For some reason, Anne Scheiber is on my mind today. Maybe because I'm thinking about retiring from my federal civil service job, and I'm older now than she was then.
You may have heard of her. Despite her graduate degree, she was repeatedly denied promotions, so she retired from the IRS in 1944 at the age of 51. She had saved up $5000 (even though her highest annual salary was $3150).
She spent the rest of her life living in a rent-controlled apartment in New York City on her civil service pension. She apparently spent very little money. She read THE WALL STREET JOURNAL every day at the library of a nearby woman's college, Yeshiva University.
When she retired, she took that $5000 savings and invested it in stocks. By the time she died -- 50 years later -- she had a portfolio worth $22 million. The dividends and interest she received annually amounted to over $800,000. She reinvested this money based on her research in THE WALL STREET JOURNAL.
She bought stocks because she noticed during her career with the IRS that rich people owned a lot of stocks. In later years she did move some money into bonds and such fixed income investments.
She got her revenge on the federal agency which refused to promote her. She never sold any of her investments. Therefore, she never paid any capital gains tax.
Also, when she died she donated the entire $22 million to Yeshiva University, no doubt to make sure they never stopped subscribing to THE WALL STREET JOURNAL so that other thrifty and eccentric multi-millionaires could read it.
She never benefited from the capital gains her investments earned, since she never sold her stocks. But she could have avoided paying capital gains taxes and still spent some money on herself thanks to the dividends her stocks kept paying her.
dividends
dividends
Sunday, March 18, 2007
Friday, March 16, 2007
Penny stocks can be permanent options on market
I see this site listed in almost every website directory I go to:
penny stocks
Of course, that doesn't mean I recommend penny stocks. If I want to gamble, I'd go to a local riverboat. Even if you don't live in an area close to legalized gambling, you'd probably be better off going to Vegas of Atlantic City for the weekend.
I have bought penny stocks, I confess. Years ago I bought some software designed to help people buy Vancouver mining stocks at their lows, when they're basically shells, and then wait until the promoters push them and raise the stock price. One of the companies I bought did have a price surge a few months later, but it wasn't enough for me to sell, and then it dropped back down. You can't tell if a stock is at its low even if it's only a few cents. They can go to tiny fractions of a cent!
A few years I decided to buy some of the small gold mining companies I saw used to advertise newsletter subscription. This time, my thinking was that these were like put options on the market as a whole. If the economy fell apart and gold shot up to $2000 an ounce, then these stocks would shoot up in price.
I still think that's a fairly reasonable strategy if you're worried about the price of the stock market or just the economy as a whole. Buy some small gold/oil other such stock that would benefit from commodity/energy price increases and general economic disaster. Then just hold it. If the economy keeps on going well, you paid for some cheap insurance that, unlike put options on the market, will never expire (unless the company goes out of business). If the economy does collapse, the price will go up and you can sell it to buy $10 a gallon gasoline.
However, the one natural resource company I've seen mentioned is BHB Billiton of (I believe) Australia. And it does pay dividends, since it's on the Mergent International Dividend Achievers list. Therefore, if you want to profit from price rises in gold, that would be a good option.
penny stocks
penny stocks
penny stocks
Of course, that doesn't mean I recommend penny stocks. If I want to gamble, I'd go to a local riverboat. Even if you don't live in an area close to legalized gambling, you'd probably be better off going to Vegas of Atlantic City for the weekend.
I have bought penny stocks, I confess. Years ago I bought some software designed to help people buy Vancouver mining stocks at their lows, when they're basically shells, and then wait until the promoters push them and raise the stock price. One of the companies I bought did have a price surge a few months later, but it wasn't enough for me to sell, and then it dropped back down. You can't tell if a stock is at its low even if it's only a few cents. They can go to tiny fractions of a cent!
A few years I decided to buy some of the small gold mining companies I saw used to advertise newsletter subscription. This time, my thinking was that these were like put options on the market as a whole. If the economy fell apart and gold shot up to $2000 an ounce, then these stocks would shoot up in price.
