I remember when I first got into the world
of the stock market, I started with penny stocks, stocks that usually cost a few dollars. I was so excited that I would read about every
company, analyze its financial statements, look at the recent news and try to pick the
right company to invest so that the stock price rises and I would sell it to make a
profit. I was inspired by the likes of Warren Buffett. I mean this guy became one of the richest
people in the world By picking the right stocks and I thought I should give it a shot. I didn’t bet all my money because I was
inexperienced and I wasn’t ready to lose the money that I hardly worked to earn. Nevertheless, I kept going, but
After a few weeks of actively watching the stock market. I hated it. because it takes days if not weeks just to
find the right company and even then you might pick the wrong one. You cant invest in every company unless your
father will give you a small loan of a million dollar and you won’t bother losing it. Every company is trying its best to look like
its doing great so that you invest in them but they might be bleeding cash on the other
side that you might not realize. when the stock price goes down right in front
of your eyes after you purchased it, you get emotional, it’s not easy to look at the chart
and enjoy losing money. You might not be able to control your emotions
and would sell it at a loss. But that’s the nature of the stock market. If you are an entrepreneur or you have a day
job. You simply won’t have the time and energy
to actively invest in the stock market, you don’t want to simply throw your money without
being confident that you will make more money at the end of the day or at least won’t
lose what you have invested. So, I was about to leave this mysterious world
of the stock market but luckily I came across index funds. An index fund is the best option for most
people. Its passive income where you do not have to
do anything but enjoy watching how your money grows. When you invest in a single company, the risk
is too high because if this company goes down, you lose all of your money, but what happens
if you invest in 100 companies, for example, chances that they all will go down are low. In fact one of them will go down, few others
will definitely go up. ANd that’s what index funds are for, they
invest in every company in the market. when you invest in an index fund, let’s say
in S&P500, you are investing in the top 500 publicly traded companies in the US. It’s like buying a share of the American economy. No matter how many companies will go down,
most of them, in general, are going to grow. Unless the entire economy crashes as it happened
in 2008. And the great part about it is that there
are index funds in every market. But I prefer to stick to SP500. I have more faith in the American economy
than any other. Now the main question is, how profitable are
index funds. In 2017, S&P500’s return was 19.7% which
is incredible but a year after that, it was negative 6.2%, you would be better off if
you haven’t invested that year. However, if you look at the bigger picture,
over a long period of time, the trend is upward. Over the past 90 years, the average return
was almost 10 percent (9.8). If you take into the account inflation, that
would be 7 to 8 percent. Still not bad! if you would have invested 10K dollars in
SP500 in 1942, it would worth today over 51 million dollars. I am not sure why I am telling you this because
You probably weren’t even born at that but that’s a fun fact to know. I will leave a link in the description to
a calculator that would tell you how much you will make if you invest a thousand bucks
every month for over 20 years for example. Before you start investing, I would highly
suggest you to learn the basics of the stock market. Even if you are investing in an index fund,
You should at least have an idea of how the market works. You can go ahead and read books or articles
on this matter or you can save your time and watch this short animated course by business
casual on Skillshare. I have watched this course and its one of
the best courses on skillshare about the stock market. and the best part about it is that
the first 200 of you who will use the link in the description will get the course for
free and 2-month skillshare premium subscription. Hope this video was helpful, thanks guys for
watching and I will see you in the next one.
Chris Hill: It’s the Motley Fool Money radio
show! I’m Chris Hill. Joining me in studio this week, senior analysts Matt Argersinger
and Aaron Bush. Happy new year, gentlemen! It’s our 2019 preview. We’ve got stocks to
watch, stocks to avoid, CEOs on the hot seat, and more. And, of course,
a few reckless predictions, as always. Before we get to the 2019 preview,
though, I think we have to talk about Apple. Shares of Apple falling 10% on Thursday after CEO
Tim Cook warned investors first quarter revenue was going to be about $5-$8 billion lower
than previously expected. Several reasons for that, Matty. The trade war in China, the economic
slowdown in China, the battery replacement program that they had last fall. This was
still pretty shocking development. Matt Argersinger: Lots of moving parts,
but you’re right. This was pretty bad. If you look back to their guidance in early November,
looking for between $89-$93 billion in revenue. To come in, then, at $84 billion, $5 billion
below the low end of your guided range, that’s a problem. CEO Tim Cook said that really 100%
of the miss was due to China and a contraction in the smartphone market there.
That’s a good excuse. It’s probably the right excuse. Investors have been questioning whether or not the
iPhone, especially the latest versions of the iPhones with the high price tags, could really penetrate
the highly competitive smartphone market in China. I think we’re starting to see the fact
that no, that’s not really the case. Aaron Bush: I don’t think it’s that surprising,
actually, that Apple has China issues. I was just thinking back, four years ago, when Matt
and I were talking about China in the context of our Supernova portfolio, talking about
opportunities and concerns, China was a big thing we were talking about. At the time,
we realized that China is a big opportunity simply because how many people are in that
country, but we didn’t necessarily expect it to play out the same way as it did in the
U.S. Since then, the stock is about roughly flat with the market, which is interesting.
I think we started to see the cracks in the foundation about two years ago. About that
time is when I started studying Tencent, which owns WeChat. It made me realize that iOS is
far less important in China because WeChat is an in-app operating system that people
do everything in. So, the same type of competitive advantage that Apple would have in the U.S.
with iMessage, Notes, various services, that doesn’t exist in China. It showed in the data.
At the time, the retention rate, people who would have an iPhone that would buy another
iPhone, outside of China it was over 80%. In China, it was 50%,
which is essentially a coin flip. I think now, because of the economic turbulence
that’s starting to happen, trade wars, slowdown, we’re starting to see that play out at an
accelerated rate. People who would be the Apple buyers either already own them or did
own them. Upgrade cycles are longer, and retention is still sub-optimal. Apple just has mediocre
market share, and I think that’s not necessarily going to change.
Argersinger: I agree. As long as the iPhone is such a large part of Apple’s core business,
they can talk about Services all they want, but this is still a product that’s about 70%
of revenue and the majority of operating profits. Now, I will say this, because we’re positive
people here at The Fool. Coming into this report, Apple was already down about 40% from
its high. Granted, it had a horrible day this week that took it down even further. But even
at the reduced earnings estimates now, you’re looking at a stock that’s only trading about
11X-12X earnings. Certainly below the average market multiple. Now, if earnings come down
further, the stock could certainly follow suit. But it’s hard not to call
it cheap right now. Hill: That’s the thing. Tim Cook talked
about how he hadn’t seen the December numbers, therefore there’s no way he’s seen the
January numbers, because they’re not in yet. Their first quarter report comes out in early February.
If you’re looking at this stock, and you’re thinking, “Boy, it looks cheap,” do you buy here?
Or you want to see what the actual numbers are before you put down a little
money to buy some stock? Bush: Oh, I don’t know. It sounds like another
coin flip to me. We don’t really know. I do think that the valuation is somewhat compelling.
You’re betting that iPhone sales stabilize, and you’re betting that the Services segment
can become much more than 15% of revenue, which it is now. I think that most people
think that is the case. Or, at least around here, that’s the bullish stance. Personally,
I have some more questions. When you have a monopoly taking 30% of
every single transaction that goes on your ecosystem, regulatory issues will one day be a concern. The same
thing that we’ve seen with Alphabet, the same thing we see with Facebook. One day,
those same headlines are going to be going on with Apple, too. And then the Services narrative
will slowly not seem so amazing anymore. Hill: Alright, let’s get to our 2019 preview.
Aaron, I’m going to start with you. What is one industry you’re
going to be watching this year? Bush: I’m really interested to be watching
the ride sharing industry. With Uber and Lyft, and maybe even DiDi, which is in China,
IPO-ing in 2019, it’s really exciting that public market investors will finally have access
to this new, massive, quickly growing industry. I’m excited to see what the numbers
look like. They probably won’t be great from a profitability perspective. But thinking about
transportation as a service, and what that means beyond just ride sharing, what it means
for logistics with food, and are they going to buy more bike and scooter companies?
That type of thing. I’m really interested to hear more about that longer-term game plan.
We’ll learn a lot about that in 2019. Hill: Matty, what about you?
Argersinger: It’s always interesting, but I think especially so this year,
I’m going to be watching the social network, social media space. We’re already seeing for the
first time ever a real, legitimate slowdown in user growth and usage rates,
especially if you look at the core Facebook platform. My questions are, how does Facebook,
how does Twitter, how do these companies solve for all the privacy risks that people seem to
be somehow aware of these days that they weren’t aware of years before? How do they prevent
all the vile and deceptive behavior without damaging free speech and freedom of expression
on the platforms? These are big challenges. Throwing money and bodies as we’ve seen
Facebook do, I’m not sure that’s going to solve it. It’s going to take a lot of innovation.
I don’t doubt Facebook and Twitter can do it, but I think there’s a real chance we actually
see a tipping point in 2019 where the powerful network effect that has sucked in so many
users over the years to these platforms starts to weaken, and we start to see meaningful
declines in time spent on the platforms. I think it’ll cause a reset of the businesses.
Hill: In terms of trends, Aaron, what’s got you excited in 2019?
Bush: Augmented reality. I think it’s been a long time since we’ve had a big new
consumer-facing technology to invest in. I have a hunch that AR, and probably VR associated with it,
is going to be one of the next big waves, even though some of the hype around it seems to
have fizzled out. I might be off by one year, but 2019 could be the year in which good AR
products are revealed by at least one major tech company, probably Apple. For Apple,
it makes sense. They’ve been acquiring companies with AR tech since 2013. They released their
AR kit, their developer toolkit in late 2017. They have all the pieces in place, controlling
the hardware and the software, plus the developer community to make it happen. They probably
recognize that winning over the AR market might be as big of a deal one
day as winning the smartphone wars was. I’m a bit iffy on timing, but I’m really
excited to see the pieces start to come together. You never know, Apple might have a big AR
glasses or something announcement and late 2019. Argersinger: So, you’re saying Apple has a chance?
Bush: I’m saying that they need to do this. Technology is going to shift past smartphones.
Services won’t be enough. Fingers crossed. Hill: The cash that Apple has on the balance sheet,
that probably also helps them sleep at night. Argersinger: It helps a little bit.
Hill: In terms of trends, Matty, what about you? Argersinger: Big trend this year, the past
year already but even bigger now this year, sports betting taking off. I’ve been known
to place a bet or two in my time. I think there are broader implications for the economy.
The world is far more efficient, far more innovative when it becomes gamified. A competitive
marketplace of ideas and dollars that are wagered, inefficiencies tend to get streamlined out. It’s interesting. If you go back to this fall,
you could place real money on which party was going to lead the House of Representatives
after the November election. You could have placed money on where Amazon was going to
open its second headquarters. We talked about that on the show. Imagine betting on things
like what the weather is going to be like tomorrow, who’s going to succeed Warren Buffett
as CEO of Berkshire Hathaway, what’s the over and under on the minutes it’s going to take
for Domino’s to deliver my pizza. These might seem like silly things to bet on,
but when you’re wagering real dollars at scale, it tends to be incredibly informative to the
marketplace. It makes the economy more efficient. I’m excited about all the innovations that
I think are going to come out of sports betting, especially when it becomes
so much more of a mobile application. Hill: One of the ripple effects that we saw
in 2018 in terms of sports betting and the legalization played out in media. In the subsequent
months, pretty much every major network, both on the regional level and on the national
level, started to roll out programming aimed specifically at betting.
Argersinger: Absolutely. You see it all the time now. Hill: Aaron Bush, what is a stock — or an industry; you can go broad if you want —
in terms of upside for investors? Let’s face it, it’s been a volatile couple of months
here. We’re looking for some upside. What do you have?
