Category: Investments

I have written this weekly blog for over 5 years. There are now well over 200 weekly posts written over this time. I’ve had a few posts that have been picked up nationally.

I enjoy writing posts about stock market and financial planning topics.  I’ve learned that my posts about financial planning are read more often. In fact, all of my posts over the last year that are not stock market related are in the top 10. The current event posts have a 1 week shelf life because markets these days climb a way of worry and the 24/7 news cycle always finds something new to focus on. The financial planning related posts stay more current and a few of those posts that have been viewed more often than the home page of my website!

The #1 most viewed post was titled – 2018 taxes – Are you going to pay more or less in taxes? This post being #1 makes sense because nobody wants to pay more in taxes. The #2 post that I wrote years ago, still continues to be viewed even more than most of my new posts. The title of this post is, How has the banking system changed over the last decade? This post made a good case why banks were undervalued because they had rebuilt their balance sheets, had tightened lending standards, had diversified their revenue streams, and were buying back stock.

I realize that if I wrote more about financial planning than current events, my website traffic would increase significantly. If I was mentoring a financial advisor starting out in the business, I would advise them to never write about current events and especially politics.  I try to stay away from writing about politics, but it remains the major risk to markets.

I’m always curious to know whether my weekly readers of this post want me to write more or less about stock market events.  I’ve asked many of you for feedback. I’ve learned that you want updates on my current investment views and would like to be kept informed on current events that might influence your investments while keeping you updated on my portfolio positioning. I recognize anything I write about politics will strike a nerve. As I’ve gotten to know you well, I’d estimate half of you will vote for President Trump, and for the other half, the election can’t come sooner. Going forward, I plan on continuing to mix it up between financial planning and wealth management topics.

I’ll be on vacation next week for the kids February break, but I will still be checking emails and monitoring markets. There is just too much volatility and unfolding events happening in China to completely step away.  Plus, a good vacation for me is reading up on companies and spending time with the family. 🙂

Please read our disclosure statement regarding the contents of this post and our website as a whole.

A few weeks ago, I wrote a post how a new mega trend had emerged for sustainable investing. What I should have done immediately after I wrote that post, was go out and buy Tesla stock. In full disclosure, I had owned it for my more aggressive clients. I sold it when the value for the business began to make no sense. I gave a very generous assumption that Tesla could generate $3B in free-cash flow by 2023-2024 and this put the enterprise valuation around $100B. I exited around this level. Tesla stock continued to go all the way up to a $150B value. I failed to recognize that investors of Tesla were not valuing the business the same way I was. They were riding the momentum like Bitcoin or their favorite crypto-currency. Tesla became bitcoin on wheels.

This gave me a flashback to the pot stock Tilray that was bid up to an unbelievable $30 billion valuation. The company only had a few million in sales.  I wrote a post a few years ago on how insane the rally was in pot stocks. Since that time most of these pot stocks are all down -80%. I’m not predicting that Tesla will drop -80%, but it’s not worth $150B.  The size of the company at one point last week was almost as large as Toyota in market capitalization! Toyota sells around 10 million cars a year and Tesla sells 500k a year. Volkswagen Group owns Audi, Bentley, Bugatti, Lamborghini, and Porsche and their market cap is $100B. Tesla at $150B is a tough comparison.

A Tesla bull would make their case by quoting Wayne Gretzky, “Skate to where the puck is going, not where it has been.” Tesla is leading the way in electric vehicles and they are changing the automotive landscape. Even though Tesla became overvalued and highly speculative, I believe it is capitalism working at its best. Capital should be given to the company that is skating to where the puck is going and taken away from where the puck has been. Case in point is Ford stock that dropped -10% when they reported earnings this week. The market cap of Ford is now $33 billion compared to $150 billion for Tesla. After Tesla made a historic move to $960, it fell $100 in the final hour of trading, and then dropped another $150 the next day. From the high price of the stock, the total loss was -30% in only a few hours of trading. But this won’t stop this crowd. If they can lose 90% in marijuana stocks with no earnings and buy worthless cryptocurrencies, it will take much more to shake them out of a growing company like Tesla. Tesla is the future of electric vehicles. But I’d warn this crowd that the beauty of capitalism is that it is self-destructive. Toyota, Ford, GM, Volkswagon, and all the new competitors will allocate more capital into electric vehicles. There will be so much money allocated that combustion engines will be the losers. The prices for all these electric vehicles will fall fast as new efficiencies are realized. Tesla has the first-mover advantage and they build the most desirable electric vehicle with the best technology. These investors can value Tesla in a wide range between $75B-$175B because it’s possible that Tesla is the big winner and will sell millions of electric vehicles in the next few years. After this period, Tesla will need to stay a few steps ahead of the competition.  However, all of the CEO’s of the major automotive’s are going all-in on electric vehicles now that that they realize that they are getting disrupted by Tesla.

