New economic trend: When a country buys a company

Adhvith Dhuddu, CT Regular Columnist

Wednesday, December 5; 12:00 AM

"Singapore buys Burger King," "Norway purchases Bank of America" or "Saudi Arabia buys stake in Microsoft," could be some of the headlines you might come across in the future. A country purchasing a company might sound absurd, but a number of foreign governments are setting up sovereign-wealth funds to do just that.

Think of a sovereign-wealth fund as a mutual fund set up by a country. The primary sources of capital are the foreign exchange reserves held by the country and trade surpluses that have accumulated over the years. These funds invest in debt, equity and assets for long term capital appreciation, a steady flow of interest rate payments or dividends.

These wealth funds have gained prominence in the recent years and have simultaneously created a stir in some parts of the world. About 20 nations have a fund like this and are valued at approximately $3 trillion in total. These staggering numbers are reflective of the potential influence they can exert on the global financial system. In less than a decade, by 2015, these wealth funds will have close to $10 trillion at their disposal, making them dominant and influential players in the financial markets.

The petrodollar boom has boosted the fortunes of oil-rich nations and these countries (Saudi Arabia, Kuwait, United Arab Emirates and Russia) account for 70 percent of these funds. Cash flows to these nations are not slowing down anytime soon, and recipient governments are determined to put the excess cash to work. Heavy exporters of products and services (mostly southeast Asian countries) are the other major players.

Recently, the Abu Dhabi government bought a 4.9 percent stake in U.S. banking giant, Citigroup, for $7.5 billion. Reactions to this capital infusion were mixed, but two important and contradictory statements that capture the essence of the on-going debate are worth mentioning. The United States Treasury Secretary, Henry Paulson, expressed that foreign investments from sovereign wealth funds are welcome, and they represent the highest vote of confidence anyone can pay to the U.S. economy.

But, Sen. Evan Bayh (D- Ind.) raised a red flag by correctly pointing out that the lack of transparency in these funds undermines the theory of efficient markets and jeopardizes the proper functioning of the financial markets. Bayh's remarks raise a vital question about the true objectives of some of these funds. History is being created with the rise of these funds because such huge capital was previously invested only by private investors, banks and mutual funds for one purpose: to make money.

But now, the strategies of these government-controlled funds are being questioned, due to the increased risk of making investments for political rather than economic reasons. The temptation to exert political influence rises with an increase in capacity to buy strategic assets and natural resources of other countries. The close-ended and opaque approach adopted in handling these funds, without a doubt, raises significant and valid concerns.

Many economists have, however, been critical of some governments for allocating too much capital to these funds when poverty, unemployment and famine are rampant in their own backyard. They argue that governments are deviating from their primary functions: to improve the quality of life of their citizens.

The most vivid example is China, where poverty is widespread, and the gap between the wealthy and poor still exists. But the government sits on $1.5 trillion of foreign exchange reserves (highest in the world) and is exploring how it can expand its already existing $200 billion sovereign wealth fund.

Nobel Prize winning economist, Joseph Stiglitz, points out that the excess foreign exchange and trade reserves generated by Southeast Asian economies should definitely be put to use and not sit idle. But where the governments use these funds is pivotal to the success of the nation. Governments should invest in their people, infrastructure and education and not become a for-profit corporation.

Although these sovereign-wealth funds have not attracted widespread limelight, their rise will affect the global, political and economic arenas in the coming years.

Online link to this column:
http://www.collegiatetimes.com/stories/2007/12/05/new_economic_trend__when_a_country_buys_a_company

Money WhizDom: Corn flakes, coffee and the changing world of commodities

Adhvith Dhuddu, CT Regular Columnist

Wednesday, November 28; 12:00 AM

The commodity market boom coupled with spiraling inflation is taking more out of our pockets for everyday purchases such as coffee, corn flakes and crude oil (gasoline) than ever before.

This extended Bull run initiated at the turn of the millennium is expected to last at least another decade. Though these elevated prices are here to stay, it's not too late to explore opportunities to put your money to work in the commodity arena.

The explosion in commodity prices (e.g. raw materials, natural resources, precious metals, etc.) closely resembles the buoyant stock markets from the late '90s. The only difference is that these lofty prices are sustainable over the long term. This is because of the tremendous imbalance in the supply/demand relationship in the next few decades, attributable to the rise of Southeast Asian economies (more demand) and fast-deteriorating supplies.

It's imperative to be well-informed about commodities as they — unlike stocks, bonds and real estate — are a part of our lives everyday. Your breakfast includes corn and milk; your Starbucks mocha contains sugar, cocoa and coffee; your lunch and dinner include wheat, rice, beans and pork; and the car you drive is made of steel, aluminum and rubber. Each day, you encounter commodities that are traded on a 24-hour basis around the world, and each day, the demand for these consumables is outpacing the supply.

Sugar, for example, has been experiencing a rise in prices for the last few years. Reasons include an increasing number of sugar beet processing plants shutting down since the mid '90s and higher demand for sugar from China (China has increased its sugar imports by 20 percent year-over-year for the past six years). Brazil (one of the largest sugar producers) has also contrib-uted to the price jump through smarter use of its home grown sugar for local consumption and ethanol use that have reduced its capacity to export.

Lead is a metal with wide-ranging applications in electric power systems, lead-acid batteries, ceramics, roofing, forklifts, television, computer monitors, etc., and its demand is expected to swell in the next two decades. If supply remains either constant or deteriorates, lead's price will inevitably increase.

