Investing, Loans, Stock Market, Stocks
January 16, 2022
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On this podcast, we go to Suze School for a lesson on how to invest in the stock market, as well as bonds in this current economic environment. Plus, an extra reminder about paying off debt.
January 16, 2022. So, we are going to Suze's school today. Now I know, I know. I told all of you we were going to do a Suze's school on bonds. Oh, as KT would say I'm a Gemini. I'm always changing my mind and I am changing my mind this morning because I think more important than you are knowing about bonds and you all know that I don't think you should be in bonds right now. But besides that, more important than bonds, I think, especially for those of you who own individual stocks, or you want to buy individual stocks that you really understand the stocks that you want to be purchasing now in 2022 maybe very different than the stocks that you wanted to purchase in 2021 and 2020 and before. So, I want to go to Suze's school and go way back into the past to 1980, when I first became a stockbroker. And what I was taught back then because what I was taught back then I think is how all of you might want to start investing today because those rules from then are starting to apply right now. So, it was 1980 and I'll never forget the first time I sat in the sales room and there was a stockbroker who had been a stockbroker for a number of years by the name of Peter. And he got up in front of all of us. And remember when you first become a stockbroker, you don't know anything about investing. You've been taught how to pass the series seven exam and all these other exams and you've been taught how to be an incredible salesperson, how to make 100 cold calls a day to get people to say yeah I'll give you money and buy the stock that you're recommending. But you really don't learn about investing and how everything works until you have done it for years and years and years; until you have actually lost money for people and you feel what that feels like and you realize the mistakes that you've made because we all make mistakes. It's just how it is. And so, you have to start learning somehow and the sales meetings every Tuesday, that's where you would learn. So, Peter was up in front of everybody and here's what he was trying to teach us. The question was “how do you find a good stock? How do you know what you should be selling your clients?” And his answer was as follows, you should look for a stock that has earnings multiple of about 10 to 15 times. And I'm sitting there going, what's earnings multiple, what does that even mean? So let's all go back to class right now and learn every company that issues stock that's on the stock exchange has a number of stocks meaning a number of shares that can be purchased and every company has earnings, what are they going to earn that year? They're making a product after their expenses and everything. What are they actually going to earn? And what is also the current price of that stock on the stock market. So, let's just say you had a stock that you owned, XYZ stock And it's selling for $20 a share on the stock market. And you look up their earnings and their earnings are for this year, going to be $2 a share. That means if you divide the earnings into the current price of the stock that they're selling at 10 times their earnings. So, their earnings multiple would be 10. You got that everybody. Next we were taught that you also want to know that you are buying a stock that's going to grow their earnings are going to grow. And all these companies have projections of they're going to earn this much this year. They are projected to earn that much next year, the year after that. And you are looking for a company whose earnings are projected to grow at 20 to 25%. And Peter would say if you just can put those two things together, then you will be able to construct a really great stock portfolio for your clients. Because remember all the way back then they didn't have slices of stock that you can buy, they didn't even really have mutual funds or many of them back then most people, if you were investing in the stock market had to do it through a stockbroker at a full service brokerage firm, pay full commissions and buy individual stocks. That's how it was done. So now let's fast forward. Here we are all these years later and over the past few years, 10 years or so even more, that type of education went absolutely out the window. Sure, people cared about earnings, sure, people cared about growth. But many of the stocks that people were making a fortune on really didn't have any earnings. They were losing money. They were selling not at 10 or 15 times their earnings multiple. They were selling at a 100, 200, times their earnings multiple. If they even had earnings and all people could see was this stock is going up, the stock is going up, oh my God, look at it, it said 200 now, it said 200 oh my God, it said 400. And you all jumped on and you carried the stocks all the way up until, as I explained, last Sunday inflation hit. And when inflation hit, it hit harder than it's hit in 40 years, which is approximately how long ago I became a stockbroker interesting, isn't it? Anyway, so here we are, inflation has hit and the only way to control inflation is to increase interest rates because again, when interest rates go up it costs you more to do anything and that slows your ability to buy things, which slows inflation. But what