Archive for School of Investment
June 21, 2008 at 12:54 am · Filed under Real Estate Infos, School of Investment
PropertyIndex.com make it easy to find property in Spain, whether you are looking for a villa or an apartment, they can help you find the right property.
Notwithstanding the fact that Property Index is a fairly young concern, registered in March 2007, they were very fast to prove their expertise. As a matter of fact, they are a fairly uncomplicated concern focused on looking after and guiding any person who is aiming to rent real estate across the globe. Their promise is to be of assistance to you to hit upon exactly what’s required very swiftly plus unproblematically. Property can easily be found almost anywhere in the world presently, one of the most fashionable areas being real estate for sale in Spain. It’s straightforward to determine the phenomenal property you can purchase in Spain, the reason for picking real estate here is property you can purchase and the possibility to live amid such a fervent population.
It is one of the truly well-liked regions of the world presently, and considering the lovely landscape and wonderful sunshine that surrounds you all the time, how can you be wrong. Property in Spain is rich in history, this realm of the world has been and is still home to quite a number of sophisticated cultures. About twenty years ago there was just a dribble of Englishmen keen on property in Spain. Just ask any one single person who has emigrated to Spain and they’ll back it up. Lots of people would are wont to call it a basically irrelevant trend and others are wont to call it a as something approaching a compulsion! Buyers actually removing to this place will range from young families keen on a challenge in life to older generations who intend to enjoy themselves and have a break.
Do bear in mind, though, that there can be setbacks when buying property abroad — as can be expected, there are 100s of varied procedures when organizing, visiting or signing the documents. If you only miss but a single procedure this is liable to easily create sweeping setbacks not to forget, most importantly, financial damage. Obviously, as is to be anticipated with this well-liked region, property could be fairly expensive in this location and that is solely on account of the great market demand. Regardless of this patrons are indeed spoilt for choice in such a region boasting such a smiling countryside and fabulous setting. It patently has everything anyone could ever yearn for etc.
May 16, 2008 at 11:09 am · Filed under School of Investment
Warren Buffett’s annual letter to Berkshire Hathaway shareholders was released over the weekend. Readers will find plenty of investing lessons among the twenty-three pages. Warren began this letter as he begins each letter, by stating Berkshire’s change in per-share book value:
Our gain in net worth during 2005 was $5.6 billion, which increased the per-share book value of both our Class A and Class B stock by 6.4%. Over the last 41 years, (that is, since present management took over) book value has grown from $19 to $59,377, a rate of 21.5% compounded annually.
Some may wonder why Buffett opens by announcing the change in per-share book value rather than the earnings per share number. Over long periods of time, the change in per-share book value should nicely approximate the returns to owners. You may remember that, in my analysis of Energizer Holdings, I applauded the company for reporting comprehensive income within the income statement. Although a company’s net income is often referred to as its bottom line, net income is, in fact, a (sub)component of comprehensive income. Energizer Holdings (ENR) literally reports comprehensive income as its bottom line.
FASB merely requires that “an enterprise shall display total comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements that constitute a full set of financial statements”. Unfortunately, despite the lack of attention paid to it by investors, the statement of changes in stockholders’ equity is considered “a financial statement that constitutes a full set of financial statements”.
Therefore, comprehensive income can be reported in a statement many investors either do not review or do not understand. Alternatively, a company may choose to report comprehensive income in a separate Statement of Comprehensive Income. This, of course, baffles many investors, who think they are reading a second copy of the income statement. After all, what is comprehensive income? Isn’t the net income number reported in a (traditional) income statement a comprehensive number?
No. The widely reported earnings per share number is not comprehensive. That isn’t to say the EPS number isn’t important. It is very important. In fact, for certain businesses, it may be the most useful figure for evaluating a going concern. This is especially true if the investor is only looking at the financials for a single year. A single year’s comprehensive income may actually be less representative of a business’ performance than a single year’s EPS number (both can be pretty unrepresentative).Remember, the earnings per share number does not tell you how much wealth was actually created (or destroyed). You need to look to the comprehensive income number to find that information.
