Investment Newsletter for the End of October, 2020

The stock market in October is down. The Dow is down about 1,280 points or 4.6%. The decline is scary, but in the long run it is ultimately meaningless. Stick to plan and the market will eventually recover. The topic of this newsletter will be informational. We talk on multiple occasions about the stock market. However, we don’t talk as much about what the stock market is. We are going to talk about the purpose of the stock market and little about how it works.

The purpose of the stock market is to raise money. At some point in the corporate lifecycle, many companies need to raise money for the purpose of expansion. There are many ways to raise money; one of those ways is the stock market. The company sells some of itself to the public which is plain English for sells equity in the public equity markets. The original owner(s) exchanging some of their equity for money is not a decision taken lightly as becoming a publicly held company is a highly regulated activity with a lot of expensive reporting requirements. Usually a company (if possible) will raise money with debt or private investors. Obtaining public investors is usually required however (with some exceptions) if the company wants to become very large, as the stock market is a very effective form of fundraising.

Every aspect of Wall Street revolves around the process of raising money for companies. The industry is split into the sell side and the buy side. The sell side would include the people who package the equity into something that can be sold, rating agencies that evaluate those packages and assign them a rating, the people who sell that equity to people on the buy side, etc. The buy side would be the various corporate entities that purchase that equity offered for sale. They will purchase on the primary market. They will either hold that equity or sell it on the secondary market. The secondary market is the sandbox that you and I get to play in. It is where retail investors can purchase that equity. After that equity is bought it can either be held or sold within the secondary market. Every link in that chain has be strong and functional in order for the stock market to optimally accomplish its fundraising responsibilities.

If you have any questions about this topic or any other, 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 my 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, 2020

The stock market is moderately lower this month. The Dow is down about 648 dollars or 2.3%. The Dow is up 1969 points or 7.95% for the quarter. While we have not made up all the ground lost as a result of COVID-19, the market is making very good progress towards that goal.

The topic of this newsletter will be skepticism towards financial media. As a result of COVID-19, the stock market this year has been extremely volatile. That volatility begets an opportunity for financial media, which has produced a countless amount of analysis, predictions, and recommendations. We caution you to take all those things with a grain of salt. The reason is that they do have a conflict of interest. While they do want to inform you about what is going on, they also want to sell their product. One of the objectives of a magazine is selling issues of that magazine. We are not suggesting that the media is lying; we are saying they will express the truth in the most exciting way possible in order to make more money. That way of expressing the truth may mislead you about what is going on.

An example of what we are talking about is the stock market returns in September. Someone can honestly say that the stock market declined more in September than in any other month since March. Hearing that you immediately freak out and think how you need to read more. You would think that the stock market is doing badly. However, as we stated in the first paragraph, the Dow in only down 2.3% for September, and the quarter is up 7.95%. The monthly result is completely meaningless. The slightly sour September result is a tiny blip on the overall upward trajectory of the stock market. As a result of COVID-19, the stock market collapsed in March. Since then the DOW has been roaring. It has gone up 49.4%. The first story, while 100% true, may have given you the wrong idea about what is going on.

The savvy investor needs to take a long-term view of the market. There will always be noise in the short-term, that fluctuation smooths out in the long-term. The Dow is down about 2.97% for the year. The Dow has gone up 24% over the last 3 years. We assert that the short-term results are meaningless.

If you have any questions about this topic or any other, 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 my 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, 2020

The stock market is much higher in August. The Dow is up about 2,000 points or 7.5%. The rising stock market means that investors are optimistic about the future state of the economy. Your portfolios all did well.

The topic of this newsletter will be real estate. In particular we will talk about misconceptions and how we place it into a portfolio. Several common misconceptions that we encounter regarding real estate is that real estate is less risky than the stock market.

Real estate is not less risky than the stock market. Both stocks and real estate can lose value. Real estate can lose value to changes in its surroundings, the general economy, physical destruction of the property, etc. The values of stock and real estate fluctuate just as much as each other. The only difference is that with privately held real estate, it is harder to find exact price quotes. Publicly held real estate such as a REIT can fluctuate less than an average stock but that is due to its high dividend paying legal requirements. A high dividend paying stock is extremely comparable in terms of fluctuation. Privately held real estate has an addition as it extremely high cost per unit means that it is difficult for an average person to diversify their holdings. In contrast a share of stock is usually cheaper.

We treat real estate like any other asset class such as stocks and bonds. It goes up and down, but at different times than other asset classes do. The roller coasters do not all go up and down at the same time, which means that combining multiple asset classes within a portfolio will lower the risk of that portfolio. Obviously, there are times that everything will go at once due to a massive event affecting everything such as the tower getting hit on 9/11. The vast majority of the time, diversification across asset classes will lead to lower risk. As real estate has gone up tremendously over the last decade, you might want to have all your money invested in real estate. We do not believe that to be a good idea. We know that real estate values have gone up in the past, but that does not indicate that they will go up in the future. Every asset class falls eventually. When that happens eventually for real estate, diversification will keep your capital preserved.

