Rich or Poor!!

Accrording to the planning commision of India the population of
Indians below poverty line is 41 crore as of June 2011. So 1 in every
3 indian is BPL. The per capita income of an Indian residing in urban
and rural area just above the poverty line is Rs. 1000 and Rs. 800
respectively. The actual figures will come out in National Sample
Survey in 2011-12.

Mismanagement around US companies with billions of dollars wasted everyday

We have no presence in mobile thus far but we have heard that it is a fad these days. So In April 2010 let us buy a struggling and useless mobile handset maker which is anyways getting beaten to death by its competitors.

Mistake #1 Buying a poor beaten down product company which adds no value to the core business line. We want to buy it only because the technology it is in is somehow a fad these days.

Let us pay 30% premium for their crap and thus we will spend a hefty 1.5 Billion dollars on this acquisition.

Mistake #2 Paying a hefty price for this non core, non performing business.

Then in Aug 2011 we have now confirmed that this product company is useless so we no longer need this business now.

Mistake #3 Not having the foresight of knowing what business is helping the core business model.

But wait a minute we have payed the employees of that company for almost a year and a half for doing essentially nothing. 

Let us call the accounting crooks and they will help us take this as an acquisition charge of an additional 1 billion dollars.

Mistake #4 Not knowing that the cost of a non core acquisition is now almost twice the price you pay initially.

Since we are now closing down this expensively bought, non core, non performing business we will have to pay severance to the employees, directors and management.

Not a problem we will take a restructuring cost of almost 2.5 billion dollars again.

Mistake #5 Not knowing that the restructuring costs almost always go hand in fist with an acquisition.

Let us not learn any lesson from the above mistakes and let us now start a new search for a fresh acquisition but this time we will go for a bigger acquisition say a 10 billion dollar acquisition of a cloud based software company. Our VPs and Senior VPs are saying that cloud is the next big fad. We have lot of cash that is earning low interest so let us do some useless acquisition to show the shareholders that we are "doing something".

This is the story of HP one acquisition after another. It started in 1997 with compaq by spending 25 billion dollars on that acquisition and today announced that will close down that division completely. The above story is repeated numerous times on Wall Street be it HP, Cisco, Dell or your favorite ticker.

 

Stop Coddling the Super-Rich - An article by Sir Warren Edward Buffett

OUR leaders have asked for "shared sacrifice." But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as "carried interest," thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they'd been long-term investors.

These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It's nice to have friends in high places.

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that's actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.

To understand why, you need to examine the sources of government revenue. Last year about 80 percent of these revenues came from personal income taxes and payroll taxes. The mega-rich pay income taxes at a rate of 15 percent on most of their earnings but pay practically nothing in payroll taxes. It's a different story for the middle class: typically, they fall into the 15 percent and 25 percent income tax brackets, and then are hit with heavy payroll taxes to boot.

Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.

I didn't refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what's happened since then: lower tax rates and far lower job creation.

Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.

The taxes I refer to here include only federal income tax, but you can be sure that any payroll tax for the 400 was inconsequential compared to income. In fact, 88 of the 400 in 2008 reported no wages at all, though every one of them reported capital gains. Some of my brethren may shun work but they all like to invest. (I can relate to that.)

I know well many of the mega-rich and, by and large, they are very decent people. They love America and appreciate the opportunity this country has given them. Many have joined the Giving Pledge, promising to give most of their wealth to philanthropy. Most wouldn't mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering.

Twelve members of Congress will soon take on the crucial job of rearranging our country's finances. They've been instructed to devise a plan that reduces the 10-year deficit by at least $1.5 trillion. It's vital, however, that they achieve far more than that. Americans are rapidly losing faith in the ability of Congress to deal with our country's fiscal problems. Only action that is immediate, real and very substantial will prevent that doubt from morphing into hopelessness. That feeling can create its own reality.

Job one for the 12 is to pare down some future promises that even a rich America can't fulfill. Big money must be saved here. The 12 should then turn to the issue of revenues. I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get.

But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.

