Investments
“Efficient Portfolio Management”: A Guide To Effective Investment Supervision Processes
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Alessandro Magnoli Bocchi Chief Economist Kuwait-China Investment Company _0164
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Alessandro Magnoli Bocchi Chief Economist Kuwait-China Investment Company
Kuwait-China Investment D- Photo Courtesy of McMaster Institute for Sustainable Development in Commerce
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Kuwait-China Investment Forum, Beijing China
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Kuwait-China Investment Forum, Beijing China
- Photo Courtesy of McMaster Institute for Sustainable Development in Commerce
www.SustainabilitySymbol.com
www.PeacePlusOne.com
In practice, it is essential to take an integrated approach to clients’ wealth management and investment supervision activities. The integration is based upon expressly recognizing the three major components of this process: wealth planning, investment supervision, and portfolio accounting and reporting. Each component is now examined in turn.
I The Investment Process: Wealth Planning
Although often a convenient starting point for any investment relationship, the planning phase is really a continuous and dynamic process that requires ongoing review and refinement as client needs and objectives change. It is during this phase that investment supervisors assist their clients in a determination of client goals, objectives, and constraints. The importance of this process should not be underestimated. Proper planning develops the inputs upon which all other portfolio management decisions will rely.
Specifically, investment supervisors must be interested in learning about their client’s views and preferences regarding the risk to be taken. These include determining the degree of tolerance for portfolio drawdown (peak-to-trough intervals of loss) and conditional value-at-risk (point-estimate maximal loss).
Other metrics of interest often include the degree of aversion to skew (exposure to directional market bias) and kurtosis (exposure to extreme events). The purpose of these inquiries is to closely discern the degree of client risk tolerance (where risk manifests itself in multiple dimensions).
This concentrated focus on the specific articulation of risk tolerance differentiates “best practice” approaches and is a critical input to the portfolio management and supervision process outlined below.
Effective investment supervisors also assess the organization of their client’s investment-level entities in order to determine how such goals and objectives are shared across different constituents. Other planning activities, including tax optimization (and related entity allocations), income and expense modeling, and asset and liability matching must also be conducted in order to more fully appreciate the requirements of the investment portfolio.
The initial goal of this process is to help clients formulate a comprehensive investment policy statement, including the articulation of risk tolerance, which will ultimately guide the asset allocation and portfolio selection decisions.
II The Investment Process: Portfolio Management and Supervision
Once an investment policy statement has been articulated, it must be translated into a consistent and actionable portfolio management process. Ultimately, a diversified portfolio of investments in the “traditional” (e.g., cash, fixed income, equities), and “alternative” (e.g., hedge funds, private equity, real estate) asset classes is built through a deep and intensive due diligence process.
Numerous academic and empirical studies confirm the philosophy that the asset allocation decision is one of the primary determinants of portfolio return variance—both across time and across investment managers (For example, Brinson, et. al., 1991 and Ibbotson and Kaplan, 2000). Security selection and market timing, though also influential, are generally secondary considerations that have marginal contributions relative to the overall asset allocation.
Effective asset allocation optimizes the power of diversification and ensures that an investment portfolio maximizes the return generated for a given level of risk. As a result, getting the “top-down” decision correct is of critical importance.
Unfortunately, applications of the technique by many consultants, investment managers, and brokers often fail to account for varying degrees of market efficiency, skew (bias or event risk), and kurtosis (extreme events) often present among different asset classes. Relying solely upon returns and standard deviations can lead to sub-optimal conclusions, especially since neither vector is particularly robust with respect to time. In addition, the popularly used linear mean-variance optimization models tend to produce results that produce inherently unstable and grossly imbalanced portfolios that are highly sensitive to estimation error (Michaud, 1989).
Such narrow reliance among investment consultants and money managers is not uncommon; however, it often leads to an overestimation of expected return or an underestimation of risk and is the root cause of many forms of investor disappointment. It is also a causal factor in many of the very notable fund “blow ups” that have been witnessed in recent times.
An “Efficient Portfolio Management (EPM)” Methodology
The EPM methodology explicitly addresses such shortcomings by taking on the issue of risk directly. The goals of the EPM are to:
Explicitly determine how much risk to take and what forms of such risk are acceptable; and
Ensure that the portfolio is maximally compensated for taking on those risks.
Under the EPM framework, investment exposure (the sources of risks and, correspondingly, returns) comes in two forms, namely: systematic and nonsystematic. The EPM process is a synthesis of strategic asset allocation (for the purposes of determining systematic allocations) and active risk budgeting (for the purposes of determining nonsystematic allocations).
A brief discussion of each follows below.
Allocations to Systematic Investment Assets
Systematic investment assets typically relate to broad, well-diversified market exposures (also generically referred to as “beta”). In order to determine the optimal systematic exposure to various asset classes, EPM relies upon the process of strategic asset allocation.
The process begins by identifying the investment universe of candidate assets. These may include, for instance, the following classes (and their related subsets): cash, fixed income, equities, commodities, and real estate. In order to establish the initial (neutral) portfolio weights, EPM draws upon the general findings of the Capital Asset Pricing Model (CAPM), as described by Sharpe (1964) and Lintner (1965).
According to the CAPM equilibrium, the optimal asset class weights are directly related to the relative aggregate market capitalizations of each such asset class. That is, in equilibrium, the portfolio weights for the “market portfolio” in aggregate also become the optimal weights for individual portfolios. EPM refers to these weights as the “Equilibrium Portfolio,” and it serves as the initial “center of gravity” for the strategic asset allocation process.
As prescribed by Black and Litterman (1992), EPM next “reverse-optimizes” the Equilibrium Portfolio to ascertain its implied views of asset class risk premiums. Stated differently, if one believes that the Equilibrium Portfolio is in fact the optimal portfolio (as suggested by CAPM), what must the views on relative asset class risk premiums be in order to satisfy mean-variance optimality conditions?
The analysis of such implied views is analogous to the more popular application of using implied volatility to evaluate options pricing. In that approach, it is assumed that the market price represents both known and estimated variables that affect valuation. However, given the difficulty of objectively estimating expected volatility, many investors consequently take the market price as a given and instead determine what it must imply about expected volatility. Then, investors can make individual judgments about whether this implied volatility is in fact reasonable.
Similarly, investment supervisors can compare the implied views of the Equilibrium Portfolio with their own views of relative asset class premiums. Importantly, under this approach, it is not necessary for investment supervisors to make forecasts of the absolute returns of every asset class; they need only make relative risk premium assessments.
Where differences emerge between investment supervisor (or client) views and the market-implied views, EPM combines them through a conditional, Bayesian-weighted adjustment in order to capture the corresponding degree-of-confidence in each view. The adjustment may also affect other asset classes, as the process attempts to maintain the consistency of the covariance relationships among such classes. The resulting portfolio weights form a “passive risk portfolio.” This approach tends to minimize the forecast errors and unrealistic portfolio tilts that often plague standard mean-variance optimization.
Since the passive risk portfolio primarily addresses broad market, systematic (beta) exposure, its implementation is best conducted through low-cost, tax-efficient passive investment instruments. Such composition for broad market systematic exposure is consistent not only with CAPM, but also with the general findings of Fama (1970) and Brinson, et. al. (1991).
Allocations to Nonsystematic Investment Assets
Nonsystematic investment assets generally relate to idiosyncratic exposures (also referred to as “alpha”) that are not correlated to the systematic universe. In equilibrium, and relying upon the principles of diversification, such idiosyncratic exposure should not be expected to produce excess return. Therefore, expected alpha return in equilibrium is equal to zero.
In reality, however, the markets are often not in a state of CAPM equilibrium, especially in the short to medium term. As a result, it is not unusual to find tactical sources of alpha that do in fact exhibit positive expected excess returns.
Active investment management is the process of identifying and capturing this positive alpha. In order to determine the optimal exposure to these activities from a portfolio management perspective, EPM relies upon a disciplined methodology of budgeting for such “active risks.” This risk budgeting process operates on the principle that active risks should be assumed only where the marginal contributions to portfolio return from such activities exceed the marginal contributions to portfolio risk.
Once again, the process begins by identifying the investment universe (in this case, of nonsystematic assets). This universe typically includes certain hedge funds, private equity, and real estate investments. However, it should not be construed that the nonsystematic universe consists solely of such “alternative investments.” It can also include actively managed assets in the more traditional classes (equities, fixed income, and others).
In those cases where an asset has elements of both systematic and nonsystematic exposure (as is sometimes the case for assets in the traditional classes), the alpha and beta components must be separated. This decomposition can be accomplished by evaluating the distribution of the investment’s variance from its systematic benchmark. In this context, the investment’s alpha is found by computing the mean of the distribution, while the “tracking error” is found by computing the standard deviation.
The active risk budgeting process now determines the most appropriate portfolio of active risks that, when combined with the passive risk portfolio, meets the client’s overall macro goals and objectives—as expressly defined in the earlier wealth planning activity.
The methodology begins with a series of simulation and optimization studies to determine categories of active allocations (conditional upon an allocation to the passive risk portfolio) that can most efficiently meet the client’s objectives. The optimization program explicitly recognizes each client’s individualized level of risk aversion by first satisfying client constraints related to portfolio variance, acceptable drawdown, and event risk and then determining which remaining combinations of assets maximize return.
This approach is unique in that it contains an explicit focus on the various degrees of each component of risk that can affect the total portfolio, including the higher order moments of the expected distribution. Careful consideration of such risks can provide far greater clarity into the investment process, help optimize the returns achieved in exchange for the risks knowingly taken, inform a strategy mix that might most capably protect from a variety of systematic shocks, and ultimately lead to results that should more closely reflect the original intent and objectives of the client.
For practical purposes, EPM classifies assets into seven “active risk portfolios.” Each portfolio consists of managers and strategies that share specific active risk signatures and exhibit stable covariance properties. These portfolios are categorized as follows: “Long Equities,” “Long Fixed Income,” “Long-Short,” “Tactical Trading,” “Event Driven,” “Relative Value,” and “Private Equity.”
In determining which assets are eligible for inclusion into EPM’s active risk portfolios, investment supervisors engage in a deep and intensive process of manager and investment diligence. In this evaluation, two considerations typically emerge. First, the key evaluation criteria are both quantitative and qualitative. Second, building a portfolio of active assets involves more than simply finding the managers and investments that produce the best returns in isolation. It also requires understanding how they might behave in different economic environments and how they might correlate with one another—and with the passive risk portfolio—particularly during periods of high market volatility. Such analyses are critical, as correlation map surfaces can change dramatically as volatility, liquidity, and other “market stress” factors materialize.
The resulting active risk portfolios are then evaluated in terms of their marginal contribution to the risk (volatility, skew, and kurtosis [VSK]) of the passive risk portfolio. As stated before, the object of this analysis is to determine which combinations of the passive risk portfolio and the individual active risk portfolios produce the risk signature that best satisfies the client’s original risk constraints and investment objectives.
Once such a combination has been identified, investment supervisors once again utilize reverse optimization to determine what the implied views (on the expected excess returns of the active risk portfolios) must be in order to satisfy mean-variance skew-kurtosis (M-VSK) optimality conditions.
Investment supervisors again compare their proprietary views of expected excess returns in one or multiple active risk portfolios to the implied views from M-VSK. Any variance is treated in similar fashion to the Black-Litterman approach utilized in the construction of the passive risk portfolio. The resulting portfolio becomes the client’s global investment portfolio.
A Dynamic Process
Once the global investment portfolio is established, continuous monitoring and supervision of the portfolio must be conducted on an ongoing basis to confirm the variance, covariance, and other risk characteristics of the underlying investments. Such supervision includes performance attribution (relative to absolute and style benchmarks as well as relevant peer groups), risk control and monitoring (tests of manager adherence to active investment mandates, style drift compliance, short and long-term volatility) and ongoing personal reviews with investment managers (including regular communications, verification of manager commitment to client goals and objectives, and custody and reporting).
Critical to the process, however, is the periodic validation of the original risk constraints and investment objectives set forth in the wealth planning activity as well as the continuous supervision of the portfolio to ensure that its portfolio-level risk signature does not materially deviate from such specifications. Under the EPM approach, there is no distinction between the investment supervision process and the risk management process; they are one and the same by design.
Over time, changes to the investment portfolio can arise from three different sources:
Changes in views:
Investment supervisor proprietary and market-implied views can and do change. Obviously, the results of the strategic asset allocation will change as its inputs change.
Changes in active risk attribution:
The constituents of the active risk portfolio may change due to style drift, lack of continuing edge, lack of attractiveness in a portfolio-level context, or other diligence-related reasons.
Changes in client goals and objectives:
Client preferences and constraints related to risk aversion, tax regime, income requirements, time horizon, and other considerations may dictate a change from a planning perspective.
As a result, client portfolio management is a dynamic process that is responsive to both external (market and economic) as well as internal (client) influences.
EPM: The Benefits of Synthesis
The EPM approach is intended to engineer a portfolio that is capable of obtaining the “biggest bang for the buck,” by carefully defining the clients’ limited tolerance for risk and then allocating that scarce resource to those areas where it can be most efficiently rewarded.
As noted, EPM accomplishes this objective by explicitly segmenting the universe of investment assets by their risk characteristics; in particular, based upon of the level of systematic (beta) or nonsystematic (alpha) exposure each asset exhibits. In making this distinction, the most appropriate techniques drawn from strategic asset allocation and active risk budgeting can be applied to determine what levels of exposure and combinations of assets best produce the desired portfolio characteristics.
EPM is designed to directly address a variety of issues that are often poorly addressed in the typical applications of asset allocation and portfolio management. Consequently, the process actively: considers the relative market efficiency of various asset classes, includes the higher order moments of asset class distributions in evaluating risk, and incorporates non-traditional, “alternative” asset classes.
Portfolios resulting from the EPM process tend to exhibit the following characteristics (versus other more traditional methods):
Greater protection from the risks that clients choose to avoid and greater control over the risks that clients choose to take.
Higher degrees of efficiency in the compensation for risks that are taken
More rigorous standards for the acceptance of active risk
Higher quality diversification across asset classes, managers, and strategies, based upon specific and tangible opportunities for incremental risk-adjusted return
Lower sensitivity to estimation errors in asset class and strategy return forecasts
Taken together, these benefits lead to intelligent portfolio management solutions capable of more tightly meeting each client’s individual goals and objectives.
III The Investment Process: Tax Accounting and Portfolio Reporting
Although the accounting and reporting function is often overlooked or treated as an afterthought, the effective utilization of accounting reports can be a powerful tool in assessing and diagnosing portfolio performance.
Reports can come from a variety of sources, including: investment manager statements, reports from prime brokers and custodians, and valuation audits by independent accountants. The investment supervisor’s role is to provide an additional level of independence and produce analytic diagnostics that can be used to make effective investment decisions.
