Buffett: In my early days I, too, rejoiced when the market rose. Now, low prices became my friend.

Buffett highlights the irrational reaction of many investors to changes in stock prices.

Today, IBM has 1.16 billion shares outstanding, of which we own about 63.9 million or 5.5%.  Naturally, what happens to the company’s earnings over the next five years is of enormous importance to us.  Beyond that, the company will likely spend $50 billion or so in those years to repurchase shares. Our quiz for the day: What should a long-term shareholder, such as Berkshire, cheer for during that period?

I won’t keep you in suspense. We should wish for IBM’s stock price to languish throughout the five years.


The logic is simple: If you are going to be a net buyer of stocks in the future, either directly with your own money or indirectly (through your ownership of a company that is repurchasing shares), you are hurt when stocks rise. You benefit when stocks swoon. Emotions, however, too often complicate the matter:

  • Most people, including those who will be net buyers in the future, take comfort in seeing stock prices advance. 
  • These shareholders resemble a commuter who rejoices after the price of gas increases, simply because his tank contains a day’s supply.

Charlie and I don’t expect to win many of you over to our way of thinking – we’ve observed enough human behavior to know the futility of that – but we do want you to be aware of our personal calculus. And here
a confession is in order: In my early days I, too, rejoiced when the market rose. Then I read Chapter Eight of Ben Graham’s The Intelligent Investor, the chapter dealing with how investors should view fluctuations in stock prices. Immediately the scales fell from my eyes, and low prices became my friend. Picking up that book was one of the luckiest moments in my life.

In the end, the success of our IBM investment will be determined primarily by its future earnings. But an important secondary factor will be how many shares the company purchases with the substantial sums it is likely to devote to this activity. And if repurchases ever reduce the IBM shares outstanding to 63.9 million, Smiley I will abandon my famed frugality and give Berkshire employees a paid holiday. Smiley


When Berkshire buys stock in a company that is repurchasing shares, we hope for two events:

  • First, we have the normal hope that earnings of the business will increase at a good clip for a long time to come; and 
  • second, we also hope that the stock underperforms in the market for a long time as well. A corollary to this second point: “Talking our book” about a stock we own – were that to be effective – would actually be harmful to Berkshire, not helpful as commentators customarily assume.


Share Buybacks: Mixed Emotions evoked when Berkshire shares sell well below Intrinsic Value

Share Repurchases

Last September, we announced that Berkshire would repurchase its shares at a price of up to 110% of book value. We were in the market for only a few days – buying $67 million of stock – before the price advanced beyond our limit. Nonetheless, the general importance of share repurchases suggests I should focus for a bit on the subject.

Charlie and I favor repurchases when two conditions are met: 
  • first, a company has ample funds to take care of the operational and liquidity needs of its business; 
  • second, its stock is selling at a material discount to the company’s intrinsic business value, conservatively calculated. 

We have witnessed many bouts of repurchasing that failed our second test. Sometimes, of course, infractions – even serious ones – are innocent; many CEOs never stop believing their stock is cheap. In other instances, a less benign conclusion seems warranted.

  • It doesn’t suffice to say that repurchases are being made to offset the dilution from stock issuances or simply because a company has excess cash. 
  • Continuing shareholders are hurt unless shares are purchased below intrinsic value. 
The first law of capital allocation – whether the money is slated for acquisitions or share repurchases – is that what is smart at one price is dumb at another. (One CEO who always stresses the price/value factor in repurchase decisions is Jamie Dimon at J.P. Morgan; I recommend that you read his annual letter.)

Charlie and I have mixed emotions when Berkshire shares sell well below intrinsic value. We like making money for continuing shareholders, and there is no surer way to do that than by buying an asset – our
own stock – that we know to be worth at least x for less than that – for .9x, .8x or even lower. (As one of our directors says, it’s like shooting fish in a barrel, after the barrel has been drained and the fish have quit flopping.)

Nevertheless, we don’t enjoy cashing out partners at a discount, even though our doing so may give the selling shareholders a slightly higher price than they would receive if our bid was absent. 

  • When we are buying, therefore, we want those exiting partners to be fully informed about the value of the assets they are selling. 
  • At our limit price of 110% of book value, repurchases clearly increase Berkshire’s per-share intrinsic value. 
  • And the more and the cheaper we buy, the greater the gain for continuing shareholders. 
Therefore, if given the opportunity, we will likely repurchase stock aggressively at our price limit or lower.

You should know, however, that

  • we have no interest in supporting the stock and that our bids will fade in particularly weak markets.
  • Nor will we buy shares if our cash-equivalent holdings are below $20 billion. At Berkshire, financial strength that is unquestionable takes precedence over all else.

