It doesn't make sense to invest scared. Despite the occasional bubble or risky valuations, stocks still go up over the long term.

Recently, the American Association of Individual Investors (AAII) sentiment survey revealed bullish and bearish sentiment fell, but neutral sentiment spiked.

Over the long term, the majority of investors surveyed were dead wrong.

Since 1987, the weekly AAII sentiment survey had the following average reading:

Bullish: 38.8%
Neutral: 30.7%
Bearish: 30.5%.

In that period, the S&P 500 has gone up 498%—a compound average growth rate of 7%, not including dividends—pretty much in line with historical averages.

Think about that for a minute.

Over a quarter of a century, despite some big moves up and down, stocks performed as they historically always have, averaging about 7% gains per year. And while stocks went along their usual course higher, at any given time, the majority of investors were, on average, not bullish.

Nearly two-thirds of investors, in fact, expected the market to go down or remain flat.

How is that possible? Have we become a world of glass-half-empty pessimists?

The news media certainly doesn't help. 

And, of course, the financial media needs to scare you in order to keep you hooked so you know what and when to buy and sell.

It doesn't make sense to invest scared. Despite the occasional bubble or risky valuations, stocks still go up over the long term.

If you're a long-term investor, I hope you won't be part of the majority that is constantly afraid. That's no way to live. And it's no way to make money.



- See more at: http://www.hcplive.com/physicians-money-digest/investing/IU-Why-Are-So-Many-People-Wrong?utm_source=Informz&utm_medium=PMD&utm_campaign=PMD+5%2D14%2D14#sthash.tuiDlsW7.dpuf

Growth Investing versus Value Investing

Fisher stood out as one of the first money managers to focus on qualitative factors instead of quantitative ones.  He examined factors that were difficult to measure through ratios and other mathematical formulations:  the quality of management, the potential for future long term sales growth, and the firm's competitive edge.

Although Fisher focused on the qualitative characteristics of a company, he was first and foremost a growth stock investor.  He felt the greatest investment returns did not come from the purchase of stocks that were undervalued, since a stock that is undervalued by as much as 50% would only double in price to reach fair market value.

Instead, he sought much higher returns from those companies that could achieve growth in sales and profits greater than the overall market over a long period of time.

Furthermore, Fisher did not seek companies showing promise of short-term growth due to cyclical events or one-time factors.  He felt that the timing was too risky and the promised returns too small.  

Fisher penned his investment philosophy in his book: "Common Stocks and Uncommon Profits and Other Writings" by Philip A. Fisher.

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Common Stocks and Uncommon Profits - "Scuttlebutt" method might be of value in seeking to make investments in smaller, local companies.

Common Stocks and Uncommon Profits

by Philip Fisher

Common Stocks and Uncommon Profits is one of the classic investment texts written for the lay person. The legendary investor, Warren Buffett, has credited Philip Fisher's investment strategy as strongly influencing him.

Rather than just seeking value, as the Ben Graham school of investment taught, Fisher realized that even a greatly "undervalued" company could prove a horrible investment. Sure, you might occasionally buy a stock for less than the company's cash-in-the-bank (back then, at least!). But what if the business is horribly run? It might not take long for the company to lose all that cash!

Even if the company returns to "fair" value, that ends the potential profit from investing in such a business. Holding an average company, because it was once undervalued, but is no more, makes little sense.
Fisher points out that the largest wealth via investing has been made in one of two ways. First, buying stocks when the markets crash and holding them until the markets recover. Secondly, with less risk and more potential return, you can also just invest in a small portfolio of companies which continue to strongly grow sales and earnings over the years. Then, if the company was correctly selected, you might never have to sell, while accruing a huge return on your initial investment.

Fisher pioneered the school of growth stock investing. In Common Stocks and Uncommon Profits, Fisher explains how he selects a growth company. He lists fifteen points which a company must have to be considered a superior investment.

Fisher's first point seems obvious: "Does the company have products or services with sufficient market potential to make possible a sizeable increase in sales for at least several years?"

Fisher shows that some companies might have potential substantial sales increases for only a few years, but after that have limited potential due to some factor, such as market saturation. For example, Fisher mentions the growth in sales of TV's until the U.S. market was saturated.

He also wisely suggests looking behind the products to seek other superior investments. While many TV manufacturers were competitive and it was difficult to tell which was best, Fisher points out that Corning Glass Works was, by far, the company most capable of producing the glass bulbs used in TVs.

Fisher tries to clearly distinguish between companies which are "fortunate and able" and those which are "fortunate because they are able." The second kind, the superior investments, are highly innovative and create new products which have growth potential. Fisher uses Dow Chemical as one example of a "fortunate because they are able" company.

The second point wants to know if management has the drive to innovate new products. A man ahead of his time, Fisher wonders about how much of a company's future sales might come from products not yet invented.

A constant theme of Common Stocks and Uncommon Profits is examining what the company is doing to prepare for the future. Is the company spending wisely on Research and Development? Or, is the company just trying to maximize its current profit and reinvesting nothing for future growth?

Fisher explains why answering that question is difficult in practice. What different companies account for under R&D is one problem. Another is that some companies are more successful than others at turning money spent on R&D into future marketable products. Today, we must assume this question is far more difficult to answer!

In addition to questioning a company's R&D, Fisher wants to see a company with a strong sales organization and distribution efficiency. "It is the making of a sale that is the most basic single activity of any business," he writes.

Yet, why don't investors focus upon such key factors instrumental to a company's future growth? Fisher points out that certain issues are not quantifiable. That is why many investors tend to focus upon financial issues which can be expressed in a simple ratio.

How does the investor go about answering the "unquantifiable"? How does the investor know how well-managed the company is? Or, how does one evaluate the people factors, which Fisher says are the real strength of a superior growth company?

Fisher suggests the "scuttlebutt" method. This involves talking to suppliers, customers, company employees, and people knowledgeable in the industry, and, eventually, company management. From this information, an investor can get a good feel for the quality of the company as a growth investment. Fisher teaches us how to learn to ask the correct, company-specific questions.

Fisher acknowledges the "scuttlebutt" method is a lot of work. But, he asks, should it be easy to find such great companies, when finding only a few can easily lay the foundation for building huge future wealth?

I tend to think the average individual investor will not use the "scuttlebutt" method. And, for most investors and most companies, even if the investor had the desire to use this method, it would not be practical.
The average investor will not have access to all the people with whom Fisher suggests talking. Imagine trying to use this method on a larger company with tens of thousands of employees worldwide. What is said about the company in one area may differ greatly from what is believed about the company in another region. Applying such a method to evaluate a large, innovative company, such as 3M, for example, seems utterly impossible.

Yet, for investors seeking to make investments in smaller, local companies, the "scuttlebutt" method might be of value. For angel investors or mini-venture capitalists, reading Common Stocks and Uncommon Profits is probably also worthwhile. However, Fisher is quick to point out that such company evaluation is far more tenuous when the company hasn't any history behind it.

Entrepreneurs seeking to build companies should also give the book a quick read. The fifteen points are very important to company growth and success. And, encouraging these strengths from the perspective of a company's CEO trying to build the company is far easier than seeking to answer these questions from the perspective of an investor who is a company outsider!

Common Stocks and Uncommon Profits also has an excellent chapter titled, "Hullabaloo About Dividends" which tells us investing in growth stocks with smaller dividend payout ratios often leads to greater total future dividends because the dividends are growing, while high-yielding stock tends to grow far less, and hence, the dividends grow far less.

The book also has some excellent thoughts about buying-and-holding a stock and when to sell a stock. Fisher's thoughts on diversification are also well worth reading, although I would recommend more diversification than Fisher claims is adequate.

Overall, this is a great book for the individual investor. You will not be able to follow the "scuttlebutt" method in practice, for most investments, and, maybe, the complexity of today's companies and scientific research in many growth companies make Fisher's method less practical today than in the past, but there is much to learn about business and investing from this book.

http://www.bainvestor.com/Common-Stocks-Uncommon-Profits.html

Common Stocks and Uncommon Profits - One should buy stocks to hold them for the very long run.

Book: Common Stocks and Uncommon Profits

Author: Philip Fisher

This is easily one of the best books I have read on investing (big surprise, given that this is one of the classics). Here we go.

