Guide to Global Investing

Guide to Global Investing

Top Resources for Growth Markets

by

Steven Kim

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MintKit Press Copyright 2012 MintKit.com

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Contents 

American Depositary Receipt (ADR)

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Brokerage Firms

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Business Incubator

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Data Mining

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Depositary Receipt (DR)

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Economic Trends

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Forecast of Real and Financial Markets

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Global Depositary Receipt (GDR)

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Leading Indicators

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News: Business

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News: Commentary

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News: Technology

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Real Estate

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Risk

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Venture Capital

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About the Author

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The markets of the world continue to merge into a single ball of complexity. The ties that bind stretch across national borders as well as asset classes. Amid the ferment, the opportunities in the marketplace can crop up in diverse forms in distant countries as well as nearby locales. The same is true of the threats, whether blatant or subtle, that lie in wait for the zealous investor in a hurry. To bring up an example, a crash of the stock market in the U.S. is sure to whomp the currencies in Asia as well as the commodities in Africa. Given the host of linkages amongst disparate markets, the serious investor has to keep tabs on a raft of asset classes as well as geographic locales. Another hallmark of the millennium lies in the wealth of resources available on the global infobahn. The Web is a boundless source of information on multiplex markets round the world. Along with the diversity of assets and locales, certain resources are more useful than others for the earnest investor. The purpose of the survey here is to present a muster of choice nuggets for the seeker bent on sound growth in a global marketplace. The morsels in the lineup span the gamut from tutorial articles and market reviews to news portals and forecasting hubs. Within each section, the introductory note can be viewed as an orientation to the subject. The subsequent portions deal with narrower themes or build upon the ideas in the preceding item within the same group. For this reason, the best approach in 4

general is to peruse each of the entries within a heading in the order of presentation.

American Depositary Receipt (ADR) See the section on Depositary Receipt (DR).

Brokerage Firms In the age of the Internet, a growing throng of investors rely on online platforms to buy and sell assets such as stocks, bonds, and other instruments. In addition to convenience for the user, a big draw lies in the bargain prices offered by online brokers for maintaining accounts and trading assets. The best broker for trading stocks – as well as other types of assets ranging from bonds and options to futures and forex – depends on the match-up between the offerings of the vendors and the needs of the investor. As an example, a novice in the stock market who deals only with equities ought to favor a simple platform with a userfriendly interface. By contrast, a veteran who uses a rolling sequence of futures contracts to counter the volatility of the common stocks within the same portfolio will require a system of greater versatility and efficiency. Even in the case of a particular trader, the proper choice of platform is apt to shift over time. In picking one system over another, the factors at work include the current mix of financial resources and the latest views on retirement planning. In this dynamic setting, there is no single package that befits all investors. As we have just seen, the best choice of platform may well vary from one year to the next even in the case of a single individual. 5

For this reason, picking a broker for online trading is not a one-off decision that remains forever fixed, but an ongoing function that evolves over time. These issues are examined in greater depth in an article at MintKit titled “Best Broker for Online Stock Trading and More”: http://www.mintkit.com/best-broker-online-trading. Barron’s is a publication for gung-ho investors. Each year it surveys the field of online brokers and comes up with a rundown that is relevant to novices and veterans alike. The brokerage firms are assessed and sorted into a handful of groups. An example of the latter is the best set of brokers for long-term investors, or the top candidates for international trading. The rankings in the survey do not vary a great deal from one year to the next. The reviews are published at the Web site located at http://online.barrons.com.

Business Incubator Many an investor dreams of the chance to catch a promising venture in the early stages of its ascent. In this light, the mission of the pioneering firm is to fix up novel products and carve out pristine markets. Needless to say, finding such a fireball is easier said than done. Even so, a good place to start is to search through the business incubators hosted by research universities, government agencies, and for-profit groups. Nowadays a pet project of any leading university or public organ is to set up a hatchery to support local entrepreneurs in their efforts to build up fledgling ventures. To this end, a vital function of the nursery is to help the 6

sapling firms in attracting fresh funds from external patrons. For this reason, the caretakers of the nest go out of their way to welcome prospective investors. From a larger perspective, a showcase lies in a program run by international agencies. A financing scheme called infoDev provides capital for incubators and other initiatives in the developing regions of the world. The goal is to use information and communication technologies in order to slash poverty and boost income in the target countries. The program, headed by the World Bank, is a joint project by a team of international organs focused on economic development: http://infodev.org. The interested reader should also see the section below on Venture Capital.