My friends and I have been coddled long enough by a billionaire-friendly Congress. It's time for our government to get serious about shared sacrifice.

Warren E. Buffett is the chairman and chief executive of Berkshire Hathaway.

How we got into this mess?

How did the US Deficit grow to 1.4 trillion?

A very nice article By TERESA TRITCH 

Here are the graphs and the main take aways

A few lessons can be drawn from the numbers. First, the Bush tax cuts have had a huge damaging effect. If all of them expired as scheduled at the end of 2012, future deficits would be cut by about half, to sustainable levels. Second, a healthy budget requires a healthy economy; recessions wreak havoc by reducing tax revenue. Government has to spur demand and create jobs in a deep downturn, even though doing so worsens the deficit in the short run. Third, spending cuts alone will not close the gap. The chronic revenue shortfalls from serial tax cuts are simply too deep to fill with spending cuts alone. Taxes have to go up.

In future decades, when rising health costs with an aging population hit the budget in full force, deficits are projected to be far deeper than they are now. Effective health care reform, and a willingness to pay more taxes, will be the biggest factors in controlling those deficits.

One mac is better than 7 PCs

"Apple brought in $4.976 billion in revenue from the sale of 3.76 million Macs last quarter. Divide the $4.976 billion in revenue by 3.76 million Macs and you get an average selling price of $1,323.40," Matt Richman blogs.

"A June 1st research note from Peter Misek of Jefferies & Company pegged Mac gross margins at 28%," Matt Richman explains. "Multiply $1,323.40 by .28 and Apple makes $370.55 for every Mac sold… HP makes $52.00 for every PC they sell."

Richman reports, "Apple makes more money from the sale of one Mac than HP does from selling seven PCs."

The full article, "A Consequence of Losing the PC Wars," here.

PIIGS

Portugal, Ireland, Italy, Greece and Spain or PIIGS as they are called have very limited options when it comes to saving their skin.

1. Let the Euro Fall Sharply

2. Let their economies bear the pain of a prolonged recession by pay cuts, spending cuts and higher taxes

3. Default and have a new currency and be out of the EU

If the Greeks Default can they still keep the Euro?

Here is an interesting article worth a read.

http://streetlightblog.blogspot.com/2011/04/can-greece-default-and-keep-euro.html

An Apple eating chips

Apple is now the leading consumer of chips followed by HP, Samsung, Dell and Nokia. It spends 17.5 BUSD on chips which is almost a third of its Cost of Revenue.

HP spends close to 15 BUSD.

What are the options CISCO has for a turnaround?

It is going to be long and painful but here are some options for Cisco to consider

1. Shuffle Management: Is it time to fire Chambers? For now they have hired a COO instead .

2. Lower Operating Expenses: HP and Juniper Networks, are biting into Cisco's market share and margins. Cisco could drop prices, but to keep profit margins healthy, it needs to cuts costs. This appears to be an obvious path and they have already started to offer buyouts to longtime employees and laying off non core staff.

3. Sell Non core Businesses: Cisco's foray into consumer technologies(cable TV boxes, Home networking Devices, Videoconferencing) has been a disaster. Cisco could sell or shut down other consumer businesses and get back to core business.

4. M&A: They could move into security(VMWare/Symantec), or storage(EMC). But an acquisition would be good only if it complements their core and comes as a great price. Considering the lagging stock I doubt that is a good strategy to pursue.

Battle of the Cores

The war of smartphones is now played using the number of cores that are available for increased clock speed and reduced power.

TI has it new OMAP4470, which the company expects to ship sometime in the first half of 2012. The chip sports four total cores — two ARM Cortex A9 running at up to 1.8GHz and two ARM Cortex-M3 clocked at 266MHz to handle multimedia processing. Its SGX544 graphics core is capable of pushing resolutions up to 2048 x 1536 to as many as three displays, and it supports HDMI output and stereoscopic 3D. The SGX544 is fully DX9, OpenGL ES 2.0, OpenCL 1.1, and OpenVG 1.1 compatible.

