Thursday, March 29, 2012

Apple's Stash of Cash: What to Do With It

Time to Reward Shareholders?
Anyone who pays attention to the financials of Apple, Inc. or anyone who follows its stock and analyzes it knows Apple has a history of hoarding cash.  Its former CEO Steve Jobs wouldn't have it any other way. From the time he returned as CEO in the late 1990s until his death last year, he refused to allow  Apple to pay a dividend or repurchase stock. He and Apple had suffered through tough times in the early days of his return, and he had haunting memories of getting caught in a financial nightmare, being strapped for cash. He, too, endured financial setbacks with his early-1990s venture, NeXT, and was forced to inject new cash capital from his pocket to keep the failing business afloat.

So over the next decade after his return, Apple created all the gorgeous i-Products the world knows about, attracted a cult-like following of consumers, and generated cash--over $10 billion in cash reserves or over $20 billion in liquid securities, over $30 billion in all--and stockpiled it.

In this first year in the post-Jobs era, Apple continues to introduce modifications to popular products (the new iPad, e.g.) and continues to fascinate its worldwide following. But in this first year, Apple dared to do something else:  It decided that some of  the cash stockpile is better off in the hands of shareholders than in the coffers of Apple's treasury.  In recent weeks, it announced it plans to pay a dividend and will consider a stock-repurchase plan.

A first glance at its balance sheet shows the bulge of $10 billion in cash and $20 billion parked in safe securities. It also shows something else: A negligible amount of long-term debt, significantly noticeable for a firm that owns and operates industrial sites, supply and distribution channels, and hundreds of gleaming, white Apple stores, non-current assets that normally require long-term funding.

With its ability to generate gushes of cash flow in the last decade, if Jobs wanted to avoid debt to finance operations (even debt at low interest rates), he could. Apple financials show that with a surge in popularity in its products, the company generates "free cash flow" (after meeting operating expenses and other current obligations) at a pace of about $20-25 billion/year.  Each year, some of that supports new products, new stores and other research and expansion, but much of it is piled into cash accounts.

Apple, post-Jobs, has decided it's time to rethink its balance sheet.  While they ponder a new financial strategy, research analysts predict the company will continue to generate mountains of cash (likely  amassing "free cash flow" above $20 billion/year, likely to still have total reserves at or near $30 billion for years to come, some say, even with a new dividend program).

For the astute student of corporate finance, what should Apple do with its $30 billion stash?

If it chooses to pay a dividend and/or repurchase stock, how much should it deploy for this purpose and which strategy (a dividend or stock repurchase) is better for shareholders? How often should it do it? Perhaps this happy conundrum is an ideal finance exercise for the Consortium finance student at Tuck, Darden, Stern, Simon or Ross.

There are pros and cons. Much depends on Apple's vision for growth and products in the years to come.  No doubt investment banks have whispered and pitched to advise Apple's finance team, board and CEO. Apple will likely make the call.

Pros:  Why it makes sense to stash the cash, or why Jobs remained obstinate about not sharing  wealth with shareholders

1. Excess liquidity means there is  sufficient cash for emergency and unforeseen purposes. There is, too, cash to ensure that current liabilities can be paid down in an instant or cash to act as a cushion in a worst-case scenario (lawsuit, loss of property, product defect, or any unexpected event).

Excess liquidity helps CFOs sleep at night and allows the CEO and the board to focus on long-term objectives. Apple's balance sheet today shows it can erase all short-term liabilities and just about all of its long-term debt (what little it has), whenever it chooses. 

Excess liquidity also means it doesn't have to wait through product cycles (from product design to manufacture to shipping and sale)  before generating cash, especially  if new cash is necessary for new projects, new expenditures, or debt repayment.

2.  Excess reserves allow the company to avoid leverage (debt), avoid the anxiety of always having to generate just enough cash to pay down debt and interest expenses that are due and avoid having to be at the mercy of debt markets and lenders. 

3. When it chooses to invest in projects, facilities, new companies, or acquisitions, it need not rely on external bank, debt or equity markets to execute.  It can set its own timetable. This permits it to pounce on opportunities without delay, without permission from other stakeholders.

