Value Investing

Posted on November 21, 2022 by admin

Value investing involves determining the intrinsic value — the true, inherent worth of an asset — and buying it at a level that represents a substantial discount to that price.

The gap between a stock’s intrinsic value and the price it is currently selling for is known as the margin of safety.

The greater the margin of safety, the more an investor’s projections can be off while still profitably gaining from an investment in the shares of the company being evaluated.

It can be helpful to ensure you understand what value investing is and is not. It is not searching for stocks with low price-to-earnings ratios and blindly buying the stocks that make that first cut. Instead, value investors employ a series of metrics and ratios to help them determine a stock’s intrinsic value and a sufficient margin of safety.

Value investing in stocks often means looking for mispriced shares in out-of-the-way places. This can include looking at companies in out-of-favor sectors, businesses in frowned-upon industries, companies that are going through some type of scandal, or stocks currently enduring a bear market. Unpopular sectors and companies are often treasure troves for the successful value investor, requiring the possession of both a long-term approach and a contrarian mindset. Regardless of where the investments come from, though, value investing is the art and science of identifying stocks priced below their actual worth.

Successful value investing exercise patience and hold during lean times. Taking just one example, in early 2015, American Express shareholders learned that AmEx lost its exclusive credit-card deal with Costco Wholesale locations. In the following months, Amex lost almost 50% of its market-cap value. Yet far from being a moment to panic, savvy investors might have seen an opportunity to buy AmEx for outsized gains. Within three years of its lowest point, American Express had almost doubled and reached new all-time highs.

Selling at lows while negative sentiment is at its highest will guarantee frustration and permanent loss of capital. It can be hard to wait while your thesis plays out, but patience is absolutely necessary for value investors who want to beat the market.

Of course, value investing is more than a waiting game. Investors must remain diligent in staying up to date on a company to ensure their thesis is proceeding as planned. This means paying attention to the company’s business performance — not its stock price.

The Big 5 Numbers

Phil Town, founder and CEO of Rule #1 Investing, says there are “the big 5 numbers” in value investing.

The Big 5 numbers are:

Return on Invested Capital (ROIC)
Equity (Book Value) Growth
Earnings per Share (EPS) Growth
Sales (Revenue) Growth
Cash Growth

All the big 5 numbers will be 10% or greater if the company, and he numbers should be stable or growing over the past 10 years.

The big takeaway

Value investing is not easy. It requires time, focus, discipline, patience and dedication to the craft. It will often mean looking and feeling foolish while you wait for an investment thesis to play out. If this doesn’t sound like it’s for you, investing in passive index funds is a perfectly suitable alternative.

For investors who enjoy the hunt of looking for undervalued assets — and beating the market at its own game — value investing can be richly rewarding in more ways than one. By following this simple guide, investors can be well on their way to understanding how value investing can beat the market.

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FTX Fraud, Political Donations and False Altruism

Posted on November 20, 2022 by admin

FTX founder Sam Bankman-Fried (SBF) admits masquerading as ‘woke Westerner’.

Sam Bankman-Fried (SBF), the founder and CEO of collapsed cryptocurrency exchange FTX, revealed that ‘the woke appearance’ that he personified and his company displayed was all a “dumb game.”

In an interview, Bankman-Fried confessed that the fake window dressing of altruism was mostly a front and that the performance was done “so everyone likes us.”

Until last week, FTX was the world’s second-largest cryptocurrency exchange and was valued at $32 billion. However, the digital coin exchange collapsed and filed for bankruptcy.

In addition, between $1 billion and $2 billion in customer funds reportedly vanished from the FTX cryptocurrency exchange via corporate fraud, via an apparent hack and/or via an “unauthorized access” by Bankman-Fried.

In an emergency court filing, evidence suggests Bahamian regulators directed former CEO Sam Bankman-Fried to gain “unauthorized access” to FTX systems to obtain digital assets belonging to the company and to transfer those assets to the custody of the Bahamian government.

Bankman-Fried was a Democrat megadonor.

