Thursday, July 30, 2009
Friday, July 17, 2009
The Difference Between an Investor And a Speculator
The Difference Between an Investor And a Speculator
Investors and Speculators are 2 different players in the stock market. When people invest in the stock market, they are doing it as one of two people: either as an investor or a speculator. There is no business without risk. Hence the risk of investing in the stock market is high. This high risk was exhibited in the recent global stock market meltdown where both the so called investors and speculators were not spared by continuous depreciation in the value of their stock investments. The stock market over the years is said to have the potential of returning higher returns in comparison to other forms of investment. Arguably, the returns one gets from investing in the stock market as an Investor or a Speculator depends on the individual, i.e. it depends on whether you are an Investor or a Speculator. The recent meltdown left no one in doubt as to who is an Investor and who is a Speculator.
Speculators - They are those that buy securities without holding them for a long period. They invest in stocks not for purpose of receiving dividends. They are short term players in the market. They study and predict the market so s to know the best time to buy or sell stocks. They sell their shares because they anticipate the prices are peaking or to realize a profit. To be a successful speculator is as tasking as living and breathing the market you want to speculate in. Often, they will buy shares in a company because they are "in play" (which is another way of saying a stock is experiencing higher than normal volume and its shares may be accumulated or sold by institutions). They buy stock not on the basis of careful analysis, but on the chance it will rise from any cause other than a recognition of its underlying fundamentals. Speculation can be profitable in the short term (especially during bull markets), it very rarely provides a lifetime of sustainable income or returns. It should be left only to those who can afford to lose everything they are putting up for stake.
In the book “The Intelligent Investor” by Mr. Benjamin Graham, he said “The most realistic distinction between the Investor and a Speculator is found in their attitude toward stock market movements. The Speculator’s primary interest lies in anticipating and profiting from market fluctuations. The Investor’s primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels at which they certainly should refrain from buying and probably would be wise to sell”.
Investors – They are people that buy stocks and hold them for a longer period of time. They are long-term players in the market. They hold on to their stocks and receive dividends at the end of the year. If they invest in bonds, they wait until the maturity period of the bond. They maintain their long-term objective for investing in the market. Usually. they carefully analyses a company, decides exactly what it is worth, and will not buy the stock unless it is trading at a substantial discount to its intrinsic value. They make their investment decisions based on factual data and do not allow their emotions to get involved.
The activities of Speculators and Investors affect stock prices. The speculator will drive prices to extremes, while the investor (who generally sells when the speculator buys and buys when the speculator sells) evens out the market, so over the long run, stock prices reflect the underlying value of the companies. If everyone who bought common stocks were an investor, the market as a whole would behave far more rationally than it does. Stocks would be bought and sold based on the value of the business. Wild price fluctuations would occur far less frequently because as soon as a security appeared to be undervalued, investors would buy it, driving the price up to more reasonable levels. When a company became overpriced, it would promptly be sold. Speculators on the other hand, are the ones who help create the volatility the value investor loves. Since they buy securities based sometimes on little more than a whim, they are apt to sell for the same reason. This leads to stocks becoming dramatically overvalued when everyone is interested and unjustifiably undervalued when they fall out of vogue. This manic-depressive behavior creates the opportunity for us to pick up companies that are selling for far less than they are worth.
This leads to a fundamental belief among value investors that although the stock market may, in the short-term, wildly depart from the fundamentals of a business, in the long-run the fundamentals are all that matter. This is the basis behind the famous Ben Graham quote "In the short-term the market is a voting machine, in the long-term, a weighing one." Sadly, some reject this basic principle of the stock market.
Whether one is an Investor or a Speculator, it is advisable to conduct both technical and fundamental analysis of the company being invested in. It is dangerous and risky to invest in a company based on sentiments. Remember to invest what you can lose in case the unexpected happens.
In conclusion, however, the story of a man who had waited patiently for years expecting to win a lottery, came to my mind. He was waiting to win a lottery without buying a ticket to play the lottery until someone asked him “have you played?” You might be waiting to reap bountifully from the stock market or other investments, but have you started investing? Remember that you can if you think you can.
Investors and Speculators are 2 different players in the stock market. When people invest in the stock market, they are doing it as one of two people: either as an investor or a speculator. There is no business without risk. Hence the risk of investing in the stock market is high. This high risk was exhibited in the recent global stock market meltdown where both the so called investors and speculators were not spared by continuous depreciation in the value of their stock investments. The stock market over the years is said to have the potential of returning higher returns in comparison to other forms of investment. Arguably, the returns one gets from investing in the stock market as an Investor or a Speculator depends on the individual, i.e. it depends on whether you are an Investor or a Speculator. The recent meltdown left no one in doubt as to who is an Investor and who is a Speculator.
Speculators - They are those that buy securities without holding them for a long period. They invest in stocks not for purpose of receiving dividends. They are short term players in the market. They study and predict the market so s to know the best time to buy or sell stocks. They sell their shares because they anticipate the prices are peaking or to realize a profit. To be a successful speculator is as tasking as living and breathing the market you want to speculate in. Often, they will buy shares in a company because they are "in play" (which is another way of saying a stock is experiencing higher than normal volume and its shares may be accumulated or sold by institutions). They buy stock not on the basis of careful analysis, but on the chance it will rise from any cause other than a recognition of its underlying fundamentals. Speculation can be profitable in the short term (especially during bull markets), it very rarely provides a lifetime of sustainable income or returns. It should be left only to those who can afford to lose everything they are putting up for stake.
In the book “The Intelligent Investor” by Mr. Benjamin Graham, he said “The most realistic distinction between the Investor and a Speculator is found in their attitude toward stock market movements. The Speculator’s primary interest lies in anticipating and profiting from market fluctuations. The Investor’s primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels at which they certainly should refrain from buying and probably would be wise to sell”.
Investors – They are people that buy stocks and hold them for a longer period of time. They are long-term players in the market. They hold on to their stocks and receive dividends at the end of the year. If they invest in bonds, they wait until the maturity period of the bond. They maintain their long-term objective for investing in the market. Usually. they carefully analyses a company, decides exactly what it is worth, and will not buy the stock unless it is trading at a substantial discount to its intrinsic value. They make their investment decisions based on factual data and do not allow their emotions to get involved.
The activities of Speculators and Investors affect stock prices. The speculator will drive prices to extremes, while the investor (who generally sells when the speculator buys and buys when the speculator sells) evens out the market, so over the long run, stock prices reflect the underlying value of the companies. If everyone who bought common stocks were an investor, the market as a whole would behave far more rationally than it does. Stocks would be bought and sold based on the value of the business. Wild price fluctuations would occur far less frequently because as soon as a security appeared to be undervalued, investors would buy it, driving the price up to more reasonable levels. When a company became overpriced, it would promptly be sold. Speculators on the other hand, are the ones who help create the volatility the value investor loves. Since they buy securities based sometimes on little more than a whim, they are apt to sell for the same reason. This leads to stocks becoming dramatically overvalued when everyone is interested and unjustifiably undervalued when they fall out of vogue. This manic-depressive behavior creates the opportunity for us to pick up companies that are selling for far less than they are worth.
