This will be my last post for a while—perhaps for quite some time. And, this evening’s broadcast will also be my last for a while as well, as I’m also going to take a sabbatical from my on-line “radio” show. Both of these activities have been labors of love. But they have both consumed considerable time, energy, and thought—resources that I’ve decided to apply exclusively to a couple of other things.

The first is a very exciting, new project whose mission is to promote financial literacy. As most of you who have known me for a while know, this is—and has been—a passion of mine for some time. And, I’m going back to school to acquire some skills in the graphic arts and video field that I can apply to this project. And I’m looking  forward to both the education and the constructive result.

I’m also going to play a more active role in helping my wife, Dianne, with her business. She’s been doing a fantastic job as it is; but it’s time for me to be more actively supportive than I have been. I think this will be fun as well.

So, thanks again for both your interest in my effort to help you be more successful investors, and your indulgence when I’ve occasionally drifted off target to rant a bit.

I’ll keep my Web site open at http://www.financialiteracy.us. The archives for this blog will remain there for anyone to prowl around in and refer to. And, there’s no need to unsubscribe, should you want to know about it when or if I should start back at it again.

Best wishes and so long for a while!

You simply cannot  judge the investment climate by the state of the stock market. Instead, I look at the number of companies whose shares are available on the major exchanges that meet my rigid requirements for sustained sales and earnings growth and for their ability to sustain healthy profit margins.

For that purpose, I consult the result of screening the database of companies provided by ICLUBCentral and NAIC for those which meet or exceed the “Acceptable” Take Stock Quality Index. In normal times, and until the recent market collapse, only about 150 companies, give or take 10, met those criteria. This meant that, of the more than 9,000 publicly-traded companies, fewer than 2 percent warranted my investment interest. When this recession was at its worst, that number of shares declined to only 32! There is no question but that the recession decimated the number of companies that could meet those strict guidelines. Happily, that number is once again commencing to grow.

It’s time, however,  to look at the bigger picture.

I just completed a study of the 9,763 companies contained in Reuters’ database of publicly-traded companies. Of these, 1,179 have had positive earnings and not suffered an annual loss for the past seven years, nor did they chalk up a quarterly loss in the any of the past two.

Of these, even if you eliminate the 194 with fewer than five years of public trading or whose revenues did not exceed $50 million—my baseline criteria for investment interest—there are still 985 companies that lost no money.

While only a few of these companies may have grown their earnings at a rate we’d like to see to maintain our 15% portfolio growth, fully 438 of them grew at better than 10% over the past five years.

So wipe away your tears and recognize that investing as owners of quality companies is safe and you don’t have to lose any money. There’s no point in paying attention to the stock market, much less valuing a portfolio by what the herd things your shares are worth!

Barrack Obama was selected to be his party’s champion because he was one of the most articulate speakers his generation has produced. What’s more, I have to acknowledge that a relative newcomer like him doesn’t get as far as he has, without having more behind his eyes than the average, and without having enough street-smarts to work the political machinery, from ward to world stage.
Setting aside for just a moment the enormous philosophical differences that separate him from me, those attributes should qualify him to be a remarkable national and world leader of whom everyone in this country ought to be proud. He unquestionably has the tools to work with!

Let’s talk, then, about those differences. I don’t share the paranoia that would suggest Mr. Obama is either a Communist bent on Stalinizing the US, or a terrorist who seeks to impose Sharia on its people. I have to believe he’s a patriotic and proud American whose only sins are of omission, not of commission. His I.Q. is impressive; but I believe he’s an intellectual victim. His political and economic education has been tilted toward the impractical, academic elite; while his life experiences have steered him toward the altruistic and populist. For the good of this country, we badly need this talented leader to get a real education and learn what he needs to learn, so he might realize both his own potential and that of our country.

I would vote for President Obama in 2012 if he were to learn and act upon the following:

1. In prosecuting a war, it’s best to listen to the Republicans. That’s one thing they really know how to do. (Trust me, it’s okay to “lose all the Democrats” and rely upon the military experts for this task.)

2. In foreign affairs, while he’s amply aware that it’s appropriate to deal with other nations with humility and with respect for their heritage and history, he needs to learn how not to do it at the expense of the national pride we’ve earned and deserve. We don’t have to be arrogant or demeaning to be proud of our country and even nationalistic.

