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Corporations: Value Based and Purpose Driven

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“Doing good is good for business”

According to one corporate Chief Marketing Officer who spoke at CES 2020, sixty-three percent (63%) of global consumers purchase items from companies with purpose. Said another way, a majority of global consumers, either consciously or unconsciously, purchased goods and services from companies whose overriding purpose and values were to make the world better. Purpose must be more altruistic than just increasing shareholders returns through capital gains and growing revenue, cash flow, earnings and dividends.

Salesforce.com

Marc Benioff, founder and Co-CEO of Salesforce.com, strongly advocated that corporations, especially big technology companies, must be a force for good and that brands can play a major role in doing good. He conveyed the message during a C-Suite session this month at CES 2020 that businesses can be mutually financially successful, sustainable and philanthropic business. He stated the point that a business can and should successfully serve the interests of all stakeholders, which includes the planet. In his opinion, every corporate CEO should adopt a public school, public hospital or combat homelessness in the community they operate. In short, all stakeholders have to matter; and, the planet and local community are key stakeholders.

“Don’t read people’s lips; Watch their feet.”

Marc’s company, Salesforce.com, from its beginning is 1999, has made trust its major value and serving all stakeholders’ interests which include giving back to its community a core purpose. Putting action to their words, the company has directed one percent (1%) of corporate resources which is over $300 million (profits, equity, and time) into giving back to the community. He went as far as proposing a corporate tax to battle homelessness. As a result, Salesforce.com has been regularly ranked as one of the best places to work in America and has had a 4,000 percent return on investment (ROI) for their shareholders.

“Businesses are the greatest platform for change.”

In his opinion and how he designed Salesforce.com, businesses are the greatest platform for change and people are basically good; his intent when he left Oracle to start Salesforce.com was to create a company culture based on trust and optimized to enable employees to do good. He felt that “…purpose is defined by the company; it cannot be enforced”.

Stakeholder Capitalism

Stakeholder capitalism, Marc Benioff opined, is a more fair, a more just and a more equitable form of capitalism than its predecessor. It means paying men and women the same. It’s means embracing values of trust, truth and doing the right thing over time. He often asks technology companies’ CEO’s and boards what are their priorities, what are their highest values, and what is truly important to them. Since in his view, making money is easy; doing the right thing takes effort and dedication.

But, leadership is about who you are and what you do. CEO’s of major technology companies must look at their values and purpose. They must assess whether they’re using these influential platforms to make the world better or just to make money. Despite the recent negative news surrounding big technology companies like Facebook on issues of privacy and impacting the U.S. Presidential elections, Marc stated that they can do both…make the world better for all stakeholders and make money for shareholders.

Don’t Just Save…Value Invest

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Make the most of your money and that means investing.

For many Americans, investing can appear to be a frightening gamble. Memories of the 2008 financial crisis devastated investment accounts with paper losses more than ten years ago create the reluctance among many to invest.

However, in order to beat inflation and ensure that your savings will work for you long term, it’s crucial to invest in growth-oriented investments such as the stock market. Whether through an employer-sponsored 401(k) plan, a traditional or Roth IRA, an individual brokerage account or somewhere else, to build wealth and financial security, individuals must invest in the equity stock market. And, it is important to start investing as early as you can to give your money as much time as possible to grow.

Valuation matters, and it matters a lot.

Value investing rarely performs well in the short run. This is especially true during strong bull markets. Popular non-GARP (growth at a reasonable price) stocks are likely to be overvalued whereas unpopular value stocks will be where the best bargains can be found.

Consequently, being a value investor means being a patient investor and implies that an investor have a long-term mindset. Value investing rarely produces short-term results, because value investing usually also implies investing in out of favor stocks. This unpopularity is often why they have become bargains.

Moreover, value stocks are typically inexpensive for good reasons. Therefore, we need to ascertain whether the discounted stock price is justified or perhaps an overreaction by investors. These judgments can help us determine the level of risk we are facing and if we are being adequately compensated for taking it by the low valuations or not.

Additionally, in the long run value stocks often dramatically outperform and very often do so by taking on significantly less risk than other strategies such as momentum, or in many cases even growth. This is attributed to the fact that the risk is being mitigated by low valuation (price) and margin of safety.

