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    Thursday, December 22, 2005

    Tips tricks on transfering credit card balance

    I just transfer my Amex balance to another lower rate card, here is a few tips for you. Make sure you know what you are doing, otherwise you will end up paying much more than what you expected. Before you transfer that hefty credit card balance to a card with a super-low introductory rate, read the fine print and ask questions. Otherwise, you could end up paying fees and a much higher interest rate than you expected. First, ask these questions: 1. How long does the introductory rate last? 2. What is the card's annual percentage rate after that teaser rate expires? 3. Does the teaser rate apply to transferred balances or new purchases or both? 4. Does that card have an annual fee? 5. What about late fees and over-the-limit fees? 6. Ask if there are balance-transfer fees (Some issuers charge transaction fees as high as 4 percent. So the higher that balance, the higher the transaction fee. A 4 percent fee on a $5,000 balance would cost $200). Read through the credit card offer a few times. A lot of the information is hard to decipher. For example, some offers waives fees for "initial balance transfers" only. These are the transfers that are authorized when the customer accepts the card and completes the balance transfer form. In such cases, every other balance transfer is treated as a cash advance and is subject to cash advance fees. Keep in mind that not everyone who gets an offer qualifies for the super-low rate. While an offer may boast a 3.9 percent teaser rate that bumps up to 17 percent after six months, a person may qualify for a card with 7.9 percent teaser and a regular annual percentage rate of 21 percent. Also realize that it may only take one slip-up for that super-low rate to disappear. For example, a Platinum MasterCard from Fleet with a 9.99 APR jumps to 21.99 percent after one tardy payment. And if you fall behind on payments on another card, your new card may raise your rate. Once comfortable with the terms of the offer, be sure to fill out the balance transfer form carefully. Incomplete information may halt or delay a transfer. It's also a good idea to make the minimum payment on the old card while waiting for the balance transfer to take effect -- which may take anywhere from two to four weeks. The last thing a person who is trying to minimize their credit card costs needs is a $29 late fee and a penalty rate. The new card company may send a notice saying the balance transfer is complete. Be sure to call the old card company and verify this. Write down the name of the person you talked to, the date, the time and what was said. To avoid any mix-ups, experts urge people to wait until the old credit card company sends them a billing statement with a zero balance. If the company doesn't send one, request it. Then cancel the old card - you don't need it.

    How to Detect Creative Accounting

    Almost every day we’re hearing about how corporations have played fast and loose with accounting rules to hype their reported earnings. So it’s not surprising that quality of earnings is top of mind for many investors these days. However most investors, including me, haven't been trained how to scrutinize financial statements. Fortunately, a new book, “The Financial Numbers Game” by Charles W. Mulford and Eugene E. Comiskey, tells you how. Mulford and Comiskey are both college professors at the Georgia Institute of Technology in Atlanta, but they also do “real world” consulting on financial statement analysis, so they have their feet on the ground. The book tells you everything you need to know to detect when company executives are resorting to creative accounting practices to meet their numbers. The book covers a lot of territory and from time to time I’ll describe how you can put their concepts into practice when you’re analyzing a stock. Nonrecurring Accounting Shenanigans One such concept involves “nonrecurring items.” According to Mulford and Comiskey, nonrecurring items are supposed to be income or expenses that are “not expected to recur on a regular basis,” and the “term is often used interchangeably with special items.” Pro Forma Earnings The beauty of nonrecurring expenses in the eyes of some corporate managers is that they don’t have to count them when they tabulate “pro forma” earnings. Pro forma originally meant “as if” and was mainly employed to present the results of recently merged companies “as if” they had always been a single company. In recent years, though, some corporate managers figured out that they could make their earnings look better by emphasizing pro forma results in their quarterly reports. Unfortunately the analyst community decided that was a good idea and analysts base their published earnings forecasts on pro forma earnings. So when you hear that a company beat analysts’ forecasts by two cents, it means that the company’s pro forma earnings were two cents higher than analysts’ forecasted pro forma earnings. Since the pro forma calculation doesn't deduct nonrecurring costs to come up with earnings, the more expenses that can be defined as nonrecurring, the higher the reported earnings. Waste Management took that concept to the limit when it decided that the $24 million that it spent for painting trucks and other signage costs were nonrecurring and excluded them when it calculated its December 2000 quarter pro forma earnings. Spot Habitual Users Obviously, most firms will from time to time incur costs that are truly nonrecurring such as costs associated with losing a lawsuit, closing factories, writing off worthless patents, etc. The trick is to differentiate the companies that persistently come up with nonrecurring expenses to boost pro forma earnings. That’s doable because both Multex Investor (www.multexinvestor.com) and MSN MoneyCentral (moneycentral.msn.com) list nonrecurring items on a separate line of each company’s income statement. The entries are labeled Unusual Expense/Income on Multex and Special Income/Charges on MoneyCentral. Divide by Sales The raw numbers don’t mean much alone, so I compare a firm’s nonrecurring expenses to its total sales. Both are shown on the annual income statement. I do it by dividing the nonrecurring expenses by the sales and compute the result as a percentage. For instance, the ratio would be 10 percent if a company recorded sales of $1,000 and listed $100 in nonrecurring charges (100/1000). A single fiscal year’s data isn’t significant since the object of this exercise is to pinpoint firms that consistently rack up big nonrecurring charges. Both MoneyCentral and Multex list five year’s worth of data, so I compute the ratios for each of the five years, and then average them. Clean Accounting Examples Here are a few sample five-year average ratios for companies that in my view practice clean accounting, that is, they have a low incidence of nonrecurring charges: Bed Bath & Beyond 0%, Dell Computer 1%, Home Depot 0%, Intel 1%, and Microsoft 0%. Suspects I consider any company with a ratio of three percent or higher as a suspected nonrecurring expense abuser. Here are the ratios for some firms that persistently record nonrecurring charges: Cisco Systems 7%, Computer Associates 9%, Tyco International 4%, Waste Management 10%, and Yahoo 13%. Amazon Example I’ll demonstrate how to calculate the ratios by analyzing Amazon.com using Multex Investor. Enter Amazon’s ticker symbol (AMZN) on Multex’s homepage, select Income Statement, and then use the dropdown menu to select the annual income statement. On the unusual expense/income line, positive numbers are expenses and negative numbers represent unusual income. Multex listed nonzero expense figures for each of the last four years for Amazon (1997 was zero). For instance, it listed $181.6 million in unusual expenses and $3,122.4 million revenue (sales) for Amazon’s December 2001 fiscal year. The nonrecurring (unusual) expense to sales ratio for that year is 5.8 percent (181.6 divided by 3122.4). The ratios for each of the five year’s starting with 2001 and working back to 1997 are: 5.8%, 7.3%, 0.5%, 0.6% and 0%, respectively. The five ratios averaged three percent. Using the five-year average, Amazon just qualifies as a suspected nonrecurring expense abuser, but the two most recent year’s ratios signal a trend towards increasing reliance on nonrecurring expenses. Helpful Tool No single number works to define a stock’s future performance, and a company may have a legitimate reason for its persistent nonrecurring expenses. Consider the nonrecurring expense ratios as another tool to help you evaluate the risks and rewards of owning a stock.

    Two New Investing Resources

    Here’s a pleasant switch. Instead of telling you about sites disappearing, this week I’m going to describe two investing resources that I’ve recently discovered. Also, readers alerted me to a problem involving Morningstar data that I suggested using in a recent column about mutual funds. Here are the details. Easy Stock Screener Screening is a process for searching through all listed stocks or mutual funds to find those meeting your particular requirements. Until it shut it down last year, Quicken’s stock screener was many investors’ favorite because it was easy to use, yet provided a good assortment of screening selections. That loss left us with few choices in the user-friendly category. Now, Netscape is filling the void with a screener that is similar to Quicken’s in terms of versatility and ease of use. Netscape doesn’t usually come to mind when you think of financial tools. But AOL, a unit of Time Warner, appears to be resurrecting the name as an Internet portal, a la Yahoo! Using Netscape’s screener, you can search for just about everything that you could have on Quicken. About the only Quicken parameter that Netscape doesn’t offer is relative strength, which compares a stock’s price action compared to the overall market. On the positive side, using Netscape, you can search for companies based on free cash flow (excess cash after accounting for all expenses and capital equipment costs). That’s an important feature because many investors won’t consider a stock that isn’t generating free cash. Get to the screener from Netscape’s home page (www.netscape.com) by selecting Money & Business and then click on Stock Screener in the Investing section. Canadian Royalty Trusts Judging by my mail, a lot of you are interested in Canadian Royalty Trusts, which many U.S. investors refer to as Canroys. These are oil and natural gas exploration and development companies headquartered in Canada. Because of their tax status, they distribute most of their cash flow to unit holders (shareholders). Most pay monthly distributions (dividends). Many Canroys are paying dividends equating to double-digit yields, mostly in the 12 percent range, but some as high as 16 percent, hence the interest from U.S. investors. Of course the yields are high for a reason. The payouts will fall if oil prices drop. Even if they don’t, the CANROYs are depleting their existing resources and there’s no guarantee that they’ll be able to maintain current production levels indefinitely. Investcom is the best place to research the topic. From Investcom’s home page (www.investcom.com), select Income Trusts from the dropdown menu and then select Resource Trusts for a complete list of Canroys. Click on a company name to see a short profile. From there you can view a trust’s distribution history, recent news stories and a short synopsis of recent analyst reports, if any. Be sure you do your due diligence, and don’t put your retirement money there. Morningstar’s Fund Data In a recent column, I described a five-part mutual fund checklist to quickly rule out funds not worth researching. I suggested using Morningstar’s site (www.morningstar.com) to find the needed information. One of the factors I advised checking was a fund’s price/sales ratio, a valuation measure listed on Morningstar’s Portfolio report. In the column I stated that a mutual fund’s price/sales ratio is the average P/S (share price divided by 12-months sales per share) of its stock holdings. Based on my own research, I advised avoiding funds with P/S ratios above 5. It didn’t take long for alert readers to point out that something was amiss. Morningstar’s fund P/S ratios appeared abnormally low. After checking with Morningstar, I found that, about two years ago, it changed its method of calculating all of the valuation ratios listed in its Portfolio report. Under the old way, Morningstar would average the valuation ratios of all stocks in the portfolio (weighted by percentage of the portfolio’s net asset value). The new method uses a more complicated formula. I don’t have the room to explain the details, but the differences are substantial. For instance, for the White Oak Select Growth fund, the price/sales ratio calculated the conventional way would be 7.7, but Morningstar now lists it as 4.7. Similarly, White Oak’s price/earnings ratio is 32.9 calculated the standard way, but Morningstar says 25.4. Morningstar says it has good reasons for doing the math its way, but its numbers won’t work for my checklist, because my research was based on valuation ratios calculated the old way. The easiest way out of this dilemma is to use valuation ratios computed the conventional way by Lipper, another mutual fund rating service owned by Reuters. You can find the Lipper’s valuation ratios on Forbes (www.forbes.com) or Smart Money’s site. When I checked, Smart Money had more recently updated information than Forbes. From Smart Money’s home page (www.smartmoney.com), enter the fund name or ticker symbol in the search box to access the fund’s Snapshot report. From there, select the Portfolio report to see the valuation ratios. Smart Money and Forbes both display the price/earnings and price/book ratios, but not price/sales. So, use P/E in place of P/S. I’ve found that funds with P/Es above 30 signals high risk, especially in a weak market. Risk-averse investors should select funds with P/Es of 25 or less. Please let me know about any investing resources you’ve found that I haven’t mentioned in these columns, and thanks to readers who gave me the heads up on Morningstar’s ratios.

