Diversification Strategy - Less risk in stock trading

Are you looking to make and save enough cash for your retirement in the near future? Do you have money idly waiting in your desk drawer? Do you feel that bank rates are just too low to get a significant return on investment per year? Why not try something that is riskier, and at the same time, will give you higher returns? I am not talking about simple stock market trading. What I am talking about is using the diversification strategy in stock market trading. It is not as complicated as you may think.

Before I start discussing the diversified strategy for stock trading, here’s a saying that I would like you guys to keep in mind.

“Don’t put all your eggs in one basket”.

This strategy entails investing in different kinds of stocks that do not move together perfectly in the fluctuations of the stock market. Thus, you get a diversified portfolio. When I say, “stocks that do not move together”, I mean that the stocks that you should be investing in are stocks that both are rise in price in economic booms and in recessions. These stocks should be in different sizes and from many different industries.

You would probably tell me,

So that would mean that, even in normal markets or economic booms, you should also invest in stocks that are relatively low during these times. Why? Are you crazy?

These stocks serve as a buffer so that when recession strikes, just like what happened a couple of months ago, you won’t lose everything. By having a diversified portfolio, you decrease the variability of your stock and thus reduce risk.

Two types of risk

There are actually two types of risk when it comes to trading in the stock market. The first one is the market risk and the second one is diversifiable risk.

1.       The Market Risk is the risk that is common to all of the firms. Such risks are recessions, when cost of goods rise, etc. This is the kind of risk that cannot be diversified away even if you have diversified portfolios.

2.       The Diversifiable Risk is the risk that is unique to every firm. These risks include labor strikes, bankruptcy, the manager running away with the company’s money etc. This kind of risk can be diversified away when one has a diversified portfolio.

Some Benefits of having Diversified Portfolio

1.       Less Risk! That is the best benefit I could think of. The more stocks in your portfolio, the more risk that is diversified away.

2.       Assures you that even with the fluctuation in the stock market prices, your portfolio is more secure than if you are only investing in one particular stock. You are given more assurance that you are not wasting your money or are not throwing it all away.

Choosing a Real Asset

The entire category of real assets includes a range of potential investments, including real estate, gold and other commodities such as oil, minerals and agricultural products. Each of these, however, has its own return and volatility characteristics, and may or may not serve as an effective inflation hedge at any given time. Real estate, for example, is often subject to unique supply-and-demand or financing dynamics that are separate from other real assets and not always closely correlated with inflation.

“When choosing a real asset to invest in, it’s important to understand the real asset’s correlation with other investments in the portfolio, such as stocks or bonds, and the real asset’s direct correlation with inflation,” says Jim McDonald, chief investment strategist for Northern Trust. “For example, in 2008, commodities, as an asset class, went down every bit as much as stocks. So what’s important is making sure an investment is directly correlated with inflation, and not necessarily correlated with the performance of other portfolio investments.”

Whether real estate, gold, oil, minerals or Treasury Inflation Protected Securities (TIPS), real assets can deliver robust diversification benefits due to their often-negative correlation with stocks and bonds.

Get Real Assets

The Real Value of Real Estate

One such real asset is, of course, real estate. Often considered attractive by investors for both its income producing and inflation hedging benefits, real estate as a broad asset class encompasses several different property types each with different risk and return characteristics.

The most accessible form of real estate investment is public real estate equities, although public and private debt investments (including mortgages) also provide investors with real estate investment exposure. Historically, the best real estate inflation hedge, however, has been available from private investments in those property types with the shortest lease terms such as hotels that can raise rates nightly. The potential inflation hedge benefit is lessened as you move to public real estate alternatives such as stocks issued by real estate investment trusts (REITs). Nevertheless, in an inflationary environment, REITs are likely to still outperform a broader equity universe as investors anticipate REIT operators’ ability to raise rents and pass through operating expenses when inflation accelerates.

An Inside TIPS on Inflation

Real assets also include inflation-protected financial securities, such as TIPS, that provide a total return tied directly to the actual inflation rate. Inflation-indexed bonds issued by the U.S. Treasury, TIPS’ principal value is regularly adjusted to reflect changes in the Consumer Price Index (CPI), the most commonly used measure of inflation. With TIPS, your portfolio benefits from owning U.S. government securities that offer protection from geopolitical turmoil or a financial system downturn like a traditional treasury security, while also preserving value if the inflation picture turns out worse than expected.

“The definition of real assets is that they have a high, positive correlation with inflation,” Skjervem says. “As a result, TIPS represent a good inflation hedge because their value is directly tied to changes in the CPI. That means when you add TIPS to your portfolio, you’re not buying them to maximize return, but rather to provide portfolio stability and inflation protection.”

The Value of Being Prepared

With the unemployment rate still rising, it seems unlikely that higher wages will generate serious inflation in the foreseeable future. And, as weak consumer demand continues to challenge corporate profits, the potential for higher prices for consumer goods is likely to remain muted until the recovery gathers steam and enters a full-fledged expansion. Nevertheless, real assets such as commodities, gold and real estate may continue to benefit investors as they seek quality investments in an economic downturn.

But if and when inflation returns, it’s important to be prepared, and real assets can provide an effective hedge against the adverse consequences of inflation. Taking steps now to protect your portfolio against inflation may prove to be a wise move down the road.

Mutual Fund Strategies: How to Minimize the Risk

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Mutual Fund Strategies: How to Minimize the Risk

Before you can plan a mutual fund strategy, you need to have a clear picture in your mind of your goals as an investor. You also need to determine the amount of time you have to reach those goals. Investing is time-sensitive, so you will always need to factor time into any investing strategy.

