April 2015 – The Stocky Fox

To Roth or not to Roth

April 29, 2015May 6, 2019 Stocky 5 Comments

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As you enter the world of investing, one of the first decisions you need to make it whether to open a Traditional IRA or a Roth IRA. Of course, I’m taking for granted that you’re using an IRA to save money, because we know that being smart with taxes is one of the most important things you can do. As you read this, remember that I’m not a tax expert, but here is how I look at this issue.

These IRA cousins are both tax advantaged, but they go about it in different ways. With a Traditional IRA, you are allowed deduct your contribution from your taxes that year; however you pay taxes on the money when you withdraw it in retirement. Conversely, with a Roth IRA you contribute with after-tax dollars but then when you withdraw the money in retirement it’s tax free.

So basically with Traditional and Roth IRAs, you’re making a choice between paying taxes now or later. If you lived in a world where your tax rate didn’t change over time, there would be no financial implications in the choice between the two IRA types. The math would work out the exact same. However, we don’t live in that world. We live in a world where your tax rate goes up the more money you make. In this world, we want to pay taxes when our tax rate is at its lowest. So where does that leave us?

I did some quick estimates of what someone’s marginal tax rate would be in a high tax state (California—where the Foxes live) and a low tax state like Florida. I did this at three different income levels: $50,000 (when you’re just starting out), $100,000 (after you’ve been working for a while), and $20,000 (when you’re in retirement—remember you’ll spend more than that but only $20k will be taxed as income).

MARGINAL TAX RATES	High-tax state	Low-tax state
$50,000 (early working career)	33%	25%
$100,000 (later working career)	37%	28%
$20,000 (retirement)	17%	15%

Wow!!! Look at that. We all knew that we would have the highest tax rate when our income peaked. But did we really expect that we’d be paying double the tax rate when we were starting out compared to when we were retired? That’s a huge difference.

Now, remember that the major difference between a Traditional IRA and a Roth is when you pay your taxes. For a Traditional IRA, you’re getting a deduction while you’re working so that $5000 you contribute in your early years gives you a $1667 tax deduction ($5000 x 33% tax rate), and a $1850 deduction ($5000 x 37% tax rate) in your middle years. Of course you’ll have to pay taxes on that money when you retire, which would be about $850 ($5000 x 17%). Compare that to a Roth IRA where you’re paying taxes on that $5000 during your early years ($1667) and your middle years ($1850) in order to avoid paying taxes in retirement ($850).

In a world where we want to maximize our portfolio by minimizing our taxes (legally, of course), the answer seems clear—GO WITH A TRADITIONAL IRA. The back of the envelop math says that going with a Traditional IRA will save you about $1000 per year that you contribute. Remember that $1000 per year over a working career of 40 years, adds up to about $150,000. Those are pretty high stakes for what seems like a pretty innocuous choice.

So why do so many people instead go with a Roth IRA? Why did Stocky Fox himself open up a Roth IRA instead of a Traditional IRA?

Don’t understand rules: A major culprit is that many investors don’t understand the tax rules all that well. Because of that they don’t have a strong opinion on which type of IRA to pick so they go with the one that others tell them is better (which leads to the next reason).
Roth IRAs are marketed better: For some reason it seems that Roth IRAs are marketed better than Traditional IRAs. I don’t know if it’s because “Roth” sounds like an actual name and that draws investors, or what. But my experience tells me that the average investor would pick a Roth just because that “feels right”.
Uncertain tax future: As my loyal readers Mike and Rich have pointed out in the past, the future tax rates are uncertain. Today we know that a current tax rates make a Traditional IRA a better option, but what if those tax rates change in the future? It could definitely impact the decision, but who really knows what will happen? If I could predict the future I would own my own Caribbean island next to Johnny Depp.
Get the pain done with: As a kid I used to eat cupcakes upside down; start with the cake and finish with the best part, the frosting. Some use my cupcake strategy to get the “hard part” over and done with. They choose a Roth IRA because they get the taxes out of the way and then it’s smooth sailing. This is following your heart instead of your head which may not make sense financially but we all do it.
Bad advice: You’ve heard me rail about investment advisers who maybe aren’t all that good. A lot of people might take advice on which IRA to choose from someone who really hasn’t done the analysis, so they say “yeah, go with the Roth. Just as good as any.”

I’m sure there are many more reasons but that’s my list. At the end of the day I think Traditional IRAs are the best choice for most people just because with them, when you do finally pay taxes in retirement you’re probably paying at a lower rate than any time during your working career. And that choice can be of the six-digit variety. Yikes!!!

Of course, you there are special circumstances where maybe a Roth IRA works better. Maybe you’re a kid with really low income (less than $10,000 like from a summer job), but those are probably more the exception.

Let me know what you think in the comments section.

Should you use an investment adviser?

April 27, 2015August 18, 2015 Stocky 1 Comment

I started writing this blog because I wanted to share my own experiences with investing, including how to navigate the complex world of investing on your own. I am a firm believer in DIY financial management. That is what worked for me, and I believe all people can get really great results doing it on their own. That said, many readers ask about using a broker or investment adviser or financial planner. Here’s my take.

Quick disclosure: I am an investment adviser. I passed my Series 65 and work with a small number of friends, helping them with their finances.

Are financial professionals worth it?

As with any purchase you make, you need to evaluate a investment adviser on the basis of how much she costs, and how much value you get in return. On the surface I would say “no, it probably isn’t worth it,” however there are definitely some factors which may reverse that decision.

First, let’s look at how much investment advisers cost. The rates range widely. Plus there isn’t a lot of transparency in the marketplace so it’s not always easy to know what the going rate is. My experience says that 1-2% is typical. This can come in many forms—typically brokers get paid fees from the mutual funds they suggest for you or from the transaction costs for trades. Advisers tend to charge a percentage of your portfolio. We know that 1% coupons are really valuable, so those fees are a lot. Over an investing career they can add up to hundreds of thousands of dollars. That’s a pretty big deal.

Of course, if you’re getting a lot of value from your investment adviser, maybe it’s worth it. One of the main missions of this blog is to show you how you can invest successfully on your own, and I think most people can do that without having to hire a professional. Sure you have to make decisions on asset allocation, which accounts to use, what investments to make; but those aren’t really all that complex. Also, thanks to the efficient market lessons from A Random Walk Down Wall Street we know that you’re as good a stock picker as anyone.

