2020 iPhones, 1982 Member’s Only jackets and Air Jordans from 1986.
THIS WEEK’S BARRON’S PICKLIST 2–20–17 PORTFOLIO CAN BE FOUND HERE.
Maybe I’m just an old geezer these days, at the ripe old age of 41, or maybe the times have changed more than I’m willing to admit. I’m not sure. What I AM sure of is that my boys don’t run home dying to buy a new shoe, or jacket, or any consumer good that represents status or socioeconomic privilege. My boys have a whole lotta goodies that I sure didn’t have when I was growing up. So maybe I’m missing those “must have” items lost in their piles of trinkets, technology and clothing. But I don’t think I am.
I’m not saying there aren’t goods out there that won’t help every generation elevate their socioeconomic status by owning them. My generation has evolved from those must have Air Jordans from the 80s to Land Rovers and Breitlings. And Boomers have evolved from their Member’s Only jackets to Corvettes and hip replacements.
So it goes, Tiernan Ray makes the case in this week’s Barron’s Technology Week column that the future smartphone will overtake consumer goods as the status symbol that Millennials will turn to for the identification of those that have the goods, and those that don’t.
Let’s talk about phones. My past few iPhones haven’t been all that special. When I got my first cell phone in the mid 90s, I toted it around and eventually wore it on my hip. I was hip. At least I thought so. But at least in the circles I was running in, the phone never became the status symbol that it could have been. In fact, which trying to show off that smartphone, it instead has become a symbol for naivete or even geekery.
But the technological advances that smart phones are known for (cell phone — smart phone — mobile phone) is slowing. Ray this week makes the case that new advances in smartphones are going to be seen primarily in fashion and style.
It must be noted that in this same column just last week Ray outlined new technological advances in the iPhone X rooted in 3-D sensing, which very much is a strong advancement in technology for smartphones. There’s no doubt that coming up on the iPhone’s 10th anniversary, Tiernan is focusing on what’s next for this iconic consumer staple.
Ray explains that the future of the phone’s style and, in turn, its iconic status, will be in the design of the phone’s glass. “That is a result of the fact that the smartphone is the screen that matters most in one’s life — for getting work done, for social media, for taking pictures, and so on.”
“Investments to make glass do amazing things are rushing forward.” — Tiernan Ray, “Future Phones: Technology You Can See and Touch.” Barron’s Technology Week. February 20, 2017.
If this is a less than compelling argument to invest in all things “stylistic” related to the future of the iPhone and it’s glass components, well… I agree. This week’s Barron’s was full of loosely tied points, like this one. And recommendations for equities that are already at their all time high were numerous, unfortunately. For this value investor looking for undiscovered stories and new ways to find compelling growth stories, Barron’s was lacking this week.
You all know I love Barron’s and the product they put out week after week. But this week’s edition was, at best, a snoozefest, and at worst, an edition that seems to have storylines created by interns. Sorry Barron’s. You’re writing remains great. But this edition, for the bull or the bear, was just uninspiring. It has been unseasonably warm in the Midwest — maybe y’all are dealing with the same thing we are in early Spring Fever, and have been playing in Central Park all week?
Regardless, I’ve put together this week’s Picklist Portfolio over at Motif Investing — which consists of 17 different stocks. It offers some nice diversification while concentrated on a few specific sectors.
I’ve invested the least amount in this portfolio, though I’m willing to stick to what I set out to do — and trust in Barron’s picks. So I invest even when I’m uninspired.
A significant part of investing your own money is being able to see the trees through the forest, and stick to a disciplined strategy that works — even when it sometimes doesn’t feel all that great. I don’t know if my lack of enthusiasm is driven by the dizzying amount of new highs our markets reach week in and week out? Or if all the “buy” research I am reviewing has more caveats to why the analyst may be wrong, rather than a compelling case to buy.
“Last week, the Dow Industrials and the Standard & Poor’s 500 both snagged their 9th record close. — Kopin Tan, “What Goes Up…” Streetwise, Barron’s 2–20–17.
But with this week’s Barron’s edition titled “A Tale of Two Trumps,” in leaving me with uncertainties and a little bit of an upset tummy after reading it for the third time, I might believe the editors are accomplishing just what they’ve set out to do. Which is why I ran out to the grocery store over the weekend to renew my supply of Tums.
