August 15, 2011

The Wealth Gap Continues

A few weeks ago researchers at Pew Research Center released a study on the wealth disparity among racial groups in the U.S. Here are the highlights from the study:

  • The median wealth of white households is 20 times that of black households and 18 times that of Hispanic households.
  • The net worth of Hispanic households decreased from $18,359 in 2005 to $6,325 in 2009. The percentage drop—66%—was the largest among all groups.
  • The net worth of black households fell from $12,124 in 2005 to $5,677 in 2009, a decline of 53%.
  • The drop in the wealth of white households was modest in comparison, falling 16% from $134,992 in 2005 to $113,149 in 2009.

While these statistics are nothing new, they should be of concern to all of us. There is a large portion of our population whose wealth is not substantial enough to participate fully in all our country has to offer. But instead of lamenting the political structure or the legacy of American racism and their role in “the gap”, starting tomorrow I want to take the next few posts to look at things we can control using the Pew study as a guide. For example, I want to examine the differences in the approach to wealth accumulation among ethnic/racial groups. What works, what doesn't. Stay tuned.


Stop Coddling the Super-Rich by Warren E. Buffett; New York Times

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks.


Supercharging Android: Google to Acquire Motorola Mobility by Larry Page, Google CEO; The Official Google Blog


Wealth Gaps Rise to Record Highs Between Whites, Blacks, Hispanics by Rakesh Kochhar, Richard Fry and Paul Taylor; Pew Research Center

"Back-to-School Special: 5 Tips on Picking a Good School" by Andrew J. Rotherham; Time

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August 10, 2011

Percentages, Not Points

Don’t be duped. Monday, after Standard and Poors downgraded the nation’s debt, for what seems to be highly political reasons instead of financial ones, the Dow Jones Industrial Average declined 634 points. The headlines the next morning in the Wall Street Journal read, “Downgrade Ignites Global Selloff”. Of course, there were similar headlines around the news-scape.

Now if you read these headlines with little to no context, you might be ready to cash in your 401k and bury your money in the back yard. You’d reason, “634 points?!?! The sky must be falling. Better get liquid!” In fact, I know some of your financial advisors have even advised you to move your long-term money to cash. Excuse me but this is really awful advice, especially for your long-term funds.

Context is what is needed. Although a 600+ point drop is significant, it hardly matters. The drop on Monday represented a 5.5% decline. That is not even close to making the top 20 percentage drops in the DJIA’s history. But the headlines would have you believe otherwise. It's percentages that matter, not points. The market, as a rule, goes up and down… daily. From 1926 to 2002, the S&P 500 was up 52% of the trading days and down 46%. There was little change the other 2% of the trading days. Like I said, up and down. Deal with it.

Your asset allocation decisions are important when it comes to managing the volatility in your portfolio. I won’t get into that much in this post except to say, your long-term money should typically be in stocks. Your short-term money should typically be in bonds and cash (treasuries). If you have that squared away, volatile days like these last few are buying opportunities and a chance to make money. Not sell out of misguided fear and lock in unnecessary loses.


"20 Largest Percentage Losses in DJIA History" by

"The Revenge of the Rating Agencies" by Jeffrey Mann; New York Times


One year chart of eBay (EBAY) vs. the iShares S&P 500 ETF (IVV)

"Stocks at 'fire sale' prices after bloodbath" by Hibah Yousuf; CNN Money


CrossFit Sports Series WOD-SUP Queens by CrossFit, Inc

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July 20, 2009

Why I Don't Trade (Often)

This past January, about the time of Obama's inauguration, Warren Buffett gave an interview to PBS corresspondent, Susie Gharib. In the interview Buffett was asked to give his greatest and most important business lesson. He responded:

The most important investment lesson is to look at a stock as a piece of business not just some thing that jiggles up and down or that people recommend or people talk about earnings being up next quarter, something like that, but to look at it as a business and evaluate it as a business. If you don't know enough to evaluate it as a business you don't know enough to buy it. And if you do know enough to evaluate it as a business and its selling cheap, you buy.

When thinking of stocks as more than just pieces of paper, but actual representations of underlying businesses, the investor is led to a more sensible approach. If as an investor you were considering buying a business that you would own, operate and would provide the majority of your income, it is likely you would not contemplate selling that business within seconds of purchasing it. Just as you would not think of buying a home in the morning and selling it in the evening, if your intent was to live in it.

A great example is Google (GOOG). Google is the dominant player in the search engine world commanding more than 64% of internet searches and is rapidly becoming a threat to longtime tech behemoth, Microsoft (MSFT). Google also produces and obnoxious amount of free cash flow and seems to grow that cash at will (see chart).

Google's Free Cash Flow

With market dominating performance and consistent operating results, it is safe to assume Google's business value is stable and steadily growing. But if you were to look at the stock price, you'd never know it. In the past 52 weeks, Google's shares have gone from a high of $510 to a low of $247 and now sit at around $430. Do these wild fluctuations make any sense given Google's performance? Nope. But for those of us who are more concerned with the underlying business, we can just sit still and only move when to buy when the market greatly undervalues our business and sell when they overvalue them. This is why I don't trade very often and prefer the "lazy" approach to investing.