Boosting Berkshire Hathaway Profits: Through organic growth and through purchasing some large operations.

-  I also included two tables last year that set forth the key quantitative ingredients that will help you estimate our per-share intrinsic value. I won’t repeat the full discussion here; you can find it reproduced on pages 99-100. To update the tables shown there, our per-share investments in 2011 increased 4% to $98,366, and
our pre-tax earnings from businesses other than insurance and investments increased 18% to $6,990 per share.

Charlie and I like to see gains in both areas, but our primary focus is on building operating earnings. Over time, the businesses we currently own should increase their aggregate earnings, and we hope also to purchase some large operations that will give us a further boost. We now have eight subsidiaries that would each be included in the Fortune 500 were they stand-alone companies. That leaves only 492 to go. My task is clear, and I’m on the prowl.

Comment:  In managing Berkshire Hathaway, Buffett's primary focus in on building operating earnings.  He expects his existing companies can increase their aggregate earnings.  He hopes to boost these earnings further through purchasing some large operations.

Intrinsic Business Value - Look for the long term growth in the intrinsic values of your invested businesses.

Intrinsic Business Value

Charlie and I measure our performance by the rate of gain in Berkshire’s per-share intrinsic business value. If our gain over time outstrips the performance of the S&P 500, we have earned our paychecks. If it doesn’t, we are overpaid at any price.

We have no way to pinpoint intrinsic value. But we do have a useful, though considerably understated, proxy for it: per-share book value. This yardstick is meaningless at most companies. At Berkshire, however, book value very roughly tracks business values. That’s because the amount by which Berkshire’s intrinsic value exceeds book value does not swing wildly from year to year, though it increases in most years. Over time, the divergence will likely become ever more substantial in absolute terms, remaining reasonably steady, however, on a percentage basis as both the numerator and denominator of the business-value/book-value equation increase.

Comment:  It is not easy to determine intrinsic value.  The best PROXY for intrinsic value of Berkshire Hathaway is its book value.  Though this closely tracks the intrinsic value of Berkshire Hathaway,  it actually understates the intrinsic value of the company.  Nevertheless, Buffett opines that using book value to denote intrinsic value is meaningless for most other companies.

We’ve regularly emphasized that our book-value performance is almost certain to outpace the S&P 500 in a bad year for the stock market and just as certainly will fall short in a strong up-year. The test is how we do over time. Last year’s annual report included a table laying out results for the 42 five-year periods since we took over at Berkshire in 1965 (i.e., 1965-69, 1966-70, etc.). All showed our book value beating the S&P, and our string held for 2007-11. It will almost certainly snap, though, if the S&P 500 should put together a five-year winning streak (which it may well be on its way to doing as I write this)

Comment:  Psychological forces trump the fundamental forces in the short term.  In the long term, the fundamental forces always trump the psychological forces that affect the stock price of a company.  Buffett looks at long term performances.  He highlighted that in any given 5 year period, the percentage gains in book value of Berkshire Hathaway have beaten those offered by the S&P 500.


Buffett's Big 4 Investments in Marketable Securities - American Express, Coca Cola, IBM and Wells Fargo

-  Finally, we made two major investments in marketable securities:

  • (1) a $5 billion 6% preferred stock of Bank of America that came with warrants allowing us to buy 700 million common shares at $7.14 per share any time before September 2, 2021; and 
  • (2) 63.9 million shares of IBM that cost us $10.9 billion
Counting IBM, we now have large ownership interests in four exceptional companies:

  • 13.0% of American Express, 
  • 8.8% of Coca-Cola, 
  • 5.5% of IBM and 
  • 7.6% of Wells Fargo. 
  • (We also, of course, have many smaller, but important, positions.)

Comment:  "Buying wonderful company at fair price" and "holding period is forever".   This is classically Buffett's style.

We view these holdings as partnership interests in wonderful businesses, not as marketable securities to be bought or sold based on their near-term prospects. Our share of their earnings, however, are far from fully reflected in our earnings; only the dividends we receive from these businesses show up in our financial reports. Over time, though, the undistributed earnings of these companies that are attributable to our ownership are of huge importance to us. That’s because they will be used in a variety of ways to increase future earnings and dividends of the investee. They may also be devoted to stock repurchases, which will increase our share of the company’s future earnings.

Comment:  Buffett buys and holds for the long term.  He keeps these companies for their long-term prospects, knowing that he will obtain good returns from these companies, either through the dividends they distribute or through the undistributed growing earnings attributable to the owners from its reinvested retained earnings.

