Patience

The largest struggle I have as an investor is not researching companies, or finding and analyzing data, or even pricing a stock; it is having the patience to do all of these things properly.

Patience serves as a protection against wrongs as clothes do against cold. For if you put on more clothes as the cold increases, it will have no power to hurt you. So in like manner you must grow in patience when you meet with great wrongs, and they will then be powerless to vex your mind.
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Taking Advantage of a Day Off

A day off from US markets is a great opportunity. With the world being what it is markets are not entirely driven by internal factors. Use your day off today to read international business news.  This news can certainly give you a heads up as to what you should expect from the markets in the next day.  This trick helped me immensely during the early days of the credit crunch.  Bad news would break crashing out European and Asian markets while US markets were closed for holidays- guessing what the US market would do the following day?


Today is a good day to look closely at the Google vs. China story. While China’s business accounts for very little of Google’s bottom line, as the story evolves we have certainly seen market fluctuations. Maybe today is a good day to setup a buy if you have been looking for some weakness, or maybe if you think the market will overreact to Google leaving China (if stories today point that way), and today is a good time to plan your exit from Google. Your call read the news and see what you think.

Property Assessment through Google Maps

Having been on a recent trip to the southern US I was awestruck with the prices of property there. Being out of my element in a new city I simply wasn’t comfortable with the idea of investing though. With proper preparation trips of this type can be quite rewarding and one of your best tools is often overlooked- Google Maps.

With a simple browse of an area in Google maps you can learn all of the following:
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• How far away is the local hospital, school, police station, prison, garbage dump, shopping mall. All of these can increase or dramatically decrease your long term value.

A House as a Great Investment?

I am always surprised to see the enthusiasm people exhibit when they hear that housing prices are rising, to me this is 100% bad news.
I hear remarks all the time like,

Housing prices are up 12% over last year, I am going to make a killing on this house when I sell in a year or two!

Let’s say you buy a house as a primary residence at $300K and are fortunate enough to see a 12% compound increase in the price of the house for 3 years in a row. So that makes the value of your house now an impressive $421K- wow $121K nice return, well worth celebration.
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Sometimes the best thing to do is nothing

I had an interesting email conversation with a reader named Bill that I wanted to share. Bill is a stock broker in Oregon and has been working with the same brokerage firm for over 10 years. As I have taken several opportunities to slag their profession I was interested to hear more about his experiences. In the back and forth chat he said something that I think epitomizes my real issue with brokers.
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The Significance of Fundamental Analysis

Investing is done successfully by understanding direction, and velocity, not by looking at velocity alone. Velocity (in this simplified context) is the speed and distance a company achieves over time, this may be earnings, profit, sales or margin. Direction is which way the company is pointing, up or down, this speaks to a deep value assessment, or an understanding of the health of the overall business.

If you would like to profit from the stock market I would argue that you as an investor need to have a thorough understanding of each of these elements to truly estimate your risk in any given investment. Too often the analysis of companies is lopsided towards an appreciation of the sheer velocity with little regard to direction.
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Executive Compensation

Executive Compensation is a touchy subject. Some believe executives should be compensated in relation to share price. Others feel that an executive should derive their satisfaction from the growth of their business and not from pulling down a massive salary. Buffett for one is a huge proponent of this approach. He pays himself a comparably paltry $100K salary per year and several of the businesses owned by Berkshire have CEOs who share this same compensation package.
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Free Stock Analysis

As a new service for readers we are now offering free stock analysis. None of that automated technical analysis you see on other sites, and no one is going to contact you about purchasing services after you submit, I am talking about straight forward free fundamental analysis.

All you have to do is provide the company name, ticker symbol and we will do the rest. Submit the stock you would like analyzed here and once a week we will select one reader’s request to perform free stock analysis. Sorry we can’t process more than one at the current time!
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Prebooking Sales

The practice of prebooking sales involves a business going out and contacting its regular customers and requesting that they purchase the inventory they are forecast to purchase in the next quarter now.

