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How To Minimize "RISK" and Get "P.A.I.D." During "BULL"/"BEAR" Markets

Friday, December 2nd, 2022
How To Minimize "RISK" and Get "P.A.I.D." During "BULL"/"BEAR" Markets

Where are stocks headed tomorrow??? The answer is no one knows...

It’s impossible to predict the future of the market.

That may sound disappointing – or just plain odd .

After all, analysts are supposed to have strong, well-reasoned opinions about the outlook for economic growth, inflation, interest rates, currency values, commodity prices and the market.

Yet those opinions are worth exactly what you pay to hear them: NOTHING!!!

Stocks are the best-performing asset class of "ALL TIME" – and that isn’t likely to change.

But whether stocks go up or down in the short-to-medium term will depend on events we can’t foresee.

Consider just a few of the biggest market-moving events of the last 35 years…

On Black Monday in October 1987, world stock markets crashed.

No government official was shot that day. No currency collapsed. In fact, there was no major news whatsoever.

Yet markets around the world plunged up to 40%… in a single session.

Who predicted this???

No one... (Except, of course, the broken clocks who predict a stock market crash every year.)

After a three-year recovery in stocks, we hit another "BEAR" market as the world geared up for the first Gulf War.

Who predicted that Iraqi President Saddam Hussein would suddenly invade Kuwait and grab its oil fields?

No one!!!

A few years later, the hedge fund Long-Term Capital Management lost $4.6 billion in four (4) months.

Then-Federal Reserve Chairman Alan Greenspan had to recruit 14 major financial institutions to help supervise its orderly liquidation and avoid a financial "PANIC".

Who predicted the collapse of a major hedge fund run by Nobel laureates???

No one!!!

In 2020, a novel virus escaped China and became a global pandemic, leading to a health crisis, millions of business shutdowns and the biggest spike in unemployment since the Great Depression.

Who predicted this???

No one!!!

Knowing all this, do you really care what some talking head on CNBC forecast's for the year ahead???

While the timing is always uncertain, we will have many "BULL" markets and "BEAR" markets in the future.

Smart investors prepare for them in advance.


You capitalize on "BULL" markets by owning a diversified selection of high-quality companies, with excellent prospects, that sell at reasonable valuations.

You prepare for "BEAR" markets by asset allocating outside of U.S. equities, position sizing your stock portfolio and running TRAILING STOPS/STOPLIMITS (TSs/SLTs) behind your individual positions.

You may feel you have a good grasp of what’s happening with the economy, interest rates, inflation and even geopolitics.

That’s still not enough.

"RISK" isn’t limited to what you CAN imagine. It also includes what you CAN't imagine.

Don’t get me wrong. I’m an optimist. I see human ingenuity, technology and capital markets creating a far better future. I remain a long-term believer in equities.

The biggest RISKS are the ones you can’t see coming.

The time to prepare for them is NOW!!!

Kenneth Reaves, Ph.D.

Recent Noteworthy Insider "SELLING"

Thursday, December 1st, 2022
Recent Noteworthy Insider "SELLING"

When insiders "SELL" shares, it indicates their concern in the company’s prospects or that they view the stock as being overpriced. Either way, this signals an opportunity to go "SHORT" on the stock. Insider "SALES" should not be taken as the ONLY indicator for making an investment or trading decision. At best, it can lend conviction to a "SELLING" decision.

Below is a look at a few recent notable insider "SALES".

Jazz Pharmaceuticals
The Trade: Jazz Pharmaceuticals plc (JAZZ) Director Patrick G Enright sold a total of 6,974 shares at an average price of $150.45. The insider received around $1.05 million from selling those shares.
What’s Happening: Avadel Pharmaceuticals recently announced that the United States District Court for the District of Delaware ordered Jazz Pharmaceuticals to delist U.S. Patent No. 8731963 (the REMS Patent) from the FDA Orange Book.
What Jazz Pharmaceuticals Does: Jazz Pharmaceuticals plc, incorporated in 2003, is a biopharmaceutical company.

