​If you own a home, have you considered selling it at today’s high prices, renting for a while, then buying back in after the next real estate crash? I will admit to having those same thoughts myself at times. I am aware of several who followed through on the idea and now are painfully waiting in rentals while the price of homes continues to skyrocket.
 
The real estate crash of 2008 left many scars and some homeowners today, not wanting to miss out on an opportunity, are getting anxious. They should act with caution however, because 2008 was a much different situation. With real estate prices in many areas hitting new record highs monthly, let’s consider some of the main causes and whether this is likely to continue.
 
Low interest rates – Most Americans buy their home based on how much they can finance. Higher interest rates would slow demand and pressure prices lower, but it’s difficult to see them moving significantly for several years. The Government is the nations’ largest debtor so there is huge incentive to keep rates artificially low. Even if rates increased a couple of percentage points, they would still be near historical lows.
 
Millions now working from home – When people work from home they often need or desire more space. As the virus effect diminishes many will return to the office but a large portion of those who have become accustomed to working from home report that they plan to continue doing so.
 
Regulations – Governments in many localities continue to make it more difficult to develop new properties, pushing prices up as the supply chain is restricted.
 
Wealthy investors competing for properties - Entire financial sectors are being built by investment firms and individual investors seeking a future in owning large portfolios of residential rentals. It is difficult to find decent monthly cash flow with interest rates so low, which makes owning rental real estate more attractive. These cash heavy investors are tough for a middle-class home buyer to compete against.
 
Millenials are finally starting to buy homes - There was a huge real estate boom in the 70’s when the Baby Boomers came of age. The millennials are starting a little later in life but their effects on the housing market should last a decade or more.
 
There is a huge residential real estate shortage - This is partly due to labor and supply problems but also because we have been underbuilding since 2008. The National Association of Realtors estimated last month that America is currently short more than 6 million homes. With current construction of both houses and apartment units at less than 2 million per year, the shortage is expected to be severe for many years to come.
 
I don’t have a crystal ball, but my guess is the housing crisis will get worse for many years before it gets better. I wouldn’t be too quick to cash in on the family home if I didn’t have somewhere else to live.

​When I learned to fly, I had six mechanical gauges in my plane that gave the basic information needed to keep the plane right-side up and flying straight. In flight I navigated using radio signals emitted from ground-based systems across the country. I also had maps that identified landmarks allowing me to see out the window to guide my path.
 
Weather planning was done by speaking on the phone with an FAA weather briefer, but my most important weather information came from walking outside and looking at the sky. You can learn a lot if you know what to look for. Once in the air I would visually monitor the weather, and if something ugly like a thunderstorm appeared, I would just fly around it, land, or turn back.
 
Today the highly advanced technology in my plane allows me to see weather all over the country in real time. I can “look” through a cloud in front of me, measure how much water it contains, see any lightning, and determine if my plane has the capacity to fly over it. Prior to the flight I have endless online weather services to give me more information than I thought I ever needed to know.  
 
All this technology has created a new risk for pilots; Information overload. So much data is available to make flying safer, that in some ways it has made it more dangerous. Pilots focusing on all the data sometimes get distracted from actually flying the plane, or their skills deteriorate from lack of use. To overcome this risk, I regularly train by turning everything off and hand-flying my plane the old-fashioned way.
 
The investing world of 2021 is bombarded with far more information than can be reasonably digested. My son Jayden recently joined our team and is training to become a financial advisor. We have begun by teaching him to read financial reports, study market conditions using his own observations and common sense and come to investment decisions based on his own experience. In short, we are teaching him first to look at the sky and see what it is telling him. The mountain of data at his disposal can be far more useful if he first learns to make decisions using the unique observational skills humans possess. Then he can properly assess which information is most valuable. When it comes to information, more is not always better.
 
Many of the questions our office receives demonstrate that investors are being overloaded with increasingly more information that is becoming less useful to them. Endless headlines, graphs, charts, robotic analysts, and questionable stock recommendation in the inbox or reddit page, are distracting from proper decision making. This mountain of information has added new risks to investing.
 
I suggest investors and their advisors be aware of the risks of information overload and make a conscious effort to control the quantity and quality of the data you consume each day. Most of it you don’t need, to make good decisions, and much of it is harmful. 

