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The Federal Reserve just announced an emergency 50 basis point cut in the fed funds rate. What does cutting interest rates mean? What are the differences in the fed funds rate, discount rate, and IOER or interest on excess reserves? How does a fed rate adjustment effect my mortgage rate? Plus, how do they figure what the probabilities are that the Fed will move rates at future meetings?     What i...

Strong opinions exist on each side of this debate. Some believe plowing money to pay off the mortgage early is better. Others would rather step up their periodic investments and keep a low rate mortgage? In this episode Derek walks through how interest rates affect mortgage monthly payments. Key things to consider when evaluating which is better pay off early or invest. Also, what percentage of yo...

Michael Lewis wrote the book "The Big Short" that later was turned into a movie starring Christian Bale, Steve Carrell, and Ryan Gosling, Brad Pitt, and Jeremy Strong. The movie focused on 3 different investors who bet against mortgage bonds before the Great Recession and housing market collapse using credit default swaps. Want to get a primer on swaps and how they work before you watch or re-watc...

Bonds prices are a function of current interest rates compared to their present value of cash flows and return of capital (baring defaults) at maturity. So, with interest rates so low around the world, is this a period of higher risk in bonds (fixed income)? How much more sensitivity to interest rate changes do we currently see in the sector? How do callable bonds mute the positive effects of redu...

Tesla stock it seems is always in the news. Between it's CEO Elon Musk and the latest price action, it has been commented on ad nauseum. Lately, the terms short squeeze and short interest ratio have been mentioned as CNBC commentators talk about those who have been betting against the stock and taking some losses of late. So what is short selling and what do the terms short interest ratio, days to...

With the new decade came prediction after prediction trying to call what the next decade's compounded growth rate will be. Many have said investors need to prepare for lower returns based on the numbers. But what if other prognosticators have a different view that is more bullish? We can't predict future market returns, but we can talk through what they are looking at valuation and return wise to...

Recently I've been asked by several people about the FIRE movement. Financial Independence and Retire Early. This strategy relies on increasing percentage of salary in savings, reducing expenses, and assuming a compounded rate of return. Then when they have 25 times their desired retirement salary, they achieve the FI. So, does the math add up? Does the 4% rule still work? And what might they and...

Watching financial media, you hear terms like PE and Forward PE multiples, revenue, margins expanding or contracting, and share buybacks. So, what does it mean for a stocks price when multiples increase or decrease? What is the attribution for earnings increasing or decreasing? How do you calculate net profit margin? Earnings releases can be more complicated than they need to be. In this episode,...

Recently a JP Morgan analyst highlighted how wrong stock market predictions would have caused investors to lag the markets by up to 60%. What were some of the since disproven predictions? Why do people read and follow some of this stuff? Although analysts also have predictions that prove true, if you have a hedged portfolio strategy why should you even care what people are saying? Discussed in the...

Jay Pestrichelli and Derek Moore are back to walk through several examples of how we hedge concentrated stock risk. Various techniques like direct hedging, covered calls, volatility selling overlay, and more are talked through. See how it would play out with stocks like Conagra, Apple, and Proctor and Gamble where they explain targets and outcomes when hedging was needed and when it wasn't. What a...

ZEGA Financials' Jay Pestrichelli joins to discuss how risky single stocks are and how we have developed a system to hedge that risk. Some people want to hold concentrated stock positions due to tax consequences and are reticent to sell. See how using a hedging strategy can help manage risk, schedule diversification, and use hedging profits to buy more shares otherwise known as the hedger's opport...

You might have read that covered calls are a good way to hedge. They do have utility for investors, but they are not an optimal hedge. Understand how they only minimally reduce the downside while reducing the upside. Plus, see how low interest rates have undermined call premiums.     What are covered calls? How much do covered calls hedge the downside? How do covered calls cap upside moves? Exampl...

