Investing

Stefan Thomas, a German-born programmer living in San Francisco, has two guesses left to figure out a password that is worth, as of this week, about $220 million. The New York Times reports:

The password will let him unlock a small hard drive, known as an IronKey, which contains the private keys to a digital wallet that holds 7,002 Bitcoin. While the price of Bitcoin dropped sharply on Monday, it is still up more than 50 percent from just a month ago when it passed its previous all-time high around $20,000.

The problem is that Mr. Thomas years ago lost the paper where he wrote down the password for his IronKey, which gives users 10 guesses before it seizes up and encrypts its contents forever. He has since tried eight of his most commonly used password formulations — to no avail.

“I would just lay in bed and think about it,” Mr. Thomas said. “Then I would go to the computer with some new strategy, and it wouldn’t work, and I would be desperate again.”

Bitcoin, which has been on an extraordinary and volatile eight-month run, has made a lot of its holders very rich in a short period of time, even as the coronavirus pandemic has ravaged the world economy.

But the cryptocurrency’s unusual nature has also meant that there are many people who are locked out of their Bitcoin fortunes as a result of lost or forgotten keys. They have been forced to watch, helpless, as the price has risen and fallen dramatically, unable to cash in on their digital wealth.

Of the existing 18.5 million Bitcoin, around 20 percent — currently worth around $140 billion — appear to be in lost or otherwise stranded wallets, according to the cryptocurrency data firm Chainalysis. Wallet Recovery Services, a business that helps find lost digital keys, said it has gotten 70 requests a day from people who want help recovering their riches, three times the number of a month ago.

Bitcoin owners who are locked out of their wallets speak of endless days and nights of frustration as they have tried to access their fortunes. Many have owned the coins since Bitcoin’s early days a decade ago, when no one had confidence that the tokens would be worth anything.

Bitcoin soared to $34,000 yesterday—but here’s why Warren Buffett will never own Bitcoin. Zack Friedman writes on Forbes:

Buffett has called Bitcoin, among other names, “rat poison squared” and has said he won’t ever buy the cryptocurrency. “I don’t have any cryptocurrency and I never will,” Buffett told CNBC in February, when Bitcoin was trading at about $10,000. Here are 3 reasons why Buffett will never own Bitcoin, no matter how high the price of Bitcoin soars:

Buffett believes that Bitcoin has no underlying value. As a value investor, Buffett invests in companies that are undervalued, produce stable and recurring cash flow and have the ability to increase in book value. To Buffett, Bitcoin doesn’t produce earnings or dividends. Rather, the value of Bitcoin is simply what one person is willing to pay for it. In this regard, Bitcoin is no different than the tulip craze of 1637. Therefore, Buffett believes that Bitcoin has no inherent value…

While all investing involves some degree of speculation, Buffett’s background is in insurance and risk mitigation. Buffett doesn’t invest in “high fliers” — that’s not his game. His game is “buy and hold” — forever. He invests in companies that grow over time, steadily and consistently.

Stocks rose to record highs on Friday despite weaker-than-expected jobs data as Wall Street concluded a volatile week chalk full of geopolitical concerns. The Dow Jones Industrial Average traded 48 points higher, or 0.2% to break above 29,000 for the first time ever. CNBC reports:

The U.S. economy added 145,000 jobs in December. Economists polled by Dow Jones expect the U.S. economy to have added 160,000 jobs in December.

Wages also disappointed, growing by just 2.9% on a year-over-year basis. Economists had forecast a gain of 3.1%. December was also the first month since July 2018 that wages grew by less than 3% from the year before.

“The December jobs report was a little softer than expected but not so much so as to stoke big worries about the US consumer and the health of the overall economy,” said Alec Young, director of global markets research at FTSE Russell. “Although both readings were slightly below expectations and the recent trend, neither is overly alarming by itself.”

The Dow Jones Industrial Average rallied to record levels on Friday, reaching 28,000 for the first time ever, after White House economic advisor Larry Kudlow said China and the U.S. were getting close to reaching a trade deal. CNBC reports: 

The 30-stock average closed 222.93 points higher, or 0.7% at 28,004.89. It took the Dow just over four months to go from 27,000 for the first time to 28,000…

The S&P 500 and Nasdaq Composite made new all-time highs as well, climbing 0.8% to 3,120.46 and 0.7% to 8,540.83, respectively.

Wall Street also wrapped up another week of gains.

The Dow notched its fourth week of consecutive gains, rising 1.2% in that time. The S&P 500 advanced 0.9% for the week, posting its sixth straight weekly gain. That’s the longest streak for the S&P 500 since 2017, when it climbed for eight straight weeks. The Nasdaq rose for a seventh consecutive week, advancing 0.8%.

