RP Wang Investment

Most of small business packages are adept at handling your personal finances, but only a handful of equipped to manage you business affairs, simply money, which supports entries for accounts payable and receivable, is the strongest package out of the box. To this prospect, small business finance has been propped up for entrepreneurs. However small this business provision is, it helps build a longer and successful infrastructural development of borrowers’ enterprises.

Before applying for this financial provision, applicants are required to chart out a small business plan. The plan should as successful in nature that it may envisage an anticipated success in business. For that, check you business plan, go through it again and again and try of find out shortcomings if any. Invest your time in solving the problem.

After, with that business plan go straight to any loan provider. Present it before your lender selected. And use best of your financial knowledge to convince the lenders with your reply. Once you bring around your lender with your business plan, a half of your problem is sorted out.

Seeing your financial feasibility, lenders offer with the obtaining financial options. Generally, small business finance is of two types i.e., secured and unsecured. For the former collateral arranging keeps an important place, while the latter, unsecured format remains devoid of it. As of lacing in pledging placing, more borrowers feel safer securing unsecured form of small business finance. Since there is no security of the borrower with lender, lenders compulsively incur upon higher interest rates.

Many lenders are available online and offline for business finance. Nonetheless, making practising simple and fast, online applying is preferred these days. The way is very simple and convenient. Entire of the processing is done right online. Just in click and innumerable sites of different lenders gets opened before you, you are only required to select a right lender of your choice.

By: Ben Gannon

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INTRODUCTION

The volume of research in the field of Behavioural Finance has grown over the recent years. The field merges the concepts of finance, economics and psychology to understand the human behaviour in the financial markets, to form winning investment strategies.

THE CONCEPT OF BEHAVIOURAL FINANCE

Behavioural finance is the study of the influence of psychology on the behaviour of financial practitioners and the subsequent effect on markets. Principal objective of an investment is to make money. We usually assume that investors always act in a manner that maximizes their return rationally. The Efficient Market Hypothesis (EMH), the central proposition of finance for the last thirty five years rests on assumption of rationality. But it has been proved that people are ruled as much by emotion as by cold logic and selfishness. While the emotions such as fear and greed often play an important role in poor decisions, there are other causes like cognitive biases, heuristics (shortcuts) that take investors to incorrectly analyse new information about a stock or currency and thus overreact or under react. Behavioural Finance is the study of how these mental errors and emotions can cause stocks or currency to be overvalued or undervalued, and to create investment strategies that gives a winning edge over the others investors.

I would like to bring out the behaviour pattern of a rational investor. This rational investor is assumed to act rationally in following ways:

o Makes decisions to maximize the expected utility.

o Fully informed with unbiased information.

o Absence of any distortion of judgement based on emotions.

It is to be kept in mind that risk resides not only in the price movements of dollars, gold, oil, commodities, companies and bonds. It also lurks inside us – in the way we misinterpret information, fool ourselves into thinking we know more than we do, and overreact to market swings. Information is useless if we misinterpret it or let emotions sway our judgement. Human beings are irrational about investing. Correct behaviour patterns are absolutely essential to successful investing – so to be financially successful one has to overcome these tendencies. if we can recognise these destructive urges, we can avoid them. Behavioural Finance combines the disciplines of economics and psychology specifically to study this phenomenon.

THE CONCEPT OF BUBBLES IN STOCK MARKET

A speculative bubble occurs when actions by market participants’ results in stock prices to deviate from their fundamental valuation over a prolonged period of time. Speculative bubbles are difficult to explain by rational trading behaviour, and theories have been put forward to explain market psychology through behavioural finance1. They propose that when significant proportion of trading activity in the market is characterized by positive feedback behaviour, it may result in asset prices to shift away from their fundamental valuation. This price deviation encourages rational investors to trade in the same direction.

Speculative trades are based upon investors’ private information held today, and are designed to provide investors with higher returns in the next period when that private information is fully revealed to the market. This implies a positive correlation in returns as market incorporate the information into prices. Trades due to portfolio rebalancing, or hedging, is not information based, and occurs when a trader may increase (or decrease) his stock holding by buying (or selling) a portion of his stock holding. This will be accomplished by increasing (or decreasing) the stock price to induce the opposite side of the trade.