    Make High Gas Prices Work For You

    Skyrocketing gasoline prices hurt, but also create opportunities for astute investors. Consider this. Last week, OPEC, the Organization of Petroleum Countries, increased its daily crude oil production limit. It wasn’t the first time the cartel upped production in an attempt to contain oil prices and probably won’t be the last. Indeed, according to U.S. Government figures, daily world oil production has soared to 83 million barrels from 77 million barrels in 2002. Whether increasing production quotas brings crude oil and gasoline prices back down to earth is anybody’s guess. But no matter what, all that oil has to be transported, and that is mostly done by ship. Most crude oil tankers are operated by independent shipping companies, and many of them are publicly traded. Last year, the demand for oil tankers exceeded supply, shipping rates soared, and tanker operators’ profits skyrocketed. Rates have come down somewhat this year, but are still high by historical standards. By investing in oil tanker stocks you can win two ways. First, if shipping rates increase, share prices could rise along with profits. But there’s more: some ship operators pay out a significant chunk of their cash flow to shareholders. These dividends can be substantial. Several tanker stocks pay dividends equating to yields (12-months dividends divided by share price) ranging from four percent to 10 percent. But don’t call your stockbroker just yet. The dividend payouts could drop depending on what happens to charter rates (day rates). The rates have dropped from last year’s peak. While many analysts see rates bouncing back, there are plenty of naysayers. The day rates depend, of course, on supply vs. demand. Figuring both is tricky, but coming up the number of available ships at any given time is especially elusive. Triggered by the Exxon Valdez incident, the industry is slowly replacing its single-hulled ships with double-hull tankers that are less prone to leakage. However, if need be, ship owners could delay the retirement of the older ships to satisfy demand. Industry Research You can draw your own conclusions by visiting industry sites such as one run by Poten & Partners (www.poten.com). Poten provides brokerage and consulting services to the energy industry. On its site, Poten offers energy industry news, but more importantly, plenty of opinions about just about everything related, including oil tanker rates. Especially pertinent when I looked was a February 4, 2005 article titled “The Fall and Rise of Tanker Rates,” and March 25 article “And the Beat Goes On,” You can see them in the “Recent Poten Opinions” section (full listings) accessible from Poten’s main page. Poten’s News Headlines (under News & Events) is another valuable resource. The title is misleading. Many of these stories are in-depth analyses that I haven’t seen on other sites. Finally, I found Poten’s Glossary (under Tools) very helpful. If you’re like me, you’ll find many of the terms thrown around in the news and opinion sections to be unfamiliar. Finding Tanker Stocks Yahoo’s Industry section is the best place I’ve found to identify oil tanker stocks. From Yahoo’s main finance page (finance.yahoo.com), click on Industries and then “Complete Industry List.” Finally, select Water Transportation in the Transportation section. From there, click on Industry Browser to see a list of all industry stocks. Keep in mind that not all companies listed are in the oil tanker business. Some ship “dry” cargoes such as coal, grain or steel. For me, tanker stocks paying dividends equating to at least four percent yields have the most appeal. Even if day rates drop, most will probably still pay out significant sums that will make waiting for the next price upswing easier. If you agree, click on the “Div Yield %” column heading twice to sort the list with the highest yielding stocks at the top. Yahoo listed three stocks with dividend yields considerably above 10 percent: Frontline Ltd. 28%, Knightsbridge Tankers Limited 18%, and Nordic Tankers 14%. However, after researching them, I found that for all three, the numbers were skewed by unusually large recent dividends that were unlikely to be repeated. As a rule of thumb, you can assume that any dividend yield much above 10 percent probably falls into that category. Yahoo listed 10 stocks paying dividends equating to at least four percent yields, but you can rule most of them out with two quick checks. First, click on the company name to see Yahoo’s profile describing the firm’s business. Eliminate the stock if it isn’t primarily in the business of operating ocean-going oil tankers. From the Profile, click on Historical Prices and then Dividends Only to see the dividend payout history. Rule out stocks that have paid only two or three dividends. Also note the firm’s dividend payout consistency. Pay particular attention to the payouts in 2002, when day rates dropped. When I checked, only four companies paying dividends equating to four percent or higher yields passed these two simple tests: Frontline Ltd, Knightsbridge Tankers Ltd,, Nordic Tanker Shipping Ltd, and Tsakos Energy Navigation. I’m not advising buying these four stocks. Instead, I’m suggesting that they’re worth researching if you’re interested in investing in the oil tanker sector. Quoted from Winning Investing

    Easy Way to Find CANSLIM Stocks

    Even in a sour market, some stocks still produce stellar returns. For instance, more than 100 stocks have at least doubled in price over the past year, and 26 of those have at least tripled. I’m not talking about stocks that went from 50 cents to a dollar; I excluded stocks currently trading under $10 from these totals. The problem, of course, is to spot these rockets before they take off instead of after the fact? William J. O’Neil, publisher of stock market newspaper Investor’s Business Daily, did a study on the topic a few years back. He published the results in his best selling book, “How to Make Money in Stocks,” now in its third edition. O’Neil found seven characteristics that most stocks share before they start major price advances. He named his strategy using the acronym CANSLIM, where each letter represents one of the seven characteristics. O’Neil’s Investor’s Business Daily is organized around the CANSLIM strategy and is full of tables and charts designed to help investors find stocks meeting CANSLIM criteria. However, you don’t necessarily have to subscribe to IBD to find stocks meeting the requirements that O’Neil described in his book. CANSLIM Screener StockTables.com (www.stocktables.com) provides a stock screener that, at least to my eye, can search for stocks using criteria similar to those featured in Investor’s Business Daily. Despite the similarities, StockTables, which is run by The Pitbull Investor, a stock trading systems provider, makes no mention of CANSLIM and doesn’t claim to emulate IBD’s techniques. StockTables’ screener is quick and easy to use. You only need fill in a few blanks to get the job done. StockTables is a pay site, but offers a free 14-day trial. You don’t need a credit card for the trial; all that’s required is an e-mail address and password. Here are my ideas on how to use StockTables to find stocks that might fit O’Neil’s requirements. Screen Settings Earnings growth is the key to O’Neil’s strategy. He requires strong quarterly and annual growth, and the higher the better. StockTables’ EPS Rank combines quarterly and longer-term earnings growth into a single indicator. Using a scale of 1 to 99, it compares the earnings growth of a single company to all other stocks. A 99 value means a company’s earnings growth rank exceeds 99 percent of all stocks. Start by specifying a minimum EPS Rank of 80. However, higher is better, so try increasing the minimum if your screen turns up too many stocks. Relative Strength is the second most important factor in O’Neil’s strategy. Also measured on a 1 to 99 scale, a 90 relative strength means that a stock has outperformed 90 percent of all stocks in terms of price appreciation over the past year. Specify a minimum value of 80 for relative strength. Accumulation/Distribution measures whether institutional investors such as mutual funds and pension plans are loading up (accumulating) or dumping (distributing) a company’s stock. O’Neil says that institutions will quietly acquire a stock over a period of time before its share price begins to move up. StockTables figures accumulation/distribution by subtracting the volume of shares traded on down days and adding the number traded on up days. If the big players are buying, the trading volumes will be bigger on up days, making the A/D number positive. Negative totals signal that there’s more selling than buying. StockTables uses a -5 to +5 scale. Select “greater than one” (>1) for A/D, requiring at least modest institutional buying. Contrary to conventional wisdom about buying low, O’Neil’s strategy calls for buying stocks that are making new highs in price. You can emulate that requirement by selecting StockTables’ “one-year high” parameter to narrow your search to stocks trading at their highest level of the past 52 weeks. O’Neil also wants to see a stock’s daily trading volume increase when it hits a new high. Select “greater than 50 percent” (>50%) for Volume Percent Change to narrow your search to stocks with trading volume at least 50 percent higher than the average of the last 13 weeks. My screen turned up nine stocks in a variety of industries when I ran it last week. The list included: Building Materials Holding Corporation, CE Franklin, Genentech, Hansen Natural Corporation, La Barge, Lifecell, Respironics, Sparten Stores, and Youbet.com. Maybe Too Far Gone This is not a buy list. For starters, O’Neil advises only buying when a stock that has recently moved (up) out of a trading range. That means that until its recent move, the stock had traded within a relatively narrow range for several weeks. StockTables’ screen doesn’t check for that. The easiest way to check that requirement is by comparing a stock price to its 50-day moving average. You can compare the two on MSN Money (moneycentral.msn.com) by getting a price quote and then selecting the Company Report. Avoid stocks trading more than 15 percent above their 50-day moving average. What if you buy a stock and it goes down instead of up? O’Neil advises selling immediately if it drops 8% below your purchase price. I can’t cover all the nuances of O’Neil’s strategy here. If you’re interested, I suggest you read his book, and then do some pretend buying before investing real money.

