oz-chen-personal-finance-money-newsletter-12-18-2020

Edition #2: Credit Cards, Square, Credit Utilization Rate, and Uncommon Profits

The Dark Side of Credit Card Rewards 🐙

The game of earning credit card rewards, if managed well, can lead to some pretty sweet travel perks. For the unprepared, however, it could be a house of cards.

Read why here: The Dark Side of Credit Card Rewards
 
Tl;dr lucrative rewards are built on mountains of credit card debt. I talk about how fragile this game is, and examples of why average consumers don’t reap the full value of their rewards. (It’s not all depressing, I end with some tips).
 
I’m considering putting a guide on how to maximize credit card rewards while avoiding the main pitfalls. If you’re interested a short and sweet guide, hit “reply” or Tweet at me.

How do we go against the crowd…if we don’t know where we stand in the crowd? 🤷🏽‍♂️

Recently, I’ve built conviction that retail investors stand a chance against Wall Street. With focus and enough research, individual investors like you and I can stand to beat the market over the long term.
 
But one idea has been keeping me up at night. Warren Buffett famously said:
 
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”
 
The advice is to go against the herd mentality.
 
My concern: how does one know how big the crowd is, and where one stands in the crowd?

For example — I’m already bullish about Beyond Meat. Most of my friends around me believe in the company too. It’s quite possible that I’m in an echo chamber of people who share my worldview. I read some articles for and against investing in the company, and still don’t have a sense of where the “crowd” stands.
 
 It’s not like there’s a global meter that reads “other investors are fearful…buy now!” And vice versa. If such a thing existed, knowledge of it would immediately negate its utility.
 
How can we accurately “gauge” where the crowd stands? How do we zig while others zag?
 
I’m formulating some ideas for a new article, and would love to learn from YOU how to identify — and avoid — the herd mentality.
 
Got an answer? You can reply in this Twitter thread here

📊 Stock I’m following: Square (SQ)

When you buy stuff in person from a small business, there’s a fair chance you’ve used a Square chip reader. Not only does Square have a vast business, but it owns Cash App, which is one of the fastest growing digital wallets in the U.S.
 
On top of that, I think the CEO Jack Dorsey (who’s also the CEO of Twitter) is a true long term visionary.

“Pick a movement, pick a revolution and join it.” — Jack Dorsey

Listen to Jack Dorsey break down the future of tech on Andrew Yang’s podcast.

💰 Money tip of the week: Credit Line Hack

If you’ve had a credit card for a while, it’s like that you can just call the number on the back of your card and ask for a raise on your credit limit.
 
This can help boost credit scores because of one equation: the credit utilization rate, which is how much credit you use divided by the amount of credit you have (your credit line).
 
So long as your spending stays about the same, a higher credit limit means a lower credit utilization rate, which boosts credit scores. This is because you’re seen as lower risk, compared to someone else who’s maxing out their credit cards. 

📚 Book highlight of the week: Common Stocks and Uncommon Profits

“From a business perspective, there are only three valid reasons to sell a stock.
 
One, you misjudged the company’s growth potential.
Two, your judgment was sound, but the company conditions changed.
Three, you’ve invested in a middling stock in the near-term to keep you busy while you search for an amazing investment.”

This comes from legendary Philip Fisher, who first wrote Common Stocks and Uncommon Profits 1958 (updated 2003). In a Berkshire Hathaway annual meeting, Warren Buffett called it “one of the great books on investing.”


End Note

If you’re enjoying the newsletter, I’d love it if you shared it with a friend or two. You can send them here to sign up. I try to make it one of the best emails you get each week, and I hope you’re enjoying it.

Should you find anything interesting this week, send it my way! I love finding new things to read through my online community.

Until next time,
Oz


I’m just a guy on the internet with an opinion, so please just treat my content as entertainment. My content is may contain referral links to products I use or love. My content is for informational purposes only, and you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

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