As a result, the key benefit of value investing is the valuation risk mitigation element. Research demonstrates that stocks that are properly valued, or undervalued, are more defensive in a volatile or bear market.

Margin of Safety

Margin of safety is the difference between the intrinsic value of a stock against its prevailing market price. Intrinsic value is the actual worth of a company’s asset, or the present value of an asset when adding up the total discounted future income generated:

  • Deep value investing – buying stocks in seriously undervalued businesses. The main goal is to search for significant mismatches between current stock prices and the intrinsic value of these stocks. This kind of investing requires a large amount of margin to invest with and takes lots of guts, as it is risky.
  • Growth at reasonable price investing – choosing companies that have positive growth trading rates which are somehow below the intrinsic value.

Margin of safety serves as a cushion against errors in calculation. Since fair value is difficult to accurately predict, safety margins protect investors from poor decisions and downturns in the market.

Source: https://www.cnbc.com/2020/01/07/how-much-money-youd-have-if-you-invested-500-dollars-a-month-since-2009.html

Goals are Key

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“When you define your goals, you give your brain something new to look for and focus on. It’s as if you’re giving your mind a new set of eyes from which to see all the people, circumstances, conversations, resources, ideas, and creativity surrounding you.” Darren Hardy, author of Compound Effect

With goals, investors can create a realistic plan for achieving their investing objectives within a certain time frame. Since one of the biggest mistakes investors make is confusing investing with stock picking or trading. Ask many people how their money is invested and they might quickly jump to tell you the latest hot stock they’ve purchased and the investment thesis that explains why they think it’s going to take off.

Without an investment plan, what is the goal? Probably just to make some quick, easy money, which neuroscience has shown makes us feel good. Unfortunately, behavioral economics tells us that acting on such impulses tends not to end well. To be true to the term, investing must start with a specific goal corresponding to a set time horizon. The goal itself could be anything: buying a new car in two years; purchasing your first home in five years; or retiring in 40 years. What’s most important is to have the goal be the focus of your approach.

Once you’ve identified a goal, an investment plan can take shape. How much savings can you devote to it? How much time do you have? How realistic is the goal given the first two questions and the amount of risk you feel comfortable taking? If you choose to work with a Financial Advisor, he or she can help you find answers to these questions, and take you a long way to devising a strategy to help achieve that goal. 

Know your time horizon

How long do you plan to hold a stock and what purpose will it serve in your portfolio? Your trade time frame depends on your trading strategy. Generally speaking, traders fit into one of three categories:

  • Single-session traders are very active and are looking to gain from small price variations over very short periods of time.
  • Swing traders target trades that can be completed in a few days to a few weeks.
  • Position traders seek larger gains and recognize that it often takes longer than a few weeks to achieve them
  • Determine your entry strategy  Look for entry signals—for instance, divergences from trend lines and support levels—to help you place your trades. The signals you employ and the orders you use to make good on them hinge on your trading style and preferences.

Plan your exit

When it comes to an exit strategy, plan for two types of trades: those that go in your favor and those that don’t. You might be tempted to let favorable trades run, but don’t ignore opportunities to take some profits.

For example, when a trade is going your way, you could consider selling part of your position at your initial target price to make gains, while letting a portion run.

To prepare for when a trade moves against you, you can set sell stop orders underneath a stock’s support area, and if it breaks below that range, you can choose to sell.

Determine your position size

Trading is risky. A good trade plan will establish ground rules for how much you are willing to risk on any single trade. Say, for example, you don’t want to risk losing more than 2–3% of your account on a single trade, you could consider exercising portion control, or sizing positions to fit your budget.

Review your trade performance

Are you making or losing money with your trades? And importantly, do you understand why?

First, examine your trading history by calculating your theoretical “trade expectancy”—your average gain (or loss) per trade. To do this, figure out the percentage of your trades that have been profitable vs. unprofitable. This is known as your win/loss ratio. Next, compute your average gain for profitable trades and average loss for unprofitable trades. Then, subtract you average loss from your average gain to get your trade expectancy.

Profitable trades

A positive trade expectancy indicates that, overall, your trading was profitable. If your trade expectancy is negative, it’s probably time to review your exit criteria for trades.

