The Difference Between Value and Growth Stocks (Part 2)

Regardless of the previous behavior of the market, one can see with its recent performance that it is still a great investment tool.  According to Google, the Dow Jones Index was actually down to its low of 6547 on March 6,2009.  Now, it is currently at 8500.  That is over 30% up in just one 3 months.  However, as mentioned before, there are very few out there that can time the stock market that well in order to get those returns.

To continue from the previously written article, Value stocks are great choices for those who believe in holding a stock for the long term.  Below is the definition cited from Investopedia:

A stock that tends to trade at a lower price relative to it's fundamentals (i.e. dividends, earnings, sales, etc.) and thus considered undervalued by a value investor. Common characteristics of such stocks include a high dividend yield, low price-to-book ratio and/or low price-to-earnings ratio.  (Citation)

These particular stocks are viewed as being "undervalued" and typically do not have quick growth rates.  More characteristics of these stocks are the following:

1. Dividends 
2. Equity equals the amount of debt held by the company.
3. 2x Assets to liabilities.
4. Very low Price-to-Earnings 

Examples of these companies are well-established blue-chip companies that typically have a very long history of successful operation.  Some examples of these companies are the following:

1. IBM
2. General Electric
3. Wal-mart

As you can tell from these companies, they typically provide a service or product that is always in demand no matter the economic climate.  In addition to that, they have pretty high stock prices which do not fluctuate often.  Of course there is an exception to the rule (as seen over the past year) due to internal and external factors that can cause a company to reduce its market share and even fail.  However, most well established/well ran companies can usually weather any storm.

As hard and as nerve wrecking it may be, it is always a good idea to have some portion of your investment portfolio into stocks.  Whether your investment style is risky or stable, there are some stocks from each class that will fit your requirements to help provide the results you desire.

What are some stocks that you are invested in?

Stay Disciplined!

The Difference Between Value and Growth Stocks (Part 1)

The stock market...such a taboo word these days.  It almost shares the same stigma as the words "foreclosure" and "credit".  However, it seems as if that particular word (stock market) is losing all of the negative connotations it once had.  After all, investor confidence is slowly starting to be restored as more and more people get comfortable with investing in the stock market.

There is a misconception in the whole reasoning behind investing in the stock market.  I mean after all, you will find that many "experts" state that the average stock market return is somewhere between 8 and  12% annually.  Well, as we have noticed from recent turn of events, it all depends on when you have started investing in the market.  I have had the unfortunate lesson of learning that timing is everything and if you started in 2007 (like I did), it was bad timing.

However, there is a silver lining to every cloud and many lessons have been learned since then.  Some stocks are at a very cheap price and fortunately I have been able to pick some up and receive some really outstanding returns.  Honestly, there was a time period recently where it did not matter what you bought, there was almost a definite positive return on the stock within a short period of time.   

Typically follows into one of two classifications.  The first classification is called "Growth".  Below is a definition of this class of stock from Investopedia:

A growth stock usually does not pay a dividend, as the company would prefer to reinvest retained earnings in capital projects. (Citation)

From my understanding, these particular stocks consist of companies that are typically smaller in size and have more potential to increase in share price.  Examples of these types of companies are:

• Google (GOOG)
• Cisco (CSCO)
• Intel (INTL)
• Apple (APPL)

As you can see from above, the stocks that are typically growth fall into the "Technology" sector and you can more than likely find them composing the Nasdaq Market.   Some events that help growth stocks to become lucrative are when these companies release some new product or services that causes a massive amount of demand for that company's product.  For example, after Apple released the IPod, as the amount of sales grew for this product, the stock price grew exponentially.

Growth companies are typically for those who believe that a company is going to grow through the release of some new product or some service that is high in demand without competition to take away the market share.  Stay tuned for the next article that is going to explain "value" stocks.

Hedging Against Everyday Expenses Using Stocks

During a visit home, while passing a gas station my father remarked "Wow, these gas prices are really going up".  After giving it some more thought, I realized that he was right.  After all, just back in December, the average price per gallon in the United States was $1.65/gallon.  (Citation)  Now consulting the same source, I see that gas on average is $2.30/gallon and rising!  Well, there is a silver lining in every cloud and this blog article will provide you with information on how to see it.