-  Had we owned our present positions throughout last year, our dividends from the “Big Four” would have been $862 million. That’s all that would have been reported in Berkshire’s income statement. Our share of this quartet’s earnings, however, would have been far greater: $3.3 billion. Charlie and I believe that the $2.4 billion that goes unreported on our books creates at least that amount of value for Berkshire as it fuels earnings gains in future years. We expect the combined earnings of the four – and their dividends as well – to increase in 2012 and, for that matter, almost every year for a long time to come. A decade from now, our current holdings of the four companies might well account for earnings of $7 billion, of which $2 billion in dividends would come to us.

Comment:  Only the dividends received are reported in Berkshire Hathaways account.  This is only a fraction (36%) of the actual earnings of $3.3 billion.  Buffett opines that these dividends will continue to grow as the retained earnings fuel earnings gains in future years.  I like the way Buffett projects the future earnings of these companies.

  • For present earnings of $3 billion to grow to $7 billion in 10 years, he is projecting a CAG of 8.84%.  
  • Projecting the dividends of $862 million growing to $2 billion in a decade is the equivalent of the dividends growing at a CAG of  8.77% for the same period.  
  • The growth rates used in his projections are very conservative (8.84% and 8.77%).  Maybe Buffett just uses his simple rule of thumb of doubling the earnings or dividends every 10 years.
  • Once again, he reiterates that $1 retained earnings by the company should deliver at least $1 value to the shareholder.

Buffett Loves The Insurance Operations that deliver "float" or costless capital of $70 BILLION .

• Our insurance operations continued their delivery of costless capital that funds a myriad of other opportunities.

  • This business produces “float” – money that doesn’t belong to us, but that we get to invest for Berkshire’s benefit. 
  • And if we pay out less in losses and expenses than we receive in premiums, we additionally earn an underwriting profit, meaning the float costs us less than nothing. 
  • Though we are sure to have underwriting losses from time to time, we’ve now had nine consecutive years of underwriting profits, totaling about $17 billion. 
  • Over the same nine years our float increased from $41 billion to its current record of $70 billion. Insurance has been good to us


Growth Investing Examples from Berkshire Hathaway

-  On September 16th we acquired Lubrizol, a worldwide producer of additives and other specialty chemicals. The company has had an outstanding record since James Hambrick became CEO in 2004, with pre-tax profits increasing from $147 million to $1,085 million. Lubrizol will have many opportunities for “bolt-on” acquisitions in the specialty chemical field. Indeed, we’ve already agreed to three, costing $493 million. James is a disciplined buyer and a superb operator. Charlie and I are eager to expand his managerial domain.

Comment:  Lubrizol grew its pre-tax profits from $147 million from 2004 to $1,085 million.   Thus its pre-tax profit has grown at the compound annual growth rate of 33.05% over 7 years.

  • Buffett likes this company for its good earnings growth.  
  • The good earnings growth rate also is reflective of the good business fundamentals of this company.
  • Buffett loves buying / owning wonderful company (that are growing).

-  Our major businesses did well last year. In fact, each of our five largest non-insurance companies – BNSF, Iscar, Lubrizol, Marmon Group and MidAmerican Energy – delivered record operating earnings. In aggregate these businesses earned more than $9 billion pre-tax in 2011. Contrast that to seven years ago, when we owned only one of the five, MidAmerican, whose pre-tax earnings were $393 million. Unless the economy weakens in 2012, each of our fabulous five should again set a record, with aggregate earnings comfortably topping $10 billion.

1994:  Mid American contributed pre-tax earnings of $393 million.
2011:  BSNF, Iscar, Lubrizol, Marmon Group and MidAmerican Energy earned $9 billion pre-tax.

  • BSNF and Lubrizol are recent acquisitions of Buffett.  
  • Buffett likes these companies for their earnings and growth.  
  • Buffett even projected that their aggregate earnings will top $10 billion next year, 2012 (a growth rate of 11%).

    -   In total, our entire string of operating companies spent $8.2 billion for property, plant and equipment in 2011, smashing our previous record by more than $2 billion. About 95% of these outlays were made in the U.S., a fact that may surprise those who believe our country lacks investment opportunities. We welcome projects abroad, but expect the overwhelming majority of Berkshire’s future capital commitments to be in America. In 2012, these expenditures will again set a record.

    Yes, to grow one has to re-invest.  Looks like Buffett reinvest all the free cash flows ($8.2 billion capital expenditure) for future growth.

    How To Teach Your Child About Investing

    February 29 2012

    Have you taught your children about investing?

    As your child becomes more aware of money and other financial concepts, it is vital that you arm them with some important investment knowledge. Thumbs Up  Read on to find out how to impart some investing smarts to your children. If you don't have the basic knowledge required for investing, and need to learn more yourself, read Investing 101: A Tutorial For Beginner Investorsbefore we start.

