More Cowbell

More Cowbell

Investors often wonder when to add to existing positions. To a large extent the answer to this question depends on their investment philosophy, time horizon, and risk tolerance. Simply put, it depends. 

Active trading is based on the theory that the market is NOT perfectly priced and that there is an opportunity for an investor to purchase something that is mispriced; maybe it will be raising a dividend, maybe new management is taking over, there are a host of potential reasons of "why" that an investor evaluates. At its heart, a trade is in essence a best guess based on available information.

To the quant investor the answer as to when to add more cowbell is simply a function of the charts. What does the chart say? Where is the momentum pointing? Does the data indicate that the trend is strong? Growing? Subsiding? These factors guid the path of a quant trader.

Much of the cowbell quandary is based on confidence in the underlying investment. What is the truth? And in this matter financial farmers need to evaluate their investment thesis. Otherwise positions are increased simply on emotion ("This stock can't go any lower!" or "I'm gonna double down on this position!") What is your thesis?

There are a host of reasons to add more cowbell, but an investor should have a code. A theory. A blueprint. Some methodology that can be captured, implemented, and evaluated. In this manor the process can help yield maximum success. If you can measure it, you can manage it. 

 

April's Fool

April's Fool

Citizens must always be vigilant against their governments, because tyranny never sleeps. Consider legislation tucked into the "American Rescue Plan Act of 2021" which will generate a 1099-K on a cumulative total of $600 in annual transactions....that's right $600. Over a year.

The IRS (and whatever political party that controls them) will now be collecting ALL transactions done with a credit or debit card or such peer-to-peer services such as Venmo or PayPal. Readers of this blog should be concerned, very concerned. 

As the Wall Street Journal reports, "...millions of taxpayers who have never seen a Form 1099-K will be receiving them. While no one knows how many Americans will be getting these forms, tax lobbyists estimate the number at as high as 20 million."

20 million? Ha! Assume nearly EVERY Venmo, PayPal, eBay, Etsy, Facebook, and Amazon seller will be getting a 1099-K. This essentially provides the Government with complete financial surveillance on every American, destroys the fundamental rights of privacy, and moves us closer to a 1984 scenario. We're getting to the point where citizens can't even THINK too loudly.

How did this happen? Thank your "representative" in Congress and the former Senior Senator from Delaware. Joe Biden most assuredly did this. But the true betrayal began as this blog has long lamented even earlier, by John Roberts acquiescence to the Wayfair Decision. 

In a landmark 5-4 decision, the Supreme Court ruled that essentially all internet transactions were taxable. This author believes that this decision is the most consequential judicial ruling in a generation, yet it has been quietly (except for the regulators) swept under the rug. Make no mistake, innovation, commerce, nigh the entire American way of life was impacted.

It is hard to believe prior to 1913 there was no income tax. Ironically, for some 57% of Americans in 2021 there STILL was no income tax! Substantial tax reform is almost impossible given that the majority of Americans pay no income tax, while the "meat & potatoes" of society (ie the dying Middle Class) pays nearly all of it.

As financial farmers this blog typically suggests voting for change. But that is a joke. The lobbyists control Washington, your local Congressman(en) is bought & paid for, and even if you do vote, what is the purpose? The non-payers far outnumber the payers.

With the passage of the freedom-torching "American Rescue Plan Act of 2021" financial farmers need to go back to the old ways of doing business.  Yes I'm talking cash. 

 

Fighting Inflation

 Fighting Inflation

Americans will be fighting inflation for the next 3 years as the Biden Administration is pursuing higher taxation, increased regulation, and significantly more spending without driving growth. These three elements will combine to cause lasting and harmful inflation that stifles the economy. What can you do?

Financial farmers and readers of this blog, like most fighters, don't want to ever get caught on their heels. Most studies indicate the vast majority of Americans are only one financial crisis away from bankruptcy, and typically this ruin is caused by not the loss of a job, loved one, or even the stock market. Rather this "risk of ruin" is directly related to a medical emergency. So rule one: To avoid the greatest risk of ruin, make sure you have medical insurance! If you're a worker, under Obamacare you're most likely paying for multiple people not in your immediate family too. That's just how criminal medical costs have become.

