At a time when almost everything has become expensive (often egregiously so), you can usually reduce the net cost by quite a bit by using credit cards that offer rewards. Over several decades, I have received many thousands of dollars worth of rewards.

First things first: If you don’t pay off the full balance of each of your credit cards every month via automatic payments, then don’t use a credit card until you get this squared away, because the late fees and exorbitant interest rates will eat you alive.

Second, don’t use a credit card that charges you an annual fee, as credit is basically a commodity and there are many no-fee credit cards available.

I prefer credit cards that give me cash back (at least 1.5%), as it’s easier to understand, cash is always useful, and there is much less opportunity for bullshit gimmicks by the credit card company. My primary credit card (a Visa card issued by a credit union) provides 2% cash back on all purchases.

BTW, I recommend that you have any cash rewards automatically applied to your credit card balance if possible so you don’t have to remember to redeem the rewards.

Now 2% cash back is a great deal, but we’re just getting started. I have a Chase Visa card that provides 3% cash back on purchases at gas stations, restaurants, home improvement stores, drugstores and office supply stores, and I only use that card to make such purchases. I’m no fan of JPMorganChase, but if they want to offer such a deal, I’ll take it.

I order a lot of products from Amazon (especially via Subscribe & Save), so I have a Prime membership and use a Chase Visa card that provides 5% cash back towards future Amazon purchases. Often when you place an order, Amazon will offer 6% cash back if you’re willing to delay delivery by up to several days, and if you place an order during one of their busy periods (such as near Black Friday or an Amazon Prime Day), they might offer 7% cash back. You can choose which purchases you apply the rewards to; I avoid applying them to business-related purchases since I want to be able to deduct the full price.

My latest credit card is a Mastercard that provides 3% cash back on all purchases made from Apple.

The two Chase Visa cards above also offer discounts when you use your cash back to buy gift cards from select retailers that range from uncommon to obscure. It can be a good deal if you regularly patronize one of the retailers and remember to use your gift card.

Wait, you say, what about the miles you earn from using a certain credit card? Well, what does “miles” mean? I remember when I applied for my first frequent flyer card 30 years ago, and discovering that “miles” had nothing to do with the actual miles that you flew. So what does it mean? It’s a notional construct that’s designed to obfuscate the situation so that consumers can’t understand how bad the deal is relative to more straightforward cash back offers. I’ve heard people brag about how they paid for a flight or a hotel stay with their “miles” or “points,” but at what cost? Who knows? And because these terms are meaningless, the issuer can (and has) increase the number of miles or points you need to pay for various items.

I know when each of my credit cards close out for the month, so if I’m planning to make a large purchase and can wait a while, I’ll time my purchase to right after when the card closes out for the month. This allows me to “work the float”: I have the use of my cash and the bill isn’t due for several more weeks.

Sometimes stores that sell big ticket items such as furniture will offer a great financing deal (e.g., $0 down and 0% APR for a year or more if you pay in full by the due date) if you sign up for their store card. They hope you’ll forget about the due date or won’t be able to pay it off by then. Car dealerships such as Subaru are currently offering 0% APR for 48 months (which is a good deal, though check the sales price). Generally I’m not a “buy now, pay later” kind of guy, though I’ll take advantage of deals like this if I’m sure I’ll have the cash to pay for it in full by the due date.

I recommend that you don’t sign up for store cards where you may make minor, occasional purchases (such as Macy’s), as it’s just one more thing to keep track of and one more vector that a thief could use to steal your money, credit or identity.

For the credit card you use for general purchases (other than Amazon, gas, restaurants, hardware stores, etc.), you should have a public card and a private card. Use the private card to pay your recurring monthly bills from a limited number larger, established vendors that have a low probability of being hacked, and use your public card for purchases from all other vendors. That way, if your credit card becomes compromised, it shouldn’t affect your monthly payments to your utility providers (changing the card you have on file with them after a card is compromised can be a time-consuming chore).

You shouldn’t use a credit card to pay for nearly everything, however. In recent months and years, a growing number of merchants (generally gas stations and smaller restaurants) have become fed up with the high fees that the credit card companies charge them, and have started offering a price that’s three to five percent lower for customers who pay with cash. As I related five years ago, there’s a war on cash, so use it or lose it.

Subscribe now

Share

Leave a comment

Follow Me on X

Newsletter Archive

I would love to hear from you! If you have any comments, suggestions, insight/wisdom, or you’d like to share a great article, please leave a comment.

Disclaimer

The content of this newsletter is intended to be and should be used for informational/ educational purposes only. You should not assume that it is accurate or that following my recommendations will produce a positive result for you. You should either do your own research and analysis, or hire a qualified professional who is aware of the facts and circumstances of your individual situation.

Financial Preparedness LLC is not a registered investment advisor. I am not an attorney, accountant, doctor, nutritionist or psychologist. I am not YOUR financial planner or investment advisor, and you are not my client.

Investments carry risk, are not guaranteed, and do fluctuate in value, and you can lose your entire investment. Past performance is not indicative of future performance. You should not invest in something you don’t understand, or put all of your eggs in one basket.

Before starting a new diet or exercise regimen, you should consult with a doctor, nutritionist, dietician, or personal trainer.

This Summer I haven’t placed many trades or had many get filled. A casual observer might conclude that this investment advisor has been derelict in his duties. For most people, the mere act of trading is prima facie evidence that I’m on the hunt, working hard to make money for my clients. The more I’m chasing after the mechanical rabbit, the harder I must be working for them.

Here’s the problem with that notion: Contrary to what most investors believe, significant opportunities and high expected returns are not available whenever you want them to be. In fact, it’s precisely at the times that the vast majority of investors strongly want them to be available now (due to high recent returns combined with Recency Bias) that they are the least available, due to excessive valuations and investor sentiment.

The vast majority of days, nothing much happens in the financial markets and I don’t have any trades fill. Yes, there are a number of days when some random limit order will fill when the market opens, or when an order to buy or sell shares of an obscure and lightly traded ADR will unexpectedly fill during an otherwise sleepy afternoon. But most days, nothing happens.

That doesn’t mean I’m not doing anything, however. I spend most days doing two things: research (reading and updating [both data and functionality] my massive stock tracking spreadsheet) and being patient, waiting for a significant (or even better, life-changing) opportunity to come along. Significant opportunities happen about once a year, while life-changing opportunities happen about once a decade.

During my 36 years of investing, I’ve been able to take advantage (I bought heavily during all of them, which required plenty of courage) of about four life-changing opportunities: the buildup to the Gulf War in 1990 (which I came very close to having to fight in), the Dot Com bust that ended in 2002, the Great Financial Crisis in 2008-9, and the COVID panic in early 2020. All of those periods were dominated by fear, when virtually no investors were interested in putting capital at risk in an attempt to earn a high return, which is exactly what made them enormous opportunities.

The long periods of relative quiet in the markets give me plenty of time to develop and maintain my buy list, which is just what legendary fund manager Sir John Templeton advised. So when all hell breaks loose and there’s blood in the streets, I have a plan (which provides discipline) and can calmly execute it. On the days when the vast majority of investors want to get out at any price, I can spend all day placing trades to buy instead of listening to the hysterical stories in the financial media and trying to figure out how I’m going to react. I have a process and I execute it, pretty much automatically.

Patience is the greatest virtue an investor can have. I cultivated it during my many hours of fishing as a boy. (Fishing is fairly similar to investing: lengthy periods of effort, discomfort and boredom punctuated by brief moments of excitement.) Generally, over the long term, the market rewards patience and penalizes impatience.

At a time when our attention spans have never been shorter and our desire for instant gratification has never been greater, having patience is a huge strategic advantage. If you’re younger, you’ll know the hit song “Patience” by Guns N’ Roses from the late 1980s. That song would never fly today, which is music to this contrarian’s ears.

I often think of patience as having to slog through long periods of time without anything happening (and thus no reward), which is unthinkable to younger investors who today place a continual stream of bets on everything from zero day options to the most arcane play-by-play statistics during a sports game.

On my “commute” to work this morning, I was paddling down a long finger of the lake when I spotted a great blue heron at the end. I stopped short instead of going to the end like I normally do because I didn’t wish to disturb its fishing, which I respect, as they are patient, masterful hunters.

For years I’ve compared myself to a spider that weaves its web (by placing limit orders) and then waiting for them to fill. But upon further reflection, I’m like a cross between a spider and a great blue heron, because I do spend a lot of time quietly, patiently and methodically hunting prey, and when an opportunity presents itself, I’m ready to strike quickly and instinctively, as if my own survival depended on it (because it does).

For a great blue heron, at least 99% of the time, no viable opportunities exist. Unlike many humans, they are wise and patient enough to accept that fact and deal with it instead of wasting time and energy trying to force something to happen that isn’t physically possible, at least not right now. Eventually, however, with enough hard work, persistence and patience, the heron can put food on the table. Investors would be prudent to mimic the heron.

Subscribe now

Share

Leave a comment

Follow Me on X

Newsletter Archive

I would love to hear from you! If you have any comments, suggestions, insight/wisdom, or you’d like to share a great article, please leave a comment.

Disclaimer

The content of this newsletter is intended to be and should be used for informational/ educational purposes only. You should not assume that it is accurate or that following my recommendations will produce a positive result for you. You should either do your own research and analysis, or hire a qualified professional who is aware of the facts and circumstances of your individual situation.

Financial Preparedness LLC is not a registered investment advisor. I am not an attorney, accountant, doctor, nutritionist or psychologist. I am not YOUR financial planner or investment advisor, and you are not my client.

Investments carry risk, are not guaranteed, and do fluctuate in value, and you can lose your entire investment. Past performance is not indicative of future performance. You should not invest in something you don’t understand, or put all of your eggs in one basket.

Before starting a new diet or exercise regimen, you should consult with a doctor, nutritionist, dietician, or personal trainer.

This week “the national debt” (i.e., the outstanding debt of the U.S. federal government) exceeded $40 trillion. How much is that? Well, it’s very difficult to visualize because the human brain has a hard time grasping very large (and very small) numbers, probably because for millennia, it never came across those numbers in real life.

So let’s make it easy and try to visualize just $1 trillion. This video shows that if you laid a stack of $100 bills alongside a road and drove alongside it at 60 MPH, you would pass the $1 trillion mark after 16 hours.

Here’s another visual representation:

A bundle of $100 bills is equal to $10,000, which could easily fit in your pocket. One million dollars would probably fit inside a shopping bag, while one billion dollars would fill a small room.

One trillion (1,000,000,000,000) is 1,000 times larger than one billion and would take up an entire football field (see the man standing in the bottom-left corner).

