Business and Investment sidenote

A good corporate image can be one of the company’s greatest assets. Most thriving companies and business organizations agree to the validity of this statement because they have seen that a great portion of their success can be attributed to the good name they have established and kept all throughout the years. Nothing can be more desirable than keeping a business legacy that others even competitors would desire to emulate. The works of most renowned people of the past are remembered and their names linger through every generation for the good image associated to them. While those who have been thorns to the society have also their names blacklisted forever.

This is a truth that hurts, for this can also be true to every company or business organization like yours. A good corporate image is one of the most crucial aspects in business for there lays greatly a company’s dreamed success. The company’s reputation will greatly affect people’s emotion and will that could eventually lead to their approval or disapproval of your brand, product, or service. A good name is an asset that your company needs to protect because when you loose it, it could bring worse disasters to your hard-earned investments. Damage to your business reputation may bring irreversible consequences and you may find it impossible to recover.

Maintaining a good corporate image in business can be a great avenue by which you can empower every cent, time, strategy, and effort you have invested for your business. Never forget that customers will always keep you in their hearts and minds when they find your products or services excellent. On the other hand, they will always look at your business establishment with contempt when you fail to give them your best service. When customers are not satisfied with your poor service they will never return to you. And worse, they may even spread not good reports concerning your business establishment. And that could stain your image forever and drive clients and prospects away. But when you give your best effort and most efficient service, they will never forget you; instead, they will be the ones to promote your business establishment to friends.

A good corporate image can strengthen people’s trust that could eventually bring out their loyalty to your brand, product, or service. When they trust your brand, there would be no longer hard convincing effort you need to take because they themselves are convinced that when they buy your brand or avail of your service, they get only the best.

A good reputation for your business establishment can also take your business to new heights of business privileges. You see, when you have a name, you don’t only get customers’ loyalty but also endear some capitalists to invest their money with you and partner with you in business. This would open to opportunities to expand your business horizon and become a business icon.

Finally, a good business reputation establishes a business company or organization. Regardless of the many changes we encounter in the world’s economy, a good corporate image will give the company an assurance that it will stand strong through the test of time.

If you own a health insurance company or provide insurance for personal cars, or travel insurance, or commercial insurance, you can improve  and grow your business with the help of a business video.

A business video presentation could be used to  help the audience understand the need for health insurance. It could educate them about the benefits of taking health insurance and   also explain why  your company is better than others in the industry.

However, to take  advantage from a corporate video, it is imperative to make it  credible and therefore persuasive. Also, it should be interesting so as to hold the attention of the audience.

If you lack the confidence or expertise to prepare corporate video presentations, it is better to avail services of corporate video production company.

A Video Production company would help you in several ways:

Corporate video producers believe that the success of a corporate video depends largely on its content. If the content or the script of corporate video is convincing, it would definitely lead to increase in sales.

For this, corporate video producers find out the needs and expectations of customers of  a particular brand or service.

Based on their findings, they decide the contents of corporate video presentation.

Generally, people over-load their corporate video presentations with details regarding their product and services, guidelines for using it, and benefits of using the same.

But, corporate video producers understand that audience don’t like to be dictated to. They get  bored of such marketing strategies!.

That is why good corporate video presentations .  use several props and media elements, such as images, slides, slogans, animations, sound effects, good music score, costumer testimonial and other such means to make the audience interested in what is being shown.

Corporate Video production Company knows how to give you an edge over your competitors. They leave no stone unturned to block the competition’s benefits.

They find out what your competitors are offering. What are the special features of their products and services, what are the prices charged by them for the same, and so on.

This is not all . As well as production, they also help in post-production services. They help in broadcasting, and advertising business videos too.  

A Corporate video presentation company has the expertise and experience to find out the right customer touch points.

A Corporate video production company can also advise on  whether your promotional video should to be used at conferences, seminars, exhibitions, trade meetings, webinars, or should be included for direct mailing.

If you are looking for  such a video production company, check out for their website.

They are the one of the best Corporate Video Companies   and can offer you the best Video production services at highly competitive rates.

