Last week’s question and answer

I was founded in New York City in 1892. Early customers buying my outdoor gear included Teddy Roosevelt and Amelia Earhart. By the early 1900s I was selling clothing for women and men. I soon began publishing a catalog; today I publish a “magalog.” Over the years I’ve offered golf lessons, a kennel, hot air balloons, falconry equipment, hip flasks during prohibition and much more. I operate more than 350 stores today. My flagship brand targets the college-aged, while my Hollister Co. targets teens. I went public in 1996 and was spun off from The Limited in 1998. Who am I?

(Answer Abercrombie & Fitch)

Book value low

What’s book value? – R.G., Springfield, Mo.

It’s an accounting concept, reflecting a company’s value according to its balance sheet and equal to shareholders’ equity, or the difference between assets and liabilities.

Book value once approximated a company’s intrinsic value, as most assets, such as factories and land, were capital-intensive and appeared on the balance sheet. But as America’s economy becomes less industrial and more service-oriented, book value has become less relevant for investors. Consider Microsoft. Its recently reported book value is about $47 billion, far from its market value north of $275 billion. Much of Microsoft’s value stems from assets that don’t register significantly on the balance sheet: intellectual property, employees, a strong brand and market share.

As another example, imagine a firm that owns a lot of land and many buildings. Over the years, the value of buildings on the balance sheet is depreciated, eventually to zero. But these assets are rarely worthless and can even appreciate in value over time. Such a company might actually be worth a lot more than its book value.

With many companies, you’d do well to largely ignore book value.

When I see that a stock is up or down some amount, from where or what is it up or down? – B.P., Portland, Maine

When you hear that shares of Porcine Aviation (ticker: PGFLY) are down 2 1/2, that means they’re off $2.50 from where the stock ended at the previous close of trading. So if PGFLY closed at $55 per share yesterday and it’s trading around $52.50 right now, it’s down 2 1/2.

Mmm. Mmm. Not bad

Condense Campbell Soup Co.’s (NYSE: CPB) latest earnings report down to this: The “Mmm! Mmm! Good” company turned in another so-so quarter. “Volume and mix were flat,” the report stated. Campbell has reduced its total debt by $324 million during the past 12 months. Although current debt stands at nearly $3 billion, the company’s strong cash flow can easily cover its interest payments, 2.2 percent dividend and capital expenditures.

Optimists may smile at net sales up 4 percent. Earnings per share were better than analysts predicted. Pessimists will see sales slightly below the average analyst estimate. They also may note that the sales increase was due more to currency values and pricing than to increased sales volume.

Optimists see the stock up 18 percent over a one-year period. Pessimists see it below its 2000 high and roughly half its 1998 high.

During the past five years, Campbell’s per annum earnings shrank 1.2 percent.

Analysts expect 6 percent compounded annual growth over the next five years, lower than the food-processing industry’s 8.6 percent annual growth or the S&P 500’s 10 percent.

Those seeking higher growth rates within similar realms should look at Motley Fool Income Investor newsletter recommendation Heinz (NYSE: HNZ) and our pick of Fresh Del Monte Produce (NYSE: FDP), which analysts see growing annually by 8 percent and 9 percent, respectively.

Financial perspective

“I went shopping and saved $57.49!” Does the refrain sound familiar? Whether it’s a coffee maker, boxed CD set, or shoes marked down to $22.50 from $79.99, it’s easy to rationalize a purchase when the mind makes a sprightly leap from “spending” to “saving” mode. But no matter how fab that new footwear is, there’s $22.50 less in your wallet when you head for the store’s exit.

Economists across the nation have studied the mind-wallet connection. They’ve found that we’re not only irrational about money issues, we’re predictably irrational. Everything from the way an expenditure is calculated to what currency we use to make a purchase or how much we want to avoid a financial loss can cause us to disassociate with the actual dollars-and-cents decision and start treating our dough like it’s Monopoly money.

Public television stations, for example, have long relied on getting higher pledges by calculating the per-day amount of a donation (and the free mug, umbrella or canvas bag). After all, 41 cents a day is pocket change compared to $150 a year. Same amount, different context. It works like a charm.

Our irrational behavior also depends on how we pay for expenses. Casinos use chips because the perceived losses seem less daunting to gamblers. Those colored discs just don’t seem like real money. Similarly, people spend more when shopping overseas because they don’t rationally equate those pretty little foreign coins with American currency.

The damage to our bottom line plays out fairly predictably in the stock market, too, where investors make decisions based more on emotional attachments than rational analysis. Investors often hold on to poorly performing stocks because they don’t want to acknowledge a loss. On the other hand, many play it too safe because of an exaggerated perception of the stock market’s risk, putting too much money in bonds and too little into stocks.

When you strip out the intricacies of personal finances, you’re left with one simple fail-safe directive that will increase your net worth: Spend less money than you make and invest the difference.