Investment Newsletter for the end of March, 2022

The market was fairly flat in March. Up a bit. Quarter was down a bit.

The other day Daniel got a Facebook advertisement for investing in limited partnerships in farmland. The advertisement claimed superior rates of returns. Daniel doesn’t know “squat” about farmland. Then he received a similar advertisement for shares in wine collections. Again “squat”. How about flipping houses? Incompetent with tools. How about virtual currencies? We doubt anyone has much of a clue. Our point is to invest in what you understand.

In terms of investing, what is the value of knowledge? We assert that knowledge informs you what you should invest in and helps you evaluate financial planners. There are many ways that you can invest your money. There are traditional things such as stocks, bonds, and real estate. There are also more esoteric things such as cryptocurrencies, paintings, and NFTs. How do you decide what to invest in? Our investment philosophy is that you should only invest in things if you understand them. We have 2 reasons. 1. Without understanding you can’t differentiate between a good investment and a bad investment. 2. Without understanding you will be a magnet for scammers trying to get your money.

One investment idea that is fairly common in the investment world is that you should stay within a circle of competency. If you invest in something outside it, you are pretty much guaranteed to be confused and confused people make bad investment decisions. For example, we don’t know anything about farmland. It is outside our circle of competency. If we were to invest in farmland anyway, we would have issues. We don’t know how to evaluate the quality of the land, what a good price is to buy, a good price is to sell, how long to hold the land for, etc. Without knowing the answers to those questions, we would have to guess. If we’re guessing, we are very likely to make a mistake.

When you’re trying to enter an area that you don’t understand, scammers can smell your ignorance. Using lies and overly technical language they are going to try to sell you an asset for you to invest in. Because you don’t understand the investment, you won’t be able to evaluate if the asset being sold is good or bad. You are completely dependent on this other person’s honesty and sense of decency. Also, sometimes a seller can be honest, (they think the product is great), but the seller is also very dumb. You need knowledge to be able to evaluate the situation. The reason why we emphasize education so much in these newsletters is that we want you to be able to make an informed decision. That way you will be happier with how your portfolio is invested. In the long run, both you and the company will be happier and more satisfied.

If you have any questions about your investments (or your tax), please call at any time. We sincerely hope you got value from this newsletter. We appreciate your business and trust.

Thank-You,

Daniel and Eli


As we’re writing these to help our readers, we would be very appreciative of any input in regards to what we should write next. If you want us to write about a particular topic, please contact me. Please contact me if you would like to submit a post to our blog.

If anything that we mentioned above interests you, please consider downloading our free e-book. The book contains our thoughts on investment management and some information that we think everyone should know. You can also download it below.

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Investment Newsletter for the end of February 2022

The market in February was not good. It was not as bad as you would expect based on the news. Most of you essentially went sidewise.

The news has been dominated recently with the situation between Russia and Ukraine. Some of you are likely worried given the recent market fluctuations if the news is going to hurt your long-term financial health. We assert that your accounts in the long run will probably be fine. As we have mentioned in the past, companies are very adaptive. Whatever negative effects are present currently due to the war will fade away in time due to companies figuring out ways to adapt to it. In the long run, stock growth is driven by company profits and only the profits. As long as a situation doesn’t permanently hurt a company’s profitability, then the company will be fine. The humanitarian disaster we are seeing is mostly not relevant to business profits in the United States and to a lesser extent in most of the Western world. As far the stock market is concerned, in the long run, the humanitarian disaster does not matter.

Sure, because of inflation or oil prices, some companies will be losers (airlines for example). Other companies will be winners. Index mutual funds capture broad collections of all companies.

Our economy has in the past survived many disasters such as various wars, terrorist attacks, etc. While the stock market had crashed in the short term, eventually the market soared to higher heights. We don’t see any reason to suspect this current situation will be any different than the many other historical examples. Things will be in turmoil in the short run, but it will eventually pass. Stick to your investment goals and objectives. Don’t let fear overcome your reason and make you do something rash. Remember that if the market goes down in the short run, you have a greater likelihood of making money in the long run. If you are able to stick it out, you will very likely make all that money back and more. In fact, because the market will most likely recover, the market as it is now is selling at a discount. If you buy into the crash, you will likely make more money. It is very scary to do that but historically many fortunes have been made doing exactly that.

There unfortunately will always be disasters in the world. When they happen, it is important to keep your financial composure. You might have non-financial concerns about the news such as ethical, political, etc. but financially the news is not something you need to fear. In the end this news item and its effects will pass.

