Be Wealthy & Smart

Learn ways technology is impacting value investing and ways it's not. Have you checked out the Creating Wealth podcast yet with Jason Hartman? It's full of amazing information and over 700 podcasts about real estate investing. If you like this podcast, you'll like that one too. http://bit.ly/wealthpod Excited to have podcast #200! Thank you for listening to Be Wealthy & Smart! If you're a regular listener, I'd love to have a review from you and hear your thoughts about the show! Listener question Friday! Here's a question from Torben. Hi Linda, I've listened to your podcast for several months now and find it very useful. Your pragmatic approach to finance is very applicable in real life. I personally apply the value investing approach with inspiration from the growth investment theories. Perhaps you could do a podcast about value investing? From Graham and Buffet, over the ModernGraham approach, to how value investing will play a role in an investing world, where tangible assets are much smaller than intagibles, and most products and services can be replaced by technological developments in an instant? These developments challenge the fundamental value approach, which looks for large, stable, and cash generating businesses - so how are these theories going to survive in a world where these types of companies become more scarce? I hope this could be inspiration for a podcast topic. Best regards, Torben In value investing, you're looking to buy businesses below their value. Of course a business is worth it's assets minus liabilities + a multiple of cash flow. What is the multiple? It depends on the type of business, how regular the income stream is, etc. A steady rental income vs. a biotech. Being overly concerned with a PE ratio can be a value trap. Today, many financials have low PE's, but I wouldn't want to own them. I've found many of the best quality stocks have high PE ratios and I've always been ok with that as long as it's not excessive. There are times that the whole stock market can get excessive PE ratios, that's a time to be cautious. In 1999, PE's hit 50 and higher, but it was in 2009 that PE's hit 120! Today, they are at about 23-24 which is on the higher side historically, but no where near where they have been. A PE will average around 18, so anything above that is more expensive and below is considered a value or cheap. I've found placing too much emphasis on PE is NOT the way to buy stocks. For me, earnings are everything and IBD is good at putting stocks through a CANSLIM filter that picks the best for you. Some in the IBD 50 even have PE ratios of 14, 16, & 22 if that's important to you. They are not "value" stocks, they are "growth" stocks, but that's a matter of philosophy, personal choice and comfort level. I've not found a lot of investors who can copy Warren Buffett's success, but I have seen a lot of investors who are very successful investors without following his or Ben Graham's formulas. So what about valuing businesses? If a business doesn't have tangible assets, but is intellectual property, like an app, you're going to base the valuation more on the cash flow. If you're buying a gold mine and there's gold in the ground, obviously you have to value the gold separately from the cash flow. It doesn't change value investing. You still want to buy at a discount. You still can have a "margin of safety" if the valuation is higher than the stock price. If Google is worth X because of it's advertising revenue, but it's selling at a lower price because the stock market drops, you'll still want to buy it on sale! The fact that there are more businesses being started with intangibles is probably a long-term trend. But there are still a lot of brick and mortar businesses that are getting funded. Clothing, food, beverages, restaurants, etc. When making a long-term investing decision, you will want to think about such things. I think that's why Buffett was reluctant to invest in tech in the past, because it was hard to know who was going to be a winner long-term. I remember Nokia phones and Blackberrys and how they were the rage before iPhones replaced them. If Apple doesn't keep innovating, another phone may come along and replace it! Think about the things that we will still need to be using in 10 - 20 years. Keep away from a "trend" that could be a "flash in the pan" like maybe "Pokemon go"? Want to move ahead and get your money, wealth & net worth moving in the right direction?

