Investment and/or Personal Finance

[Danoff]

Completely agree about debt. Some of that inflation hedging effect is already backed into the stock returns though, because most companies take on lots of debt to finance their operations.

You're assuming that the price of the stock has something to do with its financial outlook. Even if all companies held more debt than capital (which many don't), and inflation marched along eroding that debt, making the company more profitable, you may well find that the stock price goes down, not up, because consumer purchasing power has eroded.

Stocks trade based on what people think they're worth, not what they're actually worth. A company can benefit from inflation and still have its stock price go down due to inflation.

 

[Eunos_Cosmo]

Changing the thread title to further differentiate this thread from the economics thread. It has become more about Investment & Personal Finance.

I don't want to go all "wall street bets" or anything, but what do you guys make of Ford stock right now? It's quite cheap and Ford seems to have something of a reasonable long-term plan. Also the F150 and Bronco are being unveiled shortly which could give some short term momentum, depending on their initial reception. The Bronco looks very promising if you think about the success Jeep has had with the Wrangler over the last decade.

 

[ROAD_DOGG33J]

One downside to ford could be the questionable reliability. That said I do have ford stock and have rode that wave down all the way to were it is now. Automotive stocks could be a gamble long term depending on how each manufacturer's electric cars do and any new technologies being developed.

 

[Danoff]

Changing the thread title to further differentiate this thread from the economics thread. It has become more about Investment & Personal Finance.

I don't want to go all "wall street bets" or anything, but what do you guys make of Ford stock right now? It's quite cheap and Ford seems to have something of a reasonable long-term plan. Also the F150 and Bronco are being unveiled shortly which could give some short term momentum, depending on their initial reception. The Bronco looks very promising if you think about the success Jeep has had with the Wrangler over the last decade.

I don't tend to buy or hold any individual stock for any company. Not only can companies trade independent of their fundamentals, but it's very difficult to see behind the curtain. Shareholder's meetings are not really that much insight into what's really going on in the company. You might think, from a layperson's perspective, that the company has a good plan for the future, but it may be super obvious to the insiders that it's destined for failure. Or that the company is run incompetently or wastefully. Of course that only matters a little because the stock price can be so irrational.

 

[Eunos_Cosmo]

I'm surprised I didn't already know this but...

Microsoft, Apple, Amazon, Google and Facebook made up a full 10% of the total stock market capitalization (Wilshire 5000 index) at the beginning of 2017.

In march of this year, that was above 15%

Now, it's 20%. TWENTY PERCENT of the entire stock market value is in 5 companies...and that proportion is growing every day.

 

[Danoff]

I'm surprised I didn't already know this but...

Microsoft, Apple, Amazon, Google and Facebook made up a full 10% of the total stock market capitalization (Wilshire 5000 index) at the beginning of 2017.

In march of this year, that was above 15%

Now, it's 20%. TWENTY PERCENT of the entire stock market value is in 5 companies...and that proportion is growing every day.

Only two of those companies (MSFT and AAPL) pay dividends (which is really the only reason to hold a stock in the end).

 

[ROAD_DOGG33J]

Only two of those companies (MSFT and AAPL) pay dividends (which is really the only reason to hold a stock in the end).

That and capital gains.

No dividends eliminates most stocks and funds. Even a high dividend fund has a pretty insignificant dividend, though it can certainly be higher than the interest money market funds are paying now.

 

[Danoff]

That and capital gains.

No dividends eliminates most stocks and funds. Even a high dividend fund has a pretty insignificant dividend, though it can certainly be higher than the interest money market funds are paying now.

Capital gains only exist on the notion of future dividends. Dividends are ultimately really the only reason to hold stock. Unless you're trying to actually buy the company.

 

[ROAD_DOGG33J]

Capital gains only exist on the notion of future dividends. Dividends are ultimately really the only reason to hold stock. Unless you're trying to actually buy the company.

Or somebody else is trying to buy the company or the company decided to go private. Theoretically, capital gains exist when the company grows its business or increases its valuation resulting in an increase in share price. The gains are realized when the shares are bought by somebody else.

I don't think that stocks without a dividend are worthless, though they could end up being that if not sold at the right time. You own a fraction of the company.

 

[Danoff]

Or somebody else is trying to buy the company or the company decided to go private. Theoretically, capital gains exist when the company grows its business or increases its valuation resulting in an increase in share price. The gains are realized when the shares are bought by somebody else.

I don't think that stocks without a dividend are worthless, though they could end up being that if not sold at the right time. You own a fraction of the company.

The only thing owning a fraction of the company is good for is profit sharing, or having someone attempt to buy the company (including the company themselves). Everything else is just speculation. Most people don't own stock in hopes of getting bought in a hostile takeover. The only reason you really own stocks is because of the promise of future profit sharing (dividends).