If you have any questions about your investments (or your tax), please call at any time. We sincerely hope you got value from this newsletter. We appreciate your business and trust.

Thank-You,

Daniel and Eli


As we’re writing these to help our readers, we would be very appreciative of any input in regards to what we should write next. If you want us to write about a particular topic, please contact me. Please contact me if you would like to submit a post to our blog.

If anything that we mentioned above interests you, please consider downloading our free e-book. The book contains our thoughts on investment management and some information that we think everyone should know. You can also download it below.

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Investment Newsletter for the end of January 2022

The month was weak. Not a surprise given the magnificent gains of 2021.

One thing that must always be taken into account when making investment decision is taxes. Ultimately, the objective of investment is to maximize after tax income. Pre-tax income isn’t relevant. Investments gains are referred to as Capital Gains and are taxed based off of how long those investments are held.

Short term investments are investments that are held shorter than one year. For example, if you buy stock X in February 2022 and sell it in April 2022, that would be considered a short-term investment. Any gains from that investment would be taxed at the same rate that ordinary income is.

Long term investments are investments that are held for one year or more. For example, if you buy stock X in February 2022 and sell it in April 2023, that would be considered a long-term investment. Any gains from that investment would be taxed at a lower rate in comparison to a short-term investment. Long term capital gains are taxed at a preferential rate because it is believed that holding investments for a longer period of time makes the various capital asset markets smoother and more stable.

This particular tax structure of short term and long term applies to all capital assets. Examples are stocks, bonds, real estate, paintings, etc. While the terminology used is different, this type of tax structure is also used for dividends. To what degree dividends are taxed depends on whether the stock meets particular requirements and how long the stock has been held prior to its es-dividend date. If the requirements are satisfied the dividend is considered qualified and is taxed like long term capital gains. If it doesn’t meet the requirements, then the dividend is unqualified and is taxed like ordinary income.

Based on these tax considerations, it would simple to imagine a situation when comparing two investment capital gains where the pre-tax income of the first investments is higher than the second, but the after-tax income of the second is higher than the first. As after-tax income is the thing that is most important you are going to want to invest the second option rather than the first.

If you have any questions about your investments (or your tax), please call at any time. We sincerely hope you got value from this newsletter. We appreciate your business and trust.

Thank-You,

Daniel and Eli


As we’re writing these to help our readers, we would be very appreciative of any input in regards to what we should write next. If you want us to write about a particular topic, please contact me. Please contact me if you would like to submit a post to our blog.

If anything that we mentioned above interests you, please consider downloading our free e-book. The book contains our thoughts on investment management and some information that we think everyone should know. You can also download it below.

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Investment Newsletter for the end of December, 2021

As 2021 comes to a close, we should look up on what happened this year and see if there are any lessons that we can take from it. Overall, the Dow went up roughly 5300 points in 2021 or about 17%. The S&P 500 went up about 962 points or 25.3%. The Nasdaq went up about 2577 points or 19.7%. The Russell 2000 went up about 148 points or 7.1%. Despite the new variant and all the things happening in the news, the stock market was very strong in 2021. Yes, there were bad months, so so quarters, and lots of exciting news.

While the market seemed tumultuous while we were living in it, if you take a step back, the year went up pretty smoothly. The Dow went up 7.9% in quarter 1. It went up 2.7% in quarter 2. It went up .97% in quarter 3. It went up 4.6% in quarter 4. A lesson you can take from this is that sometimes in order to see the truth you have to take a step back. In truth, the pandemic has not had a negative effect on the stock market. Since the very first case 2 years ago, the market has done fantastic. Another lesson you can take from this is that even if the pandemic continues and there is another variant, the stock market will likely do fine. Stock prices are not about the current economic situation. They are a prediction of the economy a year or two in the future. Stock prices are people’s expectations of the future. And, everyone knows that the pandemic will eventually be over.

Large cap stocks did substantially better than small cap stocks in 2021. The Dow went up 17% vs the Russell 200 going up 7.1%. For whatever reason, the larger companies were able to adapt better than the small companies to the pandemic economy. Historically small cap stocks have done better than large cap stocks. We’ll have to wait and see if that status quo is reestablished in 2022 or if things will take longer than that to return to normal.

The overall lesson to take from the entire pandemic is to not panic and not to get greedy. The stock market has survived and subsequently thrived after every disaster in world history. Sometimes the market has a pause or dip (or big dip), and sometimes it doesn’t. The overall trend is going up. The only guarantee is that you will live in exciting times. Ignore the noise. Just sit back, relax, and watch your money grow. Do not get greedy and increase your risk. Bad times happen too.

