other major bank stocks have also sold off slightly.
All that’s going on with banking could easily be over in a week. However, if more and more customers get upset with the way the banks and the government are working, banking as we know it could be over.
Having an investing thesis before buying (or selling) a stock is critical to making a sound decision. Simply buying a stock because it, “is bound to go up” may work a couple times, but isn’t something to rely on for a portfolio. Developing a solid thesis will fare you much better in picking better stocks, and will also help you understand when to sell. There are many forms to developing an investing thesis, but two methods I favor are blood in the streets investing, and inference investing.
Blood in the Streets Investing
The seemingly alarming name of this thesis is fairly warranted for the situations it looks to profit off of. When is someone is using a “blood in the streets” mindset, something particularly bad has happened to the stock or the sector it is in. This results in a huge downturn for the stock, hence, plenty of red, or blood. An event like this could come about from a company receiving a lawsuit, repeated earnings miss, or the CEO does something catastrophic in the public eye. It can be any assortment of terrible events, or one extremely terrible one. However it occurs, the stock has come down significantly, more than 40, 50, or 60% in record times.
This causes Wall Street, or the “street” to be particularly scared of the stock, wondering if it could go even lower, and refusing to buy it. Now, this does not mean you simply have to buy the stock just because it is down 60%. Believe it or not, it can very well go lower. Although, it is time for you to assess what the issue is for the company, and decide if it is enough to bankrupt the company. When you decide it isn’t and that there has been an overreaction by the street, it is time to swing the bat. Times where blood in the streets investing have proven effective are when cigarette companies got hit with tons of lawsuits in the late 1990’s, and stocks trading at over $100 dollars were not trading for a couple bucks. The revenue that is generated for the U.S. from cigarettes will never let it go away, and those who bought in saw the insane recovery that came about while others were losing money in the dotcom bubble.
For those who are more observant, inference investing should be their bestfriend. This form of investing consists of observing subtle trends around you, and investing in the companies that can benefit from these trends. It is important to find a trend you truly believe Wall Street has not detected yet and is a significant portion of the company’s business. A trend could essentially be anything, a hypothetical scenario is given below:
While visiting NYC this weekend, Bart noticed a lot of people riding around on electric scooters, they were a bright pink color that you couldn’t miss. He was in the city for the 1 day and saw more than 25 people riding the scooters around. Bart searched up the company and all he could find was that they were trading for $15 and they had just successfully fought a lawsuit. All Bart could find when digging deeper in financial news was financial analysts still discussing the lawsuit and the possible outcomes for company depending on the verdict. Bart also learned that last year, the electric scooters accounted for 25% of the company’s revenue, and that number had grown every year for 3 years.
Bart seems to have found a gem that no one else was talking about yet, and is ready to buy shares of this company on Monday.
Yes, keeping an investment diary can prove to be highly beneficial. When you write down why you initially bought a stock, you can continue to reference this thesis whenever you consider selling. If the original investing thesis you had is still a legitimate reason to buy the stock, then you probably shouldn’t sell. However, if what originally motivated you is no longer true, it might be time to take some profit. Selling can be very hard for people, especially selling when they have to admit they were wrong.
With how low the market has turned over the past few months, now is a time where many investors are scared to make a rash decision. Take advantage of a perfect time develop theses and generate gains!
The Super Bowl is always an incredible culmination to the most watched sport in America every year. For a lot of people this is the first and last football game they will watch for the year. According to AS.com, an estimated 117 million people watched the Rams topple the Bengals. How many of these people actually cared that one of the best receivers in the league Cooper Kupp was able to lead the Rams past young golden boy Joe Burrow’s Bengals? Not many out of the 117 million. Lots of people (like my mother) were more interested in the commercials and reliving her youth with the halftime show. With this many realms of viewership, it is no question why companies were paying on average 6.5 million dollars for 30 seconds of air time on Sunday. These companies made a large investment for the biggest stage, how does this investment correlate to their stock price?
There is Certainly a Correlation
A good correlation is always sweet to know, and football being involved is even better. According to Kiplinger, in 2009 and 2010 approximately 60% of companies who had Super Bowl commercials closed out the year incredibly strong. These companies were outperforming the S&P 500 by a wide margin, total gains were more than double the losses. What’s best to know is that research shows that no matter how awful or outstanding the commercial was, the stock is still poised to perform. So even if you weren’t the biggest fan of Larry David’s self-realization, FTX will be quite happy regardless.
While relatively bland, the Coinbase commercial stood out because of its simple make up. People love seeing screen loaders touch a corner, and they love an opportunity to make money. The commercial allowed viewers to scan a moving QR code that changed color, and the code signed you up for Coinbase and entered you in a $3 million dollar giveaway. That was it. Simple and to the point, the Coinbase commercial was well received. Coinbase currently sits at its low since IPO, and could be a great buying point if cryptocurrencies can respond well to interest rates rising.
Poking fun at Lindsay Lohan is somewhat of an American pastime, and Planet Fitness took the opportunity. Another well received commercial from one of the best marketers in Planet Fitness was in my opinion effective. The commercial showed wild Lindsay Lohan getting her life together, and utilizing Planet Fitness while doing so. Planet Fitness has been fortunate enough to see a significant rise in share price since the year began, something most stocks have not. History says that with this super bowl ad, Planet Fitness can be headed for a very strong year.
Despite the correlations discovered, this is not a high buying time in the market, or reason in general. Investing heavy just because a company spent millions a Super Bowl commercial is foolish. But, respecting a trend in history and using it as a a number of reasons why you invest is much different. With rising inflation and interest rates, current market investing looks very bleak. But perhaps the NFL could be the reason your portfolio finishes the year green?
Recently, Tesla reported its fourth quarter vehicle deliveries for the year of 2021. The company delivered over 300,000 vehicles in Q4 of 2021. This means Tesla delivered about 936,000 vehicles for the year. In the year of 2020 Tesla delivered about 499,000 vehicles. Thus in 2021, Tesla delivered 87% more vehicles compared to just one year ago. Nearly doubling vehicles delivered in one year is no small feat. Especially when it comes to manufacturing with supply chain issues. These factors compound when you add the global pandemic as a factor. This influenced people to spend more on their necessities rather than luxuries.
Despite these factors, Tesla was still able to have a growing demand and produce more vehicles than the year before! This trend of explosive growth has been almost normal for Tesla. This kind of growth has been happening repeatedly for the last few years. Although we can see where Tesla’s growth now, we don’t really know where Tesla is going. It is important to consider the roadmap Tesla has for its future. Especially with the momentous success they are having.
Tesla’s Master Plan
Tesla has actually outlined its major objectives it wants to accomplish in the years coming. In fact Elon Musk, Tesla’s CEO, wrote about the company’s plan years ago on Tesla’s website. He wrote two posts concerning Tesla’s future, one called “The Master Plan” and the second called “Master Plan, Part Deux”. We will be looking at the second post as it is more relevant. Click the link to view Tesla’s master plan! https://www.tesla.com/blog/master-plan-part-deux
Points of The Master Plan
There are three main objectives in the second iteration of Tesla’s master plan and are as follows:
Achieve a seamless integration of solar roof power and energy storage
Expand upon the electric vehicle product line to meet commercial markets
Achieve fully autonomous self-driving vehicles
These objectives are extremely difficult to achieve. However, the direction of Tesla is predictable by viewing the past and present. Recently, in Tesla’s earnings call for Q4 2021, Elon Musk spoke to all three of these objectives during the statements sections as well as the questions section of the call.
Current Status on Tesla’s Objectives
In the short term, Musk emphasizes that supply chain issues are not expected to alleviate quickly. Thus, Tesla will not be adding/releasing any new vehicles to their vehicle line-up this year. Doing so would complicate manufacturing dramatically and cause the company to produce less cars instead of more. Thus in the near-term, Tesla will focus on maintaining and improving its manufacturing during sustained supply chain struggles.
Also in the near future, Musk is excited for full-self driving (FSD) vehicles. He believes that FSD will be revolutionary to how we do transportation of people and cargo. FSD is getting closer to reality every day. Tesla’s fleet of cars gathers more and more data that their FSD algorithm can use to become more autonomous.
Lastly, Musk did not discuss solar power and energy integration as much as the other two points. However, Musk stated that unforeseen complications continue to slow down the progress on Tesla’s solar endeavors. According to the master plan, Tesla hopes to bring solar power & energy integration to the scale of their electric vehicles. This way every home could afford to produce their own power. Once again, due to complications in this goal, progress has stagnated. On a final note, Musk did briefly mention Tesla HVAC units the company is designing for homes. So, although solar has stagnated, it is clear that Tesla is more broadly venturing into systems that can improve home energy efficiency.
Tesla’s Plans for Near Future & Beyond
From the master plan and the recent earnings call, I have come up with a few conclusions about Tesla in the near future. For the year of 2022 and 2023, it appears Tesla’s largest priority is manufacturing. Thus, for 2022, Tesla will solely be focused on this. Once supply chain issues begin to alleviate, hopefully starting in 2023, I think it is likely Tesla will expand their vehicle lineup. Tesla had originally planned to expand earlier but decided not to because of pandemic related issues.
Next, I think within 2-8 years Tesla will have a fully operational FSD algorithm. This algorithm should be able to be applied to any Tesla vehicle. This would provide a large opportunity for Tesla as they would be the first to claim FSD.
Lastly, Tesla’s solar integration with homes objective seems to be taking a different direction. Originally, the objective was solar-integration. However, I think Tesla may be headed towards multiple home related systems instead of only solar as the focus. I think this objective will take at least 10 years to be fully realized. Especially if unforeseen complications continue to arise related to home systems.
Overall, Tesla continues to have growing demand despite the circumstances and also continues to grow explosively to meet their demand. Over the past few years, Tesla has constantly beat expectations. Therefore, I think Tesla will be able to fully realize its Master Plan sooner than we all realize.
The inevitable rise of interest rates in 2022 has generated a very skeptical outlook on the market in the coming months. Rising interest rates tend to result in stocks losing value, yet a stronger overall economy. This occurs because the percentage return on risk-free money is rising, so people rather make money with no risk rather than take chances in the market. Stocks lower so that there is more opportunity for a large gain from holding, which happens easier at lower prices. Understanding interest rates will help you make smarter investment decisions this year, and lead you to certain market sectors.
Why do Interest Rates Matter?
Interest rates are a large influence on the spending habits of both individuals and businesses. This is because interest rates directly affect how expensive it is to borrow money, and indirectly affects certain aspects of the economy such as prices. When interest rates are low, it makes borrowing money very cheap because the amount of money you have to pay back (the interest rate) is very little on top of how much you borrow. When people know rates are low, they are more apt to do things such as buying a house and getting a mortgage or take out a loan to buy a car. Businesses on the other hand are more likely to loan money for better equipment or other expenses. With low rates in place, money flows through the economy much easier as people are much more confident they can pay the interest on their borrowed money.
As rates go up, people refrain from so much spending as they now must pay more on newly borrowed money. The reason rates cannot stay low forever is because lower rates is tied to higher inflation. With so much spending going on, prices soar to combat demand. Higher rates are necessary for the economic cycle, yet some fear the economy is not ready for it as the Covid-19 pandemic is at an all-time high in cases. Although, prolonged inflation can be much worse.
The Financial Sector
Financials have the chance to have a great 2022, even after their hot start in the first week of the year. Banks benefit from rising interest rates because this widens their profit margins. As their risk-free investments return more, they are not necessarily required to increase their interest rates to their customers (those saving money in their bank) at the same rate. With rising interest rates expected to come at 3 or 4 different points this year, the effects of larger profit margins will most likely be a trickle effect into the third and fourth quarters. Although, don’t be surprised from earlier rises from investors anticipating banks benefiting.
The Spyder ETF $XLF currently trades at about $41, and is generally one of the safer financials plays. The ETF has seen a very good rise this week, but is still primed for a great year. Using the ETF to invest in Financials will give you much less volatility compared to other stocks, but most likely a smaller dollar gain. On the other hand, single stocks can yield a higher gain, but with much more individual risk. JP Morgan ($JPM) has the largest market cap of United States banks and an impressive balance sheet, while Bank of America ($BAC) has just received a target price boost to $62 and a strong global presence. The stocks currently trade at $167 and $49, respectively, and are strong candidates to lead the financial push.
A Clean Sector to Rely On
The sector of Consumer Staples is a sector that tends to do well regardless of current economic factors. Companies in this sector sell items such as soap, laundry detergent, toothpaste, and other household items that you will always need. Even though there is economic hardships, you still must get that toilet paper. Thus, this sector never wavers too much based on current interest rates, and the volatility rising interest rates bring won’t affect the sector much.
The Spyder ETF for this sector is $XLP, and it currently trades at about $76.50. The ETF has seen a substantial 5-day decline, which could just be an even better buying opportunity. Proctor and Gamble ($PG) is a household name in this sector, which is a brand you can find all over your kitchen and bathroom. At $158, Proctor and Gamble probably won’t be at $200 by the end of the year, but it will surely have considerable gains as interest rates rise.
Interest rates influence the economy in ways necessary to current economic conditions. Understanding what the next move for interest rates is can always keep you ahead of the game.
During this fall semester of my junior year at Bryant University, I had the opportunity to take Financial Statement Analysis. In this class I learned how to analyze companies given their income statements and formulate opinions based on the discovered metrics. My company was Northrop Grumman, a member of the Aerospace Manufacturing industry. The analysis I conducted on Northrop is very useful as it touches all aspects of Northrop Grumman’s business operations. I will provide the link below to the site, to which you can read how I came to a buy rating for Northrop Grumman as of 12/14/22.
The analysis has everything from a competitor analysis, revenue recognition, and various stock valuation models. You will also be able to see Northrop Grumman’s operational response to Covid-19 as well as its plans for the future. In addition, how it stacks up compared to other companies in the Aerospace Manufacturing industry.
The life of a trader has been glorified with social media such as TikTok, but with a proper strategy, the life you see on the internet is possible. In the past we have discussed a trading strategy that involved profiting from low capital options that didn’t need a big move between strike prices. That article will be attached below. This strategy however has a different target, it only concerns with the percentage gain of the position, and it is a prime example of a disciplined trading strategy.
This is a different kind of article, it will not be calling on facts or recent market news or creating predictions. It’s purpose is to open your vision to a confident way to strive to grow wealth in the markets, and is very good for young traders.
What is the Strategy?
The strategy calls for taking profits at a strict 7% gain. Once you reach 7% in profits, whether it is 5 minutes or 5 hours, you exit your position.
Ideally this strategy is for day traders, however swing traders can use it as well. This strategy helps those who are a little too optimistic, like myself, and always ponder if more could be gained. Sometimes this leads to more green, or a drawback in profits. 7% doesn’t seem like much profit, but it depends on the scale, and how often you make 7% which is the main part of the strategy.
If you make 7% every day, 7% will begin to feel like a lot very soon. In a $1,000 account, 7% the first day would be $70. The next day, 7% would become $1,144.90. After 5 days of this method, you make a little over $400. It may not seem like much, but if you stick with this disciplined trading strategy, the return will be exponential, literally.
Ideally this method would be done by trading options, similar to the first strategy we discussed. Options trading gives you the easiest opportunity to see 7% on a daily matter. Although, with precise day trading of equities, this 7% mark is also quite possible. The point is to not be diminished by small gains at first, and trust the process, until 7% is more than your original starting point!
This kind of strategy doesn’t favor smaller accounts. The growth will be the same with a strict 7%, but it doesn’t account for slippage. With small option buys, there are small costs like commissions that can actually heavily affect percent gains. If you are on a platform like Robinhood, which has no commissions, you can avoid this luckily.
Also, this strategy becomes much tougher if you cannot day trade. If you are up 7% the same day but you cannot day trade, you have to wait and hope you don’t lose your gains the next day. If you factor this ideology into your trade, it can be avoided, but can be annoying at times. However, it could gain you more profit, if you’re trade continues to work in your favor the next day.
Obviously, the largest drawback is that it is very unlikely you will be right everyday. Trades can’t always be right, meaning sometimes you will return negative. This is okay, as long as you nip your losses quickly. A solid number to take losses at would probably be between -5% to -10%. If you are confident in your moves, your number of wins will outweigh your losses.
If you find yourself to be undisciplined when trading, this strategy could be perfect for you. There are other strategies out there that could work better for you, but no strategy is never the way to go. Find what works best for you!
We all know Netflix, one of the most revolutionary inventions of the 21st century thus far. Netflix completely changed the movie industry, and wiped the movie rental business clean. As of July 20th, the company harnesses 209 million subscribers worldwide, an incredible number. Few things in this life are true household names, yet Netflix is one of them. But can Netflix, and the Netflix stock, bank on continuing to see the same rise in success it has over the past 15 years?
The Stock Price Is at a Standstill
Over the past 5 years, Netflix stock is up 500%, flat out incredible. But in the past year it is only up 7%. This not a terrible figure, but when compared to other stocks of it caliber such as Apple, Microsoft, and Google, it lags behind in year growth. The quarterly financials all have great growth year-over-year and its EPS beat expectations by 28%.
The choppiness of the stock over the past year has left investors questioning. Why pay such a high share price of $550+, just for 7%. With one Netflix share, an investor could almost 4 full shares of Apple. This buy would yield higher percentage gains, and less choppiness. Every stock is choppy to some degree, but usually trends upwards, Netflix stock has not seen a drastic enough upward trend for its capability. What could be causing this?
What was once a space absolutely dominated by Netflix alone, streaming services are very popular now. From Hulu, to Peacock, to Amazon Prime, and not to mention almost every TV network has their own platform. The CW, TBS, Disney+, just to name a few.
While it is common for people to have multiple streaming platforms, all the options provide consumers with an advantage they haven’t had. Before, it was search around Netflix until you found something to watch. Now, its look on Netflix, then look on other platforms until you find something best. If you do this enough, you will eventually ponder whether or not you need Netflix. If enough people do this, we see slowed subscriber growth, like Netflix reported this past quarter.
The Near-Future is Vital
Netflix is at a very important point in its business journey. To keep up revenues they have pulled out what I believe is a few shots in the dark. One is there look into the growing gaming industry. In our discussion of Nvidia, we talked about how the gaming industry is changing. Netflix claims to want to offer video games as well as movies, downloadable like they are on consoles. It could work, but takes Netflix away from their core image.
