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Tuesday 18 September 2012
Top 10 Stocks Held by Investment Clubs in August 2012 in U.S.
Monday 17 September 2012
Defining Middle Class (US)
Defining Middle Class
By CATHERINE RAMPELL
CATHERINE RAMPELL
Dollars to doughnuts.
In a discussion on “Good Morning America” about his tax plan, Mitt Romney suggested the cutoff for middle income was for households earning “$200,000 to $250,000 and less.” President Obama has used a similar threshold in talking about extending tax cuts for the middle class.
To be clear, both politicians appear to be talking about the ceiling for the middle class, not its midpoint. It’s a pretty high ceiling, though; here’s a chart showing household income distributions for 2011, based on calculations from the Tax Policy Center:
As you can see in the chart, households earning $250,000 fall somewhere just above the 96th percentile. For context, the Tax Policy Center placed the median household at about $42,000 in cash income in 2011. (Using a slightly different metric, the Census Bureau reported on Wednesday that the median household income was about $50,000.)
As broad as these politicians’ definition might be for middle class, historicallyAmericans of all income levels have predominantly self-identified with that category. In a survey conducted in July by Pew Research Center, about half of American adults surveyed said they were middle class, including almost half of those earning more than $100,000.
Those self-identifications are changing, though.
Pew also found that the share of people who self-identify as lower class or lower middle class has risen substantially, from 25 percent in 2008 to 32 percent in 2012. The greatest growth is among younger Americans.
Since people seem to define middle class by culture and values as much by income, it will be interesting to see if this growing self-identification with lower class sticks in the years ahead as this younger cohort ages, and if it does, what kind of pressure (if any) that might put on politicians to redefine their stated socioeconomic class categories. As I mentioned in an earlier post, even as the median American family has gotten poorer, Americans overall have lowered their expectations for what the rich should pay in taxes.
The Debt of Medical Students
91 Comments
The Debt of Medical Students
By UWE E. REINHARDT
Correction Appended
Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.
In debates on health work force policy, it is frequently argued that medical education is a public good, because it benefits society as a whole.
TODAY’S ECONOMIST
Perspectives from expert contributors.
The implication is that tuition charges at medical schools should be zero or close to zero. Many nations in the industrialized world follow that policy, although they have also kept tuition low for most college students.
Most economists disagree with characterizing higher education as a public good. Only the individual receiving a professional education – including the M.D. degree — owns the human capital that the graduation documents certify to exist.
Medical graduates can use their human capital any way they wish. They can treat patients, do medical research or use their knowledge as business consultants to health-related companies or as financial analysts in the financial markets, as some of them do.
There may be some positive spillover for society as a whole from having this privately owned human capital produced, and these effects (calledexternalities by economists) might warrant some public subsidies toward the production of that human capital. That argument could be extended to many other forms of human capital, as well — e.g., engineers, scientists, nurses.
According to a fact sheet published by the American Association of Medical Colleges, annual tuition and fees at public medical schools in 2011-12 amounted to $30,753, and the total cost of attendance was $51,300. The comparable averages for private medical schools were $48,258 and $69,738. To most Americans, these will seem staggering amounts.
According to a fact sheet published by the American Association of Medical Colleges, annual tuition and fees at public medical schools in 2011-12 amounted to $30,753, and the total cost of attendance was $51,300. The comparable averages for private medical schools were $48,258 and $69,738. To most Americans, these will seem staggering amounts.
Which brings me to the sizable debt with which, almost uniquely in the world, American medical students now graduate. The association routinely collects data on these debts. A good summary of the most recent data, for 2010, can be found on the previously identified fact sheet, and I created this table from that source.
As the table shows, some of the students’ accumulated debt by time of graduation from medical school was incurred to finance a liberal arts undergraduate education. The $18,000 shown in the table is actually on the low side. According to the Project on Student Debt, college seniors who graduated in 2010 had an average debt of $25,250, with a range among campuses of $950 to $55,250 a student. Individual students at private colleges may have even larger debts. And debt collectors are doing a thriving business collecting these debts.
Amortization of the large debt accumulated by medical students will clearly take a bite of the income they will earn in medical practice. But at least there will be a sizable future income stream to absorb the hit. Many other college graduates have much smaller incomes or are in even direr straits.
The table below conveys a rough indication of what the amortization of medical-school debt might mean for individual students.
In this table I have assumed that the student modeled here had average debt of $161,300 upon graduation from medical school. From that debt I deducted $24,400, the amount to which $18,000 of debt upon graduation from a liberal arts college would grow in four years at a compound interest rate of 7.9 percent (that’s at the high end of the interest rate medical students are charged on debt). The remainder is debt related strictly to the medical education of the student.