An example: Company A always buys 500 widgets from our sample business every quarter at a fixed cost of $5 per widget. In order to show boosted sales in Q4 of the year Company A is convinced to purchase 1000 widgets at $4 today, accept deliver of the first 500 now, and the second set of 500 during the following quarter.
The net effect of this over the short term is that our company has massively increased its sales- at least on paper. Over the long term though it has the opposite effect; unless Company A’s needs suddenly increase they are going to cancel their order in the following quarter.
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Proximity and Profits

The reality of investing is that the further you are removed from managing your money, the further removed you will ultimately find yourself from the profits you are trying to reach. Every additional person you involve in making a financial decision will demand to be compensated- no one works for free.
Lets look a simple example; you buy some mutual funds though your broker.
An innocent enough activity, but who all is involved with this transaction and do they profit at your expense? Well there is:
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The Balance Sheet: Goodwill

To understand a balance sheet requires that we understand every line item, what each means, and how it can be manipulated. Today we are going to look at the line item for Goodwill.

Goodwill Definition

Goodwill is one of the most commonly misunderstood line items in the balance sheet, I once met a junior investor who thought that Goodwill was the amount of money that the company had donated to charitable organizations. This unfortunately is not the case, goodwill, simply put, is the byproduct of two companies merging.
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Does Stock Price Matter?

Does the market price of a stock play a significant role in your decision to buy, or not buy shares in a company? For me the answer to this question has always been no, I look at rate of return and give almost no credence to stock price. If I invest $100K in a company it is of little interest to me if I get 5 stock or 500 stock in this company as long as I see a return on my initial investment. I have a good friend who will only buy a stock if it is trading for under $5. Are there advantages to his system?
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Dividend Cuts – New Management

In our continuing series on dividend cuts, why they happen and how to learn to see them coming before they hit your portfolio today we are going to look at the curse of new management.

New Management

Bringing in new management is a regular occurrence in any large business. Management can be cycled in as a result of retirement or simply as the result of the board seeing the need for a changing of the guard. New management can come from one of two places, internal promotion and external hiring. The condition I will describe here comes as the result of both these types of hirings, but is a far more frequent occurrence with external hiring.
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Why Dividend Rate Cuts Happen – Competition

In our continuing series on dividend cuts and how to avoid them, today we are going to look at what the effects that market and sector pressures have on making company’s cut dividends, and how you can train yourself to see them coming.

As we discussed previously dividend cuts can beat up your portfolio so they should be avoided at all cost. By exploring some of the main reasons that cuts happen perhaps we will better understand why they happen and how to purge these stocks before the bad news hits.
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Dividend Rate Cuts – Stale Dividends

Dividend rate cuts are painful and can send your portfolio into a tailspin. Why do they happen and can we see them coming? In our continuing series on dividend rate cuts we are going to look at stale dividends with these questions in mind.

Stale dividend rates/ earnings

Dividend rates are set by companies with an expectation around the future growth of the company. As the company’s profits increase so too should the dividend rate. When you find a company where the dividend has remained fix for an extended period what you have is a stale dividend.
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Why Dividend Rate Cuts Happen – Financials

Over the last six months we have witnessed a staggering number of dividend cuts. To Graham style investors, or pure dividend investors this has come as upsetting news- especially to those who didn’t see it coming. A dividend cut can instantly impact the stock price of a company in addition to your ROI. Why do dividend cuts happen, and how can we learn to see them coming? In the following short series we will introduce some of the main reasons why dividend cuts happen and how you can learn to anticipate them.  Our first topic is the most common reason for dividend cuts so lets get into it.
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Brand Impression

Having the best product doesn’t always guarantee market success. I have seen several products like the betamax that were probably better than the competition but were either marketed incorrectly, underfunded, or consumers had preconceived notion about the company, and avoided it on on those grounds.

In searching the internet over the weekend I found an interesting site that explores this last issue of consumer brand perception. BrandTags.net collects information from users about what words come to mind when certain brands are shown. This is a rorschach test of sorts for branding. Browsing deeper into the site you can see the results of this collection. Here are a few examples of what people think of these major brands:
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When to Sell Stock

Read any investment book, blog, or magazines and you will see a multitude of recommendations related to buying stocks. Unfortunately, little is written about selling the stocks that you already own.

I use three key principals in deciding when to sell a stock:
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1. Principal 1: Don’t be greedy.
2. Principal 2: Don’t be afraid to admit you were wrong.
3. Principal 3: Don’t let your carriage turn into a pumpkin.

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