The Law of Fashion

The great philosopher John Locke brilliantly captured the way the world works. Little did he know that he would also explain how the stock market works, even though it barely existed when he came up with his philosophy. The stock market is driven by “the law of fashion, civil law and divine law.”

Law of fashion

We have participated in the stock market since 1980 and we know quite a bit of the history of the prior decades. Each decade seems to have its own law of fashion. This means a “general precept established by public opinion.” It is the heart and soul of what John Kenneth Galbraith called “financial euphoria.” In the 1960s, the space race encouraged excitement about “Go-Go” growth companies. In the early 1970s, it was a group of 50 stocks (the Nifty-Fifty) which seemed to grow consistently and were rewarded in the marketplace of investors with highly fashionable price-to-earnings (P/E) multiples.

By 1981, stocks had done horribly as inflation soared and fashion surrounded businesses which benefitted from inflation. Five of the six largest cap companies were oil stocks and energy made up 29.5% of the S&P 500 Index. Oil, real estate and gold enjoyed the favor coming from the “law of fashion.”

In 1998-2000, the Dotcom Bubble controlled what was fashionable in the aftermath of the establishment of the internet, capping an amazing decade of success. Energy got back on its horse from 2000-2011, as the financial crisis boiled and China’s growth dominated what was popular.

The last decade (2011-2020) has been the FAANG Era (Facebook (FB, Financial), Amazon (AMZN, Financial), Apple (AAPL, Financial), Netflix (NFLX, Financial) and Google/Alphabet (GOOG, Financial)(GOOGL, Financial)), as the dominant tech companies have reasserted themselves in the stock market. This is under the general precept that nothing can go wrong with them and how dependent we have all become on their products.

Civil law

Occasionally, the U.S. government decides to get involved in the stock market via “civil law.” The Sherman Antitrust Act of 1890 broke up Standard Oil in the early 1900s, regulated the railroads and the telephone behemoth (AT&T (T, Financial)), sued IBM (IBM, Financial) in the 1960s, Microsoft (MSFT, Financial) in the 1990s and is preparing to go after Amazon, Google, Apple, Facebook and others. Here is the chart of IBM in the aftermath of running into “civil law” in 1969, when the Justice Department sued them and sought to break them up:

We have a rule when it comes to civil law in the stock market. When Senator Elizabeth Warren and Senator Josh Hawley agree on something, expect there to be civil law problems for the targets of their jointly held ire. Did I forget to mention Lina Khan, the head of the Federal Trade Commission, who is coming after the FAANG companies?

Divine law

To us at Smead Capital Management, there are some divine laws which govern the stock market over long time periods.

• Interest rates are like gravity to P/E ratios (Warren Buffett (Trades, Portfolio)).
• Euphoric episodes end badly (Galbraith).
• Cheap stocks outperform expensive stocks over long time periods (Benjamin Graham).
• Performance is enhanced by buying extreme pessimism (John Templeton).
• Every stock which goes up 10-fold had to double and quadruple first (Smead).
• Young people who buy stocks on borrowed money lose (Edwin Lefevre-"Reminisces of a Stock Market Operator").
• Most investors suffer stock market failure (Dalbar).

The goal of our work is to avoid getting stuck as fashion disappears. We have no urge for getting beat up by our companies suffering from civil law moving against them. We enjoy using these divine laws to run our portfolios. Thanks to John Locke, we hope to avoid stock market failure.

-- Smead Capital Management

Charlie Tian looks at Cathie Wood's fund

Starting this week, I will be writing a weekly column on the market. Over the years, I have put most of my effort into the technology side of GuruFocus, though I still wrote my book, "Invest Like a Guru." I have spent more time observing the market lately. I hope that by sharing my observations of the market, it will help our GuruFocus community. Please do follow me here on GuruFocus.com.

I cannot start this column by overlooking that the once red-hot ARK Innovation ETF (ARKK, Financial) dipped below $100 for the first time since last November. ARKK is now more than one-third below its peak of $156 a little over three months ago, back when its star manager, Cathie Wood, was everywhere on financial media and attracted a large group of followers into her funds. She was hailed by some as the new Warren Buffett (Trades, Portfolio).

If we look at ARKK's performance numbers today, it is still one of the best, if not the best, among all ETFs, mutual funds and hedge funds over the past 12-month, three-year and five-year periods. The chart below compares the performances of ARKK versus Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) over the past 12 months. ARKK still outperformed by more than 10%.

Unfortunately, the majority of the investors that own ARKK today are losing money because more than half of its assets flew into the fund over the past six months. In contrast, almost every one of the investors who bought Berkshire Hathaway over the past 12 months has made money.

That is the price you pay if you chase hot funds. Sometimes it is painful for the fund managers, too. They may have good track records, but they lost more money than they made.

This reminds me of Bruce Berkowitz (Trades, Portfolio), the manager of the Fairholme Fund (Trades, Portfolio). After his tremendous track record during the first decade of this century, he was named Morningstar Fund Manager of the Decade, was considered the new Buffett and had a large following on GuruFocus as well. Money poured into his fund. At the end of the first quarter of 2011, Fairholme Fund (Trades, Portfolio) had more than $20 billion under management. But with a few missteps with his stock picks and the headwind with value investing, most of those chasing the fund withdrew as they could not endure the loss. By 2018, Fairholme Fund (Trades, Portfolio)'s assets were less than $1 billion. Around 95% of the money was either lost or withdrawn. This is the history of the asset value in the Fairholme Fund (Trades, Portfolio).

The Cathie Wood phenomena is a lot more like the Janus Fund during the dotcom era of the 1990s. Heavily invested in technology stocks, Janus routinely led the list of the best mutual funds. Money poured in at the rate of $1 billion a day. Back then, $1 billion was a lot more money than it is today. Then the dotcom bubble burst, Janus Fund lost money in three consecutive years from 2000 to 2002 and ranked at the bottom of mutual funds. The investors who once were rushing into the funds were streaming out, and most of them lost money. The fund never bounced back.

Chasing hot funds never works. Sure, skill is needed in stock picking. That is why we have Warren Buffett (Trades, Portfolio). But most of the star managers became stars not because they are better at stock picking, but because they are the most aggressive person in their style of investing while that style has the wind at its back. But every once in a while, the direction of the wind changes. With the Covid-19 pandemic, technology stocks, especially those with hyper growth prospects, gained momentum and many saw their price multiplied in a matter of months. Cathie Wood owns a lot of them. About half of the stocks she owns are those of earningless hyper growth companies. She became the hero, but then the direction of the wind turned.

That was what happened to Janus Fund. This is what is happening to Cathie Wood, too.

I personally know a lot of people who bought ARKK. I surveyed them yesterday and every one of them lost money and about half of them sold at a loss. I wonder whether the size of ARKK will repeat that of Fairholme Fund (Trades, Portfolio) a decade ago.

But maybe it is time for Berkowitz's value approach to shine again. After more than a decade of underperformance and reaching the bottom at the second half of 2020, value stocks are coming back. It has outperformed since then, as shown in the chart below, which illustrate the difference in rolling five-year annualized return between Russell 1000 Value and Growth.

