stocks

Proof That Share Buybacks are a Powerful Strategy for Building Wealth

The Curious Case of IBM Share Buybacks

This is an overlay chart of IBM’s stock price and its market cap since 2000. Do you notice anything interesting about this chart?

IBM share buybacks

Look closer…

The stock price and market cap have performed differently. How can that be? Aren’t they the same?

While the stock price and market cap are highly correlated, they are not the same.

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Investing is Not Gambling… if it is Done Correctly

 

investing is not gambling

“The distinction between investment and speculation in common stocks has always been a useful one and its disappearance is a cause for concern. We have often said that Wall Street as an institution would be well advised to reinstate this distinction and to emphasize it in all dealings with the public. Otherwise the stock exchanges may some day be blamed for heavy speculative losses, which those who suffered them had not been properly warned against.”
-Benjamin Graham – The Intelligent Investor

 

Are you gambling with your money?

Investing is not gambling.

Gambling is exciting. Gambling is entertaining. Gambling can make you rich… or so you imagine, but the odds are against you. That is why it is called gambling. That is why casinos are such profitable businesses.

There are professional gamblers who play Texas hold ‘em for a living and do quite well. But they are not gambling, they are playing the odds, they have a system, and they know the probable outcome of their “gamble”. There is certainly a large amount of skill involved as well. Reading people, remembering prior drawn cards, and concentrating for long periods of time.

This does not apply to all games of chance, like the lottery. A friend of mine likes to say, “The state lottery is a tax on people who are bad at math.” If anyone ever looked at their chance of winning the lottery, they would not waste a nickel on it, certainly not the rent money. According to the Massachusetts state lottery, the odds of winning a jackpot in Powerball is 1 in 175,223,510. I assume those odds don’t account for potentially splitting the jackpot with one or more people.1

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2015 Recap: High Yield Bonds, Instability, and Financial Contagion

 
2015 recap

“It’s tough to make predictions, especially about the future.” -Yogi Berra

 

Is this the start of a high yield bond rout that many bond experts have been predicting?

Is the S&P 500 performance this year a good indicator of the overall market?

Will instability in the bond market spread to other asset classes?

What is the blueprint for the next financial crisis?

These are all questions that clients have asked recently and I thought this would be a good chance to discuss these issues as a wrap up of 2015.

Lets start by taking a look at what has happened this year, where we stand today, and try to pass some judgement on what could happen in 2016. Normally I don’t write about “predictions”. Yogi Berra was a wise man. However I think this post is relevant to the nature of the markets and the growing instability that is occurring under the surface.

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My Story: How I Learned About Self Directed IRAs

 

self directed ira

 

Self Directed IRAs are not a widely known or understood area in the investment community. The term is typically used to describe what an IRA is, an Individual Retirement Account, which is self directed by the account owner. Most people know that this type of account can be used to invest in stocks bonds and mutual funds. What is not widely known is that this type of account can also be used to invest in real estate, tax liens, private mortgages, private businesses, medical equipment, horses, gold and silver coins, and more.

Most people who know me have been aware of my interest in investing in alternative assets with a self directed IRA for many years. What they may not be aware of is…

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