The Third Pig

Hope everyone had a wonderful Labor Day weekend. The weather in the Northeast was great and considering how bad things could have been, Gustav thankfully spared most of New Orleans. As well as enjoying the weather I was able to watch the U.S. Open, take in the movie The Longshots (you know for the kid) followed up with a visit to the park and was able to catch up with old and new friends online (there’s this new thing called social media…).

In catching up with one of those friends, we got to talking about investing and personal finances. Big surprise right? She alerted me to a story of which I was unaware at the time. The story was simultaneously tragic and unbelievable. When I went to Google to read more about it, it then became all too familiar. What I found was yet another story of fraud and deception and the stealing of investor money.

As I read more of the details of this particular yet hardly unique story, the warnings signs seemed so clear to me. I thought to myself, “Some of these investors should have known better!” But alas, even so-called sophisticated investors can be had. No one is immune from making mistakes or getting taken by a sophisticated or savvy charlatan (like the one in the video).

All that said there are steps that can be taken to protect yourself from dishonest (or just plain bad) financial ‘professionals”. It is as important to know what makes a bad financial professional as it is a good one. In at least another two follow up posts I will cover warning signs that should alert any investor their advisor may not be on the up and up.

Have you had a not so pleasant experience with a financial professional? Share it in the comments are of this post.

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Posted by Benjamin Taylor at 06:18 PM |
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An interesting documentary called “I.O.U.S.A.” premiered August 22^nd in a few cities around the country. According to the filmmakers, the country is on the brink of a financial meltdown. I.O.U.S.A. examines the national debt and its consequences for the United States and its citizens. The subject of America’s financial woes is a subject Warren Buffett, who is featured in the movie, has tackled in the past.

Although I have not seen the movie, I will definitely check it out. In the meantime the folks at The Peter G. Peterson Foundation offer some advice on how to handle your personal financial deficit:

1. Establish a personal budget


2. Create a financial plan that considers your long-term financial objectives, major milestones in your life and what you will need in retirement.


3. Act on that financial plan immediately.


4. If you must use credit, use it responsibly.


5. Pass on what you have learned to your children.

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Posted by Benjamin Taylor at 05:20 AM |
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I recently received an email from a college buddy and former football teammate regarding our alma mater’s upcoming fall classic with our school’s arch rival. Yes, I played college ball and have the knees to prove it. About fifty of my former teammates and some boosters of the program were on the email string. Basically, along with regular guy talk and crude remembrances of embarrassing moments long gone, there was the point of the email which was to organize hotel reservations and a tailgate party for the weekend of the upcoming game.

My buddy who initiated the email, the resourceful guy that he is booked 20 rooms at a local hotel to ensure any of us who wanted to go would have a cheap room to stay. Not to mention a place to crash after too much beer and bratwurst at the tailgate. But the email got me to thinking of other ways to have fun and profit by banding together with others.

1. Group Discounts

I just mentioned one form of group discount - savings on hotel and travel. But group discounts do not have to be reserved to destination weddings and weekend hotel reservations for the big game. Discounts can be had in almost any situation. Want a little nip and tuck? Get a couple of friends together and have your surgery on the same day with the same doctor. Want to save on insurance rates? Often groups such as employers, alumni associations and other clubs have worked out group discount rates with a particular insurance agency.  You might save anywhere from 5-20% as a result of a group rate discount.

2. Investment Clubs

Joining an investment club seems so ‘90s. The costs of investing in the stock market have dramatically fallen over the last decade and financial news and information seems like it’s everywhere. This blog is a good example. However, significant costs to investing still exist. Investment clubs help to spread those costs over several individuals. However, this is not the only benefit to joining or forming a club. Besides the money cost benefits, are the educational and social benefits of the club. You may find your club mates saving you from costly investment mistakes you may have made on your own.

3. Price Clubs

Discount price clubs, like Sam’s Club a division of Walmart (WMT), BJ’s Wholesale (BJ) and Costco (COST), offer a prime opportunity to save on purchases made repeatedly. The stores essentially allow you to pool your consumer dollar with a few million of your like minded “friends”. The result is googobs of savings. I have belonged to Costco for a number of years and recover my membership fee within the first few purchases of bottled water, chicken breasts and orange juice.

You can even take this a little further by starting a bulk-buying co-op with your friends and neighbors. Basically, you can share your or share someone else’s membership. Whenever one of you makes a trek to the club, you simply double, triple or quadruple buy your items and distribute them amongst your partners. Although doing it this way may cut down on your fun quotient, it will definitely up the savings quotient.

4. Carpools

I hate carpools. Not because they don’t save money but they can be a little inconvenient. That said, I have always opted to either drive myself or alternatively, have taken public transportation to work. But for many, carpooling makes sense. If you find yourself driving 15 or more miles to work everyday and you live within 2 to 5 miles of a coworker or two, you should consider sharing a ride.

According to the Department of Energy, as of today (August 25^th) a gallon of gas is $3.69 per gallon. A quick calculation says a person that works 15 miles from work and whose car gets $20 miles to the gallon will spend almost $1,400 per year simply traveling to and from work. Feel free to check my math. With budgets tight it seems to make sense to spread those costs to three others if you can. Besides saving money and the environment you will be cutting down on the frequency of your road rage, given you will now be sharing the driving duties.

