U.S. stocks continued to claw their way back last week, especially growth stocks. For the week, the Nasdaq posted a gain of 2.2% and the S&P 500 rose 0.4%. The Dow? Not so much, sliding just 0.1%. A blowout jobs report for July offered up another dose of good news for the economy and not-so-good news for the stock market, but equity investors hung in there. U.S. employers added 528,000 jobs to their payrolls last month, which was more than twice what was expected, and that added credence to the Federal Reserve‘s stance that the U.S. economy is not in a recession given the continued strength of the labor market. So, the thinking goes, the Fed will continue to be aggressive in raising interest rates to cool down inflation, because it’s not impacting companies’ willingness to hire. That led to a steep selloff in U.S. Treasurys, with the yield on the 10-year Treasury note ending the week at 2.83%. Oil prices continue to tumble, hitting their lowest level since early February, as U.S. inventories unexpectedly rose, and following a somewhat surprising announcement from OPEC+ that it will raise production output by 100,000 barrels per day. Gas prices in the U.S. continue to slide, with the national average now down to $4.06 per gallon.
Shares of Bed, Bath and Beyond (BBBY) jumped nearly 33% after the company announced it will be discontinuing its Wild Sage—that’s its private label brand—launched a year ago. That’s a strategy shift, but is it worth that kind of celebration? Shares of Carvana (CVNA) popped up 40% after it reported better gross profits per car sold, which kind of feels like reckless driving. AMC (AMC) announced a new strategy that involves issuing new preferred APE shares and giving them to every common shareholder as a dividend. Those new APE shares will start trading in just a few weeks. CEO Adam Aron said AMC may issue new APE shares soon to raise more capital to help it pay down some of its $10 billion in debt and lease obligations. Don’t forget, AMC—the theater chain—did buy a gold mine just a few months back.
More government spending could be on the way. Believe it or not, the U.S. Senate passed the $437 billion Inflation Reduction Act of 2022 on Sunday, that calls for roughly $374 billion in climate and energy spending on initiatives like expanded tax credits for renewable energy projects and tax incentives for buying electric vehicles. It also calls for the establishment of a federal Green Bank to oversee loans and grants to renewable energy companies working to reverse climate change. Hear more about green banks on our latest installment of the Green Investor podcast powered by Investopedia. The bill also caps prices for prescription drugs for seniors enrolled in Part D Medicare at $2,000 per year, and it allows Medicare to negotiate drug prices, starting with the ten highest-priced drugs by the middle of this decade and expanding from there. Where’s all this money going to come from? Higher taxes for corporations, as U.S. Treasury Secretary Janet Yellen finally got what she wanted. That’s the establishment of a 15% corporate minimum tax on large firms, a 1% excise tax on the value of stock buybacks, plus an $80 billion boost to the Internal Revenue Service (IRS) for enforcement. That minimum corporate tax would affect less than 150 companies in a given year, but the big megacap tech stocks that situate a lot of their profits overseas, like Alphabet, Apple and Meta, they’re going to have to pay it. President Biden is expected to sign the bill into law this week.
What’s in this Episode?
I had the honor to be invited to InvestFest this past weekend in Atlanta. This is the second year of the Investing in Culture Festival put on by our friends Troy Billings and Rashad Bilal from Earn Your Leisure. We featured them on the Express last year and they have exploded in terms of popularity and influence over the past couple of years. Last year, 4,000 people attended their inaugural event. This year, it tripled to 12,000 people packing the Georgia World Congress Center. I attend a lot of conferences as a speaker and a moderator, but I’ve never seen anything quite like InvestFest. The energy, the lineups, the conversations, the networking, and the inspiration that Troy and Rashad manifested was totally incredible. Check out on your leisure social channels for some highlights, and there were many. I had the opportunity to moderate a panel on crypto and NFT investing, featuring Ben Armstrong, a.k.a Bitboy Crypto, Lamar Wilson, the founder of the Bitcoin Billionaires Club, and Derek Henderson, one of the founders of the Vibranium Network. We went deep on how to reckon this crypto winter we’ve been living through all year and how new investors in crypto should put it all into perspective. Here’s a few minutes from that conversation, but keep in mind—Bitboy and Lamar are longtime crypto investors and hardcore believers. They’ve made a lot of money in the game, but the game is not for everyone. But this is their take on the big selloff, and how to process it as an investor.
