Net worth and what it really means

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Jeff Bezos, the founder and CEO of Amazon, is the richest man alive, with an estimated net worth of $163 billion.

Bill Gates is 2nd place with $95 billion.

These are just the top 2 richest people alive. There are definitely more: Mark Zuckerberg, Warren Buffett, Larry Ellison, the Google guys, the Wal-Mart family, and more.

If you’re really curious, like I usually am, you can view the Forbes billionaire list here.

But what does net worth actually mean?

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I can tell you what it does not mean; they do not have all that money in their checking account.

The super wealthy have the vast majority of their money in stocks in their own company.

For instance, Mark Zuckerberg, founder and CEO of Facebook, has a net worth of about $62 billion. Where is his $62 billion? In the shares he owns in Facebook.

Zuck owns about 14 million class A shares, and over 440 million class B shares. With a price per share around $162 (at the time of this writing), that’s a CRAP TON of money!

These people, when they feel they need some money, sell some of their shares.

Jeff Bezos, last November, sold 1 million of his shares in Amazon for a whopping $1.1 billion. Must be nice!

So, what else do billionaires spend their money on?

They invest. It’s as simple as that.

Billionaires do not become filthy rich by spending frivilously. They certainly can if they want now, but they never would have gotten to be that rich by wasting money.

They invest in real estate, bonds, other companies, or they buy other companies out right. From these investments, they make even more money.

They do not keep very much of their wealth in checking and savings accounts. As I’ve said on my blog, savings accounts are a waste of money; they don’t even keep up with inflation.

In 2011, a savings account receipt in the Hamptons was found, and the balance was unreal; $99.8 million.

David Tepper photo credit

David Tepper, billionaire hedge fund manager, was asked if the receipt was his. When asked, Tepper replied “I would never do something as irresponsible as leaving $100 million in a savings account.”

I couldn’t agree more! I don’t keep the majority of my money in a savings account either. I don’t have nearly $100 million, but it seems to me that bonds would be a MUCH wiser choice.

Anyways, the point is, net worth is total sum. It does not mean that they have that much in cold hard cash. Not even close.

They invest. I invest. The reason we invest is simple: because our money will make money… it will work for us.

The odds are against you

I was just scrolling through my Investor Blitz Instagram feed, and I came across a post from @the.income.club .

“When something is important enough, you do it even if the odds are not in your favour” – Elon Musk

This is a fantastic quote for all of us who are retail investors. Because, the odds are definitely stacked against us.

Who runs the markets? The institutions.

Who decides when stocks go up, and when they go down? The markets.

Who has millions upon millions of dollars invested in research, programs, and the world’s best readers and analysts? Wall Street.

So why would a retail investor – an average Joe or average Jane – be so foolish to put their money in the markets, without a professional advisor? Because we can!!

It’s true; the retail investor is at a big disadvantage. We are up against billions of dollars from the institutions every day. I can’t make a stock move, and neither can you. But an institution can.

Does it matter that I am fighting against billion dollar corporations like Goldman Sachs everyday? Nope! Not in the least bit.

Sounds kind of crazy, doesn’t it? But here is the thing: I have a brain, I know how to read, and my eyes can see what’s going on.

I am confident in my research, and I keep my emotions at bay when my positions start to go south. I know, based on my research, that if a position of mine goes south, that the company is still a good company. I also know, based on experience and outside research, that the big institutions can play with a stock price. And, that the vast majority of retail investors are emotional and speculate to make their trades.

What is my point? Well, it’s simple. I simply do not believe that I have a huge disadvantage anymore. I don’t believe this, because I wanted something when I started investing. I wanted to eventually have a financially free life, and a secure retirement.

So I did the work. It’s not easy navigating the markets. But it is easy to read and learn what you are doing.

I think Musk hit it on the head; if you want it, you will find a way to make it happen.

Short selling is not smart money

financial-crisis-544944_1920Short selling: you borrow shares from your broker of a company and sell them on the open market. If the price goes down, you buy them back, and you return the shares to your broker and keep the change.

Short selling example

I think company XYZ is going to go down in share price, but it is currently trading at $25 per share. I want to short 100 shares of it.

