THE MOTLEY FOOL

Q: What’s a secured credit card?

– K.D., Garden City, Idaho A: If you’re having trouble getting approved for a credit card, it may be due to having a bad credit record – or perhaps no credit history at all.

You’re not out of luck, though: You can apply for a “secured” credit card instead.

Secured credit cards require their holders to fund an account with cash, which serves as a kind of security deposit and works like a credit limit. If you’ve deposited $1,000, you can charge up to that amount, pay the bill when it comes due, and then resume charging again, up to that amount. Secured credit cards can let you build a good credit history, eventually helping you qualify for a regular credit card.

Q: Is a company having a lot of cash on its balance sheet a good thing?

– O.S., Franklin, Tennessee A: It can be good or bad. A lot of cash on hand means the company can act on opportunities that arise, such as buying another company. Some companies also store cash so that they will be able to cover taxes due if and when they bring home profits generated abroad. Excess cash can be used to reward shareholders by spending it on dividends or on repurchasing shares. (It’s generally only worthwhile to buy back shares when they’re undervalued, though.)

However, a lot of cash just sitting around – especially when interest rates are low – isn’t being put to productive use, so many companies try not to keep too much on hand.

Learning from Seth Klarman

Seth Klarman is a highly respected investor, whose 1991 book, “Margin of Safety: Risk-averse value investing strategies for the thoughtful investor,” long out of print, often sells for more than a thousand dollars online. Klarman’s insights can help us be better investors. Here are some nuggets widely attributed to him:

● “If you can remember that stocks aren’t pieces of paper that gyrate all the time – they are fractional interests in businesses – it all makes sense.”

Many investors forget or never learn that shares of stock in reputable companies are not lottery tickets that might go up or down, but actual stakes in real businesses.

● “I can buy this thing for a huge fraction of what it’s worth. What am I worried about if it goes down a little bit more?”

Smart investors shouldn’t mess around once they decide a stock is valued attractively enough to buy. Waiting for a slightly better price might mean you lose out on the good price in front of you.

● “Almost every financial blow-up is because of leverage.”

Just as debt (such as from credit cards) can wreck your financial life, borrowing money simply to invest in stocks can also end disastrously.