Caleb: “So good to be with you. I want to get into it starting with the obvious little bit called out there in crypto and a little bit of a bitcoin winter. Ben, let’s talk to you about it—you’ve got a huge following, you do some great programing. But we’ve seen this before, anybody that’s been following Bitcoin for a long time knows volatility is the name of the game. How are you counseling your followers, how are you explaining this to them, because you do so much good education?”
Ben: “Yeah. Well, first, thanks for having me. Real excited to be here and talk about crypto. I’m a little disappointed for you guys because the best panel is the first one of the whole conference, or the whole day. So, you know, this is the best opportunity out there—crypto. And right now when you’re in a bear market, when you’re in a crypto winter, thank God for the crypto winter. Right? How many of you guys got in 2021 and after? Y’all are probably at a loss. Am I right? You guys probably are. And you were told that things were going to go up—prices were going to go up—and then they stopped. They stopped a little bit short of where most of us thought that they were going to get. But the truth is, is that Bitcoin is a four-year cycle. I believe that we might see something different with all coins potentially, but with Bitcoin, we’ve seen this for three full cycles. Now we’re moving on to the fourth. And so, because of that, even though last year prices were going up dramatically, we were still telling people—people laughed at me last year, by the way, when I said we’d have a bear market this year—it’s on schedule.”
“For years, we talked about the top of the market being between Halloween and November, or Halloween and Thanksgiving, and it hit that exact time. The timeframes are following the Bitcoin halving. And if I can really encourage you guys, when it comes to Bitcoin and investing in Bitcoin, the number one thing you need to understand is the Bitcoin halving—what that four-year cycle looks like and why it makes the speculation go up. So, the fact is, 2024 is when we’re looking at the next Bitcoin halving—when the production of Bitcoin gets cut literally in half. Imagine if every four years the amount of oil we imported for the gas stations got cut in half. Imagine how valuable it would be over time. The increase in price is really built into the code—the increase in the demand while the production and supply drops. So hold on through this bear winter, through this crypto winter, it’s not over yet. We expect this to go on, at least for the rest of this year, with next year being kind-of sideways. This is the time to accumulate. Many of us did not believe we would get prices this low. Some people were even thinking we wouldn’t get another bear market. So you guys are really in a good situation. You learned when things were going up, you got hurt, you lost money. It took me nine years to become a millionaire in crypto. Nine years. It does not happen overnight. I lost all my money twice! So for you guys that are in there right now, you guys are in that. It’s hard, but stick it out—it’s the most worthwhile thing I’ve ever done.”
Caleb: “Very cool. All right, Lamar. You’re a software developer—you came to this from a programmer standpoint—but you understand the asset class very well. You’ve got a lot of followers, you have a huge educational foundation on your website as well. From a technological perspective, how are you viewing what’s happening with the asset class?”
Lamar: “I think that’s the biggest thing. So I think, if we get into any other specific asset classes, what winds up happening is, we would recognize that you have some knowledge about the asset class before you invest, right? The problem is in this space, because of the volatility and the price going up and down, a lot of people just work on price action and they don’t even understand what it is they’re investing in. So there’s Terra Luna, right? There’s a lot of people on the Internet that invested in Terra Luna, thinking that it was going to be the next big thing. And guess what happened? How many of you lost money with Terra Luna? Well, most people don’t even raise their hand. Right? There were a lot of people on the Internet saying, “listen, you can make a couple percentage more using Celsius.” Y’all ever heard of Celsius? Now some of y’all can’t even get your money out of Celsius. That’s the problem. The problem is, is that we have too many people out here just going off of price action, and not really understanding what it is. People don’t even understand the fact that if you put your stuff into Celsius, Celsius is going to take your Bitcoin and give it to somebody else, and that’s the reason why you can’t get it back now. But guess what? Most people aren’t learning that because they just want to get money quick. So you got to be very smart. If you were in the art market, you wouldn’t just jump into the art market and buy whatever painting is on the wall, right? You would do your own research. You would understand who’s the painter and what types of paintings they do. That’s what you have to do in this game. And that’s the reason why I’ve been in this game for a very long time. A very, very long time.”