Learn why individual stocks are never in style and why they might be right for you. Have you checked out the Creating Wealth podcast yet with Jason Hartman? It's full of amazing information and over 700 podcasts about real estate investing. If you like this podcast, you'll like that one too. http://bit.ly/wealthpod If you've listened to me for a while, you know my story - that I was in the financial world working for money management firms. It was sacrilege to invest in stocks on your own. I did it any way and I turned a 5 figure investment into $2 million in several years. When I first got into financial services, there were "stockbrokers" who picked stocks for you. They had companies they built positions in and would put all of their clients in them. If it changed they would sell them all out of them. I had a friend who was my mom's age who was the secretary of the stock analysts. When they recommended stocks, she bought them for herself. She retired a multi-millionaire even though she had a modest salary. The only way that is possible is by compounding at a high rate. After the stock phase came the mutual fund phase. Instead of stockbrokers, they became "Financial Advisors" who placed your money with money managers (like the companies I represented). The FA's became asset gatherers but didn't manage the money themselves, they outsourced it and collected fees. Today passive investing is the rage. ETF's came into being because many professional managers were not outperforming the indexes, so ETF's were created to mirror indexes. Investors no longer try to out do the mark This year the S & P is up 3.5% YTD. That's it. That's all the return you're getting in the S & P. Small caps are outperforming. With the dollar so strong, it's hard for multi-nationals to make money. Corporate profits have been declining for 3 quarters. Small companies might not have business outside the US so they aren't impacted. Therefore their earnings are doing better. Small caps also do the best at the end of a bull market, this one being one of the longest in history. Asset allocation becomes important. Where your money is invested matters most. It's time to look at individual stocks again because I think you can do better than 3.5% YTD! Not on your own, not by throwing darts, not by "buying what you know", but by following earnings. Corporate earnings are the biggest determinant of a stock's price. IBD does the work for you and screens stocks through their funnel. If you haven't heard podcast #195 about the 8th graders in St. Agnes' school who picked stocks and got 25% in 2 years, you need to listen. Peter Lynch wrote about them in his book. I have the portfolio on my website. When you look at what they owned in 1990, it was Disney, Nike - some great companies that you recognize today. Success leaves clues and good companies are growing at high rates for a lot of years before they become blue chips. Start learning about individual stocks. I'm going to be teaching about them because I think it's a lost art, but one that is to worthwhile. Did you hear about the stocks and the compounding rates in my last podcast? I mentioned: Netflix 42% Amazon 37% Apple 28% Nike 20% Google 15% Starbucks 14% Get a current IBD and William J. O'Neil's book off the Resources page on my website. Thank you. It's time to resurrect individual stock picking, but only with the right tools. To get "11 Quick Financial Tips to Boost Your Wealth", go to www.lindapjones.com.

Learn 3 reasons why reduced spending and savings are not going to make you wealthy. You still need to invest! Have you checked out the Creating Wealth podcast yet with Jason Hartman? It's full of amazing information and over 700 podcasts about real estate investing. If you like this podcast, you'll like that one too. http://bit.ly/wealthpod I heard it from financial podcasters and bloggers - building wealth is about spending less and saving more. What? That is only true if you make multiple hundreds of thousands of dollars and can save $1 million in a few years. For most people, that's not realistic! If you're making $75,000, paying for a house, car a spouse and 2 kids, there is NO WAY you are going to save yourself to wealth! You can't possibly save enough to become wealthy. Do you want to be a smart spender - yes! Can you "frugal" your way to wealth? Not in most cases. But you can invest your way to wealth. Most "experts" won't tell you that. Wealth = Compounding. There are only 3 factors that are part of the wealth building formula. Time. How many years you have to invest. Amount. How much money you have to invest. Capital. Compounding rate. What rate you can compound at. Example: $100,000 15 years, 8% = $317,216 If increase to 30 years: $100,000, 30 years, 8% = $1,006,265 $100,000, 15 years, 18% = $1,197,374 $100,000, 30 years, 18% = $ 14,337,063 Where can you find that rate of return? You know I'm a fan of IBD, the IDB 50 has a 17.9% rate of return! On podcast #195, I talked about the St. Agnes school of 8th graders that made 25% over 2 years by using IBD. What about since 2006 - 2016? How about compounding rates? Netflix 42% Amazon 37% Apple 28% Nike 20% Google 15% Starbucks 14% Is it possible to find a company like these? IMHO yes. They leave tracks and they are leaders. Maybe even in IBD 50. Or you can start your own business. Businesses can grow at high compounding rates too. Sometimes in the thousands of percent. Check out some of the fastest growing companies in America and their compounding rates. That's why 77% of wealth is creating by owning a business, including being a professional (doctor, lawyer, etc.). To get "11 Quick Financial Tips to Boost Your Wealth", go to www.lindapjones.com.