A rumor that has also floated is Netflix considering short ads on their platform. The one pride of Netflix has always been never showing ads. However, ads could boost profits tremendously, as Netflix already loses out on hundreds of millions of dollars every year from shared accounts. The day an ad is shown on Netflix, I believe will be a poor day for the company. It will prove they gave in, and sacrificed their quality for profit, and they are aware.
Is it a Buy?
Personally, I think there is not enough potential in Netflix right now to trigger a buy at its current price of $590.53. This is a very high price for a stock that could be potentially just hoping to match revenue numbers quarter to quarter for the next year. On the other hand, I don’t believe it should be sold either. Stocks can’t go up 500% for 5 years forever. Maybe we expect too much from Netflix stock because of its recent past. Also, financially the company is in a good spot, which isn’t always easy to come by. Don’t jump ship on Netflix, but don’t get on the ship just yet.
The fast and volatile market where cryptocurrencies trade is seeing a new player rise to the top. Cardano, or ADA by its ticker, is its own public and decentralized blockchain. Over the past year Cardano has seen a price rise from $0.12 to $2.89 as of August 29th, 2021. This is a nearly 2400% gain! Not only is Cardano’s growth impressive but it also has a Market Capitalization of $93 Billion. This makes ADA the third largest cryptocurrency by market capitalization. Bitcoin in first with $912 Billion, Ethereum in second with $375 Billion, and Dogecoin holding in fourth at $37 Billion. However, a coin that has grown a lot doesn’t mean much by itself. So let’s look into the why and how Cardano is becoming such a popular coin in the crypto space.
One of the reasons Cardano is becoming an established coin is because of its similar functionality to Ethereum. Ethereum uses smart contracts which can be used to power decentralized finance (DeFi) products, apps, NFTs, etc… Cardano does not yet have its smart contract feature but its developers have expressed it may come out this year. If Cardano has smart contracts then it would, arguably, be as useful as ethereum. The idea ADA might be as functional as ethereum has lead many to buy into ADA.
What a smart contract does is basically act as the middleman. A smart contract is a set of rules and conditions that a computer monitors. When these conditions are met, the contract executes and both parties receive what they signed for. For example, let’s say you wanted to buy an orange from a farmer. To ensure the farmer doesn’t take your money and run, you would get a middleman. The middle man would take your money and take the farmer’s orange. Then they would give you your orange and the farmer the money. In essence, a smart contract functions as a middleman but without the need for a human.
PoW vs. PoS
Another reason Cardano is popular right now is because it runs on a Proof of Stake (PoS) system instead of Proof of Work (PoW). To summarize these two in short: PoW forces blockchain validators to compete for transactions to verify. PoS has validators validate transactions based on how many coins they own. The great sentiment among the crypto community is that PoS is more efficient, fair, and uses less energy than the PoW system. To some extent, these points are valid. For instance, in PoW the validators have to compete with one another. Meaning, two validators could be validating the same transaction which wastes time and energy.
Ethereum has yet to switch to a PoS system but has plans to do so. However, Cardano is more likely to introduce its smart contract functionality before Ethereum switches to PoS. This means Cardano will have both PoS and smart contracts before Ethereum does. This anticipation has led the price of Cardano to move blisteringly fast and is why so many crypto-enthusiasts have jumped aboard the Cardano train.
All being considered, Cardano has only grown as much as it has because of anticipation not because of functionality. At the current moment, you cannot do much with ADA except trade someone else ADA. If smart contracts are introduced to the Cardano blockchain then this would give immense functionality and competitiveness. Ethereum would no longer be the reigning champion of smart contracts and would have to compete with Cardano to stay competitive. Overall, the rise of another blockchain with smart contract functionality is good for Defi. More functional coins support the process of Defi and make crypto as a whole more applicable.
In the choppiness of the past month in the market, two stocks have had record months. While the market has been trending upwards as it closes out the summer, everyday hasn’t been pretty. We remember a few Mondays ago when the Dow lost 725 points. Only to manage to end the week higher. Throughout all this though, one thing has been consistent: vaccinations. As of August 3rd, 189.0 million people have received at least one shot of the Covid-19 vaccine in the U.S. With a little more than half of the country on the road to full vaccination, Pfizer ($PFE) and Moderna ($MRNA) are two hot stocks gaining.
Pfizer is currently up 21.2% in the past month, crushing an all-time high set way back in 1999. With slowly becoming the more trusted solution out of all the vaccines, Pfizer has seen revenues and good publicity skyrocket. Revenue is up a whopping 60% over the past year and operating income compares with a 52% rise. To top it off, last week they had a great earnings estimate beat of 9.42%.
The luxury price of Moderna might make it less appealing to average person, but the percentage changes must catch eyes. Moderna is up 90.84% this month, an almost astronomical increase. So much so, some analysts believe the increase is fundamentally unjustifiable. This may be true, but numbers do not lie. Revenues are up on the year 6,462%!!! For how catastrophic this pandemic has been to our world, some companies and people have cashed out.
Why Success Will Continue
As of today, no vaccine has full FDA approval. It is theorized that once there is a full FDA approval, much more people will be willing to get vaccinated. Reportedly, Pfizer will be fully approved by mid-September, and Moderna would not be far behind. Makes sense why these are two stocks gaining momentum right now.
Additional news is the mandatory tags being put on the vaccines as well. A number of universities have made it mandatory for students to return to campus, and everyday more and more service places make it mandatory. This will only equal to more industries ordering vaccines, sending revenues through the roof, again.
Commonly known as an IPO, an Initial Public Offering is when a company decides it is time to go public. When a company becomes “public” they are listing themselves on one of the exchanges in the stock market. This could be the New York Stock Exchange (NYSE), or the Nasdaq, like Robinhood. Going public allows for a company to receive investments from everyday people like you and me.
The popular trading app Robinhood will be listed on the Nasdaq under the ticker symbol $HOOD, on July 29th. It will be priced in at $38 per share upon trading, valuing the company at $32 billion.
Why This IPO is Unique
Robinhood was once the saver of the everyday investor, or “the common trader” if I must. People were finally participating in the market in simpler ways they could understand. Robinhood made investing and trading so simple, kids could do it. Then came the hype stock fiascos, and when Robinhood had to regulate usage to cover themselves, the people were fed up. Looking back, Robinhood’s actions were somewhat understandable as they are not comparable in size to E*Trade or TD Ameritrade. They just couldn’t take on the amount of orders. Regardless, Robinhood now has a tainted image among investors and is seen only as a place for novices and those with low capital. This is not true, but it’ll be very hard for Robinhood to shake this image.
Still trying to put the retail investor first, Robinhood made their IPO a little special. Robinhood reserved up to 35% of the shares going public for their 22.5 million customers. Without being an accredited investor, it is very hard to participate on the front end of IPOs. An accredited investor is one who has a net worth over $1 million, or has made over $200,000 per year for the past two years. By doing this, Robinhood users have gained access to the IPO day without having to be an accredited investor.
Should You Buy Robinhood Today?
With the recent success of IPOs, it seems like a great idea to buy right away. According to University of Florida professor Jay Ritter, the average first day return of IPOs last year was 41.6%. That’s a sweet deal.
Robinhood on the other hand has some red flags to me. The company image being tainted makes me question if the user number can really grow. With competitors such as Webull, Public, and SoFi, what’s stopping people from taking their money elsewhere? Another red flag is the fire they’ve been under from the legal system. They already paid one $65 million settlement back in December for misleading investors on how they make their profits. Even after this settlement, Robinhood CEO Vlad Tenev is still scrutinized for profiting off of customer’s orders, by selling them to bigger companies, like Citadel.
The majority of Robinhood’s revenue comes from this practice. If new regulations come about barring this practice, their revenues will drop drastically. I think with some fine tuning of business processes Robinhood can last in this industry. IPOs can be exciting, but you don’t HAVE to buy on IPO day. With any stock, it’s probably best to wait a week or two, but with Robinhood, definitely wait.
After a sharp drop on Monday, the market found a way to finish the week at ALL-TIME HIGHS. Each of the three major indexes experienced their highest closes ever. Obviously if the market closes Monday in the green, this will be another set of highs, but how long can the upward drive last? Fresh highs can never be a bad thing, but it certainly is coming at a peculiar time. We will dive in on what has caused the leg up, and why the market seems to be beating the odds right now.
This Earnings Season Couldn’t Be Better
TJ prepped the earnings season very well back on July 12th. Checkout what he had to say below!
Various different companies have been reporting great earnings. This results in their share prices receiving a boost as well. Technology has done very well so far, especially Twitter ($TWTR) and Snap ($SNAP). The photo-sharing app reported a .10 cent growth in EPS despite being expected to report a .01 cent loss. This was mostly attributed to Snap’s operation being unaffected by iOS 14.5 privacy regulations. Twitter on the other hand beat their expected .07 cent growth in EPS by a whole .13 cents! Already in the middle of a great year, Twitter jumps on earnings with rumblings of their first subscription based plan for users.
The grass is green and can certainly get greener this week, even after all-time highs. Look out for earnings results from notable companies such as Google on Tuesday with a 19.34 estimated growth in EPS, and Amazon on Thursday with a 12.25 estimated growth.
The World Isn’t In Great Shape
According to Fortune, 83.2% of Covid cases are at a result of the new Delta variant. Two weeks ago, the number was only around 50%. The fast growth of this new strain is very alarming, and mask mandates have come back already in some states. It feels weird to still be writing about the coronavirus’ effect on the market more than a year later, but here we are.
The virus originally sent businesses into a frantic standstill, and the economy struggled. Now though, it seems like everyone is trying to avoid the dangerous new strain. Maybe it is because the vaccine seems to combat the strain well. But not everyone is vaccinated. If one number catches up to the next number, the world could once again be in deep trouble. Ed Clissold, a strategist for Ned Davis Research says that because of the virus and unexpected new highs, days like last Monday will happen more frequently. On Monday, the market had a little “flash crash” dropping 725 points, its biggest 1-day loss since October.
The current shortage around the world is odd as well. Materials are hard to get, but those on the delivery end are charging high prices. The shortage is trickling down the supply chain, but as long as you are able to make a sale, you are alright. Let’s just hope things don’t get bottlenecked!
It’ll Be Rocky
The market was rocky this week, and that surely won’t end. It has to come off its all-time highs, but the earnings will push it higher. But worsening pandemic worries could bring it down. If supply chains survive and improve profit margins in an unorthodox way, earnings per share reports will rise.
I threw out a lot of different outlooks on the market for a good reason; there is a lot going on in the market right now. It can be hard to time the market, but not to pace it. Take extra caution with your market moves in the coming weeks.
The Federal Reserve System, known as The Fed, is the U.S’s central banking system. At the root of all monetary transactions, The Fed makes sure it all goes smoothly. The main goals of The Fed are to manage the money supply and maintain stability of the financial system. Most of the time, The Fed does not have to utilize its toolkit to influence the financial system. However, in times of recession or sudden volatility, The tools will be used and indirectly, The Fed influences the markets. The main tools The Fed uses most often are: open market operations, the discount rate, and printing more currency. Let’s start with the most often used tool, open market operations…
Influence Tool #1 | Open Market Operations
Open Market Operations are used more frequently than the other tools at The Fed’s Disposal. This is because OMOs take effect more immediately. For The Fed to influence the money supply using this tool it just has to go to the open market. Market operations are generally when The Fed buys or sells government securities. When the Fed buys securities, it is increasing the inflow of money into the banking system. This action brings more cash into the money supply which tends to make markets go up in value as there is more excess cash. When the Fed sells securities, it creates an outflow of money from the banking system. As expected, this will decrease the money supply and tends to make markets go down in value.
Influence Tool #2 | Discount Rate
This tool is used much less often and really only changes significantly in times of economic crisis. In addition, the discount rate’s effectiveness occurs more slowly as The Fed is not directly increasing or decreasing the money supply. The Discount Rate is the interest rate the federal reserve charges on its loans. Who gets loans from the federal reserve? Banks.
So when the discount rate increases, banks get less loans which indirectly decreases the money supply, and decreases market values. The inverse happens when the discount rate decreases. When the discount rate decreases, more banks get loans from the Fed which creates an inflow of cash, and increases market values.
Let’s say a $1-million loan from the Fed has the Discount Rate of 3%. Let’s say Bank-A decides to get that loan and Bank-B decides not to. This means that $1-million dollars is given to Bank-A and thus there is a potential $1-million entering the money supply.
However, let’s say that same loan had a discount rate of 1% and both banks decide to get that loan. Now there would be a potential $2-million entering the money supply! In essence, the discount rate doesn’t stop money from flowing but restricts the flow itself.
Influence Tool #3 | Printing More Money
This tool is used the least frequently and is fairly self-explanatory. The dangers of this tool is that once the printed money is put into the money supply, it is possible for rapid inflation to occur depending on how the money is spent. Generally, when money is printed market valuations go up initially.
How “Printing More Money” actually works is a little less self explanatory. The Fed does not print physical money itself. Instead, it submits an order to the Treasury Department which can fulfill or deny the order. If fulfilled the money is printed and then promptly distributed. However, the Fed can circumvent the Treasury by buying assets and paying for those assets with electronic funds. The electronic funds were basically created out of thin air! Or by computer key strokes, whichever you prefer. This is how the Fed “prints money”. Once again, The Fed only does this in extreme economic and financial situations.
Click here to get a more in-depth explanation: HERE
The Fed is an independent institution in the United States. This means that it is technically not part of the government and is thus less influenced by politics. In fact, The Fed tries to stay out of politics as much as possible. Which is very important when your responsibility is managing the financial system! The Fed’s actions influence the markets through their direct influence on the money supply. The Fed understands the power of its influence on the financial system and takes the responsibility very seriously.
In regards to the influences Fed tools have, understanding what each tools does can allow you to make some generic market predictions. Simply, if a Fed action increases money supply then markets go up. If decrease, then markets go down. These predictions are not precise but they are accurate. Overall, The Federal Reserve is a powerful institution in the world of finance and everyone should always be listening to what the Fed has to say!
If every batter in Major League Baseball could just wait until they got a pitched they like, it would be very hard to be a pitcher. Thus, there is a strike zone and a count, to make the duel between the pitcher and the batter much tougher. In investing, there is no such strike zone, so you have the power to wait for the right stock to the come. When it does, take the biggest swing possible, and keep swinging.
In our recent post about Warren Buffett and Charlie Munger, we discussed this approach they take when they find a stock they love. When the two were fully sold on Coca-Cola ($KO), they bought shares every day, no matter if the stock went up, down, or sideways. They believed in the business plan and the financials of Coca-Cola, and wanted every piece of it they could get.
What is Dollar Cost Averaging Exactly?
By definition, Dollar Cost Averaging (DCA), is investing a specific amount of money into an asset, regardless of the price. For example, John Doe is lucky enough to buy 1 Bitcoin per month. He decides to buy a Bitcoin on the 10th of every month. By doing this, John has eliminated the volatile fears of Bitcoin. On August 10th, Bitcoin could $40,000, on September 10th it could be $70,000, and on October 10th it could be $50,000. No matter the price John buys his 1 Bitcoin because he strongly believes in the long term future of the project.
Another way to DCA is by doing the infamous buying of the dip. Unfortunately, stocks can not only go up. But just because a stock or cryptocurrency comes down, doesn’t mean its done. Apple, Microsoft, and Proctor and Gamble are not invincible, they have their red days too. If you take advantage of these low periods and consider them a discount and buy them, you are Dollar Cost Averaging. Buying the dip is sometimes taken in a joking manner, but is practiced by big time analysts.
Breaking Down the Numbers
The benefits of DCA don’t stop at position size, it can really help your wallet as well.
If John Doe is willing to buy Bitcoin at $35,000 on September 10th, and the price of Bitcoin falls to $33,000 on September 9th, he has now saved $2,000. If the price slides to $30,000 in October, John saves himself another $5,000.
Other people see downturns and start to get scared, but with Dollar Cost Averaging, downturns are opportunities. In those two months, John secured two Bitcoins and saved $7,000. Others would have stayed away because of the slide. In 5 years, if Bitcoin is well over $100,000, no one will remember that dip. But will regret not buying more. As the famous quote goes;
“Be fearful when others are greedy and greedy when others are fearful.” – Warren Buffett
Specific Shares or Specific Dollar Amount?
Truthfully, there is not much of a difference between these two. However, when putting a specific amount of money, in you run into having to bump the number up if the price outpaces your contribution. Conversely, specific shares might hold you back if you can comfortably put more than you are.
Generally, as always know your beliefs and your wallet, and constantly look in the mirror as an investor.
Earnings season in my opinion are the most fun and interesting times for investors like you and I. Giving us fresh news that spice things up from the previous boring weeks. Not to mention the higher volatility that comes with earnings which could give some juiced up gains…
Over the next 4 weeks major companies will be releasing their Q3 earnings reports which cover Q2 financials & data.
Each earnings season has it’s own unique things that will be on the look out by Wall Street and other investors. For this season it’s 2 major points.
How have companies “bouced back” from the global pandemic 1 year ago? What changes have they made to adapt?
With cost of materials/goods being so high this year, have companies margins been squeezed? I will specifically be looking at profit margins and comparing them to past quarters.
“A company that can adapt to changes in the economy and envirnment, is a great company.”
– TJ Brescia
Retail companies will be under the spotlight as material costs are through the roof. I’m interested to see how the automakers report. Tesla, GM, and Ford specifically-($TSLA $GM $F). Since the semiconductor shortage threw a wrench into these business their reports should be interesting.
I will also be looking at AMD ($AMD) and Nvidia ($NVDA) closely because of the semiconductor issue. There entire business relies on it…
Why Profit Margins Will Be Extra Important
If you read my article on stock valuation tips you will know what I’m talking about.
Gross Profit=Revenue-Cost of Goods Sold (COGS)
Cost of goods sold takes into account the materials used to make a sale. Since lumber, metal, and other commodity costs are so high right now it could drastically lower Gross Profit.
Say Apple reports an increase in revenue from last quarter, but cost of goods increased more than revenue. On the surface it seems like everything is going well because revenue jumped. But in reality the higher cost of goods decreased profits. Which can be the case for many companies this time around. Profit means everything!!
Companies that are still new and growing at fast paces will be looked at closely as well. Seeing how their business adapted to the pandemic changes can tell a big story moving forward.
For example, Uber ($UBER) recently made it known that they are charging higher rates on drives. Not only because of the labor shortage, but because they are ready to start being profitable. They recognized how many users they had which led them to raising rates. I will be looking to see how many users they are reporting for Q2, and forecasting moving forward.
