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MyMoneyTrainer Investment “Group” Update – Buying $MU and Silver

I’m an investor…big deal…right…who isn’t.  My investment ‘group’ is a little different than many however.  There is no ‘group’ it is just me and my personal money. This is how I invest every penny I have on this planet…while also keeping myself, my wife, and our four kids alive in the process.  Over the years I have read a ton and put a great deal of time and energy (and work) into my investing and investing process. I’ve invested in individual stocks in the past but to be honest to do it is very time consuming so I haven’t always and instead held low cost index funds for years. Until now!  My goal is to beat the stock market (many have tried, most have failed). I publish all my holdings and all my trades. I do this because I hope maybe someone might be able to find some value in what I share, to learn/interact with others, and to hold me accountable to my process (I have to explain if/when I break my investing methodology rules).  Life is hard…investing is hard…but both are also very rewarding…which is why I love doing this. Hopefully you find some value in it (and if not I at least gain a lot of value from gathering my thoughts in this way).

I’m active on Twitter (@mymoneytrainer).  In addition to these types of updates where I talk about particular trades I post monthly updates (to my website and YouTube channel).  I show my holdings, talk about transactions I’ve made (and why), and most importantly track my returns. That’s the goal track…and beat a great long term indicator for wealth creation…the stock market.

Also: None of this is investment advice…just what I’m doing.  I’ll probably wind up under a bridge somewhere…so…

Sold: ESIO – Electro Scientific
Bought: MU – Micron Technology

Thinking: One of my investing rules is that I don’t add to positions after I buy them initially.  That said I have been working on my investment analysis tools. I’ve actually been working on it quite a lot as a matter of fact (incorporating things I’ve learned over the past year).  So when I was done I wanted to revisit this position for several reasons. I just ran everything back through my new tool and liked what I saw very much which gave me the justification I needed to add further to this position (and break my investment methodology rule)

When I bought this stock back in Feb 2018 this was my investment thesis:

MU – Micron Technology – The Micron story is DRAM (meh) and SSD (not meh).  I actually get most excited about the SSD side of things as I think there will be a huge conversion cycle into these types of drives over the coming years.  The stock is a cyclical stock and you generally don’t want to be buying cyclical stocks at peaks in the cycle (which everyone believes is where we are with this stock…and we very well might be).  But a few really smart guys that I follow on my ‘guru’ list are holders (David Einhorn, Joel Greenblatt, Tobias Carlisle, Ray Dalio) so that makes me one too. I initially reviewed this stock back in late 2017 and passed due to the debt.  I’ve read up more on Tobias Carlisle and his Acquirers Multiple and it nudged me into taking a position in this after I looked it over again. He was actually on The Investor’s Podcast in the Q1 2018 Mastermind discussion and this was his pick.  I think this stock is going to grow and grow and grow some more. So, if I’m wrong and we are at the top of a cycle then it is currently priced fairly for the coming low part of a cycle. If I’m right and we are NOT at the top of the cycle (or we are but it just doesn’t matter to MU who will continue to grow) then it is absurdly cheap.  I’ll take those odds. The other issue with this cyclical stock is they have debt (which is never a good thing)…but they don’t have a ton of debt (34% debt to equity)…and their debt levels are way down (down from 76% in 2016 and 53% in 2017)…and they have a plan to continue lowering it ($2B down in current quarter and have a debt reduction plan).  Their share count has varied and has increased over the past decade but they have done several acquisitions in 2016-16. I’m adding this stock with a 70% certainty rating.

Micron is a seemingly hated cyclical stock with an absurdly low PE, clean balance sheet, and in an industry that should grow like gangbusters over the coming decade. I’m not an expert but I think SSDs are in a big conversion. I also think all the AI, blockchain crunching, and autonomous cars/robotic stuff will drive huge demand too. I think both will be for a long time. I know they are a cyclical company but I also think we ‘might’ not be at top of cycle. If we are top of cycle I think they should weather any coming cycle just fine (or at least better than competitors)!  I’ll explain why.

