investments

Tech Earnings, The Economy and Stocks

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Well, this is an interesting week for investing and stocks. Many technology companies are releasing earnings this week. These companies are not more, nor less, important than other companies, but many of them have become both household names, and some of the most commonly owned household stocks. That makes the earnings more interesting to a lot of Main Street investors. Due up for earnings reports today was Twitter, which recently welcomed back former CEO Jack Dorsey, who is also still the CEO of his startup company, Square, presumably at least until he can finish taking it public. (Dorsey can then claim victory and a “big exit” for Square, which is a bigger thing than you might think in Silicon Valley.) Twitter stock is down 10 percent as I write this because things are just as bad as everyone thought. Google, now Alphabet, reported good earnings and its share prices have been climbing, same with Amazon. Microsoft is up, Yahoo is down. And so on. The big news today, was Apple stock which beat estimates thanks to growth in China, among other things. That will be business as usual for the markets, which is good news. There could have been a …

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Investor Types

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Often, when I write about stock market news, or other economic events, I conclude by reminding long-term investors that there is no need to overreact (or really react at all) to the current short-term events. It was brought to my attention that not everyone is a long-term investor. That’s not true, but what is true is that not everyone is solely a long-term investor. And, that being the case, perhaps it is worth me addressing other investing types and issues, here on Finance Gourmet. That sounds fair, but in order to do so, I think I need to start with the different types of investors. Different Types of Investors Long-Term Investors The most common type of investor is the long-term investor. Everyone with a 401k or an IRA falls into this category. The goal of this investor should be to construct a well diversified portfolio and then review and rebalance it regularly. The strength of this type of investor is that over time, this is a sound approach that has never failed. The weakness of this type of investor is forgetting the strength and reacting inappropriately to short-term events. This category could be broken into two sub-types, those who are only investing …

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Bad News, Politics and Investing

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Here it comes… THE SKY IS FALLING! THE SKY IS FALLING! A presidential campaign is officially coming, and unofficially already in full swing. With it comes political ads, ads that make it sound certain that we are doomed, we will be doomed, or we must fix the doom. Are things really that bad? Is Washington really ruining the economy? The answer, as always, is no. Politics and Investing Do Not Mix The reality of America is that everyone, in both parties, wants the same thing: a stronger, better, bullet-proof economy. The only difference is in the ideas on how to get there. Even tougher to follow is that there is not definitive proof that ANY of the political ideas out there do what their followers think they will. Republicans think cutting taxes puts more money in the hands of businesses and consumers which boosts the economy. Democrats think government spending puts more money in the hands of business, while improving society, thereby improving the economy. Who is right? They both are. And, they are both wrong. The key to a strong economy isn’t really political at all. It is cyclical. Go back over the years and you can prove anything …

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Tech Earnings and Stock Market Moves

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The U.S. stock market is composed of thousands of stocks. Of course, when it comes to moving the overall market, some stocks matter more than others. The biggest stocks, those in the S&P 500, and those in the Fortune 500, have some of the biggest impacts on the overall stock indexes. However, in most cases, the news that comes out of those companies is relatively expected. The exception to this rule are the technology companies. Unlike, say oil companies, or big manufacturing companies, it isn’t always easy to use the economic information surrounding them to accurately predict what will happen, especially when it comes to earnings reports. And, with those same companies forgoing the usual “guidance” that other companies provide, what happens in tech company earnings can be a true market moving surprise. This week saw a negative report from industry titan IBM. IBM is not only a household name technology company, but it is also the second highest weighted component in the Dow Jones Industrial Average, commonly referred to as The Dow. The company itself is down over 5 percent so far today, and the Dow is down over 1 percent, or more than 150 points. (Also dragging on …

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What Higher Apple Dividend Means for Investors

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I’m a huge fan of higher dividends. I’m less of a fan of share buybacks, but let’s get there in a minute. Apple Raises Dividend Theoretically, owning a stock means owning a part, or share, of a company. However, if you really break it down, being a shareholder means virtually nothing anymore. For example, in business classes around the country they will tell you that as a shareholder, one of your rights of ownership is voting for the company’s Board of Directors. That’s technically true, but these days, that means nothing. Only a certain number of seats are up for election at one time. Only the candidates that the company’s current management wants are on the ballot. In other words, even if you owned 51% of a company’s stock, your ability to vote would take years to actually affect the company. Your actual avenue for affecting any sort of change is the courts. If you don’t get to “own” the company, then what is your stock actually worth? Well, it is an item of limited supply that others believe have value. It’s the same way U.S. currency works, or Bitcoin. The exception is when a company pays a dividend. Then, …

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Do Young People Invest in the Stock Market?