One mathematician put it this way: “1 million seconds is about 11.5 days, 1 billion seconds is about 32 years while a trillion seconds is equal to 31,546 years.”

OK, but that’s just $1 trillion, so we need to 40X that to get to the current national debt of $40 trillion.

But wait, that’s just the debt that’s on the federal government’s books. We still need to add in the unfunded liabilities for Social Security and the military and civil service pension systems, all of which are totally unfunded (which would be illegal in the private sector). According to Grok AI, the present value (i.e., how much money is needed right now) of such unfunded liabilities over the next 75 years is between $97 trillion and $101 trillion, depending on the assumptions used.

So take the last image above, 100X it, and that’s about how much the federal government owes currently, before any additional future spending or benefits.

The market is finally starting to wake up to this reality, sending the yield on the 30-year U.S. Treasury bond to 5.34%, the highest since the Summer of 2007 (which of course preceded the Great Financial Crisis of 2008).

As the federal government’s cost to borrow increases, its ability to service its existing debt (forget about paying any of it down) becomes more difficult, which increases the risk of its debt, which increases its cost to borrow, etc. in a doom loop to oblivion.

Meanwhile, the government’s ravenous appetite for funding crowds out borrowing by corporations, small businesses, consumers and state and local governments, increasing interest rates across the board, which makes almost everything more expensive.

At the same time, rising interest rates cause the value of nearly all assets (including stocks and bonds) to decline since the interest rate used to discount their future cash flows back to the present is now higher. Corporations whose primary asset consists of a portfolio of bonds/debt (especially U.S. Treasury bonds) suffer the largest losses. Now you see why I don’t invest in insurance companies or banks.

But wait, it gets better! For decades, the U.S. Treasury (at the behest of the President) has been penny-wise and pound-foolish by issuing shorter-term notes to fund the federal government’s deficits instead of longer-term bonds that usually have a somewhat higher interest rate. As a result, about a third of the federal government’s existing debt has to be rolled over (refinanced) every year at then-prevailing interest rates (however high they may be). I call this the Mother of All Adjustable-Rate Mortgages. It’s the same situation that caused Lehman Brothers and the Greek government to go bankrupt.

OK, let’s have an adult conversation. If interest rates remain elevated (which I think is extremely likely), how do you think this movie will end? Will politicians come to their senses and realize and admit that the federal government is severely overextended, and reduce spending (and maybe raise taxes) and start to pay down its debt?

Or will it have the so-called Federal Reserve Bank monetize its debt by buying its bonds with dollars that the Fed creates out of thin air (such inflation would of course result in rising prices)?

Will politicians make tough choices or take the path of least political resistance? Can you guess?

If you think goods and services are expensive now, wait until interest rates and inflation is higher and the value of investments is lower. The final risk is that such economic and financial conditions will increase the popularity of populist, leftist politicians who promise a lot of free stuff, which of course would make things even worse, probably for at least a generation.

Subscribe now

Share

Leave a comment

Follow Me on X

Newsletter Archive

I would love to hear from you! If you have any comments, suggestions, insight/wisdom, or you’d like to share a great article, please leave a comment.

Disclaimer

The content of this newsletter is intended to be and should be used for informational/ educational purposes only. You should not assume that it is accurate or that following my recommendations will produce a positive result for you. You should either do your own research and analysis, or hire a qualified professional who is aware of the facts and circumstances of your individual situation.

Financial Preparedness LLC is not a registered investment advisor. I am not an attorney, accountant, doctor, nutritionist or psychologist. I am not YOUR financial planner or investment advisor, and you are not my client.

Investments carry risk, are not guaranteed, and do fluctuate in value, and you can lose your entire investment. Past performance is not indicative of future performance. You should not invest in something you don’t understand, or put all of your eggs in one basket.

Before starting a new diet or exercise regimen, you should consult with a doctor, nutritionist, dietician, or personal trainer.

Life is full of passages that arrive in the same way that the character in the Hemingway novel The Sun Also Rises goes bankrupt: gradually and then suddenly. Before you know it, it’s over.

For many years, I took a walk most days in the late afternoon or early evening with my son and dog. I don’t remember when the tradition began, but I just returned from my last walk with him. (If not for successful major emergency surgery last week, I would have already taken my last walk with my dog.)

For as long as I can remember, the walks would always begin by me asking my dog, “Gunnar, would you like to go for a WALK with Daddy? [At this point my dog would jump up on me.] We could look for some birds and some squirrels and some kitty-kitty-kitty-kitties, chipmunks, bunny rabbits, snapping turtles, rats, hawks, owls, bullfrogs, fish, geese, possums, goats, ferrets, donkeys, muskrats, lizards....We could look for all of those things, but we’re gonna need to saddle up [get into his harness]. Do you know about the saddle up process? Saddle up, saddle up, saddle up.”

It was a great, unstructured, analog way to spend quality time with each other and also get exercise, sunshine, fresh air and often a good sweat. For a time we had a daily ritual where we would pause to appreciate natural beauty when we saw it.

I never felt the need to replace the silence with talk, so most of the time we just quietly enjoyed each other’s company and the experience of walking with our dog, often surrounded by nature.

In recent years, however, my now Software Engineering major son usually wanted to talk about AI (he’s a skeptical critic). For this Gen Xer, the pace of change (especially technological) in recent years has been overwhelming. My daily walks are my time to decompress and not have to think or worry about anything, and to reconnect with nature. Having to listen to so much AI-related news made me feel like I was mentally drowning, so I made a rule that he had to stop talking about AI at our halfway point.

Many days he couldn’t or didn’t want to walk with me; the cat’s in the cradle and all that. I never required him to walk with me, and I tried to not make it an expectation. I’m sure sometimes we needed a break from each other. I did still walk with Gunnar, however.

On many of our walks I was able to informally share some laughter, stories or fatherly wisdom. This was in addition to another daily ritual we did for many years that we called “Life Lessons With Daddy & Gunnar” (me reading to him from a relevant book and sometimes discussing a life lesson, which I had him record in a book in case something ever happened to me). That tradition is also coming to an abrupt end as it is time for me to release my grip on the bowling ball, as my father described it.

Suddenly, it’s the end of an era. My most fervent wish for him has always been for him to reach his full potential and live a fulfilled life. It seems like just yesterday I was telling that to his Montessori teacher. Now it’s time for him to spread his wings and leave the nest and make his own way in the world. He has told us that this will be his last Summer with us, as next Summer he needs to do an internship with a company before his senior year.

When I started grad school, my parents gave me a copy of the Dr. Seuss book Oh, the Places You’ll Go! I read it and gave it to him just before he left for college. This Summer he did a fair amount of online work for AI-related companies, often earning as much as $75 per hour. He has his whole life ahead of him and the world is his oyster if he wants it.

As my full-time fatherhood role comes to an end after nearly two decades, I’ve started to reflect on how I did. Although I think most objective observers would rank me in the top 10% of dads, I did make some mistakes, I do have some regrets and I could have done better.

I do hope that he appreciates everything I’ve done for him and that he will choose wisely about how he spends the endless/numbered days of his adulthood.

Subscribe now

Share

Leave a comment

Follow Me on X

Newsletter Archive

I would love to hear from you! If you have any comments, suggestions, insight/wisdom, or you’d like to share a great article, please leave a comment.

Disclaimer

The content of this newsletter is intended to be and should be used for informational/ educational purposes only. You should not assume that it is accurate or that following my recommendations will produce a positive result for you. You should either do your own research and analysis, or hire a qualified professional who is aware of the facts and circumstances of your individual situation.

Financial Preparedness LLC is not a registered investment advisor. I am not an attorney, accountant, doctor, nutritionist or psychologist. I am not YOUR financial planner or investment advisor, and you are not my client.

Investments carry risk, are not guaranteed, and do fluctuate in value, and you can lose your entire investment. Past performance is not indicative of future performance. You should not invest in something you don’t understand, or put all of your eggs in one basket.

Before starting a new diet or exercise regimen, you should consult with a doctor, nutritionist, dietician, or personal trainer.

For many years now, I’ve told people that “My bullshit detector is at a permanent maximum setting, because both Wall Street and Washington D.C. have strong financial incentives to want you to believe that things are better than they actually are.” Company founders, corporate executives, brokerage firms that underwrite new issues and investment companies looking to cash in on investor demand by giving the people what they want all need an excited, gullible mark to which they can sell their richly valued shares.

Hungry for ad revenue, the financial media eagerly parrots the stories of these people, which attracts more eyeballs as more people watch coverage of the inevitable boom and subsequent bust.

Politicians also want you to believe that things are better than they actually are so they can get reelected and continue their logrolling, junkets and general whoring around. Fortunately for them, reporters in the Legacy Media practically compete with each other to produce emotionally compelling but factually misleading vignettes, gaslight the American people and silence anyone who asks questions.

How many politicians would get reelected if the American people knew that the real inflation rate is about 12%, the real unemployment rate is about 25%, the U.S. dollar has lost about 97% of its value since the creation of the so-called Federal Reserve Bank, and the present value of unfunded liabilities facing the federal government is about $88 to $100 trillion?

Given the cheerleading by the financial media and the underwriting brokerage firms, Americans’ general dearth of knowledge about history and economics, and the lack of critical thinking in today’s society, it’s already more important than ever to pause, think for yourself and beware of the crowd.

Now let’s layer in the current zeitgeist. A measure of the public’s net sentiment towards stocks (bulls minus bears) is among the highest readings since at least 1988 (see chart below). Equities as a percentage of U.S. households’ total non-financial assets is easily the highest since at least 1950. Interestingly, the correlation of S&P 500 component stocks has recently plunged to its lowest since at least 1980 as mega-cap tech stocks have come to dominate the market-cap weighted index. And according to the Commitment of Traders report, the net long position of Small Speculators (generally Dumb Money) in the S&P 500 index is close to its recent all-time high. The Shiller CAPE ratio of 42.2 is close to its all-time high from late 1999, and far above the high of 31.5 set in July 1929 just before the greatest stock market crash in U.S. history.

Hmm. Might it pay to tread cautiously here, to be a little circumspect or even skeptical? To ask a few questions before putting all of your portfolio into call options? Would it be prudent to consider if stocks are too expensive, or if investor sentiment is too high? How many investors are worried or scared right now, and could doing the opposite of what they’re doing (by seeking safety) actually result in one of the most profitable trades? Has there been too much hype in the financial media, resulting in excessive capital investment that will become malinvestment that will eventually have to be realized and written down? Is it possible that many investors will suffer losses of as much as 95% on some of their largest holdings (as many did by the end of the Dot Com crash)? How many investors are wondering if that could even be a possibility? How many investors have noted the recent pricing war among (cash flow negative) AI firms, and have concluded that there’s too much competition in the industry and that AI won’t turn out to be nearly as profitable as they’ve been telling investors for years?

