Two Worlds

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I am conflicted. 2020 was a year that most people would like to forget. Everything that could go wrong seemed like it went wrong. My favorite basketball player, Kobe Bean Bryant, passed away to start off the year (Rest In Power King). Then, the coronavirus pandemic wreaked havoc across the world and turned our lives upside down. Hundreds of thousands have passed away due to this terrible virus and so many families have been affected. We then shut down our nation to protect ourselves against the virus, but this caused unemployment rates to spike. We had one of the most divisive political environments in history. Mask vs. No Mask, President Trump’s erratic behavior throughout the year, a passionate election, and then a denial of president-elect. We lost giants in the Civil Rights Movement, we had the George Floyd incident that (hopefully) opened the eyes of our nation on the subject of systematic racism. I’ve been working from home with a 6 year old schooling from home and an almost 2 year old daycaring from home for the last 10 months. That’s enough stress to drive you crazy. I am so glad that 2020 is over!

But, am I really glad that the year is over? You see, as an investor, again….I’m conflicted. There are really two different worlds that people exist in. You’ve got the real world, which I’ve just described above. Real problems, real people, real issues. Then, you’ve got the Investment world. People are making money EVERY SINGLE DAY around you. Please open your eyes. Investors profit off of the trends we participate in and the things we spend our hard-earned dollars on. Looking at life through the lens of being an investor, I had the best year ever. The stock market is at all-time highs and I had the best returns across all of my portfolios that I (probably) will ever see. The pandemic has created the haves and the have nots. If you are an owner of assets (stocks, homes, etc.), the value of your assets are at all time highs. Part of the reason for this is that interest rates are at all time lows. You can’t just put your money in a savings account and earn any meaningful returns. Therefore, people are chasing returns. Bond yields don’t give you much return either, so there seems to be no other alternative than to chase risk. Chasing risk means buying assets. A lot of money is flowing into stocks because there are no other alternatives to grow your money faster than inflation eats away at your purchasing power. My recommendation: GET OFF ZERO. Please, get invested for yourself, for your children, or for your future children. Get fluent in the language of money. Own stocks, learn how they work, and most importantly learn WHY they work. Don’t just buy a stock because your neighbor or co-worker told you that he’s making money in it. Do the work and understand why you own something. Don’t just be a consumer and a worker to make other people’s dreams come true, but rather make your dreams come true as well by being an owner of the very companies that you are making rich. Last point. I think a lot of people focus too much on how much they earn. A higher salary is a good thing, but I think the greater emphasis should be placed on how you grow your money after you get it. How are you growing what you’ve been blessed with? That is what I focus my energy on. If I’m able to compound my money faster than others, then I can secure freedom for my family, my future generations and I can also HELP other people. That’s the most important thing to me. Don’t just store up your wealth to look at it. Naked you come into this world, and naked you leave out. Use it to help somebody who is not as fortunate as you.

How 2020 started vs. How 2020 ended

It didn’t feel good to be an investor in the early part of 2020. The market plunged by ~40% in the month of March. I wrote about this in my last post. My portfolio was absolutely on the mat. However, if you stayed the course, got more aggressive as the market fell, and kept a long term view….you were handsomely rewarded. I’m sure many investors feel like Iron Mike right now. I don’t feel like Mike, but I feel more like Floyd Mayweather. Floyd could definitely hit you with a power punch, but he more importantly knew how to play defense. You’re not going to get many shots on Floyd. I’m confident that my portfolio will perform, but I’m not chasing stocks and I’m starting to become more defensive. The price you pay for a stock ALWAYS matters. Never chase. Let’s take a look at the top performing stocks of 2020.

Company	Ticker	Industry	2020 Return
Plug Power	PLUG	Motor Vehicles	1000%
Tesla Inc.	TSLA	Motor Vehicles	743%
Moderna	MRNA	Pharmaceuticals	510%
Zoom	ZM	Communications	403%
Peleton	PTON	Consumer Discretionary	400%
Etsy Inc.	ETSY	Miscellaneous Commercial Services	302%
Square	SQ	Fintech	285%
Nvidia Corp.	NVDA	Semiconductors	122%
PayPal Holdings Inc.	PYPL	Fintech	117%
L Brands Inc.	LB	Apparel/Footwear Retail	105%
Albemarle Corp.	ALB	Chemicals: Specialty	102%
Advanced Micro Devices Inc.	AMD	Semiconductors	100%
Freeport-McMoRan Inc.	FCX	Other Metals/Minerals	98%
Cadence Design Systems Inc.	CDNS	Software	97%
ServiceNow Inc.	NOW	Information Technology Services	95%
Align Technology Inc.	ALGN	Medical Specialties	92%
Idexx Laboratories Inc.	IDXX	Medical Specialties	91%
Abiomed Inc.	ABMD	Medical Specialties	90%
Catalent Inc.	CTLT	Pharmaceuticals: Other	85%
Apple Inc.	AAPL	Telecommunications Equipment	81%
Quanta Services Inc.	PWR	Engineering & Construction	77%
Amazon.com Inc.	AMZN	Internet Retail	76%

See any names that you recognize? Do you use any of these products or services? If so, why don’t you own the stock of these companies? From this list, Nick Jr. own Tesla, Zoom, Square, Nvidia, Paypal, Albermarle, Advanced Micro Devices, Apple, and Amazon. In my portfolio, I own Plug Power, Etsy, Zoom, Square, Nvidia, Paypal, L Brands, Advanced Micro Devices, Apple, and Amazon. These names (and others) have powered our portfolios to amazing returns this year. Nick Jr.’s portfolio returned 62% for 2020. My 401k’s returned 72% and 56%. The S&P 500 returned 17%. By all accounts, 2020 AN INSANE YEAR return wise for me! I don’t see this being repeated. I do, however, believe I can continue to outperform the market over time, through smart stock picking and keeping my behavior (long-term view) in check. We’ll see.

What could continue to work in 2021?

I’m a thematic investor, so I’ll give you themes that I think will work in 2021. There is no magic, by the way, that happens when the calendar flips. You don’t sell your 2020 winners to start all over in 2021. The same themes that tended to work last year will tend to work this year. Pick secular winners and hold them, and over time you will do well. Below are a few themes that I think will continue to work this year.

Bitcoin

Bitcoin had an insane run to end 2020. It is continuing that momentum into 2021. The value proposition is that Bitcoin can become a store of value. Investors in it say it should be valued as digital gold. Gold has a $12T market cap. Bitcoin currently has a $760B market cap. If it captures half of gold’s valuation, bitcoin’s price should be ~$300,000 per bitcoin. If it captures all of gold’s valuation, bitcoin’s price should be $600,000 per bitcoin. I purchased 10 bitcoin at an average price of $6,000 back in 2017. I still own a healthy amount of it in my personal portfolio, and Nick Jr. owns a tiny sliver of his own. It’s very volatile, but you should have some allocation to it. HODL (hold on for dear life) and don’t sell. Microstrategy is a stock that performs with Bitcoin, if you don’t want to buy Bitcoin directly.

Cloud Security

You hear in the press about a lot of data breaches that happen. Cyber warfare is a real thing, as other countries and bad actors are trying to get their hands on our data. Because a lot of companies are moving their data to the cloud, the security of that data is becoming more and more important. Names I like in this space are Crowdstrike, Palo Alto Networks, Checkpoint, and ZScaler. Plenty of other names out there but these standout to me.

5G

I’ve blogged about this theme here. We are probably in the second inning of 5G. It will transform every aspect of our lives. Please have exposure. Names in the 5G space I like include Apple (you’re probably going to buy a 5G phone soon right), Marvell Technologies, Inseego, Skyworks, Qualcomm, and Keysight, and Analog Devices.

Semiconductors

There are the electronic chips that enable us to do everything we do today in the cloud, on our phones, and on our computers. You have to be exposed to it. Names I like in this space include NVidia, Lam Research, Taiwan Semiconductor, Micron, Western Digital, Advanced Micro Devices, Qualcomm, Skyworks, and Texas Instruments.

Digital Transformation

The digital transformation theme includes all of the cloud software stocks that enable companies and us to operate more efficiently. You essentially have software that replaces the needs for human repetitive tasks, and allows you to mine data to make intelligent decisions. Names in this space I like include Twilio, Datadog, Okta, Lemonade, Splunk, Servicenow, Anaplan, Avalara, Salesforce, Fastly, Fiverr, Workday, Fastly, and Zebra.

