The History of Crowdfunding

By Adams Financial Concepts | January 17, 2018 | 0 Comments

In 1958, Harvard economist John Kenneth Galbraith published The Affluent Society, in which he outlined his belief that the US had reached the pinnacle of affluence – that American standards of living had risen as high as they ever would. Most families owned a car, their own 1,100 ft2 (on average) home, and even had refrigerators and telephones in those homes. This, Galbraith said, was as high as affluence in the US would rise. But we know that his assumption was wrong. Look at where we are today – smartphones and PCs and bigger houses and 3-car families, all concepts that Galbraith couldn’t predict. Society did not stagnate in the 1950s, it only continued to grow, and not just in the US, but around the globe. In 1946 George Doriot founded American Research and Development Corporation (ARDC), raising money from friends and associates. Prior to then start-up companies relied on angel investing or bootstrapping to get going. ARDC made a $70,000 investment in a small computer company, Digital Equipment Company (DEC). When DEC came public that investment was worth $35 million. Venture capital was born. The statistics of venture capitalism are staggering: in 2007 alone, US companies founded by entrepreneurs and backed by venture capitalism represented 10.4 million jobs, and those companies generated $2.3 trillion in revenues, 18% of US GDP. Silicon Valley alone is worth $3 trillion in 2016. And I believe it is these companies that are driving the current supercycle with their innovative and disruptive technology. Whether you like President Obama or not, I believe that in the longer-term what his administration will most be credited with will not be healthcare, but the JOBS Act passed in 2012. Jump Start Our Business Start-ups (JOBS) authorized Crowdfunding. Venture capital has grown to the point it funds the big start-ups but leaves behind many of the small ones. Crowdfunding allows companies to source funds from a large number of people. The source of funds can be worldwide and in smaller amounts. But through 2015 estimates are that $34 Billion was raised worldwide through crowdfunding. I believe we entered a supercycle (Wonder what a supercycle is? Check it out in this blog post.) The funding of the new companies that will drive growth for the next several decades will be the start-ups and many of those start-ups will be capitalized by crowdfunding. Just as venture capital furnished the start-up monies for the second supercycle, so will crowdfunding furnish the capital for the third supercycle we are in today.

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The Myth of Excellence – Part Two

By Adams Financial Concepts | January 17, 2018 | 0 Comments

I’ve been talking about how companies are seeing their lifespans shrinking – particularly how short the lifecycles of companies in the S&P500 have become. If you’re an investor that favors the buy-and-hold strategy, this is an intimidating prospect. The days of finding that perfect company, buying it, and tucking it away in the proverbial sock drawer are coming to an end. The average lifespan of a company in the S&P500, a study by Yale Professor Richard Foster found, was only 18 years!1 With such a daunting new world for investors to face, I’ve been studying good business practice, and found myself agreeing with some of the points made by Fred Crawford and Ryan Mathews in their book The Myth of Excellence: Why Great Companies Never Try to Be the Best at Everything. They found that quality companies are defined by five attributes: Price, Service, Access, Experience, and Product (which I laid out in more detail in last week’s blog: Five Attributes: How To Spot A Solid Business Part 1). In order to stand out as a company and still be economically viable, a company needed to “dominate” in one of these five, “differentiate” in a second, and be adequate in the other three. I believe that it is a good way to begin looking at potential stocks to buy – do they meet these standards? Knowing the most about running a financial advisory, I thought I would compare my company, Adams Financial Concepts (see the AFC Difference) and Edelman Financial Services, LLC, Ric Edelman’s financial advisory, and a company with a very difference focus than AFC. Edelman is generating over 25,000 leads each year through his radio show, TV appearances and ads, books, and around 800 seminars. He employs more than 113 advisors and has a number of offices around the country, and each is created with the same “cookie cutter” template – from the books laid out in the waiting room to the offered plans, they are identical across the country. Interestingly, 75% of clients say that Edelman’s is the best company they have ever worked with – among all companies, beating out Nordstrom, Starbucks, and the like. If we look at Edelman’s in terms of the five attributes, it’s obvious that Access dominates their methodology: there is nothing confusing or elaborate about the company’s approach to working with their clients. Their tactics are consistent across the board, and it is comforting to their clients to have this straightforward product laid before them. They differentiate themselves with the Experience they provide; clients are treated well on a consistent basis and know what they are getting themselves into. Regarding the final three, their Service, Price, and Product are all average. They do what they do reliably, the price has been dropping, and they create dependably good financial plans, although, I believe, without a real focus on being the best. I disagree with their model, and I believe that this shows in the attributes we see in AFC. I want to dominate in Product by offering product objectives and risks, and my own management has been proven to beat the market in the long-term. Although, past performance is no guarantee of future performance. There is an 11 year track record that is published for all to see, and it is a composite of all clients with no carve outs. AFC differentiates in Service, creating individualized portfolios and knowing every one of our clients as complete people, not just another set of numbers. Regarding Price, Access, and Experience, we do nothing unique or world-altering, but we work hard to recognize the needs of our clients and create a welcoming environment. As Myth says, it’s impossible to dominate or even differentiate in every single category. I believe this model places the value on the longer-term of compounding. $100,000 invested over 25 years at 7% will yield $507,000. $100,000 invested at 15% will yield $2,862,518. While there is no assurance of achieving 15%, I do believe the emphasis on product and returns will be to the client’s advantage. Footnotes Foster, Richard. Innosight.com. Creative Destruction Whips though Corporate America. 2012. Found: http://www.innosight.com/innovation-resources/strategy-innovation/upload/creative-destruction-whips-through-corporate-america_final2015.pdf

