The outbreak of Coronavirus has changed the way we live and work dramatically. The impact is not limited to people having masks on, and sitting 6 feet apart. The more prominent but less visible change is the transition of work from offices and commercial physical spaces to our homes. Working from home is not just limited to having a desk set-up, although that's certainly a necessity. The more critical enabler of the working-from-home era is digital infrastructure, such as a smoother log-in and access to the tools employees need to do their job. The more digital works become, the more significant is the need for easier online communications, document management, payment, and cybersecurity. Such a simultaneous and rapid shift to a new way of working has boosted companies' growth prospects associated with "work-from-home" products. At Stock Card, we live by the belief that our investment is a financial image of our lives, and it was only a matter of time before we completed our research to introduce a new list of companies that enable the work-from-home era.
Launching Stock Card's "Work-From-Home" collection
Last week, we introduced a collection called "Companies Shaping the Future." Many users told us that it helped them discover new growing companies to add to their portfolios. We hope the new "work-from-home" collection does the same. To build this list, we picked themes and markets associated with making "work-from-home" possible, less expensive, and more reliable. We have included companies from 40 different markets to create this new list. Some of these markets are:
You can click on the above links to see the individual market collections.
The above screening gave us a list of 450 companies as a starting point for your research. The best way to use this new collection is to look it up in the search bar, use the "advanced filters" to add your criteria and get a list of stocks that fit your investment goal. The video below shows you how, or click here to get the full list...
If you don't have a brokerage account to invest in Work-From-Home stocks, here is one of the best. We like the M1 Finance app that has an easy-to-use interface. Give it a try if you are in the market for a new brokerage account:
Risk-taking is an art! Not every risky stock is worth investing in. It's prevalent among stock market investors to justify a wrong decision as a risky one. However, a well-researched and informed risky decision can generate an outsized return and while being protected from total ruin. In this blog post, we explain a simple set of criteria we typically use to discover stocks worthy of your attention if you are a risk-taker. The list of Stocks for Risk-Takers can be a starting point for those who understand only some risks are worth taking.
Launching Stock Card's "Stocks For Risk-Takers" collection
We started the process by looking for smaller companies using the market capitalization of less than $10 billion. Doubling a $100 billion company is much harder than doubling a $2 billion company. Therefore, when it comes to risk-taking, small is more beautiful than big.
By just only one filter, the universe of publicly-traded stocks in the U.S. stock exchanges shrinks to a list of slightly a few more companies than 4,000.
Not every small-cap stock is worth your attention!
Finding noteworthy risky stocks is not just about searching for smaller companies. It would help if you also weed out those companies that cannot grow their revenue. Notice that we didn't talk about profitability. When companies are small and profitable, the chances are the stock market algorithms have already found them, and prices are adjusted to reflect the positive earnings. Therefore, stocks with growing revenue in the last 12 months to 3 years can narrow the list to a more manageable list.
If not profitable, then what?
While being profitable is good, being able to generate free cash flow is better. Earnings and profit are metrics heavily influenced by accounting principals. Highly profitable operations can become unprofitable if the management decides to reinvest the money it makes back into the company. However, a reliable, rapidly-growing company are typically cash flow positive before they are profitable.
The last criterion to consider is the company's ability to survive a period of economic hardship (such as the economic slowdown induced by the COVID-19 pandemic in 2020) or possible fluctuations and cyclicality in demand (such as demand cycles for chip technology). A reliable, risky company has enough cash to fund its operating expenses easily without the need to raise additional money or borrow.
The result of the above screening is a list of 189 reliable but risky stocks worthy of the attention of a risk-taker investor. We added them to Stock Card's collections, and you can access them for free by typing "Stocks for Risk Takers" in the search box on our website. Log in and check the list!
Without a doubt, the U.S. stock market has staged a historical “recovery rally” since late March, regardless of the drastic price drop mid-June. The S&P 500 index erased all its losses for the year as of June 8. The Nasdaq index hit an all-time high past the 10,000 level the following day. There are various conjectures about what has fueled the rally. Some associate it with a possible wave of FOMO by the so-called Robinhood bros. Others believe that the optimism about the reopening of the economy has driven the rally. Regardless of what the catalyst is, a prevailing sentiment in our private Facebook community recently has been caution. What are the available choices to investors as they navigate the V-shape recovery, so far, and another possible sharp decline moving forward? How does an investor protect her gains, without sitting on the sidelines to let the volatility subside?
In this blog post, Stock Card's Head of Data Science and a technical trader, Karen Sheng shares her thoughts and strategies that could be employed to address these questions, mainly using one general and three specific options strategies.
PART ONE: FOR ALL INVESTORS
Cash is also a position!
Cash is also a position - This is lingo that is commonly used in the traders' community. When a trader has low conviction about either direction of the market, one of the choices available is "going flat." This rule applies to investors who "buy and hold" as well. Doing nothing is a strategy worth considering, especially when there is doubt. Holding cash or selling to have cash come with a few important considerations:
This strategy is specifically important and easy-to-use by starter investors. However, for those willing to put the time and effort required to learn more sophisticated approaches, I'm sharing three possible hedge strategies using options. If you are a more advanced investor, read along.
Before sharing the more advanced hedging strategies, have you heard of Public, one of the easiest and best-looking brokerage apps out there?
PART TWO: FOR MORE ADVANCED INVESTORS
Protect long-term investments with three options strategies
Many investors use options as a "hedge" strategy. This strategy allows the investor to continue investing while having the fallback option to recover possible losses in case the market takes the reverse direction, as it has done so in mid-June. For the rest of this post, I will focus on hedging with various options strategies, all of which have defined maximum risk and risk/reward ratios. All these options strategies assume that you are willing to lose all the premium paid for the trade. Consider it a premium that you pay for insurance to protect your investments against a downturn of the market. If the market keeps rallying, your long-term investments are safe for the time being, and yet you may lose all the debit you have paid for hedging. On the other hand, in the case of a correction or crash, the gains from the hedging trade may offset the losses from the long-term investments. Compared to the "staying in cash" approach, you get to keep the stock holdings in your portfolio for long-term investments.
