How Will Donald Trump Face ISIS If He Can’t Face Megyn Kelly?

Donald Trump has withdrawn from Thursday’s debate over Fox News’s refusal to replace Megyn Kelly as a moderator. He’s taking his ball and going home rather than facing the moderator who he feels targeted him with “gotcha” questions during the last Fox News debate. This from a guy who claims he’s the toughest candidate by far on ISIS, Putin, China, illegal immigration, and every other challenge America faces. If the Republican electorate has any collective sense, this will be Trump’s Dean Scream, the moment where his lack of presidential mettle is confirmed and his campaign is permanently derailed.

Trump promises he’ll “obliterate” ISIS, yet he runs and hides from a pretty, blonde female newscaster from a network that’s practically an extension of the RNC. He trumpets the “mutual respect” he putatively established with Putin when they spent 15 minutes together in a virtual green room before appearing on some banal talk show, but don’t you know Putin’s licking his lips at the thought of pupeteering this clown for four to eight years?

Trump excoriates his rivals, most notably Jeb Bush, for being “weak,:” but what’s weaker than not even showing up to look your adversary in the eye? Especially when said adversary isn’t the least bit intimidating? Ask Trump’s supporters why they favor him and you’re likely to get a heaping dose of pabulum about how he speaks his mind and doesn’t back down from anyone — but what do they think he’s doing by not showing up tonight?

Has a serious presidential candidate ever, in this country’s 240-year history, boycotted a debate because of the moderator? The answer is no, and that’s still the answer after Trump’s stunt, because despite leading the polls by double digits, Trump is not a serious candidate. He’s a reality TV blowhard who has managed to corral the least educated and most gullible faction of the Republican electorate and hypnotize them with a bunch of meaningless platitudes couched as “tough talk.” He’ll never be president. If Republicans are dumb enough to nominate him, he’ll get crushed Mondale-style in the general.

Unlike the primaries, the general election is decided by moderates and independents, not extremists from either party. Basically, 40% of the country will vote for the Republican no matter what, 40% will vote for the Democrat, and the remaining 20% decide the election. Moreover, the moderates who decide the election reside in only a handful of states: Florida, Ohio, Virginia, etc. These people do not like Donald Trump. His polling numbers are abysmal with undeclareds, particularly in swing states.

If you’re a Republican who’s been beguiled by Trump’s bombast, start practicing the phrase “President Hillary Clinton” until it sounds natural. You’ll hear it a lot between 2017 and 2021 if Trump gets the nomination.

Trump’s absence opens the door for the adults in the room, plus Rand Paul, to make their case for the presidency without a squirrel-headed distraction looming at center stage. If the GOP wants a chance at recapturing the White House, Rubio and/or Bush must seize this opportunity. They need to show up big tonight, establish momentum and then build on it. Republicans cannot win in November without one of those two guys at the top of the ticket (and they probably need Kasich at the bottom). Sorry, Cruz supporters, moderates hates your guy and he’ll get shellacked by Hillary.

I’ll close with this: Donald Trump is not a tough man. Donald Trump is not a principled man. Donald Trump is not a viable or qualified candidate for president. He’s a silver-tongued blowhard with skin thinner than an eel’s. He can dish it out but he can’t take it. He’s like scratch-off lottery tickets and payday lenders — he preys on those with the least education and least common sense.

But if he’s not man enough to show up on stage and go toe-to-toe with someone who sees through his facade, what’ll he do when Putin, or ISIS, or China, calls him out on a much larger stage? Given the challenges we face over the next four years, do you really want a president who’ll wilt and shout “that’s not fair!” when challenged?

If You Aren’t Following Martin Shkreli on Twitter, You’re Missing Out

Martin Shkreli, Pharma Bro

Martin Shkreli’s Twitter feed is more entertaining than anything that’s ever aired on reality TV. That even includes Moment of Truth, the short-lived Fox show that tore marriages apart by hooking spouses up to polygraphs and publicly peppering them with questions about infidelity.

Some of you are thinking, Martin Shkreli, I’ve heard that name before but I can’t place him. He’s the so-called “pharma bro,” the 32-year-old entrepreneur whose company, Turing Pharmaceuticals, purchased the rights in September to an antiparasitic drug used by AIDS and cancer patients. Before Shkreli got his hands on it, the drug cost $13.50 per tablet. Turing promptly raised the price by 5,556% to $750 per tablet.

As you’d expect, the outrage brigade on social media went nuts. Shkreli became the number one pariah on Facebook/Twitter/Reddit in no time. In and of itself that wasn’t noteworthy, after all, social media crowns a new villain every week (remember the dentist who liked to kill big lions, or the ESPN reporter who reamed out a towing company employee?).

