Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this.
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20." Drinks for the ten now cost just $80. The group still wanted to pay their bill the way we pay our taxes.
So the first four men were unaffected. They would still drink for free. But what about the other six men? The paying customers? How could they divide the $20 windfall so that everyone would get his fair share?'
They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so the fifth man, like the first four, now paid nothing (100% savings)
The sixth now paid $2 instead of $3 (33% savings).
The seventh now pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 ( 22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings. "I only got a dollar out of the $20,"declared the sixth man.
He pointed to the tenth man," but he got $10!" "Yeah, that's right," exclaimed the fifth man. "I only saved a Dollar, too. It's unfair that he got ten times more than I!" "That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!" The nine men surrounded the tenth and beat him up.
The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
I borrowed this from this guy when he posted it in a comment on a Kiplinger article:
http://pulse.yahoo.com/_QT4UCZQAN7BVW3HPJVQEFDM62Q
Thanks D.e.m.M.
Saturday, February 5, 2011
Sunday, August 1, 2010
Best Buy
I am slightly torn on Best Buy at the moment. The uncertainty of the future is the only thing that keeps me from going all in on this issue. Best Buy is conservatively financed with long term debt equal to less than one year of earnings. Earnings have increased or held steady every year for the past 10 with the exception of 2009 when very few companies increased earnings. Even with 2009 the year to year increase in earnings over the past 10 years has averaged 14%.
Return on Equity over the past 10 years is 20.9% which is well over the level of 15% that I like to see.
The price/earnings ratio for Best Buy has gone from 30 to 12. Any company with 14% earnings growth year to year that is selling at 12 times current earnings is almost a no brainer.
While earnings have continued to rise over the past 10 years the share price has been on quite a ride. The current share price at just under 35 is the same as it was in 2000, 2002, and 2003.
If Best Buy continues to perform over the next 10 years as it has over the past 10 I would expect the share price be somewhere between 200 and 333 which would work out to a yearly rate of return of 19% - 26%.
So the decision comes down to whether or not I believe Best Buy can continue it's earnings increase. The sheer fact that Best Buy is still standing (and thriving) is a testament to itself. When I look at consumer electronics as a whole I see the biggest threats to Best Buy to be the superstores such as Wal-Mart, Target (both stocks that I like) and the like. Personally i do not see this as a huge threat. Best Buy has prices that compare very favorably with these stores and their selection is far superior. Unlike many of the rental video stores I don't see Best Buy becoming obsolete with the increase of internet based entertainment. People will continue to need the equipment to enjoy this entertainment and where better to buy that equipment than from Best Buy.
Best Buy is the best positioned company to increase it's market share with the void left by the recent bankruptcy of Circuit City. I also see room to grow as my home town with a population of 20,000 has a Wal-Mart and a Home Depot, but still no Best Buy.
Maybe new management takes over and decides to concentrate more floor space to PCs while America drifts closer and closer to Steve Jobs. Apple decides to stop allowing Best Buy to sell it's computers while it continues to open Apple stores across the country and Best Buy slowly fades into oblivion. In that case I am happy I hold shares in Apple, but otherwise I see Best Buy as an excellent buy now.
My thoughts as of 8/1/2010 are that Best Buy is an excellent buy at $35 and a good buy at $55.
New Format
I've been somewhat lazy in my musings on this particular blog so I'm changing things around. For the foreseeable future I am going to be publishing posts on various companies as I contemplate stock purchases. I plan to update the individual posts as my thoughts on them change. The reason for this is to have a notebook of sorts to record my thoughts on why or why not to purchase a particular issue. The reason to do this in blog form is that I will then have access to my thoughts at any place I may be.
Should I feel some strong desire to air my thoughts on our country's treatment finance or healthcare I will continue to do that as well.
Should I feel some strong desire to air my thoughts on our country's treatment finance or healthcare I will continue to do that as well.
Monday, October 26, 2009
Faith in Stupidity
Vivus Inc is a pharmaceutical company that is currently in phase 3 trial of a new weight loss drug. The results of the studies done so far are encouraging and everybody knows that a pill for weight loss is a gold mine. If it works as well as they are touting a few people may get very rich as the BMI of America decreases.
At the moment Vivus stock (VVUS) is up 16% in morning trading. That's not to be unexpected and it gives me a lot of hope. It confirms to me that there are still a lot of stupid speculative investors out there. For one thing the new drug that Vivus is marketing is nothing more than phenteramine and topiramate. Both of those drugs have been on the market for a while. If this new drug does become something of a money pipeline it will be for one of the big pharma companies after the rights are purchased from Vivus. Will Vivus make money off the deal? Sure they will, but not enough to cover the losses they have had over the past 9 years. The last time Vivus declared a profit for their shareholders was 2000. In the 9 years since then Vivus has had a combined net loss just shy of $100 million.
Even if this new drug is all it says it is, it will be years before it becomes profitable, once again for another company. If it does work we're all just going to be prescribing the equal doses of phenteramine and topiramate that will both be generic by the time this new wonder drug is approved for release by the FDA.
As long as there idiots out there throwing money at companies like Vivus there are deals to be found for long term investors. Certainly a great boost to the efficient market theory (don't even get me started on that).
At the moment Vivus stock (VVUS) is up 16% in morning trading. That's not to be unexpected and it gives me a lot of hope. It confirms to me that there are still a lot of stupid speculative investors out there. For one thing the new drug that Vivus is marketing is nothing more than phenteramine and topiramate. Both of those drugs have been on the market for a while. If this new drug does become something of a money pipeline it will be for one of the big pharma companies after the rights are purchased from Vivus. Will Vivus make money off the deal? Sure they will, but not enough to cover the losses they have had over the past 9 years. The last time Vivus declared a profit for their shareholders was 2000. In the 9 years since then Vivus has had a combined net loss just shy of $100 million.
Even if this new drug is all it says it is, it will be years before it becomes profitable, once again for another company. If it does work we're all just going to be prescribing the equal doses of phenteramine and topiramate that will both be generic by the time this new wonder drug is approved for release by the FDA.
As long as there idiots out there throwing money at companies like Vivus there are deals to be found for long term investors. Certainly a great boost to the efficient market theory (don't even get me started on that).
Wednesday, October 21, 2009
Recovery or Bubble?
I'm starting to get depressed about this economic recovery. Overall I'm glad to see the country emerging from last fall, but the speed of the stock market upswing is unreal. I'm up over 60% this year and I feel somewhat like I did 2 years ago when nothing looked appealing. Investing has been easy for the past year. Throwing darts would produce a sizeable return, but now the bargains are drying up. I fear we may be heading into another bubble. At this point one of my greatest hopes is that this upswing might be sustained by the massive amount of money that will continue to flood the market as employers start to reintroduce the company match on retirement contributions.
As for now, I'm still bullish on Nike, Harley Davidson and I'm starting to take a closer look at Buffalo Wild Wings (you gotta admit the commercials are catchy), though I've never eaten there so I may have to do that before I lay down any investment money.
