Wealth Management News & Insights

The Tyranny of Inertia, What’s Wrong with Starbucks, The Voyage of The Altar Stone

 

 

Financial Markets

• william hill slot games Behind the market tumult of the past month: the rapid unwind of several popular trades and the heavy use of leverage. [WSJ]
• Merck Created the World’s Biggest Drug. Now It Has to Replace It: Keytruda will generate $25 billion in sales for Merck this year. But its patent is about to expire, leaving Merck with a gaping hole to fill—and a stock price that could be at risk. [Barron’s]
• Regulators Probing Big Banks’ Handling of Zelle Scams: Investigation examines whether JPMorgan Chase, Bank of America, Wells Fargo and others do enough to shut down accounts controlled by bad actors. [WSJ]
• Inflation Hurts Most for the Things We Can’t Skimp On: Costs for child care, rent and car insurance are up. Inflation might be easing, but it doesn’t feel that way. [WSJ]

 

 

The charts above illustrate the fluctuations in the number of all-time highs (ATHs) for S&P 500 stocks over time. As of 2024, there have been 31 ATHs, indicating that numerous companies have achieved their highest-ever stock prices this year.

 

Financial Planning

• Why Everyone Needs a ‘Digital Death-Cleaning’ Plan: Nobody wants to leave heirs a confusing collection of files they can’t open, accounts they can’t access and assets they can’t locate. [WSJ]
• Recession Fears Have Gripped the Stock Market. Where to Find Safety: Investors have been counting on a strong economy to power the stock market higher, buying relatively riskier assets such as small-caps that tend to do well during periods of economic expansion. [Barron’s]

Retirement Planning

• Young and in Debt? You Still Should Be Saving for Retirement: Between her mortgage, credit-card balances, student and auto loans, Ivana Rosa has nearly $450,000 in debt. But she isn’t letting that stop her from a major goal: saving for retirement. [Barron’s]

 

 

The charts above illustrate various percentages of pullbacks and corrections in the S&P 500 since 1930. According to the top left chart, the S&P 500 experiences pullbacks of 5% or more more than three a year on average. A “pullback” is defined as a temporary decline in the price of a stock or index following a period of upward movement.

 

Business Strategy

• Inside Starbucks’s Surprising CEO Firing and Hiring: As the coffee giant’s shares sank and activists circled, the board arranged a cold call that brought dramatic change. [WSJ]
• What’s Wrong With Starbucks? Prices are up—and so are the wait times. But that’s just the tip of the iced-latte-berg. The coffee giant’s new CEO will have his work cut out for him. [WSJ]
• Mars, Maker of M&M’s and Snickers, Strikes Nearly $30 Billion Deal to Buy Cheez-It Owner Kellanova: M&M’s maker Mars has struck a deal worth nearly $30 billion to buy Kellanova, marking one of the food industry’s biggest deals and expanding the candy maker’s brand portfolio to include salty snacks such as Pringles and Cheez-It. [CBS]
• Chipotle to Splurge on Bigger Portions to Keep Diners Happy: Chipotle Mexican Grill Inc. is making sure its diners are getting generous serving sizes — but there’s a cost to this. [Bloomberg]
• Disney+ to Introduce Continuous Playlists in U.S. Beginning on September 4: Disney+ announced it is adding continuous playlists to its core subscription on-demand offering in the U.S. Beginning September 4, ABC News Live and a playlist focused on preschool content will be available to all subscribers, with four additional curated playlists to follow later this fall. [Disney]

 

 

The chart above provides a comprehensive overview of Disney’s upcoming theatrical releases, covering the remainder of 2024 through 2025. This schedule includes all films that Disney has publicly announced for release in theaters during this period.

 

Life & Work

• Can the Olympics Unite Americans During a Divisive Election Year: Moments of unification and commonality during a divisive election year are few and far between, but one of them is happening right now, thousands of miles away. [USA Today]
• The Voyage of The Altar Stone: A Stonehenge Mystery Solved (Maybe): Researchers revealed that the long-mysterious Altar Stone at the heart of the world’s most famous prehistoric monument came from faraway Scotland. [Washington Post]
• Early Halloween Push Driving “Summerween” Trend: There’s a race to move out holiday merchandise early, aiming to get shoppers ready well in advance and, ideally, pushing them to spend more money. [Axios]
• Need a Cheese Plate at 4 a.m.? There’s a Vending Machine for That: Forget the bag of chips. The longtime snack dispensary is now spitting out cupcakes…and meat? [WSJ]

 

 

The Food at Home CPI tracks fluctuations in the prices of groceries purchased for home consumption. As shown in the chart above, there has been a notable decline in this index over the past two years.

The Tyranny of Inertia

By acting knowingly and intentionally, we improve our chances of success.

“Nearly a third who rolled savings into IRAs at Vanguard in 2015 still had the balance sitting in cash seven years later” goes a July 22^nd Wall Street Journal article entitled “The 401(k) Rollover Mistake That Costs Retirement Savers Billions.”

I read this in utter shock and disbelief. How could such an enormous mistake, so easily avoided, be possible? It defies all logic. While the consequences are purely financial, thinking only financially is insufficient. Rather, we must repurpose concepts from physics to understand what happened and how to avoid making similar mistakes. Don’t worry, there won’t be any math.