Spotify $SPOT is another company that I want to keep an eye on. Their last earnings report was awful, showing poor user growth. The last three months has not been good for the company. I really like the product they give out but would like to see them add another piece to their business that will drive user growth. Right now subscriber fees and ad-revenue is not cutting it for me.
Earnings can be scary sometimes with the increase in volatility. You can wake up one morning to see a stock you hold dropped 10% overnight.
Know this, just because a stock releases bad data does not mean it will continue to release bad data. It is big money managers over reacting to a piece of 3 month quarterly information.
If one of my stocks that I hold drops significantly from bad earnings I’ll more than likely buy that dip. You should think of doing the same..
Despite a large reopening after the pandemic scares, the labor market has lagged heavily. If you’ve been going to stores and restaurants, you have seen a lot of help wanted signs. This seems like an easy problem to fix —- raise wages. On the surface, this is the answer, but when you dig deep, its not so easy. When you combine low wages with baby boomers leaving the workforce, you have the 2021 labor market. Today I will discuss why this is a problem and how it can be solved.
Boomers are Done
When the pandemic first hit almost everyone was out of work. This time period left everyone a lot of time to reflect, and many people changed their outlook on work. Yahoo Finance reports the number of people age 55 or older in the labor force is down since last fall, while other age groups have seen a rise. Many older people lost their jobs and figured they were better off retiring now than trying to find better work. God bless them, but this has caused turmoil to the labor market, and eventually to the economy.
Due to pandemic aid and unemployment benefits, Social Security claims have been low. But with so many early retirees, Social Security will not be ready for this many potential claims with less payments in the system. Triggers like this can potentially lower the value of financial assets, as the value of this fund is heavily sought after.
We need boomers working. In their later years they are willing to take on low intensity jobs before they hit retirement. With them hitting the boot early, combined with the following factors. We are left with the massive labor shortage we have today.
The hiked unemployment benefits people experienced over the past year due to the pandemic was a major reason for this labor shortage. The weekly dollar amount varies by state, but overall, the majority of people were receiving more money than they ever would working at a job. Personally, I can’t blame them, why work when you can make more money doing nothing? Although people ignore the potential tax stipulations of unemployment, but that’s a problem for another day.
But with this many people out of the force, companies have struggled to fill job openings. Restaurants that managed to survive a pandemic may lose out because no one wants to work. With low production some smaller stores simply cannot be open for their normal hours. When stores are closed, people have less opportunity to spend. If people aren’t spending the economy lags. When these benefits get slashed, people will spend much less at stores that are open for much less time. Do you see the potential snowball effect?
Is Raising Wages a Solution?
If wages were raised one month ago, this problem could’ve been fixed very easily. But they were not and the process has been sped up. Slashed unemployment will lead to people searching for work. It’s been proven that minimum wage really isn’t enough if you are renting. Workers now will be at a struggle with less money to spend. Businesses will be at a bind because if they raise wages, profit margins are affected. In turn, they will hire less people despite needing more, in order to protect profits.
If they opt to keep wages the same, those forced to work will work, but will not be as productive, making their role marginal. When something is marginal in the business world, it is basically just the bare minimum in terms of production. Had wages been raised earlier, the snowball could’ve been stopped, or given the business community more time to adjust to the inevitable employment shifts.
Now what we have for the labor market is a very scary future. Personally, I see a lot of ways it could play out poorly, and a few ways everything works out okay. Simply it all depends on the time things enact and if they do. As business cycles work, some companies will figure it out and some will falter.
When it comes to finance, stocks are always at the center of everyone’s attention. Lately, cryptocurrency has entered the limelight as well. Both of these securities have strong connotations around them. Stocks and cryptocurrency are famous for their ability to build your wealth and infamously known for making some rich overnight! However, what is not often talked about is the taxes that are paid on stock and cryptocurrency gains. Ah yes, the dreaded capital gains tax always chips away at your returns. In this article, I’ll talk about an investment option that completely avoids federal, state, and local tax. This security that isn’t taxed is called a municipal bond.
Before we get into the municipal bond, let’s review what a bond is exactly. Unlike a stock, a bond has guaranteed return once you purchase it. The main aspects of a bond are the par or face value, the coupon rate, and the maturity date. Here’s a quick summary of what these are:
Par or face value: The principal value of the bond. Generally, this value is $100 or $1,000, and this value is used when calculating the interest payments.
Coupon Rate: This is the rate of interest, on the face value, that will be paid to the investor over the life of the bond until maturity. Ie: a 4% coupon rate on a $1,000 bond would mean $40 gets paid to the investor every year.
Maturity Date: The maturity date is the date on which the bond “expires” or matures, and on this date the investor is paid back the face value of the bond.
Let’s say you buy a bond at par value of $1,000 with a 5% coupon rate and 4 years to maturity. This would mean you would receive $50 every year for four years and at maturity you would be paid back your $1,000. In total, at maturity you would have received $1,200.
Now let’s get into Municipal Bonds. These bonds are special as they are not subject to federal, state, or local taxes (except in some cases). This is important because it means that the gains you get from the interest payments are completely tax-free. Gains from stocks are always taxed either with short term capital gains or long term capital gains. This creates the possibility for municipal bonds to be a safer investment option that can yield an equal return compared to a stock.
Here’s an example:
Let’s say you’ve held the S&P 500 for less than a year then sold. You got the average return of 8%. Since you held it for less than one year, you will be taxed at a short-term capital gains rate dependent on your tax bracket. Let’s say you’re in the 32% bracket. This means that your effective return is really 5.4%. An equal return with a municipal bond would be a municipal bond with a 5.4% return.
All this being said, municipal bonds don’t often offer high yields above 2%. The municipal bonds that do offer a yield higher than this likely have a low credit rating. A bond with a low credit rating is riskier which removes some of the benefit of buying a bond, guaranteed return. The game between risk and reward is a hard balance to maintain. Everyone is different and at different points in their life, so all of those factors should also influence your investment decisions including your decisions on bonds. Overall, stocks often have more risk and reward than bonds do. Municipal bonds are special in that they even the playing field a little bit by removing taxes from the return equation giving some incentive to invest in them. Lastly, always consult a professional and consider your own investment options!
Buying ETFs (exchange traded fund) as opposed to regular stocks can help investors manage risk. An ETF tracks an index, sector, commodity, or another form of asset and can be bought and sold on any traditional platform. Buying an ETF for an industry rater than one stock in the industry is much safer. If that one company fails, your investment fails. But, if the industry does take off like you expected, the ETF will have you in full gear. The growing industries below are ones I believe have the potential to take off in the 1-3 years.
Aerospace – $XAR
When people hear Aerospace they think of spaceships and space hotels. There is much more to Aerospace than this. Aerospace has a wide functional opportunity as it is purposeful in military, industrial, and commercial aspects, which is what qualifies it to be one of the growing industries. This is not a small industry as it is valued at $838 billion, and has a wide range of companies. Boeing ($BA) and Airbus ($EADSY) are common names as they are responsible for most of the aircrafts and bus systems. The industry begins to draw me in though because of the new ideas that are soon to come.
e-VTOL stands for electric vertical takeoff and landing and these vehicles will be here before you know it. They are planning to be used by air taxis and will allow people to travel ideally city to city at a much faster speed. Uber ($UBER) had a division called Uber Elevate dedicated to this type of travel, but the pandemic forced them to sell to Joby Aviation. This kind of angle on commercial travel, as well as the goals of many such as Richard Branson to have commercial flights to space is what pulls me into Aerospace. If things like this can be accomplished, the commercial part of the industry alone will propel it higher.
$XAR is currently at $132.60, an All-Time High for the Aerospace ETF. The four major holdings of this ETF, are;
AI has been on the scene for awhile now, but its recent normalization is what attracts me to it. Self-driving cars are no longer a wild thought, and Artificial Intelligence has even been used to replace doctors in annual checkups. The use cases of AI does not stop there though, all the capabilities of it is very broad and why it is quickly taking over everyday life.
Everyone has experienced the odd feeling of talking about or looking at a product, then getting an ad for it. This is AI working, tracking what catches your eye and what doesn’t, then putting it in front of you. AI is also using machine learning to detect odd financial behavior by an individual and discovering fraud, well before any human could find it. These are two of the many examples of AI, and the broadness of these examples show you just how capable it is.
Cathie Wood is the genius behind Ark Investments, one of the best performing asset management companies in the past two year. Her Artificial Intelligence specific ETF ($ARKQ) has major holdings of Tesla ($TSLA), Trimble ($TRMB), and JD ($JD). In the past year ARKQ is up 68%, and has seen a high of $99.68. Currently it sits at $84.72
We have discussed the power of cryptocurrency plenty of times here, and I will link some of those articles below. Cryptocurrency can be a game changer for data verification and the transfer of information. Analysts have said the strides cryptocurrency has made in the past five years will be trumped by its strides the next two years. Sounds like one of the best growing industries to me!
Grayscale is a cryptocurrency specific asset management firm, and $GBTC is their crypto large cap ETF. The contents of this ETF are Bitcoin, Ethereum, Cardano, Chainlink, Litecoin, and Bitcoin Cash. Grayscale holds 46% of all the Bitcoin that is held by publicly traded companies. So if $35,000 is a little too much for you to buy a bitcoin, buy some shares of $GBTC instead.
$GBTC sits at $28.58, and is considered to be at a 9% discount to its fair price according to MarketWatch. The ETF reached a high of $56.70 back in February, and can very well return there before year end. Grayscale added Cardano to this fund yesterday, and made it the third largest holding of it behind Bitcoin and Ethereum.
Prices have increased everywhere. The most prevalent being gas, lumber, retail pricing, automobiles, real estate, and service costs. What intrigues me most is the rate at which stock market pricing is increasing. Take a look at the 5 year chart on the S&P 500.
Look at the rate of increase since the March 2020 drop. It appears to be going straight up rather that slowly increasing over time like the first 80% of the chart (July 2011-2019).
The amount the market has gone up in the short time frame from March 2020 looks concerning. You might be thinking….
“What goes up, must come down.” “The market can’t go up forever.” “The quicker the rise, the harder the fall”
I was thinking this at first, but I don’t think it is as bad as it seems and heres why.
The amount of money in our economy has gone up significantly. As of right now there is $2.18 trillion of US currency in circulation right now. In 2017 there was about $1.5 trillion.
Looks similar to a graph of the stock market right?…
I’ll read you a headline from CNBC News on April 9th, 2021 – “Investors have put more money into stocks in the last 5 months than the previous 12 years combined”
Households Got Wealthier
Wall Street Journal quotes, “U.S. households added $13.5 trillion in wealth last year, according to the Federal Reserve, the biggest increase in records going back three decades.”
Families did not spend as much money on cummuting expenses, eating out, services, and other retail items last year. Also, families recieved unemployment benefits. They put their extra money into the stock market. The American population “pumped” the stock market with their money.
Checking account balances throughout America increased during and after the pandemic. More specifically the lower income earners due to stimulus and unemployment checks.
If you’re wondering why the stock market has pumped so much here is the reason. It’s always a good feeling when changes in the stock market have a clear reason.
Picture yourself as a business owner, what would you do if all your customers had more money in their pockets to spend? Yup, you would raise your prices. This is the simplest explanation of inflation you’re probably telling yourself.
But let me ask you these questions….
Are the higher prices you’re paying for a problem if you have more money to spend? Did things really change? No, things are just changing on numbers you arent used to seeing.
Are your larger stock market returns significant if the prices of everything are going up?Probably not, so I wouldn’t worry too much on if themarket seems euphoric right now.
Back To The Title of This Article
I think the higher pricetags on items are here to stay. The government and Fed have made a habit of increasing monetary stimulus (money printing) into the economy. It does not like like they will never do it again. This leaves Americans with more money in their pockets, and higher prices to go along with that. Its been going on for decades, why would it stop now?
Even the minimum wage is in talks of getting raised. Which only adds to the fact that higher prices will continue to stay.
A stock split is one of the best ideas to ever enter the stock market. Without stock splits, buying one share of Apple ($AAPL) would cost you about $27,957.44, according to Business Insider. Instead, one share of Apple costs $133.38, a price people are much more willing to spend. Some people view splits as a signal to load up on shares, but others think its better to remain patient until after the split. Some take a split as a signal to stay away from a stock. Regardless of your outlook, a stock split gets everyone talking!
What Exactly is a Stock Split?
When a company deems its stock to be too high, they perform a stock split. This means they give shareholders more shares while reducing the price of the stock in relation. Last summer, Tesla did a 5-for-1 stock split. This means if someone had one share of Tesla, they now had 5 shares. At the time of Tesla’s split, the stock was about $2,300. When the split occurred it went to $460, which is just $2,300 divided by 5.
By creating this split, Tesla once again became more accessible to lower capital investors. Lots of people want to get some shares of Tesla, but $2,300 is a little too much. $460 might get more investors, and Tesla was aware of this when they made this decision. Doing this has no significant financial impact on a company or a shareholder since everything moves in relation.
Should You Buy Before or After the Split?
There is no definitive answers to this question. Recently we have seen stocks run up hard the month before their split. Although, after the split they have struggled a bit. Apple tapped $138 two days after its split, but 10 months later it is below this mark. Tesla is well over its split price, but hasn’t moved like it did the months before announcing the split. Still, both stocks are on the slow grind upwards.
The good thing about buying after the split is you can see how the stock reacts to the split. But if it shoots up, you’ve missed out on some dollars. Splitting up your planned investment in half for before and after might be your best bet.
Which Stock Will Split Next?
A stock we have talked about extensively before is set to split very soon. The chip maker Nvidia ($NVDA) is an industry leader in a high ticket market. Click here to read about our break down on this game changing stock.
Nvidia will issue a 4-for-1 split after the market closes on July 19th. Currently Nvidia trades at almost $800, so on July 20th, shareholders will see one share costing almost $200. This will be a great opportunity to get in on an industry leader in a growing market, an opportunity that does not come often.
A common question once you start buying into stocks is, “How many stocks should I buy in my portfolio?” A lot goes into this answer…
“The more stocks you hold, the more your portfolio tracks the entire market. With a small account the goal should be to outperform the entire market.”
– The Common Trader
Many people will tell you different things, myself included. Believe it or not my partners disagree with me a bit on what I think. I’m here to share WHAT I BELIEVE the best apporach is depending on account size.
My opinion, not advice.
Portfolio Under $10,000
You may hate to hear this but this amount of money won’t make you rich with stocks. Don’t act conservatively with this amount, BE HIGH-RISK.
The reason I say this is because say you have all $10K invested. The market dips a massive 20%, which is extremely unlikely by the way. you only lost about $2,000 depending on what you bought into. $2k is meaningless when you think 20 years out. You will do yourself a disfavor by not taking the risk now.
“You can invest with less risk and make more money in the stock market. All you have to do is not be an average investor.
– Robert Kiyosaki
5 stocks max is your best bet.
No total market ETF’s (Don’t own $SPY!!)
1 Dividend, blue-chip, Stable Stock. (Not 1 of each…)
2-4 High-growth stocks.
1.) The reason I say nototal market ETF’s is because they produce lower & more stable returns. These kinds of returns won’t propel the account by much. 8% a year on $10k is only $800… Your yearly contributions will be more than the returns. Take some risk.
2.) The high-growth companies will give very good returns if and only if they are solid business’s. If they don’t, you took a great risk and only missed out on an $800 opportunity cost if you invested into ETF’s as an alternative.
Some of my favorite high-growth companies that are currently in production/conducting service are Zillow $Z, Peloton, $PTON, AMD $AMD, and Nvidia $NVDA. These comapnies are growing at high rates while bringing in revenue. Meme stocks posted on Reddit that are projected to have revenue 5 years out don’t fall under this category.
3.) 1 blue chip company because this stablizes your portfolio, while it also gives you that chance to outerform the S&P 500. Which should be the goal with a small account. Tech has been hot and will continue to be hot for years to come. I like Microsoft the most $MSFT, then Apple $AAPL, and Google, $GOOG.
Now you have a solid amout of money in the market which can make some serious gains on a yearly basis. Age is a big factor in determining how this porfolio should be split up.
If you’re in your 30’s with this account, taking a more moderate approach is in your best interest. Allocate around 50% to total market ETF’s. Anywhere in your twenties, taking a very similar approach as a sub $10k account is what I believe is the best option. 20%-30% dedicated to total market ETF’s
8 stocks max is best suited for this amount.
1-2 big ETF’s ($SPY, $VO, $FTEC)
3-5 High-growth stocks
2 Dividend, blue-chip, Stable Stock
If you have this amount good for you! I sadly don’t have enough experience yet to give my opinion. I am not a licensed advisor and maybe you should seek one if you have serious questions on your portfolio diversity.
Investing in the market over a long period of time has proven to do well. However, if you can beat the market for a long period of time the returns can be incredible. Beating the market doesn’t always mean being in the green. Sometimes you might be in the red, but if you are less red than the market, it’s a win. The barbell approach will do just this when there is red, and yield higher or equal returns when green.
What is the Barbell Approach
Everyone has their own outlook on what should be in a portfolio. A barbell approach just decides how the contents of the portfolio is balanced. The barbell approach I will discuss has three contents: Bonds/Dividend Focused investments, growth focused etfs and stocks, and sectors with big potential in the near future.
For those of you who are not gym rats, the diagram above shows a common barbell, a popular tool used to lift weights. On either side of the barbell, you need equal weight to ensure a proper lift. But don’t forget, the bar itself has some weight to it too. Once you properly balance out your weight, you are ready to lift!
The point of the barbell approach is to be able to secure growth when the market is good, and to be able to rebound faster than the market after a large market downturn. This type of downturn is one of more than 10% in a couple of days.
How the Barbell Approach Works
Bonds/Dividend Producers (40%): In this part of the barbell, you have investment vehicles you are strictly looking to collect from. If these assets go up, down, or sideways, you don’t really care. You are just looking at the quarterly or monthly payments you collect from them. Ideally, these assets will not be affected much by a downturn. A good dividend producer is the etf $DVY, which pays $3.73 annually in dividends. One can also buy High Rated Corporate Bonds such as AAA or AA, or anything BB and above. These bonds hold their strength against the market well and pay favorable coupon rates (monthly payment for holding the bond).
