Fortune Watch

Leading bank shares around the world plunged yesterday after the crash of Lehman Brothers, forcing central banks to prop up the system with tens of billions of dollars. But US stocks rallied in the final hour of trading to close higher.

American Insurance Group (AIG) was the eye of the storm, with New York governor David Paterson warning the insurer had one day to raise $75-$80 billion.

After sliding about 150 points in early trading, Dow Jones Industrial Average closed at 11,059.02, up 141.51 points, or 1.3pc.

The S&P 500 gained 20.9 points, or 1.8pc, to 1,213.6, while the Nasdaq Composite climbed 27.99 points, or 1.3pc, to 2,207.9.

Stock markets took new fright yesterday after the Wall Street shocks, the bankruptcy of Lehman Brothers and bailout of Merrill Lynch by Bank of America.

The London and Tokyo markets dropped more than four per cent to their lowest points for more than three years with some leading bank shares dropping 20pc.

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The US is already in a recession and it will be longer as well as deeper than many people expect, US investor Warren Buffett said. Warren Buffett said the economy is still in a recession and unlikely to improve before 2009 but that stocks appear better valued than a year ago.

He said in an interview the US was “already in recession” and added: “Perhaps not in the sense that economists would define it” with two consecutive quarters of negative growth. “But the people are already feeling the effects,” said Buffett, the world’s richest man. “It will be deeper and last longer than many think.”

“You always find out who’s been swimming naked when the tide goes out. We found out that Wall Street has been kind of a nudist beach,” said Buffett, who in March was called the world’s richest person by Forbes magazine.

But that is just part of a market system. And you know, if I had to pick the chances that we are going into a recession, I would say they are fairly significant, but I don’t know anything that you don’t know.

However he said that won’t stop him from investing in selected companies and said he remained interested in well-managed German family-owned companies.

“If the world were falling apart I’d still invest in companies,” he said.

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Oil at $150? Very likely and could be soon. How about $170, or even $200? That is possible before the end of this year. There are those who see the price of a barrel of oil hitting $300 and even $500 in the next few years. Impossible you say, well just remember that last year a barrel of crude was selling at $70 and even then the markets were complaining that it was already too high.

The oil conundrum is playing havoc with local, regional and international markets. The producers say it’s not their fault and consumers blame speculators and a battered dollar. Others point to the current crisis between the West and Iran, which in recent days moved from rhetorical ranting to sabre-rattling. There is confusion, fear, mistrust and greed in the oil business today, but what else is new?

Oil has been a central pillar of international politics and trade for decades, and the West has traditionally played dirty games when it came to preserving the life-line of its economy and civilization. Cheap oil enabled Western societies to flourish and expand, the United States being the most notorious example. Wars were waged, coups staged and regimes toppled in order to maintain control of production, exploration rights, distribution and price.

It is unlikely that the rules of the game have changed in recent years, but it is now a fact that the new economies of China, India, Russia and others are competing ever more with the West for a bigger share of available oil. Economic displacement is a matter of time, with studies predicting that China will unseat the US as the biggest world economy in 30 to 40 years if not before.

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U.S. stocks will continue to fall next week, in continuation of a sell-off that saw the Dow Jones Industrial Average experience its worst week in over four years, due to nervousness that the easy-money binge of the last few years has come to an end. No fireworks in earnings so far.

It will be tough for Wall Street to shake off the bear market blues next week if the price of oil keeps rising and the earnings season kick-off from Alcoa and General Electric disappoints investors. Stocks will remain vulnerable to any new signs of distress from hedge funds hit by their exposure to bad U.S. home loans, as well as from credit markets, where Wall Street firms and corporations are finding it harder and harder to obtain financing.

Oil has become the biggest wild card for growth and corporate profits. It jumped to a record above $145 a barrel on Thursday, driven by tensions between Israel and Iran, before the long holiday weekend to mark US Independence Day.

The price of crude is up 50 percent so far this year.

On Friday, US markets are closed on July 4th for the Independence Day holiday.

Financial results from Alcoa and GE will kick off the second-quarter earnings season next week. Aluminum company Alcoa, the first Dow component to report results, will release its quarterly numbers on Tuesday. GE, another Dow industrial and a bellwether for the US economy, will report earnings on Friday. Aside from second-quarter results, investors are anxious to see the companies’ forecasts for world economic growth and their own corporate sales prospects.

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Human’s are rational beings. We have the most developed brain among all species. However, in spite of all this, we are foremost governed by his emotions. It is said, man is ruled more by the heart than his mind. And these emotions, more often than not, play a huge role in man’s investments too. This is the sole reason, say, why the same person at one time might want to invest in the stock market, while at another time might find the same too much of a risk.

Investors may also feel attached towards a specific company and continue owning the stock without regards to its fundamental. For example, you might like Google’s search engine so much that you decide to buy the stock at $ 350 without doing any research. You figure that Google’s search engine is so much better that buying the stock will give you profit, right? Wrong. Now, I am not here to bash Google as an investment, but analyzing an investment goes beyond the products and companies. Most investors can identify good companies and products. It is quite easy. You know that a BMW is a better car than a Ford.

Emotions often also control the company one is investing in. Generally brand loyalties come into the picture here too. Example, if someone prefers purchasing his sportswear from Nike, he may want to invest in its stocks too, although the Reebok stocks may be doing far better. It is always better to conduct a proper research and check the latest trends rather than blindly following your heart. Keep in mind that you are currently dealing with the stock market and not the super market.

Google is a good search engine, probably the best that is ever produced so far. Sure, you probably pay more for Google than other generic search engines. But, please don’t over pay. You invest in Google to profit from it not because you like its products.

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For the uninitiated, the stock market looks either a rosy picture or the dooms day scenario. Actually it is a mixture of both. By investing wisely, you can get the money of life time or if you are not careful, you may lose money of life time.