Bush: I’m going to go big and then narrow down. Software-as-a-service. The past two years have
been huge for emerging software companies. But I do think this is an instance
in which winners will keep on winning, and a lot of these stocks have
been beaten down in the recent turmoil, too. Unlike the consumer-facing innovation, which is occurring mainly in startups
and the massive tech companies, there are tons of great options to invest in small
and mid-cap software companies with lots of room to multiply. Some of these will turn into
the next Oracle or Salesforce. A basket of three stocks that I have super high conviction
in that I think will do well in 2019, definitely beyond: Twilio, which is a leading communications
platform; Alteryx, which is a leading data blending and analytics platform; and MongoDB,
which is a next-gen database services company. All of these companies are growing super-fast, are
dominant in what they do, have very little competition. At scale, they’re going to be
producing ridiculous amounts of cash flow. I’m super excited to see what these companies do,
even though they’ve already been hyped in the past years.
Hill: Also, a fun basket of names. It’s fun to say Twilio. What about you, Matt?
Argersinger: I’m going to jump way out and talk about an entire sector. Real estate
has really underperformed recently thanks to, as you’d expect, higher interest rates.
Homebuilders especially have been really hit hard. But the sector itself is what you want
to have some exposure to over the next few years. Despite what the conventional thinking
might be, real estate actually does quite well in periods of higher interest rates,
higher inflation. One safe, cheap way to play it is to buy the Vanguard Real Estate ETF,
ticker VNQ. It pays a nice 4% dividend yield, gives you a broad exposure to a bunch of publicly
traded real estate companies and REITs. I think it has a real chance of
outperforming the S&P over the next few years. Hill: On the other side of the spectrum,
it can be a stock to avoid, or maybe just one to have on a really short leash. In terms
of that category, Aaron, where are you? Bush: I think the marijuana industry is
super interesting, but it was so hyped in 2018, I think 2019 is going to bring disaster to
investors investing for the most part in that industry, but especially in the companies
that were the most hyped, like Canopy Growth, Tilray, Aurora Cannabis. If you’re investing
in those, watch out, 2019 is almost definitely going to be a rough year.
Argersinger: It was funny, Aaron and I talked back in the fall. We both said, watch out.
As soon as cannabis gets legalized in Canada, which was mid-October, you could almost draw
a straight line from that point on. That was the peak of a lot of these stocks.
They’re down huge since then, even more so than the market we’ve seen. It’s funny, it was one
of the easiest calls I think you could have made. And it still has more to go.
Hill: It was interesting in part because it wasn’t just individual investors who were
excited about this. We saw major companies, consumer brands that everybody knows,
investing hundreds of millions, and in some cases billions of dollars.
Argersinger: Coke, Philip Morris. Amazing. Hill: What do you have on a short leash?
Argersinger: You can probably guess. I’m going to say Facebook needs to be kept on
a short leash, if not avoided altogether. All the problems I mentioned regarding the social
networking space… the stock price looks cheap. You can call it that. If you assume
that they’re going to continue to grow their advertising revenue at a similar pace,
or even slightly slower pace, yes, the stock looks very, very compelling. I just think
there’s going to be a big reset in expectations across the space. I have big questions about
whether Facebook can effectively monetize Instagram and WhatsApp without damaging
user experience. And I’m not even getting into the leadership questions you have to have right now
around Mark Zuckerberg and Sheryl Sandberg. I just think you can do better elsewhere.
Don’t try to catch Facebook, even though it’s a snazzy name with now a cheap valuation.
Hill: This happens at this time every year: investors and particularly the business media
start to look ahead in terms of private companies going public. Despite the volatility that
we’ve seen recently, you’ve got executives on Wall Street saying, “Actually, that might
accelerate plans for private companies to go public.” In 2019, some of the best-known
names, Aaron — Uber, Slack, Airbnb, Lyft. Is there one that you’re either really hoping
goes public, or you’re just eager to get your hands on the S-1 filing?
Bush: I hope Stripe goes public sooner or later. It might not IPO this year.
They’re a payment platform that makes it super easy for companies to sell things online.
Their developer tools are known to be excellent. They continue to roll out new solutions.
The founder and CEO, Patrick Collison, seems to be a super thoughtful. It wouldn’t surprise
me if one day, because this market is so big, buying things online, that Stripe becomes
a larger payments company than PayPal. I think that’s super fascinating. Right now,
they have a market cap of about $20 billion, so I would love for them to go public sooner
than later, [laughs] before they start hitting the upper tens of billions in their valuation.
Hill: Do you think they’re at the point now where they’re way past the acquisition standpoint?
Bush: It would be a big acquisition. I doubt it would happen, at least from another
payments company. I bet they’ll go solo public. Hill: Matty, what are you eager
to get your hands on? Argersinger: You mentioned it, Airbnb.
My wife and I have actually been Airbnb hosts for over a decade now. What you have is essentially the
world’s largest, most expansive hotel company that really doesn’t own any of its rooms.
It’s fascinating to me. It has somewhere on the order of five million listings,
150 million users in close to 200 countries. It has a profound network effect, maybe
actually the strongest in the world. I think we’re going to realize that. I don’t know what the
market cap is going to be when it becomes public, but just in terms of room count and
customer count, it’s bigger than all the major publicly traded hotel companies combined.
Hill: OK, I really wasn’t expecting that at the end. I’m assuming the answer is yes. Do you
have a good rating? What kind of rating do you have. Argersinger: We have
almost a five-star rating across our listings.
Hill: Nice! I’m not surprised, but I’m very pleased for you. Alright, we’ve got just
a couple of minutes left before we wrap up. We do this every year, reckless predictions.
Make them reckless. They don’t have to be about business, although they can be about
business. You can go off the board to sports, pop culture, whatever.
Aaron, what do you have? Bush: Even though the Chinese trade wars and economic
slowdowns will continue to generate headlines, I predict that in 2019, we’ll see the
largest technology acquisition in which a Chinese company buys a U.S. company.
I don’t know if that’s Tencent buying one of the big three video game companies, maybe Alibaba
acquires eBay as a way to get into U.S. e-commerce. Maybe DiDi, which is larger than Uber at their
last valuation, acquires Lyft as a way to get to the U.S. markets and get a partnership with
Waymo. I don’t know. There are interesting possibilities. Hill: That would be fascinating! Matty, what about you?
Argersinger: I think Warren Buffett’s going to buy an airline.
Hill: [laughs] Really? Argersinger: Berkshire Hathaway already
owns major stakes in all the major U.S. airlines. The industry has changed. Consolidation has
made this much more a value creator than a value destroyer. You have a strong airline
like Delta that’s actually been assigned an investment grade credit rating. It’s buying
back shares and paying a dividend, and the valuation is very cheap. This is a different
industry now. Much like how Buffett viewed the railroads 10 or 15 years ago, I think
he views the same with airlines today. Hill: That would be maybe the greatest example
of someone taking emotion out of investing, when you think back on how much Buffett used
to openly hate the airlines as an industry. Argersinger: Oh, absolutely!
Hill: Alright, Matt Argersinger, Aaron Bush, guys, thanks for being here! Happy New Year!
Coming up: our 2019 preview rolls on with Ron Gross and Jason Moser.
Thanks for being here, gents! Ron Gross: How are you doing, Chris?
Hill: I’m doing well! The 2019 preview rolls on. Real quick, though. We talked about Apple
at the top of the show. Jason, any thoughts in terms of one of the largest companies
in America and where it is right now? Jason Moser: As Aaron was saying, I’m really
surprised that people are surprised by this. It’s not something that I’m all that taken
back by. In November, we were talking about Apple’s chip suppliers ratcheting back
their guidance, which was more or less implying that there may be some weakness in iPhone
performance like we’re seeing. Granted, they seem to be holding China accountable for
most of this. But it all makes total sense. As iPhones get better, they last longer,
you don’t have to upgrade as much. They can only raise prices so far until consumers become
a little bit more sensitive. Everybody wants to just get on Apple’s case here and predict
that this may be the beginning of the end. But let’s be clear, it’s still Apple.
They’re still selling millions upon millions of devices. They lost control of the conversation a little
bit because they’re not going to be announcing those unit sales anymore. But there are a
number of different ways they can win. It’s not going to be just Services. Services will
have to be part of it. But when you look at Services, other devices, the portfolio of
wearables, you can’t discount the potential big acquisition at some point or another,
either, with that balance sheet. iT’s all like just take a step back here…
Gross: I’m all for the take-a-step-back approach. I think that makes good sense.
I’m going to be really curious to see if Warren Buffett and Berkshire Hathaway are buying
stock during this period of weakness. I would be one of those analysts that would recommend
that investors take a position at these levels. 11X-12X forward earnings, there’s not a lot
of growth built into the stock at this price, and they’ve got a lot of ways they can win.
Moser: And let’s remember, too, we have a whole generation of smartphone users that
haven’t bought smartphones yet. There are going to be plenty of opportunities to get
new smartphones in new consumers’ hands, and there’s a brand loyalty
there that’s quite impressive. Hill: Ron, let’s get to the preview.
When you think about 2019, what’s your biggest question as an investor?
Gross: My biggest question is, will value investing rise from the dead? As most of us
are aware, growth has nicely outperformed value over the last, let’s call it a decade.
Not just a few months here and there, but quite a few years. FAANG stocks are perhaps
the most obvious examples of growth stocks that have led the way. Obviously, we’ve had
an extended bull market. That tends to favor growth stocks. So, my big question is,
do we see a resurgence of interest in stocks that are considered value? Growth often does
underperform in bear markets. If, perhaps, we are entering a bear market, are we going
to see a sustained bear market, then one would expect value to come back into vogue.
But, you know what? We haven’t seen it anytime in recent past.
Hill: What about you, Jason? Moser: We’ve talked a lot about Disney and
their move to over-the-top distribution. They own part of Hulu, which I think they’ve done
a good job building out, especially with that live Hulu offering. ESPN+ seems like it’s
gaining some traction. And now, Disney+ is going to be their service that launches sometime
in 2019. We talked before on the shows, they really need to make sure they execute there.
I do think that’s a compelling product. It’s going to take a lot of content away from other
streaming partners, namely Netflix. I find it interesting to see that the shows on Netflix
that garner the most views as a percentage are all shows that are not Netflix shows.
I think that’s telling. Netflix is still having to put up a lot of money to get content that
people want to see, and Netflix is not the one producing that content. They still, have
a little ways to go in succeeding on that original content front to justify all of that
money that they’re spending. I think that Disney+ is going to re-emphasize the
competitive advantage that they have there in that intellectual property. I’m excited to see how that product
arrives. I’m certain that we will at least be testing it in our house, if not becoming
full-fledged subscribers, unless they really drop the ball.
Hill: Wasn’t there a minor freak-out in the Netflix universe when they said they weren’t
going to renew the show Friends? Moser: Yeah.
Gross: In my household, for sure. Moser: That is something that they need to
pay attention to. As a percentage of views, Friends is No. 2 on the list just behind
The Office. When you look at that list of the shows that are garnering the most views
on Netflix, it takes you back, not a lot of their original content is on that list. It just
tells you they still have a little ways to go. Hill: What’s a trend you’re excited about this year, Ron?
Gross: It piggybacks off of what Jason was just discussing. 5G technology, fifth generation
wireless cellular technology, is coming, and it’s coming pretty quickly. It’s going to
be pretty exciting. It’s going to make devices more capable of accessing the internet,
it’s going to deliver much faster speed than 4G, some say 20X-100X faster than 4G.
Lots of companies are going to benefit here. The most common names would be AT&T, Verizon,
T-Mobile. But I think Nokia, even Apple will benefit as people upgrade to 5G-enabled phones.
It’s going to be a really exciting trend to watch from an investment perspective, but also from
a consumer perspective, because I think we’ll all benefit. Moser: I’m glad you mentioned Apple there. That’s another point with 5G. I think they’re
going to be a little bit behind others in getting their devices up to speed. But once
that does happen, that’s going to be another catalyst there in the upgrading.
For me, I’m excited about podcasts and where podcasts are heading.
Gross: Shameless plug! Moser: I’m not going to just pat ourselves
on the back here too much, but it’s worth noting that you and Mac and our partners here,
you had the senses to make some early bets in this market back in 2010 and 2011.
