Investing: Personal Portfolio

Before one decides that they want to invest they need to make a few sub-decisions. Firstly one must know the purpose why they are investing, where they will invest, how they will invest and when they will invest. If these elements are not outlined clearly then there may be losses that occur because of this indecision.THE WHY QUESTIONDealing with the why question involves looking to the future. This is the intent and purpose why you are delaying consumption. Many people have different reasons why they go into different investment vehicles. As an investor you need to decide what tenure is best for you. I personally classify investment horizons into three; short, medium and long term. The short-term is for those investors who want a quick maturity of their investments that ranges from days to a year. Medium-term would be anything from 1 year to 5 years. Long-term would be anything above 5 years.For example is someone is trading on news or merely speculating on price movements, they would go long or short for a limited time horizon. In this type of investment technical analysis is used to study the trends and candlesticks of an underlying investment such as currency pairs in foreign exchange arbitrage. Transactions of this kind can hardly be called investing. I would call them speculating since they do not take into account any meaningful fundamentals and hence the odds of making a profit become no different than tossing a coin. However if someone is saving for a wedding it would be critical to have an investment vehicle that is liquid and preserves the initial capital or principal such as fixed income securities or treasury bills (TBs). Such a person would be looking at a medium-term horizon depending on when he intends to liquidate and have the wedding. However if a 25 year old starts saving for retirement they have more time to hold investments until their prices align with their true values (in the case of value investors). Such a person could go long in stocks and hold them. In this instance, fluctuation of the stock is not as important since liquidation of the investment is deferred.It is vital for anyone to decide why they are investing as this will give an acceptable time horizon bench-mark and more importantly determine the risk level acceptable to their portfolio.THE WHERE QUESTIONOnce one is clear why they are investing, it will not be hard to establish where they must invest. If you are simply speculating then there is need to take cover in the hedging system. This is because your positions are just guesses that may turn out wrong. This was coined in the saying “downside risk and upside potential”. So if you have bought long a mining stock that you anticipate going up, you may want to protect yourself by going to the derivatives market and buy a put on the same stock. A put is a right but not an obligation to sell an underlying security at a predetermined strike price in the future. So if the security price goes down the holder of the put may still sell at a higher price than the ruling market value of the underlying security (mining stock). These complex transactions are normally done by active traders in search of alpha. I would not recommend a novice trader to be dealing the derivatives market as even the most experienced fund managers and business remodeling gurus like Andrew Fastow shipwrecked because of them.The novice investor can participate in two broad markets; the money and capital markets. The rule to success is keeping it simple. The money market serves those who are in the short-term investment horizon and the capital market serves those who are in the medium to long-term investment horizon. These two markets can be very crucial in making sure that your portfolio is well diversified and balanced. The money market gives a choice of investments such as TBs, negotiable certificates of deposit (NCDs), and other short-term debt instruments. Such instruments stabilize the value of a portfolio since they are not as volatile as stocks. The mix between stocks and debt instruments in a portfolio should be according to an investors risk profile. For the risk-averse investor, a portfolio could have 60%-80% debt instruments (with triple A ratings) and 20%-40% stocks (blue chips). For the more risk-loving investor a portfolio could have the above weighting but however inverted between stocks and debt instruments.You can choose to divide the debt into time horizons as well but however remember that there is price volatility on long-term bonds caused by interest rate fluctuations. Stocks can be sub-divided into small, medium and large cap; value, growth, dividend and so on. If you are after higher return you could look at investing in emerging markets like India. The stock exchanges in India are among the top paying exchanges in the world in terms of yearly market return. It may be a mammoth task to invest in these exchanges on your own. You can easily do this through world funds like the Templeton India Growth Fund and many others. However to be able to harvest the maximum returns from these funds you need to hold your investment for more than five years. This is because you may end up being hurt by transaction costs and capital gains tax.HOW AND WHEN QUESTIONMutual funds are a good way to get started if you are a novice investor. It is not advisable to search for a fund using the highest returns from a single period. A fund has got to consistently return above market to qualify to be enlisted on your potentials. Also evaluate how they invest and their risk tolerance before you take the leap. Once you have invested do not jump from fund to fund as this will hurt your returns. Better still you may choose index funds that emulate a certain sector of the market or a whole market as John Bogle demonstrated with the Vanguard 500 Index Fund. The lack of