Growth Stocks/ETFs (40%): On the other side of the barbell, you play a riskier game. These investment vehicles you are in search of long capital gains from. This can be the market itself by investing in the S&P 500 ($SPY), or $SCHG, a large-cap growth etf, or in specific stocks that have passed the test of time. These might be Apple ($AAPL), Amazon ($AMZN), or Berkshire Hathaway ($BRK.A). Even when the market dips, these assets have proven to recover and rise higher.
Individual Sectors (20%): The previous two parts of the barbell approach are the weight on each side. This last part is the actual bar, which holds the added weight in place. The individual sectors you hold will be smaller percentages of your portfolio, and you will ideally hold them for less than a year. This part will consist of any specific sector you believe will have a good 6-12 months because of current economic conditions.
An example of this would be buying $ONLN when the pandemic first happened, because online retail was sure to rise since people couldn’t shop in stores, which it did. Now, someone practicing the barbell approach might sell their $ONLN, and buy $JETS, an etf which follows airlines.
How to Max Out the Barbell Approach
The saying never fails, “Everyone is a genius in a bull market.” You don’t need a strategy when everything is going up. When the market begins to slide is when having a proper strategy pays off. The growth side of the barbell will be hit pretty good when there is a dip. Instead of taking all the weight off when things go south, use the income from the other side to strengthen your position. If you are invested in confident assets in the growth area, they will recover, and you will have more money than before the drop. This is called Dollar Cost Averaging (DCA), a common investing practice. The money will still come in from the safe side, its just a matter of getting the barbell back even.
This method has proven success to keep pace with the market in good times. The true power of the strategy comes with how well it combats the bad times. If you fear market dips and are waiting to time the market, try this method right away instead.
The crypto market has been somewhat stagnant since the crash in May. Since this crash, Bitcoin ($BTC) is still down 16%, but it has recently gotten over $40,000. Check out TJ’s latest post where he takes a deep dive into the whole crypto market. For a better understanding of Chainlink, watch the quick, 3 minute video from 2020 tagged at the bottom before or after you read.
Chainlink ($LINK) was first mentioned by us at around $3 in April of last year. Since then Link has reached a peak of $52.99 in the early days of May! It now rests at $23.75 after the crash, and shows strong resistance at $20. Only briefly did it slip under $20 when the crash first occurred.
Looking at the chart alone, Link is looking like a very strong buy. Whenever you look at a crypto chart, you almost have to look at Bitcoin’s. The first ever crypto currency heavily decides which way the overall market goes. Link has touched over $30 since the crash a handful of times, but has struggled to remain over it. However, the longer it can build strength in the mid 20s, the more of a buy it becomes.
Chainlink has some revolutionary use cases for an already revolutionary technology in blockchain. Use case is a term in crypto for what purpose a coin holds. I prefer to buy coins which have specific use cases, as I believe when there are specific goals for a project, it is easier to hone in. If a coin has a broad use case such as “developing NFTs” there isn’t enough there for me.
The main focal point of Chainlink is smart contracts and oracles. Chainlink can take real world data, which is considered “off-chain” and bring it on-chain, by way of the oracle. For instance, if a company wants to collect and analyze the attitude and behaviors of their employees and adjust their payroll accordingly, Chainlink can bridge this connection and adjust the payroll, extremely efficiently. The agreements made between the data and the payroll adjustment is considered the smart contract.
Chainlink also has dabbled into the highly popular NFT market. Recently, professional basketball player, Lamelo Ball of the Charlotte Hornets, partnered with Chainlink. He created four NFTs tied to different aspects of his play such as points, steals, etc. As his career progresses and his stats improve, Chainlink will take this data and apply it to the NFT, making it a dynamic NFT. Consider the dynamic being almost like a software update. The better Lamelo Ball does and the accolades he gains, theoretically the more valuable the NFT becomes. It is almost like a digital trading card. This can only be accomplished, by the power of Chainlink.
What The Future Holds
Chainlink is at a discount right now. Its use cases are practical and revolutionary. Its chart shows proof of potential. Even with the crash, Link is up 478% in the past 1 year. The next two points could make Link replicate that 1 year gain again this year.
Gas fees in cryptocurrencies is basically transaction costs in simple terms. Exchanges such as Ledger and Metamask charge a gas fee in purchases and sells, paid in Ethereum. This means even if you are buying Dogecoin, you still need some Ethereum in your wallet to pay the gas fee. There have been a number of reports coming out you will soon need Chainlink to pay the gas fee, and not Ethereum. This will directly lead to just more people holding Link in their wallets.
Chainlink will also undergo staking in the next 1-2 years as well. To simply put it, staking is similar to a dividend in the stock market. Right now you can earn interest on Link and other coins in certain exchanges, but this is not the same as staking. With staking you will be rewarded for the amount of a coin you hold, and will earn interest on the staked amount of the coin. Right now your actual holdings are put for collateral on the interest, but when staking is live your holdings will be safe, and the staked coins are what will be risked for the interest. All in all, accumulate your coins now, so you have a high staking priority when it comes time.
This is not the first and last time we have discussed Chainlink, there is a reason for this. As Warren Buffett and Charlie Munger said, when you see your perfect pitch, swing!
Crypto has taken a giant hit since late April. Bitcoin has been spending significant time down as much as 40%-50% from its Februrary highs of $65,000. Other coins like Chainlink and Ethereum have been down over 50%!!
So whats going on? There is no clear answer as to why crypto has been down so much. Some say its because of Elon Musks tweets about Bitcoin being very energy inefficient. Others will claim the “Crypto Bear Cycle” or “Crypto Winter” has just begun.
This is what crypto does. Major market swings are not uncommon at all. In my opinion, it was just a big dip, then a lot of panic selling, to make a MAJOR DIP. The fundamentals of Bitcoin and other major coins have not changed, which is what everyone needs to know.
What Is A “Crypto Bear Market?”
Simply put, it is a time period where Crypto is in a severe downtrend. Usually lasting several months to even 2 years. There are hardly ever any green months, just flat or downward price action. Since Bitcoins creation in 2009, crypto has seen 4 bear markets. The last 2 being in 2013 and 2018.
Crypto Is Still Young
Bitcoin has been around for only 12 years!! You were born before Bitcoin…
The point I am making is that there is such a small amount of data and past history to determine whether or not we are in a bear market for crpyto. An asset class this young is going to have massive dips, high volatility 24/7, and small market caps no matter the cycle timing.
People say 2 years after the halving the bear cycle begins, Bitcoin will hit $100k then the bull cycle ends. Or price has to bounce off this moving average or else it’s bad news for crypto, other technical chart analysis, and more profound statements. The fact of the matter is there is not enough past history to make clear cut statements about what Bitcoin will do for the next 12-24 months.
No one person is educated enough to predict prices on an asset class that is not even 2 decades old.
Here Is What We Do Know
Bitcoin and other cryptocurrencies are being adopted like never before. Major banks and institutions are buying or thinking about buying coins as assets on their balance sheets.
Bank of America
Companies are starting to see how useful cryptocurrency & the blockchain are. They not only see the price value, but the use case as well.
More wallets than ever before hold crypto.
Smart contracts & the blockchain are being used for real world events.
NFT’s serve a real world purpose.
Stores are accepting crypto as payment.
Crypto Investing Rules.
The crypto market is NOT like the stock market. – Crypto is more volatile. – Crypto will give higher returns, but can also give higher losses if you’re not careful. – Stocks move 0%-3% a day on average, crypto moves that much in 20 minutes…
If you won’t buy more of your crypto if it’s down 50%, don’t buy any at all. – As a crypto investor you must come to terms with 50% swings in your portfolio and be unfazed by it. – If you can’t follow this rule on any of your assets, then they are not good assets. Goes the same way for stocks. – If you buy solid crypto projects you will have no problem buying back at lower prices.
Have plenty of patience. – 90% of crypto coins are in development mode, meaning they aren’t being used for real life actions. You’re buying into speculation and future predictions for now. – The reason to invest in crypto now is because you believe crypto will be an everyday. use case in 10 years. – Suffer the 50% down months now, for a future of prosperity.
Don’t overallocate yourself. – Buying too much crypto puts your net worth at a huge risk. – Make sure you put in an amount you are comfortable losing. The stock market is not like this.
Is Now A Good Time To Buy?
I’m not saying the bottom is right here this very moment. But I will say now is a tremendous buying opportunity.
I bought more because I like my crypto assets still. Nothing about their fundamental changed, only the price changed. I see it as a 50% discount, so i went shopping.
Even if we are in a “bear market,” buying at 50% off the highs is still a great price point. All you can do as an investor is research your assets, buy the dips if no fundamentals change, and be patient.
The common story line you hear from young investors is they want to make it big in the stock market, then use that money to flip houses. I am in no way saying this is a bad plan, it is actually a good string of goals for a young person. What I will say is this is not easy, and doesn’t happen as fast as people think. However, it is possible. Flipping houses is a very attractive investment vehicle because of the large sums of profit, with high profit margin. If you renovate properly and sell at a good time, your returns can easily be upwards of $150,000. I will discuss aspects of house flipping, and what to do or not to do to achieve the massive gains.
What is House Flipping?
The act of house flipping is purchasing a home, making various improvements to it, then putting it back on the market at a higher price. House flipping is sometimes confused with purchasing rental properties. Someone who has rental properties is renting all or parts of a home and using this cash flow to pay off mortgages or for profit. The major difference here besides the cash flow is time. Rental properties are to be held for years and becomes more like passive income, while house flipping is to be done ASAP, making it active income.
When house flipping, most are looking for “Fixer-uppers”. These homes are run down and often foreclosed. However, with effective improvements to the home, it can look like new, and drastically raise the value. Sounds simple enough, right?
The 70% Rule is a common rule amongst house flippers when factoring costs to purchase and fix a home. Knowing how much to spend on a home will help guarantee you are putting your money in the right place. By estimating the after repair value (ARV) of a home using surrounding home prices and other factors and multiplying it by .70, and subtracting the repair costs, the rule gives you the maximum price you should pay. Example below:
After you spend $25,000 to repair a home, it will be worth an estimated $150,000. By rule, you should spend no more than $80,000:
$150,000 x .70 = $105,000 – $25,000 = $80,000
Now, you know exactly how much you can invest into the home. Theoretically, the remaining 30% is considered to be profit. This can’t be farther from the truth, as there are many hidden costs in house flipping that start to add up…
If you had to take a second look when I said to spend no more than $80,000 on the home, I don’t blame you. $80,000 is not chump change; house flipping is a very expensive investment. Unless you are lucky enough to be a cash buyer, you will take out a mortgage to buy the home. Most mortgage require a 20% down payment, meaning you must pay 20% of the home value you right away. If a home costs $100,000, the bank expects $20,000 from you at the start. The remaining $80,000 is what makes up your mortgage, and the monthly break down of it is your mortgage payment. While the mortgage payment can be tax-deductible when you sell your home, the interest payments are not. The longer you take to fix and sell the home, the more the interest payment eats at your 30%.
Hiring a contracting team to fix the house can be a hefty check as well. A good way to avoid this is by being able to do the work yourself, or a small group. If you are blessed with the ability to fix homes, this is definitely the better route.
Another cost when flipping a house is agent fees. If you hire a real estate agent to help you buy or sell property, you will have to cover their payments. If you decide to sell on your own, you will have to pay to advertise your home so others are aware you are selling. Another cost to factor is your capital gains tax, which is taxed depending on your income bracket and the size of the gain. However, there is a way to avoid this tax! A 1031 Exchange allows someone to reinvest their real estate gains into a likewise investment, tax-free. So once you sell your property, if you actively look for a new property, you can duck the capital gains tax.
Time is Not Your Friend
I have alluded to this many times already, but being a house flipper has to be quick. The interest payments will stack up for sure. Your personal time will be affected as well, especially if you are fixing the home yourself. Also, once the house is ready to sell, you will have to be available to show the house to prospective buyers. If you work a 9-5, consider your weekends and nights gone when you are trying to flip a house.
Don’t think it is impossible though! There’s 168 hours in a week, you will be able to find time!
Knowledge On the Housing Market
Picking the right house isn’t easy. A good way to measure the value of a home is comparing it’s lot size, number of bedrooms and bathrooms, and price to that of nearby homes. If you can find a run down home in a nice neighborhood, the profit margin can be huge. This is why having a real estate agent with you can help, as they probably have more knowledge on the subject than you. They will also help you to remain patient. Taking your time to find the right property will lead you to more profit than buying the first house you see.
My father has been a Real Estate Broker for more than 15 years in New York and Connecticut, and he says there’s no better tool than patience when purchasing a home. I got my Real Estate license this past January and have seen the importance of having patience first hand for both parties. The payout and lack of headaches makes the wait worth it!
The tone of this article sounds like I am against house flipping. I am all for it! The profit margin can easily exceed 20%, something that is hard to replicate in the stock market. The amount of money and time liability that must be taken for house flipping though makes it a big process. It’s not like buying a stock today and selling it next week. As long as you are prepared, you can be the next great house flipper.
The most pressed economic issue over the last 2-3 months has not only been inflation fears, but in fact, inflation effects. Prices have surged, supply chains have been bottlenecked, and unemployment is still higher than it should be.
Recent CPI reports have shown clear data that inflation is in fact here. Both April and March are subject to this. CPI is the “Consumer Price Index.” It measures price changes in everyday goods, such as gas, grociers, services, etc.
April 2021 CPI data up 4.2% from April 2020
March 2021 CPI data up 2.6% from March 2020
The CPI report for May is this Thursday June 10th, investors will be watching. If inflation is foreign to you, check out an article we published a few weeks ago.
What worried me the most was the ignorance of the Federal Reserve and US Government. They saw inflation was here but took no action to combat it. Yes, it will work itself out over time, but some initative should have happened earlier.
Unemployment benefits should’ve and still should be lowered, giving people incentive to return back to work.
Interest rates rising or not is out of my realm of fully understanding. I won’t say they should have risen or not.
Nevertheless, Biden wants to combat supply chain issues by bringing more manufacturing into the US. He plans to do this through funding. I love the idea of America being the main plant for manufacturing & production, thus providing more jobs, which are needed in these times. However, Bidens future plans for the most part are only being carried out through massive funding, which I am weary of.
“The administration will establish a supply-chain disruptions task force to address near-term bottlenecks that can affect the economic recovery.”
$50 billion in funding for semiconductor research and production in the US.
$60 billion in funding for pharmaceutical production in the US.
Agriculture funding to fight US food production slow downs.
Everything Is Subject To Inflation
Everything with a pricetag is affected by inflation. Real estate arguably less because of the land value. Stocks are especially subject because of how many companies have loans to pay off. So what should you do with your money…?
Move some money into value stocks. If you have a bigger portfolio, I would move some money into giant companies that are “too big to fail.” My favorites are Microsoft ($MSFT) and Disney ($DIS). The little to no debt these companies have means less inflation worries for them. And their products will always be in demand since they’re top of the line. They have nothing to worry about.
Move money into Gold or other commodities. Real, physical items are always in demand no matter what.
If your account is smaller it might not be worth putting money into these low-growth, low-risk value stocks. Just do want you can to increase your income and buy into your high-growth companies. Your portfolio number now will be insignificant compared to 10 years from now.
Does Inflation Scare Me Right Now?
After what I just said you might think so. I believe for the rest of the summer and even into some of the fall season the market has a high chance to remain flat, or trend slightly downward. There is nothing happening right now that could push the market to all time highs.
I still look at the bigger picture though. If the market dips, buy more. 10 years from now you’ll thank yourself for buying the dips.
When the March 2020 crash happened, many investors preached about a “V-Shaped Recovery”. When we were at the bottom, I thought they were just trying to sell the public a pipe dream. For how ugly the market had looked for about two weeks, I was sold there would be another leg down, especially with no businesses open. Nonetheless, I was quite wrong. 15 months later and the market overall is higher than before the crash. Most businesses have been able to now look past the pandemic, or have found a way to use it to their benefit. Cruise line stocks have not seen this complete recovery though. They have grinded higher over the 15 months, but still have substantial room.
This post from December 12th shows an excel analysis of stocks that hadn’t covered their drop but would benefit from the vaccine. In this analysis we discovered the cruise line sector was the most opportunistic, at the time they were missing on average 50.23% from year highs. Norwegian Cruise Line Holdings ($NCLH) was the best individual stock as it still needed 55.67% to close its 88.24% drop.
Where The Cruise Lines Are At
Seeming that air travel is more of a necessity than cruises, airlines have erased losses a little more. Although, cruise lines have recently begun to rise. In the past month Royal Caribbean ($RCL) is up 11.6%, currently sitting at $94.07. $NCLH is at $32.12 and is up 12.78% this month, with Carnival Cruise Lines not too far behind at $30.54, up 14% this month.
If you were lucky enough to buy all three of these right after the blog post on December 12th, you would be up on average 35%! Having this confidence of proven recovery with room to go still makes each cruise line a buy. The vaccine has lowered worries around Covid-19. Even though cruises can be a hot spot for a virus, most are planned to resume globally sometime in mid-summer.
Recovery = Good Quarters
The recovery is not complete yet, and it is certainly not too late. According to USA Today, people have been booking cruises 6+ months in advance, just waiting for restrictions to be lifted. Plenty of cruises have been burning cash trying to stay alive during this pandemic. When the revenue starts coming the quarterly reports will be incredibly improved.
Sometimes the market can be what I like to call automated. If a company can beat earnings expectations one quarter, the stock price has a little surge. But how is this expectation formed for the most part? By performance over the past few quarters, fundamentals are not tied into the expectation enough. Analysts won’t factor in enough how much consumers will react to the resumption of cruises and they will continue to look at the burned cash. All the cruise line stocks will have low expectations, and when there’s a big beat, things can get rocking!
Ask yourself this, “What do I look at before I buy a stock?” Chances are you don’t look at what you should be loking at. Just looking at a stocks chart, revenue, profits, and what tik tok says is not a good valuation. Once you start investing with bigger sums of money, you can’t afford to make mistakes as often.
Looking at more in depth metrics and numbers gives a better understanding if a stock is expensive or not. The metrics I am about to share are not complex, so don’t run away too early. In fact, they are based off of what you’ve been looking at already. The revenue, profits, and growth percentages.
The best way to determine whether a stock is cheap or expensive is to compare it with it’s closest competitors. If one company’s numbers are inflated when compared to the other it could mean the stock is overvalued. Not always, but it could.
Comparing analytics on Starbucks ($SBUX) vs. Tesla ($TSLA) for example, may steer you in the wrong direction. Their business models are incredibly different. The profit margins, sales numbers, etc. are going to be far different numbers. Selling coffee vs. selling cars are very different fields and shouldn’t be compared the same way.
