RISK! Who Invited You?

Risk! The one word every investor wants to avoid, but knows cannot be avoided if he or she wants to increase his or her return on investment. In a recent conversation, I was asked “How does someone avoid risk and still make a solid return?” The simple answer is – One doesn’t. But there are some things an investor can do to mitigate risk.

To mitigating risk is to reduce the impact of risk upon your portfolio. And that is the mindset that you must have if you want to be a successful investor. Mitigate over eliminate because to eliminate risk is to eliminate ROI. Even if you were to hide your money in a mattress, you have not eliminated risk. For the final frontier in the risk spectrum is inflation, and from that no one can hide.

However, one can mitigate inflation but growing his or her investments at a rate greater than inflation. The problem is that to do so requires that the investor assumes more risk; market risk and the risk associated with the geo-political realities of the times in which we live. There are so many overt and covert risk factors that an investor must navigate, it is almost insane to try to list each one. But there are some basic risk factors that an investor should consider when purchasing stocks.

Recently, a friend asked me to look at a specific stock and give him my opinion. This is something I have gotten in the habit of doing for free since opinions cost me nothing and within a few minutes of my review, I can usually form an opinion. As it turned out, the stock was an ADR (American Depository Receipt). This is simply a negotiable certificate issued by a U.S. bank representing a specified number of shares it holds in a foreign stock traded on a U.S. exchange. The underlying security is held by a U.S. financial institution overseas. (But that is another blog altogether.)

After doing a little research, I informed my friend of the underlying risks associated with this type of investment. I explained to him the exchange rate risks, foreign tax risks, and the country of origin economic and political risks. I did not share with him a buy or avoid opinion, I merely explained the additional risks which are associated with ADRs.

When I am assessing risk, I always ask myself 2 questions. 1. What are the reasons why I should own this stock? I look first, at the opportunities that owning the stock will afford me. Notice the question is not “Why do I want to own this stock?” but rather, “What are the reasons why I should own the stock?” That is a very important distinction. It shifts the focus from feelings to facts. That is the first defense against risk. Emotional investing introduces too much risk into the equation.

The second question is probably obvious to you by now, but I will share it anyway. “What are the reason why I shouldn’t own the stock?” The first question looks at the opportunity and the second looks at the risks associated with the stock. In order to answer these questions, an investor needs to learn how to analyze, not just the company, but the sector, the industry, and the economic cycles, and many other external factors that can impact the price of a stock and its potential for ROI.

A seasoned investor learns to look beyond the risk to see the opportunity. In a way, risk is a kin to emotions… emotions are real, but they are real bad decision makers. Risk is real, but it is a real bad decision maker if it is the sole reason why you choose to buy or avoid an investment. Risk can be mitigated. Remember, to mitigate means to reduce or lessen the impact of a given reality upon your experience.

But how does one mitigate risk? The answer is so simple it might surprise you. Are you ready for it? I can give it to you in a single word… STRATEGY! This year I have committed to executing an options and merger/acquisition strategy. There are systemic risks associated with these strategies, but there are ways to reduce even systemic risks inherent to a strategy. Believe it or not, even strategies include risk. Name one military strategy that was void of risk. There are none. Risk is a product of variables and every investment decision has a number of variables within it.

The way to mitigate the risk associated with a strategic plan is establish rules that govern how you are going to deploy the strategy. So you mitigate risk by conducting in depth research on the company, its sector and industry, recent news reports, analyst’s opinions, market research, P/E ratios, earnings reports and calls, BiB comparisons, product pipelines, foreign exposure, etc.

Based on your findings, you develop a strategic plan on market entrance and an exit strategy if the environment changes. To reduce the risks inherent to your strategies, you establish a set of ground rules that govern how your strategies are to be implemented.  If all of this seems to be too overwhelming, welcome to the world of investing. And how do you mitigate the risk associated with being overwhelmed? I recommend you work with a strategic financial coach before choosing a financial advisor.

Some people will have to work with a CFP or financial advisor, but that can actually introduce a new risk into your investing equation. If you have the intellectual ability to, the time necessary, and the will to succeed, a strategic financial coach will be enough. The strategic financial coach works on a fee only basis and is not paid to make decisions for you. He or she is there to provide guidance, not pressure.