For illustration purposes, I'm going to use options of SPY for the reviews below. The prices of both stocks and options reflect close prices as of the end of June 9. Furthermore, I want to limit the premium paid to each trade, as this is the money that I'm committed to losing completely. In practice, I usually set the maximum in the range of $150-$250 per trade. For illustration purposes, though, I'm going to set the maximum at a much higher level, $1000, because I would like to compare the P&L for comparable Delta. I'm assuming that you have some basic understanding of the components of options pricing. With that, let's get to it!
Strategy one: A naked put option
Example one - Buy an ATM (at-the-money) put option with 10 DTE (days to expire): I added two screenshots to explain how you go about buying this put option. The screenshot on the left shows a portion of the option chains. The maximum loss of this trade is the debit I'd pay - $582 plus any commission. The screenshot on the right is the projected P&L as of June 9. Note that if SPY starts to consolidate around the 320 level and doesn't make a significant downward movement, by 7 DTE (4 days from June 9), the trade would start to turn into a loss.
Example two - Buy an ATM (at-the-money) put option with 31 DTE (days to expire): The debit required for this trade per contract is $931, as the extrinsic value (time value) has almost doubled relative to the 10 DTE ATM contract. Recall the time-decay chart shown above. The time decay in this 31 DTE trade does not accelerate as fast as in the 10 DTE trade. Again, this is the projected P&L as of June 9. Notably, it's a break-even trade (zero loss, zero profit) if SPY consolidates around the 320 level by 22 DTE (9 days from June 9). The additional premium I'd pay gives me more time to wait for a pullback of the market.
Strategy two: Construct theta-positive options trades
Theta-positive, in plain English, means that the passage of time works in our favor. I'm going to review two theta-positive strategies - put debit spread and put calendar spread.
Example - Buy a put debit spread with 10 DTE (days to expire): I'd buy the 320 SPY put option and, at the same time, sell the 315 SPY put option. The debit required for this trade is $186, and the risk/reward ratio is approximately 1:1.7. Note that the premium paid is significantly less than buying a naked put option. Furthermore, since the trade benefits from time decay, I don't mind placing a trade with fewer days to expiration.
Strategy three: Buy an OTM (out-of-the-money) put calendar spread
I hope you find these strategies and examples helpful. Don't forget the first thing I shared with you. Cash is a position too. You can always keep some money and only invest the money that will not endanger your financial well-being if you lose it all.
The COVID-19 pandemic has taken a toll on many sectors across the globe. The real estate sector is one of the hard-hit areas of the economy. As restaurants, bars, retail stores, and offices shut down around the world, landlords, property owners, and property management companies are going through an extended period of declining revenues. It is no surprise that the S&P 500 Global REIT index has fallen more than 30% since the middle of February 2020. In regular times, REITs (Real Estate Income Trusts) are some of the most popular types of securities investors hold for their abundant and reliable dividend income. However, the COVID-19 pandemic has caused many REITs' investors to question the reliability of investing in REITs. In this blog post, we share a list of reliable REITs worthy of attention despite the COVID-19 impact.
Aren't all REITs reliable?
When we published the COVID-19 investment resources, we discussed not every company can survive the COVID-19 pandemic. Those with ample cash and access to capital and manageable debt have the highest likelihood of going through the COVID-19 economic crisis and coming out of it ready to take off. The same logic applies to REITs. Not all REITs are worth your investment dollars. Some REITs have the operational strengths that can survive through the economy's cycles and keep rewarding the investors with a reliable source of income.
How to find Reliable REITs?
There are 335 REITs listed on the main U.S. stock exchanges. In the first step, we wanted to get rid of those with massive liabilities and debt. REITs with high-interest expenses compared to their earnings (EBIT) are the worrisome bunch. Companies with debt have to be able to cover the interest expense of their debt using their earnings. Just by using that as criteria, nearly two-thirds of REITs are out of the list. To make the search for reliable REITs even more precise, we applied a few additional filters:
Those criteria are pretty standard for evaluating companies with strong balance sheets. However, there is one data point that is particularly important for assessing REITs. For a non-REIT dividend-paying stock, typically, investors look at the stock's payout ratio. This ratio refers to the percentage of the company's earnings that is used to fund dividends. When such a rate goes above 70% to 80%, it is seen as a red flag. All companies need to reinvest a portion of their earnings to grow, and it's not an operationally savvy idea to borrow money to pay dividends. Therefore, the dividend payout ratio is an indicator of the sustainability of the dividend payment in the future. If a company uses almost all of its earnings to pay dividends, or worst, if it uses funds beyond its profits to fund its dividend payments, the sustainability of the dividend payment is questionable. The same logic applies to REITs. However, the usual payout ratio is not the right way of measuring the sustainability of a REIT's dividend.
Best Brokerage for Dividend Investors
REITs are one of the best dividend-paying investments. Especially if you choose to reinvest your dividend income back into your portfolio, gradually and steadily, you own more of the companies you have initially added to your portfolio. All you need to do is to sign up for a brokerage account that allows you to easily opt-in a dividend reinvestment option (a.k.a. DRIP). We like M1 Finance, particularly, for its easy ways of managing your account, including opting in a DRIP offer.
What is a FFO payout ratio?
Being in the business real estate, a REIT has a high depreciation cost. This cost is purely an accounting-driven number, and it is not an actual cash expense. Companies use depreciation to "expense" the initial capital they invest in acquiring the real estate over a few years. This accounting practice allows investment in real estate to be worthwhile by reducing the nominal earnings of the property or landowner and giving the owner significant savings in the amount of income tax that is calculated using the company's earnings. Because of this accounting practice, the earnings of a REIT are artificially (of course, legally) underestimated. Consequently, you cannot blame a REIT for having a high payout ratio and use it as a reason to skip investing in it. Instead, REIT investors look at FFO per share (Funds from Operations per share) and use that as a replacement for the earnings per share to calculate the company's payout ratio. Accordingly, we used the FFO payout ratio in our search for reliable REITs.
