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Contract With Your Spouse/Partner

March 31, 2015

“Til death do us part…”  These sacred words bind a couple together.  They represent a commitment of lasting love. They also represent a promise that they would not do things that will cause them to become needlessly ill and debilitative.

Unhealthy eating, smoking, frequently drinking alcoholic beverages, dependence on habit-forming medications and neglecting a reasonable exercise routine all lead to a breaking of this covenant – this contract – to grow old together.

Those that do unhealthy things will certainly destroy the quality of their own life in some manner.  But they will also destroy some of the quality of their healthy spouse or partner – the one that took care of themself.  Caregiving, cost, theft of quality time all add up to ruin a part of the healthy spouse’s life.

The next time you consider taking that extra bite, drink, smoke or pill you no longer need, or want to skip exercising, don’t think about yourself; think about your spouse or partner.  Keep the promise you made to them till death do you part.

Things change (A Continuing Discourse)

March 26, 2015

The Bill and Melinda Gates Foundation is investing in businesses that are trying to develop products that will improve the health of people faster than what means presently exist, making their mission more effective.  Baruch College, my alma mater, rents out its basketball courts for practice sessions to dozens of teams visiting New York earning revenue that could expand its own sports programs.  Public libraries have become meeting centers and offer resources to home based businesses and other community services such as test proctoring.

The Gates’ are on the forefront of healthcare innovation and are using their knowledge, brains and creativity to further leverage their vast resources and accelerate their reach.  Baruch found a way to create a revenue stream, excite students and become a stopping off point for many visiting stars.  Public libraries developed ways to generate revenue for new programs that state and municipal budgets no longer fund.

Question: What are you doing to expand your activities?  If you are in business or run a not-for-profit, I believe change is essential for survival and continued significance.  If you are employed, changes are needed for the same reasons – individual branding, growth and remaining relevant.  Keeping current is no longer an option and is the least that must be done.

Nothing is easy and most new things require work to conceive, develop and experiment with to get new ideas.  In today’s climate, ideas are fungible, have become currency and are no longer restricted to one type of business, industry or profession.  Here are some suggestions:

  • Read books about success stories in leadership, management, innovation and superior customer service and engagement
  • Read trade publications from other industries to see what ideas are working that can be applied to your business or organization
  • Peruse magazines on newsstands to see what trends are emerging.  If a bunch of magazines suddenly appear, find out about the interest in those areas.  In addition to newsstands, look at the magazines your local public library carries
  • Join local business groups and attend their meetings and programs interacting with counterparts in other businesses
  • Attend trade conferences
  • Go to local business shows and expositions, and go to industry and hobby shows that are not familiar to you to see what is happening there
  • Seek out lectures and presentations by so called management gurus. They speak frequently at local business groups, and college campuses. They also present webinars you can attend from your desk
  • Be aware.  If you come across something you particularly like, find out about it.  If you see something you don’t like or have a poor buying experience because of, make sure you don’t copy that

I know we can’t do everything, but we can also do a little more than we presently are.  Do something extra. It can’t hurt, and might help.  Things change, and so should you!

Bank Loan Covenants

March 24, 2015

Negotiating the best loan terms, rates and conditions such as an annual clean up and compensating balance amounts is done with the sharpest skills… Not so many times when determining the loan covenants or restrictions.

Loan covenants determine conditions the borrower must adhere to and when the bank has the right to call the loan, renegotiate the terms and rates, impose additional restrictions or controls, send in an auditor or assess extra charges or fees.  Here is a rundown of the types of covenants.

Reporting covenants cover the type of financial statements and other schedules that must be provided to the bank, and their frequency and possibly the right to veto the choice of the independent auditor.

Financial condition covenants could state minimum net worth, working capital levels and maximum equipment spending.

Distribution covenants restrict or limit salaries, other compensation payments and dividends to, or stock buybacks from, shareholder/employees and owners.

Ratio covenants require certain financial levels and ratios to be maintained and include working capital, debt service and debt to equity ratios.

