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Thoughts on personal finance and other important matters

Karyn McCormack Amey Stone
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November 14, 2005

Stock ownership is up

Amey Stone

Given the general dissatisfaction of the investing public, you'd think that stock ownership would have fallen markedly in the U.S. since the tech bubble burst in 2001 and was followed by waves of corporate scandal.

Not so, according to two finance industry trade groups, the Securities Industry Association and the Investment Company Institute. According to their joint survey, "Equity Ownership in America, 2005," half of all U.S. households own stocks, either directly or in a mutual fund or retirement plan.

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November 03, 2005

Ave Maria Fund ideas

Amey Stone

I spoke recently with George Schwartz, portfolio manager of the Ave Maria Fund, a stock fund that invests according to Catholic values (which basically means it avoids companies which have anything to do with abortion or pornography, or that provides benefits to unmarried couples).

We didn't talk about the fund's philosophy though. Instead I asked him what stocks he likes. Here are two ideas he gave me (in his words, with a few edits):

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October 24, 2005

Good news for independent analysts?

Amey Stone

Wondering why brokerage-house analysts usually have so much more stock-moving muscle than independent analysts? One big reason is that brokerage firm trading services are often bundled with research. Large institutional investors want to be tops on the list of best clients at places like Goldman and Lehman to ensure that they get the best service on trades. That means they get a lot of brokerage house research thrown in with the deal.

If institutional investors want independent research, they usually pay for it by trading with a firm that has a relationship with the independent analyst they are following. That trading firm then pays the independent analyst a rebate (known as "soft dollars") as compensation. Confusing right?

Now the Securities and Exchange Commission is looking at this web of relationships more closely to make sure that the investors who are the clients of money managers (i.e. mutual fund shareholders) are getting the best trading and execution services.

Last week the SEC issued long-awaited guidance on soft dollar relationships (it now calls them "client commission practices") which found it is okay for money managers to pay for research with trading commissions. There's still more guidance coming on how these payments should be disclosed.

Here's what John Meserve, president of BNY Research, Commission and Payment Services (a division of Bank of New York which aggregates and distributes independent research), told me about the latest news on Oct. 20:

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October 21, 2005

Healthcare smart card?

Amey Stone

The intersection of healthcare and technology has been a hot area for entrepreneurs and investors for years. Now we're getting some much needed improvements where finance, health insurance and technology meet.

I spoke recently with Bruce Weitzberg, the chief operating officer of MedCom USA (EMED), a Scottsdale, Arizona, firm that has a card-based system that allows doctors to check insurance eligibility and process transactions electronically. "It looks like a credit card machine on steroids," says Weitzberg.

So far, systems like MedCom's mainly help out the doctor. But down the road they will likely speed up and simplify the confusing health insurance claims process for consumers as well. What a relief that would be!

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October 12, 2005

Year-end tax pitfalls

Amey Stone

I just listened in on a year-end tax planning conference call featuring three financial planners that are part of Zero Alpha Group. They identified these four common pitfalls of investors this time of year:

- Blowing your bonus
- Giving gifts (to charities or heirs) without an eye to cutting your taxes
- Cluelessness on the alternative minimum tax (AMT)
- “Playing Santa Claus” at the expense of your retirement plan

For more details on the mistakes, you can read the full press release and even listen to a replay of the conference by following this link: "Avoid the four biggest pitfalls of year-end tax/financial planning."

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October 10, 2005

Earnings growth, without the debt

Amey Stone

San Diego Investment adviser Brent Wilsey has come up with a list of companies that have low debt, but above-average earnings growth. He clarifies that this is "real" growth, meaning that it doesn't come from asset sales, accounting changes or other means.

Here's the five stocks he recommended on this basis in an email sent to me on 10/3:

1) HNI Corporation (NYSE:HNI)
Furniture & Fixtures Industry
"Earnings per share for the trailing twelve months versus that for one-year ago is a full 20%, which exceeds the industry average of 18%. Total debt to equity of 0.02 is far below the industry average of 1.20. Current Equity $708MM, Current debt $11MM, TTM earnings $126MM"

2) Bentley Pharmaceuticals, Inc. (NYSE:BNT)
Biotechnology & Drugs Industry
"Earnings per share for the trailing twelve months versus that for one-year ago is a whopping 50%, which exceeds the industry average of 31%. Minuscule total debt to equity of 0.03 is far below the industry average of 0.39. Current Equity $87MM, Current debt $3MM, TTM earnings $8.3MM"

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September 27, 2005

Nursing Home Costs Up 5% in 2005

Amey Stone

It is depressing, but hardly surprising to see that nursing home costs continue to rise -- up more than 5% this year.

Here's some more data to ponder as you try to save something for retirement. According to a recent survey from the MetLife Mature Market Institute:

- A day in a nursing home costs $203 on average in the U.S. (up 5.7% from last year's cost of $192).
- The average stay in a nursing home is 2.4 years, for a total average cost to $177,828.
- The highest nursing home rates were reported in Alaska at $531 per day.
- The lowest were in Shreveport, Louisiana at $115 a day.
- Home health care costs $19 per hour on average.
- Companion care costs $17 per hour on average.

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September 21, 2005

Break Up Citigroup?

Amey Stone

Tom Brown, a leading bank analyst and hedge fund manager, just called for such a move on his web site, bankstocks.com. (See, "The Citi is Sleeping: Break it Up!")

Sorry Sandy (Weill, that is). Weill was the mastermind behind the series of mergers that turned Citigroup into the world's largest financial services company. Now, if Brown has his way, as soon as Sandy is out the door, his legacy of empire building will be reversed.

