Tag: investor education

Ellyce Fulmore is putting the personal back into personal finance – MoneySense

[ad_1]

What was the biggest money lesson you learned as an adult?

The understanding of how big a role your identity plays in your finances. Finance is deeply personal and intersectional, and your money is directly impacted by aspects of your identity such as privilege, race, gender, sexual orientation, mental health, disability, systems of oppression and more. The identities you hold will impact how you view, understand, spend and approach your money.

I didn’t fully understand this until I came out as queer and was diagnosed with ADHD. These realizations helped me make sense of a lot of my money behaviours and challenges. For example, I struggled with impulse spending for years, and ended up with $15,000 of high-interest debt because of that. I felt so ashamed of this debt, but I didn’t know that having ADHD makes me four times more likely to impulse spend than someone without ADHD. By understanding who you are, the privilege you hold and/or barriers you face, your lived experience and your trauma, you can begin to change your relationship with money and create a financial plan that makes sense for your life.

Learning this lesson is what inspired me to write a book and start my financial literacy company, Queerd Co., where our approach to financial literacy goes beyond the conventional, giving folks permission to be full human beings—not just numbers on a spreadsheet. At Queerd Co., our goal is financial equity, and every course we create, resource we recommend, space we hold and discussions we lead will aim to take a shame-free and identity-based approach to money.

What’s the best money advice you’ve ever received?

That your financial situation is not your fault, and the shame you feel around money is not solely your shame to carry. I learned this inside of the Trauma of Money certification program, where we spent time examining and unpacking the idea of shame and responsibility when it comes to our money. The reality is that many of us inherit money trauma and learn our financial behaviours and habits from our caregivers. We also have to consider the government policies, financial institutions, and larger societal systems such as capitalism, and how those play a role in the decisions we make and the financial challenges we are subjected to. In the Trauma of Money, we were taught to ask ourselves, “Whose shame is this?” to help call attention to the fact that some of the shame we feel has been placed upon us, despite it not being our shame to carry. This advice really helped me reframe the way I felt about my past financial decisions.

What’s the worst money advice you’ve ever received?

I tell this story in chapter 1 of my book, which is all about finding safe spaces: The first time I went to talk to a financial advisor at the bank, the advisor made a misogynistic comment along the lines of, “When you have a husband, he will take care of this for you.” This was his response when I tried to ask questions about some financial terms he had briefly mentioned. This was horrible advice because: a) it was misogynistic; and b) it was encouraging me to not be in control of my own financial situation. I cannot stress enough how important it is to have financial autonomy, even within a marriage. If you ever find yourself in an abusive relationship, having access to your own money will give you the freedom to leave.

Would you rather receive a large sum of money all at once or a smaller amount regularly for life?

It would depend on the amount. If the smaller amount was enough to cover my monthly expenses, then I would choose that option, because it would give me the immense privilege of never again stressing about paying my bills. It would also take a lot of pressure off my business and allow me to explore more creative pursuits. But if the amount wasn’t enough to cover my bills, then I’d prefer the lump sum. I could actually make more money from the lump sum in the long term by investing it, but the first example would be a better decision emotionally.

What do you think is the most underrated financial advice?

Gamify your finances. This is great advice for almost everyone, but especially for anyone who is neurodivergent. If you can make managing your money fun and enjoyable, you’ll be more likely to actually keep up with it, and have greater success with reaching your goals.

What is the biggest misconception people have about growing money?

That being “good with money” and building wealth is just a math game, and that all you need to do is manipulate the numbers—it’s so much more than that. Creating the perfect spreadsheet, debt repayment plan or investment strategy will never address the root of your money issues. We’ve been taught that if we follow the formulaic system for success, we will be wealthy and happy. But there’s no magic formula for success, because everyone’s lived experience, values, goals and definitions of wealth are different.

[ad_2]

MoneySense Editors

Source link

June 10, 2024
Homes are expensive right now, but these mortgage bonds look cheap

[ad_1]

U.S. homes may be wildly unaffordable for first-time buyers, but mortgage bonds backed by those same properties could be dirt cheap.

Shocks from the Federal Reserve’s dramatic rate increases have walloped the $8.9 trillion agency mortgage-bond market, the main artery of U.S. housing finance for almost the past two decades.