Data Mining Starting in the 1990s, adept software took up its mantle as a mainstay of the financial landscape. The applications of the technology have spanned the rainbow from macrolevel functions such as economic forecasting to microlevel tasks like stock selection. The terms data mining and knowledge discovery refer to the extraction of useful information from a collection of raw data. The techniques of this sort can be classified into 3 broad groups: artificial intelligence, statistical analysis, and graphic media. An introduction to data mining is available at the online encyclopedia known as Wikipedia: http://en.wikipedia.org/wiki/Data_mining. Videos on forecasting and other applications of data mining 7

are available on the Internet. For instance, typing the phrase “financial neural networks” into the search box at Youtube will bring up a list of suitable clips: http://www.youtube.com. WEKA is a software platform for machine learning developed at the University of Waikato in New Zealand. The package incorporates tools for preprocessing a batch of data then manipulating the stash of intermediate output. The target functions run the gamut from classification and association to clustering and visualization. The software is a staple of researchers in machine learning as well as scientists in corporate labs and academics for teaching courses: http://www.cs.waikato.ac.nz/~ml/index.html. From a commercial stance, the code also forms the backbone for practical applications such as programs for business intelligence. A virtual system called R is a package for statistical analysis along with the graphic display of data. The platform is a programming language as well as a software tool. In addition to the creation of graphic charts, the system offers a variety of functions ranging from statistical tests and timeseries analysis to cluster formation and nonlinear modeling. As an open source project, the software is developed by an informal troupe of volunteer programmers. The communal effort is coordinated by the R Foundation: http://www.rproject.org. A platform known as KNIME – pronounced “naim” – is a software package for data mining developed at the University of Konstanz in Germany. Built on a modular layout, the tool generates a graphic display of data flows among different nodes. The user can also perform a variety of analytic functions as well as examine the results with additional tools: 8

http://www.knime.org. RapidMiner – formerly known as YALE (Yet Another Learning Environment – is a platform for data mining based on machine learning techniques. The system was initially developed in 2001 at the University of Dortmund in Germany. In 2004 the project was moved to SourceForge, the online hub for open source software. RapidMiner provides more than 500 routines, also called operators, including the hundred or so functions within the Weka package. The software can be downloaded from SourceForge: http://sourceforge.net.

Depositary Receipt (DR) A Depositary Receipt (DR) denotes a share of ownership in a foreign company. The setup allows an investor to trade the equity of a remote firm on a local exchange. When the instrument is available on the U.S. bourse, the scheme is known as an American Depositary Receipt (ADR). That is, the ADR allows an investor in the U.S. to buy and sell foreign shares on a domestic bourse just like the equity of a local company. The price of the ADR is quoted in dollars, and likewise for any dividends paid out by the underlying business. Thousands of cosmopolitan firms participate in DR programs. The advantage for the target company lies in an increase in visibility in the international community, along with access to capital in a remote country. Meanwhile the attraction for the worldly investor is the ability to gain exposure to foreign firms without having to set up a brokerage account overseas or to fiddle with currency conversions in order to buy stocks. From a larger stance, a Global Depositary Receipt (GDR) is a DR that trades in a market other than the U.S. An example in 9

this vein is a stock exchange in London, Britain; or in Frankfurt, Germany. Wikipedia has a number of articles on the subject. The writeups are listed on a page dealing with the Depositary Receipt: http://en.wikipedia.org/wiki/Depositary_receipt. In the United States, the Bank of New York Mellon is a stalwart in the field of depositary receipts. The corresponding hub provides background information and market data on a slew of ADRs: http://www.adrbnymellon.com.

Economic Trends The real economy acts as a backdrop for the financial forum. As an example, an upsurge of inflation prods the central bank into raising the basic rate of interest; the hike in the cost of borrowing cuts down the profits of commercial firms along with the prospects for the stock market. More generally, the goings-on in the world at large affect the fortunes of the financial bazaar; and vice versa. For this reason, the deft investor has to keep track of a host of economic variables in order to maintain a rounded view of the global economy. To this end, the crucial features include the following factors. The national government monitors the price level faced by producers as well as consumers. In the U.S., for instance, the Producer Price Index (PPI) is maintained by the Bureau of Labor Statistics and reported in the form of charts and numbers. The same agency does likewise for the Consumer Price Index (CPI), which serves as the standard yardstick of inflation for the general public. The Web site for the agency can be found at 10

http://bls.gov. The Federal Reserve System – also known as the Fed – serves as the central bank of the United States. The organ is run by a Board of Governors located in Washington, DC, in partnership with a band of overseers ensconced at 12 branches scattered around the country. The branch sited at St. Louis, Missouri, is of particular interest to the worldly investor thanks to the host of data on the state of the economy. A case in point is the report on “International Economic Trends”. The publication provides a rundown of global markets including a lineup of charts ranging from employment and production to inflation and trade. The countries in focus span the gamut from Britain and Brazil to China and Russia. The Web site for the St. Louis office is http://stlouisfed.org.

