InSight

Market InSights:

Tesla added to S&P500

Today is the last day that Tesla will not be part of the S&P. S&P Dow Jones Indices has announced Tesla’s addition Friday after the market close. Tesla will officially trade as a member of the S&P 500 by the time the market opens on Dec. 21. Today’s buy of Tesla at the market close will likely be the biggest buy order ever.

This means Tesla joins the S&P at today’s closing price, the volatility is already high because it is also the quadruple witching quarterly options expiration.

Some highlights you should know about TSLA’s inclusion:

  1. The addition of Tesla will cause the largest rebalancing ever of the S&P 500 ever – Tesla is the 9th largest company by market capitalization. Because most of the investments that track the SP500 are weighted by market cap, they will be adding more TSLA than anything else. It will represent about 1.5% of the index going forward. 
  2. The liquidity for Tesla will increase, as these passive funds enter the space, the access to TSLA will increase. Both to borrow and trade the access to TSLA should see some much needed liquidity.
  3. This will stabilize the historically volatile stock. The swings both directions on Tesla have been pretty epic over its lifespan. Expect that to temper somewhat. This won’t change Elon’s flagrant tweeting, or the inherently volatile relationship this company has with investors, but over time, such a large holding from passive tools like SPY will bring the range down on its intraday swings. Inversely, TSLA will start to bring its price instability to bear on the SP500 adding to its aggregate volatility.
  4. If you own exposure to U.S. Large Cap ETF’s and mutual funds, you will own more TSLA going forward. There is nothing you need to do to get the exposure. If you already own the TSLA stock outright, it is adding to the exposure. It’s likely time to rebalance.
  5. The SP500 will get a shot in the arm on the P/E ratio – expect this to jump suddenly, there is nothing wrong with the readout, TSLA’s PE (today) is close to 1300. Meaning you have to pay $1,300 for every dollar TSLA earns. Before today the PE on the broader SP500 was 37 (already high) and expect the bellwether that is Tesla to cause that further distortion. This inclusion may permanently impair any comparisons you or your broker has made to the PE of the SP500.
  6. Inclusion of TSLA, will cause some forced selling of other names of make room. Fund will have to make room for Tesla, and will push out 1.5% from the other names to make room.

The closest similarity we can draw is when Yahoo was added. It too was not a member of an S&P small or midcap index prior to its inclusion and had a similar rush to buy when it was included in 1999. As a reminder, this was considered the beginning of the “tech bubble” by many. Yahoo stock rose 50% between the announcement and its entry into the index at the time. 

Some funds have been adding to the TSLA position, in anticipation of this inclusion, but many passive funds are not allowed to until today, as close to the close as possible.

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Boulder financial advisors, cash generation investing
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Kevin Taylor

How to execute a covered call strategy

If you’re interested in investing in the stock market, you might have heard about a covered call strategy. It’s a popular method that can help you generate income while holding onto your stocks. Here’s a simple guide on how to execute a covered call strategy. First, let’s understand what a covered call is. A covered call is an options trading strategy where an investor sells a call option on a stock they already own. When you sell a call option, you’re agreeing to sell your stock at a specific price (known as the strike price) to the buyer of the option if they choose to exercise it. Now, let’s get to the steps of executing a covered call strategy: Step 1: Choose a stock to invest in You’ll need to pick a stock that you’re comfortable holding for the long term. This is because when you sell a call option, you’re agreeing to sell your shares if the option is exercised, and you don’t want to be forced to sell a stock you’re not comfortable holding. Step 2: Determine the strike price and expiration date of the call option You’ll need to decide at what price you’re willing to sell your shares if the call option is exercised. This is known as the strike price. You’ll also need to choose an expiration date for the option. This is the date by which the buyer of the option must decide whether to exercise it or not. Working with a financial advisor can be essential for determining the right strike price for a stock when executing a covered call strategy. Financial advisors have the knowledge and experience to analyze market trends, evaluate the risk-reward potential of different stocks, and help you make informed decisions about your investments.  Step 3: Sell the call option Once you’ve chosen the stock, strike price, and expiration date, you’ll need to sell the call option. You can do this through a broker or trading platform. The buyer of the option pays you a premium for the right to buy your stock at the strike price before the expiration date. The result of the premium that you are paid is yours, it can be transferred and used elsewhere, or reinvested to continue your other investment efforts.  Step 4: Wait and see what happens Now you wait and see if the buyer of the option decides to exercise it or not. If the stock price stays below the strike price, the option will expire worthless, and you’ll keep the premium you received for selling the option. If the stock price rises above the strike price, the buyer of the option will likely exercise it, and you’ll sell your shares at the strike price. Step 5: Repeat the process If the option is not exercised, you can repeat the process and sell another call option on the same stock. You can continue to generate income from selling call options on the same stock as long as you’re comfortable holding onto it. To sum it up, executing a covered call strategy involves selling a call option on a stock you already own. By doing so, you receive a premium and generate income while holding onto your shares. Just remember to choose a stock you’re comfortable holding for the long term and to pick a strike price and expiration date that makes sense for your investment goals. Covered call options are one of the many risk management strategies we at InSight develop with clients to help them achieve their financial and risk targets. Contact us today if you have concentrated positions and excess risk from a single stock position.  