And lo and behold, now, in 2019, we’ve got a full-fledged family of podcasts. They’re doing
very well. We’ve seen Sirius XM acquire Pandora, noting in their call that, to their dismay,
they passed on podcasts for a while. They admitted that mistake, and they’re going to
start putting some resources into podcasts and building out that environment.
I think we’re in a day and age now where Netflix really changed the game for content for people
being able to watch what they want, when they want, and where they want. Now, we’re seeing
the same thing play out on the audio side. We’re able to give people what they want,
where they want it, when they want it. It’s nice to be a part of it.
Hill: Let’s talk stocks. Ron, whether it’s an industry or a specific stock,
what do you think is poised for upside this year? Gross: An industry I’m looking at,
it’s a sector/ industry. I’m not ready to call the big r-word yet, recession.
I’m not freaking people out yet. Hill: You are a little bit, by saying that.
Gross: I think it’s important to have some allocation to some defensive stocks in the
environment that we may be approaching. So, when I think of companies in those sectors,
I would say some utilities might be a good bet right here. Some of the discounters,
in fact, discount retailers. Costco, Dollar Tree, Walmart would be some nice stocks, defensive
stocks to have as we enter an economy that might not be as robust as it has been.
Hill: What about you, Jason? Moser: I don’t want to time when a recession
might hit, because really, that’s bad for everybody, but I do think we are entering
a period where banks are going to have some opportunities to boost their earnings a little
bit as interest rates continue to nudge upward. In particular, I’m looking more at small banks,
and one we’ve talked about before, Ameris Bancorp. This stock has a tremendous
risk-reward scenario playing out here. The stock is now trading around 15X earnings.
They recently announced this merger with Fidelity Bank in Georgia. It’s about a $750 million deal.
Given that Ameris is about a $1.5 billion company, you can see, it means a lot.
The market rightly sold the stock off. There’s some skepticism there. That’s rolling in a
big acquisition. But they’re two very similar cultures. It gives Ameris tremendous exposure
to the valuable Atlanta market. It’s also going to help grow that asset and
deposit base, particularly in a period where a lot of these banks are competing for getting those
deposit bases. So, to me, this could play out like the McCormick thing. Remember when
McCormick acquired RB Foods? The market thought, “Whoa, this is a big one to digest here,”
and they held off for a couple of quarters to see how things worked out. Lo and behold,
it worked out pretty well. The stock recovered nicely. I think we could be looking at the
same thing here with Ameris if they execute this acquisition well.
Hill: Ron, if defensive stocks have you interested, what’s at the other end of the spectrum?
What are you avoiding this year? Gross: Specifically, I have one stock
in mind. I come back to it often. It’s Fitbit. I’ve really never been excited and probably
will never be excited about this one. They entered the smartwatch market in 2018.
I give it to them, they’ve done pretty well. But this is a formidably competitive market,
with the likes of Apple, for one, right there behind them. You even have some Chinese upstarts
that could be a problem, as well. I don’t see Fitbit being the company that is constantly
able to innovate, either take market share or defend market share.
I’d be really careful about this one. Hill: What about you, Jason?
Moser: Zillow. I’ve changed my tone on this company over the past year. I used to be excited
about the potential there. I feel like they’ve failed to convince me of the sustainability here.
They’re yet to become meaningfully profitable at all. Now, in this most recent quarter,
they put in their shareholder letter that Zillow Group has entered a period of
transformational innovation. To me, that’s code for, “We’re not going to be profitable any time soon.”
For a company like this, a company that’s been around for a while in such a big market
opportunity as our housing market, they should not be entering this period. They should be
coming out of this period. I think that’s what they were trying to do over these past
few years. This instant offers business, it’s not up their alley. Buying homes and renovating
them and selling them, it’s not scalable. There are a lot of people out there doing it.
I don’t know that they have any real advantage there. Good will now represents essentially
half of the total assets on the balance sheet. It’s not a bad company. I’m just disappointed
in the way they’ve executed. They still have a ways to go before they
get to meaningful profitability. Hill: One of the things that ties these two
businesses together, Fitbit and Zillow, is the word “optionality” has been used in connection
to both of these businesses. They were seen as, “They have options, in terms of where
they can go.” Optionality is something we like to see as investors, but Ron, it almost
seems like optionality works better if you’ve got one dependable cash cow in your portfolio.
Gross: You nailed it. Optionality is great for additional upside. Maybe you can’t even
see the different options that a company might have three to five years down the road.
But if they don’t have that profitable cash flow producing segment of the company, then you’re
relying on all of the value of that company being in the optionality category,
and that’s just too much risk for me. Hill: Guys, 2019 has just begun,
but The Motley Fool is already looking for summer interns in investing, editorial, software development,
and much more. Come, spend the summer! Gross: Join us!
Hill: Join us here at Fool global headquarters this summer. Go to careers.fool.com for all
the information and to apply to be a summer intern here. That’s careers.fool.com.
Happens every year, Jason. There are a few CEOs who are on the hot seat. We’re long-term
investors, but let’s face it: over the long-term, if you’re not delivering, that means in the
short-term, you’re on the hot seat. What do you have? Moser: In 2018, I certainly had Kevin Plank of Under Armour on the hot seat.
He’s not off yet. I’m calling him out again. While we are seeing signs that he is embracing relying
more on his team, particularly the CFO and COO of the company, Frisk and Bergman,
when you look at the expectations we’ve had for this business over the course of the last
several years, as it’s been a recommendation in a number of our services, this has been a phenomenal
disappointment. The real disappointing part there is, they were essentially self-inflicted.
They just made some dumb investments for the sake of growing as opposed to making good
strategic decisions and letting the growth come from making good decisions.
I think he’s on the right track. We need to make sure that team stays intact here.
If we see that CFO or COO leave, we have a really big problem. But at this point, with the market
seeming like it wants to recover, if we don’t have a recession, this is a company that should
be performing a lot better than it is today. Hill: What about you, Ron?
Gross: I think Wells Fargo’s CEO, Timothy Sloan, probably should go. He was probably
the wrong choice from the get go, as he’s been at the company during all of the controversies.
Having taken over the CEO role in 2016, he’s really not done anything to turn the tide.
From an operations perspective, the company’s not really doing very well. From a controversy
perspective, as well, things don’t seem to be getting better. I think it’s time for some
outside blood to come in and right the ship. Hill: I think back to last year’s show.
I mentioned that John Flannery, who was CEO of General Electric at the time, I mentioned
that he was certainly a CEO to watch because I thought he was laying all his cards on
the table. I thought, “Boy, this is going to be a really interesting company to watch.”
In hindsight, I probably should have said he was on the hot seat. I didn’t think he was
on the hot seat! Then he didn’t make it to the end of the year.
Gross: That’s how it goes! Hill: As I talked about with Matt Argersinger
and Aaron Bush, it’s interesting to see not only the companies being named in the private
market as potential IPOs this year, but the possibility that the recent volatility we’ve
seen might accelerate those IPOs in the first six months of 2019. Whether it’s the S-1 that
you’re eager to look at, or a company where you just think, “I want this thing to go public
now so I can get a few shares,” what’s on your radar, Jason?
Moser: One that probably a lot of people are thinking won’t end up by IPO-ing. I hope
it does. SpaceX, Elon Musk’s rocket company. They’re set to raise $500 million at a
$30.5 billion valuation shortly. To me, space is one of these markets, one of these trends
that’s going to open up a lot of fascinating investment opportunities over the course of
the next decade and beyond. I think SpaceX is going to be a part of that.
One thing that SpaceX is doing today is this project called Starlink. Essentially,
the idea is looking to build out a constellation of satellites all over the globe in low orbit
that will basically be able to beam high speed internet connection to every corner of
the globe. It seems like he’s getting buy-in from all the regulators. We’ve seen what he’s been
able to do here in the rocket launches that have taken place thus far.
I think this is a fascinating company. It’s going to offer a lot of opportunities.
If we do get a chance to see it go public, I more than likely would want to own a few shares
just to be a part of it. But, I’d really want to read that S-1. Hill: Do you think Tesla shareholders are eager for the prospect of Elon Musk at the
helm of yet another public company? Moser: Maybe we save
that for another show. [laughs] Hill: Ron, what about you?
Gross: A favorite company in my household is fast casual Mediterranean restaurant Cava.
They recently acquired publicly traded Zoës Kitchen. I’ll give them a little time to digest
that acquisition, decide what they want to do with all the Zoës locations. But then,
let’s take the whole darn thing public. Some great capital that they can use for growth
to take the world by storm and expand the concept. Hill: Have they given any more color on what they plan to do with those locations? I remember,
we talked about that acquisition on this show. The only thing that surprised me was the fact
that they seem like, “No, we’re not necessarily going to turn these all into Cavas.”
I think our general reaction was, why not? Gross: I’ve seen more along the lines of
making some menu changes, changes to the way the kitchen operates to be more efficient
and have offerings that are more appealing to the consumer.
Hill: Alright, just a couple of minutes left. Reckless predictions for 2019.
What do you have, Jason? Moser: I was thinking about going with the
Red Sox repeating as World Series champions. Then I thought about it, that’s not that
far-fetched, really. I’m calling it, they’re going to repeat. That’s not my reckless prediction.
I’ll go with a more business-related story here. I was talking earlier about the potential
acquisitions that Apple could be looking at here. What would stop them from wanting to
acquire Square. You want to look at expanding your business and becoming a little bit more
of an integral part of the commerce scene here, not only domestically, but globally.
I think Square and Apple have a lot in common. They’re both in the business of developing
sleek hardware that people like to use, generating some pretty strong brand loyalty there.
Then, we know, of course, the payments space is one that’s growing very quickly.
I’m not saying it’ll happen, but it’s certainly an acquisition that Apple would
be capable of executing. Maybe it will happen. Hill: Ron?
Gross: I went a little off the rails here. There’s going to be more definitive signs
of previous life discovered on Mars in 2019. That’s going to build off of the work done
by the Mars Curiosity Rover that, earlier in 2018, found some organic molecules.
We’ll figure out where those actually came from and build on that. There aren’t going to be
any signs of actual Martians running around Hill: Or will there?
Gross: — but I think we’re going to see signs of some previous life. Moser: Alright, reckless prediction No. 2:
Ron Gross and Jason Moser will be heading up the new Motley Fool Space Investing
service to launch either late 2019 or 2020. Gross: [laughs] Sell that short.
Hill: I’m just going to say that regardless of where free agent Bryce Harper ends up,
the Washington Nationals are going to the World Series. Moser: Wow! That is reckless! Gross: I’ll take that bet.
Hill: Ron Gross, Jason Moser, guys, thanks for being here! That’s going to do it for
this week’s edition of Motley Fool Money. Our engineer is Dan Boyd. Producer Mac Greer
on a well-deserved vacation this week. I’m Chris Hill. Thanks for listening!
We’ll see you next week!
