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Bankrate.com is out this afternoon with results of their monthly financial survey. One of the questions Bankrate asks is: “What is your preferred method of investing money that you don’t need for at least 10 years.” [click to continue…]

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We have heard a ton on the importance of low cost mutual funds and ETFs recently. Here is part of a speech from Jack Bogle, where he reveals exactly just how much investors pay in expense ratio fees. (His answer will surprise you) [click to continue…]

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Weekend Reading: 5 Big Retirement Concerns, Failure of the Finance Industry and a (late) Summer Reading List thumbnail

Here are some articles that caught my attention this past week. Topics include: How the finance industry is failing you, 6 books Bill Gates wants you to read and what the market’s P/E ratio wont tell you. [click to continue…]

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Buffett began purchasing Coca-Cola (Ticker: KO) shares in 1988. Today, Buffett has over $13 billion in gains from his investments in Coca-Cola alone.

 

With hindsight, it is always easy to say Buffett’s investment in Coca-Cola was anything short of genius, but at the time Coca-Cola was facing concerns over maintaining market share and its ability to grow.

However, Buffett recognized that Coca-Cola had a strong brand name, very consistent history of earnings, shareholder return and low debt. It has been a wild 26 year ride for Buffett, but the returns have been staggering!

At the time of Buffett’s initial purchase of Coca-Cola shares, its market cap was about $18.5 billion. Coca-Cola then had Revenues of $8.3 billion, a cash pile of $1.2 billion, a net income of about $1 billion and about $4.4 billion in retained earnings.

 

Buffett purchased about $1.3 billion in Coca-Cola initially, or about 7% of the company. Today his total Coca-Cola stake is worth over $15 billion, and pays him about $490 million in dividends each year! Incredible returns off of a $1.3 billion initial investment!

 

But its always easy to quickly glance over the last 26 years. The truth is that it took some major cahones to hold anything over the last 26 years.

Would you have been able to overlook the short term negative outlook for Coca-Cola in 1988?

Would you have had the confidence to hold through a 50%+ drop from its 1998 highs to 2004 lows? Or weather the 2008 decline?

Here are some of the numbers from their late 70’s and 80’s annual reports: [click to continue…]

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We have previously discussed the more well known financial statements; the balance sheet, income statement and statement of cash flows, but there is one additional financial statement you will see listed within every company’s 10-k report, the statement of shareholder equity. Value investors like Warren Buffett consider information within this report as some of the most important and telling signs of a company’s health. Here is why:

 

 Shareholder Equity – What is it?

 

Recall the most basic equation in finance:

 

Assets = Liabilities + Shareholder Equity

 

Or, said another way:

 

Shareholder Equity = Assets – Liabilities

 

So really, shareholder equity should be considered the net worth of the company, or what the company is worth if all its assets were sold and debts settled.

 

The Statement of Shareholder Equity depicts the value of the company and describes where that value comes from and how it has changed over time for investors. [click to continue…]

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Formulas on a blackboard.

Leverage has been responsible for some of the most glamorous gains and disastrous declines in the financial world. Here we look at what leverage is, and show an example of its devastating potential.

 

What is Leverage?

Leverage is typically defined as your “exposure” relative to “actual capital”.

Where exposure is the value of your holdings, and actual capital is money paid or invested by you. The additional “exposure” comes from borrowed money, and this is why being “leveraged up” can be so dangerous.

In the most general terms, leverage is:

 

leverage equation 0

 

The most common form of leverage that consumers are familiar with deals with mortgages. Consider a family looking to purchase a $500,000 house. They likely cannot afford to write a $500,000 check. They will most likely go to a bank and put, say, $100,000 down and take out a mortgage for the remaining $400,000.

Here the family’s “exposure” is $500,000, the actual value of their house, but their “actual capital” is just the $100,000 they put down. [click to continue…]

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Weekend Reading 6-15-14

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Here are some articles that caught my eye this past weekend. Topics include: How to get 1.3% higher returns on your investments, making mistakes, lower expense ratios (again), and my reaction to Flash Boys. [click to continue…]

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Generally, increasing assets are a sign that the company is growing, but everyone can relate to the fact that there is much more behind the scenes than just looking at the assets. The goal is to determine how the asset growth of a company is financed.