Definition of Hedge (Hedging)

In finance, a hedge is a position established in one market in an attempt to offset exposure to the price risk of an equal but opposite obligation or position in another market. (Citation)

In plain English, all it basically means is to have an equal but opposite position to offset the risk taken with an investment.  This procedure was used massively by many investment groups to short sell many stocks.  Many critics point the finger at these funds as a key contributor to the recession that is currently being experienced.  Although "hedging" takes a negative aspect in this situation, it can be used on a smaller scale to benefit the average consumer.  Let's take hedging against an everyday expense for example.  

It is a requirement that you have gas for your car.  In order to hedge against the rising gas prices, one would invest in a index or mutual fund that invests in gas and oil.  The way that the hedging process works is that as the gas prices continue to rise, the oil/gas stock would rise also allowing the owner to offset the added expense of paying more at the pump.

It is good to know, just as hedging can work for you in a positive way, the opposite can happen also.  In the case that the gas prices go down, the stock that invests in oil/gas can go down also.  Although you are paying less at the pump, there is a higher chance that the oil/gas stock will decrease in value.

Although this one particular example uses gas as a means to hedge, one can also use many different industries such as housing, groceries, technology to perform the same type of strategy.  What are some industries that you think will be good to hedge against?  Stay Disciplined!

The Pursuit of Happiness

Aim for success, not perfection. Never give up your right to be wrong, because then you will lose the ability to learn new things and move forward with your life. ~Dr. David M. Burns

To preface this article, I know that this blog is geared towards "Financial Advice that Makes Cents".  However, I believe understanding the mindset behind accomplishing all goals (including finance) is very important in obtaining the desired results.  

Recently, I had a conversation with an old friend who I have not seen or talked to in about five years.  While trading life stories, we eventually got on to the topic of pursuing dreams and happiness.  It seems that at some point in time, the focus was lost about what made her happy and instead, she concentrated on other things that were not contributing to her happiness.  During this conversation, I reflected on some of the decisions that I have made in the past and determined how I transitioned to the person that I am today.

Happiness:  State of well-being characterized by emotions ranging from contentment to intense joy (Citation)

During the hustle of life, I believe most people get caught up in the many distractions that life consists of, that we forget to live.  After all, I believe this was the case in my life due to a period of unhappiness that I experienced towards the end of my tenure at college.  For a while, my life was a standard routine; wake up, eat, class, eat, homework, sleep.  I truly felt like I was a zombie in life and merely going through the motions rather than living day by day.  It was at this point that I truly realized that I had no defined purpose for my life outside of graduating from school.

It is really easy for anyone to get at a point where a routine seems normal and living slowly seems to become purposeless.  However, becoming complacent with this type of life was not the  choice for me.  Instead, I made a decision that I needed to define what made me happy and pursue it to the fullest extent.  Below are the points I followed for the pursuit:

1. It is OK to put yourself first.
   
• One major roadblock to obtaining happiness was that I was afraid to look out for my number one fan, myself.
• It is hard to build the foundation to someone else's house while your house is in shambles.
2. Impressing/pleasing others causes one to regress.
   
• Another huge problem is that I spent too much time and resources trying to impress people who did not care.
• Aiming to always please someone else will leave you empty because there will always be someone new to please.
3. Happiness requires work.
   
• Very rarely does happiness just occur without some type of effort.
• Obtaining your goals are worth the effort and the sense of accomplishment contributes to the overall level of happiness.

Using these principles, I was able to proceed with pursuing my goals and dreams that ultimately contributes to my happiness.  Although over time, my goals may change, the goal of obtaining happiness will never change.  What are some of the principles you use for obtaining happiness?  Stay Disciplined!

Power of Negotiation at work

Well, I just wanted to report in that some of the readers of the blog have had outstanding results using the information in the previous post.  Below is a comment that I have received:

Just called comcast and got bill reduced by twenty [dollars] a month.  I'm a negotiating beast!  Lol.

As mentioned in the previous post, although it may be a bit difficult to step out of your comfort zone, you may find that the rewards are worth way more than the cost.  On top of that, the worst that could happen is the company could say "no" and you would be in the exact same place that you were in prior to the conversation.