Hi I’m Jimmy in this video we’re looking at the growth stocks that are gonna make up our growth portfolio from our Dow 30 analysis. Now if you’re new to this channel Well we’ve been doing an analysis that we’re calling the Dow 30 analysis where we analyze all 30 companies in the Dow Jones industrial average. We then take that analysis. We’re building three different portfolios a value a dividend and a growth portfolio. This is a growth portfolio. We already did the value in the dividend portfolio. So my goal here is to pick companies that are growing relatively quickly or they’re growing we expect them to grow relatively well over the next few years and they could make up good long term investments. Now because this is part of the Dow 30 series Well we’re picking we’re sticking with companies that are in the Dow Jones industrial average and that’s somewhat tricky because these are very large blue chip companies that have been around for a long time. So it’s going to leave out key growers like Facebook or Google that would easily make this list if they if we were not restricting ourselves to the Dow 30 companies. Okay our first sector is the financial sector. Now we actually have four different companies from the financial sector. First let’s look at both American Express and Visa. This is a chart of American Express is earnings going back the past couple of years and as we could see it’s been moving higher at a decent pace when we switch over to visa while visa has been doing even better than American Express. Now personally I think that these two companies are great additions to a growth portfolio because they’re likely to remain very important in the economy as technology pushes things forward even services like Venmo or Apple Pay or Samsung pay whatever it might be as they pick up ground they’re not leaving them. Visa and American Express behind there is simply incorporating those services into their own business. So I believe that Visa and American Express companies like that are gaining more ground and grinning gaining more importance. So I expect them to grow nicely in the coming years. Then we have the Travelers Companies now travelers are not actually using earnings per share. I’m using revenue because I think this belt better illustrates their growth potential and their growth over the past few years since earnings per share for insurance companies can be a bit deceptive. So on the revenue chart we can see that travelers is expected to pick up a decent amount of ground. We could see that with the green bars green bars our analyst estimates. So I think that this is likely to be a good thing for travelers stock as they continue to grow. Then we have the last company the financial sector. This is Goldman Sachs. Once again I use a different financial measure other than earnings per share. This is the last time I’m doing everything else going forward. The earnings per share here I use book value per share and I did this because if you remember that Goldman Sachs video well price to book value is a very popular way to try to value a financial stock like Goldman Sachs and Morgan Stanley or a company like that. So as you can see their book value per share has grown nicely and although we don’t have estimates for book value I believe that book value per share for Goldman will continue to do quite well in the coming years. Okay next up we have the information technology sector here we have two companies. First one is Apple. Now obviously Apple’s a solid company and they’re a good fit for most growth portfolios. And as we could see Apple’s earnings per share is growing and expected to continue to grow in the next few years. Apple is pushing to expand their current content offerings and this seems like a smart move going forward. Plus they always have their great products like their iPhones iPads things along those lines. So overall I expect as they continue to expand their content offerings Apple’s earnings per share and likely their stock price will continue to grow. Okay now right in line with this our next company is Microsoft. And as we could see Microsoft has started to pick up their earnings per share over the past few years. And we expect according to the green bars which is analyst estimates that they’re going to continue to grow in the coming years. I think Microsoft is one of the stronger companies out there. And I think that this makes a good addition to most growth portfolios. Okay. Now we slide over to the health care sector where we got two companies. The first one is Johnson of Johnson now Johnson and Johnson’s growth. Their earnings per share growth was a bit stale a few years ago leading up to about 2015 and the growth really started to pick up. And as we could see by analyst estimates while growth is expected to continue to grow for the next few years. So I think that this will make a good addition to the growth portfolio. Plus Johnson and Johnson is somewhat of a defensive company. So I think that that’s a nice way a nice thing we should incorporate since we’ve been on a bull run for so long. It’s probably good to have some defensive names in here. Okay. Next up we have UnitedHealth which is another defensive holding for our growth portfolio. And as we could see in their earnings per share. Sharp Well just like Johnson and Johnson they’ve begun to pick up speed recently and analysts estimates have their earnings per share continuing to grow which should make them a good addition to the growth portfolio. Plus like I said with JNJ they’re a defensive name they should be a defensive name. So in the event of a market pullback I think we would be happy that we added these two companies. Okay now we move over to the industrials but we have two more companies. The first one United Technologies now UTI ex is an interesting one because they’re in the middle of a merger with Raytheon and I believe that this could be a very good thing for UTI ex over the long run. And clearly we can see that their earnings per share estimates are supposed to they have been picking up pace in the next couple of years. So I think that this is going to make a solid growth has the potential to make a solid growth addition to our growth portfolio. Okay. Next up we have Boeing now Boeing is an interesting one and I’ve gone back and forth on this one. Now this is a chart of Boeing’s earnings per share going back the past few years and as we could see for 2019 Boeing’s EPA took a nosedive. Now this is an estimate because right now the first and second quarter for Boeing are already in but the third and fourth quarters are just estimates. So we’re making the whole thing an estimate. But either way in Q2 Boeing took a big loss after all the issues that they’ve run into with their planes and with many of the things that I’m sure we all know about going that that have happened recently but that dragged down their 20 19 estimates. But we add 20 20 well analysts estimates have them growing almost as if this didn’t happen. And I would expect solid growth after 2020 for at least a few more years which is why I think it would be smart to add Boeing to our growth portfolio. Okay next up we have consumer discretionary the first stock in the consumer discretionary sector is Home Depot. Now I’ve been a fan of Home Depot for a while and I believe they’ve been a solid growth stock and I expect for their growth to to remain relatively strong over the next few years. So once again I think that this is a nice addition to a growth portfolio in general. Okay. Next we have Nike. Now I actually think that Nike has done quite well in the past few years and I expect them to do well in the next few years as they try to revitalize their company. Now the trade tensions have weighed a bit on Nike and even though that most of their products are made in Vietnam I think it’s about 20 percent 25 percent is made in China. But that may be behind us now as a deal looks like it could be getting worked out either way I would expect for Nike’s earnings per share to continue to grow over the next couple years which could be a good thing for Nike stock and ultimately our growth portfolio. Okay. Next up we have Disney which is our only communication services company. Now as you could see on the earnings per share chart growth has somewhat stalled out making this a somewhat counterintuitive pick for a growth portfolio but I think that the stall has happened mostly because they’ve had to expend an excessive amount in their direct to consumer platforms recently plus they’ve had a call it a rough start to integrating the fox assets that they bought into their business but I expect this to be sorted out over the next year or two and then there’s somewhat sluggish growth should resume after that I believe over the long run Disney should do quite well. The earnings per share should do quite well and ultimately their stock and our growth portfolio because of it. Okay. So that wraps up all the companies from the Dow that I thought were a good addition to the growth portfolio at this time. Now there are a few other companies that could make interesting additions to this a company like Tesla as an example. I think we all know that they’ve had fantastic growth but they’re not in the Dow so I couldn’t included. I mentioned Facebook or Google. Those are companies that would definitely belong in a growth portfolio but not so much because they’re not in the Dow for our case. Now I could easily make a case for a company like Horizon and AT&T rises in the Dow AT&T isn’t that one I was borderline adding that to this but I expect there to be a lot of outlay of capital sort of like Disney was a few years ago I expect horizon to be having to do that for the next couple of years as they expand to 5G. So where I think that they will grow in the long run over the next decade or so. I believe that the companies here are more likely to grow sooner rather than later. So that’s our growth portfolio. Now my question to you is are there any Dow 30 companies that you think belong on this list that I shouldn’t. Would you have taken any off. I know that there’s tons of companies from let’s say the S&P 500 that should make a growth portfolio but since this was part of our Dow series I tried to limited to those. There’s also a few growth ETF s that could do quite well. Please let me know what you think in the comments below. Any companies that you would add or take away put those in the comments if you haven’t done so yet please hit the thumbs up on it really helps the channel and the video. And if you haven’t done so yet hit the subscribe button hit the bell icon. Thanks so much for stick with me all the way into the video and I’ll see you in the next video. Thanks.
AMNA NAWAZ: Today’s 800-point plunge on
Wall Street is just the most recent swerve for a stock market that had very recently
been hitting record highs. Jeffrey Brown reports that the high level
of volatility has investors large and small on edge and looking for answers. (BEGIN VIDEOTAPE) JEFFREY BROWN, PBS NEWSHOUR CORRESPONDENT:
President Trump’s trade and tariff wars, major slowdowns in the economies of Germany and
China, the prospect of further actions by the Federal Reserve, and more. It may be August, but national and global
events are impacting markets and, maybe, the economy overall. Neil Irwin, senior economics correspondent
for “The New York Times,” joins me now. Nice to have you back. NEIL IRWIN, SENIOR ECONOMICS CORRESPONDENT,
THE NEW YORK TIMES: Thanks, Jeff. JEFFREY BROWN: Big drop in the market today. You see several things going on. Let’s start with the trade and tariffs. How is that moving markets? NEIL IRWIN: Sure. So, we’ve seen a bit of a de-escalation of
the trade wars in the last couple of days — JEFFREY BROWN: Uh-huh. NEIL IRWIN: — as the president has kind
of backed away from one round of tariffs that were set to go into effect. (CROSSTALK) JEFFREY BROWN: Which should be good in a
sense, yes. NEIL IRWIN: It should be good, but remember,
that was only partially pulling something that was only announced back two weeks ago. JEFFREY BROWN: Yes. NEIL IRWIN: What we’re seeing is that this
trade war, it’s something bigger than just one little dial that you can twist. It’s infecting the overall economic relationship
between the world’s two largest economies. Businesses worldwide are having to adapt and
adjust, and they’re nervous about making investments and really investing in the future given that
backdrop. JEFFREY BROWN: Do we see actual damage already
or is this about fears looking ahead? NEIL IRWIN: So, so far, in the U.S., economic
data, it’s pretty mild. You see some evidence that the industrial
sector is slowing down. Business investment has been weak in the last
few months. But it’s not a catastrophe so far for the
U.S. economy. So far, the U.S. economy seems to be holding
up. The question is what — what’s going to happen
in the future? JEFFREY BROWN: And when the president pulled
back yesterday on the latest tariffs or at least postponed them, was that perhaps as
seeing that it might — this time, it might affect consumers, or why — why do you think
he did that? NEIL IRWIN: Yes, I think this was — this
round of tariffs is going to affect consumers 10 percent on basically all Chinese imports,
including toys, including iPhones, including things that people are buying in the Christmas
season. They didn’t want to do that. The thing is you can’t really go back again. Sometimes, this idea of constantly escalating
global economic warfare, once that gets in place, it’s not so much the details of any
one tariff, it’s what’s going to happen to the relationship overall, and what does that
mean for the future. JEFFREY BROWN: All right. So, there’s that on the one hand, but you’re
seeing something that’s part of — this is part of something much bigger, deeper,
a slowing, a weakening, perhaps even signs of a recession. What points to that? NEIL IRWIN: So, the biggest thing is what
happened today is called an inversion of the yield curve. So, the yield curve is interest rates on the
treasury bonds for different durations, different time periods. And what’s happening now is you’re actually
seeing lower interest rates on longer term bonds than on shorter term. All that means is investors worldwide soon
to be pricing in an expecting slower growth, weaker growth, lower inflation, more Federal
Reserve rate cuts. That’s a pessimistic signal we’re getting
from global bond investors. JEFFREY BROWN: And how — where are they
seeing that? I mean, what specifically are they looking
at that’s making them feel so pessimistic? NEIL IRWIN: It seems to me this global forces,
not just the trade wars that we’re already talked about, but a sharp slowdown in the
European economy, geopolitical tensions. You have tensions between China and Hong Kong. JEFFREY BROWN: Yes. NEIL IRWIN: You have a very complex situation
where the entire world economy and the world political system seems to be in this very
fragile state. So, it doesn’t take much to undermine growth. JEFFREY BROWN: Now, the president clearly
seeing what’s going on, he put out another tweet today, another blast at the Fed chairman. He referred to him as clueless Jay Powell. What is — what is that coming from? Or what do you seeing there? NEIL IRWIN: So, look, President Trump wants
to blame the Fed for everything bad that’s happening in the world markets and the economy. And it is true — look, the Fed raised interest
rates four times last year. They’ve already taken back one of those. They seem to believe that — you know, there’s
some evidence that they overdid it last year and maybe raised rates too much, given where
the global economy is. But you can’t — you know, you can’t hold
the Trump administration blameless. They keep kind of throwing bombs in the different
elements of the global trading system in ways that are disruptive. And you talk to CEOs. You look at corporate earnings reports. There’s clear evidence that the Trump administration
has part of the responsibility. JEFFREY BROWN: I mean, we’ve talked about
this before and over the years many times, the uncertainty unsettles markets, right? NEIL IRWIN: Yes, if you’re a CEO, you’re
trying to decide whether to invest, whether to hire people, whether to build a factory. You look around — you don’t know what the
world economy is going to look at in a year because there’s this kind of chaos that
emanates from, not just Washington, from other world capitals as well. That’s a very difficult setting in which
to do business. And what’s happening in markets is reflecting
that more and more. JEFFREY BROWN: It is still true, though,
that some numbers look OK, or even good, right? Job market is still OK. Wages are up. So, is everybody sort of parsing all these
numbers, huh? NEIL IRWIN: Yes. Look, so far, the U.S. economy has been the
calm in the storm. The U.S. economy has been basically sound
even with all this — all this turmoil overseas. The problem is what’s being — what we’re
seeing in markets this month seems to be suggesting that could change. And it doesn’t have to be a recession. We can still avoid a recession, but the risk
of one is a lot higher than it was a month ago. JEFFREY BROWN: And just briefly before we
go, what is it about August? Something about — everybody is supposed to
be relaxing, but a lot of things happen in the economy and market — markets. NEIL IRWIN: We keep seeing this — happened
in 2011, happened in 2007, happened in 1998. You know, one explanation, it seems to be
that a bunch of traders are on vacation, so there’s liquidity in markets. You get wilder swings. It may be just a coincidence but I think we’ve
seen this pattern before where August is the month where global markets seem to melt down. JEFFREY BROWN: All right. Neil Irwin of the “New York Times” — thank
you very much. NEIL IRWIN: Thanks, Jeff.
