Top 5 Reasons Apple Stock Can’t Go Higher

Call me a pessimist.  But, if you’ve been following Apple closely (like we all do in this business), I’m sure you get the feeling that this relentless push to the upside has reached its upper limit.   As of this writing, Apple is trading at $305.29 per share and an analyst made a rather bold prediction that Apple’s stock price will reach $390.00 a year from now or sooner. 

Here are the reasons why this is wishful thinking.  And, to refrain from public humiliation, I will not name those brave Apple cultist-er…analysts.  By the way, I’m a certified Apple ‘Opinionator’ meaning, I have earned the right to criticize this company as I was a PC-turned-MAC convert and back to PC again (see why on number 2)!

1. Their products are too expensive.  Of course, I’m not just talking about the initial sticker shock of their new products for sale.  But, the used Apple product prices are beyond reason to me.  Case in point; found on Craigslist, a 2-year old iMac 24” (base model) listed for $1500.  For that amount, I can get my hands on a PC with four times the computation power and storage space.  Call me crazy, but sooner or later, consumers will wake up to the fact that “being cool” isn’t worth the price tag anymore.
2. Apple product life is too short (but maybe they designed it that way).  Three years ago I decided to see what all the hoopla was about and bought myself a brand new ($2,200) 24” iMac with the anodized aluminum trim and a cool factor of 11 out of 10.  When the thing won’t turn on anymore, I went to the local Apple store to get a repair diagnosis and cost estimate.  And, without writing the 4-letter word in all caps here, I will just say that having the extended warranty run out, a dead iMac and a 4-digit cost-to-repair estimate in my hands did not turn my frown upside down.  If I had given the okay to repair my iMac, my total 3-year cost to own would have been a whopping $3,400!  I asked myself, is being “cool” really worth it? 
3. The Mac OS is not as stable as the company claims them to be (it crashes just as frequently as Vista).   If their Mac OS Snow Leopard – or whatever cat they’re on now, is really rock solid as they claim them to be, then why do they only function under Apple hardware?  If what they produce is of true value, then it would work in a multitude of hardware and software environments.  Windows 7 64-bit and Ubuntu 10 are viable, feature-rich alternatives but best of all, they work with millions of hardware configurations so consumers are not locked in to Apple-specific (expensive) units.  And by the way, Ubuntu is FREE (it’s what CAM Trading relies on for file backups and redundancy).
4. iPad.  What is the point of this product?  My guess is, to look cool in public places!  I can tape three one-hundred dollar bills to my forehead and get more noticed in public than a $600 iPad.  What, the hundred dollar bills on my forehead can’t check email at a Starbucks you say?  You’re right, but who are you to think you’re so important that you can’t wait to get home to check your email on a 200 dollar PC?  Get a life!
5. Apple TV.  For years, Apple has been digging for gold to come up with a viable formula for ultimate sales success.  But, new LCD TVs are here with Netflix-ready and internet access.  This eliminates the need to buy a separate device for streaming movies and shows.  I believe Apple should cut their losses and exit out of that foolish product line. 

I realize that what I’m saying may offend a lot of people, but you can always put your money where your mouth is and prove me wrong by buying a few shares of Apple stock today to hold for a year!

This article should not be construed as financial advice.  In fact, anything written here should not be taken as financial advice and that you should seek the counsel of professionals before making changes to your investment portfolio. 

How Advertising Distorts the Need for Saving

The “branding” of America is the most insidious part of our culture.  Now, entire personalities are subsumed into brands.  Lebron James is a brand.  Jerry Bruckheimer is a brand.  Every supermodel and pop singer is a brand.  There are few places you can escape logos such as the Nike “swoosh” or Mickey Mouse ears.  The brands scream only two messages at us: “You’re not good enough,” and “Spend.”

Advertising is a huge reason why people don’t invest.  Advertising is a shell game that sets us up for the quick thrill, eternal youth in a bottle, sex at the beach by drinking a brand of beer and buying a lot of things that do absolutely nothing for us.  Instead of saving the money we would be spending on some gadget, vehicle, or wardrobe, we could be could be investing in our children and ourselves.  Advertising is the deep end of the ocean.  When we succumb and sink into it, there’s no bottom to the spending. 

Turn Off the TV and Start Saving

The more TV a person watches, the more he/she spends (based on the advertising they absorb).  Actual research by Dr. Juliet Schor from Harvard found that for every extra hour spend watching TV, the subjects spent an additional $208 per week.  On average they spent an additional $2,300 a year in unplanned expenditures. 

TV and Advertising distorts the view we have of ourselves.  Advertising is designed to make you feel uncomfortable about yourself, your possessions, and everything around you.  If you are perfectly secure and comfortable, then you won’t feel the need to buy the thousands of products being marketed. 

Be Careful When Browsing the Internet

Personally, I use the Firefox browser with an Add-on called Adblock.  What this does is prevent website ads from appearing when I visit sites online, thereby removing my temptation to buy some gadget I won’t have use for after two days of purchase. 

The Real Truth about Saving and Spending

If you take away nothing else from this on cutting out the influence advertising has on your life, know this: If you spend less, you’ll quickly save more.  I know this sounds like a big “duh,” but there is a powerful spiritual component to savings as well.  Being in deep debt is a form of slavery-to your creditors.  If you are working just to pay bills, you are shackled to what you owe.  It’s a lonely impoverishing situation. 

