Inverted Yield Curves. Time to Panic?

With the recent short-end (3yr-5yr) yield curve inversion, more and more financial talking heads are talking about this being the beginning of the end.  The 10y-2y hasn’t inverted but “seems” to be getting close (today the spread got down to 12 basis points = .12%)

We’re not worried. We’re not even close to a recession or a crash.

Yield Spreads will be covered more in depth as a recession indicator, but for now just know that people dropping this term on TV are doing it to sound smart and scary and we’ve got quite a bit of wiggle room before an inversion. Also “the 10 year-2 year yield spread, hasn’t inverted yet and typically precedes recessions by an average of 16-18 months, we’ve got time” will guarantee you sound like a total badass in a bar conversation.**



See below for more wild and wacky financial porn!

Signal or Noise? Yield Curves, Economic Growth and Stock Prices

What the Inverted Yield Curve Means (and Why You Shouldn’t Worry About It)

The yield curve is flattening … just like it does every Fed hiking cycle




**Use with caution, that quote is basically Sex Panther with words.


Nearly everybody we’ve spoken to for the last week has been talking about how scared they are (or pissed off) when they look at their 401k’s. The market has been acting like shit and nobody seems to know who to blame first. The truth is, there are a few catalysts (as always) including the government shutdown, Apple (AAPL) slashing orders on the iPhone, Mattis resigning, the trade war, etc. It doesn’t matter though, not in the long run.

The fact that everybody is freaking the f*ck out is EXACTLY the kind of reason we’re not worried about a dot com or 2008 crash. Several things, tend to happen preceding the major crashes. A recession begins, the yield spreads have already inverted, the leading economic indicator is down, etc etc technobabble. For the layperson though, what you really want to know is this: when NOBODY is worried about their stocks going down, they crash. Bull markets end with a period of euphoria. Nobody in their damn right mind would call 2018 euphoric before stocks dumped off. This is what’s referred to as a sentiment indicator and how the big money makers bet against the crowd. You have to remember that in the beginning of learning, you are the crowd. So rest assured, this is just a correction. It may take a while to bottom out and it won’t feel good, but there is no reason to panic.

Please bear with us when news updates are few and far between. Alottt of research is being done at the moment to help in consulting clients and plan future lessons. We will be covering the real crash warning signs in-depth in the future.


What are Analysts Expecting for 2019?

  1. First off, they’re bullish on Energy above all else. That wouldn’t be too hard considering the smack down laid down on oil in October. Energy is followed by healthcare (another big shocker), communication services, and materials.
  2. Broad market expectations are mixed. With S&P 500 target estimates ranging from 2,705 to 3,350.
  3. If you read the above two things you realize that nobody knows nothin’… Earnings are expected to slow down as well as economic growth and we’re in for a hell of a lot more volatility. Time to sell premium (if you know how… and if you don’t stay tuned)

Factset’s Breakdown of Analyst’s Most Highly Rated Sectors and Companies

Barron’s Thinks Wall Street is Getting Bearish

Ed Yardeni (Forecasting Genius) Thinks Wall Street is Way Too Optimistic About Earnings

FinancialSamurai’s Roundup of Analyst Targets

Forbes Actually Has A Few Decent Stock Picks for 2019


Mohnish Pabrai’s 2019 Free Lunch Portfolio

Hedge Fund Manager Mohnish Pabrai (Dhandho Capital Management) has just released his new stock picks for his 2019 set it and forget it style portfolio. If you are looking for stock picking ideas to do some homework on, this is a great start. Otherwise, you can do like he suggests and just equal weight all 15 picks. Note: the 2018 portfolio vastly under-performed in 2018.

