Last week’s question and answer

Last week’s trivia answer: I was founded in Chicago in 1928 by the Galvin brothers, but I call Schaumburg, Ill., home now. One brother coined my name to reflect motion and radios. By 1936, I was the leading car radio company. I designed the first walkie-talkie, which was vital in World War II. Today I’m a top global force in broadband mobile communications, embedded systems and wireless networks. My “Batwing” logo was adopted in 1955. Neil Armstrong’s first words from the moon were relayed via one of my transponders. I rake in more than $30 billion annually. Who am I? (Answer: Motorola)

Securing your Retirement

Should I invest through my 401(k) account or directly in individual stocks on my own? – P.Y., Denver

Both options have merit. Individual stocks offer you more control and opportunity for rapid appreciation. Still, ignoring 401(k)s can be costly. As they’re tax-deferred, they are one of the best ways to save for retirement, and if your employer matches any part of your contribution, that represents free money.

You should at least learn more about your company’s 401(k) – or 403(b) – plan. As with any investing process, it’s best to start contributing as early as possible, because the longer your nest egg has to grow, the bigger it’ll get.

Also, consider plunking much or all of your 401(k) contributions into an index fund. If your plan doesn’t offer one, ask for it.

Learn much more about retirement topics at www.fool.com/retirement.htm and http://money.cnn.com/retirement.

Or grab a free trial of our retirement newsletter, at www.ruleyourretirement.com.

Bad assumption

My worst move was buying shares of fiber-optics company JDS Uniphase in 1999 when I got my first military promotion and decided to dump all of my extra money from the first few months into that stock. It was at $42 then. I looked at the 52-week high ($65) and thought it would be able to get back there easily, but it quickly went to $8 – just a hair off of what I had hoped for! Well, hope is not a sound investing method. What a great way to spring into learning about stock investing. Oh, and JDS sits around $1.50 per share today. I can’t bring myself to sell it now. – B.B., via e-mail

The Fool Responds: You made some classic mistakes, such as assuming that a company should eventually return to a previous high.

You’re wrong to keep hanging on, though, unless you have faith that the stock will recover.

Otherwise, take what little is left and invest it in a company you believe in more. Focus your money on your most promising stocks.

Buffett wisdom

Last month, some college students traveled to Omaha to meet with billionaire investor Warren Buffett, who heads Berkshire Hathaway. Here are some insights he offered:

¢ On what he looks for when hiring: passion, intelligence, energy and integrity.

¢ On selling: “At Berkshire, when I purchase a company, I intend it to be for life. We have decided that we will only sell a business under two conditions: 1) if they’re going to lose money forever and 2) if there are labor problems.”

¢ On what he looks for when evaluating a company as a possible investment: “I’m looking for something that I understand … I want to have a good understanding of what the economics of the industry will be 10 years down the road, and of who will be making the money at that point. I’m also looking for enduring competitive advantages.”

¢ On the U.S. trade deficit: “The U.S. is incurring a $2 billion-per-day current deficit with a $12 trillion economy. At this rate, in 10 years we would have to send 3 percent of our output abroad to pay for this deficit.”

¢ On retirement investing: Buffett recommended 401(k) plans because of matching funds from employers and tax benefits. He recommended buying into a low-cost index fund on a regular basis.

¢ On finding a spouse: Look for someone who will love you unconditionally and will subtly encourage you to be better than you thought you can be. Buffett told the story of a man who spent 20 years looking for the perfect woman. When he finally found her, she unfortunately was looking for the perfect man.

¢ On love and friendship: You can buy sex, but you can’t buy love. The only way to get love is to be lovable. A person is rich if they have many friendships. Buffett spoke of a woman who survived a concentration camp but was slow to make friends because she wondered if they would hide her. He said that a person is rich if they know many people who would hide them.

Home sweet homebuilder

One of the 10 largest homebuilders in the country, Hovnanian Enterprises (NYSE: HOV) recently reported sound second-quarter results. Revenue grew 32 percent for the quarter, and net income advanced by 51 percent with improved profit margins.

Although new orders dipped a bit in the quarter, Hovnanian delivered about 12 percent more homes than during the year-ago quarter, and the average selling prices of those homes climbed by about 18 percent. Backlog also grew strongly, whether measured in numbers of homes (35.7 percent) or dollar value (61 percent).

Stripping out unconsolidated joint-venture contributions, both figures were still positive, with homes increasing 12.5 percent and dollar value growing by almost 18 percent.

Also important, Hovnanian continues to report excellent efficiency numbers. The annualized return on equity for the quarter exceeded 30 percent, and the annualized return on assets is solidly in the double digits.

Though Hovnanian carries a fair bit of debt, it’s not out of line with similar builders. What’s more, the company generates solid profit margins and returns on its capital. Like other homebuilders, Hovnanian trades at a valuation that suggests we’re at or near peak cycle times.

The stock doesn’t appear to be a screaming bargain now, but it’s worth keeping an eye on, especially if you don’t see a real estate slump in the offing.