Today, with more than 10,000 mutual funds to choose from, you can be sure there is a fund (or several) with your name on it. However, rather than seeking a fund or even a fund category, you should first determine how your portfolio should be set up. It is always much easier to start at the top, with your overall asset allocation plan, and then fill in the pieces, or funds, later. Too many investors go right to the fund selection, chasing the top funds as listed in magazines only to get burned when last year’s winner becomes this year’s disaster.

If you determine your overall investing position based on goals and timeframe, you can lay out a strategy. For example, a young couple, without children, who have a high combined income, can be aggressive in their choices. They may opt to put 80 percent of their investment dollars into riskier, aggressive funds and the remaining 20 percent into more conservative fund investments. They have time on their side and are not averse to taking some financial risk.

Conversely, an older couple, nearing retirement, may opt for the reverse calculations, looking for 80 percent of their mutual fund investments to be in income-generating, safer funds. They want income soon and are not in a position to take risks.

Of course, the above examples are broad generalizations. However, by creating your asset allocation blueprint you will then be able to select fund categories that fit appropriately and allow you to diversify. By diversifying across sectors, caps and fund categories, you lower your overall level of risk. In a sense, a good investor is doing at some level what a fund manager does by choosing diverse investments so that, if one does poorly, the others will more than make up for it.

In the late 1990s the technology funds were the rage. If you were willing to take the risk and bank on tech sector funds (and knew when to get out), you could have made a lot of money. While no one sector is flying at that level today, you can take a more aggressive approach by looking at overseas markets and small cap, mid cap and emerging growth funds. In the more conservative portion of the portfolio, you’ll want funds with the large cap blue chip stocks, large cap value funds, income funds and bond funds.

Generally, having five to eight funds in your fund portfolio should meet your investing needs. The key to your strategy is figuring out your timeframe, risk level andasset allocation first before looking at fund categories and finally plugging in the actual funds.

The best strategy, you should consider, is to build a diversified mutual fund portfolio. A properly constructed portfolio, including a mix of both stock and bonds funds, provides an opportunity to participate in stock market growth and cushions your portfolio when the stock market is in decline. Such a portfolio can be constructed by purchasing individual funds in proportions that match your desiredasset allocation or you can do the entire job with a single fund by purchasing a mutual fund that has "growth and income" or "balanced" in its name.

While there are certain diversification strategies that investors can undertake to minimize their risk, there is always the risk that the market as a whole is unhealthy and produces negative returns. The different types of risk inherent with investing and how to avoid them are outlined below:

Systematic Risk



This type of risk is impossible to reduce through diversification. Unfortunately, along with investing in capital markets comes the risk of an overall economic downturn. Since this risk is impossible to eliminate, mutual fund investors tend to focus on the next main type of risk: non-systematic risk.

Non-Systematic Risk

This type of risk is the risk associated with investing in any particular security. This can be a stock, bond, exchange traded fund etc. Fortunately, this risk can be reduced through diversification. As such, many mutual fund investors search to choose a wide variety of securities to include in the portfolio in order to diversify away from this non-systematic risk. However, it must also be noted that after a total of 32securities are added to the portfolio, the risk has been diversified as much as possible. Any securities that are added to these 32 will not serve the purpose of reducing risk in the portfolio.

Diverse Security Types

Now that we have covered the forms of risk and the need for diversification, we can cover some of the ways to expand proper diversification potential. The first is to invest in different types of securities. Depending on the business cycle, different securities will be most appropriate to the portfolio, however there should always be a mix of these securities so that the investor is not restricted to one particular market. Different security types that some mutual fund investors consider are: bonds (also called debentures in some cases), equities (stocks), exchange traded funds (these follow the performance of a certain market whether it is a stock market or the market for the price of a metal). More experienced investors may choose to invest in stock options or warrants which essentially give the right but not the obligation to purchase asecurity at a given price.

Diverse Industries

Another strategy to increase the diversification potential of a portfolio is to invest in a diverse number of industries. This will prevent you from being overly exposed to an industry which may experience an overall decrease in profits due to a certain global issue (i.e.: the real estate market). The key here is to invest in stocks that aren't correlated to one another. For example, rather than investing in a cruise company as well as an airline company (both subject to variance in the amount of travel); you should invest in an airline company as well as oil. Since the price oil is negatively correlated to the airline company's profitability (as one rises in value the other should fall), you will be well positioned to reduce the overall risk of your portfolio ofsecurities.

While there are other methods of diversification (i.e.: investing in foreign markets), these are the main ones, and by using this knowledge, you should be able to minimize the risk in your portfolio greatly.

Dorstfontein Coal Mine

Dorstfontein currently consists of an operational coal mine, a Greenfield project (Dorstfontein East) and a Brownfield project (Dorstfontein West). As part of Mmakau Mining diversification strategy, the company purchased 26% equity in Total Coal South Africa' Dorstfontein asset.
Dorstfontein Colliery

Dorstfontein is located east from Kriel in South Africa's Mpumalanga province and mines 1 Million run of mine tons from underground operations in the no. 2 seam. It produces high quality coal which is sought after by the international steam coal market and local ferrometal industry. Mmakau has export allocation through Richards Bay Coal Terminal and Total Coal markets the coal on behalf of Mmakau. Dorstfontein 2 seam produces 700 000 sales ton per annum for the export and domestic metallurgical market.

Dorstfontein is nearing the end of its production life Q4 2011 and will be replaced by the Dorstfontein West project in 2012.
Dorstfontein West

Dorstfontein West is currently in project phase and the plan is to mine the 4 seam with a combination of open cut and underground methods for the next 20 years. The project will make use of the existing process plant infrastructure and mine about 1 Million run of mine tons per annum. The plant will wash about 600 000 sales tons of a 5400kcal product for the export market and the plan is to transport the coal to the new Dorstfontein East mine which will have a rapid load out facility.