I know that some of the recent year’s numbers are potentially peak cycle and higher than they will run at going forward. That said, I have no idea why this company is so much cheaper than the other 65 companies in the industry. I’m not sure what I’m missing here…must be something really big…that I just can’t find.  Weird. I believe that if we are indeed peak cycle that the other semi companies have a lot further to fall to become fairly valued than Micron does.

Part of my analysis is chopping what I already view as pretty justifiable/borderline conservative estimates in half.  When I do this Micron still looks like it will wind up being a good investment and annualize well ahead of the overall stock market.  Then if I just average the last 10 years earnings it also still produces a decent return (again outpacing what I believe the overall market will return).  Micron is a completely different company than it has been over the past 10 years (not even close). I think the combination of all this provides a good margin of safety for this investment.

They’ve increased shares outstanding during their growth and acquisitions…sure…but they are 8% off their peak and they have a $10 billion buyback plan (for 2019) that will take down 23% of share at current prices.

They also had debt during their growth and acquisitions…sure…but they are off recent highs of 76% debt to equity in 2015.  Even since I bought it initially it is down from 34% to 12% TTM. This is the lowest debt level this company has had in the past 10 years.  That is the kind of peak cycle I like to see! Sitting at 12% debt to equity and increasing revenue from $5 billionish in ‘08 to $30 billionish TTM is pretty staggering growth.

They are currently spending about 29% of sales on Capex (which might not be wise at peak cycle) but they are doing it while also decreasing debt (and buying back shares).  

I’m not sure of the exact definition of wise capital allocation but their debt, buybacks and reinvestment look very good to me.  Their current industry beating (over a long period of time by the way) Return on Assets and Return on Equity should remain intact going forward.

On the management front, they have a newly named CEO, but he has been with the company (through acquisition) for some time. No concerns. They seem to be/are setting the business up to weather a storm (which I like it) but also staying focused on growing (if a storm doesn’t come).

The company is in a ‘commodity type business’. I tend to believe that Micron’s size and expertise gives it a bit more moat on that front than it is given credit for. New advances/products don’t just appear they are
developed…and I think Micron is a (and potentially ‘the’) leader in this discipline. So I give it a bit more moat than traditionally associated with companies like this. I think demand for their products (and products they can develop) will outstrip their ability to develop it over time.

Finally a long long time ago I didn’t buy $MO (when all the tobacco lawsuits killed that stock). I’ve always regretted it (because I’d be retired now if I had). So maybe another similarly ‘tickered’ stock $MU can make up for it! They both start with an M and are two letter stocks!?!  Ha! Now that is heavy duty analysis!

I’m adding to this position due to my reanalysis producing a 103% certainty rating.  This is the highest rating I have ever calced for a stock I’ve analyzed and much higher than when I reviewed it initially (mainly because my analysis has upgraded and I look at more things).  The higher certainty rating means I can allocate more capital to the position than I currently have allocated to it…so that is what I will do. I sold off my $ESIO position (which has been bought out) and reinvested part of it into Micron to round out this position.  I hope and plan to hold this position for a long, long time!

MU – Annual Reassessment

For my full analysis of $MU download this ^^^ PDF.

Sold: ESIO – Electro Scientific
Bought: SIVR – Aberdeen Standard Physical Silver Shares ETF

Thinking:  So over the past few months I have been buying precious metals.  I’ve also been tilting my overall portfolio towards commodity related exposures.  I’ll have more on why about that in future updates but it is basically 1) I believe stocks (and real estate) are extremely overvalued, 2) commodities in relation to stocks are undervalued (and have been underperforming other classes for a good while), 3) if inflation comes it will be bad for stocks at least initially (and probably good for commodities), and 4) if deflation comes nothing will do well (stocks or commodities). Oh…and I believe the world is a mess…did I mention that.  Everyone is in debt up to the hilt and we are in the final stretch of a worldwide global debt super cycle. No one knows when that will end but we are definitely in near unprecedented times in how we are dealing with things (lots of money being printed to keep things afloat in my opinion). I think holding something that has more or less held its own for thousands of years with some part of my portfolio makes sense. I’m not a negative person, I’m not a permabear, I’m not a gold bug…but I am a realist.  Like the Cub Scouts taught me growing up…Be Prepared (for anything).

