Solar Power

Solar power bankruptcies loom as prices collapse - Nov. 30, 2011:

"NEW YORK (CNNMoney) -- The once high-flying solar power sector is headed for tough times, as a combination of slack demand and massive oversupply is leading to plummeting prices and profits for solar panel makers.

The past year was already grim. The Guggenheim Solar (TAN) exchange-traded fund is down 60% since January and sits even lower than it did following the crash in 2008."

Two high profile companies have gone bankrupt in the United States --government-backed Solyndra and Evergreen -- and analysts anticipate more failures ahead.

Just how many? Of the few hundred or so solar panel makers worldwide, just 20 to 40 are expected to remain standing in a few years time, said Mark Bachman, a renewables analyst at Avian Securities.

This isn't necessarily a bad thing for solar power. Bachman noted that many young industries go through this phase -- think of all the auto makers at the beginning of the last century or television makers 40 years ago. As the market matures, the stronger companies survive.

And there's an upside to declining prices: It means more people are likely to go solar.
But the next couple of years will be wrenching for companies and investors in the solar power space as the weaker players go bust or get bought by larger rivals.

The fall: In some ways, the bust was inevitable. For much of the last decade solar power worldwide saw annual growth rates in the double or even triple digits.

Those tantalizing numbers led to massive over-investment. Stock valuations for publicly traded companies soared, as did state support from the Chinese government, which saw solar power as a growth industry and a way to curb rising pollution.

Both of these things led to a massive amount of available capital. Factories were built and production capacity mushroomed.

But just as all these new solar panels were making their way to market, the debit crisis hit in Europe. The generous subsidies offered to solar power by European governments and utilities were cut. Demand for solar panels fell.

Plus, solar project developers were having a hard time getting credit to build new power plants, further cutting into demand. Prices for solar panels began falling rapidly.

A year ago solar panels were selling for $1.50 to $2 per watt, said Ramesh Misra, a senior analyst at Brigantine Advisors, a research outfit. Now they sell for half that, and the decline hasn't stopped.
U.S. to investigate Chinese solar 'dumping' claims

For solar power developers, even if they have the money and subsidies lined up, there's every incentive to wait.

So inventories build up, companies sell panels at below-market rates just to move product, and the downward spiral continues.

The shakeout: What has to happen to turn things around?

Better access to credit, a more stable subsidy policy and fewer solar panels on the market, analysts say. Fewer panels means fewer solar panel makers.

Many analysts say it's the top-tier solar producers that have the technology and name recognition to come out on top. Those include The United States' Sunpower (SPWR) and First Solar (FSLR), as well as China's Yingli (YGE), Trina (TSL) and Jinkosolar (JKS).

Yet other analysts think it's the Chinese firms that sell unbranded solar panels that will prevail. These firms have often benefited from government support that includes massive low-interest loans.

These companies have also been accused of selling solar panels below cost, most recently in a trade dispute filed with the U.S. Commerce Department on behalf of some publicly traded solar panel makers.

Chandra thinks there's no way the publicly traded firms can compete with the generic Chinese companies, given their backing by the Chinese government.

"You're not competing with Chinese companies," he said. "You're competing with China sovereign." 

SOURCE:
http://money.cnn.com/2011/11/30/technology/solar_power/?source=cnn_bin

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Was Facebook Forced to Go Public? - The Daily Beast

Was Facebook Forced to Go Public? - The Daily Beast:

Was Facebook Forced to Go Public?

Why is Facebook going public in a weak economy? It may not have a choice. According to The New York Times, the company has been handing out so many shares that federal regulations are kicking in. The law says companies with more than 500 shareholders must file reports, including financial audits, to the SEC. Facebook likely passed that mark this year, thanks to two events: longtime employees exercising their options and selling their shares to private investors; and the $1.5 billion in shares the company sold to private investors through Goldman Sachs. Facebook will be required to begin disclosing the new information by April 2012.

Read it at The New York Times

November 30, 2011 6:28 AM

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‘Aftershock’ Book Predicts Economic Disaster Amid Controversy

‘Aftershock’ Book Predicts Economic Disaster Amid Controversy:
Sunday, 24 Jul 2011

Robert Wiedemer’s new book, “Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown,” quickly is becoming the survival guide for the 21st century. And Newsmax’s eye-opening Aftershock Survival Summit video, with exclusive interviews and prophetic predictions, already has affected millions around the world — but not without ruffling a few feathers.

Initially screened for a private audience, this gripping video exposed harsh economic truths and garnered an overwhelming amount of feedback.

“People were sitting up and taking notice, and they begged us to make the video public so they could easily share it,” said Newsmax Financial Publisher Aaron DeHoog.

But that wasn’t as simple as it seems. Various online networks repeatedly shut down the controversial video. “People were sending their friends and family to dead links, so we had to create a dedicated home for it,” DeHoog said.

(Editor's Note: Watch Bob Wiedemer’s Aftershock Survival Summit video)

This wasn’t the first time Wiedemer’s predictions hit a nerve. In 2006, he was one of three economists who co-authored a book correctly warning that the real estate boom and Wall Street bull run were about to end. A prediction Federal Reserve Chairman Ben Bernanke and his predecessor, Alan Greenspan, were not about to support publicly.

Realizing that the worst was yet to come, Wiedemer and company quickly penned “Aftershock.” However, just before it was publicly released, the publisher yanked the final chapter, deeming it too controversial for newsstand and online outlets such as Amazon.com.

“We got lucky,” DeHoog said. “I happened to read the original version, which contained this ‘unpublished chapter,’ which I think is the most crucial in the entire book. Wiedemer gave Newsmax permission to share this chapter with our readers.”

With daily economic forecasts projecting doom and gloom and no recovery in sight, people need to learn how to survive economic disaster. During the past quarter alone, unemployment skyrocketed to 9 percent. Inflation continues to soar and the U.S. national debt crisis is still on the fence between raising the debt ceiling or massive budget cuts, with no resolution in sight.

During Newsmax’s Aftershock Survival Summit video, Wiedemer discusses the dire consequences of Washington, D.C.’s, bipartisan, multi-decade “borrow-and-spend” agenda. He also explores the inflation nightmare, the impending plunge in home prices, the looming collapse of the stock and bond markets, a possible historic surge in unemployment, and how to survive what life in America will be like in the days of the “Aftershock.”

Despite appearances, Aftershock is not a book with the singular intention of scaring the heck out of people. Although it does provide a harsh outlook for the economic future of America, the true value lies in the wealth of investment tips, analyses, predictions, budget advice, and sound economic guidance that people can act on immediately, offering a ray of recovery hope and an indispensable blueprint for life after shock.

Viewers of Newsmax’s Aftershock Survival Summit video heard detailed advice for handling credit card debt, home and car loans, life insurance, unemployment issues, how to beat inflation, making personal budget cuts and many more recovery tools to survive the economic aftershock. They also took advantage of a special Newsmax offer for a free copy of the new edition of “Aftershock,” which includes the final “unpublished chapter.”

(Editor's Note: Watch Bob Wiedemer’s Aftershock Survival Summit video) 

For a limited time, Newsmax is showing the Aftershock Survival Summit and supplying viewers with free copies of the “Aftershock” book (while supplies last).
© Newsmax. All rights reserved.



