AU Blogspot

Consumer confidence (the term used by the Conference Board) and consumer sentiment (the label used by the University of Michigan) are not quite at their all-time lows, but they are very close to them.

This seems a little odd because two of the biggest elements of consumer attitudes, unemployment and inflation, are quite benign.

Unemployment, at 5.5 percent, is a hair below its long-run average (5.6 percent).  Inflation (all items) is 4.1 percent, only a little above its long-run average of 3.7 percent.

Why the doom and gloom? (more…)

While the “experts” continue to debate whether our economy is in a recession, the rest of us working in the real world have already determined that the semantic definition of this crisis is the least of our concerns.  In the following podcast interview, Dale Collie, a former corporate executive and elite U.S. Army Ranger shares the lessons he has learned throughout his life on how to cope with the stress caused by difficult circumstances.  Although focusing primarily on how the business manager of today can effectively lead, inspire, and provide stability to workers during times of economic hardship; this podcast also offers some “big picture” perspectives that anyone can apply in their personal lives as well.  I think you’ll enjoy this podcast. Please share your thoughts in the comments section of this post.  I’d also like to thank Bill Conerly for conducting this outstanding interview. Thanks…

Ryan Rode
Interactive Services Manager
Ashworth University  

                   Thanks to J. Parks for permission to use this Photo. 

The most important phase of property valuation is also the most controversial and least known.  This procedure is called the rate of capitalization.  It is used to determine a market rate of capitalization.  Through this rate, estimated future net income can be converted into a sum of present value.  The rate of capitalization acts as a lever which pushes income into a height of value.  Here is how the lever works.  The lower the rate of capitalization is, the higher the value per dollar of income is.  Thus, the value of a particular property will also be higher.  The opposite is true if the rate is higher.  The higher the rate of capitalization is, the lower the value per dollar of income is.  Thus, the value of a particular property will also be lower. 

If speculation or motives other than investment buying are prime reasons for purchase, the sale price of the property in relation to its income is of little aid to an appraiser in search of applicable market rates of capitalization.  In fact, such sales may prove highly misleading as indicators of prevailing yields on real estate investments.  You can see why I stated earlier that the rate of capitalization procedure is very controversial.  This procedure has the potential to yield misleading results. 

Most appraisers would find themselves at a loss if the application of the income approach and the selection of a rate of capitalization had to be sustained solely by analysis of investment sales in their community.  You may wonder why this is true.  Well, real estate transactions are traditionally private in nature and factual income data is often difficult to obtain.  Thus, it is very difficult to select sales which could be usefully employed for statistical income analysis.

Although real estate as a commodity is local in character, the financing and purchase of real estate, both for investment and speculative purposes, have the distinct characteristics of a national market.  The mobility of credit and the flexibility of investment buying with income reserves and surpluses have channeled funds into community areas where the investment returns in relation to capital markets are the highest.  The existence of a national real estate investment market makes national income and rates of return statistics, compiled by investment firms and real estate analysts, available for real properties.  These national indices of investment yields, when adjusted for community and regional risks for given classes of real properties, can be used as effective guides in judging the reasonability of rates of capitalization secured from market analyses of comparable sales.  

Bob Chaapel
Real Estate Appraisal Instructor
Ashworth University

              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

                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 Amayzun for permission to use this Photo.

I’m not a regular viewer of The Apprentice TV show, but I happened to catch a recent episode where the competitive project was to develop a marketing strategy around a new line of Kodak printers.  During the briefing process, where the contestants were given a product description to base their pitch on, I was really struck by the Kodak marketing executives’ emphasis on Ink as the factor distinguishing this product in the print marketplace.  Kodak’s central message was: “Our ink is revolutionary, the best in the world, on top of that, this new printer, is half the price of our competitors, who are offering an inferior product and customer experience.”  Unless you work in the print industry or have investments in this area, it’s easy to overlook that the comparative quality and cost of ink/paper are what drives this market, not necessarily the machine itself, which is in many respects a generic shell duplicated by the leading players—give or take a couple unique features. 

With this topic top of mind, I remembered a podcast that I’d recently listened to about Hayden Hamilton, entrepreneur and founder of a printing company known as GreenPrint.  One of Hamilton’s innovative contributions to this market is software that dramatically reduces the amount of unwanted pages from the printing process; the type of waste that collectively costs corporations millions of dollars each year.  Like any great entrepreneur, Hamilton saw an opening in this waste and created his company to fill this empty space in the market.  In this podcast interview, Hamilton explains the story behind GreenPrint, one that I believe you will find very informative and motivational.  Click on the image above to listen to this great podcast.  Your comments are welcome and appreciated, so let’s hear from everyone!

We’d like to thank Betsy Flanagan and the team over at Startup Studio for this great interview!

Ryan Rode
Interactive Services Manager
Ashworth University School Of Business

 
                    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 

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…)