Buffett goes back to basics

After being noticeably quiet outside of dumping his airline position, Berkshire Hathaway has made their biggest acquisition in the past 4 years, buying Dominion Energy’s natural gas assets for $10 Billion. The deal was made up of $4 Billion in cash, plus Berkshire acquiring all of Dominion’s $5.7 Billion debt.

Natural gas futures recently fell to a 25 year low, and Buffett is clearly exercising his “be greedy when others are fearful” mantra.

When the natural gas industry will rally is debatable, but this is an asset play first and foremost. They’re buying pipelines and storage facilities, Buffett’s kind of stuff.

But with any physical business, there’s limited upside. These “old school” businesses” simply don’t have the scalability of growth sectors like software.

Take 2 ETFs, AMLP (which holds the biggest pipeline producers in the US), and IGV (which holds tech & software businesses like Adobe, Salesforce and Activision Blizzard).

Over the past 3 years, AMLP is down 49.66%, whereas IGV is up more than 120%.

Now the question is, will Buffett’s approach which has brought him so much success in the past, bring him equal success in the future?

I don’t necessarily think it’s a case of old school vs. new school. And “tech” by itself isn’t an industry. It’s a catch-all term for disruptive companies.

For example, there are many clean energy companies aiming to disrupt the stalwarts of the industry like Dominion.

Companies like solar panel manufacturer Daqo New Energy Corp which is up more than 150% in the past year. Whether you feel comfortable investing in Chinese stocks given the current situation is another story.

The big question is whether Buffett’s purchase will show that he’s still got it. Or will this be another Kraft-Heinz case of a failed bet on an old school business?

I’m not going to bet against Buffett, but I’m certainly not betting against tech either.

Revealed: The rare “anti-fragile” stock which always goes up in a market crash

If we look closely, robustness isn’t exactly the opposite of fragility as we think! There’s a better term to describe the opposite of ‘fragility,’ which also helps us understand the secret to making a stock recession-proof. The term you are looking for is anti-fragility.

Former trader, hedge fund manager, and professor, Nassim Nicholas Taleb, came up with the term “anti-fragility” in his book “Antifragile: Things That Gain from Disorder.” Taleb came up with such a term because he thought that other words used as the opposite of ‘fragility’ were not accurate.

What is Anti-Fragility?

Rather than establishing anti-fragility as a replacement of robustness or other terms implying the opposite of fragility, Taleb expanded its meaning. Anti-fragility actually refers to the capability of withstanding a shock as well as achieving improvements due to the shock. Therefore, one can clearly note that an anti-fragile stock, in its literal meaning, has the capability to withstand the shock of a receding economy as well as perform exceptionally well under pressure. Anti-fragile stocks perform and grow well with exposure to volatility, stressors, disorder, uncertainty, and randomness. Let us reflect on the example of Wal-Mart, whose rare ‘anti-fragile’ stock nearly always goes up in a market crash.

Wal-Mart (WMT) enjoys the reputation of being one of the unique stocks on Wall Street for its distinct behavior in response to specific market environments. Wal-Mart is currently running almost 10,957 stores worldwide, with annual revenues amounting to $476 billion. WMT stocks are referred to as recession-proof stock due to the immunity of its sales and revenues to any type of economic disruption. Most important of all, the discount products of Wal-Mart are in high demand during tough economic situations. A closer look at the performance of WMT during the 2008-2009 financial crisis and the underlying motivators for the same can help in understanding how WMT stocks are anti-fragile.

How Anti-fragile Was Wal-Mart Stock in 2008-2009?

A direct comparison of the stock prices of WMT to establish the anti-fragility of WMT stocks might be the first solution that comes to mind. However, a reflection on the company’s revenues over the years can clearly depict the organization’s performance in response to the recession. Just when the recession started in 2007, Wal-Mart reported a growth of 10%. As the recession worsened in the coming years, Wal-Mart depicted growths of 9% and 7% in 2008 and 2009, respectively. The dip in growth in 2009 directly reflects on the period when recovery kicked in, and customers had the privilege of spending elsewhere and use their additional disposable income for purchasing luxury items.

