Watch our show Mujahid Talks with Imam Malik Mujahid in conversation with Brett Arends
Interviewed: 11 AM Central Time Thursday Feb 18, 2021 only on Muslim Network TV #StockMarket #CryptoCurrency #Bitcoin
Guest: Brett Arends - Award-winning Financial Writer
Host: Imam Abdul Malik Mujahid - President of Sound Vision and Justice for All.
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Unoffical Transcript:
Abdul Malik Mujahid 0:05
Salaam and Peace, this is Imam Malik Mujahid, and you're watching Muslim network TV on galaxy 19 satellite, which covers the whole United States northt to south, east to west. With 57 million subscribers mostly in rural America, Mexico as well as Canada. We're also on Ott devices like Apple TV, Amazon, Fire TV, Roku. And of course, you can download our app on your Android or iPhone or watch on YouTube, all you have to do is type Muslim network TV. Our website is Muslimnetwork.tv. Well, people have started talking about when the stock market is going to crash. And today, we thought we should talk to someone who's a professional consultant in this area, not about when it's gonna crash, but about financial advice. And also how individuals should guide themselves it seems to be a whole lot of people investing. Some people are becoming millionaires and billionaires. So while on the street, people have difficulty finding food, especially in my thoughts the people in Texas. I have one of my team members there, who has given shelter to four people and is running out of food and I'm thinking how I'm going to help him. So how individuals deal with the stock and this new type of phenomena of people chatting together and sort of invading the Wall Street and what are they doing and cryptocurrency? What in the world is that type of a currency? Which pocket should I keep it inside my jacket or outside my jacket? Can I spend that money or just keep making money on it? Well to discuss with this is somebody who knows actually how to ask the right questions, which I unfortunately don't. With this is Brett Arends welcome to Muslim network TV.
Brett Arends 2:08
Great to be here. Thank you for having me.
Abdul Malik Mujahid 2:11
Brett it is an award winning financial writer, and has many years of experience writing about markets and personal finance. He's also Chartered Financial consultant. Well, tell us why do you believe that when it comes to investing, it's not how much you make counts, because I thought that's the only thing counts, how much I'm making.
Brett Arends 2:38
Now it's how much you get to keep. Thank you for the introduction I write for marketwatch, which is part of Dow Jones and I write specifically about mostly focused on people saving for their retirement these days, I used to be a more general consultant, but more general writer. When I started out in this business, many years ago, it was actually I was a very young, right financial writer when the.com bubble came along of 1998 99 2000. And it made a big impact on me. And I saw a lot of people make a lot of money. And then I saw them lose it. Now I was very lucky during the.com bubble because I happen to make plenty of money. And then I thought this is insane. And I got out of it pretty much before it collapsed. Here we are in 2021. And I gotta tell you, it reminds me a lot of 1999 2000. I have conversations all the time with money managers, other financial writers and financial commentators. And we're trying to work out whether this is how much this is the same and how much this is different. It is, you know, the stock market went through the roof in 99 2000 particularly technology stocks, all sorts of dot coms. People made vast amounts of money. People you knew in high school were suddenly rich. I mean, not just wealthy but really rich. I mean, you know, they made $50 million $100 million. And then over the next couple years it collapsed. And a lot of people ended up broke and they used to be the the the joke the the frayed. During the.com bubble they were the phrases b2b which meant back- business to business, and B to C which meant business to consumer. Those were two kinds of dot coms. After the crash, the jokes were b2b meant back to banking and b2c went back to consulting. In other words, people had to go back to their, the the jobs they had before the bubble. And particularly looking at Tesla right now and particularly looking at cryptocurrency, I am the momentum is amazing. People are making a fortune. But you know you haven't made a nickel until you've taken a profit and I worry that in some of these cases, the things that have gone up, will come crashing back down. And people will discover they didn't make any money or rather, they didn't keep any money.
Abdul Malik Mujahid 5:08
So based on data based on history, and mostly based on gut feeling, do you feel this is the moment when you you you came out of the market? When these when the.com bubble was happening?
