chrisajaegba

LAWS OF POWER

2007-09-24T03:22:00.000-07:00

The 48 Laws of Power
by Robert Greene and Joost Elffers
Law 1
Never Outshine the Master
Always make those above you feel comfortably superior. In your desire to please or impress them, do not go too far in displaying your talents or you might accomplish the opposite – inspire fear and insecurity. Make your masters appear more brilliant than they are and you will attain the heights of power.
Law 2
Never put too Much Trust in Friends, Learn how to use Enemies
Be wary of friends-they will betray you more quickly, for they are easily aroused to envy. They also become spoiled and tyrannical. But hire a former enemy and he will be more loyal than a friend, because he has more to prove. In fact, you have more to fear from friends than from enemies. If you have no enemies, find a way to make them.
Law 3
Conceal your Intentions
Keep people off-balance and in the dark by never revealing the purpose behind your actions. If they have no clue what you are up to, they cannot prepare a defense. Guide them far enough down the wrong path, envelope them in enough smoke, and by the time they realize your intentions, it will be too late.
Law 4
Always Say Less than Necessary
When you are trying to impress people with words, the more you say, the more common you appear, and the less in control. Even if you are saying something banal, it will seem original if you make it vague, open-ended, and sphinxlike. Powerful people impress and intimidate by saying less. The more you say, the more likely you are to say something foolish.
Law 5
So Much Depends on Reputation – Guard it with your Life
Reputation is the cornerstone of power. Through reputation alone you can intimidate and win; once you slip, however, you are vulnerable, and will be attacked on all sides. Make your reputation unassailable. Always be alert to potential attacks and thwart them before they happen. Meanwhile, learn to destroy your enemies by opening holes in their own reputations. Then stand aside and let public opinion hang them.
Law 6
Court Attention at all Cost
Everything is judged by its appearance; what is unseen counts for nothing. Never let yourself get lost in the crowd, then, or buried in oblivion. Stand out. Be conspicuous, at all cost. Make yourself a magnet of attention by appearing larger, more colorful, more mysterious, than the bland and timid masses.
Law 7
Get others to do the Work for you, but Always Take the Credit
Use the wisdom, knowledge, and legwork of other people to further your own cause. Not only will such assistance save you valuable time and energy, it will give you a godlike aura of efficiency and speed. In the end your helpers will be forgotten and you will be remembered. Never do yourself what others can do for you.
Law 8
Make other People come to you – use Bait if Necessary
When you force the other person to act, you are the one in control. It is always better to make your opponent come to you, abandoning his own plans in the process. Lure him with fabulous gains – then attack. You hold the cards.
Law 9
Win through your Actions, Never through Argument
Any momentary triumph you think gained through argument is really a Pyrrhic victory: The resentment and ill will you stir up is stronger and lasts longer than any momentary change of opinion. It is much more powerful to get others to agree with you through your actions, without saying a word. Demonstrate, do not explicate.
Law 10
Infection: Avoid the Unhappy and Unlucky
You can die from someone else’s misery – emotional states are as infectious as disease. You may feel you are helping the drowning man but you are only precipitating your own disaster. The unfortunate sometimes draw misfortune on themselves; they will also draw it on you. Associate with the happy and fortunate instead.
Law 11
Learn to Keep People Dependent on You
To maintain your independence you must always be needed and wanted. The more you are relied on, the more freedom you have. Make people depend on you for their happiness and prosperity and you have nothing to fear. Never teach them enough so that they can do without you.
Law 12
Use Selective Honesty and Generosity to Disarm your Victim
One sincere and honest move will cover over dozens of dishonest ones. Open-hearted gestures of honesty and generosity bring down the guard of even the most suspicious people. Once your selective honesty opens a hole in their armor, you can deceive and manipulate them at will. A timely gift – a Trojan horse – will serve the same purpose.
Law 13
When Asking for Help, Appeal to People’s Self-Interest,
Never to their Mercy or Gratitude
If you need to turn to an ally for help, do not bother to remind him of your past assistance and good deeds. He will find a way to ignore you. Instead, uncover something in your request, or in your alliance with him, that will benefit him, and emphasize it out of all proportion. He will respond enthusiastically when he sees something to be gained for himself.
Law 14
Pose as a Friend, Work as a Spy
Knowing about your rival is critical. Use spies to gather valuable information that will keep you a step ahead. Better still: Play the spy yourself. In polite social encounters, learn to probe. Ask indirect questions to get people to reveal their weaknesses and intentions. There is no occasion that is not an opportunity for artful spying.
Law 15
Crush your Enemy Totally
All great leaders since Moses have known that a feared enemy must be crushed completely. (Sometimes they have learned this the hard way.) If one ember is left alight, no matter how dimly it smolders, a fire will eventually break out. More is lost through stopping halfway than through total annihilation: The enemy will recover, and will seek revenge. Crush him, not only in body but in spirit.
Law 16
Use Absence to Increase Respect and Honor
Too much circulation makes the price go down: The more you are seen and heard from, the more common you appear. If you are already established in a group, temporary withdrawal from it will make you more talked about, even more admired. You must learn when to leave. Create value through scarcity.
Law 17
Keep Others in Suspended Terror: Cultivate an Air of Unpredictability
Humans are creatures of habit with an insatiable need to see familiarity in other people’s actions. Your predictability gives them a sense of control. Turn the tables: Be deliberately unpredictable. Behavior that seems to have no consistency or purpose will keep them off-balance, and they will wear themselves out trying to explain your moves. Taken to an extreme, this strategy can intimidate and terrorize.
Law 18
Do Not Build Fortresses to Protect Yourself – Isolation is Dangerous
The world is dangerous and enemies are everywhere – everyone has to protect themselves. A fortress seems the safest. But isolation exposes you to more dangers than it protects you from – it cuts you off from valuable information, it makes you conspicuous and an easy target. Better to circulate among people find allies, mingle. You are shielded from your enemies by the crowd.
Law 19
Know Who You’re Dealing with – Do Not Offend the Wrong Person
There are many different kinds of people in the world, and you can never assume that everyone will react to your strategies in the same way. Deceive or outmaneuver some people and they will spend the rest of their lives seeking revenge. They are wolves in lambs’ clothing. Choose your victims and opponents carefully, then – never offend or deceive the wrong person.
Law 20
Do Not Commit to Anyone
It is the fool who always rushes to take sides. Do not commit to any side or cause but yourself. By maintaining your independence, you become the master of others – playing people against one another, making them pursue you.
Law 21
Play a Sucker to Catch a Sucker – Seem Dumber than your Mark
No one likes feeling stupider than the next persons. The trick, is to make your victims feel smart – and not just smart, but smarter than you are. Once convinced of this, they will never suspect that you may have ulterior motives.
Law 22
Use the Surrender Tactic: Transform Weakness into Power
When you are weaker, never fight for honor’s sake; choose surrender instead. Surrender gives you time to recover, time to torment and irritate your conqueror, time to wait for his power to wane. Do not give him the satisfaction of fighting and defeating you – surrender first. By turning the other check you infuriate and unsettle him. Make surrender a tool of power.
Law 23
Concentrate Your Forces
Conserve your forces and energies by keeping them concentrated at their strongest point. You gain more by finding a rich mine and mining it deeper, than by flitting from one shallow mine to another – intensity defeats extensity every time. When looking for sources of power to elevate you, find the one key patron, the fat cow who will give you milk for a long time to come.
Law 24
Play the Perfect Courtier
The perfect courtier thrives in a world where everything revolves around power and political dexterity. He has mastered the art of indirection; he flatters, yields to superiors, and asserts power over others in the mot oblique and graceful manner. Learn and apply the laws of courtiership and there will be no limit to how far you can rise in the court.
Law 25
Re-Create Yourself
Do not accept the roles that society foists on you. Re-create yourself by forging a new identity, one that commands attention and never bores the audience. Be the master of your own image rather than letting others define if for you. Incorporate dramatic devices into your public gestures and actions – your power will be enhanced and your character will seem larger than life.
Law 26
Keep Your Hands Clean
You must seem a paragon of civility and efficiency: Your hands are never soiled by mistakes and nasty deeds. Maintain such a spotless appearance by using others as scapegoats and cat’s-paws to disguise your involvement.
Law 27
Play on People’s Need to Believe to Create a Cultlike Following
People have an overwhelming desire to believe in something. Become the focal point of such desire by offering them a cause, a new faith to follow. Keep your words vague but full of promise; emphasize enthusiasm over rationality and clear thinking. Give your new disciples rituals to perform, ask them to make sacrifices on your behalf. In the absence of organized religion and grand causes, your new belief system will bring you untold power.
Law 28
Enter Action with Boldness
If you are unsure of a course of action, do not attempt it. Your doubts and hesitations will infect your execution. Timidity is dangerous: Better to enter with boldness. Any mistakes you commit through audacity are easily corrected with more audacity. Everyone admires the bold; no one honors the timid.
Law 29
Plan All the Way to the End
The ending is everything. Plan all the way to it, taking into account all the possible consequences, obstacles, and twists of fortune that might reverse your hard work and give the glory to others. By planning to the end you will not be overwhelmed by circumstances and you will know when to stop. Gently guide fortune and help determine the future by thinking far ahead.
Law 30
Make your Accomplishments Seem Effortless
Your actions must seem natural and executed with ease. All the toil and practice that go into them, and also all the clever tricks, must be concealed. When you act, act effortlessly, as if you could do much more. Avoid the temptation of revealing how hard you work – it only raises questions. Teach no one your tricks or they will be used against you.
Law 31
Control the Options: Get Others to Play with the Cards you Deal
The best deceptions are the ones that seem to give the other person a choice: Your victims feel they are in control, but are actually your puppets. Give people options that come out in your favor whichever one they choose. Force them to make choices between the lesser of two evils, both of which serve your purpose. Put them on the horns of a dilemma: They are gored wherever they turn.
Law 32
Play to People’s Fantasies
The truth is often avoided because it is ugly and unpleasant. Never appeal to truth and reality unless you are prepared for the anger that comes for disenchantment. Life is so harsh and distressing that people who can manufacture romance or conjure up fantasy are like oases in the desert: Everyone flocks to them. There is great power in tapping into the fantasies of the masses.
Law 33
Discover Each Man’s Thumbscrew
Everyone has a weakness, a gap in the castle wall. That weakness is usual y an insecurity, an uncontrollable emotion or need; it can also be a small secret pleasure. Either way, once found, it is a thumbscrew you can turn to your advantage.
Law 34
Be Royal in your Own Fashion: Act like a King to be treated like one
The way you carry yourself will often determine how you are treated; In the long run, appearing vulgar or common will make people disrespect you. For a king respects himself and inspires the same sentiment in others. By acting regally and confident of your powers, you make yourself seem destined to wear a crown.
Law 35
Master the Art of Timing
Never seem to be in a hurry – hurrying betrays a lack of control over yourself, and over time. Always seem patient, as if you know that everything will come to you eventually. Become a detective of the right moment; sniff out the spirit of the times, the trends that will carry you to power. Learn to stand back when the time is not yet ripe, and to strike fiercely when it has reached fruition.
Law 36
Disdain Things you cannot have: Ignoring them is the best Revenge
By acknowledging a petty problem you give it existence and credibility. The more attention you pay an enemy, the stronger you make him; and a small mistake is often made worse and more visible when you try to fix it. It is sometimes best to leave things alone. If there is something you want but cannot have, show contempt for it. The less interest you reveal, the more superior you seem.
Law 37
Create Compelling Spectacles
Striking imagery and grand symbolic gestures create the aura of power – everyone responds to them. Stage spectacles for those around you, then full of arresting visuals and radiant symbols that heighten your presence. Dazzled by appearances, no one will notice what you are really doing.
Law 38
Think as you like but Behave like others
If you make a show of going against the times, flaunting your unconventional ideas and unorthodox ways, people will think that you only want attention and that you look down upon them. They will find a way to punish you for making them feel inferior. It is far safer to blend in and nurture the common touch. Share your originality only with tolerant friends and those who are sure to appreciate your uniqueness.
Law 39
Stir up Waters to Catch Fish
Anger and emotion are strategically counterproductive. You must always stay calm and objective. But if you can make your enemies angry while staying calm yourself, you gain a decided advantage. Put your enemies off-balance: Find the chink in their vanity through which you can rattle them and you hold the strings.
Law 40
Despise the Free Lunch
What is offered for free is dangerous – it usually involves either a trick or a hidden obligation. What has worth is worth paying for. By paying your own way you stay clear of gratitude, guilt, and deceit. It is also often wise to pay the full price – there is no cutting corners with excellence. Be lavish with your money and keep it circulating, for generosity is a sign and a magnet for power.
Law 41
Avoid Stepping into a Great Man’s Shoes
What happens first always appears better and more original than what comes after. If you succeed a great man or have a famous parent, you will have to accomplish double their achievements to outshine them. Do not get lost in their shadow, or stuck in a past not of your own making: Establish your own name and identity by changing course. Slay the overbearing father, disparage his legacy, and gain power by shining in your own way.
Law 42
Strike the Shepherd and the Sheep will Scatter
Trouble can often be traced to a single strong individual – the stirrer, the arrogant underling, the poisoned of goodwill. If you allow such people room to operate, others will succumb to their influence. Do not wait for the troubles they cause to multiply, do not try to negotiate with them – they are irredeemable. Neutralize their influence by isolating or banishing them. Strike at the source of the trouble and the sheep will scatter.
Law 43
Work on the Hearts and Minds of Others
Coercion creates a reaction that will eventually work against you. You must seduce others into wanting to move in your direction. A person you have seduced becomes your loyal pawn. And the way to seduce others is to operate on their individual psychologies and weaknesses. Soften up the resistant by working on their emotions, playing on what they hold dear and what they fear. Ignore the hearts and minds of others and they will grow to hate you.
Law 44
Disarm and Infuriate with the Mirror Effect
The mirror reflects reality, but it is also the perfect tool for deception: When you mirror your enemies, doing exactly as they do, they cannot figure out your strategy. The Mirror Effect mocks and humiliates them, making them overreact. By holding up a mirror to their psyches, you seduce them with the illusion that you share their values; by holding up a mirror to their actions, you teach them a lesson. Few can resist the power of Mirror Effect.
Law 45
Preach the Need for Change, but Never Reform too much at Once
Everyone understands the need for change in the abstract, but on the day-to-day level people are creatures of habit. Too much innovation is traumatic, and will lead to revolt. If you are new to a position of power, or an outsider trying to build a power base, make a show of respecting the old way of doing things. If change is necessary, make it feel like a gentle improvement on the past.
Law 46
Never appear too Perfect
Appearing better than others is always dangerous, but most dangerous of all is to appear to have no faults or weaknesses. Envy creates silent enemies. It is smart to occasionally display defects, and admit to harmless vices, in order to deflect envy and appear more human and approachable. Only gods and the dead can seem perfect with impunity.
Law 47
Do not go Past the Mark you Aimed for; In Victory, Learn when to Stop
The moment of victory is often the moment of greatest peril. In the heat of victory, arrogance and overconfidence can push you past the goal you had aimed for, and by going too far, you make more enemies than you defeat. Do not allow success to go to your head. There is no substitute for strategy and careful planning. Set a goal, and when you reach it, stop.
Law 48
Assume Formlessness
By taking a shape, by having a visible plan, you open yourself to attack. Instead of taking a form for your enemy to grasp, keep yourself adaptable and on the move. Accept the fact that nothing is certain and no law is fixed. The best way to protect yourself is to be as fluid and formless as water; never bet on stability or lasting order. Everything changes.

BRANDING

2007-09-24T03:21:00.000-07:00

BRANDING.
When you visit a dairy or livestock farm where there are lots of cattle grazing together on the same field, you will notice that these cattle bear certain marks on them. Because of the need to identify which cattle belong to whom, we have the need for each rearer to identify his own cattle. Some mark their own with colours and others stamp something on their cows. The process of giving you own “cow” a unique identity is branding.
Branding is naming or identifying. Every proper noun can be a brand. Any word in the English language that can be used to name a person; place or thing is good enough for branding. In marketing, branding is owning a word in people’s mind. When a company or product is branded, usually when you mention a particular word, that product, company or place immediately comes into people’s mind. There are thousands of words in the English language; Infact we can coin new words. But once one word can be identified with you, what ever your field is, you are branded. For us as business people, the power of branding lies in its ability to influence purchasing behaviour.
You can be branded for many things. Criminals can be branded. Even Judas Iscariot in the bible is a brand. But it is a brand that cannot sell. How many people have you met who named their children Judas? But we name our children Jude. Both names have the same meaning.
The whole world knows that at least 95% of our income in the country comes from crude oil. The unfortunate thing is that even though we own and produce the crude, we do not really determine its price. The world has since left where we are. The world does not thrive anymore on only mineral resource on the ground; it now thrives on mental resources.
I read an article written as part of a series on the transition agenda, in one of our national dailies. The article was on Nigeria and the I.T revolution. The author wrote something that struck me; “what it will take our country twenty years to earn in foreign exchange through sale of crude oil; we can earn in nine months through information technology”. We need to move ahead to develop other products and services for export.
Whatever can be named can be branded. This suggests that YOU can be a brand. Think about it. Are there specific names around the world you can remember right now that will bring specific ideas to your mind? Absolutely yes. Olusegun Obasanjo, Bill Gates, Michael dell, Nelson Mandela- all these names are brands. For the young person who wants to go into politics, the first thing you need to do is to brand yourself. You must understand that there is no outstanding generality. It is when you specialize that you are recognized. When you call your name as a politician, something must come to our minds. There must be a cause for which you are alive; something you believe in or a particular problem you have chosen to take out in this country. That is where to start from. If you are a student on campus, you should be known for something. When you hear “Steven Spielberg”, you know what that means. That is an awesome name in the movie industry. When you say “Disney”, you are talking about creative entertainment. In creating a niche for yourself, you should know a little bit about everything, but you should still be known for one thing. In your company, there should be many things you do well but there should be something you exceptionally well, for which you are known.
It is our turn to give the world first class brand from this country. There is a dire need for us to build an innovative society. A society that does not accept its problems or needs as God’s given. A society that recognizes and rewards ingenuity. Within the range of the faculty of our imagination ideas that can solve our problems. If we experience heat, we need to design cooling systems. If we experience diseases, we need to begin to research drugs that can take care of such diseases. If we have problems moving around, we need to create means of transportation. Whatever the problem is, it is time to begin to provide solutions. We need acceleration in our rate of innovation.
One of the challenges we have in our financial system is the fact that there are barriers between people who make products and those who need them. There is something called the velocity of money. It is the speed at which money moves. In our country, the movement of money is quite slow. The way we have design our financial system; we do not behave like people who need to make a lot of money.
For example, if I live at one end of Lagos, I open my newspaper and I see the advert for a product that is offered by a company on Victoria Island, until I go there, I may not be able to get the product. In other parts of the world, all you need do is just pick your phone, dial a tool free number and you have bought the good. You just give then your name, your credit card number and the date of expiry of the credit card. Tell them what you want to buy and it will come to you by mail. But here, we do too many things manually. One of the factors responsible for low life expectancy here is the fact that we believe in physical exertion and complexities. Life should be simpler. We should be able to log on the internet and buy things. That’s what they do now in other parts of the world. Of course the level of trust in our society is low, but it was once ideal. That is a problem that should be solved through innovative leadership.
Now I have some simple principles I want to list. They are basic principles for successful branding.
Be the first, the leader or the original in your category. Whatever you are doing, don’t do exactly what somebody else has done or is doing the way they have done it. You will not make much impact that way. Do what others have been doing, but have a slight edge. There are many car manufacturers but when Mercedes came on, it clearly defined itself as producers of prestige cars. That was a new category. So, in the category of prestige cars, Mercedes claims to be the first. If you can claim to be the original, it would pay you. For example, in the production of Cola drinks, Coca Cola claims to be the original.
Get as much publicity as you can for a start. I don’t mean advertising, I mean exposure. Especially the kind you get without having to pay much. This includes being featured in newspapers, on TV, or radio programs. That is how some of the most successful brands in the world go about it. They don’t necessarily spend the large amount of money in projecting their products; just befriend a journalist, an editor or a reporter you know. Or contract a Public Relations Consultant. There are companies in this country that always have one story or the other about them in the newspaper. That is publicity. Get as much of it as possible for a start. Again, if you can, get the help of a Public Relations Consultant, it will be of great help. Before you talk to an advert agency, talk to a Public Relations Officer. They are the ones who know just about all the reporters from all the newspaper houses and they can easily package how you get there.
Take advantage of the opportunities around you. Do not give any excuse for mediocrity. Your company or product is a candle that is lit; don’t hide it under a basket.

