Broken Pie Chart

The US Presidential election season is in full swing. But does it matter for the Stock Market which party gets elected? Spencer Wright from Halbert Wealth joins Derek to review some surprising historical statistics around market returns and GDP growth. Including some surprising data on some Presidents you might have been better or worse. Plus, they go through Professor Alan Lichtman's 13 Keys model to try and predict this year's election. Historical stock market returns by Presidents and Party in Power President, Senate, and House Historical GDP growth rate by Presidents How often does the President, House, and Senate combinations of Republican or Democrat happen Reviewing the Electoral College Map prospects for 2020 What is the "13 Keys to the White House" saying about the 2020 election Predictions for 2020 election Does the President's party matter for stock market returns? Surprises within the historical data on returns and GDP growth Link to 97 years of historical returns by president Mentioned in this Episode: Historical Stock Market and GDP Growth by President, Senate, and House Party https://razorwealth.com/do-presidents-and-the-congress-really-impact-stock-market-returns/ 270 to Win Electoral Map https://www.270towin.com/ Book 13 Keys to the White House by Alan Lichtman https://amzn.to/2G77GPH 13 Keys to the White House 2020 Version https://amzn.to/3b6ST37 Derek Moore's book Broken Pie Chart https://amzn.to/31CDzYP Contact Derek www.razorwealth.com

If you listen to CNBC or Bloomberg you probably hear analysts talking about how the Forward PE Ratio is higher than historical averages on the stock market. But how are they figuring these numbers? How does the drop in earnings in the S&P 500 in 2020 due to Covid19 compare with earnings drops in 2008 and 2009? How long did it take them to recover? What is a Forward PE Ratio? How is the Forward PE Ratio calculated? What is the Earnings Yield? How is Earnings Yield calculated? Drop in earnings 2008 vs 2020 and years to recover Are Forward PE Ratios a good predicter of future returns? Cape Ratio or Shiller PE Mentioned in this Episode: Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com

For years many have pointed to the end of the 60/40 Portfolio's reign as a mass recommended asset allocation. But even in 2020, it still worked as bonds rallied and interest rates dropped to record low levels in the US. But with rates this low, do the risks now outweigh any potential benefits? How much more could bonds rally due to changes in interest rates given where they are? How negative could rates go? What is 60/40 Stock Bond portfolio? Is it realistic to think bonds will have same run as 1981-2020 going forward? How negative can US Treasury yields go? Nominal Returns vs Real Returns after inflation Amount of negative yielding debt around the world More interest rate risk while yields and cash flows are lower Alternatives to the 60/40 Portfolio Bill Gross said rates would have to go to negative -17% to equal last 40 year run in bonds Mentioned in this Episode: Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Podcast Myths around the 60/40 Portfolio https://brokenpiechart.libsyn.com/discussing-myths-around-the-classic-6040-portfolio-part-i Contact Derek www.razorwealth.com

In the recent Covid financial crisis the Federal Reserve "printed" a bunch of money that increased the money supply. This should lead to massive inflation, right? Well, maybe not if we look at the relationship between the velocity of money (how often the same dollar is used) and the inflation rate. See how to figure out the velocity of money. What is the money supply and where to find it? What is the Velocity of Money? What is the money supply? Difference between MZM, M1, and M2 money supply Relationship between money velocity and inflation Comparing increase in money supply now in 2020 to the 2008-09 period Money supply has increased over 20% since Feb in the US Money as a medium of exchange What happens when the velocity of money goes below 1 (like in Q2 2020)? Japan experience with deflation and low money velocity Where can you find the money supply, GDP, and money velocity charts? Mentioned in this Episode: See the graph money velocity vs. inflation here https://razorwealth.com/money-velocity-relationship-to-inflation/ Current Nominal GDP US https://fred.stlouisfed.org/series/GDP Current Velocity of Money Supply MZM https://fred.stlouisfed.org/series/MZMV Current Money Supply MZM in US https://fred.stlouisfed.org/series/MZM Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com

Apple released earnings last week but also announced their board authorized a 4-1 stock split. Do stocks splits matter anymore? And would a 4-1 Apple stock split completely shake up the weighting of the Dow Jones Industrial Index? Effect of Stock Splits Authorized stock split vs. implemented How a stock split affects a company's market cap What changes around earnings history and price history post stock split? How are companies in the Dow Jones Index weighted? Price weighted indexes vs. market cap weighted indexes How Apple's proposed stock split will upend the weighting in the Dow Jones Index Mentioned in this Episode: Dow Jones Index companies current index weightings http://indexarb.com/indexComponentWtsDJ.html Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com

Last week we talked about Tesla's potential to qualify for the S&P 500 Index. Post earnings, some new option traders were surprised by the stock and options prices post positive earnings release. Plus, a paper recently updated called "Day trading for a living?" compile data on day traders trading futures contracts. The results were not too promising but what did the paper leave out? Tesla options implied volatility in premiums post earnings release Robinhood traders on Reddit message boards – do they know what they are doing? "Day Trading for a Living?" a paper recently updated sheds light on futures traders What is the trading risk of ruin table? Position sizing and percent of capital put at risk for traders Mini Ibovespa futures contracts in Brazil High volatility of returns cited in day trading paper 97% of traders lose money day trading according to paper What is the risk of ruin? Comparing risk of ruin across different payoff ratios Mentioned in this Episode: "Day Trading for a Living? " paper https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3423101 How are options priced podcast https://brokenpiechart.libsyn.com/how-are-options-priced-and-what-is-short-volatility Book: A Trader's Money Management System: How to Ensure Profit and Avoid the Risk of Ruin by Bennett McDowell , Forward by Steve Nison https://amzn.to/32WqJ8W Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com

Tesla has had a meteoric rise lately. At their recent high their market cap would have put them in the top 10 weighted companies of the S&P 500 Index. But will Tesla have the required consecutive quarters of positive earnings? What are the criteria for a company to be included in the S&P 500 Index? When does S&P do their index rebalancing? Which companies have been added and deleted from the index? Tesla current market cap What would Tesla's weighting be if they made the S&P 500 Index Why do investors want their stocks included in indexes? Tesla next earnings announcement Consensus analyst earnings expectations Tesla Which companies were added and deleted from the S&P 500 Index? Can S&P committee stray from the guidelines to add or delete companies? How soon could Tesla be added to the S&P 500 Index S&P 500 Index scheduled rebalancing calendar Tesla and Zoom in the Nasdaq 100 Index Last stocks to be added and deleted from the S&P Index Mentioned in this Episode: Fortune article Will Tesla Be Added to S&P 500? https://fortune.com/2020/07/14/tesla-s-and-p-500-index-stock-added/ Historical changes to S&P 500 Index companies additions and deletions https://en.wikipedia.org/wiki/List_of_S%26P_500_companies#Selected_changes_to_the_list_of_S&P_500_components 2020 Trading Calendar showing index rebalance dates and options expiration – trading holidays https://www.nasdaq.net/PublicPages/assets/MyMID/Trade_Calendar_2020.pdf Nasdaq 100 Index companies by weighting https://www.slickcharts.com/nasdaq100 Criteria for inclusion in the S&P 500 Index https://www.thebalance.com/what-is-the-sandp-500-3305888#:~:text=As%20of%20February%202020%2C%20the,S%26P%20500%20was%20%2424.4%20trillion.&text=To%20qualify%20for%20the%20index,at%20least%20%241%20per%20share. Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com

