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    Daily Advice Thread - All basic help or advice questions must be posted here. Investing

    August 08, 2019

    Daily Advice Thread - All basic help or advice questions must be posted here. Investing

    Daily Advice Thread - All basic help or advice questions must be posted here.

    Posted: 07 Aug 2019 05:16 AM PDT

    If your question is "I have $10,000, what do I do?" or other "advice for my personal situation" questions. If you are going to ask how to invest you should include relevant information, such as the following:

    • How old are you?
    • Are you employed/making income? How much?
    • What are your objectives with this money? (buy a house? Retirement savings?)
    • What is your risk tolerance? (Do you mind risking it at blackjack or do you need to know its 100% safe?)
    • What are you current holdings? (Do you already have exposure to specific funds and sectors?)
    • Any other assets? House paid off? Cars? Expensive significant other?
    • What is your time horizon? Do you need this money next month? Next 20yrs?
    • Any big debts?
    • Any other relevant financial information will be useful to give you a proper answer.

    Please consider consulting our FAQ first - https://www.reddit.com/r/investing/wiki/faq

    Be aware that these answers are just opinions of Redditors and should be used as a starting point for your research. You should strongly consider seeing a registered financial rep before making any financial decisions!

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    Gold climbs to six-year high and bond yields collapse as fears of a global slowdown mount

    Posted: 07 Aug 2019 08:58 AM PDT

    China sets the yuan midpoint at 7.0039 per dollar, weakest since April 2008

    Posted: 07 Aug 2019 07:03 PM PDT

    Oil dives 4.7% on fears of a global slowdown

    Posted: 07 Aug 2019 11:39 AM PDT

    10 yr treasury yield now below 1.65%

    Posted: 07 Aug 2019 05:36 AM PDT

    The Current State of Global Yields

    Posted: 07 Aug 2019 12:24 PM PDT

    A comprehensive analysis on Facebook ($FB)

    Posted: 07 Aug 2019 10:10 PM PDT

    With all the recent controversy surrounding Facebook, today we are going to analyze Facebook's business fundamentals, growth potential, risks, valuation, and ultimately decide whether or not it makes sense to be a shareholder of the social media giant. Unless stated otherwise, all numbers and statistics presented below are as of August 7th, 2019.

    The social media market

    With over 2.41 billion monthly active users across Facebook and Messenger platforms, and over 2.7 billion monthly active users across all Facebook-owned platforms (including Instagram and WhatsApp), Facebook is a major player in the social media market, to say the least. Facebook is often accused of being a monopoly, but they do face fierce competition on many of their products and features. Messenger and WhatsApp compete head-to-head with Apple's iMessage and FaceTime in the messaging and private communication space. In the video space, Facebook Watch and Instagram's IGTV both pale in comparison to Youtube. However, Facebook's network effect does provide an enormous competitive advantage in the social media space, largely owing to their extraordinarily enormous user base. Firstly, it increases the "stickiness" of users. If you live in a developed country, chances are that you and many your friends rely on a Facebook-owned platform as a primary channel of communication, making it very inconvenient for anyone to leave the network. Once hailed as an archetypal Silicon Valley success story, Facebook has taken severe blows to their reputation after a series of privacy scandals. However, users are not leaving the platform. In fact, monthly active users have continued to grow steadily following the Cambridge Analytica scandal that first began reshaping public opinion around the social media giant. Users stick to the platform, perhaps because there is no other feasible place to go. Secondly, an enormous user base gives Facebook a huge advantage over other social platforms. For example, when Instagram decided to implement "Stories", a feature that had existed on Snapchat for over five years at the time, Snapchat was quickly out-competed. In less than one year, Instagram Stories had overtaken Snapchat Stories in active users. After two years, Instagram Stories had over twice as many users as Snapchat Stories, and Snapchat began to see a decline in users. This example demonstrates that when Facebook decides to enter a new space, they bring along an enormous existing user base, which gives them a competitive edge over smaller platforms.