3. Many rich people are greedy, selfish, and self-indulgent. And, sadly, all too many acquire their wealth unethically and undeservedly. But it’s the rich whose creativity and industry—and consumption as consumers—create the jobs, and whose charity and generosity provide the resources to help those less fortunate who can’t, don’t, or won’t contribute. In a nutshell, it’s the wealthy without whose success none of his altruistic dreams can ever come true. He needs to find more ways to make more of them, not fewer! (And he needs to learn to be pleased when a major company turns a spectacular profit.)

4. Skilled facilitators can put customarily opposing participants on the same side of the table to formulate goals and then come up with the means of reaching them. He had best persuade the Congress to retain some. For example, he should persuade the liberal visionaries and conservative pragmatists with an interest in space travel to sit together and form a consensus on a future set of projects and the means of making them happen. Participants ought not to be able to enjoy the luxury of only proposing or rejecting. An effective leader can make governing by consensus popular, and can eliminate those debilitating cross-aisle wars.

5. During the next two years, he needs to be a real leader and do the unthinkable: coalesce both parties in collaborating on a high-profile, public campaign to tell the public what they really have a right to expect from their government and what they don’t. If we’re ever to enjoy the pride in our country we’ve relished in the past, he must change the public perception of government and those we charge with the responsibility of running it. Integrity is the foremost issue. It would be an historic presidential achievement and a great legacy, to create such a political climate within the beltway. He can do it!

If he doesn’t do these kinds of things, I don’t think anyone will vote for him!

Why? Because all of those who sat on their hands before, thinking their votes weren’t worth the trouble, have had a chance to see what happens when apathy rules. And they’re not about to sit still this time and let us get deeper into the hole.

While the only question remaining seems to be how much of a rout it will be, until the day after, there’s no telling who will represent us going forward. But, I do have a wish list for the electorate, and it goes like this:

1. Please elect individuals who wiill have the guts to tell me that I can’t have what I want because the nation can’t afford it.

2. Please give us representatives who will make reasoned decisions, based on facts we don’t have access to, without having to take a poll. That’s what we pay them for!

3. Please put folks in office who understand that the only way to keep from fighting wars is to do whatever it takes to win them.

4. Speaking of war, please give our elected representatives the wisdom to recognize our enemy to be only those who hold life to be cheap, who believe innocents to be expendable, and who hold our respect for the sanctity of humanity in disrespect, regardless of the religion they might preach.

5. Put in office those who fully understand the difference between “religion” and “church,” the former being the foundation of our system of government, the latter constitutionally prohibited from being forced down our throats.

6. Speaking of respect, please give us representatives who will not reward ignorance or try to relieve us of our responsibility to make sound decisions for ourselves, or our right to take advantage of opportunity when it appears. Hopefully those who agree with this will outnumber those who don’t in the voting booths this election, for a change.

7. Finally, please return us to the days when a “liberal” was recognized and respected as a visionary, a “conservative” was recognized and respected as a pragmatist, the former was not called unpatriotic nor the latter labeled heartless—and trying to get along without either was like trying to clap with one hand.

For some earlier views in a similar vein, click here.

Now, mind you, I’ve been a senior citizen—for quite a while now. And Social Security makes a welcome contribution to my retirement income. But the sole purpose of the COLA provision was to help people overcome the ravages of inflation; and, if there ain’t any, they don’t need that protection!

Sure, I’m familiar with the argument that the increase in cost of the things important to seniors, like food and medicine, has not abated; and the the things that held prices down were those that did not affect them.

But ours is the generation that gave the store away, mortgaged our kids’ and their kids’ kids’ futures so that we could live higher on the hog than we should have. So, if there’s anyone who should be ticked off, it should be those kids who are having to pay into a system they’ll not likely benefit from because we committed them to do it.

Of course, they won’t notice it until after we’re gone, because we’re the generation that never learned—nor taught our kids—the hazards of living for today and neglecting tomorrow.

Ours is the generation that, in the interest of making sure that our kids “won’t have to go through what we went through,” deprived them of the satisfaction of doing for themselves, and denied them the self esteem that goes with it.

No matter how needy we might be, we had better suck it up and be grateful we get  anything at all from Social Security. the biggest, self-inflicted, de facto Ponzi scheme of all time!

Now I’ve said many times that those who trade stocks and bet on the stock market are confused and bewildered. Nor do they have a clue as to what any stocks will do tomorrow. And, of course, that confusion is compounded by the contribution that technical analysis makes to the mix. As an example to bear out my conviction, I would offer the following two excerpts about Ebix from the Investors Business Daily, each appearing within three days of the other.

