How the Economy Works

Last Thursday I saw a Charlie Rose interview on the CBS Morning Show with one of the top economist in the world, Ray Dalio. Therefore, I wanted to take this venue to share with you a video by Ray Dalio with Bridgewater who manages over $150-billion in global investments. In his brief interview with Charlie Rose, Mr. Dalio noted that he had recently turned 64 and he decided he wanted to share what he has learned in his illustrious investment career with everyone. He admits the economy is complex even for an economist so he put together, at no charge to anyone, a 30-minute video to describe how the economy works in what he believes is the simplest terms possible.

If something like this has your interest I think you will like it. I would not be surprised if some of you find this video to be confusing or overwhelming, and that is okay and you shouldn’t let it bother you. Our economy is complex … and some of you will close this video down in the first five minutes and never give it a second thought. But if you want to understand the economy, this is a good short course on a complex issue in a fairly simple format.

I, personally, think this is a good arrow to have in our quiver today of business tactics for trying to understand what the world is going through … and especially the United States of America. We are living this every day and will be for several years.

Here’s the link: http://ow.ly/tatAv

I sincerely hope you are doing well and are off to a great 2014!

Disclaimer: Sometimes WordPress includes ads with my blog … I do not choose these and I do not receive any compensation from such ads.

© Phil Hoffman 2013. All rights reserved

Manage to Succeed

This touches on basic management principles that apply to most any business whether small, modest, medium-sized, or very large. I am going to break this down into five basic principles, which will address the big picture perspective, as well as some subtleties.

• First, change is good … so don’t be afraid of it. It is constant and you should be aware of it and willing to embrace it with energy and a positive and explorative attitude. Your most important approach is to be a “learner” … willing to reinvent yourself, your management staff, including everything they do so that each of you will be your very best.
• Be a Leader … don’t over manage. Managers tend to control instead of facilitating to make things better. When one “manages” they tend to hold back or keep their foot on the brake rather than the gas. The leader looks at the big picture and seeks to simplify and grow the business.
• Learn and address the facts … then proceed to maximizing the good things and eliminating any negative impacts. Be alert and aware of the general economic conditions that may influence your business whereby you can use the good opportunities to grow and have wisdom to survive and thrive through the bad conditions. This will ensure long-term prosperity and a dynamic environment to lead.
• Focus on integrity and excellence … be consistent … and follow up every detail. Be willing to change when necessary, be open to new ideas, give good customer service, demand quality, keep things simple, empower your key managers and employees to do their jobs, and have a mission to gain a competitive advantage on your competitors. Watch the details to ensure these values and principles are pursued at every level. Your chance of success will increase exponentially.

Disclaimer: Sometimes WordPress includes ads with my blog … I do not choose these and I do not receive any compensation from such ads.

© Phil Hoffman 2013. All rights reserved

Historical Day Today in the Business World …

Today it was announced that Mary Barra would be the new CEO of General Motors. The first woman to be the chief executive in the auto industry. This continues the expansion of women into the C-level offices in major corporations around the country.

The other thing that I think is quite interestng is that to my knowledge, Ms Barra is the first CEO who has climbed to that position after starting in the human resources area of a company. I cannot think of another CEO that has climbed to the CEO level of a successful company that built their foundation on HR. If someone knows of someone, I would appreciate them sharing that information with me.

I wish Ms Barra great success and applaud her for her achievements and willingness to take on this huge task in leading GM forward as they expand their global footprint.

© Phil Hoffman 2013. All rights reserved

Seeing Beyond the Income Statement and Balance Sheet

With yearend approaching I thought I would reissue of my blog dated March 20, 2013 ….

Now that the stock markets are in the spotlight and some are rethinking their investment ideas or options, it is always wise to do your own analysis of a company. Much like when you are analyzing the strength of a company from purely a business perspective, many investors fail to look beyond the highly touted earnings numbers. Actually earnings are often less trustworthy than some realize in that they are open to manipulation and can be deceiving. One area that is important and can tell you a lot about the strength of a company is the cash flow statement.