In this regard, investment supervisors must maintain an extensive, redundant database of transactions and tax-lot accounting when this information is obtainable from various custodians. The maintenance of an independent database allows us to analyze investments at the overall client family level, entity-level, and other customizable sub-groups of interest. Investment supervisors can also conduct broad tests of concentration and diversification across various managers and custodians, track cash inflows and outflows to ensure proper deployment, and test the veracity of month-end and quarter-end statements produced by the investment managers.
The reporting function is also useful for aggregating data for the purpose of performance measurement. Producing uniform performance and position reports allows fair comparison of different investment managers, regardless of their own internal performance reporting systems, which may vary by manager. Such reports also enables investment supervision analysts to conduct detailed style regression and returns-based attribution analyses, tools that are particularly invaluable in evaluating managers who may not share granular information on their underlying investments.
Finally, tax reports should be analyzed on an ongoing basis to identify and account for realized and unrealized gains/losses (by entity and by account), income and expense accruals (including amortization and accretion schedules), and potential “cross-manager” wash-sale violations, and for the identification of other tax-minimization strategies.
III Concluding Remarks
The finance and investment literature is full of a variety of (sometimes conflicting) approaches to the proper and effective supervision of investment portfolios for clients. All too often, academic treatments of the subject fail to recognize the realities of the investment world. Investment supervisors are in the challenging position of having to apply otherwise “elegant theories” to the typically messy “real world.”
In so doing, however, they must properly blend the best ideas from financial economics with the realities and opportunities that present themselves. As such, no single prescription can work all the time and, indeed, any suggestions must continuously evolve to adapt to the constantly changing nature of the capital markets.
The most important priority for an investment supervisor is to design and build an investment portfolio that best meets client goals and objectives. In the end whatever methodology best satisfies this priority in a way that optimizes performance, cost, and tax efficiencies—and is rooted in sound financial economics and not arbitrary logic—is bound to be a viable approach.
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Global Forum VIII on International Investment
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7-8/12/2009 – Angel Gurría, OECD Secretary-General, gives the opening speech at the Global Forum VIII on International Investment. Behind: Karl P. Sauvant, Executive Director, Vale Columbia Center on Sustainable International Investment, United States; H.E. Marco Vinicio Ruiz, Minister for Trade, Costa Rica; H.E. Jose W. Fernandez, Assistant Secretary of State for Economic, Energy and Business Affairs, United States. Paris, France.
For more information about the International Investment Forum, please visit: www.oecd.org/investment/gfi-8
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Questions to Ask before Investing Online or Elsewhere
We are faced with so many investment choices today, it Is sometimes difficult to decide which investment will best serve our purpose; as well as which investments are the safest, while giving us the best bang for our buck. While not specifically indicating particular investments, I want to
give you the appropriate guidelines in determining which investment is best suited for you.
Are you happy with the current 1% – 2% a year that most financial institutions are offering? Or does a higher rate of return appeal to you? There are investment opportunities that do offer a higher rate of return with limited risk. However, there are certain guidelines you must follow to determine which of these investments are best suited for your pocketbook and your personality.
As technology has advanced today, so have new investment opportunities, with higher returns; some, obviously safer than others. While the Forex market is now available to the average investor, it is truly a high risk arena and not appropriate for most. Other avenues of investing, which have not previously been available to the average investor, offer a handsome return, with a low risk. How do you find these investments? By doing your due diligence and following these guidelines I’ve outlined below.
10 Frequently asked questions:
1. How much money do I need to start investing online or elsewhere?
2. What are the costs or fees associated with the particular investment?
3. Once I’ve earned money, how fast can my funds be withdrawn?
4. What regulations are involved with the particular investment?
5. How do I assess the risks of a particular investment?
6. What are some of the highest return investments that the average investor can participate in?
7. Do I need to “qualify†to participate in the particular investment?
8. What are the minimums needed to fund the investment account?
9. Is there a guaranteed return on investment funds?
10. Over what period of time are funds held in order to produce a return?
How much money do I need to start investing online or elsewhere?
With the advent of online investing, it has become very easy to open various accounts with as little as a few hundred dollars. For instance, online investing has made it easier to invest in the stock market, including equity and derivatives, along with areas that up until a few years ago, could not be accessed or utilized by the average investor — Forex (Foreign Exchange) trading for one. Now, if there’s a market out there, it is possible that market can be traded online. So, the prudent advice would be to start with what you are comfortable in investing.
What are the costs or fees associated with the particular investment?
Many investments do charge fees or subscriptions as part of their service. The question to ask yourself would be, “Is this fee or charge too detrimental to the potential profit?†In other words, am I investing enough to offset the fees or charges that are going to erode my earnings? You will need to look at your potential profit and subtract the account charges from your profit to determine your actual percentage of profit.
Once I’ve earned money, how fast can my funds be withdrawn?
This question falls under the term “liquidityâ€. With some investments, like equity stock, it is possible to buy the stock one-day and sell the next or even within hours or minutes of the purchase. This is typically referred to as “Day Tradingâ€. Keep in mind that there is also a settlement period of 3-5 days before the funds are realized. Other investments may want you to commit your funds for a period of time before the principal and profit can be extracted. If it is possible to extract funds earlier, you may be charged a penalty for doing so. For instance, if you buy a CD (Certificate of Deposit), the bank usually wants you to keep that for a specified period of time and you are rewarded with the appropriate interest depending on the length of term that you have committed to — typically, the longer the term, the greater the reward, but remember, you have diminished your liquidity. Shorter-term commitments increase your liquidity and this is something to keep in mind, particularly if you might find yourself in need of these funds at some point in the future.
What regulations are involved with the particular investment?
When talking about regulations, we must first decide in what arena the particular investment falls — public or private. For our discussion in this book, we have limited our focus to areas outside of the real estate market and have primarily been referring to investments of money into equities, bonds, CD’s, commodities and the like.
On the public side of things, the largest regulatory agency is the SEC (Securities and Exchange Commission). With the Security Exchange Act of 1934, Congress created the SEC and empowered the SEC with authority over all aspects of the securities industry including oversight of brokerage firms, transfer agents, clearing agencies as well as the self-regulatory organizations (SROs). SROs are such entities as the New York Stock Exchange, the American Stock Exchange and the National Association of Securities Dealers (NASDAQ). The SEC has the power to administer disciplinary action and will prohibit certain types of conduct.
On the private side of investment are those investments not required by law to register with the SEC, which can include private companies, trusts, corporations or LLC’s, but who may wish to post their financial and significant information regarding their business as a show of “good faith†to their investors. This gives the company legitimacy, more transparency and validity for any investor they may wish to attract. In private transactions, as much information as can be gleaned before investing, including knowing the principals, the track record and seeking out satisfied investors, would be a prudent move. The more disclosure, the better it will be for your peace of mind.
How do I assess the risks of a particular investment?
As we discussed in the previous question, doing your due diligence is always advisable and educating yourself on the particular industry and investment vehicle, may turn up other areas of concern. Move forward only when you feel comfortable and confident with who and what you are dealing with. Seek out other advice from professionals as well as talking with other investors — particularly those who have specific experience with the type of investment you are considering, but remember, don’t let “one bad apple spoil the whole bunch†when it comes to soliciting investor advice. Get a broad range of facts and opinions in order to formulate the most prudent and judicial analysis.
What are some of the highest return investments that the average investor can participate in?
In trying to answer this question, one must look at the relationship between risk and reward. Typically, the higher the risk, the greater the reward and vice versa. It is not uncommon for an individual equity stock to post tremendous gains on an annualized basis — many times over 100%! One small cap stock that I am familiar with grew 1600% over the past decade. Sounds too good to be true, doesn’t it, but it’s not. Please keep in mind that this particular stock is an exception, not the norm. In fact, most stockholders recently have been happy to see a profit at the end of the year and are happy just to avoid a loss.
With that said, there are plenty of other offerings that provide huge upside potential with limited risk. One of these is in the physical commodities buy/sell contract arena. This particular area of commodities has been highly mischaracterized because most people and investors tend to lump these types of investments in with futures or exchange traded funds, and nothing could be further from the truth. Physical commodities buy/sell contracts are pre-arranged cash contracts that typically range anywhere from 2 weeks to a month or two in length, thus offering greater liquidity and at the same time, offering lucrative returns with limited risk. This is a relatively new arena for the average investor because it has been the arena of the very wealthy, although, now there are companies emerging that offer the average investor participation at smaller amounts than what previously required.
Do I need to “qualify†to participate in the particular investment?
Depending on the type of investment vehicle and the amount of money required to invest along with the level of risk, will dictate whether or not a person needs to be considered as an “accredited†investor. In terms of individual investors, this type of classification refers to the individual or couple’s gross annual revenue or net worth. Typically, net worth is considered “accredited†at or above ,000,000 or an individual who has an income in excess of 0,000 in each of the 2 previous years or a joint income with that person’s spouse in excess of 0,000 per year. Outside of that, the basic rule is whether or not an individual has sufficient liquidity to invest without harm and has the appetite for the given risk.
What are the minimums needed to fund the investment account?
This will vary from investment to investment. You may have a mutual fund that requires a minimum investment of 00, whereas you may be able to participate in an equity stock with as little as a few hundred dollars — it all depends.
Is there a guaranteed return on investment funds?
Outside of a CD, loan or bond, there is no guarantee of return. Anyone telling you that the return is guaranteed is, more than likely, misrepresenting the risk associated with the typical investment. With most investments, you should hear that “past performance is no guarantee of future resultsâ€.
Over what period of time are funds held in order to produce a return?
I covered this somewhat in a previous question, but the answer to this depends on the particular investment vehicle. For instance, a CD may hold funds for months or years depending on the rate of return being offered. With equity stocks, you can buy one minute and sell the next. Every investment stands on its own rules and how the vehicle works in producing a return for the investor. Certain investments with a specified time period and a projected rate of return help to minimize risk — especially long term risk, and improve liquidity. Depending on your investment objectives, a diversification of an investment portfolio is also very much advised by most in the investment arena in an effort to hedge against one area or another producing a devastating loss. It is also a good idea to rank your priorities in terms of liquidity, risk and reward. What’s most important to you will ultimately dictate the type of investment you may wish to seek.
For additonal information go to How much money do I need to start investing online or elsewhere?
With the advent of online investing, it has become very easy to open various accounts with as little as a few hundred dollars. For instance, online investing has made it easier to invest in the stock market, including equity and derivatives, along with areas that up until a few years ago, could not be accessed or utilized by the average investor — Forex (Foreign Exchange) trading for one. Now, if there’s a market out there, it is possible that market can be traded online. So, the prudent advice would be to start with what you are comfortable in investing.
What are the costs or fees associated with the particular investment?
Many investments do charge fees or subscriptions as part of their service. The question to ask yourself would be, “Is this fee or charge too detrimental to the potential profit?†In other words, am I investing enough to offset the fees or charges that are going to erode my earnings? You will need to look at your potential profit and subtract the account charges from your profit to determine your actual percentage of profit.
Once I’ve earned money, how fast can my funds be withdrawn?
This question falls under the term “liquidityâ€. With some investments, like equity stock, it is possible to buy the stock one-day and sell the next or even within hours or minutes of the purchase. This is typically referred to as “Day Tradingâ€. Keep in mind that there is also a settlement period of 3-5 days before the funds are realized. Other investments may want you to commit your funds for a period of time before the principal and profit can be extracted. If it is possible to extract funds earlier, you may be charged a penalty for doing so. For instance, if you buy a CD (Certificate of Deposit), the bank usually wants you to keep that for a specified period of time and you are rewarded with the appropriate interest depending on the length of term that you have committed to — typically, the longer the term, the greater the reward, but remember, you have diminished your liquidity. Shorter-term commitments increase your liquidity and this is something to keep in mind, particularly if you might find yourself in need of these funds at some point in the future.
What regulations are involved with the particular investment?
When talking about regulations, we must first decide in what arena the particular investment falls — public or private. For our discussion in this book, we have limited our focus to areas outside of the real estate market and have primarily been referring to investments of money into equities, bonds, CD’s, commodities and the like.
On the public side of things, the largest regulatory agency is the SEC (Securities and Exchange Commission). With the Security Exchange Act of 1934, Congress created the SEC and empowered the SEC with authority over all aspects of the securities industry including oversight of brokerage firms, transfer agents, clearing agencies as well as the self-regulatory organizations (SROs). SROs are such entities as the New York Stock Exchange, the American Stock Exchange and the National Association of Securities Dealers (NASDAQ). The SEC has the power to administer disciplinary action and will prohibit certain types of conduct.
On the private side of investment are those investments not required by law to register with the SEC, which can include private companies, trusts, corporations or LLC’s, but who may wish to post their financial and significant information regarding their business as a show of “good faith†to their investors. This gives the company legitimacy, more transparency and validity for any investor they may wish to attract. In private transactions, as much information as can be gleaned before investing, including knowing the principals, the track record and seeking out satisfied investors, would be a prudent move. The more disclosure, the better it will be for your peace of mind.
How do I assess the risks of a particular investment?
As we discussed in the previous question, doing your due diligence is always advisable and educating yourself on the particular industry and investment vehicle, may turn up other areas of concern. Move forward only when you feel comfortable and confident with who and what you are dealing with. Seek out other advice from professionals as well as talking with other investors — particularly those who have specific experience with the type of investment you are considering, but remember, don’t let “one bad apple spoil the whole bunch†when it comes to soliciting investor advice. Get a broad range of facts and opinions in order to formulate the most prudent and judicial analysis.
What are some of the highest return investments that the average investor can participate in?
In trying to answer this question, one must look at the relationship between risk and reward. Typically, the higher the risk, the greater the reward and vice versa. It is not uncommon for an individual equity stock to post tremendous gains on an annualized basis — many times over 100%! One small cap stock that I am familiar with grew 1600% over the past decade. Sounds too good to be true, doesn’t it, but it’s not. Please keep in mind that this particular stock is an exception, not the norm. In fact, most stockholders recently have been happy to see a profit at the end of the year and are happy just to avoid a loss.
With that said, there are plenty of other offerings that provide huge upside potential with limited risk. One of these is in the physical commodities buy/sell contract arena. This particular area of commodities has been highly mischaracterized because most people and investors tend to lump these types of investments in with futures or exchange traded funds, and nothing could be further from the truth. Physical commodities buy/sell contracts are pre-arranged cash contracts that typically range anywhere from 2 weeks to a month or two in length, thus offering greater liquidity and at the same time, offering lucrative returns with limited risk. This is a relatively new arena for the average investor because it has been the arena of the very wealthy, although, now there are companies emerging that offer the average investor participation at smaller amounts than what previously required.