Omni-Channel/Big Box Retail/Off Price Retail

Being allowed to shop how you want, when you want, is very critical. Big box stores, unfortunately killed small businesses during the pandemic because they had the capital to digitize their services. I love being able to shop on Target at home and pick it up without even entering the store. This is called omni-channel shopping. I can shop online exclusively, shop online and pick up at store, or shop at the store. Today’s consumer has major options! Names in this space I like inlcude Target, Walmart, Costco, Home Depot, Lowe’s, Five Below. TJ Maxx, Burlington Stores, Ross Stores, and Ollie’s.

Data Centers

These are the physical building that contain the servers that allow us to do everything we do online. I like all of them. Cyrus One, Equinix, Digital Realty, Switch, Coresite Realty, and QTS. I blogged about these here.

Clean Energy

Tesla has gone insane this year!!! I have never seen anything like it. Sucks for me that I bought the car instead of the stock. My kids do own the stock, though. Global warming is real and companies are trying to solve this issue by producing cleaner energy. Electric vehicles, batteries, what goes in the batteries, and hydrogen are all making inroads in this space. The companies I like include Tesla, Albermarle, Quantumscape, Plug Power, General Motors, Fuelcell Energy, and the ETF “LIT”.

Financial Tech

Visa, Mastercard, Paypal, Square, and American Express. You have to own all of them. Capital One and Ally could do pretty good, assuming the country opens back up and people get back to spending on their credit cards instead of paying them down. Square is my favorite in the space. Have owned them from $27. I wrote in detail about some of these names here.

Active/Healthy Lifestyles

My generation (Millennials) are way more focused on our health than our parents (Baby Boomers) were. This is part of how we spend our money. You have to own Nike, Lululemon, Gap (Athleta) and Under Armour for these reasons. Peleton is in this theme as well (I missed it) and Planet Fitness.

Reopening of America

Think cruises, airlines, hotels, entertainment. There is so much pent up demand out there for these types of activities. People are going to go crazy when the world reopens. Names in this space I like include Royal Caribbean, Norwegian Cruise Lines, Wynn Resorts, Marriott, Boeing, Southwest Airlines, Simon Property (malls will be back), Live Nation, Gap Stores, Phillips Van Huesen, Six Flags, and Coca Cola (so many drinks will be served at games, concerts, etc.). Starbucks fits in this theme too. So does Vail Resorts (Colorado skiing).

Blue Wave

With Georgia securing the Senate for the Democrats, expect to see policy enacted that can benefit certain sectors. Cannabis is one (I own Grow Generation and Canopy Growth Company), Online Gambling is another (Draft Kings, Penn Gaming have worked, MGM, Caesars Entertainment), and expect more stimulus. When additional stimulus happens, people spend money. I also expect an infrastructure bill to pass, so I have exposure to United Rentals. Caterpillar is another way to play this space. I expect a lot of bridges and roads to be rebuilt. You have to have the tools to do this work.

IPO’s/SPAC’s

I expect a lot of companies to continue coming public. The ducks are quacking, and you have to feed them. Demand is there to speculate. Of the recent ones, I like AirBnb, Lemonade, Snowflake (BIG SNOW!), Metromile, SOFI, and Roblox (coming soon). Don’t buy blindly though, price always matters.

Online Shopping

Shopify!!!!, Amazon, Jumia (Amazon of Africa), Alibaba (Amazon of China), Merdcado Libre (Amazon of Latin America), Etsy!!, XPO Logistics, UPS, FedEx, and Ebay.

Work From Anywhere

So many names benefit from this theme. Look at how RV companies have performed! You can literally work from anywhere. Winnebago and Camping World Holdings are RV Companies. At Home Stores have done well, and so have Disney (Disney+ Subscriptions), Netflix, and Roku. Restoration Hardware has been a monster for me, as people are moving to new spaces and buying new furniture. Check it out it’s performance over the last year! Lastly, people are buying homes/townhomes left and right. Pulte Homes, Taylor Morrison Homes, Invitation Homes (home rentals), Lennar, and DR Horton are names I like. T-Mobile has done well and I think it continues going higher.

Please check out Nick Jr.’s latest portfolio update here. I’ve added a few names to it.

The recent Coronavirus pandemic has impacted how we all carry out our daily lives. The virus has changed how we work, live, and interact with other people. Some people have been impacted personally from the virus, and others have been impacted financially. COVID-19 is a once in every 100 year pandemic that nobody could plan for. From an economic standpoint, the virus has unintentionally created winners and losers in our economy. For people who can perform their job duties remotely, there hasn’t been much change to how work is carried out (I will say, however, that working from home while caring for young children at the same time is absolutely taxing. Call and check on your friends who have young kids). For people who are essential workers (hospital workers, grocery store clerks, UPS delivery drivers, etc.) you are literally risking your life to help people meet their most basic needs. For service industry, retail, travel, and hospitality workers, your job has been negatively impacted by the virus. I am sympathetic to everyone who has been impacted. It’s very unfortunate. I struggle with even writing this post, because I am fully aware of the pain that people are feeling economically. Just like the economy, the virus has unintentionally created winners and losers for those of us invested in the stock market. Some companies have benefited (and will continue to do so) tremendously because of the pandemic. Some companies will unfortunately struggle, and may even go out of business. This is due to a change in habits by the American consumer. The world was forever changed in March. Let’s take a deeper look into the implications of these changes.

Jim Cramer (a widely followed investor on CNBC, very very smart, follow him on twitter @jimcramer) put together a “COVID-19 Index” of stocks that should win, post pandemic. Listed below are the companies, broken out by sector:

Beverages: PepsiCo, Boston Beer

Cloud Software: Salesforce.com, Adobe, Zoom Video, RingCentral, Slack, CrowdStrike, Okta, Zscaler, Cloudflare, Coupa Software, DocuSign, Everbridge, Veeva Systems, Fastly, VMWare

E-Commerce: Chewy, EBay, Shopify, Prologis

Financial Tech: MarketAxess, Tradeweb, Square, PayPal

Video Games: Activision Blizzard, Electronic Arts, Take-Two Interactive

Home Entertainment Providers: Netflix, Roku, Snapchat, Spotify, Akamai Technologies, The Trade Desk

Mega-Cap Tech: Google, Amazon, Apple, Microsoft, Amazon

Small-Cap Tech: Citrix Systems, Logitech

REITs: American Tower, Crown Castle, CoreSite Realty, Digital Realty, Equinix

Restaurant Survivors: Chipotle, Domino’s Pizza, Wingstop

Retail Survivors: Costco, Walmart, Dollar General, Home Depot, Target, Lowes

Seminconductors: Advanced Micro Devices, Nvidia, Marvell Technology

Consumer Packaged Goods: Clorox, Colgate-Palmolive, Kimberly-Clark, Procter & Gamble

Healthcare: Abbott Laboratories, AbbVie, Centene, UnitedHealth Group, Gilead Sciences, Regeneron, Sanofi, Danaher, Thermo Fisher, Eli Lilly, Baxter, Becton Dickinson, DexCom, Johnson & Johnson, Massimo, Perrigo, Pfizer, ResMed, Zoetis

Packaged Food: Campbell Soup, Conagra, General Mills, Hormel, J M Smucker, Kellogg, McCormick, Mondelez

Safety Stocks: Dominion Energy, NextEra Energy, Verizon

Others: BioNTech, Inovio, Moderna, Livongo, Teladoc Health, Barrick Gold, Beyond Meat, Freshpet, Inseego, Owens & Minor, Peleton

There are a lot of names listed above, but each of these companies should do well in our new post pandemic world, as Cramer argues. Think about the cloud software, big cap tech, and small cap tech names listed. All of these play a part in enabling us to work from home seamlessly. Think about the retail and restaurant survivors. You can easily pick up your food or get it delivered from Chipotle or Domino’s, without having contact with anyone. Since you’re at home more now, you’re going to spend money at Costco or Target to pick up everyday goods, but you don’t have to leave your car to retrieve them. You have probably signed up for Chewy, so your pet’s food can get delivered right to your doorstep. You probably have more time to redo stuff in your house, yard, or on your patio so you’re certainly making trips to Home Depot or Lowes. You now have more time to play video games, watch Netflix, or listen to podcasts on Spotify as well, so that’s why those stocks are performing well. You are even forgoing the gym, so you probably have an interest in a Peleton bike. The bottom line is these names are working! They should continue to work as American consumers settle in to our post-pandemic habits.

