Monthly Archives: November 2011

Cyber Monday: Record $1.25 Billion

Many companies today are attracting outside attention from venture capitalists, investors and others – and they are doing so with unusual approaches. This year, Cyber Monday showed a record $1.25 billion in sales.  Seeing the incredible possibilities in the online retail world, venture capitalists are investing a record amount in the field.  According to Thomson Reuters data, venture capitalists invested a record $2.39 billion in online shopping just this year. Another field that is shown possibilities and growth is the residential real estate investment market.  Transcendent Investment Management with founder Jordan Kavana, have been approached by various private equity and hedge funds who have expressed interest  in their platform. This field is growing stronger in the market place, as investors start to see the potential in the real estate investment industry.  A company like TIM, for instance, is able to use a proprietary web-based system to pinpoint specific real estate opportunities and market bases by combining both private and public data sources. Similarly, they are the only national player with a specific two-pronged tactic for real estate investment. Buying and selling homes, as well as purchasing single family properties and other residential assets which are put up for rent, enables investors to take both short and long positions in the asset class, bringing in widespread gains and creating stability in the real estate market.

Home Depot Can Improve Your Financial Home

Home Depot Inc. (HD) is a well known chain that sells home improvement products. In addition, it also sells and installs various items such as central air conditioners and generators. On November 1, Home Depot had 2,246 stores, located mainly in the U.S., Canada, Mexico and China.

As far as fundamentals are concerned, net income has risen over the last three years. For year ended Feb 1, 2009, net income was $2.312 billion, for year ended Jan. 31, 2010 net income was $2.661 billion and for year ended on Jan 30, 2011 net income was $3.338 billion.  The present profit margin (ttm) is 5.32% and the operating margin is (ttm) is 9.16% which is pretty good considering the depressed housing market and the general state of the economy. Most people have been economizing and pushing off home improvements and repairs as much as possible. Also, as far as management performance is concerned the Return on Assets is 9.56% and the Return on Equity is 20.4%.

The stock has a forward annual dividend yield of 3.20%.  Over the past 2 years, the stock has been trading in a range between $29 to $38 and over the past 3 months has also risen from $29 to $ 38.

Some influential managers at Home Depot are: Cara Kinzey, Craig Menear, Mark Holifield, Giles Bowman, and Trish Mueller.

Disclaimer: The information contained in this article is only part of the information required for investment decision making. All investment decisions should be based on a thorough investment analysis.

Coca Cola Safe Harbor In Recession

Coca Cola (KO), the colossus company that served the world before we were born, is one of the more relatively stable investments for our time. The company has been in business for over 120 years so it has a wealth of experience and assets. The company sells soft drinks, juices, coffees, teas, energy drinks,  and regular and flavored waters around the world in diversified markets. This company has diverse markets which serve as a stabilizing factor. Today the main concern is that companies with large European markets could be pulled down if Europe falls financially. Coca Cola has a 15% market share in Europe, so that even if Europe declines economically, the company should be not be adversely effected because 85% of its markets are in non-European countries.

In addition, Coca Cola gives a basic dividend of 2.9% per year in quarterly payments. This is especially important in recessionary times because it provides cash which can either be used as a cash reserve or can be reinvested. Over the last year and a half Coca Cola’s stock has risen from 50.23 to 71.17 and is currently at 65.17.

Some important managers at Coca Cola are: Carletta Ooton, Ed Steinike, Guy Wollaert, Dr. Rhona S. Applebaum, and Nancy W. Quan.

Disclaimer: The information contained in this article is not enough to base investment decision. All investment decisions should be based on a thorough analysis of the investment.

Is Apple Inc.’s Stock As Good As Its Technology?

Apple Inc. (AAPL) is the company whose mobile communication devices are changing the world. Now with apps, the users have much more power to accomplish things and to be much more efficient. As time goes by, more and more apps are being developed which give people the information and ability to focus on their interests to an extent previously unknown. Apple’s Siri is the talking iPhone. You can ask it questions such as where is the nearest ATM? The siri also has the ability to infer what you mean from what you say. You can also ask it to remind you about appointments, etc.

In other words, technology is advancing so rapidly that Apple almost has a monopoly on the most advanced technology. This certainly helps their stock prices.

If you look at Apples stock, for the last two years it has been going up. Interestingly enough, the stock has been declining since November 8, 2011 which is approximately when Steve Jobs passed away. Steve Jobs was the genius behind Apple and perhaps investors are unsure about how well Apple will continue to develop. The stock has dropped about 10% which could be just a normal variation( the selling price was $400) or it could also be something meaningful. I guess that investors will have to wait and see. Many people were also upset when Apple did not come out with the iPhone 5 as promised.

Disclaimer: The information in this article is not sufficient to base investments decisions on. All investments should be based on a thorough analysis of the stock.

How To Diversify your Portfolio

So far we have discussed various types of risk and the concept of diversification. Here are some ideas about how to diversify your portfolio to avoid risk and make money. First, one can reduce risk by including cash and bonds in one’s portfolio. Cash can be invested in short-term money markets which can be sold immediately. This protects you when emergency cash needs arise. You don’t have to sell a long-term investment at a possibly inopportune time because of special cash emergency.