​I live in the desert which means forecasting the weather is fairly easy. With an average of only eight inches of rain per year, you can pretty much plan on most days being clear and sunny. At the same time, as one who has personally had a prior home destroyed by a flash flood, I understand that those eight inches of rain tend to come all at once.
 
The constant question posed by investors, “Is a stock market crash coming?” is the wrong question to be asking. Worrying about a market storm has led far too many to miss out on the many days of beautiful sunshine the market has to offer. Assume for educational purposes only that a persons’ investment returns are tied to the Dow Jones market average. That average today stands at about 35,000. Prior to the virus-inspired market storm of last year the Dow was at a high just above 29,000. That represents a solid 20% increase in just 18 months. An investor could have missed out on a lot of great opportunities if they spent all that time on the sidelines worrying about the next storm.
 
This stock market pattern, like flash floods in the desert, has been repeated many times since its inception. An overall long-term upward trend is interrupted occasionally by sometimes severe storms. The proper question investors should be asking is not if a storm is coming but rather, “Am I prepared for the rare storm when it arrives so that I might fully enjoy the mostly sunny days in between?” 
 
If you live on the edge of your finances, depending on every dollar you produce to fund your current lifestyle, then you are not prepared. If your debt and spending levels cannot be maintained for at least six months without any income, then you are not prepared. If you are overly concentrated in a small area of investing where the risk is too high, then you are not prepared. Correcting these weaknesses in your own finances should take priority over worrying about what Wall Street might be up to next. 
 
As you plan for your investing future it is certainly wise and prudent to make changes along the way. Take profits where appropriate and rebalance as needed to stay within your goals. But avoid the temptation to panic, even when you see storms brewing. Like weather in the desert, in the stock market the good days have always outnumbered the bad and I expect that to continue. Remember, taking advantage of the many good days is the best way to weather the bad ones. Remain optimistic about the future while letting the storms happen when they may. The great wealth of this nation and its people was not built on fear of the storms but out of our ability to always see beyond them.
 
Worrying about storms does not stop them from happening, but it may prevent you from benefitting from the many days of market sunshine.

During the past election cycle one candidate often used the phrase, “This is America. There is nothing we cannot do if we do it together.” It made a great soundbite, but it was absolutely not true. The idea was not new. Parents use this line with their kids all the time. “If you believe in yourself Sally, you can do anything.” Coaches use it with their teams before the season begins. “If we work together, we can defeat anyone.” School counsellors use it with struggling students. “Johnny, you can accomplish anything you set your mind to.”
 
There are laws that govern life, and success only comes by obedience to those laws. Setting our mind to something outside of the laws results in failure. For thousands of years people died jumping off cliffs trying to fly. It wasn’t until the Wright brothers learned, and then obeyed the laws of flight, that it became possible.
 
Many investors act as if they can succeed without learning and following the natural laws that govern investing. This becomes for them as fruitless as jumping off a cliff with feathers strapped to their arms. Here are just a couple of the laws of investing investors should commit to follow.
 
The law of time. Just as it takes time for a mighty oak to grow from a small seed, investing takes time. Attempting to force money to grow at an unnatural rate encourages disaster. Putting off saving until late in life defies math and increases the likelihood of falling short of your goals.
 
The law of reasonable returns. Investment returns are related to the level of risk one takes. Bank savings accounts have no principal risk but also a low rate of return. As you climb the risk ladder, the potential rate of return goes up but so does the likelihood that you will lose money. If you try to push money to unreasonable returns, this law increasingly calls for failure.
 
The law of responsible harvest. Investments are designed to bear fruit but often people try to harvest too much, too fast. The amount of the harvest needs to be based on the investments’ ability to produce, not on your personal desire for the fruit.
 
The law of hard work. We live in a day when politicians try to negate this law with continual offers of reward without effort. This practice cannot succeed indefinitely because the law of work is strict and unchangeable. You can’t get something for nothing. Either you, or someone else, will pay the price for it. If you want to be a successful investor you, or someone you hire, must do the hard work. That includes researching suitable investments, making changes as needed, and the difficult task of sticking with your plan when things get tough.
 
In investing and in life there are things you can do if you put your mind to it, and things you absolutely cannot do no matter how hard you wish you could. Success comes from knowing the difference.