Are you better off trading the stock
market or the forex market? Now, I know this is quite a generic question but it
is the one that I come across time and time again. So, today, I want to look at
this in some more detail so you can get an idea of what the advantages and
disadvantages are of both. Then you can make a decision which way you want to go. Here we are, back in sunny England for
those of you that have been wondering where I’ve been for last week. Just say,
I’ve been off the airwaves. I’ve actually been on my annual vacation to the
Philippine Islands flying around and exploring though I’ve factored 7,200
islands that make up the Philippine Islands and I was able to explore just
four of them. So here’s to next year, see if we can take in a few more. Before I
continue on this very important topic of what’s the preferred route to trade,
either Forex or the stock market, I want to remind you to subscribe to my channel
if you haven’t already done so. Now, over the last couple years I put together a
whole bunch of educational videos. All free, once you subscribe to the channel
that will be there at your fingertips to explore in your own time. Also, don’t
forget to hit the notification icon. That way, you’re going to be notified the moment a
new video has been released. Okay, let’s get straight into it. So what is the best
to trade? Well, let me say, I think this really does come down to your personal
objective, ss much as anything. Right, so, what is the best approach? Well, generally
speaking and I mean this in really general terms, stock market investing is
for the longer term. So, for example if you have a longer term
objective say a 5 to 10 year plan, you might want to look to fund a pension or
indeed, pay for school fees. That generally speaking, trading the stocks
will be the preferred approach. If you can find some stocks with some decent
balance sheets and decent price earnings ratios, and a decent outlook with a good
customer base and a sound business model, then that again could be their preferred
approach. Think about it for a moment. Most pension funds that make up the
pension industry are made up of stocks and bonds, a combination of the two. Very
rarely, do you see a pension fund made up of foreign exchange exposure,
and it is there to hedge, of course. So stocks are generally, used for more
longer-term investment. If on the other hand, your objective is a shorter term,
perhaps you’re looking to supplement your income; possibly giving up your day
job altogether and become a full-time trader, then in that case maybe Forex
might be the preferred approach. And that is for a number of reasons. First of all,
I will say this, if you’re trading the stock market, there are literally,
thousands and thousands of different stocks available to trade globally, of
course. If you look at the S&P, for example, that’s made up of 500 US top
stocks. The Russell index made up of 3,000 stocks, and of course that’s just
in the United States alone. The same in the UK and around Europe. The stock
market is made up of multiple, multiple stocks getting, a grasp, a handle on any
one individual stock could be quite difficult. You’ve got to do a lot of
research; however, if you’re inclined to be able to do this research, if you’ve
got the know-how, and you’ve got the experience that you can analyze company
data, you can analyze balance sheets, then of course, stocks can be very very profitable. But there’s a whole bunch of stocks out there, that you need to do this work
on, and this analysis on. If on the other hand, you look at the forex market. Now
the forex market it’s generally made up of say 10 different currency pairs so
you can actually spend a lot less time analyzing an individual currency pair
than the vast array of stocks available out there. But again, it does depend on
personal objective, and of course the amount of time that you can allocate to
this. Also, if you are inclined to be a fundamental trader, a fundamental trader
basically looks at the reasons why a stock or indeed a currency pair will
move if you are fundamental trader that of course trading stocks may be
preferred way to go because the fundamentals are a lot easier to
potentially understand then possibly the forex market. Certainly, if you understand
how to read a company balance sheet and so forth. If on the other hand you want
to be a technical trader, then I would suggest that the forex market might be
easier. The forex market is huge. It has a massive participation of about five
trillion dollars a day, made up of retail and of course, institutional players. Now, the other thing that you need to consider is the
ease of access. It’s far easier when starting off to access the forex market
than it is the stock market. And often people that are coming in to trading for
the first time, only have a limited or only want to risk a limited amount of
money when getting going- to see if trading is for them or not.
Now, when you start trading the forex market, you can start with just a few
hundred dollars but difficult to do that in the stock market. Many brokers won’t
allow you even to open an account to trade stocks unless you have a few
thousand dollars to get going. Significantly higher than opening up a
Forex account. Now, the other thing that you have to consider is leverage. If
you’re starting off with just a thousand dollars, then of course the forex market
offers leverage. Sometimes, insane amounts of leverage! Now, I don’t encourage anyone
to trade with insane amounts of leverage. In the old days, they used to be able to
offer 200, 500 to one. I think that’s absolutely ludicrous. Well,
the video talks about this. You should be trading leverage of really nothing more
than really 20 to 1 . The recent ESMA regulations in Europe in fact, pull down
the leverage, that’s permitted. But when you trade in the forex market you have
access to huge leverage, so you can start off with just a thousand dollars. If you
were trading trading 20:1 leverage, you’re basically exposing yourself to
twenty thousand dollars in the market. That’s not as as easy to do when you’re
trading the stock market. So, you need a higher amount of money to start with
when you’re trading the stocks and certainly if you’re learning then you
may not want to risk a higher amount when getting going to site; to deciding
whether or not trading is for you or not. So leverage is available in the forex
market. Much more so than in the stock market and certainly you can start
experimenting with small amounts of money, to see if you are indeed, have what
it takes to be a trader. The cost of trading, generally speaking, is cheaper
in the forex market. Might just pay a commission, small commission, and indeed,
the spread . In some cases you won’t pay any commission at all,. You’ll just pay the
spread and it stocks, it’s almost certain you’re gonna spend money on the spread
as well as a decent sized commission. Certainly more than the forex market in
most cases. And if you’re starting off in trading, You know. You’re deciding if this
is gonna be right for you, you’re finding your feet. The last thing you want to be
doing is competing against the broker with the fees and the spreads and the
commissions, as well. Now, the forex market is open 24 hours a
day. So no matter what timezone you’re in, there’s always going to be a market open.
Of course, not on weekends. Now, certain times of the day will be more liquid, of
course, but of course, you can trade different currencies in different time
zones to fit in with where the liquidity is. You also fit in to your lifestyle if
you’ve got a day job whatever you may be a shift worker or maybe only have a few
hours a day in the evening now if you’re trading the stocks for example stock
markets are generally open from 8 to 4 on to the stock markets closed you can’t
trade so if you want to trade the US stock market generally speaking you’ve
got to be there when the US stock market is open specific times now the next
thing you need to consider is the liquidity now the major Forex pairs
generally have super large liquidity certainly the Euro against the US dollar
which is the most actively traded currency pair out there this means that
you can always get out of a position whether it’s for a profit or a loss
without too much slippage which is basically the difference in the price
that you see on the screen to the price that you get fill that now sometimes in
the stocks certainly in the lower cap stocks this know that this liquidity is
not always there which means the slippage could be higher sometimes
you’re in a position you want to get out and you can’t get out because of the
quiddity has dried up so what you see on the screen isn’t necessarily what you
get but on smaller accounts this liquidity can really affect you you last
thing you want to be doing is losing money on the slippage now of course the
higher cap stocks they have normally higher liquidity but the higher cap
stocks generally means that the price of the stock is going to be higher the
price of stock is higher chances are when you’re starting off in trading a
smaller account you’re not going to be able to get much exposure because of the
price of the stock is higher so the quiddity is a main factor
super high liquidity in the forex market sometimes not as high liquidity in the
stock market if there is high liquidity generally the cost of the stock is
higher meaning your exposure to that stock is going to be limited now if you
are inclined to be technical trader now technical trader
looks at previous price action and looks for patterns to repeat themselves they
look at charts to see what prices being in the past to see where prices may go
in the future now in my opinion and this really is just my opinion that the
technical traders are more angled to the forex market than they are the stock
market why because the forex market is the largest market on the planet
actually equates to 5 trillion dollars a day so the key levels of support and
resistance I think are more respected in the forex market because there’s many
many more players than there are in the stock market which has made me generally
driven by fundamentals more so than the technicals as I said this really is a
personal choice based on objectives and based on your character are you more
likely to be a fundamental trader where you’re looking to analyze company
balance sheets and looking for price earnings ratios and looking at markets
in general or are you more likely to be a technical trader in which case I think
that the forex market might be a preferred way to go certainly if you’re
starting off the ease of access the liquidity sways the Fox market all day
long for me for those that don’t know me I started my trading career over 30
years ago in the city of London standing there in the trading pits look
at that guy there with all that hair isn’t that amazing for me the migration
from the pits to the screens was quite easy because of the fights market I
didn’t have all the knowledge about company balance sheets and didn’t have
that experience for me I purely looked at price for me trading the forex market
is much more akin to trading that I grew up with in the trading pits that’s why
I’ve chosen the forex market that’s why it gives me the best opportunity because
it’s something that I’ve grown up with whatever choice you decide I hope you
are successful as always if you liked my video give me a thumbs up if you didn’t
give me a thumbs down don’t forget to leave a comment and as I said at the
beginning make sure you subscribe to the channel so you can access all my
previous videos don’t forget to hit that notification icon see you notified the
moment my next video is released till next video happy trading and good luck
Investors have no doubt heard about the trade
tensions between the U.S. and China. Both countries are locked in a power struggle as
they impose new tariffs on goods imported into their countries. But determining exactly
what a trade war between the U.S. and China means for the stock market or either country’s
economy, is difficult to predict. To understand its significance, it’s worth taking a closer
look at what the U.S. and China are fighting about and whether or not it should change
your current investing strategy. So, why are the U.S. and China imposing new
tariffs on each other? Back in 2017, the U.S. began looking at China’s trade policies
and decided that the deficit between the amount of goods coming into the U.S. from China compared
to the amount being exported to China was too great. The U.S. government then imposed
billions of dollars in tariffs on some Chinese goods coming into the U.S. In return, China
issued its own round of tariffs on some U.S. imports. The two countries have held talks
trying to resolve trade tensions, but they haven’t resolved it in
any long-term trade solutions. So, why exactly does this trade war matter
to investors? When new tariffs are applied to products, it’s not the countries that actually
pay for them. The companies that sell the products pay the additional costs upfront,
and then they usually pass the expense onto their customers. For example, prices on some
electronics that are manufactured in China and then exported to the U.S. could rise as
a result of the tariffs, which could cause certain device prices to rise. If that happens,
sales from the U.S. tech companies could fall. Not only that, but the higher cost of devices
would likely cause Americans to curb their spending. Rising tariffs on U.S. goods being
exported to China means that companies in that country could increase their prices as
well, and Chinese consumers could suffer in the same way that U.S. consumers are.
China and the U.S. have two of the biggest economies in the world, and the International
Monetary Fund has warned that an all-out trade war between them could hurt the global economy.
Because of this, trade war tensions between the U.S. and China have caused
some volatility in the stock market. But that doesn’t mean that investors should
panic and sell their stocks. The trade negotiations aren’t finished yet, which means that selling
stocks before any trade deals are made is just selling based on fear. Keep in mind that
over the long term, the stock market has produced some strong returns, even in the face of wars,
depressions, recessions, and other negative events. In fact, the current trade war is actually
creating some new investing opportunities. As investors flee the market, it’s pushing
some share prices down and allowing savvy investors to snatch up
companies at bargain prices. There’s still a lot of uncertainty about what
will happen with the U.S. and China trade negotiations, but the one thing that investors
should remember is that for the most part, it’s best to stay the course with their investments
and be on the lookout for bargains. Thanks for watching this video. Don’t forget
to like it and leave a comment below, and click the subscribe button to get more
videos like this from The Motley Fool.
