tag:blogger.com,1999:blog-89732930700825584792024-03-07T00:58:25.185-05:00Watch Your WalletSolving financial problems and exploring new opportunities... investing, saving, financial planning, and the world of personal finance.Unknownnoreply@blogger.comBlogger164125tag:blogger.com,1999:blog-8973293070082558479.post-32739726329818014942014-09-23T20:27:00.002-05:002014-09-23T20:29:04.059-05:00Should I put one space or two after a period?Ok, this answer is easy:<br />
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<i>Unless you are using an old fashioned typewriter, you should only use <b>one </b>space after a period.</i><br />
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Look at any professional publication you respect. Look at every book you have. Look in every magazine. You will find only one space after the periods.<br />
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The reason why (older) people were taught to put two spaces after a period is because back before computers, people wrote things on typewriters. Typewriters used something called monospace fonts, that is, fonts in which every letter was the same width. In order to make a pleasing space after a period, two spaces were needed when using a typewriter.<br />
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However, once the personal computer came into existence, every person had the power of a professionally typeset (i.e., non-monospace font) at their fingertips. Two spaces after a period were no longer required.<br />
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If your coworkers use two spaces after a period, just ask them to stop. If you want to fix their document, you can just do a "find and replace" for ". " (that is, a period with two spaces after it) and replace with ". " (a period with one space after it).<br />
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The one instance where I would make an exception is in any technical sort of writing where part of the requirements you are given are specifically to add two spaces after a period. I would argue that anyone with such a rule is stuck in the past, but rather than put your career/script/legal brief etc. in jeopardy, just roll with it. (Side note: I ran into this situation once. I just wrote the document correctly (with one space after the period), then did a find and replace when I was finished to fix the formatting. I also gently informed the person who required this archaic practice about modern typesetting, and I never had to do this again.)<br />
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Before this turns into a major debate like my <a href="http://watchyourwallet.blogspot.com/2008/06/should-i-put-mba-in-my-title-on-my.html">post about not putting the MBA designation on your business card o</a>r in your email signature, just remember that you don't have to take my word for it.<br />
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Listen to the <a href="http://www.chicagomanualofstyle.org/qanda/data/faq/topics/OneSpaceorTwo.html">Chicago Manual of Style</a>, which is of the view that there is "<span style="background-color: white; font-family: TisaWebPro, 'Times Roman', Times, Georgia, serif; font-size: 15px; line-height: 20.25px;">no reason for two spaces after a period in </span><i style="background-color: white; font-family: TisaWebPro, 'Times Roman', Times, Georgia, serif; font-size: 15px; line-height: 20.25px; margin: 0px; padding: 0px;">published</i><span style="background-color: white; font-family: TisaWebPro, 'Times Roman', Times, Georgia, serif; font-size: 15px; line-height: 20.25px;"> work."</span><br />
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<span style="background-color: white; font-family: TisaWebPro, 'Times Roman', Times, Georgia, serif; font-size: 15px; line-height: 20.25px;">Listen to the <a href="http://www.mlahandbook.org/fragment/faq#Tweets">MLA Handbook</a>, which only uses a single space after a period in all of its examples.</span><br />
<span style="background-color: white; font-family: TisaWebPro, 'Times Roman', Times, Georgia, serif; font-size: 15px; line-height: 20.25px;"><br /></span>
<span style="background-color: white; font-family: TisaWebPro, 'Times Roman', Times, Georgia, serif; font-size: 15px; line-height: 20.25px;">Listen to <a href="http://typographyforlawyers.com/one-space-between-sentences.html">Typography For Lawyers</a> (a personal favorite), which says to "</span><span style="font-family: TisaWebPro, Times Roman, Times, Georgia, serif;"><span style="font-size: 15px; line-height: 20.25px;">put exactly one space after any punctuation." (I particularly like how in this link they show you the difference between monospaced and non-monospaced fonts).</span></span><br />
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Listen to the always cool <a href="http://www.slate.com/articles/technology/technology/2011/01/space_invaders.html">Slate Magazine</a>, which punches you right in the face with the following statement: "typing two spaces after a period is totally, completely, utterly, and inarguably wrong."<br />
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Finally, listen to <a href="http://www.economist.com/blogs/prospero/2013/10/style">The Economist</a>, which has a macro that automatically strips a second space from after a period if one should find its way onto the magazine's online content management system.<br />
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The Economist does leave the door open a crack for some debate, taking the view that spaces after a period are a style choice rather than a hard and fast rule. I think they were a bit too kind in that approach. It is also a "style choice" not to wear bellbottoms or a stovepipe hat, which, if you use two spaces after a period, you might as well do because you are truly living in the past.<br />
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Feel free to comment if you disagree- the internet is a beautiful thing!Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-8973293070082558479.post-19242366448555936792014-05-17T07:41:00.000-05:002014-05-17T07:41:05.438-05:00Professionally Formatting a Word DocumentChances are if you work for a company, you may occasionally need to create a document in Microsoft Word, either by taking someone else's document and using it as a template or creating your own from scratch. If you just type things in Word and haven't taken the time to learn how to do it professionally, you are doing yourself a disservice. I've seen documents at different companies that have had pretty bad formatting. They have been passed around over time between 5 or 6 people, copied, pasted, formatting has been updated and adjusted, spaces have been put in where tabs should be, bullets aren't consistent, etc.<br />
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You can significantly improve the quality of your work in MS word by putting in a few hours of practice that will pay off over the course of your career. (College students in particular, pay attention to this. The more time you spend learning this stuff now when you have more time to devote to learning, the more time you will save yourself later when you're going to work).</div>
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I've always been able to learn a few things from the "For Dummies" books, and this is no exception. (Well, the one exception is with respect to investing. There are a lot of good books on investing outside of this series.) So if you're into having a book to hold in your hands, an investment in <a href="http://www.amazon.com/gp/product/1118491238/ref=as_li_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=1118491238&linkCode=as2&tag=watyouwal-20&linkId=2IJ6L4L7S53TMOAD">Word 2013 For Dummies</a><img alt="" border="0" src="http://ir-na.amazon-adsystem.com/e/ir?t=watyouwal-20&l=as2&o=1&a=1118491238" height="1" style="border: none !important; margin: 0px !important;" width="1" /> or </div>
<a href="http://www.amazon.com/gp/product/0470487720/ref=as_li_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=0470487720&linkCode=as2&tag=watyouwal-20&linkId=Q3HTBBUQSNLSM4AP">Word 2010 For Dummies</a><img alt="" border="0" src="http://ir-na.amazon-adsystem.com/e/ir?t=watyouwal-20&l=as2&o=1&a=0470487720" height="1" style="border: none !important; margin: 0px !important;" width="1" /> will pay for itself many times over.<br />
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If you don't want to use a book, there are a number of different sources/tutorials across the web, particularly on youtube, but they aren't very systematic, meaning they typically only address specific topics you might be searching for help on.<br />
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Anyway, if you want my advice, the first thing to focus on if you want to create a professional looking document is <a href="http://office.microsoft.com/en-us/word-help/style-basics-in-word-HA010230882.aspx">styles</a> (link directs you to office.microsoft.com).<br />
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Many people have never heard of "Styles" in Word (myself included, until a few years ago), or if you've heard of them you might have thought that they were some kind of super advanced thing you never needed to use. Let me tell you right now that you are wrong if you think that. They are actually very easy once you get used to them, and they are essential to creating a professionally formatted document. One of the key things styles allow you to do is ensure consistent formatting throughout your document. Consistency is extremely important because it helps the reader to orient themselves (and helping the reader is important- to quote Strunk and White's <a href="http://www.amazon.com/gp/product/020530902X/ref=as_li_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=020530902X&linkCode=as2&tag=watyouwal-20&linkId=KGM6YXTWDGUHKRWS">The Elements of Style</a><img alt="" border="0" src="http://ir-na.amazon-adsystem.com/e/ir?t=watyouwal-20&l=as2&o=1&a=020530902X" height="1" style="border: none !important; margin: 0px !important;" width="1" />, "<span style="background-color: white; color: #181818; font-family: georgia, serif; font-size: 14px; line-height: 18px;">you must sympathize with the reader's plight (most readers are in trouble about half the time)").</span><span style="background-color: white; color: #181818; font-family: georgia, serif; font-size: 14px; line-height: 18px;"> If all of the section headings look the same, the reader will always know exactly where they stand. Consistent formatting also gives the benefit of looking pleasing to the eye.</span><br />
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<span style="color: #181818; font-family: georgia, serif;"><span style="background-color: white; font-size: 14px; line-height: 18px;">Particularly among finance and engineering types, I have noticed an inability to properly use MS Word, but no matter how good your excel models or technical drawings are, if you can't communicate them in a professional looking format, you will be doing yourself a great disservice. </span></span><br />
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<span style="background-color: white; color: #181818; font-family: georgia, serif; font-size: 14px; line-height: 18px;">A few more tips to help you out in Word:</span><br />
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<li><span style="color: #181818; font-family: georgia, serif;"><span style="font-size: 14px; line-height: 18px;">Break your words up with pictures. Use tables, figures, diagrams, and illustrations. Though your prose may be excellent, your report will be more appealing with some figures.</span></span></li>
<li><span style="color: #181818; font-family: georgia, serif;"><span style="font-size: 14px; line-height: 18px;">Consistently format these figures. If you are using reasonably sized tables, use MS Word's embedded table function to create tables. They will have the same look and feel and will vastly improve the quality of your document vs. a Frankenstein-like compilation of tables extracted from various excel documents, pdf screenshots etc. It may take time to retype a table into word, but the results are often worth the effort. Also, <a href="http://office.microsoft.com/en-us/word-help/add-or-delete-captions-HP001228982.aspx">caption</a> the figures consistently. (by the way, if you need to move rows around in a Word table, <a href="http://www.howtogeek.com/166336/how-to-quickly-move-a-row-in-a-word-2013-table/">try this trick</a>, it changed my life. Even if you don't need to move rows around, try this trick out because I can almost guarantee it will come in handy.)</span></span></li>
<li><span style="color: #181818; font-family: georgia, serif;"><span style="font-size: 14px; line-height: 18px;">Use a cover page, particularly for longer reports. The built in cover pages are pretty awesome and you can modify them a bit if needed.</span></span></li>
<li><span style="color: #181818; font-family: georgia, serif;"><span style="font-size: 14px; line-height: 18px;">Study other documents. Look around on the web and at different reports you may have on your desk right now. See what works and what doesn't. Academic papers are all usually very consistently formatted and can be used as a basic starter model. If you can get your hands on them, I really like equity analyst research reports from a finance perspective. In particular, the bigger banks have large, well-paid editing departments that <a href="http://www.acgchicago.com/UserFiles/file/chicago/Web%20docs/HCare%202011%20Orthopedic%20HCare.pdf">produce</a> some <a href="http://pdf.cyberpresse.ca/lapresse/dufour/AAPLBUY.pdf">good looking documents</a>. (notice all of the tables in this Goldman report on Apple have a consistent feel).</span></span></li>
<li><span style="color: #181818; font-family: georgia, serif;"><span style="font-size: 14px; line-height: 18px;">Don't go overboard. Simpler is often better. Adding a ton of page outlines, header and footer content, colored fills etc... often makes the document look worse.</span></span></li>
<li><span style="color: #181818; font-family: georgia, serif;"><span style="font-size: 14px; line-height: 18px;">Learn how to match colors exactly by changing RGB values. <a href="http://colorcop.net/">Color Cop</a> is an awesome, free tool you can use to exactly match colors in your document to a company logo, picture, or any other color you might find on the web.</span></span></li>
