Plan Now for the Next Market Crash

Welcome to StockUp, the investing newsletter that's trying to savor eggnog season for as long as it lasts. -------------------------------------------------------------------------------------------------- [View this email in your browser]( Welcome to StockUp, the investing newsletter that’s trying to savor eggnog season for as long as it lasts. This week, what goes up must come down, including stock markets. We’ve got simple ways to be ready whenever that happens. Plus, why Amazon’s rapid growth could suddenly sputter out, and why one activist investor just won’t leave Cracker Barrel to rock on its porch and whittle in peace. — Nathan Alderman, StockUp Editor AN OUNCE OF PREVENTION Learn How to Plan for the Next Market Crash --------------------------------------------------------------- Sure, the market’s riding high now. But that may not last. It rarely does. In the long term, markets have thus far marched ever higher. But in the short term, they can plunge without warning, leaving your investments hurting (at least for a little while). Save yourself some heartburn the next time that happens; follow Fool Catherine Brock’s suggestions now to be ready when the market inevitably swoons again. We’ve got the first three tips to get you started: - Give your portfolio the once-over. Anything in there looking particularly risky? Maybe a little less than sturdy? Consider scheduling a once-a-year portfolio review to find and evict the weaker links in your holdings before you have to do so at a grievous loss. - Figure out your future. When are you planning to retire? How long would you like to keep working? The answers to these questions can help you figure out how much short-term risk you’re willing to shoulder. Market crashes hurt less when you’ve still got plenty of years left to recoup your losses. - Stash some emergency cash. Car breakdowns or home repairs don’t tend to wait patiently until the stock market’s back on an even keel. Make sure you have money socked away so that you don’t have to sell stocks at a loss to cover your costs. Discover more that’ll help you panic less and profit more when you [read the rest](. --------------------------------------------------------------- Already subscribed to a premium service? [Click here]( to view your subscriptions. Not a member yet? [Click here]( to sign up! --------------------------------------------------------------- JARGON DECODER The Lowdown on Leverage They don’t call it “Wall Street” for nothing; the big banks there build bigger barriers of baffling terminology to keep regular Fools like you intimidated, underconfident, and ready to fork over your cash to a broker. Each week, Jargon Decoder translates one of those worrisome words or phrases into plain English, helping you get a leg up on the Wall Street Wise. This week’s term: leverage. It basically means “how much money a company has borrowed from someone else.” Suppose you run a company, and you need money to build a new factory. You’ve got three ways to get it: - Pay for it out of the money you’re making. Except, wait, what if you’re not making enough free cash to fund it? Well, you could always… - Issue new shares of stock to raise money. But that would make every existing shareholder’s stake in your company worth less, and investors don’t like that. So that leaves… - Borrow money one way or another. You can take out a loan from a bank or sell bonds to investors. Either way, you’re taking money now and promising to pay it back later, with a little extra on top. That’s leverage! When a company takes on more debt, it’s leveraging up or increasing leverage. When it pays off that debt, it’s deleveraging. Leverage isn’t always bad. If interest rates are low, sometimes the cost you pay to borrow money will end up lower than the rate of return you’ll get from the thing you buy with your borrowed money. If you borrow $100 million to build a factory, pay $2 million a year in interest, but make $5 million more a year in profit from the new factory, you’ve come out ahead! But as you likely realize, when you borrow money, you eventually have to, you know, pay it back. If companies take on too much debt, they risk spending more and more of their cash flow and profits paying off the interest on that debt, much less the debt itself. That crimps other, more profitable ways the company could use that money. And when a company can’t cover its payments, it might have to cut its dividend or even sell off assets to avoid going too deep into the red. Keep an eye on the balance sheet to see how quickly a company’s long-term debt is growing. Then check the income statement to find its interest expense, and compare that figure to both its net income and, over on the cash flow statement, its free cash flow. If a company’s interest payments are eating up more and more of its profits and free cash, it might be making bad debt decisions. --------------------------------------------------------------- RIVER DAMMED? Why Amazon's Growth Could