MarkFord.net
The open-for-inspection half-way home for my writing…
eye-minded (adjective)
To be eye-minded (AYE-mine-did) is to be disposed to perceive and understand things visually, and to recall sights more vividly than sounds, smells, etc. As used by Samuel Christian Schmucker in The Meaning of Evolution: “It is true among human beings that most of them are eye-minded.”
China’s Beijing Duck Restaurant can seat 9,000 people at the same time.
Chinese Calligraphy by Chen Tingyou, translated by Ren Lingjuan
A small, well-written book that explains Chinese calligraphy: where it came from, its different styles, and why in China it is considered a great art form, as important as sculpture or ceramics or painting.
Not sure which I like better, the technology or the talent…
“It is not easy for men to rise whose qualities are thwarted by poverty.”
– Juvenal
For as long as I can remember, raising the federal minimum wage has been an issue.
After all, the federal minimum wage is $7.25 an hour. And a full-time job at $7.25 an hour is only $15,080 a year. It’s pretty tough to support a family on that. So it’s not surprising that dozens of polls show that 60% of Americans support a higher minimum wage.
But is that really the answer to poverty in this country?
In fact, there’s considerable evidence that it would exacerbate the problem.
The Argument Against a “Solution” to Poverty That Most Americans Support
The argument in favor of a higher minimum wage is that it will not only lift people from poverty but also reduce unemployment and create a stronger economy. And the logic that supports those claims can be persuasive. But there’s a flip side.
Employee wages weigh heavily on businesses. Especially small businesses. And the effects are seen more and more as states adopt higher minimums.
* In December 2017, New York City’s minimum wage rose from $11 to $13. Less than a year later, as a direct result of this raise, Union Square’s iconic restaurant, The Coffee Shop, was forced to close. 150 employees were out of work.
* In California, a study found that with each $1 increase in base wages for tipped employees, there was a 14% increase in Bay Area restaurant closures.
* In Maine, where the minimum wage is scheduled to go from $7.50 to $12 (a 60% increase) by 2021, a retirement home that had been in operation for over 45 years is closing its doors. 122 staff members now have to find employment elsewhere.
But one of the fastest-growing consequences of higher wages is the expedited shift to automation.
It started in the mid-1970s with the advent of self-service gas stations. Now, over the past decade, we’ve seen Blockbuster replaced by Redbox and Netflix. We’ve seen parking and toll road attendants replaced by self-service machines. And we’ve seen a rapid growth in self-service checkouts and airport ticket agents working side-by-side with check-in kiosks. McDonald’s is aiming to have a self-service kiosk added to every one of its locations by 2020. And other fast-food chains, too, including Panera and Chili’s, are beginning to embrace automation.
As Andy Puzder, the former CEO of Carl’s Jr., explains, “If you’re making labor more expensive, and automation less expensive – this is not rocket science.”
A Government-Sponsored Solution That Might Actually Work
Most government solutions to wealth and income inequality have had undesirable consequences – creating cultures of entitlement and dependency. It’s difficult to look objectively at data about the “War on Poverty” without concluding that it has only made matters worse.
That said, it seems entirely sensible to believe that narrowing the income gap is a good goal for everyone – the poor, the middle class, and even the rich. Educational and work initiatives make some sense. It’s just that – so far, at least – the federal programs we’ve invested in have proven useless or counterproductive.
But there is one federal program that may be an exception to this dispiriting rule. It’s a program that had been around since the 1970s: the Earned Income Tax Credit. The EITC is a tax credit based on a fixed percentage for each dollar earned (up to the maximum). It has a proven track record. And it’s been supported by numerous economists.
A New Hampshire University survey, for example, found that 71% of the economists polled considered the EITC to be a very efficient way to address the income needs of poor families. (Only 5% of the group believed that an increase to a $15 per hour minimum wage would be effective.) And a study by economists Joseph Sabia and Robert Nielsen found that a 1% drop in state poverty rates was associated with each 1% increase in a state’s EITC.
How does it work?