Inertia is clearly at play here. According to Sir Isaac Newton, “every object perseveres in its state of rest, or of uniform motion in a right line, except insofar as it is compelled to change that state by forces impressed thereon.” Simply put, an object at rest stays at rest, and an object in motion stays in motion, unless acted upon by an outside force. A ball sitting on a beach would remain so, until kicked or blown. Once moving, it would not stop but for friction with the sand and the surrounding air.

Though a quantifiable property of the physical world, inertia has parallels relevant to the practice of protecting and building wealth. Money rolled into an individual retirement account, as in our opening example, will sit, unmoving, in cash indefinitely until a decision (the outside force) is made to invest it. Similarly, once invested, money remains in motion until acted upon by a decision to stop the investment.

Depending on the circumstances, inertia may or may not be desirable. It is neither always good nor always bad. In the short run, not investing may be a good idea. In the long run, however, not investing is a terrible idea. No investment strategy is always good. Conditions are ever changing.

Deliberate attention is imperative. Elsewise, inertia dictates the default state even as the basis upon which decisions were initially made, or not, no longer prevails. If you are not watchful, inertia will cost you dearly, as it did for the 30% who never invested cash deposited into their IRA during 2015 while the stock market went on to return nearly 120% through 2022.

Overcoming inertia is challenging. To do so requires force. In the physical world, force is that kick or gust of wind mentioned earlier. In investing, force is a decision. Making that decision requires time, effort and mental energy. It is draining even in an optimal situation. Things are never optimal, however. Investment decisions are always made in the face of uncertainty and deciding poorly can have significant consequences. Cognitive biases such as loss aversion, confirmation bias, the sunk cost fallacy and a preference for the status quo, to name just a few, make it even harder. It is no wonder some decisions don’t get made.

william hill live blackjackFortunately, we can borrow another concept from physics – friction – to help overcome inertia. Friction is the force that resists motion. If an object is at rest, it requires less force to move if we reduce friction. This is what Vanguard’s policy research recommends. Cash is deposited into an IRA and needs to be invested. By automatically investing the cash into a qualified default investment alternative no decision needs to be made. Any friction was eliminated. Such an extreme is unrealistic though. Usually, the best possible outcome is to reduce friction enough to ease the necessary decision.

Conversely, if an object is moving we need to increase friction to stop it. Once an investment decision is made it will remain in effect until another decision is made. Even if the decision is to do nothing, increasing friction to force a decision prevents an investment made in one set of circumstances from unknowingly continuing long after circumstances have changed. A scheduled, periodic review of your investments, whether it appears necessary or not at the time, can prevent this.

There are a myriad of ways to control friction to overcome inertia, limited in scope only by your creativity. The inertia-friction concept is also applicable to many different aspects of life. Perhaps you are looking to form a new habit or stop a bad one. Or maybe you are trying to generate change in your community, business or some other organization. It can even be used effectively as a sales tactic or business strategy. Why else does everything seem to be paid for via monthly auto-renewal these days? Regardless of how or where you employ friction to your advantage, simply being aware of inertia and its great, though often overlooked, power is a step in the right direction.

Protecting and building wealth requires making good decisions. The chief prerequisite for making a good decision is to make a decision. Inertia, a concept from physics describing the tendency for objects to stay in their present state until acted upon by an outside force, helps us understand why necessary decisions sometimes do not get made. Whether the neglected decision is a choice to start doing something or a choice to stop doing something makes no difference. The long-term consequences can be meaningful.

Inertia is overcome by manipulating friction to your advantage. When a decision must be made, reducing friction makes it easier for that to actually happen. When a decision has already been made, increasing friction ensures it remains the correct one rather than remains so by default. By acting knowingly and intentionally, we improve our chances of success.

Thoughts? I would love to hear them. Email me at investmentinsights@zuckermaninvestmentgroup.com.

Written By Keith R. Schicker, CFA

Wealth Management News & Insights

529 Accounts, CrowdStrike Shares Plunge, Evan Gershkovich Among 24 Prisoners Exchanged

 

 

Primary Sources

• Federal Reserve Issues FOMC Statement: Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have moderated, and the unemployment rate has moved up but remains low. [FRB]

 

Financial Markets

• CrowdStrike Shares Plunge 11% to Lowest Level of the Year on Report That Delta May Seek Damages: The company has now lost one-third of its value since July 19, when a historic outage of Microsoft systems, caused by a software update from CrowdStrike, knocked numerous industries offline, including airlines. [CNBC]
• Microsoft, Apple, Meta Set to Report in Busy Earnings Week: A quartet of big tech companies is set to report results during a busy week for earnings, and after a selloff among the “Magnificent Seven” hit the Nasdaq. [WSJ]
• Diapers Are a Drag for P&G Earnings; Stock Slides: The consumer giant said it has introduced a revamped version of its mid-priced Luvs diapers, after market-share losses dragged down sales for its baby, feminine and family care business. [WSJ]
• Bank of England Cuts Rates After Fed Held Off: U.K. central bank lowers key rate for the first time since 2020, a day after the Fed kept rates at a two-decade high. [WSJ]

 

 

The charts above provide an overview of personal saving rate trends. As of June 2024, the personal saving rate is recorded at 3.4% and there is approximately $400 billion in excess savings.