He reportedly contributed more than $5 million to Joe Biden in the 2020 presidential campaign.
He was the second-biggest individual donor behind George Soros to Democrats in the 2021-2022 election cycle – donating $37 million.
He planned to donate “north of $100 million” to Democrats in the 2024 presidential election, but pledged to have a “soft ceiling” of $1 billion in donations to Democrats if former President Donald Trump ran again.

The concern now is whether Democrats will be obliged morally to ‘give back’ the apparent illicit political donations from Bankman-Fried.

A liberal darling

Bankman-Fried, a self-proclaimed “effective altruist,” was promoted by Democrats and hyped up by the media. However, in a new interview, Bankman-Fried confessed that he used his virtuous stances as a front to win the game.

SBF was one of the featured speakers at World Economic Forum 2022 in Davos, Switzerland.

In September, SBF was a featured speaker at the annual meeting for the Clinton Global Initiative.

SBF was slated to be a featured speaker at a summit hosted by the New York Times on Nov. 30, along with BlackRock CEO Larry Fink, New York City Mayor Eric Adams (D), and Ukrainian President Volodymyr Zelenskyy.

Bankman-Fried said it was “never the intention” to squander away investors’ money, but “sometimes life creeps up on you.”

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Mental Illness and Awareness

Posted on November 19, 2022 by admin

“An overwhelming majority (90%) of people in the United States think the country is experiencing a mental health crisis,” according to a new survey from CNN in partnership with the Kaiser Family Foundation (KFF).

According to the CNN and Kaiser Family Foundation (KFF) poll, about half of adults say they have had a severe mental health crisis in their family, including in-person treatment for family members who were a threat to themselves or others, or family members who engaged in self-harming behaviors.

More than 1 in 5 adults describe their own mental health as only “fair” or “poor,” including extra-large shares of adults under the age of 30, adults who identify as LGBT and those with an annual income of less than $40,000.

A third of all adults said they felt anxious always or often over the course of the past year, including more than half of LGBT adults and those under 30. About 1 in 5 adults said they were often or always depressed or lonely over the past year, too.

Major sources of stress for a third or more of adults include personal finances and current and political events. About 1 in 4 adults also identified personal relationships and work, respectively, as major sources of stress.

Each year millions of Americans face the reality of living with a mental illness. And, each year it’s important to fight the stigma, provide support, educate the ourselves and the public, and advocate for policies that support people with mental illness and their families.

It’s imperative to understand that mental health illness and conditions do not discriminate based on socioeconomic status, race, color, gender or identity. Anyone can experience the challenges of mental illness regardless of their background.

However, socioeconomic status, background and identity can make access to mental health treatment much more difficult. Each year millions of Americans face the reality of living with a mental health condition and not receiving adequate treatment or care.

Know The Warning Signs

Distinguishing “normal” behaviors from possible signs of a mental illness isn’t always easy. There’s no simple test to label one’s actions and thoughts as mental illness, typical behavior or the result of a physical ailment, according to National Alliance on Mental Illness (NAMI).

Each illness has its own symptoms according to NAMI, but common signs of mental illness in adults and adolescents can include the following:

Excessive worrying or fear
Feeling excessively sad or low
Confused thinking or problems concentrating and learning
Extreme mood changes,including uncontrollable “highs” or feelings of euphoria
Prolongedorstrongfeelingsofirritability or anger
Avoiding friends and social activities
Difficulties understanding or relating to other people
Changes in sleeping habits or feeling tired and low energy
Changes in eating habits such as increased hunger or lack of appetite
Changes in sex drive
Difficulty perceiving reality (delusions or hallucinations, in which a person experiences and senses things that don’t exist in objective reality)
Inability to perceive changes in one’s own feelings, behavior or personality (“lack of insight” or anosognosia)
Over use of substances like alcohol or drugs
Multiple physical ailments without obvious causes (such as headaches, stomach aches, vague and ongoing “aches and pains”)
Thinking about suicide
Inability to carry out daily activities or handle daily problems and stress An intense fear of weight gain or concern with appearance

Mental health conditions can also begin to develop in young children, according to NAMI. Because they’re still learning how to identify and talk about thoughts and emotions, children’s most obvious symptoms are behavioral. Symptoms in children may include the following:

