TDI Podcast Highlights: Lessons Learned (#539)

On This Week’s Podcast The Disciplined Investor Discusses:

  • Cryptocurrency Stocks
  • The FOMC Rate Decision
  • Tax Bill Changes
  • Cryptocurrencies and Technical Analysts
  • Lessons to Learn for 2018


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Cryptocurrency Stocks:

  • There is a large PR Push around stocks associated with Cryptocurrencies. (Riot Blockchain (RIOT), Overstock (OSTK), Bitcoin Investment Trust (GBTC), etc…)
  • Seeing a significant amount of investor fascination around these stocks.
  • Two names this week that got a great push from putting blockchain/crypto jargon in their name.
    • Rich Cigars (RCGR): Formed previously to distribute and service tobacco products.
      • Filed a change of name to Intercontinental Technology Inc.
      • Changed domicile to Denver from Florida.
      • They are now forming subsidiaries for developing multi-national marketing of proprietary patent protected products. What does that mean?
      • More importantly the development of a unique cryptocurrency mining business for Bitcoin and other cryptos.
      • Previously was trading at $0.03 and moved up to more than $1.05 after the news. However, then came back to reality.
        • Equating to Marijuana stocks that were pumped and dumped.
      • Seems that all you have to do is put the cryptocurrency keywords into your description and you can move the needle on your downtrodden old company.
    • Longfin (LFIN) – Financial services company with Fintech and Artificial Intelligence (AI). A new IPO that came out this week.
      • After opening, the very next day the PR machine started with an acquisition into Ziddu, a blockchain empowered service provider.
      • $6.00 to north of a $120.00.
    • There is a lot of hype in these stocks and there are several ways to play it:
      • Ride the wave of momentum up.
      • Sell the rally, but need to be careful as these are moving up more than 100% – 1000% in a single day which could wipe out any short position almost instantly.

The FOMC’s Meeting:

  • This was Janet Yellen’s last FOMC Meeting for the Fed prior to Jerome Powell taking over.
    • During the meeting rates were raised by 25bps.
    • The rate increase was pretty much already baked in and markets were expecting a rise in rates.
    • All signs to increase rates have been there. Unemployment, GDP, Inflation, etc…
    • Current predictions are for rates to continue to increase 3-4 times over the course of 2018.
    • Much of the focus remains on the official inflation rate being too low. 2%+ is the goal, and after all these years, we have finally started to see this number begin to trend higher.
    • Fed seems to be reluctant to move faster on raising rates or Quantitative Tapering…
      • Not sure what they are waiting for.  It soon might become time that they will have to get aggressive should inflation actually spike.

The Tax Bill:

  • Much more significant predictions for it to get passed.
  • The voting will commence next week.
  • There were lots of changes made at the last moment that couldn’t have been considered in the equation of how this would affect Treasury inflows and tax paying citizens as a whole.
  • 21% Corporate rate vs. 20% starting in 2018.
  • Corporate AMT has been removed after being accidentally left in the last time around.
  • Child tax credit was increased thanks to Marco Rubio.
  • Top tax rates were dropped, but really no simplification as there will be 7 tax brackets. Top rate was lowered by about 2%.
  • The estate tax exemption was moved up to $11 Million vs. what they had originally proposed which was to completely remove it.
  • The Repatriation tax will be at 14.5%
  • Obamacare is set to be repealed
  • Property and state income taxes may be limited to utilizing one or the other and only up to a $10,000 deduction.
  • Mortgage interest deductions have been reduced from $1 Million to $750,000.
  • What are some planning ideas (As always, check with your tax accountant or CPA to get solid advice for your individual situation):
    • Pre-pay your property taxes in 2017 if you can.
      • This loophole was blocked very recently, but those states that pay taxes in arrears may still be able to pre-pay 2017 taxes in order to get a full deduction.
    • Giving to charity in advance in 2017 vs. 2018 if you can itemize.
    • If you pay estimated tax payments to your state, look to try to pay them in 2017 so that you can deduct them on your 2017 tax return. If you can itemize.
    • Small Businesses may want to wait to send invoices for payments that generally come in December to January as pass through entities may get a good break in 2018 and beyond.  This really also depends on whether you are a cash or accrual based company.

Cryptocurrency and Technical Analysts:

  • All of the sudden a lot of the technical analysis traders are snubbing cryptocurrencies despite the fact that most of the time the preach:
    • It’s only price that pays.
    • Let the chart speak rather than the actual name of the company in order to reduce bias.
    • You only need to look at the chart, fundamentals don’t matter.
    • They have always stated that you could give them a chart without the name of the stock or security and they could analyze.
  • Now however, they are ranting and raving on Twitter about how the coins don’t have the fundamentals to back them and that this is a bubble.
  • Seems many of these technical traders are negative on cryptos despite the trend having been and continue to be up.
  • They are imposing a bias on these types of investments due to their feelings rather then what the chart is actually telling them.

Lessons to Learn:

  • As an investor, you must try to remove all bias from your thought process, otherwise technicals and fundamentals can be overlooked.
  • Don’t let the name of a company or security determine whether you invest or not. Let the facts and numbers lead you to a conclusion.
  • In 2018, reflect on how you are making decisions to invest in different securities and be aware of whether you may be interjecting biases into your choices.
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