The Management Consulting Group

The most traditional way of saving money is through a savings account at your local bank. There are two types of savings accounts: passbook and statement. You usually don’t have a choice between the two, most banks offer one or the other.

A passbook account comes with a little booklet that you use to keep track of your deposits, withdrawals and interest. You are responsible for all of the necessary math. With a statement account, you receive a monthly or quarterly statement that details the transactions. Most savings accounts are insured up to $100,000 by the Federal Deposit Insurance Corporation (FDIC) or the Nation Credit Union Share Insurance Fund (NCUSIF).

A savings account is a liquid savings, which means that you can withdraw your money at any time. Federal regulations only allow you six electronic, telephone or preauthorized transfers each month. No more than three of the transfers can be made by check, draft or debit card. But you can usually make unlimited withdrawals through the teller or ATM. Certain savings accounts have a limit of, for example, three free withdrawals per month if your balance falls under a minimum amount. Make sure that you read and understand the savings policies before you open an account.

Most savings accounts have very low balances to open an account - sometimes just a dollar is required. But they may charge a monthly maintenance fee on accounts that fall below a minimum balance, such as $100. The fee can often be as much as $10 a month, which will quickly eat up your account. If you are looking for a savings account for your children, there may be special accounts that waive or lessen the fee.

There is a big difference in the amount of interest earned on savings accounts compared to other forms of savings. Most banks pay very little interest on savings as count, often as little as 0.25%. There are higher interest payments available through high-yield savings or money market accounts that are found online. Many high-yield money market accounts allow you to write checks, though high-yield savings accounts usually won’t offer that feature. There are some high-yield savings accounts that will allow you to link to your checking for faster and easier deposits
and withdrawals.

Online accounts are easy to open, but aren’t for everyone. Many people are concerned about entering personal information online. You may feel more comfortable being able to walk into a local bank and talk to someone face-to-face if you have a problem with your account. You simply have to weigh the customer service of a local bank with the higher interest available through an online institution.

It is highly recommended to keep an emergency fund in a savings account. You should have enough money in a savings account to pay all of your expenses for a three to six month period. You can also use the money for car repairs, insurance deductions and large appliance replacement. A savings account can often help to see you through a true emergency without ruining your financial stability.

Martin Lukac, represents http://www.RateEmpire.com and http://www.1AmericanFinancial.com, a finance web-company specializing in real estate/mortgage market. We specialize in daily updates, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies!

The mutual fund industry requires customers that buy their funds and never sell them. So naturally, they disseminate a lot of editorial decrying any trading, market-timing or re-allocating that includes selling their mutual funds. This non-selling concept gets more ridiculous and hypocritical every year as scandals continue to trickle into the news regarding brokerage firm and mutual fund behavior. It turns out that the professionals running the mutual funds do a lot of trading, market-timing and re-allocating everyday, but somehow if you do this on your own, you’ll ruin your portfolio.

Since an unfortunate vestige of mutual fund sales material is: “you need to invest for the long-term.” and “That it is OK if your investments are going down because these are long-term investments.” These phrases and beliefs destroy portfolios and compounded returns.

To me, investing is simply day-trading in slow motion. In my view, when people don’t have an investing plan they use the excuse, “I’m investing for the long-term.” But, I find that all the successful trading rules that apply to a professional currency trader with a leveraged $250 million position also apply to someone with $25 in a mutual fund. If the mutual fund owner calls it investing, he thinks he is immune from all the decision-making required of all ownership; ignoring the fact that every structure require maintenance.

Let’s take a closer look at maintenance; look at a home - everything but the dirt needs to be maintained. Time, weather, and events take their toll on the floors, appliances, roof, windows, landscaping, etc. The same rules apply to owning a rental home. And the same rules apply to owning a strip mall, or an airport or manufacturing plant. The same rules actually apply to every business; the building, the equipment, the employees, the vehicles, the marketing plan, the product design, and the websites. Now if investing or trading is a business (or you are trading or investing in businesses) what makes you think your portfolio doesn’t need to be maintained just like everything else? I am here to tell you that it does need to be maintained. In spite of long-term investing theories and cautions from your stockbroker or magazine headlines, most of the time you spend on investing would be considered maintenance.

How I define maintenance is continued review, evaluation, and action in alignment with your investing goals. Now the maintenance that they need is continual review. Is it meeting your expectations? Maintenance means information review: changes to your market view, interest rates, inflation, recession, the industry, a new federal law, an inter-country trade dispute, etc. Maintenance also means portfolio review. For example, , if a run up in real estate has unbalanced your portfolio, you may want to sell off weaker real estate holdings or, instead, sell off the strongest real estate holdings if the market prices are starting to fall back. Maintenance is also the mechanics of setting up alerts if a stock has fallen too far and you want to place a stop-loss order to get out, or an alert for a profit target that is about to be reached. Maintenance could simply be a monthly review to evaluate whether the stock is still above its 200-day moving average price.

