In this episode Derek Moore helps to clarify the difference between a real return (adjusted for inflation) and a nominal return. This is especially important when looking to increase your purchasing power. Plus, Derek simplifies the difference between taking a simple average and a geometric average. The difference may surprise many people. What is a real return versus a nominal return? What is the formula to calculate an inflation adjusted real return? Difference between a simple average annual ...
Jun 02, 2019•23 min•Ep. 30
Jay Pestrichelli is back to join Derek Moore in a discussion around options. Particularly myths around options investing. Why we don’t do individual stock analysis and picking. How someone with low-cost basis in a concentrated stock position can hedge. And are coconut’s more dangerous than sharks? • Why use Broad Index Exchange Traded Funds for diversification • Why we don’t do complex individual stock analysis • Why doing stock valuation is complex due to making guestimates on the future • What...
May 26, 2019•37 min•Ep. 29
Often investors notice that after an earnings announcement a stock has the potential to move depending on the news. But what type of volatility or movement was expected before the announcement? Using implied volatility, we can look at how option premiums are pricing in potential expected moves. Derek Moore explains how the numbers work and how you can see what a one standard deviation expected move is once you know where to find implied volatilities of the underlying stock or index. • What is th...
May 12, 2019•23 min•Ep. 28
Lately things like the Universal Basic Income (UBI) and Social Security are debated on TV. Commentators throw around numbers and whether a program can be paid for. Plenty of debate on each side but why not understand for yourself where all these numbers are coming from. In this episode Derek Moore covers what makes up the Federal Budget, Tax Revenue, Interest Payments on Debt, and how much something like a UBI would cost so you can decide. Plus, the effect rising rates and increases in debt with...
May 05, 2019•24 min•Ep. 27
Derek Moore and Jay Pestrichelli are back with part 2 of their discussion around the myths prevalent in the 60/40 portfolio. This week they highlight how bonds with low yields may have even more potential interest rate risk than investors think. Plus, they elaborate on why some diversification strategies fail touching on increased risk of the All-Weather Portfolios and Risk Parity Strategies. Finally, they expand on the “Hedgers Opportunity” where a good hedged equity strategy may allow investor...
Apr 22, 2019•28 min
You’ve probably heard about the so called “Unicorn” IPOs or Initial Public Offerings on CNBC. With Lyft already public and Uber, Pinterest, Air B&B, and more on the way, everyone will finally get a glimpse of the financials for all these names. Do they make money? How much or if they lose money, how big is the loss? For those looking forward to finally getting a look inside these companies it can be like Christmas morning. We’ll review what information is disclosed and then compare Amazon an...
Apr 14, 2019•25 min•Ep. 25
For years you’ve been told that to get better risk adjusted returns you should diversify with some percentage in stocks and some in bonds. Yet when you look at the inflation adjusted annualized returns, is the idea of a 60/40 portfolio to manage downside risk more of a myth? In this interesting conversation Derek Moore and Jay Pestrichelli discuss why bonds may not offer much of a real return given where rates are. Plus, they delve into whether a 60/40 portfolio offers better risk adjusted retur...
Apr 07, 2019•27 min•Ep. 24
The yield curve has inverted. Well it did at certain points last December already. Now that the 3-month Treasury Bill yield went above 10-year yields, historically what does that mean? Has the yield curve inversion predicted every recession and if so how long in advance? Plus, calculated annualized returns doesn’t need to be that complicated right? Learn the differences in annualizing using simple averages versus geometric compounded averages. Finally, how do you calculate a real inflation adjus...
Mar 31, 2019•20 min•Ep. 23
You’ll often hear things like “The US Dollar is losing purchasing power”. But what exactly does it mean when the dollar loses value? In this episode Derek Moore will explain how to calculate dollar purchasing power over time and how to adjust for inflation the costs of good and services. Plus, why inflation is so hurtful to investors. • How does inflation affect retirement investors? • How do you inflation adjust something? • Why a dollar in 1800 is only worth a little less than 7 cents today • ...
Mar 24, 2019•32 min•Ep. 22
Have you ever watched CNBC or Bloomberg and wondered what commentators are talking about with earnings and valuations on individual stocks? Derek Moore explains common financial metrics and ratios to help listeners become informed and how to interpret things like PE Ratios, Earnings, EBITDA, and more. Plus, hear what back testing is and pros and cons of it. Key Takeaways: • What is the difference between top line and bottom line in an earnings report? • How to calculate what a company’s market c...
Mar 16, 2019•32 min•Ep. 21
In this episode Derek Moore explains the one benefit most investors overlook as a very important benefit of using a hedged equity strategy. The benefit of reinvesting avoided losses or hedging profits to pick up more shares while markets are lower. Key Takeaways: • If you lose this much, how much is needed to get back to breakeven level? • Benefits of using a hedged equity strategy • How hedged equity can take out some guesswork on timing the market. • Explaining how monetizing hedging profits o...