 

[Jump_Ace]

Cool thread! I never have been interested in investing in the stock market after my professor in college said he went bankrupt a couple times.

I've started selling off my comic book collection this week (roughly $80k). I figure the nearly $40k in interest savings is way more than they would appreciate in the next 20 years. Then I can retire as soon as we get the house paid off (and concentrate on racing full time so to speak )

We are hoping to pay if off in 15 years with extra annual payments now that our daycare costs will start decreasing in the next year or so.


Jerome

 

[ROAD_DOGG33J]

@Danoff I do prefer buying dividend paying stocks, REITs or BDCs, but I can't follow that. Okay, it's speculation. Amazon stock is trading at $2,600 now. They pay no dividends. There's no guarantee that they will ever pay dividends. Holding that stock is based on the growth of the business, and in turn the stock price, theoretically. You hold the stock, sell it and then re-align those funds with your goals. If you're never planning on selling the stock, then it would be only useful as far as what you wanted after death.

 

[Danoff]

@Danoff I do prefer buying dividend paying stocks, REITs or BDCs, but I can't follow that. Okay, it's speculation. Amazon stock is trading at $2,600 now. They pay no dividends. There's no guarantee that they will ever pay dividends. Holding that stock is based on the growth of the business, and in turn the stock price, theoretically. You hold the stock, sell it and then re-align those funds with your goals. If you're never planning on selling the stock, then it would be only useful as far as what you wanted after death.

You're missing my point I think. If Amazon never offers a dividend, it's value today to most investors is essentially zero. Again, it couldn't actually be zero because then you could buy the company for $0. I'd like to discount the notion of the stock price being worth what the company is worth, because it's not how a hostile takeover works. As you try to acquire shares of a company, the initial shares would be at a discount compared to the final shares, because the initial shares do not actually confer significant ownership in the company. As you start to acquire shares and get close to a controlling interest, the final shares will become extremely expensive as people understand that their shares are no longer simply worth that fraction of the company, but leverage someone else's controlling interest. Valuing what shares should be worth based on what someone could buy the company for is not easy, and it's not generally what drives stock prices (although we did see some of that with DIS recently).

When you buy a stock from someone else, let's call that person Joe, Joe hands you a piece of worthless paper (not Amazon, Joe). You give Joe money, and Joe goes off into the sunset. You now have a piece of paper. Why would anyone buy that from you? The answer is the promise of future profit sharing from Amazon. What amazon does today does not change the value of that paper (barring taking ownership of the company). Your paper doesn't do anything for you but sit there until Amazon starts profit sharing. When George comes along and considers buying that paper from you, future profit sharing is what drives the price of that paper.

Everything that happens between IPO and Dividends is pure speculation on the dividends, as long as nobody tries to acquire the company by buying up stock.

 

[ROAD_DOGG33J]

@Danoff How do regular takeovers (mergers, etc.) factor in? I imagine those would be more common than hostile ones.

 

[Danoff]

@Danoff How do regular takeovers (mergers, etc.) factor in? I imagine those would be more common than hostile ones.

I've owned corporate stock of a non-dividend yielding company which got bought by a larger dividend yielding company. The value of the smaller company stock jumped in anticipation of paying dividends, and then dividends were paid once the new company took over. Stock would jump anyway, just in anticipation of getting converted over to a presumably higher value stock after the merger.

I imagine that some stock changed hands, or was just taken from one person who owned it in the smaller company to being a shareholder in the new company (without ever having changed ownership). Honestly, I don't know how it works behind the scenes. But I don't recall the CEO (or similar) of the smaller company having to liquidate their shares in the open market in order for the new company to complete the purchase. My guess would be that executives had the option of being paid out or converting their shares. I don't recall a buy offer for the general public's shares.

Anyway, that's an usual event. The ultimate reason for having a share of the company is to share profits.

 

[Biggles]

Coronavirus infections in the US are rising dramatically in many states, deaths are starting to increase ... & the market continues its move up. It's starting to seem even further divorced from reality. Every time there is word of a positive development in a treatment or vaccine, the market bumps up, ignoring the likely reality that the treatment or vaccine, even if it proves reasonably effective, is going to take months to become readily available & probably many more months before it has an appreciable effect on reversing the losses in economic activity.

 

[CTznOfTime]

I'm surprised I didn't already know this but...

Microsoft, Apple, Amazon, Google and Facebook made up a full 10% of the total stock market capitalization (Wilshire 5000 index) at the beginning of 2017.

In march of this year, that was above 15%

Now, it's 20%. TWENTY PERCENT of the entire stock market value is in 5 companies...and that proportion is growing every day.

Where is Tesla in all of this ?

 

[Exorcet]

We do not have any credit cards. So no credit card bills.

