Personal Finances and Loans Solutions » real estate

Resolving the basic debt management problems

admin — Fri, 14 May 2010 13:47:04 +0000

A classic example of this happened to a client of mine: an appliance manufacturing company. The sales and production departments worked together to ensure that stock was delivered on time to cover sales promotions. Things were going well, customers were buying appliances through the promotions, and back orders almost ceased to exist. Yet, while sales managers were making record bonuses, production managers were not seeing any change in their bonuses.When the partnership met, this gap was brought to the attention of the Sales and Production vice presidents. They were told that production managers and supervisors were starting to get angry that salespeople were making huge bonuses while they did all the hard work. The two partners decided to split the promotion sales bonuses evenly between Production and Sales to deal with the inequality and provide mutual benefits to both partners. As a result, the partnership between
Production and Sales worked so well that after a two-year period, both groups got record high bonuses. The partnership moved from resolving a logistics issue to making design improvements based on customer feedback that Sales passed along to Manufacturing. The partnership worked so well, in fact, that the vice president of Sales told me one day: “I can’t even remember what it was like when we were not working together in partnership.”

Meeting your payday loan requirements

admin — Fri, 16 Apr 2010 09:32:12 +0000

The subtitle of Harvey Mackay’s book Swim with the Sharks Without Being Eaten Alive (1996) offers this advice: “Do what you love, love what you do, and deliver more than you promise.” There’s no better way to develop a trusting partnership than to do more than the minimum your partner expects. Trust isn’t automatic; it has to be earned. Trust levels are relative and can increase or decrease depending on what the partners do or don’t do to build trust. If doing what you promise to do builds trust over time, exceeding your promises multiplies the impact of your actions.

We should try to exceed—rather than merely meet—the requirements of our promises. “Exceeding expectations” sounds like you expend full effort and enthusiastically complete the task, whereas “meeting requirements” sounds like you grudgingly perform the minimum. A law of physics states that for every action there is an equal and opposite reaction. Exceeding performance expectations triggers a reciprocal reaction.How do you feel about doing your part when your partner has already given 110 percent?

Credit status will persist as hard evidence

admin — Sat, 21 Nov 2009 19:54:05 +0000

Aggregate financial ratios give a reliable picture of the state of the highyield market and should not be neglected irrespective of technical factors. Technical factors driving the high-yield market can change fairly quickly but credit status will persist as hard evidence and change only slowly over time. The most important fundamental measures are:

Free cash flow generation
Refinancing calendar
Access to capital markets (bank lending standards)
Reported earnings and earnings outlook
Equity performance
Growth prospects
CAPEX needs
Leverage trend
Coverage trend.

Leverage and coverage ratios are particularly important for the analysis of high-yield issuers. We find significant correlations between the spread levels of selected high-yield issuers and their coverage ratios and their leverage ratios.

Index fund investors and pseudo-index fund investors

admin — Mon, 05 Oct 2009 12:43:27 +0000

Index fund investors and pseudo-index fund investors must be prepared for a decade of mediocre returns. Stock investors looking for the fast lane will find it clogged. Frustration and other symptoms of unmanageability will be common. Should indexing lose popularity, returns will turn negative as investors seek alternatives. If the herd abandons the index funds for money market funds, bonds, real estate, or other asset classes, all the emotions of a panic can be expected. If you are an independent thinker, you are best off avoiding mutual funds.

Long-term mutual fund holders often drift into indifference. After a few years, they have no sense of connection with their money. All fund statements and mailings are glanced at and filed or thrown out. In the back of their minds, they know there is something they ought to be doing but having put it off for many years, they simply leave it be. Mutual funds in IRAs and 401(k)s are often abandoned for decades. On retirement, the holders are shocked at how little money has accumulated.

Active investors become resentful of fund managers. Fund managers’ salaries are insulated from fund results. Salaries rise in bad years as well as good. With no stake in the outcome of their investment decisions, fund managers’ interest and yours are opposed. Fund managers make more Money than doctors, lawyers, and all but the CEOs of the largest corporations. Yet their results are no better than random picks from the stock tables.