While the maximum credit depends on income, marital status and the number of children in the household are factors. In some cases, it can amount to almost 40% of a worker’s base annual salary. Plus, the income minimums are raised every year. This means that even if someone didn’t qualify for the EITC in the past, they may qualify in the future.
But despite its obvious benefits, only 20% of those who qualify claim it.
The government doesn’t advertise it, so most people don’t know about it. And even those who do know about it tend to ignore it. They assume they’re not eligible… or they have no idea how to file. (It’s not that hard. The IRS has a very helpful tool called the EITC Assistant.)
Still, since 2017, nearly8.9 million Americans have been brought above the poverty line by taking advantage of the EITC.
I’m sure there’s plenty about the EITC that I haven’t read about. And maybe some of that is bad news. But from what I’ve read so far, it appears to be a win-win outcome that raising wages can’t seem to provide.
exacerbate (verb)
To exacerbate (ig-ZAS-ur-bate) is to make a problem or situation worse. As I used it today: “But is [raising the minimum wage] really the answer to poverty in this country? In fact, there’s considerable evidence that it would exacerbate the problem.”
Listening to music utilizes the entire brain.
“The Top 10 Largest US Cities by Population” from Moving.com
Thinking of moving, but not sure where you want to live? Here are some cities to consider… LINK
10 life-hacks for Christmas…
My Wealth Building Strategy for 2020
The stock market is as perilous today as it’s been in many years.
The warning signs are many: The bull market is superannuated (second longest since WWII), the Treasury yield curve is inverted, and the S&P 500’s price-to-earnings ratio (P/E) is close to 22 (about twice my comfort zone).
On top of that, you have the macroeconomic picture: US debt now is more than $22 trillion, the highest – by far – that it has ever been. It’s now higher than our gross domestic product (GDP) – roughly 19 trillion!
And in case you think our president is working on that, think again. That $22 trillion figure includes a $2 trillion increase since the day Trump took office.
My Current Plan
In past essays on wealth building, I’ve talked about “antifragility,” a concept made famous by bestselling author Nassim Taleb.
In a nutshell, antifragility is a strategy of protecting yourself from unanticipated calamities (what Taleb calls “black swans”), while at the same time positioning yourself to take advantage of them.
My strategy assumes that there will be a stock market correction in the near- to medium-term … and that it might be considerable: 25-50%.
I developed the first part of my strategy from 2000-2010, when I was writing Early to Rise. During those years, I focused on financial assets outside of the stock market – mostly real estate, debt instruments, and private enterprise. It accounted for about 50% of my wealth back then and comprises about 80% of it now.
The second part of my strategy concerns stocks, cash, and gold. I developed the bulk of it from 2010-2016, when I was writing Creating Wealth. It includes, among other things, an unusual approach to owning gold and a unique way of investing in stocks that I call The Legacy Portfolio.
My core principle with respect to wealth building is simple: Get richer every day.
In the real world, it’s difficult to follow this principle. And it’s virtually impossible to hold true to it if 80% of your NIA (Net Investible Assets) is in stocks and bonds.
In other words, you have to diversify among multiple asset classes.
This is how my NIA breaks down:
* 5% of my NIA is in debt instruments: mortgages, hard money lending, and municipal bonds (which I cash in as they come due).
* Income-producing real estate represents my largest asset class – taking up about 50% of my NIA.
* Direct ownership of private equity constitutes 25%.
* And stocks currently comprise the rest – about 20% of my NIA.
I also hold some gold and cash. Together, they represent about 5-10% of my net worth, depending on what’s happening at the moment. But I don’t consider either of them as a part of my NIA.
With this kind of diversification, I believe I have achieved a considerable amount of financial antifragility.
The income I receive from my NIA is sufficient – more than sufficient –to cover any current or future needs. So I don’t have to worry about running out of money.
If there were an economic collapse, which is quite possible, the income from these assets would go down. But it wouldn’t go down anywhere near as much as the stock market could go down.
And if I’m wrong about this, I have that gold. I’ve accumulated enough to take care of my family for years, simply by spending those coins.
