Vol.1 Issue 51 August 1st. , 2004
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of the Week: Brace Yourself for the
RISING TIDE of INTEREST RATES
"If economic developments are such that monetary policy
neutrality can be restored at a measured pace, a relatively
smooth adjustment of businesses and households to a more typical
level of interest rates seems likely. Even if economic developments
dictate that the stance of policy must be adjusted in a less
gradual manner to ensure price stability, our economy appears
to have prepared itself for a more dynamic adjustment of interest
- The Federal Reserve Board
in a press release dated June 30, 2004, when the federal funds
target rate was raised
by 25 basis points, to 1-1/4 percent.
Bottom Line: Interest rates are going up, it's only a question
of how much, how soon!
Perfect President for Your Portfolio. Steve
Forbes (CEO & Editor in Chief of Forbes), Dennis Kneale
(Managing Editor, Forbes) and Elizabeth MacDonald (Senior
Editor, Forbes) deconstruct the presidential candidates
and the affect their economic policies will have on
real estate and stocks. By Natalie Pace, CEO, NataliePace.com.
Report Card: Energy Companies. Are dividends the sweet
revenge for the arm and leg you are spending at the
pump? Steve Forbes and Forbes editors Elizabeth
MacDonald and Dennis Kneale pick their favorite energy
stocks. NataliePace.com lines up the numbers. You be the judge.
Map to Paradise. By Judy Katz www.katzcreative.com "When
I Grow Up I Want To Be Healthy, Wealthy and Wise…"…
Remember how important montages were in kindergarten?
Treasure Map Your Way to Success.
Fab and On Sale. The Value Investor's Guide to Buffett's
Billions. By Anthony J. Diaz, Director of Research,
Odyssey Advisors, LLC. www.OdysseyAdvisors.com
Gas and Summer Heat. by Paul Woods, CEO, Odyssey
Advisors, www.OdysseyAdvisors.com. Learn how Mr. Woods
is protecting his clients' portfolios from rising interest
rates and sizzling inflation.
Helping Women and Girls. Get funding NOW for your
non-profit Enterprise from The Women's Foundation.
Yourself For Rising Interest Rates. The Federal
Reserve Board is moving to a less "accommodative" stance.
Will the new policy be a "smooth" or "dynamic" adjustment?
Most Common Investment Mistakes and 3 Sure-Fire Success
Strategies. by Natalie Pace, CEO, NataliePace.com.
Fever. Investing in the "Next Big Thing" Has Created
More Law Suits than Billionaires. By Stefan Whitwell,
CFA, Managing Partner, Tierra Capital, L.P. http://tierracapital.net
17 Words to ask before putting your money where their
Perfect President for Your Portfolio.
Natalie Pace, CEO, NataliePace.com.
Forbes (CEO & Editor in Chief of Forbes), Dennis Kneale (Managing
Editor, Forbes) and Elizabeth MacDonald (Senior Editor, Forbes)
deconstruct the presidential candidates and the affect their economic
policies will have on real estate and stocks.
in our Success Secrets of CEOs series, NataliePace.com taps the wisdom
of Steve Forbes and two of his most respected editors on what
to expect from the markets this election year and how to sweeten
the rocky road of 2004. Looking for a few safe havens for your
investment$? Wonder if the real estate bubble is ready to pop?
hasn't been pretty for investors, outside of day traders, who capitalize
on volatility, and homeowners, who are sky high in the bliss of
rocketing land values. NASDAQ is off -7.5%, DOW is down -3% and
the S&P 500 is holding just under the breakeven bar, at -2%.
It's been a year of "spectacular dips and valleys," as
Elizabeth MacDonald notes, in which the smart investor pays close
attention to fundamentals, profit-taking, diversification and portfolio
pruning, particularly in stocks and bonds. Long gone are the Roaring
1990s when 500-point daily gains were relatively routine, and dinner
parties sparkled under the effervescence of expensive champagne
and the "new economy."
CEO & Editor in Chief, Forbes
retailers feared that "brick and mortar" was dead? That
consumers would choose cyber space over reality? When economists
postulated that the future upside of profitability was so tremendous
that real world losses could go on for years and still be a mere
blip in the galaxy? Today, four years after the grounding of such
lofty dreams, investors should "expect that the total return
on stocks will be in the neighborhood of 6% in real terms,"
according to Forbes editor Bill Baldwin. This news is simply
business as usual to the long-term investor, but, judging by the
surge in riskier market plays, like options, hedge funds and shorting,
the 1990s investor may well be suffering from a case of shock
and denial, still hungry for the means to become an overnight
of 2003, with NASDAQ posting 50% and the S&P 500 and the Dow
Jones Industrial Average adding 24% and 22% gains respectively,
certainly did a lot to resuscitate Sunnyvale (California) fever.
Though it is unlikely that 2004 will be as spectacular as 2003,
there are ample signs that 2004 will finish off in the black.
Over half of the 2003 gains were seen in the second half of the
year, with NASDAQ popping +25% and the DOW and the S&P500
jumping +15% each, and real earnings and corporate margins are
statistics support a fourth quarter rally this presidential year,
and the most respected financial minds in the U.S. are predicting
that, barring a major terrorist attack, the U.S. economy and markets
are on track to perform well through the end of the year. From
1928-2002, on average, the S&P 500 Index saw Total Returns
of 13.52% in the years of a presidential election (Odyssey Advisors).
Alan Greenspan, Chairman of the Federal Reserve Board, reported
on June 30, 2004 that "output is continuing to expand at
a solid pace and labor market conditions have improved."
Tobias Levkovich, the Chief Market Strategist for Smith Barney,
notes that, after a difficult summer, a late 2004 post-election
market rally is "plausible," as "corporate margins
have been outstanding and are now at 35-year highs." (Portfolio
Managing Editor, Forbes
So, if you believe
in the Santa rally, is now a good time to buy back into the markets?
Have technology stocks become affordable again? Are energy stocks
too expensive? Where are the safe havens for your money, and which
sinkhole sectors should you avoid? Will the markets implode if Kerry
is elected and repeals Bush's tax incentives? Will Bush's unrestrained
deficit spending erode the economic recovery? Will investors settle
into the calm of recovery, or will terrorism and fear of inflation
continue to spark stock sell-offs?
answers and more, NataliePace.com turns to some of the most respected
minds on Wall Street-- Steve Forbes, and his team of talented
and experienced editors, Elizabeth MacDonald and Dennis Kneale.
How do you see the markets closing out 2004?
the big determinant will be the election. When Mr. Kerry does
well, the market doesn't. When Bush does well, the markets do
well. I think Bush will win and the market will have a very good
year. Housing is up. Personal incomes are up. Capital spending
is up. We're in a funk period. You know what they say, "In
a bull market, you climb the walls of worry." People can't
believe that the market can really go up, and that's when it does.
With the volatility of the election and the war in Iraq, people
need to be extra careful this year. I think [we're] going to be
stuck in the same trading range for the next couple of years--between
10,000 and 10,500. Investors shouldn't be dismayed by this. The
DOW only hit 1000 for the first time in 1966, and it didn't break
through that threshold until 1983. It's not that long ago. We're
trading in a range, and you'll get a lot of spectacular dips and
valleys. You really have to be astute about your stock picking,
about buying low and selling high.
economy is getting stronger. Technology spending is, overall,
improving. We're in the second Internet revolution. I think earnings
growth is going to be strong in 2005. The outlook for ubiquitous
broadband video gives me reason for hope. I think China is a constant,
fantastic source for the entire world. China is not in a bubble,
although there will be corrections from time to time. Biotechnology
stories will be rampant. I'm hoping for more stability in Iraq.
