Author: Team Editor

Passive Income

Income from Idle Assets Is Now Possible

Posted on by Team Editor

car service

 

Many of us can sit down in a corner of our home and identify idle assets sitting in our line of sight. If we do this in the right spot, we might find a basement filled with unused sports gear or a car we drive just a few hours a week. 

Now, thanks to some apps and some initiative, it could be possible to turn those assets into income.

Turo Changes the Car Rental Market

Thanks to an app, you could now turn the time your car sits idle into passive income.

Turo car market

Source: Turo.com

Turo (formerly RelayRides) is a unique peer-to-peer car sharing service. Turo is available in more than 2,500 cities and in 300 airports in the U.S. and Canada. Vehicle owners list their car for the days they don’t need them, mark a pickup location, and set a mileage limit.

Those who need a car can select one to rent from hundreds of options using Turo’s website or mobile application.

There are some limitations, “Turo requires that most cars available are 2005 or newer and under 130,000 miles (though classics are permitted but under different rules). Cars available to rent must be clean, maintained, and in good driving condition.”

As the company explains, “Turo hosts typically receive 75%* of the trip price, delivery fees, and additional mileage charges. Earnings range from 90% to 65% depending on the protection plan selected. If your guest did not pay for tickets or tolls during their trip, we’ll reimburse you for those charges after receiving the necessary documentation.”

You can set your own daily price as well as prices for individual days. Additionally, you are able to create a weekly and a monthly discount. Alternatively, hosts in some locations can choose to have Turo price their car for them.

*US hosts receive 65%, 75%, 85%, or 90% depending on which of the four vehicle protection plans they’re enrolled in. By default, hosts receive 75% under our Standard plan. Currently only the Standard and Decline plans are available in Canada and Germany, and the Decline option is the only option available outside of the US, Canada, and Germany.”

Is It Worth It?

The question of whether or not you can make money from this comes down to demand. There may or may not be demand for your particular car. But, it doesn’t hurt to try because even a small amount of rental time could generate significant income.

The example below is from the Turo web site and shows that even a relatively inexpensive car which is rented fairly infrequently could generate more than $150 a month, on average, in income.

Turo

Source: Turo

The value of the car is a factor because Turo rental fees are based on the pricing found in the traditional rental car market. Newer and more expensive cars command higher fees in that market and there is spillover into this market.

Alternatives to Turo

Turo is not the only peer to peer car rental service.

GetAround is another peer-to-peer car-rental app similar to Turo.One drawback is that the service area is limited although it is expanding. Recently, GetAround is operating in only eight cities (San Francisco, Berkeley, Boston, Chicago, New Jersey, Oakland, Portland and Washington D.C.).

At the company’s web site, you can register for updates on when the service is expanding.

You could also rent out your car to be used for Uber or similar services in some areas. HyreCar is one way to do that. As the company explains,

“Turo is meant to be a substitute for your regular car rental service, which might make it a good choice for a weekend drive or a business trip but makes it less ideal if you’re hoping to use it to make money with Uber or Lyft.”

With HyreCar, you can participate in the Uber market without having to be a driver.

Among the other options is a company that has defined a niche specializing in car rentals from airports. FlightCar acts as a liaison between people who leave their car to depart the airport and those who want to rent a car upon arrival.

FlightCar was recently operating at several international airports located in San Francisco, Boston, Los Angeles, and Seattle. FlightCar offers to pick you up and drop you off at any location within ten minutes of their lot, including the airport. FlightCar also includes insurance, free GPS, and free car seats.

Beyond the Car Market

Now, these services are all ready made and available to qualified users. But, what if you live in a popular recreational area and have extra equipment? Perhaps you are a skier and have several pieces of older equipment around that could be available to rent.

This could be accomplished through a craigslist ad or with a similar web site.

If you live in an area such as that, it could be possible to organize a local group that offers rentals. That could be a new group or one that already exists. The group could work with other local businesses to find cobranding opportunities.

This general business idea, of course, isn’t limited to cars or sports equipment. Anything that has some value and is used less often than all of the time could be suitable for a rental model.

It could be worth walking through your home, or storage units if you have any, and think like someone who could be a customer. Then, develop a business plan. Perhaps work with Turo while developing a fly fishing rental business.

In the end, that walk trough could result in passive income using an existing service or it could result in an idea for your very own business with possible international appeal. You might just be inspired to create the next Turo, just as many entrepreneurs have created variations of Uber and done quite well.

But, think creatively and don’t be afraid to try something that might seem doomed to failure. Ten years ago, the idea of Uber and other sharing services might have seemed unlikely to succeed. But, someone created the market and consumers accepted the idea.

With the right idea, you can develop income too.

 

Stock Picks

These Could Be the Best Digital Marketing Trades

Posted on by Team Editor

digital marketing

 

Advertising is big business because it is the business of persuading consumers. Advertisers have courted consumers for hundreds of years, but the business is one of almost constant change. The latest changes, like many of the previous ones are driven by changes in technology.

Digital marketing refers to advertising delivered through digital channels such as search engines, websites, social media, email, and mobile apps. There are a number of technologies to consider in this field.

What is Digital Marketing?

Paid search is also called pay per click (PPC) advertising. It refers to the “sponsored result” users typically see in search engine results page (SERP). Advertisers only pay when their ad is clicked. These ads are flexible and can be effective for a number of different type of advertisers.

But, there is no one size fits all to digital marketing. So, advertisers have other tools at their disposal.

