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I came across this excellent article on Yahoo! Finance (which actually originated on Seeking Alpha) about Warren Buffett’s appetite for the railroad stocks. We had touched on this just very briefly in my Sunday post The Week Ahead when looking at stocks that are due to announce their quarterly earnings this week. Union Pacific (UNP) was one of those stocks set to report on July 19th, and one that Warren Buffett takes an interest in himself.

The above mentioned article was interesting because it highlighted some things that you might not otherwise consider when looking at railroad stocks, especially in comparison with other transportation & logistics stocks. For instance, the article notes that the railroad is not nearly as affected by the relative change in gas & oil prices as say the trucking industry or common carriers like FedEx and UPS.

But there are a couple of things that I want to build off of from this article.

1) The article mentions that when Warren Buffett invests in something like a railroad stock other investors follow suit, thereby pushing the stock in question higher. This makes me wonder: Is there a Warren Buffett stock effect in the stock market?!

One has to wonder if the mere interest of one individual in a particular stock or sector can and should have a significant effect on the valuation of the business(es) in question. Without having done any homework on this whatsoever, I wouldn’t hesitate to say yes! Even as the words of the Fed Chairman don’t necessarily represent just the words of the Chairman but rather represents the analysis of many economists working for the Chairman, so too does the words of Mr. Buffett represent the analysis of Berkshire Hathaway’s employees and the management of its subsidiaries.

What I mean by this is that if Mr. Buffett becomes bullish or bearish on something, you had better take note of it! A man with that many connections and the capability to summons an advisor or specialist with knowledge of any given business provides Mr. Buffett the ability to make informed decisions and capitalize on that same decision using cash where others would need to leverage assets to achieve the same results.

2) The second thing I wanted to briefly point out is something I think the article fails to mention. Perhaps these railroads are not undervalued from a P/E or earnings standpoint at the time that Mr. Buffett decides to buy them, but possibly that Mr. Buffett sees additional value that others are overlooking. The article asks if Mr. Buffett is going to cause Berkshire Hathaway to derail due to buying a railroad that is relatively expensive. But I wonder if it’s worth considering that railroads have traditionally held vast amounts of real estate. These railroads could be excellent investments if there was some belief that they would one day liquidate some land holdings that many have held since the eastern US was connected to the western side.

Now I am certainly not bashing the article. It does an excellent job making its point that we do need and will always need these logistics companies to move freight. And it further makes the valid point that some of the developing countries are just now coming on board the train so to speak. In the event the above link does not work, I have posted the article to my own website in Adobe PDF format. As always, I welcome your comments and feedback…

Several economic indicators coming out this week will test investors on how confident they are that consumers will continue to open their wallets. The Producer Price Index (PPI), a measure of wholesale prices, will be reported on Tuesday. The Consumer Price Index (CPI) will follow the next day. Then we round out the week with the number of Housing Starts and Building Permits. The PPI and CPI are excellent indicators of inflation in the short term while the housing industry is obviously in desperate need of some buyers to come forward and help revive the new homes/construction industry… just ask Home Depot that reported weaker than expected quarterly sales last week.

The economic indicators being reported will probably take a back seat to the slew of earnings being reported this week. The following is a very abbreviated list. There are many more companies reporting earnings this week. I have chosen a few notables, many of the following are components in various indices, and there are a few locally based companies in the Greater Cincinnati, Ohio area that I would like to direct your attention to (stock’s ticker symbol in parenthesis):

July 17th:
Johnson & Johnson (JNJ)
The Coca Cola Co. (KO)
Wells Fargo (WFC)
Yahoo! (YHOO)

July 18th:
Abbott Laboratories (ABT)
Altria Group (MO)
Cintas Corporation (CTAS) - a Cincinnati, Ohio area based company (Mason, Ohio)
EBay (EBAY)
JP Morgan Chase (JPM)
Pfizer (PFE)
Allstate (ALL)
Washington Mutual (WM)
Wesbanco (WSBC)

July 19th:
Capital One (COF)
Fifth Third Bank (FITB) - Cincinnati, Ohio based company
Harley Davidson (HOG)
Honeywell (HON)
PNC Financial Services (PNC)
Sherwin Williams (SHW)
The Hershey Co. (HSY)
Union Pacific (UNP)

July 20th:
Citigroup (C)
Caterpillar (CAT)
Wachovia (WB)
Whirlpool (WHR)
Sonoco (SON)

Harley Davidson has one of those stock ticker symbols that is unique in that it helps identify with the company’s products, culture, and customers. Beyond the name being “cute” there is really no significance to the special ticker symbol.

