Dear Capitalists

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Submitted by Mr_Lineberry on Mon, 2020-03-09 21:47

My fellow capitalists there is no need to panic about recent events; it's just the free market working.

The collapse of the oil market, down 27%, is being portrayed by the ignorant media as a bad thing - although why petrol prices falling from $2.17 to $1.60 is a bad thing is unfathomable to me. The sharemarkets of the World have also dropped quite significantly in the last couple of days; this too is actually a good thing.

It may surprise some of you, especially certain members of my family, to learn I've been in cash - and out of shares - since October. When making investments I follow a strict and simple criteria when deciding which stocks to buy; if a company doesn't meet my criteria I do not invest. Share prices had risen so much in 3 years - making many of us huge tax free profits, as nature intended - that by last October it was almost impossible to find any company which met my criteria; there were no bargains to be had other than some small beer stocks which are too lowball for someone like me to bother with.

So I sold up everything, went into cash, and played the waiting game. I must confess during December and January I was genuinely wondering if I had it all wrong as the Dow rises another thousands points. Had things 'changed'? was there now some new epoch whereby I would never make another investment? Self doubt isn't something I normally suffer from Sticking out tongue - but for about six weeks I was starting to 'wonder' if I'd made the biggest cock up ever.

Let me take a moment of your time, dear reader, to explain how sharemarkets work; just bear with me for a moment.

Take a hypothetical company; let's say it is making $1 million per year in profits; let's say it pays out $300,000 of that million as dividends to its shareholders; let's say the company has 10 million shares in existence.

The way share prices are valued in order to know if they are cheap or expensive is by what is known as the price earnings ratio (do not panic; keep reading; all will be clearly explained in a moment). Let's say our hypothetical company has a share price of 80 cents per share. This would mean the company is valued at $8 million dollars (10 million shares at 80 cents each). This $8 million is 8 times its earnings (its profits) so the price earnings ratio is 8.

If the share price was $1.25, valuing the company at $12,500,000, the price earnings ratio would be 12.5; if the share price was $2.00 the ratio would be 20 (and so on).

What has happened during the Trump sharemarket boom is share prices have shot way way up, making price earnings ratios way out of kilter with reality, valuing the average company's shares far higher than they are actually worth.

To give you some examples from the often quoted "Dow Jones Index" - a month ago Home Depot had a price earnings ratio of 30, Coca Cola at 35, Microsoft of nearly 40, Johnson and Johnson 31, McDonalds 27, Proctor and Gamble 68(!). There is nothing fundamentally wrong with any of these companies; they are huge, profitable, and likely to be around indefinitely, but their shares certainly were not worth such high prices.

Over the last week or so - and particularly today (as I write this) - the share prices of these and hundreds of other companies have fallen significantly from what they were a month ago..... back down to the level where an investor would see them as a good investment. A particularly 'smart' investor (ahem) will give it another couple of weeks to see what happens - with any luck the market will drop another 20% hahahahaha!!

Imagine being able to vacuum up Nike shares for $60 each, or McDonalds at $70 each, or American Express at $80 a share - huge bargains which will have you laughing all the way to the bank in years to come.

To go back to our hypothetical company, it is as if their share price had risen all the way up to, say, $2.20 (a price earnings ratio of 22) and has now dropped to $1.50 (a ratio of 15) on its way down to a more realistic share price of, say, $1.20 (a ratio of 12). Tough titties for greedy b*ggers buying at $2.19, but great news for you.

So my point being - now is the time to sit tight, do not panic, do not buy into the doom and gloom written by impecunious journalists who haven't the money to be investors themselves, and wait for major bargains to fall into your lap in due course. No one is going broke, a great depression isn't on its way, the World is not ending, it is simply a free market at work cleansing itself of the expensive prices and replacing them with bargain prices. Healthy; purifying; a great opportunity.


These

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two, Carmen and Darius, are just marvelous; been watching their videos for a couple of years and the one they posted on Monday is something you really ought to watch. Although they are negroes you needn't worry - they are 'nice ones'; not BLM loons or anything.

