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4 Rules to be a Prudent Investor

4 Rules to be a Prudent Investor

By: Morgan International Staff Writers

When talking of investments, many will speak of being a prudent investor. The word Prudent traces back to Middle French and the Latin verb providēre which means to see ahead, foresee, and provide (for). The word is a natural choice when speaking of investments. We would like to share our 4 rules to be a prudent investor and therefore make strong returns whilst not being exposed to an undue amount of risk.


  • Primarily invest in major index stocks and bonds

Major index stocks and the more frequently held bonds move more predictably. Remember that these often have long histories so that trends can be observed and analysed over many years. They also tend to be less shocked by market forces. We are not saying not to invest in small caps and foreign bonds too, but ensure the primary investment is in the big and established stocks and bonds.


  • Diversify – but not too much

In your portfolio you should have a prudent level of diversification. Clearly you do not want to be spread too thin, but consider commodities, property, and perhaps even emerging market stocks. Clearly the less traditional the asset class, the higher the level of risk, and the reward too.


  • Review often

Review the portfolio often and take action accordingly. This might include withdrawing from certain investments and ‘cashing in’, or perhaps deciding to take a loss. The prudent investors frequently review their portfolio (often multiple times a day using real time apps).


  • Minimize fees

There will be many small fees across the portfolio for various types of transactions – buying stock, selling stock etc. These add up, particularly with a complex portfolio. These costs should be kept track off and streamlined where possible.


The prudent investor is mindful of the tips above, and also takes advice from a professionally qualified Chartered Financial Analyst (CFA) when they need some extra support and/or information.


4 Bad Small Business Money Habits

4 Bad Small Business Money Habits

By Morgan International Staff Writers

Money is the lifeblood of all businesses – without it – a business will not be trading for long. Therefore robust financial management is imperative for a business to be successful. Yet all too often it is evident that organizations are not doing fairly basic money related tasks. These over time can cumulatively be extremely damaging. Unfortunately it is often small businesses that are the worst offenders.


  • Not looking after the small change

It can be tempting to not keep track of small purchases or sales. The administrative burden of tracking a dollar out of the door can feel too time consuming – particularly for a small new business who is trying to sell, sell, sell. However, the small amounts add up very quickly and it is important that they are tracked.


  • Not saving

Some businesses are continuously on the edge from a liquidity perspective, and saving can be impossible or difficult depending on income versus expenditure. However for business with positive cash flow, it is important to have a savings plan, and to not reinvest everything. Savings are the safety net to get businesses out of unexpected financial issues.


  • Not reinvesting

I have just said not to reinvest everything, but a level of reinvestment is critical. The level of this against savings will depend on a number of factors. However a business must be investing strategically to grow and be successful.


  • Not reducing debt

Businesses often have loans, credit cards, and other types of debt. When interest rates are zero on a debt, it can be tempting to not have a plan to pay it off. However, these deals always have an end date, and the consideration of how to pay it off should not happen once the high interest rates kick in.


As a small business, there is a lot to do, and sometimes administrative tasks are deprioritized. Yet when they relate to income and expenditure, them being ignored is dangerous and potentially business ending. Many small business owners find it useful to take a short course in finance, or to hire the services of a qualified accountant to advise them.

How to manage your investment portfolio (2)

How to manage your investment portfolio

By Morgan International Staff Writers

Would you put all of your eggs in one basket? It is an old saying, but it is a good one – one that is used so often in our personal and working lives. It is talking about gain versus risk. This is a concept spoken of frequently in investment management, and specifically in the context of portfolio management. What investments are made, and how risky are each of those investments? Typically the riskier the investment, the greater the swing on the gain/loss. There are two basic portfolio management approaches; Active Portfolio Management Strategy and Passive Portfolio Management Strategy.

Active Portfolio Management Strategy

Active portfolio management assumes that the market is not efficient and therefore analysis and management by those trading can create greater than average market returns. In essence market inefficiencies can be exploited to the advantage of the person trading. This approach is typically higher risk, faster, and has a higher risk/reward profile.


Within this management strategy there are two different approaches to selecting stocks – top down and bottom up. In the top down approach, portfolio managers look at the market holistically and identify industries and sectors they expect to perform well. Stocks are selected on this basis. In the bottom up approach, market conditions and anticipated trends are ignored, with evaluations of the companies being based on criteria such as financial statements and product roadmaps. It assumes that a company’s performance is not governed primarily by economic conditions, i.e. the best and strongest companies will perform well even if economic conditions are poor.