    The digital advertising market

    Facebook in its current form is a social media platform, but it is in the business of digital advertising. It competes with the likes of Google, Amazon, Microsoft and Verizon in the digital advertising space, as well as everyone in the traditional advertising space, since money spent on traditional advertising is money not spent advertising on Facebook. Fortunately for Facebook, digital ad spend as a proportion of total ad spend in the United States is trending upwards. In fact, it is expected that digital advertising will account for over half of all ad spend in 2019, making it the first year that advertisers spend more on digital media than traditional media. It is not difficult to see why advertisers are moving from traditional media to digital media. Digital advertising often provides higher conversion rates and more impressions at lower costs, ultimately producing a higher return on ad spend for marketers. Facebook can provide more effective advertising because their ad targeting is laser-focused. Where traditional media can make their best guess that your ad will be shown to 18-24 year old females in New York who are interested in beauty products, Facebook can be relatively certain of it, based on information that users provide them directly, as well as data that is collected through users' activity both on and off the platform. They can also offer lower rates to advertisers due to the vast amount of ad inventory provided by their enormous user base. Additionally, digital media platforms typically provide better tools for ad campaign monitoring and analytics, which is important for marketers. With digital media, marketers can collect data in real-time and make changes and optimizations to their ad campaigns within minutes. This gives digital media an edge over traditional media, and Facebook is well-positioned to benefit from the inevitable shift from traditional to digital. Facebook currently sits at around 19% of total digital ad spend in the United States.

    Competitive advantage

    Facebook's competitive advantage lies primarily in three areas: user base, data, and business success. As mentioned before, their vast user base creates a network effect that makes it extremely difficult to leave and tempts new users to join. Facebook has to spend relatively little to acquire new users in their established markets (which is most of the developed world), making them very difficult to compete against for new startups that have relatively high customer acquisition costs. Additionally, Facebook's data advantage allows them to create highly accurate and detailed profiles on their users, giving them a huge competitive edge over traditional media platforms and even other digital media platforms. Finally, despite being caught in political crosshairs, Facebook's vast profitability allows them to be relatively resilient in a hostile regulatory environment. Unlike Snapchat and many other tech startups that are not yet profitable and require constant capital injections from investors to sustain their operations, Facebook is a cash-generating machine. New legislation regarding privacy and security will likely be introduced in the near-future, and compliance often requires an increase in headcount as well as infrastructure modifications, which can cost significant amounts of capital. Therefore, smaller and less profitable institutions would be disproportionately affected by new regulations, assuming that the regulations are broad-reaching and do not single-out Facebook as the target.

    Facebook's financials

    Facebook's financial statements are the kind that Wall Street dreams about. Their balance sheet is pristine, with almost $50 billion in cash and only $13 billion in current liabilities, resulting in a cash-ratio of 3.75. Less than 25% of their assets are funded by debt, so they should face relatively less pressure during an economic downturn. Over the past five years, their earnings have grown over 600%, and they are continuing to grow, albeit at a slower rate. In the past twelve months, average revenue per user has grown by 18%, while total users have grown by 8%, leading to a revenue growth of 28% year over year. However, expenses are also ramping up as Facebook faces regulatory pressure to make improvements to their privacy and security infrastructure. As a result, operating margins have fallen from 44% in the second quarter of 2018 to 39% in 2019, leading to a modest operating income growth of 13% after adjusting for the recent fine from the Federal Trade Commission. One would hope that Facebook can eventually reduce the costs required to improve their infrastructure, as well as overcome the regulatory obstacles as to avoid excessive fines and settlements in the near future. Ideally, they would be able to do this while maintaining strong revenue growth, which does not seem to be a problem at the moment. This is particularly astounding considering the already-gargantuan size of Facebook.

    Growth potential

    Despite having over one-third of the world in its network, Facebook's user count continues to grow at high single digits, although most of this growth comes from regions where Facebook does not monetize quite as well, such as Asia-Pacific and "Rest of World". In these regions, the average revenue per user is less than one-tenth of that in the United States and Canada. However, this presents a macroeconomic growth opportunity for Facebook – as these countries grow their economies, consumers will spend more and advertisers will spend more to attract these consumers. Therefore, in addition to a steadily growing user count in these markets, with time, the value of each user in these markets should grow too.

    More macroeconomic growth potential lies in the year over year expansion of the global advertising market. Total advertising spend worldwide grows around 5% each year, and as mentioned before, digital advertising is taking a larger and larger portion of that spend. As a market leader in the digital advertising space, Facebook is well-positioned to benefit from these two macroeconomic trends.