They encourage you to have a "side hustle" to earn passive income, in addition to your main business activity; lots of good advice!!

In

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the Libertarian Manifesto section a guest post by David Lewis mentions a previous email about Benjamin Franklin. Here it is for those who are interested; it is printed solely for your information - not for him to tout for business.....

Check out these mangoes:

Seems a Frenchman, named Charles-Joseph Mathon de la Cour, mocked Benjamin Franklin after Franklin wrote “The Poor Richard’s Almanac”, which taught Americans in the 1700s how to save and invest wisely…

It’s actually one of his better books… novelettes… pamphlets… whatever.

The Frenchman wrote a parody piece called “Fortunate Richard” where he relentlessly mocked Franklin’s “unbearable spirit of American optimism” (as the Philadelphia Inquirer put it)…

In one of the stories in his parody, the Frenchmen wrote about Fortunate Richard leaving a small sum of money in his will, which could only be used 500 years later… after it had collected a buttload of interest…

Truly insane.

I mean… no one would be dumb enough to try that, right?

Franklin read the parody, which was clearly mocking him and his Poor Richard’s Almanac, and… instead of getting angry… he thanked the Frenchman for giving him such a great idea.

… and so he amended his will and left 1,000 pounds sterling, each, to the city of Boston and Philadelphia. The investment was set up as one of the first known annuities in American history (an annuity is a form of insurance).

That’s roughly $8,800 total. Before his death in 1790, he stipulated 2 payouts… one of them 100 years after his death and the second 200 years after his death.

From the book, “The Elements Of Investing”:

“After 100 years, each city was allowed to withdraw $500,000 for public works projects. After 200 years, in 1991, they received the balance—which had compounded to approximately $20 million for each city.”

Incidentally, that’s a compound annual return of just under 5%… for 227 years!

I find the whole thing really very amusing but… it’s all just foreplay.

Let’s get to the good stuff.

Life insurance and annuities are both built on the same basic platform: mortality and risk sharing.

Insurers take in premiums and invest them. The way those munnies are paid in and distributed in the future determines whether the insurer sells you a whole life policy or an annuity.

Life insurance (since about the early 1900s) is designed so that you pay in small premiums relative to the death benefit and get a big pot of munny later on when the contract matures (usually when you’re very old and near the end of your life)… while annuities are set up to accept a big pot of munny upfront and then they distribute it out over a very long period of time (usually for as long as you live).

So, you can think of an annuity as “life insurance in reverse.”

Both have very similar guaranteed rates of return once you adjust for the fact that annuities don’t embed the mortality charges into the product (they simply take it out of future interest earnings).

In fact, a great way to understand your life insurance policy’s guaranteed return on cash value is to look at your insurer’s fixed annuity interest rate. They will be very close, if not identical.

Most whole life policies actually pay MORE than a fixed annuity only because the insurer pays dividends (a share of the insurer’s profits) in addition to the guaranteed rate, which a fixed annuity does not.

Anywho, something to think about… or not.

Either way, there you have it. Evidence that slow and steady really does win the race.

If you want more cool tips, join my email list

Our

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dear friend David Lewis wrote a marvelous daily email on Tuesday; food for thought for those of you wanting to become capitalists but unsure how to get started. As always, the spelling and punctuation is entirely his....

A long time ago, in a United States of America far, far, away, I was reading about some dude who started a dog pewp cleaning service.

Basically, he bought a bunch of doo bags and went around town asking folks with dogs if they wanted help cleaning up the yard.

I thought this was pure genius.

Pretty much every dog owner I have ever known hates cleaning up dog poo. If push comes to shove, they’ll do it (especially if it’s in a public park or something, though even then some dog owners refuse to pick up after their dog even when there’s a dog poo cleanup station within 10 feet of them).

It’s just one of those dirty jobs no one likes doing. And, most dogs live at least 10 years, some live a lot longer than that. And there are lots of dog owners in the world. A lot of dog poo.

You get the idea.

He charged something like $20 per yard, and after wrangling up a handful of clients, he had a nice little side hustle.

