Early, but Correct Nonetheless

Today we’ll have the second half of Geoff Beckstrom’s article on investing, so I’ll be brief.

Bernanke is going to be confirmed.  Bank on it (ha ha).  What he will do then is anyone’s guess.  Some are discussing his being willing to take a break from rate hikes.  It is devoutly to be wished, but I wouldn’t bet on it.  Next week we’ll take an alternative view of things and talk about how rising home mortgage rates negatively impact housing prices, and what has to happen in the broader economy to make that negative impact as small as possible.  It’s the kind of analysis you only get here.

Before getting to the predictions, we want to point out that last Friday I predicted that Harriet Miers would withdraw her name from nomination for the Supreme Court.  Add that prediction to the “correct” column.  We are now lobbying for Janice Rogers Brown, or if you hate women, how about Danny Julian Boggs, who despite his name is Hispanic.  Here’s the thing.  There are enormous numbers of very qualified candidates.  The conservative bench is wide and deep, and it has on it ranks of women and minorities who are articulate, bright, and very well qualified.  How Harriet Miers got the nod among so many, I have no idea.  Or maybe I do.  

Predictions for the weekend:

Tonight CSU loses to New Mexico by a field goal (sorry, Ray)
No Supreme Court appointment is made this weekend
BYU destroys Air Force 45-17
Now that the White Sox have won the World Series, following the Red Sox winning last year, the Cubs become the hot favorite to win the whole thing next season
Northwestern beats Michigan in a game where over 100 points are scored
Georgia beats Florida in a game where fewer than 20 points are scored
My brother’s Washington Redskins take 1st place in the NFC East by beating the Giants
Steve’s Denver Broncos beat the Philly Eagles by 1

On with Investment Advice from Geoff Beckstrom… (read Part One here)

Rule #4 – The difference between gambling and speculation.  People have told me time and time again that its bad business to ever compare gambling and investing, it scares away clients.  I disagree; I think it is an excellent comparison.  For example, if you go to a casino and sit at a black jack table you bet on your hand, if you win you double your money, if you lose you lose all your money.  However, on a given day I can “gamble” that the dollar (or oil, or bond rates, or the Yen, or any individual stock) will go up or down.  If I am right, I may double my money, I may earn some percentage of my money, I may more than double my money.  If I am wrong, I can set a predetermined amount of money I am willing to lose, I do not lose all of my money.  Secondly, depending on the number of decks used, number of people at the table and the house rules each black jack hand has more or less a 50-50 chance.  The “odds” of a particular investment going up or down (or not moving in value at all) change on a regular basis.  The key is to learn how to predict those odds and to “bet” win the odds are in your favor and be strong enough to not play when the odds are not in your favor.  Casinos would not be open for very long if there was a system that allowed players to know that “red” had a 70% of being hit when ever three consecutive blacks came up.  Players would sit at roulette tables for hours waiting to see three straight blacks and would then bet big on red knowing they would win more then twice as often as losing.

Rule #5 – Earning money matters.  Who owns a Lexmark printer?  I do.  It’s a great printer and a great company.  Lexmark stock (LXK) has dropped in the last month from $65 to $42.  Want to know why?  Lexmark announced that for the third quarter for this year they will earn about $500 million dollars rather than $980 million dollars as was expected.  I won’t go into the details of why the sales number was cut almost in half, but needless to say, if you’re considering buying a stock, Id take a look at Lexmark right now.  People will continue to buy printers and Lexmark will continue to make them.

On the flip side.  Google is now at $320 per share.  How does Google make money?  Advertising.  How else?  If you don’t know the answer to that question than you should not be buying any shares of Google.  Companies can only have high share prices for so long when they aren’t making any money.

Rule #6 – The only “economy” or “market” that matters is YOURS.  The Nasdaq may be down, the Dow may be down, talking heads may be crying rivers over how bad the US economy is and mortgage rates may be going up.  None of this matters if your economy (read – budget) is in good shape.  The opposite is true as well.

Rule #7 – Markets ARE NOT efficient or in other words people overreact and you can profit from it.  Stocks will generally go much higher than they should on good news and drop much more than they should on bad news, you can make a lot of money acting on this rule and recognizing when it happens.

Enough of the rules- I have many more but I’m afraid I’ve already bored most of you.  Ill conclude with my investing philosophy even with a few how to’s.

First – learn basic accounting.  The only way you can manage your own finances or examine the finances of a possible investment is to know what a Balance Sheet and P&L is and how to read them.  My suggestion is that you create a Balance Sheet and P&L for your own family budget.

Second – Concentrate on Net Worth.  I know a lot of people (and a lot of stocks) that earn a lot of money and aren’t worth anything.  You can earn a million dollars in a year but if you spend two million and have another three million in debt……you’re not doing any good.  On the flip side, you can earn $30,000 a year and if you are willing to live within a budget and you’re willing to learn some investing techniques, you can within a few years, build an investment portfolio that will allow you to earn that same $30,000 a year without having to go to work everyday.  How much you are worth (assets minus liabilities) is more important than how much you earn (cash flow).

As long as this has been, I have not even begun to scratch the surface.  I do not mean in any way to use Chris’ request for a guest writer to be a blatant solicitation, my hope is that you may find some of this educational or at least have been given some things to think about.

A list of stocks that I am watching and why – (DO NOT buy any of these stocks just because you read them here)-

Home Depot – HD – There is going to be A LOT of construction in Mississippi and Louisiana and Texas and supplies have to be bought somewhere.

Lowes - LOW - Same as Home Depot

XOG, ETO – Two large oil companies that have land based (not shore or off shore based) oil rigs which have not been affected by hurricanes.

Lexmark – LXK – Lexmark is on sale, see rule #7.


Hope you have found this useful.  If not let Chris know so he can permanently banish me from what has otherwise been a civilized and entertaining blog.

-Geoff