Report Reserve announces inclusion of a new market research report to its premium store.

GlobalData’s “Alternative Energy Quarterly Deals Analysis M&A and Investments Trends – Q1 2010″ report is an essential source of data and trend analysis on the Mergers and Acquisitions (M&A) and financings in the alternative energy market. The report provides detailed information on M&As, equity/debt offerings, Private Equity (PE), venture financing and partnership transactions registered in the alternative energy industry in Q1 2010. The report portrays detailed comparative data on the number of deals and their value in the last five quarters, subdivided by deal types, segments, and geographies. Additionally, the report provides information on the top PE, Venture Capital (VC), and advisory firms in the alternative energy industry.
Data presented in this report is derived from GlobalData’s proprietary in-house Alternative Energy eTrack deals database and primary and secondary research.  

M&A Activity Decelerated In The Alternative Energy Market In Q1 2010

M&As, which include changes in the ownership and control of companies (GlobalData considers this value as not a new investment into the market), in the alternative energy industry witnessed a decline of 17% in the number of deals and 54% in deal value, reporting 90 deals worth .9 billion in Q1 2010 compared to 109 deals worth .7 billion in Q4 2009. The high deal value in Q4 2009 can primarily be attributed to the following prominent deals: Alstom and Schneider’s agreement to acquire Areva T&D for .8 billion; Stanley Works merger with Black & Decker, valued at .7 billion; and Panasonic’s acquisition of 50.2% stake in Sanyo Electric for .5 billion.

The large scale projects in wind and solar segments are more capital intensive and in the current scenario of relatively tight financial market conditions, it is becoming difficult for companies to keep up the pace of adding new projects, which in turn is driving the slowdown in the alternative energy market. The M&A activity in the wind segment has registered a 97% decline in deal value, from .3 billion in Q4 2009 to .7 million in Q1 2010, while the solar segment reported an 84% decrease in value from .2 billion in Q4 2009 to billion in Q1 2010.
According to Nidhi Singh, Analyst at GlobalData, “M&As in the alternative energy market might see some action in coming year on the cues of economic recovery and increased interest in renewable energy. With the improving financial condition of the economy, companies will come up with new budgets for expansion, which will lead to new project additions in 2010.”

Asset Financing Investments In Alternative Energy Market Slowed Down In Q1 2010

Asset financing, including project financing, self-funded, tax equity, lease and bond financing, and bridge loans for new builds, acquisitions, and the refinancing of assets, registered a decrease in the number of deals and deal value, reporting 357 deals worth .1 billion in Q1 2010 compared to 301 deals worth .2 billion in Q4 2009, a decrease of 43% in terms of deal value.

Technology wise, the hydro energy market accounted for 44% of the total new investments in projects in Q1 2010. The Government of Ecuador’s proposed investment of billion in the Zamora hydro power project in Ecuador and JVPL’s proposed investment of .3 billion in the Lower Siang mega hydro power project in Arunachal Pradesh were the two prominent asset financing deals registered in Q1 2010.

According to Nidhi Singh, Analyst at GlobalData, “This declining trend could be attributed to the poor performance of the alternative energy stocks, which has reduced investor confidence in the market. Though economic recovery is underway, it will take some time for the market to respond, but the industry remains optimistic and expects to see more projects and investments coming in the next two quarters of 2010.”

New Investments In The Alternative Energy Industry Declined By 34% In Q1 2010

Investments in alternative energy companies, including new investments through equity/debt and financing by PE/VC firms, reported a decrease of 20% in the number of deals and 34% in deal value, reporting 194 deals worth .5 billion in Q1 2010, compared to 242 deals worth .8 billion in Q4 2009. A relatively tight financial market and the poor performance of alternative energy stocks are affecting the free flow of new investments into the market. While many companies are able to receive small size funding, it is still not reflecting a major chunk in the total investments in Q1 2010.

Although overall investments represented a slight disappointment, GlobalData expects thatthe alternative energy market will re-bounce with more positive move in the deal making activity in the near future, driven by the clean energy theme.

Decreased Financing Through Equity and Debt Offerings In Q1 2010

Global equity offerings, including Initial Public Offerings (IPOs), secondary offerings, and Private Investment in Public Equities (PIPEs) witnessed a decrease of 44% in the number of deals and 72% in deal value, reporting 51 deals worth billion in Q1 2010 compared to 91 deals worth .7billion in Q4 2009. The decrease in raising equity capital can primarily be attributed to the poor performance of alternative energy stocks and exchange traded funds, and the credit crunch prevailing in the market. Furthermore, the IPO market witnessed a huge decrease of 89% in deal value, from .8 billion in Q4 2009 to .8 billion in Q1 2010. The high deal value in Q4 2009 can be attributed to two big ticket deals: China Longyuan Electric Power’s IPO for .6 billion and PGE Polska Grupa Energetyczna’s IPO for .6 billion. The PIPE segment also registered a huge decline of 88% in deal value, from .2 billion in Q4 2009 to .5 billion in Q1 2010. Further, the number of PIPE deals reported a decrease of 84%, reporting 28 deals in Q1 2010 compared 54 deals in Q4 2009.

