Aurora 3D Text & Logo Maker 14.09.09

Aurora 3D Text & Logo Maker is an advanced application intended to enable you to design 3D Text,

buttons, logos. Features a large number of shapes and text template. There are reflections and texture animation effects, and a variety of quick tools, very easy to use.

You can choose a variety of bevel and alignment, lighting can be adjusted, the shape can be interchangeable, very flexible. Can import the font shapes, and you can import SVG, and converted into three-dimensional shapes.

You can export the png, tiff, jpg, bmp format. 3D design software for many ordinary people may be unfamiliar, whenever we want to promote our image,web page or display text or graphics to add 3D effect, the mind may emerge 3Dmax complex or tedious Photoshop software operation Skills.

download :

click here

crack

click here

more

Sector Mutual Funds for Beginners

Often, the best way to protect your family's investment portfolio is to know what you don't know.  For those of you who prefer to invest in individual stocks, this means avoiding companies that you are unable to understand, or that utilize accounting methods on the income statement and balance sheet with which you are not, yet, familiar.  That way, you can behave like a true long-term investor, collecting dividends and accruing capital gains over decades, if not generations.

Still, for the sake of diversification, it can make sense to have exposure to certain types of businesses that aren't correlated with your other investments in terms of risks.  How do you solve the quandary of buying assets if you can't tell which individual companies are the safest or best managed?  In many situations, the answer is simple: A low-cost sector fund.

The Basics of Sector Funds

A sector fund is a special type of mutual fund.  Instead of tracking a broad stock market index such as the Dow Jones Industrial Average or S&P 500, it focuses on a single sector of the economy.  In terms the day-to-day operation, sector funds can be structured as either traditional mutual funds or exchange traded funds (ETFs), both of which have their own advantages and drawbacks.

Real World Examples of Sector Funds

One of the most popular ways to buy a sector fund is through a SPDR.  These ETFs divide the S&P 500 into nine distinct funds, each tracking a specific sector:

• Consumer Discretionary, ticker symbol XLY
• Consumer Staples, ticker symbol XLP
• Energy, ticker symbol XLE
• Financials, ticker symbol XLF
• Health Care, ticker symbol XLV
• Industrials, ticker symbol XLI
• Materials, ticker symbol XLB
• Technology, ticker symbol XLK
• Utilities, ticker symbol XLU

The stocks in each sector fund are passively held as an index fund.  For example, the Consumer Staples sector fund holds shares in companies such as Procter & Gamble, Coca-Cola, Philip Morris International, Wal-Mart Stores, PepsiCo, Colgate-Palmolive, Mondelez International, General Mills, Kraft Foods, Estee Lauder, Kellogg, Hershey, Clorox, J.M. Smucker, McCormick, and Campbell Soup.  When an investor buys shares of the sector fund, he or she is really buying into this diversified basket of stocks.

Investor favorite Vanguard also has a few sector funds.  For example, The Vanguard Health Care Fund, which trades under both ticker symbols VGHCX for the investor class shares with a 0.35% expense ratio and $3,000 minimum investment and VGHAX for the admiral class shares with a 0.30% expense ratio and a $50,000 minimum investment, focuses on a basket of stocks in the health care industry.  At the moment, the underlying portfolio holds 89 stocks split among pharmaceuticals, heath care equipment, biotechnology, managed health care, and more.  Positions include companies such as Merck, Bristol-Myers Squibb, Eli Lilly, AstraZeneca, and Forest Laboratories.  Investors who buy it may not be able to tell you whether Pfizer or Amgen is going to be a better holding over the coming decade but it doesn't matter as they are opting to own both, all for rock-bottom operating costs.

If Sector Funds Aren't Focused Enough, Consider Industry Funds

For some investors, sector funds are still too broad.  After all, something like the consumer discretionary sector contains everything from automobile manufacturers to fast food restaurants.  Instead, they want specific industries within a sector.