The central bank of any country has the power to warm up the printing presses and create more money out of thin air if there is a need. But it's impossible to similarly create tangibles, such as foodstuffs, precious metals and raw materials. It will take 10 to 15 years for these highly demanded commodities to meet the supply.

It is cumbersome to invest directly in commodities such as sugar, lead or coffee, but more direct methods like investing in a commodity index (which tracks a bunch of commodities) or an ETF tracking commodity index solves the problem. Some internationally acclaimed indices such as the Rogers International Commodities Index and the Dow Jones AIG Commodity Index are up many-fold in the past few years.

Other alternatives include investing in companies that produce commodities. Behemoths like Arcelor-Mittal (which produces steel), Alcoa (which produces aluminum), Phelps Dodge (which produces copper), Rio Tinto (a mining giant), etc., are sure to rope in record profits in the next decade and a half with rising commodity prices. In fact, most of these stocks are up 300 to 500 percent in the last few years and still appear undervalued.

It is also very safe to invest in countries that produce commodities. Natural resource rich countries such as Australia, New Zealand, Canada, Bolivia and Chile will experience good economic times in the next few years.

One book, "Hot Commodities," written by legendary commodity investor Jim Rogers, explains why the next decade and a half will see an unprecedented boom in prices of all types of commodities, be it precious metals, energy, cereals or food. Being the first to foresee the commodity boom in 1998, he commands immense international respect.

During the late 1970s commodity bull market, oil hit a record high of $101.30(inflation adjusted). The late 1970s was also when gold and silver hit record levels. Something very similar has been unfolding in the last few months and will continue to do so for some time. History might not repeat itself, but it definitely rhymes with the past.

Online link to this article:
http://www.collegiatetimes.com/stories/2007/11/28/corn_flakes__coffee_and_the_changing_world_of_commodities

Money WhizDom: Decode the world of investing with knowledge

Adhvith Dhuddu, Regular Columnist

Wednesday, November 7; 12:00 AM

Investing without sufficient knowledge is like driving your car blindfolded or entering a football field with no gear on. You are bound to get clobbered and will end up on wrong end of a fiscal beating sooner rather than later. With that said, it also wouldn't be appropriate if the investing world hung a sign like, "Enter at your own risk," because risk in investing can be eliminated.

The first step is to become educated and learn about the different investment vehicles the financial universe has to offer. Just understanding all the available options wins half the battle, and the next step is analyzing these to see which investment vehicle will suit you best and yield the highest returns.

Investment opportunities abound, everything from currencies and commodities to real estate and stocks offer a chance to grow money. But when we identify an opportunity, it often appears hard to exploit due to lack of funds or information. Diverse investment vehicles are present to tap these opportunities, but we as students can use two specific instruments called Exchange Traded Funds (ETFs) and Exchange Traded Notes (ETNs) because they don't require capital in the hundreds of thousands and are easy to decipher.

With emerging markets looking more attractive, real estate dilly-dallying, and the commodity market experiencing a boom similar to the stock market in the late 90s, these financial instruments are becoming popular among amateur investors with less cash. Anywhere from $500 to $1,000 is sufficient to get your foot into investing and trading commodities, currency, mutual funds, real estate, stocks and emerging market securities. Something like this would have never been possible just a few years ago.

ETFs and ETNs function a lot like stocks. They can be bought and sold with the click of a mouse, and they don't charge annual fees like mutual funds, or consulting fees if you directly purchase real estate, or handling fees if you trade in commodities. For example, after your finance class you feel that the real estate market has hit its bottom and will rebound soon. Instead of regretting the fact that you can't buy a house in this depressed market, you can cash in on your prediction by purchasing a real estate ETF, which tracks the real estate market as a whole. If you are right, the price of the ETF will increase, and you can take home a tidy profit.

Two famous real estate ETFs are DJ Wilshire REIT ETF (ticker — RWR) and Vanguard REIT Index ETF (ticker — VNQ). REIT stands for Real Estate Investment Trusts. Investing in REITs can also give you some tax benefits. Maybe you diagnose the American economy as treading on thin ice and want to invest in precious metals such as gold, silver and platinum as a safe haven. Rather than shelling out $800 to buy an ounce of gold and get a special locker to store it, you can buy the gold or silver ETF (ticker — GLD or SLV) and watch it move in tandem with the price of gold. GLD quotes 1/10th the actual price of gold; for example, if an ounce of gold costs $768.50, the gold ETF, GLD, can be bought for $76.85.

You have seen oil prices skyrocket in the recent months and foresee no reprieve. But it would be ridiculous to buy ten barrels of crude oil, stack them in your apartment and sell them later. A much easier approach is to purchase the United States Oil Fund ETF (ticker - USO) and watch it rise in price as crude oil prices go up. There are ETFs that track the stock market indices like the Dow and NASDAQ (ticker — DIA and QQQQ), but what if you think the stock markets are headed down? Amazingly there are ETFs that track the stock markets in reverse. For example, UltraShort QQQ (ticker — QID) tracks the NASDAQ in reverse direction times two, e.g., if the NASDAQ goes down 2 percent the QID increases by 4 percent, and if the Nasdaq goes up by one percent QID would go down by 2 percent.

Stock markets in Southeast Asia and Latin America have been buoyant, and this optimism will persist for some time to come. Again through ETFs, you can invest in countries such as China, Japan, Korea, India, Brazil and Russia without worrying about transferring money, exchanging currencies and setting up local investment accounts.

There are lots of other ETFs and ETNs that track mutual funds, hedge funds, commodities, individual sectors, economic indicators, etc. So, exploring investing through ETFs and ETNs is a good way to start investing even if you lack sufficient funds or posses limited information.