If you have any questions about our opinions on real estate or how we fit it into a portfolio, 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 my 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, 2020

The stock market is moderately higher this month. The Dow is up about 650 dollars or 2.5%. Other indexes are up different amounts, some more and some less. More on this topic in a moment as we go over a few definitions.

A stock is an ownership stake in a company. If a company was split into 100 shares of stock and you bought 1 share, then you own 1% of the company. The value of that share on the stock market is based on how much investors think that company will be worth in the future.

Investors essentially take all the money that they think the company will make in the future and discount that value to the present (time value of money). If the value they calculate is larger than the current cost of the stock then then they will bid the price of the stock up by buying it. If the value they calculate is smaller than the current cost of the stock then then they will drive the price of the stock down by selling it.

The price is NOT based on the current economy. The economy right now sucks. The market is doing quite nicely. The reason is that the price is a prediction of next year’s profits.

The stock market is the aggregate of all stocks. Since there are many thousands of stocks in the US markets and many thousands more in foreign markets, what do we look at to see a summary of what is going on? The market is summarized into indexes. The Dow is one example. There are many others. Each measures a different aspect of the market. S&P 500 (Standard Poor), Russell 2000, etc. are additional examples. Since they measure different things, none is better than another. On your reports every quarter, we list several.

Generally, when people talk about the stock market being up or down a particular number of points, they are referring to the Dow Jones Industrial Average. The index is composed of 30 large cap stocks. Large cap means its market capitalization is in excess of 10 billion dollars. As a result of the 30 companies chosen being so large, people often use the index as a short hand representation of the overall US stock market. That idea is problematic owing to multiple factors such as how the index is weighted and calculated, and the comparatively small number of stocks examined (30 stocks) relative to the number of stocks out there (about 5000 stocks). It is, however, quick and easy to look at.

If you have any questions about these definitions or any others that you encounter, 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 my 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, 2020

The market continued its recovery this month. The Dow had its best quarter in many years.

The topic of this newsletter will be definitions of several words and concepts that you are likely to hear in relation to the investment industry.

Market capitalization refers to the market value of the company. It is simply the price of one share of stock multiplied by the number of shares that exist. People used the terms small cap, mid cap, and large cap (cap is short for capitalization) to refer to different size categories of market capitalization. A common idea is that small cap companies (between $300 million and $2 billion) will over time yield greater return than mid cap (between $2 billion and $10 billion) and large cap (over $10 billion) companies.

Value stocks and growth stocks refer to how expensive the stock is relative to some measure of value. Usually the measure of value used is earnings or book value (assets-liabilities). A high Price/Earnings or high Price/Book ratio means that the buyer is paying a higher price for the underlying worth of the stock. While the exact cutoffs are very subjective the basic idea is that a high ratio is referred to as a growth stock and a low ratio is referred to as a value stock.

Return on Equity is how much income is earned per unit of equity. Equity is the same thing as book value. Return on Equity (ROE) is often looked towards as a measure of company efficiency. How effectively did the company utilize its financial resources to create a profit? If everything else is equal, investors will prefer a company with high ROE over a company with low ROE.

Capital gain/losses are the result of taking the proceeds from the sale and subtracting off the purchase price. Capital gains are taxed differently whether they are short term (the asset was owned for less than a year) or long term (the asset was owned longer than a year). Long term capital gains are taxed much lower than short term. As a result, we firmly recommend that unless you have very compelling reason to sell early, you should keep your capital gains long term.

If you have any questions about these definitions or any others that you encounter, 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 my 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 May, 2020

The market recovered by over 1,100 points in May. While the Dow is still 4,000 points off the peak, we have gained back about 7,000 points from the low in March. Almost all of you made money this month and that recovery leads us to the topic of this newsletter.

The topic of this newsletter will be contrarianism. In short, it refers to the idea that the crowd that makes up stock market investors are often irrational. They are foolish when the news is dramatic and then overreact to news which drives stock prices too low or too high. Eventually, the stock prices will snap back to a normal level. The normal level is very subjective but can be approximated via valuation metrics, GDP growth, inflation, etc. Pop quiz, if the market plunges 50%, is that a time to buy to sell? We assert that it is a time to buy.

If you’re invested in a well-diversified domestic collection of stocks, then you are in essence invested in the US economy. Unless you think that COVID is going to permanently lower the US economy, eventually the US economy and the stock market will recover to its previous peak and exceed it. If you are concerned that COVID will permanently lower the economy, you shouldn’t be, we have recovered from many disasters in the past and this situation shouldn’t be any different. As we said in a previous newsletter, some industries will die, some industries will adapt, and some new industries will be created in the new world we are entering. Overall, we will be fine.

When the market started to plunge in February, our contrarianism made us think that eventually stock prices would snap back to normal. Of course, we did not know how long it would take to snap back. As long-term investors, we are willing to wait for our profits. Instead of seeing the plunge as a reason to panic, we saw it as an opportunity to grab a bargain. We rebalanced client portfolios during the plunge. We bought more mutual funds and stocks. Also, for their own portfolios, both Daniel and Eli invested heavily during this time. In the long run, we assert that the plunge is temporary, and the recovery supports our assertion. It is also very nice that this recovery is happening so quickly.

