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October, 2006


(Since several short topics present themselves for mention at the moment, a catch-all theme seems appropriate.)

Top Five Current Equity Picks

Aspreva Pharmaceuticals Corp.ASPVstock$20.46
The Chubb Corp.CBstock$53.71
Dodge & Cox Stock FundDODGXmutual fund$154.10
FreightCar America, Inc.RAILstock$49.46
Frontier Oil Corp.FTOstock$29.65


Margin of Safety. A concept developed by pioneer value investor, Benjamin Graham, meaning the positive difference between a lower price actually paid for an asset and its higher real value. For example, if The Chubb Corporation's (CB's) intrinsic value were $100 a share and its price per share were $60, the margin of safety would be $40, or 66.67% of the stock price. Graham insisted that no stock purchases should be made without a significant (generally at least 50%) margin of safety. This idea has seemed prudent and has allowed Graham and his students (such as Warren Buffett) to be extremely successful despite numerous subsequent market downturns. It is similar to the notion in engineering that if the maximum load on a bridge will be, say, 50 tons, then structurally the bridge must be built to handle, for instance, at least 100 tons. The added 50 ton capacity would be the bridge's 100% margin of safety.

Long-Term Care Insurance

LTCI can be a worthwhile protection and addition to one's other financial resources. As people are tending to live longer, but costs of health and nursing home care are increasing even faster, it is, sadly, more likely than not that folks reaching retirement age will need, but not be able to afford on their own, good long-term care. Medicare generally provides only quite limited long-term care coverage. A recent rule of thumb: if your health now is fairly good, you are age 50 or older (usually, the sooner coverage begins, the lower the premiums and the easier it is to both obtain and maintain such insurance), you have access to reasonably priced coverage through work or a retirement organization, and you anticipate a nest egg at retirement of less than $2,000,000, it will probably be more cost effective to buy and keep LTCI than to try to do without. If your assets would be over $2 million, you might be able to afford to pay your own long-term care costs. Bear in mind, however, that even then other considerations, such as inflation or a desire to leave an estate to heirs, may make the choice to get LTCI wise.

Good to Go

The circumstances for hundreds of thousands of Hurricanes Katrina and Rita refugees last year point to the importance of being ready to leave home at almost a moment's notice and for an indefinite stay elsewhere.

One way to prepare is to assure you can retrieve reserves in an emergency. One might have $50,000 in a cash account at his/her bank, but can $500 of it be readily accessed, to pay for gasoline, food, or emergency services, if temporarily stranded in another city? Here are a few tips:

  • Maintain sufficient, easily available cash hidden at home to pay for one week's expenses on the road or in a new town.

  • Use a major bank or credit union, one that affords ready access to ATM machines not merely in nearby towns but even in other states.

  • In an emergency, whenever feasible take not merely a modest minimum of cash but also ATM and credit cards.

  • Keep the bank/credit union phone and account numbers among things that automatically will be taken on the road in the event of a real or threatened disaster.

  • Keep important papers in a safety deposit bank box or in a floodproof and fireproof box at home (that would also be taken, with the key, in the event it is necessary to evacuate quickly).

  • After returning, one is advised to check her/his credit report regularly, as identity theft/fraud is a common problem for emergency victims.

Consider Savings Bonds

With stocks recently soaring, who wants something as conservative and boring as savings bonds? Smart, long-term investors, that's who! Often available through one's work or bank, savings bonds provide assured returns over the decades.

They have these characteristics or benefits:

  • Varied (EE Series, 3.2%, and Inflation-Indexed, 6.73%, recently) but quite dependable returns.

  • Easy savings as part of a regular plan for setting aside funds in the safest way.

  • A balance for riskier types of investment, for instance stocks, which may, on average, have better returns but can fluctuate dramatically and, indeed, can be down or essentially static for 15 years or more.

  • Accessible in an emergency without risk to the initial investment.

  • When held to maturity, can provide a gratifyingly tidy sum. $1000 put into savings bonds in 1965 would have had an estimated value of $9500 in 2005, per Mark Zandi, of Moody's Economy.Com.

A common error is to think that savings bonds are only for bottom rung employees whose earnings are at or just above the poverty level. In fact, they are instead typically held by conservative but reasonably well off workers and retirees with annual incomes more at the higher end of the spectrum.

If wanting a well-balanced investment portfolio, think about regularly putting a portion of your funds into US savings bonds. The time may well come when you'll be glad you did.

(Thanks much to Evelyn and Ann for information or articles that inspired some of this issue's saving and investment ideas.)


Larry is not a professional. Don't take him seriously!

Actually, the investment article provided here is for general information only and should not be considered as professional advice, a solicitation to buy or sell any security, or the Word of God. Investors are encouraged to do their own research while considering their personal goals and circumstances, or consult their own professional financial advisors, before making investment decisions. Neither Larry nor LARVALBUG will be liable for any losses sustained by any visitor to this site.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)

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