Berrie White Capital is a very innovative investment house. This case study shows how and why the prestigious Toronto investment firm helps car owners all over Ontario.

Have you ever had bad credit and yet desperately needed a car?

Thousands of people have car trouble every year, and must look for help to continue on driving and making a living whether they can afford to or not. Dozens of companies are in the space under one moniker or another to provide car credit to various levels of credit worthiness. Berrie White Capital has selected one such company to help it grow and provide investors with an opportunity to benefit in a growth-market.

Newstart Canada, through its two companies, provides quality used cars and special financing options to individuals with no credit history or with damaged credit. The loans issued to individuals are split 50/50 between those financed by third party finance companies and those financed by Newstart Canada internally known as Buy Here, Pay Here Financing. These internally financed products are 30 months loans or leases. Since inception in August 2007, Newstart Canada s portfolio of internally financed loans or leases has grown to approximately 280 accounts and $1.3 Million dollars.

THE MARKET SEGMENT Newstart Canada s vehicle and finance products serve the growing demographic of people with poor credit these individuals do not meet the requirements for bank or major car dealer financing. The company serves the growing market segment in Ontario of individuals who are self employed, single parents, new immigrants, bankrupts and others with no credit or damaged credit. These people often require a vehicle in order to earn a paycheque, and can have significant difficulty finding financing. According to Bankruptcycanada.com, consumer bankruptcies in Ontario for February 2008 were up 13% compared with the same period the previous year. And overall consumer bankruptcies in Canada in 2007 increased by 86.5% over 1990. Since 2001, there has been a large increase in one-person households. According to the 2006 census, between 2001 and 2006, the number of one-person households increased 11.8%, more than twice as fast as the 5.3% increase for the total population in private households. A large number of these families are headed by women with little or no credit history, or men whose credit has been damaged by a divorce.

THE INDUSTRY The industry is not consolidated in Canada. On one hand, the major players are many small car lots whose primary business is used car sales with special financing assistance available to the client. On the other hand, there are relatively few third party lenders who provide special financing to D level credit customers. There are even fewer operators who consolidate both the car sale and the financing in one location called Buy Here Pay Here. While this is a large industry in the United States, with single mega-Lots, such as car biz, (carbizautocredit.com) or multiple franchise locations such as J.D. Byrider, (jdbyrider.com) it is a relatively unique offering in Canada. Having both the car dealership and the special financing in one location provides a full-service to the customer, with each side of the business augmenting the other.

MANAGEMENT Mr. Baker, Principal, has over 25 years of experience as a self made entrepreneur. He has successfully grown, expanded and sold several companies over the years. He has had successful careers from waste management to real estate. Most recently, he was co-owner and controlling shareholder of large auto-finance company and was instrumental in increasing the company s customer database from 100 to 4500 before he was bought out in August of 07. Mr. Baker has three decades of experience in the automotive industry, with the past 10 years dedicated full time to automotive. He owned and operated Auto Finance Group which represented private auto lenders for inventory financings of used car dealers and provided lease financing to clients with poor credit history. He owned a Wrecks for Rent franchise, growing the fleet to 70 cars before selling. Following this experience, Mr. Baker went on to become a 50% owner in Guildwood Motors of Scarborough, a successful Buy Here, Pay Here dealership. These grass roots experiences have given him unsurpassed knowledge of the auto industry which he has expanded to include the sub-prime auto financing business. He is an active member of several organizations including The Better Business Bureau and Leedom Associates 20 Group for Special Financing. He is now recognized as one of the leading authorities on sub-prime auto financing in Canada. As such, he has been able to attract a dynamic staff with significant experience in special financing, sales and collection. Sharon Baker, CMA, Chief Financial Officer, owns and operates a successful consulting firm, which she founded in 2001. She provides strategic and financial services to the company.

SUCCESS FACTORS The two critical success factors in this industry are underwriting and collections. Mr. Baker s experience has allowed him to develop underwriting criteria that significantly increases the quality of the leases the company writes. The company employs a custom software solution that allows it to actively manage all accounts to ensure that cash inflow from accounts are maximized and that detailed information exists for all accounts. The company does not accept cheques for payments, relying on Western Union and Prepaid Authorized Debits (PAD) from the client s bank account. The software extracts a PAD file for payments due, which is transferred to the bank on a daily basis. Clients are permitted the flexibility of choosing their payment dates to coincide with their payments stream, greatly decreasing the probability of a rejected payment. Leedom Associates 20 Group for Special Financing, of which Mr. Baker is a founding member, provides a forum for the exchange of ideas and information. All company data is benchmarked against the 16 companies that participate as well as against broader industry indicators. Many of the participating companies have portfolios that exceed 20,000 accounts and have a receivable balance of over 100,000,000 grown from companies that started as small as ours. The group comes together 3 times a year for meetings and dialogue on specific topics, and shares composite data and benchmark reports monthly.