 

Financial Planning

• Credit Card Swipe Fee Suit Will Continue, Nearly 2 Decades Since It Started: In 2005, the same year Google Maps and Wedding Crashers graced the world, four merchant associations filed the antitrust, class action. [Morning Brew]
• You Inherited an IRA. Here’s How to Avoid a Huge Tax Bill: People who inherited retirement accounts in recent years finally have guidance from the Internal Revenue Service on how to drain their accounts. A few strategies can help you avoid handing over more than necessary to the IRS. [Barron’s]

 

Business Strategy

• Southwest To Get Rid Of Open Seating, Offer Extra Legroom In Biggest Shift In Its History: Southwest Airlines is ending open seating and will offer extra legroom seats on its airplanes as mounting pressure on the carrier to increase revenue prompts the biggest changes to its business model in its 53 years of flying. [CNBC]
• Amazon Pushes Fast Delivery Into Rural Areas in Challenge to Post Office: E-commerce giant is expanding into remote areas after years of fine-tuning its delivery systems in more dense cities. [WSJ]
• A Few Blockbuster Podcasts Are Making All the Money: The top shows are adding video, merchandise and live tours and signing megadeals with Spotify, Sirius and Amazon. [WSJ]
• Chevron Dumps California for Texas After 145 Years: Chevron Corp., based in California since the days of kerosene lamps, is moving headquarters to Texas after years of fighting Golden State officials over strict environmental policies and costly regulations. [Bloomberg]
• Washington Post C.E.O.’s Last Company Lost Millions Betting on Gen Z: The Post is creating a division under Will Lewis, its C.E.O., to find valuable audiences in new places. His last company shows that’s a tough road. [NYT]
• NBA Says It Has Signed New 11-Year Media Rights Deal With Disney, NBC And Amazon: The NBA signed its 11-year media rights deal with Disney, NBC and Amazon Prime Video on Wednesday after saying it was not accepting Warner Bros. Discovery’s $1.8 billion per year offer to continue its longtime relationship with the league. [AP News]

 

 

Following the new NBA renewal cycle, the league is set to achieve a 2.6x increase in value compared to the pervious cycle. Additionally, the NBA has established a new partnership with Amazon, which will enhance their reach by tapping into the Amazon Prime user base.

 

Life & Work

• Simone Biles Wins Olympic All-Around Title; Bronze For Suni Lee: Simone Biles remains peerless — even when she’s not quite perfect. The American gymnastics star held off Brazil’s Rebeca Andrade during a tense Olympic all-around final Thursday. [ESPN]
  
• There’s a LeBron of Table Tennis. His Name Is Lebrun: China’s table-tennis dominance is being challenged at the Paris Olympics—by a 17-year-old French sensation with an unusual playing style. [WSJ]
  
• The Olympic Flame Isn’t a Flame at All: Two torches may have lit it to open the Paris Games, but that’s not a fire in the cauldron. [NYT]
  
• Inside the Secret Negotiations to Free Evan Gershkovich: The effort to bring home The Wall Street Journal reporter and others unfolded on three continents, involving spy agencies, billionaires, political power players and his fiercest advocate—his mother. [WSJ]
  
• Evan Gershkovich Among 24 Prisoners Exchanged in Massive Russia-West Deal: The biggest prisoner exchange between Russia and the West since the Cold War era took place earlier on Thursday, with 24 people released in total, the US has confirmed. [BBC]
  
• Wrigley Field View Set to Undergo Major Change: The view beyond the outfield at Wrigley Field is about to undergo a major change after the Chicago City Council approved a plan to replace three buildings just beyond right field with a single five-story apartment building. [Reuters]

Why You Should Consider Opening a 529 Account

 

Widely Used & Accessible

For many American families 529 college savings plans are an excellent way to grow funds for their children’s higher education and get a tax break along the way.   This Federal program has become extremely william hill live blackjackpopular, holding more than an estimated $400bb with about 16mm families participating.   Almost every large asset custodian such as JP Morgan, Schwab, Vanguard and Fidelity offers a  simple web-based means to open and manage these accounts. You then have many standard  investment fund options to pick from.

Main Advantage

Investment returns earned inside a 529 incur no taxes and withdrawals for designated college expenses are not taxed either.  In addition, many states, though not the federal government, allow the deduction of contributions when calculating taxable income.

Key Drawbacks

Once funds are placed into a 529 plan, a “non-qualified” withdrawal will trigger a payment of taxes on any income and appreciation plus a 10% federal tax penalty and possibly additional state penalties.   Broadly speaking, you should  only contribute funds you don’t plan to use for anything but higher education, though there are some important exceptions (see below for one of them).   In addition,  funds inside a 529 account may reduce the amount of financial aid a student is eligible for, depending on rules at each institution.

How Much Can I Contribute?

To avoid incurring gift taxes, standard  yearly contributions to a single beneficiary must stay under $18,000 from an individual or $36,000 from a married couple.  However,  there is a ‘five year lump sum rule’  that accelerates funding, enabling up to $180,000 in an immediate, tax  contribution by a married couple.

Additional Advantages

*Easy changes of ownership and beneficiary

In general, the owner of a 529 can transfer ownership to another family member.  For example, a parent could switch ownership to a spouse or to an adult child.  Moreover,  while a 529 plan only has a single beneficiary at any given time, you can change the individual easily  or roll over excess funds from one 529 account to another, for example, between siblings.

*Plans not part of owner assets

In most situations, 529 plans are not considered part of an owner’s personal wealth or estate.  They are, thus, in most circumstances shielded from any legal action against the owner and do not incur estate taxes.

*$10k Yearly Tuition Payment at K-12 Schools

Due to a change in federal rules, funds in 529 accounts are now eligible to be used to educate younger beneficiaries. However, individual state rules may limit the advantages from these withdrawals.