Why doesn't the stock market and economy both go up or down with one another at the same time? How is the market a forward-looking discounting mechanism? How do recessions and earnings expectations play into underlying price of the S&P 500 Index? Atlanta Fed GDP Now Comparing historical recessions by examining real GDP declines Great Depression vs. Financial Crisis vs 2020 Covid19 Recession Looking at consensus S&P 500 Index earnings forecasts 2020, 2021, and 2022 How the market does not go up or down equal to change in GDP Are there times that companies write down or take charges to earnings during recessions Uncertainty of S&P 500 Index earnings estimates Intrinsic value of future earnings How interest rates effect valuations Mentioned in this Episode: Atlanta Fed GDP Nowcast https://www.frbatlanta.org/cqer/research/gdpnow?panel=3 JP Morgan on the Markets Guide PDF https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/guide-to-the-markets Percent Change Gross Domestic Product Quarterly https://fred.stlouisfed.org/series/CPGDPAI Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN Resource for S&P 500 Index consensus earnings estimates https://www.yardeni.com/pub/yriearningsforecast.pdf Book Jeremy Seigel Stocks for the Long Run https://amzn.to/3el67tO Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com

The Federal Reserve through their SMCCF or Secondary Market Corporate Credit Facility have been buying bond etfs and individual bonds. What have they been buying and how much? Where to find the list of ETFs and Bonds purchased by the Fed. Plus, TIPS or Treasury Inflation Protected Securities (Bonds). How do they work? How do they hedge against inflation? And How are TIPS bonds adjusted along with inflation. Where to find list of ETFs and bonds the Federal Reserve is buying? What is the Federal Reserve SMCCF or Secondary Market Corporate Credit Facility? The Fed has purchased about $6.8 Billion worth of corporate bond etfs through June 18th The Federal Reserve also has been buying junk bond etfs How much and what individual bonds of corporations has the Fed purchased thus far? How much has the Fed said it will purchase of corporate bonds? What are TIPS bonds (Treasury Inflation Protected Securities)? What year did the US Treasury first offer TIPS bonds? When inflation via the CPI increases, how are TIPS bonds adjusted higher? How does deflation cause an adjustment lower in TIPS bonds? Do the coupon payments on TIPS bonds increase along with the principal amounts? What is breakeven inflation rate? What does the breakeven inflation rate tell us about cash flows of TIPS vs US Treasuries? Where to download excel file with Federal Reserve ETF and Bond holdings? How do TIPS bonds help investors potentially protect purchasing power and leverage inflation? Mentioned in this Episode: Download Federal Reserve holdings and trades of ETFs and Bonds (SMCCF Transaction-specific disclosures June 28th, 2020) https://www.federalreserve.gov/monetarypolicy/smccf.htm 10 Year Breakeven Inflation Rate https://fred.stlouisfed.org/series/T10YIE Derek article showing current Fed holdings of ETFs and bonds https://zegafinancial.com/blog/really-dont-fight-the-fed-federal-reserve-updated-holdings-of-bonds-and-etfs-6182020 Jeremy Siegel talks inflation with Barry Ritholtz https://podcasts.apple.com/us/podcast/jeremy-siegel-on-the-stock-market-under-covid-19-podcast/id730188152?i=1000478723627 Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN Book Jeremy Seigel Stocks for the Long Run https://amzn.to/3el67tO Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com

Semi co-host Jay Pestrichelli joins the program to discuss all things VIX Index, what it measures, how stocks and markets each have their own volatility, and how implied volatility in the options market can determine probability of future moves. What does the VIX Index represent? What is implied volatility in the options markets? What is the difference between implied volatility and historical or realized volatility in markets? How implied volatility helps calculate current market-based probabilities Jeremy Siegel now calling for some inflation Options pricing around stock earnings Reminiscing about CNBC after hours earnings options action appearances Options speculation vs hedging Mentioned in this Episode: Jay Pestrichelli' s book "Buy and Hedge" https://amzn.to/2UEk12c Realized vs Implied Volatility March 2020 https://zegafinancial.com/blog/strategy-update-4-2-20 Why investors need a hedged equity strategy podcast https://podcasts.apple.com/us/podcast/why-investors-need-a-protective-hedged-equity-strategy/id1432836154?i=1000418366567 Jeremy Siegel talks inflation with Barry Ritholtz https://podcasts.apple.com/us/podcast/jeremy-siegel-on-the-stock-market-under-covid-19-podcast/id730188152?i=1000478723627 Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN Book Jeremy Seigel Stocks for the Long Run https://amzn.to/3el67tO Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com

Often younger or newer investors just starting the process of saving and investing ask what the best strategy to build wealth quickly? The power of compounding and starting early are key, but periodically investing each month and making it automatic can build wealth surprisingly well. In this episode we talk about key areas in what younger investors should be doing including 401k, systematic investing, and how dollar cost averaging lets you buy more lower over time. Plus, surprising statistics reviewing 120 years' worth of decades and each of their compounded annual growth rates in the S&P 500 Index. What was the compounded total return for the S&P 500 Index by decade back to 1900? What is dollar cost averaging? How does compounding accelerate your wealth building? What is dividend reinvestment? Between Schwab, Vanguard, TD Ameritrade, and Fidelity investors have plenty of tools and resources to start investing Accumulation and Distribution phases of investing plus the extra base maximization phase 10 years prior to retirement Why you should not try and get rich quick using options or futures and thus leverage What is an automatic investment plan moving money each month from bank accounts to brokerage accounts? Explaining Charles Schwab's new stock slices to buy fractional shares of S&P 500 stocks Mentioned in this Episode: Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN Charles Schwab fractional shares https://www.schwab.com/fractional-shares-stock-slices Charles Schwab investing basics 101 FAQs https://www.schwab.com/how-to-invest/investing-basics#panel--text-29676 Book Jeremy Seigel Stocks for the Long Run https://amzn.to/3el67tO Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Stock compounded total returns by decade https://zegafinancial.com/blog/where-did-the-2010s-rank-for-total-return-on-sandp-500-index Contact Derek www.razorwealth.com

Quasi co-host Jay Pestrichelli, CEO of ZEGA Financial, is back on to discuss whether the lower interest rates for longer crowd is on to something. Plus, while interest rates may cause home price inflation, the data points to other reasons car prices have continually risen. What is the real inflation rate? The Federal Reserve doing "whatever it takes" to keep rates down and buying bond funds. Plus, risk to bonds in a low rate period and what alternative strategies that use synthetic options to replicate a bond yield. Jay Pestrichelli re-releases Amazon bestseller "Buy and Hedge Book" Lots of talk around the lower interest rates for longer idea Does the CPI represent real inflation? Chapwood alternative inflation index Comparing Japan and Europe's negative rate experiment with the current US landscape Have risks in bonds ever been higher if interest rates rise? Low interest rates leading to housing inflation or just readjusting for lower rates? Lower rates do not impact car prices moving higher quite as much as extending loan durations Option spreads to create a synthetic bond replacement strategy How a stocks dividend is embedded in a put option Low bond yields tough for early retirees Mentioned in this Episode: Jay Pestrichelli' s book "Buy and Hedge" https://amzn.to/2UEk12c Chapwood alternative inflation index https://chapwoodindex.com/ Are bonds riskier with low rates podcast https://podcasts.apple.com/us/podcast/are-bonds-riskier-with-low-interest-rates/id1432836154?i=1000465096378 Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com