Shkreli’s response is what turned the story to gold. No contrition, very little justification for his actions, just straight up trolling of his haters. The guy absorbed every awful thing the public had to say about him and rather than defending himself or explaining his actions, he essentially fired back, “U mad, bro?”

At that point, as social media tends to do, it moved on to the next thing to be outraged about. But the Shkreli story only got richer. The FBI arrested him in December for securities fraud arising from his time in charge of the hedge fund MSMB Capital, during which the government claims he operated a Ponzi scheme.

A normal person would shape up and keep a low profile on social media while under a federal investigation. But a true bro’s gonna bro out. Here’s a small sampling of what Shkreli’s done on Twitter:

  • Bragged about paying $2 million for a Wu-Tang Clan album.
  • Challenged politicians to “come at [him]” while in DC.
  • Claimed he’d beat Bernie Sanders in a presidential election were he old enough to run.
  • Hinted he was releasing a mixtape.
  • Tweeted a picture of his federal subpoena and jokingly questioned its importance.
  • Accused Sanders of hating America.
  • Streamed a live feed from his office to his Twitter followers.

There’s much more. He goes at it with Bernie Sanders constantly on there, which is entertainment gold no matter where you fall on the political spectrum.

I try to stay away from politics and controversies on this blog, but allow me a minute to unpack my thoughts on the Shkreli debacle:

1) When Shkreli got around to offering an explanation for the price hike, it actually made sense if you understand how these drugs work. Shkreli claims that not a single person who needed the drug, Daraprim, was denied it because of money. Either insurance paid for it or Turing offered it for free. This explanation is not only believable but is actually fairly common in pharma. Companies charge more than necessary for drugs knowing that insurance will pay and they escape scrutiny on what happens to the uninsured by simply giving the drugs to the ones who can’t pay out of pocket. My biggest qualm is that insurance company expenditures don’t exist in a vacuum. The companies that had to shell out for Daraprim passed those costs to customers, which could be you or me.

2) He also provides a decent explanation for the magnitude of the price hike. The obscene profits would be reinvested into research and development, improving the drug so it can save even more lives. Do I believe his intentions were entirely, or even mostly pure? Of course not. But even if he’s driven by greed, clearly a lot of the money did go to R&D. If it results in something that saves lives, does it matter what motivation drove that result? In other words, does the end justify the means? He has a compelling argument that it does. Which brings me to my next point:

3) Bernie Sanders claims “the greed of the pharmaceutical companies is killing Americans.” He’s wrong. In fact, the opposite is true. Pharma companies have saved countless lives precisely because they’re driven by profit. HIV used to be a guaranteed death sentence, now it’s mostly an inconvenience, and the reason is because pharma companies, motivated by money, innovated and developed groundbreaking drugs that keep the virus from destroying the infected’s immune system. Think of how many types of cancer are manageable now that weren’t 30 or 40 years ago. Again, it’s because pharma companies pour themselves into R&D knowing they’ll be well-compensated if they innovate the next big cure. The government isn’t curing these diseases, nor is Bernie Sanders. It’s the “greedy” folks he excoriates at every turn.

4) I have no idea if Shkreli is guilty of securities fraud or if the Ponzi allegations are true. The fact he’s planning to plead the Fifth doesn’t lend confidence to the idea he’s innocent, but this could be trolling as well and not his actual legal strategy. At this point nothing would surprise me from this guy — a sex tape with a senator’s wife, defection to North Korea, a rap collaboration with Eminem’s daughter. That’s why I’m staying tuned, and you should, too. If you’re not following Shkreli on Twitter, do it now. And follow me too while you’re at it. Good things are ahead.

5 Things to Avoid During a Market Downturn

I said it in my last post and I’ll say it again: this market SUCKS. Another day, another triple-digit Dow loss.

Being an investor in a market downturn is like being a Tennessee Titans fan. After a while you get used to the losses, but it doesn’t make them less painful.

But at least I’m smart enough not to risk money on the Titans.

Have we entered a true bear market? Are worse losses coming? No one knows — especially those who say they do. Those people are trying to sell you something, and what they’re selling will likely lose you even more money.

Market dips cause investors to make terrible decisions out of fear. And it doesn’t help that bad news brings the charlatans out of the woodwork, all of whom are eager to prey on your fear.

In fact, there are some things you should avoid altogether during a market downturn. Stay away from the following and you’ll get out the other side unscathed.

Newspapers and TV

Specifically, cable news is the worst thing you can consume when the market is down. Mass market newspapers aren’t far behind.