Debt offerings, including public and private debt placements by alternative energy companies, have seen a decline of 53% in the number deals and 20% in deal value, reporting 46 deals worth billion in Q1 2010 compared to 97 deals worth .9 billion in Q4 2009. In particular, debt placement through public offerings saw a huge drop out in the number of deals, from 74 deals in Q4 2009 to 31 deals in Q1 2010. On a year-on-year basis, capital raising through debt offering declined by 70% in Q1 2010, compared to .3 billion in Q1 2009. Debt financing for large scale projects remained difficult, with the continued burden on return on investments in the debt instruments market along with the banks’ general reluctance to provide debt financing for large projects.

New Investments From Venture Capital Investments Grew By 44% In Q1 2010

VC investments in the alternative energy industry increased by 44%, with 2.4 million in Q1 2010 compared to 8.8 million in Q4 2009. Further, the number deals witnessed a huge increase of 114% with 77 deals in Q1 2010 compared to 36 deals in Q4 2009. Solar companies accumulated the majority of the VC funding, with 2.5 million in Q1 2010. The increase in VC investment in Q1 2010 was driven by the sector’s resource efficiency over the traditional energy sector and the bright future outlook of the industry. The majority of the financing was provided to companies in the growth capital/expansion stage, with 26 deals worth 9.8 million in Q1 2010, followed by start up financing with 47 deals worth 6.9 million. Khosla Ventures emerged as the top VC firm by providing financing worth 6.9 million for 13 alternative energy companies during Q2 2009 – Q1 2010.

Further, investments from the PE market increased from 0.9 million in Q4 2009 to 8.5 million in Q1 2010, an increase of around 19%. The number of PE deals also increased marginally from 18 deals in Q4 2009 to 20 deals in Q1 2010. The wind energy market attracted the maximum investments from PE investors, with 5 million in Q1 2010. Altira Group topped the PE ranking table by providing financing for seven alternative energy companies, for a deal value worth 7.5 million.

According to Nidhi Singh, Analyst at GlobalData, “Wind power being the preferred sector in many countries across the globe has attracted investments despite the tight financial situation. Growing wind power capacity and rising energy demand in developing countries have led to a surge in new investments in the renewable energy sector and this trend will continue in the next quarter also.”

Investments Declined In North America, Europe And Asia Pacific In Q1 2010

North America, Europe and the Asia-Pacific witnessed a decrease in alternative energy market investments, reporting billion, .5 billion and .3 billion respectively in Q1 2010, compared to .8 billion, .7 billion and .1 billion respectively in Q4 2009. The unstable financing environment coupled with commercial banks’ reduced credit for renewable energy projects and companies reliant on bank lending and export credits led to a decrease in investments in Q1 2010. The large projects have not been able to attract much financing due to credit freeze. Further, investments in the rest of the world, including South and Central America and the Middle East and Africa, registered an increase, with .4 billion investments in Q1 2010 compared to .2 billion in Q4 2009.

According to Nidhi Singh, Analyst at GlobalData, “Although investments have declined in the last quarter due to the credit crunch in the market, this trend will not continue in the second quarter of 2010 as various countries and regions across the globe are witnessing the signs of recovery, such as rising investments in some areas. Many companies will now lift the budget freeze due to the end of the economic recession, which will result in new project additions and increased investment activity in the industry. Thus this scenario will change in coming year and the renewable energy industry will witness a rise in investments in North America, Europe and the Asia-Pacific as well.” For more details, please vist http://www.reportreserve.com/reportdet.php?company=GlobalData&reportid=10170

Investment is putting money into something with the expectation of profit. More specifically, investment is the commitment of money or capital to the purchase of financial instruments or other assets so as to gain profitable returns in the form of interest, dividends, or appreciation of the value of the instrument. Investment comes with a huge risk of the loss of the principal sum. The investment that has not been thoroughly analyzed can be highly risky and can result in a loss. Complexities of investment have been growing day by day and a financial expert like an investment lawyer can be of great help to his client. An investment lawyer would definitely play an important part in developing and maintaining the code of ethics and code of conduct of your investment. Sometimes, without their advice, taking decisions seems like impossible. They are very well trained for the tasks of fund formation and how to use them judiciously.