Essentially, Buffett is reporting Berkshire’s earnings in that opening line. He is simply using a more comprehensive income figure. He’s saying here’s how much wealth we created, and here’s how much capital it took to create that wealth. When he writes “Our gain in net worth during 2006 was $5.6 billion, which increased the per-share book value of both our Class A and Class B stock by 6.4%” he’s really saying Berkshire earned $5.6 billion and a 6.4% return on equity. He prefers using comprehensive income rather than net income, because comprehensive income includes non-operating earnings such as changes in the market value of available for sale securities.
If you still have doubts about the idea that Buffett is essentially reporting Berkshire’s comprehensive income in that formulaic opening line of his annual letters, compare the change in net worth numbers Buffett has reported in past years to the comprehensive income numbers found in Berkshire’s annual reports. For the past three years, Berkshire’s reported “gain in net worth” and Berkshire’s reported “comprehensive income” were $5.6 billion vs. $5.5 billion, $8.3 billion vs. $8.2 billion, and $13.6 billion vs. $13.4 billion. I hope this helps explain why I like it when public companies prominently report comprehensive income instead of presenting net income as if it were the Holy Grail of investing.
Of course, there is no such Grail. Neither net income nor comprehensive income captures the true economic changes to an owner’s share of the business. There is no truly comprehensive income number - and there never will be. A review of the financial statements alone is not sufficient to determine how a business’ competitive position has improved (or deteriorated) over the course of the year.
Every day, in countless ways, the competitive position of each of our businesses grows either weaker or stronger. If we are delighting customers, eliminating unnecessary costs and improving our products and services, we gain strength. But if we treat customers with indifference or tolerate bloat, our businesses will wither. On a daily basis, the effects of our actions are imperceptible; cumulatively, though, their consequences are enormous.
It is to these actions and their effects that an investor must look when he is forming his qualitative assessment of a business. After all, a company may lose money and yet improve its competitive position. In fact, that is exactly what a great many young businesses do. The question, of course, is whether those present losses will be more than offset by future gains after accounting for the opportunity costs incurred.
All costs are opportunity costs. It makes no sense to evaluate a year’s losses as if the alternative was to stop time. The available returns on the lost capital must be considered as well. That is why when one of Berkshire’s units has consumed capital, the loss has weighed heavily on Buffett.
Over Berkshire’s history, the cost of any losses also included the over twenty percent compound annual gain that was foregone. Buffett has always been painfully aware of the fact that, for Berkshire, losing $1,000 today would be much the same as losing over $7,000 ten years from today or over $125,000 twenty-five years from today. Berkshire will no longer grow its per-share book value at over 20% a year. So, these particular figures are outdated. However, if you refer to Buffett’s thoughts at the time when the Buffalo News was losing money (and when Berkshire’s textile operations were losing money), you will see just how heavily these opportunity costs weighed on him.
Still, it is possible that a business operating at a loss is actually improving its competitive position and creating wealth for its owners. One very difficult question that must be answered is exactly what the assets (often the intangible assets) that have been gained at great expense are actually worth. In some very special businesses, huge expenses are fully justified.
Auto policies in force grew by 12.1% at GEICO, a gain increasing its market share of (the) U.S. private passenger auto business from about 5.6% to about 6.1%. Auto insurance is a big business: Each share-point equates to $1.6 billion in sales.
While our brand strength is not quantifiable, I believe it also grew significantly. When Berkshire acquired control of GEICO in 1996, its annual advertising expenditures were $31 million. Last year we were up to $502 million. And I can’t wait to spend more.
This excerpt helps explain why I think all the money PetMed Express (PETS) puts into cable TV ads is money well spent. Pet medications, like auto insurance, is a highly fragmented business. Sales volume is important. Obviously, name recognition is as well. PETS can spend a lot on cable advertising and still spend less per sale than its competitors. It’s also important to remember that pet medications are rarely the sort of thing a customer buys once (just like auto insurance). While you won’t be able to retain all your customers, you will have a much easier time getting a current customer to stick with you than you will getting a new customer to switch from a competitor.
