Here’s a plan for making your investments grow.

I know you’ve seen people who seem to always be making good investments. You know the ones that just seem to fall into it. It seems that every investment they make – turns out profitable.

I’m going to tell you that most of they time they don’t do it alone. It usually requires a partnership of sorts. For years we made money when we bought a home for our family, even through we were just looking for shelter. To get the home we had to partner up with a lender to finance the home. Do you see the partnership, you and the lender? You bought a home and it went up in value. As long as you didn’t put additional loans on the home and sold it years later you typically sold it for a profit. You made a profit and your lender partner made money too.  A good partnership, wouldn’t you agree? The lender could do this because of their special skills in managing money at their bank or credit union.

Oh but the times have changed, or have they? I like many others in the same business as me are still buying homes a little differently. I buy homes about to go into foreclosure and homes the bank took back. Some I resell quickly to rehabbers, some to work for equity owners, some to landlords. So whom do I partner with?

Let me express my commiseration for those quarterly statements from your retirement planning account? In years past I invested my 401K and SEP retirement funds (http://www.irs.gov/retirement/ ) by buying mutual funds through Merrill Lynch, Vanguard, TD Waterhouse, and once I even had a financial planner whom I met at one of those free lunch introductions. Lately many have switched to CD’s (certificate of deposit) or a cash account to cut our losses but the rates are so low I wonder if it matters. I even tried to buy stocks for a year but it took so much time out of my day it wasn’t worth what little I made and the risk was too great. I needed an investment like a CD but with a higher return. I needed one that I could invest in and not have to watch it constantly.

I found a better alternative in my own business.  I partner with people just like you and share information as to how you can become a private lender by moving your IRA to a self directed IRA. Government laws allow you to now invest your 401K or other retirement funds without penalty and returns are tax deferred or possibly tax free through your Roth IRA through specialty companies like Equity Trust Company http://www.trustetc.com/. I buy property (real estate) at up to 70% of today’s market value and partner with private lenders through their retirement accounts to fund the properties. We use attorneys and other professionals to keep things proper and to secure your investment money with a first mortgage, title insurance and fire insurance to keep things safe for both of us.  Because we buy the properties so low we can share the profits by paying a higher rate of return on your investment and that allows your retirement funds to grow at a much faster rate. It’s a great working relationship for maximum profits.

You shouldn’t go above 60% to 70% of today’s real estate value to minimize risk.  The lower the better. Real estate values are ever changing but the banks have used 80% for years as a “SAFE” mark. Their trouble began when they loaned more or offered to be in second position. The Banks took greater risk, you shouldn’t. This is the area where your risk can be hidden from you most often because of needed repairs.  Remove the doubt by asking for a current (not more than 60 days old) appraisal. Use experienced people in determining the value of the real estate being secured.

You can also Google search “self directed IRA” for additional information and you should seek legal and competent help before you invest.

A great way to profit with real estate deals without much risk, no repairs to make, no open houses or Realtors fees to pay, no late night calls from tenants and most investments are short term. So if you’re ready for your good financial investment maybe its time for you to become the bank.

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from Bloomberg:

Real estate, stocks, credit. China sure has its share of bubbles. Oddly, little attention is paid to the biggest one of all.

China’s currency reserves grew by more than the gross domestic product of Norway in 2009. Its $2.4 trillion of reserves is a bubble all its own, one growing before our eyes with nary a peep out of those searching for the next big one.

The reserve bubble is actually an Asia-wide phenomenon. And we should stop viewing this monetary arms race as a source of strength. Here are three reasons why it’s fast becoming a bigger liability than policy makers say publicly.

One, it’s a massive and growing pyramid scheme. The issue has reached new levels of absurdity with traders buzzing about crisis-plagued Greece seeking a Chinese bailout. After all, if economies were for sale, China could use the $453 billion of reserves it amassed last year to buy Greece and Vietnam and have enough left over for Mongolia.

Countries such as the U.S. used to woo the Bill Grosses of the world to buy their debt. Now they are wooing governments. Gross, who runs the world’s biggest mutual fund at Pacific Investment Management Co., is still plenty important to officials in Washington. He’s just not as vital as the continued patronage of state asset managers in places like Beijing. . . . .

read the full article here.

Comments are welcome, and must be in good taste with appropriate language.

64.245.90.190, systemclick4@guysistemmail.com, “Nick Treble”@omr11.networksolutionsemail.com, ntreble92839@aol.com

Dear Partner,

Thank you,

Walk for Teddy being held in Alabaster, AL to raise money for Teddy.

Walkers/joggers walk a pre-determined track to show support for animal rescue organizations and their efforts to save all animals.

Cape Fear Saint Bernard Rescue took Teddy in specifically because the disease he has had escalated to a point where his medical bills were so high that the only alternative was for his owners (my husband and I) to have him put down because he was in so much pain and we couldn’t afford treatments (thousands of dollars). We reached out to Cape Fear as a last resort and they came to the rescue! They are caring for Teddy and

The goal is to get him healthy enough to be placed in a long term family home one day. But, as we would have had to pay, Cape Fear has spent close to 3000 in the last 11 days getting Teddy stable, and now his maintenance costs are running close to $1000 a month while he is convalescing.

We are reaching out to our friends and neighbors to help Save Teddy!!

Please help us out by giving the one time gift of $10, and participating in the walk! You can email me if you want more info, or if you would like to come to the walk!! Bring your friends, your family, your dogs, and your kids! We would love to have you!