One of the leading mutual fund companies in this area is Fidelity.  While those who want to invest in the consumer discretionary sector could buy the Fidelity Select Consumer Discretionary Portfolio sector fund, which trades under ticker symbol FSCPX, they could also opt for individual industry funds that sub-divide these holdings:

• Fidelity Select Automotive Portfolio, ticker symbol FSAVX
• Fidelity Select Leisure Portfolio, ticker symbol FDLSX
• Fidelity Select Multimedia Portfolio, ticker symbol FBMPX
• Fidelity Select Retailing Portfolio, ticker symbol FSRPX
• Fidelity Select Construction & Housing Portfolio, ticker symbol FSHOX

Fidelity does the same for all of its sector funds.  For example, you can either buy the Fidelity Select Health Care Portfolio sector fund or you can buy one of the sub-divided industry funds:

• Fidelity Select Biotechnology Portfolio, ticker symbol FBIOX
• Fidelity Select Medical Delivery Portfolio, ticker symbol FSHCX
• Fidelity Select Medical Equipment and Systems Portfolio, ticker symbol FSMEX
• Fidelity Select Pharmaceuticals Portfolio, ticker symbol FPHAX

Keep in mind none of the specific funds mentioned in this article are recommendations as they were chosen at random.  The point is that you can gain exposure to certain areas of the stock market through low-cost, broadly diversified baskets of shares in multiple companies, even if you don't have the experience to determine the intrinsic value of a certain type of firm.

more

Roth IRA vs Mutual Funds

Countless times a year, I receive messages from new investors asking something alone the lines of, "Should I invest in a Roth IRA or mutual funds?".  The question can't be answered because a Roth IRA is not a type of investment.  A Roth IRA is a type of account.  You can hold investments such as stocks, bonds, cash, and, yes, even mutual funds, within a Roth IRA.

Different types of institutions offer their own versions of a Roth IRA.  A Roth IRA from a discount broker such as Charles Schwab lets you buy practically any type of investment, including the already mentioned stocks, bonds, and mutual funds.  A Roth IRA from a bank will probably only let you buy certificates of deposit or money market securities.  A Roth IRA from a mutual fund company is probably only going to let you buy mutual funds offered by the mutual fund company itself.

To help you understand why the entire idea of a Roth IRA vs. mutual funds is nonsensical, I'm going to run you through some scenarios.  By seeing how an investor might open one of these tax-advantaged accounts in the real world, you might be able to better understand how they work.

The Basics of How a Roth IRA Works

A Roth IRA is a type of retirement account created by Congress.  It differs from a Traditional IRA in several notable ways.  Each year, Congress allows you to put aside a certain amount of money, up to a maximum that is known as the "contribution limit".  I'm writing this article in August of 2014, so I'll use the most recent Roth IRA contribution limits, which are $5,500 per person for anyone 49 years or younger and $6,500 per person for anyone 50 years or older.  Any money you contribute to a Roth IRA, up to the maximum for a given year, is not tax deductible.  In this sense, it's just like adding it to a savings account.  On the other hand, almost all forms of income within the Roth IRA, including dividends, interest, capital gains, and in some cases, rents, are completely tax-free.  In exchange for this fantastic deal, you aren't allowed to withdraw the profit until you reach 59.5 years old unless you meet one of several exemptions.  Otherwise, you'll get slammed with a 10% penalty tax.

Let's imagine you successfully invest money in a Roth IRA throughout your lifetime.  You end up with $5,000,000 in the account and park it all in corporate bonds at a time when they are yielding 7.5% for 10-year maturities, which is around the average rate generated over the past few decades.  You'd be collecting $375,000 in interest every year within your Roth IRA.  Under the present rules, as long as you were 59.5 years or older, you could withdraw that money - all $375,000 of it - and never pay a single penny in taxes.  Or, if you wanted, you could withdraw the entire $5,000,000 tax free (though this would be a mistake as it is better to keep the money within the protective confines of the Roth IRA and only take the investment income out as you need it).  This is the reason the Roth IRA is, hands down, the best tool available for small investors.

Congress doesn't want everyone to have access to the Roth IRA so it sets household income limits on eligibility.  If you are single and make over $129,000 per year, you are not eligible to contribute to a Roth IRA under the 2014 guidelines.  If you are married, filing jointly, the amount is $191,000.  This is really a meaningless barrier because if you fall into this category, you can simply contribute to a Traditional IRA, which doesn't have the eligibility income limits, then convert it to a Roth IRA.  It's a bit of paperwork hassle but most financial institutions do it so often it's second nature.  This is known as a "Backdoor Roth IRA".

