No. As a matter of fact, a company’s option to pay a dividend on your stock is shockingly low in its list of priorities and legal obligations to a company’s stakeholders. In corporate finance, there’s a saying that “debt takes before equity” which means, in plain English, that a company has to satisfy its debt obligations before it satisfy its obligations to the equity-holders in the ordinary course of business. Specifically, the major legal obligation to debt-holders (which are primarily holders of corporate debt issued by the company and bank loans) is the timely payment of interest payments at prescribed times under debenture and/or loan terms (as the BCE legal challenge reinforced, bond-holders have this right but at the cost of having little say in the direction of the company as long as the debt is paid).� This must be paid before a dividend.

But, there is more. In large debt issues, the market typically demands the insertion of “restricted payments” in the terms of the issuance of the corporate debt. In essence, and there are very many variations of restricted payments, if a company’s debt to equity ratio or debt service level or some other ratio goes above a certain ratio then it must suspend certain payments, including dividend payments, in order to bring those financial ratios to a point that lenders are comfortable there is enough case to run the business and make the loan payments (the ratio is negotiable and depends on the company and industry). As a good example, Russel Metals had free cash flow (free cash flow is cash flow from operations minus capital expenditures) of approximately $125 million and paid $110 million in dividends for the 2007 fiscal year. This is an aggressive dividend payment strategy with little room for error; the margin of error is, in fact, so small that the company specifically mentioned in its annual report that they are still out of the restricted payment range. If any company gets there, then it may have to suspend its dividends or free up cash other ways. If they make restricted payments before paying the loan, the entire loan defaults and is due and payable immediately.

But, there’s even more. Most companies submit articles of incorporation (which is analogous a company’s constitution) that grant preference of dividend payment to preferred shares over common shares (hence, the name preferred or preference shares). Some give primacy of payment to common shares but the whole point of preferred shares is a holder forgoes voting rights for better certainty of payment so most company’s will favor preferred shareholders over common shareholders. Normally, this wouldn’t be a big deal. But, banks have been issuing preferred shares like drunken sailors to prop up their balance sheets. For example, the Bank of America had issued approximately 2.8 million preferred shares as of June 30, 2007. A year later? Try approximately 24 million preferred shares. This puts a strain on the company’s cash flow and its ability to raise common share dividends. Imagine what would happen if there is one more shock to the banking system? With debt and preferred share payment obligations, it would be difficult to maintain the common share dividend.

In essence, here is a general list of priorities:

1. Pay the debt-holders
2. Pay the bank (#1 and #2 may flip demanding on the terms of each)
3. Pay the preferred shareholders if that is what your articles of incorporation state
4. Pay common share dividends.

What does this all mean to you if you are a dividend investor?

1. Watch free cash flow closely (it is reported in the annual financial reports). The higher the better since cash flow from operations (or operating cash flows) is cash left over after paying off debt.� Thus, by very definition, the higher the free cash flow, the better the ability to maintain or increase the dividend. The “prestigious” dividend payers, such as GE and Johnson and Johnson, always maintain increasing levels of free cash flow (although there is a down side to a high free cash flow which I will address at a later time).
2. Get nervous if a company is issuing more debt whether through corporate debt or preferred. This means more people getting paid out before you. While share buy-backs are encouraging signs of a company’s health so is the retirement of corporate debt and preferred share issues.
3. Rely on history. Company’s that have consistently raised dividends over long-period of time tend not to suspend or decrease dividends since it is in their corporate DNA to generate the cash flow to pay dividends and many investors invest in reliance of continuing dividend payment. A suspension or decrease could cause serious damage to the share price. As a warning though, watch the percentage of dividend payment. Some companies got overly generous this decade and began to increase dividends over and above historical norm since they thought the boom would last forever. The question becomes did they reach too far?

As always, rely on your dividend blogs as your source for all things dividend. Several of them have teamed up and formed Div-Net: the dividend and value network. This would be a good place to start if you want to learn more about dividends and specific stocks.

Well, I am off until August 11.� I am taking a small vacation from the blog. I’ll be returning fully charged up with some old and new faces (yes, Preet and I have scheduled another exchange of thoughts). Until then, enjoy yourselves.

