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PROBLEMS WITH COUNTERFEITS
If there is one man that investors look to for investment success, it’s the Oracle of Omaha, Warren Buffett, and with good reason. He not only has had tremendous success over the years for his clients, but Buffett presents his ideas in a way that even more casual investors understand, and most importantly, he rarely strays into areas that he feels are beyond his personal expertise.
A recent research piece from the top-flight analysts at Jefferies presents the investment checklists from nine of today’s top investors. The checklists contain bullet points that they use as a base criteria for buying stocks. They sourced Buffett’s checklist from @martinconder.
We thought it would be good for our 24/7 Wall St. readers to get a look at the 13 point checklist that Buffett uses. Given his decades of investment success, and an incredible track record, these are probably solid rules in any kind of market.
Is the business simple and understandable?
Does the business have a consistent operating history?
Does the business have favorable long-term prospects?
Is management rational with its capital?
Is management candid with the shareholders?
Does management resist the “institutional imperative”? In other words, do they avoid groupthink.
Is the focus return on equity?
What is the rate on “owner earnings”? Owner earnings is an extrapolated estimate of an owner’s earnings (free cash flow) over a defined period (typically a year).
Is there a high profit margin?
Has the company created $1 of market value for every $1 retained?
Financial analysis: Focus on return on equity, not earnings per share. Free cash flow. High profit margins, and most importantly, how good will the company be in 10 years versus the competition from peers.
What is the value of the business?
Can the company be purchased at a significant discount to its value? This is Buffett’s last and most important question. It should be noted that he has done this countless times over the years.
Clearly it is not easy for many investors to find and compare all this data, although some of it can be found for companies that are traded publicly on Yahoo Finance under the statistics and financials tabs.
One way for investors to do less work is to own Buffett’s investment vehicles, which are the publicly traded Berkshire Hathaway Inc. (NYSE: BRK-A) or the lower-voting rights Berkshire Hathaway Inc. (NYSE: BRK-B). Or find the holdings and buy the stocks that help make up the portfolio, though many of the companies in the two classes of shares are not publicly traded.
One thing is for sure: The tried and true ways of a Wall Street legend like Warren Buffett won’t go out of style anytime soon. So keeping this checklist handy will be just as good today as it will be 10 years from now.
JULY NEWSLETTER 2
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According to a report from the Federal Reserve Bank of New York, business activity grew only modestly in the state of New York in July. Companies responding to the July 2017 Empire State Manufacturing Survey delivered a 10 point drop in the growth rate, with the general business conditions index falling to 9.8 in July from 19.8 in June. The number is not only below the Bloomberg consensus of 15.0, but it is lower than the range of 10.0 to 18.3 from all the economists polled by Econoday.
There are some larger national issues that may explain this drop in growth, but the weakness was also felt in many of the individual areas. Thirty percent of the respondents reported that conditions had improved over the month, and twenty percent of respondents reported that conditions had worsened in July. Indexes assessing the six-month outlook (see below) suggested that firms remained positive about future conditions, albeit with a less optimistic tone than in June.
The new orders index fell by 5 points to 13.3 and the shipments index fell by 12 points to 10.5, which suggests that orders and shipments continued to grow but at a slower pace than in June. Also, according to the New York Fed, delivery times (at 4.7) continued to lengthen at the same time that inventory levels were fairly steady, falling to 2.4 in July.
On a national level there are continuing reports of a tightening labor market, but the New York State region’s labor market indicators pointed to a small increase in employment, while there was no change in hours worked. The Fed report said:
The index for number of employees fell for a third consecutive month, though it remained positive at 3.9—a sign that employment was growing, but not as rapidly as in earlier months.
Input prices and selling prices were up by roughly the same amount as in June. The Fed report said:
The prices paid index was little changed at 21.3, as was the prices received index at 11.0, suggesting that the pace of price increases held steady.