I’ll end this post with one of Buffett’s best lessons:
Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.
Geoff Gannon writes a daily value investing blog and produces a twice weekly (half hour) value investing podcast at Gannon on Investing.
May 7, 2008 at 1:15 am · Filed under School of Investment
Every year about this time, people start talking about and considering things like
IRA contributions. Most of the time, tax-sheltered investments make great sense.
The federal and state governments have designed their tax laws to encourage such
savings. However, that said, there are three situations in which it may be a poor idea
to use tax-sheltered investments:
You know you’ll need the money early
In this case, it may not be a good idea to lock away money you may need before
retirement because there is usually a 10 percent early-withdrawal penalty paid on
money retrieved from a retirement account before age 59 1/2. But you will also
need money after you retire, so the “What if I need the money?” argument is more
than a little weak. Yes, you may need the money before you retire, but you will
absolutely need money after you retire.
You don’t need to save any more for retirement
Using retirement planning vehicles, such as IRAs, may be a reasonable way to
accumulate wealth. And the deferred taxes on your investment income do make
your savings grow much more quickly. Nevertheless, if you’ve already saved enough
money for retirement, it’s possible that you should consider other investment
options as well as estate planning issues. This special case is beyond the scope of
this book, but if it applies to you, I encourage you to consult a good personal
financial plannerpreferably one who charges you an hourly fee, not one who earns
a commission by selling you financial products you may not need.
Your tax rate will rise in retirement
The calculations get tricky, but if you’re only a few years away from retirement and
you believe income tax rates will be going up (perhaps to deal with the huge
federal-budget deficit or because you’ll be paying a new state income tax), it may
not make sense for you to save, say, 15 percent now but pay 45 percent later.
Bellevue WA certified public accountant
& author Stephen L. Nelson CPA has written more than 150 books. His
bestselling book is Quicken for Dummies, which sold more than 1,000,000 copies.
His books have sold more than 4,000,000 copies in English and have been
translated into more than a dozen other languages.
May 4, 2008 at 1:17 pm · Filed under School of Investment
The American Jobs Creation Act of 2004 imposed strict new rules on non-qualified deferred compensation plans. Beginning in 2005, deferred compensation programs that are not in compliance with the new rules may be taxed as wages, slapped with a 20% excise tax, plus charged an interest penalty.
Given the potentially huge tax consequences for non-compliance with the rules, you should consult with your organization’s benefit specialist and your tax professionals to figure how your compensation might be affected by these new rules.
Deferred compensation plans are often used to provide for the deferral of salary, incentive compensation (i.e., commissions or bonuses), or supplemental compensation for top executives, independent corporate directors, and individual board members. The new rules apply to nonqualified deferred compensation plans at taxable and tax-exempt organizations.
An option for independent corporate directors and individual board members who receive 1099 income for their services may consider is to freeze their nonqualified plan and adopt a qualified plan such as the “one person defined benefit plan”, called the Solo-DB Plan. Qualified retirement plans are exempt from the requirements of the American Jobs Creation Act.
The Solo-DB plan allows the highest deductible contributions possible in a qualified retirement plan. For example in 2005 one can contribute up to $170,000 of compensation into a tax-deferred Solo-DB plan.
Defined benefits plans have been around for a long time. But, recent pension legislation has raised the contribution and deductibility limits as well as simplified plan fund requirements. Thus, defined benefit plans like Solo-DB have become much more attractive to upper-income individuals with self-employment income. The Solo-DB plan will allow you to aggressively fund your retirement while cutting your taxes significantly.
Individuals who qualify for the Solo-DB plan include sole proprietors, independent contractors, and small business owners age 45 or older who can contribute more than $41,000 annually to the plan for at least three years.
