Invest in the Future World You Want to See

Invest in the Future World You Want to See

It’s 7:30 AM  on a foggy, cold Saturday morning, and I’m starting my second cup of coffee (don’t judge, they’re small cups and I get an early start). The dog has been walked, and his Milk-Bone reward given. I like to think I’m a simple man and always take my coffee of choice, homebrewed Folgers, black. This morning, however, I’m enjoying a bit of the frou-frou Coffee-Mate creamer, which never happens. I swear.

I’ve had the itch to write more about this topic all week long and have been looking forward to the solace of an early weekend morning. And here I am, finally, writing on my Macbook Pro with the help of notes I took on a combo of my iPhone and iPad. I’ve turned off WiFi to eliminate the temptation to review my team’s production reports in Google Sheets and Google Drive, where the majority of our company’s data is now being transitioned to. Oh, and Microsoft Outlook has been shut down and hidden from my line of vision as well.

In the background, I’m streaming a muted Facebook live news show via Apple TV. Before my first cup of coffee, I told my Amazon Echo to turn on my lights and play a little classical music to, you know, set the mood. I normally start my day with reading for 30+ minutes on a Kindle or physical book, delivered via Amazon, but not today. I need to put the proverbial pen to paper. With the “Classical Focus” Amazon Prime Music station playing, I whisper, “Alexa, louder.” And so it begins.

Okay, if you’ve made it this far, that’s the last of my stage-setting. I promise there’s a reason for the lengthy setup and brand placement.

A mistake I made when I first started investing was to follow analysts or firms for ideas about who/what to invest in. I would see articles titled “Three Growth Stocks You Must Own” or “This Stock Promises Explosive Growth” and read them, obviously. And while there are plenty of analysts whom I trust and respect, the problem lies more with the recommended businesses. Chances are, you won’t have a clue about any of the companies mentioned. That means to get a clue, you’re going to have to do a ton of research. And like legendary investor Peter Lynch said:

“If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.” – Peter Lynch

My goal as an investor is not to spend a ton of time researching companies and potential investments, it’s to grow my money exponentially with as little effort as possible. The best place to start is with the companies you already know and use in your everyday life. The brands I introduced earlier are primarily massive companies that everyone knows, so you’re not going to find lightning in a bottle (you never know with Amazon), but you can definitely earn solid returns and have confidence in your investments.

“Make your portfolio reflect your best vision for our future.” – David Gardner of The Motley Fool

I want Apple, Amazon, Google, and Smuckers (parent company of Folgers and Milk-Bone) to continue their dominance in one area or another. For example, I’m counting on Amazon to make it possible for me to never step foot in a brick and mortar retailer in the near future. Furthermore, I’m betting on them to enable me to never step foot in ANY type of store. I believe in their vision and want to be a part-owner in their companies, so I buy shares, satisfying that desire. The same goes for companies like Apple, Google, Facebook, and others that are an integral part of my life and the lives of those around me.

This makes the decision-making process of who/what to invest in very simple. I buy shares of great companies who I believe will continue to grow for years to come, and I hold those shares for years to come. There is a small amount of fundamental analysis and research to do before buying (i.e., revenue, growth rates, price to earnings, market cap, etc.), but this is a lot easier to do when you’re not looking for hidden gems or short-term winners.

And who says you can’t find hidden gems or explosive growth companies? Don’t forget about your unique skills and interests that give you a competitive advantage in the market. So take a look around in your life and take note of the products and brands that positively impact your life. Are others impacted the same way or do they share the same need? Could that lead to profits for years to come from these companies? These are great questions to start with when looking for your next (or first) investment.

Final disclaimer: I may own shares in the companies I mention and this guide, or any other investing and finance-related information on masonwoodruff.com, is not intended to be investment advice. 

How to Double Your Money with Your Unique Interests and Skills

How to Double Your Money with Your Unique Interests and Skills

This may sound like a late night infomercial, but I think you have what it takes to double your money in the stock market. That’s right, you have the knowledge and skills to turn $1k into $2k, $10k into $20k, and more! Okay, what really comes to mind when you hear about doubling your money via Mr. Market?

A scam? Super-shady-multinational-conglomerates? Sitting in front of 5 monitors making trades every minute on the minute? Leonardo Dicaprio?