    Investing Should Be a Family Activity

    Some parents are guilty of not discussing personal finance with their children, and almost all parents are guilty of not discussing investing with their children. Investing should be a family activity.Thumbs UpChildren mature at different rates, so it may take some time before your child is ready to tackle concepts like portfolio creation and asset allocation; however, the basics of investing can be taught quite young.Thumbs UpThumbs Up

    Risk and Reward

    Before you have your kids spending Saturdays at the library using the internet to check company profiles, you will have to explain risk and rewardThumbs Up Risk is the possibility that an investment will lose some or all of its value. Reward is the percentage of gain that your investment experiences over time - the return on investment (ROI).

    Below we will sketch a brief picture of the two more common investments: debt securities and stocks.Thumbs UpThumbs UpThumbs Up

    Easy Ideas to Tell Your Kids About: Stocks

    Stocks are variable risk, variable return investments. On the whole, they are categorized as high risk and high return. You have to make it clear that all the risks involved in the stock markets can't be predicted.

    Enron and other companies have proved that accounting sheets can be tampered with and CEOs can lie. But even with the unknown risks, the stock market is a strong investment because, over time, it has seen a general rise.  Thumbs Up 

    SEE: Stocks Basics

    Easy Ideas to Tell Your Kids About: Debt Securities

    bond is a low-risk, low-return investment. Typically, bonds pay only a small amount over the prime interest rate because they are backed by stable institutions (usually banks or governments). You can buy bonds from unstable regions of the world that offer better returns, but these countries often have unstable governments, so you can't necessarily count on getting that return down the road.

    Therefore, it may be best start your child with stocks and explain that bonds become more important as you age and need guaranteed investments. Thumbs UpYour child will probably not have enough money to make bonds worthwhile, and may actually lose money to inflation.

    Getting Your Child's Attention

    When you are checking your stocks, show your child the companies of which you own a small part. Thumbs Up If you own any exciting companies that might be of interest to your children - plane manufacturers like Boeing, sports equipment specialists like Bauer, technology and video game companies like Sony - make sure that you request the company's current investor relations package, or print it off the internet, Thumbs Upso that you can show your child more about those companies, including how much they earned, what they make and how many people work for them.

    Then you can ask your child what company he or she would like to buy.Thumbs Up Children have favorites even if they are not aware of them. For example, Nike, Nintendo, Sony and Disney are popular with most children. Once again, you can go on the internet or write a letter to these companies to get a copy of the investor's package. This will give your child something interesting to flip through, even though he or she may not understand all the papers inside. Disney, for example, has an investor relations newsletter that features a rotating cast of characters parading through their announcements.

    Buying and Tracking

    Once you have introduced your child to some basic concepts, you can sit down together allow him or her to select a company.Thumbs Up If you have the money, you can buy the stock and track it with your child. You should give the statements to him or her to keep in a financial binderThumbs Up Thumbs UpThumbs UpThumbs Up (you can add his or her banking information here also and separate the two different sections with a divider). If you don't have the money, make an artificial portfolio and track the stock for fun. You can even do it on this site: try out Investopedia's Stock Simulator.

    You and your child can follow your stocks with daily, weekly and monthly summaries on Yahoo! Finance.

    When your child is older, you can provide a more in-depth explanation of stocks and other investments. Thumbs Up Eventually, you want to let your children buy their own stocks. Your child may have enough cash diligently saved up in a savings account by the time he or she is interested in investing. Don't put it all into a bond or the stock market, but invest a third in each and keep a third in savings.  Thumbs Up Thumbs Up This will allow your child to compare the performance of a savings bond, stocks of his or her choosing and the interest from a bank account.Thumbs UpThumbs Up

    If your child doesn't have any money, you have two options. You can use $100 of your own money to open a discount brokerage account for your child to make investments through, or you can continue to use an artificial portfolio of stocks that your child wants to buy some day. In the latter case, you will need to find ways to maintain your child's motivation. Thumbs Up 


    If you are able to pick stocks together and track them when your children are young, they will get a sense of the up-and-down cycles that stocks go through. Thumbs UpThumbs Up This understanding will prepare them for riding out market fluctuations and making informed decisions when others panic. Thumbs UpThumbs Up

    During all this, you want to allow your child to make real decisions and take real risks. Yes, your child may lose money, but the purpose of this exercise is to familiarize your child with investing.Thumbs Up Thumbs Up Part of this exercise is learning that any investment has advantages and disadvantages. Your child may not make a fortune, but the experience of gaining and losing money is almost as valuable.Thumbs Up

    To read more youth-related articles, see Savings Plans For MinorsEncouraging Good Habits With An Incentive Trust and Retirement Savings Tips For 18- To 24-Year-Olds.

