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How To Get "P.A.I.D." From Fintech

Tuesday, August 16th, 2022
How To Get "P.A.I.D." From Fintech

Most Americans still manage their finances using brick-and-mortar banks, brokerages, and insurance companies.

But so-called “FINTECH” companies are slowly chipping away at these traditional businesses. Soon even your local bank branch and ATM may be relics of the past.

“FINTECH” is short for the “financial technology” sector. It consists mostly of startups that have developed digital technologies to provide cheaper and faster financial services to tech-savvy consumers.

Fintech services include payment processing, online and mobile banking, online and peer-to-peer (P2P) lending, and even online brokerages.

Fintech is still a small part of the overall global banking and financial sector. But it is snowballing. E-commerce and digital payments exploded during the worldwide pandemic.

Judging by the inroads fintech companies have made across the globe, fintech has plenty of growth ahead.

That’s why fintech is one of my favorite "BIG PICTURE" investment themes.

Let me explain…

A Global Phenomenon
Americans think of themselves as being on the cutting edge of technology and innovation.

The remarkable global dominance of the FAANG stocks – Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Google parent Alphabet (GOOGL) – confirms this view.

BUT, U.S. tech companies are far less dominant in the fintech sector.

Millions of Brits have abandoned traditional high street banks for “neo-banks” like Monzo, Starling Bank and Revolut. These upstarts offer bill splitting, virtual cards and even stock trading for far lower fees than established rivals offer. TransferWise, a currency-transfer business, has become a household name across Europe.

Fintechs are allowing less developed countries to leapfrog their more developed rivals.

In Latin America, Nubank and MercadoLibre ( MELI) are shaking up the stodgy banking sector.

Most Africans don’t have bank accounts. They use mobile phone payment systems instead.

But no region of the world has embraced fintech like Asia. A group of “super apps” offering a remarkable range of services puts them far ahead of any rivals in the U.S.

This week, China’s biggest fintech business, Ant Group, was expected to list 10% of its shares on the Hong Kong and Shanghai stock exchanges.

Ant had always billed itself as a technology company instead of a financial firm. As such, it avoided the onerous financial regulation its rivals had to undergo. Alas, Chinese regulators cracked down and stepped in to delay the initial public offering (IPO).

Ant had hoped to raise $34.4 billion in cash, making it the biggest IPO ever in terms of money raised. The offering valued the 6-year-old firm at a whopping $300 billion, putting it on par with Mastercard.

Ant’s story is remarkable even by fintech standards.

Ant was founded in 2004 as a PayPal-style payments service for the e-commerce giant Alibaba (BABA). But it didn’t take long for Ant to revolutionize China’s financial system.

Today, Ant has more than a billion active users in mainland China. It handled more than $17 trillion in digital payments in the 12 months ending in June. That’s about 25 times more than PayPal, the biggest online payments firm outside China.

The secret to Ant’s phenomenal growth?

Payments are merely a gateway service. Ant has also become one of China’s biggest lenders. It built credit-risk models with more than 3,000 variables, allowing it to make lending decisions within three minutes.

It sells more than 6,000 investment products. It manages China’s biggest mutual fund. It offers health insurance.

As The Economist described it…

Think of [Ant] as a combination of Apple Pay for offline pay, PayPal for online pay, Venmo for transfers, Mastercard for credit cards, JPMorgan Chase for consumer financing and iShares for investing, with an insurance brokerage thrown in for good measure, all in one mobile app.

In short, this fintech startup has built the most integrated fintech platform in the world.

How to Invest in Fintech
So how can you get "P.A.I.D." from the fintech revolution???

Well, you can’t directly invest in Ant...yet.

But NYSE-listed Alibaba owns a 33% stake in Ant.

You could also invest in an exchange-traded fund (ETF).

The star among the fintech ETFs this year is the ARK Fintech Innovation ETF (ARKF).

As an actively managed ETF, ARK is not constrained by an index. That allows the ETF to take big, concentrated positions.

ARK is also different from its competitors in that it invests only about two-thirds of its portfolio in U.S. stocks. The remaining one-third is spread throughout the world.

ARK’s top 10 holdings include positions in U.S.-based Square (SQ), Latin America’s MercadoLibre, and China’s Tencent Holdings Ltd. (TCEHY) and Alibaba.

