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Monday, November 14, 2022

How To Evaluate Stocks: Financial Expert Investing ABCs

A client asked me to recommend the best books for learning to pick stocks.  It's a common question, and I wasn't aware of any one-size-fits-all answer.

So I went to the experts during the Money Moves Conference.  It is a new effort by Tulane University professors, public radio stations and local financial institutions to bring money basics to south Louisiana community members.

The speakers included world-class financial experts who boiled down tough topics to the basics.  

Mara Baumgarten Force presented "The ABCs of Successful Money Management."  She is a Professor of Practice, Associate Faculty Director, Master of Finance Program, A.B. Freeman School of Business, Tulane University.  Mara teaches financial management, analysis, and investment courses at the undergraduate and graduate levels. 

Her experience includes managing 150+ trust professionals at JPMorgan serving 13,000 clients with more than $13 billion under management, so she should know about stock picking resources!  

During the Q&A, she responded to the stock-picking resource question with surprisingly simple responses.   

A screenshot of her "recommended resources" slide is here.  The list includes,, TD Ameritrade's YouTube channel, and The Fundamentals of Corporate Finance, 10th Edition, by Brealey, Myers & Barcus.  

Mara added these nuggets during the discussion: 

  • Anything that Warren Buffet has written or said, i.e., 
    • "Being greedy when people are scared and being scared when people are greedy." 
    • "Buy stocks in companies you know." 
  • A Random Walk Down Wall Street (book)
  • The Intelligent Investor (book, old style of writing, but classic and good information). 

Reducing Risks with Research 

Mara described two levels of research for evaluating stocks.  It doesn't eliminate all risks though, so she recommended buyers be realistic about the highs and lows of stock portfolios.

Macro Level Basics: 

  • what does the company make? 
  • do people like buying it?
  • is there any other company that makes something similar? 
  • can they grow their business so that having an ownership interest in this company is worth more? 
"You want to find a company that you think will make money, has a good product, that you think will eventually grow," Mara said.   

"Warren Buffet picks companies that he knows where he feels comfortable with his products, like Dairy Queen," she added.  "Also, he lives in Nebraska, and there is a "world's largest" type jewelry store in Nebraska, and he bought it."  Mara pointed out that Buffet buys the things he knows and sees in his life. 

Micro Level example

To illustrate, Mara referenced a colleague's class and how they conducted research focused on an individual company - a children's sippy cup manufacturer. 

"They gathered data, they did forecasting," she said.  For example, to forecast demand they investigated birthrates - what are those going to be?  And what did they think birthrates would be for different levels of socioeconomic spending so they could forecast how much someone might be willing to spend on sippy cups? 

She mentioned how the group even investigated where all the sippy cup component pieces come from which fed the net income analysis for the company.  

 "Then they went to the CEO to present their findings and he said 'that's great!  But let me tell you something.  While you did a wonderful job with your demographic analysis, it doesn't matter how many kids, or the rate of babies being born.  It only matters how many of those are first born, because once the parents have bought the stuff once, they won't buy again." 

Lesson being "reasonable, really smart people, can do a ton of work and still not get to quite the right answer.  And there's no telling that even if they do get to the right answer, the factory doesn't get struck by lightening.  But at least you have a much better shot if you do all the research." 

Also, she reminded us all, "so when you buy mutual funds that holds 500 stocks..... even if your best idea does get struck by lightning, you have (other) best ideas.  You are never going to have a portfolio where everything goes up, always." 

It was affirming to hear someone who has overseen billions of dollars in investments reiterate the basics: 

  • Spread your risk (Mutual funds and ETFs do that for the basic investor)
  • Keep your expectations realistic (stocks go down in value as well as up, lightening can strike in a bad way)
  • Do your research  (low cost and free options are available)
  • Buy what you know and like
  • Warren Buffet is successful.  Invest like Warren.
Personally, I have very few individual stock investments.  One is employee stock purchases from my family's work in the oil industry.  The other is Microsoft.   I use their products daily and read somewhere that Microsoft was undervalued.  I bought a few shares on a whim.  

Ninety-eight percent of my equity holdings are in passively managed index funds that track the S&P 500 index or the total market.    

How do you evaluate stocks?  Do you follow tried and true or maybe take a contrarian approach?  We'd love to know in the comments! 

I'll be posting more wisdom from the conference in the coming weeks, please subscribe to get updates.  (I promise I don't sell the list and certainly don't email unless I have something interesting to share.) 

Friday, November 4, 2022

Bond and CD Buying - FAQs and Book Recommendations

Interest Rates are Up Again - Time to Lock in Gains! 

Once again, the Federal Reserve is upping the interest rate by .75 basis points.*  It's a golden time for those wanting secure investments that pay a pretty interest rate and the rates may go even higher according to Fed Reserve Chairman Jerome Powell.  

Here is what US Treasuries and CDs are paying at today, 11/4/2022 at 8:23 a.m up to 5 year maturity.  Not only can you purchase these with money in your after-tax brokerage account there, but you can also purchase via your IRAs or 401K.  

