Q: Should I want to see a lot of cash on a company’s balance sheet?
A: It depends. When a company has gobs of greenbacks, it can act quickly when opportunities arise.
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But many successful companies purposefully maintain low cash balances. They use their money to pay dividends, buy back shares (essentially retiring them), and acquire other companies, among other things.
If they suddenly need some cash, they draw on lines of credit.
You might be surprised at just how much cash some companies have in their coffers. Recently, for example, Google had more than $48 billion in cash and Microsoft more than $66 billion. Companies manage their cash in different ways, with varying degrees of success.
Warren Buffett has said, “I like to be fearful when others are greedy, and greedy when others are fearful.” That kind of contrariness has helped him make a lot of money.
Consider the investing adage, “Buy low, sell high.” This is the ideal way to make money for many people, but it’s not the only way.
You might also buy high and sell higher. After all, some high-quality companies rarely sell for what would be considered a low price. Of course, if you’re patient, you can find some great companies occasionally on sale, and the lower the valuation, the greater the margin of safety.
Another twist would be “Buy low, sell … never (or at least not for a very long time).”
Meanwhile, if many investors are turning away from a company, it could be an ideal time to consider buying shares. Plenty of great companies fall on temporarily tough times. Just be sure to research it thoroughly and determine that its problems are short-term and not long-term.
It can also be effective to keep a chunk of your money on the sidelines, waiting for a great opportunity.
You needn’t follow any herd of lemmings in order to succeed in investing. Take the time to learn more about it and to think for yourself. Check out books by Peter Lynch or John Bogle’s “The Little Book on Common Sense Investing” (Wiley, $23).
If you’re aware of lots of people looking for love on Match.com, Chemistry.com and OkCupid.com, know that there’s a publicly traded company behind them: IAC (Nasdaq: IACI).
It’s a media and Internet company with more than 20 operating businesses and more than 150 brands, which include video site Vimeo.com, Dictionary.com and CollegeHumor.com.
It’s also home to the Ask.com search engine, which may be enhanced soon due to IAC’s purchase of About.com’s parent from The New York Times.
In IAC’s recent third quarter, search revenue surged 43 percent, while dating-site revenue popped 35 percent. That quarter was also the fourth in a row in which IAC trounced Wall Street analysts’ expectations.
With a forward-looking price-to-earnings (P/E) ratio of about 10, and with a 2.3 percent dividend yield, IAC seems rather attractive. (Its dividend was doubled in 2012, too.)