Get Your Ducks in a Row

As a follow on to Tom’s post about security, let’s look again at the weakest link in your security – You… and the little scraps of paper that contain your user names and passwords.

As noted earlier in this forum, accumulating wealth can be quite simple: buy a lottery ticket, get lucky, voila! you’re wealthy. But even with that simple, albeit  unlikely scheme, you still have to remember where you stored the lottery ticket.

Using Tom’s ( and Smith-Barney’s)  “old fashioned way” of accumulating wealth takes more time, patience and a lot more remembering.  You have to remember more than just user names and passwords.  There are  account numbers, safe combinations, pin numbers, life insurance policies, spouse’s SSN, etc., ad nauseum, ad infinitum.  Now, if you’re twenty-something, have only a few accounts spread around and most of your brain cells are still in tact, you’re thinking “How bad can it be?”  However, if,  like me, you’re a (way) bit older and haven’t  organized this information, you’re most likely rocking in the fetal position, hoping your  memory will return.

Of course, you can organize data on a sheet of paper, put it in a drawer and like the lottery ticket simply remember where it is so you can constantly keep it up to date.  You just have to hope your 7 year old daughter doesn’t take it to school for financial “show and tell” or the new puppy doesn’t rearrange a few figures when you forget to put it back in the drawer (the paper, not the puppy!).

A better solution is a simple and, preferably secure, database.  There are several solutions out there ranging from cheap to free.  Unless you’re reading this article at the library (you’ll need your own computer), the cheapest digital solution is a text file or spreadsheet with a few columns for description, user name, password, URL and account number(s). Although I would contend, it’s better than nothing, this solution has some serious security issues and is not as easy to use as a dedicated program.

The database I have used for the past 5 years is Passwords Plus.  It’s under $30, is extremely easy to use and syncs with any device running the Palm OS.  This last feature saved my butt a couple of years ago when my wife and I, while vacationing in Maine, discovered the rustic little cabin (read “hellhole”) we were staying in didn’t take credit cards.  Because my PDA  contained my checking account number, we were able to quickly secure cash at the local bank without resorting to masks.

KeePass, mentioned in Tom’s post,  is another program that I tried recently just for comparison.  It’s friendliest feature is that it’s free!  It also appears to have another layer of protection that Passwords Plus doesn’t have, that being a “disk key” that you generate yourself.  So, if super security is one of your requirements, it may be the better choice.  Also, for you Mozilla Firefox users (like myself), KeePass allows you to import any usernames and passwords you’ve captured in your browser.  However, I think I will still stick with Passwords Plus just because it’s so darned easy to use.

In conclusion, there are several other similar solutions out there, but it’s not so important which one you use as that you organize your important data…now!   If you’re currently using Passwords Plus, KeePass or another similar program, let us know; we’d love to hear from you.

Store Front

If you’re like me, you’ve been conditioned to be at least a little suspicious when you’re approached by a salesperson in a retail store.  You KNOW they’re going to try to sell you something.  However, you may not always understand what it is they are trying to sell!

In a Target, Wal-Mart or Macy’s, you’ve already been sold before you walk in the store – by the brand name.  The clerk is simply there to take your order…and your money. But at Bob’s Bait and Bagels or Sally’s Hutch Hutch, the owners are trying not to simply, or even primarily, sell bait, bagels or hutches.  They want to sell you on the same thing that Target already has – their store.

So what do I do with that information?  I engage the store owner (or knowledgeable clerk) in conversation.  I ask questions. Although they certainly want to make a sale, even more, they want me to come back again…and again…and again.

Bob or Sally, being smart retailers, want me to feel that I received the best value I possibly could on that bait, bagel or hutch.  I might learn from Bob that pink worms aren’t any good unless the Bass are spawning or from Sally that solid oak is once again preferred for firewood, not furniture and that hickory veneer looks better and cost half as much.

Saving real money is more than clipping coupons, it’s being informed and that “evil salesperson” may be your best source of information.

If you’ve been paying attention, you know that the Federal Government offered a $7500 income tax credit to first time home buyers (http://www.irs.gov/taxtopics/tc611.html) who purchased homes in 2008.  Of course, like any government program, there were exceptions (you can’t make too much money, you greedy #$&%!) and unlike other “credits” this one had to be paid back.  The pay back can be over 15 years and is interest free, so it’s essentially an interest free loan – still a pretty good deal.

Well, in 2009 the deal is even better because it’s now an $8000 (real) credit and you don’t have to pay it back (http://www.irs.gov/taxtopics/tc612.html).  You must purchase the house after December 31, 2008, and before December 1, 2009 and keep it for at least 36 months to qualify for the credit.  And for those of you that purchased a home early in 2009 and claimed the $7500 “non-credit credit” – EUREKA! You can file an amended return and get the $8000 non-refundable credit.  For some FAQ’s on this subject check out http://www.irs.gov/newsroom/article/0,,id=206293,00.html.

With the housing market still not out of the woods, this alone wouldn’t necessarily tempt me to buy at this time.  However, I just don’t believe interest rates are going to stay this low very much longer.

Since 1992 rates for a 30 year fixed mortgage have ranged from a high of 9.2% to a very recent low of just under 4.8% *. During the late 70′s and early 80′s, a time of rampant inflation, mortgage rates peaked above 18% *. With Uncle Sam spending money like a drunken sailor (no offense to our men and women in uniform), inflation and interest rates are going to soar. Unless, of course, Washington and the Fed…  Ok, this isn’t a fantasy blog; my opinion – buy now.

* Source:  Federal Home Loan Mortgage Corporation’s (Freddie Mac) Weekly Primary Mortgage Market Survey (PMMS)

Preparing to Jump

So, let’s take a look at purchasing stock in a company you’re familiar with for which you can make some educated guesses about its future.  The trick is to identify as accurately as possible the areas of risk the company might encounter.  Examples could include market risk, political risk, management risk and capitalization risk.  You can choose as many areas of risk as you like, but 4 or 5 will typically get the answers you’re looking for.

In our hypothetical example, you live next door to Fuzzy Fungus, Inc (FFI) and know some of the management.  FFI has been around for 25 years, growing slowly, but you hear they’re about to introduce a brand new product. You want in.

Let’s look at some risk factors.

• Senior management are in their mid-50’s and have been running the show for about 10 years – risk is very low, say 5% chance of failure in the next two years.
• FFI is able to raise capital fairly easily, but with the tough lending environment risk of not being to raise money is a little higher than usual, but still only 10%
• They’re depending on a new product to bump revenues, but if it tanks, the revenues could go the other way.  This may be the biggest risk, so we’ll guess it’s around 25%.
• And lastly, this isn’t about guns, cars, oil or healthcare, so the current political climate “shouldn’t” have too much impact, but still let’s say it’s still around 5%.

Now, how do we calculate overall risk and what does it mean?  The answer we get will be a pretty general one, but essentially, we will know if the new product introduction will have a large positive effect on the stock price, given this risk factors we’ve considered.  The calculation is easy.  Simply multiple the chances of success for all of the risk factors to get an overall chance of success. (The chance of success is 1- % chance of failure, expressed as a decimal.)  And the answer –

Management X Capital X Market X Political     = Overall Chance of Success

(1-.05)    X (1-.10) X (1 – .25) X (1 – .05) = 61%

Based on this answer, I would probably continue my research into the company.  If the answer was 40% or less, I would almost certainly pass.

Of course, there are a myriad of other factors you should consider before investing in stocks, but this is a quick way of deciding whether it’s worth a further investment of time, effort. and, most importantly, money.