4.  With virtually no long-term debt, it doesn't subject itself to onerous covenants and requirements from debt-holders and bank lenders.  It doesn't require permission from banks or bond-holders to make investments, acquisitions or enter into new product lines.

5.  With cash residing in pockets all over the world, it need not repatriate funds back to the U.S. and subject them to taxes.

Cons:  Why it doesn't make sense to hoard too much cash, or what Jobs missed by not being more strategic in his use or deployment of cash

1.  The most obvious:  Cash and equivalents generate low returns for shareholders. Shareholders could argue they can generate similar returns or even better and would be happier to have the option of having control of cash better suited in their own treasure chest.

The low returns on cash also act as a drag on the company's overall return on equity. Apple in 2012 generated an ROE of about 16% last year. Billions of those cash reserves generating returns below 2-3% hampered returns.  If $5 billion cash had already been swept back into shareholders' pockets, the ROE might have climbed to 18%--about two percentage points in ROE gain and arguably a higher price for an already high-performing stock. 

2.  Corporate-finance experts argue leverage, when managed carefully, helps generate higher returns (and stock prices) for shareholders.  If leverage doesn't rise to burdensome amounts, an optimal amount of debt exists for any company.  The optimal amount, especially in current times when interest rates are low, (a) allows the company to continue with growth and expansion and (b) leads to higher returns without the debt becoming a balance-sheet burden.

Others argue the advantages of a varied, mixed capital structure and the advantages of having experience and discipline with debt markets well before the day the company decides it needs them.

Jobs may have understood the classical advantages of leverage, but never wanted to risk being unable to determine what that optimal debt-equity ratio should be for Apple. Or he just didn't want to fuss with debt-holders about restrictions, liens, covenants and required payments.

3.  Some have argued that Apple equity (stock) is unattractive to a segment of investors looking for income from dividends, especially from a company quite capable of paying dividends.  The absence of this investor group lessens the demand for Apple stock. Although with extraordinary increases in its stock price the past year (over 50%) and the company's way of impressing the world with impressive products, it's hard to observe slackened demand for the stock.

Apple faces the decision of whether to pay a dividend (on a one-time or regular basis) or  repurchase stock or do a little of both.

The finance culture and history of Apple suggest it will choose to remain financially conservative. Apple is accustomed to the comfort of excess liquidity and reserves. It won't suddenly tap debt markets, nor tamper with its pristine, safe balance sheet. And it will want to reward shareholders based on its own timetable. Apple will likely pay a teaser dividend and implement a modest stock-repurchase program. But don't get used to it.

Tracy Williams

Thursday, March 22, 2012

Has the gold bubble burst?

Fresh fears that the “safe haven” aspect of gold investing could be over hit investors last week with the news as “large institutions” began selling off their gold as February came to an end.
Commentators and financial advisors (as reported by a blogger for The Telegraph) think gold prices have started a downward trend and will eventually dip to around $1,000 per ounce.
This caused gold to dip in price by $100 in less than a day.

Key figures such as Brian Dennehy from Dennehy Weller speculate that there could be a final spike in gold prices and then a “large correction” in the gold price will begin, taking gold down to $1,000 an ounce. He thinks gold could even get as low as $700 an ounce.

Hope for gold prices

Of course, with every financial commentator saying that gold will fall, there is a bullion seller to say that no, the gold market is not over and that any dips in price are only temporary.

Ben Yearsley at Hargreaves Lansdowne says: “The gold price has remained high and gold shares haven’t really moved; therefore the disconnect between their profits and share prices remains.
“The world is still in an uncertain place; therefore the demand for gold will remain strong, underpinning the gold price and underpinning gold miners’ profits. So the outlook for gold shares remains good.”

Sell your gold while you can still profit

So who is right? Is Yearsley right with his optimistic view or is Dennehy right when saying that the boom is over for gold? Whoever is right, the message to investors seems to be very clear: sell, sell and sell some more.