Online link to this article:

http://www.collegiatetimes.com/stories/2007/11/07/column__decode_the_world_of_investing_with_knowledge

Money WhizDom: Plan from your first paycheck

Adhvith Dhuddu, CT Regular Columnist

Tuesday, October 30; 9:26 PM

Your five fingers correspond to five unique things that you can do with your money. You can save it, spend it, invest it, pay off your debt and give it to charity. Every transaction in your life will correspond to one or more of these five functions.

A frugal person will tend to save more and reckless individuals will spend most of their lives paying off debts. Of course, the ideal combination is to have huge investments and savings with no debt and little spending. You can achieve this easily by following a regimented routine beginning at a young age.

Everyone gets excited about a first paycheck, but few people have a plan outlining how to use the money. Inconsistent spending habits and occasional debits from the savings account will leave you in a financially unstable situation.

The aim of every financial plan should be to first get rid of debts and then to increase savings and investments. Most of us take on debt (college loans, credit card debt or car payments), but it is smart to pay off your debt early and you don't necessarily have to follow the monthly payment scheme. Following the monthly payment scheme is the least optimal option for you; it's what the credit card or mortgage company would prefer you do so that they can optimize their returns. It's simple, the longer your debt is outstanding, the more interest isaccrued and the more you end up paying. There is no harm in making more than the required monthly payment to accelerate clearing your debt.

As conservative as it may sound, having consistent spending habits with few outliers will help you in the long run. After clearing your debt, it's important to stack away some cash in savings before you venture into investing. If you love taking risks early on, buying stocks and exploring real estate options will help. Another good practice is to enroll in an automatic savings plan, or ASP. Most banks offer this service and after your approval will transfer a portion of your salary to a higher-yielding savings account on a bi-weekly or monthly basis.

A simple and efficient way to evaluate your financial stability is to treat yourself as a company. Every organization has a balance sheet, listing its assets and liabilities that it releases along with its income and cash flow statements when it reports quarterly earnings. Company assets (which increase the company's value) include land, cash, machinery, etc., and its liabilities (which drain on the company) are its obligations such as loans, outstanding payments, etc.

You can make a similar balance sheet to list your assets and liabilities. Your assets will include cash (checking, saving, money market accounts, etc.), investments, CDs, home value, etc., and your liabilities will cover credit card debt, house, car and tuition loans, etc.

Now, calculate your current ratio to see how financially stable you are. After summing up your assets and liabilities, your current ratio is equal to total assets divided by your total liabilities. If this resulting number is more than two and you plan to consistently pay off your debts, you are financially well balanced. If the resulting number is less than 1.5, you need to start spending less, clearing off more debt, and increasing your savings. Doing this on a quarterly or semiannual basis is a good practice.

Time and money are two things you need to manage well in life, and a university education teaches you how to manage your time well. Getting a head start on how to manage money well in the real world is always an advantage. So, don't get a job and continue to stay "just over broke (JOB)" throughout your life. Manage your money well from your first paycheck on and become a financially competent individual.

Online link to this article:

http://www.collegiatetimes.com/stories/2007/10/30/money_whizdom__plan_for_your_financial_future_from_your_first_paycheck

Money WhizDom: Start now to taste success early

Adhvith Dhuddu, CT Regular Columnist

Tuesday, October 23; 9:55 PM

Bill Gates, Warren Buffet and Michael Dell have something besides an abundance of wealth in common. They identified and pursued their passion and, most importantly, started early in life. Whether it's investing, entrepreneurship or even a full-time job, excelling early will put you on a path to financial success and early retirement.

A university environment is an ideal place to start. Here you possess something very precious: time and freedom, which will soon become scarce when you enter the real world. In addition, you have access to unlimited resources and knowledge in the form of professors, research centers, a voluminous library, clubs, organizations, etc.

Here at Virginia Tech, there are innumerable opportunities to give your career an early boost. Remember that your undergraduate and graduate colleagues take the same classes, study the same textbooks, hear the same lectures and are exposed to the same knowledge. How you manage your free time in order to add more feathers to your hat is what will make you more marketable and appealing than your classmates.

Bond and Securities Investing by Students (BASIS) and Student-managed Endowment for Educational Development (SEED) are two top-quality organizations that budding investors, money managers and entrepreneurs should consider joining. Here you will meet some intelligent and highly motivated individuals striving to make money yield handsome returns for the university. Although admission to SEED or BASIS is highly competitive, getting a foot in the door is beneficial. SEED invests university funds primarily in securities and BASIS concentrates more on fixed income investments.

"It's a unique experience to manage large funds at such a young age. With students from different majors involved in the decision making process, you learn a lot because you have to incorporate diverse opinions while assessing different positions and trades. Investing as a team is poles apart from investing individually," said BASIS member and junior mechanical engineering major, Nandan Shah.

Shah also expressed how the team feels a sense of accomplishment when a certain investment goes through. It's one of those rare win-win situations where the school makes money and you learn a great deal in the process. SEED and BASIS are two elite groups from which many investment banks and asset management companies are known to hire regularly.

Recently, Tony Yang, a senior undergraduate industrial and systems engineering student, started the Private Entrepreneurs Society, where budding entrepreneurs meet weekly to discuss and evaluate potential business ideas, real estate ideas and investment opportunities.

"It's different here," said co-founder and class of 2007 alum, Josh Prior. "As we are not associated with the university, we can execute potential business ideas with making profits the primary goal."

