Mamba Mentality

The helicopter crash in which Kobe Bryant and 8 others lost their lives is so sad, especially for me because of the young lives lost. The terror those people experienced in those last seconds must have been excruciating. Every day is a gift!

Mamba Mentality

Kobe’s nickname was The Mamba, and he talked about his “Mamba Mentality”, so I looked up what it means. From what I can discern, it is the mindset that one has when they have put in the level of work that is necessary prior to an event, whether the event is a basketball game or an ordinary day at work. If you have put in the necessary work and completed the necessary level of preparation, your mindset will be that you will win. Knowing that you have prepared will give you confidence. By all accounts, there was nobody in the NBA that worked harder than Kobe Bryant. His physical abilities and his legendary tolerance for pain were big helps, but his mindset based on the hard work and preparation was what really set him apart and made him ultimately one of the NBA’s best-ever players.

Mamba Investing?

“Mamba Mentality” translates well to any endeavor. Success is predicated on hard work. If you put in the time, there is a much better chance that good results will follow.


Kobe did a lot of work on his own, but he also benefitted from working with outstanding coaches including Phil Jackson and Duke’s Coach K. While I am not comparing myself to either of the two best ever basketball coaches, I am saying that good coaching combined with “Mamba Mentality” hard work is a formula that will lead to investing success more often than not. My ask is that you consider working with a financial planning “coach” such as myself or another qualified person in whom you have confidence and a level of comfort.


A lot of people are sharing their personal stories of Kobe Bryant and I will as well. I live in Newport Coast, CA, very close to where Kobe and his family lived. Kobe went to the same church as me. I saw Kobe and his wife at church, in the supermarket, and around town from time to time. The last time I saw Kobe was late last year. My homeowner’s association had a meeting at the neighborhood community center. I looked in the gym and there were Kobe and his daughter’s team, having a practice. Kobe was visibly happy. Now he, his daughter, and two other beautiful young girls on that team are gone. Two mothers with daughters on that basketball floor are gone. So sad for me. There has been too much of this in my life lately. May all of those beautiful young souls rest in peace!

The Big Get Bigger

Last time, in my blog titled Concentration, I wrote about how more and more of our wealth is being managed by a very few number of managers; namely, State Street, BlackRock, and Vanguard. Today, my warning is that those Big Three managers have a disproportionate amount of their assets in only a very few companies. This is a cause of concern for me as one who advises clients to invest in index funds, but I don’t see an alternative if you want to invest in the stock market, which has been the strongest asset class throughout recent history.

Logos of the 5 Largest US Companies

The Big Get Bigger

A couple of weeks ago, Alphabet, the parent of Google, became the 4th US company to achieve a Market Capitalization (Total Number of Shares Times Price Per Share) of over $1 Trillion (again, with a T). The other three are Apple, Microsoft, and Amazon. A fifth company, newly-public Saudi Aramco, is also valued at over $1 Trillion but is not a US company. These four largest companies are accounting for a larger percentage of US corporate revenue and profits, which in turn makes them a larger percentage of the various stock indexes of which they are a part, which in turn causes index ETFs such as the SPY that track these stock indexes to invest a larger percentage of their assets into these three companies. It seems like a perpetual motion machine that is headed toward greater and greater concentration of investment capital into a smaller number of companies, even though the size of the overall pie is growing.

As further proof, as of 12/31/19, according to the Fact Sheet of the SPY S&P 500 Index ETF, the top 10 holdings accounted for 22.7% of the market capitalization of the fund. So, 10 companies – the aforementioned largest 4 plus 6 others that you are also familiar with – make up 22.7% of the S&P 500 by capitalization. Does this give you pause? How about looking at the QQQ, which is the NASDAQ 100 Index ETF, which is a tech-heavy index? According to its website, the top 10 holdings in the QQQ account for 53.2% of its capitalization as of 1/17/20. Granted, this is a 100-stock index, but 53.2% for the top 10 holdings? That is very concentrated. Does this give you more pause? How about this – what if you own both the SPY and the QQQ? No surprise, but Apple, Microsoft, Amazon, Facebook, and the two classes of Alphabet/Google comprise the top 6 holdings of both of these Index ETFs. You may think you are diversified, and you are more so than if you own individual stocks (if you are a small investor), but you are investing in a portfolio that is becoming more concentrated and in which the largest players are becoming even larger. This is consistent with what is happening in the larger US economy, but that doesn’t make it feel any more secure.


