Worst Investing Mistakes
Delaying the Start of Investing
The US stock market has been a money making machine for more than a century. Although some investors hit home runs with lucky stock choices the majority of investors make money a bit at a time over many years. Like putting money in the bank to gain interest, putting money in the stock market provides returns over the years. The difference is that stocks rise and fall on their way up and provide a better rate of return over the years than money in the bank. The exponential growth provided by stocks provides a higher rate of return and more rewards the longer you stay invested. Thus, delaying the start of investing is generally a mistake.Investing Money You Will Need Right Away
Investing is meant to build a rainy day fund, money for retirement, or capital for investing in your own business. It is not meant to be invested and immediately taken out. In fact, it is absolutely possible to invest in an excellent stock and see it fall briefly because of conditions in the larger market. When you start investing, make sure to keep enough cash in the bank to cover expenses for three to six months so that you are not forced to sell a temporarily depressed stock at a loss due to a short term emergency.Investing without Clear Goals
Why are you investing? What do you expect from your investments and how soon? How much risk are you willing to take while investing? Investors need to be able to answer these questions before they start putting money into the stock market either for individual stocks or into an ETF. Your investment choices will generally flow quite normally from your goals and without goals you will commonly not be successful to the same degree.Following Bad Social Media Investment Tips
Tips can lead you to great stock investments or totally lead you astray when investing. As we have repeatedly written over the years, investors need to check out any tips before committing any money. Successful investors never put money into a stock until they understand how the company makes money and how that income stream will continue over the years. If your investments are going to be short term, you need to learn how to track market sentiment with market sentiment data. And, for longer term investing you need to understand and use tools like the CAPE ratio.
Chasing Market Trends
Chasing market trends can be worse than following tips. Stocks and the general market go up and down. New investors commonly jump in toward the end of a bull market, paying too much for overpriced stocks. The market falls and they wait until it is ready to bottom out before selling, thus losing most of their investment capital. Then, they stay away from the market until they are enticed in again by a bull market. Choose good stocks based on sound analysis and use dollar cost averaging to avoid chasing market trends.Watching the Markets Constantly
Successful investors keep track of their investments. But, they do not constantly obsess over the market or individual stocks. Excellent stocks like Apple, Microsoft, and Amazon.com have gone up very nicely over the last decade and more. But, they have all fallen in price both with the larger economy and from simply day to day, week to week, and month to month fluctuations. If you worried about every time Microsoft lost a percent or so and sold your stock you would have lost out on an eight-fold increase in value not to mention routine dividend payments over the last ten years.Not Investing with a Long Enough Investment Horizon
Someone once asked Warren Buffett what was his favorite holding period for a stock and he answered, “forever.” Successful investors like Buffet only invest when they understand how a company makes money and ideally how the company will continue to execute a successful business plan for the next decades or even century. Well-chosen stocks will perform well over the years but may have months or even a year or two when they are down. So long as you understand their fundamentals, you can generally trust them as long term investments and stick with them. Unsuccessful investors all too often dump good stocks because their time horizon is faulty.Covid Persistence and Your Investments
As vaccines are administered to more and more people, the rates of Covid-19 have fallen across the USA, Canada, the UK, and continental Europe. China is slow with its vaccinations but strict control measures have helped considerably in the nation where Covid-19 started. However, new Covid-19 variants are causing spikes in cases in nations like India, South Africa, and much of South Asia and Africa as well as South America. Economic growth is expected to go as high as 6.8% in the USA and even higher in China. However, this optimism is largely based on the expectation of Covid-19 being controlled and going away. Covid-19 recovery on a global scale and even within largely-immunized nations may not come as fast as we had hoped. Thus our concern has to do with Covid persistence and your investments.
Herd Immunity Threshold and Your Investments
Vaccines do two things. They protect the person who is vaccinated from getting a disease or from getting a severe case of it. And, when enough people are vaccinated or have already had the disease, this halts the spread of contagious diseases. Thus, childhood vaccinations for measles, mumps, and chickenpox have been given for years to provide personal protection and have driven down the rates of these “childhood diseases” to the vanishing point, except in areas where vaccine hesitancy has caused parents to not get their kids vaccinated.