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Kevin Taylor

What are the Fiduciary Responsibilities?

A fiduciary is a person or organization entrusted with the responsibility of managing assets or property on behalf of someone else. A fiduciary has a legal obligation to act in the best interest of their client or beneficiary and to exercise a high level of care and diligence in carrying out their duties. In this blog post, we will discuss fiduciary responsibilities and why they are essential in the management of assets and property. What are fiduciary responsibilities? Fiduciary responsibilities are legal and ethical obligations that fiduciaries must uphold in managing assets or property for someone else. These responsibilities include: Duty of loyalty: Fiduciaries must act in the best interests of their clients or beneficiaries and avoid any conflicts of interest. This means that they cannot use their position for personal gain or benefit. Duty of care: Fiduciaries must exercise a high level of care and diligence in managing assets or property on behalf of their clients or beneficiaries. They must use their expertise and knowledge to make informed decisions and take appropriate actions. Duty to act prudently: Fiduciaries must act with prudence and skill in managing assets or property. They must make investment decisions that are consistent with the investment objectives, risk tolerance, and investment restrictions of their clients or beneficiaries. Duty to diversify: Fiduciaries must diversify investments to manage risk appropriately. They must ensure that the investment portfolio is diversified across different asset classes and sectors to minimize the impact of any single investment’s performance on the overall portfolio. Duty to disclose: Fiduciaries must provide full and complete disclosure of all material facts and information to their clients or beneficiaries. They must be transparent about their actions, decisions, and compensation. Why are fiduciary responsibilities essential? Fiduciary responsibilities are essential in the management of assets and property because they help to ensure that the interests of clients or beneficiaries are protected. Fiduciaries are entrusted with managing assets or property on behalf of someone else, and they have a legal and ethical obligation to act in the best interests of their clients or beneficiaries. Failing to uphold these responsibilities can result in financial loss, legal liability, and damage to the reputation of the fiduciary. Fiduciary responsibilities are particularly important in the management of retirement plans, trusts, and estates. Retirement plan fiduciaries, for example, have a duty to act prudently in selecting and monitoring investments and to ensure that fees and expenses are reasonable. Trust and estate fiduciaries have a duty to manage assets in accordance with the terms of the trust or will and to distribute assets to beneficiaries in a fair and equitable manner. Fiduciary responsibilities are critical in the management of assets and property on behalf of someone else. Fiduciaries have a legal and ethical obligation to act in the best interests of their clients or beneficiaries and to exercise a high level of care and diligence in carrying out their duties. By upholding these responsibilities, fiduciaries can protect the interests of their clients or beneficiaries, minimize risk, and avoid legal liability.