Graniteshares CEO William Rhind joins Derek Moore on the podcast to discuss how technology disruption is causing some companies to adapt and thrive while others falter. Can you focus on eliminating companies who are likely not positioned for the future while keeping those that are? How the Covid-19 crisis may have sped up many technology innovations while zombie companies face pressures. Value vs Growth debate. Was Dominos a tech company all along? Plus, European Football relegation and promotion and much more. Growing vs faltering companies What traits do growing companies possess that those likely to be disrupted lack? Dominos vs Google – Both 2004 IPOs yet surprising which would have highest cumulative growth rate Dominos – a pizza shop or stealthy tech company? Value vs Growth debate Did companies like Apple an Amazon live up to their value? Netflix vs Blockbuster Video – obvious now but in the moment? Will inflation and interest rates be lower for longer? Zombie Companies – how Covid-19 sped up some of their declines Walmart growth over the year's vs Amazon XOUT ETF strategy overview Risks of rising interest rates to US Treasuries Negative Yielding TIPS auctioned off 60/40 portfolio with bonds vs gold Mentioned in this Episode: Graniteshares https://www.graniteshares.com/ Forbes piece on William Rhind https://www.forbes.com/sites/baldwin/2018/08/30/this-guy-is-taking-on-blackrock-and-state-street-with-cut-rate-gold-and-commodity-etfs/#25ce004b750d Contact Derek www.razorwealth.com Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

How does the social security administration estimate what your monthly benefits? How do they adjust prior earnings for inflation? You can look up your earnings history and monthly benefit estimate at the social security site, but how do they come up with their numbers? How do they determine the cost of living adjustments? How much difference is there in taking social security at age 62 vs full retirement age? What are some considerations in that decision? How social security uses your highest 35 inflation adjusted earnings years to figure benefit How does social security adjust your prior earnings for inflation? What is the breakeven point in taking benefits at 62 (early) vs 67 or 70? What are the bend points to determine how much your monthly benefit will be at full retirement age? The CPI-W index used to determine COLA or cost of living adjustments How to find out what your earnings history and benefit estimated monthly number is Mentioned in this Episode: Bend points in social security used to calculate monthly estimated check https://www.ssa.gov/OACT/COLA/piaformula.html CPI for Urban Wage Earners and Clerical Workers https://www.ssa.gov/OACT/STATS/cpiw.html What is the amount up to you pay social security taxes on? https://www.ssa.gov/OACT/COLA/cbb.html National Wage Index for Social Security (to inflation adjust your past earnings) https://www.ssa.gov/OACT/COLA/AWI.html Create My Social Security account and see what your earnings history and benefit estimation is https://www.ssa.gov/myaccount/ Contact Derek www.razorwealth.com Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Jay Pestrichelli, ZEGA Financials' CEO joins Derek Moore to walk through how this bear market compares to the 2008 Financial Crisis, 1997-1998 Asian Contagion, and 2000-2001 Dotcom crash. Are all these bear markets the same? Jay explains his rule of 3 showing the catalyst in each and how they are different. Plus, Derek describes how this last sharp decline resembles the trading action in August of 1998. What lessons can we take out of bear markets with regards to how sectors and regions tend to revert to the mean? Discuss Charles Schwab commercial adding perspective to long run history in markets Speed of this bear market compared to previous ones Personal recollections of the last couple bear markets Surprising data from the 1997-1998 bear market in emerging markets vs US equities Trading halts and curbs The case again for using hedges in building portfolios Discussion of various catalysts behind previous bear markets Not all bear markets have a recession as well Reversion to the mean in historical sector returns Mentioned in this Episode: Jay Pestrichelli previous podcast appearances https://zegafinancial.com/in-the-news/podcast Callan Periodic table of investment returns by sectors https://www.callan.com/wp-content/uploads/2020/01/Classic-Periodic-Table.pdf Older Time frames Callan Periodic Table of returns including emerging markets https://www.callan.com/wp-content/uploads/2017/02/Callan-PErTbl_Collection_2017-1.pdf Contact Derek www.razorwealth.com Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Watching the financial news, we have been seeing some people make predictions of a deflationary period. At the same time others point to growing debt levels and Federal Reserve money printing as precursors to inflation. But what if deflation could be both good at the same time? Falling prices can happen by technological innovations or falling demand. One is better than the other. But for indebted countries, individuals, and companies' deflation can increase the real value of debt. That is potentially bad! What is deflation? What is inflation? Formula to inflation adjust prices using CPI Index Examples of how deflation raises the real value of debt How inflation can deflate the value of debt Massive inflation in textbooks but deflation in the price of TVs. Demand falling off can hurt margins and equal bad deflation Adjusting the price of a 10-minute-long distance call from 1982 to 2020 dollars. Deflation doesn't mean consumers will always put off purchases to later day Mentioned in this Episode: Chart showing various inflation or deflation in consumer goods 1997-2017 https://s.marketwatch.com/public/resources/images/MW-GD574_CPICha_NS_20180212131601.png CPI Index https://fred.stlouisfed.org/series/CPIAUCSL What are Zombie Companies https://podcasts.apple.com/us/podcast/what-are-zombie-companies/id1432836154?i=1000473428395 Payoff mortgage early or invest periodically https://podcasts.apple.com/us/podcast/should-i-payoff-my-mortgage-early-or-invest/id1432836154?i=1000467130109 Inflation erodes purchasing power of US Dollar https://podcasts.apple.com/us/podcast/how-purchasing-power-dollar-is-eroding-plus-why-inflation/id1432836154?i=1000433222599 Contact Derek www.razorwealth.com Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

2011 saw the release of Margin Call, a movie staring Kevin Spacey, Jeremy Irons, Demi Moore, Stanley Tucci and more. A very strong acting performance from the whole cast. But what was the problem they pointed to with their (Var) or Value at Risk Formula? What did the junior analysts figure out that the firm did not? Margin call was focused around 24 hours at an investment bank on the verge of a problem with their mortgage backed assets. Learn about another good finance movie plus an explanation of the (Var) Value at Risk theory and its good and bad. What is VAR? What is Value at Risk formula? What type of data does VAR utilize? Speculation on what investment bank Margin Call Movie is based on Volatility based risk estimates 95% and 99% confidence levels and VAR Simplified explanation of probability and confidence levels Discussion on historical data and normal distribution to predict future returns Implied Volatility to show expected single and multiple standard deviation moves Implied volatility around earnings releases for momentum stocks like Netflix or Tesla Mentioned in this Episode: Credit Default Swaps explained through the Big Short Movie https://podcasts.apple.com/us/podcast/the-big-short-movie-credit-default-swaps-explained/id1432836154?i=1000465683509 Contact Derek www.razorwealth.com Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

In the 1990's the term "Zombie Company" originated out of Japan during their lost decade. Today though we are hearing more and more about Zombie Companies in the U.S. Zombies are companies that only make barely enough net income to cover their annual interest costs on debt. Or, they may not even make enough to cover their annual debt and must borrow more money. What are Zombie Companies? Why are Zombie Companies bad? And how can you determine if a company is a Zombie Company or not? What are Zombie Companies? What percentage of companies in U.S. are considered Zombies? Calculation used to identify Zombie Companies What is the Interest Coverage Ratio? Example of EBIT and Interest payments indicating Zombie Company Status Assets minus Liabilities on balance sheet indicate net income number of quarters to pay off debt Why Zombie companies are bad How Zombie companies cannot grow or reinvest capital How the Fed and low interest rates fueled Zombie Company creation Economic and interest rate risks to Zombie companies Mentioned in this Episode: Podcast: Earnings Multiples, Valuations, Revenue, Net Profit Margins, Stock Buybacks and other Explanations http://brokenpiechart.libsyn.com/earnings-multiples-valuations-revenue-net-profit-margins-stock-buybacks-and-other-explanations Podcast: How low interest rates benefit corporations http://brokenpiechart.libsyn.com/how-low-interest-rates-can-benefit-corporations Paper titled Rise of Zombie companies: causes and consequences https://www.bis.org/publ/qtrpdf/r_qt1809g.pdf Contact Derek www.razorwealth.com Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

