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The Top Ten Films with a Financial Lesson
Recently we were thinking about movies with some kind of financial lesson. The financial side of making films has always intrigued us. Historically the Oscars have always been proof that the biggest budget doesn’t always give the best ROI. In 2010, the lowest grossing Oscar winning film in history – The Hurt Locker – beat out the highest grossing picture in history – Avatar.
Here’s my list of the top 10 movies ever made that have a financial lesson inside of them.
1. Boiler Room (2000) – A college dropout gets a job and enjoys fast success at a brokerage house selling phony stock. However, the job turns out not be as legit as it sounds. This film is mix of Wall Street and Glengarry Glen Ross thrown in. Although there’s no character here that can compare to Michael Douglas’ Gordon Gekko.
Lesson: Great morality lesson dealing with the desire to get rich quick, regardless of the consequences.
2. Wall Street (1987) – “Greed, for lack of a better word, is good”. This line by ruthless corporate raider, Gordon Gekko, summed up the business ethics of the 1980s, when greed, corruption and the predatory nature of the financial world was at its most conspicuous. The film charts the ascent of a young, ambitious stockbroker who’s taken under Gekko’s wing and struggles with whether it’s better to have money or integrity. Gekko is the embodiment of corporate malfeasance, but also portrayed as a business guru. His glamor and power probably inspired a lot of young men to enter investment banking over the last two decades. As Gekko said, “It’s all about bucks, kid. The rest is conversation.”
Lesson: Greed is good. What’s worth doing is worth doing for money. Lunch is for wimps. If you need a friend, buy a dog. So goes the wisdom of Gordon Gekko, ruthless investor, legendary financier – and the star of one of the best movies ever made about money. This film also provides a great backdrop to the landscape that led to the financial crisis of 2008.
3. Glengarry Glen Ross (1992) – Times are tough. This is the ultimate real estate high pressure sales environment film where making money is the bottom line. A desperate group of Chicago investment property real estate salesmen suffer in a down market, a sales contest is launched and anyone who fails loses his job.
Now that the property bubble has burst, some real estate offices may soon seem a little bit more “Glengarry”. There’s no room for losers, only ‘closers’ will get the good sales leads. Some regarded this film as a critique of the impact of Reaganomics.
Lesson: Too much pressure to succeed can boil over into tragedy with unforeseen consequences.
With the upcoming premiere of the film “Wall Street – Money Never Sleeps” it got me thinking about movies with some kind of financial lesson. The financial side of making filmshasalways intrigued me. This year’s Oscars were yet again proof that the biggest budget doesn’t always give the best ROI. In 2010, the lowest grossing Oscar winning film in history – The Hurt Locker – beat out the highest grossing picture in history – Avatar.
Here’s my list of the top 10 movies ever made that have a financial lesson inside of them.
4. Maxed Out. Hard times. Easy Credit. The Era of Predatory Lending (2006) – This documentary shows how the modern financial industry really works. It explores America’s love with credit and leveraged debt and tells us why the poor are getting poorer and the rich getting richer. When Hurricane Katrina ravaged America’s coast, it revealed that America was far from the world’s wealthiest nation. It also highlighted America’s crumbling beneath a staggering burden of individual and government debt. Maxed Out shows how predatory lending was out of control, including credit cards pumped to college kids who had no income. This is a great movie. It’ll make you feel different about your money.
Lesson: It delivers a great lesson on how to borrow and shows why you don’t want to live on credit. Credit is the devil. Do you know anyone who got into trouble because they didn’t borrow too much money? Maxed Out paints a picture of a national nightmare which is all too real for most of us – out of control spending and an irrational use of credit.
5. Enron: The Smartest Guys in the Room (2005) – Before Bernie Madoff, there were Ken Lay and Jeff Skilling who ran the Houston energy firm that was going to reinvent how energy was going to be done in America. Enron was highly profitable, had a great amount of cash flow and earnings and the stock price soared. Its executives cashed out options worth millions and told employees their best 401K option was Enron stock. Thousands lost all their retirement savings because they put all their bets on one company. Took Enron 16 yrs to from 10b assets to 65b assets, but it took them 24 days to go bankrupt. It won the Academy Award for best documentary.
Lessons: Have a financial plan, have a discipline. If you have a stock that looks too good to be true and it just keeps going up, up, up, it’s probably too good to be true. Diversify, Diversify, Diversify. Don’t put all your eggs into one basket.