The biggest takeaway from the book is that one should buy stocks to hold them for the very long run (reminds you of Buffett’s philosophy?). Fisher’s take on it is that the one should continue to hold the stocks even if the stock appears overvalued at the moment as long as you can ascertain that its peak earning power hasn’t past, among other things. In the very first chapter, he talks about the era before 1913, when federal Reserve was established–the era when the business cycle was even more pronounced, and stock market gyrated even more. Fisher says that even in these time, people who bought and held stocks made more money than those who bet on the cycles. He says that the only times you should sell are (a) when a mistake has been made, or (b) when the next peak earning power adjusted for the business cycle activity will be less than what it is now/has been. He thinks its is not worth disturbing a position that could likely be a great deal worth more even if it is 35% overpriced because you risk losing the future returns and incur a capital gains tax liability.

He says that companies with truly unusual prospects for growth are hard to find because they’re so rare AND they can be differentiated from a run of the mill company 90% of the times. On the other hand, it is vastly more difficult to understand what the market or the business cycle will do in the next few months. Thus, it is much likely for one to be wrong when guessing the short-term changes for a stock than assessing long-term prospects of a company. This is why one should not be selling a position in anticipation of market downturns. He says that the EMH is true in the narrow sense that it is very hard to make money in and out of stocks by trading them, but as owners and investors, one can beat the theory.

The second biggest takeaway is the idea of ‘scuttlebut’–someone who gets information from industry contacts that one develops and speaks with a bunch of them to get a more colorful picture of the company so one can understand the competitive position of the industry and company better. I guess this is what we could call “channel checks” in today’s parlance.

Fisher provides fifteen points to look for in a common stock

This is a very well-curated list, but I don’t think that this is where the book pays for itself. Most investors already look for most of the items listed below, and the list is not as useful as it must have bee back in 1958. Nonetheless, it is a phenomenal checklist.

1. Can the firm have potential for sizable increase in sales for years to come?
2. Does the management strive to develop products that will compensate for stabilization decline of the sales of the existing products? (some large companies tend to interrupt regular R&D for pet projects, which is often not successful).
3. How effective are firm’s R&D efforts? Also, need to better understand what companies mean by R&D. Sometimes market research, or simple sales engineering is bucketed under R&D, and doesn’t represent true developmental research.
4. Does the company have an above-average sales organization? (Fisher says that this is the trait that is most difficult to evaluate)
5. Does company have a decent profit margin or is it a marginal company?
6. What is the company doing to improve margins? (this is something the management will freely talk about)
7. Does the company have outstanding labor and personnel relations?
8. … outstanding executive relations?
9. … has depth in its management?
10. How good is company’s cost analysis and accounting controls? (in most of the cases, if the company is good at most of the other things, it can be assumed that the company is good at this too).
11. Are there any other aspects of the business (perhaps peculiar to the business) that will give a hint about the company’s standing vs. the competition?
12. Does the company have a short-range or long-range outlook when it comes to profits?
13. Will the foreseeable growth require equity financing?… if it is years ahead, it is not that important as it can be assumed that the prices will be at a much higher levels. (quite an assumption here)
14. Does the management talk even when things are not going well?
15. Does the company have management of unquestionable integrity?

Stocks vs bonds

Fisher makes a strong case for stocks over bonds using the following logic. He says that the way our laws are written, and our accepted beliefs about what to expect in a recession, makes one of the two things likely. One, either the business will remain good and stocks will outperform bonds, or a significant recession will happen, when for a while bonds will out-perform stocks, but the recessions will cause the Fed to intervene (causing inflation) and the Federal government to produce deficits that will together lower the value of fixed-income instruments. This, of course, does not apply in the 2008 recession, as that was brought by collapse of the financial system after an obscene amount of debt was built in the system, and the Fed very quickly hit the zero-bound line of interest rates, and banks made hardly many loans post-recovery, causing very little inflation.

When to buy?

Fisher says that people often rely too much on the business cycle to make this decision, but this is but one of forces; the others are (a) interest rates, (b) government attitude toward investment and private enterprise, (c) inflation trends, and (d) new inventions that affect existing industries–the most powerful force. He says that instead of relying on the business cycle and general stock market trend, people should buy when funds are available. He says that buying points do no necessarily come out of corporate troubles, but could be a case where significant capex has been spent to get a plant running and some incremental capex can improve the productivity by a lot, which would a very high ROIC when thought of as a project on its own.

What about dividends?

Fisher thinks that dividends are overhyped. The company should allocate assets to pursue maximum future cash flow growth. He says that the company in the end attracts the investor-base it wants to, as long it doesn’t change its dividend policy–more important than high dividends is a consistent dividend policy. He compares a company to restaurant. He says that a restaurant can’t succeed if it catered to different clientele every day; it must be somewhat consistent.

Some interesting tidbits from the book-

• Industrial organizations used to have small R&D departments. Research activity increased for military purposes at first due to fear of Adolph Hitler.
• Capex and D&A is an interesting area where accounting, which doesn’t account for time value of money, can confuse people. Capex is always spent in current $s but D&A is spent in old $s which have a higher value than the simple accounting rules shows them for. This needs to be kept in mind as one analyzes companies with long depreciation schedules. This is beneficial for growth companies as they’re spending capex so fast that the D&A is recent $s and hence they’re obfuscating less than what older slower-growth companies would have.
• Don’t over-stress diversification
• Fisher talks about one of the ways in which the leader always remains the leader. He talks about situations where the buyer comes back to leader because no one will criticize the purchasing manager for making a safe decision, unless there is a significant economic difference.

http://prasadcapital.com/2013/02/11/book-summary-common-stocks-and-uncommon-profits/

What's Investing Style?

Understand Investment Styles and Determine Which Fit Your Portfolio.

By Melissa Phipps

Successful investors and investments don't just pick companies on a whim. They narrow their focus on investment styles. They may target companies of a certain size, look at company fundamentals as a predictor of long-term value or annual growth, manage every stock move or set the investing on auto-pilot. Most mutual funds or ETFs have a pre-determined style that does not (or should not, sometimes funds get tricky) vary. Often, these investments target a combination of styles. So how do you make sense of it all? Learn the types of investment styles, and it can help you determine which investments best suit your style.

1. Investing by company size: Large Cap, Mid Cap, Small Cap

Companies perform in different ways at various times in their growth cycles. Investors focus on capturing companies at different points—when they are just starting, just starting to grow, in mid-growth, or well established. You can do this by focusing on market capitalization, or the number of outstanding shares multiplied by share price. Large capitalization or big cap companies are those worth more than $10 billion. Mid-caps or mid capitalization companies are about $2 billion to $10 billion. Small-caps or small capitalization companies, between $100 million and $2 billion. There are micro-caps below that, then nano caps, then... I guess angel investments. Fund managers typically choose a market capitalization to focus on. For example, "This fund seeks to generate capital appreciation by investing in small cap companies" or, more specifically, "This Fund seeks capital appreciation principally through the investment in common stock of companies with operating revenues of $250 million or less at the time of initial investment."

So what's the difference? Typically, small-cap companies offer more growth potential. If you get in at the right time (think early Microsoft, 1990s Apple), you can get a great investment return. But small-caps can be riskier than established large-caps. Only the strongest small companies survive. The risks increase as companies get smaller. Micro-, nano- and other tiny-capitalization investments could have serious potential, but unless you are a very agressive investor and can afford the loss, they shouldn't represent a huge part of your portfolio.

Large-cap companies move the market. They are the dominant players, produce consist returns over time, and may even return dividends to investors. They are also liquid companies, meaning it's easy to buy and sell their shares. There typically offer decent returns with less risk, and since they represent the larger market these companies should play a dominant role in your portfolio.

In between are mid-caps, which some investors think is a sweet spot where you can find companies with growth potential that act like value plays (more on growth vs value below).

Different-sized companies seem to perform differently, meaning when large caps are down, small move up. These are assets that are non-correlated, they don't move in the same way. Owning companies of each size helps to balance some of the risk of your portfolio.

2. Investing in company fundamentals: Growth Investing and Value Investing

Some investors use analysis of fundamentals to determine where a company is headed. Growth investors look for companies they think will increase earnings at least 15% to 25% a year on average, based on management, new products, competition, etc. Value investors look for companies that are selling cheap compared to intrinsic value or the value of tangible assets.

