OT: Stocks Rebounding

[clob94]

They do not teach it anymore.

There's an old story that some say is true and others can't confirm-- that Albert Einstein once said that compound interest was the "most powerful force in the universe".

Nobody knows if he really said it--- but if he didn't, he should have.

 

[oldhorn2]

Ben Franklin was the one I remember talking about compound interest. The thing that should be taught in schools to every young person is the value of saving....at an early stage......one twin at age 20 saves a thousand a year for 10 years and never adds to it....the other twin starts saving a thousand a year at age thirty for the rest of his life....and never catches up to his brother.

If you have a savings plan early in life, you would be amazed at how easy it is to accumulate a million bucks. Then when you achieve that million, you will again be amazed at what an insignificant amount of money that is.

One thing to never forget.....you don't become wealthy by the amount of money you make. You become wealthy by the amount of money you save.

 

[Son of Wasatch]

Question to our 2 resident stock experts. A hypothetical stock is trading at $13.50. A call at $13.50 expiring on 7/22 costs $.34. That is an annualized return of almost 100%. Doesn't that mean that the smart money is betting strongly that this stock will go way above $13.84 by 7/22? The higher they are willing to pay for the call, the more likely the stock will in fact exceed that amount? And do you have recommendations for a beginner to intermediate primer on covered calls and options? Thanks!

Are you buying or selling the call? If you are buying a call at .34 you are spending $34 on the option to exercise between now and 07/22 to buy 100 shares of said stock at $13.50 a share. Basically you have 9 days to exercise this option, or you are hoping that the value of said stock is going to go up. Your break even point on said stock is 13.84. If the price rises above that point you can make money selling the option, Every penny above 13.84 is a dollar in your pocket.

Options in and of themselves are a gamble, you are betting on the movement of the price of the underlying security. However they can also be a great way to hedge or protect your investment. What I mean by that is this.

Say you purchased 100 shares of a security for 13.50 ($1350 Total ) but you are worried that a market downturn could drop the price. So you protect your investment by buying a put.contract For those that don't know, a Put is an option that pays you if the price of the stock goes down. Lets say you buy a 6 month Put at 12.50 contract for 1.00 meaning you pay $100 for the contract This contract is called "Out of the money" because it is worthless unless the price of the underlying stock dips below $12.50. If the stock dips below 12.50 you are now "in the money" However you payed $1 for this contract which means it actually has to reach 11.50 before you are in the profit. So lets say the Value of the stock drops to 8.50. You sell the stock and get a $500 loss, but you get $850 dollars back from your original $1350 investment.
However at 8.50 a share you also sell your Put contract which makes you. $400. Now you have to compensate for the cost of the Put contract that cost you $100 so you make a profit of $300. So you lost $500 but because you had protection your net loss is only $200.

that is the value of a Using Options as a protection.

I worry for the latest generations. Too many are seduced by seeing the ads for exotic vacations.....hot cars....lavish living styles and they fall into the trap of thinking they need those things today....I f you understand that some of what you make is yours to keep....you can do fine understanding what Wasatch and Clob said about using time to your advantage.

The last Generation that did it right was My grand parents. The generation that made it though the great depression and fought WWII

The biggest lies that our current generation keeps using.

"This is our starter house" - Why? My Grand parents bought one house in their lifetime, it wasn't a starter, it was a finisher. They payed it off and fixed it up. But they lived many many years without a house payment. And that money went to retirement.

"Buy a new car every 4 years" - Again, My grand parents owned one car and they drove it until the wheels fell off, then they bought another one. They paid cash for their cars, never credit. If they wanted a new car, they saved for it. My Grandfather took care of his cars, he did everything and his cars were very well maintained. Cars are a tool not a lifestyle.

That's right.

Breaking it down, it's how much you got, how long you got, and what kind of risk are you willing too take.

The more time you got, the less you need to invest and can take less risk doing it.

And, I agree that if they don't teach time value of money in HS nowadays they should.

Actually, younger people should be willing to take on more risks. it's buying those riskier cheap investments that could turn into the windfall we are all looking for. Investing in a small computer company in 1990 and it turns into Dell. Investing in a Pharmaceutical company that ends up producing Viagra. Investing in your 20's gives you the luxury of taking the Risk that one of those investments will turn out to be the home run hit. You might take more loss, but the flip side is you could make a killing. As you get older, you need to be more conservative with your investments simply because you have much less time to recover from a huge loss.