QC has the dual-core MSM8960 and quad-core APQ8064 — will fully supports Windows 8. The 8960 is currently with OEMs, while the 8064 won't ship until 2012. The updated Snapdragons boast clock speeds of up to 2.5GHz and connectivity options including Wi-Fi, GPS, Bluetooth, and FM radio. Support for NFC and stereoscopic 3D is also included, an upgraded Adreno GPUs will provide additional multimedia horsepower.

Then there is the grand daddy of all Tegra 3. This chip is amazing featuring 12 GPU cores! The resolution for this new processor does take it to the next level with 1440p! This is two times 720p and is 1.5X better then the latest 1080p. This is indeed next level of processing power and is absolutely a very adequate progression from Tegra 2, which featured only 2 cores.

Most of these chips are using 45 or 28 nm Technology.

The Growing Blade Market

Free Online Search Analysis Tools

Google Insights

Google Adwords

Hitwise

KeyComplete

SEMRush

MSN AdCenter

WordTracker

SpyFU

Based on an article by Anand @ http://www.dailytut.com/technology/top-10-free-online-keyword-search-analysis-tools.html

Soliciting Family and Friends for Capital

1. Choose a strategy.

Do you want to solicit large chunks of money from a few investors, or small amounts from many?

There's less pressure associated with small sums. "You're less likely to ruin a relationship over $25," says Cornelius McNab, founder of Atlanta-based 40billion.com, which facilitates friends-and-family loans and gifts. Most of the site's fundraisers target a few dozen people for sums between $100 and $500 apiece.

But typically only 10% to 20% percent people asked will contribute. So if you want to raise, say, $5,000 at $100 per backer, you'll need to woo 50 people. This means reaching out to 250 to 500 people.

Contacting a smaller, more targeted group for larger sums may require more gumption and planning upfront, it could be easier for the time-strapped.

San Francisco entrepreneur James Lee raised more than $1 million from friends and relatives in 2008 for his venture sale.com. He sat down to casual meetings, often over coffee, with 15 people and persuaded 10.

2. Choose an investment type.
When you accept money from others, strings will be attached, no matter how you structure the transaction.

Consider whether you want to accept and pay back loans, have your friends and family own an equity stake, or offer up a token of thanks -- say, some amount of free access to your product or service in exchange for a gift.

If you take on investors, you may have to give up a portion of your company, and perhaps make one or more board members. Even friends and family will want a return, which can mean eventually selling the company, buying back shares or paying dividends.

Loans have to be paid back on schedule, which can have an impact on cash flow and profitability. If you go the microfunding route, you could be juggling 50 of them.

Even gifts aren't free of strings. If you do accept them, thank the giver profusely in writing and acknowledge that the money is a gift rather than an investment or promissory note, says Denise Beeson, who teaches small-business management at Santa Rosa Junior College in California. "Just think if you gave Bill Gates some start-up funds. Would you want, after the fact, a return on your money? You bet," she says.

3. Write down your pitch.
Unless your friends and family are professional investors, they probably don't want to read a 50-page business plan. More likely, they'll prefer to sit down with you over coffee and hear you explain your idea, as Lee did.

Lee says that because his backers were people who knew him well and "were essentially investing in me," they didn't require a business plan.

To avoid being too informal, McNab suggests drawing up a five- to 10-page document that sums up what you want to do, how you'll do it and what you'll apply the money toward. Such a summary ensures you've made important disclosures, such as the key challenges, risks and competition the business faces, and that your backers understand what their money is going toward.

4. Keep your documents and communications business-like.
When you're dealing with people you know well, it's easy to want to keep agreements informal out of concern that official documents might make things feel less friendly. But don't be too casual.

If you don't want to involve a lawyer (but if equity is involved, you should), you may want to consider trying websites such as 40billion, Caplinked or LendingKarma that can help you structure, document and manage investments from friends and family.

5. Manage expectations.
Another upside of bringing in friends and family is that they are typically more patient than professional investors. "When we failed at plan A and at plan B, these people weren't looking for our heads," Lee says.