FOCUS ON INTRINSIC VALUE

What are the implications for corporate managers? It is believed that such market deviations make it even more important for the executives of a company to understand the intrinsic value of its shares. This knowledge allows it to exploit any deviations, if and when they occur, to time the implementation of strategic decisions more successfully. Here are some examples of how corporate managers can take advantage of market deviations:

o Issuing additional share capital when the stock market attaches too high a value to the company’s shares relative to their intrinsic value.

o Repurchasing shares when the market under-prices them relative to their intrinsic value.

o Paying for acquisitions with shares instead of cash when the market overprices them relative to their intrinsic value.

Two things must be kept in mind as regards this aspect of market deviations.

Firstly, these decisions must be grounded in a strong business strategy driven by the goal of creating shareholder value.

Secondly, managers should be cautious of analyses claiming to highlight market deviations. Furthermore, the deviations should be significant in both size and duration. Provided that a company’s share price eventually returns to its intrinsic value in the long run, managers would benefit from using a discounted-cash-flow approach for strategic decisions.

It can thus be summarized that for strategic business decisions, the evidence strongly suggests that the market reflects intrinsic value.

INVESTING IRRATIONALITIES

Often turbulence in the market isn’t linked to any perceivable event but to investor psychology. A fair amount of portfolio losses can be traced back to investor choices and reasons for making them. I would like to point out some of the ways by which investors unthinkingly inflict problems on themselves :

Herding

This is a cardinal sin in investing and this tendency to follow the crowd and depend on the direction of others is exactly how problems in the stock market arise. There are two actions that are caused by herd mentality:

o Panic buying

o Panic selling

Holding Out for a rare treat

Some investors, praying for a reversal for their stocks, hold onto them, other investors, settling for limited profit, sell stock that has great long-term potential. One of the big ironies of the investing world is that most investors are risk averse when chasing gains but become risk lovers when trying to avoid a loss.

If we are shifting our non-risk capital into high-risk investments, we are contradicting every rule of prudence to which the stock market ascribes and asking for further problems.

ISSUES

One of the most important issues in Behavioural Finance is whether the assumptions of investor rationality are realistic or not.

The concept can be explained with the help of an example. Let’s assume that Mr. X invests and manages his portfolio in an efficient market. Here only seconds are available for a response to the news. There are a great number of factors that affect the decision of Mr. X. Further, these factors can affect each other. How can Mr. X draw the right judgements when the information is updated very frequently? Probably Mr. X works on a computer, through out the day, on which a utility function program is installed for his work. Every decision Mr. X is based on the calculation given by his computer. As soon as the portfolio is rebalanced, the computers utility function program analyses new alternatives. This process goes on and on over the course of the day. Obviously, Mr X does not show any joy, when he wins and no panic when he looses. Can a human brain behave like this? We know that a human brain can master only seven pieces of information at any one time.

So, how could one possibly absorb all the relevant information and process it correctly? People use simplifying heuristics (shortcuts) in order to control the complexity of information received. Psychological research has shown that the human brain often uses shortcuts to solve complex problems. These heuristics are rules or strategies for information processing, which help to find a quick, but not necessary optimal, solution. Once the information is simplified to manageable level, people use judgement heuristics. These shortcuts are needed to resolve the decision making as quickly as possible. Heuristics are also used to arrive at a quick judgement, they can, however, also systematically distort judgement in certain situations.

SIMPLIFICATION BIAS

The first step in reducing complexity is to simplify the decision. However it also adds the risk of arriving at a non-rational conclusion, unless one is careful.

MENTAL ACCOUNTING

People focus on one account (say purchase of share x) in particular when weighing things, relationship with other commitments or accounts (say purchase of share y) are usually ignored. I would like to explain this with the help of an illustration. For instance, Company A produces bathing costumes, and company B produces raincoats. Both companies are new, extremely efficient and innovating, so that purchasing shares in these companies would be a profitable proposition. A financial gain, however depends to a large extent on the whether in both cases, Company A will produce huge profits if the weather is fine, while Company B will make a loss, even though this is kept to a minimum, thanks to its efficient management. The situation is reversed in the case of bad weather. With mental accounting, either investment is risky when seen in isolation. But if we take into account the mutual effect of the uncertainty factor, i.e. the weather, then a combination of both shares become a lucrative, and at the same time secure investment.

AVAILABILITY CONSTRAINT

Not everybody has same degree of information. Some people prefer to see business news on CNBC TV 18, NDTV PROFIT. But others may like to see the serials on STAR PLUS. Obviously the first one may have more information, as compared to second.