    Read more: http://www.investopedia.com/articles/pf/07/childinvestor.asp?partner=ntu12&utm_source=18&utm_medium=Email&utm_campaign=NTU-2/29/2012#ixzz1noYeDfyc

    The latest edition of Buffett's annual letter,


    The per-share book value of both our Class A and Class B stock increased by 4.6% in 2011. Over the last 47 years (that is, since present management took over), book value has grown from $19 to $99,860, a rate of 19.8% compounded annually.

    Change in Per-Share Book Value of Berkshire
    Compounded Annual Gain – 1965-2011 . . . . . . . . . . . . . . . . . . . . . . . . . 19.8%
    Overall Gain – 1964-2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 513,055%

    Percentage Change in S&P 500 with Dividends Included
    Compounded Annual Gain – 1965-2011 . . . . . . . . . . . . . . . . . . . . . . . . . 9.2%
    Overall Gain – 1964-2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,397%

    Berkshire Hathaway showed losses in only 2 years for this long period, namely 2001 (-6.2%) and 2008 (-9.6%).

    By ensuring that losses are few and small, the gains in all the years compounded into a very huge value.

    Why Don't You Invest?

    Last month, The Motley Fool posted a beautiful video titled "Why Do You Invest?"
    "Is it for the fancy cars? The dream home?" the ad asks. "Maybe we invest for our families," it ponders, a reason I think most investors would agree with.
    But there's a related question for millions across the country: Why don't you invest?
    About 54% of U.S. households own stock investments, according to a 2011 Gallup poll. That leaves 46% that do not.
    Part of this is due to a lack of wealth -- many American households simply don't have any money to invest. But there's more to it. A 2008 paper by a trio of economists showed that (link opens PDF file) sizable numbers of even the wealthiest Americans don't own stocks. 
    • Of households ranked in the third quartile of wealth, 34% did not own stocks either directly or through mutual funds. 
    • Of those in the top quartile, 14% had no stock exposure. 
    • Within the richest 5% of American households, 6% owned no stocks.

    Some of the wealthiest households may avoid stocks because ownership in private businesses offers better opportunities. But for others, the excuses are more interesting.
    Two centuries of data makes one point clear: Over the long haul, stocks trounce the returns of bonds, cash, commodities, and real estate -- and they do it with less risk. 
    • Adjusted for inflation, $1 invested in stocks in 1802 was worth $755,000 in 2006. 
    • In bonds, $1 turned into $1,083. 
    • Gold grew to $1.95. 
    • Cash depreciated to $0.06
    During that 200-year stretch, the worst 20-year period 
    • for stocks produced a real return of 1% a year. 
    • For bonds, the worst period eroded half of investors' purchasing power. 
    Stocks win over the long haul, and yet a large number of Americans avoid them.
    Why is hard to know, but not particularly surprising. Americans' love for self-destructive financial behavior is never-ending. One incredible 2005 report (link opens PDF file) led by Yale economist James Choi showed that 
    • half of workers over 59.5 years old -- and hence eligible to withdraw money from a 401(k) plan right away -- do not contribute enough to retirement plans to take full advantage of employer matching, turning down money that would have been theirs to spend immediately. 
    • Two-thirds of those over 59.5 years old not participating in a retirement plan with employer matching said they would never sign up. It's astounding, as they could have pulled the money out the next day penalty-free.

    Choi's paper doesn't detail attitudes toward stocks, but his results speak volumes about people's attitudes toward money in general. When something requires a modicum of effort, many Americans decline -- even if it offers substantial rewards. Our aversion to paperwork can be stronger than our desire for money.
    Past performance also guides people's willingness to own stocks. 
    • While 54% of households currently own stocks, 
    • that figure was as high as 65% in 2007 when the market hit an all-time high. 
    As USA Today wrote in 2005:
    In 1996 and 1997, when the bull market was in full swing, Washington [state] gave its teachers an option of staying in the traditional pension plan or switching to a hybrid pension plan -- 50% of assets in a traditional pension and 50% in a private account. Seventy-four percent opted for the hybrid plan. But when public employees were offered the same choice in 2002 and 2003, after the slump, only 11% chose the hybrid offering.
    Those who do invest in stocks tend to do miserably at it, reinforcing their perception that it's a losing game. 
    • One study by Dalbar showed that (link opens PDF file) the S&P 500 returned 9.14% a year over a 20-year period ending 2010, but the average investor earned 3.83% a year by buying high and selling low. 
    • Stocks crush bonds over the long run, but many would be better off in bonds so long as they stay put. They're that bad at investing.

