Basic Investment Objectives

The options for investing our savings are continually increasing, yet every single investment vehicle can be easily categorized according to three fundamental characteristics - safety, income and growth - which also correspond to types of investor objectives. While it is possible for an investor to have more than one of these objectives, the success of one must come at the expense of others.


Primary Objectives
Safety
Income
Growth of Capital

Secondary Objectives 
Tax Minimization
Marketability/Liquidity



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7 Courses Finance Students Should Take

Posted on Oct 24, 2011 by Brigitte Yuille

Most careers in finance involve finding effective ways to manage an organization's money, in order to create wealth and increase the organization's value. Finance majors prepare for this career by studying topics about "planning, raising funds, making wise investments and controlling costs," according to the College Board. This knowledge sets them up for a wide array of career paths in the areas ofcorporate finance, financial institutions and investments.

Tutorial: Education Savings Account

Executives in search of well-rounded finance students look for certain skills. Studies have revealed that these executives want schools to place more emphasis on quantitative, strategic, critical decision-making and communicative skills, which are sometimes best developed in classes outside of business schools. If you want to get the best possible preparation for the finance world from your undergraduate education, put some thought into which classes to take, that may fall outside the finance curriculum.

What Companies Want
Business leaders at Booz Allen Hamilton, a strategy and technology consulting firm, discussed areas of change that could be implemented at graduate business schools, in the article "What Business Needs from Business Schools." They suggested that more courses were needed to teach graduates to effectively manage individuals and team-driven organizations, provide tools for problem solving and provide better grounding in theory. They also recommended more courses outside of the traditional curriculum. (Companies are in need of strategic candidates, not walking resumes. Learn more in Business Grads, Land Your Dream Job.)

Finance professors at Duke and Berkeley have made suggestions for courses finance students should take, outside of their business school curricula. John Graham, a finance professor at Duke University's Fuqua School of Business and John O'Brien, finance professor at Berkley's Haas School of Business, recommend the following areas of study:

• Mathematics - Courses in college algebra and calculus will help students learn how to solve equations in complex financial markets. Statistics helps with decisions based on the likelihood of various outcomes and allows finance students to learn to reach conclusions about general differences between groups and large batches of information. It also explains the movements of a company's stock.
  
• Accounting - Financial and managerial accounting courses teach finance students how to understand, record and report financial transactions, monitor the company's budgets and performance, and examine the costs of the organization's products and services.
  
• Economics - Economics looks at how scarce resources are allocated to achieve needs and wants. A course in macroeconomics will teach finance students to understand the impact of financial market activities on the overall economy. Microeconomics will help them understand the behaviors that occur within individual firms and among consumers, as well as how various financial decisions can impact a firm's success. (For more on these subjects, read Economics Basics: What Is Economics?, Macroeconomic Analysisand Understanding Microeconomics.)
  
• Psychology - Financial professionals need to understand the behaviors and thought processes that help drive the movements in financial markets. A course in critical thinking teaches a finance student to reflect and evaluate an argument, and examine situations in all dimensions before applying a solution. This involves understanding what is not known about the situation versus what is known. Behavioral finance can help finance students explore why and how the financial markets aren't working, by examining how investors' behaviors are associated with market anomalies. This subject helps financial professionals determine where investors make mistakes and how to correct them, by examining the emotion or thought behind the actions. Behavioral psychology helps finance majors look at the observable and cognitive aspects of human behavior, within a financial environment. (Find useful insight about how emotions and biases affect the market in Taking A Chance On Behavioral Finance.)
  
• Writing - A course in technical writing will teach students how to put forth strong, clear and organized ideas, purposes and explanations in memos, reports and letters.

Additional Course Recommendations

The business consultants at Booz Allen Hamilton, Joyce Doria, Horacio Rozanski and Ed Cohen, made their case for curriculum reform and also recommended courses in psychology, economics and human behavior. In addition, they recommended classes in the following areas of study:

• Communications - A communications course, such as public speaking, helps finance students present financial reports and explain the meanings behind equations and numbers, to colleagues in group settings. It also helps with the management of people and organizational relations, such as in delegating responsibilities to employees within financial departments. Business students also need courses in corporate communications, crisis communications and PR strategies, according to a 2005 Public Relations Society of America study. It states how financial scandals and downturns can affect shareholder support, consumer confidence and corporate reputation issues. Finance students will benefit from knowing how to handle corporate reputation issues, should they arise.
  