The New 2019 Free Lunch Portfolio

We are now ready to rebalance the Free Lunch Portfolio for 2019. Here are the constituents for the upcoming year:

Uber Cannibals (companies aggressively buying back stock)

  • Corning Inc. (GLW)
  • PulteGroup (PHM)
  • Sleep Number (SNBR)
  • Discover Financial Services (DFS)
  • Lear Corp. (LEA)

Shameless Cloning (stock ideas from hedge funds)

  • Charter Communications (CHTR) – From TCI Fund Management
  • Citi Group (C) – From ValueAct Capital
  • Micron Technology (MU) – From Appaloosa Management
  • Alphabet (GOOGL) –  From Sequoia Fund
  • Berkshire Hathaway (BRK.B) – From Markel Insurance

Spinoffs (corporate stock spinoffs)

  • Hamilton Beach Brands Holding (HBB)
  • DXC Technology (DXC)
  • Varex Imaging Corp. (VREX)
  • Hilton Grand Vacations (HGV)
  • Delphi Technologies (DLPH)

If you are a new investor to the Free Lunch Portfolio, you can just equal weight these 15 stocks (i.e., invest the same amount of money in each of these 15) in early January 2019.”

For more background on the Free Lunch Portfolio, see the Forbes articles below.

The 15-Stock ‘Free Lunch’ Portfolio

Move Over Small Dogs Of The Dow, Here Come The Uber Cannibals

Beyond Buffett: How To Build Wealth Copying 9 Other Value Stock Pickers

Spin Gold From Spinoffs: A Portfolio Of 5 Castoffs Trounces The S&P 500


Free Lunch Performance 2000 – 11/30/2017


Tax Loss Harvesting (Part 1 of How to Reduce Your Tax Bill like the Big Boys)

In the interest of saving time, a course of in-depth lesson breakdowns will come a bit later. In the meantime, we’ve attached a few articles to help out as an introduction to something most of you have never heard of. WARNING: this stuff is boring as hell… but if you truly want to get a better grasp on the types of things that separate the wealthy from the middle class, this is a must. You probably also don’t want to get an IRS bill saying you owe for something you didn’t know about. Note that Real Estate Tax Strategy is vastly more complicated and will come at a later time.

Now is a perfect time of year to learn the difference between Short Term vs. Long Term Capital Gains and FIFO vs LIFO (first in, first out vs. last In, first out) if you’re new. **Be EXTRA sure to read carefully about wash sales.** More investors get screwed over by these rules than anything else this time of year. Simply put, you can’t just sell something for a capital loss just for the tax benefit and then buy it right back within a month.

Quick Overview on Capital Gains

Short Term vs Long Term Capital Gains

Understanding Tax Lots (TD)

Tax Loss Harvesting (TD)

5 Tax Loss Harvesting Considerations (Fidelity)

How to Avoid Violating Wash Sale Rules

Taxes on Dividends

Basic Capital Gains Tax Calculator

Top Secret Portfolio Recipes (Asset Allocation)

Ok, some of these aren’t a secret. This page could also be called as “Don’t buy a book that makes you read 200 pages of boring shit just to get an allocation recommendation.” First and foremost, a lot of these are absolute garbage. The reason they’re being posted is so that more people will realize that books and blogs aren’t going to give you a magic bullet for allocation even if they cost an arm and a leg. Not everything you find on this page is hidden in a book, but for the sake of simplicity we’re just going to stuff it all into one page. Realize also, that a few of these have specific rules for entry and exit points which increase the risk adjusted returns.

7Twelve Portfolio – Craig Israelsen
(from 7Twelve: A Diversified Investment Portfolio with a plan)

  • 8.3% Domestic Large Cap Blend
  • 8.3% Domestic Mid Cap Blend
  • 8.3% Domestic Small Cap Blend
  • 8.3% World Total Stock Market
  • 8.3% Emerging Market Stocks
  • 25% Intermediate Term Bonds
  • 8.3% T-bills/Cash
  • 16.6% Commodities
  • 8.3% REITs

All-Weather Portfolio – Tony Robbins
(from Money: Master the Game)

  • 30% Domestic Total Stock Market
  • 40% Long Term
  • 15% Intermediate Term
  • 7.5% Commodities
  • 7.5% Gold

 All-Century Portfolio – Barry Ritholtz
(Ritholtz’s rebuttal to Tony Robbins)

