The Investor s Guide To Exceptionally Safe Investing

Transcription

1 The Investor s Guide To Exceptionally Safe Investing Ray@PrepareToRetire.com 3970 Post Road Warwick, RI (401)

2 You don t have to be Einstein to understand safe investing!

3 Some things don t seem to matter much, right now, but when those things do matter, nothing else will. Anonymous The time to be most optimistic is at the point of maximum pessimism. John Templeton There is nothing so corrosive to good judgment as watching your neighbor become rich. Charles Kindleberger Financial statements are like fine perfume, to be sniffed not swallowed. Abraham Briloff Patience is not an absence of action; rather it is "timing" it waits on the right time to act, for the right principles... Archbishop Fulton J. Sheen If you can t measure it, you can t control it. W. Edwards Deming We measure risk. Select investments with the same diligence as selecting a wife; pick ones you can live with for a long time. Raymond Mullaney

4 because we don t know the future No system to protect capital is perfect. However, why have no plan to avoid losses from a crash? It is dangerous and short-sighted to invest without making plans to exit the market as risks grow.

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6 The Supply and Demand of Publicly Traded Stocks The Supply There are about 12,000 publicly traded in the US. However, few companies have very strong financials and meet a prudent standard for their price to value ratio. To minimize the possibility of losses, prudent investors must be very careful to avoid overpaying for stocks. As you might guess, the strongest demand for stocks is for the biggest and most popular companies. Their prices rise exorbitantly, making them highly vulnerable to major price decline. The Total Supply vs The Supply of Quality Stocks 11,875 Total US companies 2,357 with a market cap of at least $500 million 1,669 and with net income of at least $25 million 852 and priced under 5 times net tangible equity 280 and with debt less than half of revenue 34 and with debt less than net tangible equity At most times, there s an enormous demand for high-quality stocks, but there s a very limited supply of highquality stocks. Investors are left with an unenviable choice: either invest in lower-quality stocks, or buy very overpriced quality stocks. The easier and surest way to avoid overpaying for stocks and the losses which invariably follow is to avoid buying most stocks until after there s been a significant market decline. The Demand You are just one of the eight major demand sources for stocks. There s a very lopsided supply and demand equation for stocks, which greatly limits good choices for investors. There s just too much demand and not enough safe high quality supply. 1) Retail Investors There are over 50 million investors, all looking for safe stocks. What do you know about identifying safe stocks that most of these other investors don t? 2) The Investment Salesmen There are over 629,000 FINRA registered financial salespeople, all of whom are searching for good stocks for themselves and their clients. 3) The Really Rich There are over 100,000 multi-millionaires and about 1,600 billionaires, all of them can buy 100% of most stocks that trade at a bargain price. 4) The Investment Sales Industry There are over 20,000 investment sales firms. To make money, they must find stocks to sell to their clients. 5) The 200 Largest Corporations in The World These companies grow primarily through acquisitions of smaller companies. They too need to find good stocks. 6) Mutual Funds & Insurance Companies These companies represent substantial competition for attractively priced stocks. 7) Private Equity Firms There are over 200 specialty private equity firms. These firms arguably employ the most talented analysts in the world; they have access to the highest people in government, business and academia. 8) Pensions & IRAs There s over $18 trillion in these accounts, all chasing good stocks. Stiff competition. With so many professionals with near-unlimited resources searching exhaustively for great stocks to buy, finding quality stocks at reasonable prices is nearly impossible until a crash occurs.