active management generally gives the advantage of lower fees (which would otherwise reduce an investor’s return) and in taxable accounts, lower tax.If an investor has the basics to begin investing on their own, I would suggest a concentrated portfolio. This portfolio is made up of a small number of stocks (advisably below ten) that you select and invest in. At best a concentrated portfolio must have stocks from sectors that can achieve negatively correlated returns. However if one carries out a thorough fundamental analysis and constantly reviews the portfolio to check for divergences there will be no need to structure a portfolio using the academic approach mentioned above.Fundamental AnalysisWhen conducting fundamental analysis, an investor wants to be sure that they are buying a healthy business. Stock prices in the long run eventually align with the financial health of the underlying stock. The stock market punishes the weaklings and rewards the strong. Hence in doing your fundamental analysis you can look at the following aspects:1. Market share trends – when the market share of a business is decreasing it is a clear sign that it is heading for the doldrums. Business can be operating in decreasing, static or growing markets. You will be better off if you buy a company that is increasing its market share in either a static or growing market. An investor can use the Porter’s Five Forces to analyze an industry and the market trends existing therein.Management – the ultimate test of management is their frugality. In the words of Peter Lynch, if you invest in a company with gold plated toilet seats at its headquarters you have most likely contributed towards their purchase. Salaries paid to managers and the consistency of business strategy can also indicate the suitability of management. If you see management with such inconsistent strategies like raising equity financing and paying out dividends at the same time you should be suspicious. Managers must be open, have integrity and be honest. This is the criteria that the famous investor Warren Buffet uses.2. Return on Equity (ROE) – this is by far the most important indicator of the financial health of a business. This indicator shows the return as a percentage of the equity or shareholders’ worth. It is specifically an investor ratio. Look at the ratio starting 10 year back to the present time. Look at how the trend is progressing. Make sure the accounting policies are consistent over the same period to avoid concealment of salient problems. You should invest in companies with a high and/or increasing ROE ratio. This also shows that the management is careful to incessantly increase shareholder value.3. Price-Earnings Ratio (P/E) – this ratio equates the price of a share to the earnings it made over a period of 6 months or a year. It can also be a forward P/E when it measures using forecast earnings. This ratio is great if you are a value investor. You have heard the gurus say “always buy low and sell high to make the most returns”. But how do you determine whether a stock is cheap? You use the P/E ratio. However you must be careful to research why a stock has a low or high P/E ratio. According to the Efficient Markets Hypothesis all the information of a stock is reflected in its price. So if a stock has a low P/E ratio, it might be because it has very little prospects. On the other hand if a stock has a high P/E it may mean that the market has factored in its future growth. To measure this aspect analysts take to the PEG ratio that expresses the P/E over the future growth anticipated for that stock. However there are some stocks that tend to go under the market radar and it will take a lot of work to identify them.4. Dividend paying stocks – these companies give back money to the shareholder in the form of dividends. Buy stocks in companies that pay dividends or buy back their own stock. Any company that does not have suitable merger or acquisition targets must give back money to the shareholders. A lot of companies lose money by trying to go into new industries in which they are ill experienced. This is why a company which buys back its own shares is a good company to invest in. By buying back shares, a company is actually reducing the supply of those shares on the market. From your Economics 101 course you probably know that when demand is more than supply the price goes up. So when the price of the shares goes up the investor has been rewarded by capital gains. On the other hand when dividends are paid the investor has been rewarded by income.5. Debt – invest in companies that are debt-free or have low gearing. Gearing is the ratio of debt to equity. When a company is leveraged its returns will have more risk as measured by standard deviation. Also in bad times a leveraged company suffers more than a debt-free one. Debt covenants can be very stringent demanding a company to disclose whenever they enter into any riskier projects. Other lenders will recall the bonds placing the company at the risk of bankruptcy. Cash rich companies are better and less risky than debt-ridden ones. They can easily weather a financial storm than those companies in debt and cash-strapped.A passionate and savvy investor will always have a watch list. Certain stocks, however attractive, do not have the right prices. When the market dips and prices fall it would be the right time to buy them. For maximum gains invest in depressions or recessions. Wait for corrections in the market and then buy and hold. There are no formulae for knowing the rock-bottom of a bear market. Follow your gut! On the other hand you can always be buying stocks in a monthly programme known as dollar cost averaging. In this approach you select stocks based on the principles outlined above and you invest infinitely into the future and thereby averaging the price at which you buy the stock.