FINANCIAL POSITION The company is in a strong position with assets of $1.4 million, largely made up of yet-to-be leased vehicle inventory and a portfolio of loans and leases with a principal balance at October 31, 2008 of approximately $1.3 million (interest receivable on the loans is an additional $350-400K). Revenues for the period August 1, 2007 to October 31, 2008 are approximately $2,000,000. Since August 1, 2007, Newstart Canada has raised approximately $600,000 from family and friends to finance these cars loans. Mr. Baker s commitment to the company is represented by his Owners Equity contribution of approximately $1 million. GOALS Mr. Baker s goal for the company is to increase the portfolio by $200K per month. Each increase of $200K requires approximately $100K in capital to finance, and results in a net new cash infusion of 5K per month to the company (12K inflow from client payments, less 7K outflow to investors/lenders). Over the life of the contract (30 months) the net cash infusion to the company is approximately $150K for every $100K borrowed. Berrie White Capital wants to put investors in the driver s seat with Newstart and drive returns in their portfolios.

“Wider share ownership”

The 1980’s saw a huge emphasis in the UK on “wider share ownership” and subtly avoided reference to history.  (This was same mantra of the days, months and years preceding The Great Depression following the great stock market crash in the USA in 1929!)  In England, many companies were denationalized and it was “a dead cert” that you could ‘stag’ the new shares in these companies, that is you could sell them on the first day or week of trading and you would almost certainly make money.  Generally, for most of the newly denationalized companies this was true.  It was a question of how many shares you could initially apply for: the more shares you were allocated, the more money you made.  You took the risk that you would lose the interest on your savings if you did not receive the allocation you applied for and had to wait for your refund cheque.  And thus, the mantra of “wider share ownership” gained momentum.

What is a share?

Common sense goes out the window when your focus is on numbers, growth and making money.  So, what is a share?  A share is what it says: a share, or a percentage.  That percentage might be a millionth or lower.  It’s a share in the ownership of the company you invest in.  But, most of us don’t think of it as an investment in a company which will be tied up for many years.  Let’s be honest: it’s a speculation; it’s a hope that we can sell the shares within weeks, months or maybe next year and get a nice return, just like we read about in the successful investor testimonials.

What you will forget: it’s a market

Your local market probably sells fruit, vegetable, cheese, meat, clothes, replacement parts for your vacuum cleaner and car.  Via brokers, the stock market sells a range of shares in a range of companies.  Those companies are publicly listed.  They have to publish their performance publicly because they become reliant on their stock market listing for their funding.

So, you have bought shares or ‘stock’ in a particular company or some companies.  The companies probably have either an established track record, great prospects or are in a sector (retail, commodities, builders, pharmaceuticals etc) which are getting lots of positive comment from respected commentators like stockbrokers, investment gurus, newspaper columnists. 

Can you or other private investors influence a company’s ability to trade and perform profitably? If all private investor’s took an ethical stance, for instance, surely that would prejudice a company?  Wouldn’t it?  If a thousand private investors protested vehemently about a company’s strategy, the chances are the company would be irritated by the bad PR, but the combined shareholding of those investors would be less than 1% of the company’s issued shares.  Do you think you can make a difference?

Have you studied who owns the company you have bought shares in?  In fact, which investors own many of the listed companies?  With unsurprising regularity the same names crop up.  Across the sectors, insurance companies and banks commonly own at least 3% and are the main investors of many publicly listed companies.  If you look at the mining sector, the developing mining companies are being sponsored by the mining giants.

In the local market, stall-holders or traders sell.  Customers have a look and buy what they want.  Somehow, you have been introduced to the idea that it would be ‘cool’ or sound to invest in a company and get shares because in your own way you would be helping the company to make further developments and ultimately the economy will benefit. Won’t it?  No.  Your money, unless it represents at least 3-5% of the value of the company, won’t make any difference. 

Shhhh.  Don’t tell everyone

This is a market.  But it’s not your market.  You can usually only buy shares through a broker and they will charge you a dealing fee to acquire the shares in each company in which you invest.  Brokers generate income through other sources but getting dealing fees is good income.  If you buy shares, you merely ensure that brokers earn additional income through dealing fees. 

