Sound Advice

Wall Street Lingo Translated For most people trying to get a handle on the world of Wall Street, the task of working one’s way through the mass of available information is difficult enough, but when most of it comes with terminology that’s anything but obvious, the task can be overwhelming.   With that said, here are a few plain English explanations to help you understand. Bubbles When the market averages appear to be rising well above historical valuation ranges, this is referred to as a bubble.   The best-known bubble of recent decades was that of the dot.com era at the turn of the millennium.   That was a time when concepts were viewed as more important than underlying progress in sales and earnings.   Not surprisingly, the follow-up to the dot.com bubble was a decade in which the market averages gained little ground, allowing increasing corporate profits to climb sufficiently to return valuations to normal. Bull Market and Bear Market The acknowledged d...

  Scam Alert One of the most concerning problems these days is scams, whether by email, text or telephone.   Not only are most people bombarded by robocalls and junk email, they are also the prey of scam artists seeking to steal their identities or their assets. Messages through the various communications channels appear to come from the IRS, the Social Security Administration, the FBI, banks, credit card companies, those who would have you believe they are friends, royalty from Nigeria and other countries, and even Facebook. None of the government agencies will contact you in this fashion.   If they need to be in touch with you, they will do so through the U.S. mail.   In all cases, these messages are seeking your personal information.   Email messages of this sort always have a link to click on that theoretically will provide you with additional information about the ostensible topic being addressed.   The reality, however, is that it usually prov...

Cryptocurrencies, Bitcoins, and the like The most talked-about quote at the late July AICPA ENGAGE conference in Las Vegas came when keynote speaker David Kelly, Chief Global Strategist of J.P. Morgan, was asked about bitcoin.   He said he believes that bitcoin “is more of a cult than a currency.” Kelly went on to say that real currencies are transparent and stable.   Bitcoin is neither of those.”   He also pointed out that there’s some additional risk to crypto holdings that aren’t related to the markets.   “Some 22% of the total bitcoins are out of circulation, because people either lost the passwords to their digital wallets or died and the password was lost,” he said.   This, of course, is in addition to the hacking that the crypto exchanges are constantly reporting.   Plus, there is no help desk you can call to get your money back. The more pressing question is whether investors should invest in crypto as a diversifier, buy crypto at all or just ...

Three Questions When can I retire?  This is by far the most common question and it’s typically asked by folks in their late 50s or early 60s.  The real question is whether the person has sufficient net assets (after outstanding debts are repaid) and an adequate balance between income and expenses to continue enjoying his or her preferred lifestyle. The answer is straightforward, but requires a fair amount of effort to reach.   The task is that of assembling four groups of information.   These include assets, liabilities, earnings, and expenses.   In other words: what you own, what you owe, what you earn, and what you spend.   The first three are usually simple to identify.   Spending, however, can be a challenge.   Invariably, there are at least two dozen or more categories of regular expenses.   Added to that are unpredictables such as health care, inheritances, relocation, etc. The upshot of this gathering and evaluation of informatio...

  Stock Valuations 101 Although there may be gurus who hearken to the influence of the Zodiac or lunar cycles, the valuations of most stocks are based on what's known as the price-earnings ratio.  In simple terms, that's the price of one share divided by the earnings per share.  The latter is the amount of earnings for the company as whole divided by the number of shares outstanding. The price-earnings ratio depends on several key factors.   Perhaps of greatest importance is the company's rate of growth. The rule of thumb is that the faster the rate of growth, the higher the price-earnings ratio, but there's a limit to what would be considered reasonable.   A typical range of price-earnings ratios is between 10 and 20 times. That's true of both individual stocks and the stock market as a whole.   Larger, more mature companies will probably grow more slowly while some small companies might well increase their profits more rapidly. There are caveats. ...

It's All Relative Two of the questions I hear regularly are "When to buy?" and "When to sell?" Those kinds of inquiries suggest that there's an absolute level at which a security is worth adding to one's portfolio as well as a price when it's time to say adios. It would be nice to think that the process could be that tidy, but it's not. For starters, it's essential to understand that the word "absolute" is meaningless in the world of investing. The market is never "too high" or "too low". Wherever it is at any given moment is where investors think it should be. What's more, from the perspective of those who think in terms of absolutes, the averages have often stayed well below and well above what one might think of as a normal level for extended periods, sometimes years. So efforts to evaluate in this way usually prove to be a waste of time. Short-term market movements are never predictable and anyone...

Dow 100,000 In 1999, James K. Glassman, a syndicated columnist, and Kevin A. Hassett, an economist, published a book entitled Dow 36,000: The New Strategy For Profiting From The Coming Rise in the Stock Market .   The authors’ thesis was that stocks were significantly undervalued.   What’s more, they projected a quadrupling of the Dow Jones Industrial Average within three to five years: 2002 to 2004. They couldn’t have been more wrong.   The Dow index peaked just above 11,700 in early 2000, then dropped below 7,700 in September 2002, just prior to the time Glassman and Hassett had forecast their 36,000 target. In 2007, the Dow climbed back to 14,000, then plunged in half by March, 2009.   What went wrong? The authors’ argued that investors viewed dividends from stocks as significantly riskier than they should have.   Based upon a reduced risk view of dividends, they suggested that valuations should be based on a multiple about six times the historical ...