Thursday, December 17, 2015

Financial Thought of the Day December 17, 2015: The Day Trader Versus the Long-Term Investor

Here’s how a day trader thinks versus a long-term investor:

Day trader: “Man, my stock in ABC Corporation is down 8% today. I’m not going to make any money on my trade.”

Long-term investor: “ABC Corporation is down 8% today. It’s a fundamentally sound company it will rebound. I’m going to spend time with my family now.”

Wednesday, December 16, 2015

Financial Thought of the Day December 16, 2015: Dividends Have to Come From Somewhere

It’s best to always look for companies where the dividends come from free cash flow. Companies that pay out less than 50% of its free cash flow in dividends in a full year represent a good rule of thumb. If a company pays out more than 100%, then the company is most likely dipping into the balance sheet or relying on outside sources to fund the dividend.

Go to stockdissector.com

Tuesday, December 15, 2015

Financial Thought of the Day December 15, 2015: Think Long-Term When Investing in the Stock Market

When investing in the stock market, think long-term. That means thinking in terms of barriers to entry, competitive advantages and demand of product. No one can predict the daily swings of the stock market. However, a company’s stock will reward shareholders over the long-term if it sits behind a wide moat against competitors and sells products that people will buy. I will preach this until I am blue in the face.

Monday, December 14, 2015

Financial Thought of the Day December 14, 2015: Save for Harsh Times

Remember to save as much as you can for as long as you can. You never know when you will need the savings or for how long.

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Friday, December 11, 2015

Financial Thought of the Day December 11, 2015: Emergency Fund

It pays to have enough cash to have on hand to pay your normal bills for a period of one year in case of job loss.

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Thursday, December 10, 2015

Financial Thought of the Day December 10, 2015: Keep A Cool Head

When dealing with financial decisions always keep a cool head…you may regret it later. Buying a car or furniture without thinking about it could prove detrimental to your financial health and product satisfaction.


Thursday, July 2, 2015

Financial Thought of the Day July 2, 2015: Invest in Yourself

The best way to accumulate wealth is to spend less than you earn. The best way to get in that position is through acquiring marketable skills. Investing in yourself is as important as investing a financial instrument.


Wednesday, July 1, 2015

Financial Thought of the Day July 1, 2015: Transparency

When seeking a financial advisor, always research their background. If they have been in trouble for breach of ethics, don’t hire them.


Tuesday, June 30, 2015

Financial Thought of the Day June 30, 2015: Giving it Your Best Shot

When pursuing your career passion in life or just simply working for a living, always give it your best shot. Your employers/clients deserve no less.

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Monday, June 29, 2015

Financial Thought of the Day June 29, 2015: Metric of the Day—Stockholder’s Equity

Stockholder’s Equity is defined by the following formula: Assets – Liabilities = Stockholder’s Equity.


Wednesday, June 17, 2015

Tuesday, June 16, 2015

Financial Thought of the Day June 16, 2015: Metric of the Day Accounts Payable

Short term obligations, meaning a year or less, owed to suppliers and other creditors.


Monday, June 15, 2015

Financial Thought of the Day June 15, 2015: Emergency Fund Reason of the Day—Broke Down Car

It’s nice to have an emergency fund so that you can purchase the parts and pay the mechanic when your primary transportation to work, your car, breaks down.

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Friday, June 12, 2015

Financial Thought of the Day June 12, 2015: Metric of the Day—Long-Term Investments

Investments, such as stocks and bonds, held by company that it wants to hold for longer than a year.

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Thursday, June 11, 2015

Financial Thought of the Day June 11, 2015: Metric of the Day—Accounts Receivable

Accounts Receivable is the amount of money owed to a business by customer who bought on credit.


Tuesday, June 9, 2015

Monday, June 8, 2015

Financial Thought of the Day June 8, 2015: Metric of the Day—Cash and equivalents

Cash and equivalents comprised of cash or any security easily convertible into cash such as treasuries, savings and checking accounts etc.

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Friday, June 5, 2015

Financial Thought of the Day June 5, 2015: Metric of the Day—Net Income

Net income is defined by the following formula: Revenue – total expenses.


