Monday, November 16, 2015

Do Nothing

Leo Tolstoy

A "do nothing" gets a bad rap in a busy bee world obsessed with constant updates, feedback, postings…a proverbial deluge of activity. The reality is, it a takes a lot of effort to do nothing.

Long-time, and long-term, financial farmers will appreciate and validate the soundness of this theory. One of the great modern philosophers of our time was Yogi Berra who had innumerable "yogisms" over the years. One of the best? "You can observe a lot by watching."

For those readers lucky enough to have read Tolstoy's masterpiece "War and Peace," the value of doing nothing is often featured as a prominent theme when faced with making a decision without enough data or confidence. "When in doubt, do nothing."

Finally, one of my favorite trading books of all time is Reminiscences of a Stock Operator which is a loosely veiled biography of the stock trader Jesse Livermore, who throughout his career had many massive ups and downs, is quoted as saying that he made most of his money by "sitting." That is to say, he made his move into an equity position and waited. And waited.

It takes a lot of effort to do nothing; there are multiple temptations, earnings releases, perceived opportunity costs, and yet to those who wish to Invest Like A Farmer, to "do nothing" is something indeed.

Sunday, November 15, 2015

The Startup IPO vs. The Established

In this land of amber waves of grain, one look at the above chart and it is obvious; investors should plant all their money into IPOs rather than established companies…or should they? Hmmm…I think financial farmers know a thing or two about what REALLY constitutes a viable business. Is an established company going public or has a company been established to go public? Those are two different things indeed; one is wheat, and the other chaff.

Established companies going public typically have significant track records of EARNINGS and increasing revenues. They may have been in business for years, if not decades. They have the three "Cs" locked up; cash, competence, and clients. This actually is a business that generates positive cash flow, has barriers to entry, and a validated business model. Many investors consider them boring businesses.

The flip side of this IPO coin, however, is the company with a limited track record, possibly increasing revenue (but no profits), and concentrated ownership with shocking compensation numbers. They often have complex business models with "new" metrics outside of GAAP (Generally Accepted Accounting Principles.) They are generally NOT considered boring by any means; indeed they are often labeled "disruptive."

These are two different scenarios indeed, and if you separate the proverbial wheat from the chaff, financial farmers will find that the former typically are actually established companies making a debut onto the public markets, while the latter are in fact dumping grounds to get founders, VCs, and banks paid on the backs of retail investors.

Make sure you're buying wheat, and not the chaff, as more and more companies come to market due diligence is essential.

Monday, November 9, 2015

Traditional Recipe for Disaster

As Thanksgiving rapidly approaches, I thought I would share a recipe I was given long ago. As I transitioned from Middle School to High School I was entrusted with this hardy document. Today I'd like to share it with you in the hopes that my fellow financial farmers make sure this recipe never makes it to their tables for any type of celebratory dinner.

No doubt readers of this prestigious blog also read lesser publications like the Wall Street Journal or Barron's that have featured in recent days numerous hedge fund meltdowns, all of them seemingly following the Traditional Recipe for Disaster to a tee; troubling given the immense asset bases they are entrusted with and also kind of odd given that a hedge fund by definition should have a HEDGE against the very position(s) they are long. (But what do I know, I'm just a lowly financial farmer investing in boring industries that pay me consistent dividends, have strong left to right charts, and I'm knowingly biased towards companies that report GAAP earnings.)

So download, print, and post this recipe somewhere you can enjoy the year-round; it's never to early to learn what can destroy your financial farm!

Tuesday, November 3, 2015

Pay Yourself First

One of the most challenging aspects of being a financial farmer is cashflow; that monthly ritual of deciding who gets what from your till. 

Pay yourself first. The reason for this is both mathematical and psychological; by paying yourself first you are entering on the leading edge (front) of the compounding cycle verses at a later, disadvantageous time. All things being equal, "now" is better than "later" regarding the time value of money.

Psychologically, as financial farmers we can usually justify paying other expense before ourselves, but that expense can usually be met somehow. We often justify waiting for saving or investing in our financial farm because it doesn't rank high on the priority list. That is a mistake. Pay yourself first, otherwise your expenses take on a higher compounding priority than your survival.

Finally, by paying yourself first you also are imposing a scarcity of resources which in reality mirrors the challenges of life. Running a successful financial farm involves feeding a lot of mouths, fixing equipment, and spending funds on a variety of unanticipated bills. The least you can do is pay yourself first; it will ultimately prove to be the resource which carries the day down the line.

