Investments | Financial Samurai

The Katana: Help Haiti If You Can 1/17

So far over $7 million has been raised to help Haiti by just texting the word “HAITI” to 90999. You’ll get a confirm receipt from your mobile carrier once sent. Please consider donating!

This week on Financial Samurai, we’ll share our thoughts on the latest government rhetoric, highlight a guest post by Flexo, introduce a new fun challenge, and perhaps discuss one of the key things to consider for job seekers.

THE SAMURAI FUND UPDATE: +3.85% vs. S&P 500 +1.88% as of Friday, Jan 15th. 203 basis points of outperform puts us in the Top Tier of all funds.

Stars: Lenar +25%, Toyota +8%, GE 9%, Harmon +7.4%,, Calgon +7%, Big Lots +7%.

Dog Poops: Lumber Liquidators -7%, Berkshire -1.6%, Steris -1.25%, ABM -1%, Monsanto -1%.

Looks like there’s some good demand from new entrants, and investors who want to give us several hundred million more to build new positions! Contributors, please provide an update on your name in the TSF page above, especially if your name is sucking wind. Will be making room for new names in February.

SAMURAI WEEK IN REVIEW

* People now realize that converting to a ROTH IRA is pretty ridiculous as Kevin M reminds us that the first $18,700 (equivalent to $470,000 in pre-tax funds at 4%) you withdraw from your retirement funds is tax free. Meanwhile, JoeTaxPayer highlights that if you retire with $2.17 million in today’s dollars, you only have to pay 15% tax! You’ll have to retire with more than $5 million dollars to average a 25% tax rate, based off a 4% income return. $5 million is only 50X your $100,000 “average” income. Always good to dream big for those of you who’ve justified your ROTH IRA contributions. Joe, you made my day!

* Family seems to be the number one reason why people choose to freeze during the winter, and melt during the summer. FYI, it is possible to make friends in paradise folks. It’s also possible for your family to fly out and visit you on the beach. If you’re miserable, don’t limit yourself! Just think about how much easier it is to travel now vs. 300 years ago.

* The “Get Financially Naked” book giveaway ends on Saturday, January 23rd. It’s a great little book for couples who feel they need some help in improving their communication as it relates to finance. With all our book giveaways, we’d like to share them with those who’d like and need them the most.

* Americans really shouldn’t complain about our finances since we’re wealthier than 99% of the rest of the world. That said, it’s all relative, and if everybody is wealthy, then it’s really hard to feel special. The key seems to be to amass your wealth, and move elsewhere!

Keigu,

Sam Samurai – “Slicing Through Money’s Mysteries”

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Book Review & Giveaway: “Your Money Ratios”

Posted by Financial Samurai 27 Comments

Publisher: The Penguin Group. Hard cover. 257-pages. Price: $26.

Author: Charles Farrell, JD., LL.M., investment adviser with Northstar Investment Advisors, in Denver. He writes the “Retirement Roadmap” column for CBS Moneywatch.

Review: “Your Money Ratios” sings to me! For someone who loves using ratios such as the 1/10th rule for car buying, and 30/30/3 rule for home buying, I absolutely adore this book. Charles’ writing style is very balanced and easy to understand. When it comes to math, many people, including myself fall asleep. But, if you can just do simple division and multiplcation, this book will keep you on the right path towards financial security.

Charles’ “Unifying Theory of Personal Finance” is his core philosophy that all decisions you make should help move you from being a laborer to being a capitalist. In other words, make money work for you, and not the other way around. It’s important that with every single monetary decision you make, you ask yourself will this help you become a capitalist or not.

Capital To Income Ratio

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The Samurai Fund – All Hands On Deck!

Posted by Financial Samurai 34 Comments

With great pleasure, I announce the launch of The Samurai Fund!

Thesis: Through random selection based solely off permutations of reader’s names (personal or site title), we are able to create a long-only mutual fund that will outperform the S&P 500 index!