That adjustment in our screening process resulted in an additional 20 or so REITs that are reliable but would have been rejected if we used the standard calculations of the payout ratio.
Once we applied all the above-mentioned filters, the final results were a list of 32 REITs most likely reliable enough to go through the COVID-19 pandemic or any other economic crisis and come out of it without the need to cut their dividends.
The list is available to all Stock Card users on the Discover page using the "Reliable REITs" tag. You can access it by creating a free account on Stock Card.
Some times, companies with strong operations and enough cash at hand share their success with their shareholders in the form of a dividend. Many investors use dividend payout as a source of side income or reinvest the money to grow their investments. But not every dividend-payer is worth investing in. In the latest addition to Stock Card's collections, we looked for true dividend-payer stocks that are worthy of every dividend seeker's attention.
Launching Stock Card's "Stocks For Dividend-Seekers" collection
We started the process by looking for stable dividend-paying companies using market capitalization, beta, and dividend yield:
Not every dividend-paying stock is worth your attention!
Finding reliable dividend-paying stocks is not just about searching for companies that pay a dividend. You also need to weed out those companies that cannot sustain their dividend payout and focus on those that have a reliable history of growing their dividend yield. We added a comprehensive list of criteria to our research to find the true dividend-paying stocks, including a few critical ones:
The result of the above analysis was a new set of 91 true dividend-paying stocks. We added them to Stock Card's collections, and you can access them for free by typing "Stocks for Dividend Seekers" in the search box on our website. Log in and check the list:
There are more than 15,000 publicly-traded companies listed on the stock exchanges in the U.S. Even if we ignore smaller and volatile penny stocks and only focus on the three main exchanges, NYSE, NASDAQ, and OTCM (Over The Counter Markets), there are still more than 6,000 individual stocks every investor has to review and choose from. More experienced investors have already learned and come up with a process to narrow down their focus to only a small set of companies on their watchlist. However, if you are a new investor, facing more than 6,000 stocks feels confusing and overwhelming. Where does a new investor start from? And, what criteria should you use to find a starting list of companies to build a portfolio?
Launching Stock Card's "Stocks For Beginners" collection
When started the process, we asked our first-time users and investors what matters to them the most, and came up with four criteria to screen the universe of 15,000 publicly-traded companies for the gems that are worthy of the attention of a beginner investor:
The result of the above screening is a list of more than 64 stocks that you can easily access, play around, and build your own starter portfolio. There is no guarantee that these 64 stocks continue to grow and not lose value. After all, we are dealing with the stock market that fluctuates by nature. However, these 64 stocks give a starter investor a chance to create a portfolio with less risk and more stability. Have a look at the Stocks For Beginners collection today:
Why are investors pouring money back into the stock market, despite the grim economic status of the country? -- A member of Stock Card's private community
Questions similar to the above are flooding the investors' communities and online media. It seems that the stock market's movements, and investors are being quite irrational. While the answer to such questions is quite complex, there is a simple underlying logic that drives such seemingly irrational behavior. In this short blog post, we'd share the summary of the analysis we just completed at Stock Card HQ (the virtual HQ) to explain why investors are rushing back into the stock market, despite the grim state of the economy.
The seemingly irrational movement of the market
The three major stock market indices in the U.S. have lost between 25% to 30% of their value between February 18th and March 23rd. The decline wasn't surprising considering the effect of the COVID-19 on halting production and consumption globally. However, what the market has done after March 23rd is surprising to many people. Between March 23rd and April 16th, the same three indices have gained between 23% to 25% even though the economic activity hasn't resumed to the pre-COVID-19 levels. In the absence of economic recovery, it is puzzling to observers and commentators to see such a seemingly clear irrational behavior. Something has got to give.
What's going on here?
To solve the puzzle, let's discuss how people and algorithms make investment decisions. Making investment decisions is a probabilistic process by nature. You would invest more when there is a higher chance of a return, measured by the price you are paying for assets compared to their estimated value. If you pick up stocks at a better price compared to their fair valuations, you will win. Following such logic, investors and algorithms must believe that they can invest in the stock market at better prices now. Are they correct?
Let's look at the data! On the Stock Card platform and the Stock Card of each company, there is a specific section for the fair share price information. In this section, Stock Card automatically collects, aggregates, and visualizes the mathematical calculations that are commonly used to calculate the fair share price of a company. We use price to sales, price to earnings, price to free cash flow, and price to book value ratios, pull financial analysts' price target, use all that information to calculate companies' fair share prices, and compare them with the current prices. Those calculations show whether a stock is over or undervalued at its current market price.
Using the aggregated numbers for all available Stock Cards, we compared the distribution of undervalued and overvalued stocks between April 2020 and February 2020. The results are quite telling.
On Monday, April 13th, when we did the analysis, there were 6,743 companies on the Stock Card platform. Those are publicly traded companies listed on NYSE, NASDAQ, and OTC markets with a market cap of higher than $300 million. Among them, and as you can see in the above image, shares of only 2% of the listed companies were overvalued. When you compare that number with February of 2020, nearly 6% of the companies with a market cap of higher than $300 million, listed on NYSE, NASDAQ, and OTC markets, were overvalued. Simply, when investors and algorithms pour money back into the market, it is because they believe the odds of success are in their favor. Because of the price declines between Feb and March, the chances of throwing a random dart at the stock market board and hitting an overvalued stock is nearly three times (6% v.s. 2%) lower now compared to February of 2020.
Looking at the stock market movements with a lense of probabilistic decision-making is one of the best ways to understand why the stock market moves, albeit sometimes quite irrationally. In addition to the above analysis, the rush to invest back in the stock market is exacerbated by the fact that for almost 11 consecutive years, we were dealing with overpriced equities. During those 11 years, most investors were longing for the possibility of investing in anything at lower prices.
It's not surprising to see the rush back into the market when you peel the onion of the stock market to its primary governing logic. Assuming long-term success in the stock market is dependant on investing in well-managed companies at a fair price compared to their intrinsic value. Currently, the odds of success in the stock market is higher than what it was a few weeks ago. That's why money is being poured back into the market.