Risk comes in all shapes and sizes. It comes in all forms and fashions. It is ever-present in every life decision. There are two ways to deal with risk: lessen its impact on ROI or move away from it totally. The question is “Do you want to be crushed by risk or do you want to crush risk?” You will never be able to escape it, but you can learn to live with it and learn how to use it to your advantage. You see, as you learn how to mitigate risk, you become a lot less emotional about your money. Then, when everyone else is reacting with emotions, you can calmly move in and capitalize on the opportunity, which lies just behind the risk everyone else is trying to avoid.  

Is Brink's Company (NYSE: BCO) a backdoor cannabis play?

There are several off-shoot players in the cannabis industry that an investor can own without the high risk of owning cannabis stocks. Cannabis is not yet a profitable industry and will likely suffer a lot of growing pains as the players jockey for superiority. But investors can get a piece of the action by “dancing around the edges” without owning the stocks of Canopy Growth, Medmen, Cronos, Tilray, and the numerous other pot-players.

Beverage companies are looking at cannabis infused drinks. Companies such as Miracle-Gro provide for the growing needs of cannabis companies. And then there are companies that are channels for CBD type products such as vape oils and cannabis infused candies.

However, when an investor looks at cannabis, he or she should see green; and I don’t mean the color of the weed. I mean the color of cash. There are two aspects of the cannabis industry that one must consider, and both of them have to do with assets. Cash and product.

Who knows where this industry will take the casual recreational user and the necessary medical user, but one thing is sure, investors know where the industry leads as more and more states and countries legalize its use.

That is why Canopy Growth Corp., who already has a cash source through Constellation Brands, Inc. (NYSE: STZ), has opted for armored trucks to provide secure logistics and cash management services. I spend a couple of years working for the company Brink’s Co. recently acquired and I know that secure cash management services means money vault operations and logistics means the transportation of a highly valuable asset.

Playing the off-shoots reduces the risk associated with cannabis stocks because typically, companies that partner with pure cannabis plays have other revenue streams that can absorb any short term volatility. The trick, of course, is determining which off-shoot company has the best association. 

Brink’s Company handles millions of dollars of cash assets every day and billions pass through their money vaults every year. This means a cannabis play only increases that volume.

If you decide that the transport game is the way to play cannabis, then Brink’s Company might very well be the right one. Brink’s Company offers vaulting and inventory management for a variety of commodities, including precious metals, banknotes, numismatics, personal data, and now you can add cannabis.

It is important to do your due diligence before investing in any company. Once you have made the decision to expose your financial assets to the risk associated with cannabis, you have a lot more homework to do. The industry is so new that many of the risks are still undiscovered. Imagine a fire at a storage facility… all of your assets would go up in smoke.

Don’t over commit any financial resources to pursuing the profit of pot. All of these companies are speculative and should not make up a significant portion of your portfolio. Placing a side bet on the off-shoots can provide a small amount of security while providing you some exposure to the potential upside of the industry.

Let me say one more thing about Brink’s and the armored car industry. Fundamentally, it is a transport stock. The only difference between armored car services and the other carriers in the transport industry is the type of cargo that is being transported. So, if you are interested in investing in the transportation industry, Brink’s Company might be a company at which you look. It may be classified in the Industrial Sector and the Security & Protection Services Industry, fundamentally, it is a transportation stock.

If investing in the off-shoot players in the cannabis industry intrigues you, why not consider making some green with those who provide vaulting and inventory management for the greenest industry around.

Singularity: A Mindset Of The Poor

PART 4 of 10

Have you ever heard the phrase “There is more than one way to skin a cat?” As a child, I thought “How cruel. Who would ever what to skin cats?” I thought that because I was familiar with the feline version of “cats,” but I was not familiar with the aquatic version. It wasn’t until years later when I was introduced to fishing that I learned that “cats” was short for “catfish.” Then it all made sense.

My singularity of thought that “cats” were literal felines kept me from understanding the principles of the statement. The principles: You can accomplish the same goal many different ways and doing something differently does not make it wrong. It just makes it different. Those principles are very applicable to personal financial management. You can accomplish the goal of building wealth many different ways and if what you are doing is different from the experts, it doesn’t mean you’re wrong. You’re just doing it differently.

Generally speaking, personal financial management has certain principles that lead towards wealth. Budget your money, have an emergency fund, and don’t spend more than you make. All of this is common sense, but it must not be so common because so many people are living paycheck to paycheck.

In an article published on August 24^th, 2017 in the personal finance section of cnbc.com, statistics showed that nearly 10 percent of those making $100,000 or more say they can’t make ends meet. Seriously? A six figure salary doesn’t exempt you from struggling financially? Well, who knew?