Read more on Newsmax.com: ‘Aftershock’ Book Predicts Economic Disaster Amid Controversy


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The Glass is Half-full is a good working philosophy

Concentrating on a positive outcome rather than avoiding a negative one leads to greater persistence, flexibility, creativity, motivation, and satisfaction. In short, expecting success makes us more likely to succeed.

Facebook IPO - Why Investors Should Be Wary

Video - Why Investors Should Be Wary of Facebook IPO - WSJ.com:




Facebook may be a great company but not necessarily a great stock, says Tim Keating, chief executive of Keating Capital, which invests in pre-IPO firms. Keating tells MarketWatch's Jonathan Burton why a hot new issue can be too risky for some. 

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Facebook Targets 2nd Quarter for Initial Public Offering

Video - Facebook Targets 2nd Quarter for Initial Public Offering - WSJ.com:

Facebook is looking to go public between April and June 2012, with a possible filing by the end of this year. WSJ's Geoffrey Fowler discusses the latest details on the much anticipated IPO with Stacey Delo. (Photo: Getty Images)







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The Rich Get Richer

13 Staggering Facts About The Global Super Rich - Exposing The Truth:

And the bottom two-thirds account for just 3.3% of wealth.

Here you can see what continents comprise different wealth deciles. Developed markets clearly dominate the top 10%

Wealth inequality in Africa is so high that while almost half of African adults are in the bottom two wealth deciles, some individuals are still in the top 1%.

China, India, Latin America and Africa account for 56% of the world’s population, but just 16% of its wealth.

The U.S. is home to 21% of people who have more than $100,000 in wealth. Japan is home to 16%.

And those numbers are even more concentrated when you look at millionaires. One-third of the world’s millionaires live in the U.S. Sweden and Switzerland each have 2% of global membership, but a much smaller fraction of the global population.

And the number of ultra-high net worth individuals is growing, due, in part, to the fact that “the past decade has been especially conducive to the establishment of large fortunes,” according to Credit Suisse.

This year, Europe surpassed the U.S. in terms of the number of high-net worth residents (who own between $1 million and $50 million).

However, it’s the only region where the growth of wealth slowed down in the past year.


In terms of ultra-high net worth individuals (with net assets above $50 million), the U.S. still dominates. It’s home to 42% of the group.

The U.S. is home to 32% of the world’s billionaires and 41% of people whose net worth exceeds $10 million.

China’s share is increasing. The number of millionaires in China is expected to double between now and 2016.



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Estée Lauder Heir’s Tax Strategies Typify Advantages for Wealthy

Estée Lauder Heir’s Tax Strategies Typify Advantages for Wealthy - NYTimes.com:

To celebrate the 10th anniversary of the Neue Galerie, Mr. Lauder’s museum of Austrian and German art, he exhibited many of the treasures of a personal collection valued at more than $1 billion, including works by Van Gogh, Cézanne and Matisse, and a Klimt portrait he bought five years ago for $135 million.

As is often the case with his activities, just beneath the surface was a shrewd use of the United States tax code. 

By donating his art to his private foundation, Mr. Lauder has qualified for deductions worth tens of millions of dollars in federal income taxes over the years, savings that help defray the hundreds of millions he has spent creating one of New York City’s cultural gems.

The charitable deductions generated by Mr. Lauder are just one facet of a sophisticated tax strategy used to preserve a fortune. 

From offshore havens to a tax-sheltering stock deal so audacious that Congress later enacted a law forbidding the tactic, Mr. Lauder has for decades aggressively taken advantage of tax breaks that are useful only for the most affluent.

An examination of public documents involving Mr. Lauder’s companies, investments and charities offers a glimpse of the wide array of legal options for the world’s wealthiest citizens to avoid taxes both at home and abroad.
His vast holdings are organized in a labyrinth of trusts, limited liability corporations and holding companies, some of which his lawyers acknowledge are intended for tax purposes. The cable television network he built in Central Europe, CME Enterprises, maintains an official headquarters in the tax haven of Bermuda, where it does not operate any stations.

And earlier this year, Mr. Lauder used his stake in the family business, Estée Lauder Companies, to create a tax shelter to avoid as much as $10 million in federal income tax for years. 

In June, regulatory filings show, Mr. Lauder entered into a sophisticated contract to sell $72 million of stock to an investment bank in 2014 at a price of about 75 percent of its current value in exchange for cash now. 

The transaction, known as a variable prepaid forward, minimizes potential losses for shareholders and gives them access to cash. But because the I.R.S. does not classify this as a sale, it allows investors like Mr. Lauder to defer paying taxes for years.

In theory, Mr. Lauder is scheduled to pay taxes on the $72 million when the shares are actually delivered in 2014. But tax experts say wealthy taxpayers can use other accounting techniques to further defer their payment.

The tax burden on the nation’s superelite has steadily declined in recent decades ...


The Family Fortune
Mr. Lauder was born into a storied American fortune. His mother, Estée Lauder, the daughter of Eastern European immigrants, began selling homemade beauty creams at a few New York City hair salons in the 1940s and built her product line into a multibillion-dollar global empire.

While the family’s wealth was created by hard work and ingenuity, it was bolstered by aggressive tax planning, a skill that has become Ronald Lauder’s specialty. 

When Mr. Lauder’s father, Joseph, died in 1983, family members fought the I.R.S. for more than a decade to reduce their estate tax. 

The dispute involved a block of shares bequeathed to the family — the estate valued it at $29 million, while the I.R.S. placed it at $89.5 million. A panel of judges ultimately decided on $50 million, a decision that saved the estate more than $20 million in taxes.

Estée Lauder Companies went public in 1995, and Ronald Lauder and his mother cashed in hundreds of millions of dollars in stock but managed to sidestep paying tens of millions in federal capital gains taxes by using a hedging technique known as shorting against the box.

Together, Mr. Lauder and his mother borrowed 13.8 million shares of company stock from relatives and sold them to the public during the offering at $26 a share. Selling borrowed shares in this way is referred to as a short position. 

Since the Lauders retained their own shares, the maneuver allowed them to have a neutral position in the stock, not subject to price swings. Under I.R.S. rules at the time, they avoided paying as much as $95 million in capital gains taxes that might otherwise have been due had they sold their own shares.
Such transactions allowed investors to cash in their shareholdings without paying taxes. But the Lauders’ use of the technique was so aggressive that Congress enacted a law afterward that limited the length of the tax deferral.  

Still, the family’s tax planning was effective enough that after Estée Lauder died in 2004, she passed down nearly $4 billion to her heirs, according to tax experts who studied the case and estimated that the estate was taxed at an effective rate of 16 percent — about a third of the top estate tax rate at the time.

Ronald Lauder sublets a full floor of office space from Estée Lauder, on the 42nd story of the General Motors Building in Manhattan, which serves as the hub for the matrix of foundations, investment funds, partnerships and trusts used to control his businesses and personal finances.

His stake in Estée Lauder Companies, according to regulatory filings, is valued at more than $600 million. Nearly $400 million of that stock is pledged to secure various lines of credit. Many financial planners consider it imprudent for principal shareholders in a company to borrow against their stock. But it remains a popular way for wealthy taxpayers to get cash out of their holdings without selling and paying taxes.

There is a certain irony that Mr. Lauder has used $72 million worth of his Estée Lauder shares to carry out his latest state-of-the-art tax reduction tactic. 

