What stock analysis techniques can help us navigate a world turned upside down by Worldcom, Enron, and Lucent? With each of these ill-fated companies, red flags arose in their balance sheets and cash flow statements well before they appeared in their SSGs.
Over the next several weeks, Seger-Elvekrog, a respected money management firm that authors the NAIC Investor Advisory Service, will pen a series of articles about balance sheet and cash flow analysis. Many of you will remember the "Repair Shop" column in the May 2002 issue of NAIC's Better Investing BITS newsletter, in which Ralph Seger, an NAIC trustee and a founding principal of Seger-Elvekrog, revealed red flags in Washington Mutual's balance sheet using the advanced features of NAIC-approved software Stock Analyst PLUS!
The upcoming series takes a comprehensive look at the balance sheet from top to bottom, starting with basic concepts and culminating with a post-mortem analysis of Worldcom using Stock Analyst PLUS!
This promises to be a stimulating series on a timely theme, and will be subsequently archived at www.iclub.com as a reference for NAIC members.
More information about the author and Seger-Elvekrog is available at www.seger-elvekrog.com
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Users of NAIC Club Accounting 1.04 - get current with tax law by upgrading to NAIC Club Accounting for
Windows version 2. To purchase, see www.iclub.com/nca/buy or call NAIC
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Club Therapist: Smells Like Club Spirit
Do you know of any place
we can get shirts, cups, pens, etc., made with our club's logo? The
problem I am running into is every place I contact will not make any items in a
small quantity -- we only have 15 members.
Ah, there’s nothing like
customized merchandise to generate a little club spirit! Imagine the envious
looks your club members will receive when they strut their stuff in matching
t-shirts emblazoned with your club’s logo.
But as you’ve discovered,
many companies won’t custom print items like these except in quantity, leaving
groups like yours out in the cold. Fortunately, the Internet has made it easier
for companies to print small quantities of customized merchandise. CafePress.com and iPrint.com
companies that print customized products, including t-shirts, mouse pads,
backpacks, coffee mugs, and other items with any logo or artwork that you
desire. You can order one or a dozen items – many fewer than you’d be forced
to buy if you used a traditional printing firm.
You’ll need to come up
with a snazzy logo on your own, of course. But perhaps one member of your club
has some artistic skills and can create a unique design to be used on your
selected items. There are many uses for these customized items. Besides
instilling a sense of club pride, you can use products for member prizes, or as
gifts for speakers who visit your club.
If you do choose to buy
shirts or mugs for your members, remember that the IRS won’t consider these a
deductible investment expense.
Doug Gerlach, author of several popular investing books and websites, serves in his spare time as Secretary of NAIC's Computer Group Advisory
Board. To ask Doug an investing question yourself, just write to email@example.com!
Okay, I know it's only August and we still have
plenty of 2002 left - but this year has taught investment clubs a lot. With the
market having such excellent years up to 2000, many investment clubs forgot the
basics. The past few years have reminded us that investing is not always easy.
Below are some of the lessons I learned over the past few years, and some that
all investment clubs should keep in mind as you plan for a fresh 2003.
Sometimes clubs need to be happy with returns of 7 – 10%.
Most clubs would love
those returns this year. Yes, we want to double our investment every 5 years
- but 14.9% (dividends reinvested) every year is unlikely.
Remember to diversify. Clubs that were heavily invested in technology in
2000 and 2001 got killed. Taking a bath on the Cisco's and Yahoo's of the
world only truly hurt those clubs that held a majority of those types of
stocks in their portfolio. When balanced out with long-term earnings
performers like Wal-Mart, the club's portfolio can sustain hard-hit stocks.
Buy stocks that have earnings. Many clubs
just had to have those tech stocks, regardless of valuation or earnings
projections. Those stocks with solid, long-term earnings held up well (or at
least better) through this bear market.
Don’t listen to analysts. Do your own research.
can be interesting but do not base your purchase on it. Remember, analysts
fall into 2 categories, those that are right and those that are wrong. I
like my odds better than 50%. Using the stock study tools the NAIC has to
offer works far better.
Don’t look at the market everyday. Investment clubs should look
at the long term. Analyzing every bump in the road may give you a heart
attack, especially this year.
Invest internationally - or at least invest
in companies that have a global presence. Some international markets and
economies have held up well this year.
Don’t predict bottoms. For that matter, don’t predict anything.
Predicting leads to speculation, speculation leads to gambling. If you start
predicting the behavior of stocks, go out and take a nice walk – or maybe
a hot shower. When an investment club purchases a stock the time horizon
should be at least 5 years - or longer.
Be wary of stocks under $5 per share. Penny
stocks can be very risky and your club may not want that risk. Mutual funds
tend not buy stocks under $20 per share. When a stock has
little institutional involvement, it may fluctuate wildly based on the
movements of day traders. Scary?
Don’t forget about dividends. Nobody cared about dividends in
1999. Who needed them with 100% returns? 2000 - 2002 were different. Your club may
want to look at dividend producing stocks, such as those in the Dow, for
If you ask yourself, "How low can it go?", it probably can go
lower. There is no need to mention the number of high-fliers that are now
below $1. If a stock is moving lower, analyze the fundamentals. Has
something changed? If it has to the downside, it's probably time to sell.
If any of these resolutions make sense to you
or your club, consider creating an easy-to-follow operations plan, if you don't
already have one. This is especially helpful for newer members and gives some
clubs much needed direction.
by Joe Pulizzi, investment club freelance writer