People in the USA make a great deal of money. There are many who make huge amounts of money so many who make a great deal think it is unfair they don’t make more. And many of those just decide to buy what they can’t afford. Then they create their own financial weakness.

Why Living in a Rich Society Makes Us Feel Poor

I guess that would be me. I don’t mind if people spend what they earn, but I do mind when people that are given huge amounts of money and spend beyond their means and then complain that they can’t have their cake and eat it too. I am not saying that people don’t have to make tough choices but there are hundreds of millions of people alive today that have real tough economic lives. People that want to live beyond their means in the USA and then complain that life is not fair need to realize that yes life is not fair. And the biggest truth is that hey have been given the advantage over most everyone else in the world (yes some small number that happen to live near them may be even richer).

If they want to spend more – go earn more first. This option, available to most in the USA, is not available to most people alive today. Most people in the USA should be helping those less fortunate than themselves not complaining that they don’t get to buy enough toys compared to this person they see on TV or that they know…

Charities to consider: Trickle Up – Accumen Fund – Grammen Bank – Habitat for Humanity

Is Amazon a Bargain?:

Amazon is a very interesting stock. It is not cheap (on a PE basis) and trying to evaluate what the earning picture will look like going forward is not easy. This article does a good job of looking at some of the interesting questions.

Related: 10 Stocks for 10 Years Update – Amazon Innovation

re: Born Suckers – The greatest Wall Street danger of all: you by Henry Blodget.

Henry Blodget mentions two profoundly (though simple) important factors that lead to poor investment decisions: Prospect Theory and Outcome Bias. He lists 7 factors, I find two profound.

Prospect Theory (more details) essentially states people are eager to “lock in gains” (sell positions with profits to realize gains) and hold losses (deffer selling positions in which they have losses so as not to “realize” the loss). Like many profound ideas the simplicity of the idea undermines the importance. This factor can make a huge difference in investment results. Many of the most successful investors understand the importance of this idea. And they repeat the importance of taking action to avoid falling into the patterns prospect theory predicts.

William O’Neil (founder of Investors Business Daily) – “Remember, 7% to 8% is your absolute loss limit. You must sell without hesitation – no waiting a few days to see what might happen or hoping the stock rallies back; no need to wait for the day’s market close” page 90, How to Make Money in Stocks: a winning system in good times or bad, 3rd Edition, 2002.
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fool.com is an excellent site. They offer commentary that is both informative and even better educational. One strong theme they preach is to buy for the big score. Today, one of the founders, David Gardner, has a great article on this theme: The Highest Possible Returns. Period.

I missed out on the IPO for Google, much as he missed out on AOL. Luckily for me, I did buy at $220 (the IPO price less than a year earlier was $85): now it is at $476. Buying after you watch a stock more than double is not easy. My investment experience helps me make that decision today when I likely would have decided not to buy before – thinking I should have bought before it doubled so since I didn’t I wasn’t go to jump in later… I doubt I would buy Google now but I am keeping what I have.

Related: 10 stocks for 10 years update

The TIAA CREF site has some valuable retirement planning advice (link updated since some pointy haired boss doesn’t know that web pages must live forever – when are we going to get competent people running web sites?). Take some time to read one of their articles (or read more), for example: Retirement Strategies, a 48 page overview. Yes it requires some time to read but the money involved in retirement is huge. Making the wrong decisions can cost you not $2-5,000 but $100,000, and more, easily. Don’t avoid the steps you need to take to learn cost you.

The key is to get started. If you are relatively young you are lucky, you have decades to learn more and improve your plan. Don’t wait until you are only 10-15 years from retirement. The early you get started the better for you and the more money you will make by choosing wisely. The documents TIAA CREF puts together make it much easier to succeed. We will continue to point out resource to aid your continual quest for financial literacy. It is a long term project.

Fraudulent web click are friction in Google’s business. Fraudulent clicks ad costs to the system without a benefit to the performance of the system. Google’s profit is derived from improving the system (of finding customers for advertisers) and taking a cut of the profits that their system creates. Google makes a great deal of money because their system of matching advertisers with dollars to spend to customers. Google does this through ads on their search results pages and on third party web sites. Google engineers will do whatever they can to find ingenious ways to reduce that friction.

There have been many stories over the last few years about click-fraud. But none I have seen explain the simple idea that Google is the company with the most to gain by eliminating it (and Yahoo next). They often point to companies suing Google about fraudulent clicks instead.

Companies like Google run ads on web sites and charge the advertisers for each click (anywhere from a few pennies to several dollars for each click). Advertisers want to get potential customers when someone clicks on their ads, obviously they don’t want to pay when there is no chance the “visitor” is going to become a customer. Obviously, fraudulent clicks are bad and those that engage and encourage such behavior are acting unethically and immorally and should be stopped and punished.
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We will be posting messages on various terms and concepts in investing and economics. Here we offer some information on cash flow.

Earnings per share include many adjustments to reflect the standard accounting wisdom, beyond the cash taken in and spent by a company (depreciation, expensing options, expensing long term investments over the expected life, writing off inventory…). Cash flow is a measure that tries to more closely measure the increase (or decrease) in cash for a company over a period of time.

An advantage of looking at cash flow is it is more difficult to distort than earnings per share (though it is still very possible). A disadvantage is that standard accounting practices exist for a reason and often give a better picture than a simple view provided by the cash flow. Therefore cash flow is normally useful in conjunction with the earnings statement – not instead of.

Operating Cash Flow attempts to eliminate such non-operations impacts (like selling or buying stock) and give a cash flow figure for the operation of the business. Free Cash Flow is equal to “operating cash flow” less “net capital expenditures.”

Like many accounting terms, cash flow is more complex in execution than it seems but this gives you a start on understanding cash flow.

More from the Curious Cat Investing Dictionary on Cash Flow

Questions You Should Ask About Your Investments from the Security and Exchange Commission (SEC). They offer questions relating to: general investments, mutual funds, investment advisers, performance of your investments. Questions such as:

What are the total fees to purchase, maintain, and sell this investment? Are there ways that I can reduce or avoid some of the fees that I’ll pay, such as purchasing the investment directly? After all the fees are paid, how much does this investment have to increase in value before I break even?

How liquid is this investment? How easy would it be to sell if I needed my money right away?

Pretty basic stuff but it provides some questions that you should be able to answer. If you can’t then continue on your path to increase your financial literacy. We hope I site can help with that. In addition we link (on the left) to some good sites including fool.com and Marketplace that are useful in educating yourself.

Skip the Coffee? What’s Money for, Anyway?:

The author is right. There is nothing wrong with spending some of your money on the luxuries you choose. The problem is too many people spend more than all their money on the luxuries they choose (going into debt to support their lifestyle). The author states:

In previous post: saving for retirement, we discuss the options for planning for your future economic security. Cutting back on luxuries is only necessary if you are living beyond your means (looking at your whole financial life). If you have incorporated the luxuries you want into a good overall plan, great, good job, keep up the good work. If not, figure our which luxuries you want to cut (or how you are going to earn more money).

Britain becomes ‘never, never land’ as personal debt runs out of control

Britain seems to be taking after the USA. Debt is not necessarily bad for the economy or individual. Too much debt is. When it becomes “too much” is one of the issues we will discuss, and link to articles discussing, in this blog.

People will benefit from understanding how debt effects their future economic life. To do this they need to gain financial literacy. To help people gain financial literacy is one of the aims of this blog. We believe that gaining financial literacy will lead people to make better economic decisions. Such as not taking on too much debt.