Wealthy people around the globe are hunkering down for a potentially turbulent 2020, according to UBS Global Wealth Management. Bloomberg reports:

A majority of rich investors expect a significant drop in markets before the end of next year, and 25% of their average assets are currently in cash, according to a survey of more than 3,400 global respondents. The U.S.-China trade conflict is their top geopolitical concern, while the upcoming American presidential election is seen as another significant threat to portfolios.

“The rapidly changing geopolitical environment is the biggest concern for investors around the world,” said Paula Polito, client strategy officer at UBS GWM, in a statement. “They see global interconnectivity and reverberations of change impacting their portfolios more than traditional business fundamentals, a marked change from the past.”

Nearly four-fifths of respondents say volatility is likely to increase, and 55% think there will be a significant market sell-off before the end of 2020, according to the report which was conducted between August and October and polled those with at least $1 million in investable assets. Sixty percent are considering increasing their cash levels further, while 62% plan to increase diversification across asset classes.

The Dow and S&P 500 closed at fresh records Thursday even after reports emerged of “fierce internal opposition” in Washington over a new agreement with Beijing to cancel tariffs in stages. MarketWatch reports: 

The Dow Jones Industrial Average rose 182.24 points, or 0.66%, to a record 27,674.80, while the S&P 500 index gained 8.4 points, or 0.27%, to an all-time high of 3,085.18. The Nasdaq Composite index added 23.89 points, or 0.28%, to 8,434.52, its second-highest close in history, according to Dow Jones Market Data.

Major U.S. stock indexes have been setting new records in recent sessions, with investors encouraged by reports of progress on an interim trade deal between the U.S. and China…

In U.S. economic data, the Labor Department estimated that 211,000 Americans filed new unemployment claims in the week ended Nov. 2, a one month-low and below the 215,000 predicted by economists polled by MarketWatch.

The Dow Jones Industrial Average reached a milestone on Monday, now up nearly 18% on the year. The Dow joining the S&P 500 and Nasdaq Composite at record levels, as investor sentiment was lifted by strong earnings, a rebound in economic data and a potential U.S.-China trade deal. CNBC reports:

The 30-stock measure rose 114.75 points, or 0.4%, to 27,462.11, its first all-time high since mid-July. Chevron led the way higher for the Dow, rising 4.6%. Trade bellwethers Boeing and Caterpillar also rose more than 1% each. 

Apple is by far the best-performing Dow stock since the index hit its previous record, rallying more than 25%. Intel, J.P. Morgan Chase and United Technologies are all up at least 10% in that time.  

Meanwhile, the S&P 500 climbed 0.4% to a fresh all-time high of 3,078.27. The Nasdaq advanced 0.6% to 8,433.20, also reaching record levels.

Monday’s rise brought the Dow’s year-to-date gain to nearly 18%. That would be the biggest one-year gain for the Dow since 2017, when it jumped 28.2%. The S&P 500 is up more than 22% for 2019 and is on pace for its biggest one-year gain since 2013, when it rallied nearly 30%. The Nasdaq is also up more than 27% this year. 

President Donald Trump touted the records, saying in a tweet: “Stock Market hits RECORD HIGH. Spend your money well!”

Stock Market hits RECORD HIGH. Spend your money well!

— Donald J. Trump (@realDonaldTrump) November 4, 2019

The S&P 500 index closed at an all-time high Monday, extending a recent string of gains in what’s mostly been a solid month for the market. AP reports: 

The benchmark index closed at 3,039.42, around 14 points above its previous record set on July 26. The S&P 500 notched its latest milestone after weeks of hovering just below its prior high.

Monday’s rally came at the beginning of a busy week of corporate earnings and economic reports and with investors expecting another interest rate cut by the Federal Reserve.

Coming into this week, investors have been encouraged as most of the companies that have reported quarterly results the past couple of weeks that beat Wall Street analysts’ forecasts for earnings growth.

For 35 years, Bay Area finance revolutionaries have been pushing a personal investing strategy that brokers despise and hope you ignore. The story of a rebellion that’s slowly but surely putting money into the pockets of millions of Americans, winning powerful converts, and making money managers from California Street to Wall Street squirm. Mark Dowie of San Francisco magazine wrote on December 2006:

As Google’s historic August 2004 IPO approached, the company’s senior vice president, Jonathan Rosenberg, realized he was about to spawn hundreds of impetuous young multimillionaires. They would, he feared, become the prey of Wall Street brokers, financial advisers, and wealth managers, all offering their own get-even-richer investment schemes. Scores of them from firms like J.P. Morgan Chase, UBS, Morgan Stanley, and Presidio Financial Partners were already circling company headquarters in Mountain View with hopes of presenting their wares to some soon-to-be-very-wealthy new clients.

