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Investment Newsletter for the End of January 2020

Posted on February 3, 2020 by Daniel DollingerFebruary 3, 2020

January has been a very volatile month on the stock market. For this conversation, we are using the Dow as the market, as most of you do. In the end, the month is down only about 280 points, which is insignificant. However, from January 17 to January 31, the market has lost about 1100 points. That drop is due to the fear regarding the Coronavirus. That will be the topic of this newsletter.

A very big event happening in the world today is the Coronavirus outbreak in Wuhan China. The stock markets, due to fear about its effects on business and commerce, are very spooked. Businesses in China or businesses exposed to China are certainly feeling the stress. Travel industries would be an example. While we are not scientists that can comment on the virus itself, we know enough about financial/economic history to know that the effect on the stock markets will likely be temporary. The stock markets have survived a lot of bad things. They have survived wars, depressions, terrorist attacks, various diseases, etc. Historically, after every disaster, markets eventually recover. There is absolutely no reason to believe that this time is different, so that pattern will likely continue. Eventually, the marketplace will adapt. New companies will form, old companies will go out of business, and life will move on. And, the travel industry will recover also.

If you have been reading the newsletters for a while, you have probably seen us write about the importance of sticking to a plan. The markets are volatile, they always have and likely always will be. The future is unknowable. All you can do is have the discipline to adhere to the plan that you agreed to when you hired us. That plan is designed to achieve the objectives you want. If your risk tolerance or objectives change, then we can all collaborate on designing a new plan for you. However, fretting about the markets does nobody (especially you) any good.

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

Dan and Eli

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

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

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Investment Newsletter for the End of December 2019

Posted on January 2, 2020 by Daniel DollingerJanuary 2, 2020

This newsletter is a very exciting one. It marks an end of month, end of year, and end of decade. The results of all 3 markers are overwhelmingly positive. The month is up 2.22%. The year is up 21.28%. The decade is up 283.48%. Those numbers are very nice. Despite the chaos in the world, if you had held on to an investment for the entire time, your patience would have been extremely lucrative.

The 1st topic of this newsletter will be the power of Compound Interest. If you were to deposit 100 dollars each month under your mattress, after 50 years, you would have $60,000. If you were to deposit that money each month into a bank, then assuming you earn 2% on your interest you would have $102,961.20 after 50 years. The Dow over the last 35 years has returned 9.3% per year. Assuming that level of growth continues, if you invest 100 dollars per month into the Dow, after 50 years you would have $1,312,604.89. The difference in wealth created due to a few percentage points is massive. Regardless of how much money you have now, proper and diligent investing can set you up for a very comfortable retirement.

The 2nd topic of this newsletter will be how to use the information we discussed above to give you a good retirement. The first thing that should be understood is that money that is not invested is not helping you build wealth. You may need it for liquidity reasons or peace of mind, but non invested funds will not bring you wealth. It does not have to be invested in stocks. You can invest in bonds, real estate, etc. The point is that in order to win the game, you need to play it. The second thing that must be understood is that a small amount of money can accumulate into a large fortune if given enough time. We want you to think very carefully about your monthly expenses. If you are able to trim your monthly expenses even by a little bit, that could be the difference between a financially secure and financially insecure retirement. We, of course, are not telling you to live a life of joyless austerity and frugality, but it is to your benefit to be careful with your funds and think twice before spending once.

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

Dan and Eli

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Investment Newsletter for the End of November, 2019

Posted on December 7, 2019 by Daniel DollingerDecember 7, 2019

The market this month is up about 1,000 points. Most of you made a lot of money this month. If you had sold out of your positions when the stock market had one of its many volatility swings due to various domestic and foreign news items, you would have missed out on that gain. In today’s newsletter, we are going to talk about discipline.

One thing that must be understood about the stock market is that in the long run, the vast majority of news items do not matter. The market swings back and forth with the news cycle, people’s fears and greed, and often just random noise. Unless it permanently affects a country’s economy or company’s profitability, the effect will eventually wash out. For example, when Brexit was announced, the stock market temporarily took a steep dive, but why? While Brexit would affect things in the short term, companies will adapt just fine in the long run. There are companies that survive in times of war. Human ingenuity is very resilient. A couple days after Brexit was announced, the market realized it had overreacted and the market surged back up.