So my general feeling is that investment professionals aren’t worth the money; a motivated investor can do just as well on their own and pocket the fees. Wait, what??? You said “motivated”. As it turns out, a lot of people, despite their best intentions, aren’t able to put their financial plan in motion. If you’re one of those people, and if an investment adviser can help motivate you to do the right things, then I do think they are more than worth it.

In this way, investment advisers are a lot like personal trainers. Most of us know that exercise is good for us, and most of us know how to run on the treadmill and lift weights properly (or you can find out by watching a 3-minute video on Youtube). But if a trainer can motivate you to actually hit the treadmill and the weights, they’re definitely worth the money, right? How much is your physical health worth to you? Same thing with finances. If you know what you should be doing, but for one of a million reasons you never end up actually doing it, maybe you should get an investment adviser to help you out.

Nearly every post I’ve done shows that there is a ton of value out there if you invest properly, taking into account things like time horizon, taxes, etc. But if you don’t do anything, you’re losing ALL that value. If an investment adviser helps you in ways you won’t or can’t, then you’ll probably end up ahead of the game, even after you take his fees into account.

How would you pick a financial professional?

So let’s say you’ve decided that an investment adviser makes sense for you. How do you pick a good one? This is one of the biggest challenges, and in my opinion one of the reasons a lot of people don’t get investment advisers: They don’t know a good one they can trust. The problem is there are a ton of them and the quality varies greatly. Sadly, there are a lot of unskilled people in the industry who don’t know what they’re doing. Even worse, there are some real shysters who might take your money, either overtly steal it or use other schemes to siphon away your money and put it in their pockets. It’s a legitimate concern.

First, you need to find someone you can trust. Ideally, this would come from a personal reference. Today you also have things like yelp.com or Angie’s List that gives ratings. Additionally, there are government agencies like FINRA.org that track these people so you can look them up to see how long they have been around and any complaints that have been files against them, etc. These are okay, but for my money, nothing beats a personal reference from someone you trust. Of course, it’s not always easy to have those conversations with friends: “So Mary, who is helping you with your money, and can I talk to them?”

Second, you need to find someone who is good. Of course, knowing this isn’t always easy. Using that same personal trainer analogy, you probably wouldn’t hire an obese trainer. You’d want someone who is ripped, someone who has shown they have been successful at physical fitness themselves (like my totally buff friends Christel and Tobias).

If you have a personal trainer, he should be ripped like Tobias here. Similarly, if you have an investment adviser, that person should be somewhat wealthy.

Similarly, you want a rich investment adviser. You want someone who has been successful creating wealth for themselves. But this is where the challenge comes in: if the investment adviser is wealthy then why is he working with you? Seriously. You have a lot of young kids who are doing this (let’s say less than 30). I’m sure there are some good ones, but I’m not trusting my family’s financial wellbeing to someone without a lot of experience. You also have a lot of people who just aren’t that good. If someone has been an investment adviser for 10 or 20 years and they aren’t a multi-millionaire, how good can they really be? I’m not trying to be mean, but shouldn’t that be more than enough time to accumulate some serious wealth?

Questions to ask:

If you do decide to go with a investment adviser, make sure you ask a lot, A LOT, of questions. Beyond your doctor or minister/rabbi, this person will probably have the biggest impact on your wellbeing. Take the time to make sure you find a good one.

How long have you been doing this? This is an area where experience definitely matters. In particular, you want her to have lived through a few bear markets. At a minimum she should have been doing advising people since 2008 and even better if she’s been doing it since 2001.

What did you do during 2001 and 2008? Investing is a lot easier when things are going well. You prove your mettle during the tough times. Figure out how he handled himself when everyone thought the world was coming to an end.

What are you paid? This should be answered in excruciating detail. Does he get paid by you (how is the amount determined, when is it paid), by others like mutual fund companies (how much, how do you make sure you serve my interests ahead of theirs)?

What is your personal financial situation? No point sugar-coating it. Find what his financial situation is like. As mentioned above, if he isn’t pretty well off, how good is he really? Also, the relationship you have with him needs to be based on trust because you’re going to be sharing everything with him. If he isn’t willing to reciprocate in some way, that might tell you something.

How will you ensure you serve my best interests? This is a biggie. Ideally you want her to have a fiduciary relationship which is a legal standard where she serves your interests ahead of anyone else’s, including her own. No matter how this turns out, you’re going to need to trust this person, but you should get a sense of how she will ensure that you are #1.

What is your investing strategy? Obviously, there are a lot of nuisances to this, especially as he customizes it to your specific situation. But he should definitely have an approach and a philosophy that he can articulate clearly and understandably.

What type of power will you have over my money? Will she be able to make trades and move money between accounts with your express permission, on her own, or not at all? This is a tricky one because maybe you want to offload these activities completely, so her having a ton of control may be okay. No matter, you should definitely understand this completely.

How will you take into account other assets that you won’t manage? Most situations will have him managing an account like your IRA or brokerage account but not others like your 401k, mortgage, pension, etc. Most times, he’s only paid on the accounts he manages, but to do his job well he’ll need to take into consideration those other accounts as well.

Those are what I came up with off the top of my head. At the end of the day, if you do go with an investment adviser make sure you find someone who has demonstrated they have the skills to build your wealth. Just as importantly, make sure you find someone who you can trust completely.

Week in review (24-Apr-2015)

April 24, 2015April 24, 2015 Stocky Leave a comment

Remember last week? Everything was going great until Friday hit, and the bottom fell out of the market. Well, this week was looking just like last week—through Thursday we had a steady upward trend going and everything was great. Then Friday happened, and this week, instead of dropping like a stone, the markets kept trudging upward. Yeah!!!! We like weeks like this.

This seems like a “no-news-is-good-news week.” We didn’t have a single day where markets were up over 1%. Yet, just a steady upward march had markets in the black across the board—from 1.7% for US markets to 2.9% for Pacific markets and Europe and Emerging markets in between. That’s an amazing week by anyone’s standards, yet in kind of seems like it flew under the radar screen.

chart

It’s still about earnings:

As has been the case for the past couple weeks, we had a lot of companies announcing their earnings, and it all seems to be generally positive. Microsoft beat their earnings target on the strength of its hardware sales and cloud computing. Amazon similarly beat expectations with strength across all its business. Keeping up with its Seattle big brother, Starbucks had a strong quarter thanks to 18% revenue growth.