A very experienced Investment Lawyer is well versed with the kind of complexities and legalities that investment procedures have. Such a lawyer always figures out the possibility of odds in making an investment. He would not let his clients to get into a mess by making some wrong and out of the order decision with his funds. In the process of investment management, your lawyer makes all the prospectuses simpler and easier for you to understand. An investment lawyer would scan all kind of complex and unfamiliar language that the companies use to trap investors. An experienced lawyer would perform the task of representing their clients before investment regulators. These lawyers can defend you against misconduct of the companies in which you have invested your hard earned money and can serve you as an important advisor in investment management. They work in the way to save you against any financial frauds. Management of investment is another special function of investment lawyer towards the client. Drafting of important documents and contracts are other chief functions of the lawyer.

While hiring an investment lawyer for your firm, business or investment, you must make sure that you are checking his credentials and track record first. A highly experienced investment lawyer would charge you a hefty fee, but looking at the kind of services and security they provide, you will not mind spending few bucks on them. You must try to look for a lawyer who is ready to work on no win no fee policy in which lawyers are only supposed to charge their fees after winning the case. Many lawyers can be contacted online you can hire them after undergoing a short discussion about your finances and investments. A good lawyer is one such person who would find a simple way out to get you out of the trouble every time. There are several more functions of investment lawyers which have been helping investors in making investments properly and performing well in the investment sector. Thus, investors are required to take support of a specified investment lawyer to carry out the investment task smoothly.

That’s a question we routinely hear nowadays. Ever since the equity markets have been engulfed by volatility, the most frequently heard piece of advice is – invest via the systematic investment plan (SIP) route for the long-term. While regular visitors and clients of Personalfn have since long bought into the merits of SIP investing, we are rather surprised to note that it took a prolonged volatile phase for most investment experts/advisors to appreciate the importance of SIP investing.

 

Coming back to the original question – which is the best SIP? Thanks to all the hype around SIPs, several investors have been led to believe that the SIP is an investment avenue. Furthermore, the panacea to the present testing phase is to select the best SIP and get invested therein.

 

The SIP is simply an investment mode i.e. a means to invest in mutual funds and not an investment avenue. When an investor chooses to invest via an SIP, he makes investments (usually) in smaller denominations at regular time intervals as opposed to making a single lump sum investment. The underlying intention is to benefit from the volatility in equity markets by lowering the average purchase cost. In this article, we discuss the pros and cons of SIP investing.

 

How an SIP helps…
As mentioned earlier, the most important role of an SIP is to lower the average purchase cost of an investment over the long-term. This is possible when equity markets experience a turbulent phase. Since the investment amount for each SIP installment is fixed, the investor gains by receiving a higher number of mutual fund units. An example will clarify this better. Suppose the monthly SIP is for Rs 1,000 and the fund’s net asset value (NAV) is Rs 50; this will lead to 20 units being credited to the investor. However, in the next month on account of the volatile markets, the fund’s NAV falls to Rs 40. This will lower the average purchase cost; as a result, the investor will have 25 units credited to his account. This is how an SIP can help investors benefit from volatility in equity markets.

 

Lack of disciplined investing is one of the major reasons for investors not achieving their financial goals. For example, often monies that are kept aside for investments end up getting used for other purposes. As a result, the investor is even further divorced from his goals. An SIP ensures that the investor stays the course by investing in a disciplined manner.

 

An often heard excuse for not investing is lack of monies. SIP takes care of this problem by lowering the minimum investment amount. For example, the minimum investment amount for a lump sum investment in a diversified equity fund could typically be Rs 5,000; conversely for an SIP, it can be as low as Rs 500. As a result, investing via the SIP route is lighter on the wallet..

 

Timing the market is a popular pastime with several investors. Investors have an inexplicable urge for timing markets and aim at getting invested when markets have bottomed out. It’s a different matter that timing markets to perfection and doing so consistently is beyond most investors. SIPs make market timing irrelevant.

 

Having discussed the benefits of SIP investing, now let’s consider the situations when an SIP won’t deliver…

 

1. In rising markets
An SIP may not be able to lower the average purchase cost if equity markets rise in a secular manner. In such a scenario, the average purchase cost could actually rise. So in a market rally, SIPs could prove to be more expensive vis-à-vis a lump sum investment.

 

2. A directionless SIP
A directionless SIP is one that does not form part of an investment plan; in other words, it’s an aimless SIP. The SIP is not an ‘end’; instead, it is the ‘means’ to achieve an end. Hence an SIP in isolation does not make ‘financial’ sense. Instead, the SIP should form part of an investment plan aimed at achieving a predetermined objective (like providing for a child’s education or buying a house).