For many investors, the real win is a combination of growth and value. A good company with solid long-term prospects at a reasonable price. That's super investor Warren Buffett's way (he doesn't believe in the two separate strategies).

3. Investing with or without a manager: Active vs Passive

An actively managed fund is one with a manager or team of managers picking stocks in an attempt to beat the market. A passively managed fund, also known as an index fund, follows a set group of stocks to achieve its stated goals. Index funds perform like the index they follow, and because there is no one to pay the expenses are typically cheaper than actively managed funds.

Active managers can try to reduce risk when the markets are turbulent, but managers rarely beat the markets by enough to justify the extra expense of an actively managed fund. A recent study found that only 24% of actively managed funds beat their passive counterparts.

4. Investing in a market segment: Sector Investing

Some investors narrow their style to invest in a specific industry or sector, say technology, consumer goods or manufacturing. Sector funds are not diversified in and of themselves, but they can help balance out a portfolio that is heavily weighted in a certain sector because it contains a lot of company stock, for example.

A balanced portfolio can contain a combination of the fund styles mentioned above. It really depends on your personal tolerance for risk, your goals, and the types of investments available to you through your 401(k) or individual retirement account. You can use an asset allocation calculator (this one from Bankrate) to figure out what's right for you. (Some people are just as well off putting everything in an index fund, which is just a cheap way to own the entire market, or a target retirement fund, which does the asset allocation for you.) Choose based on what works for your own investment style.

http://retireplan.about.com/od/investingforretirement/tp/What-Is-Investing-Style.htm

Common Stocks and Uncommon Profits - 15 Investment Secrets to Help Make You Rich

The Legacy of One of the Greatest Investors of All Time

Philip Fisher (1907-2004) was one of the greatest investment minds in history. Working from a modest office on the West Coast in the aftermath of the Great Depression, he developed a buy-and-hold value and growth model for investments that has been considered on par with Benjamin Graham’s The Intelligent Investor by no less a giant as Warren Buffett. In addition to teaching at the Stanford School of Business, he authored several books including the watershed Common Stocks and Uncommon Profits. It was this text that introduced the now-famous “scuttlebutt” approach that encouraged investors to develop a deep understanding of his or her investments by thoroughly analyzing the financial statements, interviewing managers, competitors, employees, vendors, and customers.

Philip Fisher was extremely successful at selecting a core portfolio of seven or eight stocks with above average potential at attractive prices. According to Andrew Kilpatrick in Of Permanent Value, “Fisher always said to think of the long-term and have low turnover in your portfolio. Fisher bought Motorola in 1955, back when mobile telecom signified radio systems for police cars. In the Investment course McDonald [the long-time resident value investor at Stanford] took in 1956, Fisher talked about Motorola as a ‘great growth company’ when Motorola’s market capitalization was $300 million. As a long-term investor, Fisher still owned Motorola 43 years later when he died in 2004.”

Going on, he said, “Fisher told McDonald’s class in 2000, ‘I believe strongly in diversification,’ and by that he meant seven or eight stocks – a concentrated portfolio in today’s parlance. Importantly, Fisher himself did the lion’s share of the investment research on companies owned by the clients of Fisher & Company, so that he had a high level of knowledge and conviction on each of the seven or eight companies … ‘I do not believe in over-diversifying … My basic theory is to know a few companies and know them really well – and be sure your diversification is real diversification. Having Ford and General Motors is not diversification. Diversification means owning companies that do not sell into the same markets – companies with real differences.”

The Investment Secrets in Common Stocks and Uncommon Profits

In his book, Fisher laid out fifteen things that a successful investor should look for in his or her common stock investments. Here’s a rundown of what they are. (Do yourself a favor. Run out to your local store or navigate to your favorite online book retailer and pick up a copy of Common Stocks and Uncommon Profits – this basic summary of the book can’t possibly do justice to all of the excellent information in its pages.)

1. Does the company have products or services with sufficient market potential to make possible a sizeable increase in sales for at least several years?
2. Does the management have a determination to continue to develop products or processes that will still further increase total sales potential when the growth potential of currently attractive product lines have largely been exploited?
3. How effective are the company’s research and development efforts in relation to its size?
4. Does the company have an above-average sales organization?
5. Does the company have a worthwhile profit margin?
6. What is the company doing to maintain or improveprofit margins?
7. Does the company have outstanding labor and personnel relations?
8. Does the company have outstanding executive relations?
9. Does the company have depth to its management?
10. How good are the company’s cost analysis and accounting controls?
11. Are there other aspects of the business somewhat peculiar to the industry involved that will give the investor important clues as to how the company will be in relation to its competition?
12. Does the company have a short-range or long-range outlook in regard to profits?
13. In the foreseeable future, will the growth of the company require sufficient financing so that the large number of shares then outstanding will largely cancel existing shareholders’ benefit from this anticipated growth?
14. Does the management talk freely to investors about its affairs when things are going well and “clam up” when troubles or disappointments occur?
15. Does the company have a management of unquestioned integrity?

Fisher also had five “don’t” rules for investors, which were:

1. Don’t buy into promotional companies
2. Don’t ignore a good stock just because it is traded over-the-counter
3. Don’t buy a stock just because you like the tone of its annual report.
4. Don’t assume that the high price at which a stock may be selling in relation to its earnings is necessarily an indication that further growth in those earnings has largely been already discounted in the price?

http://beginnersinvest.about.com/od/investorsmoneymanagers/a/philip_fisher.htm

Common Stocks and Uncommon Profits by Philip Fisher

Fisher has a fairly simple investment plan:  buy only outstanding companies and sell only when they are no longer outstanding.  Although many people try to time the market, this is the method that he has found will consistently return good results.  However, finding outstanding companies is a bit of a challenge and the book mostly concentrates on suggestions on how to find the good ones and avoid the bad.

Fisher discovered that his main method of discovering quality companies was through "scuttlebutt".  Detailed analysis of company financials simply cannot provide the necessary information;  one must talk to people who know the company.  These, of course, are quite varied individuals, from competitors to vendors and customers, and when used with caution, former employees.

After scuttlebutt clearly points to a promising company, then an evaluation can be made with a list of requirements.  The requirements did not seem much different that Graham and Dodd propounded in The Intelligent Investor, and certainly not nearly as elegantly as inGood to Great.  They are designed to answer the questions "is management good" and "is the company doing what it needs to in order to maintain and expand its market position".  The latter focuses largely on technology research, an area that Fischer feels is required for continued success.

The book concludes some advice to investors on what not to do, which can be fairly effectively summarized by saying "ignore what Wall Street thinks is important".

While no means a thorough treatment of investment, Fisher provides very practial guidelines to how the investor can realize consistently good profits.  Unfortunately, as a fund manager Fisher is able to talk to management of a company, a luxury not necessarily afforded to the individual investor and some of his points require this ability.  However, there is no way to be sure one's judgement is correct;  his guidelines merely significantly increase the probabilities, and if the individual investor must settle for slightly worse probabilities, following Fisher's methods should still produce significantly better than average results.

Summary

• Buy only high quality companies
• Find these companies by talking to competitors, customers, vendors, and if one factors in the inevitably strong bias, from former employees.  After scuttlebutt consistently suggests that the company is good, continue investigations.
• Fifteen points to look for.  Require fourteen, perhaps thirteen if the others are strong.

1. "Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?"
2. "Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?"
3. "How effective are the company's research and development efforts in relation to its size?"
4. "Does the company have an above-average sales organization?"
5. "Does the company have a worthwhile profit margin?"
6. "What is the company doing to maintain or improve profit margins?"
7. "Does the company have outstanding [superb] labor and personnel relations?"
8. "Does the company have outstanding [superb] executive relations?"
9. "Does the company have depth to its management?"  (i.e. more than just one or two people)
10. "How good are the company's cost analysis and accounting controls?"  (i.e. ability for detailed cost analysis)
11. "Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?"
12. "Does the company have a short-range or long-range outlook in regard to profits?"  (the latter is desirable)
13. "In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders' benefit from this accelerated growth?"  (An answer in the negative is desirable)
14. "Does management talk freely to investors about its affairs when things are going well but 'clam up' when troubles and disappointments occur?"
15. "Does the company have a management of unquestionable integrity?"

