Investing Curiouscatblog

Category: Investing

  • Cash Flow

    We will be posting messages on various terms and concepts in investing and economics. Here we offer some information on cash flow.

    Earnings per share include many adjustments to reflect the standard accounting wisdom, beyond the cash taken in and spent by a company (depreciation, expensing options, expensing long term investments over the expected life, writing off inventory…). Cash flow is a measure that tries to more closely measure the increase (or decrease) in cash for a company over a period of time.

    An advantage of looking at cash flow is it is more difficult to distort than earnings per share (though it is still very possible). A disadvantage is that standard accounting practices exist for a reason and often give a better picture than a simple view provided by the cash flow. Therefore cash flow is normally useful in conjunction with the earnings statement – not instead of.

    Operating Cash Flow attempts to eliminate such non-operations impacts (like selling or buying stock) and give a cash flow figure for the operation of the business. Free Cash Flow is equal to “operating cash flow” less “net capital expenditures.”

    Like many accounting terms, cash flow is more complex in execution than it seems but this gives you a start on understanding cash flow.

    More from the Curious Cat Investing Dictionary on Cash Flow

  • Questions You Should Ask About Your Investments

    Questions You Should Ask About Your Investments from the Security and Exchange Commission (SEC). They offer questions relating to: general investments, mutual funds, investment advisers, performance of your investments. Questions such as:

    What are the total fees to purchase, maintain, and sell this investment? Are there ways that I can reduce or avoid some of the fees that I’ll pay, such as purchasing the investment directly? After all the fees are paid, how much does this investment have to increase in value before I break even?

    How liquid is this investment? How easy would it be to sell if I needed my money right away?

    Pretty basic stuff but it provides some questions that you should be able to answer. If you can’t then continue on your path to increase your financial literacy. We hope I site can help with that. In addition we link (on the left) to some good sites including fool.com and Marketplace that are useful in educating yourself.

  • I Want My Coffee

    Skip the Coffee? What’s Money for, Anyway?:

    I’m an idiot. Every financial advice columnist seems to be telling me so.

    My crime: buying morning coffee from Starbucks for my wife and me.

    Avoiding the regular cup of overpriced coffee has become an easy cliché for financial advisers, a symbol of money frittered away.

    The author is right. There is nothing wrong with spending some of your money on the luxuries you choose. The problem is too many people spend more than all their money on the luxuries they choose (going into debt to support their lifestyle). The author states:

    And we save. Maybe not as much as we could, I’m sure, and not invested as wisely as it could be. But we put away a fair chunk of change out of every paycheck. So I’m a little tired of hearing this copycat scolding about my coffee.

    In previous post: saving for retirement, we discuss the options for planning for your future economic security. Cutting back on luxuries is only necessary if you are living beyond your means (looking at your whole financial life). If you have incorporated the luxuries you want into a good overall plan, great, good job, keep up the good work. If not, figure our which luxuries you want to cut (or how you are going to earn more money).

  • Too Much Personal Debt

    Britain becomes ‘never, never land’ as personal debt runs out of control

    UK borrowers account for one third of unsecured debt in western Europe. On average, a Briton has twice the debt of a European Total consumer debt in the UK is at a record £1.3 trillion New debt last year came to an unprecedented £215bn

    Britain seems to be taking after the USA. Debt is not necessarily bad for the economy or individual. Too much debt is. When it becomes “too much” is one of the issues we will discuss, and link to articles discussing, in this blog.

    People will benefit from understanding how debt effects their future economic life. To do this they need to gain financial literacy. To help people gain financial literacy is one of the aims of this blog. We believe that gaining financial literacy will lead people to make better economic decisions. Such as not taking on too much debt.

  • New Blog for Investing and Economics

    We are still experimenting with how best to arrange our blog posts. We have decided to setup a new blog for posts most purely related to investing and economics. The Curious Cat Science and Engineering Blog has quite a few posts related to economics and science and engineering. I would foresee those post in the future still being made there. The Curious Cat Management Improvement blog also has economics and investing related posts. In the future I would imagine most of those posts would now be made in this blog – expect those that tie closely to both management and economics or investing.

    We also will be posting more frequently on general investing and economics topics. And we will be providing posts linking to interesting articles we find.
    The Curious Cat Investment Glossary defines investing terms and includes links to related online resources. The Curious Cat Investing Library includes links to selected investing and economics online articles and the Curious Cat Investing Bookstore highlights books we feel are of value to investors.

    I have also added the posts on investing and economics that were originally posted on the other blogs here (that way they will be returned in searches of this blog and be seen when browsing the category listings).

  • Saving for Retirement

    Our Financial Failings by Neil Irwin, Washington Post:

    Meet the typical American family.

    It has about $3,800 in the bank. No one has a retirement account, and the neighbors who do only have about $35,000 in theirs. Mutual funds? Stocks? Bonds? Nope. The house is worth $160,000, but the family owes $95,000 on it to the bank. The breadwinners make more than $43,000 a year but can’t manage to pay off a $2,200 credit card balance.

