How To Be A Millioner?: 2008

How To Invest In Shares For The First Time

By
Jane Baker

If you’re thinking about plunging into the stock market for the very first time, read these tips to help you get started.

The Bank of England base rate now stands at just 2%. That means getting a decent return on a savings account is becoming a real challenge and it's getting worse all the time. With further base rate cuts on the cards, some of you may now be wondering whether the thrills and spills of stock market could be a better place to invest your money.

If you don’t think cash is king anymore and you’re considering investing in shares for the very first time, here’s everything you need to know to get you started:
Should you invest in shares?

This is the $64,000 question. Investing in shares won’t be suitable for everyone. If you fall into any of the following categories, you may need to think again.

You have debts - I’m talking about debts other than your mortgage such as loans and credit cards. It’s unlikely that you’ll earn a better return on your shares as a new investor than the interest you're paying on your debts, so clearing your debt first should be your top priority.

You need your savings for a specific goal - Perhaps you’re saving up for a house deposit or for home improvements. You don’t want to gamble these savings on the stock market. If share prices drop you could be far off your target just when you need the cash most.

You aren’t willing to invest for at least five years - Investing in shares is a risky business. Shares can be very volatile, so if you need your money quickly, you may have to sell your shares at a loss. Five years is generally regarded as the minimum appropriate period for stock market investment.

You’re risk-averse - Some of you may not feel comfortable with the peaks and troughs of stock market investment. If this sounds like you, it's probably best to steer clear of shares.

You can’t afford to lose the money - Don’t invest money on the stock market you can’t live without. Capital in a savings account is guaranteed (barring the collapse of your bank) but capital invested in shares is always at risk. Nuff said.
How to invest in shares

If none of the categories above apply to you, then share investing could be for you. But how do you go about it?
Trackers

If you’re a novice investor and you’re stock picking skills aren’t yet finely honed, you can still invest in the stock market without having to choose shares yourself. One way of doing that is to invest in an index-tracking fund.

At The Fool we’re big fans of trackers. Index-tracking funds normally invest in all the shares quoted on a particular share index with the aim of matching or ‘tracking’ the performance of that index. If you buy a FTSE 100 Index tracker and the FTSE rises, your tracker fund will increase by the same amount -- more or less. Of course, the reverse is also true if the index falls.

I think trackers are a good way to start investing in shares. You’ll normally be able to invest into a tracker regularly, so you can drip feed your money into the market. What’s more, many are available within an ISA wrapper so you’ll be able to earn a tax-free return too. (Read more about trackers here.)
Going it alone

If you feel more confident you may want to try your hand at stock picking yourself. But be warned picking winners, rather than losers, is easier said than done. Buying individual shares is very risky, in my opinion. It’s absolutely vital you do your homework and learn how to evaluate a company’s prospects before you invest.

Read Investing Terms Explained which will cover off all the basics from how to read a company’s annual report to stock market volatility and when to sell.
Help is at hand

If the idea of picking your own shares sounds a bit scary -- or just too much like hard work -- help is at hand. You could try our share tipping service with The Fool’s Champion Shares electronic newsletter written by investment analyst, Maynard Paton.

Maynard will trawl the market on your behalf, providing you with regular share recommendations. Better still, you can sign up for a free 30 day trial of the Champion Shares service. This will give you the chance to explore all of Maynard's past recommendations, and will give you full access to the Champion Shares members-only website, which features discussion boards, scorecards, updates and research.

All that remains for me to say to all first time Foolish investors is best of luck!

More: The Index-Tracker Shake Up | Small Companies, Big Profits | Be your own broker with The Motley Fool Sharedealing Service

Free finance advice from NatWest

A high street bank is offering free and impartial financial advice to Reading residents affected by the credit crunch.

From tomorrow, NatWest branches in Reading Market Place, School Road in Tilehurst and Crockhamwell Road in Woodley will have independent ‘Moneysense’ advisors.

Trained by the Consumer Credit Counselling Service (CCCS), the advisors can give general guidance on budgeting and saving but will not endorse or sell products.

NatWest is the first high street bank to offer the independent financial service, which will be available to customers of other banks and even those without a bank account.

NatWest’s managing director for Berkshire Pete McCarthy said: “During pilots people told us they would look for help at their bank and with more than two million people coming into our branches each week this environment seems a natural fit for the service.”

Small businesses gaining fed contracts

Federal agencies were just one percentage point short of the government-wide goal to award at least 23 percent of small businesses with contracts, according to the U.S. Small Business Administration (SBA).

But judging from the small business administration’s second annual scorecard, small business procurement is looking better all the time.

In 2007, small businesses won a record $83.2 billion in federal prime contracts. That was an increase of almost $6 billion from 2006, and each socio-economic group increased its share of federal contracting dollars by at least $1 billion.

The Small Business Administration, however, said in the statement that the failure to meet the overall goal “reflects the need for the federal government to bolster its efforts across government.”

“This year, the SBA made it more challenging for federal agencies to meet their goals, due to our initiatives to cleanse the federal contracting database of bad data, and ensure that small businesses receiving small business contracts meet the definition of small,” said Sandy Baruah, acting administrator for the Small Business Association. This is good news for small businesses because it means the government will need to work harder to get federal contracts into the hands of small businesses.”

Not included in the totals were the $3.9 billion worth of contracts for which size was not indicated in the federal government's official database, nor the $64.8 billion small businesses received in subcontracts.

Getting Rich In Online Advertising

By Dorian Sweet

If you've been in online advertising for the past several years, you know what a bad time can look like in this thriving, vibrant industry. I don't think we've ever returned to the pre-Y2K-party-every-night days of yore. Instead, we've rebounded and become stronger and a little more sober.

Despite that, we may be headed for some familiar times. The financial failures of others are impacting many aspects of advertising and specialized Web experiences. Big budget online productions will feel the weight of the budget-cutting blade soon, if they haven't already.

Does this mean a long siege of "nephew-ware" banners and Web sites until big budgets come back?

What happened to the Internet's consistent rise in media spending? Has the steady, deliberate, and rational growth of the adolescent post-crash online world reached its young adult plateau?

This could be an allegorical moment in the Internet's enigmatic young life. In tough times when there are layoffs, it's last-to-come, first-to-go.

Hopefully marketers with a solid online advertising budget have evolved beyond that idiom. In some ways they have -- they're spending more online than ever before. Just because the spending slows and doesn't flow into online is some measure of the new ad channel's acceptance.

On the other hand, online budgets aren't that big comparatively. So an across-the-board cut in marketing spend is a bit unfair, considering that with the reduction in disposable cash many consumers will spend lots more time in the virtual world.

Apart from selling stuff, this may be the perfect time to build (dare I say it) a brand relationship with the stay-at-home online shut-in.

But how to make the most of that online dollar spend with an ever-imminent shrinking budget? Here are a few ways that might help:

* Look at interactions. When dollars are plentiful, reach and frequency are usually the rule. But now we must think about what got people to interact. Even more, we need to know how many interactions they had with what you created. Each interaction event is an opportunity to delight or deter a user from your brand's intent.

* Evaluate time spent Now ask yourself, if you saw a :30 TV spot 100 times, that would equal five minutes of a repetitive message. So if someone spent five minutes on your rich media ad and had multiple experiences with your brand, would that be the same or better? Time is the gold of the technological world we live in. How it's spent will become the currency we value, no matter what the screen.

* Assess brand relevance Does your brand matter to people online? Are you trying too hard to be a relevant brand to a fickle online audience? This isn't easy to face, but some brands in a depressed economy should stay away from the highly persnickety online user. For example, don't waste someone's time, or your money, selling a floor wax through a rich media experience.

For some, video online will be another place to put the :30 TV spot, and nothing will change that mentality. Trying to make the Internet like TV is short-term thinking as our user base moves from the living room couch and becomes free-agent consumers of all things interesting to them.

The recent financial strife may just separate the wheat from the chaff and encourage innovative use of rich media, rather than the "set-it-and-forget-it" online video advertising we see today.

In difficult times, can we learn more about ourselves as thinkers, marketers, and people? The wow factor may be less important to those under budget constraints and the true application of technology may ultimately matter more than ever. Our financial situation may be the beginning of what we may consider an age of digital enlightenment.

Getting Rich In Online Advertising

Business failures inevitable, say banks

By Jean Eaglesham and Jane Croft

Banks warned on Thursday it was “inevitable” that businesses would fail in the coming recession, as the government failed to extract any concrete pledges from lenders to improve their treatment of small companies.

The warning will disappoint ministers who had indicated the £37bn part-nationalisation of the banks would lead to concessions for businesses and consumers.

Bank executives including John Varley, chief executive of Barclays, Eric Daniels, chief executive of Lloyds TSB, and Gordon Pell, a director of Royal Bank of Scotland, met Alistair Darling, chancellor, and Lord Mandelson, business secretary, at 11 Downing Street on Thursday for talks on lending practices in the credit crisis. But the talks ended with only a promise that the banks would meet small business groups in coming weeks.

Lord Mandelson told MPs this week he and the chancellor would use the meeting to tackle banks on their lack of “understanding and sensitivity” to the plight of small businesses.

But the British Bankers’ Association, the industry group, said “commercial realities” made it “inevitable that some businesses will not survive” the recession.

Gordon Brown, prime minister, has put support for small businesses at the centre of his banking rescue plan, requiring HBOS, Lloyds TSB and RBS to make lending available at 2007 levels in return for £37bn of taxpayer-funded equity.

The Conservatives said Mr Brown’s pledge on lending was “meaningless”. “The rhetoric does not match the reality on the ground – it’s as deceitful as it is fanciful,” said Alan Duncan, shadow business secretary.

“Lending to small businesses is drying up,” he said. “Even now, banks are cancelling overdraft facilities at two days’ notice and driving many good small firms to the wall.”

Government officials said the talks were “constructive and positive” and not “read the riot act territory”. Ministers did not attempt to impose any constraints on the amounts or costs of their lending, said insiders.

“It was more a general discussion about intent. There were no detailed talks about areas like pricing,” said one. Another said the banks had told ministers they could make loans available but “not force the demand” from a shrinking sector.

Lord Mandelson, who will chair the meeting with small business groups, said the talks would allow business and banks to resolve their differences.