6. Working Girl (1988) – Melanie Griffith plays Tess McGill. Endearing 80s film. Ultimately she takes a job as a secretary but she wants to rise in investment world. Wants to rise to power, combines her business degree from night school w/ her street smart acumen & pulls of a mega-merger. Total fantasy. Prince charming happy ending w/ Harrison Ford. “I have a head for business and a body for sex.”, says Melanie Griffith’s character. Go back to night school, go back & get a degree. Go get educated, you’ll get leverage. No one can take your education away from you.
Lessons: Your education, your smarts can’t be wiped out in a recession. Your earning power is rooted in your skills, in your education. Provides an entertaining reminder that if you have something to offer your co. & they don’t seem too interested, then take your skills elsewhere. If you are a super powerful earner at one job, you can make yourself a super powerful earner anywhere.
7. Treasure of the Sierra Madre. 1948. Classic western cautionary tale about how not to launch a venture. If you took everything that Howard Dobbs & Kutan did in this movie: “Get rich quickly without a credible business plan.” “Badges, we don’t need no stinking badges.” Don’t swing blindly, don’t come up w/ a get rich quick scheme, don’t do a pyramid scheme, don’t sell products from your house to your friends or recruit your friends.
Lesson: In life, as in baseball, you’re gonna strike out. You don’t want to strike out blindly while your pursuing a huge home run. You gotta know your business, know your partners, know where you are in all of this.
8. Mr. Blanding Builds His Dream House (1948) – Was remade into The Money Pit, starring Tom Hanks & Shelly Long. Owning a home ain’t cheap. It can turn into a massively expensive ordeal. Home is really a money pit. Owning a home comes w/ a lot of responsibility, gotta have credit, gotta have a down payment, pay your bills, maintain the home, gotta know the risks up front. It’s expensive. You gotta know the worse case scenarios, all the risks, the downside.
Lesson: Shows how the American dream of owning a home can go terribly wrong. Home ownership is not for everybody and shouldn’t be promoted as such by the government.
9. Confessions Of A Shopaholic (2009) – About a chic who’s struggling with a debilitating obsession with shopping and has 12 maxed out credit cards. She unintentionally lands a job as a financial journalist and falls for a wealthy entrepreneur. Don’t buy a $400 watch because it quickly depreciates to nothing. I will buy a $4,000 Rolex – nothing less than a Rolex — because it can still be sold 10 yrs after you buy it for what you paid for it. You use credit to buy things of value: an education, a car to get you to work, (I prefer to buy 2-yr old used cars because it loses half its value up front when you drive it off the lot, but you can still get 50-60,000 miles out of it.)
Lesson: Only use credit for things that have value. Pay cash for everything else.
10. Brewster’s Millions (1985) – The ultimate spending spree is something that most of us have daydreamt about at some time. A minor league baseball player, Montgomery Brewster, (Richard Pryor) has to waste $30m in 30s days in order to inherit $300m; however, he’s not allowed to tell anyone about the $300m deal.
Lesson: How corruptible too much money can be and how difficult it can be to use it responsibly.
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What is a Stock?
Don’t know what exactly a Stock is? Read the Mint’s info-graphic below and you’ll find out.
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Source: Mint
Who Executed The Greatest Trade of All Time?
Hedge Fund titan Jon Paulson pulled off the greatest trade of all time in 2007, raking in a cool $15 billion in his bet against subprime mortgages - according to the International Business Times who ranked the top ten greatest trades of all-time. Some were brilliant masterminds, others were just plain lucky.
The Top Ten Greatest Trades of All-Time
1. John Paulson’s bet against sub prime mortgages made him $15 billion in 2007
2. Jesse Livermore’s call on the Crash of 1929 (a legendary trader featured in the popular book, Reminiscences of a Stock Operator).
3. John Templeton’s foray into Japan in the 1960s (a true investment pioneer, Templeton foresaw the rise of Japan after World War II and profited hugely from it).
4. George Soros’ breaking of the Bank of England in 1992 (Soros made $1 billion).
5. Paul Tudor Jones’ shorting of Black Monday in October 1987 (he predicted the crash, bet a bundle & tripled his money as the market crashed 22% in one day).
6. Andrew Hall’s $100 oil prediction (with oil trading at $30 per barrel in 2003, Hall bet prices would rise to $100 in 5 years; they did and he took home a personal paycheck of $100 million in 2008).
7. David Tepper’s 2009 bet on financials (as the market hit its low in early 2009, Tepper bought financial services stocks & his fund earned $7 billion that year ($4 billion of that went to Tepper).
