Is it better to invest in the stock market or in dental practices?

A dentist Monday Morning Program member recently asked: “Is it better to invest in the stock market or in dental practices?”

Using the Monday Morning Program approach to investing, people can manage a stock market portfolio of any size in 15 minutes a week. This is passive investing; the Monday Morning Program recommends this approach.

Buying dental practices requires 24/7 attention. There are dentists who do that and who are looking for more practices to buy. The Monday Morning Program DOES NOT recommend this approach.

Alternatively, an investor could buy shares in dentalcorp Holdings LTD. (TSX:DNTL) which would be investing in dental practices passively. The Monday Morning Program recommends this approach for “fun” portfolios for those who have them and who like the company.

No investor needs a “fun” portfolio.

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We have designed the Monday Morning Millionaire Program to offer abstracted investment education. Over the last two decades, the program has outperformed over 90% of portfolios, including professionally managed ones.

The program does not provide any investment advice or endorsements.

Members can read our posts in less than five minutes. Following and studying the links embedded in these posts would take longer. How members manage a post depends on their level of interest and investing knowledge.

Is the stock market a casino? The truth

 

Between the selected stock market highs which you can see in the chart above, there were in many other highs, frequently taking place several days in a row.

Long-term interest rates have never been this low in living memory nor has there ever been as much money in circulation as there is today. That explains the rise.

How long can the stock market keep rising?

Warren Buffett’s favorite indictor looks at the combined market capitalization of all publicly traded securities divided by the quarterly gross domestic product. It is a variation of the price/earnings ratio of individual securities.

This indicator stands at 200% now, indicating that a correction is coming. It does not say when. Monday Morning members see corrections as bargain buying opportunities.

We all know individuals who claim that the stock market is like a casino. When the inevitable correction does come, they will say, “See? I told so”.

The odds in favour of the casino are small. Casinos do want gamblers to win frequently enough to keep coming back. But at the end of the day, the casino always wins because they make many bets. Hundreds of thousands of times every day!

Gamblers frequently have a lucky break and make a big buck. But if they continue betting long enough, they will lose it all, guaranteed.

Investing in the stock market is the opposite. The longer investors stay in the market, the more they will make.

The table below shows the positive returns percentages of the US market since 1926.

Period of time

Positive returns

1 year

75%

5 years

88%

10 years

95%

20 years

100%

Except for owning your own business, other than stocks, you cannot find any other investment which actually produces anything of value. All other investments depend on the “greater fool theory” meaning that the buyers hope that down the road, someone comes along and takes it off their hands at a higher price.

Stating as we frequently do, historically, over the long term, properly selected US market index exchange-traded funds, held in tax-advantaged accounts, in an appropriate asset allocation, have been the investor’s best way for growing savings and are likely to remain so for many years.

Maintaining your asset allocation will get you buying when markets drop and taking profits when markets rise.

With the habits of Monday morning members, luck hardly matters.

Good luck!

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We have designed the Monday Morning Millionaire Program to offer abstracted investment education. Over the last two decades, the program has outperformed over 90% of portfolios, including professionally managed ones.

The program does not provide any investment advice or endorsements.

Members can read our posts in less than five minutes. Following and studying the links embedded in these posts would take longer. How members manage a post depends on their level of interest and investing knowledge.

How to use derivatives as a source of added income. July 19, 2021

This is our weekly post dealing with derivatives (calls and puts). Over 80% of our members are interested in the subject. 

Here is how we stand now.

  • Last Monday, July 12, we sold 17 just out-of-the-money covered call contracts on Novavax (NVAX) expiry date Friday, July 16. (NVAX C 16JUL21 190.00 )
  • We received a premium  of $8,481.08. A bird in the hand, money in the bank!
  • With NVAX fluctuations, the losses on our shares this year once came to $91,467.99.
  • By the closing bell on Friday, July 16, the premium income that we received from selling just out-of-the-money  covered calls on NVAX each Monday, expiry date Friday of the same week, brought our losses down to $50,092.48. We carried out these transactions in our “fun” portfolio, which is not so much fun at this time.

