Wealth & Staying #Woke

Thank you for all of the responses – via email, Twitter, Facebook – on the Year of Boldness.  We are ready for action. Boy, doesn’t it seem like we have already been through emotional whiplash over the last few days? My goodness. In the words of my pastor, stay #woke, please.

In true spirit of being bold, you have the power to put your money where your mouth is in this moment.  Your wealth is directly affected by how you spend your dollars. How can you make a difference today?

  • If you disagree with how certain companies (or founders) are dealing with our crisis, don’t shop there.
  • If you have a business idea that you want to get off the ground, make sure you’re putting money aside to fund the endeavor so you can make your own mark on what’s happening around you.

Now, in case you missed it last week amidst all the chaos, the Dow topped 20,000.

Boeing and Microsoft reported strong earnings last week, and these two companies contributed significantly to the Dow’s move. One of the most frequent questions I received this week was – “Will the market keep going up?” Well, I have a real answer for you – “I don’t know.” As unsatisfying as that might seem, it’s true. No one, not even me, can predict what the market will do. If someone tells you that they can predict the market, I would run away.

What I do feel very confident in reminding you is that you need to examine your portfolios and assess whether you need to take any profits. As a rule of thumb, I like taking some profits when my U.S. equity stock holdings make 15-20%. And, by “some,” I usually sell the amount of the profit. So, if it cost me $10,000 to buy a stock, and it went up to $12,000 because of a 20% gain, I will sell $2,000 worth, which locks in my gain of 20%, minus any commission I pay to trade the stock. This way, I still have $10,000 invested. If the stock(s) goes down, I can decide to buy more if I still fundamentally believe in the stock. At the very least, I won’t suffer guilt from not selling the stock when I had the chance to make some money.

What Should You Do?

Stock prices are a function of how the market values the future growth of a company.  As such, we expect stock prices to grow at the same pace of earnings growth. When prices grow faster than earnings growth, we have a problem: the market gets overvalued, and thus we are susceptible to falling stock prices and potentially losing money.

So the question you should be asking yourself is whether earnings will keep up with stock prices. The Wall Street Journal addresses this very question by reminding us that many companies have yet to report earnings.  This week, many more companies will be reporting earnings, and thus we must be paying attention to not only how these companies performed last year, but also their earnings expectations for 2017 and beyond. [If you have forgotten how company earnings reports work, or why they’re important, no sweat – check out my video on company earnings.]

In short, pay attention to what’s happening around you and evaluate how you will respond.