Search Results for: "balance sheet"

Carnival of Wealth, Love Edition

March 3, 2014
Pictured, l. to r.: Unidentified carnival barker, P. McCartney, unidentified rabbi, R. Starr

L. to r.: Unidentified carnival barker, P. McCartney, unidentified rabbi, R. Starr

 

That’s not the emotion, but rather the italicized Love, the Beatles-inspired Cirque du Soleil show. Which we saw last week, despite it being a Cirque du Soleil production and therefore gayer than pink Skittles®. But the music made it tolerable, and that brings us to our weekly astonishing fact.

There are 214 songs that the Beatles both wrote and recorded. (There are several dozen others that they recorded but didn’t write, or wrote for other artists, or wrote and performed live but never committed to vinyl.) They did this in 7 years. That’s a song every 12 days. And don’t forget, they were making movies during that time. And playing scores of concerts. They performed 231 shows in 1963 alone, which is not only not a typo, it flies in the face of reason. Through all the LSD use, all the junkets to Rishikesh, all the women John Lennon beat the stuffing out of, they still managed to write more than one song every couple of weeks. The overwhelming majority of these songs weren’t exactly disposable, forgettable, or simple, either. Nor did the Beatles have Pro Tools. It defies both description and plausibility. Meanwhile, it’s all we can do to write 3 posts a week without musical accompaniment.

So here it is. The only blog carnival worth a damn, the Carnival of Wealth. Where quantity is of little consequence.

Wellllll…look who’s come crawling back. Or just crawling, really. Why, it’s Vanessa’s Money. Little Miss “I’ll never submit to the Carnival of Wealth, I have my reasons.” Here, look at the insouciance:

Vanessa

A big CYC welcome to the kind of submitter we always have room for here: a 20-something chick who writes about something other than how far in debt she is and what her significant other is studying in grad school. Vanessa does have some debt on her personal balance sheet, but it’s the good kind. The means-to-a-tangible-financial-end kind. She has that Québécoise habit of using spaces instead of commas in numerals with more than 3 digits, but aside from that trifling point her post is nails. Vanessa is the only personal finance blogger we’ve ever seen who took out student loans and then lived below her means and invested the loans, instead of buying trips to Cancún. What college kid is resourceful enough to see student loans as free capital? Only one that we know of.

Now that we’ve got the Prodigal Daughter’s post out of the way, we welcome Jason at Hull Financial Planning yet again. Here’s a Zen koan of a subheading for you:

Are we creating an emergency by not investing our emergency fund?

You people who insist on creating emergency funds, even when you have credit card debt and student loan debt incurring interest, always seem to see that emergency fund as inert. Static. Something that just sits there until Fortune smiles on you in the form of a meteorite crashing through your roof. Now, the universe has finally given you justification for creating that emergency fund, and withdrawing from it. Rejoice!

Let’s examine this like something other than idiots. If teenage Vanessa can figure out that a wad of cash can be used to grow itself, why can’t adult you do the same thing with an emergency fund? That’s what the late Senator William Roth invented his IRAs for. Or if you’re Canadian, what Jim Flaherty invented TFSAs for.

Believe it or not, we’d prefer to run a scorn-free CoW every week. The problem is the lousy submissions. But starting off a Carnival of Wealth with Vanessa, Jason, and Paula Pant at Afford Anything makes it difficult to say anything impertinent. Paula saves a ton of her money, a higher ratio than you probably think possible, but that isn’t enough. She has a knack for using Aristotelian reasoning in ways we’d never have thought of ourselves:

“savings” is deferred spending[…]
But spending later won’t get you closer to financial freedom.

Tell that to the huddled masses, please. Oh wait, that’s what we’re doing right here. Paula explains what you need to do beyond deferring spending in order to build wealth. The answer is hiding in plain sight.

Good Lord. Have we finally scared off every last incompetent personal finance blogger? Are we left with nothing but gravy? Cameron Daniels at DQYDJ.net has an adjustable-rate mortgage, something we rail against, yet manages to make it work. He pays his bills as late as possible, which might mean little in the short run but it does cultivate a habit of not letting other entities enjoy his money interest-free. (Why do you think TV offers always say “Allow 4-6 weeks for delivery” once they get your payment?) Cameron also shifts effortlessly between homonyms in this post without making a mistake.

