The Butterfly Effect, savings rate, asset allocation

The Butterfly Effect states that small causes can have huge effects. A butterfly flapping its wings in Borneo at the right point in space/time can cause a hurricane on the east coast of North America.

The Butterfly Effect operates in the markets. A rumor of a new gold finding in Mongolia can have a huge effect on the gold futures market, on the Nasdaq, on the S&P 500, the ETF’s that mirror it and more.

Investors are at the mercy of the Butterfly Effect. We have no control over it. Among the huge number of factors influencing market movements, we have full control of only two in our investing; our savings rate and our asset allocation.

Because of the Butterfly Effect, increasing our savings rate and parking the money likely is the best investment that we can make. A disciplined savings program starting early in life is the first of the six habits of Monday Morning Millionaires. 

This recommendation is as boring as it is effective.

Equally boring an equally effective is our asset allocation. When Gerald Loeb, the most quoted man on the stock market before Warren Buffett came along, wrote his book The Battle for Investment Survival,*  over 70 years ago, the expression “asset allocation” was not in use.

Loeb stated: “Indeed, should some super-solvent agency agree to preserve the buying power of capital for a substantial length of time at a stated fee per annum, informed people would embrace the plan enthusiastically if they felt there was any real possibility of the agency staying solvent.”

In Chapter 6 of his book titled How to Invest for Capital Appreciation Loeb says: “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.”

Loeb was talking about asset allocation.

The only two factors over which investors have control, our savings rate and our asset allocation, are boring and effective. As Economics Nobel laureate Paul Samuelson stated: “Investing should be dull. It shouldn’t be exciting. Investing should be more like watching paint dry or grass grow. If you want excitement, take $800 and go to Las Vegas… It is not easy to get rich in Las Vegas, at Churchill Downs, or at the local Merrill Lynch office.”

Please note that the Monday Morning Millionaire Program contains opinions only. It does not provide any investment advice or endorsements.

With fewer than 500 words, members can read this blog in less than five minutes. Following and studying the links imbedded in the blog could take half a day. How you manage this blog depends on your level of investing knowledge. Your choice!


*Loeb, G.M. The Battle for Investment Survival, Classics Edition, p. 18. Kindle Edition.



The smallest amount for practical investing

While many Monday Morning Millionaire Program (15.5% annual return since 2012) members are multimillionaires, beginning investors and those at the start of their careers, often wonder what is the smallest amount of money for practical investing.

Following the habits of Monday morning millionaires requires us to invest in exchange-traded funds (ETFs) which parallel the S&P 500.

It is possible to buy one share of any stock, however, it is practical to buy securities in board lots, that is, 100 shares at a time. Investors who are interested in selling puts and calls must do so in board lots. There is no choice.  (Only sell, never buy puts and calls.)

So we need to look for the lowest price ETF that parallels the S&P 500. Please note that the lowest price does not mean the lowest value. Since the ETFs we use in the Monday Morning Millionaire Program mirror the S&P 500, their values, but not prices, are identical.

The best ETFs to track the S&P 500 are:

  1. iShares Core S&P 500 ETF (IVV)
  2. Vanguard S&P 500 ETF (VOO)
  3. SPDR S&P 500 ETF Trust (SPY)
  4. Schwab U.S. Large-Cap ETF (SCHX)
  5. iShares S&P 500 Growth ETF (IVW)
  6. Guggenheim S&P 500 Equal Weight ETF (symbol RSP)

Of these, RSP sells at the lowest price, about$115.00 per share today. So, a board lot would sell for $11,500.00.

Following the habits of Monday morning millionaires also requires us to follow a personal asset allocation regime.

Many Monday Morning Millionaire Program members follow a 50/50 asset allocation with 50% in cash or near-money and 50% in an appropriate ETF. That means the smallest practical amount for investing would be $11,500.00 times two, or, $23,000.00.

Members who don’t yet have that amount of money can buy a small number of RSP shares, as small as one share! However, we feel that the best they can do with what they have is to save it.