When the market opens at 9:30 AM this morning, Monday, July 19,

Continue reading “How to use derivatives as a source of added income. July 19, 2021”

Of interest to our Canadian members; Canadian Stocks that pay US dividends

Stock picking by retail investors as well as Wall Street investment banks has a poor track record, as SPIVA shows convincingly. Accordingly, the Monday Morning Millionaire Program recommends against picking individual stocks.

However, for their “fun” portfolios, some of our Canadian members might be interested in Canadian stocks that pay US dividends.

For details, go here.

The information comes from 5i Research, a team of truly exceptional, unbiased market experts. They are stock-pickers dealing with Canadian stocks only, so they ignore habit number three. However, they do offer noteworthy general investing comments to their subscribers and answer general investing questions. (Annual subscription: $CAD237.05)

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We have designed the Monday Morning Millionaire Program to offer abstracted investment education. Over the last two decades, the program has outperformed over 90% of portfolios, including professionally managed ones.

The program does not provide any investment advice or endorsements.

Members can read our posts in less than five minutes. Following and studying the links embedded in these posts would take longer. How members manage a post depends on their level of interest and investing knowledge.

How to keep investing simple and effective; ‘Nifty 50/50’ portfolio

The foundation of the Monday Morning investment philosophy is based on a modified version of  Jonathan Burton’s important article published on Sept. 2, 2010.   The article is titled:

‘Nifty 50/50’ portfolio keeps investing simple

Low cost, low maintenance, long-term strategy anyone can use

It supports Gerald Loeb‘s thoughts on successful investing which we often quote. “It is far better to let cash lie idle than to buy just to “keep invested” or for “income.” In fact, it is really vital—and just this one point, in my opinion, represents one of the widest differences between the successful professional and the loss-taking amateur.”

Here is David Swensen on the subject: “…asset allocation accounts for the largest share of portfolio returns.” and “…security selection and market timing make no material contribution to returns…”

What is the ideal way to allocate our assets?

The late John Bogle, popularized Loeb’s and Swensen’s position on the subject.  He himself kept 50% in US market index exchange-traded funds and 50% in cash or near-cash. With personalized variation, that 50/50 allocation would be suitable for most investors.

Bogle’s and Jonathan Burton’s article recommend using  bonds for near-cash. When the article was published bonds were safe, effective and productive. That is no longer the case. Bonds have nowhere to go but down in value since interest rates have nowhere to go but up from this point. Therefore, the Monday Morning program recommends cash or other forms of near-cash (money markets, bank accounts, certificates of deposit)  in spite of the fact that the returns are not very exciting. We also do not recommend investing outside the USA.

This post is longer than our usual ones because we reproduce Burton’s article its entirety. It follows.

 SAN FRANCISCO (MarketWatch) — Investing is complex rocket science that requires professional help — at least that’s what the professionals usually say.

But a strong case can be made for investors following a design principle known as KISS, which in this case stands for “Keep it simple, saver.”

According to this principle, all you need are three diversified, index-tracking mutual funds or exchange-traded funds — one for U.S. stocks, one for international stocks and one for bonds. The portfolio must be rebalanced at least once a year to ensure that half of the money stays in stocks and half in bonds.

It’s boring and bland and won’t score you any points at parties, but this bare-bones approach — call it the “Nifty 50/50 Portfolio” — has made almost as much money as a more aggressive, stock-heavy strategy over the past 25 years and topped it over the past decade.

Moreover, investors in this 50/50 mix would have had some insulation from stock-market swings. When global markets imploded in 2008, the 50/50 blend lost 17%, compared with a 31% decline for a portfolio with 80% stocks and 20% bonds.

“By moving to a 50/50 stock-bond position, you would not forsake that much in return [over 25 years], and it would have reduced your risk considerably,” said Scott Kays, a financial adviser in Atlanta.

