Broken Pie Chart

If you listen to CNBC or Bloomberg you probably hear analysts talking about how the Forward PE Ratio is higher than historical averages on the stock market. But how are they figuring these numbers? How does the drop in earnings in the S&P 500 in 2020 due to Covid19 compare with earnings drops in 2008 and 2009? How long did it take them to recover?

What is a Forward PE Ratio?

How is the Forward PE Ratio calculated?

What is the Earnings Yield?

How is Earnings Yield calculated?

Drop in earnings 2008 vs 2020 and years to recover

Are Forward PE Ratios a good predicter of future returns?

Cape Ratio or Shiller PE

Mentioned in this Episode:

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek www.razorwealth.com

For years many have pointed to the end of the 60/40 Portfolio's reign as a mass recommended asset allocation. But even in 2020, it still worked as bonds rallied and interest rates dropped to record low levels in the US. But with rates this low, do the risks now outweigh any potential benefits? How much more could bonds rally due to changes in interest rates given where they are? How negative could rates go?

What is 60/40 Stock Bond portfolio?

Is it realistic to think bonds will have same run as 1981-2020 going forward?

How negative can US Treasury yields go?

Nominal Returns vs Real Returns after inflation

Amount of negative yielding debt around the world

More interest rate risk while yields and cash flows are lower

Alternatives to the 60/40 Portfolio

Bill Gross said rates would have to go to negative -17% to equal last 40 year run in bonds

Mentioned in this Episode:

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Podcast Myths around the 60/40 Portfolio https://brokenpiechart.libsyn.com/discussing-myths-around-the-classic-6040-portfolio-part-i

Contact Derek www.razorwealth.com

In the recent Covid financial crisis the Federal Reserve "printed" a bunch of money that increased the money supply. This should lead to massive inflation, right? Well, maybe not if we look at the relationship between the velocity of money (how often the same dollar is used) and the inflation rate. See how to figure out the velocity of money. What is the money supply and where to find it?

What is the Velocity of Money?

What is the money supply?

Difference between MZM, M1, and M2 money supply

Relationship between money velocity and inflation

Comparing increase in money supply now in 2020 to the 2008-09 period

Money supply has increased over 20% since Feb in the US

Money as a medium of exchange

What happens when the velocity of money goes below 1 (like in Q2 2020)?

Japan experience with deflation and low money velocity

Where can you find the money supply, GDP, and money velocity charts?

Mentioned in this Episode:

See the graph money velocity vs. inflation here https://razorwealth.com/money-velocity-relationship-to-inflation/

Current Nominal GDP US https://fred.stlouisfed.org/series/GDP

Current Velocity of Money Supply MZM https://fred.stlouisfed.org/series/MZMV

Current Money Supply MZM in US https://fred.stlouisfed.org/series/MZM

Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek www.razorwealth.com

Apple released earnings last week but also announced their board authorized a 4-1 stock split. Do stocks splits matter anymore? And would a 4-1 Apple stock split completely shake up the weighting of the Dow Jones Industrial Index?

Effect of Stock Splits

Authorized stock split vs. implemented

How a stock split affects a company's market cap

What changes around earnings history and price history post stock split?

How are companies in the Dow Jones Index weighted?

Price weighted indexes vs. market cap weighted indexes

How Apple's proposed stock split will upend the weighting in the Dow Jones Index

Mentioned in this Episode:

Dow Jones Index companies current index weightings http://indexarb.com/indexComponentWtsDJ.html

Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek www.razorwealth.com

Last week we talked about Tesla's potential to qualify for the S&P 500 Index. Post earnings, some new option traders were surprised by the stock and options prices post positive earnings release. Plus, a paper recently updated called "Day trading for a living?" compile data on day traders trading futures contracts. The results were not too promising but what did the paper leave out?

Tesla options implied volatility in premiums post earnings release

Robinhood traders on Reddit message boards – do they know what they are doing?

"Day Trading for a Living?" a paper recently updated sheds light on futures traders

What is the trading risk of ruin table?

Position sizing and percent of capital put at risk for traders

Mini Ibovespa futures contracts in Brazil

High volatility of returns cited in day trading paper

97% of traders lose money day trading according to paper

What is the risk of ruin?