Angela Knight, chief executive of the BBA, said there were limits to the help banks could offer. “What we can’t do unfortunately is reverse a poor economic situation,” she said. “As talk turns to recession, it seems inevitable that some businesses will not survive, even with the best assistance that banks, government and voluntary agencies can give them.”

Investment tips for crisis times

Ram Prasad Sahu, Jitendra Kumar Gupta in Mumbai

In an uncertain market where stock prices are witnessing a free fall, it is time for investors to rejig their portfolio to limit losses and opt for stocks that offer stability and decent returns.

Among the two key barometers of the Indian equity markets, the Sensex has fallen by more than half from its January 2008 peak of 21,206 points. The gradual decline over the last nine months, and the sharp fall over the last couple of weeks, have eroded a substantial chunk of investor wealth.

With the demand situation not looking good and liquidity problems persisting, investors are clueless as to where the markets would be headed over the next year.

Don't miss: Five mantras to survive a slowdown

The Smart Investor spoke to money managers to assess what their outlook on the market is and what strategies one needs to adopt to tackle the meltdown.

The negatives

The main macroeconomic parameters, be it the GDP, interest rates, the fiscal situation, credit growth, the IIP numbers -- all point to a muted phase of growth over the next few quarters. The International Monetary Fund in its World Economic Outlook projections for 2009 has cut India's GDP growth forecasts to 6.9 per cent.

While this is marginally down from the estimated 2008 GDP of 7.2 per cent, it is substantially down from the nearly 9 per cent GDP growth rate experienced in 2007. Compounding this is the fact that advanced economies, which are engines of world consumption, are expected to grow at just 1 per cent in 2009.

Indian manufacturing activity, too, is down with IIP (manufacturing) growth restricted to 4.9 per cent during April-August 2008 (against 10 per cent in the previous corresponding period); it was just 1.3 per cent in August 2008. Credit growth to the consumer durables sector and autos, good indicators of spending trends are hardly encouraging.

While credit for durables has fallen by 33 per cent for the year till June 2008 y-o-y, auto loans have barely moved registering a growth of just 1 per cent in the same period.

India's current account balances too are precarious as compared to China's, which continues to attract investments on top of a huge trade surplus. While FIIs together own only 25 per cent of Indian equity, it is their high ownership of free floating stock that makes it difficult to stop the markets slipping down dramatically when they decide to pull out and which results in a worsening of the current account deficits.

While factors such as fund flows and economic growth are external, elections to state assemblies and to Parliament over the next six months are internal factors which will significantly impact sentiment. Pre-poll uncertainty, a vote-on-account Budget and a delay in investment and policy decisions mean that positive cues may emerge only in the third quarter of 2009.

The positives

However, all the information is not negative. Inflation, which has been responsible for the monetary policy tightening and subsequent rise in interest rates, and which has also brought spending and investments to a grinding halt, is trending down at 11.4 per cent for the week ended October 4.

A dip in commodity prices (crude oil and metals) means that the figure would dip below the double digit market much before the current fiscal runs through. A cut in interest rates, which is on the cards sooner than later, could boost business and consumer confidence and keep the sentiment quotient on the markets high.

Thus, analysts believe that while fundamentals might take some time to improve, sentiment (the other key determinant of equity prices) might improve as speed of response is much better now than in the past crashes. Says Nilesh Shah, deputy managing director, ICICI [Get Quote] Prudential AMC, "The response to the 1929 crisis came four years later in 1933 and was to the tune of $ 78 billion in value. The response to the current crisis has been much swifter. Governments across the world have swung into action and pumped more than $3 trillion so far."

However, the bounce back won't come in a hurry. Says Amitabh Chakraborty, president equity, Religare Securities "Don't expect a V shaped recovery, there is still pain left in the system." A more prolonged U-shaped recovery would mean that markets are likely to be move sideways for at least two quarters. While the fiscal situation due to high oil prices has worsened, Srividhya Rajesh, fund manager, Sundaram BNP Paribas, believes that India's growth numbers, though lower, will top most other markets.

Combined with cheap valuations, a 10 per cent downside from these levels and falling commodity prices, she believes, could make the markets attractive once more to domestic and foreign investors.

What should you do?

While the list of unknowns seem quite long and affect every company large and small, experts advise that you be prudent with decisions related to your equity portfolio.

While existing investors, who do not have need for funds, should not panic and exit their equity holdings as they are likely to book heavy losses, for new investors with a surplus to invest this is a good time to fish for quality stocks at reasonable prices. Says Hemant Rustagi, CEO, Wiseinvest, an investment advisory, "Adopt a bottom up approach and commit smaller amounts rather than make a lump sum investment at one go and time the market." Agrees Dinesh Thakkar, CMD, Angel Broking, "Invest 25 per cent of your surplus now and the remaining in dips spread over the next three months." This way you will not only benefit from an upside in stock prices but investment at these levels will also keep your downside to a minimum.

But, coming back to existing investors, they must also learn to book losses (reshuffle portfolio), if need be. That's because, if you don't, you may get stuck with companies that may be going nowhere, thereby losing an opportunity to make good the losses (by investing in a better company). Stocks like DSQ Software, during the dotcom rally in 1999-2000 are proof of the pudding.

Where to invest?

Stick to disciplined investing and do your homework thoroughly before committing your funds or you will be speculating which is not advisable on both counts of managing risk and enhancing returns. Preferably, add companies that are leaders in their respective businesses. In that context, let there be no size bias. But, what is important is that the companies should have reasonably decent prospects, sound management and strong entry barriers, apart from healthy financials that will help them tide the current rough patch. Besides these qualities, there are some more factors that need to be considered. They are:

High cash, low debt: To benefit from your investment in the current environment, follow the traditional conservative principle of cash is king. Look for companies which have a record strong positive free cash flow as it can be used to buy out businesses at firesale prices or strengthen operations. Moreover, in a worsening situation where equity markets are down and debt comes at a high price, raising money is not only going to be difficult, it might stretch the balance sheet. Companies that are less leveraged can expand and do not have to cough up cash at regular intervals to pay for interest costs.

While software and FMCG companies bring in a lot of cash due to high margins and low leverage, investors need to keep an eye out on how global demand plays out before investing in the IT sector. While FMCG and pharmaceuticals are defensive sectors, within the sector one could look at ITC (a diversified play), Ranbaxy [Get Quote] (valuations) and Sun Pharmaceuticals (growth prospects).

Funding blues: Resources locked in a current expansion or funding of acquisition allow little flexibility in operations. Notice that the market is already punishing companies, which have taken up huge expansion plans and need funds to take them forward.

Here, an example could be Jaiprakash Associates [Get Quote] (50 per cent price erosion over the last month), which is building India's largest private sector hydroelectric project at a cost of Rs 5,600 crore (Rs 56 billion), tripling its cement capacity and has aggressive plans in the real estate sector.

The company's intention to raise funds through the rights issue route also indicates its need for capital and comes at a time when established names such as Hindalco [Get Quote] and Tata Motors [Get Quote] have struggled to get their pricing right for their issues in a bearish market.

In contrast, NTPC was sitting on a cash pile of Rs 15,000 crore (Rs 150 billion) at the end of FY08 and can fund its mega plans by a combination of internal accruals and debt. It is also generating a cash profit of about Rs 10,000 crore (Rs 100 billion) a year. The fixed return nature of the power sector and internal accruals will ensure it grows at stable rates irrespective of market conditions.

Substantial price decline=value buy?: A sizeable decline in the share price of a company does not qualify automatically for investments. Some also tend to look at stocks in relation to their valuations a few months back, indicating that after a 50-60 per cent decline, their valuations look cheap.

But, that does not necessarily hold true. Says P K Agarwal, president, research, Bonanza Portfolio, a financial services firm, "Companies (in the capital goods sector for example) which performed in the earlier bull run might not be the best bets due to high interest rates, large capex and muted industrial and economic growth." Avoid construction and realty stocks which have dropped substantially as they require large amounts of capital to sustain their business.

Another stock that looks cheap is Reliance Communications [Get Quote] considering the scorching pace of growth in telecom. The company, however, is in the middle of a pan-India expansion of GSM network and is expected to spend Rs 50,000 crore (Rs 500 billion) in FY08 and FY09.

Despite sound business potential and growth prospects, the markets have drubbed the shares by 35 per cent over the last month. If you can handle volatility and adopt an aggressive approach to stock buying, you could add this to your portfolio.

Among other sectors where one can find stocks that offer value are financials, believe fund managers such as Sandip Sabharwal, executive director-equity and CIO of J M Financial AMC. He says that, with a likelihood of interest rates easing, investors could look at companies in the banking and financial sector space (PSU banks) which are available at cheap valuations and will outperform the market.

Other parameters: Dipping equity prices also make high dividend earning stocks a good idea. Check for past dividend record and the cash flow situation in the first two quarters and you will get a fair idea of what the annual picture will be like to arrive at a list of companies that are likely to make higher payouts.

Bongaigaon Refineries and Chennai Petro with a high dividend yield are two names that come to mind and fit the high dividend yield criteria at current prices. For investors who wish to invest in markets but don't have the patience or time to track every company, try index funds.

The benefit? You get a diversified collection of the bluest of the blue chips packaged in one instrument which is not only easy to track but is the cheapest low cost mutual fund scheme available in the market. Here, the Nifty BeES from Benchmark Mutual Fund could be looked at.

Despite a gloomy outlook and uncertainty, the current levels offer a great opportunity to invest. Historically a price-earnings multiple of 10, or 50-60 per cent off the top signals a bottom. At a consensus FY09 EPS of Rs 980, you are getting the entire Sensex basket, at just a little over 10 times.

While an investment now could give a substantial boost to your equity portfolio over the next two years, expect the medium term (up to 12 months) to be choppy in light of the global turmoil (still far from having achieved stability), domestic slowdown and impending state and national elections.

Only the new government will be able to bring significant reforms aimed at bolstering economic growth. So, for the time being, give a higher weightage to safety and thereafter, ensure that you don't pay a high price for stocks, even if they are expected to report robust numbers.

Tips from Browndorf PEM for successful investment banking

Browndorf PEM recently announced the launch of Browndorf Life Settlement Fund LP. This set of services is created to manage portfolios focused on longevity based or life-linked assets such as Senior Life Settlements.