Whatever the manner you want to address investment and portfolio maintenance, you need to start building your own trading rules, checklists for what to do before you enter a trade, and what could possibly trigger your exit of a position. Keep a journal to see how your rules are growing your account to notice which of them needs to be changed, eliminated, or updated. All of this is the maintenance required for the $25 mutual fund investment - so that it doesn’t become a $0.25 investment from neglect.

To the axiom: “A fool and his money are soon parted”, I would add this corollary: “An amateur investor and his long-term investments are soon parted.” Amateur investors that are not willing to perform the ongoing duties required to grow their investments rarely perform well. While a professional trader who carefully analyzes and executes his trading rules can count on the continued successful growth of their portfolio.

investing.real-solution-center.com

The communication innovations we have around us today like the internet, financial newspapers, and special interest television channels focused on investing like CNBC are a high speed pipeline of nonsensical chatter. All these sources of information mean that there is no shortage of media people trying to answer our questions about the stock market and specific stocks. You have to remember that the news media are constantly competing to survive against other stuff you can watch. If they don’t always sound like they know exactly what is going on then you won’t watch their presentations. If you don’t tune into their show then their ratings go down. If their ratings go down they get fired and their show gets cancelled.

This means that financial journalists are in the business of finding great stories and sounding like authorities no matter what. The stock market is a great place for them to dig up news ’scoops’ to feed to the public. They don’t really check their facts very well and sometimes not at all. This means that if some insider wants to feed you a line of bull manure then all they have to do is maintain good connections with financial journalists, sponsor an investment show, or outright buy an investing TV channel like Jack Welch the CEO of GE did when he set up CNBC. What a great way for inside executives to control the flow of news information to the public then to actually own one of the only financial news channels…but not so great for you!
These journalists also kick up the fire by bringing in so-called ‘experts’ to talk about each side of some topic that real experts would not consider important.
This just makes it all the more confusing for the public to understand what is important when buying or selling a stock. Shows on CNBC like ‘Closing Bell’, ‘Kudlow & Company’, and ‘Mad Money’ do nothing but confuse and misdirect the attention of most individual investors in the public. Even worse this means that the financial news media allows overpriced stocks to be recommended through analysts in the inside web that inside executives are dumping on the public because they are trying to get out. This actually happened at the top of the bull market in 1999. For a great historical description of what happened read Maggie Mahar’s book entitled “Bull.”

The famous Yale University Economist, Prof. Bob Shiller, Ph.D. is particularly harsh on the media in his book “Irrational Exuberance.” Dr. Shiller is one the economists that Alan Greenspan respects most and where he got the term “Irrational Exuberance.” He portrays the media as sound-bite-driven where superficial opinions are preferred over in-depth analyses. I agree whole heartedly with him and contend that it is also done just because the industry would rather have the retail investor confused and emotionally pliable to get you to buy and sell when they want with total disregard for your best interests!

People who had invested their life savings in the stock market were ripped off in the stock market because the financial news media and analysts were hyping up what a great buy stocks were at the very top of the market in 1999 and 2000. At the same time inside corporate executives were selling out everything they had. What is amazing is that our federal government in the form of the Security Exchange Commission never did a thing about it. There was never a blanket case taken or an outcry that almost all of the inside executives had somehow magically sold out of the market six months before the market crashed.

Here is the valuable tip I want you to consider: when you are a beginner investor it is important that you DO NOT WATCH THE FINANCIAL NEWS OR READ THE FINANCIAL NEWSPAPERS! Don’t let the stock market industry lead you around by the nose like livestock to the slaughter house. Don’t listen to what they want you to listen to. You should focus on learning what is important in the stock market and the mass media will only confuse you until you have educated yourself.
Recommended reading:
1. Mahar, M. Bull! A History of the Boom, 1929-1999 (New York, HarperBusiness , 2003)
2. Shiller, R., Irrational Exhuberance, (New York, Broadway Books, 2000)

ABOUT THE AUTHOR: The Delano Max Wealth Institute is dedicated to providing individuals with courses and seminars that teach prudent savings and investing habits. Dr. Brown is also a finance professor at the University of Puerto Rico at Rio Piedras. He is recognized as an expert at low risk, high return investing and takes great pride in helping others retire safely. The company website is www.BonanzaBase.com and the company ezine is www.WalletDoctor.com If you’d like more information about this topic, or to schedule an interview with Dr. Brown, please call Shandy Brown at 530-336-6616 or e-mail Shandy at shandy@bonanzabase.com Dr. Brown’s blog is www.drscottbrown.com/

Add Tangibles to That Paper Portfolio

Paul S. Lalley wordsinc@aol.com

Are you a self-directed investor? Chances are, if you’re reading this, you do manage at least some portion of your asset portfolio. Congratulations for taking the lead to a brighter future. No one is going to look after your investments as carefully as you will.