8. Jim Chanos’ prescient shorts (his sharp analysis led him to predict the demise of Enron, WorldCom, and other firms, and he is known as the best short-seller in the world).
9. Jim Rogers’ early call on commodities (he was bullish on commodities back in the 1990s & has been riding them to great profits ever since).
10. Louis Bacon’s geopolitical play (he correctly predicted that Saddam Hussein would invade Kuwait in 1990 & profited handsomely by going long on oil & shorting stocks, which helped his fund return 86% that year).
Most of these trades were ‘global macro’ plays where huge, concentrated bets were made by analyzing fundamental economic/business conditions. These investors excelled at turning a great observation about the world into a great investing idea. But, while these make the headlines, you never hear about the other investors who made a big call and missed, and ended up out of business.
It’s almost impossible for regular investor folks to make a ‘big score’ like these traders. Rather than trying to throw a touchdown pass on every play and make a big score like these traders, the smarter game plan is to focus on trying to get consistent first downs. Do your homework, watch market/sector developments, don’t chase stocks up or down. Do that, and the score may take care of itself.
Please also let us know which trade you find most impressive & your reason why by leaving a comment below, sending us a Tweet, of by commenting on our Facebook Fan Page!
Source: International Business Times
iShares Turkey Continues to Shine But Is The Rally Sustainable?
Shares of the iShares MSCI Turkey Investable Market Index Fund (NYSE: TUR) has soared throughout 2013 and has even hit its 52-week highs trading at $77.38. Turkey as a whole has been experiencing robust growth as the Borsa Istanbul National 100 has surged to its highest levels in the past 25 years. We have been huge supporters of TUR dating back to August 8th, 2011 when we issued our first ‘BUY’ rating for the ETF in our article ‘iShares Turkey ETF (TUR) Poised for Success‘. Since then, TUR has appreciated +69.67% over the past 22 months.
What Attracts Investors to TUR
Investors looking to play the Turkish markets have few options. iShares MSCI Turkey Investable Market ETF (TUR) originally launched in 2008 is the only option avaliable to investors seeking a pure play exposure in the Turkish equity space. TUR is also the only ETF with dedicated Turkish exposure. The banking sector also plays a prominent role in the investable market in Turkey and TUR has a high concentration of financials in its portfolio.
What To Expect Going Forward
When it comes to Turkey, it has been the talk of a higher sovereign debt rating that has been lifting TUR, the lone ETF devoted exclusively to the country. Turkey, which has been engaged in a multi-decade conflict with Kurdish militants in the Southeast part of the country, is working to end the conflict. The government there is in negotiations with Abdullah Ocalan, the jailed leader of the Kurdistan Workers’ Party or PKK, in a bid to end the bloodshed.
Just last month, Moody’s Investors reported that Turkey’s ongoing efforts to bring an end to the conflict could be a positive credit step. Fitch Ratings upgraded Turkey’s long-term foreign currency Issuer Default Rating (IDR) to BBB- from BB+ back in November and the Long-term local currency IDR to BBB from BB, this is huge news as it’s giving Turkey its first investment grade ratings in nearly two DECADES.
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This has been great news for investors as the speculation of a possible credit rating upgrade has lifted Turkish banks shares. TUR is heavily centered on the Turkish financial sector with 51.9% of its holdings in financial services stocks, quadruple its next largest sector weight, industrials.
Turkish Outlook
Turkey’s economy has some good signs heading their way. Beyond this falling inflation rate, investors should note that Turkey has seen a plunging growth rate as well.
Turkey has good medium-term growth prospects and a diverse economy. The nation’s debt-to-GDP ratio stands at 39.9%, much lower than the debt-to-GDP ratio of many developed economies. On top of this, the country has a low employment rate, government reforms, strong, solid banking system, and improved credit rating. Adding all these solid growth factors together and Turkey could prove to be a great investment market in Europe for years to come.
If you have any further questions on either TUR, Turkey’s economy or any investment at all don’t hesitatet to contact us at all by emailing us at jameshartje@StocksonWallStreet.com or Follow our Contact Form
Also make sure to tune in later this week for our long-term outlook on TUR along with more detailed analysis on both Turkey and other emerging markets.