These contracts emerged as a popular tool about a decade ago and were developed by accountants and tax planners after Congress closed down the loophole on the Estée Lauder public offering. The I.R.S. began cracking down on these contracts in 2008...

Whether or not the I.R.S. agrees with Mr. Lauder’s contention that his contract is legitimate, some tax policy experts say the deal illustrates how the wealthy take advantage of the system.

“There’s real truth to the idea that the tax code for the 1 percent is different from the tax code for the 99 percent,” said Victor Fleischer, a law professor at the University of Colorado. “Any taxpayer lucky enough to have appreciated property is usually put to a choice: cash out and pay some tax, or hold the property and risk the vagaries of the market. Only the truly rich can use derivatives to get the best of both worlds — lots of cash and very little risk.”

While Mr. Lauder’s stock holdings in publicly traded companies show some of his tactics, much of his wealth is harder to examine because it is controlled by a maze of privately held trusts and companies.

Significant portions of his inherited stock are held in family trusts, which reduce the ultimate estate tax. Mr. Lauder and his wife have also established their own family trusts, allowing them to bequeath their wealth to their heirs with minimal taxes.

Other trusts and partnerships control his real estate properties in Palm Beach and the Hamptons and at 740 Park Avenue, a building that was once home to John D. Rockefeller, and is known as one of the world’s wealthiest apartment buildings.

United States tax law allows taxpayers to deduct mortgage interest on one’s homes up to $1.1 million in debt. 

... Senator Tom Coburn of Oklahoma, said some wealthy taxpayers even deducted mortgage interest on their yachts.

And there is no limit on the amount of property taxes that can be deducted from federal income. So Mr. Lauder is entitled to deduct the $400,000 he pays annually on his Palm Beach mansion as well as what he pays on his home on Park Avenue and his holdings in the Hamptons.

Mr. Lauder deducts property taxes on all of his holdings, his spokesman said. Mr. Lauder declined to say how much that reduced his federal taxes, but said he did not receive tax benefits in some years because of the alternative minimum tax and other limits.


A Passion for Art

In 1976 his generous donations helped him become the youngest trustee of the Metropolitan Museum of Art.  He has donated and lent artwork to an assortment of museums. Part of his collection of lavishly decorated ceremonial armor is on display at the Met, in a gallery named for him.

As all art collectors may, Mr. Lauder is entitled to deduct the full market value of artworks donated to museums. (For years, Mr. Lauder availed himself of a quirk in the tax code that allowed donors to take a deduction for donating a portion of an artwork, without actually turning over the art. That break, known as fractional donation, was eliminated in 2006.) The tax code also allows artwork in offices to be deducted as a business expense.

Some wealthy collectors are criticized for using tax breaks to underwrite private collections that offer little access to the public...

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How America can regain its competitive position in the World.

Book:

That Used to Be Us: How America Fell Behind in the World It Invented and How We Can Come Back

Michael Mandelbaum and Thomas Friedman detail reasons why America has lost its footing and seems destined to fall behind in the 21st century.

Four mistakes were key to America slippage, the authors contend:

1- Misreading the end of the Cold War which was not a military "victory" but the start of a very big challenge to U.S. hegemony. 

2- Taking a Bad Course After 9/11 by focusing on the losers of globalization vs. the winners. 

3- Underestimating the Impact of Technological Change which has made the world "hyper-connected." 

4- A Generational Shift from the "Greatest Generation" who believed in thrift and "sustainable values" to the Baby Boomers who use "situational values" and prefer to 'borrow and spend', instead of save.

The book offers some prescriptions for a revival:

"Five Pillars of Success" America used to become the world's greatest nation:

1. Education: From the cotton gin to the super conductor, America educated citizens up to the level of the most modern technology of the time, so they could exploit it. 

2. Have the world's best infrastructure. 

3. Immigration Policies that encourage the world's best and brightest to come to America...and stay here. 

4. The Right Mix of Regulation to encourage capital creation while also protecting society from predatory practices. 

5. Government-sponsored research and development, which helped spur huge advances in transportation, communications, technology and biotechnology.

America is "in a declining mode" in each of these areas which is why we're falling behind emerging nations not just on a relative basis but on an absolute basis. "China's not only rising but we're actually falling," he says.

Friedman recommends parents encourage their kids to

-"think like an immigrant" -- who know expect nothing will be given to them, and 

-"act like an artisan," meaning take tremendous pride in everything you do.

Source:

Tom Friedman’s Rx for America to Get Its Groove Back | Daily Ticker - Yahoo! Finance: 

by Aaron Task, host of The Daily Ticker.
Video interview available on the original document

Undervalued Companies

Two Ways to Get Your Hands on Undervalued Companies:
by Mohnish Pabrai


Plan A is always to buy the Coke and Moody's of the world at 50% off. If you buy these type of businesses at that discount and it takes 2-3 years to trade at intrinsic value, you'll do very well. Intrinsic value will be much higher in 2 to 3 years. So 50 cents may be worth $1.30 or $1.40. This is always Plan A. But plan A is virtually impossible to execute across the entire portfolio because they are so very, very rare. When plan A fails, we go to plan B. Plan B is to buy at half off, regardless of business quality (as long as you're pretty sure intrinsic value is very unlikely to decline).



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Investing Successfully

8 Tips to Investing Successfully:
by Tom Murcko


According to Charlie Munger, here are the essential considerations for successful investing:

1. Risk: measure it, avoid it if possible, have a margin of safety, and limit downside.
2. Independence: don't follow the herd, the herd will only do average.
3. Preparation: learning, building mental models, and continual improvement.
4. Humility: acknowledge what you don't know, don't be overconfident, stay within your circle of competence, and watch for errors.
5. Analytic rigor: calculate value before looking at price, and be a business analyst and not a securities analyst.
6. Allocation: consider opportunity costs.
7. Patience: Wait for the right opportunities.
8. Decisiveness: great ideas are rare, so bet big when they come along and when you have confidence in them.


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Fast Thinking, Slow Returns; Slow Thinking, Fast Returns:

Fast Thinking, Slow Returns; Slow Thinking, Fast Returns

by Mohnish Pabrai

Our brains are in sync with the speed at which the marketis moving and totally out of sync with the speed at which abusiness is moving. It seems obvious: The market is repricing a company's stock very quickly. I can processvery quickly; therefore, I make decisions based on that. You have to learn to dramatically slow your brain, which is very hard for most people. The reality is that you should make decisions based on how that business is changing, and that's a very slow process.

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Blogger Philosophy

My Philosophy of Blogging



There are two ways of spreading light: to be the candle or to be the mirror that reflects it.
- Edith Wharton

Ms. Wharton sums up how I think of blogs. My desire is to reflect the articles and pictures that inspire me when surfing the Web by posting them on my blogs. Blogs create a scrapbook of events to review later inspiring me for a second time. This is a great pleasure and an educational activity providing me with learning missed when I was in school. The Web has demonstrated its great value in generating and spreading new ideas. Tunisia, Egypt, Libya, Occupy Wall Street and other revolutions have gained momentum on the Web.
If you have a favorite cause like animal rights, you can play a part in education the world by posting to your blog. The possibilities are limited only by your imagination.


"To read means to borrow; to create out of one's reading is paying off one's debts."
- Charles Lillard

Communicating my worldview, as seen from my backwater home town situated on an island in the Pacific, is my way of staying engaged with current events.  Multiple Sclerosis has reduced my physical energy and keeps me close to home so I need to adapt and find new ways of relating to the world at large.