As your own ‘Director of Investments’, you’re familiar with the basics of wealth building - the tried and true axioms of prudent investing. You don’t speculate, you don’t gamble and you never listen to your brother-in-law’s tips. Another good move. There are gamblers and there are investors, and over the long term, the investors have proven to be the winners in the get rich sweepstakes.

Diversify, Diversify, Diversify

One of the fundamental fundamentals of conservative investing is diversification, or, in other words, don’t put all of your eggs in one basket. You wouldn’t put all of your nest egg into one company would you? Or, one mutual or managed fund? No, of course not. Even the bluest of blue chip companies have their ups and downs. IBM, aka, Big Blue, has sold at over $USD120 a share. In ‘02, it sold at below $USD60. Had you put all of your eggs in that basket you would have lost a basket full of cash.

Diversification is simply a matter of spreading the risk around. You can do that buying shares of individual companies in different industries - a good drug company, a consumer goods behemoth, heavy manufacturing, media and so on.

Instant Diversification

Many individual investors have turned to mutual or managed funds, which offer varying degrees of diversification. Broad market funds, Vanguard’s Windsor fund or Fidelity’s Magellan fund, are good examples of popular, broad market funds.

Balanced mutual funds offer expanded diversification by holding both stocks and bonds, which usually move in opposite directions during market swings. So, when the stocks are doing well, the bond portion of the portfolio will lag and vice-versa.

There are sector funds which narrow diversification to a single sector of the economy. There are exchange-traded funds (ETFs) that are built like mutuals but are traded like stocks.

There are indexed bond funds, junk bond funds, funds that specialize in a particular geographic region, or even a single country. There are CDs, government bonds, asset allocation funds and more. In fact, there’s a fund or investment vehicle for just about any wealth-building strategy you could devise.

But what do all of these investment vehicles have in common - the stocks, funds, bonds and such? They’re all paper assets. Oh sure, you’ve diversified through funds, developing your own portfolio, but all of your assets are still in paper. So, the question becomes: are you diversified enough!?

Tangible vs. Paper Assets

The alternative to paper assets is tangible assets - things you can touch, eat, hold in your hand and even live in! That’s right, your home - perhaps your most valuable asset - is a tangible. It’s an investment in which you live. In fact, real estate ownership is often the fast track approach to increasing personal wealth. Donald Trump didn’t work his way to wealth, he bought and sold real estate, one of the best tangibles available to the average investor.

But property ownership comes with its own attendant headaches. Tenant calls at 3:00 AM, upkeep, deadbeats and other hassles prevent the average investor from moving into real estate. Real estate isn’t always liquid and you have to paint the darn thing!

If Pork Bellies Don’t Suit You, Buy Gold

Which brings us to commodity investing - putting some of your portfolio into tangibles that don’t wake you in the middle of the night because the furnace conked out. Now, before you run screaming from the room at the very thought of buying pork belly futures and other ‘exotic’ investment vehicles, that’s not what we’re talking about here. No pork bellies, cotton, wood, no cattle, wheat or sorghum. Nobody even knows what sorghum is!

But everyone knows what gold is. And silver and platinum. These are precious metals that have served as currency, or the foundation for paper money, since our ancestors were chasing mastodons across the plains. In the form of coins or ingots (blocks or bars), you can hold these metals in your hand, bury them in the backyard or keep them in a safe deposit box. Precious metals are the precious darlings among commodity traders.

The charts that track the price of gold over a 30-year period, from 1968 until 1999. You can see that, 30 years ago, gold was selling for about $USD90 the ounce. Oh, then came the big run-up in the late ’70s and early ’80s when gold spiked at close to $USD700 the ounce and people were lined up outside of coin and jewelry shops, all around the world, selling their old bracelets for historically high prices.

But most economists consider the 1980 spike an anomaly. Remember, this was the era of 20% home mortgages, high inflation and a very worried world. What’s more important in this chart are the figures from 1986 forward. Notice that since that time, gold has traded in a fairly tight range, from a high of USD$480 to around USD$290. During most of that time, the trading range was even narrower.

Portfolio Ballast

Gold, and other precious metals, provide ballast for your portfolio. Prices are closely tied to inflation rates, with ups and downs more a factor of stock market uncertainty rather than the usual driver of commodity prices - good old supply and demand. When other markets become edgy, because of world events, for example, many investors move a portion of their portfolios into gold and other precious metals as a hedge against falling stock prices.

