Author: Smart Investing

Income investing

Dividend Growth Investor: How Ronald Read Managed to Accumulate a Dividend Portfolio Worth $8 Million

Posted on by Smart Investing

Over an investment lifetime, there will be many bear markets. But over time, investing in great companies will allow an investor to build massive amounts of wealth.

With markets down and growth out of favor, there may be a resurgence in dividend-oriented investing. That style hasn’t gone away. More importantly, many investors have demonstrated that you can build massive wealth with dividend stocks. One such example is Ronald Read, a janitor who built an $8 million portfolio.

At the time of his death at the age of 92, he amassed over $8 million by investing 95 different blue-chip companies. He was also earning close to $20,000 in monthly dividend income. Notably absent from this portfolio? Tech stocks.

The secret is fairly obvious. By investing in companies with a history of growing their dividends over time, and by being patient, Read was able to compound his wealth.

By living below his means, he was able to accumulate enough capital to keep buying shares of great companies. And he reinvested those growing dividends for decades, to further the compounding process.

This strategy is timeless. Now, with markets facing their largest bear market in over a decade, dropping stock prices are increasing dividend yields, even for companies growing their payouts now. This strategy works for those looking for current income, but will best benefit those looking for future income.

For the full story and a list of some of Read’s top stock holdings, click here.

Cryptocurrencies

What Bitcoin Did: Inflation’s Hidden Cost

Posted on by Smart Investing

Inflation may most likely appear at the gas pump and grocery store shelves. What that really means is that inflation is particularly dangerous because it’s regressive. Lower-income households are hit harder by rising prices.

While the poorest are being hit hardest, the wealthiest tend to fare well. They either buy assets during a market panic, or own assets that tend to benefit from inflation. In other words, inflation can exacerbate economic inequality.

In a fiat system, monetary purchasing power becomes increasingly destroyed over time. Rising economic inequality is just one outcome.

Another is that lower-income households forego savings, which tend to lose value in real terms. Why save money if there’s no positive reward for doing so, and a loss of purchasing power?

And lacking enough capital to invest, lower-income households tend to be spenders instead. This increases consumption.

These households are now seeing real wage losses due to high inflation. That suggests a further economic drop, given the large role consumption plays in the economy. That could become a self-fulfilling prophecy. As consumption declines, companies lay off more workers, who then cut back. This creates a downward spiral.

With the push by the Federal Reserve to crush inflation, the real question might be the role of inflation targeting may play.

To listen to the full podcast, click here.

 

Stock market strategies

Money For the Rest of Us: How to Survive a Bear Market

Posted on by Smart Investing

Investors have been lulled by easy money in the past decade. The stock market had its longest upward run from 2009 to 2020. And even the selloff at the start of Covid barely hit bear market territory before recovering.

Most traders today might now overlook the fact that bear markets tend to be far more common. Even 10 percent corrections used to occur closer to once a year on average.

And a 20 percent pullback denoting an official bear market used to occur every 2-3 years. Historically, bear markets drop about 30 percent on average before a recovery. That suggests there may be a bit more downside in the coming months.

This current bear market is being driven by two factors. The first is rapidly-rising interest rates, similar to how the Federal Reserve acted in the early 1990s. The second is high inflation, much like conditions in the late 1970s.

Stocks are selling off as high inflation lowers certainty over a company’s earnings. That’s why growth stocks are getting hid harder than value stocks right now. And higher interest rates mean a higher cost of capital. That will hit more leveraged companies harder as well.

Investors should look to put cash to work in value stocks, industry leaders, and dividend paying opportunities in a bear market. And understand that bear markets end in time, with a new rally and new highs in time.

To listen to the full podcast, listen here.

Economy

Wealthion: Robert Kiyosaki: Worst Crash of Our Lifetime Ahead

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One of the biggest impacts of inflation isn’t just the loss of purchasing power. Rather, it’s the fact that wages are dropping in real terms.