Justin at Root of Good is experiencing a more interesting retirement than he might have initially expected. His stock investments took a $60,000 pounding in a matter of mere weeks, but Justin isn’t panicking. Those stocks have decades to rebound.

Andrew at 101 Centavos asks what’s looking more and more like a rhetorical question: Is the Keystone XL pipeline ever going to get built? Fun facts: You probably didn’t know this, but the thing is already mostly in operation. There’s only one phase that’s the sticking point, and it’s supposed to go through some of the sparsest land in the lower 48. But among other issues, the Koch Brothers might benefit from it, so Phase 4 is therefore bad. (This is how knee-jerk environmentalists phrase things, isn’t it? Are we doing this right?)

Finally, how about some Pauline Paquin at Make Money Your Way? Oui, s’il vous plaît. If we ever did a feature called Mastermind of the Month, she’d be permanently in the running. Pauline has led a life that our (F)RotM honorees can’t even conceive of, let alone live. Pauline has visited 70 countries (including a motorcycle trip from Norway to Morocco), quit full employment years ago before it forever captured her soul, runs multiple blogs and is now living on the beach in Guatemala. But as far as we know, at no point did she say, “You know what? I need some direction. Why don’t I go back to college, it’s easy and I know where everything is.” Or “I’ve been dreaming of a $75,000 destination wedding since I was a little girl and nothing is going to stand in my way.” Fortunes are made every day. Pauline is making hers as we speak. What are you doing? 

And…a pop-up to the pitcher for the 27th out. We no longer have to worry about jinxing it. We finally did it. A perfect CoW. Not a dud anywhere. You can thank the submitters for making this worth everyone’s while.

Then you can thank us for making it possible. Check us out on Investopedia, and if you were ever going to download the Stacking Benjamins podcast, you should make it this week. We nailed it on there, too. Every week, in fact. And every day here. New Anti-Tip of the Day every day, new posts Wednesday and Friday, and another one of these Monday. Thanks again.

Filed Under: Carnivals Tagged With:

#MakeCollegeUnnecessary

August 23, 2013
Melvin's busy making spacecraft, but as soon as he's on his break he'd love to hear your analysis of heteronormative role play in modern media.

Melvin’s busy making spacecraft, but as soon as he’s on his break he’d love to hear your analysis of heteronormative role play in modern media.

 

Of course, it already is unnecessary, but try telling that to the liberal arts majors who seem to be providing most of the vocal power for the latest rallying cry/hashtag. No less formidable a force than the President of the United States has made “college affordability” his latest pet cause, arguing that the marketplace of education should be subject to something other than natural laws.

Things cost what they cost. Prices, with exceedingly rare exceptions, are inversely correlated to quantities bought. When the price of gas rises, it might not affect your own driving habits perceptibly, but one person in a hundred or a thousand is going to say, “Screw it, I’m taking the bus.” And if Chico’s decides to knock a few bucks off the price of its Magique pull-on ankle pants, they’ll sell more pairs to more fashionable if budget-conscious women. Raising prices means lower demand. Meanwhile sales (in the sense of “discounts”) increase sales (in the sense of “revenue”.) This is so obvious that pointing it out hardly counts as cogitation.

College was historically expensive, which is why a) for centuries, hardly anyone went and those who did were rich, and 2) in the last couple of generations, parents started creating college funds for their progeny. Save today, spend on Junior 18 years from now. It wasn’t easy, but supposedly nothing worthwhile is.

As a quantifier of how far we’ve advanced as a society, we’re reminded that university attendance is way up and that a larger ratio of our college-age colleagues are heading for tertiary education than ever before. This is supposed to be a pure representation of prosperity, akin to rising per capita income or declining infant mortality. In a future utopia, 100% of high school seniors will attend Harvard, Yale, or the safety school of their choice (probably Penn.)

