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July 2, 2015

Investing and life has us confronting many choices.  Some are simple, some complicated, some we prefer not to make and some go against our impulses.  Many times, the choices are not made because we do not know we have choices.  Other times, doing nothing is a choice to continue whatever you were or were not doing.  Here are some of the choices that need to be considered and decided upon.

Investing choices

  • Stocks or Bonds
  • Conventional or alternative investments
  • Diversified or not concentrate investments
  • Investing for cash flow for or asset accumulation
  • Investing for great wealth or to be financially secure
  • Settling for the market’s average returns or wanting to outperform the averages
  • Short term, mid-term or long term investment horizon
  • Goals leading to financial security or no goals creating doubt
  • Deliberate financial actions or luck
  • Doing it yourself or using an investment professional


  • Prestige car or suitable transportation
  • Complacent or innovative and reaching desires
  • Spending or savings priorities
  • Good health or not caring
  • Haphazard attitude or planning with goals
  • Owning or renting
  • Being a couch potato or mobile
  • Being on time or late
  • Associating with nice or nasty people
  • Carrying hatred and grudges or moving forward with positive energy
  • Growth or stagnation

Business or professional

  • Spending time with your business or your family
  • Preparing a careful estate plan and will or not caring
  • Having a succession, transition or exit plan if you are in business or doing nothing about it
  • Your persona is immersed in your business or job or who you are is independent from work

Bottom Line

  • Either you care or you don’t care

There are others, but these should be enough to get you started thinking about your important priorities.

Warren Buffett’s Portfolio

June 30, 2015

There is a mystique about Warren Buffett and rightly so.  He is undoubtedly the most successful investor of all time, an icon, legend and even a brand.  He is also very smart, practical and tells it as he sees it, which is usually on the mark for most of us.

However, in spite of his great success, his portfolio is not one that should be emulated.  Berkshire Hathaway’s (BRK) public share portfolio is comprised of 46 stocks with a $110 billion market value.  However, just four stocks make up 63% of that value [Coco Cola, American Express, WellsFargo and IBM].  The position in WellsFargo is worth about double each of the other three.  As to sectors, 45% of the total portfolio is in financials, 25% is in consumer staples and 13% in information technology.  He has an extremely undiversified portfolio and any advisor or investment manager might be considered negligent with such a configuration, but not the Oracle of Omaha.  Note that the sector analysis does not include the privately owned companies.

The private companies BRK owns are valued at a combination of book and fair value and not market value and employ over 340,000 people.  According to Warren, nine of them are large enough to be included on Fortune’s 500 list if they were publicly owned.  In spite of BRK’s size, its corporate office only employs 25 people.  Each company has its own management with responsibility to run the business they work for. Some of the well-known companies owned are GEICO, Benjamin Moore, Clayton Homes, Dairy Queen, Fruit of the Loom, Heinz, Johns Manville,  NetJets, Scott Fetzer, BNSF Railway and See’s Candies.

A biography I recommend is The Snowball / Warren Buffett and the Business of Life by Alice Schroeder and I particularly recommend it to young people that have an interest in investing.  Beside an engaging biography, it is a veritable how-to book on investing.  Another “book” I recommend is the BRK annual report that can be downloaded on line or obtained by writing to the Berkshire Hathaway, Inc. corporate office at 3555 Farnam Street, Omaha, Nebraska 68131.  Both books are well worth your time.

A speech I often present is “How Warren Buffett Did It: Insights into the investing history, patterns and strategies of the World’s most successful investor” and I will send the handout to anyone providing their email address.  Email me at

The $1 Million Putt!

June 25, 2015

Jordan Spieth won the U.S. Open by one shot.  There was a dramatic ending because he blew a putt on the 17th hole and unfortunately for Dustin Johnson, he missed a putt on the 18th hole.  However, each of them had four days of other golf shots where just one less stroke or putt would have changed the outcome.

In the case of the U.S Open, the one-shot difference created an extra $922,856 payout to the winner.  Jordan received $1,800,000 and Dustin and Louis Oosthuizen (who he shared second place with) each received $877,144 (not quite a million dollar difference.)  Dustin also earned golf immortality with his U.S. Open win.  Three players were tied for ninth place scoring even par for the four days with just five shots more than the winner.  They each received $235,316 ($1.5 million less or $300,000 per stroke.)

Relating this to reality… Is a golfer shooting 275 significantly better than one shooting 276, or for that matter, shooting 280?  Probably not, but the perception is that the winner is.  We seem to honor and respect competitive excellence and winning.  There is a fine line between winning and coming in second, but perception broadens the gap tremendously.

