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Savers Spenders and Investors

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investments When personal finances are discussed, the experts usually divide people into savers and spenders. We ran across a press release from Fidelity, the mutual fund giant, about a survey of workers in the non-profit world. They asked the participants if they were a saver, a spender or an investor.

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We thought it was very astute to add that third category. Which one do you fit in?

The workers in the study split themselves about evenly between saving and spending. 46 percent claimed to be savers while 45 percent admitted to being spenders. So that leaves only 9 percent who classified themselves as investors.

Merging the two categories

We suspect that fewer people today would classify themselves as spenders than say a year ago. A lot of us are getting on the savings bandwagon. That’s definitely a step in the right direction, but saving it isn’t good enough.

This data suggests a bigg idea. We shouldn’t think of ourselves as either savers or spenders. We should always think like an investor. We should merge the two categories – spender and saver – into the third category – investor.

We must know how to invest it or we won’t end up with the resources we need to live the life we want.

From spender to investor

Here’s some good news for spenders: thinking like an investor doesn’t necessarily imply that you don’t spend. It means that you spend differently.

You look at every single dollar you spend as an investment. Is it going to bring you enough return to make it worth giving it up? And that “return” may not come in dollars earned on dollars invested.

It may mean that it adds enough to your level of “happiness” to make spending the money worth doing. If it passes that test, then spend, spend, spend! If not, hold onto it.

For example, you may see a real deal on some non-perishable consumer good. Buy it. Stock up. Say an item is on sale for half off. Let’s pretend that you know that it only goes on sale once a year. If you buy a year’s supply, you’re making 100% on your money. That’s hard to beat!

So get to know the promotional cycle of the brands you use regularly and time your investment appropriately. Know when various businesses need the money more. For example, from car dealers to contractors, there are seasons when people are buying a lot and times when people aren’t. Time your purchase for their slow periods and reap the benefits.

From saver to investor

Now let’s think about savers. It’s great to save, but if you’re only earning two percent on your money, where’s that getting you?

We know … we know … you’d rather earn 2% than lose 40%! We completely understand that thought process.

However, investors don’t operate out of fear. They operate rationally. And we have to resist the temptation to go with the masses because they’re usually wrong in the long run.

Just like with consumer goods, there are some real deals out there on assets right now if you can afford to hold them long-term.

The best time to get out of a particular market is often when everyone else is getting in. And the best time to get in is usually when everyone else is getting out.

Years ago, we were told by a very successful real estate investor that when you see the no-money down real estate infomercials proliferating, it’s time to get out of real estate. How many of those do we see now compared to three years ago? 

Now think about stocks. Many of the same people who are touting doom and gloom now were spouting off about the end of the business cycle and the ever-upward spiral of stocks just a couple of years ago.

So to think like an investor, think for yourself. 

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Thanks so much for spending some time with us today. Join us next time when we ask, “Does haste still make waste?” Until then, here’s to your bigg success!

 

Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00336-022309.mp3

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Smart Investors, Tough Times

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investing People who find joy in bad news have to be pretty happy lately. The financial crisis has dominated the news, as we watch Wall Street and Washington scramble.

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We don’t usually do this – in fact, we’ve never done it in the 230 shows we’ve done so far. But this subject is so important and so timely. So we want to share some valuable information that our newsletter subscribers received in their In boxes last Friday.

In the last edition of The Bigg Success Weekly, we discussed “Profiting from Panic”. It was about maintaining the proper mindset in the midst of all this turmoil.

We started with the safety net that exists for depositors, investors, and insureds. Here are some links directly to pages that can answer your questions about banks, brokers, and insurers in a hurry. 

Banks

In general, banks are insured by the Federal Deposit Insurance Corporation (FDIC). However, not all money invested through banks is insured. What would happen if your bank failed? If you have accounts with a failed bank, what should you do? How can you obtain a release of lien, if a failed institution is your lienholder? The following links provide the answers to all of these questions:

What is the FDIC

A Guide to What Is and Is Not Protected by FDIC Insurance

FDIC Bank Find (make sure your institution is FDIC insured)

When a Bank Fails- Facts for Depositors, Creditors, and Borrowers

Is My Account Fully Insured?

Obtaining a Lien Release

Brokers

Accounts with brokerage firms also offer some protection through the Securities Investor Protection Corporation (SIPC). The coverage isn't anything like that offered by the FDIC, but it's still important to know what remedies might be available to you. 

How SIPC Protects You

Insurers

While banks and brokers have federal backing, insurance companies have backing through associations at the state level.

The National Conference of Insurance Guaranty Funds

If your insurance company fails, you'll want to contact your state's Department of Insurance, since insurance companies are overseen by that department in each state in which they operate. Click here for a directory of each state's office. 

Your State's Department of Insurance or Guaranty Association

Two billionaires, two eras, one mindset

Warren Buffett, the richest man in the world according to Forbes, recently invested $5 billion in Goldman Sachs, in the midst of all this turmoil. That’s pretty typical of how he’s made his fortune – he says he’s “fearful when others are greedy and greedy when others are fearful.”

