Gold's long-term returns

Although gold like any other commodity, experiences periods of, sometimes very strong volatility, over the long term the returns are spectacular. Over five years to the end of 2008, in dollar terms, it is up by 102% and by a massive 195% over the past decade.

Rather unfortunately, back at the turn of the century, Gordon Brown, when he was Chancellor, disposed of half the UK's reserves when the price of bullion was at a severe low. The move was later, unflatteringly dubbed 'Brown's Bottom', amongst dealers.

The first pure gold coins were struck by King Croesus of Lydia (present-day Turkey) during his reign between 560BC and 547BC – and gold coins have continued as legal tender ever since.

Gold is widely viewed, as the 'ultimate safe haven' for investors. It is liquid, so easy to sell and buy, it works as a currency hedge and always has supply issues - mining output peaked in 2003 - and short supply, typically leads to high demand.

Many experts believe gold has further rises in store. For example the Dallas Commodity Co., anticipates an average price of $1,200 per Troy ounce this year.

How to invest in gold

Gold was the clear winner again in 2008 - trouncing all other asset classes for the second consecutive year and the third time since 2005.

And in mid-February 2009, the gold prices hit a seven-month high, reaching $973.20 an ounce.

In February 2009, Gary Dugan, of Merrill Lynch Global Wealth Management, said: 'The unprecedented fragility of confidence is forcing investors back into safe havens, with gold the top beneficiary.

'It looks as if we will see a test of the $980-990 resistance very soon.'

UK investors would have seen a £1,000 invesment grow to more than £1,400, in 2008, according to BullionVault, a gold dealer.

Notably over the same period the FTSE 100 index of the UK's top firms collapsed by 31%.

However, investors need to remember that gold's rise over the year was largely dependent on the pound tumbling in value against the US dollar, the currency gold is priced in. So, in dollar terms gold rose by just under 4% in 2008.

TOPWRAP 1-Brown, Merkel urge tighter global banking supervision

British Prime Minister Gordon Brown called for more rigorous supervision of the global banking system on Saturday, a day before EU leaders meet to thrash out ways to tackle the financial crisis.

German Chancellor Angela Merkel urged European Union states to work together to deal with the downturn, telling the Hamburger Abendblatt newspaper: 'We are working intensively on new rules for the international financial markets.'

Brown, speaking at his ruling Labour Party's National Policy Forum, called for the global mandate of international institutions to be beefed up to deliver growth and jobs.

'I want us to do what was advocated by our country years ago. To have global supervision of what is a shadow global system. I want there to be no hiding place for special investment vehicles, for hedge funds or tax havens,' he said.

'Because this is a worldwide problem of banking failures we are now looking with our other colleagues internationally at how across all parts of the world we can bring under supervision what is an international shadow banking system.'

Brown had tough words for the bankers whose dodgy lending practices and bonus culture brought the international financial system to the brink of collapse.

'Some practices are indefensible and they have got to be cleaned up now. It's time to set new rules for the banks of all countries,' he said.

Brown said the government was exploring legal avenues to recover some of the payouts given to bank executives who quit their jobs when their institutions were bailed out with state funds last year.

In Germany, Europe's biggest economy which is facing its worst recession since World War Two, Merkel has long called for tighter supervision of financial markets.

'We need a global financial architecture that is transparent. The origin and value of certificates, derivatives and other securities have to be traceable,' she said.

Sunday's EU summit will try to overcome differences on how to tackle the financial crisis that has placed the euro under unprecedented strain. However, no major decisions are expected.

The crisis has highlighted fundamental differences between economies in the eurozone with some countries, such as Ireland, seeing their deficits balloon.

Ireland's Finance Minister Brian Lenihan said on Saturday the country would take further measures to shore up its banking sector and executives would see their pay capped.

PROTECTIONISM

Leaders of the 10-member ASEAN (South East Asian Nations), meeting in Thailand, vowed to work with the G20 developed and developing nations on reforming global financial institutions.

Britain will host a meeting of G20 leaders on April 2.

ASEAN leaders have agreed to ease monetary policy and resist protectionism as the financial crisis batters their export-dependent economies, according to a draft statement to be issued at their summit on Sunday..

Critics argue while ASEAN leaders have argued against protectionism in world trade, they have defended their own buy-local campaigns saying they are consistent with trade rules.

In the European Union, core values such as a commitment to open markets and help for poorer member states risk losing out to pressure on governments to protect their national industries.

With President Barack Obama bracing the U.S. budget for more spending to halt the downturn, leaders such as France's Nicolas Sarkozy have said Europe should be ready to follow suit.

'If the United States defends its industry ... maybe in Europe we can do the same,' he said this week.