Saturday, October 31, 2015

SEC Adopts Rules to Permit Crowdfunding

Proposes Amendments to Existing Rules to Facilitate Intrastate and Regional Securities Offerings

Washington D.C., Oct. 30, 2015 — 
The Securities and Exchange Commission today adopted final rules to permit companies to offer and sell securities through crowdfunding.  The Commission also voted to propose amendments to existing Securities Act rules to facilitate intrastate and regional securities offerings.  The new rules and proposed amendments are designed to assist smaller companies with capital formation and provide investors with additional protections.
Crowdfunding is an evolving method of raising capital that has been used to raise funds through the Internet for a variety of projects.  Title III of the JOBS Act created a federal exemption under the securities laws so that this type of funding method can be used to offer and sell securities.  
“There is a great deal of enthusiasm in the marketplace for crowdfunding, and I believe these rules and proposed amendments provide smaller companies with innovative ways to raise capital and give investors the protections they need,” said SEC Chair Mary Jo White. “With these rules, the Commission has completed all of the major rulemaking mandated under the JOBS Act.”
The final rules, Regulation Crowdfunding, permit individuals to invest in securities-based crowdfunding transactions subject to certain investment limits.  The rules also limit the amount of money an issuer can raise using the crowdfunding exemption, impose disclosure requirements on issuers for certain information about their business and securities offering, and create a regulatory framework for the broker-dealers and funding portals that facilitate the crowdfunding transactions. 
The new crowdfunding rules and forms will be effective 180 days after they are published in the Federal Register. The forms enabling funding portals to register with the Commission will be effective Jan. 29, 2016. 
The Commission also proposed amendments to existing Securities Act Rule 147 to modernize the rule for intrastate offerings to further facilitate capital formation, including through intrastate crowdfunding provisions.  The proposal also would amend Securities Act Rule 504 to increase the aggregate amount of money that may be offered and sold pursuant to the rule from $1 million to $5 million and apply bad actor disqualifications to Rule 504 offerings to provide additional investor protection.
The SEC is seeking public comment on the proposed rule amendments for a 60-day period following their publication in the Federal Register.
# # #