I would like to retract what I wrote a few weeks ago that a new mega trend had emerged in sustainable investing. The mega trend is not sustainable investing. The mega trend is that there is now a legion of investors buying technology stocks and they do not value companies. This is the same crowd that traded cryptocurrencies and got wiped out. They picked up the pieces and bought marijuana stocks thereafter because they were all going to go up 100%+. They believed everyone was suddenly going to start smoking pot. As soon as the same crowd blew themselves up, they have moved onto U.S. technology stocks. They believe everyone will go out and buy more Tesla’s than Toyota’s in the next 5 years. The thinking now goes that all the major technology companies deserve valuations over $1 trillion. If they are worth $1 trillion, why shouldn’t a few of them be worth $2 trillion? It’s safe to say that investors buying these technology stocks don’t spend much time valuing the business. They look for a stock that has positive catalysts, strong momentum, and then they load up if the algorithms/computers start buying. The story over the last year has been technology stocks and sustainable investing.  You have the choice to either dance while the music is playing or sit it out. It has become the worst market environment for value investors.

The chart below supports just how narrow the stock market has become over the last 12 months. You have one set of investors that has went conservative buying low risk investments that pay high dividends such as Communications, REITs and Utilities and the other set of investors piling into technology stocks. We are now entering bubble territory for technology stocks and it’s impossible to predict when it will end.

This is the third time in the last three years where the famous quote applies from Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds, where he said, “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.”

This herd of investors are delusional and mad and they do realize it.  They have all the best trading tools at their disposal – cutting-edge software, advanced program trading, and no friction costs because trades are now free. It’s like a flash mob when they all pile into the same stock and drive it up and then it will eventually come crashing down. Wall Street is happy to play along and upgrade the companies and raise price targets to justify the valuations. The higher these stocks go the more money they will make. This is the mega trend! Some would call it a stock market bubble, but the entire stock market is not in a bubble. I believe it’s only the stocks that these crazed investors are buying. It has reached a point that it is now expected that all of the major technology stock prices will move between 5%-20% after every quarterly earnings release. Even the mega-cap tech stocks are trading up or down 10% after reporting earnings. Any of these CEO’s of these companies would be quick to point out that their business do not change all that much in three months. The volatility couldn’t be any higher for technology stocks. I’m no longer surprised if they go up or down 5% in any given week. It’s almost expected. A seasoned value investor would be quick to point out that volatility is always the highest at the very top of the market or at the bottom.

I’m confident that this crowd of investors will continue to speculate in technology companies, but at some point, the gains will slow or the losses will increase, which will cause this herd to move on to another area to make even faster money. It is still early because there has been no losses yet. Bubbles only deflate after investors lose money and this one is showing no signs of slowing. I expect the losses will be quick when the time comes because this herd with all the best trading tools will see it coming and they could all head for the exits at the same time. This is the reason why you have noticed a pickup in my trading activity. I’m not speculating in high priced technology companies and I’ve begun to step out of the way of these crypto-technology stocks. I know I’m early starting to sit out while the music is playing, but I’m maintaining some exposure for now. For my retired clients with lower risk tolerances, I have increased fixed income allocations. I’m about 90% complete with my reallocation and I’m much more comfortable with your investments at this phase of the bull market. Going forward, you should expect much less trading activity from me compared to recent weeks.

Please read our disclosure statement regarding the contents of this post and our website as a whole.