The Cliff Stevenson Group: A Full Service Real Estate Group Offering the Best Strategies & Results
The Cliff Stevenson Group is a leading real estate group that offers all the services one can expect from a top-tier real estate firm. From the start, one thing that really sets the Cliff Stevenson Group apart from its competition is their web presence and the amenities they offer online. Not only do they have a full service website with all the basic information but they also have many other great extra amenities that we rarely see other real estate agents implement. For example, all of the Cliff Stevenson Group’s current active listings are right there on the website so within one click of the mouse a potential buyer can see everything he has to offer including added details and information about each property. On top of that, you are able to access all of the Cliff Stevenson Group’s recent and past sales, which are great for prospective sellers who are shopping around real estate agents, as they are able to see the Cliff Stevenson Group’s track record and make the educated decision on whether or not it’s the right fit for them.
The thing that most impressed us about the Cliff Stevenson Group’s website is all the educational tools and resources they offer to their clients. By browsing through the website you are able to learn all the different aspects of buying and selling a home including added analysis on what effective strategies work and what doesn’t work. To most buyers this would be a huge resources as on average people don’t buy and sell their homes that often so it’s expected that they won’t know all the strategies to getting that great sale or making that great purchase. In addition to all the educational resources offered, the Cliff Stevenson Group also has a regular blog and a video blog to keep clients updated with their progress and to offer more additional resources and information. They also offer clients with market reports and detailed analysis on past and present sales plus what the real estate markets current trends are.
From going through the Cliff Stevenson Group’s website you can clearly see that not only are they a great real estate group offering all the top tier amenities and resources but that they also care and will go the extra mile to help you out. If you select the ‘Meet the Team’ page you are able to get acquainted with each and every member of the Cliff Stevenson Group. In addition, you can also read past testimonials from various clients and after reading them you will see that everyone leaves more than pleased with the Cliff Stevenson Group’s service. There is no question that the Cliff Stevenson Group is the premier real estate group in the Calgary area and if I were a home buyer or seller in that area I would hands down pick them to be my real estate broker and agent. Simply click on the link or go to http://www.cliffstevenson.com to get your own first hand experience at how great the Cliff Stevenson Group’s service is.
The Best Places to Fly This Summer
If you haven’t booked your summer plans yet, brace yourself. There’s actually good news this year, for a change. Airfares to many popular U.S. destinations have dropped. This is according to the Wall Street Journal who earlier this week posted an insightful article detailing the best places to fly this summer. WSJ added an entertaining graphic as well which you can see below:
As for the airline industry, as many of you know Stocks on Wall Street has been very bullish the past two years. Most specifically when it comes to the five airline stocks we hold:
Allegiant Travel (NASDAQ: ALGT)
Boeing (NYSE: BA)
Delta Air Lines (NYSE: DAL)
Southwest Airlines (NYSE: LUV)
UAL Corp (NYSE: UAL)
For those of you who haven’t read any of our past articles on the airline industry, simply click on the links below:
Five Airline Stocks That Continue To Soar
Five Airline Stocks That Have Soared to New Heights
Five Airline Stocks Ready to Pop
Going forward, we think that the airline industry might have seen it’s best days. We will be going into more detail about our thoughts in our article next week so make sure to tune into SWS throughout the week to find out more!
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Source: The Wall Street Journal
How Three Small to Mid-Cap Chinese Tech Stocks Outperformed Three Large Cap Chinese Tech Giants?
If you were able to flip a switch & go back a year ago today you know what you would have? A lot of big questions marks & some major unknowns about what to expect from Stocks on Wall Street most recent investment advice. On April 30th, 2012 to a lot of people’s surprise, Stocks on Wall Street published an article titled:
Three Small to Mid-Cap Chinese Tech Stocks Worth Watching!
The title is rather self-explanatory but just to make sure it’s clear to everyone we recommended our readers to invest in three relatively unknown, highly speculative small to mid cap Chinese tech stocks.
When we originally made these picks it was an interesting time to be involved in the technology sector. Mark Zuckenburg has just taken Facebook public and thanks to the IPO heard around the world, many analysts and investors alike focused their full attention on Facebook’s IPO not recognizing that there was plenty of better investment opportunities out there, they just needed to be found. At the time, analysts were raving about America’s growing tech boom and all the different strong technology giants we had in the U.S. The thing was, many of these U.S. tech giants had done nothing to prove themselves and really it was the media blowing everything out of proportion most infamously the whole Facebook IPO and it’s 24/7 news coverage. When you looked at the facts, it was really China with the upper hand and the one in the driver seat. With a population of over 1.4 billion and a booming tech industry it was really China who had emerged as the true player in the tech world holding many of the top up and coming tech stocks. At the time our favorite Chinese tech stock was Tencent Holdings who is the equivalent of Facebook to China. All you need to do is put both Tencent Holdings (0700.HK) and Facebook’s (FB) charts next to each other to see which company was leading the way. At the time, we had already been current Tencent shareholders leading even more to our reasoning of finding a completely new investment route than we are use to.