Opening a Roth IRA at a Bank or Credit Union

Elize walks into her local credit union and opens a Roth IRA.  The credit union doesn't have an investment division so it only allows her to contribute the money to certificates of deposit or a money market account.  She can't buy any stocks, bonds, mutual funds, or real estate through this Roth IRA because the servicer (the credit union) doesn't offer it among the services it provides.

To make it more complicated, some (not all) banks and credit unions also have brokerage divisions that allow you to buy investments for your Roth IRA that include stocks, bonds, and mutual funds from other companies.  Wells Fargo and Bank of America, by way of example, fall into this camp.

Opening a Roth IRA Directly with a Mutual Fund Company

Erston decides he wants to buy shares of the Tweedy Browne Global Value Fund, ticker symbol TBGVX.  He goes to the mutual fund company's website, downloads an application, writes a check for $5,500, which is the maximum he is allowed to contribute in 2014 since he is only 33 years old, and checks the "Roth IRA" box.  The mutual fund company opens a Roth IRA for him, but the only investments it can hold are shares of funds managed by Tweedy, Browne & Co., LLC, the mutual fund manager.  If he wanted to buy shares of a Vanguard S&P 500 Index Fund or Coca-Cola, he's out of luck.

To make it more complicated, some (not all) mutual fund companies also have brokerage divisions that allow you to buy investments for your Roth IRA that include stocks, bonds, and mutual funds from other companies.  Vanguard and Fidelity, by way of example, fall into this camp.

Opening a Roth IRA Through a Direct Stock Purchase Plan

Jude decides he wants to spend the rest of his life buying shares of The Coca-Cola Company, and hold them tax-free through a Roth IRA.  He doesn't want to invest in any other stock or mutual fund.  He signs up for the direct stock purchase plan, which has a Roth IRA option.  He selects it and the beverage giant's transfer agent begins making automatic monthly withdrawals from his checking account to buy more shares at a very low cost; typically less than $2 per transaction.  He never pays any taxes on his Coca-Cola dividends because the stock is held in the Roth IRA.

Opening a Roth IRA Through a Brokerage Firm

Perhaps the most popular option, opening a Roth IRA with a brokerage firm such as Charles Schwab, E-Trade, or T.D. Ameritrade works exactly like opening an ordinary brokerage account.  With few exceptions, you can buy any stock you want, any bond you want, any mutual fund you want, or any exchange traded fund you want, often for a commission well under $10 per trade.  You could have a Roth IRA at Schwab that held Vanguard funds, shares of General Electric, and some certificates of deposit issued by a bank in your state.  Many brokers will reinvest your dividends for free and you enjoy the convenience of having all of your information on a single account statement.

more

How to Find the Best Dividend Mutual Funds

If you've read this site for awhile, you know that dividends can be a great way to generate passive income, and mutual funds can be a good option for new investors who don't want to handle the decision of selecting individual stocks for their portfolio.  The next logical step for a lot of people is to consider dividend mutual funds.  These are funds that specifically focus on holding a portfolio of stocks that pay dividends.  Some dividend mutual funds focus on high yielding stocks, while others specialize in stocks with the fastest growing dividends.  Some dividend mutual funds focus solely on companies headquartered in the United States, while others prefer to collect dividends from around the world in multiple currencies.

How can a person go about finding the best dividend mutual funds for his or her portfolio?  There are two easy places to start.

1. Many of the Best Dividend Mutual Funds Mimic the S&P 500 Dividend Aristocrats Index

The S&P 500 stock market index contains most of the largest corporations in the United States.  Within this list of 500 companies, Standard and Poor's creates a sub-list called the dividend aristocrats.  To make this special list, a company must have not only paid a dividend, but increased their dividend payout on a per share basis for 25 consecutive years or longer.  That's an extraordinarily difficult task to achieve.  So difficult, in fact, that only 51 companies at this moment, in August of 2014, qualify.  The list of dividend aristocrats includes businesses such as Clorox, Coca-Cola, Colgate-Palmolive, McDonald's, Wal-Mart, McCormick, Sherwin-Williams, Walgreen, AT&T, Abbott Laboratories, and Exxon Mobil.

