Alchanati Campbell & Associates
Potential. A word describing restricted possibility and opportunity. A limit, a stop sign, a paper certificate that says “congratulations” on it. “You are only good for this much.” “You can only achieve this level.” “You can only make x amount.” Humans make a limit in their mind of how much their potential is. But, it’s not accurate. We are too afraid or too lazy to figure what are extremes are. How far can you go? How much can you achieve? Test yourself! Live your extreme. See how long you can stay awake or see how much you can get done in one sitting or see how far and how fast you can run... test yourself. Where do you think achievement and accomplishment come from? They come from breaking barriers, going to new heights, and beating our potential. Because all potential is is a label, and I only wear non-branded shirts.
The Market. The labor force participation of 25 to 54-year-old men has been falling since the 1960s. In 1969, the participation rate was 96% and in 2015, 89%. Why? Because of health conditions, disability, the rise of opioid prescriptions, and the rise of trade, automation, and outsourcing of work. All this talk of a recession might cause a recession… Some believe that companies should focus their energy on maximizing shareholder value and should not concern themselves with giving to charity. By maximizing shareholder value, those shareholders can decide whether to make donations or not. Others say companies care more than just profits; they care about the customers, the market, the government, and the environment around them. The more people multitask, the worse they are, not just at other mental abilities, but at multitasking itself. The Muni market had a record $52.9 billion of inflows through the end of July. The US budget deficit will hit $1 trillion in 2020. China imposed additional on $75 billion worth of US goods. Fed Chairman Jerome Powell said that the US economy is in a favorable place but faces significant risks. Trump orders American companies to find an alternative to China.
Shareholder Yield by Meb Faber. This is a short research piece on capital allocation and investing. “Returns for shareholders will be determined largely by the decisions a CEO makes in choosing which tools to use in deploying capital and raising capital. Dividends and their reinvestment represent a major portion of a stock investor’s total return over time. Reinvested dividends represent over half of an investor’s annualized returns (over the period of 1871-2011). By reinvesting dividends and compounding the portfolio returns, the final value of the total return portfolio turns out to be 99.8% higher than the non-dividend portfolio. Dividends contribute virtually all of the final portfolio value versus a price only return. A study done by Elroy Dimson, Paul Marsh, and Mike Staunton showed that higher dividends yielding stocks outperformed low dividend-yielding stocks in 20 countries from 1975-2010. One of the most important qualities of a successful investment analyst is the ability to adapt to change. Companies have been lowering their dividend payout ratios for the past 70 years. One of the reasons for this is beginning in the late 1990s, share buybacks have outpaced dividend payments. The purpose of a company is the maximize long-term value.”
Hunter S. Thompson on the topic of advice. To presume to point a man to the right and ultimate goal- to point with a trembling finger in the right direction is something only a fool would take upon himself. All advice can only be a product of the man who gives it. What is truth to one may be a disaster to another. We seek to understand the goal and not the man. Every man is the sum total of his reactions to experience. We strive to be ourselves. A man must choose a path which will let his abilities function at maximum efficiency toward the gratification of his desires. Decide how to want to live and then see what you can do to make a living within that way of life.
Why is an inversion of a yield curve an indicator for a recession? Take the 2-year treasury bill and the 10-year treasury bill. When investors think a near-term economic downturn is becoming more likely, they prefer to hold longer-maturity bonds. Why are investors pricing in more risk for a recession? Because of the slowing in global industrial production and trade volumes. But, bank balance sheets are strong, household leverage is manageable, and the personal savings right is high concluding that the financial stability risks are still moderate today.
What is the purpose of a corporation? It used to be to maximize shareholder value. Now it is: delivering value to our customers, investing in our employees, dealing fairly and ethically with our suppliers, and supporting the communities in which we work.
Companies should maximize shareholder welfare not market value by Oliver Hart and Luigi Zingales. Milton Friedman states that a corporate executive is the employee of the owners of a public company and has a direct responsibility to his employer. He states the desires of the owners are to make as much money as possible while conforming to society’s rules. That there should be a clear separation between the goals of companies and the goals of individuals and government. But most of these “owners” care more than making money. They care about ethical, moral, social, environmental, and governance issues. Why would they not want the public companies they invest in to have the same sentiment and care?
Pension Funds. A Pension Funds is a very desirable employment benefit. Essentially, after you retire, you continue to receive an annual payment equal to a certain percentage of your salary. This percentage is usually based on your position as well as your years of experience with the company. Generally speaking, this fund invests money for the employees. The manager of the fund has to get enough of a return on investments to actually make the obligated payments. If they don’t hit that level of return, the employer is going to have to pay the difference. This represents a defined benefit plan. There is also a defined contribution plan, which a 401k is. Essentially, every year, employees pay certain amounts into their 401k. These amounts are invested into the market and grow with the market. The difference here is that the employer is not responsible for ensuring a specified payment amount. The risk is transferred to the employee, along with the potential for exponentially greater returns. Nowadays, very few private entities offer defined benefit plans and opt for defined contribution plans instead. Government entities, however, still pay defined benefit plans.
The Alchanati Campbell and Associates Team
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