I repeat, this is not your market.  The shares which are on offer are being displayed for other buyers.  Those buyers are specialist investment managers who look after investment funds for major insurance companies, specialist investment companies, banks and pension funds (“big players”).  In a market, the buyer wants what is most attractive.  And that means when something slightly more attractive is available, those shares held in a company which now seems less attractive get offered for sale on the market to another big player who sees an opportunity to make money.

What you think affects performance

Profitability is surely the key?  The company you like is an established name, has great products, everybody has heard of them, they are sound financially and have a track record of reliable profits.  Bigger profits, better dividends, the price just has to go up.  Sure enough, record profits are reported.  And then something weird occurs.  The same day, the share price drops – plummets, more like – 8%.  Why?  A number of reasons.  It wasn’t quite what the performance analysts anticipated.  Maybe the investment analysts perceive that is the end of record performances and from now on the company will struggle to match this year’s performance.  Or maybe the company’s spokesperson has observed the current economic situation and hinted at more challenging conditions for the company looking ahead. 

Lessons you learn by experience

Eventually, you will build up experience of trading in shares and making big gains, small gains and some losses through sharedealing.  The mantras that ‘past performance is no guide to future performance’ and ‘shares can go down as well as up’ will, however, take on significance when you have your first big loss.  It will happen. 

Strangely, when a company’s share price goes down 9% in one day then calms for a couple of days, you don’t get the same euphoria when the price improves 8% on another day.  They still need to go up at least another 2% for you to be in the same position before the 9% fall.  ‘Greasy pole’ and ‘climbing’ sound familiar?

It’s easier for your shares to lose significant value quickly than it is for them to gain significant value quickly.  In more than 20 years, I have experienced heavy losses in value which occurred like lightning.  I have never experienced a fast massive hike in value on any shares I have owned.  Unlucky or normal?

‘Pound cost averaging’.  It sounds impressive. It means buying shares at different times which averages out the overall price you have paid for your shares.  So, buy more shares when the price is falling because you are getting them cheap, you’d think.  It makes sense.  However, the stock market is not founded on sense.  You will increase your losses.  The trend may be that your company and others in its sector have further to fall in value because they are out of favour with those who make the market tick, i.e. the big players.

Investment analysts, commonly working within stockbrokers and for investment fund organizations, are constantly advising the big players on how any one company or a sector is performing, their prospects, strategies and a company’s order books, and how global and national economic factors will influence the company’s performance.  Depending on how their advice is received, the company’s share price will be reflected as the buying and selling of shares occurs on a daily basis.

Share prices don’t respond in line with your thinking as a private individual. 

You are not the market.

You do not influence the market.

A lesson repeated

Private investors are useful to the stock market because the more they deal in shares through brokers, the more fee income brokers earn.  Advertising “wider share ownership” and cheap dealing fees will continue to attract private investors because most of us can do basic maths and we understand the concept of multiplying numbers equates to creating bigger numbers.

Investors affect the overall performance of a company’s share price and the whole market’s performance.  The thing to keep in mind is that you and I are not included within the definition of ‘investor’.  You and I are players.  But we are not ‘big players’.

Players are always invited to participate and will come back to play because of the prospect of making serious money in the market.  The stock market is for big players, those who have and are willing to commit six figure sums and multiple millions of pounds to fund companies they believe will yield a good near-term and longer term return.  This in turn enables investors themselves to reward those who have invested in them and their skill in understanding the market, but on the basis of longer term performance.

Remember…

You are not the market.

You do not influence the market.

Share prices will go up and down.  You can’t guess in what ratio!

You are unlikely to get out of the market without some scars.

If, as a private individual, you consistently make money by share dealing, it’s by luck not by skill.

So, did I mention Tantric Medicines Plc at 7pence?   They look a great prospect!!

There is a tool that every trader use to control the damage you can accept in a trade. It is called stop loss order. It is an automated order that the trader enters following a newly opened position. This preset order tells the broker's computer when to get out of the trade. You may usually enter this value as points in percent (pip) or as dollar value.

Now the question that most traders face is, where to put the stop loss. No one wants to place an order too close to the actual trading price and get out of the trade in a small fluctuation. At the other end, we don't want to loose too much money at any trade.

The answer to that question is highly personal in my opinion. It depends on your account size, your appetite for the risk, how crazy you are, etc. But there is also some commonly accepted  ways of defining risk levels.