Instead of choosing to invest in what many considered to be China’s three can’t miss, large-cap tech stocks. They are as follows, Baidu (NASDAQ: BIDU), China Mobile (NYSE: CHL), & Sina Corporation (NASDAQ: SINA). We on the other hand decided to take the road less traveled and in this case steep.
Collectively we decided we would target three small to mid-cap Chinese tech stocks. The highly speculative nature of the picks was something that intrigued us quite a bit. While these stocks were relatively unknown to the average investor they weren’t to us. Like when making all our investment decisions, we made sure we new the inside and outs of all three picks and while they had some relatively high risks to them we believe the potential gains made them worth the risk. As a result, we invested in the following three Chinese tech stocks and for those of you who have read our original article you would know that we did outline the speculative nature of these picks just so our readers new that they weren’t your typical, conservative investment opportunity. The three stocks we invested in were the following:
- RDA Microelectronics (NASDAQ: RDA)
- Spreadtrum Communications (NASDAQ: SPRD)
- Vimicro International (NASDAQ: VIMC)
Let a year quickly fly by & that’s how you get to where we are today. Did we make the right decision? Should we have gone with the Chinese Large Cap Options Instead?
Hands down we had made the right decision & no we were lucky we avoided investing in any of the Large Cap Chinese Stock Picks. Instead going the route of our three speculative Chinese tech plays ended up being the right call. You can overlook these things in every possible nature but overall our decision paid off big-time especially when you factor in how our three Large Cap counterparts performed during that same time period.
If we had gone with our large cap tech strategy we would have held positions in the following:
- Baidu (NASDAQ: BIDU)
- China Mobile (NYSE: CHL)
- Sina Corporation (NASDAQ: SINA)
Over the past year, all three stocks performed well below their expectations producing negative overall yields across the board.
- Baidu (NASDAQ: BIDU) -36%
- China Mobile (NYSE: CHL) -2%
- Sina Corporation (NASDAQ: SINA) -6%
Together the three stocks resulted in a total loss of -44%. If you average that out over the three different picks you’d get -14.66% each.
How happy do you think our readers would have been if all we had to show them was a total net loss of -44%? Not happy one bit, we can tell you that.
Luckily, we chose the alternative route & as a result we believe our readers will be extremely pleased with our overall performance. Over the past year, all three stocks have taken virtually a different route than planned but the good part is RDA was the only pick that failed to produce any substantial gains. That’s right, RDA really struggled last year & heading into 2013 with the overall share price falling -28%. The good news is that SPRD decided to have an exceptional year grossing +57%, which will put us comfortably back in the lead. Finally, last but not least we have VIMC who performed steady & strong all year long grossing a total of +17%.
1. RDA Microelectronics (NASDAQ: RDA) -28%
2. Spreadtrum Communications (NASDAQ: SPRD) +57%
3. Vimicro International (NASDAQ: VIMC) +17%
Together the three stocks resulted in a total gain of +46%. If you average that out over the three picks you’d get +15.33% each.
As you can see, it was quite a different tale of the two story lines.
A large part of our success comes directly thanks to the exceptional year that SPRD had appreciating over +57%.
You can’t let VIMC’s performance & achievements go unrecognized, as +17% is still a great one-year yield.
As for RDA, there’s not much we can say other than it just wasn’t their year. If anything, they were lucky they got to team up with such a dynamic duo as RDA’s -28% would them only behind BIDU as the worst pick of the group.
Not quite done just yet, there is one last thing we’d still like to analyze. Lets see how our 12-month price targets matched up with each picks actual total net gains.
To start we have VIMC who we originally bought at $1.28 per share. While VIMC had a solid year appreciating +17%, it didn’t come close to our 12-month price target as we set the bar ridiculously high with a price of $2 per share. This would have resulted in a total yield of 56%. C’mon now they’re not SPRD lol!
As for SPRD, they were another pick where we set the bar ridiculously high. We bought our original shares at $13.80 so issuing them a 12-month price target of $21 per share is a tough feat as that’s a total yield of 52%. We sure hope you all remember just how great SPRD performed & the yield they brought in this year as even though we set the bar high, they still beat it by a cool +5%.