BEYOND SHARES-(ALTERNATIVE INVESTMENTS)

2007-09-24T03:19:00.000-07:00

Beyond Shares: Alternative investment outlets for your money.
It was not like any of the ones you have held. At the last monthly meeting of Megawealth investment Club, held somewhere on Allen Avenue, Ikeja, Lagos members had been mobilized to be around for a presentation to the club by a top real estate agent practitioner. It was a full house and top on the agenda was discussion on where else to invest their money after one profitable year in the stock market.
Megawealth is among the few clubs that has done well in their investment activities in the stock market. Preliminary discussions of the report at the meeting showed that the club has raked in N11m from its investment in the Nigerian stock market which came to about 75 per cent in return. The club is planning to look elsewhere to enable it actualize its investment goal of 500% return on investment at year five when they are expected to decide whether they want to liquidate the club or continue.
It was therefore natural that when the presentation started, the opening from the chairman of the club, the estate practitioner was that the club should focus his advice on investment in the sector that could fetch the club minimum of 500 percent.
The stock market has done very well especially in the past seven months and there are indications that bullish charge would continue given the factors (pension fund money, influx of some foreign fund, depression in money market rates) fuelling the upward trend in the market. A big time investor celebrated a big time win in the stock market with some bottle of wine. He told some of his few friends that were around how he made N150million in First Bank alone among other decent returns in many of his investment.
In spite of the good performance of the stock market, portfolio managers advice that individual investors need to consider diversifying into other sectors and instruments in other to have a balanced portfolio that is believed to be an antidote to risks as opposed to putting ones investment eggs in one basket.
The risk in shares investment. The return on investment in Nigerian stock market is no doubt huge; but this is matched by the huge risks associated with playing in the sector. Just as an investor can pocket as high as 1,000 percent return on a good investment in the stock market, he can also lose everything invested. This is especially so as research suggests that only three percent of those who invest in shares do research. The rest just plunge in trusting friends and their stock brokers who in most cases are as ignorant as themselves.
Why invest in shares. What have endeared many investors to shares are the multiple avenues in which they can be rewarded. An investor can pocket some handsome money of the share he has invested if the price at which he is getting out is higher that the price at which he bought the share. He can also be rewarded by dividend payment if the company he has invested in its shares decided to give a portion of their income as reward to their shareholders. Sometimes, good companies give free (bonus) shares to their investors when they decide to reward them without shelling money. An added advantage is that you can use your share certificate as collateral to obtain loans from the banks or even your stockbroker. Not many investment instruments have such a possibility.
Why investors must look elsewhere. The primary goal of investors should be first and foremost not to lose the money he has invested even if he cannot get any return. Stock market is one place where you can lose everything and that is irrespective of whether you borrowed money to invest or you used your personal money.
Fund managers believe it is a measure of investment intelligence that one doesn’t put all one’s egg in one basket. They say there is a sense in diversification. This would include putting part of one’s fund in other instrument that don’t necessarily bring spectacular returns but can guarantee that the principal sums invested are not lost.
Look in the direction of money market. Investing in the stock market is about the safest as the likelihood of an investor losing his principal is rare, especially now that the Central Bank of Nigeria has cleansed the banking industry of its misfits. There is even more safety if you include treasury bills (Government instrument for borrowing money from the public) in your portfolio. The reason is that the federal government is unlikely to default. Indeed the returns on your investment are taken upfront. There are many instruments to consider in the money market. The most popular includes time deposits in various banks, commercial papers (which allows companies that need funding to borrow money directly from private individuals but guaranteed by a bank) the discount houses also have other innovative products that can yield decent returns (“money wise” is planning a focus on the five discount houses and what they offer)
Real Estate. This is one sector that is fast catching on. Those who have hit it big here swear that you hardly can lose with real estate investment.
There is a fact that is incontrovertible: that is if you plan very well you can make good money in any sector but supreme investment include planning not put all your investment eggs in one basket even if the return on that basket is supernormal.
.

BASIC BUSINESS RULES

2007-09-24T03:18:00.000-07:00

BASIC BUSINESS RULES.

In every endeavour there is what is fundamentals or basic rules which forms the foundation and you always need to have a good grip on the fundamentals to be successful. However sophisticated you become in your knowledge of business, you must not forget the basics.
Basic Rule One:
Your product or service must be what people want, need and are willing to pay for. As simple as is sounds, it is very important. One of the basic weaknesses that we have in our society is the fact that our economy is disoriented. We make money without really creating product and services. But things are fast changing. We have to align our mind with the fact that people have needs. This country has about 150 million people and all of them have basic needs that they meet everyday whether they are rich or poor. They spend money everyday and we have to begin to create product and services that will meet their needs but please let those things you have to offer be what people want, need, and are willing to pay for. Products and services that are not ideally suited to the market will die a natural death. You cannot to sell just what you like. You have to sell what people like or want. There are loads of businesses that have failed because their owners were not sensitive to the peculiar needs of their environment. The fact that someone is selling something and doing well in business does not mean it will work well for you, because the needs of the people where you are may not be exactly the needs of the people where that person is. So, we need the ability to recognize people’s needs. There is a disease that I call “People Blindness” and if that disease strikes you, you can’t do well in business. To do well in business, you have to know people. You have to understand people and how they think. The interesting thing sometimes is that what people really need, they do not think they need it. And when you want to sell what people do not think they need, you may have a tough time selling. So, the product and market must be ideal for the environment. Remember, you don’t catch a fish on your own terms. If you want to catch a fish, you don’t put the food you like on the fishing hook and put it in the river; you put the food the fish likes.
Basic Rule Two:
Everybody in your organization must focus on sales, marketing and income generation. That is why you are in business. If you are not selling, you are not in business. Nothing happens until you sell. Business is not about renting a shop or getting a beautifully furnished office space it is more than that; business is selling. Until you make your first sale, you are not yet in business. A wealthy man gave his grandson some money to start a business. The young man rented an office in the choicest part of town, a top class business district. He furnished the office and hired staff. Three months down the line, when his grandfather asked him how business was doing, he told him that although they had a good office space and staff, they had no customers yet. The old Man looked at him and said, “Son, you don’t need an office, you need an office, you need customers”. That gave the young man a complete paradigm shift. You need customers. I am not saying that you do not need an office, sometimes you really need an office to start, but it is not every business that needs an office to start up. However, you certainly need customers to start up. Without customers and without selling, you are not in business. Every business owner needs to find a way to communicate that to everybody in the organization. Every staff has to be interested in the bottom line which is sales. Is the turn over increasing? Every body in the organization should be a marketer. Every opportunity to market the organization’s vision and ideas must be effectively utilized irrespective of department. In fact, I will advise, that you focus your best and most talented staff on sales and marketing. And as you begin to sell, you need to be sensitive to the products that are most profitable. Focus your best hands on your most profitable products and go for the best results.
Basic Rule Three:
You must maintain a strong sense of purpose and vision. Vision is the key to motivation and for vision to motivate; it has to be focused on people. To want to become the biggest in town is not a compelling vision because it is focused on your wanting to succeed. Vision must be focused on the customers. Within your organization, you must maintain a strong sense of vision and purpose and ensure that there is synergy. What each department is doing must contribute to the overall purpose and vision of the organization. It is your responsibility as the top man or woman to ensure there is synergy. What each unit does should not be an end itself. Also, keep the morale high. Then, ensure that you locate each of your in their area of strength.
Basic Rule Four:
Maintain Strong Internal Control Systems. I would suggest areas that are critical for you to monitor. The first, being Cost Control. You must have a handle on your company’s finances. If you do not any accounting background, buy a book that deals with the subject from a non- professional’s perspective. You have to be able to understand figures because you will be in serious debt before you realize it if you are not able to interpret figures. There is always more to it than what you read on papers. What most people call profit is not profit. If you buy an item for two hundred naira and sell it for four hundred naira, don’t conclude that your profit if two hundred naira; it is not. Your profit is less than that because cost such as transportation, electricity bill, rent, staff salary and others have not been factored in.
The prevalent mentality in our society is that of the civil service culture. People are paid to spend money, but not to earn it. Infact, your not spending all the money allocated in a month is an indication that you are not efficient. When that is the prevailing mentality in a country, there is a problem. Your staff may develop the habit of writing requisitions without caring whether the company has the money or not. It is your business to manage your cash flow.
Inventory management is also critical to maintaining strong internal controls. If you are selling goods, you have to be able to define the point at which you must restock. When you find it difficult to meet the demands of your clients, it sends a subtle message that you are not serious about your business. You lose money and considering the fact that they have alternatives, you have an opportunity to keep customer.
The third critical factor in maintaining strong internal control is People dynamics. You will have observed that if you put inanimate objects together in the same room for ten years there will be no quarrels between them. However, if you put two people there, you can be sure that the atmosphere will change. If you allow negative negative emotions to run within your business, it will adversely affect your business. It is important that you manage how people relate with themselves in the office. Set up policies to control the people dynamics and establish rules for conflict resolution in your organization.
Basic Rule Five:
Your organization must never stop learning, improving and innovating. There are loads of businesses that have been grounded, that are being grounded and that will be grounded because of the violation of this basic rule. You must never stop thinking ahead. It must be your corporate culture to continually innovate because if somebody comes along with a better idea of how to do your business, then, he or she will take the market from you. The moment you feel that you have arrived, you have arrived. What works today may not work tomorrow. Human psychology thrives on new experiences and even your staff will lose their edge if you are stuck with the old routines. You have to be flexible in bringing about changes and forging new frontiers in your field. Be ready to experiment. Try new ideas and things. You cannot afford to have a rigid corporate structure at this stage. People are not sensitive to change, most especially when it is gradual. Understand that something is constantly changing about your business and about the taste of your customer. Build a learning organization.

PLANNING YOUR DAY

2007-09-24T03:14:00.000-07:00

PLANNING YOUR DAY.

It is amazing, sometimes how quickly the day goes. Suddenly, and before we know it, our time is up. Then we are awakening to the painful realization that we have manage to achieve nothing meaningful while we had time. How sad!
Charles Schwab, the first American to earn one- million-dollars salary a year, wanted to know how to increase the productivity of executives in his company. And he turned to Mr. Ivy lee, a business consultant, who gave him this advice:

“Take a pad of paper, this evening Mr. Schwab, and list the most urgent projects which confront you, then study the list and number them, assigning number one to the most important job, number two to the next most vital, and so on on the list.

Beginning tomorrow, tackle number one and stay with it until it is finished before you move to number two, work down on the list. When the day is through, prepare a new list, again assigning top priority to the most important task still undone and so on down the list. Do this everyday and after you discover how well it works, share it with your people”. A few weeks later. Charles Schwab sent a cheque to ivy lee for twenty-five thousand dollars. And we all know why.

Dear reader, are you satisfied that you are getting the best out of each day of your life? To get the best, plan your day. One vital key to a successful day is this; you must have a list of things to do, and arrange them in order of priority. God has not given us enough time to do every possible thing we could do on this earth. But he has given us enough time to do the important things we need to do. Moses prayed in Psalms 90 verse 12 ; “teach us to number our days. That we may apply our hearts to wisdom”. Successful people all over the world usually have a list of things to do everyday. And they systematically go through the day, knocking off the items on their list in their order of importance.

Some of us have ideas. we know what to do, but we keep those ideas in our heads. But I think it is better for us to transfer our ideas on paper, so that we can leave our minds free to receive other creative thoughts. Some others write their list on scrapes of paper and lose them during the day. It is better to write our ideas and plans in a notebook, a notepad or a diary. This enables us see the things we have accomplished before, and those that are yet to come. It is also good to write down our list for each day

because writing crystallizes our thoughts and gives them physical expression.

Beloved friend, start this today, and you are likely to get the best out of tomorrow, especially when God himself intervenes on our behalf. Write down all the things you want to do tomorrow, today. Then mark them one, two, three and so on in their order of importance. And when tomorrow comes, attack item one first and stay with it until you finish it. Then move on to the next and the next until…. All is done!
Do this for a few days, and you will notice that a sense of fulfillment is coming will come into your heart. You are an achiever. You see, fulfillment is the mark of success. It is fulfilling to know that you are doing something meaningful with your life.

You may ask, what should I include on my list? Should I write daily routines or just the exceptional things? There are routine items you don’t need to write like eating and sleeping. But there are some others that may be vital like replying mails or making certain phone calls, or some meeting at the office. You should include such.
Then add the items that are not routines. And remember to number them in order of importance.

Let me also add, that you need not worry about finishing all the tasks on your list. Work will never end. What you don’t complete today should be added to tomorrow’s list.

Finally pray, before you make your list asking God for wisdom. And after you have made your list, ask God for guidance and favour. Proverbs 16:9 (Living Bible) says “We should make plans, counting on God to help us “. When you do what successful people do, you will succeed the way they succeed.

STOCKS BASICS

2007-09-24T03:10:00.000-07:00

Stock Basics
Understanding the stock market starts with understanding stocks. A stock represents partial ownership of a company – the smallest share possible. Company's issues stocks to raise capital and investors who buy stock are actually buying a portion of the company. Ownership, even a small share, gives investors rights to a say in how the company is run and a share in the profits (if any). While stocks give owners certain rights, they do not carry obligation in case the company defaults or faces a lawsuit. In a worst-case scenario the stock will become worthless but that is the limit to the investor's liability. Companies issue stocks to raise capital. They may need a cash injection to expand or to acquire new properties. Each stock issue is limited to a certain number of shares, and when they are issued they are given a par value. The market quickly adjusts that par value according the perceived health of the company and its potential for growth. Investors usually buy stocks because they believe the company will continue to grow and the value of their shares will rise accordingly. Investors who acquire stock in a new company are taking more of a risk than buying shares of well-established companies but the potential gain is much greater. Those who bought Microsoft shares early in the game (and did not sell them) saw an exponential rise in their value. Stock trading is done on stock exchanges like the New York Stock Exchange (NYSE) or NASDAQ (National Association of Securities Dealers Automated Quotation System). This means that only companies listed on a public exchange have shares that can be bought and sold on the open market. Of course, you could also buy partial ownership in a smaller company that is not listed on a stock exchange but that is a very different type of investment than buying stocks. Because stocks must be bought and sold on a stock exchange, an individual investor needs a broker to make transactions for him. Brokers take orders to buy or sell a certain stock. The order may include instructions to trade at a certain price or simply what the market will bear. Once the broker receives the order he attempts to execute it by finding a buyer or seller as the case may be. The buyer or seller is also represented by a broker and each broker receives a commission on the sale. Stocks have several advantages over savings investments. Because they represent ownership in a company they give the holder rights to participate in major decisions the company faces. Every share represents one vote and shareholders are regularly asked to vote on important matters. Ownership also allows stockholders to benefit from any profits the company makes. Profits are distributed in the form of dividends, and may be issued once or twice a year at the discretion of the company directors. If the company prospers the value of the stock will rise and distribution of profits also increases. The downside of this is that if the company does poorly the value of the stocks may fall. When compared with savings investments (like bonds or bank certificates of deposit) stocks have the potential to earn more money -- but they also carry the risk of loss. Learning about the stock market and the various investment strategies can help to minimize loss, and most investors find they do much better on the stock market than is possible with any kind of savings investment.
Stock Markets
The term 'Stock Market' is commonly used to encompass both the physical location for buying and selling stocks as well as the overall activity of the market within a certain country. When we hear an expression such as 'The stock market was down today' it refers to the combined activity of many stock exchanges i.e. the New York Stock Exchange (NYSE), NASDAQ etc. in the United States. The 'Stock Exchange' is the correct term for the physical location for trading stocks. Each country may have many different stock exchanges and usually a particular company's stocks are traded on only one exchange, although large corporations may be listed in several different locations. Stock exchanges exist throughout the world and it is possible to buy or sell stocks on any of them. The only restriction is the opening hours of each exchange. Both the NYSE and NASDAQ for example operate from 9:30 a.m. to 4:00 p.m. Eastern Time from Monday to Friday. Other exchanges have similar opening hours based on their local time. If you want to trade on the Hong Kong Stock Exchange your order will be executed sometime between 9:30 p.m. and 4:00 a.m. New York time. The major stock exchanges of the world are located in Japan (Tokyo Stock Exchange), India (Bombay Stock Exchange), Europe (London Stock Exchange, Frankfurt Stock Exchange, SWX Swiss Exchange), the People's Republic of China (Shanghai Stock Exchange) and the United States. The major exchanges in the US are the NYSE, NASDAQ, and Amex. Stock markets closely follow the economic health of a country. When the economy is doing well the market is bullish. Bull markets occur during times of high economic production, low unemployment and low inflation. Bear markets, on the other hand, follow downtrends in the economy. Inflation and unemployment are rising and stock prices are falling. Fluctuations in stock prices are also driven by supply and demand, which in turn are determined to a large extent on investor psychology. Seeing a stock rise in price may cause investors to jump on the bandwagon and this rush to buy drives the price even faster. A falling price can have the same effect. These are short term fluctuations. Stock prices tend to normalize after such runs. The stock exchange is only one of many opportunities to invest. Other popular markets include the Foreign Exchange Market (FOREX), the Futures Market, and the Options Market. The FOREX is the biggest (in terms of value of trades) investment market in the world. FOREX traders buy one currency against another and can profit from small changes in value. Most FOREX trades are entered and exited in one 24 hour span, and traders have to keep a close watch on the market in order to make profitable trades. The Futures Market is a market of contracts to buy and sell goods at specified prices and times. It exists because buyers and sellers of goods wish to lock in prices for future delivery, but market conditions can make the actual futures contract fluctuate considerably in value. Most investors in the futures market are not interested in the actual goods – only in the profit that can be realized in trading the contracts. The Options Market is similar to the Futures Market in that an option is a contract that gives you the right (but not the obligation) to trade a stock at a certain price before a specified date. They can be traded on their own or purchased as a form of insurance against price fluctuations within a certain time frame. All three of these markets are quite risky and require considerable knowledge and experience to prevent substantial losses. They also require close attention to market movements. Stocks, on the other hand, are less risky because movements of the market are usually gradual. Although short term investment strategies are possible, most view stocks as long term investments.
Stock Indexes
Stock indexes are a statistical average of a particular stock exchange or sector. Indexes are composed of stocks which have something in common – they are all part of the same exchange; they are part of the same industry; or they represent companies of a certain size or location. There are many different stock indexes, the most common in the United States being the Dow Jones Industrial Average, the NYSE Composite index, and the S&P 500 Composite Stock Price Index. Stock indexes give an overall perspective about the economic health of a particular industry or stock exchange. There are several different ways to calculate indexes. An index based solely on the price of stocks is called a 'price weighted index'. This type of index does not take into consideration the importance of any particular stock or the size of the company. An index which is 'market value weighted', on the other hand, takes into account the size of the companies. That way, price shifts of small companies have less influence than those of larger companies. Another type of index is the 'market-share weighted' index. This type of index is based on the number of shares rather than their total value. Index Funds As well as giving an overall grade to a particular economy, indexes can also be an investment instrument. Mutual funds based on indexes are known as 'passively managed mutual funds' and have been shown to consistently outperform managed funds. Mutual funds based on an index simply duplicate the holdings where the index is based on. Thus if the Dow Jones rises by 1% the fund based on the Dow Jones also rises by the same amount. This has the advantage of lower costs for research and transactions – savings that can be passed on to the investor who participates in these funds. The Big Indexes The Dow Jones Industrial Average is one of the best-known indexes in the United States. It follows the stock movements of 30 of the most influential companies in America including General Electric, Coca Cola and General Motors. It is a 'price-weighted average' index – thus giving more influence to more expensive stocks. Some analysts feel that the price-weighting does not give an accurate picture of stock market movements and that 30 companies are not enough to form an accurate assessment. The S&P 500 Index is based on 500 United States corporations. These companies are carefully chosen to represent a broad slice of economic activity. It is second in influence after the Dow Jones and is felt to be an accurate predictor of the state of the United States economy. Outside of the United States the most influential index is the FTSE 100 Index. This is based on 100 of the largest companies listed on the London Stock Exchange. It is an indicator of the British economy and is one of the biggest indexes in Europe. Other important non-US indexes are the CAC 40 from France and the Nikkei 225 from Japan.
Stock Prices and Quotes
In glancing through the stock prices listed in the newspaper one might wonder how stocks are priced and what affects price movement. After all, there is a wide variety of prices and some well-known companies are traded for relatively low prices while obscure listings may sell at high prices. To a certain extent stock prices are determined by investor confidence but that confidence in turn is based on real or perceived performance. Companies report their financial status on a quarterly basis when they disclose cash flow, sales and earnings. These hard numbers are the foundation of a company's worth, but investor speculation can undermine or override actual financial data. Rumours abound on the stock market, and if there is news that a company is about to make a strategic move buyers may flock to buy that stock. As with any other market, the principal of supply and demand applies. If there is a sudden upsurge in investor interest, the price of a stock will rise accordingly. Conversely, fear among investors can cause a stock price to plummet. In the long run, however, company performance and worth are the biggest factors in determining stock prices. Stock prices are available from many sources. Newspapers carry market summaries of the day's movements and online sources can provide current prices around the clock. Stock brokers can also provide quotes – either online or by telephone in the case of full-service brokers. A stock quote table in a newspaper or Internet web site is full of useful information that can help the investor make decisions about buying or selling stocks. Being able to read a stock table is a necessary skill for anyone interested in the stock market.