Fund Details: $1,672,003 billion launch, $100/share NAV, with 17 positions equally weighted. Concentrated multi-strategy portfolio with defensive names in the alcohol and utility space, as well as higher beta names in technology and health sciences. Small caps and large cap names included. S&P 500 start value 1,115 benchmark.

Investment Outlook 2010: The stock market continues to rebound, but at a slower pace. Inflation and interest rates remain benign, leading to a re-emergence of consumer spending. Housing stabilizes with 30-year mortgage rates staying below 6.5%. The government maintains record spending to stimulate the economy and the unemployment rate begins to fall in the second half of the year. The S&P 500 increases by 10-15% with a blue-sky target of 1,322.

Duration & Rules: One year. The bottom 3 performers will be up for review every quarter. To stay in the fund, one must write a convincing argument as to why we should not cut our losses. Picks down more than 20% also will be re-evaluated.

Goals: To have fun, learn something about the stock markets, prove a theory that luck plays a big part in performance, and to build better relationships with the community.

Contributors: Please retweet and spread the word to any of the social media sharing sites below. We need all the support we can get to outperform the professionals! Contributors are encouraged to provide updates and commentary as the months progress. If anybody wants to do a portfolio analysis below, please feel free to do so!

*** STOCK PICKS SUMMARY WITH CONTRIBUTORS ***

FINANCIAL SAMURAI

Company (Ticker): Boston Beer Company (SAM)

Market Cap: $668 Million at entry price $46.60.

Commentary: Love Samuel Adams beer, but with no dividend, lofty valuations and minimal earnings growth, it’s hard to see this defensive stock providing alpha to the fund. People need to drink in good times and bad!

DAVID AT MBA BRIEFS

Company (Ticker): ABM Industries (ABM)

Profile: A building maintenance and facility services company.

Market Cap: $1.09 Billion at entry price $20.65.

Commentary: The stock doesn’t look like it’s going to do anything spectacular in the short term but ABM is predicted to have consistent earnings growth throughout the year and has beat the analyst’s estimate every quarter for the last 4 quarters.

ABM is currently trading at $21.14 and the 1 year target estimate is $25.50. Volume peaked at 700k shares the week before Christmas and then dropped way off, and its trading well above the 50 day and 200 day moving averages, so it’s hard to tell if the stock price is going to continue to rise, trade sideways, or drop this week.

Not exactly a sexy stock but facility services should be fairly recession-proof and should do even better now that we’re supposedly heading into a bull market.

CHARLIE

Company (Ticker): Harman International Industries (HAR)

Market Cap: $2.44 Billion at entry price $35.28.

Profile: Engages in the development, manufacture, and marketing of audio products and electronic systems in the United States and internationally.

Commentary: Don’t know a thing about the company but will be interesting to find out!

CREDIT CARD CHASER

Company (Ticker): Calgon Carbon CP (CCC)

Market Cap: $786 Million at entry price $13.90.

P/E: 20.26X

Earnings Growth 2010: 47.2%

Profile: Manufactures and markets products and services employed for separation, concentration, and purification of liquids and gases (huh?). Drinking water and wastewater treatment, enviro remediation, and industrial process apps are its customers.

Commentary: Better than average predicted earnings growth for 2010 and trading right around the middle of its 52 week high so it could have some potential. I don’t pick individual stocks but this will be a fun one to watch!

DON AT MONEY REASONS

Company (Ticker): Monsanto Co (MON)

Market Cap: 45.03 Billion at entry price $81.75.

P/E: 21.75

Dividend (yearly): 1.30%

Earnings Growth 2010: 34.7%

Profile: Monsanto Company, together with its subsidiaries, provides agricultural products for farmers in the United States and internationally. It has two segments, Seeds and Genomics, and Agricultural Productivity.

Commentary: Monsanto has been beaten down pretty badly (it was at it’s high, over $145 per share), so it has some room to rise! People need to eat, and MON has some of the best engineered seed available.

FREE FROM BROKE

Company (Ticker): Berkshire Hathaway (BRK-A)

Market Cap: 152.89 Billion at entry price $99,099.

