Week Six News Article Summaries
Post Lehman Brothers Stock Market Crash Discussion
In 2006, Brothers David and Tom Gardner started a community database to help consumers choose stocks. Developing the concept of longer-term investments over extended periods, versus the forecast method based on timing and risk. Motley Fool, the name chosen for the firm, asked staff to interview the firm’s top 18 investors to discuss lessons learned from the demise of Lehman’s Brother Stock at the five-year anniversary mark.
Seth Jayson has learned to invest a little bit each month into the best companies and has stopped looking for quick fixes. Morgan Housel, discusses his lessons: cash= options, and debt= loss of options. Another point is to consider purchasing more when the stock crashes and to view risk as a gift. The forecast profession is deceptive, and to recognize that the market has recovered in four years. David Gardner predicted the fall of Lehman Brothers six months prior to the fall, which reinforced his methods of helping investors, succeed in the market. LouAnn Lofton recommends separating emotion form investing, to think long term and purchase stocks at lower rates during the crash. Alyce Lomax indicates her fears that people have not learned from the crash and that history has a habit of repeating itself. Alex Dumortier, who is CFA, explains his perspective of considering the unimaginable as possible and to prepare for uncertain measures. Jim Mueller recommends his tool for success has been to keep a journal. Stating his process is to analyze motivations and trends before choosing to purchase stock. Charley Travers firmly reinforces investing in companies with cash rich balance sheets and strong free cash flows. Matt DiLallo took a time out from the market post-crash and looked for longevity instead of timing, stating “timing in the stock market is a fool’s errand” (Motley Fool Staff, 2012, n.p.). Chuck Saletta shares his process of choosing based on a solid balance sheet. Isaac Pino believes that Main Street has learned and suffered post-crash but not Wall Street, claiming that banks are still carrying too much debt and leverage. Patrick Morris supports what he learned during college studying finance, that “stocks are priced to be the present values of future cash flows,” and supports rate of return for stocks yielding more than savings (Motley Fool Staff, 2012, n.p.). Frank Thomas believes in planning and building a buying list while maintaining enough cash to support daily living costs. John Divine stresses the need to remain calm and keep the long-term goals in the big picture. Joe Tenebruso viewed the crash as an opportunity to move capital into strong companies and developed a new strategy he named Tier 1. Jake Keator learned that investing takes time and to be patient. Anders Bylund recommends the approach of keeping 10% of retirement liquid. John Reeves expresses that in a down market good companies like “Starbucks and Apple,” are misrepresented in the stock market but will bounce back in time (Motley Fool Staff, 2012, n.p.).
In conclusion, the firm of Motley Fool explains skills learned to excel in the stock market: reinforcing long-term goals with companies in good financial shape, and consider purchasing those companies’ stocks during down markets to maximize return.
2008 Crisis Still Hangs Over Credit-Rating Firms
This article has some direct links to business math principles because it addresses some concerns from the 2008 financial crisis. In 2008, some financial guru(s) compared it to the great depression, revamping the name to the “great recession” (Krantz, 2013, n.p.). During this time many major corporations, financial mainly, went into some sort of bankruptcy and got a bail out from the government. In this article the author addresses how some credit rating agencies were excusing poor credit ratings and banks allowing approval of risky mortgages when they should not have. In 2008 the agencies’ ratings played a critical role in the marketing of risky mortgage-backed securities, such as collateralized debt obligations. Investment banks had also bundled collections of individual mortgages, which alone can be hard to trade, into baskets that could be
bought and sold like any bonds. These financial instruments were sold to investors but to sell them, the investment banks relied on the receipt of stellar ratings from the agencies to tempt investors starved for return. The author questions whether or not these companies have learned from their mistakes to avoid making the same mistakes again. This article links to this week’s objectives of applying business principles to make finance and operational business decisions because, in these aforementioned instances, credit rating agencies did not do that. They did not follow the basic math principles of business and instead took a road that surpassed logic and went more into greed. By applying the business math principles these agencies would have known that the risk was too great and would not have approved such deals because of the severity of the risks.