If gold is booming, then selling makes sense; if only to avoid the dramatic fall in price that occurred last September. If gold is about to dip dramatically then the same rule applies. In this financial climate it does not make sense to hold onto a valuable, profitable commodity that changes in price daily.

How to get the best price for gold

Who knows if cash for gold prices will drop suddenly? Current market indications and subsequent research indicate that such a dip could happen. However, with the financial problems of the world still unresolved, gold could still climb back up to that $2,000 per ounce figure or even higher.

If you’re uncertain, and wish to still get a great price for your jewellery, the onus is on you to take control and sell gold now. Don’t wait for the market to change suddenly; which could leave you out of pocket.

Use our excellent gold price comparison service to find the best gold buyers for you.

Wednesday, March 21, 2012

Something Different: A Special NFL Documentary

From Emory MBA to Film Production
Now and then MBA graduates depart from business school with aspirations to succeed in a conventional career: Consulting, banking, investing, marketing, or start-ups.  Somewhere along the way, they  re-discover themselves or  re-kindle other passions and head into other directions.  They find new interests and opportunities. And off they go.  Sometimes they transition into another conventional pursuit. Or sometimes pursue something off the beaten paths.

Theresa Moore, a Harvard athlete and graduate, earned an MBA from Emory (now a Consortium school) and started out conventionally in marketing at Coca-Cola.  However, along the way, she switched courses, while  taking advantage of her business education and experiences.  Today she runs her own film-production company and directs and produces her own documentary projects.

Her most recent project aired on CBS-TV in December and the NFL Network in February. She directed and produced "Third and Long," a history of African-Americans in pro football. (See  Third and Long for excerpts.)

 It was critical, she says, to go back and go beyond mere black-and-white footage of the stalwarts from the 1960s or 1970s. She wanted to capture the essence of those experiences by interviewing many of the stars first hand, grabbing their impressions, their stories, their feelings, and other anecdotes of blacks in pro football during the days before it peaked in popularity. She wanted them to tell their own stories of how they contributed to pro football's rapid rise in popularity.

In the documentary, Moore, who is president of T-Time Productions, interviews such former stars as Deacon Jones, Jim Brown and Rosey Grier. They share locker-room stories, analyze their own performances vs. today's players, and recall days when blacks comprised only a handful of players on a team. They discuss how they hurdled barriers to earn a team spot or win general acceptance. Moore worked with the NFL to use stock footage of game film, but her project comes to life with engaging, colorful interviews. The players open up and share their stories, their reflections of the game back then, and the parts the play in the NFL's evolution.

With this project wrapped up, Moore is involved in other activities and wants to do similar projects.  She says in other sports, there are black or female athletes who were courageous pioneers in their pursuits and who, too, have stories and reflections. She wants to capture their impressions, anecdotes and memories--perhaps before it's too late or before the elapse of time dismisses their contributions or roles.

Her project "License to Kill: Title IX at 35," a history of Title IX that includes interviews with college women athletes over the past decades, will be distributed for education purposes.

Her projects have themes, purpose, storylines and ties to history. However,  Moore says they have yet another important objective:  She wants to document thoroughly the commentary and accounts of black and female athletes from previous decades to have an accurate account for archival purposes.  A vast pursuit, but essential for sports historians, as they track the evolution and impact of sports and study the contributions of major participants--including black and female athletes.

The long-term project is ambitious, so she is using her business experiences and contacts to plan a way to accomplish it.  For more about her production company and its agenda or for those interested in learning more about her pathway from Harvard to Emory to the NFL, see T-Time.

Tracy Williams

Saturday, March 17, 2012

The Peril of Printing Money

Traditionally, printing money supposed to be the last resort to the monetary policy. However from the recent sovereign debt crisis in the Euro zone and the U.S., we can see these policy makers are embarking on large scaled quantitative easing process to avert the collapse in the financial system.

The US embarked on the QE1 and QE2 with each over US$1 trillion respectively in the last 2 years, similarly, the Bank of England had its first QE1 in Mar 2009 and the QE2 in Oct 2011 with £75b and £50b respectively. And recently, in saving the mess in the Euro zone, the ECB has engaged in the so called long-term refinancing operations (LTRO) which is equivalent to the back-door quantitative easing, with €409b and €529b for the last 2 months.