The primary purpose of any company in hiring a call center or an answering service firm is to hold on to customers and jump start the sales process. This is exactly how a call answer service can turnaround an insurance company’s business. There is fierce competition, and too many insurance agents in the market for customers to wait on calls or call back if they did not get through the first time.

A highly competitive insurance industry

Competition is fierce and an insurance company needs to make sure every call is attended and pursued. A skilled and trained call center or answering services firm can help insurance agents by making sure every call is attended and pertinent information retrieved from the customer.

Answering services firms make sure each call is received

An outsourced call acceptance service ensures no call goes unattended or is transferred to an automated service. The call center personnel are trained on the opening questions to collect important information from customers. Call centers cannot close customer deals on their own, as they are not skilled or licensed to do so. But they can collect information that is critical in deciding whether the lead should be followed or not.

Collecting crucial information at the start

The service answering calls can collect important details from the caller to prepare the insurance provider for the first communication with the customer.

One of the critical details an answering service can get from the customer is what state they are calling from. This is extremely important, as insurance providers do not have the license to operate in all states. Asking this question at the beginning eliminates follow-up of callers that cannot turn into prospective clients. The answering service personnel can inform the caller that a quote cannot be generated for them due to licensing issues. This saves time for both the agent and the customer.

The insurance agents need to make sure the service is aware of the states the agents have a license for, and other details that help them ask relevant questions. Some other questions than an effective call center or answering service can ask customers are:

* What is the estimated value of the house?
* Who is the existing insurer of the customer?
* What is important to the customer in the insurance quotes – the cost, coverage, etc.?
* Can the homeowners quote be combined with other insurance options such as vacant home insurance, life insurance, auto insurance, seasonal properties insurance, etc.?

Improving the customer experience

Customers hate repeating themselves to various executives of the same company. Answering services collect preliminary data that prepares the insurance agent for the first interview with the customer. When a prepared agent calls a prospective customer, the customer is happy to see the agent is well informed on what has already been exchanged. This tells the prospective customers that the insurance agent is professional and keen on their business.

A skilled call center can radically improve the productivity of insurance agents. Effective answering services help insurance agents bring a professional touch to their business and increase their earnings.

No two people will have exactly the same skills, aims, ambitions or financial resources, so it is impossible to provide a single solution for everyone. However, this article presents the key issues that need to be thought about, and will assist you in thinking it through in depth before embarking on your search for the right opportunity.

What are your skills?

All of us have skills in one area or another, and obviously your particular skills need to be taken into account when deciding on a business to buy. At the most simplistic, if you have worked in a certain type of business for someone else, say a hairdresser’s or confectioner’s for example, you probably have most of the skills needed to run a similar business yourself. If, on the other hand, you have worked in a job that has not provided you with particular skills relevant to running a small business, you will need to consider businesses that do not require skills only acquired after years of training. Consider what skills you would have the capability and aptitude to acquire quickly.

What skills and aptitudes are required?

Some businesses require only generalised skills, and others more specialised ones. It is impossible to give a comprehensive list, but here are some examples to illustrate the point. Running a small sandwich bar or ‘greasy spoon’ is very much like running an overgrown family kitchen. That’s not to say that it is easy, but learning to scale-up what you already do at home would be relatively straightforward. On the other hand, running and la carte restaurant is a totally different ball game. If you have been a chef, then fine. However, if you will have to rely on employing a chef, then you are taking a huge risk. What happens if the chef leaves overnight without warning? It would take years, if ever, for you to be able to step in and take over the kitchen at short notice.

Running a small convenience store is generally straightforward, but like the a la carte restaurant, you could not consider buying a specialist butcher’s shop unless you are trained.

Slightly less obvious is accounting requirements. A retail business, where the customer pays at the point of sale, is fairly easy to run with a simple cash book. However, if you are running a business-to-business trade, where your customers expect trade credit, then you are going to need to run ledgers with your customers’ accounts, send out statements and follow up by phone, letter and in person to chase late payment.

If it is the type of business where it is necessary to submit detailed quotations, is your English good, your maths OK and are your fingers quick on the keyboard?

In summary, when you consider types of businesses, think about how you will need to be spending your day, and whether you can manage or learn all the tasks you will have to undertake. Possibly your partner will be able to cover your weak areas.

What are the physical demands?