This one is really easy. Enterprise value (EV) is the true value of a company. It is the market capitalization, with debt and cash included.
Market cap = share price x number of outstanding shares
Enterprise value = (Market cap + debt) – cash on hand
Enterprise value portrays what the company is worth if someone were to buy out the entire company. They take on the debt as part of the company, but cash is pocketed.
If a company has too much debt it isn’t a bad thing per say. As almost all high-growth companies have substantial debt because they are trying to grow their business at a faster rate. They have to take on loans to do so.
If a company thats been around for a long time has a lot of debt, then it may be a bad thing. Since, after all these years they still can’t shake of debt… thats a poor business.
Gross Profit Margin
(Total gross profit/total revenue)x100. This is one of my favorite numbers to look at because it shows if a company is growing faster than its competitor.
Take Zillow ($Z) vs. Redfin ($RDFN) for example.
Zillow has a gross profit margin of 51%. (A reason I love this company)
Redfin has a gross profit margin of 27%.
I own a lot of Zillow stock because they are an industry leader in real estate advertising growing 51% year over year. It’s rare to see industry leaders growing at that high of rates.
Enterprise Value/Gross Profit
Enterprise value/gross profit. This number determines how many dollars of enterprise value are made for every $1 dollar of profit. A lower number could indicate a more undervalued stock and vise versa.
Lets compare Nike ($NKE) vs Lululemon ($LULU)
Nike has an EV/gross profit of 12.96
Lululemon has an EV/gross profit of 15.62
In this case Nike is cheaper than Lululemon.
This is by far the best way to compare and evaluate companies/stocks. EBITDA stands for, earnings before interest, taxes, depreciation, and amortization.
EBITDA measures how well a company can generate raw income before they pay off debts. Comparing this number to another company tells who is better at producing income from the same business field. Once we take EBITDA and include the enterprise value, it takes into account the share price to see if a stock is “cheaper” than other.
EBITDA= Operating income + Depreciation & Amortization. (The easiest way to calcualte when looking at a companies 10-Q on Bamsec)
Lets compare NVIDIA ($NVDA) vs. AMD ($AMD)
NVIDIA has an EV/EBITDA of 62x
AMD has an EV/EBITDA of 44x
A lower number could mean the company is “cheaper” than the other. (Remember other metrics must be taken into account too). This would make sense because NVIDIA just had a big run up over the last week. Makes sense it would be at an overvalued price right now.
Keep in mind that both these numbers are very high when compared to the overall market. The S&P 500 has an EV/EBITDA of 14x…The chip sector is a high growth industry, so the EV/EBITDA will be higher.
A good note to have as well is high-growth companies will often not display an EV/EBITDA. Or what they do show is not a good representation of the company as most of their profits are being reinvested into the company for faster growth.
Over the past few days, I have read articles and listened to videos on two of the greatest investors America has ever known. Warren Buffett and Charlie Munger stand at the ages of 90 and 97 respectively. Despite staring the century mark in the eye they are still Co-Chairmen of Berkshire Hathaway ($BRK.A). This is a multinational conglomerate holding company headquartered in their hometown of Omaha, Nebraska.
With them each beginning their investing journeys in their 20s, they both have quite the track record. Coming from next to nothing, Charlie Munger is now worth $2.03 billion, and Warren Buffett is worth $109.5 billion. In their lives they have learned plenty about investing, but their experiences are applicable to life as a whole. I will be sharing briefly about my favorite takeaways and how I will apply them to my portfolio/life. Links to some of the medias will be provided below.
Paying Mind to The Strike Zone
No, neither Munger nor Buffett were baseball players. But they did keep a close mind to their batting averages, and swung very carefully. For those unfamiliar with baseball, a player’s batting average is the average number of times they get a hit when they go up to bat. If a player has a .300 batting average (30%), they are almost guaranteed to be a hall of famer. Due to the count in baseball, batters cannot just wait until they get a pitch they know they can hit, ones in their “sweet spot”. If they did, strikes in other areas of the zone would fly by them, and they would strike out. This forces them to swing at pitches they don’t like, lowering their batting average.
As investors, Warren Buffett and Charlie Munger are not forced to swing out of their sweet spots. They have the power to always wait on the right pitch, and swing big when they are ready. What the geniuses intend with this thinking is to do your research, and trust it. When you find a company with a great business plan and preferable financials, go big. Don’t buy once, buy whenever you can. Buffett said when decided to swing big on Coca-Cola ($KO), he was buying thousands of shares every day, no matter if it was up or down. Today, 1.8 billion ounces of Coca-Cola are consumed everyday and it is one of the best dividend stocks.
While this is not a knock on diversification, it is an emphasis on swinging big. It is okay to buy other stocks to balance your portfolio. If you find a grand slam opportunity, swing!
Know Your Competency
My favorite takeaway from what the two investors discussed was knowing your competency. Knowing your competency is being aware of all you know about a subject, showing what you need to know more of and what you can speak on. Warren Buffett can not talk to you about every single stock in the market. Charlie Munger cannot go as in depth about $AMC as he can about $KO. The catch is, they are aware they don’t have this knowledge, and they are okay with us. This reminds me of a quote that was said by another genius.
“If you are the smartest person in the room, you are in the wrong room.”- Confucius
This quote speaks to Warren Buffet and Charlie Munger and their desire to gain more knowledge. They spoke on how they strive to surround themselves on those hungry for knowledge and success, and not with people who want to be average. However, the quote also speaks to recognizing your competency, and not ever getting a huge ego. Even if you make $10,000 in one day, you cannot think you are the best investor to walk the Earth. You must appreciate your success and developed knowledge, and use it to grow.
There are plenty of other teachings provided by Warren Buffett, ones we will certainly discuss more in the future. For their lifetimes of success, we can talk all day about their many accomplishments. Gathering knowledge about investing is a crucial part of being an investor. Who better to learn from then some of the best to ever do it!
Links to Warren Buffett and Charlie Munger Content:
The Biden Administration just came out with next years budget (2022) last Friday, May 28th. It’s a massive $6 Trillion dollar funding plan targeting certain sectors!! This plan could give some insight on what stocks & sectors are ramping up during Bidens tenure.
The budget includes funding to the following areas…
“Mr. Biden’s budget blueprint serves to advance some of his administration’s most ambitious goals: Reducing disparities in incomes and wealth through the tax code, curbing greenhouse gas emissions and putting the U.S. on a stronger footing to compete with China in the global battle for economic and technological supremacy.”
I will only go over the biggest spending areas and/or what I think is most important to note.
If the past 16 months have taught us anything, it’s that our health is a top priority. The budget includes $132 billion for the Department of Health and Human Services. Mainly for pandemic related objectives.
I like this, but think more money should go toward health related services. After all, we need it badly.
Stocks I believe will reap the benefits in the healthcare sector are United Health ($UNH) Anthem ($ANTM) and Abbvie ($ABBV). These are larger cap stocks, but excellent companies.
It’s no secret The Biden Administration put an emphasis on creating a better quality of life for our planet. They want to do so by reducing carbon emissions, fossil fuels, climate change, etc.
But Biden wants to do so by creating more jobs, insteading of decreasing them. Which would have happened if he just tried to eliminate coal mines, pipelines, factories, etc. and leave it at that.
The plan calls for roughly $220 billion dispursed in various areas. The biggest contributors are…
$36 billion to fight climate change.
$171 billion to efforts reducing the useage of fossil fuels.
At the moment I don’t know of any real players in the clean energy stock space. I will update soon once I find something. Biden is pushing HARD to make an environmentally friendly country. This would be a great idea for your portfolio.
Improvements for rural lands, waterways, rural infrastructure, and new technology expansion make up this section. What strikes me the most is improvements & funding in agricultural technology.
Tech being an already high demand field paired with agriculture leads me to one company… JOHN DEERE ($DE)!!!
John Deere is an industry leader in farming and agriculture, they have virtually no American competition. They produce quality products that sell incredibly fast no matter the economic conditions. A great place to park your money is in this stock.
Where Is All This Money Coming From…?
Yup, you guessed it. Taxes!!
Biden wants to raise the corporate tax rate from 21% to 28%.
Increase capital gains tax on the wealthy to 43%!!
High-Income households will give significantly more money to Uncle Sam.
Nothing Is Set In Stone Just Yet
Bidens budget plan is just a proposal for the time being. The plan has to be passed through Congress and be approved in order to be set in action.
Personally, I think there will be a lot of changes to it, considering all the Congress members are wealthy and don’t want to give even more of their money away to taxes.
The bill will probably be cut by a significant margin. I could easilly see this bill being a 3.5-4 trillion dollar bill as opposed to $6 trillion.
Ford ($F) has been making a name for themselves over the last 12 months. This is a shock for me and many other investors because the automanufacturer has performed terribly since since 2014.
Their stock price has been on a steady decline from $18 in mid 2014 all the way to a March 2020 low of $4 per share! Now the stock sits at $14.60.
What has held Ford back for so long? And what is changing?
Fords Past Setbacks
There are many things that can be attributed, but 2 stand out the most to me.
Poor management team in the mid 2010’s
It is no secret that Ford vehicles had many problems lauching over the years. A lot of lemon cars and poor customer satisfaction. “Lemons” are cars that come with manufacturing defects and safety issue right off the assembly lines. One of the worst problems a car manufacturer can go through for sure.
Lack of innovation
Other than the Ford F-150 being the most sold vehicle in the US for years, Ford has done nothing to excite investors. One key aspect big investors look for is promise in inovation. Can this company grow and expand with new ideas? They want to be the first ones to buy the next big stock, Ford was never it. The company never showed signs of growing or expanding.
Ford did try their hand in the EV sector but never saw major revenues from it. However that may seem to be changing…
What is Ford Doing Now?
Jim Farley the new CEO since October 2020 is highly liked on Wall Street. He has clear intentions to turn Ford around and is doing so already. He stated at the latest investor meeting Ford is shifting to a “Technology driven growth company”
Expects 40% of all auto sales to be elctric by 2030
The new F-150 “Lightning” Truck seems to be a hit in the media.
Summer 2020 Ford announced the return of the Bronco, which was a media favorite.
Q1 2021 revenue beat expectations
Partnership with Google
30% revenue growth in China during the 4th quarter 2020
Ford and many other companies around the country are facing chip shortage issues. If they plan to become a real player in the EV sector they need to act fast, the chip shortage is no help.
However, Tesla ($TSLA) the king of electric is facing issues as well. They have major supply chain issues right now and cant meet the demand for their vehicles. The backloging on their best selling vehicles is hurting them and gives other auto makers a chance to catch up, or make a statement. Ford is taking this opportuinty right now and stealing the hadlines from Tesla.
It’s no secret electric vehicles have higher pricetags compared to their gas counterparts. No exception with the F-150 Lightning
“The company said the F-150 Lightning will have a starting price of $39,974 when it arrives in showrooms next year, significantly below that of some other electric trucks slated to hit the market. That is before tax credits are factored in.”
A 40k starting price is a high price, but not as high as I expected it to be. Ford says the truck also qualifies for a $7,500 tax write off because of the weight of the truck. The gas F-150 is the same way which is the reason I believe Ford has the best selling trucks.
I don’t believe the price is an issue at all, but some others may.
I think Ford is heading in the right direction. I love the look of the F-150 lightning, it comands a strong truck presence like trucks should. The price point is great and the tax write off is why I think the Lightning will be a smash hit.
Jim Farley is pouring billions of dollars into production for growing the company. He continues to do great things in his new role.
Is the stock a buy? I won’t be buying because I like to invest in higher growth companies right now because of my age and small portfolio size. But I love what Ford is doing and think they have a strong chance at being a quality company like they once were.
I highly recommend using this for your long-term account, or whatever account you have with positions you plan to hold for 5+ years. If you don’t have a long-term account… GET ONE NOW.
If you are on this page it is likely you have give or take around $5,000 in your long-term account. With this kind of money it is very hard to see the gains you are wishful for. Even if you are up 50% on a position… It’ll probably only be a few 100 dollars. If you had a lot of shares for that 60% move. That $100 profit should be over $1,000
With the strategy I’m about to share you can see the 100% return on your position you want to. Which is an incredible return that shouldn’t be taken for granted no matter the account size.
LEAP Option Contracts.
The strategy is very simple I promise. All you do is buy an in the money option that is 8-12 months out in expiration. Meaning it expires in around a year.
If you are still unfamiliar with option contracts I recommend going over some of our pasts posts and wathching a few youtube videos.
Take a look at the option chain for $UBER. Uber is a company that I want to own in my long-term portfolio, because I think they have a high growth business in an innovative world. But the issue is, I don’t have enough capital to buy 100 shares, which is what I want. Buying 100 shares would cost me $5,000, which I can’t shell out right now.
Instead, I will buy a call option for around $1,100. The contract still allows me to control ownership of 100 shares of stock, but for 1/5th of the price. However, only for the next 8 months.
The reason I want an in the money contract (the strike price is lower than the current share price for call options) is so my break even price is lower. The break even is the strike price + the price you paid for the contract.
Say I buy the Jan 21st 2022 call with a strike price of $45 at 10.25 (equal to $1,025). 45+10.25 is 55.25. If Ubers share price is at 55.25 at expiration, I break even profit wise.
All Uber has to do is move 10% from it’s current share price of $50.46 for me to break even. Any share price above this i’m in profit.
What Advantage Do Options Have?
Options give you opportunity to control 100 shares of stock, for a fraction of the price it would cost to actually buy 100 shares. The catch is, you only have ownership for x amount of time. The time is the risk you incur.
If you are right with your option contract, you reep all the benefits of owning 100 shares but you never had to cough up all the capital to buy the shares. If you are wrong, you lose all or most of the money you paid for the contract.
Minimize Risk With LEAP Contracts.
LEAP contracts should only take up 10-15% of your entire long-term portfolio. Over allocating you account with options, will only hurt you in the lon run.
When you have a small account it is good to take risks because your losses won’t mean much when thinking of the longer time frame of your life. Buying LEAPS can propel your account in the right direction much faster than buying straight up shares.
Pick The Right Stocks To Buy Options For
If you do want to buy LEAPS you have to do EXTRA RESEARCH PRIOR. Because if you are wrong, you will feel it hard on expiration.
The reason I like Uber is because I believe the summer will be tremendous for them. The combination of vaccine rollouts, warm weather, more things to do, and the population tired of being inside will give them a great quarter. Also, in the fall a lot of colleges are requiring studetns to get a vaccine in order to be on campus. If all students are vaccinated, that means college bars will do well. How do students get to the bar…yup you guessed it UBER!!
I’m still waiting to buy the contract for Uber because of an uncertain market right now, but it’s on my radar.
Do your due dilligence and make an educated decision for your account.
The Hidden Plus of LEAP Contracts
You buy the contract, then forget about it. Most of the time when owning an option contract. You have to be glued to the market all day long every single day. If the contract is 10 months out, the intraday market swings mean nothing. Check it and forget it!
If you’re lost or want to learn more. Message me on instagram @tj.brescia!! I also recommend watching one of my favorite youtubers explain this strategy. He is called “InTheMoney.”
We’ve all been hearing it with these hype stocks. “This stock is the next Tesla!” “We can beat Wall street with this stock!” “This stock will give you 10x gains!”
But the question remains, do these stocks acually do what the media says they will?
I’ll be going over 5 of the last “hype” stocks the media has pumped out over the last 6-12 months. The results are something that does not shock me, but will shock you.
1. Virgin Galactic ($SPCE)
Virgin Galactic was one of the lesser known pumped up stocks. Being one of the first to be on Reddit. But it for sure had a strong media presence, especially for the tik-tok community.
Virgin Galactic is a company that plans to create space tourism by 2022. Their business plan is to fly people and researchers into space for tourism and leisure purposes. Something that has never been done before, for good reason.
Truth is, right now they have no revenue which means no profit, no test flights, just speculation. The company’s balance sheet is just one big number of debt. They are fundamentally a bad stock.
Will they be a success? Maybe. Are you going to risk a lot of money into a highly speculative stock? I know I’m not. Take a look at their 1 year chart.
Look at where they are now. Yup, near all time lows. No matter where you bought in, youre down a lot.
2. AMC ($AMC)
AMC is an entertainment business. Their main source of income is from their movie theatres. In which they are the largest movie theatre chain in America. We all remember the AMC and Gamestop hype from Reddit. How it was the hedge fund shorters vs. the public. Ultimately, the hedge funds won.
But where is AMC at right now? They are a HEAVILY day traded stock which is what moves their price so much. Almost no big investers or institutions are buying this stock. Which should tell you the smarter indiviuals of the world do not like this company. Lets be honest here the movie theatre chain is dying out, especially because of the pandemic. This is not a great long-term stock compared to all the other stocks you could be buying.
Although the chart does say they are trending upward, I think it’s because of the day traders. Stock could fall to $5 tomorrow, no one knows.
3. Nikola Motors ($NKLA)
Nikola is claimed to be the next Tesla. They provide a zero emission vehicle using hydrogen and electric variants. The only problem is, they have not started production and won’t start for a very long time… 2023 is when they plan to start production!!
This one is similar to Virgin galactic. A great idea on paper, but no proof yet to back it up. The stock price is solely based off speculative decisions by retail investers. Again, their balance sheet is just a fat number titled… DEBT.
Look at the stock chart, its just awful to look at. No matter were you bought at, I bet you’re down money right now.
4. Lucid Motors ($CCIV)
This one is actually the most legit out of all the other hype picks. Lucid is another elctric vehicle company. They are currently in production of their cars right now, aiming to make about 7,000 this year. They have a clear business plan of being a high-end electric sports car brand.
Churchill Capital ($CCIV) is a SPAC acquiring Lucid Motors (Special Purpose Acquisition Company). SPAC’s take on less debt than traditional IPO’s because all their capital raised through the stock, not typical private equity lending. Which is great for this time of inflation because less debt, means less exposure to inflation.
This stock is still high risk-high reward because they don’t have any revenue and have not tested the market yet. If I were to choose one stock that I’m talking about today, it would be this one. But please don’t put a large sum of money into this, the odds are against you.
5. Gamestop ($GME)
A stock that needs no introduction. Everyone knows about this one so I’ll keep it short. My concern with gamestop is I think they’re the next blockbuster. Everything they sell can either be bought online for the same, or cheaper price. There is no need to go into gamestop anymore, it’s too much of a hassle for people. Also, their online store is just as much of a ghosttown as their retail store.