While those may be feasible strategies for some, I’m writing to you about a much simpler approach, IMO. Chances are, you’re already doing 90% of the work required. It begins with your unique outlook on the world and its economy. Your job, hobbies, friends/family, and education all play a part in the hodge-podge that is your undiscovered investing prowess.

Think about it, there’s an industry that you know more about than anyone you know. You follow the trends and news regarding that area religiously and spend most of your free time consuming related content. Maybe it’s cosmetics and beauty products, fashion, video games, biomedical engineering, renewable energy, or whatever – it’s time to monetize your advantage.

Below you’ll find three stories of companies who’ve doubled, tripled, and even quadrupled investments in recent history. The best part? You’ll know two of the three companies very well, and even if you’re unfamiliar with the third, you’ll definitely recognize its products. These companies were no hidden gems that required tons of research or subscribing to a “newsletter” for insider information. Instead, your tip to invest in the companies below could’ve been discovered in places like Twitter and Instagram, chilling with your significant other, or even playing video games.

Note: It’s easy to pick winners in hindsight. That’s not the purpose of this article. The purpose, rather, is that the more you know about the past, the better prepared you’ll be for the future.

Netflix ($NFLX)investing-in-netflix-mason-woodruff

The king of DVD delivery turned streaming has created quite the culture shift over the past few years. From binge watching our favorite past times to entire seasons of their more recent Netflix Originals, this company has quickly become a part of our everyday life. Many Americans are now “cord cutting” and ditching cable TV for options like Netflix and Amazon Prime Video due to their endless content selections. This shift in consumer interest and need has certainly been good for business, and patient shareholders of Netflix have been rewarded, especially as of late.

Netflix has been around for quite some time (publicly traded since 2002), and they’ve certainly seen their ups and downs. But let’s say you were well behind the IPO, like me, when could/should we have started to notice the positive tailwinds?

It actually started years before but in 2014, Netflix started to catch fire in common internet speak and language. Verbs like Netflixing, to Netflix, and the infamous Netflix and Chill took the internet by storm. Nearly a year later, “Netflix and Chill” was officially added to Urban Dictionary. Nikki Minaj and Netflix themselves both joined in on the fun on social media (linked posts). At this point, it would’ve been fair to assume that Netflix was onto something.

In early April of 2015, shares were priced around $60. Compare that to today’s current share price of $131, and Netflix shares are up 120% since, 110% higher than the S&P 500. April ’15 marked the beginning of a bullish run for Netflix, where shares ballooned to over $120 in August of 2015. Who would’ve guessed?

A $10,000 investment exactly two years (1/10/2015) before this writing (1/10/2017) would be worth $28,750.

Disney ($DIS)investing-in-disney-mason-woodruff

With the House of Mouse approaching its 90th-anniversary next year, it’s safe to say that this company is a bonafide piece of American history. Most of us grew up watching their movies, playing with Disney-themed toys, or even touring their theme parks. Personally, I didn’t just like Simba, I was Simba. Disney was an integral part of my childhood, and they continue to be prevalent through acquisitions like the Star Wars franchise.

Disney stock, however, hasn’t always reflected their omnipresence in our culture. In the last ten years, shares of Disney have been volatile, to say the least, with lows below $30/share and highs above $120/share. Despite the volatility, Disney continues to dominate the entertainment and content creation world and make great investments and acquisitions. Here are a few examples of businesses in their portfolio:

  • TV Networks such as ESPN, ABC, A&E, and History
  • Marvel Studios (The Avengers, Iron Man, Daredevil and other Netflix originals)
  • Star Wars
  • Pixar and animated franchises (Toy Story, The Incredibles, Finding Nemo, Cars, Up, etc.)

To maintain the theme of “buying signs” and moments in recent history where Disney would’ve been a great investment, let’s look at a few pivotal moves.

Disney acquired Pixar in January of 2006, while Disney hovered around $26 per share. Adding an incredible set of franchises and the top animated movie studio didn’t seem to impress many, as shares increased slightly, only to fall below $30 again in 2008/2009.

Disney acquired Marvel in August of 2009. Two months later, a share of Disney was going for only $28 per share. At this point in time, buying shares or adding to your position would have returned over 350%. ($10,000 invested at the low point of 2009 ($14/share) would be worth $75,000 today.)