    Aside from macroeconomic tailwinds, there are still many adjustments that Facebook can make to its platforms to improve their top-line. In fact, much of Facebook's growth limitations are self-imposed. Facebook is very conscious about the user experience and is aware of how it can be impacted by advertisements. Therefore, when rolling out new ad products such as Facebook Stories ads, they will likely take their time and exercise caution, often testing out the feature in small markets and expanding slowly until they are confident that it will not impede too much on the user experience. Surprisingly, there are still no ads on Instagram's Explore Feed. Additionally, Messenger and WhatsApp are barely monetized. Each of these present opportunities to increase ad inventory, but we can expect Facebook to be patient and to roll out new ad products on these platforms slowly over time.

    Facebook is constantly releasing new products such as Libra, Facebook Marketplace, Facebook Dating, Facebook Watch and Instagram Checkout. If successful, such new products may meaningfully contribute to their top-line. Like Google, Facebook is also willing to make a few moonshot bets on new technology such as virtual reality headsets and augmented reality glasses. Only time will tell whether or not these investments will pay off.

    Risks

    Currently, Facebook's biggest and most obvious risk lies in the current hostile political environment in which it operates, both in the United States and worldwide. The European Union has been constantly hammering on the tech giants for their privacy issues and anticompetitive behavior, implementing policies like GDPR and aggressively attacking them with fines, which, if continued, may have a materially negative impact on Facebook's profitability. Additionally, the United States government has also begun to take legal action against the tech giants, with bipartisan support. Facebook recently received a $5 billion fine from the Federal Trade Commission and is currently pending investigation from both the Department of Justice and the Federal Trade Commission for potential anticompetitive behavior. The results of these investigations are to be seen, but any antitrust actions taken against Facebook could materially impact its operations.

    Additionally, although the recent series of privacy and antitrust scandals have not seemed to meaningfully impact user count, it has seemed to negatively affect employee morale at Facebook. Surveys completed by employees at Facebook have not been as positive as in the past, and the company has seen ten of its top executives leave in 2018. If this trend continues, Facebook may find it difficult to attract and retain top talent and lose some of its competitive edge.

    Valuation

    The following discounted future earnings model makes the following assumptions: Facebook's earnings will grow at 15% year over year for five years starting January 2019; it will have a price/earnings ratio of 16 at the end of this period; and the investor demands an 11% annualized return during this period. Discounting future earnings under these assumptions, Facebook's present value is $422 billion. It's current market capitalization is $550 billion, meaning that the stock is currently overvalued under these assumptions. However, any model is only as good as its inputs, and even a small change in expected earnings growth, terminal price/earnings ratio or discount rate could have a significant impact on the present value. Whether or not you should to invest in Facebook at these prices will depend on your own expected future value and required rate of return.

    Conclusion

    Facebook is a remarkable business that has grown its revenue and earnings at an extraordinary rate over the last few years. There is still plenty of room to grow, but whether or not the growth materializes will depend on macroeconomic factors, regulatory outcomes and Facebook's ability to effectively execute on their vision. Facebook's fundamentals are strong, but with an adjusted price/earnings ratio of 24, and a price/book value of 6, it seems that this strength is already somewhat reflected in the market value of the stock.

    submitted by /u/u---wot---m8
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    Is there any direction for NFLX to go but down in the coming years?

    Posted: 07 Aug 2019 01:27 PM PDT

    INTENSE competition arising in the next 1-2 years. WarnerMedia, NBC and Disney all launching their own respective streaming services. NFLX missing MASSIVELY on subscriber growth last quarter after two great quarters mainly driven by price increases.

    With more and more streaming services coming out, the pickings get slimmer on Netflix and they have to rely on their own content, which continues to burn hundreds of millions for them in production costs, and the reality is that most of the shows that Netflix claims to be their drivers (Orange is the New Black, The Crown) are forgettable to anyone except people who began watching them years ago, and ultimately when they end, the incentive to stay with the service after already having watched the shows will decrease.

    Netflix likely won't be able to increase prices anymore (which was a main driver of their huge revenue these last two quarters) without it hitting their subscriber base dramatically as the new Disney+, ESPN+ and Hulu (with ads) bundle at $12.99 is debuting at the SAME PRICE as the current most popular Netflix deal. As Netflix loses more and more content, pricing models become exponentially more competitive and streaming service options quadruple, is there any way for Netflix to go but down?