Probably one of the few honest side hustles a person can run these days without resorting to hustling people for money on the street corner with a paper cup and a cardboard sign.

Problem is… most people would never do this sort of thing because:

It’s “above” them — who wants to clean up dog pewp for a living?
It requires hard work.
In fact, I can think of a lot of side hustles that fall into that category. No one wants to do them and so they never get done. But… these are exactly the type of business ideas that can make you lots of money if you need it. There’s relatively zero competition and… lots of people willing to pay you to solve problems they don’t want to solve themselves.

For example, last fall, our neighbor mentioned a friend of hers who was looking for pine straw.

We live in the southeast U.S., and if you live almost anywhere in this area, you know that pine straw is everywhere. Local governments use it as landscaping material. Homeowners use it, too.

But, unless your property is full of pine trees, you actually have to pay for it. And if you do have a lot of pine trees on your property (like we do), then you have to pay to get rid of the damn stuff.

It’s a real nuisance, it clogs up your gutters, it creates an awful mess when you mow, and it comes with a bonus — pine cones, which are an annoyance in and of themselves.

Anyway, it’s also a real business opportunity for those with a nose-to-the-grindstone mindset.

Anyone looking for a side hustle could get one of those lawn sweepers off Amazon for a hundred smackers or whatever (plus maybe a gutter cleaning device that you can use while standing safely on the ground), canvas neighborhoods looking for people with a bunch of yard debris and gutters that are hard to clean up (especially for older folks). Then, make a list of names and addresses and go offer to clean up yards for a nominal fee.

Do you realize how insanely profitable this is? And, you’d be solving a for-real problem that almost no one else is willing to solve — especially in very rural areas.

If you charge $25 per yard, get yourself 4 customers, work the weekends, and you got yourself a “side hustle” that pays $100 a week… get 20 customers and you have the beginnings of a real business. That side hustle can pay down debt fast so you can start saving money.

Assuming you can’t already afford to save $10,000-$20,000 a year, that would be an easy way to do it.

I’m sure there are lots of other, similar side hustle ideas out there in markets that are not overcrowded, with potential customers who are in fact hungry and maybe even starving for someone to solve some novel and annoying problem.

Anyway, I don’t know if that helps, hurts, or triggers any of the pine needle-loving tree huggers in the audience but… either way, I hope you learned something.

On

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the Libertarian Manifesto blog I have mentioned Kiwisaver, and a couple of people have messaged me about what I wrote. Let me clarify a couple of things vis-a-vis the post below.

For the man in the street to fund his retirement the Kiwisaver scheme (they have different names in different parts of the world, but amount to the same thing) - you contribute money, your employer contributes money; it is invested; the returns compound, snowball; in your retirement you would draw upon that return - the income - to live on (but unless you are a fool you won't touch the actual capital). All fairly straightforward. But now I need to express some thoughts -

1. Kiwisaver, the income it generates when you are retired; aged 72 (or whatever), should be compared with the amount of government Superannuation.

2. For a young man today, the income his Kiwisaver account will generate in his retirement should greatly exceed the current government Superannuation. This is due to the magic of compounding returns over a period of 45 (or whatever) years.

3. The return generated should be sufficient to meet his day to day living expenses indefinitely.

4. Unless you intend to deposit various windfalls over the years into your Kiwisaver (e.g your parents die, in due course, and leave you their house; you sell it), although it will fund your day to day living expenses it certainly isn't going to fund overseas holidays, or a new car, or similar expenditure. I must emphasise once again: your income from Kiwisaver will meet your day to day living expenses.

In this respect - replacing a socialist government pension with a private pension - it is a perfect vehicle, and you have the capital sum to leave to your children (or whomever) upon expiring. Now a word or two about the returns, the income, which is generated - because there seems to be some misunderstanding about a couple of points.

1. I strongly discourage anybody from having their Kiwisaver (ie: your future retirement money) invested in the sharemarkets of the World. Don't do it! The level of risk you are taking is frightening; you need to play it safe with retirement money - both in retirement, but also when accumulating the capital along the way.