Essentially, what is QE and LTRO? QE refers to the central bank implements quantitative easing by purchasing financial assets from commercial banks and other private sector businesses with printing new money. While LTRO refers to the central bank lending money at a very low interest rate to euro zone financially troubled banks with printing money, which has led to the term “free money" and these banks are suppose to pay back at a much later date.

For the LTRO, the injection of cheap money means that banks can use it to buy higher-yielding assets and make profits, or to lend more money to businesses and consumers – which could help the real economy return to growth as well as potentially yielding returns.The best part, the banks can borrowed these money and pay back to the ECB after 3 years rather than the usual 3 months or 6 months.

So what's the consequence?

The biggest consequence is the income gap between the rich and the poor will widen significantly!

As we have too much money supply in the market it will result in "too much money chasing too few goods", which means the food prices will increase in tandem which drives up the cost of living. This is the demand-pulled inflation that is brewing in the economy.

On the other hand, during inflation, asset prices will rise accordingly while the paper money will lose purchasing power. Hence, the poor being not able to invest in stocks and houses, will be the greatest losers in the economy.

On top of that, commodity prices such as precious metals and energy will escalate too. The poor definitely do not benefit from this because not only do they own minimum precious metals, they need to face up to the consequence of the rising oil price that make their living even worse off. The rising energy prices will act as a double wammy to the economy because this cost-driven inflation will push the inflation rate higher. Hence, demand-pull inflation coupled with cost-push inflation, the economy will likely to run into "hyperinflation"!

Does the policy makers know the consequences? Why did they do this?

Well, with the QE, bank rates are artificially kept at an ultra low levels which makes borrowing easier for the business sectors. At least that's their intention - to promote more borrowing which in turns stimuate groth in the economy. But whether the low interest rate helps to revive the economy really depends on the business confidence because we can have the lowest rates in history but if the public shows lack of interest in borrowing the "free money", the economy can't move forward! Hence, QE did pump lots of money into the banks but this only improves banks' liquidity, not the economy. Even though, the minority rich will get richer as asset prices like stocks, properties and commodities will soar, but the majority of the population is still poor and unemployed!

Now with the fear of inflation, how would the business confidence improve? Whether the central banks print money or not, it will take time for any economy to recover. If I were the Fed, I'll stop printing money, let the economy go through the cycle, let the commodity prices fall and hopefully tommorrow will be better!


Happy investing,

Pauline Yong


Thursday, March 15, 2012

Goldman Sachs: About That Letter

Another PR headache?
Greg Smith, an executive director in equity derivatives, decided this week it was time to quit his career in finance after 12 years, even though he was on the doorsteps of reaching a Wall Street pinnacle--managing director/partner at Goldman Sachs.  He was frustrated, he said, by the culture, the norms and the behavior of colleagues at Goldman. He decided to share that frustration with just about anybody who participants in or follows global finance.  

Smith's op-ed resignation in the New York Times (Resignation Letter)  certainly rocked the finance world for at least a day or two. At least until mid-next week, executives, market-watchers, observers, and pundits will try to address the questions Smith raises about Goldman and Wall Street's approach with clients  

But will this issue be the talk of the Street two weeks from now?  Will those who have influence in the industry try to effect changes or rationally put Smith's complaints into perspective? Is his letter a clarion call or just a late-winter market distraction? Will these same issues be at the forefront of discussion a month from now? Or will all the banter, rebuttals, backlash, calls for change and attempts to humanize Wall Street culture quietly go away?

A few things to note: 


First, Goldman Sachs, guilty or not of what Smith accuses it, will survive this. It has tens of billions in capital, improved markets and a new public-relations executive who just started this week.

Second, it's no coincidence Smith resigned in February/March.  Bonuses for 2011 have been wired into personal banking accounts. Smith was not yet a managing director. He was perhaps a few years away from that venerable title. As a Goldman executive director, he was still relatively senior and well-compensated. 