… panic sounds… The clock is ticking, and financial conditions in the U.S. are about to make a brutal turn for the worse. … five years to go higher it’s now down
forty percent 2019 Financial Crisis begins the US stock market’s complete final tops November collapse will be quick rapid and sudden they will
not know what hit them they will try to stop it and they will fail World
November collapse complete before Thanksgiving but the world is sleep
walking towards a fresh economic and financial crisis that will have
devastating consequences for the Democratic market system according to
the former Bank of England governor Mervyn King Lord King who was in charge
at Threadneedle Street during the near death of the global banking system and
deep economic slump a decade ago said the resistance to new thinking meant a
repeat of the chaos of the 2008-2009 period was looming giving a lecture in
Washington at the annual meeting of the International Monetary Fund King said
there had been no fundamental questioning of the ideas that led to the
crisis of a decade ago another economic and financial crisis would be
devastating to the legitimacy of a democratic market system he said by
sticking to the new orthodoxy of monetary policy and pretending that we
have made the banking system safe we are sleepwalking towards that crisis
the market levitates higher on phony economic data from the government
Trump tweets fed money printing and hedge fund algorithms chasing headline
and Twitter sound bites currently the stock market doled by
money-printing and official interventions could care less about
economic reality and rising global systemic geopolitical and financial reg
corporate headline earnings beats are considered bullish even if the earnings
declined yoy or sequentially someone is not telling the truth the Fed once again
last week increased the size of both the overnight and term repo operations
starting Thursday October 24th the overnight repos were increased from
75 billion dollars to at least 120 billion dollars and the term repos
two-week term of at least 35 billion dollars were extended to the end of
November with to at least 45 billion term repos thrown in for good measure
the Fed is also outright printing helicopter money for the banks at a rate
of 60 billion dollars per month the tea bail pomos at the height of the last QE
money printing cycle the Fed was doing 75 billion dollars per month so whatever
the problem is behind the curtain it’s already as large or larger than the 2008
crisis that escalated quickly when the repo operations started in September the
Fed attributed the need to relieve funding pressures at the time the public
was fed the fairy tale that corporations were pulling funds from money market
funds to pay quarter in taxes well we’re over five weeks past that event and the
repo operations have escalated in size and duration three times someone is not
telling the truth the truth is they are gone and as the US
economy continues to collapse things are going to get even worse the rapid
increase in Fed money-printing in just five weeks
reflects serious problems developing in the global financial system actually the
problem is easy to identify at every cohort government corporate and
household the level of debt has become unsustainable with not insignificant
portions of that debt in non-performing status seriously delinquent or in
default one market expert breaks down why the mother of all bubbles is unlike
anything investors have ever seen and lays out additional evidence that a
crisis is approaching several warning signs including the mother of all
bubbles are adding up to diagnose the next recession according to joseph
Zittel the chief investment strategist of black stones Private Wealth Solutions
Group he is concerned that investors are treating these signs as random events
even though they are all linked just like the 2008 crisis was the culmination
of many separate risks joseph zittle is adopting the framework his boss used to
foresee the housing crisis over a decade ago Blackstone CEO Steve Schwarzman
espouses the idea of hunting for discordant notes these refer to trends
in the economy and markets that easily pass as isolated events but combined in
a dissonant troubling fashion as a case in point the surge in housing prices and
the collapse of the reserved primary fund due to its exposure to Lehman
Brothers seemed like two separate issues however we now know they were part of
the same awful financial crisis the next recession will likely be no different
according to little many warning signs that easily pass as isolated are adding
up to four warn investors the US economy is seriously deteriorating and things
are only going to get worse in the weeks ahead the next shoe in the farm crisis drops
bankruptcies soared 24 percent the American Farm Bureau warned Wednesday
that farm bankruptcies are entering a parabolic move the farm crisis as we’ve
pointed out is only accelerating and will likely be on par with the farm
disaster that was seen in the early 1980s president Trump’s farm bailouts
given to farmers earlier this year appears to be failing at this moment in
time as a tsunami in farm bankruptcies is sweeping across the country with
record high debt collapsing farm income and depressed commodity prices US
farmers are dropping like flies as there’s no end in sight and the 15 month
long trade war AFB said farm bankruptcies for the 12 months ending in
September totaled and astonishing 580 filings up 24% yoy the number of chapter
12 farm bankruptcies 580 filings for the period was the highest since 676 filings
were recorded in 2011 for third quarter nineteen farm bankruptcies were slightly
lower down 2% yoy total bankruptcies filed by state vary significantly from
no bankruptcies in some states to more than 20 filings and others bankruptcy
filings were the highest in Wisconsin at forty-eight filings followed by 37
filings in Georgia Nebraska and Kansas Iowa Kansas Maryland Minnesota Nebraska
New Hampshire South Dakota Wisconsin and West Virginia all experienced chapter 12
bankruptcy filings at or above 10-year highs a FB row AFP’s next chart is yoy
change in farm bankruptcies over the 12 months which shows bankruptcies
accelerated the greatest in Oklahoma Georgia California Iowa and Kansas the
next chart from AFB outlines how bankruptcy filings over the previous 12
months ending in September jumped in every major region across the country
some of the most significant increases were seen in the Midwest
40% over the period chapter 12 farm bankruptcies are expected to increase
through the next several quarters this could be problematic to President Trump
as the 2020 election year begins many of the bankruptcies are occurring
in election battleground states like Wisconsin according to Lynette Zhang
from ITM trading the total size of the municipal bond market is more than
doubled since 2008 from 2.8 trillion to six point nine six trillion as of
September 2019 if you look to the grading services they say the risk is
small but studies conducted by the New York Fed in 2012 as well as a 2019 study
by the Brookings Institute tell a very different story because ratings agencies
only report these bonds they have graded which leaves out a huge swatch of the
market in fact according to the WSJ as of 8:30 nineteen forty three percent of
reporting muni bond issuers default within three years so far 11 states have
moved to protect their citizens by passing legal tender laws that put sound
money gold and silver as a Fiat money alternative which i think is a very good
thing is your state one of them if not you might want to see what you can do to
help in the meantime you can create that protection for yourself and your family
which i think is a very good idea in particular the United States finds
itself in a massive economic mess it was once the greatest creditor nation on
earth but now it is the biggest debtor in the history of the world it blows the
mind to think that the richest nation in the world has become the nation with the
most debt in the history of the planet in just one short generation the great
American economic empire is crumbling the economic despair that is coming in
the years ahead is going to be so great that there are no words to even describe
it the clock is ticking and financial conditions in the US are about to make a
brutal turn for the worst a financial crisis is coming you better get ready the financial and political opinions
expressed in this video are not necessarily of financial argument or its
staff opinions expressed in this video do not constitute personalized
investment advice and should not be relied on for making investment
I’m Jim Haskel, Senior Portfolio Strategist. I’m here with Co-CIO Ray Dalio. And the subject today is China, and Ray, you’ve been going there since 1984; a lot of experience. China in the news today in many different regards. Can you walk us through a little bit about your experiences and how you’ve seen China evolve over the last 35 years? I’ve been able to go to China since 1984 and participate and see the evolution, yeah. And it’s been quite something. You know the first time I went, I was invited by CITIC, which was called a window company then, which was the only company that was allowed to deal with the outside world, and they were curious about the world financial markets. So I was invited there. At the time uh the city was mostly hutongs, which are small neighborhoods, poor neighborhoods. And I remember speaking in their office building, called the Chocolate Building, and looking outside, and we were talking about opening up. And at the time, I knew what opening up would mean, you know? The rest of the world had a cost level that was here, and China had a cost level there, and if they could eliminate their inefficiencies, it would go like this. And so I looked out there and I said, you know, you’ll see those hutongs become replaced by skyscrapers and so on, and they told me that, you don’t know China. But that force, and their character and the creativity that they exhibited took them to what is the greatest economic miracle of all time. To put that into perspective, per capita income since then increased by 26 times. The share of world GDP went from 2% to 22% today, so it’s a comparable power to the United States. The poverty rate went from 88% to less than 1% and the life expectancy increased by 10 years. There are many, many others; in capital markets, very big changes. But I never went for making money; I went for curiosity, you know? And that curiosity brought me in contact with the Chinese people, who I really, really came to love and admire. The character of them, the type of relationships that they valued; all of those types of things. And I could see that character and I was able to, over those years, build friendships; I was able to contribute in some small ways to the development of the financial markets and see it. And I remember these people; I’ve a great old group of friends who were the first pioneers to set up the stock market there. They were seven companies—each had a representative. And it was in a dingy hotel, and these people were to form the stock market and the financial markets, and so it evolved. And that evolution was an intimate evolution, in which I brought my family, I brought my kids. I remember bringing my son Matthew when he was very young along, and we would go in and we’d have meetings and they would bring cookies and milk and he’d be there. And he ended up going to school there when he was 11; it was a whole different world, he lived there. And that whole different world, just to give you an idea of the technology— you know where they are in technology now, which is comparable in many ways to the United States. When I went, I would bring them as gifts $10 calculators that they thought were miraculous. So I’ve gotten to know the people—I go there because I like and admire the people, and I’ve done that for 20 years or more before we ever did anything commercially. And so we’re sitting in a time now where China has evolved in a big way. And I wonder, just from your perspective now that, as an American who’s gone to China for years and years and years, how do you make sense of this growing conflict that you’ve written a lot about, between China and the United States? What do you think is the root cause of that? Well, it makes total sense in a historical context. You know, I’ve been studying economic history— I used to study what the last 100 years is— and recently because I wanted to study the rises and declines of reserve currencies, I’ve studied the last 500 years carefully and looked at the last 1,000 years. And what I’ve seen over and over again is that when there’s a rising power challenging an existing world power, that there is going to be a conflict. And there’s a global world order. And the way that usually happens is there’s a conflict, and then there’s a war, quite often, and then after the war, whoever wins the war gets to set what the global world order is. And then you have a period of peace, because no country wants to fight that country until there’s a rising power challenging an existing power again. That’s happened 16 times in the last 500 years, and in 12 of those times, there’ve been wars and sometimes you get around them. I’m not saying that there’s going to be a war, but I think it’s a natural development in terms of China growing, expanding. You know, we have a small world and it’s a big country, and we’re going to bump into each other, and so it’s that natural conflict. And then the question is, you know, how it’s best dealt with. But I think it’s just a natural evolutionary step. And you’ve sort of put the framework around this where trade is just the symptom of this broader conflict; whereas trade is always in the financial news, but it’s really just one symptom. There’s also, you know, military posturing—there’s other elements of this whole conflict. Sure, history has shown us that there’s this pattern—I’ll describe the pattern. We’re now living in a US dollar reserve currency world, so I want to look at the US dollar and the US empire. Before that I wanted to look at the UK and the British empire, and then before that I wanted to look at the Dutch empire. And I wanted to follow them in their various dimensions. So I read all of those stories—I looked through the numbers and read the stories— and I could see that the stories would repeat, the same basic stories. The charts on this page show six major measurements of power. The first is technology and education; second is output, how strong the economy is; third is trade; fourth is military; the fifth is the strength of the financial center; and the sixth is reserve status. What we did is to stitch together a whole bunch of statistics so that we can measure each one of those. And so they go back to 1500 and you can see the cycle repeat over and over again. This next chart shows the averages of these rises and declines by each of the factors, and I think they tell the story pretty well as to what a classic rise and decline of the empires and reserve currency status is. So for example, the Dutch back in the 1600s—late 1500s and early 1600s— invented ships that could go all around the world. And because Europe fought a lot, they put arms on the ships and then they could go all around the world, and the world was their oyster. So they could bring back great things, and they then increased their share of world trade to be 50% of world trade. And when they went globally, through their businesses, Dutch East Indian Trading Company, they had to be enabled with military to protect their trade routes, and they developed financial empires. So as a result, we saw not only trade grow, we saw the military grow; we saw them carry their reserve currencies around, and because they were used so commonly, they became world currencies, and that’s what made them world reserve currencies. And as a result, they also developed financial centers; because of developed capital markets, money came around the world to invest through those capital markets, in those currencies, in those businesses that were their businesses and other business, so they developed financial center; Amsterdam was the center of world financial markets as a result of that, and as a result they built their trade and their commerce together. They quite often— then over a period of time, there were forces that led to their decline. And those forces were typically a combination of higher levels of indebtedness, others gaining competitive advantage—for example, the Dutch shipbuilders were hired