For more about Solo DB plans visit Lamaute Capital at: http://www.InvestSafe.com.
About The Author
Daniel Lamaute, CEO of Lamaute Capital, Inc. (www.InvestSafe.com) specializes in setting up retirement plans. You may visit http://www.investsafe.com to access a free calculator that will help you estimate what your maximum contribution might be under different plans.
April 24, 2008 at 2:15 pm · Filed under School of Investment
Well, the New Year is around the corner and so are New Year’s Resolutions! It’s such a great time of year to consider what the past year has brought us and what we want to create in the coming year.
To help you get started thinking about the coming year, we are publishing a series of articles on top wealth creating habits. This series of articles will feature simple and practical ways that you can begin easily creating wealth in your life, no matter what your current situation. Ready? Let’s dive in!
Chances are, if you’re reading this article, you’re not wealthy yet. Chances are also that you are an employee, working for someone else, or you are a business owner but your business has not yet made you wealthy. In either case, haven’t you dreamed of being a wealthy business owner, whose business generates continuous wealth and income? Most of us have…but most of us also run up against the brick wall of not knowing how.
The best way to get started becoming a business owner with very productive employees is to get a business and hire some great employees. Now, most of us aren’t able to do that overnight, or we would have done it already, right? Wrong!
If you consider your money (assets or cash) as your employees, then you are an instant business owner. Voila! Think about it. When you invest your money or apply it toward a productive entrepreneurial venture, your money works just as hard to produce an income as you do when you go to your daily job. In fact, it works harder than most employees do - money has no family or personal problems and doesn’t argue with you. When you put what available money you have to work for you, you are now a business owner with employees (your money). When you realize that money has the potential to work just as hard as you do, then you’ve just enlightened yourself with one of the top wealth creating habits!
Now, to get a productive business that earns a good return for you, you need to keep adding “employees” to your business by saving your money and investing it. Whether it’s a dollar or twenty dollars, every “employee” counts. The wealth creating habit you want to cultivate in this regard is to save and invest your dollars rather than spending them on things that will give you short term pleasure but no long term benefit. Remember that every dollar you turn into an “employee” rather than spending in the moment will work for you for the rest of your life! Think about that the next time you feel tempted by some new trendy thing you’ve just got to have!
How can you get started on building this wealth creating habit in your life? It’s easy. At the beginning of each day, spend a few minutes experiencing what it would be like not to have to go to work every morning, but to be able to choose whether you want to work or not. During the day, as you are faced with spending choices, bring that experience back into focus to help yourself choose wisely. At night, keep a journal of your spending decisions for that day and note what percentage of the time you chose wisely. Your goal? To increase that percentage gradually to 100%.
Most experts say that it takes 21 to 40 days to create a solid new habit. That’s not long when you think about it. All you have to do is get started - now. Good luck!
About The Author
Stephanie Yeh is deeply committed to the study and experience of prosperity and to helping other people achieve and experience prosperity. With the help of a strong 15-year network marketing business, Stephanie and her partner have helped many people achieve their prosperity goals. Her current project, the Journeyman Wealth Program, is aimed at helping 15 people a year fully achieve their dreams. Stephanie’s Prosperity Abounds website works on the basic principle that “You are the creator of your own reality!”. Get more details on her website at http://www.prosperity-abounds.com; info@prosperity-abounds.com
April 22, 2008 at 3:41 am · Filed under School of Investment
QUESTION
I would like know about ratio back-spreads. Is it possible to make a living using these? I like the protection offered on the wrong side.
Thanks,
Milton
ANSWER
Milton,
There are many good strategies out there. What you need to realize is that there is no right strategy that works for all situations.
Depending on the situation, any of the strategies will be or could be the right one. They are all good strategies when used properly and at the right time. There is a right time and a right place for a ratio backspread.
My only fear with ratio spreads is that people like yourself get on the wrong side of the ratio. As a retail investor, I do not recommend being net short options so I would not be in favor of you selling more than you buy. I am okay if you are going to buy more than you sell but not vice-versa.
