The Truth About the Black Dollar

Almost every day I see a post on social media about the "buying power in the black community". The estimates can be anywhere from $500 billion to $1 Trillion.  I also see posts about spending money with black-owned businesses, or not spending any money on a specific day to let businesses really know how strong the black dollar is. I even recently saw an article about a woman who "bought black" for an entire year.  Kudos to her.

Let me dispel a big myth: Black Financial Power (just like White Financial Power, Asian Financial Power, Middle Eastern Financial Power, etc.) does not come from what is SPENT. Financial Power comes from what is SAVED. Period.  Think about it. You don't retire, or buy a house based on what you've spent. Your current lifestyle may be based on what you spent, but your tomorrow lifestyle will be based on what you've saved.  Bill Gates is not rich because he spent money, he's rich because he saved it.

So long as we keep talking about "empowerment" and "spending in black-owned businesses" as a way to power, we will never have it. In the 80s and 90s we talked about "Buy Black" and we did. FUBU, Sean Jean, Baby Phat, even BET.  We did our part. And we made some people rich. But what did it do for the black community? I haven't seen a Sean Jean Technology Center, or a FUBU Scholarship for those with economic hardship. Or even a Joe's Tavern back to school giveaway.  Currently people seem to be mad at Michael Jordan because we're spending $200 for sneakers and he's not investing where we think he should. At least he is investing. Are you?

If the goal of supporting black businesses is to increase black power, black businesses have to give back, instead of taking the money out of the community and spending it in the Hamptons.  Making black business owners rich, then watching them send their kids to Ivy League schools while the kids in the community go to community college because that's all they can afford is not a path to growth. The question is simple. If I spend my money with a black business, what's in it for me? (I'm not even going to discuss how it seems many black businesses charge more then their non-minority owned competitors. Much more.)

We complain about how we don't have any thing to pass down to our children, while driving $50,000 cars, wearing $300 suits and living in an apartment. The rules of money are no different for black people than they are for any other color people. If you spend it you don't have it anymore.  It's real easy to talk about how "the man" is keeping you down. Newsflash: "the man" is playing the game, and showing you exactly how to play the game. He's driving an older car (with the factory rims), using coupons, buying only what's on sale, maybe even shopping at Goodwill. And he's saving. Not just in his 401k, he has money in his bank account, so that if a problem arises he's not running down to TitlePawn.  But we often want to play by our own rules.  The game is still the game.  Money works the same way for everyone.  If you take your tax return and pay for your annual vacation to the Bahamas, don't complain when when your bank account doesn't have any commas in it. That's not a black rule, that's reality.

If we are serious about Black Financial Power, we should be teaching our children how to save. We as parents, friends, and most importantly, HBCUs. High schools and colleges don't teach how to balance a check book or how to effectively use credit cards. But institutions of higher learning are quick to offer graduates a credit card with the school name on it.  Talk about pigs led to slaughter...

The bottom line is this: we can talk about "empowerment" and "controlling our own destiny" all we want. Until we decide, as a people or an individual, that saving is more important than spending, we will never be in a position as a people or an individual, to dictate anything.

Wake up and save.

Possibly the 4 Most Important Years of Your Life

Two kids enter 9th grade. For the next 4 years they have perfect attendance. One graduates with a 4.0 GPA, the other with a 2.0.  They both go to college. The one, because of his good grades, gets a full scholarship. The other has to take out loans.  Both graduate and land identical jobs. But one has $300,000 in school loans to repay. Over the next 30 years. $1,700 a month. Every month. For 30 years. Fast forward 30 years. The one without school loans has been able to purchase several home, taking advantage of many tax breaks along the way.  The other has been living in a small rented home. At the age of 52 they are both now debt free, one has 10 years left to pay on his home, the other is looking to purchase his first home. What's the difference? Those 4 years in high school. Lives totally different all because of 4 years in high school. Still think good grades shouldn't be a priority?