• We do not know enough to guess market trends.
• The best time to buy is when a superb company has just spent lots of money developing a new product and (inevitably) delays occur, causing investors to push down the prices.  This always happens with new products and if you can have confidents in the outcome, the stock is now selling at a discount.
• "If the job [selecting a company] has been correctly done when a common stock is purchased, the time to sell it is--almost never" (p. 91).
• "Perhaps the most peculiar aspect of this much-discussed subject of dividends is that those giving them the least consideration usually end up getting the best dividend return"  (The better stocks typically have a lower dividend, but the company grows faster than the stocks with the bigger dividend, so the end result is a larger total dividend, although it is a smaller percentage)
• Ed:  This is not quite the view of Graham and Dodd (The Intelligent Investor);  they claim that stocks with dividends generally increase faster than those without and virutally mandate consistent and increasing dividends.  However, Graham and Dodd lack a theory of how to pick great companies.  I think their view is that consistent and increasing dividends is a trait of companies likely to do well.
• Ten don'ts for investors:

1. "Don't buy into promotional companies"  (ie. IPOs)
2. "Don't ignore a good stock just because it is traded 'over the counter'"
3. "Don't buy a stock just because you like the 'tone' of its annual report"
4. "Don't assume that the high price at which a stock may be selling in relation to earnings is necessarily an indication that further growth in those earnings has largely been already discounted in the price"  (i.e.  the high P/E might be an indication that the company will continue to grow at those rates)
5. "Don't quibble over eighths and quarters"  (i.e. don't try to get get a stock for 50 cents cheaper;  it may never get there and you never buy an excellent stock)
6. "Don't overstress diversification"
7. "Don't be afraid of buying on a war scare"
8. "Don't forget your Gilbert and Sullivan"  (i.e. don't give too much weight to things that don't matter, like the price of the company four years ago, or the historical earnings.  What matters is the state of the company now.)
9. "Don't fail to consider time as well as price in buying a true growth stock"
10. "Don't follow the crowd"

http://www.physics.ohio-state.edu/~prewett/writings/BookReviews/CommonStocksAndUncommonProfits.html

Habits of Financially Successful People

Sometimes wealth comes to those who are lucky; they win the lottery or they decided to invest in Apple in 1981 when the share price was just $28.83. However, it’s far more likely their wealth came through good habits.

Wealthy people actually have a lot of the same traits and habits that enable them to persevere through difficult times and come out on top with millions (or billions) of dollars. It’s not a coincidence that the rich share these habits.

Of course, that doesn’t mean waking up early and reading more is guaranteed to make you a millionaire in 10, 20, or 30 years. However, there’s no denying the “rags to riches” story. Marketing firm NowSourcing reported that 68% of the Americans on Forbes’ Billionaires List are self-made billionaires—they didn’t inherit their fortunes.

Clearly the right habits can be a roadmap to success. Author Tom Corley interviewed 233 wealthy people and 128 poor people during a 5-year period. He found that the wealthy people had similar habits to one another and the poor people had similar habits, and there was a huge difference between the 2 groups.

The rich are definitely creatures of habit with 84% believing that good habits create opportunity and 76% believing that bad habits have a negative impact.

To-do lists
According to NowSourcing, 81% of wealthy maintain a to-do list and, more than that, they check off at least 70% of that list a day. In comparison, just 9% of people who struggle financially have a to-do list. Having goals and writing them down gives them a purpose, something to strive toward.

Don’t allow a list to overwhelm you, though. Financially successful people focus on accomplishing a specific goal at a time, and they make sure their daily actions are aligned with longer-term goals. While 80% of wealthy people focus on a specific goal, just 12% of poor people do the same.

In order to get through that list and actually accomplish what they want, successful people have learned how to manage their time effectively.


Wake up early
True, there isn’t an overwhelming majority of wealthy people who wake up early, but 44% of them get up 3-plus hours before work, which is far more than the 3% of poor people. In the hours before going to work, successful people focus on self improvement and reading educational material relating to their jobs.

Waking up early is also a common trait of the super wealthy. Many CEOs and business leaders are the type of people who wake up at 5 in the morning, read the paper, send out some emails, and fit in some time to exercise all before heading in to the office.

Keep healthy
Corley found that 70% of wealthy people ate less than 300 junk food calories each day. In comparison, 97% of poor people ate more than 300 junk food calories a day.

True, healthy foods aren’t cheap, but financially successful people try to eat healthy and stay fit because health issues can interfere with their ability to make money. Plus, staying healthy reduces medical expenses and lessens the strain on their finances.
 Three-quarters of successful people are said to exercise aerobically 4 days a week compared to 23% of people who struggle financially.

Read
Instead of relaxing in front of the TV, wealthy people gravitate toward books. Not only does 86% claim that they love to read, but 88% read at least 30 minutes each day and 63% listen to audiobooks during a commute.

According to Corley, the reading that wealthy people do is often for education or for career-related reasons. He also found that 76% read 2 or more education-related, self help-related books a month, which is something the poor don’t do.

Continue to learn
Related to their desire to read, wealthy people believe in the importance in continuing to learn throughout their lives. They put an emphasis on education, reading, and self-improvement and as a result wealthy people commonly adapt and evolve easily.

While 86% of successful people believe in lifelong educational self-improvement, just 5% of those who struggle financially agree.

Successful people stay successful because they aren’t afraid to change their minds or entertain other viewpoints. In their pursuit of knowledge, they allow what they learn to mold them. Continuous learning helps them develop new skills to keep them valuable to shareholders, clients, and consumers.

Surround themselves with other wealthy people
Wealthy people spend a lot of time around other successful people. In fact, 79% network 5 or more hours each month. They place importance on building relationships by returning phone calls, remembering personal information about the people they meet with, and, of course, networking regularly.

Successful people limit their exposure to negative people and naysayers and spend time with those who effect change and who will be a positive influence. They network to find people who can help them on their way to further success.

Even people who haven’t reached financial success should spend time with wealthy people. The best way to pick up their habits and traits is by keeping company with the people whose behaviors you want to emulate.
 

Do what is difficult
People with money work longer, harder, and smarter. They sacrifice today in order to reap the rewards further down the line. And they aren’t happy with the easy road. Instead, they usually make their money by finding the gaps in the market, by coming up with something no one else has before.

Furthermore, successful people are persistent. They don’t let failures keep them down, and, believe it or not, wealthy people usually have even more failures than most people. However, they learn from their mistakes. According to Inc.com, while financially successful people use their mistakes to help them succeed the next time, only 17% of the middle class can say the same.

Successful people realize that mistakes are inevitable. It’s how they react and move forward that sets them apart from the rest of us.


- See more at: http://www.hcplive.com/physicians-money-digest/personal-finance/lbj-habits-of-financially-successful-people/P-3#sthash.Lrjbptfu.dpuf

Aeon Credit Q4 earnings up 22.6% to RM47.82m

Wednesday April 16, 2014


KUALA LUMPUR: Aeon Credit Service (M) Bhd’s earnings rose 22.6% to RM47.82mil in the fourth quarter ended Feb 20, 2014 compared with RM39mil a year ago due to higher fee income, including from sales of insurance products, point management fee and higher recovery of bad debts.


It said on Wednesday its revenue rose 42.7% to RM187.99mil from RM131.68mil. Its earnings per share were 33.21 sen. It recommended a dividend of 24 sen per share.

In the financial year ended Feb 20, 2014, its earnings rose 30.7% to RM175.35mil from RM134.12mil in the previous corresponding period. Its revenue saw a 44% increase to RM672.76mil from RM467.13mil.


http://www.thestar.com.my/Business/Business-News/2014/04/16/Aeon-Credit-Q4-earnings-up-to-RM47pt82m/

A quality strategy - appreciating the future earning potentials of wonderful companies.

Though Warren Buffett popularized the idea of the moat, he credits partner Charlie Munger for bringing him around to the idea that "it's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

A quality strategy is a bet that the market doesn't appreciate wonderful companies enough, particularly their earnings potential many years out. 

As Charlie Munger said, "If a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you'll end up with one hell of a result." 

