A Key to Great Investing: Understanding Risk

Maybe it's the way we're wired, but most people are terrible at assessing risk. We put our money in "safe" investments and get clobbered and avoid "risky" investments that double and triple. Here are a few ways improving risk can hurt:

1) Avoiding the stock market altogether.

Conventional wisdom says the stock market is a dangerous place where you're sure to lose a fortune or a casino where you have no control over results. Conventional wisdom could not be more wrong. Look at the history of the market since its inception, and you'll see some wild rides. What you'll also see are long-term results that beat almost anything else you can find. Good luck trying to make some people believe this, though. They know what they know; do not confuse them with the facts.

While the gyrations of the stock market make its short-term risks easy to see, the risks of bank accounts and bonds are hidden. Every month, you see some interest on your bank balance-though small – and the principal is always there. What you do not see is a greedy monster called inflation, typically gobbling up the purchasing power of your funds. If you hold bonds to maturity, the same thing often happens. Get your principal and interest back, but lose to inflation. And if you do not hold to maturity, your "safe" bond investment may be anything but. Who wants to buy your bond yielding 1% if interest rates jump to 4%?

2) Investing only in large cap stocks.

Giant companies have a place in every portfolio. They throw off wonderful dividends that keep money coming in even when the market is tanking. Their strength helps you sleep at night. But buy them when they're overpriced, and you'll have to collect a lot of dividends to get your money back. Moreover, they'll fail to return as much as the average small or midcap portfolio.

Risk assessment is a tricky thing with smaller cap stocks. Look at one microcap stock, and the risk is awful. Look at a diversified bunch, and the risk shrinks dramatically. Some of your microcaps might go bankrupt (although you can minimize that risk by taking a good look at debt, cash flow, and earnings), but the ones that do well will often go through the roof and leave your overall performance looking quite impressive.

3) Thinking stocks are more dangerous when they're actually safer.

Most people assume they should stay away when the market drops 20%. After all, it might drop a lot more. By focusing on potential short-term pain, they ignore the fact that a good company's stock at 20% off is usually safer than one at full price-especially if it's the stock of an all-weather company that will sail through the next recession.

If you think you're immune from this, ask yourself how you feel about buying a house. Chances are you're a lot more nervous than you were a few years ago, even though there's only a small chance that houses will perform as terribly in the coming years as they have for the last few.

4) Thinking stocks are a great buy when they're actually a huge rip-off.

Remember those people who thought the stock market was a big casino or a sure way to lose money? Wait till the next market boom. Suddenly, they'll think the market is a great place to invest. They'll fill your ear full of stock tips-most of them bad. Avoid this by looking at numbers instead of listening to cheerleaders. As the average P / E ratio of the stock market climbs higher, stocks become more dangerous in spite of claims that it's different this time. That does not mean there are not any bargains, but you will not find them by listening to hot tips.

5) Thinking anything is a sure thing.

Every aspect of investing is fraud with risk. Hurricanes, earthquakes, terrorist attacks, and accounting shenanigans can torpedo a stock in spite of your best efforts. That's why every portfolio needs more than one stock, and every portfolio need to be invested in more than one sector. Be wary of throwing money at everything in equal amounts, though. This is a guarantee of mediocre results. Instead, calculate the size of each investment based on your estimate of potential returns, but with a healthy respect for the threat of the unexpected.

6) Thinking past performance is a guarantee of future results.

A stock that had an extra year is not necessarily going to have another. The same goes for fund managers.

Even the long-term inflation-beating performance of the whole market is not guaranteed, although it's a pretty good bet. That's why you always need to keep some funds in cash and alternative investments.

Conclusion:

Risk assessment is not an intuitive skill. If you rely on sloppy thinking or feelings, you'll almost certainly get it wrong. Take the time to learn how risk works and to know as much as you can about each of your companies. The rewards will be worth it.

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Terrific Teacher Gifts

Your child's teacher is one of the most important people in his or her life on a day-to-day basis. If you stop to think about it, kids spend 5 full days per week with this person, learning extremely valuable life skills and knowledge. Showing teachers that you appreciate their efforts with your children is a wonderful thing to do. But how do you pick a gift that conveys this appreciation?

Buying a gift for a virtual stranger can be tricky. One tip is to get your kids involved! Not only will the gift be more personal if they help pick it out, but the fact of the matter is that they do spend more time with this person than you do. They just might know better what he or she will like!