The one thing I do want you to be aware of is that we do not look for strategies then fit opportunities into them. By doing this, you are putting the cart before the horse. When you start looking for strategies to force opportunities into, you set yourself up for consistent problems because suddenly, every opportunity looks to be a perfect fit for your strategy, even when you have to force. Forced trades very infrequently turn out to be winners.
What you should be doing is finding opportunities, THEN applying the proper strategy best suited to take advantage of the opportunity you have just identified. In this way, you will always have the right position on at the right time. Having the right position on at the right time makes that position a good position right then and right there.
Hope this helps.
Ron Ianieri, 15-year Floor Trader & Market Maker http://www.options-university.com/trading-secrets
How Would You, Too, Like to Peek Into the Mind of a Former Floor Trader, Market Maker, and Specialist in DELL Computer Who Has Over 120K Career Trades Under His Belt — and Finally Discover the Virtually Unknown, ‘Insider’ Trading Techniques and Strategies Proven to Make Millions for Traders Across the Globe?
Get your hands on this potent information at:
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April 18, 2008 at 8:51 pm · Filed under School of Investment
A correction is a beautiful thing, simply the flip side of a
rally, big or small. Theoretically, even technically I’m told,
corrections adjust equity prices to their actual value or
“support levels”. In reality, it’s much easier than that. Prices
go down because of speculator reactions to expectations of news,
speculator reactions to actual news, and investor profit taking.
The two former “becauses” are more potent than ever before
because there is more “self directed” money out there than ever
before. And therein lies the core of correctional beauty! Mutual
Fund unit holders rarely take profits but often take losses.
Opportunities abound!
Here’s a list of ten things to do and/or to think about doing
during corrections of any magnitude:
1. Your present Asset Allocation should have been tuned in to
your goals and objectives. Resist the urge to decrease your
Equity allocation because you expect a further fall in stock
prices. That would be an attempt to time the market, which is
(rather obviously) impossible. Proper Asset Allocation has
nothing to do with market expectations.
2. Take a look at the past. There has never been a correction
that has not proven to be a buying opportunity, so start
collecting a diverse group of high quality, dividend paying,
NYSE companies as they move lower in price. I start shopping at
20% below the 52-week high water mark, and the shelves are full.
3. Don’t hoard that “smart cash” you accumulated during the
last rally, and don’t look back and get yourself agitated
because you might buy some issues too soon. There are no crystal
balls, and no place for hindsight in an investment strategy.
4. Take a look at the future. Nope, you can’t tell when the
rally will come or how long it will last. If you are buying
quality equities now (as you certainly could be) you will be
able to love the rally even more than you did the last time…
as you take yet another round of profits. Smiles broaden with
each new realized gain, especially when most folk are still head
scratchin’.
5. As (or if) the correction continues, buy more slowly as
opposed to more quickly, and establish new positions
incompletely. Hope for a short and steep decline, but prepare
for a long one. There’s more to Shop at The Gap than meets the
eye.
6. Your understanding and use of the Smart Cash concept has
proven the wisdom of The Investor’s Creed. You should be out of
cash while the market is still correcting. [It gets less and
less scary each time.] As long your cash flow continues
unabated, the change in market value is merely a perceptual
issue.
7. Note that your Working Capital is still growing, in spite of
falling prices, and examine your holdings for opportunities to
average down on cost per share or to increase yield (on fixed
income securities). Examine both fundamentals and price, lean
hard on your experience, and don’t force the issue.
8. Identify new buying opportunities using a consistent set of
rules, rally or correction. That way you will always know which
of the two you are dealing with in spite of what the Wall Street
propaganda mill spits out. Focus on value stocks; it’s just
easier, as well as being less risky, and better for your peace
of mind. Just think where you would be today had you heeded this
advice years ago…
9. Examine your portfolio’s performance: with your asset
allocation and investment objectives clearly in focus; in terms
of market and interest rate cycles as opposed to calendar
Quarters (never do that) and Years; and only with the use of the
Working Capital Model, because it allows for your personal asset
allocation. Remember, there is really no single index number to
use for comparison purposes with a properly designed value
portfolio.