Brett Arends 5:26
That is the the multi trillion dollar question, are we are we there yet? I don't know if we're there yet. The The key thing actually is you don't have to get out right at the peak, the most important thing is to get out when the momentum turns. So the.com bubble peaked on March 9 of 2000. You didn't have to sell on March 8, or March 9, to keep all your profits, you actually had plenty of opportunities over the next actually, over the next six months to get up because people kept saying it was a buying opportunity. The Nasdaq I think went down from 5000 to 4000. And all sorts of people saying, oh, what 4000 that to buy, it's going to go back up to five, it's going to go to 10. I remember meeting a friend who was a veteran money manager, I was living in London at the time. And we had lunch, I remember very distinctly it was in I think, June or July of 2000. And the NASDAQ having peaked at five was down to about I think 3800. So it had come down quite a long way from the peak. And my friend Peter Bennett, said, even at 3800 or 4000. This is the easiest sell of wildlife. Now he was at the time in his 60s, he's since passed away. But he had been around a long time. And he said, even when it was down 20% from the peak, it was still the easiest sell of his lifetime, because the bubble had burst. So when bubbles burst, they tend to burst slowly, they don't the stock market, the famous crash of 1929 didn't take place in the day, it took place over three years. And actually the NASDAQ the.com bubble, which peaked in early 2000s, didn't bought them out, I think until 2002 or 2003. So you don't get the peak profits if you don't sell right at the peak. But you never know when the peak is, and you make the most money right at the end. The The important thing was that when things started to come down, some people got out. And some people thought the party was still going and actually kept adding money. And those were the ones who really ended up, you know, losing losing their shirts.
Abdul Malik Mujahid 7:39
So, so in that sense, that what happen in March, when it went down substantially that didn't happen over a period of time it happen suddenly didn't happen within a week?
Brett Arends 7:54
Well, the first the first. I remember the first couple of days when it fell. And I was in a news conference with people at my paper at the time. And various people were talking about a correction. And I said, You know, I don't think this is the correction, I think this is the crash, there was a feel that it had finally burst. My point is that even though even when it starts to come down, there's actually quite a long period of time before it bottoms out. It doesn't happen all at once. The there is a danger in getting out of investments too soon, just as there is getting out too late. But to be honest, if you are invested in anything that has sound, finance finances, you're probably better off getting out of it too late than a bit too early. On the other hand, if you are in something which is potentially worthless, you probably don't want to be in it at all. I am still waiting. Three years. In fact, maybe more than three years after first asking I'm still waiting for someone anyone to explain to me what the actual economic rationale and need of Bitcoin is. I still don't know why Bitcoin is worth anything. I don't know what it's worth. I'm not saying it's worth zero. I just don't know what it's worth. If I had if I had Bitcoin, which is now I think $52,000 although it's a wonderful trade, and you're making a lot of short term money, I have no long term confidence in this asset because I have no idea what it's worth. If anything, I still haven't heard a single good explanation of why Bitcoin should have value. People will tell you, oh, it has wonderful technology. Well, that's great, but that doesn't make it valuable. Why is it valuable? Why do I need this? Why do I want this as opposed to dollars or yen? or pounds or euros or gold? Why do I want this digital digital thing? And why Bitcoin? So Bitcoin is an example of an asset in which I have essentially no confidence. It's a trade, it's a short term trade, but I would not be an investor. Tesla is a very impressive company. And I was a long time bull of Tesla when everyone was talking it down. But at the current valuation, it is valued at more than essentially the entire world car industry or most of the world's car industry, the valuation simply makes no sense whatsoever. This, again, is something where I frankly, would have no confidence whatsoever in the long term investment potential of the stock, that doesn't mean that I think the company is a bad company, it just means that I don't, I don't understand why I would own this thing at $800 A ship. On the other hand, there are plenty of stocks out there that I think are reasonable or not especially expensive, and which I would be less quick to sell.
Abdul Malik Mujahid 10:55
So so so Tesla type of stalk is the one, which probably will take six months from the crash, non crash would people can say historically, to take somewhere more rational positioning in this stock.
Brett Arends 11:13
I think 10 years from now, people will be looking back. And they'll be saying, Can you believe Tesla was $800 $850 a share? Can you believe that Bitcoin was $52,000. Now, I don't know this for certain. But I suspect I remember after the.com crash, people were looking back and saying why on earth were people paying these silly prices for these companies. I mean, there were all sorts of famous companies that had huge marketing campaigns, and ended up going bust within a year they were on TV, they were advertising the Superbowl, everyone was talking about them. And year later, they didn't even exist. You know, the the the poster child's here for me are Bitcoin and Tesla, I I wouldn't take my life savings and sell the stocks or sell Bitcoin short if I knew how to do it, or if I was able to do it. I don't know for certain, but I have that they're gonna go down. But I have no confidence whatsoever in these investments. I cannot imagine holding these on anytime long term view, there is short term momentum. There is essentially dumber money coming in after you. But at some point that stops. So on what my my point is on a lot of things like Tesla and Bitcoin. I think that they are very good trades, they're very good short term trades. Just don't confuse them with long term investments. When the momentum turns, I would take my profits.