Action covenants could require certain steps that must be taken such as using a lock box for customer payments, adding a board member or establishing a board of advisors.

Restriction covenants can affect additional borrowings, unfinanced equipment purchases or mergers and acquisitions.

Care should be taken to set covenants in reasonable amounts that are likely to be achieved, or in the case of equipment spending amounts that are not too restrictive of the business’ growth plans.  Net worth covenants are usually set at current amounts with the only violations being business losses or distributions to owners that obviously will reduce net worth.

If you are going to have expected write-downs of assets such as inventory or equipment or a large customer bad debt, tell your bank representative as soon you know or while you are considering it so they can assist in reevaluating the effect on the covenant.  If you are negotiating new covenants, make sure you do not agree to something that a simple projection would indicate you would not meet for an extra year.  Also, consider consequences on the covenants when the business is expected to be reacquiring stock from a retiring shareholder or their estate.

If a company is a pass-through entity such as an LLC or S corporation exemptions should be provided for distributions to cover personal income taxes on the business’ profits that are taxed to the owners but retained in the business.

When a covenant is not met, and the bank wishes to maintain the relationship, they would grant a limited waiver of the covenant – usually for not more than one year.  Your best friend when you don’t think you will meet the covenants could be your bank representative provided they are kept informed about adverse situations. They do not like surprises in this area.

Apple Replaces AT&T in DJIA

March 19, 2015

Apple replaced AT&T today in the Dow Jones Industrial Average (DJIA) signifying a change in the economy.

Here is an updated list of the 30 DJIA components by sector and in order by dominance in the index.

Technology: IBM, Apple, Visa, Microsoft, Intel, Cisco

Telecom: Verizon

Industrials: 3M, Boeing, United Technologies, Caterpillar, GE

Basic Materials: DuPont

Financials: Goldman Sacks, Travelers, American Express, JP Morgan Chase

Consumer goods: McDonald’s, Nike, Procter & Gamble, Coca-Cola

Consumer services: Home Depot, Walt Disney, Wal-Mart

Health Care: UnitedHealth, Johnson & Johnson, Merck, Pfizer

Oil & Gas: Exxon Mobil, Chevron

The DJIA uses stock price as its base rather than market cap.  Their stock price method gives each point change the same weight.  For instance, a one point change in Goldman Sacks, the highest priced stock in the DJIA, counts the same in the index as a one point change in GE, the lowest priced stock.  However a one point change in Goldman Sacks is about 0.52% of its value while a one point change in GE is about 4% of that company’s value.  Stated another way, if Goldman and GE’s stocks each went up 1% on the same day, Goldman’s change would account in the DJIA for about 7 times GE’s change.  Goldman would go up 1.9 points while GE .25 points.  Note that 1 point of a stock’s change is about 7 DJIA points.  So, Goldman would affect the DJIA by 13 points and GE by 1.75 points.  The “7 DJIA” points are determined by a divisor which is published daily in The Wall Street Journal. The divisor changes every time there is a change in the components, a stock dividend, split or spinoff.

In contrast the S&P 500 index is based on market cap.  Apple, which has a $740 billion market cap, will have a 1% change and will affect the S&P index 9 times greater than a 1% change in American Express, which has an $82 billion market cap.

At the end of the day, the indexes measure change and both seem to work in tandem over reasonable periods of time.

Ireland’s Professional Amateurs

March 17, 2015

My son, Andy, wrote an excellent book that I believe every Irishman or woman should read.  So, I am writing about it today – St. Patrick’s Day.