Types of Trading
The stock market is a reliable indicator of the actual value of companies which issue stock. Values of stocks are based on verifiable financial data such as sales figures, assets and growth. This reliability makes the stock market a good choice for long term investing – well-run companies should continue to grow and provide dividends for their stockholders. The stock market also provides opportunities for short-term investors. Market skittishness can cause prices to fluctuate quite rapidly and investor psychology can cause prices to fall or rise – even if there is no financial basis for these variations. How does this happen? News reports, government announcements about the economy, and even rumours can cause investors to become nervous or to suspect that a company will increase in value. When the price starts to fall or rise, other investors will jump on the bandwagon, causing an even faster acceleration in price. Eventually the market will correct itself, but for savvy short-term investors who watch the market closely, these price changes can offer opportunities for profitable trading. Short term traders are divided into 3 categories: Position Traders, Swing Traders, and Day Traders. Position TradersPosition trading is the longest term trading style of the three. Stocks could be held for a relatively long period of time compared with the other trading styles. Position traders expect to hold on to their stocks for anywhere from 5 days to 3 or 6 months. Position traders are watching for fundamental changes in value of a stock. This information can be gleaned from financial reports and industry analyses. Position trading does not require a great deal of time. An examination of daily reports is enough to plan trading strategies. This type of trading is ideal for those who invest in the stock market to supplement their income. The time needed to study the stock market can be as little as 30 minutes a day and can be done after regular work hours. Swing TradersSwing traders hold stocks for shorter periods than position traders – generally from one to five days. The swing trader is looking for changes in the market that are driven more by emotion than fundamental value. This type of trading requires more time than position trading but the payback is often greater. Swing traders usually spend about 2 hours a day researching stocks and executing orders. They need to be able to identify trends and pick out trading opportunities. They usually rely on daily and intraday charts to plot stock movements. Day TradersDay trading is commonly thought of as the most risky way to play the stock market. This may be true if the trader is uneducated, but those who know what they are doing know how to limit their risk and maximize their profit potential. Day trading refers to buying and selling stock in very short periods of time – less than a day but often as short as a few minutes. Day traders rely on information that can influence price moves and have to plot when to get in and out of a position. Day traders need to be rational and analytical. Emotional buyers will quickly lose money in this type of trading. Because of the close attention needed to market conditions, day trading is a full-time profession.
Stock Options
Stock options are contracts to buy (or sell) a stock at a certain price before a certain time in the future. Buyers of options have the right to buy the stock at the specified price, but they are not obligated to exercise their option. Sellers of options have the obligation to sell the underlying stock if the buyer of the option wishes to exercise it. A contract to buy is called a 'call option'. The buyer of a call option hopes the price of the underlying stock will rise, allowing him to buy it at less than market value. The seller of the call option expects that the price of the stock will not rise, or at least is willing to accept a partial loss of profits made from selling the call option. For example: An investor buys a call option on IBM with a 'strike price' (the price the stock can be bought) of $50. The current price of IBM stocks is $40 and the cost of the call is $5. If the price rises above $55 (strike price + cost of call) the buyer could exercise his right to buy and make a profit by reselling on the open market. The seller would still gain from the increase in price from $40 to $55 plus the $5 he made by selling the call. If the price remains below $55 the call would not be exercised and the seller would profit by $5 per share and the buyer would lose his $5 per share. Options are traded on specific stocks. They detail the name of the stock, the strike price (the price the stock can be bought or sold at), the expiration date and the premium (the price of the option itself). After the expiration the option cannot be exercised and is worthless. Options have a value and are actively traded. An option to buy Microsoft, for example, is listed like this: MSFT Jan06 22.50 Call at $2.00 This tells us that an option to buy 1 share of Microsoft at $22.50 before the third Friday in January 2006 can be bought for $2.00. Options usually expire on the third Friday of the specified month, and they are usually traded in lots of 100. To buy this particular option you would have to pay $200 (plus brokerage fees). An option to sell a stock is called a 'put option'. This gives the holder the right (but not the obligation) to sell a particular stock within a certain time period at a certain price. In this situation the buyer is expecting the price of the stock to fall but does not want to sell outright in case the price rebounds. The seller feels that the price is stable or is willing to acquire the stock at the low price. For example: An investor buys a put option on Microsoft with a 'strike price' (the price the stock can be sold) of $35. The current price of Microsoft is $40 and the cost of the put is $5. If the price falls below $30 (strike price + cost of put) the buyer could exercise his right to sell at a higher price than market. The seller would have to buy the stock at the higher-than-market price but any losses are offset by the $5 he made by selling the put. If the price remains above $30 the put would not be exercised and the seller would profit by $5 per share and the buyer would lose his $5 per share. As can be seen, stock options can be used to protect against loss or as an investment opportunity in their own right. They are generally used as part of a trading strategy which combines the purchase of stock with the purchase of options. For example, in a bull (rising) market you could buy stocks and call options and sell put options. This allows you to take full advantage of rising stock prices – the stocks you buy will rise in value, the call options will allow you to buy stock at less than market prices, and if the market dips and the buyer of your put option exercises it, you can pick up additional stocks at low prices. If the buyer does not exercise the option, you make money from the sale of the option. Conversely, in a bear market, you can sell stocks, sell calls, and buy puts to limit losses and generate profits. Unstable markets can use a mixture of puts and calls to maximize profit potential. Options are traded on Futures and Options Exchanges. There are 6 such exchanges in the United States including the American Stock Exchange (AMEX) and the Chicago Board Options Exchange (CBOE). In Europe the main options exchanges are Euronext.liffe and Eurex.
Getting Started
Anyone with money to invest can buy and sell stocks. Stock trading has its own specialized vocabulary but once you have the basics under your belt you can understand better how the market works. As with any investment, the more knowledge you have about stock trading the more successful you are likely to be. Most stock trades are done through a broker – an intermediary who takes orders and executes them. Brokers can also offer advice about which stocks to trade and the condition of the market. These 'full-service' brokers charge a relatively high commission. To cut costs, many people use discount brokers that charge significantly less. You don't get advice, but to some, that is an advantage. Some of the services commonly offered by brokers include online trading, broker assisted trading and some brokers offer options like Interactive Voice Response System for placing orders by telephone and wireless trading systems for making orders by using web-enabled cellular phones or other handheld devices. Some brokers have their own proprietary software for placing orders over the Internet while others allow you to access their order department through their website with a password. Whichever systems they use, almost every broker offers a variety of charting options that allows you to track movements on the stock market. Analysis software may also be included in their service or available for an extra fee. Types of Orders There are different types of orders that can be made when buying or selling stocks. A 'market order' is an instruction to buy or sell at the current market price. The order is usually executed very near the price you are quoted at the time of your order. However, if the stock price is fluctuating or is not actively traded there may be a difference between the quote and the actual transaction. A 'stop order' or 'limit order' can be placed if you expect the stock price to move and wish to buy or sell at a certain price above or below the current market price. A stop order instructs the broker to trade at a certain price, while a limit order is an instruction to trade at a specified price or better. A stop order helps to limit losses or protect profits. They become effective when the market hits the stop price but may trade above or below the stop price because they are traded at market price after they become active. Limit orders may not be placed at all even if the market reaches the limit price. If the market moves quickly there may not be time to execute your order before the price falls out of the limit price range. For example: You buy Bell Canada (BCE) at $50 and then put in a stop order of $45. If the price of BCE falls to $45 your stop order will become effective and your stock will sell at market price. Conversely, if you place a limit sell after buying BCE for $60, when the price rises to that level your stock will be sold at a profit. You could also buy BCE with a limit buy order for $45. This allows you to (possibly) buy stock at less than current market. If the price does not fall to your limit buy price, however, you will not buy any of that stock. All orders can be placed as 'good ‘til cancelled' (GTC) or as a 'day order.' GTC orders remain in effect until they are cancelled but day orders remain effective only until the end of the current trading day. Stocks are usually traded in 'round lots' – lots of multiples of 100. It is possible to trade other amounts of stocks, but this kind of trade is called an 'odd lot'. Trading software can handle both types of orders, but odd lot orders are slightly more difficult to fill than round lot orders.
Stock Brokers
Brokers handle most of the buying and selling on the stock market, and the average investor will use a brokerage service to handle his trades. There is a broad range of brokerage services available. There are brokers who offer many services for aiding their clients meet their investment goals. These 'full-service brokers' can give advice about which stocks to buy and sell and often have full research facilities for analyzing market trends and predicting movements. These perks are not free – full service brokers charge the highest commission rates in the industry. Whether or not you decide to use a full-service broker depends on your level of self-confidence, your knowledge of the stock market and the number of trades you regularly make. Investors who wish to save on commission fees can use a 'discount broker'. These brokers charge much lower commissions but don't offer advice or analysis. Investors who like to make their own trading decisions and those who make many trades often use discount brokers for their transactions. Some traders may use both types – there is no reason why you can't have two brokers. The least expensive way to trade stocks is usually with an online brokerage. Both full-service and discount brokers usually offer discounts for orders placed online. Some brokers operate exclusively online and offer even better rates. No matter what type of broker you choose, you must first open an account. Each broker sets their own requirements for maintaining an account balance but it is usually between $500 and $1000. When choosing a broker look at the fine print and find out about the fees involved. Some brokers charge an annual maintenance fee while other charge fees whenever your account balance falls below the minimum. There are two basic types of brokerage accounts. A 'cash account' offers no credit – when you buy you pay the full amount of the stock price. A 'margin' account, on the other hand, allows you to buy stock 'on margin' – the brokerage will carry some of the cost of the stock. The amount of margin varies from broker to broker but the margin must be protected by the value of the client's portfolio. If the portfolio falls below a specified amount the investor will have to add more funds or sell some stock. Margin accounts allow investors to buy more stock with less cash thereby realizing greater gains (and losses). Because they involve more risk than cash accounts, margin accounts are not recommended for inexperienced traders. Before choosing a particular broker the investor should carefully consider his needs. Does he wish to receive advice about which stocks to buy? Is he uncomfortable making trades on the Internet? If so, he should go with a full-service broker. Technology savvy investors who have the knowledge and confidence to make their own trading decisions are better off with a discount broker. After deciding which type, compare a few competitors. There can often be significant differences in costs when all the annual fees and brokerage rates are factored in. Try to gauge how many trades you expect to make in a year, how much cash you can deposit into your account, whether you wish to use margin accounts and which services you need. This information will allow you to compare the actual costs of various brokers
Stocks versus Bonds
Whereas stocks give investors part ownership of a company, bonds are loans made by investors to corporations or governments. Rather than benefiting from company profits the way that stock holders do, bond holders receive a fixed rate of return – a percentage of the bond's original offering price. The return is called the 'coupon rate'. Bonds have a maturity date at which time the principal amount is returned. Bonds can be issued for any period of time – some take up to 30 years to mature. Bonds always carry the risk that the principal amount may not be paid back. Companies with higher credit worthiness are more likely to be safe investments but their coupon rate will be lower than companies with lower credit ratings. Credit ratings are provided by firms such as Standard and Poor and Moody's Investor Service. Credit ratings range from a high AAA to a low D. US government bonds are considered to be the safest type of bonds. Blue chip corporations (those with established performance records that span over many decades) are also very safe bond investments. Smaller corporations have a greater risk of defaulting on their bonds, but bond-holders are preferential creditors and will get compensated before stock holders in the event that the business goes bankrupt. Bonds can be bought and sold on the open market. Their value fluctuates according to the level of interest rates in the general economy. For example, if you hold a $1000 bond that pays 5% per year in interest you can sell the bond at higher than face value as long as interest rates are below 5%. If they rise above 5%, your bond can still be sold but usually at less than face value. This is because investors are able to get a higher interest rate than what your bond pays so in order to offset the difference your bond has to be sold at a lower cost. Most bonds are traded in the Over-The-Counter (OTC) market which is made up of banks and security firms. Some corporate bonds are also listed on stock exchanges and may be bought through stock brokers. New issues of bonds are usually sold in $5000 increments while bonds bought and sold after the initial issues are quoted in increments of $100. A bond that is listed at 96 is selling for $96 per $100 face value. Stocks or Bonds When deciding whether to invest in stocks or bonds, the risks versus the potentials have to be weighed. Stocks have much greater potential to increase in value but they are also more subject to market fluctuations. Investment grade bonds (those with a rating of BBB or better) carry less risk but offer a relatively low yield. Most investors agree that for the short term, bonds offer greater security and return. The situation changes, however, when time spans of longer than 10 years are considered. The stock market has consistently outperformed bond investments by a large factor. This is because companies continue to increase in value and any short term fluctuations in the stock market are smoothed out over time. Bonds still have their place in most portfolios, however. They provide a stable investment which helps to cushion against stock market fluctuation. A mixture of investments including stocks from various industries, bonds and other fixed-income investments is the way to provide maximum growth while securing your investment funds for the future.
Stocks versus Mutual Funds
A mutual fund is a diverse holding of stocks that are managed on behalf of the investors that buy into the fund. A mutual fund allows an investor to take advantage of a diversified portfolio without having to invest a large sum of money. What is the advantage of a diversified portfolio? It offers protection against rapid market losses of any one particular stock. If a portfolio is spread across 20 stocks, if any one of those stocks quickly loses value the effect is less than if the portfolio consisted of that one stock by itself. When investing it is always a good idea to diversify. The problem for small investors is that they often don't have the funds to buy a variety of stocks. Mutual funds allow small investors to benefit from diversification with a small amount of money. Besides stocks, mutual funds can be made up of a variety of holdings including bonds and money market instruments. A mutual fund is actually a company and investors that buy into a fund are buying shares of that company. Shares in a mutual fund are bought directly from the fund itself or brokers acting on behalf of the fund. Shares can be redeemed by selling them back to the fund. Some funds are managed by investment professionals who decide which securities to include in the fund. Non-managed funds are also available. They are usually based on an index such as the Dow Jones Industrial Average. The fund simply duplicates the holdings of the index it is based on so that if the Dow Jones (for example) rises by 5% the mutual fund based on that index also rises by the same amount. Non-managed funds often perform very well – sometimes better than managed funds. There are downsides to mutual funds. There are usually fees that must be paid no matter how the fund performs, and the individual investor has no say in which securities can be included in the fund. Also, the actual value of a mutual fund share is not known with the same precision as stocks on the stock market. Mutual funds are often a better choice for the small investor than either stocks or bonds. They offer the diversity that provides cushion against sudden stock market movements and usually provide a greater return than bonds. Of course, mutual funds can also lose value, especially in the short term, so short term investors may be better off with bonds which offer a set rate of return. There are three main types of mutual funds: money market funds, bond funds and stock funds. Money market funds offer the lowest risk – they consist solely of high quality investments such as those issued by the US government and blue chip corporations. Money market funds have rarely lost money, but they pay a low rate of return. Bond funds aim to produce higher yields than money market funds and therefore carry a correspondingly higher risk. All the risks that are associated with bonds – company bankruptcy, falling interest rates – also apply to bond funds. Stock funds usually have the greatest potential for profitable investment but also carry the greatest risk. The risk is more for short-term holders of mutual funds – stocks have traditionally outperformed other investment instruments in the long run. There are different types of stock funds including 'growth funds' that attempt to maximize capital gain and 'income funds' that concentrate on stocks that pay regular dividends. Mutual funds are an ideal investment for those with limited funds or investment experience. Choosing the right fund is a decision on how much risk you are willing to take against your expected return on your investment.
Penny Stocks
Penny stocks are low-priced stocks – usually with a value of less than $5 – of small companies. These stocks are traded on the Over-The-Counter-Bulletin-Board (OTCBB) and the Pink Sheets. Both these trading venues do not have the same kind of minimum requirements of exchanges such as NASDAQ or the NYSE set by the Securities and Exchange Commission. Companies which issue penny stocks may be new businesses or close to bankruptcy. A new issue of stocks could be a way to inject quick capital to try to save the business. All of these factors – low price, lack of standards, and lack of stability – make penny stocks one of the riskiest investments around. It is true that if a company succeeds the payoff will be great, but the vast majority of penny stocks end in bankruptcy. Other reasons why penny stocks are risky include... - Lack of information about the company. Companies listed in the Pink Sheets or the OTCBB do not have to issue financial statements. Most companies also have little reportable history. - Low liquidity. Penny stocks are infrequently traded, so finding a buyer may be difficult. The price may have to lower substantially to interest someone in buying the stock. - Potential fraud. Due to their unregulated nature, penny stocks are often used by con artists who sell them through spam email or off-shore brokers. So penny stocks are risky but are there any benefits to them? Not all penny stocks are frauds or companies facing bankruptcy. Some represent hard-working businesses that are struggling to meet the requirements to get listed on NASDAQ or the NYSE. Investing in these companies offers real growth potential – you have the opportunity to get in at the ground floor and ride all the way to the top. The difficulty is finding which companies have this growth potential. Getting this information requires a lot of research and unless you are willing to take the time to personally investigate a company, you may again be the victim of fraud. Some companies specialize in offering 'inside information' about companies selling penny stock, but they may simply be fronts for pushing a particular stock on unsuspecting investors. There are two ways to play the penny stocks – do research or play craps. The low cost of these stocks means that you will not lose a lot money if the company goes under, and as long as you are prepared to lose this money penny stocks can be an interesting and fun addition to any portfolio. It must be stressed, however, that penny stocks should only make up a small portion of any portfolio. The odds are that most penny stocks will end up in a total loss. If you would like to buy penny stocks you need to find a broker that will place an order for you. Many brokers will not cover them because of the difficulties in tracking them, but some online brokers specialize in penny stocks. Regulations require brokers to receive written confirmation from the client concerning the transaction. The broker is also required to give the client a document outlining the risks of speculating with penny stocks. Finally, the broker must disclose the current market price of the stock and the amount of compensation the firm receives for the trade. Monthly statements must be sent to the client detailing market value of each penny stock in the account.
Pink Sheets Stocks
If you are interested in penny stocks you are sure to hear about the Pink Sheets. It is an electronic quotation system for many Over-The-Counter (OTC) securities. The name comes from the colour of the paper the quotes were originally printed on. Today the Pink Sheets publishes quotations on the Internet, and most of its listings are so-called penny stocks. Penny stocks are securities that are less than $5 in value. Although they can be traded on regular stock exchanges, companies that are listed in the Pink Sheets usually do so because they cannot meet the requirements of other exchanges like the NYSE and NASDAQ. The Pink Sheets has no listing requirements – even companies with no financial history can be listed. The Pink Sheets is not a registered stock exchange. As such, it can list companies that would otherwise be unable to raise capital through stock offerings. Although it is not regulated by the Securities and Exchange Commission (SEC) its trading system is only accessible by brokers licensed by the National Association of Security Dealers (NASD) and these brokers are required to follow NASD regulations. Companies which issue stock listed in the Pink Sheets must follow Federal and State security laws. As an unregulated exchange, stocks listed in the Pink Sheets carry more risk than stocks on the big exchanges like AMEX. The lack of financial data means that companies may be facing bankruptcy and are issuing stock in a last ditch effort to stay afloat. Not all companies are in dire straights, however. Some may be in the process of becoming listed on the regular exchanges and use the Pink Sheets as an intermediate step to raise capital. To get listed in the Pink Sheets a company needs a broker dealer to quote the stock. The only requirement is that the broker is a member of the National Association of Securities Dealers (NASD). Once listed, the company remains in the Pink Sheets as long as the stock is quoted. It can happen that a stock that no longer exists still is quoted in the Pink Sheets – a situation that highlights the need for researching any company that lists here. The main advantage of buying Pink Sheet securities is their low cost. Investors who hope to get in on a new company right at the beginning can pick up stock for literally pennies. In the event that the company does well and grows the small initial investment will pay large dividends. There is a very real risk, though, that the company will simply vanish, leaving behind valueless stock issues. The investor interested in penny stock in the Pink Sheets should be prepared to lose all. For this reason, Pink Sheet investments should represent only a small portion of an overall investment portfolio. Another risk to the investor is the lack of liquidity of Pink Sheet listings. Volume is generally quite low and finding a buyer for stock may be difficult. The seller may have to settle for a much lower price than anticipated in order to unload his shares.
Fundamental Analysis Part One
The investor has many tools at hand when making decisions about which stocks to buy. One of the most useful of these is fundamental analysis – examining key ratios which show the worth of a stock and how a company is performing. The goal of fundamental analysis is to determine how much money a company is making and what kind of earnings can be expected in the future. Although future earnings are always subject to interpretation, a good earning history creates confidence among investors. Stock prices increase and dividends may also be paid out. Companies are required to report earnings on a regular basis and stock market analysts examine these figures to determine if a company is meeting its expected growth. If not, there is usually a downturn in the stock's price. There are many tools available to help determine a company's earnings and its value on the stock market. Most of them rely on the financial statements provided by the company. Further fundamental analysis can be done to reveal details about the value of a company including its competitive advantages and the ratio of ownership between management and outside investors. Financial StatementsEvery publicly traded company must publish regular financial statements. These statements are available in printed form or on the Internet. All statements must include an income statement, a balance sheet, an auditor's report, a statement of cash flow, a description of the business activities and the expected revenue for the coming year. Auditor's ReportThe auditor's report is one of the most important sections of the financial statement. The auditor is an independent Certified Public Accountant firm which examines the company's financial activities to determine if the financial statement is an accurate description of the earnings. The auditor's report contains the opinion of the auditor concerning the accuracy of the financial statement. A financial statement without an independent auditor's report is essentially worthless because it could contain misleading or inaccurate information. An auditor's report, although not a guarantee of accuracy, at least provides credibility to the financial statement. Balance SheetAnother important section of the financial statement is the balance sheet. This is a 'snapshot' as it were, of the financial condition of the company at a single point in time. The balance sheet shows the relationship between assets (cash, property and equipment), liabilities (debt) and equity (retained earnings and stock). Income StatementThe income statement shows information about the revenue, net income, and earnings per share over a period of time. The top line of the income statement shows the amount of income generated by sales, underneath which the costs incurred in doing business are deducted. The bottom line show the net income (or loss) and the income per share. Cash FlowThe statement of cash flow is similar to the income statement – it provides a picture of a company's performance over time. The cash flow statement, however, does not use accounting procedures such as depreciation – it is simply an indicator of how a company handles income and expenses. A statement of cash flow shows incoming and outgoing cash from sales, investments, and financing. It is a good indicator about how the company is run on a day-to-day basis, how it handles creditors and from where it receives growth capital.
Fundamental Analysis Part Two – Tools
Although the raw data of the Financial Statement has some useful information, much more can be understood about the value of a stock by applying a variety of tools to the financial data. Earnings per Sharethe overall earnings of a company is not in itself a useful indicator of a stock's worth. Low earnings coupled with low outstanding shares can be more valuable than high earnings with a high number of outstanding shares. Earnings per share are much more useful information than earnings by itself. Earnings per share (EPS) are calculated by dividing the net earnings by the number of outstanding shares. For example: ABC company had net earnings of $1 million and 100,000 outstanding shares for an EPS of 10 (1,000,000 / 100,000 = 10). This information is useful for comparing two companies in a certain industry but should not be the deciding factor when choosing stocks. Price to Earning RatioThe Price to Earning Ratio (P/E) shows the relationship between stock price and company earnings. It is calculated by dividing the share price by the Earnings per Share. In our example above of ABC company the EPS is 10 so if it has a price per share of $50 the P/E is 5 (50 / 10 = 5). The P/E tells you how much investors are willing to pay for that particular company's earnings. P/E's can be read in a variety of ways. A high P/E could mean that the company is overpriced or it could mean that investors expect the company to continue to grow and generate profits. A low P/E could mean that investors are wary of the company or it could indicate a company that most investors have overlooked. Either way, further analysis is needed to determine the true value of a particular stock. Price to Sales RatioWhen a company has no earnings, there are other tools available to help investors judge its worth. New companies in particular often have no earnings, but that does not mean they are bad investments. The Price to Sales ratio (P/S) is a useful tool for judging new companies. It is calculated by dividing the market cap (stock price times number of outstanding shares) by total revenues. An alternate method is to divide current share price by sales per share. P/S indicates the value the market places on sales. The lower the P/S the better the value. Price to Book RatioBook value is determined by subtracting liabilities from assets. The value of a growing company will always be more than book value because of the potential for future revenue. The price to book ratio (P/B) is the value the market places on the book value of the company. It is calculated by dividing the current price per share by the book value per share (book value / number of outstanding shares). Companies with a low P/B are good value and are often sought after by long term investors who see the potential of such companies. Dividend YieldSome investors are looking for stocks that can maximize dividend income. Dividend yield is useful for determining the percentage return a company pays in the form of dividends. It is calculated by dividing the annual dividend per share by the stock's price per share. Usually it is the older, well-established companies that pay a higher percentage, and these companies also usually have a more consistent dividend history than younger companies.
Technical Analysis Part One
Technical analysis is the art and science of examining stock chart data and predicting future moves on the stock market. Investors who use this style of analysis are often unconcerned about the nature or value of the companies they trade stocks in. Their holdings are usually short-term – once their projected profit is reached they drop the stock. The basis for technical analysis is the belief that stock prices move in predictable patterns. All the factors that influence price movement – company performance, the general state of the economy, natural disasters – are supposedly reflected in the stock market with great efficiency. This efficiency, coupled with historical trends produces movements that can be analyzed and applied to future stock market movements. Technical analysis is not intended for long-term investments because fundamental information concerning a company's potential for growth is not taken into account. Trades must be entered and exited at precise times, so technical analysts need to spend a great deal of time watching market movements. Investors can take advantage of both upswings and downswings in price by going either long or short. Stop-loss orders limit losses in the event that the market does not move as expected. There are many tools available to the technical analyst. Literally hundreds of stock patterns have been developed over time. Most of them, however, rely on the basic concepts of 'support' and 'resistance'. Support is the level that downward prices are expected to rise from, and Resistance is the level that upward prices are expected to reach before falling again. In other words, prices tend to bounce once they have hit support or resistance levels. Charts Technical analysis relies heavily on charts for tracking market movements. Bar charts are the most commonly used. They consist of vertical bars representing a particular time period – weekly, daily, hourly, or even by the minute. The top of each bar shows the highest price for the period, the bottom is the lowest price, and the small bar to the right is the opening price and the small bar to the left is the closing price. A great deal of information can be seen in glancing at bar charts. Long bars indicate a large price spread and the position of the side bars shows whether the price rose or dropped and also the spread between opening and closing prices. A variation on the bar chart is the candlestick chart. These charts use solid bodies to indicate the variation between opening and closing prices and the lines (shadows) that extend above and below the body indicate the highest and lowest prices respectively. Candlestick bodies are coloured black or red if the closing price was lower than the previous period or white or green if the price closed higher. Candlesticks form various shapes that can indicate market movement. A green body with short shadows is bullish – the stock opened near its low and closed nears its high. Conversely, a red body with short shadows is bearish – the stock opened near the high and closed nears the low. These are only two of the more than 20 patterns that can be formed by candlesticks.
Technical Analysis Part Two – Indicators and Patterns
When glancing at charts the untrained eye may simply see random movements from one day to the next. Trained analysts, however, see patterns that are used to predict future movements of stock prices. There are hundreds of different indicators and patterns that can be applied. There is no one single reliable indicator, but when taken into consideration with others, investors can be quite successful in predicting price movements. Patterns One of the most popular patterns is Cup and Handle. Prices start out relatively high then dip and come back up (the cup). They finally level out for a period (handle) before making a breakout – a sudden rise in price. Investors who buy on the handle can make good profits. Another popular pattern is Head and Shoulders. This is formed by a peak (first shoulder) followed by a dip and then a higher peak (the head) followed again by a dip and a rise (the second shoulder). This is taken to be a bearish pattern with prices to fall substantially after the second shoulder. Indicators Moving AverageThe most popular indicator is the moving average. This shows the average price over a period of time. For a 30 day moving average you add the closing prices for each of the 30 days and divide by 30. The most common averages are 20, 30, 50, 100, and 200 days. Longer time spans are less affected by daily price fluctuations. A moving average is plotted as a line on a graph of price changes. When prices fall below the moving average they have a tendency to keep on falling. Conversely, when prices rise above the moving average they tend to keep on rising. Relative Strength Index (RSI)This indicator compares the number of days a stock finishes up with the number of days it finishes down. It is calculated for a certain time span – usually between 9 and 15 days. The average number of up days is divided by the average number of down days. This number is added to one and the result is used to divide 100. This number is subtracted from 100. The RSI has a range between 0 and 100. A RSI of 70 or above can indicate a stock which is overbought and due for a fall in price. When the RSI falls below 30 the stock may be oversold and is a good time to buy. These numbers are not absolute – they can vary depending on whether the market is bullish or bearish. RSI charted over longer periods tend to show less extremes of movement. Looking at historical charts over a period of a year or so can give a good indicator of how a stock price moves in relation to its RSI. Money Flow Index (MFI)The RSI is calculated by following stock prices, but the Money Flow Index (MFI) takes into account the number of shares traded as well as the price. The range is from 0 to 100 and just like the RSI, an MFI of 70 is an indicator to sell and an MFI of 30 is an indicator to buy. Also like the RSI, when charted over longer periods of time the MFI can be more accurate as an indicator. Bollinger BandsThis indicator is plotted as a grouping of 3 lines. The upper and lower lines are plotted according to market volatility. When the market is volatile the space between these lines widens and during times of less volatility the lines come closer together. The middle line is the simple moving average between the two outer lines (bands). As prices move closer to the lower band the stronger the indication is that the stock is oversold – the price should soon rise. As prices rise to the higher band the stock becomes more overbought meaning prices should fall. Bollinger bands are often used by investors to confirm other indicators. The wise technical analyst will always use a number of indicators before making a decision to trade a particular stock
Bull Markets and Bear Markets
The stock market moves up and down every day, but when movements continue downwards for a period of time the market is referred to as a 'bear market'. Upward moving markets are 'bull markets'. If a particular stock is doing well, it is said to be bullish. If it is losing value it is bearish. Bull and Bear are the terms to describe the general conditions of the stock market. These do not refer to short term fluctuations – a bear market is commonly understood as one where prices of key stocks have fallen in price by 20% or more over a period of at least 2 months. Even during a bear market, however, prices may increase temporarily. Bull markets are the opposite of bear markets – they are indicated by a rise in prices of key stocks over a certain period of time. Usually stock market conditions reflect the state of the economy. During bull markets the economy is doing well, unemployment is low and interest rates are reasonable. Bear markets usually occur during times of economic slowdown. Investors lose confidence and companies may begin laying off workers. At the extremes, an exaggerated bear market can lead to a crash brought on by panic selling. An exaggerated bull market can be caused by over-enthusiasm of investors. It leads to a market 'bubble' that will eventually burst. Although most money can be made during bull markets, there are also opportunities during bear markets. Knowing the characteristics of each type of market allows investors to profit from them. As would be expected, when the market is bullish investors wish to buy up stock. The economy is doing well and people have extra money which they wish to invest in stocks. This creates a situation of short supply which drives up prices even higher. During bear markets, on the other hand, prices are falling so investors wish to unload their stocks and put their money in fixed-return instruments such as bonds. As money is withdrawn from the stock market, supply exceeds demand which drives prices down even further. It is easiest to make money during a bull market. Getting in right at the beginning will allow you to make the most profits. During a bull market any dips in the market are temporary and should soon be corrected. The upward rising prices can't go on forever, though, so the investor needs to be able to gauge when the market reaches its peak and sell at that time. Bear markets represent opportunities to pick up stocks at bargain prices. Getting in near the end of a bear market offers the greatest chance for profit. The prices will most likely fall before they recover, so the investor should be prepared for some short term loss. Short-selling is also an investment strategy during bear markets. Short selling involves selling stock that you do not own in the anticipation of further price drops, so that when it comes time to deliver you can buy the stock for less than you sold it. Fixed return investments such as CAs and bonds can be used to generate income during a bear market. So called 'defensive stocks' are also safe to buy at any time. These include government owned utilities that provide necessities no matter what state the economy is in.
Stock Splits
One of the alluring myths that surrounds the stock market is the prospect that a certain stock may split, giving stock holders twice as many shares as before. What is poorly understood by the outsider, though, is that although the investor has more stock after a split, the value of each share is reduced. For example, if a corporation decides to split its stock 2-for-1, it issues one new share for each outstanding one. At the same time, the value of each share is cut in half. So the stock holders now hold twice as many shares but the total value is the same as before the split. A stock split is like receiving 2 five-dollar bills for a single ten-dollar bill. Same value – twice as much paper. Why would a company do this? A lot of it has to do with investor psychology. The price-per-share of a stock may be so high that the average investor feels it is out of his reach. A stock split reduces the price so that it may be more affordable to smaller investors. In reality, the small investor could have bought a smaller number of pre-split shares for the same price, but the appeal of buying a $20 stock as opposed to a $60 may be strong for some investors. Stocks can be split by a number of ratios but the most common are 2-for-1, 3-for-2, and 3-for-1. Stocks can also be reverse-split – the company reduces the number of outstanding shares so that each stock holder has fewer shares than before. Reverse stock splits are less common, but can be used for several reasons: the price per share may be so low that it appears as a poor investment; the company may be attempting to stave off possible de-listment on the stock exchange; to push out minority stockholders; or as a way to go private. Advantages Lower prices per share can result in greater liquidity – stocks are easier to sell at lower prices and there is less of a bid/ask spread. This is especially true for stocks that are priced in the hundreds of dollars – small investors view them as out of their budget and the high bid/ask spreads (the difference between buying and selling prices) can put off bigger investors. Other advantages have to do with investor psychology. A split is usually seen as a bullish indicator – stock prices are increasing and the company is doing well financially. There is usually a short-term rally around a stock which splits, but the market tends to normalize after a short period. On the downside, a split may cause investors to expect more about how the company performs. If these expectations are not met investor confidence may be shaken and the result could be a drop in share prices. The bottom line is a stock split does nothing to affect the worth or performance of a company. It may be nice to own more shares, but in the end your 2 five-dollar bills are still worth the same as your ten-dollar bill.
Trading Strategies
There are two basic ways to trade the stock market – shooting in the barrel or using strategies to determine which stocks to buy, when to sell, and how to protect your investment dollars. Needless to say, strategies outperform barrel shooting by a large margin. There are, however, hundreds of trading strategies to choose from. Of all of these there are a couple of tried and trued methods that have worked well for investors over many years. The beginning investor is advised to investigate some of these basic strategies and see for himself how they perform. New strategies can be explored once the basic ones are well-understood. HedgingHedging is a way of protecting an investment by reducing the risks involved in holding a particular stock. The risk that the price of the stock will drop can be offset by buying a put option that allows you to sell at the stock at a particular price within a certain time frame. If the price of the stock falls, the value of the put option will increase. Buying put options against individual stocks is the most expensive hedging strategy. If you have a broad portfolio a better option may be to buy a put option on the stock market itself. This protects you against general market declines. Another way to hedge against market declines is to sell financial futures like the S&P 500 futures. Dogs of the DowThis is a strategy that became popular during the 1990s. The idea is to buy the best-value stocks in the Dow Industrial Average by choosing the 10 stocks that have the lowest P/E ratios and the highest dividend yields. The companies on the Dow Index are mature companies that offer reliable investment performance. The idea is that the lowest 10 on the Dow have the most potential for growth over the coming year. A new twist on the Dogs of the Dow is the Pigs of the Dow. This strategy selects the worst 5 Dow stocks by looking at the percentage of price decline in the previous year. As with the Dogs, the idea is that the Pigs stand to rebound more than the others. Buying on MarginBuying on margin means to buy stocks with borrowed money – usually from your broker. Margin gives you more return than if you were to pay the full cost outright because you receive more stock for a lower initial investment. Margin buying can also be risky because if the stock loses value your losses will be correspondingly greater. When buying on margin the investor should have stop-loss orders in place to limit losses in the case of market reversal. The amount of margin should be limited to about 10% of the value of your total account. Dollar Cost and Value AveragingDollar cost averaging involves investing a fixed dollar amount on a regular basis. An example would be buying shares of a mutual fund on a monthly basis. If the fund drops in price the investor will receive more shares for his money. Conversely, when the price is higher, the fixed amount will buy fewer shares. An alternative to this is value averaging. The investor decides on a regular value he wishes to invest. For example, he may wish to invest $100 a month in a mutual fund. When the price of the fund is high he puts a higher dollar amount in the fund and when the price is low he spends less money. This averages out his investment to the original $100 per month. Value averaging almost always outperforms dollar cost averaging as a percentage return on the money invested. When used as part of a broader trading strategy it can help secure the growth of your investment fund.
Stock Trading Signals
By following a trading system, market condition will at times be favourable to buy and at other times be favourable to sell. Clearly defined conditions give 'signals' that the educated investor can read and act on. Signals are not as crucial for the long term investor. For these people, market conditions and the value of particular companies can be watched on a daily basis. For day-traders, however, signals are crucial for acting quickly on stock market movements. Investors who treat trading as a full-time job have the time to watch the market movements for signals. Oftentimes, however, signals can be automated and integrated into trading software. The investor can choose which signals to be alerted about and they will automatically appear on screen. Software signals are usually only available by subscription and some services charge hundreds of dollars a year for a complete package. This includes trading software and access to up-to-the-minute charts for the latest information about the stock market. Investors who don't have the time to watch the market closely can subscribe to services which publish signals on a daily or hourly basis. These services may employ market analysts who may follow several indicators to arrive at a particular signal. More commonly, however, their systems are completely automated with signals being generated by software which examines market conditions. Some of these services have a better track record than others – it's a good idea to research them before signing up. With any third-party signal provider it pays to know how the signals are being generated. Since there are such a large number of market indicators some of them may contradict each other. In addition, a particular indicator may send out conflicting signals depending on the time frame. Market conditions also play an important part on the accuracy of indicators. During upswings in the market, for example, trend indicators will send out buy signals but longer-term oscillator indicators will view the market as being overbought and send out a sell signal. Generally speaking, trend indicators are most accurate during trend conditions and oscillators are best during times of transition. Both types of indicators are often in variance with the other. To overcome these problems, try to find a signal generator that uses at least 3 market indicators for verification. Signals that are verified by 3 different indicators are strong and tend to be accurate. It is also important to look at signals from varying time frames. An upswing may simply be a short term correction and the market may afterwards continue its downward movement. Taking a broad view of market conditions allows you to see these variations more clearly. Depending on the type of service you sign up for, signals can be delivered by email on a daily basis, available for viewing on a website, or be integrated into your trading software so that popups appear on your screen for particular signals that you are watching. Companies which provide signals usually offer their services on a monthly basis. Some are quite expensive – as high as several hundred dollars a month. These are obviously aimed at the professional trader but other services are also available at more reasonable costs. The value of these services has to be weighed by the individual investor. They can be a great time saver but they may also encourage laziness when it comes to analyzing the market. A knowledgeable trader should have the tools necessary to judge the effectiveness of a signal system and do some of the calculations himself to keep on top of the market.