I had a pretty even 50/50 split on my gold and silver holdings.  As I’ve added to this position I’ve been adding to the silver side of it.  I own physical gold and silver in a vault. But I’ve also been buying some silver coins recently (rounds and most recently 90% junk silver coins).

So why silver?  And why silver versus gold?  Why precious metals versus stocks (since I’m trying to beat the stock market)?

I listened to a very interesting podcast recently.  I listen to many all the time but this one really struck a chord.  The Investor’s Podcast episode 213 with guest David McAlvany. So much going on in that episode.  Ways to play silver against gold to create income…ways to play asset classes against each other.  I put this with so much I’d already been reading on the subject previously and it really has me thinking that precious metals deserve a spot in my overall portfolio.

The reason I’m focusing on precious metals right now (versus stocks) is mainly due to the Gold to Stock ratio is at a low (stocks are expensive) and gold is less expensive compared to stocks than in the past.  This ratio is at all time highs (only higher once in past 90ish years). I believe stocks are overvalued right now (as they are expensive on almost all traditional metrics). I believe this will mean revert (as it always does).  I don’t want to have all my money tied up in an asset that is coming back to earth…while it is coming back to earth.

Silver_03

The reason I’m focusing on silver versus gold right now is because the Gold to Silver Ratio is 80+ (silver is cheap in relation to gold). Also the majority of silver miners can’t pull it out of the earth for less than current price.

Silver_01

Silver_02

I also saw a chart in the past couple of weeks where commodities in general where at a low compared to the stock market.  I can’t find that at the moment but I have on my research list to find it (and others like it) to further my research on this topic (again more to come in future posts).

So I believe silver is a buy.  Of course commodities are extremely cyclical…and extremely prone to boom/bust cycles.  So I could be on the exact wrong side of this investment for a long time. Many argue that gold is coming off a blow off top and has much further to fall.  Many argue it is a relic of the past that has no value whatsoever. Many smart minds on both sides of the argument. That is fine I plan to hold all this for a long, long time.  It’ll be around long after I’m gone. Of course if the cycles that I anticipate play out I’ll likely rotate in/out a few times in my remaining time on this rock. We’ll see, regardless not a short-term play I’m making here.

In my research I found these options to own precious metals:

  • BEST: Physical metals in a vault (like GoldSilver, Goldmoney, Sprott, Schiff Gold) or physical metals for your personal safe (from someone like SD Bullion and JM Bullion).
  • NEXT BEST: ETFs with physical backing $SGOL $SIVR $GLD $IAU $SLV
  • WORST: ETFs with no physical backing (“paper” metals)

So with the remaining money I had left over from my $ESIO – Electro Scientific sale I decided to buy one of the physically backed silver ETFs ($SIVR – Aberdeen Standard Physical Silver Shares ETF).  This is not the most optimal way to own it in my opinion. It has counterparty risks, the silver is not actually mine, and the expense ratio is higher than holding it in a vault. Regardless, this portion of the portfolio is likely a more short term position that if something better comes along I’ll sell it and move to that.  Time will tell!

#investments #investing #stocks #cash #SP500 $SPX $MU $SIVR $SLV #gold #silver

MyMoneyTrainer Investment “Group” Update – August 2018 (Month 10)

NOTE: I know it is December and this is an August update.  I just decided to publish these monthly updates recently.  I’ve gone back to when I started and am getting caught up over the coming weeks.  I’ll be caught up soon and will publish each month from that point forward.

MyMoneyTrainer Investment Group Scorecard_2018_08 (Month 10)

For full update download this ^^^ PDF.