The pattern of the stock market from 2010 to 2020 looks a lot like what happened from 1990 to 2000. We know what happened to the Janus Fund. We have yet to see what will happen to Cathie Wood.

History does rhyme.

The GameStop Effect

(Reuters) - Retail traders chalked one up versus Wall Street on Wednesday as hedge funds took heavy losses on short positions in GameStop, and regulators and financial professionals called for more scrutiny of trading fueled by anonymous social media posts.

In the latest skirmish in a week-long battle between Wall Street and Main Street, funds sold long positions in stocks to pay for losses shorting Gamestop, contributing to a slide of more than 2% in Wall Street’s main indexes.[.N]

“We are moving to a world where ordinary folk have the same access as professionals and can come to the same conclusion or maybe the opposite,” technology investor Chamath Palihapitiya told CNBC. “The solution is more transparency on the institutional side, not less access for retail.”

The market turmoil caught the attention of the White House, with press secretary Jen Psaki saying President Joe Biden’s economic team - including Treasury Secretary Janet Yellen on her first full day on the job - was “monitoring the situation.”

Massachusetts state regulator William Galvin, called on NYSE to suspend GameStop for 30 days to allow a cooling-off period.

“This isn’t investing, this is gambling,” he said in an interview. “This is obviously contrived.”

Nasdaq chief Adena Friedman said exchanges and regulators should watch whether anonymous social media posts could be driving “pump and dump” schemes.

“If we see a significant rise in the chatter on social media ... and we also match that up against unusual trading activity, we will potentially halt that stock to allow ourselves to investigate the situation,” Friedman said on CNBC.

The U.S. Securities and Exchange Commission said it was aware of the market volatility and working with fellow regulators to “assess the situation and review the activities of regulated entities, financial intermediaries, and other market participants.”

Reddit has not been contacted by authorities over stock surges driven by a message board on the platform, a spokeswoman said.

The war began when famed short seller Andrew Left of Citron Capital bet against GameStop and was met with a barrage of retail traders betting the other way.

Factbox: Stocks shunned by Wall Street surge as 'GameStop Effect' snowballs

White House monitoring situation involving GameStop, other firms

Citron has been a target for some on Reddit’s “Wallstreetbets” thread, where posts helped drive gains for several niche stocks.

Left said in a video post that Citron abandoned its bet against GameStop after the video game retailer’s value soared almost tenfold in a fortnight.

“I have respect for the market,” Left said in the post.

Melvin Capital Management closed out its short position in GameStop on Tuesday after taking a huge loss.

WINNERS AND LOSERS

Shares of GameStop surged 135% on Wednesday, bringing their gain since Jan. 12 to about 1,700% and ballooning its market capitalization to $24 billion.

U.S. shares of BlackBerry Ltd jumped 33%, bringing their gain in 2021 to 279%, while movie theater operator AMC surged 300% and is now up over 800% year to date.

Along with Finnish technology firm Nokia Oyj, those companies were among the most heavily traded, with Reddit threads humming with chatter about the stocks. Nokia said it was not aware of any reason for the continuing surge in its share price.

Such inflated stocks will eventually fall back to their fair value, predicted Ryan Detrick, senior market strategist at LPL Financial in Charlotte, North Carolina.

“It does have a David and Goliath feel, where the Reddit crowd is taking on the most shorted stocks by the largest hedge funds in the world and winning.”

BlackRock Inc, the world’s largest asset manager, could have made gains of about $2.4 billion on its investment in GameStop. Its share holdings amounted to roughly a 13% stake as of Dec. 31, 2020, a regulatory filing showed.

“It’s a dangerous game to play from both sides of the spectrum, whether you’re long or short,” said Matthew Keator, managing partner in wealth management firm the Keator Group in Lenox, Massachusetts.

“You get close enough to the fire you’re going to get burned ... it won’t matter what social media is cheering the stock on.”

According to research firm S3 Partners, total short interest in GameStop was $10.6 billion as of Wednesday. In the last seven days the short has increased by $117 million, or 1.1%, as the stock price surged.

Year-to-date, GameStop shorts have lost $19.15 billion, including $9.85 billion on Wednesday at a $285 share price, according to Ihor Dusaniwsky, S3’s managing director of predictive analytics.

“These large mark-to-market losses will be squeezing many existing shorts out of their positions, but we are still seeing new short sellers taking their place as they look to short at the top and ride a windfall of profits,” he said.

Long dismissed as “dumb money,” retail traders have made stocks move in ways that defy fundamental analysis. Global bets worth billions of dollars could be at risk as amateurs challenge bearish positions of influential funds.

The 20 small-cap Russell 2000 index companies with the biggest bearish bets against them have risen 60% on average so far this year, easily outperforming the market, a Reuters analysis of Refinitiv data shows.

Europe’s most-shorted stocks also saw big price swings on Wednesday.

Experts are debating whether these massive share moves should be considered ominous signs for the market.

Reddit co-founder Alexis Ohanian said the rise of retail investors is healthy, however.

“That’s the sentiment, the public doing what they feel has been done to them by institutions,” Ohanian said in a tweet on Wednesday.

5 pieces of financial advice from Warren Buffett

“I will tell you how to become rich. Be fearful when others are greedy. Be greedy when others are fearful.” Most people chase what’s hot. As euphoria builds money pours in. Until it collapses. Buffett does exactly the opposite. He buys when most people are selling. And waits when most are buying. Incredibly difficult to do. And incredibly rewarding.

“Price is what you pay. Value is what you get. I like buying quality merchandise when it’s marked down.” Most people chase price. The higher the price the more money flows in. Until the value can’t sustain the price. Buffett chases value. Looks for investments priced under their worth. Then buys and waits for others to discover their value.

“I don’t look to jump over seven foot bars. I look for one foot bars I can step over.” Most people try to hit home-runs. They speculate on the next big hit. And keep striking out. Buffett instead invests to build wealth steadily. Rare home-runs. Lots of singles that win games.

“Successful investing takes time, discipline and patience.” Most people want to get rich quick. So they continually take long bets that frequently blow up. Buffett takes a long term view. He’s happy to build wealth over a lifetime rather than a year or decade.

“What we learn from history is that most people don’t learn from history.” Most people whether euphoric or depressed refuse to learn from those who were successful. And they pay the price. Buffett always learned from others. And reaped the rewards.

-- Doug Armey via Quora

move over Buffett?

"Move Over, Warren Buffett: This Is the Star Investor You Should Be Following."

So read the headline on a year-end article from retail investing advice site Motley Fool touting the performance of fund manager Cathie Wood. Variations on the "Buffett is done" theme have been around since at least the tech bubble, while the cult of star mutual-fund managers goes back to the 1960s. Such commentators have eventually eaten their words.

Not that Ms. Wood's performance is anything to sneeze at. Her largest exchange-traded fund, the ARK Innovation ETF, surged by almost 160% last year, growing assets 10-fold -- unprecedented inflows for an active fund of that type. She made concentrated bets on hot stocks such as Tesla, Roku, Square and biotechs boosted by the Covid-19 pandemic. An ARK Invest spokesperson wouldn't elaborate, but Ms. Wood told an interviewer last month that she expects to nearly triple unit holders' money over the next five years.