Forecast of Real and Financial Markets There are numerous sources of guesswork on the prospects for the real economy and the financial forum. Sadly, though, the vast majority of offerings are less than worthwhile for the sober investor. On the upside, though, a small selection of resources provide valuable insights for the serious player. In this light, the standard bearers include a couple of beacons that proffer a host of auguries for free. A magazine called The Economist – which likes to refer to itself as a “newspaper” – is one of the eminent brands in the world of publishing. Despite its outspoken views on the issues of the day – or perhaps because of it – the periodical is a vital source of information for decision makers in diverse fields ranging from business and finance to politics and academe. 11

The publication covers a broad swath of subjects spanning the rainbow from business, finance and economics to politics, technology and even the arts to some extent. A case in point is a survey of up-and-coming technologies along with their prospective applications. Another feature of the magazine is the Big Mac index that serves as a proxy for the extent to which the major currencies of the world are overvalued or underpriced. The portal is located at http://www.economist.com. The Financial Forecast Center serves up auguries of real and financial markets in the U.S. and abroad. The topics in the spotlight run the gamut from economic growth and interest rates to stock markets and exchange rates. The predictions are cranked out automatically by a software engine based on historical data. The virtual oracle can turn in a remarkable performance. According to a notice at the Web site in 2012, for instance, the premium service offered by the Center boasted an accuracy of some 97% for stock markets in the U.S. and elsewhere, based on forecasts of a single month or one quarter down the road. The premium product, called Extended Forecasts, comes with a price tag of roughly $30 per year. The clients for the subscription service are said to run the gamut from British Petroleum and Toshiba America to Stanford University and McKinsey & Company. Be that as it may, the calls from the Center can at times be flaky. A case in point was the rate of interest, on an annual basis, amongst commercial banks for a type of cash reserve known as Federal Funds. In a bulletin available on the portal on 25 June 2009, the Center predicted that the average rate of interest would turn 12

out to be 0.18 percent for that very same month, whose close was just 5 days away. Yet the uncertainty of the forecast was huge by comparison: the fudge factor took the form of a 50% probability band of +0.38 percent. In other words, there were even odds that the interest rate would lie outside a broad range stretching from minus 0.20 percent to plus 0.56 percent. Due to the short timespan that remained, however, it would be unrealistic to suppose that the average rate of interest for the entire month could surge above 0.56 percent. For a different reason, the rate could not slip below zero; that was a fanciful scenario in which the central bank would have to pay a bonus to a commercial bank in order to entice the latter to borrow money. Moreover the Center predicted at the same time that the Fed Funds rate would rise to an average level of 0.22 percent during the subsequent month of July, then fall to 0.20 percent in the month after that. In practice, however, the central bank does not have a habit of jerking interest rates both up and down within the brief span of a month or two. The main reason for moving slowly is that it takes roughly half a year for any change in interest rates to work its way through the economy and thus fulfill the aims of monetary policy. In spite of its handicaps, though, the Center tends to provide better forecasts than the vast majority of human pundits in the financial arena. The virtual soothsayer is located at http://www.forecasts.org. Also see the sections on Leading Indicators and News: Commentary.

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Global Depositary Receipt (GDR) See the section on Depositary Receipt (DR).

Leading Indicators The Economic Cycle Research Institute (ECRI) is a standard bearer in predicting the course of the economy. The outfit maintains an index of leading indicators and often disseminates its views via the mass media: http://www.businesscycle.com. The Institute for Supply Management (ISM) is an educational group catering to professionals as well as organizations. On a regular basis, the outfit polls hundreds of purchasing managers in the manufacturing sector. The result of the survey is a monthly figure called the Purchasing Managers’ Index (PMI), which denotes the percentage of respondents who report improved conditions over the previous month. A value of PMI above 50% is deemed to be an upturn in business conditions, while a value below the threshold denotes a downturn. The tally of economic activity is available at the Web site under the node labeled “ISM Report on Business”: http://www.ism.ws. Also see the section above on Economic Trends.

News: Business A couple of newspapers are standard resources for investors of sundry stripes. The stalwarts include one brand rooted in Britain and another in the U.S. The Financial Times (FT), based in London, is renowned for the quality of reportage as well as insight into the global 14