Regulation Crowdfunding
SEC Open Meeting
Oct. 30, 2015
The Securities and Exchange Commission will consider whether to adopt final rules that would allow the offer and sale of securities through crowdfunding.  The recommended rules would give small businesses an additional avenue to raise capital and provide investors with important protections.  If adopted, this would complete the Commission’s major rulemaking mandated under the JOBS Act.
Highlights of the Recommended Final Rules
The recommended rules would, among other things, enable individuals to purchase securities in crowdfunding offerings subject to certain limits, require companies to disclose certain information about their business and securities offering, and create a regulatory framework for the intermediaries facilitating crowdfunding transactions.  More specifically, the recommended rules would: 
  • Permit a company to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period;
  • Permit individual investors, over a 12-month period, to invest in the aggregate across all crowdfunding offerings up to:
    • If either their annual income or net worth is less than $100,000, than the greater of:
      • $2,000 or
      • 5 percent of the lesser of their annual income or net worth.
    • If both their annual income and net worth are equal to or more than $100,000, 10 percent of the lesser of their annual income or net worth; and 
  • During the 12-month period, the aggregate amount of securities sold to an investor through all crowdfunding offerings may not exceed $100,000.
Under the recommended rules, certain companies would not be eligible to use the exemption.  Ineligible companies would include non-U.S. companies, Exchange Act reporting companies, certain investment companies, companies that are subject to disqualification under Regulation Crowdfunding, companies that have failed to comply with the annual reporting requirements under Regulation Crowdfunding during the two years immediately preceding the filing of the offering statement, and companies that have no specific business plan or have indicated that their business plan is to engage in a merger or acquisition with an unidentified company or companies.
Securities purchased in a crowdfunding transaction generally could not be resold for one year.  Holders of these securities would not count toward the threshold that requires a company to register its securities under Exchange Act Section 12(g) if the company is current in its annual reporting obligations, retains the services of a registered transfer agent and has less than $25 million in total assets as of the end of its most recently completed fiscal year.
In addition, all transactions relying on the new rules would be required to take place through an SEC-registered intermediary, either a broker-dealer or a funding portal. 
Disclosure by Companies 
Companies that rely on the recommended rules to conduct a crowdfunding offering must file certain information with the Commission and provide this information to investors and the intermediary facilitating the offering, including among other things, to disclose: 
  • The price to the public of the securities or the method for determining the price, the target offering amount, the deadline to reach the target offering amount, and whether the company will accept investments in excess of the target offering amount;
  • A discussion of the company’s financial condition;
  • Financial statements of the company that, depending on the amount offered and sold during a 12-month period, are accompanied by information from the company’s tax returns, reviewed by an independent public accountant, or audited by an independent auditor.  A company offering more than $500,000 but not more than $1 million of securities relying on these rules for the first time would be permitted to provide reviewed rather than audited financial statements, unless financial statements of the company are available that have been audited by an independent auditor;
  • A description of the business and the use of proceeds from the offering;
  • Information about officers and directors as well as owners of 20 percent or more of the company; and
  • Certain related-party transactions.
In addition, companies relying on the crowdfunding exemption would be required to file an annual report with the Commission and provide it to investors.
Crowdfunding Platforms 
A funding portal would be required to register with the Commission on new Form Funding Portal, and become a member of a national securities association (currently, FINRA).  A company relying on the rules would be required to conduct its offering exclusively through one intermediary platform at a time. 
The recommended rules would require intermediaries to, among other things:
  • Provide investors with educational materials that explain, among other things, the process for investing on the platform, the types of securities being offered and information a company must provide to investors, resale restrictions, and investment limits;
  • Take certain measures to reduce the risk of fraud, including having a reasonable basis for believing that a company complies with Regulation Crowdfunding and that the company has established means to keep accurate records of securities holders;
  • Make information that a company is required to disclose available to the public on its platform throughout the offering period and for a minimum of 21 days before any security may be sold in the offering;
  • Provide communication channels to permit discussions about offerings on the platform;
  • Provide disclosure to investors about the compensation the intermediary receives;
  • Accept an investment commitment from an investor only after that investor has opened an account;
  • Have a reasonable basis for believing an investor complies with the investment limitations;
  • Provide investors notices once they have made investment commitments and confirmations at or before completion of a transaction;
  • Comply with maintenance and transmission of funds requirements; and
  • Comply with completion, cancellation and reconfirmation of offerings requirements.
The rules also would prohibit intermediaries from engaging in certain activities, such as:
  • Providing access to their platforms to companies that they have a reasonable basis for believing have the potential for fraud or other investor protection concerns;
  • Having a financial interest in a company that is offering or selling securities on its platform unless the intermediary receives the financial interest as compensation for the services, subject to certain conditions; and
  • Compensating any person for providing the intermediary with personally identifiable information of any investor or potential investor.
Regulation Crowdfunding would contain certain rules that are specific to registered funding portals consistent with their more limited activities than that of a registered broker-dealer.  The rules would prohibit funding portals from, among other things: offering investment advice or making recommendations; soliciting purchases, sales or offers to buy securities; compensating promoters and other persons for solicitations or based on the sale of securities; and holding, possessing, or handling investor funds or securities.
The rules would provide a safe harbor under which funding portals could engage in certain activities consistent with these restrictions.  The rules also would require funding portals to maintain certain books and records related to their transactions and business.
Crowdfunding is an evolving method of raising money through the Internet, but it has generally not been used to offer and sell securities.  That is because offering a share of the financial returns or profits from business activities could trigger the application of the federal securities laws, and an offer or sale of securities must be registered with the SEC unless an exemption is available.    
The JOBS Act included an exemption to permit securities-based crowdfunding and established the foundation for a regulatory structure for these transactions.  It also created a new entity – a funding portal – and allows these Internet-based platforms or intermediaries to facilitate the offer and sale of securities without having to register with the SEC as brokers.  The SEC was tasked with adopting rules to implement these provisions, which are intended to facilitate capital raising by small businesses while providing significant investor protections.
Staff Report 
The staff would undertake to study and submit a report to the Commission no later than three years following the effective date of Regulation Crowdfunding on the impact of the regulation on capital formation and investor protection. 
What’s Next?
The new rules and forms would be effective 180 days after they are published in the Federal Register, except that the forms enabling funding portals to register with the Commission would be effective January 29, 2016. 
Proposed Amendments to Facilitate Intrastate and Regional Securities Offerings
SEC Open Meeting
Oct. 30, 2015
The Securities and Exchange Commission is considering whether to propose amendments to Securities Act Rule 147 and Rule 504 of Regulation D.  The proposed amendments would be part of the Commission’s efforts to assist smaller companies with capital formation consistent with its investor protection mission. 
Highlights of the Proposed Amendments
Proposed Amendments to Rule 147
The proposed amendments would modernize Rule 147 to permit companies to raise money from investors within their state without concurrently registering the offers and sales at the federal level.  The proposed amendments to Rule 147 would, among other things:
  • Eliminate the restriction on offers, while continuing to require that sales be made only to residents of the issuer’s state or territory.
  • Refine what it means to be an intrastate offering and ease some of the issuer eligibility requirements in the current rule.
  • Limit the availability of the exemption to offerings that are registered in-state or conducted under an exemption from state law registration that limits the amount of securities an issuer may sell to no more than $5 million in a 12-month period and imposes an investment limitation on investors.
Proposed Amendments to Rule 504
The proposed amendments to Rule 504 of Regulation D would increase the aggregate amount of securities that may be offered and sold under Rule 504 in any 12-month period from $1 million to $5 million and disqualify certain bad actors from participation in Rule 504 offerings.  The proposed rules would facilitate capital formation and increase investor protection in such offerings.
The Commission adopted Rule 147 in 1974 as a safe harbor to a statutory intrastate exemption – Section 3(a)(11) – that was included in the Securities Act upon its adoption in 1933.  Market participants and state regulators have indicated that the combined effect of the statutory limitation on offers to persons residing in the same state or territory as the issuer and the prescriptive eligibility requirements of Rule 147 limit the availability of the exemption for companies that would otherwise conduct intrastate offerings. 
What’s Next?
The Commission will seek public comment on the proposed rules for 60 days.  The Commission will then review the comments and determine whether to adopt the proposed rules.