He has also opined, “We want to do business in [a pessimistic] environment, not because we like pessimism but because we like the prices it produces.”
 
From: The Warren Buffett Way: Investment Strategies of the World’s Greatest Investor, by Robert Hagstrom, Jr. 

Warren Buffett is not alone.

J. Paul Getty was one of the first billionaires and the richest man in the world in his day, according to The Guinness Book of World Records. He said, “I began buying stocks at the depths of the [Great] Depression. Prices were at their lowest, and there weren’t many stock buyers around. Most people with money to invest were unable to see the forest of potential profit for the multitudinous trees of their largely baseless fears.”

He went on to say that he made over 100 times his investment on many of these stocks!

From: How To Be Rich, by J. Paul Getty.

Our best strategy

So we can learn from these two men that we shouldn’t panic, even in turbulent times. Now, you may not want to rush out and buy a bunch of stocks. However, you probably shouldn’t sell out right now either.

These two billionaires made a fortune by going against grain. So keep making those 401(k) contributions. By investing consistently over time – paycheck by paycheck – you’re dollar-cost averaging into the market. In bad times, you’ll buy more shares with the same money than you can in good times – just like the billionaires. 

Above all – diversify, diversify, diversify. Diversification is one of the four key investment principles, according to William Sharpe, a Nobel Prize winning financial economist. Our newsletter subscribers read about these as well as some ideas to simply put them into practice.

Today, more than ever, it’s important for you to take on the role of Chief Investment Officer for you and your family. You can’t count on Wall Street or Washington to do it for you!

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If you would like to get the newsletter we’ve referred to here, just e-mail us: bigginfo@biggsuccess.com, with “Profiting from Panic” in the subject line. We’ll send it to you and sign you up for The Bigg Success Weekly!

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Next time, we’ll discuss why it’s so important to move beyond personal productivity. Until then, here’s to your bigg success! 

 

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Two Billionaire Investors Give Their Two Cents Worth

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By Bigg Success Staff
09-26-08

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2_cents 

Warren Buffett, the richest man in the world according to Forbes, may well be the greatest investor of all time. Not surprisingly, he recently made a sizeable investment in Goldman Sachs, one of the firms who had been battered by the recent crisis on Wall Street.

Typical Buffett move.

It goes along with his strategy “to be fearful when others are greedy and to be greedy when others are fearful.”

So what does Buffett know? Why is he willing to invest now in the midst of all this financial turmoil?

Benjamin Graham, Warren Buffett’s college professor and mentor said, “An investor’s worst enemy is not the stock market, but oneself.”

Profiting from pessimism

A great book by Robert Hagstrom, Jr. called The Warren Buffett Way: Investment Strategies of the World’s Greatest Investor, quotes Buffett:

“The most common cause of low prices is pessimism – sometimes pervasive, sometimes specific to a company or an industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It’s optimism that is the enemy of the rational buyer.”

However, many investors do the opposite. They buy when everyone is buying, which drives prices higher. They sell when everyone is selling, driving prices down.

Think of it this way – if all the restaurants in your community suddenly cut their prices by twenty percent, would you eat out more?

Of course you would!

This billionaire’s stocks returned 9,900 percent

Another man who understood business and stock market cycles was the late J. Paul Getty, one of the world’s first billionaires and, at one time, the richest man in the world, according to the Guinness Book of World Records.

In his book, How To Be Rich, he says, “I began buying stocks at the depths of the Depression. Prices were at their lowest, and there weren’t many stock buyers around. Most people with money to invest were unable to see the forest of potential profit for the multitudinous trees of their largely baseless fears. I had confidence in the future of the American economy and realized that shares of many entirely sound companies with fine potentials were selling at only a fraction of their true worth.”

He goes on to say that he made over 100 times his investment on many of these stocks, bought during the depths of the Great Depression!

The best time to buy stocks

He continues, “Common stocks should be purchased when their prices are low, not after they have risen to high levels during an upward bull-market spiral. Buy when everyone is selling and hold on until everyone else is buying – this is more than just a catch slogan. It is the very essence of successful investment.”

How did he have so much confidence that prices would go up?

Because as he explains, “History shows that the overall trend of stock prices – like the overall trend of living costs, wages and almost everything else – is up. Naturally there have been and always will be dips, slumps, recessions and even depressions, but these are invariably followed by recoveries which carry most stock prices to new highs. Assuming that a stock and the company behind it are sound, an investor can hardly lose if he buys shares at the bottom and holds them until the inevitable upward cycle gets under way.”

The worst time to sell

J. Paul Getty fully understood the turbulence we faced. While every stock market crash or bear market has its own unique features, they also have a lot in common.

Getty said, “The anatomy of a stock market boom-and-bust … is not too difficult to analyze. The seeds of any bust are inherent in any boom that outstrips the pace of whatever solid factors gave it its impetus in the first place.”

Getty offered advice to weather the storms. He said, “Another valuable investment secret is that the owners of sound securities should never panic and unload their holdings when prices skid. Countless individuals have panicked during slumps, selling out when their stocks fell a few points, only to find that before long the prices were once more rising.”

Think about the advice from these two great investors when you’re thinking of buying … or selling.