One factor which is easily overlooked is the physical demands that many businesses place on their owners/operators. If you have been working in an office, sitting at a desk all your working life, when you run a shop standing on your feet all day you may find that you have terrible back pains.

In the pub, when you had planned that your husband would be responsible for changing the beer barrels, if a regular is waiting for a bitter and hubby is at the bank, you are going to have to do it yourself.

All retail and restaurant/cafe type businesses, as well as many others, involve a considerable amount of physical work. Man or woman, you need to consider whether you are ready for this and whether you are going to be able to cope with the physical demands that may be involved over a sustained period.

How much risk is involved?

All businesses involve a certain degree of risk. However, some businesses are more inherently risky than others. You need to decide:

• What risks can you handle, given your aptitudes and skills?

• How much risk are you willing to take?

For the purposes of this discussion, risks can be broadly categorised as external risks and internal risks.

External risks

External risks refer to risks external to the business itself. These risks are largely outside your control once you have bought the business, and can include all or some of the following;

Location

Some businesses are very sensitive to location (hotels or general retail, for example). You can obviously check what you think of the location before you buy, but there can always be environmental changes after you have bought the business that you could not have anticipated, and which fundamentally affect the business. Your hotel, which was nicely situated on a busy road, is now in a back street due to the new bypass. The handy public car park next to your convenience store has been sold to big supermarket. It could be even simpler – the council decides to put double yellow lines in front of your parade of shops,

Technology

Changes and enhancements to existing technology could affect your business. Many small garages are unable to service some of the latest cars which have sophisticated computer and electronic systems.

New gizmos may appear and reduce the demand for your services. Digital cameras are increasingly reducing the demand for photograph development and printing, for example.

Competition

Apart from the increasing trend towards out-of-town major outlets, maybe someone will just decide to open up in competition just down the road.

Fashion

Some things just simply fade.

Customer loyalty

Sometimes customer loyalty is lost when a business changes hands.

Internal risks

Internal risks are essentially within your control, provided you have the aptitude and attention to detail to exercise it. Such risks could include:

Stock

Do you have the intuition to stock the right items, the hot sellers, or might you end up with shelves of unwanted items?

Financial control

Sometimes staff can think up the most ingenious ways of slipping cash out of the till or stock into their handbags. You need to consider which are the risks involved in the type of business you are considering, and which of these risks, given your circumstances, you are prepared to take.

Remember – if you are to be a businessperson you have to be prepared to take some risk. Why not? It could be that you are actually taking more risk by being an employee. Hundreds of people are losing jobs through no fault of their own every day of the week!

How much will the business cost?

To take the extreme, if you have a maximum of $10,000 in ready funds to invest, it is hardly worth looking at nursing homes or hotels, for example. On the other hand, a leasehold flower shop may be a realistic possibility.

Trade publications

Most businesses have trade publications. Find out which are the best ones for the types of businesses you are thinking about buying. Read a few issues. They are generally a good source of information, not only for commentary on the major concerns currently affecting that business sector, but will also contain advertisements for specialists in stocktaking, financing and so on.

Talk to business owners

It is a good idea to talk to business owners in the sectors you are targeting for their thoughts. Do not be shy about this; most business people are only too happy to talk about their business to prospective owners, as long as you make it clear that you are not about to open up nearby and put them out of business, of course! However, most business transfer agents (agents who act for owners wishing to sell their business, accountants, bank managers or solicitors can give you contacts if you prefer.

Having read this article, sit down and consider all the issues. This should give you the ideas and questions to put to them, and, as the conversation develops, the least you will gain will be confirmation that your expectations are correct. But, more likely, you will learn a lot of new aspects to running that type of business that you would have never thought about on your own.

Ask them what key factors there are to making the business successful or not. All businesses, without exception, have a few key factors that you have to get right for the business to, do well. For example, some of the key factors in the success of Pizza Hut are:

• Consistent product quality and price.

• Speed of service.

• Easy parking.

• Clean environment.

This sounds obvious, but a considerable degree of skill goes into ensuring that your pizza and chips are exactly the same whichever restaurant you go to. However, it is the knowledge that you can be assured of this that encourages you to go to Pizza Hut time and again, so it is vital for them to get this right. Other examples are:

• Pubs: (Keeping the beer in good condition; Keeping sticky fingers out of the till.)

