May 05, 2022

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TOGETHER WITH

Happy Thursday. The US Feds raised rates by 0.5% yesterday to combat inflation with hopes to ultimately return to normalcy. The markets are choppy, and not all data looks so dire, so stay calm and carry on.

Today's trivia: Of the 275 companies that have reported earnings this year through last week, what percent of them beat analyst estimates? a. 50.4%, b. 65.4%, c. 80.4%. Follow the wave 🌊 below for the answer.

🔎 Zooming in on the money and investing topics for today:

Boring is bliss
Why NFTs are getting hacked
5 things you may be wasting money on

INVESTING

Boring Is Bliss

Some people are afraid of boredom, despite the fact that most of life is inherently mundane. Eventfulness and chaos don’t always equate to good and sustainable outcomes though, so although we might all crave a little volatility sometimes, it's nice to strike a balance.

And when it comes to markets though, the perfect balance might lean towards boring. Despite its humble nature, boringness can actually be a blessing, especially when it comes to investing over the long run.

The downfall of excitement?

Boring is less stressful: Boring investing isn’t trying to be boring, it’s trying to be stress-free. The goal of mundane investments is to produce a solid, steady return over a long period of time, and what you trade off for that reliability is the chance to go to the moon. Usually though, that’s worth it, because portfolios that invest in boring stuff habitually often end up being their own multipliers.
Boring offers consistency: A boring investment has no real appeal if its returns aren’t sustainable. High-quality boring investments share the allure of returns that are solid, and recurring too. Although they might not double up in a year like some volatile high flyers, they’re something you can reliably depend on to keep pace with or outperform the market.
Exciting is volatile: With higher highs come lower lows, and in terms of investing, those exaggerated lows usually come much more often than the highs when engaging in more risky activity. Stocks that produce massive returns quickly almost always come back down to earth after that gap up, sometimes in meteoric fashion. Investing this way can make you a lot of money at once, but can you do it every day, week, or even month? Not likely, and that’s why 95% of day traders fail.

Finding your own boring

Simply put, boring investments can be a lot of things, but the underlying trait they all share is sound fundamentals, consistency, and less volatility. Think bonds, index funds, value stocks, and all those companies that are insanely uninteresting, yet probably incredibly important.

If you’re looking for your own boring assets to add to that long-term portfolio, here are some pointers 👇

Check on the beta: Beta is simply a measure of volatility in relation to the market as a whole. A beta score > 1 means the stock usually moves around within a higher range than the overall market, whereas the opposite is true for betas < 1. And betas < 0 are inversely correlated to the market. So, if you want a boring investment, don’t pick a $TSLA, which presently has a beta of 2.08.
Check the PE ratio: It’s natural for the share price to be higher than the earnings per share because you can hold shares forever whereas earnings are just for a year. And the company has assets it can liquidate, too. But when the PE ratio is too high compared to peers (e.g. Tesla’s is 123 whereas the S&P 500’s companies’ on average is 24), we just don’t know whether the company will be able to live up to its valuation. It’s all a big bet, and if you want boring, you won’t quite find it there.
Check the dividends: If you’re investing for income, dividends are a reliable option, just beware that it’ll take a sizable position for those payouts to mean something to you over time. It’s also paramount to pick something that has at least “decent” returns here, because a good dividend is irrelevant if your investment is a laggard.

📊 Related lesson on the lazy portfolio or the 3-fund portfolio:

Create a Simple 3-Fund Portfolio

Investing Basics

6 mins

CRYPTO & NFTS

NFTs Are Getting Hacked

One of the Bored Ape NFTs lost in the recent Instagram heist

Calling NFTs new would be an understatement, especially when we consider them against traditional investments. The first NFT was just minted back in 2015—that’s 6 years after the first crypto, 19 years after the first ETF, and about 400 years after the first stock ever was issued.

An investment niche that young—with such nascent, complex technologies behind it—is bound to have its early flaws, right? Right, well… we find ourselves in that early stage right now, and it’s clear that there are still some kinks to work out.

Problems with being a newbie

NFT hacks are being reported multiple times per month, and you have to wonder why they're subject to so many of them.

Crypto and NFTs have many new caveats and vulnerabilities that are susceptible to being exploited by highly intelligent hackers who know what they’re doing. Some of the holes are within the tech infrastructure, while others require cooperation, deceitfully obtained most often, like with phishing and airdrop scams.

All of these loopholes have sent illicit activity through the roof, with the Bored Ape heist being the most recent during a very busy month of April—which will reportedly go down as the most hacked month in crypto’s history.