If his track at Goldman was conventional, he spent three years as an analyst, about 4-5 years as an associate, 3-4 years as a vice president, and the past 1-2 years as an executive director. He enjoyed the monetary benefits of the period when compensation soared in the mid-late 2000s. Notwithstanding the financial crisis and fluctuations in sentiment about compensation, his bonuses the past two years were still lottery-like sums to those outside of Wall Street.

When he wrote the letter, he had a plan, including a financial back-up strategy, too.

Third, many say he can never work for a big-name Wall Street firm again. Who would hire him? Who might be willing to take a chance with his talents, experience and industry knowledge, knowing that he may call into question another firm's culture sometime later? Smith is aware he has limited opportunity at another big bank.  


He wrote his piece almost certainly having outlined plans for his next steps. What will he do? 

Maybe he'll explore doing something far away from the core of bulge-bracket banking and trading. Maybe he'll join an industrial company that uses derivatives and will help that company understand how banks sell the same products.  

Maybe a hedge fund or venture-capital fund, thrilled by his courage and daring and confident about his skills, will offer him a post (or has done so already).  Perhaps he'll join Stanford classmates and connections at a West Coast start-up. Maybe he's writing a book about his experiences.  (His letter screams for detail, amplification and examples.)

Or then again, maybe this is his definitive departure from finance, and he plans to dabble in music, theater, teaching or art collecting.  

Recall the late 1980s, when Michael Lewis wrote "Liar's Poker"--his scathing account of his entry-level experiences at Salomon Brothers. He was only a couple of years out of Princeton and eyeing a long career in fixed-income sales & trading. The book sold well. Extremely well, in fact. He knew he could never return to any bond-trading desk anywhere. But with the subsequent blazing successes of "Money Ball" and "Blind Side" and "The Big Short,"  he hasn't looked back.

Tracy Williams 

See also

CFN:  Goldmans Sachs and Its Facebook Investment, 2011

CFN:   The Culture at Goldman Sachs, 2010

CFN:  A University President on Goldman's Board, 2010

CFN:  Is I-Banking Still Hot? 2011

Parsons: On to the Next Phase


What's next for Parsons?
After an illustrious business career that spanned decades, Richard Parsons is calling it quits this month. 

He announced he wouldn't pursue re-election as chairman of the board at Citi. (Citi, as many know, has been an important, decades-long supporter of the Consortium and a host at Orientation Programs and Consortium events in New York.)

Has an era ended?  Parsons has been a pioneer in many ways, and he wraps up a career filled with quite a few "African-American" firsts."  He was CEO in the 1980s at Dime Savings Bank, at that time a well-known New York regional bank. He later became CEO at AOL Time Warner in the 2000s, landing right in the middle of turmoil from the cantankerous combination of AOL and Time Warner.   

Few African-American lead or have led major financial institutions, so Parsons' exit from the Wall Street scene is noteworthy.  In 2012, Kenneth Chennaultcontinues to preside over American Express. Stanley O’Neal rose to the top at Merrill, scratching and grinding from investment banker to CFO to CEO, but departed suddenly after an avalanche of mortgage-related losses during the financial crisis.

Was Parsons pushed out at Citi? Was this a behind-the-scenes ploy by current CEO Vikram Pandit to seize more control at Citi after a relatively calm and successful 2011? Did Pandit plot to assert himself now that re-engineering, reorganizing and downsizing at Citi are well under way. Not really.

Years ago, Citi adopted a governance strategy long accepted at European institutions--separating the roles of board chairman and the CEO. In the U.S., the CEO is often the board chairman.  Elsewhere, it's likely the CEO answers to a board chairman who is not involved in daily operations. The board chairman watches over the CEO's shoulders. 

So as Parsons exits, Pandit won't rise to the position of chairman; Michael O'Neill will succeed Parsons. The timing might be optimal.  Citi is restructured, performance has improved, odd businesses have been sold, and now it can gear up for the impact of tough Dodd-Frank legislation. 

For his part, Parsons, 63,  is likely contemplating a life with other activities and projects (his interests in the community and in jazz).  As Citi chairman since 2009, he was in a position that sometimes seems ceremonial. Yet with Citi, like most financial institutions since 2008, under the gun, scrapping desperately to survive the crisis and undergoing soul-searching reviews of its strategy, Parsons' role was likely anything but ceremonial.