The final step is to look at your individual trades and try to identify trends. Technical traders can review moving averages, for example, and see whether some were more profitable than others when used for setting stop orders (e.g., 20-day vs. 50-day).

Sticking to it

Even with a solid trade plan, emotions can knock you off course. This is particularly true when a trade has gone your way. Being on the winning side of a single trade is easy; it’s cultivating a continuum of winning trades that matters. Creating a trade plan is the first step in helping you think about the next trade.

Source:

  1. Lee Bohl, 5 Steps for a Smart Trade Plan, Fidelity Insights, November 21, 2019
    https://www.schwab.com/resource-center/insights/content/5-steps-smart-trade-plan?cmp=em-QYD
  2. www.morganstanley.com/articles/having-goal-key-to-investing

Navy named aircraft carrier for Pearl Harbor hero Doris Miller | Honolulu Star-Advertiser

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Doris Miller awarded the Navy Cross medal

On Martin Luther King Jr. Day, the Navy announced that its next $12.5 billion Ford class aircraft carrier, CVN-81, will be named after Doris Miller, an enlisted sailor who received the Navy Cross for his valor during the attack on Pearl Harbor on December 7, 1941, when he manned a machine gun on the USS West Virginia to fire back at attacking Japanese planes.

Despite having no training in operating the big guns, he bravely jumped into action. Miller later recounted: “It wasn’t hard. I just pulled the trigger and she worked fine. I had watched the others with these guns. I guess I fired her for about fifteen minutes. I think I got one of those Japanese planes. They were diving pretty close to us.” Later versions of the story had Miller shooting down four Japanese planes, but the truth is he probably didn’t hit any. During the time he was firing the gun only one Japanese plane was shot down.

Miller, a mess attendant in a racially segregated rating aboard the battleship USS West Virginia, will be the first African-American to have a carrier named after him.

— Read on www.staradvertiser.com/2020/01/17/hawaii-news/navy-to-name-aircraft-carrier-for-pearl-harbor-hero-doris-miller/

The No. 1 secret to long-term investment success – MarketWatch

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The key to long-term success is to pick a good strategy and then establish a lifetime commitment to maintain that strategy regardless of what’s going on at the moment.

In the short term and the medium term, the market is unpredictable and seemingly random. But over the long term (I’m talking decades), it’s easier to figure out and predict.

If there’s a “secret” to long-term success, it’s managing your expectations.

— Read on www.marketwatch.com/story/the-no-1-secret-to-long-term-investment-success-2020-01-21

Know Your Net Worth | Financial Literacy

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“What gets measured gets managed.” Peter Drucker

This principle of ‘what gets measured gets managed’ means that examining or quantifying an activity, such as personal finance and net worth, will change the activity and its result by forcing you to pay attention to it.

This principle said another way…’you manage what you measure‘ is pertinent to personal finance. The principle can be applied to help us manage our personal finances and to permit us to get our hands around our personal net worth. Creating a net worth statement, and updating it each year, will help you monitor your financial progress and meet financial goals.

As you prepare to invest, you’ll need to know your net worth. And, it’s simple to calculate. You simply add up what assets you own and subtract what liabilities you owe.

Creating a net worth statement, and updating it each year, will help you monitor your financial progress and meet financial goals. It will also enable you to calculate how much you have (or don’t have) to invest.

www.finra.org/investors/personal-finance/know-your-net-worth

Artificial Intelligence (AI) 101

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“What all of us have to do is to make sure we are using AI in a way that is for the benefit of humanity, not to the detriment of humanity.” –Tim Cook

AI refers to computing hardware being able to essentially think for itself, and make decisions based on the data it is being fed. AI systems are often hugely complex and powerful, with the ability to process unfathomable depths of information in an extremely quick time in order to come to an effective conclusion.

AI infrastructure and machine learning (ML) can process instantaneously vast amounts of data. Thanks to detailed algorithms, AI systems are now able to perform mammoth computing tasks much faster and more efficiently than human minds. It is leading to big strides in the areas of research and development.

AI is being used to transform many areas of everyday life, from healthcare to traffic problems.Narrow Artificial Intelligence (AI) is what we see all around us in computers today.