The stock price is just influenced by day traders now. It has no correlation to the fundamentals of the company at all. It’s the same exact thing as a casino right now.
At the present price , maybe you made some money. But a lot of people felt the burn on this.
My Thoughts You Must Know
More often than not these hype picks you see on your socials are the equivalent to walking into a casino and throwing everything on black. Might even be worse, because if you do make money you seem like a genius since it’s the stock market. And now you do it again on the next stock, but lose this time.
People just want to drive the price up, then pull out when they make a profit. They don’t care whether you make make one or not. Sure, maybe you made some money off these stocks. But just know it’s not sustainable down the line. Don’t throw all your money away into these stocks when it could be used to buy legit long-term assets.
If you really want to put money into fundamentally awful companies, the stock market is not for you. I won’t even say put a small amount of meaningless money into them for fun. Because then you hate yourself for not putting more in if you do go up. Know who is recommending these stocks and do your own research. It pays in the long run.
The stock market wasn’t the only market seeing flashes of big red drops. The crypto market took big percentage dips 3 different times this week. The market had looked very strong going into the week, mostly due to Ethereum ($ETH) absolutely crushing its All-Time High (ATH). Ethereum reached a new high of $4,384 on May 12th, capping off an almost three week run from $2,000 to the ATH. These dips are not signaling an end to a crypto boom however, they’re just giving its investors a chance to buy in before the takeoff.
Why Will There Be a Boom?
The answer to this question is simple. Usually I like more than just a simple answer before I invest my money. Although, this simple answer has some years to back it up. The answer is; A crypto boom happens every summer. A trend like this is similar to how last summer we noticed the Dow Jones always opened down on Thursday because of the abysmal weekly job report. People were not back to work yet, but every week the market seemed to overvalue this report, and sell off in premarket trading when the report came out. Crypto also usually enjoys the holiday season and sees a decent spike around the change of the new year.
For this analysis we can use the charts of Bitcoin ($BTC), as it is a solid indicator of the rest of the crypto market. In the summers of 2017, 2019, and 2020 we have seen considerable spikes in the Bitcoin chart. At some point from May to August of these years, Bitcoin experienced a significant price run compared to its performance the rest of the year. This is not however a signal to sell once the summer is over, this just presents us with a good buying point right around now. If your plan is to hold (a good plan), buy right now and hold (hodl) all the way to those ATHs!
Is it Only Bitcoin?
It certainly is not. The reason that Bitcoin is a good indicator of the market is because of Bitcoin traders. When Bitcoin’s price runs high, traders take their gains and put it into smaller coins since the gains allow for high total coin purchases. This immediate reinvestment makes it seem like the coins are just following right after Bitcoin, but it is actually just traders pumping with their gains. This used to be a crypto standard but in the past few months we have seen coins take off on their own and hold strength against large Bitcoin moves. Recently, Cardano ($ADA) spiked high while Bitcoin consolidated, and held its highs while Bitcoin slid.
The large majority of cryptos will ride high this summer. Personally, I believe if the coin doesn’t take off, its probably not a good project. With most cryptocurrencies being relatively young, it is important to make sure you are investing into a good project with goals, and not just a crypto that was recently on the top movers. Some coins I believe have great projects that are growing are Chainlink ($LINK), VI-D ($VIDT), and Phala Network ($PHA). In the near future I will go into depth about these projects and others as well.
How Should You Prepare For This Boom?
A crypto boom can be prepared for in two simple steps:
Do your research
Get your cash ready
As I said before, understand which projects you can believe in and trust it will impact the crypto world. Then, get your cash together. If you only have $200 right now, know where you want to put $50 and where you want to put $100, or put it all in one coin. If you have $6,000 to use, put it to use. Diversifying is key, but over diversifying right away can some times limit gains. Find good projects, collect from them, and then begin to branch out. Summer 2021 will be one to remember, don’t remember it because you didn’t buy!
One of the many taboo topics to talk about in personal finance is the dreaded credit score. Though credit isn’t often talked about, it is an important part in everyone’s finances. Credit helps you take out loans on nearly everything! Cars, homes, business loans, or even groceries by using a credit card. Credit extends your financial leverage so it is important to know what can make your credit score go up or down. I’ll go through all factors that can affect your credit score and then give my personal opinion on which are the most important.
Before going in-depth on each factor here are all of the factors and the weight they have on your credit score:
Payment History (35%)
Amount of Debt (30%)
Credit History (15%)
Credit Mix (10%)
New Credit (10%)
Payment History (35%)
Payment history is simply the ongoing record of all your credit payments. These payments include credit cards, mortgages, car loans, and a few other kinds of credit. The record tracks whether your payments were on time or late. Late scores will negatively impact your score while consistent on-time payments will improve your score. FICO, the company that created the FICO score puts a heavy 35% emphasis on your payment history so it is very important to always pay your credit bills on time!
Here’s an example of how payment history can affect your score:
Say your only credit line is your credit card. You’ve had your card for 12 months and you’ve made 11 payments but missed 1 payment. Your payment history score would be calculated by using (# of payments paid)/(# of total payments). So in this case, 11/12, which is equal to 91.67% “paid on-time rate”. For reference, most credit score calculator sites, such as CreditKarma, suggest having a 99% “paid on-time rate”.
Amount of Debt (30%)
Another heavy hitting factor is Amount of Debt. This factor is basically how much you utilize your credit. Higher utilization is riskier for lenders so this hurts your credit score. So to get the best Amount of Debt score you would want to have a big credit line with low utilization. The lower your utilization rate the better your credit score! FICO recommends having a utilization rate lower than 30%. I personally try and keep it below 20% but this doesn’t always happen, it is an ideal goal.
Here’s an example of utilization rate:
Say you have a credit card with a $10,000 limit per month limit. In order to keep below a 30% utilization rate, you would have to use less than $3,000 per month on your card. Since $3,000 is 30% of $10,000.
Credit History (15%)
Your Credit History is simply how long you have had a credit line for. The older the credit line and the more lines you have, the better your credit history. Opening a new credit card will open a new credit line and since the new line is not very old it could hurt your score in the short term. That being said, multiple old credit lines will significantly help your credit history score.
Yes, Credit History is a paradox. Want to improve your credit history? Open a new credit card! But, that new credit card will hurt your credit score. It is an odd factor but an important one. You should consider your own scenario and whether opening a new credit card would be good for you.
Tip for those wanting to get a credit card:
It can be hard to get a credit card when you have no credit history. But to get credit history you need a credit card (or other credit line). Another paradox. Don’t lose hope! Look into secured credit cards and authorized users on existing credit cards. This can help you build up enough credit history to get your first credit card!
Credit Mix and New Credit (20% total)
Credit Mix: This is the different types of credit you have. Various loans and credit cards. Having a more diverse set of credit types will be beneficial to your score. However, this factor only accounts for 10% of your overall credit score so don’t beat yourself up over this one.
New Credit: New Credit is when you open up a new type of credit. Opening multiple new credit lines within a short period of time will hurt your credit score. So be careful when considering those promotional credit cards!
Well, to keep it short and sweet without wasting time, I think all of the factors are important! Credit is a delicate and powerful financial tool many of us use but don’t think about. I think each factor is equally important to your credit score despite the weighting FICO gives to the score. I know each factor rewards good credit behavior and that is why I treat each factor equally. Of course, I don’t let it rule my life. I do let the factors influence my credit behavior so I am more responsible with my credit. Overall, credit is a common financial tool we don’t think about often and with good credit habits you won’t ever have to!
A hedge is a position to reduce downside potential or loss. The best investers will always hedge their long-term positions when the market shows signs of uncertainty. Mark Cuban did this during the crash at the start of the pandemic in March 2020.
In stocks hedging is mainly done 2 ways…
1. Buying Market Inverse ETF’s
These are stocks/funds that go the opposite direction of the market. When the market is going down like we have been seeing, these stocks go up. Some examples are…
$SPXS- Goes the opposite of the S&P 500 $SQQQ- Goes Opposite of the NASDAQ
Buy and hold these for the time being, then sell when you think the time is right. Right now I would buy $SQQQ as the NASDAQ is getting hurt more than the S&P. Due to all of the tech & high growth stocks within the NASDAQ.
2. Buying Put Options On Stocks You Hold In Your Portfolio.
Put options are leverage contracts on certain stocks. Each contract you buy gives you exposure to selling 100 shares of stock at a certain price, without owning 100 shares. You pay a fraction of the cost it would be to own 100 shares, but only for a specified period of time. When you buy a put, you make money as the stock goes down.
Here is an option chain for Square ($SQ) with contracts expiring June 4th, 2021. I know it looks confusing but hear me out. There are only a few things that you must look for when buying put options for hedging. Puts are on the right side, calls are on the left.
Strike Price This is the price you would agree to sell 100 shares of stock, if you were to exercise the contract. Don’t worry too much about what that means just yet. The lower you want to buy for a strike price, the cheaper the option contract. Because it is further away from the current share price of the stock. The goal for any option is for the current share price to reach the strike price before expiration.
Bid vs. Ask The bid is the price you pay to buy the contract, the ask is the price you would sell at. The bid and ask are always the current number x100. In this case for the 190 strike put. You would pay $720 (7.20 x 100=720). The reason is you are paying for the right to 100 shares of stock for the time being.
Expiration Date The further out date you buy the less volatile and risky the play is. You have more time for the stock to move the way you intend. Time decreses value on option contracts. Which is why contracts with further expiration dates are more expensive than ones expiring next week. I always recommend buying with at least 6 weeks till expiration. Most of the time I will buy 3 month out contracts, or longer.
What Is Excercising an Option? It is not in your best interest to excercise unless you want to buy 100 shares of the stock. The community here likely does not have enough to purchase 100 shares so know this. Always sell the option back to the market before your expiration date. If the stock falls while you own the put, your contract is now worth more than what you bought it at. So take your profits and sell it to somebody else on the market.
If you dont understand options, dont worry. Buying shares of stock will serve all your needs. But if you want to take your investing to the next level, options are amazing. Leave a comment if you want us to go more in depth on options!!
Best Strategy For Hedging
If you have experience with options, than put options are for you. But I 10/10 recommend you buy the index ETF’s I listed above if you want to hedge your portfolio. They get the job done in the simplest way possible.
I say use about 5%-10% of your entire portfolio to buy your hedge. You NEVER want to overexpose your hedge. Holding it for a long time or a big portion will get you into trouble. Do not try and be a hero and save all your loses coming to your positions. If the market bounces back you will be kicking yourself.
Remember, the profits you make from your hedge are only meant to minimize loses. Don’t try and make up all the loses your stocks get, you will end up losing more!
Use Your Hedge Profits To Buy More Long-Term Positions
If you don’t see dips as buying opportunities than you will be a below average investor. Make sure to buy at the low prices, it’s the best thing you can do.
Dollar Cost Average into positions over the coming weeks/months. It’s the best way to get the best positions.
That is what I will be doing over the coming weeks during these market dips. The stock market has obviuosly gone a new path, not only on inflation fear. But clear inflation data.
“The Consumer Price Index, which measures a basket of goods as well as energy and housing costs, rose 4.2% from a year earlier. A Dow Jones survey had expected a 3.6% increase. The month-to-month gain was 0.8%, against the expected 0.2%.”
In April inflation numbers which are shown in all types of consumer prices, rose significantly. This has investers worried if the FED has everything under control. The FED stated last week they are mindful, but honestly this number is higher than I anticipated. More downside is expected in stocks
Check out a post I did last week, when it was just inflation FEAR running the market. Not data.
Take A Step Back
Remind yourself of what your investing goals are. For most, it will be to buy and hold for 5,10, 20 plus years. In that case, this is nothing to worry about at all.
It is just a small part of your big investing timeline.
Growth Stocks Are Getting Hurt The Most
If you take a look at all stocks you will see a clear descrepancy beween growth and value companies.
Growth stocks are stocks which are speculated to give higher percentage returns. Their market caps tend to be lower, which is why they have a lot more upside.
Penn National Gaming
These companies need to take on a lot of debt/loans to propel their business. When inflating rises at high rates this debt becomes tougher to pay off. That is why these companies may struggle for the time being. Investers fear if the company will be able to pay back loans efficiently.
Value stocks are ones that have been around for a long time. They have a commanding position in their sectors and are proven to be profitable year by year. Their returns are lower making them conservative investments.
Johnjon & Johnson
These types of companies are GIANT brands. They dont have a lot of debt, so inflation does not matter as much compared to growth companies. But some are subject to concern depending on what kind of service they sell and how prices react to inflation.
How To Capitalize
Before you go and buy a ton of stocks there are some things you must consider.
How long do YOU personally think this correction will last? If you think it’ll end this week, then buy now. In 3 months, then maybe take a back seat and see how things play out.
How is the company you want to buy comparing to it’s competitors? This is an EXTREMELY IMPORTANT one. Look at how much the company is down percentage wise vs. competition. Since the top of the market. (May 10th.)
This will give you some insight on how well a company is positioned. If your company is down worse than its predeseccors, maybe it isn’t the best choice. Maybe it’s business flaws are finally coming to fruition which investers are seeing and taking action of.
Examples are… Zillow vs. Redfin, AMD vs. Nvidia, Roku vs. Netflix, cruiselines, airlines, Starbucks vs. Dunkin Donuts.
Dollar Cost Average into positions. (DCA) This method is buying small portion sizes of a stock every week, month, 3 months. To try and get the best possible price. It is too stressful and difficult to predict the bottom of a stocks price and buy there. Instead buy a little bit every so often as this market mess continues. Ensuring you establish a good position.
STOP Looking At Your Portfolio Everyday!!
All this does is give you stress and anxiety seeing your returns drop. Are you in it for the long haul or not? Your returns will be INSANE in 20 years, dont let this bumb in the road detour you off course.
Saving your money the right way is something most people know they should do, but probably don’t. Some people have a system for how they save their money, and some people try to cut out spending in certain areas. Yes its great to save, but if you are not doing it right, you could be making it even worse for yourself. Today I will be going a purchase analysis I recently went through, and discussing why this person was actually fooling themselves, based on the numbers.
The man in question today is my brother, Rahhim Shillingford and his decision to buy a push cart for golfing. The push cart costs $159, and he says he wants to buy it for when he golfs by himself. The benefits of a push cart is that you don’t have to buy a real cart at the course but still do not have to hold your clubs on your person. You can just place the clubs on your small cart and push it as you walk.
Rahhim states he will only bring the push cart when he’s by himself because when he golfs with others he just gets a cart. He believes he will save money because he won’t be buying a push cart every time he plays by himself, or buying a real cart. He also will be getting exercise because he’s forced to walk more.
Typically, buying a push cart at a course costs $3 per round and a cart costs $10. I asked Rahhim how many times he played a round by himself last year and he said 3 times. It is a fair assumption this number will remain the same as Rahhim is a NYS Real Estate Agent, a Personal Trainer, and a Football Coach, so his schedule remains busy. He simply just doesn’t have the time to golf a lot, let alone by himself.
If Rahhim golfs by himself 3 times this summer, buying a push cart would cost him $9 and a real cart would cost him $30. Obviously the push cart would save him $21, but Rahhim thinks he can be even more financially savvy by getting his own push cart. If he stays at this same rate, it would take him 17.6 summers to make his money back on the push cart. This number is called the Payback Period, which is the amount of time it takes for an investment to make its money back.
Truthfully, 17.6 summers to make your money back on something that only costs $159 is really ridiculous to me. Fortunately for Rahhim, $159 is not make or break purchase for him, but this doesn’t mean it is not still a poor investment. $159 can get you a share of Apple ($AAPL) with some money left over or even more than 5 shares of Jumia ($JMIA). Thinking of the purchase on the other side, it would take Rahhim 17.6 summers before he could say, “Damn, I should’ve bought that push cart.”
In his defense, Rahhim believes he is saving his money by doing this, he is just not doing it the right way. Making a big purchase to solve such a tiny problem just puts a dent in the wallet. When making purchases, you have to wonder, “How will this purchase benefit me? And how will this purchase affect my purchasing power?” If I was Rahhim, I would just buy the push cart every time I play by myself. Even if every other summer he golfs 4 times, it’ll still be many years before he breaks even.
Saving your money the right way is more than just going to the clearance rack at stores because at the end of the day you still spend money. To save your money right is to understand if you really need something and if you don’t, don’t buy it. One important to trade off to note is that if Rahhim owns his own push cart, he will be less inclined to buy a cart when he’s by himself.
If you are wondering if Rahhim and I actually had this conversation, we did. He did not listen to me though, and bought the push cart. When the push cart came in the mail, it was too short for him. Another reason he should’ve never purchased it, but I digress.
Over the last 8-12 months the stock market has become a more well-known understanding to many young adults. Every social media platform, especially Tik-Tok has been promoting the wrong agenda about the market. Many people are portraying the stock market as a “get rich quick phenomenon.” Or you are guaranteed to make insane returns if you listen to them.
Social media has treated the stock market like a casino, a game, a gamble. If you treat it as such, you will lose your money… GUARANTEED.
Today I will be sharing what happened to me when I was first introduced to the stock market. Spoiler… I lost all my money.
February 2020 is when I first started putting money into the stock market. My intentions were to try and make a side hustle for myself to earn some spending money. Within days I noticed my small $500 would not make any significant money just from buying shares. Then I learned about stock options…It was downhill from here.
I wont fully go over what stock options are because Darnel covered this last week. Essentially, options have potential to 2x, 5x, 10x, even 100x your inital investment. A $50 option investment could give you a $500 profit just by pressing a few buttons.
I would buy small weekly contracts, worth about $30-$50. Then I would realize a profit of $150-$300 each trade. It was the greatest feeling ever. Felt like I was a genius.
This was during the big market dip back in March 2020. Every single stock was falling hard. All someone had to do was buy put options on any stock, and they would make a ton of money. (Put options make money when the stock goes down). I would buy so many put options that would give me insane returns every morning.
My account went from $500 to $3500 in just one month.
I remember buying a $72 $MRO put with a strike of 6.50. Sold it the next morning for $741 profit. Didn’t even understand why I made that much. That’s how little I knew.
March 23rd, the bottom of the Corona-virus market crash is when I started losing all of my gains. I kept expecting the market to go back down. Thinking, “Oh this is just a small leg up, then it’ll have to go back down. I kept buying and buying put options thinking the market would reverse back downward.
I thought I was outsmarting the market because I just made a killing the last 3 weeks. Figuring I could beat the market, and cash out when I was right.