With Covid-19, you get protection from the virus which is important for older people and others who are at greater risk and who are more likely to get very sick, be hospitalized, or die. For the sake of the public, the economy, and your investments the hope is to get to herd immunity. The “enough people” percentage for Covid-19 has been pegged at 70% of the population based on the initial spread of the virus. However, the new delta variant is more contagious. As a reference point, the Mayo Clinic notes that the herd immunity threshold for measles (a very contagious disease) is 94%!
You get variants arising from a disease like Covid-19 when lots of people remain susceptible to the disease. As such, vaccine hesitancy in the USA, Canada, the UK, and continental Europe may be setting up for more and more aggressive strains of Covid where the herd immunity threshold may rise to 80%, 90%, or higher!
Thus, one needs to be concerned about how vaccine hesitancy affects your investments.
Economic Growth as Covid is Controlled
The numbers look good for a post-Covid recovery providing that there is not a huge resurgence. The World Bank predicts a strong but uneven recovery based on steady increases in vaccinations and making vaccines available across the nations of the world. The USA is expected to grow at 6.8% this year and China at 8.5%. However, global growth is likely to be 3.2% lower than predicted prior to the pandemic with many nations having shrinking economies. The longer term concern is that many nations have run out of cash and are running out of credit which has led to widespread demonstrations and even violence in countries like Colombia and South Africa. Skills sets have been diminished as workers have been sidelined and students have been unable to go to school. Never-the-less, things will improve everywhere, including with your investments, providing that vaccinations proceed and herd immunity is reached.
Economic Slowdown as Covid Persists
The fly in the ointment regarding any rosy predictions of strong economic recovery is the rise of new Covid-19 strains like the delta variant. Infectious disease experts have estimated that the herd immunity for the delta strain is likely closer to 85% than 70%. Thus, as more and more people refuse vaccination in the USA, UK, and continental Europe, we risk persistence of Covid-19 or even the worst case scenario of a repeat of last year if new strains are resistant to natural immunity from the initial strain and from vaccines. If that happens, all bets on a strong recovery will be off.
Where to Invest as Covid-19 Persists
Pretty much everyone’s economic and investment projections have assumed that eventually Covid-19 will either burn itself out by having infected virtually everyone or that enough vaccine will have been put in enough arms to reach herd immunity. If this goal is not achieved or Covid-19 gets worse again, where do you invest? All of the investments in high tech that allowed businesses to continue during the lockdowns will probably do well and continue to grow. Hospitality, travel, and other sectors that were driven down during the height of the pandemic will likely be hurt. Biden’s infrastructure-related investments will likely prosper. And, companies that make Covid-19 vaccines and will make both boosters and “re-tooled” vaccines for new variants will turn into long-term investment opportunities as the world copes with Covid-19 for years to come.
Predictors of Stock Performance
When you invest in the American stock market, you are looking to make a profit, build up savings for retirement, avoid loss, and grow your wealth. Whether you are investing in individual stocks or an ETF that tracks the market, two values are important. What can you buy a stock for today and what will it be worth at a future date. Since the current stock or ETF price is readily available, what you need are predictors of stock performance going into the medium to distant future.
How Do You Predict if a Stock Will Go Up?
In regard to stock price performance, the first thing we have is past price action. Stocks and the market follow trends. So, trend following can work, at least for a while, in predicting that a stock will keep going up or keep going down. Unfortunately, stocks correct and crash when they have gone too high either due to internal factors in the company or problems in the overall economy. And, when stocks start to fall they usually don’t fall forever. Many successful long term investors pick up bargains by purchasing stocks at the bottom of a trough. How can they do this?
Intrinsic Stock Value Is One of Best Predictors of Stock Performance
While market sentiment data can be an excellent guide to short term price changes, accurate prediction of longer term stock prices comes from accurate predictions of future earnings. Intrinsic stock value is a predictor of the forward looking earnings of a company. It was first suggested in the days after the 1929 stock market crash and beginning days of the Great Depression. Benjamin Graham suggested this approach as an alternative to “playing the market.” Most famously, his protégé, Warren Buffet has used this approach for decades on the way to becoming one the richest people in the world.