"Everyone in the society got involved automatically because they know their work will be rewarded via the revenue sharing business model," Prior added. Although admission to this society is by invitation only, Yang expressed a desire to expand the society. He can be contacted at private.entrepreneurs@gmail.com.

Leadership Tech and ELITE are two more associations where you can hone your leadership, communication and people skills and learn how to be a high-performance individual. And you get to work with like-minded people to achieve your passion, which is a great feeling.

It's not vitally important for us to start making millions by the time we graduate, but what is essential is that we have sufficient practical knowledge in addition to the academic knowledge that all of us possess. So, one definite way to get ahead in this rat race is to start right and start early.

Online link to this article:

http://www.collegiatetimes.com/stories/2007/10/23/money_whizdom__start_now_to_taste_success_early

Money WhizDom: Weak U.S. dollar impacts your impact

Adhvith Dhuddu, CT Regular Columnist

Wednesday, October 17; 12:00 AM

A vacation in Toronto, Paris, London or Rome will drain your wallet more than you can even imagine, and it's all thanks to a weak United States currency. A holiday across the Atlantic or north of the border in Canada is considerably more expensive compared to a few years ago.

The last few months have been harsh times for the U.S. dollar. The value of the dollar has been constantly declining, leaving it worth less than European, Canadian and other currencies. Unfortunately, the severity of the dollar's decline hasn't been fully realized. Politicians don't raise this issue during debates, and no conscious efforts are being made to stop or reverse this trend, which has been in existence for a few years now.

The suppressed purchasing power of the U.S. dollar is a troubling issue, and it undoubtedly affects you and me. Besides costlier European getaways, there are several other negative ramifications of a weak greenback.

Just five years ago, the dollar and Euro were equal in value, making your stay in Paris relatively reasonable. Five years ago, $100 was equivalent to £65, but now you'd get about £50 for your $100. Sadly, the same is true if you head up north to Canada, where $100 used to be worth close to $130 Canadian ; now they are equal in value. Similarly, many other foreign currencies have strengthened against the U.S. dollar.

Many U.S. businesses buy goods (both raw materials and final goods) from abroad, and because of the weak U.S. dollar, the cost of these goods has automatically gone up. As the dollar loses value, it can buy less and less from abroad for the same amount of money. Almost all businesses pass on this extra cost to the consumers; we end up paying more for these products and don't often even realize it. The same is true for various services that are outsourced and off shored to South Asian countries. As the local currency strengthens, U.S. businesses who earn their revenues here in U.S. dollars will have to charge consumers more to keep up with a weak U.S. currency.

A dollar is not worth a dollar; it's worth the amount of goods and services it can buy. So, if the same dollar buys fewer goods today compared to five years ago, its value has clearly decreased. The best (and the most universal) benchmark is measuring the strength of the dollar against gold. And even here, the dollar's weakness is clearly seen.

Many countries have their foreign exchange reserves in U.S. dollars, and because of the dollar's continued weakness, the value of these reserves is constantly decreasing. So when foreign governments realize this and start to get rid of U.S. dollars, the weakness of the currency will persist. Soon new foreign names will appear on the list of the world's wealthiest people, another consequence of the weak dollar. Bill Gates and Warren Buffet will be dethroned by successful industrialists from India and Mexico.

The weakening dollar is a result of poor fiscal and monetary policy, and people can hedge themselves against this in a few ways. Buying precious metals like gold, silver and uranium, or having a small percentage of your savings in another currency, will help ward off some of the dollar's weakness.

You could also buy a bearish dollar Exchange Traded Fund, which increases in value if the dollar weakens. An ETF is just like a stock that you can buy and sell, so owning this ETF will offset the decrease in the dollar's value.

It's important to learn about these vital issues at a young age. Knowing how to navigate the seas of a complicated financial ocean early will greatly help in honing money management skills. For further reading, the books, "Hot Commodities," by Jim Rogers and "Cash Proof," by Peter Schiff, explore this issue in more detail.

Online link to this article:

http://www.collegiatetimes.com/stories/2007/10/17/money_whizdom__weak_u_s__dollar_impacts_your_impact

Money WhizDom: Living and prospering in a globalized world (CT Column 7)

by Adhvith Dhuddu, Collegiate Times Regular Columnist
Wednesday, October 10th, 2007

It's common knowledge that we live in a globalized, connected and flattened world compared to few a years ago.

Business can be sourced and sold in more places; people travel and interact more frequently, and the planet has become more balanced economically, socially and geopolitically.

Locally, the positive effects of globalization can be seen with the number of international students who want to pursue a degree at Virginia Tech, and other American universities has increased tremendously in the last decade. More of our professors and researchers are collaborating with scholars around the world (in India, China, Switzerland, France and Germany) rather than restricting themselves to just the United States. Exchange programs and international tie-ups for projects and other assignments are also constantly on the rise.

In addition to reflecting the victory of free markets and democracy, the fall of the Berlin Wall in 1989 also brought down trade and knowledge barriers. Although the U.S. leads in research and knowledge creation, other countries are catching up, and soon innovation in all fields will occur not only in U.S., but also in third world countries. Staying street smart in this flat world will keep you ahead of the curve in the Internet age.

The triumph of democracy, free trade and open borders can be seen everywhere (in innovation, education, research institutes, corporations, social movements) and more of this should be encouraged (this does not mean other forms of government and market systems are inferior).
We as students should take advantage of this fast transforming world to explore education, career and business opportunities abroad. This will widen our knowledge horizon, inflate our social comfort zone, and reduce our business costs. Not all of this could be done easily a few years ago.