Feb 24, 2019•24 min•Ep. 20
In this episode Derek Moore discusses situations where investors might own a concentrated position in one stock or more with low cost basis. These present difficulties as selling would incur tax consequences however owning non-diversified positions pose significant single stock downside risk. Key Takeaways: • What is a concentrated stock position? • What are the risks of single stock holdings versus diversified portfolios? • Tax consequences of trying to diversify low cost basis positions. • Exp...
Feb 16, 2019•19 min•Ep. 19
In this episode Derek Moore discusses what Modern Portfolio Theory (MPT) and Efficient Frontier Investing means and how traditional investment risk rely heavily on standard deviation and variance to determine where a portfolio fits into a risk metric. Plus, Derek comments on how positive upside returns can actually increase traditionally used investment ratios like Sharpe. Key Takeaways: • What is Modern Portfolio Theory • What is an Efficient Frontier Portfolio? • How is investment portfolio st...
Jan 27, 2019•22 min•Ep. 18
In this episode Derek Moore discusses the various ways the Federal Reserve through its FOMC committee utilizes interest rates, buying or selling bonds, and the banks reserve ratios to increase or decrease the money supply. Plus, when pundits on CNBC, Blooomberg, or Fox Business talk about probabilities of future rate decisions, how do they come up with those and where to find them. Key Takeaways: • What are Fed Funds Futures? • How are Fed Funds Futures utilized to determine probabilities of fut...
Jan 05, 2019•26 min•Ep. 17
In this episode Derek Moore is joined by Jay Pestrichelli, Founder of ZEGA Financial and author of Buy and Hedge: The 5 Iron Rules For Investing Over the Long Term, to discuss how if a bear market materializes clients using a hedged equity strategy have already planed for it and have defined downside floors in portfolios. While not predicting themselves what markets will do, Jay and Derek discuss the features and benefits of limiting downside, participating in the majority of the upside, while h...
Dec 21, 2018•34 min•Ep. 16
Welcome to the Broken Pie Chart Podcast Episode 15. In this episode Derek Moore discusses the often-misunderstood target date funds prevalent in many workers 401k accounts and whether they are a good or bad idea especially given their drawdowns during the 2008 financial crisis. Key Takeaways: • What are target date funds? • How did target date funds do during the 2008 market? • What was performance so different between some target date funds during financial crisis? • What is the purpose of targ...
Dec 16, 2018•21 min
In this episode Derek Moore discusses the concept of Risk-Adjusted Returns, Standard Deviation of Returns, Sortino Ratio, Risk Free Interest Rates. Plus, how to compare two investment returns against one another on a risk adjusted basis and why many investors might be using the wrong investor benchmarks against their portfolios. Key Takeaways: • What are risk adjusted investment returns? • What is the standard deviation of investment returns? • What is the Risk-Free Interest or Discount Rate? • ...
Dec 02, 2018•20 min•Ep. 14
Welcome to the Broken Pie Chart Podcast Episode 13. In this episode Derek Moore is joined by ZEGA Financial Founder Jay Pestrichelli to discuss volatility as an asset class, implied volatility, the VIX Index and more. Key Takeaways: • What is the VIX Index? • Volatility Indexes for the Nasdaq 100 VXN and the Russell 2000 Index RVX • How is the VIX Volatility Index constructed? • What is implied volatility vs historical volatility? • How implied volatility looks to predict perceived potential tra...
Nov 16, 2018•51 min•Ep. 13
Welcome to the Broken Pie Chart Podcast Episode 12. In this episode Derek Moore discusses why diversification alone may not reduce systematic material stock market risk using the backdrop of the 2008 Financial Crisis. Plus, potential solutions using real hedging in portfolios. Key Takeaways: • What are the two main types of stock market investment risk? • What is single stock or concentrated stock risk? • What is systematic market risk? • What is diversifiable stock risk? • Why spreading investm...
Nov 11, 2018•27 min•Ep. 12
Welcome to the Broken Pie Chart Podcast Episode 11. In this episode Derek Moore discusses how changes in interest rates affect not only obvious things like car loans and home loans but also potential stock market and stock valuations. How does a higher discount or interest rate change the present value of earnings? Key Takeaways: • How Do Higher Interest Rates Potentially Affect Stock Valuations? • What is the Discount Rate? • How Do Interest Rates Affect the Value of Future Earnings or Cash Flo...