Mother Teresa noticed it when she visited the United States:

“There are many kinds of poverty. Even in countries where the economic situation seems to be a good one, there are expressions of poverty hidden in a deep place, such as the tremendous loneliness of people who have been abandoned and who are suffering.”  

Nine Questions to Determine If a Business is Truly an Excellent One

When we think of investing in great businesses we normally try to put on a famous investor’s hat to go with our line of thinking.  Maybe it helps us make better decisions, or maybe, it’s just fun to pretend like we’re Warren Buffett and we’re making investing decisions that will alter the course of history.

I have found that it is easier break this part of the analysis into a series of questions.  Warren Buffett uses a similar approach when he is trying to determine the presence of the consumer monopoly, exceptional business economics, and shareholder-oriented management.

Let’s ask the following questions:

1. Does the business have an identifiable consumer monopoly? 
2. Are the earnings of the company strong and showing an upward trend?
3. Is the company conservatively financed?
4. Does the business consistently earn a high rate of return on shareholder’s equity?
5. Does the business get to retain its earnings?
6. How much does the business have to spend on maintaining current operations?
7. Is the company free to invest retained earnings in new business opportunities, expansion of operations, or share repurchases?  How good a job does the management do at this?
8. Is the company free to adjust prices to inflation?
9. Will the value added by retained earnings increase the market value of the company?

These nine thoughts should spark revelation.  Kind of like trying to figure out if your blind date is a hopeful for the altar.  Ever been married?  Been to college?  Has a good job?  Does he or she snore?

We should do the same thing when we allocate capital to investment. 

As Warren says, “it is better that one act like a Catholic and marry for life.”

Be Proactive Instead of Reactive

We’re probably the only firm in the investment business who doesn’t have CNBC blaring in the background of the office.  We do have computers that can stream live TV but usually it’s to keep up with shows like The Office or World Cup (when they were showing it).  But we rarely tune into CNBC.  One reason is that I’m afraid of what I’ll do if I’m inundated with news all day.

I can see why people get caught up in short-term thinking watching CNBC.  One day feels like a lifetime given all the stuff that is reported each day.  This company’s earnings.  That company’s lawsuit. This new CEO.  That new product.  This hot new IPO.  That new technology.

And the opinions.  Everybody has an opinion on Wall Street, and CNBC makes sure you know everyone’s opinion.  Every minute of every day. 

It’s enough to drive you nuts.  Or at the very least, enough to make you do things in your investment program that you shouldn’t. 

If you asked the reporters at CNBC if what they’re reporting has lasting significance, I doubt they could say yes, and mean it.  So why do they report it?  Because they have a bunch of time to fill.  So they tell you what the producer price index did this month.  They tell you that payrolls declined 2% for the month.  They tell you of analysts downgrades, upgrades, and opinions.  Does any of this truly matter in the long run?  No.

Reacting to news on CNBC or any other financial media outlet is a loser’s game simply because this information may be “news” only to you.  You are not first on the information food chain.  If you read about something in the Wall Street Journal, you’re not alone.  Millions of other investors also read it, and millions more investors knew about it 24 hours earlier when the “news” actually took place.  It’s silly to think that what you hear on CNBC gives you a leg up in the information game.  Chances are, the stock already is reflecting the information by the time you decide to move on the “news.”

Don’t get chased out of stocks (or any financial instrument) simply because of a single news event that the financial media trumpets as being important.  Chances are, that news event is some trivial piece of data whose primary value is to fill air time.

Overcoming Investing Hurdles

I’m sure you have many reasons for not starting an investment program.

• No money.
• No knowledge.
• No time.
• No broker.
• Too old.
• Too young.

I’m sure you think these are legitimate reasons.  They are not. 

There are no good excuses for not investing.  I don’t care how young or not so young you are.  How rich or not so rich you are.  How much you know or don’t know.  It has never been easier or cheaper to invest. 

If you have just $50, there are literally hundreds of investment opportunities awaiting for you, including with our own firm, CAM Trading.  If your employer offers a 401(k) plan, you can invest as little as 1% of your salary.  That means if you make $400 a week, you can invest as little as $4.00. 

Four bucks.

And you don’t need a broker to invest.  You can buy some of the best companies in the world without a broker and for little or no fees.  Nor do you need a broker to buy some of the best mutual funds in the business. 

In short, there are no excuses for not investing.  So, start now and get in the habit of it, you’ll appreciate the results in the future!