Next, inflation eats away at your earning power and cash value. So make sure your salary is keeping up or exceeding inflation; if the government is saying inflation is at 7% assume it is at least double. So you should be negotiating a 15% raise THIS YEAR to make up for lost buying power. Make sure you get you yours. Amazon is, they just jacked up Prime membership by 17% to $139/year!

Lots of cash sitting in a bank or checking account? Hmmm...well a certain degree of cash is good, no doubt. But are you really losing 1-2% of buying power PER MONTH by having a lot of cash in an inflationary environment? Also who can seize your cash on a whim? (Hint: They take some of your paycheck every month too.) Rule Two: Mind your cash. That might involve old school mattress stuffing or burying. I kid you not. Physical gold makes cents (see what I did there?) to me too.

Finally, what isn't affected by inflation? Nothing. That's right. So look for assets in terms of ownership percentages increasing, increasing cash flow, alternatives to actual cash (it still takes a LOT of effort to mine a troy ounce of gold), and companies buying back their shares all benefit you. Real estate becomes a double-edged sword in the sense that since rates will increase, demand drops for housing. So buyers MIGHT pay less, but their loans cost more. But does a 30-year mortgage @ 3% really matter when inflation is running 7-14%? Seems like a decent bet. Plus you get to homestead and live there. That's nice.

Until inflation is tamed, which I don't think happens in the next 3 years, investors need to be on their toes. Nothing kills work and productivity more than inflation. It is the "silent killer" which reduces the value you receive for labor, innovation, toil, everything. So increase YOUR price and look for assets that pay you to own them. Be wary of leverage. Embrace quality cash flow. Stay in the ring and land some punches!

 

"Yeah, But Gold Doesn't Pay Any Interest!"

Courtesy of our friends at the Federal Reserve Economic Data (FRED) division, pictured above is the Purchasing Power of the Consumer Dollar. Essentially from 1975, the US Dollar has lost more than 95% of its purchasing power.

As those who like to Invest Like A Farmer, we don't like losing purchasing power. It is a really bad thing; you receive less and less in terms of goods and services over time for each US Dollar you save. Traditionally this was offset by having FDIC-insured risk-free savings accounts that yielded interest. 

With interest now completely laughable, in some countries it is even NEGATIVE now (meaning you pay the bank for the pleasure of them then lending your money,) savers either have to chase risk in the hopes of getting a higher return on their dollars or seek an alternative asset class to hold their fiat currency.

Although having seed capital available has always been a good idea, the mechanism of value in which that capital is stored is very important. Holding cash money long-term has proven to be a big-time loser for protecting the purchasing power of consumers.

$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. 

Great Returns Breed Complacency

If there has been one truism consistent in the investing realm it is that great returns breed complacency. Many of you who have chosen to Invest Like A Farmer have realized significant gains over the past several years by investing in large, monopolistic companies with healthy dividends. Now what?

Yearly, or better yet on a quarterly basis, financial farmers should survey the farm and conduct a thorough review of holdings, seed capital, and expected harvest returns. Action isn't necessarily warranted, but rather a game plan, no matter how perfect on paper, should be routinely reviewed in the field to see if execution is proceeding as planned. Course corrections may or may not be warranted.

Those who survived any of the numerous "setbacks" in the markets over the past decade (or longer) well remember the pain of a correction and the ensuing panic which destroys accumulated wealth in the stock market. Seed capital is best to have on hand sitting in the silo well in advance of a downturn, though it may draw little interest in the interim.

Multiple prosperous years don't necessarily warrant a change in strategy, but rather a top-level review of holdings, seed capital (cash) available, and coming cash flow needs. As readers of this blog well know, I champion having a healthy silo of seed capital at the ready. It has tremendous value in terms of peace of mind and potential to invest when the economic winds change.

Selling into weakness is not a pleasant experience, one that many old farmers can recall with a tinge of heartfelt pain. Make hay while the sun shines, but silo some of those gains too.