Don’t follow the herd mentality. This is one of the top mistakes to avoid. The herd mentality is THE reason why many investors lose their money. Actually when your neighbor or friend is buying, since everyone is buying, stop and think for one moment “is this share worth its money today and does it have a growth potential?” If the answer is a YES after study of the share, go ahead and buy that share. If you have a slightest doubt, refrain from buying. Do not buy just because someone else is buying.

Not deciding your time line: When you start investing in stocks, you have to decide your time line or profit margins when you are going to quit. If you do not do that you may pass on the period of greatest value for your stock. Thinking that your stock will go up when it has reached its present peak, is a sure way of losing your money. Of course it is not possible to sell your stock at peak very time, but if you have decided the limits, you will not be sorry.

Not cutting down losses: For every stock, there is a range and depending on the general market conditions and fundamentals of the company you can decide the price of the stock you hold. If either of the above two conditions compel a stock to go down, have predetermined limits when you are going to sell irrespective of market conditions. This will cut down the losses you may have in future.

Taking too much risk: If you are a reckless investor, you will have blame yourself for taking too much risk. A calculated risk is what one is expected to take in stock markets. Taking too much risk based on hear say from the market, is a sure way for doom.

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When the market climate is uncertain, investors often become nervous and lose sight of their long-term investment goals. They are often tempted to postpone new investment, and even to sell their current holdingswith the aim of reinvesting when the stock market stabilises.

However, if investors are able to take a long term view, it is often best to holdd onto investments through periods of volatility.

The pitfalls of market timing:

Of course all investors would like to be able to predict the movements of the market, buying at the bottom and selling at the top. This is called market timing.

Unfortunately, it is very difficult to time movements in and out of the market, particularly in a period of extreme volatility. And getting it wrong can significantly affect the performance of investments.

Selling at the first signof a downturn can prove particularly bad. Sharp falls in the maket are followed by sharp gains. While it may be tempting for for investors fearing further losses to sell their investments, they risk locking in losses and missing out on gains.

In for the long haul:

The long term performance of equities demonstrates that there is no need to time the markets; its good enough just to be in the markets. Research shows that investments made when the markets had already begun to recover, and those made when it is falling, have still paid dividends.

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In periods of volatility, it is natural for investors to be concerned about the value of their investments. However it is important to remember that equity investing is for the long term.

Over the past 25 years, equity markets have weathered fluctuating conditions to deliver strong returns.

Equities do carry a higher level of risk than bonds and cash, and investors can expect greater levels of volatility. But as a part of a well diversified portfolio, they have historically proved the best way to grow capital.

Significant events:

• Black Monday Crash – Oct 1987 Worst single-day market crash in history as the Dow Jones loses nearly a quarter of its value.
• Gulf War (Desert Storm) – Jan 1991 US- led forces repel Iraqi invasion of Kuwait. Global markets largely take the conflict in their stride.
• Black Wednesday (Sterling leaves ERM) – Economic imbalances and currency speculation force sterling out of the ERM. A large devaluation in Sterling prompts speedy recovery.
• Russian default/LTCM Crisis – Aug 1998 – Russia defaults on loan repayments, causing contagion across many assets. Hedge fund LTCM loses billions of dollars, but concerted efforts of global central banks stabilise markets.
• Height of Tech Bubble – March 2000 – NASDAQ peaks in March 2000, driven by speculative demand for technology stocks. Prices reach unsustainable levels, triggering a dramatic crash and a three year bear market.
• Terorist attacks on America – Sept 2001 – Investor nervousness grows in the wake ofterrorist destruction of the World Trade Centre. Interest rate cuts by global central banks helps to restore confidence.

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To be a good investor it requires financial intelligence that you should constantly improve. You have to start reading a lot of books and magazines, the great idea can come without even knowing. Inform yourself from local, national, even from global news. Any information you get from TV or newspaper, you need to learn something from it, keep your mind open. That’s how you start to become a good investor.

Successful investing requires three components, money, time and discipline, the chances are that you have the first two and have to work on the discipline part.

Investors who analyze the company can better judge the value of the stock and profit from buying and selling it. Your greatest asset in stock investing is knowledge (and a little common sense). To succeed in the world of stock investing, keep in mind these key success factors:

– Analyze yourself. What do you want to accomplish with your stock investing? What are your investment goals?

– Know where to get information. The decisions you make about your money and what stocks to invest in require quality information.

– Understand why you want to invest in stocks. Are you seeking appreciation (capital gains) or income (dividends)?

– Do some research. Look at the company whose stock you’re considering to see whether it’s a profitable company worthy of your investment dollars.

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Offshore investment is the keeping of money in a jurisdiction other than one’s country of residence. Offshore jurisdictions are a commonly accepted solution to reducing excessive tax burdens levied in most countries to both large and small scale investors alike.

Selected offshore domiciles are superficially viewed by some as havens used by to conceal or protect illegally acquired money from law enforcement in the investor’s country. Although this may be the case, legitimate investors also take advantage of higher rates of return or lower rates of tax on that return offered by operating via such domiciles. The advantage to this is that such operations are both legal and less costly than the solutions offered in the investor’s country – or “onshore”

Another reason why ‘offshore’ investment is superior to ‘onshore’ investment is because it is less regulated, and the behavior of the offshore investment provider, whether he is a banker, fund manager, trustee or stock-broker, is freer than it could be in a more regulated environment.

Offshore investing refers to a wide range of investment strategies that capitalize on advantages offered outside of an investor’s home country.

The most important advantage in offshore investing is that you can make a lot of money without paying almost any taxes. If the investor lives in a place where he pays taxes like most countries then he will only pay taxes on his dividend or interest made.

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