Most of the traders go for a fix percentage of their account as an acceptable loss. So if you have 10.000 $ in your account and you never want to loose more than 5% in a given trade, your maximum loss should be 500$. Now that is the step one.

The biggest mistake of beginner traders is to get this as a fixed position for a lot. So if you are trading one standard lot, this would be approximately 50 pips. This may be a large, or not enough range depending of market conditions. Let's take a look at the chart below.

It is the 1h chart at the time I am writing this article. The market is extremely volitile these days and you can see the pair has moved between 196.800 and 194.400 during the day (which is a 240 pips range).  If we decide to get in a trade now, 50 pips stop loss will be hit very easily.

Let's go to 4h chart and see the support levels for a long trade (buy trade).

First support level below the actual position is around 193.300, about 150 pips below.  It is likely that the pair may test this value one more time before going higher. So if we get in this trade right now, we should be ready to tolerate this back move until the support is broken.

So our 50 pips is not enough. We still want to keep our percentage fixed. We, then, should reduce the trade size. Instead of 1 standard lot, we should trade with 1/3 lot.

The problem at this point is that not every broker accepts less than 1 lot trades. If you do not have an account to tolerate 150 pips within the percentage you have already defined, you should not enter in the trade. Doesn't matter how good the trade is, how much money you can make, how likely that the pair will move in the direction you want. You don't have enough money to get in that trade.

First rule I have learned in forex trading is to be able to let it go. It happens often that the market is to volatile so that the risk is not acceptable for my account size. Yes these are the times you can make a lot more money than you can usually make. But remember, these are the times that you can loose a lot more money than you usually loose.

I hope it helps to my fellow new traders. Let me know if there is anything you want to see in my future articles.

For example, when the stock market goes up, most stocks go up in price, including those with less-thanspectacular sales, growth, and earnings. Similarly, if a sell-off occurs in the stock market, stocks with better than average sales, growth, and earnings will be included in the downslide. External events that move security prices (stocks, bonds, and other assets such as real estate) are unpredictable. Such an event could be a terrorist incident or news of a war, death of a prominent leader of a foreign nation, changes in inflation rate, labor strikes, or floods in the Midwest. Investors cannot do much to avoid these volatile short-term fluctuations in stock, bond, and real estate prices. Over long periods of time, however, stock prices tend to appreciate in relation to their intrinsic value (their growth and earnings).

In other words, a stock's long-term returns are determined by a company's investment fundamentals. Market risk highlights the dangers for investors who invest short-term money in the stock market. If you need cash when the market has declined, you will need to sell your stocks, which may have produced losses. For stock investments, you should have a long time horizon so that you are not forced to sell in down markets. The same long time horizon applies to investments in real estate.

Suppose that instead of investing the entire $1 million in Intel stock for the one-year period, you decided to divide the money equally into 10 stocks. At the end of the oneyear period, your diversified portfolio would have increased by 6 percent as opposed to the loss of 25 percent from investing the entire amount in Intel. The gains in the portfolio came from aerospace, pharmaceutical, beverage, oil, and conglomerate stocks (Boeing, Johnson & Johnson, Pepsi Cola, ExxonMobil, and Tyco). The losses were due to Mattel in the recreational sector of the economy, Washington Mutual in the financial sector of the economy, Intel and Applied Materials in the technology sector, and Wal-Mart in the retail sector.

The importance of diversification can be looked at in another way. With a portfolio consisting of one stock, a 50 percent decline in that stock results in a 50 percent decline in the total value. In a portfolio of 10 stocks with equal amounts invested in each stock, a decline of 50 percent in one stock's value results in a 5 percent decline in the total value. Thus too few stocks in a portfolio means that you have too much risk placed on each stock. Too many stocks in a portfolio dilutes the potential upside appreciation in the total value of the portfolio.

By investing in a number of stocks from different sectors of the economy rather than investing in one stock, we have reduced our risk of loss. The returns on stocks from different sectors of the economy are not perfectly correlated, thereby reducing the variability in the returns. For example, the two technology stocks in the portfolio, Intel and Applied Materials, have returns that generally move together, a high correlation. Stocks from different sectors of the economy have returns that are not related, which means a low or negative correlation. By increasing the number of stocks in your portfolio to 30 or 40 that have low or negative correlations you can effectively eliminate all company-related risks. Thus, of the total risk, you can reduce unsystematic risk (operating, business, and financial risks) through diversification.

Monetary Risk

Is it worth the price?