“Ebix Inc. (EBIX) [Chart - Analysis - News] gained some ground during trading  yesterday, but it appears there is some bearish pressure building up in the background. Looking at yesterday’s money flows, $1.81 million left the stock. Only $4.85 million flowed into the stock on uptick trades while $6.66 million flowed in on downtick trades—giving EBIX an up/down ratio of 0.11.

“The question is, will EBIX continue rising or will increasing bearish sentiment help turn things around and start pushing the stock price lower? EBIX has gained 24.61% during the past month and is currently trading above its 20-day, 50-day and 200-day moving averages.”

…and the other…

“Oct 11, 2010 (SmarTrend(R) Spotlight via COMTEX) — SmarTrend identified an  Uptrend for Ebix (EBIX) on May 07, 2010 at $14.88. In approximately 5 months, Ebix has returned 53.7% as of today’s recent price of $22.87.

Ebix is currently above its 50-day moving average of $19.76 and above its 200-day moving average of $16.83. Look for these moving averages to climb to confirm the company’s upward momentum.”

Now here’s the third “entry” in to the “Who Should You Believe?” contest:

Sales growth is very predictable.

Earnings growth is very predictable.

Sales have grown historically at 27.25%.

Earnings have grown historically at 37.42%.

Recent sales growth has been 27.25%.

Recent earnings growth has been 40.50%.

Profit margins are trending up or are steady.

Return on Equity is strong.

(Summary produced by the Take Stock program as a result of its analysis of Ebix.)

Based on the above, it would seem reasonable to expect that this company can continue to grow its earnings a better than 15% over the next five years. Assuming it does, earnings will be around $2.50 and, even if the PE is no higher than its signature value of around 14 at that time, the shares would be worth around $35, should I choose to sell my holdings then.

Which would you feel most comfortable relying on for your investment decision?

I rest my case.

1. “We” seek to be part-owners of companies that have a proven track record of making money for their owners. “They” buy stocks because their stories sound good.
2. “We” judge the quality of the companies we invest in by examining their fundamentals—their “lifeblood” and “vital signs.” “They” use technical analysis to decide when to buy and sell—a popular attempt to predict the unpredictable, with no record of consistent success.
3. “We” know, from history, what multiple of profits would be reasonable to pay for shares of such companies. “They” ignore such fundamentals and can only guess at reasonable purchase price.
4. “We” rely upon an increase in the actual value of our holdings over time to justify selling at a profit. “They” must rely on luck or someone else’s ignorance to profit from the transaction.
5. “We” value our portfolios according to their potential—their rational value—because we own shares in companies whose operations continue profitably, regardless of the fluctuations of the stock market. “They” value shares according to their “market value”—whatever they’re selling for at the moment—because “they” don’t have a means of setting an absolute value for those shares.

The only thing “they” have going for them is excitement. There’s nothing like the rush that comes with risk! Especially when you bet your life’s savings on something as uncertain as the stock market.t

The middle-class is evaporating fast enough to make your head swim! The chasm between the haves and the have-nots is widening by the day; and the number of people who are receiving money without earning it are commencing to outnumber those who are earning and paying for them.

Our kids are being taught to hate the rich, to view “big business” as the greedy enemy, and profits as money that’s being taken from the poor workers who are employed by those big companies.

This is a condition that can’t continue without disastrous consequences. And, truth be told, we have thousands of corporate executives who are gaming the system and taking home many millions they’re not worth, because the owners of the companies they manage—the shareholders—are so apathetic they let them get away with it.

But hate the selfish and greedy because they’re greedy and selfish, not because they’re rich! I do!

Be grateful for every one of those people because the more rich people there are socking money away, the better off we all are.

Rich folks don’t put their surplus money in tin cans in their backyards; they can only spend so much on things for themselves. But, those things represent a whole bunch of goods and services that working people earn money producing.

What they don’t spend on self-indulgences, they put into investments that provide more job opportunities and new sources of new products. Many wealthy people then give huge amounts to charity, which does benefit many who can’t help themselves. Or they finance educational opportunities, or fund research intended to overcome problems we face as human beings.

When they’ve spent, saved, invested, given away, or otherwise made it available for people to earn, they leave the rest to their kids who do all of the same things.

And thank goodness that these companies make profits, because that’s the only way our economy can grow big enough to afford to give more people work, let them pay their fair share of the taxes, and pay for all the good things we want to do but can’t now afford.

So let’s quit teaching our kids to be envious of the rich and to hate them! Teach them that they can become rich themselves and do all the good things they want the rich to do for them.

Taxing the rich to take it away and give it away is only increasing the speed at which we’re running toward the precipice.