If you have any questions about your investments (or your tax), please call at any time. We sincerely hope you got value from this newsletter. We appreciate your business and trust.

Thank-You,

Daniel and Eli


As we’re writing these to help our readers, we would be very appreciative of any input in regards to what we should write next. If you want us to write about a particular topic, please contact me. Please contact me if you would like to submit a post to our blog.

If anything that we mentioned above interests you, please consider downloading our free e-book. The book contains our thoughts on investment management and some information that we think everyone should know. You can also download it below.

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Investment Newsletter for the end of November, 2021

A couple months ago, we argued in this newsletter that greed was just as scary in the market as fear. The market that month had gone way up without a rational reason. Now we come to this month.

In the last week, the Dow has gone down over 1300 points. The reason is the emergence of the new COVID-19 variant Omicron and peoples’ subsequent fears about it. In response to that fear people are selling off stock thinking the world is going to crash. That response is not rational for several reasons. 1) There have been very few cases so far and thus currently does not have an effect on the global economy. 2) The symptoms are mild. 3) Even if the variant turns out to be a major problem for the world, the economy will survive. When the COVID-19 pandemic first started, the economy crashed hard. However, it quickly bounced back as businesses adapted and thrived. Whatever damage this new variant does to the world, we have full faith that the economic damage is temporary. People are afraid because they are envisioning an unrealistic nightmare scenario that likely will never happen. But, most importantly to our point, they are running away without knowing anything.

While it is important to be careful and stay safe, it is important not to let fear control you. The world has experienced many disasters in the past and economically has recovered from every single one of them. In this case, fear is counterproductive as it is hurting you financially. Eventually the stock market will recover. It may be next week, next month, etc. but it eventually will and when it does you want to be invested. You might be thinking that you will wait until right before the recovery but the problem with that idea is that these things are impossible to time and you are likely going to be late and miss out on a lot of money. Be patient and stay invested. You might lose money in the short term but in the long term you are very likely going to make a lot of money.

If you have any questions about this newsletter, please call at any time. We sincerely hope you got value from this newsletter. We appreciate your business and trust.

Thank-You,

Daniel and Eli


As we’re writing these to help our readers, we would be very appreciative of any input in regards to what we should write next. If you want us to write about a particular topic, please contact me. Please contact me if you would like to submit a post to our blog.

If anything that we mentioned above interests you, please consider downloading our free e-book. The book contains our thoughts on investment management and some information that we think everyone should know. You can also download it below.

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Investment Newsletter for the end of October, 2021

It has been a fabulous month. Portfolios are way up. Of course, we consider fabulous months to be just as scary as crappy months. Greed is equal in danger to fear. When the market moves because of irrational emotion, it will eventually reset. Exciting times are coming.

At Dollinger Management, Inc., we practice the art of short-term boringness, long-term profits. So what do we look at when coldly, dispassionately looking at a stock?

We start with the industry. Does it have prospects? Then we look at the strength of the companies within the industry. We look at the financial statements. When a person looks up a stock on their website of choice (such as Yahoo Finance, Schwab, etc.) there are three main statements that are normally available. Those statements are the Income Statement, the Balance Sheet, and the Statement of Cash Flows.

The Income Statement lists out the income and expenses that occurred over the time period being measured (usually a quarter or year). Income would be the money the company has earned (sales). Expenses are the money that is spent with timing differences. Accrual accounting is beyond what we want to talk about here but the basic idea is that whether or not cash has exchanged hands is not relevant. If the company has earned money but haven’t received any cash yet then it is still listed as income. If they have incurred expense but haven’t paid any cash yet then it is still listed as an expense. Income minus expenses is the profit. /span>

The Balance Sheet are the Assets and Liabilities of a company at a given moment in time. Assets are the things they own that could increase the value of their bank account. Examples would be cash, real estate, equipment, etc. They can be theoretically converted into cash. Liabilities are the things they own that could decrease the value of their bank account. An example would be debt. If the debt that a company owns is satisfied, then the company will have less cash in their bank account.

The Statement of Cash Flows tracks the literal cash flows of the company. It presents how cash moves in and moves out of the company bank account. One of the benefits of looking at this statement is that is immune to many accounting tricks that can obscure how well a company is actually doing. A company can change the other two statements by changing things like how quickly income is recognized, by writing off bad accounts, etc. Cash on the other hand cannot be modified to nearly the same extent.

