Well surprise, surprise, it’s Warren Buffett. With a net worth of around $62 billion dollars, Buffet has edged-out Bill Gates, who has claimed the title of wealthiest man alive for the past 14 years. As I’m sure he knew, it was only a matter of time. You could credit his wealth to the success of Berkshire Hathaway (NYSE:BRK.A) but you’d be placing the cart before the horse. Warren Buffett got to where he is today by being the most thrifty investor in the world, and Berkshire Hathaway is his personal project. In other tales of fortunes amassed, telecom industry baron Carlos Slim Helú’s personal fortune rose by $11 billion dollars, for a total of around $60 billion, in 2007. Buffett’s and Helú’s methodologies provide quite an interesting contrast, to say the least.

You may be wondering if real estate is a good investment compared to, say, the stock market. Not real estate as in your home, but rental or other kinds of real estate. Of course it is well known that owning rental properties brings many responsibilities and potential headaches for the landlord- but on the other hand, you’re almost guaranteed appreciation in value over the long haul. But is that all there is to consider when weighing the pros and cons of owning property vs. common stocks?

Well, I read an interesting take on the subject the other day that makes a good point. The idea was that, if you want to separate yourself from your money as much as possible, in an effort to avoid spending it or taking unnecessary risks with it, then owning property is the way to go because it is so illiquid. After all, you can make a killing in the stock market if you make the right decisions, but you can also lose your shirt. With real estate, you insulate your money from yourself in a sense, and it grows unencumbered by your potential stupidity. Sounds like a reasonable argument. However, this assumes you have a problem overspending, do not trust yourself to make good investments otherwise, and furthermore, that you are not making a lame real estate investment in the first place.

Without getting into the interest and fees you pay if you mortgage a real estate investment, if you invest in a real-estate property, the money you put into it becomes equity. Equity is the least liquid form of assets you can own, meaning it is about the farthest thing from cash. This is a good thing if you want to make an investment that you know you will not need to change for a long time (at least 10 years). The reason equity is so illiquid is that, in order to realize the value of your property’s value, you need to sell it, and getting someone to pay for it is such an involved process.

Conversely, unless you own some incredible $ amount of a company’s stock, selling your shares in a company with even a modest market capitalization is a relatively simple, painless task. And, any one of the vast number of investors (which has more than quadrupled in the last 15 years) in the stock market can buy it. With property on the other hand, you need to find not just someone who wants to invest in property, but in your specific property. This is not easy. Even after finding a buyer, you must prepare to be low-balled on the price, and may even get nailed for closing costs in order to offload the investment.

The bottom line is, even if you are a savvy real estate investor making all the right choices, the rewards only come with an awful lot of legwork and potential headache. In contrast, if you make the right choices in the market, your work is basically done.

When it comes to making good investments the stock market, there are many systems out there that you could employ. Funny names like ‘turtle’, ‘online momentum’, and ’shark’ etc. purport to give you the extra edge you need to beat the market consistently.

But if you really want to cut through all the bullshit and save your money, the only system you need might go by a much less flashy name. I would call it the ‘read the balance sheets’ method. OK that name sucks. It goes by another name too: Fundamental Analysis.

The point is, even though I know you absolutely loathe the thought of it, there is really no substitute for looking at numbers. Fortunately for you, there are only a few you really need to pay attention to, and once you familiarize yourself with them, you’ll start to really like looking at them. They’re going to make you money.

The short list of numbers you study when evaluating a potential investment may shift for you over time- you may add some, and you may put less weight on others depending on the circumstances. You will develop your own personalized system for checking balance sheets. But to start with, here’s a list of pretty good numbers on which to focus your attention. I will list them in three categories: Growth, Profitability, and Valuation.

• Growth:
  • 5 yr. EPS Growth
  • 5 yr. Revenue Growth
  • Capital Spending Growth
  • 5 yr. Projected EPS Growth
• Profitability:
  • Return on Equity (ROE)
  • Return on Investment (ROI)
  • Profit Margin
• Valuation
  • Price to Earnings Ratio (P/E)
  • Price to Sales Ratio (P/S)

And that’s it. If you want to know whether a particular stock is a good investment or not, most of the work you need to do is already done if you have these numbers. More to come about how to use these numbers to ensure you’re making the right decision to buy.

Welcome to Man vs. Market. We aim to provide information and entertainment to the average individual investor (or maybe not so average).

Who is this “average investor”?

The guy with little excess income, who wants to protect his money and not be taken for a fool.

Even if he knows he is a complete idiot in many regards.

The guy who doesn’t want to be a complete idiot when it comes to investing.

Who doesn’t want to hear any more talking heads or radio shows expounding why this fund is better because your this age, why that fund is better managed, nor hear the word “fund” in general in any sort of consultive context, nor “booyah”, nor “economy”, etc. , because he knows the people using rhetoric do not work for him, but against him.

They guy who knows these people are not going to protect his money, much less make him any.