If you had the discipline to hold on to your positions when things are bad, you would have profited. Discipline in the context of financial planning means you are able to stick to a plan. It might mean buying when the market is bad, which is very scary, but it is the ability to stick to what you had agreed to. Often the biggest enemy for an investor is themselves as their fear can overwhelm their better judgement. The market has many swings. However, in the long run it trends up. Our advice at Dollinger Management is to disregard the financial news when it comes to your portfolio. Create a plan you are able to stick to and stick to it.

If you have any questions about how you are invested or would like to talk about your plan, please call at any time. We sincerely hope you got value from this newsletter. We appreciate your business and trust. We hope you all had a good Thanksgiving.

On a separate topic. It looks like the tax preparation software will be available in our office early this filing season. There were almost no changes in the tax rules this time. Please call with tax questions or if you wish to do some tax planning. Taxes are a very important part of your financial plan.

Dan and Eli

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Investment Newsletter for the End of October, 2019

Posted on November 5, 2019 by Daniel DollingerNovember 24, 2019

The market this month is up about 130 points. Added to the upward movements that we have already experienced this year means the Dow is up about 3500 points. Despite the volatility, if you had invested at the beginning of the year and endured the volatility, you would have made a lot of money. In today’s newsletter, we are going to talk about two topics.

The first topic is diversification. Diversification is essentially the expression “do not put all your eggs in one basket”. Unfortunately, no asset goes up in value forever. No matter what it is, for every rise there will eventually be a crash. Thankfully, not everything rises and crashes at the same time. That is the value of investing in multiple things. Ideally when one thing crashes, another thing rises and the roller coaster is much smoother. No matter how carefully you invest, chances are you will invest money into something that will lose value. If you are invested in many things, that one thing losing value won’t hurt your portfolio by much. Diversification can be done across asset classes (stocks, real estate, etc.), across countries (United States, England, etc.) across industries (healthcare, defense, etc.) etc.

The second topic will be real estate. The usage of real estate can be a valuable addition to a portfolio for it rises and falls in a different way from traditional stocks. There are multiple ways to invest it. The classic way of investing is by buying a property. The advantage of this approach is that you can directly affect the value of the property via your own actions (painting it, repairing things, etc.) and there could be some tax advantages. The disadvantages are twofold. First, is that it is very capital intensive. As a result of being so expensive, it is unlikely you can achieve diversification in your real estate portfolio. You likely can only afford a few properties. Those properties you do have are likely to be in one geographic area. Second, property is not liquid. It takes weeks or months to turn the property into cash. There will be a 6% or 7% sales commission plus other closing costs. Finally, you cannot tell exactly what the property is worth at any time.

Another way of investing in real estate is by investing in a REIT. A REIT is like an ETF or traditional mutual fund. It is a collection of properties, managed by someone else, that you can buy and sell shares of. The main advantage of a REIT is that you get diversification due to many properties being owned and it is much cheaper to get started. The commissions in or out are minimal. I can tell you at 11:15 am, for example, to the penny what your REIT is worth.

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

Dan and Eli

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Investment Newsletter for the End of September, 2019

Posted on October 10, 2019 by Daniel DollingerNovember 24, 2019

The stock market over the last month is up a little bit. The Dow is up roughly 513 points or about 1.9%. The quarter is about flat. The topic of this newsletter will be currency and inflation. Let’s start with currency.

What is Currency?

Currency is a medium of exchange. Prior to currency being used, we had barter. That means we exchanged physical goods or services for other physical goods or services. For example, if I had excess cows but needed a sheep and someone else had excess sheep but needed a cow, we could exchange a cow for a sheep and we would both be happy. The problem is that I would need to find someone that had what I wanted and wanted what I had, and vice versa. Therefore, it would be difficult to find trading partners. With the usage of currency, I could trade my cow for currency and that currency for a sheep. Everything is more efficient because we are always trading with a good that everyone wants (currency) so we don’t have to hunt for trading partners. What you need to remember is that by itself, currency has no value. Its value is what you can trade it for. That ties into our next topic which is inflation.