This leads to a fundamental belief among value investors that although the stock market may, in the short-term, wildly depart from the fundamentals of a business, in the long-run the fundamentals are all that matter. This is the basis behind the famous Ben Graham quote "In the short-term the market is a voting machine, in the long-term, a weighing one." Sadly, some reject this basic principle of the stock market.
Whether one is an Investor or a Speculator, it is advisable to conduct both technical and fundamental analysis of the company being invested in. It is dangerous and risky to invest in a company based on sentiments. Remember to invest what you can lose in case the unexpected happens.
In conclusion, however, the story of a man who had waited patiently for years expecting to win a lottery, came to my mind. He was waiting to win a lottery without buying a ticket to play the lottery until someone asked him “have you played?” You might be waiting to reap bountifully from the stock market or other investments, but have you started investing? Remember that you can if you think you can.
Monday, July 13, 2009
How to Know a Company That Will Soon Wind Up - The Going Concern Concept
How to Know a Company that will Soon Close Down – The Going Concern Concept
Ever before the recent global financial meltdown, some companies were forced to close down due to factors not within their control. Whether the External Auditors of these companies had given them clean bills of health is an issue for another discussion. As a follow up to my previous article on How to Interpret the Financial Statement of a Company, there are symptoms that create doubt as to a company’s ability to continue in business or otherwise. Once these symptoms are spotted or seen in a company, it becomes risky and a matter of personal decision to continue investing in such companies. This article does not however suggest that the presence or absence of these symptoms will translate to the winding up of a company.
The going concern concept assumes that the business unit will operate in perpetuity; that is, the business is not expected to be liquidated in the foreseeable future. A business is considered a going concern if it is capable of earning a reasonable net income and there is no intention or threat from any source to curtail significantly its line of business in the foreseeable future. In addition to understanding how to interpret the financial statement of a company, it is advisable to conduct due diligence questions before investing into a company.
The above notwithstanding, the presence of the following symptoms may indicate the going concern difficulties in a company:
1. High or increasing debt-to-equity ratio – high gearing.
2. Loan repayments are falling due in the near future, and re-financing facilities are not available.
3. The company is heavily or increasingly dependent upon short term finance, especially on trade credits and bank overdrafts.
4. The company is unable to take advantage of discounts; the time taken to pay creditors is increasing and suppliers impose cash purchase terms.
5. Normal purchase are deferred thereby reducing stocks to dangerously low level.
6. Reducing profitability levels or substantial losses are occurring.
7. Capital expenditure is being replaced with leasing arrangements.
8. The company is in an exposed position in relation to future commitments such as long term assets being financed by short or medium term borrowings.
9. The company’s ratio of current assets to current liabilities is declining or even has a net deficiency.
10. Collection rate of debtors is slowing down.
11. The company is near its present borrowing limits, with no sign of a reduction in finance requirements.
12. Rapid development of business is in danger of creating an over-trading situation.
13. There are substantial investments in new products, ventures or research, none of which has been successful.
14. The company depends upon a limited number of products, customers or suppliers.
15. There is evidence of major reductions or cancellations of major capital projects.
16. There is heavy dependence on overseas holding company for finance or trade.
17. Heavy dependence on imported raw materials and components in a regime of continuing depreciation of local currency.
18. Disruptive work force or high labour turnover in specialized industries.
19. Continuing disputes among those charged with governance.
Tuesday, June 23, 2009
How to Interpret the Financial Statement of a Company
HOW TO INTERPRET THE FINANCIAL STATEMENTS OF A COMPANY
The recent global financial crisis and its attendant effect, calls for a deeper understanding of the financial statement of companies before investing your hard earned money with them. I have always advised that there is no better time to invest in the stock market than now. However, while embarking on such investments, there are certain fundamental analyses of company’s results which you should be independently familiar with. This does not however suggest that you should ignore the advice of an expert in investment matters. Once you purchase the shares of a company, you are by law a shareholder of the company and as such entitled to all benefits and privileges accruing to members of the company. As a shareholder, you are entitled to your opinion in the decision making process of the company. Access to financial information of the company cannot be restricted to you.
It has been observed that as a result of people’s inability to analyze a company’s financial statement; they more often than not ‘invest blindly’. In effect, people buy into companies not knowing its going concern ability. This is largely due to poor understanding and interpretation of financial records. In most cases also, people that can analyze financial statements do not take the pain to do the necessary home work before investing. They use various techniques which cannot be proved to take investment decisions. Sometimes, people loose their monies as a result of bad investment decision.
The financial statement of a company usually comprises of the balance sheet and profit & loss account. The balance sheet is technically defined as a financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. It is a snapshot of what a company owns and owes at any point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders. It follows therefore that the two sides of a balance sheet must balance out. This is so because a company has to pay for all the things it has (assets) by either borrowing money (liabilities) or getting it from shareholders (shareholders’ equity). Each of the three segments of the balance sheet will have many accounts within it that document the value of each. Accounts such as cash, inventory and property are on the asset side of the balance sheet, while on the liability side there are accounts such as accounts payable or long-term debt. The exact accounts on a balance sheet will differ by company and by industry, as there is no one set template that accurately accommodates for the differences between different types of businesses. It is set out in a number of possible standard formats.
Balance Sheet Formula:
Assets = Liabilities + Shareholders' Equity
Assets – They re assets owned by the company. It is divided into Fixed and Current Assets.
Fixed Assets such as buildings, machinery and equipments are the assets that generate wealth for the business over time.
Current Assets are the assets that are used up in generating daily revenues for the business. They are assets that could be turned into cash in the short period.
Liabilities – This is what the business owes. It is divided into:
Long-term and short-term liabilities depending on the payment period. The creditors due within one year (short-term liabilities) must be paid within, in most cases, one year while creditors due after more than one year (long-term liabilities) e.g. mortgage loan, takes a longer period.
On the other hand, the Profit & Loss Account (P&L) is a report of the company's profit on the sale of their goods or the provision of their service over a trading period, normally one year. It shows at a glance the income (sales) and cost of sales (expenses incurred) for a particular period, usually one year. It is made up of the following three parts:
1. The Trading Account – This records the money received (revenue) and costs of the business as a result of the business trading activities, i.e. buying and selling. It might be buying raw materials and selling finished goods etc.
2. The Profit and Loss Account – Ordinarily, it starts with the Gross Profit derived from the Trading Account. Other revenues and expenses are added and deducted appropriately. Thereafter, a Net profit is or loss is obtained.
3. The Appropriation Account – This shows how the profit is appropriated or divided during a particular period.
It is advisable to obtain the financial statements (audited accounts of a company) for the previous 5 years so as to arrive at an objective investment decision. In arriving at the decision it is necessary to understand the computation of the following:
Return on Capital Employed (ROCE) – This is a measure of the efficiency of the use of resources.
= Profit before Interest and Taxation X 100
Capital Employed
Current Ratio – This ratio gives a measure of the short-term safety of the firm. The current assets are those that could be turned into cash in a short period of time and the current liabilities are those liabilities which might have to be repaid at short notice. Therefore, the higher the level of current assets in relation to current liabilities the less likely it is that the firm will be unable to meet its short-term liabilities.