Buffett Bets on Global Growth

Buffett Buys IBM Near Peak, Echoing Bet on Coke’s Global Growth - Businessweek: 

Nov. 14 (Bloomberg) -- Berkshire Hathaway Inc.’s Warren Buffett, who spent more than $10 billion on International Business Machines Corp. stock, paid near-record prices for the shares, recalling his winning 1988 investment in Coca-Cola Co.

Berkshire began buying IBM shares this year after Buffett read the Armonk, New York-based company’s annual report and saw the firm “through a different lens,” the billionaire told CNBC today in an interview. IBM had doubled in New York trading in the 27 months prior to the Feb. 22 release of its yearly 10-K filing. Coca-Cola had doubled in the four years through the end of 1987, and has risen more than 10-fold since.

IBM is focused on services businesses as it enters its 101st year, and the firm has targeted expansion in Brazil, India and China. Coca-Cola, the world’s biggest soft-drink maker, has boosted per-share earnings eightfold since 1989 by buying back stock and expanding in regions including China and the Pacific.

Buffett highlighted IBM’s opportunities to expand outside the U.S. and the company’s track record of executing its strategy. The $220 billion company is targeting operating earnings of at least $20 a share by 2015, from a projection of $13.35 for this year. IBM spent more than $100 billion on dividends and buybacks since 2003.

“They are thinking about the shareholders,” Buffett said in the televised CNBC interview. “They treat their stock with reverence, which I find is unusual among big companies.”

IBM appointed Virginia “Ginni” Rometty last month as its first female CEO. She takes over from Sam Palmisano, who increased earnings by steering the company toward software and services and disposing of some hardware businesses such as PCs.

Buffett drew down Berkshire’s cash and invested $23.9 billion in the third quarter. That included $6.9 billion of equities, $5 billion for preferred shares and warrants in Bank of America Corp. and the acquisition of Lubrizol Corp. for about $9 billion.

IBM is trading at about 14 times earnings, compared with Coca-Cola’s 18 times, according to data compiled by Bloomberg.

“The ability to go out there and find distressed investments becomes a lot more difficult when you got to put $10 billion to work,” said Tom Lewandowski, an analyst with Edward Jones. The IBM investment is “a growth play, it’s an emerging-markets play.”

Warren Buffett Owns Tech Stocks

Surprise! Warren Buffett Owns Tech Stocks | Moneyland | TIME.com: 

" Warren Buffett reveals he also bought 5.5% of the technology giant IBM. Cyclical and tech stocks are not usually high on Buffett's wish list. What's going on here?"




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Facebook: Home to 800,000,000 Wall Flowers?

How to Stand Out Among 800 Million Facebook Users | Moneyland | TIME.com:

An ironic by-product of the success of social media, however, is that it’s become extremely hard to stand out amid all that content. The data is striking: Sure, some 800 million people use Facebook, but only 7.5% of your fans ever see your status updates, according to Page Lever. And Sysomos reports that only 29% of your Twitter followers will see your messages. So how do you keep from being ignored online? Here are five fundamental strategies.

1. Start with the basics

It should almost go without saying that your business should have a website as well as a blog and should participate on the top four social networks: Facebook, LinkedIn, Twitter and Google+. People are searching for you or for other companies that offer similar services, and every search query in which your company’s name doesn’t come up is an opportunity lost.


2. Establish a niche

When creating your online brand, you need to have a specific audience in mind – the audience that would most likely purchase your product or service. For example, Rachel Rodgers Law Office in Phoenix positions itself as a company that offers “Innovative Legal Counsel for Generation Y Entrepreneurs.” If you’re too general with your positioning, you won’t attract the people that can make your company profitable over the long haul. Although this approach might not yield 2 million followers and fans, you’ll certainly generate leads.

3. Create valuable content

The content that you publish should be concentrated on a single topic related to your business. Your status updates and blog posts could contain research, quotes, facts, stories and ideas instead of product pitches. As Jeffrey Gitomer famously said, “People don’t like to be sold but they love to buy.” Direct selling through social channels turns people off and is the fastest way to impede your business growth. Your market will be drawn to the valuable and interesting content that you produce. They’ll then follow you and examine your website for your products and services.

4. Interact with your audience

Aside from producing content on a regular basis, you need to both listen and interact with your followers. By listening to what people are saying about your brand, you can better serve them with content and products. Start by using tools like Google Alerts and Twitter in order to review your brand mentions.


5. Make yourself an expert

You can’t rely on people finding your website or your profiles anymore. You need to proactively market your brand so that you can stand out in the clutter. The best way to do this is to brand yourself as an expert in your field, proactively reaching out to a select number of journalists that cover your topic, and offering yourself as a source for future articles. Each time you’re interviewed for an article, make sure your company’s name is included, which will draw more people to your website. By having a third party endorsement from a media outlet, and putting yourself out there, you will become more credible, trusted, and your visibility will multiply.

Dan Schawbel, recognized as a “personal branding guru” by The New York Times, is the Managing Partner of Millennial Branding, LLC, a full-service personal branding agency. Dan is the author of Me 2.0: 4 Steps to Building Your Future, the founder of the Personal Branding Blog, and publisher of Personal Branding Magazine.






Read more: http://moneyland.time.com/2011/11/10/how-to-stand-out-among-800-million-facebook-users/#ixzz1e7zMq300

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The Real Reason Warren Buffett Backs Estate Taxes

The Real Reason Warren Buffett Backs Estate Taxes:

Here’s the true reason why Buffett likes a tax code that is hard on billionaires like him, as explained by journalist Tim Carney in his book “The Big Ripoff: How Big Business And Big Government Steal Your Money”:



Warren Buffett’s business is buying businesses. Bill Gates makes software and Paul Newman makes movies and salad dressing, but Warren Buffett makes money. He runs Berkshire Hathaway as CEO and principle owner. Berkshire Hathaway used to make textiles, but now they simply own other companies. Some familiar Berkshire Hathaway properties are GEICO, Dairy Queen, Fruit of the Loom, and the Buffalo News.

While Buffett is clearly an unusually brilliant investor, what he has done with his company has been straightforward in some ways. He buys companies that are worth more than the selling price. He buys things that will go up in value.

One great way to buy something that is going up in value is to buy a company that is already very profitable, but whose owner(s) have to sell. One common way that happens is when the owner dies and the heirs cannot afford to pay the estate tax on the properties they stand to inherit. They are therefore forced to sell them to pay the taxes. Carney cites the case of the Buffalo News, a highly profitable family-owned newspaper that Buffett bought after the family matriarch died without doing proper estate planning. Dairy Queen was acquired in a similar manner.


When the estate tax forces an owner to sell his business, it provides an opportunity for a bargain, but that opportunity is not available to everyone ... When the estate tax puts a business on the market, it is a market that is only open to big business.




Beyond making it easier for Buffett to find bargains, the estate tax drives customers to his primary business interest, insurance, including life insurance. The estate tax has created an entire industry called “estate planning.” Anyone with a business or large assets sooner or later needs to engage in estate planning, which involves hiring tax specialists, attorneys, and accountants ... Two central elements of estate planning are life insurance and annuities.

Bear that in mind the next time a liberal writer extols Buffett’s selflessness.





