What I’d like to do in this post is to share with you my experiences of investing in a highly undiversified manner.
The motivation behind this lack of diversification is partly through circumstance and partly through active choice. The major company I have invested in went through a period at the end of last year when the share price collapsed to half the value it is today. Since I felt such a move was completely unwarranted I made the decision to throw everything I had left at the company which is a decision that has been vindicated by the subsequent correction back to more normal, but in my mind still suppressed, level. However, there wasn’t actually an awful lot left before I made this move so the decision to work with such a small level of diversification was by no means a move entirely forced upon me by circumstance. So why did I do it and put myself in this position?
Essentially the plan was very simple… I believe that it is only possible to beat the markets is by being highly selective and by picking the very best companies to invest in. Unfortunately, this means that I can only invest in a few companies every year. In time I hope that I’ll be able to profit from my current investments, let half run indefinitely and then re-invest half elsewhere and in doing so build up diversification a piece at a time. By investing this way I only invest in what I deem to be truly great companies and over time I’ll hopefully be diversified with a range of mature and successful companies. This way I hope to avoid making the mistake of the mediocre. If you like this is my version of Buffett’s suggestion that all investors should only be allowed to make 20 investment decisions in their lifetime and is supported by Munger’s admission that most of Berkshire’s profits have come from a few of their very best investments.
Such a plan has benefits that I identified through the mistakes made with previous investments. Some of these investments did not go that well because I was too busy trying to do too much and unable to devote the time necessary to understanding each company I was investing in. This meant that there were key details I was missing that with hindsight I realised I would have spotted had I devoted enough time to analysing these companies. Sometimes these key details were able to significantly affect the value of the company so missing them was a serious concern. Thus I am happier with the way I invest now where I can devote more time to each company I invest in.
The other concern I had was that when I found good companies I was not fully profiting from them due to my desire to ‘book the profit’ by selling up. I’ve invested a total of £28,000 of capital to date and based on current market values if I had retained a 50% stake in the companies I said I would have retained a 50% stake in I would be almost £6,000 better off, whilst examples where I did not say I would do this, but would do now would similarly have been profitable moves. As such I feel that as important a part of this strategy as devoting more time to each company is the decision to maintain a holding having sold up a proportion of my holding, ideally equivalent to at least the original cost of the total holding. The part sold up is used to invest elsewhere and hopefully repeat the same trick again, whilst that holding can provide long term profits from a productive business.
There is one obvious drawback to this method and that is that if I get things wrong or make a mistake then the costs will be substantial. This risk is heightened by the fact that I invest predominately in young, innovative companies, but lessened by the attention I give to each company. This drawback I am personally comfortable with, considering the risks involved to be worthwhile given the confidence I have in my own abilities.
A drawback I am less comfortable with, however, is that this method whilst I hold so few companies makes me more emotionally attached to each one than perhaps I am comfortable with. Whilst this does mean I devote more time to them as I worry and fuss over their future, especially right now when the main holding I have is under threat by an unwanted and hostile approach. Typically this would not be of much concern, and admittedly I remain happy with my approach (although I have altered my plans to speed up diversification), but since this is a takeover approach that is making full use of a campaign to tarnish the image of my main holding I have become aware of uncomfortable risks that I cannot fully account for.
I took this approach after much thought and contemplation about how I could reduce the number of bad investments I was making and this did seem like an ideal approach. I only recently added the second clause whereby I would retain a 30-50% holding in all companies I invest in indefinitely unless there was a clear business rational to do otherwise and had I carried this out earlier then I would currently be in a slightly more diversified and hence slightly more comfortable situation. With this clause added I’m happy that over time this can lead to a more traditional investment position that does not also include all the drawbacks that had previously plagued my decisions.
Having a low credit score can make life pretty stressful. It can be difficult to cope with your daily finances when you are basically saddled with the fallout from bad decisions you have made in the past. But although it can be difficult, it is possible to rebuild your credit score with time and diligence. Here are some of our suggestions on the best way to go about this:
Living without credit from day to day can be difficult in the modern world. Bills have a habit of cropping up when they are least expected or welcome. There are always going to be times when you need a helping hand to balance out your finances. However, if you are trying to bring about a better credit score, certain forms of finance, like payday loans and credit cards are out – instead, think about joining your local credit union. Credit unions are set to expand massively in response to the public’s general disillusionment with banks. There, you will be able to access affordable credit, and as you manage that credit responsibily, so your score will begin to nudge up.