With these statements, an analyst can calculate multiple ratios that would help illustrate the health of the company. A common ratio would be Return on Equity. Return refers to Net Income. Equity is Assets minus Liabilities. Equity is one way of measuring how much a company is worth. Therefore, Return on Equity is how much income a company earns relative to what they are worth. How effectively and efficiently do they convert their company’s resources into profit. /span>

If you have any questions about this newsletter, please call at any time. We sincerely hope you got value from this newsletter. We appreciate your business and trust.

Thank-You,

Daniel and Eli


As we’re writing these to help our readers, we would be very appreciative of any input in regards to what we should write next. If you want us to write about a particular topic, please contact me. Please contact me if you would like to submit a post to our blog.

If anything that we mentioned above interests you, please consider downloading our free e-book. The book contains our thoughts on investment management and some information that we think everyone should know. You can also download it below.

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Investment Newsletter for the end of September, 2021

In this newsletter we are going to talk about some of the ways that the COVID-19 pandemic has affected the stock market and what we can learn from the pandemic in terms of investment strategy.

In the nearly 2 years since the pandemic started the stock market, while extremely volatile, has gone up around 20%. Why? We have all seen the economic devastation in many industries. How is it that the stock market is thriving? The reason is that human beings in general are very good at adapting. Restaurants have improved their ability to provide take-out, meetings can now to be done online, etc. While some industries might die off due to the pandemic, others have thrived. An example of a thriving industry is online retail.

Our point here is that while some industries have gotten hurt, others have done very well. The economy as a whole is doing fine. The stock market pricing is a prediction of the future economy. The turmoil of the last two years is short term NOT long term economic. In fact, it was very short term.

In regards to the stock market, the big lesson to take from the pandemic is a reminder to stay optimistic. No matter what bad things happen, things will be ok. Stock market crashes are temporary. Therefore, it is important that when disaster happens to stay calm and stick to the plan that you created earlier. In the short term, you might lose money. However, in the long term, you will probably be better off. Knowing that after a crash, the stock market will eventually recover is a core part of our investment strategies. When the stock market falls, we buy more stock. We know that the price cannot differ from the intrinsic value for long, so we take advantage of that. Ultimately the fall is just noise and if you want to have a long and profitable experience in the stock market you need to ignore that noise. /span>

If you have any questions about this newsletter, please call at any time. We sincerely hope you got value from this newsletter. We appreciate your business and trust.

Thank-You,

Daniel and Eli


As we’re writing these to help our readers, we would be very appreciative of any input in regards to what we should write next. If you want us to write about a particular topic, please contact me. Please contact me if you would like to submit a post to our blog.

If anything that we mentioned above interests you, please consider downloading our free e-book. The book contains our thoughts on investment management and some information that we think everyone should know. You can also download it below.

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Investment Newsletter for the End of August, 2021

What is risk?

Risk as defined in financial planning is simply the likelihood that something unexpected happens, which meaningfully impacts the price of a security. That unexpected event could be positive or negative. A company being heavily damaged by a freak storm is an unexpected negative event. A company winning a lawsuit they were expected to lose is an unexpected positive event. Risk can be further divided into systematic and unsystematic risk. Unsystematic risk is the risk associated with a single company or industry. This risk can be reduced with diversification. Systematic risk is the risk associated with the entire market. People usually don’t care if the stocks they own experience unusual positive events because who would complain about making more money, but negative risk is a crucial metric to consider in a portfolio.

In a portfolio, risk has to be carefully monitored because every person has a risk tolerance. That tolerance is based on both how much money they have (their physical ability to withstand risk) and their psychological ability to handle risk. Someone can be very rich and thus theoretically be able to handle a lot of risk but emotionally is not willing to. While the stock market in the long run will go up, it might decline dramatically in the short term and individual securities could permanently be depressed. That can be too mentally stressful for some people. Therefore, these people would be more invested in non-stock assets than people with higher risk tolerance. Similar to the ballast in a boat, non-stock assets decrease in amplitude the swings within a stock portfolio.

Another way of reducing risk is with diversification. As mentioned above, diversification reduces unsystematic risk. If you diversify, the impact of a single company on your wealth becomes very small. That lower impact can be both a good thing and a bad thing. Remember, risk can be both positive and negative. The impact of good company results and bad company results are both reduced. There have been many people who have made money from very concentrated portfolios and there have been many people who have lost money from very concentrated portfolios. /span>

If you have any questions about this newsletter, please call at any time. We sincerely hope you got value from this newsletter. We appreciate your business and trust.

Thank-You,

Daniel and Eli


As we’re writing these to help our readers, we would be very appreciative of any input in regards to what we should write next. If you want us to write about a particular topic, please contact me. Please contact me if you would like to submit a post to our blog.

