Avoidance of loss is the surest way to ensure a profitable outcome.

Be fearful when others are greedy

It can be hard to concentrate on potential losses

• while others are greedily reaching for gains and 
• your broker is on the phone offering shares in the latest "hot" initial public offering. 

Yet the avoidance of loss is the surest way to ensure a profitable outcome.




Stocks do outperform bonds and cash over the years

A loss-avoidance strategy is at odds with recent conventional market wisdom.  Today, many people believe that risk comes, not from owning stocks, but from not owning them.   

• Stocks as a group, this line of thinking goes, will outperform bonds or cash equivalents over time, just as they have in the past.
• Indexing is one manifestation of this view.  
• The tendency of most institutional investors to be fully invested at all times is another.

There is an element of truth to this notion; stocks do figure to outperform bonds and cash over the years. 



Equities are inherently riskier than debt instruments

Being junior in a company's capital structure and lacking contractual cash flows and maturity dates, equities are inherently riskier than debt instruments.

• In a corporate liquidation, for example, the equity only receives the residual after all liabilities are satisfied.  
• To persuade investors to venture into equities rather than safer debt instruments, they must be enticed by the prospect of higher returns.   
• However, the actual risk of a particular investment cannot be determined from historical data.  It depends on the price paid. 
• If enough investors believe the argument that equities will offer the best long-term returns, they may pour money into stocks, bidding prices up to levels at which they no longer offer the superior returns.  
• The risk of loss stemming from equity's place in the capital structure is exacerbated by paying a higher price.

Risk avoidance is the single most important element of an investment program

Another common belief is that risk avoidance is incompatible with investment success. This view holds that high return is attainable only by incurring high risk and that long-term investment success is attainable only by seeking out and bearing, rather than avoiding, risk.

Why do I believe, conversely, that risk avoidance is the single most important element of an investment program?

• If you had $1,000, would you be willing to wager it, double or nothing, on a fair coin toss?  Probably not.
• Would you risk your entire net worth on such a gamble?  Of course not.
• Would you risk the loss of, say, 30% of your net worth for an equivalent gain"  Not many people would because the loss of a substantial amount of money could impair their standard of living while a comparable gain might not improve it commensurately. 

Conclusion:

If you are one of the vast majority of investors who are risk averse, then loss avoidance must be the cornerstone of your investment philosophy.

The Importance of a Margin of Safety

Benjamin Graham has no interest in paying $1 for $1 of value; only interested in buying at a substantial discount from underlying value.

Benjamin Graham understood that an asset or business worth $1 today could be worth 75 cents or $1.25 in the near future.

He also understood that he might even be wrong about today's value.

Therefore Graham had no interest in paying $1 for $1 of value.  There was no advantage in doing so, and losses could result.

Graham was only interested in buying at a substantial discount from underlying value.

By investing at a discount, he knew that he was unlikely to experience losses.

The discount provided a margin of safety.



Investors need a margin of safety

Because investing is as much an art as a science, investors need a margin of safety.

A margin of safety is achieved when securities are purchased at prices sufficiently below underlying value to allow for 

• human error, 
• bad luck, or 
• extreme volatility 

in a complex, unpredictable, and rapidly changing world. 

According to Graham, "The margin of safety is always dependent on the price paid.  For any security, it will be large at one price, small at some higher price, nonexistent at some still higher price."

Buffett described the margin of safety concept in terms of tolerances:  "When you build a bridge, you insist it can carry 30,000 pounds, but you only drive 10,000-pound trucks across it.  And that same principle works in investing."



What is the requisite margin of safety for an investor? 

The answer can vary from one investor tot he next.

• How much bad luck are you willing and able to tolerate?  
• How much volatility in business values can you absorb?  
• What is your tolerance for error?  

It comes down to how much you can afford to lose.

Most investors do not seek a margin of safety in their holdings.

Institutional investors who buy stocks as pieces of paper to be traded and who remain fully invested at all times fail to achieve a margin of safety.