I assume that after residency, the practicing physician has a starting net income (after practice costs) of $150,000 or $300,000, and that these incomes will grow at an annual compound growth rate of 3.5 percent over time. Physician incomes vary considerably across specialties and even within specialties.
According to the association’s fact sheet, students pay an interest rate of 6.8 percent on Stafford loans; for lower-income students, the rate is a subsidized 3.4 percent. For Direct Plus loans, students or their parents pay a rate of 7.9 percent, the rate I used in the table.
Finally, I assume two distinct amortization models. Under one, students pay back their debt with flat annual (or monthly) payments over 20 years. That payment is $13,840 a year. Under the alternative approach, the annual amortization payment rises in step with the assumed annual increase in physician income. The first annual payment in that approach is $10,659.
The data in the table represent these annual debt-amortization payments as a percentage of physician net income in years one, 10 and 20 of medical practice.
Clearly, these payments are a noticeable burden, even over 20 years. For amortization over 10 years, they would naturally be higher. On the other hand, the numbers would decline sharply with reductions in the interest rate charged. The table below illustrates the sensitivity of the first-year payment to interest rates and amortization horizon for the payment stream that increases in step with assumed increases in practice income.
The annual amortization payments would be particularly burdensome for primary care physicians, with their relatively lower incomes. That fact is a potential policy lever Congress might employ if it took seriously people’s lament that America is suffering from an acute shortage of primary care physicians.
I shall muse about that and other options in a future post.
Correction: September 15, 2012
Because of an editing error, an earlier summary with this post misstated the author's view of subsidies for medical education. He writes that medical education is no more worthy of public subsidies than other professional preparation, not that it might warrant subsidies.
http://economix.blogs.nytimes.com/2012/09/14/the-debt-of-medical-students/
http://economix.blogs.nytimes.com/2012/09/14/the-debt-of-medical-students/
Protect yourself from 10 costly financial calamities
http://www.consumerreports.org/cro/2012/08/financial-what-ifs/index.htm
http://www.consumerreports.org/cro/money/index.htm?EXTKEY=AYFCF01
The IRS audits you
Before it happens. Keep tax returns and supporting documents for at least seven years, in some cases even longer. For guidance, go to irs.gov and search for IRS Publication 552, “Record-Keeping for Individuals.” Keeping a calendar of tax-deductible expenses, such as mileage for business or charitable trips, can help later. For charitable contributions, keep dated receipts for cash gifts of $250 or more and for noncash items you donate, such as furniture and clothes. Donations worth more than $5,000 require a written appraisal.
When filling out your return, make notes of anything you’ll need to remember later. It’s a good idea to prepare digital copies of everything for storing on a computer and backing up outside your home.
If it happens. Don’t panic. Read the audit notice carefully. If it’s something simple, such as a request for additional information, try working directly with the IRS. If it’s more complex and you have a tax preparer, ask him or her for guidance. If the IRS requests a meeting, your situation might be more serious. If you have a tax preparer, let him or her arrange the time and place of the meeting.
When filling out your return, make notes of anything you’ll need to remember later. It’s a good idea to prepare digital copies of everything for storing on a computer and backing up outside your home.
If it happens. Don’t panic. Read the audit notice carefully. If it’s something simple, such as a request for additional information, try working directly with the IRS. If it’s more complex and you have a tax preparer, ask him or her for guidance. If the IRS requests a meeting, your situation might be more serious. If you have a tax preparer, let him or her arrange the time and place of the meeting.
Your car breaks down
Before it happens. Don’t wait until you’re sitting on the side of a road on a rainy night to figure out what to do. If your car is under warranty and the manufacturer provides roadside assistance, make sure the number is in your glove box and cell phone. The same goes for insurance companies’ roadside assistance. Another alternative is to subscribe to roadside assistance from AAA or another organization.
It’s a good idea to know how to change a flat tire if you’re physically able to do it. Roadside assistance might be unavailable where your car broke down or you may have to wait hours.
Assemble and keep a roadside emergency kit that includes a jumper cable or battery booster, flashlight, and cell phone if you don’t routinely carry one. For a complete list, search our website for “Emergency roadside kit: What to carry with you.”
If it happens. Try to get the car off the road and away from traffic, especially if you’ll be trying to change a tire or otherwise work on the vehicle. Then simply follow your preparations.
It’s a good idea to know how to change a flat tire if you’re physically able to do it. Roadside assistance might be unavailable where your car broke down or you may have to wait hours.
Assemble and keep a roadside emergency kit that includes a jumper cable or battery booster, flashlight, and cell phone if you don’t routinely carry one. For a complete list, search our website for “Emergency roadside kit: What to carry with you.”
If it happens. Try to get the car off the road and away from traffic, especially if you’ll be trying to change a tire or otherwise work on the vehicle. Then simply follow your preparations.
Types of investment
Before you decide how to invest, learn about the potential risks and rewards of the 4 main kinds of assets – shares, bonds, property and cash.