That is unlikely. In fact, similar star managers' performance has tended not only to be mean-reverting but actually worse-than-average after their runs end. Bill Miller, who famously beat the S&P 500 from 1991 through 2005, drawing huge inflows into Legg Mason Value Trust, spent the next few years as one of the worst fund managers in the country.

Come-uppances are especially harsh when a manager has ridden a hot category as Ms. Wood's firm has done. The fate of mutual-fund firm Janus is instructive: Between the end of 1998 and the end of March 2000, it went from being the 20th largest mutual-fund firm to the fifth largest -- an incredibly rapid ascent. It bet big on tech highfliers such as Cisco Systems and AOL. As the bubble burst, some of its funds lost two-thirds or more of their value.

Fund managers are often compared with dart-throwing monkeys. That might be too flattering for those who get the most attention. Hot funds' performance is often worse than random on the downside. A regularly updated study on the persistence of investor performance from S&P Dow Jones Indices shows that just 0.18% of domestic equity funds in the top quartile of performance in 2015 maintained that through each of the next four years -- less than half what one would have expected by pure chance. And of course most actively managed funds lag behind the index to which they are benchmarked because of fees and taxes.

This explains the amazing rise of index funds. It is mainly the supposed existence of stars such as Ms. Wood that has staved off an even bigger exodus from actively managed funds. Studies have shown, though, that actual stock-picking skill is very rare and is only provable after decades -- the sort of record that Mr. Buffett has established.

An academic study by Jerry Parwada and Eric Tan that examined the Morningstar Fund Managers of the Year between 1995 and 2012 showed that winners got big inflows but that their future performance was unremarkable. Indeed, one fund manager who later stumbled blamed the difficulty of deploying the extra cash for his poor results.

That makes sense. If one looks at Mr. Buffett, his results when he ran a modest partnership in the 1960s were far better than those of his huge, diversified conglomerate recently. But, unlike a share of Berkshire Hathaway, the dollar-weighted returns of a growing fund are worse than the stated results because more people are around for the stumble than the ascent.

Hot funds can burn you.

Elon Musk

Elon Musk just became the richest person in the world, with a net worth of more than $185 billion.

Thursday’s increase in Tesla’s share price pushed Musk past Jeff Bezos, who had been the richest person since 2017 and is currently worth about $184 billion. Musk’s wealth surge over the past year marks the fastest rise to the top of the rich list in history — and is a dramatic financial turnaround for the famed entrepreneur who just 18 months ago was in the headlines for Tesla’s rapid cash burn and his personal leverage against the company’s stock.

Musk started 2020 worth about $27 billion, and was barely in the top 50 richest people.

Tesla’s rocketing share price — which has increased more than ninefold over the past year — along with his generous pay package have added more than $150 billion to his net worth.

Meanwhile, Amazon’s share price has remained more subdued due to the potential for increased regulation from Washington.

Elon Musk passed Warren Buffett in July to become the seventh-richest person. In November, Musk raced past Bill Gates to become the second-richest person. Musk has gained more wealth over the past 12 months than Bill Gates’ entire net worth of $132 billion.

Tesla’s shares closed Thursday at $816.04, up nearly 8%. The company’s market value has grown to more than $760 billion.

give to the rich, give to the rich

(Bloomberg) -- Tax cuts for rich people breed inequality without providing much of a boon to anyone else, according to a study of the advanced world that could add to the case for the wealthy to bear more of the cost of the coronavirus pandemic.

The paper, by David Hope of the London School of Economics and Julian Limberg of King’s College London, found that such measures over the last 50 years only really benefited the individuals who were directly affected, and did little to promote jobs or growth.

“Policy makers shouldn’t worry that raising taxes on the rich to fund the financial costs of the pandemic will harm their economies,” Hope said in an interview.

That will be comforting news to U.K. Chancellor of the Exchequer Rishi Sunak, whose hopes of repairing the country’s virus-battered public finances may rest on his ability to increase taxes, possibly on capital gains -- a levy that might disproportionately impact higher-earning individuals.

It would also suggest the economy could weather a one-off 5% tax on wealth suggested for Britain last week by the Wealth Tax Commission, which would affect about 8 million residents.

The authors applied an analysis amalgamating a range of levies on income, capital and assets in 18 OECD countries, including the U.S. and U.K., over the past half century.

Their findings published Wednesday counter arguments, often made in the U.S., that policies which appear to disproportionately aid richer individuals eventually feed through to the rest of the economy. The timespan of the paper ends in 2015, but Hope says such an analysis would also apply to President Donald Trump’s tax cut enacted in 2017.

“Our research suggests such policies don’t deliver the sort of trickle-down effects that proponents have claimed,” Hope said.

Mohnish Pabrai

[12/14/20] Being an investor is a continual learning process. The only way one can keep up with the investment environment is to change with the times, learn about different subjects and adapt to the changing environment.

There are many examples of successful investors who've needed to make these changes to stay relevant. One is Mohnish Pabrai (Trades, Portfolio). In a recent speech to the UCLA Student Investment Fund on Nov. 5, Pabrai explained how his investment strategy has adapted over the past few years.

A changing style

Pabrai started off as a deep value investor. When he started his hedge fund around 20 years ago, he focused on finding deeply discounted securities, buying them at a fraction of their net worth and then holding the stocks until the discount between intrinsic value and the market price had narrowed. As the value investor explained in his recent speech:

"I was always looking -- for the last 20 years -- for discounted pies. I didn't really care whether the pie grew or not. My take was that if I bought a business for 40 cents or 50 cents on the dollar, and I've always implicitly assumed that market efficiency would kick in in two or three years. So if I'm correct that a business is worth a dollar and I'm buying it for 50 cents, and I sell it for 90 cents and that convergence takes place in two or three years, it's a very nice rate of return in the 20s."

This "very nice" rate of return, he explained, removed the need to find high-quality compounder style businesses.

However, as he went on to explain, there were two problems with this approach: the fact that "you've got to keep finding the next one and the next one" and "taxes."

A much better approach, he observed, would be to find high-quality businesses and sit on them for decades. But this was not the way "Mohnish is wired," the value investor explained to his audience.

"He is unable to pay up for great businesses," Pabrai added. Other investors are more willing to pay up, but "I know Mohnish and Mohnish is just not wired that way."

This is a remarkable statement because it shows the need to understand our own qualities as investors. Lots of different investment strategies achieve positive results, but there's no point in following a process if you're not comfortable with it. This realization won't occur overnight. It requires emotional intelligence and experience to know what you are comfortable with, and more importantly, what you're not comfortable with.

Rather than pursuing an investment style he was not happy with, Pabrai took the best of both the quality and value methods and merged them into something he was happy with:

"So I am limited to a universe where a compounder is maybe not recognized, or it has hit a temporary hiccup or something where the valuation is really cheap, but there is a genuinely long runway for growth ahead. Instead of just getting off that train when it looks fully priced, which is what I did many times in the past, the idea is to stay on the train and only get off the train when it gets so egregious."