The U.S government has just advised – “Do not travel to China.” On January 30, the WHO determined that the rapidly spreading outbreak constitutes a Public Health Emergency of International Concern. The virus has also become a major concern to the stock market and rightfully so. It’s always the unknown risk that comes as a surprise which has the biggest impact on the market. The ongoing uncertainty weighing on the minds of investors is whether or not the coronavirus will continue to spread outside of China? This will likely act as a fog over the market until this question is answered.  Goldman Sachs warned that U.S. economic growth will be cut by 0.4 percent in the first quarter as the number of tourists from China declines and exports to Asia slows. 

It is estimated that two-thirds of China’s economy is temporarily shut down. As you would expect, with less travel and slower economic activity, the price of oil has plummeted 17% since Jan 6th. Oil has fallen so much that OPEC is likely to call an emergency meeting to cut production. Bloomberg reports that OPEC may move its March meeting up a month so that they can rig the price higher by cutting supply. Other commodity prices have slumped on fear that Chinese demand will drop. Copper prices have fallen 12% because the virus will cause a downturn in construction and manufacturing activity in China. On the other hand, the coronavirus is increases sales of face masks and cleaning products.

This economic slowdown occurring in China has already caused a small correction in U.S. stock prices. It’s estimated that nearly 30% of S&P 500 revenue comes from foreign markets. It’s really anyone’s guess how long the coronavirus will continue to spread or if China can control it. This answer won’t be known for a few weeks because the virus has an incubation period of 10 to 14 days, during which the virus can be contagious, but the patient does not display symptoms. The stock market will be trading in a wider trading range with big moves up and down as new developments and breaking news moves stock prices.

As a reference case, there was a similar outbreak when SARS hit China in 2002 and 2003 and the downturn was limited and global growth rebounded sharply after the spread of the virus slowed. It’s not a perfect comparison because the coronavirus is more contagious and less deadly. Also, since 2002, China’s economy has expanded from 5% to 18% of the global economy. There will be ripple effects felt across industries as suppliers cancel projects and business subsequently slows. I believe that the duration of the travel ban in China will ultimately determine how long stock prices stay down. There are many investors with longer term mindsets already searching for buying opportunities. The best time to make money is when everyone else is panicking.     

Over the last few weeks, I’ve made a few changes to allocations with the goal to lower volatility. My goal is to increase diversification in this election year and rebalance so that I can have some cash to buy at lower prices just in case there is a dip in the market. Even though markets fell the last few weeks, returns are still hovering around unchanged for the year. This sell-off hasn’t been all that bad unless you owned energy or commodity stocks which I have avoided. My focus continues to be increasing income and dividend yields. For my more aggressive clients, I’ve made less changes than my more risk-averse clients. My retired clients will see the most changes as I’ve added more bonds to their portfolios. At the present time, I believe that any economic slowdown will be temporary and I’m more concerned about the health and lives of people in China coping with this virus. Hopefully, the coronavirus is contained soon and we can all go back to worrying about politics again. 🙂 Until then 😷!   

Please read our disclosure statement regarding the contents of this post and our website as a whole.

The biggest change to markets over the last 5 years is just how much “fake information” moves financial markets on a daily basis. Rasmus Kleis Neilsen, Director of the Reuters Institute, who was a panelist at the Davos conference speaking on media, said that some of our fundamental problems concerning information will never be solved because powerful people will always lie, and we’ll always disagree over big grey areas of fact and fiction.

There are even more grey areas in financial markets and fake information has never been so real.  It’s my job to cut through the fake news. I’ve become more skeptical about what I read about businesses and I’m more aware of the source and the author’s agenda behind their story. I agree with Rasmus that the “powerful people” will lie, especially when it comes to making money or avoiding losses. I’m surprised that there hasn’t been more SEC investigations into the spreading of fake news.  In my opinion, it’s become just as bad as inside trading. It is very difficult to prove a partial lie in court and the best fake stories spread so fast that it’s hard to pinpoint ground zero of the story.  Also, many of these stories eventually become fact, but what I have observed is that the fake news will usually be forgotten as markets move onto the next story that will move markets. There are many very experienced money managers that have written about how computer trading and the spreading of false information has impacted the way that they invest.

