The Lighter Side of Science and Money

Here are some excellent cartoons by Sidney Harris who created comics for American Scientist and The New Yorker. Science and money don't always mix well, but when combined correctly can produce hilariousness:

Research Science Budget Cuts

Fuel Efficiency

Renewable Energy

Computer Scientists

Food Scientists

Professors

Caveat Emptor

Caveat emptor originates from Latin meaning "let the buyer beware." This phrase holds so much truth in modern times since we are bombarded continuously with marketing where ever we turn. Advertising is ubiquitous in our day to day lives and has gotten to the point where we tune it out. Although we may not be paying attention, whether it's the billboard on our drive to work or the TV commercial in between the programs we love, subconsciously the advertising seeps into our minds.

The idea of branding is the marketer's main tool to seer images of quality and trust in one's mind. Whether this is based on fact is irrelevant. The idea is to create some kind of loyalty to brands we have come to associate with certain feelings. When we see the Nike "swoosh" we think athleticism, when we see the iconic Apple logo we think sleek sexy technology.

The important thing to note is that as a consumer we vote with our dollars. We make decisions based on price and quality of the product or service. We would like to believe that our choices are purely based on logic, but when we are bombarded with multi-million dollar marketing campaigns our logic may be subdued by these forces. Being an educated consumer is the way to consumer sanctuary where we can escape the iron grip of corporate branding.

Ralph Nader is perhaps the most influential consumer advocate of our time. With his landmark book entitled "Unsafe at Any Speed," he shattered the motor industry's paradigms that vehicle owners were responsible for their own safety. Today, car industries are required to meet safety standards which make the roads safer for all of us. Ralph Nader has fought relentlessly for consumer rights, without him there would be no such thing as false advertising.

In our quest to spend our dollars as wisely as possible, it is critical to become an educated consumer to ensure that when we spend our hard earned dollars we are not just joining the heard guided by corporate marketing agencies. Instead we must stay vigilant and proceed with caution when making purchases. It's important to be skeptical about advertisement claims and question your purchase patterns. Like the saying goes, buyer beware!

I've included a link below to Consumer Reports which is a great resource when considering any purhcase (http://www.consumerreports.org).

Meet Ralph Nader!

What's the Big Secret to Riches?

There are two schools of thought when it comes to investing in stocks. One is growth and the other is value. Warren Buffett believes that these two strategies are "joined at the hip" and that you cannot think of them separately. So what are the main differences between these two types of investment styles.

A growth investor is looking for companies that are expanding quickly. Typically these companies don't pay a dividend since the earnings are reinvested into the company so it can "grow" faster (such as Research in Motion). Whether the funds are used to grow the company faster than you could by investing the earnings elsewhere is questionable. In this case you are looking to buy these companies at a high price, hoping that the price will continue to climb.

Value companies on the other hand are companies that have good valuation metrics such as price to earnings or price to book value. Value purchases are made when the economics of the industry may be out of favour or the company has hit some kind of snag that is solvable. Usually the price will reflect these uncertainties and for that reason it may appear to be a bargain (but be aware it might be cheap for a reason). Value companies tend to offer a dividend which can be invested elsewhere or can be used to maintain your quality of life. In this case you are looking to buy low and sell high (although you could hold on to the stock for it's sweet dividends).

So what is the best investment strategy. In "The Big Secret for the Small Investor"by Joel Greenblatt, he makes a strong argument that value investing is the way to go. Be warned that I am biased, I would classify myself as a value investor so I tend to read books about value investing. This book is more than just a sales pitch for value investing, it gives deeper insight into an age old strategy of investing known as index investing.

Index investing is when you purchase mutual funds or ETF's that mimic the entire market index (TSX, NASDAQ, DOW, or S&P 500). This is a great passive way of participating in the market that will be sure to beat approximately 70% of actively managed portfolios (most of which is due to the low management fees, low portfolio turnover and transactional costs). When it comes to finding the perfect stock it can be analogous to finding a needle in a haystack, so index investing is like purchasing the whole haystack. Greenblatt goes above and beyond by testing out different index fund strategies.

Something he's noticed is that market indices are usually market capitalization weighted, meaning that as a singular stock price rises, the index causes you to own more of that stock. So what if that stock is overvalued? In this case your portfolio would be over weighted in overvalued stocks and we all know what happens when a stock is overvalued. The price increase won't continue forever and when bad news eventually surfaces a price crash ensues.

So what's the best solution. Consider an index fund oriented towards value investing, which would set up the weighting of your portfolio a little differently. Causing you to buy more of what is out of favour so you purchase more undervalued stocks (buying low selling high). This balances out your portfolio and produces higher rates of return in the long run.

Here are some wise words from the Oracle of Omaha himself:

Welcome to Moneyville!

Here are some links to an excellent personal finance site. It's a site that is run by the Toronto Star. Moneyville has numerous bloggers that update it with great articles on a weekly basis.

Here are some of the latest must read articles:

Confessions of a Car Salesman
http://www.moneyville.ca/article/1039552--confessions-of-a-car-salesman

Why Life Insurance Premiums Are Rising?

http://www.moneyville.ca/article/1039555--why-life-insurance-premiums-are-rising

The 7 Certainties of Investing

http://www.moneyville.ca/article/936324--the-7-certainties-of-investing

5 Things You Should Always Buy at the Dollar Store (Instead of Regular Retail Store)

http://www.moneyville.ca/article/1036954--5-things-you-should-always-buy-at-the-dollar-store

These are only a select number of the many articles available at this site. It's a great resource so I'll leave a link at the bottom of this page.

Are you Moneville.ca's next blogger?