The promise of making a lot of money has been heard by many, and many have found out that it just is not as easy as they had heard. They lost money - sometimes a lot of it. They then turned away from the stock market and ended up totally disillusioned about it. The truth is, they may have been somewhat confused about it in the first place. They may have thought it would come to them just like it did to others - without knowing the why’s or the how’s. Here are some strategies that you can use in order to help you to avoid the common mistakes that others have made.

Get A Realistic View

By looking at the market with your eyes open, you can come to understand not only the profit possibilities, but also the possibility of losses. The truth is that the higher the possible gain there is, that it is always associated with the increased likelihood of loss. The safer investments always bring a lower level of profit, and the safest investments have attached to them the lowest levels of profit.

Understand The Market

One of the greatest benefits that you can have to help you avoid a lot of potential pitfalls in your investments is to understand the principles of investing. In other words, read all you can about the process, how to judge a good stock, etc. The more you know about it yourself, the wiser you will be able to invest your funds - and hopefully see a profit. You will also be able to develop a worthwhile investment strategy - both for the short term and for the long term.

Diversify

It is smart investing to place your available investment funds into a minimum of 6 different kinds of shares. Some suggest that you go as many as 20 in order to diversify safely. Spread your investments into different kinds of stock (sectors) that are not related. This way if one type of market does not do well, then the other ones should. This enables you to still make money from some of your investment.

It is usually a good idea to diversify into more than just the stock market - at least until you really understand what you are doing. The smart investor will take a portion of their investment money and put a percentage of it into secure investments like trust funds which are solid investments, and possibly also bonds, which are the most secure, but do provide less interest.

Seek Counsel From Professionals

Unless you have money to just throw away, it would be a real good idea to seek help from someone who understands the market better than you do. There are professionals out there, financial advisors, brokers, etc., that are more than willing to help you build a solid portfolio for your investments. Their expertise can spare you a lot of unnecessary loss, and get you on to the right track to some solid profit.

Make Your Investments For The Long Term

While there is different thinking about the markets and how to invest, the general idea is to make your investments for the long term. Experienced stock market experts tend not to watch the market everyday, but only check on it once a month and many of them only quarterly. Watching it everyday leads to a lot of anxiety - since the market normally fluctuates a lot from day to day. Overall, though, it generally moves upward.

Joe Kenny writes for the UK Loans Store offering loans for UK residents and offer more information on secured loans UK and other loan topics available on site.
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Tags: Business, finance, invest, investor, market, money, price, profit, shares, stocks, tradeBusiness, finance, invest, investor, market, money, price, profit, shares, stocks, trade

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Whenever a large investment has been made in a particular area, whenever there is a lot capital, people, and ego tied up with some operation, the transition away from that operation is apt to be far slower than what an objective observer would have expected.

As an investor, it’s easy to look at a corporation from afar and see the business the way a rational capital allocator would see it. But, very few people within the organization are able to take such a farsighted view. They are not able to asses the matter dispassionately. There are jobs at stake. There is the admission of defeat. And there is the question of identity. Just as importantly, these problems hang over the managers every day. Staying too long in a dying business is rarely the result of one major misstep - rather, it is the result of a series of seemingly innocent steps that merely serve to delay the inevitable.

Recognizing the terrible importance of the inflexibility of an enterprise that is tied to a particular line of business, mode of production, or labor force is a difficult task. Many value investors have been caught in this trap. Some business appears to offer excellent value today; but, if it should cling too long to its old ways, that value will be destroyed. It’s tempting to think that managers will see the obvious danger, act to remedy the problem, and forever change the organization, before the inevitable occurs. But, that kind of thinking requires a leap of faith. It is too easy for the investor to believe what he wants to believe - to assume that somehow tomorrow will take care of itself.

Even Warren Buffett, a man who has been ever vigilant in his efforts to avoid prolonged entanglements in businesses with poor economics, has suffered from delusions of an easy transition. There are probably three good examples of such delusions from Buffett’s career. Discussing only two will be sufficient (the third would be Baltimore department store Hochschild-Kohn).