What is Inflation?

Inflation is simply an increase is the cost of the goods and services within an economy that can be purchased. Most importantly it eats away the value of your currency. If a sandwich costs 5 dollars and you have 10 dollars, what’s the value of your currency? The answer is 2 sandwiches. If the cost of a sandwich rises to 10 dollars, the value of your currency is 1 sandwich. You are poorer, even if your level of currency stays the same. Remember currency has no intrinsic value.

Why this is important

There is an expression that says “Cash is King”. If you have a lot of liquidity needs, the expression is correct. Perhaps you are about to buy a property or pay tuition for junior (or the old age home for your mother). For everyone else it is wrong. You do not want your wealth to be held in cash. Bank interest will not keep up with inflation. If your wealth is held in currency, your wealth will hemorrhage away. You lose money in a slow steady drop. You want your wealth in something that will keep up with or exceed inflation such as stocks, real estate, certain types of bonds, etc. When you are risk adverse and hold cash, you are making in reality making a decision that is guaranteed to lose over time.

We sincerely hope you got value from this newsletter. We appreciate your business and trust.

Dan and Eli

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Investment Newsletter for the End of August, 2019

Posted on September 10, 2019 by Daniel DollingerNovember 24, 2019

The market during August was down somewhat. Despite various news items sending the market up and down, in the end the market was only down in August about 450 points. That number of points is not insignificant, but to keep it in perspective, the month before that the market went up. For July and August combined, the decline was a boring 197 points. In the long run, these monthly fluctuations are meaningless noise and should be interpreted as such

That brings us to the point of this newsletter, which is volatility. The stock market is volatile. Some days it goes up, other days it goes down. Sometimes the reason is understandable and sometimes the reason for the market movements are completely inexplicable. It is a wild ride but, in our opinion, it is a ride that is worth riding. However, if you were to listen to the various talking heads on television you wouldn’t think so. They keep saying things like “is now the right time to be in the stock market?”. The answer in our opinion is always yes. A recession is eventually coming as they always eventually do, but nobody knows when exactly its coming. Anybody who says they know is wrong. Anyone who truly knew when a recession was going to hit would stay quiet about it and make a gargantuan amount of money via the use of put options (derivatives that pay out when securities go down in value).

Timing the market is a fool’s game. More importantly, it is also an unprofitable game. The stock market is one of the most potent wealth creators in the world. To use a cliché turn of phrase “you need to be in it to win it”. Over the long run, the stock market has steadily gone up. It has approximately doubled every 10 years. In order to enjoy that increase you need to be invested. The US stock market could crash tomorrow, but it could also keep going up for another 5 years. Nobody knows. Even if the market crashed tomorrow the stock market would eventually recover. Even after the crash in 2009, the market eventually recovered and soared to higher peaks. If you withdraw your money during a crash you are assuming you know when to get back in. Realistically you are not going to know when to do that.

Don’t be scared off by volatility. It is scary when the market plunges 30% but realize that decline is very temporary. Don’t be distracted by the wildness of roller coaster, remember the roller coaster will eventually end safely at its destination.

We sincerely hope you got value from this newsletter. We appreciate your business and trust.

Dan and Eli

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Investment Newsletter for the End of July, 2019

Posted on August 13, 2019 by Daniel DollingerNovember 24, 2019

July was a very flat month. The Dow Jones is up approximately half a percent, which is insignificant. In today’s newsletter, we will discuss 2 things about the stock market. 1. Its value to you and 2. Its purpose to society.