Please note that the Monday Morning Millionaire Program contains opinions only. It does not provide any investment advice or endorsements.

With fewer than 400 words, members can read this blog in less than five minutes. Following and studying the links imbedded in the blog could take half a day. How you manage this blog depends on your level of investing knowledge.

Your choice!

My personal portfolios, 11/3/19. Also, time to rebalance?

Last Monday, I bought AbbVie Inc (Symbol ABBV) to bring it up to 22% of my holdings so that I could write covered calls on it. (ABBV C 01NOV19 78.00 US, that is, expiry date Nov. 1, strike price $78.00)

Normally, I confine my options selling (only sell, never buy options) to 5% of my holdings unless I see favorable mispricing. Last week ABBV options looked like such a situation. At a bid/ask range of $1.18/$1.21 on a $78.00 stock, that worked out to 1.53% per week!

By expiry date, the stock was trading above the strike price and I was assigned, that is, the stock was called away and I had to sell my shares below market price. That means that had I not sold covered calls on ABBV and simply held the shares, I would have done better.

I am reminded of J.P. Morgan’s quote (also attributed to Bernard Baruch) that you see above.

The required sale of AbbVie Inc. shares now puts me at 57.90% in cash and near-cash (11.90% cash and 47%

TDB166 now yields 1.68% so I will convert all the cash to that money market fund but, otherwise, I will leave the near-cash-heavy position as it is until I see an interesting derivatives opportunity.


Recently, the market has gone up enough that investors might consider re-balancing to their personal asset allocation.

From Market Insider, Aug. 27, 2019:

“Warren Buffett’s mountain of cash may be a warning to investors that stocks are overvalued and that a crash is around the corner.

“The investing guru’s firm, Berkshire Hathaway, held a record $122 billion in cash at the end of June.

“The conglomerate’s cash is worth nearly 60% of its portfolio of public companies, the largest proportion since before the financial crisis.

“One of Buffett’s favorite yardsticks suggests the US stock market is more overvalued than it was at the height of the dot-com bubble and just before the financial crisis.”

Monday Morning Millionaire Program (15.5% annual return since 2012) members might want to review their asset allocation and even considering adjusting it to lower the percentage of market holdings.

Please note that the Monday Morning Millionaire Program contains opinions only. It does not provide any investment advice or endorsements.


Group enrolment in Level 2 Coaching program

Dr. Richard Rogers, President of the Maryland State Dental Association ‘Member Perks’ company and a Maryland Delegate to the American Dental Association, recently enrolled his staff of seven in the Monday Morning Millionaire Level 2 Coaching Program. We plan to have six, one-hour teleconferencing sessions as staff meetings and review everyone’s Scorecard results.

Our objective is to move all Scorecard answers to the “Yes” column by the end of our sixth session.

This is the first time that we have enrolled a group in our Level 2 Coaching program and we look forward to our meetings with eager anticipation.

What a wonderful gift to the staff!

We would love to see other groups, be they professional staff, family members, reading clubs, etc., follow this generous example of the practical and effective.

The Monday Morning Coaching Program

One of our members just completed The Monday Morning Coaching Program,  the investment approach that Warren Buffet wants for his estate. Our member moved his Scorecard result from 47 to 90!

Without question, from here on, his investment results will outperform over 95% of portfolios including professionally managed ones. He will invest confidently using safe and effective, evidence-based methods. He will do so in less than half and hour per week.

Take a look at the program. It might have value for you.

Of interest to option writers

AbbVie Inc. Analyst Recommendations

AbbVie Inc. (symbol ABBV) now trading at $77.58, is paying the highest option premiums in a long time. (ABBV C 01NOV19 78.00 US, that is, expiry date Nov. 1, strike price $78.00)

ABBV stock has recovered from its 52 week low of $62.66. It is a much safer buy today than when I originally bought it about a year ago at over $120!

The bid/ask range is $1.18/$1.21 or 1.53% per week!