I would draw your attention to Johnson & Johnson (JNJ), Coca Cola (KO) and Union Pacific (UNP) reporting earnings this coming week. Billionaire and respected investor Warren Buffett is fond of these particular companies. He regularly enjoys drinking Diet Coke and in this month’s (August 2007) issue of Smart Money it mentions that he has nearly $4 billion invested in the railroad industry (including Union Pacific). Mr. Buffett’s company Berkshire Hathaway owns approximately 8.6% of Coca Cola as of the end of March 2007.

Here’s looking to The Week Ahead!!! I hope you have a great week regardless what the market does. As always, I welcome your comments and feedback…

After taking the past few days off I wanted to catch up and post my usual The Week In Review as well as look forward to The Week Ahead. A lot has happened since I last wrote so pardon me if I skip over some things and give you a very brief summary this week…

There wasn’t anything scary about Friday the 13th this past week unless you are a Bear in the market. The Dow broke its previous all-time high and even flirted with 14,000 this past week. During Friday’s trading the DJIA index rose to within 70 points of this next milestone only to pull back slightly and settle at 13,907 (a 2% gain on the week!)… other indices were moving significantly higher as well. The S&P 500 was up 1.4% to 1,552.50. The NASDAQ was up 1.5% in line with the S&P 500, ending the week at 2,707.

The week ended on an excellent note for the indices but early in the week appeared to be singing a different tune. On Tuesday, Home Depot and Sears reported lower than expected earnings. Home Depot blamed the sluggish housing market for the decline. I don’t entirely buy into Home Depot’s reasoning. I expect Lowes (NYSE: LOW) to post better numbers than the Home Depot did. Lowes reports its second quarter earnings on Monday, August 20th. Although I wouldn’t expect Lowes to completely sail past the analysts’ estimates of $0.61 per share quarterly earnings, I do think it will meet or slightly exceed them.

Considering the negative news coming from Home Depot earlier in the week, the market was much more upbeat Friday when General Electric posted better than expected quarterly earnings sending the stock to a five year high above $40 per share. The GE quarterly earnings even over-shadowed the 0.9% drop in retail sales that the US Department of Commerce reported on Friday for the month of June. This nearly 1% drop followed the May increase of 1.5%. I think the GE results were more of a surprise to investors than the slight drop in retail sales, so although these sound like conflicting results being reported, the GE results are for an entire quarter - not just the month of June like the Department of Commerce’s report, and furthermore the GE reported results were much more unexpected than a very slight decrease in the retail sales for the month of June.

Here’s looking to The Week Ahead!!!

As always, I appreciate your comments and feedback…

Before I begin dishing out investment advice I think it is prudent that I disclose my current investments. Please keep in mind that my investment strategies and my specific choices for investment may not be suitable for other people and everyone should consider their own risk tolerances as well as match their investments with the goals that they have in mind for those investments, like whether those investments are for a long-term goal like retirement or an upcoming event such as a child that will be attending college within the next 5 years or so. Your timeframe and your risk tolerance will certainly affect your investment decisions.

My investments are primarily through my 401(k) retirement account. Although my company does not provide any matching whatsoever (rather, they have a fully funded pension), I find the 401(k) to be a convenient investment vehicle in that I can have my retirement savings taken directly out of my paycheck. Once again, this may or may not be something you should consider. If your company does not match your contributions and you do not like the investment options open to you, perhaps you should consider an IRA - you can choose between a traditional IRA or a ROTH IRA. We will discuss those at a later date.

For now, I present to you my investments in summary so you will know in the future that when I recommend something that I feel is a good investment, I won’t be saying it just to line my own pockets.

Here is a summary of my investments in my 401(k) account.

You might be thinking, “that’s fantastic, Thomas, thanks for the breakdown of what you invest in… but how have your investments performed since you began investing in the above mentioned account?!” Well, I have been contributing to my account since November 2003 (when I started working at my current employer).

This document shows my return on investment from 12/31/03 to 7/9/07 in my 401(k).

The only other investment that I have outside my 401(k) is some common stock that I have accumulated in ONE particular company. I own a few shares in Cincinnati Financial Corporation (NASDAQ: CINF). While I am not reporting my exact number of shares to you, as of this date the market value of this common stock is less than the total value of my 401(k). You will NEVER hear my opinion - buy, sell, or hold - on this company and I will not mention it in any of my articles or post about it in my blog. That being said, since I don’t intend to follow the stock publicly in my blog, I will no longer update you on my holding of the stock - how many shares, if any, that I own or even whether I am taking a position long or short on the stock.

