business and Investments

Stock Research – NYSE’s Home Depot rocks investors with CEO resignation – Can Corporate culture survive

2007-10-31T04:40:00.000-07:00

Our stock research has come up with an interesting play. As you know, Home Depot through its Board of Directors forced the resignation of General Electric trained CEO, Robert Nardelli, who had only been with Home Depot a couple of years. Somehow, Nardelli managed to get the Board to give him a $200 million severance package, which has Home Depot shareholders up in arms. How did a long-time General Electric guy like Nardelli screw up so bad that he was forced to resign, and not because he didn’t deliver the numbers? Our stock research we believe has provided the answer.

Many CEO’s have what is called the cult of personality. They make the corporation about them. Sumner Redstone of Viacom is like this, as was Harold Geneen of ITT in the 1960’s. Certainly Charles Revson, creator of Revlon was this way also. Nobody expected Nardelli to be the imperial CEO that he became very quickly once he was given the reins to Home Depot.

There’s an expression that people like to use. It’s called, “If it ain’t broke, don’t fix it” concept. Nardelli violated this cardinal rule of management. He came in, basically said I know how to run things, imposed his will, and then blew it. In the end, he may have blown much more than his own career. Our stock research shows that this company may need much more than Nardelli’s resignation, to effectuate the change that is now needed to reestablish Home Depot as the undisputed heavyweight champion of home improvement.

You might be aware that Lowe’s is breathing down Home Depot’s back as we speak. Wall Street loves Lowe’s, and for the moment dislikes Home Depot big time. Why is Home Depot in trouble? It’s because our work shows that Nardelli may have wiped out much of the original corporate culture that founders Bernie Marcus, and Arthur Blank instilled in the corporation over a 20-year run.

Home Depot is one of the truly great success stories of late 20th century corporate America. It is a classic roll-up (home improvement) of a multi-billion dollar fragmented industry. It was also a vertical roll-up. Prior to Home Depot, you went to one store for plumbing, another for paint supplies, and another for lumber. HD was the first mega store that carried it all.

What you have to keep in mind is that Home Depot was founded on a number of ethical principles, and values. As verbalized by founder Bernie Marcus, they included:

• Superb Customer Service
• Taking Care of the Employees
• Galvanizing, Recognizing, and Promoting Entrepreneurial Spirit
• Respecting all People
• Doing the Right Thing

When Bob Nardelli walked in the door, these principles and values that Home Depot was built on were cast aside in favor of an imperial CEO style. General Electric is the finest run company of its kind in the world, but its style is not appropriate for an entrepreneurial based company like the Home Depot. GE is known for working people all types of hours including all nighters and weekends.

Read any of former GE CEO Jack Welch’s books and he will tell you about how fighting for the CEO slot were the worst years of his life. It was pure politics. It was this atmosphere that Nardelli brought to Home Depot. Nardelli blew up the customer service excellence that Home Depot was known for, by killing the handoff rule. This procedure allowed every Home Depot customer to be brought directly to the store location where the merchandise he was seeking was shelved.

Nardelli injured the entrepreneurial spirit of the store managers by forcing them to comply with the GE management style template. As for taking care of the employees, it starts from the top. The imperial CEO systematically went about replacing as many of the key people in the company as he could with his own General Electric alumni.

The GE alumni are now in Charge at Home Depot

Our problem as a premiere Internet financial advisory firm is that the General Electric style of management which works work if your end user is another company, fails miserably when the end user is a consumer. At Home Depot the consumer was king, and treated appropriately. The employees, known as associates were treated great, because they were the intermediaries to the consumer. Give the employee a bad attitude and the customer picks up on it immediately.

I saw it today in a Home Depot store in Norwalk, Connecticut. We visit several stores each week to gauge for ourselves what is going on. The associate couldn’t be bothered by the customer, and it was obvious. Now if this continues, Lowe’s will eat Home Depot for lunch.

Nardelli gone – What’s the Problem?

The problem is the culture has been changed. The senior management of Home Depot is now a group of General Electric trained executives. All of whom have joined the company in the last five years. They are still there. The Board of Directors has handed the CEO and Chairman slots to Frank Blake who joined the company five years ago in 2002 from where? You guessed it – he spent the bulk of his career at General Electric. Oh yes, he served as deputy secretary for the U.S. Department of Energy. What does any of this have to do with dealing with a guy who wants to buy a paintbrush and a gallon of paint? The answer is very little to nothing. New CEO Blake has a law degree from Columbia, and was a law clerk to Supreme Court Justice Stevens. He’s a good guy in the wrong slot with the wrong background.

When we looked at the biographies of the rest of the senior management team, we noticed they too were basically all General Electric former executives brought in by Nardelli. These are people who spent the bulk of their careers at General Electric which means their corporate culture is the GE culture, not the Home Depot culture based on satisfying the customer.

At Home Depot, the customer ALWAYS CAME FIRST. Walk into a store now, and you don’t get that feeling. The stores are in worse shape than they were years ago. The employees are not as helpful, nor as well trained. The spirit that made this company go is no longer evident. The BIG QUESTION is whether or not Home Depot’s current valuation in the stock market makes the stock a buy TODAY, regardless of the management team’s ineptness. That dear investor is another question, and we will have the answer shortly.

Goodbye and Good Luck
By : John Smith

Guidelines before taking a Real Estate Investment decision

2007-10-31T04:39:00.000-07:00

Real estate is defined by Investor Words as “A piece of land, including the air above it and the ground below it, and any buildings or structures on it, also called realty”. That of course is the permanent value on which all the rest of the market value is based.
• Be aware of your cash flow limitations.
Before entering in the real estate investment, understand the cash flow. On deciding particular section, take into consideration the cost factor involved in order purchase the land or building. For example, if the cost of the house is in the $600,000 range and the property taxes are high your expenses will force you to charge rents in the $3000 to $4000 range. That limits your pool of potential renters pretty severely.
• Understand the property’s net operating income as a percentage of the price is.
This is called capitalization and is an expression of how much every dollar you make in a year will cost. The property purchased should be able to give a good cap rate. Divide the net income for the past year by the purchase price. The property should give you a minimum 10% or better cap rate.
• Beware of high pressure sales tactics.
If some one is pushing hard for a decision then something about the deal is not right. In such cases, it would always be better to take time in making decision on the purchase of the particular asset. Take into consideration, the history of the asset in consideration, the purchase price, the future market of value of the asset, etc..
• Know the history of the current tenants and the reputation of the neighborhood.
As the saying goes, “ One rotten apple could spoil the whole lot”. Similarly, a beautiful old house with charm and style may sell for a great price but be located in a decaying area of the city. In a neighborhood where the prospective tenant will be facing security risks such as drug and gang activity or where they are afraid to send their children to school they will not stay.
Having a property in such a location would never attract good tenants, which infact would turn out as a poor investment as well as an insurance risk.
• Develop your real estate business skills
Dealing real estate investment requires different business skills than just investing in stocks and bonds. Most real estate investors like to stay pretty much “hands on” with their acquisitions, especially if the properties are the remodel and refurbish types of investments. In order for the formula to work, one must be able to negotiate air tight and favorable contracts with a variety of contractors.
Understand local laws and ordinances and know where to obtain permits and schedule inspections.
Learn to forecast the market by watching the housing starts, the new and existing sale numbers and calculate the average days on the market of properties in your range.