On April 20th, the price of a WTI (West Texas Intermediate) futures contract representing 1000 barrels of oil went to negative -$37 a barrel. How is it possible that you could theoretically be paid to buy oil? How do oil futures work and how storage of oil works with regard to the futures market? The quick answer is, no you cannot buy a single barrel of oil and store it in your garage. Plus, using a silly Ikea couch example to explain why people would pay you to take their oil. How did the price of oil go negative? What is the difference between WTI and Brent Crude Oil? Storing oil in Cushing Oklahoma Size of 1 oil futures contract (1000 barrels) Problems with trying to store an oil barrel Difference between taking physical delivery of oil and speculation USO exchange traded product methodology Contango vs. Backwardation in futures market Rolling front month contracts forward to next month When does USO roll their front month contracts Mentioned in this Episode: Bloomberg funny article "That Time I Tried to Buy an Actual Barrel of Crude Oil" https://www.bloomberg.com/news/articles/2015-11-03/that-time-i-tried-to-buy-some-crude-oil WTI Oil Futures Prices by Month https://www.marketwatch.com/investing/future/crude%20oil%20-%20electronic Contact Derek www.razorwealth.com Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Given the recent Coronavirus selloff in the markets, I thought it might be interesting to view investor actions through the prism of the 2008 crisis in this replay of an earlier podcast episode. Recently I found several different research pieces showing how at the very lows of the Great Recession in 2009 the percentage of funds in money market funds was at its highest. In 2009 the fund flows to bonds were greater than the previous 5 years combined. So why with equities so cheap did people stay in cash or bonds? Wouldn't they want stocks when they were cheaper? This highlights how investors who panic an make rash decisions can do so at the very worst times. Why do investors panic? How does fear guide investor decisions? Percentage of funds in money markets spiked at time of March of 2009 lows Why investors didn't rebalance out of bonds and into stocks during the great recession 2009 fund flows were a record year for bonds How using Buffered or Hedged Equity Strategies can help reduce fear and irrational choices Benefits of staying invested while hedged Why now is a good time to be hedged Mentioned in this Episode: Contact Derek www.razorwealth.com Morningstar Bond Fund Flows 2009 Chart https://morningstardirect.morningstar.com/clientcomm/2009.pdf Dalbar Quantitative Analysis on Investor Behavior Report https://www.qidllc.com/wp-content/uploads/2016/02/2016-Dalbar-QAIB-Report.pdf Podcast talking about markets within 3% of all-time highs 36% of time https://podcasts.apple.com/us/podcast/fear-investing-surprising-data-points-to-markets-near/id1432836154?i=1000443860686 Why diversification fails https://podcasts.apple.com/us/podcast/ep012-does-diversification-alone-reduce-systematic/id1432836154?i=1000423615813 Buffered Equity Strategies https://podcasts.apple.com/us/podcast/adding-downside-buffers-to-investment-portfolios-using/id1432836154?i=1000419699076 Why investors need a hedged equity strategy https://podcasts.apple.com/us/podcast/why-investors-need-a-protective-hedged-equity-strategy/id1432836154?i=1000418366567 Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Recently you've probably heard a lot of financial news media referring to the widening of spreads. Specifically, the High Yield Spread has widened above 1000 basis points. But what does it mean when the high yield spread increases? Get an overview on spreads widening or tightening. Plus, see how differently rated parts of the bond fixed income market see their spreads widen or narrow compared to US Treasury Bonds. What is the High Yield Bond Spread? What does it mean when bond spreads widen? Comparing High Yield Bond yields to yields on US Treasury Bonds Bond spreads as indicator on stock market Explaining difference in credit rating on bonds What rating is considered junk bond status What did high yield spreads do in 2008 crisis? What is the Option Adjusted Spread or OAS spread? Callable bond features Comparing yield spreads in investment grade bonds, CCC bonds, BBB bonds Default rates as risk factors Probability of bond defaults Mentioned in this Episode: Current High Yield Option Adjusted Bond Spread https://fred.stlouisfed.org/series/BAMLH0A0HYM2 Podcast explaining bonds for investors and corporations http://brokenpiechart.libsyn.com/explaining-bonds-for-investors-and-corporations Current CCC High Yield Bond Spread https://fred.stlouisfed.org/series/BAMLH0A3HYC Current BBB Bond Yield Spread https://fred.stlouisfed.org/series/BAMLC0A4CBBB Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com

It's official, we reached a bear market in stocks. But when and how long will a pending recession last? How do you know an official recession has been declared? What is a recession? Two consecutive quarters of negative GDP growth NBER vs GDP 2 quarters decline Calculate GDP C + I + G + (X – M) Annualizing GDP quarterly growth rate Cyclical, Structural, or Event Driven Bear Markets Supply Shocks vs Demand Shocks Recoveries: U Shaped vs. V Shaped vs. L Shaped Mentioned in this Episode: Percent change real GDP growth rates https://fred.stlouisfed.org/series/CPGDPAI Historical recessions from the NBER https://www.nber.org/cycles.html HBR Harvard Business Review economic shocks of coronavirus https://hbr.org/2020/03/understanding-the-economic-shock-of-coronavirus Forbes on bear markets https://www.forbes.com/sites/greatspeculations/2020/03/17/keep-calm-bear-markets-are-temporary/#388b279230ba Podcast deconstructing GDP and Inflation https://www.stitcher.com/podcast/broken-pie-chart/e/56922114 Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com

An official bear market has occurred and now down over 20% from recent highs. The speed of the 2020 decline only took 22 days to happen. How does that compare with previous bear markets? How long does it take to recover on average? And when do they officially call recessions? Get a sense of the numbers behind previous downturns. What is a Bear Market? Average Time from Peak to Trough in Bear Markets? Average Time from Trough to Peak recovery? What is the HY Yield spread and why it matters Does every bear market accompany a recession? How does the speed of 2020 decline compare to other periods? What are fundamental analysts trying to figure out on 2020 earnings? What multiples at different earnings estimates theoretically might mean? Intra year market lows versus final full year performance Length of previous recessions GDP historical growth rates Mentioned in this Episode: Percent change real GDP growth rates https://fred.stlouisfed.org/series/CPGDPAI Historical recessions from the NBER https://www.nber.org/cycles.html Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com

People have been getting into arguments at grocery stores hoarding toilet paper, hand sanitizer, and bacterial soap among other things. News outlets have reported on Amazon and eBay pulling listings trying to "gouge" prices. But would price gouging create a market where items like this actual get rationed due to adjustments in demand? In this episode Derek goes over elasticity of prices and arguments for and against charging higher prices that would adjust supply and demand back to equilibrium. What is price gouging? What is elasticity of price? Arguments that laws prohibiting price gouging are bad Why have price gouging laws created opportunities for third party sellers to inflate prices? What is retail arbitrage? Examples of raising prices to ensure supply comes into an area Supply vs Demand in marks Would rising prices cause people to only buy what they need? (self-rationing) Ideas for you to study the issue and make up your own mind How airlines adjust prices to spur demand Airlines execute "price discrimination" charging business travelers more Incentives to increase supply Mentioned in this Episode: Someone stuck with 20000 bottles of hand sanitizer after Amazon removed listings https://www.nytimes.com/2020/03/14/technology/coronavirus-purell-wipes-amazon-sellers.html#commentsContainer Forbes article that laws against price gauging are bad economics https://www.forbes.com/sites/jeffreydorfman/2016/09/23/price-gouging-laws-are-good-politics-but-bad-economics/#425d325a64d3 Stossel video on price gouging https://www.youtube.com/watch?v=IqMFBdWkfo0&feature=youtu.be Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com