I will soon begin posting updates on individual stocks that I like and welcome your input as I undertake this new chapter in my blog and website. Please let me know if you have any specific stocks that you are interested in reading more about; or likewise if there are any particular industries that you have an interest in or want to learn more about how they operate. As always, I welcome your comments and feedback…

Last week we saw investors push the major indices higher, although on a lighter volume of trading. If last week was a lucky week because of Saturday’s date being 7/7/07, hopefully this week won’t follow suit and be unlucky with Friday the 13th.

Several economic indicators will be reported throughout the week:
Consumer Credit for the month of May will be released on Monday, July 9th.
Wholesale Inventories for May on Tuesday, July 10th.
Crude inventories on July 11th.
Initial umemployment claims, the trade balance for May, and the treasury budget for June will be released on Thursday, July 12th.
Export and Import prices, business inventories, the Michigan Sentiment’s preliminary July numbers, and retail sales will be reported on Friday the 13th.

Retail sales are what I would like to briefly focus on. With the slowing home sales, one has to wonder how consumer confidence and retail sales will keep up if people worry about an inevitable increase in their adjustable rate mortgages (ARMs) as well as their ability to borrow additional money or refinance to save money.

I wouldn’t worry much about the trade balance as the dollar has been falling recently against the Euro, making our products a little more affordable for those over seas with higher valued currency. Look to retail sales at the end of the week to be a make or break point for much of the market.

I wouldn’t be surprised to see some early-week buying to follow up last week’s mini rally. The Dow is near (64 points off of) its all-time high of 13,676, which was set just over a month ago on June 4th, 2007.

Just so people don’t think I am biased in only looking at the DOW, other major indices are nearing some higher numbers… The S&P 500 is just 8 points shy of its all-time high. The NASDAQ is sitting on a 6.5 year high after Friday’s rally.

Turning from economic data and market indices, let’s look at earnings announcements this coming week…

Alcoa, Inc (NYSE:AA), a Dow Jones Industrial Average and S&P 500 component, is expected to report its second quarter earnings on Monday, July 9th. Analysts expect $0.81 per share earnings. If the company beats expectations, this could give the DOW and the S&P averages a lift on Monday.

Here’s looking to The Week Ahead… try to avoid crossing the path of any black cats on Friday. As always, your feedback and comments are welcome…

Whether you call it lucky or not is up to you, but the bulls had a good week. The Dow Jones Industrial Average, which started the week at 13,409, finished the week up just over 200 points (a 1.5% gain). The week was filled with mostly good news as investors were delighted in a lower than expected decline in factory orders as reported on Monday. Trading took a backseat to fireworks and cookouts on Wednesday for the 4th of July holiday in the U.S. Then, the week ended on another good note with the unemployment rate meeting the 4.5% expected rate and the nonfarm payrolls being surprisingly slightly higher.

While all of this is a little more cause for cheer rather than alarm, it does not signal any dramatic or unexpected changes. The markets were trading a much lighter volume as investors were much busier spending time attending family reunions to boast about their first half of the year investment results it seems.

Regardless what the unemployment rate does in the short term, it is nice to end the week with a positive comment… so I just wanted to note that the 4.5% unemployment rate is quite low and is an excellent sign that the economy is still doing quite well overall. There are several economic indicators being reported next week, in fact it seems like we have something coming out every day next week… some are more important than others as usual. For instance, retail sales data for the month of June will be released by the Department of Commerce on July 13th (considered to be an important economic indicator). Not as important… the treasury budget announced by the US Treasury Department on the 12th. We will revisit these items when we look at the week ahead.

Here’s looking forward to The Week Ahead… both literally and in the ongoing blog that will be updated later this weekend. Till then, enjoy your weekend! As always, I appreciate your comments and feedback…

If the overall real estate market is in a slump, should this be considered a time to BUY stock in real estate companies and Real Estate Investment Trusts (REITs)?!

The quick answer is no, or probably better said… not necessarily. But let’s examine why that is…

1. There are many types of real estate companies out there. Some focus primarily on office space and commercial properties. Others might focus on retail space such as malls, or even hotels and hospitality locations. Not all of these areas are in a funk like the residential market. For instance, since the collapse of the World Trade Centers in New York there has been an office space shortage in Manhattan while there is a surplus of office space in other cities. So just because there is a slow down in many areas for residential real estate, those same areas could be quite healthy for commercial properties, etc.