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<span style="color: #181818; font-family: georgia, serif;"><span style="font-size: 14px; line-height: 18px;">I won't lie to you- learning all of this stuff can be a tedious, painful exercise at first. This is why many people don't bother and why it will help set you apart as someone who produces top quality, professional work. You don't have to learn it all at once, but make a consistent effort to dedicate a few hours a week to this and you will definitely notice the results.</span></span></div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8973293070082558479.post-73933446036747966302013-08-21T21:21:00.002-05:002013-08-21T21:24:08.250-05:00Excel data table for sensitivity analysisI've used Microsoft Excel for so long that it has become kind of like another appendage at work. It is one of the most powerful tools you can learn to use to increase your productivity in an office. I played a lot of video games growing up, and in video game terms increasing your Excel skill is kind of like adding experience points and making your character more powerful. The better you know how to use excel, the more you can do in less time, especially if you're in finance/accounting/marketing/other numbers-oriented fields (and these days with rise of big data, almost every field is now numbers oriented). Every day I learn a new function, re-learn how to use an old one that I haven't tried in a while, or discover a new way to do something quicker.<br />
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One powerful tool I use often enough to have memorized how to use it is the data table function. Let me put its usefulness in context...</div>
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So you've created a working DCF model that values a company and you've assumed a discount rate and a revenue growth rate as part of this. Your boss/portfolio manager/wife/self looks at it and says "ok, but a DCF is just a tool to estimate value. You're giving me an precise number. How sensitive is that number to the discount rate you chose? By the way I don't believe the revenue growth rate you chose- what would the value look like if you dropped it by 5%?"</div>
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You go back to your spreadsheet and build a table. You spend the next hour methodically changing the discount rate input, and the earnings rate input, and noting the results. You come up with a whole range of values. You format them nicely, print it out and show your boss/portfolio manager/wife/self. He/she says "great, this is what I was looking for. I'm not confident the revenue growth will be as high as it needs to be to make a good return buying the stock at its current price so I'm not sure what to do here. How about you change the margin assumption in your model and show me what it does to this sensitivity table?"</div>
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You sigh. It's six o'clock. It will take another hour to do this, but you go back and make the change to your margin assumption. You then slog through, methodically changing the discount rate and the revenue growth rate and noting the results. You think about that beer waiting for you at home. Your mind wanders and you wonder if Excel has a way to automatically create a data table that will be sitting there, ready to update at a second's notice if you change any part of your model. One that will vary the assumptions for you behind the scenes and print out the results for you... </div>
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You fire up the google. Your hard drive and RAM are jolted with electrical impulses. The google algorithm does your bidding. It sorts, it seeks. Your ISP brings you data at your maximum download speeds, your monitor renders bits and bytes into pleasing words and pictures.... and one second later you get search results. Pages upon pages of search results, all of them pointing you to the data table function. You fire up youtube, watch a tutorial, and seconds later you have a dynamically linked sensitivity table ready to do your bidding at a moment's notice. It takes a bit of time to get it right- some videos only use a single variable analysis, you keep getting the row and column inputs confused.... but it is time well spent. Learning how to use a data table just shaved an hour off of every future DCF you do. It made you more efficient. It made you better at your job. </div>
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Anyway, if you haven't learned this yet, I strongly suggest you check out how to create a data table in Excel. Yes it is a bit complicated at first, but it gets much, much easier. </div>
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As a side note, I've found the best way to learn how to do things in excel is with actual live problems. Something that you need to deliver and that would be mind-numbingly tedious without an excel trick. </div>
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I suck at using blogger for anything but text, so as of now I'm not able to give you an effective tutorial on how to use data analysis (apologies to anyone who came here looking for this). What I can say is that there are hundreds of demos just waiting for you on google. I tend to prefer a youtube demo because you can see how people do things live, which helps you understand what you may be doing wrong when you mess up. </div>
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I just did a quick search and thought this <a href="http://www.youtube.com/watch?v=kfznvWGzt0Y">demo</a> was pretty good.</div>
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Have fun.</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8973293070082558479.post-15011264660091050342013-07-18T20:03:00.000-05:002013-07-18T20:03:06.832-05:00-BernankeAs many advanced googlers know, if you type in a search term with a minus sign before it, your search will not return results with that word in it. I was just sitting here doing a thought experiment- what if I spent the next few weeks only reading financial news stories/research/information that do not contain the word "bernanke." Better yet, what if I could just run the big "minus" filter on a host of terms including "qe," "fed," "gold," and also "bubble" for good measure.<div>
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I probably wouldn't be able to visit zerohedge anymore, which would be a bummer because that is one of my favorite sites.</div>
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I know this whole thing is in uncharted waters currently, but Every now and then don't you get bernanke fatigue? Fiat fatigue? Maybe it is just a part of getting older. Maybe my father was in this position 30 years ago when he was looking at the economic future of the country and hearing doubts about where it was going to be in 30 years. Maybe you can always find things to worry about.. Maybe my father had Volker fatigue in 1983. Maybe things have never looked good to anyone and all of us current market participants are just in the same position our fathers were in. Maybe it is time to stop worrying about it so much.</div>
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I know you can respond with umpteen stats about how this time it's different. How the gap between the rich and the poor has steadily increased, and how incomes have come down (or if you want to make the argument they've gone up in aggregate). Don't bother making them to me though. At this point I tend to just nod my head when I hear someone's prediction about where the economy and the country are headed.</div>
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I'll continue to read about and follow it all because that's the way I'm wired, but boy a vacation would be nice. </div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8973293070082558479.post-25905722948135806132013-02-21T23:17:00.000-05:002013-02-22T18:57:59.241-05:00Thoughts on 3G Capital's LBO of Heinz or "Warrant" Buffett Strikes AgainOn Feb 14 (last Thursday), <a href="http://online.wsj.com/article/SB10001424127887323478004578303733925078030.html">Berkshire and 3G Capital announced that they agreed to acquire food company H.J. Heinz Co. for $23 billion in cash</a> ($72.50 per share, a 20% premium to where the stock closed the day before).<br />
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Well, that's what the headlines would have you believe anyway. However, that is not what is happening. My headline is a bit more accurate. I'll explain below.<br />
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<strong>Initial read</strong><br />
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I was pretty busy last Thursday so I didn't pay a whole lot of attention to the acquisition, but as may you know I'm a big Buffett buff and I made a mental note to take a closer look at the numbers at some point in the future. I like to check in on what smart people are valuing businesses at every now and then so I have a good market reference point in my head.<br />
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My initial assumption based on the headlines alone was that the deal made sense- Buffett loves these big, high quality brand name companies and Heinz seems to make sense as a piece of the portfolio alongside Wrigley, Coke, and Gillette. I also know Buffett likes to pay a reasonable for a business (read basically any book about him and you'll see some reference to the "margin of safety" concept he learned from Ben Graham) so I assumed that he got a good deal. I haven't really followed Heinz, so I thought that maybe the stock had been neglected and possibly didn't take part in the recent market rally.<br />
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Today I revisited the story, pulled open Heinz's last 10-K and realized that I was completely wrong. This was not an old-style Warren Buffett margin of safety "be greedy when others are fearful" acquisition of a great business at a substantial discount to intrinsic value. This was much more what I've come to think of as a "new style" Warren Buffett where he gets to put capital to use at rates no mere mortal can obtain. The price paid for Heinz was not a bargain from what I can see.<br />
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<strong>The price tag was high - 25x earnings!</strong><br />
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Looking at <a href="http://www.heinz.com/AR_2012/Heinz_10k.pdf">Heinz's 2012 10-K</a> (see page 33 for the income statement), the company earned about $939 million of net income for the year ended April 2012. I opened another couple of 10-Ks to look at the five year history, and net income averaged a bit below $939 million for this period, so I figured it was a pretty good number. Divide the purchase price of $23 billion by $939 million and you'll see the Buffett/3G team paid about 25 times trailing earnings for the company, not a low multiple by any stretch of the imagination. For the sake of comparision, Google sells for a similar multiple, is trading at an all time high, and though I'm getting out of my league here, I think it is considered more of a growth stock. Heinz does not make technology, it makes food products.<br />
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Going a few pages further in the 10-K, I figured I'd get a rough sense of what the company's free cash flow is. Take net income of $939 million, add back $300 million of depreciation, $50 million of amortization, deduct CAPEX of $400 million and you're at roughly $900 million of free cash flow. If you pay $23 billion for the company, $900 million of free cash flow equates to roughly a 4% yield. The multiple is still about the same, roughly 25x FCF. I also checked how FCF looked over the past five or six years, and again the average was below the current $900 million number.<br />
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I didn't create a DCF model of the company because I'd seen enough at this point and I didn't have the time to put into it, but I think if you do a DCF with some reasonable assumptions, you're not going to get to a $23 billion valuation for the company assuming things continue along as they have in the past.<br />
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I believe I read in the press that the price was something along the lines of 8x book value and 14x EBITDA, again generally high multiples (though book value isn't the greatest metric for a company like this).<br />
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<strong>Berkshire didn't buy the company, it bought half of the equity in the deal, plus high-yielding preferred and warrants as a kicker</strong><br />
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Reading past the headlines of the articles, I realized that Berkshire's investment in the company wasn't purely an equity stake (like Buffett's investments in Coke, Gilette, Washington Post etc. that he became famous for). Instead, Berkshire is going to pay $8 billion for preferred stock in Heinz yielding 9%, and invest $4 billion of equity.<br />
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In addition, 3G is only investing $4 billion of equity and financing the rest. The company is also going to roll its current $5 billion of debt. <br />
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So doing some rough math, when the deal is complete, the capital structure will be something like: <br />
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$8 billion of equity<br />
$8 billion of preferred stock <br />
$12 billion of debt ($5 billion existing plus ~7 billion of new debt hence the "LBO")<br />
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Oh, and if you dig around, Buffett is also getting warrants to buy shares of the company. ("Warrant" Buffett also has Bank of America warrants, had Goldman warrants, and GE warrants). Terms of these warrants weren't disclosed.<br />
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Anyway the upshot of all of this is that if the deal is approved, Heinz will become a private company 50% owned by a PE firm with a history of cost cutting. It will have twice the debt load it had previously and its debt will be downgraded by the rating agencies, but as the LBO story goes, should be able to service the debt over time with steady cash flows thrown off by the business. It will enjoy levered returns for a few years, and then 3G will likely look for an exit, possibly selling its 50% stake to Berkshire. The company may be more profitable at that time. <br />
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In the meantime, Berkshire rakes in the 9% dividends on the preferred stock. Don't forget that preferred stock dividends enjoy a very favorable tax deduction for corporate owners, so Berkshire also gets to avoid some taxes it would have been hit by had it acquired Heinz outright.<br />