UNDERSTANDING THE STOCK MARKET

2007-09-24T03:04:00.000-07:00

Understanding the stock market

Stock Markets The term ‘Stock Market’ is commonly used to encompass both the physical location for buying and selling stocks as well as the overall activity of the market within a certain country.
When we hear an expression such as ‘The stock market was down today’ it refers to the combined activity of many stock exchanges. ‘Stock Exchange’ is the correct term for the physical location for trading stocks. Each country may have many different stock exchanges and usually a particular company’s stocks are traded on only one exchange, although large corporations may be listed in several different locations.
Stock exchanges exist throughout the world and it is possible to buy or sell stocks on any of them. The only restriction is the opening hours of each exchange. Stock markets closely follow the economic health of a country. When the economy is doing well the market is bullish. Bull markets occur during times of high economic production, low unemployment and low inflation. Bear markets, on the other hand, follow downtrends in the economy. Inflation and unemployment are rising and stock prices are falling.
Fluctuations in stock prices are also driven by supply and demand, which in turn are determined to a large extent on investor psychology. Seeing a stock rise in price may cause investors to jump on the bandwagon and this rush to buy drives the price even faster. A falling price can have the same effect. These are short term fluctuations. Stock prices tend to normalize after such runs.
The stock exchange is only one of many opportunities to invest. Other popular markets include the Foreign Exchange Market (FOREX), the Futures Market, and the Options Market.
The FOREX is the biggest (in terms of value of trades) investment market in the world. FOREX traders buy one currency against another and can profit from small changes in value. Most FOREX trades are entered and exited in one 24 hour span, and traders have to keep a close watch on the market in order to make profitable trades.
The Futures Market is a market of contracts to buy and sell goods at specified prices and times. It exists because buyers and sellers of goods wish to lock in prices for future delivery, but market conditions can make the actual futures contract fluctuate considerably in value. Most investors in the futures market are not interested in the actual goods – only in the profit that can be realized in trading the contracts.
The Options Market is similar to the Futures Market in that an option is a contract that gives you the right (but not the obligation) to trade a stock at a certain price before a specified date. They can be traded on their own or purchased as a form of insurance against price fluctuations within a certain time frame.
All three of these markets are quite risky and require considerable knowledge and experience to prevent substantial losses. They also require close attention to market movements. Stocks, on the other hand, are less risky because movements of the market are usually gradual. Although short term investment strategies are possible, most view stocks as long term investments.

Types of Trading

The stock market is a reliable indicator of the actual value of companies which issue stock. Values of stocks are based on verifiable financial data such as sales figures, assets and growth. This reliability makes the stock market a good choice for long term investing – well-run companies should continue to grow and provide dividends for their stockholders.
The stock market also provides opportunities for short-term investors. Market skittishness can cause prices to fluctuate quite rapidly and investor psychology can cause prices to fall or rise – even if there is no financial basis for these variations.
How does this happen? News reports, government announcements about the economy, and even rumours can cause investors to become nervous or to suspect that a company will increase in value. When the price starts to fall or rise, other investors will jump on the bandwagon, causing an even faster acceleration in price. Eventually the market will correct itself, but for savvy short-term investors who watch the market closely, these price changes can offer opportunities for profitable trading.
Short term traders are divided into 3 categories: Position Traders, Swing Traders, and Day

Traders.

Position Traders

Position trading is the longest term trading style of the three. Stocks could be held for a relatively long period of time compared with the other trading styles. Position traders expect to hold on to their stocks for anywhere from 5 days to 3 or 6 months. Position traders are watching for fundamental changes in value of a stock. This information can be gleaned from financial reports and industry analyses. Position trading does not require a great deal of time. An examination of daily reports is enough to plan trading strategies. This type of trading is ideal for those who inve
st in the stock market to supplement their income. The time needed to study the stock market can be as little as 30 minutes a day and can be done after regular work hours.

Swing Traders

Swing traders hold stocks for shorter periods than position traders – generally from one to five days. The swing trader is looking for changes in the market that are driven more by emotion than fundamental value. This type of trading requires more time than position trading but the payback is often greater. Swing traders usually spend about 2 hours a day researching stocks and executing orders. They need to be able to identify trends and pick out trading opportunities. They usually rely on daily and intraday charts to plot stock movements.
Day trading is commonly thought of as the most risky way to play the stock market. This may be true if the trader is uneducated, but those who know what they are doing know how to limit their risk and maximize their profit potential. Day trading refers to buying and selling stock in very short periods of time – less than a day but often as short as a few minutes. Day traders rely on information that can influence price moves and have to plot when to get in and out of a position. Day traders need to be rational and analytical. Emotional buyers will quickly lose money in this type of trading. Because of the close attention needed to market conditions, day trading is a full-time profession.