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September 20, 2005

Maintaining "measured"

Amey Stone

Wondering why stocks are sliding in reaction to the Federal Reserve's decision to raise rates another quarter point? It's because the Fed says it will maintain its policy of "measured" rate hikes into the future. (Here's a link to the Fed's statement).

That little (well, not so little), word dashed traders hopes that the Fed would soon stop its rate-hiking ways because of the damaged to the economy wreaked by Hurricane Katrina.

Sorry folks, the Fed sees that Katrina cuts both ways when it comes to inflation -- it raised the price of oil, which may translate into higher consumer prices for a range of goods at the same time that it slowed economic output by demolishing a major American city and port.

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September 19, 2005

Community Investing in Katrina's Wake

Amey Stone

This press release popped up in my mailbox today and it looks like a great option for people who want to give money to Katrina, but don't want their contribution to be lost in the billions the government, relief agencies, and generous individuals are already pouring into the region.

Consider making an investment in a community investment fund, such as the CRA Qualified Investment Fund (www.crafund.com). It's a socially responsible bond fund that buys fixed-income securities in cities and states to finance affordable housing, small business loans, job creation, health care, schools and economic development. The fund is trying to raise $100 million (it already has $50 million) to go to redevelop Katrina-hit areas.

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September 16, 2005

Teaching Kids About Money

Amey Stone

ING Direct operates a fun site designed to teach kids about money called Planet Orange .

A lot of the content isn't exactly rocket science -- for example, it will take Ashley three months to save enough for a $100 skateboard if she saves $10 a week and only a little over a month if she saves $20 a week. But the anecdotes and illustrations are clever and it makes a handy way to introduce your child to the concept of budgeting.

My guess is the site would have the most appeal to kids in the 10-to-15 age range. But, come to think of it, saving $10 a week for a luxury purchase is an strategy I could use myself!

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September 14, 2005

ETFs for Dividend Seekers

Karyn McCormack

Starting Sept. 15, investors will be able to invest in three new baskets of dividend-paying companies. The three new PowerShares “Dividend Achievers” Portfolios, which will trade on the AMEX, are exchange traded funds (ETF) based on the Mergent Dividend Achievers indexes. A "dividend achiever" is a company that has increased annual dividends for at least 10 consecutive years.

The PowerShares Dividend Achievers Portfolio (PFM) is based on an index that currently has 313 companies that have hiked their dividends on average for 22 years and by 12% annually for the last 10 years. The top five holdings of this ETF are Exxon Mobil (XOM), General Electric (GE), Citigroup (C), Wal-Mart (WMT), and Pfizer (PFE), according to PowerShares.

The PowerShares High Growth Dividend Achievers Portfolio (PHJ) is based on an index of 100 dividend achievers with the highest 10-year annual dividend growth rate. This group has raised dividends by an average of 20.2% annually for the last decade and have beaten the S&P 500 index for the last three, five, and 10-years (through June 30). The top five holdings are Citigroup (C), Wal-Mart (WMT), Pfizer (PFE), Johnson & Johnson (JNJ), and American International Group (AIG).

The PowerShares International Dividend Achievers Portfolio (PID) differs from the other two in that it evaluates dividend growth of international companies (that trade in ADRs in the U.S.) over a 5-year period. The ETF's top five holdings are Eni (E), ABN Amro Holding (ABN), Aracruz Celulose (ARA), Barclays (BCS), and HSBC Holdings (HSBC).

In addition to those three new ETFs, PowerShares has been offering the PowerShares High Yield Equity Dividend Achievers Portfolio (PEY), which has the 50 "dividend achievers" with the highest dividend yield.

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September 12, 2005

Golfers and finance

Amey Stone

Duffers take note: Nationwide Financial and Golf Digest have conducted a study of golfers' financial savvy that has some amusing findings. Their survey found:

- While 94% of golfers know what areas of their golf game need improvement, only 45% know what aspect of their saving and investing strategies need attention.
- 85% of golfers know the score of their last round, but only 52% know the current value of their portfolio.
- 74% of golfers have increased the amount of money they spend on golf over the years, but only 54% have increased the amount set aside for retirement.

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September 08, 2005

Katrina Scams

Amey Stone

I'm back from a week's vacation, where I spent much of the time glued to CNN watching Katrina's devestation of the Gulf Coast.

Today several stories caught my eye reporting on new Katrina-related scams. Here's one from MSNBC about stock-touting schemes.

The Morning Sun, of Mount Pleasant and Alma, Michigan, had this helpful story about how to avoid the "relief" scames.

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August 24, 2005

Brokers go independent

Amey Stone

Now that so many traditional stock brokers charge an annual fee based on assets under management for their services (rather than a commission on stock or mutual fund trades), a lot of them are deciding to go it alone. All they need to do is quit their day job, register as an investment advisor, sign up with a firm like Schwab, Fidelity, or TD Waterhouse that will act as their custodian, trader and back office, and get their clients to transfer their accounts. Presto, they are in business. (Okay, it's not that easy, but it's not that hard either).

"A lot of brokers have started to look and act more like registered investment advisers within a wirehouse umbrella," Bob Oros, senior divisional sales manager for Schwab Institutional, told me in a recent interview. "The next logical step is, 'do I really need to share revenues with this firm or can I go it on my own?'"

Schwab commissioned a report on the topic of brokers turning independent, which it released in July. It found that by 2004, independents had 47.5% market share of high-net-worth households, up from 30% 2001. At the same time, traditional stock brokers lost market share, claiming 30% of high-net-worth customers in 2004 vs. 40% in 2001.

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