“You’ll probably see me say I don’t fool with NFTs. And some of y’all know why, right? So maybe I’ll buy some little monkey cat doll and it’s not coming back. You lost all you buy is going to get it if they try to cut me out because I’m talking about NFT. Yeah, I hear what I’m saying. Yup. No, y’all lost money that way. What I’m saying is, is just be very wise about what you’re doing. I’m a freedom maximalist. I’m not just a pure bitcoin maximalist. And the reason why I am is because I like to educate people on what’s real and not just price action. You hurry up and jump in here and think you can make money quickly. This is like Manhattan in the 1600s. In the 1600s a church called Trinity Church in Manhattan had just started buying up land around it in Lower Manhattan. You know how much Trinity Church’s land’s is worth right now? $6 billion. Why? Because they’re not making any more Manhattan and there’s demand for it. In Bitcoin, there’s only 21 million Bitcoin, period. 21 million. So as you accumulate more and more Bitcoin, and as the world demand picks up for Bitcoin, what happens to the price of Bitcoin? You got to learn to hold on. People like Lamar—you got in so early—it’s easy for you to say that. But guess what? A lot of other people got in early and they sold all their Bitcoin because as soon as it got to $1000, somebody on the internet was like, “You made ten times your money from 100, get out.” And then when it went to $1500, it’s like, “you made this much.” You get what I’m saying? So take your time. Understand dollar cost averaging. You’re not going to have to make money real fast. Just take your time, understand the asset class and you’ll be in the future.”
Caleb: I also had a chance to spend some time with my pal Josh Brown, the CEO of Ritholtz Wealth Management. I’ve known Josh for about 12 years and watched him become one of the most influential investors, financial advisors and market commentators in the industry. His podcast and YouTube show, The Compound, is must-watch or must-listen-to programing for modern market participants, and CNBC fans can find him nearly every day on the Halftime Report. I’ve always thought Josh was terrific at explaining how markets work and how investors should think about them from an evidence-based, educated perspective. I’ve learned a lot from him over the years. We caught up for a few good minutes at InvestFest.
“Okay, I’m here with downtown Josh Brown. Josh, this has been a really tough year for investors, but you and I are out there talking about how to invest and how to think about times like this and how important they are for individual investors to really understand the way the markets work. Nobody likes a downturn like this, but why is it so important?”
Josh: “I think the environment that we’re in now is where all the best lessons are learned. And I started my career in between the Dot com meltdown and the Great Financial Crisis. And those two events people forget occurred within a single seven-year span. That was the first seven years of my career. So I was fortunate to have come of age as an investor in that time because it’s really where you learn about concentrated positions and different types of risks, and different ways to think about time horizon and understanding that no company is a forever hold. And I don’t think that you learn lessons like that in 2020 and 2021. In fact, I think if those were your formative years of investing, you probably learned all of the wrong lessons. You had Bitcoin and Tesla, both 10x within a period of 18 months. That is not normal. That is not the type of thing that we should expect to happen. You had the largest companies in the world—the most popular stocks—all double and triple in value, like Apple and Microsoft. Companies of that size should not be able to do that. So a lot of extraordinary things took place in that time period. From March of 2020, when the market bottomed, until March of 2021, a 12-month period, 96% of stocks in the S&P 500 went up—completely abnormal. And if you learned to invest during that period of time, you literally learned everything wrong. You got all of the wrong lessons taught to you, and you were witness to something that was completely aberrant. One more stat: from the time that the market bottomed on March 23, 2020, it only took 354 days—less than a year—for the S&P 500 to double. That is the fastest doubling in S&P 500 history.”
What You Need to Know
Between March 23, 2020 and August 23, 2021, the S&P 500 doubled in value, marking the fastest doubling in the history of the index since World War II. From a bear market closing low of 2237.40 set on March 23, 2020, following the onset of the COVID-19 pandemic, the U.S. large-cap benchmark would rise 100% over the next 354 days. The index would achieve new all-time highs as early as August 2020, fueled by a surge in the valuations of technology and growth stocks. After its doubling, the S&P 500 would rise for an additional four months until eventually peaking on January 4, 2022, when the index logged an intraday all-time high of 4,818.62.
“So let’s recap. You start investing in an environment where 96% of stocks go up. You almost can’t lose money. You could throw a dart, you could blindfold yourself—anything you want to do—you make money and the market doubles more quickly than it’s ever done before. And you’re in a period of time where the most popular, most glamorous stocks end up being the leading stocks. None of those three things are normal, and it’s unfortunate to have to unlearn those lessons, but the way you unlearn them is through the pain of what comes next. And that’s where we are today. So my message for investors is: you have just seen the absolute best and the absolute worst of what the stock market can do to you. Congratulations. Better than any grad school. This has been an absolute masterclass in the vicissitudes of stock market investing, and you are now much stronger than you would have been, had 2020 and 2021 continued the way they were going.”
