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Featured Monthly Story:
Short-Sightedness and Investing with Emotion
By Jonathan Keese, Sr., Host
Not long ago, a few years back I had a partner that struggled with Business Short-Sightedness. Today, many of my friends, families and colleagues struggle with this problem as well. Within a few years, the same might be said about you.
Recently I was reading an article by David Clark that was left on the library table that read, Warren Buffett discovered early on in his career that 95% of the participants in the business community, those that are purchasing stock, trading stock, starting a business or closing a business, from internet day traders to mutual fund managers who manage billions, are only interested in making a quick buck. Yes, some pay lip service to the importance of long-term investing, but in truth they are stuck on making fast money.
One of the things that Warren found out through his experience is that no matter how intelligent a person is the nature of the beast controls the investor’s actions. For example take mutual fund managers. If you talk to any of them, they will tell you that they are under great pressure to produce the highest yearly results possible. This is because mutual funds are marketed to the lay public who are only interested in investing in funds that earn top performance ratings in any given year. Imagine a mutual fund manager telling his or her marketing team that their fund ranks in the bottom 10% for performance out of all the mutual funds in America. Do you think the marketing team would jump up and down with joy and go out and drop a couple of million on advertising to let the world know that their fund ranked in the bottom 10%? No! More than likely our underperforming fund manager would lose his or her job and some promising young hot shot would take over the fund’s investment allocations.
After I read the article, I began to think about the reasoning behind the response of people. I discovered that investors who get caught up playing a short-term game have very human reactions whenever they hear bad news about a company in which they own shares – they normally sell them. To make the big bucks in the short-term game, the investor has to be one of the first to get in on the stock before it moves up, and one of first to get out before the stock moves down. Having access to the most up-to-date information available is of utmost importance. A recent bad earnings report moves that stock downward. It doesn’t matter whether earnings will improve in a year or two. All that anybody is interested in is what is going to happen today! If things look great this week, people will buy the stock, and if they look bad next week, they will sell it. This is why mutual funds and network marketing are notorious for having such high rates of investment turnover. Everyone gets in and out of a lot of different things throughout their lives in hopes of beating the other guys in the competition for the all important title of Top Fund of the Year or as I like to say Top Investor in the inner circle.
PROTECT ASSETS FROM CREDITORS OR OTHER CLAIMANTS
By TBSHL Columnist
Anyone concerned about a creditor, ex-spouse, former business partner or anyone else laying claim to his or her assets can find some protection in a trust. Once your assets are transferred to a trust they are no longer in your name, making it difficult for anyone to get at them.
While most irrevocable trusts give you this protection, more and more people are setting up asset protection trusts specifically for this reason, the columnist says.
"This is becoming a regular kind of tool for executives since the Sarbanes-Oxley Act was passed," he says. The act, which went into effect in 2002 in response to corporate accounting scandals, raised standards for accountability of company boards and management
Focusing on Sales
By Jonathan Keese Sr., Host
One of the most quoted sayings in business that I have heard is, “Nothing happens until you sell it.” Another famous quote that will be mentioned is, “There’s no such thing as a free lunch,” is that true or false? You shall be the judge! Well, there’s no doubt that a business has to make sales that generate enough sales revenue to overcome its expenses and leave residuals of profit. As I’m sure we all know, this is a tall task for weak leg or minded individuals.
The effect that making a sale has on a business’s financial condition depends on when cash is collected from the sale. Regarding cash collection, sales come in three flavors:
Cash Sales: Cash is collected when the business makes the sale delivers the product and/or service to the customer.
Credit Sales: Cash isn’t collected until sometime after the sale is made; the customer is given a period of time before it has to pay the business.
Advance payment sales: The customer pays the business before the sale is consummated, that is, before the business delivers the product and/or service to the customer.
In short, cash may be collected at the time of the sale, after this time, or before this time. No doubt you’re familiar with cash and credit sales. However, you may be a little rusty, from an accounting point of view, on advance payment sales. For this type of sale, at the time when receiving an advance payment, the business does not record a sale; instead, it records a liability that stays on the books until the product or service is actually delivered to the customer. This specific liability is one of the business’s operating liabilities.
For example, a partner of mine recently sent a $250.00 check to The New York Times as advance payment for delivery of the paper every day for the upcoming 12 months. Similarly, if I were a rabid Denver Broncos football fan, I would buy season tickets, which require me to pay before the season starts. Do you give gift certificates to others as birthday or holiday presents? A gift certificate is another example of an advance payment sale. The liability of the advance payment sale is extinguished as papers are delivered, games are played, and gift certificates are redeemed.
You be the Judge what do you think?
Financial Dodge ball
Everyone that I know is aware of this childhood game, and in case it has slipped your mind, let me refresh your memory. This is one of the games, where someone flings a large ball at a group of kids who scramble wildly as they try to dodge the ball; the last one standing that has not been hit is the winner. I can remember so clearly as we would run to gym class in elementary school eager to launch rubber rocks at one another.
My fifth grade teacher would roll the ball into the middle of the floor and shout, Go get it! All of my classmates would scatter away from the ball, except for Ernest who was the biggest kid and I the skinniest kid of the bunch would saunter to the center of the floor, fighting to pick up the ball first. I knew that once Ernest got his hands on the ball my life was in his hands.
Our gym teacher who would always state before every game of elimination dodge ball, “In order to live your life to the fullest you must first run headfirst at your fear of being hit by a bigger player.” I took it to heart since I was the fastest and most scared of being hit by one of Ernest rubber rockets. Six out of ten times I could beat Ernest to the ball however if I didn't’t get to the ball first I would find myself huddled together and hiding behind my classmates, terrified of being hit by Ernest bullet like throws. At that point in time none of us were trying to win, we were just trying to survive.
At times I have had the opportunity to observe people playing the financial dodge ball version of the same game. Most individuals that you meet would agree in principle that they are just trying to survive in this ever changing world. We can all agree that we have to change the way we view things financially but if we start dodging or avoiding our fears how can we pinpoint the specifics of our situation. Can we change? We as a society must change, can God change me? Yes he most certainly can absolutely yes! We often will say or do nothing about our financial position but in reality we (What are you currently doing?) are dodging the process to get financial experience. The people who I have met during my lifetime are willing to buy into change in general terms, but inside their minds they squirm, twist and dodge. When God uses people or circumstance to point out the specific areas they are lacking in which includes financial experience. We as people are simply dodging from wisdom because that is what life’s experience gives to us.