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How to Gift Shares for Christmas

How to Gift Shares for Christmas

by | Dec 20, 2020 | Your money, Money and children

Why not give shares for Christmas or birthday presents?

They don’t clutter or take up space, and it’s the type of gift that keeps on giving.

If you select shares in some good companies, they’ll hopefully increase in value over time.

But more importantly than that, you are gifting interest, knowledge, and experience with the stock market.

Hooked? So how do you actually give shares to someone? 

Here are some ways you can do it.  

1. Create the Trading Account and Buy the Stocks for the Person

If it’s your own child or grandchild under 18, it should be pretty easy to set up the trading account and just buy the shares for them. 

Grandparents might need a photocopy of the children’s ID from the parents, but once they have that, they can open a savings and investment account in their own bank and buy shares for the children. 

This is the easiest way to gift shares.

2. Buy the Shares and Transfer Them Electronically

This method is a little more complicated.

You’ll encounter a bit of bureaucracy at the banking level and some high fees, but it’s doable. 

There are options other than old-school transfer today though. There are some apps that make it easier to buy shares as a gift.

You can look up SparkGift, Stockpile, and Public. They even make it possible to buy fractional shares and give them through the apps. 

3. Open an Account and Buy the Stock Together

An alternative is doing it together. You can coach the person through the process of opening a trading account and buying a share. 

If the person is a newbie on the stock market, this is like a double gift: You offer the stock and some basic knowledge about how the stock market works.

Many newbies freeze when they see an online platform because they don’t understand the language. What’s limit? What’s market? They become afraid of doing something wrong, and some people never get past that level. 

You can get them over that hurdle by investing an hour of your time.

4. Give an Investing Course Instead

What about gifting some investing knowledge either along with the stock or instead of giving shares? 

The best investment you can make is investing in your knowledge. The master investor Warren Buffett said something to that effect (the exact quote: “Ultimately, the best investment you can make is in yourself.”).

A stock can fall in price, but knowledge never depreciates in value. After all, it’s knowledge of the stock market that makes you able to make good investment decisions.

Have you considered giving an investing course as a present?

5. Gift the Stock Together with the Physical Product

It might be a little boring to receive an envelope with information about a stock – especially for children.

In that case, what about giving the stock in combination with the product?

Gift Nike shares with a pair of Nike shoes, Apple shares with the new iPad, or Disney shares with an Elsa (Frozen) outfit?

Tell the child, “You own the McGuffin/the gadget/the iPad/the game station, but even better than that, you now own the company that makes it.”

That’ll wake them up. Believe me. I’ve tried it. 

They’ll go, “What?”

Then you can say. “Well. Part of it.”

You’ve got their attention now. Then you give them the envelope. 

If I had bought a share or two for myself and my nieces and nephews for every item they put on their wish list, we would all be very rich by now.

Looking back, I can see now that my teenage nieces and nephew had very good antennas for wonderful investments.

If I had invested in Appple when my nephew was aching to get the first iPod on the market, I would have had a wonderful return (Apple was trading at less than 40 cents a share in 2001). Or if I had invested in Nike when the sneakers were on my niece’s wish list (around 5 USD per share then). Or if I had invested in Amazon when I gave my first Amazon gift card at Christmas in 2001 (around 10 USD per share).

No use crying over spilt milk, but we can do it differently going forward. 

Look at the items on the wish list. Do you spot any companies that are public? Could they be good investments?

How Much Can You Give? 

We usually don’t give taxes much thought when we’re wrapping Christmas and birthday presents, but when you give stocks, you have to be mindful of the tax laws in your local country.

Gifting stocks is like giving money, and the rules are different from country to country. You might incur some taxes, so look up the tax regulations. 

In the US, you can give 15,000 USD without triggering the gift tax (2020).

In the UK, everyone can get a cash or stock gift of 3,000 pounds without triggering taxes (2020). 

Before you get a headache about taxes, just remember, the stock is just part of the gift.

You’re also giving interest and experience in the stock market. 

Don’t forget to download my e-book Free Yourself.  It’ll teach you how to calculate how much a company is worth. You can get it here. 

Your Quick Guide to Investing in IPOs

Your Quick Guide to Investing in IPOs

by | Dec 13, 2020 | Value investing

Investing in companies going public on the stock exchange can be very alluring.

Many private investors dream about hitting the next jackpot, like Amazon, Microsoft, or Google.