Passive Portfolio Management Strategy

Passive portfolio management works on the assumption that the markets are efficient and it is therefore impossible to regularly beat market returns over times. Therefore it assumes the best returns are made from low cost investments that are kept long term. There are many more stock selection styles within the Passive Portfolio Management Strategy. For example the patient portfolio involves investing in well-known stocks that historically have had stable growth and generated higher than average growth regardless of market conditions. Whereas aggressive portfolio management involves making investments in expensive stocks that provide strong returns but do carry big risks. In this type of portfolio you will see stocks of companies that are of different sizes but are growing rapidly and are expected to create a fast return.


In summary, portfolio management and investment strategies are both complex areas. It is always advisable to seek advice from a professionally qualified Chartered Financial Analyst (CFA) when seeking to make investments or indeed review a current portfolio.



Battling Climate Change with Lean Six Sigma

Battling Climate Change with Lean Six Sigma

By Morgan International Staff Writers

Six sigma methodologies are widely used in business to improve processes, reduce waste, and increase efficiency. The techniques employed are also transferable to other areas, and one issue currently benefiting from their application is climate change.

Six sigma uses hard data as the basis for managing a problem and improving outcomes. So what specific techniques and methodologies are helping climate change scientists tackle the issue on a day-to-day basis?

·        Root Cause Analysis

Root Cause Analysis exposes problems within a system, allowing scientists to find the cause of a certain aspect of climate change. This aspect could be the reason we’re experiencing warmer summers in the UK, or why high levels of smog are lingering in certain cities around the globe.

The methodology involves asking multiple questions to find an explanation for an issue, and reveal its basic cause. In conjunction with the following six sigma methodologies, it covers the groundwork needed to expose issues at their roots.

·        DMAIC (Define, Measure, Analyse, Improve, Control)

DMAIC allows scientists to focus on a specific problem, for instance the release of methane and carbon dioxide into the atmosphere. Having identified where these gases originate - landfill sites or cattle, for example – they determine how to measure the problem scientifically.

Results are then analysed with a view to improving and controlling the situation more effectively. In the case of landfills this might involve having stricter control over the number of landfill sites and levels of toxicity, or incentivising the public to change the way they dispose of waste.

·        DFSS (Design for Six Sigma)

This process has no defined steps as with DMAIC, but uses a technique called Critical Parameter Management (CPM) to predict the likely success of a project. DFSS also concentrates on the ideal outcomes for everyone involved, including those companies whose activities add to the climate-change issue.

Learn more about how six sigma methodologies can help your business. We offer a number of courses and certifications for you and your staff - take a look at our website for the full range of training opportunities.


Making Your First Million – From Entrepreneur to CEO

By Morgan International Staff Writers

It is the milestone that most entrepreneurs hold in great esteem – the first million dollars. It is a mark of success (usually), and highlights that revenue is going in the right direction. However it is typically around this time that a number of additional considerations and responsibilities come into play. Typically it is the time where consummate entrepreneurs find themselves as more of a CEO – and for many this can feel like a rather big transition. This is the reason that for some, they decide to hire in a CEO whilst they remain in charge of product/service direction. So what are the main changes?

1) You will need more people
More revenue usually means more people are required within the business. This in turn means more hiring, more people to manage, and often a more formalized HR structure. It can be the tipping point whereby you start to need many more policies and procedures for staff to follow.

2) You rethink financing
In the early days you may be using your own funds, money from family/friends, perhaps small bank loans, or even credit card debt. There comes a point where a business will need to find different types of finance if they are to grow and be supported appropriately. This might mean business bank loans, venture capital, private investment, and/or stock market floatation.

3) You rethink your company structure
When you set up the business you will undoubtedly have done so with the current circumstances of your business in mind. Once you grow to a certain size, you may find that a different structure is more appropriate to reduce tax liabilities and also to support your business.

In Summary
Undoubtedly, a million dollar revenue will not be the exact point that everything changes. However the point of this article is that there will be a stage in the life of every growing business that things shift across a multitude of areas, and the savvy entrepreneur should be ready to make changes to support future growth.


Financial Habits of Successful Small Businesses

By Morgan International Staff Writers

I am sure you have heard it said many times that liquidity is an imperative consideration for all businesses – not just those that are small. However for small businesses it can be even more important as they may have less financial back up when the bank balance is zero and invoices are stacking up. Being financially savvy is incredibly important for a small business, and a study by Freshbooks in the US looked at 1700 small businesses to ascertain the financial habits that make for success or failure. These are our top 5:


  • 69% of small business owners review finances regularly

It is important to have a real time view of the financial situation, and a forecast of what is coming up. For most businesses there will be a pattern of income and expenses, but as with all things there will financial impacts that fall outside of this pattern. Reviewing finances regularly allows for planning in case of impending liquidity issues.