    Then there's the fear of being cheated. The same three economists mentioned above wrote a great paper (link opens PDF file) in 2008 asking a group in the Netherlands a simple question: "Generally speaking, would you say that most people can be trusted or that you have to be very careful in dealing with people?"
    The question has nothing to do with stocks, but it was highly significant in predicting stock ownership. 
    • "Trusting others increases the probability of buying stock by 50% of the average sample probability and raises the share invested in stock by 3.4% points," the authors wrote. 
    • The results "explain the significant fraction of wealthy people who do not invest in stocks." The study is likely applicable to the United States.

    Another possibility -- though one I don't have evidence for -- is that people willingly forego higher long-term returns to avoid the nausea of stock volatility. 
    • Academic economists tend to view people as unemotional "utility maximizers" for whom rational behavior equals whatever is most efficient, but the real world is different. 
    • Trading a percentage point of returns for a better night's sleep may be worth it for those who value a peaceful life over a large net worth
    • What looks irrational on the chalkboard often makes sense in the real world.

    With pensions a dying relic, more Americans are now responsible for financing their own retirements. For most, the only way to get there is heavy exposure to stocks over many years. Will those now shunning stocks eventually change their minds? Will they ever get to retire? It's hard to know. Never underestimate people's willingness to undermine their future.

    Financial Planning - Purpose, Benefits and Components

    The purpose of financial planning is to help individuals and families achieve their life goals through proper management of their finances. This process allows them to see where they stand financially and determine what steps they must take to reach their objectives.

    Financial planning provides direction to financial decisions and gives insight on how each decision affects other financial areas of life. Viewing each financial decision as a whole allows one to consider its effects on short- and long-term goals.

    The components of financial planning include, but are not limited to, the following subject fields:
    1. Financial statement preparation and analysis 
    2. Investment planning 
    3. Income tax planning
    4. Education planning
    5. Insurance planning and risk management
    6. Retirement planning
    7. Estate planning

    Read more: http://www.investopedia.com/exam-guide/cfp/financial-planning-process-rules/cfp2.asp#ixzz1nivO91Js

    Visit this site 64 sections of good notes on financial planning.

    Is A Career In Financial Planning In Your Future?

    The job goes by a lot of names, including financial planner, financial advisor and personal financial consultant, but it's rarely called what it typically is: financial products sales. Financial planners earn a living by helping people sort through and choose investments, insurance and other financial products. They do retirement planning, college funding, estate planning and general investment analysis. (To learn more, see What Is A Registered Investment Advisor?)

    Obtaining New Business
    Finding clients who need those services and building a customer base is crucial to experiencing success as a financial planner, because referrals from satisfied clients are an important source of new business. Whether you find new clients by giving seminars or lectures, through social or business contacts or simply by cold calling, find them you must.

    Having a broad social network is one reason that many successful financial planners enter the field after working in a related occupation such as accountant, auditor, insurance sales agent, lawyer or securities, commodities and financial services sales agent. (For more insight, read Financial Advisors: How To Target Ideal Customers, Cold Call Without Getting The Cold Shoulder and Alternatives To The Cold Call.)

    What Education Will Lead to Employment?
    Financial planning employers look for candidates with a bachelor's degree in accounting, finance, economics, business, mathematics or law. Courses in investments, taxes, estate planning and risk management are also helpful. Programs in financial planning are becoming more widely available in colleges and universities.

    Financial analysts may also seek the Certified Financial Planner® (CFP®), the Chartered Financial Analyst (CFA) and the Chartered Financial Consultant (ChFC) designations. To read more, see Studying For The CFP Exam.

    Generally, a license is not required to work as a personal financial advisor, but advisors who sell stocks, bonds, mutual funds or insurance may need licenses such as the Series 6, 7, or 63. These exams are administered by the Financial Industry Regulatory Authority (FINRA, formerly the NASD) and in order to take most of these exams, sponsorship by a member firm or self-regulatory organization is required. (For more information, see Which popular professional certification exams do not require sponsorship?)

    Where do Advisors Work?
    More than half of all financial advisors work for finance and insurance companies, including securities and commodity brokers, banks, insurance carriers and financial investment firms. However, four out of 10 personal financial advisors are self-employed, operating small investment advisory firms, usually in urban areas.

    According to the Bureau of Labor Statistics, the overall employment of financial analysts and personal financial advisors is expected to increase faster than the average (by 27% or more) for all occupations through 2014. This is a result of the increased investment by businesses and individuals, the rising number of self-directed retirement plans and the growing number of seniors. Personal financial advisors will benefit even more than financial analysts as baby boomers save for retirement and as a better-educated and wealthier population requires investment advice. In addition, people are living longer and must plan to finance more years of retirement.

