Secrets of Business success

It all starts with your business plan

The business plan is your blueprint for success. It sets down your goals for the business, assists in analyzing the feasibility of a new business, explores the expansion of an existing business, defines your customers and competitors, and points out your strengths and weaknesses. It also details your plans for the future.

Develop the business plan yourself rather than hiring someone else to do the work. After all, it's your business. In some areas you may want to consult professionals for advice. Once the plan is developed, refer to it often. It should also be updated periodically, at least once a year.

Use the following basic outline to organize your own plan. There should be a separate paragraph with a heading that identifies each area you are discussing. It should be concise, factual, and easy to read.

1. Summary
* Business Description
o Name
o Location and plan description
o Product/service
o Market and competition
o Management experience/expertise
* Business goals
* Summary of financial needs and application of funds
* Earnings projections
2. Market Analysis
* Description of total market
* Industry trends
* Target market
* Competition
3. Products or Service
* Description of product line or service
* Proprietary position
* Comparison with competitors' products or services
4. Marketing Strategy
* Overall strategy
* Pricing policy
* Method of selling, distributing, and servicing products or services
5. Management Plan
* Form of business organization
* Board of Directors/Advisors composition
* Officers, organization chart and responsibilities
* Resumes of key personnel
* Staffing plan/number of employees
* Facilities plan/planned capital improvements
* Operating plan/schedule of upcoming work for two years
6. Financial Data
* Personal financial statements (previous 2-3 years), if seeking a loan
* Two-year financial projections
o Income statement (profit/loss statement)
o Balance sheets
o Cash flow
o Capital expenditures
* Explanation of projections
* Key business ratios
* Explanation of use and effect of new funds (loans, etc.)

Entering the global marketplace



Many small businesses are finding new markets in countries around the world. Exporting is potentially very profitable, but takes planning and commitment. There is help available to those businesses interested in exploring this option.



As in every new venture, you need to begin with a plan, in this case an international business plan. Your plan should include the following parts:



* Long term and short term goals

* Industry analysis

* Analysis of your product and company

* Marketing strategy

o Select the best countries for your product

o Identify customers

o Determine export method

o Find a distributor or agent

o Identify special product concerns such as packaging, labeling, conversion, etc.

o Plan delivery methods

o Develop pricing strategy

o Develop promotion plan

o Make customer service decisions including warranties, payment options, etc.

o Financial considerations Sales forecast

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Accrual Method
An accounting method under which income is subject to tax after all events have occurred which fix the right to receive such income and deductions are allowed when all the events have occurred to fix the obligation to pay the debt.

Aggregate Par Value
Aggregate par value is the par value multiplied by the number of authorized shares. This amount is important in determining initial fees and annual franchise taxes in many states.

Annual Meeting of Shareholders
Nearly all states require a corporation to hold an annual meeting of shareholders at which time directors are elected and other corporate issues are voted on.

Annual Report
A required annual filing in a state, usually requiring names of the directors (for corporations), members (for LLCs) and financial information. This term can also refer to an annual statement of business and affairs furnished by a corporation to its shareholders.

Apostille
Is a method of certifying a document for use in another country pursuant to the 1961 Hague Convention. With this certification by apostille, a document is entitled to recognition in the country of intended use, and no additional certification or legalization by the embassy or consulate of the foreign country where the document is to be used is required. An apostillized copy of the articles of incorporation or articles of organization is often required to open a bank account in another country for a US-incorporated business. Note, certain countries require a certified copy of the articles of incorporation/organization with an appropriate gold seal instead of an apostillized copy.

Articles of Incorporation
(Certificate of Incorporation or charter). The articles are the primary legal document of a corporation; they serve as a corporation's constitution. The articles are filed with the state government to begin corporate existence. The articles contain basic information on the corporation as required by state law.

Articles of Organization
LLCs must file the articles with the proper state authorities to begin existence. The articles of organization are very similar to a corporation's articles of incorporation.

Asset
Anything having commercial or exchange value that is owned by a business, government, institution, or individual. This can include stocks, bonds, real estate, equipment, a brand name, or the value of a company as an operating business, sometimes known as goodwill.

Assumed Name
A name under which a corporation conducts business that is not the legal name of the corporation as shown in its articles of incorporation. Assumed names (also called a fictitious name and Doing Business As or DBA) could be filed at the city, county or state level depending on state requirements. A corporation can use multiple assumed names.

Authorized Shares or Stock
The total number of shares a corporation is authorized to issue. This number is specified in the articles of incorporation. All of the shares authorized need not be issued to shareholders; the corporation can have unissued shares that can distributed at a latter time.