• Ethics - Corporate scandals, such as the Enron scandal, which involved irregular accounting procedures, have also encouraged some business schools, such as the University of San Francisco and Loyola University Chicago, to add a course in ethics to their finance curricula. These courses focus on moral development in an attempt to stem future misconduct in business environments.

The Bottom Line 

Students studying finance will be tasked with big responsibilities in their careers. They will have to manage the flow of money at their companies and identify financial risks and returns to make effective business decisions. Those finance majors who want to have an edge over their competition, both during the initial post-graduate job search and throughout their careers, will take advanced mathematics, accounting, economics, psychology, communications and writing courses to gain a deeper insight into their jobs and a better ability to work effectively with people. 

For related reading, see Top Job-Search Mistakes For Finance Grads, How To Land A Finance Job Straight Out Of Undergrad and Top 10 Cities For A Career In Finance. 

Author: Brigitte Yuille
http://www.investopedia.com/articles/professionaleducation/09/non-finance-courses.asp?mobileapp=1

Uncovering Oil And Gas Futures

Posted: Apr 28, 2011

James Vitalone

Contact | Author Bio

ARTICLE HIGHLIGHTS

• New information regularly disseminated to the market induces price volatility.
• Weekly oil and natural gas supply data is published by the EIA.

Prices for crude oil, crude oil products and natural gas futures constantly change in response to new information and reflect the adjustments being made to previous and prospective expectations. The relative size and duration of those adjustments often depend on the nature of the new information and the way it is received. Unanticipated new information quite often induces extreme price volatility creating a price shock. For example, the 1973 oil embargoby OPEC members caused oil prices to spike to historical highs.

TUTORIAL: Futures Trading 101

New information regularly disseminated to the market also induces price volatility, which can range from barely noticeable to extreme because even though the information is anticipated, its content may not be in line with the market's expectations. This is particularly true of the data periodically released on oil, petroleum products and natural gas inventories. Here we'll cover where the information for this industry comes from and when to expect it. (For background reading, see Oil And Gas Industry Primer.)      

Where the Data Comes from
Weekly oil and natural gas supply data is published by the Energy Information Administration (EIA), an independent agency of the United States Department of Energy. In fulfilling its responsibility as policy advisor to the Department of Energy, the EIA's job is to objectively collect, interpret and analyze all energy-related data.

The EIA schedules the weekly publication of data highlighting U.S. crude oil and petroleum products inventory levels each Wednesday through two separate reports. The first, called the Weekly Petroleum Status Report is distributed mid-morning and features raw inventory data along with recent commodity and product spot and futures prices. The second report, This Week In Petroleum, is available later in the afternoon. In addition to more extensive data points, this report includes commentary by the EIA about the most recent data.(To learn more about futures, see Futures Fundamentals and Fueling Futures In The Energy Market.)

The EIA makes its report on U.S. natural gas storage levels available each Thursday. Similar to its oil reports, it also releases two separate reports; the Weekly Natural Gas Storage Report is released mid-morning in the form of a much smaller "flash" report. It's similar to its crude oil counterpart in that only the raw storage data is included. Additional data points and the EIA's detailed analysis of the morning data is published in the Natural Gas Weekly Update in the afternoon.

These reports are available at no cost and can be received by email automatically each week once you sign up at the EIA's website.     

Like the Energy Information Administration, the International Energy Agency (IEA) serves as the energy policy advisor to the 26 countries comprising the Organization of Economic and Cooperative Development (OECD). Also like the EIA, it collects, interprets and analyzes data related to energy. However, unlike its U.S. counterpart, the IEA's data relates to global crude oil supply and is released with the publication of the monthly Oil Market Report. Data presented each month is given a detailed analysis and provides a perspective for the IEA's updated crude oil price outlook, which is also included in the report. A paid subscription is required to receive the current report when published.