Ben Franklin was the one I remember talking about compound interest. The thing that should be taught in schools to every young person is the value of saving....at an early stage......one twin at age 20 saves a thousand a year for 10 years and never adds to it....the other twin starts saving a thousand a year at age thirty for the rest of his life....and never catches up to his brother.

If you have a savings plan early in life, you would be amazed at how easy it is to accumulate a million bucks. Then when you achieve that million, you will again be amazed at what an insignificant amount of money that is.

One thing to never forget.....you don't become wealthy by the amount of money you make. You become wealthy by the amount of money you save.

Amen.

 

[oldhorn2]

Grandparents...WWII???...uh Wasatch...we must be a different generation. My Grandfather was in the Spanish American War and his father was in the Civil War.....apparently a generation can span quite a long time frame.

 

[swVAHorn]

Are you buying or selling the call? If you are buying a call at .34 you are spending $34 on the option to exercise between now and 07/22 to buy 100 shares of said stock at $13.50 a share. Basically you have 9 days to exercise this option, or you are hoping that the value of said stock is going to go up. Your break even point on said stock is 13.84. If the price rises above that point you can make money selling the option, Every penny above 13.84 is a dollar in your pocket.

Options in and of themselves are a gamble, you are betting on the movement of the price of the underlying security. However they can also be a great way to hedge or protect your investment. What I mean by that is this.

Say you purchased 100 shares of a security for 13.50 ($1350 Total ) but you are worried that a market downturn could drop the price. So you protect your investment by buying a put.contract For those that don't know, a Put is an option that pays you if the price of the stock goes down. Lets say you buy a 6 month Put at 12.50 contract for 1.00 meaning you pay $100 for the contract This contract is called "Out of the money" because it is worthless unless the price of the underlying stock dips below $12.50. If the stock dips below 12.50 you are now "in the money" However you payed $1 for this contract which means it actually has to reach 11.50 before you are in the profit. So lets say the Value of the stock drops to 8.50. You sell the stock and get a $500 loss, but you get $850 dollars back from your original $1350 investment.
However at 8.50 a share you also sell your Put contract which makes you. $400. Now you have to compensate for the cost of the Put contract that cost you $100 so you make a profit of $300. So you lost $500 but because you had protection your net loss is only $200.

that is the value of a Using Options as a protection.



The last Generation that did it right was My grand parents. The generation that made it though the great depression and fought WWII

The biggest lies that our current generation keeps using.

"This is our starter house" - Why? My Grand parents bought one house in their lifetime, it wasn't a starter, it was a finisher. They payed it off and fixed it up. But they lived many many years without a house payment. And that money went to retirement.

"Buy a new car every 4 years" - Again, My grand parents owned one car and they drove it until the wheels fell off, then they bought another one. They paid cash for their cars, never credit. If they wanted a new car, they saved for it. My Grandfather took care of his cars, he did everything and his cars were very well maintained. Cars are a tool not a lifestyle.



Actually, younger people should be willing to take on more risks. it's buying those riskier cheap investments that could turn into the windfall we are all looking for. Investing in a small computer company in 1990 and it turns into Dell. Investing in a Pharmaceutical company that ends up producing Viagra. Investing in your 20's gives you the luxury of taking the Risk that one of those investments will turn out to be the home run hit. You might take more loss, but the flip side is you could make a killing. As you get older, you need to be more conservative with your investments simply because you have much less time to recover from a huge loss.



Amen.

The "Greatest Generation" for sure. Great men and women. Hard working go getters.

 

[clob94]

Grandparents...WWII???...uh Wasatch...we must be a different generation. My Grandfather was in the Spanish American War and his father was in the Civil War.....apparently a generation can span quite a long time frame.

Oldhorn,
We may have to give you a new nickname after that post----

Henceforth I dub the "old as fvck horn". Arise and claim ye title! Ha!

 

[clob94]

Just a little while ago, Clob was claiming (without sources, of course) that hedge fund managers and the banks bet big that Brexit would fail. Hmmm... if that's true, why the quick rebound?

The rebound is because the referendum isn't binding. It's looking less likely that there will actually be a Brexit, now that British voters are starting to realize what the consequences would be.

