The Savvy Wallet

Stock Buybacks (Share Repurchases) Explained in One Minute: Why Do Companies Buy Back Shares? Stock buybacks, also known as share repurchases, are when a company uses its cash to buy back some of its own shares from the market. This reduces the number of shares outstanding and increases the ownership stake of the remaining shareholders. But why do companies do this and what are the benefits and drawbacks for investors? One reason for a stock buyback is that the company believes its shares are undervalued and wants to take advantage of the low price. By buying back shares, the company can increase its earnings per share (EPS) and its return on equity (ROE), which are important metrics for investors. A higher EPS and ROE can also boost the stock price and attract more investors. Another reason for a stock buyback is that the company wants to return cash to shareholders without paying dividends. Dividends are taxable income for shareholders, while stock buybacks are not. Stock buybacks ca

Stock Prices vs. Real Economy in One Minute: What Do Soaring Share Prices Tell Us About Main Street? The stock market and the real economy are not the same thing. The stock market is a collection of shares of public companies that investors can buy and sell, while the real economy is the production and consumption of goods and services by households and businesses. The stock market is much smaller than the real economy, and it does not represent everyone participating in it. So why do stock prices sometimes go up when the real economy is struggling, or vice versa? There are three main reasons: The stock market takes a long-term perspective. Investors buy and sell stocks based on their expectations of future earnings and dividends, not current conditions. Even if the economy suffers a temporary setback, such as a pandemic or a recession, the stock market may still be optimistic about the long-term prospects of some companies or sectors. For example, during the COVID-19 crisis, some tech

V-Shaped Recoveries Explained and Compared to U, W and L-Shaped Recovery Scenarios The COVID-19 pandemic has caused a severe global recession, affecting millions of people and businesses around the world. As the world tries to recover from the economic shock, many experts and analysts are using different letters to describe the shape and speed of the recovery. In this blog post, we will explain what a V-shaped recovery is and how it compares to other possible recovery scenarios, such as U, W and L-shaped recoveries. What is a V-shaped recovery? A V-shaped recovery is a type of economic recovery that resembles the letter “V” on a chart of gross domestic product (GDP) or other economic indicators. It means that the economy suffers a sharp but brief period of decline, followed by a strong and rapid rebound to its previous peak or trend. A V-shaped recovery is considered the best-case scenario for an economy after a recession, as it implies a quick adjustment and recovery of consumer deman

Legal and Illegal Front-Running (Tailgating) Explained in One Minute: Buy the Rumor, Sell the News Front-running is a trading strategy that involves exploiting advance knowledge of a future market event or transaction that will affect the price of an asset. For example, if a broker knows that a large client is about to buy a huge amount of shares in a company, they might buy some shares for themselves before executing the client’s order, and then sell them after the price goes up. This is illegal and unethical, as it violates the broker’s fiduciary duty to the client and constitutes insider trading. However, not all forms of front-running are illegal. Sometimes, traders may act on public information or speculation that is not yet widely known or priced in by the market. For instance, if a trader expects that an upcoming earnings report, product launch, or interest rate decision will be positive for a certain stock or currency, they might buy it before the news is announced, and then se

Will the 2020 Economic Crisis Turn into a Great or Greater Depression? The year 2020 has been marked by a global pandemic that has caused unprecedented disruptions to the world economy. Millions of people have lost their jobs, businesses have shut down, and governments have implemented massive stimulus packages to mitigate the effects of the crisis. Many people are wondering how bad this recession is and whether it could turn into a depression similar to or worse than the Great Depression of the 1930s. The Great Depression was the longest and deepest economic downturn in modern history. It lasted from 1929 to 1939 and affected almost every country in the world. The US economy contracted by about 30% and the unemployment rate reached almost 25%. The causes of the Great Depression are still debated, but some of the factors that contributed to it were: The stock market crash of 1929, which wiped out billions of dollars of wealth and triggered a wave of panic and pessimism. The collapse of

Should You Invest in Gold? Gold is one of the oldest and most popular forms of investment. Many people associate gold with wealth, security and stability. But is gold a good investment for you? What are the pros and cons of investing in gold? And how can you invest in gold effectively? In this article, we will explore these questions and help you decide if gold is right for your portfolio. The Pros of Investing in Gold One of the main advantages of investing in gold is that it can act as a hedge against inflation and currency devaluation. As the prices of goods and services increase, the purchasing power of money decreases. This means that your cash savings lose value over time. Gold, on the other hand, tends to increase in value during inflationary periods, as it is seen as a store of value that can preserve your wealth. Another benefit of investing in gold is that it can provide a safe haven during times of economic and geopolitical uncertainty. When there is a crisis, war, pandemic

