Adam Interviews Damien

 

Watch the interview between Adam and Damien, and how a index fund investor is starting to doubt what he believed strongly all these years. We go over when we started investing, what tools we use, and how we determine what to put our hard earned money into.

The takeaways are as follows:

  1. Damien invests into an index fund and about 10% into bonds.
  2. Adam believes index funds include winners and losers, and attempts to pick the winners directly. He also points to unethical companies being in the mix when you buy the whole market.
  3. Damien manages a budget sofware YNAB and Adam just uses his credit card to track spending. Both agree restaurants and eating out are a cash drain.
  4. Adam contends that if you have a 401k you’re already forced into buying stocks you can’t pick so why do that in your managed portfolio?
  5. Adam talks about bitcoin and gold being good alternatives to cash rather than just stocks.
  6. Damien insults Adam’s hair
  7. Adam insults Damien’s yearly return on investment (ROI)

Two People Debating

GILD up 15% in after-hours trading

Gilead Sciences’s drug remdesivir produced rapid recoveries in 125 COVID-19 patients, according to University of Chicago Medicine.

I recommended GILD on my March 22 video below, along with WMT, KR, PG, INO, and MRNA. Since the video was released, PG has gone up 18.82%, WMT has gone up 16.09%, INO has gone up 9.75%, and MRNA has gone up 44.28%.

Based on after hours trading, GILD has gone up around 19%, if the news holds true expect that to climb dramatically.

KR was the only disappointing pick with a measly 0.47% return. Click on the video below and subscribe to my channel for updated stock picks.

A look at my video recommendations from March 23

The January Stock Market Bump

The IRS lets investors offset capital gains with capital losses. These are separated into two groups, long-term and short-term. At the end of the year (December) investors often dump stocks they lost money on in order to offset their capital gains of the same group. These investors have to wait a month before re-purchasing shares otherwise those losses will be disallowed (called a Wash sale). For this reason later in the money of January a historical trend of putting the money back to use occurs, often buying back the losing stocks because there was some anticipation of future gains.

 

Tax Loss Harvesting for Dummies

It’s that time of year. Tax loss harvesting will save some thousands or even millions of dollars in capital gains taxes.

To do so it’s really simple, sell losses to offset gains or sell gains that already have corresponding losses so no tax is owed.

The way I do it is as follows:

Use a spreadsheet and create the following:

Account Short Term Profit Long Term Profit
S1 1,958.39 -2,323.39
S2 44,967.46 5,101.62
S3 229.72 44.29
F1 -2003 5423.65
Short Term Long Term
45152.57 8246.17

Where the cells in the bottom right are sums of column B and C, respectively. At this point the alarming figure should be the short term gains. At this point go through your stock portfolio and hopefully find some short term losses you can sell before end of year end to offset this gain.

Most trading platforms will split out “Long Term” and “Short Term” gains/losses, if not a long term transaction is one which is longer than one year and a short term is one year or shorter.

You’ll want to keep an eye out to make sure you don’t perform a wash sale – these types of sales are not allowed to be claimed as losses. A wash sale happens when you sell a stock for a loss and buy the same shares within a month before or after that loss sale. This is to prevent tax loss harvesting of shares which are not really meant to be sold but sold purely to tax loss harvest.

You can look up the rules on capital gains taxes and wash sales at the following websites:

https://www.irs.gov/taxtopics/tc409

https://www.sec.gov/answers/wash.htm

Younger People Not Owning Homes

Home Ownership is Fleeting

Millennials are less likely to claim home ownership by age 30 than baby boomers at the same age. A report by the Standford Center on Longevity that 48% of Baby Boomers owned homes by thirty versus 36% of Millennials.

A huge factor that plays into this figure is the number of unmarried Millennials – 55% of married Millennials own homes while only 19% of single Millennials do. The average age of marriage is rising – where in the 1950’s and 60’s the average age was 20, now the average age is 27.4 and rising according to the US Census Bureau historical marital status tables.

Other factors are increased housing costs, high student debt, and need for some workers to relocate.

Who Benefits?