  • 20 % total US stock market
  • 5 % REITs
  • 5 % Domestic small cap value
  • 15 % Pacific equities
  • 15 % European equities
  • 10 % TIPS
  • 10 % U.S. high yield corp bonds
  • 20 % U.S. total bond market

Black Swan Portfolio – Larry Swedroe
(from Reducing the Risk of Black Swans)

  • 15% Domestic Small Caps
  • 7.5% World Small Cap Value
  • 7.5% Emerging Markets
  • 70% Intermediate Term Bonds

Classic 60/40 – Jack Bogle
(The most commonly recommended stock/bond mix)

  • 60% Total US Stock Market
  • 40% Bonds (either Total Bond Market or Intermediate Term)

Coffeehouse Portfolio – Bill Schultheis
(from The Coffeehouse Investor)

  • 10% Domestic Large Cap Blend
  • 10% Domestic Large Cap Value
  • 10% Domestic Small Cap Blend
  • 10% Domestic Small Cap Value
  • 10% World Stock Market (ex-US)
  • 40% Intermediate Term Bonds
  • 10% REITs

Core Four – Rick Ferri
(from All About Asset Allocation)

  • 48% Domestic Total Stock Market
  • 24% World Total Stock Market
  • 20% Intermediate Term Bonds
  • 8% REITs

Coward’s Portfolio – William Bernstein

  • 15% Domestic Large Cap Blend
  • 10% Domestic Large Cap Value
  • 5% Domestic Small Cap Blend
  • 10% Domestic Small Cap Value
  • 5% Europe Total Stock Market
  • 5% Pacific Total Stock Market
  • 5% Emerging Markets
  • 40% Short Term
  • 5% REITs

Global Market Portfolio – Meb Faber
(This is a research based estimate of the global market’s asset allocations)

  • 20% US Stock Market
  • 15% Foreign Developed Market
  • 5% Emerging Markets
  • 22% Corporate Bonds
  • 15% 30-year Bonds
  • 16% 10-year Foreign Bonds
  • 2% TIPS
  • 5% REITs

Gone Fishin’ Portfolio – Alexander Green
(from The Gone Fishin Portfolio)

  • 15% Total US Stock Market
  • 15% US Small Caps
  • 10% Emerging Market Stocks
  • 10% European Stocks
  • 10% Pacific Stocks
  • 10% Short Term Corporate Bonds
  • 10% High Yield Bonds
  • 10% TIPS
  • 5% Gold
  • 5% REITs

Ivy Portfolio – Meb Faber
(from The Ivy Portfolio)

You definitely need the book for the intricacies of how to use this set. Worth the read.

  • 20% Domestic Total Stock Market
  • 20% World Stock Market (ex-US)
  • 20% Intermediate Term
  • 20% Commodities
  • 20% REITs

No-Brainer Portfolio – William Bernstein
(from The Intelligent Asset Allocator)

  • 25% Domestic Large Cap Blend
  • 25% Domestic Small Cap Blend
  • 25% World Total Stock Market
  • 25% Short Term Bonds

Permanent  Portfolio – Harry Browne
(from Fail Safe Investing)

  • 25% US Total Stock Market
  • 25% Long Term
  • 25% T-bills or Cash
  • 25% Gold

Risk Parity Portfolio – Meb Faber
(from Global Asset Allocation)

  • 8% US Large Cap
  • 8% Foreign Developed
  • 35% Corporate Bonds
  • 35% 10-Year Bonds
  • 5% Commodities
  • 5% Gold
  • 5% Reits

Swenson Portfolio – David Swenson
(from Unconventional Success)

  • 30% Domestic Total Stock Market
  • 15% World Stock Market (ex-US)
  • 5% Emerging Markets
  • 30% Intermediate Term Bonds
  • 20% REITs

Warren Buffett Portfolio – Warren Buffett
(from multiple interviews**)

  • 90% S&P 500
  • 10% Short Term Government Bonds

**An important piece of his recommendation is that you dollar cost average into the index. Do not buy all at once. The government bonds are a way to counter inflation vs holding cash.


How Much Money Do You REALLY Make? (aka WTF is Cash Flow?)