Start Them While They’re Young

If your youngster shows an interest in investing, it has never been easier to get him or her started regardless of age.  Once an individual reaches the age of majority (eighteen years in most states), he or she may have an investment account registered solely in his or her name.  Youngsters under the age of eighteen are not permitted to have their own brokerage accounts.  However, several ways exist for parents to introduce interested youngsters to investing. 
Dividend reinvestment plans (DRIPs) may provide an interesting investment vehicle for kids.  Many child-familiar companies offer DRIPs-Walt Disney, Mattel, just to to name examples.  Since many DRIPs permit very small investments, the programs are a good way for youngsters with limited funds to start investing in the stock market.  Through Sharebuilder, youngsters can have an account setup for them to buy stocks in specific dollar amounts automatically.  Don’t have $300 to afford a share of Apple stock?  No problem, Sharebuilder offers fractional share purchases.
If you decide to establish an investment account for a minor, consider carefully how you want the account registered. If you choose to have the account in your own name, you will be responsible for taxes on the account.  The good thing is you will also retain complete control over the account for as long as you want. 
An alternative is to set up the account as a Uniform Gift to Minors Account (UGMA) through reputable brokers like Rydex, Fidelity and Cam Trading. Funds in the account are in the minor’s name and Social Security number and are considered to be owned by the minor.  Dividends paid on the account are taxable, most likely at a preferred tax rate.  The adult custodian is responsible for the account until the minor reaches the age of majority.  Parental control is lost at the age of majority, which can be seen as a downside to UGMAs. 
Lastly, certificates of deposit and savings bonds are okay investments, kids should own stocks or stock mutual funds.  Risk is the last thing your child needs to worry about in an investing program.  He or she needs to capitalize fully on the power of time in their investment program as they have the advantage of time working for them. 

How the Rich Got Rich and Stayed Rich

I’ve been reading a lot of books lately on the consumption lifestyles of the ‘average’ wealthy individual.  No, these are not the stereotypical 'Hip-Hop’ glamour image you see on MTV – there are no oversized gold clocks hanging to their belt lines.  These are folks you’ll likely find shopping at Walmart for the best deals around!  They’ve amassed a sizeable portfolio of businesses, stocks and other investments to get to where they are.  More importantly, they were patient and thought long term.

Here are some of the most common traits found among them.

1. They stayed married an average of thirty-two years.  Divorce is really expensive.  Just ask Donald Trump, or more recently, Tiger Woods!  Donald Trump’s parents (his source of initial wealth) stayed married all their lives.
2. They held on to the same job for a long time.  Job-hoppers have trouble building wealth.  You’ve heard sensational news before of people who worked for UPS (or some other job) for all their lives then suddenly bequeath millions to charity upon their death.  It’s no coincidence that they got so rich when compounding is at work. 
3. They have invested over their working careers: an average of thirty years!
4. They had no investment experience when they started, 85% of the millionaires surveyed knew nothing, but they were eager, lifelong learners and learned as they went along.
5. They considered themselves “frugal.”  Some 80% saved by not spending.  And, those BMWs you see everywhere?  Don’t let them fool you.  98% of buyers of luxury cars are not rich.  The auto makers know this, that’s why they market their brands in rap videos for all the wannabes who are watching.
6. They held investments for more than five years.  Some even longer than ten years. 
7. They used their parents as models for saving and investing.  Of course, when you get older and realize that your parents are not the money role models you can or should follow, then I advise you to hit the local library and find books on the subject matter. 

For a fascinating look into the true lifestyles of real millionaires, turn off MTV and grab a copy of this book: “Stop Acting Rich” by Thomas J. Stanley

Invest Every Month, No Matter How Small the Investment

Being a successful investor is all about keeping your money in play, especially during various cycles in the economy.  When you’re starting out, it’s reasonable to believe that you must deploy your large pile of savings to buying stocks and be done with the process in a matter of minutes.  Success in investing is hardly a one and done activity.  What builds true wealth is investing on a regular basis (at least once a month).

Investing means you’re not spending.

When you don’t invest regularly, you’re not keeping your money in play.  Money that’s not in the market doesn’t reap the benefits of time and compounding.  Of course, many will argue that it would be safer to stay on the sidelines for now, because of current economic conditions.  But the fact is, money that’s not invested in some way is eventually money that’s spent on worthless stuff.  And money that’s spent creates a negative return.

I’m guilty of it too and I still spend on worthless stuff, but the spending on me has been replaced with spending on ‘them’ (i.e., kids).  The stuff you buy usually costs more than the initial price tag.  Homes require insurance, maintenance, utilities, and furniture.  Autos require gasoline, insurance, and maintenance.  Clothing requires cleaning and mending, not to mention new clothes to go with the clothes you just bought.  Computers require Internet connections, printers, toner cartridges, software, and paper.  And so on.  It’s rare to find something that costs no more than the initial price you paid.

If you spend instead of invest, you’re not just losing returns on the money you spend.  The money you spend generates negative return because you spend more money to support the stuff you buy.  That’s why spending is so dangerous (and I won’t even go into the dangers of spending on credit)!  It has a negative multiplier effect and it’s the opposite of compounding rate of returns. 

If you invest every month, even if it is only a few bucks, you rid yourself of money that, if spent, will cost you even more money in the long run.  That’s why it pays to invest even a little amount each month, $15, $100, whatever you can afford.  Don’t wait until you save a larger amount to invest.  The problem with waiting until you accumulate funds is that the money is readily available and tempts you to spend on some foolish toy.  Get the money into your investment account as soon as possible, automate it whenever necessary so it becomes part of your daily life.  You’ll be much better off in the long run.

