Tuesday, November 12, 2013

Money Show 2013 - Neil George

Neil George is editor of By George. His talk was entitled "More Income, Less Risk in the Shadow of the Fed's Taper". His web site is called NeilGeorge.com. You can get a sample copy of his Lifetime Income Report if you email Neil George.

How does he work? He works the reporters. He reads newspapers and watches Fox News, CNBC, MSNBC, BBC and CNN and Fox Business. He watches Bloomberg television. He takes notes. Neil George says he always carries a reporter's notebook and as he reads or watches news, he makes notes. He has two columns of notes, one for company specific news and one for non-company specific news. He draws a line between a company and other news to get to good companies. You should know why you own a stock. Look at them from the top down and from the bottom up. Ask what will go wrong.

There are three types of companies, cash cows, long haulers and nibblers. Know your investment before you buy a stock. Do not look at earnings, but at operation profit. You want the more they sell, the more they make type companies. Ask what can go wrong to slow sales? When does this occur? What did the company do? What might happen if the situation reoccurs? Do regulatory changes cost the company? How did it handle it in the past? You want companies that are making more stuff, selling more stuff and earning more money.

Next you should look at a company from the bankers' perspective. Would you lend this company money? Look at their debt. Who are their major creditors? If financed by banks, remember that companies with bank creditors had problems in the last crisis. What could challenge the company on the business and balance sheet sides?

We think about cash, bonds and real estate as groups. Think about what a company can do for you. If it is a good company, you can buy either its stock or its bonds. A company may not pay a high dividend, but it is good if it grows over time.

You should group your investments into 3 groups. The foundation and larges part should be the cash cows. These would be investments that would be able to pay large dividends year after year. They are not growers.

The second type would be the long haulers. These would be few in number and generate growth, they should be proven growers. They would build revenue and earnings and these would complement the cash cows. The will price in their growth. An example is Samsung (OTC: SSNGY) which has low dividends but generates large sales growth year over year. The market recognizes this and values the company higher and higher. It should have low to double digit growth. It is an inflation beating stock.

The third type of stocks would be Nibbles. Nibblers are stocks that you have researched for which you like their story. You are convinced that they are either a cash cow or a long hauler. Do a small initial investment and see how it works out.

While we are young... Warren Buffett is considered to be an astute investor. He started out with Berkshire Hathaway and turned it around and used the cash to buy make more investments. He can no longer buy a small company and turn it around and make any difference to his company now. Others can do this. He has a collection of dull and boring companies. They make money and pay out this in dividends. He has small companies that throw off a lot of cash.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.

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