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Understanding Money Behavior in a Financial Crisis

2009-01-04T10:11:00.001-08:00

By Laura Rowley

One of the keys to surviving the economic crisis, at least from a psychological perspective, is recognizing what you can and can't control. And not doing destructive things while you're powerless.

Asserting Control

In 1950s, psychologist Julian Rotter developed a concept called "locus of control." Contrary to Freud's notion that human beings are a simmering stew of unconscious drives, Rotter argued that personality is a function of interaction with the environment. Depending on how their efforts have been received in the past, people develop an internal locus of control -- a belief that success or failure comes from their own efforts -- or an external locus of control -- a belief that luck, chance, or other people largely determine outcomes.

People can move along the internal-external continuum depending on the situation. Rotter's work became highly influential in education, medicine, and economics. Studies in the 1970s, for example, found that giving hospital patients and nursing home residents a stronger sense of control resulted in better health outcomes.

How we choose to deal with the powerlessness wrought by the economic crisis is not trivial, given the mounting number of related suicides. I tracked down Rotter, 94, who's a professor emeritus at the University of Connecticut, to find out which locus of control can help people cope with the current mess.

Inside/Outside

"It depends," he said. "People who are more internal tend to blame themselves because they think they had control over what happened. People who are external think it's all chance or luck anyway and are more likely to shrug it off."

On the other hand, he adds, "A lot depends on how they classify the event beforehand;

a lot of people are internal but realize to begin with that they don't have any control over the stock market. It also depends on whether they chose the stocks themselves or an investment company did the choosing for them. [In the latter case] they're more likely to realize there's more chance involved than they thought."

Similarly, someone who gets laid off can blame their own performance, or view himself as an unlucky fatality in an economic storm. "People who are more internal work out a strategy to prevent it from happening the next time," says Rotter. "The internal [person] is always more likely to try to do something to fix it. But not everything in the world can be controlled by individual people."

Status for Sale

And there's the rub -- a feeling of powerlessness can trigger irrational responses that exacerbate financial problems. A paper published earlier this year in the Journal of Consumer Spending, for example, found that a state of powerlessness increased consumers' willingness to pay for status-related products.

"Low power is an aversive state marked by a lack of control," says Derek Rucker, co-author with Adam Galinsky, both of Northwestern University's Kellogg School of Management, of a study on powerlessness and consumerism in the Journal of Consumer Research. "If I have more of something than others, that's one thing I can use to compensate for being powerless -- I can acquire status."

Study respondents were asked to write about a time when they felt powerful or powerless. Afterward, they participated in an online auction that included high-status goods such as a fur coat and a silk tie. "For products with low or no association with status, there was no difference in the reservation price for those who had power or those with no power," says Rucker. "But for products associated with status, those who recalled they didn't have power indicated they were willing to pay more for them."

Paths to Power

Rucker says when it's difficult or impossible to directly confront the issue that's causing powerlessness, "a consumption decision becomes one means of fulfilling that need for power. At least for some individuals it could create a cyclical downward spiral."

To wit: I recently heard a story of a man who, shortly after his layoff, decided to add a third floor to his home. Similarly, a friend who lost money in the market told me she has been spending more than she did before the loss, on expensive furniture and the like.

Rucker says the spiral can be avoided simply by being aware of the phenomenon: "Alerting them to the behavior may be enough to change it. You can think about why it is you want this product -- is it because you're feeling powerless? Are there ways to circumvent this through more positive means -- means that don't have disastrous outcomes for spending?"

Out of Control

Another reaction to powerlessness is seeing patterns and connections that don't exist, leading to poor judgment, according to research published in Science by Galinsky and Jennifer Whitson, an assistant professor at the Macomb School of Business at the University of Texas, Austin.

Subjects were presented with a series of "snowy" pictures, some containing images and others random dots. People who felt they lacked control more often perceived images in the latter. In another experiment, some participants were told the stock market was currently a volatile minefield and others that it was calm and predictable. Then both were presented with an equal amount of positive and negative information about a company, and asked whether they would invest.

Those primed to feel powerless by volatility "were more likely to make strong conclusions about [investing] that were unwarranted," says Whitson. "Those who chose not to invest remembered more negative phrases than they had seen."

Restoring the Power

Researchers found that reminding people of their core values reversed the effect. Before their experiments, Galinsky and Whitson asked participants to rank by importance a list of six values, such as knowledge and connection with others. At the end of the experiment, participants were given questionnaires and asked to write about either their most or least important value.

"Among those who got chance to affirm something central to their identity, their perceptions of patterns returned to normal -- whereas those who did not get a chance to affirm values still saw patterns that were not there," says Whitson.

"My gut tells me that when people knew they could control what they thought was important in their lives, it returned to them that sense of ‘the world might be crazy but I know what's important,'" she adds. "No matter how out of control the world is, the one thing we always have control of is what we decide to care about."

Survival Through Reinforcement

Rucker agrees, adding that a sense of power can be restored by having a close friend affirm what they value about you: "It's not enough to think to yourself why you're good -- you need others pouring in support for you."

Financially speaking, it helps to be conscious of what you can control: managing spending, boosting income by moonlighting or selling goods on eBay, evaluating how much risk you're really comfortable with, and reducing investment fees. Then set achievable goals. For instance, the Standard & Poor's 500 Index fell about 40 percent in 2008, wreaking havoc with college and retirement portfolios. Figuring out how to save more in 2009 -- rather than day-trading in hopes of rebounding from losses -- is a more rational response that will help restore a sense of control.

Finally, try to put financial problems in historical perspective, Rotter suggests. "I've lived a long time and there were extraordinary events going on all through my life -- starting way back in the Depression," says Rotter, who was in his 20s at the time. "For a lot of people, that was far more crushing than this recession. You had to react by figuring out ways to survive through [your] own efforts -- and that's very strong reinforcement. It had that effect, at least, on me."

What Are Commodity Markets ?

2008-12-17T05:31:00.001-08:00

Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts.

This article focuses on the history and current debates regarding global commodity markets. It covers physical product (food, metals, electricity) markets but not the ways that services, including those of governments, nor investment, nor debt, can be seen as a commodity. Articles on reinsurance markets, stock markets, bond markets and currency markets cover those concerns separately and in more depth. One focus of this article is the relationship between simple commodity money and the more complex instruments offered in the commodity markets.

What Is "Bond Market"

2008-12-17T05:29:00.001-08:00

The bond market (also known as the debt, credit, or fixed income market) is a financial market where participants buy and sell debt securities, usually in the form of bonds. As of 2006, the size of the international bond market is an estimated $45 trillion, of which the size of the outstanding U.S. bond market debt was $25.2 trillion.

Nearly all of the $923 billion average daily trading volume (as of early 2007) in the U.S. bond market takes place between broker-dealers and large institutions in a decentralized, over-the-counter (OTC) market. However, a small number of bonds, primarily corporate, are listed on exchanges.