The next tip has been mentioned many times before,but it nonetheless bears repitition. Check your credit report carefully because it is certainly not uncommon for these reports to contain errors which can have a damaging effect on your ability to source finance. Make sure any errors are rectified immediately.
If you have existing debts on, say, a credit card or personal loan, do everything you can to keep up repayments, no matter how difficult this may be. If necessary, simply make the minimum payments allowed until your finances improve. If you think you will struggle even to do this, you need to grab the bull by the horns and speak to your crditors about agreeing a reduced payment, even if this is simply on a temporary basis until your circumstances improve.
Another basic but effective tip to help get your finances back on track is to rip up your credit cards. This may seem a bit theatrical, but it works. If those cards are in the bin, you can’t use them no matter how sorely tempted you may be.
There are so many different choices available these days when it comes to choosing a loan service for the purchase of a new vehicle. These include traditional finance choices such as banks, dealerships, specialist lenders and even family and friends.
Regardless of where you end up obtaining your vehicle loan from, and as you can see there are plenty of options, there are a number of mistakes that you ought to be wary of making, so you can avoid any unpleasant issues :
Not being aware of how much cash you have at your disposal
A commonplace error is trying to buy a car to purchase without knowing precisely how much you have available to spend. This does not need to be worked out to the very last penny, but you need to know to, say, the nearest £100 or $100 how much you can afford. In a nutshell, you have to quantify exactly how much you are willing to spend, and having done so, do not depart from this figure. People can get very emotional about cars and its important when considering finance to try to be detached and careful. Overextending yourself money-wise , can cause grave problems as time goes by, so don’t fall into this trap.
Not going ahead with a short-term vehicle loan
While some assets like property usually appreciate in value over time, the opposite is the case with cars. The valuation of virtually all cars will fall at a rapid pace. As a result , it does not make sense to be stuck paying off a car loan for more than a few years maximum .Instead, it’s preferable if possible to pay a large down payment at the start, and seek out deals that come with a higher regular instalment amount. This way you will actually end up paying less overall because the term of the loan is that much shorter.
Not haggling over the price
Should you find yourself in a vehicle showroom, and you are offered a loan, then you are well within your rights to think about negotiating for a better deal. There is no need to be embarrassed about trying to drive a hard bargain. In those circumstances, you should be all set to walk away if the arrangement isn’t to your liking , as there are plenty more choices out there .
Not checking out a variety of lenders
Checking out automobile loan companies on the internet is very often a very effective method to get approved with the bare minimum amount of hassle. When researching on the net, make certain you get the relevant data from a few lenders, so you end up with a few quotations and can at that time to choose the best deal for your circumstances. In today’s economy all lenders should be competing hard for your business, so take advantage of this when you come to look for that new dream car.
Often, small business owners will say that they thought credit has no effect on receiving a small business loan. There may have been a degree of truth in this once upon a time, but doing business post the credit crisis is no fairytale. While credit has minimal effect in receiving funding from a merchant cash advance company, it still does play some part; however, it is far less strict than traditional bank loan programmes.
An underwriter checks to see if the merchant has any major debt that he owes, and if he does, is he on some sort of payment plan or dos he have some other established verifiable means of ensuring payment on time? Many times these are issues that the underwriter and the merchant are able to get around – and in rarer cases, the lender will have to pass up on the merchant’s business.
This type of small business loan can amount to an extremely risky proposition on the lenders part . Lenders are dealing with restaurants, retail businesses, and auto repair centres and other small firms which have a high rate of defaulting to begin with. Coupled with poor credit, it is surprising, that there are small businesses which lenders are still able to loan money to.
Before asking your lender this question ask yourself this: If I were a lender, would I lend to my business?
Following the worlwide recession at the end of the last decade, banks around the world slashed interest rates in an attempt to stimulate growth. Other methods followed, such as finacial stimuli – effectively printing money - and the commissioning of large infrastructure projects, but still the problems persist.