By : John Smith

Building a Real Estate Investment Team

2007-10-31T04:36:00.000-07:00

Real estate investing can be a very lucrative way of making a living if prior homework is done. Knowledge and preparation is the key to your success or failure. Putting together your investor team before even thinking about looking at the first property will increase your chances of succeeding in this business. Your team should consist of:
All of the above play a key role in your success and finding the right match for the team should be carefully considered.
Below are some possible team members, and what they need to be on the team.
1. Real estate agent. An agent with experience in the area you invest in and access to the MLS (Multiple Listing Service), can be a great help.
2. Real estate attorney. This person should be well-versed and experienced in laws and legal customs of your area or of the area in consideration, and with experience in the type of deals you intend to do
3. Accountant. Keeping books for real estate investments is getting more complicated with all the tax-law changes. The accountant chosen should be a person who understands the law, and the type of business the company is in.
4. Mortgage broker or mortgage banker. The first can offer many options, and the second can make the loan decision. Each has advantages, and you could use both. Either way, it's important they understand you would require fast closings, lower interest rates, and the like.
5. Real estate appraiser. A good appraiser gives an accurate valuation of a property, and they should be able to suggest ways in which one can raise the value of a property. Find someone that will talk to you.
6. Property inspector. Find one that is, or used to be, a contractor, so he can find the problems and give some idea of the cost of repairs.
7. Insurance agent. Good ones will understand what you want, and find ways to save money. Insure all your properties with one agent, and you're likely to have better service.
8. Escrow officer. They'll usually be with a closing company. Find someone that's efficient, and can explain things clearly to both sides. If he or she is confused by a slightly creative contract, he should educate easily or be replaced.
9. Cleaning person. Preferably, a team ready for a fast turn-around when you buy a rental or rehab project.
10. Property manager. Be sure that the company you hire has experience, is responsive, and will have time for you when you call. A good property manager can tell you what you should get for rent in a given area - BEFORE you buy.
The team overall should be proper in communicating the required aspects required for the building of the team and there by the business. Real estate investment is more profitable - and less stressful - with a good team on the side.

By : John Smith

Real Estate Investing

2007-10-31T04:35:00.001-07:00

Real estate investing works at all times, but learning the market and adapting the techniques is what is required in the changing times. Real estate markets are subject to fluctuations, but they do not greatly influence the ability of the investor to achieve profits.

Unlike the stock markets, real estate markets don’t rise and fall rapidly. For long-term investing, additional market factors also are important to make buying decisions. Investors, who plan for short-term real estate market value, keep on speculating on their profit margins.
The climate for real estate investing keeps changing and it is more difficult to find bargains in value rising markets. If the market value increases, the probability of selling the property quickly for a large profit increases. In contrast, when property value decreases, price bargains are possible.
But assessing the true value of the property based on when to sell the property is essential for an investor. The property should be bought at such a calculated value, for profitable selling later.
Some basic strategies can be used successfully to avoid risk in real estate investing, such as understanding the trends on real estate globally, and constantly updating your knowledge on the same. Keeping in touch with other real estate investors would also help to understand the market trends.
These people can help you interpret market indicators such as inventory, and this information can help you make good decisions on real estate investing. Inventory, defined as the number of properties offered for sale, is a good indicator of current market trends. If inventory is low, because of restrictions on building or geography, the market demand created will lead to rising prices.
Markets keep falling and rising, which offers great opportunity to the investor. When property values are falling, inventory rises, which forces the seller to dispose their property, and they may accept a below-market offer. But it is always better to know the market and purchase the property at a price low enough to net better profits.

If the market bounces back after a purchase, it is well for the investor. However, if the market takes a slow down after a purchase, it leads to trouble. Following the global, national and local indicators is important for an investor. But smart investors know exactly how to exit the property before they buy, and will even have a backup plan. In short, know your market, before you invest.

By : John Smith

Real Estate Investing and Motivated Buyers

2007-10-31T04:34:00.000-07:00

A motivated buyer is one who spends his time tracking down and meeting with motivated sellers who are eager to sell their houses and other properties.
Understanding few things in real estate investing will make it easier to you, to become a motivated buyer.

Deal with motivated sellers who can't wait for you to put an offer in front of them, so they can get that property signed off and get the property out of their lives once and for all. It often doesn't take more than a moment or two on the telephone to hear motivation, or the lack of motivation, in the seller's voice. Look for those "hot to go" sellers, and when you locate one, get your proposal into their hands immediately.
This is a business where houses are the commodity, and stock in the trade and treat them as commodity. Generally, you can count on the fact that a house is a house is a house, and don't particularly care about all the details at this point in your game plan. Don’t be interested in spending the time that it would take to thoroughly research the particular in’s and out’s of each and every property we encounter.

You can also make offers over the phone on properties you've never seen. Use the information the seller provides to formulate an offer. Upon acceptance begin the "sort it out" process. During the process of "due diligence," determine the details of the seller and advise the seller of your findings and decide whether to renegotiate or simply walk off.
Real estate investing often requires someone spending lots of time figuring things out, inspecting, getting estimates, applying for permits, etc. Once you have a property tied up and you’re marketing it, let the buyer figure out those tough things that often require more time than we care to invest.

Never ever spend your own money in buying a property as an investor. You can initiate the process without having cash on the table.
Finally following these instructions can make you a successful and motivated buyer.

By : John Smith

Real Estate Investing and Market Value

2007-10-31T04:33:00.000-07:00

There is only one way to determine the market value for single-family houses -Comparable Sales, and it is the most accurate way to determine the market value of a house.

Comparable sales are recent sales of similar houses in the same or similar, nearby locality. This approach is called the "market comparison" method and is the method used by professional, licensed real estate appraisers for appraising single-family houses.

Here are a few ways by which NOT to determine the fair market value of a single family home: replacement cost coupled with depreciation, the income approach, IRR, URR, tax assessor value, calling your builder etc.
The "assessed value" of the house can be ignored. Tax assessments vary dramatically from one area to another. The information is rarely current, and this approach may or may not have any bearing on the real market value of the property. Never rely on assessment and tax information to determine current market value unless you are an expert on tax assessments for your area.
Like tax assessments, it is not safe to rely on the "Last Sale Price" of the house. The previous buyer of the house may have paid too much or too little for it. Moreover, the Last Sale Price is an event that occurred much too far in the past to be relevant to current market value.
You should always do your own market value analysis, rather than relying on the agent's opinion regarding market value. Your own opinion will be much more accurate once you have learned the correct way to determine market value. Real estate agents unduly complicate matters.
For instance, in determining market value, many agents consider the "listed" or asking price of houses that have not yet sold. The only measure of market value is what a house sells for, which can be taken as final.

The asking price and the actual selling price differ a lot. The asking price may be inflated for several reasons. Sellers just want to test the market to see what they could get for the house if they really wanted to sell it.
The listed price also may be inflated because of the real estate agent who obtained the listing. Real estate agents compete vigorously with each other to get these listings. The agent who has the listing earns a commission when the house sells, even if some other agent actually sells the house.

There are several ways to find comparable sales for an area.

In many states, you can get a "Property Profile." This a document that contains information about a particular property. Most title insurance companies send you a property profile for free.

The most important part of the property profile is the section labeled "Comparable Sales." This section contains detailed information about each property sold within the last six to twelve months and within a certain distance from the specified address.

To accurately determine the market value of a house, stay as close to the target house as possible. For a comparable sale to be truly "comparable" to the target house, it must be similar. That means not only that the house should be located in a nearby similar neighborhood, but also that the house should be similar in size and age.

By : John Smith

Good Deals For Real Estate Investors

2007-10-31T04:32:00.000-07:00

Closing a good deal requires a lot of analysis, and investors face lot of analysis crisis when it comes to closing a deal. In order to overcome analysis crisis, investors need to have lots of information and they should make sure that the deal is really worth, since they have a margin profit line there.
These information and analysis will help you decide if you should make an offer. First thing is to know the property value. Take help from professionals in appraising the property or follow realtors, appraisers and banks in determining the worth of a property, who look at comparable sales, usually three to five sales of similar property close by. The properties should be similar to the maximum.

A comparable sales price of every property bought or sold for the place you want information about, should be listed, and try to understand the market and get information in whatever ways possible. File the comparable sales lists and information for future use.
The second thing is to find the cost of the repairs from two different sources, from the seller and from a good licensed, bonded contract and get bids from more than one contractor recommended by other investors.
When a property worth $100,000, which does not require any repairs, comes for a closing deal for $70,000 which is 30% below market value, it is a good deal, following the Rule of thumb: A good deal should be at least 20% below market.
But you can negotiate an even better deal and get a signed contract, and that’s where money lies in real estate. If not negotiated, even though it is a good deal, the investor’s profit margin is reduced.

Property value changes according to situations. In case of tax assessment and other such regulations over property, the owner would have the property value less, and on the other hand, if he borrows money against the property, he would want it appraised as high as possible. Since property has different value depending on situations, get consultations from professionals in the market to know real values for properties today.