In the beginning stages of the pandemic in early March, I posted a quote on Instagram about all the panic that was going on. J.P. Morgan (yes the actual J.P. Morgan) once famously said, “In bear markets, stocks return to their rightful owners.” I followed this quote with my own post, reminding people that if you panic sell out of your stocks, please understand that they are selling them to me and other patient investors. You see for every buyer, there has to be a seller. Somebody is always on the other side of the trade. Warren Buffett was quoted as saying, “The stock market is a device for transferring money from the impatient to the patient.” A lot of people panic sold at the absolute worst time back in March because of fear and impatience. They couldn’t handle seeing their portfolio move down by 10, or 20, or 30, or 40 percent. Below is a screenshot of what the market did when the pandemic headlines got scary.

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The S&P 500 dropped from 3,370 on February 18th to 2,237 on March 23rd (~35% in a month!). On March 16th, the market dropped almost 13%. A 13 percent drop in one day is very scary. This was panic being played out in real time. Nick Jr’s portfolio dropped from a high of ~$22,000 in February to a low of ~$14,000 in mid-March. That-is-SCARY. When you read negative headline after negative headline and see your portfolio in free-fall, it’s really hard not to act. The easiest thing to do is take an action to make the pain go away. That action, for most investors operating out of fear, is to sell their positions. What I have learned as an investor in common stocks is that oftentimes the best action is no action. I never try to act on emotion (whether positive or negative) when it comes to buying stocks. If I see stocks that I own going down by large percentages, I do not sell off the emotion of fear (negative emotion). By that same token, if I see a stock that I don’t own go up by large percentages, I do not buy off the emotion of greed (positive emotion). During this particular drop, I understood that as a long term investor that this was an opportunity to buy stocks, and buy them aggressively. This was my “2008 moment”. You see, during the great financial crisis in 2008, stocks dropped ~50% from peak to trough. A lot of people talk about how they wish they were aggressive back then, because their portfolios would have performed really well if they did. It’s easy to say that you’ll buy aggressively when the market is down so much, but it’s much much harder to do in real life. There is a fear in real time that the market will plunge further, and that fear paralyzes a lot of people from taking action. You have to take your shot when opportunities present themselves. It takes courage to buy into the fear, understanding that you’ll be rewarded in the future for your patience. When markets drop even more than I think they should, I get even more aggressive. In fact, I root for lower prices because as an investor in my 30’s, I fully understand that I don’t need the capital that I’m investing right now. Rooting for lower prices makes sense to me at this stage in life. So, yes, I got really…really aggressive during this recent drop. Every dollar that I could find, I invested. I thought markets would take a year or two to recover, so as a patient investor (just like the Buffett quote above), I knew I would be rewarded. I had NO idea that markets would recover in two to three months. There is a saying, however, that luck follows sweat. If you’re positioned well and you prepare well, you will receive some luck.

Below, I list all of the stocks I purchased since the market drop in March across all my portfolios. I also include what price I purchased at.

Nick Jr Portfolio: 2.3 shares of Crowdstrike (CRWD) @ $63.38/share, 8.6 shares of Bed Bath & Beyond (BBBY) @ $12.67, 5.5 shares of Slack (WORK) @ $27.49, 0.8 shares of Shopify (SHOP) @ $336.83, 0.3 shares of Tesla (TSLA) @ $427.64, 0.6 shares of American Tower (AMT) @ $179.09, 1.3 shares of Restoration Hardware (RH) @ $80.43, 10.4 shares of Penn National Gaming (PENN) @ $11.77, 2.2 shares of Phillips Van-Heusen (PVH) @ $46.06, 2.4 shares of Live Nation (LYV) @ $41.96, 1.02 shares of Beyond Meat (BYND) @ $145.35

Ava Portfolio (yes I used the dip to start babygirl’s account): 1.7 shares of Crowdstrike (CRWD) @ $57.50, 0.15 shares of Shopify (SHOP) @ $438.37, 0.9 shares of Twilio @ $110.91, 0.9 shares of American Express (AXP) @ $112.81, 0.85 shares of Disney (DIS) @ $117.65, 1.02 shares of Visa (V) @ $184.36, 0.7 shares of Apple (AAPL) @ $289.03, 0.7 shares of MasterCard (MA) @ $287.01, 0.6 shares of Facebook (FB) @ $169.50, 0.12 shares of Tesla (TSLA) @ $608, 0.06 shares of Amazon (AMZN) @ $1800.61, 0.7 shares of Microsoft (MSFT) @ $150.62, 0.4 shares of Nvidia (NVDA) @ $245.44, 0.08 shares of Google (GOOG) @ $1215.56, 0.3 shares of Adobe (ADBE) @ $305.79, 1.4 shares of Avalara (AVLR) @ $71.54, 1.1 shares of JPMorgan Chase (JPM) @ $88.05, 1.3 shares of Nike (NKE) @ $74.20, 0.63 shares of Boeing (BA) @ $154.84, 1 share of Restoration Hardware (RH) @ $100.47, 2.4 shares of Plant Fitness (PLNT) @ $42.56, 2.2 shares of Phillips Van-Huesen (PVH) @ $46.06, 1.7 shares of Square (SQ) @ $59.42, 2.4 shares of Live Nation (LYV) @$41.96, and 3 shares of Southwest Airlines (LUV) @ $34.38. As of this writing, her portfolio is worth $4,417.

Retirement Accounts: 41 shares of Bed Bath & Beyond (BBBY) @ $12.24, 12 shares of American Express (AXP) @ $94.19, 2 shares of Restoration Hardware (RH) @ $120.86, 50 shares of Penn National Gaming (PENN) @ $11.20, 20 shares of Wells Fargo (WFC) @ $29.57, 6 shares of Wynn Resorts (WYNN) @ $72.89, 19 shares of Pinterest (PINS) @ $21.32, 6 shares of Expedia (EXPE) @ $67.26, 4 shares of Ulta Beauty (ULTA) @ $218.87, 5 shares of Boeing (BA) @ $129.38, 18 shares of Live Nation @ $46.09, 9 shares of Inphi (IPHI) @ $115.01, 25 shares of Southwest Airlines (LUV) @ $37.21, 46 shares of Carnival Cruise Lines (CCL) @ $21.46, 44 shares of Norwegian Cruise Lines (NCLH) @ $18.98, 18 shares of Royal Caribbean Cruises @ $50.21, 98 shares of Inseego (INSG) @ $10.79, 7 shares of Shopify (SHOP) @ $328.72, and 19 shares of Six Flags @ $14.09. Note: In these portfolios, I have large tech positions in many of the names listed in Cramer’s index. The purchases since March are my attempt to balance those with stocks that should recover after we get a vaccine. It’s a barbell approach that I think should work.

After-Tax Account: 4 shares of Boeing (BA) @ $126.29, 6 shares of Starbucks (SBUX) @ $62.05, 6 shares of Nike (NKE) @ $72.08, 10 shares of Wells Fargo (WFC) @ $29.64, 13 shares of El Dorado Resorts (ERI) @ $8.55, 3 shares of VF Corporation (VFC) @ $51.27, 1 share of Vail Resorts (MTN) @ $142.30, 12 shares of Store Capital (STOR) @ $17.65, 20 shares of Pulte Homes (PHM) @ $24.32, 2 shares of Walt Disney (DIS) @ $104.76, 2 shares of Ralph Lauren (RL) @ $71.97, 7 shares of Greenbrier Companies (GBX) @ $22.09, 16 shares of Switch Inc. (SWCH) @ $18.64, 11 shares of Invitation Homes (INVH) @ $26.70 , 11 shares of Southwest Airlines (LUV) @ $34.91, 5 shares of KB Homes (KBH) @ $29.22, and 12 shares of ViacomCBS (VIAC) @ $24.04.