Follow our 2020 Starter portfolio by clicking on the bell icon on the top-right corner of the Portfolio's page. You will be notified as we start discussing, learning, and picking stocks. Hope to see you soon.
Also, if you are a first-time investor, live in the U.S., and would like to collaborate with Stock Card team
Episode eight of our Weekly Master the Basics of Stock Market Research webinar is out.
In this episode, we researched a new stock pick for Stock Card's 2019 Starter Portfolio's June 2019. The Starter Portfolio shows up once a month, and it is created for first-time investors to pick one new stock each month. The goal is that by the end of the year, you have a portfolio of 12 stocks as the foundation of your stock market journey.
And, don't forget to join us next week for another live and informative "Master the basics of stock market research" webinar.
Episode six of our Weekly Master the Basics of Stock Market Research webinar is out. This is a special episode because we recorded it in the middle of the week to answer the question of our latest users. The question is so important that our CEO decided to create a short, 10-min video to answer it:
How to use Stock Card's color coding to research a stock?
Don't forget to join us next week for another live and informative "Master the basics of stock market research" webinar.
This week's "Master the basics of stock market investing" webinar was all about how to do stock market research, using Stock Card tool. We answered the question submitted by Alessandro B. (Thank you!) and researched Tesla (Ticker: TSLA), Mastercard (Ticker: MA), and Fiserv (Ticker: FISV) as examples of doing mistake-free investment decisions.
Sign up for the future webinars to master the basics of stock market research, every Friday at 11:00 am Pacific:
We have arrived on the last day of the cannabis month. And what a month it was! This is an industry with tremendous potential mixed in with extreme emotions and volatility. I know the portfolio hasn't been moving upward yet, but looking at the stocks that Mark - The Green Fund's portfolio publisher - has picked up, I'm very confident we have got a basket of stocks that are worth paying attention to.
Today, to celebrate the end of our month-long deep-dive into the cannabis stocks, I'd like to share a long-form blog post to explain how we evaluated and picked the stocks that are included in The Green Fund portfolio. If you have a few moments to think through some fascinating ways of evaluating pot stocks, keep on reading.
Later today, May 29th @ 3:00 PM Pacific, Mark and I will host a virtual get-together to discuss this approach among other cannabis-related topics. Join us for that live event by reserving your seat.
How to deal with the overvaluation?
The cannabis stocks are some of the most overvalued companies you might have ever invested in. That's why you can see periods of extreme price fluctuations. For a few months, the stocks are running up. Doubling and tripling of the prices are not unheard of. Such glorious run-ups are most certainly followed by a period of a downward trend. Losing 10%, 20%, or even higher percentage of stock valuations is very likely in such times.
Therefore, the number one thing you need to be comfortable with is that you are investing in mathematically overvalued companies. You'd need to be emotionally ready to tolerate the ups and downs.
You'd also need to be logically comfortable with investing in overvalued stocks. How?
Think about it this way: Investing in overvalued companies is what most private market investors do, day in, day out. Large, institutional investors such as Fidelity or Softbank pour in money into overvalued startups every day (e.g., any recent tech IPOs that comes to your mind) When it comes to cannabis stocks, we are not talking about private market investing, but the nature of cannabis stocks is not too far from the private market and startup investing. Both are similarly overvalued! Period!
The advantage the private market investors have over us, the cannabis investors, is that they don't have the stock market reminding them of the value of the startups they are investing in. We, unfortunately, have to deal with the daily fluctuations of the stock market. The best of us understand that and move away from paying attention to the day-to-day volatility. Mark and I spoke about this in part 1 of our 2-part podcast episode.
Okay, I got that! But, how do I know which pot stocks to invest in?
Once we put the valuations aside, what's left is the operational strength of the companies we are evaluating. You certainly would want to avoid investing in operationally shaky companies that are also overvalued.
And, can you explain what do you mean by operational strength?
Companies with a high amount of debt, unproven management, lack of competitive advantage to protect their turf, or those who do not have cash readily available to fund their operations are the no-no choices in a basket of cannabis stocks. That's why, in the past five weeks, every time we spoke about a new investment pick for The Green Fund, we myopically focused on the operational strength of the companies.
That's why neither Mark nor I am worried about The Green Fund's under-performance so far. We are talking about startup-like investing here, and that comes with the territory. I have to say, I hate to see that the portfolio is not up, but I'm not worried, as explained above!
Knowing all that, where are the investment opportunities in the pot industry?
The next step is to see where in the see of cannabis-related stocks, we would need to focus on. Mark and I talked about it in part 2 of our podcast conversion.
Broadly speaking, there are two types of market opportunities in the cannabis industry: Pure-play cannabis and Adjacent markets.
Pure-play cannabis opportunity refers to the part of the cannabis industry that is purely focused on the cultivation, extraction, and retail and distribution of cannabis products for medicinal and recreational purposes. Some of the big names are Tilray or MedMen. While good investors try to focus on pure-play companies with strong operations, better investors also pay attention to the opportunities in the adjacent market. That's where the long-term gems reside. Companies that are working on developing pharmaceutical intellectual property or companies that are using cannabis as a new ingredient to bring a new category of products into the market are the most exciting investment opportunities in the cannabis sector.
Can you give me some examples?
Let's review and map two stocks that I personally have on my radar:
I hope this visualization and explanation help you create a reliable approach to evaluating cannabis stocks or other stocks that are in the mathematical overvalued price range.
As mentioned earlier, later today, May 29th @ 3:00 PM Pacific, Mark and I will host a virtual get-together to discuss this approach among other cannabis-related topics. Join us for that live event by reserving your seat.
To see the above framework in action, consider subscribing to Stock Card VIP, and access The Green Fund.
This week's "Master the basics of stock market investing" webinar was all about coffee. Starbucks (Ticker: SBUX) vs. Luckin Coffee (Ticker: LK), who wins the battle in your portfolio?
Watch the webinar's recording to figure out which one the battle on Friday! And, while you are at it, make sure to signup for the next upcoming webinar too!
