Watch Your Money Grow in 2009
Issue #2551
- WEALTHY: Cash rules (Andrew Gordon)
- HEALTHY: What Big Pharma is hiding from you (Dr. Ray Sahelian)
- WISE: Ovid on money
ALSO IN THIS ISSUE:
- That little extra push your customer needs… (Suzanne Richardson)
- Permission granted (Robert Ringer)
- It’s Good to Know… about sex and the Internet
- Add “lassitude” to your vocabulary
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“How little you know about the age you live in if you think that honey is sweeter than cash in hand.”
Ovid
Make 2009 Your Best Year Ever – Resolution #7: Follow the Cash
For many years, bankruptcy rates of companies on the major stock exchanges were so low you could count them on one hand.
Believe me, it wasn’t a sign that our business schools were getting better… or that our CEOs were getting smarter. Nor was it because of the salutatory effects of the Sarbanes-Oxley legislation back in 2002, which strengthened corporate accounting rules. Rather, it was because banks were lending to anybody and everybody. Such quaint notions as credit rating, future ability to pay, and current cash status were tossed out the window in a sea of greenbacks.
Banks had so much money to lend that even bottom-of-the-barrel borrowers were courted like princes.
And then – around October of last year – the credit crisis grabbed hold of the U.S. economy and hasn’t let go since. It is squeezing all the excess cash out of the financial system and then some.
Now, instead of banks begging for borrowers, potential borrowers go begging.
Need I say that money is the lifeblood of an economy? Bartering is popular along the China-Vietnamese border, from what I hear – but in this country, cash rules.
Show Me the Cash
If you can’t turn on the lights, you can’t make money. That’s the dark reality of a company unable to pay its bills. And without cash lubricating an economy, businesses dry up. I saw it happen in Asia (where I did a lot of business as CEO of a trading company) in the late 1990s. One by one, Asian currencies came under attack by aggressive currency traders. Local currencies quickly sank to one-half to one-fifth of their previous values.
Companies that had very manageable dollar-denominated loans were suddenly paying much more interest after converting their local currency to dollars in order to make the payments. Companies defaulted left and right as their debt burdens doubled… tripled… and quadrupled.
My customers were disappearing, and my unpaid receivables were piling up. It was a nightmare. I did the one thing I had to do for my business to survive. I found the biggest cash cow in Indonesia – Big Oil. Everything bought and sold in dollars… small debt… and lots of cash coming in daily from oil exports. I finagled a couple of small contracts… hung on for dear life… and eventually grew the business from there.
There weren’t many companies that had cash to spare in those days, but most of those that did survived and lived to see another day – and, a couple of years later, the country’s recovery.
It taught me a valuable lesson as a businessman and as an investor. Careful cash management is a critical tool in getting through an economic crisis. When hard times hit, those with cash have a leg up on those without.
Now that the U.S. is in the throes of multiple economic crises, I’m asking companies to show me the cash before I even consider investing in them. And for your financial security in 2009 and beyond, you should resolve to do the same.
Out of Cash, Out of Luck
GM is in dire need of cash. It was going to run out sometime early next year if it didn’t get an infusion from the government. Ford and Chrysler are standing shoulder to shoulder with GM in front of Congress, hat in hand. They got some money, but only enough to see them through the next three months or so.
Investing in cash-poor companies with a history of weak leadership and a demonstrated preference for making losses over profits isn’t my idea of smart investing. (Even if the auto companies get the $34 billion they’re asking for, who’s to say they won’t need another $34 billion a few months down the road?) But investing in the anti-GMs of the world is.
I’m talking about companies that make a lot of cash and have a lot of cash left over every quarter. Companies that also have demonstrated the ability to consistently produce profits over the years. And if these companies give dividends, all the better. You then get a tangible benefit as a result of their prudent cash-management ways.
The best thing about these companies is that their cash is your protection. As long as they have it, banks can’t force them into a premature foreclosure.
Finding the Corporate Deep Pockets
The best cash-protected companies are those that have no debt (like chip-maker Nvidia Corp.) or very little debt (like Intel, with $2.4 billion in debt compared to a market cap of $70 billion).
As you’d imagine, capital-intensive industries (like telecom and auto) rely more on debt than the high-tech industry (like chip and computer makers). Even well-managed capital-intensive companies will have higher debt numbers than most high-tech companies.