Disclosure: I and the clients of Brick Financial Management, LLC owned shares of Google at the time of this writing but positions may change at any time.

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May 05, 2008

Yahoo Playing Hard to Get


Over the weekend, talks between Yahoo (YHOO) and Microsoft (MSFT) deteriorated. Microsoft has apparently taken its offer of $33 per share off the table. The market reacted today by sending shares of Yahoo shares down by 14%. The stock was down much more earlier in the day. Seems there is still some hope that a deal will still get done.

Word is the deal collapsed because Yahoo is asking for $37 per share, and Jerry Yang and David Filo are personally saying they want at least $38 per share for the company. Most agree that the $33 Microsoft was offering is a substantial premium to Yahoo's real intrinsic value. Jerry Yang and David File

The market seems to want these two companies to get together. But could this be much ado about nothing? I mean is the combined company really going to be able to compete with Google any better than each has on its own? Google's market share for Web search in the U.S. rose in February to 58.7 percent, up from January and the same period a year ago, while Yahoo's, at 17.6 percent, was down compared with the same periods. Microsoft's MSN was 11.2 percent. Together, Yahoo and Microsoft only have half of Google's share in the space.

Google's present position as the market leader has only gotten more solidified over the years. Just over two years ago (August '05), Google only had a share of 37%, while Yahoo and Microsoft together had 45% of the market. Google is in a prime position no matter the outcome of the Yahoo/Microsoft merger. When "Google" ceases in being a verb, then its time to worry.

Click Here for larger image

Disclosure: I and the clients of Brick Financial Management, LLC owned shares of Google at the time of this writing.

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April 17, 2008

Google Comes Through In The Clutch

GoogleGoogle (GOOG) surprised the street today as first-quarter 2008 profit grew year over year and its revenue growth topped 42%. The “newsworthy” numbers break down like this:

  • For the quarter, net income grew to $1.31 billion from $1 billion one year ago
  • Earnings per share grew to $4.84, representing a growth rate of 52%
  • Google earnings beat wall street expectations by $0.32 per share

Google CEO credits the adjustments and innovation in the company’s search, ads and applications with the company’s healthy growth globally. This performance alleviated some of the economic worries battering its stock this year. Even with the after-hours surge in the stock price of 17% (up to $526) or so, the shares are still down 24% (from $691.5) year to date.
Of course, the above mentioned figures are fine.

But what interests me more is if Google is translating its earnings growth in into real spendable cash. According to its press release Google sports cash on its balance sheet north of $12 billion dollars. A lot of coin but down from last quarter’s $14 billion. Interesting. Not quite Berkshire Hathaway cash levels but Google’s success may put the company in a position where finding adequate investments for its money become harder to find.

A further perusal of the press release shows Google’s free cash flow for the quarter at $938 million. This represents 51% growth year over in cash flow. Free cash flow for the trailing 12 months topped $3.8 billion. Now that’s a tasty figure. With no real debt to speak of Google looks primed for more growth. Those of us who were patient enough to wait for Google share price to slip, as it has for most of 2008, should be in a fine position to enjoy Google upturn. That is if they can continue to execute.

On the conference call Google assured investors that its business wasn't hampered by the economic slowdown and Schmidt, the company’s CEO remained confident they are “well-positioned for 2008 and beyond”. I think this is a fair statement given that Google receives a cool 51% of its revenues from outside the U.S. One of the advantages of a global business in a global economy.

Disclosure: I and the clients of Brick Financial Management, LLC owned shares of Google at the time of this writing.

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April 03, 2008

Traders Bet on Google to Buy Expedia

ExpediaTraders sent shares of Expedia (EXPE) up by about 15% over the last couple of days amid rumors that Google (GOOG) would be interested in purchasing the internet travel company. Certainly Google has the muscle to do it. But the company has not been agressive in acquiring e-commerce companies. Thus an acquisition of the travel company would represent a, albeit slight, departure from Google's current expansion modus operandi.

I find it interesting however that the companies did not outright deny they were in talks. A WSJ article (subscription needed) confirms the companies' reluctance to address the issue. Their respective silence seems slightly conspicuous to me. Definitely something to keep an eye on.

Disclosure: I and the clients of Brick Financial Management, LLC owned shares of Google at the time of this writing and do not currently but have owned shares of Expedia.

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May 09, 2006

Quick! Google or Ebay?

I had a thought. If I had a (figurative) gun to my head and needed to answer this question...

Whose business moat is larger and more treacherous to cross? Google's paid search and Ebay's online auctions?

...what would my answer be?

I won't tell you what my answer would be (hint: I and my clients own shares of Ebay) but, I think the knee-jerk answer is probably the correct answer in this case.

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About Brick Financial Management, LLC

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Brick Financial Management, LLC is a Registered Investment Advisor specializing in providing investment management services to individuals, families, organizations and institutions. We implement highly focused stock, bond, and balanced portfolios using an investment approach commonly referred to as value investing. Disclosure


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