Healthcare, Ironically, Looks Like a Good Investment

The stock market hates uncertainty.  A stock will often drop for several days before a big announcement comes.  When it finally does come, the stock will often shoot up in price, even if the news is bad like the company missed earnings.

You see, investors hate uncertainty.  When they don’t know what is going to happen, they don’t know how to price things.  This makes them tend to sit on the sidelines, and thus stock prices tend to drop.  Bad news is better than uncertainty.  Note that the whole market will often trade down when things like a tax cut is due to expire or a big public policy change is looming.

I’ve found that a lot of the stocks that are looking like good buys nowadays are, ironically enough, healthcare stocks.  A couple of months ago I added Aetna (AET) to my account.  This week, I picked up some shares of Community Health Systems (CYH).  Some of the others look good as well.

I say “ironically” since you would think the uncertainty surrounding the healthcare market with Obamacare maybe coming into force over the last few years would be weighing on the healthcare stocks heavily.  The trouble with Obamacare is that it creates a lot of uncertainty in the healthcare market because replaces normal market forces with bureaucratic decisions.  No one knows what affect the various rules buried deep within the two thousand page health care bill will have.

Just within the last few days a few of the providers found out that they would need to send some of the premiums collected back to businesses and enrollees since the amount they spent on care didn’t match the government-specified ratios.  As a result, some companies are pulling out of various markets.  There can be no doubt that other surprises await.

Perhaps that is part of the reason the healthcare companies appear to have so much potential is that they have already been beaten down due to the uncertainty.  In Wall Street lingo there is what is called  “dead cat bounce.”  The joke is that even a dead cat will bounce if it falls far enough.  Another possibility is that it is not expected that the healthcare law will ever actually take effect.

In any case, I’m treading carefully into healthcare.  It is when no one else wants to get into different sectors that the big money is made.  I’m not going in with more than I am ready to lose, however, because the future is definitely uncertain.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Picture Credits: Kurhan, Downloaded from stock.xchng

The “Tax Dodge” of which We Can All Take Advantage

 

There was somewhat of an odd article in Forbes Magazine this month entitled, “Social Media Tax Dodge.”  It is about the founder of Yelp, Facebook and others who own large amounts of their own company’s stock from pre-IPO days in Roth IRAs, and therefore will not need to pay taxes on their large gains.  The tagline for the story is: “If their IPO riches weren’t enough, insiders at Yelp and Facebook are skirting taxes with $100 million Roth IRA’s and $150 million tax-free gifts.”  The article then goes on to talk about the “future large revenue losses” that Congress has failed to address.

The article is not odd for Time or Newsweek, but it is odd for Forbes given that they normally are advocates of free enterprise and they often idolize billionaires.  Just look at their fawning list of the world’s richest people that comes out annually.

While it is true that taxes will not need to be paid on the gains unless the money is withdrawn before the owners of the IRAs reach 59 1/2, there is certainly nothing shady going on.  They are just following the rules of the Roth IRA, that require individuals to pay taxes on the money used for investing when originally earned and then lock it away in a Roth IRA until retirement.  To use terms like “tax dodge” and “skirting,” and to talk about “lost revenue” like the money belonged to Congress to begin with is extremely prejudicial.  Perhaps some of the writers for Forbes have jumped onto the class warfare bandwagon being sent on tour before the Presidential elections.

If you don’t want people to be putting money into IRAs and Roth IRAs to lower their tax bills, ditch the whole income tax system and go to a Fair Tax.  Don’t write laws to encourage people to put money away for their retirements and then complain when they are successful at doing so.  For every Facebook, there are thousands of other companies that disappear into dust.  Those individuals who hold shares of those stocks in their Roth IRAs don’t receive any sort of credit for their losses.  They can’t even write the losses off against gains in their regular accounts, not that they should be able to do so.