As you can see above, I got really aggressive across the board in March and April. I have invested capital in a lot of stocks that should recover once a vaccine happens. If you look carefully, there are some common themes that I have aggressively bought amongst all the portfolios. First, Shopify. This company is enabling the digitization of small business. It has gone from $28/share to $1000/share in 5 years. Just buy it. Second, Casinos, Cruise Ships, and Airplanes. People are itching to get out and gamble to lose their money. You can profit off of that. It’s why I put capital work in Wynn, Penn Gaming, and El-Dorado Resorts. I think people will return to cruises once the pandemic is over. It’s what Americans do…..we cruise. Norwegian and Royal Caribbean have the strongest balance sheets. These stocks should come back, but we have to hope that they can stay solvent while a vaccine/therapeutic is being developed. Third, Airplanes. I was aggressive in buying Boeing. It was as high as $450/share, and traded all the down to $90. Airplanes will be back up in the sky one day, and our airlines depend on Boeing to supply them with quality planes. On the airlines themselves, I notice a lot of people buying all of them hoping for a comeback. I think people will certainly get back on planes to vacation, but I don’t think business travel is coming back in a robust way. Why get on a plane, get a hotel, and rent a car for business trips, when you can just use Microsoft Teams, Slack, or Zoom? Look at the stocks of these companies, and you’ll see wealth transfer from the airlines to the Zoom’s of the world because of teleworking implications. Warren Buffett also sold all of his airline positions, so why am I betting against his thesis? I put all of my capital allocated for airlines into Southwest. Southwest has the best balance sheet among the major airlines (very low debt/equity ratio compared to Delta, American, and Southwest), so they shouldn’t need to do an equity raise or get additional money from the federal government that has to be paid back. This flexibility should also allow them to take market share (perhaps they lower ticket prices more aggressively than their competitors?). American Airlines could go bankrupt, and Delta and United Airlines will be severely hurt by the lack of business travel. If I had a second favorite, it would be Alaska Airlines or United Airlines. Lastly, Homebuilders. Millennials are out here forming families and having babies. They need starter homes. It’s why I bought KB Homes and Pulte Homes. I also bought Invitation Homes (a Josh Brown favorite, follow him on twitter too @reformedbroker), because some young families can’t afford to buy single family homes, but they could rent them. This company is the largest owner of single family homes and they rent them out. Be patient on these themes, as I think it will take 2 or 3 years for them to play out. I do believe that I will be rewarded for my patience. Just be careful on airlines, not all of them are created equal.

I think you should own many of the tech related stocks in the COVID index, before nibbling on a lot of the names I have purchased in the sections above. I am being transparent with my purchases to show that it can really pay off if you are aggressive when you see opportunity. I bought a lot of stocks from panicked sellers, and I hope to be rewarded in the coming years for my patience. I hope this post inspires you to take a similar approach. Stay safe and be well! Check out the updated portfolio page here.

Hey Guys! Back at it again. Since the last blog post (October 2019), the market has been VERY strong (+15%). While the market has certainly changed, my investing behavior has remained the same. I look for stocks that are fairly or undervalued, I ease into my positions, I average down when necessary, I am patient with my investments, I don’t trade in and out of stocks, and I hold for the long term. My portfolio (and Nick’s) has done an amazing job of working hard for me this year. The S&P 500 ended 2019 year up 31%. That is an amazing and historical year. The Phase One trade deal with China, low inflation, and solid earning have all worked together to power the market higher. While I’m happy to see my portfolios performing really well (yours should be too), it’s getting harder and harder to find market opportunities. A lot of good stocks have run a lot, so I’ve been a lot more picky with my investments, because of the big run up.

This post is Part II of the 10 Investment Themes for the next 10 Years. In the first installment, I talked about Big Tech, Financial Tech, and Big Box/Off Price Retail. Today, I’ll cover 3 more themes that should work in the 20’s decade (still feels weird typing that). I’ll also post some charts of a few stocks within the themes to show you how well they’ve performed over the last 10 years. I hope you find some value in this series of posts!

4. 5G

What the heck is 5G? A lot of us will be purchasing I-Phones over the next couple of years and will be sold on the phrase “this is the new high tech 5G phone”. It’s important to know what you’ll be buying, but also important to try and profit from it. 5G stands for fifth-generation cellular wireless. It is the upgrade to the current 4G cell service that all of us currently have on our wireless devices. There are 3 key benefits to 5G. They are speed (allows users to download content more quickly, up to 100 times faster), much lower latency (allows users to experience less delay when making requests from the network), and will enable a host of new connected technologies, (Internet of Things, Driverless/Connected Cars, etc.). I’m most excited about driverless cars coming this decade. This will not be possible without a successful 5G rollout. There are companies directly involved in the transition to 5G, and their stocks are currently performing very well in anticipation of the rollout. The most obvious companies are the phone companies (Apple, Android) and phone carriers (Verizon, AT&T, TMobile). There are other companies that are not so obvious that make magic happen behind the scenes for 5G to even be possible. The companies that I’d like highlight within this group include Marvell Tech (MRVL), Qualcomm (QCOM), Skyworks (SWKS), Keysight (KEYS), and American Tower (AMT). Other companies that will benefit from 5G include Apple (AAPL), Xlinx (XLNX), Analog Devices (ADI), and Qorvo (QRVO), and Crown Castle (CCI). Please check them out!

Marvell (MRVL) is a semiconductor company that specializes in storage, processing, networking, security and connectivity solutions. Semiconductors are the electronics in every day devices that we use, such televisions, cell phones, digital cameras, washers and dryers, etc. They also play a central role in the functioning of the internet and most communications devices. Marvell offers a wide range of products that will help enable the 5G transition. These products include embedded processors, ethernet switching processors, and transceivers for broadband applications. Essentially, Marvell is involved in all the nerdy stuff that needs to happen with the telecommunications industry to enable the transition to 5G. The network that needs to be built by Verizon, AT&T, and T-Mobile to support all of the 5G devices is happening now. Marvell’s products are directly involved in this build-out. The company has made a lot of acquisitions (and even divested portions of the business) to position itself for 5G. The stock really hasn’t moved over the past 10 years, because of these transitions. If you invested $10,000 back then (@$17.43/share), your investment would now be worth $15,593. The return over the the past 10 years is disappointing for sure, but I expect this to look a lot different 10 years from now. I own this stock personally, and Nick Jr. does as well.

Qualcomm (QCOM) is the world’s largest maker of mobile application processors and baseband modems. The make something called “SoCs” (System on a Chip), which an integrated circuit that includes all components of an electronic system that is typically the size of a coin. Qualcomm’s Snapdragon SoC is one of the most widely used mobile chipsets in the world. The Snapdragon processors are designed to provide numerous benefits including fast charging and long battery life, immersive AR and VR experiences, enhanced camera functionality, and superior connectivity. Qualcomm also has a high margin patent licensing business, which generates royalties from most all smartphones sold worldwide. Launching new Snapdragon chipsets for new phones that are 5G capable should bode well for Qualcomm. Their income from royalties should also increase as well, once we all go out and upgrade to 5G phones. I first bought Qualcomm 4 years ago at around $58/share. Qualcomm really didn’t start increasing until 2019, when a royalty dispute from Apple was resolved in April. The stock should still run due to the market anticipating the 5G roll-out. You also collect a 2.7% dividend while you wait. If you invested $10,000 in Qualcomm 10 years ago (@$46.78/share), your investment would now be worth $19,076. I own this stock personally, but Nick Jr. doesn’t (yet).

Skyworks (SWKS) supplies RF chips for the mobile, automotive, broadband, wireless infrastructure, home automation, industrial, and military markets. It should be noted that Skyworks most prominent customer is Apple. Every time we purchase and I-Phone, it will Skyworks chips (electronics) in it. Almost 50% of Skyworks revenue (sales) came from Apple. It’s other major customers include Samsung and Huawei (which unfortunately for Skyworks has been banned by our US administration from having suppliers from the United States). This accounts for 10% of Skyworks revenue. Skyworks will capitalize on the 5G rollout by providing products in the wireless infrastructure, smartphone, and Internet of Things Markets. This stocks usually trades with Apple. If Apple performs well, this stock performs well. If you invested $10,000 in Skyworks 10 years ago (@$13.81/share), your investment would now be worth $88,341. I don’t own this stock personally, and Nick Jr. does not either. Totally missed this one!

Keysight Technologies (KEYS) is a an electronic measurement company that focus on providing hardware and software for engineers and researchers to test data in wireless communications, aerospace and defense, and semiconductor markets. Keysight has two primary goals for 5G. The first is to assist commercial researchers as they accelerate the development and verification of 5G designs. The second is to help researchers in academia explore groundbreaking concepts with more precision and deeper confidence. From a stock perspective, Keysight has performed really well since it became publicly traded in 2014. If you invested $10,000 in Keysight in 2014 (@$29.75/share), your investment would now be worth $34,621. I own this stock personally, and Nick Jr. does as well.