The best way to minimize the impact of fake news is to invest over the long-term and buy companies that either pay dividends or have the financial strength to pay dividends in the future. Dividends or reinvested profits into a business will always overcome the fake news that influence a stock price. I anticipate that the spreading of fake information will become even worse as we head into this election year.

Please read our disclosure statement regarding the contents of this post and our website as a whole.

Larry Fink, the CEO of BlackRock, released his annual letter this week. If you are interested in reading the letter, it can be found here.  Larry has been compared to Jeff Bezos as one of the best CEO’s. In the last 20 years, he has grown BlackRock into the largest asset managers in the world with nearly $7 trillion in assets. In this letter, he makes a strong case for sustainable investing titled, “A Sense of Purpose”. His vision is that companies exist to benefit their stakeholders but they need to make a positive contribution to society. The significance of this letter can’t be ignored. The largest asset manger in the world has just become the world’s largest sustainable investor. This letter will serve as the underpinning of the new mega trend of investing that has emerged over the last few years.

Larry wrote, companies must ask themselves: What role do we play in the community? How are we managing our impact on the environment? Are we working to create a diverse workforce? Are we adapting to technological change? Are we providing the retraining and opportunities that our employees and our business will need to adjust to an increasingly automated world? Are we using behavioral finance and other tools to prepare workers for retirement, so that they invest in a way that that will help them achieve their goals?

We also see many governments failing to prepare for the future, on issues ranging from retirement and infrastructure to automation and worker retraining. As a result, society increasingly is turning to the private sector and asking that companies respond to broader societal challenges.

If they already haven’t, I expect that other large institutions will follow Larry’s lead. Endowments and foundations will begin to mandate that all investments meet three central factors that impact a company – Environmental, Social, and Governance (ESG). This is how I expect new capital will be allocated at the largest institutions.

Larry backed up his change in strategy by joining the Climate Action 100+. The Climate Action 100+ is a five-year initiative led by investors to engage systemically important greenhouse gas emitters and other companies across the global economy that have significant opportunities to drive the clean energy transition and achieve the goals of the Paris Agreement. Since starting only 24 months ago, there are now more than 370 investors with more than USD $41 trillion in assets under management that have signed this initiative. BlackRock wrote in an email statement – Joining Climate Action 100+ “is a natural progression of the work our investment stewardship team has done. We believe evidence of the impact of climate risk on investment portfolios is building rapidly and we are accelerating our engagement with companies on this critical issue.

Bloomberg reported that investor money is starting to follow, with environmental, social and governance, or ESG, investment strategies for exchange-traded funds drawing in a record $8 billion in 2019. This trend can no longer be ignored by other CEO’s or their businesses will become like an outdated strip mall. I expect that alternative energy investments will continue to attract new money. For example, the iShares Global Clean Energy ETF is up 43% in the last year and is up 6% in the first two weeks of the year. All the while, the Energy Select Sector SPDR® ETF is up only 0.84% in the last year and -1.53% year to date. These returns over the last few year strongly support that even more money can be made being environmental friendly and socially responsible . In full disclosure, I’ve owned investments in each area for clients but they have been very low allocations. Many clients will notice ESG types of investments in their portfolios. Overall, the allocation to the Energy sector has been less than 1% of all investments at CGF and after this week it is now close to 0%. I have three clients that have required that I own own mostly all clean energy and/or ESG investments. For my clients that have high risk tolerances, I’ve owned more clean energy types of investments. The reason is that many of these companies trade at much higher valuations and are much more volatile.

A few years ago I wrote an email to many of my clients and asked them if sustainable investing was important to them. The feedback that I received was that it ranked low and that I shouldn’t change my investing process. Given this new trend, I wonder if my clients feelings and opinions have changed in this area. Is it worth taking more risk and investing more money into this trend? Should there be a requirement that all new investments rank high in ESG? I believe that if Larry Fink can lead a $7 trillion asset manager, I can do the same for my clients while continuing to maximize their returns and managing to their stated risk tolerance and goals.

Please read our disclosure statement regarding the contents of this post and our website as a whole.