Caveat emptor!

Subscribe now

Share Financial Preparedness

Leave a comment

Follow Me on X

Newsletter Archive

I would love to hear from you! If you have any comments, suggestions, insight/wisdom, or you’d like to share a great article, please leave a comment.

Disclaimer

The content of this newsletter is intended to be and should be used for informational/ educational purposes only. You should not assume that it is accurate or that following my recommendations will produce a positive result for you. You should either do your own research and analysis, or hire a qualified professional who is aware of the facts and circumstances of your individual situation.

Financial Preparedness LLC is not a registered investment advisor. I am not an attorney, accountant, doctor, nutritionist or psychologist. I am not YOUR financial planner or investment advisor, and you are not my client.

Investments carry risk, are not guaranteed, and do fluctuate in value, and you can lose your entire investment. Past performance is not indicative of future performance. You should not invest in something you don’t understand, or put all of your eggs in one basket.

Before starting a new diet or exercise regimen, you should consult with a doctor, nutritionist, dietician, or personal trainer.

I recently discovered that my outdated routers were preventing me from receiving the gigabit-speed Internet service I’ve been paying for. After replacing them with a state-of-the-art router, my download speed went from 120 Gbps to 950 (650 using a VPN). Finally I feel like I’m on the Information Superhighway.

I got to thinking about this. Most people probably have a number of hidden bottlenecks in their life that are preventing them from 10Xing their life. Here are some I thought of.

First, chronic dehydration. Being adequately hydrated optimizes many key functions, including (according to Grok AI):

• Thinking, focus, and mental performance — Even mild dehydration can impair attention, short-term memory, reaction time, and executive function. Proper hydration helps maintain clearer thinking and better concentration.

• Physical work and exercise — Hydration supports endurance, strength output, thermoregulation, and reduced perceived effort. It helps prevent early fatigue and supports recovery.

• Mood and energy levels — Adequate fluid status is linked to lower irritability, better mood, and more stable energy. Dehydration often contributes to fatigue and reduced motivation.

• Physiological efficiency — It aids digestion, nutrient transport, joint lubrication, kidney function, and temperature control. These foundational processes indirectly support overall daily functioning.

Second, being on the Medical-Industrial-Health-Insurance Path instead of the Wellness Path. Many people still work just so they can have health insurance, but that has almost nothing to do with wellness, which is what you really want.

A closely related bottleneck is being on the Standard American Diet. If you simply stop eating wheat and sugar (and the vast majority of artificial sweeteners that are actually worse), you could quickly 10X your health.

Doing a lot of sitting on soft furniture (in lieu of movement and exercise) prevents you from extending your life- and healthspan by at least a decade.

Another common bottleneck is the failure to acquire new knowledge by reading books. Your decision to never increase what you know puts you at a competitive disadvantage to those who do.

Not choosing to live deliberately and make plans represents a massive bottleneck that dams up your personal effectiveness.

Listening to inaccurate or negative stories (including ones you tell to yourself) may be the ultimate bottleneck, because the stories that you tell yourself pretty much determine your fate.

A related bottleneck is making investment decisions that are primarily based on stories (or acting on the same emotions that are also felt by the vast majority of investors).

Allowing toxic people into your life creates a debilitating bottleneck, while curating a broad network of friends and socializing with them regularly could dramatically improve your life.

Keeping yourself inside instead of immersing yourself in nature prevents you from living in a more natural way, which your DNA expects from you.

If something bad ever unexpectedly happened to you in the future, being prepared could 10X your life.

In conclusion, if you want to replace life on the equivalent of a dial-up modem with life via fiber optic cable, remove the major bottlenecks in your life.

Subscribe now

Share

Leave a comment

Follow Me on X

Newsletter Archive

I would love to hear from you! If you have any comments, suggestions, insight/wisdom, or you’d like to share a great article, please leave a comment.

Disclaimer

The content of this newsletter is intended to be and should be used for informational/ educational purposes only. You should not assume that it is accurate or that following my recommendations will produce a positive result for you. You should either do your own research and analysis, or hire a qualified professional who is aware of the facts and circumstances of your individual situation.

Financial Preparedness LLC is not a registered investment advisor. I am not an attorney, accountant, doctor, nutritionist or psychologist. I am not YOUR financial planner or investment advisor, and you are not my client.

Investments carry risk, are not guaranteed, and do fluctuate in value, and you can lose your entire investment. Past performance is not indicative of future performance. You should not invest in something you don’t understand, or put all of your eggs in one basket.

Before starting a new diet or exercise regimen, you should consult with a doctor, nutritionist, dietician, or personal trainer.

Before I was old enough to drive, my dad and I took a course on Lotus 1-2-3 at our local community college. I immediately recognized the raw power of spreadsheets. For decades, this “spreadsheet poet” has used them to organize various data sets in my life.

I recently got into growing houseplants as a hobby (which I’ll write about soon) and quickly realized that there was a lot of different information about each plant and its pot. My wife asked me a dumb question: “You’re not using a spreadsheet to track all of that, are you?” Of course I was; how else would I keep track of it all?

A few years ago I was excited to learn that there’s an annual World Cup for spreadsheet users!

For many years I used Libre Office‘s spreadsheet (and before that Open Office), both of which are open source, private and free. It can be somewhat cumbersome to use, however, so some months ago I did a deep dive into the many new spreadsheet options, many of which offer a novel approach.

After a thorough review, I decided to stick with Google Sheets, which I’ve been using for years to track about 2,500 stocks from around the world. It’s easy to use, powerful, beautiful, and I can share my spreadsheets with other people. One of its most useful features is Conditional Formatting, which causes a cell (or the text in a cell) to change color as it moves through a range of values. This helps draw my attention to the cells that really need it at that moment, in a sea of data.

Another game changer for me (and my investment advisory business) was when I started using APIs to continuously update data from the stock market, which also affected other cells in the spreadsheet (such as ratios). I still have to spend a lot of time manually entering data (much of which is qualitative), but APIs have dramatically reduced the amount of time I have to spend entering quantitative data.

Perhaps the feature that I love most about spreadsheets is their customizability. I can add new rows or columns on the fly, attach a note or hyperlink to a cell, bold or italicize the font in various cells, create new pages and link them to data on other pages via formulas, etc. It’s like Heaven for my left-dominant brain, as it makes everything orderly, trackable and analyzable.

I highly recommend that you look for ways to incorporate spreadsheets into your life more often.

Subscribe now

Share

Leave a comment

Follow Me on X

Newsletter Archive

I would love to hear from you! If you have any comments, suggestions, insight/wisdom, or you’d like to share a great article, please leave a comment.

Disclaimer

The content of this newsletter is intended to be and should be used for informational/ educational purposes only. You should not assume that it is accurate or that following my recommendations will produce a positive result for you. You should either do your own research and analysis, or hire a qualified professional who is aware of the facts and circumstances of your individual situation.

Financial Preparedness LLC is not a registered investment advisor. I am not an attorney, accountant, doctor, nutritionist or psychologist. I am not YOUR financial planner or investment advisor, and you are not my client.

Investments carry risk, are not guaranteed, and do fluctuate in value, and you can lose your entire investment. Past performance is not indicative of future performance. You should not invest in something you don’t understand, or put all of your eggs in one basket.

Before starting a new diet or exercise regimen, you should consult with a doctor, nutritionist, dietician, or personal trainer.

At first I thought about calling this issue “How to Write a Successful Investment Newsletter.” Not that I’ve ever had such a thing, though I strongly suspect that I know what I’d need to do to make that happen. It’s really quite simple: give the people what they want.

You see, most of the people who read such things (those who can still read) don’t read them to learn how to be a better investor, to obtain data about key metrics such as valuation and investor sentiment, or to hear about new potential opportunities or risks. No, instead, most investors are looking for permission from an apparent authority in the field so they can do what their dopamine-flooded brain is begging them to do, at the same time that the quiet voice in their gut is warning them that they’re about to make a big (and costly) mistake.

The vast majority of the time, they’ve heard about how some stock/fund/industry/asset class/country has appreciated rapidly in value (or has consistently posted outsized gains over quite some time), or they’ve heard a compelling story about why that will happen soon. FOMO compels them to act, yet their gut is telling them no, so they seek validation for the decision that they’ve already made (without much due diligence).

They’re just looking for a quick “sanity check,” and the more mad the crowd becomes, the more their subconscious tells them to check their own sanity. Unfortunately, due to Confirmation Bias (which is just one of over 100 known cognitive biases that prevent the human brain from making “rational” financial decisions), their “sanity check” is merely a performative ritual instead of a sincere desire to seek, know and understand reality and the Truth.

So, if I wanted to get a lot of subscribers and make some money from this side hobby, I would write about topics such as this:

SpaceX stock is going to the moon and you should buy as many shares as you can at whatever the IPO offering price is.

Five reasons why AI will eliminate poverty and make work optional for everyone, and why you should be pouring money into the stock (or call options) of hyperscalers, chip makers, data centers, etc.

Why you should allocate 5% of your portfolio to one particular cryptocurrency, and how it differs from its 8,147 competitors.

Instead, I write about things like this:

The best investment you can make is in your own health, knowledge, skills, preps and network.

Patience is the best virtue an investor can have, followed by courage during times of great fear.

You’re either a contrarian or you’re roadkill.

Keep a big chunk of your portfolio in assets that are safe (or that have low volatility) and that have low correlation with the major asset classes so you can avoid financial ruin and live to fight another day. (This will also give you plenty of cash to buy assets that are cheap and hated.)

Obtain enough diversification to essentially eliminate unsystematic risk.

Invest in small cap value stocks that have a long history of increasing their dividend each year.

Avoid the stock of companies that have become de facto social justice nonprofits.

Respect the shorts.

Ignore the financial media and stop checking on the value of your portfolio every day.

Instead of trying to get rich quick, master the habits that will allow you to become financially independent over the long term.

Become a skeptic and avoid becoming a bagholder. Permanently turn your BS detector to the maximum setting.

Pause and think before you act. Practice mindfulness and self-awareness, which is the meta-skill of the 21^st Century.

Read at least one book about behavioral finance and understand how your brain’s many cognitive biases can hinder your ability to have a successful investment experience.

Know history, which is the story of governments debasing their currency and defaulting on their debt.