marketplace. In spite of its name, the newspaper covers not only the world of finance but the realms of business, economics and politics as well: http://www.ft.com. The Wall Street Journal (WSJ) serves as the main source of news for millions of Americans on matters of finance and business. The newspaper is required reading in the U.S. for the professionals in commercial fields: http://www.wsj.com. As the home-grown brand focused on financial markets, the Journal is a security blanket for American investors. On the downside, though, the organ is more of a trade publication for the staffers working on Wall Street than a proper newspaper for the investing public. Compared to the competition, the publication is skimpy on insights that can fortify the serious investor interested in growth in a global marketplace. As it happens, the name of the gazette is highly suited to its function. The bulk of the content is parochial and inwardlooking rather than cosmopolitan and expansive, as if the financial district of New York were the center of the universe. As a result, the publication glosses over the wealth of opportunities for investment in the budding markets of the world. The same is true of the glut of threats lying in wait for the unwary investor. To bring up an example, an article is apt to present the smashup of a leveraged fund as a startling stroke of bad luck for the unfortunate operators. More to the point, the readers will get scant sense of the fact that the binge of manic speculation prior to the bust-up was a ticking bomb. That is, the levered scheme was bound to blow up sooner or later and punch out the external investors standing behind the pool. Due to the lopsided thrust, the Journal is found wanting for a genuine investor bent on sound growth in a global economy. In 15

fact, even a professional on Wall Street will have to draw on other sources of intelligence in order to thrash out a cogent strategy for a personal portfolio. To sum up, the Journal makes little or no effort to provide a balanced view of the opportunities and threats in a worldwide marketplace. For this reason, the adept player has to rely on other sources of dope in order to fix up a wholesome program of investment. We now turn to a medium of a different stripe. The Business News Network (BNN) is a cable channel based in Toronto. The station serves as the Canadian beacon on commerce and investing. The channel provides top-notch programming while drawing on bureaus in Calgary as well as New York City. On the whole, the guests on the Network – including the occasional appearance of American pundits – offer more incisive commentary than the mass of talking heads featured on U.S. channels. The levelheaded approach at BNN doubtless springs in large part from its proximity to, and affinity with, the legions of no-nonsense companies working within the extractive industries throughout the harsh and unforgiving tracts of northern Canada. A second, and related, factor involves the fact that the Toronto Stock Exchange (TSX) is the global leader in the realms of mining and energy (especially oil and gas). The bourse harbors more companies in these niches than any other exchange in the world. As a result, the TSX is heavily laden not only with outfits in the primary sector, but those in the financial sphere as well. Not surprisingly, the corresponding industries comprise the core competence at BNN. In addition, the troupe of regular and special guests at the 16

station does an admirable job of analyzing the large-scale movements of the stock markets in North America, including the gyrations of the U.S. bourse. Remarkably, the grasp of the big picture at the Network tends to surpass the acuity of its larger rivals based south of the border: http://www.bnn.ca.

News: Commentary The Internet bristles with all manner of pundits and their prognostications of real and financial markets. Unfortunately, the verbiage is full of sound and fury that signify nothing. By contrast to popular perception, the mass of swamis spew out bodements that often turn out to be more harmful than helpful for the beleaguered investor. The sad state of affairs is spotlighted by the fact that even the most renowned gurus as a group lag behind the performance of a coin in predicting the direction of the stock market. In fact, the bulk of commentary by the talking heads constitutes knee-jerk reactions to the latest upthrows in the marketplace rather than thoughtful assays of weighty events. The parade of swamis featured in the mass media have a remarkable knack for talking a lot while saying nothing of import for the genuine investor. On the upside, though, a select group of mavens have plenty of insights to offer a sober audience. The topics on hand span the rainbow from the analysis of individual stocks and index funds to the appraisal of raw materials and emerging markets. The methods employed by the true wizards range from the extraction of cyclic patterns from a mass of noisy data to the detection of nascent trends in the global marketplace. Other nuggets in the repertory include the impact of current tensions on the geopolitical front and the import of future shifts in 17

population dynamics. In spite of – or due to – the broad range of concerns, the lineup of surveys can provide a solid groundwork for building up a cogent program of investment. The nubs of insight can serve as building blocks for molding a custom agenda tailored to the personal circumstances of the investor. The traits of this stripe range from financial resources and income targets to risk tolerance and retirement plans. Moreover a choice selection of resources offer telling insights at no cost to the audience. The hubs listed below provide some of the most compelling surveys and pointers in the world of investing. A given hub might feature a single person or outfit, while others may showcase an entire pantheon of experts. Depending on the Web site, the target audience could range from novice investors and intermediate players to advanced gamers and professional traders. MarketWatch serves up a variety of articles prepared by a small crew of commentators. A renowned example in this camp is Mark Hulbert of the Hulbert Financial Digest. For the thoughtful investor, the main attraction of the portal is the “Newsletters” node, which in turn lies within the “Commentary” section of the Web site. The articles on offer present ideas clearly and concisely, without hiding behind scads of jargon. The contents are especially apt for investors at the beginning and intermediate levels: http://www.marketwatch.com/commentary/newsletters. A site named SafeHaven presents an eclectic set of articles from motley professionals in the financial arena. The topics in hand span the gamut from common stocks and natural resources to market cycles and secular trends. The main 18