Abdul Malik Mujahid 12:42
Well, I remember that.com thing, a investor who was a leader and he's still in good position, as a not for profit organization, he transferred quarter of a million dollar worth of his stock. By the time stock I mean coming through a particular entity to another entity came it was worth $15,000. And we we plan based on quarter of a million dollars. So we didn't have any of that. But we saw what the where it started and within I think few weeks when actually landed, but value and what it has. But But here's the thing. You know, there are scholars and professors talking about cryptocurrency and in detail. The UK Financial Conduct Authority says it has warned electronic currency investors that they are in danger of losing all their money. Whereas Visa and MasterCard people who deal with money and very conservative institutions are going in it. So why you're standing so skeptic of the whole thing?
Brett Arends 13:56
As I said, I still don't understand any purpose to it. I can transfer money using the regular banking system from United States I am I'm half British, and I can transfer money to family or friends or vice versa, to the UK online using the traditional banking system for miniscule fees. I don't if if if the banking system was charging an enormous amount of money, then I can understand someone saying look, you can use Bitcoin and you won't have to pay that money. I can understand that. You know, I bought Amazon stock in 2002 when it had collapsed I bought it at $12 a share and I thought I was an idiot because it went down to six. Unfortunately, I actually am an idiot because I cannot own Amazon stock at really and be a journalist so I had to sell all my Amazon stock in 2006 2007 when I became a full time financial writer. So unfortunately I'm not I don't own millions and millions and millions of dollars worth of Amazon stock which I would if I just held on but I understood the minute.I first started using Amazon in 1998, I understood the utility of it. I was I remember, I remember actually one year buying Christmas presents for my niece who lived in America when I was in London. And one year, I had to go out and buy them at a toy store in London, and then package them up and then put them in a box and fill out a custom form. Incredible. It took me an afternoon. And a year later, I used Amazon and it took me about 20 minutes, I understood the utility of Amazon, right from the start, I don't understand why as a an individual, whether I'm shopping, or I'm transferring money, or I'm saving money, I don't understand why I need Bitcoin. I don't understand what the purpose is. And people keep coming up with these explanations that make no sense. Some of them are political, they say, Oh, well, it's independent of the political system. Well, that's, that's true. But that's also true of gold and silver. It's also true owning multiple currencies, I do understand the advantage. Coin- gold, by the way, I've always thought should be viewed as a currency not as a not in relation to stocks and bonds. But gold is a currency like dollars or pounds. So I understand that, but that doesn't really explain why Bitcoin and I don't have any faith in it. In terms of...
Abdul Malik Mujahid 16:21
But wait Brett don't you say that there was a time when people will barter things. At that time somebody came up with a piece of paper and they say, hey what in world is this piece of paper? Why do I need that I'm fine without it. So a visionary guy named Elon Musk is putting $1.5 billion in there. And he's about to take me to Mars, and he's a Brit, who simply want me to stay not on earth.
