Saturday, September 15, 2007
A Faster Run for Your Money
STANDING STILL IS ONE OF THE BEST ways to go backward when it comes to reaching your financial goals. Here are a couple of recent updates from investment-software firms—as well as a cautionary tale or two about student loans—that should help speed you in the right direction in life’s monetary marathon.
SAGEWORKS’ PROFITCENTS (http://www.profitcentspublic.com) recently added some new analysis to its financial-reporting interpretation tool, which we previously recommended for the serious fundamental investor (The Electronic Investor, May 22, 2006). The Sageworks reporting engine runs Securities and Exchange Commission filings through a series of analyses, and then explains the resulting huge piles of data in a straightforward way, aided by a series of charts and graphs.
The new analysis, which seeks to get at a public company’s intrinsic value, is a nice complement to ProfitCents’ existing reports that focus on liquidity, profits, borrowing and assets. The latest addition includes a price-to-valuation analysis based on discounted cash flows, a trailing 12-month price/earnings ratio, and a dividend yield. Related graphs illustrate price-to-value for the company versus the industry average, as well as the P/E ratio versus the industry average. For companies that pay dividends, a graph compares the company’s dividend yield with the Standard & Poor’s 500 average.
For $199 a year, a user can run an unlimited number of reports by entering the ticker symbol of the company she wants to analyze. Both the “Analyst” (more sophisticated) and the “Basic” reports let the user choose from three temporal comparisons: fiscal year to fiscal year, current quarter to year-ago quarter, or current quarter to previous quarter. The patented ProfitCents artificial intelligence engine reviews the financial statements and evaluates the firm’s performance over time.
What do the results look like? The new valuation section generated the following text when analyzing General Electric, comparing fiscal 2006 and 2005: “This company may merit some attention from value investors, although the results are somewhat conflicting. The company’s valuation comes up short of justifying its market price, but it compares well with similar firms. Basically, the company’s projected cash flows make this company look like a solid value compared to competing firms.”
I enjoy perusing the reports generated by the “Analyst” level of ProfitCents, but find the information created in the “Basic” view to be a little too simplistic. The Basic reports award one (lowest) to five stars in the five operational areas covered by the program (Value, Liquidity, Profits, Borrowing and Assets) while Analyst provides more depth, and rates these five areas from one lowest to 100.
In a future version, I’d like to see the opening user interface spiffed up to allow an investor to set up a portfolio of companies and possibly create e-mail triggers that would be activated when a prespecified company files an SEC report that might affect its rating. It would also be helpful if ProfitCents would allow a user to compare two companies, side-by-side.
My last nitpicking complaint: The site requires the user to agree to the terms and conditions every time a report is generated. There’s got to be a way to agree to those terms just once each session, so that the user isn’t repeatedly tripped up.
eSIGNAL RECENTLY ANNOUNCED an intriguing new product called QuoteTrader (http://www.quote.com/quotetrader) that should quicken your analytical step while letting you enter trades. It links to a number of online-brokerage accounts (including those kept at optionsXpress, Interactive Brokers, TD Ameritrade and MB Trading), and allows you to enter transactions on all of them from one screen, provided the brokerage has partnered up with eSignal.
QuoteTrader is mostly free—some brokerages (TD Ameritrade and Interactive Brokers) also throw in the charting add-on for no charge, but for those that don’t (such as optionsXpress), you can pay the added fee to use it. Since all of the market data are provided by your brokerage, you don’t generate a lot of one-off fees. Adding on the LiveCharts charting applications rings up a $9.95 monthly charge—however, you can also opt for higher-end QCharts for $95 a month.
There are a few steps to get set up, so if you decide to check this out, give yourself an hour or so. First, you have to sign up for an eSignal account and download the software. Then you must link the program to all your brokerage accounts and test your connections.
I like the depth-of-book display, which shows you open orders. You can also define profit targets for a position, and automatically close it once the target is reached. QuoteTrader lets you check on forex, futures and options, as well as stocks. It’s a fun toy, especially for the data junkie. Setting it up isn’t a picnic, but it’s tolerable.
STUDENT-LOAN FEEDBACK: Quite a few readers responded favorably to my column on saving and investing to pay college tuition rather than taking out a loan. One writer helpfully pointed out that an option I’d mentioned was eliminated in 2006 (see below for excerpt from this week’s Mailbag).
A reader, who is penning a book on how college grads can land that first post-diploma paycheck, wrote to tell me a series of tragic stories of student loans gone bad. Among them: A college grad who’d lived with his parents for nearly a decade while employed as a limo driver to earn money to pay off his loans. Even so, he estimated that it would take another two years to wipe the ledger clean.