Friday, October 30, 2015

The Gig Economy

The Grapes of Wrath

It's been over 6 years since the bottom of the Great Recession, but the ensuing societal shifts toward a pure Gig Economy have been more than lingering…they seem to be permanent; fewer and fewer workers enjoy the security or perks of previous generations. Many in both the Greatest Generation and Baby Boomers had lifelong jobs, medical care, and generous pensions. The price of owning a home was a reasonable multiple to income. Interest rates provided actual real income from savings. 

Today, CEOs no longer "earn" a reasonable multiple to their average employee, and the difference between (I use the word "between" rather than "among" because there are basically 2 classes left: poor/middle class and the uber-rich) classes is wider than ever. Indeed, over the past several years 95% of income gains went to the top 1%.

Given that, it was high time for a resource for the Gig Economy focusing on 5 big factors; employment, health care, family, finance, and education. Over the coming weeks will be spun-off from this blog as a pure play to focusing exclusively on the Gig Economy. will feature authentic stories and interviews with Americans now working, living, and raising a family in the real Gig Economy. It will offer perspectives and best-of-breed practices to help our country's middle class succeed in the face of massive global competition for scare resources.

If you're interested in being featured in one of the "big 5" categories of employment, health care, family, finance, or eduction please let me know.

Monday, October 26, 2015

Influence Peddling

It's not a Democrat or Republican issue…it is the central issue to our Democratic Republic; influence peddling. 

What traditionally has sustained the United States, indeed help to cast it at a country of opportunity, free enterprise, and a beacon for millions of oppressed is the belief in fundamental fairness.

One of the major factors of a successful country is the LACK of corruption, especially blatant corruption that signals leaders are above the rule of law. Why is this important? Because influence peddling undermines the very fabric of our Democratic Republic.

The policy standard actually is pretty generous to high ranking officials; it provides what some have called a revolving door that allows various officials the ability to move between private and public employment very easily. This is particularly troubling in regards to the highest elected and appointed officials in the United States; take for example the position of President, Secretary of State, Fed Chair, and head of the NSA.

This is the "cooling off" Standards of Conduct; I believe it is being blatantly ignored.

Let's look at 3 examples:

Bill and Hillary Clinton; former President of the United States and Secretary of State. No cooling off period prior to solicitations, ACTIVE political appointee, massive yearly income from multiple sources.

Next we have the former Head of the NSA, Four Star General David Alexander whose nemesis Edward Snowden is now enjoying exile in Moscow. Gen. Alexander reportedly began IronNet a start-up company the day after he retired which was recently funded $32.5M. When you're pulling down a pension and tapping all your old subordinates for contracts that's a problem.

Finally, I'd like to mention our former Fed Chair Ben Bernanke. I'm a big fan of Mr. Bernanke, but not a big fan how the most powerful unelected person in the world now is consulting for private firms. Is it legal? Probably, but it just doesn't seem right.

The Greatest Generation was know for their service in WWII; indeed, being a member of the military was commonly referred to as "being in the Service."

What we are increasingly seeing is Self before Service. Take note: if you are a government official of significant rank the generous pension, healthcare, and benefits you receive for the rest of your life is compensation for you work; your "service." Your service was the altruistic motivation you had to serve your country at a presumably reduced salary versus what you could have earned in the private sector.

You know this, I know this, all the financial farmers reading this piece know this; influence peddling whether real or perceived destroys this country. Your "service" does not include the collective goodwill of this country as bargaining chips.

I don't think holding former elected/highly appointed officials to the same standards as FIFA or the Olympic committee is too much too ask, there is just too much this country has endured to be blighted by blatant influence peddling.

Sunday, October 18, 2015

Ratchet Up the Cash Flow

One of my favorite investing books of all time is Rich Dad Poor Dad which if you've had an opportunity to read outlines the basic principle of defining what an asset is, and recommending ONLY purchasing assets. Simply put, Kiyosaki defines an asset as something that pays YOU to own IT. I think that is an accurate description.