I wasn't sure if this was too tangential for the original thread, nor am I sure if it's an interesting enough point to talk about, but have you looked into cards at all? I don't understand why people would willingly avoid them. I profit off having them.

I can see how credit card debt happens in theory. People tell themselves they will pay it off later without actually thinking about how that is going to happen or tracking what they put in the card. I have a hard time seeing how that happens in practice however. Not everyone is good money, but gaining massive credit card debt just strikes me as being shockingly bad with financial management.

 

[WFO Krypto]

I wasn't sure if this was too tangential for the original thread, nor am I sure if it's an interesting enough point to talk about, but have you looked into cards at all? I don't understand why people would willingly avoid them. I profit off having them.

I can see how credit card debt happens in theory. People tell themselves they will pay it off later without actually thinking about how that is going to happen or tracking what they put in the card. I have a hard time seeing how that happens in practice however. Not everyone is good money, but gaining massive credit card debt just strikes me as being shockingly bad with financial management.

I myself can have a credit card without feeling that I would get in trouble with it. My wife has, in the past, gotten into trouble with credit cards. I do not think it would be fair of me to have a credit card, when I will not let her have one ever again.

I have a company credit card that I use when traveling for business.

I would love to get a card that earned miles with an airline.

 

[MatskiMonk]

I have a hard time seeing how that happens in practice however. Not everyone is good money, but gaining massive credit card debt just strikes me as being shockingly bad with financial management

In my experience there's three factors; Not properly considering that the cost of servicing the debt can remove your ability to reduce the debt, bad luck, and not acknowledging to the card company (or other entities), that there's an issue soon enough.

That last one is probably the one that I'd stress to anyone (in the UK at least) facing such problems. In my experience, 9 times out of 10 finance companies will want to work with you and help you get things under control if you just come up with a plan and talk to them - this can be really hard to get your head around when you're drowning in debt, admittedly. Just sitting on a debt you're struggling to pay back, potentially for years on end, really is a terrible thing to live with, and I can't stress enough how it can blur your judgement or ability to cope. I hate the expression "if you've never been through it, you can't understand it", but I've never seen anyone dishing out financial caution that has adequately conveyed what it can be like.

 

[Exorcet]

I myself can have a credit card without feeling that I would get in trouble with it. My wife has, in the past, gotten into trouble with credit cards. I do not think it would be fair of me to have a credit card, when I will not let her have one ever again.

I have a company credit card that I use when traveling for business.

I would love to get a card that earned miles with an airline.

Now I can see your reasoning for not having a card and it makes more sense to me, though putting aside fairness, a properly managed card could still be a net gain in income and financial security. It could also be used to demonstrate proper use of the card to others, like your wife, and aid in the development of good spending habits. At least that would be my thought if I were in a similar position, you would know your situation better than me.

In my experience there's three factors; Not properly considering that the cost of servicing the debt can remove your ability to reduce the debt, bad luck, and not acknowledging to the card company (or other entities), that there's an issue soon enough.

You're right to bring up bad luck. Risk is inherent in everything, so I just sort of ignored that factor in my original post. If some situation out of your control contributed to your debt, it's understandable. When it comes to the cost of servicing debt, I don't really look at credit cards as having anything to do with credit. I use cards as a replacement for cash and when I purchase something I have to have the money to pay for it upfront before I bring out the card, with a few exceptions. I guess this is easier with cash (you can't keep pulling bills out of your pocket if you have none) but I don't find keeping track of spending much work, and I believe all of my cards have tools to help limit or at least monitor spending.

That last one is probably the one that I'd stress to anyone (in the UK at least) facing such problems. In my experience, 9 times out of 10 finance companies will want to work with you and help you get things under control if you just come up with a plan and talk to them - this can be really hard to get your head around when you're drowning in debt, admittedly. Just sitting on a debt you're struggling to pay back, potentially for years on end, really is a terrible thing to live with, and I can't stress enough how it can blur your judgement or ability to cope. I hate the expression "if you've never been through it, you can't understand it", but I've never seen anyone dishing out financial caution that has adequately conveyed what it can be like.

I also agree with this, acting quickly when faced with a problem can make a huge difference in resolving it, and sometimes this means seeking external help.

 

[Brett]

I wasn't sure if this was too tangential for the original thread, nor am I sure if it's an interesting enough point to talk about, but have you looked into cards at all? I don't understand why people would willingly avoid them. I profit off having them.

I can see how credit card debt happens in theory. People tell themselves they will pay it off later without actually thinking about how that is going to happen or tracking what they put in the card. I have a hard time seeing how that happens in practice however. Not everyone is good money, but gaining massive credit card debt just strikes me as being shockingly bad with financial management.

I have treated mine like a debit card. If I do not have the money, then I do not buy something.

EDIT: Missed an important word.