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The Myth of Excellence – Part One

By Adams Financial Concepts | January 17, 2018 | 0 Comments

Buy and Hold was (and sometimes still is) a strategy to find great companies: purchase their stock and put it away to hold for decades. I still believe in buy and hold, but the timeline for the holding period has significantly shortened. I recently read a book by Fred Crawford and Ryan Mathews called The Myth of Excellence: Why Great Companies Never Try to Be the Best at Everything, and it got me thinking. In the 2010s, the lifespan of a dominating company is shrinking at a rate that CEOs find alarming. Today, the average lifespan of a company in the S&P 500 is only 18 years1. That is an incredibly short amount of time when we compare it to the lifespans of companies that have come and gone in the previous decades. If we look back to June of 2001, some of the biggest companies in the S&P 500 were Walmart, AOL, LUV, Lexus, Eddie Bauer, Citibank, and even Dell. Now think of how many of those companies carry the same power today as they did fifteen years ago. Think too of how commonplace newspapers and record stores and travel agencies were only fifteen years ago, all three of which were essentially replaced by the smart phone and the digitalization of media. So how, with this daunting reality, does a company stand a chance at maintaining relevancy? The Myth of Excellence has a few ideas that I think have value in finding companies that investors can buy and hold for a number of years The Myth of Excellence approaches business through the lens of five attributes: Price, Service, Access, Experience, and Product. Price: a survey mentioned by Myth states that Price, for most respondents, is not finding the service or product at the cheapest, but an “honest and fair price.” Price has become less about getting the cheapest option that does the job and more about finding quality and fairness. Striking that balance is what is important. Service: the authors of Myth found that the surveyed were most impressed when they were treated well – “like an individual” on a day-to-day basis. When you order your coffee from your favorite joint, do they spell your name right? Are you told about the day’s specials? Or are you rushed out the door and treated like just another skinny venti cappuccino with sugar-free vanilla that has to get spun out? Access: more than just physical location, access is the ability for customers to understand and feel comfortable with a service or product. There is a psychological aspect; is a product or service being sold with an honest, straightforward campaign? Experience: it isn’t about being entertained, but experience is about, as with service, being treated like an individual – having questions answered correctly and interactions personalized. When you call the “help” line, is there a recording on the other end, or a person? Does the design of the store or website stand out and make you feel comfortable and want to go back? Product: not necessarily about having the “best” product, but one that customers prefer, product focuses on creating a brand that is trusted, that has a culture that customers prefer, and that they will consistently choose over alternatives. Consider your relationship with your favorite brand of smart phone or cereal: what draws you to them above all others? In order to stand out as a company and still maintain an economically viable company, a great company is one that truly “dominates” in one attribute, “differentiates” in another, and is adequate in the other three. It is not realistic, in most cases, to dominate or even differentiate in every single one. Finding what a company is good at and focusing on those areas is the most efficient and cost-effective way to stand apart in a world with massive competition and short lifespans. Finding a company which is aware and capable of attributes and is able to use them to their advantage makes a decent contender for your buy-and-hold stock option. Footnotes Foster, Richard. Innosight.com. Creative Destruction Whips though Corporate America. Found: http://www.innosight.com/innovation-resources/strategy-innovation/upload/creative-destruction-whips-through-corporate-america_final2015.pdf