The Federal Reserve just announced an emergency 50 basis point cut in the fed funds rate. What does cutting interest rates mean? What are the differences in the fed funds rate, discount rate, and IOER or interest on excess reserves? How does a fed rate adjustment effect my mortgage rate? Plus, how do they figure what the probabilities are that the Fed will move rates at future meetings? What is the Fed Funds Rate? What is the Discount Rate? What is the IOER or interest on excess reserves? What is the prime rate? How does the Federal Reserve Fed funds rate affect mortgage rates on 30-year and 15-year terms? How Treasury Bond Yields are linked to interest rates on mortgages How interest rates affect the present value of future cash flows and earnings Other ways the Fed can impact money supply such as altering bank reserve requirements How to calculate the probability of a Fed interest rate change based on Fed Funds Futures When does the fed meet and schedule? Fed funds current target rate range Mentioned in this Episode: Federal Reserve Meeting Dates https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm Federal Reserve Bank New York daily effective funds rate EFFR https://apps.newyorkfed.org/markets/autorates/fed%20funds CME Fed Funds Rate Probability Tracking Tool https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html Fed Funds Futures monthly prices https://www.cmegroup.com/trading/interest-rates/stir/30-day-federal-fund.html Should I Pay off my mortgage early? https://podcasts.apple.com/us/podcast/should-i-payoff-my-mortgage-early-or-invest/id1432836154?i=1000467130109 Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com

Strong opinions exist on each side of this debate. Some believe plowing money to pay off the mortgage early is better. Others would rather step up their periodic investments and keep a low rate mortgage? In this episode Derek walks through how interest rates affect mortgage monthly payments. Key things to consider when evaluating which is better pay off early or invest. Also, what percentage of your monthly payment goes to principle and to interest depends on where you are in the loan and current rates. What should you consider when evaluating whether to try and payoff your mortgage early? How does inflation make your payment lower over time? The present value of your mortgage payments equals your loan amount How paying off your mortgage rather than investing the funds might overweight real estate Considerations should you need to pull money out for emergencies Will you do better over time investing periodically or paying down mortgage early? How to calculate when you will pay more in principle than interest Key assumptions that you will increase 401k contributions or investments monthly Understanding how interest rates change the calculus on the decision to payoff mortgage or invest Does the FIRE movement and Dave Ramsey get this question wrong? Return on paying off mortgage early vs. potential investing returns Liquid vs. illiquid investments Mentioned in this Episode: 4% withdrawal rate and retirement considerations https://podcasts.apple.com/us/podcast/is-the-fire-movement-doable-and-the-4-withdrawal-rate/id1432836154?i=1000461766880 Inflation and purchasing power of the dollar https://podcasts.apple.com/us/podcast/how-purchasing-power-dollar-is-eroding-plus-why-inflation/id1432836154?i=1000433222599 Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com

Michael Lewis wrote the book "The Big Short" that later was turned into a movie starring Christian Bale, Steve Carrell, and Ryan Gosling, Brad Pitt, and Jeremy Strong. The movie focused on 3 different investors who bet against mortgage bonds before the Great Recession and housing market collapse using credit default swaps. Want to get a primer on swaps and how they work before you watch or re-watch the movie? What are Credit Default Swaps (CDS)? What do bond ratings mean? What are the annual premiums on credit default swaps? How to convert basis points to an interest rate percentage? What is counter party risk? What does Michael Burry use to short housing in the Big Short Movie? How did people bet against the housing market? What does the spread on credit default swaps mean? Using Credit Default Swaps to hedge or speculate Mentioned in this Episode: Current Credit Default Swaps Spreads on Sovereign Country Bonds https://www.cnbc.com/sovereign-credit-default-swaps/ Michael Lewis Book the Big Short https://amzn.to/2SNhUr1 The Big Short Movie https://amzn.to/31ROJrc Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com

Bonds prices are a function of current interest rates compared to their present value of cash flows and return of capital (baring defaults) at maturity. So, with interest rates so low around the world, is this a period of higher risk in bonds (fixed income)? How much more sensitivity to interest rate changes do we currently see in the sector? How do callable bonds mute the positive effects of reductions in market rate of interest? How does the US Aggregate Bond Index compare to the Global Ex-US Aggregate Bond Index from a yield and duration risk comparison? Derek Moore discusses these and other aspects of evaluating risk in bonds due to changes in interest rates. What is duration risk in bond portfolios? Comparing duration and yields between US Aggregate Bond Index and Global World EX-US Aggregate Bond Index? Negative yield to maturity bonds in Europe and Japan How does lower rates extend duration risk in bonds? How do callable bonds potentially mute upside market move in bonds when rates fall? Bonds market value a combination of present value of cash flows (interest payments) and return of capital at maturity What are call provisions on corporate bonds? Investor expectation of annual returns equal to the current yield to maturity? 2018 when both stocks and bonds via the US Aggregate Total Return Index were negative Mentioned in this Episode: Short Selling Terms Explained through Tesla https://podcasts.apple.com/us/podcast/short-selling-explained-tesla-short-interest-short/id1432836154?i=1000463711042 Explaining negative yielding bonds https://podcasts.apple.com/us/podcast/wacky-negative-yielding-bonds-need-for-alternative/id1432836154?i=1000442461907 Real returns vs nominal returns above inflation https://podcasts.apple.com/us/podcast/importance-real-returns-above-inflation-how-to-calculate/id1432836154?i=1000440384756 Myths of the 60/40 stock/bond portfolio https://podcasts.apple.com/us/podcast/discussing-myths-around-the-classic-60-40-portfolio-part-i/id1432836154?i=1000434346248 Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com

Tesla stock it seems is always in the news. Between it's CEO Elon Musk and the latest price action, it has been commented on ad nauseum. Lately, the terms short squeeze and short interest ratio have been mentioned as CNBC commentators talk about those who have been betting against the stock and taking some losses of late. So what is short selling and what do the terms short interest ratio, days to cover, and short squeeze really mean? What is short selling? Borrowing shares to sell short What is the short interest ratio? What does Days to Cover ratio mean for share held short? What is a short squeeze? Tesla short interest ratio and days to cover Risks of short selling How do short sellers make or lose money? Where to find short interest ratio? Where to find days to cover ratio? Mentioned in this Episode: Tesla TSLA stock info at marketwatch https://www.marketwatch.com/investing/stock/tsla Tesla TSLA days to cover short interest Nasdaq site https://www.nasdaq.com/market-activity/stocks/tsla/short-interest Free Chapter Broken Pie Chart: https://www.book2look.com/book/YcqUhbCrtN Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com

With the new decade came prediction after prediction trying to call what the next decade's compounded growth rate will be. Many have said investors need to prepare for lower returns based on the numbers. But what if other prognosticators have a different view that is more bullish? We can't predict future market returns, but we can talk through what they are looking at valuation and return wise to help you see both sides of it. Why are CNBC and FOX Business guests saying to expect lower future market returns? What is the CAPE Ratio? What does the previous annualized 20-year return say about the next 10 years? What role do interest rates have in stock valuation? Just be long the market but be hedged or buffered What is the equity risk premium? What is the CAPM Capital Asset Pricing Model Where are we currently valuation wise according to the Forward PE Ratio? Mentioned in this Episode: Of Dollars and Sense "Investors Fallacy" comparing past 20 year returns with subsequent 10 year returns https://ofdollarsanddata.com/the-investors-fallacy/ JP Morgan Guide to the Markets https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/guide-to-the-markets Free Chapter Broken Pie Chart: https://www.book2look.com/book/YcqUhbCrtN Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com