However, one legacy of these attempts to stimulate the economy into recovery is that interest rates remain at an all time low, which is fantastic news for borrowers who find themselves being able to access mortgage funding at the most competative rates. As a result, many people are choosing to lock into these low rates by agreeing to fix their mortgage for two, three or even five years.
When it comes to picking the best mortgage out there, the choice of deals on offer has never been greater and to make sure you are getting the best possible deal it really does pay to seek out the advice of a specialist financial adviser. That is part of their business after all – to keep up to date with what’s happening in the mortgage market, so that they can steer their clients in the right direction. By all means you could contact a bank or building society direct, but bear im mind they will only recommend their own products. Using an intermediary allows you to pick and choose from the whole mortgage market.
One other advantage of using an experienced financial adviser to source your mortgage is that they are likely to have developed good working relationships with a number of lenders locally, which may mean that they are able to secure fundsuing for you even if you fall short of some of the lenders strict criteria. Given that high street lenders have been imposing ever more strict conditions on the grant of mortgages, this may often be reason enough to use a financial adviser’s service, rather than trying to go it alone.
Are you looking to obtain a small business loan for your business? You probably have been to your local banks already and they either declined you or are engaging you in a long drawn out underwriting process. If you are in the service industry then you can probably forget about it. If you haven’t been in business for at least 10 years as well then well you probably won’t qualify either. In fact if your credit isn’t immaculate then you’ll be hard pressed.
This unfortunately is the forecast today despite the fact that the government has invested billions in bailing out banks and financial institutions. Unfortunately banks still haven’t really “bounced” back. There are new banking regulations that limit banks in numerous ways, but some even think the financial institutions are going back to their old ways and this could mean a further financial crisis in the future. The interesting thing is that over half of the UK’s and America’s workforce is made up of small businesses. Despite this fact, banks make the majority of their loans to large firms and businesses.
Businessloansmall.org specializes in examining alternative funding for all types of businesses, young and old, who are looking to expand, purchase new inventory, pay off bad debt, or just get some extra working capital into their business. Since banks aren’t giving out business loans, this type of alternative financing is a necessity for any business who needs extra capital. We specialize in identifying outward looking financial institutions such as companies like Blue Sky Loans who are prepared to take a different approach to the funding needs of small businesses . In addition we provide advice on alternative financing such as equipment leasing, asset based lending and merchant cash advances.
As in all financial and business matters, companies need to decide if a business move is right for them. Traditionally, because unsecured lending is just that, unsecured, it is more expensive then a traditional bank loan. The reason for this is because products such as merchant cash advances are much riskier than a business loan from a bank. A product like a merchant cash advance is geared towards short term lending, usually between 6-12 months – not 10 years. In addition the unsecured factor means that there is no collateral attached to the advance. This means that if the business fails, the lender looses his entire investment. Most bank small business loans are attached to collateral such as the the business owner’s house or other assets.
There is a process involved in obtaining a small business loan from a business cash advance program, and this process is clearly outlined in the following pages. The process is minimal in comparison to traditional bank loans, and funding is usually obtaining within 5 – 10 business days. Merchants are encouraged to be patient in the process, as sometimes many unforeseen issues arise during the funding process. Most importantly, merchants must understand that it is in the best interest of the merchant cash advance representative to fund the business. Additional paperwork may be required down the line that was not required initially in order to fund the deal, and this may be asked up to the last second before funding. The most important part of the process is to produce the documentation so that funding can take place.
To qualify for a small business loan, most lenders will require that the merchant has been in business for at least 6 months, and has processed credit cards for 6 months. Most businesses that receive funding by this specialized form of financing are restaurants and retail shops – however just about any business that processes credit cards can potentially qualify. The qualification process is free with most companies. Personal credit does not play an especially important role to receive a small business loan, provided that there aren’t numerous outstanding issues.
Many times, business owners with tax liens and past due creditors still get funded, and so this should not dissuade a merchant from attempting to obtain a small business loan. Since the merchant cash advance involves private lenders, what one lender might not fund, another will.
Most lenders request at least the last 6 month’s merchant processing statements, the last 3 month’s bank statement and a filled out application. The lender’s underwriting office will generate numbers based on past sales, projecting into the future, and also based on the business’s bank statements and cash flow.
