Savvy Ladies Community

Understanding the Business You’re Investing in – or Hiring Someone Who Does

Flipping channels last night, I came across one of those corporate ads that are so vague and nondescript it had even me scratching my forehead, wondering what the company in question really did. Because the thing is, while some businesses are easy to understand (manufacturing comes to mind), in today’s world of service and high tech and diversity, many are so complex it is almost impossible to evaluate them. GM, for instance, has traditionally been a car manufacturer. But these days, they make more money off the financing side of their business than the car side. And how do you deal with software companies or biotech?

My point is not to try to explain every business out there, but rather to remind you that if you don’t understand the business you are investing in, you will have an extremely difficult time making rational choices, and even harder trying to sleep well at night. If you are a biotech guru and know all about Elan’s latest product, you may know whether it’s worth your money or not. Alternatively, if you are Bill Gates’s brother, you may know what works and doesn’t work in software. But if you want to venture into industries you do not grasp fully, you can lower your risk substantially by hiring someone to analyze it for you.

We all know it’s a bad idea for blind people to drive cars. Throwing your hard-earned money around you randomly can be just as perilous.

Stacy Francis, Savvy Ladies

www.savvyladies.com

How to Benefit from Currency Fluctuations

Walking from my office to my favorite lunch spot today, I heard four different languages spoken. The cameras, backpacks and maps made it difficult to take the people for immigrants – rather, I gather they were a few out of the countless individuals making pilgrimages to the

US

to take advantage of the frail dollar.

For many of us, this weakness is a major nuisance. Foreign travel is getting more expensive by the day, not to talk about imported groceries, cars, and electronics. So I wanted to make you aware of a few ways that you can use currency fluctuations to your advantage.

The first one is when you go on vacation. When the dollar is strong (think six or seven years ago), you can live like a queen pretty much wherever you go. Today, you need to get more creative. Looking at charts, I learned that only the Zimbabwean dollar has significantly underperformed the US dollar this year – hardly your dream vacation destination. Fortunately, plenty of countries are still fairly reasonable. Instead of

France

or

Spain

, next time consider

Dominican Republic

, or

Sri Lanka

, or

Thailand

. You will get much better value for your money.

Another way you can make money off currency fluctuations is by investing in foreign countries. If you are convinced that the Yen has nowhere to go but up, buy a fund focused in

Japan

. Even if the stocks remain flat, when the dollar falls, you make money. Plenty of people have expanded their capital over the past couple of years by putting their money to work no further away than

Canada

. When the exchange rate went from US $0.69 per Canadian dollar to a scenario where the Canadian dollar is actually worth more than its American counterpart, they were some happy campers.

Stacy Francis, Savvy Ladies

www.savvyladies.com

Opportunity Cost

Strolling through

Tribeca

,

New York

this weekend, I stumbled upon a gorgeous cashmere sweater at a designer sample sale. It fit me perfectly; the only problem was that it was a still little on the expensive side, and I loved it in black and in grey. Torn, I spent a good half hour going back and forth between the two, before eventually settling on the grey one. This really got me thinking about opportunity cost, and how this is present every moment of our lives, always.

Whether shopping for the perfect house, car, or sweater, when you choose one, unless your budget has no limits, you have to un-choose the others. When you buy yourself a Mini Cooper, you give up having, say, a Lexus or a Honda – even one of those yummy Porsche Boxters. Whenever you open one door, you also choose not to open the others.

In finance, the concept opportunity cost becomes even more urgent. Whenever you choose to bet your money on one fund, you choose not to buy others. What if they take off, and yours doesn’t?

And in everyday decisions, like whether to go on a vacation or renovate the kitchen, there will always be things that you do not choose. Always be clear over what your goals and priorities are, and use these as a guide when faced with tough, high-opportunity-cost decisions.

Stacy Francis, Savvy Ladies

www.savvyladies.com

Buy Low, Sell High – A Hard Concept to Follow

A friend of mine called the other day to tell me about this “miracle fund” she’d been watching. Despite the markets, it had climbed almost 40% over the past five months. I have to have this fund, she said. Could I get her some?

Well, I told her, the thing is, few funds beat the market averages in the long run. If this fund has climbed 40% in a matter of months, chances are, it is more than a little overpriced.