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Entrepreneurs Think

How Great Entrepreneurs Think | Inc.com:

Marketing

Market Research

Startups

What distinguishes great entrepreneurs? Discussions of entrepreneurial psychology typically focus on creativity, tolerance for risk, and the desire for achievement—enviable traits that, unfortunately, are not very teachable. So Saras Sarasvathy, a professor at the University of Virginia's Darden School of Business, set out to determine how expert entrepreneurs think, with the goal of transferring that knowledge to aspiring founders. While still a graduate student at Carnegie Mellon, Sarasvathy—with the guidance of her thesis supervisor, the Nobel laureate Herbert Simon—embarked on an audacious project: to eavesdrop on the thinking of the country's most successful entrepreneurs as they grappled with business problems. She required that her subjects have at least 15 years of entrepreneurial experience, have started multiple companies—both successes and failures—and have taken at least one company public.

Sarasvathy identified 245 U.S. entrepreneurs who met her criteria, and 45 of them agreed to participate. (Responses from 27 appeared in her conclusions; the rest were reserved for subsequent studies. Thirty more helped shape the questionnaire.) Revenue at the subjects' companies—all run by the founders at that time—ranged from $200 million to $6.5 billion, in industries as diverse as toys and railroads. Sarasvathy met personally with all of her subjects, including such luminaries as Dennis Bakke, founder of energy giant AES; Earl Bakken of Medtronic; and T.J. Rodgers of Cypress Semiconductor. She presented each with a case study about a hypothetical start-up and 10 decisions that the founder of such a company would have to make in building the venture. Then she switched on a tape recorder and let the entrepreneur talk through the problems for two hours. Sarasvathy later collaborated with Stuart Read, of the IMD business school in Switzerland, to conduct the same experiment with professional managers at large corporations—the likes of Nestlé, Philip Morris, and Shell. Sarasvathy and her colleagues are now extending their research to novice entrepreneurs and both novice and experienced professional investors.

Sarasvathy concluded that master entrepreneurs rely on what she calls effectual reasoning. Brilliant improvisers, the entrepreneurs don't start out with concrete goals. Instead, they constantly assess how to use their personal strengths and whatever resources they have at hand to develop goals on the fly, while creatively reacting to contingencies. By contrast, corporate executives—those in the study group were also enormously successful in their chosen field—use causal reasoning. They set a goal and diligently seek the best ways to achieve it. Early indications suggest the rookie company founders are spread all across the effectual-to-causal scale. But those who grew up around family businesses will more likely swing effectual, while those with M.B.A.'s display a causal bent. Not surprisingly, angels and seasoned VCs think much more like expert entrepreneurs than do novice investors.

The following is a summary of some of the study's conclusions, illustrated with excerpts from the interviews. Understanding the entrepreneurs' comments requires familiarity with what they were evaluating. The case study and questions are too long to reproduce here. But briefly: Subjects were asked to imagine themselves as the founder of a start-up that had developed a computer game simulating the experience of launching a company. The game and ancillary materials were described as tools for teaching entrepreneurship. Subjects responded to questions about potential customers, competitors, pricing, marketing strategies, growth opportunities, and related issues. (The full case study and questions can be found here.)

Quotes have been edited for length, though we wish we had room to run them in their entirety. Sarasvathy remained almost silent throughout, forcing the founders to answer their own questions and externalize their thinking in the process. The transcripts, riddled with "ums" and "ers," doublings-back on assumptions, and references to personal rules of thumb, read like verbal MRIs of the entrepreneurial brain in action.

Do the doable, then push it

Sarasvathy likes to compare expert entrepreneurs to Iron Chefs: at their best when presented with an assortment of motley ingredients and challenged to whip up whatever dish expediency and imagination suggest. Corporate leaders, by contrast, decide they are going to make Swedish meatballs. They then proceed to shop, measure, mix, and cook Swedish meatballs in the most efficient, cost-effective manner possible.

That is not to say entrepreneurs don't have goals, only that those goals are broad and—like luggage—may shift during flight. Rather than meticulously segment customers according to potential return, they itch to get to market as quickly and cheaply as possible, a principle Sarasvathy calls affordable loss. Repeatedly, the entrepreneurs in her study expressed impatience with anything that smacked of extensive planning, particularly traditional market research. (Inc.'s own research backs this up. One survey of Inc. 500 CEOs found that 60 percent had not written business plans before launching their companies. Just 12 percent had done market research.)

When asked what kind of market research they would conduct for their hypothetical start-up, most of Sarasvathy's subjects responded with variations on the following:

"OK, I need to know which of their various groups of students, trainees, and individuals would be most interested so I can target the audience a little bit more. What other information...I've never done consumer marketing, so I don't really know. I think probably...I think mostly I'd just try to...I would...I wouldn't do all this, actually. I'd just go sell it. I don't believe in market research. Somebody once told me the only thing you need is a customer. Instead of asking all the questions, I'd try and make some sales. I'd learn a lot, you know: which people, what were the obstacles, what were the questions, which prices work better. Even before I started production. So my market research would actually be hands-on actual selling."

Here's another:

"Ultimately, the best test of any product is to go to your target market and pretend like it's a real business. You'll find out soon enough if it is or not. You have to take some risks. You can sit and analyze these different markets forever and ever and ever, and you'd get all these wonderful answers, and they still may be wrong. The problem with the businessman type is they spend a lot of time with all their great wisdom and all their spreadsheets and all their Harvard Business Review people, and they'd either become convinced that there's no market at all or that they have the market nailed. And they'd go out there big time, with a lot of expensive advertising and upfront costs, because they're gonna overwhelm the market, and the business would go under."

The corporate executives were much more likely to want a quantitative analysis of market size:

"If I had a budget, I could ask a specialist in the field of education to go through data and give me ideas of how many universities, how many media, how many large companies I will have to contact to have an idea of the work that has to be done."

Sarasvathy explains that entrepreneurs' aversion to market research is symptomatic of a larger lesson they have learned: They do not believe in prediction of any kind. "If you give them data that has to do with the future, they just dismiss it," she says. "They don't believe the future is predictable...or they don't want to be in a space that is very predictable." That attitude is a bit like Voltaire's assertion that the perfect is the enemy of the good. In this case, the careful forecast is the enemy of the fortuitous surprise:

"I always live by the motto of 'Ready, fire, aim.' I think if you spend too much time doing 'Ready, aim, aim, aim,' you're never going to see all the good things that would happen if you actually started doing it. I think business plans are interesting, but they have no real meaning, because you can't put in all the positive things that will occur...If you know intrinsically that this is possible, you just have to find out how to make it possible, which you can't do ahead of time."

That said, Sarasvathy points out that her entrepreneurs did adopt more formal research and planning practices over time. Their ability to do so—to become causal as well as effectual thinkers—helped this enduring group grow with their companies.

Woo partners first

Entrepreneurs' preference for doing the doable and taking it from there is manifest in their approach to partnerships. While corporate executives know exactly where they are going and follow a prescribed path to get there, entrepreneurs allow whomever they encounter on the journey—suppliers, advisers, customers—to shape their businesses.

"I would literally target...key companies who I would call flagship: do a frontal lobotomy on them. There are probably a dozen of those I would pick. Some entrepreneurial operations that would probably be smaller but have a global presence where I'm dealing with the challenges of international sales...Building rapport with partners, with joint-venture colleagues as well as with ultimate users....The challenge then is really to pick your partners and package yourself early on before you have to put a lot of capital out."