audience is the investor with at least several years of experience in the marketplace: http://www.safehaven.com. A similar offering is available on the opposite side of the Atlantic. The Market Oracle, based in Britain, dishes out a cornucopia of piquant fare dealing with finance and economics. The topics of interest range from the stock market and interest rates to foreign exchange and precious metals. The articles are directed mostly toward investors at the intermediate and advanced levels: http://marketoracle.co.uk. A financial channel called the Business News Network (BNN) has been showcased above within the section on “News: Business”. For our purpose here, one of the regular guests on BNN deserves special mention: Larry Berman, who also wears a hat as the chief investment advisor at ETF Capital Management. The wizard offers a host of observations on diverse markets in Canada and elsewhere. The same is true of the vehicles for investment, especially in the form of basic stocks and exchange traded funds. The reviews tend to focus on North America, which acts as a bellwether for the entire system of finance and economics round the globe. The commentary is a dandy resource for myriads of investors at the beginning or intermediate levels of experience. Larry Berman also maintains a blog at BNN. The posts deal with assorted tidbits on financial issues in tandem with trends and outlooks on global markets. The entries for the blog come from the tutorial section of the show at BNN, known as Berman’s Call. A full session of the 19

program deals with the prospects for motley markets including individual stocks and exchange traded funds. The blog is located at http://www.bnn.ca/Blogs.aspx?author=LarryBerman. We turn now to a radio channel of sorts. Talk Digital Network broadcasts a series of audio interviews with experts in real and financial markets. The guests are tapped largely for their expertise in natural resources ranging from precious metals to fossil fuels. The standard themes on the channel include the impact of emerging countries and business cycles on the global market for raw materials. From its base in Canada, the portal provides a wealth of insights on North America as well as the world economy at large. The online hub is located at http://talkdigitalnetwork.com. BCA Research is a pacesetter in sizing up the financial forum and the real economy. The outfit keeps tabs on a plethora of markets round the world. Thanks in part to a lively program of research, the market analyst uncovers trends in the early stages and offers insights of peerless quality. A welcome treat for the Netizen is an assortment of sketches offered for free to all comers. The snapshots present a variety of findings uncovered by the staffers. In particular, each of the charts presented in a thumbnail is worth a myriad words. The main audience for the briefings is the expert investor with many years of experience in global markets: http://www.bcapub.com.

News: Technology Technology is a vital concern for investors of all breeds. For 20

one thing, a radical breakthrough can render obsolete a raft of techniques along with the companies working within a particular field. In certain cases, an innovation can wipe out an entire industry, as in the onslaught of word processors in the market for manual typewriters. Given this backdrop, it behooves the adroit player to keep track of novel technics whether or not they happen to invest in high-tech companies. InformationWeek is a popular resource on the commercial side of information technology. The main audience consists of professionals in infotech departments within largish firms. Even so, the content is suitable for a broader readership. The Web site offers a variety of articles, audios and videos: http://www.informationweek.com. TechCrunch is a professional blog on Internet products and companies: http://www.techcrunch.com. The hub stands at the center of a bunch of sites that deal with narrower topics. An example of the latter is a portal for mobile products, or a nexus dedicated to digital products and startups in Europe. The Industry Standard offers a potpourri of articles on platforms and products grounded on information technology, along with business developments in the field: http://www.thestandard.com. Also see the section on Venture Capital.

Real Estate In many countries round the globe, real estate makes up the lion’s share of the entire storehouse of wealth owned by the denizens. There are a number of reasons for the primacy of realty as an asset class. 21

One factor lies in the favorable treatment of the cost of ownership as opposed to the rental of a property. More precisely, a homeowner is apt to pay out less in taxes over the long haul than the renter of a similar unit. Yet another driver springs from the leverage afforded by a mortgage. An example is a buyer who puts down only half of the purchase price and borrows the rest from a bank. If the value of the property rises by 10%, then the homeowner enjoys a rise in equity of some 20%. For these and other reasons, homeowners tend to expand their net wealth over time. As a result, many folks get the impression that real estate is an easy way to grow rich. What most people don’t realize, though, is that the ease of amassing wealth applies only to a personal homestead. When a homeowner turns into a landlord, the setup differs entirely. In that case, renting out properties is a business like any other. Actually, it’s worse than many other forms of enterprise. To begin with a counterexample, a publisher can stop sending out magazines to a customer who does not pay their bill. In a similar way, a shopkeeper can eject a troublemaker who causes a ruckus or helps himself to the goods without paying for the merchandise. By contrast, a landlord does not have a comparable set of rights. In many countries round the world, a tenant has the right to live in the property even if they fail to pay the rent for months or years on end. In many parts of Europe, for instance, it takes about 3 years to evict a tenant by due process of law. And in some cases, a squatter has lifetime security; the moocher can’t be thrown out no matter what happens. 22

