I really like the products the General Electric produces, it has wide interests and a large industrial player. This is just one reason why I'm including it in the index. The management team is superb. Jeffery Immelt leads from the front and can change GE to a leaner machine than what it already is. The stock is still fairly valued and revenues will grow along with stable dividends.
Immelt has been with GE since the early 80's and knows the company intimately. He instills courage and awe among the employees, convincing them that his path is the right path to make GE stronger. He has created with other executives a strong C-suite that can keep pushing the monolith of GE forward. GE is not afraid of change and is willing to subtract parts of the business that do not fit in with the image.
Overall a great company and one that will be a great pick for any portfolio.
Thursday, August 28, 2014
Wednesday, August 27, 2014
CEO's Should Be Owners
According to this article in the Journal of Finance, CEOs and other top managers should be owners in the company that they manage. This makes perfect sense if the company does well and stock prices go up they make even more money besides the basic paycheck. We just now have actual proof and data to support this claim. This is great news. Companies should pay attention and if they want to increase shareholder value and reduce costs they should switch payment to stock grants or options. They could also look to require the top managers have to own a part of the company.
This would be pretty much impossible to force managers to own shares but would be an interesting idea. At least with that managers could never turn their back on the company without hurting their own wealth.
Also with this knowledge, we savvy investors should look to see if management owns shares in the company and if they have sold recently. If the managers are selling the company it might reduce trust from managers no longer believing in the company. If they have bought the company and are continuing to buy shares it will probably portend that the company will be doing really well and the managers are going to perform better. Now sometimes it does not work out as cut and dry but overall a good rule to follow. Managers buying shares is a good omen and selling shares probably means you should get out of the stock.
This would be pretty much impossible to force managers to own shares but would be an interesting idea. At least with that managers could never turn their back on the company without hurting their own wealth.
Also with this knowledge, we savvy investors should look to see if management owns shares in the company and if they have sold recently. If the managers are selling the company it might reduce trust from managers no longer believing in the company. If they have bought the company and are continuing to buy shares it will probably portend that the company will be doing really well and the managers are going to perform better. Now sometimes it does not work out as cut and dry but overall a good rule to follow. Managers buying shares is a good omen and selling shares probably means you should get out of the stock.
Tuesday, August 26, 2014
Burger King and Tim Horton's
This merger announcement was a surprise to me because I would not have guessed that Burger King wanted to move out of the US and join with a maker of doughnuts and coffee. It does make sense after looking over the deal. Burger King wants to expand and they can now get good coffee in the store and Tim Horton's can have an easier time expanding to the USA where they have failed before. It also shows that the tax rate in the USA is way too high for corporations. Why stay here when the country next door is offering a lower tax rate and still allows you to trade in the USA. I do not know why we are surprised this movement to leave the country is happening. With the good open borders we have now and quick movement of information and goods its like each country there is no reason to pay more to do the same business when you can save shareholders millions moving.
It is no different from a company moving from New York to Florida or Texas because of the tax benefits. The states try to attract new business and they do that with lower taxes and other benefits. For the USA to keep current business headquarters and attract new ones we will have to have a competitive tax rate of 20% or less and give legal protection to our corporations. Corporations have incentives and act on those incentives. Our government should recognize what incentives businesses have and convince them with better incentives to stay. They should be carrot incentives and not punishments because extra taxes or punishments will only create hatred and resentment. Nice benefit incentives is the way to go.
If we don't see a change soon, I think we could lose even more major companies.
It is no different from a company moving from New York to Florida or Texas because of the tax benefits. The states try to attract new business and they do that with lower taxes and other benefits. For the USA to keep current business headquarters and attract new ones we will have to have a competitive tax rate of 20% or less and give legal protection to our corporations. Corporations have incentives and act on those incentives. Our government should recognize what incentives businesses have and convince them with better incentives to stay. They should be carrot incentives and not punishments because extra taxes or punishments will only create hatred and resentment. Nice benefit incentives is the way to go.
If we don't see a change soon, I think we could lose even more major companies.