Sarkozy has come under fire since France proposed a 6 billion euro ($7.61 billion) state loan for carmakers Renault and Peugot-Citroen in return for what has been characterised as an unwritten pledge not to close facilities in France during the loan period.

But the European Commission, which monitors state aid rules in the EU, said on Saturday it was satisfied with guarantees set out by France and that the plan did not amount to protectionism.

Popular anger at rising unemployment has led to protests and riots across Europe. Latvia's government collapsed last week after a wave of protests. Greece, Bulgaria and Lithuania have witnessed riots.

Karachi Stock Exchange

History

History Karachi Stock Exchange is the biggest and most liquid exchange and has been declared as the “Best Performing Stock Market of the World for the year 2002”. As on May 30, 2008, 654 companies were listed with a market capitalization of Rs. 3,746.203 billion (US$ 56.334 billion) having listed capital of Rs. 705.873 billion (US$ 10.615 billion). The KSE 100TM Index closed at 12130.51 on May 30, 2008.

KSE has been well into the 4th year of being one of the Best Performing Markets of the world as declared by the international magazine “Business Week”. Similarly the US newspaper, USA Today, termed Karachi Stock Exchange as one of the best performing bourses in the world.

Growth

The KSE is the biggest and most liquid exchange in Pakistan and in 2002 it was declared as the “Best Performing Stock Market of the World” by “Business Week”. As of December 20, 2007, 671 companies were listed with the market capitalization of Rs. 4364.312 billion (US$ 73 Billion) having listed capital of Rs. 717.3 billion (US$ 12 billion). On December 26, 2007, the KSE 100 Index reached its ever highest value and closed at 14,814.85 points.

Foreign buying interest had been very active on the KSE in 2006 and continued in 2007. According to estimates from the State Bank of Pakistan, foreign investment in capital markets total about US$523 Million. According to a research analyst in Pakistan, around 20pc of the total free float in KSE-30 Index is held by foreign participants.

KSE has seen some fluctuations since the start of 2008. One reason could be that it is the election year in Pakistan, and stocks are expected to remain dull. KSE has set an all time high of 15,000 points, before settling around the 14,000 mark.

Karachi stock exchange Board of Directors has recently (2007) announced plans to construct a 40 story high rise KSE building, as a new direction for future investment.

Disputes between investors and members of the Exchange are resolved through deliberations of the Arbitration Committee of the Exchange.

KSE began with a 50 shares index. As the market grew a representative index was needed. On November 1st, 91 the KSE-100 was introduced and remains to this day the most generally accepted measure of the Exchange. Karachi Stock Exchange 100 Index (KSE-100 Index) is a benchmark used to compare prices overtime, companies with the highest market capitalization are selected. To ensure full market representation, the company with the highest market capitalization from each sector is also included.

In 95 the need was felt for an all share index to reconfirm the KSE-100 and also to provide the basis of index trading in future. On August the 29th, 95 the KSE all share index was constructed and introduced on September 18, 1995.

What is Risk really?

Risk is composed of a two values - an intrinsic value and a time value. The intrinsic value is the amount of money that you have available to invest - the more money you have, the more risk you are able to absorb. This is a relativity concept that is motivated by being able to accept a greater level of loss when a larger monetary base is available.

For example, compare the loss of an investment of $10,000 to someone that has $1,000,000 in cash against someone that has only $50,000. Clearly, the person with more money is less affected by the loss of the investment than the person with less money. This is because the person with the higher capital base (the assets they own) is able to absorb more risk than someone with a smaller capital base and therefore have the ability to take a higher level of risk on this investment.

The time value of risk is that amount of time that you are able to keep your money invested. For instance, if you require your money in 6 months in order to fund a new business - investing in high risk securities may not be the most advisable course of action � equally, if you don't need your money for another 10 years it might be worth investing in. The riskier an investment is, the higher the volatility or price movements of the investment are. In short spans of time, these high price movements may mean losing a significant amount of your initial outlay - conversely across a long period of time these price movements may become less variable and therefore a greater investment return can be made.

10 Tips to Eliminate Risks

Investment planning is almost impossible without a thorough understanding of risk. There is a risk/return trade-off. That is, the greater risk accepted, the greater must be the potential return as reward for committing one’s funds to an uncertain outcome. Generally, as the level of risk rises, the rate of return should also rise, and vice versa.

By combining the investment information and trading tips below, you will virtually eliminate any risks of losing all your trading capital and should be able to make excellent profits from trading:

1. Follow the 2% Rule

Never risk more than 2% of your trading capital on a single trade. Smaller accounts between $5,000 and $10,000 may have to go slightly higher.

2. Stop Loss Orders are Your Friend

Always use Stop Loss Orders to protect capital whenever you make a trade, and move them to protect profits. Most traders don't really use stops properly. Anyone who trades with a tight stop will be stopped out in a normal market retracement. Stops should be placed at least 2 standard deviations from where the market is. They should also be placed using a higher time frame.