The moral of the story comes in multiple parts. For starters, the canny investor has to do their homework by seeking out reliable information on the Internet and from other sources. For this purpose, the relevant factors range from the prospects for economic growth within the region to the affordability of real estate in relation to local wages. Another task of the shrewd player is to sit down with their financial advisor as well as tax counselor in order to explore a variety of vehicles for investment. An example lies in the choice of buying a property directly as a private individual, or indirectly by setting up a holding company, along with the financial as well as legal implications for each approach. Another crucial factor lies in the exit strategy. The sage player pictures in advance how long they expect to keep the property, and how they plan to dispose of it in due course. Given the slew of headaches in store, the decision maker ought to think twice – or better yet, more than a dozen times – about buying a property abroad chiefly for the purpose of investment. If the go-getter is still unfazed by the stumbling blocks, then the battery of resources below can serve as a trusty point of departure. Wikipedia has a short introduction to the market for real estate. The reader should not be put off by the lawyer-like talk at the beginning of the article; the rest of the material is more readable. The primer on real estate has a bunch of links to additional resources: http://en.wikipedia.org/wiki/Real_estate. The Global Property Guide offers articles and statistics on a slew of housing markets across the planet. In comparing the property sector amongst different countries, the Guide looks at the prices of large apartments in major cities round the world. The benchmark for comparison is an apartment of 120 square 23

meters (about 1,292 sq. feet). On the downside, though, this type of dwelling is not at all representative of the bulk of the housing stock in any country. More precisely, this type of abode will appeal mostly to the minute population of upscale expats assigned to the locality on a temporary basis by international firms or foreign governments. By contrast, an independent expat – such as a tour guide or an English tutor – is unlikely to pay for such sumptuous quarters even if they could afford it, which they probably can’t. As for the local denizens, a young worker or a small family is apt to live in a small apartment of perhaps half the size or thereabouts. Meanwhile the property of choice for a larger family is a house in the suburbs. The administrative office for the Guide happens to be based in Manila, Philippines. In spite of its location, the portal is far more than a regional operation. In fact, the perspective at the portal is fully global and comprehensive: http://www.globalpropertyguide.com. A comparison of housing markets round the planet is available at Numbeo. The site provides data and assays for more than a thousand cities in diverse countries. The information on offer ranges from the affordability of housing for residents to the rental yield available to investors. Other nuggets include the cost of living for the locals and the cost of travel – such as hotel expenses – for visitors. The dope is available at http://www.numbeo.com. The Royal Institution of Chartered Surveyors (RICS) is an independent organization that regulates surveyors and other professionals in the property sector. The organ sets up training standards for the benefit of its membership and enforces codes of conduct to protect the public, while providing advisory 24

services to governments and companies. Although RICS is based in London, it maintains offices around the globe ranging from the U.S., Australia and Hong Kong to Dubai, India and South Africa. Its members are located in approximately 150 countries. The Web site offers a potpourri of reports and articles. Another feature is a periodical on selected observations on the state of the property market round the world. The portal is located at http://www.rics.org. TheMoveChannel, based in London, maintains a database of residential as well as commercial properties across the planet. Although the coverage for some countries may be skimpy, the portal provides a window into the latest hotspots: http://www.themovechannel.com. Assetz is a group of agencies dealing with real estate investments. The service providers perform a variety of functions, such as acting as agents for investors who plan to buy properties for personal use or rental income. Another offering involves a lineup of communal pools that take in cash from external investors and use the money to purchase and rent out properties. The service provider handles properties in a number of countries ranging from Britain and the U.S. to Portugal and Cyprus. The group is based in Stockport, near central England: http://www.assetz.co.uk. In certain countries, a popular mode of investment is found in a leaseback scheme. For this type of setup, the investor buys a property then leases it to an agency that takes responsibility for managing the property. In return, the owner receives a guaranteed income each year. The payout is apt to range from 3 to 6 percent of the purchase 25

price of the property. Depending on the details of the arrangement, including the mode of indexation to the inflation rate, the payment could increase slightly from one year to the next. The leaseback scheme is especially prevalent in France, where there are tax advantages to be had. In the case of a holiday property such as a ski lodge or a seaside resort, the owner might be able to reserve the property for a portion of the year for personal use in exchange for a reduction in the guaranteed flow of income. The standard duration of a leaseback contract is a stretch of 9 to 11 years. As a rule, the property manager likes to retain the option of renewing the contract for a second term. In short, a key attraction of the leaseback scheme for the investor stems from the outsourcing of the busywork in managing the property. A second draw lies in the guaranteed income in the interim, followed by the capital gain at the end of the leaseback period. The third lure stems from the tax breaks, such as the rebate by the French government of the value added tax amounting to 19.6% of the purchase price of the property. Naturally, there are some drawbacks as well. A notable example lies in the penalty entailed if the property owner should decide to terminate the contract prior to its original date of expiration. A quick survey of the leaseback concept is given in Wikipedia: http://en.wikipedia.org/wiki/Leaseback. After the orientation, the interested reader can find plenty of additional materials by making use of a search engine on the Internet. The National Association of Realtors is a trade group in North America. The membership comprises more than 1 million 26

