The annual Running of the Bulls was held in Pamplona last month, in a tradition that dates back to at least 300 years before the signing of the Buttonwood Agreement (the precursor to the New York Stock Exchange). Not to be outdone, Wednesday of last week saw a celebration of sorts for our own “running of the bulls” - the longest bull market in history for stocks, at 3,453 days and counting.
Bull markets are, somewhat ironically, defined more by what they aren’t than what they are. As long as stocks don’t drop more than 20% from a peak, the bull market keeps running. If they drop more than 20%, the bull market gets posthumously dated to the last peak and all of a sudden you’re in the middle of a bear market. Or they don’t get backdated and you have to wrap your head around having lived through a Schrodinger’s cat-esque market that was technically both bull and bear since the last market peak. Not to worry though! As of this writing the S&P 500 has surpassed the January 26th levels to reach a brand new all-time high, so this bull market still has legs. Probably.
What a World Cup! I hope you all enjoyed that month of magic and drama. Sometimes literally with the drama - did you see that Neymar spent 14 full minutes lying down? That’s ⅙ of an entire match. On his back.
As for the real drama, Croatia, a country with a total population less than our very own Atlanta metro area, nearly pulled off a crazy upset by winning the World Cup over the likes of heavily favored Brazil, Belgium, Germany, Argentina, and Spain. And they did it through two shootouts and an extra time win in the knockout rounds. In the end, however, it was like something out of a Hanson song, with France finally capturing the title that was just a Zinedine Zidane headbutt away 12 years ago. In fact, France only conceded 6 goals the entire World Cup. Croatia gave up 9, England 8, and Belgium 6. The importance of saving, indeed!
After the World Cup, Cristiano Ronaldo got transferred to Juventus for roughly £105M (or £500,000-ish per week) and, to bring it back to things that matter in American sports, LeBron James moved to the LA Lakers for $154M ($740,000-ish per week for a four-year contract).
These guys are all set for life now, right? Who needs four years, give us $740,000-ish per week for six weeks and we’ll be set.* Unfortunately, more often than not that’s not how it works out.
There was an article in the June Tybee Island Beachcomber that mentioned in passing the use of cats as currency on Tybee, and how it made everyone wealthy until inflation came along. This may or may not have actually happened here, but something similar definitely did happen with pepper in China, and tulips in what was then the Dutch Republic, and paper money in Weimar Germany, Zimbabwe, present-day Venezuela and others. So let’s let the proverbial (or possibly literal?) inflationary cat out of the bag and take a look at it.
We have carved out some time in between World Cup group stage matches this month to bring you part two in our Price is Right series - how to value stocks. Those of you wanting a refresher on the time value of money and bond valuation before we move on can find yourselves suitably refreshed here.
Facetiously, stocks are worth what someone is willing to pay for them. Unlike bonds, there is no intrinsic starting point for valuing stocks. With bonds, you get your money back at maturity (hopefully), so it’s fairly straightforward to use that as an anchoring point and work backwards to a reasonable valuation. Stocks, on the other hand, have neither a maturity date nor an expected future price, which makes them more or less impossible to actually value. Not really kidding about that. There are textbooks upon textbooks upon college courses upon certifications all trying to impart some standardization to stock valuations. If you want to make the big bucks on Wall Street, you go work for an investment bank and spend all your time trying to figure out how much companies are worth.
But saying “whatever, it’s all made up anyway” two paragraphs into a note isn’t particularly satisfying. So let’s take a look at common methods of valuation, and then we’ll see if we can learn anything about what those methods have to say about current stock market valuations.
Ever look at that dollar in your pocket and wonder, “What’s so special about this piece of paper?” Remember when that bill used to say “Silver Certificate” across the top instead of “Federal Reserve Note”? What about “Gold Certificate”? If you answered “yes” to that last one, a very happy 90th birthday to you, since those stopped being printed in 1933.
Well that’s the question for today: what’s the difference between sand dollars and dollar dollars, and why is one investable and not the other? The short answer is there aren’t enough sand dollars. The longer answer is...
Happy Memorial Day!
And welcome to the first official newsletter of ATI Wealth Partners! Don’t worry, it’s the same semi-sensical content you’re used to seeing, just in a different wrapper. Or really, the exact same wrapper, just with a different name. Which, coincidentally enough, is a brilliant segue into this week’s topic: the resurgence of active management.
If you’ve never spent a Sunday watching Antiques Roadshow on PBS, your life is missing something. Especially the British version of Antiques Roadshow. The gist of the show is that a bunch of appraisers travel around and set up shop in various small towns here and there, and then people bring all of the stuff that has been lying around their attic for the last 25 years to see if it’s worth anything.
It has even spawned its own hilarious meme. At its core, Antiques Roadshow works for two reasons: one, it’s a big play-along treasure hunt so that everybody can be a couch Ray Dalio (fun fact: not only does Ray Dalio run the world's largest hedge fund, his submarine just found a $17B shipwreck treasure); two, it answers the age-old question of “that’s worth how much?” that has also fueled such long-running classics as The Price is Right and House Hunters.
In this month’s note, we are going to try and answer the question of “that’s worth how much?” with regard to stocks and bonds, a long running soap opera that’s on from 9:30am to 4pm daily (weekdays, anyway. That aren’t federal holidays.)
We’re several months removed from the shock of February now, and it looks like volatility has settled back in for the long haul. Perhaps that has some of you out there wondering if you should have listened to the old investing adage “sell in May and go away”. Several years come to mind in recent memory where that feels like it would have been a sound philosophy; you would have missed the “taper tantrum” of 2015, the debt ceiling debacle of 2011, the other debt ceiling debacle of 2013, and the European debt crises of 2012-.....of pretty much every year.