Of all the negotiations tactics, do you know what I think is the worst? Negotiating by email. Let me count the ways. Email messages lack tone and context and what the writer believes is a polite but stern negotiating position suddenly becomes overly harsh and rude to the reader and the negotiations get off the rails because people are offended (if you email your spouse  at work about something pedistrian and it degenerates into you being “mean” in your emails, you know what I mean). Two-there’s the plain practicality that people get avalanches of email a day and they miss responding to an email on an important point and answer the less important ones (it always seems to happen that way) so now the parties have a communication gap. Three- have you sent an email with 4 questions and you only get back answers to 2? Now you wonder if they deliberately avoided answering the other two or if it was just an oversight because the email was long and their attention span couldn’t handle all those questions. Do you call them out on it and appear rude? Four- emails encourage general rambling (that’s what blogs are for!) rather than specific answers. Thus there’s a lot of emails going back and forth without getting anywhere.

Last one- a lot of us get emails on blackberrys and hand-held devices which promotes two types of response: (i) fire and forget- let me just shoot off any old response to get this off my inbox; or (ii) short, non-specific responses to long questions-  what exactly did you say yes to? Both are very problematic since you may have agreed to something you do not because you were firing off short answers.

Emails are great for getting information but, once you dig below the information and try to engage in a point and counter-point discussion which typically characterizes many negotiations, the medium of communication hinders the process rather than helps.

Don’t negotiate by email. Do it face to face. Body language gives you a much better read on feelings, positions and stances than an email would. Face to face negotiations traps the parties in a time and space where they HAVE to think about the issues in dispute at hand without all the distractions of emails. This allows you to bear down and really figure out what the parties want from one another (in business and in life).  I have been part of negotiations where nothing happened after 50 emails on a topic (I am sadly not exaggerating as I think of these negotiations) because everyone was on a blackberry and just firing off 10 words answers and the lawyers were pulling their hair out trying to figure out what the parties really meant. After a 1 hour meeting, everyone was on the same page. Think about how much the lawyers charged reading that stream of emails (so there is a cost by negotiating through email).

Yes, people don’t like meeting face to face because it is easier to say no by email than face to face (with Facebook, you can actually break up with someone without even an email, just change your status for the world to see…does Generation Y even go on dates or is all done by text-messaging and instant messaging?). But the hard things in life are the one’s worth doing.

If you would like more negotiating tips, I previously wrote a post on effective negotiating tactics. Good luck.

I am clearly playing Monday morning quarterback but I stumbled upon something this weekend which seems to counter the saying that you become wealthy through real estate. Merrill Lynch and Capgemini have been publishing Annual Wealth Reports for 12 years which track what the high net worth individuals (individuals with net worth over $1 million EXCLUDING principal residence and consumables) and ultra-high net worth individuals (individuals with net worth over $3 million EXCLUDING principal residence and consumables) made their money, where they move their money and how they plan succession. If nothing else, it is an interesting study on the asset allocation, sources of wealth and investment patterns.

A couple of interesting statistics:

1. In a study dated November 30, 2007 (i.e. which captures the peak of the real estate market and the beginning of the long march down circa August 2007), real estate allocation among the rich peaked at 24% of portfolios.
2. In a separate report reviewing 2006 trends, the authors indicated that the preferred channel of real estate investments was real-estate investment trusts (REIT) rather than physically buying land.

In other words, real estate has never reached more than 25% of an average rich person’s portfolio and the preferred real estate of choice is actually a stock and not land. I do find it interesting though that real estate and “alternative investments” appear to be negative correlated. As real estate allocation goes up, alternative investments go down.

The primary source of wealth creation for high net worth and ultra high net worth individuals continues to be entrepreneurship (although I cannot tell if this class indicates people who own and operate real estate development companies).

If nothing else, the study remains us that wealth is created through appropriate asset allocation and not putting too many eggs in one basket.

If nothing else, borrow the book (don’t buy it, the data is out of date as soon as its published) Wealth: How’s the World’s Net High-Worth Grow, Sustain and Manage their Fortunes as a lesson on how the other side manage their money.

As a programming note, this blog hits the summer break for the next two weeks: this will be very light posting this week and then I am taking next week off.

As long-time readers know, I am a Luddite. I scratch my head a lot when it comes to technology. I am not a first adopter of anything and, politically speaking, I tend not to use technology that has the over-riding purpose of replacing perfectly good employees such as self-serve check-out lines at the grocery store. The more moving parts in a machine, the more likely it will break just when I need it. My greater concern too is that convenience sometimes means we sacrifice our privacy.  For example, it was reported this week that people may be stealing credit card numbers from self-serve kiosks machines at Pearson airport. It is only a privacy threat if you check in using your credit card (use your reference number instead) and the investigation is in its early stages but unusual enough patterns have emerged to get to this stage.