The Bullet Dodge

Yesterday Fannie Mae (FNMA) and Freddie Mac (FMCC) both got smacked down hard. As luck would have it, I got out last week after taking a minor loss. No clairvoyance on my part, but I did re-examine my reasons for getting into them, which was a perceived increase in new home construction. I didn't look at any government statistics, just seeing new homes starting to go up. This was back in May and the two stocks did double back them.  But 5 months out I was seeing no upside bump or jump at all, so I pulled the sell trigger. Good thing I did. I'm still following them. At the new price I consider them both buying opportunities, but not yet, I want to wait a few days to see if they continue to drop (down about 10% today). Sure, a lot of it is that the markets have been down for 3 days, but at a time when everyone else has been getting a slap on the wrist, someone opened a can of WA of epic proportions. This is the price range they were at before the big spike so I don't think they'll fall too much more. But you never know.  Sure they may spike up and I'll miss a great opportunity, but I can live with that.  I'm still seeing lots of new construction, maybe the market hasn't caught up yet.  Ten years ago these were both $60/share stocks.  I can dream, can't I?

 

How to keep investors stupid....

This article starts out with the following: "A measure of stock valuations called the Rule of 20 states that the stock market is fairly valued when the sum of the average price-earnings ratio and the rate of inflation is equal to 20. Above that level, stocks begin to get expensive; below it, they’re bargains." I call BS. Why? 

First, all the elements that make up this this "rule" are things that only change once a quarter. By that measure, once stocks are deemed "overvalued" they will remain so for the next 90 days at least. Taking that to the next logical, it would say that you should not invest in any stocks because they are overvalued.  See how little sense that makes? 

Second, during this 90 day period when you're waiting to see if the stock market will have bargains again, thousands of stocks are ignoring the Rule of 20, 30, 40, 50 and 60 if it exists. They are moving up, down and sideways every day, every minute. Stocks don't follow any rules, they move with changes in supply and demand.

I cannot confirm, but I would not be surprised if this, and most stock market formulas, are the result of someone reverse engineering the results of the market, making up a formula that made sense on the third Tuesday after the Sunday the Dallas Cowboys played a home game and lost by 21 points and because it sounds good, using it to sell their mutual fund clients into investing more, because they sound like they know what they're talking about. I'm not so sure.

My rules for investing:

Rule #1: It is my understanding that financial advisors and mutual fund managers don't make their money from returns on their investments, they make their money from fees you pay.

Rule #2: If financial advisors did make their money from their investments, I doubt they wouldn't be telling you what they're investing in.

Falling Into The Trap...

One of the hardest things to decide when investing is when a stock has run it's course. What I mean is, you maybe bought a stock a few years ago and it's up 60-80% over that time, but in the past 2-3 months it hasn't really moved. It's plateaued.  An example is Microsoft (which I don't own at the moment). Back in the 80s ands 90s this was a millionaire maker. But if you look at it over the past 10 years, it's pretty much stayed between $25-$35/share.  During that time, if your goal was growth you didn't get much. But if you were one of the lucky ones who bought when it was less than $10/share, you were sitting on a nice return. A very nice return.  But you were sitting. In hindsight, you could have put that money to better use somewhere else. But it's scary to sell and miss any potential upside that might come (as it has in the last few months, moving over $40 for the first time in years). But hindsight is 20/40.



The challenge is to recognize an extended stagnation period in a stock and move your money to other stocks with potential grown. You don't have to move it all, especially if you think there's a chance of a spurt. But I suggest you at least take your initial investment and some gain off the table, that way your playing with "house money" meaning, if it goes south you took some gain off the table, as well as your initial investment, so you really haven't lost.

This is on my mind because I'm sitting on a few stocks with some ridiculous returns (in all fairness, I've had some since the 2007 crash). I've moved some, buying Fannie Mae (FNMA) and GT Advanced Technologies (GTAT) as I've mentioned in recent posts. Both are up as of today.  But I have to do more. I have several stocks with 3 figure returns that aren't moving like they once did. I'm not necessarily going to cash out totally, but I need to diversify.  I'm still seeing new housing going up on my way to work, and I still think there's about to be a housing boom (not bubble).  Interest rates are still low, and the economy is picking up steam, regardless of what some would like you to think. So, gotta get out of the trap.