= Current Assets
Current Liabilities
Acid Test Ratio – It is also called Quick ratio. It is the ratio of current assets less inventories, accruals, and prepaid items to current liabilities.
= Current Assets – Stock
Current Liabilities
Usually, liquidity is measured by current and acid test ratios which reflect the ability of the company to meet its current liabilities as at when due. A current ratio of 2:1 and acid test ratio of 1:1 is generally considered healthy in most instances.
Net Assets Turnover = Sales
Net Assets
Fixed Assets Turnover – This is a ratio that measures the efficiency of the firm. The higher the level of sales generated by each 'unit' of fixed assets the more efficient the firm might be thought to be.
= Sales
Fixed Assets
Debtors Collection Period = Average Debtors X 365
Credit Sales
Stock Turnover = Cost of Sales
Average Stock
Gearing Ratio – This is also referred to as leverage ratio. It shows the relative amounts of capital provided by shareholders (equity) and those lending money to the firm in the form of credit of one type or another (debt). Ordinarily, firm is said to be highly geared it has a high level of debt and a relatively low level of equity. Conversely, if a firm has low gearing it will have financed its assets mainly from equity and will only have a little debt. As debt is usually cheaper than equity, it is profitable to have some debt in the firm as this means that the funds required can be raised a little more cheaply. Therefore, low gearing ratios could mean that the firm is paying too much for the money it is raising to finance its assets. Maybe it should be borrowing some 'cheap' debt to purchase assets rather than use more expensive equity. However, high gearing ratios mean that the firm has a lot of debt. In this case, if interest rates rise and profits fall the firm might not make enough money to pay its interest payments. Thus, high gearing is seen as being somewhat risky. Also, the risk of defaulting on interest payments increases as gearing rises.
= Long Term Debts
Shareholder’s Equity
The above analysis of the company’s financial statements notwithstanding, it is also necessary and advisable to consider the opinion expressed by the External Auditors of the company, usually contained as part of the financial statement, as to the going concern ability of the company. A going concern concept assumes that the business unit will operate in perpetuity, i.e. the business is not expected to be liquidated in the foreseeable future. The business is capable of earning a reasonable net income and there is no intention or threat from any source to curtail significantly its line of business in the foreseeable future.
The recent global financial crisis and its attendant effect, calls for a deeper understanding of the financial statement of companies before investing your hard earned money with them. I have always advised that there is no better time to invest in the stock market than now. However, while embarking on such investments, there are certain fundamental analyses of company’s results which you should be independently familiar with. This does not however suggest that you should ignore the advice of an expert in investment matters. Once you purchase the shares of a company, you are by law a shareholder of the company and as such entitled to all benefits and privileges accruing to members of the company. As a shareholder, you are entitled to your opinion in the decision making process of the company. Access to financial information of the company cannot be restricted to you.
It has been observed that as a result of people’s inability to analyze a company’s financial statement; they more often than not ‘invest blindly’. In effect, people buy into companies not knowing its going concern ability. This is largely due to poor understanding and interpretation of financial records. In most cases also, people that can analyze financial statements do not take the pain to do the necessary home work before investing. They use various techniques which cannot be proved to take investment decisions. Sometimes, people loose their monies as a result of bad investment decision.
The financial statement of a company usually comprises of the balance sheet and profit & loss account. The balance sheet is technically defined as a financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. It is a snapshot of what a company owns and owes at any point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders. It follows therefore that the two sides of a balance sheet must balance out. This is so because a company has to pay for all the things it has (assets) by either borrowing money (liabilities) or getting it from shareholders (shareholders’ equity). Each of the three segments of the balance sheet will have many accounts within it that document the value of each. Accounts such as cash, inventory and property are on the asset side of the balance sheet, while on the liability side there are accounts such as accounts payable or long-term debt. The exact accounts on a balance sheet will differ by company and by industry, as there is no one set template that accurately accommodates for the differences between different types of businesses. It is set out in a number of possible standard formats.
Balance Sheet Formula:
Assets = Liabilities + Shareholders' Equity
Assets – They re assets owned by the company. It is divided into Fixed and Current Assets.
Fixed Assets such as buildings, machinery and equipments are the assets that generate wealth for the business over time.
Current Assets are the assets that are used up in generating daily revenues for the business. They are assets that could be turned into cash in the short period.
Liabilities – This is what the business owes. It is divided into:
Long-term and short-term liabilities depending on the payment period. The creditors due within one year (short-term liabilities) must be paid within, in most cases, one year while creditors due after more than one year (long-term liabilities) e.g. mortgage loan, takes a longer period.
On the other hand, the Profit & Loss Account (P&L) is a report of the company's profit on the sale of their goods or the provision of their service over a trading period, normally one year. It shows at a glance the income (sales) and cost of sales (expenses incurred) for a particular period, usually one year. It is made up of the following three parts:
1. The Trading Account – This records the money received (revenue) and costs of the business as a result of the business trading activities, i.e. buying and selling. It might be buying raw materials and selling finished goods etc.
2. The Profit and Loss Account – Ordinarily, it starts with the Gross Profit derived from the Trading Account. Other revenues and expenses are added and deducted appropriately. Thereafter, a Net profit is or loss is obtained.
3. The Appropriation Account – This shows how the profit is appropriated or divided during a particular period.
It is advisable to obtain the financial statements (audited accounts of a company) for the previous 5 years so as to arrive at an objective investment decision. In arriving at the decision it is necessary to understand the computation of the following:
Return on Capital Employed (ROCE) – This is a measure of the efficiency of the use of resources.
= Profit before Interest and Taxation X 100
Capital Employed
Current Ratio – This ratio gives a measure of the short-term safety of the firm. The current assets are those that could be turned into cash in a short period of time and the current liabilities are those liabilities which might have to be repaid at short notice. Therefore, the higher the level of current assets in relation to current liabilities the less likely it is that the firm will be unable to meet its short-term liabilities.
= Current Assets
Current Liabilities
Acid Test Ratio – It is also called Quick ratio. It is the ratio of current assets less inventories, accruals, and prepaid items to current liabilities.
= Current Assets – Stock
Current Liabilities
Usually, liquidity is measured by current and acid test ratios which reflect the ability of the company to meet its current liabilities as at when due. A current ratio of 2:1 and acid test ratio of 1:1 is generally considered healthy in most instances.
Net Assets Turnover = Sales
Net Assets
Fixed Assets Turnover – This is a ratio that measures the efficiency of the firm. The higher the level of sales generated by each 'unit' of fixed assets the more efficient the firm might be thought to be.