In business, most competitors are similar with some just a little bit better.  However, some are much more successful than the others.  It is perception of their quality and ability that sets the more successful apart.  In business, the winners do not receive awards, but growth and greater profitability making it extremely important to manage perception.

Managing perception needs a resolve and company-wide attitude of excellence and not just a rarely noticed mission statement tacked on a wall.  It needs regular support and reinforcement by the owners and top management that is transmitted to and acted upon by everyone in the organization from the topmost down to the newest team members.  It needs to apply to everyone, every day in every instance.  There can be no relaxation of the attitude and quest for excellence.  Company leaders need to be consistent in their message and live the part 24/7.

In the golf tournament, as in other sports contests, the drama comes at the end, but a one-shot-better first-day effort would have the same effect in the final result.  A lesson for you: everything and every action counts.  What each person does each time has to be treated that it can affect the final outcome – and the perception of others.

Gutenberg’s Apprentice

June 23, 2015

The first printed book was the Bible and the project was started by Johann Gutenberg in 1452.  I’ve occasionally seen pages and was suitably impressed.  I never thought more about it until I read a novel I plucked off the new book section of my local public library – Gutenberg’s Apprentice by Alix Christie.

Nothing just appears and neither did the first printed book.  It took inventing not only the printing press, but the paper to print it on, the ink, design of the fonts, the layout of the pages, casting of the type, the metal alloys for the type, the concept of moveable type, hiring, training, scheduling and coordinating workers with different skills, financing the project over a few years, decisions of management for something that had never been done previously, maintenance of secrecy to assure the method wasn’t stolen, distribution, marketing and selling of the Bibles, bribes to trade guilds and displacement of highly skilled scribes, political interference, the general economy, the length of time the project took and even war.  It was a major undertaking that most viewing a finished product usually don’t give a second thought to.

This was during a time when many of today’s management techniques and concept did not exist.  Many of these steps and processes are not dissimilar to what business’ do today.

The author has an obvious love of letterpress printing (she has set type and run presses) and used her feelings to craft a fine novel of what could have actually happened.  The interesting story also provides much insight to how people lived and worked at the precipice of the Middle Ages and dawn of the Renaissance.  I highly recommend this book.

I, too, have an interest in the art of letterpress printing and refer you to my blog posted on Sep 11, 2012.  Click here to read it:

Top Concerns of Business Owners

June 17, 2015

Below, you will find some concerns my small business clients have.  These ideas are listed in the order that they came to my mind and not in order of importance.  Each owner will provide their own order of importance.

  1. Availability (actually, non-availability) of quality managerial help
  2. Availability of competent and skilled employees
  3. Employees who lie or steal
  4. Airtight internal and financial controls
  5. Cash flow
  6. Banking relationship and availability of loans if and when needed
  7. Putting everything they have at risk for the business
  8. Getting sick
  9. Getting really sick, i.e. heart attack, stroke, car accident
  10. Having a good varied group of customers who appreciate doing business with them and who show the appreciation by paying their bills timely
  11. Threat of unionization
  12. Not overpaying taxes
  13. How things they can’t control can affect their business such as the economy, extremely bad weather, short supply of commodities needed to make product
  14. Loss of a major supplier or being captive to them
  15. Loss of a major customer or being captive to one or two customers
  16. Consistency of quality of raw materials and products purchased
  17. Too much of the wrong inventory
  18. Being afraid to unload bad inventory at a loss
  19. Customers who expect me to maintain inventory for them and they not telling me their true plans so every time they order it creates a minor crisis
  20. Overspending on pet projects
  21. Spiraling costs that are not controllable such as health insurance
  22. Keeping current with technology changes
  23. Being on top of social media
  24. Succession of business leadership and ownership
  25. Continued flow of new product ideas
  26. Sensitivity to and adaption to new trends and needs in the market
  27. Not being able to take extended vacations and even when they take short vacations they must check in with office
  28. Developing a niche in their market
  29. Establishing a positive and dynamic brand image
  30. Lack of availability of competent consultants
  31. Threat of law suits against the company
  32. Being underinsured against catastrophes and the rising cost of insurance that they do have
  33. Not really knowing if the insurance policies they have are for the right coverage
  34. Spending too much time putting out fires and not enough time “doing business”
  35. Not enough available time to reflect and see the big picture
  36. Not feeling fulfilled or satisfied
  37. The original fire is no longer there
  38. Loss of initial momentum the business had in its early years, combined with a leveling off or capping of the business
  39. Inability to reverse maturation of the business
  40. Fantasies that no longer exist

There are others, but these seem like enough for now.

