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Stocks, Options and Crypto

Updated: Oct 21, 2022

Today we’re just going to have a brief podcast and talk about stocks, a little bit of real estate, some crypto and some options, right? And these are some asset categories that you should know about, if you want to make them part of your portfolio. So, let’s start with stocks. Now, I’m going to keep this fairly simple, we can get really complicated. I’ve been doing stocks for over four decades. But listen, a stock is basically a share of ownership in a company. So, I don’t know exactly after a company has an initial public offering how that really affects the company, that this secondary trading in the secondary markets, you know, works for the company, I think it’s based on the future of if they want to raise more money or buy back their shares, I can’t really understand I think it’s actually a gigantic Ponzi scheme. That’s been held up for a long time. But you know what, we could debate that. But that’s not the purpose of this. I think the point is, when a company does well, and you own shares of it, if the company does well, they’re supposed to in the past, they used to pay you dividends on that company, right? So they would make money, and they would pay you a portion of those profits. Well, today, most growth companies certainly are not dividend companies, they don’t pay any dividend, they pour the money back into their research and development. Like look at Amazon, for example. Amazon for the for most of the last 20 years, hasn’t made any money. So what they did, they didn’t pay their investors any dividends. But the stock went up like crazy, like 1000s of percent, right. And so when they when it went up, the investors benefited, but they never were going to get dividends out of it, they made money on capital appreciation of the shares. Well, Amazon didn’t make any money on that capital appreciation of the shares unless they had some shares in their treasury, Amazon made money by, you know, going out selling products eventually and making a profit, but it took them like 20 years to get to profitability. And investors anticipated that. And so as they anticipated that they drove the stock up higher. But why would you buy a stock if they’re not going to pay you any part of the profits? Well, it’s because there are other people that are buying stock, because they’re not going to pay you any part of the profits. So at some point, it becomes a greater fool theory, there’s somebody that’s going to be willing to pay you more for the stock that you then you bought it, and then the stock price goes up. But still, you’re not making any money on the stock only if it goes up. But there’s a lot of growth, stock stocks that go up, that make money or they don’t make money. And there’s a lot of growth companies that go down, that make money to or don’t make money. So who knows. The bottom line is a stock trades on anticipation of future earnings, I’ll say that, again, a stock trades on anticipation of future earnings. So if a company is a growth company, in other words, Amazon, for example, if you’re like what Jeff Bezos was doing, he was taking all this money. And he was reinvesting it into the infrastructure of Amazon, buying trucks, buying distribution centres, building stuff around the world, making a bigger company, making it more efficient, putting different places so they could have more efficient distribution, making better deals on the products that that were being sold, making vendors more wealthy through the process of creating a platform where they could become more successful capitalist. And so through all of that, while he didn’t make money, as a company, in fact, they lost year over year over a year, they plow that money back in to building this company. And then when they stopped building the company, all the money went into profits, right. And so that’s what ended up happening now. They’re still not sharing that profit with you, they’re still like cutting you a dividend check. So is the company going to continue to go higher? Well, I don’t know most people are still buying stuff on Amazon. So probably, it’s going to continue to go higher, I don’t think it’s going to grow as quickly, I don’t think it’s going to have profit growth as much once it plateaus. And that’s generally what happens with growth stocks. So part of your portfolio should be in growth stocks, and I always look at it like growth stocks are a way to stay ahead of the inflationary curve. And there’s a huge amount of inflation going on right now, you know, this, when you go to the grocery store, you know how much more you’re paying per pound of chicken or per pound of beef, or for eggs or for dairy, even for bread. I remember when I was in college, and this is dating me, but you know, college was a long time ago, but I was paying 59 cents a can for a can of tuna. And now a can of tuna as a you know, like a buck and a half or something like that. That’s almost triple not quite triple. So if you’re if you look at that over a period of 30 years, and you say well, that’s basically you know, 50% of, you know, a decade. That’s a pretty high inflation, right? And even if you look at it today. Inflation because the government is printing so much more money now than they were ever printing in the past. Even percentage wise, they’re printing so much more. You can see inflation just permeating itself throughout the economy. And part of that is because it permeates through the transportation system. If gas prices are up 50%, and they’re up at least 50%, at least where