If anything that we mentioned above interests you, please consider downloading our free e-book. The book contains our thoughts on investment management and some information that we think everyone should know. You can also download it below.

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Investment Newsletter for the End of July, 2021

The market this month was fairly flat or up a little depending on what index you are looking at. The year to date, of course, is up huge.

In past newsletters we have talked a lot about the dangers of fear, about how being too scared to invest will cost you a lot of potential profit. In this newsletter we will talk about the other side of that issue, which is the dangers of greed.

The reason why an asset goes up and down in price is expectations about how much that assets is truly worth in the future. For example, you buy a stock if you believe that is will be worth in the future more than it costs today. Expectations, however, can be wrong. While prices can temporarily diverge away from its true intrinsic value, it eventually will revert. History is filled with examples of when assets were driven up to ludicrous valuations and eventually crashing. The classic example is tulip bulbs in Holland from 1934-1937. Some bulbs sold for over $700,000 in today’s money, which most would consider unreasonable. When the price of bulbs eventually reverted to normal, many people were left financially destitute. A modern example would be the housing crisis of 2008. Many mortgages and loans were backed by the inflated valuations of the properties. When the real estate market crashed, all those loans defaulted. In both of the examples we mentioned, greed made people believe that prices will keep going up and thus they took too much risk. There is a good reason that we utilize a lot of diversification in our portfolios. If one thing fails, we don’t want the entire portfolio to be destroyed.

There is a risk to investing, but there is also a risk to not investing. That conflict between investing and safety must be carefully balanced and considered in all investment decisions. Like the gas pedal and brake pedal of a car, both are needed. Without the gas pedal, you aren’t going to go anywhere. Without a brake pedal, there is an extremely high chance that you will crash. /span>

If you have any questions about this newsletter, please call at any time. We sincerely hope you got value from this newsletter. We appreciate your business and trust.

Thank-You,

Daniel and Eli


As we’re writing these to help our readers, we would be very appreciative of any input in regards to what we should write next. If you want us to write about a particular topic, please contact me. Please contact me if you would like to submit a post to our blog.

If anything that we mentioned above interests you, please consider downloading our free e-book. The book contains our thoughts on investment management and some information that we think everyone should know. You can also download it below.

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Investment Newsletter for the End of June, 2021

People often talk about the Dow Jones when they talk about how the market is doing. The Dow, however, is not the market. It is an index. Not even a very good one but everyone uses the Dow number. There are many indexes each with a different definition. However, few investors know what exactly those terms mean. The topic of this newsletter will be stock market indices.

A stock market index is a group of stocks. Different indexes are weighted differently in regards to their component stocks, and the value of each index is represented by a single number. The four main indices that Americans look at are the Dow Jones, the S&P 500, the Nasdaq, and the Russell 2000.

The Dow Jones Industrial Average is a price weighted index composed of 30 prominent industrial stocks. It was created in 1896 and was initially composed of 12 companies. Over time those companies have been replaced by other companies as those original companies have gone out of business or in some way become unfit for inclusion. Price weighted means the value of the index is simply the sum of the prices of each component stock divided by a “Dow Divisor”, which is currently approximately .15189. The index is not necessarily representative of the state of the US economy as it is a very limited number of companies and is only large cap industrial companies.

The Standard and Poor’s 500 is a capitalization-weighted stock market index of the 500 largest companies in the United States. Capitalization-weighted means each company has an equal impact on the index’s value. The price of each company is weighted based on the size of the company. The index was created in 1957, and is highly regarded as a general barometer of the US economy.

The Nasdaq Composite tracks almost all stocks that are listed on the Nasdaq stock exchange, which has a heavy bias towards information technology companies. The index is capitalization-weighted and was founded in 1971. In order for something to be listed on the Nasdaq Composite, it must be exclusively listed on the Nasdaq exchange.

The Russell 2000 index is a small cap index that is composed of the smallest 2000 stocks in the Russell 3000 index. It was founded in 1984 and is capitalization weighted. The Russell 3000 index was an index designed to represent the entire US stock market and currently represents approximately 98% of the US stock market.

If you have any questions about this newsletter, please call at any time. We sincerely hope you got value from this newsletter. We appreciate your business and trust.

Thank-You,

Daniel and Eli


As we’re writing these to help our readers, we would be very appreciative of any input in regards to what we should write next. If you want us to write about a particular topic, please contact me. Please contact me if you would like to submit a post to our blog.

If anything that we mentioned above interests you, please consider downloading our free e-book. The book contains our thoughts on investment management and some information that we think everyone should know. You can also download it below.

E-Book Download

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