Santa Tell Me, What’s An NFT?
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Hi there!
Welcome to the time of the year when everyone you know develops very strong feelings one way or the other about “Love Actually.”
The concern surrounding Omicron continues to grow as we witness new cases spike in many countries. People’s comfort with going out to eat is at the lowest it’s been in months, but their inclination to go on vacation is showing some (ok, small) signs of recovering after a brief drop due to the variant. If you’re planning to take a trip, here are ways you can use Google to limit the impact of your trip on the planet.
Staying home? You can snuggle up with something off our winter reading list. There are some investing classics as well as ones with an eye toward aligning your money with your values. Some are first-person journeys, others more practical or big picture. Check them out:
- Broke Millennial Takes On Investing by Erin Lowry
- The Intelligent Investor by Benjamin Graham
- The Memo: Five Rules for Your Economic Liberation by FWIW Advisory Board member John Hope Bryant
- Activate Your Money: Invest to Grow Your Wealth and Build a Better World by Janine Firpo
- A Random Walk Down Wall Street by Burton G Malkiel
- The Good Your Money Can Do: Becoming a Conscious Investor by Eva Yashari
- Real Impact: The New Economics of Social Change by Morgan Simon
- GIVE: How to Manage Your Money and Make a Difference by Rebecca Orlowitz David
- The Psychology of Money by Morgan Housel
Conversation starters (that are not Omicron)
- What do Americans expect from corporations? Worker-related demands like paying a fair, living wage, health and safety protections, benefits, and work-life balance dominate the top 10 priorities in the latest JUST Capital survey.
- Just 8% of the most senior execs at America’s 50 biggest public companies are Black, according to an analysis by WaPo. At Merck, UPS, AT&T, UnitedHealth Group and Home Depot Black executives made up at least 20% of the C-suite. Walmart, Nvidia, Cisco, Pfizer, T-Mobile, Costco, Honeywell, and Qualcomm had zero.
- The Bank of England has hiked interest rates to curb inflation, becoming the first major central bank to do so since the start of the pandemic. When will the US Federal Reserve follow? Here’s why stock investors care about this stuff.
- How is climate change impacting the types of companies you invest in, support, and who you bought your holiday presents from? Interest in “ethical brands” on Google went up 300-600% over the past two years and, as FWIW readers know, ESG and sustainable investing grew over 10x in the last two years.
- How has COVID, an increase in remote work, and “the Great Resignation” changed the way you each see the workplace? 16% of companies have gone fully remote this year and the latest Covid news is putting a number of back-to-work plans on hold.
And that’s the N-F-Tea ...
Do Bored Ape, Crypto Punks, or Art Blocks sound familiar? These aren’t underground emo bands, they’re popular collections of “crypto art” or non-fungible tokens (NFTs). “Fungible” means something that can be replaced or is one of many. Assets like US dollars, gold, or company shares are “fungible” since they have identical units. On the other hand, non-fungible tokens or NFTs are digital assets linked to unique pieces of digital art like images, memes, video, and music, or even virtual land and virtual clothes. You can think of them as extremely rare digital collectibles.
So can you own something that exists online that anyone can just download or share? It’s true, an NFT is not like a Picasso that can be hung in a private home. In fact, the owner doesn’t even get copyrights of the artifact from the creator, just bragging rights and a chance to sell it in the future for a profit (with taxes). Ownership in the virtual world, or the emerging metaverse as we discussed last week, works very differently, where the digital certificate of ownership is what matters more than where the item lives.
When someone pays for an NFT, the sale is recorded on a blockchain network, the same technology that underlies cryptocurrencies. There are public online ledgers that keep track of every transaction.
This trend still sounds like a crackpot idea to many, but it isn’t going away, especially with the growing hype around virtual worlds and crypto holders needing somewhere to use their coins. NFT transactions worth over $23 billion took place this year, including sales at renowned auction houses Christie’s and Sotheby’s. That viral “Charlie Bit Me” home video? Sold for $761,000 as an NFT. The first NFT index fund launched last week. It’s Collins’ Dictionary’s word of the year. Nike just bought a studio that makes NFT shoes, and Adidas has sold NFTs worth $22 million. Phew.
Some things to keep in mind as an investor and consumer: First the pros, NFTs could democratize the art world by reducing gatekeeping and allowing people to directly invest in digital artists and their work. These creators also earn royalties on all future sales, creating an unprecedented opportunity for artists to continue to earn revenue over a long period. NFT sales are also being used to support nonprofits and good causes, like Save the Chimps.
The downside is their carbon footprint. Maintaining blockchains, like the Ethereum network where most NFTs live (and where you can go to learn more about NFTs), takes a lot of power. More eco-friendly blockchains will have to become mainstream to solve this issue. Investors are also betting NFT values will keep going higher, creating what is known as a speculative price bubble, and studies suggest it’s mainly small individual investors who are driving the buying and stand to lose. Buyer beware.
Getting a piece of the dividend pie
As the year ends and account balances get settled, it’s a great time to talk about what can be a year-end perk for some investors: dividends. A dividend is the distribution of profits to shareholders, usually as cash per share, making it a passive income stream that is appealing to some investors.
Dividends are designed to reward investors and attract new ones by sharing the extra cash a company may have after paying its bills and taking care of business. While some have the dividends deposited into their bank account and like knowing that the dividend payment is coming on a schedule, others see dividend reinvestment (where more of the company’s stock is immediately purchased with the dividend) as a great way to grow their positions over time. The exact amount of the dividend is determined by the company’s board of directors with anyone who purchases the stock before the announced date of payout is eligible to receive a dividend. Please note that myths that dividends are “free money”, are incorrect (but you knew that anything called “free money” was too good to be true).
Hoping to benefit from dividends and do it sustainably? ESG-friendly stocks with solid dividends are out there. Take a look at the ESG scores as well as the trajectory of a stock’s dividend yield: the latest dividend payment divided by the latest stock price. Anywhere from 2% to 6% is considered a solid dividend yield. Any lower is more “meh,” and any higher raises questions about why the board has decided not to put their profits back into the business.
Dividends also hinge on profits—meaning that mostly large well-established companies are the ones in a position to offer them, whether on a fixed schedule (like annually or quarterly) or following a particularly good performance. You will not see most of the high growth darlings on these lists as they rarely issue dividends, instead, they focus on putting the money back into growing their companies, so you should consider carefully what kind of companies you want to invest in before focusing on their dividend histories.
Before you go -
More and more Americans are left dreaming of White Christmases due to climate change. From 1981 to 1990, almost 47% of the country had snow on the ground on Christmas Day. This fell to 38% from 2011 to 2020. Looking to see if you will have a White Christmas? Check out these forecasts.