Workers are used to getting an inflation adjustment of a few percent per year. Now, that’s simply lowering the total loss given the high inflation rates now. That means that most workers are falling behind. And since income drives consumption, it’s likely that the economy is in for more pain ahead.

Meanwhile, there are no easy solutions. Politicians may push towards trying to inflate their way out of an economic slowdown, even as inflation remains high. The alternative, letting things crash so they can rebuild from a more solid foundation, seems unthinkable.

Many have stated for years, even decades, that our financial system is overleveraged. Yet it seems to continue to grow. But with markets coming off a strong, long-term bull run and wages now falling, that could change.

It’s likely that many won’t see a further crash. Inflation is at 40-year highs, levels last seen before any of today’s traders may have even been born. And many of today’s traders may have started after the Great Recession, leaving them poorly equipped to deal with an extended market decline.

While it’s possible that another rally could kick off, some of the data indicates that a far worse crash could unfold out of today’s bear market.

To listen to the full interview, click here.

Commodities

Kitco News: Watch For “Real Collapse” Warning Signs; Markets Are Still In “Complacency” Mode

Posted on by Smart Investing

Markets have had a fast shift in sentiment in the past few months. That’s sent many leading assets during the rally higher into losing positions. A number of companies are even facing liquidity and solvency issues as a result.

Amazingly, despite the sharp selling in recent months, markets may be in for a further drop. That’s because a number of sectors could still head lower, even those that should be serving as a market hedge now.

Investors are still increasing their cash positions. That’s occurring even as inflation is at a high rate.

Investors are willing to face a loss in real terms over time just holding cash. But if they can buy assets at a lower price in the coming months, they could fare well over time.

Even bonds aren’t faring well as a safe-haven assets. The move higher in yields this year has led to a drop in prices. Potential buyers are likely looking for even lower bond prices before buying in.

Traditional hedges for today’s environment like precious metals have likewise proven underwhelming for investors. Mining companies are making lower lows right now as well, a sign that there may be more weakness ahead.

In the short-term, markets could see a complacency rally in the coming months. However, as long as economic growth slides and inflation remains high, a longer-term downtrend could continue.

To see the full interview, click here.

Cryptocurrencies

Simply Bitcoin: Bitcoin and the Changing World Order

Posted on by Smart Investing

Risk-on assets like growth stocks and cryptocurrencies have been the hardest hit in this market selloff. Yet these assets could play a role investing going forward.

That’s based on a few factors, the most critical of which is the adoption of a new technology. For crypto, Bitcoin still has the lead, in terms of network size, the number of nodes, and the number of technologies being built off of Bitcoin.

With markets potentially in a cycle that could see some sort of wealth destruction, Bitcoin could snap back to new highs sooner than many think.

The cryptocurrency is down 70 percent from its recent highs. But over the past 5 years, it’s up nearly 700 percent.

That perspective indicates that Bitcoin continues to serve as a store of value. More importantly, it’s one that’s outside the control of any government. Investors face rising interest rates. And a sense that governments are losing control of their ability to control monetary policies. Consequently, investors need a hedge.

In addition to this economic cycle, any pullback could also lead to a changing world order. Typically, nations that have led the world have started out strongly, on solid fundamentals. Then they have tried to extend their economic progress using tools like monetary policy in lieu of real growth.

With fiat currencies being the world norm for about 50 years now, the global monetary system is loaded with debt. It’s poorly prepared to handle significantly higher interest rates. That could be a boon for other assets in this market.

To view the full analysis, click here.

Economy

What Bitcoin Did: Is Hyperinflation Coming?

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Right now, investors are worried about inflation. It’s on the rise, with the UK reporting a new high just this week. This could be just one more sign that we’re in a massive bubble, where sovereign debt could become an issue.

With rising debt levels and rising interest rates leading to higher servicing costs for that debt, things look unmanageable. The bursting of this bubble could happen in a number of ways.

Given the propensity of governments to print money, hyperinflation could be a solution. Rather than pay off the debt with austerity and avoiding more debt, government could simply print money and pay that debt off.