Thursday, June 4, 2015

Financial Thought of the Day June 4, 2015: Metric of the Day—Operating Income

Operating income is the amount of income a company earns through the normal course of operations.

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Wednesday, June 3, 2015

Financial Thought of the Day June 3, 2015: Metric of the Day—Operating Expenses

An operating expense is an expenditure that a business incurs during the normal course of its operations.


Monday, June 1, 2015

Financial Thought of the Day June 1, 2015: Metric of the Day—Revenue

Revenue is the amount of money a company receives in the exchange for the good or service it provides during a certain period before the deduction of expenses.

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Friday, May 29, 2015

Financial Thought of the Day May 29, 2015: Emergency Fund Revisited

If at all possible be sure to save enough cash for 6 months of expenses in the event of an involuntary layoff or some other unforeseen event that can interfere with income. Always keep this cash in a low risk account, such as a savings or checking account.

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Thursday, May 28, 2015

Financial Thought of the Day May 28, 2015: Dividend Aristocrat Defined

A dividend aristocrat is a company that has raised its dividend for 25 consecutive years. This gives a good indication of financial prudence on part of the company. However, always make sure you do your due diligence before investing.

Go to stockdissector.com

Wednesday, May 27, 2015

Tuesday, May 26, 2015

Financial Thought of the Day May 26, 2015: Take Advantage of Stock Market Corrections

As of this writing, the stock market is in a state of correction. To the long-term investor, it just means asset prices are getting cheaper.

www.stockdissector.com

Thursday, May 21, 2015

Wednesday, May 20, 2015

Financial Thought of the Day May 20, 2015: Beware of Guarantees

Anyone claiming to guarantee a high rate of return is probably lying, especially if they guarantee it over a short period of time. Any financial instrument that provides a potentially greater return than a savings account or Treasury bond is going to entail risk. Period.

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Tuesday, May 19, 2015

Financial Thought of the Day May 19, 2015: Today’s Papaw Walterism—It’s Not What You Make But How You Save It

My Grandfather Walter Bias only went to the eighth grade but exhibited more financial wisdom than most people with an Ivy League education. One day he had this to say about saving, “Billy I’ve seen people who made $100,000 per year and not have anything and I’ve seen people who make $25,000 per year and had a good bank account for the people who made $25,000 knew how to save a dollar.” This quote may not be entirely accurate as my memory isn’t as good as it used to be.

I sure do miss him and people like him. He was part of dying breed.


Monday, May 18, 2015

Financial Thought of the Day May 18, 2015: What Is An Expense?

In the realm of personal finance, an expense is any claim on your income. In the realm of business, it’s any claim on revenue.

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Friday, May 15, 2015

Financial Thought of the Day May 15, 2015: Always Strive to Save

Try to always save something if at all possible even if it’s a few dollars a month. It will help during the times you can’t.


Tuesday, May 12, 2015

Financial Thought of the Day May 12, 2015: The Formula for Profit/Loss

Revenue – Expenses =

Net Income when revenue is greater than expenses.
Net Loss when expenses are greater than revenue.


Monday, May 11, 2015

Financial Thought of the Day May 11, 2015: Avoid Debt If At All Possible

Whenever possible avoid any unnecessary debt. It is the compounding of wealth in reverse.

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Wednesday, April 29, 2015

Financial Thought of the Day April 29, 2015: What It Means to Be a Conservative Investor

A conservative investor is someone who does their research and not invest on a whim or gamble.

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Monday, April 27, 2015

Wednesday, April 22, 2015

Financial Thought of the Day April 22, 2015: Greed Interferes With Rational Thinking

My friend and fellow Seeking Alpha writer Michael Hooper cited a compelling quote from Charles Mackay, a 19th century author who wrote “Extraordinary Popular Delusions and the Madness of Crowds”:

"During the progress of this famous bubble (The South Sea Bubble), England presented a singular spectacle. The public mind was in a state of unwholesome fermentation. Men were no longer satisfied with the slow but sure profits of cautious industry. The hope of boundless wealth for the morrow made them heedless and extravagant for today."