But it raises a larger question- why are we sticking our credit cards into random machines? In an outsourced world, what precautions is there to ensure our private information is protected? One of the facts that has come out of this kiosk card threat is that the machines are owned by the airport authority but the data is processed by some outsourced company. I can tell you from my law days this is typical: one party owns the kiosk, one operates it and another maintains it. In other words, lots of people could have access to whatever you stick into the kiosk. The problem with outsourcing (and there’s more than one) is that more and more people have access to your information who you are not directly paying, and who reside in parts unknown, so what vested interest is there in protecting the data?

One would assume that crime against property increases when the economy heads south.  Fraud probably also peaks during the summer when people travel and travellers tend to be easy marks.  Let’s remember to keep our wits about us when it comes to what information we provide to others. Here are a couple of tips:

• Private business knows more about you than the government. Stop feeding them more information and exposing yourself. Government knows your SIN, how much money you declared as taxable and who you work for. Big business knows your address, what days you buy shaving cream, how often you get gas, your demographic, your income bracket, who you call, what websites you hit, when you deposit your pay cheque, what drugs you buy, how much you sold your last home for- AND, it sells all of this information to other business. For example, a government investigation found that the parent company of Winners was collecting all sorts of unnecessary information on its customers, including driver’s license number, when its system got hacked; why would anyone give Winners its driver’s license number? Part of the issue with identity theft now is that we end up on some many lists because we sign up for offers for things we will never buy, give our zip/postal codes to the Ikea cashier when we buy something (stop doing that, they are making money off the data you provide them for FREE!), sign up for needless credit cards at football games, take surveys for stupid prizes etc. etc. STOP IT. Making a marketers job hard will also help to protect your privacy. Don’t give out ANY information about yourself to big business.
• Be diligent. Act swiftly. Check your bank account daily (yes daily) to spot unusual activity. You see something unusual, report it quickly. It limits your damage (see my previous experience with ATM fraud). Order your credit score yearly not only to see your credit worthiness but to spot any identity theft or mistaken identities. Better to clean it up now then when you are applying for credit.
• Use common sense. You don’t shout out your PIN on the street. Why do on-line banking on Wi-Fi? Even on a secure network, how safe is that (I still receive other people’s calls on wireless phones and they supposedly perfected the security on that years ago)? Collect your mail on time (better yet, remove yourself from junk mail lists). Shred anything from your financial institution even if it is sales material. Don’t leave your ATM receipts in the machine (even if the number is partially blocked out). Destroy them at home. Buy a safe, keep your financial information in it and, yes, don’t stick your credit card into strange machines.

Anyone else care to share any tips?

No post tomorrow- been a long week. Have a good weekend.

If you ever meet a successful person in life, you will notice they are accompanied by a host of advisors- lawyers, accountants, financers- and have access to a wide variety of other successful people. After all, success breeds success and what’s the best way to achieve your goals but to hang out with people who inspire you to do better (a little friendly competition never hurt anyone). Take for example Indra Nooyi, president of PepsiCo- not only is the Board of Directors of Pepsi a who’s who of the international business community but she speaks with the 3 former CEO’s of Pepsi daily- unheard of in the business world where departing CEO’s rarely gives the new CEO the time of day (see how Jack Welsh treats the current CEO of GE).

For us mere mortals who do not have Pepsi’s bank account to find (or pay for) good advisors for our own personal finance, small business or life issues, where do we go to build an advisory board (whether formal or informal) to give us the best advice possible and who do we pick to be our advisors?

I know most of my colleagues in the blogsphere are either raging DIY er’s or slanted towards the DIY side but, as someone who’s worth was once measured by the billable hours, you begin to prioritize tasks that will yield you the most bang for the buck and delegate what you do not know or do not have time to know to others. Or, to quote the business saying, sell what you are good at and buy what you are not.  It is very rare to be good at many different things. Take the time to be great at one and then pipe in the talent on other aspects.

Some of you may think: “I don’t have the money to hire advisors!” You don’t have to. You would be shocked how few people are asked to give advice to people on a volunteer basis and how receptive they are to the offer someone who is genuine and eager for advice. I was asked this week to attend a dinner where someone I had not spoken to in over 6 months was canvassing advice on an idea he had. I was honored he actually asked me and said yes immediately. Most people want to help others but are rarely asked; its a sad statement on our society that we think of ourselves as islands on our own and not members of a community. Those who greedily look out for themselves are those who wouldn’t be a good fit anyways. As a caveat though- be reasonable, be respectful and honor their time; there’s a difference between asking for advice and getting someone to work for free (the fine line with me is whether I feel like I am being used then disposed of… we are all human).