Pabrai explained that he had made this mistake several times in the past, which was part of the reason why his strategy changed. He had sold good companies too early and moved on to other businesses that have not been so successful. This was one of his main lessons of 2020, he told his audience. But with "20 to 35 years" of life left in him, he added, it was not too late to change course.

[12/10/14] Mohnish Pabrai’s long-only equity fund has returned a cumulative 517% net to investors vs. 43% for the S&P 500 Index since inception in 2000.  That’s outperformance of 474 percentage points or 1103 percent.

Pabrai is a classic value investor in the tradition of Warren Buffett, Charlie Munger, Seth Klarman and Joel Greenblat.

Like Buffett, Pabrai looks at a stock not as a piece of paper but as the ownership of a business.  He has no interest in a company that looks ten percent undervalued.  He is angling to make five times his money in a few years.  If he doesn’t think the opportunity is blindingly obvious, he passes.  This requires him to apply his X-Ray vision to the fundamentals, and weigh the downside risk (the margin of safety) vs. the upside potential (the moat) at a given price.  His mantra: Heads I win, tails I don’t lose much.

Next, Pabrai practices patience.  He takes Charlie Munger’s admonition to heart that money is made not in the buying or selling but in the waiting.  As far as I am aware, he has not made a single new investment in 2013.  He says that if he can find a couple of investment ideas a year, that’s plenty.  His current preference is to keep a cash store of between 10%-20%.  This seems like a tremendous drag for a fund posting numbers like his, but he is really biding his time for a distressed situation to come along when he can deploy this trove at the valuation he wants.  During the next crisis, when everyone is jamming the exits, he will go all in.

Once you start purchasing stocks, Pabrai says the next  step is to closely examine every trade that doesn’t work, and figure out what went wrong.  Let me pause right here, because this is key to his whole method.

There is nothing more tempting that to sweep mistakes under the rug.  Denial is one of our top defense mechanisms.  If you are lucky, these trades come to haunt your sleep like Marley’s ghost.  If you are unlucky, you repress them forever.

Due to his background in engineering, Pabrai does not gloss over mistakes.  Investing is a field where you can have a high error rate (buying something you shouldn’t have, selling something you shouldn’t have, not buying something you should have, not selling something you should have) and still be successful.  He takes as a given that mistakes are inevitable.  The point is to learn from them so they are not repeated.  A major portion of his annual meeting is devoted to publicly analyzing investments where he lost money for his partners.  Lately these errors are becoming harder to find, so he has been reduced to talking about investments that didn’t fare as well as expected.

[Looking at dataroma, Pabrai has 8 stocks in his portfolio with over 99% in 4 stocks: ZINC, BAC, C, PKX.  Hmm.  Maybe I should buy more C?]

[11/28/14] "Forbes: So summing up in terms of what do you think do you bring to value investing that others perhaps don’t, that give you a unique edge?

Pabrai: I think the biggest edge would be attitude. So you know, Charlie Munger likes to say that you don’t make money when you buy stocks. And you don’t make money when you sell stocks. You make money by waiting. And so the biggest, the single biggest advantage a value investor has is not IQ; it’s patience and waiting. Waiting for the right pitch and waiting for many years for the right pitch.

FROM: Forbes Transcript: Mohnish Pabrai (Trades, Portfolio) 04/12/2010

Digital Federal Credit Union

Not that I needed another account, but I couldn't resist free money.  So I decided to open a Digital Federal Credit Union savings account.

Why?  Because they offer an interest rate of 6.17% APY.  On an investment of $1000.00, that would work out to $60 per year or $5 a month.  In comparison, Ally is currently offering 0.60%.  [Ally is currently my primary online savings account.]  So that's 10 times more than Ally.  And probably about 60 times more than your local bank.  (I believe I first heard about this account from Eddie Yoon on YouTube.)

The drawback is that interest rate applies only to the first $1000 in your account.  Any amount above that earns a more normal 0.25%.  But even that is higher than most savings accounts nowadays.

So anyway, I decided to go ahead Monday and attempt to open an account.  With the technology these days, how hard could it be?  Turned out, it wasn't that easy.

First I installed the app on my Android phone.

Got up to the step of scanning my driver's license for my identification information.  It kept failing after numerous attempts.  So I manually input the information.

I continued on and the app aborted (or something).

Then when I tried to go back in and continue, it said I was in the process.

Then I tried to request a password to log on, but nothing was being sent to my email.

So I phoned customer support at 1-800-328-8797.  They were busy helping other customers.  So I set up a callback rather than wait on the line.

They called back about an hour later.

I gave them my information (email address, SS#), then got put on hold as the guy had to look up something (or ask somebody).

I think he sent me an email I had to click on.  Then set up my password again.  Then finally I was able to log in.

"Congratulations your DCU membership and accounts have been established."

OK, success!

But then after I got off the phone, I couldn't log back in.

"The Member Number and/or Password you entered does not match our records. Try again."

Let me try to get a new password.

"The Member Number and/or Password you entered does not match our records. Try again."

Back on the phone.

Schedule another callback ("between 34 and 51 minutes")

Got the callback.

Apparently I was locked out.

They had me enter the last four digits of my SS# for the password.  And then I was in.

Looking around, I asked how to transfer money into the account.  The CR said I should do it from the (other) bank's side, rather than from the DFCU side.

But apparently you CAN transfer money out from the DFCU side.

So I went to Transfers / Payment Center Add/Manage, then tried to add my local bank.

[You need to enter your bank's routing number and your account number to fund the account initially.  But even though that was done successfully, it doesn't automatically add the bank for transfers from/to DCFU.]

After I entered my user name and password, I got the message "Retrieving Security Information".  Then after a long while, I got the message "We apologize, but there was a problem with your account authentication. Please try again or contact DCU."

Then I gave up.  I figured I would first wait until I see the money transferred from my bank to DFCU. 

When you open an account, the minimum deposit to open is $5.  If you don't already meet the normal qualifications to join, you can make a donation to a join a participating organization and become eligible that way.  I chose Reach Out for Schools because that was the cheapest membership at $10.  So it was set up to transfer $15 from my bank to DFCU.

When I checked my account before today, it had an available balance of -$5.00.  That's because you need an minimum of $5.00 to keep the account open.

Then when I checked this morning, it had an available balance of $10.  So that means the $15.00 got transferred from my bank to DFCU.

Then when I check now, I see an available balance of $0.00, as the $10.00 has been sent to Reach Out for Schools.

In the meantime, I managed to link my bank account to DFCU on the website.  I got the message again "Retrieving Security Info" and that took a while.  But it finally got to the next screen where it asked to send a security code to my phone.  Received the code. Entered it.  And it worked!

Now I wanted to see if I could transfer money using the app.  To do that, go to Pay, then Make a Payment.  I set it up to pay $100 from my bank to DCFCU as a first test.

The earliest payment date I could enter was 11/13/20 (tomorrow).  When I tapped the "Add Payment" button, a message flashed on the screen and disappeared.  It flashed too quickly for me to read.  Try again.  Same thing.

Then I noticed a message saying "payment start date must be after 11/13/2020".  So I changed the payment date to 11/14/2020 and this time it was accepted.