inflation and raising interest rates also does is it affects the stock market in terms of what people are looking for to invest in. So that's really an important thing for all of you to really, really understand because again, and it really deserves repeating from last week, investors right now are getting more and more conservative and they are looking for companies that are selling at these lower multiples. They don't look at what the high prices were or things like that. And oh my God, something went from 400 to 100. So, it's a goodbye. That's not what they're looking at. They're looking at, does this company actually have earnings, does this company, is it projected to have its growth of what it does increase at 20 or 25% a year. So, what you're looking for right now are not companies that are projected to skyrocket because all of you really need to remember that this is a marathon. This is not a race anymore. And again, what happened in 2020 and 2021? I doubt highly that you're going to see that happen for the next few years. It could happen again. Absolutement, but I don't think it will happen right now. So if you own individual stocks, you are in retirement, you are in a situation where that money is invested in retirement accounts and if you sold, there isn't a huge tax ramification because you're in a retirement account. So, there's no tax ramification. I'm personally advising you that you look at every single stock that you own and you ask yourself the question, what does this company make, you know, what does it do, what does this company do? What does it make, what are its earnings multiple, what is it projected to grow at? Ask yourself those questions. Or at least if you have a financial advisor, have this conversation with your financial advisor because if you are absolutely freaking out that all the stocks that you own which are technology stocks or these high flyers that have gone down 50%, there's still fabulous companies but it is driving you crazy. Maybe this is the time. Truthfully that you reevaluate what you do have if you're in that retirement situation and you look at possibly looking into really great dividend paying stocks because that seems to be where people are wanting to go right now. Now you have time on your side, 5 years, 10 years and you own some of these incredible companies that have been obliterated and you have time to wait. Alright. Like I said last week again, Then just wait, I also said, however, last week, did you not hear me, I gave you the names, stocks but I said not yet, not yet, it's still too soon to put new money into companies that you really don't know what's going to happen with and again, you have to have nerves of steel to do that. Now I have one company that I've been doing that with and I have been obliterated but I have absolute faith that 5 years from now, 10 years from now, this company is going to make me a lot of money but for everybody else, just be careful and I just want to say a few more things. Some of you have been writing me and you have said to me, Suze, I own a lot of oil stocks, I did what you said and now I think I should sell them and invest in all these stocks that have gone down considerably. Now oil isn't going down. Oil is still here to stay at these prices for a little while. Like I said, I like Chevron, I still like Excel E just go slowly here and don't try to outsmart the market, do you hear me? So, do I think that this is a time when our economy is going to go to hell and here, we go and what are we going to do? I don't, but I do think that what happens in the stock market is dependent on what happens with the feds are they going to raise interest rates two times this year? Are they going to raise it four times this year, what is Powell going to do? So just take it easy there. Again, many of you are asking me why is it that I want you if you are in retirement to have 3-5 years of that money in cash and it's for times like this. Normally it takes 3-5 years for the stock market to go from its high to its low back up again. And during that time if you need to withdraw money from a retirement account, I don't want you to be selling stocks that are down considerably. I'd rather you just take that money from cash. Got that. So, you really need to reevaluate what's happening in your portfolios right now because again, it's not pretty if you own a lot of those highflyers that were just so incredible including ARKK Fund. It's been devastating. You've seen all your gains go away possibly depending on when you bought. So just think about that now, I am looking at the time here and I'm only about 15 minutes into this podcast. So that means I do have time to talk to you about bonds now. I don't want to give you a primer on bonds and how bonds work because in one of the past podcasts a year or so ago I went through all of that. I want to talk to you about buying bonds, especially if you are buying them with a financial advisor and the reason that I want to talk to you about that is that I got an email from somebody asking a question and told me about all these bonds, these individual bonds that she owns with a financial advisor who also is charging her in investment advisory fee to manage those bonds for her. And I got so mad at that. I can't even tell you now. I talked about this in the past before, but I'm afraid that some of you are going to say, oh my God, I have got to get out of the stock market and I have got to go into individual bonds. I have got to go into bond