Most new members ask how they should start using Stock Card. This is a short guide to help you learn about the five things you can do with Stock Card's tools and content. Scroll down, read a short introduction to each of the five items, and click on each item to try it out.
As one of our users puts it, Stock Card is a cheat sheet for long-term stock market investors that are busy working and living their lives.
Stock Cards automatically collect all the information you need about any publicly traded company. You can look up the Stock Cards of the companies you are interested in. Stock Cards get updated automatically as the companies announced new information through their quarterly and annual reports. You can rely on Stock Cards to make a long-term decision without spending the time to research the information you need.
Currently, we have about 500 companies covered by Stock Card. If you come across a company that is not currently covered, you can request it, and in a few hours, we publish the company's Stock Card.
Look up the Stock Card of the companies you have always wanted to invest in!
Once you start investing, you need to keep looking for well-managed companies in growing markets to grow your portfolio to at least 12-15 companies. You can subscribe to Stock Card Premium and invest in new companies as we do. Every week on Wednesday, we pick a new well-managed company, publish its Stock Card, and share the reasons as to why it is worth a spot in your portfolio and why our CEO is investing in it.
Give Stock Card's Portfolio Store a try!
All successful investors have a watchlist and track their performance. You can use Stock Card's "track your performance" tool to monitor your ideas and investments, compare the performance with the average of the market and make sure the average of your portfolio is beating the market. Otherwise, you need to assess your strategy!
Try the Track Your Performance tool now!
Season One of the How To Invest video series on our YouTube channel is live now. We put this together based on Stock Card team's experience as successful investors, what our users have told us, and what we have learned from other successful, long-term investors. Every week, we will add a new video to help you get started with long-term investing easily and without getting bogged down with jargon and complex models.
Watch the latest episode!
For our more experienced investors, we launched the Renegade Investors podcast to rebel against the conventional wisdom of investing! Every week, we take common and well-accepted investment wisdom, tear it apart and explore the alternative ways of thinking about investing. We also like to showcase other “renegade” investors who are going against the prevailing of investing in their own unique way.
Listen to the latest episode!
The stock market continues to do what it does best; fluctuates. If you turn on the financial media, they are also doing what they do best, fueling the emotions. A few weeks ago, we talked about three ways you can react to the market's ups and downs; staying blissful, acting like a maniac, or investing intelligently. Nitin Pachisia, managing partner of Unshackled Ventures and our latest guest at Renegade Investors podcast have shared with us that the worst thing you can do is to let your emotions guide you away from your strategy. Some of the best investors in the world will tell you that their worst investments were when they went off strategy.
If the stock market's fall is throwing you off of your strategy, remind yourself that the stock market on average falls at least 10% or more every 11 months, historically. And, listen to the latest episode of Renegade Investors podcast.
We've got something for you if you are new to investing!
Are you still here? Didn't you click to listen to the latest episode of Renegade Investors? It's okay! Since you are here, let me share one more thing with you.
Many of our users who are new to investing have asked us how to get started with long-term investing. That's why we launched season one of Stock Card's YouTube channel. It's going to have eight episodes and we just released episode one. Each episode will cover one key aspect of what it means to be a long-term investor. From things to know to tools to have, we've got it all covered. Here is the first episode:
Stock Card Product Update
Com'on! I told you about the latest edition of Renegade Investors podcast, and you didn't leave. I shared the news that we just launched Stock Card's YouTube channel for our new investors, and you are still here! Alright, one more thing to share, and this time, you'll be definitely gone! deal?
Last week, we released a major update to Stock Cards. As you know, each publicly traded company gets a Stock Card that automatically collects and simplifies all the information you need to invest for the long-term without spending time researching allover. One of the key questions Stock Cards answer is whether the stock of a company is overvalued or undervalued? With the latest release, we simplified the data points under the Fair Share Price section of all Stock Cards. The update removed complex data points and included the most common indicators of whether a stock price is overvalued or undervalued. Examples are Price to Earnings ratio, Price to Sales ratio, Price to free cash flow ratio and their comparison with the weighted average value for the S&P 500. The fair share price section will continue to get updated automatically twice daily (once the market opens and once the market closes in the U.S.). However, the data is now sourced from our data partner, YCharts, and not via Finbox.io. Look up the Stock Card of your favorite companies and check the updated fair share price section.
Have you watched Skyscraper, the movie? My husband and I watched it last night. While the film is no Oscar-winning masterpiece, it marks an iconic power transition in the world that stock market investors should not ignore! Dwayne Johnson, The Rock, is in the movie, so are a rich Chinese billionaire, calm and logical Chinese police officers, sexy Chinese criminals with attitude, and of course, there is a larger than life skyscraper reaching for the sky in the streets of Hong Kong. And, let's not forget, Baidu, which is the search engine they use in the movie to "google" things! The movie is a familiar story being told by new kids in town. Have you noticed it?
On today's edition of Stock Card Weekly, we are discussing the lesson that Skyscraper, the movie, teaches us about the stock market!
As one article on Forbes.com reported, Skyscraper ended up with $65 million in North America. With a reported budget of $125 million that would generally be considered a failure. But, the movie scored $48 million in China and a total of $75 million overseas during its first weekend. According to Business Insider, when the movie opened in China, it ended up as the highest grossing movie during that week, globally. If Hollywood was and still is how the United States grabs the hearts and minds of the people all around the world, China is not too far. Even if stocks of the Chinese titans such as Baidu, Tencent, and even YY have had a lousy summer, and their prices are at the lowest levels you might have seen, the movie, Skyscraper reminds us that a new kid is in town. Don't get bogged down with the short-term ups and downs. Ask yourself, which direction is the world's money flowing toward?
If and when you are ready to bet on China, here is an arrangement of Stock Cards for your viewing:
Talking about new kids in town, we just launched our podcast show!