Have you checked out the Creating Wealth podcast yet with Jason Hartman? It's full of amazing information and over 700 podcasts about real estate investing. If you like this podcast, you'll like that one too. http://bit.ly/wealthpod Twitter has been in the news as a company that is for sale. Apparently Google, Yahoo, salesforce.com, Disney and others have been taking a look at it. IMHO, it belongs with a media company because Twitter is the next form of media after radio and TV. As I mentioned in my previous podcast about the DDoS cyber attack, I found out about it because Twitter was down and I Googled it. This is the way we think now. I didn't turn on TV until it was my fourth choice for news after Twitter, Facebook and Google! It's the first 2 way media we've had, meaning you can get instant feedback from viewers. For example, BRAVO TV uses it to take polls on their show - who is the most/least popular? They also use it to gather questions to ask in interviews. But more recently mainstream media has been using it as a source of stories. Media used to be top-down, but now they are driven by the narrative that is occurring on the "trending hashtags" of Twitter. It's what people are talking about and thinking - in real time! The first time I used Twitter years ago, I thought it was crazy. Someone tweeted about what they ate for breakfast. I couldn't care less! Then I used it as a business tool, posting blogs and podcasts. People are using it as a media platform. Combined with Periscope, anyone can be their own TV station. It's live, then recorded and tweeted out to your followers. The reason I bring this all up is I think Twitter should be bought by a media company - either a TV station or a newspaper. It would fit perfectly with their objectives, they could raise revenues by getting more advertising and it would be the next phase of media in this age. If I were the investment banker on the deal, I'd pitch it hard to the Washington Post, which also is owned by Jeff Bezos, who owns Amazon and is the second richest man in the US. It would be perfect for both companies. Although there are rumors from time to time about who will or won't buy Twitter, the main problem is the $16 billion to $18 billion valuation. It's very richly valued and although I think it will be worth much more in the future, not everyone wants to shell out that cash. Personally, I think it would be a much better buy than the $26 billion Microsoft paid for LinkedIn, but we'll have to wait to see if I'm right about that. Whomever buys it seems to be waiting for the price to drop some more, but I do think when the price is right, a buyer will step up to the plate. To get "11 Quick Financial Tips to Boost Your Wealth", go to www.lindapjones.com.

Creating Wealth podcast yet with Jason Hartman? It's full of amazing information and over 700 podcasts about real estate investing. If you like this podcast, you'll like that one too. The morning of October 21st I tried to connect to Twitter to see the latest news and my computer kept saying it couldn't find the server. I went to Facebook and nothing was trending over there. I Googled it and found out about the attack. I turned on the TV and there was nothing, as if it was blacked out - maybe to keep everyone calm? It scared the heck out of me because I knew if it attacked a few sites, the whole internet could possibly go down. I checked my bank, it was still working online. I could only imagine how upset some Paypal customers were, my friend being one of them. She went apoplectic. The cyberattack of October 21, 2016 was notable for many reasons. 1. "It attacked the DDoS or A Distributed Denial of Service (DDoS) attack is an attempt to make an online service unavailable by overwhelming it with traffic from multiple sources. They target a wide variety of important resources, from banks to news websites, and present a major challenge to making sure people can publish and access important information." -DigitalAttackMap.com They go on to say: "Attackers build networks of infected computers, known as 'botnets', by spreading malicious software through emails, websites and social media. Once infected, these machines can be controlled remotely, without their owners' knowledge, and used like an army to launch an attack against any target. Some botnets are millions of machines strong." "Botnets can generate huge floods of traffic to overwhelm a target. These floods can be generated in multiple ways, such as sending more connection requests than a server can handle, or having computers send the victim huge amounts of random data to use up the target's bandwidth. Some attacks are so big they can max out a country's international cable capacity." 2. It effected many large websites such as Twitter, Paypal, Amazon, Reddit and Pinterest among others and cost businesses over $100 million in lost revenues. This is important because we take for granted our ability to read news, shop, communicate and bank online. While the waves of attacks kept these websites down, I realized how difficult it would be to communicate if we had a full-on attack or Electro-Magnetic Pulse that would take down the grid, which actually got me thinking of communication devices that would work if it all went down. The one that kept coming up was a ham radio. This is one of the only things that will work in case of emergency. Ham radios require a short education to use and the passing of a quick test, but otherwise seem easy to operate. 3. Research about what kind of hacking could occur next led me to find out that we have vulnerabilities in our apps on our phone. I'm going to read an article to you and leave you the link to it on my website at www.lindapjones.com at podcast #196. Just to give you a short summary before I read the article, it mentions that apps on our phone, even the blackjack app, may have malware that can cause a phone virus. Here's the article: http://www.nbcnews.com/tech/security/new-way-you-ll-get-hacked-through-banking-app-your-n651571 The conclusion is that we need to add an anti-virus app to our phones to protect them. That's why I added the free McAfee anti-virus app to my phone. It backs up contacts, photos, etc. and allows you to locate your phone if lost, all while protecting your information. It's CaptureCam emails you the photo and location of anyone who tries too many times to unlock your vault with the wrong PIN. I hope this protects you from getting hacked from your banking app on your phone. Get my "11 Quick Financial Tips to Boost Your Wealth" at www.lindapjones.com.

Learn why buying what you know, without doing more research, can get you into investing trouble. Have you checked out the Creating Wealth podcast yet with Jason Hartman? It's full of amazing information and over 700 podcasts about real estate investing. If you like this podcast, you'll like that one too. http://bit.ly/wealthpod The book is "Beating the Street" by Peter Lynch, former portfolio manager of the Fidelity Magellan fund. To see the St. Agnes portfolio, go to www.lindapjones.com.