Last but not least we have RDA holding up the bottom at -28%. When we first invested in RDA it was trading at $12.87. Originally we had anticipated RDA would at least be trading in the positive territory throughout 2012 & 2013 so we set a modest 12-month price target of $14.50 resulting in a total yield of 12.66%. Sadly even with the modest expectations it just wasn’t RDA’s year at all, lets just hope they come back next year stronger than ever.
To some people the RDA pick will bother them as they have a tough time accepting defeat especially if that was your decision making that let to the defeat. But since all three picks were made collectively together it’s in our best interest to put RDA behind us & focus in on the all the good things that came of today. It’s all about looking at the big picture & seeing that there is nothing worth complaining about as in fact we should be quite satisfied with ourselves & equally impressed as producing a total net yield of +46% is a great achievement. It stands even more impressive when you factor in just how bad the Chinese large cap tech stocks performed. If there is one thing you can still easily see is that our economy is still struggling worldwide & that we are still a ways away from times of economic prosperity. These aren’t your fathers boom years where whatever you put your money into in the markets it just went up. You try that kind of strategy now a days & you’ll be quickly asking where’d your money go. It clearly takes a strategic investment mind & someone with in-depth knowledge about the markets & what they’re doing to produce consistent gains trade after trade.
A comparison we always like to make is to see how both the NASDAQ & Dow Jones Industrial Average have been performing during the same time period. Over the past year it was actually the NASDAQ who slightly edged out the Dow Jones appreciating +14% compared to +12.15%. That’s where I like to factor in our average yield per pick which was +15.33% & you can see that even with RDA’s struggles we were able to beat the markets & that we made the right overall decision in investing our money. Now the next question is where to next?
Everyone make sure to tune in later this week for more in-depth analysis on all three of our picks. Stocks on Wall Street will be reassessing our overall position on each of them, offering new analysis & guidance going forward, we will be again handing out our 12-month price targets along with offering our final overall decision on whether we are going to hold onto any of the three stock picks or whether we decide to take our gains & relocate somewhere else to find the next great investment opportunity.
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The Three Biggest Threats to Your Financial Future
Here are three of the biggest risks and threats to your financial future and your wealth today. Also read for advice on how you can exert more control over each one and enjoy more of what’s yours.
Risk #1: Currency Fluctuation. The U.S. dollar has taken a real beating this past year and is expected to stay down over the long term. Having all of your assets in U.S. dollars (or any single currency) is not sound financial planning. You don’t have a diversified portfolio if all your assets are in one currency. By going offshore and holding portions of your assets in other currencies, you are truly diversifying and protecting yourself from the ups and downs of one currency.
Investing in currencies on your own, without an ETF, can be difficult. Most retail investors are better off with currency ETFs (exchange-traded funds) which track a single foreign currency or basket of currencies by using foreign cash deposits or futures contracts. Currency ETF’s allow investors to speculate in the currency market without the risk of investing directly in currencies and without entering the forex market. Some of the most popular currency ETFs are offered by Wisdom Tree Dreyfus, Rydex, PowerShares, Market Vector and Barclays. But you need to do your homework before diving in.
Risk #2: Rising Taxes. Beginning Jan. 1, 2013, all American citizens will experience significant tax increases, many in the form of hidden taxes and fees. At the same time, U.S. citizens with foreign bank accounts may pay a withholding tax of 30% on transfers of funds to and from these accounts (a provision of the recently amended and little-known HIRE Act). So, if you run your own business, it makes great sense right now to think about moving your business to a more tax-friendly environment offshore. Or, you could stay in the U.S. and keep an account offshore where it is free of U.S. tax obligations.
The key point is that, whatever you’re going to do, you should do it as soon as possible and well in advance of 2013.
Risk #3: Litigation. The U.S. is a litigious society; a new litigation suit is filed every 17 seconds. This may or may not affect everybody. But, if you’re a doctor, for example, or someone with a high profile who’s more susceptible to being sued, then you understand the increased risk. In this case, the best solution is to protect your assets by moving them offshore. Your offshore assets will be outside the realm of U.S. judgment and, therefore, far more difficult for creditors to get at. This should not be confused with the fact that U.S. citizens and green card holders will continue to be taxed on their worldwide income, no matter where they reside or hold their assets. Income tax is unavoidable other than legitimate tax reduction strategies. However, you can minimize litigation risk to your assets by going offshore.