Monday, August 25, 2014
Long-Term Investing Choice: Real Estate
For real estate to pay off your time horizon needs to be in the decades. You could get really lucky and invest in a plot of land that quickly increases in value. Most though are long term plays and will return well if you are willing to wait. A plot of land to develop would be good especially if you can collect some rent on the land while waiting to develop to something bigger.
With increases in population and less land available per person, buying land in the right place will be great for your portfolio. If you have the cash to invest in property and land you should do it. If you do not have the cash to buy your own land it would not be a bad idea to invest in a REIT or form a group of investors among people you know to buy land and property.
With the choice of getting into real estate you also have to think about the side of real estate you want. Do you want apartment complexes or do you want to rent to business owners. Each can be profitable but come with their own challenges. Apartment renting has high turnover and will require costs to upkeep the places and work on each apartment. The positives are the chances that every building is empty is very low and you can change the price of rents quickly because of the high turnover.
Commercial real estate positives are high rents and low turnover. The business will be a constant source of income. Until it leaves then it would be harder to attract a new business and could sit empty for years until a new business is persuaded to move to your property.
Each type must be weighed with what you want property you want to handle. It is a smart idea for young investors with a long time horizon. Not just for older investors looking to diversify.
With increases in population and less land available per person, buying land in the right place will be great for your portfolio. If you have the cash to invest in property and land you should do it. If you do not have the cash to buy your own land it would not be a bad idea to invest in a REIT or form a group of investors among people you know to buy land and property.
With the choice of getting into real estate you also have to think about the side of real estate you want. Do you want apartment complexes or do you want to rent to business owners. Each can be profitable but come with their own challenges. Apartment renting has high turnover and will require costs to upkeep the places and work on each apartment. The positives are the chances that every building is empty is very low and you can change the price of rents quickly because of the high turnover.
Commercial real estate positives are high rents and low turnover. The business will be a constant source of income. Until it leaves then it would be harder to attract a new business and could sit empty for years until a new business is persuaded to move to your property.
Each type must be weighed with what you want property you want to handle. It is a smart idea for young investors with a long time horizon. Not just for older investors looking to diversify.
Up, Up, and Away
The S&P 500 is up again to record intraday highs today and even crossed 2000. It has since come down but looks to go over it again if information doesn't change the direction. This helps to confirm my thinking that the market was going to end higher this year and continue to go up maybe not much but still go up. I encourage all young people wanting to get in the market that they should get in now before it becomes even more expensive to join in.
Get in their find value and invest. These highs should not be too worrisome for everyone. Next year it might be different but some traders are even calling for 15-20 year long bull market and we are just in the first five years. Although world news and government policies change all the time which will distort the market and change outcomes and directions. We as smart investors have to keep on top of all news so that we do not lose money. Passive management of money is not good.
Happy investing and happy making record highs today
Get in their find value and invest. These highs should not be too worrisome for everyone. Next year it might be different but some traders are even calling for 15-20 year long bull market and we are just in the first five years. Although world news and government policies change all the time which will distort the market and change outcomes and directions. We as smart investors have to keep on top of all news so that we do not lose money. Passive management of money is not good.
Happy investing and happy making record highs today
Saturday, August 23, 2014
Cutting Expenses at the Grocery Store
Being the smart saver and investor I am, I decided to do a little experiment to save money at the grocery store. I will hopefully be changing and continuing the experiment to get the best bang for the buck. And since I've saved so much at the grocery store I will then invest those savings.
I use to just go through the grocery and buy anything that caught my eye, spend on the fancy stuff just because I wanted it and it was something I needed, duh. Oh, wait most of the things I bought were not the best for the value and I did not use everything so wasteful as well.
So from now on, I will be buying more generic items unless the generic item is not up to par. You cannot sacrifice everything in life. Real Coke cannot be beat and KIng Arthur Flour blows away everyone else. But I think things like paper products, canned goods, and other choice items might be just as good and maybe the same people make both brands. Then it would be silly to not buy the cheaper brand. So far my experience contains only toilet paper and paper towels. Neither of which have done poorly but I will say the paper towels are little thiner but not terribly. They still get he job done with no change in amount of paper.