 

3. An SIP in a poorly managed fund
Investing via an SIP doesn’t improve the prospects of a poorly managed fund. Such a fund stays the same, irrespective of the investment mode. Its shortcomings will not be eliminated by an SIP. Hence the key lies in first selecting a well-managed fund that is right for the investor and then investing in it via an SIP.

 

As can be seen, the SIP mode of investing has a fair number of advantages to offer; conversely, there can be instances when it may not deliver as expected. Investors on their part should make well-informed investment decisions after acquainting themselves of both the pros and cons.

Different sources define value investing differently. Some say value investing is the investment philosophy that favors the purchase of stocks that are currently selling at low price-to-book ratios and have high dividend yields. Others say value investing is all about buying stocks with low P/E ratios. You will even sometimes hear that value investing has more to do with the balance sheet than the income statement.

In his 1992 letter to Berkshire Hathaway shareholders, Warren Buffet wrote:

“We think the very term ‘value investing’ is redundant. What is ‘investing’ if it is not the act of seeking value at least sufficient to justify the amount paid? Consciously paying more for a stock than its calculated value – in the hope that it can soon be sold for a still-higher price – should be labeled speculation (which is neither illegal, immoral nor – in our view – financially fattening).”

“Whether appropriate or not, the term ‘value investing’ is widely used. Typically, it connotes the purchase of stocks having attributes such as a low ratio of price to book value, a low price-earnings ratio, or a high dividend yield. Unfortunately, such characteristics, even if they appear in combination, are far from determinative as to whether an investor is indeed buying something for what it is worth and is therefore truly operating on the principle of obtaining value in his investments. Correspondingly, opposite characteristics – a high ratio of price to book value, a high price-earnings ratio, and a low dividend yield – are in no way inconsistent with a ‘value’ purchase.” Buffett’s definition of “investing” is the best definition of value investing there is. Value investing is purchasing a stock for less than its calculated value.

Tenets of Value Investing

1) Each share of stock is an ownership interest in the underlying business. A stock is not simply a piece of paper that can be sold at a higher price on some future date. Stocks represent more than just the right to receive future cash distributions from the business. Economically, each share is an undivided interest in all corporate assets (both tangible and intangible) – and ought to be valued as such.

2) A stock has an intrinsic value. A stock’s intrinsic value is derived from the economic value of the underlying business.

3) The stock market is inefficient. Value investors do not subscribe to the Efficient Market Hypothesis. They believe shares frequently trade hands at prices above or below their intrinsic values. Occasionally, the difference between the market price of a share and the intrinsic value of that share is wide enough to permit profitable investments. Benjamin Graham, the father of value investing, explained the stock market’s inefficiency by employing a metaphor. His Mr. Market metaphor is still referenced by value investors today:

“Imagine that in some private business you own a small share that cost you ,000. One of your partners, named Mr. Market, is very obliging indeed. Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly.”

4) Investing is most intelligent when it is most businesslike. This is a quote from Benjamin Graham’s “The Intelligent Investor”. Warren Buffett believes it is the single most important investing lesson he was ever taught. Investors ought to treat investing with the seriousness and studiousness they treat their chosen profession. An investor should treat the shares he buys and sells as a shopkeeper would treat the merchandise he deals in. He must not make commitments where his knowledge of the “merchandise” is inadequate. Furthermore, he must not engage in any investment operation unless “a reliable calculation shows that it has a fair chance to yield a reasonable profit”.

5) A true investment requires a margin of safety. A margin of safety may be provided by a firm’s working capital position, past earnings performance, land assets, economic goodwill, or (most commonly) a combination of some or all of the above. The margin of safety is manifested in the difference between the quoted price and the intrinsic value of the business. It absorbs all the damage caused by the investor’s inevitable miscalculations. For this reason, the margin of safety must be as wide as we humans are stupid (which is to say it ought to be a veritable chasm). Buying dollar bills for ninety-five cents only works if you know what you’re doing; buying dollar bills for forty-five cents is likely to prove profitable even for mere mortals like us.

What Value Investing Is Not

Value investing is purchasing a stock for less than its calculated value. Surprisingly, this fact alone separates value investing from most other investment philosophies.

True (long-term) growth investors such as Phil Fisher focus solely on the value of the business. They do not concern themselves with the price paid, because they only wish to buy shares in businesses that are truly extraordinary. They believe that the phenomenal growth such businesses will experience over a great many years will allow them to benefit from the wonders of compounding. If the business’ value compounds fast enough, and the stock is held long enough, even a seemingly lofty price will eventually be justified.