brokers, societies and other organizations involved in the real estate industry. In a given district, city or region, the property brokers often share information though an online portal called a Multiple Listing Service (MLS). Many of these sites adhere to the policies set by the Association. On the other hand, some of the portals belong to agencies that are not part of the trade group. The main site is located at http://www.realtor.com. One of the jumbo trends of the millennium is the groundswell of senior citizens that make up a growing share of the population. As the ranks of the oldsters continue to burgeon, their decisions on where to live and what to buy can have a huge impact on entrepreneurs and investors of all stripes, including those involved in real estate. A service provider that caters to this market is a newsletter called International Living. The publication is grounded on the premise that retirees can enjoy a better lifestyle at lower cost by moving out of costly locales such as North America and Northern Europe. The Web site is located at http://www.internationalliving.com. The hub offers a smorgasbord of delectable fare. An example is an annual report on the top candidates as retirement havens. For this survey, a major consideration is the cost of living. The top spots are often snagged by a bunch of countries in Latin America and further south. In recent years, the leading choices have ranged from Mexico and Panama to Uruguay and Ecuador. Within Europe, Italy and France are perennial favorites of the judges. Given the tenor of the articles, the main audience for the newsletter is located in North America and to a lesser extent Western Europe. In line with this slant, a number of emerging 27

regions are given short shrift. An example in this vein is Southeastern Europe. More precisely, the countries on the Adriatic Sea – such as Croatia and Montenegro – have become increasingly popular with the citizens of the European Union. The story is similar for other hotspots such as the seaside resorts of Bulgaria and the ski slopes of Romania. Even so, the newsletter glosses over the up-and-coming locales. From a larger stance, the long-running uptrend in travel abroad for vacation and retirement is a boon for the target countries. Over the short term, the influx of foreigners and their purses raises the income levels for the workers in the tourist industry. Over the longer range, the pool of expats attracts Western outfits ranging from travel agents to commercial banks. With the passage of time, the local employees gain experience with business skills and managerial functions. The transfer of knowledge comes in handy when the time comes for the live wires to set up ventures of their own. The large-scale transformation of the economy is of course a secondary issue at best for an investor in the budding country. The main factor lies in the upsurge of tourists and expats: the onrush swells the demand for real estate and brings the money required to raise prices.

Risk Risk is a constant companion of the investor. As a rule, the threat level rises with the potential for gains: the greater the promise, the bigger the chance of a flop. The most important form of risk is the prospect of total collapse. A showcase lies in the sudden breakdown and demise 28

of a hedge fund. Sadly, though, the professionals in the financial bazaar have a habit of stuffing this bogey in the closet, out of plain view of the investing public. The same is largely true for the mass media, which often takes its cues from the promoters and apologists in the circus of finance. The second, and less virulent, form of risk comes from the tumult due to the jumpy prices. This type of pother is a bugbear that everyone loves to talk about. As a result, there’s far more discussion about the minor headache of chronic flutter than the major bane of terminal breakdown. One way to gauge the volatility of an asset is to determine how much the return on investment varies over time. As an example, suppose that a stock named Al had an average gain of 9 percent per year over the past decade, with scant variation in performance from one period to the next. By contrast, an equity called Bo also turned in 9 percent a year. On the other hand, the returns varied hugely from one year to the next. In general, the sober investor has a fondness for high payoff with low risk. For this reason, Al would be viewed more favorably than Bo on the basis on risk-adjusted returns. Chronic Risk of Turbulence In the field of statistics, a standard way to gauge the dispersion of a bunch of figures is to compute a quantity known aptly enough as the standard deviation. From an intuitive stance, the latter yardstick is a measure of the extent of scatter amongst the numbers. To take up a straightforward approach, the standard deviation 29

can be computed from the raw prices for an asset in terms of absolute dollars. An alternative tack is to calculate the return on investment from one period to the next, then figure out the standard deviation of the train of relative payoffs. The latter scheme is the usual procedure adopted by the financial community. Its advantage lies in the ease of comparing the volatility of disparate assets ranging from stocks to commodities. To bring up a simple example, suppose that the average return on a stock happens to be 10 percent a year, while the standard deviation is 3 percent. In that case, roughly two-thirds of the observations are apt to lie within 3 percentage points of the average value. In other words, the bulk of the returns will likely fall in a band ranging from 7 percent (which corresponds to 10 – 3) to 13 percent (which amounts to 10 + 3). In the financial arena, another popular yardstick lies the relative movement of an asset compared to the market as a whole. To be precise, the beta of an asset refers to the fractional change in price on average divided by the corresponding shift for the broader market. As an example, suppose that the beta value for a stock happens to be 2. In that case, the equity tends to surge by 2 percent when the bourse as a whole swells by 1 percent. By the same token, the stock is prone to fall by twice as much as the broader market during a downturn. A lot of folks think of the two yardsticks – the standard deviation and the beta – as independent measures of the flightiness of an asset. In reality, though, the two measures happen to be interlinked in a conceptual way as well as a practical sense. 30