Don’t let greed interfere with rational thinking. Invest in companies that demonstrate prudence in its financial affairs and avoid speculative investments.


Tuesday, April 21, 2015

Financial Thought of the Day April 21, 2015: It Is Essential To Do Your Research Part II

Investing in a publicly traded business without doing your research is like buying a house without looking around inside or checking for liens.

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Monday, April 20, 2015

Financial Thought of the Day April 20, 2015: It Is Essential to Do Your Research Part I

Investing in publicly traded business without doing research is like buying a car without doing a test drive with the assumption that you will like the comfort and utility of your ride.

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Friday, April 17, 2015

Financial Thought of the Day April 17, 2015: The Stock Market Is A Tool

The way I see it the stock market is a tool where long-term publicly traded business owners can buy shares of great companies. It is also a way to sell shares decades down the road to fund retirement, start a business of your own or to exit businesses that fell into subpar status.

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Wednesday, April 15, 2015

Financial Thought of the Day April 15, 2015: Remember to Diversify

Remember when investing in the stock market diversification is key. One stock can more than make up for the losses of the other. It’s also important to keep cash for emergencies and investment opportunities (once the emergency fund is in place).

Go to www.stockdissector.com

Tuesday, April 14, 2015

Financial Thought of the Day April 14, 2015: Not All Dollars Have the Same Purpose

Not all dollars have the same purpose. Some dollars go to bills. Some of them go to retirement. Some dollars go to recreation.

http://www.stockdissector.com

Monday, April 13, 2015

Financial Thought of the Day April 13, 2015: Thinking Like a Business Owner

A good way to get started on a path to successful stock market investing is to think of stocks as publicly traded businesses. Investing in companies that sell needed or highly wanted products, sells a unique product and sits behind a wide proverbial moat will do better than a company with many competitors and sells products with trend driven demand.

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Wednesday, April 1, 2015

Financial Thought of the Day April 1, 2015: Free Cash Flow Formula Revisited

(Operating cash flow – capital expenditures) + Disposal of Plant, property and equipment = Free Cash Flow

Go to stockdissector.com

Tuesday, March 31, 2015

Financial Thought of the Day March 31, 2015: Investing for the Short Term Is Bad

It is impossible to predict the stock price of any given company over the short term. Trying to day trade based on guesses on where stock prices are heading is a sure way to the poor house.

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Monday, March 30, 2015

Financial Thought of the Day March 30, 2015: Future Value of a Single Amount—30 Years

The compounding of money is such a powerful thing. Over time it can build up. Three elements go into the compounding of money—Amount, compound rate and time. It can be denoted by the following formula:

Future Value of an amount = (1 +r)^n where
r = rate of return
n = number of periods

With that said:

A single $1,000 amount compounded @ 1% over a period of 30 years which is roughly the equivalent of an online bank account —(1.01)^30 gives you a multiplier of 1.3478 x $1,000 = $1,347.85

A single $1,000 amount compounded @ 10% over a period of 30 years which is the historical return of the stock market as a whole --- (1.10^30) gives you a multiplier of 17.4494 x $1,000 = $17,449.40

A single $1,000 amount compounded @ 22% over a period of 30 years which is Warren Buffett level returns --- (1.22^30) gives you a multiplier of 389.7579 x $1,000  = $389,757.89

Go to stockdissector.com

Friday, March 27, 2015

Financial Thought of the Day March 27, 2015: Future Value of a Single Amount—20 Years

The compounding of money is such a powerful thing. Over time it can build up. Three elements go into the compounding of money—Amount, compound rate and time. It can be denoted by the following formula:

Future Value of an amount = (1 +r)^n where
r = rate of return
n = number of periods

With that said:

A single $1,000 amount compounded @ 1% over a period of 20 years which is roughly the equivalent of an online bank account —(1.01)^20 gives you a multiplier of 1.2202 x $1,000 = $1,220.19

A single $1,000 amount compounded @ 10% over a period of 20 years which is the historical return of the stock market as a whole --- (1.10^20) gives you a multiplier of 6.7275 x $1,000 = $6,727.50