Five Things to Ignore on the Way to Becoming a Successful Investor

1. Hot Tips.  I’ve found (and Twitter is littered with them) that most hot tips are designed to enrich the person touting them and are rarely researched or present good long-term investments. 
2. Selling when a company is doing well.  Your goal as an investor is to reinvest and compound your profits, not enrich a broker.  If you’ve done your homework, keep on investing. The stock will split and you can buy more shares.  Of course, if your plan is to sell at a certain price point, then follow your plan to the letter!
3. Taking risks.  We all take risks crossing the street, driving to work, getting in and out of the bathtub, eating greasy foods.  The stock market is the least-risky investment vehicle long term.  I’m emphasizing “long term” here because right now, the world has a short-sighted field of view. 
4. Professional advice.  While a heart surgeon can reasonably predict how a bypass operation will go and a lawyer can reasonably predict how an estate plan will avoid taxes, no “professional” is good at predicting or timing the stock market.  Even the best ones fumble from time to time.  If you learn about the various investment vehicles out there, and do what you feel works for you, you will be guided by facts, not promises.
5. You don’t know anything about, so you won’t learn.  I’m always amazed at people’s capacity for convincing themselves they can’t learn.  But many of us have been brainwashed to believe this horrible lie.  We can learn at any age at any time at very little cost.  The information is free and the knowledge is priceless.

Rule of 72

I find the Rule of 72 useful when comparing expected returns between stocks and other investments.  The Rule of 72 says that in order to find out how many years it takes your money to double in a particular investment, choose a rate of return and divide it into 72. 

For example, if the long-run average annual return of stocks is 11%, the Rule of 72 means that, on average, stock returns double every 6.54 years (72 divided by 11).  If the long-run average return on bonds is 5% per year, then bonds double every 14.4 years (72 divided by 5). 

Let’s see what happens to a $10,000 investment, over 26 years, earning 11% per year.  That $10,000 will double nearly four times (26 divided by 6.54).  Thus, $10,000 becomes $20,000 becomes $40,000 becomes $80,000 becomes approximately $151,000.

Now, let’s look at bonds.  Since bonds return, on average, 5% per year, the value of the bond doubles nearly twice in 28 years.  That means $10,000 becomes $36,000 at the end of 26 years. 

Which would your rather own-stocks or bonds?  Of course, looking at the current economic conditions – don’t answer that yet, but the moral of this story:  Your money grows best by investing heavily in stocks!

Why You Should Avoid Speculating in Futures, Options, and Speculative Stocks

It’s happened to me.  It will happen to you.

Your investment program is going along quite nicely.  You’ve made some nice gains on stable blue chip company stocks.  But it has gotten boring and it feels like something is missing.  You hear about people making a killing on speculative stocks.  Maybe even heard it on CNBC or some other “trusted” financial channel how some trader managed to score big on some futures trade.  You don’t want to wait 25 years to get rich.  You want BIG profits now!  So you create room in your portfolio by venturing into the options and futures markets.  You buy gold because, hey why not?  Everyone is doing it and it can only go higher from here! 

In short, you stray from your investment approach, to roll dice. 

Big mistake. 

Making money consistently in the futures and options markets is difficult because you have to be right about the investment and the timing.  Buying stocks is an easier way to make a buck.  As long as you’re right on the stock, your timing need not be perfect.  You can wait until your reasons for buying the stock pan out.  When you buy options and futures contracts, the clock starts ticking immediately.  You can’t afford to be patient, hoping your investment thesis comes to fruition.  With options, you have at most nine months for your idea to develop.  That’s not a long time.  Most options expire worthless.  You shouldn’t think yours will be any different. 

Buying initial public offerings (IPOs) usually is another losing game for individual investors.  The problem with buying IPOs is that the best IPOs are not available to individual investors.  All those Internet IPOs you read about that went from $10 to $60 were never available at the $10 price for individual investors like you and me.  Only the best customers of the of the investment firms taking the company public get a piece of the best IPOs.  Oh sure, you can buy the stock after it goes public and has already jumped 300%.  That’s a bad idea, since many IPOs return to their initial offering price over time.  And if you are ever approached by a broker who wants to sell you shares in the next “hot” IPO, run for the hills.  Any IPO in which that’s offered to you and me is just junk that none of the big guys want.  We consider IPOs to be in the “Speculative Stocks” category since most of them have earnings that are hard, if not impossible, to determine.  

10 Things to Avoid in a Company Plan

Before this gets too winded, I’ll get right to the point.  There’s a lot to cover in this rainy day in Maryland.

1.  Don’t put all of your clothes in one suitcase!  You’ve heard of the same analogy with eggs being in one basket, but honestly, no one harvests eggs anymore and if they do, they usually don’t put it in a basket.  When you travel, you wouldn’t bring ALL of your clothes, some women may not agree but, that just doesn’t make sense.  Same principle applies here.  Never invest all of your money in one stock (especially company stock), mutual fund, bond, or guaranteed investment account (avoid at all costs – this is where scammers thrive).

2.  Diversify simply.  All you really need is a growth stock fund, an international fund, and an aggressive fund (sector funds like technology, healthcare).  Keep it simple, but remember nothing is safe in a downturn (except cash or money market funds – although, inflation is its greatest enemy).

3.  Forget about bonds.  In most cases, bonds make sense.  They do not in a tax deferred plan.  You want to grow your principal, not your income.  And putting money in bonds isn’t the safer alternative, either.  Let the free company matching go toward the purchase of other funds that benefit from dollar-cost-averaging. 

4.  Stay put.  Most plan managers allow you the ability to switch from fund to fund through phone or their website.  Take a close look at your allocations once a year in January and plan to re-allocate (usually at no cost).

