HP Buys Palm

Hewlett Packard’s purchase of Palm for $5.70 per share should be a case study in corporate mergers. The bottom line question is this: Is Palm worth $1.2 billion?

Worth is more than just what’s left over after subtracting liabilities from assets. There’s the company’s prospects for the future. There’s the intangible of the worth of the workforce. In Palm’s case, neither of this appears to justify the price.

The company has posted $430 million in losses over the last 4 quarters. It has $202 million in cash (a $1.25 per share) but at the rate it is bleeding cash, even that is iffy.

The company’s smartphone business has dropped off and there does not appear to be solid prospects of recovery. As for the workforce, chief competitors such as Apple have been gaining.

Some observers place the worth of the company more near zero that $1.2 billion. Sieman’s and Motorola paid suitors to take their money-loosing cell phone operations off their hands. Will Hewlett Packard someday do the same?

More on Budgeting

John Maxwell wrote, “A budget is people telling their money where to go instead of wondering where it went.” Everyone ought to budget – everyone!

Cash Equivalents

These are short-term investments that are so liquid that they can be readily cashed in. The downside risk is negligable. These include bonds that are almost at the end of their maturity. Examples include money market funds and treasury bills.

These are included in cash on the Statement of Cash Flows.

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For my accounting reference book, I use
Wiley GAAP 2010: Interpretation and Application of Generally Accepted Accounting Principles (Wiley Gaap (Book & CD-Rom))

Jordan on Success

The minute you get away from fundamentals - whether it's proper technique, work ethic, or mental preparation - the bottom can fall out of your game, your schoolwork, whatever you're doing.

- Michael Jordan

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Photo cc Steve Lipofsky.

The Entitlement Mentality

Both men are against the entitlement mentality. Too many people figure that they are entitled to government to take care of their needs – and not just poor people, either. Pensions are a huge national liability and it is not certain that they will be collectable with the time comes.

People have to take charge of their own finances and their own futures.

It's significant that their book was written before Obamacare passed last year.

Synergize

This means several different things working together and the whole being greater than the sum of the parts. Covey’s chapter on synergy is a bit hard to understand. I think he means all of the habits working together. He talks a lot about different people working together on something.

The Moral Perfection Project

In 1733 Benjamin Franklin began a project for self improvement. He listed 13 virtues he would work on. He thought this a managable list and so it helped him to focus on what he thought was important. This is his list together with his definitions of virtue.

Temperance: Eat not to dullness; drink not to elevation
Silence: Speak not but what may benefit others or yourself; avoid trifling conversation.
Order: Let all your things have their places; let each part of your business have its time.
Resolution: Resolve to perform what you ought; perform without fail what you resolve.
Frugality: Make no expense but to do good to others or yourself; (i.e. waste nothing).
Industry: Lose no time; be always employed in something useful; cut off all unnecessary actions.
Sincerity: Use no hurtful deceit; thing innocently and justly, and, if you speak, speak accordingly.
Justice: Wrong none by doing injuries, or omitting the benefits that are your duty.
Moderation: Avoid extremes; forbear resenting injuries so much as you think they deserve.
Cleanliness: Tolerate no uncleanliness in body, clothes, or habitation.
Tranquility: Be not disturbed at trifles, or at accidents common or unavoidable.
Chastity: Rarely use venery but for health or offspring, never dullness, weakness, or the injury of your own or another’s peace or reputation.
Humility: (this last was added at a friend’s suggestion. – JL)

His project aimed for success in this world and not so much as exaulting his soul in the next. He strove for the practical.

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Pictured: Benjamin Franklin at his regular day job, working in the printing office.

More information: Wikipedia, Franklin's Autobiography

Prepayments Are Bad

Prepaying things like college tuition and burial expenses are not good investments. The rates of return do not justify the investments. Better to invest the money in mutuals and use that to pay expenses later. Making arrangements in advance are good; it is just that prepaying those arrangements that are bad.

Use of Statistics

Here’s a few examples of using statistics in business:

Quality Control
Say you have to inspect a shipment with a large number of items in it. Instead of inspecting each and every item, you select a few at random. Statistics can help you determine how many to select and how well your sample reflects the whole shipment.

Market Surveys
This is like opinion polling.

Demand for Products
Statistics can help determine what factors make up demand and how important each factor is. Example: selling ice cream. Factors: price point, weather, average income, number of children.

Financial Auditing
CPA’s exam random transactions and use statistics to project these to the whole.

Product Testing
Statistics are used to determine if results are caused by products or by other factors.

I’ve seen statistics over-used, too. Overall, it is a good tool to have.