    Today went long on two 2021 $200 NFLX puts. Anyone else have any input? Also I apologize if the formatting is bad.

    Edit: stuff and things

    submitted by /u/virgo911
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    Can someone help me figure out how to calculate compound interest?

    Posted: 08 Aug 2019 01:54 AM PDT

    I read a lot about ETFs and how compound interest is the best thing that happened to humanity since sliced bread, but I don't quite understand how it's calculated. Everything I read online are some perfect scenarios like "We calculate average yearly interest of 6% for the next 30 years, so if you put X money, you'll have X million money". I've been tracking IWDA and EM ETFs recently and for some time the value goes up, but the past week everything went down because of Trump's trade war. Won't that period kinda negate all the possible gains you got? I realize it's perfectly normal for stocks to go up and down all the time, but how can people be so positive that in 25-30 years we'll see an average 5-6% yearly growth? The only time I see any point in investing is when there's a low (which of course no one can predict).

    I know that I'm missing something and I'd be really thankful if someone can clear this out for me. Thanks.

    submitted by /u/SimpleMinded001
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    Bloomberg: U.S. Rushes to Ready New China Tariffs

    Posted: 08 Aug 2019 03:31 AM PDT

    https://www.bloomberg.com/news/articles/2019-08-08/u-s-rushes-to-ready-new-china-tariffs-as-companies-fret-damage?srnd=premium

    The Trump administration is rushing to finalize a list of $300 billion in Chinese imports it plans to hit with tariffs in a few weeks' time, as U.S. companies make a last-ditch appeal to be spared from the latest round of duties.

    President Donald Trump's announcement last week on adding a 10% tariff as of Sept. 1 to virtually every Chinese import that's not yet subject to punitive duties took U.S. Trade Representative Robert Lighthizer by surprise, people familiar with the discussions said. Lighthizer and his staff are now under pressure to revise an initial list targeting more than 3,800 Chinese product lines based on issues raised during a public comment period and hearings.

    The USTR is planning to publish the final list this week or early next, the people said. In that meantime, companies are making a last-ditch attempt at convincing the Trump administration not to impose duties or to drop items they import from the tariff list.

    In a meeting shortly before the president announced the new duties, Lighthizer argued against the new tariffs. He instead urged patience to allow more time for a tariff increase in June to 25% from 10% on an earlier batch of $200 billion worth of Chinese imports to inflict pain on the Chinese economy, the people said.

    A USTR spokesman disputed that account, and said the agency was following the same legal process as it had in previous tariff rounds. Trump decides when the tariffs will go into effect and USTR will publish the final list before the effective date, the spokesman said.

    "Companies don't plan by tweet," Jon Gold, of the National Retail Federation, said. "These are all contracts that are already executed and cargo is on the water."

    After Trump and his Chinese counterpart Xi Jinping agreed on yet another tariff truce in late June, businesses didn't expect another escalation this soon and felt like they had more time to plan, Gold added. Companies and trade associations are still trying to weigh in with the administration to make their case and potentially get their products taken off the list.

    White House economic adviser Larry Kudlow this week signaled the tariffs could be called off before Sept. 1 if Beijing shows goodwill on buying American agriculture goods and getting back to the negotiating table.

    "The president and our team is planning for a Chinese visit in September," Kudlow said Tuesday on CNBC. "Movement toward a good deal would be very positive and might change the tariff situation. But then again, it might not."

    It's not clear if businesses are able to submit requests for product exclusions once the duties are imposed. For previous lists, such an option was only available once the tariff rate was bumped up to 25%. It's also not clear whether the Sept. 1 date applies to the date when the item arrives in the U.S. or when it leaves China -- a critical question for importers because of the amount of product that is already on the water traveling to America.

    Of the almost 13,750 exclusion requests submitted for the initial tariffs imposed last year on $50 billion in goods, only 23% have been approved as of Aug. 2. About 60% were rejected and the rest are still being revised, government data show. Companies can file for exclusions in the last round of tariffs on $200 billion of products until Sept. 30.

    submitted by /u/COMPUTER1313
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    Lyft soars after lower-than-expected losses and strong guidance

    Posted: 07 Aug 2019 01:27 PM PDT

    https://www.cnbc.com/2019/08/07/lyft-earnings-q2-2019.html

    Lyft lost $0.68 per share (adjusted) on $867 million in revenues, beating analysts' expectations for Q2.

