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“WEALTH” Is Not ONLY About Money

Thursday, February 22nd, 2024

“WEALTH” Is Not ONLY About Money

The terms “FREEDOM” and “LIBERTY” are often used interchangeably.

That’s WRONG

“FREEDOM” is a word of German origin that simply means the ability to make decisions or perform actions without external constraint.

BUT, “LIBERTY”, which has French roots, means “FREEDOM” that has been granted by some sort of external entity, typically a society or government.

In short, we must NEVER FORGET that our “LIBERTY” IS NOT GUARANTEED.

It’s “FRAGILE”… and must be “PROTECTED”.

That’s why YOU, ME, WE the ATWWI FAMILY TRADE/INVEST…

Having “WEALTH” means having the ability to “LIVE FOR OURSELVES, IN THE WAY WE CHOOSE”.

Having “WEALTH” means “NEVER HAVING TO DEPEND ON OTHERS”.

Especially the “GOVERNMENT”… which clearly doesn’t “ALWAYS MAKE THE BEST DECISIONS”.

Some people are of the “OPINION” that the government is the “GREATEST THREAT TO YOUR WEALTH”. It’s on a mission to CREATE DEPENDENCE and DESTROY INDIVIDUAL “WEALTH”.

 

PAYMENT PAST DUE

Just look at the “STUDENT DEBT” debacle playing out today.

Soon, millions of borrowers will again receive monthly bills in the mail…

AND, millions of borrowers will say they can’t “AFFORD” their payments.

Why???

Washington turned a SHORT-TERM “EMERGENCY” into a MULTIYEAR “FREE-FOR-ALL” in the name of political “INDOCTRINATION”

Younger generations are learning to “SPEND” instead of “INVEST”… and to “BORROW” without worry… because the government will be ready to step in when things go wrong.

It’s “DANGEROUS”… It’s creating a “NEW CLASS” of people who expect the government to take care of them… while giving the people in charge more and more power.

The final cost of all this??? Our FREEDOM!!!

When the government controls “DEBT”… it controls it citizens “LIVES”…

That’s why YOU, ME, WE the ATWWI FAMILY must build our own “WEALTH” by TRADING/INVESTING and making INTELLIGENT choices.

It’s why we must “SHOUT” it from the tallest rooftops and skyscrapers… and teach our CHILDREN and their CHILDREN about the FREEDOM and LIBERTY that is OBTAIN and MAINTAINED from “WEALTH”!!!

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

The Importance of Aligning “BELIEF” With “TECHNIQUE”

Wednesday, February 21st, 2024

The Importance of Aligning “BELIEF” With “TECHNIQUE”

I have had a couple of recent experiences that have distilled a truth more clearly than anything else I have ever encountered.

That truth is the notion that “BELIEF” trumps “TECHNIQUE”. That may not be the best way to say it, but stay with me…

Our “TECHNIQUES” grow out of our “BELIEFS”. If we believe solutions can come only from big government, we will never consider ideas that don’t fit with that “BELIEF”.

That leads me to the critical point of this little essay…

How do we keep our “BELIEFS” from being corrupted by our surroundings???

The political divide between “RED” and “BLUE” in America right now clearly corresponds to “RURAL” and “URDAN” living

“URDAN” centers tend to be “BLUE” and “RURAL” areas tend to be “RED”.

Out in the “COUNTRY”, folks are immersed in nonhuman things – trees, grass, creeks. In the “CITY”, folks are immersed in human-made things – roads, buildings, cars, traffic lights.

The result is an “UNCONSCIOUS” nudge in our “BELIEF” systems toward either “HUBRIS” or “HUMILITY”.

In no way do I think “CITY” living is “EVIL”. Do not interpret any “SANCTIMONIOUS” bias in this. BUT, I do think a “CITY” dweller must work harder at embracing a “BELIEF” system that puts people in the proper perspective relative to the universe.

In the “COUNTRY”, and especially on a “HOMESTEAD” or “FARM”, we encounter the limitations of human abilities routinely. You can’t stop a plant or animal from dying. You can’t control the weather. You can’t make hay when it’s raining.

These constant reminders of human LIMITATION help form “BELIEFS” in human capacity and help us determine which “TECHNIQUES” we should use.

A big, bossy cow never lets a timid rival get first dibs. A big, bossy government never lets a small startup compete with the people paying for political fundraisers.

The “VISCERAL” and “PRACTICAL” expression of life’s principles can be seen in the face of rural people every day. This may not explain all the reasons for the radically different policies (TECHNIQUES) between urban and rural voters, but I suggest it might be the biggest piece of the puzzle.

More than ever, then, “URBAN” people need to build relationships with farmers. “URBAN” people need to listen to “RURAL” people– and vice versa, of course.

You don’t make progress by telling people who are thieves they are victims any more than you make progress by tolerating a “ROGUE” cow’s aggressive behavior.