= Sales
Fixed Assets
Debtors Collection Period = Average Debtors X 365
Credit Sales
Stock Turnover = Cost of Sales
Average Stock
Gearing Ratio – This is also referred to as leverage ratio. It shows the relative amounts of capital provided by shareholders (equity) and those lending money to the firm in the form of credit of one type or another (debt). Ordinarily, firm is said to be highly geared it has a high level of debt and a relatively low level of equity. Conversely, if a firm has low gearing it will have financed its assets mainly from equity and will only have a little debt. As debt is usually cheaper than equity, it is profitable to have some debt in the firm as this means that the funds required can be raised a little more cheaply. Therefore, low gearing ratios could mean that the firm is paying too much for the money it is raising to finance its assets. Maybe it should be borrowing some 'cheap' debt to purchase assets rather than use more expensive equity. However, high gearing ratios mean that the firm has a lot of debt. In this case, if interest rates rise and profits fall the firm might not make enough money to pay its interest payments. Thus, high gearing is seen as being somewhat risky. Also, the risk of defaulting on interest payments increases as gearing rises.
= Long Term Debts
Shareholder’s Equity
The above analysis of the company’s financial statements notwithstanding, it is also necessary and advisable to consider the opinion expressed by the External Auditors of the company, usually contained as part of the financial statement, as to the going concern ability of the company. A going concern concept assumes that the business unit will operate in perpetuity, i.e. the business is not expected to be liquidated in the foreseeable future. The business is capable of earning a reasonable net income and there is no intention or threat from any source to curtail significantly its line of business in the foreseeable future.
Wednesday, May 13, 2009
Common Mistakes to Avoid by Entrepreneurs
The road to starting a business is not always paved with gold but laden with many mistakes that can bug down entrepreneurs especially when the fear of failure lingers on in their memories. Common start-up mistakes seem obvious to entrepreneurs who often think they are well too prepared to succeed. Many businesses had failed even before they took off due to those mistakes many supposed confident entrepreneurs make.
Unless you proceed slowly and carefully, taking the time to do plenty of research before starting a business, even the most prepared businessman would run into problems. Common start-up mistakes destroy an entrepreneur’s chances of having a successful start-up and the sooner they are avoided the better.
Not having a clear vision is one pitfall many people slip into adding that lack of vision amounts to sailing in troubled waters without a compass. If you cannot have a vision of where you want the business to be in some years, then, you may not succeed. Having a vision involves planning and this comes with a basic business plan, but in that plan, do not just think now, but think as far down the road as possible.
Common mistake that a potential entrepreneur can make surrounding yourself with people who do not believe in your ideas, whether by accident or because they are family members. Surrounding yourself with people who do not believe you will succeed is bad, especially when they discourage you on the idea without actually giving their opinion. You need to be around positive feedback all the time because it makes you more determined. Allowing the negative disposition of those around you to bring you down would affect your dreams of starting your business. One of the most common mistakes of start-up is to underestimate the amount of money required to start your business, adding that business plans are there to help you determine what you want to do, how you would do it and how much it would cost to do it. Entrepreneurs should be careful of over spending and under spending. You should be weary of spending your precious start-up capital unnecessarily. This will help guide against over spending. It is also a mistake to be too stingy with your cash adding that frugality should not get in the way of efficiency. This would help guide against under spending.
Buy decent equipment when it is clear you would get your money’s worth. You do not have to overspend on fancy furniture, but get functional furniture that helps you be more productive. It takes time to develop the wisdom to know when you are being too tight or too loose with your cash, so, if you are just starting out, get a second opinion; if you cannot justify the expenditure to someone you respect, it is probably a mistake. There are situations where it is hard to justify not spending the cash.
Another common start-up mistake is doing it alone and not seeking the help of mentors and more experienced entrepreneurs. Trying to do it all by yourself and not asking for help is also one of the reasons why people find it hard to start a business. Start-up entrepreneurs should look for more matured and successful business men to help them through the challenges of starting a venture. Having a much more experienced entrepreneur that can give you some valuable advice is so important especially when you are a young and ambitious person with so many challenges to meet on the way to success. Creating a successful business will take a lot of time, effort, patience, dedication, a clear plan and vision. Having a mentor will help you through.
Another common start-up mistake is not to market your business, expecting that people will naturally start patronizing you. Serious marketing is needed to keep the business up and running.Losing momentum is yet another start-up mistake. Entrepreneur should constantly improve products and services by researching the changing market and competition. This will promote innovation and sustain the business.
Other common start-ups mistakes that should be avoided include but not limited to the following: Starting a business without really understanding the market; failing to focus on value creation, and not knowing your strengths and weaknesses as an entrepreneur.
In all, with determination, prayers and God’s guidance, success is guaranteed for all entrepreneurs. You can make it if you believe that you can make it.
Unless you proceed slowly and carefully, taking the time to do plenty of research before starting a business, even the most prepared businessman would run into problems. Common start-up mistakes destroy an entrepreneur’s chances of having a successful start-up and the sooner they are avoided the better.
Not having a clear vision is one pitfall many people slip into adding that lack of vision amounts to sailing in troubled waters without a compass. If you cannot have a vision of where you want the business to be in some years, then, you may not succeed. Having a vision involves planning and this comes with a basic business plan, but in that plan, do not just think now, but think as far down the road as possible.
Common mistake that a potential entrepreneur can make surrounding yourself with people who do not believe in your ideas, whether by accident or because they are family members. Surrounding yourself with people who do not believe you will succeed is bad, especially when they discourage you on the idea without actually giving their opinion. You need to be around positive feedback all the time because it makes you more determined. Allowing the negative disposition of those around you to bring you down would affect your dreams of starting your business. One of the most common mistakes of start-up is to underestimate the amount of money required to start your business, adding that business plans are there to help you determine what you want to do, how you would do it and how much it would cost to do it. Entrepreneurs should be careful of over spending and under spending. You should be weary of spending your precious start-up capital unnecessarily. This will help guide against over spending. It is also a mistake to be too stingy with your cash adding that frugality should not get in the way of efficiency. This would help guide against under spending.
Buy decent equipment when it is clear you would get your money’s worth. You do not have to overspend on fancy furniture, but get functional furniture that helps you be more productive. It takes time to develop the wisdom to know when you are being too tight or too loose with your cash, so, if you are just starting out, get a second opinion; if you cannot justify the expenditure to someone you respect, it is probably a mistake. There are situations where it is hard to justify not spending the cash.
Another common start-up mistake is doing it alone and not seeking the help of mentors and more experienced entrepreneurs. Trying to do it all by yourself and not asking for help is also one of the reasons why people find it hard to start a business. Start-up entrepreneurs should look for more matured and successful business men to help them through the challenges of starting a venture. Having a much more experienced entrepreneur that can give you some valuable advice is so important especially when you are a young and ambitious person with so many challenges to meet on the way to success. Creating a successful business will take a lot of time, effort, patience, dedication, a clear plan and vision. Having a mentor will help you through.
Another common start-up mistake is not to market your business, expecting that people will naturally start patronizing you. Serious marketing is needed to keep the business up and running.Losing momentum is yet another start-up mistake. Entrepreneur should constantly improve products and services by researching the changing market and competition. This will promote innovation and sustain the business.
Other common start-ups mistakes that should be avoided include but not limited to the following: Starting a business without really understanding the market; failing to focus on value creation, and not knowing your strengths and weaknesses as an entrepreneur.
In all, with determination, prayers and God’s guidance, success is guaranteed for all entrepreneurs. You can make it if you believe that you can make it.