FOR IMMEDIATE RELEASE
PRLog (Press Release) – Oct 23, 2008 – Browndorf PEM is a full-service private equity management firm providing a complete suite of financial management and growth products. Browndorf, a company led by Matthew Browndorf, Esq., offers Wealth Advisory Services, proprietary private equity and hedge fund management services and independent investment banking services.

With their strategic vision, experienced team, legal structure, unique product mix and core affiliates, Browndorf offers custom-tailored independent offerings through a network of non-affiliated and independent investment banking services.

Browndorf PEM recently announced the launch of Browndorf Life Settlement Fund LP. This set of services is created to manage portfolios focused on longevity based or life-linked assets such as Senior Life Settlements.

According to Browndorf, investors in the alternate investment area get an opportunity to invest and profit from the future morality profile of the population. The fund is co-managed by Matthew C. Browndorf, Esq., a legal expert in the reinsurance and financial fields, and Jonathan T. Sadowsky, a former hedge fund portfolio manager at Barclays Global Investors in San Francisco, CA. with the help of innovative financial structures such as longevity contingent derivative swaps issued by the four major global financial institutions active in this space. These investment grade products provide an asset class that is uncorrelated to most other markets

How to survive a recession

Cook your own meals, travel domestically, invest based on goals: Tips on spending, saving and planning from financial gurus.

Pornnalat Prachyakorn

It's been a decade since Thais suffered through the last economic crisis. How much have people learned?

While economists agree that the country today is unlikely to suffer the massive bankruptcies and layoffs seen in 1997, there is no question that times are tough and will only get tougher. But some simple changes in your spending and savings habits can go a long way in making ends meet, according to personal finance experts. We asked three financial gurus for their top tips on how to survive a recession.

Spending

Former fund manager Siriwat sold sandwiches during the 1997 crisis.

It almost goes without saying, but the simple reality is that the less you spend, the more you have. When times are tough, you need to look at every single item in your daily budget and cut, cut, cut.

Siriwat Voravetvuthikul knows. The former fund manager made headlines during the 1997 crisis when he put away his tailored suits and took to the streets to peddle sandwiches along Silom Road.

Every little bit helps, Mr Siriwat said. "Eating out can be a huge expense. It's not just the restaurant bill, but the cost of travelling as well," he said.

"You should try and cook your own meals at home."

Next is to rethink your shopping habits. Most people will automatically cut back on big-ticket items such as a new plasma television, car or computer. But the little things count as well - delaying purchases of new clothes and gadgets can save considerably. Ask yourself: Do you really need the latest and greatest, or can last year's fashions stretch for another season?

"The key to surviving a crisis really depends heavily on each individual," Mr Siriwat said. "But it's important to stop buying the things that aren't really needed."

Reungvit Nandhabiwat, the secretary of the Thai Financial Planners Association, suggests that one look closely at vacation plans when times are tight.

"Travelling in Thailand might be just as interesting as travelling abroad, and certainly it costs less money," he said.

But if your heart is set on going abroad, forgoing a luxury five-star hotel in favour of a simple bed-and-breakfast inn can translate into hundreds or thousands of dollars in savings. Mr Reungvit said transport and accommodation expenses can typically be scaled back without significantly hurting the overall experience.

Reungvit: ‘‘Whether good times or bad, one should always plan for the unforeseen.’’

Of course, transport costs matter not only when you're on vacation. The daily commute in Bangkok's notorious traffic can cost thousands of baht each month in fuel and tolls.

Mr Reungvit said public transport and carpooling are two ways of cutting time and expense. Even simpler is limiting trips to the grocery store to just once a week instead of every other day.

Savings

But cutting back on spending is just one side of the personal balance sheet. If you can also boost your revenues, it can make a difference to your bank account at the end of each month.

Selling off old clothes, books and household appliances in a second-hand market can be a quick way to raise cash.

Mr Siriwat said tapping one's inner entrepreneurial spirit was another option.

"Focus on selling the basics. Everyone needs to eat and drink," he said.

"I'm not talking about setting up a fancy restaurant. And know your limitations. If you can't cook, find someone to do it for you while you do the selling."

Selling insurance, cosmetics or home appliances part-time is another option. Direct-sales companies such as Amway often provide training courses that can prove valuable down the road.

Mr Siriwat said one of the most important things any consumer can do when times are tough is to erase debt.

Interest payments on credit cards or personal loans, while limited under the law to 20-28% per year, still add up quickly. Best to pay off your entire credit card balance each month, or else rely on cash and debit cards to enforce spending discipline.

"The concept of the sufficiency economy is important. It's best not to borrow too much from the banks, or better yet, don't borrow at all," Mr Siriwat said.

Umapan Charoenying, first vice-president and head of consumer financial planning at Kasikornbank, agreed that managing one's debt was key to financial survival.

"Debt shouldn't consume too much of your income," she said, adding that consumers should seek to pay down loans with the highest interest rates first.

Planning

While it's easy to become consumed with day-to-day obligations, Mr Reungvit said it was important to also consider your long-term needs.

The more you invest today, the more you will have tomorrow remains a truism - raiding your retirement account or children's savings fund might raise needed cash today, but could have painful consequences for the future.

Mr Reungvit said asset allocations should be made based on when expenses come due. If your child will go to college next year, low-risk bonds are a smarter choice than stock.

"But if you are saving for retirement in 20 years, then by all means, continue to invest in stock. Don't be concerned about market declines today when you're dealing with a long-term investment," he suggested.

Ms Umapan agreed that one needed to match investment strategies with long-term goals.

"You should have a clear objective in mind with your saving, then you can establish the right plan," she said. "With every paycheque, the first thing you should do is separate what you need for savings and investment. Use the rest for your expenses."

Fixed deposit accounts are suitable for those lacking financial discipline, Ms Umapan said. Many asset managers can also help set up automatic contributions to long-term equity and retirement mutual funds, which in turn can help significantly in cutting one's annual income taxes.

Mr Reungvit advised that whether in good times or bad, one should always be prepared for the unforeseen.

"In a recession, forget about 10% annual raises. You should just try to reduce the risk factors that could make your financial situation worse," he said.

Health insurance, property insurance and life insurance premiums might seem like optional items to many. But when disaster strikes, insurance protection can make all the difference to one's financial security.

Five Steps to Become Rich

It’s all what it takes

What Dale Carnegie and Napoleon Hill wrote in their books was already summarized by Wallace D. Wattles years before. In 1910 he wrote “The Science to Getting Rich” a small booklet of 60 pages which would be a number one bestseller today.
The book is written in easy understandable English and can be read in less than an hour even from an untrained reader. Wattles examples of rich are directed in the way that money would be the most important value to have. But rich can be a synonym of other important things people wish to have. Like having more time, being healthier, having better relationships, being more educated, living in other places etc.

What in a nut shell is it all these great authors are telling us about?

1. You Must Act
If you don’t act right you don’t get the results you desire. Are you looking for the easy way, just win the lottery? Sorry you still have to act and by a ticket. No ticket, no win. Not to mention, that you have to buy the right ticket.
Is something nudging you to act? Follow this impulse immediately and you are on the right road to richness.

2. Find out Where You Are Now
Be neutral but honest. Don’t blame anybody for your situation. It is what it is. You will change it soon. Don’t be surprised to find more than one subject you like to have changed. No money goes easily with being unhappy and unhealthy.
Ask yourself why you are in this situation and what could be the positive reason to be there?

3. Define Where You Want To Be
You need a precise definition. I want more money someday want help. You have to have an exact date, occupation, amount and use presence tens form. For example, December 1st, 2012 I am a sales manager and earn an income of 15,000 US$ a month. Don’t be shy and demand a lot! Expect miracles. Have faith and look for the impossible to appear.
Be relaxed and many things will open in you, you will see new opportunities coming up blocked by tension otherwise.

4. Plan Your Way to Your Richness
Companies write a business plan. Do the same thing. You have your desire. Now create your road map with mile stones to get there. Ask yourself questions about the education you need, where to get it, how much to pay for and when you get your degree. How do you allocate the time? Can you do it full time or squeeze everything into your already tide schedule. What other help do you need? Where do you find it?
You may have more than one future target and some are going together. You could be healthier, less grumpy and happier when having more money. But what comes first? Could it be the reason you don’t have money is that you are grumpy and unfriendly to other people? Just wishing for more money won’t help your situation. You have to be honest to yourself. Don’t ask the people close around you. You are bad enough to them already. What do you think is happening when they tell you all the negative things about you? Give them a break. Find some external to analyze you. Than work on yourself, be a better you and surprise your friends, co-workers, neighbors.
Develop and keep a positive attitude. Belief in yourself and your actions! You are as powerful as you believe you are.

5. Stay Focused
Concentrate on your target. Do you desire to be rich? Spend your time with rich people, people who are already where you want to be. Don’t confuse your mind by soliciting with poor people. Don’t feel bad. Poor people have a mindset to be poor and you want to move away of that. You can’t do this by being together with poor people. Stay focused on what you desire and ignore disturbances. Would you ask a non-swimmer for swimming lessons?

So the outline was easy. The hard part is doing it. Start now. Analyze your situation, create your plan and stay focused on your road for success.

You can do it.

R. Kind

Tips for fighting inflation

BY EMI ENDO

Headlines about a 17-year high in the inflation rate and consumer prices rising faster than expected last month came as no surprise to many consumers.

The recent dip in energy costs leaves Long Island economists hopeful the inflation rate will soon slow down. A recent U.S. Labor Department report showed that in July consumer prices had risen 0.8 percent compared to the previous month, and the 12-month inflation rate jumped to 5.6 percent.

A top U.S. economist told Bloomberg Radio the rate will drop "quite dramatically" next year.

Until relief arrives, financial experts and consumer advocates offer tips on making your dollars stretch further in your bank account and at home.

Personal finance

Making sure you have access to your money is crucial in uncertain economic times in case of an emergency, financial experts said yesterday.

"Cash is king," said Martin Cantor, director of the Long Island Economic and Social Policy Institute at Dowling College.

"Keep as much cash as you can, and you want to invest that cash in very secure and very short-term instruments," such as certificates of deposit, he said.