Search engine optimization, or SEO, is defined as “the process of optimizing the content, technical set-up, and reach of your website so that your pages appear at the top of a search engine result for a specific set of keyword terms.

Ultimately, the goal is to attract visitors to your website when they search for products, services, or information related to your business.

SEO can almost be viewed as a set of best practices for good digital marketing. It enforces the need for a well-constructed and easy-to-use website, valuable and engaging content, and the credibility for other websites and individuals to recommend you by linking to your site or mentioning it in social media posts.”

The importance of SEO and PPC can be seen in the chart below.

digital marketing

Source: marketo.com

Another important tool for digital markets is social media marketing. As experts explain, “Many [users] rely on social networks to discover, research, and educate themselves about a brand before engaging with that organization.

For marketers, it’s not enough to just post on your Facebook and Twitter accounts. You must also weave social elements into every aspect of your marketing and create more peer-to-peer sharing opportunities.

The more your audience wants to engage with your content, the more likely it is that they will want to share it. This ultimately leads to them becoming a customer. And as an added bonus, they will hopefully influence their friends to become customers, too.”

Digital marketing also includes email marketing and mobile marketing.

The Leaders In the Field Are Easy to Spot

According to investors.com, “The “digital duopoly” of Alphabet’s (GOOGL) Google and Facebook (FB) is set to rake in a combined total of $60 billion in U.S. digital ad revenue this year.”

This market will be difficult for new entrants to gain traction in. But, the luck that Alphabet and Facebook have does not extend to “Connected TV.” That’s the advertising industry’s term for on-demand video and live TV streaming provided via the internet.

There are a number of potential winners in that emerging technology. And, analysts believe the industry could grow rapidly.

“Television could become the largest digital advertising market. There’s a massive shift underway from traditional cable to on-demand and OTT. And, it’s accelerating” said Mark Douglas, CEO of SteelHouse. “Those broadcast ad dollars have to follow consumers.”

The worldwide broadcast TV market is expected to grow 2.5% in 2018, to $183 billion, forecasts Magna Global. Some 55 million U.S. adults will cut the cord by 2022, according to eMarketer, up from 24.9 million in 2017.

The rise of Connected TV comes as some big advertisers, such as Procter & Gamble, raise questions over the impact of digital ads. Consumer brands are increasingly concerned about fake web traffic as robotic bot software spreads.

Among the most prominent companies in the Connected TV sector is The Trade Desk, Inc. (Nasdaq: TTD).

The company provides a self-service platform that enables clients to purchase and manage digital advertising campaigns across various advertising formats, including display, video and social, and on a range of devices, including computers, mobile devices and connected television.

Its platform enables a media planner or buyer at an advertising agency to purchase digital media programmatically on various media exchanges and sell-side platforms; acquire and use third-party data to optimize and measure digital advertising campaigns; deploy their, or their client’s, own first-party data in order to optimize campaign efficacy; link digital campaigns to offline sales results or other business objectives; access other services, such as its data management platform and publisher management platform marketplace, and use its user interface and application programming interfaces (APIs) to build their own technology on top of the company’s platform.

The company’s growth has been rapid.

marketing data

Source: company data

The rapid growth in sales, averaging 90.6% a year over the past three years, has driven the stock price higher.

TTD weekly

While Trade Desk is not alone in the industry, competitors include MediaMath, SteelHouse, and Samba TV, TTD is publicly traded.

Roku Is Another Potential Trade

Roku (Nasdaq: ROKU), according to the company, “pioneered streaming to the TV. We connect users to the movies, TV shows and music they love – and we provide content providers and advertisers with access to our large, growing and highly engaged TV audience.

As of June 30, 2018, we had 22 million active accounts, and we stream billions of hours of content every quarter. We have never been more confident that someday all TV – and all TV advertising – will be streamed.”

This content allows for targeted marketing and the stock has been in a volatile uptrend since its IPO in late 2017.

ROKU weekly chart

Digital marketing will be a large market because that is where consumers are driving the industry. As they abandon traditional TV, the advertisers will move with them.

That means investors have the potential for gains in the industry. They could bet on the industry giants which include Facebook and Alphabet. Or, they could get ahead of the trend and look for companies capable of growing with the new industry. TTD and ROKU could be the leading edge of advertising.

 

 

Value Investing

The Next Global Hotspot Is…

Posted on by Team Editor

global stocks

 

Investors are growing increasingly concerned about global stock markets. And, they should be. After all, emerging markets have led to global stock market selloffs in the past. One of the most important crises was in 1997.

This crisis began in Asia in July 1997 and raised fears of a worldwide economic meltdown due to financial contagion.

First signs of the crisis appeared in Thailand with the financial collapse of the Thai baht after the Thai government was forced to float the baht due to lack of foreign currency to support its currency peg to the U.S. dollar.

At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency. As the crisis spread, most of Southeast Asia saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt.

According to some analysts, Indonesia, South Korea, and Thailand were the countries most affected by the crisis. Hong Kong, Laos, Malaysia and the Philippines were also hurt by the slump.

Brunei, China, Singapore, Taiwan, and Vietnam were less affected, although all suffered from a loss of demand and confidence throughout the region. Japan was also affected, though less significantly.

Investors in the United States were able to ignore the crisis for a time but in October, a frightening crash unfolded.

SSPX daily chart

Is Turkey the Next Thailand?