Board of Directors
The governing body of a corporation. Elected by shareholders, the directors are responsible for selecting the officers and their supervisory roles, and the general control of the corporation.

Business Entity
An organization that possesses a separate existence for tax purposes. Some types of business entities include corporations and limited liability companies.
Business Licenses
There are essentially two types of business licenses, general and special. A general business license, similar to a use tax, is assessed annually for the privilege of operating a business in the jurisdiction. A special license is one that is issued to a business that will provide products or services that require regulation. Special licenses are issued to professionals, such as doctors, lawyers, barbers, and others who have met a certain level of training or education.
Business Permits
State and local governments regulate the safety, structure, and appearance of the community through the use of local laws, called ordinances. Zoning ordinances, which regulate how property can be use, are a common type of ordinance. Once the jurisdiction determines that you have complied with such ordinances, it will issue a permit that will enable you to operate your business.

Business Plan
A written document that details a proposed or existing venture. It will typically explain the vision, current status, expected needs, defined markets, and projected results of the business.

Bylaws
Bylaws are the rules and regulations adopted by a corporation for its internal governance. It usually contains provisions relating to shareholders, directors, officers and general corporate business. The bylaws are adopted at the corporation's initial meeting.

Capital Gains or Losses
Gains or losses realized from the sale or exchange of capital assets. The amount is determined by calculating the difference between an asset's purchase and sale price.

Capital Stock
See Authorized stock.

Cash Method
An accounting method under which income is subject to tax when actually received and deductions are allowed when actually paid.

C Corporation
A C corporation is simply a standard business corporation. It is called a C corporation because it is taxed under subsection C of the IRS code.

Certificate of Authority or Application for Authority Is a document issued by the proper state authority to a foreign corporation granting the corporation the right to do business in that state upon filing an application of authority.

Certificate of Good Standing
A certificate issued by a state official as conclusive evidence that a corporation or LLC is in existence or authorized to transact business in the state. The certificate generally sets forth the corporation's or LLC’s name; that it is duly incorporated or organized and authorized to transact business; that all fees, taxes and penalties owed the state have been paid; that its most recent annual report has been filed; and, that articles of dissolution have not been filed. Also known as a certificate of existence or certificate of authorization.

Common Stock
The primary stock of a corporation. This stock gives shareholders the right to participate in management of the corporation and give the shareholder a proportionate share of the dividends.

Conversion
The process of converting a corporation to an LLC or converting an LLC to a corporation. Not all states allow this procedure, and the fees vary within the states that do.

Corporate Kit
A binder usually containing essential items for the routine maintenance and administration of a corporation. Corporate kits include sample minutes, resolutions and bylaws, stock certificates, a corporate seal, and stock ledger.

Corporate Record Book
Maintaining the proper records is very important to assure limited liability to corporate shareholders. The corporation should have a record book which contains a copy of the articles of incorporation, bylaws, initial and subsequent minutes of directors and shareholders meetings and a stock register.

Corporate Seal
A device made to either emboss or imprint certain company information onto documents. This information usually includes the company's name and date and state of formation. Corporate seals are often required when opening corporate bank accounts, distributing stock or conducting other corporate business.
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Delayed Effective Date
Certain states allow for a business to choose an effective date for when the business will officially be formed as a corporation or LLC in that state. For instance, a business owner submitting a formation order in November of 2004 can choose an effective date of January 1, 2005, when his company will be officially recognized as a corporation or LLC in that state.

Directors
Directors are elected by the shareholders. They manage or direct the affairs of a corporation. Typically, the directors make only major business decisions and monitor the activities of the officers.

Dissolution
The termination of a corporation's legal existence. Dissolution may be caused in many ways including, failure to file annual reports, failure to pay certain taxes, bankruptcy, or voluntary dissolution of the corporation by the shareholders and directors.

Dividend
A dividend is a distribution of money or property paid by the corporation out of the corporation's profits to shareholders. Dividend payments are subject to double taxation, the corporation pays tax on its profits and the dividend recipient must pay income taxes on the dividend payment, the same money is taxed twice. The directors of the corporation decide if a dividend payment is to be made.

Doing Business As (DBA)
A "DBA", also known as an "assumed name", is typically completed by making a filing at the county level where the business is located. This filing does not change the official name of the corporation; however, it allows the company to use additional names.

Domestic Corporation
A corporation is a domestic corporation in the state where it has incorporated.