Mark Klee, executive vice president of Garden City-based American Fund Advisors, said that in addition to a cash safety net and short-term investments, a laddering approach, spreading an investment with different maturity dates, "historically has been a good strategy."

Instead of real estate - formerly a safe hedge against inflation - market watchers said investing in certain stocks was a better bet, despite market volatility.

"At this point, while you have to be selective, that is the best investment category," said Klee. He said that as a whole, stocks have performed below average since the late 1990s, suggesting they could improve.

For instance, Ed Yardeni, president of Yardeni Research Inc., of Great Neck, said inflation shouldn't have a dramatic impact on some technology companies.

One long-term investment tool explicitly tied to inflation is Treasury Inflation-Protected Securities, which are treasury bonds.

The principal of a TIPS increases with inflation as measured by the Consumer Price Index, said Paul Herbert, associate director of fund analysis at Morningstar Inc., a Chicago-based independent investment research firm.

"You'll get lower returns, generally speaking," than with other, more volatile instruments, he said.

Yardeni said, "It's not a great way to get income, but it's a good way to preserve the value of your capital."

Trimming your budget

Keep an eye out for sales and coupons in the paper and online through Web sites that collect deals. Check out fatwallet.com, slickdeals.net and dealhack.com.

For grocery shopping, follow the basic rules: Don't shop when hungry and do bring a list to avoid last-minute, unnecessary purchases.

Try the cheaper store brands and compare unit prices, suggests Consumer Reports.

Just because a product is in a bigger size doesn't necessarily mean it's cheaper.

What's more, the Web site Consumerist.com has been keeping track of "bad deals" in which retailers advertise "buy two and save" or other specials that do not actually save any money.

Buying now

If you're in the market for a big purchase such as a car, paying with today's dollar would save money if inflation keeps going up.

Klee said while consumers trying to make ends meet may not have the luxury of taking the long view, "Inflation, by definition, encourages people to buy now because the expectation is that it will cost more in the future."

Alan Newman, editor of the Wantagh-based CrossCurrents, an investment newsletter, offered a specific suggestion: "If you're thinking of getting a car, by all means, get a hybrid."

Is It Time to Invest Abroad?

Have you noticed any economic upheaval lately? The American economy has been sputtering enough to make it easy to wonder: Should you be investing more money abroad?

Why NOT to invest abroad
There are plenty of reasons not to invest abroad, at least not directly. Plenty of Fools have written about them before. A big one is that most of us know much less about goings-on abroad than we do at home. We just don't have a good handle on how well various foreign companies will perform given their local competition, national business laws and accounting practices, and the overall geopolitical stability in the region.

Bill Mann, an experienced international investor, has even warned about it, saying in 2000: "Go forth with care, dear Fools. I do not feel that one should explicitly avoid investing overseas, but you can gain significant international exposure by holding Coca-Cola (NYSE: KO), with 72% overseas sales, AIG (NYSE: AIG), with 58% of sales coming from international spaces, or even Cisco (Nasdaq: CSCO), which sees much of its revenue growth coming from offshore." You may not realize just how many companies derive significant revenues abroad -- eBay (Nasdaq: EBAY), for example, generates 13% of its revenues from Germany alone, with year-over-year revenue growth there around 15% in 2007.

Another reason not to invest heavily abroad is this: Even though we may be in a period of economic uncertainty now, it may simply pass. Economies don't necessarily keep deteriorating. Often, they advance and retreat, and then advance again. America may well maintain or regain its international leadership position in short order. It may be the best place for most or all of your investment dollars.

Why to consider it
All that said, there are still good reasons to contemplate international investment these days. First off, there's the weak dollar, which seems to be on a neverending downward spiral.

Next, while this isn’t meant to be a political article, some political issues do warrant concern -- such as budget deficits, continually growing consumer credit card debt, and our rapidly rising national debt. We're running annual deficits now, with our national debt hitting about $9.5 trillion, with little relief in sight. Further, significant inflation looms as another side effect of attempts to reduce our debts.

It's not that this isn't a great country, or that things can't turn around. Some nations in living memory have gone from pedestals to pits (or vice versa) in fairly short order. But right now, it might be smart to spread a little more of your savings abroad.

Berkshire Hathaway (NYSE: BRK-B) Chairman Warren Buffett has expressed a bearish stance on the U.S. dollar and holds both Canadian and Brazilian currency.

How to invest abroad
If you're now eager to learn just how you might invest abroad, let's review some options.

First, you can let professionals do your international investing for you via mutual funds. Some mutual funds are expressly dedicated to investing in international stocks and/or bonds. And the managers of many other mutual funds have substantial freedom to invest at least some fund money in suitable international investments. Do a little research into funds that interest you and see how their managers are thinking about global economies and how they're investing.

Consider currency funds, which aim to profit as the dollar's value changes. They're risky, though, and may not be necessary if you take other steps, such as those listed above. Another option is buying American Express (NYSE: AXP) travelers checks in euros (or some other currency). But you'll forgo earning interest, which is kind of a big deal.

Finally, remember that there are many good old American companies with substantial overseas operations and revenue. PepsiCo (NYSE: PEP), for example, took in nearly $40 billion in 2007, nearly half of it from outside U.S. borders. A SmartMoney article explained: "Certain sectors and industries that garner a large percentage of overseas sales should benefit more from the dollar's decline. Industrials (aerospace, defense, construction, farm machinery, industrial machinery, air freight), materials (gold mining, metal and glass-container makers), health care (pharmaceuticals, medical-device makers), and consumer-staples companies (soft drinks, tobacco, household products) are among the largest beneficiaries."

The bottom line
So what's the bottom line? Well, it’s impossible to tell the future precisely. After all, the dollar may well be at the beginning of a long climb. So for now, it’s good advice just to keep reading and learning -- and paying attention to the global reach of American companies you’re invested in or could invest in, as that's one good way to benefit from a troubled U.S. economy.

Investment tips for a shaky market

Mattress + money = bad idea.

With the economy in turmoil, stashing your cash under the bed or burying it in the backyard may feel like the safest bet. But experts say there are still investments that make sense.

The most important tip is Investing 101: Think long term. Markets fluctuate every minute and they go through cyclical swings that can last many months. But over time, stock market investing always beats inflation. You have to be able to ride out the volatility.

"Don't panic," said David Campbell, a principal at San Francisco's Bingham, Osborne and Scarborough, which has $1.7 billion under management for high-net-worth individuals. "The smart money never panics; it always looks for opportunity."

He and other financial advisers said withdrawing investment funds in a downturn is often the worst strategy.

"The problem with taking your money out of the market is, we know at some point in time, based on historical data, this market will rally," said Barry Taylor, portfolio manager at the same firm. "If you pull out of the market, you're not going to be there when those losses are recouped. Our recommendation is not to pull out but to stay in and ride it out, wait for the eventual return we know will happen. Markets go through cycles."

Creating a diversified portfolio is one way to be ready to ride out financial storms.

"It's important to stay diversified - well balanced between stocks and bonds within different sectors, maybe different asset classes if you can tolerate the volatility," said Gary Schlossberg, senior economist with Wells Capital Management, the investment-management arm of Wells Fargo.

Hank Herrmann, CEO of Waddell & Reed, a mutual fund company in Kansas with $70 billion under management, said that now can be a time for some people to go bargain hunting in the stock market.

"We've had about a 22 to 23 percent decline," he said. "The average decline for a bear market is 28 percent. If you use that as a rule of thumb, you've got 5 percent more downside. It suggests that most of the damage is done."

Here are suggestions from investment professionals:

Commodities: There's nothing as basic as energy, precious metals, food, etc. "Historically, commodities are a good diversification tool," Schlossberg said. "They're not so much to goose returns, but to stabilize returns."

In fact, a lot of money now looking for a home seems to be being channeled into commodities, as shown by an increase in their prices, he said.

"Gold is always a good barometer for fear and anxiety, and we have plenty of that now," Schlossberg said.

Basic consumer products: "Health care and consumer staples (have) resilience to the business cycles. They are essential items that don't bounce around as much as the economy moves up and down," Schlossberg said. "Health care earnings tend to be stable. Essential consumer items like food, certain types of beverages, personal care products are not terribly exotic but tend to be more resilient to a slowing economy."

Telecommunications is another area that tends to outperform the market during an economic slowdown, he said.

Blue-chip stocks: "For truly long-term investors, it's a great opportunity to buy equities," Herrmann said. "Stocks are on sale now. Stocks are the only thing you can think of that people sell when they go down. Usually when you put something on sale, people rush in to buy, but not with stocks."

Fortune 500 companies are large enough to withstand an economic slowdown, and they derive a large portion of their sales from overseas. That's a double plus: They benefit from stronger growth internationally, as well as from bringing in revenue in currencies that are stronger than the dollar. "It's a nice protection for U.S. investors," Campbell said, naming companies like General Electric, IBM and Hewlett-Packard.

Financial services: With banks, brokerage houses and mortgage lenders imploding on a daily basis, it sounds like heresy to suggest investing in the financial services industry. But the country will still need banks two years from now - and the ones that survive will be stronger than ever.

"If you have confidence some of these will be survivors - Citigroup, Bank of America, Wells Fargo - they're having to float new bonds and securities to raise more capital, and because of the current environment are having to float long-term rates with a very nice yield," said Richard Welty of Welty/Solari Capital Advisers in Lafayette. "I wouldn't put all my money in any one of them, but it's an area that's worth looking at. It's all in the timing."

Timing: You can't time the market just right. But again, experts emphasize, you should use a long horizon when deciding where to invest.

"The question you should ask yourself today is not 'When will the stock market bottom, next year or next month?' " said Jim Paulson, chief investment strategist at Wells Capital Management. "Draw a big circle around where we are today. Ask yourself, 'If I step in and buy something, will I be happy two or three years from now, even if it goes lower in the next six to nine months?' If you ask that question today about stocks in general, the answer is 'Yes.'

Poor financial advice, habits hurt many Hispanics

By TAL ABBADY | South Florida Sun-Sentinel

She's had to take a second job as a maid. To save on gas, she rarely drives her car. And she stands to lose her home.

As a lifetime of hard work crumbles under one bad financial decision after another, Alicia Suarez wishes she and her husband had sought better advice.