Buffett suffered from his most recent delusion in late 1993. That’s when Berkshire Hathaway acquired Dexter Shoe. Buffett now realizes that deal was a mistake. In the 2001 annual letter to shareholders he wrote:

“I’ve made three decisions relating to Dexter that have hurt you in a major way: (1) buying it in the first place; (2) paying for it with stock and (3) procrastinating when the need for changes in its operations was obviousDexter, prior to our purchase - and indeed for a few years after - prospered despite low-cost foreign competition that was brutal. I concluded that Dexter could continue to cope with that problem, and I was wrong.”

Buffett lists three separate decisions. I don’t think the way he presents the Dexter Shoe debacle is simply a thoughtless arrangement. Buffett is admitting he shouldn’t have bought Dexter Shoe at all. He shouldn’t have bought it with stock or cash.

His purchase was based on a false premise. It wasn’t simply a matter of overpaying (by using stock). It’s also interesting to note the third decision he describes: “procrastinating when the need for changes in its operations was obvious”. That’s a pretty harsh admission.

Buffett refers to procrastinating as a decision. No doubt it was a daily decision, not a one-time choice between two separate paths; nevertheless, it was a costly decision. Excusing inaction as being somehow a lesser offense than an incorrect action is a common occurrence in business; but, it is not a productive way to learn from one’s own mistakes. Especially in investing, inaction must be judged just as harshly as action.

The most interesting part of all this is the fact that Buffett separates the purchase itself from his failure to push for change at Dexter Shoe. He does not suggest that buying the business and then trying to change it would have worked well. Buffett seems to be saying the best course would have been not to buy the business in the first place.

I think he’s right. The risks involved in purchasing an inflexible business are difficult to quantify. However, they are real. These risks are frequently large enough to destroy any apparent value that comes in the form of a bargain price relative to high current earnings (or cash flow).

A business that is purchased because it can throw off cash can quickly become a money pit. Often, the buyer is well aware of this possibility. However, he manages to convince himself that the necessary transition will be made with the speed demanded by a rational assessment of the facts and a desire to put capital to its best possible use.

Operating managers rarely see things so clearly. Even when the road ahead is clear, the will is often lacking. It is easy to rationalize decisions that seem to offer a middle course. A gradual transition is always a tempting possibility. Who wouldn’t want to convince themself that a retreat is really a fighting withdrawal?

In the 1985 annual letter to shareholders, Buffett gave Berkshire’s reasons for remaining in the textile business as long as it did:

“(1) Our textile businesses are very important employers in their communities, (2) management has been straightforward in reporting on problems and energetic in attacking them, (3) labor has been cooperative and understanding in facing our common problems, and (4) the business should average modest cash returns relative to investment.”

“It turned out I was very wrong about (4)I won’t close down a business of sub-normal profitability merely to add a fraction of a point to out corporate rate of return. However, I also feel it is inappropriate for even an exceptionally profitable company to fund an operation once it appears to have unending losses in prospect.”

The delusion Buffett suffered under was only in regard to his fourth reason for remaining in the textile business. The belief that modest returns will be realized from a sub-par business is an attractive one.

A rational assessment of the facts would have lead to the opposing conclusion. Past experience demonstrated that apparent possibilities of future profitability based on greater efficiencies and improved conditions within the industry rarely lead to any actual profits. There was always hope. But, there was rarely any proof that such hope was justified.

“Over the years, we had the option of making large capital expenditures in the textile operation that would have allowed us to somewhat reduce variable costs. Each proposal to do so looked like an immediate winner. Measured by standard return-on-investment tests, in fact, these proposals usually promised greater economic benefits than would have resulted from comparable expenditures in our highly-profitable candy and newspaper businessesBut the promised benefits from these textile investments were illusory.”

An objective observer would have seen the flaw in the arguments offered in support of such investments. The industry was plagued by an overabundance of capacity. In the past, there had been a terrible misinvestment of capital that diverted a great flood of money into a seemingly attractive industry.

