Tradewinds Navigating Life & Finances
OCTOBER 6, 2021 / VOL 14, NO 3
See What’s Inside Regatta Capital Group invites you to attend our Year-End Planning Seminar! 2021 Benchmark Returns: 9/30/2021
MSCI All Country World Index: 11.12% S&P 500 Index: 15.92%
Morningstar Moderate Target Risk Index: 6.53% US Aggregate Bond Index: -1.55%
The 4th Quarter Stretch Financial Frenzies, Mania & Bubbles College Planning Checklist Who’s on Your Fantasy League Team?
N E W S L E T T E R / O C T O B E R 2 0 21
The Fourth Quarter Stretch
By Kristin Grant, Financial Advisor Associate & Director of Financial Education
I
personally love this time of the year, not only because of sweater weather, the hearty home-cooked meals and an array of sports to watch. It’s the one time of the year where you can be retrospective making improvements to finish the year strong while planning for the new year ahead. I was recently thinking about the game of football and how I love the energy and excitement of the 4th quarter. That’s where the game gets intense, and the same holds true for a calendar year of financial planning. For a football team, the fourth quarter is usually where the winner is decided. For investors, we are striving to meet our year-end goals. Both parties work hard in the beginning quarters making smart plays while adapting to inconveniences as they arise. However, a big determinant of how successful a team or investor will be depends on who’s on their team. Imagine, you are the coach and your financial team are the players. You’re at the line of scrimmage and your year-end goals are starring you down. If this year taught us anything, it is the importance of planning ahead and having the best team possible to help reach the end zone! Each player has a unique set of responsibilities and attributes that enable you to succeed. Consider your Financial Advisor to be your quarterback, the most essential player on the offensive side. Your financial advisor should ensure that your game plan is current and meaningful with some well-drawn-out plays to score some touchdowns and win the game. During the fourth quarter, you should be assessing your current plan, adjusting your savings goal or rebalancing your portfolio for your investment needs. With a goals-based
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financial plan drawn up by your Regatta team, you can have confidence that decisions are being made to focus on the big picture of building your overall net worth and getting you that much closer to Financial Freedom. Whether it’s building out your emergency fund, budgeting for a large expense, or maxing out your 401k and IRA contributions, now is the time to gain some yards. And don’t forget the catchup provisions! Your financial advisor should be dishing out these plays to your team members.
Another vital team player is your tax preparer. Consider your tax preparer to be your runningbacks. They ensure that you make your way down the field and protect your assets. Almost every investor is seeking ways to reduce taxes. With the year-end rapidly approaching and new tax laws on the horizon, it is important to proactively seek out tax savings strategies. You may have had some underperforming stocks in your portfolio this year due to the volatility brought on by the pandemic. In a taxable account, your Financial Advisor can assist with looking for tax loss harvesting strategies to capture up to $3,000 in capital losses (or more) on your investments. If you turned 72 this year, required minimum distributions will be required here soon. Tax penalties could be as high
as 50% of the required shortfall, if not fully met. Your tax preparer should be protecting you along the way. Your tax preparer is multifaceted because they can gain the tough yards and remove any defensive threats to ensure the most reward for your financial goals. We know financial planning is a longterm game and along the way there will be unexpected events. On the defensive side, players are there to protect you in the event you “fumble the ball”. Consider your defensive linemen to be your Estate Attorney and your Insurance specialist to be your safety. Remember, offense wins games, but defense wins championships. For your year-end goals, if you have a trust and/or need to revise beneficiaries or if you intend to do any year-end gifting or charitable donations your financial advisor can communicate changes with your attorney and tax preparer. An insurance specialist can also ensure you’ve made the necessary updates to your evolving needs. Both are equally important and should be communicated with at least once a year. Having this protection is the surest way to preserving your wealth, not only in this year but for years to come. So, I ask who do you have on your team? At the minimum, it is best if your Financial Advisor is aware of who your Tax Preparer, Estate Attorney and Insurance Specialist are so your financial needs can be properly communicated amongst each other. Your players are best when they work together. The fourth quarter can be a game changer, so let’s secure that win! We hope your team brings you to victory!
