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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.

U.S. TAX POLICY FAVORS HIGH-RISK INVESTING

admin — Mon, 27 Apr 2009 21:44:32 +0000

It is clear that during many of the past 50 years, risk-free investments such as Treasury bonds offered real after-tax returns that were either negative or in the low single digits for high-bracket investors. (For example, a 5 percent nominal return in a 40 percent tax bracket with 3 percent inflation is a zero percent real return.) Under these conditions, a safety-minded investor cannot create much value, and during long periods she may slowly see value erode.

But a high-risk investor can actually do a fairly good job of approximating total tax avoidance. If she invests in a basket of fairly high risk, poorly correlated securities, in an average year she will have some gains and some losses, but more probably a net gain. (Common stocks have averaged about 11 percent annual appreciation over the past 70 years.) She can sell all of her losers to establish tax losses and sell winners that generate an equal amount of gains. The tax-free proceeds of these sales can pay her living expenses, and any balance can be reinvested in new stocks. Until she runs out of losses, she will pay no tax. In effect, she can use risk—here viewed as a dispersion of returns—to create a tax shield, whereas we have shown why an investor who opts for a risk-free return has no such shield.

With a tax structure that favors value-creating high-risk investing and rather heavily penalizes more conservative investment patterns, it is no surprise that the United States leads the world in business innovation. The good news is that we seem, for the moment, to be better than the other guy. However, viewed through the lens of total value, the U.S. tax system is a large encumbrance when compared to an ideal system designed to maximize value creation. This is the bad news. But it is also good news, in a sense: There is room for improvement. As we get smarter, we’ll get better.

PERSONAL FINANCES AND SMALL BUSINESS ADMINISTRATION

admin — Sat, 25 Apr 2009 19:37:16 +0000

On July 30, 1953, the federal government established the U.S. Small Business Administration with the purpose of aiding, counseling, assisting and protecting small businesses. SBA financial assistance is vital to the growth and startup of small businesses. Over the years, the SBA has grown in its total assistance provided and also the types of programs offered. Almost 20 million small businesses have received assistance through one or more of the SBA’s programs.

In addition to financial assistance, the SBA also offers tools to manage a business from start to finish and has made improvements to its own business processes. Following the hurricanes of 2005 (Katrina, Rita and Wilma), the SBA experienced an overwhelming number of loan applications from disaster victims. Lacking the capacity to process all of the loans, the SBA established the framework for a recovery plan to deal with future disasters.

Patronage Websites

admin — Fri, 26 Sep 2008 10:17:28 +0000

The following websites are under our patronage:

Business Area Blog – Blog for business investors and speculators
http://finances.personal-finances-advisor.com/ – Your peronal guide to the financial world
Invest Your Money Blog – Learn how to invest your money efficiently
Investors Advice Blog – Professional help for investors
http://loans.personal-finances-advisor.com/ – Help for those who wish their loans were less expensive
http://realestate.personal-finances-advisor.com/ – Efficient methods of real estate trading

Introduction to Personal Finances Advisor Blog

admin — Sat, 06 Sep 2008 13:18:31 +0000

Wlecome to the personal finances advisor blog! Visitors to our site should be happy to know that this blog was established by people dealing with finances of daily basis, who would like to share their knowledge on subjects such as credit cards, mortgage, debt consolidation or loans. All information presented here should be comprehensible to common users with no experience in the field of finances. If you are willing to participate in personal-finances-advisor team’s work and activities please let us know by email.