The stock market is composed of companies that via the stock market you are able to buy into. When you buy Apple stock, you are buying equity in the Apple company, and your investment over the long run will track the growth of the company. In the short term, investing is volatile, but in the long term, a broad index like the S&P 500, is, at its essence, a reflection of the economy. When you invest in the S&P 500, you are betting on the continued growth of the United States’ economy. In our opinion, that is a good bet to make. If you disagree, do you believe the same about the economy of England, Canada, Mexico, etc. The stock market is a global marketplace. Investing in the stock market will enable you to keep earning money long after you retire, so any financial burdens you have in the future are reduced. As retirement involves a reduction of income, any reduction in your financial burden is essential. The stock market is one of the most effective wealth builders in the world. Over the last 35 years, the Dow Jones has grown at annualized rate of about 9%. Due to the power of compound interest, that’s huge. If you invested 50,000 dollars into the Dow Jones in 1985, you would have over 970,000 dollars right now. That is a level of return that vastly exceeds inflation and is statistically superior to other methods of investment. There is an incredible amount of wealth being created all over the world, the stock market is a way for you to share in that wealth.

The purpose of the stock market is to raise money. In order to grow, companies sometimes need more money than they are willing to obtain through borrowing or internal fundraising. They might need money to hire more people, to buy equipment, research and development, etc. The companies thus sell part of their equity to others in the Primary market and those buyers in turn if they need money can sell that equity to us on the Secondary market. Without the stock market, companies would be forced to grow much slower and there would likely be a lower quality product offering for us to purchase.

We sincerely hope you got value from this newsletter. We appreciate your business and trust.

Dan and Eli

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Investment Newsletter for the End of June, 2019

Posted on July 8, 2019 by Daniel DollingerNovember 24, 2019

While it has been a little volatile, the market has been really good this last month. The Dow went up by more than 7%. It didn’t seem so nice when we were living it at that moment, but that just proves that sometimes you can’t see the whole forest when you’re stuck in the trees. Sometimes you need to take a larger perspective and not get bogged down in the day to day dramas.

The main point of this newsletter will be cash. In particular, what it is and why it you should not keep too much of your assets in the form of it. Cash is a medium of exchange. It is simply a tool used to make the free market more efficient as cash is vastly superior to barter. What is important to know here is that cash has no inherent value. The value is only what you can buy with it. If you double your cash but everything becomes 4 times more expensive, then you are poorer even though you have more cash. That increase in cost of living is known as inflation and it’s critical to financial planning. When you keep cash in the bank and earn some piddly zero or almost zero rate of interest, you are losing buying power and potential quality of life. The reason is that the cost of everything you want to buy is likely going up at a higher rate than the interest you are earning. You need to keep enough cash on hand to cover your spending needs and a little extra to cover any unexpected emergency, beyond that amount, any extra cash is a mistake. It is an investment with a negative rate of return.

There are many ways to get a better rate of return than holding your wealth in cash. You can invest in the stock market, real estate, or if you are wealthy enough any of the myriad of investment options exclusive to wealthier individuals. You can also invest in bonds, which tend to not give you as nice of return as other investment options but they are still vastly superior to cash. For many people, the wealth they accumulate is the wealth they are going to live on in retirement. A 1% difference in annual return compounded for enough years could be the difference between comfort and destitution. Given the stakes, we feel it is essential to create the best financial plan possible. That financial plan likely has less cash in it than you are anticipating. We always are available to discuss these concepts further. It is your money and we will never do anything you are uncomfortable with. We want to give you the intellectual tools necessary to make the best decisions possible. It will always be your choice.

We sincerely hope you got value from this newsletter. Always at your service.

Dan and Eli

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Investment Newsletter for the End of May, 2019

Posted on June 17, 2019 by Daniel DollingerJune 17, 2019

May was a poor month for the markets. All indexes and your portfolios are down. The prior month April was very good. The market fluctuates a lot. It is hard to read much sense into it on a short-term basis.

So, why does it go up and down? There must be a reason. The talking heads on tv and the other commentators (we will call them the “experts”) declare a reason for every day’s movement. Some days they may have several reasons depending on the time of day. The reality is the declared reasons are bunk. No one really knows but the audience will not accept that answer.

We just had a bad month. Is the reason the China tariff fight, the Mexico proposed tariffs, general fear (Chicken Little: “The sky is falling”), computer trading by the big hedge funds, random noise, or some other factor? It is probably some combination of the above but we can never find out. So, we take our best guess.