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By Aaron Gould Sheinin and James Salzer

The Atlanta Journal-Constitution 5:16 p.m. Saturday, February 6, 2010

Their concerns surfaced last week when an influential Republican congressman publicly attacked Oxendine, a rare overt sign of discord among Georgia Republicans. Some party regulars have even suggested that a victory for Oxendine in this summer’s GOP primary could place the party in the position of losing the Governor’s Mansion to a Democrat.

Matt Towery, a former Republican legislator turned political analyst, said some party leaders are feeling a fresh sense of urgency as the race unfolds.

“There has never been any question in my mind that some elements of the party leadership would like John out of the race,” said Towery, who runs an Atlanta Internet media and polling firm. “I’m telling you, the guy right now is probably going to win the Republican nomination if somebody doesn’t take him down.”

Oxendine dismissed such assertions as the price of being the front-runner. “I am focused on doing my job as insurance commissioner, working for our taxpayers and bringing jobs to Georgia,” he said in a written statement.

“I am not interested in what the pundits are saying or nasty attacks from the other candidates.”

Last week’s fracas between Oxendine and U.S. Rep. Lynn Westmoreland, a Coweta County Republican, exposed what appears to be a deepening divide between Oxendine and the party establishment, a divide that has been fed over the years by a series of controversies ranging from Oxendine’s use of lights and sirens to beat traffic to questions about campaign contributions.

Westmoreland told The Atlanta Journal-Constitution he believes Oxendine used an investigation into a failed insurance company to pressure him to take a low profile in the governor’s race. Westmoreland described a phone call from Oxendine that he said felt like a “shakedown.”

Oxendine had called to inform the congressman that an insurance company whose advisory board he served on in 2003 and 2004 was under investigation.

Oxendine said the call was a courtesy, nothing more. But Westmoreland, who is backing Republican U.S. Rep. Nathan Deal in the race for governor, isn’t buying it.

“I think he thought he was going to worry me, “ he said. “It smells funny.”

The public airing of the disagreement gave rise to speculation in political circles and blogs about Oxendine’s prospects for winning the Governor’s Mansion.

On Friday, Westmoreland told the AJC: “2010 is going to be an extremely important election for our state. And as the Republican primary for governor draws closer, it is my hope that voters will take a good hard look at all of the candidates running so that we don’t nominate somebody who can’t win in November.”

Westmoreland would not specifically say whether Oxendine is that “somebody who can’t win in November.”

The fear for some Republicans is that should Oxendine win the nomination, he would likely face a well-funded Roy Barnes, the former governor who is the front-runner for the 2010 Democratic nomination. Barnes, they fear, with his experience, political talent and cash, would whip Oxendine in a head-to-head match.

Oxendine has always been viewed with trepidation by parts of the Republican establishment. For one, he’s a former Democrat who has exhibited intense ambition and a knack for self-promotion. That ambition, however, has helped make him popular with some segments of the Republican electorate. He has been insurance commissioner since 1995 and a near-constant presence on the GOP dinner and meeting circuit, a tireless campaigner and a gregarious hand-shaker.

The other candidates in the Republican gubernatorial race are, so far, keeping their thoughts on Oxendine to themselves.

There have been four debates or candidate forums in the past three weeks and Oxendine’s troubles have yet to become a topic of conversation.

The same is true for the state’s top elected Republicans, all of whom declined to publicly criticize Oxendine. For some, it is likely a question of timing — as in, it’s not time yet to unload.

Some of their supporters have shown no reluctance to fire away.

Erick Erickson, who runs two influential conservative political blogs and supports former Secretary of State Karen Handel in the governor’s race, wrote this week that he would vote for Barnes, the Democrat, over Oxendine.

“I do think at some point we’re going to reach a critical mass where the guys who are saying it privately are going to be so worried about their own skin they’re going to have to say something publicly about it,” said Erickson, who runs Redstate.org, which focuses on national issues, and PeachPundit.com, which deals with state politics.

“I know so many solid, diehard, would-never-vote-for-a-Democrat-under-any-circumstance-Republicans who will vote for the Democrat,” he said.

Oxendine has held a consistent, double-digit lead in polls of likely Republican primary voters. The most recent independent poll, released in December by Rasmussen Reports, shows Oxendine with 28 percent of the vote, double the 14 percent going to Handel. Deal is third with 13 percent, followed by state Rep. Austin Scott (R-Tifton), former state Sen. Eric Johnson (R-Savannah), Sen. Jeff Chapman (R-Brunswick) and states rights activist Ray McBerry, all of whom draw about 2 percent.

Oxendine has raised nearly $3 million through Dec. 31 and has $2.2 million on hand. That’s more than double the $940,000 Deal has on hand and nearly $1 million more than Johnson. Handel has $439,000 in cash.

Oxendine’s lead in the polls and in fund-raising comes in spite of a series of unflattering news reports.

The Westmoreland incident came just two weeks after Oxendine violated state hunting laws when he went quail hunting on a campaign contributor’s preserve. Oxendine’s 13-year-old son accidentally shot a man while hunting with Oxendine and others at Northwest Georgia Quail Preserve, which is co-owned by Delos “Dee” Yancey III. Yancey is CEO of State Mutual Insurance Co., based in Rome.

Oxendine does not have a license and has not taken a hunter safety course as required by law. The Department of Natural Resources gave Oxendine “verbal guidance” to complete the course.

Last May, the AJC reported that Yancey’s firms funneled $120,000 to Oxendine’s campaign in 2008. State law prohibits companies from giving money to the campaigns of officials who regulate them.

Oxendine denied knowledge of the donations and returned the money. The State Ethics Commission is investigating.

In December, Oxendine defended himself against fresh reports that he accepted trips to the Oscars on the tab of a contributor who asked for help in an insurance dispute.