Turkey is in the midst of a financial and economic crisis. Investors are worried that the crisis could spread. That means it is important to dig a little deeper.

The currency is a visible casualty of the crisis with the Turkish lira plunging in value. That’s contributing to high inflation and rising borrowing costs. That’s pushing more loans into default, a factor raising concerns about the safety of banks outside of Turkey.

Experts believe the crisis was caused by the Turkish economy’s excessive current account deficit and foreign-currency debt, in combination with President Recep Tayyip Erdogan’s increasingly authoritarian policies and his unorthodox ideas about interest rate policy.

This marks a sharp reversal since the country had enjoyed a significant period of growth under Erdoğan-led governments. But, now it appears that growth may have been built largely on a construction boom fueled by easy credit and government spending.

For U. S. investors, the crisis can be seen in the iShares MSCI Turkey ETF (NYSE: TUR) which crashed over the past few weeks.

TUR weekly chart

Implications for Investors

For now, the crisis is centered in Turkey but as investors learned in the 1990s, crises can spread quickly and that means this one could spill beyond Turkey. To avoid the damage that a crash causes to wealth, investors should consider several factors.

First is the question of emerging markets in general. This could be the first place the crisis spreads to. In fact, emerging markets are in a bear market according to at least one measure. The iShares MSCI Emerging Markets ETF (NYSE: EEM) is down 20% from its recent highs.

EEM weekly chart

One of the simplest steps to avoiding risk is to avoid buying into sharp selloffs. In a bear market, there are typically sharp rallies. But, those tend to be quickly reversed. That means EEM could be avoided by more conservative investors.

Investors should also consider geographic risks. Turkey is close to Europe, in fact it has been a key entry point for refugees from Africa. An agreement between the European Union and Turkey put a stop to the flow of refugees into Europe and helped ease that crisis.

Of course, that agreement could be ignored by Turkey and that could spark a new crisis in Europe. Several European stock markets show signs of weakness in their chart patterns and conservative investors should, again, consider limiting exposure to Europe.

Banks of some countries have significant exposure to Turkey. Notably Spain is exposed and that could lead to problems in a country that is already troubled.

European bank exposure to Turkey

Source: Bloomberg via Twitter

This could be a trade for aggressive investors. Put options on iShares MSCI Spain Capped ETF (NYSE: EWP) could deliver gains if Spanish banks face large losses. The country has been growing slowly, never fully recovering from the euro crisis. In addition, refugees could flow into Spain as crises in other areas worsen.

A Closer Look at the Impact on the U. S.

The exposure of banks becomes a concern as defaults mount. In summary, this was the problem is 2008. Banks with exposure to mortgages dropped as defaults on the loans rose.

But, according to Wells Fargo, “Data from the Bank for International Settlements (BIS) show that the exposure of the American banking system to developing economies totaled nearly $800 billion at the end of Q2-2018, which is obviously a sizeable amount.

However, the financial assets of the U.S. banking system exceed $15 trillion, so exposure of American banks to developing economies represents only 5 percent of their financial assets at present.”

This exposure appears to be manageable for the financial sector. The next factor to consider is exports since there is a possibility Turkish imports will drop off as the country struggles.

Economists at Wells Fargo researched this and concluded Turkey was not a significant factor in U. S. exports. Looking at a larger question, the impact of developing economies on the U. S. export market, the economists noted,

“American exports to developing economies shot up from about $250 billion in 2003 to more than $700 billion last year. Today, developing economies account for roughly one-half of U.S. exports. But exports of total goods and services are equivalent to only 14 percent of U.S. GDP.

American exports of goods and services to developing economies would need to weaken significantly to have a meaningful effect on U.S. GDP growth.”

Overall, Turkey could be a problem on the global landscape. However, it is unlikely to disrupt the U. S. economy by itself.

Investors could limit exposure to emerging markets which are likely to decline as the problems in Turkey and other countries develop. Europe could also be affected by problems in Turkey, and Iran and other countries.

However, for now, the U. S. is on track for potential growth this year and investors should continue buying U. S. stocks.

 

 

Cryptocurrencies

Bitcoin Isn’t the Only Crypto Opportunity

Posted on by Team Editor

digital money

Many investors are interested in cryptocurrencies. This drives some to consider investing in bitcoin. That is the largest crypto and the one that offers the most accessible option for investors who can gain access through brokerage accounts with permission to trade futures.

Bitcoin is, of course, a possible alternative way to transact commerce. But, it has several problems that will need to be solved before it can be widely used. One is that processing transactions can take significant time, often an hour or more. This is clearly not something consumers will accept.

A Crypto Designed to Address the Processing Problem

XRP Ledger is a real time gross settlement system (RTGS), currency exchange and remittance network created by Ripple Labs Inc., a US based technology company. It is built upon a distributed open source internet protocol, consensus ledger and the decentralized native digital asset is known as XRP.

Released in 2012, XRP Ledger is designed to enable “secure, instantly and nearly free global financial transactions of any size with no chargebacks.” It supports tokens representing fiat currency, cryptocurrency, commodity or any other unit of value such as frequent flier miles or mobile minutes.

At its core, the XRP Ledger is based around a shared and public database or ledger, which uses a consensus process that allows for payments, exchanges and remittance in a distributed process.

The network can operate without the Ripple company. Among its validators are companies, internet service providers, and the Massachusetts Institute of Technology.

Through Ripple’s software like xCurrent or xRapid, the XRP Ledger is used by companies such as UniCredit, UBS and Santander.