What percentage of age-appropriate people should be attending college? Far less than do now. The evidence is overwhelming:

  • The college graduate who works at a retail job, far from being a tragic anomaly, has gone beyond cliché and turned into a quotidian feature of life.
  • Just about every personal finance blogger on the planet – i.e., people who think they have some sort of qualification for talking about money – carries tens of thousands of dollars in student loans and doesn’t even seem embarrassed by the situation.
  • Tuition has outpaced inflation by about 150%. We’ll explain why this is in a minute.
  • The most uncomfortable truth of all, for baccalaureate holders who want reality to be something other than what it’s currently constituted as: qualified blue-collar workers aren’t merely getting by, they’re prospering. Nor are they going into debt to do it.

Regarding the 3rd point above: when the federal government began the nationalization of education financing, that put downward (political) pressure on interest rates. After all, what’s the point of bureaucrats getting involved at the behest of our elected representatives if they can’t lower rates for the benefit of the voting public? Interest rates went from what the market would bear – i.e., where the lowest rate lenders were willing to offer matched the highest rate students and their parents were willing to pay – to something lower than that. Sallie Mae has no incentive to turn a profit in the same manner that independent lenders would, knowing that taxpayers can and will make up the difference.

The schools still operate with respect to the balance sheet, however. The University of Michigan might not be a for-profit venture in the same sense that DeVry or the University of Phoenix is, but the former still has an endowment to maintain and expenses to pay. Out of tuition and gifts mostly, and tuition monies are less subject to whim and variance than donations are. So…

If you’re a university, why not increase tuition far beyond its historic norms? You have tens of thousands of potential incoming students, all of whom have been convinced (or convinced themselves) that what you’re selling is indispensable. Throw a dead cat (its body donated by the biology department, where smart kids are learning marketable skills) and you’ll hit a professor (its body taking up space in the humanities department) who will argue that college education is a public utility of comparable import to electricity and water. The only difference is that the local power company is probably a mandated monopoly that’s forced by law to charge below-market rates that cover expenses and allow for a modest profit. Meanwhile, universities don’t operate under such constraints. If every university in the United States decided tomorrow to double its tuition, students would grumble, lead protests, wear Che Guevara shirts, listen to Rage Against The Machine, maybe even burn effigies of Richard Nixon, but they’d still get their parents to pay. Largely because they can’t see nor comprehend the price tags. I still have enough to pay for this week’s pot and hummus wraps, right? That’s all that matters. Besides, I don’t have to start paying back until I graduate.

Perverse incentives, again. Now you’ve just given Johnny Undergrad motivation for spending money and time on a master’s degree and deferring life even longer.

Debt will kill you, often creating a hole in 4 years that you can spend 8 times as long digging out of. It doesn’t matter: education remains a drug more desirable than the purest batch of crack. Maybe that’s the problem, a semantic one. “Education” implies a universal good, like “health” or “prosperity”. But education is what you get when you absorb and retain practical knowledge. Which indicates true education – knowing that Shakespeare intended Prospero to be an autobiographical character in The Tempest, or knowing that the duration of a vehicle’s spark line is based on total primary circuit resistance and coil voltage available?

Now, knowing which of those will remedy a weak fuel/air mixture and get someone’s car running smoothly? Okay, which of those can you learn only in an inexpensive community college or trade school? Finally, which will impress an employer (excluding deans of college English departments), and make a tangible difference in the world?

Stop complaining, and stop moving in a direction other than forward. When a significant portion of college students realize they’ll be better off elsewhere, those colleges will notice. When parents begin to acknowledge that the math will never pencil out on their daughter’s performing arts degree, purveyors of higher education will have no choice but to communicate more effectively to their clientele exactly what they’re getting for the money. And hopefully, our demagogues in charge will realize that the stated goal of higher enrolment shouldn’t be an end unto itself.

Filed Under: Consumer Debt, Education Tagged With: , , ,

There Are No Other Stocks. Only Apple And Facebook.

December 19, 2012

 

Does this guy look like he had your best interests at heart?

 

At least that’s what you’d think if you only glanced at the financial news, which is why it’s important to remember the wisdom of the old axiom that all news is biased. That doesn’t necessarily mean that said news is distorted or inaccurate. Often, it just means that the very prominence of the story is out of proportion to its importance.