Tuesday, September 8, 2009
Perspectives On Life - View from a Resident
How's that for a title. I actually have some serious thoughts this morning that I would like to put down.
Recently I admitted one of my clinic patients to the hospital. She was a relatively new patient to me that I had seen one time previously (a couple of weeks earlier). After arriving to the hospital floor she went into Cardiac arrest and was transferred to the ICU.
It is unknown how much damage her cardiac arrest did to her brain function as she has been on the ventilator for almost a week and a half now, but she seemed to be coming around. She was able to respond when I talked with her each morning. Overall she had been improving. This morning I came in to round on her and found her extubated and unresponsive. She had passed away at 2 AM. I had not been called because the resident on the floor had been present for the code. It would have been nice to get a call around 6, but I understand.
So now my mixture of emotions is unlike any I have felt in my life. On the one hand I feel sorry for the daughters of my patient. She was doing so well just a month ago. She went downhill quick and as I look back I'm sure there are things that could have been done differently with the knowledge we now have, but in reality no mistakes were made in her care.
There is also a portion of me that feels relief at her passing. I'd like to say that this relief comes from the knowledge that she would most likely live out the rest of her days in a nursing home struggling with her constant pain issues, but a lot of my relief comes from the fact that she is not my responsibility every morning for the next 2 months. I no longer have to get to the hospital each morning to care for this critically ill patient. That seems very selfish to me, and it probably is, but that is the direct effect of her death on my life.
I wonder if my reaction would be different had I known the patient for a year instead of a month. Am I already that jaded that a critically ill patient is just 30 minutes of extra work per day? I don't believe that is the case, but I feel somewhat deceived by my feelings this morning.
Recently I admitted one of my clinic patients to the hospital. She was a relatively new patient to me that I had seen one time previously (a couple of weeks earlier). After arriving to the hospital floor she went into Cardiac arrest and was transferred to the ICU.
It is unknown how much damage her cardiac arrest did to her brain function as she has been on the ventilator for almost a week and a half now, but she seemed to be coming around. She was able to respond when I talked with her each morning. Overall she had been improving. This morning I came in to round on her and found her extubated and unresponsive. She had passed away at 2 AM. I had not been called because the resident on the floor had been present for the code. It would have been nice to get a call around 6, but I understand.
So now my mixture of emotions is unlike any I have felt in my life. On the one hand I feel sorry for the daughters of my patient. She was doing so well just a month ago. She went downhill quick and as I look back I'm sure there are things that could have been done differently with the knowledge we now have, but in reality no mistakes were made in her care.
There is also a portion of me that feels relief at her passing. I'd like to say that this relief comes from the knowledge that she would most likely live out the rest of her days in a nursing home struggling with her constant pain issues, but a lot of my relief comes from the fact that she is not my responsibility every morning for the next 2 months. I no longer have to get to the hospital each morning to care for this critically ill patient. That seems very selfish to me, and it probably is, but that is the direct effect of her death on my life.
I wonder if my reaction would be different had I known the patient for a year instead of a month. Am I already that jaded that a critically ill patient is just 30 minutes of extra work per day? I don't believe that is the case, but I feel somewhat deceived by my feelings this morning.
Wednesday, August 19, 2009
Back to the real world Bertier
I'm doing my best to be happy about the learning I'm experiencing since coming back from vacation. I've had exactly one day without one of my patients in the hospital since returning home. The patient I currently have in the hospital started feeling sick 2 weeks ago. Interestingly enough she had an appointment scheduled with me 1 month ago and an appointment with her nephrologist 6 weeks ago. She missed both of these appointments and now she's sitting in a bed in the hospital and will be there probably through the weekend at least.
I don't mind it when people get sick. It happens, but when patients repeatedly miss appointments and then get admitted to the hospital for things that could have been easily adjusted a few weeks previously it frustrates me. Interestingly enough this only happens to my patients who don't actually pay for their medical care.
You should care about this as well because the aforementioned patient is on government insurance (you know, the one Hillary thinks works so well). The government is currently footing the bill for her hospital stay that is thousands of dollars per day. The two appointments that she missed would have been billed under $400 together. She's probably going to get better either way, but one costs us as taxpayers quite a bit more money. The patient pays the same goose egg either way, though when my patient goes to the hospital she gets a taxpayer funded ride in a taxi with lights. She has to find her own ride to her appointments.
I don't know the solution, but free universal coverage will not improve this problem.
I don't mind it when people get sick. It happens, but when patients repeatedly miss appointments and then get admitted to the hospital for things that could have been easily adjusted a few weeks previously it frustrates me. Interestingly enough this only happens to my patients who don't actually pay for their medical care.
You should care about this as well because the aforementioned patient is on government insurance (you know, the one Hillary thinks works so well). The government is currently footing the bill for her hospital stay that is thousands of dollars per day. The two appointments that she missed would have been billed under $400 together. She's probably going to get better either way, but one costs us as taxpayers quite a bit more money. The patient pays the same goose egg either way, though when my patient goes to the hospital she gets a taxpayer funded ride in a taxi with lights. She has to find her own ride to her appointments.
I don't know the solution, but free universal coverage will not improve this problem.
Sunday, May 3, 2009
The Woodstock of Capitalism
As has been stated by Warren Buffett in the past the Berkshire Hathaway annual shareholders meeting is the woodstock of capitalism. Having just returned from said meeting I will now give my report.
The meeting started Saturday morning with the yearly movie. Apparently the movie has always been a very enjoyable part of the day's events and this year's movie did not disappoint. Interspersed between the numerous entertaining commercials from Geico, Coke, and a myriad of other Berkshire holdings were various snippets of a mock interview with a high ranking investment banker, who spent a good deal of time laying out the stupidity of his peers while commenting that it actually only affected everyone else as he and his peers made out very well.
Following the movie we jumped right into the question and answer session. The Berkshire Hathaway meeting is somewhat different than other shareholder meetings in that the bulk of the meeting (9 AM to 3 PM) is a q&a with Warren Buffett and Charlie Munger. As opposed to other years, the majority of questions centered around Berkshire and it's holdings, but we were also entertained by the Oracle's answers to other questions ranging from inflation, to the Chinese economy to personal investing style.
At one point a question was asked about how we can attempt to teach high finance to the upcoming generation as they are obviously financially illiterate. Warren jumped on that by stating that the current generation is financially illiterate. Charlie followed by noting that it may not be possible to teach high finance to those who cannot handle credit cards. I believe at least 30 of the 35 thousand in attendance were laughing heartily at this point.
As is custom both Warren and Charlie took their shots at American business schools. When asked how he would change the business education in this country Warren quipped that he would teach two classes and get rid of all the rest. What are his two classes? The first class would be a securities analysis course detailing how to value a business and how to stay within one's circle of confidence. Fans of Buffett are very familiar to this concept though I'm not sure many do it well. The second course would teach students how to think about market fluctuations. In thinking about the market Buffet stated that a great deal of emotional stability is required. On the same subject Charlie wondered out loud what exactly has been taught in business schools especially back in the heyday of the efficient market theory: "I mean what do you teach when you believe the markets are efficient? You arrive at class, state that the markets are efficient, then have nothing left to add for the rest of the hour let alone the rest of the semester."