Most investors know that in theory, investing is all about buying low and selling high. Yet very few can put this into practice. Few people are brave enough to buy a stock or a fund that’s been falling off lately, even when their financial advisors assure them that the fundamentals look good and the outlook prosperous. When, on the other hand, stocks or funds have been raging lately and are halfway to the moon, everyone wants to buy.

It is not hard to see why. You have worked hard for your money, and you depend on it. Your life would be over if you lost it. The problem is, by buying securities that are up and selling them when they are down, you are doing just that. You are practicing the opposite of clever money management.

Sure, both stocks and funds can fall because the companies are plain bad. There may be a real reason people do not wish to own them. On the other hand, weaknesses in the markets can present extraordinary opportunities to buy. The key is to work with an expert who can tell the difference.

Stacy Francis, Savvy Ladies

www.savvyladies.com

The Financing Trap

Someone told me the other day that whenever an American scores a 5% raise, he or she immediately ups spending with 10%. Crazy, you may say, but the thing is, our society is built around exactly this sort of behavior. It doesn’t actually take money to spend money – in the short term, anyway. Sales people, banks, and other types of institutions are tossing money at us in a manner much similar to the way guests toss confetti at the bride and groom at weddings. Chances are, you’ve heard something along the lines of “0% down”, “no interest until 2010” or “cash back” within the past hour. But while these sorts of deals may sound like dreams coming true, in reality, many a people have had their finances ruined by them.

Why?

Because the sales reps aren’t just giving you that bed, car, flat screen TV or whatever it is you’re shopping for, for free. Sooner or later, the time will come for you to pay for it, and then you are stuck with your current bills (rent, groceries, gas, insurance, etc, etc) plus the bills you didn’t pay years ago. And though it is easy to think “no problem, three years from now, I’m going to make a killing anyway”, unless you are Nostradamus and can predict the future, chances are, you may not. Your company may go belly up, a family member may have an accident and end up hospitalized, or you may get divorced. The guy at my local Postal Annex has this problem. In order to keep up with his bills, he works from 9 to 6 there, and then goes straight to his second job at a warehouse, where he stays until

midnight

.

I’m not saying you should never finance anything, because there will be times when this is your only option. But beware of the risks – and plan ahead for the day when you will have to pay for your merchandise.

Stacy Francis, Savvy Ladies

www.savvyladies.com

The Secret and Money

After a year of people telling me about The Secret, I finally got around to watching the movie last night. For those of you still in the unknown, in essence, The Secret is a series of interviews explaining and dramatizing “the law of attraction”, the theory that our thoughts and feelings eventually become things, so by manifesting the things we want, we can draw them into our lives.

Whether you are a fan or not, no doubt, positive thinking has never hurt anyone. And if you want to take it further . . . below is a breakdown of the steps used in The Secret, as they apply to money.

1. Ask. According to The Secret, the universe cannot deliver to you unless you clearly state what you want. Decide on a sum of money that would make you happy – don’t be shy – and ask for it.
2. Believe. When you have ordered something off Ebay or Amazon, you don’t doubt that it is going to show up in your mailbox, now, do you? Treat the universe with the same respect. Think “it’s only a matter of time now.”
3. Receive. Be open to the signs that lead you to your money. Perhaps a coworker accepts a position in a different company that is looking for more people, or you wake up in the middle of the night with this awesome business idea. Remember: asking is up to you. Delivering is up to the universe.

Another fun thing you can do is to print out a check issued to yourself from the Universal Bank Unlimited. You can print this check for free at www.thesecret.tv, and have a blast filling it out.

Stacy Francis, Savvy Ladies

www.savvyladies.com

Market Risk

What happened when the Dow took its most recent nosedive? As most of my clients are in it for the long term, my day went on as usual. My friend who is a stockbroker, on the other hand, was slammed with phone calls from nervous investors. With this in mind, I thought I should say something about market risk. How does it affect your investments, and what can you do to minimize your exposure?

Market risk is the possibility that your stocks (or funds) will fall due to overall market weakness. This weakness is commonly brought on by a crumbling economy, raised interest rates, or other types of economical factors. Simply put, market risk is related to the economic climate of a country (or region, or continent, etc) as a whole, rather than a specific company.

Market risk can bring the value of your investment portfolio down – especially in the short term. Looking at it from more of a long-term perspective, on the other hand, economies always follow cyclical patterns of boom-decline-recession-rise-boom. The only thing that varies is the speed with which we move through these cycles. So while in the short term your portfolio may fall off during the phases of decline and recession, if you can wait these out, you can rest assured that sooner or later, the economy (and hence your investments) will come back around.