Further Information

As with all federal programs, 529 plans are governed by a fairly complex set of rules as outlined by the IRS.  Each state sponsor also establishes its own guidelines.  Before moving ahead, it is important to consult the details of both IRS regulations and the individual state plan you are choosing.  You can opt to use any state program no matter where you live or where the beneficiary intends to go to college.   There are usually extra tax advantages to using the program from the state where you reside.

Written By David L. Frank, CFA

 

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The information provided in this article is for informational purposes only and does not constitute financial advice. While the insights and opinions expressed are based on professional experience and current market knowledge, they are not a guarantee of future performance. Readers should consult with a qualified financial advisor to discuss their specific investment needs and objectives before making any investment decisions. The information contained in this article has not been filed with, reviewed by or approved by the SEC or any other United States regulatory or self-regulatory authority.

 

A Collection of Loosely Related Thoughts on GameStop

Better to learn vicariously than experientially.

Well, GameStop is back in the news. I write that sentence with something of a resigned sigh. I had hoped we were past all that craziness. Alas, it would seem not. For the vast majority of us, this is something of little consequence to be safely ignored. For those of us who write about finance, however, this is a tremendous opportunity. There is much to learn from these examples of market zaniness. What follows is a collection of loosely related thoughts toward that very end. Better to educate ourselves vicariously than experientially.

First, some background. GameStop is a bricks-and-mortar retailer selling video game systems, software and accessories and a wide range of collectibles. Its business has been under considerable competitive pressure for some time, increasingly from online retailers and, most recently, digital software downloads. Revenue has not grown consistently since 2012 and the company is no longer profitable. Up until early 2021, its share price reflected this fundamental reality, declining 93%, from $14.40 in November 2013 to roughly $1.00 in mid-2020.

In January 2021, however, GameStop became the most prominent “meme stock” and saw its share price momentarily skyrocket to $483 during a short squeeze instigated by retail traders over social media. I won’t go into all the detail here. If you’re curious, the Wikipedia page is very thorough. Nevertheless, it was all a big deal at the time. Fines were levied. People were fired. Books were written. Movies were made. Congressional hearings were held. And then things quieted down. Keith Gill, the chief protagonist of the saga, disappeared from social media.

On May 12^th, however, GameStop leapt back into the headlines. Mr. Gill posted a wordless meme, not even referencing GameStop, to his X (née Twitter) account. Naturally, this was enough to send shares soaring almost 180%. In one day. On June 6^th, Mr. Gill announced a live stream to be held the following day. Shares climbed almost 50% in response.

If you haven’t figured it out by now, crazy stuff happens all the time in financial markets. Most recently, all it took was a picture of a dog, posted by Mr. Gill of course, to send shares in Chewy, Petco and PetMed Express sharply higher. Let me repeat that. A picture of a dog momentarily created over $4.5b of value. I like to say that investing is as much social and psychological as it is financial. This is the social element at work. These share price movements have nothing to do with the underlying business. They are entirely predicated on people seeking to profit from what they think other people will do. This kind of behavior, in varying forms to varying degrees, is far more prevalent than you would think.

These social interactions in the market influence the price of a share, an observable fact. But shares also represent a fractional ownership of the underlying business, the value of which can only be estimated and is independent of the share price. At any given time, the share price can be greater than, less than or equal to its estimated value.

Share prices are typically set by investor sentiment, the whims and fancies of the marginal buyer and seller. Sometimes such behavior is speculative in nature. Value, to the contrary, is based on a thorough analysis of the fundamentals, the actual and expected cash flows of the underlying business. In the short term, sentiment and speculation can have an outsized impact on a stock’s price. In the long term, however, considered investment decisions based on the fundamentals eventually prevail.

Disequilibrium between price and value can persist for quite some time though. These excesses can present great danger to those who aren’t careful but also, in due time, great opportunity for those who are. Sell when speculators have bid up share prices beyond the underlying business value and buy after prices eventually come crashing down to earth. Buy when short-term investors have artificially depressed the share price and sell when the price rises to better reflect the long-term value. For the purposes of protecting and building wealth, investment decisions are best made primarily on price in relation to value rather than solely on price in relation to a hoped-for future price.

The short-term volatility created by this type of market behavior perfectly illustrates why equities should be at the bottom of your asset allocation stack. By structuring your assets to invest for the long term, short-term gyrations in share prices, william hill slot gameswhich are driven by volatile forces in ways too difficult to understand, can safely be ignored. Structured improperly, you could suffer dearly and needlessly if forced to sell for liquidity reasons at the wrong time. Structured properly, you are free to sit tight and capture the higher expected return over time that comes from holding more volatile assets. You need act only when you choose to, consistent with achieving your goals, rather than when circumstances dictate.

Comparison with others, a desire for conformity and the fear of missing out all ensure that social factors will always create volatility. Those who endeavor to protect and build wealth, however, must always keep in mind that such impulses are predicated on an ephemeral and illusory reality. We only read news stories about the winners. This skews our perspective and we overestimate our prospects for success. Often there are far more losers with far greater losses in aggregate.

Recall it is the marginal, or most recent, trade, often encompassing just a tiny, tiny fraction of the total shares outstanding, that sets the price for all the shares. We discussed this dynamic at length when learning from Vinfast last September. It is literally impossible for everyone to sell their GME shares at the intraday high of $483. The fantastical net worth of others at that price that you read about was never real.