The market would thrive if we could do that. Boy, would we give
anything to have one those 500-point days of the 90s now! Look
at how our investor expectation has changed. It used to be that
500 points was routine. Now it is so rare.
important is the result of the election to the performance of
-- One of the reasons the election is important is because
of the tax cuts passed last year. Those rate cuts for capital
gains, dividends, personal incomes, as well as incentives for
small business investments and capital spending, are all powerful
stimulants to the economy. Whenever you cut tax rates, it's the
most powerful thing you can do to stimulate the economy. As you
know, Mr. Kerry wants to start rescinding the tax cuts. This is
an election that determines how much fuel you will have for your
car. It will determine how long a trip you'll take.
Kerry wins, the markets will whipsaw. I think Kerry's economic
plan was minted in North Korea. It is one of the most retro, backwards,
economic plans, that should be renamed The Bureaucrats, Accountants
and Lawyers Full Employment Act. Watch out for him, and look at
the details of his economic plan. It will take a lot of bureaucrats
to make it enforceable. He's going to raise taxes. That is such
a mistake all around.
think Republican administrations are better for the economy, even
though Clinton presided over the biggest growth in the history
of the U.S. Clinton was central and liberal. I think Kerry is
a little demagogic for business tastes. He called companies that
make the decision to go offshore, Benedict Arnolds. If you need
to go off-shore in order to be competitive, that employs people.
A lot of companies got leaner in the downturn. It was a sad thing
for layoffs, but if you can put out the same thing with less output,
you should. Ultimately that employs more people. The answer is
not to be a demagogue, but to figure out intelligent policies.
Of course, Kerry's got Warren Buffett liking him, and giving him
are the primary considerations over the next few months? Inflation?
Steve-- The Fed overshot the mark. They created too
much money, so the Fed has to rein in the excess. The Fed gave
us a mild inflation, which you see in gas prices, in shipping
rates, in steel. Inflation never goes through the economy evenly.
It hits one sector, then another.
Fed has been the reason why the market has performed so heroically
after a recession, two wars and terrorist attacks. I don't think
that inflation is a problem at all. Savvy investors will look
at their holdings, and all of the forces. Consider portfolio pruning
and rebalancing. You don't want to be in stocks with poor fundamentals.
Volatility will get worse toward the end of the year. Remember
portfolio diversification. The market leaders whip around unpredictably.
Avoid major groups or any bets that you think are in fashion.
Right now, you really have to be thinking about risk and volatility.
think the inflation thing is a bugaboo. There is not an inflation
problem. It is a silly fear. The government numbers are often
a little suspect. Be concerned about the market overreacting to
the Fed's interest rates. Investors get skittish with each incremental
rise. We still have the lowest interest rates in 40 years, but
just fearing interest rates slows the markets done a bit. Iraq
and terror--this longtime uncertainty-- keeps the market static.
If Democrats win, the markets will be skittish. The first thing
that Kerry would do is to repeal the tax "for the rich."
That would be bad for the people and the market.
you concerned with rising interest rates?
if the Fed does its job right. The long-term loan rates should
be fairly stable, even though short-term rates may go up some.
The 10-year Treasury rate shouldn't go above five. The fixed mortgage
shouldn't go above six.
do you see the markets heading in 2005, the first year of the
new presidential term?
will be dependent upon who's in the White House. If Mr. Kerry
gets in, it's normal for a new President to have a rocky market
the first year. If Mr. Bush is reelected, the markets will be
turbulent in 2005, but if he pushes for major tax changes and
social security reform, the markets will be fairly decent in 2005.
sectors should investors avoid and which sectors do you favor,
considering rising interest rates and inflation?
away from mortgage issuers. There is volatility in earnings. Most
all of them have major derivatives exposure. They are not adept
at managing that. They have been living in a sweet environment.
Once rates go up, you'll see some problems there*.
might have a tough time. They've been able to borrow money at
the Fed Fund's rate and loan it for extra. Their spread is narrow.
You might worry about them. Credit card companies won't have as
much ability to sign up new cardholders and new debt.
area that I think can do better than expectations is housing--housing
stocks and mortgage company stocks. Their P/Es are very low. Everyone
figures that mortgage refinancing is done. Their earnings will
go down, but not nearly as much as people anticipate. Also, high
tech has been hit hard recently. I think it will come back again.
I expect great things from companies like Amazon, EBay, Intel
and the like.
comments on Google?
don't know what their price will be yet. Will it be 150 or 210
times P/E? We have to wait for the coming out party for Google.
We can judge Google's marriage prospects then.
the real estate market in a bubble?
There are certain areas in the country I'd be wary of, like New
York City and Los Angeles area real estate. There are other parts
of the country, where housing is still a relative bargain. Our
Forbes publisher, Rich Karlgaard, has written a book called
2.0. It's about happiness--not the what or how of happiness,
but the where of happiness. Where people live has a major impact
on stress levels. Thanks to high technology, the sophistication
gap has narrowed sharply. You don't have to be in a big center
to be in the center of things. You can live in Des Moines, or
Missoula, Montana and other places and not be cut off from the
world. If you're in a university town, you can have intellectual
stimulation and start companies in biotechnology and high technology.
You can get housing for a fraction of the cost of what it is in
Southern California. Why pay five times as much and have the hassle
of five hours on the freeway, when I can go elsewhere and preserve
my income? My kids have a better quality of life. I have more
time to myself. Hey, why not!
would you place your investments now in the housing market?
Steve--Housing nationally as a whole will be decent.
Florida just had a huge boom. Certain parts may be overbuilt.
But baby boomers, my generation, are retiring and/or buying a
second home. I think areas like the Florida panhandle will do
extremely well. There is plenty of opportunity out there, though
some areas may be over exuberant.
you have one favorite stock?
don't. For people who want stock advice, I say the best investment
is to buy Forbes magazine. Of course, that helps my stock.
Most of my equity is in Forbes magazine. That's my favorite
stock, though it's not publicly traded.
like Advanced Micro Devices (NYSE: AMD). I think the chipmakers
are going to be coming back. AMD's chips are as fast as Intel's.
They have a tiny market capitalization-- $4 billion versus $151.7
billion. They recently flipped from cash negative to cash positive.
It is an underdog that Wall Street doesn't respect, but they should.
software stock that I like as a wild play is Siebel Systems (NASDAQ:
SEBL), trading at $8-$9 share. With Siebel, there are two attractive
factors—cash and the takeover play. Microsoft or Oracle will take
them over. Tom Siebel is someone everyone in Silicon Valley loves
to hate. Larry would love to buy the company of one of his former
executives. Oracle needs better applications, and people are driven
by ego. Siebel Systems has got $4/share in cash and almost no
debt. Microsoft only has $5/share in cash.
you have any tips on successful stock picking? The smaller capitalization,
the better stock performance in 2003. Is that the way it will
play in 2004?
caps are the way to go. In these so-called quieter markets, that's
when disciplined stock selection pays off. You rotate into quality,
solid fundamentals. They tend to outperform small cap growth.
Don't ignore small and micro caps, but they're now more expensive.
There are a lot of dogs in there, but the momentum is still on
the side of smaller stocks. You have to take a microscope to the
Russell 2000 and the Wilshire Micro Cap Index. It's all about
valuation, fundamentals, risk and momentum, P/Es, profit margin
and return of equity. Play it safe for now.
is the best stock in the energy sector or energy services sector?
had a big run-up. With oil prices coming down, people unload them.