The Economics Behind Civil Unrest Explained in One Minute: From 2020 Realities to Long-Term Issues Civil unrest is a term that refers to protests, riots, and other forms of social disorder and conflict that challenge the authority of governments or institutions. Civil unrest can have various causes, such as political, economic, social, or environmental grievances, and can have significant impacts on the economy and society. In 2020, the world witnessed a surge of civil unrest events, triggered by the COVID-19 pandemic, racial injustice, political polarization, and rising inequality. According to the IMF’s Reported Social Unrest Index 1 , which measures media mentions of words associated with unrest across 130 countries, the fraction of countries experiencing large spikes in unrest rose to around 3 percent in February 2020, close to its highest levels since the onset of the pandemic 2 . Civil unrest can affect the economy in several ways. On the one hand, it can disrupt economic activit

Why the Market Can Remain Irrational Longer Than You Can Stay Solvent Have you ever wondered why the market sometimes behaves in ways that seem to defy logic and common sense? Why do some stocks soar to absurd heights, while others plummet to the ground, regardless of their underlying fundamentals? Why do investors flock to buy overvalued assets, while ignoring undervalued ones? Why do bubbles form and burst, leaving behind a trail of financial ruin and misery? These are some of the questions that perplex many investors, especially those who follow the principles of value investing. Value investing is a strategy that involves buying stocks that are trading below their intrinsic value, based on their earnings, assets, dividends, and growth potential. Value investors believe that the market is not always efficient, and that it often misprices securities due to irrational factors, such as emotions, biases, herd mentality, and speculation. Value investors aim to exploit these market ineffi

Paper Profits and Paper Wealth Explained in One Minute: Realized vs. Unrealized Gains If you have ever invested in stocks, bonds, real estate, or any other asset, you may have wondered how to measure your wealth. How do you know if you are making money or losing money on your investments? And when do you actually get to enjoy your profits? The answer depends on whether you are looking at paper profits and paper wealth, or realized profits and real wealth. Paper profits and paper wealth are the theoretical gains or losses that you would have if you sold your assets at their current market prices. They are also called unrealized profits and unrealized losses, because they are not yet confirmed by a transaction. Paper profits and paper wealth only exist on paper, or on your balance sheet, and they can change as the market fluctuates. For example, suppose you bought 100 shares of ABC company for $10 each, for a total cost of $1,000. A year later, the share price has risen to $15, so your i

The Economics Behind Living Paycheck to Paycheck: Debt Over-Optimization Living paycheck to paycheck is a common phenomenon that affects millions of people around the world. It means that you spend all or most of your income on your regular expenses, leaving little or no room for savings, investments, or emergencies. According to some statistics, as many as 63% of Americans live paycheck to paycheck since the Covid-19 pandemic hit in early 2020 1 . But what are the economic factors that contribute to this situation? And how can you avoid or overcome it? One of the main reasons why people live paycheck to paycheck is debt over-optimization. This term refers to a situation where an entity (such as a person, a company, or a country) has so much debt that it cannot take on any more debt to finance future projects or opportunities. This limits the entity’s ability to grow, innovate, or adapt to changing circumstances. Debt over-optimization can also increase the risk of defaulting on existi

Will the Dollar Collapse Due to Low Interest Rates and Quantitative Easing? The US dollar is the world’s reserve currency, meaning that it is widely used in international trade and financial transactions. The dollar’s status gives the US some advantages, such as lower borrowing costs and greater influence over global affairs. However, some analysts have warned that the dollar could lose its dominance or even collapse due to the effects of low interest rates and quantitative easing (QE). What are low interest rates and QE? Low interest rates are a monetary policy tool that central banks use to stimulate the economy by making borrowing cheaper and encouraging spending and investment. QE is another monetary policy tool that involves central banks buying large amounts of government bonds and other assets from banks and other financial institutions, injecting money into the financial system and lowering long-term interest rates. The US Federal Reserve (Fed) has used both low interest rates

Can Central Banks Keep “Printing” Money/Currency Forever? Permanent Monetary Stimulus The COVID-19 pandemic has triggered unprecedented responses from governments and central banks around the world. To support the economy and prevent a financial meltdown, many central banks have resorted to “printing” money or currency, or more accurately, creating new money electronically. This process is also known as quantitative easing (QE), which involves buying government bonds and other assets from the market to increase the money supply and lower interest rates. But can central banks keep doing this forever? What are the benefits and risks of permanent monetary stimulus? And what are the alternatives? The Benefits of Monetary Stimulus Monetary stimulus is intended to boost economic activity by making borrowing cheaper and encouraging spending and investment. By increasing the demand for goods and services, monetary stimulus can also support employment and income growth. In addition, monetary st

If you are interested in the stock market, you may have heard of the term “Retail Bros”. This is a slang term for retail traders who are mostly young, male, and aggressive in their trading style. They often follow the advice of Dave Portnoy, a popular online personality and founder of Barstool Sports, who claims that “stocks only go up” and that he is better than the professional investors or “Suits”. But is this true? Are Retail Bros really smarter than Suits? And why do most retail traders lose money in the stock market? In this blog post, we will try to answer these questions in one minute, using some surprising statistics and facts from various sources. First of all, let’s define what we mean by retail traders and professional investors. Retail traders are individual investors who trade stocks or other securities for their own account, usually using online platforms or apps. Professional investors are institutional investors who manage large pools of money for clients, such as mutu