By Brad Thomason, CPA
 
 
This article was first posted to our sister-site, NoStockPortfolio.com, toward the end of 2017.  For all of our older blogs (2015 to 2017) and a world of information about Alternative Investments, please give it a look.  Thanks.
 
 
Since everyone else is talking about Bitcoin, I thought that maybe I should chime in, too.  I’m not going to tell you if it’s a good thing or a bad thing, nor am I going to tell you where the price is headed.  There are already enough people talking about those things.  Which is itself sort of interesting since value judgments and speculative predictions are both opinion-based, and offer little in the way of fact.  So for a change of pace, here are a couple of facts that you may not see mentioned in too many other places.
 
First fact: Bitcoin trades on an exchange.  Which is not likely news to you, but the significance of that fact might not be as obvious as the fact itself.  Anytime an asset trades on an exchange, whether it’s shares of XYZ Corp or a barrel of oil, there are certain universal factors which WILL affect its price movements, no matter what it is.  That’s because exchanges act as a sort of Supply and Demand engine, where reliable patterns of human behavior repeat themselves over and over again, sometimes in very rapidly-moving cycles.  Exchange-traded assets can change price quickly, both in the upward direction and the downward direction.  This can happen even if the ownership of the asset is wide, and the number of persons trading is low: the market price is set by those who show up and act, not those who sit on the sidelines and hold. 
 
So volatility is always on offer, and even expected when there’s a period of time in which market participants have competing views about actual value.  These opinions play out in all markets.  But the rapidity with which they can play out on an exchange market is such that the possibility becomes its own emergent characteristic, and something that thoughtful persons must consider if thorough analysis is the goal.
 
Second fact:  The underlying value of Bitcoin is essentially impossible to assess at this point in history.  Let me explain what I mean by way of comparison.  If the price of oil starts to move a lot, market watchers develop a sense of whether or not it’s over-valued or under-valued by considering a couple of different things.  First, they look at what one could do with a barrel of oil.  What could it be made into, or how much power would it provide if converted to one or more types of fuel?  Second, they consider the current price within the context of past prices.  How does oil today stack up against the historic price ranges for oil?
 
You can’t do either one of those exercises with Bitcoin.  Since it’s a currency, you can’t do the sort of utility studies you can with a physical commodity.  And since it’s new, there’s no history to go check it against.  As an academic matter, valuation of Bitcoin is a very interesting problem.  We all would like to know what a Bitcoin is actually worth, but the primary tricks we use to answer that question when other assets are involved, aren’t available to us right now.
 
Which doesn’t mean that it’s worth nothing, by the way.  Don’t confuse a measurement problem with a statement about reality.  It took mathematicians hundreds of years to figure out how different celestial objects affected each others’ gravity fields.  But the sustained head scratching from one generation of smart persons to the next had no effect on those stars and planets actually being up there in the heavens.  Just because we don’t have a real good way to know what Bitcoin is worth at the level of intrinsic value, doesn’t mean that the value doesn’t exist.
 
The thing that makes a currency have any value at all is a tacit agreement among market participants that it does indeed have a value, signaled by their willingness to use it as a medium of exchange.  This is the thing which the gold standard guys have never understood.  Enough people agree that Bitcoin has value, so therefore, it does.  That the agreement is not a physical thing does not make it any less real.  This is an important point to understand, because while it does not protect Bitcoin from being subject to the pricing dynamics which can bear upon all exchange-traded assets, it probably does mean that it isn’t going away.  At least not anytime soon.
 
Where the value of Bitcoin eventually settles is likely to play out over the next several months.  Normally, volatility is somewhat reciprocal: that which moves up quickly often corrects quickly.  Though it doesn’t have to, nor right away.  Still, if we played out this scenario 100 times, we’d expect to see some significant price drops at least 51 times, based on the rate at which the prices have come up in the past few months.  Maybe more than 51 times.
 
Whether or not to invest in Bitcoin would at this point have to be considered an opinion-based question.  As I said at the beginning, that’s not my purpose here.  Instead I would retreat to what is often my purpose in writing these posts: a reminder that if you are going to get involved with anything, a better understanding of what the thing is, is never a bad idea. 
 
So while you consider the viewpoints of the various talking heads on this topic, take some time to think about the structural features mentioned here, and what they may imply about proper expectations for Bitcoin’s future and how or if that will have any impact on you. 

By Brad Thomason, CPA
 
 
This article was first posted to our sister-site, NoStockPortfolio.com, toward the end of 2017.  For all of our older blogs (2015 to 2017) and a world of information about Alternative Investments, please give it a look.  Thanks.
 
 
Well, unless something dramatic happens, it looks like we are on track to see a rise in US stock markets of about 24% for 2017.  Notably, that follows a rise last year of about 21%.
 
That’s what the level changes in the Dow imply.  Depending on how you owned your stocks (funds, etfs, individual shares), you might have had some dividends; but you also might have had some fees or commissions.  For most those more or less offset, which is why we tend to just use the level changes themselves as a rough gauge of what really happened. 
 