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Brexit

By Adams Financial Concepts | January 17, 2018 | 0 Comments

The news that overhangs the markets is Brexit – the UK voted to leave the European Union. While I believe that this was a very short-sighted decision, I also believe that the Brexit decision has a historical impetus going back several centuries along with more recent history. During the late 1600s and early 1700s, France and England were in three major and several minor wars. Both England and France financed their wars with borrowings. Initially, they borrowed at 5%, but found it quickly grew to 10%, causing a Great Recession in both countries. France tackled the recession with stimulus and England with austerity. Here we see the first big rift between the British and EU mentalities. While the stimulus method caused a fairly fast recovery, British austerity took decades to recover. We jump now to the 2008/2009 Great Recession. Both the EU and the US responded with a 2009 stimulus package, but by 2010 the EU changed tracks and decided to enforce austerity measures to get their budgets in check. This, as we have seen, caused turmoil in the southern European countries, such as Greece. Yet with the stimulus, the UK GDP was growing faster than the US – yet they sided with the austerity measures, and in the summer of 2010 cut their budget by 25%, eliminating 40,000 government jobs. By the 4th quarter of 2010, they had slid back into a Recession. As the year turned, they continued to lose jobs. Brits who grew up between the 1940s and 1970s remember a time when “The sun never set on the British empire.” The British empire stretched from the British Isles to Canada, Australia, India, and much of eastern and western Africa. The UK GDP was second only to that of the United States.  As the UK continued their struggle in and out of recession, it was difficult not to become nostalgic for a time when the British Empire was one of the most powerful countries in the world. Today, they are only the 5th largest economy in the world, behind the US, China, Japan, and Germany. It was also easy to point fingers at who was “taking” jobs, but instead of fury at the austerity measures, they turned on immigrants. June’s Brexit vote was an accumulation of centuries of ingrained responses to recession. While it was the austerity measures that resulted in a tough economy for business and massive job loss, the blame was placed on the immigration granted by the EU over the last 30 years. What will be the impact? As of now, 44% of British exports are to EU countries; there is open trade between EU countries, but now tariffs will probably be imposed on those exports. Likely, there will be another Scottish and possibly even a Northern Irish move for independence. With the loss of Scotland, England will lose access to their oil revenues. Meanwhile, the leaders of France and Germany are positioned to take good advantage of Britain’s exit. In Britain, the austerity, initially a function of their own government and not the EU, will continue to wreak havoc. While Britain itself hopes that leaving will only affect their control of immigration and the single common market will be maintained, the countries still in the EU are not likely to agree to that. Particularly, it is France who is fighting against granting the UK any favors, while Germany is more willing to compromise. Both countries have said that there will be no free trade. In the long-term, austerity works. Britain will most likely come out of the recession, but it will probably get worse before it gets better. Perhaps the bigger problem is that Britain still insists in thinking with an Empire mindset. There is potential for more dramatic missteps for the world’s 5th largest economy if they continue in this mindset.

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What’s A Fiduciary?

By Adams Financial Concepts | January 17, 2018 | 0 Comments

Recently, British comedian John Oliver’s show Last Week Tonight put out a flooring (and very entertaining) look at the retirement industry. I spent Monday morning watching it after Sara shared it, and between nodding along with his points and laughing so hard I choked I decided that I needed to share it. You can watch the video included, and I encourage it, but I also wanted to highlight some of the most important points. First, Oliver asks what is a financial advisor? He answers actually, and technically – nothing. That title, along with financial analyst, financial consultant, investment consultant, or wealth manager does not actually indicate credentials. The only valid credential is whether your advisor is a fiduciary. I am. Two, as Billy Eichner asks, “[What]…is a fiduciary?” Well, it means that I (as a fiduciary) am required by law to put your well-being first. I cannot receive commissions from brokers. Every few years I can be, and often am, audited to make sure that there isn’t anything going on that shouldn’t be – as is every one of my employees. It is the highest standard of care in the industry. Finally, Oliver looks at fees. He compared fees to termites: they are tiny but they eat away at returns. In fact, a previous Department of Labor study found as many as 17 fees and costs being taken from 401Ks, and most of them were hidden so neither participant or sponsoring company realized they existed. Low returns could mean the employee participants may end with account balances at retirement that are up to half of what they might have been. A quality 401k does provide a lot of other benefits that aren’t usually associated with your retirement plan in addition to returns: retaining skilled employees and tax deferrals are just two. John Hancock responded saying that the plan Oliver was discussing was a start-up plan with $30,000 of assets. Read between the lines and it seems John Hancock is saying the plan is so small it loses money for John Hancock. While they claim there are no hidden fees, they did not say the costs were fully disclosed. Now that you know, what’s your next step? Watch the video: Then, I would start by contacting your advisor – or whoever works with you on your retirement plan – and asking two questions. First, if he or she is a fiduciary (now that you know what it is), and second, ask for their REAL returns, net of all fees. With these in hand, you can start to assess where your plan is at now, and make decisions about where you want it to be.