Diversifying a small portion of your portfolio into precious metals better equips you to ride out the peaks and valleys of stock market performances. It protects your paper assets by providing price stability over the long-term. And, it moves some of your wealth out of paper and in to tangibles.

How and How Much?

For most conservative investors, a small amount, 1-2% of your total portfolio, should be in tangibles like gold, silver and platinum. And, the most conservative means of holding precious metals? Coins. More specifically, coins in small denominations.

Through any reputable precious metals dealer, you can purchase Chinese Pandas, Australian Nuggets, Gibraltar Royals, the famous South African Krugerrands and Canadian Maples. Canadian Maples are available in denominations as small as one-tenth ounce of pure gold, selling at less than $50 each at the moment.

Holding precious metals provides diversification out pf paper into tangible assets. It adds price stability to your portfolio by acting as ballast during choppy times in the stock markets. Gold prices tend to follow inflation rates, serving as a hedge against inflation creep in your portfolio. And one other important benefit - your investment appreciates tax free. You aren’t hit with yearly taxes on dividends, interest or capital gains. The value of your precious metal holdings appreciates tax free.

And, while gold, silver, platinum and other commodity investments aren’t for everyone, they can help many investors in many ways. But remember, a little bit goes a long way so start small, build gradually and let gold and silver put a little shine on your portfolio.

The stock market rallied and stayed high last week, in spite of higher than expected Jan inflation data, e.g. the PPI, Import Prices, and Capacity Utilization. So, perhaps, the unwinding of Feb options skewed direction. Also, the underperformance of Nasdaq is typically negative for the market.

Moreover, there are many potential crises developing, e.g. Iran’s nuclear program (which may cause a spike in oil prices), a slowing housing market (although Jan housing data were strong from the unseasonally warm weather), slowing profit growth (from rising employment, which is reflected in the inverted yield curve), a potential debt and dollar crisis (since U.S. consumers are overextended), along with the potential of inflation accelerating (from rising input costs and lower productivity). There are inverse relationships between inflation and unemployment (i.e. Phillips Curve) and between employment costs and corporate profits (because of diminishing marginal productivity), when the Unemployment Rate is below 5%.

The first chart below is a VIX (S&P 500 Volatility Index) daily chart. There’s generally an inverse relationship between VIX and SPX. Also, VIX is better at predicting SPX tops than bottoms. The VIX 200-day MA (not shown) fell from above 30 in early 2003, which is roughly when the cyclical bull market began, to 12.53 Fri, which is a multi-decade low, except for the brief fall to 12.29 in mid-Feb 1994 before the 7.4% SPX decline in the second half of Mar 1994 (although the total SPX decline from early-Feb to late-Mar 1994 was 9.7%).

The VIX 20-day MA generally creates peaks and troughs. Recently, the 20-day MA was moving towards a peak. However, it turned down last week. Nonetheless, given that VIX closed at 12.01 Fri and the 20-day MA is at 12.76, i.e. VIX closed below the 20-day MA Fri and both are at low levels, the MA may resume the uptrend similar to the previous two periods (see circles). So, there may be little SPX upside and far more downside over the next month.

The second chart is an SPX weekly chart. SPX has traded within the rising wedge over the past two years, except for one day in the second week of Jan ‘06. The upper line of the wedge is 1,300 and the lower line is 1,200 (both almost exactly). Moreover, the 20-week MA, which is the middle of the weekly Bollinger Band, is about 1,249 (roughly in the middle of the wedge). There’s also an extended Price-by-Volume bar around 1,200. The upper weekly Bollinger Band is 1,316 and the lower weekly Bollinger Band is 1,181.

SPX closed at 1,287 1/4 Fri. Major resistance levels are the Jan high at 1,295 and the upper line of the rising wedge at 1,300. Major support levels are around 1,250, i.e. 20-week MA and a multi-year Fibonacci level at 1,246, and 1,200 to 1,230, where there are several major support levels. The MACD bullish crossovers of OEX and SPX early last week, and of Nasdaq and QQQQ on Fri, created a rally. However, it seems, the market will top next week and SPX will be much lower by mid-Mar.

Charts available at PeakTrader.com Forum Index Market Forecast section.

Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.

Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time and over time. This methodology has resulted in excellent returns with low risk over the past four years.

http://www.peaktrader.com

Rafik Patel, of FSP Search, in conversation with James Cullen about the growth in the hedge fund industry.

Q1: As an introduction, can you give us a broad brush description of the hedge fund universe?

The hedge fund industry consists of around 6,000 funds globally, and manages around $900 billion in assets. Many hedge funds are relatively young (less than five years old) and relatively small (less than $25 million under management), which emphasises the fact that hedge funds have only recently become popular with more mainstream investors.