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7 Tips For Great Travels With a Partner

Planning a trip is almost as fun as the actual travel. All the excitement, the brochures, the talking late into the night… I love travel planning! Make sure that your journey has the same excitement from beginning to end, and that you come home still speaking to your travel companion!Here are my top 7 tips on enjoying your travels with your spouse, family or friends – whoever your travel partner may be:Understand different travel stylesDifferent people like to travel in different ways, even if these people have been married for many years. One person may like a planned-ahead itinerary while the other may just like to wing it. Know these differences ahead of time so that you can plan with both of you in mind. And if you’ll be traveling on a long trip with someone you’ve never traveled with before, a test overnight together may be a good idea.Plan an AgendaMake a list of what each of you would like to do or see while on your trip. Then look at the days and fill in the time with items from each of your lists. Leave open time for opportunities that come up that may be more fun or interesting than what you had planned for.Budget for the TripOutline what the trip will cost (airfare, hotel, transportation, food, tips, events, and of course shopping!) and determine who will be paying what. This eliminates a lot of discussion at dinner tables on who will pick up the tab. When traveling with others outside of your immediate family, talk ahead of time about paying for such things as alcoholic beverages or more expensive events, as everyone may not want to partake and have the same budget. Nothing can ruin a trip faster than money disagreements so plan in out ahead of time.Be FlexibleBe willing to compromise and be flexible during your trip. Do something your travel mate wants to do, then plan an event you want to do. Travel with an open mind to look for new adventures that you couldn’t imagine planning for.Have Some ‘Me’ TimeTraveling together doesn’t mean spending every moment together. Make time for some quiet reading, journaling, spa or other ‘me’ time and offer this same enjoyment to your travel companions.For my husband and myself, my ‘me’ time is sleep time, his is photography time. He wakes up early to catch a beautiful sunrise while I enjoy my time under the covers getting more sleep. It works perfectly for both of us.Laugh and Enjoy Your TravelsIt’s easy to get stressed with the unfamiliarity of your locale, language struggles and money issues. Focus on the enjoyment and fun of your trip, rather than let these disagreements put a dampen on it. Go into each day with the challenge to find new fun things to do. At the end of the day, talk about the enjoyment you had and you’ll have even more fun the next day.Bring Back Great MemoriesWhether you enjoy picking up souvenirs, postcards, journaling or taking your own photos, it’s great to reminisce about a wonderful trip when you see the items that you brought home.I collect magnets for our refrigerator and Christmas ornaments and my husband updates our screensaver with a few photos of every trip. We can sit in his office for hours (with a bottle of wine, of course!) watching these photos scroll by and they evoke very special feelings about each fabulous trip. Memories are wonderful.I hope these travel tips help you create fantastic, memorable journeys with even stronger relationships!

