Posts Tagged Investing
TODAY, BITCOINS SEEM TO BE ALL THE RAGE TO SOME “INVESTORS” WHO THINK THAT THEY ARE ON TO SOMETHING NEW. INSTEAD, PERHAPS THEY ARE REALLY ON TO SOMETHING OLD…VERY, VERY OLD!
Tulips were first introduced to the Dutch, when they were brought from Turkey in 1593. The varied colors and heartiness truly appealed to the people as they became somewhat ubiquitous throughout the land.
During the 1630s, Dutch citizens, even those who did not normally invest, began trading Tulip Bulbs. It was difficult to price the bulbs, however, as there was no exchange from which to price them. Accordingly, the price was set at whatever the buyer was willing to pay. That meant, however, that the market “value” moved in one direction only…UP, and the value only changed when the next bulbs were sold.
What is Money anyway? According to the traditional definitions of money, there are three: 1. A store of value; 2. A means of exchange; or 3. A standard of value.
Tulip bulbs fail on all three definitions:
1. Although tulips are supposedly perennials, most of the flower
lovers just assumed them to be annuals, and planted new ones each year.
2. I doubt that tulip bulbs were used for anything other than trading. It would be difficult to expect a general store or local hunter to accept tulip bulbs in exchange for supplies or game for the dinner table.
3. How can anything become a standard of value if it is unvalued until it is traded, and then, only to the people involved in that particular trade.
So, how does the Dutch Tulip Bulb Bubble of the 1630s—call it what it was—differ from the Bitcoin Craze of today? Not a bit, at all! Now, let’s consider, once again, the three traditional definitions of money:
1. At what value do you regard an “asset” that hit a new all-time value of $14,000 one day last week, $16,000 the next, and $18,000 the following? But, what if some sellers decided to withdraw their money a few days later, and the price dropped to $11,000? Then, what’s the market value?
2. There have been a few Bitcoin traders who have accepted them as a means of paying rent; however, that has been very, very limited. Mall retail stores, restaurants, your CPA, hair dresser, etc. an airplane vacation trip to London? Better bring cash!
3. Lastly, if the market value is ambiguous, there is no possible way to considering it as a lasting standard value. Also, bubbles can be quite volatile; but, especially on the downside if many traders all wish to sell at the same time, and that can attract even more investors not to be left behind–as the market value plummets.
Bitcoins, like the Dutch Tulip Bulbs of four hundred years ago, are a Market Bubble, plain and simple! Only other traders of the Bitcoins or Tulip Bubbles might wish to argue the point, and only those other participants in the bubble might even wish to join-in the discussion.
As the old saying goes: Caveat emptor!
About ten years ago, Wall Street laid-off 100,000 highly compensated securities professionals; because, their jobs were being performed by computer-based algorithm-reading machines. (An algorithm is just a complex set of mathematical rules and formulas.) Eventually, many local retail brokers might very well suffer the same fate, especially as brokers voluntarily send accounts to be similarly managed by computers.
When I retired as a financial advisor six years ago, there were three basic types of brokerage accounts. The securities firms, however, were encouraging their brokers to use mostly one type, rather than the other two.
Our Regional Manager suggested that the brokers could work more efficiently—and earn greater commissions—by just packaging the paperwork, and shipping the accounts off to the home office. The various investment portfolios would supposedly be managed by a team of analysts at that point.
Personally, I wonder if that “team” really meant the same type of algorithm-reading machines. Perhaps, I could be wrong; however, why couldn’t a similar computer program be managing retail client portfolios, just as it has been managing institutional accounts on Wall Street? With such accounts, the clients have no no one-to-one contact with any person who is involved with the management of their accounts.
Also, the securities brokers have no chance to add personal value to the situation, which is an important quality for individuals to establish in order for them to prevent the automation of their jobs. The firms suggest that the brokers can generate greater commissions; because, they spend less time on each account, as they pass them up-the line. But, there is little chance to add anything to the relationships as the brokers act somewhat like a worker on an assembly line.
The old traditional commission-based accounts have long since fallen by the wayside as they are felt to offer few chances to generate commissions. Additionally, once the accounts are initially invested, many lie unchanged for years to come–earning nothing for the brokers.
The third type of account is a fee-based one, like the first; however, with these, the broker manages the various portfolios in consultation with the clients. Sure, they consumed more time, and reduce potential revenues; however, these accounts enabled brokers to work with their clients and their portfolios. Additionally, why would a securities professional want to get involved in the securities markets if it were not to spend their time helping clients understand and invest in those very same markets?