How to Cure Poverty
Poverty will never be eradicated. No wonder the Bible says “The poor you will always have with you”. Matt. 26:11, Mark 14.7. Poverty can be reduced, but total eradication is a dream. Poverty is like corruption, attempts by various nations to eradicate it, has not been successful but the good news is that it can be reduced to its bearable minimum.
The root cause of being poor, is an acronym that’s derived from the word poor itself। POOR – Passing Over Opportunities रेपेअतेद्ली. A man/woman is poor not because of his/her background, not because of a deformity, not because of location, not because of his/her background, where he/she grew up or his/her family. A man or woman is poor because he or she passes over opportunities repeatedly.
Same and equal opportunities come to us all. We all get equal chance. What however determines whether our opportunity will cascade into a defining moment for us, is whether we utilize them or not. A poor man does not see opportunities when they come, or he sees them, but does not count them as such. Have you ever tried hard to convince a dear friend about a good idea that you believe would be useful to him, and he couldn’t just see it? Have you ever tried to talk to a colleague about an opportunity you stumbled on and rather than seeing the opportunity he/she immediately sees a problem? The ultimately poor man or woman, is the one that has gone through life passing over opportunities repeatedly. A few opportunities passed do not make a man poor, but when the habit is formed, he is stuck.
The cure of poverty is good news. Information is power. Good information is more powerful Know that you are just one decision away from your next breakthrough. To migrate from poverty to wealth, feed on good information. Know who you can be. See the opportunities around you. Know that nothing is impossible to one that believes, know that whatever you want to do is achievable. Know you are just one decision away from your next breakthrough. Know that you can be all you dream to be. Feed on good information, and watch yourself gradually transform. Do not do it alone. No man is an island. The people you know or the company you keep will, to a large extent, determine how far you will go in life. Live responsibly. No knowledge is a waste. Form a team or join one. Ask questions from those that have gone through the process.
People quit on their dreams because they have forgotten why they wanted their dream in the first instance. Once you stop focusing on the "why," you start focusing on your obstacles, then get discouraged, and finally quit. The key to becoming self motivated is to find your why and to constantly focus on it. If you do that, discouragement can't get a foothold in your life and you will not quit.
Many people set goals without having a clear, compelling reason for them. You need to have strong "why's" to back up your goals. A powerful "why" is what separates a goal setter from a goal achiever. The "why" becomes the driving force that gets you into action. The "why" is the motivation. But it is up to you to become the starter, the spark plug, if you will, for your "why". Once you get the ""why"" going and the "why" will get you going.
The best way to effectively use your "why" to become unstoppable is to create a "why" card written specifically for you. You will read your why card every morning and evening with power, passion, and conviction over and over for some minutes. That's how you "jump start" your why. If you do this every day, your why will automatically drive you to take massive action in the pursuit of your dream.
Fear of failure keeps most people from realizing their dreams. Reading your why card will give you the courage to take action in spite of your fear because if your why is big enough, the facts don't count.
Write your why card in the present tense, it needs to be filled with action verbs, and it needs to make you feel empowered and strong. If it doesn't, you are not dreaming big enough. Your dream needs to take your breath away. If the though of your dream doesn't make you get up at a different time, make you read the books, listen to the tapes, and hang around different people, it's not big enough.
Your why will empower you to act differently. To motivate yourself. To carry yourself differently. To do things radically different from the normal way. It will change you. It will make you better. That's why your dream needs to be bigger than you currently are. It has to make you grow. The dream gives your life a purpose.
Stop focusing on your past. Start focusing on your why. Remember, you have enormous God-given power to make your dream a reality. You just have to believe that you were created to make your dream a reality. Do yourself a favour. Step out in faith, write and use your why card, so you can build and create a better life. Use your why card to make you relentless in the pursuit of your dreams
The root cause of being poor, is an acronym that’s derived from the word poor itself। POOR – Passing Over Opportunities रेपेअतेद्ली. A man/woman is poor not because of his/her background, not because of a deformity, not because of location, not because of his/her background, where he/she grew up or his/her family. A man or woman is poor because he or she passes over opportunities repeatedly.
Same and equal opportunities come to us all. We all get equal chance. What however determines whether our opportunity will cascade into a defining moment for us, is whether we utilize them or not. A poor man does not see opportunities when they come, or he sees them, but does not count them as such. Have you ever tried hard to convince a dear friend about a good idea that you believe would be useful to him, and he couldn’t just see it? Have you ever tried to talk to a colleague about an opportunity you stumbled on and rather than seeing the opportunity he/she immediately sees a problem? The ultimately poor man or woman, is the one that has gone through life passing over opportunities repeatedly. A few opportunities passed do not make a man poor, but when the habit is formed, he is stuck.
The cure of poverty is good news. Information is power. Good information is more powerful Know that you are just one decision away from your next breakthrough. To migrate from poverty to wealth, feed on good information. Know who you can be. See the opportunities around you. Know that nothing is impossible to one that believes, know that whatever you want to do is achievable. Know you are just one decision away from your next breakthrough. Know that you can be all you dream to be. Feed on good information, and watch yourself gradually transform. Do not do it alone. No man is an island. The people you know or the company you keep will, to a large extent, determine how far you will go in life. Live responsibly. No knowledge is a waste. Form a team or join one. Ask questions from those that have gone through the process.
People quit on their dreams because they have forgotten why they wanted their dream in the first instance. Once you stop focusing on the "why," you start focusing on your obstacles, then get discouraged, and finally quit. The key to becoming self motivated is to find your why and to constantly focus on it. If you do that, discouragement can't get a foothold in your life and you will not quit.
Many people set goals without having a clear, compelling reason for them. You need to have strong "why's" to back up your goals. A powerful "why" is what separates a goal setter from a goal achiever. The "why" becomes the driving force that gets you into action. The "why" is the motivation. But it is up to you to become the starter, the spark plug, if you will, for your "why". Once you get the ""why"" going and the "why" will get you going.
The best way to effectively use your "why" to become unstoppable is to create a "why" card written specifically for you. You will read your why card every morning and evening with power, passion, and conviction over and over for some minutes. That's how you "jump start" your why. If you do this every day, your why will automatically drive you to take massive action in the pursuit of your dream.
Fear of failure keeps most people from realizing their dreams. Reading your why card will give you the courage to take action in spite of your fear because if your why is big enough, the facts don't count.
Write your why card in the present tense, it needs to be filled with action verbs, and it needs to make you feel empowered and strong. If it doesn't, you are not dreaming big enough. Your dream needs to take your breath away. If the though of your dream doesn't make you get up at a different time, make you read the books, listen to the tapes, and hang around different people, it's not big enough.
Your why will empower you to act differently. To motivate yourself. To carry yourself differently. To do things radically different from the normal way. It will change you. It will make you better. That's why your dream needs to be bigger than you currently are. It has to make you grow. The dream gives your life a purpose.