7 Most Favored Stocks Fall the Most Look at the companies below. At the point when they sold for their highest, they were each considered to be the best in class and fastest growing companies. People bought them because they were the best, etc. That was dumb. If all you have is a rear view mirror to guide your forward motion, you should stop immediately. Since no one has a view of the future, all investing is highly speculative. However, at some times, investing is far more speculative than at other times. And investing in some companies is far more speculative than other companies. The companies all fell for the same reason, they were overpriced. If you do not have a highly reliable method of determining when a company is overpriced eventually you ll own one or more of them and you may lose your shirt. The most reasonable approach to investing is to avoid any investment, no matter how exciting, when it is overpriced. And buy stocks only when they are underpriced, when they are bargain priced. This takes a small amount of expertise and a huge amount of patience and discipline. Following crowds is in our DNA. It takes a tough man to fight and win over his DNA. Stock Date of Highest Price High Price Low Price Date of Lowest Price % Loss AIG Nov-00 $1, $5.87 Jun % Apple Dec-12 $ $ Jun-13-44% AT&T Jul-99 $58.00 $20.06 Sep-02-65% Blackberry Jul-07 $ $5.88 Dec-13-97% Campbell s Soup Nov-98 $59.15 $19.79 Jan-03-67% Cisco Mar-00 $77.31 $15.81 Sep-02-80% Citicorp Dec-06 $ $10.20 Feb-09-98% Corning Sep-00 $ $1.33 Oct-02-99% Eastman Kodak Oct-87 $ $0.03 Jan % Ford Apr-99 $40.78 $1.58 Jan-09-96% General Electric Aug-00 $60.25 $6.66 Feb-09-89% General Motors Apr-00 $93.63 $0.00 Jun % Hewlett-Packard Jun-00 $67.44 $11.16 Sep-02-83% Home Depot Dec-99 $68.75 $20.53 Jan-03-70% Intel Aug-00 $74.88 $12.74 Feb-09-83% Int l Paper Jan-00 $58.62 $4.09 Apr-09-93% Microsoft Dec-99 $59.56 $15.15 Feb-09-75% Oracle Aug-00 $46.31 $7.32 May-02-84% Pfizer Jun-00 $48.94 $11.87 Feb-09-76% Pitney Bowes Jul-99 $70.63 $10.41 Dec-12-85% Time Warner Dec-99 $ $14.59 Feb-09-92% US Steel Jun-08 $ $17.10 Jun-13-91% Wal-Mart Dec-99 $69.75 $43.63 Sep-07-37% Xerox Jan-99 $62.00 $4.34 Mar-09-93% Yahoo! Dec-99 $ $4.54 Sep-01-96%

8 Financing America s Growth with Debt Since the crash of 2008, Americans have borrowed an increasingly large amount of money to pay for their lifestyles. While the nation s GDP has grown by over $2.3 trillion in the past five years, that growth came at a steep price: consumer debt grew by over $4.5 trillion. Furthermore, the price of our spending has been increasing. Each dollar increase in the GDP during 2012 and 2013 cost Americans over two dollars in debt.

9 What No Financial Advisors Provide: It is difficult to get a man to understand something, when his salary depends on his not understanding it. Upton Sinclair I An objective analysis of the risks and weaknesses of the products & services they sell. II An objective analysis of the safety, costs, reliability, quality of service and potential for greater profits from their competitors. III Alternative methods which reduce commissions and fees. Advisors, vendors and other middlemen live on commissions; they can t voluntarily reduce their income. IV Fundamentally different solutions than the solutions they sell. Retirement plans may invest in stocks, bonds, mutual funds, annuities, CDs and even life insurance. Stock brokers don t recommend bonds, and annuity salesmen don t recommend CDs. Each is driven to sell the products with the highest commissions, therefore they cannot provide unbiased advice. To obtain unbiased advice, tailored to your needs, you need an advisor who sells no products and presents judicious and prudent solutions without bias or conflicts of interest.

10 The Dirty Dozen: Exceptional Investment Questions 1) How do you know the signs that the market may crash? 2) Will you sell your stocks before or after the market crashes? 3) How much money will you lose when a crash occurs? 4) When the market crashes, will it recover quickly or stagnate for years, or even decades? 5) Which is more important, gambling or protecting your savings? 6) What system do you use to evaluate the risks of your stocks? 7) The safest loans have a lien against solid collateral worth more than the loan. Do your stocks have collateral or equity which is greater than their share price? 8) Don t kid yourself; average companies have lousy financials and lousy prospects. How many lousy companies do you own? 9) Big companies often use their earnings to make lousy acquisitions, adding very little to shareholder equity, even decades later. Are your companies making lousy acquisitions? Do your companies have untrustworthy, incompetent or just lousy management? How do you know? 10) When a company reports billions in income year after year, but doesn t pay dividends, buy back shares, or record an increase in shareholders tangible equity in the amount of their earnings, where do those earnings go? Do you own such companies? 11) What will happen to the quality of your life if your investments fall 40% and fail to recover for a decade or more? 12) Does your investment contract specifically state the methods used to protect your savings from great losses? Why not?

11 Our Six Commitments to You 1. We ll help preserve your wealth by identifying and reducing significant unrecognized risks. 2. We ll help you obtain objective, state-of-the-art systems for measuring, assessing, reporting and planning the most important aspects of your business and personal financial life. 3. Our office can t directly provide all the services you need. So we aggressively, continuously and rigorously seek out high-value, competitively-priced services and products for your specific needs. When you need a product or service, you ll call us; no need to ask your employees. We ll introduce you to outstanding men and women in marketing, sales, accounting, law, technology, insurance, investing, estate planning and personal services to enhance your family s quality of life. 4. We re very cost-conscious; all our services and the services we recommend will save you money or add more value and security than they ll cost. 5. When needed, we ll help you resolve conflicts that threaten to damage your family or business. 6. We ll improve your quality of life, your peace of mind and your family s health and security.