Types of cryptocurrency-based crime in 2021 by transaction volume

Protect yourself

NFTs have risen in popularity at breakneck speed over the last 16 months. Weekly trading volume shot from $27M at the end of January 2021 all the way to $1.07B by August, and remains over $150M per week still, even after cooling off.

With so many newcomers jumping in, more and more traders are becoming exposed to losing money via hacks if they’re not taking at least some precautions. Not everything can be prevented, but we can do our due diligence.

Kick all the tires: There are more than enough scams and rug pulls going around in the budding crypto space, and they are probably the easiest risk to avoid. If it sounds suspect, it probably is. Do your due diligence on each project, identify the creators, read the roadmap—all the basics.
Don’t buy stolen assets: OpenSea facilitates 95% of all NFT transactions, so they have huge leverage in regulating the NFT space. Notably, they block an NFT from changing hands when someone reports that it has been stolen. What’s problematic is that when the stolen asset changes hands before it’s blocked, and innocent buyers purchase it, they can end up holding an illiquid asset. At a minimum, before you make an NFT purchase, check the owner’s transaction history to make sure they’ve held it for a long enough time and that they aren’t flagged on OpenSea for suspicious activity.
Delay your airdrop claim: The Bored Ape Yacht Club (BAYC) heist was probably one of the harder ones to avoid falling prey to, even for connoisseurs. Hackers broke into the official BAYC Instagram account and posted a link for holders to claim a token airdrop for their new metaverse platform. To claim an airdrop you’d have to sign a smart contract that would assess your transaction history to determine how much you were eligible to receive. But what this smart contract allowed was for the assets to be transferred out of your wallet instead. A best practice to avoid such murky waters is to delay claiming airdrops by a day or two. This way you can listen for feedback on community channels (e.g. Discord and Twitter) and look up evidence of airdrop transactions on-chain.

🖼️ Here's a related lesson on the basics:

NFT Basics

Investing Basics

7 mins

MONEY TIPS

5 Things You’re Probably Wasting Money On

Everyone goes through a money wasting phase at one point or another, it’s kind of like a rite of passage to financial independence. You’ll learn from those earlier mistakes, and know what habits to avoid in the future.

But money wasting isn’t always as obvious as it might seem. It’s not always discretionary purchases or compulsive excesses. It can often be more subtle expenses that even seemed reasonable or necessary at the time.

Like what?

Food: One study found that U.S. households waste over 31% of the food they buy. So, if you’re spending $300 per month on groceries, that’s $90 a month, and $1,070 per year.
Subscriptions: Subscriptions are often cheap, so they’re easy to forget about. A study by Chase found that more than 70% of consumers were wasting $50 or more per month on subscriptions they didn’t need. $4.99 here, $9.99 there... meh, no big deal.
Warranties: Some years ago a Consumer Reports survey found that 55% of consumers who purchased a vehicle warranty hadn’t even used it. That's a colossal waste, and a revealing view of what happens with warranties on a large scale, across multiple products.
Bank fees and credit card interest: If you read the fine print, lots of banks charge account fees for those who don’t meet the criteria (e.g. minimum balances and direct deposit in-bound payments). There are dozens of alternative banks out there with no such fees, and we get that sometimes it feels more like a hassle to switch. The same could be said for credit card interest. When you don’t pay off the bill, even though you have the cash, you're wasting money on interest when you don’t have to.

🔥 CORPORATE CORNER

Today's Movers & Shakers

Shopify (-17.4%) missed profits by a wide margin and issued a cautious outlook as pandemic-inspired growth slows—an e-commerce cooldown
Etsy (-14.4%) on weaker guidance even as they reported higher revenues and matched profit expectations
EBay (-9%) on a weaker than expected forecast
Bitcoin (-4.3%) to $37,958.40

This commentary is as of 8:10 am PDT.

🌊 BY THE WAY

Answer: 80.4%. Of the 275 companies in the S&P 500 that have reported earnings to date, 80.4% have reported earnings above analyst estimates. This compares to a long-term average of 66% and prior four quarter average of 83.1%. (Refinitiv)
💰 Intuit owes you money if you paid for the "free" edition of TurboTax (The Verge)
💸 ICYMI. Household debt is the heirloom that appreciates (Finny Bites)
👧 Does a toddler need an NFT? (NYTimes)
Finny lesson of the day. For those of you who are crypto curious and given our topic on NFTs today, what about web3 🕸️? What is web3 about and what are its future implications?

Web3 Basics

5 mins

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The Gist is Finny's twice a week (Tues & Thurs) newsletter covering personal finance & investing insights and money trends. Finny does not offer investment and stock advice or endorsements. The Gist content team: Austin Payne, Othmane Zizi, Chihee Kim.

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