American Tower (AMT) is one of the leading owners and operators of telecommunication towers in the U.S., India, Africa and Latin America. The company owns 17,000 cell phone towers worldwide. Large companies such as AT&T, Verizon, T-Mobile, and Sprint all have to pay American Tower money to use their towers throughout the United States, and throughout the world. Their business will continue to grow due to the growing amount of devices (think Internet of Things) that will need to communicate through cell towers, because 5G enables them to do so. The chart above shows just how much our dependence on cell phones has grown since 2000. We need more data on our phones, and we need that data to get to us faster. American Towers play a direct role in that dependence. I think buying the towers is a no-brainer play on 5G. Crown Castle is another company that I like in this space. If you invested $10,000 in American Tower 10 years ago (@$44.38/share), your investment would now be worth $53,502. I don’t own this stock personally, and Nick Jr. does not as well. I’ve been waiting on a major pull back to happen over the last couple of years, and it just hasn’t happened for me. I’ll continue to be patient, because I’d like to own this name.

5. Household Formation

Household formation stocks are stocks that center around the theme of millennials making babies. Millenials were born between 1981 and 1996 (shout out to my fellow ’86 babies). The average age for a millenial today is age 32. Millenials are at the age where we have pretty good jobs with good incomes, and we’re starting to get married and have babies. When you combine two incomes to form a household, you start spending your money on items that new families typically purchase. You’re in the market for a starter home or rental single family home (instead of an apartment), you’re spending money on furniture to populate the home, if the home is older…you’re spending money to upgrade it, and you’re paying daycare bills. If you’re a millenial that’s not quite married yet with a baby, it’s likely that you are looking for a mate. This means you could be on Bumble/Tinder/Match.com searching for possible companionship. The companies that I’d like highlight within the Household Formation theme include Pulte Homes (PHM), Invitation Homes (INVH), Restoration Hardware (RH), Match.com (MTCH), and Bright Horizons Family Solutions (BFAM). Other stocks in this space to consider include KB Homes (KBH), Lennar Homes (LEN.B), D.R. Horton Homes (DHI), Home Depot (HD), and Lowes (LOW).

Pulte Homes is a home construction company based in Atlanta, GA. It is the third largest home construction company in the United States. The neighborhood I live in is a Pulte Homes neighborhood. They typically build starter level homes. If you invested $10,000 in Pulte Homes 10 years ago (@$11.03/share), your investment would now be worth $39,673. I own this stock personally. Nick Jr. does not (yet).

Invitation Homes is a play on families being formed who would rather rent single family homes than own them. Millenials enjoy the flexibility that renting provides. If you rent, you don’t have to come up with a down payment, pay the annual taxes, or perform repairs around the house. Renting makes sense for a lot of people who don’t want to deal with the headaches of home ownership. This stock is a reflects the need for single family home space, but wanting to rent this space instead of owning it. If you invested $10,000 in Invitation Homes in 2017 when it became publicly traded (@$20.63/share), your investment would now be worth $15,147. I don’t own this stock personally. Nick Jr. does not either (yet).

Restoration Hardware is a home furnishing retail company that families are using to decorate their homes. Many families gravitate towards Restoration Hardware because of the company’s luxury brand reputation. The company also has an outlet store than you can purchase furniture from at a “discount” price. The reason that this company fits in the “Household Formation” theme is because new families want to impress their friends with how well their homes are furnished and decorated. If you couple this with an economy that’s doing well, along with low unemployment rates, a company like Restoration hardware tends to perform well. Another reason to like this stock is the fact that Warren Buffet’s company (Berkshire Hathaway) recently purchased a small stake in Restoration Hardware. If you invested $10,000 in Restoration Hardware back in 2012 (@$31.10/share), your investment would now be worth $70,704. I own this stock personally. Nick Jr. does not (yet).

Match.com is a play on all of the swiping that millenials are doing to find potential mates. Match Group owns companies such as Match.com, OkCupid, Hinge, PlentyOfFish, and most famous of all….Tinder. All that swiping we are doing can (and should) be profited off of! Don’t just be a consumer of the product, be an owner of the stock. This is the digital way to meet new people, and Tinder is the most important company in the Match Group portfolio. It seems much easier to just swipe, instead of finding mates the traditional way. If you invested $10,000 in Match group back in 2015 (@$15.20/share) , your investment would now be worth $56,684. I don’t own this stock personally, but Nick Jr. does.

God I wished I invested in this company when Nicholas was born. This is the daycare that he went to for 5 years! 5 years of taking all of my money! 5 years of feeling like I was paying an extra mortgage. 5 years of drop offs and picks ups. 5 years of ever increasing fees. 5 FREAKING YEARS, and I never invested in the stock. If I’m contributing to the earnings of the company, I might as well participate in the wealth creation that the stock allows. I think all of our major daycare centers have seen this type of growth. You see, in our generation you typically have a working father and mother. Long gone are the days where the dad just works, and mom raises the kids. We are in the era of women making major moves in our workforce, and I am here for it. The effect of this is more discretionary income for the household to spend on the kids. If you have a two income household, you’re going to spend money on the best daycare for your child possible. This is the reason why the stock has increased dramatically over the last few years. If you invested $10,000 in Bright Horizons in 2013 (@$28.32/share), your investment would now be worth $57,507. I don’t own this stock personally (yet), and Nick Jr. doesn’t either (yet).

6. Data Centers

Despite the fact that hardware is constantly getting smaller, faster and more powerful, we are an increasingly data-hungry species, and the demand for processing power, storage space and information Data centers provide secure, continuously available environments for the exchange, processing, and storage of critical electronic information. Data centers are used for digital communication, disaster recovery purposes, transaction processing, and housing mission-critical corporate IT applications. Demand for data centers is a function of the need for highly specialized properties designed for housing the high-power loads, cooling facilities, hardware and telecommunications equipment for computers, data storage, Internet and other related functions. Such properties are constructed for a variety of clients, from small users to major international telecommunications companies. Some centers are more focused on computer power, servers, and information storage, while others are more geared for telecommunications and Internet support. When we make a post or story on Instagram, that data is being routed through a data center. When we’re watching a movie on Netflix, streaming is made possible because of data centers. When we’re watching a youtube video or searching for information on Google, this is made possible because of data centers. When Apple backs up our photos to the cloud, this information is routed through a data center. Essentially every part of our internet activity is made possible because of data centers. Data is growing exponentially year over year. Our lives in the coming years will be centered around data. The companies profiled below are all data center real estate investment trusts. These companies own and manage facilities that customers use to safely store data. Data center REITs offer a range of products and services to help keep servers and data safe, including providing uninterruptable power supplies, air-cooled chillers and physical security. Data center stocks have been on fire the last 10 years! They provide both strong dividend yields and price appreciation. The companies that I’d like highlight within this group include CyrusOne (CONE), Equinix (EQIX), Coresite (COR), Digital Realty (DLR), and QTS Realty Trust (QTS).

All of these data centers operate similarly, bus Cyrus One is my largest position. If you invested $10,000 in Cyrus One in 2013 (@$21.20/share), your investment would now be worth $29,084. I own this stock personally. Nick Jr. does not (yet).

If you invested $10,000 in Equinix 10 years ago (@$106.77/share), your investment would now be worth $56,690. I own this stock personally. Nick Jr. does not (yet).

If you invested $10,000 in CoreSite in 2012 years ago (@$26.18/share), your investment would now be worth $43,544. I own this stock personally. Nick Jr. does not (yet).

If you invested $10,000 in Digital Realty 10 years ago (@$49.10/share), your investment would now be worth $25,071. I own this stock personally. Nick Jr. does not (yet).

If you invested $10,000 in QTS Realty 10 in 2013 (@$19.93/share), your investment would now be worth $29,247. I own this stock personally. Nick Jr. does not (yet).

Hey Guys! It’s been about 3 months since I’ve been able to jump on here to blog. Sometimes life gets in the way, but I finally found some inspiration to write. The market has been choppy over the last 3 months, with falling interest rates, the US-China trade war, and presidential “impeachment” talks all negatively affecting the market. The market has been flat over the last 20 months, and it’s looking for resolution. I’m hoping prices break materially lower (I’d like to see a 20% drop in the market), so I can scoop up more shares of my favorite companies on sale.

I figured I’d give you all some investment themes that you can invest in today that should perform well for you over the next 10 years. I’ll also post some charts of a few stocks within the themes to show you how well they’ve performed over the last 10 years. I’m putting a lot of information into this post, so I will divide it up in 3 separate parts to make it more digestible. I hope you find some value in this series of posts!

1. Big Tech

Big Tech are the companies that provide the products that we use on a daily basis. Many of these products are things that we couldn’t live without. Big Tech stocks have been the biggest winners over the last decade, and I see no reason why they will slow down now. As our lives become increasingly digital, these companies are at the center of how we live, interact with each other, and conduct business. These companies make up 20-30% of my portfolio. This is how much I believe in them. You’ve got to add these companies as foundations for your portfolio, before you start adding the other themes. The companies that I’d like highlight within this group include Facebook (FB), Google (GOOG), Amazon (AMZN), Microsoft (MSFT), and Apple (AAPL).