  • 47% of small business owners maintain a budget

Reviewing finances is a first step, but it is also important to have a budget that looks to the future and estimates income and expenses. This is in essence a planning document and it allows small business owners to make more informed decisions. Most find that they get more accurate at budgeting over time.


  • 52% of small business owners put their taxes aside

The government is one institution most small business owners are fearful of being indebted to. Taxes that will become due should be estimated as income is earnt, and put to one side for when the tax bill arrives. In most countries, late payment of taxes will incur a substantial penalty, therefore should be avoided.


  • 50% of small business owners proactively reduce debt

Some debt is cheaper than other types of debt. Most businesses will be leveraged to some degree, but there should be a plan to pay off debt, particularly that which attracts high interest rates.


  • 64% of small business owners set up an optimal structure for tax purposes

In each country there will be various company set up structures. It is important for small business owners to consider what the most appropriate structure is for them and often that relates to minimizing liabilities, including taxes.

In Summary

The success or failure of small businesses is strongly correlated to their ability to manage their finances. For those running small businesses that are not financially savvy, it could be very useful to employ the services of a financial advisor who can provide assistance.


How Much Should I Really Save?

By Morgan International Staff Writers

This is a question people have been asking financial advisors regularly for many years. The answer is typically less than straightforward and depends on personal circumstances and goals/aspirations. These are our top four considerations.

1) What can I afford?
There will be those in unfortunate circumstances who do not have any money left each month after they have paid the rent and bills. Of course there is then a question of whether there is a way that some of those expenses can be reduced so that there is money left for savings. Or perhaps there is a way to increase income such as taking on additional hours or looking for a better paying role.

2) Emergency fund
One step up from saving nothing is to consider how much you would need to have saved in case of an emergency. This situation will be different for each and every person, and whilst you will make some calculations and assumptions – it does not mean they will turn out to be correct. Let us take an example of an individual with no savings who rents a property on their own, who is in a permanent role. An emergency would be the individual losing that job for whatever reason – redundancy, illness etc. Clearly you would expect statutory redundancy or some sort of payment in the event of ill health. However to keep this simple, the individual would want to consider how long they think it would take them to get back into employment, and how much their expenditure would be each month. If their expenditure is $3,000 per month and they think it will take 6 months to find a new role, then they need $18,000 in savings.

3) Retirement planning
Once the emergency fund is covered, the next natural step is to consider planning for old age. Of course for some this might be part of a pension through work and therefore this might be covered whilst the emergency fund is still a work in progress.

4) Investments
There may be various investments that you want to engage in, such as buying a property to live in, or perhaps stocks and shares. It is important to have a diversified portfolio and be clear about the purpose of each investment. Clearly to make investments, a certain amount of funds will be required, and this should be researched and saved for as appropriate.

In Summary
The reality is that your ability to save will be linked to your income and your outgoings. For many people, they can reduce their outgoings to allow them the ability to save. If you wish to get some professional support with savings planning, you might consider contacting a professionally qualified financial planner.


Why Do We Struggle With Financial Literacy

By Morgan International Staff Writers

According to an OECD study, one in five US students do not meet basic levels for financial literacy proficiency. Financial literacy is defined as a person’s ability to understand how money works in the work. This applies to both personal and business finances. A number of attributes of the 2007/2008 economic crisis indicate that the human race is somewhat lacking when it comes to financial literacy. This article seeks to question why we are seemingly so inadequate in this area of knowledge.


  • Access to financial education – or lack of it

School curriculums differ by country, but the overwhelming sense is that financial education is very poor. Most children learn algebra which for many is of limited use in later life. However few learn about savings, pensions, interest rates, inflation, and so on. Those who undertake specific finance qualifications typically do so later on in their education when they have decision making over what they learn. For those that do not pursue financial qualifications, they are unlikely to have had any access to formal financial education.


  • Information gained from non-neutral sources

When we do finally get information it is typically provided by a service provider, such as a bank who wants to sell us a particular savings product. Therefore the information is to some extent biased. Many countries now have strict regulations against advice being anything other than neutral and transparent, but there is still some way to go.


  • A little bit of knowledge is dangerous

This is an old adage, but to some extent it is true, particularly in the financial industry. Once we do start accumulating financial knowledge, it tends to come from multiple sources and we cobble that together into our sense and understanding of the financial environment. None of this information is likely to have been validated, and the way we combine that knowledge may not be a true reflection of the particular financial ecosystem.