Disney acquired Lucasfilm and the Star Wars franchise in 2012 for 4 billion dollars. That may sound like a lot of quiche, but Disney has already grossed over 3 billion for the first two of six planned Star Wars films. It’s hard to fathom this franchise losing relevance in our lifetime and should continue delivering returns like Pixar, Marvel, and ESPN have done historically. Oh, and BTW, $DIS shares were in the $45-$50 range for nearly all of 2012. Entering at this point would have returned 150% of your investment ($10k to $25k).

Activision Blizzard ($ATVI)investing-in-activision-mason-woodruff

Whether you have personally thrown controllers and screamed profanities at teenagers through your headset or had a significant other ignore you for hours on end, there’s a good chance you are familiar with the Call of Duty franchise. It’s been around since 2003 but didn’t make a significant impact until 2007, when Call of Duty: Modern Warfare was released. This iteration, along with faster internet speeds and the ubiquity of Adderall, changed the game (see what I did there?) for first person shooters and competitive online console gaming.

If you had taken note of the game’s publisher, Activision, and researched the company, you would’ve discovered other titles such as Tony Hawk’s Pro Skater, Guitar Hero, and World of Warcraft (post-July 2008 after an acquisition of Blizzard Entertainment). An impressive lineup, eh?

So let’s say you invested even a year after CODMW’s release, you would have earned nearly 400% on your investment. Even if you were late to the party and invested shortly after another hit release years later in October of 2014, Destiny, you would have nearly doubled your money in the two years since.

The takeaways:

  • Buying a share of a company makes you a part owner of that company. Invest in great companies that you know, love, and want to be an owner in for years to come.
  • Winners tend to keep winning. Don’t let a stock’s recent “pop” or increase deter you from investing. As you see with these three examples, the top is never the top. Great companies will continue to rise along with the market over time.
  • While overreacting to daily market news about a business is a bad idea, being aware of trends and potential cultural shifts that favor one business or another could pay dividends.
  • Do you know any teenagers? What are they into? That’s a great place to start.

Final disclaimer: I may own shares in the companies I mention and this guide, or any other investing and finance-related information on masonwoodruff.com, is not intended to be investment advice. 

How to Use Your Money to Make More Money: A Beginner’s Guide to Investing

How to Use Your Money to Make More Money: A Beginner’s Guide to Investing

Investing is boring. I mean, who wants to put their hard earned money into an account and not touch it for decades? It is downright, not exciting.

What IS exciting is the fact that you can make extra money each day, month, and year by investing or “putting your money to work.” Historically, the stock market has produced an 8-10% annual return. That means $10,000 theoretically produces $800-$1,000 of extra “income” per year. So if you save 10 grand, you’ll essentially make another grand in the next year from that money. Wealth begets wealth.

If you put enough of your money to work for you, and you don’t live an inflated asshole-ish lifestyle, you can live off the interest and do whatever you want with your days. Exciting?

What’s more exciting is that the 8-10% return may be on the low end of potential returns if you learn to leverage your expertise and do a bit of studying. And it’s doubly exciting to think about how your monthly expenses could turn into more than $250,000

For instance, if you’d been a passionate gamer who poured as much money as time into Call of Duty: Modern Warfare (Activision Blizzard – ticker symbol $ATVI) when it revolutionized the first person shooter genre in 2007, you would have seen your money grow by 400% since then.

Or maybe in between multiplayer rounds when your focus began to slip, you scurried to your kitchen only to realize how convenient your single-cup-producing coffee maker was and invested. The only thing better than a 3.0 K:D ratio is a 2000% return on your investment, and that’s what you would’ve seen from an investment in Keurig.

Hope you’re still with me at this point. The key takeaway is that investing doesn’t have to be boring or over complicated. What I recommend, and I’m going to outline in the following guide, is to buy shares in great companies that you know/love/understand (and most importantly, want to be a part owner of) and hold onto them until their situation changes or you find a better investment. It’s really that simple.

This guide will go through topics like recommended reading, what to use to buy/sell stocks, types of business and how they affect you, index funds and ETFs, and some lots of mistakes that I’ve made and continue to make.

“Only a fool learns from his own mistakes. The wise man learns from the mistakes of others.”