The network has been increasingly adopted by banks and payment networks as settlement infrastructure technology, with American Banker explaining that “from banks’ perspective, distributed ledgers like the Ripple system have a number of advantages over cryptocurrencies like bitcoin.”

One reason for the acceptance is the rapid clearing time of transactions.

rapid clearing time of transactions

Source: Ripple

The System

Ripple recognizes that bitcoin is the market leader and interacts with the crypto.

The bitcoin bridge is a link between the Ripple and bitcoin ecosystems. The bridge makes it possible to pay any bitcoin user straight from a Ripple account without ever needing to hold any of the digital currency.

Additionally, any merchant accepting bitcoins has the potential to accept any currency in the world. For example, a Ripple user may prefer to keep money in USD and not own bitcoins. A merchant, however, may desire payment in bitcoin.

The bitcoin bridge allows any Ripple user to send bitcoins without having to use a central exchange such as BTC-e to acquire them. Bitstamp acts as a gateway for the Ripple payment protocol, among other exchanges.

This system is similar to the traditional payment system.

cross-border payments

Source: Streemit.com

The Trading Opportunity

While Ripple offers a framework for transactions, it is not the trading opportunity. Traders can buy or sell XRP.

difference between ripple and XRP

Source: Ripple.com

XRP is the digital asset native to XRP Ledger. The XRP Ledger is an open-source, distributed ledger. Ripple is a privately held company.

XRP is available for purchase on more than 60 digital asset exchanges worldwide. Every exchange has a different process for purchasing XRP. But, that is true of all cryptocurrencies.

The case to buy XRP is based on Ripple which was favorably mentioned by the Federal Reserve Bank of St. Louis, one of the 12 Federal Reserve banks which held a talk on bitcoin from a banking and economic viewpoint.

The session, entitled ‘Bitcoin and Beyond: The Possibilities and the Pitfalls of Virtual Currencies’, was presented by economist David Andolfatto, who is Vice President at the bank and a professor at Simon Fraser University.

Andolfatto offered some interesting insight into bitcoin from his perspective. Many aspects of the talk were positive about the digital currency, some were more negative, and overall the session was quite balanced.

Among the comments was one addressing protocols that move money digitally around the globe and Andolfatto noted, “Ripple is a currency-agnostic protocol. Ripple is the winner. It processes anything. It’s quite possible this ruling benefits payment processors, rather than virtual currencies.”

XRP Is Like Money

One of the reasons XRP has value in because of Ripple.

There are 100 billion XRP tokens that were issued by the Ripple company. At the moment, the company promises that this is the total number of XRP that there will ever be (though, technically, there is nothing to stop them from issuing more tokens in the future).

Ripple’s hub-and-spoke design positions XRP in the middle as a tool that is fungible with any currency or digital asset, such as frequent flyer miles. According to BitcoinMagazine.com,

The value here is the Ripple network itself and its ability to move assets around the world quickly, rather than in the XRP token.

Banks are able to use the Ripple software to shift money between different foreign currencies. Currently, this is typically accomplished using SWIFT, a system that is cumbersome and relies on the banks having separate accounts in every country they work in.

Ripple says it has signed up more than 100 banks (compared to SWIFTs 11,000 financial institutions) including American Express.”

With a recent market size of more than $13 billion, XRP is the third largest coin by market capitalization. It is volatile, as all crypto assets are.

XRP charts

Source: CoinMarketCap.com

The chart above looks similar to the chart of bitcoin. That indicates that there is a high degree of correlation in the crypto asset class. That is true in the stock market and in the fixed income equity market. So, investors can expect similar trends in all cryptos in the short run.

But, in the long run, there will be winners and losers in the market. That is true in any new market. The winners are likely to be the largest players in the new field. For now, XRP is near the top of its field.

In addition, XRP is a bridge between the current financial system and the possible new developments that crypto assets offer. That could make XRP different and definitely worth considering for investors in this asset.

 

 

 

Weekly Recap

Weekly Review

Posted on by Team Editor

weekly investment blog review

 

Now, the NYSE Sees Value in Cryptos

There are many good ideas in the financial world. Many have been available for decades before they took off. Junk bonds are an example of an investment opportunity that took decades to find a place in the portfolios of Wall Street firms.

Now, the financial world seems to be recognizing that cryptocurrencies can serve as an investment vehicle. We explain more right here.

Investing Like George Soros Is Within Reach for Individual Investors

George Soros is a trading legend. And, he is an investment legend because he achieved amazing results.

Over more than 40 years, George Soros delivered an average annual return of about 20% to the investors in his hedge fund. At that rate of return, a $10,000 investment when the fund was started in 1969 would have grown to more than $20 million when Soros closed the fund in 2011.

This week, we shared how our readers can learn from George Soros by applying his style of thinking to investments. It’s available for you here.

This Investment Offers Growth and an Ethical Dilemma

When investors think of growth, they often look to tech sectors. They want to find the next killer app or the drug that’s in testing that will become the next $1 billion a year blockbuster. But, there is growth outside of the tech sector.

This week, we shared a growth opportunity in an industry that you might not have considered. Learn more here.

Farming Could Be the Income Opportunity You’ve Overlooked

Income investors have been forced to search far and wide for income in recent years as the yields on bank accounts, certificates of deposit and other safe assets plunged towards zero. The search has not been easy but there are some areas that some investors may have overlooked.