I live here in Florida, they’re up at least 50%. So if gas prices are up, 50%, you know, the truck prices are going to be up. And since wages are going up for truckers because we have a supply side supply chain shortage there, they need to pay truckers more and more money truckers are making like 95,000 a year now they can command that. And people are willing to pay it because we’re still looking for products. And we’re we have a supply chain issue. So we’re like, give us some more toilet paper, give us some more soap, you know, give us some more big screen TVs, I don’t know. And we blame it on the ships that are sitting offshore. And that’s certainly a part of it. But we need to move those goods around our country. So we pay the transportation companies to do that. And when that happens, that permeates through the price of your products, right. So wage prices are permeating through the price of your products transportation, and then this free money that’s floating around, when there’s extra money floating around, people are willing to pay more for things like Hey, I got an extra 10 bucks, I’m willing to buy that Now then, maybe last year, I wasn’t because I was scrimping. I didn’t have that extra 10 bucks. Now, so I’m getting off on that. But stocks are a way to hedge inflation. Let’s talk about real estate. Real estate is also an asset, a stock though you can take your mouse and you can click on it you can be in or you can be out of stock. Very liquid has some real benefits for liquidity. Now that can cut both ways, because it can go down very quickly when there’s a lot of panic selling. So you can you know, things can move. But I remember back in the year, you know, 2006 2007 I was given some seminars, and some talks and people would come up to me at the breaks or after the talk. And they would say you know I’m invested in real estate, not stocks, because real estate never goes down in price. Never saying that. And I remember thinking real estate never. Now I hate the word never right never goes down in price. Well, we know what happened in 2007. And 2008, real estate prices just got shellacked. And a lot of people lost their homes, because they had that belief that real estate never goes down. So they were highly leveraged, and they weren’t able to get out of it. So real estate is an excellent asset class. In fact, the government wants you to own a lot of real estate, so they give you tons of incentives that give you the ability to depreciate things and take them off your taxes. Because, you know, if you have a roof that eventually needs to be replaced, t that replacement only happens once every, what, 25 years or something 20-25 years. So they’re gonna allow you to take the value off each year of what you would have paid, if you divide it by 25 years, you get to take that off the income on your taxes. So there’s some benefits to owning real estate, that’s just one of them, you get to deduct mortgage interest, things like that. So real estate is an excellent asset class for stability. Now, it’s not a very good liquid asset class, like if you want to get out of your house, and you have a market that’s not like it is right now where it’s really hot, you want to get out of your house tomorrow, you’re going to have to sell it at a pretty big discount, right? So it’s not as liquid as clicking a mouse. It’s quite illiquid actually. And it usually takes time for you to actually sell real estate, you can’t do it within a few seconds like you can’t with a stock. So those are two asset classes that generally track inflation, the benefit that real estate has is that people need a place to live or people need a place to have their office or you need a place to make your products or have a distribution center. So real estate has a really cool role in the fact that there’s major utility built into it. In the case of a stock, there isn’t a lot of utility built into it for you. And so it you know, it doesn’t have that same advantage of real estate, so real estate’s a great asset class to have in your portfolio. Now, let’s talk about options. And I’m not going to go really deep into options, I’m just going to tell you that an option is basically the right, but not the obligation to do something. So when you buy an option, you buy the right, but not the obligation to do something. And usually there’s an expiration time on an option. And so before that option expires, you have the right but not the obligation to perform a certain act to buy something to sell something. And if you don’t take advantage of that the day that it expires, the moment it expires, it’s worth zero, right? And so that is it’s basically a written contract of what you can do you have the right but not the obligation. So for example, if I have the right to buy your house for $500,000, I buy an option on that I have the right to buy it, that doesn’t mean I have to buy it. What if I don’t think your house is worth 500,000? By the end of the option? What if it’s only worth 450,000? Well, I don’t have to buy the $500,000 house from you because I could go and buy it on the regular market for 450,000. So that’s how an option works. Now an options a highly leveraged vehicle usually right when you’re a buyer of an option, you’re not going to pay for it or 50,000 for that option, because it has that expiration time, right, it’s worthless after it expires, you’d rather have had the asset. So you’ll pay for the right to do something. And usually to do that, you’ll get some gigantic leverage. So maybe it only costs you $4,500, to have the option to buy that house for 450,000, or 500,000, or