Spreads, or compensation for investors, have hit historically wide levels, even through the sector is underpinned by home loans that adhere to the stricter government standards set in the wake of the subprime-mortgage crisis.

Bond prices also have tumbled, sinking from a peak above 106 cents on the dollar to below 98, despite guarantees that mean investors will be fully repaid at 100 cents on the dollar.

From $106 to $98 cents, agency mortgage-bond prices are falling.

Bloomberg, Goldman Sachs Global Investment Research

“It’s really, really struggled,” Nick Childs, portfolio manager at Janus Henderson Investors, said of the agency mortgage-bond market during a Thursday talk on the firm’s fixed-income outlook.

Yet Childs and other investors also see big opportunities brewing. While mortgage bonds have gotten cheaper with the sector’s two anchor investors on the sidelines, the stalled housing market should breed scarcity in the bonds, which could help lift the sector out of a roughly two-year slump.

Prices have tumbled since rate shocks hit, but also since the Fed continued winding down its large footprint in the sector by letting bonds it accumulated to help shore up the economy roll off its balance sheet.

Banks awash in underwater securities have pulled back too. The repricing of similar bonds helped hasten the collapse of Silicon Valley Bank in March.

“Banks have been not only absent, but selling,” said Childs, who helps oversee the Janus Henderson Mortgage-Backed Securities exchange-traded fund
JMBS,
an actively managed $2 billion fund focused on highly rated securities with minimal credit risk.

“But we’re moving into an environment where supply continues to dwindle,” he said, given anemic refinancing activity and the dearth of new home loans being originated since 30-year fixed mortgage rates topped 7%.

The bulk of all U.S. mortgage bonds created in the past two decades have come from housing giants Freddie Mac
FMCC,
+0.66%,
Fannie Mae
FNMA,
+1.09%
and Ginnie Mae, with government guarantees, making the sector akin to the $25 trillion Treasury market. But unlike investors in Treasurys, investors in mortgage bonds also earn a spread, or extra compensation above the risk-free rate, to help offset its biggest risk: early repayments.

While homeowners typically take out 30-year loans, most also refinanced during the pandemic rush to lock in ultralow rates, instead of continuing to make three decades of payments on more expensive mortgages. If someone refinances, sells or defaults on a home, it leads to repayment uncertainty for bond investors.

“To put this another way, the biggest risk to mortgages is now off the table, yet spreads are at or near historic wides,” said Sam Dunlap, chief investment officer, Angel Oak Capital Advisors, in a new client note.

That spread is now far above the long-term average, topping levels offered by relatively low-risk investment-grade corporate bonds.

Agency mortgage bonds are offering far more spread that investment-grade corporate bonds. But these mortgage bonds will fully repay if borrowers default.

Janus Henderson Investors

Agency mortgage bonds typically are included in low-risk bond funds and can be found in exchange-traded funds. While they have been hard hit by the sharp selloff in long-dated Treasury bonds
BX:TMUBMUSD10Y

BX:TMUBMUSD30Y,
there has also been hope that the worst of the storm could be nearly over.

Goldman Sachs credit analysts recently said they favored the sector but warned in a weekly client note that it still faces “high rate volatility and a dearth of institutional demand.”

As evidence of the U.S. bond selloff, the popular iShares 20+ Year Treasury Bond ETF
TLT
recently sank to its lowest level in more than a decade. It also was on pace for a negative 10% total return on the year so far, according to FactSet. Janus Henderson’s JMBS ETF was on pace for a negative 2.7% total return on the year through Friday.

“Frankly, why they fit portfolios so well is that because the government backs agency mortgages, there is no credit risk,” Childs said. “So if a borrower defaults, you get par back on that. It just comes through as a typical payment.”

[ad_2]

Source link

October 13, 2023
Before you short Nvidia after reading investment advice from ‘Twitter randos,’ read this

[ad_1]

Nvidia Corp.’s revenue doubled while its cost of goods barely crept up, so there must be something fishy, right? A company is using their Nvidia graphics processing chips as collateral for billions in loans — that doesn’t sound right, does it?