Of course, there were some companies that didn’t do nearly as well, but there seemed to be a silver lining even in those cases. General Motors showed powerful revenue growth (up 400% from last year); GM did miss its earnings estimate, but even there they are showing they’re going in the right direction. Google grew revenue about 15% which fell short of expectations (are you kidding me? 15% seems like a lot of growth to me, especially for a very large company).

So there was good news and bad news. But the bad news didn’t really seem all that terrible. Companies were growing revenue a lot, just not as fast as Wall Street would have liked. That seems like a pretty good problem to have. I look at this week’s earnings, and really earnings for the whole season, as a feel-good story. Revenue is growing, innovation is happening, the US is going strong and Europe finally seems to be getting its house in order. Those are all positives for the market, and investors were rewarded with an amazing week.

The merger that never was:

On Friday the big financial news was that Comcast called off its acquisition of Time Warner Cable. This was a gigantic move, valued at about $45 billion. Ultimately, regulators killed the deal over a variety of issues, mostly of the anti-trust variety. It seems Comcast finally threw in the towel and moved on.

Interestingly, Time Warner Cable’s stock was up about 5% today on the news. This may seem counter-intuitive since target stocks tend to go up when they’re being bought, not when the deal is scuttled. So what gives? I think over the past several weeks and months, as it became apparent there was a lot of resistance to the merger, both companies stocks took hits. Once the parties finally agreed to go their separate ways, that allowed both companies to focus on the future without dragging around this merger anchor.

In past posts, I’ve been a true believer that mergers are a sign of good news for markets. I still believe that, but I think this one just wasn’t destined to happen. I am sure there were amazing synergies that they could have brought to consumers, but anti-trust concerns (which are very valid, and I’m glad the government tries to preserve competition) were just too big a hurdle. Oh well. Dust yourself off and move on.

I hope you all have a great weekend. On Monday I am going to try to answer the question: “Should you use an investment adviser?”

Putting the Great Depression in perspective

April 22, 2015April 21, 2015 Stocky 4 Comments

Every time the stock market sneezes, hiccups, or God-forbid vomits, all the pundits start comparing this time to the Great Depression. “Things haven’t been this bad since the Great Depression.” You start to hear it so much you kind of get a little numb. So I’m going to see how the worst financial crisis in my lifetime, the financial crisis of 2008 (diminutively dubbed the “Great Recession”) compares to the big boy.

Just a quick history lesson: Great Depression–Like in so many examples before and after, post World War I prosperity and an expanding economy led to increases in the stock market which led to increased stock market speculation in the late 1920s. Confidence had been shaken in September 1929 by a fraud scandal in England, causing the US market to swing wildly up and down over the next month. On October 24, 1929, the stock market crashed 11%, setting off a chain of events that led to the Great Depression.

Great Recession–About 80 years later, a similar script was followed. In August 2007 a French bank began to have liquidity issues. This began to unravel the intricately connected international banking system. As liquidity dried up, questionable loans, especially sub-prime mortgages from the red-hot US housing market, began to go belly up. The dominos began to fall and the entire banking system seized up. In the infamous words of President George W Bush “this sucker could go down.”

So here you have the gold and silver medal winners in the “Worst Financial Crisis in the US Since 1900” event. How do they compare? You know how they say a picture is worth a thousand words?

That kinda puts it in perspective for me. Both had crazy steep falls, with the Dow Jones Industrial Average losing about 40% in the first two years of the crisis, but that’s where the similarities end. In the Great Recession things turned around pretty quickly, while in the Great Depression stocks fell another 40%. At the Great Depression’s nadir stocks were down nearly 90% from when things started. Imagine that for a minute. Today the Dow is at about 18,000; imagine if by 2017 it got down to 2000. I’m not sure we can really comprehend that.

As crazy as the falls were, the divergent stories of the two recoveries seems even wilder. For the Great Recession, the Dow rebounded almost as quickly as it had fallen. It took only about two-and-a-half years to recover from its trough to its starting point. Then it didn’t stop there; as of this writing it was up about 40%. Think about that for a second. As bad as the Great Recession was, today we sit as far above where we started we were down at its depths.

But it’s a totally different story with the Great Depression— it was a long, long grind. After the Dow hit bottom, it pretty much lingered there for about 20 years. TWENTY YEARS!!! Twenty years after the Great Depression started, stocks were still down 50% from their highs!!! I feel I’m using too many exclamation points, but I feel they’re necessary. Seven years after the Great Recession the Dow was up about 40%.

And I’ve just been looking at this from an investor’s point of view. The Great Depression had brutal unemployment that maxed out at 25%; to put that in perspective, the Great Recession’s worst unemployment rates were about 8% and everyone was freaking out. The Great Depression caused immense human suffering all over the world and played a central role in bringing about the greatest tragedy in human history—World War II. All that stuff makes the Great Recession look like a paper cut.

So I propose a new rule. From now on, when stocks take a dive, no one should even try to compare the latest financial crisis to the Great Depression. Just the same way no basketball player should be compared to Michael Jordan, no band to the Beatles, no scientist to Albert Einstein, and no president to Abraham Lincoln. The Great Depression is in a class by itself, the likes of which I don’t think we’ll ever see again. I’m glad we got that out of the way.

Mailbag

April 21, 2015April 20, 2015 Stocky Leave a comment

What do you think of Cracker Barrel’s stock (CBRL)? I heard that aside from the food they sell each store sells something like $1 million in merchandise. Should I buy some?

— Doug from Detroit, Michigan

As a rule, I don’t invest in individual stocks because it seems like a lot of work to figure out which ones will make good investments. Instead I just invest in index mutual funds using dollar cost averaging, and that works well for us.

That said, if you look at Cracker Barrel there are a lot of reasons to like it as an investment. Over the past year it’s up about 40%–that is either a bad thing because maybe you missed out on the upside, or it could be a good thing because the stock is doing well and there’s no reason to think it won’t continue to. Who knows on that one?

If you look at the price to earnings ratio (P/E), it’s at 23 which means you’re paying $23 for each dollar of earnings Cracker Barrel makes. That’s definitely on the high side, so that might be another reason to be cautious.

Finally, if you look at the dividend, the stocks pays $4 per year which is about a 2.6% yield. That’s really good compared to most stocks. So in addition to enjoying any price appreciation that might happen, you’ll also be getting a yield higher than a 10-year US bond. Of course, Cracker Barrel might lower the dividend, so you need to beware.