    Picking Hot Industries

    With the major averages down for the year, the market has been nothing to shout about recently. But investors holding Health Care Plan stocks may not have noticed. When I checked last week, stocks in that industry were up 27 percent on average, over the past six months. What’s more, I counted at 13 other industries showing at least 20 percent returns over the same period. Those returns show that investors in the right industry can make money, even if the market is going nowhere. That’s why many money managers advise that your chances of making money depend more on selecting the right industry than it does on picking the right stock. An industry is a group of companies in the same or related business such as grocery stores, disk drive makers or hospitals. Stocks in the same industry tend to move together for a couple of reasons. For starters, all companies in an industry are affected in similar ways by market conditions. Secondly, mutual fund and other institutional managers track performance to determine which industries are cooling down and which are coming into favor. Once they identify a trend, the industry “rotates into favor” as the big players accumulate shares in the industry’s best prospects. Here’s a rundown on my favorite resources for finding hot and cold industries. Prophet.Net Prophet.net (www.prophet.net) is a useful resource for tracking recent industry performance. Click on Explore and then Industry Rankings to see a list of the top performing industries over the past six months. In addition to showing the current rank, Prophet also shows the change in rank over the timeframe displayed. For instance, the top ranked industry, Beverages-Winery/Distillers, had moved up 12 notches, from number 13, over the last six-months. By contrast, Medical Practitioners soared from a lowly 124 rank to number three in the same period, so it may have stronger momentum. Usually an industry stays in favor for, at most, six months to a year. You have to spot a hot industry early, and hop on it before it loses steam. Consequently, it’s best to pay most attention to shorter timeframes, such as one- or two-months. Looking at the past month, the Biotechnology, Retail Real Estate Investment Trusts (REITs), and Specialty Eateries industries were the best performers. You can see the charts of the stocks making up each industry by clicking on the Charts icon. If you do, use the Chart Controls to change the default chart timeframe from the one-day default to one-year to get a better perspective on each stock’s long-term performance. Equity Trader Equity Trader, founded by technical analysis guru John Bollinger, is another resource for spotting strong industries. Bollinger employs technical and fundamental factors to spot economic sectors (e.g. technology), industries within those sectors (e.g. software), and stocks within those industries likely to move up in price in the coming weeks. Equity trader displays a set of six signals; two red, two yellow, and two green, for each sector, industry and stock. They look like traffic signals and interpretation is intuitive. Two green lights forecast the strongest expected performance, and two red lights the weakest. On Equity Trader’s homepage (www.equitytrader.com), click where it says, “Click here to bypass registration” and select Structure (top menu) to see the indicators for the 13 major economic sectors. Then click on a sector name to see the industries within that sector. Finally, click on an industry to see stocks making up that industry. Briefing.com Briefing.com (www.briefing.com) takes a different approach to industry analysis. Instead of using computers to crunch the numbers, Briefing.com employs real people to analyze the future prospects of each industry. Briefing.com is mostly a pay site, but its industry analysis is in the free (Silver) section. Get to the sector analysis by selecting Silver Index from Briefing’s homepage and then Sector View. Briefing starts by rating each of 10 major economic sectors: healthcare, telecom, industrials, financial, basic materials, technology, utilities, consumer staples, energy, and consumer discretionary. Each sector is rated as “overweight,” “market weight,” or “underweight.” The ratings reflect Briefing’s view of each sector’s outlook of the next three months. Then, Briefing gives you a detailed sector analysis, including its view of the prospects for the major industries within each sector. Stovall’s Sector Watch Sam Stovall literally wrote the book on sector investing. His “Standard & Poor’s Guide to Sector Investing” was the first in-depth guide on the subject. You can read his weekly commentary, “Stovall’s Sector Watch, on the Business Week site. Each week he reviews an industry sector in depth, or gives his take on sectors coming into-, or going out-of-favor. He also frequently lists S&P’s top-rated stocks in sectors of interest. Stovall’s column is frequently featured on Business Week’s homepage (www.businessweek.com). If not, find it by selecting Investing and then Investing Columns. Sticking with strong sectors is a good start. Usually the best performing stocks within each sector are your best bet. But you still have to research each stock before you buy.

    Free Advice From S&P

    Is it too late to buy energy stocks? Not according to a recent Standard & Poor’s analysis of the oil and gas drilling industry. There, S&P analyst Stewart Glickman pointed out that the new Energy Policy Act recently signed by President Bush included incentives likely to benefit oil and gas drilling companies. Glickman detailed why, despite “a remarkable run thus far in 2005,” he sees even more upside for oil and gas drillers. But Glickman didn’t stop there, he went on to list S&P’s three top picks in the industry. S&P churns out a large variety of insightful industry and individual stock analysis reports daily. Many of them are available free on Business Week’s site (publisher McGraw Hill owns both S&P and Business Week). You’re undoubtedly heard of S&P, but you may not be aware that it is the only major stock rating service that isn’t trying to do investment-banking business with the same companies that it is rating. Thus, it doesn’t have the potential for conflicts of interests such as those that influenced some analysts’ ratings during the bubble years. Here are some of my favorite free S&P resources, starting with two readymade portfolios with market-beating track records. Top Ten Portfolio S&P’s Top Ten Portfolio is a list of the 10 stocks that S&P considers the best candidates for capital gains over the next 6 to 12 months. Since its launch on December 31, 2001, S&P’s Top Ten gained 31% through July 29 2005 compared to 14% for the overall market as gauged by the S&P 500 index. Last year the portfolio returned 19% versus 11% for the S&P 500. S&P’s Top Ten composition isn’t fixed. It can replace stocks as S&P sees fit. Typically, it replaces one or two stocks each month. In my view, that’s not a lot of trading given the results. Promising Growth S&P’s Promising Growth Portfolio attempts to emulate Warren Buffett’s stock picking strategy. However, unlike Buffett, who holds stocks for years, S&P updates the portfolio twice yearly, in February and in August. However, according to S&P, many stocks carry over from one portfolio to the next. S&P creates the portfolio using a screening program that scans through the entire stock market looking for stocks that Warren Buffet might like, based on published accounts of how he selects stocks. At first look, S&P’s version of Warren Buffett won’t knock your socks off. It averaged a 16%t average annual return since its February 1995 inception, compared to 9% for the S&P 500, but underperformed during the go-go 1997-1999 years. What I find intriguing is that S&P’s Buffet portfolio has only suffered one losing year. It dropped 13% in 2002, but that was small-beans compared to the 23% loss suffered by the S&P 500. The biggest problem with using S&P’s Buffett screen is that it picks a lot of stocks. The August version includes 58 stocks. Using traditional stockbrokers; that may be too many stocks for many investors. However, there are specialized brokers such as FOLIOfn (www.foliofn.com), which allow purchase of fractional shares and are set up to economically handle portfolio style investing. Find S&P’s Top Ten and Promising Growth portfolios from Business Week’s homepage (www.businessweek.com) by selecting Stocks on the Investing dropdown menu and then click on the first Top Ten or Promising Growth Portfolio article (either one will work) that you see listed. Once you’ve selected an article for either portfolio, click on the Portfolio Archive link to see a list of all of portfolio articles going back two years. Picks & Pans While still in Business Week’s Stocks section, check out S&P’s Picks & Pans, which feature S&P’s analyst comments on stocks they cover that made news that day. The single paragraph commentary relates the news, the analyst’s take on the news, and any resulting changes in the analyst’s buy/sell rating. It’s an interesting read and you can browse through the archives going back three or four months. Industry in Focus The oil and gas drilling industry analysis article that I quoted earlier is part of S&P’s Industry in Focus section, which is a good resource for investing ideas. Rather than describing broad industry trends such as pharmaceuticals, it focuses on narrower investment opportunities such as cancer drugs. Find it by selecting Sectors on Business Week’s Investing dropdown menu. Once again, after you’ve selected an article, click on Industry in Focus Archive to see a list of other recent articles. Sector Watch For a somewhat broader industry view, read Sam Stovall’s Sector Watch, which you can also find in Business Week’s Sectors section. Stovall, who is S&P’s chief investment strategist, describes S&P’s outlook for a particular industry, say specialty retailers or homebuilders. If the outlook is favorable, Stovall lists S&P’s top-rated stocks in the industry. There’s much more worthwhile information from S&P on Business Week’s site than I have room to describe. Investing Q&A is a good resource for investing ideas from S&P analysts as well as from outsiders. If you’re a mutual fund investor, I’m sure you’ll find the Fund Q&A articles worth reading. Some features are hard to find, so take some time to explore the site.