Hear today’s lesson and laugh on The Bigg Success Show

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The Billionaire and the Batboy: What Warren Buffett Learned from Eddie Bennett

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Warren Buffett, the great investor who is the chairman of Berkshire Hathaway and now the richest person in the world according to Forbes, told a story about a batboy in Berkshire Hathaway’s 2002 annual report.

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The batboy was Eddie Bennett, who was 19 years old in 1919. He began his career with the Chicago White Sox, who went to the World Series that year.

The next year, Eddie moved to the Brooklyn Dodgers. He had the Midas touch. They also won their league title that year. Two in a row for Eddie.

But once again, Eddie saw a better opportunity. So he joined the Yankees in 1921. They won their first pennant ever. Eddie knew he was in the right place so he stayed put. The Yankees won five American League titles in the next seven seasons. 

What did this mean to Eddie? He made as much during the World Series as he made all year. So by choosing the right team with whom to associate, he doubled his income.

And he became perhaps the best known batboy in baseball history.

5 lessons Eddie Bennett teaches us

#1 – Sometimes it pays to switch teams.
If you’re with a team that doesn’t look like a bigg winner, and you see a better one, then go for it!

#2 – Don’t have a scarcity mentality.
People who think like this can’t work with others because they don’t think there’s enough to share. Eddie shows us that we may actually make more money BY working with others than we could on our own.

#3 – You don’t have to be the star to be a star.
Eddie became famous in his own right. He’s written about just like Babe Ruth and Lou Gehrig. In fact, he’s the first of that great trio that we’ve blogged about!

#4 – Every job is important.
A supporting role is just as important as the starring role. Eddie knew his place and the importance of what he did. He knew that if he did a good job in his role, other people would thrive in theirs. And he would reap the benefits along with them!

#5 – He had a passion for what he did.
The fans knew it and the players knew it. They respected him for the role that he played. It’s reported that Eddie and Babe Ruth became good friends because they were both at the top of their game.

What Warren Buffett learned from Eddie

In the annual report we referenced earlier, Warren Buffett describes himself as the batboy for Berkshire Hathaway. He turns the heavy-hitting over to the leaders of the businesses in which he invests. He plays a supporting role so they can step up to the plate and hit home runs.

It’s a lesson in management and leadership – give your people the tools they need when they need them and watch them succeed bigg!
 

Speaking of giving your people tools, share Bigg Success with them.
Just click on “Share This” below to E-mail, Digg, Stumble, Mixx and more

We thought it only fitting for our bigg quote today to come from Warren Buffett.

“To be a winner, work with winners.”

Otherwise, you risk striking out!

Next time, we’ll discuss tips for spotting your bigg opportunity. Until then, here’s to your bigg success!

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The Dogs of the Dow

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By Bigg Success Staff
04-30-08

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betting 

Contrarian investors go against the grain. They invest in companies that are “out of favor” with other investors. These companies are often characterized by things such as a low price/earnings ratio or a high dividend yield.

Price/earnings ratio (P/E ratio) is the quotient of the stock price divided by the earnings per share. Sometimes referred to as the “earnings multiple”. For example, if a company’s stock is selling for $10, and its earnings are $1 a share, its P/E ratio is 10.

Dividend yield is the quotient of the annual dividend per share divided by the stock price. For example, if a company pays out a dividend of $1 a year, and its stock price is $20, its dividend yield is 5 percent.

If a company has a relatively high P/E ratio, it generally means that investors perceive something better in the future. For example, they may expect a relatively high rate of earnings growth. That’s why these investors are often referred to as “growth investors”.

Contrarians are often called “value investors”. They do the opposite of growth investors. They look for stocks with low P/E ratios. For any number of reasons, investors don’t have high expectations for these companies.

The dogs of the Dow
There are underdogs in every competition. In horse races, they are called “dogs” and people who mainly bet on “dogs” are called “dog players”.

That leads us to one way to make a contrarian play with stocks – the dogs of the Dow strategy. This strategy dates back to at least the early 1970s, but gained popularity in the early 1990s when Michael O’Higgins wrote Beating the Dow.

Dow refers to the 30 stocks that comprise the Dow Jones Industrial Average, the oldest and single most watched stock index in the world. To many people, “the Dow” and “the market” are synonyms.

The idea behind this strategy is to buy Dow stocks with the highest dividend yield. Those are considered the dogs of the Dow.

It’s a relatively easy strategy to implement:

  • Determine how much you want to invest in this strategy.
  • Divide that amount by 10. This will be the amount you invest in each stock.
  • After the final trading day of the year, select the ten Dow stocks with the highest dividend yield.
  • On the first trading day of the year, buy the ten dogs of the Dow stocks.
  • Repeat this process year after year. Something to note, though, is make sure you hold your winners for a year and a day so you can take advantage of the lower capital gains tax rate.

Like any stock market strategy, in some years you’ll win. In others, you will not. For example, this strategy seems to do particularly well when there is a flight to safety. You may find that being a dog player is a valuable part of your larger portfolio.

Hear today's lesson and laugh on The Bigg Success Show. 

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