Ten for Thursday, November 18, 2010

This roundup is for you, Stacey. Enjoy.

1. A shoppers guide to Black Friday.

2. The true cost of bottled water versus tap water. We buy Ozarka water because the water has no taste. Water should not have a taste.

3. Five ways to spruce up Thanksgiving without messing up your budget.

4. Cap from Stop Buying Crap: I like my bank because they haven’t screwed me over yet.

5. Planning your budget and the benefits of forward thinking.

6. How much debt is too much? In my opinion, if your carrying a balance on your credit card, then it’s too much.

7. State minimums for car insurance.

8. Nouriel Roubini talks, people listen. “The problem with economic and market forecasts is that there are no good forecasters. Yet, every day the financial media broadcasts and prints forecasts from the latest gurus — forecasts that are the financial equivalent of astrology.”

9. Allan Roth is the best: Annuity Industry Gets Name Makeover.

10. Reality TV meets the job search. It’s sad that looking for a job can be considered entertainment.

Matthew Schifrin’s “The Warren Buffetts Next Door”

I received a copy of Matthew Schifrin’s The Warren Buffetts Next Door: The World’s Greatest Investors You’ve Never Heard Of and What You Can Learn From Them from the publisher last week. As the subtitle suggests, the book profiles ten investors that Schifrin discovered through the internet:

“For the puposes of finding my cadidates for The Warren Buffetts Next Door, I relied on web-based sources for verifiable track records. Marketocracy.com, a site created in the summer of 2000 with rigorous standards for monitoring investment performance, was my number one source because its data is deepest adn goes back the farthest.”

A little further in the introduction, Schifrin writes:

“To be sure, some of hte great armchair investors profiled in this book may flame out in the coming years. I will do my best to keep you updated on their investing successes and failures on Forbes.com.

However, even if some of these successful Warren-wannabes crash and burn, there will be doezens more outstanding self-taugh investors to take their place.”

Well, DUH! There WILL ALWAYS BE SOME WHO BEAT THE MARKET. Always! The trick is doing it on a consistent basis. Who cares if some do it for awhile, crash and burn, and then others do it for awhile. Maybe I missed Schifrin’s point.

Intrigued, I read further into the book. The first chapter profiled a guy who likes to look at the tangible asset value, real earnings and debt levels of the company before he invests. Classic value investor criteria. The problem is knowing how to get to those values. Unfortunately, the book stops short of giving any real useful information. For instance, this is what the author writes about
about concerning where this investor gets his ideas:

“Chris Rees says that he gets his ideas from a slew of sources and is reluctant to give specifics, but he clearly uses stock screening software and alert services from we sites like the old 10kwizard.com (now called Monringstar Document Research) and SecInfo.com to cull through official SEC filings for certain fundamental characteristics.”

A little further (emphasis mine)…

“Tangible asset value is defined as a company’s assets minus its liabilities. However, deducted from those assets are the fuzzy things that tend to inflate the number such as “goodwill,” which might measure the value of brands acquired during the acquisition. Another intangible asset Rees might deduct is his estimation for obsolete inventory.”

“Might” and “estimation” are the key words in that paragraph. Those who are looking for specifics will be disappointed.

That’s not to say that this book isn’t useful or interesting. I did enjoy reading it. I just get frustrated with these kinds of books because one person will use stock screeners and then the next person avoids stock screeners. Huh?

*Affiliate Link

Anyone Read the Debt Commission’s Proposals?

Read it here:

CoChair Draft

I thought this particular bullet point was interesting:

Throughout our history, Americans have always been willing to sacrifice to make our nation stronger over the long haul. That’s the promise of America:to give our children and grandchildren a better life.

I guess it depends on who the children and grandchildren are. My parents and grandparents haven’t left it in good shape for my generation. Actually, that statement is misleading. It was my parents and grandparents BUT the politicians in charge during those years who have put us in this position. Now some of us are being asked to make sacrifices to right the system.

Overall, I do like their recommendations:

1. Enact tough discretionary spending caps and provide $200 billion in illustrative domestic and defense savings in 2015.

2. Pass tax reform that dramatically reduces rates, simplifies the code, broadens the base, and reduces the deficit. Here’s a brief look at the taxes portion of the proposal, which was taken directly from the proposal (click on the graphic to see a larger version):

3. Address the “Doc Fix” not through deficit spending but through savings from payment reforms, cost-sharing, and malpractice reform, and long-term measures to control health care cost growth.

4. Achieve mandatory savings from farm subsidies, military and civil service retirement.

5. Ensure Social Security solvency for the next 75 years while reducing poverty among seniors.

It’ll be interesting to see whether or not this goes anywhere. Already, some on the left are calling it a right-leaning proposal (probably due to the tax proposal):

“As far as I’m concerned the proposal is dead on arrival and should be soundly rejected,” [Rep. Jan] Schakowsky told HuffPost in an after-hours phone call. There are a number of ways to achieve fiscal solvency, she said, without taking it out of the hides of Social Security beneficiaries.