Brett Arends 16:56
Look, I got no problem with going to Mars and I got no problem with Tesla's, all I'm saying, Look, you're talking about it's interesting to talk about banknotes, there's actually a debate about how these started out. And there was a theory they were actually created by governments, and that there has never been a genuine barter economy. I'm not getting into that. But banknotes originally, were certificate saying that you had gold. So you know, instead of actually me having to go and give you know, 10 pounds worth of gold, or kilogram of gold, I could give you a certificate saying, you know, Joe Smith, the banker was holding a kilogram of gold on my behalf. And you could then basically that was where the original banknotes came from. And in fact, they used to basically say, a pound, the British Pound used to mean a pound of gold. The point is, you can buy and sell things using dollars, or yen, or euros or any other currency. You can buy and sell things in terms of gold. I don't understand why I have to why I would want to buy and sell things in terms of Bitcoin. I understand why companies that want to jump on the marketing bandwagon would accept it, I actually understand why if I MasterCard or visa if someone says, Look, I want to pay you in Bitcoin. That's fine by me, I don't care how I get the money, I will immediately convert it to dollars or euros. But I don't understand why I bread errands need to own Bitcoin, except, of course, for the benefits of a short term trade. Obviously, if I had bought Bitcoin, a year ago, for $3,000 and today, it's $50,000 I'd be rich. My point is I don't understand why I mean, that could be that could be true of lots of things. I don't understand the fundamental utility. And people tell me various stories, none of which really add up. They don't have the utility that I noticed immediately I started using Amazon, and I was using Amazon. I wouldn't say I'm an old man, but I was using Amazon, way back before almost anyone I knew. And I was using it all the time. And I got the utility immediately. It was useful. It met a human need of mine. I was able to order books in some cases, I was able to order books internationally back before that was a that was a common thing. The way amazon
Abdul Malik Mujahid 19:22
Well you're putting all the books in the background to the level that I have to start ordering at my office address, my wife says you're not reading enough you're buying more. So yes, Amazon everybody understand the utility. So your main point is cryptocurrency utility people don't understand. But if they're doing short trade, keeping it until it is it is going upside down again
Brett Arends 19:48
Look, look if I weren't doing my job, if I were not a financial journalist, I would have been trading Bitcoin during the bubble of 2017. I actually wrote about that at the time and I'd be doing it now I'd own it, I'd be riding the bubble, I'd be making short term profits on the basis that look more, the more and more people people see something going up, they think they see something that's gone up from $5,000 to $50,000. They meet neighbors or friends or family members who've made money on that trade, and they say, Oh, I want in, and they buy in. And that drives the price up further. At some, that is, unfortunately, a Ponzi scheme, ultimately, because the system itself is not generating any profits. It's not generating any economic profits, like dividends, and it's not generating any utility. It is just sitting there. So we could be bidding on a pet rock. You know, I could I could, I could pick up a rock and I could say, I'll sell someone this rock for $5. And he'll buy it. And then he says, I'll sell it to someone for $10. Look, the price has already gone up, and eventually could go up to $50,000. But ultimately, it's just a rock.
Abdul Malik Mujahid 20:58
Who's regulating it? who is watching out for the a naive guys interest? And what is the tax situation about it?
Brett Arends 21:09
Well, the tax situation is interesting. If you own Bitcoin, certainly, as an American, you want to do this in your IRA, if at all possible, because otherwise, you're going to have to fill out a lot of paperwork, paperwork and short term profits. Short term profits are taxed as ordinary income, whereas long term profits are taxed at more favorable tax rates. So basically, if you're going to make short term money, you want to do it inside a tax shelter, if at all possible. In terms of who's looking out for the regular Joe. I'm sorry to say I don't think many people and the events of the last year have once again shaken my confidence in the ability of the elites and the governments to be on top of the what's going up. I remember having a conversation a few years ago during the last Bitcoin bubble with a very senior member of the British government, who I knew personally, and he didn't seem to be fully aware of just what was going on. And I said, Look, I said the thing about Bitcoin is, and cryptocurrency is it's very, very good for doing illegal things. If I want to launder money, if I want to pay someone to assassinate my next door neighbor, if I want to buy illegal child pornography, if I want to do all sorts of things that are illegal, and I don't want my bank details involved at all, then cryptocurrency can be really, really good, can be very useful. Other than that, I don't really see a use, I said to him, I said, Look, there are only two things that are going to happen here either the Bitcoin, the cryptocurrency bubble is going to burst, in which case lots of regular Joes and Joanna's are going to find that they've lost their shirts. And the government didn't do anything to prevent this. Or the cryptocurrency bubble is not going to burst in which case you've essentially just sat by while a shadow financial system has been created that allows people to finance terrorism, violence, murder, illegal activities are two of the things that have played an instrumental role in the rise of cryptocurrency. The first was drug trading, or drug dealing on a website called the Silk Road that was shut down. People were essentially buying illegal drugs online. Um and the second thing is ransom. The ransom, hb ackers go into the computer systems of hospitals, local governments, all sorts of institutions, and they take over their computer systems and they install virus and they say, look, we will your your data, your data is going to be wiped clean, you are going to be essentially shut down unless you pay us $10 million in ransom. And obviously we can't ask you to wire that money into our bank account because then you'd know who we are. So you have to pay us in cryptocurrency and that's a second major utility of cryptocurrency. So when I said earlier I didn't see any utility to cryptocurrency, I should have been clear, I didn't see any legal, socially productive use of cryptocurrency. It's certainly useful for illegal activities. But basically you have a system where either people are going to lose their shirts, or we're going to witness the creation of a completely unregulated shadow.