I want to hear your experience with generics and trying to save money at the grocery. Maybe your tip can save me money now and earn me money later. Happy investing.
I use to just go through the grocery and buy anything that caught my eye, spend on the fancy stuff just because I wanted it and it was something I needed, duh. Oh, wait most of the things I bought were not the best for the value and I did not use everything so wasteful as well.
So from now on, I will be buying more generic items unless the generic item is not up to par. You cannot sacrifice everything in life. Real Coke cannot be beat and KIng Arthur Flour blows away everyone else. But I think things like paper products, canned goods, and other choice items might be just as good and maybe the same people make both brands. Then it would be silly to not buy the cheaper brand. So far my experience contains only toilet paper and paper towels. Neither of which have done poorly but I will say the paper towels are little thiner but not terribly. They still get he job done with no change in amount of paper.
I want to hear your experience with generics and trying to save money at the grocery. Maybe your tip can save me money now and earn me money later. Happy investing.
America Needs More Hawks
Fed policy has remained very dovish even though several qualifiers have been met that would signal a raise in stricter monetary policy. We are not getting the higher interest rates we need. They have reduced the amount of money they are printing. Hawkish policy is the only way to go now and if they do not change policy I doubt they ever will. It's just too easy to maintain the easy rates we have now. It hurts people in the long run but in the short term is great. Stocks have risen, jobs are created, and people take out loans which are all good things. Without a more normal level of rates and a change though we could be stuck in a trap that will never allow rates to go up without fear of economic collapse even if that is extremely unlikely.
It has been too long with soft rates and I'm personally tired of the low rates. I want better returns on my money that I'm saving.
I also think that the Fed has decided to wait because they are scared that the market might react poorly or the economy as a whole might not like the shock. But if the Fed tells people they are going to do this at this time, it will not be a shock and economic actors can plan accordingly. I've heard for years that the Fed will raise interest rates and stop printing money. Hopefully it will happen sooner rather than the middle of next year. Fed also please be more open with your plans and less volatility will be present.
It has been too long with soft rates and I'm personally tired of the low rates. I want better returns on my money that I'm saving.
I also think that the Fed has decided to wait because they are scared that the market might react poorly or the economy as a whole might not like the shock. But if the Fed tells people they are going to do this at this time, it will not be a shock and economic actors can plan accordingly. I've heard for years that the Fed will raise interest rates and stop printing money. Hopefully it will happen sooner rather than the middle of next year. Fed also please be more open with your plans and less volatility will be present.
Thursday, August 21, 2014
In Praise of the Spender
The consumer is all powerful in our economy and is lifted up as an aspiration for everyone. No one is supposed to have the old car, last season's clothes, or save money in any significant quantity. Yet I hear few reasons of why the spender should be praised except it circulates money and that's what we need. The downsides of course are that the spender does not multiple money but instead the miser hoards the spenders money.
My argument for why the spender should be praised is not rested upon the circulation of money. Money always circulates and goes where it is most dear. The spender is good because he forces companies to provide new things and always invent the next best thing. This gave us the latest computer model with the faster speeds and more storage. The spender demanding new things gave everyone the newest model of any appliance or new type of clothing we enjoy today. This is because the spender is not happy buying the same thing over and over while the miser still uses the 1950s fridge because it works. If everyone was a miser the world would have much less difference and made less progress. The miser sees those things as frivolous while the spender requires them and then everyone gets the blessings.
Just like in the previous post, everyone in the economy has an important role to play and each one performs a different but required function. If one of the actors were to disappear we would be worse off. No one should be belittled for what they do in the economy. The miser might not understand the spender but without the two competing ideas the economy would not function as well. So do not belittle the spender or the miser but lift both onto a pedestal and sway thanks.
My argument for why the spender should be praised is not rested upon the circulation of money. Money always circulates and goes where it is most dear. The spender is good because he forces companies to provide new things and always invent the next best thing. This gave us the latest computer model with the faster speeds and more storage. The spender demanding new things gave everyone the newest model of any appliance or new type of clothing we enjoy today. This is because the spender is not happy buying the same thing over and over while the miser still uses the 1950s fridge because it works. If everyone was a miser the world would have much less difference and made less progress. The miser sees those things as frivolous while the spender requires them and then everyone gets the blessings.