Put that all together, and your answer is a firm “I’m not really sure”. There are a lot of things to like about Cracker Barrel, but you don’t really know if you missed the boat. In general I always recommend investing your money, be it in index mutual funds (my first preference) but if you want to pick individual stocks, Cracker Barrel seems just as good as any stock.

What do you think about the Fed’s policies and how a strong dollar will affect the U.S. economy and your investments?

— Andrey from Barcelona, Spain

This has been getting a ton of news lately. I personally think it’s a good thing that interest rates will rise to more normal levels (we’re at almost 0% which is not a sustainable long-term level for interest rates).

The dollar has been strengthening a lot lately because many other countries are having economic problems. Europe is hampered by Greece (and potentially Spain and Italy) debt issues, Japan remains in a funk, China is slowing down, etc. The US economy is growing and inflation is low, so that makes the it a really attractive place to be, financially speaking. And that has the effect of the dollar increasing in value.

There’s always the concern that if your currency strengthens, then that will hurt your exports, and thus hurt your economy. This leads to the weird paradox that as your economy strengthens it leads to weakness. Maybe the stronger dollar will hurt imports some, but I think that will have a pretty negligible effect (remember that compared to domestic consumption, US exports are much smaller).

From an investing perspective, I think things will be fine. If your economy is strong and inflation is low, that’s generally a great formula for investments. The Fox family is fully invested in the market right now.

The day they announce interest rates are going up, stocks will probably fall a lot. But after that, people will start to get the concept that interest rates rose because things were looking so positive.

I have read several articles recently and they all talk about gold and diamonds. The price of gold and diamonds is bound to go up because the resource is limited. Stocky Fox, is it a good investment to buy gold via my bank?

— Harold from New York City, New York

In general, commodities like gold don’t tend to be a very good investment. Certainly over short periods of time, gold and other precious metals might do really well. But over the long-term, compared to stocks and bonds, commodities end up really underperforming stocks. Remember the difference—with stocks you’re giving money to a company so it can build a business that earns money, but with gold you’re just holding money in a bank that doesn’t do anything.

That said, gold is a good store of value, especially in uncertain times. In 2008 when the world thought the global financial system might collapse, gold did really well. In that way, I look at gold as a little bit of “insurance” for my portfolio. You want most of your portfolio in stocks and bonds that should produce returns, but maybe you keep a little bit in commodities as insurance in case the world goes to hell. The Fox family has about 5% of our portfolio in commodities.

A lot of people, especially in Moscow, are living off renting apartments that they got as an inheritance from their relatives. If you get an apartment from your grandma or aunt, getting $2000 to $4000 out of it each month is a sweet deal. Should I buy apartments in order to rent them out when I retire? How good is that investment?

— Ivan from Moscow, Russia

I had a post on rental properties. Overall, I think they make a lot of sense, so long as you can avoid the nightmare scenarios of having bad tenants. Given you’re in Russia where it’s more difficult to invest in stocks, that makes rental properties all the more attractive.

Like all investments, rental properties are only so good at the deal you get. If you pay a too much for the apartment it won’t be a good deal. If you can buy an apartment at a low price, then you’ll make out pretty well. As a rule of thumb, I would divide the annual rent by the cost of the apartment. If that is 8% or more, it’s probably a pretty good deal.

What do you think about investment firms like Betterment or Wealthfront?

— Noah from Chicago, Illinois

I think they make a lot of sense (Wealthfront is connected to mint.com and I use Mint, so I am barraged with pop-up ads from Wealthfront). My basic understanding is that they have taken investing and automated it using fancy-smanchy algorithms.

They invest your money in index mutual funds (just based on that, I’m a fan) and they have a pretty user-friendly interface so you can select the risk you want, diversification, etc. Then they automatically invest your money in the appropriate index mutual funds based on your choices.

The problem I have is that they charge you about 0.25% for all of this. That doesn’t seem like a lot ($250 annually for a $100,000 portfolio), but as we’ve said many times, that adds up. Over an investor’s career, that 0.25% could come to tens or hundreds of thousands of dollars. I personally feel that most people can do everything that Betterment or Wealthfront does on their own with Vanguard.

The only really innovative strategy that I noticed was that they do which might not be super-easy for an individual to do is “tax loss optimization”. Basically that means selling investments at a loss to offset the taxes you would owe on investment gains. But over the long-term, aren’t you supposed to have many more gains than loses? So I don’t think that will add a ton of value over the long run.

If you just want something simple, these sites might be really good and probably worth the money. However, I also think that what they do most people could easily do for themselves with a few hours of work per year.

Now that consumer electronics are so cheap, are they a good investment?

— Ally from Serbia

Consumer electronics are almost never a good investment for the very reason that they are so cheap and they become obsolete so quickly. One of the major problems I think you’d have is reselling them for a profit after you bought them.

Maybe you know a lot of people that would buy that stuff, but then that starts to sound a lot more like a job than an investment. But I would definitely avoid “investing” in consumer electronics.

I do not trust banks. I would rather keep my money in US dollars at my home. Is that a good investment? After all if I have $10K at my place and there is really low chance of apartment robberies in Moscow, I will have the same amount of money in 10 years, right?

— Katya from Moscow, Russia

The problem with keeping cash at home (other than robberies which you mentioned) is that you aren’t earning anything with the money. Remember that using historical averages stocks return about 6-8% annually. If you just hold cash, you’re missing out on that. Also, when you hold cash, inflation eats away at the value of those dollars. Over the past decade US inflation has been about 2%, so you’re losing that as well.

The answer to your question is: No, after 10 years your $10,000 will lose value because of inflation. The solution is to invest it in stocks or bonds. Those will “earn” money on your savings and especially with stocks those will generally keep up with inflation.

A lot of my girlfriends are doing Botox now. Should I invest in Allergan?

— Anita from Paris, France

You must run around with a young-looking group of women, but maybe you can’t always read their facial expressions. This is an approach that Peter Lynch (one of the most successful investors of all time) talks about in his book One Up on Wall Street, namely invest in companies who make products that you like in your everyday life.

Allergan is a great company whose stock has been on fire lately. In the past year it’s up over 80%. That begs the question: Did you miss out on the upside with this company. As always, my answer is who knows? Like I told Doug regarding Cracker Barrel, you never know with individual stocks.

That said, great companies are those that make great products that people like. You’re experience tells you that Botox is a great product that people really like. So it makes a lot of sense that you’d invest in the company. It’s a bummer you didn’t do this a year or two ago, but isn’t that always the way?