References to the "bond market" usually refer to the government bond market, because of its size, liquidity, lack of credit risk and, therefore, sensitivity to interest rates. Because of the inverse relationship between bond valuation and interest rates, the bond market is often used to indicate changes in interest rates or the shape of the yield curve.

Market structure

Bond markets in most countries remain decentralized and lack common exchanges like stock, future and commodity markets. This has occurred, in part, because no two bond issues are exactly alike, and the number of different securities outstanding is far larger.

However, the New York Stock Exchange (NYSE) is the largest centralized bond market, representing mostly corporate bonds. The NYSE migrated from the Automated Bond System (ABS) to the NYSE Bonds trading system in April 2007 and expects the number of traded issues to increase from 1000 to 6000.

What Are "ETF - Exchange-Traded Fund"

2008-12-13T07:18:00.000-08:00

An exchange-traded fund (or ETF) is an investment vehicle traded on stock exchanges, much like stocks. An ETF holds assets such as stocks or bonds and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day. Most ETFs track an index, such as the Dow Jones Industrial Average or the S&P 500. ETFs may be attractive as investments because of their low costs, tax efficiency, and stock-like features. In a survey of investment professionals conducted in March 2008, 67% called ETFs the most innovative investment vehicle of the last two decades and 60% reported that ETFs have fundamentally changed the way they construct investment portfolios.

An ETF combines the valuation feature of a mutual fund or unit investment trust, which can be purchased or redeemed at the end of each trading day for its net asset value, with the tradability feature of a closed-end fund, which trades throughout the trading day at prices that may be substantially more or less than its net asset value. Closed-end funds are not considered to be exchange-traded funds, even though they are funds and are traded on an exchange. ETFs have been available in the US since 1993 and in Europe since 1999. ETFs traditionally have been index funds, but in 2008 the U.S. Securities and Exchange Commission began to authorize the creation of actively-managed ETFs.

Most investors can buy and sell ETF shares only in market transactions, but institutional investors can redeem large blocks of shares of the ETF (known as "creation units") for a "basket" of the underlying assets or, alternatively, exchange the underlying assets for creation units. This creation and redemption of shares enables institutions to engage in arbitrage that causes the value of the ETF to approximate the net asset value of the underlying assets.

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What Are "Futures" ?

2008-12-11T10:12:00.000-08:00

In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a standardized quantity of a specified commodity of standardized quality (which, in many cases, may be such non-traditional "commodities" as foreign currencies, commercial or government paper [e.g., bonds], or "baskets" of corporate equity ["stock indices"] or other financial instruments) at a certain date in the future, at a price (the futures price) determined by the instantaneous equilibrium between the forces of supply and demand among competing buy and sell orders on the exchange at the time of the purchase or sale of the contract. The future date is called the delivery date or final settlement date. The official price of the futures contract at the end of a day's trading session on the exchange is called the settlement price for that day of business on the exchange.

A futures contract gives the holder the obligation to make or take delivery under the terms of the contract, whereas an option grants the buyer the right, but not the obligation, to establish a position previously held by the seller of the option. In other words, the owner of an options contract may exercise the contract, but both parties of a "futures contract" must fulfill the contract on the settlement date. The seller delivers the underlying asset to the buyer, or, if it is a cash-settled futures contract, then cash is transferred from the futures trader who sustained a loss to the one who made a profit. To exit the commitment prior to the settlement date, the holder of a futures position has to offset his/her position by either selling a long position or buying back (covering) a short position, effectively closing out the futures position and its contract obligations.

Futures contracts, or simply futures, (but not future or future contract) are exchange traded derivatives. The exchange's clearinghouse acts as counterparty on all contracts, sets margin requirements, and crucially also provides a mechanism for settlement.

How to Use Stop Losses to Keep Profits From Slipping Away - By Bryan Perry

2008-12-10T10:16:00.000-08:00

Bryan Perry is the editor of Tactical Trader, an options trading advisory newsletter, and is a contributor to the Options Zone Web site (www.optionszone.com).

Everyone wants to know where to make the most money in the shortest amount of time. Sometimes, however, it's just as important to know where you aren't going to make the fast money -- and right now, at least, it's tough to make money by owning common stock.

The cardinal sin of investing, which is particularly atrocious when it comes to options trading, is letting big profits slip away.

Let's face it, one of the main reasons we trade options is for their home run potential. With options, you are essentially swinging for the fences every time you step up to the plate.

Like any good power hitter, you are going to strike out more often than you hit that home run -- that's just part of the game. But when you do knock it out of the park, it's simply unforgivable to let that profit evaporate into thin air.

But how do you make sure you keep those home run profits when you hit them? Fortunately, the answer is quite simple in theory, although it's not always easy to execute.

Stop the Madness

Making sure you keep the profits you've gained is really as simple as setting a stop loss. By developing appropriate stop-loss levels on all of your positions, you can protect the gains you have by not letting them slip through your fingers.

While you can set a stop-loss order with your broker to be triggered when an option hits a certain price, you can also keep track of the trade manually and set mental sell stops based on how the stock is trading. By doing so you won't be taken out of the options trade unexpectedly, and you can exert more control by watching the stock closely and revising your trading strategy frequently.

Once you have a good profit, you should always set a trailing stop for the underlying stock -- that is, a level just below the current market price. A 3% stop loss is a good rule of thumb. In other words, if the underlying stock's price is $50, set a stop loss of $47.50. If the stock price hits $47.50, take profits on the rest of your option position.

Sometimes a tighter stop loss may be appropriate, but it's important to be aggressive when you're taking profits. People often ask me what really constitutes a "good profit." The exact level is, of course, up to you to decide, but I consider anything in the double-digit percentages to be gains worthy of protection.

The trailing stop is tremendously effective when the trade is moving in your favor as well. If the stock trades up to $50 and keeps on going, ratchet up your stops accordingly, keeping them 3% to 5% away from the present stock price. That way, if the stock trades down from that higher level, you will have plenty of time to close the position and keep most of your profits.

However, even if the stop is not hit, you may still exit a position if you think the underlying stock is flattening out or when you believe it has hit some overhead resistance (for call option position) or underlying support (for put positions). That's the beauty of options trading -- you always have, well, options!

That being said, I can't emphasize enough how important quick action is when things start turning against you. With options, due to their limited lifespan, you are usually only given one chance to get out. Given the time considerations, it's essential that stop losses be in place and ready to protect your gains.

Beating the Clock

As I always say, for option buyers, time is your greatest enemy. Given enough time, most stocks will make a major move, giving you the opportunity to score a home run. If you can find an undervalued option with a lot of time left until expiration, you are looking at an opportunity that could turn into a terrific investment.

Always keep in mind that cheap, long-term options where the strike price is in range of the underlying stock price are truly diamonds in the rough. The point to remember here is to buy enough time for the option to work in your favor, because time tends to fly away.

Options depreciate as time passes, especially in the six-month period preceding expiration when they lose their value even more quickly. So, the following bears repeating: Buy yourself enough time. Also, always set a time limit on how long you will hold an option. If nothing happens within that time period, exit the position and rotate your investment capital to where it will perform better for you. With more-expensive options and in-the-money options, I usually set a three-week holding period.

