Financial Articles

Want to learn how to earn 44% annual returns from your investments? Then consider private equity.

From 1992-2002, the top 25% of U.S. private equity managers returned 44.5% annually while the second 25% of private equity managers only returned 14.3% (Source: Venture Economics, Morningstar Principia). The returns of top private equity firms have been so solid that even private institutional endowments like that of Yale University expects almost a third of their portfolio return to come from the 17.5 % it had invested in private equity (Source: Yale Endowment 2003 report).

The risks of private equity are often misunderstood. Even though a lot of wealthy people have been investing in private equity for many years, it is still an investment vehicle surrounded by many misunderstandings. Private equity funds cover a wide range of different sectors as well as a wide range of structures. There are leveraged buyout funds, venture capital funds, distressed debts funds and mezzanine financing funds to name several.

Often, private equity is looked upon mistakenly by investors as a murky industry. To the contrary, the companies that comprise private equity funds typically have much higher transparency than publicly traded companies. Forensic accountants that work for private equity funds receive the type of access to company’s accounting to search for weaknesses or hemorrhaging business units on a level that public equity analysts only dream about. Furthermore, many well known private equity firms attract top government cabinet officials and even ex-head of states to their boards, the benefits of which are quite self-explanatory.

One such example is the Carlyle Group. At one point and time in recent history, the Carlyle Group could boast as board members or senior advisors, an ex-American president, a former British Prime Minister, an ex-Filipino president, an ex-U.S. Secretary of Defense and Deputy Director of the CIA, an ex-U.S. Secretary of State, and an ex-White House budget advisor. And this elite composition of board members is rather not the exception but more the growing rule of private equity firms. Because of the heavy political and corporate links of private equity funds, identifying those private equity firms with the most influential board members and advisors can be crucial to that particular private equity group’s performance.

So what’s the downside you ask? Private equity is an exclusive club. Often minimum buy in levels are $250,000 and it is not rare for this level to be $500,000 or more. Also depending on the type of private equity fund you buy into, the liquidity may not be that great. For example if you buy into a leveraged buyout fund, investors often receive a return on invested capital after the private equity firm restructures a company and takes it IPO. This process could last six months for a quick turnaround or perhaps a couple of years. Obviously the reduced liquidity means that you have to be wealthy enough to afford longer timelines from the expected returns of private equity funds.

However, these drawbacks can be offset by the potential for phenomenal returns. If you can afford it, private equity is an investment vehicle worth a second look.

About the Author

John Kim is the founder of Global Market Opportunities. He has over thirteen years of experience in finance and financial services, and has earned a BA in Neurobiology from the University of Pennsylvania, a Master in Public Affairs from the University of Texas at Austin, and an MBA with a concentration in finance from the McCombs Business School, University of Texas at Austin. To learn more about how to identify small and micro cap stocks that consistently and significantly beat the market indices, click http://www.globalmarket-opps.org.

© 2006 Global Market Opportunities

Ever wondered if you’d be better off with an independent financial consultant or investing your stocks yourself than with a huge investment firm? To understand the answer to this question you must first be able to separate investment fiction from investment fact.

The key to sorting through all the “noise” that investment firms and financial consultants throw at you is to be able to deconstruct the myths they propagate. What is ultimately so confusing about working with big investment houses is that they combine fact and fiction into a top-notch convincing marketing campaign to get you to turn over your dollars to them.

For example, let’s consider the often repeated investment firm strategy of being fully invested in the market at all times no matter if the market is up or down. I believe in this theory because even if the market is tanking in the U.S., there is always still good money to be made through put options or by investing in other parts of the world. However, I do have a problem with the way Wall Street firms use fear to achieve this. Let’s re-visit the commonly quoted fact that:

“If you had missed the best 90 performance days in the market from 1963 to 1993 your average annual return would have dramatically fallen from 11.83% to 3.28% a year.” (Source: University of Michigan)

If we were to analyze this statement, then it is quite reasonable to analyze the assumptions behind this statement. Is it truly realistic to think that anybody’s luck would be so bad as to miss the best 90 days over 30 years even if they chose to be in and out of the market at certain times. What are the chances that they would miss all 90 of the best performing days? One in a million? See how deeply flawed this argument is. And this is the argument that financial consultants always use to sell you in staying fully invested. In fact, this selling point is often combined with the strategy of Modern Portfolio Theory, the name in of itself which is a misnomer. “Modern” portfolio theory was once revolutionary, when it was developed, back in the early 1950’s.