    ETFs Move Beyond Simple Indexing

    Exchange-traded-funds (ETFs) appear to be catching on with investors. I counted a couple of dozen new funds in the works or already operating this year. However, not all ETFs are created equal. The ETFs created by PowerShares Capital Management (www.powershares.com) appears to me to have a structural advantage, and one of this year’s crop; the PowerShares Zacks Micro Cap Portfolio, looks especially interesting. If you’re not familiar with ins and outs of ETFs, I’ll give you a quick fill-in before I get into the details about the PowerShares and its Zacks fund. ETFs are similar to index mutual funds. They give you the opportunity to invest in a particular market sector without researching and buying individual stocks. For example, if you think energy prices are headed still higher, you could invest in an ETF specializing in energy stocks. ETFs offer advantages and disadvantages compared to mutual funds. You can buy and sell ETFs just like stocks. Most ETFs require no minimum investment and, unlike mutual funds, there is no minimum holding period. You can sell ETFs short, meaning that you make money if the share price drops while you hold it. For example, if you think energy prices have peaked, you could sell an energy ETF short (selling shares you’ve borrowed from your broker) and profit if you’re right. You pay the same commissions for buying or selling ETFs as you would for stocks. Since you can trade many mutual funds without paying a commission, mutual funds could be a better deal if you make regular monthly investments. In my view, the best places to research ETFs are Yahoo (finance.yahoo.com) and Morningstar (www.morningstar.com). Both have comprehensive ETF sections, but each has plusses and minuses. So you’ll probably want to use both. Now, back to PowerShares, and in particular, its Zacks Micro Cap fund. PowerShares Although existing ETF portfolios represent dozens of market sectors and investing styles, until PowerShares came along, all were designed to track a predefined group of stocks, either an already existing index, or an index defined specifically for that ETF. For instance, the iShares Dow Jones US Energy fund tracks the already existing Dow Jones U.S. Energy Sector Index, while the Goldman Sachs Natural Resource fund tracks an index developed by Goldman Sachs as a benchmark for U.S.-traded natural resource-related stocks. In either case, the portfolio of stocks held by most ETFs only change occasionally, say when a firm is acquired, or encounters major difficulties, for instance, bankruptcy. Most ETFs rarely makes changes simply because it thinks a particular stock is going to outperform, or underperform the market over the next few months. By contrast, PowerShares uses quantitative formulas to periodically rebalance its portfolios by picking the stocks from a sector with, in its view, the best capital appreciation outlook over the next few months. PowerShares has 20 ETFs out now, and several more on the way. But only two, its Dynamic Market Portfolio, which tracks the overall market, and its Dynamic OTC Portfolio, which tracks the Nasdaq, have been around long enough to rack up much of a track record. So far, both have outperformed their relevant (benchmark) indexes. Zacks Micro Cap Fund The PowerShares Zacks Micro Cap Portfolio, which started trading in August, is one of PowerShares’ newest ETFs. It tracks an index of micro-cap stocks developed by Zacks Investment Research (www.zacks.com), which will be rebalanced four times a year. I’ve mentioned Zacks in this space before. Zacks has been compiling and distributing analysts’ buy/sell ratings and earnings forecasts since 1978. Along the way, Zacks has developed computerized (quantitative) selection models to identify which stocks will outperform or underperform the market over the next few months. The PowerShares Zacks Micro Cap fund fills an interesting niche. Value Micro-Cap Rocks Market capitalization, is the number of shares out multiplied by recent share price, and according to Zacks, micro-cap stocks (market-caps under $550 million) have outperformed all other market capitalizations over the long-term. Further, Zacks points to research showing that within micro-caps, value-priced stocks have significantly outperformed growth stocks. Price momentum is another factor that many researchers have found valuable for pinpointing with the best potential. In essence, that means that stocks that have already outperformed the market are likely to continue their winning ways. Zacks combines value and momentum strategies to build its portfolio. Micro Cap Portfolio The Dow Jones Wilshire 5000 index tracks almost the entire U.S. stock market. To build its Micro Cap portfolio, Zacks defines micro-cap stocks as the 2,500 smallest companies making up the Wilshire index. From that universe, Zacks picks value-priced stocks with strong price momentum. The details of what constitutes value and price momentum are, of course, proprietary. In a twist that’s unusual even for PowerShares, Zacks reviews its portfolio weekly, and can remove stocks that significantly miss the portfolio requirements. According to Zacks, its Micro Cap Index grew $100,000 into $287,000 in the five-years ending with June 2005. By comparison, $100,000 invested in the Russell Microcap index would have grown into $145,000 in the same timeframe (both return figures exclude dividends). Since the PowerShares Zacks fund is only a month or so old, the returns I just quoted are hypothetical. Oftentimes, apparently successful investing strategies don’t translate well into mutual funds. So I suggest watching its performance for a few months before investing. That said, Zacks and PowerShares both deserve credit for moving ETF portfolio building beyond simple indexing. Quoted from Winning Investing

    When Sell Means Buy

    A stock analyst’s rating downgrade, say from “buy” to “hold,” which most market participants understand means “sell,” usually drives a stock price down. But if the reason for the rating change was solely valuation, the downgrade could be a buying opportunity. Last week, I tracked the returns of all the stocks I could pinpoint that had been downgraded roughly six months earlier, from April 22 through April 30, only because the analyst thought they were overvalued. I chose six months because that seemed like a reasonable timeframe for a stock to recover from the downgrade. I started with April 22 and worked forward until I had spotted enough qualifying downgrades to draw some conclusions. I ignored downgrades where the analyst cited additional reasons besides valuation. I found 13 qualifying downgrades, but two of them later reported disappointing earnings, which dropped their share prices. I dropped those two from the study because their problems were unrelated to valuation and unforeseen by the analyst making the downgrade. The remaining 11 “over valued” stocks gained 12 percent, on average, from the date of the analyst downgrade through October 25, trouncing the S&P 500’s 3 percent during the same period. Better, despite the rough market, 9 of the 11 “overvalued” stocks produced positive returns while the other two broke even. None dropped. The results suggest that analysts’ valuation downgrades might be buying opportunities. Here’s why. Buying Opportunity? Perhaps due to the well-publicized shenanigans of some during the bubble days, analysts now follow a fairly rigorous approach to establishing their buy/sell ratings. First they set a target price. Then, their buy/sell rating depends on the relationship between the stock’s current and target prices. For example, a stock trading substantially below its target is a “buy.” Stocks trading near or above their targets are rated “hold” or “sell.” Thus, the value of an analysts’ buy/sell rating depends on setting the right target price, and that’s the problem. Many analysts rely on a formula developed years ago, known as “discounted cash flow,” to calculate a stock’s “fair value,” which becomes their target price. The DCF formula calculates the present value of expected future cash flows or earnings. What's Google Worth? Unfortunately, small changes in required assumptions can substantially change the result. For example, using the DCF formula, I first calculated Google’s fair value at $922. Then, by making moderate changes to my assumptions, I cut Google’s fair value down to $136. Sounds unbelievable? Here are the details. I used the free fair value calculator available on the Money Chimp financial education site (www.moneychimp.com) to run the numbers (from Money Chimp’s homepage, select Stock Valuation and then DCF Calculator). You use the calculator by first entering your stock’s last 12-month’s per-share earnings. Then estimate its earnings growth rate while the company is in its early fast growth stage, say over the next five years. Next, estimate its annual growth in later years when the company has matured and earnings growth has slowed. Finally, you must specify a “discount rate,” which is the return that you or other investors require, given the risk of owning that particular stock. Money Chimp suggests using an appropriate market benchmark, such as the S&P 500’s historical return for the discount rate. Yahoo Has Info I found Google’s last 12-month’s earnings and next five-years forecast annual earnings growth on Yahoo’s Key Statistics and Analysts Estimates reports. Find them from the Yahoo Finance homepage (finance.yahoo.com) after getting a price quote. According to Yahoo, Google’s last 12-months’ earnings were $3.41 per share and it’s expected to grow earnings at a 32 percent annual clip over the next five years. I used those numbers, and estimated that after the first five years, Google’s growth would slow to a 10 percent annual rate. I used Money Chimp’s suggested 11 percent discount rate, which corresponds to the S&P 500’s long-term average annual return. Based on those numbers, Money Chimp said Google’s fair value was $922 per share. Then, I recalculated Google’s fair value making two relatively modest changes. I cut my forecasted next five-years’ annual earnings growth to 25 percent, and I increased my annual return requirement (discount rate) to 15 percent. Surprisingly, those changes cut Google’s fair value down to only $136 per share. Guessing Game Analysts probably use more sophisticated calculators than Money Chimp offers. But they must still guess at earnings growth rates far into the future and arbitrarily pick a discount rate. As you can see, small changes in these assumptions produce vastly different results. In my experience, Google or any other stock’s share price will only temporarily sink because an analyst thinks it’s overvalued. In the end, stock prices reflect changes in future earnings growth expectations. They move up when expectations increase and plunge when growth falters. Finding Valuation Downgrades MarketWatch’s Upgrades/Downgrade report (www.marketwatch.com) is a good resource for spotting stocks downgraded based on valuation. For each market day, the report lists pertinent information about downgraded stocks, including, in most cases, the reason for the downgrade. You can find the report in the Investor Tools section. Click “next” near the bottom of the page to see earlier reports. MarketWatch archives its Upgrades/Downgrades reports going back years, so you can do your own research by picking a week several months back and see how downgraded stocks fared in the ensuing months. Just because a stock was downgraded based on valuation doesn’t mean that it won’t run into fundamental problems. You still have to do your due diligence. The more you know about your stocks, the better your results.

