AU Blogspot

              Thanks to Luis Ramirez for permission to use this Photo.

It isn’t adequate to say ‘I am a long-term investor’ and I don’t need to pay attention to the impending financial turbulence.

But how do we deal with this? How do we respond to as well as anticipate market action? How do we preserve our capital during market corrections while being able to maximize our exposure to equities during market bull runs?

After many years of investing (I actually purchased my first stock as a 13 year old back in 1967), I have come to believe that a strategy is possible to accomplish this if you are willing to be disciplined and observant of your own stocks and of the market overall.

First of all, try to identify a universe of stocks that you believe are ‘investable’. I have my own criteria of consistent revenue growth, earnings growth, free cash flow, stable shares, and a solid balance sheet. But my criteria may not be yours. You might develop a list of stocks that exhibit good value, that exercise responsible stewardship of the earth, or whatever your particular preference might be. It doesn’t really matter. But stay consistent.

Next of all, decide what the size of portfolio would be ideal for you. I initially settled on 25 different stocks. Currently I have switched to a 20 position portfolio as a maximum number of stocks I wish to own. It doesn’t matter what the size will be. But pick your maximum and stick to it.

Now bear with me as I go through this strategy. It makes sense to me and I think you will understand my thinking as we review this.

Let us assume that our investment posture will vary with our ‘exposure’ to stocks. That being fully invested is ideal in a strong market (20 positions). And being minimally invested is best in a weak investment environment (5 positions). And I vary my investment exposure based on the market’s effects on my own holdings. That is when my own portfolio is acting ‘healthy’ I am moving from cash towards equities and when my own portfolio is acting ‘ill’ I shift from equities towards cash. (more…)

                  Thanks to Mattia for permission to use this Photo.

We’ve been fortunate enough to share the insightful perspectives of economist and entrepreneur Bill Conerly with our student community since this blog first launched in 2007.  Mr. Conerly is not only a contributing blogger, but someone we consider a friend of the greater Ashworth University community as well.  He was recently interviewed on the Small Business Advocate Radio Show on the topic of business planning after the recession.  The issues covered are of vital importance to anyone one with small business aspirations, so I highly recommend listening to this very informative podcast interview.  You can also visit Bill’s Businomics Blog to show your appreciation for his efforts on behalf of our Ashworth Blogspot readers.  Thanks everyone.

Ryan Rode
Ashworth University

  
               Image courtesy of Stanley Donwood/Radiohead.

Monday’s Wall Street Journal  had columns by Hillary Clinton and Barack Obama’s advisors.  In a post last week I chided Mitt Romney for glib generalities.  Now Clinton gives us the opposite extreme:  government by laundry list.  Remember some of the awful State of the Union speeches, in which the President (pick any recent president you wish) says: “There’s a problem with X; I have a new program.  There’s a problem with Y; I have a new program.  There’s a problem with Z; I have a new program.”  Well, that’s Hilary’s column.  I liked the internal consistency of her message at first, in that she presented a broad area of concern, then specified action steps to deal with the area.  That appeals to my analytical side.  But she shows no real philosophy about how government should operate, merely that for every conceivable problem there should be a new government program.  Gag.

If you don’t like laundry lists of specifics, then Obama is your man.  He apparently believes in content-free leadership.  His major theme: bringing people together.  Ending the divisive partisanship that infects Washington DC.  I’m not sold that a) he can end partisanship, and that b) we’ll get better policy without partisanship.  He has not made that case (it would require specifics, which Obama isn’t in to).  I confess that I really miss the Bill Clinton administration, when gridlock prevented action and we were all focused on that blue dress.  Remember, the economy was strong and the budget was in surplus while Congress was gridlocked.  Sigh. (more…)

                Thanks to Joanne L. for permission to use this Photo.      