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The Story of Jack & Jill: Why You Should Start Investing When You’re Young
Delaying making investments in order to launch your career can cost you dearly later on. Smaller investments made between the ages of 18-25 will yield much greater returns than larger investments made later on over a longer period from ages 26-65. Consider the classic parable taught in many basic economic courses:
Jack decided not to go to college. He got a job at 18 and invested $4,000 each year into an IRA. He stopped after eight years after investing a total of $32,000. His sister, Jill, went to medical school, started her medical practice at age 26, at which point she began contributing $4,000 to her IRA. Jill did this for 40 years from 26 to 65. She invested a total of $160,000 and put her money into the same investment as her brother. Jill started investing the same year Jack stopped, and she saved for 40 years compared to just eight years for her brother.
By age 65, whose IRA account do you thing was worth more money?
Assuming both Jack and Jill earned a 10% annual return, Jill accumulated $1,327,778. But Jack had $1,552,739 – $224,961 more than his sister!
|
Jack |
Jill |
| 8 Investments ($4,000/yr) – Ages 18-25 | 40 Investments ($4,000/yr) – Ages 26-65 |
|
Ultimate value at age 65: $1,552,739 |
Ultimate Value at age 65: $1,327,778 |
Jack’s account grows to a higher value because he started sooner!
+$224,961
Jack stopped investing at age 26 having invested only $32,000 to Jill’s $160,000. But Jack’s money earned interest for eight years longer than his sister. It wasn’t the money that made him successful – it was the time value of money. Jack didn’t put off investing when he first launched his career. By investing sooner than Jill, his account grew larger.
The moral of this story is not to forego a college education and its promise of higher earning potential. No doubt, Jill earned more disposable income during her career. But Jack’s investment head start was far superior, resulting in substantially greater savings.
Without question, procrastination is the most common cause of financial failure.
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America’s New $100 Bill
What’s everyone think about the new $100 bill that will be coming out this year?
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Source: New Money
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The Best Apple Christmas Present May Be Its Stock
Apple’s stock has taken a beating since reaching all-time highs over $700. Apple may be down but it’s by no means out. I believe the stock will finish 2013 with a strong rally somewhere above the $500 mark. The best Apple present this Christmas may not be an iPad Mini but rather Apple stock.
Analysts are mixed on Apple (AAPL). Schwab’s Equity Rating is D, Underperform. Ned Davis is Neutral. Credit Suisses rates Apple an Outperform. And the Reuters average rating is Outperform. So, let’s examine the pro and cons of owning Apple stock.
Apple Cons
Concerns center around pace of innovation, supply problems and structural issues around gross margins. And, of course, there’s the never-ending grumbling about capital allocation of its $140 billion hoard of cash and whether Apple should issue a dividend. Many analysts worry Apple cannot sustain its gross margins, which has historically been well above industry competitors.
Other concerns hover around the increased competitive scenario and the fact that Apple no longer enjoys a monopoly. People are excited about new products from Samsung (SSNLF.PK) which seems determined to continue its onslaught in spite of lawsuit setbacks against Apple. And let’s not forget new forays into hardware offerings from Google and Facebook. Apple is very dependent on iPhone for sales — about 70% comes from iPhone. Plus, Apple has no recurring revenue stream other than iTunes and their revenues are based on what they sell. We saw this in the 1980s with Sony when Sony was conquering the world of technology innovation. The world loves Apple. But people are waiting for a dramatic new product from Apple. The world owns it. But haven’t we seen this before with IBM or Cisco?
Apple’s lucrative margins are under attack, forcing it to protect its profits by pressuring its suppliers. It’s not that Apple is doomed though. It’s only likely to become less profitable.
Apple is going through a transition from a hyper-growth story to a more traditional, high quality branded company. It grew earnings at +45%+ per year for ten consecutive quarters. Recently, it has grown earnings a little above 20%. Apple will have over $200 billion in annual revenue this year. It’s impossible to keep growing at that rate. So, it will be a more traditional growth company with a great consumer brand and with great products.
Most of Apple’s cash is offshore – a constraint to returning cash to shareholders in the form of dividends. Coke trades at a higher multiple than Apple. People have expectations of growth from Apple that they can’t live up to.
Are Apple’s days of growth over? Is Apple the new Coke? Are its days of hyperbolic growth over? Is Apple now the great new value play? Or, is it a value trap?
Apple Pros
Apple may well continue a bumpy ride in the near term. However, Apple’s fundamentals are still fantastic going forward if you take an outlook of more than a quarter or two. Apple’s second quarter 2013 results are expected to beat expectations. Credit Suise’s Kulbinder Garcha put an Outperform rating and a price target of $600 on Apple.
