Thriving with Interest!

Pop up the the stock charts of  AMZN, FB, GOOG, and SNAP  and see what they all have in common. What do you notice? All are trading at or near all time highs. They have all reported solid results, led by ad growth and consumer spending driven by traffic through their sites/apps. Now check out the TWTR graph. After Friday's 15% decline it is now off by 1/3 since reaching 52 week highs earlier this year. What has gone wrong? Here is a partial list, in no particular order: part time CEO giving TWTR his part time focus (and yes, I am a buyer of SQ here); less than expected earnings and very conservative guidance - it's not an exaggeration to say that the removal of a certain political leader whose initials are DJT probably had a significant impact here; being stuck between a rock and a hard place. FB and TWTR are the undisputed leaders of the "you're an idiot" type discussions, but TWTR sits at a distant second place. LinkedIn and other sites are much more cordial exc...

  ... dollar cost averaging. Timing is everything. Yet as any seasoned investor can tell you, it is one of the hardest things to do. In order to get a sense of how important it is to not miss the market's best days, check out this stat: In the past 20 years, if you had not been invested in the markets for the 20 best days (that's basically equivalent to missing one day a year!) then your portfolio would have returned almost 0%! This is in a time when the markets averaged close to an 8% return per annum. Sounds crazy, but those are the numbers. What is the solution? You guessed it, dollar cost averaging! What is it? All it means is that you should simply look to invest in the market on a regular basis, at predetermined intervals, regardless of market rises or falls. That would enable you to buy more when markets are retracing and hence providing you with better entry points. This happens automatically for those of us investing in 401k (or 403b) and IRA plans. Not so frequently f...

Interest rates in the US have been hovering near record lows for the last few months after the rate cuts of 2020 brought on by the Covid pandemic. This, coupled with record highs in the stock market and a boom in the wealth of top income earners, has fueled a huge rise in housing prices. Lowering the Fed Funds rate is not the only arrow in the government's quiver, they have increasingly been using Quantitative Easing (QE) and this has also helped to add dollars into the economy and spur economic growth. Many of my students have asked what QE is, and I thought that this could be a good time to write a quick primer. Here goes... 1.  When did it all start? QE has been a relatively tool by central banks, with the Bank of Japan in the early 2000s after what has now been called the lost decade (of the 1990s). Since then it has been used in the US after the 2008 financial crisis and other parts of the world. 2. What is it? Instead of using interest rates as the means to provide (or reduce...

Making stock market predictions is always fraught with danger. The best strategies tend to be buy and hold (and buy on dips). That being said, on balance I am of the belief that the next few months will be a difficult one for the US stock market and one's energy would be best served focused elsewhere. This is a moderately high conviction idea. Why? Valuations are rather rich. Now of course, valuations in an of themselves is never a reason to buy or sell a stock/market, but should service as a decent jumping off point. Why chase stocks that have run up by a factor of 2, ,3 4, or more at this point when they are already trading at very rich multiples? The Nasdaq just touched a new record high yesterday, more than doubling from its March 2020 lows. The way stocks are reacting to earnings doesn't fill me with a lot of confidence that good news will be enough to push them higher in the near term (here's looking at you TSLA and MSFT); Recent listings have not performed very well....

It's that time of year, graduation season. University students about to complete their bachelors or masters degrees and set off into the workforce. Some high school students will obviously be following in similar steps as well, if tertiary education is not in their immediate plans. And let's not count out the countless undergraduate and graduate students who have yet to complete their degrees but will be participating in summer internship programs (here's looking at you, Eva!). As an old grizzled vet, who has worked for corporations large and small, if there was one piece of advice that I wish I had had at an early age it would be this: find a mentor at work and lean on them as much as possible (without being too overbearing). Looking back on my career, I can say that I have had 4 amazing mentors and they have made all of the difference. The first three (I'm thinking of Mike, Lena and Vishal) were in my career in finance, which can often feel akin to swimming in shark i...