Formula for Calculating Intrinsic Stock Value
Here is the formula that Graham provided in 1962.
- V = EPS x (8.5 + 2g)
- V is the intrinsic stock value
- EPS is the trailing 12 months earnings per share
- 8.5 was the P/E ratio at the time for a “zero-growth” stock
- g is the company’s long term rate of growth
The solution to the formula, (V), is compared to the current market price of a stock. When V is less than one, the stock is overpriced and when (V) is more than one, it is underpriced. Nobody suggests that an investor blindly apply this formula but rather learn what a company does to earn money and how that plan will continue to work into the future. Then, using intrinsic value as a guide, long term investors can get out of overpriced stocks in the last days of a bull market and pick up bargains as a bear market bottoms out. The key to this approach is to be able to pick companies able to make money for decades instead of just for months or years.
P/E Ratio versus CAPE Ratio as Predictors of Stock Performance
A similar approach for assessing the value of a stock is to look at the price to earnings ratio (P/E ratio) when compared to other stocks in its market niche. The CAPE ratio is a variation of this approach what seeks to average out the P/E ratio over a decade. CAPE is an acronym for cyclically-adjusted P/E ratio and it acts like a long term moving average indicator by averaging out fluctuations in the P/E ratio over a decade.
Value Investing for Long Term Investment Success
The US stock market is a long-term money-making machine. However, to reliably profit one needs to stay invested for five to ten years after picking sound investments with tools like the P/E ratio, CAPE ratio, or intrinsic value calculation. The conclusion of successful long term investors like Buffett is that it is too difficult for the average investor to time the market with individual stocks and that buying shares of an ETF that tracks the S&P 500 is a better idea. Using a dollar cost averaging approach the investor avoids buying too much at high prices and buys for shares at low prices thus mimicking the intrinsic value approach.
Chairman Mao and Investing in China
We recently wrote about the political dangers of investment in China from the perspective of especially large tech companies that are being forced to follow the Chinese Communist Party line or be subjected to humiliation and worse. But not only could investments in China run afoul of the powers on high but also from discontented youth across the length and breadth of China. The New York Times writes about the words of Mao Zedong who asked “Who Are Our Enemies?” Chairman Mao is seeing a resurgence of popularity among the disaffected youth of China.
Long Hours and Low Pay for Chinese Workers
The picture that many in the West see regarding China is of shining new construction in huge cities, increasingly powerful businesses, and more and more aggressive foreign policy under the current leader, Mr. Xi. But, a closer look reveals tired and angry youth who hate their long hours at work (9am to 9pm), low pay and lack of affordable housing. These young people have taken to reading and quoting the first Communist leader of China, Chairman Mao. We suggest that investors pay attention to what is going on as Chairman Mao and investing in China are going to be related.
Angry Chinese Youth Question What They Are Getting from the Government
As noted in The Times, Mao’s call for violence and struggle is ringing true for disheartened young Chinese workers. The focus of this resurgence is not the chaos visited in China by its first Communist leader when millions died due to poor decision making and attempts to maintain power. Rather, it is that Mao’s works help justify the anger that these people feel about their situations as “struggling nobodies.” Workers view the prosperous business class in China much as 19th and early 20th century workers viewed rich capitalists in Europe and North America with similar calls for violence if things do not change.
The Consent of the Governed
Political philosophy says that governments are only legitimate and justified in using the power of the state if they govern by the consent of the people. This happens in democracies by free elections. When it happens in authoritarian countries like Communist China it is because the government is giving people much of what they want even though the people have no say in who runs the country or how. In China the Communist Party has kept people happy by creating a system in which there has been lots of employment and the ability to create wealth in their system of “managed capitalism.” The Party claimed credit for all success and tells the people they should be grateful. That sounds increasingly hollow to those working the traditional 9 am to 9 pm six day a week job in China with no prospect of moving out of such a trap.