Sold: SLYV – SPDR S&P 600 Small Cap Value
Sold: MDYV – SPDR S&P 400 Mid Cap Value
Bought: BSCJ – Invesco Bulletshare 2019

Thinking: I believe the US stock market is overvalued.  I thought that when the market went down back after hitting a high in January that the upside would be limited going forward.  I have been scaling out of the broad market pretty consistently over the last several months. I had moved out of the broad index and had moved some money into the Small and Mid Cap Value indexes.  I figured these were not as overvalued. In August the market got back to around its previous January highs. I decided to further limit my exposure to the US stock market and take the money from these assets and move it into very short duration bonds.  I was even sitting on a decent gain from these investments which was nice! I know market timing is not a thing…or at least a thing that works but I have decided that I don’t want to be invested in ETFs in an overheated market with Case Shiller PEs at 32+…yes…32+!  I’ll sit in bonds with a little yield and basically not duration risks and wait to fight another day. I’d love to have some blood in the streets to redeploy this money at some point (or to find good individual companies to own rather that broad indexes).

Sold: FNDC – Schwab Fundamentals Int’l Small Cap
Sold: FNDF – Schwab Fundamentals Int’l Large Cap
Sold: MDYV – SPDR S&P 400 Mid Cap Value
Sold: SCHE – Schwab Emerging Markets
Bought: TX – Ternium
Bought: FCAU – Fiat Chrysler Auto

Thinking:  After I closed out my US stock market ETF positions I looked to my other ETF positions.  I had two international value funds and an emerging market fund. I had only bought these a few months ago and was down a bit.  I’m not day trading ETFs here but I was contemplating a few things: 1) I seemed to be having some success with my individual picks.  Short-term results are not to be extrapolated into the future but I was sleeping much better at night in the individual stock selections I had in my portfolio than I was when I owned the broad US market index (and it’s supercharged Shiller PE ratio). 2) I liked the ETFs that I had selected.  The valuations of the stocks in all of them were better/lower than in the broad US market indexes I was invested in previously. 3) I wasn’t really excited about owning an ETF that had all kinds of stocks that I wasn’t sure I really wanted to own (those with high valuations, high debt, etc.).  I decided if I was going to invest my money I wanted to know exactly what I was owning, what exactly I thought it was worth, and how much of a discount I felt like I was buying it at. 5) I had two international stocks that I wanted to buy into instead. One of my rules is that I don’t want to own international stocks due to the not wanting to mess with the currency risks/exposure.  I want to break my rules on two investments (reasons listed below). So I sold off the remaining position I had in the Mid Cap ETF and sold off the international and emerging market ETFs and reinvested the money in two stocks that I’d much rather own than the broad US stock market or broad international stock market.

TX – TerniumSo one of the reasons I decided to trade out of the international EFTs was because of some research I had done into some of the mining companies (mainly gold miners).  I’d listened to several experts discuss how you can’t pick and choose your mining company by location (for example I want to own a miner that is in the US). You have to own it where the mine is and where the mine can get the natural resource to market (for example a coal mine next to a power plant would be ideal).  I had previously bought TX and had sold it when I determined I didn’t want to own international equities in my portfolio due to currency issues. This was back when I started tracking all this in November 2017. TX had performed very well since I had bought/sold it and it was back down based on several issues. The main issues are currency and country risks.  All the reasons I don’t really want to mess with international equities…duh! The currency issues had to do with several currencies having issues and the country issues had to do with some broad corruption issues that were being investigated with the local country’s government. Regardless, given that it was a stock I wanted to own and was back in the territory where I believe it is a good value I re-entered my position.  I wrestled between this one and TECK for some time. This one is a bit less diversified but I think a bit higher quality and a much better valuation. They had a low 8% debt to equity ratio but just did an acquisition so that is up to 38% (which is still not too high). Their is a good bit of uncertainty with regards to the NAFTA legislation which I think is weighing on the price. So I’m not entirely happy with having to cross the border to find value but I believe this will be a good investment over the long term.