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S T O C K M A R K E T U P D AT E
Executive Summary
By Russell Mohberg, Co-Founder & Chief Investment Officer
M
erck announced on Friday, October 1st that it will seek FDA approval for a COVID-19 antiviral pill, after a study showed it cut risk of hospitalization or death by half. It was a small study but no one who received the drug died. The study was stopped as it became unethical to withhold the treatment from the control group. The stock jumped in heavy volume and held the gains through the day. This feels like another major turning point in this fight against the pandemic. Let’s review a little more of the details known at this time before getting into the stock talk. The name of the drug is molnupiravir and it needs to be taken within five days of the COVID-19 symptoms. Currently, all other approved COVID-19 treatments require IV or injections. The Merck treatment is very simple, patients take four pills twice a day for five days. This will cost a fraction of what the current treatments cost. Like other antivirals, Merck’s pill works by interfering with the virus’s ability to copy its genetic code and reproduce itself. The FDA will fast track the review of this drug and approval could come within weeks after the review.
Many industries and companies are still trading at depressed levels. This low-cost treatment should solidify the end of the pandemic and means that we are buying stocks during this October sell-off. We won’t buy all at once, but we will accelerate the rate of purchases if the markets head lower.
Next, specifically on Merck, is it a buy, sell or hold? It is easy to get over excited in these situations and jump at the company featured in the news. We like Merck. It trades below its fair market value ($81.40 vs $94 FMV) and it pays a 3.19% dividend. However, is it the best move? First consider that our sources say more drugs like these are coming. Pfizer and Roche are conducting trials now.
Here’s a note from the Merck analyst that we follow, Damien Conove: “Merck’s strong data for COVID-19 treatment offers patients a needed oral treatment but doesn’t significantly affect our fair value estimate for the firm. While we project the drug should post sales over $3 billion in 2022, we expect sales to fall rapidly by 2024 when the pandemic will likely be under better control due to higher vaccine utilization. The lack of a long duration of sales for molnupiravir (as well as profit sharing with Ridgeback Biotherapeutics) limits the drug’s valuation gains for Merck.” Then, what company do we like more than Merck? Roche is the leader in oncology therapeutics and the firm has a promising strategy of combining its expertise to generate a growing personalized medicine pipeline. Roche currently trades at $46.65 and the fair market value is estimated at $58 per share. The dividend is 2.62%.
F IRM UPD ATE Regatta Capital Group is hosting a Year-End Planning Seminar! Here’s your chance to learn more about some important year-end tasks for your tax planning needs. If you are interested in attending, please email us at regatta@regattainvest.com.
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N E W S L E T T E R / O C T O B E R 2 0 21
Frenzies, Mania & Bubbles
By Britt Joyce, Financial Advisor, Co-CIO & Director of Endowments & Foundations A pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons. - Warren Buffett
W
hile the overall market is not in a bubble right now, there are small pockets do look concerning. Euphoric herd mentality leads to investment bubbles. All bubbles must eventually pop. Studying historical bubbles helps us recognize the warning signs. Here are three interesting examples: Tulip Mania: This remarkable episode was detailed in an excellent book from 1841 called Extraordinary Popular Delusions and the Madness of Crowds. At its peak, the price of a single tulip bulb in Holland in the 1637 equaled: • 3x what Rembrandt charged for painting The Night Watch just five years later, • 20x the annual income of a skilled carpenter, or • The cost of 1,000 pounds of cheese. Within a matter of weeks however, tulip prices plummeted back down to earth, wiping out the fortunes of many who thought the trend would persist. The Dotcom Bubble: The rapid adoption of the internet in the 1990’s captured the imaginations of investors. Stocks of internet companies levitated. In fact, the overall Nasdaq composite had appreciated 10x in just 10 years, only to fall 80% by October 2002. The Nasdaq did not reach new highs for 15 years. Porsche / Volkswagen Short Squeeze: “Short squeezes” are a technical type of bubble that occur when people who are betting against a certain stock are forced to buy the stock in a hurry to unwind their bet as the price rises along with the size of their liability. One of the most notable short squeezes happened in Volkswagen stock. In 2008, very few of Volkswagen’s shares traded daily because so much of it was owned by Porsche and the German government. When it became known that Porsche wanted to buyout Volkswagen, the price shot up which squeezed the short sellers into buying Volkswagen shares. There were so few shares trading however, so this pushed the price up dramatically. The stock price quadrupled in a matter of days, briefly valuing it above all other public companies in the world for reasons that were more technical than fundamental. A STRANGE YEAR: Volkswagen’s ordinary shares 2008 (€)
