Loss of American Wealth

There is much talk recently from a Federal Reserve report that details the significant loss in assets of American families wealth. This comes from the housing bust, lower wages, stock market crash, and having to dip into retirement and savings to make ends meet. Now this is a tragedy of the highest order for the long term health of our economy. The economy needs savings and investments that will help companies form new products and perform research to make lives better. With less capital and the country being poorer it does not help investment and long term growth.

Instead of thinking the government though should step in because they would only tax us more in hidden ways or openly to "recover" the wealth. We need to instead look to become long-term investors and really focus on saving money again to put toward our future, awesome retirement. Setting aside 10% of income a year to savings could put the American family back toward the road of prosperity and recover the lost wealth. We might have a minor setback on our hands but in the end we will rise above as long as we get back into the habit of smart spending and smart saving.

The Current Market Picture

The DOW and S&P 500 are near record highs which to lots of people get them nervous that a correction is coming or worse another recession. It was the same story though a few months ago before it hit these new record highs. I'm unconvinced that the market is about to take a large fall. I think the bears could make the market go down 5-6% until the end of the year but that is a small risk. In large part I think the bull still has room to move upwards. I think earnings might not be great this quarter but with more M&A activity and IPOs that the market will set new highs in the coming months. There is also an election during the mid-terms that will make politicians want the economy to grow. We could also stay at this level trading closely within a few hundred points in the DOW for the most part. For each outcome I would say 50% chance of going up, 35% chance of staying about even, and 15% chance of going down 5-6%. Geopolitical problems could increase or decrease the chances of the outcomes along with certain good/bad numbers coming out from the government at the end of the week. If employment continues going down the market I could only see going up in value.

So with these chances and possible outcomes, you the savvy investor should make plays and investment choices that reflect this outcome. You should have a few defensive stocks that will hold value in a small correction. Also it would be wise to hold a bond fund and some cash on hand to put into the market when some if the stocks become more attractive. Mostly with the chances though if you are in a bull market position I would not change much except too take a little profit now and if on the off chance it does go down you can reinvest and maybe even you got back your initial investment.

Managing a Paycheck

A key to creating wealth and to have a steady income is to manage your paycheck well. A graph, an Excel spreadsheet, or jotting it down on paper all make the same end goals. Putting your money in the correct place and not losing track of where the money goes. I'm afraid that too many people get a paycheck and see that as the amount they have to spend, then spend it all quickly and only have a little to get by until the next paycheck. Some have bills that eat up costs but others are simply buying unnecessary things. Then after the weekend they wonder where all the money has gone. It is as if they are afraid that money will disappear if they do not spend it in the next 24 hours. Well if they do spend it will be gone and they struggle making ends until the next paycheck.

Planning ahead with money, writing down where you spend and the amount, and then seeing how much is wasted can really help with saving money and not wasting money. Instead of spending money in trinkets put it toward a trip. There are tools out there to help manage the daily expenditures, find the one that suits you and use it. This way when you get that next raise you can better handle the extra money to save for retirement or just to spend more wisely.

Why Not Capitalism?: A Book Review

Jason Brennan's new book takes a stab at socialism's constant moral high ground stance particularly against Jerry Cohen and similar authors. His argument surrounds several logical fallacies that socialism commits. The biggest and most atrocious fallacy is the comparison of perfect socialism to imperfect capitalism that occurs in Cohen's book Why Not Socialism. Brennan mocks this claim endlessly and almost too much but gets the point across that you must compare imperfect socialism to imperfect capitalism and perfect socialism with perfect capitalism otherwise you do not get a true comparison that matters.

Under his new comparison of perfect capitalism to perfect socialism, the reader finds out that justice and tolerance excel in perfect capitalism more than in perfect socialism. Mostly because capitalism allows for people to create socialist utopias if they want or form anything else they want as long as they do not hinder another person's choices. I agree with him that capitalism in the perfect sense fairs better and more people would like if they were given the true comparison rather than the options most socialists give us today. The choice today is between all the problems of capitalism and no problems in socialism. Of course people are going to choose socialism without any problems over things with problems. Once though you put up two perfect systems most people will choose capitalism and capitalism maintains the moral high ground.

The other big argument Brennan makes is that capitalists should call out socialist who use this bad metaphor and to now stand up for the moral high ground that is Capitalism. In this way we can do our part to spread the good message that Capitalism has for every person in the world.

I would recommend this book to any person and i think I might order it for people and ship it as gifts. You, the reader should go out and get this book now and spread the news that Capitalism actually maintains the moral high ground in any argument with socialism

Starbucks: The Seventh WML Stock

Starbucks, a company that has persuaded millions to buy a simple cup of coffee at a premium price because of the atmosphere and the art of making that cup of coffee. Howard Schultz runs the company with the idea to expand the storefront and go into other drinks like tea and food with acquiring La Boulange. This drive to expand and change the way we consume certain simple goods shows foresight and will be very good for shareholders in the end. The company owning all the stores is also a better thing for shareholders because it creates even more consistency from one store to the next and makes their reward program easier to implement. The reward program is genius because it takes longer and spending money to get to the level that matters and then to get a free drink instead of nine or ten purchases you have to purchase 12 separate times. There was also good news about the China Starbucks' stores and that the are profitable and attracting more Chinese since they were first opened.

The P/E ratio isn't the lowest and should be lower but with their recent acquisitions and purchases it does put pressure on the earnings. Earnings are still growing and will be back to better levels in the next few quarters. Starbucks pays a good dividend and has increased it 32.6% in the past three years. It has really good sales growth and has become a staple of the American coffee scene. Schultz was able to turn a simple community that did not have high profit margins and turn it into a lavish, luxury good consumed by millions daily.

Disclosure: I do not own nor intend to open a long or short position in Starbucks.

Surgical Care Affiliates: WML Stock Number Six

I really like Surgical Care. It has a good strategy of operating surgical centers in a hospitals and in their own owned centers. They are also aggressive in growing the business and while still no profit from operations they should soon turn a profit. Most potential profits went into expanding which I like in a growing company. It will produce higher returns for my money later on. Also, the CEO is young and driven to increase productivity and the business. Surgical care will benefit from changing ways people have surgery and want cheaper, quicker options.

This is a stock that I would get in and see to get better in the years to come.

Here is a good article that explains more about the company and about Andrew Hayek, the CEO.

Disclosure: I opened up a long position in SCAI and will continue to hold for the long term.

Update on the WML

Sorry folks for never completing the 30 stocks in the WML index but I have been somewhat busy with a new job and just other things. Here though is an update on how well the index has done over the past 5 months.

If you invested in the five stocks I recommended and added to your portfolio you would be up around an average of 9.48% since the start if you had the same amount in each stock. While it might seem that I only had four stocks I'm going to count GoPro as one because I would have put it in the index earlier but it wasn't yet trading.

Hopefully I can add the other 25 or so stocks soon and of course share my reasoning of removing or adding stocks. I don't think I'll remove one of the five just yet.

Happy trading