Name that company

Founded in 1919, I’m a top global oil-field services company, helping energy firms with everything from exploration and development, production, operations, maintenance and refining to infrastructure and abandonment. I provide engineering and construction services, too. I’ve even supplied a vice president to the U.S. government. I employ more than 100,000 people in more than 120 countries and have done work for NASA and the U.S. military. You’ll find me today in Iraq, Saudi Arabia, Australia and all over the globe. My sales have jumped 58 percent in the past three years, while my stock has more than doubled. Who am I?

Last week’s question and answer

Based in France and with some $122 billion in annual revenues, I’m one of the world’s largest corporations. I didn’t exist in 1980, but today I’m a leader in financial protection, with 50 million clients and 112,000 employees. I’m the result of a series of mergers involving French regional mutual insurance companies. I offer individuals and businesses a range of insurance, protection, savings, retirement and estate planning products and services. I pay out 40 percent to 50 percent of my adjusted earnings as a dividend. My name is a short palindrome, and X marks the spot in the middle. Who am I? (Answer: AXA)

Cosmetics firm worth a look

Back in April, the world’s leader in direct cosmetic sales, Avon (NYSE: AVP), was granted permission to resume door-to-door selling in China after the country banned such practices some seven years ago. That’s good news, but while door-to-door selling has worked for Avon elsewhere in the world, it’s new to the Chinese population. Add to that the concern of China’s Avon boutique owners that they’ll lose out to the direct sellers, and Avon’s getting more than it bargained for.

In its second quarter, Avon generated earnings of $329 million, up 41 percent over last year.

Unfortunately, a big chunk of that was the result of a tax benefit, not exactly something the company can count on for future growth. Revenues were up a modest 6 percent, to $2 billion.

The company provided many excuses for the slow sales growth, pointing to the unexpected decline in China, lower-than-anticipated growth in Central and Eastern Europe, and delayed expansion into Russia. In the U.S. market, revenues fell 6 percent and operating profits dropped 14 percent.

Avon’s stock has fallen more than 10 percent on the news, which may be an overreaction. While the company is not likely to grow much in the U.S., it will likely prosper elsewhere, particularly in China – and sooner rather than later.

With a price-to-earnings (P/E) ratio around 16 and expected annual operating cash flow of $900 million, it’s worth a look.

Reducing risk

Some people steer clear of the stock market, thinking it’s too dangerous. That’s a shame, because it needn’t be. Here are some ways to reduce the risk.

¢ Avoid futures, commodities, options, penny stocks, shorting and margin – at least until you’ve learned a heck of a lot about them. These are all extra-risky ways of investing. Some should be used only by experienced investors, while others are best avoided by all.

¢ Be a long-term investor, not a short-term speculator. Holding a stock for only a few weeks, days or hours is not investing – it’s gambling. Real investors think of themselves as committed part-owners of businesses. Convinced of a company’s value, they plan to hang on.

The longer your investing horizon, the more likely the stock market is to rise. In the short term, anything can happen – including crashes. One or all of your holdings could fall by 20 percent tomorrow. If you’re holding on for years, you can ride out downturns. If you plan to sell in 10 or 20 years, then what happens this year isn’t a big risk to you.

¢ Increase your knowledge. The more you know, the less chance you’ll make mistakes. Too many people buy companies merely on “hot” stock tips from friends or strangers. Sometimes they don’t even know what the company does.

Learn about investing. Read all you can. Start with books by Peter Lynch. Read Warren Buffett’s letters to shareholders, which are written very clearly and impart many lessons. (They’re online at www.berkshirehathaway.com.) Hang out at the Fool online (www.fool.com), reading and asking questions. Invest only in companies you understand well.

¢ Limit your downside. Read up on the risks companies disclose in their financial statements. Consider valuation. A company that seems undervalued (according to measures such as market capitalization, price-to-sales and price-to-earnings ratios, and expected future earnings) should offer less downside risk than an exciting high-flier. We can point you to promising stocks and funds in our newsletters – try some for free at www.fool.com/shop/newsletters.

Cover yourself

How can I determine how much personal liability insurance I need? – F.R., Richmond, Va.

It’s a good rule of thumb to ask yourself how much you have to lose if you’re sued. Add up the value of your home, your belongings and your financial assets. Tack on more for the cost of legal defense. You want to be sure that a lawsuit won’t wipe you out or cause financial strain.

If your total assets are substantial, ask your insurance company about an “umbrella” personal liability policy. Umbrella policies generally offer much more liability coverage ($1 million or more) at lower premiums than individual policies such as homeowner’s, renter’s and automobile insurance.

How can I calculate my annual return when I’ve made multiple purchases of a stock over time? – W.G., Miami

You’re looking for the “internal rate of return” (IRR). If you invest $1,000 and it grows to $2,000 in one year, your holdings advanced 100 percent. (Congrats!) If you invest $1,000, though, and then add $500 midyear, and then end the year with $2,000, your holdings didn’t appreciate by 100 percent. Part of that gain is simply from the midyear cash infusion.

Calculating an internal rate of return can be very complicated. One shortcut is to plug your numbers into a spreadsheet on your computer and to use its IRR function. Another possibility is to enter your portfolio into an online portfolio tracker.

Drinking early vs. retiring early

My dumbest investment never happened. In 1971, I was a 17-year-old high school junior sweeping floors and stocking shelves for Wal-Mart’s sixth store in Arkansas. I was making $1.60 per hour. After six months, I got a nickel-an-hour raise. The assistant manager approached me and told me that they could put part of my pay in company stock. Being a wise sage, I confidently retorted, “What, are you nuts?” I needed those extra nickels for clandestine beer runs to Oklahoma. My stock market savvy has improved considerably since then. – John, Picayune, Miss.

The Fool Responds: We hope the beer was tasty. Wal-Mart stock has appreciated more than 100,000 percent over the past 30 years.

A mere $500 invested in 1975 would have become more than $600,000. It’s never too late to hit it big, though. If you’re 51 now, you likely still have around 30 more years of life ahead of you, and you might keep at least some of your moolah in stocks that whole time.