Motley Fool Hidden Gems Investing - Inflation Cooling, SBF Arrested

Episode Date: December 13, 2022

November's CPI rose just 0.1%, lower than economists were expecting. (0:21) Jim Gillies discusses: - How inflation in the US compares to other countries - Why some Nasdaq stocks have been "brutalized" - Sam Bankman-Fried, co-founder of FTX, being arrested and charged with (among other things) conspiracy and securities fraud (12:45) Alison Southwick and Robert Brokamp answer listeners questions about how many stocks to own, financial aid, and saving for kids. Stocks mentioned: STLJF Holiday Music: Five Pound Box Of Money by Pearl Bailey Host: Chris Hill Guests: Jim Gillies, Alison Southwick, Robert Brokamp Producer: Ricky Mulvey Engineer: Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

In Toronto, every arrival is a statement, and nothing says it better than this. Cadillac Optic was the number one selling luxury EV in Canada for 2025. Find your rhythm across a seamless 33-inch display and an immersive 19-speaker AKG surround audio system. This city demands agility, and Optic delivers with precision to make every drive extraordinary. Let's take the Cadillac. Find out more at cadillaccanada.ca. Luxury sales claim based on S&P Global Mobility Canadian New Vehicle Total Registrations for calendar year 2025 for the Cadillac Definition of Luxury. You've got questions, we've got answers. Motley Fool Money starts now. I'm Chris Hill. Joining me from the Great White North,

Motley Fool Senior Analyst Jim Gillies. Thanks for being here. Thanks for inviting me, Chris. The Consumer Price Index in November rose 0.1% compared to the month before. That is lower than the 0.3% that economists were expecting. Yes, Jim, it does feel crazy to celebrate inflation rising 7% year-over-year, which is what this is year-over-year. That's pretty much what they're doing on Wall Street. Across the board, most stocks in positive territory today and I'm okay with that. Oh, I'm absolutely okay with that. It's down a little bit. It looks like it came out of the gate pretty hot this morning, up 700 or 800 points, I think, on the Dow. Now

we're up only 200. I do appreciate the somewhat cynical grin that people celebrating 7% inflation does engender. But the one I like, one of the articles I was reading this morning that came from a noted financial network slash website. The quote is, prices rose less than expected, quote, the latest sign that the runaway inflation that has been gripping the economy is beginning to loosen up, end quote. Weimar Germany would like a word, and Venezuela is on line two and Zimbabwe is on line three. With all due respect, I know it's been difficult for some folk. I know that it's been a lot of headline ink wasted on inflation being the story of the last year. But A, I think elevated inflation was somewhat expected given the

amount of stimulus money that was dropped into the economy from 2020 and 2021. B, in no universe is 7% or 9% or 10%, whatever, runaway inflation. It's the worst that we in North America have seen in 40 years. That is absolutely true. But I don't remember a similar amount of angst-ridden ink being spilled for the near 15, 20 years where we had effectively zero inflation. like our colleague Bill Mann likes to say, there was no inflation for about 15 years there, in fact, and rates were kept so low because they were looking to try to stimulate the economy and avoid the bigger sin of deflation. I am hopeful that we have passed this bubble of elevated CPI, and I look forward to getting back to a level where the central banks will be happy with interest

rates and everyone can make money and everyone will be happy. Yes, the sky in my world is very much rose-tinted today, apparently. When this thing happens, one thought always goes through my mind, which is, if all these stocks are up, Again, I'm enjoying this as much as any investor is enjoying this today. But I look at this and I look at some of the stocks out there, some of the stocks in my portfolio, and I think, okay, you're up 5%, 10% today, but you're probably not 5%, 10% better as a business. Are there stocks or even categories of stocks that you're looking at right now when most everything is down year-to-date. Are the things that you're looking at, thinking to yourself,

actually, that makes sense. This one really should be up the amount that it's up today. Well, and as we say that, I just looked at my board here and I haven't been paying much attention, but I now see the Dow is up less than 100 points and the Nasdaq is carrying the load. I'm a little worried, not worried, worried is a bad word. I wouldn't be shocked if we closed down today. So, there's my silly bold prediction. The ones that I think make sense, even though I don't necessarily agree the prices are correct, is the fact that, again, I mentioned the Nasdaq is up the most today. The Nasdaq, that makes sense to me because a lot of the companies on there have really been brutalized the last year, as you've mentioned, last year in