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And those warrants. Berkshire can maybe exercise those warrants someday.<br />
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<strong>Berkshire's price tag - more like 18x earnings, with upside</strong><br />
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My final thought- Berkshire's earnings stream from the company will be as follows: <br />
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-$8 billion of preferred stock at 9% yield for $720 million a year in pretax preferred dividends<br />
-Since generally 70% of preferred stock dividends are deductible for corporations, the effective tax rate on these dividends will be approximately 10%, for <strong>after-tax preferred dividends of about $650 million.</strong><br />
-Plus, Berkshire's 50% share of the company's earnings. This is a harder number to take a guess at but I'll do some extremely rough late-night math. $939 million of earnings in 2012. Subtract preferred dividends of $720 million and this leaves you with about $220 million of earnings. 2012 earnings include about $300 million of pretax interest expense. Since the debt load of the company is going to roughly double, lets assume interest expense doubles, to $600 million (since the rating will fall to junk, the rate on new debt will likely be higher and the cost of rolling old debt will be higher but im not going to get too precise here). Tax effecting the additional $300 million of interest expense at 30%, you get about a $210 million hit to after tax earnings, reducing the $220 million to $10 million of after-tax earnings. Buffett gets the right to half of that, <strong>roughly $5 million</strong><br />
-$650+5 = $655 million of after tax earnings per year<br />
-Buffett invested $12 billion of cash<br />
-This results in a P/E multiple of more like 18x earnings. Better than 25, but still not cheap.<br />
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Let me know if I missed something. It's late.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8973293070082558479.post-68740091109568943892012-11-09T21:59:00.001-05:002012-11-09T21:59:41.255-05:00Urban Hurricane PreparationSo I've recently lived through the effects of Hurricane Sandy here in the Northeast and I want to give my perspective on how to prepare for a Hurricane if you live in an urban area like me. This isn't a guide per se, but a few things I ran into.<br />
<div>
<br /></div>
<div>
<ul>
<li>Thanks to modern weather forecasting, we knew there was a potential monster storm coming in at least 3 days before it actually hit. My first tip is not to ignore the weather forecasts. Especially if they are dire. In fact, if you need to guarantee productivity (ie power and internet connection) for office/computer work etc., you might even want to fly you or some of your staff out of town and stay in a cheap hotel somewhere out of harm's way for a week.</li>
</ul>
<ul>
<li>Gas up. Before the storm comes in, fill your car with gas, and if you have gas cans, fill those also. (Note: if you live in an apartment you likely can't keep gas cans in there due to fumes and general safety. This is more for people with garages and generators. Be extremely careful when storing and transporting gas.) There are long gas lines in NY, NJ and CT at the moment. Bonus points if you have a bicycle that you can attach a basket to for groceries in a pinch so you dont even need to use that much gas.</li>
</ul>
<ul>
<li>This is an odd one, but something that came up. Your garage door opener might not work after a storm. Go into your garage and pull the disengagement handle for the electronic opening mechanism. You now have an old fashioned door that pulls up and down by hand. Tie a rope with a heavy weight on the end to weigh the door down so it does not blow up in strong winds.</li>
</ul>
<ul>
<li>A lot of people were so focused on the storm that they ignored the weather forecast for after the storm, which was pretty cold. Be ready to stay warm if needed. Blankets!</li>
</ul>
<ul>
<li>If you have an electric stovetop, you could be screwed. People with gas at least had something on which to cook, make coffee and tea etc. Ditto for the electric coffeemaker. I highly recommend this regardless of hurricaines, but get an <a href="http://www.amazon.com/gp/product/B0047BIWSK/ref=as_li_ss_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=B0047BIWSK&linkCode=as2&tag=watyouwal-20">Aerobie AeroPress Coffee and Espresso Maker</a><img alt="" border="0" height="1" src="http://www.assoc-amazon.com/e/ir?t=watyouwal-20&l=as2&o=1&a=B0047BIWSK" style="border: none !important; margin: 0px !important;" width="1" />
immediately (check out my review of the aeropress <a href="http://watchyourwallet.blogspot.com/2011/10/most-useful-things-ive-ever-purchased.html">here</a>)!</li>
</ul>
<ul>
<li>Stock up on dry, canned foods and water. </li>
</ul>
<ul>
<li>Stuff sealed ziplock bags mostly full of water into the empty spaces in your freezer. They keep stuff cold longer if the power goes out and in a pinch you can even drink the water.</li>
</ul>
<ul>
<li>Follow the advice on ready.gov. Go bags etc. are handy. If floods are a threat, you need to be ready to move.</li>
</ul>
<ul>
<li>Have good battery powered lighting. I own a <a href="http://www.amazon.com/gp/product/B0095MNGHI/ref=as_li_ss_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=B0095MNGHI&linkCode=as2&tag=watyouwal-20">Fenix E21 Flashlight</a><img alt="" border="0" height="1" src="http://www.assoc-amazon.com/e/ir?t=watyouwal-20&l=as2&o=1&a=B0095MNGHI" style="border: none !important; margin: 0px !important;" width="1" />
and I kept it on me at all times during the power outage. I love this thing. The advantages of this light are: 1) it is super bright. I'm talking daylight in a dark room bright. 2) it is small 3) It is heavy duty and waterproof. I saw a youtube video where someone had it lit in a bucket of water for a day or something and it still worked. 4) It takes common AA batteries. Another suggestion is to get a <a href="http://www.amazon.com/gp/product/B002PHYWFA/ref=as_li_ss_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=B002PHYWFA&linkCode=as2&tag=watyouwal-20">book light</a><img alt="" border="0" height="1" src="http://www.assoc-amazon.com/e/ir?t=watyouwal-20&l=as2&o=1&a=B002PHYWFA" style="border: none !important; margin: 0px !important;" width="1" />
for reading and a <a href="http://www.amazon.com/gp/product/B0045WFX7O/ref=as_li_ss_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=B0045WFX7O&linkCode=as2&tag=watyouwal-20">LED lantern</a><img alt="" border="0" height="1" src="http://www.assoc-amazon.com/e/ir?t=watyouwal-20&l=as2&o=1&a=B0045WFX7O" style="border: none !important; margin: 0px !important;" width="1" />
for general lighting. A <a href="http://www.amazon.com/gp/product/B008PHCWCE/ref=as_li_ss_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=B008PHCWCE&linkCode=as2&tag=watyouwal-20">headlamp</a><img alt="" border="0" height="1" src="http://www.assoc-amazon.com/e/ir?t=watyouwal-20&l=as2&o=1&a=B008PHCWCE" style="border: none !important; margin: 0px !important;" width="1" />
is also good for doing dishes or other work in the dark. Try to get them all running on common batteries so you can stock up on those (AA for example). Also have CANDLES. I hadn't had a candlelight (only) dinner in years and its amazing how much light a couple of candles can throw off. </li>
</ul>
<ul>
<li>Have a good battery powered radio. When the power goes off, BOOM, instant loss of all those nice news anchors giving you up to the second updates on doppler radar so you will be dying to hear some kind of news and the radio is your friend in this situation. Seems like all of our clock radios took 9 volt batteries and at one point we ALMOST considered taking the battery out of the smoke detector to put in a radio for a few minutes but luckily we found one. Bonus points if it also has a <a href="http://www.amazon.com/gp/product/B0071BTJPI/ref=as_li_ss_tl?ie=UTF8&camp=1789&creative=390957&creativeASIN=B0071BTJPI&linkCode=as2&tag=watyouwal-20">hand crank</a><img alt="" border="0" height="1" src="http://www.assoc-amazon.com/e/ir?t=watyouwal-20&l=as2&o=1&a=B0071BTJPI" style="border: none !important; margin: 0px !important;" width="1" />
as backup in case you're out of batteries. I can see these things selling like hotcakes in the wake of the storm. If you had solar powered stuff, it might have been ok for a very brief period of time, but there hasn't been much sun around lately.</li>
</ul>
<ul>
<li>Make friends. So you haven't spoken to your neighbor in three years? Well how do you feel now that he has a generator and you're in desperate need of someplace to plug an electric heater for an hour to keep frostbite at bay? I saw a lot of examples of people helping eachother out with some food, or even a place to stay. Your neighbors and family can be a huge help in times of emergency.</li>
</ul>
</div>
<div>
That's just a little advice from personal experience. There are more complete guides elsewhere (ready.gov for example) and I definitely recommend you check them out if a storm is headed your way.</div>
<div>
<br /></div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8973293070082558479.post-7593517006586196692011-11-06T08:18:00.000-05:002011-11-06T08:18:14.067-05:00Smallcap Screen Part II - Lotus. Jiangbo and HuifengOk, so maybe I should call this a microcap screen, but for now lets ignore the semantics. <br />
I finally got around to checking into <a href="http://finance.yahoo.com/q?s=LTUS.OB&ql=1">Lotus Pharmaceuticals</a>. They use essentially the same corporate structure as Skystar, controlling a china-based entity through "contractual arrangements." They also executed a reverse split in 2010, yet the shares still trade for less than a dollar. I'm going to rule this one out as well. (If you want to know why, <a href="http://watchyourwallet.blogspot.com/2011/10/smallcap-stock-screen-investment-ideas.html">refer to my previous analysis</a>.)<br />
<br />
The final 2 similar-looking pharmas that show up on the list are Jiangbo Pharma and Huifeng Bio-Phar. I am going to save myself some work and assume that these companies also have a similar corporate structure as Skystar. To repeat: I'm not saying these are necessarily bad structures, I'm just saying they don't offer me enough certainty to invest my hard-earned money. You are free to make your own determination.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8973293070082558479.post-55870090760939476702011-10-29T17:51:00.001-05:002011-10-29T17:55:27.531-05:00Smallcap Stock Screen - Investment Ideas<span style="font-family: Arial, Helvetica, sans-serif;">Although I don't recommend most people invest in individual stocks, I do keep a (very) small portion of my investable funds in an account I actively manage. My results have been decent. I have a few stocks I track regularly and have been in and out of them a few times over the years. I've also done some experimenting with options (failure), shorting (great success), and various other securities. At the moment, I'm about 50% cash in the account and have kept my eyes open for potential ideas.</span><br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;"> </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">(Note: almost everything (except for a long term holding or 2) in this account and every company mentioned below falls into the category of speculation, not investment. An investment, upon thorough analysis, promises security safety of principal and a satisfactory return.)</span><br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;"> </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">Though I try to stay away from the smaller end of the spectrum due to the higher risk I associate with tiny companies, I figured I might run a screen on the small end of the market to see what popped up. To that end, I did a screen of microcap stocks with market caps below $20 million, P/Es below 12x, 5 year average ROEs above 15%, trailing 12 months EPS above zero, and 5 year revenue growth above 10%.</span><br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;"> </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">The result was a list of 24 stocks for further investigation.</span><br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;"> </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">One thing that immediately stood out to me on the list was the pharmaceuticals. There were four of them on the list with similar sounding names: Huifeng Bio-Pharm (HFGB), Jiangbo Pharma (JGBO), Lotus Pharma (LTUS), and Skystar Bio-Pharm (SKBI). They all had P/E ratios of 1.13 or below and also made me immediately skeptical.</span><br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;"> </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">Starting at the beginning, I pulled up a </span><a href="http://finance.yahoo.com/q?s=SKBI&ql=1"><span style="font-family: Arial, Helvetica, sans-serif;">yahoo finance quote on Skystar</span></a><span style="font-family: Arial, Helvetica, sans-serif;">. The stock trades for $2.15 per share and had a 52 week high/low of $1.39 and $10.58, respectively. All else equal, I'd rather buy a stock at its high than its low, so this was a positive sign. I did a quick calculation and if I bought this stock today at $2.15 a share, then sold it for $10.58, I would make a 392% return. (conversely, the people who bought it at $10.58 and sold it today are looking at an 80% loss). </span><br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;"> </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">I also noticed it traded only 580 shares last friday, or about $1,200 of total volume, showing that the stock is very illiquid. If I owned shares of this company and needed to sell for any reason, the lack of potential buyers in the market could mean I would have to take a discount on the prevailing market price to sell them. Though this is a risk, you can also see this as a positive. If a lot of people aren't buying the stock, chances are very few people follow the company and you might notice something others have missed. If the stock ends up being a true winner, people will eventually come around to realize the value of the company </span><br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;"> </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;">I have no idea what the company does, so I decided to pull up </span><a href="http://precisionir.api.edgar-online.com/EFX_dll/EdgarPro.dll?FetchFilingCONVPDF1?SessionID=v15zFFFLveicfkv&ID=7856753"><span style="font-family: Arial, Helvetica, sans-serif;">its most recent 10-K</span></a><span style="font-family: Arial, Helvetica, sans-serif;">. They might as well paint a bird on this thing and fly it above Busch Stadium because it looks like one giant red flag to me. The first page was enough to turn me off, and this rarely happens to me: </span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><br />