Abdul Malik Mujahid 24:36
But you have completely slaughtered the cryptocurrency. And we will take a short break, and we come back and we'll talk about the regular investment and somewhat of a day trading and things of this nature. Thank you so much for being with us. We'll be right back after this.
Brett Arends 24:53
My pleasure.
Abdul Malik Mujahid 25:16
Welcome back to Muslim network TV, we're talking with Brent Arends who is an award winning financial writer. And we have been talking about cryptocurrency quite a bit, but let's talk about little good old money in your pocket. So how one person should go about making money? Other than working for someone this time? Who should how people should seek advice? Is Professor Google a good fellow?
Brett Arends 25:51
Professor Google has a lot of flaws. It's driven, essentially, whenever I google, I go on Google to find the latest stories or the latest information about particular investment class, or like exchange traded funds. I'm always struck by how the top search results are all essentially quite misleading. They are driven by a desire to get eyeballs, essentially, what what are the best exchange traded funds to buy in February 2021? It'll say and then you click on it and it's just a list of exchange traded funds. It's got nothing to do with 20, February 2021. So I'm not enormously I'm not an enormous fan of Professor Google as an sort of a blank just going online and saying, How do I invest? I'm struck Actually, I was looking at a survey the other day, I'm struck by how many people, particularly women will say to surveyors, I have no idea how to invest the amount of people who leave school without having the basics in finance, I do wonder what people are actually learning in school because they don't seem to be learning things that they need to know for the rest of their lives. The basics of finance are not enormously complicated. The good news is that actually, the people who complicate finance, tend to do worse than the people who keep it really simple. It is a long established and mathematically demonstrated principle that most of the people who are actively managing their investments end up doing worse over the long term than people who just bought and hold a simple portfolio, I would not, if I were starting from scratch, I would go somewhere to a well established firm, Vanguard or fidelity or two that's bring to mind. And I would talk to someone there. And the I, I use an online broker money manager, the fees now are very low, because they have to compete with the online people, the advice won't be spectacularly unusual, but it is very unlikely to be advice that is going to, you're going to end up regret, because these companies do not want to get sued. So they will almost certainly direct you to a simple portfolio of a handful of exchange traded funds, low cost funds, that will essentially be in that will invest your money in an array of assets, the most obvious being stocks and bonds. That's essentially for 99.9% of the world. That is really all you need. And all you need to know what disturbs me are the number of people who don't do that, who sit in cash, because they they don't understand investing at all, you end up not necessarily this month or next month or next year, but you end up over the course of your life, missing out on huge gains, and you end up being losing money to inflation, if you just sit in cash and I'm disturbed by the number of people who do sit in cash, and also the number of people who when they decide not to sit in cash go to the other extreme and start day trading stocks. They start buying and selling, you know, Bitcoin or Tesla or companies that they know nothing about doing it day trading and doing it on Robin Hood and other apps whose appeal once again, I don't particularly understand they would make sense if the traditional online operator sorry, the traditional operators like Vanguard or fidelity or whatever were charging high fees but they're not you can now a regular broker regular money manage. So brokerage account money manager for you can buy for you know $5 or $10 a stock or less sometimes some cases the the funds themselves are There's no transaction fee. So there's really no reason to go anywhere off off the beaten path. And the tradition, I would go to somewhere, a traditional place like Vanguard or fidelity and and talk to them.
Abdul Malik Mujahid 30:15
So, how to find a right financial advisor?
Brett Arends 30:20
Right. Well look, the thing about financial advisors, the real utility of financial advisors, is actually a combination of life coach, but also making sure that you have, you have done that everything fits together, you do your insurance, your your your tax shelters, savings for your kids, or the rest of it. It all fits together. The it's there are credentials out there. I'm a Chartered Financial consultant, there is a slightly better known one, the CFP, Chartered Financial Planner, those are qualifications, people take the towel that will tell you they've they've passed various tests, both of knowledge and of integrity. There's also an element of word of mouth, you can talk to people I know people who are financial advisors, and they get their most of their new business through word of mouth. People hear from someone, you know, oh, so and so has been helping me with my finances for a long time. And they go to them, that is not a bad way of doing it. The letters after the name, the letters after the name are only a small part of the equation, what you really need is someone with experience, someone who's going to listen to you, and someone you can trust. So going to someone who is referred to you by people who you don't trust, and who has been in the business for a long time. These are also valuable attributes.