We choose to follow a plan rather than have the talking heads tell us what to do. Our plan is based on percentage allocations based in turn on your risk profile. We do not like reacting to fear and greed. Incidentally, we are watching the decline closely and will likely be rebalancing (by buying more stock/stock funds) if the market declines more.

We have introduced large cap dividend stocks to many clients. About fifteen portfolios now include a collection of these companies. So far, clients have been very pleased with this inclusion. We have identified six or seven very large companies with long established dividends in the neighborhood of 5%. Shell Oil, Phillip Morris, IBM, Haines Brands, AT&T, etc. have been in business for many years without missing a dividend payment. Our typical pattern is to identify five or so of these stocks that you have no personal objection to (hello Phillip Morris) and allocate 2% to each. We then reduce the bond allocations some and the stock allocations some. These stocks are riskier than stock funds but a lot less risky than regular stocks. They also pay much better than bonds/bond funds. We include these stocks in the allocation plan. We buy and sell when they go out of allocation. Discipline always. No exceptions.

Please let us know if you are interested in knowing more concerning these stocks and how they could be useful to you

Dan and Eli

Investment Fee Schedule

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

A single rate is applied to the whole account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.

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Investment Newsletter for the end of April, 2019

Posted on May 14, 2019 by Daniel DollingerMay 14, 2019

It was a great month. All of you made a lot of money. It was also a great year to date. Many of the indexes are now at all time highs. Remembering back to how this last December looked, with its sharp decline, it would have been easy to panic but you did not. We have only one thing to say. Thank-you.

The topic of this newsletter will be how we (Dollinger Management) choose stocks. Dan has discussed with many of you the idea of allocating some of your portfolio towards dividend and/or value stocks. We think it would be valuable for us to explain how we pick the stocks we invest in. There are two main factors we consider, the quality of the company and the cost of the stock.

In regards to the first point, remember that a share of stock represents partial ownership of the company that issued that stock. If a company has 100 shares of stock and you own 1 of them, then you own 1% of the company. You own 1% of their cash, their debt, their equipment, etc.

While there is the occasional exception, for the most part to find a good stock you first need to find a good company. In order to determine if it’s a good company we look at factors such as whether the company is making money, is it producing a product that people want, has the company been around for a while, does it pay a consistent dividend, etc. Ultimately, we want a company that has made a lot of money for many years. Many companies could have 1 or 2 good years due to factors beyond their control such as a strong overall economy, but no company by luck can have strong consistent profits for 100 years. If a company thrived during the Great Depression, then the company is probably strong. We want at least ten years of consistent profits and great dividends.

The second factor we consider is the cost of the stock. By cost we don’t mean, whether the shares costs 1 dollar a share or 500 dollars a share. We mean, for every dollar we spend how much value do we get. We want a bargain price for what we receive. Remember that a stock represents ownership in the company. If you own 1% of the stock of a company, you own 1% of all that company’s stuff.

There are many ways to measure if the stock price is cheap compared to we are receiving. The price to earnings ratio is the most common metric we use when evaluating the cost of a stock. It is the most common metric because we believe that ultimately it is a company’s earnings that drives a company’s growth and thus is the good proxy for its intrinsic value. We also pay attention to price divided by book value, dividend yield, and the financial statements. We particularly in the financial statements look at debt load, where the cash is being spent, and general safety issues. Dan has personally prepared over 12,000 financial statements over the last 30 years. Reading one is not a problem.

As the market has reached a new high, we will be rebalancing in the near future. Thank-you again for your business and trust.

Dan and Eli

Investment Fee Schedule

Rate	Assets Under Management
1.44%	Below $125,000
1.00%	Between $125,000 and $750,000
.85%	Between $750,000 and $1,250,000
.80%	Between $1,250,000 and $1,750,000
.75%	Between $1,750,000 and $2,500,000
.70%	Between $2,500,000 and $3,250,000
.65%	Between $3,250,000 and $4,250,000
.60%	Above $4,250,000

A single rate is applied to the whole account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.

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Daniel Dollinger CPA, CFP®

Certified Public Accountant and Certified Financial Planner Professional