​The current big market news has not, in my opinion, been the return to record levels but the way in which those levels have been attained. Many businesses are still languishing while market indexes have been pushed up largely by the meteoric rise of a relative handful of high-tech companies. I feel this is creating a potential risk to investors.
 
Years ago, stocks were generally bought in lots of 100 shares each. Trading took time and was relatively costly, giving investors an incentive to carefully value what they were buying. If the stock price got too high it was common for the company to split the stock, thus reducing the total price so the stock would remain affordable to a wider group of investors.
 
Today we no longer buy stock in 100 share lots. In fact, investors can now purchase fractional shares of stock, spending as little as $1 per trade to own the world’s largest companies. They do so using mobile based brokerage firms that don’t charge trading fees. (These firms don’t actually work for free, but the investor sees no trading cost.) This technology is very popular among young investors, even those still in high school. As I have thought about these new investors it has occurred to me that in many cases, they are looking less at the fundamental value of the companies they are buying and focusing more on what they perceive as the constant upward price movement of the stock.
 
You might remember the crypto currency craze of a few years ago. My teenage son asked me to explain how Bitcoin worked, and if I thought it was a good investment. He told me all his friends were buying and selling Bitcoin and he seemed to think they were making lots of money. I’m pretty sure most of those kids didn’t spend a lot of time considering the true value of what they were buying. They just knew the price kept going up.
 
Today when I see the seemingly uncontrolled rise in the price of some tech stocks, companies whose products are very popular with young people, I wonder if we might be seeing a bit of a repeat of the crypto currency craze. It’s almost as if these free trading programs allow them to use stocks as an alternative currency. If so, that would mean they care less about the real value of the company and more about their perception that the stock price will just keep going up.
 
If I am correct, then this is an area where investors should proceed with extra caution. I am a huge believer in the high-tech industry. Everything in our life is becoming automated and the trend will continue. But I am also a believer that revenue matters and profits matter, and eventually all stocks usually return to some reasonable form of valuation. Just because a company has a great product and a great future doesn’t mean the company has infinite value. Don’t get sucked into thinking it does.

​I decided to tackle the project of cleaning up my massive photo library from the past decade. It has been quite a walk down memory lane to times that were much different than they are today. While doing so, a friend called for some financial advice. He has been working on some investment opportunities but his employer just notified him that his salary would be substantially cut until the current crisis was over. He didn’t want to miss out on the opportunities but was concerned about the increased risk such investing would place on his suddenly uncertain finances.
 
As I pondered his predicament I came upon the photos I took while remodeling our current office building. When we bought it, the building had been vacant for years, so we decided to do a major rebuild. I wanted to include a state of the art conference center so in the back section we planned to tear out nine separate offices to make room for it. I gave the go-ahead to the engineer, not fully appreciating what would be involved.
 
The new conference room would be 37 feet wide without any internal support, so the engineer called for a massive steel beam to support the heavy roof. Two huge sections of the concrete floor were then cut out and dug down a couple of feet. I was told the enormous weight the beam would support required a very large foundation.
 
After the holes were dug, they were filled with a web of rebar and steel and filled with five tons of concrete. I didn’t understand the need but I trusted the engineer and was glad he was planning a long future for my building. If you enter that beautiful conference room today, the massive steel beam and its heavy supports are skillfully hidden behind decorative wood pillars. Many people compliment the beautiful room, while being oblivious to the hidden foundation that holds it all together.
 
I told my friend that I am always excited at the prospect of new investing opportunities. But my advice to him was that, like my office building, he needed to first assure his family’s financial foundation was solid. Investing must always be weighed against the risk of losing that which we already have. In some situations, like during a crisis, the risk can be too high. Protecting the foundation is often not the most glamorous or fun part of financial planning, but it is the most important.
 
A handful of stocks have really been on fire this year, constantly hitting new record highs. There is a huge temptation for people to want to jump on board that speeding train. There may be good opportunities for sure, but in times of such uncertainty I would encourage everyone to first make sure their financial foundations are solid. If you want to invest in that train go ahead, but only if you can honestly say that if it winds up in a big heap, your family’s financial condition will still be sound.
 