It's called Renegade Investors. We've already released three episodes. Renegade Investors is a show that rebels against the conventional wisdom of investing! My co-founder and our COO at Stock Card and I are the co-hosts of the show. Every week, we take a common and well-accepted investment wisdom, tear it apart and explore the alternative ways of thinking about investing. We also like to showcase other “renegade” investors who are going against the prevailing wisdom of investing in their unique way. A new episode will be available every week, and soon you can subscribe and listen to the podcast via the most common podcast platforms you usually listen to your podcasts. Until we get the approval from iTunes and other podcast platforms, you can listen to the first three episodes on our blog or find all three episode here below:
Let's set the scene! After weeks and months or years of almost constant growth, the stock market does something that takes many new investors by surprise — the market falls by about 5%, 10%, or even more. The impact is exaggerated by the media, and everyone is in panic mode. How an investor reacts to the market's decline says a lot about who she is as an investor. In this blog post, we review three possible reactions to a stock market decline. Once you are done reading, sit back for a second and figure out which of the three possible reactions is the way you have responded to the COVID-19?
If this blog post is the first time you are thinking about how to deal with a stock market crash, the chances are that you fall in the Blissful category. Let me tone it a bit down because unless you live under the rock, there is no way you've missed the financial media, Twitter, Facebook, LinkedIn and other social media's trumpet of doom. Even if you knew about it, if you didn't open your brokerage account or the application where you monitor your investments to see what's going on or read at least 2-3 articles per hour from sources you trust to understand what's going on, you are definitely a blissful investor.
Now what? Being blissful is not necessarily a bad thing. What to do next depends on your current investment status. If you are already an investor and you have a recurring or an ongoing process for investing, and when you heard about the stock market's decline, you shrugged the news off and said to yourself, "Meh, who cares, I'm in it for the long-term, my automatic investment will go through as scheduled. Let's move on!" You are a good kind of a blissful investor. Congrats! May you prosper in your blissful ways of living!
On the other hand, if you shrugged it off because you don't have the habit of keeping yourself informed and you don't have a natural curiosity to learn about the stock market, you are most likely missing a lot. Your kind of blissfulness may help you slide through life like Buddha, but don't expect to generate wealth, or retire early, or have the money required to fund a side-hustle. If any of those things are among your goals, you are not on the right track! Start learning about how to invest for the long-term.
Did you login to your brokerage account or the application where you monitor your investments at least once a day? Did you read several articles, jumping between articles on Seeking Alpha, Bloomberg, CNBC, etc. like a headless chicken? Did you ask yourself, "should I sell?" ten times every hour? Did you cuss the Gods and the lady luck for ruining your plans for buying a vacation house? Did you ... you get my drift. You are a Maniac. And I don't mean it in a good way! Look, historically speaking, on average, the stock market goes down 5% or more three times a year. You either don't understand how the stock market works, or you invested the money you need for your day-to-day life, and that makes you vulnerable to the natural behavior of the stock market. It goes down, and when it goes down, it always goes down faster than when it goes up. You probably already knew that there is a chance for your investments to go down, but you don't know how to control your emotions.
Now what? Study the history of the stock market. Being a maniac, or being a semi-maniac is not a good indicator. Use this opportunity to learn about yourself. Understand what causes you to lose your sanity and start working on it. This is a priceless learning opportunity for you to learn how the stock market works and to what extent you are in control of your emotions. Stock market investing is 10% about the numbers and 90% about having the emotional stability to listen to what the numbers tell you.
Well hello to our intelligent investors. Let me guess what you did in the past few days. You saw the news of the market decline through whatever routine you have to keep yourself informed about the world. Most likely, you didn't do anything on the first day, beyond reading a few articles from the authors or sources you trust to understand what this is all about. Once you realized the downward trend is meaningful enough that some very well-managed companies are getting closer to becoming undervalued, you took the watchlist out; the watchlist you keep on the side to go bargain shopping whenever the stock market does what it naturally should do, going down every now and then. You used the cash you have on the side for such occasions and hit "Buy" a few times, not too many though. You wanted to stretch your cash for as long as possible to benefit from possible further decline. That's it, and you moved on with your life. If that's you, congratulations!
Now what? Nothing! Blaze on! And, thank you for being a Stock Card member! Keep looking up the Stock Cards of the companies you are interested in, and discover new ideas through Stock Card portfolios.
Before I let you go, let me leave you with a few facts and information about the stock market that I remind myself every time I hear about yet another stock market doom and gloom. This is a research done by Morgan Housel, a partner at Collaborative Fund and an ex-analyst at The Motley Fool. Learning from the stock market history since 1915, on average, the stock market behaved this way:
Understanding these numbers, at least, should give you an informed peace of mind that long-term investing works, regardless of what happens in the short-term. There is also another way of looking at these numbers, but not many have the emotional intelligence to read these numbers that way: There are only a handful of times in your life that you can go real bargain-shopping in the stock market. Don't let it go to waste!
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The first time I started working out as a CrossFitter, I was amazed at how comprehensive the movements are. What keeps me going back to CrossFit workout is the extent to which the programs are designed to create overall fitness for everyday people. From nutrition to agility, strength, flexibility, and functional movement, the CrossFit founder, Greg Glassman, has included all such elements into his manuscript to achieve overall fitness. The definition of fitness by him in 100 words is the most straightforward but comprehensive plan I have ever come across in my pursuit of fitness. Such has inspired us at Stock Card HQ to come up with a definition of our own. Of course, this is not a definition of physical fitness. Instead, it is the most straightforward but comprehensive definition we have come up with for financial and investment fitness. Similar to the definition of being fit, being an intelligent investor is a combination of several elements from a healthy attitude toward money to a logical way of thinking about investment.
In this blog post, we are exploring what it means to be an Intelligent Investor using the seven commands of financial wellness:
Number one: Spend less than what you earn and invest the difference
It's straightforward. You can't become an investor unless you save some money to invest. It doesn't have to be a significant amount of money. Can you save five bucks? Start from there. Create a habit of finding a way to spend just a bit less per month and allocate money to your investments. It's the same as allocating budget for shopping.
Number two: Don't carry high-interest debt.