5.  Look at fees.  All similar index funds have one important difference: their fees or expense ratios.  The lower the expense ratio, the higher the return in index funds.  It’s pretty basic, but they’re all the same.  If they’re not – there’s a mathematical computation error going on within the fund management, and you should avoid those funds, too. 

6.  Forget historical returns.  The funds within your plan are chosen by your HR department and they’re typically clueless about fund performance and how it all works.  So, they end up finding the high-flyers of recent past and they expect these funds to perform just the same.  However, mutual funds depend on the market’s growth to continue producing positive returns and plan participants see the previous growth and they get in at the peak. 

7.  Do the paperwork yourself.  In my previous job, we had a dedicated team of HR people who filled out the forms for the employees, so that all they have to do is sign on the dotted line (though it’s a solid line nowadays).  If you do it yourself, you’ll have a much better understanding of the restrictions and anything else on the fine print.  If you run into trouble, pick up the phone and call the account provider.  They’d love to hear from you, after all it’s your money they’re after!

8.  Open as many accounts as you can.  If you fund a Roth in addition to your company plan (and your gross adjusted income is less than $150,000 for join filers), go for it.  In fact, I know a wonderful company that can help do this for you.  It’s all compounding tax-deferred and that’s what you want.  The more the merrier is all I’m saying!

9.  Keep and review all statements.  Keep statements in a folder.  See how they’re doing once a year, although you’ll get one per account every quarter.  Also keep in mind that you can deduct the custodial fees if you itemize on your taxes. 

10.  Keep contributing until you die!  Okay, maybe not to that extreme, but as long as you’ve got your company matching, you’ve got free money rolling in.  It’s so easy to forget about that Roth or conventional IRA once you set it up.  If the $5,000 (or $6,000 if you’re over 50 years old) is too much at one time, break it up into smaller portions; that’s $416.66 a month.

It’s Your Money, You Are The Boss!

Are you the kind of person who would, if bumped in a theater lobby by someone rude, say, “Excuse me” or “I’m sorry,” when it’s not your fault?

I believe that you should be a squeaky brake disc, that you should be a strong advocate with your doctors, lawyers, and especially with your money managers.  I have spoken to people (some friends, some just strangers met on LinkedIn) who also have money with a hedge fund manager.  They cannot read their statements, which seem to be purposefully incoherent.  They seem to be ‘okay’ with this notion that they don’t need to understand everything and that it adds to the mystique of it all.  They’re reluctant to ask for explanations, not wanting to seem unsophisticated.  I say that if someone who wants to manage your money cannot explain his or her philosophy in a simple paragraph, then you shouldn’t let him or her manage that money.  And if those who do manage your money cannot simply explain their own statements to you, then you are probably headed for a sad experience.

It’s your money; always remember that.  Money managers tend to think that, once the funds are deposited, it’s their money and the clients are nothing more than an annoyance.  Cure them of this notion.  Call them once a month or at least visit the brokerage site to see how your funds are doing. 

As a growing company, we believe that the best ideas come from clients, from their interaction with the world and that we want them to check in if they have any bright ideas that could help produce superior returns. 

Investing for Your Children’s Future

There are a million ways to the truth in money management, and no such things as the “Holy Grail.”  And if you’re raising children and facing serious tuition prospects in the near future, here are a few guidelines to follow.

Of course, college education today can cost as much as $40,000 annually.  And that’s before you buy books, much less the computer-related fees that are standard in higher learning today.  If you take the route into private education earlier, at the high school level, the costs are still mind-boggling.  Boarding schools can charge more than $24,000 a year.  And because many parents are in a dual income (professional) household, preschool and private grammar schools can set you back $15,000 a year or more. 

I believe in a three-part practical approach to investing for a child’s education.  Start with U.S. Treasury zero coupon bonds.  These bonds pay no interest in cash.  You can buy them at a discount, say, 30 cents on the dollar.  They mature at face value in a specified time frame.  This way you can target maturities to match your requirements like, maturities to coincide with freshman year in college, and so on. 

Currently, money doubles in these instruments in 11 years so that $5,000 automatically becomes $10,000 in October, 2020.  This works out to be about 5.9% annually.  Not so hot, you say?  Perhaps, but it makes sure that part of the tuition is taken care of automatically, and you don’t have to suffer through the sometimes (if not more often) negative bias of the stock market. 

The second part of investing for children’s education involves periodic purchases of a good growth mutual fund.  Such can be found through Rydex and CAM Trading.  And money should probably be systematically added to the fund so that you can take advantage of dollar cost averaging (putting similar amounts in monthly or annually, often when prices are lower and more shares can be bought).  Any financial website can provide you with historical returns of all the mutual funds they carry.  The earlier in a child’s life you start this program, the better it will work. 

The last part is the most aggressive part, and like the growth-oriented mutual fund, it requires patience and discipline.  It involves hiring a professional investment management firm where your money can take advantage of both the ups and downs of a cyclical market. 

Put your plan into action.  The earlier, the better.  Invest at the same time each year, like a child’s birthday, or during the holidays.  It makes it simpler to remember and becomes automatic.  It also helps you stay discipline and patient. 

Should You Sell Your Gold?