Picking stocks by the numbers

admin — Mon, 07 Sep 2009 13:02:09 +0000

Most managers pick stocks by the numbers: P/E ratios, earning growth rate, EBITDA to enterprise value, and so on. Hundreds of studies have shown that you cannot outperform the market looking solely at numbers. Insight is required. But insight can cost a manager his job and a $500,000 annual salary. Picking stocks by the numbers as does everyone else, keeps those paychecks rolling in. In interviews and slick marketing brochures, mutual fund managers boast that they have one-on-one contact with company managers. Unfortunately for you, every mutual fund manager talks to the same company managers at your expense. Trips to New York, Boston, Silicon Valley, and Los Angeles are paid for by you. Investment conferences in Las Vegas, Honolulu, and Hong Kong cost you even more money. Because all the fund families talk to all the companies and go to all the conferences, no one gains any insight and all return home to the same numbers.

Fund gathering, job security, and indexing has resulted in most funds, index and non-index, owning the same stocks. Overowned stocks have huge market capitalization. It requires larger and larger purchases of stock to move prices up. In essence, $100 million in new money will increase the value of a $1 billion stock by 10 percent; a $100 billion stock will only increase in value by 0.1 percent.

College costs

admin — Tue, 07 Jul 2009 21:00:28 +0000

I’m not going to bore you with every possible financial goal, but if you plan on putting yourself or someone else through college in the future, it’s imperative that you begin to save for that now. Again, to save adequately, you’ll need to eliminate your monthly debt obligations as soon as possible.

Failure to plan for college expenses has two major effects in my experience. First, many people who have not planned and saved adequately usually stop saving for their other goals while scraping to pay for tuition. Even a small delay in getting started on saving can have a huge impact on what you’ll have to save later to play catch-up. Second, the failure to plan for college usually results in the accumulation of more debt in the form of student loans. While these are often a necessary evil, they can be one more financial weight around your already exhausted neck. (See Chapter 15 for more on student loans.)

The Magic of Growth Multipliers

admin — Fri, 12 Jun 2009 13:18:29 +0000

The magic by which seemingly small income streams get magnified into huge market valuations is intimately tied up with the arcane mathematics of perpetuities. It sounds dull, but it is well worth understanding because it is the mathematical foundation of Wall Street wealth.

Aperpetuity is defined as an investment offering a level stream of cash flows forever. What is the value of a perpetuity paying $100 per year forever? Using a cost of capital of 12 percent, it would be the present value of the first payment, plus the second payment, plus the third payment, . . . , plus the fiftieth payment, and so on; that is, $89.29 + $79.72 + $71.18 . . . . The value of the payments gets progressively smaller. The value of the fiftieth payment is only 3 cents!

It turns out that the present value of this stream, no matter how far one goes out in time, cannot exceed $833.33. That number is the free cash flow of $100 divided by the cost of capital, 12 percent, or 0.12—a very simple relationship that we introduced earlier.

Mathematicians say simply that this series converges to a finite limit. This one converges fairly quickly—it reaches 90 percent of the limit in 20 years, and 95 percent in 26 years. So in a practical sense, realizing the value of a perpetuity does not take forever, just a period of time that is consistent with the lifetime of a durable business.

Competitive Power

admin — Sat, 23 May 2009 16:29:28 +0000

Competitor reaction to an innovative new development is always uncertain, but it is to be expected. Competitors have the power to obviate the assumptions in a business plan. Ignoring this power can lead to overvaluation of the option. We have seen this factor in the Amazon case.

Prior to the innovation, some competitor reaction is already built into the economic base case; after all, the existing price structure and market share has been established in a competitive environment. Changes tend to be incremental. But a new development typically may elicit an exceptional response.

Consider a hypothetical situation. Today’s catalytic converters on automobiles must meet government-mandated emissions specifications regarding performance and durability. They require expensive noble metals, such as platinum, palladium, and rhodium. Assume that Aardvark Catalyst Co. invents and patents a new formulation that replaces more than half the noble metals with nickel and can thereby reduce its cost of goods sold by a full 50 percent. It offers the customers, automobile manufacturers, the new product at a 25 percent discount. This discount reflects half the cost savings, thereby giving the customer a compelling value proposition, while adding the other half of the savings to Aardvark’s bottom line.