In essence, brokers who just send the accounts to the “home office” become a paper-pushers, and they remove themselves from the real business at hand? And at some point, the firms will begin to reduce commissions, and eliminate some brokers, since fewer can push more paper than before.
I’ll take dealing with clients and stocks, bonds and mutual funds, any old day. Lastly, my value-added will protect me somewhat from such computer-generated automation!
When I began this blog, in February of 2012, I had expected it to focus mostly on financial topics, following my 39 year career in the securities markets. For a secondary theme; however, some of life’s journeys—describing my retirement, the need for young new parents to have a will and life insurance so they could choose suitable custodians for the infant, in the event they cannot, etc.—should also be included.
I have personally encountered some health issues recently, which is why I have only written a few posts over the past several months; but, this one is really one for my family who might ask “Why not an American bond fund?” Michael Haasenstab, of Franklin Templeton, is a Fixed Income Manager whom I had been placing clients with his several mutual funds, when I was working, for two different reasons.
Now, why am I describing the great qualities of who I believe is the absolute BEST? Eight months before I retired, I invested 25% of our total portfolio in the Templeton Global Reserve Fund, one of several he manages. During that six years, however, it now represents 23%. That’s not bad in the current low interest rate environment, specially when stocks are charging ahead!
Dr. Haasenstan can trade any bonds, and had even owned U. S. Tax-free municipals when that market had been nearly frozen shut-in 2008. That lack of restrictions allows him to invest in any country, and in any type of bond that he chooses. Currently, he believes that U. S. Bond rates will rise, which would cause market values to drop proportionately. I certainly agree, especial with the Republican Pray in charge of both Congress and the White House. Bond prices and yields, incidentally, usually move in opposite directions.
Lately, he wishes to buy an attractive bond, but he doesn’t like the underlying currency, such as the Euro, Haasenstab can buy the bond, but “short” the currency. (Shorting a currency simply means borrowing something you doubt the value (or merit) of, and which you intend to sell later, when you wish.)
I am an aggressive investor, had remained fully invested during The Great Recession, and we came out in quite good shape. In a recent post, I described how I came to realize that most securities firms were too focused on keeping client portfolios quite close to the current industrial breakdown of the Standard and Poor’s. In essence, maintaining the status quo.
So, I broke away, focusing more on Technology, and increasing the weighting in Health Care slightly. Since early in the year, this strategy has worked really, really well. Obviously, no one knows what the future holds. Those two related posts are linked, as follows: Part One and Part Two.
As I mentioned at the beginning, this post is mostly intended to explain to my family why I have used just one bond fund—a global one—to anchor our joint portfolio. Initially, it accounted for 25% of the portfolio and, frankly, I never worried about it’s performance, as long as I didn’t invest it in stocks. During that six years, however, it now represents 23%. That’s not bad in the current low interest rate environment, specially when stocks are charging ahead!
I do have a couple more posts in mind; however, I am currently preparing an investment plan—a few Tech stocks, ETFs and the one bond fund for when my wife and daughter will have when they have to take over the management of our investment portfolio. Obviously, I surely will never know if they did, in fact, follow the plan or, perhaps, contact the financial advisor that my brother uses. As I wrote earlier, this is just another one of life’s adventures.
NOTE: Two topics that I hope to write posts about when, and if, possible are:
!. How many financial advisors are automating themselves out of their current jobs.
2. The horrible MISTAKE that was Vietnam actually began over a millennia ago.
LAST WEEK WAS A REALLY DOWN ONE FOR THE STOCK MARKET, ESPECIALLY TECHNOLOGY. TIME TO SELL? PANIC? NO WAY!
The market doesn’t ever go straight up, nor does it go straight down! Besides, investing should always be considered a long-term vehicle for building you resources to fund education, the new house, retirement, etc. And certainly, it should not be engaged in for a mere one-to-three years.
The current upward climb in stocks is just a continuation of the sustained economic rally that started during President Obama’s Firm Term. If the numbers look bigger, keep in mind that, let’s say, a one percent rally, or decline, with the Dow Jones Industrial Average at today’s 23,000, will be significantly more than the Dow declining toward 6,500, which George W. Bush let for Barack Obama.
Lately however, many investors’ euphoria has been based on the assumption that the GOP Tax Scam would jumpstart the market run-up even more. That sort of thinking should have been quickly dismissed by anyone who looked back at the Republican Party’s recent inability to “Repeal and Replace” Obamacare. In essence, after ten months, the Trump Regime has produced no meaningful legislation: just photo-ops!