Perhaps the most important issue to consider now is the economic outlook. This is generally a six-month outlook and is in theory what business executives are basing their business decisions around. On this front, the New York Fed’s outlook component of the report continued to show some weakness. It said:
The index for future business conditions fell seven points to 34.9, and the index for future new orders fell nine points to 33.4. Employment was expected to increase modestly, though the average workweek was expected to decline slightly. The capital expenditures index slipped to 15.0, and the technology spending index was 11.8.
All in all, this is an economic report that should be viewed as showing growth that is much more modest than robust. It also just one regional report, rather than a live national economic snapshot.
As a reminder of how this survey is conducted, it is sent out by the New York Federal Reserve Bank on the first day of each month to the same pool of roughly 200 CEOs or presidents of manufacturing companies in New York State. The survey’s numbers are generally based on about 100 responses that are received.
In a report earlier Wednesday morning, we noted the gain that Wal-Mart Stores Inc. (NYSE: WMT) has made recently in attracting third-party sellers to its online marketplace. But with that success has come a problem that other online retailers like Amazon.com Inc. (NASDAQ: AMZN) and eBay Inc. (NASDAQ: EBAY) also face: the sale of counterfeit products.
According to a new release from The Counterfeit Report, a self-described consumer advocate and watchdog, both Walmart its third-party sellers are listing and selling counterfeit products.
The news release noted that The Counterfeit Report “has repeatedly found and submitted complaints to Walmart, authorized by the trademark holders, for counterfeit items found on its website. Yet months later, some items remain while others are removed, but then are relisted.”
The report cites as an example 16 and 32 GB microSD memory cards available on the Walmart website, both directly from the company or from a third-party vendor. The trademark holder, SD-3C, confirmed with The Counterfeit Report that there is “no such authentic microSD product in the microSD standard or any licensed manufacturer’s authentic product line.”
Counterfeit microSD cards present their owners with a false statement of the capacity of the device. Typically, the device capacity is smaller than the listed capacity and when the real capacity is reached data is simply overwritten.
The Counterfeit Report notes e-commerce sites like Walmart.com, Amazon.com and eBay.com are “perfect platforms” to allow the global distribution of $1.7 trillion worth of counterfeit goods. That total is forecast to grow to $2.8 trillion by 2022. Counterfeit goods cost U.S. manufacturers $250 billion and U.S. workers more than 750,000 jobs, according to The Counterfeit Report.
No chance the nation's air traffic control system will be privatized when legislation to reauthorize the FAA, Federal Aviation Administration finally passes. Congress is running out of time, as the current law expires Sept 30. Expect a short term extension for three to six months before the final bill is passed. While major airlines support privatization, others, such as private pilots oppose it. Note other airline reforms affecting fliers that will eventually take hold: Official bans on in flight cell phone calls and on bumping travelers who have boarded. Also a quick refund rule for add ons fliers buy but do not get, such as early boarding
The US economic expansion remains on track as it prepares to enter its ninth year. Gross domestic product, a broad measure of the goods and services produced across the US economy expanded at a seasonally and inflation adjusted annual rate of 1.4% in the first quarter. That waas up from an earlier estimate of 1.2% growth , which was itself an upward revision from the initial estimate of .7% and forecaster expect a further pick up in the second quarter. Macroeconmic Advisers on Thursday projected 3.3% GDP growth rate for the spring quarter and the Federal Reserve Bank of Atlanta GDP now model predicted 2.9% growth The government will release its first official estimate for second quarter GDP on July 28. Following a slowdown in the first quarter, economic growth appears to have reboounded resulting in a moderate pace of growth so far this year Federal Reserve Chairman Janet Yellen said
SLOWER GROWTH FORECAST
Some good news for fliers sick of security lines: Faster screening is coming, courtesy of new machines that can peer inside carry on bags and electronics more effectively than today x-ray machines. Federal Officials and American Airlines ae testing scanners made by L3 Technologies at one airport. Other tests are coming. If they pass, the machines could eventually let travelers keep liquids and devices in theri carry on bags as they go through security, speeding lines and reducing hassle.
BUFFETT'S INVESTMENT CHECKLIST