    That is the portrait of the median American household as painted by the Federal Reserve Board’s Survey of Consumer Finances.

    Saving for retirement is not complicated, it is just a matter of priorities. Most people care more about a Starbucks coffee each day (or season tickets, or new shoes, or a new car every couple of years or…) today than saving money for retirement. In a capitalist society we believe in letting people make their economic choices. The choices most of us make (in the USA) lead to the results above.
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  • How Not to Convert Equity

    CNNMoney is not exactly intellectual discussion of economic and investing issues but normally it offers fairly good material for the large number of people. Especially those who really don’t want to read Warren Buffett or Brad Setser. Still the following quote in their article, Cashing in on hot real estate is just wrong:

    They also have one extremely valuable asset: a house in the now trendy Silverlake neighborhood of Los Angeles that’s worth $1 million, nearly four times what they paid in 1995. The equity, Handel says, is “lovely,” but it’s not doing them much good right now.
    …
    San Diego-based certified financial planners Christopher Van Slyke and Terry Green recommend an unconventional plan: taking out a new $500,000 ARM.

    Handel and Laport can pay off their existing mortgage before the rate rises and retire their other debts. They can put the remaining $200,000 into stock and bond funds.

    To be sure, borrowing against a house to put the proceeds into the market rarely makes sense. But in Handel and Laport’s case it does because so much of their net worth is tied up in their home, and the super-hot L.A. real estate market looks primed for a fall…

    They can convert equity that might melt away.

    They can what? In no way does increasing their leverage convert equity that might melt away. Any amount of “melting away” will still happen after this increase in leverage – no conversion has happened. They still have a full ownership interest in the real estate. If the value of their house fell $300,000 before or after this supposed “conversion” they would “lose” (on paper) the same amount: $300,000. The investment risk for the house has not changed (for the whole portfolio you could argue it has but that gets complicated and subject to debate).
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  • 10 Stocks for 10 Years Update

    In April of last year I posted on 10 stocks for 10 years. At that time I also setup an fund through Marketocracy, which allows for 3rd party tracking of investing results. See the results so far on Marketocracy’s site. Thusfar the portfolio is up 20%, in under 9 months (versus 13% for the S&P 500 for the same period of time.

    The 10 stocks didn’t meet the diversification requirements for marketocracy, at the time, so I modified the portion of the portfolio for each stock when I setup the fund. The portfolio as of Jan 2006 (17% cash):
    		Stock % of fund Current Return
    Google – GOOG 16 114%
    Templeton Dragon Fund – TDF 12 25%
    Toyota – TM 10 48%
    Dell – DELL 8 -13%
    Petro China – PTR 5 36%
    Cisco – CSCO 5 8%
    Amazon – AMZN 4 39%
    Pfizer – PFE 4 -9%
    First Data – FDC 4 11%
    Yahoo – YHOO 4 25%
    Intel – INTC 3 13%
    BP – BP 3 5%
    Walmart – WMT 3 -5%
    Templeton Emerging Markets Fund – EMF 2 43%
    Microsoft 1 6%

    Obviously Google is doing quite well, up 114%. The second largest gain is for Toyota, which is up 48%, I’m sure a surprising result to many.
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  • 30 Year Fixed Rate Mortgage Rates

    Fairly frequently I am asked, by friends, for investing advice. One topic I am asked about frequently is mortgages (locking in rates, etc.). Often they are concerned about what a Federal Reserve decision to raise or lower rates will effect the 30 year fixed mortgage rate. Essentially the decision by the Fed won’t have any predictable impact (this is not the complete truth but close enough for the question being asked – this article has more, though it still just provides a cursory view of the situation).
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  • Our Only Hope: Retiring Later

    Our only hope: retiring later by Jim Jubak

    Jim Jubak is definitely worth reading for anyone interested in investing. This column touches on the economic problem of the aging population.

    My solution is based on common sense and my observations of what people actually do in retirement: They work. It’s based on a belief that we’d fix the so-called crisis if we could just get more productive work out of older workers, by improving their jobs so they’d voluntarily stay on at work, or by giving them resources and support to start post-retirement careers.

    That pretty much has to be part of the solution. While the United States is rich even we are not rich enough to have people work for 40 years and not work for 40 years. Retirement at 65 was set when most people died before or soon after that date. It just is not realistic to think we can live at the standards of living we expect and only work from 25-65.

    If people want to cut the standard of living during the 80 years they live that would be one tradeoff they could make. I don’t believe his contention that savings is not a reasonable significant part of the solution (if that is what he means by “The whole world is getting old pretty much all at once, so saving more and investing at higher returns won’t do the trick.”

    The issue of how to deal with the economic consequences of aging population is an important issue to consider today. It is something I need to continue to study. But we also need to be taking action now on things like increasing the full retirement age for Social Security, increasing the saving rate, decreasing the current yearly federal deficit (and private pension liabilities), providing ways for those in their 60’s and 70’s to participate in the economy that work well (probably part time, more flexible work arrangements, etc.).