As Nvidia NVDA shares fell 3.1% to close at $470.61 on Wednesday, Bernstein analyst Stacy Rasgon must have been hearing from clients all day who were worried after reading the most recent conspiracy theory on why Nvidia’s 222% year-to-date stock gain must somehow be fixed.

“Recently…

[ad_2]

Source link

September 7, 2023
Why naked short selling has suddenly become a hot topic

[ad_1]

Short selling can be controversial, especially among management teams of companies whose stocks traders are betting that their prices will fall. And a new spike in alleged “naked short selling” among microcap stocks is making several management teams angry enough to threaten legal action:

Taking a long position means buying a stock and holding it, hoping the price will go up.

Shorting, or short selling, is when an investor borrows shares and immediately sells them, hoping he or she can buy them again later at a lower price, return them to the lender and pocket the difference.

Covering is when an investor with a short position buys the stock again to close a short position and return the shares to the lender.

If you take a long position, you might lose all your money. A stock can go to zero if a company goes bankrupt. But a short position is riskier. If the share price rises steadily after an investor has placed a short trade, the investor is sitting on an unrealized capital loss. This is why short selling traditionally has been dominated by professional investors who base this type of trade on heavy research and conviction.

Read: Short sellers are not evil, but they are misunderstood

Brokers require short sellers to qualify for margin accounts. A broker faces credit exposure to an investor if a stock that has been shorted begins to rise instead of going down. Depending on how high the price rises, the broker will demand more collateral from the investor. The investor may eventually have to cover and close the short with a loss, if the stock rises too much.

And that type of activity can lead to a short squeeze if many short sellers are surprised at the same time. A short squeeze can send a share price through the roof temporarily.

Short squeezes helped feed the meme-stock craze of 2021 that sent shares of GameStop Corp.
GME,
+10.45%
and AMC Entertainment Holdings Inc.
AMC,
+2.54%
soaring early in 2021. Some traders communicating through the Reddit WallStreetBets channel and in other social media worked together to try to force short squeezes in stocks of troubled companies that had been heavily shorted. The action sent shares of GameStop soaring from $4.82 at the end of 2020 to a closing high of $86.88 on Jan. 27, 2021, only for the stock to fall to $10.15 on Feb. 19, 2021, as the seesaw action continued for this and other meme stocks.

Naked shorting

Let’s say you were convinced that a company was headed toward financial difficulties or even bankruptcy, but its shares were still trading at a value you considered to be significant. If the shares were highly liquid, you would be able to borrow them through your broker for little or almost no cost, to set up your short trade.

But if many other investors were shorting the stock, there would be fewer shares available for borrowing. Then your broker would charge a higher fee based on supply and demand.

For example, according to data provided by FactSet on Jan. 23, 22.7% of GameStop’s shares available for trading were sold short — a figure that could be up to two weeks out-of-date, according to the financial data provider.

According to Brad Lamensdorf, who co-manages the AdvisorShares Ranger Equity Bear ETF
HDGE,
-2.65%,
the cost of borrowing shares of GameStop on Jan. 23 was an annualized 15.5%. That cost increases a short seller’s risk.

What if you wanted to short a stock that had even heavier short interest than GameStop? Lamensdorf said on Jan. 23 that there were no shares available to borrow for Carvana Co.
CVNA,
+10.63%,
Bed Bath & Beyond Inc.
BBBY,
-12.24%,
Beyond Meat Inc.
BYND,
+11.31%
or Coinbase Global Inc.
COIN,
+1.45%.
If you wanted to short AMC shares, you would pay an annual fee of 85.17% to borrow the shares.

Starting last week, and flowing into this week, management teams at several companies with microcap stocks (with market capitalizations below $100 million) said they were investigating naked short selling — short selling without actually borrowing the shares.

This brings us to three more terms:

A short-locate is a service a short seller requests from a broker. The broker finds shares for the short seller to borrow.

A natural locate is needed to make a “proper” short-sale, according to Moshe Hurwitz, who recently launched Blue Zen Capital Management in Atlanta to specialize in short selling. The broker gives you a price to borrow shares and places the actual shares in your account. You can then short them if you want to.

A nonnatural locate is “when the broker gives you shares they do not have,” according to Hurwitz.