Abdul Malik Mujahid 31:53
Now, what is a robo advisors?
Brett Arends 31:58
Robo advisors, it's very interesting developed, essentially, what they've worked out, a number of startups worked out that a lot of the financial advice that you get is particularly when it comes to investing is going is sufficiently it's now pretty orthodox, it's pretty standard. It's the same, you go to 10 different financial advisors, and you tell each of them, that your what your risk tolerance is and what your situation is, and you talk to them about who you are, where you are in your life journey and so forth, you're likely to get 10 investment portfolio recommendations that look very similar. And there were obvious reasons for that. And robo advisors worked out that essentially, you could cut out the middleman. And you could do it electronically. So you can go online, and they can tell you this, that the other my two concerns or number concerns with robo advisors. One is and there's nothing intrinsically wrong with the idea. The first is that they they don't provide any. I understand that it provides the broader overview. When I did a lot of postgraduate qualifications in financial planning and financial advice. I took a lot of courses. It's interesting how much of your financial health is not related to your stock market portfolio. It's do you have the right insurance policies? It's Do you have the right planned? Do you have the right things in place for your spouse, or your children, and so forth. The second thing is the robo advisors do not provide a valuable coaching function. Friends of mine who are financial advisors, the good ones spend a fair amount of their time coaching people coaching their clients on, you know, not saving so much money coaching their clients on not, you know, giving too much money to their adult children coaching their clients on doing it's like, Look, it's like the, when you join a gym, and you get a personal trainer. The main function of the personal trainer isn't to tell you how to use the gym equipment, the main function of the personal trainer is to make sure you show up once a week and use the personal and you know and to, to push it is to basically to be a coach to be a partner. And financial advisors, human financial advisors do that. And the older I've got, the more convinced I am that that is the number one value of a financial advisor, knowing how things go together the whole Chartered Financial consultants, Chartered Financial Planner, sort of body of knowledge about insurance and all the rest of it. That's valuable. The investing stuff actually isn't that valuable because it's supposed to be relatively straightforward and simple, which is what the robo advisors do. But it's the it's the life coach. It's the personal coach. It's the financial coach. That's the missing ingredient that's really important.
Abdul Malik Mujahid 34:53
Now, do you agree that economic recovery will crash the stock market?
Brett Arends 35:03
No, I don't. What worries me most about the stock market is the, as I said, the look, the enormous amount of exuberance, the mania, the animal spirits, how everyone is bullish, and everyone thinks things are gonna go higher and higher and higher, that is usually a warning signs, the recovering, look, a large amount of the economic recovery has already been anticipated by the stock market, which has gone up exponentially since the Panic of March a year ago. So it's gone a long way. I don't think that the we're, we're now essentially the biggest danger is that there won't be a recovery. The the one issue to watch out for is if the if and when the recovery gathers speed, if that drives up long term interest rates, if essentially that affects the bond market if the bond market starts to worry about inflation. And it's not at the moment, but if it starts worrying about inflation, and if it starts driving up long term interest rates that may affect the stock market, because one of the factors driving up the stock market is the knowledge that the Federal Reserve is just going to print money. And the federal government is borrowing and spending and the are essentially flooding the system with all the money that it needs.
Abdul Malik Mujahid 36:25
So you would say that, instead of economic recovery, better variable is to watch feds, what they're doing with any trust?
Brett Arends 36:35
Yes, but really what you want to watch what I what I watch our long term interest rates and long term inflation expectations. James Carville, who was an advisor to Bill Clinton. When he was president back in the 90s, he famously said that if he came back in another life, he said, he said, when I was a kid, I always thought if I came back in another life, I wanted to come back as like a famous athlete. But actually, I want to come back into the bond market, because you can intimidate everybody. What do you want to watch is the bond market, the if the bond market starts to worry about inflation. And what is likely to happen in that situation is that long term interest rates will rise and inflation expectations in the bond market will rise. And that is more likely to have an effect, negative effect on the stock market. That's more important than, you know, the Fed tries not to surprise people, they try to signal things so that by the time the Fed minutes come out, by the time they come up with the latest announcement, the market already has a good idea of what they're going to say where it shows up is in long term interest rates.
Abdul Malik Mujahid 37:47
Tell me the conservative advice will be to people you don't know so you stay out of day trading. But you know, the whole mania, which was created by Reddit groups. You know, it was all based on day trading. And probably there will be some smarter people who keep saying okay, yes, yes, stay in it, stay in it stay in until they cashed out and left their other kids in that group. But what is one on one of day trading? How do we..?