Profile: a holding company owning subsidiaries engaged in a number of business activities. The most important of these are insurance businesses conducted on both a primary basis and a reinsurance basis. Berkshire also owns and operates a number of other businesses engaged in a variety of activities.

Commentary: Can you bet against the Oracle of Omaha? Until recently, Berkshire has done remarkably well year after year, investing in well known companies such as Coke, American Express, and P&G.

STEF AT 151 DAYS OFF

Company (Ticker): Steris Corp (STE)

Market Cap: $1.65 Billion at entry price $27.97.

P/E: 14.56

Dividend: 0.44 (1.60%)

Estimated Growth in 2010: 4.1% (ouch!!)

Profile: Steris Corp develops, manufactures, and markets infection prevention, contamination control, microbial reduction, and surgical support products and services to healthcare, pharmaceutical, scientific, research, industrial, and governmental customers worldwide.

Commentary: With the hysteria of swine flu in the past and Lord knows what kind of mutation it will bring in the future, the company will stand strong in years to come. Medical tech stock tends to be a defensive stock during the bear market and move steadily in a hot market. You would DEFINITELY want it in your portfolio!

DANIEL AT SWEATING THE BIG STUFF

Company (Ticker): Big Lots Inc (BIG)

Market Cap: $2.42 Billion at entry price $28.98.

P/E: 13.88

Earnings Growth: 11.5%

Profile: Big Lots, Inc. operates as a broadline closeout retailer in the United States.

Commentary: As a discount retailer, it does well when the economy struggles. In 2010, as the economy only begins to improve, Big Lots should continue to have success in the discount market.

THRIFTY GAL AT CHASING PROSPERITY

Company (Ticker): PG&E – Pacific Gas and Electric (PCG)

Market Cap: $16.89 Billion at entry price $44.65.

P/E: 11.86X

Earnings Growth 2010: 7.6%

Dividend yield: 3.7%

Profile: PG&E is a public utility company that provides electicity and natural gas to northern and central California.

Commentary: Pop culture reference: villan in ‘Erin Brokovich’

LEAN LIFE COACH

Company (Ticker): Toyota Motors (TM)

Market Cap: $140 Billion at entry price $84.16.

P/E ratio (ttm): Nada – They’ve been losing money for the first time in over 50 years!

P/E ratio (fwd): 25X

EPS Growth: Yahoo lists 1200%? From zero that won’t be too hard!

Profile: One of the largest car companies in the world.

Commentary: Challenged by some quality issues they will likely continue to suffer for a few more months but I believe their commitment to continuous improvement (Kaizen) will help them out of this rut.

The continue to build good cars that have generic styling that appeals to a wide market. They are coming out with some new technology including plug in hybrid and are revamping the Lexus brand to draw in the younger crowds. If you like fast cars check out the Lexus all carbon body LFA!

PATRICK AT CASH MONEY LIFE

Company (Ticker): Compellent Technologies, Inc. (CML)

Market Cap: $704 Million at entry price $22.68.

P/E: 146.90

Earnings Growth 2010 (estimate): 31.0%

Profile: Compellent Technologies, Inc. is a provider of enterprise-class network storage solutions. The Company’s storage center is a Storage Area Network (SAN), that is designed to significantly lower storage and infrastructure capital expenditures, reduce the skill level and number of personnel required to manage information and enable continuous data availability and storage virtualization.

Commentary: Aggressive earnings estimates for a company that has yet to register large profits. I guess my entry will mimic the elements of the S&P that drags down the rest.

LEN PENZO

Company (Ticker): Lenar Corp (LEN)

Market Cap: $2.4 Billion at entry price $12.77.

PE: N/A (divide by zero – never a good sign)

Dividend Yield: 1.2%

Earnings Growth 2010 (est): showing losses

Profile: A leading home-builder in America.

