Completely Agree With This…

We are sooo jealous… and lazy!

Mitt Romney released his tax returns for the public to see today. This was very brave as he stands up to the scrutiny that will surely befall him now. It made me start to think about fairness and equality since it’s on everyone’s mind right now. After a few moments, the realization I made was that we are a jealous culture here in the US, and lazy to boot.

What’s fair and equal?  Nothing!

It is certainly not fair that some children grow up in Detroit when others grow up in Beverly Hills. It is not fair that some people are born with more talent in basketball or a higher IQ. At the same time, it’s not fair to be upset if you were born in 90210 with a 160 IQ and the person born in Detroit with a 100 IQ makes more money than you do, but it’s my hallucination that in some parts of the America this happens.

As for the tax code, who is it fair for?  The IRS reported that over 50% of citizens do not pay taxes at all. And, despite Romney only paying around 15% in taxes (as reported) per year, that’s still more than 60% of the people out there. And, most of them get a nice refund check at the end of the year. Romney had to write a check for a few million dollars.  Oh, and he donated $7 million over two years or close to 17% of his income.

Here’s my take… at some point in a life, you have to start saving and investing. For people like Mitt, who have accumulated so many assets that the capital gains from interest payments should never be taxed at ordinary income levels, they are to be congratulated and sought after for advice on how to do the same thing. Instead they are vilified because the media wants a story to play on human emotions.  The average person watching Fox or NBC may cry about the injustice of how they pay a 25% rate where the “big wigs” don’t, but here’s where equality comes in…

We are all equal to go after the same type of business or job. If you want to work your ass off and get into an Ivy League School (I didn’t want to, so I went to a state school) then you can do that. If you want to stay extra hours at the library so you learn more than your fellow class mates (I didn’t want to do this either) then you have the opportunity to do that. Once in the work force, if you want to start your own company or stay in the office “half days” (12 hours+) to get overtime and use it to build a bigger nest egg, you can do that too! BUT MOST PEOPLE DON’T DO THESE THINGS!

What America needs isn’t new leadership, it’s for the leaders to give the people a wake up call.  If you want to make more money, don’t spend all the money you earn. Lil Wayne (grammy winner) said it best… the key to success… get money, invest.  I have been known for being lazy with my own work ethic sometimes and even a spendthrift when I was younger, but I was never jealous because someone else had more cars, money, fun, etc. God bless them and God bless Mitt. I won’t vote for him, but anyone that can accumulate assets (legally) like he has should be examined from a positive light, not a negative one.

I didn’t want to write about the philosophical version of “finding your way in life” just that we all use the same banks, roads, and cell phones, and we all watch the same television. If you want more money or to pay a different tax rate, just do what these guys are doing and have done. Model them, and if not then be lazy if you want (I certainly have in my life), but please don’t be jealous.  Jealousy is a weak emotion that does not serve anyone.

RIM’s Prospects…

Anytime a company’s CEO steps down it is never a good thing to hear from the shareholder standpoint. RIM’s stock is down $1.20 this morning and I personally think that the CEO’s are calling it quits. The market RIM used to dominate is a crowded place. When I was in college, I was at the forefront of cell phone sales in Atlanta, GA managing two stores. At that point Nokia dominated the stores sales with Motorola close behind. When I left Georgia for Florida, I had a top of the line Sony Ericson, and for what it’s worth, I never cared about the brand of phone until the iPhone came out in 2007. RIM owned the market for 6 years… Apple has owned the market for 5 years… my question at this point is… what’s next? As I’ve previously stated, the only ways RIM will be able to boost share price is going to be buying back their own shares, not paying attention to the media, and focusing on continue its subscriber growth. If they do that, the stock will go higher over time.

An Economic Program for American Democracy

In 1938 this book proclaimed that the capitalist system as we have known it was done and that, instead of balancing budgets, the government should adopt the unbalanced budget as a permanent institution; that the only salvation of the nation was in a greater and ever-expanding program of national expenditures met with revenues raised by borrowing.

Going further the author’s theory stated:

The dynamic element in the capitalist system is investment. Since millions of people save billions of dollars annually, these billions must be brought back into the stream of spending. This can be done only through investment. When private investment is either curtailed or halted, these savings remain sterilized or inert and the capitalist system goes into a depression. Nothing can produce a normal revival of the capitalist system save a revival of investment.

Private investment cannot be any longer revived on a scale sufficient to absorb the savings of the people. Hence recovery through private investment is hopeless.

Private investment cannot be revived because there are no longer open to savers adequate opportunities for investment.