a bit. In fact, a lot of the really high-growth stuff arguably peaked in February 2021. So, we're coming up on our second anniversary of those things being taken behind the woodshed. But that makes sense to me because so much of the perceived value of those companies is really fairly far in the future. A lot of them are losing money, a lot of them are burning money, a lot of them have really high stock-based compensation and dilutive practices. but we were always promised, well, the growth in the future is what's going to justify paying some of the ridiculous prices that some of these things got to. And when interest rates started going up in response to this inflationary pressure that was unleashed, higher interest rates means the

discount rate used to discount future cash flows is also higher because discount rates are generated or created based on, you take the risk-free rates, 10-year government bond, and you add a risk premium for equity, and we can debate whatever that's going to be. Actually, we won't because it's boring. But basically, the distillation of the insight there is asset prices, and stocks are assets, asset prices and interest rates are inversely correlated. So when you start ramping your interest rates, the asset prices should fall in response. And the more, shall we say, excitedly valued among this set would fall the most, because more of the value is perceived out in the further period, and now you're discounting

that even harsher. So, the names on the NASDAQ, and especially the higher growth names on the NASDAQ, that doesn't surprise me terribly much that that's driving some of these gains. The other thing is, I'd look at a lot of companies where I would perceive that they're undervalued, and that's kind of my job, is to find securities that I think are undervalued, and that I also have to justify that they're undervalued, just because I think something's undervalued doesn't mean it is. and so we recommend those types of stocks. And there's a couple I can see out there today

that are having pretty good days that I kind of look at and go, this makes sense because this thing has been undervalued and all the company has been doing has been creating value. So the one I would name, and it's only traded on the Toronto Stock Exchange, which I apologize for that, I believe there's a pink sheet listing, but a company called Stella Jones, ticker symbol SJ on the Toronto Stock Exchange. Stella Jones is in the exciting business of railway ties and what my colleague Ian Butler likes to call the state tree of Nevada, that is utility poles. I know you're getting utility poles and railway ties. Stella Jones is up about 3% today and has had a pretty good run this year. It's over $50 Canadian today. I believe it bottomed around $30.

So, you know, in a year where the markets have been kind of, you know, cruddy, frankly, you know, this is a stock that's up by two-thirds. And I think it's still undervalued, but anyway. One other topic before I let you go. Sam Bankman-Fried, the co-founder of the cryptocurrency exchange FTX, has been arrested and charged with, among other things, conspiracy to commit wire fraud, securities fraud, money laundering, and conspiracy to defraud the United States of America. When you watch this very quickly unfolding drama, what goes through your mind? Because one of the thoughts that's gone through my mind over the past week is, I'm not a lawyer, but boy, this seems like an increasingly easy case to prosecute.

Yeah. You call it a rapidly unfolding story, a quickly unfolding story. I'm not sure it's been quickly unfolding enough, frankly. I'm a little surprised it took this long based on the allegations. I'm no crypto guy, and I really haven't followed a lot. I was cursorily aware of what they call an SBF before this all hit the fan. Because crypto doesn't interest me because there's no cash flows and I would argue that most crypto is inherently worthless. In fact, if we were doing apropos of nothing and it had a couple of bourbons in me, I might argue that all crypto is worthless. But no, once this started coming out and it's commingling funds between his personal hedge fund and the business. Yeah, this does not look good

for Mr. Bankman-Fried. I might argue that they have been relatively slow to charge him and arrest him, because he seemed to be willing to give people more ammunition by his little speaking tour. He was just on with Andrew Ross Sorkin at a paid speaking gig a few weeks ago, he's been on various paid spaces or spaces on Twitter. And I'm wondering if he doesn't have any lawyers who told him, hey, the smartest thing to do is shut up. But, you know, whatever, Okay. I think Mr. Bankman-Fried is probably going to not have to worry about wardrobe choices for a few years once this is all over, because I imagine he's going to be permanently decked out in a lovely shade of orange. That's just my suspicion, and certainly the scale of

of the charges against him? Probably. Who has the power in a situation, you know, porters by force is bargaining power. I'm going to guess that against the United States government, I'm going to say that he has a little bit less bargaining power here. And people don't really appreciate having their money evaporated in this fashion. And he is going to find out that he is a small fish, I think, compared to the power of the U.S. government. And I hope he has some good legal representation that's not his parents. Well, as you said, and it's very much a silver lining kind of thought, doesn't have to worry about wardrobe, probably.

