Wednesday, March 31, 2010

Last Chance to Make a First Impression

It is said that your initial impression is almost everlasting. Indeed, it takes a lot to undo an initial impression. In fact, you usually have about 90 seconds to make a good first impression. Beyond that, unless you are a brilliant conversationalist, people tend to tune you out. Thus, it is important to use that first 90 seconds, and there are various techniques you can use to maximize your effectiveness.

0) Have a purpose in mind

All communications have a purpose. It could be to make friends, to flirt, to persuade, to network, and so on.

Remember, it never hurts to have a bigger network, and as Harvey Mackey said, "Dig the well before your are thirsty: network now so you can use the network later!"

Or to paraphrase the Cheshire Cat in Alice in Wonderland... if you don't know where you're going, then it doesn't matter which way you go. Same with communication. Just what impression do you wish to convey? "Good impression" is such a generic term, wouldn't you agree?

Thursday, March 25, 2010

How to use P/E ratio to evaluate investment

Price-Earnings Ratios as a Predictor of Twenty...Image via Wikipedia
P/E is basically price per share of the stock divided by annual earnings per share.

Beware that there are several definitions of P/E, depending on which earnings you use. The commonly used definition is trailing P/E, which is earnings in the last 12 months. A "forward" P/E on the other hand, uses "projected earnings" over next 12 months. There's also another variation that uses last six months and projected six months.

P/E Ratio is a comparative stat. By itself, it means nothing. It is only useful when compared to some OTHER P/E ratio.

In a way, it's like a vehicle's MPG rating. If I tell you that this vehicle's MPG is 6.5 on the highway. You'd call that a gas guzzler.

But what if I tell you that this vehicle is a 45' motorcoach (i.e. a highway bus), and the industry average for a bus is merely 5.5 MPG? (and that's DIESEL, by the way). So now this is actually quite economical.

To compare MPG, you need to know the TYPE of vehicle. Sports car? SUV? Sedan? Truck? etc. Then you compare it against type average, or against another specific model.

P/E ratio is the same. It is usually used to measure whether the stock is overvalued, or properly valued, but it is impossible to use by itself. You need to compare it to something, either another company's P/E, or the sector average P/E.

Thursday, March 11, 2010

Four opportunities that are not what they seem

I spend quite a bit of time on Yahoo! Answers, and I noticed a disturbing trend: a lot of people are looking for supposedly "safe and easy ways to make money". Alarm bells go off in my head when I see words like that. The main problem is, they won't take good advice even if it bites them in the ***.

My friend was a perfect example. He got taken in by a "confidence scam". Someone online, allegedly female, befriended him through Internet chat over course of weeks, and managed to convince him to raise some money so she can pay some fees on her inheritance in Europe, which will solve all financial problems, both his and hers. My friend was so taken, he actually asked to borrow a thousand dollars from me and his other relatives and friends, to raise the "$5000 needed". He claims that FBI have given blessing to the deal and he had talked to the trust manager in Europe. It got so bad, that SFPD have to invite him down to their HQ for a long chat to tell him something that was obvious to me from the start: he had been conned. I would hate for you to experience something similar. Fortunately for my friend, he lost no money because he had none. But you may not be so fortunate.

I will go over some of these alleged "opportunities" that often appear on Internet forums or late night TV infomercials. I will point out a few things that you need to think about before you jump in. Then I will point out some things that goes into a "real" opportunity, some questions you need to ask about any supposed opportunity.

What NOT to do when facing a foreclosure

Sign Of The Times - ForeclosureImage by respres via Flickr
A lot of desperate home owners, hoping to prevent foreclosure, end up digging themselves a deeper hole by doing a lot of foolish things. Here are some things that you should NOT do when it comes to foreclosure, and why.

* Declaring homestead -- declaring homestead will protect your house from creditors for your OTHER debts, such as business, credit card, auto, and so on, but it will not stop the lender of your mortgage from foreclosing. This will not work even in Florida, with one of the strongest homestead laws in the United States. Florida Constitution spefically states that mortgages are exempt from homestead provisions. After all, it would make no sense to buy a home, pay a down payment, and keep living in the house and make NO monthly payments EVER by declaring homestead, right?