If you trade using daily data, look at weekly data to place your stop. Stops should not be moved when the market gets close them. Too many traders place stops then don't want to take a loss and keep moving their stops as the market gets closer. Stops should also be used in order to not let a winning position get away from you. In a trending market they should be moved with the trend, this will eventually lock in some profits. Even if you don't like to place stops, you should have a predetermined point at which you'll get out of the market, stops help you do this.

3. Never Over Trade

Many traders over trade with undercapitalized accounts. Traders often try to carry too big a position relative to their available capital, and trade too frequently for the size of the account.

4. Protect Your Profits

Never let a profit run into a loss. As soon as a trade becomes profitable, move your stop loss to lock in profits.

5. Cut Your Losers

Many traders can't (or don't) take the small losses and admit they are wrong. They often stick with a small loser until it really hurts, then take the loss.

6. Follow the Trends

Always go with the trend, unless you are positive it is over. Trading against the trend is a common mistake, especially without reasonable stops.

7. "When in Doubt, Get Out"

If you are unsure of the market position, it is safest to exit with a guaranteed profit or small loss.

8. Volume is Needed

Avoid stagnant and volatile markets and trade in markets that are trending with a daily volume of at least 100,000 plus. These markets will result in bad fills, limit moves and erratic price movements usually against your position, which results in your stops being blown through.

9. Diversify

How many times have you heard this? You must diversify your investments and portfolio. Trade in a variety of different markets to spread risk.

10. Create a Surplus Account

This is one of the most important tips. When you have made some profits, place them here to use only in an emergency.

What are the different types of risk?

There a number of differing types of risk that can affect your investments. While some of these risks can be reduced through a number of avenues - some of them simply have to be accepted and planned for in any investment decision. On a macro (large scale) level there are two main types of risk, these are systematic risk and unsystematic risk.

• Systematic risk is the risk that cannot be reduced or predicted in any manner and it is almost impossible to predict or protect yourself against this type of risk. Examples of this type of risk include interest rate increases or government legislation changes. The smartest way to account for this risk, is to simply acknowledge that this type of risk will occur and plan for your investment to be affected by it.
  
  
• Unsystematic risk is risk that is specific to an assets features and can usually be eliminated through a process called diversification (refer below). Examples of this type of risk include employee strikes or management decision changes.

While these are the macro scale levels of risk, there are also some more important micro (small scale) types of risks that are important when talking about the valuation of a stock or bond. These include:

• Business Risk - The uncertainty of income caused by the nature of a companies business measured by a ratio of operating earnings (income flows of the firm). This means that the less certain you are about the income flows of a firm, the less certain the income will flow back to you as an investor. The sources of business risk mainly arises from a companies products/services, ownership support, industry environment, market position, management quality etc. An example of business risk could include a rubbish company that typically would experience stable income and growth over time and would have a low business risk compared to a steel company whereby sales and earnings fluctuate according to need for steel products and typically would have a higher business risk.
  
  
• Liquidity Risk - The uncertainty introduced by the secondary market for a company to meet its future short term financial obligations. When an investor purchases a security, they expect that at some future period they will be able to sell this security at a profit and redeem this value as cash for consumption - this is the liquidity of an investment, its ability to be redeemable for cash at a future date. Generally, as we move up the asset allocation table - the liquidity risk of an investment increases.
  
  
• Financial Risk - Financial risk is the risk borne by equity holders (refer Shares section) due to a firms use of debt. If the company raises capital by borrowing money, it must pay back this money at some future date plus the financing charges (interest etc charged for borrowing the money). This increases the degree of uncertainty about the company because it must have enough income to pay back this amount at some time in the future.
  
  
• Exchange Rate Risk - The uncertainty of returns for investors that acquire foreign investments and wish to convert them back to their home currency. This is particularly important for investors that have a large amount of over-seas investment and wish to sell and convert their profit to their home currency. If exchange rate risk is high - even though a substantial profit may have been made overseas, the value of the home currency may be less than the overseas currency and may erode a significant amount of the investments earnings. That is, the more volatile an exchange rate between the home and investment currency, the greater the risk of differing currency value eroding the investments value.
  
  
• Country Risk - This is also termed political risk, because it is the risk of investing funds in another country whereby a major change in the political or economic environment could occur. This could devalue your investment and reduce its overall return. This type of risk is usually restricted to emerging or developing countries that do not have stable economic or political arenas.
  
  
• Market Risk - The price fluctuations or volatility increases and decreases in the day-to-day market. This type of risk mainly applies to both stocks and options and tends to perform well in a bull (increasing) market and poorly in a bear (decreasing) market. Generally, the more volatility within the market, the more probability there is that your investment will increase or decrease.