Although globalization has been beneficial to a vast majority, its discontents have adversely affected some sections of the population. One major group that could have reaped the benefits of globalization, but have been plagued with corruption and injustice, are resource-rich countries.

The best examples include African countries (Nigeria, Congo, and Sierra Leone) and South American countries such as Venezuela and the Middle East. If the oil, diamond, coal and commodity money consistently generated in these countries were used intelligently, there would be less conflict and more peace in this world. More people want a piece of the pie ­— and the ones who control it don't want to let go — leading to corruption, injustice and low social and economic standards.

Also, the direct impact of globalization can be felt everyday with higher gas prices, smaller increases in wages, tougher competition from abroad, fewer subsidies for businesses, lower purchasing power of the dollar, etc. Many of these impacts are irreversible and to live more prudently in this flattened and transforming world, one has to recognize these changes and then act on them accordingly.

Tremendous credit has to be given to the recent wireless, digital, virtual and mobile revolutions which have propelled globalization and accelerated the flattening of the world.
A world devoid of these innovations would leave us handicapped in many ways. Faster communication lines under the sea and increasing number of satellites in space also helped speed up the transformation.

To stay informed and up to date on the new world mechanics I suggest everyone, irrespective of their major, read "The World is Flat," by Thomas Friedman and "Making Globalization Work," by Joseph Stiglitz. In addition to gaining knowledge of the flat world, you can plan and position yourself to explore opportunities around the world and not just stick to one country.

Online link to this article:
http://www.collegiatetimes.com/stories/2007/10/10/money_whizdom__living_and_prospering_in_a_globalized_world

Money WhizDom: From engineer to entrepreneur (CT Column 6)

by Adhvith Dhuddu, Collegiate Times Regular Columnist
Tuesday, October 2nd, 2007

Being your own boss is a great feeling. Entrepreneurs thrive on the freedom, and many times that freedom is the stimulus to go solo.

Although owning your own business and choosing the entrepreneurial path early is a great responsibility, the perks involved are irreplaceable. You not only decide when and how you work but you also get to choose whom you work with and how much you get paid.

Despite being a tech-heavy institute, our reputed business school churns out top-quality financial analysts, accountants and economists. Many students from the Pamplin College of Business, as well as the engineering school, will go on to become entrepreneurs.

Like investing, exploring entrepreneurship early is always advantageous. And for all of us in Blacksburg, the job is made easier by the Virginia Tech Corporate Research Center (VTCRC). This exceptional resource is truly an entrepreneur's dream and a one-stop-shop for all your start-up needs.

The VTCRC helps individuals with technology, service and product ideas to solidify their fragile concepts and calibrate them to suit business needs. Many times ideas look good on paper, but to transform a product or service into a business that is financially sound and organizationally well-structured with good growth creation techniques, an expert's touch is often needed.

The VTCRC also assists in essential aspects like financial planning and helps locate potential venture capitalists who might want to invest in your business. Various legal issues, like favorable ways to incorporate a business for your product or technology, local and international patent issues and partnering with international corporations are also addressed by the VTCRC.

It's widely known that close to 80 percent of all business start-ups fail within the first five years. The primary reason for this is lack of consistent cash flow from revenues. Cash flow, or revenue stream, is the most important aspect of a business (at least in the initial phase) and the number one reason start-ups fail.

A common misconception is that you need to be extremely smart and ambitious to start your own business. It does not require financial or business acumen to become an entrepreneur.

The first and only step is to identify a hole in the system and see how that can be filled. Think of all the successful businesses around you. Those businesses are successful because the founders identified some sort of vacuum and provided a product or service to fill that space. Ordinary people can do extraordinary things just by using common sense.

Once you identify that gap or opportunity, it is of paramount importance to put your ideas on paper. This helps you keep a record and helps you realize that just thinking of an idea does not solve the problem; many intricate issues must be handled. It's a fun process, and you will learn a lot along the way.

Looking to outside sources is also a great way to prepare yourself for the trials and issues of starting your own company. Some great books that every budding entrepreneur should read before starting a business are, "Harvard Business Review on Entrepreneurship," Robert Kiyosaki's series, "The Magic of Thinking Big" and "The High Performance Entrepreneur."

If you think you posses an ingenious idea, don't be afraid to put it into practice! The best ideas can never be stolen, and if you are waiting for the perfect time to start your venture, it might never come. So, think big, start small and act now.

Online link to this article:
http://www.collegiatetimes.com/stories/2007/10/02/money_whizdom__changing_from_engineer_to_entrepreneur

Money WhizDom: Recession might be in sight (CT Column 5)

by Adhvith Dhuddu, Collegiate Times Regular Columnist
Wednesday, September 26th, 2007

If you think small towns like Blacksburg are sheltered from decisions taken by financial powerhouses in New York and Washington, D.C., you may be caught off guard. Although we are minnows in a gigantic economic sea, we are affected in many ways by the macro moves in the financial system.

Here are some critical issues currently facing the U.S. economy and what they mean for us in Blacksburg.

There was much hullabaloo last week when the Federal Reserve cut interest rates by 0.5 percent (from 5.25 to 4.75 percent). The stock markets replied with a 3 to 4percent rally worldwide, and the dollar weakened. Let's see how this affects you and me.

By cutting rates, the Federal Reserve made borrowing for banks easier. The primary sources of money for banks are the Federal Reserve and depositors like us. The Federal Reserve controls the printing presses and decides how much money is in the system via 12 official Federal Reserve Banks. As banks rely more on the Federal Reserve, changes in the rate at which banks can borrow from the Feds affect how much they pay depositors for their money.