Unfortunately, that capital did not go into easy to recoup investments. It went into massive expenditures that saddled the owners with high fixed costs. A factory that produces nothing is worse less than nothing. It’s a money pit. The owner has only two choices: exit the business or attempt to obtain the most favorable variable costs by any means necessary. If enough players opt for the latter the game is no fun for anyone.

“Many of our competitors, both domestic and foreign, were stepping up to the same kind of expenditures and, once enough companies did so, their reduced costs became the baseline for reduced prices industrywide. Viewed individually, each company’s capital investment decision appeared cost-effective and rational; viewed collectively, the decisions neutralized each other and were irrational (just as happens when each person watching a parade decides he can see a little better if he stands on tiptoes). After each round of investment, all the players had more money in the game and returns remained anemic.”

The image of a crowd of parade watchers on tiptoes is a good one for investors to keep in mind. This is what a bad business looks like. This is the kind of investment you want to avoid. A corporation rarely exits a business on economically beneficial terms. It does so in its own time - long after the unending decline becomes obvious.

An inflexible enterprise is one that is tied to a particular line of business, mode of production, or labor force. Most businesses are not as closely tied to these things as you might think.

A few are. Xerox and Kodak (EK) are two examples from the recent past. General Motors (GM) is still tied to a labor force from a bygone era. GM is an example of a business that is so inflexible it is tied not only to a particular industry but to a particular position within the industry. The company was not structured in a way that allowed it to slim down in the event of a loss of market share. For some businesses, a shift in the structure of their market can be as disastrous as a shift in technology.

The consequences of such shifts can be dire. The good news is that it is not difficult to see which companies are exposed to these future threats. General Motors was a huge, unionized enterprise. It held a very large share of the U.S. market. It obviously had to maintain its market share. That may not have on the mind of investors a few decades ago, because the idea that GM would lose market share might have seemed absurd. But, if they had considered the matter, they would have seen that GM’s survival was largely dependent upon maintaining a very large share of the U.S. market.

Likewise, if Intel (INTC) or Microsoft (MSFT) lost much market share, they’d have to make huge changes very quickly. The current structure of those companies can’t be supported by a small share of the market. Of course, it would be much easier for these businesses to shed tens of thousands of employees than it is for General Motors. At the same time, no sane investor is buying shares of Intel or Microsoft unless he expects them to maintain roughly the same share of the market for their products that they currently control.

Future market share is a key consideration at both these firms, because the weight of the expenses they have taken on would crush any company that is not the biggest player in the industry. The companies literally employ small armies. In fact, the combined workforce of these two companies is no less than the number of U.S. troops in Iraq. So, clearly both companies have made rather large commitments predicated upon their continued dominance. Without that dominance, these commitments would become crushing burdens.

You need to give some thought to the flexibility of any business you invest in. The greatest risk facing a large enterprise is a decrease in revenues that can not (or will not) be offset by a similar decrease in expenses.

The “will not” part is important, because I’ve learned that it is easy to put too much faith in management. No one likes to make tough decisions. The fact that a problem is obvious does not mean those who understand the problem will necessarily seek to solve it. I have no doubt that many in Congress recognize that the national debt is a problem. I also have no doubt that they recognize it is not in their interest to address the problem. They would like to see someone else address it at a later date. Everyone would.

It is too easy to rationalize a thousand small steps. Then, you never have to admit your one big mistake. It may be that no one consciously chooses to tie a business to an inflexible and potentially perilous position. Likewise, it may be that no one consciously chooses to continue down that path. But, that is often precisely what happens. If the problem is not addressed until it must be addressed, it is too late for the owners. The losses in both time and money are already too great.

Therefore, it may be best to look for businesses where managers will not be required to make tough decisions. An investment based upon the belief that managers will make tough decisions is always a risky investment - regardless of the fundamentals.

