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If you ask investors, they will tell you one thing that they dislike. It is uncertainty. Investors always fear uncertainty. In fact, they hate uncertainty. If you ask further, everyone will give different answers but the main reason why they hate uncertainty is that they don’t like losing money.

That is right. Losing money is what we as investors want to avoid. However, avoiding uncertainty is not the answer. You see, life is always full of uncertainty. Therefore, taking risks is necessary in investing no matter what your background is. Tell me what kind of assets with no uncertainty at all. One common answer is putting your money in Certificate of Deposit. (CD). The proponent of this investment claims that your money will always accrue interest no matter what happens to the economy, oil price and other things affecting stock investment. But is that so?

Let me answer your question with another question. Why do different banks give you differing interest rate for your CD? Sure, it is affected partially by their money supply and demand. If a bank can take in more money than it can loan, it will generally give lower interest rate. However, do you notice that bigger established banks generally give lower interest rate than say, an internet CD from e-trade? The answer is uncertainty. Big banks are less likely to fall and therefore, investors are willing to accept lower return investing in their CD. On the other hand, internet banks are more uncertain to survive ten years from now. Thus, the higher interest rate. You see, when you embrace uncertainty, you will earn a higher return on your investment. How about risk? The risk here is that when you invest in small unestablished banks, it may go bankrupt and bring your money down with it. Sure, in theory, your money is protected up to $ 100,000 from FDIC. If you loan your money to a friend, he or she will always say that they will pay your money back, no matter what. But banks are not your friend. In fact, you friends who borrow money from you, can default on their payments.

That is the risk of investing in CD. While, the risk seems remote, it always exists. On the opposite side, investors who fear uncertainty will probably stuff their money in the mattress, earning little or no money. This is an extreme example but as you see, getting rid of uncertainty does not look that good here.

Embracing uncertainty does not mean investing your money blindly. To get a higher return, you need to embrace uncertainty and Read more…

Wells Fargo

Publicly traded limited partnership Cedar Fair (FUN) will acquire the Paramount Parks business of CBS Corp (CBS) for approximately $1.25 billion. The five parks involved in the deal are located near Cincinnati (OH), Richmond (VA), Charlotte (NC), Santa Clara (CA), and Toronto.

Cedar Fair already operates seven amusement parks and five water parks, including the company?s flagship Cedar Point property on Lake Erie. The company intends to keep all five properties. The deal will be financed by a $2 billion loan from Bear Stearns (BSC). The interest rate charged will be determined once Cedar Fair?s debt has been rated.

The acquisition is quite large relative to the size of Cedar Fair?s existing business. Cedar Fair generated $569 million in revenues during 2005. During the same time period, the Paramount Parks properties generated $423 million in revenues.

In addition to the five parks, Cedar Fair will receive Star Trek: The Experience (at the Las Vegas Hilton) and the Nickelodeon license at the five Paramount Parks.

The Paramount Parks properties encompass about 1,250 owned acres and 180 leased acres. Based on past attendance, the five acquired properties will likely be some of the most visited parks in the new Cedar Fair portfolio. However, none of the new properties is likely to eclipse Cedar Fair?s two most visited properties: Cedar Point and Knott?s Berry Farm.

By far the two largest parks being acquired are Canada?s Wonderland (located near Toronto) and Kings Island (located near Cincinnati).

Cedar Fair?s chairman Dick Kinzel said:

“This acquisition will provide exciting new growth opportunities and the potential for meaningful incremental free cash flow as we realize $20-$30 million in annual cash Read more…

When an investor receives a newsletter full of stock tips and information, the first instinct is to act quickly on the information in order to make money before anyone else does. However, scam artists realize that investors like to make decisions in a short amount of time and capitalize on this impulsiveness. This is why newsletters work so well to lure in new victims.

There are several things that investors can do in order to protect themselves from bad information that may be found in newsletters, emails, or text messages. First of all, the source of the newsletter needs to be acknowledged. This will give the reader a clear idea as to who might be benefiting from the sale of the stock. Disclosures of the information that are nonexistent or difficult to find might be a clue that the newsletter has other motivations for their advice.

Any newsletter or publication that advises you to invest in small stocks that aren?t filing reports with the SEC should be carefully scrutinized. These kinds of stock tips are trying the famous ?pump and dump? scheme in which a little known stock is strongly advised, causing many investors to invest their money in the stock. The demand for the stock then goes up, along with the prices. However, the scam artists will then sell off their shares of the now-high priced stock, leaving the investors with a loss for their initial investments. These kinds of small stock are almost guaranteed to be scams or stock that won?t do well.