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The Market Is Flat

By Adams Financial Concepts | January 17, 2018 | 0 Comments

There has been no new market high since May 21st, 2015. That’s a reality that has some investors panicking; some are even dubbing this the “Twilight Zone” (do do do do). And yet – and yet, if we ignore the preemptive panic, we can see that for all the threat a flat market can present, there’s good news. If we look at global stocks, we find that as of the end of May they were off by 8%. Commodities have lost 22.8%. European bank stocks are back to 2008 Lehman Brothers lows; Japanese bank stocks are down 30% and Chinese bank stocks down 40%. Oil is down 60% and gold is down 35%. Hedge and mutual funds have lost and are continuing to lose money, as are junk bonds and emerging markets. Are you pushing the panic button yet? But the overall market is only down 2% overall. For all that we could interpret the state of the commodities and the banks as negative, the market itself is, from my perspective, actually encouraging. I believe that history doesn’t repeat; it rhymes. We saw a similar market back in 1995. The market had been flat for a year, and in January 1995 the New York Times posted an article titled “Prepare for a BIG, DEEP BEAR MARKET.”  People were genuinely preparing for a market downturn that we could compare to the Great Recession. Never happened. There are more parallels: talk of reforming the healthcare system (Hilary Clinton in the conversation, no less) had the pharmaceuticals up in arms, Orange County California filed for bankruptcy, Mexico had devalued the Peso, and the market was a very old secular bull. What happened instead of that deep bear market the New York Times article forecast was that the S&P rose from 487 to 1,366 in just five years – a 280% increase; ours would go from 2,090 to 5,890. If our DOW increased at the same rate, we would see it explode from 17,820 to 49,840. I’ve been predicting for several years now that we will see the DOW reach 100,000 in the coming years – could it be in the next five? It’s unlikely, but not out of the question if these numbers hold true. To quote another old adage, “the market climbs a wall of worry.” At the end of the day, I believe that, if we are holding onto the right stock, it is better to ride out the bad times.

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Oil and Commodities Drop

By Adams Financial Concepts | January 17, 2018 | 0 Comments

2016 has been off to a rough start – in fact it is the worst start in history – and for many, 2016 is stirring up memories of 2008. I believe that this fear is unfounded and stemming from misinterpreting the oil and commodities drop. They are symptoms, I believe, of overproduction that stemmed from futures contracts made in the 1990s and 2000s, and the resulting credit bubble burst. Despite this, I still believe that we are in a super cycle, and as with previous super cycles, there will be some winners and some losers. We wouldn’t be in a super cycle if everything was going smoothly. Where oil and other commodities are concerned, there is an excess of supply compared to demand. Oil production in 2015 was at 96.3 million barrels per day but demand was just 94.5 million barrels per day, and the excess went into storage. Demand has not dropped off; it was a record high in 2015. During the 1990s and 2000s, it was believed that the price of oil would only continue to rise and so many futures contracts were taken. Airlines and other real consumers took out contracts with the intention of taking delivery but hedging against future price increases. Yet, as many as 50% of the contracts taken were speculative, and had no intention of ever taking possession. These were simply initiated as speculation on the price of oil increasing. Simultaneously, it became common for commodities to be treated as an asset class, and more investors joined the speculative boom through those means. Futures contracts make sense if the prices continues to climb, but if the price drops, not only do you lose your investment, but you can owe additional money as well (as these contracts are usually highly leveraged with borrowed money). In this way, I believe that the drop in oil prices was also the catalyst for other commodity prices to fall when the bubble popped. The speculation that prices were only going to increase also saw trillions invested into factories, plants, and drilling to keep up with the false demand. $2 trillion was invested into factories in India and China alone, and $6 trillion was invested into oil drilling in the Brazilian coast, Australia outback, and South Dakota. The additional investment helped create the oversupply. China’s steel production quadrupled between 2000 and 2015. At the end of 2015 there was an excess of 600,000,000 tons, and across the globe in Scotland, steel factories are closing – and we are likely to see them closing in the US as well. A lot of money went into factories, as during the housing market when a great deal of building resulted in many empty homes. In 2015, 25 energy companies defaulted on their loans and I suspect there will be more than 150 additional bankruptcies to come. Despite the drop in oil, the oil companies the S&P book value have continued to grow. I think this is because oil companies saw the drop as very temporary and continue to carry reserves at full value ($100 to $110), and this spring auditors will force them to write them down with a mark-to-market value. I believe this will result in significant defaults and bankruptcies which will affect the market and earnings. There is good news for the American companies and consumers looking to purchase steel, oil, and other commodities. The price drop will make raw materials cheaper to purchase. I also believe that outside of energy and commodities there will be real growth coming in the market. But as I have said before, to quote Richard Bernstein, it will be a tough year for investors, but perhaps not for investing.