It's a good idea to send a monthly email update to your backers, even if they've given money as a gift, says McNab. Lee, for example, makes a point of reaching out to all of his backers informally about once a month by email, phone or get-togethers.

Be honest about what's going well and what could be better. You might want to raise more money later, and it can be easier if your backers have been able to watch your progress. "I've seen people ask for and get more from their backers in later rounds," McNab says.

If things aren't going well, friends who have a stake in your success are more likely than others to provide the advice, contacts or referrals you need to turn things around. Says McNab, "These are the people who will try to help you if they can."

By Eileen P. Gunn

How to Be a Better Investor

Learn to read markets.
Managing money is as much art as it is science. Anyone can study investment analysis, said Brown. But when he looks to hire a money manager, he looks for an elusive sixth sense that can't easily be taught. Those who have it see the market as a mosaic, he said. They're able to assemble disparate and often conflicting pieces of an economic, political, psychological and social puzzle. "You have to be able to assemble all of these various pieces of information, make some sense out of them and make a rational decision," said Brown. "It's hard to find that kind of talent."


Deal with your mistakes.
Confidence is important but must be balanced with humility, said Cates. Otherwise, you're undone by your mistakes, instead of schooled by them. "You've got to take mistakes hard," said Laporte, "but you've also got to move on." That's especially true in a business that generates so much feedback. Daily stock prices are more feedback that anyone needs or wants.

Know the Manager
Investors should investigate the decision-making process at the fund. Find out what the specific criteria are for selecting securities. Is management a team effort? Familiarize yourself with the members of the team and how they work together. Are there a couple of superstars? Ask how they're retained and compensated. Lastly, ask how much the managers invest in their own fund, to gauge how aligned their interests are with yours. "That's a huge one," said Cates. If it's not advertised, I'd assume it's not a lot and worry about it."

Be a Contrarian
Every investor fancies himself or herself a contrarian -- the same way everyone's child is above average and all drivers are good ones. But contrarians are that way throughout life, not just in the market, said Cates. Have you ever tuned out the crowd to go your own way? Maybe it's the college you attended or the career you forged or where you chose to live.

Be Patient
Good Investments take time to mature. As Warren said you can't produce a baby in a month by making nine women pregnant.

Be an Investor and not a Trader
Finding good companies at a fair price rather than finding great companies at a lousy price


Based on an article by Anne Kates Smith, Senior Editor, Kiplinger's Personal Finance

Q1 2011 Device Market Share

Global Handset Vendor Shipments and Market Share in Q1 2011

The full report, Apple Overtakes ZTE for 4th Position in Global
Handset Shipments in Q1 2011, is published by the Strategy Analytics
Wireless Device Strategies (WDS) service, details of which can be
found here.

Source: Strategy Analytics

What drives the oil prices?

Demand The Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency estimate the current world demand for oil at between 86 million to 87 million barrels per day in 2008. When the price of oil rises, this decreases demand in the United States, but demand from growing emerging market economies is expected to increase as these countries industrialize.

Some emerging market economies have fuel subsidies for consumers, and an estimated one-quarter of the world's demand for oil in 2008 comes from nations that have such subsidies. However, subsidies are not always beneficial to a country's economy, because although they tend to spur demand in the country, they may also cause the country's oil producers to sell at a loss. As such, removing subsidies can allow a country to increase oil production, thus increasing supply and lowering prices. In addition, cutting subsidies can decrease any shortage of refined products have been alleviated, since higher oil prices give refineries an incentive to produce products, such as diesel and gasoline.

Supply On the supply side, in 2008, approximately 85 million to 86 million barrels of oil were produced each day. The discovery of new reserves in Brazil in 2007 is a bright spot, but the oil fields in Mexico and the North Sea are experiencing steep declines in production.In OPEC, most countries do not have the ability to pump out much more oil. Saudi Arabia, the one exception, has an estimated spare capacity of 1.5 million barrels of oil per day as of 2008.Nigeria has also become important to the oil market, but the country has a history of instability and rebel attacks, which can severely curtail oil production in this country.