Commentary: As I mentioned earlier, I think housing is on very flimsy stilts. The current anemic upturn (if you can call it that) only propped up due to government subsidies and bailouts so I would never recommend a home builder as a stock pick in 2010. But the rules are the rules, and as such I expect this component of your honorable Samurai fund to weigh it down like an old rusty boat anchor. LOL

EVOLUTION OF WEALTH

Company (Ticker): Edwards Lifesciences (EW)

Market Cap: $5 Billion at entry price $86.85.

P/E: 24X

Earnings Growth 2010: 17%

Profile: Edwards Lifesciences provides products and technologies in treating cardiovascular disease. They are a leading provider in a growing sector.

Commentary: If you believe America will continue to be fat this could be a good investment. Was that mean?

LL AT INVESTOR JUNKIE

Company (Ticker): Lumber Liquidators (LL)

Market Cap: $730 Million at entry price $26.80.

P/E: 24X FY2010 with 40% YoY earnings growth.

Profile: Lumber Liquidators, Inc. operates as a specialty retailer of hardwood flooring in the United States. It offers an assortment of hardwood flooring that includes prefinished premium domestic and exotic hardwoods, engineered hardwoods, unfinished hardwoods, bamboo, cork, and laminates. The company also provides flooring enhancements and installation accessories, including moldings, noise-reducing underlay, and adhesives. It offers its products primarily under Lumber Liquidators and Bellawood brand names.

EVAN AT MY JOURNEY TO MILLIONS

Company (Ticker): Jones Apparel Group (JNY)

Market Cap: $1.4 Billion at entry price $16.06.

Profile: Jones Apparel Group, Inc. is a designer, marketer and wholesaler of branded apparel, footwear and accessories. The Company markets its products to the consumers, through a chain of specialty retail and stores and through the e-commerce Web sites. The Company also markets costume jewelry under the Givenchy brand licensed from Givenchy Corporation, footwear under the Dockers Women brand licensed from Levi Strauss & Co., and apparel under the Rachel Roy brand licensed from Rachel Roy IP Company, LLC. The Company operates in five business segments: wholesale better apparel, wholesale jeanswear, wholesale footwear and accessories, retail, and licensing. The brands of the Company include Jones New York, Nine West, Anne Klein, Gloria Vanderbilt, Kasper, Bandolino, Easy Spirit, Evan-Picone, l.e.i., Energie, Enzo Angiolini, Joan & David, Mootsies Tootsies, Sam & Libby, Napier, Judith Jack, Albert Nipon and Le Suit. On June 20, 2008, the Company completed the acquisition of GRI

Commentary: Look at those brands this company is going to be fine! Not sure its going to be a homerun, but its going UP!

PAUL AT FISCAL GEEK

Company (Ticker): General Electric Co (GE)

Market Cap: $162.5 Billion at entry price $15.13.

P/E: 14.1X

Commentary: With the recent pending sale of NBC Universal to Comcast this might be an interesting stock as GE attempts to get leaner, but really how lean can you make a company that has more than 323,000 full time employees. I suspect GE won’t be outperforming much other than say GM.

MONEVATOR

Company (Ticker): Monster Worldwide (MWW)

Market Cap: $2.2 Billion at entry price $17.40.

P/E: 42X

Earnings Growth: 167% for next year

Profile: Monster.com, a popular job search and placement site.

Commentary: I am picking this stock to keep with the play-on-the-blog-name theme, but I actually am pretty bullish on economic recovery so this recruitment giant isn’t entirely unattractive. I haven’t looked at the accounts or the balance sheet etc, though, and I’m not wildly familiar with US stocks (though I know many of the companies superficially) so I recommend it only for the FS fund, nothing more!

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Updated on 2/8/2015. Let the bull market continue!

Samurai Predictions And Resolutions For 2010

Posted by Financial Samurai 46 Comments

It’s amazing how quickly time goes by. Usually, I get nostalgic this time of year, reminiscing about all the memories over the last 12 months. Not this year. Let us remember that we went through an economic blitzkrieg in 2009, and I am so glad it’s over!