As economic growth slows the ability of the Party to bribe its citizens with “things” is less than it used to be. With no labor protections, housing the young people cannot afford, and draconian work schedules the current Chairman, Mr. Xi, is turning to nationalism and tighter controls with finger pointing at tech companies which is the first political danger of investment in China that we wrote about.
But, as Mao found out, riling up the people and trying to use them as a weapon against your enemies can backfire or at least have unexpected consequences. The one that the Party fears the most is a general uprising against a non-elected government.
Chairman Mao and Investment in China
It would not take an all-out civil war to create havoc in China’s economy and cause damage of investments in China. The rise of a true “people’s movement” is what the Party fears and while they were able to take over Hong Kong and eradicate remaining liberties by portraying youth there as traitors to the mainland, the same approach will not work within mainland China. Back in the late 19th century in Europe and North America workers became so angry that there were bombings of government offices and assassinations. Move forward to China of today and you have just one more reason to follow the ABC (anywhere but China) approach to your investing.
Chairman Mao and Investing in China – Slideshare Version
Political Dangers of Investment in China
When you read this title you may think that we are going to revisit how the USA plans to go about decoupling of investment in China. While that is still a reality, there are more political dangers of investment in China and they come from the Chinese government run by Mr. Xi and the Chinese Communist Party. Chinese leadership has set the country on a course that they believe will result in Chinese dominance of the world’s economy, military hegemony, and absolute control of what goes on inside of China. Ever since the ascent of Mr. Xi as the leader of China’s government, many business leaders in China have avoided mixing business and politics but to little avail. The fallout for you is that political actions in China will affect your investments there.
China Crackdown on Businesses
For decades businesses and their owners in China have become rich. They have had a protected economy to grow in, access to offshore markets everywhere, low-interest loans largely sponsored by the government, and tons of foreign investment. Chinese companies have been able to negotiate deals in which they receive vital technical information and trade secrets in return to access to Chinese markets. And, the government generally let these folks grow without a lot of interference. That is no longer the case.
Didi New York IPO
The New York Times business section recently reported on this issue noting that staying out of politics is no longer an option for the business elite in China.
The ride-hailing giant Didi came under fire after its blockbuster initial public offering in New York. Chinese regulators ordered the company to stop signing up new users. They said Didi should also be pulled from Chinese app stores because of national security concerns and to protect the data of Chinese users.
At the same time they savaged the president of the company, Jean Liu, as well as her father, Liu Chuanzhi who founded Lenovo and is a revered figure in the Chinese business community as the first Chinese company to take over a major foreign business, IBM’s PC manufacturing arm. When Xi came to power in 2013 the father famously told other business owners in China that they should stick to business and stay out of politics. Despite his best efforts, he and his daughter and their companies have been dragged into the efforts of the Chinese Communist Party under Xi to fight the influence of the West, starting with the USA.
Chinese Tech Crackdown
The travails of the Liu family are only another chapter in the Chinese tech crackdown as China tries to build walls around its internal data, markets, and businesses. An attempted IPO by Ant Group run by tech billionaire and other Chinese business hero, Jack Ma, was shut down earlier this year. Basically, China does not want any of its businesses listed in the USA. They don’t want any sharing of data unless all of the storage and analysis happens inside of China.
On Tuesday, China punctuated the change by announcing that it would enhance rules on data security and cross-border data flows for Chinese companies seeking to sell shares abroad. The changes were designed to ensure that companies listed abroad take their responsibilities in information security seriously.
Add this to US efforts to curb US investment in and support for Chinese enterprises and you start getting the picture of political dangers of investments in China.
Investing Anywhere But China
ABC, anywhere but China, has been in the works for investors for some time now. But, China has built up its infrastructure with the help of Western technology and funding to the point where many of the other Asian options like Vietnam or Indonesia do not work for major projects. The Biden administration apparently recognizes this and is addressing related issues as part of its proposed investments in infrastructure. For American retail investors, this may be the best place to look to avoid the political dangers of investments in China.