If that makes you uncomfortable, you’re in good company. The legendary investor Warren Buffett avoids capital-intensive companies even in the best of times because of their big spending needs and the extra risk that represents. And this is not the best of times.
We will see hundreds, if not thousands, of companies fail. It has already begun in the financial sector with Lehman and others going under. The “Detroit Three” could be next.
My favorite show-me-the-money metric is the price-to-cash flow ratio (P/CF). Cash flow should be at least 10 percent of price (the market capitalization of the company – share price times the number of outstanding shares available). For example, Verizon has a market cap of $87 billion and a cash flow of $27 billion. Its cash flow is 30 percent of its market cap. That’s very good. It beats the minimum cash flow I look for by three times.
Verizon’s total debt-to-equity ratio is 0.88 – quite low for a telecom company. This is a metric I use less frequently, but I mention it because financial search engines (like Yahoo’s) include it and they don’t include the P/CF. Just remember that the ideal debt-to-equity ratio varies from sector to sector and company to company. For high-tech, it should be below 0.5 (in general). For capital-intensive industries, a ratio above 2 isn’t considered high.
That’s why Toyota’s total debt-to-equity ratio of just above 1 is good. And so is Intel’s, with its miniscule debt and a total debt-to-equity ratio of 0.06.
Cash matters. But also notice that I’ve mentioned companies with very solid records of growing their profits. Verizon, Intel, Toyota, and Nvidia are taking their lumps now – but they all have smart management that has led them to the top of their industries.
Maybe that doesn’t make them the most exciting stock picks. But right now, the market is exciting enough, with its wild swings from week to week and day to day.
Investing in a company that has cash on hand and a nice cash flow doesn’t mean you get a company immune from those wild swings… or from seeing its markets shrink and its sales drop. But it does give you a company that won’t get ambushed by banks or its own excessive spending needs… so it can come out of the recession intact and primed for growth.
All you need to make this strategy work is an investing horizon of two years or more. If you’re under 60, such a horizon should be mandatory.
[Ed. Note: Finding strong companies that meet ETR Investment Director Andrew Gordon's criteria is a great way to prosper despite the market's condition. But you can also make money on companies that are ready to crumble. Learn how to spot the "red flag" signals that could predict (with as much as 92 percent certainty) when a company's stock is going to tank.]
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Your Special Holiday Gift from Early to Rise
Andy Gordon (www.InvestorsDailyEdge.com) reveals the best thing about falling markets – and two companies you should consider investing in for 2009.
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Could This Be Your Perfect Remedy for the Recession?
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ETR Insider Report: What’s Just as Important as Your Product?
My hand was already reaching down to toss it in the trash… but, suddenly, I stopped.
I lifted the catalog back up… and examined the front cover again.
“Free Shipping – No Minimum Order.”
Hmm, I thought. Maybe I’ll just take another look inside and see what I can find.
I love free shipping. It can persuade me to buy something… even if I wasn’t going to buy anything in the first place.
What sort of magic is at play here?
I never really thought about it until this year’s Info Marketing Bootcamp. Then, during his Lifetime Achievement Award acceptance presentation, Bob Bly said something that clicked: “Sometimes your bonus is just as important as the product you’re selling.”
Take a look at any sales letter… or any infomercial… even some banner ads… and you’re bound to find a bonus.
A bonus is the free special report you get when you sign up for a newsletter… the MP3 download you get when you buy a book… the 6-in-1 kitchen tool and set of precision steak knives you get when you order a Ginsu knife… or the free shipping you get when you order a Land’s End fleece jacket.
Sometimes, as Bob pointed out, the bonus is that little extra push your customer needs in order to buy. A really good bonus shows her just how much value she is getting for her money.
In one example that Bob gave, a newsletter publisher compiled a “best of” collection of his most popular column. When he started offering the compilation as a bonus, subscription rates skyrocketed. Another newsletter publisher found that when he offered a reprint of his annual industry salary survey as a bonus for new subscribers, orders for new subscriptions increased 25 percent.
So the next time you come up with a sales offer, make sure you include a valuable bonus that can give your customer one more reason to buy.
[Ed. Note: Bob Bly - in addition to being the author of over 70 books and an expert Internet marketer - is a contributor to ETR's exclusive business-building program, the Internet Money Club. Not only will this program teach you techniques that marketing masters use to create monster sales, it will show you how to pick a product, set up a website, and pull in targeted, qualified traffic. And that's just for starters. Learn how to create your own Internet business this year, regardless of the current level of your technical or marketing know-how.