(Of course, it's not easy to identify in advance firms that can sustain such high rates of return for so long.)




http://news.morningstar.com/articlenet/article.aspx?id=643125&SR=Yahoo

Retailers Accounting 101 (A Conceptual Overview)

Investing in Retail:  Understanding the Cash Conversion Cycle (CCC)

One of the best ways to distinguish excellent retailers from average or below average ones is to look at their cash conversion cycles.

The CCC tells us how quickly a firm sells its goods (inventory), how fast it collects payments for the goods (receivables), and how long it can hold on to the goods itself before it has to pay suppliers (payables).

Naturally, a retailer wants to sell its products as fast as possible (high inventory turns), collect payments from customers as fast as possible (high receivables turns), but pay suppliers as slowly as possible (low payables turns).

The best case scenario for a retailer is to sell its goods and collect from customers before it even has to pay the supplier.

Wal-mart is one of the best in the business at this:  70% of its sales are rung up and paid for before the firm even pays its suppliers.


COMPONENTS OF CCC

INVENTORY TURNS
Looking at the components of a retailer's cash cycle tells us a great deal.

A retailer with increasing days in inventory (and decreasing inventory turns) is likely stocking its shelves with merchandise that is out of favour.

This leads to excess inventory, clearance sales, and usually declining sales and stock prices.


RECEIVABLES TURNS
Days in receivables is the least important part of the CCC for retailers because most stores either collect cash directly from customers at the time of the sale or sell off their credit card receivables to banks and other finance companies for a price.

Retailers don't really control this part of the cycle too much.

However, some stores, have brought attention to the receivables line because they've opted to offer customers credit and manage the receivables themselves.  

The credit card business is a profitable way to make a buck, but it is also very complicated, and it is a completely different business from retail.

Be wary of retailers that try to boost profits by taking on risk in their credit card business because it is generally not something they  are good at.


PAYABLES TURNS
If days in inventory and days in receivables illustrate how well a retailer interacts with customers, days payable outstanding shows how well a retailer negotiates with suppliers.

It is also a great gauge for the strength of a retailer.

Wide-moat retailers such as Wal-Mart, Home Depot, and Walgreen optimize credit terms with suppliers because they are one of the few (if not the only) games in town.

The fortunes of many consumer product firms depend on sales to Wal-Mart, so the king of retail has a huge advantage when ordering inventory:  It can push for low prices and extended payment terms.

Extending payment terms to their suppliers allow the retailers to hold on to its cash longer and to reduce short-term borrowing needs; effectively increasing the retailers' operating cash flows .



Additional Notes:
In retail and consumer services, most economic moats for the sector are extremely narrow, if they exist at all.

Therefore, not surprisingly, you don't find a ton of great long-term stock ideas in retail and consumer services.

The only way a retailer can earn a wide economic moat is by doing something that keeps consumers shopping at its stores rather than at competitors'.

It can do this by offering unique products or low prices.

Although you can do well buying high quality specialty and clothing retailers when the industry sees one of its periodic sell-offs, very few of these kinds of firms make great long-term holdings.

Asset Management Accounting 101 (A Conceptual Overview)

The single biggest metric to watch for any company in this industry is assets under management (AUM), the sum of all the money that customers have entrusted to the firm.

An asset manager derives its revenue as a percentage of assets under management, AUM is a good indication of how well -or how badly - a firm is doing.

Unlike a bank or insurer, where big losses can cause the firm to become insolvent, big losses in asset management portfolios are borne by customers.

Big losses will affect fee income by reducing AUM, but an asset manager could lose well over half the value of its assets under management and still remain in business.

In a worst-case scenario, customers could withdraw their remaining dollars and the firm could fold if its fee income became inadequate to support its operations.

But because asset management requires almost no capital investment, these companies can pare back to the bone to remain in business.



Additional notes:
Asset management firms run money for their customers and demand a small chunk of the assets as a fee in return.

This is lucrative work and requires very little capital investment.

The real assets of the firm are its investment managers, so typically compensation is the firm's main expense.

Even better, it doesn't take twice as many people to run twice as much money so economies of scale are excellent.

This means that increases in assets under management - and therefore, in advisory fees - will drop almost completely to the bottom line.

All this adds up to stellar operating margins, which are usually in the 30% to 40% range - something you won't see in many industries.

Property/Casualty Insurance Accounting (A Conceptual Overview)

Property/Casualty Insurance Accounting 101

INCOME STATEMENT

UNDERWRITING PROFIT/LOSS
Premium revenue is used to fund claim payments, sales commissions for insurance agents and operating expenses.

Insurers typically express each of these expenses as ratios to earned premiums.

Claim expenses, for example, typically consume 75% of an insurer's net revenues.

Adding together these three ratios produces the combined ratio.

Combined ratio is an insurance company's key underwriting profit measure.

A combined ratio under 100 indicates an underwriting profit.

For example, a combined ratio of 95 means that the insurer paid out 95% of its premium revenue for losses.  The 5% remaining is the underwriting profit.

A combined ratio exceeding 100 indicates an underwriting loss.

For example, an insurer with a combined ratio of 105 paid out 105% of its premium revenue to cover losses, meaning that it had an underwriting loss equal to 5% of revenues.

Companies with combined ratios exceeding 105 for more than a short time have a difficult time recouping their losses via investment earnings, and this type of poor underwriting track record suggests that an insurer's competitive position is unusually weak.

Insurers unable to earn even the occasional underwriting profit will produce the industry's poorest returns and may be tempted to accept large investment risks to boost profitability.


INVESTMENT INCOME
Insurers also make money from investment income, which they often report as a ratio of premiums.

Adding the investment ratio to the combined ratio yields the operating profit ratio.

In many instances, investment income is a key profit determinant because it offsets underwriting losses.



BALANCE SHEET.

ASSETS

INVESTMENTS
The key asset for most insurers is investments.

In addition to float, most insurers invest a large portion of their own retained earnings as well.

The investments account reveals the size of an insurer's investments relative to its asset base and details the asset allocation employed.

As a starting point, look for insurers with no more than 30 percent invested in equities (unless the company is run by Warren Buffett).


UNEARNED PREMIUMS
Unearned premiums represent premiums received but not yet considered revenue.

When an insurer receives a premium, it is deemed to earn it gradually across the year.

After all, if a customer cancels a policy, the insurer must refund that portion of the coverage not consumed.

After six months, an annual auto policy would be 50% earned, and half the premium would be considered revenue.

Before this occurs, the premiums are held in the unearned premium account, and the insurer is free to invest them.




WHAT DO YOU WISH FOR.

Look for an insurer who is able to consistently earn underwriting profits on a large, growing customer base.

In effect, this insurer would be getting paid to profit from investing other people's money and could retain this float indefinitely (as long as it grows).

Unfortunately, for investors, these situations rarely occur.



FLOAT

Insurers enjoy a peculiar business advantage.

Premiums are received well in advance of the firm's requirement to pay claims.

This money is often referred to as float.

An insurer enjoys the use of this money between the time it receives a premium and the time it has to pay a claim.

Insurers exploit this by investing these premiums and keeping the money they make from the investments.

How much money they can make this way depends on market performance, the insurer's asset allocation, and how long the insurer holds premiums before making claim payments.

Insurers writing long-tail insurance hold premiums longer and, hence, can invest more in equities.

(The length of an insurance policy's tail refers to the time it takes for damages to become apparent.
Short-tail policies are those where damages incurred during the insured period become known quickly, such as a car accident.
Long-tail policies cover damages that may not become apparent for many years, such as an asbestos injury_

The Magic Words - A Healthy Attitude

Today, Earl Nightingale is remembered as the greatest philosopher of his time, and his best selling programs and books continue to sell daily, inspiring people around the world to reach their highest potential.

Success is not a matter of luck or circumstance. It's not a matter of fate or the breaks you get or who you know. Success is a matter of sticking to a set of commonsense principles anyone can master. In Lead the Field Earl Nightingale explains these guidelines: the magic word in life is ATTITUDE. It determines your actions, as well as the actions of others. It tells the world what you expect from it. When you accept responsibility for your attitude, you accept responsibility for your entire life. Earl Nightingale -- the "Dean of Development" -- offers you a treasure trove of uplifting and insightful information like: * The importance of forgiveness * How "intelligent objectivity" can improve your professional life * The usefulness of constructive discontent Now it's your turn to bring positive changes to your own life, changes that will allow you to lead the field yourself!

