Return on Investment:

Our wealth creation framework includes Debt, Stock and Real Estate. Stock is the resovoir, Debt is the enabler and Real Estate is the endgame.

When Stock Fails

Stock fails you when the company fails or during recessions. Avoid failing companies and prepare for recessions.

Choosing Stock

Select companies that do not fail. In 2006 you might have selected GM as a company that will be around forever. After the Great Resession GM was completely liquidated and the value of the stock went to $0. The company was reconstituted: 12% to the Canadian Government, 17.5% to UAW Healthcare Trust, 10% to bondholders and 60.5% to the US Government. Existing owners received nothing. How could we have known that GM was going to go to $0? GM is a large manufacturing company. Profits were usually negative. In 2007 the book value was -$65.54/share. GM had exponential growth until its peak in 1999. In reality government regulation, rising gas prices and competition from overseas doomed GM in the 1970s. In the 1980s GM squandered its goodwill with the American public and all GM could do was buy and sell other companies. Buy companies that make money, have a quality brand, are not being attacked by the government, is not being replaced by disruptive innovation, and has exponential growth.

A look at Master Card

Mastercard earnings are positive and increasing. The book value has been aove $5.00/share since 2012. Mastercard and Visa are the primary payment methods around the world. From time to time credit card fees are mentioned but have not been eliminated by the US Government. There should be a concern about disruptive innovation in the coming years. We are being mindful of possible disruptive innovation like direct payment solutions (apple pay, zelle and venmo) and cryptocurrency. The price of Mastercard has experienced exponential growth since inception with price drops to 50% during recessions.

Recessions

Cheeck how your stock responds during recessions. Expect a drop of around 50%. Do not choose stocks that go far below 50% since a drop over 50% may result in Margin calls and a dramatic loss of ownership.

Investor or Trader

Are you investing in stock or trading stock. Investors buy stock and hold it for the long term. Traders buy stock hoping for an increase in price then sell after the stock price moves. We choose to be both investor and trader. We buy a stock we intend to own for the long term. If the stock price drops we buy more. Once the stock returns to its original price we sell what we bought and hold the rest for the long term. This is a simple concept, but the process proves more complicated. To be succeessful you have to avoid the gamblers ruin, margin calls, stocks that go to $0 and running out of cash to buy more stocks. We have developed a process that appears to navigate the pitfalls but more study is needed to determine the probability of failure and the long term return on investment.