</span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><em>"We were incorporated in Nevada on September 24, 1998. We are a holding company that, through our wholly owned subsidiaries in China, Skystar Bio Technology Co.(Skystar Jingzhou) and variable interest entity (“VIE”), Xi’an Tianxing Bio-Pharmaceutical Co., Ltd. (“Xi’an Tianxing”), researches, develops, manufactures, and distributes veterinary health care and medical care products in the People’s Republic of China (“PRC”).</em></span><br />
<br />
<span style="font-family: Arial, Helvetica, sans-serif;"><em> </em></span><br />
<span style="font-family: Arial, Helvetica, sans-serif;"><em></em></span><br />
<span style="font-family: Times New Roman; font-size: x-small;"><span style="font-family: Times New Roman; font-size: x-small;"><div align="LEFT"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;"><em>All of our operations are carried out by our subsidiaries in China and Xi’an Tianxing, which the Company controls through contractual arrangements between Xi’an Tianxing and Sida Biotechnology (Xi’an) Co., Ltd. (“Sida”), the wholly owned subsidiary of Fortunate Time International Limited, the wholly-owned subsidiary of Skystar Bio-Pharmaceutical (Cayman) Holdings Co., Ltd. (“Skystar Cayman”), which became our wholly owned subsidiary in 2005.</em></span></div><br />
<span style="font-family: Arial, Helvetica, sans-serif; font-size: small;"><em> </em></span><div align="LEFT"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;"><em>Such contractual arrangements are necessary to comply with PRC laws limiting foreign ownership of certain companies. </em></span></div><div align="LEFT"><span style="font-family: Arial, Helvetica, sans-serif;"><br />
<span style="font-size: small;"><em></em></span></span></div><div align="LEFT"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;"><em>Through these contractual arrangements, we have the ability to substantially influence Xi’an Tianxing’s daily operations and financial affairs, appoint its senior executives, and approve all matters requiring shareholder approval. As a result of these contractual arrangements, which enable us to control Xi’an Tianxing, we are considered the primary beneficiary of Xi’an Tianxing.</em></span></div><br />
<span style="font-family: Arial, Helvetica, sans-serif; font-size: small;"><em> </em></span><div align="LEFT"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;"><em>On August 21, 2007, Xi’an Tianxing invested $68,550 (RMB 500,000) to establish Shanghai Siqiang Biotechnological Company Limited (‘Shanghai Siqiang’). Xi’an Tianxing is the 100% shareholder. Shanghai Siqiang serves as a research and development center for Xi’an Tianxing to engage in research, development, production and sales of feed additives and veterinary disease diagnosis equipments."</em></span></div><div align="LEFT"><span style="font-family: Arial, Helvetica, sans-serif;"><br />
<span style="font-size: small;"><em></em></span></span></div><div align="LEFT"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;"><em>In addition to Xi’an Tianxing, Skystar Jingzhou also manufactures and distributes veterinary medicines including aquaculture medicines in China."</em></span><span style="font-family: Arial, Helvetica, sans-serif;"><br />
<span style="font-size: small;"></span></span><br />
<span style="font-family: Arial, Helvetica, sans-serif; font-size: small;">So Skystar is an Arizona-based holding company that set up a complicated ownership structure to comply with (ie, get around) Chinese restrictions on foreign ownership of companies. The company's main line of business is selling veterinary health care and medical care products in China.</span></div><div align="LEFT"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;"></span></div><div align="LEFT"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;">As a general rule, anything involving a Special Purpose Vehicle (SPV) or a Variable Interest Entity (VIE) makes me nervous. VIEs, as Bloomberg puts it, are a "</span><a href="http://www.bloomberg.com/apps/news?pid=newsarchive&sid=apA4GEivg9Y8"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;">post-Enron version of Special Purpose Vehicles</span></a><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;">." The fact that Xi'an is a VIE means that Skystar stands to benefit the most from the company, but it does not own more than 50% of the company. Only being able to "substantially influence" rather than "completely control" the company's main subsidiary is a huge red flag for me.</span></div><div align="LEFT"><br />
<span style="font-family: Arial, Helvetica, sans-serif; font-size: small;"> </span></div><div align="LEFT"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;">The page also referenced a Cayman Islands based corporation used as part of the ownership scheme. </span></div><div align="LEFT"><br />
<span style="font-family: Arial, Helvetica, sans-serif; font-size: small;"> </span></div><div align="LEFT"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;">All of this shit might be on the up-and-up, but the number of huge risks on page 1 of the 10-k are enough to make my head spin, and I haven't even gotten into the specific kinds of products the company sells yet. There's the risk of being tiny, the risk of doing business in China, the risk of not controlling your main source of income, etc. etc. After doing a little further research on the internet, I came across a publication about "</span><a href="http://www.fenwick.com/docstore/publications/corporate/invest_operating_in_china.pdf"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;">Investing and Operating in Restricted Industries in China</span></a><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;">" It looks like this type of ownership structure has been put in place a number of times and as far as I can tell, it looks like a way for Chinese firms to raise capital from American and other investors.</span></div><div align="LEFT"><br />
<span style="font-family: Arial, Helvetica, sans-serif; font-size: small;"> </span></div><div align="LEFT"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;">A few other great tidbits from the 10-k: The company leases a building in China that the chairman owns for about $24,000 a year. The company also had accounting issues: "On December 17, 2010, the Company filed an 8K with the SEC disclosing the termination of Frazer Frost, LLP (“Frazer Frost”) as our independent auditors effective as of December 13, 2010." They replaced their auditors. They identified material weaknesses in their accounting and internal audit functions and finally, they disclosed this: </span></div><div align="LEFT"><br />
<span style="font-family: Arial, Helvetica, sans-serif; font-size: small;"> </span></div><div align="LEFT"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;"></span></div><span style="font-family: Times New Roman; font-size: x-small;"><span style="font-family: Times New Roman; font-size: x-small;"><span style="font-family: Times New Roman; font-size: x-small;"><div align="LEFT"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;">"<em>Conflicts of interests between the duties of our officers and directors who are also management members of Xi’an Tianxing to our company and Xi’an Tianxing may arise. As our directors and/or executive officer (in the case of Mr. Lu), they have a duty of loyalty and care to us under U.S.and Cayman Islands law when there are any potential conflicts of interests between our company and Xi’an Tianxing. We cannot assure you, however, that when conflicts of interest arise, these individuals will act completely in our interests or that conflicts of interests will be resolved in our favor. In addition, they could violate their legal duties by diverting business opportunities from us to others. If we cannot resolve any conflicts of interest between us and them, we would have to rely on legal proceedings, which could result in the disruption of our business."</em></span></div><div align="LEFT"><br />
<span style="font-family: Arial, Helvetica, sans-serif; font-size: small;"> </span></div><div align="LEFT"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;">I work at least 11 hours a day, 5 days a week. There is no way I am risking my hard earned money on an equity ownership interest in a setup like this. Even if the China operation does make enough money to one day pay some back to shareholders in the US, who knows if they will ever even be able to get the funds out of China without the government intervening? I'm passing on this one. Though the stock quote might go higher in the next few years, to me the risk is not worth the potential reward.<br />
<br />
One thing I definitely do give the company credit for being straightforward and disclosing risks in its filing.</span></div><div align="LEFT"><span style="font-family: Arial, Helvetica, sans-serif;"><br />
<span style="font-size: small;"></span></span></div><div align="LEFT"><span style="font-family: Arial, Helvetica, sans-serif; font-size: small;">I think I've had enough smallcap action for one day. I assume the other pharma companies on this list are similar to Skystar and plan to report back any findings when I get the chance to look into them. Hopefully this gives you a sense for the kinds of things I look for in an investment/speculation. There will be many other pitches to swing at, so I dont mind letting this one go by. In this case, the ownership structure was so risky in my opinion that it didn't even matter what the financials looked like.</span></div></span><div align="LEFT"></div></span><div align="LEFT"></div></span><div align="LEFT"></div></span><div align="LEFT"></div></span><div align="LEFT"></div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8973293070082558479.post-53398042531682037202011-10-01T13:57:00.000-05:002011-10-01T13:57:14.663-05:00The most useful things I've ever purchased<span style="color: black;">Time and time again I've gotten household/automotive appliances (eg: george foreman grill or a <a href="http://watchyourwallet.blogspot.com/2007/02/best-medium-duty-shredder-i-could-find.html">$20 paper shredder</a>) that have either broken or I've stopped using. Below are a few items I've gotten off of Amazon over the years that I have found to be well made and gotten a lot of use out of and I have no hesitation recommending.</span><br />
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<strong></strong><strong>1) Giant, Powerful Scissors.</strong> <br />
<iframe frameborder="0" marginheight="0" marginwidth="0" scrolling="no" src="http://rcm.amazon.com/e/cm?lt1=_blank&bc1=000000&IS2=1&bg1=FFFFFF&fc1=000000&lc1=0000FF&t=watyouwal-20&o=1&p=8&l=as4&m=amazon&f=ifr&ref=ss_til&asins=B002Q8HHKK" style="height: 240px; width: 120px;"></iframe><br />
<br />
Ok well maybe they refer to them as "Tin Snips" but these things are awesome, and amazingly useful. According to Amazon: "Super sharp blades easily cut through sheet metal, aluminum sliding and more ." I've used these to cut through so many things I can hardly keep count. In particular, they are good on packaging. The hard plastic packaging that most electronics seem to come in most days can be easily disposed of with this thing. It also eats right through whatever plastic ring in a package may be securing the item inside. Do yourself a favor and get the twelve inch ones. Whenever you need scissors on steroids, keep these handy.<br />
<br />
<strong>2) Tire Inflator</strong><br />
<br />
<br />
<br />
I've had this Slime compressor for about a year and it is great. Throw it in your trunk and you will never have to pay a dollar at the gas station each time you want to inflate your tires. This particular model is pretty heavy duty and feels like it will last a long time. Plus, when you get that inevidable flat tire only to find out your spare needs 40 pounds of pressure, this thing will be there to help you out. It will also get you to the gas station if you discover a nail has slow-leaked your tire flat overnight. As a bonus, it also comes with attachments to inflate things like bicycle tires, basketballs and other inflatables.<br />
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<strong>3) Aeropress</strong><br />
<iframe frameborder="0" marginheight="0" marginwidth="0" scrolling="no" src="http://rcm.amazon.com/e/cm?lt1=_blank&bc1=000000&IS2=1&bg1=FFFFFF&fc1=000000&lc1=0000FF&t=watyouwal-20&o=1&p=8&l=as4&m=amazon&f=ifr&ref=ss_til&asins=B0047BIWSK" style="height: 240px; width: 120px;"></iframe><br />
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If you need single serving coffee, forget about the tasteless pods that everybody seems to be buying these days. The Aeropress is the way to go. The reviews on Amazon speak for themselves. I've had mine for over three years now and it is the only thing I use to make coffee at home. This is especially good for people who (like me) enjoy strong coffee. Read all of the Amazon reviews if you don't believe me.<br />
Being a finance person, I'm not a big fan of buying crap you don't need or can't use, but this stuff is either incredibly useful and built to last forever (the snips), saves you money and gives you peace of mind (the tire inflator), or saves you money and gives you delicious life-giving coffee (the AeroPress) and I'm willing to go out on a limb and recommend all of the items above. As long as you can comfortably afford them, you won't regret buying them.Unknownnoreply@blogger.com2tag:blogger.com,1999:blog-8973293070082558479.post-69609081855881661682011-08-06T00:25:00.000-05:002011-08-06T00:25:16.935-05:00S&P Downgrades US Government Rating from AAALate this evening, <a href="http://www.bloomberg.com/news/2011-08-06/u-s-credit-rating-cut-by-s-p-for-first-time-on-deficit-reduction-accord.html">S&P announced it is downgrading the US Government's credit rating to AA+ with a negative outlook</a>. <br />
If we learned anything from the financial crisis of 2008, it is that investors should do their own credit analysis and not rely on what the rating agencies say. That is why, to me, the downgrade itself is a non-event. <br />
<br />
I'm not saying there won't be reaction in the the markets. There may be a reaction, but in my opinion, if people react to S&P's release, they are reacting to the wrong thing because all it does is state some things we already know about the country.<br />
<br />