Because basic index funds are usually among the investment options in employer-sponsored retirement plans, the 50/50 portfolio is well-suited to people who primarily rely on a 401(k) or other retirement account to meet their long-term goals.

Many investors believe index funds’ inherent low cost and infrequent trading give them a big advantage over funds run by active managers, whose never-ending quest to beat a benchmark often fails and usually leads to higher fees. While not everyone favors index funds or thinks a 50/50 mix of stocks and bonds is risky enough for them to achieve their investment goals, there’s no denying that the Nifty 50/50’s simplicity can be a virtue.

“Keeping it simple is the path of least resistance,” said money manager Ted Aronson, whose Philadelphia-based firm, Aronson+Johnson+Ortiz LP, handles $18 billion of individual U.S. stocks for pension funds and other institutional clients.

Aronson spreads his own taxable money among an esoteric mix of stock- and bond-index funds, but he appreciates the 50/50 set up for its low-maintenance approach and for belting investors into their seats.

“There’s less chance of acting imprudently and selling at a panic low or jumping on a hot spot at the wrong time,” he says.

Power in lower risk

 For a better understanding of how the Nifty 50/50 approach can lead to solid returns and a smoother ride down Wall Street, consider the results for two investment portfolios over the past 10, 15 and 25 years.

The first portfolio is the 50/50 combination, with 35% of assets in the Wilshire 5000 Total Market Index as a proxy for U.S. stocks, 15% in the MSCI EAFE Index to cover international stocks, and, for bonds, 50% to the Barclays Capital U.S. Aggregate Bond Index.

The second is an 80/20 mix that commits 65% to U.S. stocks, 15% to international stocks and 20% to bonds.

This analysis uses the returns of the indexes themselves and not investable funds or ETFs, because those portfolios weren’t all available 25 years ago. Returns for fund investors would have been slightly lower because of fund expenses and other costs. (Continue reading for examples of funds and ETFs that investors could use today to create this mix.)

A $10,000 investment in the 50/50 allocation made at the beginning of August 2000 and rebalanced yearly would have been worth $14,748 at the end of July 2010, for an annualized 4% return, according to investment researcher Morningstar Inc. Meanwhile, the 80/20 portfolio would have gained an annualized 1.9%, leaving an investor with $12,066.

Of course, the most recent decade has been terrible for stocks and terrific for bonds. What about the past 15 years, which includes the runaway bull market of the late 1990s?

Again, the advantage goes to the 50/50 split, which grew to $26,036 by July, or a 6.6% annualized gain — just edging out the $25,751 value of the 80/20 offering, which rose 6.5% yearly.

The 80/20 portfolio flexes its muscle over 25 years — a horizon retirement savers can appreciate. A $10,000 investment in August 1985 would have been worth $96,675 at the end of July, equal to a 9.5% yearly gain. The 50/50 allocation, meanwhile, would have been worth $87,515, for a 9.1% annualized return.

A difference of almost $10,000 is real money, but was it worth the risk? The 50/50 portfolio achieved 91% of the 80/20 portfolio’s gain, but with just two-thirds of the volatility — not a bad trade-off.

In addition, if like many 401(k) investors, you had diligently dropped $100 a month into the portfolio, the 50/50 mix would have achieved higher returns over both 10 and 15 years, and come within $1,350 of the riskier 80/20 portfolio over 25 years — essentially a tie.

Focus on costs

Keep in mind that bond-market returns have been strong over the past 25 years, and especially over the past decade. But if interest rates climb even moderately, bond returns will be lower over the next 25 years.

Will bonds continue to be a buffer for stocks?

“Bonds are a very broad asset class, and the answer depends on where you are investing in the bond market,” said Kays, the financial planner. In a rising-rate environment, short-term bonds, Treasury inflation-protected securities (or TIPS), and other fixed-income vehicles that aren’t sensitive to inflation and interest rates should provide a cushion, he said, while intermediate-term and longer-term bonds won’t.

To craft a Nifty 50/50 Portfolio, it’s important to focus on cost. Cheaper is better, as it enables more of your money to compound and grow over time.