Good ol’ politics.

Sounds Like 2008 (but it’s not)…

Read this:

“It was such a period as seldom occurs, and hardly ever more than once in anyone’s lifetime. The period between XXXX and XXXX was one in which it was easy to grow rich. There was a steady increase in the value of property and commodities, and an active market all the time. One had only to buy anything and wait, to sell at a profit; sometimes, as in real estate for instance, at a very large profit in a short time.”

Sounds like 2008. It’s not. Anyone want to guess the time period mentioned in that paragraph?

Harvey Mackay’s ABCs of Networking

I haven’t shared a Harvey Mackay piece in awhile. One of my all-time favorite books, Dig Your Well Before You’re Thirsty*, was written by Mr. Mackay. Since this article relates to that book, I thought it was worth sharing. Enjoy.

The ABCs of Networking

By Harvey Mackay

If I had to name the single characteristic shared by all the truly successful people I’ve met over a lifetime, I’d say it is the ability to create and nurture a network of contacts. I could lose all my money and all my factories, but leave me my contacts and I’ll be back as strong as ever in three to five years. Networking is that important.

The alphabet is a great place to start as you build your network — organize your contacts from A to Z. I’ve written two other ABC columns — the ABCs of selling and the ABCs of teamwork. Now it’s time for the ABCs of networking:

A is for antennae, which should be up every waking moment. Never pass up an opportunity to meet new people.

B is for birthdays. It’s always advantageous to know the birthdays of your contacts. You wouldn’t believe how much business our sales reps write up when they call on their customers’ birthdays.

C is for contact management system. Have your data organized so that you can cross reference entries and find the information you need quickly.

D is for Dig Your Well Before You’re Thirsty, my networking book.

E is for exchange and expand. When two people exchange dollar bills, each still has only one dollar. But when two people exchange networks, they each have access to two networks.

F is for Facebook and all other social media. These sites open unlimited possibilities for networking. Use them wisely.

G is for gatekeeper. There usually is a trusted assistant trained to block or grant your access. Don’t waste their time, and make sure you acknowledge their significant role in reaching the boss.

H is for hearing. Make note of news you hear affecting someone in your network so you can reference it at the appropriate time.

I is for information. You can’t (and shouldn’t) talk about business all the time. Learn everything you can about your contacts’ families, pets, hobbies and interests. Humanize your approach.

J is for job security, which you will always have if you develop a good network.

K is for keeping in touch. If your network is going to work, you have to stay plugged in and keep the wires humming.

L is for lessons. The first real networking school I signed up for after I graduated from college was Toastmasters. Dale Carnegie schools are designed to achieve similar goals.

M is for mentors. In the best of all possible worlds, your role models can become your mentors, helping you, advising you, guiding you, even lending you their network as you build your own.

N is for a network of contacts. A network can enrich your life.

O is for outgoing. Be the first to introduce yourself, lend a hand, or send congratulations for a job well done.

P is for people. You have to love people to be a good networker.

Q is for quality. A large network is worthless unless the people in it can be counted on to answer in an emergency at 2 a.m.

R is for Reciprocity. You give; you get. You no give; you no get. If you only do business with people you know and like, you won’t be in business very long.

S is for six degrees of separation, the thought that there is a chain of no more than six people that link every person. Someone you know knows someone who knows someone you want to know.

T is for telephone. Landline, cell, internet — this is a critical tool for staying in touch with your network.

U is for urgency. Don’t be slow to answer the call, even if you never expect to have your effort repaid.

V is for visibility. You’ve got to get involved in organizations and groups to get connected, but don’t confuse visibility with W is not only for whom you know, but also for who knows you?

X is for the extra mile. Your network contacts will go the extra mile for you, and you must be willing to do the same for them.

Y is for yearly check-in. Find a way, even if it’s just a holiday card, to stay in touch.

Z is for zip code — do you have plenty represented in your network?

Mackay’s Moral: You don’t have to know everything as long as you know the people who do.

Harvey’s latest book is Use Your Head*. You can also check out HarveyMackay.com.

*Affiliate Link

Zero Percent Interest on my Savings! Why Can’t Tom Do Better?

This is a guest post by Doug Warshauer, author of If I’m So Smart Where Did All My Money Go: Balancing Your Financial Objectives for Lasting Wealth (Personal Finance)*. I met Doug through Twitter. Gotta love social networking.

My friend Tom plans to buy a car in two years. His current car, a 2003 Chrysler, is nearing the end of the line. Tom recently began setting aside some money each month, hoping that, two years from now, he’ll have enough accumulated to purchase his new vehicle. The car he has his eye on: a Honda Accord, which he estimates will cost him about $27,000.

Tom, and millions of other people in similar situations, face a dilemma right now: how to invest that money which they plan to spend in a couple of years. He realizes that two years is far too short a window of time to invest in stocks. When the stock market falls – as it has numerous times in the past decade – the losses could wipe out a substantial portion of his savings and delay his ability to buy the car.