Last January, I wrote that my #1 risk to the stock market in 2019 was a dysfunctional U.S. government. It will be no surprise to any of you that my #1 risk to the stock market in 2020 is a dysfunctional U.S. government. You can’t say I haven’t been consistent in my predictions. I hope that portfolio returns will remain just as consistent into 2020. However, I don’t expect that hefty returns in 2019 will be repeated in 2020.

As I monitor markets, I haven’t uncovered any new major risks to your portfolio. The recent stock market rally has been driven by an expansion of multiples, which means that corporate profits have lagged the rise in stock prices. On a P/E basis, the chart below reveals that stock valuations are in-line with historical averages. Stocks are not cheap but there is value as long as corporate profits continue to rise.

It’s usually a combination of many factors that propel markets higher. A few reasons for the recent gains include the Trump administration signing phase 1 of the trade deal, corporate earnings coming in better than expected, low unemployment, and falling interest rates. We are also in the middle of a technological revolution that has been coined the fourth industrial revolution. I’ve written about this topic in past posts and I intend to write even more this year about AI, virtual reality, 5G, electric and self driving vehicles, quantum computing, cyber security, and the internet of things.

President Trump has also helped to launch stocks higher because of his pro-business friendly economic policies. They include cutting corporate taxes, deregulation, winning trade wars, speeding up drug approvals, and creating U.S. manufacturing jobs. He has also been the biggest cheerleader for the stock market tweeting about it constantly after every record setting close. Consumer confidence has soared because people are feeling rich and the job market continues to be strong. On the other hand, Democrats believe that his policies are sowing the seeds of destruction and are doing more harm than good. I try my best to keep politics out of it but the only risk that I see at the moment continues to be a dysfunctional U.S. government. Up to this point, the stock market has ignored the sideshow in Washington. I expect that the events that unfold in Washington this year will have the biggest implication to your portfolio. It could be President Trump making a bad decision or the Federal Reserve tightening monitory policy or an anti-business Democrat being elected president. I’m sure that you have your own strong opinions either way. My only objective is to help you achieve your goals and I try to leave politics out of it but it’s the politics inside of Washington that is the biggest risk to hindering corporate profits.

I continue to position portfolios into more value-oriented sectors but hold growth investments. Investors are starving for income and many dividend paying stocks in my opinion remain undervalued. At this stage of the economic cycle, I continue to favor equities over bonds. The playbook has been to own equities and keep a small allocation to bonds to stay diversified and be ready to buy on any dip. As always, I’ll keep you posted if my views change and I’m almost certain that my 2021 risk will be a dysfunctional U.S. government. 🙂

Please read our disclosure statement regarding the contents of this post and our website as a whole.

Liz Ann Sonders, the chief investment strategist and a senior vice president at Charles Schwab, warned that the level of uncertainty with regard to the president’s tweets can swing markets in either direction.” She added that the U.S. economy is still fundamentally strong and “our message to our mostly individual investors in our client base is if anything, lengthen time horizons, because over any reasonably long period of time, ostensibly there’s still going to be a connection between prices and fundamentals.”

This week market volatility worked in investors favor as President Trump tweeted multiple times that he was talking to China again about a possible trade deal.  President Trump has likely realized that trade wars are not easy to win. I guarantee that when this trade war ends, the stock market will immediately turn its attention to a new worry. The market volatility has not been that much different from the past. There have been many periods when markets fluctuate around 1% a day. The CBOE Volatility Index (VIX) also known as the “Fear Gauge” or “Fear Index”, represents the market’s expectations for volatility over the coming 30 days. The VIX is only running slightly above average. It is higher than 2017, but around the same level as 2015, 2016, and 2018. It went off the charts in 2000-2002 and 2008-2009, when the economy went into a recession. 

The chart below is the drawdown of the largest market drop from peak to trough during the calendar year. The stock market tends to have a few market corrections a year similar to the one experienced this month. The arrows in the chart signify the loss from the top of the market to when investors bought the dip. While it’s impossible to know the trough, markets have rebounded every time to go on to make new highs.  

Past performance is not a guarantee of future results. Indices are unmanaged and not available for direct investment. Assumes reinvestment of capital gains and dividends and no taxes.  | Data Sources: Morningstar and Hartford Funds, 1/19 

This year the drawdown reached around 6%, which is in-line with other yearly market corrections. It’s actually very common to have a market sell-off in the summer when trading volume is low and markets are near all-time highs. Historically, September and October periods have also been volatile months.  

