What is ___? Part 2

I know a lot of people like daylight savings time, but I will die on the hill that we NEED to go back to standard time, all the time. I know I am two weeks late. Mike wrote last week’s letter, and I am still not off this hill.

There are truly no stupid questions, only questions that should have been asked sooner. When there is a question that can be answered quickly, we like to compile them for some rapid fire fun. If you ever have any questions, you can always reply directly to this email!

How come ETFs and Stocks trade almost immediately but Mutual Funds don’t trade until after the market closes?

This question actually gets at one of the main differences between ETFs (Exchange Traded Funds) and Mutual Funds. I will start with an analogy: ETFs are like General Mills Cereal and Mutual Funds are like Kirkland or Great Value Brand Cereal. No matter where you shop, you can buy the General Mills brand. In order to buy Kirkland or Great Value, you have to be shopping at Costco or Walmart. 

ETFs are listed on a public exchange like the New York Stock Exchange or Nasdaq exchange, and everyone can buy them from their brokerage firm.

Mutual Funds are products offered by and through specific companies, not listed on any major exchanges. If I want to buy a Fidelity Mutual Fund through my Schwab account, it might not be available, or I would have to pay a hefty fee.

ETFs are also products offered by specific companies, but they are offered on the public market place. When the price is right, the sale goes through.

Mutual Funds trade after the markets close because each company determines the price based on the value of the holdings. Then, it issues shares based on the new price. 

You can read more about Mutual Funds and ETFs here.

Why do some places not accept American Express credit cards?

Shockingly, I have another analogy. This one is even better than my breakfast cereal analogy (mainly because I didn’t come up with it).

Credit Card Networks (Visa, Mastercard, AMEX, Discover) are the train tracks. Credit Card Issuers (Chase, Citi, CapitalOne, AMEX) are the trains. The networks provide the infrastructure for the issuer to pay the merchants (stores, restaurants, etc). 

All the networks charge the merchants a small fee for processing the transaction, but AMEX charges the highest fee by far.

For this reason, a lot of stores don’t want to accept AMEX because that increases their costs which then increases the price to consumers. 

We’ve talked about credit card points and how credit card companies make money if you want some more casual reading about credit cards.

What is Deflation? What is Shrinkflation?

All we have heard about the past two years is inflation, inflation, and more inflation. I can tell you first hand the price of a pack of Bubly has gone from $3.25 to $4.28, a 30% increase. I know there are other categories and examples of even higher inflation, but this is my anecdotal data that sticks with me. So, if too much inflation is bad and makes things cost more, why don’t we just try and bring the prices back down? 

That would be deflation and, shockingly, it’s also bad. When things start to cost less, consumers spend less money. We think, if prices are going down, I will wait until next month to buy that new car, house, or Yankee Candle. Then, companies start making fewer things, fire employees, lower wages, or any combination of those actions. This leads to a deflationary spiral where once people are getting fired or pay cuts, they have less money to spend and continue to buy fewer things. Companies then continue to cut jobs, wages, and production. The cycle continues. 

Shrinkflation is the act of providing less goods for the same price. If you notice bags of chips with a little more air, the smaller container now labeled “Value Size!”, or Dunkin’ shrinking their doughnuts but costing the same, that is shrinkflation. It is a way to disguise inflation by increasing the price of the goods on a per ounce (oz) basis but not per unit of sale. Companies think they can slide one past you. Next time you’re shopping, look for the “cost per oz” on the price label. That will help you compare the cost of a 26 oz “family size” bottle of shampoo and the 24 oz “value size” to determine which is actually the better deal.

To avoid all those things, the Fed’s goal is 2% inflation. Just enough to keep the economy running smoothly without major disruptions to price expectations. 

Aren’t some candles actually bad for you? Aren’t Yankee Candles toxic?

No. Stop. I refuse to look into this. 

I am not a doctor or scientist. I have seen a lot of things that say soy or beeswax candles are better for you, but I don’t know if it’s actually a meaningful difference. 

This is like the documentaries about where your food comes from. I know it’s the wrong answer, but I don’t want to know. Ignorance is bliss. Live fast, smell good things, and leave a sexy corpse. That’s what I have always (just now) said (literally never said that before). 

Call to Action

Please send us any and all questions you want us to answer! You can reply directly to this email.

Debrief on Deck

Next Week will be our 50th newsletter! We have grown a lot since our first newsletter. We are going to take a moment to go back through some of our most popular newsletters that new readers might have missed or OG readers might want to re-read.

As always, please reach out to us with any questions or comments you have. You can reply directly to this email or find us on social media (X (formerly Twitter) and Instagram).

Until then, stay the course.

Disclaimer