Investing 
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Why Investing In “Sure Thing” Buyouts Is Risky

Usually when one company offers to buy another company, it offers a premium on the current stock price and the stock price jumps up pretty close to the offered price. The difference in the current price and the buyout price, that “pretty close” number, includes a variety of factors. Those factors include the risk that the deal won’t be approved by regulators or shareholders, the time value of money (a deal that will close tomorrow has less of a discount versus a deal to close in a year), or a whole host of other factors. The shareholders that held the stock before wind of this pending offer are generally happy since their shares will appreciate more than they expected. Some investors consider buying the stock because there still is a little bit of difference between the current share price and the offered price. It seems like a sure thing right? Wrong.

When Bank of America offered to buy Countrywide Financial, it offered absolutely no premium. It offered $7.16 a share on January 11th. Shares of Countrywide are only trading at $4.27 right now… why not snap up shares of CFC at $4.27 and pick up what appears to be a nice healthy premium for your money? You might not want to do that because Countrywide is going to be investigated by the FBI. Woah! That wasn’t in the list of “factors” I listed above and that’s because it’s not something you typically associate with a buy out! If the FBI finds something bad, Bank of America can still back out.

As Ron Popeil would say, but wait there’s more… let’s say you heard about the Microsoft offer of cash and stock for Yahoo, pricing each share at around $31. Let’s say you decided to snatch up a few shares of Yahoo on the buy-out offer because you wanted to make a few bucks and because you thought the buy-out made sense. Then Yahoo tried to find additional suitors to increase the sale price only to find out no one else was truly interested. In the interim, Yahoo and Microsoft stock prices fell so the original offer wasn’t as high, a scenario not mentioned in the list. The underlying offer, since it was pegged to an asset whose value changed, changed as time passed!

So, if you hear of a buy-out and are considering to snatch up some “sure thing” money, think twice. There are a lot of factors and scenarios out there that you may not be taking into account. The market has figured it out and that’s why there’s a difference in the first place. :)


 Debt 
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Are You A Snowflaker?

Do you pay attention to the little things? Is your brain fascinated, daresay obsessed, with details? If you believe the small things count as much as the big things, you might already be a snowflaker and not know it, or at least, are well on your way to becoming one.

The idea of snowflaking is simple – put forth effort to either save small extra amounts of money or earn small extra amounts of money above and beyond your normal earnings, and then put that money to work for you in a systematic fashion. What you decide to do with the money is up to you – in my life, our goal is to get out of debt so I snowflake to debt reduction, but you can snowflake to savings, investments, or any other endeavor that is in line with your financial values. The key is to create opportunities to snowflake above and beyond your normal spending, saving, or debt reduction plan.

(Click to continue reading…)


 Investing 
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Dividend Growth Model for Investing

This guest article is courtesy of Tyler of Dividend Money, a personal finance blog with a heavy focus towards dividend investing.

For those of you who are new to investing or are just starting out in the world of investing in stocks, there is a lower-risk strategy that has been proven to be very powerful in producing long term returns.

This strategy is known as dividend growth investing. While it is not glamorous, there have been several books written about dividend investing and many successful investors have followed this model.

Dividend investing is geared toward those of us who are not huge risk takers and have the patience to slowly watch the increases in dividends filter into our brokerage accounts.

The concept behind the dividend growth model of investing is to buy solid, reasonably priced companies with a track record of raising their dividend year after year.

This model is thought to be prudent due to the fact that the incremental increases in the dividend rate will ultimately increase one’s dividend yield as a percentage of the purchase price. It is also thought that the increases in dividend rate will support higher stock prices over the long term as income investors search for attractive yields.

This strategy is suitable for conservative investors and income investors who want to protect against inflation. It is thought that the increases in dividend rate can be viewed as a hedge against inflation because of the additional income that the dividend increases provide.

The majority of the companies that fall into this category are relatively stable and very large in nature. Many large financial, insurance, telecom, and utility companies have a reputation for increasing their dividends on at least a yearly basis.

I’ve previously written a primer on how to select the best dividend growth stocks that will be helpful if you think that dividend investing is right for you.

I think that as you investigate dividend growth investing, you will find that it has its merits and I believe you will be pleasantly surprised with the strategy.


 Your Take 
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Your Take: Professional Tax Preparation or a Box?