Remember, they get paid not on how accurate their news is, but on viewership and the number of papers they sell.

And what kind of news makes people tune in and buy newspapers? You guessed it, bad news. Excepting terrorism, no type of bad news sells more papers than economic bad news.

The media has a vested interest in projecting doom and gloom. If they can make a compelling case the Dow will drop to 5,000, they’ll do it. Because people can’t help but pay attention, the same way drivers crane their necks to gawk at a six-car pileup on the other side of the interstate.

I’m not advocating that you remain purposefully ignorant. But choose your sources wisely when catching up on current events. Websites such as Investopedia, MarketWatchForbes, and The Economist offer educational and informative financial content without the histrionics.

Though it doesn’t yet offer the breadth or depth of the above sources, this blog is another reference I hope you’ll find useful. At the very least, I promise I’ll always strive to provide value, and never dangle clickbait in front of you to increase my page views.

Short Selling, Derivative Trading, and Other Risky Trading

Short selling and derivative trading are two methods, both fraught with extreme risk, that some people use to try and make money when everyone else is losing it.

Yes, highly skilled speculators exist who’ve made fortunes betting on market downturns. The Big Short follows several traders who cashed in big on the subprime mortgage fallout. I enjoyed the book and the movie, but I’ll never write an option or short a stock.

Because here’s the thing, almost every get-rich-quick story from a market crash involves two elements: preternatural technical analysis skills and a ton of luck. I’m not a math genius, nor do I have great luck — I usually end up with the airplane seat between the crying baby and the 400-pounder. So I stick with boring old buy-and-hold investing.

If you think you have the stuff and want to gamble on the market continuing to fall, go for it. But understand that’s what you’re doing: gambling, not investing.

The intricacies of derivative trading and short selling are beyond the scope of this post, but Investopedia has some good primers if you want to familiarize yourself:

Derivatives 101

Short Selling Tutorial

Otherwise, just know that both trading methods are highly speculative and offer limited upside with unlimited downside.

In a normal stock investment, as I’m sure you know, you win when the price rises and lose when the price falls. But the lowest the price can fall is to zero, and thus the most you can lose is the amount you invested.

When you sell a stock short, you win when the price falls and lose when the price rises. While it can only fall to zero, it could theoretically rise to infinity. Imagine if you had shorted Apple during the company’s dark days in the ’90s, right before its spectacular turnaround. Ouch!

Your Sketchy Cousin or Brother-in-Law

We all have a shady Cousin Eric. Every Thanksgiving he’s touting a new investment scheme that’s going to make a fortune, and he can get you in on the ground level.

Eric is a master at dodging questions about what happened with last year’s scheme. The Yugo parked two blocks from Grandma’s house? He doesn’t know whose that is, or why his doppelganger drove up in it an hour ago.

If your family’s Eric has a particularly impressive silver tongue, his pitch might be enticing during a year when everything else in your portfolio seems headed for hell. But if you’re reading this blog, you’re probably smart enough to know deep down that Eric is bad news.

If you find yourself getting sucked in by Eric’s slick pitch, extricate yourself from the situation. Grab a seat next to Uncle Jim and rehash your yearly Peyton Manning/Tom Brady debate.

Portfolio Tracking Apps

Chances are, your brokerage offers a smartphone app that lets you track your portfolio with a single tap of the screen. It’s incredible what we can do these days with modern technology.

The smartest thing you can do during a bear market is delete the app from your phone.

First of all, it’ll drive you crazy. Obsessively checking your stocks to see if they’ve ticked back up is tantamount to checking your phone every three minutes to see if the girl from last night texted back yet, or repeatedly logging into Tinder looking for a match notification from that cutie you just right-swiped.

It won’t make what you’re hoping for happen any faster, and it could cause you to make a terrible decision — such as selling off stock during a dip, or texting yet another picture of your abs in the bathroom mirror.

If you’re a buy-and-hold investor, which is what I advocate, you don’t need to check your portfolio more than quarterly. Investing is a long-term proposition. The daily (and even monthly) gyrations of your portfolio have little to no bearing on 10 to 20 years from now. Consider how investors freaked out during the Black Monday crash in 1987. The ones who left their money alone and went about their business were flush with cash 10 years later.

Making Big Moves

Savvy investors know that a market downturn is not the time to sell a bunch of stock. Chances are, you’ll lose money and miss out on the subsequent rebound.

But that doesn’t necessarily mean you should dump a bunch of money into the market all at once, either.

In this post I talk about dollar cost averaging. This strategy is effective in any market, but I especially like it during periods of volatility.