    Fast Growing Stocks Best For Slowing Economy

    Many analysts are predicting a weakening economy, and hence, a falling stock market, next year. They cite high energy prices, rising inflation, and a slowing housing market as reasons for their glum outlook. Whether the naysayers are on the mark or not is anybody’s guess. But, since successful investing is about reducing risk, it pays to take their concerns into account, just in case. What kinds of stocks should you have in your portfolio if the economy weakens? Conventional wisdom says stick with companies that make or sell the products typically found in a grocery store such as food products, soap, and bathroom tissues. Consumers can put off buying a new car or a flat-panel TV, but they still have to buy the day-to-day necessities. That may be true, but I have a different take. Fast Growers Do Best If the economy does slow, mature companies that are close to saturating their markets such as the likes of Safeway or Proctor & Gamble will likely still see their sales growth slow. But, a company with a hot new product that is just coming to the attention of prospective buyers probably won’t even notice that economy has turned down. Thus, in a slowing economy, you’ll do best owning small-companies that are in the beginning stages of exploiting a new market opportunity. Another plus, if the economy doesn’t slow, these stocks will still do even better. Screen for Fast Growers You can use screening to find companies that fit that bill. If you’re not familiar with the term, screening involves using search programs available on several financial websites to find stocks that meet your specific requirements. I’ll use Business Week’s Advanced Stock Search to demonstrate the process. Business Week’s screener is free, and it’s more user-friendly than most. Get there from Business Week’s homepage (www.businessweek.com) by selecting Investing and then Stocks. From there, scroll down to Investing Tools, select Stock Screeners and then click on Advanced Stock Search. You program the screener by filling in minimum and/or maximum values for data items that you want to include in your screen. The program assumes that you don’t care about any items that you left blank. My screen relies mainly on analyst’s earnings forecasts to identify fast growing companies. But, stocks without a track record of strong recent earnings growth are risky business. Start With Growth So, we’ll start by specifying a minimum 20 percent annual earnings growth for the last reported fiscal year. Do that by entering “20” for the minimum value of the search parameter labeled “EPS Growth 1-Yr.” For forecast earnings growth, specify a minimum 25 percent year-over-year earnings growth for the current quarter (Proj EPS %Change Cur Qtr), the current fiscal year, and the next fiscal year (Don’t enter the ‘%’ symbol). To insure that the analysts’ expected earnings growth isn’t just a short-term phenomenon, require at least 25 percent forecast average annual growth over the next five years (Proj EPS Annualized 5-Yr). However, too much forecast growth signals extra risk. Research has found that companies with forecasted long-term annual earnings growth of 40 percent or higher rarely live up to those expectations. Their stock prices usually crash when the forecasts are reduced to more realistic levels. So, in addition to the 25 percent minimum, specify 35 percent for the maximum acceptable forecasted long-term earnings growth. Out of the 6,000 or so U.S. listed stocks, only 34 met those earnings growth requirements. Reduce Risk Next we’ll add additional search requirements to eliminate the riskiest candidates, starting with institutional ownership. Institutional buyers such as mutual funds and pension plans employ squads of analysts to research stocks. So instead of reinventing the wheel, it makes sense to piggyback on their efforts and avoid stocks that the big boys are shunning. Institutional ownership is the percentage of a firm’s outstanding shares owned by these big players. Institutional ownership typically ranges from 40 percent all the way up to 95 percent for in-favor stocks. Specify a minimum 40 percent institutional ownership (labeled institutional holdings). Another way of avoiding risky stocks is to pay attention to short-sellers’ activity. Short sellers sell shares they’ve borrowed from a broker in the hopes that they can buy shares at a lower price later to replenish the shares that they’ve borrowed. They make money if the stock price drops during the time they are short and lose if the stock price moves up. Short-sellers are usually expert at analyzing a firm’s fundamental outlook. Consequently, it pays to avoid stocks with heavy short selling. Short interest is the number of shares that have been borrowed by short sellers for their trades. The short-interest ratio is the number of days it would take for the short sellers to buy back their borrowed shares, based on the recent average daily trading volume. Short interest ratios run from zero to 20 days, and sometimes higher. The higher the ratio, the higher the short interest. Usually, growth stocks have ratios below five or six. Specify a maximum seven short-interest ratio to rule out stocks in the short-sellers’ crosshairs. Not Buy & Hold My screen turned up a total of 22 stocks, too many to list here. Not surprisingly, considering energy prices, six of them were in the energy industry. As is the case with all screens, the results are research candidates, not a buy list. Another caveat, high-growth stocks are not long-term buy and holds. They must be watched closely and sold when anything goes wrong. Quoted from Winning Investing

    Closed-End Funds - Worth a Look

    Last week, First Financial Fund, Inc. (FF), an investor in financial and financial services firms such as banks and mortgage bankers, said it would pay a $4.12 per share annual dividend on December 30. That amounted to an eye-popping 20 percent plus dividend yield (annual dividends divided by share price) based on First Financial’s $20 trading price. First Financial is a particular type of mutual fund called a “closed-end” fund. Let me explain. Conventional mutual funds that most of us are familiar with are technically known as “open-end” funds. When you buy an open-end fund, you are purchasing shares from the fund itself, even if you buy through a broker, The price you pay, the net asset value (NAV), is the value of the fund’s holdings (assets), expressed on a per-share basis. The open-end fund’s share price depends solely on its NAV, not on how many investors want to buy or sell its shares. The downside for the fund is that its manager must find places to invest new money coming from newly created shares when investors are net buyers. Conversely, when sellers outnumber buyers, the manager must sell shares he or she might not want to sell to raise cash to redeem the shares. Closed-End Funds Have Advantages A closed-end fund sells a fixed number of shares when it starts business via an initial public offering (IPO). After that, the fund doesn't buy or sell shares. New buyers must purchase from existing shareholders. Conversely, shareholders must find a buyer if they want to sell. Closed-end fund shares trade on the open market just like stocks. Share prices depend on the forces of supply and demand for the fund’s shares, and rarely trade at the net asset value. Shares are said to be trading at a premium when changing hands above their NAV, and at a discount when below. The advantage of the closed-end structure is that fund managers have a fixed amount of capital to invest. They can make long-term investment decisions without worrying about raising cash to redeem shares, or finding places to invest unexpected new cash. This stability seems to lend itself particularly well to funds that focus on paying high dividends to shareholders. That’s the category I found of most interest when researched closed-end funds. Screen For Ideas I found First Financial using MSN Money’s Deluxe Stock Screener. It’s the only screener that I know of for finding closed-end funds based on dividend yields. Get there from MSN Money’s homepage (money.msn.com) by selecting Investing and then Stock Screener. If you haven’t already done so, you’ll have to download some special software, but the software and use of the screener are both free. I used only two search parameters for my screen. First, I selected “Closed-End Fund – Equity,” which I found in the Industry Name section under Financial Services. Then I specified a minimum 6 percent dividend yield. My screen listed 66 closed end funds with 6 percent or higher dividend yields. However First Financial was one of only 14 funds with yields exceeding 10 percent. Abnormally high dividend yields such as First Financial’s 20 plus percent are “red flags” warning that many investors think that those high payouts will be short-lived. Indeed, First Financial’s recently announced $4.12 per share dividend is below last year’s $5.10 figure. So careful research is a must. Do the Research MSN Money had some information on the funds the screen had turned up, but it’s better to go a site with reports tailored for closed-end funds such as ETF Connect (http://www.etfconnect.com) or Morningstar (www.morningstar.com). Several readers have told me that, of the two, they prefer ETF Connect because it presents everything they need to know on a single page. However, I personally have found Morningstar’s data to be more useful. For instance, when I looked up First Financial, its share price was trading at an 8 percent premium to its net asset value. Many investors consider a fund’s current share price premium or discount to NAV versus its historical range as an important buy/sell signal. For example, they prefer to buy funds trading at a bigger than usual discount to their NAVs. Conversely, it’s time to sell when a fund trades at a higher than usual premium to its NAV. On that score, Morningstar displays the premium/discount percentage by month going back five years while ETF Connect shows only the last 12-months. Also, historical return data is important for evaluating a closed-end fund’s future prospects, and, in my view, Morningstar is better at displaying that information. I don’t have room to tell you everything you need to know about closed-end funds here, but Morningstar’s Closed-End Funds discussion board is a surprisingly good learning resource. Sure, most stock market discussion boards on the Web contain mostly useless information expressed in the crudest possible ways. But Morningstar’s boards are an exception. The discussions are polite and many knowledgeable people willingly share their expertise. Get there from Morningstar’s homepage by selecting Discuss and then Closed-End Funds. Experts Frown on Closed-Ends Publications as prestigious as the Wall Street Journal have knocked closed-end funds in recent months. They point out that many funds depend on borrowing to hike their returns and rising interest rates have clobbered their profit margins. In fact, several such funds have reduced their dividends this year. However many observers believe that the Fed is nearing the end of its rate hiking activities. If that’s the case, the worst is over for funds that carry high-debt. Quoted from Winning Investing

    Most Americans no good at investing

    Today I read one article from the USA Today written by Adam Shell about how Americans are investing their money. I find it is amzing that almost 60% of American think it is a "bad idea" for the government to let workers invest some of their Social Security taxes in stocks and bonds, according to a USA TODAY/CNN/Gallup Poll done Friday-Sunday. Over 20% felt they are "uncomfortable" with the idea of managing their own investments, and just 27% said they pay "a great deal" of attention to their investments. A study by Hewitt Associates that analyzed the 2003 investment behavior and account activity of 2.5 million employees eligible for 401(k) plans exposes a trove of investment mistakes by average investors: • Three out of 10 employees eligible for 401(k) plans don't participate, Hewitt says. That means investors are passing up free money in the form of matching contributions from their employers. • Despite horror stories about employees at scandal-scarred companies such as WorldCom and Enron having their 401(k) accounts wiped out because they had all their money riding on their own company's stock, 27% of 401(k) investors still have more than half of their money in their employer's shares. • And proving that investors are hardly hands-on, only 17% made 401(k) transfers in 2003. With no doubt, there are lots of people who consider themselves savvy investors and think, as Pre. Bush suggests, that they can earn bigger returns managing a slice of their own Social Security money. But there is a far larger, more vocal group that views stocks as a tough way for amateurs to make money. One investment adviser who has seen many investors make costly mistakes says privatizing Social Security would have "catastrophic" consequences. "The general public tends to play up their investing success while ignoring the lessons of their losses," says Christopher Harriman Dann of the Olson Dann division of LaSalle St. Securities. He says nine times out of 10, investors' long-term performance lags behind the market by a wide margin. A study released in April 2004 by Dalbar, a financial services market research firm, confirms Dann's theory. The research, which analyzed mutual fund money flows the past 20 years, found that the Standard & Poor's 500 index had annual gains close to 13% during that period; the average investor earned just 3.5%. "Keep Social Security the way it is," says Fred Berlack, 61, of Oceanside, Calif. "The average Joe has little or no investing skills."