$600 $400 $200
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1. Cryptocurrency: Crypto and blockchain are here to stay and some will do quite well. However, crypto’s bubble risk is high because: a. It generates no cash flow and therefore has no calculable intrinsic value b. More are being created all the time (i.e., increasing supply), c. It has attracted a lot of speculative capital in short order, mostly from newer investors 2. “Meme stocks” like Gamestop: Reddit and other websites have enabled investors to gather online and coordinate attempts to manipulate a stock’s price higher by buying it en masse. This began with efforts to trigger short squeezes like the Volkswagen example. The price must eventually come back down however so this creates a risky situation. The very popularity of such a risky strategy is a warning sign that people’s appetite for risk is too high. 3. Buzz word stocks: As in the Dotcom Bubble, recent times have been characterized by pockets of excessive confidence around certain industries. Sometimes it feels like all you must do is start a business with half-baked plans to develop artificial intelligence, cannabis or electric cars, and frothing investors will invest in your business without even looking under the hood. Opportunities certainly exist in these industries, but careful diligence is required when seeking treasure in a minefield. Greater Fool Theory The Greater Fool Theory is a crucial thing to remember. You are at serious risk of investing in something bubbly if your reason for investing is the belief that someone (a greater fool) will overpay even more for that investment in the near future. This is different from buying a consistently profitable business or real estate property that you would happily commit to holding for decades to come.
Don’t get me wrong, there are plenty of good values out there in the investing world right now. But this is a time for extra caution, especially with investments tied into the above examples.
$800
Source: Bloomberg
The market currently has many opportunities, but also some areas of excess speculation. At Regatta, we think extra caution is warranted when sifting around for opportunity in areas like:
Conclusion
$1000
$0 ‘08
Today’s Market Climate
‘09
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College Planning Checklist
By Ellen Himmel, Financial Advisor & Branch Manager
T
ypically, the end of summer brings the start of school. Many parents, this year especially, feel relief, hope and a sense of normalcy as their children return to the classroom. To those of us with older children, the end of summer brings the hurried activities of getting our kids off to college. The pandemic changed this classic ritual a bit. My daughter was in the high school graduating class of 2020. There was no high school prom, no last day countdown and no graduation ceremony. Additionally, there was no freshman year drop-off as her first semester of college was remote. Fortunately, the start of her sophomore year was more typical. Bags were packed and shipped back east; flight, hotel and car reservations were made. I also must acknowledge the emotional preparation I engaged in to prepare for the college drop-off moment. It goes without saying that taking your child to college is bittersweet as the realization that your role as a parent “parenting” every day is ending, and you are not needed in the same manner and way you were 10 years ago. On the other hand, you have raised your child to be an independent, competent, and involved person. This new era represents the fruits of your labor and is a time to be proud. Despite all these emotions, this is where we need to get practical: when your child
turns 18 years old, they are adults under the law. In your eyes (and the eyes of your wallet) you are still responsible for their health care, food, board, college expenses, clothes, car insurance and more––but in the eyes of the law they are adults. I’ve described it as ‘adult limbo’. You have no right to see their grades, medical records, or make medical or other legal decisions for them. Knowing this, when my daughter turned 18, I made an appointment with a trust and estate lawyer to prepare three documents to help us navigate this adult limbo as a team. It also prompted me to review and revise my own estate plan since my daughter was no longer a minor. So, in anticipation of your child turning 18 and/or going off to college, I’d recommend adding these forms to your college prep list. No one likes to think about medical or health emergencies, especially as it applies to our kids, but these forms will help provide peace of mind, just in case they are ever needed. 1. CA Advanced Healthcare Directive/ Medical Power of Attorney. This purpose of this document is to make certain medical and end-of–life decisions for yourself and to designate someone you trust to carry out your directives should you become incapacitated. This is something you may already have for yourself or associate with the care of an aging parent or loved one. Your adult child now needs this document as well and names the individual (usually a parent, guardian or other trusted individual) who they designate to carry out or make their health care decisions should they not be able to do so or become incapacitated. 2. HIPPA Release and Authorization. This document essentially authorizes you to receive confidential information about your child’s health when necessary to provide for your adult child’s medical care. The HIPPA laws, enacted in 1996, have several provisions but it is the privacy provision which prohibits