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Kevin Taylor

How Dentists Can Increase Revenue

There is a wall street mantra, “you can’t cut your way to growth” and that is as true for your dental practice as it is for any publicly traded company. Focusing on increasing revenue is still your best bet for expanding the bottom line. For most dentists, the best way to profit is to increase revenue and put an emphasis on effort that allows you to expand the top line. We review some of the steps other dentists have taken to increase bandwidth, reach, diversity and scale your income. By Kevin T. Taylor, AIF® Increase your client acquisition rate Of surveyed dentists the acquisition rate ranged between 20% to 30%. The average acceptance was 24%. This means that almost eight out of ten prospects you meet with each month are finding treatments recommended by you at a different office, or not at all. Expanding that case acceptance rate to even 50% would increase revenue twofold for the dental office on the same number of prospects. How do you get there? By making two changes to the way you approach patient acquisition.  Process – For our dentistry clients the client acquisition is a documented sequence of events that every prospect goes through. The focus on this pattern becomes repeatable and helps both to determine where prospects exit the sequins and gets your whole team into an organized way of doing business. But it’s key to also remember that people will do business based solely on the way they feel about a person, place, idea etc. So your process should be centered around a way a prospect feels about a decision at every step of the way. The process you implement should reflect that customer centricity and by thinking about every element of what the client goes through and the experience you are hoping to convey.  Teaming Up – Use the case presentation moment as a “team event.” Take this step away from solely being the doctor’s responsibility, and give elements of the presentation to office staff beyond yourself. This change pays dividends in both the way a client feels about their relationship with the office, and offloads some of the management of the engagement onto other people in the office. The presentation of your case cannot be based upon teaching the patient dentistry, that won’t move the needle for patients who decide to do dental treatment based on the way they feel about your team and you, not just the education you provide. Expand your capacity to Increase Revenue The amount of time you can commit to performing the technical aspect of dentistry the more capacity for revenue you will have. This shouldn’t be a revolutionary concept. Our clients focus on increasing revenue need to focus on total capacity by adding additional treatment space, hiring more staff, or adding another dentist or hygienist to the practice. These are all pretty straight forward, so to go a step further they also increase capacity to do more dentistry by increasing their efficiency.  How often are you rescheduling for hygiene? A General Practice should be 80% +.  Are you hygienists doing the rescheduling?  If not, they should be.  Don’t miss out on easy opportunities and don’t assume people are or aren’t doing something. Some other successful examples are setting up a routine for the rooms they visit, setting timelines, scheduling next visits, offloading the sterilization process, and gaining speed on dental procedures through organization. The summation of all these activities allows the dentist to get through more lucrative work, more quickly. Expand your capacity outside your practice – Sources of revenue are not limited to your professional capacity to earn, your profession should be viewed as a platform for generating income. Our dental professionals use their practice income to seed revenue generating activities in and out of the office. They find real estate, financing, medical lending, owning other practices, and other business opportunities to expand their network of income and leverage their profession and their income. Most dentists have at least one source of income beyond the office that they rely on either personally or professional.  Expanding the menu of procedures up market Veneers, implants, endodontics, and crown and bridge are examples of procedures that for our clients have had a higher profit margin and ultimately increase revenue. Offering these types of procedures expands the range you can bring to clients, and given their margin is a more effective use of time that can raise the top line. An important consideration is that the sheer size of the fee isn’t necessarily indicative that it‘s more profitable for the practice. Keeping time, and capacity in mind is the origin of scale when stretching up market.  Expand your market – You can increase the number of prospects you can review treatment plans with by doing more internal and external marketing. But our clients have noted that not all marketing is the same. Word of mouth is still the most popular, but often the hardest to manage and grow. While a concerted effort in online and traditional marketing can be costly and outside the skill set of many dentists. Regardless of the method, what is most important is focusing on ROI and scale, and likely bringing in resources to assist in this field.   It can be difficult to determine what strategy will have the greatest effect for your practice, and it is likely a combination of some or all of the above. Our Certified Financial Planners who specialize in dentistry can help contextualize what your current efficiency metrics look like, benchmark them with other practices, and help you build a platform for generating wealth and cash flow for yourself and your practice.  Increase Revenue by expanding your total market You can increase the number of prospects you can review treatment plans with by doing more internal and external marketing. But our clients have noted that not all marketing is the same when it come to an increase revenue objective. Word of mouth is still the most

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