The book is an account of the author’s eight months in Ireland covering the Gaelic football and hurling seasons.  He traveled to a dozen cities, lived in players’ family’s homes, shared successes and losses and soaked up the nationalistic feelings the games brought to the teammates, their county and the many enduring fans. Ireland’s Professional Amateurs is more than a sports book – it is also a travel log of Ireland, its rich culture, and a history book of that great country. Andy tells a story of the pride and joy of the fans in watching the distinctively Irish sports and how it transcends the playing field to the pride in their local county and their Gaelic background. The players are all amateurs practicing hard and heavy after work so they could win the Sunday game.  And, then they are back at work on Monday at their jobs as teachers, accountants, lawyers, civil servants and factory workers.  They spend no time recovering from their injuries (which seem more plentiful than they should be for an amateur sport) and head back to their planning and practices for the next weekend’s game. The book is written in a fast paced journalistic style that will grab your attention from the first page to the last. It draws out individual stories of many players and the pride and sacrifices they make to play the game.

Buy and read this book!

Also see a related blog posted Mar 15, 2012.

How Would You Invest $100,000?

March 12, 2015

Imagine you just received an extra $100,000.  How would you invest it?

I suppose that before you make a decision you would need to consider your overall situation, goals, present asset allocation and time period of the investment.  Let’s suppose that everything is already covered and this is an extra $100,000 that you could invest in any way you want in a single item.  And, the goal is to not lose it and to have it grow.  What would you do?

Here are some choices:

  • Buy gold bullion coins
  • Buy art, stamps or collectibles
  • Invest in the stock market
  • Put in a bank certificate of deposit
  • Buy long-term bonds
  • Put in a variable annuity
  • Put in an immediate annuity
  • Buy a single payment life insurance policy
  • Invest in a hedge fund
  • Invest in a private equity fund
  • Invest in a real estate partnership
  • Leverage your money by borrowing and investing in one of the above
  • Something else

I could write at least one blog on each of the above because each has its own issues, variations and complications.  An example is the portability, insurance and storage costs of the gold, art or stamps, and the time and costs of selling them.  If you buy stocks… what kind?  Choices include growth, value, high dividend, emerging markets and large, medium or small cap in each category; and individual stocks or mutual funds.  Everything has multiple ways and the choices are many.

Think about it.  You want the money to be relatively safe and to grow.

Now, consider your current portfolio.  Have you invested in a manner that keeps your funds relatively safe with a growth element?  If not, do something about it.

The Forbes’ Billionaire List

March 10, 2015

A total of 1,826 people are on the new Forbes global billionaire list.  I remember when Forbes’ first 400 “rich people” list was published and I was surprised to see Bob Hope on it.  I believe he made the cut at $150,000,000.  Today, a billion won’t even do it for that list.

Michael Jordan is on the new list along with Bill Gates, Warren Buffett, David Geffen, Giorgio Armani, Mark Zuckerberg, Elizabeth Holmes, Richard Branson, Michael Bloomberg and Ted Turner.  How they got so rich is a separate story for each of them.  However, all of these people plus 1,181 others on the list are self-made and created their own wealth as entrepreneurs.

What makes this list interesting to me is the many different ways they made their money; and finding a common thread is not hard.  They each seized a moment creating new or better products or ways to make it easy for customers to acquire their products.  They were the best in what they did and they created excitement In a way that people wanted to associate with them.  Michael Jordan did not make his fortune playing basketball – he made it creating excitement and branding himself to stand for excellence.

So, my friends, what can we take away from this list?  Here is a short list of some conclusions.

  • Detect needs and fill them
  • Imagine new ways and uses of existing products
  • Visualize new “things” that would make people’s lives better, easier and happier
  • Make it simple and convenient to deal with you
  • Make your brand stand for excellence, consistency and quality
  • Market smartly
  • Understand what you do
  • Take calculated risks
  • Have goals and be laser-focused on achieving them
  • Create excitement
  • Work harder than everyone else
  • Surround yourself with like-minded people
  • Recognize the new ways things are done and be an early adopter taking full advantage of what’s new
  • Look at the big picture
  • Be lucky – but first you must be in the game
  • Act, think and breathe success

Opportunities abound all over us.  Those that succeed are aware and trying, doing and not wasting time on dead ends, small-time projects or with people that don’t deliver.

Follow your dreams!


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