Remember, you're never stuck with an options position. If a position isn't working out in your favor, it can easily be replaced. And if it is working for you, make sure you set a trailing stop loss so that you don't let your home run trades slip away.

For more trading strategies, go to TradingMarkets.com/reports.

What Are "Put Options" ?

2008-12-10T10:03:00.000-08:00

A put option (sometimes simply called a "put") is a financial contract between two parties, the seller (writer) and the buyer of the option. The put allows its buyer the right but not the obligation to sell a commodity or financial instrument (the underlying instrument) to the writer (seller) of the option at a certain time for a certain price (the strike price). The writer (seller) has the obligation to purchase the underlying asset at that strike price, if the buyer exercises the option.

Note that the writer of the option is agreeing to buy the underlying asset if the buyer exercises the option. In exchange for having this option, the buyer pays the writer (seller) a fee (the premium). (Note: Although option writers are frequently referred to as sellers, because they initially sell the option that they create, thus taking a long position in the option, they are not the only sellers. An option holder can also sell his short position in the option. However, the difference between the two sellers is that the option writer takes on the legal obligation to buy the underlying asset at the strike price, whereas the option holder is merely selling his long position, and is not contractually obligated by the sold option.)

Exact specifications may differ depending on option style. A European put option allows the holder to exercise the put option for a short period of time right before expiration. An American put option allows exercise at any time during the life of the option.

The most widely-known put option is for stock in a particular company. However, options are traded on many other assets: financial - such as interest rates (see interest rate floor) - and physical, such as gold or crude oil.

The put buyer either believes it's likely the price of the underlying asset will fall by the exercise date, or hopes to protect a long position in the asset. The advantage of buying a put over short selling the asset is that the risk is limited to the premium. The put writer does not believe the price of the underlying security is likely to fall. The writer sells the put to collect the premium. Puts can also be used to limit portfolio risk, and may be part of an option spread.

Writing a put option - This is a graphical interpretation of the payoffs and profits generated by a put option as seen by the writer of the option. Profit is maximized when the price of the underlying security exceeds the strike price, because the option expires worthless and the writer keeps the premium.

Buying a put option - This is a graphical interpretation of the payoffs and profits generated by a put option as seen by the buyer of the option. A lower stock price means a higher profit. Eventually, the price of the underlying security will be low enough to fully compensate for the price of the option.

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What Are "Call Options" ?

2008-12-03T10:28:00.000-08:00

A call option is a financial contract between two parties, the buyer and the seller of this type of option. Often it is simply labeled a "call". The buyer of the option has the right, but not the obligation to buy an agreed quantity of a particular commodity or financial instrument (the underlying instrument) from the seller of the option at a certain time (the expiration date) for a certain price (the strike price). The seller (or "writer") is obligated to sell the commodity or financial instrument should the buyer so decide. The buyer pays a fee (called a premium) for this right.

The buyer of a call option wants the price of the underlying instrument to rise in the future; the seller either expects that it will not, or is willing to give up some of the upside (profit) from a price rise in return for the premium (paid immediately) and retaining the opportunity to make a gain up to the strike price .

Call options are most profitable for the buyer when the underlying instrument is moving up, making the price of the underlying instrument closer to the strike price. When the price of the underlying instrument surpasses the strike price, the option is said to be "in the money".

The initial transaction in this context (buying/selling a call option) is not the supplying of a physical or financial asset (the underlying instrument). Rather it is the granting of the right to buy the underlying asset, in exchange for a fee - the option price or premium.

Buying a call option - This is a graphical interpretation of the payoffs and profits generated by a call option from the buyer 's perspective. The higher the stock price the higher the profit. Eventually, the price of the underlying security would become high enough to fully compensate for the price of the option.

Writing a call option - This is a graphical interpretation of the payoffs and profits generated by a call option from the writer 's perspective of the option. Profit is maximized when the strike price exceeds the price of the underlying security, because the option expires worthless and the writer keeps the premium.

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Basics : What Are Options ?

2008-12-02T09:46:00.000-08:00

Options are the most versatile trading instrument ever invented. Since options cost less than stock, they provide a high leverage approach to trading that can significantly limit the overall risk of a trade or provide additional income. Simply put, option buyers have rights and option sellers have obligations. Option buyers have the right, but not the obligation, to buy (call) or sell (put) the underlying stock (or futures contract) at a specified price until the 3rd Friday of their expiration month. There are two kinds of options: calls and puts. Call options give you the right to buy the underlying asset. Put options give you the right to sell the underlying asset. It is essential to become familiar with the inner workings of both. Every strategy you learn from this point on depends on your thorough understanding of these two kinds of options.

There are no margin requirements if you want to purchase an option because your risk is limited to the price of the option. In contrast, option sellers receive a credit in their account for selling an option and get to keep this amount if the option expires worthless. However, option sellers also have an obligation to buy (put) or sell (call) the underlying instrument if their option is exercised by an assigned option holder. Therefore, selling an option requires a healthy margin.

Read Full Article At Yahoo Finance

5 Inflation-Beating Investments for Retirement

2008-12-01T09:33:00.000-08:00

One of the greatest dangers to any retirement plan is that insidious erosion of purchasing power commonly known as "inflation."

A weekly trip to the gas station or supermarket is enough to drive home the point. While younger, working Americans have opportunities -- often through increased earning power -- to overcome inflation, those in retirement or close to it are particularly vulnerable.

Inflation-Beating Investments

1. Treasury-Inflation Protected Securities

How they work: TIPS protect against inflation through their connection to the Consumer Price Index. Specifically, TIPS' principal rises with inflation and falls during deflation. If someone buys $100,000 in TIPS and inflation increases by 3 percent, the TIPS principal will be worth $103,000 by the end of the year.

2. I Bonds

How they work: I bonds are designed to keep pace with rising prices by paying a composite interest rate that's made up of two parts: an underlying fixed rate and an inflation-adjusted variable rate. The variable interest portion is tied to the CPI rate and rises and falls during the life of the bond to keep pace with prices.

3. Dividend-Rich Stocks

How they work: As a rule, public companies either reinvest earnings or pass them along to shareholders as dividends. For beating inflation, the second variety is hard to beat: Dividend-rich stocks provide income, but unlike fixed-income investments, they have the potential for capital growth as well.

4. Exchange-traded funds, or ETFs

How they work: ETFs have qualities of both stocks and funds. Though they comprise a basket of securities, they're traded like a stock, so prices vary throughout the day. But like mutual funds, ETFs can be include equities, bonds, commodities, currencies, derivatives, etc. ETFs are generally designed to mirror indexes, but that's not always so.

5. Mutual Funds

How they work: Funds can be made up of a variety of underlying assets including stocks, fixed income, currencies, commodities and cash as well as a combination of these, depending on the style you choose.

Read full article on Yahoo Finance

10 truths of getting rich through stocks

2008-11-26T10:36:00.000-08:00

You will truly profit from investing only when you have a clear appreciation of its principles and realities.