The concept is simple, the execution simpler. Dollar cost averaging invests your money in equal portions at set intervals over a period of time. If you have $12,000 and want to dollar cost average it over a year, you would simply invest $1,000 per month for 12 months.

In a fluctuating market, dollar cost averaging guarantees you buy more shares when the price is low and fewer shares when the price is high.

For example, say that shares are trading at $25 this month. So your $1,000 buys you 40 shares.

Next month, the share price falls to $20. Which means you get 50 shares for your $1,000.

The month following, the price shoots up to $40. At this price, your $1,000 only pays for 25 shares.

The average share price over the three months is $28.33 (($25+20+40) / 3). But you paid less than that. You got 115 shares (40+50+25) for $3,000. That means you paid an average share price of only $26.08.

Thanks to dollar cost averaging, you saved over $2 per share. Best of all, you didn’t even have to think about it. Just set it and forget it!

Lousy Market? Don’t Sit On Your Money, Invest It Slowly With Dollar Cost Averaging

dollar cost averaging

The market sucks right now. This week alone the Dow has suffered two days with 300+ point drops. Analysts are getting their names in the headlines with all kinds of bearish predictions for 2016, everything from calling for another flat year like 2015 to outright doomsday scenarios.

It’s understandable if you’re considering staying on the sidelines and waiting out this volatility, especially if you have a sizable chunk of money you don’t want to put at risk.

But not investing in stocks when the market is doing poorly is a bad decision. The only thing worse is selling the stocks you already own.

Rather than selling stocks when the market is sputtering, this is the time to buy more. Since the stock market has never gone anywhere but up over the long-term, bear markets should really be called discount sales. Since your shares will almost certainly be worth more in 10 years than they’re worth this year, why not buy them now when they’re cheaper than what your buddy paid for the same shares a month ago?

If you’re reticent about investing a bunch of money at once into a turbulent market, that’s understandable. But that doesn’t mean you should sit on your money and try to “guess” the market bottom — as the saying goes, a blind dart-throwing chimpanzee has a better chance of getting it right.

Fortunately, there’s a method by which you can minimize your exposure to short-term losses and also maximize the chance of getting some money into the market at its true bottom. The method is called dollar cost averaging.

Dollar cost averaging sounds like a fancy finance term, but the concept is simple enough for a second-grader to understand. You take the amount you have to invest, divide it by the number of months (or quarters or years, but I recommend months) over which you want to invest it, and invest the resulting amount per month until it’s all invested.

So, if you have $18,000 and want to invest it over a year and a half, you would invest $1,000 per month for 18 months. Simple.

It’s great because if your fears turn out correct and the market drops over the next few months, most of your money misses out on that fall. It also means that whenever the market nadir happens, you’ve got some money going into the market that month. If you’re wrong and the market starts rising, you don’t miss out on any cheap stock like you would if you sat on your money.

Investing a fixed amount of money each month ensures that you buy more shares when the price is low and fewer shares when the price is high. This lowers your average cost per share, which increases your total return when the market turns upward. Dollar cost averaging also reduces the risk of timing the market wrong and investing too much money during a market peak. Remember, even Warren Buffett, the greatest investor in the history of investing, says that you can’t beat the market. Believe him.

Dollar cost averaging confers a psychological benefit, as well. Even when logic tells you that dips in the market represent perfect buying opportunities, it can be hard to pull the trigger when you’re consumed by headlines predicting financial armageddon. The screaming idiots on cable news love to take the slightest agitation in the market and use it to paint an end-of-times picture. Just remember that if it bleeds it leads; the media prefers to disseminate bad news because, unfortunately, bad news is what sells.

The negativity surrounding a down market can get in your head and cause you to miss a great buying opportunity. You know it’s a good time to buy, but a little voice in your head (or a loud, shrill voice on CNBC) tells you that you’re crazy. The voice wins out, and you miss a huge upswing. Here’s where the beauty of dollar cost averaging comes in. It’s a set it and forget it system. Once you figure out the numbers, you can set up automatic transfers from your bank account to your brokerage account each month and then forget about it. You don’t have to marshal the courage to write that check or transfer those funds when the world seems to be telling you not to.

Whenever the stock market takes a dip, two things happen: Stupid people sell their stock. Smart people buy more stock. Dollar cost averaging ensures that you’re one of the smart people. Don’t sit on your money out of fear. Invest it using dollar cost averaging and know that whatever the tempestuous, mercurial, unpredictable market decides to do next, you’re going to get some money in it at the perfect time.

Don’t Start a College Fund In Your Kid’s Name!