Chief among those influential partners are first customers. The entrepreneurs anticipated customer help on product design, sales, and identifying suppliers. Some even saw their first customer as their best investor.

"People chase investors, but your best investor is your first real customer. And your customers are also your best salesmen."

Sarasvathy says expert entrepreneurs have learned the hard way that "having even one real customer on board with you is better than knowing in a hands-off way 10 things about a thousand customers." Merely gathering information from a large number of potential customers, she says, "increases all the different things you coulddo but doesn't tell you what you should do." Toward that end, many of her subjects described their preference for an almost anthropological approach to customer interaction: observing a few customers as they work or actually working alongside them.

"You can't go out and survey customers and say, 'OK, what kinda car do you really want?' I believe very much in living it. If you're gonna write a book about stevedores, go work as a stevedore for a period of time. My company was going to design and sell products for physical therapy, so I worked in rehab medicine for two years."

Corporate executives, by contrast, generally envisioned more traditional vendor-customer interactions, such as focus groups.

"I would like to get from them...by meeting with them or getting their input on what they think of the limitation of existing programs....just kind of sit and listen to them telling me...what new features they'd like. And I'd just listen to them talk, talk, talk and then be thinking and develop something between what they want and what's possible technically."

Sarasvathy says executives rely less on firsthand insights, because they can afford to place bets on multiple segments and product versions. "Entrepreneurs don't have that luxury," she says.

Sweat competitors later

The study's corporate subjects focused intently on potential competitors, as eager for information about other vendors as about customers. "The corporate guys are like hunter-gatherers," says Sarasvathy. "They are hired to win market share, so they concentrate fiercely on who is in the marketplace. The first thing they do is map out the lay of the land."

"What information do I want about my competition? I want to see what kinds of resources they have. Do they have computer programmers? Do they have educational experts? Do they have teachers and trainers who can roll out this product? Do they have a support structure in place? Geographically, where are they situated? Have they got one center or lots of centers? Are they doing this just in English, or do they have different languages? I'd be wanting to look at the finances of these companies....I'd probably be looking at their track record to see what kind of approach they take to marketing and advertising so I know what to expect. I might look and see what people they hire, see if I can hire away someone who might have experience."

By the time entrepreneurs start seeking investment, of course, they should be as far inside competitors' heads as they can get. But the study subjects generally expressed little concern about the competition at launch.

"Your competition is a secondary factor. I think you are putting the cart before the horse...Analyze whether you think you can be successful or not before you worry about the competitors."

And:

"At one time in our company, I ordered our people not to think about competitors. Just do your job. Think only of your work. Now that isn't entirely possible. Now, in fact, competitive information is very valuable. But I wanted to be sure that we didn't worry about competitors. And to that end, I gave the annual plan to every employee. And they said, 'Well, aren't you afraid your competitors are gonna get this information and get an advantage?' I said, 'It's much riskier to not have your employees know what you need to do than it is to run the risk of competitors finding out. Cause they'll find out somehow anyway. But if one of your employees doesn't know why they're doing their job, then you're really losing out.'"

Entrepreneurs fret less about competitors, Sarasvathy explains, because they see themselves not in the thick of a market but on the fringe of one, or as creating a new market entirely. "They are like farmers, planting a seed and nurturing it," she says. "What they care about is their own little patch of ground."

Don't limit yourself

Corporate managers believe that to the extent they can predict the future, they can control it. Entrepreneurs believe that to the extent they can control the future, they don't need to predict it. That may sound like monumental hubris, but Sarasvathy sees it differently, as an expression of entrepreneurs' confidence in their ability to recognize, respond to, and reshape opportunities as they develop. Entrepreneurs thrive on contingency. The best ones improvise their way to an outcome that in retrospect feels ordained.

So although many corporate managers in Sarasvathy's study wanted more information about the product and market landscape, some entrepreneurs pushed back on the small amount of information provided as being too limiting. For example, the description of the product as a computer game for entrepreneurship:

"I would cast it not as a product but as a family of products, which might perform a broader function like helping people make career decisions. I always look for broad market opportunities."

And:

"I wanna use this product as a platform to attract other products literally to build a market-share play. I see this as a missionary product, an entrée into some of the best users and buyers."

The most fascinating part of the study relates to the product's potential. Asked about growth opportunities, the corporate managers mostly restricted their comments to the game as described:

"It depends on how it's marketed. I'm a little bit skeptical....I'm not certain entrepreneurs would go for that. Maybe they think they already know everything. But in terms of simulations for business schools or in further education, they seem to be very popular. And entrepreneurship degrees seem to be very popular as well. So, yeah, it could well be a lot of growth."

Here is where the entrepreneurs really let loose. Starting with the same information as one another and as the executives, they collectively spun out opportunities in 18 markets—not just academic institutions but also venture capital firms, consultancies, government agencies, and the military. As much as the ability to concoct new products, it is this tendency to riff off whatever ideas or materials are handy that defines entrepreneurs as a creative breed. Reading the transcripts, you can almost hear the enthusiasm mounting in their voices as the possibilities unfold:

"This company could make a few people rich, but I don't think it could ever be huge...You might have a successful second product about how to succeed and get promoted within a large company....That would give you a market of everybody with aspirations at IBM, AT&T, Exxon, etc....You could make another product for students. How do I graduate in the top 10 percent of my class at Stanford or Harvard or Yale?...A lot about how to be a good student is teachable. Now you've got a product you can sell to every student in the country. Next there is negotiation. You could practice being a good negotiator. There's not a salesman in the United States who wouldn't buy one of those. Then you could genericize the thing to any situation which requires some sort of technical knowledge. Or learning situations within companies where you are trying to get people to understand that company's methods or objectives. So maybe I'm gonna change my opinion about the growth potential. It's easy to see how within an hour you could name 10 products that would each address huge markets, like all employees in Fortune 500 companies, who are rich enough to pay $100 for it. It could be a hit on the scale of the Lotus spreadsheet. You can see a several-hundred-million-dollar company coming from it."

You might also glean from the preceding that entrepreneurs are eternal optimists. But you don't need an academic study to tell you that.

Sean Parker: Little Start-ups Overfunded | Inc.com

Sean Parker: Little Start-ups Overfunded | Inc.com:

The normally party-happy but press-shy tech entrepreneur Sean Parker was a bit of a buzzkill on the subject of Silicon Valley Tuesday.

The 31-year-old Parker—co-founder of Napster, founding president of Facebook—told an audience at Technomy in Arizona that "little start-ups are ridiculously overfunded."

"The market is ridiculously overcrowded with early-stage investors," he said. "A lot of these early-stage investors will fund literally anything." (Parker's Founders Fund bankrolls early stage start-ups.) He described this as "the assembly line approach to investing."

What's the problem with that? "This results in a talent drain, where the best talent gets diffused and work for their own start-ups."

According to the National Venture Capital Association, first-stage investments in start-ups were $1.6 billion in the third quarter, a 68 percent jump from the same time last year. Total venture funding is $6.9 billion, a 31 percent increase.

Parker is also involved in fbFund, Spotify, ooma, Causes, Plaxo, Yammer, Asana, and Element Payment Services, and has a pre-launch project called Airtime.

Onstage, Parker laid on the war and revolution analogies awfully thick.

He believes the Internet will eventually consolidate in the same way the PC industry did in the 1980s and 1990s—to disastrous effect.