In simple terms, modern portfolio theory calls for diversification of your stock positions across various sectors and industries to offset the potential of a poorly performing sector. In other words if you own stocks in trucking and shipping companies, then you might want to own oil companies as well, because if oil companies lag, then that translates into cheaper fuel costs for trucking and shipping companies, and this sector should offset lagging performance in the oil industry. The only problem with this theory is that you are not trying to create a zero sum game with your stock portfolio, but instead, trying to consistently find winners.

The big firms will tell you that it’s impossible to predict what industries will be up in certain years and what industries will be down, so that is why Modern Portfolio Theory is necessary. Again, I view this is a myth designed to build smoke screens to confuse the average investor. In today’s information technology age, access to information is so good that it is possible to predict what sectors will trend upward in a given year, and even to predict at times, what sub sector within those sectors will trend upward. But as I mentioned before, this takes time, and time is money with big investment firms.

In fact, access to information is so good today, that to stay ahead of the investment curve, every firm should be teaching their financial consultants how to access information through blogs, government websites, company websites, and political and technology websites instead of pounding outdated concepts into their brain. The information technology revolution is precisely why independent financial consultants have earned 20% gains for their clients during times the S&P was down more than 20%.

Big investment houses will tell you that individual stock selection is not nearly as important to your performance as being invested in the right sectors. This is another myth. If you really give this more than two seconds thought, does this statement make any sense?

Do you truly believe that if you own a mining company in Canada versus one in the United States that may own rights to drill in completely different geographical locations that this will not matter to the stock price of these two companies? Do you really think that if you own internet companies in India versus internet companies in Japan, that the vastly different stages in the growth cycle of this industry between these two countries will not make a difference to the performance of your portfolio? Do you truly believe that if you invest in nanotechnology firms with a world leader like the U.S. versus nanotechnology firms in Russia, that it doesn’t make a difference? I could go on endlessly about just how ludicrous this statement really is.

Performance of your stock portfolio is all about selecting the right STOCKS in the right SECTORS in the right COUNTRIES at the right TIME. So why do investment firms work so hard to convince you otherwise? For the most part, because they don’t teach their financial consultants how to be great stock advisors and how to identify opportunities in the global markets that will maximize the returns in your portfolio. They teach them to be great salesmen and saleswomen and great marketing gurus. If you are truly serious about maximizing the returns in your stock portfolio, the simple truth is that you probably want to stay as far away from the mainstream firms as you can. Either learn how to use accessible information to earn superior returns yourself or find a financial consultant who will. Do that, and I guarantee that you will immediately start reaping the benefits and earning better returns from your stocks.

If you want to make money fast and become a millionaire and you’re an average investor, you either have to be lucky (don’t count on it) or know the golden rule of building wealth and find a way to put it to work for you.

Let’s find out what it is and how to apply it to make money fast.

The golden rule is use compound growth which lets your capital build at an ever quicker rate.

An old fable

An old story will illustrate the point. The Tsar of Russia asked a farmer and the inventor of the game of Chess what he wanted for his magnificent game.

The farmer replied, one grain of corn on the first square 2 on the second, 4 on the third, doubling the number each time for all squares. Is that all replied the Tsar? Put it in a calculator and see how much it adds up to and you will see your calculator runs out of space.

Is the story true? Maybe, regardless it shows you what compounding can do so what if you did the same with $50,000 how long would it take you to make a million?

Not as long as you may think - just 5 years, as you build your money it works for you and grows exponentially

To make money fast you need to increase it consistently and do it with low downside risk, but is this possible?

The potential is there for all and all you need is the right investment.

The practice of aiming for a million and the vehicle

It all sounds good in theory but how do you have the opportunity to make money fast in practice?

Howard Hughes knew it, Donald Trump knows it, and even funny man Bob Hope made millions from it, as have most of the world’s wealthiest investors.

The investment is land.

If you have never considered it a way of making money fast you should.

Land is cheap, in short supply (they don’t make it anymore!) and if you buy it in the right location you can make incredible gains with low downside risk.

In central America and Costa Rica in particular, savvy investors are investing in prime land locations selling to developers and then moving to the next lot to buy and sell for profit.

In 10 years in Costa Rica gains on prime land have been increasing by up to 100% per annum or more, with low downside volatility and the boom continues.

Now were not saying that you will become as rich as Howard Hughes or Donald Trump or make a million but the opportunity is open to you and anyone prepared to look and act upon it.

If you want an investment with high growth potential low risk and the ability to put compounding to work for you to make money fast – Consider land and consider it in Costa Rica.

You need to get the location of your land right and this requires some homework but the opportunity is open to all.

There is not enough room here to describe all the benefits but if you want a low risk high return vehicle look at land before stocks, currencies, futures and real estate and you may be glad you did.