Double Taxation
Corporations are treated as a separate legal taxable entity for income tax purposes. Therefore, corporations pay tax on their earnings. If corporate earnings are distributed to shareholders in the form of dividends, the corporation does not receive the reasonable business expense deduction, and dividend income is taxed as regular income to the shareholders. Thus, to the extent that earnings are distributed to shareholders as dividends, there is a double tax on earnings at the corporate and shareholder level. S corporations and LLCs are pass-through entities which are not subject to the double tax.

Equity
The ownership of a shareholder in a corporation.
Escrow
An account set up by a lender to which the borrower makes monthly payments for such obligations as real estate taxes, homeowners insurance, and private mortgage insurance. The lender disburses these funds on behalf of the borrower as the bills become due.


Fiscal Year
Any twelve-month period used by a business as its fiscal accounting period.

Federal Tax Identification Number
This is a number assigned to a corporation or other business entity by the federal government for tax purposes. Banks generally require a tax identification number to open bank accounts. The federal tax identification number is also known as the Employer Identification Number (EIN).

Foreign Corporation
A corporation is referred to as a foreign corporation in all states except for the state where it is incorporated. If a corporation is "transacting business" in a state other than where it is incorporated, it must register for a certificate of authority to transact business in the other state or possibly lose access to that state's courts and face fines.

Franchise Tax
Is a tax on the privilege of carrying on business as a corporation or LLC in a state. The value of the franchise tax may be measured by amount of earnings, total value of capital or stock, or by amount of business done. In some states, like California, the franchise tax is simply an income tax.

- H -

Holding Company
A corporation that owns a large number of shares in other companies. Holding companies use the voting rights that come with their shares to exert influence over the companies under them.
- I -

Incorporation
The act of creating or organizing a corporation under the laws of a specific jurisdiction.

Incorporator
The person or entity that prepares, files and signs the articles of incorporation.
Involuntary Dissolution
The termination of a corporation's legal existence pursuant to an administrative or judicial proceeding; dissolution forced upon a corporation rather than decided upon by the corporation.

IRS Form 1023
This form is used to apply for tax-exempt status with the IRS.

IRS Form 1120
This form is used to report the income, gains, losses, deductions, credits, and to figure the income tax liability of a corporation.

IRS Form 1120S
This form is used to report the income, deductions, gains, losses, etc. of a domestic corporation that has elected to be an S Corporation by filing Form 2553, and whose election is in effect for the tax year.

IRS Form 2553
This form is used to apply for S corporation status.

IRS Form 8822
This form is used to change your address on file with the IRS.

IRS Form SS-4
This form is used to apply for a federal tax ID number.

Judicial Dissolution
Involuntary dissolution of a corporation by a court at the request of the state’s Attorney General’s office, a shareholder or a creditor.

Limited Liability Company (LLC)
A business entity formed upon filing articles of organization with the proper state authorities and paying all fees. LLCs provide the limited liability to their members, and are taxed like a partnership, preventing double taxation. LLCs can be formed in every state.

LLC Kit
A binder usually containing essential items for the routine maintenance and administration of a limited liability company. LLC kits include membership certificates, an LLC seal and sample operating agreements.

LLC Seal
A device made to either emboss or imprint certain company information onto documents. This information usually includes the company's name and date and state of formation. LLC seals may be required when opening bank accounts, distributing membership certificates or conducting other company business.

Manager
An LLC may be operated by a group of managers who act much like a board of directors. If an LLC is to Controlled by managers this fact must be stated in the articles of organization.

Member
A member is a person or entity who is an owner of some or all of a LLC. The business decisions of an LLC are made by the members unless the articles of organization provide that the LLC will controlled by a manager or managers.

Membership Interest
A member's ownership of an LLC is represented by "interests" just as a partner has an interest in a partnership and shareholders own stock in a corporation.

Merger
A merger occurs when two corporations join together into one, with one corporation surviving and the other corporation disappearing. The assets and liabilities of the disappearing entity are absorbed into the surviving entity.

Minutes
A written record which details the events of the corporation. These records should be kept in the corporation's or LLC's record book.
- N -

Name Reservation
The name of a corporation or LLC must be distinguishable on the records of the state government. If the name is not unique, the state will reject the articles of incorporation or articles of organization (for LLCs). A name can be reserved, usually for 120 days, by applying with the proper state authorities and paying a fee.

No-Par-Value Stock
Stock with no minimum value. Most states allow no-par stock. If the stock is no-par stock then the amount of stated capital is typically an arbitrary amount assigned by the board of directors. Some states, though, assign a value of $1.00 to stock when filed as being no-par-value stock. Further, the value of capital for franchise tax purposes is determined by the state and this may result in higher franchise taxes in comparison with low par-value stock.