Stop focusing on your past. Start focusing on your why. Remember, you have enormous God-given power to make your dream a reality. You just have to believe that you were created to make your dream a reality. Do yourself a favour. Step out in faith, write and use your why card, so you can build and create a better life. Use your why card to make you relentless in the pursuit of your dreams
Monday, May 11, 2009
15 Ways to be a Smart and Intelligent Stock Trader
Like in all investments, remember that the higher the return, the higher the risk. Above all, remember to invest what you can afford to lose. Remember also the advice of Brain Tracy “the future belongs to the competent”. The future belongs to those men and women who are very good at what they do. Pat Riley says in his book - The Winner Within - “If you are not committed to getting better at what you are doing, you are bound to get worse”.
Many investors only look at the profit side of investments forgetting that a sword has two edges. While there are lots of benefits derivable from stocks investment, there are risks involved. That is why it is very necessary for investors to understand the risk before staking their funds in the stock market. However, experts believe that what is highly risky to one individual may be no problem to another.
If you have decided to be a smart and intelligent stock trader, the following tips may be of assistance to you:
1. Make a Plan – Before you invest any money, make an investment plan and stick to it at all times. This will help you become disciplined and will also help you organise your time and investments. Keeping things simple will result in less stress. Your plan should consist of the investments you are going to make and why and how much you are investing in stocks. It should also include your exit point and also the time you want to allocate for your investments each day.
2. Money – This is not just the money that is sitting in your bank account. It is not the money that you use to pay for your rent, your car or your food. Penny stocks can be extremely unpredictable and although you might make a great deal of money it is also true that you may lose everything. So it is important especially when you are starting out with penny stocks that you only use money that you can afford to lose. After you have built up a nice profit, you can re-invest your profits from past trades which will snowball your earnings.
3. Knowledge – This is without a doubt the single most important factor in determining whether your budding career as a penny stocks investor will be a spectacular triumph or a dismal failure. If you are a new comer to stock investing of any kind, there are various guides you can buy and it is a good idea to read several of these before spending any money. These are all good and although they will not help you with specific decisions such as whether to buy a particular penny stock, or when to sell, they give you a good background on how it all works and are invaluable in building a good knowledge base.
4. What is the Best Trader? –They control their emotions; do not allow fear and greed affect on their decisions. They understand the market, they know it is impossible to be winner in all trades but try to improve the winning per losing trade’s ratio. They stay in the present and view events truthfully, they are not regretful, review the past only to improve their performance in the future. There are many characteristics, but it does not mean that you must have all of them to become a successful trader.
5. Mistakes to Avoid –. Successful traders act without emotions and they have a strategy and follow the principles of their strategy. To succeed in the stock market, you should avoid some mistakes and learn some investment tips. A good way is to summarize investment advice in a list of rules.
6. Lack of Strategy – Having a strategy in the stock market is very important. You should know when to buy a stock, what the selling price is and how long you will hold the share. When you choose a strategy, follow its principles and do not change your strategy every day.
7. Waiting for Market – Many traders when they lose in a stock do not sell but stay till the stock price return to the price they have bought. This is one of the greatest mistakes that new traders make because they may lose much more money and time by holding a fail position.
8. Not Taking Profit – When a reasonable profit has already been made, overcome greed and sell the stock for profit.
9. Over-Trading – Many traders especially day traders feel the need to hold positions in the market at all times on every trading day. Often they will break their own rules in order to get all of their capital into the market. Sometimes, it is best to stand aside and avoid holding any position in the market at all.
10. Trading with the Money You Cannot Afford to Lose – Do not use money that you really cannot afford to lose. Examples of this would be money that is supposed to be used to pay the mortgage, bills or your child’s tuition. This is causing trading with fear and emotions.
11. Falling in Love with a Stock – Some people stick to a stock because they believe it is a good stock. They refuse to sell even when they lose money.
12. A Way to Get Rich Quickly – People will often expect to get rich in the market overnight, but they fail to realise that trading is like any profession; you must learn how to do it first.
13. Nor Adhering to a `Stop-Loss’ Position – A stop-loss is a predetermined price point at which a loss is accepted and an investor closes the position. Using this investment advice is not easy as much as you think. You must try in a regular way to apply this investment advice on your trading strategy.
14. Apply Investigative Journalism – Warren Buffett has always advised and will continue to advise investors to practice “investigative journalism”. This simply means that you personally take your time to find out all necessary details about a potential stock purchase on your own. No doubt you would have to ask questions, read materials etc. but the truth is that in the stock market, your best friend is yourself. Every other person out there especially brokers is interested in making a killing for themselves. As a matter of fact, brokers are more concerned about the commissions they charge you and as you know, commissions are charged whether you make a loss or profit. Don’t just listen to people who claim to have lost so much money and console yourself for also losing money in the process. Do you know what reason prompted them to invest?
15. Form or Join a Team – The decisions we make with respect to our investment are shaped by our association. Be it an association with a fellow investor friend or some stock analysis report you received in your mail or may be a tip from your stockbroker. You need to form or join a team of like-minds to discuss issues of common interest. Your present team will determine to a large extent the kind of individual you would be or kind of life you would live in years to come.
Wednesday, May 6, 2009
10 Best Ways to Boost Your Personal Income
The recent global financial crisis is an ill-wind that blows no one any good. Recession comes with it tough survival strategies.
1. Reduce Wastes – Don’t buy things that are not of immediate benefit or use to you. Budget your expenses. This will enable you separate your wants from your needs and desires. Consider the amount spent on buying new festive wears (cloths, shoes, etc). Consider the amount spent on entertaining guests/visitors. Consider the amount spent in organising parties. Calculate annual savings on each of the above.
2. Manage Time – Time is a resource given equally to mankind by God. Are you self-employed or working for a corporation? It does not matter. The amount of time available to everyone is the same. Use your time wisely. Consider working additional hours so as to generate more fund.
3. Get a Job – Find a job that can generate income. If you are already employed, you can get additional job so as to generate more money. Identify places where you can work part-time or short-time. Consider taking your leave from your present employer and getting a holiday paying job during the period.
4. Diversify Your Investment – Consider investing in Bonds, Mutual Funds and Stocks. Do not put all your eggs in one basket, no matter the size of the basket. Invest for long-term benefits. There is also need to maintain a strong cash position.
5. Set Financial Priorities – Setting financial priority involves deciding or determining what is most important aspect of your finances and put that item on top. This involves a list of your basics – water, food and shelter. Determine what it takes to ensure that your basic needs are met. The main ingredient is a source of income to pay the rent or house payment, pay the utilities, and buy the groceries. Remember, having a savings can prevent the use of those dreaded credit cards and help in so many ways.
6. Sell Your Junk – Do you know that one man’s trash is another man’s treasure. Sell off old junks in your house. These junks include old furniture and fitness equipment, collectibles and clothing, old text books, cell phones and computers. Companies like Amazon.com, Craigslist and eBay are great sources for online hawking.
7. Sell Your Skills – Are you skilled and talented in a particular area? It may an avenue for you to make money. Can you teach music, art or sewing, arrange a regular dog-walking or baby-sitting, tutor students if you are academically minded, tutor another language or find a flexible translator position. Just re-discover your self, it can fetch you some cash.
8. Manage Your Accommodation – If you are living alone, consider getting a roommate. This could boost your income (and cut some expenses in half). You might consider renting out other spaces, too, such as your garage for storage or your parking space for commuters, if you live close to public transportation.