Dorstfontein East

The Dorstfontein east project is currently in construction and commissioning phase and will be operational Q3 2011. Dorstfontein East is a Greenfield project that consists of a wash plant with a plant feed of up to 4 Million tons per annum, stockpile facilities and a 14 km overland conveyor to the rail loop with a rapid load out facility. The plan is to mine the 4 and 2 seam initially with open cut methods and later in the life of mine with underground sections. Access to underground blocks will be via adits established in the opencast high walls. The combined production rate will be about 3.2 Million run of mine tons per annum to meet sales of 2.0 Million tons per annum over 20 years for a 5400kcal export product. Mmakau Mining was awarded 350 000 tons export allocation in Richards Bay Coal Terminal's phase V expansion project and it will be allocated to the Dorstfontein East Mine.

Developing Organizational Objectives and Formulating Strategies

Developing Objectives

ObjectivesobjectivesWhat organizations want to accomplish (the end results) in a given time frame. are what organizations want to accomplish—the end results they want to achieve—in a given time frame. In addition to being accomplished within a certain time frame, objectives should be realistic (achievable) and be measurable, if possible. “To increase sales by 2 percent by the end of the year” is an example of an objective an organization might develop. You have probably set objectives for yourself that you want to achieve in a given time frame. For example, your objectives might be to maintain a certain grade point average and get work experience or an internship before you graduate.

Objectives help guide and motivate a company’s employees and give its managers reference points for evaluating the firm’s marketing actions. Although many organizations publish their mission statements, most for-profit companies do not publish their objectives. Accomplishments at each level of the organization have helped PepsiCo meet its corporate objectives over the course of the past few years. PepsiCo’s business units (divisions) have increased the number of their facilities to grow their brands and enter new markets. PepsiCo’s beverage and snack units have gained market share by developing healthier products and products that are more convenient to use.

A firm’s marketing objectives should be consistent with the company’s objectives at other levels, such as the corporate level and business level. An example of a marketing objective for PepsiCo might be “to increase by 4 percent the market share of Gatorade by the end of the year.” The way firms analyze their different divisions or businesses will be discussed later in the chapter.
Formulating Strategies

StrategiesstrategiesActions (means) taken to accomplish objectives. are the means to the ends, or what a firm’s going to do to meet its objectives. Successful strategies help organizations establish and maintain a competitive advantage that competitors cannot imitate easily. PepsiCo attempts to sustain its competitive advantage by constantly developing new products and innovations, including “mega brands,” which are eighteen individual brands that generate over $1 billion in sales each.

Firms often use multiple strategies to accomplish their objectives and capitalize on marketing opportunities. For example, in addition to pursuing a low cost strategy (selling products inexpensively), Walmart has simultaneously pursued a strategy of opening new stores rapidly around the world. Many companies develop marketing strategies as part of their general, overall business plans. Other companies prepare separate marketing plans. We’ll overview marketing plans here and discuss them more completely in Chapter 16, The Marketing Plan.

A marketing planmarketing planA document that is designed to communicate the marketing strategy for an offering. The purpose of the plan is to influence executives, suppliers, distributors, and other important stakeholders of the firm so they will invest money, time, and effort to ensure the plan is a success. is a strategic plan at the functional level that provides a firm’s marketing group with direction. It is a road map that improves the firm’s understanding of its competitive situation. The marketing plan also helps the firm allocate resources and divvy up the tasks that employees need to do for the company to meet its objectives. The different components of marketing plans will be discussed throughout the book and then discussed together at the end of the book. Next, let’s take a look at the different types of basic market strategies firms pursue before they develop their marketing plans.

Figure 2.12. Product and Market Entry Strategies

Product and Market Entry Strategies

The different types of product and market entry strategies a firm can pursue in order to meet their objectives.

Market penetration strategiesmarket penetration strategySelling more of existing products and services to existing customers. focus on increasing a firm’s sales of its existing products to its existing customers. Companies often offer consumers special promotions or low prices to increase their usage and encourage them to buy products. When Frito-Lay distributes money-saving coupons to customers or offers them discounts to buy multiple packages of snacks, the company is utilizing a penetration strategy. The Campbell Soup Company gets consumers to buy more soup by providing easy recipes using their soup as an ingredient for cooking quick meals.

Product development strategiesproduct development strategyCreating new products or services for existing markets. involve creating new products for existing customers. A new product can be a totally new innovation, an improved product, or a product with enhanced value, such as one with a new feature. Cell phones that allow consumers to charge purchases with the phone or take pictures are examples of a product with enhanced value. A new product can also be one that comes in different variations, such as new flavors, colors, and sizes. Mountain Dew Voltage, introduced by PepsiCo Americas Beverages in 2009, is an example. Keep in mind, however, that what works for one company might not work for another. For example, just after Starbucks announced it was cutting back on the number of its lunch offerings, Dunkin’ Donuts announced it was adding items to its lunch menu.

Market development strategiesmarket development strategySelling existing products or services to new customers. Foreign markets often present opportunities for organizations to expand. Exporting, licensing, franchising, joint ventures, and direct investment are methods that companies use to enter international markets. focus on entering new markets with existing products. For example, during the recent economic downturn, manufacturers of high-end coffee makers began targeting customers who go to coffee shops. The manufacturers are hoping to develop the market for their products by making sure consumers know they can brew a great cup of coffee at home for a fraction of what they spend at Starbucks.