Do I need to “qualify†to participate in the particular investment?
Depending on the type of investment vehicle and the amount of money required to invest along with the level of risk, will dictate whether or not a person needs to be considered as an “accredited†investor. In terms of individual investors, this type of classification refers to the individual or couple’s gross annual revenue or net worth. Typically, net worth is considered “accredited†at or above ,000,000 or an individual who has an income in excess of 0,000 in each of the 2 previous years or a joint income with that person’s spouse in excess of 0,000 per year. Outside of that, the basic rule is whether or not an individual has sufficient liquidity to invest without harm and has the appetite for the given risk.
What are the minimums needed to fund the investment account?
This will vary from investment to investment. You may have a mutual fund that requires a minimum investment of 00, whereas you may be able to participate in an equity stock with as little as a few hundred dollars — it all depends.
Is there a guaranteed return on investment funds?
Outside of a CD, loan or bond, there is no guarantee of return. Anyone telling you that the return is guaranteed is, more than likely, misrepresenting the risk associated with the typical investment. With most investments, you should hear that “past performance is no guarantee of future resultsâ€.
Over what period of time are funds held in order to produce a return?
I covered this somewhat in a previous question, but the answer to this depends on the particular investment vehicle. For instance, a CD may hold funds for months or years depending on the rate of return being offered. With equity stocks, you can buy one minute and sell the next. Every investment stands on its own rules and how the vehicle works in producing a return for the investor. Certain investments with a specified time period and a projected rate of return help to minimize risk — especially long term risk, and improve liquidity. Depending on your investment objectives, a diversification of an investment portfolio is also very much advised by most in the investment arena in an effort to hedge against one area or another producing a devastating loss. It is also a good idea to rank your priorities in terms of liquidity, risk and reward. What’s most important to you will ultimately dictate the type of investment you may wish to seek.
For additional information go to: http://www.siteproweb.com/20-questions-lead-page
Global Forum VIII on International Investment
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7-8/12/2009 – Left to right: Dr. Ibrahim Assane Mayaki, Chief Executive Officer, New Partnership for Africa’s Development (NEPAD) with Ambassador HE Konji Sebati (chair), South Africa, at the GFII Special Session on recent NEPAD initiatives, including the NEPAD-OECD Africa Investment Initiative. Global Forum VIII on International Investment. Paris, France.
For more information about the International Investment Forum, please visit: www.oecd.org/investment/gfi-8
Ref : CD209-164-241
©OECD PHOTO/Hervé Cortinat
The government acts as one of the participants. During the past years it offered variety of mechanisms to maintain investments, including foreign ones. Among such mechanisms there are agreements of products separation, financial tenancy, and investment programs, and special economic zones (SEZs).
The given article will regard the Special Economic Zones. It will render the consideration of specificity and advantages of foreign investment in SEZs in comparison with other mechanisms of foreign investment offered by the Russian legislation.
Legal and regulatory framework
First of all it is necessary to show the legislative basis that controls the mechanisms of investment.
It is essential to note such Federal laws as “Foreign investments in RF”, “Investment activity in RF that fulfilled in the form capital outlay”, “Special Economic Zones in the Russian Federation”.
The Federal law “Foreign investment in the Russian Federation” regulates:
• direct capital expenditure in Russian economic communities,
• relations regarding the foreign investor’s purchase of the share in the charter capital of the commercial organization that was or being newly created in the territory of the Russian Federation in the form of economic society or association.
• investment of the capital in main funds of the subsidiary of the foreign legal body that is created in the territory of the Russian Federation.
The Federal law “Investment activity in RF that fulfilled in the form capital outlay” regulates investments in capital expenditure objects. The last mean different kinds of newly created property that pertain to private, state, municipal or other forms of ownership subject to the exception established by the federal laws.
These two laws as a single set form the basis for organization of the investment process in the context of market-based economy, and herewith provide the access to the investment market of Russia for the Russian and foreign investors.
The Federal law “Special Economic Zones of the Russian Federation” defines:
• special requirements to the commercial organizations that can maintain the activity in the territory of the SEZ; and the character of the fulfilled activity.
• the set of tax privileges and other bonuses.
• application of special customs regulations.
The given law does not fulfill direct regulation of foreign investment mechanisms. However it can be applied for this purpose with the help of mechanisms stipulated by the “Foreign investment in the Russian Federation Act”.
There are the following optional norms that indirectly influence the conditions of investment:
• Tax Code of the Russian Federation,
• Customs Code of the Russian Federation,
• Federal laws “Joint stock companies”, “Protection of rights and legal interests of investors in the stock market”, “Stock market” and others.
The special status of entrepreneurial activity in Special Economic Zones.
In view of its specific task the SEZ legislation defines the regular mechanism of investment. Actually, the main aim of the SEZ is investment in a limited area for maintaining the commercial activity of a definite character.
There are several characteristics pertaining SEZ to the mechanisms of investment:
• creation of SEZ in the territory that is not prepared for maintaining the activity stipulated by the status of SEZ.
Actually choosing the territory it is necessary to take into account the presence of infrastructure objects, but however these objects are not enough for entrepreneurship, and that demands additional investment in engineer preparation of the territory.
• Occurrence of obligations of the government regarding the investment in preparation of the given territory for an appropriate activity. And the given liabilities are taken both in the federal and the regional levels, and primarily concern the investment in capital construction objects.
• Occurrence of obligations on the part of commercial organizations in respect of investment in the preparation of the territory. Besides it concerns not only the obligatory requirements to the sum of the capital outlays in the sea-port and industrial production special economic zones. Valuation of prescheduled investments is a necessary element of admittance of the commercial organization to maintain the activity in the territory of SEZ.
The key provision of the SEZ legislation that defines the specificity of investment of foreign capital in SEZ is a demand of registration of the commercial organization in accordance with the Russian legislation.
The requirement of state registration of the legal body is given in article 51 of the Civil Code of the Russian Federation. According to it the legal body is deemed to be created from the moment of its state registration. The location of the legal body is governed by the place of its state registration. (p. 2 art. 54 Civil Code of the Russian Federation).
Thus in order to become a resident of SEZ the commercial organization must have a location in the territory of a special economic zone where it will carry out its activity as a resident. Therefore foreign legal bodies can not be SEZ residents indirectly.
The given restriction concerns the subsidiaries and the representatives of foreign commercial organizations as well. That is stipulated by the concept of SEZ resident as a commercial organization. The subsidiary office, the representative are not legal bodies but the separated departments that are located apart its head office (art. 55 the Civil Code of the Russian Federation), and consequently they are not commercial organizations and can not be SEZ residents.
Therefore foreign companies are offered two ways of investment in commercial organizations that act as residents of SEZ.
The first way is creation of commercial organizations with foreign investment that is a Russian commercial organization the shareholders composition of which include a foreign investor due to the investment of the foreign capital in the object of entrepreneurial activity in the territory of a SEZ both in the form of monetary assets and property.
The second way is acquisition of the partnership share in an already created economic company that possess the SEZ resident status.
The first way
The legislation of SEZ doesn’t include the procedure of creation of a commercial organization with foreign partnership in the territory of Russia. That’s why it is essential to use special norms like such federal laws as “Foreign investment in the Russian Federation”, “Capital investment activity in the Russian Federation”.
The p. 2, art. 20 of the “Act of the foreign investments in the Russian Federation” says that commercial legal bodies with foreign investment are state registration in the order established by the FL “State registration of legal bodies”.
The Russian investment legislation approaches to the legal status of foreign investments on the basis of the national regime.
In accordance with the “Foreign investment in the Russian Federation Act” dated from July 09, 1999 (art. 4) admittance of foreign investments must be carried out on the general basis with Russian individual persons and legal entities.
At least the given arguments can not be less favorable for foreign investors and investments.
As a rule the foreign investor must have the same regulations and obligations as the domestic one has.
The national regime that applies to foreign investments excludes discrimination of the foreign investor depending on the citizenship or origin country of investments.
That is the general direction of development of legal regulation of economic relations with participation of foreign capital.
As a matter of principle the investment guarantees are provided within the internal legal order.
Particularly the provision of the p. 5 art. 4 of the “Act of the foreign investments in the Russian Federation” establishes that “the foreign investor, a commercial organization with foreign investment that was created in the territory of the Russian Federation, in which the foreign investor possesses no less than 10% of the share in the charter capital of the definite organization in case of fulfillment of reinvestment; use the legal defense, guarantees and privileges established by the legal federal law”.
However the given legal regime applies to the foreign investor in case of fulfillment of capital investment in the objects of entrepreneurial activity in the territory of the Russian Federation at the expense of outcome or benefit of the foreign investor or a commercial organization with foreign investments.
It should be noted that subsidiary and affiliated societies of the commercial organization with foreign investments do not use legal defense, guarantees and privileges established by the Act of Foreign Investment in the context of maintaining their entrepreneurial activity in the Russian territory (p. 4 art. 4 of the “Act of the foreign investments in the Russian Federation”).
Regarding the mode of investment via acquisition of participation share in an already created economic society that gained the SEZ resident status it is essential to remember the changes made in the legal status of LLCs on the ground that the given business legal structure of economic societies is quite widespread.
In December 30, 2008 the Federal law regarding the changes in p. 1 of the Civil Code of the Russian Federation and the separate legislative acts of the Russian Federation as well as the Federal Law dated from February 08, 1998 № 14-FZ ”Act of Limited Liability Companies”.
Particularly from July 1, 2009 the procedure of alienation and pledge of the society partnership share.
Besides the law changed the procedure and conditions of sale and other ways of alienation of the partnership share in favor of the third person.
The price is defined either according to the price of the offer to the third person or the price preliminary established in the charter.
The price defined by the charter can be in a fixed sum or calculated on one of the criteria (the cost of capital account, book value of an asset, net income and etc.).
The approach of the legislator to the solution of the problem concerning the withdrawal of the participant from the company can be called revolutionary.
In the companies created after July 1, 2009 the withdrawal without the consent of other participants is possible only in case of existence of the given provision in the charter of the community. It means that if the participants do not make a special note of in this regard the withdrawal of the participant from the community without the consent of other participants will be impossible.
There is no problem of withdrawal of participants from the community for LLC created before July 1 2009 in case the charter stipulates the norm that allows the withdrawal without consent any time.
However if there is no similar provision in the charter from July 01, 2009 the withdrawal is regarded according to a new provision of law.
The procedure of acquisition of the participants’ shares by the community underwent the changes as well.
Favorable regulation
The SEZ legislation as a mechanism of management of investment activity being defined it is essential to define the status of a private investor within this mechanism.
It can be done trough the preferences given by this mechanism. And the list of these preferences is rather significant.
It covers three key business directions:
1. privileges in the sphere of customs and tax regulation,
2. state financing of infrastructure,
3. reduce of administration obstacles.
The legislation elaborated the sector of customs and tax preferences more specifically. However most private investors believe that the role of the sector in increase of attractiveness of the given investment mechanism is the least significant.
Particularly one can single out two directions of customs and tax regulation of foreign investment in special economic zones.
The first direction concerns privileges that cover the process of foreign investment fulfillment.
Specifically it is stipulated by the provisions of art.16 of the “Act of the foreign investments in the Russian Federation” that provides that the customs payment privileges are given to foreign investors and commercial organizations with foreign investments provided they carry out the priority investment project in accordance with the customs regulations of the Russian Federation and the Russian legislation of taxes and charges.
The priviliges are examined more detailed in the law concerning the customs tariff dated from May 21, 1993 № 5003-1 specifically in art. 37.
According thereto it is permitted to provide tariff preferences in the form of refund of paid duties, decrease of the rate of duty and exclusive exemption from duties in regards to the goods imported in the customs territory of the Russian Federation as a contribution in charter funds of companies with foreign investment and foreign companies.
The given provision has a lot of cases of disputes.
Specifically the decree of FAS of north-western district dated from July 12, 2006 regarding case № А26-10554/2005-27. The case is exposed by the dispute of applicability of privileges given in import of goods in the customs territory of the Russian Federation as an investment in the charter capital of the economic society.
Resolving the dispute the court proceeded from the fact that the privileges regarding customs duties are given to investors and commercial organizations with foreign investment in case they maintain the priority investment project in accordance with the customs legislation of the Russian Federation and the Russian tax and charges regulations (art.16 of the Federal law dated from July 09, 1999 №160-FZ ” Act of the foreign investments in the Russian Federation”).
Subject to article 34 of the customs tariff act the privileges are provided only on the decision of the Russian Government.
Herewith the tariff preference means the privilege in respect of the goods that is provided on the terms of reciprocity or unilaterally and transferred across the customs border of the Russian Federation in the form of the reimbursement of the previously paid fee, exemption from the fee, decrease of the fee rate, establishment of tariff quotes for the preferential import (export) of the goods.
Trade policy of the Russian Federation within the limits of its customs territory it is assumed to provide tariff preferences in the form of the reimbursed of paid fee, decrease of the fee rate and exclusive exemption from the fee with respect to the goods imported to the territory of the Russian Federation in the form of the holdings in the charter funds of companies with foreign investments and foreign organizations (article 37 of the “Customs tariff act”).
The conditional exemption from customs fee is stipulated by the p.2 of the article 319 of the Labour Code of the Russian Federation.
According to point 1 of statement № 883 of the RF government the goods imported to the territory of the Russian federation in the form of investment of a foreign incorporator in the charter capital are exempted from the customs duty in condition of the following factors:
• the goods are not excisable;
• the goods are referred to the main production funds;
• the goods are imported in the terms fixed by the foundation documents for formation of the charter capital.
Thus for exemption from customs duties it is necessary to observe the set of conditions as a single set..
The courts established that in the given case the goods are imported in the Russian Federation with the purpose of adding it to the charter capital of the company upon the expiry of the 6-month term that is stipulated by the foundation documents of the community.
Therewith the import of the goods is connected with the formation but not the increase of the charter capital of the commercial organization.
The second direction is regulation of the economic activity within the terms of the special economic zone.
Proceeding from the analysis of the norms of customs regulation of activity in the territory of SEZ it is essential to make a conclusion that the main task of SEZs is activation of the foreign trade activity of organization locating in the territory of Russia.
More specifically the SEZ legislation stipulated using of the special customs regime that is effective in the territory of the special economic zone that is the free customs zone regime.
On the basis of article 37 of the “Act of Special Economic Zones of the Russian Federation” with the use of the free customs zone regime the foreign goods are located and used within the limits of the SEZ territory:
• without customs duties and VAT,
• without application of prohibitions and restrictions of economic character
Russian goods are accommodated in the territory of SEZ and used on conditions that are applied:
• for export in accordance with customs export regime,
• by payment of excise,
• without payment of export customs duties.