As someone who has had permanent residency in 5 countries (and in the process of trying to obtain number 6), I've had a little bit of experience with immigration. It's not always been a pleasant experience, and came with a decent degree of paperwork, time, effort and expenses. The US obviously has been a land of immigrants from day 1 and has had its ups and downs with how it has handled this issue. Trump made it a huge component of his 2016 election platform and now Biden is just the latest of our leaders to deal with the border crisis.  Here are some random thoughts on things that should be considered when making an effective immigration policy (I don't have all the answers, but think that these are key considerations): which category migrants are allowed into a country is by its very nature quite arbitrary, but some rules need to be laid explicitly out; how tough to be with those that are attempting to enter the country illegally; a cap on yearly entry into a country in o...

SPACs (Special Purpose Acquisition Companies) had a wonderful 2020, both in terms of money raised (over $80 billion) and stock performance (DKNG being probably the poster child). The first 3 months of this year saw record issuance with close to 300 deals raising more than in all of 2020! Then came April...  Only 10 new issues so far this month, with the average SPAC is down 20% or so. Some high profile ones have plunged 50% or more in a few short months (check out CLOV stock YtD stock price). That being said, I think it might be a tad bit premature to call an end to this mechanism of taking a company public. However unlike in 2020, where you could purchase almost any SPAC and stand a very good chance of making money, investors will have to be much more picky in deciding which ones to play. I do have one that I think is poised to do well, but that will come at the end of this piece. Are SPACs likely here to stay? Here are a few of the benefits of a SPAC as compared to a traditional ...

For the past 13 months we have been working from home. Over the past few weeks my school has dabbled with in person teaching and that has brought on its own set of challenges as well. But one constant throughout this whole ordeal has been the fact that I have had a core group of work friends who have helped bring some levity when things got rough and some perspective when things seemed to be spiraling out of control. Within my math department it's nice to have colleagues who are always there to help out and pick each other up when things seemed dazed and confused, first on the transition from in person teaching to remote and now on the re-entry to in person teaching albeit in a hybrid form. Adapting lessons and assignments from the "old school" paper format to the much more eco-friendly and XXIst century electronic format took some major teamwork. Figuring out the best way to utilize zoom and all of the bells and whistles that it offers also was a team effort. I am so gra...

Behavioral economics has a term called "loss aversion." This refers to the human predisposition to focus more on the negative consequences of losses rather than on the positive aspects of gains. I have been known to be quite a negative person in my time, even winning the "angriest white man in HK" award in the early 2000s (well this wasn't a real award, but the brokerage community crowned me with that title informally). Obviously in finance, we often look to the risk-reward and are conditioned to think of the worst case scenario. Warren Buffett and many other notable investors say that the number one rule of investing is limiting the downside/losses. On the flip side, I am a teacher and one of the first principles when providing student feedback is to focus on the wins and the good things that students have accomplished. Of course feedback is a crucial aspect to the learning process, but the language used to do so needs to be carefully crafted in order for it to...

I am often asked about my thoughts on Bitcoin and obviously the topic has taken a bigger role in my finance class over the past 5 years. Here is a little primer with the top 7 questions about Bitcoin and crypto in general. It is by no means everything you need to know, but trust it could be a great place to start your journey down one of the most innovative aspects of finance since the 1970s. Without further ado: What is crypto: a currency or an asset?  In 2021 it would be more appropriate to label is as an asset. This is because at the moment the biggest use case for most crypto currencies (especially Bitcoin) is their role as a store of value/asset rather than a means of payment. Stay tuned as this could change over time... What are the properties of Bitcoin that could help it replace gold/silver as an asset? The fact that is is fungible, divisible, and consistent are probably the most important attributes which will allow owners of Bitcoin and other crypto to use it as a store o...