The reports, which came out of a lawsuit involving the doctor, Jeffrey Gallups, and an Indiana insurance firm, also said the physician paid for a hunting trip.

Oxendine said he reimbursed Gallups who, along with his family and businesses, have contributed about $100,000 to Oxendine’s campaigns.

Oxendine’s lead in the polls, according to Rasmussen Reports’ analysis, is largely because of name identification.

Oxendine has seen his support drop in Rasmussen’s regular polls from 35 percent in April to 28 percent in December. But the poll found none of the other candidates making comparable gains.

Longtime Republican activist Jay Morgan, a former GOP executive director who has contributed to Johnson and Deal, said Oxendine has had a hard time winning over the party establishment.

“We’ve got a long history in Georgia of the establishment candidate winning the primary,” Morgan said. “The challenge for Oxendine is finding a way of making himself more acceptable to the establishment. Not that they’re not working hard at it, but I don’t necessarily know it’s paid any dividends for him.”

Some Oxendine supporters aren’t worried that he’s not a favorite of the party establishment. With five months to go before the primary and Oxendine’s fat campaign account, time and money are on his side.

Michael Opitz of Cobb County said any problems Oxendine may have had do not change the fundamental reasons they’re supporting him.

“My boss had a sign on his office wall and I shared the philosophy even though I didn’t have the words that were on the sign,” said Opitz, a former executive with AT&T and Lucent Technologies.

The sign said, “ ‘The older I get, the less I listen to what people say, and the more I watch what people do,’ ” Opitz said. “And I have found that to be one of the truths in life.”

Oxendine, he said, has been a true steward of his office.

“Look at the other issues swirling around about John,” Opitz said. “We’re all realistic enough to know that any time, in virtually any political race, if you have five or six candidates, the thing they have to do to get recognized is to create some kind of controversy and then attack.”

It’s a distraction, he said.

“That kind of thing is politics, and it’s uncalled for.”

id="cxArticleURL">http://www.ajc.com/news/gop-seems-miffed-by-292947.html

Many of American are investing in mutual funds now and are going to keep their money invested in the market while they learn to begin to stockpile stocks on their own.  If Phil Town were going to keep his capital in the market but not invest it on his own yet, He’d put his money into Spyders—the exchange-traded fund for the S&P 500 (symbol SPY). Phil Town thinks that the average fund charges about 1.3 percent fees. Whereas the  SPY fund only charges .08 per- cent. That mean you’ll pay 16.25 times less for SPYDER which is a big difference. If you have $10,000  worth of investments in your 401(k) in the average mutual fund, you’re going to pay about $200 in fees. Compare that to the spyder fund and you’ll pay only $8 for SPY.  Now that is  the first good thing, because you just received  a 2 percent return just for knowing a little thing about your money. And even better, today that 2 percent represents a significantly better return than you would get in a one-year U.S. Treasury bond. You can make money on SPY by trading it using a simple computer tool called a Moving Average. Phil Town thinks that just for having a little knowledge. The second is SPY is going to do the market rate of return because it is the market. It’s a stock that mirrors the S&P 500 index by buying the index stocks. If the S&P 500 index goes up 20 percent next year, SPY will go up 20 percent, too. Same with going down 20 percent, of course, but SPY eliminates the mutual fund fee and then achieves what the vast majority of mutual funds fail to achieve—a market rate of return. This one change in your investing will solve the problem of being ripped off for fees. It doesn’t solve the problem of making nothing for the next ten years if the market goes nowhere.

       The doubts about all the positive economic data coming out are beginning to show up in the markets.  First, let’s consider the unemployment rate.  It supposedly went down from 10.0% to 9.7% while job losses increased.  Does that make any sense at all.  The problem is the Bureau of Labor Statistics is using a Birth/Death Model that cannot render reliable conclusions in these unique conditions. I won’t go into the details because this isn’t an economics lecture.  Suffice it to say that this model has nothing to do with people.  It has to do with the Birth/Death rates of businesses.  I think I mentioned in a prior post that many businesses were closing down at the end of the year and we still haven’t seen that data yet.  Expect to see major revisions to the unemployment rate soon.

       Second, I have made mention of the U.S. Gross Domestic Product or GDP and how it needs to be above 3% -4% to indicate any sort of economic recovery.  In the 4th quarter it was reported that the number was 5.7% for the quarter.  The market has seen through that horse shit.  Gene Epstein of Barron’s explained that the part of the GDP that reflects recovery is the Domestic Final Sales element or the DFS which reflects consumer spending plus business and investment in plant and equipment.  The DFS needs to be substantially higher than the 1.8% in the 3rd quarter and 1.9% in the 4th quarter.  So GDP is nowhere near where it needs to be.  It might benefit from the increase in spending to rebuild inventories (or so they say).

     Third and probably most important is the alternatives available for investors to put their money in.  The vast majority of it is going into U.S. Govt treasuries and now German Bonds are starting to draw assets.   The problem is U.S. Govt  treasuries have become another asset bubble that will burst down the line.  Think about it.  If everyone is demanding U.S. Govt bonds, the price goes up and the yields go down.  At some point, the massive U.S. Govt debt issue is going to begin to weigh on investors minds and they will begin to wonder how in the world the U.S. is going to pay down that debt.   Keep in mind that as long as the interest rates that the U.S. pays is low, it is a manageable problem.  But, global  investors, as soon as the rest of the world starts to look better in terms of total returns,  are going to start selling bonds and moving toward more attractive alternatives that have inherently less risk.   When that happens, rates start to climb,  the U.S. Bonds begin to loose value and then all hell breaks loose because all the Retirees that are holding those bonds mutual funds are not expecting to loose their principal and will start reading their quarterly statements and those losses will begin to register.  As long as the interest rates are on a par with the GDP growth rates ( 3%-4% vs 4%-5%)  running up a national debt can work.  When those ratios get out of whack, watch out.  That’s when you want acreage, ammo, and isolation.