Some so-called value investors do consider relative prices. They make decisions based on how the market is valuing other public companies in the same industry and how the market is valuing each dollar of earnings present in all businesses. In other words, they may choose to purchase a stock simply because it appears cheap relative to its peers, or because it is trading at a lower P/E ratio than the general market, even though the P/E ratio may not appear particularly low in absolute or historical terms. Should such an approach be called value investing? I don’t think so. It may be a perfectly valid investment philosophy, but it is a different investment philosophy.

Value investing requires the calculation of an intrinsic value that is independent of the market price. Techniques that are supported solely (or primarily) on an empirical basis are not part of value investing. The tenets set out by Graham and expanded by others (such as Warren Buffett) form the foundation of a logical edifice.

Although there may be empirical support for techniques within value investing, Graham founded a school of thought that is highly logical. Correct reasoning is stressed over verifiable hypotheses; and causal relationships are stressed over correlative relationships. Value investing may be quantitative; but, it is arithmetically quantitative.

There is a clear (and pervasive) distinction between quantitative fields of study that employ calculus and quantitative fields of study that remain purely arithmetical. Value investing treats security analysis as a purely arithmetical field of study. Graham and Buffett were both known for having stronger natural mathematical abilities than most security analysts, and yet both men stated that the use of higher math in security analysis was a mistake. True value investing requires no more than basic math skills.

Contrarian investing is sometimes thought of as a value investing sect. In practice, those who call themselves value investors and those who call themselves contrarian investors tend to buy very similar stocks.

Let’s consider the case of David Dreman, author of “The Contrarian Investor”. David Dreman is known as a contrarian investor. In his case, it is an appropriate label, because of his keen interest in behavioral finance. However, in most cases, the line separating the value investor from the contrarian investor is fuzzy at best. Dreman’s contrarian investing strategies are derived from three measures: price to earnings, price to cash flow, and price to book value. These same measures are closely associated with value investing and especially so-called Graham and Dodd investing (a form of value investing named for Benjamin Graham and David Dodd, the co-authors of “Security Analysis”).

Conclusions

Ultimately, value investing can only be defined as paying less for a stock than its calculated value, where the method used to calculate the value of the stock is truly independent of the stock market. Where the intrinsic value is calculated using an analysis of discounted future cash flows or of asset values, the resulting intrinsic value estimate is independent of the stock market. But, a strategy that is based on simply buying stocks that trade at low price-to-earnings, price-to-book, and price-to-cash flow multiples relative to other stocks is not value investing. Of course, these very strategies have proven quite effective in the past, and will likely continue to work well in the future.

The magic formula devised by Joel Greenblatt is an example of one such effective technique that will often result in portfolios that resemble those constructed by true value investors. However, Joel Greenblatt’s magic formula does not attempt to calculate the value of the stocks purchased.

So, while the magic formula may be effective, it isn’t true value investing. Joel Greenblatt is himself a value investor, because he does calculate the intrinsic value of the stocks he buys. Greenblatt wrote “The Little Book That Beats The Market” for an audience of investors that lacked either the ability or the inclination to value businesses.

You can not be a value investor unless you are willing to calculate business values. To be a value investor, you don’t have to value the business precisely – but, you do have to value the business.

Would you join a safe stock market investment club where you met regularly with friends to have a good time, learn something, and hopefully make some money? If you said yes to that statement, you might want to consider joining, or starting your own, investment club.

An investment club is simply a group of people who share an interest in the stock market pooling their resources into one large investment. Investment clubs are long-term commitments. They are a wonderful way to get to know the stock market, have a good time, and, over time, make some money. But making money should not be the primary reason to join an investment club – since investing is always, even in a shared setting, a risky venture.

Generally, an investment club has between 10 and 40 members, though many seem to settle around 16 as a good number. Decisions on investing are made democratically, either in a one person, one vote fashion; or with weighted votes, where each person`s voting strength is determined by the amount they have invested in the safe stock market investment club. Safe Stock Market Investment Clubs can be partnerships, or corporations, though partnerships are more common. They can meet monthly, or twice monthly. They set up different committees, they research stocks in different ways, they each have their own investment goals.

Investment clubs are as individual as the investors that make them up. What they have in common is a desire to get to know the ins and outs of the stock market. To come together with like-minded people to realize more from your investment capital, over the long-term, and to enjoy yourself while you are doing it.

Enjoyment is a key part of an investment club. If you`re not having fun while you are participating in the safe stock market investment club, it`s probably not the safe stock market investment club for you. And it should go without saying that if you are looking to make a quick profit, an investment club is not the place to be.