    The company says it's taking a big step towards profitability.

    Among other recent challenges, former COO Jon McNeill departed the company, and Lyft had to pull some of its electric bikes out of circulation after they caught fire for unknown reasons.

    Loss per share: $0.68 adjusted, vs an expected loss of $1.74, per Refinitiv

    Revenue: $867 million vs $809 million expected, per Refinitiv

    Edit: Thanks for the gold award.

    submitted by /u/coolcomfort123
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    Big Money Starts to Dump Stocks That Pose Climate Risks

    Posted: 07 Aug 2019 04:48 AM PDT

    After years of meetings and shareholder resolutions, some funds are starting to simply divest from coal and oil stocks.

    Earlier this year, one of Meryam Omi's deputies at Legal & General Investment Management sat down with board members and managers from Exxon Mobil Corp. to discuss how the oil giant could address climate change. LGIM, which manages about $1.3 trillion, is one of Exxon's top 20 shareholders.

    The Exxon delegation listened, but it didn't accept the suggestions, says Omi, LGIM's head of sustainability and responsible investment strategy. Around the same time, Exxon persuaded the U.S. Securities and Exchange Commission to block a shareholder resolution that pushed the oil giant to do more to address climate risks.

    So, in June, London-based LGIM announced that it had dumped about $300 million worth of its Exxon shares and would use its remaining stake to vote against the reappointment of Exxon Chairman and Chief Executive Officer Darren Woods. "There's got to be an escalation," Omi says.

    https://bloom.bg/31i6deG

    submitted by /u/markyu007
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    How to raise / borrow more capital?

    Posted: 08 Aug 2019 03:26 AM PDT

    How to raise / borrow more capital?

    Such as being a borrower, of networking with lenders / angel investors / venture capitalists / private institutions?

    submitted by /u/Griffin90
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    Why has it been so hard for new Hedge Funds to raise money in 2019?

    Posted: 08 Aug 2019 02:27 AM PDT

    Only one new hedge fund has managed to reach $2b this year, $6b shy of last year's highest total.

    https://www.alternativesoft.com/why-has-it-been-harder-for-hedge-fund-start-ups-to-raise-money.html

    submitted by /u/thatsmyasset
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    Good dividend strategy?

    Posted: 07 Aug 2019 12:19 PM PDT

    Would the following be a good investing strategy?

    Let's say I buy 12 different stocks, all with an average of 3% dividends payments yearly. The dividend date of each company is spread over 12 months, so that company A pays its dividend in January, B in February, and so forth.

    Every time a company provides its dividend, it is reinvested in the company that will pay its dividend the following month.

    Would this strategy be a good one? Or would it be practically the same as having the full amount in two companies that gives dividends twice each year, and reinvesting that dividend back into the company?

    Thanks!

    submitted by /u/borjadja
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    Bernie Sanders and Wall Street tax question

    Posted: 07 Aug 2019 09:16 AM PDT

    Okay I watched Bernie last night on Joe Rogan and he brought up the Wall Street 1/2 of 1% speculation tax.

    Obviously this isn't law yet or even completely outlined but I've read that this is sold as hurting the high frequency trading on Wall Street but that it will essentially be a tax on all trades. In the past people on this sub have mentioned it would hit all trades stocks and significantly hurt those owning mutual funds.

    Is this true and how would the real numbers work?

    How often do mutual fund managers rebalance their mutual funds and ETFs? Is it everyday? Every week? Once a month?

    If it could be everyday, and maybe that idea is absurd, if my math is correct, a $10k portfolio taxed at .001% every time the entire portfolio is rebalanced could be $3650 in taxes per year (rebalanced every day) or $120 of rebalanced only once a month.

    If you take the $120 amount, that still 1.2% every year to taxes which doesn't sound like a lot but is a significant amount year to year esp if you have fees associated with the fund as well.

    Anyone able to explain this better because I'm sure I'm calculating this wrong. What is the biggest hit Bernie's high frequency tax would cause on the normal, small holdings investor (aka lower to middle class)?

    Edit: also, I assume this tax wouldn't affect 401ks or Roth IRAs right? Maybe most people invest in those and therefore this policy wouldn't affect the majority of people?

    submitted by /u/phaskellhall
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    Does investing in US index fund makes sense an as international investor?