A quick survey can be done to see if it is a good deal, and offer can be placed in with a contingency, and then a compete analysis done. But finally the trick in closing a good deal is acting according to the market trends and making a bold decision at the right time.

By : John Smith

Ethics in Real Estate Investing

2007-10-31T04:31:00.000-07:00

Investors have a bad reputation of taking advantage of people in distress to better them. But it is people who get themselves into such situations and investors are there to offer a solution, which benefits them both.
But there are always some rotten eggs in the basket too, as in every other industry. There are investors who try to take advantage of each other out of deals. Certain ethics need to be followed in real estate industry. We have to work together as a team to keep the industry on the upward trend, and when we hear about an investor who cuts people out of deals, we need to pass the word to everyone we know.

When you are trying to sell a property, you would call every investor you know to do a drive-by. Many investors also send their people to the property. In case of a sign in the scheduled property, the investors who were sent by others can call you directly. You should ask them how they heard about the property. If you know they were sent by another investor, tell them they have to call the investor who sent them, and don't cut the investor out of the deal.
The other side is, you are sent to a property by an investor, which does not belong to him. It is a very good deal, and you would not have had any other way to know that this property exists, other than the investor. In such case, you should not decide to call the person directly and cut the investor.
In case of such undercutting of deals, the concerned people should be banned from the real estate investors associations, which would earn them a very bad reputation and cause them to lose many more deals because of greed.

If your client is sent to one of the other investor’s properties, and if they like it, you can sell it to them and earn your fee from the other investor. If another investor gives you a referral, you should pay for it. When people call you with a property address that they don't know how what to do with and you make it a deal, pay them for the referral.

If you are uncertain about doing business with a new person, call your group associations and see if they are willing to share with you what they know about the person, and keep watching!

By : John Smith

Closing Free and clear properties for Real Estate Investors

2007-10-31T04:28:00.000-07:00

Investors look for free and clear properties everywhere, because it means that whoever you are and wherever you are investing, you will meet many sellers of homes that are owned free and clear.

There are biggest considerations when you meet with sellers of free and clear properties, and also several powerful buying strategies to buy these homes and make a healthy profit.

The biggest factor to keep in mind is that most free and clear properties are owned by people in their sixties or older. Try to understand their biggest desires and their biggest fears. Interact with them in a way that increases your chances of having them say "yes" to your offer.
Older people want the equity in their homes to fund part or all of their retirement, and crave security above all else. They are also afraid of making a mistake or getting cheated. As an investor, you need to move slowly with an elderly person and allow them to get to know you first without you pushing an offer on them, and be compassionate to understand their needs.
When you meet with them to negotiate on the home, you should be prepared to spend as much time with them as you need to come to a decision with them in a way that feels comfortable for the older seller, and create a positive climate for selling their property. This may take a few hours of sitting and talking. If they offer you coffee or tea when you arrive, take it - and then settle back into your chair to enjoy a leisurely negotiation.
Another key factor when working with an older person is to use your age as an advantage. If you are younger than the seller, help them to identify with you as a younger version of themselves or as a reminder of their children or even the children they wished they had. If you are of the same age, relate to them about your similar ages and turn that into a "rapport building" bond.

You will need to address their need to feel safe with the choice of selling you the property, and reaffirm their security needs, and never underestimate the power of positive attention. People sell houses to people they like, and people like people who make them feel good about themselves. Listen to the seller's stories and encourage them to talk about their past. This is the best way to build rapport with an older owner.

Many older sellers really want is a steady income stream over time. If you are negotiating for an owner carry deal where you are making the seller payments, stress the easy way in which they will have converted their equity in the house into a monthly income for themselves.
When you understand these concerns, you can specifically address them with the seller. This is a powerful way to close the deal - to deal honestly and up front about their major concerns

By : John Smith

Fundamental Stock Analysis

2007-10-31T01:17:00.001-07:00

Fundamental stock analysis begins with the techniques and stock analysis tools used with the strategy appropriately termed "Fundamental Analysis". This is the fundamental stock analysis strategy used by most Wall Street analysts. The objective of this stock exchange analysis strategy is to use Fundamental Analysis to find growing companies, and utilize a buy and hold strategy while they increase in price. Once the stock's earnings growth slows (for the long term) to say less than 15 percent per year, we would then sell the stock. The key is to use these fundamental stock analysis tools to find a company with good management in a growing industry. The main indicator used for this is the Earnings per Share ratio (net income divided by the number of common shares of stock outstanding).

You will want to find companies that post a consistent increase in earnings of 15 percent or more in annual growth. You must also realize that the larger a company gets the harder it becomes for it to maintain a 15 or 20 percent growth every year. Especially during slower economic periods so be prepared to spent a little time researching on a consistent schedule. Once you have initially structured your portfolio this can be accomplished with maybe spending an hour every Saturday.

Another financial ratio to follow is the P/E ratio (The ratio of the price per share of a stock to its annual Earnings per Share). You should be monitoring companies with high growth for possible short term opportunities, especially companies that Wall Street follows closely. When earnings slow or drop for a reported quarter the stock will begin to be sold causing a rapid drop in the price per share. But many times this will only be temporary and the stock price will also rapidly return to the normal or average price therefore presenting an opportunity to prosper on a short term basis. Usually these larger companies will maintain P/E ratios around 15 to 20 but during these temporary drops in price the P/E ration will fall to around 10. Therefore the strategy is as follows:

* If you already own the stock you will want to sell it as soon as it starts to fall or is announced that the growth has slowed or dropped. A possible way to accomplish this is to place stop orders on the date quarterly earnings are posted if you cannot actually monitor the stock yourself.

* If you do not already own the stock wait until the stock's P/E ratio drops and levels off, (usually around 10), then purchase the stock and wait for it to rebound in price.

One thing you must realize and research if you are going to utilize this strategy is why did the earnings growth change? Pinpoint the cause of the earnings growth change to evaluate if this will be a temporary drop or not. For instance the retailer Wal Mart will post its quarterly earnings around the end of February now due to sales from Christmas these earnings should be higher then the previous quarter therefore the temporary reaction will be to buy the stock causing a temporary increase in the price of the stock, then the price will return to it average range over the next two or three weeks. This year, February 21, 2006 they reported their 4th quarterly earnings and sales then over the next 3 weeks into March the stock increased in price almost $4.00 a share and over the following 2 - 3 weeks after it dropped almost as much to its original starting point.

This is just one of many financial ratios that are used in Fundamental Analysis for the valuation process of prospective entities. You should realize that there is several financial ratios used in the over process of Fundamental Analysis and that no matter what happened in the past we can not always predict the future. Therefore you should make sure you utilize a range of the fundamental stock analysis tools not just limiting yourself to this one.
By : John Smith

The Gap Stock Trading Technique

2007-10-31T01:15:00.001-07:00

My trading style consist of one search everyday after the markets are closed. I do a search of stocks that increased a minimum of 500% + above the average trading volume. From there I only look at the ones that were positive for the day. Then I check the charts of these stocks to see if they gapped up for the day. The gap up has to be bascially an all time high or a few years all time high. It is better if there is a base prior to these gaps. If it is uptrending that is ok. Then I check the news once I narrowed it down to see if there was postive related news. There must be positive related news. The news must be better than expected, highest quarterly earnings, or anything similar. That is it in a nutshell folks. Usually, I start the day with about 50-70 stocks. Then it is narrowed down to 30 or so. Finally, after reviewing the charts I get anything from 0-4 that made the cut. Most days I recieve 0, which is fine because on the days I find something it is all good.

Buying and Holding:

If there is one I like and would buy; I try to put an order in for the next day. How long do I hold these stocks when I buy. I hold for a little as 5 weeks, but I'm seeing better returns in about 10 weeks. Once in a stock I watch it to see if it can hold a 10 DMA line. I won't sell unless it goes below the 50 DMA or if it goes down to fill the gap. Even if it is at the 50 DMA and I have some gain I'll hold till I find the next stock I think will be a winner.