Obama to Use Lehman Anniversary to Cite Progress * In this article, the author discusses President Obama’s progress on the economy. He is using the fall of the Lehman Brothers to show how much progress he has made in the economy. He is using certain math principles to try to help America get out of the financial crisis. He is trying to create a budget system but is clashing with Congress on the decisions he is making. President Obama argues that a better capitalized and regulated financial sector will give more credit. This will in turn help fuel the economy. According to the article, the federal government has paid back the debt that the accrued during bailouts of 2008. According to the Pew Research Center poll, the public is not convinced that the economy is fixed. The unemployment rate is at 7.3%, which is high. The article states this high rate is because some people have left the workforce and stopped trying to join it again. Sen. Elizabeth Warren, a Massachusetts democrat stated, “We should not accept a financial system that allows the biggest banks to emerge from a crisis in record-setting shape while ordinary Americans continue to struggle” (Kuhnhenn, 2013, n.p.). Obama wants to continue with his budget and use part of the $700 billion that has been allocated to help bail out other companies. The public accepted this a general success. The end of the article states that the federal government will bring in more revenue this year but still has $700 billion budget deficit. There is a spending problem, and it must be addressed. As a business it has to have an income through
goods, sales, etc. to succeed. This needs to exceed the liabilities and expense. In the end, this is not what is happening. * The DOW has a Good Week
The Dayton Daily News reported that the DOW Jones industrial average had one of its best week’s this year, rising 75 points (0.5%). The speculation for this positive performance included reports showing both inflation remaining stable and consumers purchasing more. Another helpful act came from Intel’s stock rising 66 cents (3%). Analysts found that reports varied on how the economy performed: some showed that although Americans purchased more items like cars and electronics, major clothing retailers cut profit projections for the remainder of the year because of lower sales. Wholesale prices, however, did not grow much, lending evidence that inflation is relatively stable. Investors stated that trading will likely change drastically after the Federal Reserve’s policy meeting on September 17-18, citing that they will decide plans for the bond purchasing program and how much they will cut back spending on those bonds.
This article relates to the course objective quite directly. This week’s learning objective ties this course together, taking business math principles and using them to make operational decisions. The DOW Jones shows businesses how they stand against competitors and reveal areas for potential investment. Many corporations have investment advisors watching the stock market and advising when and what to buy or sell. Business leaders watching and analyzing the DOW Jones not only reveals insight into how individual businesses perform but also shows them the prices in certain markets. This is a useful tool for investors to know where to put their money, buying stocks when prices in one market are low and selling stocks in another market where prices have peaked. Your Money: Keeping retirement on track takes focus
The main focus of this article was how the financial crisis five years ago has made it harder for people wanting to retire. People today when they want to retire have to take into consideration that in order to retire today there must be a savings in place. According to a retirement survey done by
PNC Perspectives people that originally planned to retire between the ages of 60 to 62 will have to work longer than originally expected (Tompor, 2013). According to the survey, “About 43% of those who are not yet retired and still working said they have a pension; but about 64% of those who are retired have a pension”(Tompor, 2013). This article also shows interviews done with Thomas Palka and Connie DeMetsenare. Thomas is a self-employed business man that does not currently have a pension plan. Thomas at the age of 52 has no plans on retiring any time soon. He knows he has to continue to work in order to have income coming in. Connie is 48 and current is investing in a 401(k) plan through her employer. He and her spouse paid cash for their current house they live in to eliminate being stuck paying a mortgage they may not be able to afford once they retire. Connie plans to retire at the age of 67. Based on this article many aspects can stop a person from retiring. Those aspects include not having a pension or 401(K) plan in place, financial crisis that can affect retirement funds, and having too much debt. To live comfortably a person must have a savings plan in place and eliminate their current debt.
AP, A. (2013, September 14). Dow has good week. Dayton Daily News. Retrieved from http://www.daytondailynews.com/news/business/dow-has-good-week/nZwx2/
Krantz, M. (2013, September 13). 2008 crisis still hangs over credit-rating firms. USA Today. Retrieved from http://www.usatoday.com/story/money/business/2013/09/13/credit-rating-agencies-2008-financial-crisis-lehman/2759025/
Kuhnhenn, J. (2013, September 14). Obama to use Lehman anniversary to cite progress. USA Today. Retrieved from http://www.usatoday.com/story/money/business/2013/09/14/obama-lehman-anniversary/2813687/
Motley Fool Staff, (2013, September 12). Five Years After Lehman: Investing Lessons from the Financial Crisis. Retrieved from http://www.fool.com/investing/general/2013/9/12/5-years-after-lehman-investing-lessons-from-the-fi.aspx?source=ihpsitth0000003&lidx=1