The article went on to say “Seventy-eight percent of full-time workers said they live paycheck to paycheck, up from 75 percent last year, according to a recent report from CareerBuilder. Overall, 71 percent of all U.S. workers said they're now in debt, up from 68 percent a year ago, CareerBuilder said. While 46 percent said their debt is manageable, 56 percent said they were in over their heads. 

About 56 percent also save $100 or less each month, according to CareerBuilder.[i]

So, if common sense states to have a budget, an emergency fund, and don’t spend more than you earn, why do we have statistics such as those stated in the article? I suggest that most people learned one way to do personal finance and have never entertained the idea that maybe there was a better more effective way. Even when statistics proves that we don’t know what we are doing, we still continue to do it, because it is all we know.

Well, I have made it my person challenge to change the way people “do personal finance.” I have develop, not a plan, but a strategic process that if applied, will radically change the way people do personal finance. I have merged my study of martial arts and personal finance to create an innovative process for personal money management. The Financial Black Belt’s Financial Self-Defense Training Series teaches individuals how to overcome the roadblock of singularity.

When a perspective student enters a Dojang (a term used in Korean martial arts that refers to a formal training hall) for the first time, he or she is a no belt. The instructor is usually a Fifth-Degree Black Belt typically referred to as a Master. He or she is a master because he or she has been training for years. I am fortunate that my instructor, Master Joe Borucki, is a Seventh-Degree Black Belt, who has been studying for over 25 years.

No student would enter the Dojang thinking that he or she knows more than the instructor. I think the reason why 78 percent of full-time workers said they live paycheck to paycheck, 71 percent of all U.S. workers said they're now in debt, and 56 percent also save $100 or less each month is because they believe they are the “master.” They have entered the Dojang of financial management believing that they know more than the instructor.

The Financial Black Belt’s Financial Self-Defense Training Series applies the same discipline and training techniques as martial arts. Belts are awarded to those who show a level of proficiency in the different financial milestones associated to each belt. Even after a student achieves the level of First Degree Financial Black Belt, he or she still does not know more than the instructor.

In Part 1 of this series, I explained how to overcome the roadblock of financial ignorance. In Part 2, I talked about overcoming emotionality. In Part 3, I discussed overcoming procrastination. Overcoming Singularity requires you to change the financial behaviors that have become ingrained in your belief system which rejects information that does not align with what you have learned about finances. Those who have become statistics as reported by Jessica Dickler, need to do something radical to improve their financial reality.

The answer to singularity is plurality. Singularity, as it relates to personal financial management, is the state, fact, quality, or condition of having one source of behavior. Plurality is the state, fact, quality, or condition of having multiple sources of behavior. I began with a popular saying and so I end. When all you have is a hammer, every problem looks like a nail. Personal financial problems are not all nails. If you want to build a house, you need more than a hammer.

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[i] https://www.cnbc.com/2017/08/24/most-americans-live-paycheck-to-paycheck.html Most Americans live paycheck to paycheck by Jessica Dickler Published 10:15 AM ET Thu, 24 Aug 2017  |Updated 8:17 AM ET Wed, 30 Aug 2017

Why Procrastinate When You Can Do It Tomorrow

Part 3 of 10

When I was growing up, I had a brother who was late for everything. He was late getting up, late getting to the bus stop, and late going to bed. If mom was going to yell for someone to hurry up or you’ll miss the bus, she would be yelling at my second oldest brother. I can still hear it today. Mom would yell, “Hurry up or you’re going to miss the bus.” And inevitably, my brother would always respond “Wait a minute.”

Procrastination, as it relates to investing, is most often driven by fear. When a person is fearful of losing money, he or she will hesitate to make a rational decision. Fear can cause a person to hesitate to make a good investment and it can also cause a person to hesitate in exiting a losing investment. Even though the facts are clearly evident, fear can cause a person to procrastinate in making a decision because that person does not believe the facts or trust his or her own abilities of analysis.

When you hesitate in the investing world, you often lose more often than you gain. Whether it is entering into a purchase or exiting a losing position, hesitation (procrastination) will cost you. However, an investor can also become frozen by too much analysis. You have to do your homework, but that homework should lead you to a decision point. If it doesn’t then you are doing the wrong homework.

