What's Your Cash Really Worth?
One of the highlights of our beach week on Amelia Island is a restaurant called Shuckers. Pretty good oysters, generally, and that can be a challenge for the warm waters of the southeastern Atlantic. They were admittedly a little bland last Tuesday night.
But we're not cooking or cleaning up, there's fried okra, and the catch really is local and fresh.
My brother and cousin and I go to pay the bill, and I seriously almost fell out of my chair when my cousin pulled out a big wad of cash! Basically, he is a Charleston, SC, lawyer who should know better than to pay for dinner with cash. Even if it is only 130 bucks.
Actually, especially if it's "just" 130 bucks.
Because for many of us, $130 is what you might call "I deserve it money." Or "WTF" money, if you prefer. Take the fam for dinner and a movie, and *poof*...
Put that meal on a low-interest credit card that you pay off every single month. Take that cash and send it to your online broker. You can't buy stocks on credit. So the cash you spend on mundane stuff like dinners out, gas, and movies will never go to work for you.
Now, obviously, to say that there's a big difference between cash and credit that you pay off every month is a little silly. You get paid by a direct deposit of cash into your bank account. That cash pays the bills, whether it's a credit card bill or a direct cash payment for groceries or gas.
But think of it this way: Cash is losing value every second it sits in your pocket. It's not earning interest. It's not invested in a growing business. It's losing value at an annual rate of about 1.5%.
Laugh at that 1.5% if you want. But while we were enjoying our pre-game cocktails, one of my favorite stocks was reporting blowout numbers and gapping up by about 15%, from ~$24.90 a share to $27.50.
1.5 + 1.5 +1.5 + 1.5 = Dammit, Why Didn't I...
The company is Invitae, an emerging genetic testing company. Jason and I recommended it in The Wealth Advisory back in 2016 at $6.55 a share. We wrote it up here in Wealth Daily on January 11, 2017. Wealth Advisory subscribers took 45% profits back in 2017. And we got back in at $12.50 last year.
Clearly, the 99 bucks you spend for an annual Wealth Advisory subscription fee really will work for you. (What, I'm gonna ignore a chance to plug my meal ticket?)
Now, I didn't know Invitae was gonna blow it out last Tuesday. And I don't know where Invitae will be trading next year or five years from now.
But I know genetic testing is a huge part of the future of health care. I know cancer drugs that can be formulated to fit your personal genetic makeup are way more effective. I know most insurance plans now pay for genetic testing. And I know Invitae has tripled the number of tests it has sold in the last three years...
So call me crazy, but I think the money you entrust to Invitae is gonna get treated pretty good...
That $130 my cousin spent on oysters would've bought 10 shares of Invitae when we recommended it nine months ago at $12.50...
In some kind of modern Manhattan deal, you might've traded those 40 oysters for six shares of NVTA at $23 right before earnings or four shares at $27 after the big day.
I'm not telling you to never eat oysters. I 100% believe you should treat yo'self every once in a while. Just buy the stocks first, with cash. Because oysters will taste good anytime. But the best time to buy stocks is usually yesterday.
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I don't know if you've noticed, but markets have been kind of weak lately. I don't mean to make light of it — the stocks I own are losing value, too.
But it is times like these that it is very helpful to ignore the current market value of the dollars you have invested. Because as stock prices fall, actual cash in your brokerage account gets more and more valuable.
Let me explain that a little. For starters, as stock prices fall, you can get more and more stock for your dollars. Dividend yields are growing, too. That is a wonderful thing. And if you have cash in your account, you should be cheering the price drops. Your money is getting the chance to work even harder for you.
Now, about that money you already have invested. You know, the money whose value you're watching fall...
There comes a point for many investors where the loss of value becomes more than they can bear. And it feels like the only way to stop it is to turn those shares back into cash. But when you do this, you are saying that the cash is more important than the shares. This can be a very expensive mistake.
Look at it this way. Suppose you put all your money in Starbucks at $100. And then the stock trades down to $80. You've "lost" 20% of your loot. But is Starbucks going to sell 20% less coffee? Is it suddenly closing 20% of its stores? Will Starbucks have to cut prices (or its dividend) by 20%?
Cash money is worth what it is, and that value is constantly being deteriorated. Shares in a great company always have potential. Because great companies sell great products that more and more people will want. So revenues rise. And great companies are able to make their products with increasing efficiency so that profit margins and your dividend payments can rise.
Cash money can do none of this.
Of course, it matters at what price you buy a stock. The more expensive the stock, the less potential it has. So again, look at these falling prices as an opportunity. Take your oyster money and send it to your brokerage account. Stock prices are getting tasty...
Until next time,
A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.
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