With news of gold prices hitting $1,350 an ounce – buyers of all kids are eager to get their hands on all that glitters.  That includes the contents of your jewelry box.  Gold-party organizers, jewelers, mail-in companies and even kiosks at the mall want to pay for what you’ve got. 

While it’s easy to be dazzled by visions of quick cash, some (if not most) individuals and firms might take advantage of your enthusiasm.  So, here are a few tips to make sure you get the best deal when selling your metal.

1.  Know what its worth.  Buyers can offer widely different amounts for the same pile of earrings.  I found a simple formula for determining your gold’s worth:  Weight in Grams (use your kitchen scale) x Current Gold Market Price / Divide by one of these (10k = 74.8, 14k = 53.2, 18k = 41.5, 24k = 31.1).  Then multiply by 0.50 and 0.80 to get a fair price within that range. 

2.  Ignore the mail-in buyer ads that are blanketing the airwaves.  When you send off a piece of jewelry, you’re unlikely to go through the hassle of getting it back in order to compare prices.  As a result, these mail-in companies are able to low ball because they know they have a captive audience.  You might be better off shopping your gold around traditional jewelers, coin dealers, pawnshops, even gold parties.  Remember, just because you go into a store and ask what they’ll pay doesn’t mean you have to sell on the spot.  You should think about it first.  Also, there are some advantages to selling to jewelers as you may be able to get money for diamonds in the piece, generally if they’re at least 0.25 carat. 

3.  Consider a trade-in.  You might get a better deal if you’re willing to trade up your jewelry.  If you’re interested in a swap, visit at jeweler who sells pieces you’d like to wear.  And when someone admires your new ring, you can say, “Oh this old thing?”  (Literally).

Fostering Personal Relationships Online To Improve Business Success

In business (as in life, too) when you make a personal contact with people, it makes it much more difficult for them to ignore you, or more importantly, treat you badly. Wherever possible in life, personalize your relationships.  Many (if not all) of my real life friends are on Facebook.  And why not?  It’s convenient, centralized and most of all, easy!  They have yet to do any empirical research on the long-term effects of Facebook, but my feeling is, it does not facilitate honest, personal relationships with all of those people on your list of friends.  I’ve read somewhere and don’t quote me on this, but the human mind can only handle up to 50 or so friends, the rest are just strangers.   While you may have shared a response to someone’s Status Update, or pressed the “Like” button on a discussion among your social network, the vast majority of the interactions on Facebook is analogous to making eye contact with strangers on an elevator!

Now, I know that’s harsh, especially if you’re the one with over 1000 “friends” on Facebook!  I’m simply stating a point, and that is, any relationship you can make more personal improves your chances of success.   Whether that’s on Facebook, LinkedIn, or, dare I say it, Myspace, the connections you make have intrinsic and market value.  You may not do business with the vast majority of your connections due to a variety of reasons, but the real value is in grassroots marketing.  Your direct connection may not have a need your products or services right now, but they may know someone who does. 

I can only speak for myself and the Financial Services industry when doing business with someone online.  If you do a Google search, you’ll find that this industry is saturated with potential Financial Professionals in your area and deciding which one to go hire can be a daunting task.   So, try to do business with someone who has a classic type A, obsessive-compulsive personality.  These people need to be adored (or at least needed).  Because of this, they tend to kill you with personal service and attention.  They really want your portfolio to work-because of their ego, not yours. 

And since what you really want is not some hobo who makes a killing from selling you commission-based mutual funds but a strategy to set you free financially, here are some questions to ask anyone who presumes to handle your money. 

• Do you know anything about history, art, or literature?  It is my personal prejudice that anyone who watches my money should know a lot about the past, about human nature.  Good money management is more about understanding emotion that it is about quantitative analysis.  Your money manager should be working with both sides of his or her brain.
• What is your philosophy of investing?  Make sure that whoever is going to watch your nest egg can articulate what he or she believes in-in simple, easy language.  If you cannot explain what your broker or investment advisor believes in, you shouldn’t be investing with that person.  Also, personal money managers should have their investing philosophy in plain sight (business cards, front page of their website, etc…).
• Do you own stock yourself?  (You’d be amazed how many financial consultants own no securities themselves).  Ask what the broker or investment advisor currently owns and what he or she has learned from the successes and failures.  If they haven’t failed, they haven’t tried, so steer clear from them.

Identifying Red Flags and Acting When an Outlier Happens

Virtually every time you see a news item about a public company that has either fired their accountants or announced that their accountants or auditors have resigned, it is time to sell that stock.  In this regard, a few examples come to mind, Enron, Lehman Brothers and, while not “accounting” related, the BP Gulf Spill.

It’s important not to second-guess or “re-analyze” the decision to sell, just sell it immediately.  When it was announced that there was an oil rig explosion off the Gulf of Mexico and that oil company BP operated the platform, some traders sold the stock immediately, causing it drop by as much as 10% in that session.  BP stock went from a glittering $62.38 per share to crude-oil-black $26.75 in a matter of weeks!  Of course, this is a dramatic example, but if I were to back test similar occurrences in the past, the conclusions would be nearly the same across all industry.

Going back to accounting woes in a company, it has been my experience that the numbers are almost always suspect in assessing companies’ prospects.  Companies can do amazing things with their books.  When the auditors leave, or when the CFO exits, more bad news usually follows.  Eventually, the stock may be a buy (since BP bottomed to $26.75 per share, it has traded in the $40s range), but in the time it takes to straighten out the mess, you could be using your money in much more profitable directions.