For the bulk of investors, though, the main point is that the two gauges tend to move in the same direction depending on the volatility of an asset. To wit, a flighty stock features a higher value of beta than a demure one; and vice versa. The story is similar for the standard deviation. An introduction to financial risk is available at MintKit: http://www.mintkit.com/risk. Risk-Adjusted Return As a group, investors are partial to high returns at low risk. One way to combine the opposing factors into a single yardstick is to divide the average value of the returns by the average dispersion of gains. The resulting quotient is known as the risk-adjusted return (RAR). The RAR is a straightforward measure of the payoff from an asset that takes into account the turbulence over the holding period. As an example, suppose that the average return on a stock called Cy happened to be 10% per year, while the standard deviation was 20%. In that case, the risk-adjusted gain would be to 10/20; or 0.5 in decimal form. At this stage, we should note that the average dispersion can exceed the mean return since an asset can experience large swings into negative territory. For instance, consider a stock named Di which rose by 50% during the first year, then fell by 40% in the second year. Over the 2-year span, the security had an average return of 10%, but the divergence of the payoffs was huge. Up to this stage, we looked at a simple way to gauge the return on investment while taking into account the turbulence of the market in the interim. On the other hand, we can refine the yardstick in a number of ways. 31

To take up an alternative scheme, we consider an investor faced with the choice of funneling their savings into a flighty asset or a sedate one. A prime example of the latter is a shortdated bond issued by the U.S. Treasury. This type of security is regarded by the financial community as a riskless asset. The reason lies in the ability of the government to print any amount of money as required, out of thin air, in order to pay off the debt. In other words, the risk of default is zilch. An investor can always choose to procure a risk-free bond rather than a dicey widget such as a stock. In that case, the crucial concern is the extent to which the payoff from an equity can outpace the return on a bond. The difference between the return on the risky asset and that from the riskless bond is called the excess return. For the sake of simplicity, we will refer to the excess return as the surfeit for holding a risky asset. In that case, the task of the investor boils down to weighing the average worth of the premium in view of its volatility over time. The mean value of the surfeit divided by its volatility is known as the Sharpe ratio. Clearly, a high value of the Sharpe ratio is preferable for an investor than a lower one. By way of comparison, we examine the corresponding figure for the most popular benchmark of the stock market used by professionals; namely, the S&P index of 500 leading equities. In this light, a fact sheet at Standard & Poor’s (standardandpoors.com) asserts that the Sharpe ratio for the benchmark over the course of 5 years ending in spring 2012 was a mite over 0.042. The latter value can serve as a baseline in sizing up other types of assets. The fields of application range from solitary stocks 32

and compound benchmarks to raw commodities and communal funds. A brief note on the risk-adjusted return for an investment can be found at Wikipedia: http://en.wikipedia.org/wiki/Risk_adjusted_return_on_capital. The thumbnail provides links to additional articles.

Venture Capital Venture capital (VC) deals with the investment of funds in youthful firms endowed with the potential for high growth. In exchange for the funding, a VC firm typically acquires a significant stake in the equity of the company as well as a position on the board of directors. The usual aim of the benefactor is to cash out about 3 to 7 years down the road. At that stage, an initial public offering (IPO) of the company on a stock exchange would allow the patron could sell their shares to the general public. An alternative tack involves a trade sale by which the business is acquired by another firm through a private transaction. An introduction to venture capital is available at Wikipedia: http://en.wikipedia.org/wiki/Venture_capital. Red Herring magazine covers the scene at the crossroads of technology, innovation and commerce. The topics in hand include venture capital and newborn firms: http://www.redherring.com. The Resources section at Garage Technology Ventures offers a sampling of insights from the viewpoint of a venture capitalist: http://www.garage.com. Also see the section on Business Incubator and News: Technology. 33

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About the Author Steven Kim is the founder of MintKit Institute, a think tank on investing for sound growth in a global marketplace. The research program spans the spectrum from global trends and market dynamics to world-class ventures and investment strategies. The author has counseled and trained self-starters of diverse backgrounds, ranging from budding entrepreneurs and senior executives to international investors and public officials.

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Keywords: Review, Investing, Global, Outlook, Forecast, Prediction, Stocks, Financial, Markets, Risk, Real Estate, Technology, Economy, Venture Capital, Top, Resources

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