You’re looking for consistent good business practices

My suggestion is to flip past the income statement to check the cash flow and how it is moving in and out of the business. By checking the cash flow activity you can better understand whether the last batch of earnings generated the money due to consistent good business practices or simply a disguised windfall cash gusher with a “sales pitch” headline.

I strongly suggest a close look at the cash flow activity – both historically and down the road as far as can be reasonably projected. When an investor is trying to buy stocks, they should be prudent in checking on the free cash flow of a company at least once a quarter to see whether it bears any relationship to the net income headlines.

Check for Questionable Sources

Regrettably, the cash flow statement isn’t immune from dubious game playing tactics, either. That is why it is important to take a close look at the components of the cash flow from operations … to make sure that the cash flows are real and reproducible in the approaching quarters, rather than being offset by continual cash outflows that don’t appear on the income statement … such as major capital expenditures, etc. For example, cash flow based on cash net income adjustments for non-cash income statement expenses, e.g., depreciation, can generally indicate favorable results. While an increase in cash flow by delaying payments to vendors (increases accounts payable) … or by underpaying the IRS on taxes … such tactics will eventually surface to hurt an investor later. At the same time, you need to be watchful for decreasing accounts receivables, which may be ordinary in recession times, and you can only do so much to improve collections in such times. And finally, be aware of possible stock-based compensation expense going back to cash flow as possibly being questionable when a company doles out a lot of equity to employees and agrees to use cash in later periods to buyback those shares.

So when I refer to “questionable cash flow sources,” I am referring to items such as changes in taxes payable, tax benefits from stock options, and asset sales … to name a few. I’m not saying that companies listing these sources of cash flow are weak, or that they are engaging in wrongdoings, or that everything is questionable in the charts and/or graphs available are automatically bad news. However, whenever an organization is getting more than 10% of their cash from Operations that are from somewhat questionable or dubious sources, an investor should make sure to check the company’s filings and dig a bit deeper.

A Final Thought

You may be surprised at how many investors or buyers fail to closely check a companies’ cash flow. And this is a mistake … a common mistake. It is important to take time to read past the headlines or romance copy and study a filing, footnotes, etc. and then, you will be in better shape to spot potential trouble areas. Look at it as improving your odds for finding the best-valued stocks or acquisitions that provide you your best ROI.

© Phil Hoffman 2013. All rights reserved

Today’s Jobs and Economy – Part 8 – the Economy

This is the eighth and final edition of my eight part series on “Today’s Jobs and Economy.” And to be perfectly candid I have been struggling with writing this final blog. Why? Well, because I don’t want to be negative or political … and looking forward things are very concerning while the stock market and media continue to indicate things are moving upward and doing well … and I’m not sure that’s the case. There are some strong economic issues right on the horizon that must be addressed … such as raising the debt limit in October, the second round of scheduled sequester cuts looming, the Syria issue, President Putin becoming a factor in the world within the last ten days, jobs / unemployment, changing of the workforce, interest rates rising, household confidence is fragile going into the holiday season, etc. Furthermore, keep in mind that the debt ceiling was reset at $16.699 Trillion on May 19.

To address my dilemma of stating the current state of the economy I am listing three links to current articles on the economy that are much better than my personal pontifications. Here they are:

• Wall Street Journal – The Economy Losing Its Cushion – http://online.wsj.com/article/SB10001424053111903591104576468462275889544.html
• Reuters – U.S. Retail Sales, Wholesale Date Point – http://www.reuters.com/article/2013/09/13/us-retail-sales-idUSBRE98C0IA20130913
• NY Times – Fed Prepare for Change … – http://www.nytimes.com/2013/09/13/business/economy/fed-prepares-for-change-in-policy-and-in-policy-makers.html?ref=economy&_r=0

Let me close with a trivia quote I believe was by Peggy Noonan in her book “When Character was King” that went:

“Ronald Reagan once explained the difference between a million, billion, and a trillion as follows: A million dollars is a stack of $1,000 bills 4-inches high. A billion dollars is a stack of $1,000 bills the length of a football field. A trillion is a stack of $1,000 bills 54 miles high.”