​Extremely low interest rates have sent investors in search of creative ways to generate income. A client recently was approached by a salesman offering life settlements, sometimes known as viaticals. The client wanted our opinion on the products, which is where an investor buys life insurance policies from the elderly or from people who have terminal illnesses. The cash payout gives immediate money to the insured, and the investor collects the policy payout when the person dies. The purchase is at a discount based on the death benefit, expected lifespan and other policy considerations.
 
I will start by saying that viatical settlements can benefit an insured individual in desperate need of money, and like other aggressive financial tools, they have their place. They must be used very carefully, on the advice from a trusted financial professional, and only when other better options have run out. They must only be used if it’s in the best interest of the insured. From an investor point of view however, purchasing viatical products amounts to betting on a persons’ life. Such activity carries with it certain ethical and financial risks. If the insured person dies quickly the profits could be high. Each day they live, the rate of investment return goes down. If they live too long the person or entity purchasing the policy may actually lose money if they are having to pay high premiums to keep the policy in force. I once had a client with terminal cancer survive for nine years after being given six months by his doctor. A viatical purchase on his life would have been disastrous for an investor.
 
Therefore, the offer of guaranteed high rates of return is a red flag, since the actual return will not be known until a person dies. No salesman can guarantee when that will happen. What makes me feel especially uncomfortable about these arrangements is that the investor, now the beneficiary, has a financial interest in the insured dying sooner rather than later. It sounds harsh, which is why these products can be controversial. It may also be the reason the State of Utah Insurance division once issued a warning about life settlements stating bluntly, “There is a substantial interest in not having the life of the insured person continue.” Yikes!!
 
Viatical settlements can be legal instruments but they cross enough grey areas that many financial firms, including my own, will not deal in them. The moral conflicts and potential risks, along with the often-unscrupulous players involved, has encouraged us to leave these types of products to the major insurance companies. They have the financial strength and expertise to assess the risks, along with the regulatory oversight to insure they follow legal and ethical standards. I recommend individual investors recognize that these products are often pushed by salesmen seeking a hefty commission, but they carry risks and other challenges regular investors might want to avoid. 

​Due to the NBA playoffs, I have been reflecting on what it takes to be a championship team. Each team has its superstars who provide a great show, and likewise each has its challenges that become more evident as the competition gets tougher. But I have learned from professional sports that in the end, the team that comes out on top will not necessarily be the one with the biggest star but the one that, as a team, is the most successful at executing the basics of the game. Winning coaches usually credit a return to the basics as their formula for success.
 
The same applies to investing. As the world changes and events seem to accelerate, I am often asked what hot new system of investing is most likely to lead to success? In answering this question, I return to what my clients have taught me over all these years. As I consider their individual success stories, a common pattern emerges. I can’t think of many in my client base to whom life granted shortcuts. There are no lottery winners in the bunch. A few purchased individual investments that did very well, but even without those they would still have been successful. I don’t have any who made a fortune in Bitcoin. The reality is, despite the dramatic cryptocurrency headlines, very few people bought Bitcoin when it was $10 and those who did likely took relatively small profits years ago.
 
I have clients who bought Apple stock in the single digits who actually still own it, but in each case those clients are successful even without it. They, like professional basketball players, know that the fast breaks and slam dunks are impressive, but championships are won by those who, as a team, practice, develop and skillfully execute the basics of the game. Most successful investors I know have lived pretty normal lives. They invested slowly but consistently, developing a well-planned offense while never losing focus on maintaining a strong defense, and even made plenty of mistakes along the way. But they understood primarily that trying to build a financial future around the hope of being given a shortcut, was a bad life model.
 
Too many investors today look for shortcuts. Many, especially younger investors think creating wealth comes from being lucky. The reality of investing, and the math that surrounds it, says otherwise.
 
Soon a new NBA champion team will emerge. Surely that team will have superstars, but it will also have injuries, missed shots and fumbled plays. Their ultimate victory will not be defined by any of those. When the champions are crowned, I am certain they will declare that it was their attention to the basics that carried them through. So it is with the vast majority of successful investors. I have learned from my own life and those of my clients the value of discipline and sticking to the basics, and the reality that those who try and take shortcuts will almost always be disappointed in the end.