• Convenience stores: ( Keeping the food fresh and presentation good.)

• Flower shops: (Avoiding undue wastage.)

The key factors in your particular business could concern presentation to the public or more internal factors, like financial control or avoiding undue stock losses, for example. By speaking with existing owners you should gain a good feel for what these critical factors are, and be able to assess whether you have the ability or willingness to make sure that you get them right.

Consultancies

Businesses such as insurance brokers, advertising agencies, graphic designers, IT consultants are often built up through personal relationships that go back over a long time. The same applies to hairdressers. As such there is often a real risk that once the current business owner leaves, a significant number of clients will decide it might be a good time to look around at alternatives.

In many such businesses there is a similar risk in relation to key employees. Instances where employees leave, either to start on their own or to join a competitor, and take clients with them, are commonplace. Practices such as graphic designers or advertising agencies, for example, where the employee works very closely with the clients and has an in-depth knowledge of their likes and dislikes, are particularly vulnerable in this respect. Often if you lose the employee you lose the client, even if the employee doesn’t take the client with him, because it was solely for the skill or imagination of that employee that the client used this firm.

If you are thinking of buying a business of this nature, you will need to consider these risks very carefully and, if necessary, consider ways in which you can reduce them. You may need to contract the vendor to stay on in an advisory capacity for a period after take-over, and/or incentives key employees. You could also consider negotiating to defer part of the purchase price, making it only payable if sales meet projected targets over, say, the first two years after takeover.

It is never possible to eliminate the risks entirely and for that reason these types of business rarely sell for high prices unless they are large practices where the risks are widely spread over a large client base and workforce.

Unless you are experienced, you should obtain specialist advice about valuing such businesses and negotiating contractual terms. The relevant professional institute should be able to offer help in this respect.

Debt is part of business operations. It is highly inevitable and in any case, it is recommendable to borrow for the purpose of expanding your business. However, if you do not control or manage your liabilities carefully, they could sprawl out of control. If this happens, then it could become very hard to borrow because, your bad records would make the lenders to have a mistrusting attitude towards you.

When need arises, while you have business debt, you may still want to go for a loan. You need to identify the financial firms that deal with businesses that are overwhelmed with liabilities. If you have convincing reasons why you need the credit facility, then it should not be hard for the firm to extend it to you. The reasons could include, but not limited to training new personnel, expansion of the business as well as putting up new structures for the business.

The amount you qualify for will be determined by many factors, like the type of the loan you are applying for, whether it is secured or unsecured. For the secured ones, you will have to provide some form of collateral. The advantage is that you will pay lower interest rates. With the unsecured ones, you will be charged higher interest rates.

There are other types of business financing that exist. They are debt financing and the equity financing. The former refers to that financing you get from your local bank. The later refers to the investment you can get from external investor or from venture capital. The amount you qualify for will also depend on how much you can afford to pay for the installments every month.

When a small business owner implements the credit card processing service in its business, he or she tends to add to the growth of the company. Credit card processing is easy process of money transaction via swiping of credit card and has become a big part of business world with both the customers and traders utilizing it.

Whether trading online or doing business on internet, small business owners can always us the new trend of business world to increase their sale and status. But before making the use of such benefiting tool you should have a complete picture of requirements of credit card processing and the precautions to keep in mind while choosing a merchant account that suits a small business.

Before beginning with a credit card processing service you should know what a merchant account is and how it will affect a small business.

Merchant account is more or less like a bond between a trader and a credit card processor that permits a trader to provide a credit card processing to its customer. With a merchant account you can be sure of sudden development in your small business. Merchant account is also a must for those dealing on internet. Imagine a customer visiting your site and finds a credit card payment processing he/she will not just be amazed but also impressed with the service being provided by a small company. Merchant account is the best way to increase your customers and revenue.

But for a small business trade or company acquiring a merchant account can be difficult. Thus, it takes proper planning and complete idea of approach towards finding the right merchant account provider. Since a small business may not be able to afford bigger financial services for credit card processing, a trader can always opt for a reasonable credit card processor relating to its business.