Greedy individual investors who follow market trends and fads are in the same boat.

The only margin investors who purchase Wall Street under-writings or financial-market innovations usually experience is a margin of peril.  

David Bach on how to get rich

Financial writer and best selling author David Bach advises how to get rich in his book, "The Automatic Millionaire."


Important point:  @ 19 min, 20 min.

The Millionaire Mind

Kiss Your Boss Goodbye. It's Time to Be an Entrepreneur

Kiss your boss goodbye--it's time to become an entrepreneur

I recently read a reliable report on the attitude of the American workforce.  To my surprise I learned more than half of all employees are not engaged at work. In other words, most workers are not happy, not satisfied, not productive, not loyal, not inspired and will jump ship if another opportunity arises.  In fact, most are looking to leave now and have polished their resumes.   If this is the case, I would also assume that the managers who supervise these disillusioned employees are probably jerks, or are carrying out the mandates of thoughtless upper management.

If you’re a company leader who doesn’t focus on keeping employees engaged, make note; your days are numbered.  I suggest you change now, with sincere intent to take care of your people, or suffer the disastrous consequences of your own unemployment.

How to Create a Winning Business Idea--in Six Easy StepsAlan HallContributor

The 7 C's: How to Find and Hire Great EmployeesAlan HallContributor

5 Sure Signs A Startup Firm Will SucceedCheryl ConnerContributor

The Top Communication Traits of Great LeadersAlan HallContributor

I have more to say on this topic to company management.   Who do you think does all the work in your business?  Who do you think makes your products, sells them, provides support, collects receipts and pays workers? It’s not you, my friend.  Have you forgotten that you hired these people as a resource to help you build a highly profitable business? Have you forgotten they are a precious asset to be valued and protected? How long do you think you can mistreat quality workers until they bolt? In a word, it’s not very long.  Do you get the picture?  Am I making sense? In sum, your financial success, your promotions, your glory, all depend on how well you treat those subordinates who have placed their trust and confidence in you.

Now a word to Les Miserables.  If you are going to quit, for heaven’s sake, don’t go to work for another pathetic firm. Do something wild: Kiss your boss goodbye and launch your own business.  If you have had enough, become your own king.   The money you have made for others now shifts to yourself. Take that idea that’s been in your mind for months and turn it into a profitable company. If you are an engineer, a programmer, a salesman, a teacher, an accountant, a whatever, start today planning your escape from corporate prison.

I am sure you are similar to the entrepreneurs I spend time with everyday.   As a principal investor, I put money into emerging companies that have all been founded by someone who, for the most part, previously worked for a clueless company.  They left seeking their own destiny and fulfillment, hoping life would be much better on their own.  I know their employment history, their state of mind and the decision process they followed as they took a leap of faith to follow their dreams.

Over the last few months, I have spent several evenings giving advice to a gentleman who is a full time employee of a large company. He possesses a great business idea.  He is anxious to understand the steps he needs to follow to properly organize his own company.

Today, I am pleased to share with you the same information he is learning.  So, if you are ready to soar, please make note of the following initial guidelines:

1.  Keep your day job until the time is right to leave.  Keep in mind; you really have two options to consider:

A)  You can leave tomorrow if you have the resources in hand to sustain your efforts long enough to reach profitability. Give yourself at least one year to succeed.  If you can’t reach your goal in that time frame, look for other ways to survive and prosper, or, B)  You can ponder, prepare, organize, and execute plan overtime, at night and on weekends until everything is ready to go.

2.  If you have signed a non-compete with your current employer, honor it.  Wait until you can legally pursue your opportunity.  Find some form of income to sustain your personal life in the interim.

3.  Determine your purpose, your vision, your strategy.  Why are you in business? What do you hope to accomplish? What must you do to be successful? Are your answers sound and realistic?