As I was sitting here in my office today, I overheard a colleague spend 45 minutes with a student reviewing the financial pros and cons of attending a college that would cost her $50,000+ a year versus staying local at one costing in the mid single digits. This has echoed many similar conversations to nes I have had with students in the halls of my upper school. Late April might not be the best time to be exploring those options and calculations with a 1 May acceptance deadline quickly approaching. It struck me that this Financial Literacy and topics such as this one should be taught at the middle school and high school level, not so much as an elective as it is at my fine institution, but rather as a mandated class. Often times parents might be very adept at their day jobs, but not quite as equipped to assist their loved ones with crucial financial decisions such as this one.  It is not unheard of to have recent college graduates leave the leafy halls of their hallowed institution...

The last 24-48 hours of international/European football have been some of the most exciting since... (take your pick from some of the great World Cup, Champion's League or some other international competition). I am fascinated by the talk that this is a bad idea, that it shouldn't happen and that people won't support their clubs anymore. I am wondering why? The clubs that are looking to set up this league are the dominant ones in their respective countries. O ver the last 20 years only 1 club   from England, Italy and Spain has managed to win a title other than those clubs joining the Super League  (and actually for Italy it wasn't even a club but simply a vacated title in the 2004/5 season) . Of the other major soccer leagues in Europe, France and Germany have not opted to join yet. Interestingly those two countries have had a bit more variety at the top in the last 2 decades (although in the last 10 years those countries have been dominated by PSG in France and Bayern...

I just read an article in Business Insider about a McDonalds franchisor in the Tampa, FL area paying people $50 just to sit for an interview. (This story also resonated with me because the owner of these franchises actually employs the mother of my two children - not at a McDonalds mind you, but at another one of his business ventures, his excellent store and the pride of Tampa: Oxford Exchange). This got me thinking, how strange. Also how it seems clear that this is evidence that we are on for this roaring 20s theory that so many people are touting. For those of you that may have missed it, in the 1920s the American economy boomed fueled by a post WW1 industrial surge, laissez faire policy by the government, increased tariffs to protect US businesses and of course, the fuel that is often added to fire, easy credit. We all know how it ended, but it sure was a nice decade! As we ease out of the pandemic this Spring/Summer, and inspired by this pay to interview story, here are a couple o...

  It might seem like forever ago, but cast your mind back to January. What was the number 1 investment related story? Three, two, one... OK, time's up. Gamestop.  Remember how thenGME stock price went from the teens to above $400 in the space of a few weeks. It almost took out a couple titans of Wall Street along with it. What was the key takeaway at the time? The little guy getting one up on the professional investors. The key question was: Is this a one off or has the balance of power shifted with technology very well making this phenomenon increasingly possible.  Like most stories, this one eventually died down ( GME in February  went up 6x, rallying from $40 to above $260  with little fanfare ) and we moved on. The story of the week is the Coinbase direct listing (I wrote a couple of posts on this earlier). Although it's clear that it was largely a successful listing, with COIN settling at $342 by the close of Friday, it certainly wasn't a grand slam success...

  Today Jeff Bezos and Amazon released their annual letter to shareholders. This comes hot on the heals of the recent vote in Alabama by Amazon workers to NOT form a union and on the back of a 41% annual rise in AMZN stock price which helped vault Bezos' wealth to the stratosphere (despite a relatively expensive divorce last year). I thought today might be a good time to talk about unions.  As I was looking to become a teacher, I had to make a decision whether to go into the public or independent school systems. I'm not going to hide here, one of the key deciding factors was that I had no interest in being par of a union. Hence my tilt towards independent schools and a most excellent decision to join Milken Community School.  Union membership has dropped by 1/2 over the past 40 years to just around 10.5% of the US workforce. Events of the last few months most likely will not have helped to change that trend.   Rather than try to convince anyone about the merits ...

  As LA County inches towards full reopening in a couple of months, and case rates have plummeted to their lowest level in almost a year, most schools in the county have reopened their doors to resume in person teaching. That may seem like positive news all around, and it generally is. HOWEVER... Hybrid mode just isn't the way to go. Simple as that. Let's just resume full classroom instruction. Similar to our US Tax code which offers too many loopholes to count, and then creates massive incentives to find ways for high earners to pay lower tax rates than those making a fraction of their income, the hybrid model does the same with students being able to remain at home rather than come back to school in person. This uncertainty, and lack of straightforward rules, may actually result in a worse outcome than remaining in a full remote situation, similar to that we were in since the beginning of this school year. Teachers have to get used to a new mode of teaching, after honing thei...