If a cow won’t take discipline, you EAT it…

That’s country WISDOM!!!

That’s how “BELIEF” determines “TECHNIQUE”...

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

America’s “DEBT” Problem Is the “CANARY IN THE COAL MINE”

Tuesday, February 20th, 2024

America’s “DEBT” Problem Is the “CANARY IN THE COAL MINE”

The following is a famous Hemingway quote…

“How did you go bankrupt???”

“Two ways. Gradually and then suddenly...”

That’s a conversation between two characters in The Sun Also Rises.

BUT, it might as well be U.S. “KEEPERS” in Washington talking.

America has a “HUGE” debt problem.

The “NATIONAL DEBT” is currently at $33+ TRILLION!!!

BUT, the problem isn’t limited to just U.S. government spending.

Oh, no. It affects nearly every level of the U.S. economy.

American household “DEBT” is now over $17+ trillion. Total credit card “DEBT” alone has hit a record $1+ trillion (or about 23%+ of our $4.7 trillion in total credit card limits).

The story’s not much better for corporate America, either.

Nonfinancial business “DEBT”, which excludes firms like banks and asset managers, is also uncomfortably steep. It sits at nearly $20 trillion.

These “DEBTS” add up to more than 140% of GDP!!!

BUT, there could be no other outcome after a decade of near-zero interest rates. With the cost of borrowing close to “ZILCH”… businesses used cheap, readily available money to fuel their growth.

Low rates also made rolling over “DEBT” easier than ever. Many businesses got into the habit of paying off old “DEBTS” with new loans… kicking the repayment can down the road.

Slowly but surely… the U.S. economy became “OVERLEVERAGED”!!!

A Federal Reserve’s Financial Stability Report, published in May (2023), showed that corporate “DEBT” as a percentage of corporate assets was at an “UNSETTLING” high.

 

The average publicly traded company has about a dollar in “DEBT” for every three (3) dollars in “ASSETS”.

Within the top quartile of companies by “DEBT”, it’s a nearly a one-to-one comparison.

While down from its 2020 peaks, “CORPORATE LEVERAGE” remains much higher than it was during even the 2008 financial crisis.

Worse still, interest rates are back up… and higher than they have been in over 20 years.*

*NOTE: CURRENCY VALUE “MAGIC” CAN AND DOES OCCUR WHEN YOUR ECONOMY IS BASED UPON A “FIAT” CURRENCY

“CHEAP” money is dead. It no longer pays to be in “DEBT”. In fact… it’s quite costly.

There was a steep “UPTICK” in CORPORATE BANKRUPTCIES last year (2023).

 

Chapter 11 bankruptcy filings are coming in at a higher rate than they have in recent years.

In fact, if we exclude 2020 – when the world faced a pandemic-induced shock to the global economy – we haven’t seen this many bankruptcies at this point of the year since 2010.

The U.S. is in TROUBLE!!!

The U.S. has become a nation that believes “DEBT” – PUBLIC and PRIVATE – does not REALLY matter. As long as U.S. citizens are consuming – and spending – the U.S. economy can continue to grow forever.

“DEBT” is just “LEVERAGE”, they say… not a “REAL”real burden.

WRONG!!!

If the U.S. does not get a “REAL” course correction… people will be left scratching their heads, wondering how it all went wrong.

GRADUALLY…and then SUDDENLY!!!

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

The Cost of “UNINFORMED” Trading/Investing

Monday, February 19th, 2024

The Cost of “UNINFORMED” Trading/Investing

I have always wondered what it would be like if a small town had a lot of “LOUSY” teachers???

Think about it…

Way back when I was in school, I had a “LOUSY” HIStory teacher. He was a "DRUNK" who read the answers aloud during tests. The longer students took to answer the questions, the more answers he gave away.

I was told, he did this for years. The same curriculum, the same half-hearted teaching method… the same results.

He pumped out students a year for 25 straight years – all of them with a “LOUSY” knowledge of American HIStory.

He might as well have “POISONED” the water.

The school created two (2) types of graduates – those who had the “APATHETIC” drunk and were “LOUSY” HIStorians… and those who had the “STRICT” curmudgeon and were “BORED” yet “COMPETENT” HIStorians.

But what if that “CRUMMY” HIStory teacher had not been alone???

What if there had been a math teacher just like him across the hall???

A “LOUSY” civics teacher beside him???

The people in that poor, uneducated town would be in TROUBLE!!!

The system is supposed to find stuff like this and fix it. BUT, after a while, dare I say it, the folks who ran the system would be too “DUMB” to know that anything was wrong.

Generation after generation of students would enter the “REAL WORLD” believing the same few things… the same “MYTHS”… and the same “LIES”.

This would create a “DIASTER”!!!