2007-09 was no exception either. If we expand the data across the past five recessions (1980, 1981–1982, 1990–1991, 2001, and 2007–2009). actually gained an average of 42.4% during those periods.

Crucial Reasons for Wal-Mart’s Anti-Fragility

The anti-fragility of WMT stocks goes beyond mere stock performance or revenue growth details. Wal-Mart generally sells cheaper goods (in terms of price), thereby increasing their demand when customers have a lower income. Generally, in a recession period, consumers have less income, and their expenditure decreases. So, WMT stocks show exceptional behavior by slightly underperforming in a booming economy while experiencing growth during a recession. In addition to the limitations of customer’s income, there are many other factors that provide substantial proof of anti-fragility in WMT stocks. The most prominent factors that drive the performance of WMT stocks in a recession are the company’s size, and economies of scale. 

Income investors will also like WMT’s payouts. The 1.81% yield may not seem sexy in comparison to other sectors, but it’s the consistency which makes it a great dividend stock. The company has increased payouts since it’s IPO in 1975. That’s 44 years of rewarding shareholders, even through recessions. It’s payout ratio (total dividends paid as a percentage of net income) is still a sustainable 44.1%.

Reaching Out to Customers by Solving a Pain Point

90% of Americans live at a distance of 15 minutes from a Wal-Mart location. However, the response of Wal-Mart in the ongoing COVID-19 pandemic will be crucial for holding its ship steady in rough seas. Wal-Mart’s curbside pickup program is the most interesting intervention that continues to improve the performance of its stocks. With the measures for social distancing being mandatory as a response to the global COVID-19 outbreak, crowding in grocery stores is a notable pain point for customers. Therefore, Wal-Mart leverages its existing positioning in the market for promoting its curbside pickup service as a flexible instrument for serving its customers. Customers can place their orders through the Wal-Mart website or app and pick up their order from the designated parking area at a specified time.

The simplicity of the curbside pickup program is the foremost factor for driving its success. The reduction of traffic at Wal-Mart stores allows employees to stock the aisles and process all online orders effectively. Most important of all, the success of the curbside pickup program is primarily evident in the protection for customers from any concerns of COVID-19 infection.

Therefore, we noticed how Wal-Mart capitalizes on the two most important traits of customer behavior in an economic recession for keeping its stocks ‘anti-fragile’. The key to Wal-Mart’s anti-fragile stock’s performance is the lower prices of its products, the type of products it sells, and positioned closer to the customer. Therefore, Wal-Mart is one of the very few stocks we’re bullish on in this period of crisis during COVID-19 and in the long-term after the crisis ends.

How to Buy Stocks Online: Step-by-Step Instructions for Beginners

Many investors buy stocks online, through an investment account at an online broker.

While 20 years ago this would have been a complex endeavor involving many steps, it’s a lot simpler these days. In this
article you’ll learn how to select a low-cost broker and getting your account started using only your cell phone.

As per a recently conducted study, around 54 percent of Americans invest in the stock market. Traditionally, people used to invest or buy stock through a person known as a broker. Brokers were licensed to buy and sell stocks on behalf of their clients. However, now you can buy and sell stocks online through a brokerage website. Currently around 14 to 15 million households in
the United States are actively using online trading services.

With online trading, you are free to make your decision by yourself. Such an approach is different from taking the help of a stockbroker as the broker generally offers input and advice. Well, before you make any decision, you need to find what type of stock brokerage is right for you. You will find two major types, these are discount brokerages and full-service brokerages.
Here’s an overview of the difference between the two.

The difference between Full-Service and Online discount brokerages

Full-Service brokerages
With a full-service brokerage account, you can trade bonds, mutual funds, stocks, and other investment products. Such brokers do more than facilitate the selling and buying of stocks. They also offer different types of products and services, like investment and tax advice, financial planning, frequent portfolio updates, and more. Since you will be getting all such types of
services, full-service brokerages generally come with a higher amount of fees. Both for starting out, and in terms of maintaining your account.