At Vanguard Group, mutual funds that fit the bill include Vanguard Total Stock Market Fund VTSMX, +0.57% for U.S. stocks, Vanguard Total International Stock Index

Fund VGTSX, +0.33%, and Vanguard Total Bond Market Fund VBMFX, +0.18%. All three funds also have exchange-traded shares available.

Inexpensive choices from Fidelity Investments include Fidelity Spartan Total Market Index FSTMX, Fidelity Spartan International Index Fund FSIIX, and Fidelity U.S. Bond Index Fund FBIDX.

Other options among ETFs include iShares Dow Jones U.S. Index IYY, +0.73% for U.S. stocks; iShares MSCI ACWI ex-US Index ACWX, +0.05% for international stocks; and iShares Barclays Aggregate Bond AGG, +0.22%.

“You’re trying to get a good combination of risk and return,” said Meir Statman, a finance professor at Santa Clara University in California, who studies investor behavior. “Risk is going to unnerve you at precisely the wrong time. If you can calm it down [with a 50/50 stock/bond mix] you can get most of the return and be able to sleep at night.”

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We have designed the Monday Morning Millionaire Program to offer abstracted investment education. Over the last two decades, the program has outperformed over 90% of portfolios, including professionally managed ones.

The program does not provide any investment advice or endorsements.

Members can read our posts in less than five minutes. Following and studying the links embedded in these posts would take longer. How members manage a post depends on their level of interest and investing knowledge.

How to lose money in a rising market! I have done it and so can you.

We have written previously about how to make money in a falling market. It takes special talent, and yes, we have done it. It is possible.

Losing money in a rising market  also takes special talent; it is almost impossible.  I recently did it nevertheless, but I am in good company. Billionaire Eric Sprott, for example.

The upside of my losses is that I incurred them in my “fun” portfolio. Right now, it is not much fun, but the pain is bearable since it is a small percentage of my overall investments. No one needs a “fun” portfolio. If you have one, make sure that it is small relative to your core portfolio.

The upside for Sprott’s losses, from his perspective, is that he incurred them for other people (while personally becoming a billionaire thanks to the size of his assets under management).

For details about Sprott’s clients’ losses, go here.

For details about my losses, well, here we are. I ignored habit number three.  Namely, instead of buying a US market index exchange-traded fund, I bought a single stock – Novavax (NVAX) in order to sell covered calls on it. The premiums were exciting! (Don’t pick stocks is good advice.) The risk of writing (selling) covered calls comes from the underlying security entirely. NVAX tanked to a much greater extent than the premium income that I got from writing covered calls on it.

You too can lose money in a rising market if you do what I sometimes do. Just make sure that it is not in your core portfolio or, if you manage money for others (as some of our members do) make sure that others incur the losses. You’re not in a popularity contest.

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We have designed the Monday Morning Millionaire Program to offer abstracted investment education. Over the last two decades, the program has outperformed over 90% of portfolios, including professionally managed ones.

The program does not provide any investment advice or endorsements.

Members can read our posts in less than five minutes. Following and studying the links embedded in these posts would take longer. How members manage a post depends on their level of interest and investing knowledge.

Spotlight on an amazing income tax rate! No less than 100%! Investors are paying it often.

 

The Laffer Curve states that up to a certain point, tax revenue rises as tax rates increase. Increasing tax rates past that point results in taxpayers working less or not at all, an increase in tax avoidance and tax evasion and a decrease in tax revenue. Zero percent tax rate equals zero tax revenue; 100% tax rate also equals zero tax revenue.

Economist Arthur Laffer allegedly drew his famous curve on a napkin during a 1972 meeting with Ford administration policymakers. Economists debate the details of the Laffer Curve, but all agree that it exists.

Well, governments have figured out how to impose a 100% tax rate and still get meaningful tax revenue, Laffer Curve be damned.

In one word – inflation.

And governments control inflation to a significant extent.

If the rate of inflation is equal to or greater than the return on an investment, it is the same as having an income tax rate of 100% (or more) on the returns on that investment.