Quality One of the major problems the oil market faces is the lack of high-quality "sweet" crude, the type of oil that many refineries need to meet stringent environmental requirements, particularly in the United States. Much of the high-quality oil imported into the United States comes from Nigeria and surrounding African nations; according to the U.S. Department of Energy, together, Nigeria and Angola exported more oil to the United States than Saudi Arabia in 2007.

Speculation Aside from supply and demand factors, another force driving oil prices has been investors and speculators bidding on oil futures contracts. Many major institutional investors now involved in the oil markets, such as pension and endowment funds, hold commodity-linked investments as part of a long-term asset-allocation strategy. Others, including Wall Street speculators, trade oil futures for very short periods of time to reap quick profits. Some observers attribute wide short-term swings in oil prices to these speculators, while others believe their influence is minimal.

Source: Tony Daltorio

Mobile Payment Options

Corduro

Squareup

Intuit GoPyment

PayPal

Google Checkout

M&A in Cloud continues

Virtualization software giant VMware this morning announced that it
has agreed to acquire Shavlik Technologies, a provider of cloud-based
IT management solutions for small and medium businesses.

Mobile Payment gaining momentum

Mobile payments startup Billing Revolution has raised $6.6 million in
Series B funding, led by DCM and SK Telecom Ventures. This latest
funding round will be used to hire marketing, business development and
product staff. Launched in 2008, the startup that offers a
single-click billing and payment service for transactions on mobile
phones, including Android and iPhone devices.

Source Leena Rao TechCrunch

Bust Boom Bust

1. After a washout, valuations are low and momentum is lousy.
People/Institutions are scared to death of equities and any
instruments with credit exposure. Only rebalancers and deep value
players are buying here. There might even be some sales from leveraged
players forced by regulators, margin desks, or "Risk control" desks.
Liquidity is at a premium.

2. But eventually momentum flattens, and yield spreads for the
survivors begin to tighten. Equities may have rallied some, but the
move is widely disbelieved. This is usually a good time to buy; even
if you do get faked out, and momentum takes another leg down,
valuation levels are pretty good, so the net isn't far below you.

3. Slowly, but persistently the equity market rallies. Momentum is
strong. The credit markets are quicker, with spreads tightening to
normal-ish levels. Bit-by-bit valuations rise until the markets are
fairly valued.

4. Momentum remains strong. Credit spreads are tight. Valuations are
high, and most value-type players have reduced their exposures.
Liquidity is cheap, and only rebalancers are selling. (This is where
we are now.)

5. The market continues to rise, but before the peak, momentum
flattens, and the market meanders. Credit spreads remain tight, but
are edgy, and maybe a little volatile. This is usually a good time to
sell. Remember, tops are often a process.

6. Cash flow proves insufficient to cover the debt at some institution
or set of institutions, and defaults ensue. Some think that the
problem is an isolated one, but search begins for where there is
additional weakness. Credit spreads widen, momentum is lousy, and
valuations fall to normal-ish levels.

7. The true size of the crisis is revealed, defaults mount, valuations
are low, credit spreads are high. A few institutions and investors
fail who you wouldn't have expected. Momentum is lousy. We are back to
part 1 of the cycle. Remember, bottoms are often an event.

Source:
Impossible Dream, Part 2
David Merkel

Desiderius Erasmus on the Influence of books

No man has a right to bring up his children without surrounding them
with books, if he has the means to buy them.
When I get a little money, I buy books; and if any is left, I buy food
and clothes
The desire to write grows with writing.
A room without books is like a body without a soul.
Real poverty is the lack of books
It is important early to instil a taste for the best things into the
minds of children, and I cannot see that anything is learned with
greater success than what is learned by playing, and this is, in
truth, a very harmless kind of fraud, to trick a person into his own
profit.

Power and Glory

How does a leader acquire and keep power? An independent set of
implementers is the foundation of a good Enterprise (temporaries are
untrustworthy). Next, you must ensure that the families that provide
the implementers love you. So keep them happy. They provide the
manpower so they are crucial for the support. Finally the rich at
higher positions need to be managed well. What they desire most is
dominion so you must be able to replace entire teams or groups if need
be.