4.  Test your assumptions.   Determine who your perfect customers are.  Know everything about them.  Talk to them, listen and respond accordingly. Know how many total potential customers there are.  Learn if potential customers will want to buy your product or service.   Learn about their needs, pain and current solutions. Determine the right price and where buyers expect to make a purchase.  Understand what they watch, hear and read. Know how to promote your offering.  Understand the competition.  Know their value proposition and why people buy their products.

5.  Evaluate a product’s viability.  Consider the design, development and manufacturing of the perfect solution at the best possible cost. Understand why your solution will be chosen by customers.

6.  Evaluate and test a plan to sell your product and collect revenues.  Will you sell directly to customers using the internet, your own sales team or independent reps; will you sell your products to distributors; will you sell to retailers or resellers; will you sell to the government?

How to Create a Winning Business Idea--in Six Easy StepsAlan HallContributor

The 7 C's: How to Find and Hire Great EmployeesAlan HallContributor

5 Sure Signs A Startup Firm Will SucceedCheryl ConnerContributor

The Top Communication Traits of Great LeadersAlan HallContributor

7.  Determine if you can make a profit. Know your costs, expenses, revenues, and margins.  Know how much working capital you will need to sustain the business and grow it.  Know where you can find money beyond your own resources.  Determine if financial resources will be available and committed.   Establish a financial system to provide accurate and timely reports to manage the operation.

With positive answers to these initial points, I suggest the following next steps.

• Determine your business location; street, city, and state.
• Name your company. Decide what your firm will be called by clients, vendors, employees and all other entities. Reserve this name for your legal documents and for your internet website. You do this by contacting the Secretary of State, Business Division, to learn if your chosen name is available. At the same time, search the internet domain names to learn if the name is also available for your use.  If available, proceed to register and pay the related fees to secure your ownership of your company name.
• Secure a business license and any necessary permits from your local city business office.
• Obtain a Federal tax ID number, form SS4, from the IRS. With this information, you will be able to establish an account with a local bank for checking, savings, merchant account and other services.
• Meet with an attorney to establish a legal entity.  The attorney will give you several options to consider, such as whether you should operate as a sole proprietor, a general partnership, an LLC, an S corporation or a C corporation.   He or she will explain to you the risks, responsibilities, costs, liabilities, taxes, duties, and reports that are associated with each entity. I also recommend you spend time understanding these various formats via the internet which covers in depth what you will need to know.  The law office will also prepare articles of incorporation, by laws, contracts, patents, stock/shares of ownership and provide guidance on company board agendas and minutes, key transactions and state annual reports.  In addition, you will be given advice on various labor laws – work hours, safety, breaks, immigrants plus any other legal service you might need.
• Meet with an accountant.  He or she will help you understand what responsibilities you will have with the IRS; namely, taxes related to the company, yourself, and employees. This vendor can also assist with state and federal tax filings. An accountant will also help you with financial reporting and various accounting software options.

Now that you are ready, meaning you have legions of customers who will buy your superior product for the right price yielding good profits, it’s time to act.  Yes, act, moving fast, with faith and a determination to overcome every obstacle on your way to greatness. Don’t look back. Keep your eyes on the bright horizon. It’s your time to shine. It’s your future to enjoy. You’re now the boss.  Be a great one! Good luck.

See Also:

How To Create A Winning Business Idea–In Six Easy Steps

5 Sure Signs A Startup Firm Will Succeed

The Top Communication Traits Of Great Leaders

http://www.forbes.com/sites/alanhall/2012/07/15/kiss-your-boss-goodbye-its-time-to-be-an-entrepreneur/

What would you do if you have a million bucks?

Monday October 31, 2011

Monday Starters - By Soo Ewe Jin

WHAT would you do if you have a million bucks? A poor government clerk from Bihar, a remote and poverty-stricken region of northern India, has become the first person to win 50 million rupees (RM3mil) on the popular Indian version of the gameshow Who Wants to be a Millionaire?

Sushil Kumar's win is a classic case of life imitating art as the script is similar to that of the 2008 Oscar-winning film Slumdog Millionaire.