Just like in the previous post, everyone in the economy has an important role to play and each one performs a different but required function. If one of the actors were to disappear we would be worse off. No one should be belittled for what they do in the economy. The miser might not understand the spender but without the two competing ideas the economy would not function as well. So do not belittle the spender or the miser but lift both onto a pedestal and sway thanks.
In Praise of the Miser
The miser in our society gets a bad name. He is seen as hoarder of money and uncaring/selfish person. All the worst connotations imaginable about money, the miser gets thrown upon him for no real proof except he might have money and isn't spending it to help the economy/help others/provide jobs. YEt the miser does something else for the economy that is a good thing and also the claims against most misers might be untrue about hoarding wealth.
The first thing a miser does is not consume extra resources, he does not need. The miser lives in a smaller house than the money could buy, eats out less, buys fewer clothes, and wastes nothing. This might go against the grain of what we have been taught about the economy. Under the current assumption that we need to spend money to boost the economy the miser is hurting everyone. Yet the miser is doing the opposite. The miser makes every good cheaper for everyone else because he takes himself out of competing for the same resources. He lives humbly, so that others that want a lavish lifestyle get it cheaper and more of it. All resources on earth are finite and each person who leaves it for others helps rather than hurts the economy
The miser collects huge amounts of wealth from his non spending. This is terrible why isn't he sharing his wealth with others. Oh but he is sharing his wealth in just a different way. He puts the money in place that are safe and secure investments. Providing even more of his money to boost the economy through investments. Yes he might get a small percentage for the privilege of using his money but he cannot use the money in a more productive way. He allows others who can create the next Apple and Exxon to get a start and provide even more to our lives.
The miser does even more and yes he is probably not the best citizen in the country but most misers provide a service to the economy like everyone else and should not be vilified because their contribution is different than other economic actors. Each person has a role to play and they do it best when we encourage their actions as reasonable and helpful to everyone. Just remember because someone did not want that shirt in J.Crew you can now buy it.
The first thing a miser does is not consume extra resources, he does not need. The miser lives in a smaller house than the money could buy, eats out less, buys fewer clothes, and wastes nothing. This might go against the grain of what we have been taught about the economy. Under the current assumption that we need to spend money to boost the economy the miser is hurting everyone. Yet the miser is doing the opposite. The miser makes every good cheaper for everyone else because he takes himself out of competing for the same resources. He lives humbly, so that others that want a lavish lifestyle get it cheaper and more of it. All resources on earth are finite and each person who leaves it for others helps rather than hurts the economy
The miser collects huge amounts of wealth from his non spending. This is terrible why isn't he sharing his wealth with others. Oh but he is sharing his wealth in just a different way. He puts the money in place that are safe and secure investments. Providing even more of his money to boost the economy through investments. Yes he might get a small percentage for the privilege of using his money but he cannot use the money in a more productive way. He allows others who can create the next Apple and Exxon to get a start and provide even more to our lives.
The miser does even more and yes he is probably not the best citizen in the country but most misers provide a service to the economy like everyone else and should not be vilified because their contribution is different than other economic actors. Each person has a role to play and they do it best when we encourage their actions as reasonable and helpful to everyone. Just remember because someone did not want that shirt in J.Crew you can now buy it.
Tuesday, August 19, 2014
Thoughts on Trading Exxon
Personally I think Exxon is a fantastic stock to invest in, solid earnings, revenue, and dividends. It is very attractive just from these simple measures of a company. It is also way undervalued in my opinion. It trades at a measly 12.68 P/E ratio very low for its sector and for any stock. I would still buy it at 15 P/E ratio. Lots of room for upside and should go up as people realize that it is undervalued. It has a 19.67% return on equity compared to 13.98% for the S&P 500. It has a market capitalization of 424 billion but its revenue each year are 422 billion.
It provides a good that almost every human on the planet uses every single day in some way. And it is the top provider of that good. It might have some competition from alternative energy sources but I have faith in that management that they will move into other energy sectors and stay on top of their game. If not then the company deserves to be thrown under the bus and go the way of other companies unwilling to change.
