Archive

Archive for June, 2009

About Healthcare (warning: a rant)…

June 30th, 2009

HealthcareI may be getting on in years, but I can easily remember…and not all that long ago…when the only participants in the health care arena were the patients and the providers. (Hey, I’m even old enough to remember house calls!)

You might have paid a good bit more for a visit to the doctor than you do now (when you finally gave in to the fact that you really ought to go). But, you paid only when you went to see him or her. And, the doctor, whom you’d known for years, took the time to deal with your problem and ask about your family. He really made you feel like he cared, because he did. Then, of course, he made enough money to give you the time he needed to exercise that care. Read more…

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Nicholson’s Triple Play Screening Approach

June 26th, 2009

The fifth installment of a series contributed by Mark Robertson, founder and managing partner of Manifest Investing. Mark’s investment methods and some elements of his philosophy differ slightly from those I advocate; but they are minor differences, the significant points on which we whole-heartedly agree being far more important.

image

Occasionally, investors can find a stock where a TRIPLE PLAY can be made.

The triple play possibility occurs when you find a stock that is very depressed in price and also appears to be on the verge of substantially boosting its profit margins. The triple play effect is possible in that:

(1) the depressed price of the stock can return to
      normal levels;
(2) the increased profit margins can produce increased EPS and a higher price;
(3) may also cause higher P/E ratios, or P/E expansion.

Read more…

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Beware of Bad Broker Advice

June 26th, 2009

brokerNew York Governor Eliot Spitzer (before he fell from grace and became Spitzer the pariah), was on the right track when he nailed the top players in the securities industry with more than $10 billion in fines for playing fast and loose with the public trust. The top ten brokerage firms were pretending to be unbiased about what they recommended their clients should buy when they actually had a financial interest in those stocks.

But, given the deep pockets of those companies, it didn’t take long for them slip back into business as usual. Unfortunately, when their shady practices pushed them to the brink of financial ruin, misguided legislators streaked to their rescue with our money.

Just yesterday, in fact, I received a link to a justified rant by someone who writes for the financial press for a living. Read it and see if you’re not as incensed at the that industry as I am.

Thanks to more than two centuries of heavy public relations and advertising by the these predators, a good portion of the public actually believes that investing is another word for gambling and that the odds are no better than they would be at the crap table.

Beware of bad advice from brokers who make money off you whether you win or lose!

Investment Concepts

Kids’ Day in Atlanta

June 23rd, 2009

BINCIn not too many years from now, a select group of young people will burst from adolescence and emerge into adulthood. They’ll do so at just about the time we will badly need good people in public life to pick up the pieces of our economy and manage our businesses and our government responsibly. Those young people will be better prepared than most of their contemporaries, thanks to several individuals with the foresight and concern to see that they are. Read more…

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Do we Really “Make our Own Luck”?

June 21st, 2009

 Just thought I'd throw this one in as an extra thought for the week.Life is just a finite number of perishable moments.
They whiz by, vanish as quickly as they come, are
      irretrievable.
But they leave in their wakes an accumulation from
     which our epitaphs are eventually carved.

For all of us, each moment contains its measure of
     good and bad.
We therefore have a finite number of choices.
     Which to embrace, empower, savor, and keep;
     Which to diminish, reject, discard, and forget. 
Making those choices makes our “luck.”

Read more…

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A Focus on the Business Model

June 19th, 2009

The fourth installment of a series contributed by Mark Robertson, founder and managing partner of Manifest Investing. Mark’s investment methods and some elements of his philosophy differ slightly from those I advocate; but they are minor differences, the significant points on which we whole-heartedly agree being far more important.

imageOur analysis process starts with an assessment of growth, continues with an evaluation of  management and concludes with an expectation of return.

As we said earlier, the process is no more exotic than a careful examination of where a company has been. This is combined with the development of expectations for where they seem to be headed.

What product or service does the company sell? What does the sales historical track record look like? What have the drivers been and how likely are they to continue? What are the threats to the trends? What are the opportunities?

Read more…

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We’re Overdue for a Shareholder Rebellion!