Nov 01, 2018•21 min•Ep. 11
Welcome to the Broken Pie Chart Podcast Episode 10. In this episode Derek Moore discusses some economic indicators that matter to investors. Many people hear the terms GDP, Inflation, Unemployment, and the Fed Funds Rate but aren’t exactly sure what they really mean. We look to deconstruct these popular indicators and show how they are important to investors. Key Takeaways: • What is Inflation and the Consumer Price Index or CPI? • What is GDP (Gross Domestic Product)? • What is the difference b...
Oct 27, 2018•24 min•Ep. 10
Welcome to the Broken Pie Chart Podcast Episode 9. In this episode Derek Moore discusses the relationship between bonds and interest rates. Plus, what everyone gets wrong when pointing to bond returns during the late seventies when interest rates were rising and how returns weren’t that bad. While we can’t predict where interest rates will go, we certainly can learn a lot about what drives bond market values regarding interest rates and how a spike in rates now would be different from the ninete...
Oct 13, 2018•30 min•Ep. 9
Welcome to the Broken Pie Chart Podcast Episode 8. In this episode Derek Moore reviews the so-called Buffett Indicator as well as the Shiller PE Ratio. With markets once again at all-time highs we are seeing some various articles and commentary on how to tell what market valuations might be considered too high or low. Key Takeaways: • What is the Warren Buffett Indicator? • How is the Buffett Indicator calculated? • Where to find the Nominal GDP and market cap to use to calculate the Buffet Indi...
Sep 29, 2018•20 min•Ep. 8
Welcome to the Broken Pie Chart Podcast Episode 7. In this episode Derek Moore is joined by Alpha DNA Founder Wayne Ferbert to discuss how they are using big data, machine learning, digital internet analytics, and proprietary algorithms to detect changes in consumer demand which can lead to pinpointing earnings surprises in a universe of 3000 companies across various market caps. These changes in trends seen by analyzing the digital internet footprint looks to determine whether companies’ quarte...
Sep 20, 2018•36 min•Ep. 7
Welcome to the Broken Pie Chart Podcast Episode 6 Adding Downside Buffers to Investment Portfolios Using Options. In this episode Derek Moore is again joined by Jay Pestrichelli, founder of ZEGA Financial and co-author of the book Buy and Hedge to discuss using options to create positions which control but don’t own shares of stock market indexes. These positions have the goal of providing upside greater than the market while installing a downside buffer down to a certain level in case markets s...
Sep 13, 2018•39 min•Ep. 6
Welcome to the Broken Pie Chart Podcast Episode 5 Do Presidential, Senate, and House Party Affiliations Really Impact Stock Market Returns? In this episode host Derek Moore takes listeners through historical S&P 500 Index Total Returns back to 1923 matched up with the President, whether they were republican or democratic, as well as the party affiliation of the senate and house. Many might be surprised at the results when Derek explains the annual average stock market returns by various comb...
Sep 01, 2018•36 min•Ep. 5
Welcome to the Broken Pie Chart Podcast Episode 4 Hedged Equity and Protective Investment Strategies. This week host Derek Moore , author of Broken Pie Chart, is once again joined by Jay Pestrichelli of ZEGA Financial and author of Buy and Hedge. Investors often miss out because of staying un-invested for fear of large market drawdowns or try to pick the absolute market top and sell too early. Derek and Jay have a lively discussion around what exactly strategies that hedge downside risk are and ...
Aug 23, 2018•51 min•Ep. 4
Welcome to the Broken Pie Chart Podcast Episode 3 Short Volatility. In this episode Derek Moore and guest Jay Pestrichelli discuss the emergence of short volatility strategies. How selling option premium with short put spreads and short call spreads can potentially generate income. With the low interest rate environment bonds are experiencing, will short volatility strategies start nudging fixed income’s place in many portfolio pie charts? We also discuss how sometimes the VIX Index is mistakenl...
Aug 16, 2018•49 min
Welcome to the Broken Pie Chart Podcast Episode 2 Yield Curve Explained. In this episode we will explore what the yield curve is, how the difference between short term interest rates and long-term interest rates can change the shape and look of the yield curve. We also touch on why everyone seems to be talking about potential yield curve inversions and what that means for the economy. Discussion builds around giving some historical perspective on past recessions in the US where we saw a yield cu...
Aug 09, 2018•24 min•Ep. 2
Welcome to the Broken Pie Chart Podcast. This is episode 1, and I’m your host, Derek Moore. Today we’ll be discussing key factors in saving for retirement and a bit about retirement calculators. The genesis of this discussion came about when I was recently asked, “Do I have enough saved based upon my age? When do you think I can retire?” Where you are as an investor is a function of several inputs. So I thought it would be helpful today if I went through some of the inputs that go into these cal...
Aug 07, 2018•30 min•Ep. 1