In our latest article, you can learn more about an undiscovered income opportunity.

 

Passive Income

Farming Could Be the Income Opportunity You’ve Overlooked

Posted on by Team Editor

farming

Income investors have been forced to search far and wide for income in recent years as the yields on bank accounts, certificates of deposit and other safe assets plunged towards zero. The search has not been easy but there are some areas that some investors may have overlooked.

Farmland could be one of those undiscovered income opportunities.

Data From the Heartland

One source of data on the investment potential of this asset class is the University of Iowa Farmland Value Survey which was initiated in 1941 and is sponsored annually by Iowa State University.

The survey is intended to provide information on general land value trends, geographical land price relationships, and factors influencing the Iowa land market. Data is based on reports by licensed real estate brokers, farm managers, appraisers, agricultural lenders, county assessors, and selected individuals considered to be knowledgeable of land market conditions.

The data shows that farmland values have moved sharply higher this century before pulling back. A three year decline that started in 2014 was followed by a 2% gain in 2017.

Iowa farm value

Source: Iowa State University

In addition to potential appreciation, farmland can be a source of income. Farm income is variable and depends on a number of factors. Of course, the truth is that farming is not easy. But, the chart below presents an estimate of the amount of income available per acre.

farm productivity

Source: University of Illinois

This is preliminary data and could change but the data indicates that farm land could offer returns to income investors and it could offer capital appreciation over time.

Investing in Farmland

Many investors will not be interested in directly operating a farm or putting themselves into a position where they risk more than they invested. An example of an investment where the risk exceeds the capital deployed is a futures contract.

To meet the goals of investors with a desire to participate in the potential gains from farmland while limiting risk, Gladstone Land (Nasdaq: LAND) could be the answer.

LAND is a publicly traded real estate investment trust that invests in farmland and farm-related properties located in major agricultural markets in the U.S., which it leases to farmers in Arizona, California, Colorado, Florida, Michigan, Nebraska, North Carolina, Oregon and Washington. 

Gladstone Land currently owns 75 farms, comprised of 63,351 acres. Its acreage is predominantly concentrated in locations where its tenants are able to grow fresh produce annual row crops (e.g., berries and vegetables), which are generally planted and harvested annually, as well as permanent crops (e.g., almonds, blueberries, and pistachios), which are planted every 10 to 20-plus years.

While the land could appreciate in value, LAND could be primarily an income investment. The REIT pays a monthly distribution. The current per-share distribution is $0.0443 per month, or $0.5316 per year. The Company has paid 63 consecutive monthly cash distributions since it began trading in January 2013.

Investors could also obtain this land at a discount. LAND reports the current fair value of its farmland on a quarterly basis. As of March 31, 2018, the appraised value of approximately $537.4 million, or an estimated net asset value (NAV) of the company was $13.57 per share.

The share price is currently below the NAV meaning investors are buying the land at a discount while securing an income stream.

FARM daily chart

David Gladstone, the company’s founder, recently explained the business in a conference call with investors. He said:

“We recently raised the dividend again… Over the past 40 months, we raised the dividend 10 times…

Our goal is to continue to increase the dividend at a rate that outpaces inflation. As you know, I’m a large shareholder and I’m definitely liking dividend increases, and even if it’s only a small amount or a quarterly change.

Since 2013, we’ve made 63 consecutive monthly distributions to stockholders. It’s [about $3.51 per share] total distributions.

Paying distributions to shareholders is our paramount business. We are in essence a dividend-paying company and want to remain so.”

That shows the company is focused on its shareholders and that is a positive for investors considering this income opportunity.

This company operates in a unique way. LAND acts as a real estate partner to farm operators. The company will purchase land and then enter into a lease with the farmers, often the same farmers who sold the land. LAND is also able to provide capital for land improvements.

This is a valuable service to farmers. Many may want to expand or they want to improve their land, but they may lack the capital and loans for farms can be expensive when the farmer works with a local bank. LAND fills the role of buyer or partner in many cases.

The company will usually work with sellers to complete a sale-leaseback, assume an existing lease or find a new tenant to farm the land. LAND’s goal is to always keep an existing farmer on the land for as long as they would like.

A leaseback is an option that allows a farmer to, in effect, cash out, while continuing to work. This can be beneficial for estate planning and a number of other purposes. There is, and there will always be, a need for a leaseback where LAND buys land and immediately leases it back to the seller.

Leases usually range between 3 to 15 years with options to extend. This provides stable income for LAND and its shareholders and allows the farmer to plan for the long term in relation to crop rotation and other important decisions.

Rents are usually determined from market conditions, prior rent on the property and a capitalization rate based on the purchase price of the land. For example, if LAND paid $1 million for a farm, they might charge an initial annual rent of $50,000 or 5% of the purchase price.

This provides a return on investment and funds the monthly distributions to shareholders. Again, the long term leases provide stability and that allows LAND to maintain a stable dividend payout to shareholders.

This could be an ideal investment for income investors thinking of expanding their exposure to real estate.

Stock Picks

This Investment Offers Growth and an Ethical Dilemma

Posted on by Team Editor

data

When investors think of growth, they often look to tech sectors. They want to find the next killer app or the drug that’s in testing that will become the next $1 billion a year blockbuster. But, there is growth outside of the tech sector.

One growth opportunity that investors might not be considering is the private prison industry.

The Data

Before considering the companies involved in this industry, it is important to understand some of the relevant data.