Facebook (FB) a best of breed social networking company which is benefiting from the secular tailwinds provided from online advertising. Facebook owns Facebook, Instagram, Messenger, and WhatsApp. They get their revenue from advertisers who like to use Facebook’s platform to advertise their products. How many times have you seen targeted ads when using Instagram? Happens to me all the time. As I’ve said elsewhere in this blog, don’t just login to Facebook/Instagram to connect with your friends. Participate in the wealth creation taking place by owning the stock. Facebook became publicly traded in 2012. If you invested $10,000 back then (@$38.23/share), your investment would now be worth $46,612. I own this stock personally, and Nick Jr. does as well.

Google (GOOG) is also best of breed in online advertising. In fact, it didn’t have any competition until Facebook came around. We all use Google in some way, every single day. Whether it’s Google Search, Google Maps, Waze, YouTube, Android Phones, or Google Home….we have to use their products to find the information we need. Advertisers place targeted ads on Google’s platform as well, and this is how the company largely makes their money. The two growth areas that I’m excited about with the company is Google Cloud and Waymo. Google Cloud allows enterprises to let their data storage and computing power to be managed by Google. Waymo is a Google division that is focusing on developing self-driving technology for cars. Waymo is FAR FAR ahead of anyone else in the space (Tesla, Apple, Uber, General Motors, etc.) and I think the company will make a lot of money in the next 5-10 years as this technology matures. Google is the third biggest position in all of my portfolios, largely because I believe Waymo will be huge. If you invested $10,000 in Google 10 years ago (@$236.07/share), your investment would now be worth $52,262. I own this stock personally, and Nick Jr. does as well.

Amazon (AMZN) is another big tech company that we simply can’t live without. How many of your friends, colleagues, and coworkers use Amazon Prime? I’d venture to say it’s plenty. Amazon is the reason why the physical retail stores are currently being destroyed. Sears went out of business recently, JC Penny is on it’s last legs, Toys R Us went bankrupt, and malls are empty around America. Why is this? It’s because people are buying their products off of Amazon. Amazon undercuts its retail competitors with it’s pricing, and uses their superior logistics network to get your items to you faster than FedEx or UPS could. They are truly the best company in America (currently). Amazon also has products within the home that keep you contributing to their bottom line. Amazon owns Prime Video, Alexa Devices, Whole Foods, and the Ring Doorbell. Although all of these products/services are great, they are not the biggest revenue contributor to Amazon. Amazon has Amazon Web Services (AWS), which is a service that provides on-demand cloud computing platforms to individuals, companies, and governments, on a metered pay-as-you-go basis. It is another cloud platform (similar to Google) that companies around the world pay Amazon to store and process their data. Profits generated from AWS allows Amazon to lower prices on services like Amazon Prime and Retail products sold on Amazon. This, in turn, makes people shop on Amazon (because of all the great deals!) and hurts other retail stores (ultimately putting them out of business). Amazon is the second biggest position in all of my portfolios. If you invested $10,000 in Amazon 10 years ago (@$78.87/share), your investment would now be worth $220,849. I own this stock personally, and Nick Jr. does as well.

Microsoft (MSFT) is yet another product that is used every single day by mostly everyone who uses a computer. If you’ve got a computer, chances are that you have the Windows operating system. Microsoft generates revenue by developing, licensing, and supporting a wide range of software products, by offering an array of services, including cloud-based services to consumers and businesses, by designing, manufacturing, and selling devices that integrate with its cloud-based services, and by delivering relevant online advertising to a global audience. Microsoft is also the owner of LinkedIn (acquired back 2016). If you use PowerPoint, Excel, or Word, you should consider owning stock of Microsoft. If you play X-Box, you should consider owning stock of Microsoft. The most impressive business of the company is its cloud computing business (called Azure). Similar to Amazon, enterprises across the world are using Azure to migrate their data and computing to Microsoft’s more secure cloud platform. Look for this part of the business to continue driving the stock higher. If you invested $10,000 in Microsoft 10 years ago (@$25.26/share), your investment would now be worth $52,802. I own this stock personally. Nick Jr. does not (yet).

Apple (AAPL) is another no-brainer stock to own. Everyone is hooked to an apple product in one way or another (phone, watch, iPad, AppleTV, Mac, etc.). We all know the iPhone story by now. The iPhone today, is actually a flat to declining part of Apple’s revenues. The iPhone market is clearly saturated. I don’t know how much more you can add to a phone to make it more useful. Everything added from this point (with the exception of 5G capability) is an incremental upgrade. The fastest part of the company today is Wearables (Apple Watch) and Services. Apple Watch shipments grew almost 50% year over year from 2018 to 2019. At ~$400/watch, the margins are pretty high on it compared to the phone. Apple’s Services revenue grew 13% year over year from 2018 to 2019. Included in Services is that pesky $2.99 that you don’t even know you’re paying monthly to store all your data on the cloud. AppleTV will soon be contributing money to the Services part of the company, with the $4.99/month offering for streaming content. Apple is easily the biggest position I have in my portfolios. It makes up almost 15% of my net worth. I started buying Apple around $60/share, and I don’t plan to sell a single share. I still think the company is cheap and should be valued like a software company instead of a hardware company. This makes the company worth around $350/share. If you invested $10,000 in Apple 10 years ago (@$27.21/share), your investment would now be worth $80,521. I own this stock personally, and Nick Jr. does as well.

2. Financial Tech (aka Fin-Tech)

Financial Tech stocks include companies that are directly involved with how we transact money. As we race ahead towards a cashless society, these companies implement technology to make the movement of money easier. These stocks have been HUGE winners over the last decade. Looking back on it, these are no brainers! We swipe a card every-single-day, multiple times a day. We need to own the stocks that make this possible. The companies that I’d like highlight within this cohort include Visa (V), MasterCard (MA), Paypal (PYPL), American Express (AXP), and Square (SQ). Other groups in this space worth checking out include Global Payments (GPN), FleetCor Technologies (FLT), and Fiserv (FIS).

We all see the Visa logo on our credit cards, but how exactly do they make money? There are three main ways that Visa and Mastercard make their money. The first category is service revenue (also known as swipe fees). Every time you swipe your credit card at a point-of-sale terminal, Visa or Mastercard or whoever is backing your card gets a small cut of whatever that revenue is (typically ~1%). They also get what’s called data processing revenue, which is a small, fixed amount that they get for things like actually transferring the money from one place to another, providing settlement data to a merchant, things like that. Then, there’s also what’s called international revenues, which are, if your credit card charges you a foreign exchange fee, or something to that effect. Any time that a credit card is used outside of its main area, you get a nice, additional, international revenue stream, if it has to deal with currency exchanges or convenience fees, those sorts of things. All of these things make Visa and MasterCard extremely profitable, and the stock price has reflected this. If you invested $10,000 in Visa 10 years ago (@$17.59/share), your investment would now be worth $99,556. I own this stock personally. Nick Jr. does not (yet).

The description for Visa above holds true for MasterCard as well. If you invested $10,000 in MasterCard 10 years ago (@$22.36/share), your investment would now be worth $121,748. I own this stock personally. Nick Jr. does not (yet).

Paypal is a company that operates a worldwide online payment system that supports digital money transfers and serves as a payment processor for online vendors. Paypal also owns the peer to peer payment app Venmo. Venmo competes directly with Cash-App for peer to peer payments. Paypal became publicly traded in 2015. If you invested $10,000 in Paypal back then (@$34.69/share), your investment would now be worth $29,778. I own this stock personally, and Nick Jr. does as well.

Square is a mobile payment company that offers several products to make transactions easier for merchants and consumers. Most notably, Square owns “Cash-App”, which is something I use a lot to send/receive money. When something become a verb, you might want to own the stock (“Just cash-app it”, or “Google it”). Square competes directly with Paypal (Cash-App competes with Venmo). I believe somebody will acquire Square at some point. Facebook comes to mind. Square became publicly traded in 2015. If you invested $10,000 in Square back then (@$12.85/share) , your investment would now be worth $47,330. I own this stock personally, and Nick Jr. does as well.

The description for Visa above holds true for American Express as well If you invested $10,000 in American Express 10 years ago (@$32.49/share), your investment would now be worth $36,605. I don’t own this stock personally (yet), and Nick Jr. doesn’t as well (yet).