Velocity of Information

Dell LogoImage via Wikipedia
Perhaps you've heard of this oxymoron: "old news". There is no such thing as old news, as news must be, well, new. When it gets old, it's no longer "news", or as interesting.

A new "term" coined for this is "velocity of information". In other words, how fast can information travel? While theoretically it can go quite fast (nowadays, we have mobile phones, Blackberries, e-mail, and so on), how fast does the information get acted upon? The information is no good if it's sitting in your inbox unread, no matter how fast it's delivered. And this applies to a lot more area than you think. There was the expression "the check is in the mail." If the check is in the mail, it's not in your bank, and thus it is no good for you.

Velocity of information has a LOT to do with running a successful business and/or investing. It involves getting the right information to the right people who can then act upon them. A company who cannot communicate is a slow company and in this day and age, a soon-to-be DEAD company. Similarly, an investor who lacks the proper information will not succeed.

6 Levels of Focus Horizon

Getting Things DoneImage via Wikipedia
In GTD, David Allen discusses the 6 different levels of "horizon of focus". Why do we need different "horizons of focus"? All work has different levels of importance. Different people weigh things differently. However, all weighing decisions need to fit within one's perspective(s). And it's not merely importance, but the perspective themselves also help you actually DEFINE work from generic "tasks".

The metaphor used in GTD is one of altitude... from ground level, up to 50000 ft. In GTD, it's called "horizon of focus". The higher you are, the broader your perspective, but the less details you see. When you're at 50000 ft, you're looking at your entire life, but you don't see specific tasks any more, just general guidelines. On the ground, you have individual action items, but you can't see beyond the immediate horizon. In between, you have long term goals, short term goals, and so on.

The 6 levels "horizon of focus" are:

50000 ft / Purpose & Principles: review when you have a MAJOR decision to make, such as something that affects your life-long ambitions or beliefs

40000 ft/ Vision: review when you need long-term vision and direction, as in 3-5 years, or longer down the line.

30000 ft / Goals: review to ensure you are on your way to achieve your vision, think what you need to do in about a year or two.

20000 ft / Responsibilities: review to ensure you have balance in your life, this technically does not have a time limit, but it's actually ongoing... Are you taking on too much responsibilities, or too little? Is one of them overwhelming the others? If so, how to reachieve balance?

10000 ft / Projects: review for short-term commitments, from a week to several months

Ground / Calendar and Action items: review for dated and ASAP commitments

Monday, March 1, 2010

Defining Value

Street sign for Wal*Mart Drive, south of Gordo...Image via Wikipedia
Your business must present some unique value in order to rise above the competition. What you can offer depends availability of resources, and what customers perceive as value, which will vary from market to market.

Let us take a toy retailer as an example.

First of all, what kinds of toys are there? Toys is such an all-encompassing word. It varies from balls and bicycles / tricycles and dolls, to board games, to action figures, all the way to game consoles and related games, accessories, and more. It could be for babies all the way up to teens. Everything from alphabet blocks and Legos (tm) to Nintendo Wii (tm) and Tickle-Me Elmo (tm) are toys. Thus, there are quite a few sub-market for toys: toddlers, kindergarten, elementary, middle-school, and high school. All have different interests and thus, different toys.

Second, who buys toys? Kids usually don't buy their own toys, until they are older, like middle-school and high school. Usually, it's the adults that buy toys... with or without the child's input.

More psychology of money

SAN FRANCISCO - MAY 14:  A man holds money tha...Image by Getty Images via Daylife
There are several more psychological effects you need to be aware of when it comes to investing. Any of them could cause you to "see things" that aren't there, and make irrational decisions.

Anchoring effect is basically psychology to "anchor" an answer to a number given. Say I ask you... "What is the population of Armenia?" You would have no idea, unless you're Armenian or is a trivia champ. However, if I phrase the question as "is the population of Armenia above or below 100 million?" Then I ask the same question again, you would guess the answer to be a bit above, or below 100 million, depending on which way your logic goes. In investment, it's known as "earning targets", "earning estimates", and so on, and if a company can meet those earning estimates (or not). Your expectations are anchored to it.