Changes in school performance
Excessive worry or anxiety; for instance, fighting to avoid bed or school
Hyperactive behavior
Frequent nightmares
Frequent disobedience or aggression
Frequent temper tantrums

It’s vitally important to promote awareness regarding the mental health challenges facing Americans. Here are a few facts (Source: NAMI):

1 in 5 U.S. adults experience mental illness each year
1 in 20 U.S. adults experience serious mental illness each year
1 in 6 U.S. youth aged 6-17 experience a mental health disorder each year
Annual prevalence of mental illness among U.S. adults, by demographic group:

Non-Hispanic Asian: 13.9%
Non-Hispanic white: 22.6%
Non-Hispanic Black or African American: 17.3%
Non-Hispanic American Indian or Alaska Native: 18.7%
Non-Hispanic mixed/multiracial: 35.8%
Non-Hispanic Native Hawaiian or Other Pacific Islander: 16.6%
Hispanic or Latino: 18.4%
Lesbian, Gay or Bisexual: 47.4%

Annual prevalence among U.S. adults, by condition:

Major Depressive Episode: 8.4% (21 million people)
Schizophrenia: <1% (estimated 1.5 million people)
Bipolar Disorder: 2.8% (estimated 7 million people)
Anxiety Disorders: 19.1% (estimated 48 million people)
Posttraumatic Stress Disorder: 3.6% (estimated 9 million people)
Obsessive Compulsive Disorder: 1.2% (estimated 3 million people)
Borderline Personality Disorder: 1.4% (estimated 3.5 million people)
46.2% of U.S. adults with mental illness received treatment in 2020
64.5% of U.S. adults with serious mental illness received treatment in 2020

Getting Help

When mental illness is present, the potential for crisis is never far from mind. Crisis episodes related to mental illness can feel incredibly overwhelming. There’s the initial shock, followed by a flood of questions — the most prominent of which is: “What can we do?”

Like any other health crisis, it’s important to address a mental health emergency quickly and effectively. With mental health conditions, crises can be difficult to predict because, often, there are no warning signs. Crises can occur even when treatment plans have been followed and mental health professionals are involved. Unfortunately, unpredictability is the nature of mental illness.

There are a variety of treatment options available for people with mental illness and the best combination of treatment and other services will be different for each person. Recommendations are made by health care professionals based on the type of illness, the severity of symptoms and the availability of services. Treatment decisions should be made by the individual in collaboration with the treatment team and their family when possible.

If the situation is life-threatening, call 911 and ask for someone with mental health experience to respond.

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The Impact of FTX’s Collapse

Posted on November 18, 2022 by admin

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.” ~ John Ray, new FTX CEO

Crypto exchange FTX filed for bankruptcy after a stunning five-day collapse of the once-$32 billion dollar crypto company as concerns over its financial health led to a surge in withdrawals and a plunge in the value of its native FTT token. FTX’s founder, Sam Bankman-Fried (SBF), resigned as CEO.

As a result of the collapse, the company and its leadership are facing investigations and potential criminal charges in both the Bahamas and the U.S. for its misappropriation of users’ assets and allegations of fraud.

Before its collapse, FTX offered retail and professional traders spot crypto investing as well as more complex derivatives trades. At its peak, the platform was valued by investors at $32 billion and had more than 1 million users.

FTX’s books revealed the exchange had more than $9 billion in liabilities, but less than $1 billion in liquid assets the day before its bankruptcy filing. And, after an apparent hack (or “unauthorized access” via a backdoor by SBF) drained $477 million of the company’s remaining assets, customers are facing long odds of ever recovering much of their deposits.

After FTX collapse, at least $1 billion in customer funds are unaccounted for, and FTX may owe as many as one million creditors. Additionally, FTX’s collapse has resulted in:

Crypto’s total market cap has dropped below the $1 trillion mark since FTX’s trouble started early last week, and sits near $826 billion as of Wednesday morning, November 9. 2022.
After the firm’s bankruptcy filing, BTC price sank nearly 25%, dropping below $16,000, before slightly recovering; ETH fell by more than 30% in the same span.
Market contagion and liquidity issues have spread to a growing number of crypto businesses that have suspended redemptions, citing “extreme market dislocation … caused by the FTX implosion.”
Several major players have halted customer withdrawals and cited “significant exposure to FTX.” Others are planning to file for bankruptcy.