According to the Associated Press, Sushil said he would spend some of his prize money to prepare for India's tough civil service examination, which could lead to a secure and prestigious lifetime job.

He would also buy a new home for his wife, pay off his parents' debts, give his brothers cash to set up small businesses and build a library in Motihari so the children of his village would have access to books and knowledge.

Real life slumdog millionaire: Sushil (left) says thank you with clasped hands as he receives his US$1mil prize from Bollywood actor Amitabh Bachchan during the fifth season of the Indian version of the Who Wants to be a Millionaire? television quiz in Mumbai on Oct 25. Kumar, a computer operator who earns just US$130 a month, has become the first person to win the top prize. — AFP

Everyone loves a story like this. Although people can become instant millionaires by striking the lottery or pulling the lever on a one-armed bandit at a casino, using one's talent at a tension-filled gameshow is more admirable.

And I applaud Sushil for his noble attitude in thinking of others to share in his newfound fortune. Bihar is one of the poorest states of India and its remoter areas, such as Motihari, have been largely untouched by India's phenomenal recent economic growth.

Do you know that there are now at least 39,000 millionaires in Malaysia? According to a recent report by the Credit Suisse Group, 19,000 new millionaires were created over the past 18 months alone.

Meanwhile, the Asia-Pacific Wealth Report 2011 by Merrill Lynch Global Wealth Management and Capgemini, also released recently, revealed that Malaysia's rich prefer splurging on a fancy new set of wheels, luxurious yachts or private jets.

Up to 46% invested their ringgit in luxury collectibles like cars, boats and jets, the highest percentage of any country within the Asia-Pacific region.

Their counterparts down south seem less interesting and still prefer jewellery and luxury watches.

I know that the CEOs who read the business section of this newspaper may consider a million ringgit small change but to most of us, it is a very faraway goal, not something one can possibly achieve as a regular salaried worker.

But we can all dream and I was wondering to myself, what would I do if I suddenly had a million ringgit in hand? I suppose our wishes would coincide very much with our age, status, and ultimately our character.

To those who believe material pursuits equate to real happiness, a shopping spree would be fantastic.

Those who do not focus too much on material things may want to travel around the world and complete their Bucket List, which may also include going on a religious pilgrimage.

I believe that God never gives us more than we can handle, just as He never lets us go through trials and tribulations beyond our capacity to endure.

And that was when I stopped dreaming. Because I know, seriously, I will never be able to handle so much money at any one time. So I shall be content and count my blessings. I hope you will too.

Deputy executive editor Soo Ewe Jin notes that the world's population officially hits seven billion today. No one really knows who is Citizen Seven Billion, of course, but by the time he grows up, millionaires and billionaires will probably be a dime a dozen.

http://biz.thestar.com.my/news/story.asp?file=/2011/10/31/business/9796922&sec=business

What would you do if you have a million bucks?  

My comment:  Do absolutely nothing for the first one year.

Twice as many millionaires in Malaysia over last 18 months

Tuesday October 25, 2011

PETALING JAYA: The number of millionaires has almost doubled in Malaysia over the last 18 months, the Wall Street Journal (WSJ) reported.

Citing a report released this week by international financial firm Credit Suisse Group, WSJ wrote that since early 2010, Malaysia added 19,000 new millionaires, bringing its total to 39,000.

Comparatively, the number in Indonesia increased by 52,000 to 112,000, while the number of Singaporeans worth over US$1mil (RM3.15mil) is 183,000, triple what it was a year ago.

The growth spurt of the nouveau riche has been attributed to the weakening US dollar and stingy pockets.

Compared with the Credit Suisse numbers from early last year, these three countries alone have produced close to 190,000 new millionaires since the beginning of 2010.

However, this figure still fell short of the 212,000 new millionaires in China.

“Much of the rise is just a reflection of the weakening dollar, which makes the Singapore dollar- and rupiah-denominated riches look more impressive when translated into US dollars,” WSJ reported.