It took 2 months after that for me to stop buying option contracts. Because my account was now back at $500.
Lessons I learned
3 main lessons from my short endevours with daily trading.
Have a risk tolerance.
Do not just buy weekly call & put options.
Don’t try and get rich quick.
1. Risk Tolerance
In every single trade you do, know exactly how much you are willing to risk. When I first started, I didn’t have a risk tolerance. My mindset was “sell when I make a profit, that’s it.” Or sell whenever I thought the trade had no chance of winning. By this time I was down over 50%.
Truth is, most of the trades you make will be wrong. But if you can minimize the losses, and take profits without greed. Then you will be succesful.
For example, lets say you open a position for $300. Set a risk for 10% loss and close the trade in x amount of time, if you are not over a 30% profit As soon as that trade loses 10% of it’s value, get out. You only risk $30.
Say you choose to exit the trade 3 days after you open it if you aren’t over 30% proftit. By day 3 you are in profit by 15%, close the trade and take your $45 profit.
“No one ever lost money taking a profit”
Having a risk tolerance for every trade allows you to minimize losses. If loses get out of control, it is significantly harder to get back to break-even. Break-even isn’t even the goal, the goal is to make profits.
2. The Truth Behind Call and Put Options
Stock options are a great tool to make money in the market, if used correctly. But are abused everyday by retail traders, in which they end up losing money. You must know options are the quickest and most effective way to lose money.
Fact. 70% of all option contracts expire worthless. Meaning 70% of the time if you buy an option and hold it till expiration, you lose your investment. The odds are not in your favor from the start.
**Weekly contracts are the most risky but you can see big gains FAST. This Is what makes them so attractive for new traders. Oh, and they’re cheap as hell to buy.
For example, you buy a call option that expires in 5 days. The day you bought it the stock goes up 3%. Your ROI that day would be an incredible percentage. But the day after the stock falls 1.5% and your contract is back at break-even price. Even though, the stock is up 1.5% since you purchased, time-decay killed your gains too fast. No one realizes time-decay will EAT AWAY your gains. Most don’t even know what time decay is anyway.
Another note is behind every contract you buy, there is a seller that is thinking the exact opposite of you. The seller thinks the stock will go the opposite direction you do. And 70% of the time, they gain money from it!!
Often times, people with small accounts will buy short-term, weekly option contracts to try and get an insane ROI for themselves. It’s the only way to make crazy money from a small starting amount. They don’t research the trade, do their due dilligence, etc. Or the small amount of research they actually do, is just from seeing a tik-tok saying “this stock has 100x potential.”
With under 10 trades their account is blown up and their hopes of ever using the stock market again are gone with it. Which is sad because the market is an incredble way to grow wealth.
I am not hating on options trading at all. I use options often. But I buy my contracts with a lot of time, I do proper research, and I have a risk tolerance. Using options willy nilly will lose you hundreds of dollars.
3. Don’t Try to Get Rich Quick
This is something that takes a very long time to understand. What I am about to say won’t do enough justice. But hear me out…
We all want to make money, that’s why you’re reading this. Trying to make a days worth of income is EXTREMELY difficult to do. Not impossible, but unlikely. Anyone who trades for a living, is trading with $30,000+. All they have to do is make 2% a day to make $600. Making 2% a day is way easier said than done.
I once tried to use stock trading as my job. Quickly realizing it is impossible to do with my tiny amount of money. It took me losing $3500 in 2 months to realize I can’t trade as my job. I don’t want anyone to experience the same.
I have now shifted my mindset to long-term investing with lower risk trades if the opportunity is picture perfect. Let me tell you, I am much happier this way, and making more consistent returns. Granted they are small, but steps in the right direction for sure.
Once you start realizing it’s about growing your account, and not withdrawing for income. The game changes in your favor.
Recently I discussed my options trading strategy that limits capital risk yet allows for solid percentage gains. This will be a quick update on how the strategy has done for me over the past three weeks. It is important to note that only 6 trades have been used in this analysis, so it is a small sample size. I will be using Excel to display the recent success from the option strategy.
Small Dollars, Big Percentages
Right now as I continue to test out the strategy, the position sizes will remain small. The largest position I have taken thus far has been $80, and it also happened to be the only loss in the 6 trades. I’m with you, know is in the market looking to make, 15, 29, or 11 dollars, we want the big money wins. However there is a time and a place for that, and right now is not the time as we continue to test the strategy.
If the strategy continues to be a success, we will begin to look into taking on two or three contracts in the same. In this case of two contracts, everything would be double so if you paid $30 for a contract you would now be paying $60, and if you profited $20 before now its $40. Taking two contracts gives a trader freedom to sell one contract and keep the other.
What’s more important to note is the percentage gains the strategy has yielded thus far. Gains of 32%, 82%, and a crazy 170% aren’t very easy to get in high capital trades. In terms of investing as a whole, making 10% a year is usually the benchmark for investments. Right now the strategy is averaging a 50% return! If it holds this level for a whole year, it will outpace the market by a wide margin. With more and more trust built through trades in the strategy, the amount of money made will surely pickup.
What Stock Will I Use Next?
When picking stocks for the strategy, I sometimes look at higher capital stocks and pick stocks cheaper that move similar. For the most recent trade, I actually spent the majority of the time researching looking at Royal Caribbean ($RCL), before buying the Carnival Cruise Line ($CCL) call. Usually stocks in the same industry are going to move the same, and Royal Caribbean just finished a week of dropping kind of hard and touched a support of $80, making me believe it could have a decent bounce today. I then went right to Carnival, and got a $26.50 strike ending Friday May 14th, and this morning it was well over that strike price. I wasted profit theorizing if it could go higher, but still managed to leave with an 18.64% gain.
Right now I am currently looking at the marijuana ETF ($MJ) for a potential next play in the strategy. I believe the marijuana market can really get moving with another piece of positive news, and MJ is at a nice price right now of $21.36. It is currently up almost a $1 today though, so I will wait to see how it does on Monday before I look at it again. With Monday starting a new week, I will most likely try get contracts ending on May 21st to give myself ample time to watch how MJ moves and not feel pressured by expiration.
Important Note: It is a coincidence all the trades have been Calls this far, success from the option strategy has the same concepts for puts!
If you follow the markets and the general economy daily. You have defiently been hearing a lot about inflation. Specifically things like…
“Prices are so much higher than they were!” “The government can’t be printing so much money for free!”
I dont claim to be a macroeconomist, or the only person you should base your financial decisions off of. I want to shed some light on an extremely important topic along with some recent data about the current state of inflation.
The Country’s Current Bottleneck Situation
Right now a very obvious reason for inflated prices on the goods you are buying is due to supply & demand.
Wall Street Journal puplished an article recently about consumer demand being through the roof. Business’ like Apple, Dominoes, Temper Sealy, and several other restaurants are experiencing massive amounts of customer demand for their products.
The only issue is that supply is not meeting the demand. Supply-chain shortages are happening all over. When demand is higher than supply, guess what happens? Yep, prices go up, up, up.
Supply is short because of production cuts months back from the pandemic being rampant. And now all of a sudden people are going out a lot more, vaccines are out, warm weather is here, etc. The supply is taking longer to catch up with the demand. Partly due to unemployment being at large still (getting better, but still high). Furthermore, unemployment benfits are giving people more incentive to be jobless. The lack of employment means supply decreases.
The pandemic has shifted into phases INCREDIBLY fast. We saw the fastest market correction and recovery in recent times back in March-June 2020. Additionally, vaccine rollouts were quicker than expected, which caused people to go out quicker than expected.
When one thing moves fast (demand), another lags behind (supply). That is what is happening right now which is demand inflation.
Isn’t This Bad For The Economy?
Surprisingly, it likely is not. From a glance it may seem terrible, but think about it. People going out more, spending more, and returning to “normal” life is a good thing. It is a direct boost to GDP. The bottleneck situation is likely “transitionary inflation” Which is inflation that results from an emrging economy after a recession. It means spending is increasing at higher rates than normal due to the slight recession.
If the FED can control it and put an end to it at some point in the near future will be what most people look for. Jerome Powell, head of the FED said last week that he sees inflation, but as transitionary. He sees no need to change the current monetary stimulus of low interest rates yet.
This may be way over both of our heads. But, the main thing you need to know is the FED recognizes inflation right now, but is not worriedbecause it won’ be long-lasting.
Is The Inflation Scare The Reason For Stocks Slipping?
I believe it is a factor here’s why. Companies reported incredible earnings the last few weeks. Multiple companies reported a significant increase in consumer demand, and anticipate higher demand for the rest of the year. Analyst’s are thinking these numbers may be inflated and cannot be sustainable for long periods of time.
“Will demand stay high with inflated prices?” “If demand does not stay high, will the companies meet their expectations?” “Are stock prices inflated, just like product prices?”
Questions like this are what I believe has Wall Street on edge right now.
Another important note to add is the uptick in commodity prices for April. Commodity’s often times rise with fears of inflation.
Spot Gold is up 6.5%
Spot Silver is up 11%
Spot Oil is up 11%
Copper is up 12%.
My Final Thoughts
I recently listened to a podcast with Graham Stephan and MeetKevin. 2 well known and intellegent investors. MeetKevin said some points I really like which I am about to summarize now…
Business’ want their customers to be happy and offer better prices than their competitors. Time will eventually fix the bottleneck situation. And companies will do what they have to in order to keep a high influx of customers post-pandemic.
The key thing is time. No one knows for sure what will happen, but what I see is nothing that is too out of hand.
Trading options is where I originally started seeing respectable gain from the market. It helped me learn fast and learn to research the market everyday. While I don’t think I will be able to ever say I know everything about the market, trading options added knowledge, and money, quickly. When I first started, every morning at 9:30 am felt like I was walking barefoot into the jungle, and I loved every second of it. After seeing greater gains from holding crypto and finding sound companies, I have taken less frequent trips to the jungle. However, I have been using 1 solid strategy the past few months to make consistent gains from trading options.
The Basics For the Strategy
This strategy is extremely simple, but there are still areas of options I must clarify beforehand. For this strategy you must understand how option prices work, and how the strike price correlates. The strike price is what you predict the stock will be worth by your chosen expiration date. In the case of a stock like Penn ($PENN), there is a call option which has a strike of $91 ending Friday, 5/7/21 and it costs $305. Penn is currently at $90.47, so we are bullish on the stock for the week since we are buying a call. I use Penn as an example, for this strategy I most likely would not use an option costing this much.
The figure shows that the $91 Penn strike for Friday is 3.05, to get the cost of $295, just multiply the 3.05 by 100. By paying this $305, you agree to buy a contract, believing the price of Penn will be over $91 by the end of the day Friday. We will always sell the option before it expires for this strategy, holding through is not a part of the plan at all.
Most stocks have a lot of different options they can pick from, with differing strike prices. As you can see in the figure, to buy a strike price of $90 for Penn would cost you $355. This costs more money than the $91 strike because it is much more likely to happen. If Penn didn’t move for the next 4 days it would still be over $90. Vice versa, the $91.50 strike costs less than the $91 strike, because Penn would have to move a lot higher to reach the strike.
The key to the strategy is looking at how the option prices change as the strike prices change. As you can see, the price of the options from the $90 strike to the $91 changes by $50. Theoretically, if the stock moves $1, you will make around $50, it is important to note that options do not have a strict movement.
Sometimes the change may vary, depending on how far away you are from the expiration. Since we are going to sell days before the expiration, the price variation won’t really affect us. In addition, I look to buy expirations with 2-3 weeks left so there is plenty of time for the stock to move before the last week.
The reason why I don’t use stocks like Penn for this strategy is because you would be risking $305 with the $91 strike hoping to make $50. This is too much money to risk for just a $50 gain. Even though the dollar is very likely, the risk is too much. In general, a rule of thumb for options is too only spend 5-10% of your account value. I won’t be a hypocrite, I often go over this but it is my own established risk. Once the option is at a 25% loss, I sell it as anymore could be too much too handle for my account. Sometimes waiting it out can payoff, but often times it just leads to a 100% loss. We are in no business of 100% losses, especially when trying to make consistent gains from options.
Solid Stocks for The Strategy
Ideally I like to use stocks that are under $60 for this strategy because they usually have cheaper option prices that move in higher percentage jumps. Spending $30 on an option and making $25 on a $1 move has a low risk for a still decent sized gain. Stocks I look at a lot for this are Gap ($GPS), Norwegian Cruise Lines ($NCLH), and Canaan ($CAN). Their sectors and recent news do not play into these choices more than they usually would, I simply pick them for their cheap option prices. Gap often has options right above the current price for $50-$70, and if you go just a little higher you can get options for $30.
It is important to remember that all options are risky. Just because they don’t cost you much doesn’t guarantee you more of a gain. This strategy just allows you to risk little for high percentage gains. Repeating the strategy with proper loss management allows you to make consistent gains from options. Options can get confusing, if you are confused about any facet of them, DM us or leave a comment about all your questions!
Cars, phones, and anything that uses processing power needs a computer chip. Before the pandemic, chip usage and supply was in balance and thus running smoothly. However, little did we know that the supply chain of semiconductor chips was so fragile. When the pandemic hit the world, it disrupted the careful balance of the computer chip industry. Since many companies rely on computer chips as a part of their business, their flow of operations were disrupted as well. This event has led into what is now being called “The Chip Shortage”.
What has led to the chip shortage being so dire is that there is too much demand and the chips can’t be made fast enough. This situation occurred because companies believed the demand for their products would decrease during the pandemic, so they ordered less chips. This then led chip manufacturers to adjust their foundries and supply-chains accordingly. Supply chains can only move so fast to adjust to quickly changing demand. So when the world began to reopen earlier than expected, demand for chips exceeded the supply severely.
Can’t More Chips Be Made?
Chip manufacturing is complex, expensive, and time consuming. These factors make it difficult for manufacturers to rapidly produce chips at the snap of their fingers. Although, they likely wish they could because the unprecedented demand for chips is a large monetary opportunity for them. To make matters worse, most companies can’t ask another manufacturer for chips since their products require specific chips. Not to mention, a large majority of the world’s chips are made by a handful of manufacturers. Thus, chip manufacturers get swamped with orders but their chip foundries can only produce so many chips.
I’ll give an example to clarify. Say Apple wants 100 chips for their iphones from Intel in 1 week. Apple calls Intel and asks for the chips. Intel says they can do it but it is going to take 10 weeks since Microsoft, Ford, and other retailers’ orders are being processed. Now Apple has to either adjust its own operations or negotiate a higher price for quicker delivery of their chips. The other companies are facing the same decision to make and if they choose to negotiate, the price of chips will keep rising. In either case, companies’ operations are affected and the supply of chips remains constant. This kind of scenario has been happening across multiple industries for months now and everyone is feeling the pain.
When Will The Shortage End? My Thoughts
The chip shortage has revealed the delicate nature of chip manufacturing. With such unprecedented events occurring, it is almost impossible to definitively say when the shortage will end. A year or more could pass and we still might be feeling the shortage. That being said, I believe many companies have realized how reliant they are on their chip suppliers. In the near future, we may see some companies adjust their own supply-chains to alleviate their dependence. Also, if a company finds it feasible to produce their own chips then we may see an alleviation of supply that way as well.
A great example of this is Apple. Before the pandemic began, Apple announced its plans to produce their own chips for their devices. I am sure that the pandemic has sped up their plans to make their own chips and also given other companies the idea to do the same. Being reliant on your suppliers is one thing but being solely dependent on them is another. The shortage has created an opportunity for the chip manufacturing landscape to change. In the coming years, I feel we may see companies adapt or announce their own plans to manufacture chips. But for right now, how long will the shortage last? We will have to wait and see.
April was a huge month for us! We plan to make May even better!! We will continue to expand on the quality of our content, and the frequency. Our next major shift will be the introduction of our blog posts categorized in the menu. Right now it is probably very hard to find the right article about crypto or compound interest when you have to sift through all of our old posts. With this categorization, if you want to study about lululemon stock right before you buy, you will know exactly where you can find it. H
However, some of these categories will only be accessible to those who are subscribed. We are doing this to reward our subscribers in another way besides trying to give them quality posts. So, if you are not subscribed, get subscribed now! If you are, tell your friends to subscribe real soon before they miss out on the categories.
If you have suggestions for what categories you want to see, leave a comment below. It’ll help us a lot more if we are providing categories our readers will deem useful rather than what we think breaks up our posts the best. The comments will be public for all to see, but feel free to second any suggestion someone has already made.
The last 2 weeks major companies have reported their quarterly earnings reports. These include Facebook, Apple, Amazon, Microsoft, Tesla, Google, Qualcomm, Visa, and so many more.
For those who dont know, every quarter a company must report their income, balance sheet, growth, etc. Top Wall Street analysts will set expectation numbers that these comapanies should achieve. Whether they hit them or not helps determine where the stock will move, and helps better understand how well a company is growing.
This quarter companies have blown their numbers out of the water!! Beating expectations… by A LOT Wall Street is wrong this time around.
Apple reported Wednesday 4/28.
Revenue of $90 billion vs. expected $77 billion.
Earnings Per Share of $1.40 vs. expected $.99
Gross Margin 42.5% vs expected 39.8%
Iphone revenue of $48 billion vs. expected $41.5 billion.
Raised divendend by 7%
Apple is the largest company in the stock exchange, we all know why. No surprise Apple has proved themselves again. Apple stock is little changed due to earnings. Some say it’s because Apple is wary of slowed chip growth for the future. In the long run this wont matter, but the blow out earnings will.
If you invest your money here, you will grow your money no questions asked.
Reported Tuesday 4/27
Earnings Per Share of $1.95 vs. expected $1.78.
Revenue of $41.71 billion vs expected $41.03 billion.
Revenue growth of 19% year over year.
Similar with Apple, Microsoft is another proven company. They continue to expand into new fields like cloud computing and AI. Their stock is also little changed, but dont think it is a big deal. It is Wall Street worried that these inflated numbers are due to coronavirus lockdowns, and aren’t sustainable. In the long run, this wont matter at all.
Reported Wednesday 4/28
Earnings Per Share of $1.90 vs expected $1.67.
Revenue of $7.93 billion vs. expected $7.62 billion
Revenue growth of 52% year over year.
Qualcomm is a stock that I believe gets no credit and is often overlooked. They are doing way more than you may think.
In summer 2020 Qualcomm replaced Intel as Apples #1 chip provider. Mid-major news at the time, but now no one seems to know just how big that partnership actually is.