There are other concerns that could eventually take the place of the trade war. They include the 2020 election, negative bond yields, inflation, federal deficits, a president at war with the Federal Reserve, the European economy on the verge of a recession, and global temperatures on the rise. As always, Liz Ann Sonders has nailed it, you should lengthen your time horizon and your risk tolerance because markets will remain volatile for the foreseeable future, but this volatility has not been that much different from past years. 

Please read our disclosure statement regarding the contents of this post and our website as a whole.

This headline caught my attention, “Negative interest rates are coming and they are downright terrifying.” The article went on to say that negative rates are counterintuitive, unprecedented, and it’s like a parallel universe.

There is now nearly $17 trillion of negative-yielding bonds across the world. There is a flood of money in the system and nobody wants to take any risk. Federal Reserve Chairman Jerome Powell said it best Friday morning that the U.S. economy is in a “favorable place” but faces “significant risks” at the moment.

I originally thought that overseas investors were buying these bonds because of these significant risks. Why else would a German investor pay -0.60% for owning a 10-year German Bond? Wouldn’t they be better off stuffing the money under the mattress? As I learned more about negative interests, they don’t seem as scary and it’s not a parallel universe.

The reason why an investor would buy a German bond or any bond at a negative rate is that the expectation is that rates will go even more negative. As the yields fall on these bonds, the prices will go up and these investors are actually making money from them. They are losing on the yield and gaining on the principal.

Moreover, they buy these bonds in different currencies and have the potential to make money in exchange rates. If deflation strikes their economy, then it’s a bonus, and they make even more money as money deflates. For instance, if inflation falls 3% in a global recession then they will still make 2.4% everything else equal of a -0.60% yield. The bottom line is that the investors that hold these $17 trillion in bonds expect that they are going to sell them to someone else at a lower rate. And they have been right with this trade so far.

There is a gravitational pull from these overseas bonds that are causing yields to drop in the U.S.. Many investors expect that U.S. rates could eventually turn negative and there is big money to be made if this happens. The Federal Reserve has been too slow to cut U.S. interest rates and it’s causing President Trump twitter tantrums. He is calling Chairman Powell his enemy because other countries are now in quantitative easing and the Fed is way behind the curve. A good argument can be made that the president is right with the case against the Fed. He desperately needs rates lower to weaken the dollar and to fight his trade war.

We would all be much better off without this trade war, but I seem to be in the minority on this one. All the polls show that more Americans approve of this trade war. But I expect that they might change their opinion if their job or investments were suddenly at risk. Most American’s also thought it was a good idea to give mortgages to people who couldn’t afford them. The feeling at that time was everyone should own a home!

The global slowdown is here and the demand for bonds continues to increase. If President Trump gets his wish and the Fed cuts interest rates all the way down to 0%, I believe that his reelection chances go to 0% as well. Americans will not want to pay a bank to hold their money.  It’s a dangerous game that he is playing and it’s clear to me that he is losing this trade war. China doesn’t have elections and 2020 is right around the corner. I hope that one of his advisors grabs his phone and tells him that he can’t win this trade battle or at least he should fight it after he is reelected. I expect markets to remain volatile in both directions as this trade war is reaching the boiling point, but it can also end in a single tweet. If the president wants to write a tweet to call a truce, then his advisors can give him his phone back.

Please read our disclosure statement regarding the contents of this post and our website as a whole.

The internet search for “Bitcoin” has exploded. This can only mean one thing. The price of Bitcoin has went vertical. According to a MarketWatch, there is an 80.8% correlation ratio between bitcoin prices and internet searches for that fake currency. The only way for this bubble to grow once again is for new money to pile in. It’s coming in by the truckload. The price has went from $5k back up to over $12k in a few short months. The price of Bitcoin is impossible to predict. As I wrote last year on this topic, I concluded that it’s going to $100k or dropping back to $2k. Bitcoin is highly manipulated and world governments are way behind the curve in regulating it. I’m certain that a number of players can buy and sell before anyone else knows what comes next.