The only reason I see this as an event is the headline value. People who have never even heard of S&P are going to be treated to plenty of headlines about this downgrade (and chances are all they are going to read are the headlines). This could put fear into the markets. Political talking heads will blame both parties (Republicans: see what happened on the Democrats and Obama's watch?? Democrats: see what the GOP brinkmanship did to the country??) but it is the fault of both parties that we are in this current position. <br />
<br />
It has been apparent for some time now that the US government is in an unsustainable financial position. We spend too much money. We spend more than we earn, so we have to take out loans. It is a basic problem that every person reading this blog can easily understand: if you spend more than you earn for a long period of time and borrow heavily to keep up your lifestyle, you end up with an ever-growing pile of debt.<br />
<br />
Did you really need S&P to tell you that?<br />
<br />
I don't see the S&P announcement as a bad thing. Maybe it will cause more people to investigate our government's finances and figure out how to fix them. We can do it the right way (cut spending/entitlements, IMHO) or the wrong way (increasing revenues, A.K.A. tax increases), but if we do nothing, it puts the future status of the USA at risk and as a US citizen, that is my least preferred outcome.<br />
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I'm not going to turn on the TV or read a financial news article this weekend and suggest you do the same. If you want, go to the us government website and read about what <a href="http://www.gpoaccess.gov/usbudget/fy12/pdf/BUDGET-2012-TAB.pdf">government expenditures look like</a> and where the money comes from.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8973293070082558479.post-21901584553219839912011-07-24T20:07:00.002-05:002011-07-24T20:07:55.025-05:00A few good readsI came across a post by Jason Cohen called <a href="http://blog.asmartbear.com/rich-vs-king-sold-company.html">Rich vs. King in the Real World: Why I Sold my Company</a> for the second time in the past few months today and highly recommend you check it out. <br />
<br />
He talks about the way cash in the bank affects your lifestyle and makes the point that the relationship is not linear.<br />
<br />
I'm now as jealous of Jason as I am of <a href="http://watchyourwallet.blogspot.com/2008/10/how-scott-adams-manages-his-money.html">Scott Adams and his Dilbert Money</a>, but I don't begrudge either of them their well earned financial freedom.<br />
<br />
By the way, you are correct- I haven't posted anything in a long time. I'm still keeping up with the markets though. One blog I started reading regularly over the past few years is called <a href="http://www.zerohedge.com/">Zero Hedge</a>. I recommend you check it out if you're looking for some good reading. They write a lot more than I do and take an interesting, alternate view you won't see on a lot of the big financial news websites.<br />
<br />
My comments on the current state of the market are as follows: I haven't seen a truly positive headline in years, gold is shooting through all time highs, interest rates are practically nothing, the dollar continues its decline, the US may default on its treasury debt, yet the equity markets have seen a strong rally since they recently bottomed out in 2009.<br />
<br />
I'm most of the way through a pretty good book called <a href="http://www.amazon.com/gp/product/0143119419/ref=as_li_ss_tl?ie=UTF8&tag=watyouwal-20&linkCode=as2&camp=217145&creative=399369&creativeASIN=0143119419">More Money Than God: Hedge Funds and the Making of a New Elite (Council on Foreign Relations Books (Penguin Press))</a><img alt="" border="0" height="1" src="http://www.assoc-amazon.com/e/ir?t=&l=as2&o=1&a=0143119419&camp=217145&creative=399369" style="border: currentColor !important; margin: 0px !important;" width="1" />. It is a history of hedge funds, tracing managers and styles from the early days of the industry to today. In my opinion, the author has a pretty strong agenda - pushing his viewpoint that hedge funds are good for the economy and shouldn't be strongly regulated - but aside from the few opinion sections, the book is a great read sofar.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8973293070082558479.post-23050639629995924982011-04-09T16:28:00.001-05:002011-04-09T16:33:09.382-05:00The Best Vacuum I Could Find<table align="center" cellpadding="0" cellspacing="0" class="tr-caption-container" style="float: left; margin-right: 1em; text-align: left;"><tbody>
<tr><td style="text-align: center;"><a href="http://www.amazon.com/gp/product/B0009IG6NS/ref=as_li_ss_tl?ie=UTF8&tag=watyouwal-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=B0009IG6NS" style="margin-left: auto; margin-right: auto;" target="_blank"><img alt="SEBO X4" border="0" height="300" src="http://www.sebo.us/images/automatic-x4Blue.jpg" width="220" /></a></td></tr>
<tr><td class="tr-caption" style="text-align: center;">SEBO X4 - the best vacuum I could find.</td></tr>
</tbody></table>A while back, I wrote a post about <a href="http://watchyourwallet.blogspot.com/2007/02/best-medium-duty-shredder-i-could-find.html">the best medium-duty shredder I could find</a>. The moral of that story was that I was tired of burning out the motors on cheap shredders or sitting in front of them feeding one sheet at a time, so I spent a little more on a better quality shredder. I ended up with a powerful little machine that destroys junk mail like a savage, shreds 12 sheets at a time and has been doing an incredible job of protecting me from ID theft for over four years now. By paying more for a quality applicance, I actually saved myself money in the long run and it really cemented my philosophy that you should be prepared to pay up for a quality appliance. Buying one well-made (and likely costlier) product that you don't have to replace is ultimately cheaper than buying five cheap ones, and it is also so much more satisfying to use.<br />
<br />
At the end of that post, I mentioned that the next appliance I had on my radar for an upgrade was my vacuum. There are few appliances as basic and essential to a clean, hygenic dwelling place than a vacuum.<br />
<br />
My old vacuum was a piece of junk bagless upright. I threw it out a while back and I don't remember the exact model name or number, but it was a sub-$100 model similar to the <a href="http://www.amazon.com/gp/product/B003XDT9TE/ref=as_li_ss_tl?ie=UTF8&tag=watyouwal-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=B003XDT9TE">Dirt Devil UD40285 Featherlite Bagless Upright</a><img alt="" border="0" height="1" src="http://www.assoc-amazon.com/e/ir?t=&l=as2&o=1&a=B003XDT9TE" style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; margin: 0px;" width="1" />.<br />
<br />
It was great at first. Nice suction, always worked, had shiny new parts and attachments. But after a few months, it started getting on my nerves. It seemed to have a weak motor and wouldn't pick up the little stray pieces of lint and string I could see in my carpet. I felt like I was following my vacuum around picking up whatever it missed. <br />
<br />
It was also a major pain to clean. When I bought my previous vacuum, I didn't give it too much thought. I figured it would be great to get a vacuum without bags because I'd save on the price of buying new ones when the old ones filled up. I figured when the dirt container got full, I would just dump it in the garbage, put it back in the vacuum, and get back to cleaning up. Right?<br />
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Wrong. <br />
<br />
The dirt reservoir was an incredible pain in the neck. Cleaning it made me feel like Mike Rowe in an episode of "dirty jobs." After you've tired yourself out by vaccuming (in my case moving furniture out of the way to get under tables and chairs), you bring this container chock full of dust over to the garbage can, turn it upside down, and watch as a mushroom cloud of dust rises from the can, putting the stuff you just took out of the carpet back into the air in tiny, microscopic particles. I tried everything to keep the dust down when cleaning out the container- putting it inside its own plastic bag, emptying it really slowly, covering the garbage can as quickly as possible... but nothing I did got rid of the fact that cleaning the vacuum put the dust back into the air. <br />
<br />
Not to mention the fact that it was impossible to get the entire container clean. Dust stuck EVERYWHERE inside the vacuum, on the sides of the reservoir, in the little mesh cover at the bottom of the intake, on the underside of the lid... it was dust city inside that thing and the problem only got worse over time.<br />
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The vacuum also had a cheap belt which started slipping after about 6 months of normal use. For those of you who have had a vaccum with a slipping belt you'll know what that meant- burnt rubber smell every time you use the vacuum.<br />
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I began to dread vacuuming and I cursed that machine every time I laid eyes on it.<br />
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I finally gave up and began looking for a replacement. I wanted something like my shredder- a quality workhorse. I was willing to pay whatever it took (within reason) to get an animal of a vacuum. I figured if I had to replace a $100 vacuum every year, I could pay $800 to $1000 for a quality machine that would last me 8-10 years, and I would have a cleaner house and less stress in the meantime.<br />
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After doing a lot of research online, I realized a few things. The first is blasphemous because I'm writing this post on Google's excellent blogger platform and I think the company does amazing things, but I realized that when you are trying to research a consumer product, <a href="http://www.broadstuff.com/archives/2370-On-the-increasing-uselessness-of-Google......html">google search results are becoming pretty bad</a>. I'm not going to get into it, but I think that link sums up the problem pretty well.<br />
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Once I got around that issue, one name keep coming up again and again when I looked for a quality vacuum. Yes, it was expensive, but it seemed like everyone who touched it raved about it.<br />
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That vacuum? The <a href="http://www.amazon.com/gp/product/B0009IG6NS/ref=as_li_ss_tl?ie=UTF8&tag=watyouwal-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=B0009IG6NS">SEBO Automatic X4</a>.<br />
<br />
You can check this vacuum out elsewhere on the web. I've found a targeted search for the Automatic X4 brings up a lot more useable results than just looking up "vacuum cleaner reviews," due to the issue with the google mentioned above.<br />
<br />
I've used this vacuum for over a year now and I have to say it has been awesome. In no particular order, I'll tell you what I like about it:<br />
<ol><li><strong>The bags</strong>- gone are the days of fighting with my wife over who has to clean out the vacuum. The bags are great, they hold a lot of dirt, and I havent found the need to replace them very often. (I used 2 this year).</li>
<li><strong>The power</strong>- this vacuum sucks up everything my old vacuum missed, partly due to the motor and partly due to....</li>
<li style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;"><strong>The automatic height adjustment</strong>- when you turn on the X4, a little green light goes on that says it is either raising or lowering the height of the vacuum according to the floor it is sitting on. This ensures that the rotating brush is at the ideal height to agitate the carpet and knock loose any dust, dirt, paper, pet hair etc... so it gets sucked out of the carpet and into the bag.</li>
<div class="separator" style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; clear: both; text-align: center;"><a href="http://www.amazon.com/gp/product/B0009IG6NS/ref=as_li_ss_tl?ie=UTF8&tag=watyouwal-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=B0009IG6NS" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" r6="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5xBBpcLsJFqTr99HHkOPzRdC5kN-KL5ZvPUZA5EDpdltYzOaGXUmk5x3FNCKd4ZmkmZaroxWyj8KNTboaA04KSXoqN0wbJ79ihSs3z2VlLQS_gjsW3adWfXHjktx35tCPIC4rj-X5P4YI/s1600/automatic+adjustment.jpg" /></a></div><li style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;"><strong>The engineering</strong>- there are so many little design elements of this German made vacuum that show you someone put a lot of thought into it. For starters, the entire brush comes out with the click of one button. This makes it incredibly easy to clear off all of the hair and string that accumulate on a vacuum roller brush over time. There is also something called the "instant use wand" that I've found very convenient for getting into tight spots without messing around with external attachments. You just grab a handle on the vacuum and pull it out, then when you're finished with the space behind the computer or on your baseboards, you put it right back in to reactivate the main unit.</li>
<li style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;"><a href="http://www.amazon.com/gp/product/B0009IG6NS/ref=as_li_ss_tl?ie=UTF8&tag=watyouwal-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=B0009IG6NS" imageanchor="1" style="clear: right; cssfloat: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" r6="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEim21zkBfbux-Qq7W2Iy8RV_wGFujWpRZ5uUAqFWttf959a2B_4J9xGpQFWULA59F0kcnfRjlesdWsI4YQJ1_B32StwTCAIa0Gy9fnDcAm5INFwX03auQmr8L6u6rtAaK68UuiuwT0BPNKM/s1600/innovative-feature2.jpg" /></a><strong>It lays completely flat- </strong>I've never had a vacuum that went completely flat before and it has been handy in a number of situations, particularly when vacuuming under furniture.</li>
<li style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none;"><strong>It works great on carpets as well as hard floors- </strong>I think this is because of the automatic adjustment. It goes from my livingroom to my kitchen without a hitch.</li>
<li><strong>The belt has a lifetime warranty- </strong>the belt, the part that transfers twisting power from the motor to the brush, is guaranteed for life. If it ever slips, smells, or breaks, I know I can get it fixed for free from a Sebo dealer (and surprisingly enough there is a dealer pretty close to me. I'd never heard of SEBO before so I figured it would't be easy to find.) I think part of the reason they are able to offer this warranty on the belt is because it has an automatic shutoff feature. For example, if you suck up the power cord from your computer and it jams up the roller, the sebo will detect this and shut it down. I think that other (ie cheap) vacuums would overheat or strip the belt when this happened. </li>