Diversification doesn’t just mean owning various different stocks. Diversification also means owning different asset classes, such as bonds, real estate, precious metals, and perhaps other types of assets. If you think you are more diverse by owning ETFs rather than individual stocks, you are, but that doesn’t mean you have nothing to worry about. We have an increasingly small number of asset managers managing an increasingly large percentage of our collective investment wealth and investing that wealth into a more concentrated few number of extremely large companies. Be aware of what you are getting yourself into!


No, this is not a blog about the old television game starring Hugh Downs among others called Concentration. Rather, this is about concentration in the financial markets among fund managers, and concentration within those fund managers of what assets they are investing in by virtue of their presence as index fund managers.

Actually, this is not about the old TV game show

The Big Three

As to concentration among fund managers, the three largest are Vanguard, BlackRock, and State Street. You may invest your money in index funds, but some firm is managing those index funds even for the pittance of a few basis points that they charge. Chances are one of these three companies manages the index fund that you own. For instance, do you own the SPY, the largest ETF that tracks the S&P 500 Index? The SPY and all of the related “spider” funds are managed by State Street Global Advisors. The huge iShares family of funds is managed by BlackRock. Vanguard and its founder John Bogle founded index funds and they remain huge ETF managers. Together they had over $15 Trillion (with a T) under management as of 3Q 2019 (Google it). By virtue of their size, one of them is the largest shareholder in about half of all publicly-traded US companies, according to this article. So what, you might say. Well, for one thing, if they are shareholders, they are entitled to vote in individual corporate elections and thereby have a role in the way corporations are governed. If they are just index ETF managers, then they should not be a source of activism in corporate management, wouldn’t you think? Not so fast! Have you read some recent statements by Larry Fink, the head of BlackRock? Fink is concerned with Climate Change and wants all companies to divest themselves of coal. Fink is writing letters to all companies wherein BlackRock is a shareholder (i.e., probably all public companies in the US) warning them to divest of coal or risk being sold by BlackRock. Don’t know how Fink is going to accomplish this, but the point is it doesn’t sound like a letter from a “passive” ETF fund manager.


The switch from individuals (and institutions, for that matter) investing in individual companies to funds such as ETFs that have low management fees is a good thing in general because of portfolio diversity but it has a flip side. The flip side is that only a few companies manage these ETFs which have become huge. Because they are so huge, the companies that manage these ETFs, particularly the Big Three of State Street, BlackRock, and Vanguard, are in a position to throw their weight around perhaps when they should not. Moreover, what if something exogenous happens to one or more of these Big Three? How would that upend and cause turmoil in the financial markets? Think about a major computer systems hack of one of the three that causes loss of data. How would that be dealt with, and what would be the effect in the markets? We don’t know because this level of concentration is unique, at least in the last 100 years. I’m not recommending this situation gets rectified because I believe on the whole these ETFs are a good thing, but just be aware that there are issues out there that could pop up and cause indigestion.

As to the other area of concentration; namely, that a growing amount of market capitalization is in the very largest of companies, I will deal with in a later blog post.

Option Expiration Dates

Last Tuesday I posted about my Covered Call strategy. Today I want to discuss one element of call writing: option expiration dates. For most of the largest indexes and individual stocks, there are many expiration dates to consider. I usually sell (write) options that expire weekly at the end of trading on the ensuing Friday.

Options Time Decay: Option Values Decrease As Expiration Nears


This is a big difference between owning a call option vs. owning the underlying stock or index outright. When you own the stock outright, you don’t ever have to sell it. There is no expiration date on its ownership. However, options have expiration dates, which means their value is finite. After their expiration dates, they are either worth what the underlying stock is worth (if the option is “in the money”), or they are worth nothing. They are binary: all or nothing.

As the calendar moves closer to the expiration date, the value of a call option decreases, all else being equal. For example, a call option that is $1 out of the money one month prior to its expiration is worth more than a call option $1 out of the money one week prior to expiration. This is called the option’s “time value”: the value of a call option erodes over time.

The Trick

When writing call options, the trick is to choose the expiration date with which you are comfortable, and/or for which you earn the best value. I like to write options on a weekly basis because I feel like I can better understand what might happen for the next week than I can for the next 2 weeks or next month. Granted, because of the time value erosion in the value of the call options I don’t sell weekly options for as much as I would sell monthly options. However, a lot can change in a week, and I believe I can make more money with less risk by selling weekly options than I would if I just sold monthly options. Transaction costs, while there are some, are not significant enough to sway my methodology and cause me to write monthly options just to save money on commissions.