Up 82.16% this year (2022), the ARK ETF is a swing for the fences.

If you’re going to take a big swing, "FINTECH" is the sector to do it in.

PEACE & BLESSINGS
Kenneth Reaves, Ph.D.

Lessons From the Life of Charles Ponzi

Monday, August 15th, 2022
Lessons From the Life of Charles Ponzi

Author Tom Wolfe gave that name to Wall Street’s financial wizards in his 1987 bestseller, The Bonfire of the Vanities.

These “Masters of the Universe” made millions of dollars a year and lived posh lives on New York City’s Upper East Side.

Many tried to buy immortality by putting their names on opera halls, museums and university buildings.

Yet none of them would ever achieve the enduring infamy of a financial antihero named Charles Ponzi.

This compact, dapper and loquacious Italian immigrant even earned his name a place in the Oxford English Dictionary.

Today, over a century after Ponzi’s arrest, the term “Ponzi scheme” remains synonymous with financial swindle.

What Is a "PONZI" Scheme?

A "PONZI" scheme is a type of trade/investment "FRAUD" that promises large profits at little to no risk.

The pitch for a "PONZI" scheme is ALWAYS the same

A promoter tells traders/investors he can earn astonishing profits by employing some arcane – often "SECRET" – investment strategy.

Of course, the promoter’s primary focus is on luring in new investors and using their funds to pay “PROFITS” to earlier investors.

A "PONZI" scheme is sustainable as long as new investors contribute new funds and do not demand full repayment.

When the money flow runs out, the scheme falls apart.

Charles Ponzi’s "COLORFUL" Life

Born in Italy, Ponzi was as far from a Yale-educated Wall Street blue blood as one could get.

Ponzi worked as a laborer, clerk, fruit peddler, smuggler and waiter until the age of 42.

Those who knew him described a smug little man just over 5 feet tall.

He was slim, self-assured and quick-witted. Above all, he had a "SILVER" tongue.

Ponzi began his infamous scam in early 1920. His timing was impeccable. It was the start of the Roaring ’20s, and money flowed easily.

Ponzi started by setting up the Securities Exchange Company as an investment vehicle.

The company invested in "OBSCURE" coupons that made money in an exchange transaction conducted with the U.S. Postal Service.

Ponzi offered to pay investors 50% interest in 45 days and 100% in 90 days.

He made the scheme sound "RISK-FREE"...

Investors cared little – and overstood/understood even less – about the "DETAILS".

They cared only about the "PROMISE" of quick riches.

Ponzi talked up a storm…

Stockbrokers, widows and businessmen all clamored to send Ponzi money.

Ponzi's success has been described like this: 

The money flowed in, first in drops, then in buckets… At first the money was stuffed into desk drawers in Ponzi’s little Boston office, but then it started coming in at a rate of over $1 million per week! Bills flowed from the tops of wastepaper baskets, then covered the floor ankle-deep! There was an endless flow of cash – plenty with which to pay off eager investors.

This “endless flow of cash” is precisely what Ponzi needed to pull off his scheme.

As long as the money kept coming, he kept paying what he’d "PROMISED".

Ponzi was robbing "Peter to pay Paul".

Then Ponzi started planning for branch offices. He spoke of creating a string of banks and brokerage houses.

He even bought a controlling interest in Hanover Trust Company and made himself president.

Ponzi moved into a large house with servants. Crowds followed him in the streets, chanting, “You are the greatest Italian of them all.”

But it was all too good to be true.

ALL GOOD THINGS COME TO AN END!!!

The Boston district attorney’s office began to investigate Ponzi. The Boston Post then revealed that Ponzi had been involved in a remittance racket in Montreal 13 years earlier.

All this could have sparked panic among his investors.

BUT, like all good promoters, Ponzi upped the ante.

He "PROMISED" to double investors’ interest payments.

Money continued to flow in. Finally, Ponzi was arrested by federal authorities on August 12, 1920, and was charged with 86 counts of mail fraud.

Even when out on bail, Ponzi sold underwater lots in Florida, making another small fortune.

In only eight months, Ponzi had taken in $10 million and issued notes for more than $14 million.

That’s the equivalent of $180 million today.