CNBC reported that Alameda Research, FTX’s sister company, had borrowed billions in customer funds from the exchange to make risky leveraged trades, leaving FTX caught short when users wanted to withdraw their money.

In general, mixing customer funds with counterparties and trading them without explicit consent is illegal, according to U.S. securities law. It also violates FTX’s terms of service. “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” said newly appointed FTX CEO John Jay Ray III – a bankruptcy expert with more than 40 years of restructuring experience who liquidated Enron.

Former CEO Bankman-Fried declined to comment on allegations but said the company’s recent bankruptcy filing was the result of fraud, misappropriation and issues with a leveraged trading position placed by Alameda Research.

“In the Bahamas, I understand that corporate funds of the FTX group were used to purchase homes and other personal items for employees and advisors,” Ray wrote. “I understand that there does not appear to be documentation for certain of these transactions as loans, and that certain real estate was recorded in the personal name of these employees and advisors on the records of the Bahamas.”

Moreover, larger investors and traditional firms been impacted

Since its founding in 2019, FTX raised nearly $2 billion in capital from sources like venture capital firms and pension funds, and its bankruptcy means that many of its investors will likely need to write their investments off as losses.
SoftBank, Tiger Global, and Sequoia Capital are among the many well-known firms who made now-worthless bets on FTX. Sequoia was marking its $213 million stake down to $0.
The impact isn’t limited to venture capital firms either — the Ontario Teachers Pension Fund lost $95 million investing in FTX’s funding rounds and professional athletes celebrities like TV producer Larry David and NFL quarterback Tom Brady are among the individuals who had equity stakes in and promoted the company.
In an emergency court filing, evidence suggests Bahamian regulators directed former CEO Sam Bankman-Fried to gain “unauthorized access” to FTX systems to obtain digital assets belonging to the company and to transfer those assets to the custody of the Bahamian government.

In the wake of the FTX exchange’s collapse, there has been calls from financial business leaders and lawmakers regarding the need for greater oversight and regulation of the crypto industry.

U.S. Congressman Patrick McHenry, the top Republican on the House Financial Services Committee, said: “It’s imperative that Congress establish a framework that ensures Americans have adequate protections while also allowing innovation to thrive here in the U.S.”

Source: Coinbase Bytes

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The Impact of Increasing Interest Rates on the Economy and Investing

Posted on November 17, 2022 by admin

The Federal Reserve Bank (Fed) implements monetary policy that has a broad impact on the US economy. One of the ways the Fed impacts its dual mandate of managing unemployment and inflation is to periodically raise or lower interest rates.

The Federal Reserve in November 2022 raised interest rates by three-quarters of a percentage point — or 75 basis points — for the fourth time in the calendar year, bringing its key benchmark borrowing rate that rules all other interest rates in the economy up to a target range of 3.75-5 percent, where it hasn’t been since early 2008, according to a Bankrate.

The fed funds rate matters because it has ripple effects on every aspect of consumers’ financial lives, from how much they’re charged to borrow to how much they earn in interest when they save. And, changing interest rates is one of the main tools that the Fed can use to cool down inflation.

Inflation is the increase in the prices of goods and services over time and occurs when the demand for those goods and services exceeds supply. Inflation also represents a loss of purchasing power.

Typically, the Fed raises interest rates in times of economic expansion and does so to prevent the economy from overheating. The opposite is true when interest rates are cut, which typically occurs when the economy is in a down trend.

To raise interest rates, the Fed changes the overnight rates at which it lends money to banks. That sets off a chain reaction that impacts the rates banks charge to businesses and individuals. When rates rise, the impact on the economy includes:

Borrowing costs rise for businesses, which can reduce investments in new plants, equipment, marketing, and physical expansion.
Borrowing costs rise for consumers, which reduces consumer spending, home buying, and investing.
Savings accounts and other low-risk investments earn more interest, making investing in low-risk instruments more attractive.