I would wait for oil to go to $28-30 barrel, then you'll find
some bargains out there. You buy a company dull as dishwater,
such as Exxon Mobil (NYSE: XOM), or a small one like Sunoco (NYSE:
SUN), and, over time, they'll do fine for you. For all of the
ups and downs, they pay a nice dividend, so that you can collect
money while you wait. Don't try to market time these stocks. Dollar
cost average them.
note: On Wednesday, 7.28.04, light crude oil traded for $43.05
on the New York Mercantile Exchange.]
stocks always benefit from rising prices. Many are now trading
in single digit multiples. They tend to be cheaper than other
cyclicals. I like Conoco Phillips (NYSE: COP). It is an integrated
oil/chemical producer. There has been a shortage of domestic refining.
This company is stepping in there. Their P/E is just 10. I also
like Devon Energy (NYSE: DVN). They're cheap at 8 times earnings.
always thought that Dynegy (NYSE: DYN) shareholders overdid it.
People thought Dynegy might be Enron. The stock got killed. It
has pipelines. That might be a stock worth looking at.
Steve Forbes has shares in Sunoco.
Note on Mortgage Lenders: On February 24, 2004, Greenspan advised
the Senatorial Committee on Banking, Housing and Urban Affairs
that the Federal Reserve Board is concerned about Fannie Mae and
Freddie Mac's mortgage portfolios, because of concentrated interest
rate and prepayment risks. Mr. Greenspan concluded that, in order
to steer off the possibility of a financial meltdown or insolvency,
"The Congress needs to create a Government-Sponsored Enterprise
regulator with authority on a par with that of banking regulators,
with a free hand to set appropriate capital standards, and with
a clear process sanctioned by the Congress for placing a GSE in
receivership." According to Mr. Greenspan, Fannie Mae, Freddie
Mac and the Federal Home Loan Banks collectively stand behind
more than $4 trillion of mortgages, or more than three-quarters
of the single-family mortgages in the U.S. The Federal Reserve
Board is concerned that Fannie and Freddie have not managed the
risk by "holding greater capital," but have relied upon
"heightened leverage," anticipating, with too much merit,
that the U.S. government would be supportive "in a crisis."
to Ken Levy, a Fannie Mae spokesperson, Fannie Mae's Effective
Short-Term and Long-Term Debt was $693.719 billion in February,
compared to a Net Interest Margin of $629.168 billion. To read
Mr. Greenspan's testimony directly,
Report Card: Energy Companies. Are dividends the sweet revenge
for the arm and leg you are spending at the pump?
Forbes and Forbes editors Elizabeth MacDonald and Dennis Kneale
pick their favorite energy stocks. NataliePace.com lines up the numbers.
You be the judge.
HERE TO GO TO THE STOCK REPORT.
FACTS TO CONSIDER.
stocks are trading at their 52-week high. If you buy now, you
may be paying top dollar (unless oil spikes again). In fact,
according to www.MoneyCentral.msn.com, all of these companies
are currently overvalued, based upon their P/E to growth ratio.
- Steve Forbes
recommends waiting for oil to drop to $28-$30 barrel, when there
will be some "bargains" out there.
- High dividends!
Buy energy companies at the reasonable price, and earn dividends
while you wait for the share price to go up.
- While oil
companies may be the necessary evil that everyone loves to hate,
the world's dependency on gas is not going away soon.
supply is not strangled, instability in the Middle East, ongoing
terrorism and the insatiable new demands for energy in China
and India are fueling demand.
is held in check by environmentalists. Who wants an oil refinery
in their back yard?
demand and slow access to increased supply puts pressure on
the price. Higher prices increase profitability, which means
better analyst ratings and greater interest by investors to
buy the stock!
is an important hedge against inflation. The key is buying your
favorite dividend-paying energy company at a reasonable share
- July saw
a spike in per barrel price (up to $43/barrel on Friday, 7.30.04)
on terrorist attacks in the Middle East and tax problems in
Russia. OAO Yukos Oil Co. is trying to settle payments for back
taxes with the Russian government. Iraqi and Saudi Arabian oil
fields and pipelines continue to be terrorist targets, though
both of these channels are also stabilizing forces when OPEC
tries to choke off supply.
- Oil revenues
in Iraq, which are predicted to be triple of what they were
under Saddam Hussein, could help to stabilize the country. Iraq
pumped 1.6 million barrels a day in May, but only 1.49 million
barrels in June, due to terrorist attacks. Saudi Arabia increased
production to stabilize prices, from 8.65 million barrels/day
in May to 9.1 million/day in June.
have to agree with Steve Forbes. Sunoco is the star of this
Map to Paradise.
I Grow Up I Want To Be Healthy, Wealthy and Wise…"… Remember how
important montages were in kindergarten? Treasure Map Your Way
and unique method of visualizing dreams and goals, called "Treasure
Mapping," is changing the lives of entrepreneurial women
across the country. The process involves cutting out those images,
words or expressions that represent what you want to manifest
in your life, and pasting them into a journal or onto cardboard.
Although amazingly simple, treasure mapping is quickly becoming
the newest trend in personal and business development.
Co-Founder, Women's Leadership Exchange
knows first hand the power of treasure mapping. She's the co-founder
of the Women's Leadership Exchange, a national company based in
New York that holds regular all-day networking and business development
conferences around the country. Back in 1989, Grossman owned a
tiny public relations and marketing company that was, she admits,
"going down the tubes." She had also just moved to a
new home with her husband and their two children, when her husband
unexpectedly found himself unemployed. Living on credit cards,
the family's prospects "looked bleak and hopeless."
about treasure mapping, Grossman was skeptical, but felt she had
nothing to lose by trying the method others claimed had changed
their lives. Using old magazines, scissors and tape, she began
to cut out pictures and words that expressed her hopes and desires
and taped them to a piece of cardboard. The images she chose included
a woman working out, a couple walking hand-in-hand along a beach,
and a family happily spending time together. At the time, her
car was falling apart, so she added in a new Range Rover. She
threw into the mix headlines such as "500 of America's Fastest
Growing Companies," "Success," and "Vision."
of this was real at the time," she reveals today. "I
was in survival mode." After positioning the treasure
map in plain sight within her bedroom, Grossman looked at it first
thing in the morning and each evening before bed. At some point,
however, it fell behind the dresser, disappearing from her sight
but not her mind.
forward two years…
daughter Sara, who was crawling around to find a lost ball, pulled
out the long lost treasure map and showed it to her mother. Sure
enough, everything pictured had come to pass! Grossman had lost
weight and felt wonderful. She and her husband, Rich Abrams, had
been on a romantic vacation. The family was doing better than
ever, and her business was thriving. About the only thing that
hadn't materialized was that, although the Grossman / Abrams
family had a new car, it wasn't a Range Rover!
Grossman created a second, even more ambitious treasure map. Not
many years later — you guessed it — her life had taken another
quantum leap. A larger home, health and happiness for the family,
and the business she started was thriving. That company, the Women's
Leadership Exchange, had also landed the major "presenting
sponsor" they needed. It was the same OPEN: The Small Business
Network from American Express, whose logo she had taped on her
map. Now she was in a position to help bring the Women's Leadership
Exchange message to women across the country.
Leadership Exchange conferences feature presentations by highly
accomplished female business leaders, and facilitate a high degree
of networking. Attendance is now at more than 600 business owners
per conference. Women are lining up to attend these conferences
for mentoring on a variety of critical business topics and to
"get out from behind their four walls," as Leslie puts
it, and connect with other successful women who can help them
substantially grow their businesses.
mapping helps me the design the life I want for myself, and I
highly recommend it to all dynamic women who are determined to
make their dreams a reality. It's not magic. It's harnessing the
power of the subconscious mind," says Grossman. "Putting
your hopes and dreams on paper in pictures and words, and looking
at it several times a day, keeps your mind focused on what you
want. Today women lead such busy lives that treasure mapping helps
by focusing us and creating visual cues that keep us on our path
to achieve the goals that are important to each of us."