“Otherwise, it can be attributed to growing savings, stock and property prices.”

Credit Suisse defines wealth as a person's financial and real estate assets minus their debt.

(Networth = Financial Asset + Real Estate Asset - Debt)

The report also said that the average Singaporean was wealthier in comparison to the rest of the world, with the average household wealth at US$285,000 (RM897,000).

This makes them the fifth wealthiest people in the world after Switzerland, Australia, Norway and France.

Average household wealth in Indonesia, on the other hand, hovered at only around US$12,000 (RM37,771).

“Strong currencies, rising property prices, climbing commodity prices and healthy stock markets have helped the region but the real secret to Southeast Asia's success may be how stingy money makers are here,”WSJ noted.

“Average household debt, which offsets much of savings and investments in Western countries, is very low in the region.

“It is only 13% of total assets in Singapore and 2.5% of total assets in Indonesia.”

http://thestar.com.my/news/story.asp?file=/2011/10/25/nation/9768085&sec=nation

Virtually anyone can evolve into a millionaire

Mathematics also shows us that virtually anyone can evolve into a millionaire through patient, diligent investing.

An individual who socks away a few thousand dollars every year starting at the age of 21 can easily amass $1 million by retirement. The power of time and the power of compounding ensure that any individual who can save money consistently can attain a decent degree of wealth by the age of 65 or 70.
If that same individual can manage to save an extra few thousand dollars more each year, the pile of assets attained at retirement would be much larger.

If that individual manages to earn a few extra percentage points of gain each year, either through good stock-picking or wise account management, the amount of money earned at the end is many times greater.

$7 a day will make you a million

$7 a day will make you a million
by William Spetrino Jr

How would you like buy a stock at 30 years ago prices? How would you like to be partners with the one investor who has made over 100 billion dollars solely from investing? This article will get you started on the road to financial independence.

33 years ago you could have bought Berkshire Hathaway at 40 dollars per share .Today the same shares are about $110,000 . Question if you knew back then you wanted to own Berkshire 33 years ago what price would you have wanted to pay for the shares, $40 dollars or $110,000 per share? Obviously $40 would be a "bit cheaper". Back then someone who had the ingenuity to raise $1000 dollars and could "free up 20 cents per day" Someone who could borrow $1000 dollars at 7% from a relative would have paid $70 dollars debt service on their 25 shares of BRK-A. Today that $70 a year “investment” would be worth a grand total of 2.7 million dollars. And guess what how much tax you have paid? ZERO.

Berkshire B (BRK-B) now trades at $3590 per share. Someone who borrowed $36000 dollars could buy 10 BRK-B shares. The same 7% loan would cost you $2520 per year or a little over $200 a month which is about 7 dollars a day. Just assuming a 12% return rate (Pabrai thinks 15% at price of $5000 but let’s be conservative), your stock will be worth 1,152,000 million dollars in 30 years and guess how much tax you pay, ZERO! What about 15% compounded like Pabrai "projects" in 33.6years that stock will be worth over 4.6 million.

What are the odds that Berkshire B will be worth less in 30 years? Looking for the "extra 7 dollars" a day and raising the seed capital is ALL that stands in your way. You don't need to change your present investment but just add this to "your arsenal". Many financial advisors stress "diversification" and this simple idea could add millions to your net worth in the future

Ok what’s stopping you? Will most of you achieve wealth and financial independence anyhow if you have not already? Probably so. Anyone out here bought a nice vehicle to treat yourself for achieving "wealth". Think of this article and my book as a great way to "tune up" the engine and make your dream car run "even faster". The small investment in time and money could be worth millions. Would you drive your expensive dream car and have no insurance or spare tire? Think about it.

http://www.atfreeforum.com/billyticketswin/viewtopic.php?t=8&sid=3cad471082afa7fd5d2acf583a92a5e4&mforum=billyticketswin