Apart from not being desperate for cash (or simply impatient), the best way to minimize your market risk exposure is to diversify – to spread your investments across several markets and countries. While the economy is growing increasingly global, different countries are still in different phases of these economical cycles. So if you’re concerned about the

US

economy, try a fund that focuses on investments in for instance

India

, or Europe, or

Australia

.

Stacy Francis, Savvy Ladies

www.savvyladies.com

Why Investments Are Nothing Like Husbands

With Sex and the City: The Movie hitting cinemas and everyone dying to see Carrie in her wedding dress, I became aware of yet another reason I love financial planning. Ready?

One of the greatest things with investing is that it’s nothing like love: there’s no need to choose just one. Marrying a security and holding on to it no matter what is mulish at best, disastrous at worst. The world changes constantly, and as a consequence, so do market outlooks, as well as future and current situations for industries and specific companies. Playing the field isn’t only accepted but advisable, and the savvy investor can – if she loses the reason she started the love affair -- dump stock or a fund in an instant without a trace of regret. And why shouldn’t she? There are no joint assets, or children, or houses to fight over. It’s not personal – it’s just business. Still, few people lose money faster than the “investment sluts”, who change their portfolios daily depending on their mood; dropping stocks they no longer love in down markets and desperately chasing the ones admired by others.

So while most of us spend at least our younger years looking for that one person that makes our lives complete, with securities, feel free to gather yourself a whole harem. As long as you love them all and you have good reasons for bringing them into your life, having several isn’t only socially acceptable – most experts recommend it.

Stacy Francis, Savvy Ladies

www.savvyladies.com

When to Give Up on an Investment

I had an interesting conversation with a client the other day.

I don’t feel good about this certain fund, she told me, in a market like todays.

So let’s sell it, I advised her. Buy something you feel better about – or if you are really worried, leave the money in cash for now.

Oh no, she said, I can’t sell the fund, because it’s down from where I bought it.

I spent the following hour musing over when we should give up on an investment. Here’s what I think. No matter what your reason was for buying the security in the first place (you were bullish on this industry, you share the company’s values, you adore the business model, you like the fund manager’s expertise and performance, etc), if you lose this reason, you need to lose the investment. Every hour every market day, you choose whether you like your investment, or not. If you like it, you buy, or if you already own the security, you hold. If you don’t like it, you don’t buy it, or if you already own it, you sell. It is as simple as that. Holding equals buying, and selling equals not buying. Whether your investment is up or down from where you bought it is irrelevant, as the past has no meaning when it comes to investments. It is all about what the price is now, and what you – or the people you trust for advice – think it is going to be in the future. So be clear over the reasons for your investments, and use them to determine not only when to get in, but also when to get out.

Stacy Francis, Savvy Ladies

www.savvyladies.com

Investing in Different Countries

With China recovering from a devastating earth quake, and Burma still receiving aid to fix the damage from the enormous cyclone that hit the country recently, it is easy to pass “overseas” off as a scary place where you could lose your money just as easily as those people lost their homes. But the thing is, spreading your capital across several countries and markets may actually put you in a position of less overall risk. Here’s how.

First of all, it is important to note that between the tornado in the Southeast, Hurricane Katrina and the California Wild Fires last fall, plus a war at our hands and an economy headed for disaster, the

US

isn’t exactly the yoga retreat of investing, either. Those of you who have kept an eye on the stock markets this spring will know what I am talking about. By diversifying between different countries, you lessen the effect it will have on your portfolio if one of those economies turns sour.

Secondly, with the dollar dwindling lower and lower, if you invest in foreign markets, even if your stocks (or funds) remain flat, you can make money off the exchange rate. Of course, if you think the dollar is about to bounce back, investing overseas may not be the right thing for you, as your foreign investments will lose value if that happens, in dollar terms.

Finally, when countries that have traditionally been poor start to catch up, the growth rate can be tremendous. A good example is the explosive growth we saw in several

South East Asia

in the late nineties. Of course, as I have pointed out before, the higher the potential return, the higher the risk. But if your faith in the good old greenback is dwindling, it just might be worth it to look into a few interesting alternatives.

Stacy Francis, Savvy Ladies

www.savvyladies.com