  As Coinbase prepares to list on Wednesday, 14 April, and the global crypto market cap surpasses $2trillion this week, I can't help but wonder why the investment banks took such a negative view on this opportunity for so long. This has recently changed of course (which is not surprising as the Wall Street firms are known to hop on a bandwagon trade along with the best momentum traders). But for a long time we heard about Bitcoin being a "fraud" from a prominent banking CEO and similar negative comments (or silence - in the best of cases). Most banks in the peer group failed to set up crypto trading desks, nor did they provide serious research, custodial services, or assist the technology whiz kids who generally have minimal financial skills on how to navigate the space. Why?  The best I can surmise is that there are 3 key reasons for their slow uptake: The crypto space really took off in the wake of the financial crisis and therefore the investment banks were too paralyz...

It's been a great 12 months for the stock market in general and new IPOs in particular (a special mention should be made to SPACs and their explosion over the past year as well). This week we will witness the latest superstar to hit the public markets, Coinbase (code COIN). It's no secret that I have been an admirer of the company, the platform and the management team and I am certain that the stock will do very well. It should be noted that the company has chosen to forego the IPO route and decide on a direct listing instead. This is a technicality that is more appropriate for another blog post (and one which I described to my finance students a couple of weeks back) but in summary it means that it will let the market decide upon it's initial valuation rather than rely on a cabal of investment banks to price it. All indicators point to it surpassing a $100 billion valuation shortly after listing. This would be quite a success and if so Coinbase would instantly be worth mor...

As we prepare to resume a much more normal lifestyle in the weeks/months to come, now might be a good time to reflect on what we might have learned from this experience. It strikes me that one lesson in particular seems to be easily transferrable to the investment classes I teach young scholars each year....  Before revealing the lesson, lets compare two states approaches to dealing with the pandemic over the past 12 months. They happen to be two states that I know well, that get a lot of media coverage, and that that have followed vastly different approaches to dealing with the Covid-19, namely Florida and California. Let's look at one metric, deaths per capita, although similar conclusions can be drawn should we use others as well. Despite relatively loose restrictions in Florida, it's performance has been relatively average at 158 deaths per 100,000, just slightly above California's 152 per 100,000 and both are lower than the US average of 170 per 100,000. Florida opened...

  This morning I read an article about a young woman who was accepted to a half a dozen Ivy League universities as well as to Stanford University. Well done her. However when I see that the 2021 acceptance rate at UCLA is going to have a 10% or less, and many of the public universities are going to admit a quarter or less of their applicants, it cannot be controversial to say that "something needs to change."  I am the product of a selective university system, having attended 2 elite university and going through a competitive application process. However in the couple of decades since I applied, acceptance rates have plummeted from 25-50% range to the 5-15% range today without a decrease in the quality of applicant pool. I would argue that most students today are much more qualified than those in my day, yet more and more qualified students are being denied slots at selective universities and this need not be the case. Here are my top 3 ideas to reform the system, alongside a...

  In response to the mind provoking article: https://1729.com/how-to-start-a-new-country/ here are my top 3 questions to consider: 1.  Article 1 of the Montevideo Convention on the Rights and Duties of States, has the following guidelines ( four qualifications)  for what constitutes a country: a permanent population; a defined territory; government; and the capacity to enter relations with other states.  Therefore the first question is, how strictly does our new country want to adhere to these four? We know that it is not all countries are universally accepted, with the examples of Israel jumping to mind. But it would certainly help our cause if our network state did fulfill these criteria for its longer term stability. 2. Should it be started from scratch, or can it be an outgrowth of an existing social network. As the article mentions, there are already many successful sites such as FB, Twitter and others who have millions of users. Unfortunately most of those...