In general and with notable exceptions, those who write or speak in the media are very bright, well educated, academically grounded, and articulate people who, despite their protestations to the contrary, are egregiously irresponsible, self-righteous, and self-important! In the name of honesty, forthrightness, and zeal to fulfill their fancied obligation to honor their readers’ and listeners’ right to know everything, they say and do things on a daily basis, the result of which can destroy the very rights they claim eagerness to uphold.

I cringe, every time I read a bit of news reported by someone whose “source is anonymous because he or she is not authorized to release the information.” Every time I read about the number of troops that is being sent to this theater or that, I think about those who would do us harm and who, if it weren’t handed to them on a platter, would kill to obtain information we now deliver gratuitously on a daily basis. I remember the wartime slogan, “Loose lips can sink ships.” And it wasn’t just some silly admonition! Today, given the kind of conflict we’re involved in, those who would do us harm will use every conceivable bit of information they get.

Every time I read, hear, or see a detailed description of some act of terrorism, how a bomb is constructed, or how vulnerable a transportation or communication system is, I have the same reaction. And things like that are published every day.

Time and time again, secrets are divulged that should remain secrets for the national good. Things we do wrong, although we unanimously feel they shouldn’t have happened and the wrongs should be righted, should not be delivered to our enemies to use against us. Especially when they are guilty of doing far worse, and our media seek reasons to flagellate us for it.

As with academia, the absence of life experience to temper theory leads the media to brush aside commonsense, not for the public good, but for the aggrandizement of those who are so irresponsible with their information! Democracy has given way to populism. Elected officials no longer are privileged to learn secrets and empowered to make decisions based on that data on our behalf. Now the world has ready access to those secrets, and public sentiment and polls direct those decisions!

I certainly wouldn’t want to be in the shoes of our military commanders in this day and age! Would you?

“Making money” means starting with something, adding value to it, and realizing something from that added value. Mining ore adds value to dirt. Refining that ore into metal adds value, as does creating parts from that metal, and constructing a machine from those parts. Agriculture adds value. So does construction.

The significance of making money is that assets are created and can be sold or accumulated. Intellectual property is also such an asset. And it’s the accumulation of assets (or the wherewithal to accumulate them) that creates wealth.

“Earning money” means performing a service of sufficient value for someone to pay you for it. For you to earn it, you must do something of value for a person or company that has either made or earned it themselves. If what you do doesn’t contribute to making money, then it’s an expense to whoever pays for it. In the case of a personal service, it’s likely a desirable expense. In the case of a company, it could also be an undesirable expense and you could be a liability instead of an asset.

Receiving a gift doesn’t require much explanation. It’s simply a case where you receive money as a result of the generosity of someone who wants you to have it. They may do so for any number of reasons ranging across a wide spectrum from pity and charity to love and indulgence.

And, borrowing of course, if done with no means or expectation of repaying it, is stealing.

Note, that there is no place in this discussion for gambling. Winning money, as with any situation where you contemplate getting something for nothing, is not a legitimate source of money. It’s simply a risky game.

Money is merely a token of your having produced a product or service that is of value to someone else and with whom it’s inconvenient to barter.

When our nation was born, our founders lived in a pioneering, self-sufficient society in which families performed all of the tasks necessary for survival themselves; and most of the conversion of the land’s resources were done within the family unit. Barter was common between families and within the villages.

Today, as a result of the industrial revolution, what we do for a living is highly specialized and barter is impossible. We therefore depend upon commerce for our necessities. We make our unique contribution, doing, ideally, what we are most skilled and happy doing; and we receive money for it—sometimes making it but usually earning it—with which we can purchase those necessities and luxuries.

This, friends, is at the root of financial literacy. These are very basic concepts that most of us know but haven’t given much thought to lately. Most of our nation’s fiscal problems result from ignorance of these basic notions to begin with.

Try answering the following questions by referring to the basics above and see how our society is at odds with the facts.

1. Is health-care a right or a privilege?

2. Is welfare a right or a privilege?

3. Is a strike a legal way to increase income?

4. If I spend more time at the water cooler than at my desk am I an asset or a liability?

5. If my boss tells me to dig a hole in the morning and tells me to fill it back up in the afternoon and I do it, have I made any money? Have I earned it? Has my boss earned any money?

6. Is “investing” earning or gambling? Is playing the stock market (“trading”) earning or gambling? Is “trading” “investing”?

You can go on and on with questions like these. Wouldn’t it be wonderful if everyone graduating from elementary scho0l into high school embraced these simple lessons? Wouldn’t it be wonderful if our political leaders did!