There are several index funds that follow the dividend aristocrats or some derivation of the index.  The key is to find the one that offers the lowest mutual fund expense ratio, among other considerations.  Sometimes, these dividend funds come in the form a classic, traditional mutual fund, whereas other times, they are structured as an exchange traded fund, also known as an ETF.

To provide a real world illustration: One of the most popular dividend mutual funds is called the SPDR S&P Dividend ETF, which mimics the S&P High Yield Dividend Aristocrats Index.  It trades under ticker symbol SDY and costs only 0.35% in gross expenses per annum, which is a mere fraction of what is ordinarily charged by actively managed mutual funds.  At the moment, it offers a dividend yield of 2.22%.

2. Research Equity Income Funds at Morningstar Because Many of the Best Dividend Mutual Funds Use This Phrasing to Describe Their Investment Strategy

As you learned in "What is an equity fund?", Wall Street uses the term "equity fund" to refer to mutual funds that focus on stocks, as opposed to other asset classes such as bonds or real estate.  By slapping "income" on the end, it denotes that the goal is to invest in cash-generating (read: dividend paying) stocks.  It's one of those things that gets taken for granted by those who work in the financial industry but isn't immediately apparent to a newcomer who has never so much bought a share of anything in his or her life.

Morningstar, the world's best known mutual fund rating agency, has a lot of information on equity index funds.  They will allow you to look up their past performance, expense ratio, management history, portfolio holdings, and much more.  Many of the big name discount brokerage firms offer free Morningstar research to their clients.

One of the (historically) best dividend mutual funds trading under the equity income fund terminology is the Vanguard Equity Income Fund, which is "designed to provide investors with an above-average level of current income while offering exposure to the stock market".  It achieves this by "typically invest[ing] in companies that are dedicated to consistently paying dividends".  It has two different classes of shares.  The first, the Investor Class, has an expense ratio of 0.30% and requires a minimum investment of $3,000.  The second, the Admiral Class, has an expense ratio of 0.21% and requires a minimum investment of $50,000.  They both yield approximately 2.6% at the moment.

Remember that Even the Best Dividend Mutual Fund Will Perform Poorly from Time to Time

The stock market is remarkable in that it generally does very well over long periods of time, while appearing completely unpredictable for periods of 5 years or less.  It's entirely possible you might invest in a dividend mutual fund only to watch it drop 50% the next day.  Stranger things have happened in history.

However, if you pay a good price for your stake (one trick to determine valuation if you aren't financially sophisticated is to compare the dividend yield or earnings yield to Treasury bond yields), keep your on-going costs low, take advantage of deferred taxes, reinvest your dividends, and dollar cost average for at least 25 years, your odds of doing well, based on historical evidence going back more than a century, are very high.  There has never been a single period throughout time when the return for someone following such a prescription was negative.  Even better, the returns have always beat inflation.  There is no guarantee that will always remain true but as long as people are buying Clorox bleach or brushing their teeth with Crest toothpaste, owners should be collecting the profits.

more

What Are The Easiest Ways to Track My Investments?

For more than a decade, the best option for the typical investor who wanted to track investments was a software program called Microsoft Money.  It allowed average men and women to track their portfolio of stocks, bonds, mutual funds, real estate, cash equivalents, certificates of deposit.  It was capable of keeping records on the individual account basis, such as for a specific 401(k) or Roth IRA, as well as the entire household.  It handled dividend reinvestment programs, calculated each position's tax basis, and pulled real-time updates from Internet stock quotes to give you up-to-date information on the state of your fortune.

Unfortunately, in 2009, Microsoft announced that it was ending the program.  In the years that passed, several alternatives have become available, several hosted online under the software as service model.  Sorting through these can be a bit of a chore for modern investors so here are a few of the most popular options that you might consider if you want to begin tracking your investments.

Tracking Your Investments with Online with Software and Service

There are several popular online investment tracking solutions that have arisen in the past few years.