Q2: We understand that the hedge fund market is no longer the special province of US-based operators, and that other areas - notably Asia and Europe - have seen amazing growth in terms of asset size and startups over the last five years. How has this happened?

This is primarily a matter of supply and demand. With strong investor demand and no signs of fees coming down, it simply makes a lot of sense for experienced portfolio managers, proprietary traders, marketer, etc, to start up a hedge fund operation. With an average fee of 2 per cent flat plus 20 per cent of the profit, these people can do a lot better on their own than working for a large bank or asset manager, even if they manage to raise only $100 million or so.

Q3: Given the sort of exponential growth we’ve been talking about, is there a likelihood that returns will be driven down as hedge funds are flooded with capital? After all, it is the role of managers and arbitrageurs to normalise and provide liquidity to the marketplace?

It is clear that the heydays of hedge funds are a thing of the past - every succeeding year having shown a worse performance than the previous one. Much depends on the specific strategy followed, though. Global macro funds will probably last longest, as many of them operate in liquid markets. More specialised funds, such as convertible arbitrage, are already suffering. There just aren’t enough convertibles in the world to support the assets under management by this type of funds.

Q4: Is it fair to say that the European theatre is best suited to the single-manager fund operation?

No. Most European investors use funds of funds, that is multi-manager funds. For investors who do not have the necessary skills to select funds themselves, who do not have the size to allow them to select their own funds, or who just do not want to take the responsibility for fund selection (as is often the case with institutional investors), funds of funds are basically the only available alternative.

Q5: In relation to single-manager funds, the fund’s manager has total trading authority. It has been inferred that using a single manager can lead to a lack of diversification and higher risk. From an empirical point of view, do these inferences have any validity?

Yes. Individual hedge funds have a high degree of idiosyncratic risk because you are basically building on the ideas of just one or two people. In addition, about 15 per cent of all hedge funds closes every year, because of lack of size or lack of performance. This makes it is almost a necessity to hold a portfolio of funds instead of a single fund.

Q6: With thousands of hedge funds to choose from, each claiming to have an “edge”, where does the novice investor start?

The novice investor should not try to do the fund selection him- or herself. The whole due diligence process and the portfolio building that comes afterwards is just far too complex for DIY.

Q7: Pension funds and hedge funds - will the twain ever meet?

Yes, because pension funds tend to imitate each other. If the big ones go for hedge funds, the smaller ones will follow. With interest rates at a historical low, uncertainty about the future of the stock market, and institutional investors eagerly looking for something to make up for recent losses (or to be seen doing at least something), hedge funds have been welcomed with open arms by the top pension funds. It is only a matter of time before many smaller funds follow suit. The only thing that can prevent this is lack of performance. Hedge funds need to convince pension funds that they are worth the hassle and the relatively high fees. If performance stays out, however, the hedge fund idea will become harder and harder to sell.

Q8: How are investments in hedge funds affected by current market conditions?

Much of the interest in hedge funds is driven by a lack of alternatives. Many investors do not know where to put their money and are struggling to recover from serious losses in the stock market. They are therefore very much open to alternatives at the moment. It is exactly at that point that hedge fund marketers start knocking on your door. What do you expect?

http://www.fsp-search.com

Let’s begin this lesson with a definition of the term Virtual Millionaire. This is an expression, known to the CPAs, but unknown to the general public. Why? It’s because the bank does not want you to know. Here is why…

Virtual Millionaire - An individual that has zero debt and a passive or near passive income of at least 60,000 a year.

For example, if you had $2,000,000 in the bank earning 6% interest, you would have $120,000 of yearly income. This income is known as PASSIVE income. It is called passive because you weren’t active I the production of this income. In other words, you did not work to get it. Yes, you worked to save the $2,000,000, but the income from the $2,000,000 keeps coming in without work.

A person with $2,000,000 in the bank could spend 6 months traveling the world and they would still make $120,000 each and every year and still have their $2,000,000 in the bank.

Before developing this further, there is one other critical point to make. Most folks have ZERO concepts of millionaire and their lifestyles. If you were a retired multimillionaires with $2,000,000 in the bank and this money was your entire life savings, would you spend your $120,000 yearly income and ALSO spend part of the $2,000,000?

If you are like most folks, you might have the conception that millionaires that spend money hand over first as if there no limit to how much they could spend!

The person with the $2,000,000 in the bank knows that if they spend more than their $120,000 income, next year they won’t have $2,000,000 to produce an income for future years. It will be less. Guess what? If they don’t have $2,000,000 to produce income, then they will no longer have the $120,000 in income, unless the interest rate goes up.

