There is no company analysis today even though it is a weekday. We are taking the day off in celebration of Thanksgiving. We hope that you have a great deal this year to be thankful for and we hope that some of the hints we give you here will make you even more thankful next year.
The last time that I looked at Hewlett-Packard [stckqut]HPQ[/stckqut], I rated the company a Fair company and encouraged you not to buy it. I haven’t rechecked the numbers since then but the recent news of Hewlett-Packard buying 3-Com begs the question, does this acquisition invoke the rule of not buying a company that just recently changed its size due to acquisition or divestiture?
The quick answer is no. According to Reuters, 3-Com had quarterly revenue of 290.5M and HP had revenue of 27,451.0M. Since 3-Com is less than 10%, HP should have little trouble absorbing the smaller company without affecting its major operations.
Remember, the magic number is 10%. If it goes over that number, stay away for awhile.
The Wall Street Journal just wrote an article saying that more mutual fund managers are using market timing and stock timing tools to “time” the market. They are doing this to act more nimbly and get into and out of stocks that are moving up and down.
Mutual funds have a problem with this technique that doesn’t affect small investors. Mutual funds have to move much larger sums of money around and therefore can affect the market with their purchases or can incur higher management costs.
From WSJ.com:
Some of these funds have beaten the market in recent years. Ivy Asset
Strategy, for example, gained an annual 14.9% in the five years ending
Nov. 10, compared with less than 1% for the Standard & Poor’s
500-stock index.
Fund companies say investors spooked by the recent market turmoil
are demanding more-flexible products. Many investors have been
frustrated “with investment products that were not able to react to the
environment that we just went through,” says Joel Sauber, head of U.S.
products at Legg Mason. The firm’s new Legg Mason Permal Tactical
Allocation Fund can stash up to 40% in cash.A study from New York University’s Stern School of Business suggests
market-timing can work for some mutual-fund managers. The best
stock-pickers during economic expansions also show some market-timing
ability in recessions, the study found.
So if the “big guys” are using market timing to improve their performance, why aren’t you?
The absolute best investment that you can make is to pay off your higher interest loans!
If you are carrying any credit card debt, you are probably paying double digit interest rates. This is short term money so you have to put yourself on a budget and pay these debts off. Whatever your current interest rate on your credit card, that is exactly the interest rate you will effectively earn by paying off that short-term debt. In today’s economy, I don’t know of any other legal investment that will GUARANTEE your return at double digit percentage rates.
If you have a car payment that is over 6% interest rate, that is also a likely target for accelerated payments. Once again, a 6.9% loan on your car means that you are guaranteed to get 6.9% return by paying the loan off more quickly (minus inflation). Since car loans rarely go longer than 60 months, this is medium term money (as opposed to short-term for credit cards). If you don’t need the extra $100 in the next month, spend that money on your car loan.
However, you may have bought your car with a subsidized loan from the manufacturer and therefore paying a very low rate that is approaching 0%. In that case, you may want to slow down this payment and only pay the minimum amount that you can. Essentially, inflation will grow faster than your interest rate so your cash equivalent spending will go down over the course of time. In this case, you are earning whatever the inflation rate is in interest!
Your home loan is probably different. Chances are you have been able to drive your interest rate down below 8 or 9%. Your home loan may still be 10, 20 or more years left so any money that you put into it is very long-term. You may need this money before the 10 years are up and if that is the case then it will be quite expensive to get it back out. It is reasonable to pay a bit extra on your home loan but be careful that it doesn’t impact your regular cash flow – and pay off your credit cards first!
In order to do all this, you need to start budgeting your money. Check out these sites for some advice on how to successfully budget your money.
I haven’t done the analysis on i2 Technologies or JDA Software Group to find out if they are a Good, Fair or Poor company. I don’t have to since they just merged and since the merger is great than 10% of both companies, they violate the Confident Investor first rule regarding mergers or divestitures – never invest in a company that changes its size more than 10% with a merger or divestiture.
While the merger may be logical and offer great value to the company and its customers, a merger of this size simply is too difficult to do well. A Confident Investor cannot confidently invest in the resulting company until things settle down a bit.
Privacy Policy Designed using Divogue. Powered by WordPress.