10. Finally, ask your broker/advisor why your portfolio has not
yet surpassed the levels it boasted five years ago. If it has,
say thank you and continue with what you’ve been doing. This one
is like golf, if you claim a better score than the reality,
you’ll eventually lose money.
11. One more thought to consider. So long as everything is
down, there is nothing to worry about.
Corrections (of all types) will vary in depth and duration, and
both characteristics are clearly visible only in institutional
grade rear view mirrors. The short and deep ones are most
lovable (kind of like men, I’m told); the long and slow ones are
more difficult to deal with. Most corrections are “45s” (August
and September, ‘05), and difficult to take advantage of with
Mutual Funds. But amid all of this uncertainty, there is one
indisputable fact: there has never been a correction that has
not succumbed to the next rally… its more popular flip side.
So smile through the hum drum Everydays of the correction, you
just might meet Peggy Sue tomorrow.
April 6, 2008 at 1:42 am · Filed under School of Investment
It may not seem obvious to many people, but the strategies involved in real estate investing and stock market investing are different from each other. Many people, disenchanted with the lackluster performance of their stock portfolio, first become interested in real estate investing after someone they know makes a large sum of money in real estate in a relatively short time.
If that sounds like YOU, be warned: investing in real estate in the hopes that the market will increase rapidly and steadily is, and always has been, a risky strategy, and can cause severe difficulty if you guess wrong about a piece of property–or if the entire real estate market begins to collapse, as has happened many times in the past.
If you can afford to buy real estate and hold on to it for five to fifteen years, you will nearly always realize a substantial profit. If you are savvy enough to buy a significantly discounted piece of property and then sell it within a year, you’ll make money, too. But buying an investment property at its fair market value that only gives you a break-even cash flow (or worse yet, loses money every month) can sink you in a relatively short time if you don’t have the wherewithal to feed it until you CAN make money on it.
It’s like riding a horse. If you don’t know how to ride, you’d better take some lessons before you sign up for a rodeo! The results could be disastrous if you make a mistake. And if you haven’t done your homework, you WILL make a mistake. The wrong real estate investment could cause not just financial hardship, but also financial ruin.
So know your real estate market, inside and out. Know where it is in its overall cycle, because all markets, no matter how hot, have ups and downs within the overall trend. There are always bargains available, regardless of the market. Watch your local housing market so you know how much rental income to expect and if there is a vacancy glut on the market. Two years ago you could buy an apartment building in Las Vegas for zero down because investors couldn’t rent the apartments. Some investors who could afford to make up the negative cash flow each month made a killing in appreciation. Investors with financing or cash who transformed the apartments into condominiums made even more money.
Finding the lowest-priced financing also helps make the most return on your investment. Unlike stock investing, you need strong credit to use other people’s money to finance investment property.
Even if you’re frustrated by a lackluster stock market, don’t expect to make a short-term killing in real estate to make up for it. In both cases, one of the best strategies is to buy excellent examples–and then hang on for awhile. It’s also a good strategy to maintain a cash reserve, especially when it comes to real estate. That way, even if the market heads south, you won’t find yourself being overwhelmed while you wait for the inevitable rebound in prices.
Real estate investing can carry more significant consequences than stock market investing if you guess wrong, since there’s generally a great deal more money involved. So take it easy, do your homework, and don’t rush into anything until you’ve learned as much as you can about how to become a prudent real estate investor.
Copyright © Jeanette J. Fisher
Jeanette Fisher teaches beginning real estate investors how to find bargains, finance multiple properties, fix with designer touches for less money, and sell houses for top dollar. FREE “Interior Design Psychology for Selling Houses” ebook at http://www.doghousetodollhousefordollars.com
