Many individuals use the terms savings and investing interchangeably, they are not the same thing. Saving is when you put your capital straight into a low risk low risk investment like a savings account or a high interest capital market account, where there is very little risk to the funds you have to invest.

Investing is when you’re placing the money you have to invest into an asset which may do up or down in value, for return higher than a high interest savings account, in return for taking some risks.

Investing is when you are using your savings to decide on and purchase an asset that you anticipate to increase in value in the medium to longer term, enhancing your capital value. This asset may go up or down in value, but will generate a return higher than that of a savings account, in return for taking some risks. Investment decisions are normally based on basic principles of that asset that are investing in.

Putting income into a high interest account to buy a car is saving your money, whereas putting your currency into a unit trust or a mutual fund to generate a nest egg sometime in the future is investing. When you have cash to invest, you should normally always seek some professional financial advice before you make any big decisions.

Investing vs Trading

What is the difference between investing and trading? Sometimes they use these terms interchangeably but they do mean completely different things. If you are a serious about controlling your very own cash and the risks associated with it, you require to understand the difference between these two terms.

With trading, the biggest difference is the time frame. Traders are typically very short term investors, at times buying and selling their positions on a daily basis and sometimes more than a few times in each day. They will generally make investment selections based on charts and the trends they are predicting and they are sometimes called chartists. Day traders also try to time the market, buying low and trying to sell high, quickly and as often as possible.

A Hedge Fund is a generic name for a pool of funds invested in a particular approach in a number of financial products and markets with the only aim of making an absolute return. Hedge Funds were originally investments that had a great deal of risks hedged, so theoretically, these funds will probably be lower risk compared to a typical mutual fund or unit trust.

Currently, the definition of Hedge Funds can mean a variety of diverse fund strategies. Some examples include, Equity Long / Short, Commodities, Foreign Exchange, Arbitrage, Bond Funds, Special Opportunities, Derivatives, Derivative Arbitrage, etc.

Hedge funds aim to achieve greater returns by taking riskier positions in their trades as higher risk equals higher returns.

Leverage

One of the main differentiatros that make a hedge fund different from a mutual fund is its ability to leverage. (Recently we have observed that the deficiency of risk management on these leveraged postions has underpinned the cause of the financial credit crisis. ) Most Hedge Funds are able to leverage as they have prime brokers who provide them with a line of credit, this allows the fund managers to take large positions to take advantage of little arbitrage opportunities. This can be highly risky if markets move unexpectedly and the leverage can leave a fund exposed like what happened with Long Term Capital Management.

Absolute return usually means to make a positive return on the assets you have invested, contrary to a regular mutual fund or unit trust when the main aim of the fund manager is to beat a stock market index. For example, it a UK equity fund would in all probability be assessed against the actual movement on the FTSE or in the US, a US equity fund will be compared to the Dow Jones Index. The fund managers will be congratulated for reducing the index, ie if the fund they are managing delivered a performance of 17% above the index increase of 13% they have carried out an excellent job, whether or not the market went down, if the fund manager made -3% return instead of the market or index recorded a -5% drop, the fund manager has done well for producing a much better result.

To the investor, they would have a 4% increase of return on capital invested in return for paying the additional cost of paying a management fee for the privilege of investing in that active fund. The alternative was to invest in a tracker fund, pick an index like the Dow Jones, buy a tracker fund or an Exchange Traded Fund (ETF), you pay very little or no management fee in comparison and you also would have achieved a 13% gain.

With absolute return funds, the intention is to invest to attain an absolute return, which means that you’ll normally make a positive return on your investment.

Hedge Funds and Management Fees

Hedge fund managers usually charge a yearly management fee ranging from 1% – 3% and as a further incentive for the fund managers to perfrom. In addition, they are paid a performance fee which can range from 10% to 30% on the excess return that was reached. A lot of investors are willing and happy to pay for this increased set of charges for the higher returns that they can get from investing in a fund of this type.

In general, investing in Hedge Funds is for expert or sophisticated investors, and normally a minimum investment is in the range of US $100,000. Funds normally recommend that this $100,000 be less than 5% of your total investment portfolio as it recognises that this is usually a riskier position compared to other investments. For sophisticated investors, investing in a hedge fund is a good method for diversification of their investment portfolio and can provide an enhancement to that portfolio’s overall return. Recently, a few fund management firms have started out to make hedge fund as an investment product to the man on the street, so do have a look around if you are interested. If you decided to invest in hedge funds, do get some advice from your banker or a financial advisor.

To read more about hedge funds, here are some online resources:

www.hedgefundintelligence.com

www.hedgefund.net

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With all the recent turmoils in the financial markets and also the world economic climate our financial future might be progressively unclear. Do you think you’re ready for that path of uncertainty that lies ahead? I’m talking about that unavoidable, but unknown path which results in the future.