Brett Arends 38:26
The one on one of day trading is don't do it? It's like, what is the one on one of taking heroin? What is the one on one of taking you know crack cocaine? Just don't do it. I don't know anyone who's done it, and kept their money. During the GameStop mania, people were buying stuff that they didn't understand. And I wrote an article, I wrote an article and I said, Look, I said, you know, take your profits, you know, the stock, I can't remember what numbers went out? I mean, the number the stock had gone from what $3 to $400, or whatever it was.
Abdul Malik Mujahid 39:04
485 I think
Brett Arends 39:07
And all these people were saying you don't understand, you don't understand. It's not about the money. We're trying to send a message to the hedge funds. And the answer to that is, look, if you didn't make a profit from the hedge funds, then they end up making a profit from you. So you haven't sent them any message at all. The only way you send them a message is by making money at their expense. Otherwise, you could just send them a tweet. Um, so anyway, people hung on that I'm sending a message and they ended up getting hosed. So you know it's, this is not even this was not even a a it was not even that interesting a story it was it this has happened so many times. And of course we'll now have hearings about it. And you're.... going to the casino, it's like going to Las Vegas. You might as well just go to Las Vegas and battle...
Abdul Malik Mujahid 40:01
So liberals and conservatives came together well, some of them saying, leveling the playing field. So so that issue of equity came, while that many of us going on that probably still somewhere there. So how do you think, you know, field could be even for playing field could be even for individual investors as compared to institutional investors.
Brett Arends 40:32
When it comes to day trading and short term trading, the playing field can never be level you are, you are competing with people who do this for a living, who have paid in some cases vast sums of money to have high speed data connections that give them you know, the information a third of a second faster than you're going to get it and have huge computers that will trade on that information. You are it's a bit like saying how can I level the playing field between a high school college high school football team and, you know, a team in the NFL? And the answer is you can't, they're bigger, and they are trained for this and they're doing this full time. It is, it is a it's a crazy, crazy thing I knew I've never had any desire to day trade, I've never understood the appeal of day trading. If I want to gamble, I will go to a horse track or I will go to a casino this day trading short term you know, look, the short term momentum in the markets and buying stuff that has been rising is one thing, but day trading actually trying to get in in and out within, you know, within 24 hours or within 12 hours or within three hours. I mean, it's crazy. I mean, you are you are at this point, today you are competing with supercomputers. They're, you know, you're not going to win
Abdul Malik Mujahid 42:06
Is stalk market contributing to income disparity in our country?
Brett Arends 42:11
Yes, it is. More importantly, it's contributing to wealth disparity. Because the most of the most of the stocks in the stock market are owned by the dist-, the distribution of ownership is skewed, obviously to the rich, rich people own a disproportionate share of the stock market. So when the stock market goes up, they make more money, then people on Main Street, many of whom aren't in the stock market at all. I don't know, you know, the short term response to that is, Well, look, if the stock market goes down, there's greater equality. Well, I suppose that's true. The that doesn't, you know, we're hardly going to want the stock market to go down. I mean, in a depression, depression is a great leveler. But no one wants a depression, the stock, so a rising stock market may well certainly encourages or contributes to rising wealth disparity. That doesn't mean that it's necessarily a bad thing. On the contrary, when the stock market goes up, it encourages investment, which encourages economic growth, which benefits people lower down the distribution. My own beef about this is that we have a tax system that is still oriented towards income, rather than capital. I don't understand why we tax someone who makes a million dollars a year more heavily than someone who has $100 billion in stock, it doesn't make any sense to me, I would much rather have a property tax on stock, the way we have on homes. I mean, I pay a percentage my you know, my my home, and I'm sure your home and everyone's assessed locally added value. And you pay essentially a percentage of that every year as taxes to your city or municipality. No one considers that to be socialism, no one considers that to be crazy, it's a relatively simple system, you are able to minimize your property taxes by living somewhere smaller. People who are very wealthy don't particularly want to do that. Someone who has $100 billion worth of stock. I don't see why they don't pay a percentage of that every year as their tax bill. And someone who has $100,000 in stock would pay a percentage of that a their tax bill. And you would have essentially a flat tax rate that was also incredibly progressive in the money it raised because of course, most an astonishing amount of wealth is in the hands of a relatively small number of people, good for them. That's great. However, I don't see why they should be somehow paying a lower tax rate than other people.