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My Trading Technique

Although there are many different trading styles and techniques that have been used to great effect by many different ( sometimes very rich) traders, it is not really a good idea to keep on trying out different techniques for different stocks and just hope that "if it worked for them, it will work for me". To make a system successful you need to know what you are doing. I do not mean that you need to understand it as it is written by the person that is giving you the information. I could easily red Bill Gates's story about how he had an idea and thought that it would work. I could follow every step that he did and make all of the same decisions, but would I make the same kind of profit that he has? I think that (although it is a nice idea), I would be lucky to break even. But why can I not replicate his success? Because the market conditions are different and what will work has changed.

But even in the financial markets, just because someone has had success with a system, that does not mean that the same system will make you the same money. Although it sounds as though this should be possible, the facts do not bear it out. If it was this easy then everyone that read Warren Buffets book and applied it in the way that he does, would make the same amount of money. The reason that they do not is not the fault of the system, but of the choices that people make when they use the system and their reaction to the conditions that are prevailing in the market at the time. Most of the well known trading systems are well tried and work well. That is the reason that they are well known. After all if they did not work then no one would bother with them. But it does show you that there are many ways (with apologies to those of you with pets!), to skin a cat. The reason that different traders are successful with different systems is because they have learned how to make a system work for them.

The trading system that I use is not complicated and if you learn it well and how you can use it in reaction to market changes, then you can use it to make a great deal of money. It is a very simple system and because of that, there is less room for error. But you still need to get to know it and how it works, so that you are able to read the markets with these tools so you make the right choices.

The system uses a search of the days trading as it's basis. Each day you need to make a search of the days trading and the stocks that have had the best increases. You need to do this after that market are closed so that you get a consistency of results that are not affected by the trading that happens after you have looked the stocks, when you are still researching others. So wait until the markets are closed and then start your research and then all of your results will be consistent.

You need to do a search for stocks that grained at least 500% above the average trading volume of the rest of the market. Do not look at the stocks that were just under this or were close to it. Just look at the stocks that were 500% above the trading volume average. This will mean that you can get a good consistent result that you can analyze. From the stocks that you find, just look at the ones that were positive for that day. Make sure that you follow this carefully. If there is a stock that looks good, but does not fulfill this criteria then do not do not use it. If you are going to follow a system, then you need to follow it properly to make sure that it works and that you are not changing it by adding things that may affect the final answer.

You also need to check the variables to see if they gapped up for the day. You make sure that this is not just a one day thing you need to check that this is an all time high. This will make sure that you are on the right track. Even if it is not then you might still be able to use it but you need to make sure that it is a definitive movement and is not just a market shift that will get set back the next day. You need to make sure that the move is fundamental. If it is not an all time high then you should make sure that it is the best that it has been for a few years. You need to make sure that the move is positive, so it is much better for these purposes if there is actually a good base to the stock before any of these gaps occurred. And if the turn is upward, then that is also a good indicator.

Next you need to do some research to make sure that the result that you have found is actually real and that there is a good basis for the change in the values and that the are not going to suddenly drop. The best way to do this is by checking the news about the stock. This is a good way to find out if there is a reason for the move and to work out if it is likely to continue the trend or not. You need to find some positive news about the stock to justify the price, so that you know that it is not just a blip. You need to find something that is positive, such as better than expected earnings. Any good news that might mean that the price rise is consistent with an actual increase in the real, or perceived, value of the stock.

That is really the basis of this system of trading. It is simple to learn, but very effective as there are few things that even a beginner can get wrong. The trick is to learn the best places that you can do your research accurately. If you find a stock that fulfill the criteria on the figures but is not bourne out by the news then leave it. There is always another that will. Usually The day begins with around 50-70m stocks, but as you begin to use the system you will find that this is reduced to around 30 or so. When you review the charts and make all of the decisions dispassionately and based on the system, you usually end up with nothing.

This is not a problem if you are not left with anything at all. You are not doing this to buy for the sake of it and if there is no stocks that are suitable then you need to wait until there are. Do not think of it as a lack of profit, think of it as a good way of avoiding loss. And when you do find a potential profit maker, then you will know that there is a good reason to buy and that you are very likely to make a profit.

When find something that is good, then you should try to buy as soon as you are able to. If it is possible, then you should try to put in an order for it the very next day so that you do not miss out on any profit. When you buy you need to make sure that you only keep them for as long as it is profitable to do so. Very often you can hold on to them for as little as 5 weeks. But very often it is better you take a bit longer than this to make sure that you get the most from it. Do not try to go for the quick profit when, by delaying a bit, you might make a lot more. Very often you need around 10 weeks to make sure of a good profit.

A good indicator of this is if the stocks able to keep a 10 DMA line. It is not usually a good idea to sell unless it goes below a 50 DMA line. But if it reduces to fill the gap then that may be good. But even if the stock is at 50 DMA and there is already some profit in it, then it might be a good idea to keep it until you find the next stock that looks profitable according to the system.

This system is a very simple way to find the best profitable stocks and to make sure you avoid the potential loss makers. But if you decide to use this system then you need to make sure that you follow it well and do not allow you own opinions to cloud your view of what are the best stocks to buy. That way you will be more likely to make a good, consistent profit.

By : John Smith

Choosing Your Investment Training Curriculum

2007-10-31T01:13:00.001-07:00

The information and free online investment portfolio management resources available to us today via the internet have completely altered the process and amount of online portfolio management control that we as individuals have with our personal financial investment structure and goals. An online portfolio management structure in which you have almost full control that is sound and consists of a platform that is based around your personal financial characteristics is very feasible and much simpler than ever before.

The problem many individual investors have when first starting to construct a portfolio based on their personal financial goals and characteristics is where to begin and how to develop a management process that they are confident in and comfortable with. Although it may seem like a very daunting task and one that is extremely complicated the opposite is really the case.

To begin developing a sound financial portfolio there are two very important education criteria that an individual must acquire to form a solid foundation to build upon. First an education and basic knowledge of the fundamentals, terminology, analysis strategies, theories and tools must be acquired. Second an understanding of the process involved in research, where to find the research data and how to interpret it is of the highest necessity. A quality understanding and knowledge of these two factors are without question a must if one is to be successful. Now by an education this in no way implies that we must obtain a formal education such as a degree in finance or an MBA. If we want to manage a business or pursue a banking career then this type of formal education would most likely be appropriate. But we are only looking to control our financial future with confidence and success and this does not require the formal education previously mentioned. This education can be very easily gained through a quality home study course or a series of seminars. There are several quality individual investment related curriculum available in both seminar or home e-learning format.

The key is to ensure that you choose the right curriculum in which your investment education needs are based. It should be structured upon sound - realistic content not claims of overnight success and huge fortunes with small print disclaimers of "these are not typical results". Now I would recommend "Successful Online Portfolio Management", as it does deliver a very quality and full content scope curriculum, however it is important to remember I am not you therefore an investment curriculum that meets your specific characteristics providing a learning environment that you feel confident and comfortable with may not resemble my characteristics. Nobody knows what your personal financial situation and goals are better then you. Therefore while you should most definitely research any recommendations that you have by all means it still should be you who makes the final decision and that decision should be based on your financial overall characteristics.

Next, the content of the educational investment curriculum must not only contain quality but also the full spectrum. By this I mean that the curriculum should cover stocks, bonds, mutual funds, as well as cash investments (i.e. savings - CD's - money market accounts, etc.). Ensure that it covers both Fundamental and Technical analysis. An educational curriculum must also contain a variety of financial analysis tools, resources and the purpose for them. If the educational curriculum does not instruct you about principles of proper investment research it is not worth a single penny. If you do not know what to look for, where to find it and what to do with it once you have it there is no possible way that you can develop a portfolio that produces a return on your investment. You should just pay someone else to do it for you. I can not stress this enough, quality research is not very difficult given the screening software and other free online investment portfolio management resources on the internet. Therefore your curriculum must provide the locations of where, their purpose and when to use these tools. Sound research is probably the most important key to structuring your portfolio and there are so many free resources available. There is no excuse for any curriculum that does not provide this information. An effective and good curriculum will also provide other educational resources available that may offer greater detail or maybe tools that can be very useful. Such as it may cover the topic of risk management and the importance of its use, but it would also provide the URL location of a web site that is free, deals with this subject only and provides several analysis tools to properly evaluate your personal risk factors.