Real-Life Case Example

I have an extra $10K that is coming to maturity in my CD ladder.  (I bought it as a short-term, 6 month CD of $9,000 back in May of 2022.  It has only been accruing .95% interest at the time.  Less than 1%).  

Now is my chance to lock in a longer, better, very secure rate with a CD or a bond.  You can do the same!

CDs offered on this platform at the 2-year mark are paying higher rates than Treasuries.  They are also very safe, as they are F.D.I.C. insured.  I'm planning to pick up a 5% CD next week for the 2-year short term.   It's only a $ 500-a-year return, but I'll take it!  If I had more cash to invest, I would.  

CD ladders have really helped my F.O.M.O. with current CD and bond rates.  I have new money freeing up for investment every few months.  Keep in mind this money has only been earning .05 - 1.5% for a while, so it needs a boost!  

Are you planning to buy a CD or bond soon and have questions? 

Google searches about bond buying today that are most common include these:

  • Buying bonds at a discount
  • Buying bonds on a premium
  • Treasury Direct
I'll dive a bit deeper into each below, but if you are looking for an excellent beginning primer on the subject in audiobook form, check out "Step by Step Bond Investing" by Joseph Hogue, CFA. (paid link) 

I did not receive this book free of charge as a payment to promote! It was my own purchase and I believe it cost only about $6.00.  I was so impressed with the ease of understanding baked into the 1 hour or so it took to listen to the book, that I am hot to recommend it.  

Here are a few highlights from the book:  

Buying bonds (or bills) at a discount

The author, plus info from this Investopedia page about T-bills, gives simple straightforward advice on buying bonds at a discount.  Let's use this Treasury bills purchase as an example: 

    • Let's say you purchase ten Treasury bills for $100 each.  They mature in 52 weeks. The T-bill sales info declares a 5% coupon rate or yield to maturity (YTM) rate.  Because the bills are sold at a discount, you only pay $950 for all of them.  At the end of the 52 weeks, you will receive $1,000 back.  
    • Your yield is the difference between the T-bill's discounted purchase price and the face value due back to you on the maturity date.  
      • Test your knowledge -- what if the YTM was only 3%?  Did you come up with $970 as your discount rate?  It would cost you $970 to buy the bills that would return $1000 52 weeks later

Buying bonds at a premium

Let's use a Treasury Bill as an example.  If a Treasury Bill for sale has a face value of $1000 is paying 7% interest and matures in 10 years when new TBills are only paying 3%?  You will need to pay a premium to get your hands on the bill.  

A simple explanation is available another good reference, this book "Bond Investing for Dummies" by Richard Wild, MBA. (paid link).    "Don't ask why, but bond people quote the price of a bond on a scale of 100.  If a bond is selling at par, or face value, it is typically quoted as selling at 100...If that bond is selling for 105, it's a premium bond, and you need to fork over $1,050."  

I didn't get a free copy of this book to include in this blog post, but I do get a small affiliate commission if you click the link and purchase the book on Amazon.  If you search your local library, you can probably find a copy, that's where I got mine.   It's a good reference book for your personal finance library.  I will probably buy a copy when my library loan runs out of time.  

Treasury Direct

Once you have your treasury direct account set up, it's fairly straightforward to use the platform.   You will see this menu bar across the top of the first page of your account.

Click on "BuyDirect" to purchase your bonds.  

Here are the list of products you can buy from that page

I clicked on Bills, just as an example.  Here is the first section of a list that goes on for multiple screens.  If you scroll down, you will go all the way to 52 weeks bills.  

Friday, October 14, 2022

Easy Way to Brush Up on Your Financial Literacy - plus Bonus recommendation on Bonds

If you or someone you love needs a refresher in the basics of financial literacy, the National Financial Educator's Council (NFEC) has very inexpensive, yet comprehensive educational programs led by certified instructors.  

Many of us get our basic financial education from a variety of sources, not all of them objective.  

Financial planners or product salespeople are often knowledgeable go-tos for answers, but how do you know whether or not there is a conflict of interest? 

That's where basic financial literacy comes in. The NFEC has several programs to choose from which is why I chose it for my own certification. 

Some examples below:

- Budgeting
- Improving Credit
- Higher Education Decisions
- Getting Out of Debt 
- How Taxes Affect You
- Buying a Car
- Is it time to Buy a Home? 
- Getting Prepped for Retirement 

Those certified in financial instruction offer group classes or one-on-one sessions that are very low in cost. No product sales pitches are involved.  And the courses can be tailored to the group or individual's needs.

The NFEC spearheads the financial wellness movement around the world through advocacy and raising awareness. They are focused on promoting financial wellness through promoting the adopting of financial literacy programming into schools, encouraging individuals to work toward greater financial strength, getting families involved in teaching kids about money, and sharing research with the industry to empower broader advocacy. More information about the NFEC is here

Bonus recommendation - I've just finished listening to this quick Step by Step Overview on bonds.  Easy and quick overview of how to buy them, what to buy and how bonds work.   I'm using it to help me ladder my way into some safety and good returns.  The book was less than $10.  If you've already read this book, I would love to hear what you think.