I borrow the 100 shares from my broker at $25 per share. I sell them on the open market, and receive $25 per share, or a total of $2500, for selling them.

A week later, the share price has fallen to $20 per share. That’s a loss of $5 per share.

I decide I want to cover my position, so I buy 100 shares at $20 per share, for a total cost of $2000. The 100 shares I borrowed from my broker are returned.

The profit I made was $500.

To recap: I sold 100 shares (that I borrowed from my broker) at $25 per share. So, I made $2500 on the sale, but still owed my broker 100 shares. I purchased 100 shares on the open market a week later, for $20 per share, or for a total cost of $2000. I returned the 100 shares to my broker, and kept the difference between what I first sold them for ($2500) and what I purchased them for ($2000). I made a net profit of $500… not including broker fees or commission.

And that’s how you can make money on short selling.

History of the Dow and S&P 500

I have never short sold anything, and probably never will. The reason: because stocks, overtime, go up, not down. Short selling is a gamble in my opinion; speculation at best.

According to Macrotrends.net, since February of 1915, until August of 2018, the Dow Jones Industrial Average (the Dow), has risen from 1386.56 to 25,964.82. That is an increase of 1,700%.

On January 3, 1950, the S&P 500 closed at 16.66. Today is September 7, 2018, and the S&P 500 closed at 2871.68. That is an increase of  17,000%.

Shorting is very dangerous. Stocks, overtime, rise, they don’t fall.

For me, I don’t bet against the markets. No way! However, there are times when short-selling might make sense.

When short selling might make sense

Sometimes, companies hit hard times. Short selling might make sense in this situation. Take Enron for example, or a handful of other companies that went bankrupt. However, if they go bankrupt, and you have not covered your position, you will be on the hook to your broker for the number of shares you borrowed from them.

With that said, here are some reasons that shorting might make sense:

  • Company falls on hard times
  • The markets go into a recession
  • Market corrections
  • Bad earnings report
  • Negative news
  • Negative sentiment
  • Political regulations on a product or products

These are just some reasons that shorting might make sense. Each one, of course, along with short selling in general, comes with unique risks.

Risks of short selling

  • If company goes bankrupt, your on the hook for the shares you borrowed and can no longer buy back on the open market.
  • Upside potential (profit) is capped, but downside (loss) potential is technically unlimited.
  • You are betting against a market that has decades of data showing that it rises, and does not fall overtime.
  • You are borrowing the shares from your broker on margin… fancy term for a loan.

I’m sure if I thought a little more, I would have more negatives to short selling to tell you. For me, short selling is not an option. Never has been, and unless something changes, it never will be an option for me.

There are too many risks. To me, it is speculation at best. And as you know, I do not speculate. I base my decisions solely on research and data. The way I invest is not gambling, it is a calculated risk. Short selling is gambling, it’s speculation.

Don’t get me wrong; there are a few very successful short sellers. However, the vast majority of short sellers get it wrong far more than they get it right. Too dangerous, and too much data going against you if you sort a stock.

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I like to go with the flow, not against it. It’s about making money, not about the thrill of rolling dice and hoping your number comes up. The stock market does not have to be treated like a roulette wheel or a craps table.

What does an e-commerce app mean for Facebook?

Instagram might be launching a shopping app, according to sources. The Verge reported on this a few hours ago.

I think a lot of people forget that Facebook owns Instagram. I have been a huge proponent of Facebook, and I hold multiple positions in them. Their monetization potential for their apps are tremendous, and I think this new shopping app proves that.

This would catapult Facebook into the e-commerce realm, and they would now compete with the likes of Amazon. Will they be able to swoop in and steal all of Amazon’s business? LOL!! Absolutely not. But what they will do, is make revenue from it.

What the app will do

The app will be ‘standalone,’ which simply means it will be a separate app than the typical Instagram app.

According to The Verge, users will be able to follow merchants and purchase items from them, directly from the app.

According to Facebook’s Chief Operating Officer, Instagram currently has 25 million businesses on Instagram, and 4 out of every 5 users follow at least one business. WOW! That is some serious exposure.

What I think about this

Duh! I think everyone knows what I think. I am big on Facebook as a company, so I am thrilled at this news from an investors prospective. This just proves, to me, that Facebook’s potential is huge.