In Summary

A lack of financial literacy has the potential to have personally devastating effects, as well as causing wider business and financial ecosystem impacts. We know that there is a gap with respect to financial literacy that must be bridged, and a natural place to start seems to be within the education system. However for those of us that left education some time ago, it is advisable to seek professional advice when making important financial decisions. Within a business setting, qualified professionals from the finance function should be involved in decisions that require a level of financial acumen.


5 Tips to Guess CFA Exam Answers

By: Morgan International Staff Writers
Let me start by saying that nothing in this article is meant to encourage you to not do a sufficient amount of preparation and entering the CFA exam with the requisite knowledge to pass with flying colours. Yet, like with all exams, however much we prepare, there may be questions that have us stuck. Each candidate will have a different approach to exam technique – whether that be tackling them incrementally, or leaving those ones until the end. Regardless of approach, if there are 10% you are unsure of, it is still better to give them a go, or else you are already reducing your potential score by 10%. We have pulled together 5 top tips to help you ‘intelligently guess’ or deduce the answer – or at least give you more of a fighting chance of scoring some points.

1) Use deduction for multiple choice questions
Look out for answers that absolutely can’t be correct. Work through a process of deduction and if you manage to get down to two potentially correct answers – then you now have a 50/50 chance of scoring points. Don’t panic - try and progress logically through the potential answers.

2) The answer to one question may help answer another
In CFA Level II and III there is a vignette format where 6 questions are about the same passage of text. Sometimes an answer or answers to some of the questions may assist you to deduce what part of the syllabus is being tested as there tends to be a theme within the vignette. Unfortunately, all questions in CFA Level I are independent of each other – so this tip will not help you on that exam (sorry).

3) Stick to the course material
If you feel stuck, you may have some knowledge tucked away from another course that you think might help. Our experience is that it won’t. Whilst this may seem opposed to educational spirit – it is important to stick to CFA definitions and content.

4) Don’t argue
You may be struggling to answer a question because you feel it is worded poorly or you think that it is very difficult to interpret. Or perhaps the question makes no sense whatsoever in your opinion. Do not spend your time answering the question with your perspective on the inadequacies of the question. We assure you that it won’t secure you any points, or ‘brownie points’ with the exam marker.

5) Use your common sense
When all else fails, use your common sense and your gut feel. Have some faith in yourself. You should have done a number of practice papers by this point which hopefully has given you a good feel for the exam structure and typical answers to typical questions.

In Summary
Nobody said the CFA exams would be easy. However the key to success is to work calmly and methodically. You are unlikely to feel certain you know the answer to all of the questions and it is advisable to accept that and have methods and tips in your mind to help you cope.


Get Employees behind Lean Six Sigma

By Morgan International Staff Writer

Arnold Glasow famously said, ‘Improvement begins with I. This was not a quote specific to implementing Lean Six Sigma, but more holistically that for improvement to happen it has to start with individuals. Therefore this means that simply implementing top down change without the support and interest of employees, will rarely work.


Employee concerns

The first thing to appreciate is that employees typically do not like change – in fact most humans find change unsettling. Secondly, any process or procedural changes can set alarm bells ringing that job losses are on the way.


How do you get your organization ready?

Each organization is working from a different starting position and company culture will be incredibly important in determining how easily employees accept Lean Six Sigma. Clearly in organizations where employees understand the vision and strategy, and buy into it, a simple explanation of how this change will help on that journey should be sufficient to get them on board. However, for employees who have not been part of strategic conversations, and there has been little change for many years, this might all seem alien and very scary. What I am saying is – assess the current situation and then design a communication plan. In our second example, expect organizational readiness to take more time and many more incremental steps. Expect scepticism and resistance and consider appointing change agents who can voice the advantages of Lean Six Sigma. Be ready to:

  • Sell the benefits of Six Sigma to employees
  • Communicate clearly with employees and be sensitive to resistance
  • Use change agents to remove barriers
  • Incentivise employees (attach their bonus to organization wide success of six sigma, offer training)
  • Have senior leadership advocating the change and talking about it consistently.


In Summary

Do not expect your employees to accept the implementation of Lean Six Sigma with open arms. As with any change, you will need to assess current organizational readiness and then produce a plan to get employees ready to embrace the new way of doing things. You may decide to link monetary incentives to the success of Lean Six Sigma. However employees very often value other incentives more, such as training. Since a large programme of change is being launched, it is a perfect time to incentivise employees by offering them industry recognised training that is portable throughout their career.