CONFERENCE IN LONG BEACH, CALIFORNIA
Women's Leadership Exchange is sponsoring a conference in Long
Beach, California on August 3, 2004. Meet The Apprentice star,
Carolyn Kepcher, Arianna Huffington, the President of IKEA and
other powerful female executives and entrepreneurs. Learn powerful
strategies to grow your business and network with other successful
entrepreneurs and corporate leaders. Complete details and
registration information are on the NataliePace.com website, in the Calendar
to Create Your Treasure Map
are a number of sites on the Web about treasure mapping. Many
of them are inspiring "blogs" about personal successes.
Others provide more helpful advice on beginning your own visual
blueprint for success. Here are two of the best:
Performance Strategies Inc. posts a step-by-step guide to treasure
mapping as well as a link to a previous articles on discovering
what you really want.
site is called Creative Manifesting—The art of deliberately creating
all that you desire. In her article "Treasure Mapping Is
a Fun and Fabulous Way to Manifest," according to Anisa Aven,
who describes a number of her achievements through treasure mapping,
as well as some do's and don't's.
Women's Leadership Exchange
Leadership Exchange (WLE) is a New York City-based multi-media
company founded by and for female entrepreneurs. Featuring educational
conferences in Long Beach/Los Angeles, Atlanta, New York, Dallas
and Chicago for already established businesses with revenues from
$750,000 to $25 million, the WLE offers women entrepreneurs access
to the tools and connections that drive business growth. The WLE
also offers its e-newsletter, "The Exchange," its online
New Women's Network Directory, its women's business spa retreat
in Puerto Rico (the next one is Jan. 14 - 17, 2005) and topic-specific
seminars on such issues as finances. For more information, visit
or call 1-888-937-5800.
Fab and On Sale.
Value Investor's Guide to Buffett's Billions.
J. Diaz, Director of Research, Odyssey Advisors, LLC. www.OdysseyAdvisors.com
investing: the investment process where one selects companies
whose stocks are currently undervalued by the market. In other
words, NEVER PAY RETAIL! Modern-day value investing gurus include
Warren Buffett. Benjamin Graham is widely acknowledged as the
father of modern security analysis. Graham founded the school
of value investing in the early 1900's. His value investing treatise,
The Intelligent Investor, remains the seminal publication
on the subject.
stock market is a living organism, and like most living organisms,
it doesn't always act and react rationally, see the forest for
the trees, or consider anything beyond the immediate future. It
has its good days and bad days, and all too often, there is no
rhyme or reason as to what's really going on. Value investors
take advantage of this erratic behavior.
a company with a respectable performance profile and a solid history
of good financials is being overlooked by the market in general,
or if it is being beaten down by the market for temporary reasons
(e.g. a new product launch is receiving tepid consumer reaction,
a new movie is bombing at the box office, the CEO is undergoing
heart surgery) a value investor regards this as a buying opportunity.
note: In the words of John D. Rockefeller, "The way to make
money is to buy when blood is running in the streets."]
is like seeing a great pair of shoes finally going on sale and
snatching them up at a bargain instead of paying a higher, retail
price. You know the shoes are worth much more than the sale price
since you've done your research. The shoes are well-made from
good quality materials, are in style and will stay in style, and
go well with most outfits on most occasions. They are great shoes,
but the footwear retailer is selling them for less than their
true value (value investors use the term "intrinsic value")
for whatever reason, so you take advantage of this irrational
behavior. You buy the shoes at less than retail and brag to all
your friends about what a great buy you found.
is no different when buying value stocks, except you're buying
stocks with the expectation that their prices will eventually
rise to their true worth when the market corrects itself or after
the company's temporary issues or problems are over with or remedied.
This can take weeks or it can take years, but it is at that time
when you have the potential of a capital gain. You must research
your investment candidates thoroughly and understand the companies
and their industries through and through. Some good resources
These sites do not charge a fee. You must also be willing to stand
your ground when the pundits and the stock market in general say
otherwise, and be able to let a stock go when you find that its
fundamentals have changed significantly.
value portfolio managers screen first for fundamental measurements
such as price-to-earnings (P/E) and price-to-book (P/B) that are
lower than the S&P 500. They then analyze each company's financial
statements. As I illustrated earlier, the key is not to invest
in cheap stocks necessarily, but in those companies that are currently
undervalued by market over-reaction, misperception, and short-term
focus and whose stocks have catalysts for potential, long-term
capital appreciation. This will only come from companies on sound
financial footing and with a good track record.
this short list of undervalued, financially sound companies, you
conduct a thorough qualitative evaluation. Review annual reports,
SEC filings, press releases, and web sites, and talk to suppliers,
customers, and competitors with the goal of truly understanding
the companies—their management in particular—and the industries
in which they operate.
is preferable to invest in companies whose management have demonstrated
long-term competency and integrity, and whose top executives have
been in place a long time. Do they have a history of making good
on their expressed intentions, effectively executing new plans
or policy changes, and honestly admitting when they are wrong
on occasion? Or are they changing their story from quarter to
quarter, singing and dancing their way around missteps and lapses
in judgment instead of honestly admitting their mistakes and taking
steps to learn from them? In simpler terms, does the company's
leadership know what needs to be done, and are they doing it consistently
well? And on those rare occurrences when they don't, do they fess
up and learn from their short-comings?
suppliers, customers, and competitors have to say about a company
can be particularly revealing. If a company is on solid ground
with their suppliers and customer base, this can be of marked
advantage against their competitors. In contrast, if a company
is constantly having difficulty with key suppliers or distribution
channels, this could spell trouble going forward. Similarly, if
customers are constantly complaining, or worse, defecting to the
competition, this would not bode well.
interviews with the competition can be a harbinger of a company's
shifting competitive landscape in terms of changes in market share,
target market, pricing power, and geographic penetration. If a
company is not aware of these factors and taking measured steps
to adapt accordingly, an investment in their stock may be ill-advised.
companies remain on your list at this point should be reconsidered
for that certain, special something that distinguishes them from
everyone else in their competitive set. Does the company have
a sustainable advantage over their competition, such as patented
products, a high barrier to entry, or a captive supply chain?
Coca-Cola's arrangement with bottlers and grocery store chains
gives them a sizeable competitive advantage over their rivals.
Does the company have a highly recognizable brand name or trademark
(e.g. Harry Potter, Star Trek, eBay)? Does the company have an
especially strong association with their customers? Harley-Davidson
and the Walt Disney Company boast of having some of the most loyal
customers in the world.
note: It should be noted, however, that 43% of Disney shareholders
recently voted against having the Disney CEO, Michael Eisner,
on the Board. This resulted in George Mitchell being named as
the Chairman of Disney's Board, while Mr. Eisner remains the CEO.]
end result of this investment discipline is a portfolio of quality,
value stocks with the potential of considerable, long-term capital
appreciation. You must constantly monitor your portfolio to ensure
that your holdings continue to have the characteristics that qualified
them in the first place, making adjustments when necessary.
Buffett once said, "We don't invest in fair companies at
great prices. We look for great companies at fair prices."
Value investing is very methodical, requiring equal doses of quantitative
rigor and qualitative insight, and a great deal of patience since
it's a challenge to identify these companies and it can take 3-5
years or longer before the market "bids up" a value
stock to its true worth. As evidenced by Buffett's success and
that of many others, however, value investing can be well worth
the effort and the rewards can be great to those who commit the
time and refuse to pay retail.
Diaz is Director of Research for Odyssey Advisors, LLC, (310)
568-4700, www.odysseyadvisors.com. With over 20 years experience
in domestic and international business, he earned his BA in finance
with highest honors from the University of Southern Mississippi,
and an MBA in finance from the UCLA Anderson School of Management.
there a season when stocks go on sale?