By cutting the interest rates, credit is cheaper for the banks, and they would prefer borrowing money from the Federal Reserve rather than us. So we can expect banks to be stingier with the savings rate they offer us. You can also expect the interest rate offered for money market accounts and certificate of deposits to decrease.

Many students have loans to pay off or plan to pay off after graduation. All student loans with variable-interest rates will likely see a reduction as they are pegged to the prime lending rate. If your student loan does in fact have a variable rate, you can take advantage of the current depressed variable interest rate and either switch to a fixed interest rate or plan to pay off more with the current low rates. I also suspect that this rate will continue to decline gradually as more rate cuts are expected from the Federal Reserve, so you could wait for a lower rate.

For the first time in four years, non-farm payrolls fell by 4,000 for the month of August. Non-farm payrolls measure the total number of jobs added or lost monthly in the U.S. economy (except farm and government employees).

These are also the first signs that the U.S. economy is heading for a recession. Hence, finding a job after graduation will be challenging, and the percentage of graduates with full-time job offers might decline considerably.

Manufacturing jobs have always been reflective of the economic strength of a country and are considered to be the backbone of an economy. With wages also rising constantly, this decline will continue with dire consequences for the U.S. economy.

Crude oil has been setting record highs in trading sessions across the globe. Although the Organization of the Petroleum Exporting Countries (OPEC) recently voted to increase supply and are vigorously pumping at full capacity, crude prices seem to have no where to go but up.

Other pivotal factors like our grim fiscal deficit numbers, weakening dollar and massive trade deficits could act as a synergy to send the economy into a recession for the first time in six years. The GDP numbers for the next few quarters will decide whether or not this will happen.

Online link to this article:
http://www.collegiatetimes.com/stories/2007/09/26/money_whizdom__recession_might_be_in_sight

Money WhizDom: Unraveling money matters with friends (CT Column 4)

by Adhvith Dhuddu, Collegiate Times Regular Columnist
Wednesday, September 18th, 2007

Lisa owes me $14 for groceries. Pay electricity and rent by Oct. 5. Split the $24 pizza bill by three and collect money. Pay Shaun $45 for books.Is this how the back of your notebook looks? Or maybe your refrigerator has sticky yellow notes all over with these reminders. It is unavoidable that in a cohabitating situation you will have financial entanglements, but there is a much better way to manage finances between your friends and roommates.

One solution lies in a Web site, www.buxfer.com, developed by two graduate students in California. Short for "Bucks Transfer," this Web site was developed specifically to alleviate the confusions faced by students in sorting out money issues amongst friends and roommates. This online resource essentially helps you track where you spent your money, who owes you money, how you should split bills, when you should pay your bills and many more things. It also analyzes all these aspects and has incredible pictorial and graphical representations of the same.

Besides being tremendously user-friendly, the Web site is simple and straightforward to use." We have tried to keep the site very simple and devoid of any financial jargon," said Ashwin Bharambe, one of the Web site's co-founders. Created by students for the students, you can navigate the Web site effortlessly, and understanding the workings of the Web site is extremely easy.

The application's versatility can be felt from the beginning. You don't even need to create an account and can log in with your Google, Yahoo!, Facebook or AIM accounts to use Buxfer. The straightforward interface immediately allows you to add a new transaction for both individual and shared accounts.

There are also features allowing users to invite friends and colleagues to share an expense, remind them of a payment, etc., and also keep track of all your transactions. Buxfer's direct link to Amazon payments makes it easier to settle debts between friends.

The Web site even has excellent mobile support. You can interact with Buxfer using SMS text messages, twitter or the mobile optimized http://m.buxfer.com/. This keeps you informed of your on-the-go cash expenses, which are very easy to miss out on.

Another great feature Buxfer boasts is the real-time budget alert system to help you be more prudent.Using this you can set up budgets in order to control your expenses, helping you make an informed decision when you are out in an electronics store trying to quench your compulsive shopping desire.

It's important to learn the significance of budgets, and budgeting early on in life. Using tools like these, you can devise lenient spending plans and prevent yourself from getting shocked when you see the bank statement at the month's end. People may think they're being confined by using budgets, but spending money prudently is vital to being financially successful. Remember, wealth is accumulated; it's not produced overnight.

Like most personal finance management (PFMs) applications, you can also import bank and credit card statements to your Buxfer account. This could make Buxfer a one-stop-shop to manage all your money matters, be it saving, expenditure or budgeting.

To top it all off, Buxfer has an application on Facebook itself. By adding this widget on to your Facebook homepage, inviting friends to share expenses and making timely payments becomes even easier. The founders stressed the importance of this essential appeal to a younger audience they would attract by having a Facebook application.

"One of the important benefits of Buxfer is that it removes the guilt out of friendly borrowing. It also makes finances transparent and as a result, removes money as a source of arguments between friends," Bharambe said. As students, this is a great tool to use to simplify our financial worries and better manage our money. Spending a few minutes analyzing and planning our expenses could help in the long run.

Next week, read about critical issues currently facing the U.S. economy and how they affect our lives here in Blacksburg.

Online link to this article:
http://www.collegiatetimes.com/stories/2007/09/18/money_whizdom__unraveling_money_matters_with_friends

Money WhizDom: Is your bank bullet-proof? (CT Column 3)

by Adhvith Dhuddu, Collegiate Times Regular Columnist
Wednesday, September 12th, 2007.