Comparing risk of ruin across different payoff ratios

Mentioned in this Episode:

"Day Trading for a Living? " paper https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3423101

How are options priced podcast https://brokenpiechart.libsyn.com/how-are-options-priced-and-what-is-short-volatility

Book: A Trader's Money Management System: How to Ensure Profit and Avoid the Risk of Ruin by Bennett McDowell , Forward by Steve Nison https://amzn.to/32WqJ8W

Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek www.razorwealth.com

Tesla has had a meteoric rise lately. At their recent high their market cap would have put them in the top 10 weighted companies of the S&P 500 Index. But will Tesla have the required consecutive quarters of positive earnings? What are the criteria for a company to be included in the S&P 500 Index? When does S&P do their index rebalancing? Which companies have been added and deleted from the index?

Tesla current market cap

What would Tesla's weighting be if they made the S&P 500 Index

Why do investors want their stocks included in indexes?

Tesla next earnings announcement

Consensus analyst earnings expectations Tesla

Which companies were added and deleted from the S&P 500 Index?

Can S&P committee stray from the guidelines to add or delete companies?

How soon could Tesla be added to the S&P 500 Index

S&P 500 Index scheduled rebalancing calendar

Tesla and Zoom in the Nasdaq 100 Index

Last stocks to be added and deleted from the S&P Index

Mentioned in this Episode:

Fortune article Will Tesla Be Added to S&P 500? https://fortune.com/2020/07/14/tesla-s-and-p-500-index-stock-added/

Historical changes to S&P 500 Index companies additions and deletions https://en.wikipedia.org/wiki/List_of_S%26P_500_companies#Selected_changes_to_the_list_of_S&P_500_components

2020 Trading Calendar showing index rebalance dates and options expiration – trading holidays https://www.nasdaq.net/PublicPages/assets/MyMID/Trade_Calendar_2020.pdf

Nasdaq 100 Index companies by weighting https://www.slickcharts.com/nasdaq100

Criteria for inclusion in the S&P 500 Index https://www.thebalance.com/what-is-the-sandp-500-3305888#:~:text=As%20of%20February%202020%2C%20the,S%26P%20500%20was%20%2424.4%20trillion.&text=To%20qualify%20for%20the%20index,at%20least%20%241%20per%20share.

Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek www.razorwealth.com

Why doesn't the stock market and economy both go up or down with one another at the same time? How is the market a forward-looking discounting mechanism? How do recessions and earnings expectations play into underlying price of the S&P 500 Index?

Atlanta Fed GDP Now

Comparing historical recessions by examining real GDP declines

Great Depression vs. Financial Crisis vs 2020 Covid19 Recession

Looking at consensus S&P 500 Index earnings forecasts 2020, 2021, and 2022

How the market does not go up or down equal to change in GDP

Are there times that companies write down or take charges to earnings during recessions

Uncertainty of S&P 500 Index earnings estimates

Intrinsic value of future earnings

How interest rates effect valuations

Mentioned in this Episode:

Atlanta Fed GDP Nowcast https://www.frbatlanta.org/cqer/research/gdpnow?panel=3

JP Morgan on the Markets Guide PDF https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/insights/guide-to-the-markets

Percent Change Gross Domestic Product Quarterly https://fred.stlouisfed.org/series/CPGDPAI

Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN

Resource for S&P 500 Index consensus earnings estimates https://www.yardeni.com/pub/yriearningsforecast.pdf

Book Jeremy Seigel Stocks for the Long Run https://amzn.to/3el67tO

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek www.razorwealth.com

The Federal Reserve through their SMCCF or Secondary Market Corporate Credit Facility have been buying bond etfs and individual bonds. What have they been buying and how much? Where to find the list of ETFs and Bonds purchased by the Fed. Plus, TIPS or Treasury Inflation Protected Securities (Bonds). How do they work? How do they hedge against inflation? And How are TIPS bonds adjusted along with inflation.

Where to find list of ETFs and bonds the Federal Reserve is buying?

What is the Federal Reserve SMCCF or Secondary Market Corporate Credit Facility?

The Fed has purchased about $6.8 Billion worth of corporate bond etfs through June 18th

The Federal Reserve also has been buying junk bond etfs

How much and what individual bonds of corporations has the Fed purchased thus far?

How much has the Fed said it will purchase of corporate bonds?

What are TIPS bonds (Treasury Inflation Protected Securities)?

What year did the US Treasury first offer TIPS bonds?

