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How Ed invests. What’s happening in the U.S. economy. A great new e-bike. And, finally, oodles of great weekend “humor”

Yesterday we talked about The Secret Sauce in Hedge Funds — leverage — and how it can be be good or bad. Depends on the way you use it. Click here.

I also mentioned that my favorite (and most brilliant) investor, Ed Sonderling hadn’t bought any stocks since the end of May. Last night Ed emailed me:

Harry, Thanks for calling me brilliant! I wouldn’t really agree about that. I make dumb mistakes almost every week. Let’s not confuse Brains with a Bull Market — in stocks, bonds, and real estate. It’s better to be lucky than smart. And it’s been a great ten years! Most of my success is due to two people: Ben Bernanke and Janet Yellen. Here’s a short poem: Ben Bernanke, Thank Ye; Janet Yellen, I’m Kvelin’!

The main thing I’ve done right is Diversifying by Asset Class: Stocks, Real Estate, Bonds, Alternative Investments (like Direct Lending Funds, BDCs, some Venture Capital, etc.) and Cash. I always keep a very healthy Cash Balance (10-15%) so I’m always ready to buy the next opportunity and never forced to sell. Also, I save my money and live on a small fraction of what I make so there’s always new cash coming in to invest. (I also have a 1% position in Gold which is strictly an insurance policy against black swan catastrophes like tsunamis or nuclear explosions. Gold is NOT an investment.)

The main things I’ve done right in stocks are: Not Trading, Holding long term (5-10 years or more), Investing in growth, Diversifying, Avoiding small speculative stocks, Never using margin debt, and Not Panicking when the market tanks — instead Adding to core positions and Initiating new positions on weakness. I rarely Sell (that’s when I make most of my mistakes) unless I’ve become convinced that the stock is a long term dog and that I was just plain wrong to begin with. I use Limit Buy Orders and I do Not use Stop Loss orders (which usually sell you out at the bottom). And of course, Don’t Fight the Fed!

In Real Estate I am exclusively a Passive Investor — that is, I don’t buy or operate properties myself, which would consume all my time and capital. I invest with Sponsors (Managing Members) who have top-notch organizations and are way better at it than I could ever be. I choose the best, most capable, specialized, motivated Sponsors who don’t over-leverage, who charge low fees, who invest large amounts of their own money in their own deals, who report financials thoroughly, and who hold long term. I try to be disciplined about: Focusing on deals with immediate Cash Flow, and that are mortgaged at interest rates that are well below Cap Rates (at least a 2% gap). The main thing I do is to Diversify four ways — by sponsor, by location, by property type, and especially by Vintage (i.e. investing in 6-10 new RE deals every year).

That’s my simple formula. I hope your readers find it helpful.

What’s with the U.S. economy at present?

Here’s Joel Ross of Ross Rant newsletter today:

It is very hard at the moment to determine, is the economy still moving up nicely, or just a little slower. The Fed Beige Book report suggests the economy is moving along at around 2% growth, and steady. The Philadelphia Fed just reported a very large move up in factory activity for its region including jobs and increases in orders. There are no major economic issues in the foreseeable future other than if Pelosi refuses to bring USMCA to a vote. Consumers are spending like they are very flush, and comfortable with their job and their personal debt burdens. Jamie Dimon has confirmed that to be the case based on the data the bank has on consumers. Likely those are both true for most consumers. Wages are still growing, especially at the lower income end, and jobs are secure for almost everyone. Wages are likely to go higher for a considerable time. Yet railcar loadings and truck loadings are slower, which is never good.

The world is still slowing, and that harms exports. However, savings are up, and have been for some time, and personal balance sheets are probably as good as they have been for over 10 years, or longer. House prices remain high and going higher, and 401K values have never been higher, so consumers are feeling more flush and secure. Trade has an effect, but my sense is the topic has been beaten to death for so long that it no longer has the same impact on consumers who are not seeing any impact on prices with inflation remaining at 1.6% or less. Since a lot of Christmas merchandise was brought in before tariffs went on, and some is being sourced from other places, or trans shipped through Vietnam, there is likely not going to be a big impact on retail prices over the holiday shopping season as retailers spread the higher costs over various products so that it is not very noticeable.

Business investment is slower, but the whole tariff issue feels like it is being normalized into long term planning, and many seem to be working on the basis there may be no deal, or it is a long way off. We now know it is going to be a long haul before any trade deal happens. In the meantime, supply sources are being moved to other countries in many cases, so the impact possibly will become less as time goes on, and as China becomes less of the key supplier it has been. Also, oil prices seem to be stabilizing around $55-$60, and if there really are eventually talks with Iran, oil prices could decline further. Steady low gas prices is a major windfall for consumers. With consumer spend up 0.4%, in June, there appears to be no slowdown in that sector which is 67% of the economy. This all puts the Fed in a difficult position because normally there would not be a cut now, but they kind of boxed themselves in, and the markets are putting on enormous pressure to cut. There might be only the 25 BP cut in July, and then no more this year. Too hard to know yet.

Here’s why some stocks are just “too difficult”

Boeing announces it’s taking a huge $5.6 billion charge against its Q2 earnings.

And today, its stock jumps nearly 4%!

Go figure.

Check out your Internet alternatives

Common Internet speed today is 100 megabits down.

That’s probably twelve times faster than what you’r getting.

You don’t want to stick with your slow service. Your kids can’t play games or download movies while you watch Netflix.

You do have choices: Call your present provider and beg for faster service. Maybe fiber. Many are installing. Call Spectrum.

Remarkably, this is win-win. You’ll end up with faster Internet service and a monthly lower bill, especially if you take combined TV, Internet and phone.

This is the future of biking

It’s an electric bike (e-bike) that weighs only 26lbs and runs for 80 miles. It’s from Specialized.

Check it out here and here. Oh, did I forget? It costs $16,500.

And if that bike doesn’t impress

Check this out for sheer innovation:

A non-ticking clock!

Australians have a wicked self-deprecating sense of humor

My friend in Australia asked “Could this be why the Australian dollar is going nowhere?

Totally unPC, but very funny

Harry Newton, who will not write about the three dumb things he did this morning. But they did not include selling any stocks.

Crowdstrike (CRWD), one of our favorites, is up big today. Go Microsoft. It’s up nicely also. I’m finally using Windows 10, but not Office 365. I’m happy with Office 2010.

Please don’t buy the heavily advertised brain supplement called Prevagen. It doesn’t work. It is a waste of your money. And it could harm you. Virtually all diet supplements don’t work. Diet supplements are not regulated for safety or efficacy by the FDA. Do don’t stupid.

Make sure you watch the video above. It’s funny.