Any quality curriculum will offer an unconditional guarantee therefore you can actually experience it hands-on to ensure that it meets your learning needs. Take advantage of this as it places all risk on the publisher so if it is not of sound content you can simply return it and get your money back with nothing lost. One thing to remember though when doing this, make sure that the company you are purchasing your curriculum from is of high caliber as this will be a reflection of the caliber of their product. Look at their marketing tools for professionalism and clean presentation. Be careful not to get caught up in real fancy and flashy techniques. Web sites that have fancy animation and video can be easily constructed but really have nothing to do with quality of the products offered. Look at the structure and the content of the site for a feel of their professionalism; this will be a reflection of their product. If they have taken the time to develop a professional and quality web site then they most likely have developed a professional and quality product as well.

In summary let's go over what you will want to be looking for with your educational curriculum:

1 - Check out the publishers marketing content for quality, sound content and professionalism.

2 - Verify that the content covers the full spectrum including all the entities and available analysis strategies.

3 - Demand that the where's and how's of research resources are included in the documentation.

4 - Ensure that the curriculum provides information of other resources in which to further you education and knowledge.

5 - Utilize the return policy to ensure that the product is specifically what you need.

When shopping for the educational curriculum you are going to use to build your understanding of the content, knowledge of principles and guidance in the analytical processes remember that your understanding will only be as good as the information you are provided. So, if you will follow these five things listed above you will know that what you have purchased will be well worth the money you have invested.
By : John Smith

Building Wealth With A Self Directed IRA As Simple As 123

2007-10-31T01:12:00.001-07:00

Over the next 15 years, “baby boomers” will be looking for places to invest about $46 trillion from a combination of inheritance and their own qualified retirement plans, such as a 401k from a former employer.

Every major brokerage house and bank in America is well aware of the potential to earn enormous incomes from fees and commissions “helping” to place this money in secure investments. But, individuals who understand the power of utilizing Self Directed IRAs are in the best position to take advantage of this incredible transference of wealth.

Many “boomers” are looking at starting their own business and need investment capital to make their dreams come true. Actually, they need look no further than their own retirement accounts. They can tap into these funds to buy a franchise, start a business or simply provide an existing business with working capital.

What about investing in the stock of a private company? Yes, there’s no problem with doing that, even if it’s outside the United States. And, other options, both mundane and exotic, abound.

Then, there’s real estate. Most people think the boom is over, but they may be mistaken. According to a report from The Brookings Institute and an article in Business 2.O Magazine (November 2005), more than $25 trillion will be spent in real estate development between now and the year 2030.

To accommodate another 70 million people being added to the population base in the next two decades, 127 billion square feet of new or replacement structures will be added to the existing base of 300 billion square feet.

The executive summary of The Brookings report entitled “Toward A New Metropolis: The Opportunity To Rebuild America” written by Arthur C. Nelson, states the following:

- In 2030, about half the buildings in which Americans live, work, and shop will have been built after 2000.

- Most of the space built between 2000 and 2030 will be residential space. The largest component of this space will be homes. Over 100 billion square feet of new residential space will be needed by 2030.

- Overall, most new growth will occur in the South and West. In the West, 87 percent of the space existing in 2030 will have been built since 2000.

This report was primarily written for urban, city, regional and state planners so they would understand how to prepare for infrastructure needs to support the increased population base. The need for new water treatment facilities, roads, bridges, schools and general land use planning will be of great concern to everyone, but especially to these planners.

The Business 2.0 article entitled “The $25 Trillion Land Grab” took the mostly statistical information from the Brookings report and restated it so that it was more readable and understandable. Bottom Line: The development will represent “the biggest business opportunity since the end of World War II”.

That’s good news for investors. Anyone with a Self Directed IRA can tap directly into this opportunity, whether through equipment leasing, real estate lending or direct investment into a myriad of real estate projects. It all starts with education.

We recommend that clients pick one area of investment opportunity and become experts. Then when conferring with investment advisors and tax consultants, good decisions can be made that will result in building wealth that is potentially much greater than can be realized by only investing in the securities markets. As we like to say to our clients, it’s as simple as 1-2-3: Learn, Setup and Invest.

By : John Smith

Stock Market Screening

2007-10-31T01:11:00.001-07:00

Wouldn't it be great if we had a magic crystal ball that would tell us just what was going to happen to the price of a stock over the next two years so that we did not have to conduct any stock market screening. Well we don't have a crystal ball that will predict the future all though we do have the opposite, the past "HISTORY". Due to the powers of the internet you and I have the ability to obtain effective stock market research position by conducting positive stock market screening. With the correct stock market screening you can download, for free, years of financial data on any company that is traded publicly. Although this is the opposite of the future if approached correctly utilizing the principles of investment strategies and stock market screening this can be used to our advantage to help establish an effective stock market research position.

The term "Lift-Off Stock" is a term that I use to describe a stock that is ready to take off in price and continue to do so over the next year or two. What is ironic about the term is the fact that while lift-off stocks do exist how do we conduct stock market screening to identify them at the beginning of their price increase? Well I bet I know what you are thinking. Now that you have this huge power of access to financial company data you can down load all the historical financial data for hundreds of companies that are all traded publicly. Then you would use the theories of stock portfolio management to identify all the companies that have had lift-off to the price of their stock. Once you have completed this you would find what they all had in common with their financial data just before and prior to lift-off. I bet you are now thinking "FANTASTIC" well make sure that you call me as soon as you finish compiling all your data. You see the problem with this plan is the amount of time, man-power, money and resources you or I would need to accomplish this is simply way beyond my means.

There is an individual though who I assume had the same idea, Investors Business Daily publisher "William J. O'Neil". And there is one huge difference between Mr. O'Neil and myself, and that is that he did have the time, man-power, money and resources at his disposal to accomplish this because that is exactly what he did. Mr. O'Neil & Co. had been analyzing stock since the 1950s with the use of computers. Due to this he had compiled a huge amount of fundament and financial data on thousands of stocks. Mr. O'Neil took the data of these stocks from the years 1953 through 1993 and identified 500 stocks that had the highest gains during this 40 year period. He then analyzed the data to identify what all these stocks had in common before they started, what I previously defined as "Lift-Off".

Now I will get back to Mr. O'Neil's findings later in this article but first I what to point out the importance the principles of investment strategies carry with regards to stock portfolio management. When we purchase stock we are purchasing a percentage of ownership in that entity. Just as a mortgage company will check our credit before lending us the money for that purchase, we should also check the credit of a company that is a candidate for future investment prior to investing. And just as a credit company has set up guidelines that determine whether or not they will lend you money so should you set up guidelines that any entity must meet before you will invest in them. If you do this with a quality amount of research and thought based on your personal financial situation you will greatly improve your return while reducing your risk for that ultimate goal of optimum return vs. risk formulation. Now there are several very good stock portfolio management strategies that have been developed and you should by all means know them fundamentally, Mr. O'Neil has developed one of them that we are going to cover. What you must do is identify which principles of investment strategies will best fit your personal financial goals and status with as little tweaking as possible. It is ok to adjust our chosen stock portfolio management strategy to fit our personal situation as long as we monitor them and make adjustments for those tweaks that are not effective. This process of adjustments is covered in my Successful Online Portfolio Management e-course in which the simple process of setting up and analyzing your investments with Excel spreadsheets is explained.

Now back to Mr. O'Neil and his findings. O'Neil identified seven characteristics that were all found in the top stock performers and then combined them all into a strategy he call "CANSLIM". He first introduced CANSLIM in his best-selling book, "How to Make Money in Stocks", I believe now to be in its 3rd edition. The foundation of CANSLIM is based on a momentum investment strategy. A momentum strategy is one that consists of fast earnings growth with a strong price chart. But O'Neil also included several requirements that are not associated with a momentum strategy. The seven financial requirements for the CANSLIM investment screening strategy are as follows:

C - (Current Quarterly Earnings) Current quarterly earnings compared to the same quarter of the previous year must have a growth of 18% or more.

A - (Annual Earnings Growth) A stock must have an annual earnings growth of 25% or more over the previous year.

N - (New High Price/Share) The stock selling price must be at or close to a new share price high.

S - (Supply VS. Demand) Shares of stock outstanding must be no more than 25 million.