I was also alerted to a University of Washington Alumni Association survey of its membership on how they’d financed college (http://www.washington.edu/alumni/survey/200612results/loans.html). Although the group neglected to ask specifically about loans, quite a few alumni responded that borrowing had hurt the quality of their post-grad life. One noted: “I was blissfully ignorant of the material sacrifices I would have to make in the future when signing my name to the forms during my educational years. Add credit-card debt accumulated while finding a job post-graduation. If I had it to do over again, I would have worked during college and tried to pay at least half of my educational expenses and planned ahead for post-graduation empty pockets.”
Another reader congratulated me on getting my daughter through college debt-free, and passed on his experience investing on behalf of his granddaughter, who is in sixth grade. Three years ago, he started a Custodial/DRIP [dividend-reinvestment-plan] portfolio of three stocks, and reports that now the account is large enough to purchase a medium-sized car—six years before matriculation. He concludes by saying, “Stock appreciation, dividend compounding, and voluntary investments combined with the child’s scholastic accomplishments will assure a good education and lucrative life after graduation—debt-free!”
That’s the essence of a successful financial marathon.
Excerpt from 9/10/2007 Mailbag, in response to my 8/27 column on student loans:
To the Editor:
Regarding the Aug. 27 Electronic Investor column on student loans, the gifting strategies Theresa W. Carey employed for her daughter’s college payment plan aren’t still valid. Prior to enactment of the Pension Protection Act of 2006, parents could make a gift of appreciated securities to a minor over age 13, and have the minor sell them at his lower tax bracket to pay for college. The 2006 act changed the kiddie-tax age to 18 in 2006, and then 2007 legislation changed it to age 23 for full-time students. Unearned income in a given year above $1,700 for a full-time student, up to age 24, is taxed at the parents’ typically higher rate, making this strategy a non-starter for most college-bound families.
College Planner LLC
Walnut Creek, Calif.
Published in Barron’s, September 10, 2007.
Friday, September 14, 2007
TD Ameritrade's Statement Regarding Database Breach
The following is a press release issued by TD Ameritrade this morning:
TD AMERITRADE RELEASES RESULTS OF CLIENT SPAM INVESTIGATION
Assets Remain Secure
No Evidence of Identity Theft
Omaha, Neb., September 14, 2007 – TD AMERITRADE Holding Corporation (NASDAQ: AMTD) has discovered and eliminated unauthorized code from its systems that allowed access to an internal database. The discovery was made as the result of an internal investigation of stock-related SPAM.
The Company commissioned forensic data experts to assist in its investigation of this issue. Results of their combined efforts reveal the following:
—Client assets held in accounts with the Company remain secure as UserIDs, personal identification numbers and passwords were not stored in this particular database.
—Information such as email addresses, names, addresses and phone numbers was retrieved from this database and affects TD AMERITRADE retail and institutional clients.
While more sensitive information like account numbers, date of birth and Social Security Numbers is stored in this database, there is no evidence that it was taken.
“While the financial assets our clients hold with us were never touched, and there is no evidence that our clients’ Social Security Numbers were taken, we understand that this issue has increased unwanted SPAM, which is annoying and inconvenient for them,” said Joe Moglia, chief executive officer. “We sincerely apologize for that and any added concern this may have caused.”
The Company has hired a third party, ID Analytics, Inc., to investigate and monitor for potential identity theft. ID Analytics provides identity risk services to many of the country’s largest banks and telecommunications companies, as well as government agencies. Following its initial evaluation, ID Analytics found no evidence of identity theft as a result of this issue.
“Following our thorough analysis, we found no evidence of identity theft related to TD AMERITRADE clients as a result of this issue,” said Mike Cook, chief operating officer of ID Analytics, Inc. “In our opinion, TD AMERITRADE is applying proven measures and technologies to help protect its clients from identity theft.”
TD AMERITRADE will retain ID Analytics’ services on an ongoing basis to support its client accounts by continuing to monitor for evidence of identity theft.
The Company is confident that it has identified the way in which this information was taken and has taken the appropriate steps to prevent it from recurring.
“This issue is not unique to TD AMERITRADE. It’s something that all companies involved in e-commerce should be aware of and prepared to address,” Moglia continued. “We participate in industry peer groups to share information on these types of threats in the interest of protecting all clients.”
TD AMERITRADE wants its clients to know that no special actions are required of them with regard to their accounts, other than to continue remaining alert in guarding their personal information. Their account assets are still protected by the Company’s Asset Protection Guarantee.
For more information on this issue and the Asset Protection Guarantee, please visit the Company’s special client information center at http://www.amtd.com.
Please post a comment if you have any experience with this issue. Thanks.
Posted by twcarey
on 09/14 at 06:37 AM
Saturday, September 01, 2007
Back to School on Student Loans
IN LATE MAY, I PASSED A MILESTONE that generated great pride and satisfaction: My elder daughter graduated from college, with honors. Adding a little extra sheen to that accomplishment, she walked away with a diploma—and no debts.