2. I suggest your Kiwisaver money is invested in a Conservative fund and you avoid the strong temptation to jump into a "Growth" or "Equity" fund, bedazzled by high returns of 10 or 12 or 20%. Please don't do it. Stick to 4% in a conservative fund and you can't go wrong.

3. It is unheard of (I challenge you to find an example) for a Conservative fund to have a negative year; not since the instigation of Kiwisaver in 2007. This is because they invest in things like Government bonds, or Local Authority bonds, or bonds issued by Blue Chip companies (can you seriously imagine Amazon missing an interest payment?!?); even your incompetent fund manager can't cock that up! Sticking out tongue haha!

Now, if with your other savings - money which isn't in Kiwisaver (ie: not specifically intended to generate an income to live on in retirement) - you may well wish to take your chances on a 'Growth' fund which earnt a return of 12% last year; knock yourself out. Just remember that YOU - not your fund manager - are taking all the risk; if the market crashes 30% he will still charge you his fee haha!

So to summarize -

1. Kiwisaver is intended to accumulate a capital sum over a long period of time.

2. The return generated from this capital sum is intended to meet your day to day living expenses in retirement.

3. As such you are unwise, foolish, to take risks in accumulating that capital sum. Please don't do it; I implore you to switch all your Kiwisaver money into a 'Conservative' fund today.

4. By all means invest any other money you have in something with a bit more risk.

There

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is an amazing disconnect between logic and reality with a quite astonishing number of otherwise rational people when it comes to investments. There is. It's actually bizarre. It's not the only area of life where otherwise good people go mad, but I digress....

*ahem* (sorry, just clearing my throat). Let me make a grand pronouncement; one which may shock you; one which may have you scratching your head.....

$1 million in government bonds equals $1 million in shares and equals $1 million in real estate equity.

Yes folks, it is true. If you were to purchase NZ, Australian, US, UK government bonds to the tune of $1 million it is exactly the same amount of wealth as $1 million invested in a portfolio of shares, and $200,000 in equity in 5 rental properties. Genuinely astonishing the folk who don't seem to understand this; who think one is greater than the other. They are, however, mistaken.

The difference between the three is to do with that old pesky chestnut....RISK. Were you to possess the aforesaid million dollars and sought to invest it, there is a huge - absolutely huge - difference in the level of risk involved; government bonds carry no risk, shares and real estate do. I politely discourage anybody from investing in the sharemarkets of the World if they don't really know what they are doing, and especially if they buy into the twaddle which is spouted by so-called "experts" (who invariably also don't know what they are doing). Such concepts as "you need to accept a loss initially on your investment - but it'll pay off down the track", apart from being slightly illogical, is one such load of old cobblers trotted out time and again by ignorant experts.

Apparently your million dollars becoming $912,000 by the end of next month is proof you've made a good investment (*sigh*)

Similarly with real estate - were a government of fools to change certain tax laws causing vast numbers of investors to cash in their chips, dump their 'investments' on the market, sending real estate prices falling, and you - the new boy - suddenly finds the bank foreclosing because you can't come up with X-number of million by 9 o'clock tomorrow morning, is also evidence you haven't made the best of investments. The risk, especially now, is pretty high.

On the other hand, with government bonds $1 million is $1 million. You don't need to worry. The risk doesn't exist. It's all fairly cut and dried.

If you actually analyse the level of risk you are taking with your investments then the whole business is utter madness; beyond any sort of rationality; frightening! My advice is to get out of shares, get out of real estate, and play it safe - especially at your age.

If your money is in a managed fund (aka: investment fund, mutual fund, kiwisaver, 401K - they all amount to the same thing), which is probably far more common these days than investing directly, get out of the "growth" fund, the "equity" fund, the "real estate" fund, and into the "Conservative" fund which is heavily invested in government bonds and similar sorts of safe investments. Most 'conservative' funds are returning around 4% and never have a negative year (hint: because they are so heavily invested in government bonds). Most growth funds or equity funds, contrary to the twaddle they put in their brochures, are returning 10% (not 20% as they claim). Why on earth would a rational person risk everything - everything - for 10% when you can take no risk (to speak of) for 4%?? for a mere 6% (if you're lucky) you expose yourself to horrendous potential consequences. Madness. Utter madness.

