During yesterday’s FIN136 class I asked how many students used twitter. I was surprised to see that not one student uses twitter, out of a class of 35. So then I took at the stock chart since IPO: not pretty. Then I stumbled across the linked article below.

Later in the day an MBA student described a bull case for Tesla. Admittedly, there is good argument for electric cars and that many would like to have one. However, not everyone can pay $100k, the model 3 is a question mark, the ability for Tesla to make money manufacturing cars (not from issuing stock or selling carbon credits), political issues (can’t sell in some states), and stock dilution (mentioned by a fellow MBA student) are all concerns for an investor.

In fact, the first assignment for that MBA class is to take the linked article below and redo the analyses for TSLA. In addition, I would like to see what growth in profitability and unit sales is necessary to justify the current price.

All the other readers of this post can do that exercise for fun. 🙂

-Dr. Moore

http://investorplace.com/2017/08/all-of-the-bull-cases-for-twitter-inc-twtr-stock-are-simply-bull/#.WagazEFlDYU

I found this one downright funny. However, I will offer a couple potential solutions. Bear with me as I am about to get algebraic.

One argument mentioned in the article was that men tend to make more than women. If we are going to talk about income equity we might as well talk about expense equity. So, going with the 80 cents on a dollar number from http://www.aauw.org/research/the-simple-truth-about-the-gender-pay-gap/, here is a suggested bill split:

Woman’s portion = 80/(80+100) = 44%
Man’s portion = = 100/(80+100) = 56%

That applies only to the “average” man and woman. What happens when real non-average (noticed I stayed away from above/below on that one) people go on a date? For that, I propose the more general solution:

Woman’s income = W
Man’s income = M

Woman’s portion of the bill = W/(W+M)
Man’s portion of the bill = M/(W+M)

If you wish to get really crazy, you could apply this formula to every shared expense for the duration of the relationship.

You are welcome for this sage advice.
Problem solved.
🎤💧

-Dr. Moore

Who Pays on the First Date? No One Knows Anymore, and It’s Really Awkward
The Wall Street Journal

First dates multiply in era of Tinder, and those tabs add up. Some women are wary the fake ‘reach’ for the wallet won’t be turned down. Read the full story

Shared from Apple News

This one is a little bit outside my normal topic list, but the title caught my attention. This is an interesting story about a family that moved from the US to Ecuador 6 or 7 years ago to avoid the ills of American living (every third child taking prescribed drugs, opioid use, materialism, etc.). Long story short, it sounds like her children are not growing up entitled because in Ecuador, you simply can’t get whatever you want whenever you want (think: no Amazon prime, ironically). That coupled with an emphasis on family and the real world (forget Disneyland, hike around and find Incan artifacts instead is one example) sounds like a good moral foundation for her boys. But, those boys will be in a culture shock when they return to the US for college.

-Dr. Moore

http://theweek.com/articles/703660/moved-kids-america-best-parenting-decision-ive-ever-made

Short answer: no.

I just came across the article “Lessons from 30 Years of Buy Versus Rent Decisions”” by Beracha and Johnson (2012). Using data from 1978 to 2009 the authors conclude:

“…there seems to be an almost national obsession with homeownership, resulting in a paradigm that favors homeownership.

This work challenges this homeownership paradigm. Consistent with the hypothesis that Americans’ mania to own results in a crowding toward homeownership, the results of this article show that renting was preferred to buying, from a monetary perspective, during most of the 1978–2009 time period. This result is conditional on an individual taking any residual money from renting and reinvesting at a rate equal to, or greater than, the risk-free rate.”

However, the authors show evidence that buying was preferred to renting at the end of 2009. Separately, my research also shows the 2009-2012ish time frame was a good time to buy. Today is a different day. The Beracha, Hardin, & Johnson Buy Vs. Rent Index right now reflects renting is preferable to buying. Again, my own separate research reaches the same conclusion.

Beware of evidence-free emotional claims like “you are throwing your money away” or “buying is always better than renting.” So, the next time someone tells you “you are throwing away your money renting,” you can say the evidence reflects renting is preferred today and the majority of the time since at least 1978.

-Dr. Moore

I just read an article about a recent interview with Apple CEO Tim Cook. Mr. Cook said that a repatriation tax holiday would be good for America. The repatriation subject came up in the beginning of the Spring 2017 semester in a FIN101 class. At that time I suggested that a repatriation tax holiday would only benefit executives and shareholders. Little did I know that there was actual evidence to support my suspicion. Yes, evidence.

Please read the following short article from 2011. This should be part of the thought process before immediately assuming, as Tim Cook does, that repatriation of foreign profits is good for America as a whole. Perhaps this is yet another example of how trickle down economics does not work. Or, maybe Tim Cook was telling the truth: a repatriation holiday will be good for America, the few Americans that are significant shareholders.

