Make Your Own Tote Bag!

I don't know about you, but I have a bunch of t-shirts that are way to short for me. This is a great way to get some use out of those shirts. You can use them to tote your snacks to the beach or your greens from the local farmer's market.

Fundamental Analysis

As was described in the last article, fundamental analysis is used to find the earning potential of a company by looking at things such as its financial health, competition, market dynamics, and future growth potential. The most important information can be found in its financial statements, which are filed quarterly and yearly with the SEC in the 10-Q and 10-K. While laid-back investors will base their investment decisions upon the “Annual Report to Shareholders” which is mailed to their doorstep every year, the more serious investors should look at the more detailed 10-K. These documents can be found at finance.yahoo.com and under the tab “SEC filings”.

A Warren Buffett Analysis Approach

Buffett’s consistent long-term profit with his investment company Berkshire Hathaway is encouraging since it suggests that there is some kind of indicator for stocks that will increase in value. Last time, we saw how companies, whose profits continue to grow, would see their stocks increase in price as well. This is necessitated by the fact that increasing profits means more money in the hands of the stockholder at some point. People will bid for these profits, thus driving the price of the stock up.

Currently, with the fluctuating financial situation, many people are looking to turn a quick profit as they look forward to an eventual recovery. Many believe stocks to have taken a major blow (with a minor recovery) and since indexes must grow in the long run, if they buy now, they can get stocks at firesale prices. But these gungho investors should not be overly confident, because stocks can and have dropped lower. 10 years ago, the SPY, or commonly known as “spiders”, were trading at 150 and right now we are hovering at 101. The SPY is an ETF (stock that simply mimics an index) that is 1/10^th the value of the S&P 500 index (so the S&P index can be seen as a representation of how 500 of America’s largest companies are trading). Since 2000, we have dipped below 100 twice, with the lowest point being in the high 60’s. Many stocks during the tech craze had insane PE ratios (meaning that the company may only have been making $1 or negative profit a year, yet the market had bid up the value of the company to maybe $100…usually this means that the market expects the company to grow quickly in the future and earn perhaps 10 or 15 dollars, making the PE fall from 100 to 10). While some companies like Google, Apple, and Yahoo paid off, most others didn’t and folded within a few years, losing all of the money that shareholders had put into the company. The same is true of high-tech companies in all fields, and even if the company does not end up going bankrupt, they may

1. continue losing money through operations rather than turning a profit, meaning they are slowly sucking away at shareholder value
2. profits fail to grow or grow at such a slow rate that if the company had a large PE (Price to Earnings ratio) it will have to fall to bring the share price more in line with how much the company is making. This means that the share price falls with it since (earnings per share) * PE = Share Price

Instead, take a look at some of the companies that Warren Buffett currently has in his portfolio: KO (Coca-Cola), WFC (Wells Fargo), BNI (Burlington Northern), PG (Proctor and Gamble), KFT (Kraft Foods) and etc. The one thing that Buffett stresses when investing in stocks is a durable advantage. This can be translated into some type of competitive advantage that a company has over other companies in the industry. Coca-Cola’s competitive advantage lies in its brand name (or secret formula...depends on if you think it really tastes better), which leads to about 2.7 billion in revenues each year. Besides for brand name, other competitive advantages may be exclusive rights to an input (such as mining rights), political barriers to entry (laws that limit new companies from joining the industry), and economies of scale (certain industries take a lot of capital before it becomes profitable, such as a telecommunications company).

While many companies have advantages, not many will have a durable advantage. Durable advantages are advantages which can withstand booms and recessions, changes in taste/culture, and technological advance. We are essentially trying to pick up free money by picking a company whose future profits and earnings are so predictable that there is little to no risk inherent in putting our money into it. However, to make it profitable, it also has to be undervalued at the moment. Practically, one is looking for a company whose product will continue to be used long into the future, and whose customer base will continue expanding. Once again, as revenues increase, profits per shareholder increases and causes stock prices to increase.

Durable Advantages:

1. Booms and Recessions

To find something that’s resistant to changes in the economy, look at the company’s revenues for the past 10 years (or just as long as possible). If you see that revenues are constantly growing, and not swinging over the place, you most likely have a company who does well regardless of how the economy is doing. For example, no matter how poorly the economy is doing, people will most likely not vary how much Coke they drink. Obviously, financials and housing are industries that would suffer in a recession.

Look for:

Constant revenue growth- Look for revenue growth over the last 10 years, and no decrease in the gross profit margin. This means that they are making more and more sales and making the same amount of profit for every dollar of sales. All of this can be found at looking at historical data on yahoo or msn.