      In the context of a market that is fairly or fully valued, the above points can only have a negative impact on the market.  We are 800 points into the 1,000 to 1,500 point drop I wrote about on Jan. 22nd and not far from a DOW 9,000 to 9,500 level which will be the 15% correction I wrote about.  The market mentality has changed from one of bullish euphoria to doubt and concern.  Any good news is now looked at with scepticism.  Any bad news is emphasized such that the pundits start to referr to a possible end to a bull market that never really was.  We simply recovered from a major panic in the markets and it took on a life of it’s own.  We witnessed an overreaction to the upside.  It is entirely possible that we may witness another overreaction to the down side.  But, don’t count on it.  There are way too many anxious money managers chomping at the bit to jump at what may look like another leg up.  

       Just consider that if you followed my opinion and went to cash, you avoided a nice slide.  Don’t worry about whether the market will keep going down after you get back in.  Rest assured it will.  It just won’t be as painful as it could have been.  And wait for the next oscillation in the market.

In today’s extroverted business world, introverts can feel ignored, overlooked, and misunderstood. In fact, according to my research—a two-and-a-half-year national study of introverted professionals—four out of five introverts say extroverts are more likely to get ahead in their workplace. What’s more, over 40 percent say they would like to change their introverted tendencies, but don’t know where or how to begin. The good news? Introversion can be managed.

What is introversion, anyway?

Introverts may be less noisy at work, but by all accounts they outnumber extroverts. Even many high-powered executives—a full 40 percent—describe themselves as introverts, including Microsoft’s Bill Gates and uber-investor Warren Buffett. Odds are, President Obama is an introvert as well.

But, what is introversion, anyway? 

Unlike shyness, a product of anxiety or fear in social settings, introversion is a key part of personality—a hardwired orientation—and may be best defined by several characteristic behaviors, including the need to spend time alone, process information internally, and “think first, talk later.” Introverts also seek depth over breadth, prefer writing to talking, and avoid showing emotion.

Other defining behaviors:

In my next blog post, I will share the hard realities that introverted leaders face in today’s workplace and how to overcome them.

Are you an introverted  technical professional? Do you manage introverts?  Do you agree with these defining characterisics?

Business & Economy Directory

Recently, the Foundation Center and Council on Foundations released Perpetuity or Limited Lifespan: How Do Family Foundations Decide?; and The Aspen Institute published Time is of the Essence: Foundations and the Policies of Limited Life and Endowment Spend-Down. These and other works have valuable things to say. But the Foundation Center survey of family foundations makes it clear that perpetuity versus spend-out simply isn’t a pressing matter. Indeed, most foundation boards and staff and most donors are rightly more concerned about mission, values, effectiveness, and impact; as well as about family issues, control, concerns about “immortality,” etc. Decisions on those issues may then lead to strategies that lead to spending out or continuing into the future. We don’t generally discuss perpetuity versus closing down when discussing settlement houses or commercial equipment manufacturers or community foundations, for instance; why should we with private foundations? Let us stick to the important questions. Let us avoid that first distraction.

The second distraction is more unfortunate. A focus on perpetuity versus spend-out limits and impoverishes our thinking about the future of foundations and the varieties of their “existence.” It is not either/or. What other organizational options can promote mission, values, impact, and effectiveness? What about the possibilities of foundations merging, rather than disappearing or doing the same old, staid thing?

There are great examples of foundation collaborations, donor collaborations, pooled funds, funders’ groups, etc. That literature is vast. I am talking about variations beyond that, and closer to a merger, that may provide new ways to achieve mission, impact, and other values as well. Many of the issues that animate discussions about spend-out and/or staying in business can be seen in a new light by asking about different possibilities, including merging. The question is relevant not only for family foundations and small foundations, but for larger, more established philanthropic institutions.

Some interesting examples exist:

Each of these examples is a variation on the theme of merging. There are many different ways to bring together different donors and foundations. The field as a whole would do well to focus creatively on the pros and cons of mergers and other such organizational forms. What about other examples? And where are the good “inside story”/how-to case studies?

Mergers in any sector are not simple panaceas. They are usually time-consuming, difficult, complex, and messy. They can be inappropriate and inefficient. Each of the above examples had its own difficulties. Mergers certainly have the potential for representing a loss of control or of family involvement. They can become takeovers where the original mission disappears in the bowels of the new entity.

Mergers can also be effective ways to stay true to mission and passion and values. They can substantially increase impact in communities or increase leverage for programs of importance. They can improve efficiency in operations and provide greater programmatic expertise. They can shake up the calcification of settled philanthropic practice while reviving and strengthening civil society (this later point is the topic of my next contribution).

Boardrooms, staff, scholars, and living donors should think about foundation mergers as part of their drive towards impact. We need to experiment with the idea of new foundation forms and combinations. Focusing too narrowly on perpetuity versus spend-out is a distraction from the purposes—and the possibilities—of foundations.

(A forthcoming session at Philanthropy New York, “What Are the Options? New Ways for Foundations to Do Their Work”, will look at mergers and other organizational options for foundations. It will be held on April 16th, from 8:30 to 11:00 AM. Please continue to check Philanthropy New York’s Calendar of Events for more information.)