For some time, I tried to get my mind around this while concept of wealth as it relate to quality of life. I have determined, without question, that it isn’t having an immerse amount of money to throw away that provides a high quality of life. It is known that you would always have a very good income and that you could virtually anything you would ever want to do with your time and your life that produces the very highest quality of life (This doesn’t take into account spiritual or health issues.

My friends, that is true wealth, or as a mentioned in the introduction, this is Financial Wellness. In my previous experience with my wealthy clients, I didn’t appreciate the fact that multimillionaires, for the most part, don’t spend all that much money in a year. Their FREEDOM come and go almost at will has a near- magical impact on quality of life. That’s really living Well.

Based on my observations and experiences of working with the wealthy, I made a decision to focus my business in a different direction. I decide that I would pursue the creation of passive. INCOME, not the Creation of wealth or Assets.

You see, if you can produce $60,000 in a year in dependable passive income, this would be the equivalent of having $1,000,000 in the bank at 6%.

I determined that it would be much easier to create the lifestyle of a millionaire by focusing on creating income. So, I have done my best to become an expert in this very different way of thinking about the financial independence.

There are four ways to achieve financial independence. There is the traditional way, which is to work and save in a attempt to accumulate assets that will one day take care of your income needs. Some inherit it from someone else. A handful will win the lottery. And, finally the Virtual millionaire or income approach.

I want to suggest to you that the Virtual millionaire approach is not only far easier, but much more enjoyable in the process.

Consider this for a moment. If you are going to stay in the traditional way of thinking about financial independence, recognize that as folks work and save, they far too frequently deprive themselves of enjoying their life NOW.

I have seen folks so obsessed with saving money for some future unknown use that they become slaves to the future and have virtually no life, here and now. However the vast majority of people can’t save. They go deeply in debt and the high cost of interest makes it almost impossible for them to dig out of debt in order to finally begin a savings and investment program.

I want to suggest that for many of you it is far better to hire yourself and invest in your own company instead of buying stock in someone else’s company. Instead of trying save and invest to grow assets that you can some day live off, build your own business to produce an income that you can live off NOW and later.

My contention is that it is far easier to become a virtual millionaire than it is to achieve financial independence the traditional way. When you make a serious effort, you can achieve the extremely fast. By fast I mean a few years.

The virtual millionaire advantages are many. At the end of one year you won’t need any encouragement to continue. You will be so excited that you will be unstoppable.

In summary, I want to encourage you to concentrate on becoming a virtual millionaire. It is far easier to produce the income of a millionaire than it is to create the assets of a millionaire. Remember… millionaires DON’T spend their assets, they spend their income. It is the income that provides that quality of life.

I want you to think what your life would be like if you were totally debt free and you have at least $60,000 a year coming in year after year. You would be amazed at how much more joy you would have in your life.

The exciting thing is that there is nothing to stop you from working as hard as you choose to continually grow your income. With my approach, you still get to enjoy your life NOW while also preparing for early retirement.

Just for the record, if you develop your own business to the point that it is providing with a dependable $60,000 annual income then YOU ARE ALSO AN ASSET MILLIONAIRE.

The reason that is true is that, in the world of accounting, you don’t just place values on things; you also place value on stream of dollars.

This is exactly what annuities are all about. Every day millions of dollars are given to annuity companies in exchange for an income for life. These people purposely save their savings for an income the they can’t outlive.

The virtual millionaire approach places all the emphasis on creating a Business Annuity. Let your business produce the income stream you will need for debt elimination and for early retirement. When you do you will join the ranks of those who have achieved true financial wellness.

Roy Chan
Certified Financial Planner and Business Consultant
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I submit that the successful day trader would profit well to adopt a casino mentality. At first glance, this sounds reckless and nothing more than a gambling attitude - but it’s not. Why? Because everyone knows that it’s the casinos that profit and take in all the money on a consistent basis. And, of course, the patrons end up losing even after brief winning streaks.

If you want to profit in the market, ask yourself this question:

1. What do successful day traders and casinos have in common?

As a day trader, what if you were the casino - that is, on the winning profiting side. You could expect to profit consistently. You would be unperturbed by an occasional drawdown (like the casinos when someone hits the jackpot), because you know that you potentially will make it back and more.*

This is what successful day traders and casinos have in common; they both have a winning system that clearly puts the odds in their favor. The more they “play” or stick with the profit system of their choice, the more likely a positive outcome. It’s only a matter of time, because the odds are in their favor.*

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In the securities market of the Czech Republic corporate governance plays a crucial role in instilling investor confidence and ensuring an efficient market. Post the fall of Communism, the economy was transitioned from state owned to capitalist in a very short time. Since then, the Czech Republic has come a long way to quickly reach standards of other capitalist markets and successfully obtain accession into the European Union. As the market continues its progression, the need for transparency of information and alignment between board members and managers in firms greatens.