We can see a glimpse of these trends using a search tool from Google called Google Trends. The search which shows the interest over Bitcoin can be found by clicking here.

In 1841, Charles Mackay published Extraordinary Popular Delusions and the Madness of Crowds, which was an early study of crowd psychology.  He wrote, “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.” I’m certain that Charles Mackay would have loved Google Trends. You can track the madness of crowds in real-time!

I searched on the term “pot stocks” and it tracked the move in those stock prices as well as it did for Bitcoin. As the search actively for “pot stocks” fell, so did the price for most pot stocks.  In September 2018, I wrote about the craze in pot stocks at the height of that bubble.  There was a marijuana stock that week that went on a rollercoaster from around $115, touching $300 in a few days, only to finish the week at $123. It’s now at $46. These pot stocks are in desperate need of more interest searches. Those crowds will likely return, but like Bitcoin, it’s impossible to predict the madness of crowds.

Google Trends is just a glimpse of how data is feeding computers to move markets. If you are interested in the upcoming 2020 election, this Google trend tool can help you track your favorite politician. President Trump had a nice bump early in his campaign back in 2016. The interest in his search has been very consistent for the last 12 months.  The internet search for “Joe Biden” has fallen recently while “Elizabeth Warren” is on the rise. There is an art to playing the madness of crowds using Social Media and President Trump is one of the best. I’d say that the Kardashian clan is #1.

Capturing trends and data mining has become one of the fastest growing industries. The 4th Industrial Revolution is mining for data and how artificial intelligence (AI) is using this information to improve efficiency and productivity.  I’m sure that I’ll be writing about these trends in the future and how they impact your investments.

I will be out of town next weekend at a family wedding and my next post will be July 15th. Have a Happy 4th!

Please read our disclosure statement regarding the contents of this post and our website as a whole.

This week I met with a client who asked me for advice on whether or not to buy a house. You might have offered him different advice than me.  Here are the facts of this unique circumstance.

He is 52 years old, has no children, and isn’t currently married. He had received a nice inheritance and grew the portfolio over the last 10 years to around $1.3 million. At the moment, he doesn’t work, and he is living off the monthly income of the portfolio. What’s most important to him is that he doesn’t have to work. He has always wanted to own a home, but tends to move around often. His portfolio is generating around 2.5% and the income of $32,500 a year maintains his lifestyle. His budget is below $30,000 because he rents an apartment for $800 a month and owns his car outright. He would like to move to Florida and wanted advice on whether or not he should purchase a home for around $250,000.

Do you think he should? :

A) Use $250,000 of the $1.3 million to buy the house with cash

B) Take out a mortgage for around $200,000 and use $50,000 as the down payment?

C) Continue to rent

In most cases, I normally go with answer (B), taking out a mortgage, but in his circumstance, I said that he should continue to rent. I believe that he falls into the minority of people categorized as, “homeownership is not for everyone.” Living off his nest egg is most important, so it’s best not to disturb it. He has been able to reach $1.3mm because he doesn’t own a home. He doesn’t pay taxes, there are no interest expenses, insurance, and maintenance. He became a millionaire because his rent was low and he had no large bills. Investments is key for him.

I also believe that buying a home could become an emotional decision for him.  He may come to regret his decision and he might be overestimating his happiness from home ownership. He could become depressed because he is finally spending money and dropping an anchor in Florida. To this point, renting has been stress-free and his assets have remained liquid.

As soon as he buys this home, there would be a slight chance that he might have to go back to work. I didn’t chose answer “A”, because even though he can pay cash, the purchase would drop his portfolio to around $1,000,000, and his income would fall at the same time his expenses were exploding.

This was the first time that I ever told someone not to buy a house. The American dream for most people is to own a home. For most homebuyers success will depend on timing and the price they pay.  Millennial’s right now are having a difficult time paying for these sky high home prices, while at the same time, paying off college loans and raising a family.  The person that I met with falls into the minority of people who’s only goal in life was saving and investing.  I’m leaving the final decision up to him on this one because it’s more of a personal decision on whether he is comfortable possibly going back to work part-time. Would you have reached a different conclusion?

Please read our disclosure statement regarding the contents of this post and our website as a whole.