When questioned about how Bershire would change now that they had suffered their biggest one-year drop in the history of the country Charlie calmly stated: "I don't get too excited about these things that come around every 50 years".
There were questions about why Berkshire does not webcast the annual meeting like so many other companies. Warren went on about the personal touch of being present at the meeting. While I agree there was definitely a personal touch being at the meeting I'm convinced that the real reason is that a webcast would encourage more shareholders to stay home and the many Berkshire businesses that benefit heavily through the weekend would suffer. Buffet likes his shareholders to spend money at their businesses.
Buffet answered a question about how to protect against inflation from an 11-year old boy by saying: "The best protection against inflation is your own earning power. The second best is a wonderful business."
Throughout the meeting I was impressed with the ability of Warren and Charlie to use simple analogies to desribe investing. Towards the end of the day a question came up of how to determine when to buy a company in this economy while stock prices are falling. Warren used the example of a burger stating that he knows he's going to be buying a lot of burgers in the future and if the price tomorrow is less than the price today he is happy, not worrying that he paid more for the same burger yesterday.
As an added bonus I sat next to an investor who had flown in from Ireland for the meeting. Before the show we got to talking about healthcare. Ireland has a combination private public healthcare system like many European countries. He stated that currently they are set up so that visits to general practicioners are a flat 50 euros and the GPs determine who should and shouldn't be admitted to the hospital, unfortunately many people have stopped going to their GP as they do not have to shell out the 50 euros if they go directly to the Emergency Department (sounds very familiar to me). I asked him about surgery wait times and he stated that it is very normal for someone without private insurance to wait for 2 years or more for a hip replacement. Somehow I don't think the average taxpayer is going to accept that here in the states.
Overall it was a wonderful day and certainly worth the trip. I hope to return many times in the future.
The meeting started Saturday morning with the yearly movie. Apparently the movie has always been a very enjoyable part of the day's events and this year's movie did not disappoint. Interspersed between the numerous entertaining commercials from Geico, Coke, and a myriad of other Berkshire holdings were various snippets of a mock interview with a high ranking investment banker, who spent a good deal of time laying out the stupidity of his peers while commenting that it actually only affected everyone else as he and his peers made out very well.
Following the movie we jumped right into the question and answer session. The Berkshire Hathaway meeting is somewhat different than other shareholder meetings in that the bulk of the meeting (9 AM to 3 PM) is a q&a with Warren Buffett and Charlie Munger. As opposed to other years, the majority of questions centered around Berkshire and it's holdings, but we were also entertained by the Oracle's answers to other questions ranging from inflation, to the Chinese economy to personal investing style.
At one point a question was asked about how we can attempt to teach high finance to the upcoming generation as they are obviously financially illiterate. Warren jumped on that by stating that the current generation is financially illiterate. Charlie followed by noting that it may not be possible to teach high finance to those who cannot handle credit cards. I believe at least 30 of the 35 thousand in attendance were laughing heartily at this point.
As is custom both Warren and Charlie took their shots at American business schools. When asked how he would change the business education in this country Warren quipped that he would teach two classes and get rid of all the rest. What are his two classes? The first class would be a securities analysis course detailing how to value a business and how to stay within one's circle of confidence. Fans of Buffett are very familiar to this concept though I'm not sure many do it well. The second course would teach students how to think about market fluctuations. In thinking about the market Buffet stated that a great deal of emotional stability is required. On the same subject Charlie wondered out loud what exactly has been taught in business schools especially back in the heyday of the efficient market theory: "I mean what do you teach when you believe the markets are efficient? You arrive at class, state that the markets are efficient, then have nothing left to add for the rest of the hour let alone the rest of the semester."
When questioned about how Bershire would change now that they had suffered their biggest one-year drop in the history of the country Charlie calmly stated: "I don't get too excited about these things that come around every 50 years".
There were questions about why Berkshire does not webcast the annual meeting like so many other companies. Warren went on about the personal touch of being present at the meeting. While I agree there was definitely a personal touch being at the meeting I'm convinced that the real reason is that a webcast would encourage more shareholders to stay home and the many Berkshire businesses that benefit heavily through the weekend would suffer. Buffet likes his shareholders to spend money at their businesses.
Buffet answered a question about how to protect against inflation from an 11-year old boy by saying: "The best protection against inflation is your own earning power. The second best is a wonderful business."
Throughout the meeting I was impressed with the ability of Warren and Charlie to use simple analogies to desribe investing. Towards the end of the day a question came up of how to determine when to buy a company in this economy while stock prices are falling. Warren used the example of a burger stating that he knows he's going to be buying a lot of burgers in the future and if the price tomorrow is less than the price today he is happy, not worrying that he paid more for the same burger yesterday.
As an added bonus I sat next to an investor who had flown in from Ireland for the meeting. Before the show we got to talking about healthcare. Ireland has a combination private public healthcare system like many European countries. He stated that currently they are set up so that visits to general practicioners are a flat 50 euros and the GPs determine who should and shouldn't be admitted to the hospital, unfortunately many people have stopped going to their GP as they do not have to shell out the 50 euros if they go directly to the Emergency Department (sounds very familiar to me). I asked him about surgery wait times and he stated that it is very normal for someone without private insurance to wait for 2 years or more for a hip replacement. Somehow I don't think the average taxpayer is going to accept that here in the states.
Overall it was a wonderful day and certainly worth the trip. I hope to return many times in the future.
Tuesday, March 24, 2009
Frustration with the 401k, and 403b
History shows us that longterm investment in capital markets leads to excellent gains. With that in mind an inumerable amount of vehicles have arisen to help people to get a piece of the pie. With the increase in retirement accounts over the past quarter century there is more and more money being managed by the "professionals". The way this money gets into their grasps disgusts me.
If you have a retirement account through your work you have probably noticed that there is quite a discrepancy between the number of investment options available when you open the finance section as compared to the investment options offered by your company. In my 403b at work I have less than 2 dozen funds from which I can choose to place my retirement funds.* If it weren't for the company match I would forgo the whole thing. Contrary to popular belief I do not believe that tax savings is the do all end all for my future.
I currently have all my 403b in two funds. I have the majority of that money in the Vanguard 500 index fund (very different than an actively managed fund) and the rest is in an international fund for the sheer sake of diversification, though I may liquidate that fund in time.
At least my account offers the Vanguard fund otherwise I'd be throwing darts. I don't have the faintest idea how to evaluate a mutual fund. Mutual funds own hundreds to thousands of individual stocks. They all have their stated goals, but in the end it all boils down to maximizing profits while maintaining principle. How do I compare one to another? Each fund touts (or hides as it were) it's return over the past 1, 5, 10, and 15 years for those who have been around that long, but they all seem to be written on paper with the watermark: "Past performance does not guarantee future results". Why would I put so much money into a fund that is managed by a person or persons whose methods of investment are foreign to me. If I want to invest in a man I'll be putting my money in Berkshire (in fact I do have a significant portion of my non-tax-deferred account in Berkshire).