I plan on regularly updating this guide as I come across valuable lessons or strategies worth sharing.

Disclaimer: I’m not a financial professional or self-proclaimed investment wizard. I’m just a dude who loves personal finance, business, and making money with the least amount of work as possible. The following information is a simplified version of what I’ve found most useful in my young investing adventures. 

Recommended Resources for Beginners

One up on Wall Street by Peter Lynch – the basics of finding good companies to invest in that you love and know better than most + how to make sense of all the numbers associated with a business

The Richest Man in Babylon by George S. Clason – “Wealth, like a tree, grows from a tiny seed. The first copper you save is the seed from which your tree of wealth shall grow. The sooner you plant that seed the sooner shall the tree grow. And the more faithfully you nourish and water that tree with consistent savings, the sooner may you bask in contentment beneath its shade.”

The Compound Effect by Darren Hardy – motivating tale of the 8th wonder of the world, Compound Interest

Rich Dad Poor Dad by Robert Kiyosaki – A must-read, mindset shifter for anyone who’s not investing in some form already. Put your money to work for you. (note: author is not a proponent of the stock market)

Why you need F-you money

A Love Letter to Millennials, From The Stock Market

Tools of the Trade

If you’re starting out and will be experimenting with different types of stocks, set up an account with Robinhood. Robinhood is a mobile app based free trading platform with easy to use interfaces, helpful notifications, and everything you need to begin experimenting with stocks. And did I mention it’s free? Free trading allows you to buy one or two shares of a company you love and believe in when you’re lacking dry powder (cash) on hand.

robinhood-mason-woodruff

I won’t bore you with the ins and outs of market orders, calls, shorts, and other investing terms. TBH, for this style of investing you won’t need to know much other than buying and selling, and those are simple enough to learn. If you’re having trouble, Robinhood has a how to use guide within the app and many other brokerage firms and investing sites have complete guides on the basics of investing platforms. (You can use a site like finviz to take a deeper look at the financials of a company.)

With a typical brokerage account, you’re going to pay a flat fee ($5-$10) per transaction. Meaning if you bought one share of Facebook ($FB) for $120, you would be losing 4-8% right off the bat. Even when you shift over to a brokerage account for things like a Roth IRA, it’s wise to make your fee less than 1-2% of the market order. An example would be buying $1,000 worth of shares with a $7.95/trade fee. (This can be advantageous because you’re going to buy with more conviction on a $1,000 order than a single stock purchase. More on this later.)

Note: An account with Robinhood will be a taxable account so anything you sell for more than you purchased it for (capital gains) will be taxed by Uncle Sam. You don’t pay any taxes until you actually sell a stock. In addition, buying and holding will influence the % in taxes you pay. The best way to avoid these taxes would be via a retirement account, like a Roth or Traditional IRA, which are by and large untaxed accounts. You’ll need more than Robinhood for a retirement account and you will run into the trading fees, so they’re not ideal for starting out and experimenting in the stock market. You should definitely have a retirement account and the sooner the better, but if it’s going to prevent you from starting out with investing, go without for now. It’s worth mentioning that many firms will give two months or a specific number of free trades for new accounts. 

Different Strokes for Different Folks

There’s a lot of hoopla and terminology in the investing world. I’m convinced most of it was created to keep the everyday person from taking control of their own portfolio and using professional financial services. I’ve come to believe that investing can be simplified to two strategies, for the most part.

  1. Potential to 10x  your investment + risk of losing 100% of your investment – any income from your investment (small cap growth stocks or “exciting” startups)
  2. Potential to have very little fluctuation in your initial investment + slow annualized returns + quarterly income – the potential to 10x your investment (Think: large cap or “blue chip” stocks & index funds)

The younger you are, and the more risk-tolerant you are, the more you can chase the bigger returns in strategy one. Though even as a young individual investor, diversifying and including both strategies would be a wise decision. As you age, you’ll want to transition into safer and less volatile investments at the sacrifice of bigger returns.

Note: this is a massive oversimplification of things and there are many other investment strategies like mutual funds, bonds, currencies, etc., but I’m not convinced any individual investor needs to bother. 

Small Cap vs Large Cap Investing: Explosive Growth Potential vs Slower Moving & “Safe” Investments

“Cap” refers to market capitalization, or simply put, the total value of all shares outstanding for a company. If you want to fully nerd out, here’s a quick video.