Benefits of an Internal Audit

June 16, 2015

Every business has a system of internal controls.  Very small businesses likely rely on luck and the honesty of their one or two office staff.  Small businesses rely on their independent auditors to check their system once a year and large companies employ one or more internal auditors on their staff

This blog explains the internal audit process that applies to every size business.  Businesses have voluminous transactions, multiple people involved, company-wide, and assets that need protection and each step carries risks, opportunities for theft, and potential for mistakes.  Internal audit can provide a check that the systems are working properly.

Internal control includes the Processes for planning, organizing, directing and controlling operations; Systems for measuring, reporting and monitoring performance, Actions taken by management and other parties to enhance risk-management and increase the likelihood that established objectives and goals will be achieved.

Some of the benefits of having a good system of internal controls are:

  • Helping protect assets and reduce the possibility of fraud
  • Improving efficiency in operations
  • Increasing financial reliability and integrity
  • Ensuring compliance with laws and statutory regulations
  • Establishing monitoring procedures

Internal audit is responsible for monitoring the effectiveness of the internal control processes that have been established by management.  The principal tasks of an internal audit include:

  • Risk assessment – Assisting management with identifying and prioritizing areas or processes that require attention and audit focus to actions that may adversely affect the organization; prioritizing projects by level of potential risk; and develop a plan that will limit exposure to loss
  • Process walkthroughs and documentation – Gaining an understanding of the processes and procedures as they currently exist, especially with respect to the IT systems processing high volumes of transactions and interviewing department heads and process owners with a focus on “what can go wrong” scenarios
  • Control assessment – Identifying gaps, also known as “trouble spots,” where procedures and controls are not properly designed
  • Testing – Performing tests of controls to verify whether controls are working as designed
  • Reporting – Providing observations and recommendations to improve processes and controls
  • Organizational changes – An alertness to organizational changes that could potentially impact the management of risk, changes in organizational ethics, management reorganizations, financial demands, resource constraints, technology and E-business changes, consolidations and alliances, and legislative and regulatory imperatives

Some specific benefits that an Internal Audit function will provide:

  • Improve the “control environment” of the organization
  • Make the organization process-dependent instead of person-dependent
  • Identify redundancies in operational and control procedures and provides recommendations to improve the efficiency and effectiveness of procedures
  • Serve as an Early Warning System, enabling deficiencies to be identified and remediated on a timely basis (i.e. prior to external, regulatory or compliance audits)
  • Ultimately increase accountability within the organization
  • With an internal audit function, management would have an advocate, a risk manager, a controls expert, an efficiency specialist, a problem-solving partner and a safety net

The establishment of an internal audit function need not be a major investment.  An entity does not have to jump into the deep end of the pool and hire an entire department.  The function can be internal, but just as easily out-sourced or co-sourced.  A way to begin could be with a preliminary risk assessment followed by a prioritizing of the areas of need at which time, a decision can be made as to how to efficiently staff the priority projects and get the benefit of an internal auditor on your team.

This blog has been prepared with the assistance of Ray Broek, CPA, MBA, Partner in our Morristown office, who specializes in internal control assessments, internal audit services and Sarbanes-Oxley related matters.  For questions, Ray can be reached at 973.898.9494 or

Prior blogs that explain what internal controls are  and

What the Rich Do to Get Richer – Follow Up

June 11, 2015

This is a follow up to the previous blog about the rich.

The rich may have a lot of money, but “rich” is also relative.  I find that, for many people, being rich is a state of mind.  A person that is “rich,” by most standards, with many millions can feel insecure and not be happy [and he will not be “rich”]; while a person with little savings, a mid-sized pension and Social Security can feel secure and be comfortable and, in fact, will be “rich.”

Accumulating wealth is also a behavioral function and, in many cases, is controllable by the way spending is done.  Charles Dickens wrote in David Copperfield in 1849

Annual income twenty pounds, annual expenditure nineteen six, result happiness.

Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Another quote I like is from John Milton in Paradise Lost in 1667

The mind is its own place and in itself, can make a Heaven of Hell,

or a Hell of Heaven.

Everyone owes it to themselves to take advantage of what they can that is fully legal.  My experience indicates that most people do not do everything they could and should.  This includes saving and accumulating wealth, spending awareness and investment cost and tax management.

The end result of working and investing is to be able to live your life, comfortably, and have a calm and secure retirement.  These should be your goals and your investments should be made accordingly.  With a clear process and careful implementation to reach your goals you, too, could be “rich!”


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