Political Dangers of Investment in China – Slideshare Version
Political Dangers of Investment in China – DOC
Political Dangers of Investment in China – PDF
Fake Stocks on Blockchains
The technology behind bitcoin and other cryptocurrencies is called blockchain. While bitcoin still struggles to be considered mainstream in the investing world, many financial institutions have adopted blockchain technology. One place where it has been discussed is in the world of stocks. While Wall Street ponders the questions related to how this would work, others in the blockchain world are creating synthetic copies of real world stocks like Apple and Tesla according to Bloomberg. This is the world of centralized finance, AKA DeFi. The “stocks” in question track the value of the real thing much like an ETF would.
Fake Apple Stock and More
The Synthetix and Mirror Protocol projects have created synthetic copies of not only Apple but Amazon.com, Testa and other blue chip stocks as well as exchange traded funds. All of this has happened in the last year or so. While these “stocks” are valued in the blockchain system to follow the real thing, no one buys or sells the real stocks. And, these “assets” are not subject to any of the regulation that investors expect of the stocks. Terraform Labs in South Korea created the Mirror Protocol and is perfectly happy being out ahead of regulators. The question is if investors should be happy with fake stocks on blockchains where regulation may never be possible.
What Are Fake Stocks on Blockchains Worth?
Synthetic assets traded on blockchains would ideally be worth a cryptocurrency equivalent of the real thing. Of course, cryptocurrencies vary widely in value and the only way that these tokens can track real world values is via arbitrage within the blockchain system. One wonders if some “investors” may be willing to pay a premium for the sort of anonymity they believe they are getting by using a blockchain product. In this case, they should read our article, How Secure Is Bitcoin? Currently a “stock” like Apple in this system trades within a few dollars of the price of the real thing once you do the exchange rate calculations.
Are There Advantages to Buying Fake Stocks on Blockchains?
The advantages touted by those running these systems are that you can trade twenty-four hours a day, every day of the week, and yearlong from anywhere. There are no capital controls and ownership is (so far as the system is able to make it so) anonymous. There do not appear to by any fees and commissions related to sales or purchases which makes you wonder how the system can function. According to the head of Terraform Labs, they charge no fees but profits from liquidity of its own cryptocurrency which benefits from growth of the Mirror Project and related schemes.
Where Do Fake Stocks on Blockchains Trade?
The markets where Mirror Project “stocks” trade are automated ones like Terraswap and Uniswap. These systems allow direct purchase of the tokens related to the individual stocks. This is a different way to work in the blockchain system than used by the likes of Coinbase or Binance which are centralized crypto exchanges. The estimated current value of Apple “stocks” in this system is about $34 million compared to the 2.3 trillion market cap of Apple.
How Long Can Fake Stocks on Blockchains Remain Unregulated?
To the extent that these systems remain tiny in relation to the like of NASDAQ or the New York Stock exchange one would not expect to see a lot of concern. However, folks like the SEC are tasked with protecting investors are likely to become concerned as such systems grow and fail to follow any of rules meant to create orderly, efficient, and fair markets. Also, systems that are found to be ignoring know your client norms and turning a blind eye to money laundering are likely to get in trouble and bring their system and its tokens down with them!
Fake Stocks on Blockchains – Slideshare Version
Best Value Stocks for 2021
Value stocks are leading the charge as the economy emerges from recession caused by the Covid-19 pandemic. What are the best value stocks for 2021? To make the best picks in this category you need to know what constitutes a value stock and how value stocks differ from growth stocks. Growth stocks often sell for higher prices than their current fundamentals would seem to support because investors want to position themselves for long term growth and profits. Value stocks are often companies that generate steady profits over the years but don’t excite growth-conscious investors.
What Is a Value Stock?