In the end, he's had a sparkling, assorted career. He started out long ago as an aide for New York Governor Nelson Rockefeller, rode those coat-tails for a long time, and took advantage of contacts to propel himself up the corporate ladder. He eventually transitioned into corporate life and became Dime Savings' head until it was later sold. Years afterward, he found himself at the top of AOL Time Warner after what was an awkward, questionable merger of AOL and Time Warner. 

Business observers have been neutral about his overall performance throughout his career (measured by gross profits, profitability or percentage increases in share prices). Yet whether at Dime, Time Warner or Citi, he always found himself in fire-fighting roles, where he had to lead companies out of corporate turmoil or shepherd them through complex restructurings. 

Some say he had the knack for being in the right place at the right time. That knack started with his ties to Rockefeller, who got to know him after law school, liked him and tapped him to be an assistant. That relationship jump-started his career.

Being lucky helped, but rising to the occasion helped.  And he demonstrated he could manage a variety of ugly corporate situations in different industries, solve board-level problems, negotiate effectively and bring together groups with different agenda. He was often praised as being conciliatory, comfortable to work with, smooth, and one who understood tough, grinding business issues. 

A classic case of someone who didn't ruffle feathers, who was generally well liked, and was fortunate to have started his career with the best of contacts. One who should be remembered, too, for those pioneering roles. 

Tracy Williams
 

Wednesday, March 14, 2012

5 Ways to get the best Hospital Cover Quote

To get the best hospital coverage quote, you need to do some checking of different features. There are 5 great ways you can get the best deals and the coverage that you really need.

#1 Look Online at Sites

When you checkout sites online, you can quickly compare what different hospital coverage plans offers. You can submit your information to get no obligation quotes. You can also see information online that helps you to find out what other companies have to say about a given provider. You can get the pros and cons from those that have had to rely on their services. Make sure you read the fine print too on what they state they offer so that you don’t get mixed up with coverage that is lacking.

#2 Be Honest

Even though you don’t have to do a physical exam to get a hospital plan, you do need to be honest about the information you share. You need to declare any lifestyle choices that you take part in such as drinking or smoking. Be honest about your weight, your physical activity, diet, and any health concerns you may have. You also will be asked about your family history and you should be honest with that information based on the knowledge you currently have.

#3 What is your Budget for the Monthly Price?

You need to know what the amount is you can reasonably pay for each month with your hospital coverage. Try to get a dollar amount that is less than what you can afford to pay. That way you don’t get into a bind where you fall short. Never agree to a price that you can barely afford or that you know will be an ongoing struggle for you. Don’t say you can’t afford any coverage at all though. You need to make more money, cut expenses, and do what you have to so that money is free to pay for this coverage. It is too risky to be without it.

#4 Identify the Coverage you Need

Assess your needs and make sure what you pay for offers you the coverage you need. If the cost is too much, start taking out those coverage elements that are nice to have but not necessary. When you have more money to work with later on, you can increase the amount of coverage that you have. If you are married or you have children, look for coverage that has everyone included, not just you.

#5 Benefit from Discounts and Special Offers

Many of the providers out there are doing all they can to entice people to get their hospital coverage from them and not from a competitor. They offer discounts that allow you to get the coverage you need at a lower price. Look around for such offers so you can stretch the money you do have to pay for your coverage. You can find such offers online but most of them have an expiration date you need to be aware of.

Thursday, March 8, 2012

How a Cell Phone Contract Works

You can get a lot of value out of a long-term cell phone contract. Long-term phone contracts provide more than simply a refreshment of minutes every month. Perks include being able to call other members for free who are in contract with the same carrier and free texting , depending on the carrier. In addition, a previously unaffordable cell phone can become affordable if purchased with a contract; it's a lot like the cell phone company is offering you a credit card to purchase the phone. Higher priced phones generally have better parts and are engineered better which allows them to last the duration of long contracts.

