Posts Tagged ‘football’

Causes and effect (The Financial Athlete #101)

February 9, 2009

When analysts review why a football team won or lost, they never pinpoint one cause. They compare statistics on a multilevel with turnovers, penalties, 3rd down conversions, time of possession, sacks, and so on. More than one cause produces the effect of winning.

A simple minded investor of a stock stops due diligence with one hoped-for cause to predict the effect of a substantial price gain. This is his magic answer toward prosperity. It may be breakthrough patent, or a huge contract, or a buy-out priced at a steep premium to the market price.

Never settle for a magic answer as the sole reason to buy an equity. Consider the effect of the stock price if the magic answer fails to materialize. Will there be a sell off?

Stocks should be chosen based on a good price and the merits of the company (fait accompli) which will carry them toward further growth. Think of the magic answer as only a potential bonus.


Move forward (The Financial Athlete #46)

August 26, 2008

“Be like grass, although cut again and again it never ceases to grow.”— Ao (pastamanvibration)

What can football teach us about investing? Do we need higher testosterone levels to enhance performance? No. Football teaches us how to move forward to score. Occasionally, a long bomb is thrown. This fits into the offensive mix, but most offensive plays in football are not designed to score a touchdown. They’re designed to get a first down with runs and short passes. One first down leads to another, bringing the football closer and closer to the goal line.

The nature of man is to move forward. It is not the nature of man to live most of his life with the stillness of plants. Without moving forward, man stagnates or regresses. But moving forward should be done prudently, as the example of going for first downs in football with most plays demonstrates.

To move forward in a solid manner with investing seek positive cash flow. Passive income distributed from real estate holdings makes for the most wonderful investment. Besides the distribution of income, you may benefit from a considerable long-term appreciation of the value of the property. This would give you the opportunity to either sell the property for a hefty capital gain or refinance to use the loan amount for investing into other expected, higher yielding assets. Wisely using the power of leverage can multiply your net worth.

As for stocks, invest in companies moving forward — companies with potential to increase dividends. Be demanding! Purchase shares only at a reasonable price. Virtually all your investment should be placed with companies achieving positive free cash flow. Seek moving forward trends in revenue, cash flow, earnings per share, and equity. The key to substantial, long-term returns is holding shares of profitable companies experiencing consistent growth as long as the stock price is not severely overvalued as measured by conventional valuation metrics.

Companies move forward organically or inorganically. Favor those with organic growth, where its core business flourishes. Consistent organic growth is a key indicator of managerial competence. Do not be impressed with companies characterized by inorganic growth, where growth comes by acquisitions, mergers, or takeovers. Inorganic growth companies tend to collect mediocre business units which may not be synergistic with other business units within the corporation; and inorganic growth often comes at a price of substantial corporate debt.

To invest in beaten down, distressed companies is retreating, not moving forward. Yes, you may get lucky with a turnaround, but chances are you will bring upon yourself “the bad karma” plaguing the company. More likely, distressed companies will stagnate or shrivel your portfolio. The same holds true for most penny stocks.

If you are uncomfortable investing in stocks and real estate, then pay off your mortgage first or invest in the more secure TIPS (Treasury Inflation Protection Securities) or FDIC insured short-term CDs if its yield is greater than the rate of inflation. This too is moving forward, although more so at a turtle’s pace.

“The investor of today does not profit from yesterday’s growth.” — Warren Buffett

(Photo above: Reggie Bush playing NCAA football at USC)