L - (Leader in Industry) 12 - Month Relative Strength must be 80 or higher.

I - (Institutional Ownership) Institutional Ownership is the percentage of shares of stock outstanding owned by institutions i.e. mutual funds, pension plans, insurance companies, etc. O'Neil wanted percentage of shares outstanding held by institutions to be low, although he does not give a parameter for this I would suggest anywhere from 5% to 35%.

M - (Market Direction) O'Neil advises against using the CANSLIM strategy in a weak market because momentum stocks go down when the market drops. There are several theories on what determines a weak market for momentum stocks and you should come to your own conclusion. One that I particularly like is using the Russell 2000 Index 200 day average as a benchmark. If the Russell 2000 is trading below its 200 day average then it is considered a weak market if above it is a strong market.
This is a stock portfolio management screening strategy that I like, with a few alteration, to use when looking for lift-off stocks. If you would like to know more about the CANSLIM principles of investment strategies read the book "How to Make Money in Stocks" by William J. O'Neil in which these strategies are covered in much more detail. One thing that I would like to point out is this, while the CANSLIM strategy is a very legitimate strategy worth your time to look at, there are several other very legitimate strategies also and you should develop a basic understanding of them as well to ensure that you develop a strategy that is based on your personal financial situation. Remember we should have a portfolio of diversification which not only includes different entities classifications but also different risk structures based on what our individual goals are and how our personal financial structure is composed.

Scott G. Henderson and Strategic Resolutions, LLC do not have nor have had any affiliation with Investors Business Daily and the CANSLIM organization and does not represent any entity associated with them. The contents of this article are entirely the opinions of Scott G. Henderson and he has received no compensation from these entities or any entity associated with them.

By : John Smith

Hewlett Packard & Pretexting-Does anybody ever take responsibility?

2007-10-31T01:10:00.001-07:00

It has surfaced in the news that certain Hewlett Packard directors have had their private phone records accessed by investigators working for Hewlett. In addition to the directors, nine reporters of the Wall Street Journal also had their phone records accessed.

The reason for the action is because of leaks that were taking place from Hewlett’s board of directors. At the moment it seems the clowns (people) responsible for the actions are Larry Sonsini, the outside counsel, and Patricia Dunn, who is Hewlett’s non-executive chairman. In many states this type of activity is outright illegal, and considered criminal.

Patricia Dunn is denying that she had any knowledge of how the investigators obtained the information. What happens is that an investigator will simply pose as someone they are not, in an attempt to get that person’s information. The inside general counsel of Hewlett is Ann Baskins. She used an investigator who has not been identified yet, who in turn used a private contractor to do the deed.

Who’s driving the bus?

What’s going on here? Doesn’t anybody take responsibility for screwing up? Dan Rather was basically fired by CBS. After a 40 year career, he screwed up when he accused President Bush of receiving favored treatment over his National Guard duty during the Viet Nam war. The problem was not the truth, or non-truth of Rather’s allegations. The problem was two fold. One you had to prove it, and Rather couldn’t prove it. The second problem was Rather pulled this stunt within a week of a Presidential election. Was he trying to sway the election? No, of course not, Dan Rather wouldn’t do that, would he?

In the case of Hewlett Packard somebody should go to jail, and I don’t mean the little guy who did the deed. Chairman Dunn should fall on her sword and be publicly fired, because this isn’t the sort of thing that should be accepted at a company. Why is it taking so long? Is the company hoping that it will blow over, that this is a two day media event that will then lose its steam, and we can move on to whether Yankee pitching will hold up in the play-offs?

It always starts at the TOP

In any organization the corporate culture is dictated by the guy at the top. It always starts there, and works its way right down to the assembly floor. I have witnessed this in every organization I have ever been associated with. A couple of decades ago, I was a Senior Vice President of the oldest investment banking firm in the United States. We traced our ancestry to the mid 1800’s. Our partners would float in and out of Cabinet positions in government.

My immediate boss was a senior partner, and member of the firm’s Board of Directors. The man who I consider a mentor, was extremely tough on everyone associated with him, and I mean tough. He could be nasty beyond belief. I saw him on occasion walk over to an associate, and remove the newspaper from his desk as he was reading it and rip it up. Yes he was making a point, and I do believe people got the point.

One day, a psychiatrist says to me, “You know Rich, the way he treats his subordinates, is the way he’s treated by his boss.” I say, you got to be kidding; no one would ever treat him like that. A month or two later, I am up on the investment banking floor, and I hear somebody getting a tremendous verbal beating. Sure enough, it’s the Chairman of the company denigrating you know who. The Chairman was unmerciful in his comments and the volume with which he made them.

Yes, it always starts at the top. People at Hewlett Packard have in my opinion violated the criminal code of conduct by violating the rights of people outside their corporate entity, namely reporters. In the final analysis our founding fathers, were very persuasive in their writings that freedom of speech, and in this case press, must be protected at all costs. Once the rights of reporters to publish what they believe is a fair and accurate assessment of a situation is coerced by other people or in this case corporate entities, we are at risk of going down the wrong path, and seeing a lessening of our freedoms.

Heads should roll at Hewlett Packard. People should be made to walk the plank. My greater concern is what does this say about the corporate culture at this American corporation giant. Bill Hewlett and David Packard who founded this company in a garage decades ago, would turn over in their graves if they knew what had become of it.

This company needs to be shaken up. If they can’t get their act together on this one, what does it mean for how they operate as a business, which involves my own circle of competence as a money manager? The answer is I don’t know, but I am sure going to be taking a much closer look.

By : John Smith

PC Wars-The Saga continues

2007-10-31T01:09:00.003-07:00

At one time Dell Computer was one of the extraordinary growth stories in America. Michael Dell could do no wrong. There then comes a time in every entrepreneur’s career when he or she has to recognize, it’s time to step aside and let new, historically proven managers come in and run with the ball.

Michael Dell stepped down two years ago, and turned the ball over to Kevin Rollins who runs the company on a day to day basis. Dell either has to be kicking himself in the butt for turning the reigns over to Rollins, or be happy that he himself is not on the firing line at the moment.

Dell was innovative in selling directly to the consumer as a business model. It worked brilliantly for years. The firm had no equal in the direct to consumer market. Dell also was encouraged to sell big time to the corporate market. All great technology oriented growth companies hit walls. My work shows that it tends to happen about 7 years or so into the growth process. The exceptional growth company can take longer before it hits the wall, and has to reinvent itself. The word reinvent is the correct one to use.

Microsoft has now entered such a period, having become a cash cow as opposed to being a growth company. In my history of technology investing which goes back 35 years, I have never found a growth company that has not hit a wall somewhere in the growth process.

What happens is that companies at some point tend to rest on their laurels, their past successes and glories. They become so committed to what they are doing, that they become incapable of seeing the next revolution sneak up behind their backs and challenge them for supremacy. It always happens and it’s always the same way with the same result. Never have I seen a single growth company that could reinvent the revolution. It’s always some new kid on the block that spearheads the next new thing.

The consumer has probably now reached a stage where he wants to walk into a store and see what he’s getting for his money as opposed to just reading specs on his computer and talking to an outsourced person in India who is absolutely clueless about American culture.

In the last five quarters, Dell has missed on the estimates that it has given Wall Street. In the last quarter there has been a 51% decline in quarterly profit, and now a recall on 4 million laptop batteries to boot (no pun intended). This is not the way to run a major Fortune 100 company.
Things always get worse before they get better

When a growth company hits the wall and starts to decline, the decline usually has to go for quite a while before a new management team takes the reins and starts to engineer a midcourse correction. This is like turning an aircraft carrier around. First you have to make the decision to go another way. You then have to get everybody else on board quickly. It takes several miles to get a carrier turned around at sea; it’s not easy for corporate management to do it either.

Dell will have to re-examine its direct to customer sales model, because right now Hewlett Packard is eating them for lunch. The stock is down 60% from its high for good reason. The stock market is telling you something. Is anybody listening down there in Texas.

Dell bet big on the corporate market, and completely failed to take into account the changing sentiments of the consumer market. Dell needs to grow bigger outside the United States. Everyone agrees that the US market is not really a growth market at the moment. The firm must increase international sales to a point where it’s growing 15 to 20% internationally. I don’t see it happening.