I’ve been working full time for five years now and have used TurboTax for the last four (I did it by hand the first year, I have no idea why!). I’ve never walked into a tax preparation store like an H&R Block or a Jackson Hewitt but my friends have and walked away with experiences that hardly warranted the $300 fees they paid. On one hand, my tax situation had been fairly simple for the last four years. Single income (one year I had two W-2s but that’s hardly rare), standard deduction, twenty minutes in TurboTax and I was done. I went to an itemized deduction two years ago because of the mortgage interest but that hardly registered. Two years ago I even added on a Schedule C for income generated from side ventures, again that wasn’t much of a curveball for TurboTax. I don’t have a complicated situation… why would I pay $300 for someone to ask the same questions a box would ask?

What’s your take on tax preparation? Worth it? Not worth it?


 Your Take 
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Your Take: New $5 Bill & The Huge Purple 5

Front of the New $5 Bill

Check out the latest super-anti-counterfeit bill to hit the streets, it’s none other than the fiver and it debuted today with much fanfare over its added security feature and that humongous purple FIVE located on the back (picture below). Many of the added security features come from higher denominated bills (such as more watermarks and a security strip) and I was surprised that they would revamp a $5 with these security features, but what do I know. Here’s the back of the bill.

Back of the New $5 Bill

I’m a fan of the increased use of microprinting, where small, difficult to reproduce, text is repeated in numerous places. On the front, Five Dollars” is written inside the left and right borders. E Pluribus Unum (“Out of Many, One.” in Latin) is printed at the top of the shield in the Great Seal. USA is printed between the columns of the shield. Finally, on the back, USA FIVE is printed on the edge of the purple 5.

One cool thing I didn’t know was that the little yellow “05″s are arranged in a EURion constellation. Many color photocopiers will refuse to copy a document if it detects a EURion constellation pattern. Here I thought the “05″s were just randomly scattered. Many currencies use this EURion constellation pattern.

Now, I’m not a huge fan of the big purple 5 but it’s said that it is designed that way for the visually impaired, what do you think about that purple 5? Ugly? Pretty?

(Images from US Bureau of Engraving & Printing)


 Taxes 
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Let Tax Software Find Tax Deductions For You

Who enjoys doing taxes? For the one guy out there who raised your hand, put it down… no one believes you anyway. The rest of us hate doing taxes and more importantly, we hate paying The Man. One thing we hate more than paying The Man, is overpaying The Man. So, the annual searching and researching for deductions begins right around now and goes on until April 15th. Let me make a quick suggestion, skip the caveman tax return by-hand thing and enter the 21st century. Let software do the heavy lifting.

By using tax software, you essentially guarantee that you’ll get as accurate a return as you can possibly get as long as you answer all the questions accurately (as they say, “garbage in, garbage out”). If you miss a potential deduction, tax preparation software will likely ask the right questions and get the deduction if you qualify. The software updates itself so you’re sure to get any changes to tax law that are passed after the IRS printed out the paper forms (such as the AMT patch). While software isn’t infallible, it’s certainly better at it than you are. :)

One additional thing to consider is that many Americans qualify for free tax preparation (and even filing!) through special programs. If it’s free, it makes no sense to do it yourself.

Lastly, here are some common income tax deduction and some often overlooked income tax deductions if you still want to do the caveman by-hand thing.


 Cars 
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Maryland’s Lemon Car Laws Explained

One of my friends had a car that she loved but had to bring into the shop every three or four months, like clockwork, for one problem or another. This wasn’t some car she bought used on Ebay or some shady car dealership, this was a brand spanking new vehicle. I won’t slander the manufacturer by saying who made it but suffice it to say, the brothers on CarTalk have complained frequently about it’s expensive ball joints. So, knowing she’d been to the dealership so many times I wondered what the lemon law actually covers and what it means (in Maryland, the laws may differ for you wherever you are).

In order to qualify for protection, your car must be less than fifteen months old with less than 15,000 miles on it and either owned or leased by you and registered in Maryland. (If it’s registered elsewhere, check that state’s lemon laws) Now, this usually puts you within the manufacturer’s warranty so they should fix pretty much every problem you bring them. If they can’t, that’s when the lemon law protections come in.

First, write your dealer or car manufacturer a letter requesting the repair and send it via certified mail. If the manufacturer refuses to repair the problem with thirty days or if they do complete repairs and it “impairs the use” or “substantially reduces the market value” of the car, then you may qualify for a refund or replacement vehicle as long as the problem is from the following list:

The problem list is:

  • A brake or steering failure that was not corrected after the first repair attempt, and that causes the vehicle to fail Maryland’s safety inspection; or
  • Any one problem that substantially impairs the use and market value of the vehicle that was not corrected in four repair attempts; or
  • Any number of problems that substantially impair the use and market value of the vehicle that have caused it to be out of service for a cumulative total of 30 or more days.