Stock Brokers

Brokers handle most of the buying and selling on the stock market, and the average investor will use a brokerage service to handle his trades. There is a broad range of brokerage services available. There are brokers who offer many services for aiding their clients meet their investment goals. These ‘full-service brokers’ can give advice about which stocks to buy and sell and often have full research facilities for analyzing market trends and predicting movements.
These perks are not free – full service brokers charge the highest commission rates in the industry. Whether or not you decide to use a full-service broker depends on your level of self-confidence, your knowledge of the stock market and the number of trades you regularly make.
Investors who wish to save on commission fees can use a ‘discount broker’. These brokers charge much lower commissions but don’t offer advice or analysis. Investors who like to make their own trading decisions and those who make many trades often use discount brokers for their transactions. Some traders may use both types – there is no reason why you can’t have two brokers.
The least expensive way to trade stocks is usually with an online brokerage. Both full-service and discount brokers usually offer discounts for orders placed online. Some brokers operate exclusively online and offer even better rates.
No matter what type of broker you choose, you must first open an account. Each broker sets their own requirements for maintaining an account balance but it is usually between $500 and $1000. When choosing a broker look at the fine print and find out about the fees involved. Some brokers charge an annual maintenance fee while other charge fees whenever your account balance falls below the minimum.
There are two basic types of brokerage accounts. A ‘cash account’ offers no credit – when you buy you pay the full amount of the stock price. A ‘margin’ account, on the other hand, allows you to buy stock ‘on margin’ – the brokerage will carry some of the cost of the stock. The amount of margin varies from broker to broker but the margin must be protected by the value of the client’s portfolio. If the portfolio falls below a specified amount the investor will have to add more funds or sell some stock. Margin accounts allow investors to buy more stock with less cash thereby realizing greater gains (and losses). Because they involve more risk than cash accounts, margin accounts are not recommended for inexperienced traders.
Before choosing a particular broker the investor should carefully consider his needs. Does he wish to receive advice about which stocks to buy? Is he uncomfortable making trades on the Internet? If so, he should go with a full-service broker. Technology savvy investors who have the knowledge and confidence to make their own trading decisions are better off with a discount broker.
After deciding which type, compare a few competitors. There can often be significant differences in costs when all the annual fees and brokerage rates are factored in. Try to gauge how many trades you expect to make in a year, how much cash you can deposit into your account, whether you wish to use margin accounts and which services you need. This information will allow you to compare the actual costs of various brokers.

Penny Stocks

Penny stocks are low-priced stocks All of these factors – low price, lack of standards, and lack of stability – make penny stocks one of the riskiest investments around. It is true that if a company succeeds the payoff will be great, but the vast majority of penny stocks end in bankruptcy. Other reasons why penny stocks are risky include...
- Lack of information about the company. Companies listed in the Pink Sheets or the OTCBB do not have to issue financial statements. Most companies also have little reportable history.
- Low liquidity. Penny stocks are infrequently traded, so finding a buyer may be difficult. The price may have to lowered substantially to interest someone in buying the stock.
- Potential fraud. Due to their unregulated nature, penny stocks are often used by con artists who sell them through spam email or off-shore brokers.
So penny stocks are risky but are there any benefits to them?
Not all penny stocks are frauds or companies facing bankruptcy. Some represent hard-working businesses that are struggling to meet the requirements to get listed on Nasdaq or the NYSE. Investing in these companies offers real growth potential – you have the opportunity to get in at the ground floor and ride all the way to the top.
The difficulty is finding which companies have this growth potential. Getting this information requires a lot of research and unless you are willing to take the time to personally investigate a company, you may again be the victim of fraud. Some companies specialize in offering ‘inside information’ about companies selling penny stock, but they may simply be fronts for pushing a particular stock on unsuspecting investors.
There are two ways to play the penny stocks – do research or play craps. The low cost of these stocks means that you will not lose a lot money if the company goes under, and as long as you are prepared to lose this money penny stocks can be an interesting and fun addition to any portfolio. It must be stressed, however, that penny stocks should only make up a small portion of any portfolio. The odds are that most penny stocks will end up in a total loss.
If you would like to buy penny stocks you need to find a broker that will place an order for you. Many brokers will not cover them because of the difficulties in tracking them, but some online brokers specialize in penny stocks. Regulations require brokers to receive written confirmation from the client concerning the transaction. The broker is also required to give the client a document outlining the risks of speculating with penny stocks.
Finally, the broker must disclose the current market price of the stock and the amount of compensation the firm receives for the trade. Monthly statements must be sent to the client detailing market value of each penny stock in the account.

Fundamental Analysis

Although the raw data of the Financial Statement has some useful information, much more can be understood about the value of a stock by applying a variety of tools to the financial data.
Earnings per Share
The overall earnings of a company is not in itself a useful indicator of a stock’s worth. Low earnings coupled with low outstanding shares can be more valuable than high earnings with a high number of outstanding shares. Earnings per share is much more useful information than earnings by itself. Earnings per share (EPS) is calculated by dividing the net earnings by the number of outstanding shares. For example: ABC company had net earnings of $1 million and 100,000 outstanding shares for an EPS of 10 (1,000,000 / 100,000 = 10). This information is useful for comparing two companies in a certain industry but should not be the deciding factor when choosing stocks.

Price to Earning Ratio

The Price to Earning Ratio (P/E) shows the relationship between stock price and company earnings. It is calculated by dividing the share price by the Earnings per Share. In our example above of ABC company the EPS is 10 so if it has a price per share of $50 the P/E is 5 (50 / 10 = 5). The P/E tells you how much investors are willing to pay for that particular company’s earnings. P/E’s can be read in a variety of ways. A high P/E could mean that the company is overpriced or it could mean that investors expect the company to continue to grow and generate profits. A low P/E could mean that investors are wary of the company or it could indicate a company that most investors have overlooked.

Either way, further analysis is needed to determine the true value of a particular stock.

Price to Sales Ratio

When a company has no earnings, there are other tools available to help investors judge its worth. New companies in particular often have no earnings, but that does not mean they are bad investments. The Price to Sales ratio (P/S) is a useful tool for judging new companies. It is calculated by dividing the market cap (stock price times number of outstanding shares) by total revenues. An alternate method is to divide current share price by sales per share. P/S indicates the value the market places on sales. The lower the P/S the better the value.

Price to Book Ratio

Book value is determined by subtracting liabilities from assets. The value of a growing company will always be more than book value because of the potential for future revenue. The price to book ratio (P/B) is the value the market places on the book value of the company. It is calculated by dividing the current price per share by the book value per share (book value / number of outstanding shares). Companies with a low P/B are good value and are often sought after by long term investors who see the potential of such companies.

Dividend Yield

Some investors are looking for stocks that can maximize dividend income. Dividend yield is useful for determining the percentage return a company pays in the form of dividends. It is calculated by dividing the annual dividend per share by the stock’s price per share. Usually it is the older, well-established companies that pay a higher percentage, and these companies also usually have a more consistent dividend history than younger companies.
The investor has many tools at hand when making decisions about which stocks to buy. One of the most useful of these is fundamental analysis – examining key ratios which show the worth of a stock and how a company is performing.
The goal of fundamental analysis is to determine how much money a company is making and what kind of earnings can be expected in the future. Although future earnings are always subject to interpretation, a good earning history creates confidence among investors. Stock prices increase and dividends may also be paid out.
Companies are required to report earnings on a regular basis and stock market analysts examine these figures to determine if a company is meeting its expected growth. If not, there is usually a downturn in the stock’s price.
There are many tools available to help determine a company’s earnings and its value on the stock market. Most of them rely on the financial statements provided by the company. Further fundamental analysis can be done to reveal details about the value of a company including its competitive advantages and the ratio of ownership between management and outside investors.
Financial Statements

Every publicly traded company must publish regular financial statements. These statements are available in printed form or on the Internet. All statements must include an income statement, a balance sheet, an auditor’s report, a statement of cash flow, a description of the business activities and the expected revenue for the coming year.

Auditor’s Report

The auditor’s report is one of the most important sections of the financial statement. The auditor is an independent Certified Public Accountant firm which examines the company’s financial activities to determine if the financial statement is an accurate description of the earnings. The auditor’s report contains the opinion of the auditor concerning the accuracy of the financial statement. A financial statement without an independent auditor’s report is essentially worthless because it could contain misleading or inaccurate information. An auditor’s report, although not a guarantee of accuracy, at least provides credibility to the financial statement.

Balance Sheet

Another important section of the financial statement is the balance sheet. This is a ‘snapshot’ as it were, of the financial condition of the company at a single point in time. The balance sheet shows the relationship between assets (cash, property and equipment), liabilities (debt) and equity (retained earnings and stock).

Income Statement

The income statement shows information about the revenue, net income, and earnings per share over a period of time. The top line of the income statement shows the amount of income generated by sales, underneath which the costs incurred in doing business are deducted. The bottom line show the net income (or loss) and the income per share.

Cash Flow

The statement of cash flow is similar to the income statement – it provides a picture of a company’s performance over time. The cash flow statement, however, does not use accounting procedures such as depreciation – it is simply an indicator of how a company handles income and expenses. A statement of cash flow shows incoming and outgoing cash from sales, investments, and financing. It is a good indicator about how the company is run on a day-to-day basis, how it handles creditors and from where it receives growth capital.

Technical Analysis

Technical analysis is the art and science of examining stock chart data and predicting future moves on the stock market. Investors who use this style of analysis are often unconcerned about the nature or value of the companies they trade stocks in. Their holdings are usually short-term – once their projected profit is reached they drop the stock.
The basis for technical analysis is the belief that stock prices move in predictable patterns. All the factors that influence price movement – company performance, the general state of the economy, natural disasters – are supposedly reflected in the stock market with great efficiency. This efficiency, coupled with historical trends produces movements that can be analyzed and applied to future stock market movements.
Technical analysis is not intended for long-term investments because fundamental information concerning a company’s potential for growth is not taken into account. Trades must be entered and exited at precise times, so technical analysts need to spend a great deal of time watching market movements.
Investors can take advantage of both upswings and downswings in price by going either long or short. Stop-loss orders limit losses in the event that the market does not move as expected.
There are many tools available to the technical analyst. Literally hundreds of stock patterns have been developed over time. Most of them, however, rely on the basic concepts of ‘support’ and ‘resistance’. Support is the level that downward prices are expected to rise from, and Resistance is the level that upward prices are expected to reach before falling again. In other words, prices tend to bounce once they have hit support or resistance levels.

Charts

Technical analysis relies heavily on charts for tracking market movements. Bar charts are the most commonly used. They consist of vertical bars representing a particular time period – weekly, daily, hourly, or even by the minute. The top of each bar shows the highest price for the period, the bottom is the lowest price, and the small bar to the right is the opening price and the small bar to the left is the closing price. A great deal of information can be seen in glancing at bar charts. Long bars indicate a large price spread and the position of the side bars shows whether the price rose or dropped and also the spread between opening and closing prices.
A variation on the bar chart is the candlestick chart. These charts use solid bodies to indicate the variation between opening and closing prices and the lines (shadows) that extend above and below the body indicate the highest and lowest prices respectively. Candlestick bodies are coloured black or red if the closing price was lower than the previous period or white or green if the price closed higher. Candlesticks form various shapes that can indicate market movement. A green body with short shadows is bullish – the stock opened near its low and closed near its high. Conversely, a red body with short shadows is bearish – the stock opened near the high and closed near the low. These are only two of the more than 20 patterns that can be formed by candlesticks.

Technical Analysis – Indicators and Patterns

When glancing at charts the untrained eye may simply see random movements from one day to the next. Trained analysts, however, see patterns that are used to predict future movements of stock prices. There are hundreds of different indicators and patterns that can be applied. There is no one single reliable indicator, but when taken into consideration with others, investors can be quite successful in predicting price movements.

Patterns

One of the most popular patterns is Cup and Handle. Prices start out relatively high then dip and come back up (the cup). They finally level out for a period (handle) before making a breakout – a sudden rise in price. Investors who buy on the handle can make good profits.
Another popular pattern is Head and Shoulders. This is formed by a peak (first shoulder) followed by a dip and then a higher peak (the head) followed again by a dip and a rise (the second shoulder). This is taken to be a bearish pattern with prices to fall substantially after the second shoulder.

Indicators

Moving Average

The most popular indicator is the moving average. This shows the average price over a period of time. For a 30 day moving average you add the closing prices for each of the 30 days and divide by 30. The most common averages are 20, 30, 50, 100, and 200 days. Longer time spans are less affected by daily price fluctuations. A moving average is plotted as a line on a graph of price changes. When prices fall below the moving average they have a tendency to keep on falling. Conversely, when prices rise above the moving average they tend to keep on rising.

Relative Strength Index (RSI)

This indicator compares the number of days a stock finishes up with the number of days it finishes down. It is calculated for a certain time span – usually between 9 and 15 days. The average number of up days is divided by the average number of down days. This number is added to one and the result is used to divide 100. This number is subtracted from 100. The RSI has a range between 0 and 100. A RSI of 70 or above can indicate a stock which is overbought and due for a fall in price. When the RSI falls below 30 the stock may be oversold and is a good time to buy. These numbers are not absolute – they can vary depending on whether the market is bullish or bearish. RSI charted over longer periods tend to show less extremes of movement. Looking at historical charts over a period of a year or so can give a good indicator of how a stock price moves in relation to its RSI.

Money Flow Index (MFI)

The RSI is calculated by following stock prices, but the Money Flow Index (MFI) takes into account the number of shares traded as well as the price. The range is from 0 to 100 and just like the RSI, an MFI of 70 is an indicator to sell and an MFI of 30 is an indicator to buy. Also like the RSI, when charted over longer periods of time the MFI can be more accurate as an indicator.

Bollinger Bands

This indicator is plotted as a grouping of 3 lines. The upper and lower lines are plotted according to market volatility. When the market is volatile the space between these lines widens and during times of less volatility the lines come closer together. The middle line is the simple moving average between the two outer lines (bands). As prices move closer to the lower band the stronger the indication is that the stock is oversold – the price should soon rise. As prices rise to the higher band the stock becomes more overbought meaning prices should fall. Bollinger bands are often used by investors to confirm other indicators. The wise technical analyst will always use a number of indicators before making a decision to trade a particular stock.

Bull Markets and Bear Markets

The stock market moves up and down every day, but when movements continue downwards for a period of time the market is referred to as a ‘bear market’. Upward moving markets are ‘bull markets’. If a particular stock is doing well, it is said to be bullish. If it is losing value it is bearish.
Bull and Bear are the terms to describe the general conditions of the stock market. These do not refer to short term fluctuations – a bear market is commonly understood as one where prices of key stocks have fallen in price by 20% or more over a period of at least 2 months. Even during a bear market, however, prices may increase temporarily. Bull markets are the opposite of bear markets – they are indicated by a rise in prices of key stocks over a certain period of time.
Usually stock market conditions reflect the state of the economy. During bull markets the economy is doing well, unemployment is low and interest rates are reasonable. Bear markets usually occur during times of economic slowdown. Investors lose confidence and companies may begin laying off workers. At the extremes, an exaggerated bear market can lead to a crash brought on by panic selling. An exaggerated bull market can be caused by over-enthusiasm of investors. It leads to a market ‘bubble’ that will eventually burst.
Although most money can be made during bull markets, there are also opportunities during bear markets. Knowing the characteristics of each type of market allows investors to profit from them. As would be expected, when the market is bullish investors wish to buy up stock. The economy is doing well and people have extra money which they wish to invest in stocks. This creates a situation of short supply which drives up prices even higher. During bear markets, on the other hand, prices are falling so investors wish to unload their stocks and put their money in fixed-return instruments such as bonds. As money is withdrawn from the stock market, supply exceeds demand which drives prices down even further.
It is easiest to make money during a bull market. Getting in right at the beginning will allow you to make the most profits. During a bull market any dips in the market are temporary and should soon be corrected. The upward rising prices can’t go on forever, though, so the investor needs to be able to gauge when the market reaches its peak and sell at that time.
Bear markets represent opportunities to pick up stocks at bargain prices. Getting in near the end of a bear market offers the greatest chance for profit. The prices will most likely fall before they recover, so the investor should be prepared for some short term loss. Short-selling is also an investment strategy during bear markets. Short selling involves selling stock that you do not own in the anticipation of further price drops, so that when it comes time to deliver you can buy the stock for less than you sold it.
Fixed return investments such as CAs and bonds can be used to generate income during a bear market. So called ‘defensive stocks’ are also safe to buy at any time. These include government owned utilities that provide necessities no matter what state the economy is in.

Trading Strategies

There are two basic ways to trade the stock market – shooting in the barrel or using strategies to determine which stocks to buy, when to sell, and how to protect your investment dollars. Needless to say, strategies outperform barrel shooting by a large margin. There are, however, hundreds of trading strategies to choose from. Of all of these there are a couple of tried and trued methods that have worked well for investors over many years. The beginning investor is advised to investigate some of these basic strategies and see for himself how they perform. New strategies can be explored once the basic ones are well-understood.

Hedging

Hedging is a way of protecting an investment by reducing the risks involved in holding a particular stock. The risk that the price of the stock will drop can be offset by buying a put option that allows you to sell at the stock at a particular price within a certain time frame. If the price of the stock falls, the value of the put option will increase.
Buying put options against individual stocks is the most expensive hedging strategy. If you have a broad portfolio a better option may be to buy a put option on the stock market itself. This protects you against general market declines. Another way to hedge against market declines is to sell financial futures like the S&P 500 futures.

Dogs of the Dow

This is a strategy that became popular during the 1990s. The idea is to buy the best-value stocks in the Dow Industrial Average by choosing the 10 stocks that have the lowest P/E ratios and the highest dividend yields. The companies on the Dow Index are mature companies that offer reliable investment performance. The idea is that the lowest 10 on the Dow have the most potential for growth over the coming year. A new twist on the Dogs of the Dow is the Pigs of the Dow. This strategy selects the worst 5 Dow stocks by looking at the percentage of price decline in the previous year. As with the Dogs, the idea is that the Pigs stand to rebound more than the others.

Buying on Margin

Buying on margin means to buy stocks with borrowed money – usually from your broker. Margin gives you more return than if you were to pay the full cost outright because you receive more stock for a lower initial investment. Margin buying can also be risky because if the stock loses value your losses will be correspondingly greater. When buying on margin the investor should have stop-loss orders in place to limit losses in the case of market reversal. The amount of margin should be limited to about 10% of the value of your total account.

Dollar Cost and Value Averaging

Dollar cost averaging involves investing a fixed dollar amount on a regular basis. An example would be buying shares of a mutual fund on a monthly basis. If the fund drops in price the investor will receive more shares for his money. Conversely, when the price is higher, the fixed amount will buy fewer shares. An alternative to this is value averaging. The investor decides on a regular value he wishes to invest. For example, he may wish to invest $100 a month in a mutual fund. When the price of the fund is high he puts a higher dollar amount in the fund and when the price is low he spends less money. This averages out his investment to the original $100 per month. Value averaging almost always outperforms dollar cost averaging as a percentage return on the money invested. When used as part of a broader trading strategy it can help secure the growth of your investment fund.

TEENS AND THEIR FINANCES

2007-08-07T07:52:00.001-07:00

TEENS AND THEIR FINANCES!

Today, teenagers are contributing significantly to the growth of the Nigerian economy. They have access to much more money than previous generations and are better placed to lead more successful lives financially. They spend, save, earn, and borrow millions of naira each day and are responsible for the success of many businesses today. Many of the spending or savings habits that teenagers develop are most influenced by their peers, parents and the media and unfortunately, too few teenagers are exposed to a curriculum
in financial planning. Teenagers have developed the grandiose lifestyles of many adults as they insist on designer item and have little or no urge to begin to contribute towards their future financial success.
Although the dreams of today’s teenagers are very tall, many have failed to appreciate the need to work hard and to save regularly towards those dreams. The question “what can I do from now to achieve my dreams” is left unanswered till late. While skills and talents are left in teenagers untapped, saving and planning for financial success are left entirely to parents to handle. It is imperative that planning for your children is part of your overall financial strategy and introducing children to the principles of good financial planning at an early age keeps you safe in the knowledge that the wealth that you are creating can continue into future generations. Teenagers who are able to get lessons in financial planning, and money management are more likely to become adults who can make sound financial decisions, avoid excessive debts and manage income and expenses to reach their financial goals. Indeed, equipped teenagers are Nigeria’s hope to sustainable development.

WHAT CAN I DO IN MY YOUTH TO ENSURE THAT I AM WEALTHY?

1. Increase Your Knowledge Of Investing. Teenagers should be encouraged to read books and articles on money management and finances. An example of such books is “Rich Dad, Poor Dad” by Robert Kiyosaki, in which he advocates financial independence by means of investing. Knowledge is progressive and the more we acquire, the better prepared we are for the challenges that life brings.

2. Curb Frivolous Spending. We can choose to spend, save or invest our money. Spending is inevitable but basic questions must be asked before money is spent. Some of the questions that we might consider before buying/spending (irrespective of our ages) are:
Why do I want the item?
Will I use it more that once?
Do I really need the item I want to buy?
Will a different purchase make me just happy?
How will this purchase affect my long –term financial goals?
Is the price reasonable or can I get it cheaper / on sale?
Will I be better of saving /investing the money?