New iPhone demand will be strong
While 2013 may not have enough new products from Apple to satisfy everyone, the next iPhone will begin production this quarter according to a recent Wall Street Journal report. Apple is reportedly working on a less expensive version with a plastic case that could be on the market before Christmas. Regardless of which features are included, the new iPhone will be better than the last one. The iPhone 5 has sold more than the 4S and Apple sold a record 47.8 million iPhones in the first fiscal quarter of 2013 – up 29% from a year ago. The first iPhone 4S customers who bought in October, 2011 will be primed for a new phone now that their 2-year contact is about to end. So, according to Morningstar analyst Brian Collello, the upgrade cycle will likely keep demand strong. He maintains that the smartphone market is still in the “early-to-middle innings.”
Apple continues to lead in tablets
Apple remains the undisputed leader in the tablet market. With more iPad and iPad mini models to come, expect tablets to bring in more app revenue for Apple than from smartphones. iPads are also predicted to show strong sales for the second quarter – an increase of 61% year over year to 19 million units. iPad minis will account for more than half of that.
Apple Apps remains the heavyweight
iPads are pulling in more revenue from each app than the iPhone, most likely due to higher-priced apps or apps that get more in-app purchases. It’s also possible that games are playing into this because the iPad’s bigger screen lends itself to more complex games. According to research by App Annie, app store downloads from iPad users doubled from 100 million in January 2012 to 200 million in January 2013. More surprising was the amount of revenue the iPads generated from app downloads. In January 2012, iPad has less than 20% the app downloads of the iPhone, but had nearly 50% the app store revenue. In January 2013, the gap narrowed with the iPad accounting for 30% less app store revenue than the iPhone.
Canalys issued a report on app downloads at the four major mobile stores: Apple, Google (GOOG), Microsoft (MSFT) Windows Phone Store and Research in Motion’s (BBRY) BlackBerry World. Apple’s App Store accounted for the largest share of revenue among the four stores, around 74%. Google saw the greatest number of downloads (about 51%) with Apple close behind.
Apple trades below intrinsic value
Apple has an attractive valuation and is currently trading well below intrinsic value. Apple’s revenue growth should continue to be robust in the 20% range and is trading at PE ratio estimated at 9.6 and just 8.38 times next year’s earnings. Compare that to the S&P 500 PE ratios which Robert Shiller estimates is currently trading at 18.17.
With the shares hovering around $425, there seems to be little downside, especially when you take into account about $100 in net cash per share if Apple were to bring all the overseas cash back and pay U.S. taxes on it. Apple’s capital allocation is a continuing source of speculation. With an estimated $140 billion in cash hoard – 75% of which is trapped overseas – a buy back would be viewed very positively.
Other pros for Apple include a potential China upside that has not yet played out, strong cash flow and the “leveragability” of iTunes.
My Take
If you missed the opportunity to buy Apple before, take a hard look now. There is little downside at $425. Even if there is no big new product announcement, iPhones and iPads continue to sell well. Apple is a well-managed, cash-rich company that’s proven it can juggle the profit margin pressures inherent with the transition to new, lower-priced product innovations. While Apple may not climb back to it’s record-high levels, I expect it to hit somewhere north of the $500 mark by Christmas.
Smart investors will continue to profit from Apple and might be wise to consider putting Apple stock in their Christmas stockings rather than just another iPhone or iPad upgrade. Awesome Stock. Awesome Products. Awesome Potential.
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Five Really Dumb Money Moves You’ve Got to Avoid
When it comes to money, people are always making dumb decisions. From spending what’s not theres, to buying a house they can’t afford, or leasing that car that doesn’t fit their budget. Time after time we make mistakes with our money and fail to recognize the warning signals that could have prevented us from making these costly errors. The key to avoiding these possible life blunders is to always stay informed and educate yourself before making a decision. This will greatly lower your chances of making a poor, dumb decision that costs you for years to come.
Brett Arends is a writer for the Wall Street Journal. This weekend he wrote a great, short, small column offering five simple pieces of good advice. Below are Brett’s Five Really Dumb Money Moves You’ve Got to Avoid:
1. Reaching for yield
2. Going into the poor house to send Junior to a country-club college
3. Owning stock in your employer
4. Taking Social Security too early
5. Buying long-term bonds
For those of you interested in reading more, follow the link below as the full article is worth your time.
Source: Five Really Dumb Money Moves You’ve Got to Avoid
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