Once you understand these, you will be better able to keep a cool mind during the inevitable ups and downs -- and reap riches by investing with controlled risks.

Investment rewards can only be increased by the assumption of greater risk
Your actual risk in stock and bond investing depends on the length of time you hold your investment
Decide how much risk you are willing to take to get high returns
Dollar-cost averaging can reduce the risk of investing in stocks and bonds
Stock prices are anchored to 'fundamentals' but the anchor is easily pulled up and then dropped in another place
If you buy stocks directly, confine your purchases to companies that appear able to sustain above-average earnings growth for at least five years and which can be bought at reasonable price-earnings multiples
Never pay more for a stock than can reasonably be justified by a firm foundation of value
Buy stocks with the kinds of stories of anticipated growth on which investors can build castle in the air
Trade as little as possible
Give serious thought to index funds

Read full article at Rediff

Get Rich With SIP

2008-11-24T05:39:00.000-08:00

In a rising market, most people get confused when investment advisers ask them to go for a disciplined approach towards investment -- through systematic investments plans. The reason: A lump-sum investment of Rs 60,000 can become Rs 1,20,000 in two or three months. On the other hand, Rs 20,000 invested over three months might just become Rs 90,000 or Rs 1,00,000.

However, the importance of investing through SIPs can only be appreciated when we consider volatility. A comprehensive look at the situation can help investors understand this approach. Under an SIP, a regular sum of money is invested each month. It means that units are purchased in a staggered manner. This ensures that there is no break in the investment process and a corpus is built over time.

Compare this with lump-sum investment and the dynamics are completely different. You invest an X amount of sum at one point in time and, over a period of time, the money can double or treble.

Of course, there is the element of risk. If the market were to fall sharply, like it has since January, the lump-sum investment takes a bigger hit. The reduction, in case of a mutual fund, is equivalent to the fall in the net asset value of the scheme.

On the other hand, if there is an ongoing SIP, investors actually end up gaining as only a part of their investment is eroding -- the part that has been purchased when the NAVs were quite high. In spite of a falling market, investors buy units of the fund when the NAV is falling. So, they gather more units of the same scheme. The best part is that when the market turns around a little, the investor in SIPs stands to make money much more quickly than a lump-sum investor because he has acquired more units over time.

Read Full Article At Rediff

Ignore the Stock Market Until February - By WSJ

2008-11-23T08:10:00.000-08:00

Down in the morning, up in the afternoon. Or is it the other way around? The topsy-turvy stock market is tough to read.

In the last year, the Dow Jones Industrial Average has briefly been over 13,000 and below 8,000. The past month has felt like the Cyclone roller coaster on Brooklyn's Coney Island -- lots of ups and downs, the whole rickety thing feeling like it's going to crash at any minute.

Great investors are taught to listen to the market. Each tick of the tape has something to say about expectations for growth, inflation, policy changes and looming recessions. The stock market is like a giant mass of pulsing plasma doing price discovery and a game of hot potato, getting stocks into the correct hands with the right risk profile. It's way too big for any one person to manipulate, let alone touch directly. Instead, millions of us provide input with our buying and selling decisions.

When it's at its most efficient, with buyers and sellers neatly matched up at the right price, it's a pretty good predictor. The Crash of 1929 announced a recession, and the wake-up call unheeded might have caused many of the bad policies leading to the Great Depression. The Crash of 1987? Not so much.

You see, the market is a great manipulator. In September, the Dow dropped 700 points intraday after the House of Representatives voted down the Treasury's TARP bank-rescue bill. Spooked, the House passed the bill the next week. Or how about this? The Dow was up 300 points on Election Day applauding an Obama victory and then down 1,600 points since.

The market can also be a bold-faced liar. On Jan. 22, the Fed announced an emergency 75-basis-point rate cut in response to huge drops in European markets. A few days later, it came out that a rogue trader at Société Générale lost them $7 billion and the bank was unwinding his positions. Oops.

So which is it now: an efficient mechanism or a manipulating liar? Should you listen to it warning of doom or anticipating renewal? I'd say stick wax in your ears and don't listen to the market until February.

Read Full Article At Yahoo Finance

Practice Using "Stock Market Simulation Games"

2008-11-21T10:50:00.000-08:00

A stock market simulation game is a great way to practice your investment skills before actually investing any "real" money in the stock market.

Simulation games are usually played on the internet, where people can experience the thrill of investing in the stock market without any risks, costs or any fear of losing money when and if they make a poor investment decision.

Many teachers and professors of banking and finance are now using stock market simulation games to teach their students about the rudiments of investing in stocks. Most stock market simulation games come with a fee to get started, but there are some that are free of any charge. One does not need have prior knowledge about the stock market to join.

This is how stock market simulation games usually work:

First, players must register. After registration, players are given an initial sum of "virtual" money to invest in companies of their choice. Players build a portfolio of stocks by buying and selling shares in companies. Most stock market simulation games use real-time market data.

The objective of most stock market simulation games is simple:

To increase the value of your portfolio of stocks so that it is greater than that of the other game players.

Below are some tips on choosing a stock market simulation game:

• Choose a stock market simulation game that is used and recommended by reputable colleges, high schools, middle school, investment clubs, brokers in training, corporate education courses and any other group of individuals studying markets in the U.S. and worldwide.

• Choose a stock market simulation game that is comprehensive and easy to implement in any Finance, Economics, or Investments class. A good stock market simulation game should feature trading of stocks, options, futures, mutual funds, bonds from the U.S. and many of the world's major markets.

• Choose a stock market simulation game that provides a valuable, reliable, and realistic trading simulation at a reasonable price to members and other individuals who are interested in learning more about investing and trading. The simulation game should also have some capability for testing a variety for investment strategies.

• Choose a stock market simulation game that has a toll-free customer service phone number and excellent e-mail support for members. The support function should be able to quickly answer any questions that members/players may have.

• Choose a stock market simulation game that is easy to use and easy to teach even to those who have never had any real hands-on investment experience.

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Forex And Daytrading

2008-11-20T09:26:00.000-08:00

Online trading is great way for serious investors to make money, but inexperienced traders often wind up with big losses. A good set of instructions can minimize the risks and save months of expensive trial-and-error learning.

Day Trading

Day Trading had its heyday during the bull market of the 1990's. All the amateurs have since dropped out, but day trading is still being practiced by professionals. There are fewer opportunities in the current market, but skilled investors can still find them if they know what to look for.

FOREX Trading

The Foreign Exchange Market (FOREX), the world's largest financial exchange market, originated in 1973. It has a daily turnover of currency worth more than $1.2 trillion dollars.

Unlike many other securities, FOREX does not trade on a fixed exchange rate; instead, currencies are traded primarily between central banks, commercial banks, various non-banking international corporations, hedge funds, personal investors and not to forget, speculators. Previously, smaller investors were excluded from FOREX due to the huge amount of deposit involved. This was changed in 1995, and now smaller investors can trade alongside the multi-nationals. As a result, the number of traders within the FOREX market has grown rapidly, and many FOREX courses are appearing to help individual traders increase their skills.