Investing primarily from a social perspective is a dangerous game to play. You have to get the timing right twice, when you buy and when you sell. Then you need to do this successfully again and again and again over time. Leverage is typically employed as well to magnify the hoped for influence on others and ensure that when you win, you win big. It also ensures that when you lose, you lose everything. You must pay very close attention to your downside if you play this type of game.

From our perspective, leverage should generally be avoided. It is more important to protect, then grow, your capital. Small gains, if sustained and compounded over time, can produce tremendous long-term returns.

Social forces are ever present in financial markets and can be powerful. They can propel share prices far above (or below) the value of the underlying business and sustain that discrepancy for some time. Protecting and building wealth requires making investment decisions with this value always in mind. By placing equities at the bottom of your asset allocation stack, you are able to turn this volatility from a risk into an opportunity. These forces are a part of human nature, but we must put them in the proper perspective to resist and remain focused on achieving our long-term goals. While market zaniness is certainly entertaining, it is a risky game to play. Protecting and building wealth is best accomplished slowly and unspectacularly.

Thoughts? I would love to hear them. Email me at investmentinsights@zuckermaninvestmentgroup.com.

Written By Keith R. Schicker, CFA

Nothing is Riskless

Too little risk is another type of risk.

This will be a relatively shorter, more focused column. It’s been a busy month, but I wanted to keep up the habit nonetheless. If you think I write too much, you’re welcome. If you enjoy reading ~2,500 words on things like volatility or asset allocation, my apologies. I don’t plan on making this a habit – I want Investment Insights to remain a forum for deeper, more deliberate thought – though, in a world of shrinking attention spans, perhaps this style will be better received. We won’t know until we try. Here goes…

At the highest level of abstraction, investing is simply about return and risk. Any topic that I have covered or will cover can ultimately be distilled to either or both. This will be a risk column. More specifically, about “playing it safe,” which can actually be quite risky. Let’s explore why.

Any act of investing requires an objective. For most of us, investing is a means to ensure a comfortable retirement. Sometimes it is about buying a home or providing for your children’s education. Institutions are no different. Pension funds have obligations to plan participants. Charities and non-profits must support their mission. Whatever it may be, the objective determines the destination.

How you get there is by taking risk in expectation of a commensurate return. There is no return without risk and the two are positively correlated. A higher return requires assuming more risk. Avoiding risk means accepting a lower return. Return is what you need to reach your objective. Risk is the “price” you pay to get it.

When people fail to meet their investment objective, the stereotypical explanation is usually significant losses from taking too much risk (or, by association, pursuing too much return). This certainly happens. However, not taking enough risk (implicitly pursing too little return) is more damaging and perhaps even more prevalent, but gets far less attention. Either way, you don’t get what you need. The key difference is that sometimes taking too much risk still works out (doing so is still not recommended), while taking too little risk guarantees that you will fail. The latter appears benign, but is in fact far more pernicious.

Like many things in life, the best possible outcome here requires finding balance. In this case, between three competing factors. One, the amount of risk you need to take to meet your objective. Two, the amount of risk you are willing to take. And three, the amount of risk you are able to take. Complicating things further, each amount can only be estimated, nor are they static. Perhaps a future, lengthier column will explore how and why.

The right balance depends on your unique personal situation. Different solutions are required depending on which factor is most constraining. The risk from “playing it safe,” for example, arises when your willingness to take risk is less than both your ability and what is required to meet your objective. From an investing perspective, this is one of the least bad problems to have but still a very real problem. To achieve harmony, either your objective must become more modest (which may not be desirable), you must invest a greater amount (which may not be possible), or your understanding and conception of risk must evolve to increase your willingness. The last of these is easiest to change.

That’s just one of many, many permutations. In almost every case, something has to give. In this case it may be your desire to “play it safe,” your hesitance to take risk that you have ability for. Successfully protecting and building wealth rests on a deep understanding of each factor and knowing the tradeoffs between them. Achieving and maintaining the best possible equilibrium requires skill and experience. No small feat for sure, but worth the risk.

Thoughts? I would love to hear them. Email me at investmentinsights@zuckermaninvestmentgroup.com.

Written By Keith R. Schicker, CFA

Wealth Management News & Insights

There’s Not Enough Power for America’s High-Tech Ambitions, The Downside of Delayed Gratification, Netflix NFL Megadeal

 

 

Primary Sources

• Minutes of the Federal Open Market Committee: The manager turned first to a review of developments in financial markets. Domestic data releases over the intermeeting period pointed to inflation being more persistent than previously expected and to a generally resilient economy. [FRB]

Financial Markets

• There’s Not Enough Power for America’s High-Tech Ambitions: Georgia is a magnet for data centers and other cutting-edge industries, but vast electricity demands are clashing with the newcomers’ green-energy goals. [WSJ]

• Can the Rich World Escape its Baby Crisis: The drop in birth rates, which occurred over the span of a single generation, was a stunning success. That was until it carried on. And on. [Economist]

• Inside the Rent Inflation Measure That Economics Nerds Love to Hate: The Consumer Price Index inflation measure accounts for housing costs in a complicated way. There are reasons for it. [NYT]

• Capital Group and KKR Partner to Offer Private Assets to Wider Audience: World’s largest active asset manager and buyout firm to make available hybrid public-private funds to wealthy investors. [FT]

 

 

The chart above illustrates the percentage change in the Consumer Price Index (CPI) for selected categories compared to the corresponding period one year ago. Leading the trends are motor vehicle insurance, hospital services, and motor vehicle maintenance and repair, showcasing william hill live online casinothe most significant shifts in CPI.