A single $1,000 amount compounded @ 22% over a period of 20 years which is Warren Buffett level returns --- (1.22^20) gives you a multiplier of 53.3576 x $1,000  = $53.357.64


Go to stockdissector.com

Financial Thought of the Day March 26, 2015: Future Value of a Single Amount—10 Years

Sorry I skipped yesterday folks. Here’s a makeup post:

The compounding of money is such a powerful thing. Over time it can build up. Three elements go into the compounding of money—Amount, compound rate and time. It can be denoted by the following formula:

Future Value of an amount = (1 +r)^n where
r = rate of return
n = number of periods

With that said:

A single $1,000 amount compounded @ 1% over a period of 10 years which is roughly the equivalent of an online bank account —(1.01)^10 gives you a multiplier of 1.1046 x $1,000 = $1,104.62

A single $1,000 amount compounded @ 10% over a period of 10 years which is the historical return of the stock market as a whole --- (1.10^10) gives you a multiplier of 2.5937 x $1,000 = $2,593.70

A single $1,000 amount compounded @ 22% over a period of 10 years which is Warren Buffett level returns --- (1.22^10) gives you a multiplier of 7.3046 x $1,000 = $7,304.60


Go to stockdissector.com

Wednesday, March 25, 2015

Stockdissector (Theoretical) Portfolio Update--March 25, 2015--Beating The S&P 500

It appears that my theoretical portfolio is off to a good start. My one and only stock--Wabtec-- has outperformed the stock market since being added on January 30, 2015.

Wabtec-(NYSE: WAB)--Added on January 30, 2015
Price when added $83.45
S&P 500 when added 1,994.99
Wabtec's Price on 03/25/15----$95.27
S&P 500 Price on 03/25/15-----2061.05
Wabtec's Price Return 14.2% vs. 3.3% for the S&P 500 since being added to the portfolio (not including dividends).

The stock is outperforming the S&P 500 since added to portfolio (as of 03/25/15)
Stockdissector owns shares in this company.


Original blogspot post with timestamp for verification.

Go to the Stockdissector (Theoretical Portfolio)


Stockdissector is NOT an investment advisor. This is for informational purposes only. This should not be construed as an investment advice and you should always consult your financial advisor for a second opinion.

Financial Thought of the Day March 25, 2015: Value Trap

Sometimes a stock price goes down for a reason. Be sure to research the fundamentals of any business before investing.

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Tuesday, March 24, 2015

Financial Thought of the Day March 24, 2015: Active Management Risk

The TIAA-CREF S&P 500 Index Fund Prospectus defines Active Management Risk as “The risk that Advisors’ strategy, investment selection or trading execution may cause the Fund to underperform relative to the benchmark index or mutual funds with similar investment objectives.”

Trading execution can run up brokerage fees and taxes which can eat into your returns. Owning shares in a mutual fund means you have a partial interest in a professionally designed portfolio. Within a mutual fund if an advisor trades a stock on your behalf it can incur fees and taxes in the portfolio serving as a drag on return. Picking stocks that you can hold for a long time can enhance your chances of better long-term gains. The same can be said about an advisor managing your mutual funds.

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Thursday, March 19, 2015

Financial Thought of the Day March 19, 2015: Never Pay Full Price

When spending money your philosophy should be to never pay full price.

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Wednesday, March 18, 2015

Financial Thought of the Day March 18, 2015: Quantitative Analysis Risk Defined

The TIAA-CREF S&P 500 Index Fund summary prospectus defines Quantitative Analysis Risk as “The risk that stocks selected using quantitative modeling and analysis could perform differently from the market as a whole.” First of all that risk could pay off if the company performs better than the stock market as a whole. Second, a business oriented stock market investor will look at factors beyond the numbers such as high barriers to entry, selling a wanted/needed product and market leadership.

