Money & Investing - Banks.com

Recent events have me thinking about what makes a prudent investment. After all, when one looks at some of the ways that late pop singer Michael Jackson invested his money, it is difficult to think that he always made wise decisions. Or maybe his investments were reasonable, but the way he overspent (his legal problems only added to his costs) rendered his investments decisions moot. While Neverland (and the toys continually bought) turned out to be poor decisions, buying the Beatles catalog was probably a smart move, reports BusinessWeek:

Shortly after his string of early 1980s hits that included Thriller, one of the best-selling albums of all time, Jackson was shrewdly advised to buy the Beatles catalog for $47 million. Ten years later, Jackson merged his music company with Sony Corp.’s (SNE) music publishing arm in a deal reportedly worth $90 million to him.

Today, that company owns the publishing rights to thousands of hit songs by everyone from Neil Diamond to Lady Gaga. Music publishers collect royalties from radio stations, movie studios, and record labels every time a song is played or album sold. Jackson’s half interest has been estimated to be worth as much as $500 million.

At any rate, I began wondering to myself about what makes a prudent investment, and how you could figure out if you were making a wise decision. After all, all investment carries the risk of loss, and anything that seems a good idea at the time might turn out to be a poor idea. But here are some tips that might help you better determine what might make a prudent investment:

1. Potential for gains. You want something that is likely to increase in value over time. And those gains should overcome any expenses that you incur. (This is why I rarely think a primary residence qualifies as an investment; what you pay in interest almost always overcomes the amount of money you make when you sell a home that has appreciated in value.)
2. Acceptable risk. You need to be able to determine your risk tolerance, and make investments that have risk that is acceptable to you financially and emotionally.
3. Fundamental appeal. A prudent investment is one with fundamental strength, and an underlying appeal that will still be intact years from now. You have to be able to sell it at some point in order to make money on it.

At any rate, imprudent or not, Michael Jackson truly was a great entertainer and worldwide icon worth remembering.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Image by Mister V via Flickr

The New York Stock Exchange has some fairly stringent rules for being listed. However, NYSE Euronext has made it a priority to suspend some of the rules in order to help companies during this time of economic upheaval and stock market volatility. Back in April, when the rules were supposed to be reinstated, the exchange decided to delay the move. Now, as the bear market continues, NYSE Euronext is considering extending the relaxed rules for a little while longer. BloggingStocks describes the rules that have been extended, and the intended effects:

The two rules that have been relaxed are the maintenance of a share price of at least $1 and a market cap of at least $15 million. The return of both measures was delayed back in April. Currently, 31 companies on the NYSE are at risk…

The NYSE’s decision to extend the relaxed conditions should give several companies the elbow room they need to recover. Removing the safety net — and the subsequent delisting — would doubtless impede both their individual recoveries and that of the broader market.

Today, Wall Street seems to be responding positively to this news. Indeed, for the first time in days, the bulls are firmly in control of the stock market. The Dow is up almost 150 points right now, heading into the final two hours of the session. Also helping the stock market is the announcement from the Federal Reserve that it would extend its current credit programs until next February. It is clear that the Fed plans to remain involved in propping up Wall Street companies until they are back on their feet.

Indeed, the listing rules suspension, along with the Fed announcement, are overcoming the dour unemployment data, as well as concerns about a contracting GDP.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

Today, the Commerce Department reported on durable goods orders for last month. The result is reasonably positive. Stock Market Funding reports on what the new numbers say about the economy:

The Commerce Department says demand for durable goods rose 1.8 percent last month, far better than the 0.6 percent decline that economists expected.

It followed a similar 1.8 percent rise in April, with both months posting the best performance since December 2007, the month the recession began.

The news put a little optimism into investors. The Dow is up by more than 60 points, and the Nasdaq and S&P 500 are both making gains as well. The Dow is off its session high, however, having pared some of its gains.

Earnings forecasts are also helping the stock market right now. Earnings are generally poor, but they are showing improvement. The earnings forecasts are probably part of the reason that gains on the market have slowed. However, the fact that they point to some better news coming is probably keeping the bears from overwhelming the bulls. Indeed, the relatively good news is overcoming the unexpectedly poor new home sales data that has come out.

Retail stocks are having a reasonably good day today. Retail stocks are affected by both earnings forecasts and durable goods orders. However, gains to retail stocks are likely to be limited until a substantial improvement in consumer confidence and spending can be confirmed. Retail stocks rely heavily on consumer actions, and those are unlikely to provide a great deal of help until employment picks up and people feel better about the economy.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.