Bitcoin

  Chances are you have heard the name. Some may have even considered investing in it. But for most of us buying into this new “cryptocurrency” called Bitcoin (BTC) is still a problem. Bitcoin is the name of a new payment system. Think of it as digital money or cash for the internet, powered by millions of users with no central authority or middlemen. At times this year, Bitcoin has been the best performing asset in the world. The market capitalization has increased to $73.93 billion and the price recently hit fresh record highs. It now trades at $4,476/Bitcoin, up 348% since the beginning of the year. So how can someone create money out of internet air? Well actually, that is how all currencies are created. The U.S. dollar, for example, is backed by a promise to pay, as is the Euro, and every other currency in the world. If you think country A’s promise to redeem your paper (or electronic) dollar for a dollar’s worth of something is better than country B’s promise, than you will pay more for “A” than “B.” If you believe a Bitcoin is worth more than a dollar (or less) its value is determined by what people are willing to pay for it. The concept of an alternative currency first surfaced back in 1998 on a cypherpunks mailing list. The central idea was to establish a new form of money, one that uses cryptography to control its creation and transactions, rather than a bank or other central authority. So what is cryptography? It is an indispensable tool for protecting information in computer systems....

The more you look, the more you lose

How many times a day, week, month or year do you check your tax-deferred savings account? Did you know that the more you look, the higher your chances of losing money? For most of us, once a year is more than enough. There are clients of mine that check their retirement accounts several times a day. To say they are addicted to doing so would not be an understatement. Some of them are retired and have nothing else to do each day but sit in front of the television watching financial channels. They are usually male, have control issues and have substituted watching TV and their investment accounts for their old job. The sad facts are that the more you look, the higher the probability that you will see losses in your portfolio. That’s because the markets do little or nothing the vast majority of time each year. And overtime, you can expect the markets to be up or down at least 50% of the time. That means that if you check your accounts every single day, you will be disappointed with your returns at least half the time. Do you really want to live like that? In addition, a loss will always impact you psychologically worse than a gain. For some people, it can ruin their entire day. What’s more, those feelings of loss are cumulative. The anxiety builds and builds until you just can’t stand another day of losses. So what do you do? Sell, usually at the bottom or close to it. But it gets worse. You see the largest annual gains in the markets over...

Let’s have a jewelry party

  Contrary to all the present and future trends in retailing, multi-level marketing (MLM) is still alive and well in this country. Exactly what is MLM and why are so many Americans enamored with hitting up their friends and relatives in an effort to succeed at personal retailing? MLM is a marketing strategy in which the sales force is compensated not only for what they sell but for the sales of other people they recruit. These new recruits in the chain are referred to as the participant’s “downline” and, if done right, can provide multiple streams of compensation. Most readers are familiar with these companies. Amway, Avon and Mary Kay come to mind, as does Herbalife, a company most recently accused of being nothing more than a pyramid scheme. Many of these companies have been around since the late sixties and have never accounted for more than 1% of retail sales in the United States. And yet, every day hundreds, if not thousands, of new recruits are happy to shell out money, time and effort in order to win the golden ring of promise so aptly portrayed in MLM advertising. A look at just one jewelry website gives one a flavor of the sales pitch. Not only will you create lasting friendships, make your own hours and get rewarded every step of the way, promises the company, but “a consultant holding just 1 average party a week, earns $850/month,” while “a leader holding two parties a week with a team of three consultants will earn about $3000/month,” For someone sitting at home as a house spouse or looking to...

The high price of cash

Since the beginning of January, many investors have sold their holdings in the stock market and are sitting on the sidelines in cash. Is it too late to sell, or would selling out be a wise move? Well over $7 billion was sold from U.S. stock funds thus far in January. In December, $48 billion exited stock funds. In hindsight, anyone who sold at the end of last year would presumably be sitting pretty, but that’s not the case at all. There’s an old saying “I’d rather be out of the market wishing I were in, than in the market wishing I were out.” Those are words that surely resonate with most investors right now. And as the financial markets worldwide continue to oscillate up and down a percent or more each day, more “long-term” investors are finding themselves on the threshold of selling everything. This is not a new phenomenon. In 2011, 2012 and even in 2013, I have had many discussions with clients and readers who were convinced that “this time” the sell-off would be equal to the carnage we experienced back in 2008-2009. And every one of those so-called investors who sold out not only incurred real losses (usually at, or close to the bottom of the markets). They then sat for weeks or even months in cash, only to finally put their money back in the market ten, fifteen or even twenty percent higher from where they sold. The truth is, going to cash is much harder than it looks. The big issue you have is that you have to be right twice. Take today’s...

The financial media may be your worst enemy

The business of financial news reporting has achieved a high level of sophistication and timeliness. Almost anything noteworthy that happens around the world is instantaneously transmitted to you from a variety of sources. The question is should an investor act on that news? The short answer is no, not unless the event is truly catastrophic—nuclear war, end of the world type stuff. Achieving your financial goals and objectives requires a well-thought out approach and an investment process, which is by its nature long-term. That process will almost always be at cross purposes with those of the news media. Why? It begins with the media’s time horizon and business model. A media organization’s goal is to bring you breaking news first. By its very definition, it is largely short-term in nature. “Turkey shoots down Russian jet invading its airspace,” is a recent example of breaking news. That story will have legs to run for a while or be bumped aside by the next newsworthy event, depending on developments. In the meantime, the stock markets in Europe and the U.S. sold off in reaction to this event, fearing that the situation might escalate. What should you do? Ask yourself if this is truly an event that should disrupt your long-term plans to save for retirement. Most reasonable investors would answer no. Why is breaking news so important to the media? Most news organizations’ source of revenue and profits is generated by advertising dollars. How advertisers decide on who gets what of their budget depends on market share, especially in electronic media where most of us get our news. The more market...

Tiny houses gain appeal

In this era of tight credit, high-priced McMansions and rapid life-style changes, the American Housing Dream may no longer be defined as a three-bedroom homestead on half an acre. For many Americans of all ages, there is a movement afoot to downsize their living space dramatically. The typical American house is around 2,600 square feet. Until recently, builders were taking the “barbell approach” by building bigger and bigger homes at one extreme and smaller and smaller apartments on the other. This trend, I suspect, largely reflected the growing disparity towards higher income inequality in this country.   The rich builders reasoned, wanted and could afford the sprawling monstrosity with the private drive and manicured lawns, while the poor were happy to have a roof over their head. But more and more Americans are “going tiny” for a variety of reasons. No question that buying a typical small house or even a trailer that measures 100-400 square feet is decidedly cheaper than a regular home. Most of us spend 1/3 to ½ of our income over a minimum of 15 years paying off the house. In contrast, over 68% of those who own tiny houses have no mortgage. As a result, over half of tiny house people accumulate more savings than other Americans. Homes also require a lot of time and effort to maintain. It is one of the main reasons that retirees are “downsizing” but that is not the only reason. Aside from the on-going expense, environmental concerns, such as fuel consumption, also play a part in that decision. More than 80% of greenhouse gas emissions during a home’s 70-year...