So anyway, two years in a row of solid, 20%+ returns.  Why it happened, whether it should have happened, and irrespective of if it happens again in the future, doesn’t change that it did in fact occur.  A lot of US families have more wealth than they did two years ago.  That’s reality, and any negative spin that one might want to offer, at the level of opinion, seems secondary, to me.
 
I will however point out a caution.  Despite the fact that we’ve had two really nice years back to back, don’t let that carry too much weight in terms of what your long-term expectations are.  Because despite what we’ve seen the last two years, the overall return for the last 10 years is much different.  It’s averaged about 6.9%.  And the decade before that, only 4.4%.
 
We have a tendency to forget that the stock market measures a real thing: profits and profit-prospects of US companies.  For there to be radical changes of value over sustained periods of time, there have to be substantive changes in the real world which match those increases.  Well, for there to be increases that don’t reverse later on, there has to be real change. 
 
Whether or not US companies have done enough in the past two years to be worth 50% more than they were 24 months ago is something that I think most any fair-minded person would admit is open to debate.  Now maybe stocks were under-valued two years ago, maybe they are over-valued today, or maybe there’s some combination of the two.  We don’t really know, and to me, those are secondary considerations also.  Again: The market DID move up by that much.  That’s important.  But the next important thing is where it goes from here.
 
Planning exercises incorporate long-term estimates about what the return projections are for a given asset class.  With that in mind, I think the prime caution here is to remember that what has happened the last two years can’t be considered normal.  Not in terms of what’s likely to happen over and over again, out into the future.
 
A generation ago there was a popular notion that stocks increased at a rate of 12% a year.  If you look at the decade from 1988 to 1997 (2 ten-year periods ago), the actual average rate was closer to 15%.  But there were several rather unique events going on during that period, including economic fallout from the collapse of the Soviet Union, and the process of technology becoming a pervasive presence in everyday life.  There was also some geeky stuff going on in terms of the evolution and maturation of global financial markets, and an increased rate of participation in stocks by rank and file workers as defined benefit plans started to become a thing of the past.  All of these were significant factors, affecting both the underlying companies and their avatars in the market.  They were also one-time events which one should not have reasonably expected to see repeated.  Nor were they.
 
Since then, the rate of increase has been markedly lower.  Without those forces in the market which we saw in the 80s and 90s, long-term growth rates have tended more toward the kinds of rates which have been normal over the post-Depression years.  It’s hard to get a bead on exactly what these are, as rapid periods of increase and decrease are scattered in at fairly regular intervals; and in fact the ten-year average that you get if you measure on a rolling basis (i.e. 2000-2009, then 2001 to 2010, then 2002 to 2011, etc) changes each time, too.
 
But what we can say is that the market doesn’t increase at a 20% clip every year for any long periods of time.  The things that would have to be going on at the level of economic substance for them to do so is simply beyond anything which history (or mathematics…) tells us we should expect. 
 
So while you are enjoying your recent wins, please keep that in mind.  Every investment brochure you’ve ever seen stated that past results are not an indication of future performance.  The moment that we are living in right now is the kind of moment that regulators had in mind when they required that language to be inserted.   It’s very good advice.

By Brad Thomason, CPA
 
 
For a word that gets thrown around as much as “asset,” you’d think it would have a pretty straightforward definition.  However, were you to take a spin by the bookstore of your local college, you might be surprised by what you would find flipping through the various texts.  Depending on the section you looked in, whether Economics, Finance or Accounting, the degree of variability between definitions might be great.  Some of what you would find would be obtuse to the point of engendering a reflexive eye roll.  (The one that has stuck with me all these years is, “The present value of future benefits,” which I’m pretty sure came from an Economics book.  Sure sounds like it must have, but I’m not really sure at this point; nor am I sure why I remember that one instead of the others…)
 
In simple terms, an asset is just a thing you own.  Your lawn mower is an asset.  That half-eaten jar of peanut butter in the cabinet of your vacation house, is an asset. 
 
In financial conversations, what’s being talked about is more specifically an investment asset or an “investable” asset (which is what some people call cash).  Assets of this type have two basic jobs: to provide a store of value, and to be the means of producing more assets.
 
The balance in your checking account is stored value, or what some people refer to as stored or deferred purchasing power.  As long as it’s sitting there, you can buy more stuff later on.
 
Having some stored value is better than having no stored value.  But the thing which really injects the energy into the financial equation is the second aspect, the ability of an asset to produce more; that is to say, generate a return.
 
This second job makes the asset more important over time, because it leads to there being a growing amount of stored value.  Which in turn makes it possible to produce even more new assets.  This back and forth is the actual mechanism of compounded returns, which some have called the 8th wonder of the world.
 
Although the idea of compounded returns is commonplace in investment discussions, the actual process itself is often misunderstood.  Which in turn leads to assets having less value over time than they could.  Or perhaps a better way to say that is it leads to you not getting as much out of your assets as they were capable of providing.  Incomplete understanding is often the prime cause of capital inefficiency.
 
We don’t have the space to get into all of the nuances here.  But a simple set of questions might help you to quickly measure whether or not your holdings are doing the full job.
 