With stocks already at nosebleeds levels, they’re unlikely to go up a lot during Donald Trump’s term. -Randall W. Forsyth, “Can You Top This, Mr. President?” Up & Down Wall Street, Barron’s 2–20–17.
We have a lot to work out here. When times aren’t as good, we long for the times where the markets hit new highs every other day. And when we’re in the thick of the best of times, we get scared and leery. Honestly I haven’t seen this level of upside activity since 2000. And I don’t see the irrational exuberance or the unmanageable equity bubble that came along with the end of that bull market. So goes the schizophrenia of stock investing.
What we do know is that investing in the equity markets have been one of the most significant ways to grow wealth throughout history — both in recent times and over the past hundred years. Many of our recent memories are fresh — maybe as far back as the 1987 stock market crash, or the good times of the longest bull market in history in the 1990s, or the tech crash in 2001, or the real estate bubble burst and great recession of 2008.
But the equity markets are more than recent history. Watch me here. If you invested $10,000 in the Dow Jones Industrial Average in 1969, you would have grown it six-fold through 1994 — or to a nice little stash of $640,000. Now, if you were lucky enough to invest $10,000 in Warren Buffet’s newly formed Berkshire Hathaway in 1969? You would have had a cool $80 million in 1994, and if you still held it today, your little Berkshire stash would be worth a cool $1 billion.
And if there’s a set of guys that espouse discipline when investing in the market — and specifically — great companies that have a great business model, a strong economic moat, and the ability to make hoards of cash — it is Warren Buffet and his sidekick Charlie Munger. They show us how to take the emotion out of it, and how to go about building our wealth from a disciplined point of view.
So I’ll leave you will an update to what I’m doing this week. I’ve paired down my weekly investment in my Motif portfolios to $250. Usually I’m investing $500 — $1,000 per week in the portfolios I build. Maybe I’ll be super excited about next week’s portfolio, but until we get more compelling reason to be super bullish, I’ll reduce my dollar cost average to a weekly $250 in this week’s Barron’s Picklist 2–20–17. Ready to get your discipline on? Then click that link and stash away $250 too. And shoot me an email to ryan@thepearlypig.com letting me know you’re along for the ride.
Bonus Mini Lesson — Leverage
I traditionally use leverage in some of my equity accounts. This simply means that I borrow money from the brokerage house that I’m with to buy securities — this is called a margin account. Now, if you don’t know what I’m talking about, I’d recommend you hold tight and not run out to open up a margin account and go on a buying spree. In fact, I’m reducing margin, and if you are exposed to the market with a margin account, you may want to consider reducing your exposure.
Certainly borrowing money against your securities to buy more securities is not for the faint of heart. It is one of them most risky investment strategies you can deploy. If you need a real life example, just think about all those homeowners just a few years ago that were “upside down” with their mortgages — they owed more money than their house was worth. They were over leveraged, and it’s even more menacing to be over leveraged when investing in the stock market.
Margin debt has increased 193% since the bull market began — the same as the rise from 2002 to 2007. — Barron’s 2–20–17
Just think, if you have a portfolio of $25,000 and borrow that much to buy an additional $25,000 of securities (now your portfolio has $50,000 of securities), and those securities drop by 50% in value, then you’ll be left with nothing except a loan to pay back. Feels great in a rising market, and scary as hell in a dropping market. Just as your gains are multiplied with margin, your losses are exacerbated. So be very very careful when deploying margin in your accounts.
We’ll learn more about margin borrowing in the Finance class I’ll be teaching later this year. I’ve been teaching finance classes since 1999, and I’m really looking forward to digging in and working with twenty people at a time to 1) create a level of trust in investing on your own, 2) create a level of knowledge to grow wealth on your own, and 3) create a level of accountability to get it done.
If that’s what you need or want in 2017, please hit me up at ryan@thepearlypig.com. I don’t have any slick page for you to check out (yet), but I promise if you go old school with me and actually reach out to me to let me know you’re interested, I’ll make it worth your while.
Here’s to a great short week in the market, gang! We’re slow rolling here and going to watch how the rest of this quarter plays out. I’m hesitantly optimistic, and would love to see my portfolio continue to grow. However, I’m not just setting and forgetting… we’re getting to work over here.
Cheers!
Ryan @ The Pearly Pig