Most full-service brokerages will expect you to invest a minimum USD 5000 to USD 10,000 to open an account. Others require a monthly fee to maintain your account.

Online discount brokerages
The internet is the great equalizer in that it makes products and services which were once the sole possession of the elite, available to the masses. This is no different in the brokerage game.

Don’t think that because we’re referring them as discount that the quality of service is low (on top of that, you don’t get the stocks at a discount either). Discount brokerages merely refers to websites or apps that offer a trading platform to the investors, but not much else. In practical terms, you will get access to fewer trading features compared to a full service brokerage. But as a newer investor, many of these are features you don’t require anyway.

By removing features which aren’t necessary for new investments, they can charge lower fees than their full service counterparts. Some also offer free educational and research tools to help investors in making better investment decisions. Unlike full-service brokerages, online discount brokerages don’t have various branches. They provide only online services. So, for the majority of the first time investors, you don’t need more than a discount online brokerage.

Now we’ve covered the difference, let’s get your account open and begin investing.

What do you need to open a trading account?

A Bank account
In order to start investing in the stock market, you need to have a bank account. You will need a bank account and debit card to fund your trading account, which is where you will buy and sell shares. You cannot use a credit card to sell and buy stocks. For US brokers like Robinhood, you will need a US bank account. For offshore brokers you may be able to use foreign bank accounts.

Social Security Number
You’ll need your SSN to verify your identity and to verify your tax status. The initial intention of the identification number was to track the people’s earnings but is now used for a different purpose, such as to check the credit record, for tax purposes as well as for trading.

It is now mandatory to have an SSN in order to open a trading account. Brokerages need the SSNs to comply with various tax laws, record-keeping procedures and to evaluate a suitable investment. Besides, when you open a trading account, you need to submit your TIN – Tax Identification Number, which is generally your SSN.

Photo identification
For photo identification, you may submit any national ID card or your current driving license. You can also use your passport for photo identification. Photo identification is a mandatory step to open a trading account to buy stock online.

The easiest way to buy stock for first-timers

Are you looking for a commission-free trading platform that you can use directly from your cellphone? If the answer is yes, then Robinhood is a perfect option for you. It is a commission-free-trading app that enables users to trade stock, cryptocurrency, options, funds, gold, and cash management. Commission-free means you only pay the price of the stock, without any extra fees for placing the trade.

The story behind the formation of Robinhood is quite interesting. It was established by two college classmates named Vladimir Tenev and Baiju Bhatt. After completing their graduation, they moved to New York and developed two finance companies to sell trading software. They found that most of the investors were paying fees for their every trading. The duo then decided to develop a product that can help everyone to have access to the financial markets. So, they returned to California from New York and developed Robinhood. Robinhood utilizes advanced trading technologies to make investing accessible for all.
The zero balance to open an account and low fees are some of the major factors that attract new investors. The platform is perfect for newcomers or investors who want to trade in small quantities. Besides, it enables users to carry out cryptocurrency trades.

What stocks can you buy with Robinhood?

Want to make your money more useful for you? Robinhood is a perfect platform for you. The platform supports investment in different assets, starting from stocks to cryptocurrencies. As per the platform, you can invest in more than 5000 stocks on various exchanges, including Exchange-Traded Funds (ETFs) and U.S. equities.

Things that you can buy/sell using Robinhood are:
● United States exchange-listed stocks
o Most OTC markets
● Cryptocurrencies such as Bitcoin and Ethereum
● ETFs like SPY and QQQ
● Options contracts.
● ADRs for more than 250 global companies. The ADR stands of American Depositary
Receipt. It is one type of negotiable security and can be traded in the financial market.