Perceived monetary risk is simply the chance that the purchase won't prove to be worth the price the buyer paid. The amount of monetary risk depends on the degree of uncertainty about the value of the goods and on the size of the purchase price. Expensive gourmet foods, jewelry, and high-tech gadgetry are types of products that might be perceived as having high monetary risk.

Functional Risk

Will its performance fulfill my expectations?

The risk here is whether the product is effective and functions as anticipated by the consumer. The degree of perceived functional risk depends in part on the nature of the product and partly on the amount of functional risk capital the prospective buyer possesses. “Risk capital” here is similar to the way I used it in Chapter IV (Principle #2: Take Risks). More specifically, risk capital can be defined in terms of the degree of need (how important is it to you?) and the availability of substitute goods (are there alternative choices that might perform better?). A camera, computer software, or one of those cool gizmos advertised on late-night television are examples of products with a high functional risk.

Physical Risk

Could it endanger my health and well-being?

Products and services that are likely to have a high physical risk include those directly associated with health and safety, as well as products that could injure users. The degree of physical risk capital depends on how frail the consumer is. Examples of products with high perceived physical risk include snow skis, skateboards, and hang gliders.

Social Risk

Will this impact my social status?

Any consumer product that is socially visible is prone to perceived social risk. Specifically, social risk is the chance that buyers will lose social affiliation or status as the result of the purchase. These kinds of products include unfashionable clothing, plastic pink flamingo yard art, or anything else that is beneath one's social stature.

Psychological Risk

Can this threaten my self-esteem?

Perceived psychological risk is present when prospective buyers recognize there is a chance the purchase might jeopardize their self-image or threaten their self-esteem. This form of risk differs from “social risk” because there is no consideration of what others might think or do. The more positive the individual's self-image and self-esteem, the less psychological risk is perceived. An example is someone with strong moral convictions purchasing pornography or a vegetarian purchasing a steak.

Once you have determined which form of perceived risk your prospect will most strongly encounter when considering the purchase of your product or service, try rating the level of that risk. On a scale of one to five (five being highest), how high would you rate the perceived risk the purchase of your product/service represents?

Low Risk   1 - 2 - 3 - 4 - 5   High Risk

The final phase of knowing your prospect is to compile all the bits and pieces of information you have accumulated into a single composite profile. This composite profile is a “picture” of your best prospect. And with that picture firmly in mind, you can begin creating advertising that is, in effect, a personal “love letter” from you to your best prospect.

Deterioration in sales and earnings at worst could move the company into bankruptcy, which makes its securities (stocks and bonds) worthless. A company with stable sales does not have this problem of not being able to cover its regular expenses. Investors' expectations of a company's earnings affect the prices of its stocks and bonds. Shareholders who anticipate a decline in earnings will sell their shares, which can cause a decline in the stock's price. Similarly, if investors anticipate an increase in earnings, they are willing to pay higher prices for the stock. If the company's earnings decline significantly, the company's bonds could be downgraded by ratings services such as Moody's and Standard and Poor's, causing the bonds to decline in price.

Common stocks of automobiles, home building, construction, and durable goods companies are referred to as cyclical stocks. Acyclical stock is the stock of a company whose earnings and prices move directly up or down with expansion and contraction of the economy. Business risk for a cyclical company increases when changes in the economy result in reduced consumer or business spending for that company's products. This occurred in 2001 and 2002 when the telecommunications equipment sector (companies such as Lucent, Nortel Networks, and Ciena) experienced a downturn due to an economic recession, which caused the telecom companies (AT&T, Sprint, and WorldCom) to reduce their spending on new equipment.

By investing in the common stocks of companies with stable earnings rather than those of cyclical companies, you can reduce business risk. Stable stock is the stock of a company whose earnings are not influenced by changes in the activity of the economy. Some examples are electric utility and consumer goods companies.

Let us start by defining the difference between policies and standards. After which we will delve a little deeper into the world of policies. Then we will look at how to develop your very own policies.

Standards

Standards tend to originate from without. In many instances organization's can adopt various standards voluntarily. External factors such as the need to comply with legislation or industry-wide recommendations may force an organization to adopt specific standards.

Standards infer compliance or opt-in. The degree of compliance tends to be rigid in areas where legislative regulations are enforced. In this case, failure to comply will ultimately result in the imposition of punitive penalties. Depending upon the breach incarceration may result.

Policies

Policies on the other hand originate from within an organization. The primary objective of policies is to deliver positive benefit or avoiding negative effect from the organization's perspective.