New markets can include any new groups of customers such as different age groups, new geographic areas, or international markets. Many companies, including PepsiCo and Hyundai, have entered—and been successful in—rapidly emerging markets such as Russia, China, and India. As Figure 2.12, “Product and Market Entry Strategies” shows, there are different ways, or strategies, by which firms can enter international markets. The strategies vary in the amount of risk, control, and investment that firms face. Firms can simply exportexportSell products to buyers in foreign markets., or sell their products to buyers abroad, which is the least risky and least expensive method but also offers the least amount of control. Many small firms export their products to foreign markets.

Firms can also licenselicenseSell the right to use some aspect of the production process, trademark, or patent to individuals in foreign markets., or sell the right to use some aspect of their production processes, trademarks, or patents to individuals or firms in foreign markets. Licensing is a popular strategy, but firms must figure out how to protect their interests if the licensee decides to open its own business and void the license agreement. The French luggage and handbag maker Louis Vuitton faced this problem when it entered China. Competitors started illegally putting the Louis Vuitton logo on different products, which cut into Louis Vuitton’s profits.

Figure 2.13. Image

The front of a KFC franchise in Asia may be much larger than KFC stores in the United States. Selling franchises is a popular way for firms to enter foreign markets.

FranchisingfranchisingGranting an independent operator the right to use your company’s business model, techniques, and trademarks for a fee. is a longer-term form of licensing that is extremely popular with service firms, such as restaurants like McDonald’s and Subway, hotels like Holiday Inn Express, and cleaning companies like Stanley Steamer. Franchisees pay a fee for the franchise and must adhere to certain standards; however, they benefit from the advertising and brand recognition the franchising company provides.

Contract manufacturingcontract manufacturingWhen companies hire manufacturers to produce their products in another country. allows companies to hire manufacturers to produce their products in another country. The manufacturers are provided specifications for the products, which are then manufactured and sold on behalf of the company that contracted the manufacturing. Contract manufacturing may provide tax incentives and may be more profitable than manufacturing the products in the home country. Examples of products where contract manufacturing is often used include cell phones, computers, and printers.

Joint venturesjoint ventureAn entity that is created when two parties agree to share their profits, losses, and control with one another in an economic activity they jointly undertake. combine the expertise and investments of two companies and help companies enter foreign markets. The firms in each country share the risks as well as the investments. Some countries such as China often require companies to form a joint venture with a domestic firm in order to enter the market. After entering the market in a partnership with a domestic firm and becoming established in the market, some firms may decide to separate from their partner and become their own business. Fuji Xerox Co., Ltd., is an example of a joint venture between the Japanese Fuji Photo Film Co. and the American document management company Xerox. Another example of a joint venture is Sony Ericsson. The venture combined the Japanese company Sony’s electronic expertise with the Swedish company Ericsson’s telecommunication expertise.

Direct investmentdirect investmentOwning a company or facility overseas. (owning a company or facility overseas) is another way to enter a foreign market. For example, In Bev, the Dutch maker of Beck’s beer, was able to capture market share in the United States by purchasing St. Louis-based Anheuser-Busch. A direct investment strategy involves the most risk and investment but offers the most control. Other companies such as advertising agencies may want to invest and develop their own businesses directly in international markets rather than trying to do so via other companies.

Figure 2.14. Market Entry Methods

Market Entry Methods

Diversification strategiesdiversification strategyOffering products that are unrelated to other existing products produced by the organization. involve entering new markets with new products or doing something outside a firm’s current businesses. Firms that have little experience with different markets or different products often diversify their product lines by acquiring other companies. Diversification can be profitable, but it can also be risky if a company does not have the expertise or resources it needs to successfully implement the strategy. Warner Music Group’s purchase of the concert promoter Bulldog Entertainment is an example of a diversification attempt that failed.

Basic alternatives in rural livelihood diversification

Household and individuals can diversify livelihood portfolios in different ways. Several classifications of activities included in rural livelihood portfolios have been proposed (e.g. Hussein and Nelson 1999; Ellis 2000; Barrett, Reardon and Webb 2002), focusing on different criteria (farm vs. non-farm; on-farm vs. off-farm activities; local vs. migratory; self-employment vs. wage labor). All these classifications are useful to make sense of the nature of the choices entailed by rural livelihoods diversification processes. However, the juxtaposition between diversification through wage labor and diversification through development of self-employment enterprises is the one that better captures the basic socio-economic disjunction between:

    i) reproducing and strengthening the profile of the (relatively) independent rural smallholder;

    or

    ii) assuming (at least partially) the connotations of a “semi-proletarian” rural wage earner (De Janvry 1981).

Additional distinctions between local and migratory wage labor and agricultural and non-agricultural self-employment enterprises are also important to capture the spatial and sectoral dimensions of livelihood diversification. This is reflected in the classification of basic alternatives in rural livelihood strategies presented in Figure 1 below.

Figure 1 - Basic alternatives in rural diversification strategies

In this classification, wage labor refers to the provision of work force to agricultural or non-agricultural enterprises owned by non-household employers. Though sometimes employment opportunities are available locally (local wage labor), in the majority of cases jobs are spatially distant from the places of residence and entail seasonal or long-term migration (migratory wage labor). If practiced as part of a rural livelihood diversification strategy, both types of wage labor seldom entail a fully “proletarization” of the rural workers. Rather, as pointed out twenty years ago by Alain De Janvry (1981), remittances of temporary or part-time rural wage labor very often complement an insufficient on-farm production in ensuring the satisfaction of household consumption needs. Moreover, in some instances, savings generated through wage labor (and in particular by migratory wage labor) can re-capitalize impoverished farms and create new opportunities for independent enterprise development

Rural self-employment enterprises refer to activities undertaken by mobilizing labor plus other household capital assets (savings, land, etc.). Rural agricultural enterprises are often based on innovative on-farm agricultural activities (in the form of independent commercial production or contract farming). On the other hand, rural non-agricultural enterprises focus on activities such as processing of agricultural or forestry commodities, petty-trading, handicraft, home-based piecework manufacturing, or delivery of particular services to the community or to outsiders. Such rural enterprises can develop within a single household or involve a wider social network, based on traditional or innovative forms of inter-household cooperation. The latter arrangement is particularly important to make enterprise development viable for household and individuals lacking the capital assets needed to start a self-employment activity on their own.