Unfortunately, with short-term interest rates near zero, Tom finds all the investment options unappealing. Bank savings accounts, 2-year CDs, Treasury bills, and money market funds all offer negligible returns. With such undesirable options, he feels tempted to find some alternative investment vehicle.

What should Tom do? Here is my suggestion:

First, he needs a little perspective. While nominal short-term interest rates are at an all time low, real interest rates (inflation-adjusted) are not too different from historical norms. Tom is not going to get much of a return on his investment, but the cost of the car is also not likely to rise much, either.

His ability to buy the car in two years depends on two factors: 1) saving enough money each month, and 2) not losing the money he saves through poor investing.

How can he keep from losing it through poor investing? The biggest risk we’ve already mentioned: he must avoid the temptation to invest in the stock market. Still, even if Tom sticks to fixed income investments, he needs to avoid the temptation to accept two other risks that could undermine his ability to buy that car.

First, he needs to protect against credit risk, the risk that the security he buys will fall in value if the likelihood that its underlying investments default. Tom can essentially eliminate credit risk by purchasing U.S. Treasuries, putting his money in a bank that offers an FDIC guarantee, or investing in a bond fund that buys highly rated securities. While mutual funds that buy high-yielding (lower rated) bonds might offer tempting interest rates, they could fall sharply in a down market, when the risk of default of lower-rated bonds skyrockets.

Second, he needs to protect against interest rate risk, the risk that the security he buys will fall in value if interest rates rise. He can eliminate most interest rate risk by purchasing securities with a short duration. Savings accounts, money market funds, and short-term bond funds all fit this description.

As with credit risk, Tom may be tempted to accept some interest rate risk in order to earn a higher yield. Currently, a 2-year Treasury yields about 0.5%, and a 30-year Treasury bond yields about 4.25%. After all, with a highly liquid market for Treasuries, he’ll be able to sell the 30-year bond when he wishes to buy the car.

If he buys the 30-year bond, and interest rates rise, he could be in for a shock in two years. An increase in long term interest rates of two or three percent could wipe out 25% or more of the value of his investment! Once again, the downside of chasing a higher return dwarfs the modest benefit.

True, to avoid credit risk and interest rate risk, Tom must resign himself to accepting the negligible returns he will earn investing in high-quality, short-term fixed income investments. But accepting them comes with a real reward: the near certainty that two years from now, as long as he saves as much as he intends, he will be the owner of a new Accord.

What would you do? Would you be tempted to seek a higher-yielding investment?

Doug Warshauer’s new book, If I’m So Smart Where Did All My Money Go: Balancing Your Financial Objectives for Lasting Wealth (Personal Finance)*, teaches how people can design savings and investment plans to meet all their financial objectives. He blogs on personal finance issues at www.dougwarshauer.com.

Where Do You Rank as a Taxpayer?

Kiplinger’s posted an interesting article ranking taxpayers according to their 2008 AGI. The graphic they show isn’t clear so I’m assuming that their numbers are for the married filing jointly status. Here is a cut out of that graphic:

Just to see where we stood, I dug out our 2008 income tax return. According to our numbers, we rank in the top 10%. Although I feel blessed to be where we are, I’m discouraged because we don’t feel “rich.”

The article mentioned that the top one percent of taxpayers made 20% of the income of the U.S., while the bottom fifty percent of taxpayers only made 12.75% of the nation’s income. The article compares those numbers to 1986:

For historical perspective, back in 1986, the top 1% of earners reported 11% of all income and paid 26% of the income taxes; the lower-earning 50% made 17% of the income and paid 6% of the nation’s individual income tax bill.

Let’s think for a minute why those numbers could have changed (a little “what-if” thinking here)…

• People (Baby Boomers) are retiring and are therefore making less money than in the past.

• Lower income means lower income taxes.

• Tax rates dropped across the board. Those in the lower income tax bracket dropped 67% (from 15% to 10%). The tax brakets at the upper end dropped, but not as much based on percent.

• The U.S. has moved from manufacturing jobs to service jobs, where pay may not be as high. A lot of those manufacturing jobs were high-paying union jobs.

• White collar/management positions have continued to pay well due to supply and demand (and some might say corporate greed). Consider the field of engineering.

• The U.S. has adopted policies that have given more and more to those in the lower income classes in the form of income tax credits. I read somewhere (and even posted about it once) that something like 47% of Americans don’t even pay income taxes.

I think if we want to reverse the gap trend, then we need to help people get higher-paying jobs, rather than drag down those who have higher-payiing jobs. In other words, we get nowhere in the longrun by wealth redistribution. Real wealth comes from building and creating things.

I know this post is probably going to garner some comments. Some of you will agree with me while others of you won’t. I’m looking forward to a great discussion (without name-calling or other rude behavior).