The one thing I am really hopeful for is a rebound in employment. Over the past 3 months, I’ve encountered so many positive job data points in my industry from friends and acquaintances on the job front, I’m absolutely hopeful those who are seeking jobs, or better opportunities will find them in 2010. Companies always over fire during downturns, and therefore have to scramble to rehire in this upturn. Below are five more predictions you don’t even have to think won’t come true!

FIVE PREDICTIONS THAT MOST CERTAINLY WILL COME TRUE

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The Katana: Lauching The Samurai Fund To Prove A Theory

Posted by Financial Samurai 50 Comments

The S&P 500 at close to record highs in 2015, the bull market is more than five years in the making.

The tipping point in your 401K, where performance starts outweighing a maximum $18,000 annual contribution is roughly $200,000. Once you have $200,000, the real juice comes from performance where an 8% return equals roughly the maximum contribution you can make every year.

There are two lessons to be learned in 401K land: 1) Contribute the max to your 401K every year, and in 10 years, you will likely have $200,000 given company matches, and performance (even in this past decade) and 2) Once you reach $200,000, you’re going to hurt like no other if you lose 40%, or $80,000 of your portfolio, so diversify! The sword cuts both ways.

IN SEARCH OF LUCK WITH FORESIGHT

I’ve only had a couple big stock hits in my life, and I attribute it all to LUCK. Of course, I also attribute all my loss making ideas to BAD LUCK, and not to poor timing, bad fundamental analysis, and generally not understanding what the hell I’m investing in!

Essentially, I believe with a lot of luck and a little bit of effort we can outperform the markets. Hence, let’s see if the PF community can outperform the S&P 500 with our own randomly unscientific stock picks based on permutations of our own names and blog titles!

THE SAMURAI FUND – CONTRIBUTION GUIDELINES:

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The World Stock Markets Are Crashing & You’re Going Shopping?!

Posted by Financial Samurai 46 Comments

Who would have thought that one of the most glitzy countries in the world would have trouble paying their own debt on time? The fear of systemic contagion is real as investors sell first, and ask questions later.

If Dubai can’t pay their debts, who else can’t? The US of course, but that’s OK! Everybody will fund our debt as you observe the US dollar and US treasuries strengthen. Don’t believe me? The 10-yr US treasury yield has dipped below 3.25% again. What inflation? Cheap money forever!

Investors around the world can mock us, and debase our weak currency all they want! You shouldn’t care, because all you have to do is watch what investors DO and not what they say. Investors are rushing in to our arms today crying “We love you America! Give us shelter!”

So many have disagreed with our “A Weak Dollar Doesn’t Matter Folks!” thesis. Yet so many are going to shop till they drop for pieces of junk they shouldn’t be buying in the first place! It’s Black Friday every day at Ross, TJ Max, and Craigslist, so save your stress and relax! If you go shopping today and check your 401k and stock accounts when you return, you might just have to go back on Monday and return everything!

* CONTEST * Predict where the Dow Jones closes today (11/27) and win a free pat on the back! I predict 10,288. I’ll also highlight the winner in my weekly Katana wrap.

Readers, are there any out there who are relaxing at home in their pajamas being entertained by the media coverage of shopping frenzy? Why don’t people just shop on-line instead, given similar deals? If you make $20/hr from work, but stand in line for 5 hours to save $100 on a laptop, doesn’t the bring you back to even?

RECOMMENDATION

Updated on 2/8/2015. Let the bull market continue!

I Saved $2.1 Million On Lunch – A Sit Down With Warren Buffett

Posted by Financial Samurai 17 Comments

I thoroughly dislike watching CNBC for investing purposes due to all the noise. When the markets are up, they bring on every single pundit to talk about how the market is going higher. When the markets are down, they bring on all the bearish pundits to tell you why the world is coming to an end. I remember when the S&P hit the ominous 666 level earlier this year, they brought in a “famed” technical analyst who said to expect S&P 200 by year-end. What was her name again? I forget. Watch CNBC for entertainment purposes mainly, and a little bit of learning. Don’t watch CNBC to get rich.