Slow Dramatically -- and Soon The pandemic’s been varying degrees of awful for most of us, but great for Amazon.com (NASDAQ: AMZN). The massive online retailer and cloud computing provider already grew revenue by a not-inconsequential 20% in 2019. This year, it expects sales to jump by a further 35%. But as Fool Adam Levine-Weinberg notes, that kind of torrential growth might not last much longer. For one thing, Amazon’s international growth seems to be stalling out. In 2009, sales outside the U.S. represented nearly half its revenue. By 2019, that share had shrunk to 27%. U.S. sales grew from 52% to 61% of the total (with Amazon Web Services making up the rest) in the same time period. That might work out fine if Amazon still had a lot of room to grow in the U.S., but Adam’s not so sure about that. Big chunks of U.S. retail sales still belong to industries -- like gas stations, home-improvement stores, and car dealerships -- that Amazon can’t easily supplant. Sure, it’s charging hard into the grocery and pharmacy business, but unless it scores huge wins in those areas, investors may not be able to expect the kind of sustained growth it’s enjoyed thus far. Worse yet, while Amazon has certainly stomped all over its punier retail rivals, that Darwinian process of herd-thinning has left its larger competitors even stronger -- and better able to compete with it. For more on what this might mean for Amazon’s long-term future, [read the rest](. --------------------------------------------------------------- ALEXA, DO VIRUSES CARE WHETHER OR NOT YOU BELIEVE IN THEM? [Smart Speaker] Not sure what to ask your smart speaker? Keep up with what's happening in the market by asking your Amazon Alexa or Google Home to "Play Motley Fool podcasts." --------------------------------------------------------------- THEY'RE JUST NOT THAT INTO YOU Cracker Barrel Investors Really Don't Want What This Activist Investor Is Selling Yours Fooly grew up in the South, lives there to this day, and has thus had plenty of exposure to the gravy-intensive wonders of Cracker Barrel (NASDAQ: CBRL). But while we have strong positive feelings about the folksy dining chain’s apple butter, we simply cannot fathom anyone wanting a piece of the company as badly as activist investor Sardar Biglari appears to. As Fool Rich Duprey notes, the man behind the modestly named Biglari Holdings (NYSE: BH) already owns a varied assortment of businesses, from apostrophe-laden restaurants Steak ‘n Shake and Western Sizzlin’, to insurance and oil companies, to, er, Maxim magazine. But Biglari must really, really love rocking chairs and wooden peg puzzles, because he’s now tried and failed nine different times since 2011 -- five proxy battles, four attempts to elect a representative to Cracker Barrel’s board -- to gain greater influence over the company. Indeed, Cracker Barrel shareholders voted overwhelmingly against Biglari’s latest bid to seat an ally on the Barrel board -- and roughly 80% of the relatively few shares voting in favor came from Biglari himself. In Biglari’s defense, some of his critiques of the company’s business moves make sense -- especially his attacks on Cracker Barrel’s disastrous, possibly hasty attempt to buy a chain of Dave & Buster’s-style “eatertainment” restaurants right before the pandemic crushed that newly acquired business. But Cracker Barrel and its shareholders also have good reason to be wary, suggesting that for now, at least, Biglari will have to content himself with an 8.4% stake and the occasional large dish of chicken-fried steak, hash brown casserole, and biscuits. Learn more about why the restaurant chain’s keeping Biglari at arm’s length when you [read the rest](. --------------------------------------------------------------- JOHN WILKES BOOTH APPROVES FEATURED PODCAST [Motley Fool Money]( Get Rid of the Penny A single penny costs more than two cents to make, which means the U.S. government loses roughly $90 million a year on its production. Author and podcaster Stephen Dubner makes the case for getting rid of the penny altogether. [Subscribe on iTunes]( --------------------------------------------------------------- YOUR 2021 TO-DO LIST Quick Reads - [Budget? I hardly know it:]( Four tips to manage your money next year. - [Aim high(ish):]( Five qualities you’ll need to set realistic investing goals. - [Attention, homebuyers:]( Three things to expect if you’re seeking a new abode. --------------------------------------------------------------- WAIT FOR IT ... WAAAAAAAIT FOR IT... Social Media Post of the Week [Tips from Fools: Remember, good investing is about patience, not perfection. Jason Moser, Lead Advisor, on investing for beginners.]( [See all our Instagram posts!]( Join the 1,300,000+ people who follow us! [Facebook]( [Twitter]( [Instagram]( [YouTube]( [LinkedIn]( We work fervently, fastidiously, and Foolishly to make sure all the facts and figures we publish in our emails are 100% accurate and up to date. 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