In the early 1970’s I can remember hearing my father, a small business owner, saying that his job would be so much easier if he could find someone who could handle the occasional welding job that he had.  You see, he had to hire an employee who knew how to weld even though he only needed a welder every once in awhile.  The problem with this was simple; my father had to pay the employee a higher wage due to his welding expertise when most of the time the employee was doing odd jobs around the office. What was the answer to this dilemma? Outsourcing!       

In the early 1990’s I can remember asking my business partner, “Why don’t we hire an outside company to handle our minimal small engine maintenance so that we do not have to add another mechanic to our staff?”  In doing so, we would not have to pay a full-time employee for sporadic work.  Again, the answer to this dilemma was outsourcing!       

Outsourcing is the process of subcontracting work to a third party. While the idea of outsourcing is not new, many entrepreneurs have not considered the beauty of hiring others to do work that their own company can not do for itself.  If this idea seems interesting to you, you might want to join the ranks of thousands of American companies who have learned how to increase productivity while saving money.  Just this past week I was speaking to an employee of a successful landscape company in our area, and learned that this company only has five full time employees; yet, they manage over two million dollars worth of landscape maintenance each year.  How do they do it?  Outsourcing!  Some companies are in a stronger position to capitalize on this concept, yet it proves to be a strategy that could work for many small business owners.

The primary reason most organizations choose to outsource work is to reduce costs and increase profits.  As a result, the organization can focus on their internal resources that provide them with a competitive edge.   In other words, if a business can reduce costs and increase profits, they can also offer a more competitive price which will allow them to gain more business.  The landscape company that I mentioned earlier began by outsourcing the work normally found within a finance department.  They hired an accounting firm to handle their receivables and payables, deposits, and payroll.  (more…)

 
              Thanks to Mark Strozier for permission to use this Photo.

The first thing you see is that changes in stock prices are far, far greater than changes in the economy.  There are two good reasons for this.  First, corporate earnings are more volatile than the economy.  If sales drop 10 percent, many companies will see profits fall 100 percent.  Their variable costs usually don’t fall in proportion to the sales drop, and their fixed costs don’t fall at all.  So fully rational investors should change their valuations of stock prices more than proportionately to changes in their expectations for the economy.  Second, not all investors are rational.  (Surprise!  You didn’t know that?)

They often overreact to current news, causing stock market movements to swing much wider than economic trends.  There’s also a herd effect that’s at work.  You are getting nervous; not sure what to do; then you see everyone else selling like mad.  You sell.  It may not be rational, but it’s more comfortable to follow the crowd.  This might be a good time to reread Keynes’s General Theory. What is the economic outlook, given the huge sell-off?  Here’s a summary of the key points from Chapter 11 of Businomics:

• The economy impacts the stock market
• The stock market tends to be a leading indicator of the economy, but not consistently or with great precision
• The stock market can affect the economy, but only to a small extent

(more…)

 
                    Thanks to Dusdin for permission to use this Photo.

Fixed assets are an important part of every company.  These include the long-term assets that you do not plan to use up in under a year.  These items are dealt with slightly differently, and include Plant, Property and Equipment as the main categories.  Many times a company will have the CPA deal with these items, but you will be all the more valuable if you know how to account for them also!  Check this website for more information:  http://www.fixedassetinfo.com/

Misty Hand
Computer Accounting Instructor
Ashworth University School Of Business 

Special thanks to Jackie for permission to use this photo.

Budgeting is vital in everyone’s life as it facilitates us all to govern our lives smoothly. While most are of the opinion that budgeting is only required in business, the truth is that in today’s competitive world, we all try and budget every aspect of our livelihood with a view to make the optimum use of time, energy, money and resources. In brief, budgeting needs and also enables us to plan ahead as well as set and achieve our future targets.

Although budgeting is equally important in family affairs as in business, very few realize this. It is essential to keep a control over your family ration spending, children’s studies, medical expenses, insurances, entertainment expenses etc. Budgeting helps in preserving equilibrium between your earnings and expenditure as well as time. It can be a monthly affair or done on an annual basis. But, sadly enough, most people don’t realize the importance of this and even if they do, they hardly properly write down their financial planning for the requisite period.

