Easy ways to Make Money: Secretary Calls

Ask anyone who works at a large corporation and they know that if you want to learn the dirt about what is going on in the office you just need to talk to the secretary. Secretaries know everything about what is happening in the company, they may not have the acumen to diagnose the severity of problems but they certainly have the acumen to understand how upset their bosses are that week.

Secretaries are a great resource in understanding the health of the company. This may sound a bit foolish but I will often give an executive secretary a quick call before making any sizable investment in a company.

I recently made one call to a company, with some simple honesty about being an investor and wanting someone's personal opinion who works at a company I learned the water cooler gossip. Nothing unethical here just asking a few questions about someone's personal opinion, and nothing that would get anyone in trouble with their N.D.A.

I know this sounds silly but try it some time, again in the big picture of things what is a five minute phone call with a receptionist when you consider this is your hard earned money.

The Right Investment Tools For the Job

“Give us the tools and we will finish the job.”
Winston Churchill

The evaluation of companies was once a very laborious exercise. Information about historic earnings and historic pricing information involved significant research and compilation. Today that effort is significantly reduced, thankfully there are numerous sources one can access to retrieve sets of desired information. Choosing just one source in all these options is often difficult though. Today we are going to have a look at some of the tools I use in analyzing companies I would love to hear so of your feedback and suggestions on other tools you use.

Tool 1: SEC Data

The Security and Exchange Department regulates that members of companies submit filings on buying and selling that they do in their own company within a few days of the transaction. There is a wealth of information here if you believe in the adage "people sell stock for all sorts of reasons but only buy it for one".

The SEC after much fighting made this information available via a website. http://www.sec.gov/edgar.shtml The usability of this website is, well, poor. There are alternatives if you happen to have $30K lying around to buy the "public" data. Or you can build your own data feed like I did.

Baring both of these alternatives I think the best source to get updates on SEC filings comes from J3SG they have a free daily email that comes out that shows some of the major trades from the day, they also have some interesting charts you can browse and it is all free.

Tool 2: Historical Data

Being a value investor the next place I go to is looking at fundamental analysis data such as balance sheets and income statements. Data is data so the key factor that sells me on a source is the number of years of available data. The winner in this category is Morningstar once you have an account setup with them you can access ten years of data.

Great site with 4-5 year data package and it is free!

The Morningstar website is a bit clunky though so if four to five years of data is acceptable Google Finance has a fabulous free site where info can be tracked down much more quickly.

Tool 3: Ratios

It is impossible to compare companies of different sizes and revenue streams without the use of some ratios.

Wow that P/E is high compared to the industry, but wait, the dividends are very different.

I personally like the ratios that are presented on Reuters they provide a number of the core ratios that I look at and also provide comparisons between the company, the sector, industry and market which helps greatly as a P/E of 10 may look good in one sector but absolutely dismal in another sector.

Tool 4: Charts

I am a not a huge fan of technical analysis but understanding a few things about a stock's moving pattern certainly does not hurt when you are getting ready to pull the trigger. I look at two sets of charts.

Looks like the market wasn't too excited about PSD purchasing another energy source.

I look at Google Finance to get a sense of any news stories I may have missed during my research of the company, and then I look at Yahoo Finance to review the insider trading patterns and stock volumes.

That is basically it my tools, the rest is just hard work. So what tools do you use?

* The author of this article was in no way paid or compensated for promotion of any website or service mentioned in this article.

Buy with a solid Dividend (Session 7)

The final page in our series on Graham's investment theory is dedicated to dividends. I saved the best, and most contentious for last. Investors love to split themselves into groups- technical analysts, fundamental analysts, value investors, growth investors. In the same vein there are dividend investors and growth investors. Without further adieu let's get into it.

What is it?

At the end of every financial quarter a well run business will have funds left in its budget. The business can choose to invest that money into the business in order to hopefully make more money in subsequent periods- buy machinery, pay off debt, buy another smaller business, open another store etc. Or the business can give the excess money and give it back to its investors as a reward for investing in the business- this is a dividend. Dividends can be paid on any schedule, quarterly, yearly or any combination of the above.

What does it tell us?

A company chooses a direction when it decides to pay a dividend. They have decided to be a type of a business, the type of business that traditionally has somewhat slower growth because it is returning the investment to the shareholder. These businesses get a pass on lacking big bang growth- but it comes at a cost. The business must be consistent about the dividend. Buying a company that pays a dividend for one quarter then cancels it for a year and then reinstates it again is giving mixed messages on what type of business it is.

A dividend is like a snooze button for a long term investor. If I buy a stock I expect returns. If the stock is consistently going up I can see those returns as I know I can sell that stock off in an instant for a healthy reward. But what if it does nothing or even goes down- then what? Well then I either have to liquidate and take my loses or grit my teeth and hope for a return to profitability on my position.

Here is an alternative story for you though. Imagine my stock goes down or stays the same could I entice you to be more patient with the stock if I give you 3% of your money back now and make you believe I will give you a further 3% back in another few months? Graham liked dividend stocks, they rewarded this type of patience. We have talked all the way through this series about different measures of Graham's theory being used as insurance techniques- this is the biggest of them all: even if I am wrong about the potential of a selected company I know I can receive a return from my investment so long as the company continues its dividend.

Incidentally dividends also have another interesting feature about them- they cause more consistency in the price of a stock. Every time a dividend period is coming close no one wants to sell their stock as they know it won't be long until a free payday arrives. Even if there is bad news in this period more people will hold the stock and think about the move instead of the knee jerk reaction that traditionally happens in the market.

What does Graham use?

Graham liked dividend paying stocks as we mentioned above consistency is important. If the company has a long track record of having paid a dividend then there is a very good chance it will continue to do so in the future. Graham liked a company with an:

"Uninterrupted payments for at least the past 20 years."
P. 348 The Intelligent Investor

While this is challenging to find the sentiment is clear- if they are consistent about the dividend they will probably be consistent in the future.

"the defensive investor should be able to count on the current 3.5%"
P.25 The Intelligent Investor

Graham also looked at stock investments as an alternative to bond investments. So if a stock investment can't beat a comparable low risk bond's rate of return why would I buy the stock? To put it another way, if you could get 5% in a savings account why on earth would you risk the money in the market unless you knew you could be fairly sure you could beat that 5%.

Hope you have enjoyed the series on Graham investing please vote on the poll to the right to guide what series we will look at next and please be sure to see the other parts of this series if you missed any:

Intro
Buy on the Cheap: Price/ Earnings
Buy a Company with a Future: Book Value
Buy on the Cheap: Price/ Book Ratio
Buy a Company with a Future: Current Ratio
Buy a Company with a Future: Based on its Past