REPRESENTATIVENESS

This is one of the mental shortcuts that make it hard for investors to correctly analyse new information. It helps the brain organise and quickly process large stock of data, but can cause investors to overreact to old information. For example, if a company is repeatedly giving losses, investors will become disillusioned with this past data, and thus may overreact to past information by ignoring valid signs of recovery. Thus, the stock of the company is undervalued because of this bias.

CHLALLENGES

Under the paradigm of traditional financial economics, decision makers are considered to be rational and utility maximizing. The assumption of rational expectations is simply an assumption – an assumption that could turn out not to be true.

Behavioural Finance has the potential to be a valuable supplement to the traditional financial theories in making investment decisions. The following fundamentals of behavioural finance give us a glimpse of the pitfalls to be avoided. These are the challenges which need to be overcome and addressed.

1. Hubris hypothesis: it is the tendency to be over optimistic. It results from psychological biases. The investor gets swayed by the momentum generated in the markets in recent past.

2. Sheep theory: it is a phenomenon where all the investors are running in the same direction. They follow the herd – not voluntarily, but to avoid being trampled.

3. Loss aversion: it says that investors take more risk when threatened with a loss. Thus mental penalty associated with a given loss is greater than the mental reward from a gain of the same size.

4. Anchoring: this causes investors to under react to new information. This can lead to investors to expect a company’s earning to be in line with historical trends, leading to possible under reaction to trend changes.

5. Framing: this states that the way people behave depends on their way decision problems are framed. Even the same problem framed in different ways can cause people to make different choices.

6. Overconfidence: this is what leads people to think that they know more than they do. It leads investors to overestimate their predictive skills and believe they can time the market.

RELEVANCE TO INDIAN STOCK MARKETS

Behavioural finance holds definite clues and appears apt in the current IPO craze as regards Indian markets are concerned. The herd mentality is evident in the scramble for shares. As the positive information of excess subscriptions comes, more investors enter the bandwagon. When Prices of the stocks start soaring, everyone one is thinking of the same thing: I am going to sell on listing and book the profits. Can money making be so simple? Is life and the financial markets so predictable? One will see investors selling the stocks as soon as they get the allotments. Herd mentality will be at work with people trying to sell faster than the neighbour, thus eroding stock values at a faster rate. Greed thus becomes the graveyard. One needs to understand that there are no shortcuts to earning money. One has to work hard and have patience.

It is believed that perfect application of Behavioural finance can make an Indian investor successful, making fewer mistakes. Even if we learn to identify some common psychological and cognitive errors that plague even the wisest investment professional, it may be enough. To put it in Simple words, economic theory starts with a flawed basic premise that the investor is a rational being who will always act to maximise his financial gain. Yet, we are not rational beings, we are human beings.

In stock markets, behavioural finance can help explain situations such as why we hold on to stocks that are crashing, foolishly sell stocks that are rising, ridiculously overvalue stocks, jump in late and never find our right price to buy and sell stocks.

Let’s take the example of the recent discovery of gas by Reliance industries. The stock starts spurting as everyone starts buying on this news. Newspapers start flashing stories as to the size of such a discovery.

But let us analyse the situation without becoming a prey to mental heuristics. Gas has been discovered but the same needs to be drilled which takes a lot of time and money. What is the quality of the gas? How many wells would be needed for drilling? How much time will it take? How much money would be required and what are the plans to finance the same? How easy it is going to be to extract the same? These are all important and pertinent questions. In this time lag there are so many uncertainties the company will have to go through, before the profits are reaped. However, analysts have started predicting the future profitability of Reliance and on such hopes investors start buying the stock at rising prices.

This is how mental heuristics work when the brain takes a shortcut in processing information and does not process the full information and its implications. Thus behavioural finance has a pivotal role to play in Indian Capital market.

CONCLUSION

Knowing the heuristics shall help the investors to which they are susceptible and this will help them in neutralizing to some extent the distortions in the perception and assimilation of information. This will in turn, help the investor to take a rational decision and get a cutting edge over the other not-so-rational investors.

More research on behavioural finance should take place not only in asset pricing but also in areas like project appraisal & investment decisions and other areas of corporate finance, so that managers can avoid the decision traps. Psychology and irrational behaviour matter on financial markets. Behavioural finance is relevant in many ways. It educates investors about how to avoid biases, designing long and short term strategies to exploit biases; and being aware that decision-makers in financial markets are human beings with biases. We also need to realize that an implicit assumption of behavioural finance is that their findings at individual level are scaleable to market level.