When asked if a nonnatural locate would constitute fraud, Hurwitz said “yes.”

How is naked short selling possible? According to Hurwitz, “it is incumbent on the brokers” to stop placing borrowed shares in customer accounts when supplies of shares are depleted. But he added that some brokers, even in the U.S., lend out the same shares multiple times, because it is lucrative.

“The reason they do it is when it comes time to settle, to deliver, they are banking on the fact that most of those people are day traders, so there would be enough shares to deliver.”

Hurwitz cautioned that the current round of complaints about naked short selling wasn’t unusual and even though short selling activity can push a stock’s price down momentarily, “short sellers are buyers in waiting.” They will eventually buy when they cover their short positions.

“But to really push a stock price down, you need long investors to sell,” he said.

Different action that can appear to be naked shorting

Lamensdorf said the illegal naked shorting that Verb Technology Co.
VERB,
+69.65%,
Genius Group Ltd.
GNS,
+45.37%
and other microcap companies have been recently complaining about might include activity that isn’t illegal.

An investor looking to short a stock for which shares weren’t available to borrow, or for which the cost to borrow shares was too high, might enter into “swap transactions or sophisticated over-the-counter derivative transactions,” to bet against the stock,” he said.

This type of trader would be “pretty sophisticated,” Lamensdorf said. He added that brokers typically have account minimums ranging from $25 million to $50 million for investors making this type of trade. This would mean the trader was likely to be “a decent-sized family office or a fund, with decent liquidity,” he said.

Don’t miss: This dividend-stock ETF has a 12% yield and is beating the S&P 500 by a substantial amount

[ad_2]

Source link

January 23, 2023
Stock market bulls have a new story to sell you. Don’t believe them — they’re just in the ‘bargaining’ stage of grief

[ad_1]

Might the bear market’s losses at its recent low have gotten so bad that it was actually good news?

Some eager stock bulls I monitor are advancing this convoluted rationale. The outline of their argument is that when things get bad enough, good times must be just around the corner.

But their argument tells us more about market sentiment than its prospects.

At the market’s recent closing low, the S&P 500
SPX,
+1.19%
had dropped to 25% below its early-January high. According to one version of this “so-bad-it’s-good” argument, the stock market in the past was a good buy whenever bear markets fell to that threshold. Following those prior occasions, they contend, the market was almost always higher in a year’s time.

This is not an argument you’d normally expect to see if the recent low represented the final low of the bear market. On the contrary, it fits squarely within the third of the five-stage progression of bear market grief, about which I have written before: denial, anger, bargaining, depression and acceptance.

With their argument, the bulls are trying to convince themselves that they can survive the bear market, rationalizing that the market will be higher in a year’s time. As Swiss-American psychiatrist Elisabeth Kübler-Ross put it when creating this five-stage scheme, the key feature of the bargaining stage is that it is a defense against feeling pain. It is far different than the depression and eventual acceptance that typically come later in a bear market.

Though not all bear markets progress through these five stages, most do, as I’ve written before. Odds are that we have two more stages to go through. That suggests that the market’s rally over the past couple of weeks does not represent the beginning of a major new bull market.

Numbers don’t add up

Further support for this bearish assessment comes from the discovery that the bulls’ argument is not supported historically. Only in relatively recent decades was the market reliably higher in a year’s time following occasions in which a bear market had reached the 25% pain threshold. It’s not a good sign that the bulls are basing their optimism on such a flimsy foundation.

Consider what I found upon analyzing the 21 bear markets since 1900 in the Ned Davis Research calendar in which the Dow Jones Industrial Average
DJIA,
+1.34%
fell at least 25%. I measured the market’s one-year return subsequent to the day on which each of these 21 bear markets first fell to that loss threshold. In seven of the 21 cases, or 33%, the market was lower in a year’s time.

That’s the identical percentage that applies to all days in the stock market over the past century, regardless of whether those days came during bull or bear markets. So, based on the magnitude of the bear market’s losses to date, there’s no reason to believe that the market’s odds of rising are any higher now than at any other time.

This doesn’t mean that there aren’t good arguments for why the market might rise. But the 25%-loss concept isn’t one of them.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.

[ad_2]

Source link

October 24, 2022