Sign up for Bob's free monthly e-zine, The Direct Response Letter, and get more than $100 in free bonuses.]
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The Plain Truth
There are some people who aspire to have power over others. And there’s not a person on this earth who hasn’t found himself on the short end of that power stick at one time or another.
Have you ever asked yourself what it is that gives someone power over you? The truth be known, it’s a matter of perception – both the other person’s and yours. By this I mean that most power is abstract, and therefore impossible to quantify.
So the question becomes, “If the power someone holds over you is abstract, how can you overcome it?” Answer: You simply refuse to grant permission. You see, the only power another person can have over you is the power you give him.
Which means it’s really your power. And only you can grant another person permission to take your power. By the same token, you can refuse to grant that permission.
Of course, you do not verbally grant permission. It’s much more subtle than that. As I said, power is an abstraction. The way it normally happens is that you get yourself into a position where you need the other person. If, for example, you ask him for a favor, that immediately gives him power over you.
Thus, the surest way to prevent others from having power over you is to be independent. And the corollary to this is that independence gives you power. The plain truth is that even a master intimidator like Donald Trump would have no power over you if you were totally independent. He may be a powerful person in his own right, but his power would not affect you unless you allowed it to. And you certainly are under no obligation to do that.
The next time you feel as though you’re in a position of weakness when dealing with someone, remember that his power is really your power – power that you have given him. And anytime you wish to revoke that power, you need only withdraw your permission for him to use it.
[Ed. Note: For a treasure chest of proven ideas, strategies, and techniques for increasing your income many times over, check out Robert Ringer's best-selling dealmaking audio series. And be sure to sign up for his Voice of Sanity e-letter.
Get three easy-to-follow steps to finding success in any aspect of your life right here.]
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The Tricky Tactics of the Pharmaceutical Industry
You may think you’re up on the latest health information. But even if you were to read all the thousands of medical journals out there, you probably wouldn’t be getting the whole story. Because when they are trying to get their studies published, drug companies are more likely to submit outcomes of those that favor benefits of the new drugs they are promoting.
Understandable, maybe. But that means you may not be aware of the poor outcomes of many new drugs. In fact, many trials that showed poor outcomes were still not published several years after the FDA approved the drug.
An independent review of these studies concludes: “The information that is readily available in the scientific literature to health care professionals is incomplete and potentially biased.”
This should make you even more skeptical about the benefits touted by drug companies.
Discuss all new medications thoroughly with your doctor – and be sure to get a second opinion if anything seems fishy or too good to be true.
[Ed. Note: For unbiased reports on the latest health breakthroughs, sign up for ETR's natural health newsletter.
For more about exactly what you should be doing to improve your health, visit www.RaySahelian.com, the website of Ray Sahelian, MD, internationally recognized as a moderate voice in the evaluation of natural supplements and the author of Mind Boosters.]
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It’s Good to Know: The Internet – Better than Sex?
If, after everything you’ve read in Early to Rise, you still doubt that the Internet is the best place to do business, consider this: According to a recent Harris Interactive poll, 46 percent of women and 30 percent of men would rather give up sex for two weeks than Web surfing.
The study, conducted on behalf of Intel, further found that 65 percent of U.S. adults say they can’t live without the Internet. They consider access vital for business transactions, shopping, personal finances, staying in touch with friends and family, and more.
(Source: The Wall Street Journal and Harris Interactive)
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Word to the Wise: Lassitude
“Lassitude” (LASS-uh-tood) – from the Latin for “weary” – is a lack of energy or vitality.
Example (as used by George Eliot in Romola): “The feverish excitement… had given place to a dull, regretful lassitude.”
Copyright ETR, LLC, 2008
Your ezine has some useful info on occasion. But I think your credibility would be enhanced if every once in awhile you sent out something that was not a sales letter. Just a thought.
I enjoyed the content and the frank discussions here and in all the issues I have received from ETR.
I like many others have been hit hard by the economy and its down turn.
The lack of cash flow has happened in my opinion because someone tried to balance their books and found that they would not balance and called in all their loans. This forced others to balance their books and behold what has happened, no cash flow.
I get so excited about hearing about these opportunities until the large price tags appear.
Everyone is looking for something to better themselves but when you are working with little money it is discouraging to see that the guy on the other end is the only person making the money.