funds. I don't think so when interest rates go up, I just want you to remember this, when interest rates go up, the value of bonds go down, when interest rates go down, the value of bonds go up with interest rates going up. This is not the time in my opinion to commit new money to bond funds or really individual bonds. Again, if you're looking for income, there are fabulous dividend paying stocks out there. There are preferred stocks which again are fabulous. My portfolio is made up of an incredible amount of preferred stocks and I like them. I like the income I earned from them. Obviously, I own a whole lot of Municipal Bonds, but I bought those Municipal Bonds all the way back in the early 2000’s so they're yielding me a nice interest free, high yield. But today we're talking about new money today, I would not be putting myself into bonds right now or especially long-term bond funds. Long term bond funds are bond funds that are made up of individual bonds that have maturity ease of 20 or 30 years. Don't do it, don't do it, don't do it back to this woman who had all these bonds with a financial advisor that she bought the bonds through. That's also charging her an investment advisory fee just to hold the bonds when you buy a bond through a financial advisor, the financial advisor has an inventory of bonds from clients that have sold their bonds back to the brokerage firm. Maybe bought something else, whatever it may be. But that brokerage firm or that advisor usually has a bond desk that can tell the advisor all the individual bonds that they have in inventory for the advisor to sell to their clients. When the advisor is talking to the bond desk, the two of them decide how much commission does the adviser want to be paid on selling that bond to the client. And that money is taken from that bond and that is what determines the actual interest rate that you, the client will be given on that bond. So, the financial advisor has already earned a commission for selling you that bond got that. Next, when you buy a bond, you are not a bond trader, you are not somebody who buys a bond. You wait for interest rates to change and then you sell that bond. You make a little money here and there. You normally buy a bond because you want the interest rate that that bond is giving you and you want to hold that bond until it matures for you to hopefully get all your money back. Just that simple. Remember everybody a bond is a debt instrument. It's where a company needs money. For whatever reason they need money, it can be a company, it can be a municipality, it can be the government, they need money. So, you invest in that bond. That company or that entity is giving you a specific interest rate for a specific period of time and they'll pay you that every six months until that bond matures. That's normally how a bond works. So, when you buy a bond you don't trade it, you don't sell it, you don't whatever. You usually hold it until maturity, and you enjoy the interest rate that you are being paid twice a year on that bond. Therefore, there is nothing for that financial advisor to manage. You're not managing anything. The bond is just sitting there. But yet this financial advisor is getting paid 0.5% or 1% or whatever it may be just to the hold the bonds for you. An honest financial adviser, a good financial advisor would do the following. You come to them and let's just say you have 23 $400,000 that you're giving them And you want $200,000 invested in bonds, 200,000 invested in stocks that he or she picks for you manages for you, sells them for you whatever it may be and they charge you 1% or less to manage the stocks for you. You don't pay commissions to buy or sell, they get an investment advisory fee. However, the $200,000 of bonds or whatever it is of bonds that you want to buy individual bonds should be kept in an entirely different account, a separate account that does not have an investment advisory fee on it. So in this case you would have two accounts with your financial advisor, one that's under an investment advisory fee that they trade and they watch and you talk about all the time and the other one which is your bonds that just sit there because they have already been paid a commission on those bonds. Did that make sense what I just said to you? So, I want again all of you, if you are dealing with a financial advisor and you have individual bonds with the financial advisor, and you are under an investment advisory fee with that financial advisor. I want you to go back and look at your statements and is your bond portfolio part of the investment advisory fee that they're charging or is it held in a separate account? Now a lot of you have retirement accounts and you've said to me, but Suze I only have one retirement account. So, everything in that retirement account is under an investment advisory fee. Oh, please give me a break. People, you could have two or 3 retirement accounts with a financial advisor. You can have one just for your stock portfolio and one just for your bond portfolio. You don't have to have everything in one retirement account with them. So, these are little things that you really, really need to examine and that's what I wanted to talk to you about bonds. Again, I know I know that a lot of you think the way that you get safe in times when the markets fluctuate is to just go into the bond market. Now you go into the bond market when interest rates are projected to go down. Again, the difference between an individual bond