The DOW and S&P 500 are at new high marks today. This should give you a bit of an indication that the "knee jerk" reactions to Brexit were economically unfounded. Consider this, because of EU regulations, Britain was unable to secure trade deals with India, Australia and a rather minor deal with China.
40% of Britain's trade was with the EU- so let's say they lose HALF of that trade (won't be that much but let's just say it is). Not being bound by the EU now allows Britain to increase trade with China by 8-10%. It also allows them to increase their trade with India by almost 30%. The Australian deal will increase by 15%. Add those up and it's low end 53%. If they loose the 20% of the trade to the EU (or even all of it for that matter) They still come out with a net gain in trade.

Now obviously my explanation has been seriously simplified for explanatory sake-- but you get the gist of it.

People wanting Brexit to fail the vote wanted it for "social" reasons, not economic. When brexit passed, the sore losers--- social activists, other EU nations, people backing immigration, big European and British banks-- cried "racism" because either their social agenda or wallet would be directly effected. Anyone who understands global economics understands that when you're allowed to trade with whomever you want, verses being TOLD who you can or can't trade with its always better to have the freedom to trade with everyone. There were so many people that used the BS "social activism" side of the issue to guilt media and citizens into feeling bad for voting for what is in Britain's best interest ECONOMICALLY.

Don't be fooled, most of the people crying "racism" couldn't even explain to you the law of supply and demand-- let alone global economic trade.

 

[CAHorn47]

The DOW and S&P 500 are at new high marks today. This should give you a bit of an indication that the "knee jerk" reactions to Brexit were economically unfounded. Consider this, because of EU regulations, Britain was unable to secure trade deals with India, Australia and a rather minor deal with China.
40% of Britain's trade was with the EU- so let's say they lose HALF of that trade (won't be that much but let's just say it is). Not being bound by the EU now allows Britain to increase trade with China by 8-10%. It also allows them to increase their trade with India by almost 30%. The Australian deal will increase by 15%. Add those up and it's low end 53%. If they loose the 20% of the trade to the EU (or even all of it for that matter) They still come out with a net gain in trade.

Now obviously my explanation has been seriously simplified for explanatory sake-- but you get the gist of it.

People wanting Brexit to fail the vote wanted it for "social" reasons, not economic. When brexit passed, the sore losers--- social activists, other EU nations, people backing immigration, big European and British banks-- cried "racism" because either their social agenda or wallet would be directly effected. Anyone who understands global economics understands that when you're allowed to trade with whomever you want, verses being TOLD who you can or can't trade with its always better to have the freedom to trade with everyone. There were so many people that used the BS "social activism" side of the issue to guilt media and citizens into feeling bad for voting for what is in Britain's best interest ECONOMICALLY.

Don't be fooled, most of the people crying "racism" couldn't even explain to you the law of supply and demand-- let alone global economic trade.

Preach, Brother Clob, preach!

 

[ASURAM2010]

I am part of this generation that some people are calling the "hopeless" generation. The problem with some of the things that have been mentioned above like cars for example: so many things have changed in the 12 years from when I first bought my car at 15. It was a 1966 Mustang 289. My dad and I stripped down the vehicle in virtually no time and put it back together with ease. The reason being everything in those vehicles were mechanical, not electric or computerized. I now have 7 year old pickup with 130,000 miles on it that when I open the hood about the only thing I can change with my limited amount of knowledge is the headlights. I do agree for the most part that in theory it is relatively easy to become a millionaire, the problem is that a million bucks doesn't do what it used to. In the 6 years I have been out of college, I am living in my second house driving the pickup that I purchased after my one from high school was totaled, the wife is driving the same car that she has had since 2005. We sold our first house for a 50K profit (on a 100K purchase price) and put most of that money into another house to pay down and to where I only had about a 65% LTV after purchase. I am an accountant working on my CPA license, wife is a school teacher, and I consider my self "with it" financially speaking, but it is still difficult to get ahead as a young person. That is why you see more "millennial" living with their parents than at any other time in history.