the sharing of your adult child’s medical information with you without their express permission. The HIPPA Release and Authorization is an effective way to work around the privacy limitations and is necessary to have an effective Health Care Directive. If your child is sick or injured, this would allow you to communicate, coordinate and obtain records across different hospitals, providers, and networks. The HIPPA Release and Authorization can be tailored to meet individual needs and concerns. Your adult child can specify in the HIPPA Release and Authorization what can and cannot be shared with you in terms of medical information, and can exclude the disclosure of mental health, prescription, or other details they wish to keep private. 3. Statutory Durable Power of Attorney. The purpose of this document is to authorize an individual to make certain financial decisions. This document generally authorizes the parent to sign financial documents for their adult child, handle their tax returns, and otherwise manage their assets. If your child, like mine, attends college out of state, check with their college to see if they accept and recognize your documents. My daughter had to sign a HIPPA form specifically through her college. I also sent a set of the above documents with her to college and kept a copy at home. My daughter and I used Regatta Trusts and Estates APC to prepare these documents and I am happy to recommend them. Of course, you may engage any attorney of your choice to prepare these documents and help your family navigate the transition into full adulthood. This trio of documents gives me a peace of mind akin to the scout’s motto of being prepared and hoping we will never have to use them.
To learn more about Regatta Trusts & Estates, please review their website at www.regattalaw.com
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N E W S L E T T E R / O C T O B E R 2 0 21
Fantasy Football Leagues By Ben Satterfield, Financial Advisor & Director
F
antasy Sports Leagues started in 1962 when an owner of the Oakland Raiders, Bill Winkenbach, started the Greater Oakland Professional Pigskin Prognosticators League with a group of friends. It has now exploded into a $7.2 Billion industry with more than 60 million people participating in North America, 40 million playing Fantasy Football alone. I became one of those individuals for the first time back in 2003 and have participated ever since. I can’t tell you why the other 60 million participants play but for me it started with a love for football and has continued because of fantasy football’s social aspect. Today, I focus on two leagues that have allowed me to keep in touch with old friends, family, and colleagues. I started my first fantasy football league in 2006 with seven of my friends. Back then we were a group of single guys from Ohio, in our mid-20’s, just beginning our professional careers. Today, go-
ing into our 16th season, we have grown into a 12-person league, including all the original players. We have seen members move across the country, switch careers, and become proud husbands and fathers. For the last 16 years, through all those changes, this league has remained a constant. Every year it gives us the perfect excuse to spend a few hours together during the late August draft and then continue weekly banter through the end of the NFL season. Last year, I expanded my NFL Fantasy play by starting a Survivor League thinking it would be the perfect way to involve my wife and others in something that I have enjoyed for long. A Survivor League requires you to pick one NFL team to win each week. If you are wrong, then you are eliminated and the last surviving player wins it all. In our second season, the league has grown to 44 members which includes my wife, her brothers, several of her childhood
friends and colleagues, six Regatta team members, many of my friends and colleagues, and even a few friends of friends that I have never met. It has been a great way to bring together so many people in my life that otherwise would have no reason to interact. It doesn’t hurt that there is a decent pot waiting for the winner at the end of the season! As a social person and a life-long lover of football I appreciate how Fantasy Leagues brings these two things together in my life. These leagues have been paramount in keeping me connected with friends over the last 16 years and have even helped me deepen and develop new relationships. You may not love football, so your social connections may come from playing pickle ball with friends or a book club, but if you do love football we would love to have you in next year’s Survival League!