Question 1:   Is this asset positioned to make more, or is it just a store of wealth?
 
Question 2:  Even if it is producing, what am I doing with those proceeds to keep the cycle going and expanding?
 
If you ask these two simple questions for each of your investments, you might get some interesting insight into what your next moves ought to be.  And if you apply them to other things which you maybe don’t think of as classic investments (e.g. equity in a home, value in a life insurance policy, even your credit-worthiness), your perspective on comprehensive planning might expand that much further.
 
Your assets can do two jobs for you.  If they aren’t doing both (and especially if they aren’t even doing one – i.e. you are storing wealth in a place where there’s a risk of losing it), that’s a good thing for you to know.
 
Knowing what to do by itself won’t make anything better.  Action is almost always necessary.  But nothing prompts action and informs the pathway like an expanded understating of your situation.  That expansion might literally be two simple questions away.

By Brad Thomason, CPA
 
I ran by the gym today on the way home from work.  It was a little more crowded than usual.  I saw a number of familiar faces, as well as some folks that I didn’t recognize, but who were clearly not strangers to being in a gym, somewhere.
 
Then there were the others.  The ones who looked a little lost.  The ones that you could just tell had rolled in on the wave of New Year’s resolution.  
 
Now let me state in the most emphatic terms that I am a fan of anyone who actually makes the effort to try to do something positive for themselves.  The spirit was spot on.  But for most of them the execution was unfortunately otherwise.
 
If you paid even passing attention you could quickly see a couple of themes.  Some were doing exercise that were all wrong for what they were there for (which, to be frank, was pretty obviously weight loss).  Some were using awful form, either progressing through the movements in incorrect and sometimes even dangerous ways, and doing way too many repetitions.  Many were doing both.
 
Here are a couple of general observations about the world of health and fitness.  First, there’s an absolute ton of information out there, yet strangely most of it is of low quality.  Second, the process of getting in shape takes time.  It’s like erosion in reverse (or for all you Words With Friends people, it's accretive...).  You become a person who is in good shape a little at a time.
 
In both of these respects, the topic of proper health and fitness shares total overlap with proper financial planning and management.
 
You cannot show up at the gym after a long hiatus, do an especially rigorous workout in some scale-balancing effort to make up for lost time, and end up with anything other than a whole lot of pain.  Not to mention a whopper of a disincentive to go back until the first of next year.  Small doses are the key, spread over many weeks (even months), with very incremental goals to make a little progress at a time.
 
Similarly, putting together the best possible plan is going to take some time.  If you can accept that going in, you’ll be able to make the proper investment without cutting corners, or charging off into a bad transaction before you have a solid sense of what you need to be doing.
 
Nor can you really expect someone else to put in the time for you.  You can get a good plan from someone else; though if you are like most folks I’ve talked to over the years, you are going to be unwilling to spend the thousands of dollars that someone who actually knows how to do it right will charge.  But even then, it may not be a great plan.  A great plan should be a reflection of what you want your life to look like, and often the nuances of that are hard to convey to someone else.  Beyond that, a plan is a framework for making decisions.  It doesn’t deal with a static matter, and the plan itself will need endless tweaks in the years to come as actual data replaces future-looking assumptions.  You are the most likely person to provide a truly great plan for you and your family, but only if you work at it, over a sustained period of time.
 
So please do go to the “gym.”  But don’t expect to get to where you need to be in a handful of sessions, and don’t make the mistake of thinking that packing a lot into each session will somehow make it take less time or make up for ground that maybe you should have already covered, but haven’t.  Give yourself the time to make progress in the right way. Lifting a bunch of tiny dumbbells isn’t going to engender any meaningful improvement, nor is an endless rep count going to do anything but make you too sore to come back later in the week.  Fortunately, we’ve got a lot of information about what to do. 
 
 But you gotta be the one to do it for the results to be as good as they can be.

​New Year, New Blog
By Brad Thomason, CPA
 
 
Welcome to our new blog.  We’ll be posting content here related to Retirement Income, both planning and implementation. 
 
Our goal is to provide you with information you may not see elsewhere: not the cookie-cutter, 101 level content that you can find in a hundred different places already, but professional grade information designed to help you have an in-depth understanding of the issues and nuances, and the confidence to take the lead in developing your own comprehensive strategy.
 
We’ve learned over the past 20+ years that you can probably do a more complete job than we can, since you have a more in-depth understanding of exactly what you want.
 
We’ve also learned that we can be of far more use to you if we assist you with transactions once you have the plan in place, than we can trying to help you figure out what you want.
 
So this site is built around those lessons.  You may not feel like you know enough just yet to complete the job.  But our materials are designed to help you move ever-closer…AND THEY’RE COMPLETELY FREE TO USE.
 
Get your plan in order.  Let us know if we can help you when you decide to act.  And if you find our materials to be helpful, please tell others about our work.
 
For older content (most of it focused on Alternative Investments), as well as our blogs from 2015 through the end of 2017, please click here to visit at our sister-site, NoStockPortfolio.com
 
Thanks, and best of luck in the New Year.