And although some may disagree, the stock market is probably one of the greatest inventions ever because it allows investors at almost every level of the economic spectrum to buy assets in the form of ownership interest(s) in companies that pay dividends.

By Kiyosaki's definition, however, many, many stocks do not qualify as assets because they pay no dividend. As financial farmers, we like dividends. It is one of the tenets of our philosophy.

So with that said, 2015 has proven to be an excellent year to literally stock up on dividend paying stocks which saw their valuations get crushed in August only to rally back through October; little mention has been made of the increasing number of companies RAISING their dividends while also buying back shares and cutting costs as well. 

Pure growth investors heap piles of…scorn…on those who invest in dividend paying, cost-conscious, shareholder friendly companies, but the long-term benefits are obvious; a steadily rising left to right stock price.

The opportunity of a lifetime comes across my desk about once a month, and ratcheting up cash flow has consistently been one that stops by to say "hello." Boring, enduring brands with monopolistic presence, pricing, and products are tough to beat over rolling 10-year periods. Take a look as some of the most boring businesses in the S&P 500 YTD…very juicy cash flow indeed.

Saturday, October 17, 2015

Invest Like A Farmer 6-Step Guide

Step 1 - Click to Enlarge

Step 2 - Click to Enlarge

Step 3 - Click to Enlarge

Step 4 - Click to Enlarge

Step 5 - Click to Enlarge

Step 6 - Click to Enlarge

Sunday, August 30, 2015

My Friend Benjamin

I have a good friend named Benjamin I'd like to talk to you about today. Although he's also known by Benji, since this is a serious financial blog I will address him by his given name.

Now as a financial farmer there are many good reasons to own equities; appreciation, income, and liquidity of assets immediately come to mind. We have discussed at length the concepts of putting together a financial farm, diversity of holdings, and leaving fields fallow occasionally as well. We may be entering 12-18 months of diminishing growth with little inflation, and perhaps even global deflation on some levels. That typically doesn't bode well for equities. My friend Benjamin, however, is almost always a good person to have around.

First, Benjamin is very popular. He can actually get into any club he wants to, whenever he wants to, almost anywhere in the world. That's pretty cool. To say he is "widely accepted" would be a serious understatement, Benjamin is often asked for by name. He's just always been someone people like to have around. He actually has more friends on Facebook and followers on Twitter than all the other celebrities combined. So that's cool.

Second, he gets things done! Benjamin is a man of action who is an expert at many trades, skilled in manufacturing, and dominates much of the service industry. If you need something done or want to add something to your financial farm, Benjamin is the man to call. Even in this day in age, Benjamin still is pretty much the "go-to" guy for nearly anything on Angie's List, eBay, or Wall Street. Not to mention the supermarket, gas station, or heaven forbid the hospital.

Third, Benjamin has your back; in good times and in bad times it has been a good thing to keep him close by; gold? Yeah, good luck finding a smelter at midnight! He's a heavy hitter, but only weights a gram, he's got all types of security features going on to protect you, and Benjamin respects your privacy. Don't even get me started on loyalty. The IRS respects Chuck Norris, but fears Benjamin because only he can settle all your debts, both private and public. Now that's somebody who has your back!

If you haven't had a chance to meet Benjamin, look him up and don't be shy about making him your friend too…there are just so many good qualities about him not to make Benjamin an integral part of your life.

Wednesday, August 26, 2015

Waterfall Decline

Surviving a waterfall decline requires fortitude and patience, both of which are usually in short supply after a dramatic fall from a seemingly placid market. A 2,000 point drop on the Dow Jones Industrial Average over the past 2 weeks has been brutal, there's nothing quite like seeing hard-earned money getting vaporized for seemingly no fundamental reason. The question naturally arises, now what?

Frequent readers of this blog are well aware of the Invest Like A Farmer mentality; we're buying shares (small pieces) in a business, and we prefer highly profitable, monopolistic companies with a steadily increasing left to right chart. We value boring here. By definition, most monopolies are resistant to sudden economic swings. An entire farm planted with the seeds of multiple monopolies is an even better position to be in, as it is extremely unlikely, barring an astroid impact, that all business on Earth will cease.

The major change after a waterfall decline is that a company's dividend yield is now higher since the share price has fallen and financial farmers can now pick up more shares at a lower cost basis. All things being equal, consumers will most likely continue to drink coffee, smoke cigarettes, buy smartphones, wear sneakers, take medicine, drive cars, fix the shed, user their credit cards, and see a movie. Indeed, prevailing monopolies often have the ability due to their strong balance sheets of further consolidating their respective industries.

On August 9th (check out the posting to verify!) I suggested that the dollar was king and a good 401K would be $401,000…given the fall we've seen over the past two weeks, and the past week in particular, it makes sense to review your holdings and identify promising candidates for additional seed capital.