Assessing the effect of a Trump victory in November is much easier than evaluating a Biden win. Trump is a known entity and despite his unusual style, the actions he takes have been fairly predictable. Wall Street does not like uncertainty and so many investors and analysts are noticeably concerned about how a Biden presidency might affect investing.
 
The biggest issue with Biden is the high number of unknowns. With the assumption that Democrats would control the house, one would normally assume that party platform policies would be implemented. But there is nothing normal about politics these days. The Democratic party is so different than it was even in 2016, and far different than the Clinton years. There are very strong forces within the party already promising conflict. Therefore I consider it likely, based on the huge stimulus legislation already passed by the House, (still pending) that we can expect a very expensive effort to please everyone. I do not like deficit spending and would suggest owning assets likely to protect against this inflationary practice.
 
Adding to the already high level of uncertainty is the elephant in the room, Biden’s mental and physical health. A recent Rasmussen poll revealed that 59% of Americans believe that if elected, he would not fill out his first term. That is astonishing and creates enormous uncertainty about how long he would be in charge, who would be calling the shots during the period of declining health, and eventually who would take over. So assessing Biden requires one to assess Harris and the other power players in the party. This is truly an election like none other, with risks being quite high.
 
One of the bigger concerns to investors is a promised corporate tax increase to 28%. JPMorgan estimated this would shave 5-10% off corporate profits. The party has also promised to roll back the tariff and trade war with China. Like a stimulus package, this would likely be positive for investors in the short run, but it would curtail some of the current industrial return to America. Such an action would suggest investing in companies with China ties. Much of high-tech ties significant future growth to China so perhaps those recent stock surges indicate expectations for a Biden presidency.
 
Under Biden I would expect bigger government, higher deficit spending, and a return to the regulatory days of the Obama administration. The general public does not directly see the effects of Trumps’ deregulation actions, but businesses have benefited greatly from it. More regulation would be negative for investors. It would especially hurt industries that are viewed as being unfriendly to the environment.
 
In short, with so many uncertainties and moving parts, in a Biden presidency I would be more diversified, look for companies with strong balance sheets that hopefully pay good dividends, keep a healthy allocation of high tech, and be very leery of any businesses that might be a target of an aggressively “green” administration.
 

​Now that the political parties have chosen their candidates, I would like to offer my preliminary assessment of how investors might be affected by the November election. It is possible to look at history and party platforms to get an idea of the direction one party might take the country, but politics is messy business and there is no way to know exactly what the final product might look like. Experience teaches that, once elected, the legislation and policies that are actually produced by the controlling party, tend to drift more towards the center than the ones that were proposed on the campaign trail. In a pre-law class at the university a professor taught me that the definition of politics is “The art of compromise” so I find it useful to not get too worked up either way about what is being said at this point in the process.
 
Here are my preliminary thoughts for investors on the upcoming election. Keep in mind that every election is cast as “The most important election in history,” with each side acting like this is the one time the world will end if their team doesn’t win. In fact, I can’t remember an election when this wasn’t an overriding theme, yet both sides take their turns at winning and we are still here today. Elections are extremely important, don’t get me wrong, but our system wisely gave power to the people to change things every two years when needed.
 
A Donald Trump victory: If the president is re-elected the future for investors should be fairly predictable from a political standpoint. For all his unpredictability, Trump has actually been about the most predictable president I can remember. Like him or not, he does what he says he will do. In a second term I would expect a continued reduction in regulations, lower taxes and an accommodative Federal Reserve. These would be welcomed by businesses.  I would also plan for better trading deals with friendly partners as well as a continued tough stance with China.
 
Bringing businesses back to America, specifically heavy manufacturing and pharmaceuticals would be a major emphasis. An infrastructure bill would also be a priority. These are all things I think the markets would welcome. Heavy stimulus spending will add to inflation, so I think equities and real estate would be preferred over the risk of holding certain types of bonds or cash type investments.
 
Before the virus hit, we had the best economy in our history. I would expect a victorious Trump to double down on the policies of the prior four years. Though the virus will continue to play a part, it would seem that the politics of it would diminish after the election. So I see a Trump victory as positive for the stock and real estate markets. Investors love consistency and re-electing a president removes many of the uncertainties a new administration might bring.
 
Next week I will give my preliminary investors’ take on a Biden victory.