    The child (Du'a be') - singed by 60 Vietnamese singer

    This is one fine song written by Minh Khang. The song featured some of the best Vietnamese singers like Lam Truong, Dam Vinh Hung, Hong Nhung, Quang Dung, Thanh Thao, Quang Linh, Siu Black, Hong Ngoc, Cam Van, Khac Trieu...etc... The lyric is moving and the song quality is perfect. You can also buy the VCD to donate for the homeless children.

    Friday, December 16, 2005

    So Where's the Economy Going Now?

    Don't believe anyone who claims to know. The tough truth is -- and the Fed knows it: The data are too ambiguous. What's an investor to do? With the Dec. 13 quarter-point rate increase by the Fed, we've reached a difficult and puzzling fork in the economic road. In one direction lies the ugly prospect of a housing bust, leading to a collapse in consumer spending and ultimately a recession. In the other direction is the much more appealing vision of continued solid growth -- a position that's reflected in the statement the Fed released today. If you're an investor, of course, you want to know which path seems more likely. Unfortunately, there's no map, no set of directions to tell us which way the economy is going to go. Economists are split about which path seems more likely, and not even outgoing Fed Chairman Alan Greenspan or his successor Ben Bernanke have the answers. FLATTER CURVE. It's a moment of what I call "fundamental uncertainty," where conventional economic forecasting simply breaks down. The numbers keep rolling in, but they offer few, if any, clues about what will happen next. For example, Manpower released its quarterly employment survey on Dec. 13, asking employers whether they plan to add or reduce workers in the first quarter of 2006. The result: Its "Net Employment Outlook" index is 20. Is that good or bad news? Well, the index was at roughly the same level in 1998 and 1999, during the boom years of the 1990s. Most American workers wouldn't mind a repeat of those years. However, the Manpower index was also about 20 in early 1989, when a decent labor market very rapidly turned sluggish, setting the stage for the recession of 1990-91 Other indicators are equally ambiguous. The yield curve is flattening out, so that the long-term rate on 10-year Treasury bonds, at 4.5%, isn't much higher than the new 4.25% fed funds rate. That sort of flat yield curve is often a sign of trouble ahead -- but not always. BE PREPARED. And economists know full well -- though they don't like to admit it -- that their forecasting models are absolutely terrible at predicting recessions or even slowdowns (see BW Online, 12/6/05, "One Economist's Yin and Yang"). At the end of 2000, the consensus forecast was that economic growth over the next six months would average about 3%. In fact, the economy grew at a miserable 0.4% rate in the first half of 2001, even before the September 11 terrorist attacks.
    7 out of 10 credit reports have errors - fix yours
    Given all this uncertainty, the right advice these days might be to hope for the best, but plan for the worst. Be prepared to take advantage of opportunities if growth continues, but don't leave yourself too vulnerable to a deeper-than-expected downturn. People often get caught by underestimating the range of possible outcomes, both on the high and low sides. Don't let that happen to you.


    For those of you who request for the case on 2003 between: Securities and Exchange Commission vs. Morgan Stanley & Co. Here is the infor: (quote: from www.sec.gov) The Securities and Exchange Commission announced today that it has settled charges against Morgan Stanley & Co. Incorporated, a New York-based brokerage firm and investment bank, arising from an investigation of research analyst conflicts of interest. This settlement, and settlements with nine other brokerage firms, are part of the global settlement the firms have reached with the Commission, NASD, Inc., the New York Stock Exchange, Inc. ("NYSE"), the New York Attorney General, and other state regulators. As part of the settlement, Morgan Stanley has agreed to pay $25 million as disgorgement and an additional $25 million in penalties. One-half of the total of these payments - $25 million - will be paid in connection with the SEC action and related proceedings by the NASD and NYSE and will be placed into a distribution fund for the benefit of customers of the firm. The remainder will be paid to resolve related proceedings by state regulators. In the SEC action, Morgan Stanley has agreed to a federal court order that will enjoin the firm from future violations of NASD and NYSE rules and require the firm to make changes in the operations of its equity research and investment banking departments. In addition, Morgan Stanley will pay, over five years, $75 million to provide the firm's clients with independent research. In connection with this matter, the Commission today filed a Complaint against Morgan Stanley in the U.S. District Court for the Southern District of New York, alleging violations of NASD and NYSE rules. According to the Commission's Complaint, from at least July 1999 through June 2001, research analysts at Morgan Stanley were subject to inappropriate influence by investment banking at the firm. The Complaint also alleges that Morgan Stanley made payments to other firms for those firms to publish research on Morgan Stanley's underwriting clients without ensuring that such payments were disclosed and failed to maintain appropriate supervision over its research and investment banking operations. Specifically, the Commission's Complaint alleges that: Morgan Stanley compensated its research analysts, in part, based on the degree to which they helped generate investment banking business for the firm. As part of the annual performance evaluation process, Morgan Stanley analysts were asked to submit self-evaluations that often included a discussion of their involvement in investment banking, including a description of specific transactions and the fees generated. One analyst's self-evaluation prominently mentioned the analyst's assistance to investment banking, stating: "Bottom line, my highest and best use is to help MSDW win the best Internet IPO mandates (and to ensure that we have the appropriate analysts and bankers to serve the companies well). . . ." (Emphasis in original.) Morgan Stanley also offered research coverage by its analysts as a marketing tool to gain investment banking business. Pitchbooks used by Morgan Stanley to solicit investment banking business routinely described the research analysts who would cover the company and, at times, implicitly suggested that analysts would provide favorable research coverage of the prospective client. For example, some pitchbooks identified a particular analyst's history of issuing Strong Buy or Outperform ratings on other companies, or identified instances in which other stocks covered by Morgan Stanley analysts increased in price following their initial public offerings. One such pitchbook emphasized how one analyst's "support" of eight semiconductor IPOs had "resulted in unparalleled performance in the public market," and included a graph showing a dramatic increase in the stocks' prices. In a November 3, 1999 e-mail, an investment banker listed several banking transactions that he said Morgan Stanley had won because it committed that a particular highly-rated analyst would initiate research coverage. Specifically, the banker wrote that Morgan Stanley had won two transactions totaling $13.4 million in fees from Veritas Software Corp. "just for promising that [the senior analyst] would pick up coverage after the deals." In at least twelve stock offerings in which it was selected as lead underwriter from 1999 through 2001, Morgan Stanley paid at the direction of its investment banking clients approximately $2.7 million of the underwriting fees to approximately twenty-five other investment banks as "research guarantees" or "guaranteed economics for research." Morgan Stanley failed to ensure that these payments were disclosed. Morgan Stanley failed to establish and maintain adequate procedures to protect research analysts from conflicts of interest, and failed to adequately supervise the work of senior analysts, the content of their reports, and the reasonableness of their ratings. Morgan Stanley's lack of an effective review system allowed certain analysts to maintain Outperform ratings unchanged on declining stocks without any review by management. For example, in 2000 and 2001, four senior analysts maintained Outperform ratings unchanged on thirteen stocks as the prices of the stocks declined by over 74 percent. Morgan Stanley has agreed to settle the Commission's action and has consented, without admitting or denying the allegations of the Complaint, to the entry of a final judgment that, if approved by the court, permanently enjoins Morgan Stanley from violations of NASD and NYSE rules governing just and equitable principles of trade (NASD Rule 2110; NYSE Rules 401 and 476), advertising (NASD Rule 2210; NYSE Rule 472), and supervisory procedures (NASD Rule 3010; NYSE Rule 342). The final judgment also orders the firm to make the payments described above, and provides for the appointment of a fund administrator who, subject to court approval, will formulate and administer a plan of distribution for those monies placed into the distribution fund. In addition, the final judgment orders Morgan Stanley to implement structural reforms and provide enhanced disclosure to investors, including a broad range of changes relating to the operations of its equity research and investment banking operations. Morgan Stanley has agreed to sever the links between research and investment banking, such that: research and investment banking are physically separated with completely separate reporting lines; analysts' compensation cannot be based directly or indirectly upon investment banking revenues; investment bankers may no longer evaluate analysts; investment bankers will have no role in determining what companies are covered by the analysts; and research analysts will be prohibited from participating in efforts to solicit investment banking business, including pitches and roadshows. In addition, Morgan Stanley must disclose on the first page of each research report whether the firm does or seeks to do investment banking business with that issuer, and when Morgan Stanley decides to terminate coverage of an issuer, Morgan Stanley must issue a final research report discussing the reasons for the termination. Each quarter, Morgan Stanley also will publish on its website a chart showing its analysts' performance, including each analyst's name, ratings, price targets, and earnings per share forecasts for each covered company, as well as an explanation of the firm's rating system. Morgan Stanley also has agreed as part of this settlement to retain, at its own expense, an Independent Monitor to conduct a review to provide reasonable assurance that the firm is complying with the structural reforms. This review will be conducted eighteen months after the date of the entry of the Final Judgment and the Independent Monitor will submit a written report of his or her findings to the SEC, NASD, and NYSE within six months after the review begins. Five years after the entry of the final judgment, Morgan Stanley must certify to the SEC and other regulators that it has complied in all material respects with the requirements and prohibitions of the structural reforms.

    Wok The Fuck - How to make Vietnamese Noddle Soup

    This thing is just too funny. This flash show how to make Vietnamese Pho featured by Jimmy Chew and Mr. Phuc Dat Bich, a farmer originally from Vietnam.