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Universal Health Care – The Ideal Health Care

There are various theories floating around about health care at the moment. Each and every single one has an ideal attached to it, in which every single individual gets accessible health care whenever they need it at an affordable rate. However, very few of them actually put a plan into action that dictates how the ideal would be achieved. One of those that does is universal health care. It does imply that every person in the world should have access to basic health care, which would raise the health level of the world. Universal health care also refuses to take factors like age, location and status into account. However, it is slightly optimistic considering the third world does not even have access to basic utilities yet.However, the idea of universal health care is backed by several ideas as to how it can be carried out. Universal health care should in fact be administered via a series of insurance policies that are controlled by the government of any given time. In this way, universal health care will give everyone access to health care whenever they need it at very little personal cost, thus ensuring that every single person can actually call a doctor out whenever necessary. Universal health care may also be administered through a series of clinics and other medical establishments to ensure that lower class individuals that cannot afford private health care can just drop by.Universal health care could actually be administered by any number of schemes in effect, but at least there are ideas in place to ensure that it could work if governments in power at the moment changed their policies. The ideal behind universal health care are valid as preventative as well as remedial because it would actually encourage everyone to have regular health checks to ensure that they stay in the best of health. This would include testing g younger people for STIs and monitoring their progress as they grow up via a series of vaccinations against diseases that may cut their lives short. Similarly, under universal health care would actually allow older people to be tested for ailments like diabetes on a regular basis too.Universal health care could provide treatment for every individual, whether they could afford it on paper or not. This would provide great positives for all of humanity and make for a much better world. There is so much more resting on universal health care than just health care alone. If we want a better world, we have to take the chance whenever we can. Universal is one of the chances we should take.

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Why “Free Market Competition” Fails in Health Care

In trying to think about the future of health care, thoughtful, intelligent people often ask, “Why can’t we just let the free market operate in health care? That would drive down costs and drive up quality.” They point to the successes of competition in other industries. But their faith is misplaced, for economic reasons that are peculiar to health care.More “free market” competition could definitely improve the future of health care in certain areas. But the problems of the sector as a whole will not yield to “free market” ideas – never will, never can – for reasons that are ineluctable, that derive from the core nature of the market. We might parse them out into three:1. True medical demand is wildly variable, random, and absolute. Some people get cancer, others don’t. Some keel over from a heart attack, get shot, or fall off a cliff, others are in and out of hospitals for years before they die.Aggregate risk varies by socioeconomic class and age – the older you are, the more likely you are to need medical attention; poor and uneducated people are more likely to get diabetes. Individual risk varies somewhat by lifestyle – people who eat better and exercise have lower risk of some diseases; people who sky dive, ski, or hang out in certain bars have higher risk of trauma.But crucially, risk has no relation to ability to pay. A poor person does not suddenly discover an absolute need to buy a new Jaguar, but may well suddenly discover an absolute need for the services of a neurosurgeon, an oncologist, a cancer center, and everything that goes with it. And the need is truly absolute. The demand is literally, “You obtain this or you die.”2. All demand apes this absolute demand. Medicine is a matter of high skill and enormous knowledge. So doctors, by necessity, act as sellers, and agents of other sellers (hospitals, labs, pharmaceutical companies). Buyers must depend on the judgment of sellers as to what is necessary, or even prudent. The phrase “Doctor’s orders” has a peremptory and absolute flavor.For the most part, people do not access health care for fun. Recreational colonoscopies are not big drivers of health care costs. In some cases, such as cosmetic surgery or laser eye corrections, the decision is clearly one the buyer can make. It’s a classic economic decision: “Do I like this enough to pay for it?” But for the most part, people only access health care because they feel they have to. And in most situations, it is difficult for the buyer to differentiate the truly absolute demand (“Do this or you die”) from the optional.Often it is difficult even for the doctor to tell the difference. The doctor may be able truthfully to say, “Get this mitral valve replaced or you will die. Soon.” More often, it’s a judgment call, a matter of probabilities, and a matter of quality of life: “You will likely live longer, and suffer less, if you get a new mitral valve, get a new hip, take this statin.At the same time the doctor, operating both as seller and effectively as agent for the buyer, is often rewarded for selling more (directly through fees and indirectly through ownership of labs and other services), and is not only not rewarded, but actually punished, for doing less (through the loss of business, the threat of malpractice suits, and punishment for insufficiently justifying coding).So the seller is agent for the buyer, the seller is rewarded for doing more and punished for doing less, and neither the buyer nor the seller can easily tell the difference between