You can also try to get other parents involved. If you can get a few others to chip in $ 10 or $ 20, you'll be able to buy a really nice gift rather than something small. If you're able to pool money, you could think about buying a weekend getaway to a local B & B, a nice piece of jewelry, or even a luxurious down or cashmere-like blanket for them to wrap up with on cold nights!

o For a Creative Gift. Teachers love their students, so getting something your child can help pick out would really hit home. You could think about a charm bracelet and let your child pick out some charms to go with it. Even a thank-you card your child makes herself would really make the teacher feel appreciated.

o For a Healthy Gift. Give your child's teacher a night of relaxation. You could put together a movie-night themed gift, like a ceramic popcorn bowl, some gourmet popcorn, and a movie you think he would like.

Or think about getting her a gift certificate for a massage or other spa service. An afternoon of pampering would be much appreciated!

o For Pure Decadence. Consider buying the teacher a lavish gift certificate to the local teacher supply store. Would not she be thrilled to go buy classroom supplies to her heart's content? You also might purchase a bunch of new books for the classroom's reading corner.

If you'd rather get something for the teacher herself, take the lead from your child. Find out what she enjoys doing in her off time. If she enjoys golf, get her a round on the local course. If he enjoys art, get him some high-class art supplies or a one year's pass to the local art museum.

o For the Time Honored Gift. This one might take some coordination (if there's a teacher's assistant, she might be well-placed to help you in this), but it's well worth the effort. If you can get the whole class involved, have everyone write a short letter to the teacher that explains why they love her or him so much. You can then take all the letters and put them in a beautiful photo album with pictures of all the kids. It will be a keepsake they'll never get rid of!

o For a Technology Gift. There are a million different choices here, both for use in the classroom and outside school. You could purchase an educational set of DVD's that he or she might have had her eye on for a while, or a new CD player for the classroom. Think music as a background for creative writing and put some tunes on a CD for the teacher.

The key to getting a great gift for your child's teacher is to not wait until the last minute to start thinking about it! While the decorated coffee mugs and apple-themed gifts are appreciated, it's also nice to get something unique (and special) once in a while.

Electrical Training With Apprenticeships

Electrical training is generally a combination of classroom and hands-on training, often under the auspices of labor union apprenticeship programs that last for several years. While there are some basic classes for do-it-yourselfers that are short and sweet, most electrical training does not happen overnight. It's one of the most responsible trades, and can be fraught with safety problems if you do not have the right training. In order to undertake the schooling you must be committed to the program and to pursuing the career of electrician.

Electrical apprenticeship training is physically tough as well as mentally rigorous. You must be able to do extensive climbing on scaffolding and ladders, pulling of wiring and ropes, crawling around floors and rafters and under crawlspaces, crouching, and working in quarters that are bound and cramped.

To complete electrical training satisfactorily you'll need to be able to lift up to 50 pounds frequently. Your ability to follow very detailed instructions must be top notch. You can not be color blind, as wiring is generally keyed by color. You may be working outdoors intensively so the ability to withstand the elements for long periods is a requirement as well.

Satisfactory completion of apprentice electrical training is no dead end. In fact, the only restrictions on your electrical career are your ambition and your imagination. Of course, your ability is a factor as well, but completion of a satisfactory five year apprenticeship speaks well to that.

Apprentices can continue their work as journey level electricians. They can continue their education and gain further hands-on experience and progress to foreperson, superintendent or even a self-employed contractor. Many current electrical and construction contractors in their own successful businesses began their electrical training as apprentices.

One of the areas of electrical work, and one that the electrical training focuses on intensively is that of installation and maintenance of such automatic controls as electronic circuitry for industry.

Apprentices, once graduated, can go on to government work, either with their local municipality, their county, state or the US government. They can also take on some supervision and administrative roles with their own labor union. Study, experience, and continued electrical training are the makings of union leadership. Labor-management relationships may be a specialization for those who immerse themselves in electrical training and show themselves to have skills in communication and diplomacy.

Being selected for labor union electrical training is not easy. The unions are selective about who they choose. Candidates must be of good character and most demonstrate an aptitude for electrical work, the motivation to complete the training and go on to a successful electrical career and they demonstrate that they have the personality to work well with others, take direction, and relate well with customers. All electrical training candidates who pass the preliminary application process must then be interviewed by union representatives and electrical employees. If they do not have an impressive school record, they can not show that they have math and science aptitude and have not been able to prove their reliability they will not be for the apprentice electrical training program.