Don’t act thoughtlessly, but understand what the Lord wants you to do. Don’t be drunk with wine, because that will ruin your life. Instead, be filled with the Holy Spirit, singing psalms and hymns and spiritual songs among yourselves, and making music to the Lord in your hearts. And give thanks for everything to God the Father in the name of our Lord Jesus Christ. Eph. 5:17-20 

What are you “under the influence of?” Being under the influence of stuff leads to many of our financial miscues. Instead, be under the influence of the Holy Spirit.

Think it sounds crazy? Watch the following video and take time to praise God in the midst of financial uncertainty and see if God doesn’t do the same thing for you.

Give thanks for the things God has already given you. We spend way too much energy focused on what we don’t have, instead of being thankful for what we do have. Make a list of all the things you have and see if God doesn’t strengthen your faith and resolve.

I pray that God will provide all that you need and He will get the glory and honor through your life in 2010.

Most all successful business entities have Company Mission Statements, Goal Setting and Planning encompassed in their Policy and Procedure Manuals. This goal setting and planning objectives are the foundation of any successful business. Having a common balance between the company and employees ensures permanence.

Some of the most profitable companies are susceptible to failure. There will always be competition. We need to always be aware and proactive to constant change for continued growth. We have seen many companies fail after years in the business. One of the main reasons for their failure was the ability to change with the times. Setting goals and planning ahead will keep us to the forefront.

Many of us might not want to admit it, but we will find all kinds of excuses to avoid goal setting and planning for the future. Keep in mind that this adage holds true. “To fail to plan is to plan to fail”. Here are several so-called excuses that I’ve heard and encountered over the years.

I am hard working and disciplined and know what needs to be done. This might be true but just thinking what needs to be done, will continue to set you on a path in a backwards direction. This thought process, however positive, won’t be good enough. What might work one year does not mean it will work in the future. Always plan ahead and be prepared. Make a group effort today for tomorrow’s success.

THERE’S NO NEED TO PUT IT IN WRITING! An unwritten goal doesn’t exist. An unwritten goal means nothing to your employees. Making your goals and business plan known to your employees tells them they are critical to the success of the company.

I wrote down my goals, so therefore I will now be successful. It is more entailed than just writing your goals down. They require further execution, management and harmonization. Rest assured Donald Trump, Warren Buffett or Bill Gates acted upon their written goal setting and planning.

THERE’S NO NEED TO REVIEW MORE THAN ONCE A YEAR! This belief might have been true with some businesses in the past, but with the economic downturn and turmoil over the past several years, a revisiting of our written plan and goals makes sense more than once yearly. Adaptation and redirection could save the life of a company if properly sequenced.

We must constantly adjust our goals to determine if increased production is approached in a timely manner or if a reduction in sales or staff is more realistic. If we don’t take these approaches cautiously, we could be in a financial crisis along with the economy or even in a strong economy. We will always be in a better position knowing the “storm” is coming rather than waiting until after it arrives.

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id="authorIntro">Exploring trends in any area, from bonds and stocks to closed-end funds and futures, always with an eye towards giving investors a better understanding of the sometimes confusing and often chaotic world of finance.

Warren Buffett and Charlie Munger are two of the finest dividend investors to ever walk the planet.

Sound strange? It should. Buffett has famously eschewed dividend payouts to Berkshire Hathaway shareholders while demanding fat yields from Berkshire’s portfolio companies.

“Unrestricted earnings should be retained only when there is a reasonable prospect — backed preferably by historical evidence or, when appropriate, by a thoughtful analysis of the future — that for every dollar retained by the corporation, at least one dollar of market value will be created for owners,” Buffett wrote in his 1984 letter to Berkshire shareholders.

Buffett’s billion-dollar secret … exposed! 
The emphasis is Buffett’s, not ours. But we heartily agree. Businesses that don’t pay dividends should have a plan to produce massive returns with every dollar of retained capital — the sorts of returns Buffett and Munger have spent decades delivering to their own shareholders.

Massive is too small a word to describe the gains. Let’s go with “ginormous” instead. Here’s why: Buffett, Munger, and their top-notch managers have engineered a 20% annual return on Berkshire’s per-share book value since 1965. All but three of those years (1965 through 1967), the company retained all earnings, paying no dividends.

Unfair, you say? Unethical? Name a multibillion-dollar conglomerate that pays a 20% annual yield, and you can join the chorus of sourpusses who demand that Buffett and Munger pay a dividend. Let us know when you find one.

Actually, let us save you the trouble. Passable 10% yielders such as Apollo Investment (Nasdaq: AINV), PDL BioPharma (Nasdaq: PDLI), and Himax Technologies (Nasdaq: HIMX) are rare enough in the small-cap ranks. Unless you count prayer as a strategy, your only decent option for a 20% yield is a highflier managed investment vehicle such as the India Fund, which regularly dispenses long-term capital gains to investors.

That’s our money, pal 
As we see it, Buffett’s dividend policy is actually a boon for shareholders. He likens us to bankers, entitled to a return on the capital borrowed from us when we invest. Dividend payments are the default, made in lieu of a proven history of effective use of capital.

In stark mathematical terms, this means capital allocation laggards such as Marvell Technology (Nasdaq: MRVL) and Headwaters (NYSE: HW) ought to be paying dividends. Neither of these non-payers has earned more than 3% on their available capital since 2007.

Compare that with China Green Agriculture (NYSE: CGA) and Blue Nile (Nasdaq: NILE), non-payers also. Yet each company has a history of producing better-than-20% returns on capital. They’ve earned the right to be stingy.