by the English to learn how to build great ships that would carry them around the world, and there was a change in technology. And there was really not much of a difference between the businesses, the technologies, and the government in terms of making those things happen. For example, the British East India Trading Company had a military that was twice the size of the British military, and they were the ones that conquered India, and so on. I just put together the averages of those forces so that you could just see, let’s say, the average of power, and it goes back to 1500 And you could see the blue line is the United States, and you could see its rise and then its relative decline. And you could see the emergence of China to be almost a comparable power. And you look at that red line over a period of time, and you could see going back to 1500, that China was always one of the either the highest, most powerful country, or one of the most powerful countries, until they had the decline from about the 1800 period. But you could see that emergence. And so to me, this is all very classic. Mm-hmm. So now, if you bring this back to the current conflict between the United States and China, what I think is so interesting is that you also believe that global investors must look at China and explicitly start to consider whether China should be part of their portfolios. And so it seems kinda interesting—we’re talking about an emerging conflict, but we’re also simultaneously talking about there’s really some merit for China to be a component of a global portfolio. So give us your perspective on that and why. So think about it. Would you have not want to have invested with the Dutch in the Dutch empire? Would you have not want to have invested in the industrial revolution and the British empire? Would you have not want to have invested in the United States and the United States’ empire? I think it’s comparable. Would you have not want to have invested in those places? And look at the growth in the markets. Over the last 10 years, the stock market in China has increased by—market capitalization by a factor of four. The bond markets, combining both the government and corporate bond markets, have increased by a factor of seven. And they’re each the second largest markets in the world. And I have had plenty of contact with those markets and with those people, the regulators and so on behind them, and I have you know a lot of admiration for that. So I also believe in diversification, yeah. I believe that China’s a competitor of the United States or Chinese businesses will be competitors of American business or other businesses around the world, and that you’re going to therefore—you wanna be, if you’re diversified, having bets on both horses in the race. And then I think from investing over the years, I’ve been doing this for a long enough period of time to know that there’s a tendency of bias not to do the new things. Like when I first started, we were at the end of the era where pension funds invested mostly in bonds. OK, then, then they thought it was bold to go to equities. Then they thought it was bold to go to international equities. And a lot of people argued against going to global equities. And so on. Emerging markets equities and emerging markets—all of that was considered to be bold. And so the thing that people haven’t yet done seems like the big risky thing where, in my opinion, going where the growth is and also having the diversification is a smart thing to do. So when you considered the merits of that, even if you agreed with what you’re saying, is now the time when the trade part of the conflict may be getting even more serious because we’re moving from tariffs into things like supply disruptions, and export interruptions, and prevention of particular exports. Is timing an issue or do you ignore that completely? Well, the markets as you know are always discounting timing, right? You have a new, good thing happens and the markets rally; you have a bad thing that happens and the markets sell off. And so the markets kind of reflect, broadly speaking the ebbs and flows of the good and the bad. And so if you wait for everything to be, you know, crystal clear, everything’s going to be terrific, you’ll pay a higher price than if you don’t. I think the real question is are we going to go to war. If we go to war, then we’re in a different world. I don’t think we’re going to go to classic war. I do think there’s going to be a restructuring of the world order in terms of changes in supply chains. There’ll be changes in who’s making what technologies; important changes and sort of those things. But I don’t think that that’s going to mean that there won’t be the evolution of China, the evolution of the United States, and I think that that diversification is good. So yes, I would say that now is the time. The reason now: now’s the time that it’s opening up. And you could be early or you could be late. I think that, you know, it’s better to be early, because as you know the inclusion in the MSCI indexes and other such things are meaning that they’re opening up and that will accelerate. Those percentages will keep rising. And so do you want to be early or do you want to be late? It’s better to be early than it is to be late, and I think also it’s a time for diversification. Ray, investing in China can be a risky thing to global investors. That’s the way they perceive it. How do you think about that relative to the other risks they’re already carrying in their portfolios? I think that every place is risky. So we’re talking about relative risk, OK? I think Europe is very risky, when monetary policy is almost out of gas, and we have the political fragmentation, and they’re not participating in the technology revolution. And I can go on and on as to why I think Europe is very risky. I think the United States is very risky in its own ways. Having to do with the combination of the wealth gap, the political system, the conflict between socialism and capitalism that will be part of our election, the fragmented decision making—so many different things, and the absence of the effectiveness of monetary policy when we get to be operating that. I think emerging markets in their own ways have their own distinct risks. And I think that China has its own particular distinct risks, which are all different. And I think, when I look at it, I think that it’s less or no more risky in the totality than other markets, and I think what is most risky is not to have a good diversification of markets. In addition, the Chinese have more ability to deal with monetary and fiscal policy relative to the United States. I’m not saying everything is a plus. There are pluses and minuses. But as you know, one of my big concerns— and I’ve got a number of big concerns about the West, the United States, and some of the issues that are facing the western economies— and among those are the inabilities of central banks to be as effective when interest rates get to zero and quantitative policies, quantitative monetary easing, is not as effective. So let me pause on that and touch on that. If you look at the difference in interest rates to zero and the capacity of fiscal policy to be coordinated, they have a lot more room to be managing those things, and they are managing. I mean if we, I dunno how long I’ve heard everybody say, OK the debt problem is going to be a problem there and so on. Again, I’d suggest you read the dynamics in my book about the nature of debt and what countries can do when the debt is in their own currency. I also think that not investing in China is very risky. I mean, think about it. Here we are in the early part of the 21st century, and there’s this emergence of China. Do you really want to make the decision not to invest in China and not to be there in the future? Look, I believe every place is risky. I am very risk focused. I tend to see things that are going to go wrong. I have an inclination to do that. So I think that every place is risky, which is why I like the notion of diversification. I just want people to see China objectively. I know over this past number of years, I have been pro-China, very bullish on China in its various ways. And people say, you know, why are you so bullish on China? And I know it’s very controversial to be, particularly at this time, to be very bullish on China. And I just want to let you know that I’m sincere, OK? I’ve been there, Because I hope you know that by now that my main objective is to be as accurate as I possibly can, Yeah, I really admire what is being done, and I wanna be a part of it, and I think our investors should be a part of it. I want to ask you about the best way to actually invest in China. What we see is that most of the portfolio flows go to either the private equity markets or the public equity markets, and that’s a little counter to your framework of how you invest across time and throughout the world. How would you think about best approaching the Chinese markets, as a new investor? Well, I wouldn’t think of it as being any different than being in any other place. The public markets and the liquid markets are going to allow all the advantages that they allow, and the private markets are going to allow all the advantages that they allow. The public markets are going to provide the liquidity, the diversity, the ability to move positions around and rebalance and so on, which is very important to us. And then the private markets, let’s say the venture markets, expose one to the new technologies and the energy that’s happening in terms of entrepreneurship and young technologies there. And I think that’s important. I think there’s an awful lot of money that is chasing those venture capital investments, and then I think there’s a whole lot of opportunity. I would say it’s a reflection really of how that country has changed, wow, from my $10 calculator days and to see what the mind-blowing technologies are. To put that in perspective, they’re now the #1 country in fintech, #3 in AI and machine learning, #2 in wearables, #2 in virtual reality, #2 in educational technology, #2 in autonomous driving, and they are running fast to be #1 in those industries. They now account for 34% of unicorns in the world, by comparison to 47% in the United States and only 19% in the rest of the world. And that’s when they start as unicorns. If they take the share of unicorn value, it’s 43% versus 45% in the United States and only 12% in the rest of the world. So if you’re looking at venture, I think you’ve got to be there. So I think it would be important not to miss out on those. As far as the public equity situation it’s analogous. You could see the market capitalizations accelerating in the stock, bond, corporate bond markets, all of their instruments, and you could see the foreign flows coming in at an accelerating pace. You can expect those markets to be bigger than the markets that we have in anywhere in the world, with time, and they will serve a similar purpose. So as far as let’s say the legal regulatory system, it’s advanced, but it hasn’t advanced as much as some of the developed countries. But it is more advanced and developing at a fast rate than most of the emerging countries. And if you deal with the question of whether it’s a more autocratic system and whether you prefer a more autocratic leadership system than a democratic leadership system, you’ll have to make that choice for yourself. don’t look at it as some unique place in terms of some of those impediments; look at the whole picture. I would say that the Chinese or Confucian way of approaching things has a lot to be said for it. So, you have to make your own choices. Let’s get back a little bit to some of the questions that investors have. For example, should they think of China as an emerging market investment? Should they think of it as a developed market investment? Something in between? In terms of the expected return-risk correlation of that investment— you talked a little bit before about diversification—but what about the expected return and risk of an investment in China and how would you structure that? When you ask me the question of is it more like an emerging country or more like a developed country, so many different aspects of what defines an emerging country or a developed country’s market vary, OK? So, they race down—what is the size of the market capitalization? What is the legal form? What are property rights? Just so many different dimensions. But I would make as a generalization that China is somewhere between 60 or 70% more like an emerging country in those respects than it is like a fully developed country. But it doesn’t have a regulatory system that is as developed as the developed countries that have been at it a while. It doesn’t have some things It has market capitalization, it has liquidity, and that’s a two-edged sword. It has also greater levels of inefficiency. So the greater levels of inefficiency provide investment opportunity. So, as a generalization, I would uh describe it that way. If I’m looking at it instead in the question of expected returns and risk, I think as you know, I look at each market and I look at the return relative to the risk, the expected return relative to the expected risk, and the past return relative to the expected risk, and what drives it. And by and large I find developed markets and emerging markets roughly comparable, and that being able to put together portfolios of those in an effective way is the way to engineer that portfolio. So when I look at China, I think that the expected return relative to the expected risk will be equal to, or perhaps higher, than elsewhere. Partially because of the fact that there’s the diversification that you could have and put together well, but also partially because of the greater capacity of the central banks, the central bank I should say, in being able to ease monetary policy and also run fiscal policy to be able to have higher ratio, and I think that that would be a plus. You’ve traced the arc over the last 35 or so years of China’s history and described the evolution. If you look now forward 5, 10, 15 years, what do you think the highest probability— what will we be looking at when we look at China’s evolution? We’ll be looking at a very different world, and we’ll be looking at a very different China, and we’ll be looking at a very different United States in 5, 10, 15 years. In some ways that we will never be able today to anticipate and in some ways that are inevitable, in kinda the same sort of ways that demographics is inevitable. The following charts probably help to answer your question. They show a number of statistics, including the sizes of the economies, the relative sizes of the economies, the relative shares of world trade, the shares of the global equity market capitalization, the shares of the global debt market capitalization, over the next number of years. These projections are based on our 10-year forecasts that look at a lot of indicators to determine what the next 10 years’ growth rate is going to be, likely to be. They’re based on the relationships between those types of growth rates and changes in market capitalizations, and also work that’s now being done to develop the market capitalizations and open those economies. They’re not going to be exactly accurate, but they’re gonna be probably pretty much accurate. You know, so in a nutshell, it’s going to have the largest economy in the world, the most trade in the world, the most market capitalization in the world. Mm-hmm. Those are big changes. Yeah. And the United States, and Europe, and Japan, and emerging countries are going to have big changes, too. You’re sketching out a continuation of some dramatic trends that have already taken place. Any threats that you see to that progress going forward? Well, I mean there are always threats. I think the threat is the threat of conflict with the United States in whatever form that will be. There are always threats, you know? And they have to do with probabilistic things. You can have threats that’ll affect our countries in terms of anything from climate change issues, pandemics, political disruptions. There’s that whole range that can affect any of those countries, right? Ray, we’ve covered a lot. We’ve talked about the evolution of China, the opening of the capital markets, how to think about it from an investment point of view. I thank you for your time and perspective, and I look forward to sitting down once again and updating this in the not-too-distant future. It’s my pleasure. It’ll always be interesting.