By: Amarendra Bhushan Dhiraj

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Finance is a very important and crucial part of film making. While many people pull you here and there explaining about this vast topic, where as they are all beating behind the bushes, here are some real facts about film making finances.

Every film maker at some point in his career is supposed to make a choice between a hobby and a profession – that is whether you choose film making as a full time career or just a mere hobby. The key to the answer lies in their ability to finance or fund their own projects.

Film making, as we all know involves a lot of money in indeed, most oft the film makers focus on their current project, not the future ones. Hence in order to become a film maker, it is immensely important to understand the professionalism involved in film making, and the mechanisms of film investment.

In this regard many people claim to be Mr. Know-It-All, but as a matter of fact, this is not any toddlers’ job. Such people often try to take advantage of your ignorance in the field.

We suggest you to contact a legitimate company who are equipped with the right knowledge and have some experience in the field of film making. But, like all other services and products, there are so many consultancy firms out there. On what basis do you choose or reject one? Here are some basic facts that you must understand:

1. The fake or some average companies would merely try to grab your money away with high dreams and no results.

2. The legitimate and quality organizations would never promise you any investors. They would rather assist you with a list of the potential investors and help you win over them.

3. Whether your project gets an investor or not is matter that is decided by several factors like the subject of your project, the market scenario, your individual potential and its portrayal, and for those who believe, luck.

4. The legitimate consultants understand that there is no fun stealing away those few dollars paid for consultancy that any producer could afford conveniently.

5. The genuine financial consultants at times do not even charge the percentage of the funds you have earmarked for the project. They charge you their fees but ultimately aim towards the success of your project and its effective distribution.

6. They must help you evaluate the accumulated interest levied on the money you have borrowed during production.

7. They would also guide you through a well planned financial end of your project.

The toughest part of this business comes in to the scene when you have to convince a financial consultant of a legitimate producer to get involved in your project. You must find an investor who trusts you and your project well enough in order to invest in such high-risk, that is film making. For this you must step in to the shoes of an investor and evaluate as to what would be his/her investing criteria.

There are some essential basics of film investing. These are:

1. Usually, a film investor contributes around 50% of the total cost of the film. Film producer bares the remaining 50%.

2. 30-40% is quite enough to make the film. This would totally depend on your convincing power to bring forth the end users to become a part of your plan.

3. The investor would always want that the budget of the film project is as low as possible.

4. Foreign sales must cover at least 50%.

5. An investment worth $5 million is should be enough to allow the investor to buy several films.

As getting a film financed through investors is not an easy nut to crack, the independent film makers must consider the film making grants. Those who are passionate about this art and are in love with this profession, have a real scope of getting these grants. Just log on to internet and key in ‘film making grants’ and you shall get to know about several funders who are all willing to help such budding talents. All you need is to believe in your project. But make sure to gain enough knowledge about each grant as there are several types of grants that define different criteria for each.

By: Abhishek Agarwal

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As wise parents, we try to teach our children about the most important things in life. We make sure our children know to stay away from strangers, to treat others as they would like to be treated and the importance of education. Why not start teaching our children about finance and how to manage money? This article discusses children and finance and how to teach your kids about finance.

Give Your Kids a ‘Job’ -

Most children do household chores when they reach a certain age. Why not turn this into an important lesson in finance? Aside from their usual chores, you could give them an optional job or two each week that they can earn money from. You might offer them a few dollars to rake the yard or sort the laundry – anything that will actually be helping and that they can earn money from. Of course, if your children don’t do the job, they don’t earn the money! This is a great way to teach your children that money doesn’t come without hard work and time!

Start a Savings Account for Your Child -

Another thing you can do (which would work in combination with giving your kids a job) is start a savings account for your child. Explain to them how the bank keeps their money and even gives them a little extra each month for saving it. You can have them put their allowance money in their savings account and show them their statements each month so they can see their money adding up. This will help your child learn the importance of saving – and if you want, you can let them think about something really great they want to purchase once they’ve saved so much money. This will show them that by saving their money, they can get things they really want!

Older Children -

If your children are older, there are several things you can do in order to show them about finance. For instance, you could have them get a real part time job so they learn what it’s like to work for money and what goes into earning a paycheck. If they drive, they can help pay insurance on the car or give you a percentage of their paycheck for gas money. Of course, if they don’t pay for the insurance or gas money – they don’t drive. This may seem cruel but when your child gets a real job, if they don’t pay their bills, they won’t enjoy the benefits of the services. If they don’t work, they won’t receive a paycheck. These methods will properly prepare your child for the real world and a working environment.