Also, some REITs are diversified or focus on mortgage products. Those stocks that are tied more to mortgages are more dependent upon the movement of key interest rates.

A quick side note on what a REIT is… this is essentially a real estate company that has complied with an IRS rule to designate the company as being primarily engaged in the real estate business and furthermore pays out 90% or more of its earnings in the form of dividends to its owners. You can read a more detailed answer in the Investopedia.com article entitled What are REITs?

2. Real Estate is a long-term investment for most individuals… well the same holds true for most companies. Not many (if any at all!) of the companies that are traded publicly are into “flipping” properties. Most companies hold these properties for many years to make money on the rental income. The transaction costs of buying and selling real estate makes it cost prohibitive to buy and sell property on a frequent basis (much like the transaction costs to your stock broker makes it prohibitive to trade stocks rapidly).

Many of these real estate companies have been buying property before, during, and even after the market’s ascent and then into its decline. The effect of such buying can be similar to the concept of dollar cost averaging the purchase of stock. So to think that these companies are at a low, well, we go back to the first item and say it depends on what type of real estate they are involved in and how well that sector is doing. Various companies will have different strategic methods of operation, even within the same industry, leaving some companies in better position than others to take advantage of a soft market (acquisition/buying opportunity) or better guarded against a slowing real estate market.

3. As interest rates climb, the real estate companies’ cost to borrow money increases limiting the amount of real estate investment the companies can do as well as limiting the number of buyers they would have for their existing owned properties. Another excellent article from Investopedia.com points out that there is a strong correlation (link) between the falling stock price of a real estate investment trust (REIT) and a simultaneous increase in key interest rates. The article is titled The Impact of Interest Rates on Real Estate Investment Trusts

The bottom line here is this… before you decide to purchase a real estate-based stock or some stock in a real estate investment trust, do your homework on what type of real estate the company is involved in. Look to see how the company’s stock will be impacted by changes in the interest rates or how that company’s peers are doing in comparison. It pays to find the “best of breed” as Mad Money tv show host and TheStreet.com co-founder Jim Kramer would say… and this is true regardless what the housing market or any other type of real estate market is doing.

As always, I welcome your comments and feedback…

Last month, June 5th to be exact, I posted a new topic to my blog regarding a financial health checkup or something to that effect. I thought it would be fitting, today being Independence Day in the U.S. and all, that I revisit this topic.

Make TODAY the day that you declare YOUR financial independence.

Here are some simple things you can do to start paying down your debt:

1. Spend less money than you make. I know it sounds obvious, but if you don’t spend it all then you are more able to pay down existing debt or save for the proverbial rainy day. Everyone should strive to not live paycheck-to-paycheck. Doing so only puts you in jeapordy of running up your debt in the event of an unexpected expense like car or home repairs, etc.

2. Once a week I want you to forgo something simple that is not a necessity. This could be drinking water from the fountain at work instead of buying a drink from the vending machines, or reading the news online instead of buying a newspaper. Make a conscious effort to think about the purchase when you are reaching for your wallet or purse.

If you catch yourself saying “do I really need this?” or “what could I do instead of this that doesn’t cost any money?” then you have made an excellent step toward saving money. Start by doing this on just one or two days a week - say Monday and Wednesday. This will help identify things in your normal routine without making you feel like you are totally shutting down from your normal lifestyle.

3. Find something in your house/apartment/condo/garage… where ever… that you don’t like, have never used, etc. and put it up for sale on ebay, in the classifieds in the newspaper (but only those publications that are free or cheap to advertise), yard sale, pawn shop, bulletin board at work, you get the idea. But sell it. Don’t give it to Goodwill or charity (unless of course you are unable to sell it and you still don’t want it!). Craig’s List is an excellent online service that you can use if you can’t think of anything else. This item is not meant to punish you but rather to encourage you to simplify your life while simultaneously trying to achieve your goal of financial independence.

4. Consider debt consolidation as a last resort; before doing that, contact your creditors and work out payment plans that don’t involve harming your credit. If you are in significant debt the odds are good that you are regularly contacted by debt consolidation companies that promise to help lower your monthly payments, etc. BEFORE you consider using one of these services do yourself a huge favor, contact your creditors yourself and let them know you want to repay them but you are trying to get out of debt and you need to work out terms that make it easier to pay them back.

