AU Blogspot

                             Thanks to Richard for permission to use this Photo.

Have you ever watched a potter while he was molding a piece of clay into a masterpiece? It is not the tidiest job in the world! The clay mixed with water forms a gooey paste which the potter molds using his hands and fingers. At the same time the potter is molding the clay with his hands and fingers, his foot is working a pedal which controls the spin of a turnstile. His precise control of the foot pedal and the precision involved with molding and moving the clay, coupled with knowledge of just how much water and clay to add to the mix during the molding process are all necessary in order for the potter to create a masterpiece. Yet, this is still not all that it takes. The artist must also have an idea of the finished product in mind before he begins to take the first step in the molding process.

Can you see a common denominator here between the potter and an entrepreneur who is starting and operating a new business? (more…)

              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 theskokieten for permission to use this Photo.

With one of the most critical takeovers in the history of business-tech hanging in the balance, there is predictably no shortage of rumors, innuendos, and overnight prophecy to keep anyone with even a passing interest in Microsoft’s bid to acquire Yahoo rather distracted. This brand of spin campaign is not entirely motivated by misdirection though. As you can imagine, deals of this magnitude are negotiated on multiple levels.  There are internal games within each empire’s own walls, strategies within strategies, many with their own internal logic; some may even be contradictory in relation to one another’s objectives. You then consider the number of different visions attempting to exploit emerging market opportunities that may not even be recognizable at this time. Recall the downfall of Apple in the 1980’s. The genius himself, Steve Jobs, was even fired from the company he co-founded. Apple almost went under. There were factors beyond product development mistakes, marketing errors, and market conditions that brought Apple into the dark. The company itself was at war internally. Marketing vs. Sales vs. Design vs. Finance vs. Jobs vs. Sculley and around the loop again.

The short-term endgame of Microsoft’s takeover can be anticipated in certain respects, i.e. the Yahoo brand will largely stay intact, Microsoft/Yahoo’s search capabilities will be integrated with Live search carrying the day—but I suspect that the long term implications of this deal will also be determined by the psychology of the individual players involved and how their respective agendas run productive or counterproductive to rapid market shifts. After all, we’re talking about an information game that’s played at light speed. There’s no longer enough time to make mistakes and recover from them. No one has a mastery over the fundamentals like Bill Gates and Microsoft. The rules of the game change, but they’re also cyclical. This is partly why Google has every right to be concerned about Microsoft’s latest move. Concerned in a responsible way.  Google’s not going to be spooked.  They’re already in close discussions with Yahoo.  It wasn’t a gamble, so rest assured that Page and Brin are ready to go.  The move fits within Gates’ fundamental playbook.  Consistency sometimes appears surprising or original because our memories are short and selective.  We forget so easy…

The following video provides an overview of this developing story.

Ryan Rode
Ashworth University

                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 

 
             Thanks to Ricardo Alcala for permission to use this Photo.

I’ve used Starbucks business strategy as a way to discuss the Trial and Error Economy (here and here).  I’m not, by any means, the world’s greatest expert on the company, but it provides a great vehicle for teaching about corporate strategy.  Now, according to the Wall Street Journal, McDonald’s will sell premium coffee drinks made by baristas at most of their 14,000 stores.

How should Starbucks react to the McDonald’s threat?  Here are some ways:

1.  Do nothing.  Best implemented with one’s nose high in the air, saying that Starbucks customers would never buy coffee at McDonald’s.  Would work very well for three to six months.  Ignores the reality that Starbucks’ recent growth has come not from Volvo-driving college grads, but from lower-income, less educated people than they originally served.  These are people comfortable at McDonald’s.

2.  Cut prices.  This is the time-honored method of competition.  As an economist, I love price cutting.  As a business consultant, I almost always advise clients to avoid a price war.  In the case of Starbucks, I’d ask the company, “Who do you think has the lower cost structure?”  Not only should we look at labor costs, but consider this: at 9:00 am, McDonald’s has lots of excess capacity.  Serving an additional customer is very cheap.  At the same time, Starbucks’ chairs are full and there’s a line at the order counter.  Serving additional customers means real estate expansion and hiring more staff.

3.  Differentiate the product.  In the classic form, the existing customer begins to differentiate, highlighting their product superiority.  Of course, Starbucks is already selling a product that it has successfully differentiated.  The practical way to do that now, in the face of McDonald’s, is a “nobody makes a latte like Starbucks” campaign (using a catchier slogan that I just suggested, but pushing that theme.)

4.  Move upmarket.  In conjunction with more product differentiation, maybe Starbucks should raise its prices, ceding the price sensitive customers to Mickey D, but pulling more profit from the loyal customers.

5.  Lock up the resources needed to make the product. Starbucks is not going to corner the market on coffee, but in many cities they have cornered the market on corners.  That is, they have leased the top spots for urban coffee locations.  McDonald’s, though, is known for great real estate.  (Not great buildings, but great locations.)  They are not optimized for the morning crowd, though.  Starbucks, for example, favors locations that are on the right hand side of the street for inbound morning commuters.  In rush-hour traffic, customers don’t like to make left hand turns.  I’ll bet that McDonald’s has ignored this.  However, using existing resources instead of building new locations is a huge cost saver.  Bottom line: I don’t think Starbucks can lock up a critical resource. (more…)

            Thanks to Eugene Smith for permission to use this Photo.

Mutual funds are increasingly making use of Derivatives in its portfolio as a strategy to boost the returns from investment. Peruse your Fund’s portfolio in the monthly and quarterly fact sheets to ascertain the exposure that your fund has taken in these Derivatives. Comparing these across periods will reveal the extent of churning that your fund manager dolls out in these funds.

Greater Quantum of Derivatives augments the returns and amplifies the risk of your portfolio. The strategy endorsed by the portfolio manager may be Conservative or Aggressive. A Conservative Strategy reduces federal taxes but may also constrict short-term returns. Aggressive churning on the other hand increases the Federal Tax but collates greater short-term returns. Furthermore, derivatives are more effective in flat markets vs. volatile markets.

These Derivatives are usually one of the three types-

1) Credit default swaps

2) Covered Calls

3) Index tracking Derivatives (more…)