College tuition increases at about 2-3 times the rate of inflation. By the time today’s newborns are 18, experts predict the total cost to send them off to a “safe space” for four years will be nearly $500,000. With such sobering stats, it’s no wonder parents worry about paying for Junior’s education even before he makes his grand exit from the womb.

If you’re a parent or plan to be one soon, it’s never too early to plan for college. As you’re doing this planning, at some point a well-meaning friend or relative, or perhaps a “financial planner” (aka salesperson) with ulterior motives, will advise you to start a college fund in your child’s name. This is known as a custodial account. The money in a custodial account is taxed at your child’s tax rate, not yours, and since most kids make little to no money, the tax savings can be enticing.

Putting a college fund in your kid’s name is a terrible idea, because it drastically reduces the amount of financial aid for which your kid is eligible. Unless you’re very wealthy (meaning you’re in one of the top three tax brackets), maximizing financial aid will save more money in the long run versus lowering the tax rate on your child’s college fund. If you’re in one of the highest brackets, saving in your child’s name might make sense for the tax savings, especially if you’re planning to pay for college out of pocket — in which case financial aid implications don’t affect you.

When your child applies for financial aid, the first thing the school does is analyze your family’s income and assets. Your financial picture determines how much the school expects you to pay toward tuition and fees. This is known as your expected family contribution (EFC). The difference between your EFC and the cost of college is covered by student loans (usually with low interest that is often subsidized by the government until your child graduates), and scholarships and grants (which do not have to be paid back at all).

If you aren’t paying for college out of pocket, you want the lowest EFC possible so your kid gets the most financial aid possible. Even if it’s mostly loans, take advantage of them. As of this writing, the federal student loan interst rate for undergraduates is only 4.29% — and the government usually subsidizes (pays on your behalf) the interest until your child graduates. This is a fantastic deal. Right now a student loan (which is unsecured debt) is nearly as cheap as a mortgage (which is secured by your most valuable asset, your home).

Borrowing money for college at a low interest rate lets you keep more of your money invested at a higher interest rate. This is called leverage. It’s how banks make money, borrowing at low interest and investing/lending at higher interest. Growth stock mutual funds return 10% per year on average. If stocks scare you because of the risk, there are conservative, safe investments (such as investment-grade corporate bonds) that can get you more than 4.29%.

And depending on where your kid goes to school and what kind of student he is, you might not have to borrow a dime above your EFC. Some schools, such as Vanderbilt, have eschewed student loans and cover a student’s costs beyond his EFC with 100% grants. Other schools will convert some or all of a student’s loans to grants if he maintains above a certain GPA. Even if your child’s school doesn’t offer these perks (or if he parties more than studies and doesn’t qualify), he can have his loans forgiven by pursuing certain jobs, such as social work or teaching at a high-risk public school.

In summary, unless you’re paying for college 100% out of pocket, a lower EFC is a better EFC!

So why does it matter whose name your kid’s college fund is in?

Because when calculating EFC, not all money is treated the same. The vast majority of money held in your name is assumed to be earmarked for purposes other than paying for college. The school expects you to contribute a very small amount — as little as 5-6% — of this money toward college. Money held in your child’s name, by contrast, is assumed to be for college. (What else would a minor child spend $100,000 on, unless she’s one of those Porsche-driving brats on My Super Sweet Sixteen?) The school counts 20% or more of the money held in your child’s name toward your EFC.

A family with a college fund in their child’s name will have a much higher EFC than an equivalent family with a college fund not in their child’s name. The first family may save a little in taxes along the way, but their kid will be eligible for much less free and low-interest money. The second family comes out ahead in the end because the amount they gain in financial aid far outpaces the extra taxes they paid along the way.

For example, if both families save $200,000, the second family only has to spend $10,000-12,000 of it on college and can potentially receive free money to cover the rest, or at worst money at a very low interest rate. The first family has to put $40,000 of their savings toward college. If the second family keeps that $30,000 difference in good mutual funds, based on historical averages they should earn another $50,000 in interest income within 10 years. Their student loan interest on $30,000 over 10 years, by contrast, is about $16,000. Net profit: $34,000. Leverage, baby.

(Also, I don’t want to get too technical and do a bunch of tax calculations here, but rest assured that no scenario exists in which the first family saves anywhere near $34,000 in taxes by putting the money in their child’s name.)

TL/DR summary: If you’re part of the 99% and expect to rely on financial aid in any way for your child’s education, do not start a college fund in your kid’s name. If you’re part of the 1% and are able and willing to pay for your child’s education out of pocket, go ahead and start a college fund in your child’s name and enjoy the tax savings.