 

Financial Planning

• The Downside of Delayed Gratification: We’re all told that it pays to be disciplined in our spending and consumption. But the advice can backfire. [WSJ]

Retirement Planning

• Was the 401(k) a Mistake: The first generation to be fully reliant on 401(k) plans is now starting to retire. As that happens, it is becoming clear just how broken the system is. [NYT]

Business Strategy

• Netflix Spikes the Football: Behind Its NFL Megadeal: What’s the cost of a game on the streaming giant? About $75 million each. [Hollywood Reporter]

• NCAA Agrees to Share Revenue With Athletes in Landmark $2.8 Billion Settlement: Breaking with more than a century of policy, the NCAA will pay billions in damages to former athletes and allow schools to pay athletes up to $20 million a year. [WSJ]

• Google’s Moonshot Factory Falls Back Down to Earth: Alphabet is ending an era of unrestrained invention, spinning off many projects into independent startups. [Bloomberg]

• U.S. Calls for Breakup of Ticketmaster Owner: Accused of violating antitrust laws, Live Nation Entertainment faces a fight that could reshape the multibillion-dollar live music industry. [NYT]

• The Architect Who Made Singapore’s Public Housing the Envy of the World: With a focus on affordability, community, convenience and light, Liu Thai Ker replaced squalid slums with spacious high-rises. A recent spike in some sale prices, however, has saddened him. [NYT]

 

 

The above chart shows that cards opened in 2021 have a much worse trajectory than earlier “vintages” at same point in life cycle.

 

Life & Work

• Newly Discovered Planet May Be Able to Support Human Life: The study, published in Monthly Notices of the Royal Astronomical Society on Thursday, named the new planet Gliese 12 b. Scientists said in the study that the planet is “the nearest, transiting temperate, Earth-sized planet found to date.” [Time]

• It’s the Most Expensive Team in Sports—but the Best Player Came for Free: Phil Foden has been a Manchester City player since the Under-9 team. But even in a squad of expensively acquired international talent, he turned into the club’s player of the season. [WSJ]

• Hacking Phones is Too Easy. Time to Make it Harder: Regulators have avoided the problem for too long. [Economist]

• Brace Yourselves. These Are the Hurdles for Air Travelers This Busy Summer: If you’re expecting to take to the skies this summer, you should also expect lots and lots and lots of companionship. And a few hurdles, too. [CNN]

• The Best Films of 2024, So Far: Our critics pick nine films that they think are worth your time on this long holiday weekend. [NYT]

Wealth Management News & Insights

FTC Announces Rule Banning Noncompetes, The Shift to Clean Energy, Good Consistently is Great Eventually

 

 

Our Work

Investment Insights – Keith R. Schicker, CFA, Partner & Portfolio Manager

• Good Consistently is Great Eventually: If you limit losses, small gains eventually compound into large sums. [Investment Insights]

 

Primary Sources

• The April 2024 Senior Loan Officer Opinion Survey on Bank Lending Practices: While banks, on balance, reported having tightened lending standards further for most loan categories in the first quarter, lower net shares of banks reported tightening lending standards than in the fourth quarter of last year across most loan categories. [FRB]

• FTC Announces Rule Banning Noncompetes: FTC’s final rule will generate over 8,500 new businesses each year, raise worker wages, lower health care costs, and boost innovation. [FTC]

 

Financial Markets

• About the ‘T+1’ Rule Making US Stock Trades Settle in a Day: Even in an age of instant communication and live financial data, investors still have to wait days to take ownership of the stocks they purchase or to receive payment for the stocks they sell. That’s about to change. [Bloomberg]

• SEC Wins Trial in Novel ‘Shadow’ Insider Trading Crackdown: The US Securities and Exchange Commission won a jury verdict in its ground-breaking insider-trading case that seeks to bar employees from using non-public information about their own company to place bets on rival stocks. [Bloomberg]

• The Fed Is Looking for a Job Market Cool-Down. It Just Got One: Wage growth and hiring slowed in April, evidence of the job market slowdown that Federal Reserve officials have been waiting on. [NYT]

• Office-Loan Defaults Near Historic Levels With Billions on the Line: Over $38 billion of U.S. office buildings face loan defaults, foreclosures or other forms of distress, the highest amount since 2012. [WSJ]

• Private Equity’s Unlikely Champion for Giving Workers a Leg Up With Employee Ownership: Fifty years ago, CEOs earned around 20 times the median worker salary. Today’s CEO can make in a day what the average laborer earns in a year. [CBS]

 

 

The above chart offers a glimpse into the top 10 largest stocks in the US across select years from 1969 to 2023. Starting in 1969, the corporate landscape characterized by IBM, AT&T and Exxon Mobil. Fast-forwarding to 2023, tech titans like Apple, Microsoft and Alphabet dominate the field.