I see Exxon trading at 125-130 very soon and it might even be this year. It should at least trade at that level if trends continue. And it would probably still be a great buy at 130. At 150 it is too expensive. So get out there and find an undervalued stock like Exxon and invest. Happy trading.
Disclosure: I have family members who own Exxon, I do not owen Exxon nor do I plan to open a position in Exxon.
It provides a good that almost every human on the planet uses every single day in some way. And it is the top provider of that good. It might have some competition from alternative energy sources but I have faith in that management that they will move into other energy sectors and stay on top of their game. If not then the company deserves to be thrown under the bus and go the way of other companies unwilling to change.
I see Exxon trading at 125-130 very soon and it might even be this year. It should at least trade at that level if trends continue. And it would probably still be a great buy at 130. At 150 it is too expensive. So get out there and find an undervalued stock like Exxon and invest. Happy trading.
Disclosure: I have family members who own Exxon, I do not owen Exxon nor do I plan to open a position in Exxon.
Links worthy of attention
Global hazelnut shortage. Buy Nutella now and sell it later. Also I didn't realize that Nutella took up 1/4 of the global hazelnut supply.
More M&A activity with the dollar stores. It's going to get feisty and I think M&A will continue to pick up as companies want to boost balance sheets and have lots of spare cash.
Deirdre McCloskey on wealth and poverty and how the poor have been helped even though the rich got richer. Not everything I agree with but interesting ideas.
McDonalds is going to provide their great coffee products in grocery stores soon. Will this hurt their drive-through business and selling a biscuit with a coffee? I doubt it but it could have unintended consequences.
Americans need more vacations! I think this might have to do with more part-time workers and temp workers. And the idea that you should always be able to work. Thankfully I work at a company that demands an employee take at least a week off vacation each year.
Ron Shevlin on a possible way that new generations will rate banks. Consumers will rate banks on the services they offer to improve customers financial lives and how well they do this.
Possible new Australian media laws could change the landscape and will have an impact on investors in these companies.
More M&A activity with the dollar stores. It's going to get feisty and I think M&A will continue to pick up as companies want to boost balance sheets and have lots of spare cash.
Deirdre McCloskey on wealth and poverty and how the poor have been helped even though the rich got richer. Not everything I agree with but interesting ideas.
McDonalds is going to provide their great coffee products in grocery stores soon. Will this hurt their drive-through business and selling a biscuit with a coffee? I doubt it but it could have unintended consequences.
Americans need more vacations! I think this might have to do with more part-time workers and temp workers. And the idea that you should always be able to work. Thankfully I work at a company that demands an employee take at least a week off vacation each year.
Ron Shevlin on a possible way that new generations will rate banks. Consumers will rate banks on the services they offer to improve customers financial lives and how well they do this.
Possible new Australian media laws could change the landscape and will have an impact on investors in these companies.
Monday, August 18, 2014
Downsides to Day Trading
It is silly and irresponsible to day trade, there I said it. Now let me show you why it might have appeal and then I'll show you why it is stupid.
It has the glamour of being on Wall Street from the comfort of your home. The day trader can watch market news all day, read the latest rumors, and then decide to put money toward what he thinks the market will do on that information. It also has the potential to make a trader very wealthy in a very short time. And with little capital a bet could return 100s of percents in a few months. No other way to invest has that probability in actuality.
The above reasons almost make me want to gamble my own savings and investments to retire even earlier with large piles of cash made quickly and easily. It seems easy, people on tv and the internet talk about how the strategies work and are sure-fire ways to increase returns from small investments. The problems of course are many. One is the problem that lots of the returns are consumed from extra taxes and commission fees. The income is taxed at the ordinary income rate rather than capital gains. Let's say you trade 400 times a year at a cost of $8 a trade that is $3200 a year given to the brokerage house for the privilege to trade. 400 is a small number too because if you are day trading then you need to trade probably more than twice a day. Each trade decreases your actual return while making other people richer from your trades. Unless you have a large amount to big with to trade it is not worth it to day trade and give up such a large percentage in trading fees. Although the brokerage houses will want you to trade more and therefore will try and convince you otherwise. Do not fall into their trap, stay strong and stick with a buy-and-hold strategy. It will pay off in the long term with fewer fees and taxes.