Pace, CEO, NataliePace.com. "My favorite time to buy is in September
and October. September historically generates the lowest, negative
market returns, and October is the bewitching month--the month
of Black Monday and the Great 1929 Crash. While these months are
very hard on investors, for patient shoppers, they can be buying
opportunities, provided you have done your research and are sure
that the great company you are buying stock in is trading at a
Gas and Summer Heat.
increase in interest rates produced negative returns and made
bonds the worst performing financial asset during the quarter."
Learn how Mr. Woods is protecting his clients' portfolios from
rising interest rates and sizzling inflation.
Woods, CEO, Odyssey Advisors, www.OdysseyAdvisors.com
gasoline at $5.00 per gallon with small cars and motor scooters
everywhere. This isn't a futuristic vision of California; it's
what the overtaxed residents of Europe are dealing with right
now. After spending some time in Italy in early June, gasoline
prices in California seemed like a bargain. However, we can't
quite get rid of the nagging feeling that Europe might be our
We did some
ranting in our last letter about the inability of the Bureau of
Labor Statistics to find any signs of inflation. They finally
threw in the towel in the second quarter. Consumer Prices showed
an increase of 1.74% at the end of March that increased to 3.00%
at the end of May. For wholesale prices, the rise was more dramatic.
The Producer Price Index showed an annual increase of 1.03% in
March that became 4.86% in May. A good rule of thumb is that,
as long as the PPI shows a bigger increase than the CPI, the CPI
will probably keep increasing.
In the past,
higher oil prices were generally caused by disruptions in supply.
This time, it appears to be driven by higher demand from developing
countries, particularly China and India. Their insatiable demand
for a wide range of industrial materials, in addition to energy,
appears to be fueling the higher prices that may make this inflationary
cycle more difficult to control.
in the second quarter also produced higher interest rates and
trashed the bond market. Following is a comparison of interest
rates as of 3/31/04 and 6/30/03:
90 day Treasury Bills
5 Year Treasury Bonds
10 Year Treasury
who thought they couldn't lose money in bonds may have done a
double take when they looked at their portfolios in the second
quarter. This increase in interest rates produced negative returns
and made bonds the worst performing financial asset during the
quarter. With interest rates going up a lot faster than consumer
income, we can't help wondering if real estate is next.
Reserve preserved its reputation for being behind the curve by
finally increasing interest rates at the end of the second quarter.
As usual, it was too little and too late. A .25% increase in the
Federal Funds rate meant that banks still paid less to borrow
short-term funds than did the Treasury. Eventually, the interest
rate on Fed Funds will have to be greater than the inflation rate.
With inflation at 3% and climbing and the Fed Funds rate now at
1.25%, we don't expect this cycle of interest rate increases by
the Federal Reserve to end anytime soon.
story on the evening news is the phenomenal recovery in our economy.
We realize that another bomb going off in Iraq is a bigger story
but wonder how many people are aware that real growth in our
economy, right now, is higher than at any point in the 1990s.
In the first quarter of 2004, real GDP growth of 4.95% was the
strongest since the fourth quarter of 1984.
strength in the economy, it appears as though second quarter earnings
for the S&P 500 will be at least 20% higher than last year.
Higher interest rates and inflation have put pressure on stock
market valuations, but strong earnings are the reason stocks have
produced modest positive returns so far this year. However, between
higher interest rates, slowing money supply growth, and tougher
comparisons in the second half of 2004, it's likely that growth
will begin to slow a bit from this point.
As the economy
has strengthened, the quality spread between Treasury debt, corporate
bonds, and high-yield bonds has narrowed dramatically. As a result,
in addition to taking interest rate risk, bond investors don't
appear to be adequately compensated for taking credit quality
risk at present. Between better capital spending in the private
sector and election year spending by the public sector, the demand
for borrowed funds should stay high. Inflation-adjusted yields
are still negative on shorter bonds and relatively unattractive
on longer bonds. As a result, we expect the bond market to continue
to underperform the stock market and are still emphasizing Treasury
and U. S. Government Agency bonds with maturities of less than
As we get
ready for the summer doldrums in the stock market, we can't help
noticing that this year has already felt like an endless summer.
The unexciting returns characteristic of most summers have been
the pattern so far this year and, until we see some stability
in inflation and interest rates, this may not change. The key
question is whether the current pickup in inflation is temporary
or longer lasting. Just in case, we've begun to reduce the exposure
to economically sensitive companies, add a few inflation beneficiaries,
and broaden the industry diversification in our stock portfolios.
Women Helping Women and Girls.
funding NOW for your non-profit Enterprise from The Women's Foundation.
guidance of Patti Chang, President and CEO, the Women's Foundation
of California aims to create a world in which all women and girls
can thrive. Their strategies center on impacting statewide policy,
awarding money to organizations that are positively impacting
the lives of women and girls and inspiring donor activism and
increased philanthropy among women.
DeDominic with President Bush
Founder & CEO of PDQ Personnel Services, Inc.
President Emeritus of the
National Association of Women Business Owners
In an exclusive
interview, NataliePace.com CEO, Natalie Pace, spoke with Women's Foundation
of California board member, Tina Frank, the Vice President of
the Los Angeles office, Patty Murar, and the founder of the Los
Angeles Donor's Circle, Patty DeDominic, about some of the programs
that have been improving the lives of women and girls in California
and around the world. From educating at-risk teens on how to balance
their own checkbooks, to funding a student-run store, to ensuring
that new mothers are properly educated about breast-feeding, there
is no doubt that the Women's Foundation is actively making the
world a better place for women. If you have a nonprofit organization
that is seeking capital, read on to discover how to apply for
funding NOW. If you are inspired to join up and empower other
women and girls, please visit, www.womensfoundca.org.
Otherwise, just be inspired by these powerful executives, who,
despite pressing demands from career and family, are passionate
about improving the landscape of opportunity for others.
How is the Women's Foundation impacting the lives of women and
are a couple of things. First of all, only about 8% of charitable
dollars go to charitable organizations that specifically give
aid and support to women and girls. We really need to increase
that number. Secondly, the Women's Foundation goes in with early
funding. Without early funding, [most young corporations] could
not have stayed on their feet. When you are the first money, you
have to do a lot of due diligence. We have been there many times
in the beginning.
the primary focus of the Women's Foundation of California?
girls globally. That is a fascinating issue because it brings
together the right and the left. Educating girls and women is
both a social issue--the right thing to do--and an economic development
issue. Countries, where the women are educated, economically do
far better than those countries that do not. That to me is the
strongest mission that anyone could imagine because you have both
the right and left pulling for the same thing, but the outcome
is the same—getting women and girls educated.
give us a success story?
you know that the foundation is teaching women how to be legislative
advocates? It is an incredibly successful program. When people
come to Sacramento or Washington, often they are a big bother.
They have a passion and are there for the right reason, but they
don't understand how to be effective when thy get there. After
the group of 25 women went through this program, which is sponsored
by the foundation, the legislators came back to us and said how
incredible these women were, what an enormous benefit to the legislative
staff. For them to say that! These women were so well trained.
They were incredibly effective.
a particular bill or law that they impacted?
example was these tote bags [filled with free baby formula] that
are given out after a woman has a baby. The legislation was that
the tote bag should say that if you give the baby the formula
in the bag, it may diminish the baby's impulse to nurse. The formula
companies went nuts. They tried to crush these women. These women
had never in their lives experienced anything like this, but they
were tough. You should have seen the tenacity that these women
had, even as first year advocates. Against huge amounts of money
and connections, they came up against corporate America and won!
my children, it's obvious, of course, that the babies would stop
nursing, but it's not so obvious to everyone, especially new mothers.