And that is the primary reason why, despite publishing a new issue every week for nearly five and a half years, my newsletter remains small, obscure and unread: because I don’t give the people what they want.

Subscribe now

Share

Leave a comment

Follow Me on X

Newsletter Archive

I would love to hear from you! If you have any comments, suggestions, insight/wisdom, or you’d like to share a great article, please leave a comment.

Disclaimer

The content of this newsletter is intended to be and should be used for informational/ educational purposes only. You should not assume that it is accurate or that following my recommendations will produce a positive result for you. You should either do your own research and analysis, or hire a qualified professional who is aware of the facts and circumstances of your individual situation.

Financial Preparedness LLC is not a registered investment advisor. I am not an attorney, accountant, doctor, nutritionist or psychologist. I am not YOUR financial planner or investment advisor, and you are not my client.

Investments carry risk, are not guaranteed, and do fluctuate in value, and you can lose your entire investment. Past performance is not indicative of future performance. You should not invest in something you don’t understand, or put all of your eggs in one basket.

Before starting a new diet or exercise regimen, you should consult with a doctor, nutritionist, dietician, or personal trainer.

To make money (other than dividends) investing, it’s not enough to buy an asset that’s undervalued and out of favor and then wait for it to become fully (or even richly) valued. You also have to find someone who is eager to own it, and would thus happily pay you a premium to buy it from you. Someone who has bought into a story and would be ecstatic to own an asset that was overpriced, perhaps faced a challenging future, and for which there existed few remaining potential buyers. In other words, a bagholder.

In recent decades, the Smart Money investors that run Wall Street have mastered the art of finding large numbers of new bagholders, which is imperative for them to keep the game going and adding to their pile. There are a number of ways that additional shares can be created that at some point will need to be unloaded on the gullible investing masses. Let’s take a look.

First, corporate executives (who are generally Smart Money when it comes to their own company) are compensated to a large degree via grants of stock options, restricted stock and common shares.

Second, when conditions are favorable (i.e., when the seller can command a rich premium), the owners of a private company will sell their shares in an IPO, and a publicly traded company that has become very popular with investors will often make a secondary offering of shares or acquire another company using its richly valued stock to pay for it.

Additionally, investment companies respond to investor demand by creating new ETFs that buy and hold the shares that the Dumb Money are clamoring to own. The Smart Money became wealthy largely by giving the people what they want (which is usually near the worst possible time).

Bagholders are the dumbest of the Dumb Money. Generally, they barely even know what (and how much) they own, much less details of each holding such as valuation, investor sentiment, etc. The vast majority of bagholders are Mom & Pop investors who own shares of index funds or ETFs. In effect, they are price-insensitive buyers who buy regardless of valuation, sentiment, low profitability/free cash flow/capital efficiency, financial weakness, anemic growth, a meager/flat/reduced/eliminated dividend, likely accounting fraud, short interest, insider selling, poor corporate governance, or the fact that a company has become a de facto social justice nonprofit. They buy regardless, because they’re aware that a lot of people (the Smart Money) make a lot of money in the stock market, yet they don’t know exactly how that happens. (Hint: If you don’t know the rules of the game and how it’s played, you’re the mark.) This makes them the perfect perennial bagholders.

Another significant group of bagholders—the size of which rises and falls with the flow of investors’ animal spirits—are those who listen to the tantalizing tales spun by the financial media and brokerage firms that underwrite the issuance of new shares (especially IPOs). While the index fund and ETF owners above provide reliable bagholding services in all market environments, the story believers provide the Smart Money with the opportunity for ginormous capital gains.

So before you buy an asset, it’s helpful to pause and ask yourself: “If I buy this, what are the odds that I’ll become a bagholder?” Doing that could save you a lot of grief.

Subscribe now

Share

Leave a comment

Follow Me on X

Newsletter Archive

I would love to hear from you! If you have any comments, suggestions, insight/wisdom, or you’d like to share a great article, please leave a comment.

Disclaimer

The content of this newsletter is intended to be and should be used for informational/ educational purposes only. You should not assume that it is accurate or that following my recommendations will produce a positive result for you. You should either do your own research and analysis, or hire a qualified professional who is aware of the facts and circumstances of your individual situation.

Financial Preparedness LLC is not a registered investment advisor. I am not an attorney, accountant, doctor, nutritionist or psychologist. I am not YOUR financial planner or investment advisor, and you are not my client.

Investments carry risk, are not guaranteed, and do fluctuate in value, and you can lose your entire investment. Past performance is not indicative of future performance. You should not invest in something you don’t understand, or put all of your eggs in one basket.

Before starting a new diet or exercise regimen, you should consult with a doctor, nutritionist, dietician, or personal trainer.

I went to the woods because I wished to live deliberately, to front only the essential facts of life, and see if I could not learn what it had to teach, and not, when I came to die, discover that I had not lived. I did not wish to live what was not life, living is so dear; nor did I wish to practise resignation, unless it was quite necessary. I wanted to live deep and suck out all the marrow of life, to live so sturdily and Spartan-like as to put to rout all that was not life, to cut a broad swath and shave close, to drive life into a corner, and reduce it to its lowest terms, and, if it proved to be mean, why then to get the whole and genuine meanness of it, and publish its meanness to the world; or if it were sublime, to know it by experience, and be able to give a true account of it in my next excursion. ~ Henry David Thoreau, Walden

Thoreau began to occupy the cabin he built at Walden Pond on July 4, 1845. He said it was an accident that his now-famous experiment of trying to live reclusively in nature in a self-sufficient and minimalist way (which lasted for two years, two months and two days; in my family we joke that it actually lasted an additional two hours, two minutes and two seconds) began on Independence Day. Even so, I think the coincidence was fitting.

As we celebrate the 250^th anniversary of America’s declaration of independence, I encourage you to consider things from which you may want to declare your own independence. Here are some suggestions:

• remaining Blue Pilled and a lack of clarity

• lack of a systems mindset and ignorance of complex systems

• listening to stories

• inertia and low energy

• starting your day without a routine

• unprofessionalism and incompetence

• chronic dehydration

• the Standard American Diet and processed food

• doctors who recommend a lot of prescription drugs, injections (including vaccines) and surgery

• toxic people

• unnecessary noise, stress, freneticism and existential overhead

• fear, FOMO and getting spun up

• commuting or spending a lot of time on the road or in airplanes

• having to answer to an idiot boss

• television and your cell phone

• social media

• the Legacy Media’s censorship, propaganda and the Standard American Information Diet

• doomscrolling late at night

• waking up to an alarm clock

• sitting for long periods of time on soft furniture

• spectator sports

• living in an urban environment

• breathing unhealthy air

• a nature-free life

• lack of sunshine and sweating

• exposure to electromagnetic fields

• toxic clothing

• a life free of pets or houseplants

• lack of friends, community and socialization in meatspace

• lack of fun and laughter

• lack of music

• ignorance due to lack of reading

• not knowing what to do and when

• being unprepared

• being disarmed

• ESG investing, index funds, concentration risk and mutual funds

• health insurance and “health care”

• lack of periodic reviews

• retirement

This Independence Day, forget about watching fireworks. Instead, declare your independence against the modern day equivalent of “a long train of abuses and usurpations” in your own life.

Subscribe now

Share

Leave a comment

Follow Me on X

Newsletter Archive

I would love to hear from you! If you have any comments, suggestions, insight/wisdom, or you’d like to share a great article, please leave a comment.

Disclaimer

The content of this newsletter is intended to be and should be used for informational/ educational purposes only. You should not assume that it is accurate or that following my recommendations will produce a positive result for you. You should either do your own research and analysis, or hire a qualified professional who is aware of the facts and circumstances of your individual situation.

Financial Preparedness LLC is not a registered investment advisor. I am not an attorney, accountant, doctor, nutritionist or psychologist. I am not YOUR financial planner or investment advisor, and you are not my client.

Investments carry risk, are not guaranteed, and do fluctuate in value, and you can lose your entire investment. Past performance is not indicative of future performance. You should not invest in something you don’t understand, or put all of your eggs in one basket.

Before starting a new diet or exercise regimen, you should consult with a doctor, nutritionist, dietician, or personal trainer.

Recently I came across this stunning statistic: About 54% of U.S. adults (ages 16-74) — roughly 130 million people — read below a 6th-grade level. What? Holy cow! How is that even possible?

While researching this problem, I came across this article that includes these shocking statistics:

In 2023, 28% of U.S. adults scored at or below Level 1 literacy, indicating significant difficulty with everyday reading tasks; 29% scored at Level 2 (basic reading proficiency but challenges with complex texts). Approximately 21% of U.S. adults (45 million) are functionally illiterate, reading below a fifth-grade level and unable to complete basic reading tasks. The average American reads at a 7th- to 8th-grade level. U.S. adults scoring in the lowest literacy levels (Level 1 or below) increased by 9 percentage points between 2017 and 2023.

Two-thirds of U.S. adults with low literacy skills are U.S.-born, while 34% are foreign-born. Only 53% of U.S. immigrants are proficient English speakers. White and Hispanic adults represent the largest segments of those with low literacy skills, at 35% and 34%, respectively.

Seventy-five percent of prisoners did not complete high school or are classified as low literate, while 75% of welfare recipients have the lowest two levels of literacy. Half of the unemployed between ages 16 and 21 are functionally literate. Nearly 80% of those who live in poverty read at Level 2 or below.

Children surrounded by adults with low literacy rates are 72% more likely to have a low reading level in school. A mother’s reading skill is the greatest determinant of her children’s future academic success, outweighing other factors such as neighborhood and family income.

The gap between the highest- and lowest-performing adults widened between 2017 and 2023, with top scorers remaining steady while low scorers increased. And finally, 44% of American adults do not read a book in a year (so they must not have a tsundoku or an annual bookshelf).

Literacy rates vary greatly by state, with the lowest levels stretching from California through the South, plus New York.

Of course this is an alarming and disastrous situation for America that makes the country ripe for dysfunction at best and collapse or conquest at worst.

Being illiterate must be similar to being blind or deaf because it makes so much of the world unavailable to you. Think of all of the things you can’t do: navigate the Internet (including email), read text messages, pass a driving test, read a letter, make a grocery list, read the news, understand instructions, know your rights, learn about history, practice a religion, learn how to improve your health, wealth and personal effectiveness, understand warning alerts, know what the laws are, earn a diploma or degree, complete an application for a job, bank account or credit card, sign a lease, mortgage or other contract, understand an insurance policy, etc.