MACOM Technology Solutions
The Trade: MACOM Technology Solutions Holdings, Inc. (MTSI) 10% owner Susan O'Campo sold a total of 45,090 shares at an average price of $69.06. The insider received around $3.11 million as a result of the transaction.
What’s Happening: The company recently posted upbeat quarterly earnings.
What MACOM Technology Solutions Does: MACOM Technology Solutions Holdings, Inc., headquartered in Lowell, Massachusetts, designs and manufactures analog semiconductor solutions for use in wireless and wireline applications across the radio frequency (RF), microwave, millimeter wave, and lightwave spectrum.

The Trade: Walmart Inc. (WMT) President and CEO Douglas McMillon sold a total of 9,708 shares at an average price of $152.12. The insider received around $1.48 million from selling those shares.
What’s Happening: Walmart recently reported better-than-expected Q3 results and raised its outlook.
What Walmart Does: Walmart, founded in 1945, engages in the operation of retail, wholesale, and other units worldwide.

Goldman Sachs Group
The Trade: The Goldman Sachs Group, Inc. (GS) President and COO John Waldron sold a total of 13,481 shares at an average price of $385.10. The insider received around $5.19 million from selling those shares.
What’s Happening: Goldman Sachs Group’s asset-management arm agreed to pay $4 million to settle a regulatory investigation.
What Goldman Sachs Group Does: Goldman Sachs Group, headquartered in New York, provides a range of financial services for corporations, financial institutions, governments, and individuals worldwide.

Kenneth Reaves, Ph.D.

The Recent Thanksgiving Rally Should Not Be Trusted

Wednesday, November 30th, 2022
The Recent Thanksgiving Rally Should Not Be Trusted

The market rally during the shortened holiday trading week of November 21st-25th should NOT BE "TRUSTED" just yet.

The Dow Jones Industrial Average (DJX) rose 1.78% during the week, the S&P 500 (SPX) increased by 1.53%, and the technology-heavy NASDAQ (IXIC) grew by 0.72%.

The move higher came for several reasons, but none materially changed the economy's outlook over the coming six to twelve months.

The biggest news was from the Federal Reserve. The FED's meeting minutes from their November 1st and 2nd meeting pushed prices higher after several FED members expressed interest in slowing the pace of rate hikes during future meetings.

Just the fact that the FED is talking about reducing the amount of their rate increases is significant, and many economists applaud this move. Economists are happy with this because the FED's policy changes have a lag, meaning it takes time for rate increases to show in economic data reports.

However, the concern has been the FED is raising rates too quickly, and by the time the lag sets in, the economy will be in the dumps. So, slowing the pace today is a possible way the FED can avoid running the economy into the ground. Not running the economy into the ground is the "soft landing" we often hear about when people refer to the FED and its current policies.

Another catalyst for the recent move higher was the Consumer Price Index (CPI) in October, which was up 7.7% from a year ago. This was the lowest CPI reading increase since January of this year (2022). But, let's be honest, a 7.7% increase year-over-year is still ridiculously HIGH inflation.

However, many economists are actually saying they are seeing inflation leveling out. We aren't yet seeing that happen with the CPI numbers because we are still looking at year-over-year comparables before inflation got out of control.

The true sign that inflation has slowed, or is still climbing, will be in 2023 when we see year-over-year comps comparing current inflation measures with the elevated inflation we began seeing in early 2022.

Despite all the optimistic news investors got over the last few weeks, when reality sets in, it is easy to see that neither the US economy nor the world economy is very healthy.

Central bankers of every developed country in the world are raising interest rates.

The US dollar is way stronger year-over-year when compared to nearly every major currency, which is not great for the world economy.

GDP growth rates are missing expectations and slowing from where they were a year ago.

AND... let's not forget Russia and Ukraine are still at war, causing major concerns to the energy markets and the possibility that parts of Europe will run out of natural gas during the coming winter months.