What do you think about the financial advice from Cosmo to put aside 10-15% of all my income? Or making notes of all my expenses?

— Elizabeth from Houston, TX

Those seem to be really good starts to investing. As I mentioned in this post, the first step in investing is saving money. 10-15% is a great start depending on your age.

Also, tracking your expenses is another great step when you want to get your financial house in order. There’s a common saying in business that goes: “if you don’t track it, it doesn’t change.” When people first start tracking their expenses, I think it’s a real eye-opener when they see where their money is going (“I am seriously spending $180 per month at Starbucks?”). Once you see where your money is going you can start to decide if those expenses are worth it or not.

As I first step, I would suggest a website like www.mint.com. It’s a free website that tracks your credit card spending and then put some decent reports together so you can start to look at your trends. Plus, it’s free!!! Maybe you set up your accounts on Mint and then spend normal for three months. After that, take a look at what you’ve been doing and decide if you should make changes.

All that said, congratulations for taking the first step.

Debt is a four-letter word

April 20, 2015August 24, 2015 Stocky 3 Comments

“Never a borrower . . . be”—Hamlet by William Shakespeare

People generally think of debt as a bad thing, and for good reason. Debt can devastate national economies at it is currently doing to Greece and has done to countless others (Russia—1998, Argentina—2005, Mexico—1982, to name a very few). At a personal level, it can hamper individuals with a burden that takes years to relieve, if they ever are able to pay it off. Many people offer the sage advice to avoid debt as much as possible: “take on as little debt as you can, and if you have to borrow money for something then pay it off as soon as you can.”

In recent years the issue of debt has become raw meat for rabid politicians. The explosion of college debt, the predatory lending practices on mortgages leading up to the sub-prime crisis, credit card debt in a world where credit card marketing is ubiquitous—all those are real issues that can affect anyone. And the difference between getting this one right or wrong can lead to tens or even hundreds of thousands of dollars.

Quick note: This is an investing blog, not a personal spending blog, so I don’t want to get too much into the question of “should you incur debt?” There are hundreds of blogs out there already that do that much better than I (my personal favorite is www.mrmoneymustache.com). This post is going to be focused on looking at debt from an investment perspective.

Good debt and bad debt

Some people think of debt as either good or bad, like it is the good cholesterol or bad cholesterol you see on your annual blood test. I think that glosses over some of the most important points. Instead I look at debt solely by how expensive it is. What is its interest rate? Basically, if you can invest your excess cash at a higher return than the interest rate on your debt, then you should invest; if you can’t, then you should pay off your debt. That seems pretty reasonable, right? Based on that, the higher the interest rate on your debt, the more quickly you should pay that off.

If you make a list of common debts and associated interest rates, you get a bit of a hierarchy that looks something like this:

Debt type	Typical interest rate
Credit card	20%
Car loan	8%
Student loan	5%
Mortgage	4%

Obviously those are just examples, and they can vary a lot, but that’s a good starting point. When you think about paying off debt, basically you’re getting a “guaranteed return” on your investment of the interest rate you were paying. Right now, US bonds tend to have an average return in the 4-5% range; that certainly isn’t guaranteed, but that gives you a sense of what a “safe investment” can yield. Stocks tend to have an average return in the 6-8% range, but sometimes it’s much higher and other times it’s much lower.

Now think about paying off debt. Let’s say you own money on a loan that has 10% interest, and you have $1000 that you could either invest in stocks or use to pay off your loan. If you invested it, let’s say you bought stocks; on average you would get 6-8% but that could really vary from year to year. On the other hand, if you put the $1000 towards that loan, you would be guaranteeing yourself a 10% return because you wouldn’t be charged interest on that money. This seems like a no-brainer, right? A 10% sure-thing is much, MUCH better than investing in the stock market. So this is the approach we’re going to use when we look at debt.

Credit card debt is pretty universally terrible for one’s personal finances. The interest rates are usurious and there is no investment that can come close to the double-digit interest rates on most cards. Some cards offer low introductory rates which change the calculations, but those are temporary. As a general rule, paying off all your credit card debt should be the highest priority.

Auto loans throw in an added complication. Some auto loans are on the high side, let’s say anything over 5%. If you pay those off, you’re getting a guaranteed 5% return which is better than any other “guaranteed” return, so that makes sense. This is the case with many new car loans and nearly all used car loans. However, some car companies offer “below-market” interest rates auto loans to induce you to buy. Last year, the Fox family bought a new Honda Fit, and we were offered a 0.9% interest rate to finance the car for 5 years. If you compare 0.9% to what we could expect on average with stocks or bonds, we’re much better off taking the loan and investing the money we would have used to buy the car outright.

Also, you can think of a subsidized loan as something of value that the car company is offering. If you don’t use it, you’re passing up that value. However, if you do use it, even if you have the money to pay off the car in full, the value of that “subsidy” might be worth a few thousand dollars. The Fox family has very little debt, but we do have an auto loan. We had the money to buy the car outright, but we’ve taken advantage of the really low interest rate because we’re getting more by investing that money in the market.

Student loans get a little more complicated because the interest on them is tax deductible, and that’s an important consideration. So for example, if your student loan is at 5% (current rate for new Stafford loans) while your marginal tax rate is 40%, you’re effectively paying only 3% (5% *(1-40%)). Obviously the decision to pay off your loan right away or invest that money is significantly impacted by that difference. You’d probably want to pay off a 5% loan right away, but a 3% loan might be low enough to make it worthwhile to invest the money. There is a lot of gray area here, but I would generally choose to invest the money and just make the regular loan payments.

Mortgage is usually the biggest loan people have (as we covered here). Similar to student loans, interest on mortgages is usually tax deductible, so really lowers your effective rate. Also, mortgages tend to be subsidized by the government, so they often have interest rates that are lower than any other type of loan. 30-year fixed loans are currently at about 3.7% which is super low. Add on the tax-deductibility benefit and your effective rate can drop as low as 2%. If you’re paying 2% on a loan that will last decades, the math and historical averages definitely say that you should pay off the loan over time and invest any excess cash.

Of course, you can take this to the extreme and get an I/O loan (an “interest only” loan where your payment is only interest and your principal never goes down). Some people do the calculations above and decide “if a little is good a lot is better”. Mathematically, I think they’re right. However, the Fox family doesn’t do this, less because of logical reasons (the logic says pay off as little as you can), but more because of emotional reasons. I like the idea that over time I am paying off the loan and when our tails turn from red to gray, our house will be paid off.