Learn what shorting is and the pros and cons of shorting. Have you checked out the Creating Wealth podcast yet with Jason Hartman? It's full of amazing information and over 700 podcasts about real estate investing. If you like this podcast, you'll like that one too. http://bit.ly/wealthpod It's Listener Question Friday I've been watching the German bank, Deutsche Bank with some concern. DB is trying to get a reduced fine from the DOJ from $14B to $5B for mortgage security improprieties during the last financial crisis. If you haven't been following the news, DB may need a bailout but Chancellor Merkel has said she will not support one. That's because other banks in the EU may also need bailing out and if one was bailed out, they'd all have to be bailed out. Italy's banks are having big problems and so are other European banks. The real problem with DB is it is unique in that id also has massive derivatives there, so if it goes down, the effect could be quite serious on the whole EU and the Euro. Remember derivatives are securities that do not include the underlying stock and can be bets on their directional change among other things. DB has declined about 50% this year to roughly $12. A listener asked, if I was watching Deutsche Bank and concerned it might fail, why not short it? First, let me explain what happens when you "short" a stock. You are borrowing shares that you sell at a high price and hope to buy them back at a lower price to "cover the short." If a short goes against you, it's a potential unlimited loss! There's also something known as a "short squeeze" which is quite common. Because investors know the shorts have to buy the stock to cover the short, they can buy shares and move the price up (if they are large enough, like a hedge fund is), panicking the shorts to pay any price to cover their short and protect themselves from large losses. DB's stock price has been volatile. For example, in September it went from $15 to $11.50 to $13.99. Percentage wise those are 23% and 21% moves, so volatility is high. They are making changes that could cause more volatility up or down in their stock price: *They are laying off 1,000 workers. *The country of Qatar is rumored to be buying 25%. *They are also reportedly considering spinning off a subsidiary. *If there is any positive news, there goes the stock price up and away from the short trade. So for all those reasons, I am not shorting DB. That's not to say some big hedge fund won't make a killing, but for the small investor there are other trades to be had and personally I prefer to be investing in what will go up, than trying to pick the precise time a stock will drop, which is what you need to do to be successful as a short. If you're looking to become wealthier, get my free report: "11 Quick Tips to Boost Your Wealth" at www.lindapjones.com.

Learn what a hedge fund is and why they are often preferred by millionaires and billionaires. Have you checked out the Creating Wealth podcast yet with Jason Hartman? It's full of amazing information and over 700 podcasts about real estate investing. If you like this podcast, you'll like that one too. http://bit.ly/wealthpod Hedge funds are an interesting topic and generally misunderstood by the general public. They are for sophisticated and high net worth investors, who are known as "accredited investors." They have more than a $1 million net worth excluding their home, or they make $300,000 and are experienced investors. Hedge funds invest in many types of securities, but they are unregulated by the Securities and Exchange Commission (SEC). You are familiar with mutual funds in your 401(k) which are pools of money that invest for a particular objective and in a particular type of security. For example, a large cap mutual fund may invest in the S & P 500, which are the 500 stocks with the largest capitalization (share price x number of shares outstanding). Hedge funds can invest long or short (listen to the next episode for an explanation of what "short" means). Hedge funds may also invest in options and futures, which are also known as "derivatives". Options are a bet on a stock's direction, but you don't own the underlying stock. For example, a "call" option on Amazon is a bet the price will go up, but you don't own shares of Amazon's stock. Many hedge funds use leverage and borrow money to increase their returns. That of course increases the risk of loss and must be used carefully. Unlike mutual funds which can be liquidated daily, a hedge fund has limitations to when you can access your funds and usually has the funds "locked up" for a period of 90 days at a time. At the end of the 90 days you can tender your shares and liquidate some or all of them. They also can charge fees differently than mutual funds. While mutual funds earn fees regardless of performance, hedge funds may charge a fee like 1% - 2% of the assets and also a percentage of the gains they make, like 25% of the profits. Many top mutual fund managers have left mutual fund companies to run hedge funds because if they are good investors, they can make a lot of money. Hedge fund managers have even made $1 billion in one year. There are different investment objectives of hedge funds, but the idea is to take less risk and provide higher returns. Because they can make money whether the market goes up or down (as opposed to mutual funds that only make money when market go up), they should be able to "hedge" risk and provide a higher return. There are some common objectives of hedge funds such as Activist, Convertible Arbitrage, Emerging Markets, Equity Long Short, Fixed Income, Fund of Funds, Options Strategy, Statistical Arbitrage, and Macro. Each of those invest differently. A hedge fund can pretty much invest in whatever they want wherever they want without their hands tied by regulators. It can get pretty complicated and that's why we had the hedge fund bailout after 1998 because a Nobel Prize winning investing model called Black Scholes worked on paper, but failed miserably in reality and had to be bailed out by major banks for $3.5 billion. If you want to read more details about it, I'll put a link on my website at lindapjones.com under this podcast #193. https://priceonomics.com/the-history-of-the-black-scholes-formula/ Hedge funds are performing poorly and are the worst performing asset class in 2016. So what is going on? They need volatility to be able to make money in a long or short strategy and the markets have been uncharacteristically un-volatile plus the stock market has only returned about 5% year to date. With so many underperforming, there are likely to be a lot of hedge funds closing their doors in the near future. So don't feel like you're missing out on anything. At this moment, you're not! If you're looking to become wealthier, get my free report: "11 Quick Tips to Boost Your Wealth" at www.lindapjones.com.