Compliance with corporate policy is generally not negotiable and the individual at fault will generally experience some form of penalty. This will vary from one organization to the next. The ultimate penalty for non-compliance with organizational policies would be termination of employment.

A policy is a deliberate plan of action (organizational intent) to guide decisions and achieve rational outcome(s). As such the term may apply to government, private sector organizations and groups, as wells as to individuals.

Policy also refers to the process of making important organizational, management, financial and administrative decisions. This includes the identification of different viable alternatives such as programs or spending priorities. This forms the basic pool of options from which the final selection will come. It is often the case that company policy will dictate which option wins.

Selection Criteria

Company policy influences the decision making process by defining the criteria for selection. Choosing from among a range of nearly equal prospects is one area where policy has considerable impact. Generally, company policy is to ensure the rapid attainment of specifically defined explicit goals.

Risk/Threat Impact Identification

Identification of real and potential risks and threats takes place. Each risk and threat is analyzed in regards to the impact that it would have upon the organization. Now conduct an impact evaluation.

Implement measures designed to avoid those specific negative effects or impacts identified as posing to high a degree of risk, threat or impact to the organization.

Maximize Positive Benefits

Policies may also be designed to address and maximize the organization's capacity to exploit the positive benefits (from the organization's perspective) of a given scenario or situation as identified by that organization.

Policy Examples

Examples of policies widely used today include corporate privacy policies and distribution policies regulating the distribution and sharing of resources within the organization are another.

Policy Development and Management

Without doubt the easiest way to create, develop, and maintain a consistent appropriate policy or set of policies across an organization's expanse is to apply structure and form to your organizational and personal policy objectives.

Since policy needs to respond to an ever-changing environment and/or environmental factors it is best; as is the case with other intangibles, to adopt a life-cycle managerial approach. One example of the life-cycle approach to policy management is the Bridgman/Davis policy life cycle.

The Bridgman/Davis Policy Life: Cycle1

1. Issue Identification
2. Policy Analysis
3. Policy Instrument Development
4. Consultation (which permeates the entire process)
5. Coordination
6. Decision
7. Implementation
8. Evaluation

Policy Documentation

Policy documents usually contain the following standard components:

• Policy Purpose Statement - Why the policy is being implemented & what it is supposed to achieve
• Policy Scope Statement - Who and what the policy affects. Express exclusions relating to specific individuals, organisations and/or actions
• Policy Time Statement - When the policy takes effect and when it is due to be terminated
• Policy Responsibilities and Obligations - Who is responsible for what including identification of governance structures
• Policy Statements - The specific organizational regulations, requirements, modifications and/or behaviors that the policy is creating
• Background Statement - The reasoning, motivation, and historical perspective for policy creation
• Statement of Definitions and Terminology - Clear and unambiguous definition and explanation of the terminology, concepts, methodologies and processes contained within the policy

But, she owned her home, never owned a credit card and always deposited money every month into a Christmas fund where she bought presents with the interest earned. She always contributed to an IRA and savings account and even had a 401K that the small cleaning company she worked for provided her. Which she of course - contributed the maximum. My grandmother didn't have a lot of money by today's standards but was extremely diligent and reminded me often that as a country girl, she collected eggs from the smelly chickens every morning and that she learned at an early age,

“Never put all your eggs in one basket but every now and then, expect one to crack.”

What my grandmother understood was simple, the benefit of long term investing, diversification but more importantly, risk. Not bad for a sixth grade education. If you understand that every investment has some type of risk associated with it, you've won three-quarters of the battle when it comes to investing.

The key to successful investing is managing risk while maintaining the potential for adequate returns. One of the most effective ways to help manage your investment risk is diversification. This allows you to manage risk by spreading your money across a variety of investments such as stocks, bonds, real estate, exchange traded funds, private REIT's, commercial equipment leasing programs, natural gas an oil programs (for accredited investors) and cash equivalents such as CD's or money market funds.

The philosophy behind diversification is by spreading the risk among a number of different investment types can buffer a loss in any one investment. It may also help smooth your returns over time. As one investment increases, it may offset the decreases in another allowing your portfolio to ride out market swings, providing a more steady performance under various economic conditions. By reducing the impact of market ups and downs, diversification can go far in enhancing your comfort level with investing.

I'm a child of the 70's but grew up watching reruns of the old black and white shows of the 1950's. One of my favorite shows was, “Father Knows Best.” Well I'd like to submit a new old rerun called, Grandma Knows Diversification.”