BUT, as we look around these days, we can’t help but wonder whether the problem isn’t bigger than a few “LOUSY” teachers here and there. We can’t help but think we are all part of a system gone WRONG...

Take your HEALTH, for instance…

We have all joked about the many studies on eggs. One week, they’re bad for us. The next week, it’s just the yolk that’ll kill us. A week after that, the nation is convinced that we should eat every egg we see.

Why is that???

Why are we such a fickle lot???

Did you know that there have been hundreds of studies on eggs and their relationship to our health and, more specifically, our cholesterol???

Many of these studies come to the same conclusion. Some show some important variances, though.

BUT, you have likely never been told about 90% of those variances. That’s because what we learn is determined more by WHO reports a study than WHAT that study reveals.

It all depends on the “QUALITY” of the SOURCE/TEACHER”!!!

There is no doubt that we live in an “INFORMATION” age. But the “QUALITY” of that information is rarely as good as it should be. What’s worse, the speed at which bad information flows has never been faster.

For sure, the system we rely on today is an absolute technical “MARVEL”...

An earthquake can shake the ground in a remote part of Indonesia… and people in Bismarck, North Dakota, can learn about it within minutes.

It’s “AMAZING”!!!

You certainly remember when the nation watched a major attack on our soil unfold in real time. Most people will never forget where they were when they first learned of the 9/11 terror attacks… nor will they forget who broke the news to them.

That’s the thing, though…

While there’s a lot we don’t OVERSTAND/UNDERSTAND about the human brain, it certainly has its simplicities… like “ANCHORING BIAS.”

This is “DANGEROUS”... But it’s been proven that we stubbornly remember the first thing we learn about something – whether it’s RIGHT or WRONG.

It’s why so many people have a hard time recalling the “TRUE” chain of events on that bright and sunny September day more than 20 years ago. And it’s why some people swear by eggs while others have sworn off them.

We believe what we are told first… and we stick with it even if the news evolves and the facts change.

It’s a tough obstacle and a formidable foe.

BUT, seeing the effects of this phenomenon time and time again has also become a great “BLESSING”. As they say, it’s good to know your “ENEMY”.

If we know that your HIStory teacher is “LOUSY” and only has a job because of a strong union… or that the nightly news tells only half the story… well, then we know what we you are up against.

We are “BIASED”, for sure… BUT, nowhere is this phenomenon more prevalent than in the world of “TRADING/INVESTING”.

Teachers and society in “GENERAL” aren’t liars. They are just “LAZY”.

They “BLINDLY” follow research done by people who came a couple of generations before them. The data has changed. The variables have shifted. YET, they continue to pull the same textbooks off the shelf and lecture as if it were still 1962.

If you’re listening to them, it’s COSTING YOU MONEY!!!

YOU, ME, WE the ATWWI FAMILY must break from the “TRADITIONAL” realm of thought/action and use RECENT DATE, TRUE-WORLD ANALYTICS and some CRITICAL THINKING to take a “FRESH” look at what it means to trade/invest in an environment where news is “INSTANTANEOUS” and MILLISECONDS count.

Some traders/investors will find the ideas we must OVERSTAND/UNDERSTAND overly complex.

Others will find them quite simple.

I say it all depends on your teacher… and who you learned from FIRST.

This is not a time to be an “UNEDUCATED” TRADER/INVESTOR!!!

It will cost you more than you know…

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

“KEEP IT SIMPLE” and GET “P.A.I.D.”!!!

Friday, February 16th, 2024

“KEEP IT SIMPLE” and GET “P.A.I.D.”!!!

If you are “OPTIMISTIC”, you are more likely to stay INVESTED…

Here’s a valuable “TIP” on how to beat the market: KEEP IT SIMPLE!!!

This seems like “DUMB” guidance in an investing world filled with “ERUDITE” portfolio managers who try to “DAZZLE” investors with “COMPLEX” strategies as part of their marketing.

BUT, here’s proof that “SIMPLE” is BETTER...

The Hennessy Cornerstone Mid Cap 30 Fund HFMDX — which has a strategy so “SIMPLE”that even I can follow it. HFMDX has topped its fund category and index by eight (8) percentage points annualized over the past three (3) and five (5) years. It also has outperformed nicely over ten (10) years — by four (4) percentage points annualized. 

That’s “REMARKABLE” in a world where most MUTUAL FUND and HEDGE FUND managers consistently “LAG” the market year in and year out — including many of the ones with the most “COMPLICATED” strategies. 

To get these returns, Hennessy portfolio manager (RYAN KELLEY) uses a “BASIC” seven (7)-part screen. He focuses on MIDCAPS, tossing out anything with a PRICE-TO-SALES RATIO above 1.5, and targets names with increasing EARNINGS and PRICE MOMENTUM.

He eliminates non-U.S. stocks and stocks under $5 a share because they can be LESS LIQUID.