Sarnoff on Success

A career, like a business, must be budgeted. When it is necessary, the budget can be adjusted to meet changing conditions. A life that hasn't a definite plan is likely to become driftwood.

- David Sarnoff

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How Government Makes More Problems

According to Trump and Kiyosaki, in the 1930’s FDR rolled out social security which is a huge problem for us today. In the 1960’s Medicare and Medicaid came out and now these, too, are huge problems today. In 1971, the dollar went off the gold standard and the falling dollar is another huge problem today.

Many of the economic problems that so bedevil us today are caused by government programs that were supposed to be solutions to problems. They just kicked the can down the road. Now the problems are much worse.

Seek Understanding

Interesting thought: we listen and read by channeling information through our own frame of reference. Covey recommends “empathic listening” by changing perception away from first person frames of reference.

This includes taking the time to talk to people one-on-one.

China's 1st. Quarter Growth Is Great

While western economies are reeling, China’s economy appears to have turned the corner. Its GDP grew 11.9% in the first quarter reversing poor numbers from last year.

I see two themes in today’s reporting.

1) Western economists want China to export some of that growth to the rest of the world by increasing the yuan’s exchange rates. Fat chance.

2) Fears of inflation due to the hyper economy. China, unlike Malaysia and India, has not raised interest rates to cool their economy.

They have kept a lid on credit, however. The government cut the 2010 quota for new bank lending 2.1 trillion yuan to 7.5 trillion.

China is now on track to pass Japan to become the world’s second largest economy.

Mobile Homes

He’s against them – because they loose their value like cars. His suggests renting instead of buying a mobile home.

This works only so long as rent payments for an apartment are lower than mortgage payments. In my own opinion, a better way to look at this is to estimate the time one lives in the mobile home and then compares the total amount of the mortgage payments versus the total amount of the rent payment for the same period. An added wrinkle is to determine if the mortgage interest and the real estate taxes throw you over the threshold of itemizing taxes. The taxes you save because of itemizing go in favor of mobile homes.

Conclusion: he believes mobile homes are a bad choice; I believe that it depends.

Government Policies in a Recession

What can governments do to improve economies in a recession?

One tool is monetary policy. It can increase the supply of money to increase aggregate demand. In a recession money is not flowing enough to cause inflation but as the economy heats up, then that becomes more possible.

The other tool is fiscal policy. Government can run a deficit. It can do this either two ways: a) spending more money on targeted areas of the economy, or 2) tax reductions. The problem there is that the government then has to borrow money in order to cover the deficit. That means that money is turned back over to the government in exchange for notes.

This indicates a consequent reduction in government operations to cover the costs of its economic management policies.

Steinbeck on Success

People need responsibility. They resist assuming it, but they cannot get along without it.

- John Steinbeck

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Money Can Not Solve Poverty

No it cannot. I recall that during the period when welfare spending was riding high, over a trillion dollars was spent. If that money had been given directly to the poor, this was enough to make each of them rich. All that spending really accomplished was to create a culture of poverty: government bureaucrats and recipients alike enjoying careers based on this program. What the poor really need is financial education. – And jobs.

Think Win-Win

An organization works better if everyone is cooperating. He goes into the Emotional Bank Account. Trust comes from past positive actions. Win/Win comes from building trust. He compares this to compromise. Compromise comes from Loose/Win and Win/Loose scenarios.

He talks about the Win/Win Agreement. These agreements have to have 5 explicit elements:

1) Desired results
2) Guidelines
3) Resources
4) Accountability
5) Consequences

With this habit, he shifts from personal stuff to human interaction.

Franklin on Social Networking

Benjamin Franklin started one of the first professional networking clubs in America in the fall of 1727. Think of today's Kiwanis Clubs or the Rotary Clubs and you get the idea of his "Leather Apron Club". His club was informally known as "The Junto". To help discussions, he wrote this guide:

1. Have you read anything lately that is remarkable or suited to be communicated to the Junto?*
2. What new story have you lately heard agreeable for telling in conversation?
3. Hath any citizen in your knowledge failed in his business lately, and what have you heard of the cause?
4. Have you lately heard of any citizen’s thriving well, and by what means?
5. Have you lately heard how any present rich man, here or elsewhere, got his estate?
6. Do you know of any fellow citizen who has lately done a worthy action deserving praise and imitation? Or who has committed an error proper for us to be warned against and avoid?
7. What unhappy effects of intemperance have you lately observed or heard? Of imprudence? Of passion? Or of any other vice or folly?
12. Hath any deserving stranger arrived in town since last meeting that you heard of? And what have you heard of his character or merits? And whether you think it lies to the power of the Junto to oblige him or encourage him as he deserves?
14. Have you lately observed any defect in the laws of your country of which it would be proper to move the legislation for amendment?
15. Have you lately observed any encroachments on the just liberties of the people?
16. Has anybody attacked your reputation lately, and what can the Junto do toward securing it?
17. Is there any man whose friendship you want and which the Junto or any of them can procure for you?
20. In what manner can the Junto or any of them assist you in any of your honorable designs?