The question becomes- HOW do you look for a good people to be your advisors? There are two things to keep in mind. First, I deliberately shy away from putting in my inner circle people on my “payroll” as paid advisors. Certainly, I pay them to do whatever they have to do but for the big decisions in money or life, I ask for their advice but vet it with someone else in the inner circle (except for extremely technical questions of course). Why do I do this? If they are on payroll, their context to you is different; they want to help you BUT as a client whereas a good advisor will help you because they like you as a person; money and professional liability concerns color the advice given (trust me, I was a lawyer…).

The second thing I do is reach outside my immediate circle. It is hard to give honest advice to a good friend- too much politics involved and someone always pulls out the “well, remember when you were 18 and drunk…” card. All of my close advisors have become friends but they didn’t start out that way. At first, they had a sufficient personal distance to give good advice without worrying whether I would be mad at them for their candor and not have beers with them Saturday night. Even after we became friends, we had set the expectation that honest advice should keep coming. One of my best advisors I met completely randomly through an association. In other words, start networking away in circles different than yours where people have experienced success.

WHO do you look for? The standard answers in personal finance and entrepreneurial publications is to focus on skill-set. Find a lawyer, an accountant, a tech person etc. etc. I find this to be generally bad advice. Remember that good advice is about solving problems and no one skill-set has a monopoly on that. I know literally hundreds of lawyers; I can count on both my hands the true problem solvers in that bunch. Getting a lawyer on your advisory board means nothing if all they do is tell you the 18 ways you can’t do something rather than the ways you can. As another example, some of the best financial advice I receive are from various bloggers many of whom I have never emailed or spoken to and, as far as I know, most do not have the multiple designations a “professional” investment advisor has. They figured “it” out about money and write passionately about it.

Instead, I take this approach on finding who would be good advisors:

1. Find someone who has achieved success in life multiple times. I leave the definition of “success” to you but the key is that they were successful more than once (once is an accident; twice is a pattern). It takes a lot of hard-work, dedication, savvy and street-smarts to be successful- not necessarily a lot of degrees. Someone who has been successful displays these characteristics. The other factor is that if this person is a “level” or two about you, it can motivate you to reach upward.
2. Find problem-solvers. Sounds simple doesn’t it? But think about work when the you know what hits the fan. How many of your co-workers start pointing fingers, complaining, panicking etc. I bet you its a lot more than those who take the bull by the horns and just fix the problem. You ask for advice because you have a problem. You don’t want people to tell you all the things you did wrong, how the situation will only get worse etc. You want some possible solutions to mull over. I have an advisor who has that all-knowing but humble Mom quality to her. Her advice always starts off with “well, why don’t you try this….”
3. Find people who you relate with. You want differ viewpoints but you want to be able to relate to the person too on a personal level. Most of my advisors share a similar context as I do (grew up in hard-working, middle-class families that stressed education). There is something to be said for sharing the same set of life values even if we all come from different viewpoints.

WHEN do you meet your advisors? Depends on your personality. I hate formality and small talk. Most of my “meetings” are not really meetings but casual situations where I start a conversation. For example, I play poker with a lot of guys who are successful in their respective fields. Before we have too many beverages, the quality of advice given on business and personal situations is astounding but no one ever thinks of this as an advisory board meeting in the conventional sense of word; in fact, my advisory board is not so much a board but a collection of people who I speak to regularly. Find a situation which suits you best. The key is to keep the dialogue going.

WHAT do you talk about? Anything at all. Be honest and open. That is the only real rule of asking for advice. Lawyers always ask their clients “is there anything else you need to tell me?” to ensure their advice captures all available information on hand. BE SURE TO LISTEN THOUGH and not to shoot down the idea immediately out of hand.

It can be tough to find some true, faithful and prudent advisors. But its well worth having them in your life. Good luck.

My regular columnist, Mom2KG, checks in on how her family is doing so far this year after making a new year’s resolution to get their finances in order. As usual, she raises some questions which I hope you can help her with. Without further ado, here’s Mom2KG:

So, I’m learning this personal finance stuff is just not easy.  I want to give you a round-up on how we’ve done since we started this new era of financial management and frugality. The results are lukewarm at best.