How did we get here? The website above notes that “The pandemic is considered a major reason for recent declines in literacy rates, as students lost significant instructional time.” Sure, but I think you could also blame government schools and lazy or incompetent teachers, far shorter attention spans due to the rise of television, computers, video games, the Internet and cell phones, the breakup of the nuclear family (less time, energy and money available for books and spending time together as a family by reading together), the exploitation of addictive substances and activities such as drugs, social media and sports betting, the dumbing down of our society and culture, and the importation of tens of millions of illiterate, uneducated and low IQ people from Third World nations.

If we can’t find a way to pull ourselves out of this educational death spiral, we will face a new Dark Ages going forward.

Subscribe now

Share

Leave a comment

Follow Me on X

Newsletter Archive

I would love to hear from you! If you have any comments, suggestions, insight/wisdom, or you’d like to share a great article, please leave a comment.

Disclaimer

The content of this newsletter is intended to be and should be used for informational/ educational purposes only. You should not assume that it is accurate or that following my recommendations will produce a positive result for you. You should either do your own research and analysis, or hire a qualified professional who is aware of the facts and circumstances of your individual situation.

Financial Preparedness LLC is not a registered investment advisor. I am not an attorney, accountant, doctor, nutritionist or psychologist. I am not YOUR financial planner or investment advisor, and you are not my client.

Investments carry risk, are not guaranteed, and do fluctuate in value, and you can lose your entire investment. Past performance is not indicative of future performance. You should not invest in something you don’t understand, or put all of your eggs in one basket.

Before starting a new diet or exercise regimen, you should consult with a doctor, nutritionist, dietician, or personal trainer.

I had three chairs in my house; one for solitude, two for companionship, three for society. ~ Henry David Thoreau, from Walden, 1854

As some of you may know, for the last couple of months, I’ve been pursuing an Analog Summer. This has resulted in some pretty dramatic changes to my lifestyle, including virtually no TV (except perhaps watching a documentary with my family once a week), little or no time spent online after 4:00 on weekdays and a drastic reduction in the amount of news I watch or read and emails I send to friends. Instead, I’ve been spending more time enjoying the unusually long, beautiful evenings, walking my dog (while looking for foxes and bears), being present and reading books with my family and having fun or important conversations with them. It’s been a nice, much-needed change in my life.

As a result of this experiment, I’ve also rediscovered community by attending church (which is heavy on music and singing [many of the songs are hundreds of years old, which provides a sense of connection to others through the ages], with a sermon that inspires or challenges me), community dinners, concerts by local musicians at our community amphitheater and political discussion meetups at a local coffee shop. It’s been nice to meet new people and get to know them and hear their stories.

It’s a vast difference from the asynchronous, mostly anonymous online world, where you’re constantly bombarded by threats (both real and imagined) and examples of random acts of violence, barbarism and evil. To be clear, the human brain has never before been exposed to such a constantly high volume of malevolence so is now perpetually in Fight or Flight mode, with disastrous consequences for our mental health, relationships and wellbeing.

For millennia, humans communicated in real time in meatspace, primarily via body language, facial gestures and tone of voice, which is why spending time being present with people feels so natural, while spending hours looking at screens tends to result in anomie.

I’ve been reading a book about the history of my local area (learning about your ancestors or local history is another good way to spend time during an Analog Summer), and even though most of the population was somehow involved in the moonshine industry, apparently the vast majority of them also attended church (which was also known as a meeting house, which always lacked an HVAC system), where much of the local socializing took place.

According to the book, “Although [local] families were members of a particular church, they often visited neighboring churches....Once a year a week-long revival...was held with services each morning and evening. Many walked to both services from several miles away....[each service] might go on for two or three hours.” Compare that commitment with the amount of time spent to watch one Tik Tok video.

The book continues, “The revival meeting season was one of the few times young people could openly carry on a courtship. They sat in buggies and talked or they walked to the spring together to fetch water. Bolder couples sat together in church, prompting a lot of elbow nudging and whispering by their peers.” Quite a difference from today’s swipe right, hookup culture. Which way of living is more likely to stand the test of time? Which is more honorable and which is more base?

In conclusion, I’ve enjoyed rediscovering meatspace (which the government’s COVID response tried to destroy), connecting with people in person and in real time, and sharing stories and laughter with them. It’s been quite grounding and soul-filling, and it makes it easy for me to forget about all of the problems of the world, the vast majority of which I have little or no control over anyway.

Even a recluse like Thoreau had a third chair.

Subscribe now

Share

Leave a comment

Follow Me on X

Newsletter Archive

I would love to hear from you! If you have any comments, suggestions, insight/wisdom, or you’d like to share a great article, please leave a comment.

Disclaimer

The content of this newsletter is intended to be and should be used for informational/ educational purposes only. You should not assume that it is accurate or that following my recommendations will produce a positive result for you. You should either do your own research and analysis, or hire a qualified professional who is aware of the facts and circumstances of your individual situation.

Financial Preparedness LLC is not a registered investment advisor. I am not an attorney, accountant, doctor, nutritionist or psychologist. I am not YOUR financial planner or investment advisor, and you are not my client.

Investments carry risk, are not guaranteed, and do fluctuate in value, and you can lose your entire investment. Past performance is not indicative of future performance. You should not invest in something you don’t understand, or put all of your eggs in one basket.

Before starting a new diet or exercise regimen, you should consult with a doctor, nutritionist, dietician, or personal trainer.

You’ve heard of asset allocation before, but you’ve probably never heard of asset location, which is just as important. When you buy a security, you have to decide which type of account to use to hold the asset; that’s asset location. Income tax considerations drive the answer to this question, though someday estate tax considerations may also come into play once again. There are three main types of accounts: taxable, tax-deferred and tax-free. Below I discuss the income tax considerations for each type of account and the best types of assets to put into each.

By “taxable account,” I mean a plain old brokerage account. In such an account, realized long-term capital gains and qualified dividends get taxed at a rate of either 0% (if your marginal federal income tax return is 12% or below) or 15%. All other income (interest, ordinary dividends, realized short-term capital gains and dividends from REITs) is taxed as ordinary income.

If you realize a capital loss, you can apply it against realized capital gains and then against up to $3,000 of ordinary income per year. Any remaining capital loss can be carried forward to future years indefinitely.

If a foreign government withholds income tax from dividends paid by a foreign stock held in a taxable account, you can generally receive a dollar for dollar Foreign Tax Credit for the amount of taxes withheld if you file Form 1116 with your income tax return.

You can gift appreciated shares (your holding period should be long-term) to either a charity or a taxpayer who’s currently in a low income tax bracket. In both cases, they could sell the shares and no tax would be due on the gain.

When the owner of a taxable account passes away, his/her heirs receive a step-up in tax basis to the fair market value on the date of death, allowing the heirs to sell the assets without having to pay income tax on the realized gain.

A taxable account is also the ideal account that can be used to fund the credit shelter trust (set up by their Will, if they’ve done some moderately advanced estate planning) of the first spouse to die, which can significantly reduce the decedent’s estate tax exposure.

A taxable account is the simplest, most versatile type of account and has no required minimum distributions, early withdrawal penalties or complex rules and regulations, (ironically) the greatest amount of tax benefits (in my opinion) and the least amount of political risk (especially since this is the type of account in which most politicians have the vast majority of their own wealth).

The best types of assets to hold in a taxable account include equities, especially those that pay no or a low dividend, those that you plan to hold for a long time (e.g., Dividend Aristocrats), those that have a high expected return, and those that pay qualified dividends.

Tax-deferred accounts (such as a traditional IRA or a traditional 401(k)) grow tax-deferred until withdrawn, at which point any gain is taxed as ordinary income at your highest marginal rate (which may be as high as 37% federal). Unless you meet one of the exceptions, distributions before age 59.5 are also subject to a 10% early withdrawal penalty. If you ever fail to take the annual required minimum distribution (say, because you didn’t understand the rules, which are kind of complicated), the penalty is 25% of what you should have taken out but did not. Nice retirement plan!

By the way, the period over which the beneficiaries of a traditional IRA can take required minimum distributions was recently shortened from over their remaining life expectancy to just 10 years (when the beneficiaries will probably be in their peak earning years, resulting in the distributions being taxed at higher rates).

For these reasons, tax-deferred accounts are like a ticking time bomb, so the best assets to place in them are those that have the lowest expected return (especially money market mutual funds and bonds or bond funds), REITs, high-yielding stocks, stocks that don’t pay a qualified dividend, and foreign dividend-paying stocks that don’t have taxes withheld by their government.

Finally, tax-free accounts (a Roth IRA or Roth 401(k)) grow tax-free as long as (1) the account is at least five years old, (2) distributions are taken after age 59.5, and (3) the politicians who are then in power keep the promise made by politicians in 1997 to not tax the gains (which is a HUGE assumption, as I’ll write about soon). Roth accounts do not currently require the owner to take required minimum distributions.

Usually Roth accounts comprise a relatively small percentage of a portfolio, so I prefer to leave much or most of them in cash to serve as “dry powder” for when a life-changing investment opportunity comes along, which is not very often. Such enormous gains can be made even more so by avoiding paying income tax on them.

Subscribe now

Share

Leave a comment

Follow Me on X

Newsletter Archive

I would love to hear from you! If you have any comments, suggestions, insight/wisdom, or you’d like to share a great article, please leave a comment.

Disclaimer

The content of this newsletter is intended to be and should be used for informational/ educational purposes only. You should not assume that it is accurate or that following my recommendations will produce a positive result for you. You should either do your own research and analysis, or hire a qualified professional who is aware of the facts and circumstances of your individual situation.

Financial Preparedness LLC is not a registered investment advisor. I am not an attorney, accountant, doctor, nutritionist or psychologist. I am not YOUR financial planner or investment advisor, and you are not my client.

Investments carry risk, are not guaranteed, and do fluctuate in value, and you can lose your entire investment. Past performance is not indicative of future performance. You should not invest in something you don’t understand, or put all of your eggs in one basket.

Before starting a new diet or exercise regimen, you should consult with a doctor, nutritionist, dietician, or personal trainer.

In recent weeks, there’s been a lot of talk and excitement in the financial media and among investors about the upcoming IPOs for SpaceXAI, Anthropic and OpenAI. Several people have asked me what I thought about them, so here we go.

First, you should know that IPO stands for Incredible Profit Opportunity. It’s incredible because the founders of high profile companies that provide an impressive and innovative new product or service (as well as the early investors who took a great risk with their capital by funding a new, unproven company that had never earned a profit, and whose capital has been tied up for years, unable to sell and without having received a dime of dividends) are now offering to sell their creation with a very bright future to the general public at a deep discount to its intrinsic value.