Neither Buffett nor Munger are immune from this test. Remember: Berkshire spent 1965-1967 paying dividends, and in the ensuing decade would produce better-than-40% returns four times in 10 years.

Dividends helped produce those returns, and they’re still helping Buffett and Munger today. Have a look at these yields on Berkshire’s 10 largest holdings:

Coca-Cola

200,000,000

3.1%

$328 million

Wells Fargo

302,609,212

0.7%

$63 million

Burlington Northern

76,777,029

1.6%

$123 million

American Express

151,610,700

1.9%

$109 million

Procter & Gamble

96,316,010

2.9%

$170 million

Kraft

138,272,500

4.1%

$160 million

ConocoPhillips

57,430,168

4.2%

$115 million

Johnson & Johnson

36,914,633

3.1%

$72 million

Wal-Mart

37,836,642

2%

$41 million

Wesco Financial

5,703,087

0.5%

$9 million

Sources: Capital IQ, Yahoo! Finance, and authors’ calculations.
* Data as of Sept. 30, 2009.

Buffett also took advantage of last year’s market insanity to buy preferred shares of General Electric and Goldman Sachs that pay Berkshire Hathaway $800 million in annual dividends.

This deal is so good that Buffett noted in an interview that the Goldman investment alone is paying Berkshire almost $1,000 per minute the company doesn’t repurchase his investment. “So I try not to answer the phone if I think Goldman’s calling,” Buffett said.

Berkshire Hathaway: the unlikeliest dividend play 
All told, Berkshire collects some $2 billion per year in dividends on its $62 billion portfolio — a fat 3.4% annual yield!

This matters more than you may think. Buffett and Munger measure themselves against the return of the S&P 500, an index that yields 2% as of this writing.

Consider that for a moment: Buffett and Munger, two superinvestors who need no extra advantages, are already starting with a lead on Mr. Market. They’re using dividends to rig the race in their favor.

You can, too 
Now here’s the best part: You needn’t be a Berkshire shareholder to implement Buffett’s strategy. You can do just as well or better by investing in your own basket of safe stocks with generous yields. Our Motley Fool Income Investor portfolio, for example, yields 4.4% — well ahead of the market average.

To be fair, and as the past year has shown, not all dividend stocks are created equal. We want what Buffett wants: generous dividend payers with proven management teams, durable competitive advantages, and rock-solid financials — all at a cheap price.

If Buffett’s approach makes sense to you, and you’re looking for some solid dividend payers, you can check out our Income Investor team’s favorite stocks right now, free for the next 30 days. Click here for instant, unfettered access to all their research and seven “Buy First” recommendations. There’s no obligation to subscribe.

Already subscribe to Income Investor? Log in here.

This article was first published on Sept. 24, 2009. It has been updated.

Fool contributor Tim Beyers and Foolish editor Ilan Moscovitz strongly suggest you read Buffett’s collection of letters to shareholders if you haven’t already. No better investing education exists elsewhere. Tim and Ilan each owned shares of Berkshire at the time of publication. Tim also owned shares of Apollo Investment. Procter & Gamble, Coke, and Johnson & Johnson are Income Investor recommendations. American Express, Berkshire, and Coke are Inside Value selections. Berkshire is also a Stock Advisor pick. China Agriculture is a Global Gains recommendation. Blue Nile is a Rule Breakers pick. The Motley Fool owns shares of Berkshire, China Green Agriculture, and Procter & Gamble and has a disclosure policy.

id="authorIntro">Exploring trends in any area, from bonds and stocks to closed-end funds and futures, always with an eye towards giving investors a better understanding of the sometimes confusing and often chaotic world of finance.

If you don’t know who Charlie Munger is, you’re missing out. Let’s just say that if it weren’t for Warren Buffett, Munger might hold the title as the world’s most famous investor.

And not just because Munger — Buffett’s right-hand man — is an extraordinary investor. He is, of course, and he’s a multibillionaire. But what makes both Buffett and Munger so appealing to everyday investors is their ability to distill complex investing topics into simple sentences.

Buffett’s words of wisdom have been repeated endlessly. But Munger doesn’t get enough face time. One of his most overlooked contributions is a very simple 10-point list called the “investing principals checklist,” spelled out in his book Poor Charlie’s Almanac. Without further ado:

1. Measure risk 
All investment evaluations should begin by measuring risk, especially reputational.

Circa 2003-2007, investors loved banks because they were big and made lots of money. What few asked was how much risk they were taking. Right now, investors love companies like Apple (Nasdaq: AAPL) and Ford because shares have gone gangbusters. Those who properly analyze how much risk the run-ups have added will end up happiest.

2. Be independent
Only in fairy tales are emperors told they’re naked.

Maybe the hardest part of investing is that the greatest odds of being right come when most think you’re wrong, and vice versa. If your plan is to watch CNBC and invest in what the most talking heads like, you’ll likely end up with average results at best. Some of the winners of the past year were companies like Alcoa (Nasdaq: AA) and General Electric (NYSE:  GE) – both of which elicited nothing but giggles or blank stares one year ago. 

3. Prepare ahead
The only way to win is to work, work, work, and hope to have a few insights.

The past decade was defined by delusions of success: Buy a house, and you’ll be rich. Have a credit card, and you’ll be rich. Buy penny stocks, and you’ll be rich. Live in America, and you’ll be rich. None of it was true. But this fact is as true today as it’s been for eons: The best way to become financially successful is to work hard, save harder, learn a lot, and invest patiently and prudently. That, or work at Citigroup (NYSE: C), where failure and success are rewarded equally. 