Budgeting is also essential for an average consumer for if he doesn’t plan financially he is likely to spend more than his provisions and find himself without any savings. In the worst case, lack of budgeting may find a person spending more than he earns and finally land him in debts. I am sorry to say that a large number of people are trapped in this catch as they end up buying things that they cannot afford. So it is important that one tries to mitigate his eagerness to buy consumer items and stay within his affordability. And this is only possible through right budgeting. (more…)

I’ve met two types of entrepreneurs. There are those who have always known that they wanted to start a company, but they just needed to find the right idea, and then there are the people who stumble upon an idea compelling enough to convince them to start a business. I happen to fall in the latter group.

Based on my experience, one type of entrepreneur is not preferable or superior to the other. Chances for success are much more dependent upon the quality of the idea, a little bit of luck, and a lot of spot-on execution.

A good business idea (or a bad one) can come from anywhere: the classifieds sections of magazines like Entrepreneur, trends in industry-related or mainstream news, or the recognition of some “pain” in your day-to-day life, whether it’s at your job, at play, or at home. Many pains have a remedy (that you can monetize) if you’re resourceful and creative enough. In mid-2006, a couple of months after graduating with my MBA, I needed to buy a gift for my then-roommate for his birthday. He was (and is) a DJ, and I wanted to get him something really cool that he’d appreciate and enjoy… but I didn’t know the first thing about DJs or the stuff that they use.

Web sites like Amazon and Epinions weren’t much of a help. They’re very useful when you know what you’re buying, but all I knew was for whom (an amateur DJ) I was looking to buy. Since I do everything online, I wanted a Web site that would help me find a great gift for someone with a particular interest or hobby.

And that’s how a pain in my everyday life sprouted an idea. Through my frustrations as an average online consumer, I had identified a genuine market need which I thought I could address.

Things Change

I’d argue that there’s no bad source of ideas, just bad ideas. For instance, if the market you’re considering is saturated with competitors, and your idea isn’t significantly differentiated, then you probably have a not-great idea on your hands. But that’s not necessarily a sign to give up; it’s a cue to ask yourself whether another, better idea can address the pain you’re trying to solve. (more…)

In updating my economic forecast for the new year, I surprised myself.  I walked into the spreadsheet moderately gloomy (I thought) and plugged in conservative numbers.  Out came the fairly pleasant forecast that is pictured above.

There’s weakness in the current (fourth) quarter, and then things look better.  I did put some dreadful numbers in for housing construction, but that sector is now only 4.5 percent of total GDP.  I clobbered housing starts, but that doesn’t have a huge impact on GDP.  I brought down the growth rate of consumer spending for a couple of quarters, and kept inventory growth down to near zero in the first half of 2008.What’s keeping the forecast up?  Export growth will remain strong, and import growth will weaken.  Nonresidential construction, though it will decelerate, still grows at a nice pace.  Late in 2008 I see business spending on equipment and software recuperating.  Defense spending grows at the recent pace, then the growth rate slows.  I have less confidence in this area.

Why the disconnect between my economic outlook and the news reports?  I think it’s a weighting issue.  For instance, when the housing starts numbers come out and they are rotten, that fact is seized on by the press.  Same thing for falling home prices. (more…)

Paul Krugman is simultaneously one of the most respected and controversial economists in the world.  Named by The Economist as “the most celebrated economist of his generation,” Krugman’s provocative opinion pieces in the New York Times often set the tone of political debates that appear across the cable/network television and talk radio wire.  It’s not uncommon for Meet The Press’s Tim Russert to relentlessly grill Presidential candidates on Krugman’s latest “op-ed”, so it’s clear that he does project quite a lot of political influence whether you agree with his analyses or not.  In this video, which you can view by clicking on the image above, you’ll watch Paul Krugman’s recent presentation at Google Headquarters.  Enjoy the video.  I look forward to hearing your perspective.

Ryan Rode
Interactive Services Manager
Ashworth University