Somebody and not Rollins has to address the lackluster customer service in this country. Why not Rollins? It’s because he was in charge of the company when the problem became a problem. You never want the guy who was involved with the problem to be the guy who fixes the problem. He’s too busy protecting himself than to fix the problem. That’s management 101.

Dell use to be almost perfectly run. They had the low cost model, and the competition, namely Hewlett Packard, Acer, Apple, and China’s Lenovo were always playing catch-up, and stumbling trying to catch up. Why did they stumble, it’s the same in football, you go for the long bomb when you are behind in the fourth quarter. Now the competition finds its model working, and Dell is stumbling.

I realize that Dell has spent money fixing customer support, and trying to convince people that their product is no longer a commodity. I have seen zero results from this expenditure at this time. In my own work as a money manager, I have lowered my estimates for this company six times in the last twelve months. I currently do not carry it in a single portfolio. Fortunately, I missed the whole move downward, and I am not willing to bet on this company yet.

Yes, Dell is now considered a value stock by many. The problem is that the growth players haven’t been completely washed out of the stock yet. This will take more time. The institutions that have had a tough time performing this year will be under pressure to rid their portfolios of Dell by year end if the stock doesn’t perform. Dell has agreed to market processors by AMD as well as Intel. They will probably take a hit to their margins because Intel was probably rebating them back a portion of the sales to be an exclusive with Dell.

The company is still sitting with almost $11 billion in cash on the balance sheet, which works out to about $4.50 per share. Wall Street is in the process of lowering estimates for 07. Here’s the bottom line, with Dell you still have a valuation risk. Hewlett Packard is growing faster and selling cheaper. The only reason to own Dell here is its previous extraordinary history, but in stocks the past is not always prologue to the future. A stock has no ideas where it traded yesterday, and Dell has to execute on a believable strategy. Go figure.

By : John Smith

Oil stocks and United States energy independence

2007-10-31T01:09:00.001-07:00

This morning Exxon, the largest energy company in the world reported record profits of $10.36 billion for the second three months of the year. This was up from $7.64 billion from the same period a year ago. You will notice that the earnings were just shy of the record $10.71 billion they reported in the fourth quarter of last year, 2005. All companies have cushions; the accountants call them reserves. There is always flexibility in the reporting of a company’s earnings. Exxon very easily could have used their flexibility to come in with earnings that were below last year’s fourth quarter record in order to avoid the embarrassment of posting another new record quarter. The company knows that the Congress is looking over Exxon’s shoulder because the American people are looking over the government’s shoulder. This is especially true with Congressional elections, and both houses of Congress up for grabs.

Every President of the United States has paid lip service to American energy independence. It’s like listening to the President’s State of the Union Address. The last seven Presidents within 1 minute of speaking at the State of the Union have always said, “I am please to report tonight that the State of the Union is strong,” with emphasis on the word strong. Each President has proclaimed the need for energy independence, and then has always backed down from doing anything about it.

The answer by the Democrats is to create a tax to confiscate or simply take away what they deem to be excess profits that Exxon, and its associates are making. The Republicans pine away about the need to open up the Southeast coast of Florida to offshore exploration, as though that’s going to bring in millions of barrels per day. The answer is that both parties are wrong. Exxon is simply tacking onto OPEC dictated price the Arab states wish to charge us. It’s more complex than that, but not by much.

Decades ago, the oil world was run by the seven largest oil companies on the planet, most of them American owned. For those of you old enough to remember back in 1973, the Arabs use an embargo against the United States, and all countries supporting Israel. The big oil companies in the United States controlled, and received 60% to as high as 65% of all the revenues generated by the Arab states.

The first cartel was formed back in 1960. From 1960 until 1973, OPEC which is the Organization of Petroleum Exporting Countries had very little power (we mean leverage) over the oil companies. In 1973, that certainly changed. By then the United States was bringing in daily about 35% of energy needs from overseas. Inflation was rampart; commodities in general were rising out of sight, and then all hell broke loose.

The Egyptians and the Syrians attacked Israel on two fronts. The date was Octobers 6, 1973. With the secret support of then President Nixon every weapon short of nuclear was ordered to be flown to Israel to save the Jewish state. Israel was successful in repelling the invasion, but OPEC two weeks later put an embargo against oil shipments to the United States. The Arabs then raised prices for our European allies by 70 plus percent from $3 to more than $5 per barrel. We are now at $70 plus per barrel by comparison with no adjustment for inflation.

In the 1970’s, our economy was much more intertwined with oil, and energy than it is today. We have learned to become more efficient with our machines and processes. Back then, we were propelled into a recession by the dramatic increase in oil prices. Europe went deeper into recession than we did. The lessons haven’t been forgetten, but they haven’t been learned either.

There has been no attempt by the United States for over 30 years to even begin a program of true energy independence. The answer is not to penalize efficiently run Exxon for knowing how to be extremely profitable. Remember the first principle of politics, people vote with their feet.

The Seven Sisters (giant oil companies) who controlled oil prices and policies for generations ceded that power in 1973 to the Arab states. Oil unfortunately is in all the bad neighborhoods of the world, and that’s not going to change. We are at the mercy of Arab pricing for a commodity that is the oxygen of our economy. If Arab oil stops shipping tomorrow, every car and truck, train, and plane would grind to a half shortly thereafter. The United States would have to go to war to maintain our economy and the bad guys know this. They will only push us so far, and no further.

The Arabs want our economy and our Western Europe friends to continue to grow. They want China, and the Pacific Rim to continue to grow. Only through growth can the world afford to pay for Arab oil. They do not want to gouge us, or anger us. It’s not in their interest. They do want to extract the maximum amount we are willing, and able to pay for a barrel of their liquid gold.

One of the consequences of this action is the position that GM finds itself in, and perhaps Ford is in a worse position. GM and Ford are selling cars with obsolete technology, fuel inefficiencies, in a world of Japanese competitors chomping at the bit waiting to assume the title of the largest car company in the world.

Our legacy airline companies are now in the position of having a profit statement that is inversely connected to the price of fuel. Eighteen months ago you could fly a 747 from California to Europe for $30,000 in fuel costs. Today the fuel cost is more than $100,000, and getting more expensive.

If the United States wants to achieve energy independence, we must do what France has done. Our electrical generation like France should become nuclear based over the next 15 years. For those who shudder, and cry when they hear the world nuclear, let them know that for more than 50 years the US Navy has had hundreds of vessels run by nuclear power and there has never been a nuclear incident with one of them.

Our cars have to be modeled along European lines. The Europeans have been paying more than $5 per gallons for years and they have learned to deal with it. If GM and Ford can’t handle the problem, the Japanese car companies will handle it for them. After all, the Japanese have been eating Detroit’s lunch for years. Why should it change?

Goodbye and good luck
By : John Smith

The Magic of Compounding-Part I

2007-10-31T01:08:00.001-07:00

Some of you know about this, some of you don't. Either way I'm going to give you the basics of compounding, plus a couple of new slants on the concept. I suggest you read The Magic of Compounding not just once, but several times. If you have children, print this write-up, and give it to them to read. If they master this concept they will become rich.

The Basics

Compounding describes how numbers, or money, can grow. Numbers can grow in an arithmetic progression, for example 2,4,6,8,10,12 or 3,6,9,12,15,18, where one unit is added on at each step in the progression and that action provides the growth, or, numbers can grow exponentially, 2,4,8,16,32,64. In an exponential progression the increase comes by doubling the number at each step in the progression. See the difference? This is compounding.

Now the really amazing part, the magic, comes when you see how fast compounding will make money grow. And guess what! That's right, I've got a little game to play with you, a little story to tell, which will illustrate this principle. This puzzle is as old as J.P. Morgan's moustache comb, so if you've already been schooled in compounding you have heard it before. But didn't I tell you to read this section several times? OK, then, solve the puzzle with us once more while I tell it for the first time to the children for whom "The Magic of Compounding" has just been printed out.