Pew Research found that perception and reality can differ when it comes to crime. “Public perceptions about crime in the U.S. often don’t align with the data.

Opinion surveys regularly find that Americans believe crime is up nationally, even when the data show it is down. In 17 Gallup surveys conducted since 1993, at least six-in-ten Americans said there was more crime in the U.S. compared with the year before, despite the generally downward trend in national violent and property crime rates during much of that period.

Pew Research Center surveys have found a similar pattern. In a survey in late 2016, 57% of registered voters said crime in the U.S. had gotten worse since 2008, even though BJS and FBI data show that violent and property crime rates declined by double-digit percentages during that span.

While perceptions of rising crime at the national level are common, fewer Americans tend to say crime is up when asked about the local level. In 20 Gallup surveys conducted since 1996, about half of Americans or fewer said crime is up in their area compared with the year before.”

public perception of crime rate data

Source: Pew Research

While crime may not be as bad as many believe, it is a problem and some believe the solution to the problem is incarceration. Here the trend is down but the rate is still relatively high.

prison data

Source: Pew Research

There is also an increase in detentions related to immigration policies. Barron’s recently noted,

“U.S. Immigration and Customs Enforcement expects to detain a record 51,379 people this year, from 38,106 in fiscal 2017.

That would cost $2.7 billion—an increase of $1.2 billion from the prior year. The cost per adult bed has been climbing: ICE paid $118.88 per night in fiscal 2013. This year it expects to pay up to $133.99.”

However, the trend in the prison population does seem to be down and in part it is down because of alternatives to incarceration like close monitoring relying on technology such as ankle bracelets. The private prison companies are leaders in this technology.

Industry Leaders Could Be Buy Candidates

There are two publicly traded companies in the sector, CoreCivic (NYSE: CXW) and the GEO Group (NYSE: GEO).

CXW provides partnership correctional, detention and residential reentry facilities and operates prisons in the United States. The company owns or controls 48 correctional and detention facilities and 27 residential reentry centers.

It also manages an additional 11 correctional and detention facilities owned by its government partners, with a total design capacity of approximately 88,400 beds in 20 states. The stock trades at about 18 times earnings and offers a dividend yield of more than 6.5%.

CXW weekly chart

GEO is a real estate investment trust (REIT) that specializes in the ownership, leasing and management of correctional, detention and re-entry facilities and the provision of community-based services and youth services in the United States, Australia, South Africa and the United Kingdom.

The company operates in four segments: U.S. Corrections & Detention, GEO Care, International Services, and Facility Construction & Design.

GEO owns, leases and operates a range of correctional and detention facilities including maximum, medium and minimum security prisons, immigration detention centers, minimum security detention centers, as well as community based reentry facilities, and offers delivery of offender rehabilitation services under its GEO Continuum of Care platform.

GEO provides more diversification through what it calls “The GEO Continuum of Care” program integrates in-prison programs, which include cognitive behavioral treatment and post-release services.

GEO weekly chart

The stock trades at about 20 times earnings although earnings are not as important as cash flow when evaluating REITs. Cash flow from operations has averaged 10.2% of revenue over the past seven years, enough to fund the dividend which is more than 7%.

GEO’s sales have been growing and averaged growth of more than 10% over the past three years. This signals that the dividend could grow. The company’s diversification also helps protect growth, and the dividend that the company will pay under rules requiring REITs to distribute their cash flow to shareholders.

Other Factors to Consider

But there are risks. According to some analysts, “The outlook for the supply of prisoners appears bullish, yet the case for private prison companies, like CoreCivic (NYSE: CXW) and the GEO Group (NYSE: GEO), might be turning bearish.

For one, ICE expects to need fewer beds in 2019. But also, Scott M. Stringer, New York City Comptroller, and Javier H. Valdés, Make the Road New York’s co-executive director, last week laid out the reasons public pensions should divest from private prisons.

“The industry’s bottom line depends on locking people up,” they wrote. “When you imprison people for money, it means you have to choose between padding the bottom line and spending the money needed to create safe and healthy conditions.””

The ethical dilemma is important to consider. Barron’s concluded:

“Overincarceration bloats government spending: Every year, federal and state governments pour billions of dollars into caging people. Using inmates to fight fires and clean up highways offsets little of the lost. With good processes, rehabilitated former inmates could have a job, generate tax revenue, and buy houses and iPhones.

Whatever your grounds, if you think the U.S. needs to quit its incarceration addiction, you can divest from prison stocks or pressure your fund managers to do so. In the near term, you may miss some outperformance. But you’d be helping to nudge society toward an economically, and morally, healthier state.”

But, this might not be the right analysis for you. Each investor must make their own decision and should consider the potential growth, the income and the ethics of investing in private prison companies.

 

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Value Investing

Investing Like George Soros Is Within Reach for Individual Investors

Posted on by Team Editor

George Soros is a trading legend. And, he is an investment legend because he achieved amazing results.

Over more than 40 years, George Soros delivered an average annual return of about 20% to the investors in his hedge fund. At that rate of return, a $10,000 investment when the fund was started in 1969 would have grown to more than $20 million when Soros closed the fund in 2011.

George Soros

Source: Harald Dettenborn Wikimedia Commons

The most famous story of Soros’ success might be the day that he broke the Bank of England and reaped a one day profit of more than $1 billion. Trades like that have led many individual investors to believe that Soros traded markets they cannot or choose not to access.