College teaches you many things, but one thing it does not teach you is how to make your money work for you. Financially successful individuals actually derive most of their wealth from their money's hard work and not the salaries they earn.

Most of us have our pocket money for the semester parked in a bank to which we pay absolutely no attention. Choosing the right bank for your savings and checking accounts is important, and recognizing this early in life will greatly help in shaping your financial future. Here are some things to watch out for.

Verify that any account you open with any bank is Federal Deposit Insurance Corporation insured. An FDIC-insured stamp essentially means that the federal government guarantees in any emergency (if the bank goes bankrupt, if the economy goes into a tailspin, if your money just disappears, etc.) to reimburse up to $100,000 of your money per account.

Think of this as free insurance for your bank account by the federal government. This practice was established in the early 1930s when the the Great Depression wiped out the savings of millions of Americans. Fortunately for us, most of the banks and credit unions in Blacksburg are FDIC insured. An online bank is where your vigilance is needed.

The next thing to observe is the interest your bank is paying you for your savings account (also called the savings rate). A savings rate is how much the bank pays you as an incentive to save. Most local banks (like Wachovia, SunTrust, Freedom First Credit Union, etc.) pay one to two percent in the best-case scenarios. This is abysmal, as other banks offer higher savings rates. Although our pocket money for the semester is generally not more than a few thousand dollars, learning to save in banks with a high savings rate is a good practice. One online bank that I found reliable, safe and easy to use with a high savings rate is ING Direct. Here, you get a competitive 4.5 percent savings rate with no minimum balance requirements or fees of any kind.

Therefore you can have your money earn five percent interest online and occasionally transfer money to a local checking account for your expenditures. Another good online bank with a 5.05 percent savings rate is Emigrant Direct. None of the local banks offers such a competitive rate.

Another great way to park unused or "dead" money and also earn a tidy return for risk free is via Certificate of Deposits. You can purchase CDs from banks from $500 to $100,000 for time periods ranging from three months to 20 years at competitive interest rates. When you purchase a CD for a specific amount and time period, you are promising the bank that you will leave that money untouched for the promised time period, for which the bank will reward you with some money.

For example, if you buy a $1,000 CD for six months with a 5.25 percent rate, at the end of the six month period the bank is obligated to return your $1,000 and reward you with an additional $26.25 for lending them the money for six months. Although this is not a stellar return on your $1,000 investment, it's better than nothing and most importantly it prevents you from spending that $1,000 on frivolous things you otherwise might have purchased. Think of investing in CDs as another form of saving but with a higher return.

Of course, you should purchase a CD only if you are certain that you won't need the money in the near future. An early withdrawal of funds will prompt the bank to charge you a fine. Again, local banks do offer CDs but their rates are not as competitive as some online banks. ING direct, E-loan and IndymacBank offer amazing rates for your CDs. For example, a $1,000 CD for a five-month period will earn you a handsome 5.45 percent on your investment if purchased from IndymacBank.

A good source for the prevailing rates for savings accounts, checking accounts, CDs, etc., is www.banx.com and www.bankrate.com. You can also check how much your local bank is offering and compare to see if there are other banks in your locality that can serve you better.
Next week: See how you can simplify managing money amongst friends, roommates and family using a versatile online resource.

Online link to this article:
http://www.collegiatetimes.com/stories/2007/09/12/money_whizdom__is_your_bank_bullet-proof_

Money WhizDom: Learning the wise use of credit cards (CT Column 2)

by Adhvith Dhuddu, Collegiate Times Regular Columnist
Tuesday, September 4th, 2007.

America is a credit economy. We have mastered the art of borrowing money and then spending more than we borrowed.This is true with the government (we're running record trade and fiscal deficits right now) and also tends to be true with people who don't manage their money well.

Our weapons of mass destruction are called credit cards.Credit cards entice us into spending beyond our means. Having no credit card is a bad solution because this will stifle us from building a good credit history. Everyone knows that a good credit history is vital; it establishes the interest rate we pay on our loan when we buy that first car or home.Also, owning a credit card seems inevitable in this increasingly cashless economy.

Before divulging on good and bad uses of credit cards and the details of credit scores and credit history, understanding the concept of debt is important.When you borrow money, you are the borrower, and your credit card company is the lender. You pay back the money you borrowed with an interest, the fee you are obligated to pay for the money you borrowed, which you otherwise wouldn't have.Clearly, when you use a credit card you take on debt. In a broad sense there are primarily two forms of debt: good debt and bad debt.

In both cases you borrow money, but in the first case it's used to add value to you (debt to buy a home, to invest or to attend college) and in the second case (debt used to make frivolous purchases that lose value over time), it has detrimental effects.We as college students need to worry more about the second form of debt. We frequently use credit cards to make everyday purchases and don't really worry about buying a new home or car. Let's see how this problem can be tackled.The solution is pretty simple and straightforward.

You can apply for and own just one credit card with the minimum credit limit (your credit limit or line of credit is the maximum you can borrow/spend when you use your credit card). This way, you have the luxury of using it when you need to and you also build your credit history.

You don't need a credit card with a $5,000 line of credit and $150 minimum payments every month to build a good credit history. All you need is one credit card with a $500 line of credit and about $30 to $40 minimum payments. This option is easier; it builds your credit history and simultaneously prevents you from overspending.

When you pay your monthly bills, it is best to pay the full amount due and not rack up any debt. By paying your full dues you are virtually gaining access to free money, but if you extend paying the full amount and only pay the minimum amount required, you will be charged interest on the amount you owe.Credit card companies also charge interest on interest (compound interest), which is again dangerous if you don't pay your full amount every month.