Crude Oil Inventories 
Crude oil is the primary refinery input; therefore, any changes in the level of crude oil inventories from one reporting period to another not only impact the price of their underlying futures contracts, but will also affect the price of underlying futures contracts of associated refined products like gasoline. The petroleum inventory data showing the level of U.S. crude oil inventories first highlights the portion of current inventory produced within the U.S. then it highlights additional data indicating the portion of total crude oil inventory that was imported. (Fore more, check out Understanding Oil Industry Terminology.)


More specifically, U.S. petroleum product inventory data pertains to the level of refined products, such as motor gasoline, jet fuel, distillate fuel oil (source of diesel fuel) and residual fuel oil that are readily available. Like crude oil inventories, petroleum product inventories data also identifies the portion that is the result of imports. In addition to the impact on refined product futures prices caused by both changes in crude oil and refined product inventories, volatility in refined product futures prices can also be attributed to changes in the portion of total inventories that has been imported. Underlying contract price volatility is likely to increase upon evidence suggesting that the proportion of imported refined product to total inventories is increasing.

Natural Gas Data 
Published natural gas inventory, or "storage," refers to the network of more than 400 locations throughout the contiguous 48 states. It is designed to highlight the volume of natural gas that can be readily delivered to natural gas consumers, principally in the U.S. This includes power generation plants, industrial and commercial users, and households. Like crude oil and petroleum product inventories, natural gas storage data provides a look at absolute levels as of the reporting date as well as changes to those levels from prior periods. However, unlike crude oil and petroleum product inventories, owing to characteristics that largely prevent it from being transported over particularly long distances, storage level data represents natural gas coming only from U.S. production efforts. (Learn more in Natural Gas Industry: An Investment Guide.)

The Effect on Oil and Natural Gas Futures Prices             
Information concerning crude oil and natural gas supply levels will affect the price of underlying futures contracts as the market undergoes a process of reconciling and adjusting past expectations, as well as readying new ones based on the most recently reported data. Moreover, the extent to which some or all of the actual data departs from expectations is manifested by the degree of resulting price volatility. For example, energy future prices tend to rise following an inventory report that indicates that gasoline inventories remained unchanged, whereas analyst prediction may have expected that inventory to rise.

For related reading, see Price Volatility Vs. Leverage. 

by James Vitalone, CFA

James W. Vitalone, CFA, is an oil and gas investment banker with Oberon Securities in New York. He has more than 25 years of experience in the investment services industry. Previously, Vitalone was a buy- and sell-side securities analyst for 15 years, covering companies in the oil and gas, drilling, and oil service and natural gas industries. Prior to that, he was a portfolio manager working with institutional and high net worth clients.

Vitalone has a Bachelor of Business Administration in finance, an MBA in accounting, a Juris Doctorate degree and has served as chairman of the CFA Institute's U.S. Advocacy Committee.

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A Guide To Investing In Oil Markets

Posted: May 12, 2011

Tony Daltorio

Contact | Author Bio

ARTICLE HIGHLIGHTS

• You can invest in oil-price fluctuations without opening a futures account.
• One way is to invest in stocks of oil drilling and service companies.

The oil market can be very confusing to both the professional and individual investor, with large price fluctuations sometimes occurring on a daily basis. This article explains the forces driving the market and how to have a financial stake in oil-price fluctuations without opening a futures account.

Price-Driving Influences
Demand

The Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency estimate the current world demand for oil at between 86 million to 87 million barrels per day in 2008. When the price of oil rises, this decreases demand in the United States, but demand from growing emerging market economies is expected to increase as these countries industrialize.(For related reading, see What Is An Emerging Market Economy?)

Some emerging market economies have fuel subsidies for consumers, and an estimated one-quarter of the world's demand for oil in 2008 comes from nations that have such subsidies. However, subsidies are not always beneficial to a country's economy, because although they tend to spur demand in the country, they may also cause the country's oil producers to sell at a loss. As such, removing subsidies can allow a country to increase oil production, thus increasing supply and lowering prices. In addition, cutting subsidies can decrease any shortage of refined products have been alleviated, since higher oil prices give refineries an incentive to produce products, such as diesel and gasoline.