 

[clob94]

I am part of this generation that some people are calling the "hopeless" generation. The problem with some of the things that have been mentioned above like cars for example: so many things have changed in the 12 years from when I first bought my car at 15. It was a 1966 Mustang 289. My dad and I stripped down the vehicle in virtually no time and put it back together with ease. The reason being everything in those vehicles were mechanical, not electric or computerized. I now have 7 year old pickup with 130,000 miles on it that when I open the hood about the only thing I can change with my limited amount of knowledge is the headlights. I do agree for the most part that in theory it is relatively easy to become a millionaire, the problem is that a million bucks doesn't do what it used to. In the 6 years I have been out of college, I am living in my second house driving the pickup that I purchased after my one from high school was totaled, the wife is driving the same car that she has had since 2005. We sold our first house for a 50K profit (on a 100K purchase price) and put most of that money into another house to pay down and to where I only had about a 65% LTV after purchase. I am an accountant working on my CPA license, wife is a school teacher, and I consider my self "with it" financially speaking, but it is still difficult to get ahead as a young person. That is why you see more "millennial" living with their parents than at any other time in history.

Is your wife participating in a 403b?

 

[ASURAM2010]

Is your wife participating in a 403b?

Yes she is. I am contributing the max to my 401(k) with company match. As well as setting up the equivalent of a 529 for our daughter. Didn't want to do a 529 in the event that she needs the money for something other than school.

 

[Son of Wasatch]

I am part of this generation that some people are calling the "hopeless" generation. The problem with some of the things that have been mentioned above like cars for example: so many things have changed in the 12 years from when I first bought my car at 15. It was a 1966 Mustang 289. My dad and I stripped down the vehicle in virtually no time and put it back together with ease. The reason being everything in those vehicles were mechanical, not electric or computerized. I now have 7 year old pickup with 130,000 miles on it that when I open the hood about the only thing I can change with my limited amount of knowledge is the headlights. I do agree for the most part that in theory it is relatively easy to become a millionaire, the problem is that a million bucks doesn't do what it used to. In the 6 years I have been out of college, I am living in my second house driving the pickup that I purchased after my one from high school was totaled, the wife is driving the same car that she has had since 2005. We sold our first house for a 50K profit (on a 100K purchase price) and put most of that money into another house to pay down and to where I only had about a 65% LTV after purchase. I am an accountant working on my CPA license, wife is a school teacher, and I consider my self "with it" financially speaking, but it is still difficult to get ahead as a young person. That is why you see more "millennial" living with their parents than at any other time in history.

Congrats on the profit you made from your first home. Now I can't give recommendations over a forum like this because were it to be discovered, I'd get heavily fined.

When it comes to cars, I tell everyone the same thing. Never ever have a car payment, period. Pay cash, but a clunker if you must, sell it, and put that money with other money you saved and buy a nicer car. If you want a new car, start a car fund and add the equivalent of a car payment to that savings every month. Eventually you can walk into that dealership and tell them what you want and just give them a check. There isn't a better feeling in the world, unless you are paying off your house.

Pay off your house. You want to be a millionaire, pay off your house and live mortgage free. You would be surprised what you can do when you have an extra 2000 per month to put away for retirement.

Max out all Tax-free growth instruments. 529 plans, Roth IRA, Whole Life Insurance,

Get at lease a 6 month reserve of money and don't touch it except for emergencies

Stick with your job. The last statistics I saw was that most employees stay with a job on average for 5 years. If you want to make real money you got to stay longer than that, especially if you are in a strong company. I have a good friend that went to works for a warehouse store pushing carts in 1987. Today he is still with that company only now he is a regional manager. He is also a millionaire. My dad is retired with a very nice retirement because he put in 20 years in the Army as an NCO, and then 20 years at the Post office. Government folks call this double dipping, because he gets 2 pension checks per month.

Make sure your wife is on board with these things, you can't get it done unless she is 100% with you.

Budget in fun, when you are putting this together don't be afraid to budget in fun. You don't have to take a vacation to the French Riviera, but you can budget to have a little fun it takes the edge off of sticking with a budget.

Finally, and most important, if you are living off of one income, make sure you have adequate disability insurance. If you are living off of two incomes, learn to live off of one and put the other into savings. But still have adequate disability insurance. You are far more likely to get injured an unable to work than you are to die.

That is my soap box spiel I give to young people.

 

[diadevic]

Make sure your wife is on board with these things, you can't get it done unless she is 100% with you..