Markets adjust, with fixed income securities generally reducing in value and equities reacting in a mixed fashion depending on how much a rate rise is expected to affect specific types of businesses.

The U.S. Interest Rate Historical Timeline

The chart below shows the history of Fed Funds Rates going back to 1954.

Chart of Fed Funds Rate (Macrotrends)

Rising interest rates impact investing in several ways, some of which are fundamental and some of which are perceptual.

Adding to the dilemma for many investors is the inflation outlook and the question of how transitory or persistent that inflation will be. From a rate perspective alone, rising rates can be expected to have the following impact:

Prices of bonds and other fixed-income investments will weaken with rising rates, especially the longer-term instruments.
Rates offered on new bonds will rise, making them somewhat more competitive with equities.
Rates should rise in bank products such as CDs, bringing them back on the radar for investors.
When rates rise, stocks tend to fall — when rates fall, stocks rise.

Equity market reactions will be mixed, depending on the effects of higher rates on different companies and industries. Companies that are more leveraged will incur higher costs. Companies with high-ticket products that rely on consumer credit may weaken. On the whole, rising rates should also dampen enthusiasm to speculate, given higher borrowing costs.

“When interest rates are low, companies can assume debt at a low cost, which they may use to add team members or expand into new ventures,” says Brenton Harrison, CFP® professional based in Nashville, TN. “When rates rise, it’s harder for companies to borrow and more costly to manage what debt they already have, which impacts their ability to grow,” he adds. These higher costs may result in lower revenues, thus negatively impacting the value of the company.

Also keep in mind that as rates fall on savings accounts and certificates of deposit, investors generally seek out higher paying investments like stocks and are generally seen as a catalyst for growth in the market; in a rising rate environment investors tend to shift away from stock to places with less risk and safer returns.

The specter of rising rates can also change the behavior of investors, many of whom may decide to put off purchases on credit or sell stocks that were purchased on margin, based more on their expectations than on near-term reality.

“Central banks tend to focus on fighting the last war,” says Scott Sumner, monetary policy chair at George Mason University’s Mercatus Center. “If you have a lot of inflation, you get a more hawkish stance. If you’ve undershot your inflation target, then the Fed thinks, ‘Well, maybe we should’ve been more expansionary.’”

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Value Investing: The 4 Ms of Investing

Posted on November 15, 2022 by admin

“The one and only secret to stockpiling is to make sure the value of the business is substantially greater than the price you are paying for it. If you get this right, you cannot help but get rich.” ~ Phil Town

Value investing is a strategy that focuses on investing in individual assets, but not just any asset, assets in wonderful companies or real estate that are priced well below their value, explains Phil Town, founder and CEO of Rule 1 Investing.

Value investing aims to reduce risk by increasing understanding of what you’re investing in order to make wiser investment decisions, and purchasing it at a price that gives you a margin of safety.

Value investing is a focused, disciplined and patient strategy, it’s a buy-and-hold for the long-term strategy. You need to be disciplined, patient and keep your focus on long-term profits.
It’s about making investing decisions based on the intrinsic value of a company, or what it’s actually worth, which is not to be confused with its sticker or market price.
A key component of value investing is buying stocks at the right time, and the right time will present itself if you remain focused, disciplined and patient.
The value investor isn’t swayed by the general public’s reaction or market fear. Fear can make people sell too early or miss an excellent opportunity to buy. But, the value investor decides when to buy or sell based on a wonderful company’s intrinsic value, not based on the prevailing fear or greed in the stock market.

Growth at a Reasonable Price (GARP)

Value investors focuses on finding companies that were both undervalued and are what you might call “wonderful companies” with a high potential for growth. Thus, it wasn’t enough for a company to just be undervalued. Instead, the best companies to invest in were ones that were both undervalued and wonderful companies.

To spot undervalued companies, it’s also important to ensure that the companies you are investing in are high-quality and can retain their value throughout the time that you are holding them. Phil Town likes to evaluate whether or not a business is a quality company with what he calls the 4 Ms of Investing: Meaning, Management, Moat, and Margin of Safety.