What comments would you like to share on the economy?

© Phil Hoffman 2013. All rights reserved

Today’s Jobs and Economy – Part 7 – America’s No. 1 Issue

My last two blogs in this series will have to do with the economy. And with the recent passing of the Labor Day weekend, I thought I would use this Part 7 to address a significant part of our economy. One that is touted as America’s No. 1 issue … joblessness and unemployment.

Joblessness and high unemployment have become an economic fact that is part of the new economy whether we want to believe it or not. There are many financial implications due to the widespread high unemployment, and frankly, it is a personal crisis for those that are unemployed or underemployed. Being gainfully employed is part of one’s character and feeling of worth; therefore, it is important and should be a focus of our country to address aggressively in a positive worthwhile manner.

Having work is not only a means to a paycheck … it is much more. God made us to work in his garden … we are meant to be workers. When you work, you serve and take part in your life, in your community and in the economy of the nation. In other words, you are integrated into the daily life of the nation. There is pride and satisfaction in doing work well, being part of a team, and learning a skill or craft or an art. Work helps define who you are … who we are as a nation.

In performing your skills or duties you receive money that you can use how you choose to and in accordance with your wants and desires. Having a job allows you to feel the satisfaction of supporting yourself and your family. Work allows you to grow, to help society, and to be part of growing and continuously renewing our civilization.

Work provides purpose … stability … integration … a shared mission. Therefore, to be unable to work … unable to find meaningful employment or hold a job … is in a sense a kind of upheaval or tragedy for many.

There are over 11.5 million registered unemployed in America right now … much more when you include those who have been unemployed so long they can’t get assistance and aren’t “counted” any more … or those who have simply given up … or those who are significantly under-employed … or those who have had to take low-wage part time work. These “uncounted add-ons” inflate that 11.5 million number by more than 50%.

This is the reason jobs and employment is the “stated” No. 1 issue in America’s domestic life. Wouldn’t it be wonderful if it was treated and addressed with vigor as the real No. 1 issue in America … where the feeling would radiate from our governments and political leaders whereby there was a “can-do” spirit that everything is possible, businesses were helped and encouraged to thrive, and a “we can and will get it done” attitude and commitment from our leaders!

What are your thoughts and ideas on America’s No. 1 issue?

How would you address this issue differently?

© Phil Hoffman 2013. All rights reserved

Today’s Jobs and Economy – Part 6 – Creative’s

In the previous blogs in this series, I have touched on Blue Collar Workers, White Collar Workers, Sales People, Private Business Ownership, and Personal Investors. Which covers a wide range of the worker market? In this blog, I add a twist with a fairly new category that I first learned about in August 2012 … the Black Collar Worker.

In the interest of keeping it simple, I am going to share the following from my fellow blogger Philip Cummings …

“There is a new wave of black-collar workers that have become part (of) today’s workforce and will be the workforce of the future. As economist Philip Auerswald wrote:

Black-collar workers are easy to find. They crowd coffee houses with their laptops. They create prototypes of their inventions on 3-D printers at San Francisco’s TechShop, raise money for their projects on Kickstarter, and share their creations at Maker Faire events around the country. They are the work force of the future, powering change in the present.

Black-collar workers are after purpose, not pensions.

They’re not seeking lifetime employment; they’re seeking lifetime learning.

They don’t have secretaries or bosses; they have teammates.

They don’t punch in at 9, and they don’t time out at 5. They connect, create, contribute, and collaborate whenever and wherever it makes sense.

They try to minimize their spending in order to maximize their flexibility.”

The purpose of this blog series is to generate thought about today’s jobs and the economy. Since the “black collar” is somewhat of a new genre for many I felt compelled to include it in this series and felt it fit best in the “Creative” category.

In addition to the BCW we might consider artists, musicians, and other areas that are becoming more prominent as the new economy continues to evolve.

What ideas or areas come to mind for you when you think of “Creatives?”

What are your thoughts or suggestions?

© Phil Hoffman 2013. All rights reserved