This is very obvious. If you have debt, especially if you pay high interest, such as credit card debt, most likely, the interest rate is higher than the return you can earn through your investment. Before you start investing, take care of that debt. Paying off the high-interest debt is an investment by itself. You are patching the holes in your pocket that is draining your wealth.
Tip: You can use the process you created to save regularly to pay off your high-interest debt. Your welcome for that tip! We are here to serve! ;)
Number three: Don't invest the money you need for your day-to-day life
Investing is similar to becoming fit and building muscles. It takes time. You can't go to the gym this week and have six-packs the next week. Same for investing. When you invest your money, you can't expect to become a millionaire the next week and have the money to pay your rent and go on a vacation too. Don't invest the money you need for your rent, car payment, or buying food the next week or the next month. Make sure you have enough money to live your normal life before investing.
Number four: Understand the difference between trading and investing
In your circle of friends, you probably know a friend who lost 10,000 dollars in the stock market when he was 22, and he had to move back in with his parents and other such stories. While those stories are true, those are mostly related to people who wanted to trade and not invest. To explain it in the simplest terms, when you trade, you are all about charts and stock prices. You try to use whatever you can to predict future prices, maybe in the next 2 minutes, 2 hours or two days. That's just extremely fast-pace, too technical, and one might even say delusional. Some studies show, at best, the success rate of trading is less than 5%.
There is another way of participating in the market. It's called investing. You don't care about the price movements in the short-term. Instead, you focus on the strength of the companies you are investing in. Similar to how venture capitalists invest. They are not investing because the valuation of the company is going to go up in the next 2 hours. They pick a good team, a good product, a company with indicators of success, and let the company grow for years before they consider selling. You can participate in the stock market just like you invest in a startup.
Number five: Invest most of your money in well-managed companies in growing markets and hold it for as long as the company stays well-managed and is growing
Let's take an example. You have a friend. He is a chef. He is very talented, and he finds a great location in the touristy part of the town to open a new restaurant. You are investing in this restaurant because of his skills and the location he found. You see a lot of potential in this opportunity based on facts and information. You give some money to him, he gets money from his parents or his savings, and there you go, there is a restaurant. Let's say after the restaurant becomes a hit, one weekend, not too many people show up. Are you going to sell? No! You didn't invest in the restaurant because of its sales in one weekend. You invested in this opportunity because the facts and information you have about the restaurant make you believe in the long-term potential of the restaurant. Therefore, you'll stay with it for at least a few years. The same goes for long-term investing in other things. Invest based on the long-term potential of the companies. Write down the reasons you have invested in them and hold your investment for as long as such reasons are valid.
Number six: Understand that the news and financial media is mostly to entertain you, not to inform you
Of course, you need to be up to speed about the companies you invest in, about their products and market opportunities, and how the company is operating. However, keeping up with the daily news is not the right tool to do so. The daily news is not designed to inform but rather entertain. The headlines are designed to make us show an emotional reaction and get hooked to the news, just like any other show. If you understand the incentives behind the financial media, you really should step back, shut down those news notifications, and not make investment decisions based on those.
Number seven: Look for investment ideas in how you live, where you work and what you consume
Investing for the long-term is about investing in great companies that we consume their products, and they are an essential part of our lives. Many products we eat, drink, buy, and use are so crucial to the lives of millions of people that, over the course of years, they become great investments. You don't need to look for the needle in the haystack or go after some hidden gems to be a successful investor.
For most people, there is a long list of clear and apparent investment opportunities before they even need to spend a minute to find hidden gems.
Alright, there you have it. Those are the seven things that define being an intelligent investor.
Before I let you go, one last thing. Have fun investing! You get to put your money to work even while you are binging on Netflix. Investing for the long-term gives you a chance to gain financial independence and not to live a 9 to 5 job all your life. So, become an intelligent investor, have fun while doing it and be proud of being on the journey to your financial independence. Maybe retire early!
That's it! I will see you next post!
I have had 100s if not 1000s of conversations with Stock Card users. We always have honest conversations about what they think about the stock market. They share what they are excited about and what intimidates them. While every conversation has its own focus, there are a few well-accepted misunderstandings about the stock market that are the underlying themes of almost all such conversations. These misunderstandings are so wide-spread that many people use them as the reasons to avoid investing in the stock market. In this blog post, we are looking at the top seven misunderstandings about the stock market. All successful investors have found a way to overcome such misunderstandings. Have you?
Number 7: Stock Market is rigged against me
Number one misunderstanding about the Stock Market is that the system is rigged against us. I hear this too many times. Especially form the younger people. You know the avocado toast generation ;) I sometimes feel that way too. When you hear about the financial crisis, or Bernie Madoff scamming investors and stealing their money, or you learn about the scams that Wells Fargo pulled off, it's easy to just assume that if you invest in the stock market, there is an evil corporation sitting to rip you off on the other side of the line. But in reality, those are just small portions of the market. The stock market is a marketplace similar to every other one. Just like AirBnb is a marketplace for people's extra bedroom, the Stock Market is a marketplace for the company's shares and other financial products. These markets are not good or bad. How you use them as a user can be good or bad. But, marketplaces are just markets. They are not rigged or do not play favoritism. Especially when it comes to stock market, years of government regulations and scrutiny of the public has forced them to eliminate any bad player or behaviour.
Number 6: Trading is the same as investing
You probably hear your friends talking about how they lost 10,000 dollars in the stock market when they were 22, and they had to move back in with their parents and other such stories. While those stories are true, those are mostly related to people who wanted to trade and not invest. To explain it in the simplest terms, when you trade, you are all about charts and stock prices. And, you try to use whatever you can to predict the future price. Maybe in the next 2 minutes or 30 days. That's just extremely fast-speed, too technical and one might even say delusional. But, there is another way of participating in the market. It's called investing. You don't really care about the prices. You rather focus on the strength of the companies you are investing in. Do you know how venture capitalists invest? They are not investing because the valuation of the company is going to go up in the next 2 hours. They pick a good team, a good product, a company with indicators of success and let the company grow for years before they consider selling. You can participate in the stock market just like you invest in a startup, or in real-estate or your friends' restaurant. You never invest to sell in the next 30 minutes. You are investing because you believe in the company and its long-term potential.