The article concludes by suggesting that everyone should put assets with a potential for large gains in tax sheltered accounts such as Roth IRAs.  While this makes sense if you do happen to start a company and have shares long before the IPO, this does not make sense for the majority of us who are buying post-IPO shares on the markets.  While you will hopefully get a big winner like a Microsoft or a Home Depot if you buy stocks while they are fairly young and hold them while they grow, there is tax deferment built into long-term holding of common stocks just by their nature.  So long as you hold the shares and don’t sell them, the gains can compound and grow.  Also, the tax rates when you do sell are fairly low (15% capital gains rate currently).  It makes more sense for many people to put things that pay regular dividends and distributions, such as active mutual funds, utilities, and REITs into IRAs to avoid or delay paying taxes on those recognized gains,

Realize, however, that you really aren’t getting off tax-free, even if you have money in a Roth IRA or hold your shares and never sell.  Each year the companies you hold are paying corporate taxes.  Because you are a part owner in these companies, this is money out of your pocket that the government would not have if not for your investment.  With corporate tax rates up to 35%, and many corporations paying taxes in the low 20% range, stock holders, large and small, are paying a greater percentage on their corporate earnings each year than most income earners.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Photo credits: T. Al Nakib, Website www.MyPhotography.net , downloaded from Stock.xchng.

The Outlook of a Successful Investor

Back in high school I was in the JROTC Ranger team.  The stated goals of the team were to teach leadership and team building, but I’m convinced that the main purpose was to allow masochists to see how much they could endure.

Try-outs for the team started with a field day at the high school.  One needed to be able to do 40 push-ups and 40 sit-ups in a minute, do 8 pull-ups, and then complete a three-mile run around the school in something like 30 minutes.  If you were able to pass those tests, you then went on the “Ranger Walk.”  This walk started at 10 PM in a parking lot near my home.  We walked all night long along a canal, a total of something like 15 miles.  At about 6 AM in the morning, after about 30 minutes of rest, you completed the walk by climbing up to the top of a 1500 foot mountain (the trail was about 1.5 miles each way).

If you got that far, you would go on a long hike a few weekends later.  Either to the top of a 11,000 foot mountain in Eastern Arizona (this was a 15 mile walk if you started from the trailhead, but we started from the camp to add another 6 miles), or through the Grand Canyon.  The Grand Canyon hike involved going down South Kiabab trail at about 6 AM, going down to the river, and then climbing back up the Bright Angel trail, arriving at the rim at about 8 PM at night.  It was freezing at the top, really hot at the bottom, and then freezing again on your way out.  This was a total of about 25 miles and is not advised in the literature for the Grand Canyon to be done in one day.

If you were able to complete all of these requirements, you were on the team and allowed to go on several camping trips during the year where you set up your tent in the dark, got up at the crack of dawn to exercise and go for a long run, and then spend the entire day hiking around through the woods and doing other physical activities.  There was a bit of rappelling and pellet gun shooting mixed in, but there was always a lot of walking.

Looking back on this, it sounds pretty miserable.  Really though these were some of the best memories of my life.  Not because of the blisters or the activities, but just the sense of accomplishment and the attitude it promoted.  You see, when you were in the middle of a 20 mile hike (with jogging interspersed just for fun), if someone asked you how you were doing the answer was always, “just great!”  No matter how much your body hurt (and I remember barely being able to walk after coming home from one of these weekends),  you always kept a good attitude and took pride in keeping a good attitude.

The psychology of a successful investor is very much the same.  You must be objective in your evaluation when selecting companies to invest in, but you must keep a positive attitude once you are invested.  You need to avoid letting fear creep in, causing you to second guess yourself and sell at the wrong times.  You must be willing to stick with your companies through the bad times, buying more as prices get cheaper and no one else wants to be in the market.

The biggest gains aren’t made at the end of a long run when everyone is an investor.  They are made right after a crash when no one wants to touch stocks.  The best times to invest in the last 20 years were after the dot com bust in the early 2000′s and after the housing bust in 2008.  If you had allowed fear to take over and jumped out of the market, you would have locked in losses and seen the market recover without you.

So when investing, ignore the bad days, or save up cash for when the bad days come, because it is then that the market is on sale.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

 

Is Narcissism Affecting your Stock Trades?

In th last post we talked about how narcissism – an excessive love of one’s self - can cause one to buy things well beyond one’s means as a way to get praise from others.  Narcissism causes people to seek the praise and admiration of others to an excessive amount.  It also causes them to be easily offended by any sort of criticism.

Beyond affecting spending, it can also affect stock trading.  It may cause you to think you can somehow day trade your way into wealth even though the odds are well against you.  It may also cause you to hold onto losers, not wanting to admit you made a mistake by selling, and perhaps sell winners too soon for fear of them turning into a loss.  This isn’t a sensible strategy.  It is an attempt to gain praise and limit criticism from others.  It is ego-stroking.