I still think that's a fairly reasonable strategy if you're worried about the price of the stock market or just the economy as a whole. Buy some small gold/oil other such stock that would benefit from commodity/energy price increases and general economic disaster. Then just hold it. If the economy keeps on going well, you paid for some cheap insurance that, unlike put options on the market, will never expire (unless the company goes out of business). If the economy does collapse, the price will go up and you can sell it to buy $10 a gallon gasoline.
However, the one natural resource company I've seen mentioned is BHB Billiton of (I believe) Australia. And it does pay dividends, since it's on the Mergent International Dividend Achievers list. Therefore, if you want to profit from price rises in gold, that would be a good option.
penny stocks
penny stocks
Thursday, March 15, 2007
Investment basics -- human desires and needs
Sometimes it's good to take a step back and think about the fundamentals. What is business? Fundamentally, business is people taking care of the needs and desires of other people. If we could all satisfy our own needs and desires, we wouldn't need to have businesses. We'd just do it everything for ourselves.
But even when we were cave people we weren't totally self-sufficient. No doubt some cave people were better at making bear skin coats than others, and perhaps traded their labor for extra food. No doubt save cave men were better hunters than others. But perhaps one guy was better at making spear tips.
There does have to be a reciprocity. I satisfy your desire for a terrific bear skin coat only if you satisfy my desire for two freshly killed rabbits to eat. This is how it works between free people. Of course there is slavery, both in the older form and in the modern form of welfare.
Money makes the reciprocity a lot easier. Instead of making a bear skin coat for two rabbits from you, half a deer from Joe, and a pile of eggs from Sue -- I simply charge everybody the same five dollars. This gives the system a lot more flexibility. You earns his five dollars from hunting, Joe from fishing, and Sue from carving necklaces.
All this sounds obvious, but it was a comfort to me when I came to understand that income from a company was safe as long as it met the needs or desires of many other people. As long as it does that, it will stay in business and general interest or dividend income for investors.
investment basics
investment basics
But even when we were cave people we weren't totally self-sufficient. No doubt some cave people were better at making bear skin coats than others, and perhaps traded their labor for extra food. No doubt save cave men were better hunters than others. But perhaps one guy was better at making spear tips.
There does have to be a reciprocity. I satisfy your desire for a terrific bear skin coat only if you satisfy my desire for two freshly killed rabbits to eat. This is how it works between free people. Of course there is slavery, both in the older form and in the modern form of welfare.
Money makes the reciprocity a lot easier. Instead of making a bear skin coat for two rabbits from you, half a deer from Joe, and a pile of eggs from Sue -- I simply charge everybody the same five dollars. This gives the system a lot more flexibility. You earns his five dollars from hunting, Joe from fishing, and Sue from carving necklaces.
All this sounds obvious, but it was a comfort to me when I came to understand that income from a company was safe as long as it met the needs or desires of many other people. As long as it does that, it will stay in business and general interest or dividend income for investors.
investment basics
investment basics
Wednesday, March 14, 2007
Subprime mortgages sinking stock market?
More turmoil in the stock market. Just when it seemed it was safe to buy stocks for price increases again, after the late February drop caused by the drop of Chinese stocks on the Shanghai index, market pros are now upset over the situation of the American mortgage industry.
There's been so much money connected to mortgages that lenders have totally relaxed their standards -- borrowers were not even required to prove their income. I can't hardly imagine that - I remember the hoops I had to jump through when I bought my two houses. But interest rates have been so low this century that people have been able to buy far more house than they would have been able to before. Even if they're not able to keep up the payments.
So one of the biggest "sub-prime" lenders, New Century Financial, is on the verge of bankruptcy. Foreign markets in Asia and Europe have just tanked, because they're afraid Americans will no longer be able to buy up 95% of all consumers goods sold in the world.
Like all things, these excesses will worth themselves out, but it will be painful. Possibly very painful, according to some predictions. Of course, I've never advocated buying any mortgage or mortgage related securities. It is possible that some financial institutions that normally have been paying good dividends, such as Citigroup, will be burned by this. Citigroup apparently owned a lot of subprime mortgage risk.
REITs, which mainly collect rent, should not be as big a problem, except as the businesses they rent to are affected by any general economic slowdown.
stock market risks
stock market risks
There's been so much money connected to mortgages that lenders have totally relaxed their standards -- borrowers were not even required to prove their income. I can't hardly imagine that - I remember the hoops I had to jump through when I bought my two houses. But interest rates have been so low this century that people have been able to buy far more house than they would have been able to before. Even if they're not able to keep up the payments.
