Expansion Mode

Expansion Mode Fall 2014 Expansion Mode is aimed at providing information and practical, proven tips to help professional and financial services executives expand their business and enhance their brand. We welcome your questions, comments, suggestions, and contributions.   Here’s to a successful 2014-15 for your business!  ...

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How to Write A Book

A Simple Guide for Busy Professionals   By Gene Walden Becoming an author can help promote your agenda, elevate your status in your profession, drive clients to your business, and give you an important edge over the competition. Unfortunately, writing a book can also be a painstaking process that requires many months or years of effort. But if a book burns within you, this article can help you: Get your book started and organized in less than 60 minutes Take the most efficient approach in writing your book Decide whether to write it yourself or enlist the help of a ghostwriter Deal effectively with writers’ block Set up your promotional process ABOUT THE WRITER: Gene Walden is the best-selling author of more than a dozen books on business and personal finance. He is also a sought-after ghostwriter and the founder and director of InvestmentWritingServices.com. Your challenge At any moment in time, millions of Americans will tell you that they plan to write a book. Most will never make it past the first sentence. Others will get off to a slow start, realize how much work is involved and move onto other things. However, a few thousand aspiring authors do, indeed, finish their manuscript each year. Unfortunately only a small percentage of their books ever make the impact they had envisioned. If you have an idea for a book—or a manuscript-in-progress—you can give yourself a better chance of success by learning a few tricks of the trade. Whether you plan to publish your manuscript as an e-book or a printed volume (or both), here’s a process that can help you move your book along smoothly to completion and set in motion a promotional process designed to achieve the goals you set for your book.   Reality Check Authors write books for several different reasons: You have a message, agenda or story you’re burning to tell. Passion is an important component of any successful venture. Writing a book can be a massive undertaking so having a compelling reason to get your message out can be a strong motivating factor in starting and completing your book.  Once it’s published, a book will give you a potent tool to promote your message. You take pleasure in the joy of writing and creating. Chances are you’re going to spend months or even years completing your book, including nights, weekends, and perhaps even some holidays. The time you spend with your book will be much more pleasurable and fulfilling if writing and creating is something you really enjoy. The satisfaction of accomplishment is also an important motivating factor. However, if you’re driven to write a book but don’t enjoy the process of writing, you might consider working with a ghostwriter. But even with a ghostwriter, completing a book can be a monumental undertaking. You want to enhance your career or promote your business. Publishing a book can elevate your status as a professional in your field, as a speaker, as a writer, and as a media source. It gives you credibility with your clients and a tangible edge over your competitors. And it can be the most potent marketing and prospecting tool in your arsenal. That’s why many CEOs, attorneys, financial advisors, health and fitness professionals, and entrepreneurs from a wide range of specialties have used books to promote their careers and their businesses. All of the above. This is the perfect storm for writing a book—if you have a message to share, enjoy the creative process and can use the book to enhance your career or your business. That will make the process much...

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The Purchase Decision

Benjamin Graham and the Power of Growth Stocks, Part 5 in a series   Price is what you pay; value is what you get.                                     — Warren Buffett The volatility of the stock market gives investors a continuous opportunity to trade their stocks at a favorable price if they are able to make their decisions based on value rather than emotion, according to author Frederick Martin of Disciplined Growth Investors. In his book, “Benjamin Graham and the Power of Growth Stocks” (McGraw-Hill), Martin says that investors should answer two questions before they decide the price they are willing to pay for a stock: 1.      What is the true value of the stock? 2.      What is your “hurdle rate”? There are a variety of ways to determine the value of a stock. We explained one method espoused by the late Benjamin Graham in an earlier column. But regardless of the method you use to value the stock, you need to hold true to that value, and let the movement of the market dictate the time or opportunity for you to buy that stock. The second question involves the “hurdle rate,” which is the average annual compounded rate of return you hope to earn from your investment portfolio. That rate can vary significantly from one investor to another. A conservative investor may choose a hurdle rate of 5 percent, while a more aggressive investor may shoot for 8 to 10 percent or more. How should you settle on a hurdle rate? Martin suggests that your hurdle rate should be determined based on your investment requirements and your ability to achieve those objectives. Once you’ve determined the ideal return you would need to achieve your objectives, Martin suggests you add about 2 percent for your hurdle rate to compensate for cyclical market downturns. So if you hope to achieve an 8 percent average annual return, you would set your hurdle rate at 10 percent. And once you’ve set it, don’t change it. “It’s important that you stick with (your hurdle rate) even though changing market and economic conditions will often tempt you to make a change,” writes Martin. “Unless your long-term goals have changed, you need to ignore the market conditions and maintain a nearly cult-like devotion to your hurdle rate.” In his book, Martin suggests that investors determine what the value of a company stock will be several years into the future. That way, when you are determining the price you’re willing to pay for a stock to meet your hurdle rate, you can figure in the price you need to buy the stock for today in order to achieve your hurdle rate in the years ahead. For instance, if you have a hurdle rate of 10 percent, and you determine that a stock will have a value of about $50 seven years from now, you should buy that stock only if you can buy it at a price that represents at least a 10 percent return over the next seven years. At a 10 percent annual compounded rate of return, the price would essentially double over the next seven years. That means you would need to buy the stock at $25 or less today to achieve a 10 percent return over the next seven years (assuming the stock performs true to your projections and reaches $50 a share). “By establishing a set hurdle rate, you are able to make the purchase process a very simple, straightforward decision,” explains Martin. “If you can buy the stock at a price that will give you a return that is equal to or better...