Next I'll be checking to see how fast the payment will appear in the DCFU account.  I want to eventually ramp up my balance to $1000.  When I reach that balance, it'll take me two months to get back my $10 donation.  And another month after that to recover the "dead" $5 in the account.

*** Monday 11/16/20

Noticed the $100 appeared on my DFCU account this morning.

Next I want to link my Ally Bank account to DFCU because I envision xferring the interest gained above the $1000 mark to Ally.

OK, did it on the DFCU website.  Just had to log in to my Ally account, then enter the security code sent to my phone.

Next step is to xfer some money from Ally to DFCU.  We'll see how long this takes.  I'm doing this on the app at 10:26 AM.

OK, set up the "payment" (that's what they call transfers -- you can pay from or to the DFCU account).  The earliest date I could choose was 11/18/20.  We'll see when it arrives.

***  Tuesday 11/17/20

One thing I like about the app is that it supports the fingerprint recognition of my Google Pixel 3a XL.  No need to type in my password.

*** Wednesday 11/18/20

Checked the app early this morning and the payment came through.  My available balance is now $300.  So took less than 48 hours.

I notice that I am unable to make payments from DFCU to the linked banks.  Only the other way.  Not sure if that's the way it is.  Or if the money is being held for a number of days before being released for transfers out.

Now that it worked, I guess I'll transfer the rest from Ally (for simplicity -- I have other accounts that are paying less than Ally).

In the meantime, I think I want to link DFCU to my Wealthfront account.  I opened Wealthfront because it had a higher interested than Capital One and Ally at the time, but not the rate is below.  But I like it because I can see the balances of my linked accounts.  Let me see if I can link my regular credit union first.  Enter user name and password.  OK that worked (had to wait a few minutes).  Now for DFCU.  This time authentication needed.  It made a voice call to my phone.  And I entered the code. 
"We've hit a snag.  Linking stalled.  These accounts are experiencing technical difficulties. We’ll try to reconnect automatically."  OK, I guess I'll have to wait.  It does show the balance of my DFCU account, but says temporarily down.

I kind of want to see if I can transfer funds from my credit union to Wealthfront, then transfer from Wealthfront to DFCU.  Why not just use Ally?  Because supposedly you can make unlimited transfers with Wealthfront, whereas you can make only 6 transfers from Ally per month.  Right now, I don't see the option to transfer between Wealthfront and my credit union.  Maybe because I just connected them.

I think I want to link DFCU to Ally from the Ally side, since I have most of my accounts linked to Ally that way.  Let's see if I have better luck than with Wealthfront.  Instead of logging in, it asks to enter the routing number and the account number.  OK, that information is in Account Manager / Account Information.  Then you can verify instantly by logging in or verify with bank deposits.  Let's try instantly.  Let me log off DFCU first, so I can log back in.  Enter member number and password.  Verify.  Your bank requires more information.  Let me choose email this time instead of phone.  Enter access code from the email.  Account Verified.  "This account is now active and available for transfers."  OK better than Wealthfront.

Let's me try a transfer from Ally to DFCU now from the Ally side.  It allows me to choose tomorrow, 11/19/20.  OK, we'll see when it actually arrives.

*** Thursday 11/19/20 ***

The transfer from Ally to DFCU arrive this morning.  So it really was only one day.

Now to check if Wealthfront is linked OK with DFCU.  Seems to be.  Oddly they have the APY at 0.52% for some reason.  And the balance is from 20 hours ago so it's not updated.  They also have Capital One Performance at 0.82% which is also wrong.

Let me see if I can transfer from Wealthfront to DFCU.  Nope.  DFCU is not yet listed.  And actually I don't see my regular credit union listed either.  Maybe it doesn't work well with credit unions?  Well, I guess it's still useful to see the balance of all my bank accounts from Wealthfront.

Let me make another payment from Ally Bank to DFCU.  When I do it from the DFCU app, it stays payment start date must be after 10/20/20.  Let me do it from the Ally Bank side then.  Yeah it lets me do it for tomorrow (10/20/20).  I just have to be wary of the 6 withdrawals a month limit.

*** Friday 11/20/20 ***

OK, my available balance is now $1,000.00!  Now just have to wait for the interest to roll in 8)

Wealthfront is now reflecting the balance of $1,000.05 [I think that's supposed to be $1005.00].  Still can't transfer to/from Wealthfront though.

*** Tuesday 12/1/20 ***

We're in the money!

Got my first interest payment today.  $2.00 even!  It's actually categorized as a dividend.  So they pay interest on the first of the month.  Let it ride.  I'll be expecting $5.00 or a penny or two more on 1/1/21.

*** Friday 1/1/21 ***

$5.10 dividend added to my my account :)

Let it ride.

Schwab's outlook headed into the election

Outlook:

With Election Day finally arriving on Tuesday (11/3) the market indicators are all over the map, and the only thing that seems certain is lots of market movement. Don your volatility hat and buckle up tight; next week looks like it’s going to be a wild ride.

Bottom Line:

I can’t remember the last time there was such extreme and stark disagreement among the indicators. Of course this is all related to Election Day next Tuesday (11/3).

With no clear consensus and such a wide range of readings, the only logical outlook for next week is Volatile; at least in the first half of the week. Following the election, it is likely that equities will make a big move higher or continue their recent decline. Therefore the secondary outlook is Breakout, because it is impossible to know which direction it may move.

average investor's returns

What's the craziest statistic about personal finance?

One that’s mind blowing.

The average investor’s return on investments is about a 1/3 of the average return on investments. Yeah, I’ll give you a moment.

Investors today can trade on line for free. They have access to thousands of research reports. They can buy and sell instantly. They can tune into financial news 24/7.

Yet, the U.S. stock market has averaged around 9 – 10% return per year over the long haul. And during those same periods investors have averaged around 1/3 of that.

How can that possibly be?

It’s because the average investor chases performance. The stock market makes new highs and investors pour money in. Stock market crashes and investors bail out and wait until it makes new highs again.

Buying high and selling low. A fool proof formula for destroying wealth.

And many do the same thing with investments. A hot new investment screams towards the sky so they put everything into it. Then it crashes to earth incinerating.

So what’s the antidote?

Something the average investor simply isn’t wired to do. Do the opposite of what you instinctly feel and see most other investors doing.

Because if you do what everyone else is doing you’ll get what everyone else is getting.

As I’ve heard said, “Human nature is a failed investor.”

Think about it. When our ancestors were hunter gatherers they chased performance. They all congregated at the same place on the river where someone was catching fish. They all hunted in the same place where someone got game.

It’s how we’re wired. And it worked.

Except in investing. Because by the time a new investment is screaming up and popular it’s about to run out of fuel.

And by the time the stock market is bouncing off new lows and people are liquidating it’s getting ready to make a run up.

So how do you do this?

It’s tough and frankly at times gut wrenching. But accomplishing it is the key to long term wealth. And understanding it is the first step.

Though, people will think that’s crazy.

You can build wealth but only as you first understand what destroys it.

-- Doug Armey, September 29, Successful entrepreneur, investor and financial consultant

10 Golden Rules

Investing can often be broken down into a few simple rules that investors can follow to be successful. But success can be as much about what to do as it is what not to do. On top of that, our emotions throw a wrench into the whole process. While everyone knows you need to "buy low and sell high," our temperament often leads us to selling low and buying high.

