Commentary (Page 434)

You should try to simplify your finances. You may have several bills to pay each month such as the mortgage/rent, electricity, water, gas, auto insurance, housing or renter insurance, credit card(s), and cell phone. The list goes on and it can be exhausting. Spending all of your time paying bills means that you have little time to worry about investing. You are tired of thinking about money and therefore do not spend time on the part of money that makes money for you – investing.

Too make matters worse, there can even be times when a bill is missed and the payment is late. This can be dangerous for something like the car insurance because one missed payment can mean the insurance will be cancelled.

1. Make electronic payments

Setting up electronic payments means you don’t have to do anything. Your payments will be taken from the bank accounts when they are due and they can never be late. This frees up the time writing checks and mailing these bills every month.

2. Sign up for electronic statements

Receiving paper statements via the mail means keeping track of extra paperwork that has little value. It is simpler to have electronic statements where everything is kept in a convenient place online. The billing company will be happier with this arrangement because they save on administrative costs by not sending out paper.

3. Use online bill pay

Online bill pay with the bank makes it possible to pay the bills online. This makes managing finances simple like in the previous example.

4. Keep a spending budget

Creating a budget helps when you don’t know where their money is going every month. Make a list of all the necessary bills you have to pay so you know you can pay those bills.

5. Cut back on your monthly spend

When creating a budget, you might notice that you have too many different types of bills to pay each month. By itemizing those bills in a budget, you can begin to put some logic into what you are actually buying.

6. Consolidate accounts

Some people have more than one savings account. If all of these savings accounts were under one bank then you can log into that one bank and see all of the accounts in one place. This will making managing money much easier.

7. Take advantage of level pay for utilities

When you set up level pay for your utilities, you know you will be billed around the same amount of money each month. For example, in the summer people tend to use their air conditioning more often. Level bill pay will help keep you from overspending during these months.

8. Give things away

By giving things away, the house is much less cluttered and there are fewer things to manage. You will be surprised that when you simplify parts of your life, other parts become more simplified.

9. Don’t buy or rent a mansion

When purchasing a new home or renting a new apartment, be sure that the dwelling is exactly what will be needed and nothing more or less. This will ensure that the payments will be easily manageable and that the maintenance isn’t overwhelming.

10. Make a list and follow it

Making a change from a disorganized state to a more organized one can take a little time. Before getting started on this project, make a list of your most important goals down to the least and finish each goal before moving on to the next. Setting a time when you would like to have the goal accomplished will ensure that the item gets done and can be crossed off of the list.

What are some of the ways that you have simplified your life? Let me know below in the comments or send me a tweet at @ConfidentInvest.

Image sourced from OpenClipart

Stock buybacks, in which companies take their own shares off the market by buying out the investing public don’t always pay off for shareholders.

Companies must find ways to put their excess cash to use. When the market price of a company’s stock is lower than the “intrinsic value” of its business—the present worth of the cash it will generate in the future—then the company should buy back all the shares it can.

But buybacks are far from an exact science. At their worst, buybacks can be a form of corporate cannibalism. Often the unspoken motive is to use extra cash to boost earnings per share by reducing the number of shares among which the company’s profits are divided. But that can be a slippery slope.

But are investors better off? Imagine two companies, each with $100 in cash and 10 shares of stock. The intrinsic value of each is $10 a share. But the stock market undervalues one company’s shares at $5 apiece and overvalues the other at $20. Each company decides to buy back $10 worth of stock. The undervalued company gets to buy back two shares at $5 each, leaving $90 in assets spread across eight shares. That raises the intrinsic value of each share to $11.25. The overvalued company uses $10 to buy back half a share, leaving the same $90 in assets spread across 9½ shares. That lowers the intrinsic value of each remaining share to $9.47.

So how can you spot a bad buyback? Here is a red flag: If cash is dwindling as buybacks are growing, the firm may be starving future growth to pay off present shareholders. That is fine if you sell into the buyback. But it is bad if you hang onto your shares. Owning a bigger piece of a corporate cannibal may leave you hungry in the long run.

After a quick check to ensure that the company is currently profitable, the growth of the company’s sales is probably the single most critical metric to judge the quality of a company. In fact, the sales growth metric will drive the other metrics. It is not unusual for a company to do well with sales growth and then also attain the highest rating in the other metrics. Conversely, it is rare that a company can have a low score here but still do extremely well in other metrics. When this happens, the Confident Investor should question what other events have happened to cause this peculiarity.

The sales growth metric indicates the company’s ability to grow sales consistently. Few metrics are more valuable than sales, and many executives correctly joke, “Revenue cures all ills.” If a company continues to grow revenue, the managers of the company can usually overcome other challenges. Also, consistent revenue growth will force some efficiency into the organization.

More importantly, a company that consistently grows revenue can take more chances on entering new markets or expanding existing ones. It can also afford to pay its employees better, which tends to attract the best and the brightest employees.

It is delightful when you find a company that grows revenue at ten percent annually. In many cases, a slightly slower growth of eight or nine percent is acceptable if all of the other metrics get a satisfactory grade. I discuss how to do this in my book when I combine all the metrics into an overall grade, the Confident Investor Rating (CIR). This is the grade that I give to stocks on this site when I review them. The end result is a Poor, Fair, or Good company. The goal is to invest in Good Companies which often will make it to my Watch List.

If you would like to get updates on the companies that I review, you should subscribe to this site for updates. If you would like to make sure you get these updates:

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Image source from OpenClipart.