If you can check off each of these 4 Ms for a company you are considering investing in, it will be well worth your while.

Meaning

The company should have meaning to you. This is important because if it has meaning to you, you understand what it does and how it works and makes money, and will be more likely to do the research necessary to understand all elements of the business that affect its value.

Management

The company needs to have solid management. Perform a background check on the leaders in charge of guiding the company, paying close attention to the integrity and success of their prior decisions to determine if they are good, solid leaders that will take the company in the right direction.

Moat

The company should have a moat. A moat is something that separates them from the competition and, thus, protects them. If a company has patented technology, control over the market, an impenetrable brand, or a product or service customers would never switch from, it has a moat.

Margin of Safety

In order to guarantee good returns, you must buy a company at a price that gives you a margin of safety. For Rule #1 investors, 50% is the margin of safety to look for, explains Town. This provides a buffer that makes it possible to still experience gains even if problems arise. This is arguably the most important.

These 4Ms draw heavily from the rules of value investing. Both sets of rules dictate that you must buy a company below its actual value in order to make a profit. That’s the bottom line.

Even if a company is in a great position today, it needs to have future potential to triple or 10x your investment. The market cap is a reflection of what you would pay today to own a piece of the company. But the market price is not the true value of the company.

You, as a value investor, should rely on the “intrinsic value” to determine whether a company is a worthy value investment. Then, you can use the market cap to help you determine if the company is on sale and if it has the growth potential.

References:

Phil Town is an investment advisor, hedge fund manager, and 3x NY Times Best-Selling Author. Phil’s goal is to help you learn how to invest and achieve financial independence.

FTX Downfall

Posted on November 14, 2022 by admin

“It’s only when the tide goes out that you learn who has been swimming naked.” Warren Buffett

Things may look good and rosy up to a certain point, but if a company is leveraged too much expecting a wave to come, but instead the tide goes out, everything will be exposed. Federal Reserve Chairman Jerome Powell aggressive interest rate hikes to counter inflation exposed all sorts of companies that were relying on cheap capital to either grow or survive.

In FTX case, a Bahamian cryptocurrency exchange, things were great for a while. Investors were excited about the way the stock price continued to melt up.

FTX was the third-largest crypto market in the world at the start of last week when it announced liquidity problems and would need a massive infusion of cash to stay afloat. However, the tide went out and the problems at FTX began to surface and then totally self-destruct.

In theory, exchanges like FTX make money by allowing customers to trade cryptocurrencies and collecting fees for transactions.

“It was a success story almost too good to resist. In just over three years, FTX would go from nothing to a $32 billion company. Now it’s back to nothing.” ~ Brandon Kochkodin, Forbes Staff

According to WSJ, FTX problems are a result of the loans it extended to Alameda using money that customers had deposited on the exchange for trading purposes. It was a decision that Mr. Sam Bankman-Fried (SBF), the crypto wunderkind who founded the exchange and then drove it into bankruptcy, described as a poor judgment call, writes the Wall Street Journal.

In March 2022, the Fed started raising interest rates to battle inflation. Speculative investment assets started tanking and a number of crypto funds and brokerages crashed. FTX came in as a bailout “savior” with the apparent purpose of sweeping in depositor funds into FTX.

Additionally, SBF’s hedge fund Alameda Research was also hit hard by the crypto drop. SBF was able to temporarily hide the problem by “borrowing” customer deposits at FTX to plug the hole at Alameda. This move may be a violation of the terms of service and potentially violate regulations.

All in all, FTX had $16 billion in customer assets. It is believed that the unregulated exchange transferred more than half of its customer funds to its sister company Alameda, according to WSJ.

In traditional markets, brokers must keep client funds segregated from other company assets. Cryptocurrencies and brokerages that trade them remain unregulated, which means it may not be legally possible for any government agencies to step in to reimburse FTX customers, said corporate lawyer Eric Snyder, chairman of bankruptcy at Wilk Auslander.