There you go. Jim Gillies, great talking to you as always. Thanks for being here. Thank you, sir. How many stocks should you own? And where should you keep them? Alison Southwick and Robert Brokamp answer your questions about investing, financial aid, and saving for kids. Dear Bro and the true brains of the operation, Alison, how right you are. I have a brokerage account that currently holds 28 positions. Do you have a rule of thumb as to when to seek new positions or add to existing holdings?

I find this decision especially hard right now when there are a lot of great stocks currently, quote, on sale. Your great and wise wisdom is thoroughly appreciated. Thanks, Foolin' and Charlotte. Well, so first of all, of course, you're right about Allison. She definitely is the person who keeps the trains on the tracks here. Secondly, we at The Fool think you should own at least 25 stocks. You've met that threshold. However, even that may not be enough if many of your stocks are concentrated in one industry or sector. Owning more than 25 is perfectly fine by me and you might throw in some index funds as well for good measure. As a rule of thumb about when to add new stocks to your portfolio, I'd say you should only

invest in as many companies as you can stay on top of. That will depend on your time, your interest in this stuff, and whether you're getting help from services such as, I don't know, those offered by The Motley Fool. So once you've reached the point where you're buying stocks but aren't really able to pay attention to the important news or the earnings reports or anything like that, then you've probably reached your capacity. Our next question comes from Brandon. I'd like to get a shared checking account for my unmarried partner and me. However, they are currently receiving financial aid for college and I make over three times their salary. The account would be a general checking account we'd use to pay bills, not money beyond enough

to pay for immediate expenses would be kept there. However, both paychecks would go into the account. Would this negatively impact my partner's financial aid? Well, Brandon, this is an interesting question. And by interesting, I mean, I wasn't sure the answer. So I had my hunches, but I found conflicting answers online. So I reached out to the smartest person I know on this topic. And that person is Mark Kantrowitz, the author of How to Appeal for More College Financial Aid. And he was also the guest on our October October 11th episode discussing how to fill out the Free Application for Federal Student Aid, better known as the FAFSA. Here's what Mark told me via email. Joint accounts must

be reported as an asset on the FAFSA based on the account balance as of the date the FAFSA is filed. If the account does not specify otherwise, the split is assumed to be equal, so 50% each in the case of two account owners. Note that this is for a real joint account. If someone merely has signatory power over an account that is owned by someone else, it is not reported as an asset. Since both paychecks are deposited into the account and one paycheck is three times the other, you might want to have a written agreement that specifies the split of the account value. Alternatively, you can just empty the bank account the day before the FAFSA is filed and generate a printout from the website to demonstrate little or no value

remaining in the account. Now, that's assets. What about income? So, Mark says that a joint account does not in of itself cause an unmarried partner's income to be reported as income on the FAFSA. But if the couple lives in a common law marriage state, they should be careful to make sure that they do not satisfy the requirements for a common law marriage. And then finally, Mark said that he doesn't recommend using joint accounts because either account owner can basically just take all the money, especially after they break up. And I have to say, I agree with them, right? The potential problems and complications likely outweigh the benefits of having a joint account. Our next question comes from Anuj. I am a big fan of the show and really

appreciate all the knowledge you have given. Oh, thanks. I'm glad it's helped. I am 31 years old and have a taxable brokerage account and a Roth IRA. My brokerage account is mainly stocks and the Roth IRA is a target date fund and a few stocks. I am considering adding more stocks to my Roth IRA, but I want to add a stock that I have already bought and held in my brokerage account. My thought is that the only difference is that the stock's potential gains in the Roth IRA would be tax-free, whereas it wouldn't be the case in the brokerage account. Is there anything else I need to consider? Should I look at position sizing when combining the value in both accounts? Thank you, oh foolish ones. Well, thank you, Anuj. So let's start by

talking about what to put in your Roth. So as Anuj suggests, the withdrawals are tax-free as long as you follow the rules, which are essentially that you're at least 59.5% and have had a Roth IRA for at least five years. Because you want your tax-free account to grow the most, you use your Roth for the investments that you believe have the highest growth potential. If you think this stock fits that criteria, then putting it in the Roth makes sense, even if you already own shares in your regular brokerage account, as long as you don't own too much across all your accounts. Generally, we recommend that you limit a single stock to be no more than 10% of your entire portfolio. Now, you mentioned that you have a target