Most lenders would much rather you approach them directly and work out a way to repay them with their agreed upon interest rather than going through a debt consolidation company that is seeking a portion of the money from your creditors (that’s how most of these companies stay in business… they charge you nothing but get a cut of the money from your creditors).

5. Look for an extra source of income. Do you know someone who manages a local restaurant or business that needs part time help? Look in the classified section of the newspaper or at the help wanted ads online, around town, etc. Don’t get pulled into anything that requires you to chip in money to “get started” like selling cosmetics as an independent consultant or hosting parties in your home for rubber/plastic bowls and spoons… I think you know which companies I’m referring to!!!

Getting out of debt for good…

It won’t happen overnight, and depending on the amount of debt that you carry it may take anywhere from a few months to many years. But the relief that comes with not worrying about making ends meet is something most people only get to dream about… and there are countless personal finance books out there whose authors thrive on people who are trying to get out of debt. For the most part, there is really nothing wrong with any of these books so I am not writing to bash them. In fact, I highly recommend Andrew Tobias’ book The Only Investment Guide You’ll Ever Need as well as several other authors, like Suzy Orman. Anything from Suzy’s collection of personal finance books is excellent in my opinion.

But you can also find free advice on the Internet or by checking out books from the library. So if you’re in debt, don’t go buy a book… read up on these topics online and at your library.

As always, I welcome your feedback…

Will investors find a lucky windfall this week to start the second half of 2007?! The week ends with the date 7-7-07… a lucky combination if you’re playing the slot machines at a casino. Let’s face it, it’s better than last year having to confront the dreaded 6-6-06.

Let’s see what’s in store for us this week…

Investors should see a relatively quiet week until Thursday and Friday. The markets will be closed Wednesday, July 4th, for the Independence Day holiday here in the US.

July 3rd… Factory Orders are reported by the Dept of Commerce. I wouldn’t expect the stock market to hold it’s breath awaiting this news. The durable goods that were previously reported are a component of this (we simply add nondurable good to the report) so much of this information and what we can expect is already built into the market.

Also on July 3rd are those car and truck sales. As I mentioned in my June 24th blog when I first announced this new weekly series, this report will probably go unnoticed. I believe I contrasted the low importance of these reports with the high importance of the unemployment levels that will be reported this coming Friday, July 6th.

July 6th… Unemployment data is released along with a few reports that coincide with the unemployment data - namely nonfarm payroll levels, hourly pay, and the average workweek in hours. The unemployment data is what you need to watch. The change in the unemployment level should be down slightly in my opinion. I would expect a very modest decrease but I wouldn’t expect to see the stock market rally on this news unless the number is significantly lower than the expectation.

The expectation is that the unemployment rate will be around 4.5%. I think we will see it around 4.3 or 4.4% but even if it comes in a little higher, say 4.6%, you won’t see the market move radically. If the unemployment level came in above 5% you will see some afternoon selling on Friday.

Watch the number Friday morning, if the unemployment level comes in lower you might be able to do some profit-taking if your stock portfolio ticks upward. If the unemployment level is up significantly, you may find some good deals if there is a sell-off. It might be a good time to buy if you have done your homework and find some stocks with a solid balance sheet and have met their earnings expectations consistently. Don’t let short-term economic data news affect your long-term investing strategy!!!

Here’s looking to the week ahead… as always, your comments are welcome…

Let’s recap what happened in the stock market last week:

Last week marked the end of the 1st half of 2007.
The Dow finished the second quarter of the year up 8.5%
The S&P 500 - up 5.8%
The NASDAQ - up 7.5%

Interesting to note, the Dow and the S&P 500 finished this past week roughly around the same place that they started the week (see the charts above that I copied from Yahoo! Finance)

About those economic indicators…

Housing, both existing home sales and new construction, continued to disappoint by posting lower than expected numbers.

Surprises… the market, i.e. investors, HATE surprises!!!

There was a bomb scare in London when authorities found a Mercedes Benz parked in a busy part of town (the articles that I read noted a lot of night clubs in the area) packed with explosives and nails… a reminder that terrorism has not been eliminated and even if it had been wiped out, there are still some crazy people out there.

Final thoughts on last week…

I think some hedge fund managers, mutual fund/pension/portfolio managers, and yes even some individual investors and day traders did some profit-taking this past week to lock-in (realize) gains that they made during the first two quarters of 2007. I had speculated that this might happen in my blog last week titled “The Week Ahead”.

Here’s to a successful second half of 2007, regardless what your investing strategy is… I hope your investments do well as we continue on this journey together. As always, I welcome your comments and feedback…