Fanny and Freddie... The Return

On a day when the market was mixed to down, Fannie Mae (FNMA) and Freddie Mac (FMCC) were both up about 5%.  That got my attention, so I checked them out over the last 2-3 months. Seems like they've been trying to breakout, even hit $5.50/share this month.  So I  looked at the headlines over the last few weeks. At least all the writers think it's time to make a move.  Bottom line, they're both victims of the housing bubble collapse of 7 years ago. Before that, these were $60-80/share stocks. They may never get there, but looking at how they're moving, I think it's time to dip my toes in that water...

Sapphire Glass

A few months ago, I started hearing rumors about Apple looking to make their next iPhone with sapphire glass, replacing the gorilla glass they're using now. Assuming that, makers of sapphire glass are about to get bumrushed with orders from Apple.  Along the same lines as that rumor, GT Advanced Technologies (GTAT) appears to be Apple's choice to make the glass. On the strength of those 2 rumors I picked up some GTAT last week.  It's up 6% just today. No investment is a sure thing, but Apple has already put a ton (relative to what's in my pocket) of money into this company, and Apple doesn't throw cash around for fun. My expectation is that this stock will at least double by year end, if not sooner.

Happy Hunting....

Twitter Catches a Beat Down

Twitter (TWTR), the internet darling a few months ago, went fishing and reeled in a keg of whup @$$ today.  On a earnings report that beat financial expectations, but showed that member growth was not as perky as expectations, Twitter is down 23% today as of this writing. One day, almost a quarter of the market value, and a quarter of investor's Twitter holdings, just evaporated. The markets are fickle like that. Revenue was up over 100%.  They made more money than expected, but didn't gain enough new bodies. Makes you wonder what investor priorities are.

I thought there were questions on why it was rising in the first place, so maybe people were waiting for a chance to dump the stock. In any event, the last 2 months of growth just disappeared. The question, do you think this is a short term situation or do you think the bottom still hasn't hit? The stock is selling around $50/share now. It was around $65/share yesterday. I'm going to keep my eye on it tomorrow, that should tell where it's going over the next few weeks/months.

In general, stocks took a beating this week. My beloved Apple went from about $560 to $498 in a few days, but has since bounced back a little.  In any event, I missed the general drop, but if there's no reason for a stock to drop other than the rest of the market, that's a great buying opportunity.

Helen of Troy

No, not the lady, the company.  Helen of Troy (HELE) is the company behind such brands as Honeywell, PUR, Braun, Vicks, Revlon, Brut & Dr. Scholl's, to name a few.  In May it was below $35/share, today it's playing with $58, including a 10% gain yesterday on the news that they announced a CEO succession plan. Wow.

Looking at the quarterly revenue, it tanked in May, but has been growing like crazy since them. This is one of those "power behind the throne" type companies, you don't know their name, but you know all their subsidiaries.   In researching them, I came across this article where a product from Vicks is being used to map America's driest cities. Not the most exciting thing to hear, but that's music to an investor's ears.

I don't expect them to double in the next 6 months, but that would be nice. Realistically, I'm thinking this is a long term buy & hold.

As a side note, be sure to tune into tomorrow's Bunny Slippers Are Evil Jobseeker's podcast at 10:00AM. This week's discussion of money is joint effort between this blog and that one.

Hard to love BlackBerry. Very hard.

I came across this article today while doing some research: http://www.fool.com/investing/general/2014/01/08/blackberry-making-a-big-bet-on-physical-keyboards.aspx
I'm thinking, I must be missing something. Big. Back in 2007 when they had 2 presidents and no clue, they refused to get rid of their physical keyboard and almost got wiped off the planet. Now that that ship has sailed, they're thinking that's what will get them back in the game. Really?  Again, maybe I'm missing something, but I know personally my use of my phone is too varied to have to have a keyboard all the time.  Too many games and apps don't require one and if it's there all the time, IN THE WAY, I don't see it setting the world on fire. The BB10 was a disaster. They need to back up, look at where the market is going, and then try to be there.