Rosenberg didn’t turn the suitors away; he simply placed them in a holding pattern. Then, to protect Google’s staff, he proposed a series of in-house investment teach-ins, to be held before the investment counselors were given a green light to land. Company founders Sergey Brin and Larry Page and CEO Eric Schmidt were excited by the idea and gave it the go-ahead.

One by one, some of the most revered names in investment theory were brought in to school a class of brilliant engineers, programmers, and cybergeeks on the fine art of personal investing, something few of them had thought  much about. First to arrive was Stanford University’s William (Bill) Sharpe, 1990 Nobel Laureate economist and professor emeritus of finance at the Graduate School of Business. Sharpe drew a large and enthusiastic audience, which he could have wowed with a PowerPoint presentation on his “gradient method for asset allocation optimization” or his “returns-based style analysis for evaluating the performance of investment funds.” But he spared the young geniuses all that complexity and offered a simple formula instead. “Don’t try to beat the market,” he said. Put your savings into some indexed mutual funds, which will make you just as much money (if not more) at much less cost by following the market’s natural ebb and flow, and get on with building Google.

The following week it was Burton Malkiel, formerly dean of the Yale School of Management and now a professor of economics at Princeton and author of the classic A Random Walk Down Wall Street. The book, which you’d be unlikely to find on any broker’s bookshelf, suggests that a “blindfolded monkey” will, in the long run, have as much  luck picking a winning investment portfolio as a professional money manager. Malkiel’s advice to the Google folks was in lockstep with Sharpe’s. Don’t try to beat the market, he said, and don’t believe anyone who tells you they can—not a stock broker, a friend with a hot stock tip, or a financial magazine article touting the latest mutual fund. Seasoned investment professionals have been hearing this anti-industry advice, and the praises of indexing, for years. But to a class of 20-something quants who’d grown up listening to stories of tech stocks going through the roof and were eager to test their own ability to outpace the averages, the discouraging message came as a surprise. Still, they listened and pondered as they waited for the following week’s lesson from John Bogle.

“Saint Jack” is the living scourge of Wall Street. Though a self-described archcapitalist and lifelong Republican, on the subject of brokers and financial advisers he sounds more like a seasoned Marxist. “The modern American financial system,” Bogle says in his book The Battle for the Soul of Capitalism, “is undermining our highest social ideals, damaging investors’ trust in the markets, and robbing them of trillions.” But most of his animus in Mountain View was reserved for mutual funds, his own field of business, which he described as an industry organized around “salesmanship rather than stewardship,” which “places the interests of managers ahead of the interests of shareholders,” and is “the consummate example of capitalism gone awry.”

Bogle’s closing advice was as simple and direct as that of his predecessors: those brokers and financial advisers hovering at the door are there for one reason and one reason only—to take your money through exorbitant fees and transaction costs, many of which will be hidden from your view. They are, as New York attorney general Eliot Spitzer described them, nothing more than “a giant fleecing machine.” Ignore them all and invest in an index fund. And it doesn’t have to be the Vanguard 500 Index, the indexed mutual fund that Bogle himself built into the largest in the world. Any passively managed index fund will do, because they’re all basically the same. [Read more…]

Vanguard Group is lowering the minimum amounts customers need to invest to get cheaper prices on more than three dozen of its index funds. The Wall Street Journal reports:

“The $5.3 trillion indexing giant’s move is the latest salvo in Vanguard’s push to lure investors from rivals at a time asset managers are under pressure to slash the costs of funds. Starting Monday, the firm is lowering the minimums for admiral shares—a share class that costs less than regular investor classes—to $3,000 from $10,000 for 38 index mutual funds. The funds make up the majority of Vanguard’s index funds that are available to individual investors and include some of the industry’s largest stock and bond index funds.”

Here’s what Vanguard officially announced: “Our index funds changed investing forever. Now we’re making them even better. We’re lowering costs for more than 1 million current index fund investors and giving new investors one more reason to choose Vanguard. To do that, we’re dropping the minimum investment for Admiral Shares on 38 index funds. Our Admiral Shares were previously available to investors with over $10,000 per fund. Now you’ll only need $3,000 to take advantage of the low expense ratios Admiral Shares offer. In turn, we’re eliminating higher-cost Investor Shares of those same index funds for individual investors.”