With day trading, the trader has to know direction and timing of the stock. Its already hard to decide if a stock will go up or down based on all the factors that can move a stock and so it is extremely risky to day trade because you are taking on all the unknown factors. It can make you wealthy but I would not do it with any sizable portion of your money and I wouldn't bank on it for retirement. Way too dangerous for the long term and a trader shouldn't want to take on more risk than necessary to get a reasonable return.
Just stay away from day trading. Chose some good companies invest monthly in those and wait for the rewards to come. it might be a few years but they will be there.
It has the glamour of being on Wall Street from the comfort of your home. The day trader can watch market news all day, read the latest rumors, and then decide to put money toward what he thinks the market will do on that information. It also has the potential to make a trader very wealthy in a very short time. And with little capital a bet could return 100s of percents in a few months. No other way to invest has that probability in actuality.
The above reasons almost make me want to gamble my own savings and investments to retire even earlier with large piles of cash made quickly and easily. It seems easy, people on tv and the internet talk about how the strategies work and are sure-fire ways to increase returns from small investments. The problems of course are many. One is the problem that lots of the returns are consumed from extra taxes and commission fees. The income is taxed at the ordinary income rate rather than capital gains. Let's say you trade 400 times a year at a cost of $8 a trade that is $3200 a year given to the brokerage house for the privilege to trade. 400 is a small number too because if you are day trading then you need to trade probably more than twice a day. Each trade decreases your actual return while making other people richer from your trades. Unless you have a large amount to big with to trade it is not worth it to day trade and give up such a large percentage in trading fees. Although the brokerage houses will want you to trade more and therefore will try and convince you otherwise. Do not fall into their trap, stay strong and stick with a buy-and-hold strategy. It will pay off in the long term with fewer fees and taxes.
With day trading, the trader has to know direction and timing of the stock. Its already hard to decide if a stock will go up or down based on all the factors that can move a stock and so it is extremely risky to day trade because you are taking on all the unknown factors. It can make you wealthy but I would not do it with any sizable portion of your money and I wouldn't bank on it for retirement. Way too dangerous for the long term and a trader shouldn't want to take on more risk than necessary to get a reasonable return.
Just stay away from day trading. Chose some good companies invest monthly in those and wait for the rewards to come. it might be a few years but they will be there.
Slow and Steady is a Must
Smart investors realize that you first have to pick a good company and I have several choices on how to pick bargains and stocks that will be lasting investments. Secondly and just as important you have to wait and hold on to the stocks you picked. Investing is rarely a win for investors with day trading, those people do that for a living and many lose lots of money but make the brokerage houses very wealthy. As the savvy investor you want to become take note that the huge returns from investing might not appear for 20-30 years. After that period of slow and steady investing all of a sudden you will say I made great investments, they have huge returns and I am making money for my retirement over what i could expect. Third it is also a good strategy for us investors to put in a set amount each month to the investments. This way it increases the pot that will grow and earn money.
If you start with $10,000 in the nest egg and add $1500 each month for 30 years you will put in a total of $550,000 which is a great start to retirement. It gets better though, with interest earned at a reasonable 6% rate compounded monthly you would have $1 million in interest earned. That doubled the money the saver put in and the saver still has the original investment. That is a great way to have a nest egg. It might have taken a long time to build that up but its well worth it in the end and it's not unreasonable to save $1500 a month for someone making $50000-60000. Each dollar added increases the amount earned and it would be even better to save $2000-3000 a month.
Many of the great investors see the stock market as it is a generator of wealth but it can only do that function if it is allowed the time to work and transform the lowly investment into a fortune. As the young generation right now we can start saving and putting our money in wise places to build the wealth we will need and want for our future. Money just sitting idly because of being afraid for it will not return to what we need, it will lose money and won't be able to cover expenses or the things we would like to purchase. Let's be smart savers and place money in the proper place to work for us and not us working for the money.
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