There hasn’t been much time to savor that moment. In just a couple of weeks, my younger daughter kicks off her college career. I’m hoping we’re able to get her through her undergraduate years using the money we’ve saved and invested since she was born. Meanwhile, the older kid is considering grad school, and there’s no funding set aside for that. Unless the burnt offerings I’m making to the fellowship gods work, the prospect of taking out an education loan suddenly has ratcheted up.
As I peruse the possibilities, I’m thankful for my finance background. There are so many ways to go into debt by financing an education that it can be difficult to make the proper choice.
Many years ago, to avoid the debt trap, I set up an automatic deposit to an account for each child’s education and selected investments that I thought could beat the rate of increase in college tuition. When the kids were in junior high, I started transferring the assets to their accounts as gifts. When investments were sold or matured, they were in my daughters’ names and taxed at their rate. I researched Section 529 programs, but ultimately steered clear of them because the fees seemed very high.
THIS TIME AROUND, AN OBVIOUS FIRST STEP was to check the recommendations made by my offspring’s university. Most college Websites devote some space to ways to pay tuition, including loans and scholarships. After all, it’s in their best interest to make sure each student can pay for her education. But, of course, given the recent news about college student-loan officials being fired for taking payoffs, it’s wise to make the school’s advice just one factor in your decision.
So what’s out there? Subsidized federally guaranteed (Stafford) loans require the filing of a Free Application for Federal Student Aid during the spring; see http://www.fafsa.ed.gov. The government picks up the interest-rate costs while your child is in school. There are unsubsidized federally guaranteed loans (Parent Plus and a version of the Stafford) as well, which are not based on need. However, these loans generate interest charges from the time they’re disbursed until they’re paid. You can pay the interest during the school years, lowering your total bill, or you can allow it to be added to the principal amount.
Private loans are also available, from banks and other finance companies. The National Student Loan Data System (http://www.nslds.ed.gov/) is the U.S. Department of Education’s central database for financial aid, and provides an in-depth list of resources.
“It is easy to get confused with the complexity of the student-loan landscape: federal loans; private loans; parent loans, student loans; subsidized loans, unsubsidized loans; borrower benefits—the chances for confusion abound,” says Kevin Walker, CEO of SimpleTuition (http://www.simpletuition.com), a loan-shopping Website aimed at college students and their families. “Parents and students should forget the time crunch for a moment, take a deep breath and do their homework before making decisions that could cost them thousands of dollars over time.”
The federal loans (not only Stafford, but the Ford and Perkins programs, too) usually cost less and offer more flexible repayment options. Walker recommends that parents max out on them before turning to private loans.
One site we found very helpful is Mapping Your Future (http://mapping-your-future.org), which offers early awareness, college preparation, career planning, default prevention and financial-fitness tools and services.
One of the Mapping Your Future services is Online Student Loan Counseling, which is required by most federal loan programs before funds can be disbursed.
The counseling session provides information about how to manage your student loans, both during and after college. A university has to sign up with Mapping Your Future to allow its students to obtain their loan counseling online, however, and not all universities do.
Mapping Your Future also includes several informative Webcasts on topics ranging from 529 college savings plans (mostly run by individual states) to understanding the Free Application for Federal Student Aid program. Helpful question-and-answer sessions are posted every few months; to find one, click on “Chat Events” on the left side of the mapping-your-future.org home page.
Once you’ve graduated, you may want to consolidate your school loans. SimpleTuition has a companion Website called ConsolidationComparison (http://www.consolidationcomparison.com) that represents a large number of lenders who can help out.
When I attended the parent orientation at my younger daughter’s university, I was told that tuition could be paid with a credit card. I recoiled from that possibility, and hope that those who pay tuition on a credit card are only doing it as a convenience, and can pay the bill when it’s due; too much credit-card debt is a sure route to financial ruin. It tends to steal some of the pleasure from graduation day, too.
INTUIT HAS ANNOUNCED A BETA test of a new version of Quicken that could help students better manage their finances (http://www.quickenonline.com). This is a Web-based personal-finance product, not just Quicken desktop on the Web. College students receiving financial aid often get a lump sum after tuition is paid that’s dumped into a bank account and intended to last through the term. Many students immediately spend it. Although not specifically a loan manager, the Quicken product might help students corral their loan funds well away from, say, their beer budgets.
ONLINE-BROKER NEWS: Reports that E*Trade (ticker: ET) might merge with TD Ameritrade (AMTD) evoke a plea from me: Please, don’t. Yes, TD Ameritrade has some noisy hedge funds trying to force a merger. But it would be a disaster from a customer’s point of view—a point of view shared by this column. The firms are No. 2 and No. 3 in accounts behind Schwab (SCHW), but serve different needs. Making the hedge-fund managers happy would make millions of clients miserable.
Published in Barron’s, August 27, 2007.