When an option expires has a significant effect on the value of the option because of the binary nature of options at their expiration. When I sell call options, I try to find the sweet spot between getting paid and minimizing risk. Most of the time for me that sweet spot is with options that expire every week. That way I keep a close eye on the markets and my positions without having to sit in front of my terminal constantly worrying.

Slow Population Growth = Slow Economic Growth

This article from the Wall Street Journal shows that US Population Growth is at its lowest percentage level since the 1920s. Because of lower fertility rates and lower immigration rates, the rate of growth of the US Population fell to below 0.5% last year, down from about 1.4% in the early 1990s and over 2% during the late-1950’s height of the Baby Boom. If this lower growth trend remains in place for a relatively long time, and many demographers believe it will, the ramifications for the economy and particularly for economic growth will be significant. Without a significantly growing population, it is very difficult to sustain significant economic growth.

The US Population Rate of Growth is Slowing


Why should economic growth suffer if population growth slows? Think about it. If population growth slows, then that means the average age of the population will get older because there won’t be as many younger or new people to replace the older people as they retire. If the workforce isn’t adding as many workers, then the only way to grow is to improve the productivity of the workers already in the workforce. Advancing technology has helped, and perhaps the increased use of Artificial Intelligence and robotics will help some more. However, the US Bureau of Labor Statistics shows that workforce productivity has remained relatively stagnant for the past 9 years. Why is this the case? Well, in your experience, as people get much older, do they get more adept at using technology or less adept? There is probably a curve, but people from their late 40’s onward likely are not as adept at technology as are younger people. We need a continuous influx of new, younger workers to stimulate productivity and to stimulate economic growth.


Look to Japan as an example of how falling fertility has led to economic stagnation. Japan’s population growth has not only slowed down, but it has also actually been declining for the better part of the past decade. This link says that Japan’s population is projected to shrink by 16% from its peak in the next 20 years. Partly as a result, this link shows that Japan’s GDP is lower now than it was 10 years ago, although growth has been picking up in recent quarters. As we know, Japan limits immigration, so its population growth is almost entirely dependent on its fertility rate. Japan’s economy is now 3rd largest in the world behind the US and China, and without a drastic change in its fertility rate, Japan is destined to stagnate. Japan has been an economic powerhouse that has produced great cars and great technology since the end of WWII but its days as a growth economy are likely over, due to its aging demographics.


I believe there is hope in the US to right the ship toward increased population growth. We could at any time let more people and more workers immigrate into the US, which would help a lot to ease the existing shortage of workers (3.5% unemployment rate!). As to policies that encourage a higher fertility rate, it is anyone’s guess as to how to do that, but there are pockets of higher fertility (such as in Utah) and we might think to emulate policies that seem to have resulted in higher fertility where such is the case. We read a lot about how we need more younger people to pay into Social Security so that Social Security remains solvent. We don’t as much read about the direct link between population growth and economic growth. If we want our economy to continue to grow, we need more young people who will eventually enter the workforce. Watch for demographic trends as a precursor to future economic trends. If you don’t watch, I will and I will let you know about them.

Writing Call Options

One of my favorite and most consistent investment strategies has been to write call options against long positions that I own. This is also called Covered Call Writing. In this post, I would like to explain this strategy, how it works, and why it is one of my favorites.

Call Options

Call options are options to buy an underlying stock at a specific price, called a strike price. Usually, 1 call option gives the owner the right to buy 100 shares of the underlying stock. It costs money to buy the call option. How much does it cost? It’s a function of what the strike price is relative to the market price of the stock at that time. The higher the strike price is relative to the market price of the stock, the less the options will cost, and vice versa. Call options typically have an expiration date which will also affect the price of the option; the longer until expiration, the more the option will cost, and vice versa. The opposite of call options are put options, which give the owner the right to sell at a specific strike price. My strategy typically does not involve put options.


Writing is another word for selling, at least in the options world. When you sell anything, whether it is a used car or a stock option, you get money for it. In the options world, as in the stock world, you can sell something that you don’t own. When you write a covered call, you already own the underlying stock, but then you sell the right to purchase more of that same stock. What is the net effect of all of this? First, you get money for having sold the call option (even though you didn’t own the call option when you sold it). Second, although you hope not to, you may be obligated to sell your stock at the strike price of the option. I’ll explain.