Did you know that if you had invested 18 USD in Amazon’s initial public offering (IPO) in 1997, you would have more than 12 million by 2020?

The truth is that for every Amazon and Google, there are thousands of stocks that completely flop on the stock exchange.

Many IPOs fall flat within a year of going public.

In fact, studies have shown that you would be better off investing in an index than investing in IPOs.

Why is that? What are the shortcomings of IPOs?

  • The companies are expensive 

Companies only go public when the market is at a high level. The people selling the company want to get a good price for what they are selling. Many IPOs take place at the end of a long bull run. You simply cannot find an IPO that is cheap. 

  • IPOs come with professional salesmanship that’s hard to resist

It’s expensive to take a company public. The company has to make a prospectus and get help from an investment bank. There’s a lot at stake and highly professional marketing behind this whole process. It’s hard to resist IPO salesmen. 

  • Private investors’ own dreams of hitting a jackpot pump the price up

There’s so much excitement about an IPO, and it’s hard not to get carried away. You sometimes see that the stock trades at a high price just after going public, only to crash a few weeks or months later. Why is that? Investors hope that the IPO is the next big kill, and they’re afraid of missing out from the get-go.

Still interested in IPOs? Well, you can still invest in them, but you have to be careful. 

What are some rules you should set up for yourself when investing in IPOs?

Here are a few:  

1. Check the Prospectus  

So many private investors don’t even look at the prospectus before buying those hot IPOs. That’s the biggest no-no of them all.

You have to open the books and look at the numbers.

At first, you just glance through them to try to figure out if you should proceed and research some more.

Does the company even make money? Many companies going public are actually not profitable.

Don’t presume that the company you’re interested in is profitable just because the management talks of a glorious future and some analysts predict they’ll become the next big thing.

That’s just hot air from crafty salesmen. You want proof. 

2. Follow a Checklist 

In theory, you should do exactly as you do when investing in any other public companies. You should follow a checklist to make sure that:

  • The company is growing and profitable
  • They have competitive advantage
  • You like the management
  • They haven’t run up too much debt

 That’s just the beginning. You can download my checklist right here.

The goal of the check list is to ensure that you invest in a company that will be bigger in ten years. Keep that in mind. 

3. Calculate What It’s Worth   

Even the best company can be a lousy investment if you buy it too expensive.

Many IPOs get hyped and sell at a very expensive level.

You can learn how to calculate what a company is worth in my e-book right here.  

4. Limit Your Exposure 

Don’t invest more than you can handle losing.

IPOs fall in the category of risky investments, and you shouldn’t place more than 10 percent of your investable capital in risky investments.

It’ll be volatile and unpredictable. Placing a significant amount of your wealth in an IPO is like eating lollipops for breakfast – it will make your blood sugar unstable and make you irritable all day. You might even have trouble falling asleep at night because your heart is racing. 

Having a huge share of your portfolio in an IPO will make it all very unstable, and you run the risk of losing your cool.

Consider the money you place in an IPO money lost. It’s almost as risky as betting in a casino. 

Other Jackpot Investments

Studies have shown that investing in a fund that matches a stock index is, generally speaking, a better investment than IPOs.

In other words, you are more likely to hit the jackpot by betting on a decent ETF than betting on IPOs. 

Also, remember you might get a much better shot at the IPO later on when the company has matured and proven itself as a business. 

Many IPOs’ stock prices plummet later on. The company might become cheap when going through some kind of event or going through a general market crash.

After the dotcom bubble, Amazon fell from 110 USD per share to 6 USD per share. It was a much better and more secure investment in 2001 than in 1997 (the internet was still a bit exotic in 1997, but by 2001 everyone knew who Amazon was).

Finally, don’t forget that there are many other companies out there that can become very lucrative investments.

Did you know that if you invested with Warren Buffett’s Berkshire Hathaway from 1964 until 2020, you could have turned 10,000 into more than 200 million?

Berkshire Hathaway never had an IPO and never invested in IPOs. 

Buffett bought up all the shares of an old textile company and turned the shell into an investment company. He avoided all the pomp and glory of an IPO and tiptoed through the back door. 

You can learn to invest like Warren Buffett by downloading my e-book Free Yourself. You can get it for free here. 

How to Reduce Taxes on Stocks

How to Reduce Taxes on Stocks

by | Dec 6, 2020 | Your money, Investing in stocks

Taxes can eat up a big chunk of your capital gains, and they really affect the long-term effect of compounding. 