From the Czech Republic’s voucher privatization program in 1992 to the late 1990’s, corporate governance was viewed negatively and/or non-existent for publicly traded Czech companies. A path began with a lack of regulation, continued with a lack of enforcement, and finally turned directions beginning in 1998 with the Securities Commission Act. Even now, as Czech companies attempt to become more competitive on a global scale in the market, the realization amongst firms of the need for structured corporate governance and more transparency in their reporting of information takes hold as a continued effort necessary to report and align enterprise goals with those of other stakeholders.

Through an analysis of the top ten publicly traded companies, in terms of market capitalization, on the Prague Stock Exchange, I will assess the availability of information regarding corporate governance in order to discern the current state of compliance with the Corporate Governance Code. This information will serve as a benchmark and will allow investors to relate the positions of the largest companies on the PSE to other companies within the Czech Republic, and apply the knowledge generally to the Czech securities market. The results allow investors and other stakeholders to get an idea of corporate governance practices and the transparency of information in the companies operating in the Czech Republic today.

Current State of Corporate Governance

I turn now to the analysis of the corporate governance disclosure in today’s Czech market. Using the ten largest publicly traded companies (see Table 1) listed on the Prague Stock Exchange in terms of market capitalization, I will determine the degree of their stated corporate governance policy disclosure as found in their most recent annual reports. This is the 2004 annual report for all of the companies. Furthermore, I will briefly assess the availability of information on the companies’ websites.

Table 1
Top Ten Listed Companies on the PSE

Rank Company Market Cap. (Mil. CZK)Market Cap. (Mil. USD)

1 ČEZ 402,881 16,293

2 Erste Bank 317,598 12,844

3 Česk Telecom 160,014 6,471

4 Komerčn Banka 128,397 5,193

5 Unipetrol 42,922 1,736

6 Zentiva 41,683 1,686

7 CETV 39,718 1,606

8 Philip Morris ČR 32,816 1,327

9 Severočeské Doly 14,434 584

10 Prask Energetika 11,492 465

Source: Prague Stock Exchange, Novermber 2005

ČEZ

ČEZ, a joint stock company, is the largest power conglomerate in Central and Eastern Europe. The company’s website has an investor section with information on shares, bonds, and financial information, and lists the date of the annual general meeting, but does not provide information specifically related to corporate governance practices and structure in general. Shareholder structure, relations, and dividends are presented on the website. Within the annual report, ČEZ follows the German corporate governance model, and has key members of the board also part of management. Board structure and board members are discussed extensively. The board of directors meets weekly as a matter of practice, where the requirement is monthly. The company complies with the Commercial Code concerning protection of shareholder rights, and bases its corporate governance on the Corporate Governance Code. The ČEZ Group actually participated in the 2004 drafting of the Corporate Governance Code. Overall, the company reports on most of the key corporate governance areas, but does not have one section devoted to their policy, making it necessary to scan the entire report for relevant information.

Erste Bank

Erste Bank, based in Austria, is the leading financial services provider in Central Europe. Its website contains an investor relations area in which detailed information is provided, and also a corporate governance section in which the company discloses it follows the Austrian Code of Corporate Governance in practice. In the annual report, the company discloses it follows all of the statutory rules of the Code, and adheres to most of the recommendations. It directs individuals to the website for the actual provisions of corporate governance, making the information accessible, but not detailed within the annual report itself. Furthermore, policies regarding shareholder rights were not easy to discern.

Česk Telecom

Česk Telecom is a telecommunications group that operates primarily in the Czech Republic. The company has a website with shareholder information including board structure and notification of the annual general meeting. In addition, access to the company’s annual report leads to extensive corporate governance discussion. The company acknowledges improved reporting in this area beginning with the 2004 annual report as compared to previous annual reports, and as stated in the 2002 annual report, the company will be in full compliance of the Corporate Governance Code by 2005. One note made in the report includes a list of the members of the supervisory board that qualify as independent, an important provision as recommended by the 2004 Code.

Komerčn Banka

Komerčn Banka is among the most important banks in the Czech Republic and the Central and Eastern European region, and provides comprehensive services for clients in retail, corporate, and investment banking. The company’s website provides access to key shareholder information, and has an investor relations section. However, there is not a specific corporate governance section. Accessing the annual report allows one to see most of the requirements of corporate governance, but there is neither specific mention of their general policy towards corporate governance nor mention of their adherence or lack there of to the Corporate Governance Code.

Unipetrol

Unipetrol, a group of companies that operate in the chemical industries sector of the Czech Republic, is a major company in Central Europe. The company’s website has direct links to board members as well as an investor page with access to its annual reports, but does not provide detailed corporate governance information. The annual report does not improve upon the corporate governance policy of the company. There is no statement concerning the company’s policy towards corporate governance, and the information given is primarily a list of board members. Qualifications are not given, and shareholder rights are not disclosed or discussed.