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Mr. Market

The Magic of Mr. Market Benjamin Graham and the Power of Growth Stocks, Part 4 in a series   It’s the magic of “Mr. Market” that gives stock market investors a unique benefit in buying and selling stocks at a favorable price, according to author Frederick Martin of Disciplined Growth Investors. “Mr. Market” is a concept first popularized by the late Benjamin Graham, who was known as the “Father of Securities Analysis.” Martin expanded on the concept of Mr. Market in his highly acclaimed book “Benjamin Graham and the Power of Growth Stocks” (McGraw-Hill). Martin compares the process of purchasing a car with the process of purchasing a stock. “The stock market is more volatile than the car market,” Martin writes. “Thus, the price of a company’s stock can diverge widely from the actual value of the company itself. This is the key opportunity for investors.” Another advantage, says Martin, is that the stock market is open for business every business day. “If you own a car and you decide to sell it, you must first find a buyer, and even then you have no assurance that you will receive your money in a timely manner.” In the stock market, you can sell a stock at any time, with absolute assurance that you’ll get your proceeds in three business days. “The fact that the stock market is continuously open for business presents a wonderful—and often perplexing—issue for investors,” writes Martin. Graham addressed this unique feature of the stock market in his book, The Intelligent Investor:  “Imagine that in some private business, you own a small share that costs you $1,000. One of your partners, named Mr. Market, is very obliging indeed. Every day he tells you what he thinks your interest is worth and furthermore offers to either buy you out or sell you an additional interest on that basis. Sometimes his idea of value appears plausible and is justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes to you seems to you a little short of silly.” It’s those times when Mr. Market is a little too enthusiastic or a little too fearful when investors have the best opportunity to buy or sell their stocks at a favorable price. “If you are a prudent investor or a sensible businessman,” added Graham, “will you let Mr. Market’s daily communication determine your view of a $1,000 interest in the enterprise? Only in case you agree with him, or you want to trade with him. You may be happy to sell out to him when he quotes you a ridiculously high price, and equally happy to buy from him when the price is low. But the rest of the time you will be wiser to form your own ideas of the value of your holdings, based on full reports from the company about its operations and financial position.” For patient investors, that means that good opportunities continue to come along as the market goes through its cyclical fluctuations. Unfortunately, most investors get caught up in the moment and allow themselves to be influenced by Mr. Market. When the prices Mr. Market offers begin to fall, instead of seeing value in the falling prices, investors tend to be influenced by fear that the prices will continue to fall. Instead of seeking out bargains to add to their portfolio, they let Mr. Market get the best of them, and start to sell off their holdings at the lower prices When...

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Margin of Safety

A Margin of Safety Can Limit Stock Losses Benjamin Graham and the Power of Growth Stocks, Part 3 in a Series   …To distill the secret of sound investment into three words, we venture the motto, ‘margin of safety.          —Benjamin Graham Investors consider many factors in building their stock portfolios—diversification, P/E ratios, fundamentals, earnings growth, and timing, among others. But the most important factor of all may be one that investors often overlook—the margin of safety, according to author Frederick Martin of Disciplined Growth Investors. Buying a stock with a margin of safety means paying a favorable price that reduces the down side risk and increases the upside potential. To put it in simple terms, if you think a stock has a value of $10, for example, you would want to buy the stock at a price below $10 in order to give yourself a margin of safety. “Simply adding one more stock to the portfolio for the sake of diversification actually contributes nothing to your margin of safety,” explains Martin in his recent book, “Benjamin Graham and the Power of Growth Stocks” (McGraw-Hill). “Buying stocks without knowing the margin of safety can be tantamount to investment suicide.” It was the late Benjamin Graham who first introduced the concept of margin of safety to the investment world. Graham, an early stock market pioneer who may be best known as Warren Buffett’s mentor, introduced the margin of safety concept in his book, “The Intelligent Investor.” “To have a true investment, there must be present a true margin of safety,” wrote Graham. “And a true margin of safety is one that can be demonstrated by figures, by persuasive reasoning, and by reference to a body of actual experience.” Graham felt that a sufficient margin of safety could turn even a mediocre stock into a good buy. “It is our argument that a sufficiently low price can turn a security of mediocre quality into a sound investment opportunity—provided that the buyer is informed and experienced and that he practices adequate diversification,” said Graham. “For if the price is low enough to create a substantial margin of safety, the security thereby meets our criterion of investment.” Martin, on the other hand, is more interested in buying the stocks of great companies to hold for the long-term, which requires a more comprehensive analysis process. He needs to determine not just what the stock is worth today, but what it will likely be worth several years from now. Then he factors in the average annual returns he wants to earn by holding the stock (“hurdle rate”) and determines the price he would need to pay for the stock today to achieve his long-term objectives.   KEYS TO BUILDING A MARGIN OF SAFETY Martin suggests that investors follow three key rules for building a margin of safety:   1.      Know what you own. 2.      Develop reasonable estimates of future value. 3.      Set a reasonable hurdle rate. Step one (know what you own) means doing the proper due diligence on the stock you’re interested in buying. Research the company thoroughly and determine if it’s really a company you want to own for the long term. Step two (develop reasonable estimates of future value) means looking at the company’s future prospects and projecting a future growth rate to determine the company’s potential value several years from now. Martin, the president and chief investment officer of Disciplined Growth Investors in Minneapolis, prefers to use a seven-year time frame in setting the margin of safety for the stocks he buys. That means calculating an estimated intrinsic value for the...

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