Goldman Sachs had a great article this morning in the Wall Street Journal comparing this correction to 1998 rather than 2008 and the Bespoke Investment Group also had a very interesting piece identifying just how rare true waterfall declines are (this is the sharpest in 75 years!)

My advice remains constant; have a healthy cash reserve at all times, build a portfolio of boring monopolies (i.e. highly profitable companies that pay consistently higher dividends with strong left to right charts), and continually focus on the long-term objective of creating sustainable, generational wealth. Opportunities like this don't come along too often and it is important to seize them when they do.

Wednesday, August 19, 2015

The Growth Engine

We find ourselves in the midst of a summer swoon characterized by extreme volatility, especially with a collapse in commodity prices and pure destruction of Asian stock prices. But since we Invest Like A Farmer, a classic summer sell-off presents numerous opportunities. As Fast Eddie Felson once commented, "Do you smell that? Money!"

First, the economic growth engine has not stalled. There are many, many specific industries including tech, biotech, and entertainment which, from a historical earnings perspective, are soaring. There have been more blockbusters in real dollar terms than any time in history. A lot of that has to do with the ability to pipe data, whether in terms of content or simply global connectivity, to an increasingly larger consumption base. Smart phones are ubiquitous, and that means countless upgrade cycles with thousands of must-have capabilities imbedded in them, for better or worse, that society demands; mobile pay, tweeting, and health monitoring immediately come to mind.

Second, a natural side-effect of success is chaos. As stylistically written in the NY Times recent hatchet job done on, success breeds contempt, copycats, and often litters the field with the failure of methods, products, and competitors that didn't succeed. The real concern should be for a LACK of chaos; the status quo almost universally signals a stall.

Third, they're probably right about biotech. First Bill Miller and now multiple other financial managers are jumping on the bandwagon saying that "the next Apple" is going to be a biotech. That makes sense; a product that can be distributed globally, small size, and lasting curative effect all point to towards a solid bullish case for this sector; have the stock prices themselves overextended reason? Maybe, but a strong product cycle often pauses, consolidates, and pushes higher.

Catching a falling knife is by definition a risky move; why bother? As financial farmers and readers of this blog well know, I suggest keeping a dry keg of powder (cash) at all times and waiting for that moment(s) of capitulation, and then waiting even a bit longer until you start to visually see and feel an uptick to deploy capital. We're probably not there yet, but if history is any guide, the volatility of August and September usually yield a multitude of buying opportunities (what we call "planting cycles"in the Invest Like A Farmer business!)

And that noise you hear in the background, the quiet hum? Oh that's just the growth engine humming along...

Saturday, August 15, 2015

Tweet Nation

Once in a while I find a really cool website, and for those of you who like metrics, data, and generally cool marketing stats I think you'll love Nielsen Social. It is the fusion of television and Twitter which of course is a marketeer's dream; instant analytics on user reaction (and subsequent action.)

From an investing standpoint, this public information on Nielsen Social is really telling; it instantly gives you the ability to evaluate an audience size, its effects on motivating them to interact socially, and a higher degree of certainty in regards to what actions they took as a result.

Although I don't have additional data to back up this theory, I suspect there is a direct correlation to the efficiency of an advertising campaign linked to the content which generated the best buzz.

But like Don Draper said, advertising only works on some people. The people who watch…and Tweet about it. 

Monday, August 10, 2015

Asymmetrical Reward

Sharp movements in the stock market, to the upside or downside, often reveal asymmetrical rewards waiting to be harvested by the patient, and thoughtful, financial farmer.

By definition, an asymmetrical reward implies a significantly higher return than the initial investment; in fact a MULTIPLE return.

Typically this is associated with Las Vegas style gambling, where the odds are definitely not in the farmer's favor. The thing about the stock market, though, is that even if a stock doesn't go up today, tomorrow, or for weeks or longer, and it is still a viable company making money on money, well then what is occurring is P/E compression (price-to-earnings). The value stacks up, but the price hasn't moved.

Sooner or later something has to give. As we witnessed in 2008/2009 many companies went under, especially in the financial sector. Yet, as many companies that traded down to $1 per share offered true asymmetrical rewards; many of those dogs are now darlings trading well, well above their $1 capitulation points.

Given the recent sell-off we've witnessed, I have a couple ideas on the radar which I believe have reached capitulation points yet are still earning millions upon millions of dollars while laying on the side of the investment road left for dead. 

At a certain point, shares act like options; i.e. there is a known downside to a share price, $0. While the upside is truly unbounded. The difference becomes a share's expiration date is theoretically infinite and as a prudent financial farmer you can pick up what others consider manure to fertilize your growing financial farm.