whatever the number is. And so it’s a fraction, it’s a fraction because of the inherent depreciation of the value because as it moves towards its expiration date becomes worth less than last month. And so there’s that value in options, options play an incredible role in a portfolio, I believe, though, you have to be on the sell side of options. In other words, you have to be not the person that has the right, but the obligation, but the person that gives the right or the obligation to someone else. And then in exchange for giving that right for to do that for someone else, you collect a premium. So if I give you the option to buy my house at $500,000, you’re gonna pay me for something to for that, for that ability to do that, I get to pocket the money. And whether you exercise it or not, it’s an agreement that we made, but I get to keep that consideration, I get to pocket that money. So options can play a really, really great role in your portfolio. And if you want to learn more about options, we got lots of stuff about it. But there’s lots of stuff on the internet too. So options are really cool vehicle. And the last one I’ll talk about is what I call a tech asset. And a tech asset is like think about the Internet. In 1995. Yeah, there were a couple of websites, there were some emails going around, people didn’t really know how it was going to work out. But it worked out like our whole lives are right around the internet. And it’s growing even more exponentially, today around the world. And so if you think about that was a tech asset, Imagine owning some really cool tech assets at 1995. And having them today, right, you know, 20 years later, 2030 years, almost 30 years later. Imagine how cool would that be? If you just put them away, went to sleep and own them that much later, they’d be worth, you know, way, way, way, way, way, way more? Well, I think tech assets are always a part of an investment strategy. And I believe you should have some tech assets. Now the tech assets for me today are in things that are cutting edge, cryptocurrency, crypto assets. So if you can get involved in the cryptocurrency market, and I’m talking about getting involved in a responsible way, by the way, this is not financial advice. This is just an opinion, do your own research, but get involved in a responsible way. What is the most utilitarian cryptocurrency out there? To me it’s Bitcoin it’s the most tried and true, it’s not been hacked. It’s, it’s been tested, it’s really clunky, right? It’s like the, it’s like the big, you know, IBM Vax that they used to have the big computers that you couldn’t really mess with them. They didn’t go down much, but they weren’t really fast. That’s what Bitcoin is. But bitcoins like the most adopted cryptocurrency out there, so it’s probably not going to be unseated. I was looking at Bitcoin, like the Coca Cola of cryptocurrencies, right, you’re not going to unseat Coca Cola, even if you wanted to have a great soft drink. Coca Cola has got that market covered, you might be able to take a shot at Pepsi, or maybe you know, diet right or whatever the next one is our C, but you’re not going to be able to unseat Coca Cola. But there are other really great utilities for other cryptocurrencies. Ethereum has a smart contract buyer. So a lot of has smart contract layer. Cardano has a really great story. Helium has a cool story, like there’s a lot of utility out there. Going back to the internet. When I sat through that, boom, I watched all these beautiful stories that had, you know, like, they weren’t making any money at all, but they had all these really cool ideas, some made it some didn’t, some didn’t at the time. And now they’ve made it like, you know, Amazon was not a big deal bringing, you know, groceries to your door. That was called Web van, I think at the time, and everybody goes, Wow, that’s a really great idea. And then it crashed. But now, getting groceries delivered to your house is not a big deal. Amazon does it. And other companies do it as well. And you can have people shopping for you at the grocery stores and things like that. So sometimes, you know, if you’re really ahead of the game, you can do well, but sometimes you can, you know, catch that falling knife or, or maybe it goes all the way to the ground and you never catch it. So tech assets are should be a part of your portfolio, gold and silver and some of those other things that are hard assets should also be a part of your portfolio as well. Alright, so I kind of gave you a smattering today of some of the assets that you should learn about to be part of your portfolio of stocks, options, real estate, tech assets, and even a little bit of gold and silver. Right gold and silver has been around for 1000s and 1000s of years. It’s been a medium of exchange for us, traditionally, and I you know, while I don’t make gold and silver, my cornerstone of my investment strategy, I think we should have some of it in there. And then the other part that you’re looking for is you know, some digital gold and I kind of look at Bitcoin to be digital gold. So, Things to think about things to look into and, and you know, have as part of your investing strategy. Invest in portfolio. Don’t just be a real estate person. Don’t just be a stock person. Don’t invest just an options. Don’t just invest in gold and be a gold bug. There’s lots of ways to make money and if you allocate and diversify among those asset classes, it can create a much more sound financial plan. Hope that helps. Have a great day. See you next time.

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