Authorities recovered less than $200,000 from his accounts.

Ponzi eventually pleaded guilty to charges of larceny and mail fraud. He spent over 12 years in jail. When he was released in 1934, he was deported to Italy.

He joined the fascist government and later became the business manager of an airline in Rio de Janeiro.

Ponzi ended up making a meager living teaching English. He died in 1949 with just $75 to his name.

The 6 (six) Red Flags of a "PONZI" Scheme

Ponzi’s life story is a striking reminder of the dangers of "PONZI" schemes – and how to avoid them.

To identify a "PONZI" scheme, here’s 6 (six) things you should look out for:

1) Guaranteed promises of high returns with little risk
2) Consistent returns regardless of market conditions
3) Investments that have not been registered with the Securities and Exchange Commission
4) Investment strategies that are secret or too complex to explain
5) Lack of paperwork for clients’ investments
6) Difficulties withdrawing clients’ money.


Of course, "PONZI" schemes did not end with Ponzi’s arrest.

As finance has evolved, so has the nature of the "PONZI" scheme.

In 2009, Bernie Madoff was convicted of running a "PONZI" scheme in the form of a hedge fund.

His firm falsified trading reports to show profits from investments that didn’t exist.

Madoff kept going for decades, despite several outside analysts like Edward O. Thorp and Harry Markopolos warning as far back as 1991 that his hedge fund was a "PONZI" scheme.

The Lesson Is This…

Motivated by "GREED", some traders/investors will always fall for the latest incarnation of a "PONZI" scheme.

These schemes can take many forms.

Today’s version is a charismatic CEO with a cult following who touts his stock, fund or cryptocurrency with fantastic but unfulfilled "PROMISES".

The particulars of each new "PONZI" scheme will differ.

BUT, IT's EVENTUAL "DEMISE" IS ALWAYS INEVITABLE!!!

Consider yourself warned....

PEACE & BLESSINGS
Kenneth Reaves, Ph.D.

Successful "INCOME" Investing Isn't Only About The "YIELD"

Friday, August 12th, 2022
Successful "INCOME" Investing Isn't Only About The "YIELD"

Suppose I offered you a million dollars "CASH" today???

OR... I could give you one penny today, two pennies tomorrow, four pennies the following day, and so on, for an entire month.
Many would choose the "COOL" million. After all, option B would only yield a grand total of $1.27 after the first week and $163.84 after the second. But that amount will continue to grow "EXPONENTIALLY". A steady doubling would produce a little over "$5 MILLION" after thirty days.
You’re probably familiar with stories like this. They’ve been around for ages.


For example, there’s an old folk tale involving a king and a peasant that illustrates the same concept. After doing a favor for the king, the peasant asks for a seemingly humble request: To receive one grain of rice for the first square on a chessboard, two for the second, and so on until reaching the 64th square.
We already know that by the 30th square, the peasant would be looking at a "HALF BILLION" grains of rice — probably enough to make him the wealthiest person in the kingdom.
So where am I going with all this???
Well, it’s simple. As investors, YOU, ME, WE, the ATWWI FAMILY can not underestimate the importance of "DIVIDEND GROWTH" over time. A stock might only dish out a few pennies per quarter today. BUT over time, that distribution could multiply several times over, greatly enriching shareholders.

Systematically Build Wealth Over Time
So let’s try this another way...

Would you invest in a stock with a dividend yield of 1%??? Probably not if you’re an "INCOME" investor. BUT, by definition, dividend investing is a "LONG TERM" approach to "SYSTEMATICALLY" build wealth over time. So it’s not about what a stock paid last quarter, but what it might distribute over the next 10 to 20 quarters or more.
That being the case, dividend growth prospects should ALWAYS factor heavily into your decision.

Consider Lowe’s (LOW). Just 10 years ago, the home improvement retailer offered a meager 16-cent quarterly dividend, barely enough for a payout of 2%. But the distribution rose relentlessly each and every year thereafter. Before long, the dividend doubled, and then nearly doubled again. The latest hike brought the quarterly payment up to $1.05.