Following are some of the credit card processing companies you can opt for as per the need of your business:

Bank
Independent sale organization
Third party provider
Financial service provider
Association

While you can always find a rational merchant account provider but if you are a small trader and finding it hard to get a decent and low priced merchant account, you can always go for trade associations which have a reputation of providing a merchant account or credit card processing at a low or discounted rate. Even a third party processor can be a good idea, as it has its own rules and terms.

While each of such merchant account providers comes with its own set of requirements and rules, you can always compare them and chose the one that suits your business. But before selecting a merchant account and getting started with the credit card processing there are few things to be taken care of. Such as, always search for 3 or more credit card account providers, compare their fees and services, get a complete idea of their terms and conditions and negotiate if possible.

Remember, since you a re an owner of a small business, merchant account provider will always want to see your background and credibility record as well as your capability of being a credit card processing service provider to customers. Thus, what makes a merchant account difficult for you is not your status of being a small company but your bad record or fraud history.

Once you have found the right merchant account and a credit card processing service for your small business, you are ready for a whole new experience in the establishing your business. For small business owners, who often trade in fairs and by visiting customers personally, utilization of a mobile credit card processing benefits more than they can imagine.

Insurance leads :

If you want to get out the most of your income through different types of insurance policies. for that you have to take some risks.You can use different strategies to look for an insurance leads. You must ask for different references, you must maximize the use of internet in order to look for better options, you can utilize the telemarketing agent if you want to because a telemarketing agent would be very beneficial for you getting an insurance lead. You must be vigilant enough to identify the target market.

It is better to divide your target market in different parts so that it is easy for you to cater everyone in your list. You should conduct follow up with potential clients once a week. you don’t have to call them frequently because they will be disturbed very much and you can loose your business.

To get the require insurance leads it is very important that your customer don’t get irritated. you have to give facts and figures to customer rather than doing useless talking. since there are many insurance firms that offers various products so you need to be very careful. to get quality insurance leads you have to target large groups.It will help you to catch a potential customer while you are using the same bait.

Insurance leads are a very important for you to survive in a firm. You should always be vigilant to target a customer who. it is very important that you have to identify the customer and you need to know all the necessary details regarding the customer before you approach him .

if you are thinking to opt sales profession then it is very important for you to know more about sales . for each sales person he should know how to grab the customer and for that he should be well versed with some techniques. All customers are different so you need to be well prepared on what you are giving to them. Insurance policies are quiet complicated make sure that you discuss with them all terms and conditions before selling them the policy. if you discuss all the terms and condition and the customer is well informed then in future you can avoid all the confusions.

you have to b very vigilant and active in targeting a customer for an insurance lead. if you target a big shot in the city you will be able to get the business very soon and it will be very beneficial for your career also.

 

Small businesses need insurance to protect them from the risks that are involved with running a business. Each business will have risks specific to what that business does and the industry it is in.

Obviously some businesses work in higher risk areas than others and some businesses may work in a seemingly less risky industries than others but take on more risks. A lot depends on what a business does.

If you are a small business you may think that you are not at risk from unforeseen events and that it might not be worth having comprehensive business insurance because it’s a risk worth taking.

This could prove to be a big mistake because unforeseen events do happen. For example if you owned a restaurant just a small event such as a road closure could stop your business trading for a period of time. In this period of time your restaurant could see a huge reduction in visitors if not a complete loss of trade.

Business insurance would cover your business for the amount of time your restaurant might have to cease trading for. Without this insurance your business could find itself in significant financial trouble and may even have to cease trading.

As part of your business insurance you could also buy Business Buildings Insurance. This would cover your businesses buildings for damage due to fire, flood or anything that has a devastating effect. Business buildings insurance can also cover you for fixtures and fittings within your businesses premises as well as stock and other contents.

A business insurance policy is necessary to protect a business in cases of liability, fire, theft, vandalism and even against the death or illness of the owner. Most businesses are required by state or federal laws to have in force an insurance policy before they can be open for business. Many home businesses are also required to have business insurance coverage but it can be actually attached to their homeowner’s policy if added correctly to their coverage. Such home businesses may store products at home in a garage and may not realize that this would be considered inventory and would not be covered under a homeowners policy unless attached through a business insurance coverage.