As we’re seeing now, printing money on a smaller scale during the pandemic, can lead to high inflation. In a hyperinflation, prices could rise even further. That would wipe out debt in real terms quickly, but it would also destroy a lot of the economy along the way.

Nation after nation, from Zimbabwe to Venezuela to the Wiemar Republic, has faced hyperinflation from printing too much money. The end results are an economic depression. Meanwhile, there’s also political strain, as new politicians come into power to take power, not to fix the problem.

Unwinding from current debt levels without hyperinflation is historically unlikely. Investors need to be prepared for the possibility of higher inflation rates for longer.

To listen to the full analysis of how destructive hyperinflation can be, click here.

 

Economy

A Wealth of Common Sense: Animal Spirits: Peak Pessimism

Posted on by Smart Investing

Markets are facing a tough year. Inflation and mortgage rates are spiking. And the economic data out there has yet to turn positive. It’s no surprise that investors are pessimistic. But have they reached peak pessimism?

They may not yet. That’s based on a number of factors, such as the length and depth of the average bear market. And based on how investors are handling current market conditions.

So far, only 7 other years since the end of World War II have had a lower percentage of positive days in the first half of the year.

It’s clear that Investors are swearing off investing after making massive returns in 2020 and 2021. And that’s before the US economy has officially slipped into a recession.

And with 40 percent of stocks in the S&P 500 index still at a 52-week low, it’s clear that selling in all assets has been relentless. However, that’s not usually a sign of a bottom. Investors may expect more selling in the weeks ahead.

Those who ignored risk are starting to reconsider a portfolio more balanced with fixed income or other, less risky assets. Yet the traditional 60-40 portfolio, a mix of stocks and bonds, still hasn’t come back into favor yet.

To listen to the full podcast looking at how to best estimate when markets hit peak pessimism, click here.

Economy

Meet Kevin: An Ugly Warning to Everyone

Posted on by Smart Investing

Investors are braced for a recession. That’s partly due to the first quarter GDP numbers, which showed a surprise decline. And it’s also based on trends like the current high inflation and rising interest rates.

But some new data coming out indicates where markets could face their biggest drop next. Unsurprisingly, the combination of rapidly-rising prices over the past few years and rising interest rates could hit housing hard.

Existing homeowners, locked into low-rate mortgages, have a perfect hedge against inflation now. But those who have been buying homes as hedges have driven up prices. Now, the price-to-rent ratio is approaching a level last seen in 2006.

That coincides with the peak of the housing market in the last cycle. And it indicates that housing is set for the next drop. Given slowing home sales and soaring mortgage rates, prices will likely drop on a year-over-year basis in the coming months.

Plus, in their drive to reduce inflation, the Federal Reserve may be willing to tolerate a higher unemployment rate. That could lead to a rise in foreclosures as workers lose their jobs.

In other words, a perfect storm of high inflation, inflated prices, and a red-hot labor market may combine. That could create a new meltdown in housing.

To view the full analysis, click here.

Economy

The Irrelevant Investor: When Do Stocks Bottom?

Posted on by Smart Investing

Bear markets are measured in months, bull markets are measured in years. Over time, that’s a good fact to remember. But in the middle of a bear market, it can still be tough to sit through.

That’s why many investors are looking at trends to determine when the current bear market will end. Past trends tell a number of different stories, although there are also significant outliers.

The most significant outlier is the last recession. The bear market of 2020 took 22 days to unfold, and an 11 further days after dropping 20 percent before hitting a bottom. In 1949 and 1957, two bear markets unfolded just one day before a cyclical bottom.

On the other hand, some of the worst performing bear markets, in 1974 and 2002, took 310 and 576 days to unfold in total.

The averages are somewhat skewed by these results. It takes the stock market 236 days on average to go from a peak to a 20 percent pullback. Then a further 131 days on average to reach the bear market’s bottom.

Given that stocks peaked back in November, we’re somewhat close to this average right now. And another 130 days from now would put a bottom in around October. But that’s if the average holds.

To read the full data on historical bear markets and where investors stand today, click here.