9. Manage Your Tax Returns – If you received a tax refund last year and your financial situation has not changed much, too much tax is being withheld from your pay cheque. Adjust your tax returns including your withholding tax payment. Consider getting the services of a tax consultant.
10. Track Your Expenses – You need to figure out what happens to all of your money on a monthly basis. There are many ways that you can do this, but probably the easiest is to put a piece of paper in your wallet and try, for a period of one month, to track every money spent during that period of time. You will be amazed, how you have been spending money on frivolities.
Monday, May 4, 2009
How to Use Credit Card and Avoid the Sins of Money
Many people who are deeply in debt and struggling to escape from financial troubles want to see credit cards as the source of the problem. They blame the high interest rates and harsh penalties buried in the fine print of other credit agreements, or the aggressive efforts by card-issuing companies to promote credit even beyond the capacity of some people to manage it. Credit card companies are not blameless for today’s epidemic of uncontrolled debt. But for most people who are in financial trouble, the real danger is not in the card but in themselves. The card is just a piece of plastic, and you can control its use if you are in control of yourself. The trouble comes from deadly emotions that lead people to misuse credit, whether it is in the form of a piece of plastic, an overdraft facility, or a loan from a friend. Financial problems are not always about money, more often, they are about how you think about money and how you use money.
Knowing these money truths will go a long way to save you indebtedness:
Denial – Denial enables you to ignore the reality of your financial situation by refusing to think about a spiralling debt situation, or by compartmentalising the problem so that its impact on your total financial life is neither seen nor felt. Are you keeping financial secrets from the people closest to you? Do you find yourself denying-perhaps with a show of indignation that you have any financial problems at all, even when well-meaning friends or family members offer to help? These can be symptoms that denial is wreaking havoc with your sense of financial reality.
Entitlement – “I deserve it” is the three-word mantra that reveals that emotion’s influence over the way you handle money and credit. A sense of entitlement may be tied to a desire for status, to trying to keep up with the Phillips, to the feeling that you are smarter or better than others, or to a craving for respect and value in the eyes of others. People whose approach to money is distorted by a sense of entitlement rarely realise that hard work is needed to fulfil their desires. Instead, they expect good things to come without effort – a sure sign that they are out of touch with the way the world actually works.
Compensation – For many people, their first overdraft facility or credit card unleashes memories of unfulfilled childhood desires. They remember all the toys, clothing, and other things they could not have while growing up, or that they had to wait until Christmas or their birthday for. Now all those goodies are available just by handing over that little plastic card. Credit enables us to compensate for those early feelings of being deprived by indulging is immediate gratification now. But when this emotion from the past becomes a thoughtless justification for repeated indulgence, so that debts and interest charges build up every month, the deprivation of the past can actually begin to damage your future.
Delusion – Many people succumb to magical thinking about money. It manifests itself most often when young people get their first credit cards and discover they can by thousands of dollars worth of goods, but only have to pay back little monthly. They pay no attention to the interest that is accruing on the outstanding balance, which seems small at first. Lacking self-discipline, they make the minimum payment and then charge the same amount (or more) during the next payment period. The outstanding balance starts that slow-but-sure-creep upward. But the debtors deliberately (sometimes ignorantly) ignore that amount. They only number they see is the minimum payment amount, which lets them maintain the lovely delusion that they are able to afford this debt.
Conformity – This is the “everyone’s doing it, so why shouldn’t I?” mentality. It is strange when it comes to credit, some people who are otherwise level-headed and mature feel that irresponsible behaviour is acceptable because everyone they know has similar problems. Behind this irrational conformity may be a secret belief that other people may have discovered how to get their hands on “free money”. But, as every individual eventually discovers and as our society as a whole will one day learn, the supposedly free money that a credit card provides will have to be repaid, no matter how painful the ultimate price.
Over-Optimism – This smiling devil is the belief that somehow a financial problem will miraculously correct itself. A person saddled with over-optimism often thinks he or she is simply being “positive” about the situation and dismisses other thoughts as being “negative” or “gloomy”. It is a way of denying personal responsibility and absolving oneself of blame for short-sighted financial decisions. If you fall into this trap, you will find your cheery disposition keeping reality exactly where you want it at arm’s length even as your financial situation worsens.
Fear – The sight of rows of numbers makes some people react like a rabbit frozen in the headlights of an on-coming car. Some people suffer from a genuine financial mathematical phobia, more often than not it is affectation or excuse that enables people to run away from their financial duties sure give away.
Know What You Need To Do – The truth is that many people have a pretty good idea about what they need to do to fix their financial weakness – spend less, earn more, pay off debt, and accumulate savings. Take control of your inward emotional demons today and stop blaming someone or something else.
Knowing these money truths will go a long way to save you indebtedness:
Denial – Denial enables you to ignore the reality of your financial situation by refusing to think about a spiralling debt situation, or by compartmentalising the problem so that its impact on your total financial life is neither seen nor felt. Are you keeping financial secrets from the people closest to you? Do you find yourself denying-perhaps with a show of indignation that you have any financial problems at all, even when well-meaning friends or family members offer to help? These can be symptoms that denial is wreaking havoc with your sense of financial reality.
Entitlement – “I deserve it” is the three-word mantra that reveals that emotion’s influence over the way you handle money and credit. A sense of entitlement may be tied to a desire for status, to trying to keep up with the Phillips, to the feeling that you are smarter or better than others, or to a craving for respect and value in the eyes of others. People whose approach to money is distorted by a sense of entitlement rarely realise that hard work is needed to fulfil their desires. Instead, they expect good things to come without effort – a sure sign that they are out of touch with the way the world actually works.
Compensation – For many people, their first overdraft facility or credit card unleashes memories of unfulfilled childhood desires. They remember all the toys, clothing, and other things they could not have while growing up, or that they had to wait until Christmas or their birthday for. Now all those goodies are available just by handing over that little plastic card. Credit enables us to compensate for those early feelings of being deprived by indulging is immediate gratification now. But when this emotion from the past becomes a thoughtless justification for repeated indulgence, so that debts and interest charges build up every month, the deprivation of the past can actually begin to damage your future.
Delusion – Many people succumb to magical thinking about money. It manifests itself most often when young people get their first credit cards and discover they can by thousands of dollars worth of goods, but only have to pay back little monthly. They pay no attention to the interest that is accruing on the outstanding balance, which seems small at first. Lacking self-discipline, they make the minimum payment and then charge the same amount (or more) during the next payment period. The outstanding balance starts that slow-but-sure-creep upward. But the debtors deliberately (sometimes ignorantly) ignore that amount. They only number they see is the minimum payment amount, which lets them maintain the lovely delusion that they are able to afford this debt.
Conformity – This is the “everyone’s doing it, so why shouldn’t I?” mentality. It is strange when it comes to credit, some people who are otherwise level-headed and mature feel that irresponsible behaviour is acceptable because everyone they know has similar problems. Behind this irrational conformity may be a secret belief that other people may have discovered how to get their hands on “free money”. But, as every individual eventually discovers and as our society as a whole will one day learn, the supposedly free money that a credit card provides will have to be repaid, no matter how painful the ultimate price.