Unfortunately, it`s often difficult to join an established investment club. Many of them have been operating for years, even decades, with the same members and they aren`t likely to grow. Which leaves many hopeful club members with the option of starting their own safe stock market investment club. This is a great option, but it should be considered carefully. Make sure that you fully understand what needs to happen for your safe stock market investment club to be successful, and be sure you are starting for the right reasons. Here are a few points you might want to consider:
.
Are you being realistic?
If you`re starting an investment club to make a large profit in the stock market, you`ll likely become very disappointed. The goal of an investment club is to learn more about the stock market, and to have fun. If you have dreams of becoming rich you`ll be starting the safe stock market investment club for the wrong reasons. Remember, joining an investment club means joining for a long period of time.

Are you willing to be an amateur?
Starting an investment club won`t make you an expert in the stock market overnight. In fact, an investment club is ideal for a group of amateurs who want to learn about how the stock market works and what it can do for them. An investment club is a safe environment in which you can invest without the worry of losing a large amount of your hard earned dollars when something unexpected happens.

You can start with a little.
Don`t think that you need a lot of money to start an investment club. You can set a minimal fee for each month`s contribution that will fit into your budget. You can determine what that minimum monthly contribution should be when you have your first meeting of the investment club.

There is strength in numbers.
On your own you may not have enough money to invest in the stock market in a way that will let you realize a reasonable profit. However, when you combine your investment dollars with the dollars of others in the safe stock market investment club you`ll have a significant amount of money to invest in the stocks that you think may be successful. Keep in mind that just as there is strength in numbers there is also a shared sense of security when you`re not investing alone.

Do you like democracy?
One thing that you should keep in mind is that your voice will be part of the larger group and you may not always get your way. If you`re unable to sit back when you`ve been outvoted on a favourite stock, and let another investment choice be made, then an investment club might not be for you.

Can you be satisfied with a learning experience?
You should be prepared to never realize a profit from the stock market. One of the key parts of an investment club is the benefit of studying the stock market with other people with the same interests as yourself. If you never make a penny you should still be happy with your participation as part of an investment group.

Investment clubs are great ways to get to know the stock market in a safe, supportive, and fun environment. Starting your own investment club will make sure that you have a safe stock market investment club that will closely reflect your interests, though there will be compromises in any group setting. Friends, fun, a chance to study something you are keenly interested in, and a chance to make money. An investment club can be the best of all worlds.

Different Types of Investments:

As we said last time, owning a stock is like owning part of a company. As the company rises or falls in value, so does the price of it’s stock. A key distinction is that the value of the stock is not only driven by the fundamental value of the company, but by other factors as well. These factors may include overall stock market trends, domestic versus foreign trade issues, business sector climate, etc. Owning a bond, is like owning part of a loan to a company or institution, like the State of Texas. Bonds typically pay a fixed amount of dividend as the loan is repaid. The bond’s value is determined by the interest rate on the underlying loan, and the current interest rates and trends in the marketplace. For example, who would not want own a 10% bond right now, when the money markets or bank passbook savings accounts are paying 3%? Should the institution or company fail or default on the loan, you could lose all or most of your bond’s value. Large companies or institutions usually issue bonds; so the risk is greatly reduced over owning a company’s stock share.

A stock mutual fund, is a group of stocks owned by a fund company to achieve certain investment objectives. Likewise a bond mutual fund is a group of bonds held to achieve a certain investment objective. Mutual funds, in both stock and bond types exist in many styles and forms. Fundamentally they are a savvy collection of stocks or bonds assembled and professionally managed for a specific or combination of investment aims. These typically diversify your investments so that no one particular company can sink your entire investment. The converse is that no one single stock can shoot your mutual fund up to a huge return.

Typically each mutual fund focuses upon growth, income, value, large, small or mid-capitalization companies, or a combination of these objectives. There are thousands of different funds and dozens of fund families to choose from. There are also companies that rate mutual funds, like Morningstar (www.morningstar.com ). Some mutual funds use a management team to select and prune stocks in the portfolio, some use certain methods, and some follow the leadership of a single fund manager. You should check these out before investing in a particular fund.

An oft-overlooked mutual fund consideration is the management fee or what are referred to as 12b-1 fees. Most fees are in the range of 1 to 2%. Be wary of any fund outside that range. The United States Securities and Exchange Commission can help unravel some of these issues for you. A good starting point is their investor section on mutual fund performance, specifically www.sec.gov/investor/pubs/mperform.htm . They also have a fund cost calculator to help take into account the fund management fees. Some funds are no-load mutual funds because they do not pay a sales person any commissions for selling fund shares. These are typically lower in cost, and if you own them for a long time, they can make a difference in the net return on your mutual fund investment. Conversely, there are loaded funds, which charge a commission when you invest in their fund. These vary widely in amounts, so ask for exact details before investing. Some require you to pay the sales commissions; others add that to the fund expenses. Either way it’s a cost to you. The Vanguard Funds (www.vanguard.com ) are often mentioned as a leader in creating no-load, low cost mutual funds. You will find compelling arguments at their website for owning no-load funds. You should check carefully on overall fund performance including fees when evaluating fund choices.