The basic definition of a value stock is one that is trading at a price which is lower than careful analysis of its performance would suggest. Value stock investors typically use intrinsic stock value as a guide. By understanding a company’s potential for forward-looking cash flow and profits an investor is able to anticipate the quarterly and annual sales, earnings, and dividends that drive stock prices. This nuts and bolts approach to stock picking was first defined by Benjamin Graham in the years immediately following the 1929 stock market crash. In theory and practice this approach takes the guesswork out of investing in stocks and helps investors avoid falling prey to the twin demons, fear and greed, that all-so-often destroy investment portfolios.
An example of a value stock would be McCormack, the company that has been making spices for more than a century and a quarter. By comparison, Tesla which relies on expectations of a shift to electric vehicles is a growth stock.
How to Invest in Value Stocks
Here you have two choices. The first is to investigate individual stocks and the other is to invest in ETFs that are loaded with value stocks. Three prime examples of such ETFs are the following:
- Vanguard Value Index Fund ETF
- Russell 1000 Value ETF
- iShares S&P 500 Value ETF
The most common way to screen for value stocks is to use the PE ratio. The profit to earnings ratio gives you the stock price divided by the most recently reported earnings per share. Many investors use the CAPE ratio instead of the PE ratio as it averages out the PE ratio over the preceding ten years and thus is a better indicator for long term investing. You can use a stock screener to find an initial list to work from. Then the task is to understand just what a company does to make money and how it will continue to make money over the long term. Warren Buffett famously said that he tends to avoid high tech companies because it is too hard to predict who will be the leader in a field five years hence. He became a huge investor in Apple when he looked at it not as a tech stock but as a company with a strong fan base.
Best Value Stocks for 2021
In our recent article about investments in the k-shaped recovery we noted that companies like Caterpillar, Johnson & Johnson, JP Morgan, Chevron, and Boeing are expected to do well in 2021. These are all blue chip value stocks. An article in the business section of The New York Times notes that in 2021 the high tech growth names that led in 2020 are out and metal mining companies and oil drillers are in as the current hot stocks are old fashioned favorites. Not only can you see individual growth stocks doing well but a comparison of the Russell 1000 value and growth indexes shows the same picture. As such, an easier approach to picking the best value stocks for 2021 might just be to pick on the three growth-focused ETFs that we mentioned.</p
Best Value Stocks for 2021 – Slideshare Version
Best Value Stocks for 2021 – DOC
Best Value Stocks for 2021 – PDF
Lasting Economic Effects of the Pandemic
As the USA emerges from the depths of the Covid-19 pandemic, investors can expect a boost to the economy in the range of 6% GDP growth for a year. The economic boom may last longer if infrastructure spending at any reasonable level comes to pass. Meanwhile, inflation has become a concern as well as increased capital gains taxes. Something that needs to be taken into consideration as well is the lasting economic effects of the pandemic. This does not have to do with recovery of the lower arm of the “K” of the k-shaped recovery but rather structural changes in cities, change in how we work, and how the workforce may have changed.
Cities Worst Hit by the Pandemic
The New York Times business section looked at lasting economic toll of the pandemic on New York City as well as other major population centers. They published a table of percentage of job losses for the twenty largest cities in the USA with New York City, San Francisco, Philadelphia, and Los Angeles leading the pack with job loss rates from 11.8% to 9%. Of the largest twenty cities Austin, Dallas, San Antonio, and Jacksonville are the least worst hit with job loss rates ranging from 2.4% to 1.5%.
Part of the issue is that the pandemic taught us that working from home is not only OK but an efficient way to do business. Then the fallout from people not commuting to work is that restaurants and other service sectors suffer. Small businesses have closed and their closing has a domino effect on other businesses. The Times notes that some New York neighborhoods look like Sunday afternoon on weekdays. There will be lasting economic effects of the pandemic in cities like New York, San Francisco, Los Angeles, and Philadelphia, and San Francisco and these effects will ripple out across the economy changing businesses, profits, and stock values.
A flip side of this is the lowering of rents in major metropolitan centers like New York and San Francisco. That in itself could lead to economic changes and investment opportunities.