When inflation via the CPI increases, how are TIPS bonds adjusted higher?

How does deflation cause an adjustment lower in TIPS bonds?

Do the coupon payments on TIPS bonds increase along with the principal amounts?

What is breakeven inflation rate?

What does the breakeven inflation rate tell us about cash flows of TIPS vs US Treasuries?

Where to download excel file with Federal Reserve ETF and Bond holdings?

How do TIPS bonds help investors potentially protect purchasing power and leverage inflation?

Mentioned in this Episode:

Download Federal Reserve holdings and trades of ETFs and Bonds (SMCCF Transaction-specific disclosures June 28th, 2020) https://www.federalreserve.gov/monetarypolicy/smccf.htm

10 Year Breakeven Inflation Rate https://fred.stlouisfed.org/series/T10YIE

Derek article showing current Fed holdings of ETFs and bonds https://zegafinancial.com/blog/really-dont-fight-the-fed-federal-reserve-updated-holdings-of-bonds-and-etfs-6182020

Jeremy Siegel talks inflation with Barry Ritholtz https://podcasts.apple.com/us/podcast/jeremy-siegel-on-the-stock-market-under-covid-19-podcast/id730188152?i=1000478723627

Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN

Book Jeremy Seigel Stocks for the Long Run https://amzn.to/3el67tO

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek www.razorwealth.com

Semi co-host Jay Pestrichelli joins the program to discuss all things VIX Index, what it measures, how stocks and markets each have their own volatility, and how implied volatility in the options market can determine probability of future moves.

What does the VIX Index represent?

What is implied volatility in the options markets?

What is the difference between implied volatility and historical or realized volatility in markets?

How implied volatility helps calculate current market-based probabilities

Jeremy Siegel now calling for some inflation

Options pricing around stock earnings

Reminiscing about CNBC after hours earnings options action appearances

Options speculation vs hedging

Mentioned in this Episode:

Jay Pestrichelli' s book "Buy and Hedge" https://amzn.to/2UEk12c

Realized vs Implied Volatility March 2020 https://zegafinancial.com/blog/strategy-update-4-2-20

Why investors need a hedged equity strategy podcast https://podcasts.apple.com/us/podcast/why-investors-need-a-protective-hedged-equity-strategy/id1432836154?i=1000418366567

Jeremy Siegel talks inflation with Barry Ritholtz https://podcasts.apple.com/us/podcast/jeremy-siegel-on-the-stock-market-under-covid-19-podcast/id730188152?i=1000478723627

Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN

Book Jeremy Seigel Stocks for the Long Run https://amzn.to/3el67tO

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Contact Derek www.razorwealth.com

Often younger or newer investors just starting the process of saving and investing ask what the best strategy to build wealth quickly? The power of compounding and starting early are key, but periodically investing each month and making it automatic can build wealth surprisingly well. In this episode we talk about key areas in what younger investors should be doing including 401k, systematic investing, and how dollar cost averaging lets you buy more lower over time. Plus, surprising statistics reviewing 120 years' worth of decades and each of their compounded annual growth rates in the S&P 500 Index.

What was the compounded total return for the S&P 500 Index by decade back to 1900?

What is dollar cost averaging?

How does compounding accelerate your wealth building?

What is dividend reinvestment?

Between Schwab, Vanguard, TD Ameritrade, and Fidelity investors have plenty of tools and resources to start investing

Accumulation and Distribution phases of investing plus the extra base maximization phase 10 years prior to retirement

Why you should not try and get rich quick using options or futures and thus leverage

What is an automatic investment plan moving money each month from bank accounts to brokerage accounts?

Explaining Charles Schwab's new stock slices to buy fractional shares of S&P 500 stocks

Mentioned in this Episode:

Free Chapter from my book Broken Pie Chart https://www.book2look.com/book/YcqUhbCrtN

Charles Schwab fractional shares https://www.schwab.com/fractional-shares-stock-slices

Charles Schwab investing basics 101 FAQs https://www.schwab.com/how-to-invest/investing-basics#panel--text-29676

Book Jeremy Seigel Stocks for the Long Run https://amzn.to/3el67tO

Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr

Stock compounded total returns by decade https://zegafinancial.com/blog/where-did-the-2010s-rank-for-total-return-on-sandp-500-index

Contact Derek www.razorwealth.com