Look closely, those stocks are out there right now.

Sunday, August 9, 2015

$401,000…the new 401K

Cash is king, again. Although it might not seem possible, cash has been one of the best performing assets in 2015. Forget the paltry, negligible interest rate return. I'm talking buying power!

Walter White might have had it right amassing a massive stash of cash, indeed, cash actually might be the new 401K

Portable, valuable, and with taxes already paid a pile of cash offer opportunities for purchasing distressed assets for a song.

Consider the killings made in 2008 and 2009 when weathered farmers came down from the hills with their crumpled bags of cash and picked up stocks, bonds, and even more farmland for….cash.

With the Fed poised to begin raising rates, most likely one of many in the coming months, the value of the dollar should subsequently increase. 

Friday, August 7, 2015

Earnings Beat…Stock Sell-Off

Nothing like the sound of the Fed starting up its interest rate machine to destroy the gains in the stock market…as the 2nd quarter of earnings releases are announced, and approximately 90% BEATING estimates, one would surmise that this market would have taken off. Heck, historically years ending in 5 which are the last year of a lame duck presidency are the BEST…but alas it is not to be the case.

The flu started with the infection of Google which completely destroyed earnings (hey, it's great to be a total and utter monopoly and control the fate of the internet…that pays handsomely) to the upside. After crushing earnings and spiking some $60B in market cap during a single day, Wall Street lined up like a pack of hyenas for the next killing…Apple. That didn't turn out too well; over the past 2 weeks the largest public company on Earth gave up nearly 20% of its market cap. Facebook and Twitter would save them, right? Not to be. Billions more lost the following trading days. Well surely blue chips like Disney wouldn't disappoint? Scratch that; because beating is no longer beating if the current trading cartels can justify after a call (in hindsight naturally) what was wrong in a beat. We're seeing any excuse to sell. Case in point, start-up Fitbit nearly quadrupled earnings yet is off some 25% since their announcement. Benjamin Graham said it well, "…in the short term the stock market is a voting machine." 

The list goes on and on, but the trend has taken place; biotech broke and the majority of tech got whacked too…the blue chips followed and underpinning all of this is a compete collapse in commodities.

Barron's had a great piece on commodities versus GDP growth…it wasn't pretty. If investors are to put stock in their article lower and lower commodity prices signal the end of robust growth.

In short order the most powerful (and unelected) person in the world, Fed Chair Janet Yellen will almost certainly raise the Fed funds rate.  The data and rhetoric has been too strong not to make a move now.

Recent results we've seen globally are, unfortunately, I believe, a precursor of what is going to happen over the coming months as global growth stalls, the Fed raises rates, and investors cash in significant gains accumulated since the last recession in the hopes of buying even lower. And lower. And lower still.

Probably a better idea to wait until there is not only clear inflation, but several sustained quarters of it before raising the Fed funds rate; cutting the fuel and pulling up the stick isn't a good combination.

Thursday, June 18, 2015

Blow Up the Tax Code and Start Over

Occasionally there is such a powerful economic article that is needs to be read verbatim; Rand Paul's "Blow Up the Tax Code and Start Over" is one of these. As a free-market champion and supporter of meritocracy, this blog wholly supports the idea of a flat tax and the diminished power of a revenue "service" run amok.