When you see a market decline, there are several key points to consider: Does it effect the overall stock market? Just one industrial sector (health care, financials, tech, etc.)? Or, is it limited to just a few stocks? And then, try to find out what happened, and does it look temporary, or might the problem(s) be permanent in nature?
Those who jump, either to buy or to sell, without knowing what is going on, and why, often find themselves regretting their quick trigger soon afterward. And many astute investors often find value when particular stocks or sectors have become oversold!
Over the past decade, several economists have won Nobel Prizes for their research, proving that the markets are irrational. Before you consider making any changes in your investment portfolio, just think: are acting rationally—or irrationally?
Surely, most people realize that you cannot trust anything that Donald Trump and the GOP say. The Tax Plan, which they released this past Wednesday, was a charade–focusing on what the middle class might expect, while burying the real meat, which they don’t want us to see. This plan is intended to reinitiate the Bush Era tax cuts, skewed to the top one percent. Additionally, they are selling the repeal of the Estate Tax–from which only 6,000 of the very wealthiest families will benefit–which adds to the top one percent of taxpayers. Those cuts, early on in Bush 43’s first Administration contributed t The Great Recession (4Q07-1Q09).
There is no “reform” included in the proposal; but, rather, that is merely to enhance the appeal to the middle class. Trump and the Republicans have claimed ad nauseum that America has the highest personal and corporate tax rtes on earth. Au contraire, both of those rates fall in the dead center, after deductions and loopholes, according to the OECD organization of industrialized nations.
Oftentimes, Donald Trump meanders around in various directions, suggesting one thing and then another; but in the end, he often reverts back to something that he said on the campaign trail. Rather than get bogged down analyzing a his short outline, I am including a blog post that I published last January. As you can see, little has changed after his nine months in office.
ARTIFICIAL INTELLIGENCE IS ALREADY HERE! THE OVERALL DISRUPTION COULD BE WORSE THAN THE GREAT RECESSION (4Q07-1Q09)!
NOTE: This is a follow-on to my prior post, as well as a response to most scientists, engineers and technologists, who believe that the machines will only be advantageous to humanity.
In 2010, the Federal Government bailed-out GM, Chrysler and their parts suppliers, saving 1.5 million jobs. That action enabled the employees to stay current on their mortgages, pay taxes, and continue contributing to the economy by spending money in national and local stores. Also, let’s not forget the added impact of auto dealership closures and lay-offs, finance companies, insurance companies, etc.
Several states have already authorized self-driving, or autonomous, cars and trucks for usage on their highways, with other states sure to follow. The impact of human drivers being replaced by computers, as they gain acceptance, will eventually have an even greater impact on our economy than the failure of two major employers.
Remember, also, that similar forms of machines are replacing workers in numerous industries throughout the economy. But, let’s look at some potential numbers for just the automotive industry.
There are currently 3.5 million truck drivers on the road, as well as another 5.0 million support staff. For trucking companies, it would be more cost-effective to replace drivers with computers, since the machines can drive 24 hours per day, and they do not receive pay or benefits. Thus the direct impact of autonomous trucks would be approximately six times as great as if two of the Big Three were not bailed-out by the Federal Government.
Now, let’s look at personally owned automobiles and small trucks. American households own, on average 2.1 autos, which spend 95% of the time sitting in garages or parked in driveways, or on the street. As people become more comfortable riding in self-driving cars, entrepreneurial companies will offer year-to-year plans, enabling members to use an App to call for a ride when needed.
Consumers would pocket the difference, between enrolling in a plan, and the expense of personal auto ownership—the purchase price, and maintenance and insurance expenses. It has been projected that family auto ownership would plummet, from 2.1 per household, to 1.2. Over a gradual period, say five or ten years, think of the potential impact on the automotive industry. Oh, and don’t forget the taxi drivers, and their support staffs, who would probably be laid-off, as well.
While scientists, engineers and technologists debate over the pros and cons—of whether artificial intelligence might be beneficial or harmful to mankind—at some indeterminate time it the future, AI is already here! The technicians are missing the point, at least for the present! The overall disruption of the American labor market could be even worse than during The Great Recession (4Q07-1Q09)!
Machines have already taken over many low and high-paying jobs throughout the American labor market, and their march is accelerating at an ever quickening pace. The artificial intelligence community needs to set the potential outcomes of the future aside, and work with community groups to respond to any near-term risks, both to society and the economy. Forget the long-term, will we be ready for tomorrow, next month, next year?
NOTE: The linked Pew Research Report describes how many Americans view Labor Market Disruption.