3. Big Box and Off-Price Retail

“Big Box” retail companies that I like to invest in are those that can compete with Amazon’s aggressive online strategies. Retail companies who have a successful omni-channel (phyical stores, online presence, in-store pickup, etc.) sales strategy tend to be able to compete well in today’s retail climate. Off-Price retails are being highlighted because millennials tend to look for the “best deals” when shopping for things. You see, we are different from our parents. We don’t really care about oversized homes, oversized cars, and overpriced clothes. We are just looking for value, at a price that we are willing to pay. We don’t brag about how much we paid for something, we brag about how much we saved during our purchase. For Big Box retail stocks, I’ll highlight Wal-Mart (WMT), Target (TGT), and Home Depot (HD). For Off-Price retail stocks, I’ll highlight TJ Maxx (TJX), Five Below (FIVE), and Burlington (BURL). Other stocks worth checking out in these spaces include Lowe’s (LOW), Ollie’s (OLLI), Ross Stores (ROST), Kohl’s (KSS), Dollar Tree (DLTR), and Dollar General (DG).

Wal-Mart was a great investment from 1980 until 2000. From 2000-2015 it was basically flat around $55. Imagine how tough that would be to hold your investment the entire time. I probably would have sold to be honest. Wal-Mart was forced to make E-Commerce investments in 2015, due to Amazon’s surge. They have implemented free two day shipping, and you don’t have a membership fee like (Amazon Prime members). They also have grown their grocery presence, and are putting pressure on your Kroger’s of the world. They should continue to perform well if they continue to invest in their E-Commerce strategies. If you invested $10,000 in Wal-Mart 10 years ago (@$51.86/share), your investment would now be worth $22,840. I own this stock personally. Nick Jr. does not (yet).

Similar story for Target. It was a great investment from 1980 until 2007. From 2007 through this year it was basically flat around $60. Target has also invested in its E-Commerce platform, and now has a digital presence that customers love. I personally use their free shipping and in-store pickup options pretty often. If you invested $10,000 in Target 10 years ago (@$46.02/share), your investment would now be worth $23,059. I own this stock personally. Nick Jr. does not (yet).

Home Depot is one of those companies that cannot be “Amazon-ed”. You’re not going to buy wood and screws online. It’s just not feasible. They also only have one competitor in Lowe’s. With new home construction picking up, and many people interested in rehabbing old homes and flipping them….this is a great company to invest in. When you visit home depot, you’ll notice that their in-store technology is superior to most other companies. They also don’t have few (if any) check out lines with employees. Technology allows them to mostly do self check out. This saves $$$ for the company because they don’t have to pay somebody to do this. They have/are investing heavily in their technology. If you invested $10,000 in Home Depot 10 years ago (@$27.50/share), your investment would now be worth $83,585. I own this stock personally. Nick Jr. does not (yet).

HomeGoods is the one of the reasons why TJ Maxx has performed so well. People my age like the value that they can get at stores like these. If you invested $10,000 in TJ Maxx 10 years ago (@$8.77/share), your investment would now be worth $62,519. I don’t own this stock (yet). Nick Jr. does not (yet).

I’ve never stepped foot in this store, but I know they sell cheap stuff. I also have seen a few of them being built around Atlanta. The stock definitely reflects the success this company has had. Five Below became publicly traded back in 2012. If you invested $10,000 in back then (@$27.27/share), your investment would now be worth $46,384. I own this stock personally. Nick Jr. does not (yet).

As a kid, I hated when my Mom dragged my brother and I into Burlington Coat Factory. The church clothes were horrible and the I hated their jackets. Every Saturday that we had to spend in Burlington was an awful experience. I had ZERO idea that Burlington would be killing it like it is. Look at that stock performance in just 6 years! I’ve haven’t been in the store since my childhood, and always thought it was a wasteland. This goes to show you how off price retail driving huge earnings for companies. This is the trend for millenials, who are now becoming millenial parents and shopping for their kids. Just, wow. Burlington became publicly traded back in 2013. If you invested $10,000 in back then (@$25.89/share), your investment would now be worth $76,898. I don’t own this stock (yet). Nick Jr. does not (yet).

Happy June! I’m happy to be back blogging this month! I meant to get this post out sometime last week, but life gets in the way for all of us from time to time. I’ve known exactly what I wanted to blog about for this month for a while, but it’s tough to sit down and get your thoughts fleshed out on paper. I’m encouraged by the initial reaction to the blog site and my initial post. I’ve received so many positive comments and have heard from many people who are excited to learn more. I figured I would spend some time discussing stock fundamentals, and give you some additional insight into the investment style I choose for myself and for Nicholas Jr. (the two are different). So, let’s get started!

So, exactly what is a stock? I find many people look at the stock market as a way to make fast money, but how can one participate in the market if they don’t know the fundamentals of what a stock is? Stocks can be defined as securities that represent an ownership share in a company. For companies, issuing stock is a way to raise money to grow and invest in their business. For investors, stocks are a way to grow their money and outpace inflation over time. When you own the stock of a company, you are defined as a shareholder of that company. Shareholders participate in the growth of the company’s assets and earnings, over time. Simply put, as the company grows its profits, the shares of stock you own in that company grow in value as well. If you are a shareholder, you’re an owner! You own a piece of that company, and ownership (as stated in the “Our Story” portion of this blog), is a powerful mindset.

People make money by buying stocks in one of two ways. The first way is something called “Capital Appreciation” (also called Capital Gain). Capital Appreciation is defined as the difference between the average purchase price of the stock (also known as cost basis) and the sale price of the stock. Let’s use Disney as an example. Disney is currently trading at $141.65 per share. If I purchased 1 share of Disney at $100, I have a capital gain of $41.65. The percentage gain is calculated as ($141.65 – $100) / $100. This gives me an answer of 0.4165 or 41.65% gain on my investment. Most people focus on Capital Appreciation because it is the easiest way to calculate the growth on your investment. “Guess what bro? I bought Apple at $100 per share and sold it $200 per share.” This is the concept of Capital Appreciation in everyday conversation. It is the primary way that people make money on their stocks, but it is not the only way to make money.

The second way to make money off of stocks is through Dividend payments. Dividends are defined as a sum of money paid regularly (typically quarterly, meaning every 3 months) by a company to its shareholders out of its profits. Not all companies pay dividends, but typically more mature companies do. I will use Disney again as an example to show you how dividends work. Disney pays an annual dividend of $1.76 per share to Disney shareholders. So if I owned 10 shares of Disney, Disney would be pay me $17.60 ($1.76 multiplied by 10) per year just to own the stock. The concept of free money just to hold a stock is amazing to me! Now, admittedly $17.60 doesn’t seem like a lot of money to make from dividends, but let’s elevate the example. Bob Iger (Disney’s CEO) owns roughly 1 million shares of Disney stock. This means his shares are worth $141,650,000 (1 million shares multiplied by $141.65 (current price of Disney stock)). As a shareholder, Disney has to pay Iger $1.76 per share of Disney that he owns. This means Iger has an annual income of $1,760,000 from dividends alone! This doesn’t include his salary, bonuses, and other awards included in his CEO pay package. Imagine earning $1.7 million from doing nothing but just existing! Well this is how, conceptually, dividends work. Back to my original example….if I owned 10 shares, I would be paid $17.60 for doing absolutely nothing. This small amount of money adds up over time, and contributes to your total return. Imagine what this turns into 20, 30 years down the road. It’s just a snowball that gets bigger and bigger over time. Total return is defined is Capital Appreciation + Dividends. As mentioned elsewhere in the blog, the total return of the stock market for the last 100 years has been about 10% per year. Out of this 10% annual total return, I would say 7% is due to capital appreciation, and 3% is due to dividends. Dividends are in important part of the equation that people tend to overlook. It’s easy to overlook, because dividends aren’t sexy to talk about.

If you are an investor who is not retired (anybody generally under the age of 60), you should be reinvesting the dividends that you earn. Dividend reinvestment is the concept of using the dividends you receive to purchase more shares of stock in the company you are invested in. Reinvesting your dividends should be a no brainer for anybody reading this blog, because you don’t need the income at this point in life. In using our 10 shares of Disney example again, I would use the $17.60 of free money that I receive from Disney, to purchase more fractional shares of Disney. $17.60 would buy me 0.12 additional shares of Disney ($17.60/$141.65 = 0.12). Dividends should be seen as fuel to buy more shares of the company that you are invested in. All brokerages will reinvest your dividends for you, free of charge! You just have to ask them to do so.