I went golfing with a man who asked if I could help him with his retirement planning. He began to tell me a very common financial life story that I have heard many times. He had always struggled to save money. He spent his life earning quite a bit, and spending it as he went along. He had great intentions that once his income reached a point where he could afford it, he would set aside the extra money for retirement. But as is normally the case, rising income leads to rising needs and more importantly, rising wants. Whether it was braces for a child, a new RV trailer for the weekend camping trips, a much needed vacation or a flooded basement after a water line break, something always seemed to come along and require the use of that “extra” money.
 
So I asked him how it was that he was able to drive the ball right down the fairway on almost every shot. He was a very good golfer. He answered that he had found two secrets to a successful golf game. The first is consistency. He said you need to figure out a way to drive, pitch and putt, that can be replicated. He told me that the pros often had their own ways of doing things, each with their unique swing, but what they all had in common was their consistency. They found something that worked and they did it over and over again. Secondly, he said that no one becomes a very good golfer unless they make golfing a priority.
 
I told him he had just answered his own question about how to successfully save and invest for retirement. There are many paths to the same goal but the only way to reach that goal is to get on a path, and stay on it. The challenge with far too many is failure to get on the path. The first step on that path is to budget a certain amount of money for savings on a regular and consistent basis, throughout your life. My friend reminded me that he doesn’t usually have extra money to set aside and I responded, “Yet you have money to golf.” I explained that we have money for the things that are important to us. We pay our house payment, power bills, buy food (and golf), because those things are a priority. When we realize how important it is to be financially self-sufficient in our later years, then we make saving money a priority. Like eating and having a place to live, saving for your future is simply not optional. If you make it optional then something will always come up that will consume your “extra” dollars.
 
In our world, people are often stressed over things they cannot control. Much of that stress can be relieved by focusing on things you can control. Making saving and investing for your future a priority, is one of them.
 

​This week it was reported that second quarter (Q2) Gross Domestic Product (GDP) fell more than at any time in history, and on the news the stock markets opened significantly lower. Trying to figure out the mind of an investor can be a challenging task. Sometimes I think the investing public has an unlimited capacity for pessimism.
 
Let’s consider a few things regarding this news. The GDP fell to an annual rate of about $19.4 Trillion dollars, about the same as it was in 2017, which was a record breaking year at the time. So the big fall was possible because it was at record highs in the first place. Imagine you’ve gotten straight A’s all through school, then one semester you get a B+. You wouldn’t be very happy about it but given the current crisis, I would take a B+.
 
Not so widely reported was a huge increase in personal savings and disposable income. This is natural since most people are still working, or receiving unemployment benefits, but quarantines and shortages of products like new automobiles prevented them from spending. So Americans are storing up cash. 
 
In simple terms the virus has squeezed the supply side of the economy. We just don’t have as many products available to buy. Movement has also been restricted so people have less opportunity to spend. Finally, uncertainty has caused consumers to delay purchases they would have otherwise made. So it should come as no surprise that the economy has contracted.
 
Now, here is the good news. The GDP report was for Q2 which ended in June. Getting all worked up about it is like being fearful of the storm that came through your town last week. It is old news. The storm may have left some damage in its wake, but investing is all about the future.
 
It is not clear how long the virus will be with us but most of our economy is finding ways to regroup and come back on line. Certainly things are much better now than they were during the worst of it. As an investor I like to look for “potential” in the markets. The personal savings rate in Q2 was a whopping 25.7% compared to 9.5% in Q1.* That is a huge amount of “potential” spending as things open back up.
 
In one of my favorite old auto racing movies a driver breaks the rear-view mirror off his car and tosses it aside saying, “My first rule of driving is, what’s behind me doesn’t matter.” The Q2 GDP report looked in the rear view mirror and told us what we already knew. The current reports of businesses re-opening, consumers building up cash accounts and advances in dealing with the virus all point to what is coming. They show the “potential” that investors should be looking towards.
 
One thing about a really bad quarterly report is it increases the likelihood that the next report, even if not great, may look much better in comparison. That is what I am investing for today.
 