This is what gets lost on most investments… Sure, the stock has gone on an amazing run. But investors who bought just a decade ago are also earning a yield-on-cost of nearly 20%. Also, they would have collected substantially more income along the way than with stocks that had a higher starting yield, but fewer and smaller dividend increases.
Meanwhile, the strengthening bottom line that fueled those dividend hikes has also propelled the stock from around $22 to nearly $200. So the dividend yield hasn’t really changed much over the years and still stands around 2%. But investors would be sitting on a total return more than 800%.

One last hypothetical scenario:

Would you rather take a job that pays a flat $50,000 annual salary with no growth, or one that pays $40,000 to start, with 10% yearly pay hikes?
The first job would generate $500,000 in cumulative salary over the ten-year period. The second, while less lucrative in the early years, would reach $50,000 in salary by the fourth year and continue to grow ever higher. By the tenth year, you would be pulling in $94,000 annually and would have earned a total of $637,000.
Now, if we drop the extra zeroes and add a percent sign, you see what I’m really getting at.
While a 2% or 3% yield won’t put as much money in your pocket today as a 5% yield, it might well generate significantly more cash over the next five to 10 years if the payouts are growing at a faster pace.
If the math is compelling for stocks with modest 2% yields (like Lowe’s), then you can imagine the potential for stocks that yield more and continue to raise their dividends well into the future.
Thus, it is evident, "INCOME" investing is not just about the "YIELD"..."DIVIDEND GROWTH" is the weapon that get's you "P.A.I.D."!!!

It’s about to become even more popular for a couple reasons.
1) Stocks with rapidly rising dividends will help investors be better equipped to keep pace with inflation.
2) Strong double-digit dividend growth is becoming increasingly hard to find.

PEACE & BLESSINGS
Kenneth Reaves, Ph.D.

Two (2) Stocks That Will Get You "P.A.I.D." During The 2022 Recession and Beyond

Thursday, August 11th, 2022
Two (2) Stocks That Will Get You "P.A.I.D." During The 2022 Recession and Beyond

Let’s take a look at how this recession will affect the giant mega-cap companies that most investors follow, and smaller companies operating in specific business niches.
The difference will show you where to put your money to "WORK" at next…
It would be very difficult, if not impossible, for huge, publicly traded companies like Apple, Walmart, Google, and Amazon not to have their business results track the ebb and flow of the broad economy. I see these large companies as being the broader economy. If the economy slows or enters recession, their business will likely follow.
When we look at smaller companies, the individual business may operate in areas that are not directly affected by the broader economy, or may even be countercyclical. For example, as we have discussed, vehicle "REPO" work gets very busy during a recession.
Looking more towards investing, apartment owners the in the Sunbelt benefit from falling home purchase affordability and the general migration to warmer, lower-tax states. 
My point is that there is a tremendous difference when analyzing mega-cap stocks compared to the investment prospects of smaller companies.

Business Development Company (BDC) stocks give us a double portion of investing goodness into smaller companies that are doing well in a tough economy.
BDCs provide debt and equity financing to their small to mid-sized corporate clients. By law, they operate low-leverage businesses, so rising interest rates don’t add a lot to expenses. On the flip side, the loans made to BDC client companies are almost 100% adjustable rate. As a result, rising interest rates positively increase BDC interest rate spreads.
The client companies of a BDC are, by definition, smaller businesses with the flexibility to quickly change to meet current economic conditions. The BDC will receive the loan payments as long as a client company stays in business. Many BDCs also take some equity in their clients, so when the clients thrive, the BDCs share in the gains.

My thesis was proven out by two dividend announcements made this year (2022).

With a $9.5 billion market cap, Ares Capital Corp (ARCC) is the largest of the publicly traded BDCs. Last week the company announced it had increased its dividend by 2.4%, to $0.43 per share. The boost is well above the 1.6% five-year average annual increase. ARCC yields just under 9.0%.

In February (2022), Hercules Capital Inc. (HTGC) announced a $0.15 per quarter supplemental dividend on top of the $0.33 regular dividend to be paid for all four quarters of 2022. Last week Hercules increased its regular dividend by 6.1%, to $0.35 per share. HTGC yields 9.6% based on the regular dividend.

Despite the slowing economy, these two BDCs and their portfolio companies are doing fine and will get you "P.A.I.D." inspite of the current "RECESSION".

PEACE & BLESSINGS
Kenneth Reaves, Ph.D.