 

Financial Planning

• The New Math of Driving Your Car Till the Wheels Fall Off: Drivers rethink the optimum number of years to hold on to a car as the costs of ownership increase. [WSJ]

Retirement Planning

• Who Can Be Trusted for Retirement Advice? New Rules Strengthen Protections: More investment professionals will be required to act in their customers’ best interest when providing advice about their retirement money. [NYT]

Tax Planning

• What Is the Alternative Minimum Tax? The alternative minimum tax (AMT) applies only to some taxpayers. Learn what the AMT is, who might be affected, and what might trigger it. [Schwab]

Business Strategy

• How Nike Won the Battle for Caitlin Clark: Some of the world’s biggest shoe brands made a run at the Iowa superstar. The swoosh prevailed by offering an Olympic-sized deal. [WSJ]

• Neutrogena Lost Dermatologists and Missed Out on the $42 Billion Beauty Boom: The brand’s parent company has seen its skin care market share plummet to less than 14% last year from nearly a quarter in 2019. [Bloomberg]

• For AI, a Few Seconds of Power Becomes a Booming Business: Expansion of data centers fuels demand for generators and battery backups: ‘You cannot have downtime’. [WSJ]

• How Big Data Centers Are Slowing the Shift to Clean Energy: In Virginia’s data-center alley, rising power demand means more fossil fuels. [WSJ]

• Air Conditioning and AI Are Demanding More of the World’s Power—Renewables Can’t Keep Up: Renewables can’t keep up with growth, which means more coal and more emissions. [WSJ]

 

Following the enactment of the Clean Air Act Amendments in 1990, America’s electricity mix remained relatively stagnant until the period of 2010-2020. During this decade, there was a notable decline in coal power generation. There is a promising trend indicating potential increases in solar, gas, and wind energy sources, while coal power is anticipated to continue its downward trajectory.

Life & Work

• Foxtrot and Dom’s Face a Lawsuit While Former Vendors Scramble For Solutions: The debris continues to fall in Chicago where earlier this week, the city saw all 15 Foxtrot convenience stores and two Dom’s Kitchen & Market locations suddenly close. [Eater]

• China Pledges a Pair of Pandas to The United States For The First Time in Decades: China for the first time in more than two decades is sending pandas to the United States. The San Diego Zoo is preparing to receive Yun Chuan and Xin Bao. [USA Today]
• ‘Finance Bro’ Outfits Desperately Need an Update. We Have Fixes: Many corporate guys default to drab fleeces, stretchy chinos and clunky running shoes. It doesn’t have to be that way. Pros offer easy wardrobe upgrades. [WSJ]

Good Consistently is Great Eventually

If you limit losses, small gains eventually compound into large sums.

 

An underlying theme of Investment Insights this year has been comparison. This is more happy coincidence than intentionally planned, but nonetheless valuable. Comparison of prior performance, comparison of a forecast, comparison of yourself – each column builds upon the last. While March’s lesson was more theoretical, April’s wisdom is more practical.

A unique attribute of building wealth is that, to have an exceptional long-term outcome, you need not be exceptional at all along the way. Rather, it is more important to simply avoid being terrible. This is rare. There are a few things in life where steady progress yields exponential growth, William Hill online betting apptechnological advancement comes to mind, but not many. In professional sports, for example, consistency without greatness gets you a long career, but not into the hall of fame.

This is a consequence of how compounding works. I’ve shared this with clients many times over the years, but never I feel with sufficient clarity. Perhaps the long-form and enduring nature of this format will prove better.

As gains accrue from prior gains, sustained small advances compound into something far greater, if – and this is a big if – you can avoid large and / or permanent losses. Consistency is far more important than periodic greatness. You do not have to own the best performing investment each year (though that doesn’t hurt every now and then). You may never compare well in the short run, but protecting and building wealth is about the long run.

The data prove it. The table below is an asset returns quilt. It appears chaotic, but allow me to explain. Each column is a calendar year. Each colored block within each column represents the performance of the stated asset class during that year, ranked from high to low. For example, in the top left corner, Large Cap Growth stocks had the highest return during 1998, 37%.

Don’t worry about reading each individual word and percentage though. The point is to focus on the movement of the colors up and down from left to right across time. Each color represents a different asset class. If you focus on the colors, rather than the words and numbers, you can follow the ups and downs of each asset class over time, the intended purpose of the table. For example, Large Cap Growth stocks were the best performing asset class during 1997 and the second-worst during 2002.

There is further method to this colorful madness. The various shades of orange represent growth stocks, the various blues value stocks and the two greens cash and bonds. Within both the orange and blue palettes, the darker shades represent large stocks, the standard tone small stocks and the two lightest hues developed and emerging market international stocks.

 

 

It is easiest to understand the purpose of the table if all but one asset class is grayed out. Below, only Large Cap Growth remains colored. You can now clearly see the strong performance during the Tech Bubble (1997-1999), followed by more than a decade of weak performance (2000-2010) before a resurgence toward the top of the table beginning in 2013.

 

 

International stocks, both developed and emerging, show a similar up and down pattern. For an eight-year stretch, beginning in 2002, international stocks were strong performers. Since then, however, it has been a different story with international stocks largely relegated to the bottom half of the table.

 

 

One last example, this time cash and fixed income securities. These two are hit or miss – typically near the bottom of the table, except for during bad equity markets when they rise to the top.

 

 

A key learning from this exercise is that no asset class outperforms all others all years. Eight of the ten shown were the best for at least one year and all ten have been within the top two at one point. Yet all ten have also performed below average for multi-year stretches. Trying to own the best-performing asset class every year is perhaps impossible. It is very often counterproductive as well. Asset classes that have performed relatively well and attracted investment tend to perform relatively poorly shortly thereafter and usually to the same extent. This behavior is called performance chasing, a rich topic with many implications best suited to its own column.

Perhaps more important, though, is what we learn by looking at the cumulative performance of each asset class across time. Large capitalization growth stocks, currently on a hot streak, have pulled away somewhat. Knowing we can’t always own the “hot” asset class, how would our illustrative “good, not great” investment strategy fare? What if you could match the performance of the fourth-best asset class each year? Where would your cumulative result fall?