Learn what happens when you make a claim for a jewelry loss and what Kim Kardashian might experience. Have you checked out the Creating Wealth podcast yet with Jason Hartman? It's full of amazing information and over 700 podcasts about real estate investing. If you like this podcast, you'll like that one too. http://bit.ly/wealthpod I had the unfortunate experience of having jewelry stolen from my home. Although I usually keep it locked away in a safe, I unpacked my bag and threw the silk pouch with a Tahitian pearl necklace, earrings and ring into my drawer with plans to put them in the safe later. When I went to look for it, it was missing. In between that time there were several people in my home including house cleaners, window washers, repair men, etc. that could have taken it. It was devastating because it was my favorite jewelry and very valuable. The pearls also had diamond on the ring and earrings. I called my insurance agent to report the loss. The ring and necklace were insured but the earrings weren't. I bought the ring and necklace from the same jeweler and received written appraisals for them which I used to insure them. The earrings I bought from someone else and didn't get an appraisal, so I didn't insure them. Needless to say, I was so sad for my loss. What I learned about making an insurance claim for jewelry is you have to make the claim within 30 days of discovering it. Once you make the claim an insurance adjuster calls and asks you details about what happened, dates, the details about the jewelry, etc. It goes to an underwriter who reviews the case and decides whether to pay the claim or not. But back to our story about Kim Kardashian. Kim will have to speak with her insurance company and give them the details about what happened. After review, the claim is paid. You have a choice whether to replace the jewelry and have them pay a jeweler or take the cash. Since Kim's ring can't be replaced very easily and it will take time to find a 20 carat emerald cut D-color diamond since they are very rare. Who knows what else was stolen, but it's reported to be worth a total of $11 million. I would bet she will take the cash and take her time finding a suitable replacement, if she wants one which apparently she is doubtful about but her husband wants to replace it. I'm sure the rumors will fly from people who don't understand how the process of the insurance works and she will be accused of some kind of a scam. The reality is, she is just following how the insurance process works. You can see pictures of some of Kim Kardashian's jewelry here: www.lindapjones.com/kimkardashian If you're looking to become wealthier, get my free report: "11 Quick Tips to Boost Your Wealth" at www.lindapjones.com.

Learn where to invest and find high rates. I've mentioned Jason Hartman's Creating Wealth podcast and how there are 700 podcasts about real estate investing. Now we're going to talk to Jason about his investing experience and whether it's better to invest in real estate for capital gains or cash flow? http://bit.ly/wealthpod It's listener question Friday! Dear Linda, I love your podcasts! They are simply fabulous! I am wondering where can I get some financial products with a high rate of compounding? Let's say 8 to 10%. I need your great help for that, Linda. Thank you very much. Best regards, Marie I wish 8 to 10% was so easy! Be careful when reaching for yield. A friend of mine was pitched 5.5% junk bonds that weren't diversified and were 30 year bonds! He was actually considering them because a "friend" recommended them. High yields equal high risk. Bank yields are 1 to 2%. 10 year bonds are 1.5%. How can you get 5.5? Lower the quality - but you don't want to do that. Consider alternative investments - but they can be complex. Dividends on stocks - but it entails risk to principal. There's no easy answer for a "guaranteed" rate. But here's the question: should you be investing for growth instead of income anyway? Growth does involve risk, but over the long-term risk is minimized and returns are maximized. Get started investing to grow your wealth. Read Testimonials from iTunes. Have you left me one yet? To get your "10 Quick Financial Tips to Boost Your Wealth" at www.lindapjones.com.