Obviously there are a lot of considerations when it comes to what to do with debt. Pretty universally everyone agrees that credit card debt and most auto loans are way too expensive and should be paid off as soon as possible. However, as you move down the spectrum to student loans and definitely home mortgages, it becomes more complicated.

Some people have the attitude that a healthy portfolio has no debt, and you should focus on debt reduction before starting investments. They set goals for themselves to be mortgage free ASAP. That’s a noble goal, and one I totally get. If you don’t have debt you feel more secure, you own your stuff outright, etc. Those are very valid emotional responses, but the math says that’s the wrong thing to do. I take the middle ground on this—the only debt we have is a subsidized car loan and a mortgage.

The car loan is pretty small, so let’s not even count that. For the mortgage (currently we owe about $500k) we could have paid it off over the past 5 years by scrapping together every penny we had and pretty much saved nothing (including not doing things like our 401k—yikes!!!). Today we wouldn’t have a mortgage which would be nice, but we wouldn’t have been able to take advantage of a pretty nice bull run the last five years. Taking all that money and investing it has probably netted us a $400k profit. That’s almost double what we would have had otherwise.

Of course, the past five years have been a really good time to be an investor, plus interest rates have been at historic lows, so that makes a perfect storm for it being to your advantage to invest rather than pay off your mortgage. But remember that it’s a numbers game, and over the long term stocks return more than what you’re paying with today’s interest rates.

Week in review (17-Apr-2015)

April 17, 2015April 17, 2015 Stocky 1 Comment

Daaaaaang!!! We were having another great week of investing to build off of last week’s. It was a boring but steady move upward—through Thursday the markets were up about 1% for the week. And then Friday came along and the bottom fell out of everything, erasing the gains for the week. The US markets took the worst of it, ending the week down 1.0%. But all the markets were down about 0.5% or a little less. So what ruined the party?

Earnings, earnings, earnings:

As we mentioned last week, we have entered earnings season, and that is rightfully dominating the news. By and large, it seems like things have been going well. Several banks came in with strong earnings. While the banking industry is the one everyone loves to hate, whether we like it or not, 2008 proved that a healthy banking industry is pretty critical to a healthy economy. Commercial banks came beat expectations on the meat-and-potatoes business of holding money and lending money. Investment banks like Goldman Sachs were pocketing nice profits from all the deal-making going on (which we discussed last week).

General industry seemed to have mixed results. Oil companies like Schlumberger are feeling the pinch from low oil prices, softening their earnings and leading them to start more lay-offs. Others like GE, despite reporting a loss, are showing that their industrial and manufacturing businesses are really strong. Plus you had stories like Etsy’s IPO showing that growth and innovative business models are creating value.

Any earnings season is going to be mixed, but I view this one as largely positive. Banks tend to be a bellwether for the economy at-large and they’re doing well. Other companies are showing moderate growth that are the green shoots of an economy that is continuing to grow and emerge from a really long period of doldrums.

Inflation:

On Friday everything went to hell and one of the causes is that the CPI released March numbers that showed that inflation is starting to come back. That by itself isn’t a bad thing, many argue that low levels of inflation are actually a good thing, so what’s the deal?

Remember that the Fed (it always comes back to the Fed) has been holding interest rates down because they haven’t observed any inflation. I’ll write a whole blog on my thoughts on the Fed in a future post, but the short story is: once the Fed starts seeing inflation, they’re more likely to raise rates. I think today was a reaction to the reality that rates are going to go up before too long.

Greece:

I promised I wouldn’t discuss the Greek epic, but what can I say? Friday details of talks between Greece and its lenders started to come out showing that Greece really doesn’t have a plan to emerge from their debt problems. Remember a few weeks back, that the ECB and IMF said they had a deal with the Greeks, contingent upon the Greek government putting a credible plan together. The market reacted to the news like it was catnip, and no one really seemed to ask themselves the question: Can Greece put together that credible plan?

It’s looking like they can’t. This week Greece’s finance minister, Yanis Varoufakis, faced off with his lenders at a gathering in Washington DC. Basically he blasted the previous Greek administration and the lenders for putting together a program that clearly hasn’t worked (he’s probably right on that). He the claimed that it is Europe’s best interests to liberalize the lending terms for Greece (I’m not sure he’s right on this one). Of course, it’s going to come down to if Europe is willing to allow Grexit. Varoufakis is fearmongering, hoping they don’t call his bluff.

As always, this is a steaming mess. I personally believe that the sooner the world accepts that Greece won’t pay its debts the better off we’ll all be. Maybe it will be rocky for a little while, but then things will improve because this Greek drama won’t rattle the markets every other week.

Everyone have a great weekend. Grandpa Lynx (Lil’ Fox and Mini Fox’s grandfather, my father-in-law) came in to town yesterday. Lil’ Fox woke up at 5:30 this morning trying to go into Baba-Lynx’s room, so I had to put the kybosh on that until 7am. We have a fun-filled weekend planed where Lil’ Fox will take Baba-Lynx to the local playground about 14 times. I hope you have equally fun plans with your family and friends. I’ll see you Monday when I post on “Managing your debt”.

Rental properties

April 15, 2015April 14, 2015 Stocky 6 Comments

Up to this point, the main way I have discussed investing for the future is with stocks and bonds. That leaves out one of the major vehicles that people use for investing—owning real estate. Actually, stocks, bonds, and mutual funds are newcomers to the world of investing when you compare that to owning property. Being a landlord has been around for millennia, while trading stocks and bonds as we know is about 100 years old.

Full disclosure: Foxy Lady loves the idea of investing in rental properties while I am opposed. We talk about it all the time and at this point we have not jumped in the pool yet. So what is my take on it all?

The pros

There are a ton of really great reasons to invest in rental properties. I had a coworker who once told me: “real estate is the only way to build real wealth. Stocks and stuff are great, but to really become wealthy, you need to buy property.” I don’t really agree with that, but there are a lot of people who do, and there are a lot of people who have become super wealthy following that line of thinking.

Rental income: Obviously the main reason to go into rental properties is for the rental income. Of course this will vary greatly depending on a ton of factors, but I just did some quick research on www.zillow.com and you can get about 7-10% of the property value in rent each year. That tends to be lower for more expensive markets (LA or Chicago compared to St Louis or Birmingham) and it tends to be lower for more expensive properties (free-standing homes compared to condos). And of course, any expenses you incur come out of that, but 7-10% is an awesome return for an investment.