5. Team Sports

Ok, ok. Ya got me. Some of these things do not necessarily seem all that fun. But they will save you time and money in most cases. So number 5 will be all about using the money you have saved and the time you have freed up to simply have some fun. Why not participate in a team sport? Try a bowling league or a softball team. And let us not forget one of the greatest team sports there is – roller derby! With team names like the Hissy Fits, how could it not be fun?

Disclosure: I and the clients of Brick Financial did not own shares of any of the companies mentioned in this article at the time of this writing.

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Posted by Benjamin Taylor at 05:18 PM |
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Target (TGT) reported earnings today and beat estimates by 5 cents per share. The second quarter (fiscal year 2009) earnings report show the company had made 82 cents per share which amounts to $634 million in profit for the quarter. This might have been better news had estimates not been lowered ahead of Target’s announcement. Given the turmoil in the economy, it is no wonder the company posted its fourth straight quarterly profit decline.

But long term investors in the company should take solace. Target is one of the best-managed and most profitable retailers in the world. It is competitive with Wal-Mart (WMT) on a price basis on most of the items both stores carry, but the typical Target customer earns over $20,000 more per year in income than does the Wal-Mart customer. Right now, in this tough economic environment, customers prefer Wal-Mart to Target based on the perception the latter store is more expensive. There is some buzz on Wall Street the company needs to let consumers know the retailer are just as “cheap” as the competition. However, based on findings regarding human behavior as it relates to consumerism, this would be one of the worst things Target could do. There is a peculiar human trait that wants to believe the more one spends, the more valuable the purchased item is, even if one only perceives he or she has spent more. People value items based on price instead of pricing items based on value. Thus Target has a competitive advantage over Wal-Mart in the minds of most consumers during better economic times.

To illustrate allow me to point to two studies which examine the role price plays in a person’s ultimate purchase satisfaction.  The first study was conducted by researchers at Stanford Business School and Cal Tech. In a blind taste test drinkers were given several glasses of wine priced from $5 to $90 per bottle. The results showed the drinkers preferred the most expensive wine. What the study participants were not told was the wine was exactly the same in each and every bottle.

The second study conducted by Dan Ariely, author of Predictably Irrational, measured people’s reaction to the prices of a pill they were given to mitigate their pain. The pain as it were was delivered via electric shocks administered by the conductors of the study. The result: although the pill was the same for all participants, 85% of the participants who were told their pill cost $2.50 felt less pain while only 61% of those who were told their pill was only 10 cents felt less pain. In the minds of the participant, the more expensive the pill, the more effective it was.

The “predictably irrational” behavior of people at it relates to their wallets has a couple of implications for Target. The company can use this information in two ways. The company could and should raise its prices above similar items found at Wal-Mart. In good economic times, all things being equal, consumers will prefer the perceived higher price alternative thus they will choose Target over Wal-Mart. Although in bad economic times, they may choose Wal-Mart. This actually has some merit as during the 5 year period ending April 2006, a period of economic expansion, Target’s stock clearly performed better than Wal-Mart’s (first chart). However, since then during an economic downturn, Wal-Mart has outperformed.

Since this is a counterintuitive approach it is not likely Target will go this route. Thus, if Target is going to continue be price competitive with Wal-Mart, it should market or continue to market itself as Targét (Tarjay) instead of just plain old Target. That way, it will continue to keep its higher earning customers and not lose them because they are not charging enough.

All that said Target remains a great buy at this level, $49.72 as of this writing. Simply based on its earnings potential, it is worth at least $60 per share. Additionally, since selling half its credit card receivables to JPMorganChase for nearly $4 billion in March of this year, it is likely to redirect that money to share repurchases that will serve to further increase the value of the stock. For the quarter, Target has spent $4.9 billion of the $10 billion it plans to spend on share repurchases. And it has a real estate portfolio (it owns the land its stores are on) with a book value of $25 billion and worth at least $30 billion. That represents 75% of its market cap.

Buying in at these levels (not a recommendation; see disclosure) seems like a no brainer.

Disclosure: I and the clients of Brick Financial owned shares of Target (TGT) at the time of this writing however did not own shares of Wal-Mart (WMT).

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Posted by Benjamin Taylor at 07:02 PM |
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If you are a movie lover like me, even a casual one, then there is a good chance you are a subscriber to Netflix. Netflix (NFLX) has been providing online movie rental subscription services for the last decade or so. It allows subscribers access to a library of movie, television, and other filmed entertainment titles on DVD and delivers them to your home. Cool right? The company serves over 8.4 million subscribers – I am one of them.

Over the past three days, Netflix flubbed. For some reason the usually reliable company had a technology problem that disrupted the delivery of its DVDs. Netflix was able to ship some discs on Tuesday and Wednesday but none on Thursday.

In what seems to be the company’s personality it was proactive in acknowledging a problem existed and subsequently offered a 15% credit to affected customers. Although the company could have been more forthcoming with the cause of the technology glitch, it swiftness in correcting the problem earns them some points. However, the credits could be costly to the company, estimated at as much as $3.6 million in revenue lost per day of delay.

Netflix’s shares are up about 17% year-to-date. Interestingly, the news of the week barely moved the stock’s needle. In fact the shares are up about 1% week-over-week. This is probably good news for the company as its customers seem to be an understanding crew, and the market seems to think these glitches won’t hurt Netflix’s bottom line.

I was expecting my Netflix yesterday but have not received it yet. I will give the company a break though. They seem to be on top of it.

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Posted by Benjamin Taylor at 08:30 AM |
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