Financial statements of Life Insurance Companies (A Conceptual Overview)

Life insurance companies offer products that allow people:
(1) to protect themselves or their loved ones from catastrophic events such as death or disability or
(2) to provide greater financial protection and flexibility for situations such as retirement.

A life insurer pools the individual risks of many policy holders.

The life insurers then strives to earn a profit by taking in and/or earning more money than it is required to eventually pay out to its policyholders.

A bizarre fact of the industry is that when an insurer sells a policy, it doesn't really know how to effectively price that policy because it doesn't really know how much it will eventually cost.

Despite the best efforts of a life insurer's actuaries to estimate variables such as future investment returns, policy persistency rates (the length of time that customers keep their policies), and life expectancy, it can take years before the insurance company knows whether it made money on the policy.



Financial statements for life insurers (A conceptual overview).

BALANCE SHEET

ASSETS
On the asset side of the balance sheet are two major items:
(1) investments (the accumulated premiums and fees that an insurer builds up before having to pay out benefits to its policyholders) and
(2) deferred acquisition costs, which is the capitalized value of selling insurance or annuities policies.

For firms that sell variable annuities, separate account assets, which represent the funds that variable annuity owners have invested, constitute a third important asset type.

LIABILITIES
Because variable annuity owners manage their own investments, these assets are segregated and the separate account assets are offset by an equivalent amount of separate account liabilities on the opposite side of the balance sheet.

A life insurer's other liabilities basically consist of the actuarially estimated future benefits that need to be paid to the insurer[s policyholders.


INCOME STATEMENT

REVENUE
The two main sources of revenue are:
(1)  recurring premiums and fees and
(2) any earned investment income.

EXPENSE
The two main expenses are:
(1)  benefits and dividends paid to policyholders and
(2) amortization of the deferred acquisition costs.

Given how few revenue and expense lines there are, it is vital to keep track of their growth trends.

Think and Grow Rich by Napoleon Hill

A summary of various chapters

Author’s Preface

Think and Grow Rich starts with Hill’s preface that discusses how he came to learn the secrets of success. He shares the story of meeting Carnegie and being challenged to spend twenty years or more interviewing other successful people and compiling their strategies into a philosophy of success. Hill reports that Carnegie believed anyone could build wealth and that the strategies of success should be included in traditional education.

Hill provides a list of many of the interviewees including Henry Ford, William Jennings Bryan, George Eastman, John D. Rockefeller, and Clarence Darrow. He also points out that as well as interviewing successful people, that he had others test the ideas to great success. A clergyman used the strategies to develop an income of $750,000 per year. A tailor used it to save his nearly bankrupt business.

Hill refers to the strategies as a “secret” and says that the purpose is to convey “...a great universal truth through which all who are READY may learn, not only WHAT TO DO, BUT ALSO HOW TO DO IT! and receive as well, THE NEEDED STIMULUS TO MAKE A START,” (author’s emphasis, p. 12).

Introduction

“TRULY, ‘thoughts are things,’ and powerful things at that, but when they are mixed with definiteness of purpose, persistence and a BURNING DESIRE for their translation into riches, or other material objects.” Hill opens the book with the essence of the law of success; that thoughts can influence outcomes and that pared with purpose, persistence and desire can lead to great achievement. He continues by sharing the story of Edwin C. Barnes who wanted to partner with Thomas Edison, not simply work for him. The only thing stopping him was that he couldn’t afford to get to Orange, New Jersey and he didn’t know Edison. Once overcoming those obstacles, he needed to convince Edison to let him work side by side. While Edison didn’t take him on as a partner initially, he did recognize Barnes’ desire and passion and offered him a job. Eventually, Barnes did become a partner by becoming the major distributer of the Edison Dictating Machine.

Hill shares several other stories such as Three Feet from Gold in which Mr. Darby sought to mine gold, but after several failed attempts, quit. He sold his equipment and left town. The buyers of the equipment did some research, and found the vein of gold three feet from where Mr. Darby finally quit, highlighting how easily people give up just before success arrives.

The introduction finishes with a letter from Jennings Randolph, a member of congress who had seen Hill deliver a commencement speech at Salem College in West Virginia. The letter, written in midst of the Great Depression says, “There are thousands of people in America today who would like to know how they can convert ideas into money -- people who must start at scratch, without finances, and recoup their losses. If anyone can help them, you can.”

Desire

The first step toward riches, according to Think and Grow Rich is desire. Hill says that desire is more than hope or a wish. Instead it is burning and definite. Hill provides six steps by which one can use desire to attain riches:

1. Determine the exact amount of money desired.
2. Decide what will be given in return for the money (there is no such thing as something for nothing).
3. Set a date by which the money will be attained.
4. Create a plan and implement it immediately.
5. Write a clear statement that includes steps one through four.
6. Read the statement aloud twice daily, once in the morning and once at night.

Hill encourages readers to follow the six steps even in the face of challenges or nay-sayers. He says that failure brings with it the seeds of success, highlighting Edison’s 10,000 attempts to create the electric light bulb. He provides a list of people who were not only ordinary, but who often failed and had to overcome extraordinary obstacles including Edison, Abraham Lincoln, Henry Ford and Helen Keller.

Hill finishes the chapter by sharing the story of his son who was born without ears, the prognosis of which was that he would be deaf and mute. Hill chose to believe a different outcome. His desire for his son to hear and speak were transferred to the boy, who eventually did learn to hear and speak, and became a success in his own right.

Faith

The second step toward riches is faith. Hill admits that developing faith in a goal is difficult when circumstances operate against the goal. He indicates that affirmations or auto-suggestions are the key to developing faith. “Faith is a state of mind which may be induced by auto-suggestion,” (p. 59).

While difficult to cultivate, Hill reports faith is essential to success. “Faith is the only known antidote for FAILURE!” (p. 60). Like Law of Attraction experts of today, Hill says that faith impacts thought vibrations and is the only way that the “cosmic force of Infinite Intelligence can be harnessed and used by man,” (p. 60).

Hill suggests building faith by:

1. Believing in the ability to achieve the goal, being persistent and taking consistent action.
2. Recognizing that thoughts influence action and therefore spending 30 minutes a day focusing on the desired outcome.
3. Using auto-suggestion 10 minutes a day to build self-confidence.
4. Writing down the definite purpose or aim in life.
5. Committing to give back and take action that also benefits others.

Hill provides several real life examples of developing faith from Abraham Lincoln and Charles Schwab. But the best example of the importance of faith is the verse:

If you think you are beaten, you are,

If you think you dare not, you don’t.

If you like to win, but you think you can’t

It is almost certain you won’t.

If you think you’ll lose, you’re lost

For out of the world we fin,

Success begins with a fellow’s will --

It’s all in the state of mind.

If you think you are outclassed, you are,

You’ve got to think high to rise,

You’ve got to be sure of yourself before

You can ever win a prize.

Life’s battles don’t always go

To the stronger or faster man,

But soon or late the man who wins

Is the man WHO THINKS HE CAN!

(p. 65)

Auto-Suggestion

Auto-suggestion is Hill’s third step toward riches. He reports that auto-suggestion refers to all suggestions and self-administered stimuli that reaches the mind through the five senses; or in other words, it’s self-suggestion. The goal of auto-suggestion is to program the subconscious mind for success. For example, the steps to build desire require reading a wealth goal statement twice daily. This action tells the subconscious mind what the desired outcome and builds faith.

For auto-suggestion to work, Hill says that one must be able to feel the words. “Plain, unemotional words do not influence the subconscious mind. You will get no appreciable results until you learn to reach your subconscious mind with thoughts, or spoken words which have been well emotionalized with BELIEF,” (p. 83).

Hill also says that concentration is also crucial to success in auto-suggestion. When following the six steps in the Desire chapter, he encourages readers to create a picture of the exact amount of money desired and holding the thought.

Hill’s instructions for using auto-suggestion are:

1. In a quiet place, such as in bed at night, close your eyes and repeat aloud your statement about the amount of money you plan to accumulate. Visualize yourself as already having the money.
2. Repeat this exercise every morning and night until you can picture in your mind the a money you plan to have.
3. Place a written copy of your statement where you can see it. Read it every night and morning until you’ve memorized it.