FCAU – Fiat Chrysler AutoAnother company I’ve had my eye on for some time is Fiat Chrysler.  I really have no reason to own this international company except that I just like the story so much that I can’t not own this stock.  Mohnish Pabrai has owned it for a long time and it is up substantially from when he purchased (he still has 30% of his fund in this position).  It also keeps showing up in the Acquirer’s Multiple screen (currently second cheapest). It is still nowhere near fully valued in my opinion. The stock has been beaten up pretty badly in the last few months.  It was trading around $24 earlier in 2018 and is now around $17. When I look at some of the weekly technical charts I believe it has been oversold greatly (again due to some country/currency issues). This had me extremely interested.  As I learned more I just love the story and the management team. They are divesting non-core businesses and eliminating debt and plan to continue to do so and return capital to the shareholders. They have a 46% debt to equity ratio and have been paying off debt at a rapid clip.  This ratio is the lowest of any of the major auto manufacturers (even the Japanese ones which are low). So given all that and the super low valuation at the moment (single digit PEs). I’m aware of the whole cyclical and how the auto industry is supposedly a dying industry and a horrible space to invest in.  Touche, I disagree. Fiat Chrysler is getting lean and mean and will be a strong player in this industry regardless of what happens. I personally believe the Jeep and Ram brands are about as rock solid as you can get and are in spaces where demand will continue to be high. But even if I’m wrong about a lot of that the 7ish PE provides a lot of safety.

#investments #investing #stocks #cash #SP500 $SPX $SLYV $MDYV $BSCJ $FNDC $FNDF $SCHE $TX $FCAU

MyMoneyTrainer Investment “Group” Update – July 2018 (Month 9)

MyMoneyTrainer Investment Group Scorecard_2018_07 (Month 9)

For full update download this ^^^ PDF.

Sold: PCMI – PCM
Bought: ESIO – Electro Scientific

Thinking: One of my portfolio allocation ‘rules’ is I cannot own more than one stock in a single industry.  ESIO popped up in my screens and it was in the same industry group as an investment I already owned (PCMI). After some research on ESIO I knew I wanted to own it.  PCMI was very run up from where I bought it and I don’t believe it is a better investment than ESIO. I bought PCMI at $9.89 and am now going to sell it for $21.64 for a 118% gain.  I wasn’t really sold on the business for PCMI when I bought it (basically an electronic sales company (to industry) that is transitioning to a service/consulting business. It was just extremely cheap (and oversold)…and now it has become not cheap (and overbought).  Definitely not a better business than ESIO so this was an easy sell.

ESIO – Electro Scientific – I didn’t really even do all my traditional homework on this company.  I ran it through my normal initial checks and it looked very fairly valued.  I read the most recent annual report and 10K. I found no red flags at all. Normally, I’m skeptical and can find things that give me pause somewhere I couldn’t really come up with anything on this one.  I didn’t even fill out my normal checklist on it (although I did do all the checks). I had been reading Phil Fisher and his idea of finding value with a ton of sales growth kept playing in my mind. These guys do stuff that is (and will continue to be in huge demand)…they are growing quickly and all signs point to being able to grow as quickly as they can.  That coupled with wanting to get out of a pretty highly valued PCMI (and booking a nice gain) made me feel like I was playing with a bit of house money on this one. So I bought into it with a 90%+ certainty. This is the most capital I’ve allocated to a single position since I began this.

Sold: Cash
Bought: KRO – Kronos Worldwide
Bought: PRU – Prudential Financial
Bought: TUSK – Mammoth Energy Services

Thinking:  I had some uninvested cash that I wanted to get put to work in some stocks.  It had been a few months since I had even screened for anything much. I had been looking at other things the past few months (precious metals, crypto, options, real estate, ETF strategies, bonds) AND MOVING (that was fun).  I was anxious to see what opportunities Mr. Market had to offer up for me (if any). Luckily I found a few things that peaked my interest:

KRO – Kronos Worldwide – I don’t know a ton about the chemical business and especially the titanium dioxide business.  I know the top 6 competitors account for the majority of sales and KRO is a larger one with a diversified customer base.  In researching this company I found a weird ownership structure where several other public entities own a lot of KRO and also a very underfollowing by analyst (only 3).  The trailing PE is 5.6 and the forward PE is 7.5. I ran all my calculation using very conservative estimates. The only major flaw in the slaw for this one is the .6 debt to equity ratio.  This is higher than I normally like to see but it is trending down over the past few years (from a high of .85). At .6 it is still lower than most chemical companies…even the highly valued ones firing on all cylinders run in the .4 range (a capital intensive industry).  The dividend payout ratio is around 20% so no issues there So other than the higher debt ratio I couldn’t find much of anything not to like. Added it with a 95% certainty.