Opportunity Funds for Investing in Distressed Properties

Mission Statement:
To Provide Liquidity to Distressed Real Estate Brought About By the Credit Crisis, and Create a Lucrative Investment Opportunity for Assets that are Artificially Undervalued Due to Poor Economic Times and a Tight Credit Environment, with Transactions Structured with Maximum Flexibility to Fairly Allocate Returns Based Upon the Level of Risk Assumed by the Investor.


Investor Criteria:
In order to participate you must be an accredited investor, which by definition is a person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year, or a person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase.

Purpose:
Due to the mortgage and credit crisis of 2007, and the backlash from regulators regarding capital concerns, banks and other financial institutions have substantially tightened their lending guidelines.  Many properties that were very “bankable” in previous years are now being turned away, creating a liquidity crisis in many sectors of the real estate market.  This liquidity crisis is putting a huge burden on some borrowers, who are being forced to liquidate into a market with very few cash buyers, which is creating some very desirable purchase opportunities for buyers with cash.

Objectives:
Invest in distressed assets with 1) substantial value enhancement potential, or 2) assets with limited supply providing inherent value (such as waterfront, ski slope or golf course frontage, next tier commercial or other key sites), or 3) properties that can be acquired substantially below their economic value or replacement cost, and can be readily value enhanced or otherwise held and sold as the market recovers at a substantial profit to the Investors.


Sponsor/General Partner:    WA Investment, LLC, as structured by Watson Advisors.


Investment Overview/Criteria

    * A Buyer’s Market - Substantial returns are realized through buying assets during tight liquidity and credit markets, and rare periods when real estate asset investments are out of favor and are artificially undervalued.  We have not realized such a strong buyer’s market since the mid to late 80’s, and substantial equity gains will be realized through troubled asset purchases during the next 12 to 24 months.
    * Investing in Quality - Invest in assets with substantial value enhancement potential, assets with limited supply providing inherent value (such as waterfront, ski slope frontage, next tier commercial or other key sites) or properties that can be acquired substantially below their economic value or replacement cost, and can be readily value enhanced or otherwise held and sold as the market recovers at a substantial profit to the Investors.
    * Optimizing Leverage - An analysis will be done to determine the optimal amount of leverage to maximize returns with an acceptable level of risk (i.e. Income properties with reasonably predictable income would carry a higher level than developed lots, which could carry more debt than raw land).  Debt levels are anticipate at the following levels:
          o Income Properties – 50% to 75%
          o Developed Lots – 35% to 65% (depending on marketability)
          o Raw Land – 25% to 50% (depending on cash available for interest & expense carry)
    * Predefined Investment Criteria - Numerous properties will be analyzed as to price vs. economic or replacement value, cash required, market potential, risk involved, etc, and only the very best investments will be acquired.  Specific criteria are as follows:
          o Those properties with substantial upside, that have an IRR potential of 30% or more, and with minimal additional investment
          o Properties that can be acquired at 60% or less of economic or replacement value
          o Investments requiring a low level of cash investment with a fairly definable ability to carry through a reasonable disposition period


Investment Structure:

    * Custom Investment Options  -A tiered investment opportunity that provides a flexible structure to allow an investor to chose their desired level of risk and return.
    * Limited Investors – A particular class of investor who will put up all of the required cash for the transaction, and will receive a cumulative, preferred return of 8%, a 1st out position, and 40% of the net profits.
    * Financial Investors  - Another investment class who will not be required to put up any cash, but will personally guarantee the debt for 40% of net profits.  Some Investors will chose to be both a cash, (Limited Investor) and a Financial Investor willing to personally guarantee debt, in order to participate in a larger share of the returns.
    * Limiting Liability Exposure - Debt will be negotiated to limit liability to 125% of the investor’s prorata portion of the debt, to quantify potential exposure and provide an efficient debt structure to not tie up a disproportionate share of the Investor’s credit on any one deal.
    * Professional Management - The General Partner (GP) role will be fulfilled by Watson Advisors through WA Investments, LLC, and will receive 20% of net profits for putting the transactions together and managing the investment.  The GP will have full responsibility and authority to execute the defined business plan established at the time of investment, and to develop, redevelop and dispose of the properties without further approval of the Limited or Financial Investors.
    * Predefined Cost Structure - For purely speculative investments that require no further involvement, the GP will be compensated strictly through the net profits percentage.  Value enhancement or management intensive projects will carry a development or management fee commensurate with the amount of work involved.  Investors will have the ability to understand any fees prior to investing.  All costs, such as legal, accounting, planning, etc. will be borne by the project.
    * Structuring for Safety & Diversification - Each property will be acquired under a separate LLC (WA1, WA2, WA3, etc.), with the three Investment tiers outlined above, clearly defined within each entity.  This will provide some legal protection in the event that a particular asset has a legal problem, and will prevent having the other investments infected by legal problems with one asset.  In order to create diversification, investors are encouraged to spread their investment over multiples of these LLC’s and multiple geographic locations, rather than putting more money into just one investment or just one market.  Investments will be highly insured to cover potential liabilities.
    * Investment “Right Sizing” - Individual investments will be in the range of $250,000 to $1,000,000, unless related smaller investments can be pooled under one entity (such as buying multiple condos in the same project from different buyers and pooled under a single investment entity), and investment unit sizes will begin at $50,000 per investment, and all Investors must be Qualified Investors (income over $200,000, $300,000 if married, and/or a net worth in excess of $1 million).
    * Predefined Business Plan - All development, redevelopment and carry costs will be outlined in advance in a defined business plan, and substantial changes to that plan will be reported and approved by the Investors.  Otherwise the GP will have full authority to act on behalf of the LLC to maximize returns.
    * Standardized Reporting - Quarterly reports will be prepared on each asset to keep investors fully informed as to the status and progress of the investment, and taxes will be filed and K-1’s delivered to Investors on or before March 31st of the following year.
    * Lender Requirements - Financial Partners will commit to continue to provide financial statements and tax returns to keep the lenders informed as to their ongoing financial condition, and to provide the lenders the ability to keep their credit files current.