Hill admits that some people might be skeptical or find the exercise odd, but he presses on saying that, “Man may become the master of himself, and of his environment, because he has the POWER TO INFLUENCE HIS OWN SUBCONSCIOUS MIND, and through it gain the cooperation of Infinite Intelligence,” (p. 88). He also recommends reading this chapter out loud once a day until the principles of auto-suggestion are ingrained.

Specialized Knowledge

The fourth step toward riches is specialized knowledge. Hill makes important distinctions between general knowledge and even education saying that neither brings money. He points out that most teachers and professors don’t have financial wealth. Further, many of the success stories used in Think and Grow Rich involve men with very little formal education.

Hill says that “Knowledge will not attract money, unless it is organized, and intelligently directed, through practical PLANS OF ACTION, to the DEFINITE END of accumulation of money,” (p. 92). In essence, Hill believes the failure of education is that it doesn’t show students how to organize and use the information they learn. He uses the example of the libel case Henry Ford brought against a Chicago newspaper for calling him an ignorant pacifist. The paper’s attorneys put Ford on the stand and asked him general questions designed to reveal that he was ignorant. When Ford tired of the questions, he asked the lawyer, “...WHY I should clutter up my mind with general knowledge, for the purpose being able to questions, when I have men around me who can supply me any knowledge I require?” (p. 93). Hill points out that education isn’t about how much you know, but in your ability to find the answers.

The chapter continues by saying that earning money requires a specialized knowledge of the services, products or profession that will be used to earn it. The goal and means to which one plans to achieve the goal will reveal exactly what is needed to learn. After that, one has to decide how to gain the knowledge. Hill lists several sources of knowledge including:

1. Personal experience and education
2. Experience and education of others through a Master Mind group
3. Colleges and universities
4. Public libraries
5. Specialized training courses

Imagination - The Workshop of the Mind

Imagination is the fifth step toward riches and is instrumental in creating plans for success. It’s where desire is given form and the necessary action is formulated. Hill explains that imagination is what has led to man’s greatest feats such as flying.

Hill describes two forms of imagination: synthetic imagination and creative imagination. Synthetic imagination involves arranging concepts, ideas or plans into new forms. Creative imagination connects with Infinite Intelligence and materializes in the form of hunches or inspiration. Desire, faith and auto-suggestion all play a part in connecting with the Infinite Intelligence and creative imagination.

He gives an example of how creative imagine has spawned a fortune in the story of the old kettle. A doctor approached a pharmacy clerk hoping to sell an old kettle, wooden spoon and recipe. The clerk purchased the items for $500. Hill reports that more than buying an old kettle, the clerk bought an idea. The clerk mixed the recipe, added one of his own ingredients, and created Coca-Cola. Hill writes that Coca-Cola’s “... empire of wealth and influence grew out of a single IDEA, and that the mysterious ingredient the drug clerk --Asa Candler-- mixed with the secret formula was...IMAGINATION,” (p. 119).

Hill emphasizes that wealth comes from ideas and that ideas come from imagination. They have a power to outlive their creator, as illustrated by Jesus (the Golden Rule), Asa Candler (Coca-Cola) and Henry Ford (assembly line).

Organized Planning

The sixth step toward riches involves transforming desire into action. The processes of wealth starts with desire, begins to form in imagination and evolves through planning. In the Desire chapter, Hill outlines six tasks required to generate wealth. The fourth of those tasks is creating plan. Hill provides four steps to developing a plan:

1. Form a Master Mind group by connecting with people who are needed to assist in carrying out your plan.
2. Determine what to offer the people in the Master Mind group.
3. Make arrangements to meet with Master Mind members at least twice a week or more.
4. Maintain harmony with members of the Master Mind group.

Hill reports that plans can be created by an individual, but that details of the plan should be checked by members of the Master Mind group for feedback and approval before implementing.

He also encourages one to create new plans if current plans fail. “If the first plan which you adopt does not work successfully, replace it with a new plan; if this new plan fails to work, replace it in turn with still another, and so on, until you find a plan which DOES WORK,” (p 133). He reminds readers that Thomas Edison failed 10,000 times before he perfected the light bulb. In fact, he indicates that Edison didn’t fail, but instead, he suffered from temporary defeat 10,000 times. Temporary defeat is a part of obtaining success and therefore should not be a reason to quit. Hill says that temporary defeat is simply a clue that there is something wrong with the plan. The goal is to tweak the plan until it works.

Hill also writes that the most successful people are leaders, not followers. While one starts out as a follower, Hill says that to generate wealth one must strive to become a leader in their chosen calling. The important factors of leadership, according to Hill are:

1. Unwavering courage
2. Self-Control
3. A keen sense of justice
4. Definiteness of decision
5. Definiteness of plans
6. The habit of doing more than paid for
7. A pleasing personality
8. Sympathy and understanding
9. Mastery of detail
10. Willingness to assume full responsibility
11. Cooperation

(p. 136 -138)

He reports that the major cause of failure are do to:

1. Inability to organize details
2. Unwillingness to render humble service
3. Expectation of pay for what they “know” instead of what they do with that which they know
4. Fear of competition from followers
5. Lack of imagination
6. Selfishness
7. Intemperance
8. Disloyalty
9. Emphasis of the “authority” of leader
10. Emphasis of title

(p. 139-141)

Hill provides a series of tips for applying for work or promoting oneself including how to write a brief that outlines education, experience, references, and other details in impressing an employer. He further reports that to be successful, one needs to apply Q.Q.S. or Quality, Quantity and Spirit. This means providing quality service, rendering all the service to which one is capable of supplying (quantity), and do so with a positive attitude (spirit).

The planning chapter also includes a list of 30 reason most people fail including lack of purpose, ambition, education, self-discipline and health. Hill provides a self-assessment questionnaire with the idea that the better you know yourself, the easier it will be to plan and avoid failure.

Decision

The seventh step to riches involves making decisions and avoiding procrastination. Hill reports that one of the top reasons people fail is procrastination. Success requires making decisions and taking action. Occasionally decisions need to be made quickly and may involve risks. Examples of risky decisions include the Founding Fathers’ Declaration of Independence, Abraham Lincoln’s Emancipation Proclamation, and Robert E. Lee’s choice to side with the south.

In this chapter, Hill provides more details about the decisions made by these men and several others. His ultimate message is that, “Those who reach DECISIONS promptly and definitely know what they want, and generally get it. The leaders in every walk of life DECIDE quickly and firmly,” (p. 198).

Persistence

The eight step toward riches is persistence. According to Hill, persistence is a necessary practice to developing faith and achieving one’s goals. For most of the successful men used in Think and Grow Rich, persistence played a key role. How long would the world have remained in darkness if Edison had given up on his incandescent light bulb after the first, tenth or even 999th try? Hill shares several other examples of persistence, such as Fannie Hurst who received thirty-six rejection slips from the Saturday Evening Post, before she was finally published.

Hill reports that persistence is a state of mind that can be developed with:

• Definiteness of purpose
• Desire
• Self-reliance
• Definiteness of plans
• Accurate knowledge
• Cooperation
• Will-power
• Habit

He says that people who don’t have persistence lack the skills and traits listed above. He also says they tend to blame others, seek short cuts, and fear rejection or criticism.

Fortunately, Hill provides simple ways to develop persistence.

1. Create a definite purpose backed by burning desire.
2. Develop a definite plan backed by action.
3. Close the mind to negative and discouraging influences.
4. Develop alliances with people who encourage and support the goal.

Hill says that these four steps, “lead also to the mastery of FEAR, DISCOURAGEMENT, INDIFFERENCE,” (p. 215).

Power of the Master Mind

“Power is essential for success in the accumulation of money,” (p. 223) and is the ninth step toward riches. Hill reports that plans are useless without power to turn them into action. He defines power as, “organized and intelligently directed KNOWLEDGE,” (p. 223). He says that power is not only crucial to gaining wealth, but in keeping it as well. He reports that the methods of gaining power or knowledge is:

1. Infinite Intelligence with the help of Creative Intelligence.
2. Experience
3. Experiment and research

This knowledge is converted into power when it is organized into plans and executed through action.