There are several different classes of asset, each with its own strengths and risks. By spreading your money across a range of assets, you can create a portfolio that balances risk, growth and income according to your priorities. Spreading your money out across assets in this way is called diversification. It can help you lower overall risk, since different kinds of assets perform well at different times.
The main types of asset
To help you find your ideal allocation, you should familiarise yourself with the main asset classes:
Diversification
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Relative versus Absolute Valuation
Take Andy Warhol’s “200 One Dollar Bills” silkscreen for example. This piece of art, which probably cost right around $200 to create sold for a staggering £26 million in late 2009. How can that price be justified?
To start, you could attribute much of the value to the Warhol name. Then you’d probably consider the meaning to the buyer, the piece’s importance relative to other works, and what someone else might pay for it down the road.
Using that same thought process, how would you justify the price tag of, say, £3, £4 or £5 for any particular share? There are many paths to the mountaintop, but all valuation techniques attempt to answer this question.
At Share Advisor, whether we’re looking at an income producing share or the next great growth story, we don’t want to overpay for a share. Not only does this reduce potential future gains – it increases our chances of losing money. That’s why any time we put money into a company’s shares, valuation will be a key part of the process.
Relative vs. Absolute
There are two major schools of thought when it comes to the valuation of shares:
- Relative valuation: This is by far the most common type of valuation method in the market, for reasons I’ll discuss in a moment. With relative valuation methods, you’re comparing one company’s metrics (price-to-earnings, price-to-book, etc.) versus another company or the industry at large. For example, if there are two equally good companies, but one trades for ten-times earnings and the other for fifteen-times earnings, you would conclude that the company that trades for ten-times earnings is relatively undervalued.
- Absolute valuation: The point of absolute valuation methods like the dividend discount (DDM) and discounted cash flow (DCF) models is to determine the “intrinsic” or fair value of a company, regardless of how its metrics stack up against competitors at a given time.
While the Share Advisor team may employ some relative valuation methods in our analysis, we’ll largely rely on absolute valuation to make our buy and sell decisions.
The Case For and Against Relative Valuation
According to Aswath Damodaran, a professor at New York University’s Stern School of Business, relative valuation is “pervasive”. He reckons that:
Almost 85% of equity research reports are based on valuation multiples and comparables.
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More than 50% of all acquisition valuations are based on multiples.
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| Rules of thumb based on multiples are not only common but are also often the basis for final valuation judgments. | ||||
If this doesn’t scare you, it should.
Why?
Because if most shares are trading at 30 times earnings, relative valuation could make a share trading at 25 times earnings appear undervalued and therefore worth buying.
But if it turns out that all shares are overpriced and should be trading at just 15 times earnings, you might lose money along with everyone else when the market declines. Your share wasn’t undervalued at all.
Despite its flaws, it’s easy to see why relative valuation is prevalent among City traders. Using relative numbers, analysts can always find undervalued shares (ever wonder why analysts can rate so many shares a buy?), and portfolio managers can always justify being fully invested at all times.
Because money managers make their bread by having assets under management, Warren Buffett aside, you won’t find many of them saying, “I can’t find anything to buy, so it’s time to cash out.”
Finally, when your own performance is judged relative to other analysts and portfolio managers, it’s much safer to ride with the herd and make relative valuations. After all, you only need to be marginally better than your peers to become a star. On the other hand, if you deviate from the herd and are proven wrong, you’re often wrong alone and your time as an analyst will likely be short-lived.
To borrow a lesson from childhood, remember that what’s right is not always popular, and what’s popular is not always right.
Sticking to Fundamentals
The inherent volatility spawned by this irrational behaviour creates opportunities for business-focused investors with longer time horizons.
At Share Advisor, we stick to the business fundamentals – think profits and cash flows – to estimate a share’s intrinsic value. By taking this approach though, we implicitly assume three things:
1.
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That the market can be irrational in the short term.
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2.
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That we have something the market doesn’t have.
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3.
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That the market will eventually correct itself.
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I think many people would agree on the first point that the market can be irrational. As for the second point, the individual investor’s greatest advantage over the market is our ability to be patient and remain focused on an investment’s underlying business, regardless of the market’s happy days or temper tantrums.
This type of patience is uncommon. The average holding period for a FTSE share is just7 months, according to a September 2010 speech given by Andy Haldane of The Bank of England. That’s down from eight years in the 1960s.
That’s not investing; that’s trading.
When we buy a share at Share Advisor, we plan to own it for at least three years, or as long as the valuation and business make it worth owning. In fact, the longer our time horizon, the better our chances should be of being proven correct – by giving the market more time to revert to what we regard as the company’s proper value (and meanwhile, a growing, fundamentally strong company should continue to add value).