So it's key to develop a set of "golden rules" to help guide you through the tough times. Anyone can make money when the market is rising. But when the market gets choppy, as it did in 2020, investors who succeed and thrive are those who have a long-term plan that works.

Here are 10 golden rules of investing to follow to make you a more successful - and hopefully wealthy - investor.

Rule No. 1 - Never lose money

Let's kick it off with some timeless advice from legendary investor Warren Buffett, who said "Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1." The Oracle of Omaha's advice stresses the importance of avoiding loss in your portfolio. When you have more money in your portfolio, you can make more money on it. So a loss hurts your future earning power.

Of course, it's easy to say not to lose money. What Buffett's rule essentially means is don't become enchanted with an investment's potential gains, but also look for its downsides. If you don't get enough upside for the risks you're taking, the investment may not be worth it. That's one reason many investors are avoiding long-term bonds now. Focus on the downside first, counsels Buffett.

Rule No. 2 - Think like an owner

"Think like an owner," says Chris Graff, co-chief investment officer at RMB Capital. "Remember that you are investing in businesses, not just stocks."

While many investors treat stocks like gambling, real businesses stand behind those stocks. Stocks are a fractional ownership interest in a business, and as the business performs well or poorly over time, the company's stock is likely to follow the direction of its profitability.

"Be aware of your motivation when investing," says Christopher Mizer, CEO of Vivaris Capital in La Jolla, California. "Are you investing or gambling? Investing involves an analysis of fundamentals, valuation, and an opinion about how the business will perform in the future."

"Make sure the management team is strong and aligned with the interests of shareholders, and that the company is in a strong financial and competitive position," says Graff.

Rule No. 3 - Stick to your process

"The best investors develop a process that is consistent and successful over many market cycles," says Sam Hendel, president of Levin Easterly Partners. "Don't deviate from the tried and true, even if there are short-term challenges that cause you to doubt yourself."

One of the best strategies for investors: a long-term buy-and-hold approach. You can buy stock funds regularly in a 401(k), for example, and then hold on for decades. But it can be easy when the market gets volatile - as it did in 2020 - to deviate from your plan because you're temporarily losing money. Don't do it.

Rule No. 4 - Buy when everyone is fearful

When the market is down, investors often sell or simply quit paying attention to it. But that's when the bargains are out in droves. It's true: the stock market is the only market where the goods go on sale and everyone is too afraid to buy. As Buffett has famously said, "Be fearful when others are greedy, and greedy when others are fearful."

The good news if you're a 401(k) investor is that once you set up your account you don't have to do anything else to continue buying in. This structure keeps your emotions out of the game.

Rule No. 5 - Keep your investing discipline

It's important that investors continue to save over time, in rough climates and good, even if they can put away only a little. By continuing to invest regularly, you'll get in the habit of living below your means even as you build up a nest egg of assets in your portfolio over time.

The 401(k) is an ideal vehicle for this discipline, because it takes money from your paycheck automatically without you having to decide to do so. It's also important to pick your investments skillfully - here's how to select your 401(k) investments.

Rule No. 6 - Stay diversified

Keeping your portfolio diversified is important for reducing risk. Having your portfolio in only one or two stocks is unsafe, no matter how well they've performed for you. So experts advise spreading your investments around in a diversified portfolio.

"If I had to choose one strategy to keep in mind when investing, it would be diversification," says Mindy Yu, director of investments at Stash. "Diversification can help you better weather the stock market's ups and downs."

The good news: diversification can be easy to achieve. An investment in a Standard & Poor's 500 Index fund, which holds hundreds of investments in America's top companies, provides immediate diversification for a portfolio. If you want to diversify more, you can add a bond fund or other choices such as a real estate fund that may perform differently in various economic climates.

Rule No. 7 - Avoid timing the market

Experts routinely advise clients to avoid trying to time the market, that is, trying to buy or sell at the right time, as is popularized in TV and films. Rather they routinely reference the saying "Time in the market is more important than timing the market." The idea here is that you need to stay invested to get strong returns and avoid jumping in and out of the market.

And that's what Veronica Willis, an investment strategy analyst at Wells Fargo Investment Institute recommends: "The best and worst days are typically close together and occur when markets are at their most volatile, during a bear market or economic recession. An investor would need expert precision to be in the market one day, out of the market the next day and back in the following day."

Experts typically advise buying regularly to take advantage of dollar-cost averaging.

Rule No. 8 - Understand everything you invest in

"Don’t invest in a product you don’t understand and ensure the risks have been clearly disclosed to you before investing," says Chris Rawley, founder and CEO at Harvest Returns, a fintech marketplace for investing in agriculture.

Whatever you're investing in, you need to understand how it works. If you're buying a stock, you need to know why it makes sense to do so and when the stock is likely to profit. If you're buying a fund, you want to understand its track record and costs, among other things. If you're buying an annuity, it's vital to understand how the annuity works and what your rights are.

Rule No. 9 - Review your investing plan regularly

While it can be a good idea to set up a solid investing plan and then only tinker with it, it's advisable to review your plan regularly to see if it still fits your needs. You could do this whenever you check your accounts for tax purposes.

"Remember, though, your first financial plan won’t be your last," says Kevin Driscoll, vice president of advisory services at Navy Federal Financial Group in the Pensacola area. "You can take a look at your plan and should review it at least annually - particularly when you reach milestones like starting a family, moving, or changing jobs."

Rule No. 10 - Stay in the game, have an emergency fund

It's absolutely vital that you have an emergency fund, not only to tide you over during a tough time, but also so that you can stay invested long term.

"Keep 5 percent of your assets in cash, because challenges happen in life," says Craig Kirsner, president of retirement planning services at Stuart Estate Planning Wealth Advisors in Pompano Beach, Florida. He adds: "It makes sense to have at least six months of expenses in your savings account."

If you have to sell some of your investments during a rough spot, it's often likely to be when they are down. So with an emergency fund you're actually able to stay in the investing game longer. Money that you might need in the short term (less than three years) needs to stay in cash, ideally in an online savings account or perhaps in a CD, and shop around to get the best deal.

Bottom line

Investing well is about doing the right things as much as it is about avoiding the wrong things. And amid all of that, it's important to manage your temperament so that you're able to motivate yourself to do the right things even as they may feel risky or unsafe.

Trump and the stock market

Trump is currently fourth (out of 14) when comparing his first term (so far) to presidents since 1932.  So far the market (SPX) has gained 58.0% since election day.

First is FDR at 137.2%.  Second is Eisenhower at 91.0%.  Third is Clinton at 70.1%.

There have been 25 terms since 1932.  Also topping Trump's 58.0% are Reagan's second term at 61.5% and Clinton's second term at 100.5%.  So Trump is currently sixth out of 25 terms.  Pretty good, but not the best.

Eyeballing the chart, I would say Clinton did that best at 70.1% and 100.5%.  And Bush (W) did the worst at -21.0% and -11.0%.  Bush was coming off the tech bubble in 2000 (Clinton's second term) and hit the financial crisis in 2008.