Recently I've been asked by several people about the FIRE movement. Financial Independence and Retire Early. This strategy relies on increasing percentage of salary in savings, reducing expenses, and assuming a compounded rate of return. Then when they have 25 times their desired retirement salary, they achieve the FI. So, does the math add up? Does the 4% rule still work? And what might they and aspiring retirees be missing? Sequence of returns may play a larger part plus the 10 years prior need to achieve the right compounded growth rates. What is the FIRE movement? Using 25 times desired retirement income to determine assets needed What is the 4% withdrawal rate mean? Is 4% still doable given lower intertest rates Different stages including accumulation, base maximization, and distribution How does inflation affect the 4% withdrawal strategy? Sequence of returns comparison Is it better to lose early or late once in retirement? Mistakes aspiring FIRE movement might overlook How to calculate future values with compounded growth rate and deposits Are medical costs underestimated by FIRE followers? Mentioned in this Episode: Free Chapter Broken Pie Chart: https://www.book2look.com/book/YcqUhbCrtN CNBC How social security benefit amounts are calculated https://www.cnbc.com/video/2020/01/02/how-social-security-benefits-are-calculated-on-a-40000-salary.html Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com

Watching financial media, you hear terms like PE and Forward PE multiples, revenue, margins expanding or contracting, and share buybacks. So, what does it mean for a stocks price when multiples increase or decrease? What is the attribution for earnings increasing or decreasing? How do you calculate net profit margin? Earnings releases can be more complicated than they need to be. In this episode, Derek Moore explains scenarios in detail so you can gain a better understanding of all these terms and what it means for stock valuations and earnings growth. How to calculate the market cap of a stock How to calculate the earnings per share (EPS) How to calculate the PE Price to Earnings Ratio Using net income and revenue to figure out the net profit margin Difference between multiple expansion and earnings growth for stock prices What are key determinants of a stock's earnings (Revenue, Margins, Share Buybacks or Issuance) How share buybacks effect earnings per share Difference between market cap and net income versus per share earnings How earnings per share can growth with changes in share count, revenue, and net profit margins What is a PE ratio? What is net profit margin? What is a stock's market cap? Mentioned in this Episode: Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Contact Derek www.razorwealth.com J.P. Morgan's Guide to the markets https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/guide-to-the-markets

Recently a JP Morgan analyst highlighted how wrong stock market predictions would have caused investors to lag the markets by up to 60%. What were some of the since disproven predictions? Why do people read and follow some of this stuff? Although analysts also have predictions that prove true, if you have a hedged portfolio strategy why should you even care what people are saying? Discussed in the episode are some calls by Elaine Garzarelli , Nouriel Roubini, Jeff Gundlach, Peter Schiff, Carl Icahn, Paul Krugman, Marc Faber and more. Summarizing recent JP Morgan analyst report on Armageddonist Comments costing investor money Why does the financial news media continuously offer up various expert predictions on market direction? Prediction that Blockbuster would take market share from Netflix Credit Default Swaps are low risk for AIG 1987 crash predicted by Elaine Garzarelli In fairness, predictions were a point in time by their authors Doomsday stock market predictions probably get mouse clicks Historical lookback at actual annual return for S&P 500 despite 1987 crash Reviewing various historical long-term cycles in the Dow Jones index 1982 to 1999 magical run for stocks Instead of following every prediction just be long the market but be hedged Hedgers opportunity to buy at market bottoms Mentioned in this Episode: Contact Derek www.razorwealth.com Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Elaine Garzarelli calls 1987 crash https://www.garzarelli.com/downloads/WSJ-Crash.pdf Marketwatch article showing doomsday predictions that were wrong and would have cost investors https://www.marketwatch.com/story/heres-the-price-to-be-paid-for-listening-to-armageddonist-predictions-2019-11-13 JP Morgan Guide to the Markets https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/guide-to-the-markets Hilariously wrong predictions from Netflix to Credit Default Sways https://www.dividend.com/how-to-invest/10-hilariously-wrong-bullbear-calls/

Jay Pestrichelli and Derek Moore are back to walk through several examples of how we hedge concentrated stock risk. Various techniques like direct hedging, covered calls, volatility selling overlay, and more are talked through. See how it would play out with stocks like Conagra, Apple, and Proctor and Gamble where they explain targets and outcomes when hedging was needed and when it wasn't. What are the tradeoffs between upside capture and hedging? Plus, get a sense how it may be more complicated than simply owning a stock and buying protection. Get insights into the process of managing positions and benefits for the end clients. Presenting three distinct case studies hedging concentrated single stock risk Hedging programs versus buy and hold Apple as single stock How much upside do you give up when implementing a hedging strategy? Toolbox for generating premium and offsetting losses How much downside protection do we put on? Each stock is different in hedging approach Process and initial discussion with clients around hedging their positions What does a low-cost basis mean relative to taxes? Designing structured exits over time for single stock holdings Why people hold large single stock positions Review of differences in volatility between the market and a single stock How volatile has Apple's stock been historically? Mentioned in this Episode: Contact Derek www.razorwealth.com Why covered calls are not a good hedge https://podcasts.apple.com/us/podcast/why-covered-calls-are-not-a-true-hedge/id1432836154?i=1000455815806 Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Article showing how investors made poor decisions at market bottoms https://zegafinancial.com/blog/can-buffered-and-hedged-equity-strategy-save-investors-from-making-behavior-mistakes Jay Pestrichelli previous podcast appearances https://zegafinancial.com/in-the-news/podcast Schwab's guide to investing and taxes https://www.schwab.com/public/schwab/investing/retirement_and_planning/taxes/current-rates-rules

ZEGA Financials' Jay Pestrichelli joins to discuss how risky single stocks are and how we have developed a system to hedge that risk. Some people want to hold concentrated stock positions due to tax consequences and are reticent to sell. See how using a hedging strategy can help manage risk, schedule diversification, and use hedging profits to buy more shares otherwise known as the hedger's opportunity. See the show notes below for links discussed in episode and other Jay and Derek episodes. What is concentrated single stock risk? How much more risk is holding just one stock compared to a diversified portfolio? How do people wind up with large concentrated stock positions? How can direct hedges mitigate downside risk? Why covered calls are not a hedge What is the hedgers opportunity? Irrational decisions at market bottoms and tops Markets are near all-time highs more often than you think Despite impressive historical returns Apple stock has experienced huge drawdowns How hedging single stock risk can solve problems for advisors and investors Mentioned in this Episode: Contact Derek www.razorwealth.com Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr Article showing how investors made poor decisions at market bottoms https://zegafinancial.com/blog/can-buffered-and-hedged-equity-strategy-save-investors-from-making-behavior-mistakes Jay Pestrichelli previous podcast appearances https://zegafinancial.com/in-the-news/podcast