Three (3) Cybersecurity Stocks That Are Poised To Get You "P.A.I.D."

Wednesday, August 10th, 2022
Three (3) Cybersecurity Stocks That Are Poised To Get You "P.A.I.D."
Tech stocks are rallying. Within the sector, cybersecurity stocks offer the best combination of growth and value especially as the sector’s importance grows everyday. Read on to find out why YOU, ME, WE, the ATWWI FAMILY should consider buying top cybersecurity stocks like Fortinet (FTNT), Qualys (QLYS), and OneSpan (OSPN).
After more than a year and a half of a brutal bear market, tech stocks are finally catching a bid. Since the mid-June lows, the Nasdaq 100 (QQQ) is up 17.4%. Some of the factors behind the rally are an unwinding of extreme bearish sentiment, the Fed’s “dovish hike’, and a better-than-expected Q2 earnings season.
To be clear, the economy and stock market continue to face significant challenges. However, it’s quite likely that tech stocks will bottom before the broader market just like they topped well before the Dow Jones Industrial Average and the S&P 500. Within the tech sector, YOU, ME, WE the ATWWI FAMILY should consider cybersecurity stocks especially as these companies continue to deliver earnings growth while their total addressable market (TAM) continues to expand at a healthy clip.
Additionally, cybersecurity continues to grow in importance. It’s a necessity for every company to secure their cloud infrastructure and IT stack which are increasingly integral to daily operations. It’s also an area of national security importance as cyberspace is another frontier on which countries battle. Given the bear market in stocks and improving prospects for cybersecurity stocks, YOU, ME, WE, the ATWWI FAMILY should consider these three (3) cybersecurity stocks for inclusion into our portfolios upon completion of our ATWWI "DRILL DOWN".

1) Qualys (QLYS)
QLYS is a pioneer and leading provider of cloud-based IT, security, and compliance solutions. The company offers Qualys Cloud Apps, Threat Protection, Continuous Monitoring, Multi-Vector Endpoint Detection and Response, and Web Application Scanning, among other solutions. Its customers include enterprises, government entities, and small and medium-sized businesses across several industries.
QLYS has been an impressive outperformer as it’s only down 10% YTD and is up 19.8% over the past year. The major factor is that unlike so many other tech and cloud-based stocks, it’s continued to see impressive growth in terms of earnings and free cash flow. Additionally, the need for security regarding cloud-based applications continues to grow at a faster rate than in other markets, and QLYS is one of the premier companies in this space.
In its last quarter, QLYS had revenue growth of 17%, and an increase in operating income of 27%. Next quarter, analysts expect this pace of growth to continue with an 18% increase in revenue and 31% jump in operating income.
From a more qualitative sense, QLYS offers investors an opportunity to buy the leading cloud security companies at a very reasonable valuation. 
Within the Software – Security industry, it is ranked #5 out of 29 stocks.

2) Fortinet (FTNT)
FTNT is a provider of cybersecurity and networking solutions and services. Its customers include enterprises, communication service providers, government organizations, and small businesses.
It’s a leading provider of firewall services and VPN services. Its premier product is FortiOS, which is a network operating system to manage network security appliances. Its cloud security offerings are available for deployment in public and private cloud environments and include application security.
Like QLYS, FTNT has been a relative outperformer with a 9% gain over the past year. While most tech stocks have been mired in a brutal bear market, FTNT has consolidated in a tight range, indicating that institutions are using adverse market conditions to accumulate shares.
Over the past year, FTNT’s revenue has increased 34% to $954.80 million. More impressive is that its revenue is accelerating. Next quarter, analysts are expecting 35% revenue growth and 39% EPS growth.

3) OneSpan (OSPN)
OSPN is a provider of digital solutions for identification, security, and business productivity. Some of its most well-known products are OneSpan Sign, which captures and processes a range of e-signatures for transactions, OneSpan Cloud Authentication, a cloud-based multi-factor authentication solution, and OneSpan Identity Verification, which enables identity verification services for banks and financial institutions.
Compared to its peers, OSPN has been an underperformer with a 35% YTD decline. However, the company is well-positioned in a growing market. For the full year, the OSPN is forecasting adjusted EBITDA between $5 million and $7 million. It also sees annual recurring revenue growth between 16% and 18%.

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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