The Puzzle

I'm a wealthy and generous man, and I want to hire you to work for me for one month. Since I'm also flexible, I give you a choice: you can choose to be paid the entire month's salary up front on the first day of your employment, or, I will pay you 1 cent the first day. After that I'll double your pay every day for the rest of the month, but you won't get the money until the last day of the month. So on the first day you'll work 8 whole hours, and you'll have 1 cent coming to you. But on the second day you'll earn 2 cents. Hold on, it gets better. On the 3rd you'll have earned 4 cents, the day after that 8 cents and so on. Saturdays and Sundays are included just to give you a better chance. Oh, by the way, if you take your pay all at once on the first day I'll give you a million bucks ($1,000,000.00) cash. Seems like an easy choice, doesn't it?

Well, you decide for yourself. Now let's look at how much the fellows who picked the penny-a-day plan are going to have at month's end. Remember, on the one hand $1,000,000.00. On the other hand you get a penny the first day, two cents on the second day, 4 cents on the 3rd day, and 16 cents on the 5thday. If you keep working the numbers by the 15th day, you are up to $163.84. By the 18th day, you have cracked the $1,000 dollar mark coming in with $1310.72.

At this point you have to start thinking to yourself that it has taken 18 days, and I am only at $1300 and change. Was I better off taking the million dollars like the other day offered and taking a one million dollar lump sum payment? Maybe you were let’s see what happens. Keep in mind, we are continuing to double our money every day and we have 12 days to go.

On the 20th day, you are up to $5,242.88. Your numbers quickly move up from here on successive days:

Day 21 $10,485.76

Day 22 $20,971.52

Day 23 $41,943.04

Day 24 $83,886.08

Day 25 $167,772.16

Day 26 $335,544.32

By the way, did any of you ask me what month of the year we're in? Is it February with 28 days, or leap year with 29 days, or September with 30 days, or December with 31 days? You should realize that it's going to make a difference. Do you want the million dollars? Ask your kids again which they would choose?

Day 27 $671,088.64

Day 28 $1,342,177.28

Day 29 $2,684,354.56

Day 30 $5,368,254.56

Day 31 $10,737,418.24

If you work for me in September with 30 days you make over $5,000,000. In December it's over $10,000,000!
I have never met the child who didn't leap at the $1,000,000 on day one. This is because the human mind thinks arithmetically, not exponentially. You might say that we are hardwired to think in this linear fashion. The software in our brains compels us to think about progressions as being simple arithmetic ones. Luckily though, how we think about things, our prejudices, our attitudes, and our mindsets, can all be changed and worked with. We can update the software! We can consciously change the way we think about numbers, money and investing by absorbing new information, namely, that when you make your money compound you can get rich sooner rather than later.

By : John Smith

Keys To Success in Buying and Selling Distressed Real Property

2007-10-31T01:06:00.001-07:00

How to Maximize Your Success in Buying and Selling Distressed
Real Property© Ariel Weissberg, 2006, All Rights Reserved

Today, more than ever before, we are bombarded with "get-rich-quick" schemes in the media. In this modern electronic age of 24/7 where the separation between work and pleasure is blurred by constant demands for higher and more immediate productivity, the allure of these so-called business opportunities with the promise of more money with less work is the modern "cry of the sirens": even the most sophisticated among us are drawn toward the dream of chucking the "rat race" in favor of working as your own boss, making huge dollars. Today, one of the most heavily advertised opportunities on the internet, (seemingly second only to the spam avalanche for increased sexual performance) is buying and selling distressed real property. Here, supposedly free lists of foreclosures are marketed with the "promise" that even the uninitiated in real estate investment can profit greatly. If you are looking for quick solutions, click on the "Viagra" advertising, because speculating in distressed real property, while potentially very profitable, requires much more knowledge and attention to detail than advertised. So, before you yell, "Take This Job and Shove It," and delve into the list of properties in foreclosure for "buy low, sell high" opportunities, this article will provide you with some practical suggestions for avoiding a bad investment experience with distressed real property, potentially leading to your own financial distress.

The first step toward successfully investing in distressed real property is understanding the nature of the problems associated with the ownership, use or occupancy that make the real property distressed. The most common problem leading to distress is a foreclosure. Foreclosures involve liens. Liens are an interest in real property held by a creditor, consensually or non-consensually, often to secure an obligation of the owner or a prior owner of the property. In a foreclosure, a holder of a consensual lien (mortgage) or a non-consensual lien (involving creditors: mechanics lien, broker's lien, tax lien, municipal lien or judgment lien) is seeking to extinguish the interests of subordinate lien creditors (those with lesser rights) and rights of the owner of the real property; and to sell the real property at a judicial sale to satisfy the indebtedness securing the foreclosing lien claimant's lien. Most states, like Illinois, require real property foreclosures through a lawsuit, with the owner and all other interest holders given an opportunity to be heard in court. Mortgage foreclosure laws are harsh, but generally provide the property owners an opportunity to reinstate a mortgage on residential property or to pay-off the indebtedness securing the mortgage, prior to the loss of the property through judicial sale. Foreclosures often involve complicated issues of law and fact, and this is especially so when the owner of the property seeks to stop a foreclosure through the filing of a bankruptcy petition.

Numerous "problems," other than foreclosures, can cause real property to be "distressed." Any of the following situations, some which do not involve the financial distress or creditor issues of the property owner, can cause property to be "distressed," and thus present a great investment opportunity for the knowledgeable investor: (a) serious disagreements between owners of the real property, including stemming from a divorce or dissolution of a business organization related to the real property; (b) environmental contamination of the property; (c) unpaid real estate taxes ; (d) the inability to obtain municipal authority for the use or proposed use of the property; (e) real property involved in a bankruptcy case; (f) landlord-tenant disputes; (g) probate and inheritance problems; (h) building, fire and other municipal code violations; (i) disputes arising over the rights of non-owners to enter or use the property through easements or licenses.

While the truism of "location, location, location" might apply to real property in general, the axiom for distressed property is "homework, homework, homework." This represents the second and most important step in successfully investing in distressed real property. Investigating distressed property includes the typical "due diligence" required for non-distressed property, plus an exhaustive, on-going review of all legal, business and financial matters that are causing, complicating or mitigating the distress of the property. This investigation requires much more than just the typical fact-gathering. Distressed property can involve a veritable minefield of complicated legal and financial problems, which, at first glance, might make the purchase price attractive, but could lead to great expense after the purchase.

In all business acquisitions, a good, fluid and flexible strategy is very important. This is especially true in acquiring distressed property because the purchase of "distressed" real property often does not involve a willing seller, at least at the early stages of "distress." And, as the investor approaches the latter stages of distress, when the owner's consent is no longer or less of an issue, or the owner is more desperate and commensurately more amenable to a sale, the competition among interested buyers increases dramatically. Timing is critical: positions and motivations change quickly with distressed property. An investor in distressed property must have the ability to close a deal quickly, especially where there is competition for the property. To be a "player" in this arena, "Cash is King": you need immediate access to money to close, and you cannot delay the deal with financing contingencies or otherwise involving your prospective lenders. This is especially true with foreclosures where the sale is an auction.

Because so many aspects of distressed property involve technical legal issues, sharing the responsibility of pre-sale investigation and formulating an acquisition strategy with a competent lawyer is critical to avoiding pitfalls and increasing the likelihood of success. Having ready access to qualified real estate professionals as advisors is another important step in successfully investing in distressed property, where the investor must rely on a qualified lawyer to assist in maneuvering through the potential mine fields. But, in this age of legal specialization, it is difficult to find a lawyer that has sufficient breadth of experience in all of the important areas of real estate litigation and development, bankruptcy and insolvency, mortgages, credit facilities, leasing, brokerage and construction law relating to residential, commercial and industrial properties. The search for a qualified lawyer is as important as the search for qualified properties. Seeking advice from real estate professionals, coupled with the investor's own investigation is advisable. But, the savvy investor should not substitute his own "hands-on" investigation, without the assistance of a qualified lawyer, in the hope of saving on professional fees. In the end, this could lead to a very costly mistake.

So, go ahead and download that list of foreclosures from the internet! There are great opportunities in buying and selling distressed real properties in this economy, especially when interest rates are low and there are qualified buyers available to "flip" the properties to realize a quick profit. And remember, with good professional assistance and careful investigation, the risks of investing in distressed properties can be greatly minimized with substantial returns on your investment.
By : John Smith