The customs regime of free customs zone can include:
1) foreign goods, imported in the customs territory of the Russian Federation from foreign countries;
2) Russian and foreign goods imported in the territory of SEZ from other part of customs territory of the Russian Federation;
3) Russian and foreign goods that are located in the territory of the special economic zone and purchased from persons that are not residents of SEZ.
Besides the customs duties and VAT are reimbursed by tax agencies in case the SEZ residents place the foreign goods imported into SEZ territory from other parts of RF customs territory under the customs regime of free customs zone or the goods purchased from persons that are nor SEZ residents.
The reason is that exemption from import customs duties and VAT or their reimbursement are stipulated by export of goods from the RF territory in accordance with the customs regulations.
According to p. 5, article 37 of the law “Foreign investments in the Russian Federation” the goods placed under the customs regime of free customs zone can be used in any operation provided the operations conform with the conditions of agreements concerning industrial-production or technological-introduction activity.
Herewith the RF government is eligible to establish a list of prohibited operations that are fulfilled with the goods placed under the customs regime of the free customs regime zone.
As a result one can see a situation where the goods imported from abroad gives more benefit rather than from the territory of Russia that consequently gives advantages to the companies that possess wide foreign trade connections.
There is a situation in the international practice where the main motive force of SEZ development in agriculturally developed countries is not foreign investments but a national private capital. And in developing countries and countries with transition economy it is vice versa – the main source is foreign investments and loans of international credit organizations.
The regime of free customs zone stipulated for SEZ in the Russian Legislation is targeted to the export production. That allows importing of the constituent parts and materials from abroad without payment of VAT and customs duty. After processing – exporting to the Russian territory that is including VAT and export duty payment, or exporting out of Russian border but without VAT and customs duty payment.
The given regime allows stimulating of export rather effectively.
Thus the modern policy of the Russian government in the sphere of regulation of investment activity in SEZ is directed to the attraction of foreign investors. And evaluating customs privileges provided to private investors in the SEZ territory one can say that foreign investments in SEZ have big support of the RF government.
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Alessandro Magnoli Bocchi Chief Economist Kuwait-China Investment Company _0166
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Alessandro Magnoli Bocchi Chief Economist Kuwait-China Investment Company
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Kuwait-China Investment Forum, Beijing China
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Kuwait-China Investment Forum, Beijing China
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About the systemic approach. The systemic approach is the direction of scientific knowledge and the methodology of social practice, which is based on the discussion of the objects in systems. it is used as an instrumentarium, which directs the research to the substantiating the wholeness of the object, discovers various contacts in it and gathers them into the total complex.
The systemic approach in its essence is the concrete principles of the dialectical materialism, in the bounds of which, we can discuss the investment process the series of those operations (the kinds of activities), which is fulfilled at the beginning capital (the preface of the process). It increases the value and conditions a definite result (the exit of the process). It is possible to learn the investing process from the position of the systemic approach, because the investment process is an economical system and it has a preface – the complex position of this system (investment surrounding) and exit – the changes of the entering investments into the economical system. The result of investing process got at the exit, defines the development of the economical system, in which the process is going on, and gives in it rise to the rates of the economical growth.
Ruling the investing process. The investment process is realized by ruling. It is discussed to be such a strategy, which guarantees achieve maximum effectiveness and it leads every kind of activity to the maximal growth of the economical system. Ruling consists of the following active cycles:
1. the analyze of the current position of the investment process, in which consists of: the analyzes of the investment attractiveness and investment business, satisfaction of the requirements for investments of the economical system;
2. definition of the showing of volume needed by the investments and of the investment attractiveness, to which this volume is conformed;
3. Working out activities which provide needed position of the systems’ investment attractiveness;
4. The changes of the incomes in the investments of the economical system, which is provoked by the changes of investment attractiveness;
5. Changing of the parameters of economical system at the investors’ expenses, which exists in the changing of the rates of economical growth.
Permanent realization of this cycle improves the ruling system of the investment process and increases the defectiveness of functioning of the economical system.
The realization of the systemic approach is situated in the analyzing the investment process not only in the horizontal section (the ruling subject – investment attractiveness – investor – investment business – the volume of the investment – investment object – ruling subject), but also in the vertical one (the world comradeship – country – region – field – manufacture – physical person). Such discussion reduces the quantity of repeated activity of the ruling of investment process and gives the complex theoretical picture of the investment process.
For preparing and realizing effective investment policy it is important to define clearly and simply the criteria of estimating the investment situation formed in the country, economical fields and regions; also working out methodological apparatus adequate to the economical regalia and its successive usage.
The investment process (that is the process of realizing investments) has every feature of the system: there always is in it a subject (an investor), object (investment object), the connection between them (investment in the purpose of getting income) and surrounding, in which they exist (investment surrounding). It is characterized with a special structure and the opportunity of an exact identification between other economical process. It displays its features as a result of interaction with other systems, protects a definite conception and reflects the points of view, aims and values of the subject of the investment process. Connection is the system-forming factor, because it unites all other elements into one whole (pic. 1). the systemic approach gives an opportunity of exhaustive description of the investment process essence and defines fully its basic concept.
The investment process is defined by the formed interaction about situating investments between the investment subject and object for getting income, also the realized investing influence from the side of subject and ruling organs upon the object; and changing of the conditions of investment surrounding.
Place of the investment process in the system of social relations. The investment process doesn’t exist itself and it is always involved into the sphere of following level, that is to say that it must be discussed in the bound of the total approach – discuss the system in the sphere of the interconnections with other systems. This gives us an opportunity of describing the place and role of the investment process as in the separate sphere of the activity and also in the system of the social relations. Every subject is oriented towards the development and always demands the supplementing of resource and changing this or that feature. The orientation towards the supplementing this deficit with own forces, slows the economical growth, because it demands from the subject to provide amused activities and wasting the time the its basic resources on this. In the conditions of specialization, the reducing of own forces makes the subject search for the object, the features of which give him an opportunity of of filling the existed deficit with a minimal investments. The need of investments appears, when the potential of the chosen object does not satisfy the necessary criteria and needs a kind of outer participation for its development. The possibility of the investment development occurs when the resources owned by the subject and its features give the opportunity of needed influence of the object upon the demanded features of the object.
At the moment of fulfilling the investment, investor makes contacts with the concrete object. Under the investors influence the features of the investment object changes and then these changed features in the face of investment income influences upon the investor, changes its features, including – filling the resource deficit. After finishing the investment process, the subject and object begin new existence; consequently, the investment process gives rise to the diffusion of the object and subjects’ features.
The dynamic of the social development is defined by the development of separate spheres of the activity. If the revolutionary sudden changes of this or that sphere of the activity gives stimulus to the unseen before growth, this gives rise to the natural chain reaction of the development of connected to these spheres. If the evolution development of the spheres of activities takes place, its dynamics, as a rule, is defined by the least developed abilities. When the investments and investment income have different subject consistence, that is if they belong to the different spheres of activities, the various investment processes make these spheres inter penetrative. According to this, the logical ruled changing of their development dynamics take place. This provokes the natural chain reaction of the development of the interconnected spheres. Consequently, the investment processes give opportunity of making and keeping natural chain reaction of the interconnected spheres of the activities. These processes appear to be the fastening factor for the social development.
Showing the connections between the basic categories of the investment process give the opportunity of establishing dependence of the investment volume to the factors and conditions of the investment domain, that is the investment surrounding formed in the region.
The picture 1.4 may elucidate basic structural elements of the investment surrounding and the connections between them, which are shown in literature.
The interconnection of consisting comp
onents of the investment process. Such an approach reflects the most essential sides of the investment process, but doesn’t give us opportunity of taking in mind the influence of the current processes upon the investment surrounding and on the contrary – of the investment surrounding upon the investment process. That’s why we think important to discuss differently the interconnection of the consisting components of the investment process.
The investment attractiveness is a positive category in its context, and the investment risks participating in the process of forming this attractiveness – a negative one. That’s why it is important to turn the quantitative showings of the risks into the quantitative showings of the concept, which is essentially opposite to the concept of “the investment risk” during taking in mind the noncommercial investment risks, as a complex factor of the investment attractiveness. We must call such a concept (the antonym to the concept of the investment risk) “social-economical and economical security of the investors” or, in other words, investment security (consequently, on the macro-economical, regional, field and industrial level). The mentioned changing gives an opportunity of avoiding inter contrary influence upon the resulting showing – the investment attractiveness of two complex factors – the investment potential and noncommercial risks.
Exactly same way, every private factor of these generalized concepts have at the same positive quantitative [removed]with the help of the positive showing – for defining the final level of the field’s investment security), and also negative one (with the help of conceptually “negative” showing – for defining the final level of the noncommercial investment risks of the field).
The investment attractiveness of the social-economical system (SES) is defined the position of the investment potential and the level of the investment risk. The investment assets existed in the region – the real development of the investment business in the SES – is characterized with the intensity of the investments. It its turn, it is defined by the past, current and future investment assets. The past investment asset characterizes the intensity of the investments invested before and gives an opportunity of defining their future profitability, the quantity of the presumable competitor and the most profitable sphere for the capital-investment. The current asset of the investment defines the level of the system’s economical development and gives the opportunity for predicting the volumes of the additional investments and their possible profitability, also to define the position occupied by the investor in the market in the future. Future (expected) investment asset is the oriental for planning whole investment process: from the definition of future volume of the investments till ruling the investment surrounding of the SES – for getting the needed income flow of the capital. Analyzing of these three consisting components of the investment business gives the investor information about the level of competition ability at the SES investment market, also the tendencies of its development and the activities for reducing market.
The wholeness of the investment attractiveness and investment business makes the investment surrounding for the country, region, field, corporation (existed in the manufacture). Though it is important also to reflect reverse connection, that is the influence of the investment surrounding upon the investment business. For example, the current position of the investment surrounding defines the investor’s ideas and his/her activities towards future investments. Improving investment surrounding in the current period gives the stimulus to the development of the competition held between the investors for getting the rights for investment. Also it gives the stimulus to the competition held at the commodity and service market, which helps the lowing of the prices and raising the quality of the production. Parallel to these, the inflow of the investment resources takes place, which gives an opportunity for rational and effective distribution of the existed resources to the ruling organs of the regional development. It reduces the disproportion in the regional development, improves the living social conditions in the region, helps the development of the infrastructure and communications, changes the situation in the investment surrounding according to the demands of development of the regional economy.
The interconnection and subordination between the participating categories of the investment process is represented by the scheme shown in the pic. 1.5.
Taking in mind the peculiarities of the investment process, it mustn’t only be based on the usage of administrative-regulating activities, but also the usage of those economical models, which prove the necessity of this or that activity.
1.6. Subject – matter of investment process and its main stages
According to the said above, the investment process is the successiveness of the stages, motions and operations of the investment business provision. The concrete flow of this process depends on the investment object. Consequently, the division of the investment process into the stages is provoked by the kinds of the investments. We speak, of course about the real and financial investments.
The investment process consists of two main stages; they are (1) making decision about the investments and (2) Realization and exploitation of the investments. It is adopted to divide the first stage into several separate phases (under types), which characterize the real and also financial investments. The quantity of these phases may be different, but three of them are the most typical: a) underlining the goals of the investments; b) definition of the investment direction and c) selecting the concrete object of the investments.
Goals and directions of the investment. In the process of getting decision about the investments different goals are defined and reflected. The ascending goals are the formal ones, which are in the future used as the criteria of selecting investments. The formal goals come from the strategical firmness of the investment.
Working out the strategical direction of the investment business is connected with the defining equality of this or that form of the investments on the concrete stage of the perspective period and also with the definition of the direction of investment business including its branch consisting part. The priority selection of the investment forms at this or that stage by the investor is provoked by a number of inner and outer factors.
The functional direction is the most important from the inner factors, those are the basic kinds of the investor’s (manufacture, organization) activities. For example, basic direction of the investment businesses for the institutional investors is investments into the securities. The manufactures of the real sector of the economy, which perform the industrial activities, give priority, as a rule, to the investments into the material and nonmaterial assets.
The financial investment is realized mostly in the form of the manufactures’ (as concurrent, so partner ones) participation in ruling purchasing shared securities, or in the form of temporal placement of free money sources for speculative goals.
From other inner factors important role in selecting the investment direction is played by the strategical direction of the operational activity, size of the manufacture (organization), the stage of the investor’s vital cycle and others.
From the manufactures and organizations of the real sector of economy the growth of financial investments characterizes, as a rule, large-scale industries, which have more opportunity of finding the sources of placing funds into the investments, and those manufactures, which are at the stage of the so-called “ripeness”. More extended form of investments at the earlier stages is the investments in the material and nonmaterial assets.
Among those outer factors, which make an essential influence upon selecting the investment forms the most important are the rate of inflation and the percent rate formed at the financial market.
The formal goals may be the aspiration for increasing profit, widening the scales of the manufacture (activity), obtaining power and prestige in the society; also, solving the social-ecological problems, keeping and increasing the working places and so on.
These goals are not often defined distinctly, are not coordinated according to the priorities or are not verified at the subject of the ability of their realization. That’s why, it’s necessary to point out the real goal of the investments from the formal goals by establishing concrete purposed showings. For example, the formal goal – increasing profit – must be concretized in a number of showings, for which the definition of the achievement quality will be possible. Concretely, it may be the middle quantity of the profit for several years or the showing of net profit, or those other showings, which characterize the earned profit from the investment.
Formal goals of the investments make the decision of defining problems about investment directions easier. Mutual connected, independent and alternative (inter excluding) investments may also be among them.
Main stages of the investment process. According to the formation of investment portfolio, the investment process becomes importantly easier at the expense of reducing its stages. In the foreign literature dedicated to this problem, they differ following stages of the investment process:
1. Selection of the investment policy;
2. analyzes of the investment market;
3. re-inspecting the portfolio of the securities;
4. estimating the investment effectiveness.
At the first stage they define the investment goals and the volume of the necessary sources for its realization, also the quality of risk and profitability for every financial instrument. Selecting those financial assets of the potential kind, which may be included into the portfolio, fulfills this stage.
At the second stage, they concretize the rate of value of the securities’ separate kinds on the foundation of marketing conjuncture formed at the concrete moment and provide the prediction of the share rates’ dynamic of the concrete firm. Such kind of approach is called technical analyze. Basing on the got data they conduct fundamental analyzes. Its essence is analyzing the brought value of all those cash money flows, which is expected to get by the owner of the financial asset.
Third stage of the investment includes selecting concrete assets for the investors, also defining the optimal proportions between the assets in the bounds of investment capital. The bases of it are selection, selection during the operations and the diversification of risk according to total profile.
The fourth stage concerns the periodical estimation of the current portfolio according to the changing the investor’s goals and its deviation from the optimal portfolio. After this selling of the part of purchased securities and buying new ones become possible.