Measuring Risk:

Most mutual fund and stock tables and resources will list something called the beta or volatility of the items listed. Beta is a measure of the risk of the security listed associated with variation of the security when compared to the overall stock market. If beta is 1, then the stock or mutual fund varies about the same as the general market index. If less than 1, then the security is less volatile than the general index of comparison, with higher than 1 meaning more risk.

Measuring Risk-adjusted Returns:

There is also parameter called alpha, which is the market-adjusted return of the security. If alpha is positive, then the security earned a higher return than the relative market index of comparison. If alpha is negative, then the security earned less than the market did.

Minimizing Overall Risk:

Risks in the future may be reduced in the present only through preparation, planning and actions!

We discussed preparation and planning for the future in the last Investment Corner, which is a key risk-reduction strategy.

Risk reduction for investing is typically achieved through:

• Diversification,

• Portfolio Allocation,

• Pre-determined buying and selling prices, and

• Adherence to personal investing rules.

Now let’s look at the first part of risk reduction strategy for investing.

Diversification:

Diversification is spreading out your investments across several areas to reduce risk and capture growth in multiple places. Diversification is typically done at several levels. At the uppermost level, we typically diversify investments across different investment vehicles, such as cash, stocks, bonds and real estate. By doing this, we reduce several important risks. Inflation can reduce the value of cash on hand over time, which is why smart folks do not keep their life savings in cash hidden in a mattress! On the other hand, inflation can drive down the value of fixed dividend investments like bonds as well. Real estate may rise or decline with inflation, depending upon the health of both the local and the greater economies. Fixed hard assets like precious metals funds (gold) will usually rise on inflation or fears of inflation. Other risks include stock market declines, individual company bankruptcies, and so on…. By not “placing all the eggs in one basket” we lower our exposure to risks through diversification. During broad stock market declines, many folks move assets from stocks to cash or bonds. And of course the opposite during bull market runs.

Another diversification notion is that of slicing up your investment by specific growth sectors. Within a specific type of investment vehicle, say Mutual Funds, we diversify across the available growth and income sectors. Typically this is large, medium and small companies, as well as high dividend or high growth type stocks. You also could look into diversifying into domestic or international companies such as Asia-Pacific.

At the lower levels of investment diversification are multiple choices within a specific growth target. Most advisors strongly recommend diversification within a stock or bond market holding. If you feel for example that the Internet’s growth will continue or expand soon, buying stock in several companies who offer Internet products would help lower risk of any one company not doing too well. Diversification across several stocks is usually done in simple form through equal partitioning. If for example you had ,000 to invest, how would you do it? You could place 20% of your total investment amount in each of 5 different Internet stocks as in Table I:

Table I –Stock Investment Diversification

Stock Name Current Price 90 Day High 90 Day Low Amount Invested ~ Shares

Company A 00 80

Company B 00 50

Company C 00 33

Company D 0 0 8 00 7

Company E 00 250

By looking at the trading ranges across the 90-day history, you can estimate the risks or volatility of each stock. Do the stocks have the same risks? Do they all have the same growth potential?

One approach would be to allocate risks equally, as opposed to allocating investment equally. You would be to use the information in the range of stock trading prices to assess risk and re-allocate your investments as this diversification calculator shows below in table II:

Table II – Risk Diversification Calculator

Risk Diversification Calculator

Investment Amount ,000

Stocks 5

Stock_1 Stock_2 Stock_3 Stock_4 Stock_5

90-day Max 0

90-day Min 8

Cur. Price 0

Trade Rnge 32% 50% 67% 41% 100%

Eq. Amt ,000 ,000 ,000 ,000 ,000

$ $ at Risk 0 ,000 ,333 9 ,000

Risk Ratio 1 1.5625 2.083 1.28 3.125

Risk-Red. ,000 ,280 0 ,562 0

Adj. Inv.,104 ,987 ,490 ,425 3

If you do not want to do the research and monitoring required for several individual stocks or bonds, choosing a mutual fund may be the wisest choice, with a smaller but usually acceptable return on your investment. The key question you need to answer is not “Should I diversify?”, but rather “How will I diversify my investments?”

About YOU

The primary things you should know about yourself before selecting among the different types of investments are:

I. How much of my time is available to monitor/manage my investments?

II. How often do I want to change my investment choices?

III. Do I want help and advice from investment professionals?

These are important questions you need to answer for yourself. All investment requires some time commitments to monitor and manage. When stock markets or life situations begin to change, you may need to change your investment choices. If your experience level does not warrant it, getting professional help may increase both your results and comfort level.