Back-testing Annual Stock Predictions

It’s always fascinating to me when major magazine publications such as Money or Forbes issue their annual “Investor’s Guide” in the beginning of the year.  Assuming that most investors rebalance their basket of stocks around the holiday season, let’s take a look at the predictions from Money Magazine for 2010 and see what investors would have made if they followed the advice. 

There are two things to note in this observation.  One is, at the time of this writing it is, October 6th, 2010.  Not even a full year has gone by since these picks were made, so I am merely observing the progress year-to-date.  And two, they cover nearly 200+ stocks, bonds and ETFs in the entire issue and to list them would be too tedious (for both reader and writer).  So, I am simply including those picks with the most “conviction” – that’s when they feature fund managers who have done exceptionally well in the past year.

 Top Picks From Top Pros

That’s the headline for the top five of 2009’s most successful funds.  Now, let’s see how they do this year thus far. 

Bruce Berkowitz/Fairholme (FAIRX):	Money Magazine	Current Price	Gain/(Loss) %	Total Return
Humana (HUM)	$42.04	$50.50	+20.01%
WellPoint (WLP)	$57.43	$55.11	-4.03%
Pfizer (PFE)	$18.32	$17.24	-5.89%
Forest Laboratories (FRX)	$31.19	$31.31	-0.38%
Total Return				+9.71%

David Herro/Oakmark International (OAKIX)	Money Magazine	Current Price	Gain/(Loss) %	Total Return
Toyota (TM)	$83.42	$71.25	-14.58%
Richemont (CFR.VX)	$32.35	$47.70	+47.44%
Publicis Groupe (PUBGY)	$40.21	*$49.70	+23.60%		*Split Adjusted
Total Return				+56.46%

Eric Ende/FPA Perennial (FPPFX)	Money Magazine	Current Price	Gain/(Loss) %	Total Return
Varian Medical Sys. (VAR)	$46.07	$61.81	+34.17%
Signet Jewelers (SIG)	$24.78	$32.62	+31.64%
Total Return				+65.81%

Diane Jaffee/TCW Dividend Focused (TGIGX)	Money Magazine	Current Price	Gain/(Loss) %	Total Return
Packaging Corp. (PKG)	$42.04	$50.50	+20.12%
J.P. Morgan (JPM)	$57.43	$55.11	-4.04%
Pfizer (PFE)	$18.32	$17.24	-5.89%
Total Return				+10.19%

John Rogers/Ariel Appreciation (CAAPX)	Money Magazine	Current Price	Gain/(Loss) %	Total Return
CB Richard Ellis (CBG)	$12.05	$18.03	+49.62%
CBS (CBS)	$13.81	$16.66	+20.63%
McCormick (MKC)	$18.32	$41.73	+127.78%
Total Return				+198.03%

Money Magazine’s Average Total Return: +68.04%  Vs.  S&P 500 Year-to-date:  +2.341%  (Wowza!)

Now, before you fire your stock broker to jump on these hot stocks, there are a few things you should know.  These stocks are coming off of exceptional bottoms from the 2007/2008 housing collapse and have not yet surpassed their peak prices (with the exception of one or two on the list).  While approximately 75% of the total stock market are currently in positive territory year-to-date, only a handful of them have reached back to their 2007 highs.  Obviously, this is only a small sample of those stocks and may not necessarily suit your needs.  But, aside from the technical details, a return of +68.04% in a year is extremely rare, if not impossible only because there are strong psychological forces at work that prevents from achieving that.

By the way, if you’re wondering, here are the figures for each funds’ five year annualized return.

Fairholme (FAIRX): +7.7%
Oakmark International (OAKIX): +6.6%
FPA Perennial (FPPFX): +2.1%
TCW Dividen Focused (TGIGX): -1.8%
Ariel Appreciation (CAAPX): +1.3%

Back-testing Annual Stock Predictions

It’s always fascinating to me when major magazine publications such as Money or Forbes issue their annual “Investor’s Guide” in the beginning of the year.  Assuming that most investors rebalance their basket of stocks around the holiday season, let’s take a look at the predictions from Money Magazine for 2010 and see what investors would have made if they followed the advice. 

There are two things to note in this observation.  One is, at the time of this writing it is, October 6th, 2010.  Not even a full year has gone by since these picks were made, so I am merely observing the progress year-to-date.  And two, they cover nearly 200+ stocks, bonds and ETFs in the entire issue and to list them would be too tedious (for both reader and writer).  So, I am simply including those picks with the most “conviction” – that’s when they feature fund managers who have done exceptionally well in the past year.

 Top Picks From Top Pros

That’s the headline for the top five of 2009’s most successful funds.  Now, let’s see how they do this year thus far. 