"What comes after the revolution is inevitably bureaucracy. Whoever wins the revolution builds a bureaucracy," he said.

And with power consolidating among giants like Facebook, Google and Apple, it's hard for fledgling firms to take them on. "For young entrepreneurs, it's really not helpful for some guy to come along and write you a check," he said.

Parker also said that conditions in Silicon Valley "now resemble the conditions preceding World War One,” he said.

"It's kind of hard to decipher who's working with whom and who's at war with whom."

Parker himself is working with Napster co-founder Shawn Fanning on Airtime.

His description: "Without getting into details on what this product is—basically, that's the concept. How can we intelligently allow people, who wouldn't otherwise have met, to find each other?"

Part of the inspiration: "When I was in high school I was desperately searching for a girl who was into punk rock who was also into Spinoza and Nietzsche," he said. "I came up empty handed every time….I didn't have the tools to find her."


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Mark Suster: The End is Near for Angel Investors | Inc.com

Mark Suster: The End is Near for Angel Investors | Inc.com:

Outspoken entrepreneur-turned-VC Mark Suster last night put a date on a prediction he has been making for some time in his blog about a coming crash for angel investors: The end will come next year. “And if not 2012,” he said. “Then 2013.”

Suster’s prediction, made at the VentureShift conference at Le Poisson Rouge in New York’s Greenwich Village, adds to a chorus of warnings that the current surge in angel money into the startup market is going to end badly. Sean Parker made a similar prediction, reported here on Inc.com, earlier this week.

There are a couple key market forces creating the froth in the market, Suster said. Chief among them is what he identifies as a 90% drop in the cost of starting a company over the past 10 years, thanks to the adoption of open source programming and cloud-based business services, among other things. A startup ante that was $5 million in 2000 is now down to $5 thousand.

With the barriers to entry lowered, new players have rushed in. Founders have grown younger and more tech-focused. Mentorship-led investors, like Y-Combinator and Tech Stars have stepped in to serve their needs and get access to the next Zuckerberg. For fear of missing out—the emotion Suster abbreviates as “FOMO”—VCs that ordinarily would have focused on larger deals have joined the move to early stage investing. The result merits yet another acronym: ENIFA. Or, Everyone Now is an F—g Angel.

The effect on valuations has been predictable. “There is too much money chasing too few great ideas,” says Suster. “People are paying too much for early stage funding.” At some point, angels will realize that there is no way to get their money out at anything like what they paid, and the flow of money will shut down.

If you’re in the market for funding now, Suster says, grab what you can while the money is still flowing. He is making sure that all his portfolio companies at GRP partners have the funding to see themselves through a coming dry spell, and he advises startups to do the same.

Don’t wait until your product is fully featured before seeking funding. “Most startups over-optimize,” he warns. Instead, take the money while it’s available. “When the hors d’oeurve tray goes by, take two,” he says, “and stick one in your pocket. Don’t spend everything right away.”

And then brace yourself. No one will ring a bell when the angel investing is ready to collapse. “Have you ever read Nassim Taleb, author of Black Swan? We’re aren’t going to know until it happens.” But Suster has no doubt that we are near the end of the great angel investing surge. “Are we in a bubble? Of course we are.”

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Bill Miller to Step Down From Legg Mason Value Trust Fund - WSJ.com

Bill Miller to Step Down From Legg Mason Value Trust Fund - WSJ.com:
BY JOE LIGHT AND TOM LAURICELLA

One of the last star mutual fund managers is scaling back.

Value investor Bill Miller, whose bold bets on technology and financial stocks helped him beat the market for 15 years in a row through 2005, on Thursday said he would step down as manager of the $2.8 billion Legg Mason Capital Management Value Trust fund in April.

Mr. Miller's fund fell on hard times during the financial crisis as big wagers on banking stocks failed to pay off. The fund has trailed the Standard & Poor's 500-stock index in five of the past six years, and its assets have ...





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Daily Must Do's

Five daily must-dos to keep your business humming - The Globe and Mail:

Here are some important, if not fundamental, things that should be part of your daily to-do list:

1. Keep the sales machine humming

Whether business is strong or struggling, you have to keep on selling. You can work on sales calls, cold calls, the creation of sales and marketing material, social media activity, or presentations. Whether it’s a hard sell or a soft sell, the funnel needs to be kept as full as possible.

2. Network, network and network some more

A strong network is among the most valuable assets that a business can have. It is the people and the companies within your network that can drive sales, generate new customers and opportunities.

3. Keep your books up to date

Too many business, particularly small ones, stuff receipts and invoices in a shoe box, and then spend hours wading through it every few weeks or months. A better approach is to spend time on your books every day. Even if it is only a few minutes, it can be enough to maintain control of your finances and, as important, avoid the dreaded shoebox pile.

4. Love your customers

While it is important to attract new customers, your existing customers should get a lot of TLC because they have already made the commitment to do business with you. If you meet their needs, there is a better chance they will give you more business.

5. Keep exploring ways to do business better or differently

Your business will change and evolve, customers will come and go, and the economy will rise and fall. All that means that you can’t be complacent or stick with the status quo, or your business could become stagnant.

Instead, you need to explore new tools, services and approaches to keep things in your business fresh and current.



Special to The Globe and Mail:
Mark Evans, ME Consulting (communications and marketing)

Join The Globe’s Small Business LinkedIn group to network with other entrepreneurs and to discuss topical issues: http://linkd.in/jWWdzT

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Even squirrels go nuts for pizza...Pizza Franchise?

Mauboussin on the Wisdom of Crowds - Morningstar Video

455 videos can be seen here

Video:  http://www.youtube.com/watch?v=rEcWsghX2t4&feature=player_embedded

Description
The Legg Mason chief investment strategist and author of 'Think Twice' on applying principles from the wisdom of crowds to money management.


Transcript

Michael Mauboussin, the chief investment strategist of Legg Mason Capital Management.

He's also an adjunct professor at Columbia University, the author of numerous books, and his newest book is entitled "Think Twice." Michael thanks so much for joining us today.

  
Ryan Leggio: You've written a lot about the wisdom of crowds and if there are certain conditions that are met, you oftentimes get great decisions by diverse people, et cetera.

I guess I'm wondering how that concept might apply to money management. We see a lot of times managers or consultants or mutual funds choose, say, five mutual funds and allocate 20 percent to each instead of picking the best ideas of those five managers and building a portfolio that way.

Are there any principles from the wisdom of crowds you think the money management industry could be a little smarter in using?

Michael Mauboussin: That's a great question. Just take one step back. As you point out, there are certain conditions when it works and conditions when it doesn't work. It's worth taking just a moment to talk about those.

The conditions are typically three.

One is diversity. We need to have, for markets to be smart, diverse people, and that is technical, fundamental, long term, short term, different techniques.

The second is a properly functioning aggregation mechanism, which of course exchanges do well.

Then the third is incentives, which are rewards for being right and penalties for being wrong.

Of course it's financial in our world, but it doesn't have to be. It could be reputation or other things. When those conditions are happening, you tend to get very efficient results.

So what we're looking for as money managers, is when one or more of those conditions are violated, and by far the most likely to be violated is diversity.

Rather than people thinking differently about a topic, they tend to get on the same side of the ship, which leads to excesses and fundamentals that get out of sync with expectations.

One of the challenges with doing a meta-wisdom of crowds is the market itself is already doing this.