The Regatta Financial Weather Report Key Economic and Market Indicators
Economic Growth Forecasts 2021
U.S. Retail Sales Growth, 1 year
15.1%
Expected to be 1.8% by 2022
U.S. Unemployment Rate
5.2%
Lowest since March 2020
Inflation (CPI)
5.3%
Slightly eased since last qtr
Manufacturing Economic Health (PMI)
60.7
Expected to be 58pt by 2022
S&P 500 Valuation (Forward P/E Ratio)
21.94
-7.5% from a year ago
Source: TradingEconomics.com, ycharts.com)
Interest Rates 30-year mortgage, fixed
3.21%
Slight decrease from Q2 2021
Money Market
0.07%
Steady decline towards 0
Five-year CD
0.44%
Steady decline
Prime rate
3.25%
No change from a year ago
Source: wsj.com/market-data/bonds
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US
6.4%
Euro ex UK
4.4%
UK
5.3%
Japan
3.3%
EM
6.7%
China
1.2%
India
12.5%
World
6.0%
Source: OECD
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Finance-ology QUADRUPLE WITCHING - This investing term describes the date when all stock index
options, stock index futures, stock options and stock futures expire on the same day. This day tends to fall on the third Friday of March, June, September and December. Because all the items listed above expire on the same day, this creates a high volume trading and potentially extreme volatility (i.e. chaos and sorcery) for investors. The high volume of trading usually occurs during the last hour of the trading day and any financial news can affect the overall market during this time. It is always best to consult your financial advisor because trading in these speculative investments can wreak havoc on your portfolio.
Front Row: Nick Ozer, CFP®, Lisa Margulies, Grace Yu, CFA, Lee Clay, CSRIC; Back Row: Spencer Kelly, CFP®, Ellen Himmel, JD, Russell Mohberg, CFP®, Kristin Grant, Britt Joyce, CFA, Marc Joyce, JD, Erika Dumandan, CPA; Not Pictured: Lindsey Diranian, Ben Satterfield, Cole Thompson, Grant Nabell
If you have comments or questions, please do not hesitate to reach out to us at info@regattainvest.com
Main Branch Office
Westchester Branch Office
Brentwood Branch Office
Spencer Kelly, Nick Ozer,
Lisa Margulies
Ellen Himmel
Britt Joyce, Lee Clay, Ben
7135 W. Manchester Avenue, Ste 2
12011 San Vicente Blvd. Ste 320
Satterfield & Russell Mohberg
Westchester, CA 90045
Los Angeles, CA 90049
880 Apollo Street, Ste 129
Office: (424) 255-1045
Office: (310) 471-6461
El Segundo, CA 90245 Office: (310) 725-9102
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Regatta Newsletter Volume 14, Number 3 Editors: Kristin Grant Russell Mohberg, CFP®
880 APOLLO STREET, STE 129 EL SEGUNDO, CA 90245
Contributing Editor: Spencer Kelly, CFP® Contributors: Venessa Robinson Grace Yu, CFA, FRM Britt Joyce, CFA, CFP® Lisa Margulies Erika Jenkins, CPA Ellen Himmel, JD Nick Ozer, CFP® Lee Clay, CSRIC Marc Joyce, Esq. Brian Mollo Cole Thompson Grant Nabell Benchmark Data Source: Tamarac, Inc
Your personal performance report has been posted to: https://regatta.portal.tamaracinc.com
ABOUT US
Regatta Capital Group
We are unabashed in our commitment to scouring the investment universe to find the best possible solutions for our clients and their money. We know there’s an easier way to manage money, but we choose to take the road less traveled.
R
egatta Capital Group provides investment management and financial planning advice to individuals, families, business owners and endowments. The firm manages more than $800 million for clients in Los Angeles and more than 32 states.
For example, we invested in Facebook pre-
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IPO, own clean energy facilities and have directly invested in over 50 private, multi-family apartment building LLCs.
©
2021 Regatta Capital Group, LLC. All rights reserved. Reproduction by any means is prohibited. While data contained in this report are gathered from reliable sources, accuracy and completeness cannot be guaranteed. All data, information and
opinions are subject to change without notice. Investments referenced are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value. Past performance does not predict future results.