You might have read that covered calls are a good way to hedge. They do have utility for investors, but they are not an optimal hedge. Understand how they only minimally reduce the downside while reducing the upside. Plus, see how low interest rates have undermined call premiums. What are covered calls? How much do covered calls hedge the downside? How do covered calls cap upside moves? Examples of covered calls and the premium received vs. downside hedge What are options collar strategies? What is the option Greek RHO? How option premiums are affected by interest rates Why record low interest rates make covered calls less appealing Mentioned in this Episode: Contact Derek www.razorwealth.com Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Recently I found several different research pieces showing how at the very lows of the Great Recession in 2009 the percentage of funds in money market funds was at its highest. In 2009 the fund flows to bonds were greater than the previous 5 years combined. So why with equities so cheap did people stay in cash or bonds? Wouldn't they want stocks when they were cheaper? This highlights how investors who panic an make rash decisions can do so at the very worst times. Why do investors panic? How does fear guide investor decisions? Percentage of funds in money markets spiked at time of March of 2009 lows Why investors didn't rebalance out of bonds and into stocks during the great recession 2009 fund flows were a record year for bonds How using Buffered or Hedged Equity Strategies can help reduce fear and irrational choices Benefits of staying invested while hedged Why now is a good time to be hedged Mentioned in this Episode: Contact Derek www.razorwealth.com Morningstar Bond Fund Flows 2009 Chart https://morningstardirect.morningstar.com/clientcomm/2009.pdf Dalbar Quantitative Analysis on Investor Behavior Report https://www.qidllc.com/wp-content/uploads/2016/02/2016-Dalbar-QAIB-Report.pdf Podcast talking about markets within 3% of all-time highs 36% of time https://podcasts.apple.com/us/podcast/fear-investing-surprising-data-points-to-markets-near/id1432836154?i=1000443860686 Why diversification fails https://podcasts.apple.com/us/podcast/ep012-does-diversification-alone-reduce-systematic/id1432836154?i=1000423615813 Buffered Equity Strategies https://podcasts.apple.com/us/podcast/adding-downside-buffers-to-investment-portfolios-using/id1432836154?i=1000419699076 Why investors need a hedged equity strategy https://podcasts.apple.com/us/podcast/why-investors-need-a-protective-hedged-equity-strategy/id1432836154?i=1000418366567 Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

You here quite a bit of talk about the top 1% of wealth in the media. But what if it was easier than you think to land yourself into the top 10% of wealth in the United States and across the world? Derek Moore takes you through the numbers explaining what asset levels it takes to get into various percentiles of net worth and runs the numbers on what type of assumed growth rates and contributions it might take over various time periods. How much net worth does it take to get into the top percentiles in the United States? How would your net worth rate compared to adults around the globe in USD? The power of committing to contributing money monthly over many years Median vs. Mean net worth numbers Using PMT Function in excel to estimate return and contributions needed to get to a level of wealth Discussing Credit Suisse' Global Wealth Report pyramid How many millionaires are in the U.S. and various countries around the world? Mentioned in this Episode: Download Credit Suisse Global Wealth Report 2018 https://www.credit-suisse.com/about-us/en/reports-research/global-wealth-report.html Book: Broken Pie Chart https://amzn.to/31oy1hE Razor Wealth Management www.razorwealth.com

Post corporate tax cuts of 2018, share buybacks have been talked about both in positive and negative lights. Some think companies should use their free cash flow differently. But how do share buybacks benefit shareholders by boosting earnings per share? Key Takeaways: What are share buybacks? How share buybacks increase earnings per share or EPS Similarities between dividends and share buybacks How to calculate a share buyback yield versus dividend yield Uses of free cash flow to equity shareholders Share buybacks don't get taxed at the shareholder level like dividends Share buybacks provide more flexibility compared to dividends for corporations Mentioned in this Episode: Broken Pie Chart Book by Derek Moore https://amzn.to/2MibTSk Contact Derek Moore www.razorwealth.com

No one likes paying capital gains tax (although better than losses). Yet what if you were paying on gains only due to inflation where your purchasing power didn't grow? Recently some U.S. Senators wrote a letter to the Treasury Secretary Steve Mnuchin urging him to consider indexing capital gains for inflation. What would that mean for individual investors? What would it mean to index capital gains for inflation? Examples showing differences in capital gains tax due when cost basis is indexed for inflation Would it result in opening opportunities to diversify if the tax bill was reduced? How gains due to inflation don't equate to increased buying power Senator Ted Cruz Coke Stock example showing capital gains due even though loss after inflation adjustment How this could help long time homeowners Can the Treasury just instituted indexing for inflation or does Congress have to pass a law? Mentioned in this Episode: Current capital gains rate tables https://www.schwab.com/public/schwab/investing/retirement_and_planning/taxes/current-rates-rules/dividends-capital-gains-tax-brackets Barron's article around indexing for capital gainshttps://www.barrons.com/articles/indexing-capital-gains-to-inflation-makes-no-economic-sense-51564833600 Book: Broken Pie Chart https://amzn.to/31oy1hE Razor Wealth Management www.razorwealth.com

Debit and deficits continue to be in the news. This includes funding levels for public state pensions. But what does it mean to be underfunded or overfunded? What discount rate or investment return assumptions are they using and are they realistic? Derek Moore discusses and simplifies what makes up this discussion and ways that they could get on track. What makes a pension underfunded? Are investment return expectations realistic? Which states are the worst regarding funding levels? Differences between defined benefit plans and defined contribution plans Options for pensions include cutting benefits, raising contributions, or increasing investment returns Differences between public pension discount rates and private corporation's investment assumptions Pension plans in a low interest rate environment Is there any hope for states to get their funding percentages higher? Mentioned in this Episode: State pensions funding gap https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2019/06/the-state-pension-funding-gap-2017#targetText=States%20reported%20a%20total%20liability,funding%20gap%20of%20%241.28%20trillion. How well funded is your states pension? https://taxfoundation.org/state-pension-plan-funding-2019/ Podcast explaining negative yielding bonds https://razorwealth.com/wacky-negative-yielding-bonds-and-need-for-alternative-income/ Book: Broken Pie Chart https://amzn.to/31oy1hE Razor Wealth Management www.razorwealth.com

It seems like lately there has been more an more talk about interest rates moving closer to zero in the U.S. So which bonds will move the most when rates move lower (or higher)? Derek talks through various types of bonds and how they are different plus see how to tell how much a change in rates can hurt or help investors holding bonds. We even touch on bond convexity! How do interest rates change the value of a bond? What is modified duration and how it can project a rise or fall in value? Introduction to bond convexity Unique aspects to U.S. Treasuries, Corporate Bonds, Municipal Bonds, and Mortgage Bonds Callable Bond Features, Puttable Bond Features, and Convertible Bonds How rates moving lower negatively affect mortgage bonds Is the bond trade based on lower rates getting crowded? How low interest rates can help companies Mentioned in this Episode: Podcast explaining negative yielding bonds https://razorwealth.com/wacky-negative-yielding-bonds-and-need-for-alternative-income/ Book: Broken Pie Chart https://amzn.to/31oy1hE Razor Wealth Management www.razorwealth.com

Companies can issue debt via bonds to raise capital. But how can you tell whether they have too much debt issued? What are some key ratios to look at to evaluate for yourself? Derek Moore explains how interest rates effect the cost of capital (WACC) and how to see when a stocks debt is maturing and what interest rates they must pay. And what are Zombie Companies? Interest Coverage Ratios Debt Ratio (Total Debt/Total Assets) Debit to Equity (Total Debt/Stockholders Equity) WACC Weighted Average Cost of Capital What happens when bonds come due for companies? What are Zombie Companies? Where to find list of a company's outstanding debt? How low interest rates can help companies Mentioned in this Episode: Netflix list of it's outstanding bonds (page 51) on annual report https://www.sec.gov/Archives/edgar/data/1065280/000106528018000069/q4nflx201710k.htm Book: Broken Pie Chart https://amzn.to/31oy1hE Razor Wealth Management www.razorwealth.com