​Extremely low interest rates have sent investors in search of creative ways to generate income. A client recently was approached by a salesman offering life settlements, sometimes known as viaticals. The client wanted our opinion on the products, which is where an investor buys life insurance policies from the elderly or from people who have terminal illnesses. The cash payout gives immediate money to the insured, and the investor collects the policy payout when the person dies. The purchase is at a discount based on the death benefit, expected lifespan and other policy considerations.
 
I will start by saying that viatical settlements can benefit an insured individual in desperate need of money, and like other aggressive financial tools, they have their place. They must be used very carefully, on the advice from a trusted financial professional, and only when other better options have run out. They must only be used if it’s in the best interest of the insured. From an investor point of view however, purchasing viatical products amounts to betting on a persons’ life. Such activity carries with it certain ethical and financial risks. If the insured person dies quickly the profits could be high. Each day they live, the rate of investment return goes down. If they live too long the person or entity purchasing the policy may actually lose money if they are having to pay high premiums to keep the policy in force. I once had a client with terminal cancer survive for nine years after being given six months by his doctor. A viatical purchase on his life would have been disastrous for an investor.
 
Therefore, the offer of guaranteed high rates of return is a red flag, since the actual return will not be known until a person dies. No salesman can guarantee when that will happen. What makes me feel especially uncomfortable about these arrangements is that the investor, now the beneficiary, has a financial interest in the insured dying sooner rather than later. It sounds harsh, which is why these products can be controversial. It may also be the reason the State of Utah Insurance division once issued a warning about life settlements stating bluntly, “There is a substantial interest in not having the life of the insured person continue.” Yikes!!
 
Viatical settlements can be legal instruments but they cross enough grey areas that many financial firms, including my own, will not deal in them. The moral conflicts and potential risks, along with the often-unscrupulous players involved, has encouraged us to leave these types of products to the major insurance companies. They have the financial strength and expertise to assess the risks, along with the regulatory oversight to insure they follow legal and ethical standards. I recommend individual investors recognize that these products are often pushed by salesmen seeking a hefty commission, but they carry risks and other challenges regular investors might want to avoid. 

​When I was a kid, life hurt. We didn’t have all the safety equipment, rules and regulations to keep us from skinning our knees. When we got hurt doing something dumb our parents would usually say, “Well I hope you learned your lesson.” I rode a bike once with faulty brakes, and I knew it. I still carry scars from the resulting crash, but after that I took care of my bike. Pain is an unwelcome, but effective teacher.
 
During the 1980’s society began to change. A new attitude emerged that children needed to be protected from pain. Youth sporting events no longer had winners, to avoid the pain of losing. Schools stopped issuing “F”s so students wouldn’t feel the pain of failing. I sometimes wonder if younger generations are being denied the opportunity to learn valuable lessons from their own mistakes. Societies’ obsession with preventing hurt means the lessons that pain is meant to teach often go unlearned.
 
Perhaps nowhere is pain a better teacher than in financial matters. I agree with many of the greatest investors of my life that their best lessons were learned from their failures. When people make financial mistakes, the pain is real, and the lessons can be priceless. Yet policymakers seem a bit obsessed lately with trying to remove pain from our financial lives.
 
As an example, the economy currently suffers from a labor shortage, partly due to people not returning to available jobs because their unemployment benefits are so generous. Being unemployed should hurt. The purpose of the pain being to encourage every possible action to find a job.
 
In 2007 a housing market collapse was magnified as people who were given easy access to credit bought homes they could not afford. Borrowing money should hurt. The pain should be enough to encourage careful thought before burdening yourself with debt. As we deal with a runaway real estate market today, much of the situation is caused by extremely low interest rates. People again are often buying more house than they should, because borrowing doesn’t hurt enough.
 
The stock market each day is tossed about by the day trading habits of newer investors. Buying and selling stocks has become too easy, using new free trading platforms (which aren’t really free). Trading should hurt. In my youth, high trading costs made you think carefully before acting, and encouraged you to buy for the long term. Now regulators are looking at finding ways to protect the younger traders from the financial losses many see coming. Why? I ask. If they are to fail, let them. It would be one the best investing lessons they could learn.
 