Below is a visual representation of the investment structure:

Diversification Strategy

/images/opportunity-funds-02.jpgRather than creating one entity to carry multiple investments, a new LLC is established for each investment, with WA Investments, LLC as the consistent general manager of the entities. Investors are encouraged to spread their investment across multiple properties and multiple markets to ensure a diversification of this Opportunity Funds investment.  This also provides asset protection in the unfortunate event that any one asset has a legal issue arise, which is contained at that asset level and not allowed to “infect” the other assets or entities, or experiencing a catastrophic event in any one geographic market.

6 Top Pitfalls of Business Failure

As per a report, more than 50 percent of the new businesses fail in the first year itself and almost 95 percent of the businesses fail within five year of their inception. Most of the new businesses fail because of poor planning and not able to survive the market conditions. However, there are some key factors that if not avoided, may weight down a business.

Starting the Business for the Wrong Reasons
The purpose of starting the business should be pretty clear. Many of the entrepreneurs think that they can make a lot of money and become powerful if they have their own business. Merely having these purposes may lead to possible failure of your business. Instead a business started with these reasons has better chances of success.

    * You strongly believe in your business idea and have a passion to make it successful. You also believe that your product or service has enough demand in the market and fulfill the need of customers.
    * Attitude is a key factor to make a business successful. With strong determination and patience, a positive attitude keeps a businessman optimistic even in the odd conditions.
    * Not giving up even if you see failure in your business. You take it as a learning process.
    * You enjoy independently working and are capable of taking charge of accomplishing tasks to complete the most challenging tasks within time constraints.
    * You like to interact with your subordinates and enjoy their work. Also, you can deal with all types of individuals.


Poor Management
Poor Management is cited as one of the most crucial factors for a business failure. The new entrepreneurs lack required expertise to manage different functions of a business such as finance, marketing, HR, sales, operations, etc. If all these functions are not properly handled, the business will see disaster sooner or later.
A regular study, planning and controlling all activities of the business should be done in order to know which areas are prone to risk. Market research and customer buying behavior should also be studied regularly to know the changing market trends. It helps in reconsidering the current strategies and taking required steps. The management team should be able to motivate the subordinates and create an encouraging climate across the organization. A good leader is one who is able to make his vision a reality and has the foresightedness to see the opportunities for the future.

Not Having Enough Capital
Insufficient operating funds are another key reason for the failure of a business. Many budding entrepreneurs fail to estimate how much capital is needed to run the business and so forced to close down their business in the initial phases itself. Also, they make unrealistic projections for future and if those are not met, they fail to continue business.
It is extremely important to correctly estimate the working capital and cost of staying in the business. Your venture may not run in profit for initial one or two quarters, you must have enough funds to keep it going. You also need to plan how the revenue generated through sales is going to meet all the costs occurred.

Bad Location
A good location can settle down a struggling business whereas a bad location may ruin even the best-managed companies. In the excitement of setting up a company, many owners ignore the location of their business and ends up founding himself in severe difficulties later. Therefore, before choosing a location for your new venture, proper research and study should be done. Some of the factors you can think of are-

    * Where your target market is?
    * Suppliers, transportation, other basic resources
    * Where your chief competitors are?
    * Safety and security of the company premises
    * Local people and their receptiveness to a new venture


Lack of Planning

A careful, methodological and strategic planning is required for success of any business. Most of the new ventures die before getting matured due to lack of a concrete planning. The key points which are included in the planning for a business are given below.

    * Description of vision, mission, goals and success mantras for the business
    * ed human resource for each function
    * Identifying the possible problems and finding out their solutions
    * Financial resources, income statement, balance sheet, cash flow analysis, sales forecast, expenses projection, etc.
    * Competitors’ analysis
    * Advertising and marketing strategies


Poor Diversification and Expansion Strategy

One of the leading reasons of business failure is poorly designed diversification and expansion strategy. Many entrepreneurs go for overexpansion of their business ignoring the status of the industry. The rapid expanding companies are often get bankrupted.
The expansion and diversification strategy should be adopted after a lot research and putting enough thoughts. Not going for expansion may repress growth and do not attract investors. A good cash flow management system will help you in setting your growth strategy. After all getting all research work done, you need to identify with whom and when you will have an alliance to grow your business. Right people for each job should be kept in place to avoid over dependency on you.

Top qualities every successful entrepreneur needs

Being an entrepreneur doesn't mean you just start up a business. Being an entrepreneur means you must have the attitude to persevere and the will to thrive and survive no matter the obstacles. Being an entrepreneur does not mean you need to have as many degrees as possible, nor does it mean that you must have endless years of experience under your belt.
All successful entrepreneurs must have the following qualities:

Strong belief and inner drive to succeed
Every entrepreneur must believe in themselves. They, of all people, must believe in their ability to succeed. Every entrepreneur must be self-driven. They must see their future goals, chart out how they will achieve those goals and be utterly committed to achieving them. They set massive but realistic goals and put all possible efforts to achieve those.