As a matter of fact, it's advisable to take FOREX training even before opening a trading account.
It is vital to know the market mechanics of FOREX, leveraging in FOREX, rollovers and the analysis of the FOREX market. Due to this fact, potential FOREX traders would do well to either enroll in a FOREX training courses or even purchase some books regarding FOREX trading.

There are pros and cons to enrolling into a FOREX course. For beginners a FOREX course is a rapid method of learning the basics of FOREX trading. Not much time is spent on history of the market or arcane economic theories. Often, on-line or phone support from a skilled FOREX trader is available to answer any questions. Also, the information is condensed and practical, often with graphs and charts.

The disadvantage is the price, as courses are more expensive than a paperback from the bookstore. Also,
the course may just teach the approach of the trader who wrote it, and individuals have different trading strategies. The student may grow accustomed to the logic and focus of the teacher without coming to realise that nothing is predictable in the FOREX market, and many different strategies will bring profits in varying market circumstances. Also, knowledge of practical applications may not be enough, as the FOREX is highly unpredictable and there are many external factors, such as political issues, affecting the flow of finances in the market.

The best advice would be to do some background research on the FOREX market first, and then enroll in a course.

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10 Things Your Real Estate Broker Will Not Tell You

2008-11-14T10:28:00.000-08:00

1. "Your open house is really a party for me."
Hire a real estate broker to sell your home and one of the first things he'll likely suggest is hosting an open house, so potential buyers can casually check out your property on a weekend afternoon. While open houses are promoted as a great way of finding a buyer, a National Association of Realtors study found that their success rate is a mere 2%.

No matter. Having an open house serves another important purpose - for the broker. "It gives him a database of clients," says Sean McNeill, an independent real estate broker based in New York City who says that he buyers. "At open houses, you get all kinds of people walking in. Some are [trying] to see how much they should sell their own places for; others just want to get a look at what's out there." All are perfect pickings for a broker looking to increase his roster of buyers and sellers. "Think about it," McNeill says. "The broker is devoting a couple hours of a weekend. He won't do that unless it helps him in a big way."

2. "My fees are negotiable."
Brokers like to make it sound as if their fees are engraved in stone, but that's rarely the case - especially in a brisk market, when brokers fiercely compete for properties they can unload fast. This past summer one broker in the Midwest says he lowered his fee by a full percentage point because there was so much demand for good properties that he needed leverage. Indeed, says the broker, who asked not to be named, sellers should shop around for broker's fees. He suggests these negotiating tactics: "If somebody's willing to commit to me for selling one place and buying another, I give a discount. If you're in a particularly desirable neighborhood with a house that will bring a lot of traffic" - say, at an open house - "that can be used, because the broker will use the flow of people to get potential customers. And with some [smaller] brokers, all you need to do is ask and they'll lower the commission."

3. "Think you've had no offers? Actually, there've been several."
Legally, the broker you hire to sell your home is obligated to tell you about all offers that come in. In reality, some don't. Perhaps he thinks the offer is insultingly low for you, but more likely, "the broker thinks it's too low for his own purposes. He wants to hold out for a bigger commission," says McNeill. Or else there's an outside broker (or "co-broker") circling your house, and the primary broker is waiting for one of his own clients to make an offer so he can keep the full 6% to himself.

"You must be clear with your broker that you want to be informed of all offers," McNeill says. "Otherwise, you may be leaving him to make decisions that you should be making." Check the listing agreement drawn up when you hire the broker; if the promise to disclose all offers isn't listed explicitly, insist that it be added.

4. "I talk about you behind your back."
You spot your dream house as you're driving through a neighborhood and call the broker listed on the For Sale sign. That's how a lot of buyers stumble on a broker - who, in turn, happily shows you other houses, asking about your needs, laughing at your jokes. It's easy to get loose-lipped and forget whom you're dealing with: someone else's agent. "Legally, brokers are obligated to provide their sellers with any information that can help them get the best prices for their homes," says Stephen Israel, president of Buyer's Edge, a Bethesda, Md.-based company that represents homebuyers. "If you tell the broker that you're willing to pay $500,000 but want to offer $450,000, they'll pass that on to the seller. They have to."

Also, some brokerage companies encourage prospective buyers to get preapproved for loans. While that can make a buyer more attractive to a lender, it also tells a broker whether a buyer can afford a $600,000 house when he's trying to haggle on a $400,000 property. "When somebody asks for [a preapproval], find out who they're representing," says Israel, acknowledging that such details can short-circuit your negotiating leverage. "If they represent a seller - or someone in their office does - they shouldn't have it. The broker may tell you she will be impartial, but how can she be?"

5. "Sometimes I forget whose side I'm on."
The past 10 years have seen the proliferation of the buyer broker, agents who are supposed to work strictly in the buyer's interest, helping him get a fair price on a home as well as avoid pitfalls along the way. Unfortunately, things don't always unfold so nicely. While buyers may think they're getting a broker who isn't commission-hungry, many buyer agents are just that: They usually get about 3%, the same amount any broker typically earns when he gets involved with another agent's listing. "Buyer brokers are sometimes too focused on closing the sale and getting that commission," says Max Gordon, an Overland Park, Kan.-based real estate broker and attorney, so it's often in their best interest to see you pay as high a price as possible.

Even worse, some brokers who call themselves buyer advocates are actually working for companies that also represent sellers. "Brokerages offer bonuses to buyer agents if they sell an in-house listing," says Israel. A good way to get a broker who has no such conflicts of interest: The National Association of Exclusive Buyer Agents, whose Web site (www.naeba.com) can help you find a buyer agent near you who pledges to help you get the best deal possible and has no ties to sellers' agents; many even work on a fee structure rather than on commission.

continue reading on Yahoo Finance

Greed Leading To Disasters: NR Narayana Murthy

2008-11-11T10:25:00.000-08:00

Speaking to Vallabh Bhanshali of ENAM Securities at the ENAM 2020 conference, NR Narayana Murthy, Chairman and Chief Mentor of Infosys, said if greed overtakes leaders, it is inevitable to avoid disasters because in the end systems are much more powerful than individuals.

Murthy feels in the end it is always about ethics and personal values. "That is why it is very important for every society to create checks and balances. That is why it is very important for every society not to create incentives for people to become greedier. That is why it is very important for all of us in the corporate world to create incentives for long-term performance rather than short-term performance."

"I believe that India is better placed than any of the leading economies of the world to recover from the mess that the world economy has got into because of a very simple reason. We are primarily a domestic economy focused nation. Our fundamentals are good. Our productivity is improving."

read full interview on Money Control

8 Reasons To Own Gold

2008-11-08T21:29:00.000-08:00

Gold is respected throughout the world for its value and rich history, which has been interwoven into cultures for thousands of years. Coins containing gold appeared around 800 B.C., and the first pure gold coins were struck during the rein of King Croesus of

Lydia

about 300 years later. Throughout the centuries, people have continued to hold gold for various reasons. Below are eight reasons to own gold today.