Investing in a Home-based Supply Chain
One of the side effects of the pandemic has been the realization that outsourcing everything that America needs to foreign countries is not necessarily a good thing. Businesses flocked to China and other offshore locations to produce at low cost and then import back into North America and Europe. It was a wakeup call when we could not get protective gear like masks during the pandemic. It is a real pain now when auto production has fallen because there are not enough computer chips made in America.
We expect that the push for US-based infrastructure will not only fix roads, bridges, and airports but will also move towards rebuilding a US-based supply chain. That should be an investment focus for anyone looking to benefit from the post-pandemic recovery. The realization that giving so much production to China has endangered the USA has also come out of the pandemic and is likely to define US foreign policy and economic policy for years to come. Again, investors should factor this into their thinking.
Lasting Economic Effects of the Pandemic – DOC
Lasting Economic Effects of the Pandemic – PDF
Lasting Economic Effects of the Pandemic – Slideshare Version
Your Investments and the K-shaped Recovery
It became clear in early 2020 that the economic recovery from the Covid-10 recession was going to follow two very different paths. High tech companies continued to make money or even make more money as work and personal life went online due to corona virus restrictions. Tech services and retailers like Amazon that deliver did extremely well. On the other hand, travel, hospitality, entertainment, and food services languished and even went out of business. Now that vaccinations have driven down Covid-19 case rates, hospitalizations, and deaths there is hope for a return to normal life. With this in mind we are looking at your investments and the K-shaped recovery.
Your Investments and Money Waiting to Be Spent
Although the pandemic has wreaked havoc on many, not everyone has lost money. In fact, many are richer now than before the virus hit. The fact is that there is a huge amount of pent up demand for goods and services. As restrictions are loosened folks will start eating out again, flying, taking cruises, enjoying entertainment venues, staying at hotels, and the like. Thus many of the companies in the lower arm of the “k” will start making lots of money and their stock prices will rise.
Infrastructure Spending and Your Investments
The amount of Biden infrastructure money is still in question as Congress haggles over the details. But when you combine even minimal projected infrastructure spending with projected spending on the “lower arm of the k” sector a six percent increase in GDP is expected. Companies providing construction-related materials from rock to cement to steel should do well as well as selected high tech that will be favored as Congress moves to counter Chinese competition in critical tech infrastructure areas.
Economic Growth, Higher Prices, and Your Investments
The market is concerned about inflation and rising interest rates. Low rates have been part of the continued boom in the stock market over the last decade. We can expect those same stocks that have done the best due to lower rates to be affected negatively by a bump up in rates by the Fed as well as their backing off of quantitative easing. Zombie companies that have only survived because they could borrow and near-zero rates will simply go out of business. A lot of the high tech sector will likely see a correction or crash before resuming their upward climb.
Where to Invest as the Lower Arm of the K Recovers
As the economy reopens many investments will do better but some will do better than others. Part of this is because stocks in the lower arm of the K have so much room to improve! US News offers a few suggestions for investments as the economy reopens.
- Caterpillar
- Johnson & Johnson
- Ecolab
- Chevron Corp.
- JPMorgan Chase & Co.
- Boeing
- MasterCard
All of these companies will be able to profit from one or more aspects of a reopening economy. To this list we would add stocks like Marriot, any of the cruise lines, one of the stronger airline stocks, and a restaurant chain or two.
Your Investments and the K-shaped Recovery – DOC
Your Investments and the K-shaped Recovery – PDF
Your Investments and the K-shaped Recovery – Slideshare Version
How Secure Is Bitcoin?
When bitcoin was invented the idea was to create a means of exchange and store of value that was anonymous, decentralized, and secure outside of normal financial systems and free from governmental oversight. These features attracted lots of people including folks who don’t like the government breathing down their necks, folks who would just as soon not pay taxes, and those who wished to hide transactions and profits from illegally gained money. The rap against bitcoin and other cryptocurrencies has always been two-fold. Don’t forget your password or you lose your bitcoins and remember that bitcoin has no intrinsic value to fall back on when market sentiment turns negative. Now there is another concern. How secure is bitcoin when the FBI can track transactions to recover ill-gotten gains? Who can track yours?