What is it with companies who think they can walk into the cell phone/tablet space and unseat the 2 titans overnight? I mean, is there something in cell phones or tablet that people are begging for but not getting? I don't think so. And if they were, I doubt it would be physical keyboards.

Forget Logic, CYA

In about 10 days, if nothing happens, the US debt ceiling will not be raised and the government will start defaulting on it's debts. The details and specifics of this are unimportant, and most unexplainable. Bottom line: we've never done this before so there's really not a whole lot of certainty what will happen. Suffice to say, if today was any indicator, the stock markets are going to be running more and more scared. Because of the unknown.  

I've often said that you have to suspend logic when thinking about the stock market. Whether we raise the debt ceiling or not, companies like, for example, Apple or Amazon, will continue to make just as many iPhones and sell just as many widgets the day after we default as they do the day before. They won't report any good or bad earnings, or introduce any new products or services. But conventional wisdom says their stocks, along with many other companies, will probably get hammered. Why? Because people won't know what will happen when the debt ceiling doesn't get raised. And when people don't know what to do, they sell. And when people sell, the computer programs sell. Everybody sells. And when everybody sells, prices drop. 

I'm no certified financial advisor, this is just my personal opinion and you may take it with the biggest of grains of salt. But in my opinion, now is not the time to stay in the market. Over the next 10 days or so, a few things can happen with the markets: 1) the debt crisis problem gets solved and the markets continue smoothly, 2) the debt crisis gets worse and the markets crash.  I know what that means, the $50 stock I own today might be worth $20 in 10 days. In 2007 I was lucky enough to get out of the markets about 6 months before the crash. I was able to buy a lot of stocks for very low prices and they have since rebounded. I see the same thing happening in the next 2 weeks and I'm going to sit back and watch. I hope I'm wrong.  

Showdown Day

The government shut down at midnight last night at the same moment that Obamacare kicked in. And the markets are up today. Seems they like when the government isn't working and people are getting health insurance.  Anyway, still kicking myself for not paying attention to Facebook. They've pretty much tripled since they went IPO and crashed. Well, always more fish in the sea. Going to keep my eye on Suntech Power (STP ), they got a sweet deal from their government and made a nice run yesterday. Giving a bit of it back today. When the market's up, it gets harder to spot the bargains. Another weird one is Cray (CRAY). On the same day they announce some new accelerators, they take a 4% haircut.  Fannie Mae (FNMA) and Freddie Mac (FMCC) are still holding at around the $1.30 level. And GM is down 1%. Go figure. Will keep watching all these this week.

Stock to Watch - August

It's been a little while since Marissa Mayer took over, but things seem to be going well @ Yahoo! (YHOO).  At least a lot better than they were a year ago.  The stock has doubled since September and it's been a nice, smooth climb.  It's now around $28/share, I think it's got a $40 by the end of the year.

As for Fannie (FNMA) & Freddie (FMCC), they're still about triple what they were in March, but they're also falling from where they were in May. To make matters worse, earlier this month the President urged they be shut down. There's the writing on the wall, then there's the movers taking out the office equipment. Unless something really crazy happens, I see them becoming less and less relevant.

Catching lightning in a bottle...

Fanny Mae (FNMA) and Freddie Mac (FMCC) have both settled down substantially over the last few weeks, down from their meteoric run a few months back.  I caught a little of the magic and did pretty well, getting out before they settled too far down to earth. They're still about 100% higher than they were 2 months ago, but "past performance is no guarantee of future returns". Today they're down about 7%, and have been slowly dropping over the last month. I see them getting back in the $.50-$.75/share range within the next month or two. Bottom line, the run up was the result of headlines, but I don't think they're going to hit $60/share before hitting $.60/share.  On to other opportunities.

Staying the Course

Today is an ugly day in the market. Don't know why, don't care. But I see that not just my portfolio is getting slammed. That's a good thing. I take it to mean none of the fundamentals of my holdings have changed, just a beat down day for everyone.  My 2 current favorites, Fannie Mae & Freddie Mac, have been up or down at least 10% every day for the last 3 weeks. On average, more ups than downs.

My point is that on days like this, it's very easy to panic and sell. Or just panic. The stock market is all about ups and downs. If you can't take the downs, don't ask for the ups.