To do so all we need is the last few years of a company’s balance sheet and the most basic financial statement equation:

 

Assets = Liabilities + Equity

 

The assets of a company are what the company owns. Typical examples of assets are; equipment to make a product, buildings owned, raw materials to create a product, inventory of the product to sell and cash in the bank.

Think of your household. Your car, your home, your furniture, TVs, Computers, bank accounts etc.

 

Generally, increasing assets are a sign that the company is growing, but everyone can relate to the fact that there is much more behind the scenes than just looking at the assets. Back to our household example:

 

Imagine watching a neighbor pull a sparkling brand new BMW into their driveway, getting out dressed in his fancy Italian suit, talking on the latest smartphone, and coming over to ask if you can watch his house for 2 weeks while he travels to sail in the Caribbean. You may think he is making it big, right? Maybe he got a big bonus from work, or a promotion…

 

That may very well be the case, or he may be racking up debt (liabilities) to finance these assets.

 

You may never find out which option applies to your neighbor, but thankfully the SEC requires publicly traded companies to be a little more transparent with their financials than your neighbors. [click to continue…]

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Weekend Reading 6-8-14

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Here are some articles that caught my eye this past week. Topics include: Dart throwing monkeys, 2014′s top face-palm worthy moments and more. [click to continue…]

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It turns out you may want to buy more of those colorful pieces of paper your grandma used to give you.

At first glance, it appears EE series savings bonds offer a paltry interest rate rivaled by today’s checking accounts, but they have one special feature, which has been irrelevant until 2009, when interest rates plummeted. Because of this little known feature, these pieces of paper could be your highest yielding bond investment today.

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Weekend Reading 5-25-14

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Here are some articles that caught my attention this past week. Topics include: A (free) $600,000 lesson from Buffett, the impeding bond market non-event, Cable TV investing schmucks and more. [click to continue…]

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Common Size Analysis – A Different Way to Analyze the Balance Sheet and Other Financial Statements thumbnail

Common Size Analysis of Financial Statements involves looking at numbers only as a percentage of a specific total.

This is helpful when not only looking at a single company’s balance sheet, but also comparing multiple business of different sizes at one time. [click to continue…]

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Weekend Reading: 5-4-14

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Here are some stories that caught my attention this past week. Topics include: Investment advice you wish you had, Omaha Nebraska, Why a man who owns $9,000 in Berkshire stock has the right to stand up to Buffett, and more. [click to continue…]

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Interest Rate Spread – Chart of the Week thumbnail

Today’s “Chart of the Week” post on our Facebook page was out of a new report by the Richmond Federal Reserve. The chart shows the differences (or spread) in various interest rates since 2009.

Boring right? But you will find data like this updated constantly on sites like Wall Street Journal and large changes in these rates will make front page news. Why? Read on for an explanation and examples. [click to continue…]

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Weekend Reading 4-20-14

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Here are some articles that caught my attention this weekend. Topics include: Evaluating your investment strategy, investing in low interest rates, hedge fund performance and asset allocation for young investors. [click to continue…]

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How Do You Outperform the Average Investor? Do Nothing thumbnail

New research on the St. Louis Federal Reserve’s blog takes a look at the cost of investors’ attempts to try and time the market and chase market returns. The result? The average investor underperformed the market by 2%! [click to continue…]

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4-14-14: This Week’s Earnings, Indicators and other Releases thumbnail

A busy schedule this week. We hear from some of the biggest companies in the world this week and several important economic indicators as well. Here’s whats on tap for this week: [click to continue…]

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Weekend Reading 4-13-14

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Here are some articles that caught my attention this past week: Topics include: How to pay too much for stocks, The world of Mad Men’s Don Draper, why I cheer for lower stock prices and more. [click to continue…]

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Evaluating Stocks with a Competitive Advantage – Warren Buffett’s Concept of an “Equity/Bond” thumbnail

When a company’s earnings are so solid and so predictable, investors are able to think of their stock like a variable fixed income security, like a bond with flexible rates. Here is how investors like Buffett evaluate these special companies. [click to continue…]

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Weekend Reading: 4-6-14

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Here are some articles that caught my attention this past week. Topics include Maseratis, IRAs, and a solution to America’s savings problem. [click to continue…]

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