PRU – Prudential Financial – There have been many insurance businesses in my screens recently…so I knew I was going to buy an insurance company but which one.  There were several types of providers showing (plus I already have a position in TPRE a reinsurer). I can’t own more than one due to my portfolio allocation ‘rules’.  I really had trouble deciding which one I’d invest in. I wound up choosing the very large PRU it looked like it would produce similiar returns to others but I saw a few things I really liked with this one.  When reviewing the 10K, Annual Report and Proxy for the most recent year I was impressed with their focus on culture and being a good company to work for. The biggest was the transformation the company has made in its balance sheet.  The debt to equity ratio was 151% in 2008 and now stands at 35% (in 2013 it was 76%). They’ve also removed 16% of their outstanding shares while making this transition. To me this is a behemoth that is focused on being a great company and is ready for whatever comes.  I think other company’s could learn from them post 2008 financial crisis…I think they have done exactly what companies should have done. I didn’t really want to get rid of TPRE either so I wound up breaking my rule and owning two positions (but only allocated the capital I would to a single position).  There…I gamed that perfectly! Ha. Added with an 85% certainty.

TUSK – Mammoth Energy Services – This is a fairly new entity (IPO in late 2016).  The company is selling at a 10 PE with a forward PE of 6.  They are growing organically…without taking on substantial debt.  They are in multiple lines of business and multiple geographic locations.  The 2016 letter said they survived the past two year of low commodity prices and expect to thrive in more normal conditions.  The CEO says every investment decision is made with 2 goals: 1) grow in areas where customer demand is expected to be highest and generate highest returns, 2) generate a profitable ROI.  They intend to maintain a conservative balance sheet (currently 7% debt to equity). Management has proven effective so far in investing in high return projects and is looking at deals (35 M&A at this time).  They are not in the business of supplanting bigger competitors but to run profitable projects. They are currently focusing on investing in Puerto Rico with their Cobra operation. They are starting to have success and are committing more capital to it…which seems wise to me.  They are also expanding their sand business (also wise). I think with no/low debt they will likely get bought by larger company at some point (and if not will be a great operator that continues to grow). They are still in growth mode and are investing all earnings in capex but expect free cash flow in 2018 full year (depending on future capex investments).  My only real concern is this is a very competitive industry and this is not the only new company that has sprung up in it. They seem to be going about business in a sound way but time will tell (and there hasn’t been enough time told so far). That said I’m adding with an 80% certainty.

#investments #investing #stocks #cash #SP500 $SPX $ESIO $KRO $PRU $TUSK $PCMI

$MEET – Annual Reassessment

MEET – Annual Reassessment

^^^^ Download And Review My Analysis In This PDF ^^^^

The attached PDF contains my annual reassessment for $MEET.  This is the analysis I do when I open a position.  If you read my monthly updates you will see my overall investment process/methodology.  I want to buy and hold a business that I think is a good business and is probably a bit out of favor (so I can buy it at an attractive price to earn an attractive annualized return).

I’ve owned MEET for about a year (bought in at $2.48).  The stock has done well for me since I bought it (currently up about 68%).  It has recently been as high as $5.63 (earlier this month) and as low as $1.84 (in late March).

As we head into the 3rd quarter earnings announcement in a few days I wanted to reassess my position.  I’ve learned a lot over the past year in how I assess an investment.  The analysis I performed a year ago was not what it is today.  I probably would not have entered this position if I knew then what I know now.  Since it is up big and currently is my largest position that probably speaks volumes to how dumb I am!  HA!

