Lately, I've heard people talking about how difficult business is and the problems one faces when building a company or selecting a stock. I want you to remember to focus on simplicity. Success in business, and thus in investing, comes down to four categories:

1. Increasing total number of customers
• Getting more people in your store or institution
• Converting more browsers into customers
• Increasing the rate of re-order from past customers

2. Decreasing costs

3. Increasing average basket price per consumer

4. Decreasing capital requirements so the cost of capital falls, making the business generate higher returns on each dollar invested (e.g., shorting the cash conversion cycle or better managing inventory).

Nearly everything falls into those categories (there are other exceptions, but for 99% of businesses or economic activity, all you have to do is attack those four things and you'll end up making a lot of money if you're disciplined and relentless).

This may seem outside of the realm of ordinary investing but since many people have an enormous investment in a small business, it seemed appropriate to invite you to think differently about increasing your profits.

All assets, whether a gold nugget or a bottle of cologne, can and should be compared to others when making purchasing or investing decisions. In the past, I've used some of my own private company investments such as Mount Olympus Awards and Kennon Green Enterprises to illustrate basic concepts such as profit margins, financial ratios, investment returns, and more. Today, I'm going to share part of the theoretical basis a proprietary capital allocation hierarchy we use in-house to determine every potential capital expenditure and expense.

My hope is that it will help you put together you own portfolio and structure your financial life to achieve what you want out of your portfolio. Continue Reading ...

Wall Street is falling today because unemployment was higher than expected at 7.2%. That's a substantial number compared to what we're used to these past few decades but nothing like the Great Depression. So much of it really does seem regional. As I've mentioned before, my friends on both coasts tell me how bad it is out there, but in the specific area of the Midwest where I live, other than a higher than average amount of foreclosures, there doesn't seem to be a tremendous impact on the quality of life. Many of our businesses were actually up double digits in 2008 so it seems that this recession is much more painful if you live in Southern California, worked on Wall Street, or had most of your net worth in real estate than it is elsewhere.

That's not to say this isn't the worst recession we've seen in decades - there's no question it is. My point remains that there are bright spots for those willing to move, take risks, and use this time to their advantage. Take a minute to read over the article I wrote following our last recession called Recession 411: What It Is and How It Should Affect Your Investments.

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