The good news is that there are steps you can take to minimize the taxes you pay on stock gains. The tax regulations are different from country to country, and I’m trying to generalize, but most of the examples that I use are from the US tax system.

Let’s get cracking. Here are a few things you can do.  

1. Maximize Your Contribution to Accounts that Offer Tax Advantages

In most countries, there are some kind of savings accounts that give you tax advantages.

These could be 401(k) plans where you can contribute a part of your paycheck before taxes, thereby reducing the amount you have to pay taxes on (if you are self-employed, the equivalent is a SEP IRA).

This could also be a Roth IRA that lets you contribute money you already paid taxes on, where your money can grow tax-free. In other words, putting money into an Roth IRA doesn’t reduce your taxable income the year you make the contribution, but you get a tax benefit on the back end.

The UK equivalent would be an ISA account.

These types of accounts have a different name in every country, so you should research your options and take advantage of them. You might want to call an accountant or call your local tax authorities to learn what accounts that offer tax advantages are available to you. 

2. Invest Long-Term

If you don’t sell your stocks, you don’t pay taxes on them. 

Did you know that Warren Buffett pays a lower tax rate than his secretary? How come one of the richest men in the world doesn’t pay a lot in taxes?

That’s because Warren Buffett doesn’t sell shares.

Warren Buffett’s income is actually very modest. His annual salary from his company Berkshire Hathaway is just $100,000 a year, and his secretary is rumored to make at least $200,000.

Warren Buffett’s wealth comes from holding just one stock: Berkshire Hathaway, and he doesn’t sell it – which means he pays no taxes on his accumulating personal wealth.

Some countries give you a more favorable treatment if you are a long-term stockholder. In the US, you pay regular income tax on a stock you hold for less than one year. If you hold it for one year and a day or more, you pay capital gains taxes, which are lower than regular income taxes. 

3. Combine Gains and Losses Strategically 

If you have an investment that has gone bad, you can sell it off strategically to offset capital gains.

If you sell shares with a loss in your taxable brokerage account, that loss can help offset other short-term or long-term gains. 

How does that work? In most countries, you only pay taxes on your net gain (the amount you have realized in gains minus your losses). So if you know you have some realized gain, you have an opportunity to realize some losses too to offset that gain. This is called tax harvesting.  

Of course, you don’t want to have any losing position on purpose just to avoid taxes, but if you happen to have an investment that didn’t go as planned, you can be strategic about when you sell it.

4. Structure Your Investment for Tax Efficiency

On some accounts, you don’t pay taxes, and on others you do.

You can position your investments so you get the best of each system. 

Why not place the very long-term investments in your taxable brokerage account where you only pay taxes when you sell them?

Why not place dividend paying stocks or short-term investments in your Roth IRA, where you don’t pay taxes? 

Don’t Let Taxes Overshadow Your Investment Strategy

You should buy or sell investments based on your belief that they will gain or lose value over the long term. Don’t make investment decisions just to reduce your tax burden.

Taxes are a luxury problem. If you pay taxes, it means you’ve made money. Don’t forget that. Be grateful for it.

Also remember all the things you contribute to with your taxes. Like my uncle used to say, “I pay my taxes with gratitude.” 

I’ve thought a lot about that during the COVID-19 pandemic.

I live in a country (Denmark) with one of the highest tax rates in the world, but also in a country with one of the best free healthcare services in the world. I’ve been fortunate enough to feel safe throughout the pandemic – and that means a lot when you have small children.

I try to pay my taxes with gratitude and think of how I contribute to society.  

Don’t forget the e-book Free Yourself.  It’ll teach you how to calculate how much a company is worth. You can get it for free here. 

Three Ways Stocks Can Boost Your Career

Three Ways Stocks Can Boost Your Career

by | Nov 29, 2020 | Mindset, Value investing

This blog is about investing in stocks so you become financially free.

What does that really mean? Do you invest so that you can laze around on the couch all day and let other people do the work? 

No, not at all.

You can use stocks as a tool to get a better life with a better variety of choices. This eventually means you can use stocks as a tool to get a better career. How can investing help you create a better work life with richer opportunities?

I’ll show you how by giving you three examples from my own career of what NOT to do – and what to do instead.