Some of my fellow Republican candidates for the presidency have proposed plans to fix the tax system. These proposals are a step in the right direction, but the tax code has grown so corrupt, complicated, intrusive and antigrowth that I’ve concluded the system isn’t fixable.
So on Thursday I am announcing an over $2 trillion tax cut that would repeal the entire IRS tax code—more than 70,000 pages—and replace it with a low, broad-based tax of 14.5% on individuals and businesses. I would eliminate nearly every special-interest loophole. The plan also eliminates the payroll tax on workers and several federal taxes outright, including gift and estate taxes, telephone taxes, and all duties and tariffs. I call this “The Fair and Flat Tax.”
President Obama talks about “middle-class economics,” but his redistribution policies have led to rising income inequality and negative income gains for families. Here’s what I propose for the middle class: The Fair and Flat Tax eliminates payroll taxes, which are seized by the IRS from a worker’s paychecks before a family ever sees the money. This will boost the incentive for employers to hire more workers, and raise after-tax income by at least 15% over 10 years.
Here’s why we have to start over with the tax code. From 2001 until 2010, there were at least 4,430 changes to tax laws—an average of one “fix” a day—always promising more fairness, more simplicity or more growth stimulants. And every year the Internal Revenue Code grows absurdly more incomprehensible, as if it were designed as a jobs program for accountants, IRS agents and tax attorneys.
Polls show that “fairness” is a top goal for Americans in our tax system. I envision a traditionally All-American solution: Everyone plays by the same rules. This means no one of privilege, wealth or with an arsenal of lobbyists can game the system to pay a lower rate than working Americans.
Most important, a smart tax system must turbocharge the economy and pull America out of the slow-growth rut of the past decade. We are already at least $2 trillion behind where we should be with a normal recovery; the growth gap widens every month. Even Mr. Obama’s economic advisers tell him that the U.S. corporate tax code, which has the highest rates in the world (35%), is an economic drag. When an iconic American company like Burger King wants to renounce its citizenship for Canada because that country’s tax rates are so much lower, there’s a fundamental problem.
Another increasingly obvious danger of our current tax code is the empowerment of a rogue agency, the IRS, to examine the most private financial and lifestyle information of every American citizen. We now know that the IRS, through political hacks like former IRS official Lois Lerner, routinely abused its auditing power to build an enemies list and harass anyone who might be adversarial to President Obama’s policies. A convoluted tax code enables these corrupt tactics.
My tax plan would blow up the tax code and start over. In consultation with some of the top tax experts in the country, including the Heritage Foundation’s Stephen Moore,former presidential candidate Steve Forbes and Reagan economist Arthur Laffer, I devised a 21st-century tax code that would establish a 14.5% flat-rate tax applied equally to all personal income, including wages, salaries, dividends, capital gains, rents and interest. All deductions except for a mortgage and charities would be eliminated. The first $50,000 of income for a family of four would not be taxed. For low-income working families, the plan would retain the earned-income tax credit.
I would also apply this uniform 14.5% business-activity tax on all companies—down from as high as nearly 40% for small businesses and 35% for corporations. This tax would be levied on revenues minus allowable expenses, such as the purchase of parts, computers and office equipment. All capital purchases would be immediately expensed, ending complicated depreciation schedules.
The immediate question everyone asks is: Won’t this 14.5% tax plan blow a massive hole in the budget deficit? As a senator, I have proposed balanced budgets and I pledge to balance the budget as president.
Here’s why this plan would balance the budget: We asked the experts at the nonpartisan Tax Foundation to estimate what this plan would mean for jobs, and whether we are raising enough money to fund the government. The analysis is positive news: The plan is an economic steroid injection. Because the Fair and Flat Tax rewards work, saving, investment and small business creation, the Tax Foundation estimates that in 10 years it will increase gross domestic product by about 10%, and create at least 1.4 million new jobs.
And because the best way to balance the budget and pay down government debt is to put Americans back to work, my plan would actually reduce the national debt by trillions of dollars over time when combined with my package of spending cuts.
The left will argue that the plan is a tax cut for the wealthy. But most of the loopholes in the tax code were designed by the rich and politically connected. Though the rich will pay a lower rate along with everyone else, they won’t have special provisions to avoid paying lower than 14.5%.
The challenge to this plan will be to overcome special-interest groups in Washington who will muster all of their political muscle to save corporate welfare. That’s what happened to my friend Steve Forbes when he ran for president in 1996 on the idea of the flat tax. Though the flat tax was surprisingly popular with voters for its simplicity and its capacity to boost the economy, crony capitalists and lobbyists exploded his noble crusade.
Today, the American people see the rot in the system that is degrading our economy day after day and want it to end. That is exactly what the Fair and Flat Tax will do through a plan that’s the boldest restoration of fairness to American taxpayers in over a century.

Wednesday, April 1, 2015

Happy Birthday Apple

     39 short years ago Apple Computer incorporated in the Great State of California; Steve Jobs, Steve Wozniak, and Ronald Wayne were the first three employees, now there are nearly 100,000 (not to mention the literally hundreds of secondary and tertiary businesses that Apple sustains.)

     No company has had a greater impact on the world than Apple. Indeed, it has become the largest company in the world with 2014 income at nearly $200B and a market cap approaching $1T,  but even more importantly, Apple has meaningfully changed the world for the better via a number of their products and services. Many of these technologies may not have been invented by Apple, but Apple "perfected" for mass consumption the laptop, streaming music, and smart phone all the while making their products an aspirational brand to own.

     With the forthcoming introduction of the Apple Watch in several weeks, Apple has progressed from manufacturing in a family garage do-it-yourself computer kits (assembly required) to a wearable computer that will be on millions of wrists throughout the world wirelessly connecting to the best ecosystem for content, payment, and functionality. Simply amazing. The tenacity, focus on quality, and ability to consistently deliver innovative products and services is the story of both Apple and America. Happy Birthday Apple, and I wish you many more successful years to come!

Apple Garage HQ

Apple 1

Apple Macintosh

Apple Mac Performa

Apple Portable Mac

Apple Newton

Apple Mac Book Pro

Apple Shuffle, Nano, iPhone

Apple Watch

New Apple HQ