Property appreciation: In addition to that 7-10% rental income, you’ll also enjoy the potential for the property to increase in value. This similarly varies greatly, with periods of huge price appreciation and other times where the market crashes, but on average home prices do tend to go up. So this is an added bonus. If you’re savvy about which properties you buy with an eye towards which neighborhoods will become popular or buying fixer-uppers, this can be a major portion of your profits.

Leverage: With rental properties, you often buy the home with a mortgage. This gives you leverage which can really juice up your profitability. Take for example a home that costs $300,000 and you can rent for $2000 per month. Using the basic calculation, you would have a return of 8% ($2000 rental per month x 12 months / $300,000). But what if you bought the property for $50,000 down and then financed the remaining $250,000 with a 5% mortgage? The calculation is a little more complex—your revenue is $11,500 ($24,000 annual rent – 12,500 interest on mortgage), but then you divide that by your $50,000 investment. That’s a 23% return!!!

Tax advantages: In the US the tax code can be tricky on this (and I’m not an accountant) but in some circumstances, the interest you’re paying on the mortgage can be tax deductible. That 23% return from above can be even higher because Uncle Sam is letting you deduct some of that interest from your taxes.

Economies of scale: All these calculations on returns are assuming you have no expenses. Of course, you will have some (finding renters, maintenance on the property, improvements on the property, etc.) so that 23% return will definitely be lower when you take those expenses into account. But as you do more and more rentals, you will start to have serious economies of scale. Especially if you do some of the handyman work yourself, you’ll learn to do these things like fixing plumbing and electrical, installing appliances, etc. That can lead to lower costs for each property unit you have, and that can make a major impact on your returns.

Best option: I’ve always said you should be investing your money, but what if you live in a country where investing in stocks isn’t very easy (as we saw was the case in Russia)? Without those other options, that makes real estate investing even more attractive. After all, you need to invest your money somehow.

The cons

Wow!!! A 23% return plus property appreciation and tax benefits. All that seems pretty sweet, and there’s no way you’re matching those returns with the stock market. So what’s the downside? Stocky Fox, why aren’t you seeing with wisdom of what Lady Fox wants to do and start buying rental properties?

It’s a job: Make no mistake that owning rental properties is a job. If you own mutual funds you literally have no work for your investment. When you manage rental properties, there is real work involved—finding renters, getting documents signed, fixing the place, dealing with renters, etc. Maybe you set it up so it’s not much work, but it’s still always some work. Also, you can have a property management company do all that work for you, but then they’re eating into your profits.

It could be a nightmare: This is what keeps me from wanting to get into the rental property business. If things are working well the returns for rental properties are super attractive, but that can all go up in flames in a hurry, and there seem to be so many things that could go bad. What if you tenant is a real pain in the butt and is constantly badgering you to fix things or upgrade things? What if they trash your place and you need to do major repairs (you could take them to court, but then that’s a whole other headache)? What if they stop paying rent (you could evict them but there are a lot of laws protecting renters so that could be a really long and painful process)? Any one of those things could cancel out months or years of rental profits.

Low diversification: Rental properties by their nature aren’t diversified. When you buy a single property for let’s say $300,000 you’re putting a lot of eggs in one basket. Maybe the neighborhood turns bad or something like that. When you invest in mutual funds you’re buying tiny slices of thousands of different companies, but with a rental property you’re exposing yourself to much higher idiosyncratic risk. The closing of a factory could have a devastating impact on the local rental market, but it wouldn’t register a blip on your mutual fund.

Low liquidity: When you have rental properties you lose a lot of liquidity and flexibility. If you needed cash for some reason (maybe an emergency) it would be super easy with mutual funds. Sell some shares and you have the money in a few days. With a rental property it could take months to sell it and get the cash. Similarly, if you decided to move away from where your rental properties are that’s a monumental undertaking; once you start with rental properties you’re somewhat tied to that area. With mutual funds, you change your address with Vanguard and you’re done.

Lots of pros and lots of cons. So where do we stand? Certainly rental properties have tremendous upside, much more than stocks. I always use 6% as my long-term expectation for returns on the stock market; if you do the calculations of your rent less your expenses and divide that by the property’s value and come up with a value greater than 6% you should seriously consider it. Also, if you can avoid some of the pitfalls—you know some trustworthy people who can be renters, you’re handy and can fix things, and you don’t plan on moving for a long, long time—that makes it all the more attractive.

So what do you think? I don’t think rental properties are a good idea for the Fox family (Lady Fox just flipped me off), but what about you?

Inflation killers—your smart phone

April 13, 2015April 13, 2015 Stocky 7 Comments

smartphone-325482_640

I’ve already ranted over what I think are overblown fears regarding inflation. To prove that point, I thought it would be fun to look at what the smart phone offers and see how much it should cost if we used standard inflation metrics.

A typical smart phone can cost less than $100 and an unlimited talk/text/data plan can run about $30 per month. With these costs in 2015 dollars, how does your smart phone stack up to inflation?

Phone calls (1983)—In the early 1980s standard local phone service was about $30 per month and long-distance was about $0.12 per minute. Let’s say you made 60 minutes of long-distance calls per week (I think that’s on the low side) and you’re at $58.80 per month. An unlimited talk plan costs $30 and that’s not even counting some of the awesome features like data and text, much less the fact that you can make a cell call anywhere but in 1983 you could only call from the phone connected to the wall in your house. CPI inflation from 1983: 141%.

gameboy

Gameboy (1990)—Nintendo developed a super-cool handheld video game that could fit in the palm of your hand and you could take with you anywhere. It cost about $100 and games cost $20-30. Your phone has a crisp color screen and a much faster processor for games than your Gameboy ever did, and you can get a ton of games from the app store for free and even the expensive ones tend to cost less than $5. CPI inflation from 1990: 90%

Digital camera (2002)—You could buy a nice digital camera with 1.8 megapixels for about $300. Your phone has at least a 5 megapixel camera, plus once you take a picture you can send it to your friends instantly instead of having to connect it to your computer and email it to everyone. CPI inflation from 2002: 33%

Video camera (1987)—The first video camera in the late 1980s were a little pricy at about $1500 plus they were the size of a shoe box, but it didn’t matter because you could make a video of Lil’ Fox’s soccer game and then watch it with the family on the VCR. Today your phone has a better video camera that you can take out of your pocket at a moment’s notice, capture the priceless image Mini Fox walking around in Dad’s shoes and email it to every family member in less than a minute. CPI inflation from 1987: 115%

OLYMPUS DIGITAL CAMERA

GPS (2005)—Garmins had a brief but wonderful run in the mid-2000s. The small, handheld device could tell you where you were on a map and give you directions to where you were going. They cost about $300 plus a monthly fee. Of course, now that technology comes with every smartphone. CPI inflation from 2005: 25%

DVR (2001)—TiVo solved the problem of ever missing your favorite show. With a really simple user interface it could digitally record shows that you could watch at your leisure, for the bargain cost of $300 plus a monthly fee. Today your smartphone can do pretty much the same thing by streaming on-line videos that are available for most shows on the channels’ websites, all with the convenience of fitting in the palm of your hand. CPI inflation from 2001: 37%.