So it's hard to say I'm going to pick the best ideas because the market itself is doing this now.

To me, the better way to conceptualize that is to find people that consistently focus on that fundamentals-expectations gap and the varying perception.

Often the source of the varying perception is some sort of diversity breakdown that you can identify.

Ryan Leggio: A lot of times, with a lot of Legg Mason funds, it could be concentration or other avenues to differentiate yourself from the crowd?

Michael Mauboussin: Yes, I think the ultimate objective for us and all of our funds is consistent, which is delivering excess returns for our fund holders.

So things like concentration or even turnover, these I would say are tactics to serve the ultimate objective, and we happen to believe that more concentrated portfolios and relatively long time horizons ultimately serve those objectives, but there's nothing immutable about those.

Those are means to the end.

But we do think that, indeed, that is the case that is taking longer- term perspectives, three-to-five year perspectives, on things and typically more concentration.

We still want to diversify the portfolios, but say, 30, 40, 50 names instead of 100 or 200 names; again, best serves those purposes.

Principles of Investing

1. Start Investing Now


We say this not just to discourage procrastination, but because an early start can make all the difference. In general, every six years you wait doubles the required monthly savings to reach the same level of retirement income. Another motivational statistic: If you contributed some amount each month for the next nine years, and then nothing afterwards, or if you contributed nothing for the first nine years, then contributed the same amount each month for the next 41 years, you would have about the same amount. Compounding is a beautiful thing.

2. Know Thyself

The right course of action depends on your current situation, your future goals,and your personality. If you don't take a close look at these, and make them explicit, you might be headed in the wrong direction.
Current Situation: How healthy are you, financially? What's your net worth right now?What's your monthly income? What are your expenses (and where could they be reduced)? How much debt are you carrying? At what rate of interest? How much are you saving?How are you investing it? What are your returns? What are your expenses?
Goals: What are your financial goals? How much will you need to achieve them?Are you on the right track?
Risk Tolerance: How much risk are you willing and able to accept in pursuit of your objectives? The appropriate level of risk is determined by your personality, age, job security, health, net worth, amount of cash you have to cover emergencies, and the length of your investing horizon.3. Get Your Financial House In Order

Even though investing may be more fun than personal finance, it makes more sense to get started on them in the reverse order.If you don't know where the money goes each month, you shouldn't be thinking about investing yet. Tracking your spending habits is the first step toward improving them.If you're carrying debt at a high rate of interest (especially credit card debt), you should unburden yourself before you begin investing. If you don't know how much you save each month and how much you'll need to save to reach your goals, there's no way to know what investments are right for you.

If you've transitioned from a debt situation to a paycheck-to-paycheck situation to a saving some money every month situation, you're ready to begin investing what you save. You should start by amassing enough to cover three to six months of expenses, and keep this money in a very safe investment like a money market account, so you're prepared in the event of an emergency. Once you've saved up this emergency reserve, you can progress to higher risk(and higher return) investments: bonds for money that you expect to need in the next few years, and stocks or stock mutual funds for the rest. Use dollar cost averaging, by investing about the same amount each month. This is always a good idea,but even more so with the dramatic fluctuations in the market in the past 10 years. Dollar cost averaging will make it easier to stomach the inevitable dips.

And remember, never invest in anything you don't understand.

4. Develop A Long Term Plan

Now that you know your current situation, goals, and personality, you should have a pretty good idea of what your long term plan should be. It should detail where the money will go: cars, houses, college, retirement. It should also detail where the money will come from. Hopefully the numbers will be about the
same.

Don't try to time the market. Get in and stay in. We don't know what direction the next 10% move will be, but we do know what direction the next100% move will be.

Review your plan periodically, and whenever your needs or circumstances change. If you are not confident that your plan makes sense, talk to an investment advisor or someone you trust.

5. Buy Stocks

Now that you've got a long term view, you can more safely invest in 'riskier' investments, which the market rewards (in general). This requires patience and discipline, but it increases returns. This approach reduces the entire universe of investment vehicles to two choices: stocks and stock mutual funds. In the long run, they're the winners: In this century, stocks beat bonds 8 out of 9 decades, and they're well in the lead again. According to Ibbotson's Stocks, Bonds, Bills and Inflation 1995 Yearbook, here are the average annual returns from 1926 to 1994 (before inflation):
Stocks: 10.2% (and small company stocks were 12.1%)
Intermediate term treasury bonds: 5.1%
30-day T-bills: 3.7%But is it really worth the additional risk just for a few percentage points?The answer is yes. 10% a year for 20 years is 570%, but 7% a year for 20 years is only 280%. Compounding is God's gift to long term planners.

If you buy outstanding companies, and hold them through the market's gyrations, you will be rewarded. If you aren't good at selecting stocks, select some mutual funds.If you aren't good at selecting mutual funds, go with an index fund(like the Vanguard S&P 500).

6. Investigate Before You Invest

Always do your homework. The more you know, the better off you are.This requires that you keep learning, and pay attention to events that might affect you.Understand personal finance matters that could affect you (for example, proposed tax changes). Understand how each of your investments fits in with the rest of your portfolio and with your overall strategy. Understand the risks associated with each investment.Gather unbiased, objective information. Get a second opinion, a third opinion, etc. Be cautious when evaluating the advice of anyone with a vested interest.

If you're going to invest in stocks, learn as much as you can about the companies you're considering. Understand before you invest. Research, research, research.Read books. Consider joining an investment club or an organization like the American Association of Individual Investors . Experiment with various strategies before you put your own money on the line. Examine historical data or participate in a stock market simulation. Try a momentum portfolio, a technical analysis portfolio, a bottom fisher portfolio, a dividend portfolio,a price/earnings growth portfolio, an intuition portfolio, a megatrends portfolio,and any others you think of. In the process you'll find out which ones work best for you. Learn from your own mistakes, and learn from the mistakes of others.

If you don't have time for all this work, consider mutual funds, especially index funds.

7. Develop The Right Attitude

The following personality traits will help you achieve financial success:

Discipline: Develop a plan, and stick with it. As you continue to learn,you'll become more confident that you're on the right track. Alter your asset allocation based on changes in your personal situation, not because of some short term market fluctuation.
Confidence. Let your intelligence, not your emotions, make your decisions for you.Understand that you will make mistakes and take losses; even the best investors do.Re-evaluate your strategy from time to time, but don't second-guess it.
Patience: Don't let your emotions be ruled by today's performance.In most cases, you shouldn't even be watching the day-to-day performance, unless you like to.Also, don't ever feel like it's now or never; don't be pressured into an investment you don't yet understand or feel comfortable with.The following personality traits will hurt your chances of financial success:
Fear. If you are unwilling to take any risk, you will be stuck with investments that barely beat inflation.
Greed. As an investment class, 'get rich quick' schemes have the worst returns.If your expectations are unrealistically high, you'll go for the big scores, which usually don't work.It is generally a good idea to avoid making financial decisions based on emotional factors.

8. Get Help If You Need It

The do-it-yourself approach isn't for everyone. If you try it and it's not working, or you're afraid to try it at all, or you just don't have the time or desire, there's nothing wrong with seeking professional assistance.

If you want others to handle your financial affairs for you, you will nevertheless want to remain involved to some degree, to make sure your money is being spent wisely.

source:
http://www.investorguide.com/igu-article-418-investing-basics-principles-of-investing.html