A business insurance policy can even cover the owner or valuable person in the company under a clause or policy called the key person. A key person is someone who is absolutely needed to operate the business and the business would suffer with the illness or death of this individual possibly even causing the business to have to shut down or be sold. A chef at a restaurant could be considered a key person if the business is built around his reputation.

Liability coverage is extremely important to a business. If a customer fell entering a business they could sue the business for damages. Fire could damage not only the structure of a building but could damage or destroy inventory, important files, and business supplies and furniture. A broken window without business insurance coverage could get expensive.

At the annual meeting in 1996, Warren Buffett and Charlie Munger commented that, “If you find three wonderful businesses in your life, you’ll get very rich.” At the meeting one year later, he said, “The single biggest recurring mistake I’ve made has been my reluctance to pay up for outstanding businesses.” As a new investor, you may here this and wonder, “Yes, Joshua, but what is it that actually makes a company an excellent business?”

To help you understand the traits of an excellent business, I’ve put together some resources that will give you an idea of what you should look for in a stock, and, just as vital, why it is important. Armed with this information, over time you’ll be more likely to build a portfolio of wealth creating assets that can provide financial security for you and your family.

An excellent business earns high returns on capital with little or no debt

There seems to be little doubt, based upon the evidence, that it’s easier to build a large net worth through value investing – that is, the disciplined purchase of stocks, bonds, mutual funds, and other assets that appear to be selling at a substantial discount to a reasonable person’s estimate of intrinsic value (or “the real” value.) Think of it as if you knew a local car wash had gold buried underneath it. The proprietor might be asking $800,000 for the land and enterprise, but you know full well that you could pay substantially more, not only owning the business, but also selling the gold you dug up on the open market. Thus, you had reason to believe that it was being sold for far less than its intrinsic value.

The one major shortcoming of this approach is that an asset bought cheap must be sold when it reaches intrinsic value unless it is an excellent business. As Charlie Munger has pointed out, over long periods of time, the rate of return which an investor earns is likely to be very close to the total return on capital generated by a firm, adjusted for dilution in shares outstanding. Thus, you are likely to do better paying fair value for a business that can reinvest its capital at high rates of return – say, over 15% to 20% per annum – than buying a mediocre business trading at a small discount to its liquidation value.

For more information, read Business Like Investing: Thinking Like an Owner; on the second page of the article you’ll find information on why return on capital matters.

An excellent business has durable competitive advantages

If you had unlimited funds, do you really believe that with the best pick of any manager in the world, you could unseat Coca-Cola as the undisputed leader in the soft drink industry? How about Johnson & Johnson with its myriad of patents, trademarks, and brand name products? The reason these businesses are able to succeed so well is that they have durable competitive advantages – things that their competitors can’t reproduce.

Sometimes these advantages are easy to spot – as is the case of Coca-Cola, which is the second most recognized word on Earth. However, it is possible for them to remain buried. One of the secrets to the phenomenal success of Wal-Mart is that Sam Walton built a distribution system with logistical capabilities that allowed him to lower the transportation costs of moving merchandise to his stores, allowing him to make far more profit than competitors selling at higher prices. He and his fellow shareholders won from the increased income while consumers won from the lower prices. These forces worked in combination with one another, reinforcing and accelerating the results so much that the tiny five-and-dime grew into the largest retailer the world has ever seen.

When you buy into a company through the purchase of its common stock, try to identify the durable competitive advantages it has that could stand up from attack by competitors and market forces such as outsourcing and increased globalization.

An excellent business is scalable

When businesses are highly successful, one of the key ingredients more often than not is scalability. Take American Eagle Outfitters, which has one of the best long-term investment records over the past decade. Why was it successful? Target? Wal-Mart? McDonald’s? Coca-Cola? Pepsi? Microsoft? All are excellent businesses in part because they had products or services that could be replicated in cookie-cutter fashion very, very rapidly.