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Who Is an Adams Financial Concepts Client?

By Adams Financial Concepts | January 17, 2018 | 0 Comments

I believe an Adams Financial Concepts’ client is someone who wants success. What does success mean for my clients? It means wealth. My clients want to win and beat the market. Regardless of whether they own their own businesses, have grown through a company, or inherited their wealth, they aren’t the average performer. They want their investments to do more than perform at market value. Charles Ellis wrote a book called Winning the Loser’s Game in which the premise is 85 to 90 percent of money managers underperform the market over the long-term. Thus, he concludes clients need to lower their expectations and recognize they’ll have less than market returns. I couldn’t disagree more. My clients want to outperform the market and they have. Yes, there may be drop years, like 2011 when we’ll underperform by one or two percent. But in the last three years, my clients have out preformed the market at an average of 10 percent. That’s including this year’s drop. Who is an Adams Financial Concepts’ client? A man who wants to accumulate wealth. A woman who believes success is performing above average. A person who wants to win. At the end of every year, I believe it is important to evaluate your performance and consider your goals for the coming 12 months. As you sit down with your financial planner, consider what kind of client you are. Ask yourself, what do I want? Do I want success?   For more information on all of these topics, I encourage you to listen to About Money, a weekly podcast and radio show. You can also follow us on Facebook and Twitter for blog updates, podcast news, and more! I want to hear your opinions; please leave a comment below and let me know your thoughts.  

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Where Have the Jobs Gone?

By Adams Financial Concepts | January 17, 2018 | 0 Comments

The common belief is US jobs are going overseas where labor is cheaper and restrictions are more lenient. Is this really the case? Based on Robert Lawrence and Martin Bailey’s study in 2006, only 10-percent of the jobs lost were exported. The other 90-percent were lost because of increased productivity and demand. What does this mean for US workers? It means education is even more important. As technology continues to increase machine driven production, more blue-collar jobs will continue to disappear. Their disappearance has caused the demand for continuing education to skyrocket. Just two generations ago, one out of every five people in the US went to college. Today 65 percent of high school students continue their education. To be a professional now demands exceptional technical skills and an increased wealth of industry specific knowledge. Even blue-collar jobs require more skill than they did just 10 years ago. How does someone keep up with the rigorous demands of today’s educationally driven economy? Professionals take continuing education classes to stay ahead of the curve. The increased demands on their time have led to revolutionary learning options, such as online classes and quick refresher courses sent to mobile devices. Examples of this are the classes provided by Shaun England’s LearnLive Technologies.   For more information on all of these topics, I encourage you to listen to About Money, a weekly podcast and radio show. You can also follow us on Facebook and Twitter for blog updates, podcast news, and more! I want to hear your opinions; please leave a comment below and let me know your thoughts.  

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What’s Food Got To Do With it?

By Adams Financial Concepts | January 17, 2018 | 0 Comments

TV and newspapers talk about the “consumer returning.” Where did the consumer go? Nowhere. They never left. In 2009, 70 percent of the Gross Domestic Product (GDP) was made up of personal expenditures. Which means, $7 out of every $10 spent in the United States went towards one of four different sectors: Domestically Produced Goods, such as groceries, internet, and washing machines; Imported Goods, meaning anything that read “Made in China,” “Made in Taiwan,” or “Made in wherever it might be;” Imputed Goods, a catch-all category consisting of rent and property purchases; and Healthcare. While the consumer hasn’t disappeared, they are making significant changes in their purchasing habits. Programmed purchasing, when a consumer visits a retail location having already decided what they are going to buy and how much they can afford to spend, is becoming the norm. Roger Stilson, President of Specialty Restaurant Group says: Roughly 85 percent of consumers who go to a sit down restaurant don’t judge the restaurant on the prices they see on the menu. They make a judgment value of the restaurant based on what on they can see on their credit card receipt during the drive home. Previously, the majority of restaurant patrons based their dinning experience on a number of factors other than price such as ambiance, service, and quality. Now that consumers are making a value shift, we can expect to see businesses follow. Products and services which meet the Baby Boomers and Millennials expectations for not only quality but end price will flourish in the market place.   For more information on all of these topics, I encourage you to listen to About Money, a weekly podcast and radio show. You can also follow us on Facebook and Twitter for blog updates, podcast news, and more! I want to hear your opinions; please leave a comment below and let me know your thoughts.  

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