So as long as we can stay patient, we should have a distinct advantage over other investors.
This leads us to our third point, which is the biggest assumption because it requires a catalyst that’s beyond our control. Whether it’s a positive earnings report, a change in management, or an unexpected event, an undervalued stock can’t reach its fair value without something knocking some sense back into the market.
Admittedly, the longer we need to wait for the market to recognize a company’s fair value, the more trying it becomes to hold onto the position, especially if the share continues to underperform. To resist our human tendencies to follow the herd, we deliberately review our businesses’ fundamentals to determine whether we should keep holding our shares.
Using Share Advisor Valuations
In all of our Share Advisor buy reports, we give you our estimate of the fair value for the company and a preferred price at which to buy the share (though if you can get in lower, that’s generally better). The numbers are our best estimates at the time – so they’re not set in stone. Sometimes following good results our forecast will improve later, and we’ll tell you when that happens, whilst other times it will decline.
There’s no such thing as a precise valuation. Every estimate of fair value is just that – an estimate which attempts to weigh the probabilities of various good and bad scenarios that could befall a company and its shares. Measuring probability accurately is pretty tricky and sticking too tightly to an estimate of value runs the risk of creating a false sense of precision. I would be wary of any analyst that provides you a value estimate down to the pence for a share – it is just unreasonable to expect that level of accuracy from any valuation method.
The uncertainty around our estimates of value is one of the reasons we require a meaningful margin of safety (usually around 20%) from our estimated fair value before recommending a share.
Our preferred buy price isn’t the be-all and end-all either. If a share is trading just above our preferred buy price, that shouldn’t stop you from buying it if you want to – remember, we’re giving you our best estimate of fair value and estimates are fuzzy, so applying overly strict buy limits creates another opportunity for false precision.
By taking a long-term, business-focused approach to valuing shares, we should have a distinct advantage in an irrational market. Over time, we expect it will help us build a diverse portfolio that generates superior income as well as winning returns.
Motley Fool
Online resources - it pays to take a sceptical stance about what you read online .
A quick Internet search can often turn up good information on a particular company or investment. Likewise, visiting investment-related message boards lets you trade advice and tips with other traders. But it pays to take a sceptical stance about what you read online – some unscrupulous companies or investors actively spread false information to try and artificially boost share prices.
Remember:
- Investing is not for everyone, if you are unsure you should seek independent advice.
- The value of investments can fall as well as rise and you could lose more than you initially invested.
Investment lifecycle in the Stock Market
Before choosing investments, think about the amount of time you can leave your money in the market.
Shares offer the greatest chance for growth in the long term, but if you only have a few months to invest, their volatility could leave you with losses. That is why you should always estimate when you might need your money again and invest accordingly.
Always remember that the value of investments can fall as well as rise and you may get back less than you initially invested even in the long term.
If you are unsure about investing you should seek independent advice.
Always remember that the value of investments can fall as well as rise and you may get back less than you initially invested even in the long term.
If you are unsure about investing you should seek independent advice.
Short-term approaches
If you only have a few years – or a few months – before you will need to pull your money out from the markets, you may want to look for low-risk, low-volatility investments.
A good short-term portfolio may include high exposure to bonds and gilts, as well as cash or cash-like investments. Some investors may also want to include some holdings in lower-risk shares from well-established companies.
Looking at the medium term
With 5 or more years, you can start looking at a more traditional portfolio, with a diverse mix of shares balanced with some holdings in bonds and cash. This is because in a typical economic cycle, 5 years is enough to recover from any significant downturns. Although this is not guaranteed.
Long-term investing
Younger investors saving up for retirement may find that that have 10 to 20 years or more before they will need to start drawing down money from their investments.
With the luxury of time, you may want to consider riskier and more volatile investments. While there are no guarantees, by taking on greater risk, you may earn a higher return. A downturn can hurt your portfolio, but you would be able to afford the wait for the eventual recovery. Then, as you approach retirement, you can slowly transition to safer investments in order to protect your gains.
How to diversify
You can diversify your investments at a number of different levels:
- across companies
- across industries
- geographically
- across asset classes.
If you want to diversify while still keeping your portfolio manageable, you should consider pooled investments.
Sunday 16 September 2012
U.S.Real Estate:How it affects your financial future
Economic implications of the real estate bubble
http://www.youtube.com/watch?v=11sG3zgE9Hk&feature=relmfu
22 Oct 2007
The Ultimate American Dollar Collapse
Economics In One Lesson - The Basic Lesson of The "Broken Window"
The "victim" - The Taxpayer
The "vandal" - The Politician
This basic economic lesson is quite simple.
It has been given credibility by major economists.
It has been ignored for over 150 years!
Market capitalization versus Enterprise Value
Market capitalization = What the equity of the company is worth.
Enterprise value = What the company (or company's asset) is worth.
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