    Posted: 07 Aug 2019 11:54 PM PDT

    So my friend has a cash rich company in BVI, holding USD cash.

    But as I understand if he buys into US based index funds, he loses 15-20% to withholding taxes.

    Is that how every international investor invests in the US market? Or are there more efficient ways?

    My question is how others invest from foreign countries into US market.

    submitted by /u/bleahmylife
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    Is there a way to get a full list of the constituents of an index?

    Posted: 08 Aug 2019 01:49 AM PDT

    I can find the worst and best performers but can't seem to find a full list with market cap. My focus is on the S&P small cap 600. The index homepage only has a list of top 10 companies. I'm willing to pay if it's behind a paywall.

    submitted by /u/Cicerotulli
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    165 million ebitda, 45 million FCF, 600 million debt . Market cap 120 million, cash 65 million

    Posted: 08 Aug 2019 12:43 AM PDT

    These numbers make little sense to me. How can s company with those types of numbers get valued at a 120 million $ cap? Please help.

    submitted by /u/Chasingfreedom1224
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    Can gold become a bubble?

    Posted: 08 Aug 2019 04:15 AM PDT

    With the massive amount of investment in gold and it's rise in value I was wondering if it is possible that a gold bubble forms?

    submitted by /u/POTATOEPERSONPERSON
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    Book recommendations

    Posted: 07 Aug 2019 11:22 PM PDT

    Have any of you ever read any books you guys thought to be useful and has helped perform better in investments? I'm currently studying finance but I'll be completely honest. I don't have a single idea on how to start investing and make profit from it.

    If you guys have any book in mind I'd love to hear it.

    Thanks!

    submitted by /u/prusiannn
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    Buying Into A Falling Market?

    Posted: 07 Aug 2019 09:16 AM PDT

    In times of a marker pull-back, is it a wise idea to deploy more money than what you normally do with a DCA strategy?

    I have a lump-sum sitting around as an "emergency savings" pool, but I'm thinking that part of it may be best served elsewhere. In all reality, I can't think of too many "emergencies" in which this pool would be used at the time. I rent, so immediate-attention home repairs are not a concern. I own a car outright that runs fine, and even if the transmission blew I am within walking distance to a commuter rail. Fortunately, I'm under the age of 26 with all health insurance/health related concerns covered by my saint of a mother (just trying to drive home the point here).

    With that said, would it be wise to take a portion of the lump-sum and put it in something like an index fund? Or is this foolish?

    All constructive criticism is appreciated here.

    submitted by /u/BostonOfficial
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    Is ROCE vs ROE or some other ratio good to value a stock.

    Posted: 07 Aug 2019 08:01 PM PDT

    I believe for Finance companies, ROE and growth is probably the most important ratio to analyze the value of a stock. For non-finance companies, its ROCE and growth. However, in USA - ROCE is hardly considered for valuing a stock and is usually not easily available. Is this the right observation ? Should other ratios more important ?

    I am not discounting value of good management.

    submitted by /u/junagadh123
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    Are Series EE bonds the best risk-adjusted investment?

    Posted: 07 Aug 2019 03:45 PM PDT

    Completely serious question here.

    Series EE bonds are federal bonds you buy at half of face value, and then redeem for face value after twenty years. This twenty-year doubling implies a nominal return of about 3.53% annually. All of the return is collected at redemption time, giving strong tax deferral benefits.

    Today's twenty-year Treasury bonds sold for 2.01%. That's target inflation. EE bonds are paying 1.52% above Treasuries, and yet they come with the same Treasury guarantee.

    Historically, stock indices have delivered returns far above 3.5% nominal. In fact, the S&P500 with dividends reinvested has averaged about doubling every ten years after inflation, not before!

    But there's no evidence the same will be true going forward. The dividend yield on SPY is below 2% now, driven down by competition with the bond market. Valuations are very high (the reciprocal of the previous statement) and future price increases aren't necessarily more likely than price decreases.

    After all, if elevated interest rates ever do return, it's possible we could see a drop to historically normal valuations, wiping several years of gains from stocks. I'm not predicting that to happen. But it's at least as plausible as another huge run-up from where we are now.

    Is the best risk-adjusted investment in today's low-rate environment the EE bond? Should we all be buying the max every year?

    submitted by /u/RandomQuestion75321
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