Supply

On the supply side, in 2008, approximately 85 million to 86 million barrels of oil were produced each day. The discovery of new reserves in Brazil in 2007 is a bright spot, but the oil fields in Mexico and the North Sea are experiencing steep declines in production. (For more on oil production shortfalls and their implications, read Peak Oil: What To Do When The Well Runs Dry.)

In OPEC, most countries do not have the ability to pump out much more oil. Saudi Arabia, the one exception, has an estimated spare capacity of 1.5 million barrels of oil per day as of 2008.

Nigeria has also become important to the oil market, but the country has a history of instability and rebel attacks, which can severely curtail oil production in this country. These rebels, who, attacked a deep-water drilling vessels far offshore in June 2008, brought Nigeria's oil production to the lowest levels in 25 years. As a result of the attack, the country pumped out only 1.5 million barrels per day thereafter, instead of the 2.5 million barrels per day it could be producing. (For more on how supply and demand impact the price of oil, read What Determines Oil Prices?)

Quality

One of the major problems the oil market faces is the lack of high-quality "sweet" crude, the type of oil that many refineries need to meet stringent environmental requirements, particularly in the United States. Much of the high-quality oil imported into the United States comes from Nigeria and surrounding African nations; according to the U.S. Department of Energy, together, Nigeria and Angola exported more oil to the United States than Saudi Arabia in 2007.

Speculation

Aside from supply and demand factors, another force driving oil prices has been investors and speculators bidding on oil futures contracts. Many major institutional investors now involved in the oil markets, such as pension and endowment funds, hold commodity-linked investments as part of a long-term asset-allocation strategy. Others, including Wall Street speculators, trade oil futures for very short periods of time to reap quick profits. Some observers attribute wide short-term swings in oil prices to these speculators, while others believe their influence is minimal. (For more on trading oil futures, read Become An Oil And Gas Futures Detective.)

Investment Options

Regardless of the underlying reasons for changes in oil prices, investors who want to capitalize on energy price fluctuations have a number of options. One simple way for the average person to invest in oil is through stocks of oil drilling and service companies. (For help in how to choose specific companies in the industry, see Oil And Gas Industry Primer.)

Several sector mutual funds invest mainly in energy-related stocks as well. (For more information on sector mutual funds, see An Introduction To Sector Funds.)

Investors can gain more direct exposure to the price of oil through an exchange-traded fund (ETF) or exchange-traded note (ETN), which typically invest in oil futures contracts rather than energy stocks. Because oil prices are largely uncorrelated to stock market returns or the direction of the U.S. dollar, these products follow the price of oil more closely than energy stocks and can serve as a hedge and a portfolio diversifier. (Learn more about the advantages of ETFs and ETNs in Exchange Traded Notes - An Alternative To ETFs.)

Investors have a number of ETF and ETN options to choose from, such as a single-commodity ETF (e.g., oil only) or a multi-commodity ETF that will cover a variety of energy commodities (oil, natural gas, gasoline and heating oil). There are many choices for investors.(For more information on energy investment options, see ETFs Provide Easy Access To Energy Commodities.)

The Bottom Line

The oil market provides a diverse array of options for the potential investor. From indirect exposure via an energy-related stock to more direct investment in a commodity-linked ETF, the energy sector has something for almost everyone. As with all investments, make sure you do your research or consult an investment professional prior to committing your money, and remember the information outlined above when predicting price changes to help ensure a profitable investment.

For alternative-energy investment options, read The Biofuels Debate Heats Up.

by Tony Daltorio

Tony Daltorio worked for more than 20 years in the investment business. Most of those years were spent with Charles Schwab & Co., both as a broker and a trading supervisor. As a supervisor, he oversaw, at times, dozens of employees. Daltorio was trading supervisor during the 1987 crash and was responsible for millions of dollars of customers' orders.

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