​As an airplane owner I have had the opportunity lately to spend a fair amount of time contemplating liability, and how risk can spread. We are all aware of the two major crashes of Boeing 737MAX airliners with the hundreds of deaths, and the grounding of a substantial portion of the fleet. Financially, the disaster is anticipated to cost billions to the various manufacturers, the airlines, and their insurers.
 
As a result, owners of private airplanes have been reporting substantial increases in their insurance premiums this year. This makes no sense at a time when private flying accident rates are at historic lows, but the insurers who are facing significant losses from the MAX737 accidents are spreading the cost around. It doesn’t seem fair but things rarely are, and insurance companies need to stay in business.
 
Covid-19 may be a significant health risk today but in the near future it will likely pose a significant liability risk as well. Grocery stores, sports teams, theaters, schools, manufacturers and even churches who are seen to have negligently allowed the disease to spread on their premises will be at high risk of facing court challenges. With this type of personal injury claim it can be difficult to prove the source of the disease but that won’t stop lawyers and plaintiffs from initiating expensive legal battles.
 
I asked my legal counsel and was told that the law requires a person or business to act as a “reasonable” person would act in a given situation. Regardless of how you or I feel about social distancing, masks, one-way aisles etc., an increasing number of businesses are taking the position that in a court of law, a judge and jury will likely assume that the most reasonable action is to follow guidance given by local health departments.
 
All this has gotten me to thinking about the companies we invest in. We have focused on their ability to endure the lockdown by first surviving, and then thriving through the entire crisis. Now I think it is time to take a look at long term liability. For example, I see many people protesting mask requirements at their local big box store. I understand the frustration but I also see that for the business, failure to implement a policy that might be viewed as the “reasonable” thing to do, could expose these deep-pocket companies to huge liabilities. As a shopper I may dislike the policy, but as a stockholder I think I would consider it a wise and necessary business move.
 
Investors are often forced to separate their personal or political beliefs from their investment strategies. If you are one who holds individual stocks, I would take some time and evaluate how those companies are responding to the current crisis through the lense of long term liability. It won’t do you any good if they make a lot of money during the crisis by running full operations, only to have a future court take much of it away in a class action lawsuit. 

A pilot awoke to a beautiful Florida day and decided to go sightseeing in his small plane. Several miles away another gentleman decided it would be a perfect day for jogging on the beach. As he ran along he passed many others who had awaken with the same idea and together they enjoyed the beautiful morning.
 
Suddenly the engine in the small plane jerked to a halt and the pilot was forced to make an emergency landing, on the beach. Thousands of aircraft fly everyday without incident. Millions of joggers run every day without a problem. But on this rare day, a series of unfortunate events brought the two together in a tragic accident that lead to the death of the unsuspecting jogger. Statisticians call these “Black Swan Events” because they are extremely rare.
 
For decades the stock, bond and real estate markets have provided tremendous wealth to investors, but occasionally a rare event throws things temporarily into chaos. Of all the market disrupting events I have witnessed, I don’t think any has come on faster, or created more confusion, than the Covid-19 Crisis. It may well be that future black swan events are referred to as Covids. Let’s take a brief look at this extremely rare crisis.
 
In early February our economy was firing on all cylinders, putting out positive numbers like never before. In late February the virus hit New York city and within days the stock market was in meltdown mode, falling over 30% in a couple of weeks. Soon after, people started losing their jobs and unemployment rose at record speed to incredible highs. The government responded with both parties agreeing to give away money that did not exist, in amounts no human could even comprehend. And then they did it again, and again. Schools and businesses closed, panicked politicians issued executive decrees with questionable authority and without even fully knowing who the enemy was. In its entirety it has been perhaps the most bizarre political and social scene I have witnessed. 
 
After two months of serious panic, the stock market suddenly began to recover, eventually doing something even more unusual. Many stocks rose to all-time highs even as the crisis continued. What are investors to make of it all? What could Wall Street be thinking? Despite all that has gone on, one thing seems clear. This crisis is a rare black swan event, which is actually the good news. “Good news” because it is not likely to repeat itself, especially given what we are learning from it. It may even turn out to be a blessing as we will be better prepared to deal with similar situations in the years to come. It will also lead to wonderful new technologies and advancements in medicine that will make our world safer and more efficient. This is what I believe Wall Street is seeing, and this is why I remain optimistic. This disastrous Black Swan crisis may be one of our greatest investing opportunities. 