1. A History of Holding Its Value
Unlike paper currency, coins or other assets, gold has maintained its value throughout the ages. People see gold as a way to pass on and preserve their wealth from one generation to the next.

2. Weakness of the U.S. Dollar
Although the U.S. dollar is one of the world's most important reserve currencies, when the value of the dollar falls against other currencies as it did between 1998 and 2008, this often prompts people to flock to the security of gold, which raises gold prices. The price of gold nearly tripled between 1998 and 2008, reaching the $1,000-an-ounce milestone in early 2008. The decline in the U.S. dollar occurred for a number of reasons, including the country's large budget and trade deficits and a large increase in the money supply.

3. Inflation
Gold has historically been an excellent hedge against inflation, because its price tends to rise when the cost of living increases. Since World War II, the five years in which U.S. inflation was at its highest were 1946, 1974, 1975, 1979 and 1980 (as of 2008). During those five years, the average real return on the Dow Jones Industrial Average was -12.33%, compared to 130.4% for gold.

4. Deflation
Deflation, a period in which prices contract, business activity slows and the economy is burdened by excessive debt, has not been seen globally since the Great Depression of the 1930s. During that time, the relative purchasing power of gold soared while other prices dropped sharply.

5. Geopolitical Uncertainty
Gold retains its value not only in times of financial uncertainty, but in times of geopolitical uncertainty. It is often called the "crisis commodity", because people flee to its relative safety when world tensions rise; during such times, it often outperforms other investments. For example, gold prices experienced some of their largest recent movements during periods of tension with Iran and Iraq in 2007 and 2008. Its price often rises the most when confidence in governments is low.

6. Supply Constraints
Much of the supply of gold in the market since the 1990s has come from sales of gold bullion from the vaults of global central banks. This selling by global central banks slowed greatly in 2008.

At the same time, production of new gold from mines has been on the decline since 2000. According to BullionVault.com, annual gold-mining output fell from 2,573 metric tons in 2000 to 2,444 metric tons in 2007. It can take from five to 10 years to bring a new mine into production. As a general rule, reduction in the supply of gold increases gold prices.

7. Increasing Demand
Increased wealth of emerging market economies has boosted demand for gold. In many of these countries, gold is intertwined into the culture. India is one of the largest gold-consuming nations in the world, and gold has many uses there, including jewelry. As such, the Indian wedding season in October is traditionally the time of the year that sees the highest global demand for gold. In China, where gold bars are a traditional form of saving, the demand for gold has also shown rapid growth.

Demand for gold has also grown among investors. Many are beginning to see commodities, particularly gold, as an investment class into which funds should be allocated. In fact, the largest gold ETF, StreetTracks Gold Trust (PSE:GLD), became one of the largest ETFs in the U.S. and one of the world's largest holders of gold bullion in 2008, only four years after its inception.

8. Portfolio Diversification
The key to diversification is finding investments that are not closely correlated to one another; gold has historically had a negative correlation to stocks and other financial instruments. Recent history bears this out:

The 1970s was great for gold, but terrible for stocks.
The 1980s and 1990s were wonderful for stocks, but horrible for gold.
As of 2008, this decade has been a good one for gold, and an unfavorable one for stocks.

Properly diversified investors combine gold with stocks and bonds in a portfolio to reduce the overall volatility and risk.

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Budget-Trimming Tips for a Down Economy by "Laura Rowley"

2008-11-06T10:36:00.000-08:00

There's plenty of advice out there to help slash your spending -- get rid of your car, throw out the television, grow your own vegetables, rent out the attic to a college student. But maybe you need a car to drive to work, have no time to garden, enjoy relaxing in front of the tube occasionally, and don't want to bump into an 18-year-old stranger in your bathrobe.

Here are eight ways to tweak your budget and save $500 by the year's end -- with minimum hassle, and without radically changing your lifestyle.

1. Cable TV: If you pay for premium cable services -- extra channels, HBO, etc. -- call your cable company and put your service on "vacation mode" between now and the end of the year. You'll still receive basic service, but save temporarily on the extras.

We did this recently because we were having work done in the basement/TV room. We eliminated the "preferred tier" for two months (we don't get the movie channels), saving $15.99/month. (Comcast charged $1.99 for the change, so the total savings was $30.)

2. Prescriptions: Only about one-third of prescription drug purchases are mostly or fully covered by insurance, according to a recent Consumer Reports survey, and prices can vary by as much as $100 for the same drug. Always ask your physician for a generic equivalent, which can cost up to 40 percent less, then shop around.

About a dozen states sponsor websites that help you compare prescription prices. Discount stores such as Wal-Mart and Target offer the most popular generic drugs, including antibiotics and medications for asthma, arthritis, diabetes, and high cholesterol, for as little as $4 a month.

I tested out comparison-shopping on the web and phone to save on a common antibiotic, Amoxicillin (250mg, 30 capsules), and it took about five minutes. First I searched New York State's drug comparison website for amoxicillin at local pharmacies in New Rochelle, which charged from $13.64 to $17.09. Then I called Wal-Mart in nearby White Plains, which charged just $4, and Costco, which offered the drug for $6.90 (no membership required). Savings from highest to lowest pharmacy: $13.09.

3. Cell phones: Take a look at your actual usage, and make sure your plan matches your behavior -- are you using all your minutes? Wasting money on extra services or old ringtones?

For example, I used to pay $40 for unlimited megabytes to check email on my phone. But I realized I wasn't actually checking email that way very often. I called and asked for the cost of my actual megabyte usage the previous month: $6. By paying for the bytes used (and eliminating text messaging altogether) I save $30 to $35 a month.

If you tend to go over your allotted minutes (at a cost of 40 to 45 cents a minute), register for free with a service called OverMyMinutes. It will alert you by text or email when you're at your limit.

4. Food: This one takes a little more effort, but with about an hour of planning, I typically cut my grocery bill by one-third. I start at my grocery store's online circular, creating five to seven dinner menus based on what's on sale and in season (click on the item and the site creates your shopping list for you).

Then I head over to CouponMom or MyGroceryDeals (both free, registration required). Click on your state and local grocery store, and the sites tell you specific bargains available that week so you can stock up. CouponMom also tells you whether a coupon is available and exactly where to find it (i.e., "Smart Source insert 10/5"). I just pull the coupon inserts out of my Sunday paper every week, date them, and throw them in a drawer. I only cut a coupon when CouponMom tells me where to find it; but you don't have to do this at all to save money.

In the store, I check the price of the sale/coupon item against the generic brand to make sure it's really a deal, and then use the store's loyalty card. Using this approach, I cut a recent grocery bill from $174 to $114 for a week's worth of groceries for a family of five. (I also do a monthly warehouse club run for low-cost staples like skim milk, which freezes pretty well.)

5. Drycleaning: "Wool, cashmere, silk, rayon, polyester, and spandex can all be laundered," says Lindsey Wieber, of The Laundress, a collection of specialty fabric care products. Manufacturers actually wash the fabric before they construct it into a garment, she explains, and add the "dry clean only" label to avoid liability issues. Wieber and co-founder Glen Whiting, both Cornell University graduates, work with one of their former professors (who has a doctorate in fiber science) to create new enzyme formulas that clean without damaging clothing.