"By the time we realized we had no money saved in the bank, we were at rock-bottom," said Suarez, 52, of West Palm Beach, Fla.

Suarez's plight is shared by millions of Hispanics and blacks who have suffered critical setbacks in a shrinking economy, according to recent data from the National Foundation for Credit Counseling.

Debt-counseling services are scarce in low-income neighborhoods, and many financially strapped black families often don't know where to turn for help, according to Emanuel Ridgeway, chief financial officer of the Urban League of Palm Beach County.

"You have a lot of single mothers who live paycheck to paycheck," said Ridgeway, whose agency offers debt management counseling, particularly for first-time homeowners. "Many of them just don't know how to save and put away for a rainy day. There's a lack of resources and education out there."

Among Hispanics, a widespread mistrust of financial institutions in some immigrant communities and the tendency to rely on an informal network of friends and advisors for financial guidance has led many to the brink of ruin.

"They are one flat-tire or emergency-room visit away from disaster," said Gail Cunningham of the National Foundation for Credit Counseling.

Suarez, a Colombian native, said she and her husband quickly built a solid, middle-class existence when they moved to the U.S. five years ago. She got a job in the marketing department of a company that sells health products and he found work as an electrician. They had all the measuring sticks of success: a comfortable, two-bedroom home, two cars and two children assimilating well in school.

But after refinancing their mortgage, spending more money than they had and maxing out their credit cards, the family will likely lose their greatest asset, their home, to a short sale. Suarez said her husband's hours were reduced while gas and food prices rose, worsening their predicament. But she emphasized that irresponsible spending, acquiring four credit cards they didn't need and listening to the advice of friends put her family in a bind.

"We didn't educate ourselves. We simply went to friends who said, 'Refinance your home. It'll give you the power to buy things.' That's true of many people in my community. We're not getting organized and going to a professional for help," she said.

Javier Roca, director of ProColombia Unida, a group that guides immigrants in South Florida through the citizenship application process, said his agency is struggling to meet the growing demands of Hispanics there who need financial advice.

"A lot of people are considering bankruptcy. They simply don't know what to do," he said

In recent years, Freddie Mac and other institutions have partnered with Hispanic organizations around the country to launch bilingual credit education programs. But information about personal finance is not always readily available to new waves of immigrants, for whom the first point of contact in the U.S. are often small, grass-roots groups like ProColombia Unida.

Fabio Andrade, head of the Americas Community Center in Weston, Fla., said his organization, which provides services to immigrants in Broward County, will likely make financial counseling a regular part of its services. The agency caters to many white-collar Venezuelan and Colombian professionals.

"You have a lot of people in our community who wanted to keep up a certain social status," he said. "That meant getting the new car, the bigger house they couldn't afford. Now they're living day to day."

Time to Invest

By James Early

In the middle of 2006, I came across a stock with some unbelievable numbers. Revenue was up more than 80% per year for the past three years. Income had grown 95% over the same time. Return on equity was a robust 47%, and net margins were close to 42%. Plus, it was a player in the growing student loan market. Its name? First Marblehead (NYSE: FMD).

Based on what I knew -- which wasn't much -- I gave First Marblehead a lot of consideration. But did I pull the trigger? First, let me say that even thinking about making an investment without weeks of research is alien to me. I come from a value-focused hedge fund. We had all day to analyze stocks, and we used it, often burning the midnight oil.

Hedge funds have a reputation as the gunslingers of the market, but I assure you, mine was anything but. We held just a handful of stocks, and we knew them cold. But keeping track of them, and finding new ones, took a lot of time. That kind of thoroughness is what The Motley Fool is all about. When it comes to burning the midnight oil, David and Tom Gardner -- Motley Fool co-founders and lead analysts of the Motley Fool Stock Advisor newsletter -- could give the hedge-fund crowd a run for their collective money.

Hidden risks
No, I didn't buy First Marblehead. And I'm glad I didn't, considering the recent credit fears that have spooked investors, and the specter of defaults that has slashed the stock by more than 90%. But I'm not really here to criticize First Marblehead; it suffered from some events outside of its control, and several of my colleagues continue to monitor its long-term prospects.

Regardless, risk exists, and with any investment, it's important to know what you're betting on. No screen or quick peekaboo would warn you of the effect the credit markets would have on First Marblehead, or the significant exposure Merrill Lynch (NYSE: MER), Citigroup (NYSE: C), and Morgan Stanley (NYSE: MS) would have to subprime loans. Then you have companies such as Bed Bath & Beyond (Nasdaq: BBBY) and Blue Coat Systems (Nasdaq: BCSI), which had to take charges recently because of options backdating.

Granted, these risks may all be on the obvious side, but have you ever been burned because you missed a material piece of information? Having the time to do some diligent digging is crucial in avoiding potential blowups.

The "Are you kidding me?" formula
There's more. Years ago, I read a book about theories underlying accounting and financial statements. It spent a lot of pages on a common solvency formula: earnings available to pay fixed charges, divided by those fixed charges. Via several chapters of buildup, it replaced the simple version with a "corrected" formula that made several tweaks to the numerator and denominator. Was it right? Yes -- it eliminated a lot of flaws in the raw accounting numbers. But that accuracy came at the expense of a formula so complex that individual investors would need days to calculate it.

Lack of time tends to pull investors in one of two ways. The first: making futile grasps in a blizzard of information overload. The second: tunnel vision toward stocks you've already researched. Let's face it, either one can burn you.

Having time troubles with your investing?
The best investment you can make is an investment in your time management, and I've got ideas for you. The first is simple: Develop screens and hone your criteria for investments. With 10,000 stocks and a day job, you absolutely have to develop efficient methods for cutting to the ones you're likely to like. Second, spread the load among trusted compatriots. Start an investing club with like-minded investor friends.

Financial advisers offer tips for tough times

By JOE CREWS
Business Writer

With bad financial news flooding the media, consumers can't help but get jittery.

Deciding what to do with your money is always tricky, but especially difficult in poor economic times. There are no one-size-fits-all plans you should blindly follow, other than to focus on your long-term goals rather than the day-to-day vagaries of the financial markets, experts say.

We asked two investment advisers to offer typical strategies at different age levels and marital status. Here are the suggestions of Greg Wynn of Greg Wynn Financial Services in Ormond Beach, an investment adviser with Raymond James Financial Services, and Jeff Ritchey, a financial adviser with an Edward Jones office in Deltona.

SINGLE PERSON: Wynn recommended broadly diversified, international mutual funds that invest in a mix of stocks, bonds and commodities. Ritchey suggested putting the same amount of money each month in mutual funds to take advantage of market volatility over the long term.

YOUNG MARRIED COUPLE: Ritchey recommended sticking with dollar-cost averaging in mutual funds. Wynn said these folks would need to keep some of their personal money in reserve if they plan to have children or buy a house, or take care of their children and home. Their long-term goal should be to continue investing in broadly diversified international mutual funds, Wynn said

MIDDLE-AGE COUPLE: By this stage of life, Wynn said, couples usually will have two distinct "pots of money." Retirement accounts should remain in those international mutual funds, but other money should go into safe investments such as short-term certificates of deposit or money market accounts. Ritchey advised continuing to build up mutual fund investments, contributing the same amount of money each month.

PRE-RETIREMENT BABY BOOMER: Because many people will live 25 to 30 years past their retirement, their money has to be managed with a higher percentage in safe investments, such as CDs or money markets, Wynn said. But some still should be invested in broadly diversified international mutual funds. This is not the time to put your money into narrowly defined niche funds, he said. Ritchey said now is the time for developing a strategy that takes into account your needs, goals, risk-tolerance and time frame for retirement, and making investments in a diversified portfolio with high-quality stocks or mutual funds, bonds or long-term CDs. But you also should have a six- to 12-month supply of cash or CDs readily available, he said.

RETIREE: A guaranteed income stream -- Social Security, a retirement plan or insurance annuity -- is needed to cover the fixed expenses of a retiree, Wynn said. Whatever is left over can be used for the "fun things," and should be kept in short-term CDs or money market accounts. Ritchey recommended sticking with the diversified portfolio and easily accessible cash or CDs.

joe.crews@news-jrnl.com

Spread Your Money Among Several Banks To Stay Fully Protected

BOSTON -- On Monday morning, customers of the failed IndyMac Bancorp Inc. lined up at the thrift's retail branches to withdraw their hard-earned savings, rather than leave it in an institution that was being taken over by the Federal Deposit Insurance Corp.

It was too little too late, closing the barn door after the horses were gone. And their reaction was completely unnecessary.

The biggest irony of IndyMac's failure -- and it was the nation's second-largest independent mortgage lender and the seventh-largest savings and loan -- was that the branches had big signs telling customers "You can count on us," when in fact the only thing those consumers could rely on ultimately was the promise of FDIC insurance.

While it's understandable that consumers would want to get their money out of a failing bank, experts suggest that there is no real reason to make such a move, provided you fall under FDIC protection guidelines -- specifically holding no more than $100,000 per individually registered account.

(If you have two certificates of deposit in your name at the same institution and each is worth $75,000, you have exceeded the protection limit; if one was registered in an individual name and the other was registered jointly, however, the total amount would be protected because neither registration has exceeded the coverage limit.) See related story.

Show and tellers

When regulators stepped in last Friday, IndyMac customers experienced a brief disruption in the ability to get their money. While automated teller machines were working, they also capped the amount that a shareholder could withdraw electronically, limiting it to a few hundred bucks.

That's why customers had to wait around for Monday morning's opening to rush the bank and ask for their cash back.

By then, of course, they had full access to their money, up to the protection limits. If they had balances above the insured level, they could only access up to $100,000, with the rest being frozen until regulators sell IndyMac and see what's left. While the best-case scenario is full restitution and the worst case is a total loss, the truth is likely somewhere in the middle. That means months of foregone interest and lost opportunity, but not necessarily a big loss in principal.

"People rush to the banks out of an irrational fear," says Greg McBride, senior financial analyst at BankRate.com. "Only depositors who had an exposure more than the $100,000 limit really have to worry, because they are going to be standing in line waiting for a payout."

That's important to remember, in light of reports suggesting that the Federal Reserve has almost 100 banks on a "watch list" of potential candidates for the next bank failure/takeover. The list hasn't been released -- because it would spur a run on those institutions -- but analysts are quick to say they do not believe IndyMac was an isolated failure. Things will get worse before they are cleared up.