Opportunities for investment are not open any longer for three chief reasons: (1) because the frontier is gone, with its opportunities for territorial expansion and the discovery of new resources; (2) because population increase has slowed down to a snail’s pace; (3) because technological development has matured. That is to say, there is no longer in sight any such great inventions as the railroads, the automobile, etc., which will change all the arrangements of our social life and call for huge money expenditures.

The present capitalist system is therefore incapable of recovering its energy. This is not a mere emergency condition but is a characteristic of the system which will continue indefinitely.

For this reason we must adopt a new type of economic organization. This new type is called the Dual System or the Dual Consumptive System. Under this system the government will become the borrower of those savings funds which private business will not take. It must then spend these funds putting them again into circulation. What we must look forward to, therefore, is a “long-range program of government projects financed by borrowed funds.”

This was before the biggest boom in American history… one which could not be slowed or stopped by reckless spending by the government. At the end of the day, what makes America great are its people. People that stand up and risk their blood, sweat, and money to raise the standard of living for all. Does anyone want to go back to 1900′s when we didn’t have cell phones, abundance of food choices, or ease of transportation?

Money is not evil.

People with money are not evil.

The desire earn money is not evil.

The freedom to do so is not evil…

And this is from someone who is not a one percenter yet!

Inspirational Quotes

I can accept failure. Everyone fails at something. But I can’t accept not trying. -Michael Jordan

You can’t build a reputation on what you’re going to do. -Henry Ford

People of accomplishment rarely sat back & let things happen to them. They went out & happened to things. -Leonardo Da Vinci

It is never too late to be what you might have been. -George Eliot

I’m a great believer in luck and I find the harder I work, the more I have of it. -Thomas Jefferson

All paid jobs absorb & degrade the mind. -Aristotle

Be happy in the moment, that’s enough. Each moment is all we need, not more. -Mother Teresa

You can easily judge the character of a man by how he treats those who can do nothing for him. -James D. Miles

To be successful, you must decide exactly what you want to accomplish, then resolve to pay the price to get it. -Andrew Carnegie

Sears Holdings is NOT Berkshire Hathaway

Everyone is talking about Sears Holdings (SHLD), parent of Sears and KMart brands, and how the company could be the next Berkshire Hathaway. Now, the story of Berkshire goes like this… Buffett bought the stock because it was a “cigar butt” investment. That means that the company was selling for less than the net current assets it had. Sears on the other hand does not have this luxury. In fact Sears NCA value is -$4 billion. However, Sears has something that Berkshire didn’t – Edward Lampert. Despite the past 2 years, Eddie has produced over 30% a year for two decades for partners in his hedge fund. This includes a huge gain buying retail companies like Sears. So, if you buy Sears, you’re making a bet that Lampert will (a) stick around in SHLD and (b) that he will be able to allocate the little cash to better investments.

Only time will tell… SHLD @ $30

BBC Warren Buffett Documentary

Strong Start To 2012

The positions we’ve taken in The Poland Report have already booked a gain of 4.8% in 2012. I asked a friend recently if I took profits now, if it would be better than the overall return of the S&P 500 in 2012?  Personally I think it may… yet the performance of the TPR portfolio should rebound big time this year.

Happy New Year!

To start off 2012, I want to revisit a book I wrote in 2010 – Inflation Proof: The Ultimate Guide To Buying The Right Stocks. In the book, I delve into the best ways to find and evaluate stocks from a layman’s perspective. This was mostly because even at 30, I still looked at stocks like a layman. I mean over the last decade I’ve written stock reports for brokers, investors, and other financial websites that have collectively documented over 2,700% in total returns. This result was achieved even in the face of a horrible year (down 13%) in 2011.Last year, I did not follow my own philosophy, which has produced such great results in the past very well. Thus, this post is as much for me as it is for anyone who cars to read it…

There are a two concepts I find vital to remember while reading this book and using the strategies contained within. Call it the law of attraction for you investment portfolio.

#1: You are the best person to control your financial future. 

#2: You can create wealth over the long term by owning the right stocks. 

There is no magic formula that will help you buy the right stocks all the time. You will be wrong sometimes regardless of how disciplined you are or how many years of experience you posses. Even the best investors (i.e. Warren Buffett, George Soros, and Jim Simmons) lose money on certain stocks. However, for the last 100 years the stock market has provided the best place to invest money and receive a steady rate of return. In the last 22 years, investors have been gloriously rewarded with an average compounded return of around 7% annually. This book seeks to help you do MUCH BETTER than that.

At the writing of this book the Dow Jones Industrial Average sits at 11,499 and the NASDAQ at 2,640. There are no guarantees in the stock market. Many intelligent people throughout the course of history have succumbed to Mr. Market. Back in 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England at the time! He lost all his money and vowed never to invest again! The key word is HOTTEST. Then there was Long Term Capital Management L.P., a hedge fund run by two Nobel Prize winning economists and an A-List of mathematicians, which in 1998 lost $2 Billion in a matter of weeks on a huge “bet” that the bond market would return to “normal.” Long Term was just a name obviously.