At the last stage they provide periodical estimation of the factual profitability and the level of risk and their comparing with the existed standards.
Main participants of the investment process and their functions. To the circle of main participants of the investments belong: state, regional and local organs of the government, manufactures and physical persons: they can participate in the process of investments from the side of demand and delivering.
In the conditions of the market economy the circle of the participants of investment process is importantly widened. The web of commercial banks, credit-commercial organizations, investment funds of companies and insuring companies have appeared, which make independently the investment decisions. But still, the state and governmental regional and local organs define their participation in the process of investments. It is represented by holding investment competitions, by selection and proving the investment projects, by licensing and quoting the production, and also by defining the quantity of the percent rate and taxation. The financial activities of the state, the organs of regional and local government as from the demanding, so the delivering side, influences essentially upon the behavior of the financial institutes and market.
Main distributor of money at the financial market is the population, because it gives much more to the investment process, then takes. Of course, it will not be said about the organs and manufactures of the executing government.
The researches of the foreign scientists U. Sharp, G. Alexander and G. Bailey show, that wholly the state and manufactures are net consumers of the money sources, that is that they use more sources then give. More concretely, many large-scale companies for realizing their long termed aims need enormous quantities of money for building factories, buying furniture, working out new products and so on. Besides, by realization active and difficult strategies of ruling cash cash masses, they appear to be main purchasers of securities. Such a situation is created on the side of the state, regional and local governmental organs, the activities of which is connected with the capital investments and guaranteeing current expenses.
The organs of executive government fill the insufficiency of the money sources by producing debt commitments and obligations, and companies by producing shares and other securities.
The factors defining the consistence of investment project participants and fulfilled functions. The consistence of the investment project participants and fulfilled functions provided by them, are defined by the following factors:
- the specifics of investment project, its volume, technological hardness and so on;
- compatibility of functions by the participants of the investment project during the realization of the project;
- financial status of the customer, who increases or reduces the influxing the financial structures in the realization of the investment project;
- providing the customer with the best material resources, building materials, techniques, furniture and so on;
- selection of the type of ruling the investment project (traditional or progressive).
Basic participants of the investment project. In the ruling the investment projects with the traditional type they differ its following basic participants: sponsors, constructor, distributor of the furniture, the consultant of insurers, legal adviser, the consultants of the taxation and financial branch, creditors and others.
Let’s discuss them in more details.
In a wide understanding, a sponsor is a guarantor; a physical or juridical person, who finances an economical project or a registration of social activities. Also, an orderer, an organizer of a large-scale project or arranger sponsor may be as commercial, so noncommercial structure.
As to the sponsor, as the participant of an investment process, we may call it an orderer, organizer, who connects then activities of every participant of a project, arranges discussions, analyses commercial suggestions of the constructors of financial structures or distributors, realizes marketing researches and selection of the financial partners. In the separate occasions, it becomes responsible for fulfilling such functions of the constructing engineering, as engineer-consulting service, projecting-construction and analytical-calculating works, preparing a technical-economical substantiation, organization and ruling of the manufacture, working out recommendations in the sphere of production realization. These reduce the quantity of the investment process participants.
Project-construction and construction organizations or individuals act the role of a constructor, that is the provider of the work. The constructor can involve other persons in the process of fulfilling the order, who become the sub-renters, and the constructor him/herself becomes the general renter. He appears to be the main fulfiller of the constructive lease agreement and is responsible the before the orderer for the fulfillment total complex of activities established in the agreement.
Distributor of the furniture represents the filial, foster companies or those other firms, which have signed at distributing furniture and providing services. If the manufacture registers an agreement with an orderer for a complex distribution of materials, building techniques and furniture to many of firms, it becomes the general distributor and answers for the whole distribution.
The insuring consultant is invited for displaying the insuring risk and estimating the quality of the project’s safety, also, for working out the appropriate recommendations. The juris-consult provides the preparations of the juridical documentation around the project, discusses wholly agreements and contracts.
The consultant of the branch of taxation questions analyzes the taxation situation existed in the country for realizing the project and also the taxation obligations of every participant, makes recommendations for minimization the taxes.
Financial consultant provides the selection of financial, credit and calculation conditions by combination of the alternative variant for the realization of the project. In the case of influxing foreign investors into the project, he must bring it to the appropriation with the existed international standards. This will make easier the status of the potential investors and creditors.
Creditors, as the participants of the investment process, lend money in different terms and conditions. Under these conditions, the creditor has a right of demanding from the debtor to return credit or fulfill other obligations. A state, bank, manufacture or a physical person, investment funds and others may be the creditors.
A traditional form of ruling the investment project, in the time of which the orderer carries out him/herself the functions of ruling, has several defects. First is that the most part of the orderers is not competent enough in every question connected with the project. It makes the level of the risk stronger during getting the ruling decision that gives rise to a number of expenses. Second one is that, the successful ruling, according to the experiences, requests the leader’s systematic participation in the investment process, because the orderer is not always able to do it. And third, this form of ruling the project is characterized by the comparative dispersion of phases and stages as in the time, so in organizing. All these gives rise to the additional problems in the provision of the s’ agreement of its every participant.
Overcoming the mentioned imperfection happens at the moment of moving to the progressive form of the investment project ruling. Its essence is that the leader (manager) of the project becomes the basic figure in the organization and ruling the investment businesses. This may be a construction or construction-projecting organizations’ especially prepared high-qualified specialist or an experienced leader. He/she provides a general ruling of the project including finances, personnel and the construction works.
1.7. Planning and selection of objects of investment process
The definition of re process of investment planning. The final phase of the first stage of the investment process is the selection of concrete objects of the investment, which is fulfilled in the process of planning investments.
They, as a rule, call the process of investment planning the process of forming such a portfolio (investment program) of the projects, which may be discussed as one of the alternative and mostly desired variant for achieving the investment object. Mostly using the mathematical models, which have no ability at all of reflecting every factor of the investment business, provides the planning of investment. That’s why the results of modeling don’t provide making such straight decisions, which would be the guarantee for the achieving the set object. The manufacture’s operative management basing on the results of planning and taking in mind other non-formalized factors provides getting the final decisions about those concrete objects of the investment, which must be included into the investment program of the manufacture.
The investment model is called such a mathematical model, with the help of which it is possible to estimate the effectiveness and resulting of the investments, as towards the set objects, so towards the sources for reaching it.
We must take into account the fact, that the real investments together with achieving the set objects cease quantitative changes as in the material-technical, so in the financial spheres. As to the financial investments, they are separated and touch mostly upon the financial side of the manufacture’s activities.
The investment business also may be isolated (separated) and interconnected. In the first case, in the process of investment business they discuss only alternative variant. Mutual connected investment planning also takes in mind the alternatives of getting decisions in the spheres of financing and organization. So the subject of isolated planning is working out the investment program. In the second case, the aim of the planning is industrial sphere wholly.
Any planning means distinctive period, during which the fulfillment and realization (exploitation) took place. This period is always reduced. It must be mentioned that the subject of investment planning terms is always conflicting. Basic question of the discussion is the ability of correcting the decisions under the influence of the phenomenon happened after finishing the planning section. Though this is a just demand the definition of the future investment decisions’ influence is possible only after these investments are realized.
Periods of the investment planning. In the process of investment planning, they divide the terms of planning into the intervals, which are called periods. The realizing decisions of one period are belonged to the beginning of end of the appropriate period. It’s important that this is not reflected at the conceptual side of the investment decisions and influences only the numbering of the period. Got results from the realization of the investments are expressed by the taxes, which are divided into delivery (for example, paying off the other industrial subjects by the investor) and incomes (for example, paid fee to the investor by other industrial subject).
The total sum of the payment during the concrete period equals to the sum of the realized delivery and incomes. If their balance is positive – that is the income overcomes the delivery or on the contrary.
The quantity of those periods during which the income-delivery of the sums takes place, is called either the term of the investment exploitation (in the case of the real investments), or the term of action (in the case of financial investments). This portion of time is either defined beforehand, or discussed as alternating quantity (at the time of getting investment decisions). The freed invested sources are called commonly disinvestments.
In the system of investment planning, the goal of the capital investment in this or that period of time may be the growth of property, increasing the income flow, making the investment profitableness higher and other showings, which characterize the ability of getting prolonged profit.
In the investment models of the planning, the volume of capital investment may change in the definite period of time, for which the plan is working out. During getting decisions, the priority is given to those projects, which guarantee the incomes from the realization of the investment in shorter time. Combination of the payments flow in this or that period of time is realized by the discount method.
Isolated planning of the investments. The isolated planning of investments is realized during the given budget toward the separate investment objects or the separate investment programs. The term of the investment (investment projects) exploitation may be discussed as a alternating or fixed parameters. The market of capital may be improved and also not improved. The separation of these markets is carried out by usage of distinctions between the percent rates of deposits and credits. Number of limitations of the financial resources in the isolated planning system may be belonged to any period of planning.
1.9. Interconnected planning of investments
Interconnected investment planning. The interconnected investment planning is realized in tight relations with planning the industry-financial activities. This relation is based on the complex formation of the cash flow taking in mind the fact, that like every activity the realization of every investment project needs the financial provision. This means that in the process of realization of the investment program, it is important to balance its financial parameters with the industrial and financial parameters of the manufacture, also, taking in mind the possible reductions. We mean, firstly the potential of own investment resources, the possibility of influxing loan capital, necessity of branch and regional diversification of the investment businesses, also, provision of effective balancing of inner balance, that is profitability, risk and liquidity of investment businesses.
The system of interconnection planning means the existence of many criteria during the selection of investment projects. It is based on ranging the goals and aims of the investment businesses in the system of the goals of business leading, according to either time, or meaning.
The differentiation of the criteria of investment projects’ selection takes place, as a rule, in the section of concrete forms of independent, inter-exclusive (alternative), and interconnected investment projects. Ranging of the goals requests the raging of criteria too. Usually, they use criteria of the net brought values and inner percent rate (inner profitableness) mentioned above, as basic criteria.
During the interconnected investment planning the system of reduction concerns basic and additional reductions. Basic reductions are the most important criteria of the selection. For example, if established basic criteria of the selection of investment projects are the showing of the project’s net brought value, the basic reductions may represent concrete meanings of the following showings: inner percent rate, the total risk level of the project, the terms of repurchasing the investment project and so on.
The additional reductions may be: the level of diversification of risk at the expense of regional and branch consistence; the value of the borrowed capital; the terms of realization of the investment projects; the size of the total volume of investment resources; the volume of the production and realization of the product and so on.
The realization of real projects. The concept of the second and third phases is essentially different from the real and financial investments, and it is stipulated by the peculiarity of their realization.
In the modern conditions the real investment is the foundation of investment businesses of the most manufactures. The realization of the real investment is characterized with a number of peculiarities; we can separate following ones:
1. the real investments are straightly connected with the basic activity of the manufacture, the widening of the assortment of the production and improving its quality with the help of involving the achievements of the scientific-technical progress. In other words, investment business and real investment processes are connected and condition each-other;
2. the real investments, relatively to the financial investments, are followed by bigger economical risks, which, in its turn, means the ability of providing higher profitableness relatively with the financial investments. Economical risks are connected with the peculiarity of the technological processes, factors of the material wearing out and so on;
3. Real investments are less liquid relatively with the financial ones. The reason for this is a tight purpose of most of the investments in the real industry and very often absence of the abilities of alternative industrial usage. That’s why it is extremely difficult to compensate mistakes made during getting decisions about real investments.
The forms of realization real investments. Real investments are realized differently by the investments in the in the basic capital, capital investments in the turnover assets and investment in nonmaterial assets. The realization of the capital-investment, in its turn, happens in several forms and, firstly, it is building of new manufactures, reconstruction of the existed ones, modernization, technical re-equipment, and also, purchasing total prosperity complexes.
Purchasing total prosperity complexes is the prerogative of the largest companies with such a policy, which is directed towards increasing its influence at different markets. Real investments of this kind guarantee growth of the total value of the manufacture’s assets, which is conditioned by the growth of abilities of financial potential and joint usage of the system of materials, reducing the level of the manufacture expenses and so on.
New building, usually, is connected with the investments in such modern manufactures, which increases the labour production and satisfies the request of the ecological security, also, means the building of new objects.
Reconstruction in the most cases requests moving to the modern technologies of the industry taking in mind the achievements of scientific-technical progress. As a rule, it is connected with the involving of the resource economizing technologies, moving of the production to the modern standards of the quality and so on. The reconstruction may touch upon the building of new objects.
Modernization mostly is connected with bringing to conformity the active part of the basic funds to the modern requests of realization the technological processes.
Technical re-equipment touches upon the changing and purchasing new furniture, mechanisms and basic complexes of the technical system for effective realization of the technological processes. It is not always possible to put a sharp boundary between technical re-equipment and modernization.
Investments in the turnover assets as a rule, serves for widening the turnover funds used by the manufacture. In the most cases it is realized following the capital-investment realization and this essentially is the result of realization capital-investments.
Investments in nonmaterial assets generally mean innovational investments and realized in two basic forms:
Ready scientific – in the form of given patents of technical production, scientific achievements, inventions, commodity marks and so on; With the help of independent machining of the scientific-technical production.
Most part of the real investment forms and kinds – the turnover assets, excluding the innovations of separate kind of the furniture, mechanisms and so on, – are realized in the face of real investments having appropriate business-plans.6 In the business-plans of the investment projects together with the traditional section the subjects of providing the needed level of liquidity of the real investment objects and minimizing the level of investment risks must be worked out and shown.
Organization of the investment project realization. For preparing the organization and realization of every needed plan documents, as a rule the leader is appointed. The most important plan documents are the calendar plans of the projects and their capital budgets.
The calendar plans are made for definite period of time – year, quarter, month or decade. The data of terms and volume of the realization the separate kinds of activities foreseen by the investment project are represented in them. The terms and character of the activities define the quality of detailing the calendar plans.
Fulfillment of the calendar plan is straightly connected with financing the activities of the investment project. For this purpose, the financial plan is worked out, which, usually is called “the capital budget of the investment project”. The volumes, terms and sources of the financing any kind of activities considered by the project in the section of separate phase of the calendar plan are substantiated and established in it.
Capital budget consists of two sections: capital expenses of the projects and influxing the needed sources for its realization. The capital expenses are the specified estimation of initial volume of the investment expenses taking into account the reserve of those financial sources, which are needed for recovering unexpected expenses according to the calendar plan.
The section of the “source influx” of the capital budget is the specification of volume of the investment needed resources for the project realization in the section of own sources of the investor, influxed sharing capital, leasing, banking credits and so on.
The synchrony of the income of the sources and the volume of investment expenses must be provided in the capital budget for realizing the works foreseen in the calendar plan.