For the time being I will stick with my Vanguard non-managed retirement account and put the rest of my money in my Zecco account where I can buy Nike and Harley (currently trading at 5 times earnings) as I please after evaluating the balance sheet, earnings and current price. I may even read up on the CEO and majority stock owners if it fits in my schedule.
*I do have a personal choice options that apparently allows me to buy stocks and funds not offered in my plan, but as of this writing I have not been able to talk with anyone who can elaborate on the fees and procedures to do so.
If you have a retirement account through your work you have probably noticed that there is quite a discrepancy between the number of investment options available when you open the finance section as compared to the investment options offered by your company. In my 403b at work I have less than 2 dozen funds from which I can choose to place my retirement funds.* If it weren't for the company match I would forgo the whole thing. Contrary to popular belief I do not believe that tax savings is the do all end all for my future.
I currently have all my 403b in two funds. I have the majority of that money in the Vanguard 500 index fund (very different than an actively managed fund) and the rest is in an international fund for the sheer sake of diversification, though I may liquidate that fund in time.
At least my account offers the Vanguard fund otherwise I'd be throwing darts. I don't have the faintest idea how to evaluate a mutual fund. Mutual funds own hundreds to thousands of individual stocks. They all have their stated goals, but in the end it all boils down to maximizing profits while maintaining principle. How do I compare one to another? Each fund touts (or hides as it were) it's return over the past 1, 5, 10, and 15 years for those who have been around that long, but they all seem to be written on paper with the watermark: "Past performance does not guarantee future results". Why would I put so much money into a fund that is managed by a person or persons whose methods of investment are foreign to me. If I want to invest in a man I'll be putting my money in Berkshire (in fact I do have a significant portion of my non-tax-deferred account in Berkshire).
For the time being I will stick with my Vanguard non-managed retirement account and put the rest of my money in my Zecco account where I can buy Nike and Harley (currently trading at 5 times earnings) as I please after evaluating the balance sheet, earnings and current price. I may even read up on the CEO and majority stock owners if it fits in my schedule.
*I do have a personal choice options that apparently allows me to buy stocks and funds not offered in my plan, but as of this writing I have not been able to talk with anyone who can elaborate on the fees and procedures to do so.
Friday, March 6, 2009
The case for K-Swiss
K-Swiss is a shoe/apparel company that originally made only tennis shoes. They have recently begun to branch out to other types athletic shoes and as a result of the current market buying the stock is almost like stealing.
K-Swiss doesn't have the brand appeal of Nike for sure, but it does have a loyal costumer base. They make a good quality product and thus far have been able to maintain a good profit margin and increase earnings fairly regularly. That alone does not make the stock a good buy, but without it I would be hesitant to purchase even considering the numbers that follow.
K-Swiss has current assets of $334 million of which $209 million is in cash. Current liabilities total $53 million. They have almost no long term debt. That in itself is enough to get me somewhat excited about the company. Because of their debt to equity ratio they are well positioned to weather the storm of our current economy. Looking at last quarters numbers it is apparent that they used quite a bit of cash to do just that. Like many other companies they lost money in the last quarter.
K-Swiss has 34.86 million shares outstanding. Assets minus current liabilities equals $281 million. Cash minus current liabilities equals $156 million. Those numbers divided by shares outstanding gives you $8.06, and $4.48 per share in assets or cash alone respectively. So when you buy a share of K-Swiss you are buying between $4 and $8 of cash depending on how confident you are in the companie's ability to liquidate current inventory and collect on accounts receivable. That's nothing special until you realize that K-Swiss closed at $7.09 per share yesterday. Now the whole picture becomes a bit more clear. At the worst you are paying $2.61 per share (7.09-4.48) for a company that had increased earnings at a rate of 26% per year for the 8 years previous to 2007 (the earnings have decreased for the past two years, but the company hasn't shown a loss until this past quarter). In 2006 K-Swiss had earnings of $2.17 per share and I have no reason to believe that they won't get back there when the economy turns around. If I believe that K-Swiss could easily liquidate their inventory and collect on their accounts payable in the amount shown on the balance sheet then I actually make $0.97 per share (7.09-8.06) as soon as I purchase the stock and the actual business is just icing on the cake.
Could K-Swiss bottom out and go under? Are their numbers cooked like Enron? The answers to these questions could be yes which is why the decision to buy isn't quite as straight forward as I described in the last paragraph, but for me it's a no brainer (though the next little while could make me sick if I watch the ticker each day).
K-Swiss doesn't have the brand appeal of Nike for sure, but it does have a loyal costumer base. They make a good quality product and thus far have been able to maintain a good profit margin and increase earnings fairly regularly. That alone does not make the stock a good buy, but without it I would be hesitant to purchase even considering the numbers that follow.
K-Swiss has current assets of $334 million of which $209 million is in cash. Current liabilities total $53 million. They have almost no long term debt. That in itself is enough to get me somewhat excited about the company. Because of their debt to equity ratio they are well positioned to weather the storm of our current economy. Looking at last quarters numbers it is apparent that they used quite a bit of cash to do just that. Like many other companies they lost money in the last quarter.
K-Swiss has 34.86 million shares outstanding. Assets minus current liabilities equals $281 million. Cash minus current liabilities equals $156 million. Those numbers divided by shares outstanding gives you $8.06, and $4.48 per share in assets or cash alone respectively. So when you buy a share of K-Swiss you are buying between $4 and $8 of cash depending on how confident you are in the companie's ability to liquidate current inventory and collect on accounts receivable. That's nothing special until you realize that K-Swiss closed at $7.09 per share yesterday. Now the whole picture becomes a bit more clear. At the worst you are paying $2.61 per share (7.09-4.48) for a company that had increased earnings at a rate of 26% per year for the 8 years previous to 2007 (the earnings have decreased for the past two years, but the company hasn't shown a loss until this past quarter). In 2006 K-Swiss had earnings of $2.17 per share and I have no reason to believe that they won't get back there when the economy turns around. If I believe that K-Swiss could easily liquidate their inventory and collect on their accounts payable in the amount shown on the balance sheet then I actually make $0.97 per share (7.09-8.06) as soon as I purchase the stock and the actual business is just icing on the cake.
Could K-Swiss bottom out and go under? Are their numbers cooked like Enron? The answers to these questions could be yes which is why the decision to buy isn't quite as straight forward as I described in the last paragraph, but for me it's a no brainer (though the next little while could make me sick if I watch the ticker each day).
Wednesday, March 4, 2009
What to do with this recession?
Like most people I have strong emotions concerning investments. At times those emotions get in the way of sound financial decisions, but lately I have noticed that I am wired a bit differently than others I have spoken with.