There were only two other negative terms: -35.0% (Roosevelt's second term) and -28.7% (Nixon's second term).

From the article,

As you can see, as of the close on Thursday (10/1) President Trump is solidly in 4th place overall versus every first-term president since 1932. At the last market top (9/2/20) he was in 4th place and has never been above 4th place when comparing him for the entire first term. He would need a gain of more than 12 percentage points over the next 32 days to move into 3rd place, and it would take a decline of more than 5 percentage points for him to fall to 5th place.

I notice that the chart uses Election Day to start counting.  I wonder how much of a difference it would make if they chose Inauguration Day as the starting point.  Especially since this year we likely won't even know the results on Electrion Day.

The next 20 years?

"Looking at current 10-year returns gives me a sinking feeling in the pit of my stomach which I have experienced twice before, during the tech bubble and the financial crisis. Is there any data regarding significantly higher 10-year returns being negatively correlated with lower subsequent 10-year returns (like the tech boom followed by the 'lost decade')?"

My initial answer is that there is a loose inverse relationship between past and future 10-year returns, but so loose that one cannot make money off that information. This column provides the figures to defend--or refute--that assertion. In addition to showing the results of 10-year returns, I also examine five- and 20-year periods.

...

One could not hope for a clearer picture than what occurs with the 20-year chart. When blue is up, red is down, and the converse. There are only brief stretches when the two lines appear on the same side of the median, and in those instances the returns are close to normal, so the signal doesn’t flash brightly. The graph looks so clean that one suspects that its author erred. (The thought did initially cross my mind.)

This portrait is dominated by five events:

1. The depression/war years (weak results)
2. The 1950s/1960s (strong)
3. The 1970s oil crisis (weak)
4. The 1980s/1990s (strong)
5. The 2000s (weak, in fact considerably worse than the 1930s)

Consequently, these results not only lack statistical significance, because the 648 monthly observations so thoroughly overlap, but they also fail common sense. That buoyant economies generate optimistic stock valuations, which eventually decline as the economic news worsens, makes sense. But that such events have occurred on a seemingly regular cycle is surely accidental. The pattern’s apparent inevitability is a mirage, based on a tiny sample size. 

That said, I suspect the 20-year numbers offer a fair guide to the future, if not as accurately as their negative 0.84 correlation suggests. (Now that’s a correlation!) Secular economic changes do tend to occur gradually, and investor emotions can overshoot the mark. Although the letter of this finding need not be observed, its spirit deserves some respect.

Which implies good news for the U.S. stock market, as entering 2020 the real 20-year return on equities was a modest 3.85%, well below the historic norm. These days, it has become commonplace to bemoan high stock prices. Perhaps the skeptics will prove to be correct. But 20-year return measure foresees a happier outcome.

-- John Rekenthaler

Election game plan

As if this year hasn't created enough uncertainty for investors, they must now prepare for a presidential election. While the candidates are familiar, the limited debates have prevented the average investor from getting clarity on polices that would affect the market.

The election will dictate where money flows for the next four to possibly eight years. While we can't predict the outcome of the election, it's worthwhile to go over scenarios and expectations so we can position our portfolios accordingly.

To properly prepare - you need to remove your bias!!!

Let's face it, this is a divisive atmosphere and a heated election. To properly approach this topic, we must remove any bias and focus on the markets.

Below I discuss what we should expect before, during and after the election and how to invest and profit in the weeks and months ahead.

The Weeks Before the Election (October 12th-30th)

The three weeks leading up to the election should be a time of caution. Some will be positioning themselves for what they expect might happen, but there will be a lot of investors who will not want to be exposed to the election results. This group would rather sit back and wait and see what happens, rather than taking potentially significant risk this election year.

The 2016 election saw a sell-off in the last two weeks of October before election week. During this time, the S&P shed about 2.5% and volatility spiked, with the VIX moving higher by over 20%. While the betting markets predicted an easy Clinton win, the options markets prepared for uncertainty anyway.

The Day and Night of the Election (November 3rd)

The calm before the storm will come on Monday November 2nd, when traders back away from the action and await the results. Volumes will decrease into Tuesday when we will see rumors start to move the market up and down.

As official results come in, the stock market will be closed and the futures market will be responding to the headlines. The 2016 election result was a shock when Trump won and the news sent the S&P futures into a tailspin. However, it didn't take long for investors to decide they liked Trump, and a big upwards reversal came the next morning.

If Trump wins: Expect a move higher in the futures and into the next day. The market will like Trump's market friendly approach we have seen over the last four years.

If Biden wins: Look for a move lower overnight and the next day as the possibility of higher taxes will be a perceived negative. However, the market might shrug off a Biden win as a massive infrastructure bill would be appealing for short-term growth.

The Days and Weeks After (November and December)

The smart money will position themselves for the next couple years in the weeks that follow the election. In 2016, the S&P moved higher by over 6% from November into the end of the year.

After the election, investors should focus on the stocks that will benefit from winning candidate. Regardless of what the overall market does, favorable sectors will outperform based on that candidate's policies.

If Trump wins: Market continues to rally, but volatility remains high as conflict with China remains.

If Biden wins: Energy and Wall Street struggle, while eco-friendly and tech thrive. Watch for gold to go higher as spending increases.

Wildcard

This election will be close and if there is no clear winner, the market will react negatively. I would expect the VIX to stay elevated as the winner is sorted out and the market to sell off until there is clarity.

In Summary

Investors have seen a lot of uncertainty and volatility this year, so an unpredictable election seems to fit in perfectly. While certain areas of the market might struggle under Biden or Trump, both candidates should be viewed as market friendly. Investors have a win/win scenario with some short-term risks with Biden that would be cancelled out with the volatility of Trump.

Whatever the result, there will be money to be made. Investors should ready themselves and plan for the possibility of both candidates.

-- Jeremy Mullin, Weekend Wisdom, Zacks

Trump vs. Biden: a sector outlook

The election is fast approaching and investors need to ready themselves for some volatility in their portfolios. Biden and Trump have very different views on how the next four years should look for this country. Because of that, certain sectors of the market will respond to a victory from each candidate differently.

While there are positives and negatives for each candidate for the overall market, individual industries will be affected more directly. Below I discuss exactly what to expect from some selected sectors, and how to profit in either situation. But first let's talk about how the markets perceive each candidate.

Who Does the Market Favor?

The market would prefer Trump to any Democratic candidate because of the threat of higher taxes. While Biden is a net negative for investors, he is perceived as less harmful than Bernie Sanders would have been.

Because of Biden's time as Vice President, the market knows what it is getting, which would be similar polices to the Obama Administration. This creates some clarity and calm with investors as opposed to Trump, who has created volatility in the past with his aggression towards China.

At the moment, the polls and betting markets give the edge to Biden. When he moved ahead of Trump, the stock market didn't react negatively. This is a sign that the investors don't have a major preference between the two outcomes. So, while the market might favor Trump slightly, there isn't major favoritism as there would have been with other Democratic nominees.

Sector Outlook: Trump

Let's look at a few sectors likely to perform well if Trump keeps his seat in the Oval Office.