• Personal Capital - There is no doubt that Personal Capital is one of the most popular ways to track investments.  It currently has more than 500,000 people using it, tracking $100 billion in assets.  The free software creates beautiful charts and graphs mapping out your income, spending, and portfolio holdings.  It can compare your performance to your preferred stock market index.  It can analyze your assets to give you an idea of your true exposure to certain companies across multiple accounts and institutions. It digs into your 401(k) plan to help you understand the mutual fund expense ratio you are paying on your retirement package.
• Mint.com - Another very popular investment tracking website,Mint.com allows you to enter your account information from other institutions and have it all aggregated on a single screen.  You can then set budgets for yourself, see how much you are spending on specific categories, track the fees you are paying to Wall Street, and compare your individual accounts to benchmarks such as the S&P 500 or Dow Jones Industrial Average.
• Morningstar.com - Those who subscribe to Morningstar.com can not only get access to their ratings on stocks and mutual funds, but setup online portfolios, as well.  At this time, it doesn't integrate with other sites so you will need to enter all of your information manually from your brokerage statements but it has a special feature that none of the others offer called X-Ray.  This X-Ray tool lets you enter your mutual funds and it then shows you what your actual portfolio holdings are by breaking down the underlying stocks held within each of those funds.  For example, if you owned $1,000,000 worth of the Vanguard S&P 500 index fund across your 401(k), Roth IRA, SEP-IRA, andbrokerage account, as of this afternoon, you really own $33,400 worth of Apple shares, $24,700 worth of Exxon Mobil shares, $18,800 worth of Microsoft shares, $16,400 worth of Johnson & Johnson shares, $14,600 worth of General Electric shares, $14,300 worth of Chevron shares, $14,200 worth of Wells Fargo shares, et cetera.

• Tracking Your Investments with Spreadsheets

  For those who want an added measure of control over their investment tracking, custom spreadsheets are among the best options.  There are typically two major choices in this category.
  • Microsoft Excel - Though its ability to import live stock quotes is woefully inadequate for the average investor, Microsoft Excel can be used to track the cost basis for taxes on individual lots, used to calculate aggregate dividend income or map it out on a dividend schedule.  I once built several sample spreadsheets illustrating this concept for a married couple who wrote me on my personal blog.
  • Google Spreadsheets - Google's free online spreadsheet program isn't as powerful as Excel, but it does make it easier to have your documents automatically update with information taken from public finance such as Yahoo.

  Using Software to Track Your Investments

  Many investors still want software installed on their local system.  Generally, there are a few options.
  • Quicken - If you purchase the investment version of Quicken, the typical retail investor will largely find it meets most of his or her needs.
  • QuickBooks - Accountants or sophisticated investors who are comfortable with GAAP will like the flexibility of using a traditional accounting software program to manage their investment holdings.  Personally, I use a mixture of spreadsheets and QuickBooks Pro to monitor my estate's assets.
  • Fund Manager - A software program called Fund Manager is the closest thing to professional investment tracking for retail investors.  It can be very powerful, especially for those who invest in municipal bonds or corporate bonds, tracking things such as interest accrued, the next coupon date, and yield to maturity.

  Pick the Investment Tracking Program That Works Best for Your Family

  In the end, the best investment tracking program is one that works for you.  The best program in the world is worthless if you don't use it or you find it too much of a hassle.  

more

Don't Lead Your Real Team Like You Manage Your Fantasy Football Team

Published 8/15/2014

My apologies to readers that have zero interest in American football, or more specifically, fantasy football. Even though this article contains good advice for the non-football fan, it will probably annoy the heck out of them.

This article is written for the 36 million fantasy football players out there, some of who may also be in positons to lead real people.

Here’s my message for all of you: don’t even think of trying to manage your employees like you manage your fantasy football team!!

It’s tempting to think there may be some transferrable lessons. Maybe you’ve won a championship team or two, and are thinking, what the heck, if it worked for my fantasy team, why wouldn’t it work for my team of employees?

There actually are some leadership lessons to be learned from fantasy football. For example, it all starts with selection. Smart fantasy owners do their research. They invest countless hours in researching which players to select for their team through the draft. If you miss in the draft, there is little chance of winning a championship.