There are too many damn personal finance books out there and 99% of them suck ass. In some crazy anachronistic world, if the Nazis had chosen to burn them instead of the books that they did; they may have gotten their OWN gold star.

**NSFW is aware that the above joke could be construed as anti-Semitic and the author has been swiftly kicked in his (or her…) penis.

Most of those books say the same things repeatedly and take up several chapters or even books worth fluffing up easy concepts to get your $29.95. We won’t spend a lot of time on this site teaching you about personal finance and budgeting concepts that have been covered a billion times UNLESS the concept will help you moving forward in terms of learning about more complicated investment ideas. That being said. Here are about 90% of the personal finance books out there summed up as quickly as possible. Side note: throughout this lesson we’re going to throw some jargon at you. Don’t worry about writing it down to remember it. Just read through the whole lesson and it will take hold in your mind much better.




If CASH FLOW = NEGATIVE then too much money is going out. Stop spending so damn much.

If CASH FLOW = POSITIVE (but there isn’t much left over) = You have 3 options. Go on a budget. Make more money. Or Both.

If CASH FLOW = POSITIVE (and there is a lot left over) =  Either 1. You didn’t calculate it right, because like most people you don’t know how much you really spend and you just guessed. Or 2. You’ve done this before (recently) and can skip to the summary.

Thus ends the lesson from most of those books in the finance section at Barnes and Noble.

Money In is the easier part and we’ll run through that quickly. You get paid and get a check, Paypal, direct deposit, etc. Money Out is an idea that probably needs adjusting for most of you. Especially those that originally come from middle and lower income families. When you first get a check from your job, most of you (unless it’s one of your first checks ever) only look at the “net” amount. Meaning the amount you have left after taxes and after health insurance (if you’re lucky enough to have it). That’s all you care about, because that’s all you have left to spend. STOP IT. As of right now, you need to see what you got paid originally, how much you paid in taxes, and what is left over. You are currently looking at money like the “poor” do and we have to shift your thinking for later use.


The MONEY LEFT OVER after taxes, contributions, and health insurance is your NET INCOME from work.

Picture going fishing and throwing a net into some Gross, murky water. What’s left in the Net when you pull it out of the water is what you get to take home with you to eat or throw at children or whatever. That’s a weird, redneck-ass analogy, but it’ll stick. The Net comes out of the Gross water with what you get to take home. Picture, NOW! Don’t just read it and think we’re stupid.

Now we take your your income and we’re going to destroy it with all the crap you spend money on. Now is the time most of you will start guessing what you spend on each of the things listed below. You are wrong. Go look at your bank statements online and get the real numbers for what you’re spending in a month. It’s time consuming and a pain, but everybody who wants to have any money needs to do it at least once. To get an even better picture, do this for the last 3-6 months and average them together.

  • Rent or Mortgage
  • Electricity
  • Water
  • Gas (utility)
  • Internet
  • Netflix, Prime, Hulu, Cable, etc
  • Car Insurance
  • Car Payment,  Metro Bus/Rail Card with reloads, etc
  • Gasoline
  • Renter’s Insurance
  • Food (take a month’s worth of fast food and grocery store trips and add them all up)
  • Child Support
  • Credit Card payments
  • Student Debt payments
  • Gym Membership
  • Cigarettes
  • Any Other recurring monthly expenses you can think of…

Now look at your GROSS INCOME, look at the TAXES and health INSURANCE you paid out, now from the NET INCOME left over, subtract all of those EXPENSES. This money left over is your CASH FLOW.

This cash flow number is what you really make from all the work you do at the end of the day. All of those hours you put in and expenses you pay are just to have the life you have now. You’re going to start thinking of yourself, and the work you do, and the life you live as a business. And it’s probably really depressing to the majority of you… That’s fine. This is just a starting point and now that you understand this concept, you have a lot more to work with and you’ll have a lot more control of the future.


Gross Income =  Money you get paid before taxes and insurance

Net Income = Money left over after taxes and insurance

Expenses= All the stuff you have to pay for

Cash Flow = What’s left over after paying taxes, insurance, and expenses
(aka how much money you REALLY make)