Learn from their mistakes and open to change
Entrepreneurs must passionately love to learn new things. They must constantly search for ways in which they can improve and succeed. Entrepreneurs cannot be afraid to think 'outside the box' or try something new and different. Every entrepreneur must be open to change and not become 'stuck in a rut' refusing to move out of the way things 'have always been done'

Competitive and highly motivated

Without a competitive, driving nature, an entrepreneur will not survive for long. Entrepreneurs have high standards. They thrive on competition and are driven toward being the best they can be. Entrepreneurs are highly motivated and full of life. They can self-motivate and rarely, if ever, need to be told to get up and go. They high standard which make them stay motivated all the time.
All the successful entrepreneurs are motivated by achievement and not by power or money. They prefer to do new things and accept the most challenging tasks. They lead by example and always encourage people to achieve the objectives set by the company.

Respect constructive criticism
Without the acceptance of positive criticism, an entrepreneur will not survive for long. A successful entrepreneur knows that feedback and advice is crucial to his survival and success. A good entrepreneur will take even harsh criticism for what it's worth, evaluate it (if need be) and implement it accordingly.
An entrepreneur must dare to be different. He or she must stand out from the rest with self-motivation and true spirit of pioneering. They must love to 'do battle' with competitors. They must love to win no matter the cost.

Foresightedness and quick to grab opportunities
Entrepreneurs are quick in grabbing opportunities and can see future of any product or service more efficiently than others. They are also capable of identifying patterns and separating irrelevant information from a pool of data they have. This quality helps them in building structure of the company and making better strategies.
The new business owners also have the quality of knowing by instinct. They don’t give up even in the odd conditions and most often turn the table with their exceptional capabilities. In today’s scenario when the competition is like never before, one has to be quite futuristic and adopt a balancing approach between short-term goals and long-term goals.

Effective diversification and expansion strategy

The good entrepreneurs always evaluate all available options before going for expansion of their business. Partnership, Joint Venture, Merger are some of the strategies adopted by them. All these strategies are based on mutual respect and shared goals and a successful business owner understands these. Also, not studying the industry status and going for aggressive expansion strategy may lead to disaster for business, so the owner must do all the required studies in detail.

Diversification Strategies

Investors can build a diversified portfolio of investments by applying a number of strategies when choosing what to invest in and how much to put in. These strategies can be applied alone or in tandem to one another.

Diversifying across different asset classes is considered to be the most important strategy that an investor can adopt. With carefully chosen levels of investment in each asset type you could reduce the risk of holding too many investments in each class and achieve more robust returns.

Global or geographical diversification is also a popular way of diversifying, as historically different regions do not always correlate in terms of performance.

Investors can also seek diversification by picking different types of investments within individual asset classes. For example when picking stock market investments, you may choose companies from a variety of sectors or you may choose companies likely to deliver different levels of return over different time periods.

Growth Strategies for High Tech Firms

High technology products are new, they are based on new technology, and they often preceed a market demand. To market a high tech product, a firm must understand the needs of customers, educate them about the product and its underlying technology, and convince them that the new product represents the best solution to their problems.

The authors propose expanding Ansoff's Growth Strategy Matrix to identify six separate market conditions, or cells, which represent increasing risk for marketers. The cells range from the most secure environment in which known products are sold to established markets --- to the most challenging environment in which high tech products are offered to as-yet undefined markets.

The paper asserts that the significant failure rate among high tech products results from the failure of firms to realize that they are no longer competing in a high tech market environment. It is proposed that firms develop specialized marketing competence in each of the six environments.
New Technologies, New Products, and New Markets

A market-oriented definition of a high tech product would be...a product that is an innovative application of technology to the solution of marketplace problems. High tech products represent a technological solution to a customer's problem that is not only new but, previously, not even considered. The customer is familiar with neither the product nor its technological foundation while the high tech marketer may be equally unfamiliar with the customer's problems.

This dilemma is an extension of the conceptualization addressed by Ansoff 30 years ago. There are four distinct growth strategies based on a firm's familiarity with their products and markets.

Ansoff's Growth Strategy Matrix

This conceptualization also distinguishes between the risk level of the various growth strategies. The less a firm knows about a business, the more likely it is to fail. Thus the penetration strategy (selling products the firm is familiar with to markets/customers the firm is familar with) has the least risk, while the diversification strategy (selling unfamiliar products to unfamiliar markets) is the riskiest. Consultants frequently refer to the diversification cell in the matrix as the "Suicide Cell."

Expanding the Growth Strategy Matrix

With some modifications, this Growth Strategy framework demonstrates the strategic dilemma facing high tech firms. The modification is necessary because the Growth Strategy model was based on a premise of customers being familiar with the products (or product category) being offered (even if they are not familiar with the firm who offered the product.) Even without technological innovation, in an expanding market customers will enter the marketplace without product knowledge. This complicates the task of the marketer who must not only learn about the new customer but also educate the customer about the product. The less the customer knows about the product, the more difficult the task facing the marketer.

