The Hidden Risk of Royalty Exchange Music Investing

Royalty Exchange is a platform that exists to permit amateur and professional investors alike the opportunity to purchase the royalty rights from musicians that seek to sell the residual earnings claims / digital rights. It has found early success by tapping into attractive concepts—the desire for regular income and the desire to own an asset that provides psychological satisfaction in a way that investing in, say, sewage dumps and funeral homes cannot.

Unfortunately, the ease of purchasing music royalties enables royalty purchasers to dramatically overvalue the worth of the royalty stream due to naivete with the industry.

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Benjamin Graham’s Investing Tips Live On

There are two insights from Benjamin Graham’s classic “Security Analysis” that I believe are appropriate to keep in mind today.

They are:

  1. “Putting excessive weight on recent past history, as opposed to a rational prior, is a common judgment error in psychological experiments and not just in the stock market.”
  2. “Investors may very well equate well-run companies with good investments.”

There is no doubt that we are living through a period of unusually high enthusiasm for investing right now. Based on the 20%+ gain in the S&P 500 in 2017, it would have been difficult to devise a diversified common stock portfolio last year that did not deliver at least double-digit annual returns.

As a result of these recent stellar returns, you are beginning to see extreme enthusiasm for investing in high-risk junk. If the media coverage of Bitcoin in recent months doesn’t strike you as a modern incarnation of what John Maynard Keynes meant when he spoke of “animal spirits”, what would?

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Buying and Holding Blue-Chip Tech Stocks

A cornerstone of Jeremy Siegel’s research in “Stocks for the Long Run” is that high-tech investments have a strong tendency to fizzle out over time. If you look at the best performing businesses over the past sixty years, they tend to sell products that are similar to what was being sold in the 1960s.

Colgate-Palmolive has been one of the best performers since 1956, and it is still selling toothpaste and soap. 3M is on the list, and its famous Post-It notes are still around. Pepsi is still on the list, and America continues to eat potato chips. A bunch of oil companies–Exxon, Shell, and Chevron–are on the list, and they’re still selling and transporting oil, chemicals and natural gas.

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Why Bitcoin Reels In Young Professional Men

Over the past several months to a year, exchanging U.S. dollars for Bitcoin has been such a fruitful endeavor that the purchase of cryptocurrencies have entered the public consciousness and many young men in their 20s and 30s have been profiled on CNBC as well as the largest financial websites to publicly disclose their newfound wealth.

Most of the analysis focuses on whether Bitcoin is the real deal–i.e. will Bitcoin become a store of value analogous to gold or hard metals, and then appreciate against other currencies due to a projected lower inflation rate?

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The Mirage of High-Yield Dividend Stocks

My entire investment writing career has occurred in the context of the United States thirty-year treasury yielding 4.5% or less, often dramatically less (think 2% to 3%). Similarly, a stock market boom has also accompanied most of the past decade.

This has meant that certificates of deposit have yielded 1-4%, depending on the amount and length of time that the money must be locked up until maturity. Corporate bonds haven’t yielded much higher, unless they had weak earnings or a credible risk of impending bankruptcy. The stock market isn’t much compared to the corporate bond landscape.

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