1. You Have More Guts

The biggest mistake I made in my previous career (I was a business journalist in my previous life) was not setting clear boundaries in my job.

There was a specific situation where I should have resigned on the spot. I had applied for another job at the same newspaper. The business editor got word of it and was very upset with me for wanting to leave his section of the paper. He called me into his office and declared two things.

A. He didn’t recommend me for the position.

B. From that day on, I was covering the retail sector instead of banks – which was a clear demotion.

It was such a vindictive and unjust act, and I should have left the paper on the spot. Yet, I didn’t. 

I swallowed the humiliation and went back to work. I didn’t even express my dissatisfaction to coworkers. Why? Because I was afraid. I feared losing my monthly salary. I depended on it.

If I had been financially independent, I would have made bolder moves – and in that particular situation, resigned right there in his office. Before leaving I would have had a word or two to say about it. 

What about you? If you didn’t have to, would you still keep the job that you have today?

2. You Can Take a Sabbatical Year to Study and Improve Your Skills

If you are financially independent, you can take a year off to refine your skills – or to study something new. 

About 10 years into my career, I began dreaming of applying for a fellowship in business journalism (the Knight-Bagehot Fellowship). It remained a thought – I never applied. Why? Because the financial implications of studying and living in New York for a year (which I had already done once in my life) seemed financially crippling.

Yet, in hindsight, it would have been exactly the right move at the time. It would have given me time to reflect and gain new skills, new ideas, and inspiration. Who knows, maybe I would have stayed in the US where the opportunities were richer. 

Most people don’t take time mid-career to refine or renew, exactly because of the financial obligations that they have. They have mortgages to pay and have somehow become dependent on having a decent monthly salary.

If you could take a year off to study anything you want, what would you study?

3. You Gain Tools to Analyze Your Employer 

When I found myself facing a dead end in my career as a newspaper journalist in Denmark, I hired a coach to figure what to do about it.

I spent hours explaining what had happened at work – in particular my power struggle with the business editor – which felt like an entangled knot that I couldn’t quite figure out how to unwind. 

After several sessions, the coach asked me one simple question: “Would you consider working in an industry that isn’t in decline?”

I was taken aback by the question.

I was expecting my coach to concoct a complicated strategy to overcome the obstacles and power struggles so I could prosper and succeed. Yet he thought I should catapult myself out of there. 

He went on to explain that it’s a hopeless battle to try to make a career in a world of dying dinosaurs. You’ll get trampled as they stumble and fall. Industries and companies in decline make terrible workplaces. It’s far easier to have a great career in a company in the early stages of growth. 

I already knew that print papers were struggling, but for some reason I hadn’t connected the dots to the challenges that I was experiencing myself. I was so focused on studying my situation through a magnifying glass that I had forgotten to take a ride up the elevator to see the problem from a distance. 

When you invest in an individual company, you’ll look at the annual report and make sure it’s a company with growing sales and growing profit. If it’s not, you should stay away from investing in it.

It’s really important to have a bird’s eye view of the company you’re considering buying stocks in.

You have to assess whether you’re dealing with the best company in the sector, and whether they’ll grow to be even bigger the next decade or two.

I would never have invested in a local-language print newspaper with diving subscriptions, an endangered customer base, and an outdated business model giving customers the news a day after the rest of the world.

Then why would I devote my life to it? 

What about you? Have you considered whether you would invest in the company you work at? Have you analyzed your own employer?

You can learn more about how to analyze companies in my e-book Free Yourself here.

Don’t forget the e-book Free Yourself.  It’ll teach you how to calculate how much a company is worth. You can get it for free here. 

Warren Buffett’s Top Stock Picks

Warren Buffett’s Top Stock Picks

by | Nov 22, 2020 | Value investing

Buffett is all about buying stocks that are cheap and keeping them for the long haul.

This investment strategy has made him one of the world’s richest men.  

What does his stock portfolio look like right now?

The good news is that you can easily look that up on various websites (I’ll tell you how below).

The bad news is that not all the stock picks are his.

He has two apprentices – Ted and Todd – working for him, and they both have double digit billion portfolios to manage themselves. Sounds like a lot of money, right? But that’s peanuts in Buffett’s world. He has close to 150 billion waiting in cash right now, ready to be invested in what he calls “an elephant size” acquisition.

Warren Buffett’s company Berkshire Hathaway has stocks in 49 different publicly traded companies (plus 63 wholly owned subsidiaries).