The largest beneficiary, in my view, of lower home ownership is the landlord or corporation who rents out their home or apartment. As home ownership decreases, you’ll see the rise of more publicly traded REITS which take investor money, plop down new apartment units, and pay a share of the profits to their investors while driving away private investors through economy of scale price reductions. Private investors can employ a strategy involving buying, rehab/renovating, renting, and then refinancing to chain purchase multiple investment properties. As competition between private and public investors increases, the prices for properties goes up – further distancing potential first time home buyers. As long as there is a strong rental demand, the potential for cashflow means investors may buy in bulk.

Who Suffers?

Renters who pay more in rent than they otherwise would pay on a mortgage gain no principal ownership in their residence. While they may forgo having to fix home appliances and heating/plumbing they will gain nothing when they leave. Home owners with typical 30 year loans will have principal invested into their home and may be fortunate enough to have their house sell for more than it was purchased for. Historically house price appreciation is the norm, especially for homes in good locations. Depreciation of the house structure is usually offset by the appreciation of land value that the house sits on.

Renters are also at the whims of the landlord or property management company as to when their rents will go up. When I first started working my rent started at $880 in Atlanta and it went up to $1000 by the time I left 3 years later. This was not because they had improved the property – in fact the property slowly got worse. The reason they could increase rent is because demand was up – population growth and an influx of new younger workers means more people looking for rent. It is simply business.

What Should Younger People Do?

First off, everyone should choose what they want to do with their own lives. I can’t dictate that someone should study engineering rather than political science as much as I can force you to like the color orange more than brown. However, as this website aims to help people get a higher return on their money I would 100% encourage younger people to buy a home rather than rent one. I would ask them to take advantage of the historically low interest rates and get a low interest rate mortgage which limits how much the bank can increase interest rates. Pay a mortgage of equivalent value to what they’re paying in rent and look to save money and buy a rental property. Take advantage of the fact that your peers are renting and rent to them instead of from them.

 

 

Ally Financial

Ally Bank itself gives 2.1% interest rate on an online savings account, and 2.5% on annual CDs. Ally Financial Stocks pay out 68 cents per year on a $31.9 stock. Which is also 2.1%! What investing in the stock gives you, on the other hand, to increase your potential as interest rates start to rise. This isn’t a get rich quick stock, but with a 8.92 forward P/E ratio it’s a pretty good bargain that pays dividends. With Ally’s amazing interest rates for consumers, it’s only a matter of time before others start abandoning the brick and mortar banks which pay a measly 0.1% to 0.4% interest rate on their savings accounts. I bought Ally Financial and hold it as a nice dividend earning investment at $31.90 per share.

Ally Financial is divided into 5 areas:

  • Banking
  • Auto Finance
  • Home Loans
  • Invest – Self directed and managed investment products
  • Corporate Finance

ALLY 3 year chart

 

 

Google Search trend on term “ally savings bank” over time

Wallstreet Enters Single Family Housing Market… Again

Single family American home

 

REITS are Eating Homes

“The American dream no longer includes homeownership,” said Jordan Kavana, chief executive of Transcendent Investment Management LLC. Transcendent Investment Management is buying up rental homes, and expects Americans to transition into all being renters to drive profits for his and other similar companies.

This type of corporate incursion into housing was popular back in 2013 when houses were dirt cheap, but it’s starting to ramp up yet again. A few publicly traded companies involved in this type of business include Blackstone (BX), and American Homes 4 Rent (AMH). American Homes 4 Rent has been the largest player in the single family homes arena until Blackstone and Starwood properties merge their operations to join Blackstone’s existing single family division Invitation Homes (INVH). The merger will see Invitation Homes landlord almost 100,000 single family homes spread across the United States.

The Giants are Coming

These massive REITs may be part of some of your 401k mutual funds already, and are driving up prices for single families and potentially forcing them to buy more expensive homes. This is not unexpected due to the historically low interest rate the US still supports – and the benefits that come with scaling up operations. My problem with this is that by investing in these REITs you could be inadvertently encouraging Wall Street investors to drive up home prices around you putting the younger generation at more risk of lifelong homelessness (you get what I’m saying).

Traditionally most REITs focused on multifamily apartment buildings, we shall see how this foray into single family housing impacts the US economy for years to come. For millennials, this does not bode well for their home ownership prospects. I would prefer to be an owner of my own residential property than invest in these types of REITs, and if anything I would stick to multi-family apartment focus REITs as they should yield better returns. For more information on REITs and how to make money on real estate, check out my real estate page.

Activision Blizzard (ATVI) is a Good Buy

What’s Going On?