Taken to the extreme, this lack of knowledge characterizes the problem facing the firm marketing a high tech product where, by definition, the customer is unfamiliar not only with the product but also its underlying technology. To account for this added level of uncertainty and resultant strategic difficulty, the Growth Strategy matrix must be expanded.
Expanded Growth Strategy Matrix

This expanded matrix adds the dimension of new technology, meaning technology new to the marketplace. This new technology factor adds an additional level of risk for the marketing firm because it indicates that the marketing firm will have to educate the customer about the technology before the customer can be shown the benefits of the new product. In the case of old markets (markets the company has experience with) the firm is already familiar with the problems facing the customer.
High Tech Growth and the Better Mousetrap Fallacy

The New Market-New Technology cell, identified as High Tech in this matrix, flows directly from this paper's definition of "high tech." It is not coincidental that the high tech cell falls below the diversification (or suicide) cell. It is even riskier. The marketer of a high tech product, as this representation illustrates, is unfamiliar with the market and, therefore, knows little about the problems facing the customer. Yet that high tech marketer must be able to demonstrate how that customer's problems can be solved by a product and a technology that are new to the customer, difficult to grasp, and represent a high level of buyer uncertainty.

To succeed, before the product is even marketed, the high tech marketer must first learn about the market and then teach that market about the technology. The inability of managers to perceive the marketing challenge facing their firm is the cause of frequent failures among high tech products. Many firms, managed by technically trained personnel with little strategic or marketing management experience, fall victim to the better mousetrap fallacy. They fail because rather than aggressively marketing their product (learning about their customer's needs and educating that customer about the product and technology) these managers expect their customers to intuitively see the superiority of their product.
High Tech Success Means Intensive Market Research and Customer Education

A firm competing with the High Tech strategy succeeds by combining its technical expertise, its ability to quickly gain knowledge about its customers problems and needs, and its ability to give the customer sufficient technological expertise to evaluate and choose their product. Unfortunately, this is a very transient environment and the skills that resulted in initial successes are likely to become far less important as the market matures.

In today's technologically intensive environment, marketplaces evolve rapidly. The life cycles of products shorten and innovations diffuse rapidly. While the High Tech marketer is learning about the market...key customers (the opinion leaders) are becoming familiar with both the technology and the product. Even more important, the product and technological uniqueness that helped compensate for the marketer's strategic ineptitude early in its life cycle is lost as new, and sometimes superior, products enter the market. To succeed in this market the firm must realize that it is no longer competing in a high tech market but in a "penetration" strategic environment and must change its strategy accordingly.

A company embarking on a high tech strategy must, simultaneously, be learning about their market for the first time and teaching that market about an emerging technology. The learning component of this strategy should result in the high tech marketer investing heavily in market research to understand the structure and the needs of the market they are entering.

The teaching component should result in a communications strategy that adopts a missionary role. Advertising and promotional materials will need to explain not only the product and its benefits but the appropriateness of the underlying technology. Sales personnel will need to be technologically sophisticated to allow them to help the customer apply and integrate this high technology product into their current set of acceptable solutions to their problems.

Because the high tech product provides performance benefits that allow it to substitute for other products and technologies, and because direct competition is likely to be low, premium pricing strategies are appropriate. While this high tech strategy is being implemented the marketer must be preparing for the inevitable transition to a penetration strategy.

The change to a penetration strategy requires changes in most marketing activities. Market research should shift from basic learning to competitive monitoring. Advertising and communications will focus more on differentiation and the role of personal sales will change. The sales person will focus more on providing service to the customer (rather than education) and providing market intelligence. Pricing will become a competitive weapon and distributors and other channel intermediaries are likely to be employed.
How Software Arts Lost Marketshare to Lotus

Software Arts invented the concept of PC spreadsheet analysis with its VisiCalc program. VisiCalc may well have been the better mousetrap that the market sought out. Unfortunately, the company continued to compete as though it was the best (and only) mousetrap. When Lotus introduced its integrated software 123 to the market, VisiCalc was left by the wayside. Software Arts never modified the fundamentals of their marketing strategy and continued to compete as though the product they offered was unique and market leading. Sales declined until 1985 when they were acquired by Lotus.

Lotus 123 was a brilliant technological success. In fact, the product's success quickly drove it out of the high tech strategic cell and into a penetration strategy. Lotus was responsive and flexible enough to adapt to the penetration strategy. Aggressive retail merchandising established high market visibility. Aggressive pricing and site licensing programs helped the company retain competitive position. All of these strategic steps indicate Lotus's realization that it was no longer competing in a high tech environment.

Too often, the change in the high tech marketer's strategic environment goes unnoticed by the firm. Even worse, the change may be noticed but ignored because acknowledging the change would require strategic change. In some high tech companies, the need to seem distinct from conventional firms is so great that management refuses to acknowledge environmental change fearing that to accept the change would require the company to become more conventional in its business practices.
Specialized Marketing Teams for Each of the Six Cells

The object of this paper is not to suggest that high tech firms cannot succeed. These firms clearly have significant potential because of their ability to offer radically new solutions for customers problems. However, unless these firms are remarkable lucky, they are doomed to fail without marketing and strategy guiding them through the marketplace.

Even those firms that can survive the first pressures of the marketplace cannot be sure of long term success because that market will change and, if the firm is to remain vital and viable, its strategy must change. Part of the change will occur as firms move from the single product strategy characteristic of high tech "startup" firms to the multiproduct portfolio strategy of stable and mature firms. It is unlikely that the managerial skills needed for success in the high tech strategy will readily transfer readily to other strategies. This can be seen in the departure of the founders of both Apple Computer and Lotus Development Corporations to be replaced by managers more skilled in traditional marketing strategies.

The firm best positioned for long term success need not abandon its high tech innovators. Instead it needs to have different strategic teams ready to pick up a product as it evolves into their area of strategic expertise. The successful firm will have not just one marketing group (which is one more than many high tech firms have today) they will have a separate marketing group for each of the six cells in the Expanded Growth Strategy Matrix.