I. Time to manage your investments: Your time is worth money! At least if you can put it to good use in managing your investments… but do not become obsessive with it. Investments take time to grow. Every investment portfolio must be watched and pruned from time to time. You wouldn’t want to look back after 5 years and find that right after your investment choices were made, that the business climate changed and those choices had become poor performers.

Two typical uses of your time applied to investment managing:

• Weekly, monthly or quarterly checking for:

o Stock movements

o Business climate changes,

o Company news

• Annual or quarterly allocation changes

o Re-planning or shifting your plans

o Pruning and re-diversification

o Reallocation of investment amounts

Weekly or Monthly Check-ups

If you buy individual stocks and bonds, these will need monitoring more often than if you had purchased mutual funds. However, stock and bond funds need attention too, just less often.

Some questions you should answer for yourself are:

• Can I afford time each week to check investments (Friday night or Saturday morning)? This is important for individual stocks and bonds.

•Am I disciplined enough to check my investments periodically? This is critically important, as the business environments are constantly changing.

• Can I put this on a monthly calendar and stick with it? Monthly checkups are important no matter what your investments may be…

• If I get an automatic e-mail sent will I read it? Many investment houses will do this for all accounts above a certain size limit. You can pool your investments under one roof, usually with savings in cost plus perks for research, quotes, e-mails, etc. Both Fidelity and Schwab are good examples of these services once you reach certain size limits.

Quarterly or Annual Check-ups

If you are only into mutual funds as investment vehicles, then you need check them only quarterly or annually. After all you are giving up some small amount of income to pay for professionally managed investments, right? You may want to keep up with monthly or weekly news on the investment fund management team, however, as management team shakeups there could cost you. The key thing is disciplined reviews and setting a schedule that you can stick to. Ignorance in this case can be dangerous, so do it together with your spouse or a family member that you trust. As you get good at it, the time required to do these should drop from several hours to perhaps an hour to review all your investments. If you have been keeping tabs on things, it can be shorter still.

“Even if you’re on the right track you will get run over if you just sit there!” – Will Rogers.

II. Changing your investment choices:

The challenge when deciding to change investments is often the emotional content. “We had a return of say 7%, when the broader markets got only 5%”. How did the overall group for your investment vehicle do? Morningstar provides good index comparisons, as do other groups. If your choices did not perform above the class average for 1 or 2 quarters in a row, it’s probably a good idea to consider other alternatives. That may require all the same diligence of researching an investment as you did originally. If you are seriously concerned and need to act quickly, you can always sell and put the proceeds into cash or a money market for a short time while you do the research.

III. Getting help from professionals:

I have often found the larger funds and investment houses to be a plethora of information via the Internet. They have how-to guides, acronym explanations, and in general some great advice. If however, these seem to complex for you, or you would prefer to seek out a single person with whom to deal, then find a Certified Financial Planner. The best ones should be able to provide references, a track record, and a good deal of services all at your doorstep. These services do not come free and can be in the thousands of dollars to set up your initial plans. Be certain to check 3 to 5 references and interview several planners before deciding. Determine what you pay exactly and what you get exactly after your selection is made. Be certain that they are certified, a place to begin is: http://www.cfp.net/ .

Summary

We’ve covered a lot of ground in this topic of stock and bonds versus mutual funds. Primarily remember that individual stocks require more monitoring, but can yield higher returns. The same applies somewhat to individual bonds. Newer investors to these may want to start with mutual funds, Money magazine has an annual issue every February that is very helpful and is usually available at public libraries. Finally remember to lower your risks by diversification, no matter what investments you make. Ask yourself the questions we reviewed about your time commitments and discipline for monitoring as part of the investing process. And of course, read-up on the Internet and some of the books listed below.

Next time – Portfolio Allocation, Pre-determined trigger points, and Personal investing rules …

Self-Study:

Some great resources to continue your journey are located on the web.

Try visiting these sites:

•http://www.greatcompaniesgreatcharts.com/archives/001864.html

•http://www.rightline.net/home/gate_rm.html

•http://www.investorguide.com/stockfaq.html

•http://www.pascoresearch.com/int_alpha.asp

•http://www.stockbook.com/Evaluator/

Or read these well known authors and books:

• William J. O’Neil: How to Make Money in Stocks

• John Boik: Lessons from the Greatest Stock Traders of All Time

• John C. Bogle: Common Sense on Mutual Funds : New Imperatives for the Intelligent Investor

Additional info from this author may be found at http://www.green-energyNJ.com