The same is true with employee selection. Managers who hire “A” players are not just lucky – they personally invest their time in the hiring process. They have clear criteria that correlate with success in the role, and they know how to sort through hundreds of possible candidates to find the right person for the role.

Just like in fantasy football, selection mistakes, especially for key positions, can be disastrous. Some would say the average cost for a selection mistake could run in the six figures! In fantasy football, if you miss in the first couple rounds, you’ll have little chances of winning a championship.

Another fantasy football strategy that applies to talent management would be the importance of always having a “scout team”, or a “virtual bench.” Managers should always be on the lookout for new talent through internal and external networking. The worst way to fill a position is to wait for an opening, and then post it or hire a recruiter. Instead, a great talent manager can always turn to a slate full of already screened candidates to fill vacancies created though turnover. They fill their positions quickly and with confidence.

There may be a few other transferable lessons, but there are WAY many more important differences.

Here are five reasons why you shouldn’t manage your employees the way you manage your fantasy football team:

1. Employees are not interchangeable parts. When one of your fantasy players gets injured or is underperforming, you just need to hit a button and poof; you cut them and replace them with another player. Unfortunately, after working in human resource roles for years at a number of different companies, that’s exactly how some managers choose to deal with employees that are underperforming or maybe dealing with personal issues. They are classified as “hiring mistakes,” when in fact what they often are “management mistakes.”

2. Employee performance can be improved. Wouldn’t it be great if when your star fantasy player struggles, say Josh Gordon, when struggling, or maybe arrested and facing another suspension, you could sit down with him and help him get better? That’s what great leaders do! They don’t just sit back and judge – they take an active role in the success of every member on their team. They coach, they offer training, they motivate, they counsel, and they sometimes have to dish out discipline. When a great leader finally has to make the decision to let someone go, they do it as a last report and view it as a personal failure.

3. Fantasy teams are not real teams – they are a collection of individual stars. Great leaders understand the power of teamwork. They hire for complementary skills, encourage collaboration and interdependency, and know how to turn a group of talented individuals into a high performing team.

4. There is more to organizational performance than individual talent. In fact, Deming would say there’s no such thing as a poorly performing employee – only poorly designed processes. While I’m not sure I buy into that entirely, a manager should always look for systemic issues in the workflow process as a way to improve performance, instead of always looking for who to blame.

5. The power of rewards and recognition. A fantasy football team owner has no way to influence or motivate their team. They can only sit back and watch the numbers – not so with leading people. Great leaders know what makes each and every member of their teams tick. They don’t sit back and “manage by the numbers” in a cold and distant way. They get to know their people, they recognize big wins and small wins, and know when and how to motivate a team member when they need a confidence boost.

Good luck with your fantasy team, but more importantly, I wish you all the best in leading your real team to greatness!

more

Business-Like Investing Can Help You Pick Better Long-Term Stocks

The high priest of value investing himself, Benjamin Graham, taught us that, “investing is most successful when it is most business like.”  That makes sense because investing in stocks is, quite literally, the act of buying an ownership stake in businesses.  Whether you own 100% of the shares of a local jewelry store in your hometown, or 1,000/4,405,893,150th of The Coca-Cola Company based on its total shares outstanding in the last 10-K filing, the end result is much the same: There are only three ways you can make money from your stock.

This simple distinction makes it easier to spot flaws in an investment portfolio because it changes your behavior.  You suddenly demand a margin of safety in your purchases because you expect to be compensated for the different types of risk to which you are exposing yourself and your family.  You require evidence based on facts rather than hope for high growth assumption rather than getting swept away in the euphoria of crowds.  During stock market crashes, you can remain rational and buy ownership positions in quality companies at bargain prices despite everyone else rushing for the exit in panic.  You seek to understand things such as how the firm generations its underlying cash flow, what types of assets makeup the balance sheet, and whether management is following capital allocation and dividend policies that are friendly to you and other owners.