You typically do not get phone insurance with pay-as-you-go routes. Also, when you acquire a higher quality phone with more features with a long-term contract, you have a lot of extra time to experiment with extra features far beyond the bounds of the two to four week trial period. Phones are so complex these days that many people feel that trial period is not long enough.

Cell phone contracts also have the benefit of allowing users to track their call usage over a long period of time. This can be an essential component of the relationship between the cell phone company and a consumer who meticulously tracks their own usage to micromanage it. Viewing your usage history in a big picture view gives you the benefit to track such things as trends in your calling. For instance, if your usage becomes free at 7:00pm and you are making a lot of calls beginning at 6:45pm, you can try to train yourself to wait the extra 15 minutes. Long term contracts also provide you with the ability to see just how many text messages you are sending. If you happen to be going over your limit of text messages for the month, and there is no higher package for text messages, and you are finding that you have excess voice minutes remaining at the end of each month, you can opt to phone certain people you text message frequently instead of texting them.

Many people switch to cell phones from landlines. They can get the same reliability a landline provides while having the ability to use the phone wherever they go. It's a great option for those on the go, people on business trips, and for those who are in between homes. A lot of people begin with pay-as-you-go contracts when switching over to cell phones from a landline. This provides them with time to give cell phones a good trial before they commit to something longer term.

So, as you can see, a long-term contract offers a lot of perks that a pay-as-you-go arrangement may not. You typically have better phones to choose from, and added benefits written into the contract such as insurance and customer service over the phone. What's more is that you have statements with detailed phone usage to help you gauge how you should use the phone most wisely in the future. There are a plethora of advantages.

Tuesday, March 6, 2012

How to Lower Auto Insurance Costs

Is lowering auto insurance costs a move that is worth the effort? Fortunately, you can accomplish that in many ways. Following are some tips that can make you save more money in auto insurance:

Ask Someone to Evaluate You

Let your current provider of auto insurance know if you are satisfied with their services. They will go at lengths to make you stay with them and keep you happy. However, in some cases you may ask them to evaluate your premium anew. Let them know that your driving record is flawless, your credit has improved, and include more stuff that will make them understand that more changes are in order.

Let them know about current life changes too, such as marriage. That is a legitimate ground for evaluation. You can also include someone else in your policy. Making two separate policies won't make much sense when one will do, so it is recommended that you keep the policy that does the best work. There are also auto insurance providers that give married couples discounts.

A significant date, such as a birthday, can also be a good reason for evaluation. For example, insurance costs for 21-year-olds should be smaller than those for 19-year-olds. Having taken any driving lessons can also allow you to garner more discounts. Thus, never forget these events when you are being evaluated.

Go For a Greater Deductible

If you never needed to file an auto insurance claim for long, you will be noticed as a safe driver. Now, you can save money by making the deductible amount greater. The deductible is the money that you pay from your wallet when filing a claim. Though the deductible could be some hundred dollars more than its current amount, it is possible for you to save 15-30% on monthly premiums if you increase your deductible.

Devices that Analyze the Way you Drive

Many providers of car insurance place devices on vehicles of policyholders. The purpose of that is to examine the way you drive for a specified length of time, which could be at least 30 days. With that, you can save money as long as the reports indicate that speeding isn't your thing, you don't make sudden stops, and even if you do not seem like that you drive very long distances with your automobile. You can keep more money in your pocket if you drive 20 miles per day compared to if you drive 50 miles per day.

Snap Off Coverage for Roadside Assistance

In auto insurance, roadside assistance can sound like a brilliant idea. However, if your vehicle is working well, you will need it very, very rarely. So pull out the roadside assistance of your coverage so that you can save money. If you'll ever need help, a tow truck or many other roadside assistance services are only one mobile phone call away. It won't cost that much as you think, and every year, you will end up paying less for them than the amount that you pay for roadside assistance on your coverage.

For the Fortunate Few: Comp Packages

Bonus season at financial institutions has come and gone. Yet for the month or two afterwards, there is the inevitable aftermath, the ruminating over what happened and the pondering over whether lucrative payouts in years past will ever reappear.