The possible energy crisis and the fact that Ukraine is a major world exporter of grains and other crops is not something that bodes well for lowering inflation in the short term.

Furthermore, we also are seeing Covid-19 cases in China, which is causing factories and even whole cities to go into lockdown.

Many economists believe that a large portion of the inflation we are currently experiencing is due to the supply chain issues we saw happening during the beginning of the pandemic. Therefore factories shutting down again all across China is not likely something that will help slow inflation.

Finally, let's not forget. The Federal Reserve members were talking about "slowing" rate hikes, not yet actually slowing them. They are not even starting to talk about stopping them. Let alone reverse interest rates and move them lower. While slowing rate increases is the first sign that inflation may be slowing, we still have a long ways to go until any potential recession or major economic slowdown is in the rearview mirror.

Correct me if I am wrong, but that still doesn't sound very good. It does sound better than before, but not what I would call a good, healthy economy.

I know it sounds like a broken record to say, "There are a lot of negative market headwinds, and therefore you should wait until the dust settles to buy." But I don't overstand/understand why people are in such a hurry to "BUY THE DIP" and call this the bottom.

If you are in such a rush, can't control your "FEAR OF MISSING OUT" (FOMO), and must buy into this market, buy small amounts and cost average over the next 12 months. Paying a few dollars more for something in a few months, if this is the bottom, is not going to destroy your investment return. But it could keep you from losing money because this is a "FAKE" rally, and the market rolls over again in 2023.

A few personal favorites if you want to start buying today are the Vanguard S&P 500 ETF (VOO), the iShares Core S&P 500 ETF (IVV), or the Invesco QQQ Trust (QQQ) over the next 12 months and don't try to time the market bottom.

Remember, you are investing for decades, so in the long run, the difference between buying today and six months from now won't make that much of a difference to your portfolio two decades from now.

Kenneth Reaves, Ph.D.

Get "P.A.I.D." By Doing What Buffett Does

Tuesday, November 29th, 2022
Get "P.A.I.D." By Doing What Buffett Does

The following three (3) policies – implemented by most governments worldwide – are primarily responsible for the high inflation we’ve experienced over the last year and a half.
Those policies include economic lockdowns, massive fiscal stimulus and maintaining ultra-low interest rates, even after inflation was running "HOT".
To combat the highest inflation in 41 years, central banks finally began raising interest rates this year (2022) the fastest pace in more than three (3) decades.
That has unnerved investors who fear that the FED will push the country into a "RECESSION".
These fears are already reflected in share prices.
That’s why news that U.S. consumer prices rose only 7.7% in October (2022) set off a furious rally in stocks.
Market pundits are now arguing about whether this signals the bottom or yet another false bottom.
It doesn’t matter which group is right.
We know that high-quality stocks are a lot cheaper than they were at the beginning of the year... AND "WISE" investors will take advantage of it.

Consider Warren Buffett, for example...

While others fret and sit on cash, the chairman of Berkshire Hathaway (BRK-A) – and one of the greatest investor of our era – is busy putting money to work.
After complaining over the last few years that he couldn’t find anything worth buying – and instead spending tens of billions on share buybacks – Buffett has loosened his purse strings in 2022.
Berkshire bought insurer Alleghany in March for $11.6 billion, its biggest acquisition in six years.
It also bought millions of shares of HP Inc. (HPQ), Activision Blizzard (ATVI), Taiwan Semiconductor (TSM), Louisiana-Pacific (LPX), Jefferies Financial Group (JEF), Paramount Global (PARA), Celanese (CE), RH (RH) and Occidental Petroleum (OXY).

Also, the company dramatically ramped up its stake in Chevron (CVX), making it one of Berkshire’s four largest investments alongside Apple (AAPL), American Express (AXP) and Bank of America (BAC).

Why does this matter???

Over the past 20 years, Berkshire has outperformed the S&P 500 by 110 basis points annually.
(That’s enough to turn $10,000 into $71,041 rather than $58,137.)