Caleb: “Not an accident, and this happens in every mania. Call it tulips, call it railroad stocks, call it Internet stocks, cannabis, crypto—you name it. You get a lot of new investors and you get a lot of new traders who think it’s time to make some easy money. So we saw Robinhood, you know, sign up 22 million accounts. We saw millions of investors and new investors come into the market at a time where you couldn’t miss—everything was working. And now nothing really seems to be working, except for oil and gas stocks a few months ago, but nothing seems to be working. Is the risk there that people just get washed out and say, this is not for me? Because I think that’s the wrong lesson you could take from it, even though that’s the one that seems to be the knee jerk reaction in times like these.”
Josh: “So the number one thing to keep in mind is that you were not put on earth as a human to become a superior investor. It’s just not in our nature as a species. We are hardwired to be risk-averse and to seek shelter in tumultuous times. And that is what’s kept our species alive for hundreds of thousands of years. It’s literally why we’re still here, because we run from danger. Becoming a great investor, an investor who is superior to all others, requires you to almost have your DNA wired in reverse, and most people don’t have that. So your expectation as an investor should not be, “I’m going to outsmart everyone or I’m going to be greedy when everyone else is fearful.” You can do that to some extent, but the people who have become famous for doing that are very few and far between. For most people. I think you want to approach investing the way you would approach tennis—get on the tennis court, try to hit the wall as hard as you can—most of your shots are going in the net or they’re going out of bounds. If you just focus on returning the ball that’s hit to you, getting it in, and just playing ‘no mistake’ tennis, rather than trying to play professional tennis in the long run, you’re going to stay on the court longer, you’re going to hit back more shots, and you’re going to survive. And this is something that, I think, people unfortunately don’t learn on their first go-around and some people never learn, but eventually a little bit of wisdom kicks in, and experience helps, and you realize, oh, “I’m not here to beat everybody else. I’m not here to outsmart everyone. What I need to do is last. What I need to do is stay on the court.” And once you arrive there—and I would say it took me ten years—I’m not, I’m not that bright. There are people who figure it out immediately, and there are people who never figure it out. Figure out where you are on the spectrum, and when you come to that realization, this gets a lot easier.”
Caleb: “You and I are at InvestFest. This has become an enormous conference put on by our buddies at EYL—Earn Your Leisure—Troy and Rashad. There are 12,000 people here, eager to learn about how to invest, how to trade, how to get involved in real estate, how to build businesses. But this is an audience that, frankly, you and I don’t necessarily speak to on a regular basis. We’re in mainstream media, or in mainstream financial media, but I am personally amazed at the energy and the eagerness for people to learn and desire to share here. What are your impressions just walking in these doors here at the Georgia World Congress?”
Josh: “So what I would say about this audience and what makes it so interesting for me to be in front of and why I appreciate the invitation from Rashad and Troy to speak here so much—and I’m sure you feel the same way, Caleb. The majority of financial media, especially television, radio, magazines, is geared toward an investor class that’s already rich, that has already accumulated all of the assets that they will, and there’s nothing wrong with that. But what’s good for them is not necessarily what’s good for everyone else. So when the Dow Jones falls 600 points, there is a knee jerk reaction among the mainstream media that something bad is happening, something wrong. It’s not wrong. What’s actually happening is that opportunity is being created for younger, newer investors who don’t yet have the most money they’ll ever have in the market. The people who are in the process of accumulating assets because they’re allocating to a 401K every two weeks, or they’re taking their first chunk of savings and putting it into the market—they are actually being aided by this volatility. They are way better off buying Dow 30,000 than they are buying Dow 36,000. So when you see on the television screen a headline like “Markets in Turmoil.” Yes, they’re in turmoil if you’re 70 and every dollar you will ever earn is already fully invested. But if you’re 30 years old, this is actually the best possible thing that could happen, and you should be rooting for it to happen every day for the next ten years as you accumulate your portfolio. And the benefits of that come later when the market is no longer in turmoil but on its way out. So I think one of the things that the mainstream media has not done a great job of is speaking to all generations, all demographics. It’s not because they don’t try. It’s because in the end, the largest portion of the readership and the viewership are people who are already rich. An event like Earn Your Leisure is for a different audience—it’s for an audience who want to become wealthy. They want to accumulate assets today. So for this audience, this is a great market environment. Stocks are way lower, valuations are down, dividends are up. There’s actually an interest rate to be paid on fixed income, which we haven’t seen in a long time. There are a lot of aspects of today’s market that make it a perfect market for a young new investor class, and that’s exactly who we have assembled as part of these 12,000 people here at Earn Your Leisure’s InvestFest that you referenced.”