As I've said many times, when the market drops for no identifiable reason (ie., recessions) and takes a lot of stocks with it, this is a buying opportunity.  Why? Because when everyone comes to their senses, and this may take a little while, they're realize that those companies haven't changed fundamentally. And if they haven't changed, chances are people's perspective of them hasn't changed either. So any huge dip will probably get reversed. 

Fannie & Freddie: This is not rocket science!

It was around May 9 that I first said I was looking at Fannie Mae (FNMA) and Freddie Mac (FMCC).  They were both under $1/share.  In about 3 weeks they've tripled, including +25% today, on top of a +40% day last week.  I'm not bragging, it was pretty much luck on my part, but my point is, for you folks that have "financial advisors", how many gave you a head's up on this one?  Exactly. No one could have predicted this. I only looked because it went from about $.30 to $.74 in a day.

Picking stocks is not rocket science. I've had bad days, but today so far is really one of my best ever. My point is, and always has been, this is not rocket science! Any advisor that makes you think you can't pull a good stock pick out of your derrière just like they do is lying to you!

I am not a certified financial analyst, stock broker or anything like that. I have a full time job so I don't have the time to spend 40 hours a week analyzing stock tables. I don't have any insider information on any stocks I look at.  And I'm not the smartest person I know, maybe not even the smartest in my family. Yet I was able to pick these two. Things that make you go hm.....

Last thing, I don't think their ride is finished. I don't think it's too late to get in on it.  Just my opinion....

Poor People Save. Rich People Invest.

One thing you rarely hear discussed at job networking events, but everyone is thinking about, is money. It's the scariest part of being in job transition. If you don't have an income coming in, all you want to do is replace it.

Growing up, we were told to work hard, save our money and we would will be fine when you retire.  That's not going to work out for most of us anymore. Not just those who have lost jobs, but also the new kids just starting out. It's nice to think that you can spend 5-10 years being "irresponsible" after college because you know when maturity kicks in your are going to be killing it on the saving side. Unless right before you "grow up" you get laid off. BAM. Yeah, it happens, and it's still happening.

BLAH BLAH BLAH

My point is this: unless you can look at your savings balance and be sure you have enough money to last you 30-40 years at your current lifestyle and taking into account and unforeseen health issues, you need to save more.

FORGET SAVING

You know how rich people got rich? Not by putting their money in a bank and getting 1-2% interest.  Like the title says: Poor people save. Rich people invest.  Once we accept that premise, we can move on.  But you have to accept that. You have to wrap your mind around the fact that just putting your money in the bank will probably not allow you to retire to a lifestyle"in the manner to which you have become accustomed. If that's not high on the importance scale, fine. Just don't be surprised when you're getting the gold watch if it's not looking pretty.  Like the Boy Scouts say, the secret is to be prepared. From day one you have to prepare for that unexpected moment when the fertilizer hits the ventilator. Because at some point it most likely will. And it will be at the worst possible moment.

By definition, whatever you choose to invest in will have some risk attached, be it real estate, stocks, bonds, derivatives, MLM, tea, a small business, education, the lottery... Whatever you choose to invest in, educate yourself on it, make sure the risk level is acceptable as is the potential return, that you can do it long term, that's it's legal, doesn't look too good to be true (Bernie Maddoff's victims thought they had found the goose that laid the golden egg. Had they - or anyone - took a realistic look at what returns he was getting they would have quickly realized that something wasn't right. I'm not saying they were stupid, but good news blinds smart people. Remember Circuit City?  They were making money and ignoring the problems in their system - because they were making money.  Totally off topic, that's exactly why I won't buy Walmart stock, no matter how well it does. In my opinion, they got issues. Sure, they're making money, but when they hit the wall I think they will, it's going to be a massacre.  I digress.)

The bottom line, your chances of retiring comfortable by saving, unless you are extremely disciplined and deny yourself all your life, aren't that great.  Change the game....

One more reason to do your own investing....