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Tuesday, March 17, 2015

Financial Thought of the Day March 17, 2015: Cash to Stockholder’s Equity

I always like publicly traded companies with lots of cash on its balance sheet. I prefer companies with cash to stockholder’s equity of 20% or more to get it through tough times, make prudent acquisitions and self-finance operations. However, most of the financial community doesn’t want to see a great deal of cash on a company’s balance sheet because they feel it’s not being put to good use.

Go to stockdissector.com

Monday, March 16, 2015

Financial Thought of the Day March 16, 2015: Diligence Pays

Never give up on the notion of saving. Always minimize expenses and maximize revenue.

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Friday, March 13, 2015

Financial Thought of the Day March 13, 2015: Who Cares About the Jones?

Keeping up with the Joneses? Keep in mind they may be operating under a load of interest choking debt. Better to be debt free and not paying the bank interest then keeping up with your neighbor with the fancy car.

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Thursday, March 12, 2015

Financial Thought of the Day March 12, 2015: Have a Spending Blackout Period

Challenge yourself to have a “spending blackout period”. It could be a few hours, a day or whatever. Continue to have these intermittent blackout periods. Check and see if this has any impact on your finances over a period of time. Not spending money over a period of time can strengthen financial discipline.

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Wednesday, March 11, 2015

Financial Thought of the Day March 11, 2015: Financial Freedom Defined

To me financial freedom means having enough of an asset base that generates enough income to live on. That means not reporting to a boss to earn a paycheck and doing what you want to in life.

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Financial Thought of the Day March 10, 2015: The Saving/Investing Formula

Take home pay – bills = Amount leftover to save and invest

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Monday, March 9, 2015

Financial Thought of the Day March 9, 2015: Gambling Is Not a Way to Make a Living

Playing slots and video poker is NOT a way to make a living and leaves you feeling empty in the end when you are broke.

Thursday, February 26, 2015

Financial Thought of the Day February 26, 2015: Cash = Investment Opportunity

If you have plenty of cash over and beyond your emergency fund you can take advantage of stock market corrections when they occur by buying excellent publicly traded businesses on the cheap.

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Wednesday, February 25, 2015

Financial Thought of the Day February 25, 2015: Peace of Mind

Having money set aside for emergencies can put you at ease--at least when it comes to your finances.

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Tuesday, February 24, 2015

Monday, February 23, 2015

Financial Thought of the Day February 23, 2015: Saving = Freedom

Remember each dollar saved and invested means you are a small step closer to financial freedom.


Friday, February 20, 2015

Financial Thought of the Day February 20, 2015: Building Your Own Pension

In this age of the dwindling pension it pays to save and invest all you can. It’s incumbent for people to build their own pension via IRAS, 401ks and savings.

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Thursday, February 19, 2015

Financial Thought of the Day February 19, 2015: Breaking Down Your Expenses Revisited

If you take your total expenses and divide it by the number of paychecks you get in a year and if the expense per paycheck exceeds what you are taking in each paycheck—you are going in the hole.

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Wednesday, February 18, 2015

Financial Thought of the Day February 18, 2015: How to Go Broke

If you spend more than you earn you will eventually use up all of your savings and then you will go broke except when you get your paycheck. If you are broke the only way you can spend more than you earn is to go in debt and that’s whole other problem.

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Tuesday, February 17, 2015

Financial Thought of the Day February 17, 2015: The Basic Formula for Wealth Building

In business: Revenue - Expenses = Net income or Net loss (Depending on whether nor not expenses exceed revenue)

Personal: Paycheck – Bills = Discretionary income or loss (Amount you have to save [or spend] or the amount you have to draw on savings).

Personally I prefer the first option.

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Monday, February 16, 2015

Financial Thought of the Day February 16, 2015: Another Reason to Save—Generator Gas

If you lose power due to a snow storm, then you can use money from your emergency fund or savings to buy gasoline for your generator.

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Friday, February 13, 2015

Financial Thought of the Day February 13, 2015: Turn Consumer Spending Into an Investment Idea

Tomorrow is Valentine’s Day. You can turn your holiday spending into an investment idea—research publicly traded candy companies to see they are worthy of investment.

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Thursday, February 12, 2015

Financial Thought of the Day February 12, 2015: Know Your Financial Habits

Always know how much you spend and on what. This is one of the keys of living within your means and building savings.