I like the story of the company.  I think I entered in at a good price.  I didn’t really worry at all when it dropped after I bought it.  I thought hard about selling it when it was up about 100% and in the $4.40 range earlier this year (I thought it was a bit overheated).  That said I couldn’t find any bad news that didn’t exist before and in fact find them executing the plan (seemingly as planned).  So I think until I hear something unexpected I’ll hold onto this longer.  I want to do more research on some of my outstanding concerns on it after I get through some of my other position’s annual reassessments.

At the current price of around $4.12 I expect to earn an 8% annualized return (which I thinks beats owning the overall market).  This is substantially lower than when I purchased it because the price has moved considerably.  My certainty rating is currently 66% which is well below what it was when I opened the position.

If the price moves higher in the near term (ie returns to $5.50-$6.00 range) I might lighten this position (but will likely not exit it completely).  Otherwise I will likely remain in it unless I find something more appealing.

MyMoneyTrainer Investment “Group” Update – May and June 2018 (Month 7 and 8)

MyMoneyTrainer Investment Group Scorecard_2018_05 and 2018_06 (Month 7 and 8)

For full update download this ^^^ PDF.

June 2018 (Month 8)

Sold: House
Bought: Cash
Bought: BSCJ – Invesco Bulletshare 2019
Bought: BSCK – Invesco Bulletshare 2020
Bought: Gold (Physical Grams)
Bought: Silver (Physical Ounces)

Thinking: I purchased the gold and silver positions and it is tucked away in a storage vault with really mean guards.  I wanted to put the rest of the money in a very short duration bond holding until I could get it invested the way I wanted it to be long-term.  I found Invesco’s Bulletshares which allow me to have complete control over my duration/maturity. I basically want no interest rate risks on my money but I do want to achieve some yield on the money while I get the money allocated (which I’m not going to rush too much into).

May 2018 (Month 7)

NOTE: I previously posted much of this on my blog a few weeks ago because I was talking with some folks about it.  It is directly tied to my transactions in June 2018 so I am including it here again.

I didn’t make any transactions in the month of May but I did complete some research that I’d been working on for some time…since 1257 to be exact (760 years)!!!  I have never been an investor in gold or any precious metals. I feel like the world is just one big large mess with all the fiat currency printing, artificially low interest rates, and debt creation that has created one bubble after another.  I think we are in an everything bubble as we speak where basically every asset class is pegging at extreme valuations. I’ve always thought of gold as a metal and not a good investment. I know that stocks are good investments that create value that are able to beat/outpace inflation.  Gold creates no value and is only worth what someone else is willing to pay for it in the future. That said I do regard gold as equal to money and do know it has been viewed as such for several thousand years. It is real, it is finite in quantity, and liquid. So, I knew it would not beat inflation (or the stock market) over time but I wanted to see how badly it would lose.  From 1257 to 1791 gold was tracked against the British Pound and since 1791 it is able to be tracked against the USD. From 1257 to 2017 gold has a cumulative return of 30,860%. Prior to 1257 there is data as well that goes back 5,000 some odd years but I wasn’t able to pull anything I felt completely comfortable with. We have CPI (inflation) data back to 1913. The cumulative return of the CPI since 1913 is 2,374% with Gold during the same period being 5,982%.  So, if you held Gold during the last 104 years you would have increased your purchasing power versus holding dollars. We have S&P 500 data back to 1928. The cumulative return of the S&P 500 since 1928 is 399,812% with Gold during the same period being 5,982%. So, if you held Gold during the last 89 years you would have done much, much, much, much better to own stocks. I want to own stocks! That said I believe that I also, now, want to own gold…not fake electronic gold…real physical gold (and silver…because the gold/silver ratio actually leans silver right now).  Why? Several reasons and most don’t have much to do with returns/price:

