There are thousands of publicly traded companies.  If you want to get into stock market investing, or if you’re looking to improve your performance in the stock market, how do you know which stocks to buy?  Any one stock has dozens of indicators that each tell you a little piece of how that company is doing.  Over the decades many theories of investing have been put forward in an attempt to make sense of all the stock market data that is available.  One particular theory that makes a lot of sense to me is value investing, which looks for stocks that are currently trading for less than the value they should have.

The Little Book that Beats the Market, by Joel Greenblatt, attempts to make value investing extremely easy by turning certain measures of a stock’s performance into a formula.  The book lays out the formula by which any investor can find good companies that are priced low.  In order to find good companies, we look at the stock’s earnings.  The formula lists all stocks in order of earnings, assigning a numerical rank to each one.  In order to find companies that are priced low, we look at a stock’s price-to-earnings ratio.  A lower ratio indicates a better bargain.  The formula again lists all stocks in order of price-to-earnings ratio, assigning a numerical rank to each one.  The formula then adds the two rankings of all the stocks and lists them in a master ranking.  Those with the lowest ranking are the best companies at the lowest price.

There are of course, many, many other measures of a stock’s performance.  And companies with star power, like Microsoft or Coca-Cola, won’t be found on this list.  But sometimes having too many things to look at prevents us from taking any action at all, and narrowing our field down to earnings and price-to-earnings ratio can help to focus on the things that really matter.

This article originally appeared in the December 26, 2007 edition of the Greenhorn Valley View.

Here’s a story of a borrower who was turned down by banks and a credit union, but who got funded on www.prosper.com

http://blog.prosper.com/2007/12/28/refused-by-credit-unions-yes-by-prosper/

What I like most is that she’s paying back the loan!

EverNote is a shareware note-taking application.  If you act quickly, you can get a free copy of the portable version of this software.  GiveAwayOfTheDay is giving it away today only.  Check out http://www.giveawayoftheday.com/evernote-portable/ for more details

If you haven’t yet discovered the beauty of note-taking applications, now is a great time to start.

A while back prosper.com had forums with some pretty wild discussions in them.  Prosper decided they didn’t like some of the things being said on there.  They kicked some users out, changed some words in some posts so they didn’t say what the author intended to say, and made various other restrictive changes.

As you might imagine, this ticked off quite a few users.

Some users decided to start their own forums at www.prospers.org  This site is completely unaffiliated with prosper.com, and is completely unmoderated.  There is a lot of negativity on www.prospers.org.  You need a strong stomach, but if you can filter the large amounts of dross, you’ll find large amounts of gold, too.

This year we had an unexpected debt come up: $2600.  Other than mortgage debt, we don’t have any other debt, so this is a large amount for us.  We paid it off in seven months, which is good.  Really good, in fact.  I’m pretty proud of the way we pulled our money together to get this debt paid off quickly and with as little interest charges as possible.

Nevertheless, a couple of questions are haunting me.

What were we going to do with that money if we hadn’t incurred the debt?  I’m sad to say, probably nothing.  We probably would have lost that money through the cracks.  Cracks like extra meals out, more expensive meals in, extra do-dads and trinkets for the kids or ourselves.  None of which would have any meaning or purpose.  (Contrary to what you might think if you observed my dining habits, I don’t really think eating out enhances our lives.)

If we hadn’t incurred the debt, and we didn’t lose the money through the cracks either, what could we have done with the money?  I think we could have done a lot.  We could have taken a fairly nice vacation in the mountains, saved for the kids’ educations, made some repairs to the house or car we’ve been meaning to get to, or done something meaningful for charity.  I think the possible meaningful uses for that kind of money are legion.

Here’s the million dollar question.  How many $2600 blocks of cash do we regularly throw away?  And by extension, how many great and meaningful things are we not doing because we throw that money away?  As our experience paying off the debt shows, it really isn’t that hard to come up with that kind of money.  We weren’t hurting because of the debt.  But I think we may be hurting ourselves by not being more deliberate with our money.  This year, I’m going to look for another $2600 in our spending, and redirect it to something I can be proud of.

This post originally appeared in the December 19, 2007, edition of the Greenhorn Valley View.

I got a call from a friend yesterday. His daughter was stuck in a ditch full of snow. He was a long way away, could I possibly get up there and help her out? Of course.

As I was driving up her road, I could see her car in the middle of the road, not in the ditch. She was standing there to explain she dug herself out and to thank me for at least trying to help. I started to pull away and went sideways right into the same ditch she just came out of.

The irony was not lost on me. Getting stuck in the snow while trying to help somebody else out is pretty funny. I have a van and she has a really tiny car so I knew she wouldn’t be able to pull me out.

I called a friend with a 4-wheel drive diesel dually, the only person I could think of who would be able to pull me out. He arrived and pulled in front of me to pull me out. But while I was bent over hooking up the rope, another car started coming down the road toward us. My friend with the truck tried to pull over - and went straight into the ditch in front of me.