Things that you can’t buy or sell using Robinhood are:
● Mutual funds.
● Tracking stocks.
● Selected microcap stocks listed on smaller exchanges.
● Preferred stocks.
● Bonds

Is it free to trade on Robinhood?

Robinhood doesn’t ask have any commission fees when it comes to buying and selling common stocks, ETFs and Options.

There is also no monthly fee to use the platform. Nor are there fees to open an account.

Coming to the stock investment, investing in stocks with Robinhood is free of commission. It doesn’t charge fees to open an account and maintain the account as well as transfer funds to the account.

The only fees involved are an optional premium membership to Robinhood Gold. Robinhood Gold starts from $5/month and allows margin trading as well as higher deposit and withdrawal limits. For most investors, a free account is just fine.

Minimum balance

There is no minimum balance to keep your Robinhood account open. You can start your trading right away. However, to start investing, you will need enough cash to purchase your stocks. In order to open the Margin account, the platform requires you to have a minimum portfolio balance of USD 2000.

Robinhood Gold

There is no doubt that Robinhood is quite popular for offering various selection options of stock and ETF. Without paying any fees, you can buy stocks and ETFs online. However, if you want to enjoy more features, then you can start using Robinhood Gold. It lets the users begin trading 30 minutes before the stock market opens and can also trade for two hours after the stock market closes. This is ideal for new investors who are looking for advanced investment options.

The Gold user can watch live bids through the Level II Market Data. The users can get instant access to USD 5,000 to USD 50,000 margin when they make a deposit. You can also invest on margin through Robinhood gold. However, the company advises new investors not to go for margin trading.

Robinhood Crypto

In January 2019, Robinhood entered into the cryptocurrency trading industry after getting the BitLicense from the NYDFS- New York Department of Financial Services. Currently, the platform supports trading of 7 types of cryptocurrencies, such as Bitcoin, Ethereum, Bitcoin SV, Bitcoin Cash, Dogecoin, Ethereum Classic, and Litecoin. You can buy and sell any of these cryptos 24/7 without paying any commission. This is a factor that has made this a popular crypto trading platform.

The platform has greatly simplified the crypto trading for the new investors who want to invest in the crypto trading market. Just open a Robinhood Crypto account, and you are ready to go.

How to get free stock on Robinhood

The best part about the Robinhood platform is it also offers one free stock to the new users when your application is
approved. You can sell your free stock after 2 trading days, or you can keep it as part of your portfolio. This is a simple way to start your investment portfolio with zero money invested, how cool is that?

Your free stock will be a company which trades between $5 and $150 per share. Some examples in the screenshots below are people who have received Facebook and Microsoft stock.

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Besides, whenever you invite a new friend to Robinhood, you as well as your friend will earn a free stock. Once the application of your friend gets approval, a free stock will be transferred to your account.

Steps to claim your free stock

To get your free stock, open the Robinhood app, and you will see the “Invite friends, get free stock” option in the lower right corner. Tap on it and then click on the “Invite Contacts” option. Now choose your friend’s names and send them the invitation. You will get the free stock, after the approval of their account.

Per year, you can win up to USD 500 free stock. You can check the cost of the stocks in the “Statement & History” option.

Frequently Asked Questions

  1. Can I buy stock without a brokerage account?

Yes, with Robinhood, you can now buy stock online even if you don’t have a brokerage account. All you need a trading account to get started with this.

  1. Can you open an account with bad credit?

Because Robinhood is a cash-based platform, they don’t consider your credit score. So don’t worry if you have bad credit. They don’t report the users’ credit scores to credit bureaus, and neither it will help you to improve your credit score. It’s just a commission-free trading platform.

  1. How much money do I need to open an account?

Well, with Robinhood, you can open your account without any minimum deposit. This is a good thing for new investors. You can add funds as you get more experience in the market. However, to create a margin account, you will have to deposit $2000. It is also called Robinhood Gold. Using this account, you can trade with leverage. It is quite easy to open an account with Robinhood. Submit your application through the app, and once it gets approved, you will get a confirmation mail.