Anyone who knows me or has read previous posts may have noticed that I am not exactly fearful of the current market. I have even been known to sound jubilant from time to time over the past 8 months. Much of that comes from the fact that the only significant money I have in the market has been invested in the past 8 months. I might feel differently had I owned bank stock that was worth $250,000 just 18 months ago and is now down to $25,000. I do have a little over $1,000 of that same stock that I have watched fall from $10,000. It is also true that I have a well-paying job in a very secure field. With those things in mind it isn't too hard to see why I don't get down when I see the Dow fall to record lows each day.
Many people have cut back on their purchases with the dwindling economy. I think a lot of sacrifice has been made across the board and I am no exception to that, but my thinking on the matter is different. I have not cut back because I have to (I have more income now than at any previous time in my life) but because I want to. I recently got a sizeable tax rebate (thank you Mr President) and initially I thought about using that money to buy a truck. I have always wanted a truck and they are selling for cheap now. I didn't buy a truck I put all that money in stocks (Microsoft, Berkshire, Apple, Nike and Wells Fargo). I still want a truck but when the market is as low as it is now I just can't afford to pass up these opportunities.
Eventually we will come out of this recession. When we do there will be a lot of Americans that are very scared of the stock market. I hope we get back to some basic values of thrift and saving as a nation and get rid of some of our debt. Whether or not that happens, now is the time to position yourself for the future. There has never been a time in my life that has presented more opportunities for those with some money to invest. As I've said before I don't know if the market has hit a bottom or when it will, but I do believe that enormous gains will be made by those who are investing for the long term today, however, if you can't handle watching another 50% drop in money you invest today you might want to close your eyes.
Anyone who knows me or has read previous posts may have noticed that I am not exactly fearful of the current market. I have even been known to sound jubilant from time to time over the past 8 months. Much of that comes from the fact that the only significant money I have in the market has been invested in the past 8 months. I might feel differently had I owned bank stock that was worth $250,000 just 18 months ago and is now down to $25,000. I do have a little over $1,000 of that same stock that I have watched fall from $10,000. It is also true that I have a well-paying job in a very secure field. With those things in mind it isn't too hard to see why I don't get down when I see the Dow fall to record lows each day.
Many people have cut back on their purchases with the dwindling economy. I think a lot of sacrifice has been made across the board and I am no exception to that, but my thinking on the matter is different. I have not cut back because I have to (I have more income now than at any previous time in my life) but because I want to. I recently got a sizeable tax rebate (thank you Mr President) and initially I thought about using that money to buy a truck. I have always wanted a truck and they are selling for cheap now. I didn't buy a truck I put all that money in stocks (Microsoft, Berkshire, Apple, Nike and Wells Fargo). I still want a truck but when the market is as low as it is now I just can't afford to pass up these opportunities.
Eventually we will come out of this recession. When we do there will be a lot of Americans that are very scared of the stock market. I hope we get back to some basic values of thrift and saving as a nation and get rid of some of our debt. Whether or not that happens, now is the time to position yourself for the future. There has never been a time in my life that has presented more opportunities for those with some money to invest. As I've said before I don't know if the market has hit a bottom or when it will, but I do believe that enormous gains will be made by those who are investing for the long term today, however, if you can't handle watching another 50% drop in money you invest today you might want to close your eyes.
Tuesday, January 27, 2009
Invest now!
I've written about my enthusiasm in our current economy before, but never have I had such a desire to put my money in the market. There are deals all over the board. Hundreds of good solid companies are being slammed by the market and they are selling at record levels. The return on the companies is going to be through the roof 10, 20 and 30 years from now.
If you don't like dabbling in individual stock put your money in an index fund, but do it now. Unless you are trying to get out from under credit card debt you should be putting any available money you can into the market. The S&P 500 peaked out just under 1600 in 2007. It currently sits at 850. I'm not saying it won't fall further. I can't predict the bottom and if anyone says they can you need to steer clear of that person.
If you were in the market for a 50 inch LCD that was $1600 and got slashed to $850 would you wait to see if it goes lower? I wouldn't. I would buy the thing and enjoy the Super Bowl on Sunday (speaking of which the best time to buy a TV is the week following the Super Bowl because of all the discounts).
If you believe that American business is out of luck and we are going to falter as a country and as an economy then by all means buy some land, build a cabin, dig a well and go be happy, but if you are like me and feel that the economy will rebound sometime and things will be business as usual in the next 10 years then get some money in the market.
Personally I think Microsoft is a great buy right now. The announced layoffs hammered the price of the stock, but that just shows me that the company is in the business of making money. Harsh as it may sound I'm not looking for a feel-good company to put my money in. I want a company that can make the right decisions when it needs to. Microsoft is suffering because the public isn't buying new computers or new software, but do you think that will last? The economy will rebound and I'm betting that when it does a lot of people will be upgrading their computers. When that time comes Microsoft will shoot up again. That's a boat I want to be on.
I also think there are some good banks out there that are going to come out of this recession like champs. The banking industry is getting hammered and because of it some very good businesses are selling for cheap. Check out Wells Fargo.
If you don't like dabbling in individual stock put your money in an index fund, but do it now. Unless you are trying to get out from under credit card debt you should be putting any available money you can into the market. The S&P 500 peaked out just under 1600 in 2007. It currently sits at 850. I'm not saying it won't fall further. I can't predict the bottom and if anyone says they can you need to steer clear of that person.
If you were in the market for a 50 inch LCD that was $1600 and got slashed to $850 would you wait to see if it goes lower? I wouldn't. I would buy the thing and enjoy the Super Bowl on Sunday (speaking of which the best time to buy a TV is the week following the Super Bowl because of all the discounts).
If you believe that American business is out of luck and we are going to falter as a country and as an economy then by all means buy some land, build a cabin, dig a well and go be happy, but if you are like me and feel that the economy will rebound sometime and things will be business as usual in the next 10 years then get some money in the market.
Personally I think Microsoft is a great buy right now. The announced layoffs hammered the price of the stock, but that just shows me that the company is in the business of making money. Harsh as it may sound I'm not looking for a feel-good company to put my money in. I want a company that can make the right decisions when it needs to. Microsoft is suffering because the public isn't buying new computers or new software, but do you think that will last? The economy will rebound and I'm betting that when it does a lot of people will be upgrading their computers. When that time comes Microsoft will shoot up again. That's a boat I want to be on.
I also think there are some good banks out there that are going to come out of this recession like champs. The banking industry is getting hammered and because of it some very good businesses are selling for cheap. Check out Wells Fargo.
Sunday, January 18, 2009
Inauguration: A sign of things to come?
As we are now in the midst of the worst economic downtrun of my lifetime many are looking to the highest office in the land to make the policy changes to bring us out of this recession. Yet as we begin this historic term we are asked to swallow an inauguration party with a bill of $140 million.
I'm not about to say this isn't a moment that should be celebrated. Barack Obama being sworn in is a wonderful moment for all Americans not just African Americans. Maybe we need this party as Americans. Maybe we need to splurge for a weekend during these hard times. Maybe it's important to let your hair down every once in a while. Or maybe our president elect should have said "hey we've got to tighten our belts as a country" and start with his own party.
