Month: April 2013 (Page 6)

I repeatedly try to encourage my readers to cut back on spending to enable a higher level of savings. It is best if you automatically deduct 10% of your income from your paycheck and immediately divert it to another account in a separate institution. This means that you effectively take a 10% income hit.

In order to afford that income hit, you may need to reduce your spending. I came across this article on Mainstreet.com on the 12 things to stop paying for in 2012 but I think it is timeless. You shouldn’t pay for this stuff in ANY year.

1. Coffee Shop Visits
2. Incandescent Light Bulbs
3. Disposable Water Bottles
4. Baggage Fees
5. Subscriptions You Don’t Use
6. Baby Food
7. Credit Score Fees
8. Cable
9. Landline Phones
10. Cleaning Supplies
11. ATM Fees
12. Home Repairs You Can Do Yourself

You may find that this list includes things that are more frugal than you desire. This is false bravado. If you are not investing 10% of your after-tax income as I suggest in my book, The Confident Investor, then you are making a mistake. Do not be wasteful AND a poor investor!

It is common for stock investors to be compared to gamblers. This comparison is even more common when discussing stock traders or those that move in and out of their holdings more frequently. While I am sure there are some stock traders that are gamblers, some long-term investors would more readily match the image of a gambler, much to the long-term investor’s chagrin.

Before I defend the previous paragraph, I think it is necessary to provide assistance to those in need of help. If you believe that your stock trading activity has begun to affect your life in an unhealthy manner, please seek help. Gambler’s Anonymous is a great organization that can help those that have become addicted to gambling. Gamblers Anonymous is a fellowship of men and women who share their experience, strength and hope with each other that they may solve their common problem and help others to recover from a gambling problem.

One of the habits of an addicted gambler is to push hard on a losing position. You have seen this in movies for decades even if you haven’t seen it in person. The gambler is losing badly and continues to play the same game in the same manner. Typically, the gambler loses it all.

I hate to say this, but this behavior is often what I see in the most cautious of investors. The investor that thinks that loyalty to a stock somehow is the honorable thing. That loyalty extends to even when the stock price drops 10-50%. That loyalty often is accompanied with logic that says that if the asset is held long enough, the loss will turn into a gain.

I am sorry, but I believe this is reckless behavior. You should have no loyalty to any individual stock. You only need commitment to your family that is counting on you. They want you to develop a reasonable return on your investment to provide for the future acquisition of the nicer things in life. I guarantee that the CEO of the company will not be personally offended if you sell the stock of his company!

I publish my favorite stocks on my Watch List. These stocks have gone through a filter that the majority of stocks cannot survive. These few stocks are not blessed forever – I regularly revisit my analysis of each company and cut them from the list when they have failed to meet my criteria. I also sell all my holdings as soon as I can in each company that has failed my tests. I explain my criteria in my book, The Confident Investor.

Even the companies on my list don’t get a free pass. I monitor each one for upward momentum. I invest heavily in the ones that are increasing in value. I pull out of those that experiencing a short-term bull market. I explain this strategy in my book, The Confident Investor, and I call it Grow on Other People’s Money (GOPM for short).

You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in e-book formats for Nook, Kindle, and iPad.

As a stockholder (or partial owner) of a company, it is your responsibility to give the managers of the company advice on how to run the company. Since there will be hundreds of thousands of “partial owners” of a company, the company will set up a board of directors to represent your interest. These directors are usually elected by you and your fellow owners. You have one vote for each share that you own.

A shareholder will typically be asked to vote on board members and other issues that the board feels needs the input of the owners. Typically, these issues include the selling or buying of divisions of the company, compensation questions for key managers and board members, and company dividends. It is your responsibility as a company owner to vote when you are sent these requests.

There are some companies that have different types (or classes) of stock. For example, it is common to have voting stock and non-voting stock. If you have non-voting stock, you will not have the right to vote on issues nor will you be asked for your opinion on the board members. In general, you should avoid these types of companies since they almost always have interests that make them non-responsive to the best interest of the majority of their stockholders.

A company’s board of directors provides the company with direction and advice. It is the responsibility of the board of directors to ensure that the company fulfills its mission statement. The board of directors frequently sets the company’s overall policy objectives. A well-functioning board of directors acts as a top-level adviser to the company. A good board of directors will let the company know when it is drifting away from its goals and objectives. For these reasons, a good board of directors includes knowledgeable and experienced business people.

Typically, only one member of the board of directors is involved with the day-to-day activities of the company. This person is the Chief Executive Officer (CEO), and he or she acts as a liaison between the board of directors and the rest of the company. The CEO is responsible to the board of directors for the daily status of the company, and for the implementation of the vision and policy objectives of the board of directors. It is also the responsibility of the CEO to hire the other managers in the company. These managers, in turn, are responsible for the various departments and related employees.

It is becoming common for the board of directors to be held fiscally responsible for the performance of the company. While it is still rare for directors to be sued for something the company has or has not done, it can happen. Directors who have allowed a company to drift into bankruptcy have also been sued by the shareholders for negligence.