So one of the biggest "sub-prime" lenders, New Century Financial, is on the verge of bankruptcy. Foreign markets in Asia and Europe have just tanked, because they're afraid Americans will no longer be able to buy up 95% of all consumers goods sold in the world.
Like all things, these excesses will worth themselves out, but it will be painful. Possibly very painful, according to some predictions. Of course, I've never advocated buying any mortgage or mortgage related securities. It is possible that some financial institutions that normally have been paying good dividends, such as Citigroup, will be burned by this. Citigroup apparently owned a lot of subprime mortgage risk.
REITs, which mainly collect rent, should not be as big a problem, except as the businesses they rent to are affected by any general economic slowdown.
stock market risks
stock market risks
Tuesday, March 13, 2007
What's real role of Federal Reserve Board?
One big factor that affects the bond market is of course interest rates. No matter how high the credit ratings of a bond issuer, even if it's the United States government, its bonds' market value will go up if interest rates fall and down and if they rise. So depending upon the whim of the Chairman of the Federal Reserve is not one of the advantages of fixed income investing.
What did the economy do before the Federal Reserve was created to manipulate interest rates to affect the economy. Gosh, they went up and down based on the market demand for borrowing money. During booms periods, there must have a large demand for money, which automatically drove interest rates up. When interest rates got too high, then the demand had to drop . . . slowing down the ability of businesses to expand and be created, thus slowing down the boom.
Once the boom slowed down, demand for money slowed down, and so banks would have had to lower interest rates to make loans, and thus help stimulate the economy to get it out of the bust period.
In short, the interplay of supply and demand for money would have worked automatically to help curb the excesses of the business and economic cycles. Variations in demand for money should have done what we now depend on the Federal Reserve to do for us -- slow the economy down during a major boom and stimulate it during a major bust.
What do we need the Federal Reserve for anyway? Why not just let banks set interest rates based on market demand for money?
advantages of fixed income investing
advantages of fixed income investing
What did the economy do before the Federal Reserve was created to manipulate interest rates to affect the economy. Gosh, they went up and down based on the market demand for borrowing money. During booms periods, there must have a large demand for money, which automatically drove interest rates up. When interest rates got too high, then the demand had to drop . . . slowing down the ability of businesses to expand and be created, thus slowing down the boom.
Once the boom slowed down, demand for money slowed down, and so banks would have had to lower interest rates to make loans, and thus help stimulate the economy to get it out of the bust period.
In short, the interplay of supply and demand for money would have worked automatically to help curb the excesses of the business and economic cycles. Variations in demand for money should have done what we now depend on the Federal Reserve to do for us -- slow the economy down during a major boom and stimulate it during a major bust.
What do we need the Federal Reserve for anyway? Why not just let banks set interest rates based on market demand for money?
advantages of fixed income investing
advantages of fixed income investing
Monday, March 12, 2007
A question about investing basics
Here is one of those investing basics that I've always wondered about:
Company stock prices that do better than the market average (beta) during a bull market go down more than the market average during a bear market.
Seems to me that if the market were truly efficient, that wouldn't happen. Here's my logic -- if a company is better managed than average (which makes it price go up more than the average during the bull market), then it should also be better managed during the bear market as well, meaning the stock price should go less than the average.
I gather that part of the answer lies in the differences in how macroeconomic factors affect different businesses -- for instance, some businesses flourish during periods of low interest rates but are taken down more than average during period of high interest rates.
But some of the answer is simply psychology -- during bull markets, investors drive prices of "sexy" stocks higher. These are usually connected to high tech. During bear markets and hard times these companies don't do as well.
Some of this is related to the phase of growth that a company is in. During its intial growth phases its stock price does better than average because traders assume its growth rate will continue for years to be higher than stodgy old "mature" companies that are well established (and which make up most of the market, determinining the market average). But during bad times these companies do worse because they're not established. They don't have reserves to draw on.