In fact, if you’d invested $10,000 in the S&P 500 in 1964 when Warren Buffett took the helm of Berkshire and held it through the end of last year, it would be worth $2,519,417.

BUT, if you’d invested in Berkshire itself instead, that $10,000 would have turned into $366,866,167.
(Berkshire could plunge 99% and Buffett would still have outperformed the S&P 500 over the last half-century.)

Now that’s all-star performance!!!

Buffett made his reputation as a "VALUE" buyer, picking up “mispriced businesses” whenever the opportunity arose.

Businesses are most mispriced in a "BEAR" market. Like this one.

According to SEC filings, Buffett invested $66 billion in stocks in the first nine (9) months of this year.

Millions of investors around the world dream about earning the kind of returns that he earns.

BUT, to earn returns that high, you’d have to do the kind of things that he’s doing.

As he puts it, “Be fearful when others are greedy and greedy when others are fearful.”

Investors who ignored this advice at the market peak received a "HAIRCUT".

Now we have the OPPOSITE situation. Share prices are cheap and it feels “WRONG” to most investors to buy stocks.

BUT, if it was "WRONG" when it felt "RIGHT", realize that it’s "RIGHT" when it feels wrong.

I know it’s difficult to commit fresh money to stocks when share prices are down, sentiment is negative and the national media is pouring on the "GLOOM and DOOM".

BUT, that’s the approach that has "P.A.I.D." off in every single bear market in U.S. HIStory.

There’s no good reason to believe that this time is different...

Kenneth Reaves, Ph.D.

When Should You Consider Redeeming Your I Bond

Monday, November 28th, 2022
When Should You Consider Redeeming Your I Bond

According to experts, there are a few factors to consider before selling your Series I bonds if you are one of the multitudes of new bondholders.

Per the U.S. Treasury Department, investors acquired I bonds worth more than $7 billion in October 2022, with $979 million flowing into I bonds on October 28th, 2022 when the interest rate was locked in for six months at 9.62%.

NOTE: You cannot access the funds for at least one year, and early redemption of I bonds incurs a penalty. You will forfeit three months of interest if you redeem your I bonds before the five-year mark.

Most purchasers of October 2022 I bonds should not cash out until January 2024. For instance, if you purchased I bonds in October 2022, you could receive a full year’s interest, taking into account a three-month penalty for early redemption, by waiting 15 months (instead of only 12) until January 2024 to redeem them.

Depending on future I bond yields compared to alternative cash choices, it may be advantageous to hold I bonds for longer than one year and three months.

You should only withdraw funds if you dislike the interest rate. When selecting whether to redeem, you must assess your objectives, risk tolerance and, time horizon.

How bond interest rates function:

The U.S. government backs I bonds provides both a "FIXED" and "VARIABLE" interest rate. The "FIXED" rate may vary every six months for new purchases but remains constant for existing purchases, whereas the "VARIABLE" rate fluctuates every six months in response to INFLATION.

While the Treasury publishes new rates in May and November each year, your "VARIABLE" rate is based on the date you purchased the bond. Even though the yearly rate changed to 6.89% on November 1, 2022 you might have secured the prior 9.62% rate for six months if you had purchased before October 28th, 2022.

For instance, if you acquired I bonds in October 2022, you will get a yearly interest of 9.62 percent for the next six months. In April 2023, you will begin collecting yearly interest of 6.48 percent for the next six months. (The actual rate on new I bond purchases differs from the headline rate of 6.89% owing to the fixed part of the rate, which remains constant after purchase.)

The Treasury adds six months’ interest to your original investment twice a year.

However, suppose your I bonds are less than five years old. In that case, the value displayed in TreasuryDirect eliminates the prior three months of interest.

When deciding when to redeem your I bonds, you should also consider the day within the month.

If you acquired I bonds at the end of October 2022, you receive credit for the entire month, so you may pay them out as early as October 1, 2023, the following year.

Moreover, I Bonds only collect interest on the first day of the month. Thus there is no incentive to redeem them later in the month.

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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