THIS X 10000!!!!! If wife is not on board with the long term plan, or if you are a chronic divorcee, you have no chance.

Seriously - read "The Millionaire Next Door." It lists the most common characteristics of millionaires. No. 1 on the list is 1 spouse. Followed up by only 1 or 2 homes total in a lifetime.

 

[clob94]

Congrats on the profit you made from your first home. Now I can't give recommendations over a forum like this because were it to be discovered, I'd get heavily fined.

When it comes to cars, I tell everyone the same thing. Never ever have a car payment, period. Pay cash, but a clunker if you must, sell it, and put that money with other money you saved and buy a nicer car. If you want a new car, start a car fund and add the equivalent of a car payment to that savings every month. Eventually you can walk into that dealership and tell them what you want and just give them a check. There isn't a better feeling in the world, unless you are paying off your house.

Pay off your house. You want to be a millionaire, pay off your house and live mortgage free. You would be surprised what you can do when you have an extra 2000 per month to put away for retirement.

Max out all Tax-free growth instruments. 529 plans, Roth IRA, Whole Life Insurance,

Get at lease a 6 month reserve of money and don't touch it except for emergencies

Stick with your job. The last statistics I saw was that most employees stay with a job on average for 5 years. If you want to make real money you got to stay longer than that, especially if you are in a strong company. I have a good friend that went to works for a warehouse store pushing carts in 1987. Today he is still with that company only now he is a regional manager. He is also a millionaire. My dad is retired with a very nice retirement because he put in 20 years in the Army as an NCO, and then 20 years at the Post office. Government folks call this double dipping, because he gets 2 pension checks per month.

Make sure your wife is on board with these things, you can't get it done unless she is 100% with you.

Budget in fun, when you are putting this together don't be afraid to budget in fun. You don't have to take a vacation to the French Riviera, but you can budget to have a little fun it takes the edge off of sticking with a budget.

Finally, and most important, if you are living off of one income, make sure you have adequate disability insurance. If you are living off of two incomes, learn to live off of one and put the other into savings. But still have adequate disability insurance. You are far more likely to get injured an unable to work than you are to die.

That is my soap box spiel I give to young people.

Wasatch-- I'm not "giving" any advice either, but with regards to paying off homes faster, one of our old tricks is to over fund a whole life policy in order to build cash value ( and of course tie that money to the index for a possibly higher return) until the cash value is high enough to pay off said mortgage.

I'm sure it's something you've tried in the past------- I just felt like having a conversation with YOU about it.....

 

[Son of Wasatch]

Wasatch-- I'm not "giving" any advice either, but with regards to paying off homes faster, one of our old tricks is to over fund a whole life policy in order to build cash value ( and of course tie that money to the index for a possibly higher return) until the cash value is high enough to pay off said mortgage.

I'm sure it's something you've tried in the past------- I just felt like having a conversation with YOU about it.....

yes, I generally recommend a 10 pay whole life policy, or Variable Universal life for that very purpose.

Interesting side note. I like listening to Dave Ramsey on my afternoon commute and when it comes to debt management I'm with him 100% but his ideas on insurance are feeble at best, same with Suzy Orman. They both preach Term life and invest the difference. I always ask, how many people actually invest the rest? Yes, if you need a death benefit insurance policy Term Life is the way to go.

But Permanent life Insurance is magical. It's basically safer than a savings account, CD, or Money market, because Insurance Companies are required to keep enough funds on hold to cover it. it's just as liquid, and it grows about 5 times faster than a CD or MM fund.

I tell people Whole Life Insurance is the worst named product ever created. It's benefits far outweigh the death benefit portion of the product. it offers tax shelter, by this I mean you pay no current Income tax on the growth, you pay no federal income tax on loans you take out from it, and your benefactors pay no income tax on the death benefit. Plus you also pay no estate tax on the death benefit.

One of my clients owns a couple restaurants down here in San Antonio. their whole retirement is built into their whole life policies. You know what they use me for? they have a brokerage account for when the market has big downturns like we recently experienced. When the Market goes down like it did, they pull some of the cash value out and throw it in the market because they like riding the upswing. So far Brexit has netted them a 24% gain on their investments. They will probably ride for a few more days and then pull out and put all of it back into their whole life policy to avoid paying interest. Because their whole life policy is not Indexed, they have zero market risk while in the policy.