    If you qualify, you’ll want to write a complaint to the manufacturer with the following information (sending it via certified mail!):

    • List the make, model, year and VIN of your vehicle.
    • Include the name of the dealership from which your automobile was purchased and the date of purchase.
    • Describe the problem you are having.
    • Describe what you have done to address the problem and include copies of repair orders and dates of repair attempts.

    If the manufacturer can’t correct the problem you outline within 30 days, they are required to repurchase or replace your car. If they repurchase it, they must cover the full purchase price plus license fees, registration, and any other government charges and they have the option of reducing it by 15% because you got to use the vehicle and a “reasonable allowance” for damage outside normal wear and tear. if you

    If your car is a lemon and the manufacturer is unable to correct the problem within 30 days of receiving your letter, the manufacturer must repurchase or replace your vehicle. If you previously contacted the manufacturer, you will want to send a follow-up letter by certified mail, return receipt requested, outlining your problem, the steps you have taken to resolve it and what action you want taken. (See sample letter C.)

    The manufacturer can replace your vehicle with a comparable one that is acceptable to you, or buy it back, whichever you prefer. The repurchase price you are offered should cover the full purchase price including license fees, registration fees and other similar governmental charges. The manufacturer can subtract up to 15 percent of the purchase price for your use of the vehicle, and a reasonable allowance for damage not attributed to normal wear and tear. At this point, I’d contact the Consumer Protection Division to get their help. If you need more information, the Maryland AG office has more information.

    Good luck!

    This is not legal advice in anyway, I was just trying to understand the laws to help out a friend.


     Personal Finance 
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    comments

    Playing Good Financial Offense

    Ryan is a guest author from Millionaire Money Habits, a personal finance site that discusses how to build wealth by developing the habits of self-made millionaires. Subscribe to his RSS feed.

    In the Millionaire Next Door, author Thomas Stanley talks about the importance of playing good financial defense in order to build wealth. In other words, controlling your spending and expenses in order to keep more of your money.

    Financial defense is one way to increase your net worth, but many people either focus on or want to achieve the flip side of that concept. That would be to play good financial offense by increasing your income in order to produce and build wealth.

    What is the Best Way to Increase Income?

    Playing financial offense is a proactive, thoughtful approach to increasing income. It’s about planning and executing, as opposed to reacting to a situation. Too often people hope to increase their income by getting a promotion or a raise by working hard. That’s great, but you can take more control and create an offensive strategy to achieve your income goals rather than hope for them.

    By taking initiative and having a clear plan on how to bring in more money, it would be virtually impossible not to achieve some level of success. Here is how I would recommend going about this:

    Identify Your Goals

    Take 15 minutes and give yourself some quiet time with no TV, no kids and no email. Shut it all down. Grab a sheet of paper and a pen and draw a line down the middle. Label the columns “short-term” and “long-term.” Now write down how much money you want to increase your income within the next 6 – 12 months and in the next 5 years. Winning the lotto does not count.

    Create a Plan

    Now, think about how you are going to reach these goals. Under the dollar amount you just listed, write 3-5 ways to reach these goals. Let me give you an example:

    short-term goal = $5,000/year increase in income

    • Negotiate a raise
    • Interview for a higher paying position
    • Start a part-time handyman business
    • Get a weekend job
    • Find valuable things at auctions to sell on eBay

    long-term goal = Make $100,000/year

    • Become director of x at my company
    • Obtain 25 cash-flowing rental properties over the next 5 years
    • Grow my part-time business to bring $X revenue

    The examples above are to get you started. For each item, take each point a step further and have an action plan on how you could feasibly make them a reality. To negotiate a raise, for example, do some research on how to negotiate a raise and prepare a case to present to your boss.

    Execute

    Now that you have identified your goals and drawn out a plan, take action and execute your plan. You may fail at one or two of these, but that is why you should have a number of paths to achieve your goal. You will learn from your mistakes, and will be better prepared to brush yourself off and try again.

    While Thomas Stanley stresses the importance of playing good financial defense in order to accumulate wealth, you can accelerate your goals by being offensively alert as well. Set some goals that you will hold yourself accountable to, take a proactive approach to increasing your cash flow, and start making more money for yourself.

    (FYI, the Carnival of Personal Finance was posted this week at Four Pillars, go check it out!)


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