Think about it. The McDonald’s in Hong Kong is very much like the McDonald’s in Chicago. And New York. And Southern California. By having the menu, layout, fixtures, and technology packaged in a way that restaurants could be rapidly opened, it made it easier for the chain to roll out across the United States and world. Coupled with its relatively high returns on equity and the cash provided by the franchisees, which footed the bill to build a huge portion of the overall business, it’s not hard to see why the shareholders might consider Ray Kroc as a hero.

The price still matters …

For those of you too young to remember the Nifty Fifty, this idea of buying excellent businesses was taken to such ridiculous extremes in the 1960’s that investors paid upwards of sixty and seventy times earnings! To contrast, a normal price-to-earnings ratio on Wall Street is considered fifteen; that is, for every $1 in per share profit a company generates, it would trade for $15. It didn’t take a genius to see that even if the business was all it was cracked up to be, at those prices, it would be virtually impossible to earn a satisfactory long-term rate of return.
That’s why you need to take a moment to read Price is Paramount to see an illustration of how lower growth rates can actually lead to higher rates of return in certain circumstances.

Buy and Holding Investing Strategy

Although I actively manage my regular investment accounts, and as you know, there are several businesses in which I am involved, one strategy that I use for one of my personal IRA accounts is to select only one business each year that has durable competitive advantages, earns high returns on equity, boasts talented management, has a history of disciplined capital allocation including returning excess capital to owners in the form of cash dividends and share repurchases, and the potential for future growth where I can be reasonably sure that earnings are likely to be materially higher in five or ten years. I then use the entire annual contribution limited to acquire as many shares as possible, instruct my brokerage firm to reinvest all dividends, and practically forget about the holding altogether. At least once a year, I’ll review the company’s progress and results to make sure there aren’t material changes in the underlying quality of the enterprise. For the most part, regardless of market conditions, I simply forget these equities exist.

Why, do you ask, would I be inclined to do this when my regular investing results are so good? It’s simple: Insurance against ignorance and overconfidence, as Benjamin Graham called it. There’s no way I can possibly know everything, and as evidenced by the impressive work of Professor Jeremy Siegel, excellent businesses with reinvested dividends over several decades have crushed the broader market. One well-known financial news and commentary company points out in an online product description that only $2,000 invested in Pepsico 25 years ago has now grown to over $150,000; a single share of Coca-Cola bought for $19 with dividends reinvested in 1919 would now be worth more than $5,000,000+. Through market highs, lows, and in-between, these great businesses just keep on compounding. By owning a collection of them, in a retirement account, outside of the realm of my enterprising endeavors, businesses, and active investment portfolio, it’s a quiet reminder to manage my affairs conservatively (as would an insurance company that guards against a 1 in a 1,000 year storm) and let the companies themselves do the heavy lifting. It is also my hope to someday use the account as a sort of living, breathing didactic exercise to prove the merits of compounding to my children, grandchildren, and even – dare I say it – great grand-children.

In ways, it’s comparable to what Anne Scheiber did when she amassed a $22+ million fortune from her tiny New York apartment. By selecting value priced, blue chip stocks, the frictional expenses of active management, frequent big / ask spreads, commissions, and taxes are all greatly reduced, leading to more capital compounding for the investor. As Charlie Munger pointed out, by holdings stocks for long periods of time and paying only a single 35% tax at the end (these rates were before the Bush cuts on capital gains), a 15% return would by upwards of 13% by the time it is all done – compared to much, much less – 10% or 11% depending on the circumstances – if the money were made by frequent trading. Over a 50 year time period, a small 3% advantage can result in triple the wealth. You read that right. As one great investor said, this is a game of inches, not of feet and yards. You make the best decisions you can and over time, they amount to something meaningful.

How can you go about choosing which stocks should make the cut? Believe it or not, you shouldn’t just go with the cheapest or most undervalued company. That’s because over long periods of time, a stock is likely to compound at the rate the underlying business earns on shareholder equity. That is, provided you’ve paid a reasonable price (remember – Price is Paramount), and Wall Street maintains a consistent valuations as measured by the price-to-earnings ratio, a company earning 13% on shareholder equity will probably compound at that same rate, with dividends reinvested, provided it is held in a tax-advantaged account. Given a ten year or longer time span, you’d be better off owning this business than one earning 8% on shareholder equity but trading at a 30% discount to intrinsic value.