Interest Rates Are At 5,000 Year Lows – I believe the world is awash in debt…all of it…the governments, the corporations, the people–$250 trillion or so.  All this debt is being serviced with artificially low interest rates (being systemically manipulated by every Central Bank on the planet all at once).  We are the lowest interest rates in all of recorded time (since “loan docs” where stored in clay pots). We recently had the lowest 10 year treasury rate ever recorded July 2016 at 1.5%.  So, if the entire financial asset system is valued based on interest rates being at all-time lows doesn’t that make financial assets valued at all-time highs. How will we recreate 5,000 year lows to keep it going?  The entire system stinks and something isn’t right. I’ll gladly stay out of debt as one way to protect myself and own some non-financial assets (like gold) as protection. Whether the value of the financial assets are destroyed via inflation or deflation the purchasing power of gold will hold much better than any fiat currency.  The western world believes in their financial assets to a fault almost and they’ve only been around for a few hundred years…while gold has been around for several thousand years and held its value.

Fake Money Is Not Real – I also do not want to own anything denominated in a fiat currency if/when the wheels come off.  I want to own real things equity in real companies (and I know they will get clobbered in a crisis) and commodities.  I found it funny when I was researching crypto currencies that a lot of people argued that there were set amounts of it and that additional currency couldn’t just be created out of thin air (like they can be from government’s fiat currency by Central Bankers).  It is a primary argument from the crypto crowd. Alas, they are all created out of thin air and can be manipulated by man to their liking (despite what they say they will/won’t do). The US Gov’t has $21 trillion in debt and is running huge deficits as we speak (and they are not the only ones).  I don’t trust any of them (cryptos or fiats). Gold has been holding its own as a store of value for thousands of years while every single fiat currency (and civilization) has come and gone. The value of gold is independent of every single fiat currency.

Paper/Digital/Electric Gold Is Not Real – Another weird thing in today’s world is the electric gold market where people buy instruments that represent gold holdings but that are not backed by any physical gold at all–derivatives.  Currently, it seems that these derivative markets are setting the price for gold rather than the actual physical asset. There are currently around 171,300 tonnes of gold in the world and is worth around $7 trillion dollars.  By contrast there are 70-100 times as much paper/digital gold in derivative contracts $490-700 trillion dollars. Everything is fine and dandy as long as no one ever demands physical deliver on their futures contracts. But in times of panic they surely will.  Warren Buffett has called the 1.1 QUADRILLION derivatives market a financial weapon of mass destruction. If/when it implodes all the paper/digital/electric stuff won’t be worth anything. Companies that have large positions in derivatives will vaporize. BUT the physical metal in the vault will still have value.  Another example are ETFs that do not hold the physical asset. The largest gold ETF is GLD and it has a $28 billion in value…not a physical gold bar in site. Not to mention that these are backed by financial institutions that will likely vaporize in a massive financial collapse.

Lots Of Smart Buyers Of Physical Gold – So there are tons of smart groups that are buying physical gold hand over fist.  Many speculate that it is due to foreign exchange currency wars (think all the countries that are sick of having to deal in US Dollars to buy oil, etc.).  Others believe that it is because people are starting to believe traditional fiat currencies that are not backed by anything physical will eventually have their value destroyed.  The IMF already stands ready to replace every country’s currency with an SDR currency (which is a basket of currencies). Others believe that they believe the price is rigged (and artificially low) due to all the paper/digital/electric gold (with price setting being done on the COMEX).  They are basically saying ‘fine” if you say the price is ‘x’ I’ll keep buying it at ‘x’ and you’ll keep delivering physical at ‘x’ price. Eventually the physical supply dries up and this forces the physical to start setting price rather than the paper gold price…and it will be much higher.  I’ll follow the smart money here.

I’ve decided I’m going to do something I’ve never done in my life; invest in physical precious metals.  I researched the gold/silver ratio as well and believe silver is actually a better deal so I’ll split fairly equally between the two.  I will put this trade on as soon as we no longer own two houses!

#investments #investing #stocks #cash #gold #silver #bonds #commodities #realestate #SP500 $SPX $BSCJ $BSCK