ALSO: In today’s (South Florida) Sun-Sentinel, there was an article about Auto Nation, the nation’s largest auto retailer, forming a partnership with Google’s autonomous driving subsidiary, Waymo Corp. In time, they expect to offer as-needed access to a fleet of self-driving autos. Also, as car buyers become more comfortable with autonomous vehicles, Auto Nation will offer them in its showrooms. Auto Nation’s stock skyrocketed, partially on the news.
SINCE PEOPLE LIVE LONGER TODAY THAN IN PREVIOUS GENERATIONS, OUR MONEY WILL NEED MORE GROWTH IN ORDER TO LAST AS LONG! (Part Two)
This is the second part of yesterday’s discussion. Since life expectancy has gradually lengthened over the past decades, retirees, or those soon to be, should not be too conservative with their investments. Forty years ago, the rule of thumb was that the bond portion of your portfolio should approximate your age. But, that’s no longer the case; because, people live longer, and they must retain their purchasing power.
Today, if a person lives to be 65 years old, thy have a reasonable chance of living past 80, on average. That means that you will have to stretch the money you have set aside, to supplement Social Security and pension, if any, over a greater length of time. Also, as all seniors know, Health Care Inflation is a good bit higher than the normal Consumer Price Index. Besides investing more in stocks, consider those industries where the growth has been more consistent.
As you can see in the Break-down of the S & P. Index by industry, the three largest “industrial sectors” are: Information Technology; Financials and Health Care. Also, as noted in Part One, five of the ten largest companies in the index are in the IT/Technology Industry, with only two—Apple and Microsoft—being just over 40 years old. All the others are much younger.
Now, let’s assume that your current portfolio is nicely balanced, between stocks and bonds, and the percentage invested in the various industries matches the S & P reasonably well. Now, consider how your life has changed from some years ago: less trips to the bank, since you use an ATM at the supermarket and on-line banking; keep up with friends and family by Email; order prescriptions and other things on-line; changed a doctor’s appointment on their web site; greater use of cable network or shows on-demand, etc. In that sentence, I specifically cited IT/Technology and Health Care products. And, that’s just the beginning!
Medical science and the overall Health Care industry have made strides in developing new medicines, hospital equipment and other health care needs. Sure, they’re expensive, and Congress hasn’t been helping with the cost; but, so what if it keeps you around longer? Do you have any other options?
IT/Technology and Health Care seem to have been consistently good performers over the years. (I will show you an interactive chart on this.) The Financial Industry, the second largest industry, has not been as consistent. Besides being somewhat volatile, it has to deal with the booms and busts of both the domestic and global marketplace, and it rightfully must he heavily regulated. And, don’t forget its role in The Great Recession (4Q07-1Q09).
A certain portion of the other seven industries do belong in your portfolio, and how much depends upon your risk tolerance. Consumer discretionary, and the like (retail), are being sucked dry by Amazon. Boeing comes out with a new jumbo jet every fifteen years, or so. Coke and Kellogg’s haven’t transformed, other than new marketing jingles. And the last four display their relative importance to the economy by their place at the bottom of the list.
Index Break-down by Industry Size
Information Technology 22.26%
Health Care 14.49
Consumer Discretionary 12.27
Consumer Staples 9.05
Real Estate 2.91
Now, suppose that you wanted to enliven your portfolio—adding a bit more growth to match your longevity—exchange-traded funds (ETFs) are securities that duplicate a particular stock or bond index. Sector SPDRs are the oldest brand of ETFs, and the company offers one that would only: include those companies in the S & P 500 Index, or those that are in any of the individual industries. For instance, add a slice of IT/Technology (SYMBOL: XLK) and/or Health Care (XLV). Or, someone else might prefer Financials (XLF), or one or more of the others.
On the Sector Tracker interactive site, you can check the performance of the various Sector SPDRs over various time frames (small white boxes toward the top). On the Sector SPDR web site, you can select any of the sectors by just clicking on the blue box, in the upper left. From there, you can down load the Prospectus, the Fact Sheet—which I find quite helpful—and other literature on each ETF. I have attached Fact Sheets for the IT/Technology and Health Care SPDRs.
Be sure to do your homework, consult with whomever you generally ask for investment advice, and give some serious consideration before adding these, or other, ETFs, and by how much. Leave a Comment if I can be of any help. Check your portfolio regularly, if you can, to monitor whether it still meets you needs, as structured!
NOTE: This recent article, from the NY Times, provides more information on ETFs; however, the focus is on the BlackRock Funds’ iShares (ETFs). BlackRock is the world’s largest money manager.