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Wednesday, February 11, 2015

Financial Thought of the Day February 11, 2015: The 10% Method Revisited

One saving strategy is to pay yourself first. Set aside 10% of every payday before spending anything else.

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Tuesday, February 10, 2015

Financial Thought of the Day February 10, 2015: Saving Takes Discipline

Saving involves spending less than you earn. That means not buying stuff you don’t need on a regular basis.

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Monday, February 9, 2015

Financial Thought of the Day February 9, 2015: Investment Income—Easy Money

When you purchase a financial asset such as a stock it has the potential to go up in value. It also generates income in the form of dividends. For those of you who are more risk adverse, putting money in a savings account or a certificate of deposit creates interest income. These types of income streams are money you don’t have to work for. The money and investments are working for you.

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Friday, February 6, 2015

Financial Thought of the Day February 6, 2015: There Does Come a Time to Sell

I will always advocate investing for the long-term. Commission and/or taxes eats into your returns when you day trade. Not to mention that it turns your stock brokerage account into a virtual gambling casino. However, sometimes you need to sell your ownership stake in a publicly traded business when the fundamentals are no longer sound and when you need to fulfill a life necessary expense such as retirement and education for a child.

Go to stockdissector.com

Thursday, February 5, 2015

Financial Thought of the Day February 5, 2015: Invest In Yourself

In order to save and invest you must first spend less than you earn. In order to do this it’s important to always embrace education. This will make you more marketable. Being more marketable makes it easier to find a job that will enable you to save and invest.

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Wednesday, February 4, 2015

Financial Thought of the Day February 4, 2015: Never Give Up On Saving

Never give up on saving. Setting aside $50 per month is better than going in the hole on a monthly basis.

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Tuesday, February 3, 2015

Financial Thought of the Day February 3, 2015: Dividend Reinvesting

Dividends add up over time. Reinvesting them can add hundreds of percentage points to your investment return over time.

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Monday, February 2, 2015

Financial Thought of the Day February 2, 2015: One Good Reason to Invest in the Stock Market

According to Moneychip.com the stock market has given investors a 12% annualized return from January 1, 1980 to December 31, 2014. Savings accounts typically yielded between next to nothing to around 3% from the late 80s and beyond.

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Friday, January 30, 2015

Stockdissector (Theoretical) Portfolio Update January 30, 2015

Wabtec-(NYSE: WAB)--Added on January 30, 2015
Price when added $83.45
S&P 500 when added 1,994.99
Wabtec's Price on 01/30/15 $83.45
S&P 500 Price on 01/30/15 1,994.99
Wabtec's Price Return 0% Vs. 0% for the S&P 500 since being added to the portfolio

The stock is even with the market
Stockdissector owns shares in this company


Back to the Stockdissector Portfolio

Stockdissector is NOT an investment advisor. This is for informational purposes only. This should not be construed as an investment advice and you should always consult your financial advisor for a second opinion.

Financial Thought of the Day January 30, 2015: Having an Emergency Fund –Reason #5

The boss is having financial difficulty and delays your paycheck by a week. Also, once they do issue a check it gets lost in the mail. But you don’t sweat it because you have money in the bank to pay the bills until things get sorted out.

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Thursday, January 29, 2015

Financial Thought of the Day January 29, 2015: Having an Emergency Fund—Reason #4

You are going to work and your transmission goes out. You get it to the car mechanic who tells you it’s going to cost you a great deal. You rest easy because you have more than enough money to cover the repair cost and car rental to get you to work so you won’t lose your job.

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Wednesday, January 28, 2015

Financial Thought of the Day January 28, 2015: Having an Emergency Fund – Reason #3

Your layoff caused you to lose your health benefits. The money you saved in the bank will help pay for a medical card.

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Tuesday, January 27, 2015

Financial Thought of the Day January 27, 2015: Having an Emergency Fund—Reason #2

Everything thing may be going fine in your job. Then all of the sudden the boss is calling you into his/her office and saying sorry about your luck but we are having a layoff and your one of the ones getting laid off. Having an emergency fund provides options beyond unemployment benefits.