Briefly about the investment risks. An important element of the project’s calendar plans and systems of sustaining capital budget taking into account the factors of the investment risk and working out the activities for their neutralization. The investment risk, as a rule, is discussed in the prism of possibility for getting unprofitable financial result. The forms of its displaying may be loosing the planned investment income or shortage for vagueness in the realization of investment projects. The investment project risk is a complex concept and units those various kind of risks, which are connected with the realization of investment projects.
Every stage of the realization of investments is characterized specific kinds of risks. That’s why estimation of whole risk of the project is provided on the foundation of aggregated facts according to the separate stages.
The realization of any investment project is in its essence a unique phenomenon for even one-typed projects. This circumstance makes the individual approach necessary, taking into account the specific information, which is connected with objective and subjective factors of occurring risks during the realization of the investment processes. The long is term of the project realization; the bigger is the vagueness of final results of its realization and, consequently – level of the risk.
We mist take into account the planned size of the cash incomes to get from the investment project depends on future status of appropriate segment of commodity market and effectiveness of commercial activity of the manufacture. It means that the investment risks are greatly conditioned by the commercial risks of a manufacture. In other words, there is a straight connection between the length of the vital cycle of the project and level of the investment-projecting risk. The completeness and trustworthy of the gathered information about every stage of the project’s realization, the level of qualification of the investing management defines greatly the substantiation of taking into account the various factors of the different types of risks.
The kinds of investment risks.Let’s name the basic kinds of the risks of investment projecting taking into account the specific conditions in Georgia.
The risk of inability of paying is in important connection with fulfillment of state obligations of the partners in the business, also, lowering the level of liquidity of the turnover sources.
The risk of financial provision of the project is connected with the late influx of the investment resources from the separate sources, the danger of incomplete financing because of increasing the value of the capital, which is needed for the realization of the project. It is in a straight correlation with the risks of inability of paying and inflation.
The risk of financial infirmity of the manufacture. It is characterized by the flow of invested own and borrowed capital and the incomes conditioned by the investment project and unbalancing of the flow of payments. This risk, together with the risk of the inability of paying is one of the most provoking reasons for bankruptcy of the manufacture.
The risk of inflation is connected with the possibility of devaluation of the expected incomes from the investment project and raising the value of capital expenses expressed by the nominal price. In the modern conditions the risk of inflation has permanent character and touches upon most parts of the operations of the project’s realization. Solving the problem of its taking into account and softening neutralizes this permanency.
The percent risk is related with the risk of inflation. It has own specific in Georgia, which is conditioned by the peculiarity of formation of the financial market and its being not developed.
The marketing risk is the risk of getting incomplete income from the investments on the stage of the project’s realization conditioned by the active circumstances at the expense of the volume and exploitation of the realization. The long are the terms of the project’s realization, the higher is the possibility of this kind of risk.
The criminal risk is conditioned, at the first place, by the absence of the appropriate defense of the rights of the investor’s privacy that appears in the economic of our country the most often.
For neutralization of the possible negative results of the investment projecting risks various measures and arrangement are worked out, which are grouped into the inner and outer measures. Inner measures of the neutralization of the risks concern the foundation of the various insurance and financial funds (reserves) and working out such measures, which will suppress possibility of raising this or that risk. This may be refusing using the low-liquidated assets and the borrowed capital of the important volume, also the mechanism of transferring the risks following the separate operations to the partners.
Foundation of the insurance and financial funds means the reservation of one part of the investment resources for getting over those unexpected negative results, which are not related with the actions of personnel and contractors of the manufacture. Of course, wasting of the part of the own sources of a manufacture, or, more concretely, “freezing”, makes important getting the loan at the market of finances for filling it, that makes the dependence on the outer sources of financing the investment projects stronger.
The outer methods of the neutralizing the projecting risks, in the first place, is insuring the project risks of separate kinds and guaranteeing by the third person. The object of the insuring is the property of the manufacture, which is used in the process of investment process; the responsibility of the manufacture and its personnel towards the third persons; insurance of the participants of the investment project’s realization. The mechanism of guaranteeing is oriented firstly towards the protection of the investors’ rights in case of changing the investor’s conditions.
The peculiarities of realization the financial investment. For the manufactures, which are not institutional investors, the basic direction of the investment business is the realization of the real investments. Herewith, when the conjuncture of the financial market gives the ability of getting significantly higher level of profitability at the invested capital, then the operation activity at the commodity market (the formed situation at the market of securities in Russia in 1995-1996 is a good example of this). Also, in case of existence of temporary free financial resources, the manufactures actively invest sources into the high liquidate financial instruments. Except this, the manufactures invest own capital other manufactures’ regulation funds for diversification and ruling other companies and organizations.
From the economical point of view, the financial investments are such instruments, with the help of with the solving the strategical and operative problems of effective placement of the capital in the country and abroad. The financial investments are mostly realized in the manufactures in the time of having free money sources. They appear in the face of outer investments (except the occasions, when the manufactures expiate their own securities, for example shares).
The most part of the manufactures realize the financial investments for the purpose of getting additional investment income (speculative income) from the usage of the free money sources. The concrete choice of the concrete instruments of the financial investments is wide enough even in the conditions of already formed market.
The level of profitability received from producing the investments into this or that instrument is in the straight relation with the level of risk. Higher is profitability, the higher is the risk of financial set-back.
The portfolio of the financial instruments. In the purpose of getting the desired level of profitability of the financial investments and the diversification of risks, the enterprises (investors) purchase financial instruments with different levels of profitability and risk, that is, in other words, they create the portfolio of financial instruments of specific character.
For the changing character of the conjuncture of the financial market, the process of getting desired level of the profitableness requests permanent monitoring of the various instruments’ profitability, risk and liquidity and also making the appropriate ruling decisions related with changing the portfolio of finances; it means the reducing or increasing the share of this or that financial instruments. Such kind of correcting is called “the restructuring of the portfolio”. It is the basic concept of the financial instruments’ operative ruling in the manufactures.
Basic financial instruments of the speculative portfolio of the finances the shared and debt securities, also, deposits and the currency valuables. During the monitoring process, depending on the type of the financial instruments, they take into account and analyze a lot of factors, which influence upon the levels of their profitability, liquidity and risk. From the factors which negatively influence upon the profitability of the shared financial instruments, the most important are:
· growing the level of taxation of the emitenti manufactures’ investment profit;
· the conjuncture changing of the volume of emitenti companies’ selling (it especially touches upon the oil companies);
· reducing the level of dividends for reducing the volume of the profit;
· reducing the price of net assets of the emitenti manufactures;
· speculative games of the participants of stock market.
The growth of the percent middle rate at the market; increasing the level of inflation; increasing the level of taxation of emitenti manufacture’s investment profit; degradation of the level of financial firmness of the manufacture; degradation of the pay ability of emitenti manufacture belong to the factors, which reduce the level of liquidity of the debt securities. The level of registration rate of the central bank; the firmness of the national currency; financial stability of the institutions of the deposit kind; changing of the percent middle rate at the financial market make and essential influence upon the profitability, risk and liquidity of the cash instruments.
According to the results of the investment market monitoring, they display the separate instruments of the speculative investments and also the tendency of the levels of profitability, risk and liquidity of the whole portfolio. Based on the received information, they make decisions about the necessity of the portfolio restructuring and its direction.
The investment resources during realization of the financial and real investments are used as in the cash, so in the natural form. The formation of the investment resources of the manufactures is connected as with the manufacture itself, so with the processes of gathering and keeping, which take place in the whole country. The rates and scales of the keeping and gathering the investment capital are conditioned by the level of the country development and also the level of the population’s profitability.
The process of formatting the investment resources in the manufacture is permanently working in the face of the incomes received from the basic activities and the activities not for realization, also by taking loans and others. The concrete quantity of those sources, which are used either for the investments, or the consuming needs, are defined by the finance-industrial plan of the manufacture. it depends greatly upon the values of their influx, the growth of the manufacture’s capital and its structure. If a large portion belongs to the sources in the structure, then the abilities of loaning are reduced. At the same time, the value of additional resources influx increases because of increasing the credit risk.
In the system of effective planning of usage and analyses of the financial resources it is very important to point out those various groups of the investments, which differ in specifics and request the usage of the adequate methods of ruling. They differ several characteristical features, with the help of which the classification of the investment resources takes place.
Invest in gold in three ways: buying physical gold, such as gold bars or jewelry, buying ownership contracts that relate to the actual gold price or buying shares in gold mining companies. Learn the advantages and disadvantages of each method in this free video from an experienced floor trader on investing. Expert: Mark Griffith Bio: Mark Griffith has graduated in economics and philosophy at Clare College, Cambridge. He has been a futures and options floor trader at LIFFE (London International Financial Futures Exchange). Filmmaker: Paul Volniansky
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Alessandro Magnoli Bocchi Chief Economist Kuwait-China Investment Company _0165
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Alessandro Magnoli Bocchi Chief Economist Kuwait-China Investment Company
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Eastern tribes have a completely different beadwork aesthetic, and Innu, Mi’kmaq, Penobscot, and Haudenosaunee tribes are known for symmetrical scroll motifs in white beads, called the “double curve.” Iroquois are also known for “embossed” beading in which strings pulled taunt force beads to pop up from the surface, creating a bas-relief. Tammy Rahr (Cayuga) is a contemporary practitioner of this style. Zuni artists have developed a tradition of three-dimensional beaded sculptures.
Northwest Coast
Main article: Northwest Coast art
See also: Alaska Native art, Kwakwaka’wakw art, and Haida argillite carvings
The art of the Haida, Tlingit, Tsimshian and other smaller tribes living in the coastal areas of Washington State, Oregon, and British Columbia, is characterized by an extremely complex stylistic vocabulary expressed mainly in the medium of woodcarving. Famous examples include Totem poles, Transformation masks, and canoes.
Contact Masterpiece Investments:It should be noted that the notion that fine art cannot be functional has not gained widespread acceptance in the Native American art world, as evidenced by the high esteem and value placed upon rugs, blankets, basketry, weapons, and other utilitarian items in Native American art shows. A dichotomy between fine art and craft is not commonly found in contemporary Native art. For example, the Cherokee Nation honors its greatest artists as Living Treasures, including frog- and fish-gig makers, flint knappers, and basket weavers, alongside sculptors, painters, and textile artists. Art historian Dawn Ades writes, “For from being inferior, or purely decorative, crafts like textiles or ceramics, have always had the possibility of being the bearers of vital knowledge, beliefs and myths.”
Blanket Stories, Marie Watt (Seneca), installation, 2004, George Gustav Heye Center
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Pueblo men weave with cotton on upright looms. Their mantas and sashes are typically made for ceremonial use for the community, not for outside collectors.
Beginning of a Chilkat blanket, woven by Elsie Gale Stewart-Burton (Haida), Ketchikan, Alaska
The Calusa peoples occupied the southern areas of Florida before European contact, and created carvings of animals.
The Seminoles are best known for their textile creations, especially patchwork clothing. Doll-making is another notable craft.
The West
Masterpiece Investments Management: Yurok women’s basketry caps, Northern California
A complex technique called “doubleweave,” which involves continuously weaving both an inside and outside surface is shared by the Choctaw, Cherokee, Chitimacha, Tarahumara, and Venezuelan tribes. Mike Dart, Cherokee Nation, is a contemporary practitioner of this technique. The Tarahumara, or Raramuri, of Copper Canyon, Mexico typically weave with pine needles and sotol. Yanomamo basket weavers of the Venezuelan Amazon paint their woven tray and burden baskets with geometric designs in charcoal and onto, a red berry. While in most tribes the basket weavers are often women, among the Waura tribe in Brazil, men weave baskets. They weave a wide range of styles, but the largest are called mayaku, which can be two feet wide and feature tight weaves with an impressive array of designs.
Maria Pia Gazzella at a UK Trade & Investment training course at the British Embassy in Buenos Aires
Image by Foreign and Commonwealth Office
Maria Pia Gazzella with other course participants and trainers from a UK Trade & Investment Strategy training course held in the British Embassy in Buenos Aires. The picture was taken in the ‘Hand of God’ club at the Embassy.
To read more of Maria Pia Gazzella’s Blog
For more information look at the FCO Website
During the current economic climate, there are factors that entrepreneurs look at more closely when it comes to starting up a business. The “where” and “how much” factors become a bigger part of the decision, as one looks to trim any unnecessary cost factors. Gone are the days where if you were technology based, you’d set up in Silicon Valley or if you needed to network with business contacts – set up shop in New York. Ironically, thanks to modern day technology, you can set up in a much wider range of locations.
Entrepreneurs look at factors like the ease of recruitment, and as a result – have looked into the central states of the US, such as Colorado, where the workforce is well educated, quality of life is good, and cost of living is a big step lower than on the coasts.
With hopes up about stabilisation of the economy, this is a great opportunity for aspiring entrepreneurs and small business start ups alike to take things to the next level. Over the last few years, several angel groups and individual investors have started to set up shop in cities like St. Louis (such as the Arch Angel Investor Network), again bucking the general trends.
On the Central Investment Network – entrepreneurs in the Central states of the US get another chance to connect with angel investors. Members can get their business ideas and plans out to hundreds of local investors – and since Central Investment Network is part of the Angel Investment Network, members can connect with thousands of other investors from around the world. In fact the network grows continuously, with branches in over 40 countries and investments occurring both on a local and international basis.
Of course, the plans have to be well thought out and organised, as while entrepreneurs may have less competition, the investors are also more choosy. Still, there are signs that more successful angel investment strategies such as venture capital investments are occurring within the central states. While some venture capital backed companies have gone bankrupt this year in the U.S, almost all of them are California based, and none of them are in the states that the Central Investment Network covers – which includes Colorado, Kansas, Missouri, Montana, Utah & Wyoming.
Find out more, by visiting http://www.centralinvestmentnetwork.com
Posted in Investments | Tags: Angel, City, Denver, Entrepreneurs, Investment, Kansas, Louis, opportunities | No Comments »
Governor Patrick highlights local infrastructure investments at the Chelsea Street Bridge
Image by Office of Governor Patrick
Thursday, May 20, 2010 — Governor Patrick visits the Chelsea Street Bridge to highlight local infrastructure investments and touts job numbers released today showing that the Massachusetts economy gained over 19,000 jobs in April. Learn more at www.mass.gov/governor.
(Photo credit: Eugena Ossi/Governor’s Office)
The concept of managed investment schemes was outlined in July 1998, by the Managed Investments Act (Cth)(Act), and has been defined as a scheme in which people contribute money to acquire interest to benefits produced by the scheme.
The contributions are used to further the scheme, and the members do not have control over the day to day operations.