It is difficult for a diligent investor to pull the trigger on a trade when the market experiences a pull back. Recently, on December 23^rd, 2018 the broader market suffered a significant drop. I had been watching a list of stocks in which I had an interest in opening a position. On that day, I received email alerts that five of the thirteen stocks I had on my watch list had hit my target price. The target price is the price I decided would be a reasonable entry point into these stocks, yet I hesitated to make the buy.

The reason why I procrastinated to make the buy was because the market was pulling back hard. Intellectually, I knew the pullback was a great buying opportunity, but psychologically, I could not rationalize making a buy when I had no confidence that the market would not continue to pull back on December 26^th. Unfortunately for me, when I watched the market rise over 1,000 points on the 26^th, I watched some of the stocks on which I had received the alerts, rise over $2.00 a share.

Procrastination kept me from buying when I knew an opportunity existed. However, I usually do not beat myself up too much because, I know the chance of the market continuing the pullback in the coming days is always possible. Patience can save you from making ill-advised decisions, whereas procrastination will cause you to make rash decisions after you feel as though you missed an opportunity.

These two realities, procrastination and patience are akin to the flesh and the spirit as written about by an old biblical prophet.  Using the dichotomy between procrastination and patience I paraphrase “For procrastination lusts against patience, and patience against procrastination; and these are contrary to one another, so that you do not do the things that you wish.” [loosely translated from Galatians 5:17 New King James Version (NKJV)]

It can be said that procrastination and patience have the same root to different degrees. That root is fear. Procrastination is about preservation and patience is about opportunity. Procrastination is about the fear of losing current assets and patience is about the fear of missing the right opportunity to increase current assets. 

So, what can you do to overcome the roadblock of procrastination? The single most important way to overcome procrastination is to have a comprehensive financial strategy; not a plan, but a strategy. There is an important difference between having a plan and having a strategy. Let’s first look at what are the effects of having a plan and then what it means to have a strategy.

A plan is circumstantial, in that your actions are relating to or dependent on the circumstances or state of affairs in which you find yourself. Where circumstances influence actions, emotions tend to drive decisions. Emotionality is the second roadblock that must be overcome in order to be a successful investor. Since procrastination is often associated with the four types of fear discussed in Part 2 of 10 of this series, procrastination can be transformed into patience by overcoming emotionality.

A strategy is objective, meaning that your actions are not influenced by personal feelings or opinions in considering and representing facts. In Part 2 of 10, Overcoming Emotionality, I said “Emotions are real, and you have to acknowledge them, but emotions are also really bad decision makers. Decisions that follow emotional inputs often lead to losses.” Facts, and the analysis of such, are what matters in strategic goals. That does not mean that you will not experience emotions, but your decisions will be made based on hard data.

Hard data includes, but is not limited to, earnings reports, forward guidance, earnings per share, revenue growth, and a number of other technical measurement. Devoid of emotions, hard data allows an investor to objectively decide to buy and sell stocks regardless of the market emotions. Jim Cramer opens his show Mad Money by saying, “There is always a bull market somewhere, my job is to help you find it.”

He then spends the next hour pouring over hard data. If you are the kind of person who wants to understand the markets instead of having someone else tell you what is best for you, then it behooves you to do the work of learning how to invest. And if you have put off learning what you need to know in order to take control of your money, then you have not overcome the roadblock of procrastination.

If you want to stop procrastinating and begin to take control of your financial future, then I would recommend you consider The Financial Black Belt’s Financial Self-Defense Training. This training offers a proven method to build wealth by associating financial literacy with the training and belt testing method of Hap Ki Do. This process gives you a life-long financial strategy because it takes a life time to master the process of becoming a successful investor.

I started training in the Korean martial art of HapKiDo in January of 2016. It has been three years since I began training. I have not yet achieved the rank of Black Belt, but I made a commitment to rediscover discipline and I continue to work towards the goal of becoming a 1^st Degree Black Belt.

The Financial Black Belt’s Financial Self-Defense Training requires the same level of commitment, and maybe more so, to achieve the rank of 1^st Degree Financial Black Belt. I developed this program over the course of two decades of personal financial management and investing. I have taught myself how to trade option contracts, capitalize on merger and acquisition arbitrage, and use technical markers such as the Fibonacci ratios.

The martial artist never stops learning even after he or she has attained the rank of 1^st Degree Black Belt. The successful investor never stops learning even after he or she has achieved the rank of 1^st Degree Financial Black. Just as the martial artist can achieve the rank of 9^th Degree Black Belt, the financial martial artist can achieve the same rank in a financial sense. The thing that stops most people from training is procrastination. So, what is stopping you?