Money in Facebook’s pocket, is money in my pocket, since I am an owner in the company. So, anything they can do to monetize their businesses, I am all for. It’s as simple as that.

Thank you to ALL!

I just wanted to give a quick shout out to the first group of followers of Investor Blitz. I did not think I would have this many so soon. I appreciate each and every one of you.

I truly enjoy finance; I have a deep passion for investing, saving, and planning for my financial future. I want to share the knowledge that I have gained over the years, with as many people as possible.

I am a blue collar worker without a college education. Yet, I have done very well in the markets, and in my overall personal finances. I know I’m not the only non-college educated person to have ever thought “I can’t do this. Investing is for college people.” NOT TRUE!

I started this blog to spread financial education to those who think it’s unattainable. You don’t need a suit and tie, and a degree, to navigate the financial world. What you need, is simple: a brain, and some dedication.

There is LOTS more to come on this blog, as well as my YouTube channel, Instagram feed, and Twitter page. I have big plans! Hope you all stay tuned, subscribe, follow, and most importantly, LEARN.

Thanks again! See you soon.

Best regards,

Jay

Check this out! I’m not lying.

I recently (tonight) created an “about” page here on my site. I did this to show readers that I’m just one of them.

I am a regular blue collar guy, who learned the value of investing and good healthy finances. I’m not a businessman, or a Wall Street trader… or get rich quick scammer. I’m just me!

To prove who I am, check out my first YouTube video. I litterally just made it here in my power plant. Night shift, baby!

My YouTube video – #1

These are your only choices for money

Don’t know what to do with your money? There’s only so many things you CAN do with it…

  • Spend it
  • Save it
  • Invest it

That’s really it. No other option.

Let’s break down each one.

Spend it

Ok, this is the fun one. Who doesn’t like to spend money? We all like to go on vacations, by a new toy, or go out to eat. After all, what good is money if you can’t spend it?

Save it

BOR—ING!! Why do I wanna put my money in some account, just so I can spend it later? No, I wanna spend it now.

Invest it

Again, not as appealing as spending it, but a little less boring… right? Ok ok, for most people this is just as boring as putting money in a savings account.

What to do? Decisions, decisions.

I suppose the decision comes down to what you want.

Do you want to have fun? Do you want to have money incase your car breaks down? Do you want to eventually retire?

These are all questions you have to ask yourself. Once you answer them, you will know what to do with your money. It’s that simple.

For me, it’s a little of all 3: Spend, save, invest.

1) I definitley like to spend it

I believe that working your whole life is pointless, if you can’t enjoy the fruits of your labor. Spending is fun! I enjoy vacations to the Caribbean, I enjoy going out with friends, and I enjoy not having to cook myslef.

2) I like to have money put away for a “rainy day”

I put some money in a high-yield savings account, so I have money if something happens. Things that are unforeseen, like:

  • If my truck breaks down
  • If my air conditioning stops working (Florida is hot, duh!)
  • If Uncle Sam wants more money from me that I didn’t account for

Who knows! There’s a million reasons why I like to have some funds available for stuff I can’t forsee.

3) I definitely invest

I do not want to work for someone else my whole professional life. I also do not want to work until the day I die; I want to retire some day. And I want to retire comfortably, and still be able to afford to travel and have fun.

My goals require me to invest. Why? Because it simply will not happen unless I can grow my money… make my money work for me.

Money does not grow on trees. It’s a limited resource. What you do with it, is HUGELY important for your future. It’s also important for your present.

I’m not here to tell you to stop spending. I would be a hypocrite if I did. Instead, I’m here just to enlighten you.

There has to be a balance between spending, saving, and investing.

1) Spend it wisely

Do you really need to spend hundreds of dollars every week? Do you really need to spend on a credit card if you don’t have the cash to pay it off?

I don’t think so! Credit card interest is a killer! It will eat you up and take your money. The balance grows if you don’t pay your balance off every month

2) Start with $25 weekly

I started off, years ago, by having $25 per pay check, automatically go to a savings account via direct deposit. Over the years that number has increased to $100 per pay check.