Safe deposits

As a result, McBride noted that anyone with accounts that top the deposit insurance limits need to remedy that situation now, either re-titling accounts or moving money to stay safe. At a time when some of the biggest financial institutions are in trouble, it may be better to diversify your safe havens -- spreading money into several banks or thrifts -- rather than letting it build in one place, even if it's earning a higher rate of return.

"It's like driving without a seat belt," McBride says. "You have this tool to protect you -- FDIC coverage -- but you drive around without using that protection, figuring it will be all right. And it is, right up to the point where there's an accident. ... Right now, there are a lot of accidents waiting to happen. It's easy to buckle up, and people ought to be doing it."

For consumers who are caught up in the anticipated wave of regulatory takeovers, bailing out after the news surfaces won't make much difference good or bad. There are new checks to buy and any new account fees to be paid if you move your money to a new bank, but that's a small price to pay for the peace of mind from knowing there won't be even a moment when the bank that is supposed to be safeguarding your nest egg is meeting with regulators.

In reality, the only reason to run to your bank is to protect yourself in case the institution fails -- not to get your cash back once failure has happened.

Toyota plans to invest up to $700 million in Brazil

By Rogerio Jelmayer

SAO PAULO (MarketWatch) -- Japanese automaker Toyota Motor Corp. (7203.TO) is planning to invest up to $700 million in Brazil to install a new manufacturing unit, Brazilian Trade and Industry Minister Miguel Jorge said Tuesday.
Toyota will install the new unit in Sorocaba, a city in Sao Paulo state. The unit will have a capacity to produce 150,000 light vehicles per year and will start its operations in 2011.
According to Jorge, Toyota's investment was unveiled by company regional president Shozo Hasebe in a meeting with Brazilian President Luiz Inacio Lula da Silva.
Global automakers are interested in expanding their presence in Brazil to take advantage of record domestic demand.
Surging local demand is being fueled by solid economic growth and economic stability, which has increased household incomes and access to credit.
Domestic auto sales hit a record in the first half of 2008, totaling 1.41 million units, up 30.0% from the same period the year before.

Volkswagen to invest up to $1 billion in new U.S. plant in Chattanooga UPDATE

FRANKFURT (Thomson Financial) - Volkswagen AG (other-otc: VLKAF.PK - news - people ). said it will invest up to $1 billion in a new plant in Chattanooga in the U.S. state of Tennessee.

The factory will at the 'first stage of construction' have an annual capacity of 150,000 vehicles and will start operations in early 2011, the company said in a statement.

The first vehicle to be made at the factory will be 'a new midsize sedan' tailored to the U.S. market, the German carmaker said.

'We will be selling 800,000 Volkswagen per year in the U.S. by 2018, and this new site will play a key role,' chief executive Martin Winterkorn said in the statement.

Volkswagen said it originally short-listed 25 potential sites for its U.S. plant and picked Chattanooga because it 'slightly' outperforms the next-best candidate sites in terms of nearby automotive suppliers, qualified workforce and properties.

maria.sheahan@thomsonreuters.com

mas/sal/mas/sal

IBM to invest $1.5B in New York

The Ottawa Citizen

International Business Machines Corp., the world's biggest computer-services provider, agreed to invest $1.5 billion U.S. for computer-chip manufacturing and research in New York state, creating 1,000 new jobs aided by $140 million in government subsidies. The agreement, announced by the company and state officials, also calls for the company to retain more than 1,000 existing jobs at its East Fishkill research and manufacturing facilities, which are to be upgraded, according to a statement by Gov. David Paterson. New facilities include a semiconductor manufacturing plant and development centre in a still-to-be-determined upstate New York location.

United States: IBM to invest $1.5B in New York

Asian bourses down on US financial woes

PETALING JAYA: Asian markets went through another turbulent day as investors reacted to the continuing troubles in the US financial system, despite a rescue package for troubled quasi-sovereign mortgage providers Freddie Mac and Fannie Mae.

Investors were also reacting to fears of more bank failures in the US, thereby putting more strain on its financial system, as the Bush administration bailed out California-based IndyMac Bancorp Inc, which had become the biggest casualty of the subprime mortgage crisis thus far.

The KL Composite Index was down in line with the region’s performance. It closed 1.43% lower at 1,127.60, while in Singapore, the Straits Times Index was down 70.74 points at 2,833.38. Hong Kong’s Hang Seng Index tumbled 839.69 points to 21,174.77 while Japan’s Nikkei 225 fell 255.60 points to 12,754.56.

Other markets that were affected included Korea’s Kospi, which was down 49.29 points at 1,509.33, while in China, the Shanghai Stock Exchange fell 98.81 points to 2,779.45. The Stock Exchange of Thailand Index dropped 23.65 points to 693.41, and in Indonesia, the Jakarta Composite Index lost 44.69 points to 2,214.85.

Jupiter Securities Sdn Bhd research head Pong Teng Siew said at this juncture, domestic political troubles were playing second fiddle to global economic problems, especially if taken from the viewpoint of foreign funds.

“These funds are mainly driven by economic issues, I don’t see fund managers reading too much into the political situation unless it gets really bad,” he said.

Rich and poor to live side by side when housing project opens soon

A Dallas Housing Authority project once stuck in the mud for 12 years by construction delays and a court battle with neighbors is finally getting spruced up for a grand opening in about two weeks.

Some of the affected parties gathered yesterday under a big tent – symbolic, perhaps, of the new spirit of cooperation – to dedicate the Villas at Hillcrest, a $4.5 million project in the last stages of development.

Can you believe what's now worrying some of the folks once staunchly opposed to a public housing development being plopped down in the midst of their expensive homes?

Landscaping – or, specifically, whether the DHA will plant lush grass and install sprinklers for the 40 townhomes designed for low-income black residents in Far North Dallas.

Gone is all the strident, loose talk about whether the tenants will drive up crime and drive down property values.That hullabaloo has given way to heated debates about zeroscaping, which could help the DHA keep its water bills and construction costs in check but also may give neighbors a license to say, "See, told you so."

"I'm extremely opposed to zeroscaping," said John Trick, whose Highland Creek home backs up to the townhomes.

Mr. Trick, president of the Highland Creek Homeowners Association, said he and some of his neighbors can't help but wonder if a scaled-back landscaping design is a harbinger.

"The only real anxiety is the issue of a longtime commitment on the part of the DHA, whether it's an issue of landscaping or the condition of the buildings," he said. "Are they going to hold up their end of the bargain and make sure it's properly maintained?"

Before I get to the real crux of this matter – the question of how poor families in one closely watched project will alter the fabric of the neighborhood – let's allow the DHA to explain its landscaping choices.

"There's a big push" to adopt more water conservation efforts such as zeroscaping, which involves using native plants, succulents, rocks and gravel, said Michelle Raglon, an agency spokeswoman. "We're going with landscaping and zeroscaping."

What this boils down to, of course, is that agency heads don't want to spend scarce money installing 40 separate irrigation systems for each unit.

Then again, if you're going to move to an upscale neighborhood where neighbors pay close attention to one another's lawns, you ought to think twice about bucking the trend.

Before we get too bogged down in the fuss over St. Augustine and small rocks, let's be clear about what's important here – the poor black families moving into the Villas at Hillcrest and the richer white families already living nearby.

Working together, they can help ensure that the townhome development lives up to its promise of becoming a pristine model for future housing projects in Dallas and beyond.

Some neighbors already are doing their part by volunteering to help out any way they can.

That's a good start, and it's the way public housing ought to be built – blended in solid middle-class or affluent neighborhoods with viable social and political networks that help stave off neglect of any kind.

The bottom line is that these poor black tenants want the same things as their affluent white neighbors: a decent and safe place to live, challenging schools and good neighbors.

'Rich Dad Poor Dad' team splits in chapter of 'He said, she said'

by Craig Harris - Jun. 2, 2008 12:00 AM
The Arizona Republic

Their advice in Rich Dad Poor Dad has appealed to millions of readers and even drew the interest of Oprah, but the Valley co-authors of the wildly popular financial book have broken up.

And, like many divorces, it isn't pretty.

Sharon Lechter, who co-authored Rich Dad and other similarly branded books with Robert Kiyosaki, alleges in a lawsuit that her ex-business partner and his wife are enriching themselves, diverting assets and wasting money in a business that she claims to have helped build from scratch. Click Here

The Kiyosakis deny the allegations and contend in court records that if Lechter has been "damaged," it was caused by her own actions.

Success from the original book catapulted their joint venture, commonly known as the Rich Dad Co., into a multimillion-dollar operation with offices in Scottsdale. The company now offers more than 20 financial books, CDs and games with a key objective: to achieve wealth.

Lechter said in a lawsuit that while Robert Kiyosaki has been the face of the company and appeared on TV programs, she was the one who "refined and created" the original book. She also claims in the suit that Kiyosaki once told staff members she was the only "indispensable" person on the team.

Lechter, a certified public accountant who lives in Paradise Valley, now wants a judge to dissolve the joint venture, appoint a receiver and have Robert Kiyosaki and his wife, Kim, pay her compensatory and punitive damages. Lechter also alleges that Robert Kiyosaki's "volatile temper, spurious accusations, foul language and inappropriate behavior" created a hostile work environment for her. The Kiyosakis denied the allegation.

"It is evident that Robert and Kim have executed a plan to willfully destroy the joint venture, while simultaneously and purposely diverting opportunities belonging to the joint venture to one or more entities owned exclusively by them," Lechter alleges in the suit.

Robert Kiyosaki, who co-wrote a financial book with billionaire Donald Trump and has appeared on The Oprah Winfrey Show, declined to be interviewed. He and his wife live in Phoenix, and the suit claims the couple has accumulated more than $9 million through various Rich Dad entities.

The Kiyosakis have sought to dismiss the case, but the two sides also have set June 11 as a deadline to reach a settlement. They began fighting last year in Clark County District Court in Nevada.

In court records, Lechter said she filed there because the Rich Dad entities are part of a joint venture based in Nevada called CASHFLOW Technologies Inc. If a deal can't be reached, a trial is set to start Dec. 29.

Kim Kiyosaki said the full story has not been told.