Number 5: Investing is the same as gambling
This one annoys me so much! Because people think investing in the stock market is like playing on the slot machines. You put your money in, and either "ding ding ding" you have dollar bills flying over you, or you lose all of your money, so keep betting. Again, if you are trying to predict the price of a stock in the next 30 min or 30 days, it's sorta similar. But, if you are investing, you are doing it based on facts, information, and you invest slowly. Sure, there are times when the whole stock market goes down. They say, 1 out of 3 years, the stock market falls. But, never does the stock market lose all of its value in one day. According to CNN Money, on "Black Monday" in 1987, the Dow plunged 22.6%, still the biggest one-day percentage drop in history. Even on Black Monday the one-day price-fall was not as much as what most people assume.
Number 4: You need to be a math wiz or have a PhD to invest in the stock market
There is a misunderstanding between what you need to know if you want to invest and what you need to know in order to work in the financial industry. The easiest way to think about it is like buying a house. Buying a house is an investment. But, you don't go and become an architect or an engineer to buy a house. You use your judgment and you do research and collect information and make an informed decision without having a degree in architecture. The same goes for investing. You don't need to have a degree in finance to be a good investor. Finance degrees are required if you want to build a financial product or work in banks and stock exchanges. But, investing needs common understanding of how the world works, and how the companies make money. You can learn the basics of how you measure the revenues or profits of a company. There are probably 10 financial things you need to know and that's it. After that, the rest is filled with just too much technicality you do not need to be a long-term investor. Also, these days, you can google everything. You don't understand a financial term, just google it. On websites such as Investopedia, or investor.gov, everything you need need to learn is already explained in an easy way.
Number 3: You need to keep up with the news at all time to win in the stock market
This one is a hard one to skip. It's because financial media is just everywhere. Even the non financial media talk about what the companies do. But, you need to remember that the news is not really designed to inform us, but to entertain us. It creates overly positive or too negative halo of what's happening. For example, if a company releases its quarterly earnings, and everything is going well, except that the growth of users is a bit lower than what the analysts expected, the headlines will be "Company X missed the analysts' expectations". It's good for the media, because people show an emotional reaction to such news, rather than to a news that says, everything for company X has been good and nothing really to pay attention to. Maybe for the next few quarters monitor the user growth. Well, no one would click on that topic. So, naturally the headlines are designed to make us show an emotional reaction. There is a very interesting article shared on one of our intelligent investors FB group threads. It is about how CNN reports political news like sports. Which is also true about how financial media reports facts like a drama and celebrity news. You see arguments between the commentators, you see countdowns, and visual clues to make you react emotionally. Clicks fuel the media. So, if you really understand the incentives behind the financial media, you really should step back, shut down those news notifications and not make investment decisions based on those.
Number 2: Someone, somewhere can predict the stock market
With all the advancement in the technology and the talks of artificial intelligence and algorithms, it's easy to believe there is a tool named crystal ball somewhere that can predict the market. But, the reality is such a thing doesn't exist. Look, there are two kinds of systems. This is from George Soros, who is a pretty well-known trader and who has gotten wealthy placing large bets on the world's political speculations. He, by the way, has lost a lot of money too. But, net-net he made more that he lost. Anyways, he says there are systems where the predictions impact the results and those are almost unpredictable. What he means is that, when you predict where the stock price would go, and you act on it, you knowing that and acting on it impacts the direction of the market. So, there is no hidden villain somewhere who knows how the market moves every second, and he or she is making perfect money. The other thing to remember is that all these market prediction algorithms need data to be able to predict the market. The stock market is being impacted by millions of players. We simply don't have the inputs required for the algorithm to work 100% of the times. Maybe sometime later in the future, a new wave of technology comes around that can read the internet and understand every piece of text and document and comments and conversations that is being put out there, and has enough historical data of each element to understand the impact it has on the company's price. Until then, and as far as it concerns us, there is no way to predict the stock price. Someone you know might have gotten lucky 5 times, but sooner or later he/she will flop. Don't believe anyone's claim until you see a reliable stream of results.
Number 1: Individual people should not invest in individual companies
Oh yeah, the mother of all misunderstandings, the source of all confusions! No individual people should invest in individual companies and the best you can do is to invest in an index fund and earn the average of the market. I actually have a story about this. You wanna hear it? I remember I was telling a friend of mine who was and still is a VP of a technology company I was working with. He's a smart guy, with a consulting background, makes investment decisions for the company by allocating money to projects and ideas, etc. But, when I told him that I'm leaving the company to start my own start-up, Stock Card, he replied, well there is a school of thought that says, individual people should not invest in individual companies. There are so many people, so many smart, well-educated people who wholeheartedly believe that they should not invest in individual companies. You see the same smart people make money decisions for their companies, they invest in startups and other projects, but when it comes to the stock market, it is engraved in their brains that they should not touch it.
In reality, look at successful investors, most of them make their own investment decisions. Sure, you have to learn some basics, and learn not to be emotional about investing. But, you can say that about everything. Since, you may overeat and not go to gym for a few weeks, you should never try to be fit. You may get a bad score in an exam, or just not be good at one subject, so you should stop going to school. It just doesn't make sense. Maybe 10 years ago, 20 years ago, everyday people didn't have access to the wealth of free information we have at hand now. Maybe it was hard to aggregate them, maybe it was expensive to order them. But, now, with all the technology we have at hand, using internet and all the tools, we can subscribe for small amount of money, there is no excuse. There is no excuse to say, individual people should not aspire and dare to be great at investing in individual companies.
That's it! Do you have any of such misunderstandings? Let me us know, either send me a note through any of the following channels and let's have a conversation about it. The sooner you resolve such misunderstandings, the sooner you'll become an intelligent investors. Let's do it!
Let's wrap up with a few newly published Stock Cards. Have you seen them? Stock market investment inspirations are all around us. You just have to look up their Stock Cards: