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There are no shortage of horrible lawyers. I love it when some work on contingency in certain cases because it aligns our interests, even though the fees can be higher on a win

Nevertheless, the Associated Press had a piece about one of the most despicable acts a lawyer can do – take a client’s money and not do the work, especially in times of financial hardship.

In this case, the client’s were having trouble paying their bills and got a robocall from United Law Group, who said they would solve their mortgage problems, file the necessary paper work, etc., all for $2,000 payable upfront (which is a big deal since the clients obviously didn’t have two grand laying around).

ULG suggested that the client’s stop paying their bills and calling the bank, but never filed the forbearance to delay the foreclosure (presumably, this tactic would to force the bank to work out a payment plan, which some banks won’t do unless you stop paying your mortgage…I know, silly right?).

So, the ULG did none of the work, the lawyers wouldn’t return the client’s phone calls, but found the uncanny ability to take the fee.

Per the AP story: Ripoffs of homeowners have become so commonplace that state bar associations from Florida to Arizona are warning their members of the many ethical pitfalls awaiting those who exploit the mortgage crisis.On a personal note, I hate stealing from others.  Someone works hard for what (s)he has only to have someone else come over and simply take it!?  It’s exponentially worse if they thief steals from someone who barely has anything – in the above case the father of six lost his job.

The good part to the story is the lawyer’s license is suspended and is being charged by both California and Ohio.

Come to think of it, the only good lawyers my wife and I ever had were referred to us.  I’ve never heard of getting good lawyers from TV ads, robocalls or prepaid legal service like Pre-Paid Legal (we tried this, and doesn’t work as well as we wanted, although a wonderful concept).

Most investors know Warren Buffet’s two rules of investing: 1) don’t lose money and 2) don’t forget rule #1.

I have another rule that’s beginning to yield benefits: 3) it’s okay to leave money on the table.

Too many times, I tried to squeeze out additional profits by waiting for a better buy or sell price, or in negotiations, get EVERYTHING I wanted and more.  And too many times, I’ve waited too long and got a worse deal than if I got a price that I was comfortable with, or blew a deal that I wanted because I wouldn’t give up anything in a negotiation.

Well, that’s changed a lot.  For stocks, I set a price for which I think I can meet my ROI goals and run with it.  In negotiations, I don’t mind giving up something, as long as my major goals are met.  These means that my buy or sell price won’t be the best price or that I won’t maximize my wins in a negotiations.  But it also means that I walk away with my goals being met.  And that’s critical.

Admittedly, this is going to be one of those statistics-less posts.  Shame on me. But here it goes anyway.

I’m read a news byte on how applications for housing permits were down 1.2% (the article didn’t mention what the expectation was, but since the S&P 500 is down -.8%, as I write, I presume it was worse than expected).

I’m left feeling like so what.

I mean, business advertising, consumer spending, and, eventually, jobs, considerably outweigh housing permits.

One reason is that the credit markets are still EXTREMELY tough.  I talked with one bank a few weeks ago who told me that they’re looking at like a 75% loan-to-value.  Can you imagine?  That was that particular bank, but the sentiment is still there.

I would also imagine that for the vast majority of people, buying a house is a BIG ticket item.   So even if you had the credit, you may rather buy more gadgets, food, clothes, etc., but not a house.  This means that there’ could be a strong recovery, people feel pretty good about their future, but have more immediate needs to take care of.

So I’d probably look to the housing permits (or starts) number as an indicator of big time growth and confidence in someone’s personal economic future and banks’ willingness to loan more for the same reasons.  IMO, housing permits  probably ranks behind job growth as an indicator that economic growth is in full swing.

I guess, if you want to wait until housing permits grow to signal economic growth, then by all means do so.  But by then, people will have already been spending.  Some of those things tend to be very interesting.

My capital allocation was always in stocks, real estate, cash and a smattering of “alternative” investments (like loans and investments in private businesses). Performance varied a lot, but still bested the S&P for the last 4 years.

But in 2004, I tried options. Horrible results, just plain bad. My approach was jacked. I didn’t understand my risk tolerance, didn’t have enough discipline, didn’t do proper due diligence, including cash flow modeling and didn’t understand options. No wonder it seemed like each option LOST money.

All of that changed and I figured out how these things can work for me (cut to the Rich Dad, Poor Dad Seminar in your area commercial, quick!).

I usually sell puts (which gives the buyer the option to acquire a short position in a stock – sell stock to me, and that I have the obligation to buy – the buyer hopes the stock will drop in price).

This does several things for me…

1. I don’t have to “use” capital to invest, which allows existing capital to earn interest (see below). If I actually bought shares (which is still do from time to time), then my opportunity cost increases, because the capital used to invest, can’t earn interest.

2. Gives me money up front that I can put into a bank account yielding more than 7 times the national average (I use Citibank’s Ultimate Savings account v. Wachovia Money Market). This is in addition to the interest earned above.

3. This is key – I don’t care what direction the stock goes, as long as it doesn’t go below the strike price. And since make the strike price so low that I think there’s little chance of the stocking going below, the trade represents high return, low risk…the best of both worlds!

The only drawback is that for each put option sold, the broker restricts a certain amount of my capital, so that I can’t use it (the broker wants to make sure that I reserve capital in case the option buyer wants me to buy the underlying stock – remember the buyer has the option to sell, which means that I have the OBLIGATION to buy).

But that doesn’t mean that the restricted capital doesn’t earn interest (if cash) or potential appreciate (if stocks). The money I get when I sell earns interest and the investment is fairly low risk.

Give you an example. In October, I wrote Google options with a strike price of $470 due October 17, 2009. The stock was trading at about $487 at the time. The price dropped to about $484.58 before ending at $549.85.

You might say, well why not buy the stock and have unlimited gains.

1. I didn’t have enough available capital to actually buy the stock, without borrowing money.

2. I didn’t want to buy it, either. In my mind, the stock could have dropped. With my approach, I really don’t care if it drops, stays the same or goes up, as long as it doesn’t go below my strike. Further, because the option expired in October, I can reuse the capital on something else after October 17, 2009. If I borrowed money to buy the stock, and Google came out with earnings less than expected, then I would be sitting on a loss position and debt, which compounds my lost (at least in the short term).

On longer term options, like LEAPS, my cash flow modeling plays a bigger role since I’m trying to understand where the stock will be in a year or more, not in the next month or so.

This approach only works for stocks appreciating or stagnate. In a down market, this doesn’t work nearly as well and, thus, risk is much higher.

So far, this has been working. Since August 31, 2009, this approach is yielding 9.25% v. S&P 500 of 6.57% through October 17, 2009.  The way I do my risk rating (flawed as it might be – my portfolio has a 2.13 out of 10, 10 being absolute risk, 0 having no risk, and S&P has 5.o0), my risk adjusted return is 7.37% and S&P is 3.35%.

Last week, I got Sprint’s mailer for its Any Mobile Anytime service.

Basically, it allows for unlimited mobile to mobile service regardless of the other person’s carrier.

I don’t know if the other carriers have this kind of service, but let’s presume that they don’t. What makes this move so fascinating are two things.

1) It makes Sprint sticky. I would have NO reason to switch. More and more people are cell phone only users. So there must be more mobile to mobile calls. Enough of my calls are mobile to mobile to make a difference, and make me glad that more of my anytime minutes can be used for landline calls.

2) This would be one of THE primary reasons why I’d switch to Sprint. With a growing number of Sprint customers, the mobile calls between Sprint and non-Sprint customers becomes more like Sprint to Sprint calls, which ultimately lowers Sprint’s costs.

I also believe that Sprint gets a bad rap for its service. My experience has been considerably different. But if Sprint can get its basic blocking and tackling nailed down, I can’t see why it can’t take considerable market share from Verizon, AT&T, and others.

It wouldn’t surprise me one bit if private label brands (like Target’s “Up & Up” or Safeway’s “Select”) are doing well in this economy.  When things tighten enough, consumers look for cheaper alternatives or nix the ancillary items that aren’t as important.

But what does surprise me is the quality of the private labels.  A perfect example is Target’s Up & Up diapers versus Pampers Baby Dry and Huggies.  We were regular users of Pampers for my son, but after they disintegrated one too many times, we tried Huggies and Up & Up.  The best of the bunch?  Up & Up.  We get the coveted double wammy…a superior product for HALF of the price…now that’s VALUE!!!

But I guess this really shouldn’t surprise me.  Some of the private label brands are actually manufactured by brand name companies or other reputable manufacturers.  But I believe the main impetus is that the stores that sell private labels have increased their focus on quality.  It’s the power of branding…they realize that poor quality will reflect badly on their brand.

There was a time when generic brands were in stores.  These weren’t store branded products.  They usually came in these hideous packages in only black and white.  In fact, the quality of the generics were generally only good enough for state maximum security prisons.  The private labels that we see now are much, much different.

Which brings about an interesting issue, cannibalism.   If brand manufacturers make private label brands, then they might be cannibalizing their own brand name sales.

Sure.

But I only have to look at Amazon’s Market Place store (or even Starbucks on every corner philosophy) to prove this issue not applicable.  There is a certain segment that will buy private labels.  But there is also a segment that would rather buy a cheaper alternative, may not buy the brand name anyway, and may even buy more of the private label brand.  This is the market that Market Place hits.  It may seem counter-intuitive, but it’s really not.  It’s offering a service to a segmented market.

I use credit cards a lot for convenience, savings and employment. The former is a given, but the latter two might not be as obvious.

Convenience
Of course, the convenience of whipping out a credit card for purchases, rather than carrying around a huge “mafia-like” wad of cash is invaluable to me. Even if I don’t carry around a wad, chances are that I’ll have to go to banks that will assess service charges, which adds up quickly. So there’s no benefit of using cash.

Savings
This is where I really begin to see some unconventional benefits. Say my credit card cycle ends on the 30th of each month. If I make a credit card purchase on the 1st of that month, I have about 40 days or more for my money to earn interest in my savings account before I take it out to pay my credit card bill (29 days for the cycle to end and about 11 days or so to actually pay off that balance). If I had to use my debit card or cash, I get NO interest benefit for paying on the 1st for something that I can wait 40 days to pay.

Employment
Maybe not the best term to use here, but I use credit cards that work for me, in the form of cash back. I might as well get a benefit from doing something I’m going to do anyway, such as purchase things. To an extent, it’s like getting a discount each time I make a purchase. I can use that cash to pay off other bills or, in some cases, use to get bigger discounts when renting a car.

There’s also the benefit of being able to track spending, using some of the credit card issuer’s features, Quicken, Microsoft Money or free online services like Mint.com.

Obviously, credit cards aren’t for everyone. It takes a certain level of discipline to pay off the cards each month. I never buy more than I can afford (if using cash).

What bothers me is that credit scoring doesn’t reflect this as much I think it should. I went to a credit counselor one time to understand scoring. Because I used credit cards, the balance showed up on my credit report, and negatively impacted my score, even though I paid off the balance EVERY month. You know what the best advice the counselors gave me was? “Pay off your credit cards.”

Well, if that wasn’t serious knowledge transfer, I don’t know what was. (

Anyway, I explained that unless I stopped using credit cards, then there will always be a balance, given how and when the credit card company reports my balances.

But more importantly, having a balance and running it up near the max is irrelevant. What is relevant is paying off the balances in full. The balance is also irrelevant because it doesn’t take into account income of the credit card holder. If I make $300K/year, have a $15K maximum limit on a credit card that almost gets maxed out, but paid off each month, my credit card gets hurt (if I made $20,000/year, then it’s a different story).

Disclaimer: I happen to have very good credit, so I’m not whining. But I do think that the way credit scoring is currently done doesn’t adequately reflect the risk of the credit card holder.

A while back, I wrote a blog on Hansen Natural Corporation, maker of the Monster Energy drink.  The stock was apparently getting killed because an analyst dropped his earnings estimate for Hansen because what he thought was declining sales.  When I did some research, I found the CEO actually said sales were disappointing, but still ahead of the year before.

I bought more Hansen’s.  And thank God I did.  The stock popped about 17% after the Company released Q2 earnings.

On the earnings call, the CEO said the company is STILL taking market share away from others.  Couple that with cost containment and revenue growth and you have a powerful company, rockin’!

I can’t wait until the 10-Q comes out so I can fully understand the cash flows.

But this is a company that I really, really like – they keep their eyes on the ball, despite what analysts say.

Location, location, location.

Who hasn’t heard that saying.

As my wife and I are beginning our search, anew, for rental property, it occurred to me that this is not correct.

It’s value, value, value.

While it includes location, it’s not the only thing. Think about it…if you buy a rental property in the BEST location in the city, but overpay, you’ll never see a cash profit.

We’ve done very well as far as tenant acquisition, property management and tenant disposition. Our turnover has been remarkably low and no one has missed a payment in 8 years. Unheard of.

This is totally because tenants feel that they are receiving value (and careful screening on our part, of course), given their needs (this is a critical concept). They get a property in a good location, that’s well kept and have landlords who act reasonably fast in dealing with issues. We hope to implement some more ideas that’ll make it easier for tenants to rent from us as soon as we have more scale.

But we also make sure we “run” the numbers to ensure cash flow profit. This includes doing our own operating cost estimates (independent of the previous landlord’s estimates) and factoring in our own mortgage payments.   My wife says that you make your money when you buy a property, not when you sell it.  I think she’s right.

So value is apparent in every phase of real estate and it’s not all about location.

Barnes & Noble announced a competitor to Amazon’s Kindle. One of the most remarkable differences is that the eBooks bought from BN.com will be readable on multiple devices (not the Kindle, currently, but I’d strongly consider it, if I were Amazon).

But it made me think about publisher’s concerns about the impact of selling eBooks in lowering their margins (the de facto pricing of eBooks is about $9.99, akin to paperback pricing).

I don’t see this as a margin killer business. I see it as a net additional revenue stream and higher dollar volume business.

Think about what the Kindle and other moble devices do…they make it more convenient to do things. Many moble users will actually read more because it’s convenient or easier to search for, acquire and read content. This isn’t a lower margin issue. It’s a “how can sell more content, while remaining profitable” issue”. I’d look at music sold through Rhapsody and iTunes for an idea on how this could work.

If I were a book publisher, I’d go into this eyes wide open, but I’d still go it.