Things are transforming so quickly, I can hardly keep up with the stuff. the mere thought of it will cause us to fret about issues which aren’t even physically there. But, that’s just life in your case. 1 thing is for specified and you can usually count on it; you’re going to age and you’re almost definitely planning to desire to retire. Hey, we all do. the goal is to be ready when that time arrives, and that means investing for that future. Have you on track this process yet?

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What do you know regarding newbie investing online? Are you aware that the stock market is accessible on the World-Wide-Web today? Yes, it’s true. How else do you believe day traders get their perform done from the privacy of their very own properties? it’s all about cyberspace, folks. In fact, when you’ve delved into beginner investing online, you’ll most likely have trouble stopping.

I for one knew nothing about beginner investing online or investing for that future whatsoever a few years back. Recently a close friend of mine talked some sense into me. He told me about the stock market and beginner investing on the internet. Right after getting the lowdown on how the enterprise functions, I dove into the game head first. However, I knew I would improve as I learnt more.

You see, it’s all about playing it safe and sound. with beginner investing online you possibly can invest slightly and see where it goes. It’s a course of action. There’s no requirement to gamble with your life’s savings.

Are you thinking about learning more about beginner investing online? Get it from me; you’ll be glad you did. we all require to invest wisely for the future. You need to assess your own personal situation and how much is your appetite for risk when it comes to investing. Who else is going to take care of us if we get in a financial bind? Hop online now and study all about beginner investing on the internet. Get tricks and pointers about the current stock market. Make your retirement a good one and retire wealthy.

Image by Getty Images via Daylife

These are notes taken by an attendess of the Berkshire Hathaway Shareholders’ Meeting. It is a record of the Q&A session held with Warren Buffett.

What does it take to become a successful investor? Brilliance or Smartness?

Neither, Success in investing doesn’t correlate with I.Q. Once you have ordinary intelligence, what you need is the temperament to control the urges that gets other people into trouble in investing.

When do you decide to invest in a firm?

The best thing that happens to us is when a great company gets into temporary trouble. We want to buy them when they’re on the operating table. (Mr. Buffett bought Coke when it had its biggest fiasco after launching New Coke; he bought American Express when it went through a loss making phase in the early 60’s)

What do you look for in people when they come to sell their firms to you?

I don’t look for the usual credentials such as an MBA, a pedigree (Harvard, Wharton), or cash reserves or market cap of their firm. What I look for is just a passion in their eyes; I think that’s the key. A person who is hungry will always do well. I prefer it when people even after selling stay on and work for the firm; they are people who can’t wait to get off their bed to get to work. Passion is everything; there is no replacement for innate interest.

Mr. Buffett, you told us that Berkshire Hathaway has $ 45 Billion in cash. Why aren’t you investing?

Up until a few years back I had more ideas than money. Now I have more money than ideas.

When do you plan to retire?

I love my job; I love it so much that I tap dance to work. Mrs. B, the founder of Nebraska Furniture Mark worked until she was 104, she died within 6 months of her retirement, that’s a lesson to all my managers, don’t retire! I personally am going to work 6-7 years after I die, probably that’s what they mean when they say- “Thinking out of the Box”!!

Why do stock market crashes happen?

Because of human nature for greed and insecurity. The 1970s were unbelievable. The world wasn’t going to end, but businesses were being given away. Human nature has not changed. People will always behave in a manic-depressive way over time. They will offer great values to you.”

What are the things that are taught wrong in Business school and the corporate world?

I like such open ended questions, I think Business schools should refrain from teaching their wards about profit making and profit making alone, it gives a sense of 1 dimensional outlook to the young students that loss is a curse. In reality, in the corporate world, failure and loss making are inevitable. The capital market without loss is like Christianity without hell. I think they should teach the student on how to buy a business, how to value a business? Not just on how to determine the price of a business. Because price is what you pay, value is what you get.

Do you still hate Technology stocks?

With Coke I can come up with a very rational figure for the cash it will generate in the future. But with the top 10 Internet companies, how much cash will they produce over the next 25 years? If you say you don’t know, then you don’t know what it is worth and you are speculating, not investing. All I know is that I don’t know, and if I don’t know, I don’t invest.”

How to think about Investing?

The first investment primer was written by Aesop in 600 B.C. He said, ‘A bird in the hand is worth two in the bush.’ Aesop forgot to say when you get the two in the bush and what interest rates are; investing is simply figuring out your cash outlay (the bird in the hand) and comparing it to how many birds are in the bush and when you get them.”

How do you feel after donating $ 40 Billion to the Bill and Melinda Gates foundation? You are a hero to us!
I feel nothing. I haven’t sacrificed anything in life. I have had a good life. I donated after I turned 75. I think I admire those people who sacrifice their time, share their food and home, as the people to be emulated not me. Besides, what is money before a man’s life?

What do you think are the pitfalls in donation?

I have never donated a dime to churches or other such organizations; I need to believe in something before I end up doing that. I have been observing the Bill & Melinda Gates foundation for years now and I am confident they will do a fantastic job of making use of the money. I am a big believer in Outsourcing, others believed in me as an Investor and gave their hard earned money to invest. I believe in Bill Gates, he is a better donor than me.