A great example here would be Amazon ($AMZN), which is one of the largest publicly traded companies in the world now and has a market capitalization just shy of 400 billion dollars. Chuy’s ($CHUY) has a market cap of around 500 million dollars.

Chuy’s ($CHUY) on the other hand, has a market cap of around 500 million dollars. They also have the best tortillas this side of the Mississippi and for that, earn a strong buy rating from me.

Which company has more potential to double in size? This may be a poor example because Amazon may damn well double its current size and take over the world. But traditionally, large cap stocks are slower growing, well-established companies while small cap stocks have more potential growth.

So which one is for you? I’ll list a pros and cons of each, IMO:

Small Cap

  • Higher chance of explosive growth – Small caps have to potential to double or triple (or more) your initial investment in the short-term. You also run the risk of losing 100% of your initial investment if an unproven company tanks.

A big winner always outweighs a loser – You can only lose 100% of your money invested, but you can gain 1000% or more from a stock.

  • A company’s price per share means nothing about the value of that company. Cheaper stocks aren’t less value than higher priced stocks and vice versa. That said, many small cap stocks are going to have lower share prices, allowing a beginner to experiment and diversify by investing in many different companies. If you have $1,000 to get started, buying a share of $AMZN, currently priced around $800, would occupy 80% of your portfolio and heavily tie your success to one company. Diversity is good – and fun!
  • Speaking of fun, small cap companies are usually more cutting-edge and exciting companies. Investing in a company that makes paintball shooting drones is a lot more exciting, at least to me, than a company who provides wireless service. BTW, don’t really invest in a company that makes paintball shooting drones. That can’t be a useful product or successful business. Or could it?

Large Cap

  • Dividends – A company like Verizon ($VZ) has a 4.23% dividend yield, meaning you earn 4.23% annually for sitting on your hands. For example, one milli in $VZ would earn roughly $42,000 each year in dividends. You won’t see much growth in terms of share price, but that’s not what you’re after here.
  • Share buybacks – When a company has cash on hand, they may repurchase outstanding shares. This typically, though not always, benefits shareholders by elevating the earnings per share (how much the company makes for every share outstanding). This makes a company and its shares more valuable, and that’s good for your wallet.
  • Less volatility – Using our example from above, a massive company like Verizon isn’t going anywhere anytime soon. You lose the chance of doubling your money in the short-term for stability during hard times. In the Great Recession, Verizon did just fine. They even increased their dividend yield during those hard times.

Vanguard and Other Confusing Names 

The last piece of the puzzle I laid out earlier are the index funds and exchange-traded funds (ETFs). Again, for the nerds, here’s a great article on the differentiation.

Let’s say you wanted to be a shareholder in every company in the S&P 500 (500 companies) but had neither the cheddar to buy all those shares nor the patience to put in that many market orders. You could save up the funds before hiring a part-time lackey to do the grunt work, or you could buy the Vanguard S&P 500 ETF ($VOO) which tracks the S&P 500’s performance and has an annual return of 14.5% since 2010.

An index fund is simply a compilation of stocks in one specific area of the stock market. They may range from areas like the aforementioned $VOO to the iShares S&P SmallCap 600 Growth ($IJT) to the Vanguard Total World Stock Index Fund Investor Shares (VTWSX).

The biggest benefit of this type of investment is the lack of action required of you. All of the management and rebalancing in a fund is done for you, and at a fraction of the cost of a mutual fund. Other than checking in every now and then to see if the US economy is still churning, the only other action step would be perpetual deposits into your money machine.

Oh, and did I mention that some index funds pay a dividend?

Final disclaimer: I may own shares in the companies I mention and this guide, or any other investing and finance-related information on masonwoodruff.com, is not intended to be investment advice. 

What Is $250,000 Worth to You?

What Is $250,000 Worth to You?

Summary:

  • Turning laziness or lack of direction or purpose into motivation and laser focus on your ultimate mission
  • A hands-off strategy for turning $160 into $250,000 (time required)
  • What creating financial freedom looks like and how you can choose what to do with your days over time with short-term sacrifices

I’m one of the laziest people I know. Sure, I work hard and put in plenty of man hours each week. You’ll rarely find me doing “nothing” or wasting time. I’m always moving forward and working on furthering my career or improving as a human being, but that wasn’t always the case.