-Dr. Moore

http://www.npr.org/sections/thetwo-way/2011/10/11/141240208/report-2004-overseas-tax-break-was-a-failed-policy

This article contains a wealth (pun intended) of information to ensure you receive financial advice that benefits you rather than your adviser. For example:

“An easy way to separate wheat from chaff is by asking an adviser to sign the Committee’s fiduciary oath, a legally enforceable contract that commits advisers to put your interests first. (To download the fiduciary oath, click: here)”

Further, the article includes links to databases of complaints against brokerages and a list of vetted fiduciaries. In sum, this article provides tools you can use to protect your interests even if the current administration does away with the legal rule set to go in force tomorrow.

-Dr. Moore

Ready, set, go: Retirement advice protections are here
Reuters

Friday is the day, folks. Read the full story

Shared from Apple News

Let me begin with a quote from the article:

William McNabb, chairman and CEO of Vanguard, said in 2015 that, “In the past, some have mistakenly assumed that our predominantly passive management style suggests a passive attitude with respect to corporate governance. Nothing could be further from the truth.”

However, the article goes on to say “The Big Three” (BlackRock, Vanguard, and State Street) vote with management 90% of the time and mostly against shareholder proposals. So, one could reach at least two different conclusions:

1. McNabb is lying and The Big Three are really just three big rubber stamps for everything management says.

2. McNabb is telling the truth. The Big Three spend significant time weighing the pros and cons of management and shareholder proposals. It just so happens the analysis shows that managers know how to run firms better than shareholders.

I’m leaning towards #2 for now. I sort of have to since my 401k holdings are with Vanguard.

-Dr. Moore

Meet the three firms that own corporate America
CapX

A fundamental change is underway in stock market investing, and the spin-off effects are poised to dramatically impact corporate America. In the past, individuals and large institutions mostly invested in actively managed mutual funds, such as Fidelity, in which fund managers pick stocks with the aim of beating the market. But since the financial crisis of 2008, investors have shifted to index funds, which replicate established stock indices, such as the S&P 500. The magnitude of the change is Read the full story

Shared from Apple News

That red flag is “entitlement.” The unanswered, and unasked, question is, how do we root out the sense of entitlement in our society? Do we just let nature take its course? History buffs out there, this would make an interesting study – “The vector of entitlement: a historical look at the long-run consequences in entitlement cycles.”

I made that title up. I also wonder what would happen to college enrollment if the same type of entitlement screening were employed. Better yet, how about early entitlement detection and intervention?

I’ll stop now.

The CEO of a billion-dollar brand says he doesn’t hire people with a red-flag quality that’s ‘the enemy of everything’
Business Insider UK

Warby Parker co-CEO Neil Blumenthal says he never hires people who seem entitled, or who think they know more than they really do. Read the full story

Shared from Apple News

This article presents a more detailed explanation than I offered in class a week or two ago. It’s actually a pretty simple and logical approach: acquire stocks that pay dividends and then use those dividends to purchase necessities for business operations, repurchase your own stock when it becomes undervalued, and save cash for strategic acquisitions.

This provides some explanation as to why Berkshire’s P/B ratio stays around the 1.33 mark as mentioned in “The Intelligent Investor.”

On a personal level, this may cause reconsideration of blindly reinvesting dividends from mutual funds in shares of that fund. Perhaps you should “pull a Buffett” and follow a personal 1-2-3 approach:

1. Reinvest dividends in yourself: pay for additional schooling or training, faster computer to write your code if you are a freelance consultant, high efficiency washing machines if you own a laundromat, etc.

2. Repurchase shares of the mutual fund if the P/B is reasonable relative to the long-run average.

3. Accumulate the remaining dividends while looking for the next money-generating acquisition.

Dr. Moore out.

Why Warren Buffett Loves Dividends, But Doesn’t Pay Any
The Motley Fool

Berkshire Hathaway has a portfolio full of dividend stocks, but doesn’t pay a dime to its shareholders. Read the full story

Shared from Apple News

I heard a similar conclusion regarding corporate taxes at the Global Asset Management Education conference a few weeks ago in New York: Although the top marginal business tax rates are high, the “tax take” (I.e., tax dollars actually paid by corporations) is not high thanks to tax credits, loopholes, and creative accounting. So why harp on taxes when there is evidence indicating tax bills are just fine relative to the rest of the world…for both individuals and corporations?

Sorry America, Your Taxes Aren’t High
Bloomberg

But if you disagree, think about moving to Chile or New Zealand. Read the full story

Shared from Apple News