A strong financial position- Current ratio below 1 is ideal although not all companies which are strong financially are like this. Current ratio basically shows how easily a company can pay back its debt. Its short term debt is put over its short term cash like assets, meaning the lower the better. One is also looking for stock repurchases (meaning the company is strong enough financially to start repurchasing stock…ie paying out its investors) which also leads to higher earnings per share for the rest of the outstanding shares. A strong cash flow is also important, having cash available when debt is coming due and when opportunities for acquisitions and expansions comes up is very important.

2. Technological Advance

This is really important when looking for a low-risk, long-term winner. Tech companies make money by coming up with the next big product. If another company manages to develop the product first, their earning potential for the near future is crippled compared to what the shareholders had been expecting. Additionally, although the high risk inherent in tech-dependent industries may be paid out with high-rewards, one day, their patents will expire and they will fail to come up with new viable products. Therefore, these industries are susceptible to large short-term risk and cannot be left as a good long-term investment.

Look for:

1. Low R&D costs: means the company (and check industry as well) is not subjected to harsh competition in terms of new products that need to be created.

2. Low capital expenditures: means you don’t need to buy new plants or large amounts of equipment every few years due to depreciation. Think of auto-manufacturers for both R&D and cap-ex. Both costs are huge because tech advance is so fast in the industry and leads to low profit margins.

3. Brand name

This is almost assuredly the second most important trait that you are looking for, besides for the resistance to booms and recessions. Brand name will help a product to continue to bring in the dough even when knockoffs come onto the market. Something like Coke has a dominant market share despite sitting on aisles next to thousands of similar products.

Look for:

1. Consistently high profit margins: Something with a brand name will be able to charge more for the same product due to the belief that it’s higher quality.

Hopefully this has been helpful. It’s mostly simple things, although it takes awhile to research. A suggestion would be filtering stocks by current ratios (<1.5),>5%), gross profit margins (>10%) and possibly current PE ratio. Above all just think, can I think of situations where my company and stock will tank and be unable to recover. If not, then think if the industry and the company itself will be able to expand and maintain its current (hopefully high) profit margins. Good luck! Next time on HOGS, and possibly a target value for this Chinese pork product manufacturer.

Easy Investing for non-dummies

How to perform a stock analysis (Basics Part 1):

There are incredibly different approaches to gauging where a stock should be priced. There are two main categories however: Fundamental and Technical analysis. Fundamental is looking at the merits of the company itself based upon information found in SEC filings (where managers talk about what their company is about, financial strengths and weaknesses, competitors, future directions of the company) and various financial reports (the balance sheet, cash flow statement and income statement). One mostly looks to decide if the direction, management, and financial strength of a company are sound. Other areas to look at would be competition, possible barriers to entry and possible expansion opportunities. Meanwhile, technical analysis is looking at various graphs and relying on possible recurring trends in market activity to predict where the stock will go: MACD (Moving averages), volumes, and looking for formations like the heads and shoulders are common Technical analysis tools. Most investors will use a combination of both in order to decide when and where to enter the market.

To further explain how to find the theoretic value of a share of stock, we would have to explore how stock prices tie company operations and investors’ capital together. Investors are people who give a company capital in return for a share of the profits. Imagine a bank where you lend the bank money (aka deposit) and get a varying amount of interest (if the company does well, you get bigger payouts for your investment and vice versa). The company’s board of directors (who are placed there by the shareholders) decide how much of the profits gets paid out as dividends and how much will be kept in order to have capital to pay for future business transactions (buying machines, factories, expanding, acquiring other companies). The latter is known as retained earnings. This money is considered stockholder equity and is still owed to the investors, though it has now been reinvested by the company. Since the company now has either more physical assets or cash, the company is worth more now. While this might intuitively make sense, (if something has more in assets, it should be worth more) how are these investors going to get their money back? Stocks don’t bring happiness like a happy meal would and if they don’t pay dividends, then why are you willing to pay $10 if they will never give you a dime of their profits (unless there’s a fool who’s willing to buy the share from you for more)? Two reasons:

1: the value of the company will one day be paid out in full to its investors: Many companies pay no dividends and yet are worth a large amount (Berkshire Hathaway has never paid a dividend yet is about $90,000/share). An example that demonstrates this entire point can be seen in a company whose shares are worth $1 and who have 1000 shares outstanding but pays no dividends. People are willing to pay the $1 because their money will be returned to them at some point in the future when it: 1. gets acquired by another company (example is Dainippon buying Sepracor for 2.6 billion and paying its investors premium ontop of their share price) 2. The company closes its doors and just pays out all the money it owes to its investors. If the company gets acquired/closes in 15 years, my ROE is the interest rate needed to turn the amount of money I paid for a share of stock when I first bought it into the amount of money that was finally paid out for 1 share of stock.