    Google playing catch-up in China

    From an article in today’s Wall Street Journal (sub req): Google has paid a price for coming late to China. While the company’s leaders debated its strategy there, Baidu.com Inc., a local rival in which Google last year bought a small stake, surged; it now ranks as China’s most popular search site. That has left Google facing a rare uphill battle in the Internet search business it helped define. At a board meeting in July, Chief Executive Eric Schmidt cited “serious local competition” as a reason China topped his list of concerns, according to a court document. “Probably we should have come earlier, but certainly better late than never,” says Kai-Fu Lee, a longtime Microsoft Corp. official whose high profile in China was one of the reasons Google hired him in July to help run its new Chinese operation. Since Mr. Lee joined Google, the company has signed up a string of local partners to sell its online ads. Mr. Lee has been setting up a research and development center in Beijing and toured 25 Chinese universities to drum up interest in working there. Google is also preparing a marketing blitz. Revenue flowing to search-engine companies in China is still relatively small but is growing rapidly. Research firm Shanghai iResearch Co. estimates Google had just $3.7 million in search-ad revenue in China last year, and says it ranked third in Chinese search traffic, after Baidu and the combined total for several sites run by Yahoo. Google doesn’t disclose its Chinese traffic or revenue.

    Wednesday, December 14, 2005

    Indexed Investing - Investing tip & how to beat the market

    Summary Indexed investing is a strategy designed to match a market, not beat it. Done properly, it can be cheap and tax-efficient. After costs and taxes, an indexed investor in a market can beat the average active investor. Many investment vehicles, both mutual funds and the more recently introduced exchange-traded funds, make it possible for individuals to invest some or all of their assets in indexed strategies. This talk elaborates on these points, describes some of the more attractive funds and shows how indexed investing can be used to help obtain a globally diversified portfolio. Indexed Investing Let me begin with some definitions. First, according to my ancient dictionary, "prosaic" means "straightforward, lacking in imagination". And that is an apt characterization of what I will describe tonight -- a dull, boring way to be a better investor than many of your friends. What is this magical method? Indexed investing, which involves procedures designed to replicate a market, not to try to beat it. Let me illustrate with a simple example. Let's say that you want to index the French stock market. Here's how you could do it perfectly. Buy 1% of the outstanding shares of every company listed on the Paris Bourse. You would now have a French Stock Market Index Fund. There are such funds, as well as others that buy a representative sample of securities in order to come close to replicating a target market. Of course neither approach is feasible for the average investor, but this need not concern you because the financial services industry has created vehicles designed to allow individuals to obtain index funds indirectly. There are two major types. First, there are open-end index mutual funds. You give your money to the mutual fund company, it buys stocks from the market in question and gives you a share in the overall fund. If at some time in the future you want your money back, the fund can sell stocks as needed to pay you for your share. In many cases someone else will be buying a fund share at the time you are selling yours so the fund company can just transfer the money from them to you at an amount equal to the proportionate value of the underlying portfolio. Index mutual funds have been available since the 1970s in the U.S. and are now widespread elsewhere. Each one attempts to index a particular market or portion of a market. The second type of vehicle is somewhat newer, having been available only in the last ten years or so. An Exchange Traded Fund (ETF) buys a portfolio of stocks, then issues shares in that portfolio. The shares are sold on a stock exchange where investors can buy them and later sell them directly to other investors. In this sense the fund is closed, but large institutions are able to trade portfolios of the underlying stocks with the fund, which keeps the price of the ETF shares closely in line with the value of the underlying portfolio. Of course to buy or sell shares in an ETF you have to pay brokerage commissions. For aficionados of indexing there are more exotic vehicles such as index futures, index options and indexed protected products, but I will not try to deal with them here. Active and Passive Investing As you can see, the manger of an index fund doesn't have much to do. For this reason we call indexing "passive investing". The alternative is, not surprisingly, "active investing". Active investment managers don't want to buy all the stocks in a market, only the ones that they consider attractive. And since attractiveness changes as information and market prices change, this involves relatively frequent buying and selling -- hence the term "active". Let's think a bit about the performance of active and passive strategies. Assume that you in this room constitute the entire universe of investors in the French stock market. About a fourth of you will be passive indexed investors, while the rest will be active investors. Collectively you hold all the stock on the French market. Now let's pick a time period -- say a year. And let's say the market as a whole returned 10.0% in that year. Before costs, what did each passive investor get? Exactly 10.0%. Obviously, before costs that average passively managed Euro returned exactly 10.0%. What about the active investors? One might have made 15.1%, another 3.4%, yet another -23.0%, and so on. But what did the average actively managed Euro invested in the French stock market return before costs? The answer has to be exactly 10.0%. Why? Because the passive part returned 10.0% and the total market returned 10.0%. So the active part had to return the same. We conclude then that in the French stock market the average actively managed Euro must have the same return before costs as the average passively managed Euro. But before-cost returns aren't what matters. You don't eat before-cost returns. What you eat depends on returns after costs and, for that matter, after taxes. So let's consider costs and taxes. The people running index funds are dull but they are cheap. They only need to know the names of securities in a market and the number of shares outstanding. You would not want to be stuck at a cocktail party with one of them. But their costs are minimal. Depending on the market replicated, the cost of managing an index fund should be somewhere between 0.15% and 0.50%, or 15 to 50 "basis points", using financial jargon. Active managers are very different. They do research on companies, try to untangle the web that corporate officers and accountants sometimes weave, try to predict acceptance of future products, and so on. Their security analysts and portfolio managers are smart, well educated, and fascinating conversationalists at cocktail parties or anywhere else. But they and their activities are expensive. Their costs are likely to be at least 1.0% (100 basis points) higher than those of passive managers in the same markets. Worse yet, the very activity that these managers undertake adds to costs. Brokers have to eat too, and many active stock funds sell stocks within 6 to 12 months after they buy them. This is not all. Taxable investors have yet another reason to worry about active management. It generates realized capital gains far more frequently than does passive management. This requires the payment of taxes that could otherwise be either deferred or, in some cases, avoided entirely. The bottom line is that after costs, the average actively managed Euro (or dollar, or yen) must underperform the average passively managed Euro (or dollar, or yen) in a market. This is simple arithmetic. And this is the basis for the assertion that indexed investing provides a way for you to beat the average investor in a selected market. How big is the advantage for this approach? It depends on the index fund and the expenses of the active managers. There are many far-too-expensive index funds and there are some relatively frugal actively managed funds. But let's consider the average added costs for active management of 100 basis points per year. This may not sound like much to pay for the chance to be a winner. However, the long-term advantage of stocks over putting your money in the bank is currently estimated by many to be 5 to 6%. If you give up 1% in extra costs you have sacrificed 16 to 20% of your overall gain from investing in the stock market. Over the years this can make a dramatic difference in your wealth, standard of living in retirement, and so on. Of course, many active managers will beat the market and their passive brethren before costs in any given period. And a substantial minority will beat the market and the index funds after costs. The trick is to identify the winners in advance. While it would be tempting to say that this only requires looking for those that have won in the past, the evidence is not very supportive of this assertion. To some extent this is due to the fact that many past winners were simply lucky. In other cases, competition among professional investors results in prices adjusting so previously winning methods no longer work. This is not to say that one shouldn't have actively managed funds as part of an overall portfolio. But it makes good sense to consider using index funds for at least a set of core holdings, to minimize both costs and the risk of ending up with big losers. Choosing Markets Well and good, but in which markets should one invest? French stocks? U.S. Stocks? U.S. Bonds? Large Capitalization U.S. Stocks? Stocks issued by firms in Emerging Countries? Indexed and actively managed funds exist for all of these markets and for many more. The best answer is that no simple formula can answer this question for everyone. Investors differ in location, profession, age, risk tolerance, consumption preferences and many other aspects. A good investment advisor, advisory service or preferably an advisor using a good service is the best source for guidance on this crucial question -- as long as the costs are reasonable. But we can say something. Financial Economic theory suggests that the average investor should hold everything available, in market proportions, and arithmetic shows that this must be true. Of course, no investor is likely to be completely average. But it is still useful to know the composition of the so-called "global market portfolio", which provides a baseline. To be sure, the values of its parts change from time to time as market prices change and securities are issued and expire. Moreover, we can only obtain market prices for the parts represented by publicly traded securities. We these caveats in mind, here are some ballpark figures, all in terms of market values: Stocks represent about 60% of the global portfolio of bonds and stocks Issuers in the United States account for about 50% of both global bonds and global stocks Of the stocks issued outside the United States, 85 to 90% come from issuers in developed countries Of the stocks issued in developing countries, about 70% are from Europe The global market portfolio might be a good choice for a truly international investor, who lives in hotels and on airlines, pays taxes everywhere, consumes goods from all over the world, is of average age and risk tolerance, and so on. Of course this is not likely to describe anyone in this room. But the global market portfolio is a good place for you to start, tilting each of your investment positions in a direction that makes sense, based on the differences between your characteristics and those of this fictional global investor. Good investment advice will help you do this effectively. Interesting Index Funds Thus far my remarks have been very general, if not abstract. To leave you with something more concrete, let me describe a few interesting index funds. Each covers a quite broad market and provides extensive diversification, which is the cornerstone of an efficient investment strategy according to Financial Economic Theory. Each has very low costs. And each has low turnover, which provides tax efficiency. For large capitalization U.S. stocks (more simply, stocks of big US-based companies) here are two attractive candidates, each of which is designed to replicate the performance of Standard & Poor's 500 stock index, which covers about 75% of the value of the US stock market The Vanguard Index 500 mutual fund has an expense ratio between 15 and 18 basis points per year, depending on the amount you invest. The exchange-traded Standard and Poor's Depository Receipts (known as SPDRs) have an expense ratio of 11 basis points For the overall US stock market, here are two ways to replicate the performance of the Wilshire 5000 index (which actually includes more than 5,000 stocks) The Vanguard Total Stock Market index fund has an expense ratio of 20 basis points The exchange-traded VIPERs, also managed by Vanguard, have an expense ratio of 15 basis points. For the US Bond market, Vanguard has a Total Bond Market mutual fund, replicating the performance of the Lehman Aggregate Bond Index, with an expense ratio of 22 basis points. Vanguard also offers mutual funds for other areas than the U.S.. The Europe fund has an expense ratio of 29 basis points, the Pacific an expense ratio of 37 basis points and the Emerging Market fund an expense ratio of 59 basis points. The exchange-traded IShares MSCI EAFE, which tracks stocks in Europe, Australia and the Far East, has an expense ratio of 35 basis points. There are many other index funds, both mutual funds and ETFs. With them you can invest in large capitalization stocks, small capitalization stocks, growth stocks (selling at high prices relative to earnings, book value and the like), value stocks (selling at low prices relative to earnings, etc.), large growth stocks, financial stocks, and so on. These narrower funds are typically more expensive. They also tend to incur more turnover and hence are less tax efficient than broader, more diversified funds. While a few may fit well in an overall portfolio it is not sensible to try to achieve diversification by holding a great many of them, since a broader index fund can provide the same coverage, lower expenses, less turnover and hence more tax efficiency. Summary If I have whetted your appetite for index funds, I suggest that you go to the web site www.indexfunds.com for more information. Let me conclude with the obvious question: Should everyone index everything? The answer is resoundingly no. In fact, if everyone indexed, capital markets would cease to provide the relatively efficient security prices that make indexing an attractive strategy for some investors. All the research undertaken by active managers keeps prices closer to values, enabling indexed investors to catch a free ride without paying the costs. Thus there is a fragile equilibrium in which some investors choose to index some or all of their money, while the rest continue to search for mispriced securities. Should you index at least some of your portfolio? This is up to you. I only suggest that you consider the option. In the long run this boring approach can give you more time for more interesting activities such as music, art, literature, sports, and so on. And it very well may leave you with more money as well. Quote from:William F. Sharpe STANCO 25 Professor of Finance, Emeritus, Stanford University Chairman, Financial Engines, Inc.