Caleb: “We ask this to all of our guests, and I’m really curious to know your answer. You know, Investopedia is a site built on investing terms—definitions. Everyone’s kind of got their favorite one or two. I’m wondering what Josh Brown’s favorite investing term is and why. What’s the one that really speaks to your heart that just makes you smile?”
Josh: “For me, my favorite investing term has nothing to do with stocks and bonds. It’s force majeure, you know what that is? How would you define force majeure? You’re the expert.”
Caleb: ”Think of it as a sumo wrestling move. But what it really means is that it’s a legal term, right?–that gives somebody the ability to make a decision or a closing argument because they have a controlling position. Do I have that right?”
Josh: “Not quite. It’s a commodities term, so a force majeure will let you out of a contract if something is undeliverable. But the reason why I love that term and I think it’s not used for most other types of investing, but it’s completely applicable to both investing and life. There are curveballs that come out of nowhere that are unforeseen, that cause a force majeure. So basically it’s like an act of God or an act of nature intervenes in something that should have just been normal. Think about the rolling over of an oil contract where one party takes physical delivery of barrels of oil. When that delivery literally cannot happen, a force majeure can be declared. We have just lived through, I think, a generational force majeure for humanity, where so much about our expectations for the near term or the future were just completely negated by something that was an act of God, an act of nature. We had no control. We had no ability to do anything about it—it just occurred. And I think one of the greatest things about American-style capitalism and the investor class overall is how we’ve managed to get through it, and all of the adjustments that corporations had to make, equity market participants, the bond market, and our institutions like the Federal Reserve, the U.S. Treasury, the New York Stock Exchange, we’ve lived through something that literally put capitalism on its back and we got back up again, and we are back to investing and markets are operating, and functioning as normal as normal can be. And I just find that, that resilience is one of the most bullish things I’ve ever seen in my career. Just gives me so much hope and inspiration about what we’re all capable of as investors, and so, force majeure, I would say, is my favorite term and looks like you have a little bit of studying to do.”
Caleb: “The Editor-in-Chief of Investopedia, I’m a little bit embarrassed that I didn’t have that right. I actually thought it was the name of a nouveau punk band, so I had that wrong two ways. But that’s a great term. We’re going to give you some credit for that on Investopedia. And thank you as always for your time. Josh, you’re a good friend and a good friend to Investopedia. We appreciate it.”
Josh: “Thanks, Caleb.”
Caleb: Shout out to Josh for stumping the editor-in-chief! He’s getting an Investopedia Express hoodie for that. He’s already got plenty of socks. And special thanks again to Troy, Rashad, and the whole Earn Your Leisure crew and event team, for having me at InvestFest and putting on an incredible show.
Term of the Week: Carried Interest
It’s terminology time. Time for us to get smart with the investing and finance term we need to know this week. This week’s term comes to us from Ray in lovely Long Valley, New Jersey, right up in the northern center of the Garden State. Ray suggests carried interest, and we like that term, given how it’s kind of had a political football for the past few weeks, given the give-and-take in the Inflation Reduction Act of 2022. Well, according to my favorite website, carried interest is a share of profits from a private equity venture capital fund or hedge fund, paid as an incentive compensation to the fund’s partners. It’s typically only paid if the fund achieves a specified minimum return, and in most cases, carried interest is considered a return on investment (ROI) and taxed as a capital gain rather than ordinary income, usually at a lower rate. Because carried interest is typically distributed after a period of years, it defers taxes in the manner of an unrealized capital gain. Well, the carried interest tax loophole was a provision in the Inflation Reduction Act of 2020 to Senator Schumer and other Senate Democrats wanted to close it to help raise taxes to pay for this bill. But, a last minute intervention by Christian cinema, the Arizona Democrat eliminated what would have been a $14 billion tax increase on private equity. In addition to doing away with the carried interest provision, the deal Democratic leaders cut with Senator Sinema included a 1% excise tax on stock buybacks, and that across-the-board minimum corporate tax of 15% that we talked about earlier. Carried interest lives to ride another day. Good suggestion, Ray. A pair of Investopedia’s finest stocks are coming your way.