A successful stock investor won’t have a lot of exciting stories for the cocktail parties.  Real investing is really quite boring.  It also involves controlling fear by holding onto winners so long as the underlying fundamentals of the stock remain strong, and controlling ego by cutting losers as soon as one realizes that a mistake was made.

This isn’t to say that you hold onto winners and watch them turn into losses, or that you sell a stock as soon as the price drops below where you bought it.  It means that you are less concerned with the price of the stock than the fundamentals of the company.  Fundamentals don’t change rapidly, so you shouldn’t be trading rapidly.

You also don’t convince yourself that you can see something in the price patterns of the stocks that no one else can see, or come up with a valuation scheme that no one else has developed.  This is a fool’s game and many before you have lost a lot of money trying.  Stick with the boring approach that works.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Is Narcissism Keeping You from Becoming Wealthy?

In their book, The Narcissism Epidemic: Living in the Age of Entitlement, Doctors Twenge and Campbell argue that narcissism is becoming rampant in America, and that this is leading to a lot of the bad financial behaviors we are seeing today.  From the book:

“We have phony rich people (with interest only mortgages and piles of debt), phony beauty,(with plastic surgery and cosmetic procedures), phony athletes (with performance-enhancing drugs), phony celebrities (via reality TV and YouTube), phony genius students (with grade inflation), a phony national economy (with $11 trillion of government debt), phony feelings of being special among children (with parenting and education focused on self-esteem), and phony friends (with the social networking explosion).  All of this fantasy might feel good, but, unfortunately, reality always wins.  The mortgage meltdown and resulting financial crisis are just one demonstration of how inflated desires eventually crash to earth.”

The way to become wealthy and financially independent is straightforward: Stay out of debt.  Live on less than you make.  Invest this extra money, and then reinvest most of the proceeds.  In fact, retirement with several million dollars in the bank is well within the grasp of most people.  And yet most people are deeply in debt.  Could the reason be narcissism?

One cannot become wealthy when buying a new car every couple of years, losing several thousand dollars in depreciation each year – not to mention interest payments.  And yet, most people are running down to the dealers when their cars pass 40,000 miles.  Never mind that many cars today will easily do 150,000 miles without any major repairs.  They want to look good with that big new car payment.

One cannot become wealthy if one is every extra dollar is spent on clothes.  And yet, many people are going to the malls every weekend and buying new outfits that will only be worn once.  At a yard sale one could not even get $5 for these same outfits that cost $50 at the store the weekend before because clothes drop in value dramatically the minute they leave the hanger.   And yet thousands of people have maxed-out store credit cards because of trying to stay up with the latest fashions.  Indeed, sales clerks are expected to sell new store credit cards more than they are expected to sell merchandise.

One cannot become wealthy if one is spending thousands of dollars a year on electronics and expensive data packages.  Despite being near a phone nearly everywhere we go, and surviving for years without being constantly connected, many individuals find that they cannot go anywhere without a cell phone.  Also, instead of having one or two family phones, every family member including the elementary school students must have their own phones.  Now that there are smart phones, we need to be able to check our email and surf the web everywhere we go.  How many emails do you actually get that could not wait until you get home?  Is that data package really worth more that $1500 per year?  Does that eight-year-old really need to be texting his friends that he is playing video games?

The fact is, many individuals spend more than they make in an effort to create a false sense of wealth.  They buy news cars, buy expensive clothes, and carry expensive gadgetry in an effort to keep up with the Joneses.  As they old saying goes, they are spending money they don’t have to impress people they don’t like.  All of this because we have a need to feel important and to be admired by others around us.  This is what keeps many of us from actually becoming successful.

When you walk into a room, the millionaire (or potential future millionaire) won’t be the one with the expensive cell phone on his belt and the fancy suit.  It won’t be the guy in traffic with the new car.  It won’t be the guy living in the McMansion.  The millionaire will be the guy in the old jeans.  The guy in the 2-8 year-old car.  The guy in the well-built but modest home.

To become successful, one needs to stop worrying about what other people think and do what needs to be done to conserve and build wealth.  The person who becomes a millionaire will overcome narcissism – the need to be admired.  She will be confident in herself.

Let your status symbol be your paid-off mortgage.  Your paid-off car.  Your basket of mutual funds.  Your ability to write a check whenever things happen.  Your ability to pay cash for a vacation.  Set your sites on the right goals, and success will follow.

Please contact me via vtsioriginal@yahoo.com or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.