Geoff Gannon writes a daily value investing blog and produces a twice weekly (half hour) value investing podcast at:

http://www.gannononinvesting.com

Tags: enterprises, finance, inflexible, Intel, investing, investor, market, stock, stocks, value, Xeroxenterprises, finance, inflexible, Intel, investing, investor, market, stock, stocks, value, Xerox

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Below is a honor from Mr. Evangelist L. Morgan, advantageous someone of roughly 7% of Lenox (LNX), to Ms. Susan E. Engel, Chairwoman and CEO of Lenox.

Dear Susan,

When your commission offered me a directorship on Sept 18, 2006, we discussed the reasons that prefabricated it unacceptable. At that time, I reiterated that I could prizewinning support the shareholders of Lenox Group by forward a activity persona on the Board of Directors and activity an astir persona in formulating and guiding the strategic content of the Company. Furthermore, I spoken my intention to not attain changes in the direction or Board of Directors. My views were supported on aggregation I had at that time.

The Board’s rejection of my substance to support the Company create a flourishing strategy has presented me a assorted perspective. I today wager that the Board has definite to oppose a instruction of state that is not in the prizewinning interests of the shareholders and is a postscript of the strategies that hit unsuccessful to create continuance over the happening decennium years.

The direction aggroup and Board of Directors advise to bear same the Company is a large, flourishing Company that has edge for making more mistakes. I do not agree. My substance to support the Company in dynamical its strategy to goodness shareholders has been unloved though I planned to impact with the existing direction and Board of Directors. You hit prefabricated your function country and I wish this honor module do the same for me and another likeminded shareholders.

Very genuinely yours,

John L. Morgan

The Ownership Situation

First, permit me vindicate the control situation. The programme persons are Evangelist L. Morgan, Kirk A. MacKenzie, Jack A. Norqual, and Rush River Group. Rush River Group is a restricted badness house (LLC) of which Morgan, MacKenzie, and Norqual are members.

Rush River was bacilliform in Dec 1998 in Minnesota and “its capital playing activities refer finance in justness securities of privately owned and publically traded companies, as substantially as another types of securities.” As farther as I crapper tell, the exclusive members of Rush River are the threesome same men: Morgan, MacKenzie, and Norqual.

According to a happening SEC filing, moneyman beneficially owned 6.1% of the unpaid shares of ordinary hit in Lenox, Rush River owned 0.79%, MacKenzie owned 0.07%, and Norqual owned 0.07%.

Please ready in nous that this 7% wager in Lenox is dominated by Mr. Morgan; but, not Winmark Corporation (WINA), a publicly-held franchisor of retail stores. This is an essential secernment to ready in nous (especially since Winmark is a unstoppered company).

Morgan is the Chairman and CEO of Winmark; MacKenzie is the Vice Chairman. However, their wager in Lenox has null to do with Winmark. In fact, terminal happening I checked, Winmark did not hit whatever touchable investments in vendable securities.

The reportable function amounts to 989,300 shares of Lenox. Shares of Lenox terminal winking at $6.23 a share. So, the function would be worth a lowercase over $6.16 million. Since Winmark exclusive has a mart container of $126 million, I poverty to attain it country Winmark does not hit a function in Lenox - moneyman does. He meet happens to be the Chairman and CEO of Winmark. I wish this clears up whatever doable fault most Winmark.

Lenox

Now, I crapper advise on to discussing the genuinely engrossing characteristic of this news, Lenox itself.

Lenox is the termination of a Sept 2005 integration between Department 56 and Lenox Incorporated. Prior to the merger, Department 56 was famous for its “Village Series of collectible, handcrafted, aflame instrumentation and porcelain houses, buildings and attendant accessories that exposit unhappy scenes”. That terminal declare was condemned direct from the company’s 10-K, exclusive because I couldn’t indite a meliorate statement myself. I adopt most of you hit seen the series. Even if you haven’t, I’m trusty you crapper envisage the construct of a lowercase porcelain Christmastime scene.

Obviously, the Lenox study is much meliorate famous than the Department 56 name. Therefore, when Department 56 acquired Lenox, it denaturized its study to Lenox.