The chart above shows that for more than half of the years of the last decade, the inflation rate was greater than the interest paid on cash deposits at the bank, certificates of deposit, money markets, many AAA bonds and other investments considered to be safe. Inflation resulted in a 100% income tax rate on what these investments earned.

Only it did not seem so.

Continue reading “Spotlight on an amazing income tax rate! No less than 100%! Investors are paying it often.”

Do you have plans for air travel in 2021? July 9, 2021 Survey results

Greetings everyone,

Time is valuable and irreplaceable! A sincere thank you to all those who took the time to respond!

On Friday, July 9, 2021, we asked our members and subscribers: “Do you have plans for air travel in 2021?”

You can see the results below.

Do you have plans for air travel in 2021?

Yes. Hopeful about vaccines and countries opening up again sometime this year.

60.6%

No. The virus has to be under control around the world before I take a plane trip again.

24.2%

I would, but there are restrictions around testing before coming home that make it an unappealing option right now

15.2%

Only in my dreams

0%

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From M. S. DDS, Ontario, Canada

”The world is a book, and those who do not travel read only one page.” St. Augustine.

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From L. B. Newfoundland, Canada

Got two vaccines and an N95. Believe science , it’s real. Flying from St.John’s to Vancouver in two weeks to see our daughter.

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From R. S., businesswoman, Ontario, Canada

Hopefully things can get back to normal soon. Few activities can match travel when it comes to learning and understanding.

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From I. H. DDS, Ontario, Canada

Cancellation Insurance for ANY cause, pricey but peaceful mind.

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From R. R. DDS, Maryland, USA

I have flown 3 times this year.

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From W. A. K. DDS

Just flying to Vancouver and then over to Ucluelet for some fishing.

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From J. H. DDS, New York City, New York, USA

Already is normal.

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From M. Q. DDS, MAGD, Maryland, USA

We have already flown in 2021  and have 2 more trips planned.  Though, We are staying in the US for all.

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How to use derivatives as a source of added income. July 12, 2021

This is our weekly post dealing with derivatives (calls and puts). Over 80% of our members are interested in the subject. 

Here is how we stand now.

  • Last Tuesday, July 6 (Monday was a market holiday)  Rosi and I bought 1,600 shares of Novavax (NVAX) since the ones we held were called away on Friday, July 2. Book cost was $348,337.99.
  • We then sold 16 just out-of-the-money contracts covered by our ownership of these shares, expiry date Friday, July 9. (C 09JUL21 220.00)
  • We received a premium income of $10,153,95.
  • With NVAX fluctuations, the losses on our shares this year had come to $91,467.99.
  • By July 6, our premium income added up to $68,641.81  so our losses stood at $22,826.18. ($91,467.99 losses combined with gains of  $68,641.81).
  • Unhappily, by Friday, July 9, the market value of our NVAX shares dropped to $301,504.00 for a loss on the week of $46,833.99.
  • Therefore, our combined losses to date, Monday, July 12, stand at $69,660.17. ($22,826.18 plus $46,833.99)

When the market opens at 9:30 AM this morning,

Continue reading “How to use derivatives as a source of added income. July 12, 2021”

How will “The search of the day” today improve my life? July 10, 2021

For you to benefit more from your membership in the Monday Morning Program, we are introducing a new feature. We call it “Search of the day”, and you can look up the suggested term. That will focus on the most relevant posts selected from the hundreds which we have published previously. It will cost you very little time – maximum efficiency with minimum effort (Judo motto).

Today’s search is for 2018 Market Predictions. 2018 was three years ago. Nevertheless, most of the views expressed in that post are universal.

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We have designed the Monday Morning Millionaire Program to offer abstracted investment education. Over the last two decades, the program has outperformed over 90% of portfolios, including professionally managed ones.

The program does not provide any investment advice or endorsements.

Members can read our posts in less than five minutes. Following and studying the links embedded in these posts would take longer. How members manage a post depends on their level of interest and investing knowledge.