what is really necessary and what is optional.This is especially true because the consequences of the decision are so often separated from the decision. “Eat your broccoli” may actually be a life-or-death demand; maybe you need to eat more vegetables to avoid a heart attack. But you’re not going to die tonight because you pushed the broccoli around the plate and then hid it under the bread.So, because it is complex and difficult, and because its consequences are often not immediate and obvious, the buy decision is effectively transferred to the seller. We depend on the seller (the doctor) to tell us what we need. Whether we buy or not usually depends almost solely on whether we trust the doctor and believe what the doctor says.3. The benefit of medical capacity accrues even to those who do not use it. Imagine a society with no police. Having police benefits you even if you never are the victim of a crime. You benefit from that new bridge even if you never drive over it, because it eases the traffic jams on the roads you do travel, because your customers and employees and co-workers use it, and because development in the whole region benefits from the new bridge.This is the infrastructure argument. Every part of health care, from ambulances and emergency room capacity to public health education to mass vaccinations to cutting-edge medical research, benefits the society as a whole, even those who do not use that particular piece. This is true even of those who do not realize that they benefit from it, even of those who deny that they benefit from it. They benefit from having a healthier work force, from keeping epidemics in check, from the increased development that accrues to a region that has good medical capacity – even from the reduction in medical costs brought about by some medical spending, as when a good diabetes program keeps people from having to use the Emergency Room.All three of these core factors show why health care is not responsive to classic economic supply-and-demand theory, and why the “free market” is not a satisfactory economic model for health care, even if you are otherwise a believer in it.Answers for the future of health care?The answer to the first problem, the variability and absolute nature of risk, is clearly to spread the risk over all who share it, even if it is invisible to them. If you drive a car, you must have car insurance, and your gas taxes contribute to maintaining the infrastructure of roads and bridges; if you own a home, you must have fire insurance, and your property taxes pay for the fire department. Because of your ownership and use of these things, you not only must insure yourself against loss, you also must pay part of the infrastructure costs that your use of them occasions. Similarly, all owners and operators of human bodies need to insure against problems that may accrue to their own body, and pay some of the infrastructure costs that their use of that body occasions. However the insurance is structured and paid for, somehow everyone who has a body needs to be insured for it – the cost of the risk must be spread across the population.Skipping to the third problem, the infrastructure argument, its answer is somewhat similar: To the extent to which health care capacity is infrastructure, like police, fire, ports, highways, and public education, the costs are properly assigned to the society as a whole; they are the type of costs that we normally assign to government, and pay for through taxes, rather than per transaction. In every developed country, including the United States, health care gets large subsidies from government, because it is seen as an infrastructure capacity.That leaves the second problem, the way in which all demand apes the absolute nature of true demand in health care (“Get this or die”). The answer to this problem is more nuanced, because it is not possible to stop depending on the judgment of physicians. Medical judgment is, in the end, why we have doctors at all. But we can demand that doctors apply not just their own judgment in the moment, but the research and judgment of their profession. This is the argument for evidence-based medicine and comparative effectiveness research. If a knee surgeon wishes to argue that you should have your arthritic knee replaced when, according to the judgment of the profession as a whole, the better answer in your situation is a cortisone shot and gentle daily yoga, the surgeon should have to justify somehow, even if just for the record, why your case is different and special. The physician’s capacity to make a buy decision on your behalf must be restrained at least by the profession’s medical judgment. If the best minds in the profession, publishing in the peer-reviewed literature, have come to the conclusion that a particular procedure is ineffective, unwarranted, or even dangerous, it is reasonable for insurers, public or private, to follow that best medical judgment and stop paying for it.These three core factors – the absolute and variable nature of health care demand, the complexity of medicine, and the infrastructure-like nature of health care capacity – are all endemic to health care and cannot be separated from it. And all three dictate that health care cannot work as a classic economic response to market demands. Failure to acknowledge these three core factors and structure health care payments around them account for much of the current market’s inability to deliver value. Paying “fee for service,” when the doctor is both the seller and acting as agent for the buyer, and when the doctor is punished for doing less, is a prescription for always doing more, whether “more” delivers more value or not. Paying “fee for service,” unrestrained by any way to make classic value judgments, means that hospitals and medical centers respond to competition by adding capacity and offering more services, whether or not those services are really needed or add value.For all these reasons, it is vastly more complex to structure a health care market rationally, in a way that delivers real value, than it is to structure any other sector, and simply fostering “free market” competition will not solve the problem.

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