Researching the source of the information is strongly suggested as any holes in the story may be signs of a possible scam. By going to the SEC, the NAAD, and the local regulatory committees, an investor can see where the stock?s company is registered, if they are registered, and even take a look at their financial reports. Asking a lot of questions is the best way to get a fair picture of the stock Read more…

First of all, what is the definition of a business moat? A moat is something that hinders competitors to ‘attack’ a company’s castle. In other words, it is a blockage that deters competitors from imitating a firm’s business products. Obviously, investors need to invest in companies with a very wide moat. That way, a wide-moat company can have pricing power, as well as higher profits.

Surely, companies with recognizable brand name will have a moat of some kind, compared to generic brand. If customers are willing to pay a premium for your product, then your business do have a moat. That being said, how do we determine a company’s moat for valuation purpose?

There is no definite ways of doing this. But, you can do a simple pricing research for the company in question. For example, if consumers are willing to pay $ 0.10 more for each bottle of Coke over the competition, this is then the result of Coke’s business moat. Multiplying the number of bottles sold each year, will gives you the additional revenue due to the firm’s business moat. As a matter of fact, this price difference goes straight to the firm’s net income.

A lot of people like short-cut. So, perhaps you will like this short-cut way of evaluating business moat. Here is the way I see it. Companies with business moat will have an above average net profit margin. Recall that business moat will give a firm additional profit for each unit sold. This will result in a higher net profit margin. By definition, net profit margin is the percentage of profit with respect to net sales.

Let us look at applicable examples of a business moat. Almost everyone agrees that Wal-Mart Stores Inc. (WMT) has some kind of business moat. It is the biggest retailer in Read more…

If you read that stock XYZ is heading into the S

As you may have noticed on the sidebar, I am currently reading You Can Be a Stock Market Genius. This book deals with special situations in the markets such as? Spin-Offs, Mergers, Bankruptcies, Restructurings, Rights Offerings, Risk Arbitrage, Merger Securities, and Recapitalizations. Having read through the ?Spin-Off? chapter already, the timing of the IPO of Tim Hortons, currently owned by Wendy?s, could not be better.

Founded in 1964, Tim Hortons is an extremely popular coffee chain in Canada. Based on sales, they are the largest quick-service restaurant chain in Canada. Since being acquired by Wendy?s in 1995, Tim Hortons Canada has grown from 1,180 outlets to 2,597. Their sales have grown at a compounded annual rate of 17.6% during this same period. These numbers are impressive, but it is extremely important to know that growth has slowed. For fiscal 2005, the companies reported sales of $1.5 Billion, represents a year over year increase of 10.7%, significantly lower than the aforementioned 17.6% top-line growth rate. Excluding charges, the companies fiscal 2005 profit of $191 Million, represents an increase of 9.5% over the previous year. All of these figures reported Tim Hortons are in Canadian dollars.

As mentioned growth has slowed, this is a trend that I see continuing. Because of their already established position in Canada, their growth prospects are limited. Currently, there is about one Tim Hortons for every 11,500 Canadians. That is more than double the ratio of one McDonalds for every 21,700 Americans. There are nearly as many Tim Hortons per Canadian as there is McDonalds, Wendy?s, or Burger King combined per American. Given these figures, the market for Tim Hortons in Canada appears to be closing in on saturation. Obviously, this does not bode well for future growth.

With growth prospects lacking in Canada at this point, Tim Hortons will need to expand into the United States. Based on past results of the company?s state-side operations, significant growth in the U.S. appears unlikely. Without a strong brand name, increased competition, and higher construction costs; outlets in the states have been much less profitable and willing qualified franchisees have been hard to come by.The target price range for the IPO is currently $18-$20, which would value the company at nearly $4 Billion. Based solely on a price to sales ratio, I feel they are overvalued should their IPO come in at this range (Tim Hortons would have a P/S of about Read more…

Where’s the beef? Remember that old commercial? I have no clue why, but I think of that commercial every time someone mentions that volumes are once again not nearly as robust as we’d like to see in a rising market.

Over the years, one of the most popular adages about trading stocks was that you’d like to see the volume “confirm” the movement. Well that’s all fine and dandy, but you often run the risk of sitting around watching stock move higher and higher on no volume, and then kicking yourself for not getting involved. What’s going on here?

The market is not the same as it was just 5 years ago folks. This market is driven by program trades, not widespread participation as was always the situation in the past. In years gone buy, live people, making big decisions would make a move to buy stocks, and as they were buying other managers would see the action and they’d buy and so on and so on. Often volume and price appreciation “grew” on each other.

But today, it’s computers. Really bright fellows with slide rules (well, maybe little calculators now) and degrees decide what is the “buy area” and sell area for a basket of stocks, based on all sorts of parameters, some of which you’d never know of. For instance there are programs designed to kick in when the futures get too high. Some kick in based on the amount of foreign currency that the particular bank holds. (why? as the currencies fluctuate, they buy and sell stocks as hedges against the currency) Some programs are tied to interest swaps, some to interest rate derivatives, etc etc.