2: if stock prices stayed the same, there would be a greater return on equity (if stock price is $10, there are 100 shares, and the company makes $200 in profits, ROE = (200/100)/10 = 20%...if profits become $400, then ROE is now 40%). But, since everybody is looking for higher ROE (ie, how much money they get from investing $1) then the price of the stock will be bid up until it reaches equilibrium again, thus dropping ROE again.

So, stocks are not driven solely by mob mentality, as there is intrinsic value in the company. This value is created by the money people will receive when the company eventually pays out all of its stockholder equity (whether through future dividends, acquisition, or just by ending operations and paying out). Stock prices therefore essentially signify how much you are presently wiling to pay for a part of the profits of the company (paid at various times in the future) as long as it’s still running.

Easy Cooking! pt 5 - Tobiko + Shiso Pasta

This one is so easy and DELICIOUS, I had to re-post it under this blog too.

http://ericheartsusan.blogspot.com/2009/08/tobiko-shiso-pasta.html

UM, YOUR WELCOME.

Tobiko is also known as flying fish roe, which you've probably had as sushi. This recipe is an adaptation of the Tokibo+Shiso spaghetti from a popular restaurant in New York called Basta Pasta (I think they meant to say Bastardized Pasta aka the love child of centuries of Japanese and Italian cuisine). Your only challenge would be in finding tobiko and shiso leaves since clam juice is available at all supermarkets. Check your local Asian groceries. Now do yourself a favor and make it.

http://rxdebt.blogspot.com/

Easy Cooking! pt 4 - Spicy Cod Roe Spaghetti

When I'm really busy and stressed, I tend to find comfort in pasta. Japanese people have appropriated the pasta genre and created some wonderful Eastern inspired dishes. A Japanese food court next to my apartment makes the most delicious spaghetti with spicy cod roe (mentaiko) for five bucks. But leaving the house means looking presentable, and often I'm too lazy to brush my teeth/hair so I make sure I keep plenty of Japanese spaghetti sauces and instant miso soup stocked.

Need: angel hair pasta and the spicy cod roe spaghetti sauce (available at most asian food stores)

Express directions:

Cook 1 serving of angel hair pasta

Drain without rinsing the pasta with water (so the sauce will stick).

Reserve some of the starchy pasta water and add a little if sauce isn't sticky enough

Toss well with spicy cod roe sauce

Garnish with a seaweed (included) and/or a soft boiled egg, some scallions..

Sandra Lee Semi-Homemade Route:

If you have more time, you can saute 1 clove of garlic and half a small onion in a 1/4 tbsp butter and add the cod roe and toss pasta while the sauce is still hot. If you want to get really fancy, you can add 1tbsp of white wine until it evaporates, then add the cod roe and a 1 tbsp heavy cream to get that rich texture.

Serve with some instant miso soup and you have yourself a fancy fusion dish!

Stay tuned for my Tobiko + Shizo spaghetti recipe. It's on the books for dinner tonight!

Road Biking pt. 3 - Le Tour de France

Not many people are familiar with the Tour de France, simply because cycling in the U.S. is rather esoteric. Those of us who know about the Tour have likely heard about it because of Lance Armstrong - the American legend with his record shattering 7 straight wins in the Tour, and even more impressively, his successful battle over testicular cancer (which had metastasized to his lungs and brain). Lance has contributed his fair share in raising awareness about cancer through his LiveStrong campaign, and is also responsible for those trendy rubber yellow bracelets.

After announcing his retirement, cycling as a sport in the U.S. seemed to have completely died. Most Americans would have cared less about who would win the Tour seeing as they couldn't put their hopes in any obviously familiar names.

Alas after 3 years of deadwinds, Lance returned for the 2009 Tour de France trying to go for his eighth win, though his main objective, as he put it, was to raise greater awareness for his LiveStrong campaign.

The Tour de France concluded yesterday, with disappointing results for us Americans as Lance wasn't not able to pull another win. This result was actually clear in stage 17, when Contador, his teammate and arch-rival, took off at adrenaling-like speeds on an excruciating uphill climb where no one was able to follow.

Sadly, Lance was not able to hold second place either.

However, one cannot expect too much from Lance Armstrong. He's currently 37-years old, an age at the verge of retirement for most cyclists. One also has to consider his impressive conditioning after his 3-year sabbatical. Had he been in his prime, the Tour de France would have been another walk in the park.

To watch the Tour de France, visit:
http://www.letour.fr/indexus.html

On pt. 4 I think I'll talk about sizing your road bike.

Computer games pt. 2 - Illustration

Uhh... Mike requested me to show a clip... hes a stupid turd



*edit* - Apparently, Mike doe not like my style of posts. So I will explain what is happening. This is just a clip from a pug, a scrim with random people, through a program called ESEA. It's basically a way for you to scrim when your team isn't around. The site keeps track of your stats and you can win prizes. And I submitted this clip and I was pretty sure I was going to win. But I didn't -_-... so you be the judge.