Recently I found several different research pieces showing how at the very lows of the Great Recession in 2009 the percentage of funds in money market funds was at its highest. In 2009 the fund flows to bonds were greater than the previous 5 years combined. So why with equities so cheap did people stay in cash or bonds? Wouldn't they want stocks when they were cheaper? This highlights how investor...

You here quite a bit of talk about the top 1% of wealth in the media. But what if it was easier than you think to land yourself into the top 10% of wealth in the United States and across the world? Derek Moore takes you through the numbers explaining what asset levels it takes to get into various percentiles of net worth and runs the numbers on what type of assumed growth rates and contributions i...

Post corporate tax cuts of 2018, share buybacks have been talked about both in positive and negative lights. Some think companies should use their free cash flow differently. But how do share buybacks benefit shareholders by boosting earnings per share? Key  Takeaways: What are share buybacks? How share buybacks increase earnings per share or EPS Similarities between dividends and share buybacks H...

No one likes paying capital gains tax (although better than losses). Yet what if you were paying on gains only due to inflation where your purchasing power didn't grow? Recently some U.S. Senators wrote a letter to the Treasury Secretary Steve Mnuchin urging him to consider indexing capital gains for inflation. What would that mean for individual investors?     What would it mean to index capital...

Debit and deficits continue to be in the news. This includes funding levels for public state pensions. But what does it mean to be underfunded or overfunded? What discount rate or investment return assumptions are they using and are they realistic? Derek Moore discusses and simplifies what makes up this discussion and ways that they could get on track.   What makes a pension underfunded? Are inves...

It seems like lately there has been more an more talk about interest rates moving closer to zero in the U.S. So which bonds will move the most when rates move lower (or higher)? Derek talks through various types of bonds and how they are different plus see how to tell how much a change in rates can hurt or help investors holding bonds. We even touch on bond convexity!   How do interest rates chang...

Companies can issue debt via bonds to raise capital. But how can you tell whether they have too much debt issued? What are some key ratios to look at to evaluate for yourself? Derek Moore explains how interest rates effect the cost of capital (WACC) and how to see when a stocks debt is maturing and what interest rates they must pay. And what are Zombie Companies?   Interest Coverage Ratios Debt Ra...

Commentators on CNBC are always opining about whether a market is overvalued or undervalued. But how would you look for yourself to make your own opinion? In this episode Derek Moore reviews the S&P 500 Index earnings per share, forward earnings estimates, PE Ratio, Forward PE ratio, and more. Plus, a review of what composes earnings per share growth including margins, share count, and revenue. Le...

Lately commentators have been trying to predict the next recession. But what would you look at to try and tell for yourself what the numbers are? In this episode Derek Moore reviews the 5 areas that the NBER per their site uses to develop their criteria to call recessions.     What is a recession? NBER historical list of recessions Real GDP Growth Rate Real Median Income Growth in the U.S.   Unemp...

How risky is just holding a single stock in a portfolio? Often either through company stock grants or holding company shares for very long periods where it has appreciated investors may wind up holding either a single stock or just a few. This creates single stock risk and has both systematic stock risk and idiosyncratic stock risk. Derek Moore reviews how the volatility via the standard deviation...

Derek Moore explains the theory of time decay in options otherwise known as options theta. How does the erosion of time decay benefit option sellers? Plus, how much do position decay from day to day. How much of a factor is theta time decay relative to other things like volatility and underlying price movement? And how does options time decay work over weekends and long holiday weekends with regar...

Derek Moore and Jay Pestrichelli team up once again to discus how probabilities are used to understand where to sell short options to generate premium. Discussed in this episode are who is on the other side of the short volatility trade, how changes in implied volatility impact expected multiple standard deviations of expected movement, and how value at risk VAR impacts option premiums. Plus, they...

Jay Pestrichelli once again joins host Derek Moore to discuss all things hedging and options. This week they talk through some surprising data Jay compiled that shows markets are within 3% its all-time highs 36% of the time. Many people like to try and time the market thinking markets are too high. Another data set shows often markets never get a pullback during bull runs. Plus, Jay and Derek test...