    Is Financial Planning the Right Career for You?
    Take this quiz to help you find out:

    Quiz: Is Financial Planning Right For You?

    1. How comfortable are you with making sales?
    A. I could sell my grandmother a ticket to a SuperNova concert with no guarantee that she'll enjoy the performance.
    B. I could sell my grandmother that SuperNova ticket, but I would feel guilty if she didn't like the show.
    C. Only a bad person would sell his or her grandmother a SuperNova ticket.

    2. At what stage of life are you?
    A. I just graduated from college.
    B. I've been out of school for a few years.
    C. I've been in my line of work for several years, but I'm ready for a change.

    3. How much of an extrovert are you?
    A. I have been the president of nearly every club I have ever joined.
    B. I have enough friends to make me happy.
    C. A good book, a room to myself and no interruptions is my idea of heaven.

    4. You could be described as:
    A. both analytical and a good communicator.
    B. analytical, but not a good communicator, or a good communicator, but not analytical.
    C. neither analytical, nor a good communicator.

    5. At work, I prefer to do my job:
    A. completely independently
    B. somewhat independently.
    C. as part of a team.

    6. What appeals most to me about becoming a planner is:
    A. the challenge of building a client base.
    B. the creation of my own business.
    C. the analysis of investments.

    7. According to the Bureau of Labor Statistics, the median annual income for financial planners was $64,750 in 2010 - this includes commission income. How do you feel about that?
    A. I've never been average and I'll earn more than the median.
    B. That would work for me.
    C. Working for commissions only makes me nervous.

    If you answered mostly As, then financial planning could be the right career for you. You're energized, not terrified, by the idea of earning a substantial amount of your compensation through commissions. If you have the right connections and the energy level to work that network, you could succeed in this tough career.

    If you answered mostly Bs, then you need a back-up plan. Financial planning might work, but you're likely to end up among the 80% of planners who, according to William F. Cole's "The Complete Financial Advisor," are in the business for less than five years. When sales don't work out, what will you do next and how will you sell yourself to your next employer?

    If you answered mostly Cs, don't even think about financial planning. If you love the portfolio analysis side, consider working as a financial analyst. If math is your strong subject, go into financial engineering or quantitative analysis. You'll make more money without having to sell all day long. (For further reading, see Becoming A Financial Analyst.)

    Read more: http://www.investopedia.com/articles/financialcareers/06/financialplanningquiz.asp?partner=pitm022112#ixzz1nirteAfe

    Dow Closes Above 13,000; First Time Since 2008

    The index, which tracks 30 of the biggest companies on Wall Street, last surpassed the milestone mark in a closing on May 19, 2008, when it ended trading at 13,028.16.

    February has been a good month for the Dow Jones industrial average as it trades at levels not seen since the 2008-9 financial crisis. And after several narrow misses, it mustered enough momentum to pull itself firmly across the 13,000 threshold on Tuesday and stay there through the close.
    As it did twice last week and on Monday, the Dow poked through the 13,000 level in intraday trading on Tuesday but then dropped back down toward the end of the day before a final surge that pushed it up to about 13,005.
    It was a day marked by a handful of economic reports that were generally positive. The Conference Board’s measure of consumer confidence registered a 12-month high of 70.8 this month, a reflection presumably of continued improvement in labor market conditions, economists from Capital Economics said in a research note. Home prices, however, have fallen, with the 20-city Standard & Poor’s/Case-Shiller index declining 4 percent in December year-over-year. Durable goods orders fell 4 percent in January, but aircraft orders accounted for much of the drag.
    The Dow is up nearly 3 percent for the month. Analysts said that the gains reflected the culmination of a generally upward trend in stocks since the beginning of the year. But they were also quick to point out that it said more about improving sentiment in the financial markets and the performance of individual companies than about a rebound in the economy since the recession ended in mid-2009.
    “Thirteen thousand is not so very important technically as it is emotionally, simply because it is not 12,000,” Dan McMahon, the head of equity trading at Raymond James & Associates, said earlier Tuesday. “It is on the way to 14,000. It is kind of a landmark on the way.”
    “The market has rallied significantly since the October lows and everything seems to be trending in the right direction,” Mr. McMahon added. “We are waiting for the next catalyst.”
    Mr. McMahon said a better barometer for the market in general was the Standard & Poor’s 500-stock index, which measures the broader market, and has already hit its own precrisis levels. It closed Friday at its highest level since June 2008. Other broader measures of the market, such as the Russell 50, which includes the largest capitalization stocks, have already recovered as well.
    “The stock market has been going up pretty consistently since October,” Dan Greenhaus, the chief global strategist at BTIG.
    The Dow hit a 52-week low of 10,655.30 on Oct. 3. All 30 companies have risen since then, but about a third are responsible for most of the gains in the index, based on how they are weighted. The top contributor was Caterpillar, a stock that reflects the ups and downs in the economy, particularly in construction. It has accounted for more than 343 points in the index rise since the October trough. IBM and Exxon, helped by a rise in oil prices, each also accounted for more than 100 points, as did McDonald’s.
    “It takes just a couple names to get it going in one direction or the other,” said Owen Fitzpatrick, head of U.S. equity strategy for DWS. Mr. Fitzpatrick said, in general, some of the issues that propelled the sell-off of last summer have eased, such as the concerns that the United States would follow Europe into a recession.
    Future catalysts include strong gross domestic product data, or other signs the economy is stable, Mr. McMahon said.
    Mr. Greenhaus said the closing threshold for the Dow “technically means nothing” when seen in the context of the wider, uneven economic recovery.
    “People who hung in there have now seen their investment return to pre-crisis levels,” he said in a recent interview. But he added: “People are still going to say ‘I still don’t have a job.’”
    Since the financial crisis companies have achieved good results with cost-cutting and hoarding cash. Some, like McDonald’s, have reoriented their approach to the tighter economy.
    McDonald’s, one of the Top 10 contributors to the Dow’s strong rise since October, is now up more than 60 percent since before the financial crisis. Sara Senatore, a senior research analyst at Sanford C. Bernstein & Co., Inc. said many fast-food and casual restaurants have done well during the economic downturn, but McDonald’s also has a global footprint with growth in other economies that has helped it to do well. In addition, it has done an “excellent job” innovating and re-imaging, with new beverages and Wi-Fi in some outlets that allowed it to persist when the economy improved.
    “You could make the case people traded down during the recession and haven’t traded back out, or up, as much as you might have thought,” she said