"I guarantee you, what you have is one side of the story. We have not presented our case," said Kim Kiyosaki, who, court records show, owns an equal third of CASHFLOW with her husband and Lechter.

Kim Kiyosaki also responded in writing to a series of questions from The Arizona Republic.

She wrote that the lawsuit was a first for CASHFLOW. And she added that Rich Dad Poor Dad is her husband's story; he wrote the book and Lechter edited it. She also wrote that there is no reason to consider having a receiver appointed based on "our profitability and growth."

"The bottom line is that Robert and I are going through a divorce with our former business associate. Sharon Lechter resigned from the company in July 2007," she wrote. "As in many divorces, Sharon's perception of her contribution and value to the company is a surprise to us and at odds with what we perceive it to be."

Lechter also declined to be interviewed, and her attorney did not return calls. An attorney for the Kiyosakis declined to comment.

Lechter, however, issued a statement May 22, after being told that The Republic was doing a story on the lawsuit.

In her one-page statement, Lechter was complimentary of the Rich Dad organization, saying its mission always has been to "elevate the financial well-being of humanity."

She also wrote, "We remain hopeful that an amicable resolution can be reached and that the business partnership can be closed on pleasant terms."

In the lawsuit, which includes hundreds of pages and some sections that are sealed, Lechter's tone is harsher. The case also could become fodder for those who have challenged the non-traditional advice in Rich Dad Poor Dad. The book advises readers to avoid mutual funds and 401(k) plans and to leverage themselves up to invest in small businesses and real estate.

Allegations

Lechter, in the lawsuit, claims she "often rewrote large sections" of other books she and Robert Kiyosaki co-authored. And she alleges that Success Stories, Rich Dad Poor Dad for Teens and Escape From the Rat Race were written with ghost writers. Robert Kiyosaki's "involvement was limited" even though he is listed as the lead author on the cover of those books, the suit alleges.

Kim Kiyosaki, in responding to the paper's written questions, said a writer/editor was brought in for Success Stories to organize stories readers sent in after reading Rich Dad Poor Dad. She added that Rich Dad Poor Dad for Teens is based on the original book, and the company hired a cartoonist to work on Escape from the Rat Race.

Lechter also alleges:

• Robert and Kim Kiyosaki manipulated their salaries with Robert's increasing and Kim's decreasing for personal tax-planning reasons, and they gave themselves a discretionary bonus of $250,000 each in August, shortly after Lechter left the company.

Kim Kiyosaki wrote that it was not appropriate to discuss company finances or personal taxes, but she added that their pay and bonuses have not varied from what they were historically paid.

• Robert in 2005 demanded that his wife get a 25 percent royalty on all new books even if she didn't have a role in writing them.

Kim Kiyosaki wrote that she and her husband did not want to get into that issue, but she wrote that the allegation was "petty and hurtful."

• In February 2007, Robert attended the NBA All-Star game in Las Vegas with a Rich Dad adviser and had the company pay for a private jet and other travel expenses that weekend. Lechter, in an affidavit, cited this as an example of "exorbitant" spending and mismanagement of company funds.

Kim Kiyosaki wrote that the company has an ongoing business relationship with the NBA, which wants to bring financial education to its players.

An NBA spokesman acknowledged that league officials had met with Robert Kiyosaki "but he has not done work for us."

• The couple has commenced a systematic campaign of mismanagement to suppress the value of the company and one primary goal is to ensure product "housed in Nevada does not sell."

Kim Kiyosaki wrote that the allegation is "ridiculous" and the company is "more profitable and productive than ever."

The Rich Dad story

Lechter currently has her own Web site and for free writes a personal finance column for Arizona Woman, an Arizona Republic magazine.

She and Robert Kiyosaki developed their partnership around 1996. At the time, he was looking for someone to help write a book to promote an educational board game he had co-created, the suit says.

Lechter, in the suit, says Kiyosaki gave her hundreds of pages of material and she "reorganized and coordinated the content" and determined which portions to "include and exclude" in Rich Dad Poor Dad.

At the time, no major publisher wanted it. So it was self-published and released April 8, 1997.

Within a few years, the book had taken off, and an appearance by Robert Kiyosaki on Oprah Winfrey's show in 2000 enhanced his celebrity status. Today, the book has sold more than 27 million copies in 109 countries and has been translated into 51 languages.

Robert Kiyosaki advocates taking control of your finances and buying investments that create cash flow, and the book is based on how Kiyosaki's two "dads" approached money.

He has said his biological father was highly educated but struggled financially and left a legacy of unpaid bills. However, he said his other father, a mentor, never finished eighth grade but became one of the richest men in Hawaii, leaving millions of dollars to family members and charities.

Sara Fleury, a Phoenix-based public-relations consultant who offers crisis management guidance, said how much the suit damages the Rich Dad Co. and the Kiyosakis depends on how the couple and their employees react.

"They need to lay low and hope it doesn't elevate," said Fleury, president of B.J. Communications. "If they pay a lot of attention to it and convey their concern frequently, it will cause more alarm."

John Reed, a California-based real-estate writer and frequent critic of Robert Kiyosaki's advice, said he doesn't believe the lawsuit will hurt Kiyosaki. Reed added that he had heard it was filed months ago, but didn't know the details.

"I don't think it will dent him, and I don't think it will hurt her," Reed said.

Want to Retire Rich?

By John Rosevear

I don't know anyone, except an old friend who became a Zen monk, who doesn't dream of being wealthy someday.

Even those who have been financially successful sometimes dream of hitting it really big -- of hundredfold stock returns, of lottery wins, of finding out that their long-lost uncle has the initials W.B. and runs a successful company in Omaha.

For most of us, the odds of such windfalls are pretty low. If we want to be rich someday, we'll have to make our own windfall.

Use what they give you
The U.S. government has made it awfully easy for to us to become rich. You only need two things: a job and some common sense. With those, you can become rich using only what the government gives you.

What have they given you? IRAs. Workplace savings plans like 401(k)s. Tools, in other words, that let you park money in investments and watch it grow -- completely out of reach of the tax man.

These tools can help you fund incredible retirement dreams -- if you use them the right way.

The right way
Effective retirement saving -- which is what we're really talking about -- isn't that hard. No matter how old you are, if you have an income -- and some common sense, as I said -- you can make your retirement years more comfortable.

And if you're young, and just getting started, you can build some very serious wealth -- even on an ordinary income.

How? Here's the formula:

* Spend less than you earn. This is the real key to wealth, has been for thousands of years. Whether you earn a little or a lot, you'll have a lot more later if you spend less now.
* Use those retirement tools. If you're spending less than you earn, you have extra to save. Enroll in your employer's workplace savings plan, if you haven't already. Learn about the power of IRAs, and start contributing.
* Take everything they give you. Maybe you're already enrolled in your employer's 401(k) or 403(b). But are you taking full advantage of the match? Nearly all employers match your contributions up to a certain amount. That's free money. Get it all.
* Invest Foolishly. Not foolishly, Foolishly. Use the Fool's investment research and educational resources to find good investments, learn how to take risks sensibly, and build a solid long-term portfolio.

And yes, long-term is the key. Sure, some people have done well with short-term trading strategies, but that kind of success requires luck, intense focus, and a full-time commitment. Is that how you want to approach retirement planning?

Or would you rather buy a few great companies and hold them? Blue-chip superstars like Johnson & Johnson (NYSE: JNJ), Altria (NYSE: MO), Coca-Cola (NYSE: KO), and General Electric (NYSE: GE) have built fortunes -- or just nice nest eggs -- for thousands of savvy investors over the years.

With the recent market turmoil, now could be a great time to buy the next century's blue chips, whether from a list of perennial outperformers your grandfather would recognize, or from the best of newer companies like Apple (Nasdaq: AAPL), NVIDIA (Nasdaq: NVDA), or Garmin (Nasdaq: GRMN).

While spending less than you earn might be the key to wealth, buying great stocks and holding them over the long-term may well be the greatest secret of all.

The Foolish bottom line
But it's not something you can set and forget. You have to stay on top of it. I don't just mean watching your investments, although that's important. You have to continue to monitor your whole financial picture, think about your future, and do the planning necessary to realize your dreams.

Intimidated? We can help. Our Rule Your Retirement service provides how-to articles, interviews with the best minds in investing, and news updates that help you stay on top of things, without having to do hours of research.

Want to check it out? Try it out free for 30 days. The road to wealth begins with the first step.

Fool contributor John Rosevear owns shares of Apple. Johnson & Johnson is a Motley Fool Income Investor choice. Coca-Cola is an Inside Value pick. Apple, Garmin, and NVIDIA are Stock Advisor recommendations. Garmin is a Global Gains selection. The Motley Fool has a disclosure policy. fool.com

How to Become Rich

a strange offshoot of the Bill Gates Personal Wealth Clock by Philip Greenspun
Rolls Royces.

Getty Center underground garage. Los Angeles, California. As a graduate student in computer science at MIT earning a $1600/month research stipend, I feel amply qualified to instruct the entire Internet on the art of becoming as rich as Bill Gates (check the Wealth Clock to see how much he has right now). I get my confidence from Dr. Leo Buscaglia, author of Love, Born for Love : Reflections on Loving, Living, Loving and Learning, and Bus 9 to Paradise. Dr. Buscaglia, our nation's most prominent lecturer on the subject of love, turns out to be divorced ("it was a very loving divorce").

Lesson 1: Choose Your Grandparents Carefully
Sequoia National Park, California

"There are three ways to make money. You can inherit it. You can marry it. You can steal it."
-- conventional wisdom in Italy

William Henry Gates III made his best decision on October 28, 1955, the night he was born. He chose J.W. Maxwell as his great-grandfather. Maxwell founded Seattle's National City Bank in 1906. His son, James Willard Maxwell was also a banker and established a million-dollar trust fund for William (Bill) Henry Gates III.

In some of the later lessons, you will be encouraged to take entrepreneurial risks. You may find it comforting to remember that at any time you can fall back on a trust fund worth many millions of 1998 dollars.
Lesson 2: Choose Your Parents Carefully
Redwood. King's Canyon National Park, California.