<li><strong>Overall durability- </strong>this is not the prettiest vacuum on the market. In fact, I have the blue model and it looks almost antiquated. It doesn't look like a spaceship with the Dyson ball inside of a clear, futuristic-looking case, but it is extremely well made and I think it is going to last for a long time.</li>
<li><strong>It works-</strong> even though I've devoted a lot of words to this review, vacuuming isn't something I like to think about very much. When you have a vacuum that doesn't pick up all of the dirt, or smells funny, or is hard to push around, or takes a lot of time to adjust on the fly, it becomes a small, but unnecessary source of stress. I don't have to fight with this vacuum. Plain and simple, it does the job and creates a clean home for me and my family.</li>
</ol>I've been trying to think of some negatives about this vacuum and I'm not coming up with much. However, here is what I dislike about it sofar:<br />
<ol><li><strong>Looks</strong>- as mentioned above, the X4 is not the most attractive appliance I've ever owned, but I really don't care how it looks. It sits in the closet when not in use.</li>
<li><strong>Replacing bags-</strong> this will cost money over time, but as I discussed at length above, I think the cost is minimal and vastly preferable to fighting with a bagless.</li>
<li><strong>Takes time for the height to adjust</strong>- if you go from a hard floor to a carpet, you will have to wait a bit before you start vacuuming. Not a big issue, but something to keep in mind.</li>
<li><strong>The price-</strong> Make no mistake, this is an expensive vacuum. However I think in the long run it costs less to buy a high quality appliance like this than a bunch of cheap ones that will have to be replaced over time.</li>
</ol>Overall, I've been very happy with this purchase, and even though I've only had it for a bit over a year, I'd highly recommend you consider it the next time you want to buy a vacuum. I'll post updates over time to let you know how it has been holding up. If you have any other comments (good or bad) please feel free to leave a comment. <br />
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Happy vacuuming.<br />
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<div class="separator" style="border-bottom: medium none; border-left: medium none; border-right: medium none; border-top: medium none; clear: both; text-align: center;"><a href="http://www.amazon.com/gp/product/B0009IG6NS/ref=as_li_ss_tl?ie=UTF8&tag=watyouwal-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=B0009IG6NS" imageanchor="1" style="clear: left; cssfloat: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" r6="true" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg01Yv80XLftm5Y1XhQecziYfESHf0WEqDG6m3updTnuzjLthovQb_3DclGx0G0SbgZ7fmMQgPXE4VQOknJ57_WeUCsFXz06CXlFkgWoXbu0gVvcaMO22_9fZPNGEa5e8fHyWu7-nD2XXnY/s1600/Brush+Removal.jpg" /></a></div>Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-8973293070082558479.post-60009887253029027482011-02-27T23:10:00.000-05:002011-02-27T23:10:16.478-05:00Warren Buffett's 2010 Letter to Berkshire ShareholdersSo as of a couple of weeks ago, the market was up almost 100% since the 12 year low reached in March 2009. It was also up 7% since the beginning of this year. I have to agree with the headline in the linked article though- this feels like "<a href="http://www.mercurynews.com/personal-finance/ci_17386553?nclick_check=1">the unhappiest bull market ever</a>."<br />
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Maybe it is just what I focus on, but despite the numbers on the big board, all of the other news seems pretty negative for the average US investor. In fact, it's downright depressing if you think about it. For example, some of the major themes that have pounded into our skulls for the past couple of years are: <br />
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1) The FED has been <a href="http://www.csmonitor.com/Business/ThinkMarkets/2010/1018/What-s-this-QE2-all-about">printing money and flooding it into circulation</a>, <a href="http://futures.tradingcharts.com/chart/US/M">devaluing the US dollar</a><br />
2) <a href="http://www.investmentweek.co.uk/investment-week/news/1936788/china-overtake-2018-pwc">China's economy is going to overtake the US economy by 2018</a><br />
3) We are entering a "New Normal" era of low stock returns, low GDP growth, deleveraging, etc. I think this view is most convincingly <a href="http://europe.pimco.com/LeftNav/PIMCO+Group+Spotlight/2009/Cyclical+Outlook+and+the+New+Normal+Gross+El+Erian+10-09.htm">espoused by Bill Gross and his colleagues at PIMCO</a><br />
4) <a href="http://online.wsj.com/article/SB122156561931242905.html">The US government has bailed out shareholders at the expense of taxpayers</a>, (more about that <a href="http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program">here </a>and <a href="http://en.wikipedia.org/wiki/Term_Asset-Backed_Securities_Loan_Facility">here</a>, <a href="http://www.makinghomeaffordable.gov/pages/default.aspx">here</a> (it bailed out people who couldnt pay for their mortgages also)). It also put <a href="http://online.wsj.com/article/SB10001424052748703807904575097394068626652.html">other costly programs</a> into place, <br />
5) Based on pundit's views, <a href="http://www.fool.com/investing/etf/2011/01/27/the-coming-muni-bond-crisis.aspx">state governments are headed for bankruptcy</a> also<br />
6) <a href="http://money.cnn.com/2011/02/09/pf/shiller_cape_ratio.fortune/?section=magazines_fortune">Stocks are overvalued</a> - note this is a more recent trend<br />
7) Unemployment is high in the US. <a href="http://www.nytimes.com/2009/03/07/business/economy/07jobs.html">We are losing manufacturing jobs hand over fist</a>. We no longer make stuff in the US, we are a "knowledge economy" <br />
8) <a href="http://blogs.forbes.com/evapereira/2011/02/16/malcolm-gladwell-on-why-income-inequality-is-the-next-big-issue-facing-america/">The rich are getting richer, at the expense of the poor</a><br />
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Oh, not to mention the <a href="http://www.businessinsider.com/next-for-a-bailout-social-security-2010-2">social security crisis</a> starting now as the baby boomer generation reaches retirement age and <a href="http://en.wikipedia.org/wiki/Global_warming">global warming</a> (to anyone on either side of the debate, im not taking a stance on global warming, merely saying it is often in the news). These are all off the top of my head.<br />
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Combine these with the myriad personal financial problems each of us might be having - job security, sickness, disability, disease, divorce, credit card debt, foreclosure, car repairs, taxes, home maintenance, rent (which is <a href="http://www.youtube.com/watch?v=x4o-TeMHys0">too damn high</a> by the way)- and it seems like the situation is pretty hopeless.<br />
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However, among this host of negative news, <a href="http://www.berkshirehathaway.com/letters/2010ltr.pdf">Warren Buffett's 2010 letter to shareholders</a> arrived this weekend as a beacon of hope.<br />
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I suggest you read the letter yourself, but I just wanted to give you my $0.02 and call out some of the more interesting/informative parts of the letter.<br />
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Almost right off the bat, Buffett wrote something that you won't hear very often from the talking heads on CNBC in the current unhappy environment:<br />
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<span style="font-family: Times-Roman; font-size: x-small;"><span style="font-family: Times-Roman; font-size: x-small;"></span></span>I agree with Warren and I don't share what seems to be the prevailing sentiment that the US is doomed to failure. This is why I invest the biggest portion of my retirement savings in US equity index funds. Put simply, I believe in the American system.<br />
<div align="left"><blockquote><span style="font-family: Times-Roman; font-size: x-small;"><span style="font-family: Times-Roman; font-size: x-small;"><div align="left">"Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders</div><div align="left">for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective.<br />
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...We are not natively smarter than we were when our country was founded nor do we work harder. But look around you and see a world beyond the dreams of any colonial citizen. Now, as in 1776, 1861, 1932 and 1941, America’s best days lie ahead."</div></span></span></blockquote></div><div align="left"><br />
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The next part of his letter that I liked (and anyone who has studied Buffett will be familiar with) is the section entitled "Intrinsic Value - Today and Tomorrow." In it, Warren talks about the three components of <a href="http://en.wikipedia.org/wiki/Intrinsic_value_(finance)">intrinsic value</a> (which is the only value you should care about), specifically as it relates to Berkshire. You're better off getting the details from his letter, but I'd summarize the components as 1) Investments (stocks, bonds, cash equivalents) 2) earnings from sources other than investments and insurance underwriting and 3) (the most subjective category) "the efficacy with which retained earnings will be deployed in the future." I recommend you check that section out.<br />
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The highlight of the letter came near the end, however, in a section entitled "Life and Debt." Buffett reprinted a letter from his grandfather Ernest to his uncle Fred. In the letter, Ernest tells Fred that he has saved him $1,000 cash and is giving it to Fred on his 10th wedding anniversary. Ernest recommends Fred keep this money as a reserve in a safe deposit box so he can easily get at it. He writes "You might feel that this should be invested and bring you an income. Forget it -- the mental satisfaction of having $1,000.00 laid away where you can put your hands on it, is worth more than what interest it might bring..."<br />
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I checked <a href="http://www.dollartimes.com/calculators/inflation.htm">an inflation calculator</a>, and $1,000 back in 1939 would be the equivalent of about $15,425 today. <br />
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Buffett says they take a similar philosophy at Berkshire and will always keep $10 billion of liquid funds on their balance sheet in extremely safe but low yielding investments such as treasuries and other short term securities. He quoted investment advisor Ray DeVoe who said "More money has been lost reaching for yield than at the point of a gun."<br />
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Truer words have never been spoken, and although you hear it from most financial advisors, I'll say it again- build up your own reserve fund and put it somewhere you know you will be able to get at it. You will earn basically nothing for investing in treasuries or in your typical FDIC insured savings account right now, but you will sleep safely at night knowing that a financial setback won't knock you off your feet.<br />
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The rest of the letter hit on a number of the usual Berkshire areas: the difficulty of continuing to grow given Berkshire's huge size, the story of how he met Lorimer Davidson at GEICO, reviews of all of Berkshire's businesses, the often meaningless figure known as GAAP net income, Berkshire's culture, repeated requests to spend money at the annual meeting etc...<br />
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All in all, another great letter from the Oracle and well worth your time. I like to say that if I was only allowed to read one investment newsletter a year, it would be Buffett's shareholder letter. If you care about investing or saving, do yourself a favor and head over to <a href="http://www.berkshirehathaway.com/">http://www.berkshirehathaway.com/</a> and read this year's letter. <br />
<br />
If you haven't read the previous years' letters, do that too. </div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8973293070082558479.post-73392628857199870772009-05-20T21:20:00.002-05:002009-05-20T21:29:06.755-05:00It's Expensive to be PoorI read a pretty compelling story online today called "<a href="http://www.washingtonpost.com/wp-dyn/content/article/2009/05/17/AR2009051702053.html">The High Cost of Poverty: Why the Poor Pay More</a>", written by DeNeen Brown for the Washington Post. It raised some issues that you might never think of, sort of "hidden taxes" on being poor.<br /><br />Having grown up in pretty modest means myself, I am pretty familiar with the amount of time you waste when you don't have much money or your own house. Poor people have to spend time at the laundromat waiting for clothes to wash and dry every week (I have done this) and time waiting for multiple public transportation connections to get to work every day (I have done this too). But the article points out that it is sometimes impossible for poor people to go to the big grocery stores where the middle class shop for discounted food. They have to buy their milk and butter from the local corner store, costing them significantly more.<br /><br />The article also points to high rates charged by check cashing places as a cost of being poor, but I'm not as convinced that they are a necessity. For example, a man quoted in the story pays a fee to have the check cashing place pay a bill for him... it seems to me that fee (at least) is avoidable).<br /><br />In any event, this article is an eye-opener (and includes a pretty memorable exchange between a man and the checkout person at a grocery store) that I think is worth a few minutes of your time. If you are in this situation- you're not alone. If you're not- be thankful for what you have.Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-8973293070082558479.post-88550891889776078992009-04-18T09:01:00.004-05:002009-04-24T22:11:56.116-05:00Richard Bernstein's Investment Guidelines<div>A blurb in the Wall Street Journal's "Heard on the Street" section caught my eye as I was on my way in to work last week:</div><br /><div>"Overheard - Most people gush thanks (or occasionally spit bile) in their farewell address. Richard Bernstein, whose 20 years at Merrill Lynch drew to a close on Wednesday, went 10 steps further. In a final note, having thanked colleagues and clients, the bank's chief investment strategist signed off with 10 guidelines. All are worth remembering, but perhaps the last resonates strongest: 'Leverage gives the illusion of wealth. Saving is wealth.'"