3. Avoid Peer Pressure. Many teenagers want things because their peers have those items. If the questions above were considered honestly, many purchases may be averted. Avoid shopaholic friends, they probably have more money than you or are not aiming at the great future that you are. Your long term goals are very important and people always want to associate with others who are successful, so become successful yourself and people would want to adapt to your style. Forget about what is in vogue, style constantly changes. Buy an item because you like it, can afford it and it’s purchase does not diminish your ability it save. Do not try to keep up with the Jones’, they will always be there.

4. Get Holiday Jobs. Holiday jobs provide income, which could be invested long term. Teenagers would get the opportunity to earn money and would have the choice to spend, save or invest portions of that income. This teaches teenagers how to manage their own money based on their needs, wants, and goals. Holiday jobs also give teenagers the opportunity to try out what they could be doing for the better part of their lives. I know of a girl who wanted to become a Doctor and after working at a hospital during a particular summer holiday, changed her mind. She fainted at the sight of blood and and found the smell of medicine overwhelming. Her experience helped to set her

5. Use Your Skills And Talents. Athletes today give us a clearer picture of the opportunity available to those who use their skills / talent. I doubt that as a little boy, Kanu Nwankwo imagined that his skills would make him a phenomenal success, his talent would be the gateway for his fortunes and his passion for children would make him a mentor to many people. Teenagers are pregnant with potentials. Some of them can bake, cook, play the piano, type, ride horses, braid hair, draw, paint, the list is endless. Teenagers should not bury their skills or wait much longer to use them; they should be encouraged to develop and to earn income from the talent they have.

6. Get Started. So, what is holding that teenager back? Parents should encourage their children not to consume all the money they receive either as allowances or as income. A portion of the money that children receive should be invested. Parents and guardians should also give gifts of investments rather than toys. Monetary gifts should be invested, as children do not need to use these in the short term.

7. Invest. Do something! There are so many more investment opportunities in the market place than one can decide to survey. However little money is available to each, there is an opportunity to invest your money without hassle. There are short-term instruments mainly in the money market and long- term instruments in both the capital market and in real estate. Begin with a saving account and then invest at regular intervals. Every bank has a savings product for children and parents should be encouraged to save for their children. At IBTC Chartered Bank, we have an account called “The IBTC CHESS”, which is a children education savings scheme (money market instrument) offering a higher interest rate than is obtainable on an ordinary savings account. With as little as N5, 000, children can open the IBTC CHESS which allows them multiple withdrawals. IBTC has capital market instruments, which children can invest in. These are essentially long term instruments such as “The IBTC CHESS Portfolio”, which is a portfolio of stocks held in trust for children and managed by IBTC Asset Management Limited on their behalf. IBTC also provide mutual funds – The IBTC Nigerian Equity Fund and The IBTC Ethical Fund, which are investments vehicles that pool investors fund to purchase a variety of securities with each investor owning units (a part) of the entire investment portfolio. Children and teenagers may invest in these instruments for the long term growth of their funds. These investments would give them both growth and income on their funds.
The benefits of investing in these capital markets instruments like the mutual fund, which IBTC offers, are numerous. Among them are: Full-time professional management of fund; Diversified portfolio (between different asset classes); Liquidity; New investors can join easily; Convenience; Easy exit; Ease of monitoring investment (availability of on-line portfolio viewing) e.t.c.

Conclusion. Wealth must be trans-generational. It is an absolute waste for parents to work hard, invest so much money and not equip their children with the tool of financial discipline.
While teenagers seem inexperienced, the foundations for their financial success can be laid now. From little savings and investments, millions of Naira can be returned and financial success can be promoted. Teenagers have longer time frames for investing but waiting one year could be the difference between being wealthy and just comfortable. Investing early could set teenagers above their peers. Teenagers have money, talents, and dreams; they should be encouraged to use their money to set the stage for their success, their talents to create wealth and their dreams to become more successful than their peers. Teenagers should actively participate in investing; they should use their finances wisely.

DEVELOPING A SAVING HABIT IN A HARD ECONOMY

2007-08-07T07:37:00.001-07:00

Developing a Saving Habit in a Hard Economy.

No matter what your achievement is in life, no matter what you have gathered as wealth, if you don’t have a saving and investment, you will end up in poverty.
No matter ho w small you savings and income is, if you don’t have a saving habit, you will die in poverty. I have a real life story to prove this, it goes thus:
“In 1923, a group of our greatest leaders and richest businessmen held a meeting at the Edgewater beach hotel in Chicago. Among them were Charles Schwab, head of the largest independent steel company; Samuel Insull, president of the world’s largest utility; Howard Hopson, head of the largest gas company; Ivar Kreuger; president of the International Match company; one of the world’s largest at that time; Leon Frazier; president of the bank of international settlement; Richard Whitney; president of the New York Stock Exchange; Arthur Cotton and Jesse Livermore, two of the biggest stock speculators; and Albert Fall, a member of President Harding’s cabinet. Twenty five years later, nine of them (those listed above) ended as follows. Schwab died penniless after living for five years on borrowed money. Insull died broke living in a foreign land, Kreuger and Cotton also died broke. Hopson went insane. Whitney and Albert Fall were just released from prison. Fraser and Livermore committed suicide. I doubt if anyone can really say what happened to these men. If you look at the date1923, it was just before the 1929 market crash and the great depression, which I suspect had a great impact on these men and their lives. The point is this: Today we live in times of greater and faster change than these men did. I suspect there will be more booms and bursts in the next 25 years that will parallel the ups and downs these men faced. I am concerned that too many people are focused too much on money and not their greatest wealth, which is their education. If people are ready to be flexible, keep an open mind and learn, they will grow richer and richer through the changes. If they think money will solve problems, I am afraid those people will have a rough ride. Intelligence solves problems and produces money. Money without financial intelligence is money soon gone.
Most people fail to realize that in life, it is not how much money you make; it is how much money you keep
It may really be hard, but for anyone whose future is more important to him than the present, then, it should be an adventure. As EXPENSES cater for your present, so also SAVINGS cater for your future, which is more important than your present. Savings is very important in the school of wealth creation. Anyone can hardly create wealth without savings. It is not important that you are not in a well paid job, but that you are a super saver and not a super spender. It is not what you collect as salary that matters, but what you save; because what you save will save you and what you keep will keep you. Savings is the first step in the ladder of wealth. A person that does not know how to save is working for the person who knows how to save in the long run, because no condition is permanent; there is no assurance that your well paid job will not leave you one day even if you don’t want to leave it and be left with what you have saved and the experiences that you have gathered from your job. Savings should be a compulsory lifestyle for anyone who wants to survive in a hard economy. There have been people that are wealthiest of men in a boom economy, but because they refuse to follow closely this cardinal principle of wealth creation: SAVINGS. No matter the amount of money you have now, if you don’t put aside savings for the future time, poverty will pay you a visit one day.
If you come from an average background, you need this habit of savings to succeed legitimately. Everybody is entitled to his own opinion, but this is a matter of principle and wealth creation. The truth is in every man’s life, there are high period in which the flow of money into your hands is uncontrollably much, the money is just coming left, right, central, back and front but there are also low periods for everybody when the cash is not coming as expected, it is what you have in savings that could possibly help out because in hard economy, everybody will be singing the song of no money, so there is hardly anybody that will want to borrow you money in a hard economy. It is not what you earn but what you save that matters. A man taking N7500 and then a man collecting N750000 are the same if both do not have savings as at the day they are both sacked from that paid employment because they will both come to square one. Cut your expenses and increase your savings.
You cannot manage your life without a reservoir. Savings is vital aspect of a man’s life, without it there cannot be meaningful investment. Once your income is equal to your expenditure, then there is a big problem at hand, because it means there is no savings and therefore the individual is not secured.
Many people in this part of the world believe that savings is for those people who earn fat, saving habit is sure, that is necessary for everybody.
The best time to cultivate the saving habit is during childhood. Olden day’s parents used to teach this unknowingly by making sure that their children kept the most part of whatever they earn in a safe called kolo in Yoruba. It is enclosed in such a way that it discourages the child from taking money from there. The child who grows up in the environment of this type of habit usually has a saving habit.
But no matter the environment under which you grow up, you can cultivate the habit of savings if you want to because what you save saves you and what you keep, keeps you.

SECRETS OF MAKING YOUR CHILDREN MILLIONAIRES AT AGE 21

2007-08-07T07:37:00.000-07:00

Secrets of making your children millionaires at Age 21.
Research shows that parents are the best teachers for their children. Your children requires a measure of financial education if the formal typical education you are spending so much on will not be useless in the long run. It is increasingly becoming clearer that the type of education our children are receiving is grossly out of tune with the financial realities of today. If we must drop the garment of poverty that has so much become second skin, we must begin to teach our children about wealth acquisitions and its management. Research shows that our children’s best chance of becoming millionaires is through owing his or her business and building it to a successful level. Do you know you can determine that your child will be struggling for money at 21 or will be in control of money? You can by following these simple rules:
Rule 1:
Teach your child about money from at least age three by making a small box for him to save part of the money given to him by anybody.
Rule 2:
Try and open a bank savings account for him or her with the money he has contributed by himself, then you may or you may not add to it (money).
Rule 3:
Buy shares you realize from his naming ceremony and birthday parties to hand over to him or her when he or she is 21 years old. (At least N15, 000 worth of shares)
Rule 4:
Teach him or her how to write and stick to a budget from age ten .
Rule 5:
Teach the child about stocks and shares at age thirteen
Rule 6:
Teach the child about real estate at age fifteen.
Rule 7:
Teach the child about business at age sixteen and seventeen and let him set up a small business at age eighteen.
It is quite disheartening that an average Nigerian feeds on less that a dollar per day yet most does want theirs to suffer the same thing they are suffering, while not change and think about how to make your children better off not only by sending them to school, but by teaching what it takes to be rich.
When I was in the north, there was a boy that worked in my office, one day, he said he wants to sell his shares, lo and behold; the boy has the right to become an executive director in Wema Bank by the virtue of his value and the volume of his shares. I got into discussion with this young man and I quickly realized that his Dad had started buying shares for him when he was twenty three old.
To be more practical now, let’s take a look at Emmanuel’s parents who bought First bank’s share for him when he was five years old from the money realized from birthday party organized for him at that age.

How Emmanuel’s Parents turned him a Millionaire at 21.
Emmanuel’s parents (Not real name) bought N20, 000 worth of First Bank’s shares for him in 1992 the rate of N2. This indicates that Emmanuel started with 10,000 units of First Bank’s shares in 1992. This calculation excludes dividends which is an extra benefit.
By virtue of how the stock has grown in the stock market, Emmanuel now has a total share of 429,130 multiplied by the price of First Bank shares at September 7, 2006 which is N41, 10K, the total of Emanuel’s worth is N17,637,243 the total dividends Emmanuel collected throughout the fifteen years is over one million naira. Therefore Emmanuel became N17 million richer in life by just N20, 000 invested for him by his parents and Emmanuel is just twenty years old.
Why not be wise and invest for your children today in the stock market. Be money wise.

FINANACING SMALL AND MEDIUM ENTERPRISES.

2007-08-07T07:34:00.000-07:00

FINANCING SMALL AND MEDIUM ENTERPRISES
IN DELTA STATE
(A CASE STUDY OF ISOKO NORTH LOCAL GOVERNMENT AREA)

BY

AJAEGBA ONOS CHRISTIAN
MAT.NO: 40830

A RESEARCH WORK SUBMITTED TO THE DEPARTMENT OF BUSINESS ADMINISTRATION, DELTA STATE UNIVERSITY, ABRAKA, NIGERIA

IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF BACHELOR OF SCIENCE (B.Sc)

DECEMBER, 2004
CERTIFICATION

We the undersigned hereby certify that this research work was undertaken by Ajaegba, Onos Christian under our supervision and is adequate in scope and quality for the partial fulfillment of the requirement of the award of Bachelor of Science (B.Sc) in Business Administration of the Delta State University, Abraka, Nigeria.

_____________________ _________________
V.I.O. ODIRI DATE
(Project Supervisor)

_____________________ _________________
DR. F.A. ADIDU DATE
(Head of Department)

_____________________ _________________
External Supervisor DATE
DEDICATION

MRS FELICIA OGHENEKOME AJAEGBA. If not for the power of a praying mother, I wonder where I would have been today. Mum, you are a mother indeed.
ACKNOWLEDGEMENT
Special thanks to my brothers Paul, Emmanuel, Amos and Simeon who stood by me all through because they had so much belief and confidence in my abilities.
A big thank you to my sisters, Naomi, Faith and Justina who were so caring and full of understanding.
Rev (Dr.) A.A. Adams in particular saw great qualities in me and he appreciated my ingenuity and so did the entire congregation of Our Saviour Chapel, so I say thank you to them all.
My friend’s name, Walter O. Glory has been reoccurring, so I say thank you to him for challenging my intellect continually just as Ogbeta Igho and Iviero Bernard do. I want to appreciate Mrs. Joy Ajaegba who was always concerned about how fast I was making progress in this research, to Eto Enakeno whose guide was of paramount importance, to Augustina Edi who took time to type this research findings and to my project supervisor, V.I.O. Odiri who took out time despite his tight schedule to attend to me.
To you all, I say thank you, again and again and again…

ABSTRACT
The importance of small and medium enterprises in the development of a country cannot be underestimated neither can if be over-emphasized. Thus, this research seeks to unravel how these SMEs are financed with particular reference to SMEs in Isoko North Local Government Area of Delta State.
The researcher also took time to look at the problem of lack of information as well as lack of education which affect these SME operators and how it can be curbed. Information was sought through the use of structured questionnaire and personal interview from the respondents reached in Isoko North. These data collected was collated using the simple percentage statistical technique and the rank correlation method of data analysis. This is because it is a measure of the correlation that exists between ranks and a measure of the degree of association between variables that we would not have been able to calculate otherwise.
Chapter five which is the last chapter highlights some of the findings and attempts to make meaningful suggestions and feasible recommendations for improved productivity. These include government educating SME operators of sources of finance, banks providing venture capital to SMEs, classification of SME by types as a form of ranking in credit allocation, and some others which will be of meaningful help if implemented.
TABLE OF CONTENT
TITLE PAGE - - - - - - - i
CERTIFICATION- - - - - - - - ii
DEDICATION- - - - - - - - - iii
ACKNOWLEDGEMENT- - - - - - - iv
ABSTRACT - - - - - - - - - v
TABLE OF CONTENT- - - - - - - - vii

CHAPTER ONE
INTRODUCTION
1.1 Background to the study- - - - - - - 1
1.2 Statement of the problem- - - - - - 2
1.3 Objective of the study- - - - - - - 4
1.4 Significance of the study- - - - - - 5
1.5 Scope of the study- - - - - - - 6
1.6 Statement of hypothesis- - - - - - - 6
1.7 Methodology- - - - - - - - 7
1.8 Limitation of the study- - - - - - - 8
1.9 Definition of terms- - - - - - - 8

CHAPTER TWO
LITERATURE REVIEW
2.1 Historical Development of Small Enterprises- - - 12
2.2 Characteristics and Features of Small and Medium Enterprises 15
2.3 Characteristics of Small and Medium Enterprises - - 17
2.4 Importance of Small and Medium Enterprises- - - 23
2.5 Forms of Small and Medium Enterprises- - - - 24
2.6 Issues in Business Finance- - - - - - 31
2.7 Assessment of Financial Records- - - - - 32
2.8 Sources of Finance- - - - - - - 33
2.9 Requirements of Banks for Granting Loans - - - 37
2.10 Promotional Activities by Government - - - - 38
2.11 The Impact of National Development Plans
On Small and Medium Enterprises- - - - - 40
2.12 Problems of Managing Small and Medium
Enterprises in Nigeria - - - - - - 42

CHAPTER THREE
METHODOLOGY
3.1 Research Design - - - - - - - 43
3.2 Population Sample - - - - - - 43
3.3 Sampling Methods - - - - - - 44
3.4 Research Instruments - - - - - - 44
3.5 Validity and Reliability of Instrument - - - 45
3.6 Data Analysis Techniques - - - - - 45
3.7 Statement of Hypothesis - - - - - 46

CHAPTER FOUR
DATA ANALYSIS AND PRESENTATION
4.1 Introduction - - - - - - - 47
4.2 Data Analysis - - - - - - - 48
4.3 Testing of Hypothesis - - - - - - 53
CHAPTER FIVE
5.1 Summary of Findings - - - - - - 57
5.2 Conclusion - - - - - - - - 58
5.3 Recommendations - - - - - - 59
Bibliography - - - - - - - 63
Appendix- - - - - - - - 65
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Nigeria has always been a strategic country in Africa, with its enormous economic and political power. Unfortunately, a history of prolong military rule left the Nation’s civil institutions in ruin, the economy grossly mismanaged, and individual values completely misplaced thus preventing Nigeria from attaining its full potential. Consequently, due to this uncertainty, quite a number of investors have been wary of doing business in Nigeria and with Nigerians. With the successful transition to civil rule in 1999, the cloud of uncertainty cleared up a bit and in 2003 when the sustainability of its democracy was tested, a significant number of investors are expected to be interested in investing in the Nigerian economy.
As part of its strategies to revive the economy and uplift the standard of living of Nigerians, the government has identified sectors within the economy with potential for rapid growth. One of such sectored strategies is the development of Small and Medium Scale Enterprises (SMEs) SMEs are known to encourage people centered development, which helps in alleviating poverty, creating wealth and employment, and stemming rural – urban drift.
However without finance, SMEs cannot be a reality. To alleviate this problem of finance, the Federal Government of Nigeria set up a number of Development Banks.

1.2 STATEMENT OF THE PROBLEM
The purpose of this research is related to the financing of SMEs.
SME is a global concept that can be seen from different points of view depending on the angle from where it is been considered; either from the developed or developing countries. The problems that are inherent with SMEs depends mainly either on the government of such a country where it is been managed or the entrepreneur that is managing such an enterprise.
For the growth and development of SMEs, it can be enhanced by the government through the schemes that has been put in place as it has been in Nigeria in general and in Delta State in particular. But there are some problems that equally hinder this growth and development of SMEs especially with reference to finance, and these among others are the reasons for this research. These problems include;

1. LACK OF FUND: - As a result of lack of finances for starting up of SMEs despite the government schemes, ideas of many entrepreneurs die and this has been one of the major problems hindering the growth and development of business in Isoko North.
2. LACK OF INFORMATION: - Apart from the fact that lack of funds hinders the growth and development of SMEs, lack of information also do. The government of Nigeria has put many schemes in place as it is been made available to these entrepreneurs through the commercial and development banks. But these schemes are not taken advantage of because of lack of information.
3. LACK OF EDUCATION: A great percentage of entrepreneurs are uneducated; and as a result, they often complain of the procedure they need to go through to obtain loans from banks.
Furthermore, as a result of their illiteracy, they also have the problem of accountability. They are hardy able to give proper account of how they make use of the available funds.
The research therefore is to make it know to them that obtaining loans from bank can be easier than they ever thought in addition to commercial banks helping to finance SMEs.

1.3 OBJECTIVE OF THE STUDY
The objective of this study is to acquaint existing and potential SMEs with the sources of funds available and problems arising from the establishment and growth of SMEs in Nigeria and particularly in rural areas and to offer possible means of ensuring efficient use of these funds so that SMEs can grow rapidly.

Some of the objectives of this research are;
i. To help those already in business to expand through better means of financing.
ii. To identify less risky sources of finance.
iii. To examine the ways and manners through which working capital funds are raised and managed for the operation of the enterprise.
iv. To make feasible recommendations to the government in terms of its involvement in the financial policy of small business with reference to rural areas this needs development.

1.4 SIGNIFICANCE OF THE STUDY
The outlay of this study is important because at this stage of development, the government of Nigeria is currently placing emphasis on the development of SMEs, since if has been discovered to possess the likely solution to the rural – urban drift of her citizens.
The study shall particularly probe into sources of fund to SMEs in Delta State with Isoko North Local Government in view.

1.5 SCOPE OF THE STUDY
Small and Medium Enterprises is fairly wide in scope, but in this study, we will take a look at it from the Nigerian perspective and how it affects the area of study.
The study also takes a look at the various forms and sources of business finance including the procedures for obtaining loans and on the future prospects of funding SMEs in our society despite the associated problems.

1.6 STATEMENT OF HYPOTHESIS
For the purpose of this research, hypothesis shall be formulated and tested on the following areas:-
i. The appropriate step to take in the procurement of funds depends largely on the type of fund being sourced for on the one hand and the capacity of the SME on the other hand.
ii. Loans sought for it granted by the financial houses or from where it is sought from would create the means of expansion and employment would be enhanced.
iii. The facilities provided by financial houses will stimulate entrepreneurs to invest.

1.7 METHODOLOGY
This study will be based on data collected from both primary and secondary sources. These will include the use of questionnaires, personal interview and observation as well as getting information from ready made reports.
The researcher hopes to use the simple percentage statistical tool in the course of this research because of its nature which is simply based on primary and secondary data and then the rank correlation.

1.8 LIMITATIONS OF THE STUDY
It is assumed that this research work has been carried out before. As a result, websites were consulted, textbooks, annual reports, seminars, workshops and conference materials which discussed the relevance of financing small and medium enterprises were also consulted.
Because this study was done intermittently with lectures, examination and private study, limited time was at my disposal for carrying out this study.
However, as the researcher, I will put in the best of my knowledge and understanding to capture and unravel the main purpose and objective of this study.