Sometimes though, CNBC puts together something great. And that great feat was bringing Warren Buffet (Columbia B-School Alum) and Bill Gates together in a town hall with all their business school students to ask them questions.

Here are some of the most memorable lines paraphrased from the show:

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The Samurai Mask: An Interview With The CEO of BULLDOG Gin

Posted by Financial Samurai 18 Comments

A Brazen Breed of Gin

I’m pleased to highlight a new series of articles focused on understanding the thoughts of successful entrepreneurs. For our inaugural series, entitled, “The Samurai Mask,” I speak with the CEO and Founder of BULLDOG Gin, Mr. Anshuman Vohra, 31. “Shu” was once a JP Morgan Banker who gave up his lucrative career to start BULLDOG Gin three years ago. I was very inspired after watching his story about overcoming rejection on Donny Deutsche’s “The Big Idea” and I’m pleased he’s here with us today. This is his story about finding entrepreneurial success, and going against the odds.

INTRODUCTION

FS: Shu, thanks for taking the time to speak. First of all, tell us about Bulldog Gin, and why it is such a hot product?

Shu: It’s good to speak to you and it’s an honor to be the inaugural interviewee for your new series. BULLDOG Gin is a quadruple distilled, ultra premium gin with dragon eye and other distinctive botanicals. This is not your old folks gin, but a younger, brazen breed of gin that you can imagine Steve McQueen and James Bond drinking.

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A Weak US Dollar Doesn’t Matter Folks!

Posted by Financial Samurai 77 Comments

People have been freaking out lately by a weak US dollar. I’m here to tell you it doesn’t really matter. Did you know that 60% of Americans have never left the country and less than 25% of Americans own passports? Most of the 40% who leave come back, so it’s only a temporary amount of time when their purchasing power may be relatively hurt.

An even better statistic states that only 20% of Americans speak a foreign language. Hence, where the heck are the 80% of Americans going to go if they can’t communicate with the locals? Ok, so they may understand what “I want a double quarter pounder with cheese please” in English means, but we aren’t going very far if we can’t speak another language. Sure a vacation is fine, but it’s not like we Americans are suddenly going to relocate overseas and establish roots.

If you are an American who makes a US$ denominated salary, buys US$ denominated assets like property, consumes Levi’s jeans, and never plans to leave the country, what are you freaking out about? The US Dollar can depreciate by 90% against the Euro, and it still wouldn’t really matter. The government is crushing our currency on purpose and you know the government would never, ever, ever do anything to harm the people they serve.

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Party Like It’s 1999! 10 Takeaways From This Recession

Posted by Financial Samurai 18 Comments

In the past 10 years we’ve come full circle and finally re—re–breached Dow 10,000 yesterday! Bust out the party hats and call up your favorite car dealer, because money is now raining from the sky! I fully admit that being defensive so far this October has been wrong. Instead, I should have taken the illusory $400,000 in home equity increase Zillow told me, dumped it in my E-trade brokerage account, levered it up to $1.2 million and bought 35,000 shares of DDM (Ultra Dow30 ProShares ETF)! Too bad, I’m too conservative and not smart enough to realize the world has changed.

This year’s rally has been outstanding, and the more I get to know the personal finance community, the more I realize that A LOT of you are making a lot of money. From one PF blogger who writes his site helped lead him to a job earning 50% more, to another’s proclamation of a 10% net worth jump in September, it’s clear that a lot of people are doing very well in this recovery. I’m watching all of you, especially those who provide such transparent net worth updates!

I rarely hear negative anecdotes about job losses and foreclosures anymore. Instead, there are a bunch of you who are buying new homes (congrats and good timing), steadfastly paying off debt, and finding new wealth. The bus is like a can of sardines every morning, and I can no longer walk into my favorite restaurants without a reservation. If that’s not the best indicator of a bull market, I don’t know what is.

10 TAKEAWAYS FROM THIS RECESSION

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