Access to Wall Street Titans - Blank Check Companies

Posted by T.W. Hanson - Feb 17th, 2008 at 23:02

Blank Check

If you have heard of a special purpose acquisition company (SPAC), you need not read any farther. If not, it may be a good idea to look at one of the few segments of Wall Street doing well.

These SPACs are publicly traded companies with one purpose in life: acquire something. They raise money based on the strength of their management teams and the likelihood of finding an attractive target. Current SPAC management teams include Donald Drapkin, Nelson Peltz and Joseph Perella. You can type their names into google and find lists of deals and accomplishments.

The great thing about buying SPAC equity in a troubled market is that you get Treasury-like returns with a free option to take part in the deals of Wall Street’s most fabled individuals. The mechanisms in these instruments are somewhat complicated, but relevant to you is this option. When the SPAC announces its target and you as a shareholder are called to vote on the acquisition, you can either take part in the deal or take your portion of a trust account that has been accruing in value based on Treasury or Treasury-like securities. If high yield savings accounts and cd yields continue to plunge, these types of securities make more and more sense.

SPACs have purchased companies like Jamba Juice, American Apparel, Great Lakes Dredge and Dock, Navois Maritime, GLG Partners and others.

It should be noted that their historical returns have historically trailed the equity markets. The future is always uncertain and regulation of these companies is in flux. Make sure to always do your diligence, especially in these complicated types of structured securities and companies.

Enjoy the NYT’s take on these securities as well.

Vicenarian Stock Picking

Posted by T.W. Hanson - Feb 14th, 2008 at 19:02

Darts

You have just purchased what you believe is a great product (an iPhone, a pair of Crox, a Jamba Juice smoothie, etc.).  For your own sanity’s sake, I hope the first thought that enters your mind isn’t about the owning a portion of the company that makes this product.  However, it is possible to buy shares of Apple, Crox and Jamba Juice, and you may entertain thoughts of owning these companies.  Should you buy them?  By concluding that a company has a good product, you only have half of the investing picture and may as well be throwing darts at lists of companies in the business section of your paper.

Many vicenarians and virgin investors will pick stocks using affinity toward a product as a primary means of investing analysis.  This strategy is flawed because it omits considering the value at which you are buying a part of the company.  If that value is too high, you may be buying into a great company with great products that is worth less in 10 years than it is now.  For example, Nortel Networks is a solid company with a $5 billion market cap.  Adjusted for spits, its stock traded at levels 0ver $600/share in 2000.  It closed today at $11.43/share.  Another parallel example is with automobiles.  A BMW is a good product, but no one I know would pay $6,000,0000 for a new 7 series.

Similar logic should be applied when looking at buying stakes in companies.  The company’s products must be something you believe in, and the value of your portion of the company needs to be appropriate.

Spending plan

Posted by Tad Johnson - Feb 5th, 2008 at 18:02

Chances are, your income is going to increase dramatically when you start your first job after graduating from college. Success!money.jpg

Sadly, your expenses are going to increase dramatically as well. Without some wise planning, you could easily find yourself slipping into debt. Here’s an approach to prevent that from happening:

Develop a spending plan

Your plan should include these main areas :

  • Regular bills (rent, car payment, insurance, phone bill, etc.)
  • Debt repayment (credit cards, college debt)
  • Regular savings (retirement savings, savings for large purchases, rainy day savings)
  • Categories of spending with a broad brush (clothes, food, entertainment, travel)
  • Expected monthly totals (savings will increase by $x; debt will decrease by $y)

This isn’t as hard as it sounds. Here’s a handy spreadsheet that will do most of the work for you: Spending Plan. (It’s in .xls format so you can open with Excel, OpenOffice, or import into Google Docs.)

Don’t obsess about accounting for every last dollar–this will only frustrate you and you’ll end up giving up on the whole plan. Instead, this should be an exercise to help you understand where all that hard earned money is going. When I did this, I was surprised by how much money I was spending on my car. Now, I take the bus or carpool a few times each week and all of a sudden I have more cash for the fun things in life.

Stash some cash (online)

Posted by Tad Johnson - Feb 3rd, 2008 at 12:02

You’re young, you’re employed, and you’re making some money. Good for you!

You’re paying down your school and credit card debt, and you’re contributing to a retirement account. Great!

Do you have an emergency cash supply? Is it enough to float you for 3-6 months? We have some work to do.

It’s always a good idea to have a 3-6 month supply of cash that you can access quickly in case of emergency. This could be something like losing your job or something worse–heaven forbid–like a car accident that leaves you injured and in need of a new vehicle. Even if you have medical or auto insurance, there’s often a period of time between your spend and the insurance company’s reimbursement. For emergencies like this, you don’t want to take on additional credit card debt. This is where the emergency cash supply can really save you.

cash.jpg

When I say cash, I am not talking about a shoebox full of 20’s under your bed. Your emergency cash fund should sit in a high interest rate savings account, helping it grow (or at least counter inflation). One of your best bets for high interest rates is an online bank. These have become very popular in the last few years, since the bank’s low costs are passed on as high interest rates. And don’t worry–they’re safe. Just like a brick & mortar bank, your online savings are backed by the FDIC (aka Uncle Sam).

There are a few caveats to keep in mind:

1. It will take a few days (usually 2-5 business days) to transfer money into or out of the account. This is fine for you, since the cash is for emergencies only.

2. You can only make 6 withdrawals per month. Again, this is fine for your needs. (And I believe it applies to offline accounts as well).

3. You need to link your online bank account to a traditional brick & mortar account for easy access (and check writing, ATM access, etc.)
* Note that some online banks will give you an ATM/debit card, but caveat #2 still applies.

The key feature to an online bank is the high interest rate. During the high-flying days of 2006/2007, you could fetch 5% on these accounts. With recent interest rate cuts, these accounts are down to 3-4%. Shop around a bit and find the best rate. (Keep in mind that the rates can change at any time, and watch out for the fine print–like minimum balance requirements or temporary teaser rates).

Plan on saving 3 months worth of your current take-home pay (minus your monthly savings amount). If you are married or have children, double that amount.

With a reserve of cash, a minor (or major) setback won’t throw you into debt. Rest easy, knowing your emergency fund is safe, secure, and earning a healthy interest.

Powered by WordPress with GimpStyle Theme design by Horacio Bella.
Entries and comments feeds. Valid XHTML and CSS.