Remember folks - $1 million in government bonds is the exact same amount of wealth as $1 million in shares or real estate.

Great

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News: I have an actual customer.

First once since March 18th and I was thinking of having him stuffed and mounted. Or sent to a museum specializing in mythical creatures such as unicorns or Bigfoot.

In addition to playing the share markets of the world, i publish a magazine in Sydneytowñ which has been the bane of my life since 2006. Alas it (to the frustration of the Australian taxman) never seems to make a profit despite being half full of display advertising; I know - gutting.

Anyway, I have decided to crank the bloody thing back up again for a July issue. All jokes aside, the lockdown in New South Wales has cost a lot of money - vast numbers of customers haven't paid their bills for the February issue (and no money to do so), the April and June issues had to be abandoned. Complete pigs' breakfast.

But all things considered there appears to be a sense of optimism in Sydney business circles. Ringing around people the last few days - customers, suppliers, acquaintances - to gauge whether carrying the magazine on is worth doing, everyone is far more positive (and to some extent less broke) than New Zealand.

And now I have a customer! haha! So we are off and running, and the future for Australia is fairly rosy and it has a pro business government.

Watching

Mr_Lineberry's picture

Duncan garner and the AM Show where it seems the government budget deficit will be $30 billion. Not only that but government debt will soar from $70 billion to $170 billion.

Appalling!

Thank goodness i am not a taxpayer; a good little slave obediently paying for such madness. I have finally seen the benefits of no capital gains tax! Long may it (not) continue.

Sort of have to wonder what sort of a man works his guts out only to hand over 1/3 of his money to the state to fund their fiscal insanity? I simply don't understand.

Steady neddy, now is not the

Mr_Lineberry's picture

Steady neddy, now is not the time to do anything rash. I will let the brilliant Dan Thompson take it from here.
https://youtu.be/uQqmcAGUyqk

This

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Chinky virus really is having a marvelous effect on the financial markets - creating huge numbers of bargains around the World - and rooting numerous parts of the NZ economy. Pity it's all a hoax to scare people.

Air NZ is firing most of its staff (what a shame); motels, hotels, restaurants are all about to go bust (humbling the most arrogant, up themselves wankers in the country) as tourism has basically come to a halt; various events have been cancelled/banned. All wonderful things to have capitalists rubbing their hands together. With any luck the standard of service at Hotels and Restaurants will dramatically increase as people who are basically servants FINALLY learn their place, their correct station in life, and start treating their Masters as nature intended.

I have long, long, long said that NZ is basically finished as a first world country and this may well be the start; the beginning of the end. I find it all great fun to watch from the sidelines, people who were so arrogant and up themselves when I was in central Otago and the Lakes District a couple of months back are all completely rooted and will beg - beg - for customers by this time next week Sticking out tongue (karma is a b*tch, isn't it?), and it is going to get even more fun when a god-almighty property crash occurs and really humbles the middle class.

Serves them all right, too! and I have no sympathy haha!

As for budding capitalists seeking invest in bargain priced shares and gorge themselves on tax free profits for years to come.... be patient; now is not the time to be doing anything premature.

Oh

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look! the coming Great Depression and end of the World seems to have been ....postponed Sticking out tongue haha!

https://www.foxbusiness.com/ma...

Our

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dear friends over at Blaze TV have devoted today's episode of 'The News And Why It Matters' to the fall in the markets...

Presumably

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nobody on this website would be stupid enough to think I have given anybody "investment advice", or somehow or other "touted" the buying of shares in Nike, McDonalds, or American Express; but we are not necessarily living in a World of "men".

There are childish people around (*sigh*) who have spent years wondering why their lives are one failure after another, so I shall issue a disclaimer for all the poofy wanker set membership.....

Please do not take anything written on this post as Investment advice, nor should you buy any stock mentioned here - but you should take your hand off your....(nevermind)

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