Broker Check

#013 | Bonds, Buffett, TN Real Estate

March 05, 2021
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Market News
Market: The stock market got smacked down as investors backed out of tech and other stocks that boomed during the pandemic. The market is closing in on “correction territory” as it has almost dropped 10% from the previous high.

Bonds: Not the most exciting subject, but it's crucial for understanding what's currently happening in the stock market. So, let’s dive in.

Investors are ditching bonds that send yields (the return on a bond) higher and higher. In this month, the yield on the 10-year Treasury note has gained the most in four years. Recently, it touched a one-year high above 1.6%.

Rising yields are frightening investors for a couple of reasons:

  1. It conveys that investors are worried about inflation (whether they should be or not).
  2. The more a bond yields, then the more it competes with stocks. Even though the yields are rising but they are still low by historical standards.

Mr. Buffett: last week, Warren Buffett released his 2020 Berkshire annual shareholder's letter. Here are some takeaways:

  • Bonds are not the place to be: "Fixed-income investors worldwide—whether pension funds, insurance companies, or retirees—face a bleak future."
  • Long USA: He is still as optimistic as ever for the USA. "There has been no incubator for unleashing human potential like America."
  • Last year: Berkshire also bought back almost $25 billion of its stock, reducing the total number of shares and increasing the value of the stock.

*In the letter, Buffett gives Knoxville, TN, a shout out for their ownership in Clayton Homes (100% owned) and Pilot Travels Centers (38% owned now but headed for 80% in 2023). Thanks, Mr. Buffett!

TN Real Estate
Rumor has it, TN is growing like weeds but what does the data say?

What in the world do these numbers mean? Here's the cheat sheet.

  • Population Growth: If the city is between 25 thousand and 1 million in population, ideally, look for 21.25% population growth between 2000-2019. 
  • Median Household Income: Seek for a 31.5% median household income growth between 2000-2019.
  • Median House or Condo Value: Look for 42.5% growth in Median house or condo value between 2000-2019.
  • Crime: Look for a declining crime rate and a number lower than 500.
  • Job Growth by %: Look for numbers above 2% annualized job growth (1.5% for cities over a million). Please note, this accounts for Covid-19.

Real estate investing can be overwhelming, but looking at the data can help you invest and reduce your risk.

Zoom Out: Rememberthis is city growth, not county growth. If you plug in the counties, the cities sit in. you’ll see more eye-popping numbers. You can go to www.city-data.com for additional info.

SourceNeal Bawa created this spreadsheet; if you would like to play around with some numbers, click here.

What Business Schools Won't Teach You
Notorious investor Peter Lynch said, "average investors can become experts in their own field and can pick winning stocks as effectively as Wall Street professionals by doing just a little research." He goes on to say, "by simply observing business developments and taking notice of your immediate world — from the mall to the workplace — you can discover potentially successful companies before professional analysts do."

Today, it is commonly referred to as "buy what you know."

For many, this may be a winning formula; however, it may not work all the time.

For instance, you could have known Blackberry, GoPro, Blockbuster, or Circuit City well enough to invest in them. Still, you would find yourself in a much different position today than you would have been if you applied the same strategy with Apple, Amazon, or Netflix.

A lot more goes into an investment decision than just knowing or liking a company. There is a business behind each product and service that you must understand.

You may have a tremendous investing opportunity on your hands if you can understand a company's value that Wall Street is overlooking.

If you are interested in stock picking, start within your “circle of competence.” Then, do a little more digging in the financials, management, and growth.

Got Questions?
You can message your questions here. We’ll do the homework.

Stay Invested, my friends

Authored by: Evan Prislovsky

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