As an investor, all you have to do is listen to the stories that the financial media (and the brokerage firms that are underwriting the IPO) feed you, allow your dopamine, animal spirits and greed to flow freely, and don’t ask any questions (other than “How much can I buy?”).

If you thought AI was sexy, wait until they strap a rocket to it and shoot it into space! SpaceXAI and its stock is literally going to the moon! You’ll be able to brag about your investment prowess to attractive young women at cocktail parties and live happily ever after on the dividends and capital gains. The End.

OK, back to reality. Sorry, the investment world doesn’t work that way. Of course, IPO stands for Initial Public Offering. That’s where the founders, insiders and early investors (who are Smart Money) sell their shares to the general public (which, in the case of IPOs, are overwhelmingly Dumb Money) when valuations and investor sentiment are extremely high.

The founders and other insiders have spent years working on the company so have a near complete understanding of its current condition, prospects and risks. The early investors also benefit from the founders’ unparalleled insight into the firm. In contrast, the general public knows virtually nothing about the company other than the breathless stories they’ve been told by the financial media (who are trying to sell advertising space) and the underwriting brokerage firms (who receive a lucrative fee for flogging the new shares to “the muppets” as Goldman Sachs employees refer to their own customers).

Back in the early 1980s, only about 20% of companies were unprofitable at their IPO, but according to this study from 2021, in recent years, about 80% of companies were unprofitable at their IPO. The only other time that happened was during the Dot Com bubble.

You may have heard about how new, privately held companies have to monitor their cash “burn rate,” because if they’re not profitable (more specifically, if their free cash flow is negative), they have to rely on equity capital from someone to fund their continuing operations, because no one is willing to lend money to an unproven and unprofitable company (the money to make periodic interest payments has to come from somewhere).

An IPO is a great way for a struggling new company to raise a lot of cash when the price is relatively low (due to investor enthusiasm). It’s also pretty much the only way for the founders/insiders and early investors to cash out from a richly valued company that (unbeknownst to the general public) also faces a challenging future.

There’s this common perception that the price of an IPO skyrockets immediately (and usually remains high). Is it possible to make a killing by buying an IPO? Sure, just like it’s possible to do so by gambling. But check out the maximum one-year drawdown of some well-known IPOs below. Would you have been able to stomach those losses?

Additionally, as the chart below (which covers IPOs from 2010 through 2020) shows, over time, the average return from IPOs becomes more negative. During that decade, by three years after the IPO, 64% of the stocks had a return that was worse than -10%, while only 29% had a return that was greater than +10%. You would have done better by just buying an index fund.

But this time is different, right? (It always is.) AI is going to change the world! I don’t doubt that AI will permanently transform technology, the economy and society, just like Internet-related stocks have done since the Dot Com bubble. But that doesn’t mean that it will also transform your portfolio to the upside with huge, risk-free returns. Because those returns have already been earned by the founders of and early investors in companies like the three above. These people are smart and shrewd, and are not going to leave a $20 bill lying on the sidewalk for you to come along and pick up.

The world’s wealthiest man (Elon Musk) made his fortune in three different ways: (1) by finding a way to offer great and innovative products to consumers, (2) by winning lucrative government contracts and subsidies, and (3) by selling richly valued shares to the general public. Most people think they can become wealthy like him by buying shares in his companies from him (in an IPO). However, owning SpaceX didn’t make him wealthy (it lost $4.28 billion in the first quarter of 2026 alone), but selling shares in it to the public at a rich premium will make him much wealthier.

The recent sudden flurry of ginormous IPOs reminds me of retailers jockeying for business before Black Friday (only here the merchandise sells for a premium instead of a discount). They’re trying to hoover up investors’ cash while they still have some, before their competitors can.

What really made my contrarian antennae stand fully erect was not when (mostly rank amateur) investors recently asked me about the IPOs above. That’s just a sign of a garden variety bubble, as the only other time I ever hear from them is when they want to know if they should sell everything (near what will eventually turn out to be the bottom). No, what really got my attention is when I heard about this (summarized, ironically, by Brave AI):

“Nasdaq and FTSE Russell have implemented fast-track inclusion rules that significantly reduce the standard waiting period for SpaceX’s stock to be added to major indexes. While typical new listings require a three-month seasoning period to allow for price discovery, Nasdaq’s new rules allow stocks among the top 40 by market cap to be included in the Nasdaq 100 after just 15 trading days. Simultaneously, FTSE Russell introduced a Fast Entry mechanism that permits inclusion in the Russell 1000 just five trading days after listing.... These rule changes, effective May 1, 2026, are widely viewed as tailored to accommodate massive IPOs like SpaceX, forcing passive index funds to purchase shares at IPO valuations before traditional market stabilization occurs.” (emphasis added)

When they remove longstanding safeguards just to keep the game going a little while longer (e.g., repealing Glass-Steagall in 1999, the proliferation of NINJA loans before 2008, etc.), watch out because the end is nigh.

Note how these changes will essentially force (market cap-weighted) index funds (and thus all of their oblivious investors) to buy enormous quantities of these massive ($1.77 trillion for SpaceXAI [which is more than all of the VC-backed IPOs of the last decade combined], $1 trillion for Anthropic, as much as $1 trillion for OpenAI) IPOs right when the valuation may be the highest. I wrote about the problems with index funds in 2022 and 2023 and about concentration risk in 2025 and a few weeks ago. For years I’ve been describing index funds as a Doomsday Machine, but these changes will turbocharge that inevitable outcome.

Subscribe now

Share

Leave a comment

Follow Me on X

Newsletter Archive

I would love to hear from you! If you have any comments, suggestions, insight/wisdom, or you’d like to share a great article, please leave a comment.

Disclaimer

The content of this newsletter is intended to be and should be used for informational/ educational purposes only. You should not assume that it is accurate or that following my recommendations will produce a positive result for you. You should either do your own research and analysis, or hire a qualified professional who is aware of the facts and circumstances of your individual situation.

Financial Preparedness LLC is not a registered investment advisor. I am not an attorney, accountant, doctor, nutritionist or psychologist. I am not YOUR financial planner or investment advisor, and you are not my client.

Investments carry risk, are not guaranteed, and do fluctuate in value, and you can lose your entire investment. Past performance is not indicative of future performance. You should not invest in something you don’t understand, or put all of your eggs in one basket.

Before starting a new diet or exercise regimen, you should consult with a doctor, nutritionist, dietician, or personal trainer.

This week I’d like to share with you which devices I use to monitor various conditions in my house.

My newest addition is an Airthings 2960 View Plus Radon & Air Quality monitor. It continually measures radon gas, particulate matter, carbon dioxide, volatile organic compounds (VOC), temperature, humidity and pressure.

Radon is a colorless and odorless radioactive gas that’s the leading cause of lung cancer in non-smokers (the CDC and EPA estimate it causes around 21,000 U.S. lung cancer deaths every year, which is six times the number killed by home fires and carbon monoxide poisoning combined). It can enter any home through the ground without any noticeable signs.

Particulate matter is a mixture of solid particles and liquid droplets in the air. Some particles (such as dust, dirt, soot or smoke) are large or dark enough to be seen with the naked eye. Others are so small they can only be detected using an electron microscope.

Particle pollution includes PM10 (inhalable particles, with diameters of 10 micrometers or less) and PM 2.5 (fine inhalable particles, with diameters of 2.5 micrometers or less). The Airthings 2960 provides measurements of both sizes of particles. The graphic below shows the size of these particles compared to the width of a human hair.

Carbon dioxide (CO2) can cause mild fatigue and headaches, while concentrations between 1,000–2,000 ppm are linked to noticeable cognitive decline, reduced decision-making, and metabolic or cardiovascular stress. Prolonged exposure to levels exceeding 1,000 ppm may contribute to inflammation, oxidative stress and bone demineralization. Concentrations above 2,000 ppm pose a severe risk, causing significant cognitive impairment, dizziness and shortness of breath.

Volatile Organic Compounds (VOCs) are a large group of chemicals that are found in many products we use to build or maintain our homes. Once inside, they are released or “off-gas.” You may be able to smell some of them, but smell is not a good indicator of health risk. The risk of health effects from inhaling any chemical depends on how much is in the air, how long and how often a person breathes it in. Breathing in low levels of VOCs for long periods of time may increase some people’s risk of health problems. Several studies suggest that exposure to VOCs may make symptoms worse for people with asthma or who are particularly sensitive to chemicals.

Here are some common symptoms of exposure to high levels of VOCs. Acute/short term exposures (hours to days): eye, nose & throat irritation, headaches, nausea/vomiting, dizziness and worsening of asthma symptoms. Chronic exposures (years to a lifetime): cancer, liver and kidney damage, damage to central nervous system.

The Airthings 2960 pushes a constant stream of readings to a well-designed app that makes it easy to view and interpret trends over various periods of time. You can receive an alert if one of the readings moves into an unhealthy range. The website version of the app includes an impressive dashboard that is very customizable, which makes it easy to visualize the data (in charts) and draw insights.

For years I’ve said that “What you put into your body matters.” This device and its app have made me realize that that includes the air we breathe. It’s easy to assume that air is generally healthy enough because with rare exceptions, it always looks clear. But as I noted in the issue about EMFs, just because you can’t see, hear, smell or feel something doesn’t mean it’s safe.

This has prompted me to drill down into this area to learn more and take steps to ensure that the air inside my house is healthy to breathe. I read about energy recovery ventilators, which draw fresh air into your house but leave the unwanted humidity and temperature outside, and am looking into getting one or two installed on my house. Since I’m completely surrounded by trees, this is a great option, but if you live in an urban area that has high air pollution, it probably wouldn’t make sense for you.

Until I bought these Airthings monitors, I had been using Govee indoor hygrometer/thermometers to monitor the air inside my house. They work well, but the Airthings 2960 takes monitoring to a whole new level.

Another recent addition is Ting, which helps prevent house fires by detecting hidden electrical problems behind walls, inside devices and in the power entering your home. The companion app alerts you about any hazards and provides information about local power outages. Usually nothing is happening, but it provides peace of mind, especially if you have an older house.

I use Simplisafe for my home security system, which is simple, customizable, affordable and dependable. When an event occurs that requires them to call you to ensure that everything is OK, they call immediately and the phone reps are professional. The companion app allows you to view your cameras in real time and even converse with whoever is there. You can get entry sensors, indoor and outdoor cameras, smoke and carbon monoxide detectors, motion sensors, water sensors, glass break sensors and temperature sensors.

I’ve considered getting a freezer monitor to alert me if the temperature inside my large freezer dropped (e.g., if the door was accidentally left ajar), but I haven’t pulled the trigger on that yet.