</div><br /><div>This caught my eye and I made a mental note to see if I could find the complete list of 10. Lo and behold, through the magic of the Internet, I <a href="http://seekingalpha.com/article/131537-richard-bernstein-s-10-investment-guidelines">found the guidelines on seeking alpha.</a> </div><div></div><div>They are the following: </div><div></div><div>1. Income is as important as capital gains. Because most investors ignore income opportunities, income may be more important than capital gains.<br /><br />2. Most stock market indicators have never actually been tested. Most don’t work.<br /><br />3. Most investors’ time horizons are much too short. Statistics indicate that day trading is largely based on luck.<br /><br />4. Bull markets are made of risk aversion and undervalued assets. They are not made of cheering and a rush to buy.<br /><br />5. Diversification doesn’t depend on the number of asset classes in a portfolio. Rather, it depends on the correlations between the asset classes in a portfolio.<br /><br />6. Balance sheets are generally more important than income or cash-flow statements.<br /><br />7. Investors should focus strongly on GAAP accounting and should pay little attention to “pro forma” or “unaudited” financial statements.<br /><br />8. Investors should be providers of scarce capital. Return on capital is typically highest where capital is scarce.<br /><br />9. Investors should research financial history as much as possible.<br /><br />10. Leverage gives the illusion of wealth. Saving is wealth.<br /><br /></div><p>I thought these were some pretty good observations. Number 1 definitely hit close to home for me. As I've grown my savings more over time and seen the impact a huge market downturn can have on the value of certain stocks, I've begun to pay a little more attention to income. Although I still believe capital gains are where the big payoff comes from in stocks, income is something tangible and shouldn't be overlooked. Number 5 is pretty important as well... over the past 2 years, people have seen every single asset class in their "diversified" portfolios sink almost in unison. Many were operating under an illusion of diversification and when the tide went out, we saw who wasn't wearing a bathing suit. </p><p>I cocked my head sideways when I read number 4 because I think nothing fuels a bull market more than cheering and a rush to buy. I kind of see his point though. He is saying bull markets are more the result of assets being unfairly punished and undervalued prior to the bull market than the actual enthusiasm during the bull market. In my opinion, you can't have one without the other so this is kind of a circular argument.</p><p>This list reminded me of another post I made a while back on <a href="http://watchyourwallet.blogspot.com/2007/02/nine-market-lessons-from-john-dorfman.html">nine market lessons from John Dorfman</a>, a Bloomberg columnist who retired a while back. For the sake of completeness and comparison, I list Dorfman's lessons here:<br /></p><p>1) Out-of-favor stocks are the best road to capital gains.<br /></p><div>2) Don't be swayed by what Wall Street analysts say.</div><div> </div><br /><div>3) High portfolio turnover is not necessary for good results.</div><br /><div> </div>4) The investment value of a stock is independent of whether it has been moving up or down.<br /><div> </div><br /><div>5) Predicting the market with consistency is extremely difficult.</div><br /><div> </div>6) Predicting the economy is probably even harder.<br /><div> </div><br /><div>7) High valuations alone aren't a good reason to sell a stock short.</div><br /><div>8) High profits alone are no reason to invest in a stock.</div><p>9) Dialog with readers was one of the best parts of my experience as a columnist</p><p>Maybe one day I'll come up with my own list, but I have no plans to retire anytime soon :)</p>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8973293070082558479.post-79415111388383616672009-04-15T21:58:00.003-05:002009-04-15T22:06:46.674-05:00A Year off Work, With PayI came across an interesting article in the New York Times (which I rarely read, since I prefer the WSJ) about a <a href="http://www.nytimes.com/2009/04/13/nyregion/13bigcity.html?_r=1&em">lawyer who is getting paid $80,000 to take a year off from work</a>. Apparently the big NYC lawfirm Skadden is offering some of its workers a year off at 1/3 of their salary as a way to reduce costs and retain employees during the current economic downturn. Since this particular woman made $240,000 a year, her drastic paycut still leaves her with a pretty hefty salary so she decided to take the year off and tour around the world.<br /><br />I don't blame her. I would take this deal if I could (though I am sure I wouldn't be able to travel and would only just be able to scrape by on 1/3 of my salary). I've worked with people at big lawfirms like this in the past and I know the kind of grueling schedules they put in. I put in these kinds of hours myself for certains stretches throughout the year and over time it tends to get to you. A break like this would be a most welcome relief.<br /><br />But of course I am not getting this deal. And neither are you. But we can dream.<br /><br />What would you do if you got this offer?Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8973293070082558479.post-11298166121525243412009-04-14T19:44:00.004-05:002009-04-14T20:07:06.429-05:00Buffett Invests in Chinese Electric Car CompanyFortune published a recent article describing <a href="http://money.cnn.com/2009/04/13/technology/gunther_electric.fortune/index.htm?section=money_latest">Berkshire Hathaway's purchase of a 10% stake in BYD</a>, a Chinese electric car manufacturer last fall. I didn't really notice this announcement when it came out, but it was a decent-sized investment at $230 million for the 10% stake.<br /><br />Looking at the net income graph in the article, it looks like BYD earned about $180 million in 2008. Dividing that by 10 gets about 18 million of earnings, or a P/E of about 12.7x. (This is just to give you a general sense of valuation, see <a href="http://www.multpl.com/">this site </a>for the current P/E of the S&P 500. Not sure if this site gets the calculation right or not, but I found it after a brief google search).<br /><br />The reason this acquisition caught my attention is because (as others have noted), Buffett <a href="http://www.greenpacks.org/2009/04/14/warren-buffet-breaks-3-rules-invests-in-chinese-electric-car-company-byd/">broke some of his own rules </a>to make it. I don't see how an auto company could ever meet his criteria for an excellent business (for more on his criteria, see <a href="http://watchyourwallet.blogspot.com/2006/12/buffettology.html">my review of Buffettology</a>, particularly the 9 questions). I don't think he understands the industry either. It seems like this investment was more likely the brainchild of David Sokol, chariman of MidAmerican Energy and Charlie Munger than it was of Buffett.<br /><br />I don't have much of an opinion either way but I do note that it continues the trend of Berkshire making <a href="http://www.marketwatch.com/news/story/warren-buffett-tours-iscar-facility/story.aspx?guid=%7B85E98D7B-176C-41B4-B0A6-9276AE179828%7D">acquisitions outside of the United States</a>.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8973293070082558479.post-14203683058013388902009-04-09T19:55:00.002-05:002009-04-09T20:09:36.269-05:00How to Become As Rich As Bill GatesI came across this pretty instructional post written by Philip Greenspun that offers some simple steps showing <a href="http://philip.greenspun.com/bg/">how you can become as rich as Bill Gates</a>. It's funny I had this vision in my head that Gates was more of a self-made man but as it turns out, he came from pretty fortunate circumstances. Interesting stuff.<br /><br />I haven't been posting all that much lately, but there has been much to absorb in the markets. There has been no shortage of negative headlines. We can't go a day without a new company being bailed out or a headline about a financial catastrophe of epic proportions.<br /><br />I think people are starting to get numb to it all.Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-8973293070082558479.post-39461660395832533562009-04-01T23:01:00.002-05:002016-01-01T21:47:37.562-05:00I hope Twitter is a FadI hope <a href="http://twitter.com/">Twitter</a> is the <a href="http://en.wikipedia.org/wiki/Pogs">POG</a> of this decade and that after a few years it sinks into oblivion, never to be heard from again. I really don't get it. You couldn't pay me to go on to Twitter and write that im tying my shoe or read about someone else tying theirs. But a lot of people are talking about it.<br />
<br />
The reason I hope it fades away is that it would really ruin my faith in humanity to find out that we've stooped as low as making this kind of thing an integral part of our daily lives. Reading about some guy who is buying eggs, or some gal who is getting a new key made. Really?<br />
<br />
I hope it's a fad.<br />
<br />
<em>Update 1/1/2016: So twitter was not a fad (at least in the medium term). Turns out it ended up being decent for things like real time news etc. However (like basically all good things on the internet that get popular) it became polluted by advertising, publicists, vapid celebrities etc. and I'm not a fan.</em>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8973293070082558479.post-83099159910913465742009-02-04T23:02:00.003-05:002009-02-04T23:33:17.670-05:00Buffett Invests in Harley Davidson<p>As many of you know, I'm an avid Warren Buffett follower, so I was interested to read that <a href="http://www.bloomberg.com/apps/news?pid=20601087&sid=a3PMjiU7Gzmw&refer=home">Buffett agreed to buy $300 million of debt issued by Harley Davidson (NYSE: HOG) yesterday.</a></p><p>(Note: many people use Buffett and Berkshire interchangably, as if he makes every decision at the company he runs. While I am sure this is not true, I often use the two interchangably as well, so whenever you see me mentioning Buffett and Berkshire in the same entry, assume I'm referring to Berkshire Hathaway in all cases unless I specify otherwise. I promise to try to be more precise in the future.)</p><p><a href="http://finance.yahoo.com/news/HarleyDavidson-Inc-Prices-prnews-14234894.html">Harley announced that it was selling $600 million of senior unsecured debt</a> to two investors: Berkshire Hathaway (Buffett's company), and Davis Advisors, LP, which is Harley's biggest shareholder. According to an article I read, Buffett hasn't invested any other money in Harley besides this purchase. The notes are a pretty sweet deal. Though unsecured, they are senior in the capital structure which means they get paid pretty quickly if the company goes bankrupt. I am not sure what Harley's capital structure looks like, but being that Berkshire bought the notes, I'm willing to bet that Buffett or someone at BRK took a good look at it and feels there is a good chance the notes will be repaid when they mature in 2014. The best part of the deal? They pay FIFTEEN PERCENT INTEREST. So for lending Harley $300 million now, Buffett will collect a check for $45 million each year for the next five years. That's a total of $225 million in interest, plus the return of his original principal.</p><p>Harley plans to use the money for its consumer lending unit, ie to lend money to people so that they can afford to buy its motorcycles. I don't follow the company too closely, but apparently it is in the midst of a turnaround plan. </p><p>The stock jumped something like 15% yesterday on the news that Buffett was "investing" in the company. I noticed it fell about 7% today. I think it's pretty crazy when people view Berkshire buying preferred stock (as he did recently with Goldman Sachs) or loaning money via a debt purchase as some kind of an endorsement from Buffett that the company's equity is undervalued. If he thought Harley was undervalued, he could have bought the entire company, which has a market cap of only about $3 billion compared with Berkshire's $30 billion pile of cash. But he didn't. Instead he chose to lend them money for a relatively short period of time at a high interest rate. Being one of the few people with $30B cash in hand during a financial crisis helps Buffett to get some very favorable investment opportunities. </p><p>I noticed that Moody's poured icewater on the announcement by immediately <a href="http://uk.reuters.com/article/motoringAutoNews/idUKWNA559120090203">downgrading Harley Davidson Funding Corp.</a>, which is the fundraising arm of Harley's consumer finance unit. This will make it more expensive for the unit to raise money, which is not a good thing. Though Moody's does not directly come out and say it, it appears that the new $600M of debt was the catalyst for the downgrade.</p><p>In any event, I assume Buffett did his homework on this one and in the end he will get his 15% per year. </p>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8973293070082558479.post-36064745620209014532009-02-02T23:36:00.004-05:002009-02-02T23:58:08.035-05:00Is now a good time to buy stocks?<p>I get this question a lot: "Is now a good time to buy stocks?"</p><p>It's actually pretty easy to answer this right now. But first you have to ask yourself a few questions: </p><p><strong>1) Do I need the money I would be using to buy stocks?</strong> Your answer should be no. If you are planning on using this money for a down payment on a house in less than 5 years, then you should not be buying stocks with it. If you need to live off this money and couldn't afford to live your life without it, then you should not be buying stocks with it. Stocks are risky and you could lose every cent you put into them (not the most likely scenario, but a possibility that you can't completely ignore). Another way to phrase this question would be "Do I have a long time horizon of 20-30 years?"</p><p><strong>2) Do I understand the difference between investing and speculating? </strong>Most people do not. If you want a good explanation, read <a href="http://www.amazon.com/gp/product/0060555661?ie=UTF8&tag=watyouwal-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0060555661">The Intelligent Investor by Benjamin Graham.</a><img src="http://www.assoc-amazon.com/e/ir?t=watyouwal-20&l=as2&o=1&a=0060555661" width="1" height="1" border="0" alt="" style="border:none !important; margin:0px !important;" /> (I actually own <a href="http://www.amazon.com/gp/product/0060155477?ie=UTF8&tag=watyouwal-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0060155477">this version</a><img src="http://www.assoc-amazon.com/e/ir?t=watyouwal-20&l=as2&o=1&a=0060155477" width="1" height="1" border="0" alt="" style="border:none !important; margin:0px !important;" /> of the book, which is hardcover and will hold up better over time, but the one I linked to first is cheaper.)