If you have any questions for us, 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 my 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 April, 2020

The market for the month of April is up about 2,400 points. That gain is about 11%. It is the best one month gain for the market in many years. While the gain is very welcome due to its partial restoration of our account balances, it may appear to some people to not make sense considering the current economic times.

The topic of today’s newsletter will be the stock market. Why does it go up and down? Why did it go up when the economy is currently declining? In short, the reason is that the stock market is a prediction of the state of the economy in the future. The stock market price is not about the current economy. It is about expectations of the future economy. In a month/year/decade etc. what will the economy be like then? If people think the future will be bright, then they will buy more stock now (so they can profit from that future) and that buying will drive the price up. If people think the future will be dire, then people will sell more stock (to avoid being hurt by a market crash) and that selling will drive the price down. The people who bought stock in the last month believe that the pandemic will be over reasonably soon and when it does the economy will roar back. Those people think they would thus make a lot of money from buying at a bargain low price and selling in the future at a high price.

People’s memories tend to be very short. They place more mental weight on recent experiences than older experiences. Current bad news is more important than past good news and current good news is more important than past bad news. It is that overreaction to current news events that causes wild swings in market prices and provides some people the opportunity to profit if they have the ability to go against the crowd. Some of the biggest fortunes in history have been made by buying in times of crisis, when everyone is running screaming to the door. We have both made purchases during this crisis of stocks that we believe have been excessively beaten down by COVID 19 and will recover strongly when the economy does. We know that the stock market will recover, but it might recover sooner than the economy does.

If you have any questions for us, 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 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 March 2020

The market continued being sick with the coronavirus this month. The market continued its sharp downturn. Essentially, people are afraid that the economy will collapse. In some respects, stock prices are a forecast of what people believe the economy will look like.

Obviously, we are now entering a recession. Unemployment is incredibly high because of all the mandatory business closings. Daniel does accounting for several large restaurants, dentists, etc., all of whom have closed and laid off all their employees. As well as manufacturing businesses who laid off part of their workforce because of lack of business. That’s about 250 employees. The real question, however, is how long?

Over the last three days, Daniel has received over 20 phone calls and emails about the federal stimulus programs for businesses just signed last week. Every one of the closed businesses we just mentioned asked Daniel for advice. They ALL were planning on reopening as soon as they were allowed and wanted some federal assistance. All but one or two had strong qualifications and will probably be approved for the various SBA programs. We sent them to their bankers to complete the applications. Some of the money will be available in a few days, the big money in four to six weeks. The government will be loaning the money to cover payroll, rent, utilities, and some other things. The loan would then be forgiven if the money was used for those things.

So, is this stimulus going to juice the economy? Is it enough? There really is no way to know. But our feeling is yes, it is enough to fix the economy. It, of course, depends on how long the mandatory close orders last. Many of the mandatory closed industries have been hearing 30 days from their professional associations. In some parts of the country (such as Oregon), new cases are dropping. Other parts of the country are still out of control. The news is saying the peak will be in the next two weeks. After these businesses reopen, it will take time before everything is normal business amounts, maybe months. As people return to work, the fears of a collapsing future economy will recede.

We have been criticized in good times for our heavy bond allocation on portfolios, that we are too conservative. But, as you can see, risk is real and painful. Our portfolios did not lose as much as the market during the downturn.

The market will recover.

Thank-You,

Daniel 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 February 2020

February has not been a good month on the stock market. The Dow is down over 2800 points. The reason is fear regarding the Coronavirus. Therefore, the Coronavirus will be the topic of this newsletter. While we have already talked about this topic in a previous newsletter, we feel it is pertinent to discuss it further.

Due to the various quarantines, a lot of people are unable to go to work or go outside. Due to a general aura of fear, people are scared to go out and shop. All of these things are terrible for the word’s economy. However, it is temporary. Can you honestly tell us that you think this disease will be the end of the world? The world has dealt with massive disease outbreaks before. Coronavirus is a category of virus. The current Coronavirus that the world is facing is named COVID-19. The world has already dealt with another type of Coronavirus. In November 2002, the world faced a Coronavirus named SARS. By 2004, the problem had been dealt with and there were no more cases of SARS. The world did not end. Since the first SARS infection the DOW has nearly tripled. We don’t see any reason to believe that this Coronavirus outbreak will affect the world any differently than the last one did.

While it’s scary, it’s important to have the discipline to stay invested. Despite the volatility and the price drops, over the long run, the stock market is one of the most potent way to create personal wealth that exists. If you have the discipline to invest every month into the stock market (despite the volatility), then due to compound interest, when you retire you will likely have a sizable nest egg built up. Sure, there’s risk that the markets will be depressed when you need the money, but everything in life that’s rewarding entails risk. Obviously, you have to judge your needs and risk tolerance but we believe that is worth the risk. In our personal portfolios, we have invested more during these tumultuous times.

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


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.

E-Book Download

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Investment Newsletter for the End of January 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.

E-Book Download

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