These intelligent systems such as self-driving vehicles, smart speakers or virtual assistance have been taught or learned how to carry out specific tasks without being explicitly programmed how to do so. Systems programmed with narrow AI can only learn or be taught how to do specific tasks.

General Artificial Intelligence is very different, and is the type of adaptable intellect found in humans, a flexible form of intelligence capable of learning how to carry out vastly different tasks or to reason about a wide variety of topics based on its accumulated experience. This is the sort of AI more commonly seen in movies, but which doesn’t exist today.

Machine learning is where a computer system is fed large amounts of data, which it then uses to learn how to carry out a specific task, such as understanding speech or captioning a photograph. One of the most visible manifestations of AI can be observed with the rise of virtual assistants.

The rise of artificial intelligence (AI) and 5G will be game changers. 5G networks are the next generation of mobile wireless connectivity, offering faster speeds and more reliable connections on smartphones and other intelligent devices. While AI works by combining large amounts of data with fast, iterative processing and intelligent algorithms, allowing the software to learn automatically from patterns or features in the data. Together, the technologies will usher in autonomous systems and potentially solve many of societal problems.

Artificial intelligence (AI) makes it possible for machines to learn from experience, adjust to new inputs and perform human-like tasks. Most of today’s AI examples rely on deep learning and natural language processing. Using these technologies, computers can be trained to accomplish specific tasks by processing large amounts of data and recognizing patterns in the data.

Many Americans are feeling these 3 big financial stresses – MarketWatch

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If you look only at the nation’s low, 3.7% unemployment rate, it would be easy to assume that the economy’s humming and that Americans are feeling great about their finances. But after reviewing five recent notable surveys, I believe many people are actually feeling three big financial pain points now.

Overall, according to the Bank of America Workplace Benefits Report of 996 retirement-plan participants, just 55% of employees rate their financial wellness as good or excellent, down from 61% a year ago. “That’s something to keep a close eye on,” says Lisa Margeson, head of Retirement Client Experience and Communications at Bank of America.

— Read on www.marketwatch.com/story/many-americans-are-feeling-these-3-big-financial-stresses-2019-10-02

The 5 Step Guide to Avoid Making Investment Mistakes

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“The only man who never makes a mistake is the man who never does anything.”

If you apply this famous quote by Theodore Roosevelt to investing, the easiest way to avoid mistakes while investing is by not investing at all. But, that is the biggest investment mistake one can make.

Investing is important to build wealth in the long term. However, just investing is not enough as investing right is equally important.
— Read on www.entrepreneur.com/article/343454

Stocks Have Outperform Other Asset Classes

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For the next decade, which asset class among stocks, bonds, real estate, cash, gold/metals, or bitcoin/cryptocurrency, would be the best vehicle to invest money for the highest long-term total returns?

Since 1890, the S&P 500 (or its predecessor indexes) has outpaced inflation at a 6.3% annualized rate (when including dividends). Long-term U.S. Treasury Bonds have produced an annualized inflation-adjusted total return of 2.7%. Finally, U.S. real estate has produced an annualized return above inflation of just 0.4%, as judged by the Case-Shiller U.S. National Home Price Index and the consumer-price index.

Yet, the U.S. stock and bond markets are currently overvalued, and it is plausible that real estate will do better than either stocks and bonds over the next decade.

According to almost all standard valuation metrics, U.S. equity stocks currently are somewhere between overvalued overvalued. Furthermore, you can only partially explain away this overvaluation because of low interest rates.

Given stocks’ overvaluation, it’s entirely possible that stocks will over the next decade have the potential to fall short of their historical averages.

To the contrary, real estate has been relatively undervalued and historically less volatile than the stock market—a lot less as measured by the standard deviation of annual returns.

As a result, real estate has proven to be less riskier than equities. Yet, the misperception that real estate is riskier has been derived from the leverage typically used when purchasing real estate adds inherent risk to investing in real estate. Essentially, the risk for real estate comes from the leverage, not real estate inherently.

If there is a major stock bear market in the next decade, real estate might be the better investment just because of it’s lower risk and relatively undervalued.

Sources:

  1. https://www.marketwatch.com/story/the-single-best-investment-for-the-next-decade-2019-08-08
  2. https://www.marketwatch.com/story/stock-bulls-are-telling-themselves-a-lot-of-lies-about-this-market-2019-06-04