    Investing: how small UK companies can boost your wealth

    Paul Marriage, manager of the Cazenove UK Smaller Companies Fund, tells Robert Miller why investors should ignore the 'noise' of macro economic news and look at smaller and profitable companies in the UK.


    Britain becomes a nation of debt slaves as regulation and inflation deter saving

    Britain becomes a nation of debt slaves as regulation and inflation deter saving

    British piggy  bank
    Britain's households are drowning in debt
    Now that interest on debts absorbs nearly a quarter of British households’ net income, according to the Consumer Credit Counselling Service (CCCS), many families are discovering how cruel a taskmaster compound interest can be.
    If you think conventional savings products – like pensions and managed funds – provide poor value, then just wait till you see how bad the ‘returns’ on borrowing are. While instant gratification has come to be regarded almost as a ‘yuman right’ in the credit-fuelled consumer societies of the developed world, the costs of that delusion will mount over the decades ahead. Worse still, the Government is actively encouraging young people to take on massive debts before they have any means of repaying them.
    Even at today’s low rates of interest, debt that is allowed to accumulate on debt will often roll up faster than the debtor’s ability to repay it. For example, anyone who borrows £10,000 at a typical mortgage rate of 3.5 per cent will repay a total of very nearly £15,000 over the standard 25-year term.
    Not many students today have heard of the ‘Rule of 72’ but more are likely to take an interest in future. This is the easy way of calculating how long it will take a debt to double; you just divide the annual rate of interest into 72 to arrive at the number of years. Albert Einstein is reported to have described compound interest as “the most powerful force in the universe” – and students in future could be forgiven feeling that questions about the accuracy of this quote are academic.
    Sadly, savers have been so badly treated in Britain for so long that it is not hard to see why many have decided prudence is not worth the bother. Millions of people who set aside something for a rainy day in bank and building society deposits have seen the real value of their savings – their purchasing power – steadily shrunk by the Government’s undeclared policy of running negative real interest rates.
    The average easy access savings account has lost nearly £2,500 of its real value or purchasing power during the last decade, according to calculations last year by Yorskhire Building Society. Inflation is the insidious enemy of savers because it stealthily reduces what their money will buy. But with the Government’s favoured yardstick, the Consumer Prices Index (CPI) and the Retail Prices Index (RPI) running in low single figures, many may underestimate the cumulative threat.
    Simon Broadley of Yorkshire Building Society said: “With the average savings account standing at £11,648 this can have a significant effect on a person’s savings – especially over the long-term, given the current market.
    No wonder Britain has turned from being a nation of savers to a nation of borowers. Regulatory requirements mean it takes hours to start a pension savings plan but just minutes to take out a credit card. After more than a quarter of a century of extensive and expensive regulation of financial services, the net effect has been to replace poor value retail savings products with even worse value retail credit.