• Mortgage: This is the best part. We reduced our principal by 12.4% by maxing out on the weekly payments. If we’d paid only the minimum payments, we would have reduced the principal by only 3.3%. That’s about $1250 in interest we haven’t had to pay. This is in six months!

• Life insurance. Still not done…..

• Me: I have new job. Better pay, rigid but reasonable hours. Definitely a pay raise. I don’t start until mid-August, and I’m happy with the security and with the work.

• Investments: Well, this was going okay, until we received a call you never want – our financial advisor/manager called to tell us that the last five weeks had been very bad (not just for us) and we would see a big loss on our next statement. Well, at least he called. We’re going to meet with a new advisor this week, just to get second opinion.

• RRSP and RESP: Going well, as predicted. On track. By the way, should we count the RESPs as savings or as expenditures? I say savings, as it’s money we are putting towards something way in the future, that won’t have to come out of income then. My husband (ever the conservative) wants to count it towards our spending.

• Savings: This is the really bad one. In six months of attempted frugality, we have saved - $400! Basically, we’re where we were in January. We did have an unexpected tax bill, and I did take a last-minute trip to Vegas, but still. We’re so far from our goal we don’t know what to do. We just cannot seem to control our costs. Our burn rate is high on both fixed costs and consumer spending, and we can’t figure it out [TMW says: you have two young kids. They burn through money like they burn through clothes…]

On the consumer spending, I still feel we’re not going crazy…but the credit card statements beg to differ. I only see more spending coming up – new job means new clothes (I really do need some suits and shoes), as well as two friends’ baby showers in the near future. On the other hand, I can take the subway to work, so won’t be spending crazy money on gas.

My husband has (timidly) suggested a course of hyperfrugality – a really nice word for living cheap. I’m sort of interested in it as an experiment, but certainly not as a lifestyle. I think we’d do things like not buy any more clothes, alcohol, treats, dinners out, and eat only sale goods, and never turn on the AC or heat (sounds just great). No more dinner parties, or gas-guzzling trips to my in-laws’ cottage. We’ll watch our library of burned DVDs instead of going to movies and renting. No more nights out and babysitting. (Not that we did much of any of those things, but I suppose every buck counts.)

I will confess I’ve not been trying exceptionally hard to save money. By the end of the summer, we’ll have spent money on four trips (two for me alone). And, okay, screw you David Bach, but I’ve been buying my breakfast every day (come on! $2.37 at Tim’s is a bargain!) and often lunch. I’m not giving up the Tim’s but will re-double my efforts to bring a packed lunch to work.
 
Here is the real difficulty. We don’t have money to put into other personal finance options – we don’t want to touch the current savings as that’s our “emergency fund.” Let me ask another question – how necessary is a savings fund when we have two very stable, well-paying jobs? Does anyone think we could take some of that cash and buy something else? Would it be ridiculous to borrow from that fund to buy, say, stocks or a rental property?
 
I’m in quite a funk about this. What is perhaps the most difficult is the emotion attached to this. I’ve already said this a few times in my blogs, but I feel, well, it’s all my fault. I’m the one signing the credit cards, buying everything the family needs, which means I’m the one overspending. My husband is on a (very good) fixed salary, but I’m (was) an independent contractor, earning less, and, worse (from a financial perspective), sometimes choose to cut work short and come home to hang with the kids. Three fewer hours at work means that much less cash coming in. Looking for more words of wisdom and support, readers!

TMW comments: I am taking a first crack at this (hey, its my blog).  I would define anything over and above your regular mortgage payments as savings. For example, if you have to pay $1000 month on a mortgage with a 20 year amortization rate and you raised your repayment to $1500, I would define that $500 over-payment as savings. I would suggest that you are low-balling your savings rate by not including all the extra mortgage payments your family is making. Readers- should extra mortgage payments count as savings?

I would also look at the budget. Is it remotely realistic for a family of 4 with young kids or is it reasonable and the fiscal discipline is missing? There should not be a general sense of fault without looking at why you are off at the end of each month. To be frank, is the strategy wrong (i.e. the budget) or the execution (following the budget)?

What do you also want in life? If its to retire at 45 then you need to address your short-term spending. If its to enjoy life then you have another set of priorities at play.

Readers?

With another class of college graduates entering the work force and people changing jobs, I wanted to address one particular aspect of working bosses really don’t  like tell you explicitly (see my previous post on what the boss looks for in good employees). There’s a lot of generational angst about how work should be meaningful and job assignments are not fulfilling enough.