However, Soros started his career as a stock market analyst and wrote about his stock market investments in his 1987 book The Alchemy of Finance. In the book, he noted that his stock selection was responsible for most of the returns in his hedge fund.

A Roadmap to Success

The book is a kind of diary of the fund’s progress over a period of about a year. During that time, the value of the fund more than doubled.

In addition to recording his thoughts on the market, Soros shared details of his investment philosophy in The Alchemy of Finance. He wrote, “Most of what I know is in the book…I have not kept anything deliberately hidden.”  This makes the book a must read for serious investors.

Among his important insights into investing is the idea that the thought processes of investors are often just as important to the movements of economies and markets as more “objective” factors such as interest rates and measures of economic growth.

This led him to the conclusion, according to The Telegraph, Soros believes that “anyone who tries to predict the markets by assuming that they behave rationally is doomed to failure.”

He said his concepts “provided me with a new way of looking at financial markets, a better way than the prevailing theory. This gave me an edge, first as a securities analyst and then as a hedge fund manager.”

This indicates that sentiment indicators can be as important to understand as fundamentals. “Many investors make a distinction between market sentiment and business “fundamentals”, implying that anyone who can ignore the former and concentrate on the latter is likely to make better returns.

But Soros pointed out that there were two problems with this attitude. First, anyone’s knowledge of the “fundamentals” of today’s highly complex markets is bound to be incomplete. But, Soros realized that investor sentiment didn’t affect just share prices, it could actually change economic fundamentals.”

Economics Confirms the Theory

Economists label this idea the wealth effect, which is the concept that change in spending accompanies a change in perceived wealth. Usually the wealth effect is positive: spending changes in the same direction as perceived wealth. The wealth effect can be significant and is seen around the world.

estimated wealth chart

Source: Federal Reserve

From Soros’ perspective, this means that “Every bubble has two components: an underlying trend that prevails in reality and a misconception relating to that trend. A boom-bust process is set in motion when a trend and a misconception positively reinforce each other.”

He said the simplest example was a property boom. Here, the trend is the availability of cheap credit; the misconception is that property is worth more for other reasons and not just because more people are able to buy. That is confirmed by the Fed data shown above.

News Can Create Opportunities

Although his theory is important, Soros will always be best known for his bet against the Bank of England in 1992 in the run-up to Britain’s eviction from the European Exchange Rate Mechanism, the precursor of the euro. This was his billion dollar day.

The Exchange Rate Mechanism was meant to keep European Union (EU) currencies in rough alignment until the euro was introduced. This meant that when, for example, the French franc rose against the dollar, the Bank of England tried to ensure that the pound did too.

Soros believed that this was an unstable situation and he believed that based on the fundamentals the pound was becoming overvalued. That hurt British exporter and was unsustainable in the long run as political pressure would mount along with exporters’ pain.

Another problem was that interest rates needed to be increased to maintain the artificially inflated value of the pound. That slow hurt the economy and added political pressure to the central bank and other policy makers.

Soros understood that at some point the pain would be too much for the government and Bank of England would be forced to devalue the pound. This insight led him to take a short position in the pound that would benefit from the decline when it occurred.

On a day that would become known as “Black Wednesday,” Soros’ bet paid off. The Bank of England cut interest rates, the value of the pound fell sharply and Soros collected his profit.

British Pound weekly chart

Since that time, he has made other big bets in currency markets and captured large gains in trades on the Japanese yen and in other markets.

This is, of course, different from buy and hold investing. Soros looks for quick gains and the chance to find additional quick gains. He takes profits and prepares for the next trade rather than holding to achieve a long term gain for tax reasons or other purposes.

Individuals could apply this philosophy to the stock market. They know that large moves can follow earnings announcements and identifying extremes in sentiment could provide opportunities to benefit from reactions after earnings are released.

Exchange traded funds also allow individuals to access currency markets and commodities without accepting the risks of futures contracts. That could make it possible to benefit from moves in oil or gold as Soros has in the past.

In fact, Soros did use the SPDR Gold ETF (NYSE: GLD) for a recent trade in that market. The key is to look for sentiment and then identify the trade. That could help investors enjoy profits like Soros.

 

 

Cryptocurrencies

Now, the NYSE Sees Value in Cryptos

Posted on by Team Editor

New York Stock Exchange

There are many good ideas in the financial world. Many have been available for decades before they took off. Junk bonds are an example of an investment opportunity that took decades to find a place in the portfolios of Wall Street firms.

Michael Milken is credited with establishing the market for junk bonds, or high yield bonds, in the 1980s. But, he realized the potential value of high yields many years before. Milken’s thought process is instructive in several ways. As he explained in an article,

“My study of these complex dynamics began in 1965 when I was an undergraduate at the University of California at Berkeley. Scanning the financial tables of a widely overlooked book, W. Braddock Hickman’s Corporate Bond Quality and Investor Experience, I was struck by the disparity between theory and reality.”

This is an important point. Theory and reality can differ in the financial markets. Bringing this point up to date, the theory of crypto is ahead of the reality. Cryptocurrencies can serve as an investment vehicle and as a means of completing transactions in theory. But, the reality is only now catching up to the theory.

Bring Reality to the Theory of Crypto Markets

Turning back to Milken’s thoughts:

“The prevailing theory—that markets accurately adjust yield to compensate for higher risk—was clearly wrong. Hickman’s survey of yields and defaults from 1900 to 1943 concluded that investors usually overestimated risk in higher yielding bonds.