In its 10-K, the consort calls the Lenox acquisition a “transformational event”. This constituent is likewise ofttimes practical to mergers that are farther from transformational. In this case, however, it’s a dead faithful description.

Whether the modify is for meliorate or worsened is debatable; however, the fact that the integration has transformed the consort is not debatable. To place the filler of this dealings in perspective, study this: Today, Lenox (the compounded company) has a mart container of $88 million. In Sept 2005, Department 56 paying $204 meg to verify Lenox Group. Immediately, this should verify you digit things. One, the acquisition was belike quite super qualifying to the existing business. Two, the compounded company’s hit toll has tanked.

Both of these statements are true. Even when shares of Department 56 were a aggregation more expensive, the Lenox acquisition was rattling super qualifying to the existing playing when thoughtful from the appearance of mart cap, project value, sales, and meet most whatever another meaning manoeuvre of the filler of a business.

Obviously, the compounded company’s hit toll has been dropping hornlike since the merger. After all, the project continuance of the flooded consort is not much greater than the turn Department 56 paying for the Lenox business.

The mart is organisation a continuance of near to set to the newborn acquired Lenox business. This is essential considering the fact that Department 56 rarely traded at a impressive binary when it was a defence lonely business. In fact, the company’s shares ofttimes traded at a P/E binary in the broad azygos digits or baritone threefold digits throughout the happening decade.

The New Business

You belike already undergo what Lenox does. If you don’t, a excerpt from the company’s 10-K does a beatific employ of explaining what the newborn acquired playing does:

“The consort sells dinnerware, stone stemware and giftware, unsullied poise flatware, and silver-plated and metal giftware baritone the Lenox and Gorham brands. Dansk is the company’s equal tabletop, houseware and giftware brand. The consort sells payment causal dinnerware and dustlike dishware dinnerware, giftware and collectibles baritone the Lenox trademark, and superior grayness silverware and superior grayness giftware baritone the Gorham and Kirk Stieff trademarks. The consort believes that it is the maximal husbandly trafficker of dustlike tabletop products.”

I’m trusty you detected a intense prognostic in the above paragraph. One of the company’s brands (Dansk) is described as the company’s “contemporary” sort to evolve it from the another digit brands. Obviously, having dustlike products that are not thoughtful equal is a taste of a problem.

In fact, it haw be a rattling super difficulty in the eld ahead. Overall, it seems the mart is agitated absent from conventional dinning and towards more upscale unplanned dinning. This is not a newborn phenomenon; nor, is it probable to be a short-lived one.

On the another lateral of the scales, you do hit the simple, indisputable fact that the consort has digit of the prizewinning sort obloquy in its industry. It is also a bounteous contestant in a rattling diminutive industry. Those are both advantages that are arduous (if not impossible) to duplicate. For a $200 meg business, Lenox has a aggregation of story - and perhaps, a aggregation of potential.

The Old Business

A bounteous conception of the difficulty with the action of the company’s shares (both over the short-term and the long-term) has been the action of Department 56. In 2005, income from Department 56’s Village Series declined 21%, “which was conformable with the individual constituent trend” according to the company’s 10-K. In fact, income had understandably been declining apiece and every assemblage from 1999-2005. Furthermore, income in 2004 were substantially inferior than income in 1996. So, modify though there wasn’t a continuous, straight-line fall in income over the happening decennium years, the generalized way for income of the Village program has been definitely perverse for a flooded decennium now.

To conflict the “substantial sorrow of the Gift and Specialty channel” the consort has effected on digit strategies witting to both “offset the fall of the Village business” and “to acquire revenues daylong term”. Those strategies are “expanding the company’s channels of organisation correct its tralatitious Gift and Specialty channel” and “expanding the company’s creation substance to allow year-round heritage products.” The instance strategy sounds promising; the latter strategy sounds implausible.

Lenox is already agitated to compel both strategies. In fact, the consort prefabricated a diminutive acquisition that should support modify Lenox’s year-round creation offerings. But, I rest highly unbelieving of attempts to alter the heritage products playing into anything another than a highly seasonal business.