1.9 DEFINITION OF TERMS
(i) FINANCE: - According to the New Encyclopedia Britannica, “Business finance is concerned with the raising of funds and its management in business enterprise. The scope of such business finance may also include the making of policies that affect a firm’s financial status. i.e. its ability to raise funds through the sale of its securities. This act or process therefore can be or is referred to as Financing.
(ii) SOURCE OF FINANCE:- Source of finance refers to the various avenue and means through which businesses can raise fund for its activities either on a small or large scale.
(iii) FORMAL CAPITAL MARKET: - This refers to all modern financial institutions such as commercial banks, investment banks & government credit schemes from which businesses can get loan assistance.
(iv) INFORMAL CAPITAL MARKET: - This refers to all traditional financial institutions from which the small and medium enterprises can borrow funds. E.g. Relations, Business associates, personal savings etc.
(v) SMALL AND MEDIUM ENTERPRISES
The term SMEs differ from industry to industry, country to country and as a result there is no universally accepted definition for it.
Definition change over time and more importantly it depends on a country’s level of development. In the Nigerian context, as a result of the differences in policy focus, different government agencies supply different definitions for SMEs but all the definitions share common ideas that SMEs are generally low in terms of;
(a) Number of Persons Employed
(b) Amount of Capital Investment
(c) Annual Business Turnover
However, for the purpose of this study, we shall consider the definition Small and Medium Scale Industries and equity investments scheme (SMIEIS).
SMIEIS defines SME as “Any enterprise with a maximum asset base of two hundred million naira excluding land and working capital and with the number of staff employed not less than ten or more than three hundred.

(iv) SMALL AND MEDIUM INDUSTRIES DEVELOPMENT AGENCY (SMIDA)
An umbrella agency with a mandate to coordinate and support the development of the SME sector in the economy.
CHAPTER TWO
LITERATURE REVIEW
2.1 HISTORICAL DEVELOPMENT OF SMALL SCALE ENTERPRISE
The development of modern business and of governments’ effort towards promoting industrialization in the country only started about five decades ago.
Before this time, the few industries that existed were the primitive rural and traditional industries with occupations such as pottery, weaving, basket making, cloth dyeing to mention but a few. These used to keep people employed. These industries were considered non – competitive and this limited the development of agricultural raw materials for their industries. Banks, most of which were also foreign owned only assisted businesses that promoted such interest and most of these businesses were foreign owned.
It was not until February 1972, that the disturbing trend described earlier was arrested by the promulgation of the Nigerian enterprises promotion decree popularly known as Indigenization.
Before the promulgation of the decree, the government had found it necessary to direct financial institutions through the central bank of Nigeria’s credit guidelines to extend certain percentage of their total loans and advances to indigenous borrowers that is, business in which Nigerian equity participation is not less than fifty percent.
As a result of the indigenization decree, most businesses became at least sixty percent owned by Nigerians. It was therefore possible for banks to achieve full compliance with the directive of lending to indigenous borrowers without necessarily extending facilities to small scale enterprises which were wholly owned by Nigerians and for which the policy was originally designed. Based on this, a sizeable number of small and medium enterprises are an essential ingredient for a competitive economy.
In 1979 banks were directed to extend at least ten percent of their lending to indigenous borrowers. For small and medium scale enterprises, from 1980’s fiscal year the percentage allocations was increased to 16% and this was shared on this basis.

TABLE 1
ANNUAL TURNOVER (N)
PERCENTAGE
25, 000 and Below
1.6%
25,000 – 50,000
2.0%
50,000 – 100,000
3.2%
100,000 – 200,000
4.0%
200,000 – 500,000
5.2%

Source: Central Bank of Nigerian Monetary Policy Guideline.

Although loan finance may often not be the most appropriate form of external capital for businesses, particularly during times of high dorminal interest rates, for many of them, it is the best that is available. The dominant suppliers of finance are the commercial banks, and it is most known form of overdrafts which are more flexible and convenient than long term loans and they are usually cheaper.
Other more specialized forms of finance, such as leasing, hire purchase and factoring are also available mostly from the merchant banks. While over the years, most banks have been able to meet the required level of lending to the indigenous borrowers, they were unable to meet the prescribed percentage reserved for small and medium enterprises.
According to CBN annual reports, actual lending by commercial banks to SMEs for the fiscal years of 1989, 1990 & 1991 were N185 million, N206.7 million and N351.3 million respectively. These compares with commercial bank aggregate loans and advances of N8.6 billion, N10.3 billion and N11.1 billion for 1989, 1991 respectively; representing a percentage allocation to SMEs for the 3 years of 21.5 percent, 20 percent and 3.16 percent respectively.

2.2 CHARACTERISTICS AND FEATURES OF SMES
There are a whole lot of enterprises which fall under small scale in Nigeria. They include;
1. Agro – Allied
2. Information and Communications Technology
3. Manufacturing
4. Educational establishment
5. Services
6. Tourism and leisure
7. Solid mineral
8. Construction
And any other activity that may be determined by the Bankers Committee from time to time.

FEATURES OF SMEs
1. It concentrates on the need of the immediate environment. By striving hard to satisfy the community in which it operates.
2. Rate of failure is high because it is mostly dominated by sole traders who are often reluctant to invest much in some profitable business ventures thereby retarding future growth.
3. The amount of capital available to the SMEs affects its expansion. They depend on loans from financial institution for the initial take off and running of business.
4. Due to the low level of education of the entrepreneur, business skill, marketing strategies and techniques are inadequately explored. They do not organize and attend managerial short
5. Courses to broaden their knowledge in business opportunities.
6. Organizational structure or hierarchy of SMEs is too short. Line of communication is one way only.

2.3 CHARACATERISATION OF SMALL AND MEDIUM
ENTERPRISES.
SMEs are variously defined in Nigeria, as in other economies, on the basis of one or all of the following:

(a) The size of amount of investments in assets, excluding real estate.
(b) Their total annual turnover, and
(c) The number of employees.
Within this framework, the characterization or the classification of enterprises as “medium” and “small” naturally varies from one economy to another. And from one period to another in the same economy. In Nigeria, the National Council of Industry, under the Federal Ministry of Industries, periodically revises the classification of SMEs. Bank of Nigeria and the Nigerian Association of Small Scale Industries (NASSI), adopt classifications that vary from those of the Federal Ministry of Industries. There is however, greater concurrence of opinion when it comes to defining SMEs in terms of assets values than on any other basis. This is because in case of an economic downturn, the impact on turnover and the number of people employed is greater than the impact on assets value. For instance, during a depression, there is a tendency for turnover to fall substantially and the number of employees to drop, but assets value may remain unchanged.
From table 2 below, SMEs are divided into Medium Scale (MSE), Small Scale (SSE) and Micro Enterprise (ME). The Federal Ministry of industries defines a medium scale enterprise as “Any company with operating assets less than 200 million, and employing less than 300 persons”.
A small – scale enterprise, on the other hand is one that has total assets less than 500 million, with less than 100 employees. Annual turnover is not considered in its definition of an SME.
The National Economic Reconstruction Fund (NERFUND) defines a SSE as one whose total assets is less than 10 million, but made no reference either to its annual turnover or the number of employees. These and other definition of NASSI, the National Association of Small and Medium Enterprises (NASME), the Central Bank of Nigeria (CBN) and other institutions are indicated in table 2.
TABLE 2:
Definition of SME by Nigerian Institutions

Asset Value (M)
Asset Turnover (M)
No. of employees
Institution
MSE
SSE
ME
MSE
SSE
ME
MSE
SSE
ME
Fed. Min. of Indus.
<200
<50
n.a
n.a
n.a
n.a
<300
<100
<10
Central Bank
<150
<1
n.a
<150
<1
n.a
<100
<50
n.a
NERFUND
n.a
<10
n.a
n.a
n.a
n.a
n.a
n.a
n.a
NASSI
n.a
<40
<1
n.a
<40
n.a
n.a
3-35
n.a
NASME
<150
<50
<1
<500
<100
<100
<100
<50
<10

Source: World Bank, SME Country Mapping 2001.

For ease of definition and in other to cover all classes of SMEs, this research will adopt the Federal Ministry of Industries definition.
In addition to these definitions, the SME sector can also be categorized in terms of cluster classifications as summarized in table 3.
TABLE 3:
SME cluster classification

Informal clusters
Organized clusters
Innovative clusters
Size of firms
Micro
Small scale
Medium scale
Skills
Low
Medium
High
Technology
None
Low
Medium to high
Innovation
Little
Medium
Medium
Competition
High
High
Medium to high
Products
Retail, Arts and Crafts, Textiles services, e.g. – Salons, Tailoring.
Manufacturing, Chemicals and Pharmaceuticals Mining,Organized Retail
Telecom, IT, specialized retail service e.g. - restaurants, entertainment
Markets
Local
Local, National West Africa
Local and National
Links with Consulting Organizations and Support Institutions
None
Limited: in – house technical training and some routine functions e.g. – Legal, Management and Technical Consultancy.
Extensive
Characteristics
Uneducated but dynamic. Sole ownership
Have technology competence, engage in training and invest in apprenticeship system. Basic education at the very least. High School Leaving Certificate or Trade Technical Certificate
Undertake technology upgrading design adaptations in response to market. Highly educated, often with a University degree or higher.

2.4 IMPORTANCE OF SMALL AND MEDIUM ENTERPRISES
The importance of SMEs cannot be over emphasized. It could be described as the pivot of business venture as most industrialized Nations of the world today started from the scratch.
In Nigeria, small businesses are very important to both private and public sectors of the economy. To the former, it satisfies the immediate need of the potential consumers, and to the latter, it has laid the foundation that serves as a spring board for the formation of the medium and large businesses which has enhanced the society’s standard of living.
According to the Industrial Research Unit (IRU), the following are the importance of Small Scale Enterprises in Nigeria.

1. TOOLS FOR ECONOMIC GRWOTH: - The decision of a businessman is an effort to solve the problem(s) confronting the society on a small scale.
2. EMPLOYMENT OPPORTUNITY: - This helps to arrest unemployment problem. The rural – urban drift has been minimized as a result of SMEs.
3. SKILL ACQUISITION: - This is guaranteed through efficient management as it is often the deciding factor in the success or failure of a business.
4. INDEPENDENCE: - Less reliance on imported goods that can be produced locally. This serves the government from importation problems.
5. INNOVATION AND CREATIVITY: - SMEs are important source of innovation and creativity and they have lower cost of operation than large firm. This has served as a breeding ground for entrepreneurship.

2.5 FORMS OF SMALL SCALE ENTERPRISES
According to C.C.S. Okeke, there are basically four recognized forms of SMEs;
1. Sole Proprietorship
2. Partnership
3. Co – Operative Societies
4. Limited Liability Companies

1. SOLE PROPRIETORSHIP
This is a one man business. His functions includes one of organizing and decision making on the location of the business, capital procurement for the business and above all he bears the ultimate risk of the business.

ADVANTAGES
1. He enjoys privacy of his business. His record and account are not disclosed to the public.
2. He has an inter-personal relationship with his employees and can discuss his problems with them.
DISADVANTAGES
1. He bears the risk all alone.
2. limited expansion due to capital inadequacy.
3. No advantage of large scale production.
4. Business continuity is not guaranteed after his death.

2. PARTNERSHIP
One of the way through which a sole proprietor can expand his business is to turn it into partnership. The Partnership Act of 1890 set down in general terms the circumstances in which persons are regarded as been in partnership and the legal requirement of such arrangement .In setting up partnership, there must be at least two persons and at most twenty persons.

ADVANTAGES
1. There is more resources for expansion .This is because member contribute money for running the business. This is an added advantage over the sole proprietorship which’s chances of expansion is limited.
2. Risk of business is shared among the partner in their agreed profit and losses sharing ratio.
3. Since the administrative process is shared, the business stand a better chance of efficient running and management.

DISADVANTAGES
1. In case of business failure, there is the disadvantage of unlimited liability to be borne by the partner with the exemption of others whose liabilities are limited
2. Misunderstanding may arise as people of different business interest may come together to form partnership.
3. The business may not continue due to death of a member or the withdrawal of some members from the partnership.
3. CO-OPERATIVE SOCIETY

In Nigeria and in many other West African countries, there are many type of a co-operative society. There are the consumer’s and the producer’s co-operative society.
A consumer’s co-operative society is a business association of consumers who pull their resources together to purchase goods on wholesale basis, store and resell the goods to non – members at the prevailing retail prices.
A producer’s co-operative society on the other hand is an association of producers. They pull resources together to effect a large scale production. It is most common in the agricultural sector where farmers form these societies to effect large scale production.
A third however is the credit and thrift co-operative society where the low income earners who find difficulty in savings come together.

ADVANTAGES
i. Members have their common interest to protect, so they work hard to achieve profit which still accrues to them.
ii. Purchases are made from the society by the members. The greater the purchase, the greater the share of profit to members.
iii. It is democratic in nature as each member has a right to vote. This gives them a sense of belonging.

DISADVANTAGES
i. Elected members may lack managerial skills required for efficient management.
ii. Non restriction of members may allow people with questionable character to gain membership. This can lead to the down fall of the society.

4. LIMITED LIABILITY COMPANY (JOINT STOCK)
This is a unified association of individuals for achieving a particular objective while carrying on business activities. It comprises mainly the shareholders who bear the business risk. It is a separate legal entity and its membership ranges from two to fifty for private, and seven people upwards for public companies.

ADVANTAGES
i) The shareholders enjoy the advantage of their properties not being sold in case of liquidation.
ii) Expansion is easier as capital is raised from different sources.
iii) There is perpetual succession as the death of a member does not affect the business continuity.

DISADVANTAGES
i) No privacy as all records and statement of accounts are made public.
ii) No tax advantage as with sole proprietorship
iii) Owners are devoid of management of the business.

2.6 ISSUES IN BUSINESS FINANCING
It is necessary to generally comment on some fundamental issues that affect the funding of business operations. Three of such issues that deserve attention in this research are;

i. Determining the amount and type of funds required
ii. Defining the relevant opportunity, set of sources, and instruments for funding available to a business.
iii. Determining the appropriate steps to take to procure the required fund.

2.7 ASSESSMENT OF FINANCIAL NEEDS
The first task in business financing is to access the financial requirement of the business both in terms of the amount and in terms of the structure of fund needed.
The typical business requires two types of funds. They are:
(1) Capital Investment Fund: - These are required for the acquisition of fixed assets like lands, buildings, plants, machinery and equipment.
(2) Working Capital Funds: - These are short term funds required to finance the routine operation of a business to buy raw materials, to pay salaries and wages and to procure office supplies. Adequate arrangement must be made for both types of funds, if project implementation difficulties are to be avoided.
Many businesses suffer in Delta State because of inadequate provision of working capital. Working capital is the blood stream which sustains life in business operations. If the flow of that blood is not maintained at optimum levels, corporate operations will grow anaemic and become vulnerable to all forms of avoidable difficulties.
2.8 SOURCES OF FINANCE
Sources of finance can either be internal or external. The former refers to personal saving whereas the latter are the savings of others.
In Nigerian and many other developing countries of the world, capital for investment is generally from traditional sources. More modern sources of finance are through the credit schemes, the commercial banks and other specialized institutions.

TRADITIONAL SOURCES OF FINANCE
i) Personal Savings: - In going into business for oneself, one source of money to invest will be from personal savings. An advantage of using this money is that no interest has to be paid on it.
One thing to note here is that personal savings consist of everything of value possessed by the individual. E.g. personal property, which can be used as collateral in obtaining loan from banks.
ii) Loan From Relatives: - This refers to funds obtained from relatives as well as friends and close associates. It usually comes in the form of interest free loans which are on short term basis. It can also be in the form of gifts both in cash and in kind directed at improving the working capital condition or improving the capital base of the business.
iii) Osusu (Thrift):- This is an association in which members contribute stipulated amount of money on a regular basis and money collected can be;
(a) Passed over to members in rotation until every member gets.
(b) Member can apply for interest free loan whenever the need arises.
(c) Amount collected less commission is returned to the members at the end of the stipulated period.

MODERN SOURCES OF FINANCE
i) Commercial Bank: - Banks endeavour to invest in projects which are economically feasible and viable. Unfortunately, most Small Scale enterprises are unable to meet up with these requirements. This is because most Small Scale businesses do not carry out feasibility studies and lack the necessary managerial expertise.
However, owing to government’s policies of rapid development and industrialization, the banks have been increasingly pressurized to lend long term loan to small scale enterprises.
ii) Credit Institutions: - They are in the form of credit schemes set up in all the state of the federation by the various governments in order to give loan to small scale enterprises. The procedure for the granting of the loan is so unnecessarily long that small scale business owners are discouraged.
iii) Hire Purchase: - This provides the hirer the use of an asset coupled with option to purchase. It has become a convenient form of finance for small scale enterprises created by the hire purchase act of 1965, and by this source, small scale enterprises can enter into hire purchase agreement whereby they can both obtain the use of an asset and make instalmental payments without having to incure a large capital outlay.
iv) Leasing: - This is a situation where a person known as the lessee pays rental to the owner known as the lessor for an asset and obtain the use of the asset for a period of time, without the right of ownership. Leasing as a method of procuring asset is probably the most significant development that has taken place in the field of finance. Originally, the emphasis was on real estate leasing, but during the past years, firms have been able to lease any type of asset. It is one of the major methods of external and modern financing being used by SMEs.
v) Specialized Institutions. (Development Banks: - In Nigeria, there are three specialized financial institutions from which small scale enterprises have benefited in varying degrees. These are;

a) Nigerian Industrial Development Bank (NIDB)
b) Nigerian Bank for Commerce and Industry (NBCI)
c) Nigerian Agricultural and Co-operative Bank (NACB)
2.9 REQUIREMENTS OF BANKS FOR GRANTING LOANS
The necessary requirements for the granting of loans to SMEs are as listed below.
a) Collaterals: - Business owners who have a high credit standing, do much of their borrowing in an unsecured basis. Collaterals may include improved real estate. Life insurance policies with cash surrender value or marketable securities are often used while securing loans.
b) Deposit Balance: - The amount of deposit balance standing to the customers’ credit will determine how much loan a banker can grant to SMEs. Most times, SMEs have some good deposit balance.
c) Economic Conditions: - The upward and downward turn of the society’s economic condition in most cases determine the lending rate and condition of giving loans to banks.
d) Past Experience: - This is one key factor that banks take into consideration when they have go give business owners loan.

2.10 PROMOTIONAL ACTIVITIES BY GOVERNMENT
The government policy on SMEs was spelt out in the country’s second National Development Plan (1970 – 1974). Where it was stated that “In furtherance of government policy to increase rapidly the present level of indigenous ownership and participation in manufacturing active support will be given to the development of SMEs”.
However, the government promotional activities include those provided by its agencies and schemes such as;
a) Industrial Development Centre (IDC):- Their main aim is to provide free consultative and extension services as well as managerial skill training for proprietors, managers, and technical staff of SMEs.
b) Small Scale Industrial Credit Scheme: - The SSCI was established to ease financial problems of SMEs. Their funds are normally in form of advances from federal and state government. Their loans are usually given under liberal conditions.
c) Income Tax Relief Act: - This is in decree number 22 of 1971. This act encourages the establishment of industries considered to be beneficial to Nigerians. The act granted tax relief to pioneer industries. It attracts foreign capital to Nigeria in the development of her natural resources and expanding her industrial capital.
d) Small and Medium Industries Equities Invest. Scheme: - SMIEIS is a scheme whereby banks can contribute ten percent of their annual profit before tax (PBT) for ploughing into the financing of SMEs.
e) Small and Medium Industries Development Agency: - SMIDA is an umbrella body or agency that was formed to coordinate the development of the SME sector.
2.11 THE IMPACT OF NATIONAL DEVELOPMENT PLANS ON
SMALL AND MEDIUM ENTERPRISES.
Since 1946, small scale enterprises have been accorded high priority by the federal and state governments. For example, the ten - years plan of development. (1946 – 1955), the five – years national development plan: 1960 – 1964; 1970 – 1974; 1975 – 1980; 1981 – 1985; the structural adjustment programme (SAP) – 1986, the establishment of the national directorate of employment, (NDE) – 1987, the national economic reconstruction fund (NERFUND) 1989 and the establishment of financial institutions.
The above was seen as a sine-qua non in the fact that the Large Scale Enterprise (LSEs) have failed to accelerate the pace of economic development in Nigeria because of the multinational control and the recognition of the significant importance of SSEs in terms of employment opportunity generation, increased and intensive utilization of locally available raw materials, local technology development, the contribution to gross domestic product (GDP) etc.
Unfortunately, despite the above recognition and the various government’s effort at improving SMEs through the different development plans, economic programmes and policies, SSEs are still in a state of “POOR” and “EPILEPTIC” condition. It is as a result of this that we begin to wonder what the impact of these policies has been on the growth and survival of SMEs in order to help fine – tune future policies to constitute strategies for the achievement of its aims.
This essentially is the kernel of this research. The researcher attempts to find and answer to the attendant question as to whether policies in and all other schemes erected by the government constitute strategies for their achievement or whether the various hypothesis advanced, policies formulated and programme designed are mere academic exercises.
2.12 PROBLEMS OF MANAGING SMEs IN NIGERIA
1. An inadequate credit facility obstructs industrialization particularly for local producers. Commercial and merchant bankers are usually reluctant to lend to small businesses due to their inability to repay such loans.
2. Because of inadequate infrastructures, there is increase both in the initial and operational cost of running SMEs.
3. An inadequate local raw material forces the infant industries to depend on imported raw materials which are costly and which takes time to get to hand.
4. Usually, entrepreneurs who engage in SMEs do not have appreciable technological background or experience due to the lack of training or know – how.
5. Resistance of most proprietors to change and adapt to the dynamic nature of the society poses another problem. Managers and proprietors for example, may not appreciate the introduction of new machines for production.
6. Entrepreneurs find problems in marketing their products as well as the techniques to identify proper distribution channels.
CHAPTER THREE
METHODOLOGY
3.1 RESEARCH DESIGN
The research methodology focuses on the methods adopted in collecting and analyzing data in the course of the study.
This chapter presents the population sample, sampling methods, research instruments, validity and reliability of instruments and the data analysis techniques or methods as well as the designing of the questionnaire.