In my late teens, I could waste a day away with the best of them. Video games, TV, you name it, I was an A-student in Procrastination 101. I eventually kicked it into gear but if I’m being honest, I’d be snug-as-a-bug-in-a-rug staying home all day with little to no activity.

My scenario is probably unique in the sense that I love my job 95% of the time. The other 5%, I still love my job but occasionally suffer from man PMS or something of the sort. Seriously, I won the career lottery and feel that I’d be happy/satisfied for a long time.

But I’m not trying to do that. I’m trying to be lazy and “work” as little as possible. At least not work on things that I don’t want to work on, and that’s part of any job, no matter how great.

The potential routes to perpetual laziness, at least the ones that don’t make your family disown you and make jokes at your expense during the holidays, are few and far between. One thing every route requires is money, and quite a bit of it. The best, legal route is saving money from an early age. Furthermore, saving is not enough. You need to put that money to work and let the magic of compound interest do its work.

“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” – Robert Kiyosaki

Boring I know, but the good news is that there’s a secret to saving success – momentum and good ol’ addiction.

Investing is addicting. Once you start seeing your money grow with little to no effort after your initial research/analysis and investment selection, you’ll be hooked on saving. Your dollar-bill-soldiers will be hard at work around the clock. They’ll be making you money while you sleep, while you’re out with friends, and even when you’re dealing with the stressors at work. Where else can you make money for doing zero work? It’s a lazy man’s utopia.

Easier said than done, right? The easiest way to get started, if you’ve never invested anything, is by doing an expense audit. It can be done in less than thirty minutes and could clear up anywhere from ten to twenty bucks to hundreds of dollars. And no matter how much you can save on expenses, every little bit counts. Below you’ll see an example of what I eliminated from my monthly expenses and what that amount could become over time.

I was able to drop the following recurring expenses, along with their monthly cost:

  • Email marketing system I no longer used – $20
  • Cable TV – $60
  • HBO Now (at least until GoT starts up again) – $15
  • Subscription goody box – $25
  • Client management software – $20
  • Pandora One – $5
  • Audible (prefer reading and podcasts)- $15

Total saved: $160 monthly – $1,920 annually

Here we go. Let’s say I invested that $160 each month plus an additional $7 to make my annual contribution around $2,000, for math’s sake.

Let’s say I invest that $160 each month plus an additional $7 to make my annual contribution around $2,000, for math’s sake.

After 5 years with an average, conservative return of 8% annually, I’ll have $13,000 (rounded for pretty numbers). My principal balance, or cash that I’ve contributed, will be $10,000 – nothing mind blowing here.

After 10 years with the same annual return, I’ll have $31,500 with a principal balance of $20,000. Getting better.

After 20 years, I’m looking at $99,500 with a principal balance of $40,000. Daddy like.

Here’s where it gets interesting, after 30 years, a contribution of $60,000 has turned into $246,500.

Okay, I know this leaves a ton of room for error and fluctuation. The main idea here is that the $250,000 is without ever contributing more than that $167 each month or $2,000 per year. I can do better, especially as I earn more throughout my career and life. Also, if I managed to achieve a 10% annual return, the final balance would be around $365,000 on the same monthly contribution.

The big turn off with this scenario is the timeline. 30 years is a distant future and a land far, far away. It’s hard to get jazzed about reaping the rewards of your current sacrifices 30 years down the road, but that’s what could separate you from being a cog in the wheel. What would you rather have, a bunch of “stuff” now or financial freedom (ability to not worry about money and do the things you want to do on a daily basis) while you’re relatively young?

“If you will live like no one else, later you can live like no one else.” – Dave Ramsey

So I challenge you to do an expense audit today. And after you’ve eliminated some monthly expenses, move on to other spending habits that may not fall in the “services/expenses” category. Things like excessive spending on food, alcohol, shopping, or entertainment that could be substituted for other forms are a great place to start. The beauty of this next level of spending audit is its congruency with health and wellness, which happens to be a common goal for everyone. That’s what we call killing two birds with one stone.

Final disclaimer: I may own shares in the companies I mention and this guide, or any other investing and finance-related information on masonwoodruff.com, is not intended to be investment advice.