Sometimes an aircraft flies overhead that sounds or looks unusual, in which case I use the Flightradar24 app to check it out, which is interesting.

I wrote about weather apps in Issue #204.

Subscribe now

Share

Leave a comment

Follow Me on X

Newsletter Archive

I would love to hear from you! If you have any comments, suggestions, insight/wisdom, or you’d like to share a great article, please leave a comment.

Disclaimer

The content of this newsletter is intended to be and should be used for informational/ educational purposes only. You should not assume that it is accurate or that following my recommendations will produce a positive result for you. You should either do your own research and analysis, or hire a qualified professional who is aware of the facts and circumstances of your individual situation.

Financial Preparedness LLC is not a registered investment advisor. I am not an attorney, accountant, doctor, nutritionist or psychologist. I am not YOUR financial planner or investment advisor, and you are not my client.

Investments carry risk, are not guaranteed, and do fluctuate in value, and you can lose your entire investment. Past performance is not indicative of future performance. You should not invest in something you don’t understand, or put all of your eggs in one basket.

Before starting a new diet or exercise regimen, you should consult with a doctor, nutritionist, dietician, or personal trainer.

Among all the talk about artificial intelligence, NVIDIA’s earnings, the upcoming SpaceX IPO and record highs in the stock market, few may have noticed that interest rates have been on the rise. Most notably, the yield on the 30-year U.S. Treasury bond just rose above 5.2%, the highest since the Summer of 2007, which was just before the Great Financial Crisis.

There are a number of reasons why rates have risen. The nominal national debt of $39.27 trillion (the total amount, which includes the federal government’s massive unfunded liabilities, is far higher) has saturated the market with debt. War is very expensive, as is industrial scale fraud, providing Medicare to nearly 65 million people, Medicaid to nearly 88 million, and Food Stamps to over 37.2 million. Trump’s tariffs will raise significantly less revenue than expected. Tech companies have been borrowing lots of money to build out AI and data centers. In the last couple of years, the U.S. personal savings rate has declined to 3.6%. U.S. consumer debt of all types (housing, auto, student loans, credit cards, etc.) is at a record high. Higher energy prices makes everything more expensive; thus, more capital is needed to fund corporate investments. And the money supply has risen sharply in recent years as the Fed continues to print dollars to monetize the national debt.

Higher interest rates increase the cost of capital and the discount rate that’s used to calculate the present value of all investments (which makes them less valuable). Higher-yielding bonds become more attractive relative to stocks and precious metals. And interest-sensitive investments such as real estate and utilities take a hit. Historically, the bond market has been about twice the size of the stock market, so higher-yielding bonds can draw a lot of money away from the stock market, especially since bonds are generally less risky than stocks.

Consumers with revolving debt (such as credit cards) immediately experience greater financial distress, and it becomes more difficult to borrow money for a house, a car or a college education.

Debt-laden corporations (especially those that have a lot of debt that matures in the short to intermediate term) are suddenly faced with the prospect of higher interest expense and thus lower earnings, free cash flow and dividends, and lower financial strength.

Many homeowners locked in ultra-low mortgage interest rates between 2011 and 2022, so would be loath to sell their house, which would cause the U.S. housing market to freeze up.

Cars were already prohibitively expensive, so a higher interest rate on car loans would put them even further out of reach for most consumers.

In short, higher interest rates would cause a massive, market-wide repricing (all downward) of all assets except cash (fortunately my clients have about 60% in money market funds, which benefit from rising interest rates). It’s been a very long time since investors and consumers have had to deal with interest rate risk. Many of them have never even experienced it since they weren’t adults at the time. Rising interest rates were a significant contributing cause of the Great Financial Crisis in 2008. Perhaps it’s time for history to repeat (or rhyme).

Subscribe now

Share

Leave a comment

Follow Me on X

Newsletter Archive

I would love to hear from you! If you have any comments, suggestions, insight/wisdom, or you’d like to share a great article, please leave a comment.

Disclaimer

The content of this newsletter is intended to be and should be used for informational/ educational purposes only. You should not assume that it is accurate or that following my recommendations will produce a positive result for you. You should either do your own research and analysis, or hire a qualified professional who is aware of the facts and circumstances of your individual situation.

Financial Preparedness LLC is not a registered investment advisor. I am not an attorney, accountant, doctor, nutritionist or psychologist. I am not YOUR financial planner or investment advisor, and you are not my client.

Investments carry risk, are not guaranteed, and do fluctuate in value, and you can lose your entire investment. Past performance is not indicative of future performance. You should not invest in something you don’t understand, or put all of your eggs in one basket.

Before starting a new diet or exercise regimen, you should consult with a doctor, nutritionist, dietician, or personal trainer.

In last week’s issue, I mentioned that the only free lunch available to investors is diversification. Investment risk can be categorized as either systematic or unsystematic. Systematic risk (also known as market risk) is the risk that the stock market as a whole will decline. Unsystematic risk is risk that’s unique to a company, industry or country. An example that I used to use with my clients in the 1990s: “What if one day, it’s determined that drinking Coke causes cancer? What would then happen to the price of Coke stock?” I know, weird theory, but who could have predicted that?

Fortunately for investors, as the number of randomly selected stocks in a portfolio increases from one, unsystematic risk declines rapidly before tapering off to a de minimis amount at around 20 stocks. Since unsystematic risk can be eliminated through diversification, the market doesn’t compensate investors for accepting unsystematic risk; it compensates investors (over the long term) only for accepting market (systematic) risk.

The vast majority of investors who have a large exposure to an individual company, industry or country (which doesn’t increase their expected return) have never heard of unsystematic risk and have no idea that they are bearing a large amount of risk that could be eliminated through diversification.

The key phrase above is “randomly selected.” So if you own say ten stocks in the AI sector, you haven’t reduced your unsystematic risk by much. I don’t invest in a random selection of stocks, but the quantitative, value and dividend-driven, bottom-up process that I employ (as opposed to a top-down process that’s based themes, stories and predictions) results in an eclectic collection of stocks in various industries and countries. I’m often surprised by my portfolio’s composition, but I just go where my value/dividend muse leads me.

Most American investors today have a large exposure to the S&P 500 index, either because they’re trapped in an employer retirement plan that has few investment options (such as a handful of index funds), they believe in the Efficient Market Hypothesis (all markets are always perfectly efficient and there are never any abnormal profit opportunities available), they have Home Country bias, or they’re currently chasing returns.

Many of them believe that that index alone provides broad diversification because it consists of 500 stocks. The devil is in the details, however. Like nearly all indices, S&P 500 index funds are weighted by market capitalization (the number of shares outstanding times the current stock price). Currently, the top eight companies in that index (which are all pretty much in the technology industry) comprise 38.4% of it, which is unprecedented. When something has never happened before, it causes my contrarian antennae to perk up, because it usually means the situation is unsustainable.

Yes, investors who own an S&P 500 index fund technically own 500 stocks, though they have much more concentration risk than they realize. They may assume that owning 500 companies has eliminated unsystematic risk, but it has not due to the very large weighting of the top stocks. If the value of those stocks continue to appreciate relative to the other 492 stocks, these index funds have to buy more and more shares of them, regardless of their current valuation, dividend yield, investor sentiment, insider selling, short interest, possible financial fraud by management, etc. For this reason, for many years now (ever since I read the book The Fearful Rise of Markets), I have been saying that market cap-weighted index funds are a Doomsday Machine.

I avoid concentration risk my limiting my weighting in each stock to a maximum of around 1.5%. My target weighting for each stock is determined by a formula that’s based on its current fundamentals (which are constantly changing), so most stocks have a target weighting of about 1% or less because there is almost always something about a company that’s not attractive. This limitation is a discipline that instills humility in my investment process, which is one of the most important values an investor can have.

By way of contrast, investors who own an S&P 500 index fund have 8.3% of their capital in richly valued (price/earnings ratio of 48) NVIDIA. It’s current Beneish M-score of -1.34 indicates that management is likely manipulating its reported earnings. If the stock price rises (perhaps as a result of fraudulent accounting), the index fund has to buy more shares. Good luck with that.

In conclusion, I want to point out that owning an eclectic collection of at least 20 (dividend-paying) individual stocks, along with a cash hoard of at least 20%, gives you optionality and freedom of maneuver. If you have all of your portfolio in an S&P 500 index fund (as many investors do; and many if not most of the stocks in it do not pay a dividend), the only actions you can take is either to buy more of all 500 stocks, hold all 500 stocks, or sell all 500 stocks.

Additionally, your weighting in each of those stocks is not up to you, and could rise to a very large percentage without your knowledge. Do you think any S&P 500 index funds have sent a letter to their shareholders informing them that 38.4% of their capital is invested in just eight stocks that are all pretty much in the same industry?

If you own a portfolio of individual dividend-paying stocks along with plenty of cash, you’re free to buy, hold (and collect decent dividends) or sell any of them or buy some new ones when valuations and investor sentiment are more attractive. As an investor, you never want to be limited to just two options (hold or sell just one holding).

Subscribe now

Share

Leave a comment

Follow Me on X

Newsletter Archive

I would love to hear from you! If you have any comments, suggestions, insight/wisdom, or you’d like to share a great article, please leave a comment.

Disclaimer

The content of this newsletter is intended to be and should be used for informational/ educational purposes only. You should not assume that it is accurate or that following my recommendations will produce a positive result for you. You should either do your own research and analysis, or hire a qualified professional who is aware of the facts and circumstances of your individual situation.

Financial Preparedness LLC is not a registered investment advisor. I am not an attorney, accountant, doctor, nutritionist or psychologist. I am not YOUR financial planner or investment advisor, and you are not my client.

Investments carry risk, are not guaranteed, and do fluctuate in value, and you can lose your entire investment. Past performance is not indicative of future performance. You should not invest in something you don’t understand, or put all of your eggs in one basket.

Before starting a new diet or exercise regimen, you should consult with a doctor, nutritionist, dietician, or personal trainer.

It’s time to get out of the market when your shoeshine boy starts giving you stock tips. ~ attributed to Joseph P. Kennedy Sr. in 1929

My contrarian antennae are constantly attuned for anecdotal signals that may be a subtle sign that either danger or an opportunity is near. A few days ago I received the following stock tip from an acquaintance who apparently started investing within the last year or so:

“Ubiquiti (ticker UI) Government forced US to only use US-based routers because [spying] software was hidden in some brands. So over the last year or so it’s up like 250% as a stock. I bought under $100 and it’s now $1K.”