Infrastructure- Materials and industrials will benefit with a stimulus bill on infrastructure. A big deal has been promised for years, but after COVID-19, we are likely to see finally some movement after the election. Trump has been eyeing an $1 trillion infrastructure package that would target roads, bridges and public transport as well as 5G network infrastructure. The stocks that build and supply the materials for these projects with directly benefit.

Energy- Trump would be friendly to the traditional oil companies, encouraging fossil fuel production with less regulation. Big oil could see a big rally in shares with any threat of a Green New Deal off the table.

Financials- Wall Street will benefit with lower taxes and less regulations. While banks have struggled with low interest rates, the market volatility has been good for trading. Assuming the economy comes back and interest rates can tick higher, a second Trump term could be very bullish for the banks.

Consumer Discretionary- A Trump win would mean taxes stay low – and they could possibly even go lower if Trump gets his desired middle-class tax cut of 10%. A cut of that size would put more income in people's pockets, which would be good for the consumer staples and discretionary sectors. Think retail and discount retail stores as beneficiaries that would thrive with more cash in the pockets of the American consumer.

Sector Outlook: Biden

Now, let's explore sectors likely to benefit from a Biden victory in November.

Infrastructure- Biden has even bigger ambitions on stimulus than Trump, aiming for $2 trillion of investment in his first term. Roads and bridges are of course on the agenda, but Biden will also focus on green spaces, water systems, electricity grids and broadband. A Biden presidency would have a focus on climate change, which brings us to our next sector.

Energy- Big oil is in trouble with a Biden win. Energy would see more regulations and a movement towards greener industries to modernize the economy to combat climate change. Think solar power under Biden.

Tech- The Trump admiration has been talking about rolling back protections for big tech. Additionally, Trump has had issues with tech platforms control of content, which has caused a conflict that could be an issue for big companies like Amazon, Facebook and Twitter.

While a Biden win might throw a wrench in the tech momentum due to tax concerns, the break-up threat wouldn't be there. Additionally, improved relationship with China could help tech companies that have exposure to Chinese markets.

Gold- The amount of spending that is likely to come under Biden will bring the gold bugs out like never before. Not only will we get a big infrastructure bill, but the pandemic has set a precedent for the government to spend.

How to Capitalize

The next president will have a lot on his plate with an economy trying to recover in the midst of a pandemic. Both Biden and Trump have different views on key economic issues, especially tax policy and energy. The one thing they agree on is infrastructure; it's just how much we need to spend that is the difference.

Investors should map out a clear path and strategy to put in place the days and weeks after the election. The next president's plans will shift trillions of dollars around the economy and certain stocks will reward investors that get in early.

-- advertising email from Zacks

***

What about health care?

(successful) value investing

Value investing strategies can become unpopular during bull markets. Rising valuations and optimistic forecasts can cause some investors to switch to growth strategies that place less emphasis on buying stocks at low prices.

However, in my view, value investing is a logical long-term approach to use when allocating your capital. It can help you to avoid excessive risks and generate high returns through buying quality companies when they trade at low prices.

Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) chairman Warren Buffett (Trades, Portfolio)'s track record highlights the potential success of a value investing approach. His patient attitude and simple strategy could be key reasons for Berkshire's 20% compounded returns in the past 55 years.

Focusing on fundamentals

It is tempting to follow the lead of other investors in a bull market or in a bear market. For example, some investors may now find themselves becoming more optimistic about the prospects for stock prices after the market's 50% gain since March. Likewise, investors may become pessimistic about the S&P 500's prospects during a bear market because stock prices have experienced a decline.

However, avoiding bullish and bearish sentiment could be crucial for anyone seeking to become a successful value investor. Ignoring your emotions makes it easier to judge investment opportunities based on facts and figures, rather than the prevailing mood among your peers. This could improve the efficiency of your capital allocation and allow you to take a contrarian view when it is advantageous.

Buffett has sought to maintain an even temperament throughout his career. As he once said, "The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd."

Using a patient approach

Rising stock prices over recent months may mean there are fewer companies trading at a discount to their intrinsic values. It is tempting to buy stocks that are overvalued in this situation, rather than holding cash due to low interest rates. However, using a patient approach that waits for more attractive risk/reward opportunities to appear could be more effective.

In my opinion, the ability to turn down unattractive investment opportunities could be an important trait of successful value investors. A selective approach may mean that you sometimes miss out on stocks that go on to generate high returns. However, it will also help you to avoid unnecessary risks that may be present in the current bull market.

As Buffett once said, "The stock market is a no-called-strike game. You don't have to swing at everything - you can wait for your pitch."

Adopting a simple strategy

Value investing is a simple means of allocating capital. At its core, it is a long-term strategy that focuses on buying quality businesses when they trade at prices below their intrinsic values. They are then held until there are more attractive places that offer superior risk/reward opportunities available elsewhere.

Therefore, successful value investors do not need to use complicated formulas or complex methodologies when managing their portfolios. Complexity may be far less important than consistency and self-discipline when using the market's cycles to your advantage.

Despite being one of the wealthiest investors of all time, Buffett's approach to managing Berkshire's capital has always been very simple. As he once said, "You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ."

-- Robert Stephens, CFA

Chuck Feeney

Charles “Chuck” Feeney, 89, who cofounded airport retailer Duty Free Shoppers with Robert Miller in 1960, amassed billions while living a life of monklike frugality. As a philanthropist, he pioneered the idea of Giving While Living—spending most of your fortune on big, hands-on charity bets instead of funding a foundation upon death. Since you can't take it with you—why not give it all away, have control of where it goes and see the results with your own eyes? 

“We learned a lot. We would do some things differently, but I am very satisfied. I feel very good about completing this on my watch,” Feeney tells Forbes. “My thanks to all who joined us on this journey. And to those wondering about Giving While Living: Try it, you'll like it.”

Over the last four decades, Feeney has donated more than $8 billion to charities, universities and foundations worldwide through his foundation, the Atlantic Philanthropies. When I first met him in 2012, he estimated he had set aside about $2 million for his and his wife's retirement. In other words, he's given away 375,000% more money than his current net worth. And he gave it away anonymously. While many wealthy philanthropists enlist an army of publicists to trumpet their donations, Feeney went to great lengths to keep his gifts secret. Because of his clandestine, globe-trotting philanthropy campaign, Forbes called him the  James Bond of Philanthropy. 

In 2019, I worked with the Atlantic Philanthropies on a report titled Zero Is the Hero, which summarized Feeney’s decades of go-for-broke giving. While it contains hundreds of numbers, stats and data points, Feeney summarized his mission in a few sentences. “I see little reason to delay giving when so much good can be achieved through supporting worthwhile causes. Besides, it’s a lot more fun to give while you live than give while you're dead.”

On September 14, 2020, Feeney completed his four-decade mission and signed the documents to shutter the Atlantic Philanthropies. The ceremony, which happened over Zoom with the Atlantic Philanthropies’ board, included video messages from Bill Gates and former California Gov. Jerry Brown. Speaker of the House Nancy Pelosi sent an official letter from the U.S. Congress thanking Feeney for his work. 

-- Steven Bertoni, Forbes