Building your credit history as mentioned above is essential. Your credit score is derived from your credit history, in simple terms, your credit score is a report card of how you have handled debt historically.What are the main components of your credit score? Maximum weightage is given to the promptness of your payments, so making timely payments is essential.

The second most important aspect is something called the "current debt to limit ratio."Say your credit limit is $500 and your balance (the money you've borrowed) is $350, your ratio is 70 percent. It's ideal to keep this ratio at or below 50 percent. These two yardsticks (timely payments and debt-to-limit ratio) influence your credit score almost 65 percent.

It's a bad idea to apply for a new credit card if you don't need one. Doing this will reduce the average age of your account and will have harmful effects on your credit score.Also, one of the worst habits is to apply for those Gap, Circuit City or American Eagle in-store cards.

You may think you're being smart by getting a 10 percent discount, but owning these cards have damaging effects on your credit score.By doing this you are technically increasing the amount of credit you can get (more cards, so more debt) resulting in a lower credit score. The other factors just discussed contribute to the remaining 35 percent of your credit score.

There is no ideal credit card that one can own, but there are always good deals up for grabs. Two great places to explore this are www.cardweb.com and www.creditcardsearchengine.com. The second website also has a dedicated section for student credit cards.

Next week, I'll discuss things you should watch out for when you open a bank account, and how you can smartly invest unused money lying in the bank to earn a tidy and risk-free income.

Online link to this article:
http://www.collegiatetimes.com/stories/2007/09/04/money_whizdom__learning_the_wise_use_of_credit_cards

Money WhizDom: Learning stock market basics. (CT Column 1)

by Adhvith Dhuddu, Collegiate Times Regular Columnist 
Wednesday, August 29th, 2007

There is no better way to understand how the markets work than to open a trading account and dabble around with a few hundred dollars (not play money). The knowledge that one can gain by doing this is immense and will compound going forward. But to the novice, stocks, futures, options and commodity markets appear complicated and out of reach. Understanding basic aspects of how they function will greatly help in making a decision to start investing early. Starting early tremendously helps improve ones general knowledge about the economic and financial health of a country (or company) and also gives an exposure to how corporate America functions.

When a company wants to raise money there are three primary ways of doing it: borrow money from the bank, issue bonds in the bond market, or issue stock in the stock market. The company decides to issue stock and then approaches, say, Merill Lynch, and asks to help them out. Merill Lynch agrees and they are called the underwriters for the stock. Merill Lynch provides this company the $10 million they need (in exchange they get proportional control) and turns around, slices them up into two million shares of five dollars each and sells them to brokers, investors and other banks (the public). The stock of this company is officially in the public, has been listed as a public company in a stock exchange, and can be traded. This whole process is called the initial public offering or IPO.

As most people are aware, the main stock exchanges in America are the New York Stock Exchange (NYSE), National Association of Securities Dealers Automated Quotations (NASDAQ) and the American Stock Exchange (AMEX). Note that the Dow Jones is not a stock exchange, it's only an index. These are the exchanges where you can buy and sell your stocks through your broker (there are mainly two types of brokers the discount brokers and fully functional brokers). The reason you buy and sell through your broker is because he or she is a member of the exchange and you are not. To become a direct member of the exchange you should be willing to shell out a few million dollars.

Think of the stock market (or the futures, options and commodity markets) as an automobile. Your car has different parts (engine, tires, etc.) and runs on a fuel. Similarly, these markets have different parts (the exchanges, the companies listed, the brokers, the Securities and Exchange Commission, etc.) and run on a fuel called money. If the day money dries up on this planet, these markets will cease to exist.

But why and how does the stock price go up or down? In the business world, a year is referred to as a "financial year," and the financial year varies for different companies. For example, GAP's financial year starts May 1 and ends April 30 and ExxonMobil has its financial year lasting from Nov. 15 to Nov. 14 of the following year. Each financial year is divided into four quarters of three months each. Publicly listed companies release their earnings report for each quarter on a pre-specified date. Stocks experience extremely significant movements the day the earnings report is released. This is one event that moves the stock price considerably depending on the earnings report and the company's outlook in the coming quarters and financial years. Also, extremely heavy buying and selling of a particular stock by a mutual fund, pension fund (your 401(k) and IRA money) or a hedge fund can significantly impact the price of the stock.

One must understand that the primary driver in the movement of the stock price is the supply and demand relationship. If the stock has increased demand and less/constant supply (i.e. more people willing to buy a stock and lesser number of people willing to sell the stock) the price of the stock moves up. On the contrary, if there is less demand for the stock (i.e. less people want to buy the stock) and more/constant supply (i.e. more people willing to sell the stock), the price tends to go down. Therefore, when the above mentioned funds buy and sell stocks, a significant imbalance in the equilibrium of supply and demand is created (because these funds buy and sell in hundreds of millions of dollars) driving the stock price up or down.

You can sit in a class and learn about swimming all day, but when you dive into the water you pretty much forget everything you learned and start again. Similarly with the stock markets, taking the initial plunge is important and learning about investing/trading will follow. You drive your car and follow certain rules (stop on red, go on green, etc.), likewise, following rules while trading and investing will put you on track for financial success. Once you've understood basic concepts, opening an account is hassle-free. Online brokers like Scottrade, ShareBuiler and Zecco are extremely customer friendly and will help you along the way.

Online link to this article:
http://www.collegiatetimes.com/stories/2007/08/29/column__learning_stock_market_whizdom