In high school I enjoyed debate. Our teacher did not allow us to choose sides, but randomly assigned us to our positions. Even though I was often assigned to support positions I strongly disagreed with, I put all my energy into studying and defending the side I was assigned to. In the process, I gained insight into the other side that I would not have had otherwise, as well as a greater appreciation for those who disagreed with me.
 
Today our society has lost the ability to have rational “debate,” but instead we dig our heels in and “argue” why we are right and the other side is wrong. I believe this largely comes from the new way we obtain our information. Although the internet has given us access to all the knowledge in the world, it also makes it easier for us to filter what we receive. Take Facebook® as an example. There is a reason people we follow are called “friends.” When we post something, our friends “like” our idea, largely because they tend to think like we do. We call this an “echo-chamber” because social media tends to reflect back at us what we already believe, confirming our foolish belief that everyone agrees with us. The ability to select the sources and political leanings of our information sources, has created an unhealthy environment wherein each side hears what they want to hear, and “unfriends” every other position.
 
This echo-chamber phenomenon can also create serious risks for investors. Once again, the ability to select the source of our information, and to be able to deselect sources we aren’t comfortable hearing from, limits our understanding of what is going on in the financial world. The purpose of investing is to allow money to flow to companies that will use it wisely and efficiently to produce profit. Therefore, the more information an investor can gather from multiple sources, the better able they will be to make informed decisions.
 
If, however, they only seek out information from sources who agree with them, whose methods they relate to, and even whose political beliefs they share, the results may be very one-sided. As a long time student of investing I must say I have been shocked at the valuations of many newer companies these days, while firms with a long history of producing profit and growth seem to be being abandoned. In many ways it’s beginning to feel like 1999 all over again, where people invest based on what they want to be true, or what’s in vogue in their echo-chamber world, rather than on financial reality. The results of this type of investing in the late 90’s was disastrous for many.
 
Investors should be aware of the human tendency to seek out confirmation of what we already believe, and take time to look at opposing research. Debate both sides of any investing issue before you decide and you may learn something from the other side that will ultimately make you a much better investor.

I planted a nice tomato garden this year, given the extra time I have been spending around the home. I took time to tie each plant carefully to a pole and trim the lower leaves to create airflow and avoid disease. I have been pretty proud of that garden which is currently filled with beautiful green tomatoes getting ready to ripen. One evening I was weeding the garden and noticed a nice plump tomato, mostly red and almost ready to eat. I thought I should pick it and leave it on my counter where it would be ripe and waiting for my breakfast the next day. Instead I decided to leave it for the night, thinking that the final day of vine ripening might add just a touch more of sweetness.
 
The next morning I went out on my balcony before breakfast and was admiring that beautiful little garden below. I looked to see if I could find that one nice tomato for my scrambled egg sandwich but could not see if from my vantage point. Then I saw him. On the stucco fence post in the back corner of the garden sat a rust colored squirrel. He had in his hands what was left of my nice ripe tomato. He stopped for a moment to look at me, then without moving his gaze he raised the final piece of the tomato to his mouth and ate it, mocking me in the process. I thought a lot of things about that squirrel, none of which were kind. I was mostly upset that he was enjoying a tomato he had no involvement in growing. The experience left me to reconsider my decision from the night before. It was really my own fault I wasn’t going to enjoy a fresh tomato that morning, as I had my chance to pick it when I first saw it.
 
One of the daily experiences we have in our office is to research and then recommend various investments. For the most part, when we call people they approve our ideas and we go ahead and place the trade. Sometimes we have someone tell us they want to “think about it” for a bit. I never claim to be a market timer, but my experience with investing is that once the research is done and the decision is made, it is time to invest. I have had numerous experiences where failing to take advantage of the opportunity that presented itself led to missing out. Investors sometimes wait for just the right price to buy, or the perfect price to sell, but rarely are able to capture either. Relating this to my tomato, when it was ready to pick I should have picked it. In delaying, hoping for a slightly better result, I lost out to a squirrel.
 
Investing is a long term process where time works to your advantage. When someone asks me when is a good time to invest, I usually tell them, “Whenever you have money available.”