He ranks what is left by STOCK PERFORMANCE and keeps the TOP 30.

Then he lets the portfolio ride for a year and “REBALANCES” again every October. 

The “GATING FACTORS” in his analysis are based on BACK TESTING that indicates what has worked over the course of a market cycle:

“The process is like a giant funnel,” KELLEY says. “We look for reasonably valued companies with growth in earnings that have turned off the bottom. We have been running it the exact same way since day one.” 

In a recent interview, Kelley explained the five (5) core investing lessons in his strategy that YOU, ME, WE ,the ATWWI FAMILY can all use. 

 

1. Go With The Flow

Legendary investors like MARTIN ZWEIG stand out for performance by using a “MOMENTUM STRATEGY” — which basically says whatever is working will continue to work. In short, momentum begets momentum. “Don’t fight the tape,” was how ZWEIG put it. 

KELLEY captures “MOMENTUM” in three (3) ways.

First, his analysis looks for positive STOCK PRICE MOMENTUM over past three (3) to six (6) months. “We don’t want to buy stocks that are still falling because it is hard to identify stocks right before they turn,” KELLEY says.

He then captures “PRICE MOMENTUM” again with the last step of his process. It ranks finalists by one-year STOCK PRICE PERFORMANCE and goes with the top names.

“We are OK with missing the first part of a move up because usually positive price movements last longer than six months.” Six months to one-year price momentum has the most predictive value. 

He also finds “MOMENTUM” by singling out companies where EARNINGS are improving, or LOSSES narrowing.

“This is important because if they are growing earnings, they are doing something right,” KELLEY says. 

 

2. Let Your Winners Run

A lot of investors spend far too much time “THINKING” about how to tweak their portfolios every week based on ”HEADLINES” and “PERCEIVED TRENDS”.

A common mistake is to take profits too EARLY.

“The tendency after a 100% move is to say ‘This has been a great holding and I am out,’” KELLEY says. He avoids this by “REBALANCING” only once a year. That helps him let portfolio winners RUN — in part by taking the EMOTION (greed) out of investing. 

 

3. Favor Value

KELLEY’s PRICE-TO-SALES CAP of 1.5 is “DRACONIAN”…

It means his fund won’t be invested now in popular “MAGNIFICENT SEVEN*” stocks.

BUT, there’s upside in this. “Value allows you to sleep better at night because there is less volatility,” says KELLEY.. AND you might not be missing out on much, depending on when you get in and out.

KELLEY points out the ”MAGNIFICENT SEVEN*” had a great 2023, but were down 42% in 2022. If you put the two years together, they were up just 8%.

The hard cutoff of 1.5 times sales brings another advantage. It gives KELLEY’s portfolio a “CONTRARIAN” bent by populating his portfolio with stocks in sectors that are “UNLOVED” by the crowd.

The system finds sectors that are “OUT OF FAVOR”, that have “STARTED TO TURN” and still have a “LONG RUNWAY” due to favorable changes in the ECONOMY or the SECTOR, says KELLEY. 

He goes with PRICE TO SALES as opposed to P/E or PRICE TO BOOK, because revenue is least likely to be “ADJUSTED” with by accounting “SLIGHT OF HAND” — another good lesson from his system.

As of the end of 2023, the Cornerstone MidCap portfolio was “OVERWEIGHT” CONSUMER DISCRETIONARY (20% of holdings), ENERGY (22%) and INDUSTRIAL (35%). 

.*The Magnificent Seven Stocks comprises Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Nvidia (NVDA), Meta Platforms (META), Tesla (TSLA), and Alphabet (GOOG/GOOGL).
 

4. Go With Midcaps

This means companies with MARKET VALUATION(s) of $1 billion to $10 billion.

Smaller companies like these are likely to be misunderstood because they have less (or no) analyst coverage.

But if you go too small, you increase VOLATILITY. That can stir up your “EMOTIONS. MIDCAPS are also more likely to perform well. “Over the last 20 years midcaps have outperformed large-caps and small-caps 60% of the time,” KELLEY says. 

 

5. Stay Optimistic

Over the years I have noticed that people in the market with the best records are often “OPTIMISTIC” — like WARREN BUFFETT.

NOTE: HIStory indicates…the U.S. stock market tends to go “UP” over time. 

KELLEY attributes his fund’s outperformance in part to his own “OPTIMISTIC” outlook. The KEY here is that if you are “OPTIMISTIC”, you are more likely to stay invested and not bail out near market bottoms when sentiment is “DIRE” — a common MISTAKE!!!

“Investing is not about timing and getting in and out of the market at the right time,” says KELLEY. “Because inevitably you will be wrong on one of those big up days.” 

PEACE & BLESSINGS

Kenneth Reaves, Ph.D.

 

The Ask The Wiz Wealth Institute is not an investment advisor. We strive to be educational and informative community servants.
 

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