This is something so logical and simple and so important for women
to know. I think it is horrifying that corporate America would
want to suppress that kind of factual information.
the single most important thing that we need to do in the U.S.
to promote the economic development of women and girls?
the U.S., it is educating girls in math and science, so women
have the opportunity to run companies. Technology is only going
to become more and more important. Technology has been one of
the greatest equalizers for women in decades. You don't have to
be strong. You just need to be smart. You're seeing women starting
business at a greater rate in this country than at any other time.
Technology gives them flexibility.
about how a Los Angeles-based Women's Foundation "Donor's
Circle" sponsors financial literacy. The Los Angeles Donor's
Circle funded a student owned and operated retail store at Archer
School for Girls, in addition to an Independent Living Skills
program for at risk young women. Patty, the at-risk program seems
obvious, but why did your Donor's Circle pick a private school
DeDominic—We evaluated ten programs and funded five of
them. We funded the Student Store because the girls totally operate
that business. They staff it, order inventory, price their products--basically
all aspects of making that store a success.
Murar--These girls give back 15% of their profits to the
scholarship program at Archer School. They are closing that loop
of business and philanthropy--the giving back part.
programs did the Donor's Circle sponsor?
Murar—The Aviva Center focuses on the highest risk young
women, who have been in foster care and abused in various ways.
We support this program that helps women learn to be on their
own after the age of 18. Their program is focused on living skills,
like balancing a checkbook, affordable housing, savings account--very
basic financial literacy skills. They had a basic program in place.
Our grants help them to reach more young women and to bring in
new materials to use in their financial literacy practice. The
essence is that it is an independent living skills program for
high at-risk girls who have a hard time becoming financial literate.
kind of programs excite you?
DeDominic-- The WYSE, Women and Youth Supporting Each
Other. This is a mentoring program where college girls mentor
high school girls. There are about 200 college mentors and about
300 mentees. We're excited because it is an existing program that
uses a peer-to-peer strategy. Our grant expanded the curriculum
in their program to include more financial literacy skills--helping
these high school girls see themselves as going to college. The
program was already scaled to expand nationwide. We can make one
grant that would have a ripple effect over the country.
Murar-- The UCLA curriculum will be dispersed to the 11-12
DeDominic-- Oftentimes, people dump money down a black
hole. If you don't think in terms of systems or getting it scaled
out, you can't impact the problem on a wide scale. You might be
able to help one person, which is great, but if you can help 500,
which would you rather do?
Angeles Donor's Circle mission is to have 100 women giving $10,000
each for a total of $1,000,000. Is your Donor's Circle complete
or are you still drafting qualified supporters?
DeDominic-- Our goal is to have 100 founders and a minimum
of $1,000,000 invested in women and girls. We're not asking each
founder to write a $10,000 check. Some have written that check.
Some will write it over a few years. We'll be together over the
next five years, making investments, not donations. We hope that
the Donor's Circle grows beyond the 100 founders. We have 70 now.
We'll be pushing hard to get the next 30 founders. Once we get
that, we'll let the project grow more organically rather than
focus on recruitment.
and professional obstacles do women face in business?
Murar-- We had focus groups talking about wage disparity
and discrimination. Women said that the major issue was, "I
wish I had known the importance of financial literacy, of understanding
how money grows." We will be publishing a book for young
women, called The Money Planner, to help them understand
financial principles. We want to fund those programs that speak
to the young women and in many cases are developed through young
women… The first six [Donor's Circle] grants do exactly that.
DeDominic-- In the past, there was more resistance to
women educating themselves than there is today. In California,
women are welcome in all classes. That wasn't the case when the
Women's Foundation was started, and when I started 25 years ago.
I have a different perspective today. I thought the difficulties
in business were associated with me being a women. What I've learned
is that starting a business is really hard. It's hard for men,
as well as women. All people experience some forms of prejudice,
men and women, tall people, short people, etc. Personally I feel
a desire to help those who want to grow themselves and have better
financial success. In most cases, the difficulties they encounter
aren't personal. Some groups make the mistake in thinking it is
against them, against women or people of color. I have three adult
sons, and I know it's hard for them, too.
businesses in the U.S. are owned by women, yet women receive only
12% of the venture capital, according to Springboard Enterprises.
DeDominic-- We've found that many women were not as big
picture or ambitious as the men. They would start smaller businesses
with less risk. There is no difference now with a man or a woman
getting a loan. If you have decent credit, a man or a woman can
get a credit card. A man cannot get a loan without a decent business
plan and collateral.
Stanley just settled a lawsuit with women in their organizations
who claim they were unjustly passed over for promotions and raises.
100 years ago a woman couldn't vote.
DeDominic-- I think it's important to have access to the
past, so that the big mistakes of yesterday aren't repeated, but
it is a mistake to dwell. There are women all over the world who
don't have half of what we didn't have 100 years ago. In my opinion,
spending time focusing on what we don't have is wasting it. I
would rather that we harness the power that we have and make a
difference for the women who don't have half of what we have.
What is particularly exciting are the micro-loan programs. It's
wonderful to see the success in other countries as well as the
note: Dear members, on that note of helping women who don't have
half of what we have, you can send a note of encouragement to
women in Iraq by going to www.womenforwomen.org]
about Count Me-In, but what other micro-lending organizations
are out there? [www.count-me-in.org]
Murar-- WomensFoundCa.org. WFNET.org (Women's Funding
Network). It's a trade and training organization with 112 women's
funds across the world. They have lots of links. They do an international
conference every year, in April of 2005, in San Diego.
Patty DeDominic-- SCORE gives free business counseling
and helps entrepreneurs build their business plans. It is a 40-year-old
national organization of 11,000 volunteers who give their time
to help people start or grow their businesses, with funds from
the US Small Business Administration. I'll become the chair of
the foundation in September.
good news for the budding female entrepreneur is that there are
resources out there, and, at least in the U.S., her access is
DeDominic-- One of the problems with our society is that
people expect someone else to have all of the answers and to do
it all. They assume that it is the responsibility of someone else
to right the wrongs of the general community. That is not just
a perspective of people in need. That's a problem with affluent
people as well--thinking that somebody else should do it. I learned
a long time ago that if I waited for someone else to do it, there
was a chance it might not get done. I didn't think I was the right
person to launch the Donor's Circle. Tracy Geary chastised a group
of us, saying, "You're so powerful and sitting around expecting
someone else to do it." It was overdue and it was needed.
Women who promote well-being and health in their housing projects,
as they get better and build those skills, they find out that
they are not only good in the barrio, they're good in city council,
too. This scenario is being repeated all over the world. We're
told by the people who operate these programs that women are surprised
at how powerful and influential they can be. There is a continuum
that their development takes, and it is predictable. In many ways
it gets easier as people rise in problem solving, networking and
in their professions. You know - the smarter we work, the luckier
a non-profit organization apply for a grant with the Donor's Circle?
Murar-- We did the first grant by invitation only because
we wanted to know what was out there. The 2nd grant
cycle is just about to begin. We'll be accepting email inquiries
now through September. We're going to close the application process
in early October. Grants will be decided on in November, and approvals
out the door in December or early January. For more information,
organizations that are located outside of California apply?
DeDominic-- We want readers to refer great organizations
that are based in California. Our Donor's Circle is in Southern
California. Anyone who wants to start a Donor's Circle in other
parts of the country, we can introduce them to other people who
want to do that. That's how we started ours. We were inspired
by the Washington Women's Foundation. Our founders would be thrilled
to mentor other cities/states to start their own Donor's Circles.
We expect other circles to pop up in California in 2005, if not
Yourself For Rising Interest Rates.
Federal Reserve Board is moving to a less "accommodative" stance.
