Sound Advice

How To Forecast Future Stock Prices . . . Usually Wall Street research can be extraordinarily useful in helping to gain a better understanding of the inner workings of companies.   Having been on the research side of the investment world for many years, I've had extensive experience in exploring the nuts and bolts of dozens of companies, both through analysis of numerous financial reports and regular contact with corporate executives.   Some of it was useful; some was not.   In all cases, the goal was to come up with estimates of where company earnings were likely to be in the year ahead and the years beyond. As analysts, we looked for consistency of progress and the potential to grow at above average rates.   The task of coming up with these kinds of conclusions was a matter of translating discussions of ongoing operations and developments into numbers that made sense. Once that was done, we viewed the current analysis against the backdrop of the past. ...

10 Things Investors Need To Know Market forecasts are totally meaningless.   There are numerous seers in the media who with great seriousness provide definitive thoughts about where the market is going tomorrow, next week, next month or next year.    What's important to understand is that short-term market movements are heavily influenced by changes in investor psychology, which are unknowable.   And for that matter, please ignore pronouncements from so-called technical analysts who attempt to divine the future from recent price patterns.   That is what the Brits call rubbish.   The rewards of real fundamental analysis (profitability and financial health) are reflected in changing market prices over long periods of time, i.e., market cycles of three to five years or more, not in the next few weeks. Target prices are nonsense.   Take a look at Yahoo! Finance, enter a ticker symbol, and up comes information about the stock in question, incl...

"A goal without a plan is just a wish" Antoine de Saint-Exupery Planning for one's financial future is a straightforward exercise, but one in which the nuances can dramatically change the outcome.  When you start on the path ahead, you have the option to change direction as you move along toward your goal.  If you don't start, as is the case more often than not, you have no options other than struggling to deal with unforeseen consequences, which may well be less than desirable. A financial plan has four main elements: what you own (your assets), what you owe (your debts), how much you are earning (your income), and how much you are spending (your expenses).  If your assets are greater than your debts and your income over time exceeds your expenses, assuming nothing untoward happens, you're probably in good shape. But a plan is based upon assumptions that may or may not be on target.  Among these are the rate of inflation, the rate ...

"If you cannot control your emotions, you cannot control your money." Warren Buffett As much as all of us would like to believe we can always make rational decisions about our finances, the reality is otherwise.  When our personal situations are promising and the business climate is favorable, we readily respond to questions about risk tolerance and affirm our ability to deal with bumps in the road ahead.  Yet during times of extreme volatility, such as we experienced in late Spring, our rational selves are frequently overwhelmed by our emotional selves. When this year's roller coaster was headed for its steepest drop, few of us were able to keep cool heads and accept the reality that the plunge was not signaling the end of the world. There have been many plunges in the past and there will be more ahead.  In only a few weeks, this latest drop approximated the extent of the pullback from late 2008 to March 9, 2009, which took place during the ...

Fund Facts Navigating the world of mutual funds can be an interesting adventure.  Indeed, for other than professionals (and probably for some of them), working one’s way through this forest of some 8,000 funds may be overwhelming.  Even so, here is some assistance in understanding. Mutual funds have been around for decades.  They become popular in the 1970s and 1980s.  Fifty years ago, most funds were load funds.  Load is another word for sales charge.  Back then, it was not uncommon for load funds to have initial charges of 8% or so when making investments.  So on Day One, your $100,000 investment was worth only $92,000. As time passed, investors became increasingly concerned about these sales charges.  Then several things happened.  The mutual fund companies created different classes of shares.  Typically, Class A included the stated load when the initial investment was mad...

Fixed Income: In a Fix Typically, the construction of an investment portfolio has begun with an approximate balance of 60% in equities and 40% in fixed income instruments.   Fixed income generally means bonds, but that includes bond funds and exchange-traded funds holding bonds.   The equity portion is intended to be the driver of capital appreciation over extended periods of time and the fixed income portion is supposed to provide stable, albeit more moderate ongoing rates of return. The theory behind this approach is that as the time periods measured have lengthened, the relative risk of holding equities has diminished while the returns they have generated have been higher than those of other asset classes.   What equities do in the short term, even a year or two, is often anybody’s guess.    To the extent that fundamental analysis can help toward determining future equity values, investors need to look ahead three, four, five years or more befor...

Insurance “An ingenious modern game of chance in which the player is permitted to enjoy the comfortable conviction that he is beating the man who keeps the table.” Ambrose Bierce One can only marvel at the broad scope of insurance schemes created in the pursuit of fat commissions for insurance agents.  From the simplest plans, such as whole life, to the ultracomplex, which no one understands but promises to provide rewards beyond one’s wildest dreams, it’s an area where fear and greed work together to soften the brain of the buyer and enrich the pocketbook of the seller.   There are certainly risks requiring the protection of properly selected insurance, but the range of products developed to generate hefty ongoing profits is ever-expanding.  The industry continues its efforts to stay ahead of people who are struggling to understand what these products are and why they need them. One example is life insurance, which has numerous permutati...