I, for one, hope this is just a splurge for a momentous occasion and not a sign of fiscal irresponsibility for this administration, an administration for which I voted and fully support. Washington resembles Hollywood more and more each day and I believe this blatant disregard for taxpayer funds is just another example of the disconnect between the powers that be and the powers that make them be.
Not even president yet and the man has already disappointed me.
I'm not about to say this isn't a moment that should be celebrated. Barack Obama being sworn in is a wonderful moment for all Americans not just African Americans. Maybe we need this party as Americans. Maybe we need to splurge for a weekend during these hard times. Maybe it's important to let your hair down every once in a while. Or maybe our president elect should have said "hey we've got to tighten our belts as a country" and start with his own party.
I, for one, hope this is just a splurge for a momentous occasion and not a sign of fiscal irresponsibility for this administration, an administration for which I voted and fully support. Washington resembles Hollywood more and more each day and I believe this blatant disregard for taxpayer funds is just another example of the disconnect between the powers that be and the powers that make them be.
Not even president yet and the man has already disappointed me.
Tuesday, January 13, 2009
Electronic Medical Records
President elect Obama wants to computerize all the nation's health care records in 5 years. I'm not going to go into how much this will cost or whether or not it is feasible, but I will put my support behind it. I work in a hospital and clinic that are both almost entirely paperless. We still have some paper floating around for things such as MRI because the MRI is owned by two hospitals and the radiology group and not all are on the same EMR (electronic medical record).
I love electronic medical records. The transition from paper records to computer records is going to be very difficult for many physicians, but for those of us who are now being trained, computers are second nature. The errors that are avoided by not having physicians write their notes or orders are just the beginning. In addition you also have the accessibility to patients records whenever you need them. When I'm on call I can review labs, read consultant notes, and put in orders all from the comfort of my own home at 2 AM. When a patient of one of my collegues calls with a request for a prescription that was written but never called into the pharmacy I can quickly bring up the chart and read the note from the visit earlier in the day.
IHC in Utah has one of the best EMRs I have seen. In addition to being a very competent program it is also used by all the IHC facilities in Utah and thus it is possible for a physician in Southern Utah to see the results of a test done at Primary Children's Hospital in Salt Lake minutes after the test is reported. Physicians can share common drug formularies across the state to increase the speed of the paperwork required by the healthcare industry.
My hospital went paperless less than one year ago and it has not been easy. Many of the older docs complain (loudly and rather unprofessionally) every day about the system, but I love it. I enjoy being able to read what my consultants have to say rather than spending my time translating the chicken scratch of the cardiologist.
When I was in medical school I was very worried about the regulations that were coming down the line to prohibit cursive writing in prescriptions and to eventually requiring all prescriptions to be printed or phoned. Since graduating from medical school I have not written one prescription by hand and in that time I have only received one call from a pharmacy requesting clarification on an order.
I think Obama has a good idea here and we would be smart to get behind it.
I love electronic medical records. The transition from paper records to computer records is going to be very difficult for many physicians, but for those of us who are now being trained, computers are second nature. The errors that are avoided by not having physicians write their notes or orders are just the beginning. In addition you also have the accessibility to patients records whenever you need them. When I'm on call I can review labs, read consultant notes, and put in orders all from the comfort of my own home at 2 AM. When a patient of one of my collegues calls with a request for a prescription that was written but never called into the pharmacy I can quickly bring up the chart and read the note from the visit earlier in the day.
IHC in Utah has one of the best EMRs I have seen. In addition to being a very competent program it is also used by all the IHC facilities in Utah and thus it is possible for a physician in Southern Utah to see the results of a test done at Primary Children's Hospital in Salt Lake minutes after the test is reported. Physicians can share common drug formularies across the state to increase the speed of the paperwork required by the healthcare industry.
My hospital went paperless less than one year ago and it has not been easy. Many of the older docs complain (loudly and rather unprofessionally) every day about the system, but I love it. I enjoy being able to read what my consultants have to say rather than spending my time translating the chicken scratch of the cardiologist.
When I was in medical school I was very worried about the regulations that were coming down the line to prohibit cursive writing in prescriptions and to eventually requiring all prescriptions to be printed or phoned. Since graduating from medical school I have not written one prescription by hand and in that time I have only received one call from a pharmacy requesting clarification on an order.
I think Obama has a good idea here and we would be smart to get behind it.
Wednesday, December 31, 2008
Personal Net Worth... What a Crock.
I occasionally check-in on other personal finance blogs and one that I have read a few times is Million Dollar Journey. In the most recent post the author states that his net worth has increased 10% in 2008. The numbers are all there to support his claim, but if you look closely you see that the majority of the net worth is in property, almost half of the $309,000.
It's very dangerous to claim a personal residence as part of your net worth. Your residence is not a liquid asset. If forced to sell there is no guarantee you would recoup your purchase price. In the market we have today you may not even be able to sell your house. If you do happen to sell the house you have to find a place to live. Whether that be another house or a rental you have to put up some money for that.
To illustrate the danger of including a primary residence in one's net worth let's assume that this couple become unemployed in the next few months. They are in no real danger as they have $62,000 in very liquid assets, but with $265,000 in debt plus living expenses that $62,000 could easily be gone in a year.
This same sort of accounting is found on the balance sheets of every publicly traded company. There are thousands of companies that show a positive net worth because of assets that are not liquid. As the debt piles up the net worth seems to keep up as well, but when we hit a recession like we have today we find that those assets are not worth nearly what was reported when the company files chapter 11.
If you really want to have a good view of your personal net worth you need to divide your assets based on liquidity. Cash is obviously on one end and property (primary residence) is on the other. Retirement accounts fit somewhere in between as they are not worth what's on the paper if withdrawn early. Debt should also be divided into short-term and long-term. A 30-year $300,000 mortgage looks much more cumbersome on a balance sheet than $30,000 in credit card debt at 16.5%, but the credit card debt is much less manageable than the mortgage.
The bottom line is don't be fooled into thinking things are fine because your net worth looks good. All those assets aren't going to mean anything if you can't find somebody to take them off your hands, and nothing decreases prices like a fire-sale.
It's very dangerous to claim a personal residence as part of your net worth. Your residence is not a liquid asset. If forced to sell there is no guarantee you would recoup your purchase price. In the market we have today you may not even be able to sell your house. If you do happen to sell the house you have to find a place to live. Whether that be another house or a rental you have to put up some money for that.
To illustrate the danger of including a primary residence in one's net worth let's assume that this couple become unemployed in the next few months. They are in no real danger as they have $62,000 in very liquid assets, but with $265,000 in debt plus living expenses that $62,000 could easily be gone in a year.
This same sort of accounting is found on the balance sheets of every publicly traded company. There are thousands of companies that show a positive net worth because of assets that are not liquid. As the debt piles up the net worth seems to keep up as well, but when we hit a recession like we have today we find that those assets are not worth nearly what was reported when the company files chapter 11.