Well, if you compounded the results of an annual fourth-place finish – never great but never bad either – you would end up in first place after 20 years. And not just by a nose either, by a margin of nearly 75%. If you fared a little worse and finished fifth each year you would have ended up third overall, still very respectable despite never being much above average.

 

 

With such great potential, why is this approach seemingly so rare? First, though the bar is lower, there is still no guarantee of success. Perhaps better to aim high then. Second, there are psychological challenges. No one likes to “lose” every year and compare poorly to others (we covered this last month). Third, humans do not intuitively understand compounding and tend to underestimate its long-term effects. Fourth, it is a challenging business strategy. “We’ll be fourth best every year” isn’t exactly the best sales pitch.

This is why discipline is important to protecting and building wealth. Can you resist the pressure to change an effective long-term approach when it does poorly in the short term, as it inevitably will? Can you stay resolute when everyone around you is racing ahead? The only comfort is knowing those at the top often don’t stay long and the ensuing fall can be severe.

Success requires combining a risk-first approach – protect, then build – with balance and flexibility. A 50% loss requires a 100% gain just to get back to where you were before. Best then, from a long-term perspective, to position yourself to do relatively okay in just about any environment rather than take the risk of performing catastrophically in one specific environment. If you limit losses, small gains eventually compound into large sums. When it comes to protecting and building wealth, good consistently is great eventually.

Thoughts? I would love to hear them. Email me at investmentinsights@zuckermaninvestmentgroup.com.

Written By Keith R. Schicker, CFA

Wealth Management News & Insights

JPM’s CEO Letter to Shareholders, Hash Out the Inheritance Now, Americans Throw Away $68M in Coins a Year

 

 

Primary Sources

• JPMorgan CEO Dimon’s Letter to Shareholders: The JPMorgan Chase chief executive used his annual letter to shareholders to flag higher-for-longer inflation, uncertain growth prospects and widening political divisions. [JPM]

 

Financial Markets

• The ‘Supercore’ Inflation Measure Shows Fed May Have a Real Problem on Its Hands: A hotter-than-expected consumer price index report rattled Wall Street Wednesday, but markets are buzzing about an even more specific prices gauge contained within the data — the so-called supercore inflation reading. [CNBC]
• Why Car Insurance Costs are Skyrocketing and Leading to Higher Inflation: On a monthly basis, car insurance prices as part of the consumer price index rose by an unadjusted 2.7%, while the year-over-year increased by 22.2%, according to data released Wednesday. [CNBC]

 

 

The preceding chart highlights the evolution of the financial sector’s scale across the years 2007, 2010, and 2023. The global Gross Domestic Product (GDP) attributable to banks within the financial system increased from $61.7 trillion in 2007 to $92.4 trillion in 2023.

 

Financial Planning

• Hash Out the Inheritance Now, or Fight Your Family Later: The toughest part of estate planning isn’t writing the will, but talking about it openly with the family. [WSJ]
• Buyers Are Back in Control as Luxury Home Sellers Slash Prices: Asking prices for high-end properties are being reduced at the highest level since 2017. [WSJ]
• Should You Buy a Hybrid Car? Here’s What You Need to Know: As sales of electric vehicles fail to live up to some expectations, hybrids have taken off. Here are answers to the questions many car buyers have. [WSJ]

 

Business Strategy

• Inside Amazon’s Secret Operation to Gather Intel on Rivals: Staff went undercover on Walmart, eBay and other marketplaces as a third-party seller called ‘Big River.’ The mission: to scoop up information on pricing, logistics and other business practices. [WSJ]
• 5 Ways Executives Can Manage Conflict with the Board: High stakes, strong wills, and increasing uncertainty can make decisions at the top of your organization fraught. [HBR]
• Netflix is Trying to Prove to the World That it’s All Grown Up: In the early stages of life, a key metric is growth. As children age, their parents measure precisely how much they are flourishing in size, using charts to keep close eyes on and document the journey. [CNN]

 

Life & Work

• A Day in the Life of a Walmart Manager Who Makes $240,000 a Year: Nichole Hart walks 20,000 steps as she searches for super glue, encounters a disappointed Snoop Dogg fan and juggles staff; ‘The hardest thing is the uncertainty’. [WSJ]
• Paris Prepares for 100-Day Countdown to the Olympics. It Wants to Rekindle Love for the Games: In 100 days as of Wednesday, the Paris Olympics will kick off with a wildly ambitious waterborne opening ceremony. But the first Games in a century in France’s capital won’t be judged for spectacle alone. [AP News]
• There Are Plenty of Power Publicists. But Only One Works for Taylor Swift: From ‘1989’ through ‘The Tortured Poets Department,’ she has fiercely guarded Swift’s reputation: ‘The devil works hard, but Tree Paine works harder’. [WSJ]
• The Best and Worst Habits for Eyesight: Are carrots good? Is blue light bad? Experts weigh in on nine common beliefs. [NYT]
• There’s Been an Airplane Emergency. Here’s What Flight Attendants Do Next: Some air passengers may believe that the job of a flight attendant is all about ensuring the comfort of travelers — serving meals and refilling drinks — and keeping the peace 35,000 feet up in the air. [NYT]
• Americans Throw Away Up to $68 Million in Coins a Year. Here Is Where It All Ends Up: So much change ends up in the trash that one company is digging them up for profit. [WSJ]

 

 

According to the chart above, the penny costs about three times its value to make.