Money Rehab with Nicole Lapin - Greed on Trial, Branson's Backup and Tax Hacks

Episode Date: December 6, 2023

In this week's roundup of the biggest headlines on Wall Street and how they affect your finances: the Supreme Court hears arguments about the Sackler family's personal liability in the opioid crisis, Sir Richard Branson announces he won't be making any more investments in Virgin Galactic and Uber's big day. Want to start investing, but don't know where to begin? Go to moneyassistant.com and meet Magnifi, your AI money assistant, designed to help you make a plan for your financial goals. Want one-on-one money coaching from Nicole? Book a meeting with her here: intro.co/moneynewsnetwork 

Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's B-O-F-A dot com slash N-E-W pros, P-R-O-S, media. B-O-F-A dot com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. It's time for some money rehab. Here's your weekly roundup of the biggest headlines on Wall Street and how they affect you and your wallet. Last week, one of the greatest minds in investing, Charlie Munger, passed away at 99 years old.

Munger was Warren Buffett's business partner in their very successful company, Berkshire Hathaway. Side note, Berkshire Hathaway is a company very much defined by its structure. The company owns stock and equity in a variety of public and private companies. The whole company is also a publicly traded company with two classes of stock offerings, Class A stock and Class B stock. Now, one share of Class A stock is worth a cool half a million dollars. Seriously, Class B stock is worth a more modest $300-ish share. Because of the structure, Berkshire Hathaway functions almost like an exchange-traded fund or ETF. It gives investors exposure to a diverse set of companies without dealing with the sorts of fees that mutual funds have. But the biggest draw of buying Berkshire Hathaway is the access that investors got to investments

guided by Warren Buffett and Charlie Munger. Together, they hone their investment strategy and have one of the most successful track records of all time. And their friendship is goals. Buffett described Munger as the architect of their success and himself as the general contractor. They've known each other for over 50 years, and beyond creating billions of dollars in wealth for both men, it also seemed to bring them a great deal of joy. When Buffett and Munger weren't in the same place, they spoke on the phone for several hours every single day. During the last few months of his life, Munger wrote a piece for CNBC with his three rules for work satisfaction, and I want to read them to you. They simply are, number one,

don't sell anything you wouldn't buy. Number two, don't work for anyone you don't respect and admire. And number three, work with people you enjoy. While I can't claim these tips will make you as successful as Munger was, they are solid life and business advice. Speaking of billionaires with some good life advice for us, let's talk a little bit about Sir Richard Branson. Now, Branson has done a little bit of everything from music to trains to planes to rockets and so much more. Today, let's talk about what he's doing with space. Branson has been exploring, of course, the private sector with a focus on the entertainment aspect. His company, Virgin Galactic, offers commercial flights to the edge of space with tickets starting at 450k. However, Galactic has been forced to cut flights and jobs to save funding for expanding

their plane models. Branson himself has just come out and said that he will not be personally investing any more money into the company. This caused the stock price of Virgin Galactic to fall. At the time I'm recording this, it's trading at less than $2 a share, which is a huge drop from the high of $55 the stock hit back in 2021. In November, Morgan Stanley downgraded their rating of Virgin Galactic, but Goldman Sachs is still recommending advisors to hold onto the stock. If this gives you a little deja vu, reminds you of the golden role we talked about in the Elon episode recently, you're right. When an executive of a company is a household name, it can be an asset or a liability. The stock price of Berkshire Hathaway, for example, dipped slightly when Munger passed away. What I'm inferring from the Branson news, though, is that he sees uncertain economic

times ahead and is making pragmatic moves to shelter himself. In a recession, no one is spending $450,000 to go to the moon. But, hot tip, consumer staples and utility companies tend to fare just fine in recessions because those are the two categories that people can't live without. So keep those on your watch list. Next up, let's check in on the market. After five straight weeks of gains, stock dipped a little bit on Monday the Nasdaq in particular declined in part because investors are selling tech stocks which make up the bulk of the stocks listed on the Nasdaq historically December is a good month for the market while January and February tend to be a little dreary next year is an election year and those skew positive for the markets but not always and. And again, a dip isn't bad. The market is just contracting a little bit after a streak of growth. This is normal. This is healthy activity.

Even during a retraction, there are some bright spots. Uber is joining the S&P 500, and the stock got a bit of a boost on the news. Like the Nasdaq, the S&P 500 is a group of companies that are analyzed as a bundle to represent the broader market as a whole. The companies tracked on this index are the same companies tracked in the index fund SPY, which you've heard me talk about a bunch on the show. To be part of the S&P 500, a company has to meet a certain threshold of profitability as well as having a positive expected future growth. So this is a major milestone for Uber, which was a little precarious and totally unprofitable for many years. The next series of stories I want to update you on are all cases on the docket of the