I came across this article, the title says it all: Hedge Fund Partner Earns $33.5 Million For a Year While Losing Almost 10% of Fund Money.  It's like paying a babysitter to be home with your kids, but not necessarily to watch your kids. Just be there if the cops come by.

If you've been reading these for a while, you know how I feel about fund managers.  While I think they provide a valuable service, I think the pricing model is simply the stupidest thing from an investor standpoint I've ever seen.  Fund managers get paid by how much money they manage, not how well they manage that money.  It seems like such a small number, 1/10 of one percent, but when they have several hundred million or billion dollars under management, that adds up quickly.  The problem, or trick as the fund managers know it, is that people are generally lazy. Sorry to put it out there like that, but it's true. People will give a fund manager x dollars to manage. At the end of the year, the fund manager will send out a portfolio, showing what he/she is invested in at that point. There's the rub.  If all the stocks in the portfolio increased by a minimum of 4% last year, you would expect your portion of the fund to increase in value by at least 4%.  But nobody does that math. If they did, they'd probably realize that their portion may even have decreased? How is that? Maybe the fund manager was invested in crap all year and sold it off a week before they had to report it to you. Again, when they report, it's based on what they are investing in at that time.

I'm not going to spend the next hour venting against fund managers. If you are in a mutual fund, when you get your annual report, ask the following questions and do the following math:

1. How have the stocks in the fund done over the past 12 months?  Have they increased? How much? Whichever stock increased by the lowest amount, that's your baseline. Assuming you didn't do any withdrawals, your balance should have increased at least that percentage.  And don't let them tell you anything about needing to know the mix. The lowest increase is your baseline.

2. What are the fees? Usually represented as a percent of a percent of the funds managed, multiply this by the total fund value (not just yours, everybody's). You can probably find this in the marketing materials. This is a rough estimate of what they made off you.

Bottom line, fund managers should come with a money back guarantee.  

FNMA Be Rockin It, Rockin It, Yes They Are Rockin It

If you're paying attention, today (so far) is a good day for my BFFs Fannie Mae (FNMA) and Freddie Mac (FMCC). They are both up over 10% today, that's after a similar increase last week. All I can see for what's driving it is this article on Freddie rolling out a delinquent borrower program early. Whatever it is, I got a feeling this is about to get good. As I mentioned previously, they were both $90 stocks a decade ago. They won't get there overnight, but it looks like they're headed in that direction big time. I may get some more..

In technical terms, these two stocks have a higher beta than the rest of my portfolio. In laymen's terms, that means market moves impact them more aggressively than others: when the market goes up a little, they go up a lot, when the market goes down a little, well, you get it.

That is the challenge of investing: accepting a beta you're comfortable with.

In my smaller portfolio, Advanced Micro Devices (AMD) is up 18% in about 2 weeks. Sweet.  LDK Solar is up 5%, even though it's down 4% today.  I'd forgotten I'd bought WebMediaBrands (WEBM) some time ago, at $7.  It's now $1.70. Yeah, losing my shirt and some draws on that one. Luckily, the investment wasn't ridiculously big (even before the fall) so it doesn't make much sense to sell now, just to take such a small amount out. Better to let it ride and see if I can recoup some of it in the future.  In ArQule (ARQL) I'm pretty much even right now.

The market is getting interesting...

Today for a brief moment Fannie Mae (FNMA) and Freddie Mac (FMCC) were both up about 11%, this on top of the 20% they both rose earlier in the week. They're trading in the $.90/share range, this past week they posted some crazy, multibillion dollar profits so I think they're about to do some serious long term gaining. I may pick up some more. And interest rates are creeping up too.

Looking at one portfolio, everything (except Facebook) is up at least 14%.  Facebook is down 4% and in serious danger of getting deleted.  As for the others I bought this past week, AMD is up 8% already, but ArQle (ARQL) and LDK (LDK) are both down about 4% and 7% respectively.  Yes, they are about to go on the chopping block.

From time to time I do read what others think. Saw this article and will be keeping my eye on Citigroup (C)now. Why? because they're up about 50% over the past 6 months.  The Dow hit an all time high this week. I think we have at least 3-4 years of nothing crazy, so it's time to really start pulling some levers....