But, here’s the hard truth about working. To quote a columnist in this Saturday’s Globe and Mail, you get paid for the grief and not for the work.  Bosses need to see you can do the crap work before the fulfilling assignments since you really get paid to do the dirty work and the fulfilling assignments are not “work” per se but what you probably would do for free anyway (assuming you actually wanted the job not for purely money but because it interests you). More importantly, the crap work are really building blocks for the more exciting work.

Want to know how to be a good accountant? You have to review the ledgers to see the relationship between debits and credits and learn revenue recognition. This is the building block of conducting an audit. Want to become a good project manager? Do every nitty-gritty assignment to learn what everyone on the team is doing and how it all fits together. Want to work for a charitable organization? Learn to fund-raise to see how the money is spent and every member of a chartiable organization has to be a fund-raiser in one manner or another.

The non-fulfilling work is terrible. That is why it is called work. In some cases, the bosses give you this work for political reasons but, in other cases, it is the only way for them to assess your abilities in a scale that is not damaging if you screw up . If you do it well, then you work your way up.  If not, then the employer’s error in judgment of an employee is not fatal decision. This is really a good tip for new bosses as well; as my boss says, I’ll give you enough rope to hang yourself but not to hang me.

The key for the employee is to do this work with a stiff upper lip and, more importantly, show you are getting an understanding of the entire picture by asking questions or raising points that could help the entire assignment. For example, if you have to fund-raise, point out discernable patterns in your efforts (are you having success with older people? In the west-side of the city? College grads?). It shows you can see the business on a conceptual level which makes you management material (I hate that term but it is what it is), allowing you to do the fulfilling work. But how can you run when you haven’t shown you can walk with confidence?

There’s a lot of anguish lately that the closure of IndyMac Bancorp is only the harbinger of more bank closings or, among the bigger banks, the beginning of a real decline in bank stock prices. Many of begun to ask whether its time to withdraw money or sell stock of a bank in trouble or is this a buying opportunity for bank stocks that are paying the price for the imprudence of their wayward industry peers? Amongst all this naval gazing and hand-twisting, Wells Fargo, one of Buffet’s favorite banks, reported record revenue (albeit lower earnings per share) and hiked it dividend 10% yesterday, cementing its status as a true blue-chip stock.

What are we make of all of this? Is Wells Fargo good, lucky or crazy? What is Wells Fargo doing right that makes it a “safe” bank stock (safe being a relative term now a days).

Wells Fargo, in the banking world, is known as a retail bank. It does very well in what you and I equate with banking: taking our deposits and keeping our money safe.  Most big banks like to chase the big profit work such as wholesale banking (in plain English, big multi-billion dollar laons), wealth management, trading with the banks money,  mutual fund sales, underwriting IPO’s etc. But with big profit comes big risk. TD went into a tail-spin about 15 years ago betting on telecom and lending foolishly on it. How did it get back on its feet? It focused on retaling banking.

Retailing bank is lower margin business but it provides a great cushion if the big-profit traders in the bank make bad trades, too many loans don’t get paid back, commercial paper is worthless- in other words, everything that is happening now. There are many reasons why Wells Fargo increased its dividend but here is one key one: its core deposits (deposits which are not one-time or extraordinary deposits) increased 6% from last year in very trying times in Wells Fargo’s home territory (the bank rules the western U.S. and California is getting killed right now, making Wells Fargo’s preformance all the more astonishing).  Core deposits increased from $300 billion for the quarter ending June 30, 2007 to $318 billion in June 30, 2008.

In other words, no matter what, deposit with and purchase the stock of banks who are great at attracting money into their safe. This isn’t hard research to do; your friends can tell you who they bank with (some primary research) and core deposits are regularly reported in financial statements.  Remember cash covers up a lot of mistakes a bank can make.

Perhaps I am simplfying this analysis but look at it this way- if you consistently brought home more money, short of an absolutely devastating financial crisis, you should be able to weather most storms. Same thing with a bank. As long as it increases its deposit base quarter or quarter, it should be safer than its counterpart that has a steady or declining deposit base. Follow the money- the more deposits a bank can attract, the safer it is. You can always buy yourself out of trouble if you continue to have a lot of money on hand.