3.2 POPULATION SAMPLE
For the purpose of this study, the population is defined as all the operators of Small and Medium Enterprises (SMEs) in Isoko North Local Government Area.

3.3 SAMPLING METHODS
As a result of the need to make sure that the chosen sample represents the population and to achieve randomness the simple percentage method of analysis will be used or the descriptive analysis where necessary.
The size and nature of the population used makes it impossible for every one that operates a SME to have an equal chance of being selected. Although the probability sampling method would have been more accurate and scientific but the non-probability sampling method is however used because it is most suitable and practicable in this circumstance.
Furthermore, because of the number of SME operators that could not be reached the sample size and its element are based on personal judgment.

3.4 RESEARCH INSTRUMENT
Questionnaire is usually designed in two folds, comprising of open-ended and close ended questions. In close ended questions, the response called for are limited, this is because the questions has been structured and called for specific answers which must be chosen from the alternatives that respondents are provided with.
As for the open ended questions, respondents are at liberty to structure their responses to the questions as they choose.

3.5 VALIDITY AND RELIABILITY OF INSTRUMENT
We can have validity of findings and reliability of instruments. The two shall be made use of, especially the latter; thus ensuring adequate coverage by the instrument as well as designing questionnaire.
On the issue of reliability data that is collected for research, both primary and secondary must provide findings that will be consistent and that can provide similar result when reproduced. The measuring instrument must be stable, dependable and predictable for it to be reliable.

3.6 DATA ANALYSIS TECHNIQUE
For the purpose of this research, in the analysis of the data collected, the rank correlation method will be used. This is a measure of the correlation that exists between the two sets of ranks, a measure of the degree of association between the variables that we would not have been able to calculate otherwise.

3.7 STATEMENT OF HYPOTHESIS
Ho: Ps = 0 Null Hypothesis:- There is no rank correlation in the population (negative); that is, SMEs have succeeded as a result of finances available to them other than government agencies, institutions and schemes.
Hi: Ps > 0 Alternative Hypothesis:- The population rank correlation is positive; that is, SMEs have succeeded as a result of finances available to them like government agencies, institutions and schemes.
CHAPTER FOUR
DATA ANALYSIS AND PRESENTATION
4.1 INTRODUCTION
This chapter presents the findings of the research conducted through the distribution of questionnaires to eighty (80) operators of SMEs from ten (10) different communities in Isoko North Local Government Areas. This is the sample of the population.
The first session presents a detailed analysis of the responses of some significant questions which is then followed by the application of the rank correlation data analysis technique to see the relationship between variables that has to do with the hypothesis that the researcher wants to test.

4.2 DATA ANALYSIS
QUESTION
What type of business are you operating?
TABLE I
OPTIONS
NO. OF RESPONDENTS
PERCENTAGE
Sole proprietorship
65
81.25
Partnership
15
18.75
Co-operative society
-
-
Total
80
100

From table 1, it can be deduced that a great percent of the operators of SMEs in Isoko North Local Government Area are Sole proprietors. Only 18.75 percentage of the population operates as Partnership ventures and this does not give room for expansion as the death of the Sole Proprietors in most cases is the end of such businesses.
QUESTION
What was the source of your initial capital?
TABLE II
OPTIONS
NO. OF RESPONDENTS
PERCENTAGE
Personal Savings
50
62.5
Loans from Friends and Relatives
20
25
Bank Loan
-

Loan from Government Agencies
10
12.5
Total
80
100

From table II, it can be deduced that 62.5% of the population got their initial source of capital from personal savings despite the fact that they were aware of the different government schemes and institutions from where they can get loans.
Furthermore, 25% of the population got their initial source of capital from friends and relatives and non of the respondents ever got a loan from the bank, though 10% got loans from government agencies.
QUESTION
Have you ever felt the need to expand? If yes, how?
TABLE III
OPTIONS
NO. OF RESPONDENTS
PERCENTAGE
Bank Loans
10
12.5
Personal Savings
42
52.5
Borrowing from Friends
28
35.0
Loan from Government Schemes
-
-
Total
80
100

From the above table, it can be seen that the operators of SMEs in Isoko North has felt the need to expand at one time or the other, and 52.5% of them intend to expand through the ploughing back of savings made from the business, and borrowing from friends come as the second most importance way through which they feel they can expand.
It is observed that getting loans from bank for the sake of expansion is not given much credence by SME operators and getting loans from government agencies and schemes is not worth considering at all.

QUESTION
Are you aware of government schemes as regarding SMEs in Delta State?
TABLE IV
OPTIONS
NO. OF RESPONDENTS
PERCENTAGE
Yes
61
76.25
No
19
23.75
Total
80
100

It can be seen from table IV that 76.25% of the population of SME operators in Isoko North is aware of the different schemes that have been put in place to assist them and 23.75% are not aware. But out of those that are aware, the researcher intends finding out why more has ever thought that getting loans from these schemes or agencies could serve as an avenue for expansion.

QUESTION
Have you ever gone to any of these government agencies, institutions or specialized schemes established to assist SMEs?
TABLE V
OPTIONS
NO. OF RESPONDENTS
PERCENTAGE
Yes
51
63.75
No
29
36.25
Total
80
100

Out of the entire population that was used for this research i.e. the sample population, the researcher discovered from the questionnaire administered that 63.75% of the operators of SMEs in Isoko North has gone to government agencies, institutions and specialized schemes at one time or the other to seek for loan and 36.25% has not attempted it at all. The researchers want further to discover the percent of these 63.75% that were successful and those that were not.

QUESTION
How much was your initial capital?
TABLE V
OPTIONS
NO. OF RESPONDENTS
PERCENTAGE
N500,000 and Below
30
37.5
M500,000 and Above
50
62.5
Total
80
100

4.3 TESTING OF HYPOTHESIS
To test for our hypothesis, the rank correlation data analysis technique will be used.
Rank correlation is a measure of the correlation that exists between the two set of ranks, a measure of the degree of association between the variables that we would not have been able to calculate otherwise.
To test the hypothesis stated, table V will be used which represent the ranking of the amount of initial capital into two ranks, N500, 000 and below and N500, 000 and above.
For the first rank of those whose initial capital was N500, 000 and below, the researcher discovered through the questionnaire that out of the 30 respondents, 20 of them got their source of capital from sources other than the government agencies. This therefore gives.

For the second rank, 35 of the 50 respondents whose initial source of capital is above N500, 000 got their money from sources outside government agencies. This gives us

Using rank correlation therefore, we have
Co-efficient of rank correlation
Where
rs = Co-efficient of rank correlation
n = Number of paired observation
= Notation meaning “the sum of”
d = Difference between the ranks for each pair of observation

Using table further, we have,
RANK I
RANK II
DIFF B/W RANKS
(DIFFERENCE)2
30
37.5
-7.5
56.25
50
56.0
-6.0
35.0
92.25

Using the data in the table above and the equation of rank correlation, the rank correlation co-efficient of this problem can be calculated thus;
A correlation coefficient that is negative represents a perfect universe correlation. This therefore verities the fact that SME operators have succeeded as a result of finances available to them other than government agencies institutions and schemes.
CHAPTER FIVE
5.1 SUMMARY OF FINDINGS
This research is summarized in five chapters. Chapter one focused on the introductory part of the research which includes background to the study, statement of the problem, objective of the study, significance of the study, scope of the study, statement of hypothesis, methodology, and limitation of the study and definition of terms.
The second chapter focused on review of related literature: historical development of SMEs, characteristics and features of SMEs, characterization of SMEs, importance of SMEs, forms of SMEs, issues in business, assessment of financial needs, sources of finance, requirement of banks for granting loans, promotional activities by government, the impact of national development plans on SMEs and the problems of managing SMEs in Nigeria.
Chapter three focused on the research methodology. Chapter four focused on the analysis of the data generated. The hypothesis was also tested in this chapter.
Chapter five contains the summary of the whole research, conclusion and recommendation.

5.2 CONCLUSION
The research was on financing of Small and Medium Enterprises in Delta State with particular reference to operators of SMEs in Isoko North Local Government Area.
SMEs in general is found to be operated as sole proprietorship in this research, and some others as partnership and this does not give room for expansion as the death of the owner in most cases is the end of such business. Furthermore, because of the nature in which they are operated, their source of finance is usually very small and usually from personal savings and loans obtained from friends and relatives.
The researcher also discovered that though the operators of SMEs in Isoko North have felt the need to expand, they only intend to do so through the ploughing back of profit made from borrowing. Though they are aware of bank loans and other government schemes, they do not give it much credence, chiefly because of the negative outcome they have experienced at one time or the other.
A handful of the operators of SMEs in Isoko North are also uneducated and uninformed and as a result, still experience the problem of how SMEs can be financed for maximum productivity.
Based on the above stated conclusion, the researcher will want to make the following recommendation.

5.3 RECOMMENDATION
The researcher strongly believes that if the outlined recommendations are worked upon by the government agencies, banks, institutions and the operators of SMEs, financing SMEs in Delta State will be lot easier and more productivity will be achieved.
1. The government, stock exchange and financial institutions should be actively involved in educating SME promoters of the various sources of finance (especially equity type) and benefits accruable from these sources through seminars, conferences and workshops.
2. Bank should be involved in providing venture capital to SMEs. They should also be involved in building such enterprises from “cradle to conglomerates”.
Contemporary framework whereby banks exercise non-challant attitude to trouble enterprises and are only interested in appointing receiver when such business failed should be modified. Rather banks should be interested in bailing out such enterprises by injecting capital to help restore management problems.
3. The classification of the SMEs by type, viz: manufacturing, commercial and services should be made use of as a form of ranking in credit allocation. For instance, the manufacturing section should be given priority in credit allocation. This could be followed by services (technical, artisans and others) and commercial activities.
4. Existing SMEs and indigenous small manufacturing concerns with high growth potential (soap-making, paper/cellophane bags, kernel crushing firms, e.t.c.) should break away from present egocentric orientation of smallness by seeking quotation on the second-tier security market thereby requiring potential benefits arising from increased capital and listing. Entrepreneurs of small firms with slow growth rate would have to improve their performance before seeking to be listed.
5. Financial institutions that deal with SMEs should re-assess the variables by which they attempt to judge the credit worthiness of the enterprises. These institutions must recognize that rigid organizational structures in SME of about 100 employees could be a handicap rather than an asset.
6. Industrial development centres which was originally set in 1961 for the purpose of the promotion of SMEs in Nigeria should organize special follow-up training programmes for entrepreneurs that will enhance their performance.
7. Small and Medium Industries Development Agency (SMIDA) which was formed to co-ordinate the development of the SME sector should map out relevant training for SME along technical, accounting, legal, managerial and marketing lines.
8. The Delta State government should set up a unit in the Ministry of Commerce and Industry to be known as “Pre-investment Guidance Unit”. The unit should be charged with the responsibility of offering advice and guidance to new investors.
9. The government should give a wider publicity of the small scale industries credit scheme. More so, all the bureaucratic laws surrounding the scheme should be uplifted to encourage patronage by SME operators.

BIBLIOGRAPHY

Ade, O.T. (1995) “Management of Small and Medium Scale Enterprises in Nigeria”. Ibadan, Verity Printers Limited.

Adejube, M.A.(1987) “The Impact of Small Scale Industries on Nigerian Economy”. Ibadan Reprint Industries Press.

Akeredolu – Ale, E.O. (1975). “The Underdevelopment of Indigenous Entrepreneurship in Nigeria”, Ibadan, Ibadan University Press.

Asiodu, P. (1972). “Industrial Policy and Incentives in Nigeria”, The Nigerian Journal of Economics and Social Studies, (NJESS), Vol 9, No. 2, Pp 161 – 164.

CBN: “Monetary and Credit Policy Guidelines for 1991 Fiscal Year”, (Monetary Policy Circular No. 25).

Ewelike, T. (1991), “Small Scale Business Finance: The Lending Consideration” The Nigerian Banker, Jan – March.

Fatunla, G.T. and Adebayo, J.J. (1985). “Financing Aspects of Small Scale Industries Development”, The Nigerian Economic Society Annual Conference, May 14 – 16.

Federal Government of Nigeria, (1989), “The National Economic Reconstruction Fund Decree” No. 2, Lagos, FGN Press.

Odife, O. (1988) “Structural Adjustment and Economic Revolution in Nigeria”, Ibadan, Heinemann Educated Books (Nig) Ltd.

Okafor, F.O. (1983) “Investment Decisions, Evaluation of Projects and Securities”, Ibadan, Chassell Limited.
Olayinde, O.S. (1978). “Economic Survey of Nigeria” (1960 – 1965), Aromolaran Publishing Company Ltd, Pp 53 – 57.

Owualah, S.I. (1999). “Entrepreneurship in Small Business Firms”, Lagos, G – Mac Investment Limited.

Philips, T. (1991) “The Role of Banking in Small Business Firms”, Lagos, G-Mac Investment Limited.

Sule, E.I.K. (1986). “Small scale Industries in Nigeria: Concepts, Appraisal of Some Government Policies and Suggested Solutions to Identified Problems”.

Van Horne J. C. (1985) “Financial Management and Policy”, Prentice Hall of India.

Warren C. S. and Fess, P. E. (1986). “Principles of Financial and Managerial Accounting” USA, South West Publishing Company.

APPENDIX

QUESTIONNAIRE

Dept. of Bus. Admin.
Delsu, Abraka.
Nigeria.

This questionnaire is a part of a research project on the sources of finance available to operators of small and medium enterprises in Delta State.
You have been selected as one of the respondents for this purpose and you are to please answer the questions that follow honestly.
All information supplied would be treated as confidential and solely for this academic purpose.
Yours faithfully,

CHRIS AJAEGBA
INSTRUCTION

Please tick the right answer where appropriate, Yes or No, or fill in the blank space, as the case may be.

QUESTIONS
1. Date of filling:…….……………………………………………………
2. Gender: ………………………………………………………………...
3. What type of business are you operating? (a) Sole Proprietorship [ ]
(b) Partnership [ ] (c) Co-operative Society [ ].
4. How old is your business ?.....................................................................
5. What was the source of your initial capital? (a) Personal savings [ ]
(b) Loans from friends & relatives [ ] (c) Bank loan [ ] (d) Loan from government agencies [ ].
6. How much was your initial capital? (a) N500,000 and below [ ]
(b) Above N500,000 [ ].
7. Have you ever felt the need to expand? If Yes, through, (a) Bank loans [ ] (b) Personal Savings [ ] (c) Borrowing from Friends [ ]
(d) Loans from Government Agencies [ ].
8. Do you maintain any accounting system? Yes [ ] No [ ]
9. Are you aware of government schemes as regarding SMEs in Delta State? Yes [ ] No [ ]
10. Have you ever gone to any of the Government Agencies, Institution or Specialized Schemes established to assist Small Scale Business?
Yes [ ] No [ ]
What are some of the financial problems you normally face in your business?..................................................................................................
11. How do you hope to solve them?....................................……………...

Thank you.

Investing ABC

2007-08-07T07:32:00.000-07:00

Investing ABC: Teaching your kids about stocks.

More and more youngsters and teens are becoming fascinated about the stock market. Choosing stocks, tracking their performance, and making money can be exciting, challenging and rewarding.
But, as experienced investors know, the market also can be frustrating and risky, especially during volatile times. To help kids understand the risks and the rewards of the stock market, parents need to talk to their children about investing. Here is some advice to help parents get started.
Explain the importance of financial goals. Don’t start of by trying to explain options, selling short, margin calls, and other complicated concepts. Instead start by explaining the difference between short-term and long-term goals and between savings and investing. To help your child understand that investing is about making money grow to meet long-term financial goals, use examples he or she will understand.
For example, if your child wants to buy a new video game, he or she should focus on saving. However, if he or she hopes to buy a Harley in ten years, investing in stocks or mutual funds may be more appropriate.
Teach them about risks and rewards. The safest way to make money in the stock market is to buy shares in strong companies with the potential to grow, and to hold unto them.
Young investors (and older ones, too) need to understand the concept of risk versus reward-the higher the potential reward from a particular investment, the higher the risk of losing money
Let them test the waters. Before putting real money on the line, your child can test his or her stocks selection skills and interest level by choosing two or three stocks and following their performance. Teach your child how to find the stock price in the newspaper financial listings or online.
Each day, he or she can check to see how the stocks are doing. Watch out for stories on the company and share them with your child. Discuss how the story is likely to impact the stock’s performance and, then, monitor the financial listings for changes in the share price.
Making the purchase. While mentors can’t own stocks or open brokerage accounts in their own names, parents can set up custodian accounts under the Uniform Gifts to Minors Act or Uniform Transfer to Minors Act, depending on state laws. You simply complete a form with the child’s name and social security number and the name of the custodian.
You and your child should first decide which companies you want to invest in, one of the best strategies is to select stocks in kid friendly companies, such as McDonalds, Disney, and Microsoft that are associated with products your child knows and can identify with.
Buying a small number of shares without paying his commissions can be a challenge. Some companies will let you make an initial purchase directly without going through a broker, after which you can enroll in the company’s dividends reinvestment plan (DRIP) and buy additional shares.
By getting your kids interested in investing you’re buying more than shares of stock. You’re teaching your child financial skills he or she can use for a lifetime. Chrisajaegba.

HOW TO BREED FINANCIALLY SUCCESSFUL CHILDREN

2007-08-06T10:48:00.001-07:00

HOW TO BREED FINANCIALLY SUCCESSFUL CHILDREN.
Teaching children to manage money is not easy, especially with the changes in financial markets and parental anxieties about financial resources. As a parent, you teach your child how to use money and make wise decisions. Your example is the best teacher for children. Piggy banks and children can become a wonderful combination for parents to use to begin to teach the basic money management principles of getting, saving, spending and sharing money.
There are, however, some steps that can be taken to ensure the future success of your children.
Parents can teach money management to children in the family council meeting. This is a time when all family members talk about their needs and wants and what they can afford to do as individuals as well as members of a family. It is a good opportunity for children to see themselves as “partners” in the family business of managing available family income.
The main benefit of a family council is to help your child understand that spending is governed by income and your individual family’s situation and needs, and not by what someone else spends. When the family council implemented on a regular basis with open, honest interactions, both parents and children come to better understanding of one another.
A child does not need to know exactly what parents make or owe. Children should be given a general understanding of the family income- its principal source and its main expenditures. These discussions should be kept cheerful, free and matter of fact. The topic of family spending and finances should not become too great of a responsibility for young children.
Remember that no two families are alike; so, no hard and fast rules can be provided to help teach children learn money management skills. However, parents should be good managers of money. The kind of financial responsibility children find in their own home will exert a powerful influence on their adult attitudes towards the use of money.
The family council is a good way to teach children the value of saving for a definite purpose, instead of saving for the mere fact of saving. Teach children that borrowing money cost extra and must be repaid. Show children that by going without something now, greater satisfaction may be gained later. Discuss things that the family may want to purchase or do in the future. Talk about if this is a want or a need, and how to set financial goals that will allow the family to purchase the item or activity. Then, discuss how these goals may be met, either by reducing family expenses or increasing family income.
Children are not born with “money sense.” They learn by what they see, hear and experience, and parents have a very strong influence on all of these. Childhood is the appropriate time to learn about money management while we are able to provide them learning experiences that will benefit them in years to come.
Family councils are an excellent way to help children learn how to manage money by helping them understands what money means, how to make wise and satisfying choices, how to use money to get things important to them, and how to have money on hand for daily needs as well as for emergencies and future needs.

Children need to have money of their own to learn how to manage it. An allowance is a better teaching method than simply giving money about their request says the cooperative extension service, University of Arkansas. An allowance for children should be a set amount, should be paid regularly, and not tied to regular tax required of the child. When deciding on the amount of an allowance, discuss what items will be covered. The amount should be enough that the child has money to manage with no strings attached.
Money should not be used as discipline, such as for good grades or doing household task. If money is used in this manner, a child will get the idea that everyone and everything has a price tag. And, money should not be used to buy love or substitute for companionship.
But children and parents must work to make an allowance a learning experience. Be sure to praise any successful efforts. Let the child know when he or she is doing a good job in managing his allowance. Remember, a child learns from mistakes. Be consistent with payment and of what the allowance is to cover. Naturally, unexpected situations will arise. Use this as teaching opportunities. Chris Ajaegba, Lagos.