Colonial Pipeline Ransomware Attack
Colonial Pipeline operates the largest petroleum pipeline in the USA serving half of the East Coast of the USA. Much of their operation is automated or at least controlled via computerized connections. The company was hit with a ransomware attack by DarkSide, a criminal hacker collective physically located in Russia. Colonial paid millions of dollars in bitcoins to DarkSide in order to regain control of their operations, 75 bitcoins when the cryptocurrency was at a recent peak. The Justice Department recently announced that they recovered 63 of the bitcoins which are now valued lower as bitcoin has fallen again. The question that cryptocurrency enthusiasts need to consider is how secure is bitcoin?
Recovery of Bitcoins from Ransomware Attack
The tech subsection of The New York Times science section provides a bit of insight into how bitcoins are traceable and raises the question, how secure is bitcoin for anyone.
The F.B.I.’s recovery of Bitcoins paid in the Colonial Pipeline ransomware attack showed cryptocurrencies are not as hard to track as it might seem.
The same properties that make cryptocurrencies attractive to cybercriminals – the ability to transfer money instantaneously without a bank’s permission – can be leveraged by law enforcement to track and seize criminals’ funds at the speed of the internet.
The key to tracking and seizing illegally gotten bitcoins is the blockchain. While it may be difficult to find bitcoins that are stored in a computer database, every step on the blockchain that supports the cryptocurrency system is recorded and traceable in the permanent bitcoin ledger. Thus the feature of bitcoin that guarantees your ownership and allows transfer outside of the normal financial system is also what opens it up to investigation.
How Secure Is Bitcoin: Don’t Forget Your Password
We have all heard about folks who were lucky enough to buy a few thousand bitcoin when one was worth a dollar or two and were so unlucky as to have misplaced their password. These folks are potentially out $50 million or so. Compare this situation to forgetting your Chase, Wells Fargo, or Bank of America pin number or even your small local bank going under. Federal Deposit Insurance covers every single account up to $100,000 and all you need to do about forgotten info is go to the bank, show your ID and re-establish your pin or whatever you forgot. The anonymity that goes with bitcoin and other cryptocurrencies precludes any of this.
How Secure Is Bitcoin: Taxes on Bitcoin Profits
Because so many believed that their bitcoin assets would never be available to the IRS, they never bothered to keep track of their purchases using bitcoin or sales in which they experienced impressive capital gains. Today taxation of cryptocurrency profits is real. Woe be it if you cashed out when bitcoin was at a peak, lost the money during the pandemic, and now don’t have enough to pay when the IRS sends you a letter. But, we knew about this before. What is not apparent was the ability to track transactions.
How Secure Is Bitcoin?
So, you are not a cybercriminal, drug lord hiding profits, or terrorist using cryptocurrencies to finance your operations. You intend to pay taxes if and when you sell a few bitcoin for dollars in retirement. And, once you can figure out the rules, you will pay taxes related to any bitcoin transactions. What does all this mean for you? Our assumption is that the Justice Department and other law enforcement agencies can spend lots of money tracking down illegally-gotten bitcoins. They don’t need to make a profit from their work. But, if the Feds can do this so can a hacker group. And, once the computer geeks get going they will learn to do the job faster and easier. So, today it may only be profitable to go after bitcoin assets in the range of $10 million (a guess) but tomorrow it may be practical to spend $40,000 to go after $400,000. If so, the ten bitcoin that you thought were safe will be up for grabs. And, remember that if the Justice Department can track bitcoin transactions, so can the IRS.
If this is going to be a risk in the bitcoin world what can you do? Our first thought is to avoid putting all of your bitcoin “eggs” in one basket. Make separate purchases and transfer to separate bitcoin accounts. Only work with bitcoin exchanges that hold the bulk of their assets in air-gapped “cold storage” and insure those that online in “hot storage.” And, remember that you only have a profit when you take a profit so after a big run up in bitcoin prices, take a little profit, pay your taxes, and put some money into US Treasuries, CDs, or an ETF that tracks the S&P 500.
How Secure Is Bitcoin – Slideshare Version