How does he acquire glory? Morality is nothing more than censure and
praise.People are always prankish at bottom unless they are made good
by some compulsion.The love you buy with favours is fickle: people's
affections shift with their interests. Fear, on the other hand, is a
constant restraint.

Good rulers are able to adjust their character to the character of the times.

Outrages ought to be done all at one time, so that, being tasted less,
they offend less.
Benefits ought to be given little by little, so that the flavour of
them may last longer.

http://www.constitution.org/mac/prince08.htm

Deregulation of the oil prices in India

The government had freed petrol price from government control in June but the state-owned oil firms had not raised prices on an 'informal' dictate from the oil ministry.

"The hike needed to make domestic rates at par with international prices was Rs 9.50-10 per litre but oil companies choose to hike rates by just half of that," an industry official said. "Another hike in petrol price is on cards soon."

Cities	Earlier	Now
Delhi	Rs 58.37	Rs 63.37
Kolkata	Rs 62.5	Rs 67.5
Mumbai	Rs 63.08	Rs 68.08
Chennai	Rs 63.36	Rs 68.36

Is it Inflation or Economy?

Bond prices and rates move in opposite directions. Yields tend to go up when the economy is robust. That's because there is less incentive to buy stodgy Treasuries at a time when riskier assets like stocks look more rewarding.

So the fact that bond yields are still a lot closer to 3% than 4% shows that fixed-income investors are still nervous about the economy, a stark contrast to stock market investors who have a gung ho approach thanks to strong earnings

"The bond market doesn't seem to be worried about inflation but bond investors seem to be apprehensive about the economy," said John Kosar, director of research with Asbury Research in Chicago. "That's not a good sign. In general, the bond market is the one that tends to get it right."

Based on the article by By Paul R. La Monica

Android 3.1 features are out - Source Google IO

• Open Accessory API. This new API provides a way for Android applications to integrate and interact with a wide range of accessories such as musical equipment, exercise equipment, robotics systems, and many others.
• USB host API. On devices that support USB host mode, applications can now manage connected USB peripherals such as audio devices. input devices, communications devices, and more.
• Input from mice, joysticks, and gamepads. Android 3.1 extends the input event system to support a variety of new input sources and motion events such as from mice, trackballs, joysticks, gamepads, and others.
• Resizable Home screen widgets. Developers can now create Home screen widgets that are resizeable horizontally, vertically, or both.
• Media Transfer Protocol (MTP) Applications can now receive notifications when external cameras are attached and removed, manage files and storage on those devices, and transfer files and metadata to and from them.
• Real-time Transport Protocol (RTP) API for audio. Developers can directly manage on-demand or interactive data streaming to enable VOIP, push-to-talk, conferencing, and audio streaming.

For a complete overview of what's new in the platform, see the Android 3.1 Platform Highlights.

Some basics on Bond Investing

A bond is a loan that an investor makes to a corporation, government, federal agency or other organization. These loans in turn are used by the pubic and private sectors to do all sorts of things - build roads, improve schools, open new factories and buy the latest technology.

Since bond issuers know you aren't going to lend your hard-earned money without compensation, the issuer of the bond (the borrower) enters into a legal agreement to pay you (the bondholder) interest.

When you invest in an individual bond and hold it to "maturity," you won't lose your principal unless the bond issuer defaults. When you invest in a bond fund, however, the value of your investment fluctuates daily - your principal is at risk.

The bond issuer also agrees to repay you the original sum loaned at the bond's maturity date. A bond's maturity usually is set when it is issued. At maturity borrower fulfills its debt obligation when the bond reaches its maturity date, and the final interest payment and the original sum you loaned (the principal) are paid to you. Bonds often are referred to as being short-, medium- or long-term. 

Important : Not all bonds reach maturity. Callable bonds are common: They allow the issuer to retire a bond before it matures. Call provisions are outlined in the bond's prospectus. Before you buy a bond, always check to see if the bond has a call provision, and consider how that might impact your portfolio investment.