But the statistics tell a different story.
Welcome to the second annual installment of our April tinfoil hat series, where we role-play Al Gore and attempt to shine the harsh light of inconvenient truth on the crumbling facade of government narrative.
Last year we looked at the “War on Cash” (update - anybody else catch Apple CEO Tim Cook saying “I’m hoping to be alive to see the elimination of money” earlier this year at their annual shareholder meeting?...). This year, we’re going to take a look at the “Silver Tsunami” (catchy, but blatantly stolen unfortunately - can’t take any credit for coining that one) headed our way. We originally wanted to also spend a little time mocking the charade that is government data releases, but that turned out to be too long and dry even for us. Maybe next year.
Silver Tsunami, or Lies That Pension Plan Tell and Why Your Taxes are Going Up
T-minus 1 month! To what, you may ask? Why, Tax Day of course! For the most part, we feel that “tax” is shorthand for “government theft” (sure, we agree with the principle of a certain level of taxation in order to fund certain iterations of social benefit programs, but without getting real deep down a policy and government bloat rabbit hole, let’s just agree that taxes are a pain and move on), and yet Tax Day fills us with a giddy sort of joy. Why, you may ask again? Freebies!
Great American Cookies is giving away a free birthday cake cookie. Schlotzsky's is apparently giving away a sandwich with the purchase of a drink and a bag of chips. And we have no idea what a HydroMassage from Planet Fitness is or if we would even want one, but evidently those will be free too.
In the “not free, but I see what you did there” department, Bruegger’s is selling a baker’s dozen bagels and two tubs of cream cheese for $10.40. Or $10.47, if you want to include the sales tax that will be applied. A little bit ironic, don’t you think?
Most people are thrilled to receive a tax refund in April. It feels kind of like free money, right? Consider the flip side of that coin for a second though - a tax refund really means that you loaned your money to the government last year at a zero percent interest rate. Actually zero, too, not the 0.01% “zero” that your checking account is getting you. If you owe taxes, on the other hand, you essentially got an interest-free loan from the government. Mmmhm. Morty’s Mind Blowers has nothing on us.
So. In honor of St. Patrick’s Day, let’s take a look at how to keep a little more green in your pockets and out of the clutches of the vampire squid of government.
Here’s a question you probably haven’t heard from financial media before: When shouldn’t I invest in a 401(k)? Conventional wisdom would tell you that’s absurd - everybody knows the best thing to do is invest as much as possible for as long as possible because “compound interest is the most powerful force in the universe” (Einstein). But this post is pulled from an article called “Rogue Waves”, so let’s look at that question from a different angle.
What a month! And we’re only halfway through it! Well, more than halfway I guess, February being a short month and all...let’s recap what we’ve seen so far:
- The market (Dow Jones Industrial Average) lost 1,033 points last Thursday (2/8). That would have been the largest single-day point total drop in history. Ever. Would have been, except that on Monday (2/5) of last week it dropped 1,175 points.
- Two 4%+ down days in a week led to the fastest correction (defined as a 10% decline from a new high) in 80 years (outside of an outright market crash). It took all of 9 days for the market to drop over 10%. That’s pass out from the g-forces fast.
- And after ending on that note last Friday, this week the market responds by having its best week in nearly a decade.
Everyone has heard of bulls and bears in relation to the stock market we’re sure, but have you heard of the cat? It’s a dead cat, to be precise. And probably the third most-alluded to animal in stock market commentary. If only we had a research assistant who could fact-check these claims…
What makes markets go up and down? Nobody really knows. It’s largely a psychological phenomenon that just happens, but that doesn’t sound particularly convincing if you’re on TV, so they come up with things like “it’s the robo algorithms” or “investors are worried about the increasing costs of doing business” - both of which are literal quotes I heard last month after the market’s worst-ever (at the time of writing) one-day point loss. Both explanations sound decently plausible, except that they’re not.
Happy 2018!! (Blows noisemaker.). POP! What’s that? The sound of the market bubble popping? The crypto bubble popping? (Confetti rains down). Ahh. Just the confetti popper thing. (Sigh of relief).
The first newsletter of this new year is brought to you by the letter “A”. As in “Active Management”, inspired by a real-life conversation with a JP Morgan salesperson last month.
We take an inordinate amount of pride - nay, a fiendish diabolical pleasure - in playing little games that one-up the financial system. For example:
A few years back (8 years ago, to be precise), Bank of America had this thing going - any debit card purchase would get rounded up to the nearest dollar, with the difference being transferred over to your checking account. Apparently they wanted to try and help people save really tiny amounts of money? So say your morning coffee costs $2.85. You would see $3 come out of your checking account and $0.15 get transferred over to your savings account.
As an added incentive, Bank of America offered to match your savings “round ups” for the first six months, up to something like $500: free money!
So. Yours truly was in business school at the time, and taking the T everywhere, which cost…$2.00 a ride back then if memory serves? Anyway, the point is, instead of loading even-dollar amounts on the Charlie Card, I would load the minimum amount possible, to get the biggest savings round up and therefore the biggest match from BofA.
(For those curious, five cents is the minimum amount you can load on a Charlie Card at any one time, and you can only do four add-value transactions in a 1-hour window...so yes, multiple times a day I would trek to the T station and load five cents on to my card four times. By the time I had enough loaded for an actual T ride, I had gotten a free $38 from Bank of America. And yes, of course I got the full $500 from them before the 6 months was up.)
A little bit obsessive? Undoubtedly. Slightly absurd? Perhaps. But nothing quells that giddy little flame of joy that springs up at the thought of taking advantage of the system.
And now, fast forward to the present and the end of the calendar year presents another opportunity for us to quasi take advantage of the system on your behalf: tax loss harvesting.
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