OK, let’s analyze this. Why did he tell me this, and why now? A charitable explanation would be that he thought he had discovered a great investment opportunity and wanted me to be able to benefit from it too. A different explanation is that he (perhaps subconsciously) wanted an ego stroke; it’s proof that anybody can do this game. If you saw this tip posted online, it may well have been written by someone who owns a position in the security but is trying to sell at a good price.

Why now? Inexperienced investors brag about their best investments towards the top of the market. Around the bottom of the market (which would actually be a great time to invest), they’re so depressed and despondent that they don’t even open their account statements for months or even years because the cognitive dissonance is too painful.

Now Ubiquti is actually one of the ~2,250 stocks I track on my massive stock-tracking spreadsheet, because it pays a dividend (though its yield is only 0.3%). So I checked it out. The first thing I looked at was its current Beneish M-score, which is a measure of the likelihood that management is manipulating its reported earnings. Unfortunately, the weird scale that professor Beneish used for his score doesn’t make it easy for a layman to interpret, but Ubiquiti’s current score of -1.46 implies that its management is likely manipulating reported earnings.

So why would they do that? Well, I noticed that over 96% of the shares are owned by insiders! This is easily the highest insider ownership I’ve ever seen. I prefer stocks that have high insider ownership, but you can get too much of a good thing. In this case, management’s entire fortune and fate are wed to the company that also provides them with a paycheck, so they have a strong financial incentive to do whatever it takes to keep the stock price high and rising, including possibly cooking the books.

The next thing I noticed was that despite the massive insider ownership, short sellers (who are generally Smart Money) have sold short nearly 9.1% of the shares, which is very high, especially for a stock that has skyrocketed in price. The fact that the shorts can maintain such a painful position in the face of large, rapid losses leads me to believe that they know something that the less sophisticated longs don’t.

My tipper said that he had paid less than $100 per share, but when I looked at the chart, I noticed that the stock hasn’t traded below $100 since the end of 2018. Hmm.

Note how the tip is based on a story (which the human brain LOVES) and the stock’s recent return. The story “explains” the return and justifies any subsequent purchase of more shares. The true (unconscious) purpose of the story, however, is to justify an action that is obviously based on Recency Bias, which is one of the most common of the over 100 known cognitive biases that prevent the human brain from making rational decisions in a financial laboratory. The overwhelming majority of investors who listen to stories and trade based on price momentum have never even heard of Recency Bias, much less the much broader field of Behavioral Finance.

Also note what is not included in the tip: anything about the company’s fundamentals (such as revenue, expenses, free cash flow, dividends, debt load, etc.). The value of a company (or any asset) is the present value of its future cash flows, discounted at an interest rate that reflects its risk. For most investors, however, the fundamentals are never even considered.

Why is that? Most people who receive stock tips value them because they’re a heuristic, which the dictionary defines as “Of or relating to a usually speculative formulation serving as a guide in the investigation or solution of a problem.” They’re a mental shortcut that saves a great deal of time and energy (which your body still believes is scarce, as it was for millennia), so your lazy brain appreciates them. One of the most popular (but incorrect) heuristics about investing is that markets are always perfectly efficient, so you should just invest in index funds. Trust me, analyzing decades’ worth of a company’s financial statements and related ratios takes work. Unfortunately, there are very few free lunchs in the investment world (though diversification is one of them).

Why did this investor not tell me about his other investments, virtually all of which almost certainly had a lower return (perhaps negative)? If his investment process is based on stories, was the story about them inaccurate? If so, how do I know whether the story for Ubiquiti is valid? How does he decide which (conflicting) stories to listen to? Stories sell ads in the financial media, but they generally don’t have much to do with a security’s return.

All of the story about Ubiquiti could be true, and its prospects could be extremely bright, and yet it could still be a poor investment. How is that possible? Well, price is what you pay, and value is what you get. If you overpay for value, your return will be negative. Again, the vast majority of investors have never heard of or thought about this crucial investing concept.

In conclusion, the Shiller 10-year, cyclically-adjusted price/earnings ratio for the S&P 500 index now stands at the nosebleed level of 41.7. This means that investors are currently paying $41.70 for every $1 of reported earnings (which is not the same as free cash flow) from the S&P 500. Since 1870, it has been higher only once—during the Dot Com bubble. At the top of the market in 1929 when Joe Kennedy warned about listening to stock tips from exuberant novice investors, it was 31.5. Given the market’s current valuations, the fact that giddy newbies are giving stock tips is pretty alarming. Don’t say I didn’t warn you.

Subscribe now

Share

Leave a comment

Follow Me on X

Newsletter Archive

I would love to hear from you! If you have any comments, suggestions, insight/wisdom, or you’d like to share a great article, please leave a comment.

Disclaimer

The content of this newsletter is intended to be and should be used for informational/ educational purposes only. You should not assume that it is accurate or that following my recommendations will produce a positive result for you. You should either do your own research and analysis, or hire a qualified professional who is aware of the facts and circumstances of your individual situation.

Financial Preparedness LLC is not a registered investment advisor. I am not an attorney, accountant, doctor, nutritionist or psychologist. I am not YOUR financial planner or investment advisor, and you are not my client.

Investments carry risk, are not guaranteed, and do fluctuate in value, and you can lose your entire investment. Past performance is not indicative of future performance. You should not invest in something you don’t understand, or put all of your eggs in one basket.

Before starting a new diet or exercise regimen, you should consult with a doctor, nutritionist, dietician, or personal trainer.

Sometimes, in a summer morning, having taken my accustomed bath, I sat in my sunny doorway from sunrise till noon, rapt in a revery, amidst the pines and hickories and sumachs, in undisturbed solitude and stillness, while the birds sing around or flitted noiseless through the house, until by the sun falling in at my west window, or the noise of some traveller’s wagon on the distant highway, I was reminded of the lapse of time. I grew in those seasons like corn in the night, and they were far better than any work of the hands would have been. They were not time subtracted from my life, but so much over and above my usual allowance. ~ Henry David Thoreau, Walden

The other day I saw a Land’s End catalog in our stack of mail and noticed the words “Analog Summer” on its cover. I thought it was brilliant, and it got me thinking. I recently heard the term “friction maxxing,” and plan to write about that in a future issue after I’ve read and thought about it more. I think it may just be a simpler, easier version of something I’ve been wanting to do for some time now: rewild myself.

In recent months, I’ve felt a need to spend less time looking at screens (especially at night), sitting on soft furniture, consuming news and communicating with others electronically. I’m also way behind on my annual bookshelf, and there are many classics I haven’t read yet and so many subjects I want to learn about; my tsundoku beckons.

So I’ve decided to have an Analog Summer. I live in the perfect place for it, too: a physically large yet humanscale remote community in the mountains, immersed in natural beauty and abundant wildlife. Thousands of people come here each Summer to get away from cities and suburbia and spend quality time with their family.

So starting May 1, I’m going to unplug and move more, and spend more time reading (physical) books, being more mindful and present in meatspace to listen and have deep, meaningful, face to face conversations with friends and family, laughing more, walking and exercising more, being outside more in direct sunlight, sweating more, breathing more fresh air, spending more time on the lake and putting myself in more places where I can see and appreciate natural beauty.

Every day from the time the stock market closes at 4:00, I’m going to close my computer and not look at any screens (including TV, except for watching a weekly documentary with my family) again for the rest of the day.

I think doing this will allow me to live more like humans have filled for millennia and have a richer, more meaningful and fulfilled life. Will you join me?

Subscribe now

Share

Leave a comment

Follow Me on X

Newsletter Archive

I would love to hear from you! If you have any comments, suggestions, insight/wisdom, or you’d like to share a great article, please leave a comment.

Disclaimer

The content of this newsletter is intended to be and should be used for informational/ educational purposes only. You should not assume that it is accurate or that following my recommendations will produce a positive result for you. You should either do your own research and analysis, or hire a qualified professional who is aware of the facts and circumstances of your individual situation.

Financial Preparedness LLC is not a registered investment advisor. I am not an attorney, accountant, doctor, nutritionist or psychologist. I am not YOUR financial planner or investment advisor, and you are not my client.

Investments carry risk, are not guaranteed, and do fluctuate in value, and you can lose your entire investment. Past performance is not indicative of future performance. You should not invest in something you don’t understand, or put all of your eggs in one basket.

Before starting a new diet or exercise regimen, you should consult with a doctor, nutritionist, dietician, or personal trainer.

Of course, where and when these events occur as well as who else is (or is not) in your car could compound your problem. For example, you could run out of gas many miles away from the nearest gas station with kids in your car, your car could break down at night in the middle of nowhere while you were alone, or you could get stuck in a snowbank during a bad blizzard while transporting an elderly relative.

Being prepared for a variety of emergencies would help keep you and your passengers safe and relatively comfortable and provide peace of mind. But it could also allow you to immediately come to the aid of other innocent people you came upon who were in a bad situation themselves. Not only would that make you feel good, you could potentially save one or more lives and be a hero!

There’s a lot of gear that’s lightweight, versatile and relatively small and inexpensive that you could store in your car for immediate use when you encounter a problem. I drive a large pickup truck (an ER doctor interviewed in the book The Primal Blueprint recommends driving the largest, heaviest vehicle you can), so I have plenty of space and places to store all kinds of gear. It has a large storage console between the front seats, and I installed an organizer that divides it up into at least nine different cubbyholes. You need to think of your car as a mobile prepping wagon and your lifeboat away from home.

Having said that, it’s important to remember that being prepared is not just about accumulating gear and having it on hand (and knowing how to use it). It’s also about developing skills that would be useful in an emergency situation (e.g., CPR, stop the bleed, preventing shock, basic car repairs, putting out a fire, keeping warm/dry/cool and hydrated, self-defense, signaling, navigation, etc.).

It’s also about situational awareness and being left of bang. There are tons of incompetent, distracted, clueless, sleep-deprived, under the influence, mentally ill, desperate and violent people on the roads and in public who could easily cause an accident or otherwise create a problem for other people on the road. You need to be wary of these people but prepared to assist their innocent victims.

I’ve spent years reading and thinking about what gear I need to have on my truck and in my wife’s car. Of course I keep track of it all on my master prepping spreadsheet. A few items (food, water, anything with batteries) need to be checked and rotated periodically. I recommend you keep your car locked and out of the elements inside your (locked) garage. The greater the risk of theft in your area, the more you should consider avoiding keeping the more expensive items in your car.

My prepping spreadsheet is organized by broad categories. The ones that apply to vehicles include clothes, communications, containers, cordage, cutting tools, documents, fire & heat, food, hygiene, light & vision, medical, navigation, power, security, shelter, tools, transportation, water and other. Listed below are the specific items I keep in my vehicles.

Read more