I am very curious to hear that results you receive from trying the steps in the previous post.  Please send in your comments or leave them in the field below!

Using the Power of Negotiation

Let us never negotiate out of fear but let us never fear to negotiate.  ~John F. Kennedy

One lesson I have learned during this recession is that prices that are advertised are not set in stone.  Everything from major appliances to contractor work is willing to take a reduced price in order to get the business.  It seems like the price that we are given at a store is merely a "suggested" price, but not necessarily the price that you have to pay.  This leads to the use of one of the most powerful tools that we have as a consumer.  The power of Negotiation.

By definition, Negotiation is the following:

A dialogue intended to resolve disputes, to produce an agreement upon courses of action, to bargain for individual or collective advantage, or to craft outcomes to satisfy various interests.  (Citation)

Although negotiating may seem like a very trivial task to some, it proves to be very complex to most.  According to wikipedia there are six different negotiation styles.  Personally, I probably fall into the category of "accommodating" as I typically like to avoid conflict and will sacrifice of myself in order to get past the issue (or just the uneasy feeling of tension).  This has not always proved to be beneficial for my best interest as I have found myself paying more for items that I have regret at a later date.

I rarely had confidence in my negotiation ability due to the fact that I did not know what I was doing.  However, recently I made a decision to begin reducing my bills further by cutting back on the money I spent for luxuries such as cable and Internet access.  Since my satellite company just increased the amount that they were charging me, I naturally started with them first.  

I made a call to my satellite provider and called to see if they could do anything to reduce the amount that I was paying for my current channel listings.  Unfortunately, when I called, I did not have a good reason as to why I was requesting this reduction in price except for the fact that "money was tight and I was not sure if I was going to be able to afford the service".

The customer service representative offered the options of a $5/month reduction for six months or changing to a cheaper package that did not contain all the channels I wanted to see.  At the end of the phone call, I politely told the customer service representative that I was going to research my options and probably cancel the service.  It is my thought that he probably thought that was an empty threat due to the fact that he allowed me to get off the phone.

At this point, I began what I believe to be the successful negotiation procedure listed below:

1. Research your options
   
• Immediately once I got off the phone with the satellite provider, I began my process to research with my other options.  Fortunately I found a very comparable option with another provider that was $10/month cheaper (even after the promotional period was up).  
  
2. Have good reasoning to support your argument
   
• In addition to the new option being cheaper, I also had more channels as well as free HD options that were not provided by my satellite provider.
• The speed of my Internet access was greatly increased.
3. Look to see how both parties can benefit from the negotiation
   
• During the initial phone conversation with the satellite provider there was not really an effort from the customer service representative to see a real benefit for both parties.  In my opinion, he seemed fine with me discontinuing my service with their company as well as them losing the revenue.
4. Stick to your guns
   
• During the initial phone conversation, I laid out the terms that I felt were reasonable to have fulfilled in order to continue service with the satellite provider.  There were multiple times when the customer service representative wanted me to downgrade the channel listing (giving up TNT and TBS) which was unacceptable to me.  I never conceded on reducing my channel listing.
5. Do not be afraid to walk away
   
• Ultimately, as a consumer, the most powerful weapon in negotiation that you have is the ability to walk away.  The most important thing that I have learned during this process is that no matter how bad we want something, it will not be the end of the world if we do not get it at that particular time.

So on the day that I called DirecTV to cancel my service, I got a different customer service representative who wanted to know why I was canceling my service.  In addition to the same reasoning I explained to the previous CSR, I provided her the information on their competition and the deal they were providing (without any loss of channels and features).  

Immediately she began to bring out her arsenal of discounts and added channels to try to keep my service.  I kindly explained to her that the opportunity had passed and that I was still switching to the other provider.  At this point I realized that I had an "upper hand" in the negotiation process due to the fact that the satellite provider did not want to lose one of their customers with perfect payment history.

Although I did switch from my previous provider, I learned some very valuable lessons during the negotiation process as noted above.  I really recommend stepping out of your comfort zone and trying to use the negotiation procedure when making your next purchase where prices are not set in stone.

Where are some of the other places you have received success in negotiating?  What are some of the techniques that you have used to successfully negotiate in your favor?  Leave your comments below.

Stay Disciplined!