If you don't currently treat your stocks like this, I urge you consider a paradigm shift.  On my personal blog, I've spent the past few years driving home the concept by running case studies of stocks as viewed through the lens of business-like investing; looking at the long-term results generated by holding ownership stakes in businesses as diverse as Chevron, General Mills, McDonald's, Clorox, Hershey's, Nestle, Colgate-Palmolive, Procter & Gamble, Coca-Cola, Tiffany & Company, and the now-bankrupt Eastman Kodak.

Despite being the best long-term performing asset class, I don't think everyone should invest in stock.  In fact,you don't have to own stocks to get rich.  Plenty of other people have done it by investing in real estate or specializing in something like oil wells or intellectual property.  If you aren't capable of business-like investing in even its most basic form - reading an annual reportand understanding simple concepts such as how to analyze an income statement - it's the equivalent of driving blind in a snowstorm.  What rational person would do such a thing?  It's insanity.  Instead, consider throwing in the towel and investing in a low-cost index fund that buys a widely diversified basket of stocks; something like the Vanguard S&P 500 fund operating at a rock-bottom mutual fund expense ratio.

To help you understand some of the finer points of what it means to practice business-like investing, let's dive in and look at specifics.  It might help clarify the importance of what I am saying.

1. Business-Like Investors Don't Confuse Cash Flow with Profits

Cash flow is all-important.  Without the ability to meet your financial obligations when they come due, you won’t be around to play the game.  However, a business-like investor must never forget that, at the end of the day, once basic liquidity needs are met, net profit (more specifically, the return on capital employed), reigns supreme.  There are plenty of businesses that look like they are making money when they are, in fact, bleeding the owners dry.

Imagine you own a successful furniture business structured as a limited liability company. Over the past decade, you’ve built up a comfortable working capital position in the form of increased inventory.  Your storefront has expanded and the showroom now holds thousands of individual pieces of merchandise.

One day, you realize that you’ve grown tired of the industry. You think it’s boring, you’re weary of dealing with the same people, and you think that you'd rather bake cookies for a living. After discussing it with your spouse, you make the decision to shuttle the furniture store, liquidate the inventory, and open your own bakery. You inform the store manager of your decision, and instruct him to discount all of the merchandise heavily. You then place ads in the local papers and on the news channel advertising a “going out of business” sale.

The week of the sale arrives. There is a tremendous customer turnout and you are generating tons of cash; far more than you’ve seen in the normal course of business. You reinvest little of this in new inventory for the business (you are liquidating, after all). Instead, you use it to begin preparations on your new venture; moving expenses, paying down some personal debt, buying a new home, and such.

Here’s the problem: Unless you have an excellent bookkeeping system, you won’t have a clue how you fared in real economic terms from the liquidation. If you were an accountant by training and knew the specific identification method, you could simply plug in the sales figures to your software and instantly calculate the profit. If, however, you are like many small businesses and you are more entrepreneur than financier, you may not be aware of the cost associated with each of the items you are selling. The result? The dining room table you sold for $60, marked down from $130, actually cost you $75 three years prior! On an accrual basis, you’ve experienced a very real loss of $15 on that sale. Yet, the check you wrote to pay for that merchandise is long forgotten, the cash in your hand is not.

The larger the business, the more significant the problem.  You could experience a drastic shrinkage in real net worth while thinking you are making a tremendous amount of money. The torrents of cash coming into your life mask economic reality, placing your finances in an extremely vulnerable position.  I personally know a married couple who mismanaged their business so poorly that they spent half-a-million dollars in retail value inventory over several years after their sales had fallen off a cliff, thinking they were still making money.  As the products on the shelf in the store began to decline in both quantity and quality, this led to a death spiral that caused them to go from generating more than $2,000,000 in per annum inflation-adjusted sales to practically nothing.  In the end, they wiped out nearly 25 years of work and a company that was paying them six-figures a year because they didn't understand the accrual concept.

The Bottom Line?  Business-Like Investors Think About Profitability and Return on Capital

Cash flow alone is necessary but not sufficient.  It's possible to experience positive cash flow while you lose purchasing power and march yourself towards bankruptcy court.  Look at the property and casualty insurance industry before the asbestos claims drove a lot of companies out of business.  These firms were bringing in millions of dollars a month but didn't understand the cost of the product they had sold, which eventually caught up with them.

more