    U.S. Trade Deficit Hits New Record of $68.9 Billion - New York Times

    The United States trade deficit reached a new high for the second consecutive month, the Commerce Department reported today, widening to a record $68.9 billion in October as oil imports far outpaced exports of capital goods like airplanes. The unanticipated widening in the trade gap is likely to dampen economic growth in the fourth quarter, and it suggests that the problems caused by the hurricanes in September have taken a larger-than-expected a toll. The nation's trade deficits with China, Europe, Mexico, Canada and members of the Organization of the Petroleum Exporting Countries all reached new highs based on record levels of imports. Imports from South American and Central America rose to a record as well. Over all, the trade deficit rose 4 percent, or $2.9 billion, in October, from a record $66 billion in September. Combined with another large increase in September, the deficit has grown by $10 billion in the past two months alone. Together, the trade deficit's sharp back-to-back increases more than erase the declines that economists found promising earlier this year, including a dip to $54 billion in March. The $68.9 billion deficit was well above the $62.9 billion forecast of economists polled by Bloomberg News. The widening trade gap weighed on the dollar, which continued to fall against the Japanese yen and the euro. But prices of Treasury securities rose after a separate government report showed that prices of imported goods had fallen more than expected last month, by 1.7 percent since October. Bond traders saw this report as a sign of easing inflationary pressures that could possibly encourage the Federal Reserve to take a break from its steady increases of short-term interest rates. Economists at Morgan Stanley said the October trade deficit was "much worse than expected" and they lowered their estimate of fourth-quarter economic growth to 3.0 percent, from 3.4 percent, on expectations that the United States would be increasingly reliant on imports. The initial expectations of a narrower trade deficit in October were based on the assumption that several unusual circumstances in September would no longer apply, said Joshua Shapiro, chief United States economist at MFR Inc. in New York. A strike at Boeing had hurt aircraft exports, the closure of the Port of New Orleans after Hurricane Katrina had hurt agriculture exports, and emergency imports of gasoline and natural gas were replacing temporarily shuttered domestic supplies Instead, a surge in imports more than offset gains in exports, and aircraft exports grew by less than they had fallen in September: although the end of a strike at Boeing helped bring about a $1.8 billion bounce in exports - to $107.5 billion - imports grew $4.7 billion, to $176.4 billion. Higher energy prices accounted for about two-thirds of the $2.9 billion jump in the trade deficit, with the trade gap in petroleum rising by $1.9 billion. The culprit was not the price of oil, which declined in October, but the country's demand for imports to compensate for the domestic production depleted by this year's hurricanes, said Nigel Gault, chief United States economist at Global Insight, a research firm in Lexington, Mass. Mr. Gault added that the trade deficit would be "a substantial drag on growth in the fourth quarter" and that the deficit's back-to-back records "have undermined hopes that the trade gap might be stabilizing." While petroleum imports should fall next year, the trade deficit in services and other products appears poised to trend higher, and the value of the dollar will fall in response, Mr. Gault said. "November will be better, but the past year's flat trend in the core deficit seems to be breaking," said Ian Shepherdson, chief United States economist at High Frequency Economics

    Sunday, December 11, 2005

    Basketball game with NKU

    Yesterday was my first time I go to a basketball game (in a stadium:). Kim got hook up from her office so we are actually were on the President List. We were sitting 3 chairs far away from president Sammuelson. It felt pretty VIP but we had to be very reserve, cant really scream or anything. The game was good, we won NYK almost 20 points. Good experience! In case, you want to know who Pre. Sammuelson is:

    Saturday, December 10, 2005

    The Monthly Payment Scam

    We have been duped into thinking in terms of monthly rather than total payment Have you ever asked yourself why there always seems to be too much month left over at the end of the money? In the next few articles we try to answer this by seeing how we have been lulled into thinking in terms of "monthly" instead of "total" cost. But the total cost isn't even the worst of it. Confused? Well, that is how your creditors want it. Here are the facts. Let's first set the stage with a couple real eye openers 1. A trend-reporting publication suggests that, more men are worth more at age 18 than at age 65. Think about it! We are going backwards. 2. We surpassed 1 million bankruptcies per year 2 years ago, and it hasn't let up since. 3. IRS tells us that 85% of those reaching age 65 do not have $200 in the bank and that 87% retire on less than $250 per week for life "Oh, that won't happen to me", says you. I am certain it won't. And I am just as certain that is exactly what 87% of those reaching age 65 said. So what happened? How did it get this bad? We are working hard and seem to be earning a good living. In comparison to our parents, our income is approaching wealth. But we do not seem to be getting ahead. Why? Where is the money going each month? Legal, Effective Credit Report Repair Have you ever noticed car dealers always ask something like, “how much did you plan to spend per month”? That is not meant to be a friendly introduction, though that is how it comes across. Rather, by design it is a sales technique because the car does not cost $20,000. Oh no, it only costs $385. That’s it. No strings attached. Just $385--- for the next 60 months! I know. I was a retail manager for many years. The greatest pitch offered was a standard refrain, “anything in the store is yours today for just $39.00.” We did not say per month. We did not say forever. We simply said an amount. And it worked, over and over and over. Ask yourself a question. When you see a written or video ad, which price is plastered in huge, bold print--- the total price or the monthly amount? Obviously, it is the monthly especially if the retailer or dealer does his own financing. [font color="#0000ff] Selling money is very lucrative as any bank will tell you. The Perfect Alternative to a Checking Account! The merchant lists the total price only because the law says it has to be there, but it is off lurking in some small corner nearly invisible. And mention of the monthly payment stays away from such naughty words as price, cost, or anything else that smacks of anything other than your comfort and convenience. It is all based upon the same monthly scam that you can still afford it even if you don't have all the money. Ask yourself if that really makes sense. Is it truly based upon sound judgment or is it based upon instant gratification? Then why do we do it? We do it because we have been brainwashed to think not in terms of total cost, but in terms of easy monthly payments, that’s why. The thought process goes something like this: “Well, let’s see. This bill will be paid next month. That frees up $22.50. And that pay raise is another $15. And if I can just squeeze another $7.50, I can buy it... I’ll do it!” I know! I’ve done it and so have you. This is how we think because this is how we have been trained to think and the retailer and creditor knows it. We put ourselves into their clutches, because that is what we have been taught to do by the system. When asked what was the most powerful thing he had ever witnessed, Albert Einstein responded simply, “compound interest.” Here are two scenarios which illustrate the hallmark of his genius. * A $2000 sofa financed at 19.8% interest with minimum monthly payments will take 31 years and 2 months to pay off and you will pay more than $10,000. The interest alone robs you of $8,202 that you sweat for decades to earn. In fact, you will have to earn about $12,000 gross to net $8202 for the interest just so you can have your $2000 sofa. What could possibly be worth paying 5 times its value? But it gets worse. If you were to put that same $8202 of monthly payments into just a 10% mutual fund over the same 31 years, it would yield $45,540 in personal wealth. s And you are giving it all up just so you can get that sofa a little sooner. * Look at a second example. Let's say you regularly buy a new car and pay $300 per month. If you do that for just 1/2 of your working life or twenty years, you will be giving up money which if invested at 10%, would build to $227,810.65. That amount would generate $1,936.39 per month for the rest of your life. Let's be very clear about this. You are giving up nearly $2000 a month income so that you can spend $300 per month on payments now! It just doesn't make any sense except to the finance company--- to them it makes terrific sense! Who do you suppose gets that lost income? Interest is far more than the little bit your friendly creditor requests for the use of their money, as seen above. But we do it every day. And until we remove the siphon hoses that have been rammed down our throats, we will never produce any wealth for ourselves. We need to live by one rule. We need to memorize it, stamp it on our forehead, ingrain it into our every fiber. And the rule is this: If I can’t afford something in cash, I can’t afford it! If I can’t afford something in cash, I can’t afford it! If you say it to yourself over and over, day in and day out, eventually it will become a part of your life. Is it necessary? I don’t know. How’s your financial future looking? Do you really appreciate paying 5-6 times the value of something? Is it really worth juggling the monthly payments, month after month, year after year? If it is, fine. Keep on keeping on. But if you are tired of the scam, if you are tired of having your future wealth stolen from you, if you are tired of sweating your life away just to fatten the bottom line profit of the finance company, then repeat to yourself, [font color="#ff0066]If I can’t afford something in cash, I can’t afford it! Beat the monthly payment scam by getting out of debt and paying cash.