Will the new policy be a "smooth" or "dynamic" adjustment?
should be noted that, while the Federal Reserve Board admits that
"incoming inflation data are somewhat elevated," they
also maintain that at least a portion of the pressures are transitory.
Anyone buying gas, renting a home, going on vacation or purchasing
consumer products might beg to differ! The bottom line is that
we hope inflation will abate. Many analysts, however, are worried
that the Feds are going to continue adjusting the fund rate too
little, too late, at least until after the election. There is
a lot of good talk out there on how to protect your portfolio
against rising interest rates and inflation. It should pay to
keep informed and to act now to protect your assets. Be sure to
check out NataliePace.com issue 50 (in the archives) for two great articles
by Stefan Whitwell and Paul Woods.
also seems to have been boosted by transitory factors such as
the surge in energy prices. Those higher prices, by eroding households'
disposable income, have accounted for at least some of the observed
softness in consumer spending of late, a softness which should
prove short-lived." Alan Greenspan, chairman of the Federal
Reserve Board, testifying to Congress on 7.20.04
spending and employment
and shipments of nondefense capital goods have been on the rise,
and backlogs of unfilled orders for new equipment continue to
build…The proportion of temporary hires relative to total employment
continues to rise, underscoring that business caution remains
a feature of the economic landscape." Alan Greenspan
the softness of recent retail sales, the combination of higher
current and anticipated future income, strengthened balance sheets,
and still-low interest rates bodes well for consumer spending."
Feds confirm that interest rates are going to be adjusted, but
they leave the door open on just how much, when. In their press
release from June 30, 2004, they write, "With underlying
inflation still expected to be relatively low, the Committee believes
that policy accommodation can be removed at a pace that is likely
to be measured. Nonetheless, the Committee will respond to changes
in economic prospects as needed to fulfill its obligation to maintain
To read the
June press release, click here:
Most Common Investment Mistakes and 3 Sure-Fire Success Strategies.
Natalie Pace, CEO, NataliePace.com
Pace, CEO, NataliePace.com
past five years, putting money into your 401k has been like cutting
your dollar in half. NASDAQ is down 50% from January 2000,
while the S&P500 is still off over 20%. (Dow Jones Industrials
The situation is alarming, but what is the remedy? If your
financial professional isn't offering you the kind of advice that
you find valuable, then your first step might be to start shopping
for someone who does. Check out "How To Find A Broker"
in the Research section of the NataliePace.com website. If you qualify,
you should also consider hiring a money manager.
step you can take is to become a better partner with your broker.
Yes, education is the key, and educating yourself does not mean
dulling yourself senseless with charts and numbers. Start with
this Top Ten List!
In addition to reading the Top 10 Most Common Investment Mistakes
(and avoiding them in the future), be sure to check the NataliePace.com
calendar for other educational opportunities, including online
chats with money managers, conferences and investing seminars.
Go to www.NataliePace.com, and click on Calendar to sign up NOW.
NataliePace.com also offers an online tutorial, called the Member Mosaic,
located under the Research section at www.NataliePace.com. You can
learn and practice many practical applications of stock research
and market terms there. Finally, many brokerages and financial
sites offer free classes and/or online tutorials. You don't have
to spend a lot of money or time to get started on the path of
financial wisdom, and the difference in your bottom line can be
10 INVESTMENT MISTAKES
on Analyst Recommendations. USA Today reports that researchers
at the University of California and Stanford found that, in
the year 2000, the most highly rated stocks had a -31% return.
Those least favored soared an annualized 49%. This study examined
40,000 stock recommendations from 213 brokerages. This phenomenon
is not merely a tale of Jack Grubman and Henry Blodget. Many
analysts are brilliant and well-informed, and most are not criminals.
It's a simple case of supply and demand. If everyone is doing
it, you're simply following the crowd, paying top dollar when
the skies are blue, and unloading cheap in hurricanes. Leaders
don't run with the herd.
Buying. Think buying United Airlines at $1.29 a share because
you are POSITIVE that they will come out of bankruptcy is a
BRILLIANT idea? Guess again. The reorganization plans of most
corporations call for the CANCELLATION of the existing common
stock, with holders thereof receiving NO distribution. (Translation:
your stock certificates become wallpaper). Common stock shareholders
are commonly wiped out during bankruptcy because they are last
on the priority list with claims against the company's assets.
US Airways shareholders had their assets completely wiped out
the company emerged from bankruptcy.
Fat. Ever notice how fried food only tastes good for about
ten minutes? The minute it cools off, it's just a squishy mess
of oil. Same with buying into a company AFTER it has fattened
up its share price. It's very tempting to buy stock AFTER shareholders
have earned seven thousand times their investment, but that
is called CHASING MONEY. There were people, lots of them, who
bought AOL Time Warner and Priceline at peak share prices, near
or above $100/share, in 2000, thinking that heavenly heights
could last forever. Too bad losing weight isn't as easy as losing
money. Time Warner Inc. (NYSE: TWX, AOL's holding company) is
now trading at $16.65/share, while PriceLine (NASDAQ: PCLN)
is at $23.68.
Tips on the Bulletin Boards. Pump and Dump schemes abound
on the bulletin boards, where shareholders (and scam artists)
can ANONYMOUSLY talk up stocks for their own gain. When the
story sounds UNBELIEVABLE and you think you have to ACT NOW
to get it before the rest of the world finds out, you could
save yourself a big NIGHTMARE by peeking under the corporate
financial sheets. You can access quarterly and annual reports
at www.sec.gov. These reports
tell the corporate story truthfully (because they are official
and filed with the SEC), whereas press releases and blogs can
leave out important facts, with less consequence for the company.
Headlines are usually not written by the writers who pen
the story. They are written to catch your eye. If you don't
read the fine print, you could be missing the most important
information. Before United declared bankruptcy, investors gobbled
up shares of UAL shares on the headline that United had received
$1 billion in promised concessions from its unions. A key consideration
was hidden on the inside pages, however—that the Federal Loan
Guarantee required $1.5 Billion in union labor concessions.
The Loan Guarantee application was subsequently rejected and
United Airlines was forced into Chapter 11 only a few weeks
after that headline appeared in the New York Times, one of the
nation's most respected news sources. The headlines of less
respected news sources with much smaller budgets can be even
more dangerous, especially if they are simply picked off of
the company's press release.
Releases. Press releases are written by professional writers
who are hired by the company to present their corporation in
the best light. Additionally, press releases are not held to
the same standards as the official corporate filings that public
companies must make with the SEC. A company can talk about an
increase in revenue without ever mentioning that increased revenues
don't mean the company is PROFITABLE or that, due to cash constraints,
the company's fiscal health is on the ropes. American Technology
Corporation's stock fell on 12.31.02 on news that independent
auditors had "substantial doubt" about their future. The company
had been losing money for the last three operating years, and,
according to Bloomberg News 12.27.02, needed to raise more capital
to meet operation costs. Elwood Norris, then CEO, made no mention
of the auditors' concerns or the capital crunch in his holiday
letter to shareholders, however. Instead, he wrote that ATCO
was experiencing its 3rd straight quarter of revenue
growth, and that the convertible subordinated promissory notes
that were due on 12.31.02 had been extended to a repay date
too heavily upon the advice of your broker. If your broker
has handled your account beautifully through the market downturns,
and/or over the past few decades, just skip this one. You're
lucky to have a partner who cares about your future and has
the knowledge and expertise to get you there, and certainly
nobody bats 1,000. Many investors don't understand that the
broker is the entry-level position in the business, and place
far too much faith in his/her knowledge, morals and information.