If you really want to have a good view of your personal net worth you need to divide your assets based on liquidity. Cash is obviously on one end and property (primary residence) is on the other. Retirement accounts fit somewhere in between as they are not worth what's on the paper if withdrawn early. Debt should also be divided into short-term and long-term. A 30-year $300,000 mortgage looks much more cumbersome on a balance sheet than $30,000 in credit card debt at 16.5%, but the credit card debt is much less manageable than the mortgage.
The bottom line is don't be fooled into thinking things are fine because your net worth looks good. All those assets aren't going to mean anything if you can't find somebody to take them off your hands, and nothing decreases prices like a fire-sale.
Wednesday, December 24, 2008
Why you should care about Bernard Madoff.
Bernard Madoff was recently arrested for securities fraud after being turned in by his sons. Madoff's fraud is valued around $50 billion. The list of those directly affected by Mr Madoff is extensive, but the majority of Americans don't seem to care because it didn't affect them. The truth is that we are all affected, albeit indirectly, by Mr Madoff's scheme.
Madoff ran the largest Ponzi scheme in the history of the United States and he did it for years. He was described by some of his closest friends as the most honest man in America. He donated millions to various charities. I don't know why he did it and I'm not sure I care, but the fact that he did do it and got away with it for so many years is unacceptable to me.
First of all how did he fly under the radar for so many years? Why didn't the SEC step in and act on the tips that we are now hearing had been coming in for years? We live in a Country where the top government officials make a fraction of what our society deems them worth. The President pulls less than half a million per year and when he leaves office he can make that much in one speaking engagement. The top SEC officials make millions in salary and stock options when they leave their posts for the private sector. Those who leave are protected by those left behind and Mr Madoff seems to have been protected from investigations from time to time.
The Ponzi Scheme in itself is a danger to society. There are many variations, but boiled down to basics the scheme is a form of investment fraud where the original investors are paid with the money from newer investors. The scheme generally continues until the investors try to withdraw their investments and find that there is no investment to withdraw from. Often this coincides with a down turn of the market like we have had recently.
What Bernard Madoff did to me was shake my trust in our financial system. Madoff's scam scares me more than anything that has happened in the past year. We live in a time where wealth is tracked by computers. Million dollar purchases are done through the internet. All of my accounts are held at financial institutions. I don't know the CEO's of these banks. I haven't met with their accounting firms. I have an account showing that I own shares of Nike, but I've never seen any stock certificates. I base my decisions on the information I read in the balance sheets. I trust that the figures are correct. I trust that Nike really is selling that many Lebron Shoes.
Millions of Americans trust others to handle their investments. How do they make the decision on who to choose. To my knowledge Bernard Madoff has always received glowing reviews by his family and friends, some of whom have lost large sums of money as a reslut of Mr Madoff's actions.
Before I was born my grandfather made a stock purchase from a woman in his home town. Shortly thereafter the stock price soared and he stood to make a large profit. He returned to the woman and nullified his purchase. He did not even want to appear to have made an insider deal. He would not have that woman think bad of him. I fear that many today would call what my grandfather did an act of stupidity rather than see it for what it was. My grandfather would not sell his integrity for any amount of money.
My greatest fear is that we as a society no longer operate under principles of morality. Bernard Madoff sold his integrity and in so doing finally gave me something to be afraid of this year.
Madoff ran the largest Ponzi scheme in the history of the United States and he did it for years. He was described by some of his closest friends as the most honest man in America. He donated millions to various charities. I don't know why he did it and I'm not sure I care, but the fact that he did do it and got away with it for so many years is unacceptable to me.
First of all how did he fly under the radar for so many years? Why didn't the SEC step in and act on the tips that we are now hearing had been coming in for years? We live in a Country where the top government officials make a fraction of what our society deems them worth. The President pulls less than half a million per year and when he leaves office he can make that much in one speaking engagement. The top SEC officials make millions in salary and stock options when they leave their posts for the private sector. Those who leave are protected by those left behind and Mr Madoff seems to have been protected from investigations from time to time.
The Ponzi Scheme in itself is a danger to society. There are many variations, but boiled down to basics the scheme is a form of investment fraud where the original investors are paid with the money from newer investors. The scheme generally continues until the investors try to withdraw their investments and find that there is no investment to withdraw from. Often this coincides with a down turn of the market like we have had recently.
What Bernard Madoff did to me was shake my trust in our financial system. Madoff's scam scares me more than anything that has happened in the past year. We live in a time where wealth is tracked by computers. Million dollar purchases are done through the internet. All of my accounts are held at financial institutions. I don't know the CEO's of these banks. I haven't met with their accounting firms. I have an account showing that I own shares of Nike, but I've never seen any stock certificates. I base my decisions on the information I read in the balance sheets. I trust that the figures are correct. I trust that Nike really is selling that many Lebron Shoes.
Millions of Americans trust others to handle their investments. How do they make the decision on who to choose. To my knowledge Bernard Madoff has always received glowing reviews by his family and friends, some of whom have lost large sums of money as a reslut of Mr Madoff's actions.
Before I was born my grandfather made a stock purchase from a woman in his home town. Shortly thereafter the stock price soared and he stood to make a large profit. He returned to the woman and nullified his purchase. He did not even want to appear to have made an insider deal. He would not have that woman think bad of him. I fear that many today would call what my grandfather did an act of stupidity rather than see it for what it was. My grandfather would not sell his integrity for any amount of money.
My greatest fear is that we as a society no longer operate under principles of morality. Bernard Madoff sold his integrity and in so doing finally gave me something to be afraid of this year.
Wednesday, December 17, 2008
Mistakes of the Past
I have no faith in Ben Bernanke. Let me say that I am not the federal reserve chief. I am not qualified to be the federal reserve chief. I'm not even qualified to criticize the federal reserve chief, but I'm going to anyway.
As I have written before, I blame our current recession on debt. Corporate debt, consumer debt, national debt, take your pick, they are all at fault for our current economic crises. Cheap money over the past 8 years is a huge factor in all that debt. Now that the economy is trying to right itself by dropping down to reasonable levels everybody is getting scared so what does our illustrius chief do? That's right he cuts rates. Did we not learn anything during the Greenspan years? Cheap money does not fix the economy. Free money does not fix the economy. Survival of the fittest fixes the economy. are we really going to allow the big 3 automakers continue their horrible business practices by bailing them out? Is it really wise to make it easier to get loans when the money to pay off those loans is still not there?
Come on America, tighten those belt straps, go to work, pay off your credit cards and if you have a job help out your neighbor who doesn't, but don't reward bad companies with poor economic policies. We've got to stop perpetuating the problem.
As I have written before, I blame our current recession on debt. Corporate debt, consumer debt, national debt, take your pick, they are all at fault for our current economic crises. Cheap money over the past 8 years is a huge factor in all that debt. Now that the economy is trying to right itself by dropping down to reasonable levels everybody is getting scared so what does our illustrius chief do? That's right he cuts rates. Did we not learn anything during the Greenspan years? Cheap money does not fix the economy. Free money does not fix the economy. Survival of the fittest fixes the economy. are we really going to allow the big 3 automakers continue their horrible business practices by bailing them out? Is it really wise to make it easier to get loans when the money to pay off those loans is still not there?