Side note 2 - I have never sold a standard Universal Life policy. I just don't like the idea that you can adjust your premium because people are always willing to adjust their premiums down but seldom back up, and then they get in trouble when the underlying portfolio under performs and they are required to put in a huge amount of money to keep the policy from lapsing. It's just not a good situation. I work with other advisors who use them for Estate planning purposes, but the vast majority of my clients are between the age of 40 and 50. If a client wants a UL I reccomend to them a VUL.

 

[TX1972]

I am part of this generation that some people are calling the "hopeless" generation. The problem with some of the things that have been mentioned above like cars for example: so many things have changed in the 12 years from when I first bought my car at 15. It was a 1966 Mustang 289. My dad and I stripped down the vehicle in virtually no time and put it back together with ease. The reason being everything in those vehicles were mechanical, not electric or computerized. I now have 7 year old pickup with 130,000 miles on it that when I open the hood about the only thing I can change with my limited amount of knowledge is the headlights. I do agree for the most part that in theory it is relatively easy to become a millionaire, the problem is that a million bucks doesn't do what it used to. In the 6 years I have been out of college, I am living in my second house driving the pickup that I purchased after my one from high school was totaled, the wife is driving the same car that she has had since 2005. We sold our first house for a 50K profit (on a 100K purchase price) and put most of that money into another house to pay down and to where I only had about a 65% LTV after purchase. I am an accountant working on my CPA license, wife is a school teacher, and I consider my self "with it" financially speaking, but it is still difficult to get ahead as a young person. That is why you see more "millennial" living with their parents than at any other time in history.

In the 50's, my dad as an Ivy League doctor made $25./month. I'm thinking it was 5-6 years after residency that he could buy my mother her own car. We got air conditioning when I was 11. Dallas had 4 commercial tv stations + pbs. Austin only had 1 (so Lady Bird could tolerate her philandering husband. I could go on all day, but I hope you get the point. The 50s weren't that great.

 

[diadevic]

In the 50's, my dad as an Ivy League doctor made $25./month. I'm thinking it was 5-6 years after residency that he could buy my mother her own car. We got air conditioning when I was 11. Dallas had 4 commercial tv stations + pbs. Austin only had 1 (so Lady Bird could tolerate her philandering husband. I could go on all day, but I hope you get the point. The 50s weren't that great.

BUT ... Gas was $.27/gallon, tickets to a UT game were a buck, and Leave it to Beaver was followed by Andy Griffith and the Munsters!

 

[oldhorn2]

In the 50's gas was .13 a gallon. Movies were a dime.

 

[Son of Wasatch]

I am part of this generation that some people are calling the "hopeless" generation. The problem with some of the things that have been mentioned above like cars for example: so many things have changed in the 12 years from when I first bought my car at 15. It was a 1966 Mustang 289. My dad and I stripped down the vehicle in virtually no time and put it back together with ease. The reason being everything in those vehicles were mechanical, not electric or computerized. I now have 7 year old pickup with 130,000 miles on it that when I open the hood about the only thing I can change with my limited amount of knowledge is the headlights.

Outside of some of the electric issues, most cars today are built so much better than cars were just 10 to 15 years ago. For many years I would never consider buying an American made car, today I would have no problem buying one. Most any car you buy today is going to serve you for as much as 20 years before you need to replace it. Longer if you treat it well and aren't afraid to spend a little money on it.

Point is, don't be afraid to keep your car as long as possible. Especially if you spent 5 to 7 years with that car payment.

Here is a good strategy for you. Think of the car you want. look at it's cost and figure what your payments would be if you bought it. Then start saving that amount of money each month while driving your current car. If you want a car that will give you a 500 dollar car payment do that for a year.

you will have 6000 saved up. Then do it again and again. Then when you have about 20,000 saved up, go out and pay cash for a lesser car, and enjoy it for the next 5 years.

You can get into a pretty good car for 20,000. While you are enjoying that car, do it again. put away 500 per month over the next 5 years. After 5 years sell that 20,000 car for about 12 to 14 Thousand and add that to the 30,000 you have been saving and you can buy a Mercedes, or Lexus, or Infinity for about 44 to 45 K and still you will not have a car payment.

It's a beautiful thing, especially if over that time your car money was invested and earning a little extra.