At Expiration

My objective when I sell a covered call option is that the option will expire prior to its being called and I get to keep my long stock position and all of the money I made when I sold the call. How does that happen? Let’s use an example to demonstrate. Let’s say I own XYZ stock and it is currently trading at $50 per share. I look and I see that XYZ has call options related to it at a strike price of $55 per share that are selling for $6 per option. How do I come up with $6 per option? It’s basically the $5 difference between $55 and $50, plus a little bit for the time between now and its expiration date. I think XYZ probably won’t rise from its current $50 to $55 between now and when the call option expires (probably a month from now), and so I decide to sell the $55 call option and pocket the $6 today. At the expiration of the call option a month from now, 1 of 2 things will happen: 1) If the market price of XYZ is below $55, the call option will expire worthless and I get to keep the $6 plus hold on to my XYZ position. However, 2) If the market price of XYZ rises above $55, say to $60, then my long position in XYZ will get called away at the strike price of $55. I still get to keep the $6 I got when I sold my call option, but I have to sell my XYZ at $55 even if it is trading at $60 at that time.


Writing call options and/or a covered call investment strategy is considered to be a relatively conservative way to use existing long assets to generate current income and total return. Because I already own the stock and I only write options to the extent that I own the stock, my downside is that I potentially give up some of the stock’s upside in return for generating current income. Of course, there is always a downside in owning a long position, but that downside is not magnified by writing a call against that long position. If you don’t mind taking the risk that your stock might go up more than you figured and that you might have your stock called away from you, then you too should consider a covered call writing strategy in order to generate current income. I plan to blog more about this in the coming weeks, so please stay tuned, or just go ahead and contact me now if you can’t wait to get started with your own covered call strategy.

Tesla: I Was Wrong (So Far)

My June 29, 2018 blog post on Tesla stated why I thought Tesla (TSLA) was not a good stock pick. The elimination of government tax credits combined with increased competition from new entrants in the electric car market would make it difficult for Tesla to make a profit on its electric car business and therefore make it difficult for Tesla to survive.

Weekly Chart of Tesla from

Stock Performance Since Then

It looked for a long time like I was right, especially when TSLA bottomed at under $200 during 2Q 2019. However, Tesla’s rally over the past several months shows me I wasn’t right. On June 29, 2018, when I posted my Tesla blog, Tesla closed at about $343 per share. It has been a rocky 18 months since then, but as I write this, TSLA is trading at almost $471, an increase of 37% in 18 months. Tesla is showing it can deliver cars, if not at the rate they would like, then at least at a rate with which investors are satisfied. The latest good news is that Tesla’s China manufacturing plant is up and running and delivering cars.

Why Is Tesla Stock Delivering?

Tesla is showing that demand for its cars is relatively price-inelastic. People still want to buy Teslas despite the run-off of the tax credit. Tesla cars are proving to be the cream of the crop among electric vehicles and there is always a demand for top of the line products in any marketplace. Moreover, we are at a time where Tesla is out there producing cars while other electric car alternatives, while promising, are not yet on the market for sale. Tesla still owns a relatively unique place in the electric car market.

Not Out Of The Woods

How long will Tesla’s unique market position last? According to the Wall Street Journal’s car columnist Dan Neil, Tesla will have a lot more competition by this time next year. This article describes, automaker by automaker, all of the new electric car options that are about to hit the market. Some are stand-alone electric car makers, such as Tesla, but most are divisions of well-financed worldwide automakers (such as Ford, Volvo, and Jaguar) who will be introducing electric cars not so much to make a profit (although profit does play a part, for sure) but to comply with company-wide fuel economy mandates. It still remains that, although Tesla needs to make a profit on electric car sales, the likes of Ford, Volvo, and Jaguar do not, as long as they can recoup any losses from electric car sales through increased profits in standard gasoline-powered cars.


Can Tesla stock continue this torrid pace and continue to rise, even above its current lofty $471 per share? It certainly helps that they are successfully delivering cars here in the US and in China. It also helps that Tesla is still perceived as the highest quality electric car available. However, the longer-term future is not clear. Let’s see how the Fords and the Volvos of the world market their electric cars. They could succeed, but they could also fail miserably, precisely because their entire existence is not predicated on selling electric cars. Tesla gets it right because they have to. I am not optimistic that Tesla stock will continue to outperform because of the competition, but Tesla does look better to me now than they did when I first wrote about them in June 2018.

Iran and Oil

The US military droned Iranian bad guy Soleimani on January 3, and what was the world oil market’s reaction? Meh. Granted, the near-term future price rose about $2/barrel from about $61 to just over $63, a 3+% jump that is not insignificant. But this was a major military action by the largest world oil producer against another large oil producer, and all we have is a 3% jump in prices? As I said, Meh. In prior years and prior decades, a similar military action could have moved world oil prices ten times that. For instance, when Iraq invaded Kuwait in 1990, the spot price rose from $21 to $28, a 33% jump, before ultimately reaching $40. Then, when the US invaded Iraq and it soon became evident that Operation Desert Storm would be a smashing success, prices dropped to $20/barrel, a 50% change. (See this article for backup). So, why the ho-hum reaction to the US’s takeout of Soleimani?