Why do you work from Omaha and not Wall Street , New York ?

Wall Street is the only place where people alight from Rolls Royce to get advised by people who use the Public transportation system.

You seem to be so well read, tell us how it all started..

My father was a stock broker, so we had all these financial books in our library. He introduced me to those classics and I got into them. I am lucky that my father was not a fan of Playboy! Reading is the best habit you can get. Well, you can learn from teachers too, and have mentors but there are so many constraints attached- they will talk fast, talk slow, they might talk like a pro or they might be terrible communicators. Books are a different animal altogether, I love reading! The beauty about reading and learning is that the more you learn the more you want to learn.

People who join Berkshire Hathaway seldom leave. How do you get along well with all your executives?

I try to get quality people. I always say – Hire someone in your organization who is better than you are. If you do that, you build a company of giants. If you get people worse than yourself, you build a company of dwarfs. And do not try to do everything yourself. Delegate the jobs and look out of the window. The results will come. That’s how you build institutions. It happens only when you empower others, believe in others. Iam an investor, Iam very secured at that, I have no clue how to make Coca-Cola or how to dole out credit cards (Mr. Buffett owns 8% of Coca-Cola and 13 % of American Express). I understand the wisdom of the aphorism that you cannot please all the people all the time. Of Course, you will always find qualities that you don’t like in people around you, but if you observe carefully the love of the work unites you both. There is no point in being obsessive about a bad quality in a person, whom you otherwise respect.

I am a small time businessman from Dallas , Texas , what do I need to do to hit big time?

Be patient, Achieving your financial goals and dreams will not happen overnight. As much as we would all really love to accomplish our goals in a few years, this is an ongoing process. Defining your financial goals is not a one-time task; you need to keep adding new plans at different stages in your life. We all admire the skills of Olympic ice skaters, pro golfers, and concert pianists. But do we remember that they didn’t acquire their skills overnight? They had to practice hours on end for years to achieve their dreams. The key to success is to continue learning throughout your life with a voracious appetite.

I think it is marvelous that you have had a golden run with investing, how did you do that?

My rule is to be fearful when others are greedy, and be greedy when others are fearful. Besides, I call investing the greatest job in the world because you never have to swing. You stand at the plate; the pitcher throws you General Motors at 47! U.S. Steel at 39! And nobody calls a strike on you. There’s no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it. Stay dispassionate and be patient. You’re dealing with a lot of silly people in the marketplace; it’s like a great big casino and everyone else is boozing. If you can stick with drinking Coke, you should be OK. First the crowd is boozy on optimism and buying every new issue in sight. The next moment it is boozy on pessimism, buying gold bars and predicting another Great Depression, most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.

Mr. Buffett you have seen so many crashes and recessions, your take on facing recessions and stock market crashes?

If past history was all there was to the game, the richest people would be librarians. Every scenario is different. But always remember, Tough times do not last. Tough people do.

What is the 1 biggest piece of advice you would impart to a young investor like me?

Think for a moment that you are given a car and told this is the only car you would get for the rest of your life. Then you would make sure that you car is taken care of well, it is oiled and detailed every now and then. You would make sure that it never gets rusted, and you would garage it. Think of yourself as that car. You just get 1 body, 1 mind and 1 soul. Take care of it well. Invest in yourself that would be my advice.

You personally know many of the Financial executives who are engineers of the current turmoil in the financial world, surprisingly even after record losses, those executives receive astronomical salaries and bonuses and arrogantly declare that they deserve it, why dint you advice them from making such decisions and what’s your view on their justification for their pay?

I like sharing my ideas but don’t like imposing my ideas on anybody. It doesn’t make sense and is a waste of time. If somebody has decided that they know everything that is there to know, nobody can help them. The best way to learn and succeed is to know that we know nothing. There is an entire universe out there and still some of us think we can know everything. In the world of investing a few people after making some money tend to imagine they are invincible and great. This is the worst thing that could happen to any investor, because it surely means that the investor will end up taking unnecessary risks and end up losing everything – arrogance, ego and overconfidence are very lethal.

Personally I don’t feel too comfortable with too much extravagance, because I always think like an investor. My thought process doesn’t see a lot of value in a fancy car or a designer suit. Thinking like an investor always is very important to bring in a sense of discipline and focus. Before reading balance sheets and investing you need to make sure your outlook and mindset is that of an investor.

Never let ego, arrogance and over-confidence control you – not just as an investor but also as a human being. You will never have internal peace if you are unable to look at everybody around you with love, compassion and understanding. Irrespective of who the person is, he or she can teach you something you don’t know. I have learnt so much from people all around me and I wouldn’t have been able to learn all these wonderful things if I had not spoken to them with a smile.

To quote Sir Isaac Newton- “If I have seen farther than others, it is because I have stood on the shoulders of giants.”