Hand-wash or use a mesh bag in the washing machine (delicate cycle on cool). Lay wool and cashmere flat to dry; everything else, including cotton and linen, can be thrown in the dryer on a low-heat setting, then pressed. Hang up and air out suits immediately; use a lint-free cloth and a stain-removing product to eliminate perspiration or other stains on the inside lining, and spot clean exterior stains. Using this method, Wieber says, suits only need to be dry cleaned two to four times a season. (Savings in our household: About $30 a month.)

6. Utilities: You can get a basic programmable thermostat for as little as $23 at the hardware store, but can save as much as 25 percent on your energy bills by turning down the heat (or air conditioning) when you're away from home or asleep. For the average utility payer, that works out to about $250 a year, or $21 a month (so ideally, you roughly break even in November, and save $21 in December and thereafter).

In addition, water bills can be cut back 25 percent by replacing your old showerheads and faucets with low-flow aerating models. Look for 250 gallons per minute (gpm) or less; Home Depot sells showerheads at 1.6 gpm for as low as $12. (Savings in our household after the initial investment: About $10/month.)

7. Taxes: The market's steep decline this year offers many investors the opportunity to save by harvesting tax losses before Dec. 31. An investor can sell downtrodden securities held in taxable accounts to offset either capital gains elsewhere or as much as $3,000 in ordinary income. (Meanwhile, additional losses can be carried forward to future years. See this IRS publication for details.)

A study of 185,000 households by Fidelity found that only 10 percent of taxpayers took advantage of the full $3,000 deduction allowed under the tax code. Most of the households surveyed would have gained $500 in additional tax savings. Consider this example from the study: An investor buys a stock for $30,000, and sells it for $27,000, taking a $3,000 loss. If the household had $100,000 in adjustable gross income, harvesting the loss would have cut their tax bill by $450 if the position was held more than a year and $750 if it was held short-term. Click here for more year-end tax tips.

8. Money rituals: In their book "The Power of Full Engagement," authors Jim Loehr and Tony Schwartz suggest that change is a matter of adopting new rituals rather than demanding we be more disciplined. "Building rituals requires defining very precise behaviors and performing them at specific times," they write.

Save money by creating quirky rituals: Save all the $5 bills from your wallet at the end of the day. Bring your lunch to work every Monday, Wednesday, and Friday until the end of the year. Boost your 401(k) contribution by 1 percent every time you get a raise. Comparison shop for your auto or homeowner's insurance the day after your birthday each year.

Small rituals become habits -- and take a lot less time and energy than watching every penny you spend. (For more savings tips, see my blog.)

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Avoiding Home Business Failures

2008-11-05T10:51:00.001-08:00

It's been said that 80% of all small business dies within the first 3 years. And the rest are somehow struggling along with meager revenues. Only a handful is successful. Home based business has an even shorter lifespan. Every enthusiastic home based venture starts out with a big promise, a lot of excitement and enthusiasm.

However at the first signs of trouble or a slow take off the people become panicky. Having been accustomed to regular pay check, when the money does not roll in week after week and the bank balance hits the low digits, there is a sense of panic and the exciting home business gets trashed.

My own experience tells me this happens just when you are through with organizing, setting up and the difficult transition period of reaching out to the customers, you decide to wind up the business in favor of a job.

Now here are a few tips to persevere and make a success of your home business.

Plan in advance your finances for running your family for a minimum period of 6 months.

Plan every aspect of your business right from creating the product to final shipments - on paper. Don't leave out anything. This is what is called a business plan. Make it elaborate and group each aspect under a heading and subheading.

Home workers need to set a disciplined work schedule. Having no bosses around or compulsions of commuting may make you take things easy and relaxed. At least for the first 6 month work as if you are in employment and put in the required hours. You can relax and cut down on working hours when you start earning enough.

Don�t procrastinate or put things off for tomorrow. Action is one major ingredient for success. If you need to do something do it today. Do it now.

It is essential to keep your motivation high. Read about the success of other small business and home business owners and learn what they did right. Duplicating someone else who has succeeded makes it easy to succeed yourself.

You may suddenly find yourself alone without the social support of colleagues and friends. Even persons you considered your best friends may avoid you if they feel you are in trouble. That is OK. You get to know who's who in times of adversity. Learn to depend on yourself than outside support.

Be prepared to take the temporary pain and denials. Robert Kiyosaki of "Rich Dad Poor Dad" fame and his wife slept in their car for a few months and lived in a basement of a friends house for many more months to achieve what they set out - their financial freedom.

Believe in yourself and keep going even if the going gets tough. The rewards far outweigh the pains and temporary sufferings. Remember the darkest hour is just before the dawn breaks out and sun rises.

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Why it's (finally) time to buy stocks

2008-11-05T10:47:00.000-08:00

After being overpriced for more than a decade, equities now trade at sensible-but not bargain-prices.

You didn't hear this uttered very often, but over the past decade and a half, through bull and bear market alike, the value proposition for stocks could be stated succinctly: There's nothing to buy.

The fact is that equities were over-valued for years, making them vulnerable to the kind of brutal, sudden sell-off we've just witnessed. But now that the S&P has declined 40% in 12 months, the question is whether equities are at long last a bargain. The answer is a qualified yes: Stocks aren't exactly cheap, but for the first time in years you can expect decent returns, provided you're patient.

"If you buy now and wake up in 10 years, you'll probably get a return around the historic average," said Yale economist Robert Shiller. In the near term, however, Shiller - who correctly predicted the implosion of the stock-market and real-estate bubbles - is more cautious. "There is a substantial risk that with all this economic turmoil, stocks will fall far lower," he warned.

But make no mistake, stocks are now at levels where buying makes sense.

read full story at CNN

So You Think Stocks Are Cheap? Just Wait

2008-11-04T10:06:00.000-08:00

ARE YOU THINKING ABOUT PUTTING MONEY back into equity funds? Don't!

That's the opinion of George Feiger, CEO of Contango Capital Advisors, who expects the market to have a turbulent rest of the year. "It's not a Great Depression, but it will be a longer recession than people expect...through 2009, maybe into 2010," he says.

With the world economy in trouble, even the initiatives by the Treasury Department and Federal Reserve won't stave off continued hedge-fund failures, redemptions at hedge and mutual funds, and asset-dumping by lenders, says Feiger. With funds and other investors hoping to start 2009 on fresh footing, redemptions and asset sales likely will accelerate. And that means "assets are likely to become even cheaper over the next three months," Feiger says.

U.S. equity mutual funds had net outflows of $25.67 billion in October, after seeing a net $46.47 billion go out the door in September, according to AMG Data Services. Those are two of the worst monthly showings since the start of the decade.

read full article at Yahoo Finance

Economists Predict Recession To Last Through 2009

2008-11-03T10:39:00.000-08:00

A survey of top economists released Monday shows that the vast majority of them believe the economy has fallen into a recession that will continue throughout all of 2009.