After studying capital structure at Wharton, I joined Wall Street’s leading research firm in 1969. At the time, most analysis focused solely on the past, primarily book value and reported earnings.

But my experience showed that through rigorous research and a sharper focus on future cash flow, we could price and reward investment risk more precisely. The proof came in 1974, when companies with the right capital structure prevailed despite a doubling of interest rates, a stock market crash, and a severe recession.”

At that point, Milken realized that he needed to create the venue where theory and reality could meet, and he developed the market for junk bonds. Now, a similar development appears to be underway in the crypto markets.

The NYSE Could Build Crypto Markets

Cryptos need a nationally recognized market and a market with advanced technical capabilities to make the reality measure up to the theory. A major company just announced plans to do that according to Fortune:

“Intercontinental Exchange—the trading colossus that owns the New York Stock Exchange and other global marketplaces—announced that it is forming a new company called Bakkt. The new venture, which is expected to launch in November, will offer a federally regulated market for Bitcoin.

With the creation of Bakkt, ICE aims to transform Bitcoin into a trusted global currency with broad usage.

BAKKT

Source: Bakkt.com

To achieve that vision, ICE is partnering with heavyweights from the worlds of technology, consulting, and retail: Microsoft, Boston Consulting Group, and Starbucks.

ICE did not immediately disclose the total investment of the investment partners, a group which also includes Fortress Investment Group, Eagle Seven, and Susquehanna International Group—or the ownership stakes.

The founding imperative for Bakkt will be to make Bitcoin a sound and secure offering for key constituents that now mostly shun it—the world’s big financial institutions. The goal is to clear the way for major money managers to offer Bitcoin mutual funds, pension funds, and ETFs, as highly regulated, mainstream investments.”

The next step after that could be using Bitcoin to replace your credit card.

“Bakkt is designed to serve as a scalable on-ramp for institutional, merchant, and consumer participation in digital assets by promoting greater efficiency, security, and utility,” said Kelly Loeffler, ICE’s head of digital assets, who will serve as CEO of Bakkt, in the press release announcing the launch.

“We are collaborating to build an open platform that helps unlock the transformative potential of digital assets across global markets and commerce.”

The name of the company was only decided in the past two weeks. Loeffler explains that “Bakkt” is a play on “backed,” as in “asset-backed securities,” and it’s meant to evoke a highly-trusted investment.

The plan includes at least two important phases. One is to attract institutional investors into the crypto market. When large money managers are involved, the market will have more liquidity and that could help reduce the volatility.

Volatility can be seen in the extreme price swings of bitcoin which has moved from less than $3,000 to nearly $20,000 and back below $8,000 in the past year.

Bitcoin weekly chart

Details have not been announced as to what the second stage of the venture is intended to accomplish. However, we could find some clues in the partners that have been announced. In particular, Starbucks stands out.

It would seem that Bakkt is aimed at improving acceptance of the new asset class among both asset managers and consumers. Starbucks already has a large consumer base and completes a large amount of transactions through its app. Crypto is a natural extension of that application.

Microsoft’s presence in the partnership could indicate that the company will be leading an effort to create standardized software tools that will make it easier to use cryptos.

Jeff Sprecher, Intercontinental Exchange chairman and CEO, believes an initiative like Bakkt will have a significant and positive impact on the market.

“Bitcoin can’t survive as a rogue idea,” he says. “To evolve, the cryptocurrencies need to run on established infrastructure. They need the trust and rules that have been built into our financial system for many years. They need the kind of trust that the Big Board represents.”

The Big Board, as the NYSE is sometimes called, has helped create orderly markets almost since the time the nation was founded. In the early days of the young country, the NYSE would allow banks to raise capital.

New York Stock Exchange

Source: NYSE.com

Later, railroads would find the capital needed to build their networks through the NYSE. Large corporations were made possible by financing that was also centered around the activities of the NYSE.

 

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Weekly Recap

Weekly Review

Posted on by Team Editor

weekly review

Futures Could Be Your Key to Bitcoin

Trading bitcoin can be appealing to many investors. But, the mechanics of trading bitcoin can be daunting to many. It’s not as simple to buy a bitcoin as it is to buy a stock, and that fact might mean some investors are ignoring the opportunities in cryptocurrencies.

In a recent article, we explain how investors can take advantage of the opportunities in cryptocurrencies. You can learn more by clicking here.

Right Now, the Stock Market is Actually Moderately Undervalued

Value investing sounds simple enough. As Warren Buffett and other great practitioners have explained it, the idea is to find assets that are trading for less than their fair value. Buy them at a discount and wait for the discount to disappear at which time they can be sold.

As individual investors know, that description does nothing to provide practical advice. In this article, we discuss that description and explain it in a more practical way. You can check it out right here.

Value and Tech Can Go Together

Value stocks are often thought of as slow growing, older companies. Utility stocks are often a favorite of value investors. Tech stocks, on the other hand, are often thought of as growth stocks. These are companies that grow rapidly and often trade at high prices.

This week, we shared stocks that are attractive to investors seeking growth and value. You can find the details here.

Pros and Cons of Muni Bonds Right Now

A municipal bond, often called a muni bond, is a bond issued by a local government or a local government agency such as a housing authority. These bonds often fund roads, schools, airports and seaports, and infrastructure-related repairs.

This week, we discussed the pros and cons of muni bonds and explained how investors can make money in the current market environment. We share the details right here.