<br /></p><p><strong>3) Do I have the time and skill to research individual stocks? </strong>If your answer here is "no", this does not rule out stocks as a whole but to me it would rule out purchasing anything but a small amount of individual stocks. Instead, I would personally invest in index funds and look for the lowest fees possible.</p><p>You'll notice I didn't mention anything about the market. This is because I don't know if it is high or low right now as compared to where it will be in a couple of months or years from now. I do know that equity investments look more attractive to me (and to <a href="http://watchyourwallet.blogspot.com/2008/10/warren-buffett-recommends-buying.html">Warren Buffett</a> and <a href="http://watchyourwallet.blogspot.com/2008/10/how-scott-adams-manages-his-money.html">Scott Adams</a>) than they did a year ago, but I'm not going to make any forecasts. </p><p>And yes, the rumors are true: you have me to thank for the recent market declines. One of my <a href="http://watchyourwallet.blogspot.com/2006/12/2006-stock-market-year-in-review.html">2006 year-end wishes was for lower stock prices in 2007</a> and although it took until 2008 for the market to fully grant it, my wish was fulfilled. Thank you, Mr. Market. You really helped my retirement years by allowing me to buy your shares so cheaply in 08 and hopefully for the next couple of years as well.</p><p>Please invest responsibly.</p><p>Oh, and for the majority of my readers who rely on a salary like me, you should worry more about your job than where you invest your money. Now is not the time to be slacking off at work trading stocks when you should be working to dodge the next round of layoffs. That said, there are some great bargains out there.</p>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8973293070082558479.post-64427624136590220102009-02-01T03:20:00.003-05:002009-02-01T03:27:12.335-05:00CEO CompensationSo we all know that CEOs are paid ridiculous amounts of money. I've often thought that if I spent a week or 2 as CEO of a major corporation, I'd be set for life. I would be able to pay cash for a pretty nice house and then only work to pay my basic bills every year. Not only would one paycheck be more than I make in a few years, but I'd also get the nice golden parachute to boot.<br /><br />Our new president is very public about his disdain for CEO salaries, and as I read in today's Wall St. Journal, Sen. Claire McCaskill (D., Mo.) has now introduced a bill to limit CEO salary to no more than what the president earns: $400k a year. The next sentence was a classic and I applaud the authors of the story for putting it in there: "In 2007, Goldman Sachs Group Inc. Chief Executive Lloyd Blankfein earned that much in about two days."<br /><br />Two days!<br /><br />I gotta get me one of them jobs.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8973293070082558479.post-51342853355825647022009-01-29T22:33:00.002-05:002009-01-29T22:43:54.103-05:00New Fico Credit ScoreAn article in the Wall Street Journal caught my attention on the train in to work today. I'd heard the credit bureaus were coming up with a <a href="http://online.wsj.com/article/SB123319739410727467.html">new credit score calculation called "FICO 08", </a>but I wasn't sure when it was coming into play. According to the article, TransUnion is going to begin offering the score today, but it could be months or years before it comes into common use and consumers can find out their own scores.<br /><br />Supposedly the new methodology will make credit scores more accurate at predicting defaults, which will allow lenders such as mortgage companies to more properly price loans to consumers.<br /><br /><a href="http://watchyourwallet.blogspot.com/2007/01/my-high-fico-score.html">My FICO score is very high </a>(I don't think much has changed since the last time I looked at it), but the problem I've run into being in my late 20s is that my credit history is relatively short, which worked against my credit score. From what I've read in the article, FICO 08 is supposed to correct this somewhat:<br /><br /><blockquote>"The score, which will still range from 300 to 850 -- the higher, the better --<br />is fine-tuned to do a deeper analysis of subprime borrowers or those with "thin"<br />or young credit histories, according to Fair Isaac. More consumers with accounts<br />in good standing should also see their scores increase slightly, says Tom Quinn,<br />vice president of global scoring solutions at Fair Isaac. Overall, Fair Isaac<br />predicts FICO 08 will improve the accuracy of lending decisions by as much as<br />15%."</blockquote><br /><br />Not life-changing news by any stretch of the imagination, but as someone who is potentially in the market to buy a home, it piqued my interest.Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-8973293070082558479.post-64373255837589680902008-11-27T07:51:00.004-05:002008-11-27T09:24:03.733-05:00Personal Finance Blogger Falls off the MapOne of the PF (personal finance) blogs I've read regularly for the past few years is <a href="http://www.pfblog.com/">PF Blog</a>, which detailed "MM's" (the author) quest to reach $1 million net worth by the age of 40 in the year 2016. When he was roughly 27 years old at the end of 2003, the author's net worth was approximately $132,000 (<a href="http://www.pfblog.com/archives/000299.shtml">details here</a>) and this had grown to about $885,000 as of the end of May 2008 (<a href="http://www.pfblog.com/archives/6372_monthly_update_may_2008_885297_12932.shtml">details</a>) at the age of 32. If I'm following his story right, he is a Microsoft employee who was sent over to Asia to work overseas. He is pretty well paid and has a side business he used to generate extra income.<br /><br />At the end of May, his <a href="http://www.pfblog.com/archives/6370_portfolio_update_may_2008_up_012.shtml">portfolio</a> was worth about $900,000. 30% of this was in 12 stocks he selected himself, with roughly $20k in AIG, $20k in American Express and other positions, with a heavy concentration in financials, which he felt were becoming undervalued. Another 12% was in US mutual funds, 30% in international mutual funds, and the remaining 30% was in cash, divided between the US Dollar and the Chinese Yuan.<br /><br />Unfortunately, May 2008 is the last time he posted a net worth update. Since then, the S&P 500 Index has fallen from about 1400 to about 750, a decline of almost 50%, and his blog has been relatively silent, except for some <a href="http://www.pfblog.com/archives/6372_monthly_update_may_2008_885297_12932.shtml#Comments">irate comments made by readers</a>. Some of my favorites are "Even though he seems to have abandoned his blog I hope he wasn't ignoring the market and sold out of his AIG position with at least a little something. He bought it at $62 and its now essentially worthless." and "I made a copy of his portfolio with where it stood in May and since then it has lost about $148,000 from those May prices."<br /><br />I have enjoyed reading his posts over the past few years and I have to say he was much more diligent that I've been in terms of posting frequency. Some months he made 30+ posts. He also kept meticulous records of his net worth and updated them monthly for five years. That required an incredible amount of discipline and was an extremely valuable case study for everyone reading his blog. I didn't agree with everything he's written (for example I am not a fan of taking short-term zero interest credit card loans and putting the money into a bank account, which I believe he does to earn extra income), but I've been a fan of the site. His English and writing skills aren't fantastic, but they were good enough to get his points across.<br /><br />So why has he stopped posting? I can think of a few reasons. I know that many people find it hard to look at a stock portfolio that has fallen in value. During down markets, I always hear the phrase "I don't even open my 401(k) statement anymore." Looking at your 401(k) statement is hard enough, but going through the detailed analysis that "MM" goes through each month probably gets pretty grueling when your net worth, which is heavily exposed to the stock market, is taking 30% hits.<br /><br />Also, if he is like me and every other working person, he is probably facing increasing demands and stress at work lately. With layoff announcements in the news every day, it can be hard to focus on the work you have to do, and companies often cut back on staff without cutting back on work, placing increasing demands on those who remain behind. This would not leave much free time for him to devote to his blog, which is most likely not a priority in his life.<br /><br />I don't think the reason he has stopped posting is embarassment about recent net worth declines, as some of the commenters on his site seem to suggest. For example, I think this comment was a bit harsh: "MM was very quick to post his net worth updates when things were going well, now he's essentially abandoned the blog. And I guess I do see what you mean by that certain "hubris" and "ego" he used to display. I just shrugged it off though as another finance blogger who thought he was some sort of pro stock picker. They are a dime a dozen."<br /><br />Some other commenters also talked about another blog - "Millionaire Mommy Next Door" and suggested it had fallen off the map as well, but a simple google search would have answered that question - <a href="http://millionairemommynextdoor.com/2008/10/hacked-moved/">her account was hacked and she moved to a different domain</a>.<br /><br />I do think we will hear from MM again when he gets more time on his hands, but for now, wish him the best as he copes with the financial crisis.<br /><br />(Fear not readers, my next post will be one of my long-anticipated net worth updates, a special "financial crisis" edition. I am sure you are all waiting with baited breath.)Unknownnoreply@blogger.com2tag:blogger.com,1999:blog-8973293070082558479.post-45711861646896564352008-10-21T21:51:00.003-05:002008-10-21T22:26:10.309-05:00How Scott Adams Manages His Money<p>I came across an interesting blog post the other day... it was written by <a href="http://dilbert.com/blog/entry/diversification/">Scott Adams, the creator of Dilbert, describing how he manages his money</a>.</p><p>Statements like this make me very jealous: </p><p>"When I first started making serious Dilbert money, I let experts manage half of it, and I managed the rest, as a hedge against both the experts and myself."</p><p>Can you imagine making "Dilbert money"? Me neither. I'd imagine Dilbert money amounts to a pretty tidy sum.</p><p>But I digress. The part of the post that most interested me was this part: "The experts invested in Enron, Worldcom, and a number of other companies that promptly exploded. The experts reduced their portion of my money by about a third over five years. (The experts work for one of the most respected financial institutions on Earth, by the way.) My own investments did better, precisely because they were more diversified. So now I handle my own investments, probably incompetently."</p><p>I smiled when I read that. One of the biggest lessons the current financial crisis has driven home again and again is that nine times out of 10, the so-called "financial experts" aren't worth the paper their MBA degrees are printed on. Tens of examples appear in the papers every day. From the "geniuses" who created the whole mess by engineering clever securities to the Wall Street research analysts who scrambled to lower their price targets and ratings every time the market dropped 15% this year, the majority of "experts" were outed as frauds. If you had followed their advice, you would find yourself extremely poor right now.</p><p>I went to school with these people. I worked with them in investment banks and I worked for the companies they peddled their wares to. Half of the time I couldn't follow what they were saying and the other half I couldn't understand why someone would want to take the kinds of risks they were talking about taking, or why someone would want to hedge against the risks they were trying to get them to hedge against. <a href="http://news.bbc.co.uk/2/hi/business/2817995.stm">Warren Buffett warned that derivatives were a "ticking time bomb" back in 2003</a> a warning that put a bad taste in my mouth for the "financial engineering" I was just beginning to get exposed to at the time. Derivatives and complex financial instruments got really popular though. The big stars at the companies I worked for were those who understood the lingo, who could create increasing layers of complexity to get around accounting rules and "redistribute" risk. Incidentally, these kinds of people were also the big stars at <a href="http://en.wikipedia.org/wiki/Enron">Enron</a>. (And ended up being <a href="http://en.wikipedia.org/wiki/Federal_Correctional_Institution,_Waseca">relocated</a> for their troubles). </p><p>I'm getting into rant territory, so I'll stop here. I realize a variation on this theme has been repeated thousands of times over the past hundred years or so. The most recent one I read was <a href="http://dealbook.blogs.nytimes.com/2008/10/17/good-bye-from-a-hedge-fund-manager/">Andrew Lahde of Lahde capital, who wrote a similar rant</a> when he recently quit his job. I highly recommend you read the letter he sent to his shareholders- if nothing else, it's quite an entertaining read. (And I think Lahde money would actually make me more jealous than Dilbert money.)</p><p>In an interesting twist, Adams ended his blog post with an endorsement for stocks: </p><p>"In order to diversify more, I started migrating money over to the stock market during this recent plunge. The market could go a lot lower still, but this is either the beginning of the end of the United States as we know it, in which case it doesn't matter how I invested, or it is a once-in-a-lifetime stock buying opportunity. It was an easy decision."</p><p>Not quite the same reasoning Warren Buffett gave, but an endorsement nonetheless. When America's preeminent corporate cartoonist starts endorsing stocks, is it a buy signal? You make the call.</p><p>One final note: I received an email misinterpreting my prior post as "calling a market bottom." Re-read my posts. I would never call a market bottom. My argument is that stocks are selling at more attractive prices now than they were last year, but nobody is treating them that way.</p>Unknownnoreply@blogger.com0