So that's another reason to invest in stodgy old "mature" companies that pay dividends. Their stock prices don't go up as much during bull markets, but their prices don't down as far during bear markets.
investing basics
investing basics
Company stock prices that do better than the market average (beta) during a bull market go down more than the market average during a bear market.
Seems to me that if the market were truly efficient, that wouldn't happen. Here's my logic -- if a company is better managed than average (which makes it price go up more than the average during the bull market), then it should also be better managed during the bear market as well, meaning the stock price should go less than the average.
I gather that part of the answer lies in the differences in how macroeconomic factors affect different businesses -- for instance, some businesses flourish during periods of low interest rates but are taken down more than average during period of high interest rates.
But some of the answer is simply psychology -- during bull markets, investors drive prices of "sexy" stocks higher. These are usually connected to high tech. During bear markets and hard times these companies don't do as well.
Some of this is related to the phase of growth that a company is in. During its intial growth phases its stock price does better than average because traders assume its growth rate will continue for years to be higher than stodgy old "mature" companies that are well established (and which make up most of the market, determinining the market average). But during bad times these companies do worse because they're not established. They don't have reserves to draw on.
So that's another reason to invest in stodgy old "mature" companies that pay dividends. Their stock prices don't go up as much during bull markets, but their prices don't down as far during bear markets.
investing basics
investing basics
Sunday, March 11, 2007
Income investing goals don't include penny stock tips
Since income investing goals don't include buying penny stocks and riding them while they rise in price (you hope) and then selling for a big profit, this information is no good to me. But some of you still probably listen to stock "tips," so may you'll like these. Heck, maybe they're good tips and you'll make money from them.
I get a lot of financial newsletter solicitations in my mail, and most of them try to entice me by profiling a penny stock that the newsletter publisher claims is the most promising they've ever seen, but just a taste of what you'll get if you subscribe to their newsletter.
Has the EPA really mandated that motor oil be changed to eliminate the sulfur and phosphorus that's added to oil? Will Platinum Research Organization (PLRO) really revolutionize the motor oil industry with their formula that improves motor oil performance without causing the emission of sulfur and phosphorus? I don't know, but it does look good.
And I really hope Acro Security Technologies (ACRO) is everything this mailer/promotion claims. They've allegedly found a quick and easy way to test for peroxide-based explosives. That's the kind used on the London and Madrid subway bombings, and the kind used in last summer's plot to blow up airplanes flying from London to the U.S., and the cause of the onerous restrictions on bringing powders, liquids and gels onto airplanes.
While the mailer for PLRO irks me by asserting that human-caused global warming is true (maybe, but not proven yet), the mailer for ACRO makes me glad it recognizes the true threat to the world posed by jihadist terrorists. I hope that ACRO's product catches all of them trying to blow up the world.
If these companies do succeed and grow, and maybe they'll start paying dividends to their shareholders. That's when I'll be interested. I don't like gambles. And I don't like selling stock to get the benefit of a gamble I took.
income investing goals
income investing goals
I get a lot of financial newsletter solicitations in my mail, and most of them try to entice me by profiling a penny stock that the newsletter publisher claims is the most promising they've ever seen, but just a taste of what you'll get if you subscribe to their newsletter.
Has the EPA really mandated that motor oil be changed to eliminate the sulfur and phosphorus that's added to oil? Will Platinum Research Organization (PLRO) really revolutionize the motor oil industry with their formula that improves motor oil performance without causing the emission of sulfur and phosphorus? I don't know, but it does look good.
And I really hope Acro Security Technologies (ACRO) is everything this mailer/promotion claims. They've allegedly found a quick and easy way to test for peroxide-based explosives. That's the kind used on the London and Madrid subway bombings, and the kind used in last summer's plot to blow up airplanes flying from London to the U.S., and the cause of the onerous restrictions on bringing powders, liquids and gels onto airplanes.
While the mailer for PLRO irks me by asserting that human-caused global warming is true (maybe, but not proven yet), the mailer for ACRO makes me glad it recognizes the true threat to the world posed by jihadist terrorists. I hope that ACRO's product catches all of them trying to blow up the world.
If these companies do succeed and grow, and maybe they'll start paying dividends to their shareholders. That's when I'll be interested. I don't like gambles. And I don't like selling stock to get the benefit of a gamble I took.
income investing goals
income investing goals
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