Commentators on CNBC are always opining about whether a market is overvalued or undervalued. But how would you look for yourself to make your own opinion? In this episode Derek Moore reviews the S&P 500 Index earnings per share, forward earnings estimates, PE Ratio, Forward PE ratio, and more. Plus, a review of what composes earnings per share growth including margins, share count, and revenue. Learn how to form you own opinions. S&P 500 Index Earnings Per Share S&P 500 PE Ratio and Forward PE Ratio Where are we historically on S&P 500 Forward Price to Estimated Earnings? Shiller PE Ratio or CAPE Ratio Earnings Per Share Growth Components: Revenues, Margins, and Share Counts Share Buybacks effect on Earnings Per Share Interest Rate Effects on Discounting Future Earnings Subsequent 5-year annualized returns from various forward PE ratios Mentioned in this Episode: Podcast on being an armchair economist https://razorwealth.com/is-a-recession-coming/ JP Morgan Guide to the Markets Report https://am.jpmorgan.com/blob-gim/protected/1383426387662/83456/MI-GTM_3Q19_August.pdf Book: Broken Pie Chart https://amzn.to/31oy1hE Razor Wealth Management www.razorwealth.com

Lately commentators have been trying to predict the next recession. But what would you look at to try and tell for yourself what the numbers are? In this episode Derek Moore reviews the 5 areas that the NBER per their site uses to develop their criteria to call recessions. What is a recession? NBER historical list of recessions Real GDP Growth Rate Real Median Income Growth in the U.S. Unemployment Rate Retail Sales Monthly Growth Rate Industrial Production Index Real versus Nominal Growth Rates Mentioned in this Episode: Federal Reserve Bank of Atlanta GDP Now Forecast https://www.frbatlanta.org/cqer/research/gdpnow.aspx United States Real GDP Growth Rate https://tradingeconomics.com/united-states/gdp-growth United States Inflation Rate https://tradingeconomics.com/united-states/inflation-cpi Federal Reserve Bank of St. Louis FRED Retail Sales Monthly growth rate https://fred.stlouisfed.org/series/RETAILMPCSMSA US Annual Median Real Wage Levels https://fred.stlouisfed.org/series/MEHOINUSA672N US Real Median Personal Income Levels https://fred.stlouisfed.org/series/MEPAINUSA672N US Civilian Unemployment Rate https://fred.stlouisfed.org/series/UNRATE US Industrial Production Index https://fred.stlouisfed.org/series/INDPRO Atlanta Fed Real Wage Growth Tracker (more updates) https://www.frbatlanta.org/chcs/wage-growth-tracker.aspx Atlanta Fed Real Wage Growth by Job Switcher and Job Stayer https://www.frbatlanta.org/chcs/wage-growth-tracker.aspx Book: Broken Pie Chart https://amzn.to/31oy1hE Razor Wealth Management www.razorwealth.com

How risky is just holding a single stock in a portfolio? Often either through company stock grants or holding company shares for very long periods where it has appreciated investors may wind up holding either a single stock or just a few. This creates single stock risk and has both systematic stock risk and idiosyncratic stock risk. Derek Moore reviews how the volatility via the standard deviation may increase as well as some interesting historical data on Apple stock regarding its annual drawdowns and volatility. What is concentrated stock risk? What is systematic stock market risk? What is idiosyncratic stock risk? Comparing volatility of single stocks to a market portfolio How many stocks does it take to achieve diversification? How does correlation indicate whether diversification will work? Why diversification fails when markets sell off badly Apple's annual compounded growth rate performance 1981 through 2008 Apple annual significant drawdowns Apple stock standard deviation from 1981 through 2018 Mentioned in this Episode: Book: Broken Pie Chart https://amzn.to/31oy1hE Razor Wealth Management www.razorwealth.com Study showing single stock volatility compared to market portfolio http://ppca-inc.com/Articles/DiversByNumbers.pdf

Derek Moore explains the theory of time decay in options otherwise known as options theta. How does the erosion of time decay benefit option sellers? Plus, how much do position decay from day to day. How much of a factor is theta time decay relative to other things like volatility and underlying price movement? And how does options time decay work over weekends and long holiday weekends with regard to theta? Benefits of options time decay to option sellers What is options theta? How much do option positions lose value each day due to time decay? Options weekend time decay (Theta) Should option sellers put on positions prior to weekends and holiday weekends? How much does a short spread position realize option theta each day? Options software utilizing 365-day calendar versus 252-day calendar Why some options software overestimates time decay going into the weekend Mentioned in this Episode: Podcast on selling option spreads and volatility https://razorwealth.com/high-probability-options-strategies-explained-podcast/ Razor Wealth Management www.razorwealth.com Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547

Derek Moore and Jay Pestrichelli team up once again to discus how probabilities are used to understand where to sell short options to generate premium. Discussed in this episode are who is on the other side of the short volatility trade, how changes in implied volatility impact expected multiple standard deviations of expected movement, and how value at risk VAR impacts option premiums. Plus, they discuss how professional management adds value especially when option spreads widen and volatility increases. Using probabilities to generate short high probability option positions Expected underlying index moves based on varied levels of implied volatility How large investment banks take the opposite side of the trade looking to reduce Value at Risk (VAR) Difference between being patient for opportunities versus and always in the market strategy What happens to option spreads when markets sell off? Value at Risk VAR impact on institutional hedging as dynamic volatility hedging increases Why sell options on large diverse indexes as opposed to individual stocks Netflix example of implied volatility right before earnings and expected moves Single stock risk using Netflix and Disney examples of over 10% moves down after announcements Mentioned in this Episode: Jay Pestrichelli and Derek Moore talk myths of the 60/40 portfolio https://razorwealth.com/discussing-myths-around-the-classic-60-40-portfolio-part-i/ How are options priced and what is short volatility? https://razorwealth.com/how-are-options-priced-and-what-is-short-volatility-podcast/ What implied volatility on options tells us about stock earnings expectations? https://razorwealth.com/what-the-options-market-tells-us-about-expected-stock-moves-around-earnings/ Razor Wealth Management www.razorwealth.com Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547

Jay Pestrichelli once again joins host Derek Moore to discuss all things hedging and options. This week they talk through some surprising data Jay compiled that shows markets are within 3% its all-time highs 36% of the time. Many people like to try and time the market thinking markets are too high. Another data set shows often markets never get a pullback during bull runs. Plus, Jay and Derek test out new hedging analogies on the fly to see if they work. How often are stock markets within 3% of their all-time high? Comparing portfolio hedging to buying car insurance? Comparing the Brooklyn Nets getting 75% of Kevin Durant's pre-injury game versus their downside risk How often is the market 10% lower one year later study Discussing fear investors have at getting into markets at perceived highs How the hedgers opportunity may let investors buy more lower The Random Walk Theory in stock markets How Random Walk needs and upward bias to fit its narrative How sometimes waiting to buy into markets causes investors to miss out Is it better to lose early or lose late in retirement? The effect withdrawals for income have on portfolios Mentioned in this Episode: Jay Pestrichelli and Derek Moore talk myths of the 60/40 portfolio https://razorwealth.com/discussing-myths-around-the-classic-60-40-portfolio-part-i/ Razor Wealth Management www.razorwealth.com Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547

See what factors determine how an option is priced. Whether on a stock index or underlying stock, time, implied volatility, interest rates, dividends, and distance in or out of the money all play a role. Known as the Black-Scholes model, Derek breaks down the inputs and which ones are more significant not only to option premium levels but also changes in price. Explaining the option greeks Delta, Gamma, Theta, Vega, Rho What is implied volatility and why is it so important in options pricing? How do option premiums decay towards expiration day? What determines whether an option is in or out of the money? How to convert a stock's implied volatility percentage to expected multiple standard deviation ranges? What does is mean to sell option volatility premium for income? Mentioned in this Episode: What the options market tells us about stock moves around earnings releases https://razorwealth.com/what-the-options-market-tells-us-about-expected-stock-moves-around-earnings/ Razor Wealth Management www.razorwealth.com Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547