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Monday, January 26, 2015

Financial Thought of the Day January 26, 2015: Having an Emergency Fund--Reason #1

The way most health insurance companies work these days is that you have to at least foot part of your healthcare costs via a deductible, co-pays, and the portions that they don’t cover. It pays to have money set aside for surgeries and sudden illness.

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Friday, January 23, 2015

Financial Thought of the Day January 23, 2015: Calculating Operating Profit

Operating profit = [Revenue-cost of goods sold-operating expenses]

Operating profit deducts cost of goods sold and expenses pertaining to the normal operations of a business.

Thursday, January 22, 2015

Financial Thought of the Day January 22, 2015: Calculating Gross Profit


Gross Profit = [Revenue – Cost of Goods Sold]
This is generally profit after cost of inventory.

Wednesday, January 21, 2015

Tuesday, January 20, 2015

Financial Thought of the Day January 20, 2015: Calculating P/E Ratio

P/E = [Market Price Per Share/EPS Per Share]

This is a highly quoted metric in the financial media.

Friday, January 16, 2015

Financial Thought of the Day January 16, 2015: Calculating Free Cash Flow

Free Cash Flow = [Operating cash flow-capital expenditures + sale of plant property and equipment]

Thursday, January 15, 2015

Financial Thought of the Day January 15, 2015: Calculating Dividend Yield

Dividend yield can be computed with the following formula—[Annual dividend amount/market price per share] x 100.

Wednesday, January 14, 2015

Financial Thought of the Day January 14, 2015: Breaking Down Your Expenses

One way to know if you are living within your means is to take the total amount of expenses each year and break it down on a paycheck to paycheck basis. If your expenses exceed your paycheck then you aren’t living within your means.

Tuesday, January 13, 2015

Financial Thought of the Day January 13, 2015: Living Paycheck to Paycheck

Living payday to payday means you are a slave to your paycheck cycle. The only way you can spend beyond your paycheck is to go in debt which adds interests cost or ask for money from friends and relatives which puts a strain on your relationship with them. It’s like being an indentured servant.

Monday, January 12, 2015

Financial Thought of the Day January 12, 2015: Thinking Like a Publicly Traded Business Owner

If you think more like a business owner instead of owning shares of paper you start to think more strategically. You begin to contemplate who your competitors are and whether or not your company sells a needed and/or unique product and less about analyst expectations, P/E ratios, and news headlines.

Friday, January 9, 2015

Financial Thought of the Day January 9, 2015: Long-Term Debt to Equity Ratio

Long-term debt to equity ratio = [Long-term debt/stockholder’s equity] x 100.

I use this metric often in my writings and prefer that a company’s long-term debt lies at 50% or less of stockholder’s equity before investing.

Thursday, January 8, 2015

Financial Thought of the Day January 8, 2015: An Ode to Cash

Cash may not work that hard for you as an investment but it can still perform many important functions. In the world of personal finance, it can provide a cash cushion for emergencies and a chance to take advantage of investment opportunities like cheaper stock prices. In the corporate world it can provide the company a chance to stay afloat during difficult times and provide them with the ability to make strategic acquisitions without relying on outside financing.

Wednesday, January 7, 2015

Financial Thought Of The Day January 7, 2015: Free Cash Flow To Stockholder’s Equity

One on the most used metrics in the financial world when gauging profitability relative to the capital base is return on equity defined by variations of the following formula: [Net Income/Stockholder’s equity] x 100. A business owner would want to know how much a capital base can generate free cash flow which would be defined by the following formula: [Free cash flow/Stockholder’s Equity] x 100.