Walkman

Walkman (1984)—Sony revolutionized personal music listening with the Walkman. You could take the small device, setting you back about $200, along with all your favorite cassettes and rock out to your heart’s content, where ever you went. Today your phone offers the same capability, expect instead of cassettes it has thousands of songs from your iTunes library. CPI inflation from 1984: 137%

Product	Original cost	In 2015 dollars
Gameboy	$100 in 1990	$190
Digital camera	$200 in 2002	$266
Video camera	$1,500 in 1987	$3,225
GPS	$300 in 2005	$375
DVR	$300 in 2001	$411
Walkman	$200 in 1984	$474
TOTAL		$4,941

Take a look at that list and add it up. If you took all the functionality on your phone (and I just scratched the surface, but there’s a ton more I could have added) and used the CPI to see how much that should cost today, you should have paid $5,000 for your phone, yet you paid less than $100. Even if you took the video camera away you still have a $2,000 phone. And that’s an imperfect comparison because in each of those examples your phone is better: better than a Walkman, better than a Gameboy, better than a Garmin, better than a digital camera, and on and on.

My point in all this is that it’s easy to be get a little carried away when thinking about inflation (or at least I get carried away). At 3% inflation (historical rate since 1930, according to the CPI), in 30 years you would need $2.42 for every $1.00 today. That $50 meal with Mrs Fox on date night will cost $121 in 30 years; the car we just bought for $17,000 will cost $41,000; my stylish new dress shirt that cost $20 at Costco will be $49. Take all your expenses today at increase it by 2.42 times, and it can seem daunting.

But I hope the smart phone example illustrates that the wizards at Apple and Google and other companies that haven’t even been founded yet are going to find technologies that are going to take some of your expenses today, replace them with significantly better products, and sell them to you for pennies on the dollar. And the fact of the matter is that the CPI does not measure technological disruptions like this very well, so I don’t think they reflect these “deflators” in its CPI number. I’ll post one of these “inflation killers” every once in a while to keep us on our toes.

Week in review (10-Apr-2015)

April 10, 2015April 10, 2015 Stocky 1 Comment

It seemed like a pretty boring week for the markets. We didn’t have a single day where indicies were up over 1%, which is a pretty serious departure from the roller coaster ride we’ve been on the past several weeks. All that said, when you look back on things we’re up across the board: 2.9% for Pacific, 1.9% for Emerging, 1.6% for US, and 1.2% for Europe. First, let’s acknowledge that’s a pretty good week. What caused it all?

Alcoa announces earnings:

We have entered earnings season, with Alcoa in their traditional role kicking things off (Alcoa’s ticker symbol is AA so they are kind of like New Hampshire during elections, being the first to go). Alcoa had a mixed report, beating expectations on earnings but missing on revenue. That said, the general feeling in the market was that earnings were coming in strong due to a generally positive direction for the economy.

In the past several week-in-review posts, I’ve covered all sorts of things from natural disasters to terror plots to geopolitical crises to business restructuring. But one thing I haven’t mentioned a lot is earnings. Earnings are the fundamental ingredient in investing, and I’ve been waiting for earnings season to kick off to really hit this topic. Everything else is background noise compared to earnings. Remember, when you buy stocks, you’re really buying a slice of the companies’ earnings; the bigger those earnings are the more your stock is worth. Over the next couple weeks as more companies report, we’ll definitely be looking to see how all this impacts the markets.

Mergers, mergers, everywhere:

This week was dominated by merger, acquisition, and restructuring news. On Monday Federal Express announced its intention to acquire TNT Express, a Dutch parcel service; the stock for TNT rose 25% on the news. On Wednesday Shell announced a $70 billion purchase of BG, making this the biggest merger in the energy sector since Exxon and Mobil merged in 1998. BG was up 35% on the news. Finally, on Friday GE announced it would divest its $27 billion finance/banking arm; GE stock was up about 7%.

So lucky you if you were a TNT, BG, or GE shareholder. Doing back of the envelope calculations, those stock increases equated to about $30 billion in new value. That’s a lot of money, but given that the US stock market alone is worth about $19 trillion, that’s really a small drop in the bucket. So why do the rest of us care that three companies were bought at substantial premiums?

First, this isn’t the first time we’ve mentioned this. It seems we’re having a lot of mergers/divestures lately. Is that a good thing? I say “yes”. When these things happen you can see that substantial premiums are paid. That means the buyer thinks they can do better with the company than is currently happening. Certainly it doesn’t always happen that way, but going in that’s the plan. That’s a good thing right? People are putting their money where their mouth is, saying they can drive more efficiency, more sales, more profits from assets. As an investor, that’s your lifeblood.

Just looking at these three you can see it:

FedEx and TNT do largely the same business in different parts of the world. If they combine their forces, wouldn’t they be much more efficient while also providing more streamlined service than two separate companies?

Shell and BG are coping with a world where oil prices are down 50%. Doesn’t combining allow them to cut costs by eliminating redundant functions, allowing both companies to be more profitable than if they were separate?

GE has long succeed as a diverse conglomerate, however, they were severly hobbled by the 2008 financial crisis. Does it make sense for the industrial arm to focus on “making stuff” and spin the financial arm off to someone who can focus on being really, really good bankers?

Maybe we’ll look back on these moves as inspired, or maybe they’ll earn places in the merger “Hall of Shame” along side Time Warner-AOL or Boston Scientific-Guidant. But coming out of the gate, you can see the potential for value, and those at the center of it all are betting billions on their ability to bring that value to reality. So I think this is definitely a good thing for the markets, and one of the justifiable reasons for the uptick in stock markets.

Have a great weekend, and I’ll see you on Monday when I post about an “Inflation Killer”.