Everything in life involves risk and sometimes, feeling the pain of taking a bad risk is the best way to avoid more disastrous mistakes in the future. Pain teaches us what not to do. Let’s not regulate so much that younger generations are denied the freedom to learn the painful lessons that led to the success of so many of their parents.

​As a teenager I belonged to a Las Vegas magic club where professional local performers donated their time to teach us the tricks of the trade. One of the guiding principles of magic I learned was that of misdirection. This is the skill used by magicians to make the audience pay attention to one thing, while the real trick is happening somewhere else. This is exemplified by the old phrase “Watch me pull a rabbit out of my hat.” What the magician is really saying is “Don’t pay attention to what my other hand is doing.” Because of my training I have the habit of looking for that rabbit everywhere but where the magician wants me to look.
 
Last week I wrote about the new Meme stocks that are capturing much of the attention on Wall Street. Every day the morning market headlines are filled with stories about these companies. As a result of all this press, a lot of money has been flowing to these often-over-priced companies, and a significant amount more is spent trying to figure out who the next hot meme might be. Watching this behavior, my magician training has kicked in causing me to wonder if a little misdirection might be happening right before our eyes on Wall Street.
 
Investors should understand that there is a certain amount of money available to be invested and as it moves toward one company or sector, it moves away from others. As these hot topic meme stocks take center stage, much of the markets’ attention and money is focused on them. As this drives up their prices to sometimes unbelievable highs, it is also drawing money away from other areas. This is leaving long-time strong businesses with solid products and huge future potential with stagnating stock prices.
 
Now it is certainly possible that some of these meme companies will become profitable, but the math works against most of them at current prices and I suspect that in time those usually impatient dollars will start looking for another place to be. Like a magician focusing the audience in one direction while the real action is happening somewhere else, I feel like the market is telling everyone to “watch carefully as I pull a rabbit out of this hat” (a good analogy for a meme stock) when the real deal is happening somewhere else. In other words, some of the best companies are being overlooked, opening an opportunity for long term investors who are smart enough to not let their attention be mis-directed by a deceptive market.
 
I suggest taking a week to skip any news regarding high-priced meme stocks and look instead for those real bargains that are lurking behind the magicians’ curtain. I believe some of the current excitement is intentionally designed to direct our attention one way, while opening up wonderful opportunities elsewhere if we take the opportunity to look for that hidden rabbit. 

​Meme stocks are all the rage today. For those in the older generation, a meme is a picture used to signify a cultural thought or movement. Memes have always existed, but they have gained popularity with social media that allows a single image to quickly carry a message throughout the world.
 
Meme stocks are companies whose price is based more on a social media phenomenon than on actual value. It seems odd to some of my generation why anyone would invest their money without considering underlying value, but we must remember that we were the ones that bought over 1.5 million pet rocks in 1975. Each generation has its irrational moments.
 
More related to the meme stock craze might be the chain letters that circulated long before the internet. A typical chain letter asked the receiver to send $5 to each of the ten names on a list, add their name to the top of the list while removing the last name, then send the letter out to 10 new people. If everyone did their part, the growing pyramid would return enormous amounts. Like any pyramid scheme, eventually it collapses as it runs out of people at the bottom to feed money to people at the top.
 
Current meme stocks are often companies with weak financials who are singled out by social media users who promote the stock in a viral online fashion. This leads to wild price swings both up and down almost without any regard as to what the company is actually worth.
 
The activity can actually benefit a company as with a current meme stock, AMC theaters,* who issued hundreds of millions of dollars in new shares to take advantage of the rising prices. Strangely, in the offering announcement they included the following: “We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business … we caution you against investing in our class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment.” In my career I cannot remember a company issuing new shares, and then discouraging potential investors from buying them.
 
Stocks whose price is based on social promotion rather than real value might turn out like an old chain letter. Eventually you run out of new people to collect money from. Some of these companies may become profitable one day given the easier access to capital that the higher stock prices offer, but for most of them, getting to a level of profitability that has any resemblance to current high valuations is going to be difficult.
 
Hype can push a stock price up, but it takes results to keep it there. Cute memes aside, a company that is selling for hundreds of times more than it is worth is not something I would recommend to most investors. But then again, I always tore up those chain letters.