Drill, Baby, Drill!

The Emergence of US Production

The most significant reason is the huge increase in US oil production such that the US is now the leading daily oil producer in the world. There is a greater abundance of oil available in world markets than there was 30 years ago because US producers have ramped up due to technological advances such as hydraulic fracturing. According to the Energy Information Administration, in 2019, the US was the leading producer with almost $18 million barrels per day or 18% of world production, far ahead of #2 Saudi Arabia which had 12% of daily world production. Thank US frackers for keeping world oil prices relatively steady despite heightened geopolitical tensions.

The Information Economy

Secondly, as the tech sector has grown, the importance of oil has shrunk in that the percentage of the US and the world economy that is dependent on stable oil prices have declined. The price of your new iPhone or your new Lululemon outfit is not a huge function of the price of oil or where the oil is coming from. Granted, we still drive cars that burn gasoline, and oil is a part of chemicals and plastics that are part of new-age products. However, oil is not nearly as central to the US economy as it was when the Iraq/Kuwait situation developed during the Bush I presidency.


Lastly, at least for this posting, we have developed alternatives to oil on a massive scale. Electric cars are nice, but the power source that is charging electric cars is likely natural gas or perhaps even solar. Nearly all of the natural gas consumed here in the US was produced here in the US (or perhaps in Canada or Mexico). Crude Oil is not a major factor in US domestic energy production and is less of a factor now than it was 30 years ago.


If you are looking at heightened tensions and perhaps war (of some scale) between the US and Iran as an opportunity to go long on oil futures and make a big killing in the process, think again. Oil may go up or at least not go down as long as the US and Iran are at loggerheads, but oil prices could drop quickly if there is a perceived easing or lull in the tensions. The world of oil has changed a great deal in the past 30 years.

Happy New Year! Time to Rebalance?

Hope your Holiday season was peaceful and that you enjoyed your New Year’s festivities, especially the football! I love the Holidays but I also love cleaning up after the Holidays and getting ready to hit the ground running in the New Year.


The turn of the calendar makes for a logical time to look at your portfolio and think about what you are trying to accomplish. You are another year older – should you be in more “safe” assets in your investment portfolio? Are bonds “safe”? Has one part of your portfolio outperformed while another has underperformed? If so, should you sell the winning part so you can buy more of the losing part? It seems counterintuitive but that’s what a Rebalance is.

My Recommendation

Let’s say you had wanted to be 60% in stocks and 40% in bonds in your investment portfolio at the start of 2019. Stocks were strong in 2019, particularly tech stocks, and so let’s say you ended up 2019 at 62% stocks and 38% bonds because stocks outperformed. Now, should you sell 2% of your stocks portfolio and buy 2% more of bonds? Up until now, I would say that the transaction cost and the bother of it all weren’t worth it. However, if your stocks are (properly) invested in index mutual funds or ETFs, and you have your money in an account that charges little or nothing for commissions, then go ahead and do the rebalance, even for only 2% of your portfolio. If all it takes to rebalance is a couple of clicks, then go for it. Also, if you are contributing to your retirement account on a per-paycheck basis, make sure your election of how that money is invested fits with your portfolio composition objectives.

Another Recommendation

Within your “Stocks” allocation, you have likely sub-allocated a portion to Tech, a portion to the S&P 500, and perhaps portions elsewhere. Whereas Tech outperformed in 2019, I believe there will likely be a reversion to the mean in 2020. Therefore I believe you should reallocate somewhat out of Tech and into other sectors, including International stocks. For instance, the EEM, which is the ETF for Emerging Markets, has been on a pretty steady rise since August 2019 and is hitting new highs now. I believe other world economies will emulate the US economy in 2020 and show growth, not the other way around as some economists have predicted. Don’t bet the farm, but I believe it is prudent at least to have some money allocated so as to participate in world economic growth.


I believe the zero commission world makes it easier and less costly to reallocate and so I believe you should go ahead and do so, even for small percentages of your portfolio. Now is a very good time to reallocate, and you should make it a habit to do so every New Year’s Day. In fact, as you watch the Rose Parade every year, open up your laptop and do some simple math (if it isn’t already done for you) and make sure your portfolio allocation is in line with your objectives. Then go clean up the mess from Christmas after that.