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Written by José D. Roncal
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Saturday, 15 May 2010 21:45 |
When financial guru, Warren Buffet speaks, people listen. So when Buffet says the economy is showing significant signs of life, it must be true . . . right?
He certainly has a bird's-eye view of the overall health of the economy as he sits on his CEO perch atop Berkshire Hathaway Inc. After all, Berkshire owns businesses that cover the industry gamut from insurance, furniture, and clothing, to utilities, jewelry, and corporate jets.
Based on the first quarter upsurge in manufacturing for companies under the Berkshire umbrella, Buffet feels confident about the economic outlook. In fact, he's stepping way out on the limb and predicting a quick 'V-shaped' recovery in the over-all economy.
If you were thinking about investing, or as we like to say, "speculating," based solely on Buffet's words, you might want to stop and take a deep breath. Otherwise you could get hooked into herd mentality. If you'd like a little background on how easily things get out of control when enough people blindly follow a blanket statement like Buffet's, we encourage you to read our bookThe Big Gamble: Are You Investing or Speculating? We’ve devoted an entire section on the humorous, often dumbfounding examples of the hapless taking leave of their senses.
Smart speculating requires more than following the advice of the so-called experts who stand to gain from their own recommendations. And it's about more than making a judgment call on the economic outlook. It's also important to understanding valuation, and sometimes investors don't pay enough attention to valuation.
Yes, the S&P 500 first quarter results for US corporations sent positive signals—they exceeded expectations by 16 percent. That means corporate profits; and profits are key to value investors.
But keep in mind, this is just the first quarter, and first-quarter results aren't a reliable benchmark for valuation if they turn out to be a temporary peak during an economy that might not be able to keep pace the current rate of growth. You also have to factor in how much of the positive results were due to government stimulus and cost-cutting measures versus actual revenue growth.
There have been signs that consumers are spending again and that gives retailers an added boost that factors into the overall statistics. But maybe we shouldn't start celebrating just yet.
Consumers must have money to spend and unemployment figures continue to run high. Who really knows how many are actually unemployed? Those stats are based on people filing for benefits and those still receiving benefits. Nobody can track how many have simply exhausted their benefits or given up trying to find work. So the recent uptick in consumer spending isn't a reliable indicator that we are experiencing the beginning of a sustained turnaround.
What looks to be current corporate profits may seem to bode well for the US economy in general, but global markets are too intertwined to ignore the financial debt fiasco in Greece and the rest of Europe. We're waiting to see if this eventually creates a drag on the global economy.
The big question for those considering investing/speculating is whether or not the first quarter results—which indicates a temporary improvement in consumer spending and corporate profits—actually has any beef in it.
All this uncertainty is good reason pause and take some time to do your research before you start gambling in the markets. If you have any doubts about how important that is, read our book,The Big Gamble: Are You Investing or Speculating? Then proceed with caution. |
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Written by José D. Roncal
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Thursday, 15 April 2010 19:34 |
Yes, we know what day this is. And no, we didn't forget. But why waste an entire post on the subject of paying income taxes when there are more interesting and positive things to write about. For instance, we could continue where we left off last time on the subject of innovation and the role it's played in building wealth for companies and individuals.
We felt this was such an important topic, we dedicated a whole section of our book,The Big Gamble: Are You Investing or Speculating?, to famous innovators and speculators. The premise of our book is to help you recognize the difference between investing and speculating, with a reminder that it's all just speculation. But, not to be misunderstood, we also note that it's the informed speculators and innovators with a high degree of risk tolerance that grease the wheels of industry.
Recently we've been telling you about the renewed interest in innovation at the corporate level. National conferences are exploring the subject and symposiums bring high-level managers under the same roof so they can brainstorm about sharing best practices and melding ideas for their mutual benefit. It's changing the mindset of management and setting a new standard for the future. This kind of collaborative thinking might be the key to getting the economy recharged.
But companies don't change overnight. There are some important ground rules and guidelines that need to be put in place first.
Executives and company leaders must include the concept of innovation into their overall business strategy. It's something that must become part of the corporate culture from top down and from the bottom up. We believe you can never underestimate the value of a strong innovation culture.
It's fine to designate champions or special units within an organization to lead the charge, as long as the perception doesn't devolve into employees thinking that these champions have full responsibility for making it all happen.
There need to be processes in place that give everyone opportunities to get involved and share ideas. They might be in four main areas: finance, process, product, and delivery. There also has to be a great deal of trust established in the process, so that regardless of where one finds themselves on the corporate ladder, they feel free to share new ideas. You never know who might come up with the next big thing.
One final point, and often one of the most difficult to accept: Kill the sacred cows! When someone says, "We can't change that. We've always done it that way," that's a sacred cow that probably needs to go. Get it out of the way so things can move forward.
Who's been doing it right? A lot of corporations have the right stuff, but Federal Express is one of our favorite models for a company with a culture of innovation. See the section in our book entitled "When it absolutely has to be there overnight." There is a lot to learn from this book. You may find something that will spark your own ideas. |
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Written by José D. Roncal
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Thursday, 01 April 2010 16:36 |
We had planned to write an update on Financial Reform—that big regulatory and political hot potato that threatens to grab Wall Street by the ear and teach it a thing or two. We're referring to that approaching reform that's gotten caught somewhere in the pipeline, but once it's unleashed is supposed to let the rest of us live happily every after.
At this early stage, there are still so many unknowns, uncertainties, bickerings, and push backs, we dare not try to draw any conclusions. Making predictions about the outcome, could come across like . . . well, like an April Fools joke.
So, while we're waiting for the final results we're going to focus on something more positive, a subject that we touched upon last month. Innovation.
Recently The Economist magazine sponsored a conference entitled "Innovation: Fresh Thinking For The Ideas Economy." We have noticed that this is becoming a topic of renewed interest, and for good reason. It's going to take plenty of good old-fashioned innovation to pull the world out of this economic morass.
But innovation has been hard to come by of late. There was a time, back in the post-WWII era, when the United States was the world's leader in innovation. Well, actually, it was the only nation that was innovating - primarily because it was the only player on the field. But that was then, this is now.
Now the competition is fierce, and many of the competitors, according to the Information Technology and Innovation Foundation (ITIF) are placing high emphasis on innovation. According to a recent ITIF report, when ranking the progress of innovation occurring in 40 countries, guess which country came in last! The U.S.!
Before 1980, the federal government was funding roughly half of the research and development in applied sciences. That number has dropped below 20 percent. And we can all guess how much government spending is scheduled to be ear-marked for science.
Exactly how important is innovation to a nation's economy? InThe Big Gamble: Are You Investing or Speculating? we devote an entire section on case studies that explain how innovation forms the building blocks of an economy and an entire culture.
While the world is still reeling from the financial meltdown, it's clear that there is a great need for an infusion of innovative ideas from risk-taking speculators. Solutions could come in any number of forms, expanded Broadband or industries supporting the green economy come to mind.
One recent proposal is the creation of a Green Bank, one that could open credit markets and motivate businesses to invest in clean-energy technologies in areas like wind, solar, geothermal, advanced biomass, and energy efficiency. A Green Bank might help loosen the available credit for small businesses, and establish the reliable source of funding that entrepreneurs would require if they were to devote themselves to green technologies and start ups.
That's just one small idea, but everything starts with one small idea, and the sky's the limit. If you need some inspiration to help get the creative juices flowing, pick up a copy of our book and learn how a little risk taking has reaped great rewards for some. But, as we always remind out readers, check your risk-taking pulse and get a reading on your own personal risk tolerance before venturing out too far. |
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