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Do Millenials Have Money To Invest? A recent Bankrate survey shows that just 26 percent of Millenials say they own any stock. That sounds about right to me. As a former financial advisor, I never conducted any official, statistically valid surveys, of course, but I did talk to a lot of people, many of them younger. Younger people, like Millenials, almost never became my clients. The feeling was mutual. You see, most younger people don’t HAVE any money, even if they are currently making it. If you graduate from college at say 22, and you get a job paying $75,000 per year, then you are doing pretty well. But, you may have student loans; you probably would like to buy a house; you might be getting married and saving for a wedding. Of course, you might also be enjoying your freedom and taking trips, buying cars, and so on. The thing is, even if you were saving 10 percent of your income that still means you only have $7,500 of investable assets after a year. $15,000 the next, and so on and so on. By the time you had even the minimum of $100,000 that makes it worth even a …

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Is The Tech Bubble Worse than 2000?

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Mark Cuban made his fortune (well, his second bigger fortune) during the first tech bubble (some call it the internet bubble) when he sold Broadcast.com to Yahoo for $5.4 billion in stock. The real financial genius of Mark Cuban turned out to be not so much in the founding and selling Broadcast.com, but in quickly and effectively diversifying his investments (including all that Yahoo stock) before the bottom fell out of the internet bubble. Is 2015 a Tech Bubble? There have been a lot of people wondering for a few years now if technology is once again in a bubble. You’ve seen the big headlines, of course. Facebook bought Instagram for a billion dollars. Yahoo paid over a billion dollars for Tumblr (even though the company was probably quickly running out of money). These days, having a zero revenue company purchased for a billion dollars is commonplace. The idea is that somehow, someway, those users are worth money, even if the current company has no idea, or even plans, to make any revenue off of them. In many ways, this is like the stock market bubble that built up in the late 1990s, when any website was considered a good …

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401k Fees at Supreme Court

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Somehow I missed this until today. The Supreme Court is hearing arguments regarding a new(ish) law about 401k plans. Under something called the Employee Retirement Income Security Act (one of the few legislative acts of recent years that doesn’t have a snappy acronym), a company that has a 401k plan has a fiduciary responsibility to employees in the plan. This means that the company must act in the best interest of the employees. As you can imagine, in U.S. courts this gets pretty nebulous, but it does set a standard. Supreme Court 401k Case In this particular case, the company, Edison International, has a 401k plan with six mutual funds that charge higher fees than identical options. In other words, the plan administrator, through incompetence, or for other reasons chose the more expensive options for the plan. Unfortunately, this is very common. Usually, this isn’t the company, or the HR person, deliberately trying to screw over the employees. Instead, what happens is a 401k company comes in and offers up some proposals. It will say something like, you can have a plan with these investments and it will cost this much, or you can have these other mutual fund investments and …

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Why Cheaper Oil Hurts Stocks

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There is a lot of new lately about lower oil prices hurting the stock market. This comes as a shock to casual investors who are used to HIGHER oil prices hurting the stock market. If lower oil prices are good for consumers, and the consumer drives the American economy, then why would lower oil prices hurt stocks? Short-Term Stock Price Movements First, never forget that short-term stock price movements are much more about speculators maneuvering for quick profits than about the actual value or prospects of the stocks in question. One way to calculate a company’s value is it’s market capitalization which is the number of shares outstanding the company has times the company’s share price.  As I write this, for example, IBM has a market capitalization of $154.76 billion dollars. However, it’s stock is down approximately $3 per share from yesterday. That means that, theoretically, the company was worth $157.85 billion dollars yesterday. No matter what the price of oil is, there is no way that anything changed enough to make IBM worth $3 billion dollars less than yesterday. Short-term price fluctuations are the result of supply and demand. And, since a large majority of daily trades are actually between computers, …

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Your First Basic Financial Plan

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As a former Certified Financial Planner, or CFP, I tend, like many other financial experts, to think (and write) in terms of the tricky, the convoluted, and the complex. The truth is that money and personal finance can be very intricate and complex. However, it is also true that the biggest bang for the buck financial planning wise comes from doing the most basic things. Too often, we get caught up in things that actually end up being tiny details of your overall financial life. For example, many people shop endlessly for higher savings account interest rates. Whether you have a high-yield savings account, a regular savings account, or even a kids savings account, the interest rate matters far less than how much money  you put in it. If you have $10,000 and you put it in a regular savings account earning 0.5 percent, your interest for the year will be approximately, $50. If you got double that rate, 1.0%, then you’d have $100 in interest. In either case, you would still basically just have $10,000 at the end of the year, $10,050 or $10,100, respectively. Neither has a meaningful impact on your overall financial status. On the other hand, if …

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