“Absent any regulation, it’ll be difficult to show fraud if the agreements between FTX and their customers allowed FTX to use investments at their discretion,” Synder said.

The root of FTX’s downfall lay in its relationship with Alameda, a firm known for aggressive trading strategies funded by borrowed money and allegedly operated by Mr. Bankman-Fried’s ex-girlfriend as CEO of Alameda. Mr. Bankman-Fried is the majority owner of both firms, FTX and Alameda. He was CEO of Alameda until last year, when he stepped back from the role to focus on FTX.

"There's one fundamental takeaway: #Bitcoin itself should never be leveraged. It cannot be leveraged safely. And anybody who thinks that they can lever it safely is going to learn a very hard lesson: that illiquidity is the same thing as insolvency." @CaitlinLong_'s take on FTX pic.twitter.com/3AcSNx4ERx

— The Exchange (@CNBCTheExchange) November 11, 2022

“There’s one fundamental takeaway: Bitcoin itself should never be leveraged. It cannot be leveraged safely. And anybody who thinks that they can lever it safely is going to learn a very hard lesson: that illiquidity is the same thing as insolvency,” commented Caitlin Long, founder and CEO of Custodia Bank, on CNBC’s The Exchange

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Recession and Investing

Posted on November 13, 2022 by admin

A recession is a period of economic contraction. Recessions are typically accompanied by falling stock markets, a rise in unemployment, a drop in income and consumer spending, and increased business failures. ~ SoFi

Liz Young, Head of Investment Strategy at SoFi, talks recession.

💥New blog post: "Boil, Boil, Toil and Trouble" on what to do if a recession materializes. Yes, I know GDP was positive today. Let's just be ready if it turns the other way in the next few quarters. https://t.co/m8ppgJiPWp

— Liz Young (@LizYoungStrat) October 27, 2022

A recession describes a contraction in economic activity, often defined as a period of two consecutive quarters of decline in the nation’s real Gross Domestic Product (GDP) — the inflation-adjusted value of all goods and services produced in the United States. However, the National Bureau of Economic Research, which officially declares recessions, takes a broader view — including indicators like wholesale-retail sales, industrial production, employment, and real income.

Recessions tend to have a wide-ranging economic impact, affecting businesses, jobs, everyday individuals, and investment returns. But what are recessions exactly, and what long-term repercussions do they tend to have on personal financial situations? Here’s a deeper dive into these economic contractions.

It’s worth remembering some investments do better than others during recessions. Recessions are generally bad news for highly leveraged, cyclical, and speculative companies. These companies may not have the resources to withstand a rocky market.

By contrast, the companies that have traditionally survived and even outperformed during a downturn are companies with very little debt and strong cash flow. If those companies are in traditionally recession-resistant sectors, like essential consumer goods, utilities, defense contractors, and discount retailers, they may deserve closer consideration.

During a recession, it’s important to remember two key tenets that will help you stick to your investing strategy.

The first is: While markets change, your financial goals don’t.
The second is: Paper losses aren’t real until you cash out.

The first tenet refers to the fact that investors go into the market because they want to achieve certain financial goals. Those goals are often years or decades in the future. But as noted above, the typically shorter-term nature of a recession may not ultimately impact those longer-term financial plans. So, most investors want to avoid changing their financial goals and strategies on the fly just because the economy and financial markets are declining.

The second tenet is a caveat for the many investors who watch their investments — even their long-term ones — far too closely. While markets can decline and account balances can fall, those losses aren’t real until an investor sells their investments. If you wait, it’s possible you’ll see some of those paper losses regain their value.

So, investors should generally avoid panicking and making rash decisions to sell their investments in the face of down markets. Panicked and emotional selling may lead you into the trap of “buying high and selling low,” the opposite of what most investors are trying to do.

Stay the course and stick to your financial plan to survive a recession!

Source: https://www.sofi.com/learn/content/investing-during-a-recession/

Inflation: Core Consumer Price Index

Posted on November 12, 2022 by admin

Inflation is measure of the increase in the cost of living which can erode the value of your money, and more importantly – the goods, services, rent and mortgages that you can purchase with that money.

