The Next Big Thing

     Everybody wants to be invested in the next blockbuster stock. Once the future craze is identified, an investor must figure what company(s) will benefit the most from it. Based on what I've been reading in Barrons and other financial publications, I have decided that artificial intelligence (AI) will be huge in the years to come. AI can be used for almost any application where large amounts of data must be analyzed and conclusions reached for efficiencies and problem solving. One easy example laid-out in Barrons uses two similar large retail banks- Bank (X) and Bank (Y).  They both notice that their delinquencies and charge-offs due to bad loans are increasing at an alarming rate. Bank X contracts with an outside firm who uses AI to analyze their data. Bank Y uses "In house analysis" and no AI. The Board of Directors at Bank Y decides to lower the credit limit by 50% for all credit card holders to control the bad debt losses. This also costs them millions in interest payments and lost accounts. However, Bank X has discovered through their analysis that most of the charged-off debts came from customers who had their direct deposits halted within the past 3 months. Yup, the direct deposits were paychecks and those customers had lost their jobs recently and were living on credit that they couldn't pay-off. Therefore, the Board of Directors of Bank X just had to get a list of the accounts with a stop on the direct deposit and act on only them. This is the power of AI. The way I see it , in the future, it's a must have for all successful companies. Not only that, but also consider autonomous cars and the massive amount of data that will use. The Internet of Things (IOT) is another huge developing technology where all new appliances will be wired to the Internet for monitoring and auto diagnosis.
     There are several stocks which are trading near their all-time highs because they enable these new technologies to function. I have owned several of them for a while and was tempted to sell this morning for some quick profits. However, I decided that the potential of these stocks far exceeds their current price, so I still hold them. There is no guarantee that these companies will be the ultimate winners in the technology space because there is always the potential for an upstart to unseat them with a better product. At the current time I just have to go with what I know. My picks include Micron Technology (MU), Xilinx (XLNX), Lam Reasearch (LRCX), and Nvidia (NVDA). As always I like to buy on dips, especially with high valuation stocks like NVDA but when the next correction comes, I'll be looking to add to my AI portfolio.

The Rollover

     At almost 66 years old, I decided to perform a rollover of my 401k retirement savings into an IRA at my discount brokerage account. According to the plan rules set-up by my former employer for the 401k, I would have to do this by age 69 1/2 anyway. My reasons for doing this were many, I didn't like the limited choices offered by the old plan, the customer service was sketchy, the website was clunky, and I wanted to derisk my portfolio by putting a substantial amount into federally insured CD's. I will still hold some stocks, mutual funds and ETF's in my rollover account but having guaranteed income without any loss of principle is attractive to me at my age. When it comes to customer service, my broker, TD Ameritrade, really impresses me. They answer the phone 24/7 and are knowledgeable and helpful. Sometimes in life, things happen during non-business hours that need attention immediately so it's good to know they have my back. Most employers contract-out the administration of their retirement plans to the lowest cost contractor. Your calls for assistance are often directed to third world countries. The people who answer the phone are trained to speak English and read the plan rules from a manual. They often have several companies to service thus several manuals to refer to. This can be confusing to them when trying to read and understand all the complex rules regarding rollovers and nuances of each particular plan. I also have trouble understanding some of these folks because I have poor hearing and they have heavy accents. What I have learned is that they can often give wrong advice which can cause major problems when trying to perform a rollover according to IRS rules. The last thing I need is a very large tax liability because someone in Malaysia or India gave me a bum steer. Over the years, I have challenged their instructions when what they were telling me really just didn't make sense or differed from what I read in the same manual they have. My advice is to question them if something just doesn't seem right. Plan participants of any age can elect to rollover into an IRA. My only warning is to check the rollover account for fees which can eat into your returns.  Anyone who is not happy with their current plan should consider the rollover option. The receiving firm should be able to walk you through the steps to complete the transaction.

Stock Splits, Stock Dividends, and Reverse Splits

     Seasoned investors have noticed something about the stock market that has evolved over the last 20 years or so: stocks just don't seem to split anymore. In the old days, when a stock approached the $100 mark, the board of directors would often approve a stock split to lower the price to a more affordable level. Retail investors like a lower stock price so they can buy a "round lot" which is 100 shares. Anything less than 100 shares was called an "odd lot" and the broker charged more for it in commissions. Nowadays, with all the discount brokerages offering cheap commissions, trading in odd lots is not expensive anymore. One example of a common split would be the 2for1 split. If you held 100 shares before the split, you would own 200 shares after. For every one share you owned, they gave you an additional share, thus 2for1. A look at the stock market page today shows more stocks over $100 than under. Some stocks are even trading over $1000 and have no plans to split. So why don't stocks split anymore? One reason may be that companies don't care if retail investors are buying their shares directly. With the popularity of mutual funds and ETF's, a lower stock price is irrelevant. Companies can still have a widely-owned stock and not incur the cost of sending every holder annual reports. The fact is that an investor makes no money in a split. Even though the number of shares held increases, the price is adjusted down to make the holding in dollars unchanged. Stock dividends are also a rare occurrence these days. It used to be that when a rapidly growing company needed to reward investors, they could issue additional shares instead of cash which was needed to fund their growth. A stock dividend would not result in the repricing of the shares and it usually was expressed as a percentage of shares owned.  A reverse split has the opposite effect as a forward split. It is used as a tool to increase the stock price and reduce the shares outstanding. An example would be if you owned 100 shares of XYZ corp and they declared a 1 for 50 reverse split, you would end up with 2 shares. Of coarse, the stock price would increase by a factor of 50 but your holdings in dollars will not change. Companies use reverse splits to boost their stock price when it gets so low that they are in danger of being removed from the index or exchange where they are trading. Another result of a reverse split is that many investors are forced out because their holdings are reduced to a fraction of a share which is automatically sold. This reduces costs for the obviously troubled company. Bottom line, healthy companies are reluctant to split their stock anymore.  In 2017 the total number of splits numbered in the single digits. So if you are hoping for a split of one or more of your holdings-don't hold your breath.