A top 5 company in 5G development. Expanding networks all around the country for the future. This is an excellent growth opportunity for the company and it’s investors. This is the main reason I hold Qualcomm, for the 5G exposure.
Reported Monday 4/25
Earnings Per Share of $.93 vs. expected $.79 cents.
Revenue $10.39 billion vs. expected $10.29 billion.
Revenue up 74% year over year
Gross Income of $438 million
$101 million in profit from bitcoin transactions
Recorded record sales of Model 3 and Model Y vehicles.
Expects vehicle growth to grow 50% by the end of 2021
Tesla has beaten the odds so many times throughout the last 5 years. They are going on 2 years being profitable when so many said they never would would be. Elon Musk is slowly making Electric Vehicles a new normal for our world.
At this point, it is riskier to not hold Tesla in your portfolio, than to hold it in my opinon. What can hurt you is getting in at the wrong price. Often times people buy into Tesla when it runs up, never do this. Buy when everyone is doubting and when it falls big. I know I’ll be buying.
Reported Wednesday 4/28
Spotify is one that missed expectations, not by a lot however.
Monthly active users grew 25% since same time last year.
Missed user expectations. Reported 354 million vs. expected 365 million.
Growth in podcast listening hours.
Decreased guidance expectations.
Wall Street was expecting higher user numbers this quarter. That is why the stock is down significantly. I believe Wall street may have been wanting a larger user growth number due to pandemic lockdown situations. Spotify also gave lower guidance expectations for the rest of the year.
All in all, Spotify still reported year over year growth. As well as growth in other areas. But Spotify does need these big user numbers to prove themselves, since they are not a high profit company yet. I know I said I liked Spotify’s price over a month ago, but now I think they will go lower.
I still really like the products and services of this company though. They are one of the very few companies that competed with Apple, then went on to top them in some way. That being podcasts services. Long-term I really like this company, but lack of user growth and lack of different content can hurt them in the short term. If their dip is big enough, I will most likely scoop up a few shares.
More Noteable Reports
Google MASSIVELY beat earnings.
Amazon beat expectations.
Facebook record numbers.
Starbucks mixed feelings, but does report higher expecations in the coming months as reopenings begin.
UPS reports great numbers.
Catepillar on top.
What This Means Going Forward
Companies have proven themselves tremendously this time around. As uncertainty is still lingering, this hopefully decreased some of it. Moving forward though, how companies respond and report to the reopening of cities from the lockdown will be key. Can companies get back on their feet? Will they do better than expected? Key answers we need in the coming months.
Right now stocks are dipping even though they reported great numbers. The immidiate days after earnigns reports never tells the full story. Volatility is always higher, and everyone is on edge.
Some say Wall Street is now in fear that these high numbers are not sustainable once reopenigns happen. The companies that benefited from the lockdown have felt this reaction in their stock price.
As retail investors we must ride the waves of the market and analyze what we know. Buy dips, see how our holdings are reporting, what changes our companies are making, find other opportunities that are out there.
Diversification is a common mention when talking about investing. Holding just one stock, no matter how good the company is, is risky in case something really bad happens with the company. However, there is a lot more to diversification than just picking a bunch of different stocks. Having the right amount of stocks is also critical, because there comes a point where having more just doesn’t really mean much anymore. Knowing how to diversify you portfolio across sectors and the beta of stocks will protect you all different types of random market swings.
Where The Theory Comes From
In 1990, three men won a Nobel Peace Prize for their work in discovering how your portfolio and its risk correlates to the movement of the market. They found that as you added more stocks to your portfolio, the risk of it moved negatively exponential in relation. Shown in the figure below, William Sharpe, Harry Markowitz, and Merton Miller discovered that at 40 different positions in a portfolio, an investor has diminished risk. Although, after 40, the amount of risk you are diminishing does not change much.
In the analysis, the three economists used one of the Greeks called Beta, which measures how much a stock moves in relation to a whole market movement. When they say “the market” they are considering indexes such as the S&P 500 or the Dow Jones. If a stock moves higher in comparison to the market, it will be given a beta higher than one. If it moves less than the market, it’s beta will be less than one. High beta stocks are deemed as riskier however they have higher potential returns.
Which Stocks Should You Pick
You should first pick stocks based on the sector they are in. If you have a lot of confidence in the future of the electric vehicle market, you should look at Tesla ($TSLA), Nio ($NIO), or Workhorse ($WKHS). If you think the Big Tech will never die down, you should have Apple ($AAPL) or Microsoft ($MSFT). What sectors you have should be diversified. On the average day, if one Big Tech stock is down, they are all down. Stocks in the same sector have a high correlation, meaning even if you have 10 different pharmaceutical stocks, you aren’t actually diversified. Everyday they are moving the same, so if you are down on one you are down on all.
By this logic, you should have a few sectors you like and 2-3 stocks in that sector, and maybe a couple random stocks after that. Perhaps you don’t really like the future of the banking industry anymore, but you got J.P. Morgan at a great price years ago. Just because it doesn’t fit in your target sectors doesn’t mean you have to sell. Using our previous posts, find the exact stocks in the sector you feel you can trust and have a plan for the future when finding how to diversify your portfolio.
Risk Is Not a Bad Thing
In my opinion, if you are looking for true, risk-free assets, the stock market is not the place for you. No matter how safe you are, you can never avoid occurrences in the market like when the pandemic first hit in March 2020, or when Greece’s debt situation brought rumblings in 2011. Catastrophic events like this will always happen, but as long as you don’t panic and have cash ready to buy, you will come out stronger. You do not have to be a risk seeker, (although this brings the most gains) you can easily just be risk-averse. This kind of investor doesn’t take risks unless they see a reward from the risk. You might miss out on some big gains from being risky, but you definitely won’t lose from a foolish move when you know how to diversify your portfolio effectively.
As investers we need ways to profit off of any opportunity that we see. Usually, people profit from real estate by buying and selling homes. But there are ways to do it in the stock market. What if we look at real estate related stocks, materials needed to build homes like lumber, roofing, paint, etc. What companies sell these directly? Thats for another day though. Today let me talk about Zillow ($Z).
Zillow is the industry leader in residential real estate buying and selling. Homeowners, agents, and property management companies, can list their properties for sale & rent on Zillows online platform. https://www.zillow.com/. From here, the buyers can view all the listings they desire for free.
How Does Zillow Make Money?
The business statement is split into 3 categories. – Homes – IMT – Mortgage
Homes: As a company, Zillow will buy homes and flip them for a profit. Simple Enough.
IMT: Short for Internet, Media, & Technology. This section is ad-revenue generated from the company’s website, combined with Zillows Premier Agent Program.
The Premier Agent Program is a tool real estate agents & brookers use to track insights, leads, and better advertise on their home listings. This is what the majority of IMT profits come from.
Mortgage:Zillow Home Loans is the area where Zillow is a real estate lender. Since 2018 the company has been a licensed lender. Just like buying or refinancing a home from a bank, Zillow makes money on the interest of the mortgage they give to their home buyers.
The Numbers Don’t Lie
Numbers are in billions of $USD.
2018-2020 numbers according to Zillow 10-K. 2021 & 2022 expectations according to Yahoo Finance.
Zillow is expected to increase reveneues in 2021 by 63.3% compared to 2020. I believe this has everything to do with the high price tag on residential homes right now, and for the rest of the year.
The higher home prices are, the more Zillow earns on interest from mortgages. Plus, the higher profit from their Premier Agent Program mentioned earlier.
My biggest concern, which is not a big deal to me is the profit margins Zillow is creating. They are decreasing margins, however profits are still increasing. Due to the fact, Zillow reinvests so much of it’s proft back into the company to try and expand at a faster rate. This is why Zillow can return 3-5x your money faster than other stocks will.
Decrasing margins could slow down operations. Other platforms with higher margins may seem more appealing to investers.
In Zillows 10-K they say a lack of technology limits them when compared to competition.
Zillow is the industry leader when it comes to residential real estate advertising. They have the most users on their platform when compared to competitors. As investers, it is never a bad idea to invest in any industry leader. As the growth and stabalization of the company is proven.
Zillow owns the second largest platform, Trulia, along with HotPads.
The balance sheet is very strong for Zillow as well. They have $3.9 million in short-term liquid cash, and $2.3 million in debt as of 12/31/2020. Anytime cash is greater than debt, it is a good sign.
Right now 4/26/2020 ($Z) is trading at $141 a share, with a market cap of $33.6 billion. I can easily see this stock being $170-$190 a share by the end of 2021. Especially with the real estate market being so one-sided to sellers as we mentioned yesterday. Furthermore, end of 2022 this can very well be a $250 dollar stock.
This company has every right to be north of a $120 billion in market cap, being they are an industry leader.
I established a small position last week getting 5 shares at $130. I recommend you do the same. Establish a small position now, since the overall market is high. Because Zillow is well off its all time highs, it has more upside than the entire market, that is why I bought. But it can easilly go down with the market when corrections come. Make sure you have cash reserves to buy the dips.
Recently, housing prices have increased quite significantly. In a good real-estate market, a 3%-5% return per year on your property is considered good. As of March 2021 the median sale price of a house in the U.S. increased by 17.2% from last year! With the advent of the worldwide pandemic, many industries have been dramatically benefited or been hurt. The housing market is no exception. Since March of last year the housing market has faced lots of uncertainty regarding mortgage defaults, a short supply of houses, and an increased cost in building materials. All of these factors have created a market where housing price increases. So, with housing prices rising so high in such a short period of time it begs the question… Will it all come crashing down?
Not Enough Homes on the Market
When the coronavirus hit the United States, many of homeowners were fearful and decided to wait-out the pandemic to sell their homes. This had a huge impact on the housing market. In April of 2020, the monthly housing supply was at 6.8 meaning that the housing market’s inventory would last for nearly seven months assuming no more homes were added to the supply. As March of 2021, the monthly housing supply is at 3.6, nearly a 50% decrease in supply. In addition to this, the U.S. government introduced forbearance which stalled supply further by preventing some homes from coming to market.
Not only did supply of the housing market decrease but demand actually increased. When the pandemic hit initially, the Fed reduced their lending rates to near zero. This in-turn caused mortgage loan rates to drop significantly as well. Which then led to more buyers coming into the housing market so they could utilize a low interest mortgage loan. So the pandemic indirectly caused a perfect storm in the housing market for prices to rise. Making supply decrease and demand increase only leaves the laws of supply & demand to take effect and increase the price.
Will More Homes Come to the Market?
With so much demand in the housing market, it would make sense for property developers to build homes as quickly as possible to profit from the artificially high prices and also add supply to the market. However, the pandemic caused an obstacle for property developers. With covid restrictions, the demand for construction materials decreased which led producers to match demand and decrease their output. So when a sudden increase in demand for materials happened the producers were unprepared to meet the demand.
So once more, a high demand met a short supply and thus prices increased. According to the Bureau of Labor Statistics, prices from March 2020 to March 2021 for lumber have increased by 65.3%, steel mill products by 40.1%, and Materials for Construction by 13.5%. Plus, because of the sudden spike in demand for materials, producers haven’t been able to keep up. This has led to higher wait time for materials. In essence, more homes coming to the market is not going to happen quickly.
Will The Market Crash? Here Are My Thoughts.
Although prices of homes have scarily increased in the past year and the entire market is in odd circumstances, a housing crash isn’t very likely. This spike in prices is very different from the crisis back in 2008. The current situation doesn’t have thousands of homeowners and buyers at risk of default. In fact, forbearance is being offered which protects homeowners that may have been affected by the pandemic from foreclosing. Overall, the current housing market is nothing like what happened in 2008. This event is its own unique situation and it should be treated as such.
What is happening now is similar to a bogged down shredder, there’s too much demand in the shredder for the shredder to clear. Covid has indirectly caused a short supply and high demand and also limited the ways to alleviate the supply problem. As soon as the economy re-opens and things “get back to normal”, the market will be able to add supply like it wants to do and clear up the “bubble”. This will bring prices back down to a more expected and comfortable level. That being said, this won’t happen overnight even if the U.S. were to fully reopen tomorrow. The market will level out gradually over time and I believe this is good. Since many of us get scared of sudden spikes up or down, a gradual change would be nice to see.
The real-estate market is like the stock market, it will see its ups and downs. And like the stock market, you can benefit from being invested in real-estate… Come back tomorrow for our article that will teach you how to profit off of the housing market!
It’s called a Roth IRA. A different kind of investment vehicle you need to know about. You can open one on almost all brookerage platforms. One of the very few things I enjoyed learning about in high school was my economics teacher teaching me about one way he has become a millionaire. Through his Roth IRA
What Is It?
A Roth Ira is an investment account where you can buy stocks and funds just like an individual account. There are some major differences however…
Maximum contributions are $6,000 per year
The money you put in is considered “post-tax money.” Money that has been taxed by your income, then contributed to your Roth IRA.
Once you take the money out at 59.5 years old, you ARE NOT taxed on it.
At any point in time, though it’s not smart, you can pull out your principle contributions. The gains must stay, or you can take them out with a 10% penalty AND get taxed on top of that.
Why I Have One
Many people will say Roth IRA’s are a waste because you can’t take money out easily, and you can only contribute $6000 a year. While those points are true, I still have one, here is why.
I’m young and struggle to max out the $6,000 mark.
I make sure I have money stored away for emergencies, so I dont have to pull my Roth IRA money.
My account pairs nicely with my long term strategy.
The main part I love about a Roth is the tax free withdraw once you turn 59.5. The gains from comund interest plus tax free, can make you a millionaire.
I have a seperate individual account where I have a riskier strategy that returns more. In this account I also buy & sell more often, actively manage it, and contribute more each month. I use my Roth as a “safe haven” investment.
My Roth Holdings
I hold a lot of different index funds that M1 Finance, provided for me. For the most part, these track the overall market. The individual stocks I have are top 20 biggest companies in the stock market. So they are safe, but return more than the index funds.
I started my account 8 months ago, so my balance is low. I plan to have my principle balance around $2500 by the end of 2021.
Roth IRA’s are a great tool to have in your investment portfolio. I like my approach, it works for my goals. I’m not saying you need to copy my exact formula. But take it into consideration.
Recently (9/21/2021), the U.S. House passed a bill that would fund the government while also suspending the debt limit until December of 2022. However, this bill still has to be passed by the U.S. Senate in order to become true legislation. If the Senate does not pass the bill then the U.S. government would shutdown on October 1st. In addition, without an increase to the debt limit, the country would default on its debts. This is extremely significant because this would be the first time the U.S. has ever defaulted.
The fact that the U.S. has never defaulted on its debt has given it one of, if not, the strongest credit worthiness rating in the world. Strong credit worthiness makes the dollar stronger and also allows the country to lend and borrow more freely. However, one single default could leave a heavy mark on the United States’s credit rating. The U.S. is a large lender and borrower due to its credit rating. So if the country defaulted for the first time, it could signify instability in the U.S. government and put into question how credit worthy the U.S. truly is.
Of course, this scenario has happened multiple times before in the past, and each time the government was able to increase the debt limit to pay off its debts. Despite this, past outcomes do not always indicate future outcomes. It is still stressful to “roll the dice” each time. Especially when one bad outcome can have such a drastic impact on the country. So how exactly does the U.S. pay its debts and why does the debt ceiling need an increase?
How the U.S. Pays Its Debts
To understand how the U.S. pays its debts, it’s important to understand how the U.S. accumulates debt. The U.S. accumulates debt when it decides to spend more than it earns from taxes. Generally, this means that there is a budget deficit. In order to finance the country’s spending, the government issues bonds. This gives the government money to finance its spending and promises bondholders they will be paid back in the future.
The only issue with issuing is that there is a limit on how much debt the U.S. can issue. This is known as the “debt limit” or “debt ceiling”. If the U.S. issues its max amount of debt and still does not have enough money to pay for its spending obligations then the government will shutdown and debts may be defaulted upon. However, this changes if the debt limit is increased. Then the government can issue more debt and finance its spending, preventing any defaults or shutdowns.
Overall, this balance between budget deficit and paying debts has largely been “solved” by increasing the debt limit. The present worry is that if the U.S. fails to increase the debt limit this time, the country will embrace its first-ever default and all the consequences that come with it.
Recently, the U.S. senate has passed a $1 trillion bill that will allocate funds towards various infrastructures in America. Structures such as roads, bridges, electrical grid, and internet infrastructure are all in the bill. Although this bill has been approved by the senate, it is now being sent to the House of congress. The House has not voted on the infrastructure bill yet. And with both political parties strongly divided on this bill, it is unclear whether or not the bill will pass. However, if the bill does pass this would trigger a large event in the stock market and some specific companies. Let’s dive into how this bill can influence the stock market
The first thing you will hear anyone say about this bill is its price tag. Whether it is a finance journalist, news reporter, politician, or your ordinary citizen… everyone brings up the $1 trillion price of the bill. Not only is this eye catching but it carries a serious amount of weight.
Due to the pandemic, the U.S. government began printing money to put into the economy to keep it afloat. Not only did this keep the economy running but it also stopped the plummeting stock market, at the time. The stimulus kept bond interest rates low and investors calm. This made the stock market look like a great opportunity and hence the stock market began to rebound. Now that the economy is getting back to its feet, it is debated whether or not stimulus is needed anymore. So what does the infrastructure bill have to do with the stock market?
Well currently, it looks like the Fed is going to begin slowing down and eventually stop stimulus. This would spell bad news for the stock market as this “tapering” would cause money to flow out of the stock market due to fear and safe rising bond rates. So what might make an investor want to stay in the stock market? Perhaps a $1 trillion package that puts money into the economy once more. Hence why the infrastructure bill has been so avidly talked about recently. Many investors see the bill passing as another stimulus being injected into the economy which would make the stock market the best place to get a return.
Companies to Keep an Eye On
Now that we know why the infrastructure bill is so important to the stock market, let’s see if we can make more use of this information. It is well known that if the infrastructure bill gets passed that the government won’t be doing it themselves. The government will contract companies and unions to do the work. This means that any public company that might receive some of this infrastructure money will be seeing a significant increase in cash flow. To keep things short, I would keep an eye on $CAT and $ETN. Both of these companies will likely play a large role in roads and the electrical grid, respectively. $CAT will be supplying lots of heavy machinery and $ETN will supply a lot of electrical equipment. Other companies will profit but $CAT and $ETN are almost certain to be influenced by a passed infrastructure bill.