Over-Optimism – This smiling devil is the belief that somehow a financial problem will miraculously correct itself. A person saddled with over-optimism often thinks he or she is simply being “positive” about the situation and dismisses other thoughts as being “negative” or “gloomy”. It is a way of denying personal responsibility and absolving oneself of blame for short-sighted financial decisions. If you fall into this trap, you will find your cheery disposition keeping reality exactly where you want it at arm’s length even as your financial situation worsens.
Fear – The sight of rows of numbers makes some people react like a rabbit frozen in the headlights of an on-coming car. Some people suffer from a genuine financial mathematical phobia, more often than not it is affectation or excuse that enables people to run away from their financial duties sure give away.
Know What You Need To Do – The truth is that many people have a pretty good idea about what they need to do to fix their financial weakness – spend less, earn more, pay off debt, and accumulate savings. Take control of your inward emotional demons today and stop blaming someone or something else.
How To Invest And Accumulate Wealth
Investing in long-term financial vehicles give you the most gains but it also puts your funds at greater risk. There is so much truth to the saying, “there is no gain if there is no risk”. Still you can reduce your chances of losing your hard earned money by researching and taking time to understand what you are buying. Would you purchase a house you have only just seen on the outside? Both of these are serious investments and you need to arm yourself with the basic knowledge about the subject. So what are the differences you need to consider when investing in bonds, stocks or mutual funds?
Before contemplating which of these options is to go for, remember the first advice and basic rule in investment –“ Invest what you can afford to lose”. Remember also that “the higher the return, the higher the risk”. Do not be in a hurry to reap high return in a short period. It pays to do research before investing.
Bonds
When you are investing funds in bonds, you are technically lending your money to a borrower. Who can this be? Some of these are the Federal Government, a State, a Local Municipality or a big company. All these institutions need money to expand, to fund a federal deficit or to finance new ventures. So they borrow funds by issuing bonds. The price you pay for a bond is known as its face value. The issuer promises to pay you back in a particular day, at a fixed rate of interest stated on the coupon itself. You are safely investing in bonds; these bonds give you a yearly income until the maturity date. When the bond matures, the borrower pay you back the principal plus interest. In most cases, investing in bonds is a minimal-risk free decision.
Stocks
A share of stock is a certificate of ownership purchased by individuals who are investing or buying a proportional share of the business. The more stocks you buy, the bigger the share of profits you get and the bigger your financial stake becomes. A stock’s value is affected by the financial situation of the company. Historical trends in stocks have shown that their value rises over time, although there are no sure guarantees. Also with stocks, the only assured return is if it appreciates on the open market. And while it is true that there are companies that give their stockholders dividends, they are not obligated to do so.
Mutual Funds
In this financial scenario, you join a group of investors in investing your funds to buy stocks, bonds, or anything else your fund manager decides is worthwhile. If you do sustain losses, these losses, are subtracted from the fund’s capital gains before the money is distributed to you the shareholder. The fund will not pass out capital gains to shareholders until it has at least earned more in profits than it had lost.
Wealth, however, has been described as “cash flow from other sources”. Wealth accumulation could take any of the following options:
1. Make your Money Work For You – What this means is that, you are not wealthy just because you earn a lot of money. You are only wealthy when your money works for you. To become wealthy, your main job is to acquire money and then put it to work making more money for you.
2. Add Value Continually – The key to creating wealth is simple. It is called “adding value”. Successful people are those who are always looking for ways to add value in some way to a person, a company, a product or a service.
3. Buy It Cheaper Somewhere Else – Another way to add value is to buy something in one place at one price and then make it available in another place for another price. For example, buying a product or service manufactured in Europe or Asia, importing it to the United States and making it available to people to whom it was not available before, is a way of adding value for which you can charge a higher price.
4. Improve The Life or Work of Others – All manufacturing and marketing is based on this principle of added value. All aims to add value. Performing a service that enhances the life or work of another person adds value. An accountant who saves a client’s money on taxes is adding or actually creating value. All financial success, is based on adding value. It is based on the old saying, “Find a need and fill it”.
5. Combine and Recognise the Elements of Value – All successful business is based on someone bringing together the factors of production, such as labour, capital, raw materials and management, and creating a product or service that a customer will pay a price for that is in excess of the cost of producing it.
Before contemplating which of these options is to go for, remember the first advice and basic rule in investment –“ Invest what you can afford to lose”. Remember also that “the higher the return, the higher the risk”. Do not be in a hurry to reap high return in a short period. It pays to do research before investing.
Bonds
When you are investing funds in bonds, you are technically lending your money to a borrower. Who can this be? Some of these are the Federal Government, a State, a Local Municipality or a big company. All these institutions need money to expand, to fund a federal deficit or to finance new ventures. So they borrow funds by issuing bonds. The price you pay for a bond is known as its face value. The issuer promises to pay you back in a particular day, at a fixed rate of interest stated on the coupon itself. You are safely investing in bonds; these bonds give you a yearly income until the maturity date. When the bond matures, the borrower pay you back the principal plus interest. In most cases, investing in bonds is a minimal-risk free decision.
Stocks
A share of stock is a certificate of ownership purchased by individuals who are investing or buying a proportional share of the business. The more stocks you buy, the bigger the share of profits you get and the bigger your financial stake becomes. A stock’s value is affected by the financial situation of the company. Historical trends in stocks have shown that their value rises over time, although there are no sure guarantees. Also with stocks, the only assured return is if it appreciates on the open market. And while it is true that there are companies that give their stockholders dividends, they are not obligated to do so.
Mutual Funds
In this financial scenario, you join a group of investors in investing your funds to buy stocks, bonds, or anything else your fund manager decides is worthwhile. If you do sustain losses, these losses, are subtracted from the fund’s capital gains before the money is distributed to you the shareholder. The fund will not pass out capital gains to shareholders until it has at least earned more in profits than it had lost.
Wealth, however, has been described as “cash flow from other sources”. Wealth accumulation could take any of the following options:
1. Make your Money Work For You – What this means is that, you are not wealthy just because you earn a lot of money. You are only wealthy when your money works for you. To become wealthy, your main job is to acquire money and then put it to work making more money for you.
2. Add Value Continually – The key to creating wealth is simple. It is called “adding value”. Successful people are those who are always looking for ways to add value in some way to a person, a company, a product or a service.
3. Buy It Cheaper Somewhere Else – Another way to add value is to buy something in one place at one price and then make it available in another place for another price. For example, buying a product or service manufactured in Europe or Asia, importing it to the United States and making it available to people to whom it was not available before, is a way of adding value for which you can charge a higher price.
4. Improve The Life or Work of Others – All manufacturing and marketing is based on this principle of added value. All aims to add value. Performing a service that enhances the life or work of another person adds value. An accountant who saves a client’s money on taxes is adding or actually creating value. All financial success, is based on adding value. It is based on the old saying, “Find a need and fill it”.
5. Combine and Recognise the Elements of Value – All successful business is based on someone bringing together the factors of production, such as labour, capital, raw materials and management, and creating a product or service that a customer will pay a price for that is in excess of the cost of producing it.
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