June 16th, 2009

President Obama, late last week, made the point that executive compensation has gotten out of hand and that he plans on having the federal government step in in cases of abuse when such companies are the recipients of federal dollars. Fair enough, I suppose! by Sack, Star TribuneI’ve written about those obscene bonuses before.

But hey! Whatever happened to the business owners? I’m talking about all of us who own shares in those companies! We’re the ones who should be curtailing the rip-offs of the companies we own, not the government!

All of us who invest receive proxies from each company whose shares we own—even if we have only one share to vote. Most of the time, most of us just vote with the sitting directors figuring, I suppose, that the companies are doing fine with the status quo—well enough to have earned our favor.

But. suppose we took just a little extra effort and scrutinized each proxy we receive to see what kind of money the executives of the companies we own are making. And, if we think the combination of salary, options, and other compensation is exorbitant, how about we deliberately cast a vote to replace every incumbent we have an opportunity to replace!

I’ll bet, if enough of us bothered to do that, they might just get the message! What do you think?

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The Role of Quality

June 12th, 2009

The third installment of a series contributed by Mark Robertson, founder and managing partner of Manifest Investing. Mark’s investment methods and some elements of his philosophy differ slightly from those I advocate; but they are minor differences, the significant points on which we whole-heartedly agree being far more important.image

QUALITY [kwol-i-tee]

Noun 1. an essential or distinguishing characteristic, attribute 2. grade of excellence

Adjective 1. having superior quality 2. Producing or providing products or services of high quality …

Quality. We all pretty much know it when we see it. What is the role of quality in strategic long-term investing and what is it worth? www.investorwords.com has a powerful definition: “Quality is, quite simply, a measure of excellence.” Excellence and respect are related. Excellent companies often exhibit consistent, credible growth and better results.

Read more…

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What if the P/E doesn’t meet expectations?

June 11th, 2009

Paraphrasing Gary Simms’ second question from his earlier comment:

Our methodology provides that we realize gains when PatientSabrina we sell our shares because the  companies in which we invest steadily increase their earnings while we hold their stock. Assuming we paid a reasonable multiple of earnings (PE) when we bought it, by later selling it at a similar multiple, the sale price will reflect that increase in earnings.

As an example: if we pay 20 times earnings for the shares of a company earning $1 per share, and, five years later, the company is earning $2 per share. Selling it at a PE of 20 would produce a sale price of $40. Thus we’ve doubled our investment. 

His question is simply, "What if the earnings growth is right on schedule, but the PE isn’t near what it was when we’re ready to sell?"

The answer is a corollary to the answer to the first question. The PE is the price divided by the earnings. Therefore, if the earnings have grown as expected, the PE is low only because the current market price is low. The herd was simply not paying a reasonable price for the shares because of some fantasy; i.e. a story, rumor, or other event or opinion that drives the market prices down. You should, therefore, be patient and wait for it to come back up. It will.

The very same rule applies here: "If the price of a stock has declined for any reason other than a decline in the fundamentals; i.e., growth of sales, profits, or earnings, then it will return to where it was. What goes down must come up and vice versa."

It’s probably a good time for a refresher. Read “What’s a PE and What’s It to Me?

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Why do price declines sometimes precede the fundamentals?

June 9th, 2009

Gary Simms, a “frequent flyer” on this blog, recently posed two excellent questions, each of which merits a separate post. This is the first.

fantasyTo paraphrase: “If the fundamentals—sales, profit, or earnings growth—are what drive the price of stock, why does a decline in a stock’s price so often come before the fundamentals decline?” Great question!

Stock prices decline for only one of two reasons: fantasy or fact.

By “fantasy,” I mean shareholders have jumped to a negative conclusion from some event,  rumor, story, or combination of those. Acting on their hunch, the herd is simply guessing what might happen and getting out before it does. (Institutional investors are not immune from this behavior. Their colleagues, like lemmings, are often afraid not to jump when they do, for fear they might have missed something they shouldn’t have.)

More often than not, the "event" is not even related to the company, or even the industry it’s in. It could be merely the opinion of some talking head on Bloomberg or the like; and conjecture about how those imagined consequences might affect the company are sometimes pretty far fetched.

Read more…

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