Business Skills

Below are articles on business-related skills needed to start and run your own business.

Word of the Day: Investment: Envisioning the Future and Taking a Risk

Definition

An Investment can be the use of money or capital in order to gain profitable returns, as interest, income, or appreciation in value.

An investment can refer to a particular instance or mode of investing.

An investment can be a thing invested in, as a business, a quantity of shares of stock, etc.

An investment can refer to something that is spent such as money, or tax refunds.

An Investment can be devoting, using, or giving of time, talent, emotional energy, etc., as for a purpose or to achieve something

To make a good investment requires two things, looking forward into the future and taking a risk.

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In 2018 we saw the ways in which businesses invested funds when the Trump Tax cuts became law. 

Foreseeing a need to keep their workforce steady, employers invested in pay raises.

Foreseeing a need for increased production they invested in their facilities which needed repairs, replacements, or additions, or hired new employees.

Foreseeing a need for future capital, they bought back outstanding stock to maintain their dividend rate, but pay out less dividends.

We make these types of decisions in our personal lives, whether it is obtaining further education, or purchasing a house or car or starting a new business we all look into the future to envision our lives there.

Legislators consistently use this term when they come to us with their visions of the future and ask us to spend (invest) our tax dollars for public projects and social prorams.

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All investments require some amount of risk taking. Did we see correctly into the future? If we have, the investment will increase our income, ease our lives, or solve a problem. If we did not foresee accurately we may lose income, create hardships or leave a problem unsolved. That is the risk we take.

Whether you are a investor, an entrepreneur, or a taxpayer, you are constantly evaluating investment opportunities presented to you by others. To make an investment you will need to be able to make reasonable assumptions about the future and then take a risk.

When we talk about trends in pricing especially as they relate to the stock market, you will hear the term Bull Market or Bear Market. The terms bear and bull are used to describe general actions and attitudes, or sentiment, either of an individual or the market. People generally think that the best time to start a business is at the beginning of a Bull Market and the worst time to start a business is at the beginning of a Bear Market. The problem is that it is hard to predict whether the economy will be better or worse in the future.

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Bulls think that good times are coming and stock prices and other prices will go up. Bears think that bad times are coming and stock prices will go down. Here is a picture of the Bear and Bull statues outside of the Frankfort Stock Exchange in Germany.

Here is an easy way to remember which is which. The terms “bear” and “bull” are thought to derive from the way in which each animal attacks its opponents. That is, a bull will thrust its horns up into the air, while a bear will swipe down. These actions were then related metaphorically to the movement of a market: if the trend was up, it was considered a bull market; if the trend was down, it was considered a bear market. Here is a one minute Youtube video explaining the difference between a bear and bull market.

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And here is an actual battle between a bull and a bear…

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Who do you think is winning? Here is a link to a one minute Youtube video of this classic duel.

 

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Below is a shorter graphic of this battle.

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Bear versus Bull… Who will win?.

Do you think our economy will be in a bull or bear market this year?

Why is the subject of economics deemed difficult and relegated to the upper echelons of today’s education system? We did not used to be afraid of this subject.

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In colonial times with only private systems of education which included home school, church, voluntary associations and philosophical societies, circulating libraries, apprenticeships and private study most of the young had a firm understanding of how the economics of their time worked by the age of 15 at which point they either were attending one of the few colleges available, or more likely apprenticed out or working in family businesses. Many of our founders were still teenagers or in their early 20’s when they signed the Declaration of Independence which would have profound impacts on their economic system.

Even going back just one generation most people had a basic understanding of our economic system upon leaving high school.
I attended an interesting talk yesterday at the NW Business Club by Dr. Hart Hodges from WWU Center for Economic & Business Research. He asked the group an interesting question: Why with all the technological advances we have made have we not been able to increase productivity?

The question made me think of a conversation I had recently with my daughter about the greatest lack she saw in their new hires at her company: The ability to think forward far enough to discern consequences.

This may be part of the answer to Dr. Hodges question. I am reading the book Economics in one Lesson by Henry Hazlitt. The conclusion of his first chapter is:

“The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”

One of the benefits of living in a developed country is that consequences are not as harsh as when you live in a developing country. Today, we rarely face the consequences of dying on a trek through the woods, or starving if we cannot be employed, or losing everything in a revolution. Anticipating consequences may be a lost art, but it is still a necessary art. Our young have the same ability to learn that they did in 1776. We just need to remember to teach them what they need to know.

This is the mission of SAVE: to bring back economic understanding so that each generation understands their relationship and connectivity to the economy; to purposefully discern and participate knowing their part of that vibrant economy. Join us in funding education for this forgotten but necessary art: The Art of Economics.

~ Lorraine Newman, SAVE Board Member

BARTER - NOUN

  1. the action or system of exchanging goods or services without using money.;”it will be paid for by a mixture of barter and cash”

synonyms: trading · trade · exchange · swapping · trafficking · business · commerce · buying and selling · dealing · haggling · negotiation

One of the reasons we formed SAVE was to draw the correlation between economics and people.  We believe an economy is simply an alliance between people for how they conduct the business of their daily lives. The simplest of these economic relationships is the barter system. I make something, say vegetables in a garden, — you make something else, say a watercolor picture, we trade and both of our lives are improved — More vibrant.  Because this system requires no currency it is the simplest of economic systems and exists everywhere.

barter1In today’s digital world the ability to barter has increased and allowed the average entrepreneur to enter the world of commerce and barter for their services and products.

barter2The next time you trade apples from your tree with your neighbor and in return receive a home baked apple pie, you have just participated in an economic system.  Yum. Yum.

INFLATION: A sustained, rapid increase in prices, as measured by some broad index (such as Consumer Price Index) over months or years, and mirrored in the correspondingly decreasing purchasing power of the currency. It has its worst effect on the fixed-wage earners, and is a disincentive to save.

There is no one single, universally accepted cause of inflation, and the modern economic theory describes three types of inflation:

(1) Cost-push inflation is due to wage increases that cause businesses to raise prices to cover higher labor costs, which leads to demand for still higher wages (the wage-price spiral),

(2) Demand-pull inflation results from increasing consumer demand financed by easier availability of credit;

(3) Monetary inflation caused by the expansion in money supply (due to printing of more money by a government to cover its deficits).

Have you heard rumblings in the media from politicians and economists about the threats of inflation? 

What is inflation? 

Why is it important to keep inflation in check?

What is the best way to ensure against inflation in a global economy?

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Inflation is considered a good thing when it’s driving up savings interest rates because the interest paid on personal savings increases individual purchasing power. The reverse is true when the interest charge on borrowing money is inflated and causes the cost of purchasing a home, a car, and financing business growth more costly; inflation eats up personal disposable income and increases financial risk.

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A strong dollar is one of the best ways to guard against inflation in America as confirmed by White House Economic Adviser, Larry Kudlow, in a recent interview with CNBC:

“ A strong dollar holds down commodity prices, gasoline prices are slipping, oil prices are slipping,” Kudlow said.

Value is the building block of an economy. It is the foundation upon which the economy is built and puzzled together one piece at a time. These pieces establish their value in relationship to one-another and build upon that like a puzzle or the links in a chain. Break one of the links, or attempt to force the puzzle piece where it does not belong and the foundation of your economy is weak. The stronger the links and the tighter the fit of the pieces; you have the makings of a vibrant economy.

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Developing an understanding of how you fit into this puzzle, how important you are to this link and to the foundation of the economy, is one of the first steps SAVE’s curriculum teaches.

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