"A young man asked an old rich man how he made his money. The old guy fingered his worsted wool vest and said, "Well, son, it was 1932. The depth of the Great Depression. I was down to my last nickel. I invested that nickel in an apple. I spent the entire day polishing the apple and, at the end of the day, I sold the apple for ten cents. The next morning, I invested those ten cents in two apples. I spent the entire day polishing them and sold them at 5 pm for 20 cents. I continued this system for a month, by the end of which I'd accumulated a fortune of $1.37. Then my wife's father died and left us two million dollars."

William Henry Gates, Jr. and Mary Maxwell were among Seattle's social and financial elite. Bill Gates, Jr. was a prominent corporate lawyer while Mary Maxwell was a board member of First Interstate Bank and Pacific Northwest Bell. She was also on the national board of United Way, along with John Opel, the chief executive officer of IBM who approved the inclusion of MS/DOS with the original IBM PC.

Remind your parents not to send you to public school. Bill Gates went to Lakeside, Seattle's most exclusive prep school where tuition in 1967 was $5,000 (Harvard tuition that year was $1760). Typical classmates included the McCaw brothers, who sold the cellular phone licenses they obtained from the U.S. Government to AT&T for $11.5 billion in 1994. When the kids there wanted to use a computer, they got their moms to hold a rummage sale and raise $3,000 to buy time on a DEC PDP-10, the same machine used by computer science researchers at Stanford and MIT.

Note: Recall that in the 1980s we venerated Donald Trump and studied his "art of the deal". If Donald Trump had taken the millions he inherited from his father and put it all into mutual funds, you'd never have had to suffer through one of his books. But he'd be just about as rich today.
Lesson 3: Acquire Research Results by Hiring and Buying
Cows and Church. Tingstade (northern Gotland). Conventional (loser) economic wisdom holds that monopolies should spend heavily on research because they are in a position to capture the fruits of the research. But if you want to become as rich as Bill Gates, you have to remember that it is cheaper to wait for a small company to come up with something good and then buy them. In the old days, antitrust laws kept monopolies from buying potential competitors. But not anymore. When Microsoft products were threatened by network computers and Web-based applications, they simply bought WebTV and Hotmail.

Another good strategy is to hire the right people. Some of the guys who wrote Microsoft Windows had previous worked on window systems at Xerox PARC. So Xerox paid for the research; Microsoft paid only for development.

In the long run a tech company without research probably can't sustain its market leadership. So you'll eventually need to build something like research.microsoft.com (check out netscan.research.microsoft.com to see some interesting online community research).
Lesson 4: Let Other People Do the Programming
South Island, New Zealand If you're a great engineer, it can be frustrating to rely on other people to translate your ideas into reality. However, keep in mind that the entire Indian subcontinent is learning Java. And that if Microsoft, Oracle, SAP, and Sun products simply worked and worked simply, half of the world's current IT workers would be out of a job. You're not going to get rich being "just a coder." Especially working in painful low-level imperative languages such as C or Java. It might be worth writing your own SQL queries and HTML pages since these tend to be compact and easier than precisely specifying the work for another person to do. But basically you need to get good at thinking about whether a piece of software is doing something useful for the adopting organization and end-user. Bill Gates does code reviews, not coding.

[If you aren't sure that you need to be filthy rich and like to do some coding, see this old misguided article for more about what it might mean to be a great software engineer.]
Lesson 5: Train your new CEO
Garden. Getty Center. Los Angeles, California. If you're an intelligent curious person it can be painful to run a company of more than 50 people. You spend more time than you'd like repeating yourself, sitting in boring meetings, skimming over long legal documents in which you know there are errors but aren't sure how serious, etc. The temptation is to hand over the reins to the first "professional manager" who comes along. And that's what the standard venture capitalist formula dictates. But Bill Gates didn't do that. He hired Steve Ballmer in 1980 and gave him the CEO job 20 years later. Making money in the software products business requires domain expertise and a commitment to solving problems within that domain. Great tech companies are seldom built by non-technical management or professional managers who aren't committed to anything more than their paycheck. Adobe is another good example. The two founders were PhD computer science researchers from Xerox PARC who were passionate about solving problems in the publishing and graphics world. They are still guiding operations at Adobe.

Note that this is a principle that Old Economy companies have long understood. Jack Welch joined GE in 1961 and became CEO 20 years later. Sometimes an Old Economy company may pull in a few outsiders to senior positions but, because they have such stable bureaucracies underneath, they can more easily afford this than startups.

See Charles Ferguson's High Stakes, No Prisoners (1999) for a longer explanation of how hired-gun CEOs manage to kill software products companies.
Lesson 6: Focus on Profit

"At Hewlett-Packard, people, materials, facilities, money, and time are the resources available to us for conducting our business. By applying our skills, we turn these resources into useful products and services. If we do a good job, customers pay us more for our products than the sum of our costs in producing and distributing them. This difference, our profit, represents the value we add to the resources we utilize."
-- David Packard in The HP Way

Remembering to make a profit was tough in the dotcom 1990s but it turns out that Hewlett and Packard's ideas were right. Most of the management teams at dotcom businesses, by being disorganized, unintelligent, and ignorant, were subtracting value from the resources that they controlled.

How does one make money in the software products business? Simple. The necessary step is to build something that becomes part of information systems that generate value for organizations and end-users. Once you've created value you can extract a portion in lots of ways. You can be closed-source and charge a license fee. You can be open-source and charge for training, service, support, and extensions. But if you aren't getting your software product into important information systems, you don't have a prayer, no matter how slick your marketing materials.

If you're creative and diligent the software products business is extremely lucrative. If you're losing money, ask yourself what you're doing wrong. The answer is probably "plenty".
Lesson 7: Let the Venture Capitalists Schmooze Wall Street ...
... but don't let them run your company. A profitable Microsoft Corporation brought in venture capitalists (VCs) at the last minute. They didn't need or spend the money but used the VCs to boost their valuation at the initial public offering, thus getting more money for the shares that they sold. Venture capitalists are dangerous because even the most successful might not know anything about business. Remember that there are tens of thousands of venture capitalists in this world. Assuming that they make random choices of companies in which to invest there will be a Gaussian curve of performance. Some firms will do consistently better than average even if everyone is guessing. Imagine that thousands of monkeys are flipping coins; some of the monkeys will get 10 heads in a row. These are the monkeys that will be celebrated for their insight. These are the monkeys whose track records will lead to uncritical cheerleading by underwriters and public investors. In bull markets such as we had in the 1990s nearly all the monkeys will be fairly consistent winners. But remember your next-door neighbor who made money in the stock market in 1985. He convinced himself that he had special insight and ability when actually he was only holding high-beta stocks in a rising market. So his foray into the commodities futures market wiped him out in the crash of '87.

Bottom line: successful software products companies spend most of their time listening to their customers and users rather than to venture capitalists.

[See "Money, Money, Money (and Investing)" for how the Gaussian curve works for mutual fund managers and also read Princeton Professor Burton Malkiel's A Random Walk Down Wall Street.]
Lesson 8: Self-Esteem is Not Job 1
Gentility, politesse, decorum, and high self-esteem are wonderful. You can achieve all of these things within your organization. And then watch it be destroyed by competitors where frank and, if necessary, harsh criticism is encouraged. Technical people, even (and especially) those fresh out of school are always convinced that whatever they've developed, no matter how hare-brained, is perfect. It takes a technical person with good judgement to notice the flaws and it may require repeated and increasingly harsh delivery for the, uh, pinhead to realize his or her mistake.

Example: I once encountered a group of 6 people who called themselves "engineers." To solve what they thought was a new problem, they were going to build their own little database management system with their own query language that was SQL-like without being SQL. I pointed them to some published research by a gang of PhD computer scientists from IBM Almaden, the same lab that developed the RDBMS and SQL to begin with in the 1970s. The research had been done over a five-year period and yet they hadn't become aware of it during several months of planning. I pointed them to the SQL-99 standard wherein this IBM research approach of augmenting a standard RDBMS to solve the problem they were attacking was becoming an ISO standard. They ignored it and spent another few months trying to build their enormously complex architecture. Exasperated, I got a kid fresh out of school to code up some Java stored procedures to run inside Oracle. After a week he had his system working and ready for open-source release, something that the team of 6 "engineers" hadn't been able to accomplish in 6 months of full-time work. Yet they never accepted that they were going about things in the wrong way though eventually they did give up on the project.

An 1994 New Yorker article about Microsoft relates "If he strongly disagrees with what you're saying, [Gates] is in the habit of blurting out, 'That's the stupidest fucking thing I've ever heard!'". Jennifer New, a former Microsoft contractor, writes "Meetings with Bill or one of his top people are often replete with a barrage of expletives and other disdainful comments." (Salon, September 1997) My friends who work or have worked at Microsoft tell similar tales. But how different is this from other elite organizations?

When I arrived at MIT as a first-year graduate student in electrical engineering and computer science, I asked a professor for help with a research problem. He said "The reason that you've having trouble is that you don't know anything and you're not working very hard." A friend of mine was a surgery resident at Johns Hopkins. He complained to one of his teachers that he was having trouble concentrating because he'd been up all night for several nights in a row. The professor replied "Oh... does your pussy hurt?" According to Business Week, Jack Welch "encouraged near-brutal candor in the meetings he held [at GE]".

The bottom line: self-esteem is great but beware of creating a cozy home for unproductive people with bad ideas.
More
Plato addresses some of these issues in the first book of The Republic (available online from www.gutenberg.net). Socrates asserts that people who've inherited fortunes tend to be light with their money but that people who've made their fortunes "have a second love of money as a creation of their own, resembling the affection of authors for their own poems, or of parents for their children, besides that natural love of it for the sake of use and profit which is common to them and all men. And hence they are very bad company, for they can talk about nothing but the praises of wealth."

Socrates asks Cephalus, a wealthy old man, "What do you consider to be the greatest blessing which you have reaped from your wealth?" Cephalus replies that "The great blessing of riches, I do not say to every man, but to a good man, is, that he has had no occasion to deceive or to defraud others, either intentionally or unintentionally."

In the Decameron, Boccaccio writes "If you really want to make the big bucks, what you really need is a monopoly on the desktop operating system. But the Sherman Antitrust Act, 15 U.S.C. § 1 and 2, and Clayton Antitrust Act, 15 U.S.C. § 25, are real bitches."

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