The second stage of diversification works through asset allocation, for example between stocks and bonds. Conservative investors may prefer a stock – bond mix of 20% stocks and 80% bonds. On the other extreme, aggressive investors may prefer 80% stocks and 20% bonds. Moderate investors would in a more moderate stock-bond ratio.

Mutual fund portfolios often include both stocks and bonds and are of varying % mixes. This is in order to provide funds with varying risk-reward ratios for investors of various risk tolerances. If you are a beginning investor or you want a safe harbor for children’s college funds you may want to use a basic mutual fund.  We will discuss more advanced options in the next article.

Dillard’s Department Stores Post Strong Third Quarter.

Dillard’s Inc. has declared a $0.05 dividend per share on its common stock. The dividend is payable on January 30, 2012 for those who own the stock on December 30, 2011.

Dillard’s owns 288 department stores and an additional 16 clearing centers in 29 American States. It sells apparel and home furnishings.

Dillard’s had a good third quarter, earning $0.48 per share compared with last year’s third quarter earnings of $0.22 per share. The chain has also been using $5.7 million of its funds to buy back notes and another $126.3 million dollars to repurchase stock. Third quarter sales rose by 2.9% from $1.34 billion last year to $1.38 billion this year.

The Dillard’s stock has overall been climbing over the last been climbing over the last three months although it dropped on November 14th by 5 points.  In the meantime it seems to have stabilized. This stock is worth examining. (See disclaimer).

The executives and officers include Alex Dillard, James I. Freeman, Burt Squires, and G. Kent Burnett.

Disclaimer: the information presented in this article is insufficient to make reliable investment decision. All investment decisions should be base on a thorough analysis of the investment.

Managing Risk By Diversifying One’s Portfolio

Let’s start with a true story. Rambus Inc. has been suing companies in a law suit that has lasted 7 years. Rambus hoped to get $4 billion in damages. Yesterday morning, November 16, 2011, the stock was selling at $18 per share. During the day, the court ruled that Rambus had not been illegally damaged by any party and deserved no compensation whatsoever. By 4pm, the value of Rambus’s stock had fallen to $7.11, a 61% drop in value. The stock price may come back or it may not. That’s not the point. The point is that the investors could well have lost 61% of their money in a matter of seconds. It happens more frequently than one would like to think about.

Here we see the importance of diversification in risk management. Portfolio diversification involves 2 strategies.

First, one should divide ones assets into several different investment vehicles such as stocks, mutual funds, bonds, cash, real estate etc.

The second strategy is similar to the first. Within each investment category divide your assets into different types of investments. For example, one should divide one’s stock investment into perhaps 10 different stocks. These stocks should be from different, unrelated industries to provide further diversification. This protects the investor so that if one stock goes down, the others may remain stable or even go up.

When we view an entire portfolio, we will see that the risk is diversified among various investments and therefore the entire portfolio is safer.

The Risk-Reward Tradeoff

The Risk-Reward Tradeoff involves understanding the amount of risk that you are willing take in investing.

The general rule is that an investor makes riskier investments in order to get higher rewards (i.e. earn more money). Low risk investments generally are expected to produce low level returns. High risk investments hopefully offer a high level of returns.

For example, the lowest risk investments are usually treasury bonds because the government almost never defaults on loans. Today, for example, one can earn 2% interest on treasury bonds. However, if the index funds, such as the S&P 500 returns 10% then why not go for the higher return investment? The answer is that the return is based on the risk. Index funds vary in yearly returns from -5% to +25%. In this case, the risk-reward tradeoff is much greater.

More Types Of Risk

Country Risk is the risk that a country will default of its debts. When a country fails to pay its debts, many of the businesses institutions in the country are damages as well as companies outside of the country. County risk affects bonds, stocks, futures, options, and mutual funds in the defaulting country.

Foreign-Exchange Risk – When doing business or investing overseas one must take into account that currency exchange rates change in relation to one’s home currency. Therefore, the price of products or investments may be cheaper overseas but if the exchange rate changes one could lose money vis a vis the domestic currency.

Interest Rate Risk – this is the risk that an investment’s worth will change due to a change in interest rates. Of course, this could also work favorably for the investor.

Political risk is the risk that a government will suddenly change its policies affecting economics and business.

Market Risk is the risk that stock prices will rise and fall. This is also called volatility.

As an investor, you can see that there are several types of risk to be considered.

Risk Categories

There are 2 basic risk categories: systematic risk and unsystematic risk.

Systematic risk is usually a general event or phenomenon which can affect many of your portfolio’s investments. An important political happening can affect the whole market including several of your assets. The individual investor cannot do anything to protect himself against this kind of risk.

Unsystematic risk is also called “specific risk” and influences only a very small number of investments. An example might be an explosion at a company’s plant. This would only affect the specific stock. The way to guard oneself from unsystematic risk is to diversify one’s investments.

Working with the above types of risks, there are various types of risk involved.

Credit Risk (also known as Default risk) – This is the risk that an individual or company might not be able to repay its debts or the interest due on those debts. Credit risk is especially prevalent for those investing in bonds. Generally, corporate bonds are higher risk and offer higher rewards, in the form of higher interest rates. Bonds which are unlikely to default are considered “investment grade” bonds. Bonds with greater chances of default are known as “junk bonds.” There are rating services such as Standard & Poors which rate the risk factors of various bonds.

In our next article we will discuss other types of risks.