So that constitutes a second fallback bunker of safety for me.
And even my stock strategy is antifragile.
The Legacy Portfolio: Big, Profitable Companies Built to Last
I spent the first 10 years of my investing career avoiding stocks entirely.
I had my money mostly in triple-A, insured municipal bonds, which, at the time, were generating about 6% tax-free. Six percent tax-free is equivalent to about 9% in taxable investments at my tax bracket. And 9% is close enough to the historical stock market returns that I saw no reason to take a risk for an extra point or two.
As the yield on bonds diminished, I began investing in no-load index funds, which are designed to track the market. They did what they were designed to do.
Then, after I read my first book about Warren Buffett, I decided to create my own personal Berkshire Hathaway by asking two of the best analysts I worked with to build me “the stock portfolio that Warren Buffett would put together if he were starting out today.”
That was in 2011 and 2012. The original portfolio (still the core portfolio) consisted of stock in close to a dozen very large, market-dominating, dividend-giving (and dividend-growing) companies, including American Express, Coca-Cola, Wells Fargo, Nestlé, Becton Dickinson, Kellogg, Proctor & Gamble, McDonald’s, 3M, IBM, and Chevron.
My goal for the Legacy Portfolio was never – as is the case with most individual investors – to try to dramatically outperform the market. My goal was to keep pace with it, but with less volatility than I might expect from investing in an index fund.
Along the way, I developed a buy/sell strategy that is different from what most value investors do. My goal is not to maximize ROI but to accumulate as many shares of these great companies as I possibly can. So when the market is going down, we don’t sell. We wait until prices meet our target (i.e., they become historically cheap) and buy more. (Our criteria are not many. The most important is historical P/E ratios.)
Another twist that I put on the Legacy Portfolio is that I don’t reinvest dividends into the companies that issue them. Instead, I ask Dominick, my broker, to accumulate the dividends from all of the stocks and invest them in only a few companies that are the cheapest – i.e., have the most attractive P/E ratios.
Since its “official” (public) inception in 2012, the Legacy Portfolio has performed very well. I have doubled my total investment and achieved an annualized rate of return of 14.5% per year. And I’ve done it with less volatility than the overall market indexes.
So, if you ask me what I will do if the market tanks, the reply would be: I will stay consistent with my rule. I will not sell. I will buy more.
I have given myself one exception to that rule: If I feel the stock market is overvalued and due for a tumble (as it is now), I give myself license to take out some of the profits and invest them in another asset class if I can find one that offers me a current ROI equal to or better than the stock market.
To sum up all this, I’m not terribly worried about a stock market crash because I feel I’ve done all I can do to create a flexible (antifragile) portfolio of assets. But that doesn’t mean I won’t be freaked out if and when the market tanks.
If and when we do have a crash, I know that I will feel what every other investor will feel. I will feel like selling.
To obviate that, I’m doing a sort of financial meditation. I’m imagining myself looking at the bottom line of my stock account and seeing that is it down by 50%… and realizing that I’m okay with that.
I am then imagining myself calling up Dominick and asking him, “What should we be buying?”
That’s Me. What About You?
That is what I plan to do. But to be fair, I can do this not only because I have a high net worth but because my overall wealth strategy includes all those other asset classes that aren’t necessarily tied to the stock market. Which is to say, it may be easier for me to take the position I’ve taken than it may be for you.
If I had 80% of my NIA in stocks, I would definitely be selling stocks right now. I’d sell anything that was down (and thus avoid the capital gains tax) and anything else with historically unprecedented P/E ratios.
I’d reduce my portfolio to a size I could live with given an extended 50% drop. In other words, if stocks represented 80% of my NIA and I was willing to lose only 20%, I’d sell half of what I owned.
The advice I’d give to anyone right now is this: Forget about trying to beat the market and forget about market timing. Build a portfolio of 15-30 great companies that have a history of giving dividends and that have market advantages that will make it all but certain that they’ll still be big and profitable 20 years from now.