Normally, I confine my security holdings for options selling to 5% of my stock market investments…

… unless I see a mispricing opportunity.

I think that at current premium levels on ABBV, we have such an opportunity. I just positioned my securities holdings on ABBV to equal 22% of my portfolios and sold ABBV C 01NOV19 78.00 US.

A recent paper we reviewed concludes with: “…that including options in the portfolio most often results in underperformance relative to the benchmark portfolio.”

Note that the paper states “…most often…” suggesting that there are exceptions. This could well be one of them.

Please note that the Monday Morning Millionaire Program contains opinions only. It does not provide any investment advice or endorsements.

The 60/40 portfolio is dead. Or is it?


Monday Morning Millionaire Program members appreciate the importance of asset allocation for sound investing. Many use the 60/40 ratio personally.

Recently, the influential Bank of America declared the end of the 60/40 portfolio. As a result, an Internet search for “end of the 60/40 portfolio” generates nearly half a million hits.

Forbes, U.S.News, CNBC,  Business Insider,  A Wealth of Common Sense and many others weighed in on the subject.

Should Monday Morning Millionaire Program members be concerned?

Let us look at the 60, first.

In most of the articles published, the 60% represents stocks. Picked stocks.

Monday Morning Millionaire Program members know that 1/2 of stock pickers are correct and the other half are wrong. It cannot be any other way. Members don’t pick stocks but invest in the American economy as a whole by using an exchange-traded fund (ETF) that represents that economy. They do so by using an Continue reading “The 60/40 portfolio is dead. Or is it?”

Dollar-cost averaging and reinvesting exchange-traded funds (ETFs) dividends

Dividend reinvestment plans (DRIPs) are an excellent way to grow your portfolio without putting in your hard-earned savings. An automatic DRIP program can be equivalent to correct dollar-cost averaging, which is continuous, automatic investing the same amount of money. It is the only guaranteed way to beat the market over the long term. To dollar-cost average correctly, we need to: 1.) pay attention to the security involved and 2.) the source of funds.

The security we use needs to be an ETF that mirrors the S&P 500 which, in turn, mirrors the American economy as a whole. That means no stock picking. Picking stocks could result in investing in a company that declines and never recovers. Penn Central Transportation Company,  Enron,  WorldCom,  Lehman Bros.the list of corporate collapses is long.

The most reliable way to protect against that possible outcome is to invest in history’s strongest economy, the American economy, by buying an ETF which reflects it. 

The second point, the source of funds, influences the outcome in a major way as well. If we are dealing with a large amount of money, say from an inheritance or the sale of a business and we invest the same percentage at regular intervals, that is, dollar-cost averaging, our results would not be as good as following the Monday Morning Program.

If, on the other hand, the source of our funds is from our regular income, dollar-cost averaging outperforms the market.

For a closer look at dollar-cost averaging, see our blog on the subject.

Could our regular income be dividend income from our investments? Of course, it could.

Mutual funds have automatic DRIPs making dividend reinvestment effortless. That is not the case with ETFs. We need to reinvest dividends manually, on our own. The Monday Morning Millionaire Program (15.5% annual return since 2012) does not recommend mutual funds because of their significant underperformance.

Reinvesting dividends from your ETF is one of the best ways to grow your portfolio. However, it is not as simple as Mutual fund DRIPs. You will need to do it on your own.

Zero trading costs are here to stay.

The zero commission movement on stock trading is growing. Zero trading costs are here to stay.

Recently, TD Ameritrade (AMTD),  Charles Schwab (SCHW), E*TRADE (ETFC) and Ally Invest (ALLY) have eliminated trading fees on equities and exchange-traded funds (ETFs). All have significantly reduced commissions on option trades. The largest online brokerage, Fidelity Investments just joined them.

Three questions arise:

  1. How do stockbrokers make money with zero commissions on trades?
  2. Has your broker joined this group?
  3. How will zero commissions affect your investing?

Continue reading “Zero trading costs are here to stay.”