Smart Investing / 7 posts found

What happens when management fails?

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The Art of Management

Capital efficiency

In principle at least, the main function of management is the efficient use of capital in everyday decision making. Managers have to satisfy three main beneficiaries of the company, namely the employees, bondholders, and the investors. Company employees benefit by earning a salary, while bondholders gain by receiving interest on their held bonds. However, both these beneficiaries are more concerned with short term gains, whereas investors, who are the residual owners of the company, are more concerned with long term gains. Investors receive benefit from the company by either receiving a cash dividend, and/or capital gains on the price of the stock.

What is Value Investing?

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The idea of value investing is credited to Benjamin Graham in his 1934 book “Security Analysis.” In the book Graham spoke of two essential qualities: The degree of safety of principal, and a satisfactory rate of return. In his margin of safety principle, which Warren Buffett later adopted, Graham noted that there should be a sufficient difference between the price of a stock and the intrinsic value of a company. A buying opportunity would be when the price is at least lower by two-thirds of the intrinsic value of the company to provide a sufficient safety cushion. The intrinsic value is obtained by multiplying the estimated earnings of a company by an appropriate capitalization factor then adding the net real assets of the company.

Size Doesn’t Always Matter

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Here’s an investment question to consider: Two years ago, would you have invested in company “A” which had zero debt, an income that increased by 61 percent, and which had just become the world’s largest firm with a market cap of $600 billion? Or would you have invested in company “B” which had 16 percent debt, and whose income had decreased by 27 percent?

Investing Fast and Slow in Inequality

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What we can learn from Africa.

If you suspect life is unfair, Oxfam just gave you the numbers to back it up. In a recently published report, the anti-poverty charity presented a staggering statistic: the world’s 85 richest individuals now own around $1.7 trillion, which is as much as the poorest half of the world’s population of 7 billion. In fact, the 1 percent richest people in the world own $110 trillion, which is 60 times the wealth of the poorest 3.5 billion people.

The Ten Financial Equations You Need to Know

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Today we are frequently faced with the need to make financial decisions whether in investments, business, or debt management. So it remains perplexing why our schools don’t teach financial formulas in the same way they engrave Pythagoras Theorem in young minds. This explains in a large part why the average investor loses in the stock market, and is faced with risks in the mismanagement of business and debt. Simply put, financial illiteracy can cost us more money if we maintain a “trial by fire” approach. As savvy investors, you should at least know the ten basic financial equations for investment, business, and debt in order to take better care of your financial future.

Your Secret to Value a Business

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Money is to be made during recessions, not in economic booms. Period. Warren Buffett, the legendary investor, made some of his best gains from buying during recessions. For instance, he bought Allstate insurance company in March, 2000, at a time when the insurance industry was going through a recession, which brought him hefty returns in the years to follow. The secret remains is how to properly value a business. This requires both investor and business acumen in evaluating, and valuating a business; an art in itself.

Are You an Entrepreneur or a Business Owner?

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Are You an Entrepreneur or a Business Owner?

A main differentiator between an entrepreneur and a business owner is their cash survival rates. One group can survive the so-called “Valley of Death” better than the other group. But what is the “Valley of Death”?