The “Master Mind” component is the “Coordination of knowledge and effort, in a spirit of harmony, between two or more people, for the attainment of a definite purpose,” (p. 225). No one ever achieves success in a vacuum. Instead, all great successes received support, knowledge and even assistance from others.

Hill says there are two characteristics of Master Mind; economic and spiritual. The economic aspect is that wealth can be created when one surrounds himself with advice, counsel and cooperation of others who are willing to help. The spiritual part is more abstract. According to Hill, the universe is made up of matter and energy. When humans work together in a “spirit of harmony”, their spiritual energy combine making up the psychic aspect of Master Mind. Hill likens it to batteries in which several batteries provide more energy than a single battery. In another example, he suggests that Henry Ford was able to overcome poverty, illiteracy and ignorance to start a business on his own, but his success grew exponentially from his affiliation and friendship with Thomas Edison.

The Mystery of Sex Transmutation

The tenth step toward riches is sex transmutation, which involves converting sexual energy into creative energy. Hill says that sexual desire is the most powerful of human desires and can lead men to risk their lives and reputations. But when harnessed and redirected, it can be used as a creative force. He says, “Among the greatest and most powerful of these stimuli is the urge of sex. When harnessed and transmuted, this driving forces is capable of lifting men into that higher sphere of thought which enables them to master the source of worry and petty annoyance which beset their pathway on the lower plan,” (p. 243).

Some people interpret this section to mean that successful people indulge in titillating activities that increase energy, but don’t experience orgasm, which is a release and lowers energy. However, others believe Hill suggests the use of sex transmutation in the same way some religious sects practice celibacy. The idea is that by not having physical release, the sexual urges can be redirected to a higher plane bringing one closer to God. that’s not to say that Hill is promoting life long celibacy. Hill reports that sexual desire and sex is natural and good. It can bring intimacy between a man and woman. However, he seemed to think men engaged in sex too often by pointing out that animals only have sex when in season. Hill believed that by sometimes choosing not to act on sexual urges, and instead transmutting them, one can become more creative. Hill reports, without giving a name, that one of the America’s most capable businessmen admitted that his attractive secretary inspired many of the plans he created.

Interestingly, Hill believes that men’s pursuit of power and money is to please women. And without women, wealth would be useless to men. He reports that women are a requirement for men’s success. “...NO MAN IS HAPPY OR COMPLETE WITHOUT THE MODIFYING INFLUENCE OF THE RIGHT WOMAN,” (p. 259).

Short of hiring a sexy secretary or marrying an attractive woman, Hill doesn’t provide any tips on how men can best harness sexual power through sex transmutation.

The Subconscious Mind

Learning to plant achievement oriented thoughts into the subconscious mind is the eleventh step toward riches. Hill says that you can’t completely control the subconscious mind, but that one can “VOLUNTARILY plant in your subconscious mind any plan, thought or purpose which desire to translate into its physical or monetary equivalent,” (p. 261). This is important to success because the subconscious mind works automatically 24/7 to act on dominant desires or thoughts. Because it works on its own, it has the power to influence outcomes based on the dominating beliefs housed in it. It’s why “If you think you are beaten, you are,” and “...the man who wins is the man WHO THINKS HE CAN,” (p. 65).

Hill reports that the thirteen steps toward riches outlined in Think and Grow Rich are designed to reach and influence the subconscious to develop the belief and creativity needed to be successful. Further, he says that regardless of what one does, thoughts and feelings exist in the subconscious mind and will influence outcomes, so one might was well plant positive thoughts. The challenge is to shut out the negative impulses and replace them with positive ones.

Hill says that the subconscious mind is most influenced by thoughts that are accompanied with feelings. He says, “In fact, there is much evidence to support the theory that ONLY emotionalized thoughts have any ACTION influence upon the subconscious mind,” (p. 265). Hill suggests applying one of the seven major positive emotions to thoughts:

1. Desire
2. Faith
3. Love
4. Sex
5. Enthusiasm
6. Romance
7. Hope

He warns against attaching the negative feelings of:

1. Fear
2. Jealousy
3. Hatred
4. Revenge
5. Greed
6. Superstition
7. Anger

Hill says that positive and negative feeling and thoughts cannot exist at the same time. “FAITH and FEAR make poor bedfellows. Where one is found, the other cannot exist,” (p. 270).

The Brain

The Brain is the twelfth step toward riches. Hill discusses brain knowledge of the time including the existence of 10 to 14 million nerve cells, and research on telepathy. The chapter essentially explains how Master Mind groups, sexual transmutation and the subconscious steps work. Hill reports that the brain is both a broadcasting and receiving station, and the greater vibration achieved for receiving, the more open the brain is to other signals. He reports that the subconscious mind is the broadcasting station and the Creative Imagination is the receiving station. These vibrations can be increased with more people as in a Master Mind group and can increase access to the higher self such as through transmutation.

The Sixth Sense

Hill refers to the thirteenth step toward riches as the sixth sense which involves the ability to access the Infinite Intelligence without effort. To achieve it, one must master the previous twelve steps. The Infinite intelligence is the Creative Imagination or receiving station of the subconscious mind.

Hill reports that the sixth sense cannot be explained, but only experienced and understood by those who meditate and develop the mind from within. Because the sixth sense connects man to the Infinite Intelligence, it’s a mixture of both mental and spiritual, and is the point at which man can also connect with the Universal Mind. Hill suggest that at this level, the sixth sense will warn about dangers and notify of opportunities.

While Hill speaks of spiritual aspects, he reports he doesn’t believe in miracles and that the sixth sense works within nature’s laws. He explains this higher level of consciousness in scientific terms. “...there is a power, or First Cause, or an Intelligence, which permeates every atom or matter, and embraces every unit of energy perceptible to man -- that this Infinite Intelligence converts acorns into oak trees, causes water to flow downhill in response to the law of gravity, follows night with day, and winter with summer, each maintaining its proper place and relationship to the other.” Hill reports that anyone can achieve this sixth sense and tap into the Infinite Intelligence by following the thirteen steps.

How to Outwit the Six Ghosts of Fear

While Think and Grow Rich is about positive energy, thoughts and feelings, Hill understood that negative influences, particularly fear could sabotage efforts to gain wealth and power. He lists the six basic fears that limit people as:

1. Poverty
2. Criticism
3. Ill Health
4. Love of Love
5. Old Age
6. Death

He provides information about each fear including their symptoms. For example, the symptoms of the fear of poverty are:

1. Indifference
2. Indecision
3. Doubt
4. Worry
5. Over-caution
6. Procrastination

Within the symptoms comes the answer for overcoming the fear. For example, to overcome the fear of poverty, one must develop interest, become decisive, build faith and self-confidence, step into the unknown, and take action.

Along with the six fears, Hill lists another “evil” that can sabotage achievement and that is “SUSCEPTIBILITY TO NEGATIVE INFLUENCES,” (p. 323). To overcome negative influences, Hill suggests:

• Recognize that humans, by nature are lazy, indifferent and susceptible to suggestions and reinforce the negative.
• Recognize that humans, by nature are susceptible to basic fears and need to set up habits that counteract those fears.
• Recognize that negative influences can impact the subconscious mind, and steps need to be taken to close the mind against people who don’t support the dream.
• Throw out pill bottles and stop using illness as an excuse.
• Seek out people who are a positive influence.
• Don’t expect trouble.

Hill provides a self-analysis test designed to help readers better understand themselves, their strengths, weakness and vulnerable areas. He then reminds people that the only thing they have total control over is their thoughts. And as stated at the beginning of the book, thoughts are things that influence great success or failure.

He ends the book with 57 famous alibis, which are common excuses people use to explain their poor achievement. They include lack of money, health, support, connections, luck and more. Hill emphasizes that by following the 13 steps toward riches and dealing with fear, “...every one of these alibis is obsolete,” (p. 333.)

http://www.hyperink.com/Chapter-By-Chapter-Synopsis-Of-Think-And-Grow-Rich-b1173a12

Think and Grow Rich (audiobook)


http://www.youtube.com/watch?v=6umDbz6Ezkk&list=PLXXjgufwzS3142fAbUGbcpk1XpMDgcBuW