and bond funds are individual bonds have a maturity date. So, it doesn't really matter if you're going to hold them to maturity what interest rates do a bond fund, however, does not have a maturity date. So, if you need that money sooner than later, if interest rates go up, the value of your bond fund most likely will go down, especially if it's a long-term bond fund. So just reevaluate all of that. Now I still have a little time left so I want to talk about one other thing that absolutely aggravated me to the core. I got an email from somebody that said please time urgent, I must make a decision tonight. And it was 11 o'clock at night already. And I was looking through the emails that come in to AskSuzePodcast@Gmail.com and I go oh my God, what's this? And it was from this woman whose daughter has had a really really rough time. You know, she went through DUI’s. All kinds of things and maybe losing her child and now she's on the right path again. But way back when her life wasn't going so well, she took out one of those like payday loans or loans and like a 28% interest rate and she couldn't pay it. And the company literally wrote off the loan and sold it to a collection’s agency. And the collection agency now has been hounding this woman's daughter saying if you don't tell us by 5:00 this next morning that you're going to make a deal with us where you send in $280 a month for the next whatever. And that would have come out to like a 35% interest rate. We are taking you to court. And the woman writes me and says Suze please. My daughter doesn't know what to do, she wants to be able to pay this off. She wants to be able to buy a home again one day and have good credit and they're threatening her. And she actually guaranteed it by her personal signature when she originally took out the loan. So, she's going to say, okay. Now the woman owes $6,600. If she does it the way that this this company wants her to do it, she's going to be paying 8,9, $10,000. And I write her back and I go, no, wait, wait. If the collection agency is calling you and they're demanding right now that you answer them, that means that the statute of limitation of where you live is most likely almost up and if the statute of limitation on this debt is almost up, that collection agency isn't going to be able to get their money. Remember everybody, when a debt is written off from an original creditor and it's on their books, they sell that debt to a collection agency for pennies on the dollar, then that collection agency looks at the dates of the loan when it was written off and they know that there is a certain amount of time and that varies per state as to when they're not going to be able to take that person to court anymore. There will be past the statute of limitations and when that date is approaching, they start hounding those of you who owe them money until you are so freaked out that you either say, okay, I'll send in money or you send in money. If you do either of those two things, the statute of limitation starts all over again. So, I write this woman back and I go, I have a feeling check to see your statute of limitations. And sure enough, the loan stopped being paid in 2019. Here we are in 2022 and the statute of limitations is almost up. And I said, see I told you and she said, but my daughter feels bad it's going to ruin her credit. She doesn't want to ruin her credit. She just wants to do whatever. It's $280 a month. I don't know where she's going to get the money, but we'll figure it out. I go stop. Don't do it because all of you also need to remember once something is on your credit report, just paying it off doesn't mean it changes your credit score. So, when something is 120 days past due, it goes on your report. Even if you pay that off after that 120 days, it does not change your report or your score on any level. So, it's almost as if why do it? Especially if you're past the statute of limitations and you honest to God, don't have the money to pay for it. You're a single mom, you're working, you're struggling. You're trying to get by, you don't have any money. And then this collection agency is harassing you. And because you want to do well, you're like, okay, I'll just do anything to set the record straight. No. Just because things went wrong in your past doesn't mean that you're a bad person. It means that things went wrong. And now you just abide by the law. And the law allows it so that you don't have to pay for it. Especially if you don't have the money. Don't let a collection agency threaten. You don't do that. So, hopefully this woman and her daughter listened to me, I don't know if they did or they didn't. But I just sometimes when I read emails and I know that you can benefit from the information that's coming into me because if one person is writing me, three people are writing me. You all write me essentially the same thing. That means many of you out there need to know these things. All right. That brings us to the end of another Suze's school. Look at me. I got bonds in after all. See, I kept my word. All right, everybody. So, until Thursday with a new Ask KT and Suze Anything and by the way, if you're interested in asking a question, just write to AskSuzePodcast@Gmail.com. And if KT chooses it, I will answer it on this podcast with her. But until then there's really only one thing that we want for all of you and that's for you to stay safe, strong, and secure. See you soon. Bye bye.
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