The U.S. Bureau of Labor Statistics showed that falling gasoline prices helped lead to a second consecutive lower annual U.S. inflation reading, but the consumer price index still edged up by 0.1% in August, contrary to the 0.1% drop expected by economists polled by The Wall Street Journal, writes MarketWatch. The core Consumer Price Index (CPI), which strips out food and energy prices rose by a much sharper 0.6%.

The year-over-year food index component of the CPI was up 11.4% in August. Higher food prices “reflect very tight global supply/demand dynamics,” says Jake Hanley, managing director and senior portfolio strategist at Teucrium. Rising costs don’t impact all households the same way. Some families may have a personal inflation rate that’s lower (or higher) than the national average, depending on what they buy.

Rising costs don’t impact all households the same way. Some families may have a personal inflation rate that’s lower (or higher) than the national average, depending on what they buy.

“Fuel prices have continued to be a major component in inflation figures, but while gasoline prices have cooled considerably over the last 3 months, diesel prices have remained fairly elevated,” says Patrick De Haan, head of petroleum analysis at GasBuddy. Diesel prices are a “major component of inflation in other areas of the economy, such as the cost of groceries.”

“Fuel prices have continued to be a major component in inflation figures, but while gasoline prices have cooled considerably over the last 3 months, diesel prices have remained fairly elevated.” — Patrick De Haan, GasBuddy

Diesel and natural-gas prices have remained high, despite a retreat in recent weeks, and fuel costs are a key component when it comes to growing the food the nation needs. Diesel engines power about 75% of U.S. farm equipment and transport 90% of farm products, according to data from the Diesel Technology Forum.

Diesel “will likely remain at historical premiums to gasoline—and could see more disconnect if this winter is cold due to diesel and heating oil being essentially the same product, keeping demand elevated,” De Haan says.

Wall Street economists see the U.S. Federal Reserve lifting interest rates higher than they previously expected following the latest U.S. consumer price inflation data. Economists at TD Securities said they now expect the Fed to raise its benchmark rate by 75 basis points next week.

References:

Veterans Day 2022 – “Honor”

Posted on November 11, 2022 by admin

Veterans Day 2022 is Friday, November 11.

Every year around Veterans Day, restaurants and businesses offer Veterans Day discounts, meals or other ways businesses and organizations want to give back to Veterans.

Veterans Day discounts, free meals and other programs are available to Veterans, their families, caregivers and survivors. Below are several offers:

Starbucks – November 11, 2022: On Veterans Day, active-duty service members, Reservists, Veterans and military spouses are invited to enjoy a free tall (12-ounce) hot brewed coffee at participating Starbucks stores. And new this year, Starbucks is expanding this offer to include a free tall (12-oz) iced coffee.
California Pizza Kitchen – November 11, 2022: Veterans and active-duty military with a valid ID can grab a free meal and non-alcoholic drink from a pre-selected menu at California Pizza Kitchen for dine-in or takeout.
Applebee’s – November 11, 2022: Veterans and active-duty military can select a free meal from a limited menu on Veterans Day. Proof of service required
Golden Corral – November 14, 2022: Military Appreciation Night will be held on Monday, November 14 from 5pm – close. Golden Corral will once again be honoring our military heroes with a free “thank you” meal.

The theme for Veterans Day 2022 is “Honor.” Veterans are proud of their military service in defending our Nation. Honor reflects the military value and tradition of answering the call to duty. There is distinct honor in serving to protect our way of life and the Constitution of the United States of America. We encourage artists to consider Veteran history of service to our Nation and the honor we owe them for fulfilling patriotic duties.

To honor and thank Veterans for giving so much in service to America and protecting the freedoms of others around the world, the Veterans Day National Committee hosts a Veterans Day observance each year on November 11 at Arlington National Cemetery. The ceremony commences precisely at 11:00 a.m. with a wreath laying at the Tomb of the Unknown Soldier and continues inside the Memorial Amphitheater with a parade of colors by Veterans’ organizations and remarks from dignitaries.

References:

https://news.va.gov/109711/veterans-day-discounts-free-meals/

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