The underwriting process when obtaining a small business loan from a merchant cash advance company is quite minimal in comparison to other bank loan products. The underwriter pulls the merchant’s personal credit and if the credit is below 500, then the merchant most likely will not be able to receive a traditional advance. He may however, qualify for a starter program.
At this point, we suggest that the merchant be fully honest and open about all outstanding issues the business may have – whether that be past due creditors, tax liens, and late lease/mortgage payments. All of these issues will be discovered by all underwriters, and thus it saves time in the beginning to discuss all these issues. Furthermore, a merchant cash advance company is a private lender – and trust is a major issue when developing a relationship. These types of issues can be overcome if discussed in the beginning of the process.
Once the underwriter has fully underwritten the file he will produce for the merchant a range of numbers for the requested amount of money. Usually the cost of the money ranges between 1.25 to 1.50 the original amount, and the holdback percentage can range typically from 5% to 35% depending on the advance. (To read about a cautionary note regarding different underwriting procedures click here!) Every file is unique though, and merchants may qualify for more or less.
The monthly Visa/MasterCard sales is the largest factor that effects the maximum amount of money the merchant can receive from the merchant cash advance company. Gross sales in comparison to Visa/MasterCard sales are probably the next largest factor that can effect the maximum amount of funding the merchant can obtain. If the merchant’s Visa/MasterCard sales only make up 20% of the business, then the lender may be more inclined to advance a larger amount of money because cash flow will not be harmed if the lender takes a larger portion of the Visa/MasterCard sales.
Contracts and additional Documentation
Once underwriting has completed their work, a program is produced for the merchant of what the maximum funding amount is. Usually, the underwriter will tailor a program geared towards the initial requests of the merchant (if possible). The cost of the money will range for different programs. A merchant can expect to pay a factored amount anywhere between 1.25 to 1.50 on the requested money.
A small business loan from a business cash advance company usually expects to complete payment within 5 – 9 months. The reason for this is because the lender is dealing with high-risk businesses and unsecured money. Merchants must remember that these companies are not banks, and the loan is not attached to any collateral or any personal guarantor. Shorter programs will have relatively higher hold-back percentages (the percentage taken from the Visa/MasterCard sales) but the money itself will be cheaper. For a longer program, the hold-back percentage will be relatively lower, but the cost of the money will be higher.
Once the merchant and the lender agree on numbers, contracts are drawn and some additional information is required from the merchant. Usually this includes a lease more most recent mortgage statement, drivers license of all owners on the contracts, a voided check, month to date processing, a business certificate, and a franchise agreement if applicable. Also, a Profit Loss and Balance Sheet may also be required for funded amounts over a certain amount.
There may also be a clause in the contracts for a fee, usually ranging between 2.5% – 5% depending on the merchant’s file.
The step before the final funding, is the method in which the lender will collect the percentage of Visa/MasterCard sales. Most lenders prefer to switch over the merchant’s processor to one of their preferred processors. A business cash advance lender will have a relationship with certain processing companies that allow them to perform “split processing.” In this method, a merchant will batch out of his machine at the end of the day, and the processing company will deliver the required percentage of Visa/MasterCard sales to the lender, and the remaining due percentage to the merchant’s bank account. Most times, competitive lenders will be able to match, if not beat merchant’s current rates with their processing companies.
Other methods including Automated Clearing House (ACH) and Lockbox (sweep account).
After contracts have been signed, and the merchant processor has been switched over, the lender usually likes to see that the merchant has been processing for at least one day before funding the business. During this time, the underwriting will check trade references, landlord references or mortgage contacts, and franchise contacts if applicable. Some lenders are able to provide funding to merchants who are one month behind rent or their mortgage. This is usually the most important reference that the underwriter requests, and thus all issues with landlord and mortgage companies should be discussed before the underwriting process begins. Once everything checks out, the underwriter will ACH or wire the money to the merchant’s bank account. Only once the money deposits into the merchant’s bank account does the lender begin to take his percentage of the Visa/MasterCard sales. This completes the small business loan transaction.
Note: Many lending companies can provide merchants with additional capital even before they complete paying back the original funded amount