Bond Coupons

A bond's coupon is the annual interest rate paid on the issuer's borrowed money, generally paid out semi-annually on individual bonds. The coupon is always tied to a bond's face or par value and is quoted as a percentage of par.

Say you invest $5,000 in a six-year bond paying a coupon rate of five percent per year, semi-annually. Assuming you hold the bond to maturity, you will receive 12 coupon payments of $125 each, or a total of $1,500.

Accrued interest is the interest that adds up (accrues) each day between coupon payments. If you sell a bond before it matures or buy a bond in the secondary market, you most likely will catch the bond between coupon payment dates. If you're selling, you're entitled to the price of the bond plus the accrued interest that the bond has earned up to the sale date. The buyer compensates you for this portion of the coupon interest, which generally is handled by adding the amount to the contract price of the bond.

Bonds that don't make regular interest payments are called zero-coupon bonds - zeros, for short. As the name suggests, these are bonds that pay no coupon or interest. Instead of getting an interest payment, you buy the bond at a discount from the face value of the bond, and you are paid the face amount when the bond matures. For example, you might pay $3,500 to purchase a 20-year zero-coupon bond with a face value of $10,000.

Bond Yield

Yield is a general term that relates to the return on the capital you invest in a bond. You hear the word "yield" often with respect to bond investing. There are, in fact, a number of types of yield. The terms are important to understand because they are used to compare one bond with another to find out which is the better investment.

Coupon yield is the annual interest rate established when the bond is issued. It's the same as the coupon rate and is the amount of income you collect on a bond, expressed as a percentage of your original investment. If you buy a bond for $1,000 and receive $45 in annual interest payments, your coupon yield is 4.5 percent. This amount is figured as a percentage of the bond's par value and will not change during the lifespan of the bond.

Current yield is the bond's coupon yield divided by its market price. To calculate the current yield for a bond with a coupon yield of 4.5 percent trading at 103 ($1,030), divide 4.5 by 103 and multiply the total by 100. You get a current yield of 4.37 percent.

Say you check the bond's price later and it's trading at 101 ($1,010). The current yield has changed. Divide 4.5 by the new price, 101. Then multiply the total by 100. You get a new current yield of 4.46 percent.

Note: Price and yield are inversely related. As the price of a bond goes up, its yield goes down, and vice versa.

If you buy a new bond at par and hold it to maturity, your current yield when the bond matures will be the same as the coupon yield.

Yield-to-Maturity (YTM) is the rate of return you receive if you hold a bond to maturity and reinvest all the interest payments at the YTM rate. It is calculated by taking into account the total amount of interest you will receive over time, your purchase price (the amount of capital you invested), the face amount (or amount you will be paid when the issuer redeems the bond), the time between interest payments and the time remaining until the bond matures.

Yield-to-Call (YTC) is figured the same way as YTM, except instead of plugging in the number of months until a bond matures, you use a call date and the bond's call price. This calculation takes into account the impact on a bond's yield if it is called prior to maturity and should be performed using the first date on which the issuer could call the bond.

Yield-to-Worst (YTW) is the lower of a bond's YTM and YTC. If you want to know the most conservative potential return a bond can give you - and you should know it for every callable security - then perform this comparison.

How to Split the Founder's Pie?

THE FOUNDERS' PIE CALCULATOR

By Frank Demmler

Several weeks ago, we took a look at the founders' pie. I noted that frequently the founding team divides 100% by the number of founders.

I also cautioned that this is the WRONG WAY!

I then went on to identify the factors that should be considered when making these decisions.

Since then, I have had several people tell me that while what I wrote certainly made sense, it wasn't very helpful.  They said that when it came to "rug cutting time," absent an alternative method, equal shares was the only method that seemed to be "fair."

As a public service, I have "invented" a Founders' Pie Calculator. As you will soon see, this calculator is not particularly profound.  In fact, I'm sure I haven't "invented" it, but, at the same time, I have never seen it before. [Caution: perhaps there's a fatal flaw that I haven't considered.]

