Investment Lessons From Stein Mart, Inc.’s Fall

When I reviewed Stein Mart’s business model in recent years, I was unimpressed on both quantitative and qualitative grounds. Quantitatively, I thought it was embarrassingly poor that Stein Mart only managed to earn $27 million in net profits at its cyclical high over the past five years. For a company with 300 stores that consume gobs of square feet, a net profit figure of only $80,000-$85,000 was terribly insufficient.

And the above-referenced numbers refer to Stein Mart’s 2016 highs. When Stein Mart’s profits evaporated and turned to an $11 million loss this year, it was clear that the business model was seriously defunct.

That is where the qualitative aspect comes in—the retailer sells a mish-mash of overpriced consumer clothing to an undefined market segment. The website is just bizarre. There are $24 Stein Mart dresses next to much more expensive options. This type of pricing completely ignores the psychology that … Read the rest of this article!

Municipal Bonds Contain New Investor Risks

For nearly all of its history, municipal bonds have been regarded as one of the safest investments that one could make. After all, general obligation government bonds are backed by the taxing power of a given jurisdiction. If you buy a United States bond, your likelihood of being paid interest and later your principal is based on the ability of the United States government to tax over 300 million. If you buy a bond issued, say, by the state of Texas, your likelihood of being repaid is determined by the Texas state government’s ability to tax 27 million people.

The same principle extends to cities and counties that choose to issue general obligation bonds. You are forward a certain amount of principal (often in $1,000 or $10,000 increments) in exchange for a promise to receive interest (usually paid semi-annually) and certain tax relief plus a return of principal (usually at … Read the rest of this article!

The Vanguard Total Bond Index Owns No Long-Term Debt

For a lot of wealthy investors that look to stockpile or inventory their wealth, either as an emergency fund or dry powder, the Vanguard Total Bond Index (VBMFX) is a popular choice because it is loaded with nothing but U.S. government-issued debt as well as some AAA and AA bonds.

It is distinguishable from a money market fund because it owns most of the same debt instruments, except for longer durations. If you purchase those $1 shares in a money market fund, you are making the safest short-term investment possible because it is nothing but U.S. government debt that matures in thirty days or less. As long as the U.S. government does not imminently dissolve its obligations, you are getting paid. That’s why the interest collected is often less than a tenth of one percent.

As cautious investors look for something slightly higher yielding but also generally safe, the obvious … Read the rest of this article!

The Amazingly Neglected Vanguard U.S. Growth Fund

Think back to 1959. The United States was expanding from 48 to 50 states with the inclusion of Alaska and Hawaii. Gas cost a quarter per gallon. A brand new Ford car would set you back $2,000. The Boeing 707 was first mass produced. American commercialism was falling in love with Mattel’s new Barbie doll creation, becoming the most sought after Christmas gift for young American girls. And in Cuba, Fidel Castro—boo, heckle heckle—was rising to power.

Also of interest, but rarely discussed, was the birth of one of America’s stodgiest Vanguard mutual funds that receives almost no attention but has nevertheless delivered exceptional risk-adjusted returns and made any long-term fundholders rich. I am referring to the rarely analyzed Vanguard U.S. Growth Fund (VWUSX). It’s funny—Vanguard has correctly earned a reputation as the powerhouse of the passive investing industry, but it has quite a few actively managed funds that … Read the rest of this article!

Paying Off Credit Cards Intelligently

Over the past fifteen years, various debt professional gurus have risen and attempted to challenge the obvious that, if you have debt, you should attempt to pay off the highest interest rate obligations first.

Some of these professionals have focused on the amount of each debt obligation, and then argued that consumers should pay off each debt obligation with the lowest principal balance first and then address those obligations with higher interest rates.

I appreciate and applaud the nod towards behavior economics that that this advice incorporates. It recognizes that, if someone is receiving five different bill requests each month, it can be daunting to identify progress and therefore there may be a higher likelihood of declaring for bankruptcy or otherwise making one’s financial situation worse.

At least if someone uses available surplus to knock out the low-balance $3,000 debt, the month thereafter will only involve receiving invoices from four … Read the rest of this article!