Thriving Investing While Interest Rates Rise

For over three decades, the interest rates on debts have been generally sloping downwards. This has been the status quo for so long that major banking houses like U.S. Bancorp need to conduct special training sessions to teach a new generation of employees that, yes, interest rates do rise. A lot of energy has been spent trying to figure out the sequence and degree to which the Federal Reserve will make the cost of money more expensive.

In my view, there are three things to keep in mind when thinking about rising interest rates.

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Revlon Stock Has Some Issues

I have noticed that the financial press has been looking favorably upon Ron Perelman’s Revlon stock, with even Barron’s describing “Revlon’s Beautiful Outlook.” The general argument in favor of Revlon is that its core beauty product lines seem recession-resistant, and it seems to be trading at a lower valuation than its peers Estee Lauder, Coty, and L’Oreal. At first glance, Revlon might seem like a worthwhile stock to consider.

As you can already guess, I don’t see it that way.

First, you should be aware of Revlon’s disastrous trading history. You might see the current price of $32 per REV share and compare it to the $24 IPO in 1996 and think: “Ok, so it hasn’t done much for shareholders.” The reality is far worse because Revlon executed a 1-for-10 reverse stock split in 2008. So, really, the effective price is $3.20 per share if you follow the reconfiguration of the equity structure. As a result, every $1,000 invested into Revlon back in 1996 would be worth only $124 today.

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Positioning Investments For A Trump Tax Cut

According to his website, President-Elect Donald Trump plans to lower the corporate tax to 15%. I’m getting this figure from page 3 of his tax plan on his website titled: “Tax Reform That Will Make America Great Again.”

It contains the following paragraph:

“Too many companies – from great American brands to innovative startups – are leaving America, either directly or through corporate inversions. The Democrats want to outlaw inversions, but that will never work. Companies leaving is not the disease, it is the symptom. Politicians in Washington have let America fall from the best corporate tax rate in the industrialized world in the 1980’s (thanks to Ronald Reagan) to the worst rate in the industrialized world. That is unacceptable. Under the Trump plan, America will compete with the world and win by cutting the corporate tax rate to 15%, taking our rate from one of the worst to one of the best.”

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Buying T. Rowe Price Blue-Chip Growth (TRBCX) For Retirement

Shares of the T. Rowe Price Blue-Chip Growth Fund, which go by the ticker symbol TRBCX, have delivered 10% annual returns since its inception date of June 30th, 1993. It has beaten the S&P 500 index by a full percentage point each year, and has even performed half a percentage point better than the small-cap indexes.

What I like about this fund is that it is stuffed with businesses that have a ten-year trailing earnings per share growth rate of 15% while the portfolio itself only sports a P/E ratio of 20. In these moderately overvalued times, that is the best thing you can do—latch onto the fastest growing firms that are trading at prices that bear some sort of connection with reality.

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Why AMD Stock Refuses To Create Wealth

Across the United States, there are over 600,000 individuals who receive live updates for business developments regarding the stock of Advanced Micro Devices (AMD). This tech company manufactures chipsets, microprocessors, and embedded systems applications. In some niches, it is the second largest competitor to Intel. And well, there are a lot of people out there who think that AMD will create the kind of 21st century wealth that Intel created for shareholders during the second half of the 20th century (and as you know from our past discussions, that means mind-boggling money as the $18 billion opportunity cost to the Grinnell endowment indicates).

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