 

[Eunos_Cosmo]

Well I finally decided to buy Ford stock. With their investments in Rivian, the electric F150, the Mach-E (not sure that's gonna be a success but it's something), and the addition of the Bronco to their portfolio of cheap volume models that have a lot of price scale (IE: you can option them up to be very expensive!) and potentially strong enthusiast following...the price of the stock just seems like it has a lot of room to grow. I bought around $6.80. While my investment was modest ($500) and very small compared to my more diversified funds...I'd like to see where my automotive intuition takes me. . I bought fully accepting that I might just lose that $500. I keep reading these very bearish articles about how Ford stock will go to zero. As long as Ford makes the F150 and the Mustang...I just cannot see that happening.

The other one I have my eye on is Nissan...but I'm less sure that they have any mojo. I'm gonna wait to see how the Frontier is received, but I doubt it will trouble the establishment.

 

[ryzno]

I have treated mine like a debit card. If I do not have the money, then I do buy something.

Typo?

 

[Brett]

I have treated mine like a debit card. If I do not have the money, then I do not buy something.

Typo?

Very much so.

 

[DaigoD]

Where is Tesla in all of this ?

The market cap of the Wilshire 5000 is about 32 trillion USD. Teslas market cap is around 280 billion.
They represent about 0,9% of the total stock market in the US.

 

[ROAD_DOGG33J]

A look at the market without the Giant 5

https://wolfstreet.com/2020/06/23/w...nus-apple-microsoft-amazon-alphabet-facebook/

 

[Danoff]

I mentioned the rich man/poor man bit by Adam Carolla in another thread just now, and it dawned on me that this topic has been bothering me recently. Don't get me wrong, I love that rich people end up having characteristics in common with poor people. I just started to realize that as wealth goes up financial moves of rich people start to look a bit more like the financial moves of poor people. It has caused me to instinctively resist certain decisions.

For example, I'm refinancing my mortgage right now. Now I could pay it off, that wouldn't be a big deal. But I want to use the money that I'd use to pay it off, and with an interest rate in the 2s, I'm taking out a loan that won't be fully repaid until I'm 70 years old. And I'm perfectly fine with that. I'd not be paying a dime of it early either.

But this move, to maintain debt, and even extend it beyond my working years, really strikes me as a rich man/poor man thing to do. I can make the financial case for it all day long and still instinctively recoil at is as something my parents would have done. And that's a very bad thing to say about anything financial. I personally know others who are suffering from this exact problem. I know a guy who paid off his new car loan early, even though it was at 1% interest. It's almost impossible to make a financial case for doing that, but he just hated having the monthly payment. It's a financial rich man/poor man comparison that makes people squeamish.

 

[Dotini]

I mentioned the rich man/poor man bit by Adam Carolla in another thread just now, and it dawned on me that this topic has been bothering me recently. Don't get me wrong, I love that rich people end up having characteristics in common with poor people. I just started to realize that as wealth goes up financial moves of rich people start to look a bit more like the financial moves of poor people. It has caused me to instinctively resist certain decisions.

For example, I'm refinancing my mortgage right now. Now I could pay it off, that wouldn't be a big deal. But I want to use the money that I'd use to pay it off, and with an interest rate in the 2s, I'm taking out a loan that won't be fully repaid until I'm 70 years old. And I'm perfectly fine with that. I'd not be paying a dime of it early either.

But this move, to maintain debt, and even extend it beyond my working years, really strikes me as a rich man/poor man thing to do. I can make the financial case for it all day long and still instinctively recoil at is as something my parents would have done. And that's a very bad thing to say about anything financial. I personally know others who are suffering from this exact problem. I know a guy who paid off his new car loan early, even though it was at 1% interest. It's almost impossible to make a financial case for doing that, but he just hated having the monthly payment. It's a financial rich man/poor man comparison that makes people squeamish.

Personally, I've had that choice several times. I always pay off the debt if I can. Why? I find, just personally you understand, that I get a better, more restful and less worried state of sleep. I spend a third of my life sleeping, and I appreciate maximizing the pleasure and benefits of sleep. Now I doubt very much that many other people are going to see and do things the same way as I do. And that's okay. But for me, it's a settled issue.

 

[Danoff]

Personally, I've had that choice several times. I always pay off the debt if I can. Why? I find, just personally you understand, that I get a better, more restful and less worried state of sleep. I spend a third of my life sleeping, and I appreciate maximizing the pleasure and benefits of sleep. Now I doubt very much that many other people are going to see and do things the same way as I do. And that's okay. But for me, it's a settled issue.

If we're just talking about losing sleep, I think I'd lose more sleep over paying off debt in the 2% range. Long term, inflation can be expected to hit at least that much. Unless you made those decisions in the last 10 years or so, you're talking about a very different situation.