After a while, because it’s automatic, you don’t even think about it. It just happens, and you get used to living off of what gets deposited into your checking.

3) If you want to retire, you better invest

401K’s, IRA’s, etc…. they’re a must unless you were born with a silver spoon in your mouth. I know I sure wasn’t.

I don’t want to work until the day I die. This requires me to invest. There’s just no other way.

If your employer offers a 401K, take advantage. If not, consider an IRA.

Talk to a professional financial advisor if you don’t know where to begin.

I’m not here to tell anyone what to do. I’m just here to plant seeds in your head; get you thinking.

Personal finance is a lifestyle. There is a balance; I found my balance. Have you found yours?

No college degree required to invest successfully

No degree? No problem.

There seems to be a myth that only white-collar, college educated people can know what they’re doing in the stock market. This simply is not true.

It is also thought to be a rich persons game- investing. Again, this simply is not true.

Why do people tend to think this? Well, when you watch the news, who do they show when they talk about the markets? People in suits and ties.

When they talk to investors, they don’t talk to Joe Blow oil refinery worker, like I was. They talk to Warren Buffett, or Ray Dalio, or Carl Ichan, etc… all of which are billionaires.

Bloomberg is not going to bring in an electrician to talk stocks with. No way! They’re going to bring in millionaire and billionaire investors.

But here’s the thing: the internet ushered in a whole new group of investors called retail investors. With a wealth of knowledge at our finger tips via the internet, us average-everyday-people can learn for free, what others spent THOUSANDS of dollars learning to do in college.

Ya, pretty cool! That’s what I did; I learned via the internet and books.

I am a retail investor, and I consider myself to be a successful one. The only thing that separates me from the young guy straight out of college, is I do not have a college degree. The only thing that separates me from a Wall Street institution, is I do not have billions of dollars.

Know what I do have? Eyes, ears, and brains. All the necessary parts to learn about investing for my future.

There are 3 things, in my opinion, that scare regular Joe Blow’s like myself, from investing for their future.

  1. They’re scared they don’t know what they’re doing.
  2. They don’t think they have enough money.
  3. They don’t know where to begin.

Ok, so those are all legitimate reasons for not entering the investing world. However, let me give you some insight, from my own experience, as to why you should ignore them.

Being scared you don’t know what you’re doing

The resources available are astonishing. The internet is a great tool to learn how to invest. Some fantastic sites for this are:

You would be amazed at what a simple google search will show. For instance, I just googled how to start investing in stocks, and a bunch of information popped up.

Also, there are books. Tons of books! One of my personal favorites (and Warren Buffett’s favorite) is The Intelligent Investor by Benjamin Graham. This book is why I became a value investor. It is considered to be the bible of investing.

You don’t think you have enough money

Oh man! I could talk for hours and hours about this being a big turn off for me years ago.

I thought you needed to buy hundreds, if not thousands of shares of a company to be successful…. FALSE!

Sure, technically, the more money you have, the more money you can make. The ol’ saying “it takes money to make money.” But what’s wrong with starting small and building your bank roll over time? Nothing!

And, since we are on the topic of money… get the thought of – having to buy cheap shares to make a lot of money – COMPLETELY out of your head. This is a terrible habit to form, as it’s just not true. A 10% gain, is a 10% gain, regardless if you own a $20 stock or a $200 stock. What matters is the total investment: if you have $1000 to invest, the gain could care less of you own 50 shares or 5 shares… 10% is 10%.

Savings. Saving up the money is key. If you can’t afford to invest, then don’t. Not until you have enough money. If it takes you a month, a year, or whatever, it makes no difference. Stop going to Starbucks everyday, and put that money to the side so you can invest it later.

You don’t know where to begin

Again, the internet is a wealth of information. There are a ton of low-cost brokerage firms you can use. Big names, like TD Ameritrade (I use these guys).

Just Google “where to open a brokerage or retirement account.”

This is the simplest thing of all three, yet it comes up as a worry. I know it did for me.

To conclude

Nobody knows what they are doing, until they know what they are doing. Make sense? Everyone has to start somewhere. Even the college kid, or even Warren Buffett. Nobody learns overnight and nobody begins by making a BAZILLION dollars.