According to the National Association of Business Economists, 90% of the 102 members responding were more pessimistic about the economy than they had been in July.

The economists indicated that a recession is likely to continue at least through the end of next year, with 79% saying the economy will grow less than 1% and 38% saying the economy will shrink next year.

"There has been a sharp decline in current and near-term expectations among economists," said Ken Simonson, a member of the NABE committee that conducted the survey. "This represents a big turnabout in attitude about the economy."

With the economy mired in a prolonged credit crisis, the Federal Reserve has slashed interest rates several times, most recently cutting them by a half-percentage point, to 1%, on October 29.

read full article at Yahoo Finance

20 Small Business Tips, For Success

2008-11-03T05:26:00.000-08:00

Take the time out to explore and understand whether or not you are compatible with running our own business. Some people are just plain happier and better off financially on the other end of the paycheck.
Get your personal finances in order. Before you jump into the entrepreneurship world, get your own money matters squared away.
Pick your niche. Many small business owners succeed in businesses that are hardly unique or innovative. Take stock of your skills, interests, and employment history to select the business that is best suited for you.
Benefit from your business plan. The exercise of creating a business plan is what pays the dividends. Answer the tough questions now before the meter starts running.
Do not think you need bankers and investors at the outset of your business. The vast majority of small businesses are bootstrapped.
Acquire the proper background. In the early months and years of your business, you will have to acquire many skills. Gain the background you need to oversee all facets of your business well, but determine what tasks you should outsource or hire employees.
Remember that nothing happens until a sale is made – How many good products go nowhere because they do not reach the shelves? Sales drive your business. You will need a good marketing plan to sell your product or service.
You have to see a customer to know one. N o matter how busy you are, spend at least 25% of your time with customers. You cannot make the proper business decision without understanding their viewpoint.
Solve your customers’ problems. The best way to satisfy your customers is not by selling them products but by giving solutions to their problems. There is a big difference.
Quality takes minutes to lose but years to regain. Quality is not a destination, it is a never ending journey. After you have strayed from quality’s path, your journey maybe sidetracked forever.
Put profitability first, rewards seconds. In small businesses, profitability must come first. Find out how to measure your cash flow and understand key financial ratios.
Hire supporters. If you intend to create a growing business, your number one duty is to assemble a great team of employees.
Do not do it alone. Find such help from small business peers, a mentor, even trade associations. They can help take some of the trial and error of beginning your business.
Vendors are partners too! Treat your vendors like customers and watch your partnership grow.
Make use of benefits. Understand how to provide insurance and other benefits for your employees and cut your tax bill at the same time.
Ignore regulatory issues at your peril. Federal, state, and local governments require licenses, registrations, and permits. Obey them or face losing your business.
Know the tax laws. Invest in understanding tax issues that affect your small business.
It’s the people! Whatever happens to a small business happens at the hands of the people who work for it. The evolution of the business is a result of their efforts.
Fast, good, cheap. Pick any two. Serious trouble awaits those who attempt to be all three in the market place. Stick with what you do best.
Develop a passion for learning. As your business grows, you need to change and grow along with it. One common denominator can be found in all successful business owners and that is a passion for learning.

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Can the Middle East weather the financial storm?

2008-11-03T01:22:00.000-08:00

Middle East investors are facing their biggest challenge in six years as the world's worst financial crisis since the 1930s threatens to engulf the oil producing nations and slow booming economic growth.

The advent of the financial crisis has all but halted interbank lending across the Gulf Arab region, raised the specter of a property crash hitting its commercial hub Dubai and turned stock markets so jittery investors from Kuwait have called for government intervention. Meanwhile Qatar's sovereign wealth fund has stepped in to shore up ailing banking stocks.

The region -- which used a more than six-fold rise in oil prices since 2002 to pour billions of dollars into infrastructure projects -- has now seen crude almost halve since July, leaving questions hanging over future growth.

Regional budgets range from $40 to $50 a barrel, but Qatar's prime minister last week signaled $70 to $90 would make it satisfied. In response to the oil price decline, OPEC at the end of the month cut production by 1.5 million barrels.

"The confidence has collapsed," said Mustafa Alani at Dubai-based think tank Gulf Research Center. "It's a wait and see time and whether it's sovereign wealth funds or private investors, the whole environment is holding on to its cash."

Read full story at Reuters

Survive the bear market

2008-11-03T00:46:00.000-08:00

Now is the time to assess your true risk tolerance and devise an investment strategy that works in the bad - and good - times.

It is gut check time!

This is when we find our true risk tolerance: How much pain can we handle as our stocks and mutual funds tumble?

The bear market hammers us nearly every day with brutal reminders that stocks can be volatile, and so we may be realizing that we overestimated our risk tolerance and put too much of our assets into the stock market.

Risk tolerance, of course, is fundamental to investing money. Those of us with little stomach for the fluctuations of the financial markets, whose primary objective is to preserve capital, should be in super-safe investments, such as U.S. Treasury bonds as well as FDIC-insured savings accounts and certificates of deposit.

Read full story at CNN

Obama Vs McCain, Whos Better For stocks

2008-11-02T10:16:00.000-08:00

A win for the Democrat could be good for alternative energy and bad for health care. A win for the Republican could be a boon for defense and bust for coal and ethanol firms.

Who would be better for the stock market: a President Obama or President McCain?

Well, the usual knee-jerk reaction on Wall Street is that Republicans are better for stocks than Democrats because Republicans tend to favor lower taxes for businesses and less government intervention in big business.

But that may no longer be the case, as the unprecedented steps taken by the Bush administration during the past month to try to save the banking sector clearly demonstrate that a heavy dose of federal regulation can also be a reality with a member of the GOP in the Oval Office.

read full story at CNN Money

Warren Buffett's 6 Smart Tips On Investing

2008-11-02T08:58:00.000-08:00

Not all businesses are created equal

Buffett says, "An economic franchise arises from a product or service that:
(1) Is needed or desired,
(2) Is thought by its customers to have no close substitute, and
(3) Is not subject to price regulation."

Price is what you pay, value is what you get
He says:

"The value of any stock, bond or business today is determined by the cash inflows and outflows - discounted at an appropriate interest rate - that can be expected to occur during the remaining life of the asset. Note that the formula is the same for stocks as for bonds."

Ignorance is bliss
He says,

"What counts for most people in investing is not how much they know, but rather how realistically they define what they don't know. An investor needs to do very few things right as long as he or she avoids big mistakes."

Tackling the 'forecaster' in you
He says:

"We insist on a margin of safety in our purchase price. If we calculate the value of a common stock to be only slightly higher than its price, we're not interested in buying. We believe this margin-of-safety principle, so strongly emphasized by Ben Graham, to be the cornerstone of investment success."

The all-important 'SELL' decision

"If the work is done right while investing in a stock, the time to sell it is never." Furthermore, he adds, "Our holding period is forever."

The golden rules

They are:
Rule #1: Do not lose money; and
Rule #2: Always remember the rule #1.

read detailed story here