U.S. Supreme Court. Over the last two weeks, financial cases have been front and center in the courtroom. Last week, the court heard arguments in the Securities and Exchange Commission versus Jarcasy. The premise of this case is that in 2013, hedge fund manager George Jarkesee was charged with committing fraud. Nothing terribly exciting, he inflated the value of funds that he managed by market manipulation and straight up lying, so he and his friends could charge more in fees. And in this case, doesn't actually dispute any of those facts. The SEC brought charges against Jarkesee in their special SEC administrative courts, though not in a federal court. This is the part that Jarkesee is disputing

with support from Elon Musk and Mark Cuban. Both entrepreneurs, as a side note, have had a messy history with the SEC. Once upon a time, Musk settled a fraud charge with the SEC, then regretted it and sued them in regular court and won. Cuban was also sued by the SEC for insider trading in regular court and won. To be clear, it seems pretty obvious that Jarkesey did the fraud he's accused of. But the issue here is if he should have had his day in regular court, not just the SEC's special administrative court. Some SCOTUS experts think that the court will side with Jargsy, but it doesn't seem that this will seriously limit the SEC's enforcement ability. Despite Musk's and Cuban's victories in front of juries, the SEC

has a pretty good track record, and fraudsters like Jargsy are still likely to be found guilty. The big money case on the docket also features some unpleasant main characters, the Sacklers of Purdue Pharmacy. As a refresher, Purdue Pharmacy manufactured OxyContin and other opioids. The company also aggressively marketed these products while downplaying, suppressing, and ignoring the massive addiction risk that these drugs created. The Sackler family who runs Purdue was very much involved in the day-to-day running of the company and made or signed off on many of

these decisions. They also made billions of dollars in profits from the company. Eventually, the company was sued and went bankrupt. The bankruptcy plan was to turn the company into a non-profit and hand it over to litigants with the goal that it would help provide funding for addiction recovery since the Purdue Pharmacy Company was an LLC a limited liability company the company itself was found to be at fault not the Sacklers who remain enormously wealthy their personal wealth far outweighs the current value of the company under the current deal they would pay $6 billion into a trust that would help fund the addiction recovery fund. Several states and a few addiction recovery groups are suing to get more money out of the Sackler family. Now, the core of this case is

the question of just how protected they should be. On the other hand, they were clearly acting in ways that led directly to the company harming millions of people. So, should they be shielded from responsibility? The ruling will likely come out in the spring. The final case worth mentioning, which was argued before the court on Tuesday, has far more likable plaintiffs. The Moores. In 2005, Charles and Kathleen Moore invested $40,000 in Kiss & Craft, an Indian farm machine manufacturing company founded by a friend of theirs. The Moore's money got them an 11% stake in the company. Over the last two decades, the company has grown steadily. The Moore's maintained their original share of the

company and had their profits reinvested because they believed in the mission of the company helping the poor. Everything was going great until the Moores got a surprise tax bill for $15,000. And this really was a surprise because they had never taken any profits out of the company. So let's pause for a sec and talk about how taxes work and how the rich use them to store value. If you own and don't sell a financial asset, you usually don't have to pay taxes on it. This is a quirk of the system that the wealthy benefit from all the time. For example, they employ a strategy called buy, borrow, die. Sounds pretty straightforward, right? You buy an asset like a single Class A share of

Berkshire Hathaway. Currently, that single share is worth around $540,000. if you have that share you can sell it and you can get cash for it which means paying taxes on it or you can use that share as collateral on a loan you can borrow against that same share over and over and over again paying only the interest then when you die you can pass that share onto your heirs and as long long as they don't sell it, they don't owe any taxes. But since they own it, they can also borrow against its value. I don't know if this is what the Moore's plan was, but if it was, I'm not mad about it. That's how it works for big name CEOs as well. Bezos, Musk, Gates.

They aren't paying hundreds of millions of dollars in taxes every year on their net worth as shareholders of giant corporations they founded. They just pay taxes on any income they earn and if they sell any of those shares. Corporations had a similar system. They would only pay taxes on realized income, which is why multinational companies will often have foreign offices in tax-friendly countries like Ireland. In 2017, all of that changed. Companies and individuals who owned more than 10% of foreign companies had to pay a minimum annual tax and a one-time repatriation tax. The repatriation tax raised $338 billion, most of which was paid for by major companies like Apple and Microsoft. But a small percentage was paid for by major companies like Apple and Microsoft.

But a small percentage was paid for by individuals like the Moors, who own more than 10% of a foreign company, but haven't earned any income from it. While this sucks for the Moors, the bigger picture here is the question of whether the government can tax unrealized income or not. Most of the proposed billionaire tax plans involve taxing unrealized income or not. Most of the proposed billionaire tax plans involve taxing unrealized income. The future form of those taxes are still being litigated here, along with the Moore's $15,000 as they have sued for a refund. For today's tip, you can take straight to the bank. We talked about tax hacks today, and as we get closer and closer to the end of the year you need

to start getting your financial picture in order because that's what you're going to be taxed on don't forget that contributing to retirement accounts can lower your tax burden there are limits on how much you can contribute but they are pretty high the contribution limit for a 401k this year is 22 500 and the limit for an ira is 6,500 if you're under $50 and $7,500 if you're over $50. The deadline for 401k contributions are December 31st, but actually you do have until April 15th for an IRA contribution for 2023. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Levoy. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions,

moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make. Thank you.