* reworded by myself – JL

In this internet age, some of these topics could be used for Twitter and Facebook, too, though these topics seem to me to be mostly for local and in-person meetings.

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Pictured: Benjamin Franklin at his regular day job, working in the printing office.

More information: Wikipedia, Franklin's Autobiography

Life Insurance

Whole life insurance is one of the worst products available. Do not buy life insurance with a savings plan feature. Life insurance is for insurance in case you die. Period. Riders that address payments under various contingencies are okay.

Do not buy life insurance with cash value, no matter how it is disguised. Ever.

There! I cannot make it any plainer than that. Dave's book gives some details.

Types of Franchises

There’s three of them:

1) Distributorships. Gives the right to sell products.
a. Example: Auto Dealers.

2) Format Systems. Gives the right to operate a business using the franchisor’s name and methods.
a. Example: Fast food restaurants.

3) Manufacturing or processing arrangements. Uses franchisor’s formula or ingredients to make and distribute products.
a. Example: soft drink bottlers.

A franchise can come with of a territory or just one location. Franchisees can pay fees for advertising, overhead, and so on. All of this is spelled out in the franchise contract.

Lombardi on Success

The quality of a man's life is in direct proportion to his committment to excellence, regardless of his chosen field of endeavor.

- Vince Lombardi

Mutual Funds

They say that they do not invest in mutual funds because the funds’ expenses are not disclosed. For myself, I think that mutuals are a way station on the path to building wealth. It is a place for ordinary people to get their start. And mutuals give a rate of return that is higher than bank accounts.

Once one builds a pot of money that one can afford to loose (at least partially), then I think that one can “gamble” on a wise, active investment.

Put First Things First

In other words, make priorities and don’t get distracted.

Time management issues have always left me discouraged. It seems that I never can complete a checklist. Covey recognizes this and talks about managing yourself instead of managing time.

This is where his famous Time Management Matrix comes in. He has two columns: Urgent and Not Urgent. He has two rows: Important and Not important. Then it becomes logical to concentrate on the first row and then move on down to the second one. Spending more time on the Not Urgent/Important quadrant will shrink the Urgent/Important one.

Job Hunting in the Facebook Age

Some odd things are happening in the job hunting this year.

One applicant was rejected because after “friending” the manager on Facebook, the manager saw “a semi-nude picture” of him or her. Now, to be sure, people need to be circumspect on Facebook but what is “semi-nude”? - Wearing a swimsuit at the beach? - Shorts and a halter-top in the backyard?

A big no-no is to describe the job you’re applying for as “your dream job”. This means that you’re not sincere. - As in not honest. - As in, “get lost.” So, how can employers be so sure? Cannot applicants have more than one dream job? I’ve dreamt of being a movie star, of being President, of being a really rich writer. – And of being a CPA, too. Was I not being honest when I told employers that this was my dream job?

I saw that one financial services company requires all of its representatives to post nothing about finances on the internet. – Nothing?

Now, people do need to be circumspect on the internet. There’s way too much irresponsible behavior out there. All participants in the business world, employers, their employees, job applicants need to develop a mentality of acceptable conduct on the net which catches up to the technology.

Get Rich Quick - Forgetaboutit

This goes back to Ben Franklin. Basically both Dave and Ben agree on the principle that any scheme that advertises riches for just a few hours a day is bad.

I do not necessarily agree with this. Some schemes are valid but are just marketed wrong. For example, Dave disses real estate. He states he worked 60 hours a week and it took him years to get to a six figure income. I can’t help but think of people who work two or more jobs and never get to a six figure income.

The way the scheme needs to be evaluated is this: with a lot of effort, is a target level income achievable?

If the scheme is multi-level marketing, and an up-line is promoting it as easy money, maybe you need to get under another up-line. The problem may be with the particular individual trying to recruit you, not with the MLM company itself.

I’ve noticed that all the legitimate schemes have one thing in common: they all require a great deal of work. So, I would not dismiss schemes out of hand. Like everything else in business, independent, informed evaluation is necessary.