Tuesday, January 6, 2015

Here’s How Mattress Firm Is Doing So Far This Year

On Dec. 3, mattress and accessory retailer Mattress Firm (NASDAQ: MFRM) came out with its Q3 2014 quarterly statement. The company performed well on the top line front but not so much on the profitability front. Let’s see what’s going on with this company.
Robust top line gains
Mattress Firm’s year-to-date revenue gained $303 million dollars representing a 33.5% year-over-year increase in revenue overall. Mattress’s Firm’s entire product and service portfolio saw gains in revenue (see table below). Conventional mattresses made up the largest percentage (48%) of overall gains with this segment increasing $145.8 million or 35% year-over-year.
Sales by Product

YTD 10/28/14
YTD 10/29/13
Gain
Gain as % of Total
YOY Gain
Conventional Mattresses
$567.6
$421.8
$145.8
48.1%
34.6%
Specialty Mattresses
$525.7
$403.5
$122.2
40.3%
30.3%
Furniture and accessories
$91.4
$62.6
$28.8
9.5%
46.0%
Delivery service revenue
$23.0
$16.8
$6.2
2.0%
36.9%
Total
$1,207.7
$904.7
$303.0
100.0%
33.5%
Source: SEC filings and author’s calculations
Organic sources contributed 63.1% to Mattress Firm’s overall gains meaning that the company can grow its top line by bringing customers through the door rather than by simply buying other companies (see table below). Established stores contributed a respectable 22% to the overall gain in Mattress Firm’s year-to-date revenue while expansion contributed another 41%. Acquisitions, however, did account for the remaining 42% of year-to-date revenue gains.
Type of Gain
Change in sales
% of Total Gain
Comparable store sales
$67.5
22.3%
New stores
$123.7
40.8%
Acquired stores
$126.1
41.6%
Closed stores
-$14.3
-4.7%
Total YTD YOY Gain in Sales
$303.0
100.0%
Source SEC filings and author’s calculations
Net income declined
Mattress Firm’s net income declined 15% year-over-year. Relatively higher general and administrative expenses tied to acquisitions contributed heavily to the decline in net income. Increased interest expense stemming from accumulation of long-term debt also contributed to net income decline.
Free cash flow declined
Mattress Firm’s year-to-date free cash flow also declined 17% vs. the same time last year. Capital expenditures increased 33% due to increased opening of new stores relative to last year. Hopefully, the investment in expansion will pay off in the long run.
How does this fit into the overall picture?
Mattress Firm has grown its revenue, net income, and free cash flow a healthy 207%, 13,000%, and 184% respectively and translating into a total return of 163% vs. 80% for the total return S&P 500 according to Y Charts. The company has expanded at a fast pace going from 487 locations in 2009 to 1,986 locations in the most recent quarter. It should be noted that comparable store sales have declined steadily in the past three years. Hopefully, this trend will reverse itself this year.
Lousy balance sheet
Mattress Firm possesses a lousy balance sheet. Its $5 million cash balance equates to a mere 1% of stockholder’s equity, way below my personal threshold of 20%. Companies that harbor plenty of cash can get themselves through tough times, self-finance acquisitions and invest in product innovation.
Mattress Firm also expanded its long-term debt to finance acquisitions. Long-term debt increased to $750 million vs. $216 million at the start of the year, expanding its long-term debt to equity ratio to 178% vs. 66% which vastly exceeds my personal threshold of 50%. Long-term debt creates interest expense which serves as drag on profitability. So far this year, Mattress Firm’s operating income exceeds interest expense by seven times vs. 10 times the same time last year. The rule of thumb for safety lies at five times or more.
Looking ahead
Mattress Firm’s massive expansion of long-term debt gives indication that the company may be expanding too fast. Also, the company trades at a high P/E ratio of 43 vs. 19 for the S&P 500, according to Morningstar. A market correction could severely impact this company’s stock price. Management lowered its guidance and expects earnings per share to be between $1.44 and $1.50 for its FY 2015. If the companies misses that estimate and clocks in at say $1.43 per share, assigning a normal multiple of 23, puts the company stock price at $32.89 per share which represents a 42% downside from its current price. Even at $1.50 a multiple of 23 would translate into a share price of $34.50, or a 39% downside.

Investors may want to consider more solid companies such as Union Pacific which offers a more reasonable valuation of 22.

DISCLOSURE: STOCKDISSECTOR (William Bias) owns shares of Union Pacific and will not trade the stock for three market days.