date retirement fund, and I'm generally a big fan of these. That said, they tend to be very diversified, including cash and bonds, so it likely won't be the very best performer in a portfolio. So you might ask, should you keep it in your Roth? And I would say yes, if the only other option is a taxable brokerage account, because these funds can be relatively tax inefficient since they produce a decent amount of income, interest, dividends, things like that. And they do a good bit of rebalancing, which could generate capital gains. However, if someone has both a traditional tax deferred and a Roth retirement account, I'd put the target date fund in the traditional account. All right. Our next question comes from,

well, it's just signed Jay. So we'll let you make up a name for this person. My wife and I are both professionals. I'm in the military and my wife is a CPA doing financial reporting for a company. I am 40 and my wife is a bit younger. If asked to simplify our financial goals, we would describe the following. One, max out our 401k. Two, max out our IRA. Three, contribute to 529 plans. We have a two-year-old and seeded his 529 with 10k and are contributing $500 a month. Four, invest in the stock market, which we don't do much of anymore as we took on the 529 plans. Numbers one, two, three are funded, but we don't usually have much left over for stock market investments anymore. What are your thoughts on our overall strategy?

Well, Jay, it sounds like you're on the right track, especially if you've been saving for retirement since your 20s or maybe early 30s. And based on what you wrote, I'm guessing you have. Plus, you're 40 and in the military. And if you've been serving since your late teens or early 20s, you're not far from being eligible for a pension if you're not already there because you become eligible after serving for 20 years. So I'm guessing you're in pretty good shape, but it always makes sense to just check in with a financial planner every once in a while to make sure you get that professional assessment. Now, you say that you don't have much leftover for stock market investments, but I'm guessing that you are investing in the stock market,

but just in the form of maybe mutual funds or index funds. Instead of choosing between buying shares of, say, Apple or Amazon or Microsoft or Berkshire Hathaway, you might own little pieces of all of them through an S&P 500 index fund. It's possible that what you mean is that you don't have money leftover to buy individual stocks, but you actually could do that in your IRA if it's with a discount broker. You could also do it in a Coverdell education savings account, which has similar benefits to a 529. But unlike a 529, you can buy individual stocks in a Coverdell. Or frankly, you could just do it in a regular taxable brokerage account. Because frankly, these days with commission-free trades and some brokerages

offering fractional shares, you can buy a stake in an individual stock with as little as $5 in some cases. So you could start really small, but then build up your portfolio of individual stocks over time. All right. Our next question comes from PayPay. From the Daily Upside, U.S. homeowners took out $66 billion in HELOCs in Q2, according to Adam. They can be particularly helpful for people looking to give their homes a makeover rather than look for somewhere new to live in an increasingly unappetizing housing market. That's where the quote ends. And my husband and I got approved for a $249,000 HELOC in July, but we are not planning on tapping into it. It's just a security blanket at this point. Question, does this approved amount count as

having taken out a $249,000 HELOC? Because if it does, then the $66 billion figure could include a great deal of HELOCs that were open but not tapped, right? Thanks for all you do and really missed the old format of the Answers podcast. Oh, thanks. Yeah, thanks, Pepe. So a home equity line of credit, or HELOC, it provides sort of just this ready source of cash on an as-needed basis. The bank usually gives you a checkbook, and in some cases, even an ATM card, and serves as a revolving light of credit, sort of like a credit card, but with much lower interest rates. These days, they're between 7% to 8% or so for a HELOC. Now, the payments begin once you start tapping your equity, but usually for the first five to 10 years, which is known as the draw period,

the loans are interest only. But then the repayment period begins, the principal gets added, and the payments jump significantly. Some people use a HELOC to maybe do a home renovation or pay for a wedding or pay off credit cards. Not always the best decision because you are using your home as collateral and you theoretically could lose it. Others open a HELOC just to have a backup source of emergency cash, and it sounds like that's what Pepe and her husband are doing. The idea is to open the line of credit while you're employed and things are going fine, because if you wait until you need one, you may not get approved for the loan. Now, to answer Pepe's question about whether that $66 billion figure is actual loans

or just an amount that could potentially be borrowed, I read the release from Atom Data Solutions, and it looks to me like it's actually money being borrowed, not just credit lines opened. And this figure has been in the news because the amount taken out as HELOX has grown 40% over the past year. Add it to a big jump in credit card debt and a big drop in the savings rate, and we're getting mounting evidence that the financial well-being for many American households seems to be going in the wrong direction. Our next question comes from Christopher. Hey, Alison and Bro, I've got three kids, and since around age six, we've had conversations about companies and investing. They own shares in a few companies they understand, Skechers,