Stocks can be categorized in the following ways:

• Growth stocks have earnings growing at a faster rate than the market average. They rarely pay dividends and investors buy them in the hope of capital appreciation. A start-up technology company is likely to be a growth stock.
• Income stocks pay dividends consistently. Investors buy them for the income they generate. An established utility company is likely to be an income stock.
• Value stocks have a low price-to-earnings (PE) ratio, meaning they are cheaper to buy than stocks with a higher PE. Value stocks may be growth or income stocks, and their low PE ratio may reflect the fact that they have fallen out of favor with investors for some reason. People buy value stocks in the hope that the market has overreacted and that the stock’s price will rebound.
• Blue-chip stocks are shares in large, well-known companies with a solid history of growth. They generally pay dividends.

I tend to invest in a mix of growth stocks, value stocks, and blue chip stocks for my portfolios. For Nicholas, I lean heavily towards growth stocks above all the others, because Nicholas has a 30+ year runway before he’ll need the money. This means I can swing for the fences and be very aggressive for him, because he’ll have the time to make it up should I make unintended mistakes. I truly swing for grand slams when investing for him. When investing for myself, I tend to try and hit singles and doubles. Sometimes I’ll swing for the home run, but I have to be more defensive because I’ll be retiring in about 20 years or so.

Ownership in stocks are also more beneficial for you from a tax perspective versus earning a salary. Salaried income is treated at the standard marginal tax rates. Marginal tax rates in 2019 range from 10% – 37%, depending upon what you earn. The capital gains tax rates are typically between 15% and 20%, assuming you hold the investment for more than a year. Back in 2013, Warren Buffett famously stated that he paid a lower tax rate than his secretary. How is this even possible for one of the Top 5 wealthiest people in the world? This is because the majority of Warren Buffet’s wealth comes from investment gains. Since he owns stocks (admittedly a lot of them) his capital gains tax rate caps out at 20%. Another recent example of why equity (participating in the ownership of a company) is important is what Jay-Z has accomplished. Jay-Z recently became the first rapper to become a billionaire, which is an amazing feat. How exactly did Jay get to a billion?

• $310 million as controlling owner of Armand de Brignac (Ace of Spades) champagne
• $220 million in cash and investments. He invested $2 million in Uber, and that stake is now worth $70 million
• $100 million ownership stake in D’usse
• $100 million ownership stake in Tidal
• $75 million for his music catalog
• $70 million art collection
• $50 million in real estate

You’ll notice that less than 10% of his net worth is from his actual day job. Rap money for Jay is “only” worth $75 million. We all cannot be Jay-Z, but there is a powerful lesson here. Your day job is not going to make you wealthy. Your salary is not going to make you rich. Ownership and equity in companies is the only way to truly grow your wealth. Don’t be impressed when people talk about how much money they make from their jobs. This mentality what I call “first order thinking”. First order thinking is being satisfied with your annual salary, or your “rap money”. People like to quote these numbers to you, to make themselves feel more important. Second order thinking is understanding that ownership is the only thing that matters in building wealth. If you’re truly interested in building wealth, don’t just be satisfied with your annual salary. Focus on ownership! Focus on owning pieces of pieces of companies (stocks!) or real estate that will grow your wealth over time. Don’t just go watch the new Avengers movie or the new Lion King movie, be a Disney shareholder! Don’t just buy your favorite cup of Starbucks coffee every morning, own shares in Starbucks! Don’t just be a videogame player of NBA 2K, own shares of Take Two Interactive! Don’t just watch “Stranger Things” on Netflix, own shares of Netflix. Don’t just go grocery shopping at Kroger, be a shareholder of Kroger. Second order thinking understands that your salary should be a mechanism that is used to purchase ownership in assets that will appreciate over time. Be a second order thinker!

I hope this post gives you some insight into the basics of stocks. It’s not very fun to read some of the basics, because most people just want to know how to make the most amount of money in the quickest amount of time in the market. However, one must learn the basics of the game, before playing the game. Hopefully, you feel a little more comfortable with the terminology. I also hope you are more inspired to have an ownership mentality. Once this clicks, you will start observing how much money you waste on consuming “stuff”. Your consumption is contributing to the profits of all these companies, and only making the shareholders richer. Why not participate along with them???

Thanks for checking out “A Dollar and a Dream!”  I appreciate you for joining me on the journey of creating financial freedom for our children.  For me, life is all about setting up the next generation for better success than you had.  Think about it.  My grandparents (Born in the 1920’s and 1930’s) come from very humble beginnings.  Both of my grandmothers cleaned houses for wealthy people, one of my grandfathers worked in furniture repair, and the other grandfather sold insurance (he did pretty well for those days, lol).  They did the best they could with the resources they had.  They had to deal with so many issues going on at the time, namely racial discrimination and segregation. My parents (born from those humble beginnings) took the ball and advanced it a little further.  My Mom became the first in her family to graduate from college, and my Dad learned a trade as an electrician out of high school and started a career in that field.  My parents’ generation were the first to get corporate jobs.  They also faced the same discrimination that their parents faced earlier in life, so I’m sure they were just happy to get a foot in the door with real companies.  Today, my generation is in the early to mid part of our careers, and we don’t have those barriers to deal with.  Yes, we still have biases in the workplace.  Yes, there are still issues with climbing the corporate ladder when you look like us.  However, these issues pale in comparison to what my parents and grandparents dealt with.  My generation is pushing the ball a little further, and we’re demanding opportunities in management and leadership in the workplace.  Part of us advancing the ball further (IMO) is saving our money early for our children and really educating ourselves about stocks and how they work, so that we can effectively grow their money. 

So, why should you invest early and often for yourself or for your children?  Two words answer that question entirely….”COMPOUND INTEREST”.  Albert Einstein once described compound interest as the eighth wonder of the world.  He is quoted as saying, “He who understands it, earns it; he who doesn’t, pays it.”  Compound interest is defined as the addition of interest to the principal sum of a loan or deposit.  In simple terms, it is defined as earning interest on top of previously earned interest. 

Let’s take a look the concepts of simple interest vs. compound interest.  If you invested a lump sum of $10,000 and earned simple interest of 8% per year, your earnings portfolio would be worth $10,800 after year 1, $11,600 after year 2, $12,400 after year 3, and so on and so forth.  If you invested a lump sum of $10,000 and earned compound interest of 8% per year, your earnings portfolio would be worth $10,800 after year 1, $11,664 after year 2, $12,597 after year 3, and so on and so forth.  With simple interest, you earn interest based off the original amount invested.  With compound interest, you earn interest off of your new portfolio total at the end of each year.  Investing in stocks allow you to compound your money over time.  If you pick the correct investments, you’re able to compound your money faster than others.  Check out the illustration below of simple interest vs. compound interest.  Your money starts growing slowly at first, but then it eventually diverges and starts growing exponentially (red line) as the years go on.

Allowing interest to compound over many years is the reason why I started investing for my kid so early.  The earlier you start, the more time compound interest has to work its magic.  Please see the chart below that shows the differences between starting early, and waiting to start later in life.  The age you would start investing is in the left most column, and your range of portfolio returns are the right 3 columns. 

Portfolio Totals @ age 25 (contributing $200/month)
Starting Age	Annual Percent Return
	6%	8%	10%
0	$138,599	$190,205	$265,367
5	$92,408	$117,804	$151,874
15	$32,775	$36,589	$40,969
20	$13,954	$14,695	$15,847

As you can see, the earlier you start, the larger your portfolio.  If you waited to start later in life, you’d have to contribute significantly more out of your pocket, just to make up the difference.  Even then, it will be hard to catch up.  This principle is applicable for young professionals as well.  INVEST EARLY AND OFTEN in your 401k’s.  If you wait until 40 to try and make up ground for lack of putting money away in your 20’s and 30’s, you will find it impossible to catch up.  Let compound interest go to work for you in your early years.  As you get raises each year, just increase what you’re putting towards your retirement.  You won’t regret it.  

Returns over the last 100 years (with dividends reinvested) have been around 10%.  Jack Bogle (founder of Vanguard, creator of low cost index funds) predicts that returns will be much lower (~6%) going forward.  Who am I to question that?  I predict I can earn Nicholas (~7%) per year.  With plans to increase how much we’re contributing per month as he gets older, he will be around the $250,000 mark by the time he’s 25.  The message here is to please save early and often for your kids.  Just save something for them (doesn’t have to be a big amount).  The earlier you start, the better off they’ll be!  As always, feel free to check out Nick Jr’s portfolio (updated monthly).  I’m an open book!  If you have questions, drop me a note and I’ll be more than willing to answer them.