4. Have intellectual humility
Acknowledging what you don’t know is the dawning of wisdom.

A related Munger quote: “The iron rule of life is that only 20% of the people can be in the top fifth.” Sad, but true. You’re not Warren Buffett. You don’t know what’s going to happen next year. Most people probably can’t fully comprehend what Microsoft (Nasdaq: MSFT) or Oracle (Nasdaq: ORCL) do. You might not even know what a balance sheet is. It’s OK. And not just OK, but vital to admit it, and either pass on things you don’t understand, or learn from someone who does. The alternative is going at investing roulette style. Las Vegas is for that. (Better food, too.) 

5. Analyze rigorously
Use effective checklists to minimize errors and omissions.

There’s truth to the adage that people spend a month researching a new dishwasher, but 10 minutes researching a new stock. Take your time. Be patient. Be selective. Read annual reports. Crunch numbers. Get other people’s opinion. This is your hard-earned money we’re talking about.

6. Allocate assets wisely
Proper allocation of capital is an investor’s No. 1 job.

Last fall, stock funds were liquidated en masse while money market funds got inundated with demand. No doubt this was because investors feared the worst was ahead. But it also took a big, scary event to make people realize their allocation was dangerously skewed. Too many stocks, too little cash. The worst part is that most of these investors had to either sell or increase cash savings at precisely the same time stocks were cheapest.

7. Have patience
Resist the natural human bias to act.

Last fall, I interviewed famed value investor Mohnish Pabrai. I asked Pabrai what his edge as an investor was. “Control over my emotions” was his succinct answer. “That’s it?” I asked. “It’s huge. You’d be surprised,” he responded. He couldn’t be more right. It all comes back to one of Buffett’s most famous sayings: “The market is there to serve you, not instruct you.”

8. Be decisive
When proper circumstances present themselves, act with decisiveness and conviction.

Related to the previous quote, Pabrai began scooping up shares of cratering companies like Wells Fargo  (NYSE:  WFC) when markets hit the fan in late 2008 and early 2009. Shares later exploded in value. Pabrai’s main fund rose by more than 100% as of late last year. His decisive actions speak for themselves. 

9. Be ready for change
Live with change and accept unremovable complexity.

If the past two years taught us anything, it’s that what you don’t think can happen not only can, but probably will. In both personal finance and investing, there’s no more dangerous place to be than relying 100% on a certain set of circumstances. That’s just not how life works.

10. Stay focused
Keep it simple and remember what you set out to do.

As Dale Carnegie said, “Success is getting what you want. Happiness is wanting what you get.” It doesn’t get better than that.

Onward 
Munger teaches us that investing is simple, but hardly easy. He’s also an example of how much you can learn from a great teacher. If you’re new to investing, looking to hone your skills, or interesting in learning from two phenomenal investors — David and Tom Gardner — I encourage you to try a free 30-day trial to Motley Fool Stock Advisor. Since its inception in 2002, the average Stock Advisor recommendation has outperformed the market by more 48 percentage points. Click here for more information. There’s no obligation to subscribe.

This article was first published Dec. 19, 2009. It has been updated. 

Fool contributor Morgan Housel doesn’t own shares in any of the companies mentioned in this article. Microsoft is a Motley Fool Inside Value recommendation. Apple and Ford Motor are Motley Fool Stock Advisor picks. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Oracle, and has a disclosure policy.

id="authorIntro">Exploring trends in any area, from bonds and stocks to closed-end funds and futures, always with an eye towards giving investors a better understanding of the sometimes confusing and often chaotic world of finance.

Investors today face a dilemma. With the Dow still down 30% from its peak, top investors like Chuck Acre, Whitney Tilson, and Warren Buffett keep reminding us that stocks are cheap.

On the other hand, every day, newspapers report another round of layoffs, and bleak headlines leave us all wondering how low stocks can go.

So if you think today’s an utterly lousy time to invest, well, I certainly can’t blame you.

That said …
Do you remember the Internet bubble? I sure do. When the Great Bubble burst in 2000, I saw my portfolio fall directly into the commode — down 40% in the space of a few months.

See, back in 2000, I bought into the worst of the worst tech stocks. The overhyped Palm IPO. The overpriced Cisco (Nasdaq: CSCO). The soon-to-be-bankrupt Winstar. But as the market slowly turned around, I eventually recovered my losses — and then some.

Of course, the financial crisis we are facing today is far more widespread and threatening than the Internet bubble was. Nevertheless, over the course of time, I learned that building real wealth consists of three simple, timeless steps:

Working as many as five jobs simultaneously, my wife and I scrimped and saved. We cut corners. And no matter how much we took home from work, we strove (not always succeeding, I admit) to put away at least a third of our income for a rainy day. Then we invested it.

Invested in what?
I set out to describe the investment philosophy I learned from Motley Fool co-founder Tom Gardner. The result was a 2004 column I called “7 Steps to Finding Gems.” You can read it for yourself just by clicking through the link, but here’s the dime tour:

I invested in companies that:

How cheap? To keep it simple, I sought out companies selling for a price-to-free cash flow-to-growth (P/FCF/G) ratio of less than 1.0. It’s really a fancy-pants version of the PEG ratio, popularized by legendary former Magellan Fund manager Peter Lynch. I prefer free cash flow over GAAP earnings as a measure of profitability; while GAAP profits may be good enough for the SEC, I believe free cash flow is a more reliable indication of financial health.

Now here’s the best part
It was easy finding great companies that fit this criterion after the Internet bubble burst. But ever since 2005, I’ve been having trouble finding many stocks selling for as cheap as I’d like to pay — until now.