Most brokerages, especially over the last four years, have extremely
high broker turnover. Some brokers are hocking stocks based
upon sales commission incentives. Finally, brokers don't have
to have a college education or experience in the field (although
they do have to pass a series of tests.)
and Hold. Buy and Hold works if you haven't bought too high
and have decades of investing ahead of you. Buy low; sell high
works all the time. Day trading may not be your bag, but senior
financial planners recommend at least re-examining your stocks
routinely (once a quarter), or at specific buy/sell target points.
Buy and hold strategies, or ignoring your portfolio, has resulted
in monumental portfolio losses over the last four years. Learn
about portfolio diversification and examine your holdings at
least annually to take your profits and realign your risk as
necessary.January, each New Year, might be the perfect time.
Placing all your chips on one sector. Even the most stable
stock is considered to be high-risk. Additionally, all markets
are cyclical. Lynn Newman, CFP, warns that if everything in
your portfolio is doing poorly, you're not well diversified.
Conversely, if everything is going great, look out!! As a benchmark,
you should have the same percentage as your age in safe assets.
Many financial professionals recommend keeping six months of
- If you
can't blindly trust analysts, or brokers, or long-term strategies,
or headlines, or hot tips, or press releases, or past winners,
just what is left to judge a stock by? PLENTY! If you love the
product or service, that's a good start. Follow that passion
up with information on market data, reliable news sources (read
the entire article) and the observations and knowledge of people
whom you know and trust. William J. O'Neil has a system
for picking market winners called CANSLIM. On-line, NataliePace.com
features the Member Mosaic, another trademarked stock
research strategy. Click on Member Mosaic, and learn about market
terms while you play!
INVESTMENT STRATEGIES THAT DO WORK
1. Buy into companies that you know and understand.
2. Make sure that company is the leader in the sector.
3. Buy low/sell high.
note: NataliePace.com does not act or operate like a broker. We are a
media and information center. This article is intended to educate
and inform individual investors, and, thus, to give investors
a competitive edge in their personal decision-making. The publicly
traded companies mentioned in this article are not intended to
be buy or sell recommendations. ALWAYS do your research and/or
consult an experienced, reputable financial professional before
buying or selling any stock.
in the "Next Big Thing" Has Created More Moguls Than Billionaires.
Stefan Whitwell, CFA, Managing Partner, Tierra Capital, L.P. http://tierracapital.net
17 Words to ask before putting your money where their mouth
comes and asks you to invest in a deal. If you were only given the
opportunity to ask three questions using just 17 words in total,
what would you ask them? By thinking about the core issues and by
asking the right questions, you can save yourself time and money
- and your time might be more valuable than your money.
Rule #1: Start by asking the person who is soliciting the funds,
"How much are you investing?"
the motivation of the key players (principal and broker) in an
investment situation is important. Motivation has a lot to do
with emotion and little to do with theory. Remember that the things
that motivate people can differ from person to person. Do not
blindly assume that money is the best and only form of motivation.
That said, when someone has invested a substantial amount of their
own money, they tend to be more focused on the success of that
investment than they would otherwise.
The best scenario
is when the sponsor has invested money into the deal from their
own wallet. However, sometimes people try and make it appear that
they have cash at risk, even when they did not actually take cash
from their wallet to put into the deal. For example, sometimes
people forgo fees that they will have the right to earn pursuant
to the deal and "invest" these into the deal. Although
this is positive, this is "future money" that they are
putting into the deal as opposed to cash from their wallet. Remember,
a dollar today has more meaning than a dollar tomorrow.
people try to persuade you that they are committed is by pointing
out that because they share in the profits, they have a strong
interest in the success of the deal and therefore your interests
are harmoniously aligned. Wrong. True alignment means you both
stand to either lose or gain based on performance. If he does
not have any capital at stake and the deal goes bust, you lose
capital but he does not.
that ranks up there with election year promises is "I have
invested sweat equity," when said by someone who in fact
also has the means to invest capital but chooses not to do so.
You might be surprised how often this is the case.
I was at a meeting in Tokyo earlier this year listening to a film
producer pitch some investors on the idea of investing in his
film. He is personally worth millions. He was asking for them
to make an initial investment of $5 million. He repeatedly told
the group that this movie would return multiples on their money
(multi-hundred percent) and that it was virtually risk free due
to his connections in the business. I casually asked him how much
he was investing and the answer was "zero." This guy
is now a contender for the Hammerhead of the Year Award for 2004.
Invested capital tends to increase your motivation and motivation
increases your commitment.
The second question that I suggest you ask also requires no
investment jargon: "When will I get my money back?"
An important corollary is "How will you generate the cash
needed to return my principal?" This is something we all
answer this question reveals a lot about their thought process
and the nature of the investment. I like it when their answer
shows that they have thought a lot about the importance of returning
my principal. I also like it when they talk about back-up plans
- since not everything goes right all the time and it helps to
have alternatives. In addition, I like answers that are specific
and concrete and involve actions that can be taken by the team.
Answers which largely depend on external events make me nervous
- both because the team does not have the power to control the
outcome and also because the team might lose motivation if they
face externalities that are less positive than expected. Once
team motivation is threatened then the whole deal is at risk.
I also like
simple answers. When they cannot answer the question in one sentence,
I almost invariably do not like the answer. When I worked at James
D. Wolfensohn, Incorporated as a mergers and acquisitions analyst,
we often drafted "deal memos" for the partners. These
memorandums contained summary analysis regarding potential clients
or potential deals. Some partners preferred long documents. Notably,
our Chairman, the former U.S. Federal Reserve Chairman Paul Volcker
demanded one-page memorandums. He believed that if you cannot
communicate the ideas on one page then you do not really understand
the core issues. The same applies to how people answer the second
Rule #3 : The third question is "Have you done this before?"
the answer is "yes," then the team is well-positioned.
If the answer is "no" then you need to spend more time
understanding the qualifications of the team.
the answer is "no" does not mean it is not a good investment.
For example, two years ago, I helped sponsor a new residential
construction company called Primera Homes in Austin, Texas. The
other founders had never created a construction company before
but they all had extensive experience in construction and one
of the founders had built four businesses from scratch that he
grew to $100 million in sales. I believed in their integrity (I
still do) and the business proposition was attractive and simple
(better quality homes, for less, and built two times faster than
the speed of other home builders). They have executed day in and
day out and in just 18 months have returned all my capital. The
company is profitable and well positioned for the future.
question is also designed to help identify key areas that might
require more investigation. For example, much to my surprise I
still see many business plans that depend on an IPO for the return
of investor capital. Many of the authors have never taken a company
public and have no clue how burdensome this process can be --
before, during and after the IPO. This hurts their credibility
in my eyes.
without reading any thick books on investing, without utilizing
any fancy financial theory, without an MBA or CFA, and without
memorizing any investment lingo, you can learn a lot about potential
investment deals by asking three basic questions:
- How much are YOU investing?
- When will I get my money BACK?
- Have you DONE this before?
in these 17 words will save you a lot of time and money. Like
most things in life, the good old basics prove to be reliable
time and time again. It is amazing how many people preoccupy themselves
with all sorts of investment ratio calculations, financial lingo,
ultra-detailed legal analysis and in the process forget the basics.
VISION: To build
a global community of investors through a worldwide website, seminars,
radio, television and print partners.
GOAL: To provide high-quality, first-run, ethical financial news,
information and education, presented in an entertaining format,
across all media (television, radio, print and online).
MISSION: To provide the news, information and education investors
need to make better choices and to make investing as much fun
PHILOSOPHY: Member Mosaic. Piecing together a more complete picture
of the publicly traded company, one tile at a time, by valuing
firsthand consumer experience, conducting evaluations of the executive
team and lining up the numbers of the publicly-traded company
with its competitors in a Stock Report Card.
For more information on NataliePace.com contact us at info@NataliePace.com
NataliePace.com is NOT a stock brokerage service, and does not operate
or act as one.