Roblox, Disney, Visa, et cetera. But at what age can they legally have their own investment accounts. Love the show and happy early birthday, Alison. You get a great book. It's so funny when people would say stuff back to us because then I'm like, oh yeah, that's right. People are listening out there when I pander for my birthday. Which is coming up in a few weeks, everybody. Thank you, Christopher. So good for you, Christopher, for teaching your kids about investing. And if you haven't yet, listen to our December 6th episode during which Fool contributor Brian Withers explains how he has set up his kids to be billionaires by age 40. Now, to answer your question, any kid at any age

could own an investment account, and it sounds like you've already opened one for your kids. The trick is that while they're minors, you or another adult will have to serve as the custodian on the account. But then once they reach the age of majority in your state, which is generally 18 to 21 or as high as 25 in some states, the kids get total control of the account. Now, there are some pros and cons to these custodial accounts versus you just opening an account in your own name and then you gifting the money to the kids when you think they're ready. And we covered those in our December 6th episode. All right. And our last question comes from Daniel. Hello, hello. I am an investor who

focuses a lot on cost basis. I am wondering, under what conditions would you go above your cost basis to purchase a stock or ETF? Thank you very much for considering my question and I hope you both have a wonderful holiday and new year. Happy birthday, Allison. Can you tell I didn't read the questions before we started taping? Oh, thank you, Daniel. It's a nice surprise, isn't it? It is a nice surprise. That is a nice gift. All right. Enough about me. Bro, Daniel's question. All right. So, Daniel, there's an old saying that goes something like a stock doesn't care what you paid for it. And the point being, don't focus too much on your cost basis in an investment. If it goes up after you've bought it and you

still think it's attractively priced, well, feel free to buy more. On the flip side, if it drops below what you paid for it, avoid saying to yourself something like, well, I'll just hold on until I get back to breakeven. Research has shown that investors often hold on to losers for too long because they don't want to lock in the loss and feel bad about themselves. But frankly, if it's no longer a good investment, just lick your wounds and move on. So Daniel, I wouldn't focus too much on cost basis, except when it comes to the tax consequences of selling investments outside of retirement accounts. If an investment makes sense for your portfolio, buy it. All right. Thank you, bro, for answering

everyone's questions. And if you, our dear listeners, have a question, you can email it to podcasts, that's podcasts, plural, at fool.com. Or you can leave us a voicemail and maybe hear your voice on the show. That number is 703-254-1445. So again, email podcast at fool.com or call 703-254-1445. And our producer, Ricky, who really keeps this show on the track, will, uh, will, uh, yeah, just drop him a line or just drop Ricky a line. Say happy birthday to him. I don't know when it is. He's a good dude. When's your birthday, Ricky? January 4th. Oh, It's coming up too. And Rick's is in January too, right, Rick?

January 11th. This is a Capricorn-heavy show, whatever that means. It seems like it should be more organized than it is. I'm the token cancer here, and you probably already knew that. Awfulizer. Hey, Santa Claus, you want to make me happy this year? Listen to me, honey. give pearl something that'll be of some use to me like a five pound box of money as always people

on the program may have interest in the stocks they talk about and the motley fool may have formal recommendations for or against so don't buy or sell stocks based solely on what you hear i'm chris hill thanks for listening we'll see you tomorrow I came down, I had a little change to pay my rent, you see. Now, money isn't everything. There's no two ways about it. But while we're here, Santa dear, it's much better with and without it. So, really, I could be real good and not do nothing funny.

If you do like I ask you, start me right on Christmas night. Try me, try me. Try me on that money. Just try me, honey. Santa, can you hear me? You listen to everything I'm asking you about? Listen, honey, Santa dear, the new year, oh, it will be so bright and sunny.