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Archive for the ‘Weekend Investor’ Category

Weekend Investor: Why Michael Moore Gets A Pass @Occupy

November 5th, 2011 No comments

There is a battle going on between the 99%ers and the 53%ers. Sam @FinancialSamurai makes a good case for the 53%ers, who are the silent majority in the country who pay all the federal income taxes. They are not protesting, not occupying any parks, but going to work to make their own way.

The question I have about this issue is why do celebrity 1%ers and others in that category not only get a pass by the 99%ers, but are welcomed and celebrated? Michael Moore as pictured above recently visited Occupy Wall Street to speak. You may have seen recent stories about Kayne West, Russel Simmons, Susan Sarandon and many others also being welcomed. Surely these celebrities are part of that 1%?
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Weekend Investor: Scoping The Second Derivative

October 29th, 2011 No comments

Remember math in school? OK, I think most people want to forget, but math was a strong subject for me. I’ve forgotten a lot of that math while other key concepts I’ve kept and used over the years. There are fewer math topics more important and memorable than the derivative. My instructors of the day said that it was important because it is used in all sorts of fields. They were right.

And so it goes for investing. It’s helpful here too.
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Weekend Investor: Buy An Investment…Get A Check

October 23rd, 2011 No comments

I’m old enough to remember those Chrysler commercials when Lee Iacoccca famously stated: “Buy A Car…Get A Check!” This was the 1980s when a Billion dollars was real money. Chrysler successfully lobbied the U.S Government for a Billion dollar loan, while at the same time hocking loans to consumers that promised free money. (And I thought this ‘government intervention’ in private companies was a new 2008 thing!)

I have always admired Iacocca he turned around Chrysler and he was a self made man who at his best is a pure salesman. He’s the main reason why I invested in Chrysler in my middle school investment contest. I made a lot of money (on paper anyway).

But as a financial move, you have to think that buying a car and getting paid to do it doesn’t sound like a financial move that would make sense. And of course your gut would be right because the check he gave you simply was a loan built into the car loan that he is selling you.

And unfortunately, this same kind of game is played by the Ponzi schemers parading around as investment managers. They promise big returns and what better way to demonstrate it than by providing big checks? The returns are good until of course the checks stop coming as they must.

If you are investing in great companies the best thing that they can do for you is to send you checks, because this is the best statement that a company can make to its shareholders. It’s too bad that other people parading checks are not so genuine about their reasons.

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Weekend Investor: Should You Own Just One Investment?

September 15th, 2011 No comments

When it comes to investing, the conventional wisdom says to ‘diversify’ to make money over the long term. Diversification is said to work because it limits your exposure to the ‘big’ loss, as well as offering the ability to make money at any given moment because most investments tend to perform/under perform in cycles.

My thought for this weekend is make the case against diversification to the extreme: owning just one investment. And I don’t mean buying a huge mutual fund such as an S&P500 index fund, or that even bigger total stock market fund that has hundreds of investments in one, the so called total stock market fund. I mean just one individual investment, like a company stock.

What The Fed Chairmen Have Picked

The last two U.S Federal Reserve Chairmen both have inadvertently offered up their wisdom on owning just one investment. The former chair Alan Greenspan only owned investment: U.S Treasury Bonds. He has since changed his investments subsequent to his retirement, but the reason that he offered for owning just Treasuries was to avoid any conflict of interest.

As a practical matter, owning just Treasuries isn’t that easy. Because interest rates are changing over time, it is difficult to generate a consistent income stream off of them. The best option would be to have so many bonds such that you could deal with the variability, in other words, very rich.

The current Fed chairman, Ben Bernacke, listed his only stock investment as Altria (MO), which we own in the Income Portfolio. If you owned this company at the time he made this disclosure (2005), you would now own (3) companies due to a breakup: Kraft (KFT), Altria (MO), and Philip Morris (PM).

This choice as a single investment was previously identified as the best performing S&P500 stock by economist Jeremy Siegel over the past 50 years. So, not that bad of a bet, because even though this is thought to be a mature company, Altria easy beat the stock market over the last 10 years as well.

My Choice For The ‘One Investment’

If I had to pick just one investment, I would want a company that has demonstrated consistently that looking out for the shareholder interest is the first priority. Sure other attributes are important, but given that economic cycles are inevitable, you need to have confidence that the company is looking out for your interests. So, from this point of view, I would pick one of these two companies:

  1. Realty Income (O)
  2. Phillip Morris (PM)

These companies have great management and a proven track record of creating shareholder value.

What would your choice be?

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Weekend Investor: What To Do With Your Obama Tax Cut

December 12th, 2010 No comments

It’s practically a done deal that the Bush Tax Cuts will be renewed before the end of the year. While there is some political wrangling on the details, a bill will passed.

Even though Bush has been gone as president for almost two years, perhaps his biggest legacy (the signature tax cuts) lives on. Whatever your view on this policy, it’s undeniable that it has been popular. If it wasn’t, the Democrats could have made a convincing case to repeal them because they have been in control of all branches of government the last two years. Instead, the Democrats chose to spend their political capital on the Health Care Reform legislation.

However, the title of this post is concerning the Obama Tax Cuts. If you don’t know what these are, you are not alone because most people don’t know about them. They were a part of the 800B stimulus bill passed last year. Here are the details of the Obama Tax Cut (Making Work Pay Tax Credit) from

A refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns. This tax credit will be calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with modified adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.

The main reason that you may know about them is because either you didn’t qualify or because the credit was slowly applied during the year in your paycheck.

Politicians like to send checks to people because the citizen match the money with the political leader. I can say that my mother would do this, even linking the money sometimes to some politicians who has nothing to do with it.

Obama has proposed a similar tax cut that is even more generous that the tax credit that was offered this year. Here are the details:

  • Every taxpayer who earns income will get a 2% credit against their 6.2% payroll tax.
  • This credit applies to everyone including people who didn’t qualify for the MWP Credit because they earn too much.
  • Both you and your spouse can each qualify for this credit up to about $4200 in total, depending on your income. The typical taxpayer will individually qualify for about $1100 each.

What To Do With The Money

A good strategy for your finances is to take new found money and apply it either to pay down existing debt or use it to bulk up your investment portfolio. This Obama Tax Cut was unexpected by everyone, so it really is like found money. It can go along way to improving your personal finances.

Here’s what I’m going to do: Increase the monthly cash added to the Income Portfolio from $50/month to $100/month. So, this money will go to work immediately. Also, because we invest for income in stocks that pay income, we will see the results almost immediately.

If you take the maximum $2100 credit and earn 5% per year, this will add over $100/year in annual income going forward. So, the Obama tax cut can provide dividends for years to come!

What will you do with your Obama Tax Cut?

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