The Managed Investments Act (Cth)(Act) replaces the old “prescribed interests” regime, and its most significant change is the replacement of the roles of trustee and manager with the single Responsible Entity role. The Act also introduced new measures to ensure adequate investor protection.
A managed investment scheme must be registered with the Australian Securities and Investments Commission (ASIC) if;
1. The scheme has 20 or more members; or
2. The scheme is promoted by a person who is in the business of promoting managed investment schemes.
Where a scheme is required to be registered, the following must be addressed;
•Appointment of a responsible entity
-Responsible Entity must be an Australian public company holding a licence to act as a Responsible entity
-This is a dual role, of both trustee and scheme manager
-Must have minimum net tangible assets of ,000 or 0.5% of the value of the scheme’s assets, up to million
•Custodians must be appointed in some cases
•A Constitution, similar to a trust deed, must be made
•A Compliance plan must be made, setting out the measures which a Responsible Entity is to apply in operating the scheme to ensure compliance with the constitution.
•Compliance committee is to be created if the board of directors of the RE does not consist of at least half external directors
As recommended in reviews of the superannuation system, all super schemes established by private sector employers are established as trusts. Superannuation schemes for public servants are established under Acts of Parliament, and most, but not all, are run as trusts. Trusts are currently seen as the most appropriate legal structure for superannuation schemes in Australia.
Trusts have been in existence (as a legal concept), for nearly a thousand years. In their earliest days, people could transfer their land to others, under trust that the receiving person would hold the land ‘to the use of’ the transferor.
A traditional trust vests title to property in a person or persons on behalf of another person or persons. The legal owner of the property is the trustee, and the other party is the beneficiary.
The person who provided the trust property is called the settlor, who may be the trustee, the beneficiary or some third party.
In a trust, the trustee owes a fiduciary duty to the beneficiaries. This duty means that the trustee must not place their personal interest above or in conflict with the interest of the beneficiaries, and not use the trustee position to acquire any other advantage. A trustee may be a beneficiary, but not the sole beneficiary.
Trusts are often used to overcome the problem of unincorporated groups not being able to own property. In such a case, the trustees hold property for the group, on terms established by the trust deed. Superannuation generally uses the trust form.
Trusts are used in superannuation investment schemes to enable a wide range of investments to be created for beneficiaries. Superannuation schemes sometimes employ professional trustees, which operate under State and Territory legislation.
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The Internet also revolves around the two disparate groups, just like the business world. These two groups are “haves” and “have nots”.
The group “haves” has everything such as power, money, influence, right friends, etc. For these people, places like the Silicon Valley become a world full of opportunities. However, the circle that these people build is extremely difficult to crack for first timers who are struggling to make it big in their respective field of work.
To make their task easier, Mashable, interviewed seed-stage investors, VC firm partners along with others have requested them for sharing their thoughts with others. Here’s an excerpt from all those interviews for your advantage.
Some of the investors that were interviewed are as follows:
Mitch Kapor: Mitch Kapor is the co-founder of Kapor Capital. This firm invests in early stage startups and seeds. The Lotus owes its inception to Kapor and he was also the ex-CEO with Lotus Development. The Capital portfolio of Kapor consists of Federated Media, Bit.ly, Get Satisfaction, inDinero, Posterous, The Fridge, Twilio and StickyBits.
Bing Gordon: Gordon looks at the recently established Kleiner Perkins and Buyers with $250 million funds. Gordon has spent 10 years working as the chief creative officer for EA. He is also the director for Amazon and operating director at Zygna, sFund partners as both of them.
Bryce Roberts: Roberts is the founding partner at O’Reilly AlphaTech Ventures (OATV). This firm invests funds in startup names and encourages technologies and first-time ideas that retain the caliber to bring a revolution in the world.
Nagraj Kashyap: This man undertakes Qualcomm Ventures. This company looks out for technologies, which are complementary with the core operations or the company. They include software, applications, and infrastructure startups.
Brad Feld: Co-founder and MD of Foundry Group. The portfolio of the company consists of the likes of Lijit, Gist, Brightleaf, SimpleGeo, Memeo, Zynga, and StockTwits.
Gary Vaynerchuk: He is the branding creator and master at Wine Library TV. In addition to this role, he also serves as an angel investor for many companies.
Paige Craig: Paige Craig is an ex intelligence and marine consultant. Today, he is prolific angel investor along with an advisor for start-ups practicing in Los Angeles.
Ted Serbinski: Ted Serbinski is an angel investor who joined as CTO the ParentsClick Network group.
Advices from these investors
For first timers, Kapor recommends designing a working product before one proceeds towards pitching. On the other hand, Feld is one man who does not care about pedigree. He completely overlooks the fact that pedigree is indeed a factor that helps in funding consideration. Feld tells people to read and understand why these investors invest on something and the thought process behind it.
To this, Craig also adds his view point and recommends start-ups to borrow and beg and do everything possible to learn from experience and forgo outside funding. Vaynerchuk also suggests that people should believe in funding the process of incubation themselves. Serbinski also provides his thoughts on funding.
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Today’s economy is in transition. Investors are seeking new venues to explore and energize with capital. Emerging markets are a major factor in capital development. Today the United States has less than 50% of the world’s capital investments. Current statistics place 70% of the world’s population living in developing countries with 46% of the land mass and 31% of the GDP. Opportunities are in abundance for astute investors with a conservative attitude and approach.
Setting financial money investment goals is a critical first step in any financial plan, personal or business related. Many investment fund companies have a selection of products from annuities to fixed rate return investment packages; your goals will help you select the appropriate product or combination of products as well as rate of return. Next will be to select a reputable investment firm that markets the type of funds you have determined will satisfy your plan.
With the current world situation of financial challenges, working with a company that offers reputation, longevity, experience and skilled advisers and fund managers who will listen, provide advice and work on your behalf with ethics and high professional standards is essential. Companies that have been in operation for several decades offer the dependability and security an investor wants without the staleness of ideas and inertia other older companies might be carry as the baggage of age.
Firms that are investing in capital projects in what was once called the third world are seeing dramatic success in earning legitimate and safe profits for their investment funds. This environment is properly termed the developing economy sector. It holds great promise for the savvy investor who utilizes a qualified company that has the experience and sufficient fund capability to sponsor development projects. From energy development to mining, the new economies are developing their natural resources with company investment capital from investor resources.
There are some caveats that investors should have in mind when considering a company that puts their money in these projects in the developing economies. Due diligence is for everyone: investors have a personal responsibility to select the best money investment firm that is qualified for this type of process. The investor should also be as knowledgeable as possible about the location of the project, what local authorities, regulations and other unique conditions are involved that could have an effect on the outcome and their investment.
The firm itself has in-depth due diligence as its priority. Developing proper, ethical and cordial relationships with the appropriate authorities is essential to the necessary cooperation needed to guarantee the project’s completion and success. The firm must be aware of potential problems and have in advance the resources to resolve them. They must possess a deep knowledge of any and all regulating bodies and have the local representation to work directly with them. The reward for considering investment in developing economies with investments managed by reputable, professional and experienced firms is waiting for the conservative investor who plans, sets goals and does their own due diligence. Fortune favors the bold and the knowledgeable.
Warren Buffett says that distressed assets are a great investment in an interview with Charlie Rose. He talks about Mortgage-Backed Securities, the government bailout. He says if you buy distressed assets at distressed prices, you will make money. He also mentions his confidence in the US economy over time, and closes with his classic quote: “You want to be greedy when others are fearful, you want to be fearful when others are greedy.”
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Posted in Investments | Tags: Business, Company, Future, Investments, Planning, Requires, Work | No Comments »
Governor Patrick highlights local infrastructure investments at the Chelsea Street Bridge
Image by Office of Governor Patrick
Thursday, May 20, 2010 — Governor Patrick visits the Chelsea Street Bridge to highlight local infrastructure investments and touts job numbers released today showing that the Massachusetts economy gained over 19,000 jobs in April. Learn more at www.mass.gov/governor.
(Photo credit: Eugena Ossi/Governor’s Office)
Brown and Greenfield Investing
Teak is a prime tropical hardwood, which requires 20 – 25 years to grow in a commercial plantation environment. If the investor enters at project start this is defined as Greenfield investing. The other option, a Brownfield investment, means that a buyer enters later and buys into an existing but older plantation. On the market there are various investment opportunities available at different ages, in teak and other tropical woods, thus providing a wide choice for investors.
Main Risks for Teak Plantations
Teak plantations bear certain risks. From a technical point of view key risks are e.g. the soil quality of the site, the suitability of the location, climate and fire to name the major ones. Normally detailed soil analysis is performed before planting in order to determine the right planting strategy. A plantation manager should be familiar with the site as observation over time can tell best what grows on the respective site. The results of the original plantation strategy become visible in the years thereafter. In most cases the tree diameters are measured and compared towards industry benchmarks to evaluate the progress in growth.
From a financial point of view, main risk is that the management company would run out of money. Teak trees require pruning, thinning and clearing of the underwood for maintenance. Doing this properly ensures that the tree,s commercial value is maximized. However, this comes at a certain cost. Given the project period is 20 – 25 years, strict discipline on cash management is required. In case the plantation manager runs out of money, the investor looses two fold: First requiring additional financing and second the commercial value of the trees might be suboptimal due to savings in maintenance.
Exit Strategies from Teak: The Seller’s Perspective
Like Private Equity, when investing in teak, an investor is required to think about exit: How and when do I sell this investment? – Investing in a teak project offers the following main exit strategies:
(1) Exit at final harvest (20 – 25 years)
(2) Sell the investment to another investor / buyer
Teak investors need to be patient and normally be prepared being invested for 20 – 25 years. The main reason is that as the trees grow, they increase in their commercial value when properly maintained. No cash flow is coming in, thus the investor needs to wait for the commercial thinnings. In order to get an attractive IRR, the investor will have to wait till final harvest. The value of the trees becomes more attractive at older ages and being able to sell large sized logs, thus getting better prices. Therefore, profit maximization requires to be invested till the end of the project, which requires patience and stamina for the investor.
The option to sell the investment along the road is a trickier one. First, the quality of the trees will be clearly visible and thus a potential buyer will pay based on visible results only. In case maintenance has been neglected, or the soil quality affected volume growth, the buyer will take this into account. Second, the market for existing plantations appears intransparent and illiquid. Thus for the seller it takes effort and time to find suitable buyers. The buyer will be very well aware of this and will pressurize the seller to offer a liquidity discount in order to increase his own IRR.
Buying an Existing Teak Plantation: The Buyer’s Perspective
Buying into an existing teak plantation avoids certain risks for the buyer. First, the project,s results are clearly visible and he should bear less risk as soil quality and the suitability of the site can be better assessed. The difficulty lies more in doing the due diligence. Due to a lack of data, a non-sophisticated buyer might need some time to figure out if the said plantation complies to industry benchmarks or not. For the sophisticated buyer such opportunities are much more interesting, since for him he will be better able to provide an estimate of the target harvest volume based on the existing tree diameters. Thus buying into an existing plantation can reduce risk for the buyer.
The second aspect is that in a Greenfield project the ‘lock-in’ period can be up to 20 – 25 years while buying into an existing plantation reduces the holding period for the investor – dependent on the maturity of the plantation, quite considerably. Smaller holding periods mean less risk for the investor. Also, for cash flow estimations various assumptions need to be made (inflation factor, expected selling price and harvest volume). Those assumptions affect cash flow estimations. In case of errors – an estimation in its definition is not be the same as the actual outcome – the difference to reality is less severe for a Brownfield project than in case of a Greenfield project, where initial assumptions have a higher compounding effect and thus can lead to bigger variation from reality.
Conclusion
From a risk point of view it might be smarter to be invested in a plantation at older age. Several previously unknown variables become more clear, the investment period is shorter and the risks should be reduced. However, this approach requires more due diligence and close attention to the price to be paid.
Romania – famous for its beautiful palaces and castles, wonderful liquors and food, Dracula, dazzling women is a beautiful country located in central-eastern Europe. It is the 12th largest country in the Europe. The economy of Romania has shown potential growth in the past few years. Since 2000, Romania has shown a rhythmic growth of 4.5% raised by 8.3% in 2004.
The current economy statement in Romania is steadily increasing the levels of GDP and significantly high levels of Foreign Direct Investment (FDI). The economy investment grade has recently been upgraded by Fitch and P&S. Romania benefits from the rising FDI flows due to the privatization process, and the advantages of its big internal market
Romania is also having a great geographical location at the intersection of some great trade routes joining the Far East with the Western Europe. With population of more than 20 million people, Romania has a large domestic market. After having such great property investment opportunities, Romania is continuously attracting more and more foreign investors to invest in Romania. Stable and encouraging government of Romania is the other reason which is creating great investment opportunities in Romania. The Real estate market in Romania is growing at a rocket speed. Following are some best reasons for investing in Romania.
Reasons to Invest in Romanian Real Estate Property:
1. With strategic and visionary efforts by Romanian government, the economy is becoming stronger and stronger over the years. Romania is one of the fastest growing economies in Europe.
2. Falling inflation and increasing employment are two other boosters of rapidly growing economy. Inflation has dropped to 7.5% low in 2005 from 22% high in 2002. Unemployment rate also fell to 6.2% in 2006 with less than 3% in capital Bucharest which is far lower than the many other developed European economies. With under control inflation and falling unemployment rate Romania is confidently creating the strong property buying opportunities over the country.
3. Foreign investment in Romania is increasing drastically. From 2001 to 2005, foreign direct investment in Romania has reached over 5000 million euros and more 8000 million euros added in 2006. With 55% of FDI in capital city Bucharest, major companies from all over the world are coming to invest in Romania.
4. Along with capital city of Bucharest, other cities in Romania like Brasov, Transylvania, Craiova, Constanta and Iasi are also attracting investors. Transylvania is the Romania’s biggest tourist asset and the expected to attract more investment with immense number of investment opportunities. One more golden opportunity where investors want to invest is in Brasov, the most visited city of Romania. Having facility of international airport, Brasov is also linked with new motorway for fast transportation.
5. Report given by investment experts says that house prices in Romania are expected to increase by 4 times higher over the next 10 years. In past few years, property prices are already raised by 25%. Even such a great rise, property price in Romania are still 20-30% lower than the other eastern European countries.
6. After accession to the EU in 2007, the real estate market in Romania has been influenced dramatically. EU funding to Romania has been invested into the infrastructure development in road, hospitals, schools, bridges etc. EU funds will help to create more jobs and therefore potential customers seeking to buy/rent properties.
7. Low tax rates are the other main reason to invest in Romania. Romanian government has set up a flat rate of only 16% for corporation and income tax. Such low and fixed rate of tax is powering Romania to draw more foreign investors seeking for new business places.
