Think LIke a Millionaire

     When I was younger and raising my family, I had the chance to go to lunch with a group of local multi-millionaires. Needless to say, I was pretty excited because this was my chance to listen and learn how to become one of them. We met at a local pub and after introductions, they began to talk. To my disappointment, the conversation was not about making money or lucrative investments. The entire time was spent on a discussion about how to grow your own potatoes. I came home angry and dejected.. Those guys could easily afford to buy every potato in the state of Indiana without making a dent in their net worth. It wasn't until years later that I realized the lessons to be learned from that meeting. First, these guys were just like anybody else. There was no one secret to their success. They worked hard at what they did for a living and invested their money in whatever they were comfortable with. Second, they were misers. They grew their own vegetables because they liked fresh produce, liked working the soil, and saved a little money in the process. By taking good care of their pennies, they racked-up dollars over time. Privately, they even talked about what tightasses the others were. I remember a story about one in the group, who reportedly was worth $10 million, how he anguished over the purchase of a johnboat for fishing. I seriously doubt that any one of them had any substantial debt. Why would a guy who grows his own potatoes want to pay interest? Another trait they all shared was that real estate was a considerable portion of their holdings. One was a developer and another was a large property manager and landlord.  None of them drove fancy cars or dressed like they were worth a lot of money. They all lived in comfortable but modest homes. The richest guy lived in a duplex and rented-out the other half for income. Bottom line is that most millionaires are not easily recognized. The only difference between them and everyone else is the peace of mind they have knowing they can handle any financial difficulties for them or their loved ones.

MID-YEAR TUNE-UP

     Last December, I wrote my forecast for the year 2019. It is now time to check the accuracy and substance of my comments. First on interest rates, I stated that the Fed would probably not raise interest rates for the immediate future. That was correct, the Fed is actually hinting at a rate cut this year if markets deteriorate. I also predicted a slower growth environment for earnings due to the rate increases last year. That also is proving accurate. I predicted that the trade war with China will drag-on, causing price increases on goods manufactured in China. So far this year, Chinese companies have absorbed some of the additional costs due to tariffs but that will not continue very long. Eventually, costs to US consumers will go up if this trade war with China continues. Higher costs means an increase in inflation which is exactly what the Feds want. I also mentioned that the world oil markets were weak which can hurt our export of gas and oil and reduce employment. The latest jobs report showed an anemic 27,000 new jobs created last month. Oil continues to be weak but I don't believe this is anything other than the dynamics of a the global market for oil. It would take many years for the electric car business to put a dent on world oil demand in my opinion. The electric car batteries will be recharged with household current generated mostly with natural gas and coal. Oil companies will continue to drill and I will continue to invest in them for the foreseeable future, My forecast mentioned the treasury yield curve and how it was inverted late last year. The inversion was between the 5yr and the 3mo notes. Recently long dated treasuries have dropped dramatically to where the 10yr note is very close to the 2% level. Currently many short term notes yield more than the 5yr note. When the yield on short rates exceed long rates, I get a little nervous. It shows a lack of confidence in our economy. Bond buyers should get rewarded with higher rates for buying longer term bonds due to many factors involving greater risk. I am currently selling some of my gainers into pockets of strength in this market and investing the proceeds into fixed income. When I look at my holdings, I consider dividend yield (can I get this from a CD?), market multiple (P/E ratio), political risks (heavy Chinese dependence), defensive posture (I like drugs, medical and health care), and finally analyst opinions. I am not giving up on stocks, just easing back and taking what the market has given me. If stocks do correct this year or next, I want plenty of dry powder to apply to my buy list.