It’s safe to assume that the top seven are his own investments.

Here they are:  

1. Apple 

Warren Buffett has been being Apple shares since 2016. The stock price has tripled since then.

He owns almost a billion shares that, at the time of writing, are traded at 117 USD per share.

That means his slice of Apple is worth more than 100 billion dollars.

That’s really a lot of money, and it makes Apple one of his biggest investments.

Apple makes up almost 50 percent of the value of all the stocks and shares that Berkshire Hathaway owns in publicly traded companies. 

2. Bank of America

Bank of America is a very interesting company on the list.

While Buffett seems to be selling most other banks and financial services since the COVID-19 dip in March, he is very actively buying up shares in Bank of America. 

His actions seem to be telling us that Bank of America is his bet for the future.

He has more than a billion shares, and they account for more than 9 percent of Berkshire’s portfolio of publicly traded companies. 

3. Coca-Cola  

Coca-Cola is one of Warren Buffett’s most notorious investments, and it goes a long time back.

He first invested in the soft drinks company in 1988 when the share price was depressed due to the flopped innovation called “New Coke”. At the time, Coca-Cola felt threatened by Pepsi’s sweet version of a coke, and they remade their own soft drink into a more sugary version too, but customers disliked it.

They had to go back to the original Coke after a while. 

Warren Buffett’s investment in Coca-Cola was a massive bet at the time. He bought 24 million shares worth 1.8 billion dollars – and he wasn’t as big as he is now. Berkshire’s book value at the time (1989) was 4.9 billion.

Would you bet around 20 percent of your wealth on one single company? It says a lot about how bold an investor he really is.

Today, Coca-Cola makes up almost 9 percent of Berkshire’s portfolio of publicly traded stocks.

4. American Express 

Warren Buffett first invested in American Express after the so-called Salad-oil scandal in 1964 that made all financial stocks fall rapidly. 

American Express fell with the market, and after a drop of around 50 percent, Warren Buffett stepped in and bought shares.

He has invested in American Express many times after that.

Today, American Express represents 7 percent of Berkshire Hathaway’s portfolio of publicly traded stocks. 

5. Kraft-Heinz   

Warrren Buffett has very publicly said that he is happy with Heinz but paid too much for the Kraft part of the consumer product giant – and that he would have sold it if he could. 

Obviously, he couldn’t. It’s still on the list and makes up for around 4 percent of the stock portfolio.

6. Moody’s    

Moody was originally a spin-off of another investment he had (Dun & Bradstreet – he has since sold that). 

After the financial crisis, he sold some of the shares, maybe because Moody’s was criticized for being too generous with their ratings and indirectly having contributed to creating the housing bubble that preceded the financial crisis.

Today, Moody’s totals 3 percent of Berkshire’s portfolio of publicly traded companies. 

7. U.S. Bancorp    

Warren Buffett has invested in U.S. Bancorp for many years, but after the COVID-19 dip in March, he has sold off slices of it together with many other banks. He has, for example, completely exited Goldman Sachs – as well as all the airline companies he had stocks in. 

Today, U.S. Bancorp amounts to 2 percent of Berkshire’s portfolio of publicly traded companies. 

All the Others

Berkshire Hathaway owns shares in 49 publicly traded companies, but many of the other positions are investments that Ted and Todd have made.

Ted Weschler and Todd Combs have a completely different investing style from Warren Buffett. They invest in things that he has always avoided, like pharmaceuticals, IPOs and fintech. 

Berkshire Hathaway also has 63 fully owned subsidiaries, such as the insurance company Geico, the sports label Brooks, the battery producer Duracell, and the chocolate factory See’s Candies.

How to Look Up Buffett’s Stock Portfolio

The original source is the Securities and Exchange Commission’s website SEC.Org. You’ll get the most reliable data from their site.

The problem with SEC’s site is that it’s not very user-friendly. It will only give you a status update of what Berkshire has stocks in – not what they sold or bought in the last quarter. That means you have to compare data quarter by quarter to figure out what is going on. Also remember, you can only search by company – not the investor’s name. 

There are other websites that make SEC’s data more accessible. They are GuruFocus.com, Dataroma.com, and WhaleWisdom. On these websites, they’ll show you the development and let you search by the investor’s name. 

Don’t forget the e-book Free Yourself.  It’ll teach you how to calculate how much a company is worth. You can get it for free here.