A good local example of the follow the money rule in action (in reverse) would be BMO (owners of Harris Bank in Chicago)- once a banking titan, symbolized by a headquarters which required 600 tonnes of white marble on each floor (like the Aon Center in Chicago, they probably need to replace the marble with something more durable). It lost its edge in retail banking- it tried to build up their i-banking division.  As a result, it became less aggressive than their peers trying to open up new bank accounts (think about the last time you saw a BMO ad on tv or a new BMO branch which was first a new subdivision?) and people deposited their money elsewhere.  BMO, today, is arguably one of the weaker sisters of the big 5 Canadian banks.

It is very much a KISS analysis but banks live and die on deposits. So find the bank that keeps the most money and deposit and invest in them.

Having said all of that, I am sitting it out on banks until we have a consistent and sustained trend of decline or advances. Right now, bank stocks are swinging too widely and its hard to discern any patterns.

A reader, Brian, asked if I could blog more on job topics given the amount of people looking for new work in the current state of the economy. I am not a human resources consultant or pretend to be an expert on job-hunting by any stretch of the imagination but I will convey some personal experiences for you on this topic. Hope it is helpful. I am out of my depth but here goes nothing (anything for my dear readers!)…

I have the privilege for volunteering for a charitable organization in a volunteer advisory role. Only one problem- they need a resume for me (which either speaks to the growing sophistication of the charity industry or the fact some crazies have volunteered in the past and they need to screen prospects). I haven’t written a resume since 2003. I have been either self-employed or hired into management after being their lawyer (my resume was basically my track record as their lawyer)- I haven’t looked for a job in over 5 years. So I dusted off some old resume guides, looked up some resources, got a bunch of precedents, spoke to some job seekers and here are three things I learned about writing effective resumes (which I do not remotely pass off as my own).

1.Convey value and not just a mere listing of assignments and task

I have read the best resumes answer the question: (i) challenge; (ii) action; and (iii) results (taken as a whole, CAR) rather than a mere listing of tasks. I will give you an example. Pretend Liz is a project manager for a IT company who specializes in security issues. A plain-vanilla resume would state:

“Coordinated successive internal and external teams in addressing security issues for an application service provider.”

Pretty factual right? Unfortunately, you have to sell yourself from all the other job seekers so my resume guide tells me to rearrange these facts to show the challenge,  show your action and list the result (which is an accomplishment). Thus, re-write the above job description to:

“Rectified 12 mission critical and 25 ancillary security breaches for an application service provider client [the challenge] by supervising a team of 5 in undertaking a comprehensive diagnostics review, re-coding and patches using leading edge programming language and market leading testing [the action], resulting in 90% less breaches over one year, delivered 10% under-budget. [the result]

Does it sound very salesy? Of course it is, the whole point of a resume is to get you an interview so you have to differentiate yourself from other job seekers by proving value- whether it is saving money, making money, improving customer experience or increasing productivity. You can prove value by listing your assignment and tasks. You have to show how these assignments and tasks helped the company by using the CAR method of resume writing.

2. Good resumes tell good stories

When I was in undergrad, we had someone come into our class and speak about her job experiences having “only” a B.A; she had made into management of a consulting company at quite a young age and was an impressive person all around. The one thing that always stuck in my mind is  her advice that a good resume tells a  good story. A low-paying or dead-end job isn’t a resume killer if there is some link to the next job or, and this surprised me, taking a year off to hike around the world is not a resume killer.

Her point was that a dead-end job (I remember she used the example of a retail job) is not a resume killer if you highlight aspects of the job that got you the next one. So, a retail clerk at the Gap could highlight all the customer service and human aspects of the position as a bridge to their HR clerk position. Or, taking a year-off to travel the world, isn’t a resume killer if you highlight you learned new languages and cultures during your travels (very important in our global economy).  The key again is not to just say “here’s a description of a dead end job” but highlight aspects that bridged you to the next job and so on.

3. Put your best foot forward

This sounds obvious but lead with aspects of your professional career that fit into the job. This tip a legal head-hunter taught me. She said when you are a junior lawyer, put your schooling first and all your academic achievements first. As a junior lawyer, you know nothing (and the law firms know this) so you have to sell that you are smart and you will learn what you don’t know. The more senior you get, the more you play up the files and transactions, lawsuits you have been on since the law firms don’t really care where you went to school but what skill set you have acquired and whether you can bill until you drop dead.

If you are a first-time job hunter for an entry level job, it is important to impress with schooling since most applicants don’t have a wealth of experience to draw on either so tell them how smart you are first and foremost (degrees, awards etc. go first). For most, that is all you have to differentiate you.

If you are young and applying for a job one or two levels above you, don’t lead with schooling since it tells the employer how young you are. Instead, lead with the work you have done and tuck the schooling part last. Most employers actually don’t read much past the first page anyways.