These are some really great ways to teach your children about finance so that they will understand the value of money and how hard it is to earn. This is a valuable lesson that you can give to your child and you can use the tips and suggestions in this article to do it. Good luck!

By: Kristi Patrice Carter

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Once you understand what the term, “Bridging Finance” means, it’s easy to understand how it got its name. The purpose of a bridging or bridge loan is to provide short term cash for a real estate transaction until permanent financing is secured. Bridge loans are commonly used to “bridge the cash gap” when completing commercial real estate transactions.

Everyone knows it’s difficult to time the sale of one property to coincide with the purchase of another property. The slightest delay can wreak havoc on the transactions and create obstacles that are difficult to overcome. Having to pay two mortgages, whether for residential or commercial purposes, for any length of time can spell financial disaster. This is where bridging finance helps.

The goal of a bridge loan is to remove this financial obstacle so that a commercial transaction can proceed. In the majority of situations, “bridging finance” provides additional funding so a company can continue to pay the lease on its existing commercial property for as long as it remains on the market.

There is a process to go through before a bridge loan is approved. If you’ve already developed a relationship with an institution, that’s a good place to begin. If not, it’s time to start looking for a lender with which you feel comfortable. Go through the bridge loan pre-approval process to see how much of a loan you qualify for. With pre-approval in hand, you can act quickly once a desirable commercial property becomes available.

One general requirement for obtaining a bridging loan is collateral. Most applicants will be asked to secure the loan with some sort of significant collateral. Examples of collateral include heavy machinery, business equipment, inventory, other commercial or residential properties owned by or the applicant and even properties involved in the purchasing process.

Having a great credit history, for both your business and your private life, and a solid relationship with a lender always helps when applying for a bridging loan. There have even been situations where bridge loans were approved with only a signature – no collateral necessary!

Even with good credit, however, expect to pay a slightly higher rate of interest for this type of short-term bridge loan. One-half of a percent or more is typical. The maximum length of a bridge loan is usually twenty-four months. The lender has to make some money on the deal and the higher interest rate is where the opportunity lies. Other factors are also involved in determining the interest rate. The applicant’s calculated credit risk, the value of the items being used as collateral and the amount of time the loan is needed all factor into the equation, too.

If you think applying for a bridge loan makes sense for your situation, work with a US Commercial Lending organization that specializes in this type of loan. They’ll help with all the steps necessary and they’ll offer advice along the way. Don’t be afraid to shop around for better rates and terms! The commercial lending market is very competitive and it’s to your advantage to do business with a lender that will work with you and not against you.

By: Darren Yates

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The service of providing funds or capital for commercial or private reasons comes under the umbrella term – Finance. It is also a branch of economics that studies the management of money and other assets. It can be also defined as the management of funds and capital required by a business and private activities. Management of finance has also developed into a specialized branch within the financial sector and is carried out by finance managers.

Simply put these managers arrange money to be lent to businesses or private individuals using either money already available from company accounts or from external lenders. The simple process of optimization is used to receive the most from these funds by reducing the cost of arranging the finance whilst at the same time ensuring returns are high. The fact is that it governs most of the worlds activities and poor finance management will immediately show up as conditions deteriorate in procurement, production and sales as it affects every sphere of business activities. The finance manager’s job is to maximize profits whilst keeping the risk to a minimum so you can understand why there is a high level of stress associated with this work.

One of the most famous management gurus Lee Iacocca referred to finance managers as Bean-Counters who almost look at the expense part with a rather pessimistic view. Finance managers are people who always like to see where they have been and do not look towards the future in the same way that a sales manager does. For most small business owners there is not a clear distinction between personal and business which often leads to the funds being used in areas that are not part of the arrangement. When money is lent under these circumstances, lenders feel quite aggrieved as they have lost control of where the money is being invested.

Although resisting the tendency to use funds this way may dampen someone’s enthusiasm in the short term, it will focus the attention of the borrower and perhaps instill more discipline in the future. Fortunately, small businesses can always use the more approved methods of friends or relations to help provide finance. However, finance managers are in the position of making money for their company so out sourcing their lending can help increase their profits. The famous comedian Bob Hope best summed up the subject when he once said; a bank is a place that will lend you money but only if you can prove that you don’t need it.

By: Francisco Segura

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