Slow and steady wins the race. Want financial freedom? Well, it certainly is not going to happen if you bury your money in the back yard or under your mattress.

Breaking down the balance sheet

The balance sheet is arguably the most important financial information on a company. The balance sheet shows you what the company owns, and what it owes; assets and liabilities. They are public information, therefore easily accessible via the company’s ‘Investor Relations’ site, or via the Securities and Exchange Commission site. You will find balance sheets in 10K’s or 8K’s.

A balance sheet does exactly what it says, it balances. The calculation is simple: Assets = Liabilities + equity. For every dollar of assets, there needs to be a dollar of:

  1. Liability or
  2. Equity

If I took out a $1 million loan to purchase a building, then on the asset side I would show $1 million under property and equipment, and on the liability side I would show a liability of $1 million for the debt. $1 million building = $1 million liability, it balances. Assets = Liabilities + Equity. In the example I just gave, there is no equity. Therefor, nothing is entered under equity.

Let’s say I started my business with $1 million of my own money (lol, ya right). For the balance sheet, I would enter $1 million under assets, and $1 million under equity since the money I invested was mine. So, $1 million cash = $1 million equity, it balances. No liability in this case, so that would just be zero. Assets = Liabilities + Equity.

A balance sheet simply shows the company’s assets, liabilities, and owners equity. That’s it. But it is hugely important for investors to see.

For this tutorial on balance sheets, I chose Facebook. Let’s take a look at what important information can be found in one.

First, the assets.

Balance Sheet August 31

Assets are what a company owns. Current assets are assets that can easily be liquidated into cash: marketable securities and cold hard cash are what make up current assets. Marketable securities are investment vehicles like bonds or stocks. Then, of course, there are assets that are not easily liquidated into cash: property, equipment, etc., cannot be easily converted into cash.

What do assets tell us? They can tell an investor how financially sound a company is. Does the company have a lot of cash on hand? Would the company be able to easily pay off their debt should something happen? Does the company have plenty of cash to reinvest in itself for research and development? These are just a few questions that the assets portion of a balance sheet can answer. I look for companies with large amounts of cash and cash equivalents. I compare how much current assets they have to their industry peers.

liabilities

Now the liabilities portion of a balance sheet. There are – just like assets – current liabilities. Current liabilities are debts due within one year. They are short-term debts. On the flip side, long-term debts are liabilities that are expected to take longer than one year to pay off.

Short-term debts are things like lines of credit, or interest payments. Long-term debts are things like buildings and land.

Liabilities also tell a story. Is the company taking on more debt than it can pay off? What is the debt for? Are they buying buildings because they are expanding? Are they buying equipment because they are trying to become more efficient? Or, are they simply spending money because they do not know what they are doing?

I always want the assets to be more than the liabilities. Makes sense right? I don’t want the company having more debt than it can pay off. Technically, we as people should live our every day lives with the same philosophy. But, unfortunately, as soon as we purchase a house, that thought goes out of the window for the majority of us. Unless you are a multi-millionaire who can pay cash for that house.

Anyways, if you take the total assets, and subtract the total liabilities, you get equity.

equity

Equity can also be called ‘Owners Equity.’ It is what is left over for investors. In theory, it is also what the company is worth (very very much so in theory). Obviously, there is a lot more that goes into deciding what a company is worth. But, that’s basically the definition of equity.

I do look at equity, but not as much as I look at the assets and liabilities. I want to know where they are spending money, and what are they doing with their debt. More importantly, I want to know how much debt they have compared to their business as a whole. Too much debt is bad, too little debt can also be bad. There’s a fine line in there.

There is no such thing as too much cash in my opinion, however, I would question why they aren’t buying back shares, or investing more back into their business, investing more to expand, or paying a dividend; things like that. But for the most part, there is no such thing as too much cash. There can, however, be too little cash.

The only thing I use equity for, is to roughly gauge if they are under or over-valued compared to what they are selling for in the market. VERY roughly guage! As I said, determining a company’s true value goes much deeper than their equity.

This was a basic run-down of the balance sheet. This sheet is very important for value investors. If the balance sheet is weak, I won’t look any further into the company. The balance sheet must be strong.