It has been proven over and over again that IQ has nothing to do with intelligent investing. Thankfully for my sake this is true. This book seeks to provide logical evidence that anyone can use to generate wealth by investing in stocks. I hope you use the information to your advantage, and not just as a good read or coffee table decoration.

You Personal Success Formula: 

1. Save Money

2. Invest Intelligently

3. Avoid Major Mistakes

While this book will not help you save money, that’s something you have to do on your own, it will help you invest intelligently and avoid major mistakes. The first step to learning the fundamentals is planning. Without a goal, plan, or direction, you’re like a ship without a sail letting the current take you anywhere IT chooses. If you have ever played sports (as I have) you know that if you do not practice the fundamentals, you will never be very good. This section is first for the same reason. You must know the fundamentals of intelligent investing in order to take advantage of the opportunity the market provides. You must set down your plan immediately. So, take out a piece of paper and jot down some goals you have for this month, this year, and your life. Whether you review these goals regularly or not, you should be working toward them. Investing with the strategies in this guide will help you reach them.

NOTE: The rules in this book work in any stock market, anywhere in the world. The principles that apply to American companies are no different in Asia, Europe, South America, or Africa.

Notes On Financial Statements

I’ve been re-reading both Graham’s and Buffett’s Interpretation of Financial Statements and here are some of my notes.

1. 40% or better gross margins

High R&D, SG&A, or debt interest costs eat into durable competitive advantages.

2. Companies that have to spend heavily on R&D have an inherent flaw in their competitive advantage.

3. Insist on low depreciation costs as a percentage to gross profit.

High depreciation can erode future earnings power when equipment needs to be replaced.

4. Look for stocks with low interest payments. 15 – 30% or less…

Companies with low interest payments as a percentage of operating profits usually possess competitive advantages.

5. Remove all 1x gains from intrinsic value calculations

6. Judge income on pre-tax basis.

7. Look for companies that pay full tax rate.

8. Look for companies that have high net profit margins.

9. Insist on buying companies that have 10+ years of financial consistency… Upward earnings (EPS) trend.

10. Low debt is always best… Cash piles are also very important.

11. Look for companies that have inventory and net income rising in tantum.

12. Look for lowest receivables to gross sales in industry to find durable advantage.

13. Current ratio is useless…

14. Always favor brands with the least change.

15. Goodwill is a key measure to m&a acts by the biz.

16. Internally produced brands have $0 on intangibles but could carry a real value in the market.

17. Always find what the long term investments are…

18. Always think in terms of barrier to entry in raising assets to compete with a specific service/product.

19. Insist on low ( > $1 ) short term borrow to long term loan rates in financial stocks.

20. Durable companies carry very little long term debt on their balance sheets.

21. Total Liabilities / Shareholders Equity = > 1
For banks… Lower the better ( > 10 )
Add back treasury stock in calculation.

22. Preferred Stock is a hindrance most DCA companies don’t have.

23. The best way to find durable competitive advantages is to see a growing pool of retained earnings. The faster retained earnings grows, the faster the growth rate of future earnings… potential.

24. Convert negative treasury shares into positive number and add to shareholder’s equity. After dividing net earnings by new shareholder’s equity – This is the true return on equity.

25. Treasury shares and share buy backs are good DCA indicators.

26. Seek high Return on Equity (15%+) and High Profit Margins

27. Remember most corporations use accrual accounting, which allows credit sales to be booked as revenue until the receivables come in.

28. Cash flow statements (like income statements) cover a specific period of time… one quarter or one year usually.

29. Companies that spend less than 50% of their earnings on Capital Expenditures usually have a competitive advantage and can use the money to invest in growth and share buy backs. 25% or less is a screaming alarm!

30. Calculate advantage by adding up total capital expenditures for a 10 year period and compare it to the net earnings over same period.

31. Stock buybacks are a tax-free way to increase shareholder wealth. And, it is a better use of excess earnings than dividends.

32. Will the company be around in 10 or 20 years?
Is the price a good deal based on pre-tax earnings?
Will this equity bond grow over time? At what rate?

33. Pay attention to the future earnings power not just the stock’s price… This is the Buffett Distinction.

34. The market will eventually move stock prices in line with what long-term corporate interest rates (approximately 6%). The calculation is to take earnings and divide it by long term interest rates. Use 6% as a rule of thumb.

35. A great buying opportunity presents itself when a DCA company encounters a one time solvable problem. These are the times to buy and buy big.