Apple loses 1% in an afternoon, and it’ll lead CNBC’s top-of-the-hour. Facebook announces a new privacy policy, which doesn’t even have anything to do with finances, same thing. One of the 5000 other stocks that trade on the New York Stock Exchange or NASDAQ does something significant, and the arbiters of news don’t care enough to tell you. If Mac-Gray Corporation (a commercial laundry company that puts washers and dryers in apartment buildings) raises its dividend, or Ralcorp (a private-brand food manufacturer) sells itself to ConAgra, it’s difficult to find mention of such.

Folks, this is where the value lies. In the part of the investing iceberg that’s under the surface. You can buy a 100-lot of Apple stock, which will cost $53,390 as of this writing, and eat your fingernails down to the cuticles while being reminded daily of its fluctuations. Do you really want to make an outlay that big to invest in a stock that has plenty of room to fall?

Contrast Apple with Yamana Gold, a Canadian company that mines in Mexico and South America and that has been trading on the NYSE since just a few months after its 2003 founding. The stock reached its all-time zenith of $20 a share last month, from which it’s since lost about 1/7 of its value. Yamana Gold might not be as famous nor as wealthy as Apple – the latter’s market cap is 39 times the former’s – but both companies are NYSE members in good standing, with no pending sanctions. Both are pretty profitable, too. Care to guess which has the higher profit margins?

We wouldn’t ask if we didn’t know the answer. Yamana Gold increased its revenue by almost 45% in 2010, and by a similar amount the following year. Profits have more than kept pace, representing almost a quarter of revenues in the last fiscal year.

At this point, both skeptics and pessimists look for reasons not to invest in such a company. Here are some likely objections, complete with rebuttals.

Yamana Gold makes only one product. Apple is diverse.

Yes, but this isn’t a binary world where you have to invest in one company or the other. You can buy Yamana Gold without respect to what Apple’s doing. This reinforces the point we made in the opening paragraph – stop letting the overexposed news darlings affect your decisions.

Yamana Gold’s doing well just because gold prices are rising.

Maybe, but so what? And are gold prices poised to fall? Bullion and Yamana Gold have indeed moved largely in lockstep for the last 5 years…well, actually the last 4 years. (Like most businesses, Yamana wasn’t profitable from its inception.)

Rationalization is one thing, refusing to see the potential for a good investment is something else. Along with its healthy profit numbers, both static and dynamic, Yamana Gold has also enjoyed a consistent arithmetic increase in its retained earnings – one of the most underappreciated items in a company’s balance sheet. Retained earnings have gone from $400K to $800K to $1.2M in consecutive years.

This from a company that already pays a healthy dividend of 26¢ a share. Remember, profits have to go in one of 2 places – to the shareholders (dividends), or back in the company (retained earnings). From an investor’s standpoint, which is better is largely a function of what your immediate and long-term goals are. Benjamin Graham and Warren Buffett would have you believe that dividends are the greatest invention ever, a cash payment made to you just for being smart enough to invest in a company whose large(r) shareholders insisted on voting themselves such a piece of the action.

From the other perspective, big retained earnings tell you that management is “plowing the profits back into the company”, which can be awful if the company is an unsustainable or wounded loser (see Groupon, Hewlett-Packard), but promising if the company has a history of profitability.

Yamana Gold is trading at close to its all-time high. Isn’t that a red flag?

Yes, but the company is only 8 years old. It’s a lot more likely to be reaching an absolute peak than is, say, U.S. Steel.

So yeah, invest in Yamana Gold. We are.

But Yamana Gold isn’t the focus here. Inconspicuity is. There are hundreds upon hundreds of companies that make suitable investments, hitting at least most of the criteria you want in something you plan to put your money in:

  • Consistent growth
  • Consistent profitability
  • Low price
  • Sustainable business model

There are secondary concerns too (moat, natural competitive advantage, etc.) but those are the main ones. Looking for an unheralded company whose recent history exhibits all those traits takes time, but it can well be worth it. Or you can just hold onto your position in Vanguard’s Institutional Index mutual fund and wonder why your money isn’t showing any significant gains. Your call. We’re not recommending you take unjustifiable risks, merely that you take intelligent ones. Big difference. And if this still seems overwhelming, or too condensed for you to really understand it, get our e-book: The Unglamorous Secret to Riches. It’s essentially this post, expanded and detailed for the neophyte but ambitious investor.

Filed Under: Investments Tagged With: , ,
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