Come on America, tighten those belt straps, go to work, pay off your credit cards and if you have a job help out your neighbor who doesn't, but don't reward bad companies with poor economic policies. We've got to stop perpetuating the problem.
Tuesday, December 9, 2008
Nike
I set up a limit order to purchase Nike at $53 per share today and just before close the price of Nike dipped down below $53. Unfortunately Apple and Microsoft didn't get down to the levels where I had set my limit orders.
Yearly earnings per share for Nike since 99 (ending in May of each year) have been as follows:
0.78
1.04
1.08
1.23
1.38
1.75
2.24
2.64
2.93
3.74
While Nike's earnings have grown 500% the stock price has barely doubled in that time. Nike carries long term debt in the amount of $441 million while last year alone their net income was $1.8 billion. This is important because if the company were to face some lean years in sales and their earnings were to take a hit they would be in a very good position to pay off their debt and avoid the pitfalls we are now seeing with the big 3 automakers. Apple and Microsoft carry no long term debt, but their current liabilities are through the roof.
Nike is currently trading at 15 times earnings which is right where I like to purchase most stocks. I tend to pay more for technology companies, but not very often.
The numbers tell the story, but I don't like to buy stocks based solely on numbers. I want a company that is going to be around tomorrow and going to produce consistent returns in the future. Nike isn't going anywhere. It will definitely keep growing because it sells a product that people keep using. Even if production costs increase the Nike brand enables the company to increase prices to offset any increased expenditures. Shoes keep going up in price and people keep buying them.
Now if Lebron will just go to the Knicks....
Yearly earnings per share for Nike since 99 (ending in May of each year) have been as follows:
0.78
1.04
1.08
1.23
1.38
1.75
2.24
2.64
2.93
3.74
While Nike's earnings have grown 500% the stock price has barely doubled in that time. Nike carries long term debt in the amount of $441 million while last year alone their net income was $1.8 billion. This is important because if the company were to face some lean years in sales and their earnings were to take a hit they would be in a very good position to pay off their debt and avoid the pitfalls we are now seeing with the big 3 automakers. Apple and Microsoft carry no long term debt, but their current liabilities are through the roof.
Nike is currently trading at 15 times earnings which is right where I like to purchase most stocks. I tend to pay more for technology companies, but not very often.
The numbers tell the story, but I don't like to buy stocks based solely on numbers. I want a company that is going to be around tomorrow and going to produce consistent returns in the future. Nike isn't going anywhere. It will definitely keep growing because it sells a product that people keep using. Even if production costs increase the Nike brand enables the company to increase prices to offset any increased expenditures. Shoes keep going up in price and people keep buying them.
Now if Lebron will just go to the Knicks....
Monday, December 8, 2008
Bad Timing
I spent much of the weekend researching certain companies with full intentions of making some significant purchases this week. By the end of the weekend I was pretty certain I would be buying shares of Nike, Microsoft, and Apple. I wasn't too high on Coke, but it was on my radar. I even went so far as to place saved orders for the 3 mentioned stocks (but not so far as to put in limit orders). As it turns out those three stocks are each up over 5% today. I'm incredibly disappointed at the rebound in these companies today as they just aren't as appealing as they were on Friday afternoon. I think I'll put in some limit orders to buy if they should drop to near Friday levels again.
Tuesday, December 2, 2008
How to Read a Finance Magazine
Most people out there are not like me. They don't thumb through the magazines at the doctor's office hoping against hope to find a copy of Forbes or Fortune. They don't look forward with anticipation for the day that the monthly Money (magazine not check) will arrive in the mail. With that in mind I have put together some thoughts on how most people could read a financial magazine.
The first thing you need to do is to open the magazine to the table of contents. Read through the titles and the one liner for each article or feature and cross out the articles that are of no use to you. If you have never owned a foreign stock and don't plan to own a foreign stock anytime in the near future cross out all articles with the words, foreign, overseas, China, Japan, Emerging Market, and exchange rate. The only time you may actually read an article on foreign investing is when the title is something like "Investing overseas for first timers", otherwise don't touch it.
There are a lot of articles about credit card and other consumer debt. If you pay off your credit cards every month do not waste your time here (unless you want to feel good about yourself). If you don't have kids stay away from any article about saving for children's college. Sure you may have kids in the future, but the tax/finance landscape will change and your time can be much better spent now.
Now after you have eliminated the useless articles start thumbing through the magazine. When you reach an article that may be of interest to you flip to the end to see how long it is. My general rule is that if the article is over 4 pages it has to be something I am very interested in (Warren Buffet for example). Anything that takes more than 4 pages to explain is not worth my time.
After starting into an article don't be afraid to trash it. If the tone of the article turns from what you thought it was and you are getting bored stop reading. On the other hand if the article is intriguing but difficult to understand don't be afraid to read it again or save it for later.
I like to tear up my magazines. I usually don't find more than 2 or 3 articles in an issue that change the way I think, but I will want to return to those 2 or 3 articles at some point in the future so I tear them out of the magazine and throw the rest in the trash. I've found that I can never find what I'm looking for if I save entire magazines, but if I save just the articles that stick out to me I can easily find them (so long as my filing system is in good order).
It's not a cut and dry system but it works for me.
The first thing you need to do is to open the magazine to the table of contents. Read through the titles and the one liner for each article or feature and cross out the articles that are of no use to you. If you have never owned a foreign stock and don't plan to own a foreign stock anytime in the near future cross out all articles with the words, foreign, overseas, China, Japan, Emerging Market, and exchange rate. The only time you may actually read an article on foreign investing is when the title is something like "Investing overseas for first timers", otherwise don't touch it.
There are a lot of articles about credit card and other consumer debt. If you pay off your credit cards every month do not waste your time here (unless you want to feel good about yourself). If you don't have kids stay away from any article about saving for children's college. Sure you may have kids in the future, but the tax/finance landscape will change and your time can be much better spent now.
Now after you have eliminated the useless articles start thumbing through the magazine. When you reach an article that may be of interest to you flip to the end to see how long it is. My general rule is that if the article is over 4 pages it has to be something I am very interested in (Warren Buffet for example). Anything that takes more than 4 pages to explain is not worth my time.
After starting into an article don't be afraid to trash it. If the tone of the article turns from what you thought it was and you are getting bored stop reading. On the other hand if the article is intriguing but difficult to understand don't be afraid to read it again or save it for later.
I like to tear up my magazines. I usually don't find more than 2 or 3 articles in an issue that change the way I think, but I will want to return to those 2 or 3 articles at some point in the future so I tear them out of the magazine and throw the rest in the trash. I've found that I can never find what I'm looking for if I save entire magazines, but if I save just the articles that stick out to me I can easily find them (so long as my filing system is in good order).
It's not a cut and dry system but it works for me.
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