Activision Blizzard came out with their Q1 2018 earning reports exceeding estimates by over 10%. Despite Fortnite and PUBG claiming much gaming market share over that same period, it appears it hasn’t pushed people into abandoning their World of Warcraft subscriptions or uninstalling Call of Duty.

I’ve been a long time holder of this company, and do not plan on selling anytime soon. Even though the dividend rate is on the low side (34 cents this past quarter), their revenue climbed over 13% for the same quarter last year.

Potential trades:

Write (Sell) put option for June 22 at $70.5 dollars per share at $2.00 per option. As long as ATVI does not go below $68.5 by June 22, 2018 you will be better off for it. If the price goes below that point then you will be forced to buy shares at that price, which I still think is a good thing long term. Otherwise, I’d put this stock on a watchlist and buy long if the shares go under $69. With the volatile stock market of the past few months this will probably happen and give you a nice discount on a great company.

Current trading price of ATVI: $71.66

Other Thoughts

While EA Games is also a profitable company which looks good on paper, as a gamer myself I’d have to say that EA has thrown many gamers under the bus with their pay as you go, or pay for item strategy. It’s hard to imagine the frustration seeing items for sale in a game after you’ve already paid between $60 to $80 for a AAA game. EA Games helped create the in-game content purchase model, which unfortunately has spilt to other developers.

What the F is Wrong with Ford?


Ford is entering dangerously cheap territory. P/E ratio of 6, dividend ratio of over 5%, and healthy return on equity. Either someone knows something the financials are not telling us, or people are worried they can’t catch up to newer car companies and their technologies. I’ve got an idea for Ford, buy back some shares while your stock price is so cheap. I think the news of releasing the Bronco and Ranger again in the US is a great one, and there is positive news out of China of Ford starting to make EV there through a 50/50 joint venture with Zotye Auto (Chinese company), in addition to it’s existing joint venture Changan Ford. That being said, Ford’s China market is still much lower than GM’s.

I am long Ford with a few Call options expiring in June @ 11.87 / share. I still think Ford will be a better investment at the current price of 11.36 (Jan. 29, 2018) than Tesla at 341.50. Tesla has extreme leadership but I think they have over-promised at this point and due for a correction. I am also long GM which has a favorable P/E ratio of 9.44 and dividend of 3.48%. Tesla currently has no dividend and is not a profitable company.

Invest in What You Understand

I’ve talked to a lot of co-workers and relatives who have invested heavily in businesses they simply don’t understand. This is a mistake.

You don’t have to know everything there is to know about a company to invest in it, but you should have a general understanding of their products and market. Warren Buffet famously invested in Coca-Cola since 1987 and currently owns around 10% of Coke stocks. He loved this company because of its iconic name, and well known product. He found a company he knew and understood and was able to make sizable returns on his investment. Coke stocks went up from $2.45 per share in 1988 to it’s current price of $47.38, paying good dividends along the way. Walmart, Best Buy, and Kroger are all publicly listed companies that any average Joe can understand.

Walmart 5 year return: 72.5%

Best Buy 5 year return: 490.8%

Kroger 5 year return: 132.7%

If you’re a gamer you know names like Activision Blizzard, responsible for games such as World of Warcraft, Call of Duty, etc. which all have their own cult following. If you bought this company 5 years ago and held it you would return 555% on your investment. Walmart and Kroger are included as examples of companies that have stiff price competition and do not have an “economic moat” such as a company like Activision Blizzard. Best Buy has been a go-to place for electronics and has been well positioned to capture what I call the Apple Tech revolution, not having to deal with rivals that have gone under such as Circuit City and Ultimate Electronics.

Now companies that you don’t understand, stay away from! For example, “exploratory mining companies”, small no-name drug companies, and Greek shipping companies are all stock investor pitfalls that usually end up going bankrupt. This is why for all of my serious investments I make sure the company has at least a 400 million market capitalization. You can certainly play with penny stocks, but I’d never suggest putting any amount you can’t lose into them. It’s my same advise with gambling at a casino.

Now you may be asking, “I knew Circuit City and their products, but those lost money!”. You’re right! Besides knowing the business you also have to do some research on the company’s cash flow and growth. Those are outside the scope of this article, as the “secret sauce” for successful investors is largely dependant on their cash flow figures in comparison with this stocks outstanding and stock price.