Tim and Nathaniel were invited by Tera Johnson of Tera’s Whey to her podcast Edible-Alpha™*. We’d like to thank Tera for the opportunity to speak with her about our take on numerous subjects including business models, company valuations, and what we look for, in general, when we research companies in our pursuit of potential investment opportunities. For those of you who want a more thorough understanding of Nathaniel’s “Beautiful Mind” than what you get from his quarterly commentary, we highly recommend that you check out this podcast (with a shout out to Tera’s assistant Zac for putting the podcast together and editing out Nathaniel’s long pauses as Nathaniel gathered his thoughts). It clocks in at a little over an hour, but it’s well worth a listen.
We hope you enjoy it, and as always, please don’t hesitate to contact us if you have any questions or comments!
*Edible-Alpha™ is a part of the Food Finance Institute which is in turn a part of University of Wisconsin-Extension Division of Business and Entrepreneurship.
In the event the above doesn't work, please use this link to listen to the podcast.
Recently we came across an article, by the wonderful author Andrea Fuller of the Wall Street Journal (WSJ), titled “What’s My Investing Fee? A Frustrating Quest”. After reading it, we were compelled to write a response to Ms. Fuller. Our intention – to provide proof not all investing fees are so nontransparent.
Before you move forward we kindly ask our readers to do a bit of work. If you could please read the article below and then read our response, we would greatly appreciate it. We hope you enjoy it as much as we did putting it together.
As LBW looks inward at our industry, we find a wide push to provide people with convenience; similar to what one would find today in other industries such as retail, healthcare, and even education. At what point does the prioritization of convenience cause harm to other important characteristics? This continued movement towards ultimate convenience coupled with our ever-growing do-it-yourself mentality, can create a dangerous combination.
How LBW See’s It
The start of 2017 came with a bang – President Donald Trump was sworn in, Tom Brady and the New England Patriots won their fifth super bowl in the past 16 years, and the Federal Reserve Bank (“Fed”) raised the federal funds rate for the third time since December 16, 2008 (roughly nine years ago). President Trump and his new administration have led the headlines in regular and financial news, and Brady’s Super Bowl jersey being stolen was a hot topic. However, the increase in the federal funds rate and the Fed’s forward guidance on the economy deserve some notable attention as our clients, prospective clients, and passerby want to know how this will affect them.
Over the last few months we have been asked, and have heard rumblings, of utilizing Individual Retirement Accounts (IRAs) to invest in assets such as private businesses and/or real estate. At first glance, this seems like an attractive deal – invest in a private business with potentially high returns while doing so in a tax-efficient way – yes please. However, like anything else, once you start down the rabbit hole, it becomes more clear that using an IRA to invest in “alternative” assets has as many pro’s as there are con’s. So, let’s dive into the intricacies of utilizing the sought after self-directed IRA.
First, LBW would like to give a shout out to Erin Ogden, co-owner of OgdenGlazer, LLC for providing the article that we have based this blog post on. Second, our post is a response to the article linked below, please read it to gain more clarity on the subject (we apologize for the extra work!). Third, the article was published Jun 23, 2016. We are a little late on our opinion, however this article provides an excellent example of understanding the respective risk vs. reward.
Before I (Tim) get in to my thoughts on the article, I need to disclose a few items: 1) Growing up, I idealized the Chicago Bulls (being from Salt Lake City and watching the Bulls whoop the Jazz was bittersweet), and to see the Warriors break their regular season winning record was tough; 2) Because the Warriors broke the record, I could only hope that they would lose in the finals, so that the 1996 Bulls team could continue to be the best team in NBA history; 3) I will admit, I am a LeBron James fan and have been since he entered the NBA; 4) As a result of my admiration for James and the 1996 Bulls team, I am not a fan of Steph Curry nor the Warriors. With this full disclosure in mind, I will now give my thoughts on the article.
In the financial services industry we constantly hear different jargon and phrases, and one phrase often quoted as it relates to an individual’s finances is: “don’t put all your eggs in one basket”. The saying has been around for centuries, and can be traced back to printed text in the 1660’s. The phrase essentially states that concentrating all of your prospects or resources in one thing or place can be detrimental because the risk of losing everything increases drastically. Simply put, diversification of prospects or resources can help eliminate concentration risk. We recognize a lack of diversification in one’s investment holdings can cause the individual to take on undue risk. The issue we want to address is the misuse of the term “diversification”.
How LBW See’s It
When speaking with prospects, clients, or anyone who will listen, about LBW’s investment framework we may begin the conversation talking about one of the forefathers of value investing, Benjamin Graham. Graham wrote a book titled “The Intelligent Investor: The Definitive Book on Value Investing” and in that book, he brought to light the concept of “Mr. Market”. Who is “Mr. Market”? It is probably best described by Graham himself:
“Imagine that in some private business you own a small share that cost you $1,000. One of your partners, named Mr. Market, is very obliging indeed. Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly
If you are a prudent investor or a sensible businessman, will you let Mr. Market’s daily communication determine your view of the value of a $1,000 interest in the enterprise? Only in case you agree with him, or in case you want to trade with him. You may be happy to sell out to him when he quotes you a ridiculously high price, and equally happy to buy from him when his price is low. But the rest of the time you will be wiser to form your own ideas of the value of your holdings, based on full reports from the company about its operations and financial position.”
Cash and debt management can be an ally or detriment to a person’s financial well-being. In today’s information age, personal finance tools are plentiful. However, many are unknown, misunderstood, or aren’t applicable to one’s lifestyle.
A constant theme we address with clients is a desire or need for improved cash flow and/or liquidity. And sometimes, little do they know, a resource may lie right beneath their feet…literally.
A Home Equity Line of Credit (a.k.a. HELOC) may be a solution to add flexibility to your cash management practices. HELOCs have been on the financial scene since the 1990s. On March 31, 2016 Forbes wrote an article titled “Your Neighbor Got a HELOC, Should You?” and stated “Over 37 million borrowers have an average of $112,000 equity available to tap in their homes…”. For some home owners, putting this equity to use could provide multiple benefits. Let’s explore a few and don’t worry, it’s not a one-sided conversation – we will examine the disadvantages as well.
Full Disclosure: I (Nathaniel) am not a Wall Street analyst.
What do you think of when you hear "Wall Street estimates"? Most people vaguely think of sitting at home on their couch, channel surfing on their TV and coming across the CNBC channel. They may hear about a company that has reported their earnings, and Wall Street's estimates were different from what the company was reporting. Ring any bells? Beyond what you see on CNBC, what do Wall Street estimates truly mean? What effect(s) do they truly have on companies?