Well the stock market’s taken a bit of a turn
for the worse this past week, isn’t it? Hey everyone, Daniel here and welcome to Next
Level Life a channel where you can learn about Investing, debt, retirement, and many other
general financial education videos because the school’s aren’t going to do it for us. So if any of those topics sound interesting
to you or if you want to learn how to better handle your money and have more financial
freedom be sure to hit that subscribe button and the bell next to my name to be notified
every time I upload a video. Well I didn’t initially plan to do this video
this week but seeing as the market kind of took a bit of a tumble at the end of the week
losing about 5% of its value according to the S&P 500 in the last couple of days I figured
it’s probably a good time to upload this video. So it is March 25th, 2018 as I’m recording
the audio for this video and from March 21st to March 23rd the market dropped from about
$2,720 down to about $2,590 a loss of about 5% in the span of two days. And with things like possible trade wars being
all over the news lately one has to wonder if the market is about to collapse? Well as I’ve mentioned many, many, many
times on this channel and as I will mention many more times as we go along I have no idea
what the market’s going to do next. Nobody truly does. But if the market does crash I thought it’d
be a good idea to look now, before it happens, and see during a market crash how much of
a difference can you make in your net worth by continuing to invest? So in this video, I’m going to give you a
bit of a crash course in the stock market… Crashes and go through the most notable Market
crashes since the 1950s using data from the S&P 500 as a barometer and talk about how
much the market dropped and how long it took the market to recover. Then at the end of the video I’m going to
compare and contrast the differences in net worths of someone who pulled out of the market
during large crashes, someone who decided to stop investing during crashes but did not
sell their Investments that they already had, someone who continued to invest like normal
during large crashes, and finally someone who starts to invest even more when the market
is going down. Let’s get started. Alright one last thing I want to mention before
I actually get into the crashes themselves is that I understand that crashes can be very
bad in more ways than just seeing your investment values going down. The unfortunate fact is that a lot of people
lose their jobs when the market crashes, so all of the stuff that I go through in this
video today is only going to be valid if you can keep an income coming into the household
during the crash. So first I’ll start with the smaller crashes
which in my opinion should probably really be called Corrections. In December of 1952, the S&P 500 peaked at
$26.57 over the next several months it dropped to a low of $23.32 in August of 1953. That was a drop of a little over 12%. A few months later it would recover and break
its original peak of $26.57 closing at $26.94 in March of 1954. Meaning that it took 1 year and 3 months for
the market to go from the First peak all the way to the point where the market fully recovered
and set a new high. In July of 1956, the S&P 500 peaked at $49.39
over the next several months it dropped to a low of $39.99 in December of 1957. That was a drop of 19%. A few months later it would recover and break
its original peak of $49.39 closing at $50.06 in September of 1958. Meaning that it took 2 years and 2 months
for the market to go from the First peak all the way to the point where the market fully
recovered and set a new high. In July of 1959, the S&P 500 peaked at $60.51
over the next several months it dropped to a low of $53.39 in October of 1960. That was a drop of a little under 12%. A few months later it would recover and break
its original peak of $60.51 closing at $61.78 in January of 1961. Meaning that it took 1 year and 6 months for
the market to go from the First peak all the way to the point where the market fully recovered
and set a new high. In December of 1961, the S&P 500 peaked at
$71.55 over the next several months it dropped to a low of $54.75 in June of 1962. That was a drop of a little over 23%. A few months later it would recover and break
its original peak of $71.55 closing at $72.50 in August of 1963. Meaning that it took 1 year and 8 months for
the market to go from the First peak all the way to the point where the market fully recovered
and set a new high. In January of 1966, the S&P 500 peaked at
$92.88 over the next several months it dropped to a low of $76.56 in September of 1966. That was a drop of a little over 17%. A few months later it would recover and break
its original peak of $92.88 closing at $94.01 in April of 1967. Meaning that it took 1 year and 3 months for
the market to go from the First peak all the way to the point where the market fully recovered
and set a new high. In November of 1968, the S&P 500 peaked at
$108.37 over the next several months it dropped to a low of $72.72 in June of 1970. That was a drop of a little under 33%. A few months later it would recover and break
its original peak of $108.37 closing at $109.53 in May of 1972. Meaning that it took 3 years and 6 months
for the market to go from the First peak all the way to the point where the market fully
recovered and set a new high. In December of 1972, the S&P 500 peaked at
$118.05 over the next several months it dropped to a low of $63.54 in September of 1974. That was a drop of a little over 46%. A few months later it would recover and break
its original peak of $118.05 closing at $121.67 in July 1980. Meaning that it took 7 years and 7 months
for the market to go from the First peak all the way to the point where the market fully
recovered and set a new high. In March of 1981, the S&P 500 peaked at $136.00
over the next several months it dropped to a low of $107.09 in July of 1982. That was a drop of a little over 21%. A few months later it would recover and break
its original peak of $136.00 closing at $138.53 in November of 1982. Meaning that it took 1 year and 8 months for
the market to go from the First peak all the way to the point where the market fully recovered
and set a new high. In August of 1987, the S&P 500 peaked at $329.80
over the next several months it dropped to a low of $230.30 in November of 1987. That was a drop of a little over 30%. A few months later it would recover and break
its original peak of $329.80 closing at $346.08 in July of 1989. Meaning that it took 1 year and 11 months
for the market to go from the First peak all the way to the point where the market fully
recovered and set a new high. In May of 1990, the S&P 500 peaked at $361.23
over the next several months it dropped to a low of $304.00 in October of 1990. That was a drop of a little under 16%. A few months later it would recover and break
its original peak of $361.23 closing at $367.07 in February of 1991. Meaning that it took 8 months for the market
to go from the First peak all the way to the point where the market fully recovered and
set a new high. In August of 2000, the S&P 500 peaked at $1517.68
over the next several months it dropped to a low of $815.28 in September of 2002. That was a drop of a little over 46%. A few months later it would recover and break
its original peak of $1517.68 closing at $1526.75 in September of 2007. Meaning that it took 7 years and 1 months
for the market to go from the First peak all the way to the point where the market fully
recovered and set a new high. In October of 2007, the S&P 500 peaked at
$1549.38 over the next several months it dropped to a low of $735.09 in February of 2009. That was a drop of a little over 52%. A few months later it would recover and break
its original peak of $1549.38 closing at $1569.19 in March of 2013. Meaning that it took 5 years and 5 months
for the market to go from the First peak all the way to the point where the market fully
recovered and set a new high. In May of 2015, the S&P 500 peaked at $2107.39
over the next several months it dropped to a low of $1920.03 in September of 2015. That was a drop of a little under 9%. A few months later it would recover and break
its original peak of $2107.39 closing at $2173.60 in July of 2016. Meaning that it took 1 year and 2 months for
the market to go from the First peak all the way to the point where the market fully recovered
and set a new high. All right with that out of the way let’s get
to the comparison. Now obviously most people aren’t going to
work for 70 years, the human body just could not sustain it, so I won’t be using the data
from 1950 to today instead I’m going to be using the data from January of 1978 to the
end of December 2017 so that 40 year period. In all four cases, I’m going to assume that
each person invests $100 a month. Let’s see how their net worths change depending
on how they handle Market crashes. I’ll start with Joe. Joe is a little bit more nervous during Market
crashes and tends to panic a little bit more than he would like to admit and as a result,
he sells his Investments when the market is bottoming out. Now is that a little bit unrealistic that
he would sell off his investments at the low point of the market every time? Yeah, I admit it is a little bit unrealistic,
but this is just for an example to illustrate the differences in your net worth depending
on how you handle Market crashes. So Joe starts off in 1978 confidently investing
$100 a month. The market starts to go down in March of 1981
but he continues investing, figuring that it will come back eventually. However, eventually, it gets to be so bad
that he can’t take it anymore. He loses his faith in the market in July of
1982 and completely sells his way out of the market. He regains his confidence in the market in
November of 1982 when the market sets a new high and that’s when he buys back in. Now, remember between March of 1981 and July
of 1982 the market dropped about 21%. By the time that it hit its low point Joe’s
net worth was $5,250 so that’s what he got when he sold his stock and that’s also, for
the sake of convenience, what he puts in, in November of 1982. This pattern continues with Joe continuing
to invest as the market begins to go down but then panicking when it hits its low, selling
off his investments before getting back in after the market hits its new high. At which point he reinvests everything that
he made from selling his stocks when the market was low. This means that over the course of 40 years
he put over $178,000 into the market. Now that number does include the amount they
put in after selling his stocks so it is a little bit misleading. If we were to just look at the amount of money
he put in with his hundred dollars a month investments it would come out to be $32,700
over the course of 40 years. His total net worth at the end of 40 years
is $46,014.16. Now let’s take a look at Betty. Betty is a little bit more confident in the
market than Joe but not quite enough to continue investing as it’s going down. However, unlike Joe, she does not sell out
of the market at any point. She will invest $100 a month just like Joe
until the market starts dropping. Once it starts dropping she will stay invested
but won’t continue to put more money into the market and similar to Joe she will begin
investing again once the market sets a new high. Over the same 40-year period as Joe, she will
invest $26,800 of her own money into the market and wind up with a net worth of $258,449.67. That is over five times as much as what Joe
ended up with! So clearly at least over the last 40 years,
it is much much better to stay invested in the market even if you don’t continue contributing
during Market downturns than it is to sell off when the market is dropping. And I’m sure that we all already knew that
but it is nice to have numbers put to it. Next, let’s take a look at Charlie. Charlie is fairly confident in the Market’s
long-term potential and he continues to invest $100 a month every month
no matter what the market is doing. This means that over the course of 40 years
he will have put $48,000 of his own money into the market. And since he never stopped investing or sold
his stocks he would have a network after 40 years of $370,424.37. That is over $110,000 more than Betty despite
the fact that he only put in about $21,000 more of his own money over the same period
of time. Lastly, let’s look at Jane. Jane has an unwavering faith in the stock
market’s long-term potential and not only does she keep investing at least $100 a month
no matter what the market is doing but when the market starts dropping she doubles down
and invests an extra $50 a month during the drop and continues to invest that extra $50
a month all the way until the market hits a new high. At that point, she goes back to investing
just her regular $100 a month. In doing this Jane will end up with a net
worth of $426,411.71. That is an extra $56,000 more than Charlie,
it’s nearly $170,000 more than Betty and it is almost 10 times the amount that Joe ended
up with over the same period of time. Now Jane did invest the most out of any of
the four, putting $58,600 of her own money into the market over the course of 40 years,
but with that extra $10,600 that she invested in comparison to Charlie she ended up with
an extra $56,000 in her net worth. Meaning that those extra $10,600 earned her
roughly $5.28 per $1 invested. In
case you are curious, I get that number by taking Jane’s net worth – Charlie’s net
worth divided by the difference between Jane’s $58,600 of Investments minus Charlie’s $48,000
of Investments. The ratio is about the same when you compare
Jane’s Investments to Betty’s Investments and running the same calculation Jane earns
about $14.69 per extra $1 invested when compared to Joe. So you can see how big of a difference changing
the way you look at stock market crashes and corrections can make in your net worth over
time. It can be a huge difference. However, as I said earlier in the video crashes
and market corrections are an opportunity as long as you can keep income coming into
the house. However, I do want to say that just because
you can noticeably increase your net worth by shoveling as much money as you can into
the market when it’s going down that doesn’t always mean that you should. For example, if you’re up to your eyeballs
in debt you may want to consider putting the money, especially during a market crash, towards
paying off your debt and lowering your month-to-month living expenses. Because who knows you may end up having to
look for a new job at some point during the crash. Even if you’re doing really good work at your
company, sometimes they have to downsize as the market Falls, so you may be laid off at
least temporarily and that should always be taken into consideration. As always consult with a financial professional
when making these decisions. But that’ll do it for me today once again
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