Some other secondary factors are also responsible for great investment opportunities in Romania. Romania has great network of international airports with two in capital Bucharest. Developed and fully facilitate ports in Romania is also boosting its economy drastically. Romania has huge network of telecommunication systems equipped with modern telecommunication equipments. Also there are nearly 48 industrial parks.
As far as it looks, the boom is yet to come! Buying property in Romania will be great ROI in near future. So what are you waiting for? Invest now in Romania for your better future.
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Alessandro Magnoli Bocchi Chief Economist Kuwait-China Investment Company
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What percentage of my savings shall I invest in stocks? And what percentage shall I invest in bonds or keep in cash or other investment classes like real estate?
The questions in what to invest and how much of your savings to invest are on top of the mind of every investor. Let’s have a look at a much quoted rule of thumb on this topic and what type of tools are available for this on the web.
A much quoted rule
A much quoted rule of thumb and a simplified asset allocation guide on how much to invest in stocks and bonds is the age related rule:
Allocate a percentage of your portfolio equal to 100 minus your age to equity stocks, and invest the rest in bonds. For example, if you were 45 years old, then you would hold 100 – 45 = 55 or 55% of your investments in stocks or stock funds, and 65% percent of your assets in bonds or bond funds.
The background argumentation for this model is that when large cap stocks are held for periods of 15 years or longer, they in general have a better return than bonds. But because of the higher fluctuations in stock prices than in bond prices, stocks offer a higher risk and should be a smaller part of your investments when getting closer to retirement. The assumption is that you need the money when you retire and you cannot afford then that your stocks have lost a lot of value.
The following issues are often highlighted around this simplified model:
- It only takes into account two assets classes: stocks and bonds. It does not take cash, real estate funds and the difference between large and small cap stocks into account?
- It looks upon bonds and bonds funds as part of the same class while both have considerable different characteristics; more on this later.
- It does not take into account how wealthy the investor is and with what risk levels he or she is comfortable. Wealthier investors are often prepared to invest a larger portion of their wealth into more risky but also more rewarding investments than less-wealth investors.
- It forgoes on the idea that younger people have not only more time to make up earlier losses but have also have more time to lose even more than older people since they have more time till the standard retirement age.
- It does not take into account that in case of death of the owner of the assets, it could be, from a tax point of view, more favourable to inherit ate stock holdings than cash.
In summary, this much quoted rule of thumb is a very simplified model that could be plainly wrong for a lot of people.
On the internet, you can also easily find automated asset allocation advisors like this one on the CNN Money website. Based on your inputs regarding time horizon, risk tolerance and flexibility, it provides you with a suggested assets allocation over bonds, small cap stocks, large cap stocks and foreign stocks.
A good aspect of the availability of tools like this is that it may prevent people who have no better information to put all their savings in just one asset. Following now such a model, they in any case diversify their investments. But this does not mean that they are only taking risks that they are comfortable with. The problem is that they maybe do not know or understand what risks they are taking.
The issue for me with following an advice like this would be that it is very much a black-box tool. You know what you put in and see what you get out of it, but you do not get an understanding how the tool came to the results. For me to sleep well at night, I want to understand why I would invest in a certain way. Just following the advice of a web application won’t do it for me since it does not provide me clarity on what type of assumptions are behind the advice that I am getting and if those assumptions are even valid for me.
When we want to answer questions like “in what assets to invest” or “how much of our savings to invest”, we consider at Stock Trend Investing the following aspects:
- Two different types of “risk”
- Your risk tolerance
- Inflation and Interest Rate
- Bonds, Options and other Assets
- Your presence in the market
Do you want to consider these aspects as well?
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Etegameno presents lucrative investment opportunities in Namibia
Etegameno Investments offers three lucrative investment opportunities in Namibia that are expected to yield high returns. Harnessing Namibia’s rich natural resources, Etegameno presents an investment model that turns these abundant resources into wealth, mutually benefiting investors and the natives.
Ranked as number two by The World Travel and Tourism Council, Namibia has the distinction for experiencing the maximum long-term growth in the tourism economy after China. This will positively influence the Namibian Gross Domestic Product in the coming years. The Namibian people will also enjoy increased employment opportunities through growth in tourism.
The three investment opportunities available on Farm Tsumore are:
• The Farm Tsumore Game Lodge
• A Bush to Electricity Enterprise
• The Jatropha Plantation / Biodiesel Refinery
The Farm Tsumore Game Lodge
Farm Tsumore is spread over 4 433 hectares of flatland and hills around the beautiful Lake Otjikoto. Conveniently located just seven kilometers from Tsumeb and 118 kilometers north-east of the Etosha pan, Farm Tsumore has plenty of water and receives its power from NamPower.
The location of the proposed Tsumore Game Lodge is gifted with picturesque natural beauty, abundant game and wild life and rich biodiversity making it a much sought after ecotourism destination for nature lovers.
Attractions include the Etosha National Park, historic local mining towns, safaris, scuba-diving tours, the world’s largest meteorite, Hoba, camping, hiking, and much more. A luxurious African safari lifestyle in a serene yet exciting setting awaits investors!
Jatropha Biodiesel
The oil-rich Jatropha plant grows on Farm Tsumore. Etegameno plans to leverage the Jatropha plant as a precious source of biodiesel, reducing the carbon footprint. Compared to fossil fuels, the processing of the Jatropha plant for biodiesel is much more cost-efficient and releases only one fifth the emissions. The processing of Jatropha oil results in valuable by-products that include latex, fertilizer and feed for livestock.
On a global scale, Jatropha biodiesel will have a major impact as there will be a huge demand for environmentally friendly fuel because of the increasing threat of global warming. The cost of Jatropha biodiesel is around US per 200L barrel. With the production of Jatropha biodiesel, Etegameno will ensure that Namibia’s expenditure on oil imports is drastically reduced. For investors, money invested in the cultivation of Jatropha plants and commercial production of Jatropha biodiesel means extremely profitable returns. The demand for fuel alternatives will always be on the rise and with fossil fuels depleting at an alarming rate, the production of Jatropha biodiesel will help in a big way. Find out more about this investment opportunity.
Bush-to-Electricity
The bush-to-electricity investment opportunity is an innovative investment opportunity for the investor’s portfolio in the form of high returns. The invader bush on Farm Tsumore and surrounding farms, which was viewed as a problem for farmers and livestock is now a lucrative investment option. More than ten million hectares of bush will be converted into an economical electricity generating project that will benefit the natives by generating employment and steady income. The electricity produced will power the area on a long-term basis.
Namibia, among other South African Development Countries, is presently experiencing an electricity shortage that can be fulfilled by renewable energy technologies such as wood gasification. In the bush-to-electricity process, the wood for electric plants will come from the bush. The land thus reclaimed will be used to increase the production of livestock, farming, cultivating Jatropha crops, pasture for livestock and much more. Read more about the bush-to-electricity investment opportunity.
How investors can profit from Farm Tsumore
Investors have the option of investing in one or all three of Farm Tsumore’s investment opportunities and enjoy lucrative returns on investments from the high profit margins. Investors also gain a 40% ownership in the new company with controlling interests and future enhanced shareholding options. Farm Tsumore gives investors a chance to be part of Namibia’s national growth.
Etegameno Investments will manage the entire project from concept to completion and this includes preparing contracts, land leasing, new company registration, liaison with local authorities etc. As a joint venture partner with the new Namibian company, Etegameno will also oversee the day to day operations of the business. Etegameno invites investors to benefit from Farm Tsumore, contact us for more information.
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Panama Business and Investment
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Invest now! Panama is booming. Read all about it at ThinkPanama.com
One of the most oft repeated questions people want answered is ‘what is a good investment?’ In a world teeming with investment fund options, stock market options, gilt edged securities, heavy metal options and other options too numerous to mention, how do we choose where to invest the money.
In the simplest of terms a good investment is one that leads to quick return on investment. What you need to determine is how much money to invest. In order to determine how much money you need to invest, you have to consider various factors that form a part of the investment itself. At the top of the list are your goals for making an investment. Then you have to consider how much money you make and what you can realistically spare for investment purposes. This necessitates taking a close look at your expenditure outlay each month. The sort of risks you are willing to take will tie into how much money you can afford to lose should an investment go bad.
There are different types of investors based on the amount of money they have, the type of risk they are willing to take and the amount they are willing to lose if the investment fails. Long term investors are interested in a margin of safety. This could be in the form of cash in the bank, ownership of assets or property the company has to cover losses. This margin of safety will protect the stock in a time of recession. A good investment in a rock solid company with good prospects offers stability as well as the ability to pay a steady return on the investment.
Company investments made with short term goals in mind are often in companies that are new or not very stable. For example investment in a company that has a product that is in demand and will push prices up. Here, investors buy low and sell high. A quick in and out mentality that just as often can lead to loss as it does to profit. Oil stock is a good example, it fluctuates; you can buy low and then sell out at a higher price to make a quick killing on the stock market.
However, there are many companies that offer oil stocks, simply buying stock in a company because the price is low is not a very wise strategy. The company’s antecedents need to be thoroughly investigated, you need to develop an investment strategy and then review financial results before taking the leap.
Mistakes learned through bad investments are a painful and costly affair. It is far better to seek the advice of an expert investment advisor to help you make the right choices. Borrowing to invest is one of the silliest strategies you can adopt. It is far better to make a realistic assessment of the money you have to invest and choose investment options that match the amount, but never borrow to invest. Choosing an investment company that offers loss protection policies and even government backing will ensure the security of your investment to a large extent.
Buying stocks without a broker is a simple process done by going through the company’s Web site and signing up for an account online. Purchase stocks or a dividend reinvestment plan with insight from anexperienced financial specialist in this free video on investing. Expert: Phillip Beningoso Contact: www.wearehdtv.com Bio: Phillip Beningoso has a bachelor’s of arts degree with a major in finance and a minor in economics and computer sciences from Kent State University. Filmmaker: Christopher Rokosz
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privatisation, progress, GDP Grossly Decaying Psyche, Zero tolerance multibillion dollar investments boasted by BOI
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Government of Pakistan proudly announced in the newspaper that ALHAMDO LILLAH (unfortunately the script reads incorrectly the same word, BOI, board of Investment announces the rapid growth in the foreign investment (INSET GRAPH). It is now US$ 3521 Millions in 2005-6 as compared to the 2001-2 figures of 485 M and 2004-5 figure of 1624 Million $ . The last page also shows the wonderful effects of this huge success parameter on the lives of average Pakistani. Seven people committed suicide in a separate news story while in Nishter colony, Lahore a 3rd grader student was murdered after he was brutally sodomized. The suicide graph is rising sharply as the poverty and hunger increases and people find themselves ill equipped to counter the onslaught of FTV models, diamond jewellery, mini skirts, posh houses, porsche showrooms, and a lifestyle with no worries and lots of money at least on surface. A young man murdered his wife and 3 months old daughter for fear that they will be left helpless to face the wolves of the elite society, before taking his own life. This guy from Badin (Sindh) was 32 years old Karim and his wife Noor bano (the lady who glows) and daughter, Mehnaz are all dead when the BOI was preparing to paste the copy of that glorious achievement. A 28 years old SALAM didnt have money and his wife was in the hospital to give birth to their child. No political leader or our great preachers or plot-and-shop-owners came to his rescue and he couldnt face the new comer for whose delivery hospital was too commercial to let come without a hefty sum of money. So he took his life and ended misery. In the posh area of Defence, Lahore, a mohter of three took his own life. She was a servant in a modern house. In EDEN housing scheme, 25 years old Fahim killed himself, he married two months ago on his own and love marriage (as if there are non love marriages, but they do exist in our society) was not accepted by his family who promptly declared him "unholy, unethical and criminal of breaking family/ clan values" and threw him out. He was not very rich and couldnt afford a lifestyle of convenience so suddenly. Unemployed he refused to continue to live and hanged himself from the ceiling fan (a preferred modus operandii in our culture to take one’s life). May be at that time the last digits of the billions of dollars’ worth of investment was being printed by the press. Who knows.
The lower newsitem about the killing of a class 3 student after he was sodomized tells us of a 11 year old kid. His father sent him to the nearby small bazar. Iqbal, his dad is a mason, low income group guy in the affluent society where multibillion $ investment is being boasted. The deceased brother, Nisar found his shoe and they started to search for their lost son and brother. At some distance were the farms where they found his body which was naked and police reached, took custody of the corpse, confirmed that he died of asphyxia. Somebody choked him to death after sodomizing him. The deceased was a student in his uncle’s school and was 5th in number of 8 siblings. Society is riddled with homosexual abuse but we have always managed to cover it up under strict laws and ‘keep-the-mouth-and-mind-shut’ attitudes instead of searching for answers to this dilemma. More on it after I get some more sarcasm:)
The locale that was once part of the Soviet Bloc is now open to financial investment from its former adversaries. These areas have huge amounts of natural resources, growing populations, local businesses beginning to produce products to market worldwide, and a need for investment capital to fuel the process. Money investment firms are beginning to respond to this opportunity with investment fund capital for projects ranging from energy exploration and production, mining, and industrial building projects. Conservative investors are beginning to see the valuable opportunities that are evident from the success of projects completed and contracted under these investments. How does an informed investor get involved in this new enterprise?
At first this might seem to be the antithesis of conservative investing, but this is not quite so. Any investment process ethically requires the investor to plan and investigate all the particulars to the potential investment. First is to consider what their goals are, whether a fixed rate payment, annuity, or other form of rate of investment return. Considering financial products and who can offer them is next. Selecting a money investment firm requires getting answers to certain questions, beginning with security. The headquarters of the candidate is important since that is where the bank from which funds will be kept is located. One obvious choice is Switzerland since the stability of its banking system is legendary. Other countries with a history of successful banking and financial policies are excellent considerations as well.
Some firms have a no minimum balance policy; this opens up investing to everyone with the intent and confidence to invest. High returns and security are possible, with minimal risk with the right selection of components with the advice and counsel of a qualified adviser. Seek a firm that has specific and published investing criteria, one that you agree with and fits closely your eventual goals for your investment. Look for projects in their inventory that have significant investment economic potential along with a modicum of security. Investment fund managers must have professional credentials, education, professional standing and recognition along with a record of success and performance. The projects that are selected must include a reasonable and planned and documented exit strategy along with repayment plan within a per-determined time slot. Local representation at the site and the demonstration of due diligence are essential to the decision process.
Money investment in developing economies has opened up a new financial environment that has not existed since Columbus. Savvy and thoughtful investors with a plan, goals and the assistance of an investment company that has the right experience and advisers can profit from capital development in these places. The benefit to the populations, investors and the world economic situation in general are immeasurable. All that is required are planning, due diligence by all concerned, and the intent to move forward with the decision to invest with a reputable investment firm. The rewards are waiting and the projects are on the books waiting for the capital to turn over the earth.