How could this possibly get any worse? The oncoming car that my friend pulled over for was driven by a guy who - how shall I say it - would give Ebenezer Scrooge a run for his money. He just laughed at us! and kept on driving!

To make a long story short, my friend’s big truck got us both out of the ditch, and everybody’s fine. But what an ironic string of events. That’s the kind of comedy of errors they put in movies.

A question came to me while shaving today (questions have a way of doing that).  To what extent should we depend on others, to what extent should we be self-sufficient, and to what extent should we be helping others?

Depending on others for help is a virtue.  It teaches you not to place your hope in your own strength.  It teaches you that we are all connected and we all share one destiny (in this life, anyway).  But there’s also something unsatisfying and unsettling about leeching other people’s resources.  If they weren’t using that money for you, they could use it for something else.

Providing for yourself and your family is a virtue.  A primal urge for a lot of teenagers (and 20 somethings, and 30 somethings) is to cut the apron strings that tie them to their parents.  They want to be independent, to provide for themselves.  Society sees independence as a good thing, because then somebody else won’t have to provide for you.  The danger with self-sufficiency is forgetfulness.  It will be very easy for you to forget where you came from and that there are others who have not yet come as far as you have.

Helping out others in need is a virtue.  If you want to feel warmer this winter without turning up the thermostat, just give away a bunch of stuff to somebody who needs it.  They will be grateful, perhaps being able to do things they wouldn’t have done without your help, and you will get that feeling of nobility that comes from doing good without the hope of reward.  The downside of helping out others is arrogance.  You, in your beneficent magnificence, have condescended to provide assistance to those poor saps who are too stupid to do it for themselves.  This perspective is perhaps the most insidious of them all, so watch out for it.

Where are you on the spectrum?  Do you like where you are, or do you wish you were somewhere else?  Where is the best place to be, and how can you get there?

This post originally appeared in the December 12, 2007, edition of the Greenhorn Valley View.

What would you do if someone handed you cash in an envelope? Would you laugh? Would you stare, dumbfounded, in disbelief? Would you ask for a little of what they’ve been drinking?

What would you do if they told you you had to use that money to help somebody else? Would you keep the money for yourself? Would you give it to someone in need? Would you try to grow the money so you had more to help people with?

A church in the Greenhorn Valley pulled a stunt like this last Sunday. Table Mountain Church gave each family an envelope with cash in it, and that cash is to be used to bless somebody else. That’s it. Those are the only instructions. The possibilities are endless, of course. Some might buy hats and mittens for children without any. Some might pre-pay the next ten customers down at the coffee shop. Some might bring meals to those too sick to cook for themselves.

I’ve heard talk of paying someone else’s utilities, of taking a neighbor out to eat, of buying footballs and Barbies.

You might be wondering, as I was at first, if the church has lost its marbles. Giving money away! Are they crazy? They’ll never see that money again. Money that could be used for “ministry” expenses is gone, out the door. Then, of course, some church-goers may be less than ethical and just keep the money for themselves. Now who is blessed? Not the church, and not a needy neighbor, either.

It turns out Table Mountain Church doesn’t want that money back. Their goal is two-fold: to be a blessing to the community by giving themselves away, and to teach people the joy of giving, so that they might continue to give. So be on the lookout for random acts of kindness in the community this week. Please send me any stories you hear of, I’d love to collect a big pile of these stories, and maybe publish a few.

This article originally appeared in the December 5, 2007, edition of the Greenhorn Valley View.

Everybody could use a little www.freerice.com

freerice.com’s twin goals are the same as anybody’s, they want to improve your vocabulary and feed the hungry. What a fun idea! My high score is 43. Post your scores in the comments.

Sorry I’m a little late with this!  This is my most recent column, which was in last week’s paper.

Diversification is a method of spreading out your investment risk. Most people understand the concept of diversification, even if they’re unfamiliar with the word. Diversification means not putting all your eggs in one basket.

Let’s say you’ve found a company whose stock you’d like to buy. You load up on as much stock as you can, but in spite of your thorough research, the price of a share sinks dramatically, and you lose most of your investment. The risk of loss is one of the greatest risks in investing, but diversification allows us to limit our exposure to loss. Now let’s assume you have found ten companies you would like to buy. You buy as many shares as you can, but this time you buy an equal amount of the ten different companies. If one of those companies goes bad, you’ve only lost that one small slice of your investment pie. And if your other shares have gone up, they may make up for any loss.

There are many ways to diversify. You can diversify across asset classes. This would mean buying shares of large companies and small companies; buying shares of companies that pay a dividend and companies that don’t; buying shares of companies in different industries; and even buying shares of companies in different countries.

You can also diversify across security type. Most investors have some amount of stocks and some amount of bonds, for example. Others invest in real estate and precious metals. Some even include more exotic investments, like art, old cars, or foreign currencies. If any one of these investments should lose money, it’s likely that another investment is making money.

While diversification doesn’t guarantee positive investment results, it does lower the risk of loss. In short, don’t put all your eggs in one basket. Diversify.

This article originally appeared in the November 28, 2007, edition of the Greenhorn Valley View.