Thanks to the Great Sell-Off of ‘08, stocks finally offer investors today the chance to earn the kind of profits I reaped back in 2001-2005. Yes, even now that the market has “returned from the dead,” bargains still abound. When I ran one of my favorite stock screeners in search of bargains last week, several likely suspects popped right up, each trading below my target valuation:

Company

P/FCF

P/FCF/G*

Abercrombie & Fitch (NYSE: ANF)

14.2

0.87

SanDisk  (Nasdaq: SNDK)

13.9

0.86

eBay (Nasdaq: EBAY)

12.5

0.80

Apollo Group (Nasdaq: APOL)

10.9

0.70

Deckers Outdoor (Nasdaq: DECK)

15.0

0.66

HSBC Bank  (NYSE: HBC)

4.2

0.25

Data from Finviz.com and Yahoo! Finance. *Based on consensus 5-year earnings growth estimates.

A word of warning …
Screens like this one can help you to find bargains, but they’ve got their limits as well. Take HSBC, the apparent “cheapest stock on the list.” With a price-to-free cash flow-to-growth ratio of 0.25, your first instinct might be to yell: “Hurray! They’re practically giving it away!”

Alas, they aren’t necessarily. HSBC’s presence on this list offers a case study in how not to use this screen. Specifically, do not use it to pick banks. By their very nature, banks cannot be valued on their “free cash flow.” HSBC may or may not be a good stock, but valuing it requires a great measure of due diligence, since banking today is such an incredibly complex and largely unpredictable industry.

… and one of hope
The good news is that even if you don’t choose to invest in banks, this market offers bargains aplenty. If you could use a little help finding them, why not give Motley Fool Inside Value a whirl? Take a free trial of the investing service dedicated to buying value, and you can sneak a peek at the top stocks we’re recommending today.

Click here for more information. There is no obligation to subscribe.

This article was first published March 10, 2009. It has been updated.

Fool contributor Rich Smith does not own shares of any company named above. Apollo Group is a Motley Fool Inside Value pick. eBay is a Motley Fool Stock Advisor recommendation. The Fool has established a bear put spread position on Abercrombie & Fitch. Motley Fool Options has recommended a bull call spread position on eBay. The Motley Fool has a disclosure policy.

id="authorIntro">Exploring trends in any area, from bonds and stocks to closed-end funds and futures, always with an eye towards giving investors a better understanding of the sometimes confusing and often chaotic world of finance.

Warren Buffett often talks about “tollbooth” businesses — those that charge entrance fees on services we can’t live without.

No better example exists than Visa (NYSE: V) and MasterCard (NYSE: MA). The business model these two share is beautifully simple: They extract small fees on credit card and debit card purchases for facilitating transactions. Every time you swipe a card with their logos, they get a small cut of the deal. Banks like JPMorgan Chase (NYSE: JPM) provide the actual money for these transactions, swallowing all the risk. They’re the ones out in the cold, dangling from the scaffolding, building the bridge; Visa and MasterCard just sit in a heated tollbooth with their hands out, raking in fees on every vehicle that needs to cross. It’s a great way to be in business.

Visa and MasterCard both reported full-year 2009 results last week. So let’s weigh ‘em in, unpack the numbers, and declare a winner.

Keep it simple
When analyzing a credit card processor, it helps to focus on three major metrics:

Why these three? There are two streams of income in the card processing business: One, called service revenue, is based on the dollar amount of transactions. Another, called data processing revenue, is based on the number of transactions. We also need to know if money came from the credit or debit side in order to size up growth potential.

Looking at full-year 2009 growth, here’s what you get:

Total Payment Volume Growth

Debit Volume Growth

Credit Volume Growth

Total Processed Transaction Growth

Debit as a Percentage of Total Volume

Credit as a Percentage of Total Volume

That’s a fairly close race, but there are some important differences here:

So the crowd’s cheering for Visa at this point. It’s on the right side of the debit-credit showdown, where all the growth is.

Of course, the market isn’t blind to this. Consider the long-term earnings-per-share estimates:

Visa

MasterCard

Source: Capital IQ, a division of Standard & Poor’s.
CAGR = Compound annual growth rate.

Better buy … or buy at all?
So here’s the big question: Should you buy a 20% grower at 22 times earnings, or a 16% grower at 16 times earnings?

Frankly, neither is an obvious buy at today’s prices. People use many wonderful words to describe these companies, but “value” typically isn’t one of them. Other companies of equal caliber, like Procter & Gamble (NYSE: PG) and Johnson & Johnson (NYSE: JNJ), could be more worthy of your hard-earned money.

But here’s my take on the cards: As the economy moves from a debt-fueled disaster toward a culture of saving and sanity, debit growth is sure to keep running laps around credit. And there’s more to it than just a change in spending behavior. Debit growth is also fueled by increased social acceptance of using plastic in lieu of cash.

The banks issuing these cards also tend to pick and favor one processor over the other. Bank of America (NYSE: BAC), for example, is a huge issuer of Visa debit cards, while Citigroup (NYSE: C) is a major issuer of MasterCard credit cards. Distribution is skewed bank by bank. That makes it difficult for card processors to steal market share from one another, especially since the banking industry is so heavily concentrated.

So here’s the verdict: Since debit’s future is quite clearly brighter than credit’s, and Visa reigns supreme in the debit world, Visa is where you want to be.

Just wait for a better price.    

Fool contributor Morgan Housel owns shares of Procter & Gamble and Johnson & Johnson. Johnson & Johnson and Procter & Gamble are Motley Fool Income Investor picks. The Fool owns shares of Procter & Gamble. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.