In the post-crisis financial industry, where many just feel fortunate to be employed, there will still be some degree of anger, frustration, or disappointment in payouts. Many yearn for the times of the 1990s or the early 2000s.  Most know the industry is still enduring a shake-out or a re-engineering of sorts, and compensation is a candidate for shake-out, too. 

Handsome compensation packages still exist in certain segments, perhaps most prominently at venture-capital firms, private-equity companies and hedge funds.  Even in 2012, you can read about insane, mind-boggling bonuses, likely because someone made an insane, mind-boggling hedge-fund trade.  Payouts at banks, investment managers and other financial institutions (or in general finance roles) still appear to be attractive to some, even if they have slipped to pre-2000 levels.

Financial institutions, however, are trying to be more creative. More than ever, they are tweaking the structure of compensation packages--more stock, less cash, some options, and even some distressed debt or arrangements with "claw back" features (where employees are required to return promised payouts if individual or institutional performance reverses itself).

In this post-bonus season in 2012, reports are widespread about the reduction in payouts or the clever structures of packages.  Morgan Stanley, for example, capped cash payments at $125,000. Credit Suisse and others transferred certain structured bonds or mortgage securities from their spruced-up balance sheets into the pockets of some senior managers.


The structure of comp packages depend on market and peer practice and institutional performance, but they also depend on experience levels and individual performance.  Accounting rules, impact on overall ROE and long-term corporate issues are also factors.

Senior bankers and traders are more likely to be awarded packages that include restricted stock, deferred compensation and/or options.  More junior personnel (analysts and MBA associates, e.g.), still with little leverage, will have less say-so and may be awarded all cash or some stock--whatever is rationalized by senior management at the time.

If you are a finance professional and if you are lucky enough to receive a comp package, what would you prefer? From the list below, what is the optimal structure for the firm and for you, no matter whether times are good, bad or so-so?

1.  Cash
2.  Cash and options
3.  Cash, options, and restricted stock
4.  Cash and deferred compensation
5.  Cash and debt securities

 Over the past two decades, there have been variations.  Recall the dot-com era, the explosion of Internet businesses and stocks.  In the late 1990s and early 2000s, some financial institutions awarded bankers and traders stakes in venture funds, start-up companies or leveraged investments.  More firms today are exploring debt compensation.

Two Wharton researchers argue comp packages should include debt securities issued by employees' companies. (See Wharton Research:  Alex Edmans, Qi Liu)  They argue that senior managers should behave like owners to maximize returns, but also behave like debt-holders who, because they aren't promised high returns, are more careful about managing and controlling risk.

As debt-holders, managers at financial institutions will be more apt to manage businesses within more comfortable risk bands. A payout, for example, of 80-percent stock and 20-percent debt makes sense.

Younger professionals usually prefer cash, partly because they need it.  Experienced bankers, traders and managers sometimes prefer cash, because they contend they can manage the cash better and more suitably for themselves than the employer.

In the dot-com era, younger professionals (including analysts and MBA associates at prominent firms) actually demanded it, or they threatened to leave finance for opportunities in technology.  And the bulge-bracket firms at the time obliged.  This same segment has less leverage today, but will likely still be paid minimally in stock holdings.

All the world knows, if the company is expanding and growing and has a bright horizon, then packages adorned with options and stock are welcome.  If the company has stumbled or is struggling, employees will shirk equity that will likely decline, although a cash-strapped company will tend to award just that because cash is necessary to stay viable.

Deferred compensation and options are unattractive when the company's prospects are failing. Options over time can expire worthless. And institutions sometimes go bankrupt (Lehman, e.g.), at which time deferred comp becomes just another debt claim.

For the newer MBA associate or first-year vice president at stable institutions in stable industry segments, non-cash compensation is not as bad as it sounds when managers hand over the envelope with "the number."  Non-cash comp comes with restrictions and requires patience, but there are advantages (although sometimes hard to see when you are just starting out):

(a) The upside tends to be greater in the long term.
(b) And yes, it can be a disciplined savings plan for those who haven't yet begun to appreciate the values of long-term investing.

Tracy Williams