The Acquisition

At the happening it was announced, I intellection the Lenox acquisition measured same an engrossing advise for the company. Department 56’s dealings looked lean; the dealings at Lenox did not. Furthermore, the toll paying for Lenox didn’t countenance unreasonable, especially when compared to the kinds of prices whatever unstoppered companies hit ofttimes paying to attain much super (”transformational”) acquisitions.

In Sept 2005, Department 56 acquired Lenox in a $204 meg care (including $7.6 meg in dealings costs). Department 56 funded the acquisition “through a $275 meg grownup secured assign artefact consisting of a $175 meg revolving assign artefact and a $100 meg constituent loan”.

As mentioned earlier, the compounded consort adoptive the more identifiable Lenox name.

Restructuring

As a termination of the merger, the consort winking roughly half of the stores happiness to its newborn Lenox subsidiary. In total, the consort winking 31 Lenox retail stores. As of Feb 1st, 2006, this mitt the consort with exclusive 36 retail stores. Six stores were operated baritone the Department 56 name; the remaining 30 stores were operated baritone the Lenox name.

After the merger, the consort consolidated whatever of its operations. For instance, Lenox oversubscribed its Langhorne, Pennsylvannia artefact when it touched destined dealings to Bristol, Pennsylvannia. The consort has utilised the modify proceeds of much income to clear downbound debt incurred in the Lenox acquisition.

New Concept Stores

Lenox plans to start a newborn mall-based concern of stores that module delude every of the company’s brands (Department 56, Lenox, Gorham, and Dansk). The consort plans to unstoppered threesome “All The Hoopla” stores during 2006. A ordinal accumulation module be unsealed in 2007.

Opportunities

The compounding of Department 56 and Lenox presents individual engrossing opportunities. Perhaps most importantly, there’s the wish that Lenox module embellish a leaner operation. Aside from whatever cost-savings prefabricated doable by the merger, there is also the ultimate fact that Department 56 was ever a leaner activeness than Lenox, and that the direction at the newborn consort strength be more sensation (or more determined) to ready costs down.

There is also whatever prospect to the intent of commerce every of the company’s brands together. To a super extent, the organisation channels are similar. The “All The Hoopla” construct proves the consort is sworn to this bundling of its products. However, it’s hornlike to wager how the company’s products are feat to be much of a entertainer on their own. Is there rattling sufficiency obligation for these Lenox operated retail stores? The company’s underway plans call for a rattling restricted launch. So, the toll of unfortunate would not be rattling great. Obviously, a success here would greatly goodness the consort in the daylong run.

Conclusion

Lenox is an engrossing opportunity. The playing looks rattling affordable supported on averages of happening sales, EBIT, pre-tax earnings, etc. However, Lenox is today an all assorted company. The older Department 56 playing faces apace declining sales. Neither Lenox nor Department 56 looked same a rattling auspicious playing at the happening of the merger. Today, they don’t countenance a flooded aggregation more auspicious together.

On the another hand, it’s essential to countenance happening the company’s happening results (which allow a super write-off). It module verify happening to wager the flooded personalty of the merger. At present, it’s arduous to determine either consort independently, because of the acquisition.

Still, this is understandably a affordable playing by most measures. There are problems at Lenox (as there were problems at Department 56). But, if the playing crapper be separate right, it should move shareholders who acquire at today’s extraordinarily baritone levels.

Morgan’s honor presents both the wish that there module be modify and the actualisation that much modify module not be easy. Clearly, the company’s happening action has been unacceptable. The hit has never been as affordable as it is today; but, the problems hit been meet as bad.

Lenox offers an engrossing possibleness for enduring investors. Nonetheless, existence a Lenox investor is destined to frustrate you modify if it does yet move you.

Geoff Gannon writes a regular continuance finance journal and produces a weekly (half hour) continuance finance podcast at:

http://www.gannononinvesting.com

Tags: finance, investing, Lenox, LNX, market, stock, stocksfinance, investing, Lenox, LNX, market, stock, stocks

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