Zentiva

Zentiva is a pharmaceutical group that holds leading positions in the Czech and Slovak markets, and amongst the largest players in Central and Eastern Europe. Zentiva’s website provides extensive corporate governance information, including the actual rules governing the boards. Investor relations also has a prominent position on the company’s website, and lists shareholder information, the date of the general meeting, and other important information. As stated in the annual report, the company adheres to the Dutch Corporate Governance Code.

CETV

Central European Media Enterprises, or CME, is traded on the Prague Stock Exchange as CETV. The company, based in Bermuda, is an international television broadcasting company, and operates a group of networks and stations across Central and Eastern Europe. The company’s website includes the members of the board and their qualifications, as well as financial results and company policies such as their Code of Ethics. Interestingly, analyst reports regarding CME are accessible on the company’s website. CME is listed on NASDAQ, so annual report information is accessible through their website under SEC filings.

Philip Morris ČR

Philip Morris ČR is an affiliate of Philip Morris International, whose parent company is Altria Group. The website for Philip Morris directs all investors inquiring about shareholder information to its parent company’s website, although some financial data, its general meeting date, and agenda is disclosed for its Kutna Hora location in the Czech Republic. Just as was the case for CETV, Altria Group has extensive information disclosed in its SEC filings. On the Altria Group website, corporate governance is discussed extensively, and the by-laws as well as board members and governance guidelines are listed.

Severočeské Doly

Severočeské Doly is the largest producer of brown coal in the Czech Republic. The company mines, processes, and sells brown coal and its by-products. The company’s website lists the board members and their qualifications and shareholder structure. There is no area dedicated to corporate governance structure or policy. Within the annual report, the company disclosed they do not comply with the Corporate Governance Code, but it does respect the legal requirements and it hopes to adopt more principles in the future. Key areas of corporate governance are easy to find in the report, and although the company states it does not follow the Code, it does an extremely good job of reporting required as well as recommended information.

Prask Energetika

Prask Energetika is an electricity purchasing, distribution, and sales company operating in Prague and Roztoky, and an electricity trader in the wholesale market in the Czech Republic. Prask Energetika’s website lists the management and board members, shareholder structure, and provides access to its annual reports. There is not a section specifically for corporate governance. In the annual report, the company reports statutory information as required by the Commercial Code, but does not go into great detail about corporate governance specifically. Furthermore, it does not mention its adherence to any part of the Corporate Governance Code.

Conclusions

After reviewing the information provided either on the listed companies’ website or their annual report (see Table 2), it was discovered that the transparency of information has been achieved. At least as stated, most all of the companies comply with statutory provisions of the Commercial Code and other Acts, and six of the ten companies comply with the recommendations of the Corporate Governance Code. Of the four that have not adopted the principles of the Code, some mention of the corporate governance policy is made through the disclosure of the relevant information.

I have found that companies listed on the Prague Stock Exchange with a large market capitalization have improved upon their corporate governance reporting in their 2004 annual reports from previous years. Steps have been taken by these companies to adopt the recommendations of the Corporate Governance Code even before they have become statutory regulations. Although these are stated measures that have been taken, it is assumed the policies are followed as a result of the auditor statement concerning the reporting of information contained in the annual reports. Overall, investor confidence in the Czech securities market should improve in light of the increasing transparency of information, and the future legislation of additional corporate governance requirements will improve upon this further.

Table 2

Results of Company Analysis

Disclosure of Information ČEZ EB CT KB U Z CETV PMČR SD PE

Does the company disclose Y Y Y Y N Y Y Y Y Y
corporate governance structure
and policy?

Does the company use the Y Y* Y N N Y** Y*** Y*** N N
Corporate Governance Code
as a basis?

Is shareholder ownership Y Y Y Y N Y Y Y Y Y
disclosed and voting rights?

Board membership & Y Y Y Y Y Y Y Y Y Y
qualifications disclosed?

Board member remuneration Y Y Y Y Y Y Y Y Y Y
disclosed?

Does the website contain a N Y N N N Y N Y N N
corporate governance area?

*Austrian Code of Corporate Governance
**Dutch Corporate Governance Code
***United States Securities and Exchange Commission Requirements
Source: 2004 Annual Reports for Respective Companies

Katherine Dorsett has a Bachelor of Science from the University of Texas at Austin, and is currently a Masters in Business Administration student at St. Edward’s University in Austin, Texas. Ms. Dorsett recently attended a Seminar in Foreign Business at the CMC Graduate School of Business in Celakovice, Czech Republic.

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