But when they hit, they hit with a vengeance. It’s not uncommon for a big outfit like Merrill to buy a basket and drive the DOW up 60 points in literally 15 minutes. Was there an accompanying rise in volume? Yes, but NOT in direct relation to the size of the point move and that is very very important folks. Program trades don’t allow time for other investors to analyze what’s going on. They Read more…

As turnaround investors, a lot of times we have to wait. Turnaround investors basically buy investment in distressed companies at distressed price hoping that the company can right the ship and turn itself around. Once it happens, turnaround investors will be rewarded handsomely for their faith in the company. Would it be nice if we can get paid while waiting for the company to turnaround? As a matter of fact, we can !

One of the oldest method of getting paid while we wait is by picking a dividend-paying company. While the turnaround is in progress, investors will be able to generate returns from the dividend yield while the stock price barely budge.

Another excellent ways of boosting your investment return is by selling covered call options. Selling covered call basically means that you as the stock owners, sell the right of your stocks at a predetermined strike price. For example, if you are selling calls at a strike price of $ 20, this means that you have to sell your stock to the option buyer at that price if the buyer demanded so. What you will get in return is free cash generated from selling this option. What is the prerequisite? It is pretty simple. To sell covered call, all you need is to own 100 shares ( and its multiples) of the stock.

If you are still confused, that is okay. An example will make everything clearer. Let’s say that you buy 100 shares of Shanda Interactive (SNDA) recently at a price of $ 13.55. You decide to sell a covered calls expiring on January 2007 with a strike price of $ 15. Recent price indicates that you can sell the covered calls at $ 2.20 a share. You decide to sell the covered calls. As a result, you netted $ 220 of cash right off the bag!

So, wait a minute. How does this trade works? Did you just get $ 220 in cash? You bet. What is the drawback of this trade? There are three that I have known of.

1. Limited Return. When Shanda rose to $ 30 before January 2007, well then you still have to sell your shares to the option buyer at $ 15. In return, he is giving you $ 220 whether Shanda stock goes up or down.

2. No protection of a loss. Share price can either go up or it can go down to $ 0. Therefore, there is always a risk that Shanda share will go to $ 0. When it does, you still pocket the $ 220 made from selling covered calls. However, the shares that you bought at $ 13.55 will be worthless. Therefore, your total loss in this scenario is $ 1,355 – $ 220 = $ 1,135 or 84%.

3. Need to own 100 shares and its multiples. When selling covered calls, you need to sell one contract, at a minimum. One Read more…

An excellent TV commercial shows a roomful of employees receiving from a manager the paperwork for their employer-sponsored retirement plan. The manager tells them to read the information, check off their investment choices, and return the forms. The workers have that deer-in-the-headlights stare. When the manager asks, ?Are there any questions?? every hand goes up.

The image is so good because it is so real. From the anecdotes that we hear, this situation is common at many US companies. Managing employees to productivity and profitability is plenty tough. Helping them save for retirement is something else again.

Although they usually have the best of intentions, companies don?t have the wherewithal to help every employee along every step to retirement nirvana. Most important, they don?t want the fiduciary responsibility for individual plans. If they make a mistake and an employee loses a bundle, here comes a lawsuit! A one-size-fits-all pension makes more sense, and the employee can handle his own 401K or 403B.

Often management hands off the duty to the representative of a fund family or other advisory service. That happened to us in the 1980s. The rep pulled out a list of funds and said the magic word??diversify.? Then he told us that we needed a bond fund and an international fund and an index fund. ?Technology?s big, so you should have money in that fund.? We checked the funds that he suggested, and we never saw or heard from the guy again. He was nowhere to be found when the market and all those funds crashed in 1987. That?s when we decided to think and act for ourselves.

Maybe you have decided the same thing and that led you to thr Retirement Funds section, you should be able to find a model portfolio that suits your investing goals and temperament.

First, do a little homework to make sure that your are making the best investing decisions. For employer-sponsored plans like 403Bs, that means going to your personnel department or plan manager and asking some questions. Make sure you know exactly how much you can contribute to your plan each pay period. Remember that workers over age 50 can add more dollars to their account due to ?catch up? provisions added to tax law in 2003.

Most 403Bs offer several families of mutual funds. For convenience or other reasons, a plan administrator might try to steer you into one or two particular fund families, usually the larger ones. That?s not always a good deal. One reader was looking at the big companies for her plan until she discovered that our favorite group, albeit a smaller fund family, was also available. It will save her a ton on fees, etc. So make sure that you see every name on the fund list before making a choice.

Speaking of fees, there is a wide range of management fees and other costs associated with the funds that you Read more…