Its primary benefits are that it provides a way to quantify the elements of the decision making process, and that it appears to be logical and fair.

Elements of the Decision Making Process

Let's revisit the factors that should be considered.

Idea

The company wouldn't exist if it weren't for the original idea, and that is certainly worth something, BUT there's a lot of truth in the saying, "A successful business is 1% inspiration, and 99% perspiration."

Business Plan Preparation

The development of an initial business plan is a surprisingly difficult and time-consuming effort. To pull together and organize all the thoughts of the founding team, filling in the blanks, identifying and reconciling the differences, and producing a document that captures the essence of the business and helps persuade banks, investors, board members, and others to support the company is a mammoth undertaking, as anyone who has done it will attest. 

Again, the plan is a necessary element of starting the business, BUT execution against the plan is where the real value lies.

Domain Expertise

To what degree do you and your partners have meaningful experience in the business of your business? Knowing the industry, having relevant experience, and having a Rolodex full of accessible contacts can greatly improve the company's probability of success and speed its growth rate. Otherwise, it will take longer to get commercial traction and you'll have to pay for these assets, usually by hiring someone and including equity in their compensation package.

Commitment and Risk

You've probably heard the old saying that "a chicken is involved with breakfast, but a pig is committed." Similarly, the founders who join the company full time and are committed to making it a success are much more valuable than founders who are going to sit on the sideline and be cheerleaders. In addition, the opportunity cost for those who join the company instead of pursuing a career is not trivial.

Responsibilities

Who is going to do what? Who is going to go stay up at night when you can't make tomorrow's payroll? Where does the "buck stop"?

Relative Importance of the Elements

For each company, the relative importance of these elements is likely to be very different than that for another company.  A company based upon new technology is highly dependent upon the "idea."  On the other hand, a new restaurant is not likely to be so unique that the "idea" is a major contributor to the restaurant's ultimate success. If we were to evaluate the ideas on a scale of 0-to-10, the technology company's idea might be a 7 or 8, while the restaurant may be only 2 or 3.

Similarly, the relative importance of the business plan will vary.  A company that has to raise external financing will need a plan that will assist fund raising efforts.  If the founders are providing the start up capital, then the plan will be relatively less important.

I believe the same analysis can be productively applied to the other elements.  Not only can the absolute evaluations be made (0-to-10), but they can be compared to one another for make sure that their relative values are reasonable as well.

 

Relative Contributions of the Founders

Each of the founders can be evaluated on these elements as well.  Who did what to come up with the idea? Who contributed what to the business plan? Who has the industry connections? Who is joining the company? Who is accepting responsibility for raising investment capital? Who is responsible for bringing the product to market?

 

An Example

Let's look at a hypothetical example. Assume that we have a high technology start up spinning out of a university with four members of the founding team.

1. The inventor who is recognized as the technology leader in his domain.
2. The "business guy" who is bringing business and industry knowledge to the company.
3. The technologist who has been the inventor's "right hand man."
4. The research team member who happened to be at the right place at the right time, but hasn't and won't contribute much to the technology or the company.

If these were all first-time entrepreneurs, it's likely that they would each get 25% of the company's stock, because "it's fair."

Let's take a look at what the Founders' Pie Calculator says. First we evaluate each of the factors on their relative importance and each of the founding team members contribution to each on a scale of 0-to-10.

 

 

Next, we multiply each of the founder's values by the factor's value to calculate weighted scores. Add up the numbers for each founder, sum those totals and determine the relative percentages. Do a sanity check to see if those numbers seem to make sense, and adjust them accordingly.

 

 

Advice to entrepreneurs

• Splitting up the founders' pie is not a trivial undertaking.
• Rarely should it be split evenly, even though that's what many start-ups do.
• Consider the past, current, and future relative contributions of the founding team members to the ultimate success of the company.
• Employ the Founders' Pie Calculator to create a quantified scenario of how the pie might be divided based upon these elements.