Bruce Berkowitz/Fairholme (FAIRX):	Money Magazine	Current Price	Gain/(Loss) %	Total Return
Humana (HUM)	$42.04	$50.50	+20.01%
WellPoint (WLP)	$57.43	$55.11	-4.03%
Pfizer (PFE)	$18.32	$17.24	-5.89%
Forest Laboratories (FRX)	$31.19	$31.31	-0.38%
Total Return				+9.71%

David Herro/Oakmark International (OAKIX)	Money Magazine	Current Price	Gain/(Loss) %	Total Return
Toyota (TM)	$83.42	$71.25	-14.58%
Richemont (CFR.VX)	$32.35	$47.70	+47.44%
Publicis Groupe (PUBGY)	$40.21	*$49.70	+23.60%		*Split Adjusted
Total Return				+56.46%

Eric Ende/FPA Perennial (FPPFX)	Money Magazine	Current Price	Gain/(Loss) %	Total Return
Varian Medical Sys. (VAR)	$46.07	$61.81	+34.17%
Signet Jewelers (SIG)	$24.78	$32.62	+31.64%
Total Return				+65.81%

Diane Jaffee/TCW Dividend Focused (TGIGX)	Money Magazine	Current Price	Gain/(Loss) %	Total Return
Packaging Corp. (PKG)	$42.04	$50.50	+20.12%
J.P. Morgan (JPM)	$57.43	$55.11	-4.04%
Pfizer (PFE)	$18.32	$17.24	-5.89%
Total Return				+10.19%

John Rogers/Ariel Appreciation (CAAPX)	Money Magazine	Current Price	Gain/(Loss) %	Total Return
CB Richard Ellis (CBG)	$12.05	$18.03	+49.62%
CBS (CBS)	$13.81	$16.66	+20.63%
McCormick (MKC)	$18.32	$41.73	+127.78%
Total Return				+198.03%

Money Magazine’s Total Return: +340.20%  Vs.  S&P 500 Year-to-date:  +2.341%  (Wowza!)

Now, before you fire your stock broker to jump on these hot stocks, there are a few things you should know.  These stocks are coming off of exceptional bottoms from the 2007/2008 housing collapse and have not yet surpassed their peak prices (with the exception of one or two on the list).  While approximately 75% of the total stock market are currently in positive territory year-to-date, only a handful of them have reached back to their 2007 highs.  Obviously, this is only a small sample of those stocks and may not necessarily suit your needs.  But, aside from the technical details, a return of +340% in a year is extremely rare, if not impossible only because there are strong psychological forces at work that prevents from achieving that.

By the way, if you’re wondering, here are the figures for each funds’ five year annualized return.

Fairholme (FAIRX): +7.7%
Oakmark International (OAKIX): +6.6%
FPA Perennial (FPPFX): +2.1%
TCW Dividen Focused (TGIGX): -1.8%
Ariel Appreciation (CAAPX): +1.3%

Fundamental Analysis and Corporate Earnings

When we invest in a company, we invest in its potential to make more products, more profits, to continue to grow, and add value to the price of each individual share. 

A share of stock represents one unit of ownership in that company.  All shares of that stock in circulation, multiplied by its value per share (share price) make up the market’s estimate of the value of that company – that is, the market capitalization. 

The more profits a company makes and the faster those profits are growing and are projected to grow, the higher the company’s value in the longer term at least.  History tells us that consistent growth in sales and earnings lead to a higher stock price in the longer term…and vice versa. 

So, if you choose to be primarily a fundamental investor you would look to corporate profits to determine your entry and exit points.

Money and Your Purpose in Life

I thought I’d start the week with something fun (talking about money), and some of you may be wondering what purpose in life has to do with money.  Because purpose is a strategy that we use to express our important values, it follows that our use of money is one of the important ways to express these values.  Money is very, very flexible, with an infinite ways to earn it and spend it.  Your wealth at any point is the end result of millions of earning and spending decisions.  If you live in an industrialized nation, you will probably earn more than $1 million in your lifetime.  The decisions about how you earn this fortune, and spend it, are determined by your purpose in life.

Most often, people who are living paycheck to paycheck have an unconsciously chosen purpose for money that is something like “Money is to live on” or “Money is to buy the things I need.”  Because money responds to the commands of the mind, the external financial experience of these people confirms to their internal thinking about it.

If you are living paycheck to paycheck, then the decisions about how to use your money are made by the bills you pay each month.  This situation makes it impossible to take charge of your money.  You have unintentionally turned over your prerogatives as your own financial manager to your creditors and to your letter carrier who delivers the bad news each month.  Additionally, when bills exhaust all of your income, you are protected from making a mistake, perhaps unconsciously, thinking something like, “I used all my money to pay my bills.  That’s the best thing to do with it.”

For many people the prospect of dramatically increased income is frightening.  As they lack a clear purpose for their life or their money, the possibility of greater income usually brings up anxiety about loss or making mistakes.  Having a noble and consciously chosen purpose provides you with a framework for making decisions about the effective use of your growing income. 

Getting What You Really Want Through Investing

Values are the intangible reasons (emotional payoffs) to create and follow an investment strategy; goals are the tangible results.  The first step in setting investment goals is a quick brainstorming session, which is more fun to do with a partner or team, but you can certainly do it yourself if you prefer.

To start, have your partner ask you, “What are your tangible goals that require money and planning to achieve?”  Your partner can record the ideas you generate during the brainstorming session on a sheet of paper not necessarily visible to you to prevent ruining your flow.  If you get stumped, ask to repeat the items you have on your list. 

It’s important that you and your team spend no more than an hour brainstorming.  Anymore than that, and the momentum begins to work against you.