Look at this way- it is like going on a first date; you bring the “A” game don’t you and don’t save the good material for the 2nd or 3rd date because there may not be a 2nd or 3rd date. Move the best stuff to the top of the resume.

…yes, its a big sales job but you are selling yourself. No one else is going to do it for you. Good luck. Anyone else care to share resume tips?

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If you watch HGTV, you have heard of the show Holmes on Holmes; the show follows a Mr. Fixit named Mike Holmes who cleans up after negligent trades people. The theme is always the same: Holmes gets called into a home by some poor family who have been completely taken by a general contractor and their roof is leaking or the addition wasn’t complete or some other renovating and/or home disaster. Mike and his crew always fix the shoddy construction and saves the day. But as my brother always points out, there are some shows, as much as you empathize with these people, where you just shake your head at the foolhardy and unreasonable nature of these families. They want to undertake a $15,000 renovation but are only willing to pay $10,000 for it and they hire the first general contractor they find in the phone book. In other words, they forget two rules of life:

1. You get what you pay for
2. Never trust a stranger

A friend has a saying: “in life, always have a good electrician, plumber, lawyer and accountant handy.” But finding a good service provider may be one of the hardest things to do in life. If you buy a product, you can usually go to some website where people have posted reviews. However, the nature of service provision- whether they be doctors, lawyers, financial planners- is personal in nature and highly subjective. What I may consider good service from an accountant may be different than what you consider to be good service and, for most service providers who assist individuals or small businesses, there is rarely posted reviews on the Internet but yet, strangely, that is always the first place people go to find a service provider.

I don’t think I have hired a service provider- whether a painter, financial advisor or accountant- through a cold call. Instead, I always rely on word of mouth which sounds really simple but you have to drill down on how this reference comes to you for effective word of mouth referral.

I usually have these rules before I hire someone through a word of mouth referral:

1. Always discount the word of mouth referral unless the referrer is a user of the service: Most professionals usually return a professional courtesy. Thus, if Mary Accountant gets a referral from Gus Lawyer, Gus Lawyer is probably going to return the favor to Mary Accountant BUT what if Mary is the wrong accountant for you and the referral serves Gus’ sense of professional courtesy more than your needs? This is not to say that Gus is deliberately giving you a bad introduction to an accountant but remember that Gus has certain obligations to Mary (especially if Mary and Gus are in the same professional networking group then, by the rules of some groups, Gus has to refer Mary to you) which may take priority to your needs. You should always ask “do you use this service provider yourself?” If not, why not? Sometimes, Stan may introduce you to Natalie as a home stager simply because Stan is a family friend to Natalie and wants to support her business and not because he used her services and enjoyed it.
2. Is the referring source in the same life context as you? If not, discount the referral. Even if your buddy Jim refers you to Martha to fix your computer because Jim uses her service, think about whether Jim’s context is the same or different than yours. If Jim owns a business with 15 employees and Martha is his business IT person, chances are Martha is not going to enjoy fixing your computer because the job is too small for her and, unconsciously, she may not do a good job since the fit isn’t right. As someone who once practiced law, the other frequent mis-referral is to lawyers. Lawyers over a certain age (typically 50) really don’t want too many new and younger clients; their book of business is typically full and they don’t want to stay late at night anymore (sometimes people turn down your business because they want a life; a small secret professionals never tell you). If Jim is 50, his lawyer is 52 and you are 29, his lawyer may not be the best fit for you.
3. The less time the referrer has used the service provider, the more you should discount. This is pretty obvious. Look at sample size and track record as indicators as to the strength of the referral. People who go to the same barber or hair stylist for years on end are pretty darn happy with how their hair looks. Someone can fluke out and simply give you one or two good hair cuts but its hard to disguise incompetence over a long period of time. To use a non-professional example, if my friend is ranting and raving about a girl he dates after 2 dates, that’s great but after a year of dating- well, you know they have something special.

Great service providers are gold. They are hard to find because they are good which makes them busy which means they can’t take on many new clients so they are not marketing themselves very much. It may take a long time to find a good service provider but they should be long-term relationships and not treated as commodities (service-providers are human too; money alone doesn’t drive the good ones). But don’t take the first referral that comes your way from a causal friend who may or may not be thinking about the best referral for you. Dig deep into the word of mouth referral to find the best for you. Otherwise, prepare to call Mike Holmes. Good luck.