Abdul Malik Mujahid 44:57
Tell us, so one more you know I get couple of other questions and we have few minutes. What is the difference? I mean, one on one of value stock versus growth stock.
Brett Arends 45:10
Right this is a great, this is a great question. This is actually one of my favorite questions. And it's, as always with the stock market. And these are mathematical equations that no one's ever going to solve, because they involve human psychology as well. Generally speaking, academics, theoreticians have divided the stock market, any stock market, in roughly trying to divide the stock market into two groups. On the one hand, you have so called growth stocks, those are stocks that by as the name implies, the business tends to be still in a growth stage, it's still early or young, it's still expanding, it's gaining market share it in a new business, Tesla being an obvious example. These stocks, you tend to pay a lot more for in terms of present income, in other words, you're paying up for growth. So you know, you are the price of Amazon has always been, you know, factored in a lot of its prospects for growth. The other half of the economy, the other half of the stock market, excuse me, circled value stocks, these tend to be mature... boring businesses. And they tend to be much cheaper in relation to this year's earnings, next year's earnings, because there's not a lot of excitement. So it's the difference between buying Tesla or buying a utility stock, a utility stock, you know, you get a big dividend check every year, you are buying, you may be buying a stock at 10 times next year's forecast, earnings per share. Because there's no growth, there's no excitement, it's no, there's nothing, it's not going to double in value, it has no none of the characteristics of buying a lottery ticket, you're not going to make a big score next year owning utility stock. On the other hand, you buy something like Tesla, and Tesla at the moment, I think you're paying something like 100 times, next year's forecast earnings per share, you're paying an enormous amount of money in relation to the current size of the business, because you are essentially betting that the company is going to grow. And you're you're you're paying a lot extra, so you're buying a more expensive stock, because you think the company is going to grow into that valuation. So what has tended to happen over time is that the market has gone from being very excited about the about the value stocks, and thinking that they're it loves the idea that they produce these generally speaking, steady dividend checks and steady earnings, and then falling out of love with them and fall in love with growth stocks. So back when, after the.com bubble the.com bubble was all about the growth stocks, right? They collapsed. It turned out a lot of the companies that were supposed to grow, shrink to nothingness, they went bankrupt, they were high risk, high risk, high volatility, many of them went bankrupt. So at that period of time, there was a huge rush to buy value stocks, because they were very cheap and people saying oh look, I can buy a, you know, I can buy a utility with paying me 7% a year in dividends, or I can buy a tobacco stock paying me 7% a year in dividends, and there's no risk. So there was a huge Stampede into value stocks, which then went up and up and up. And then it went the other way. Other way. We've had a big boom in growth stocks over the last I think 12 13 years, it has been probably the biggest ever. growth stocks in relation to value stocks are higher than they have been certainly since 2000 maybe ever. So right now, growth is very much the flavor of the... It is interesting, there is some debate about this. But generally speaking, most of the data has argued that over the very long term value stocks have tended to be better investments than growth stocks, because investors have tended, overall, on average, to overpay for the exciting stocks of tomorrow. They have tended to be over enthusiastic, they tended to pay too much. During the.com bubble Cisco Systems traded at one point at about 100 times forecast earnings. Tesla's there now Cisco has carried on growing as a business over the last 20 years. But the stock collapsed because it just wasn't worth those prices. So over the long term investors have tended to do better from value stocks than growth stocks. But there is some debate about whether that will be true going forward. All I can say is right now, growth is very much the flavor of the month. Value is very much out of fashion. My own investments are now heavily oriented towards value simply because I think growth is too high and value is too low.
Well thank you so much Brett Arends you have been helpful. I hope people watching have enjoyed a conversation with you. And I don't know because of your conversation if the cryptocurrency has gone really nosedive or not, but
Very unlikely.
Abdul Malik Mujahid 50:38
Well, thank you so much Brett Arends
Great to be here
Award winning financial writer. He's also a Chartered Financial consultant. Thank you so much. And thank you for watching. You know, this is 24 seven stay tuned for other programming on Muslim network TV, which is always there on galaxy 19 satellite, Apple TV, Amazon Fire TV, Roku and our own website and Muslimnetwork.tv or you can Google it, YouTube or download our app on your Android or iPhone Muslim network TV. Thank you so much for Sherdil, and Dr. Waheed for producing today's show peace and Salaam
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