Not For Profit (or Nonprofit) Corporation A corporation organized for some charitable, civil or other social purpose which does not entail the generation of profits for shareholders. These corporations can apply for tax-exempt status at both the federal and state level. Not-for-profit corporations, also often called nonprofit corporations, must file not-for-profit articles of incorporation with the state.
- O -

Officers
The directors appoint officers. They manage the daily affairs of the corporation. A corporation's officers usually consist of a president, vice-president, treasurer, and secretary. In most states, one person can hold all of these posts.

Operating Agreement
An agreement among the LLC's members which govern the LLC's operations and the rights of its members. It is analogous to corporate bylaws.

Organizational Meeting
The initial meeting where the formation of the corporation is completed. At the organizational meeting a number of initial tasks are completed such as: the articles of incorporation are ratified, the initial shares are issued, officers are elected, bylaws approved, and a resolution authorizing the opening of bank accounts is passed.

Organizer
The person who or the entity that prepares, files and signs the articles of organization.
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Paid in Capital
A few states require corporations to have a specified amount of paid in capital prior to starting business. Broadly defined it is all the money and other property belonging to a corporation.

Parent Corporation
A corporation that owns a controlling interest in another corporation.

Partnership
A partnership is an association of two or more persons. In contrast to a corporation, a general partnership can come into existence without the need to file any formal papers with any state official. The owners of a partnership are personally and fully liable for all business debts; thus, personal property could be taken to pay business debts.

Par-Value
The stated minimum value of a share of stock.

Pass-Through Taxation
The income to the entity is not taxed at the entity level; however, the entity does complete a tax return. The income or loss as shown on this return is "passed through" the business entity to the individual shareholders or interest holders, and is reported on their individual tax returns. S corporations and LLCs are both pass-through tax entities.

Preferred Shares
A class of shares that entitles the holders to preferences over the holders of common shares, usually with regard to dividends and distributions of assets upon dissolution or liquidation.

Professional Corporation
A corporation which is organized for the purpose of engaging in a learned profession such as law, medicine or architecture. Professional Corporations must file articles of incorporation with the state which meet the state's requirements for professional corporations.

Proxy
If a shareholder can not attend a meeting, the shareholder is allowed to vote by proxy.

- Q -

Quorum
The minimum attendance required to conduct business at a shareholder or board of directors meeting. Usually, a quorum is achieved if a majority of directors are present (for directors meetings) or outstanding shares are represented (for shareholder meetings).

Registered Agent
The agent named in the articles of incorporation. The agent will receive service of process on the corporation and other important documents. The agent must be named in the articles of incorporation, and must be located in the state of incorporation or organization.

Registered Office
The office named in the articles of incorporation. The registered office must be where the registered agent is located, and need not be the principal office or place of business of the corporation.

Reinstatement
Returning a corporation or LLC that has been administratively dissolved or had its certificate of authority revoked, to good standing with the state of formation or qualification.

Resolution
A resolution is a formal decision of the corporation, which has been adopted by either the shareholders or the board of directors.

S Corporation
A corporation which elects subchapter S tax treatment. This tax treatment allows the corporation to avoid entity level taxation.

Section 1244 Stock
An individual investor in a corporation which meets the Section 1244 requirements is entitled to treat up to $50,000 (or $100,000 if filing a joint return) of losses on the 1244 section stock as ordinary losses.

Share
An interest in a corporation. The total ownership of a corporation is divided into shares of stock.

Shareholder
Any holder of one or more shares in a corporation. A shareholder usually has evidence that they are a shareholder; this evidence is represented by a stock certificate.

Sole Proprietorship
A business carried on by the owner as an individual. The owner of a sole proprietorship is personally and fully liable for all business debts; thus, personal property could be taken to pay business debts.

Stated Capital
The par value of shares multiplied by the number of shares outstanding.

Stock
An equity or ownership interest in a corporation, measured in shares. Ownership of shares is demonstrated by stock certificates.

Stock Certificate
A written instrument that shows ownership of shares in a corporation.

Stockholder
See shareholder.

Stock Transfer Book
A record book, also called a stock transfer ledger, which lists the owners of shares of stock in a corporation.

Subsidiary
A corporation that is either wholly owned or controlled through ownership of a majority of its voting shares, by another corporation or business entity.
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Tax-exempt Organization
Any organization that is determined by the IRS to be exempt from federal taxation of income. This determination is based off of IRS acceptance of Form 1023. A tax-exempt organization may be required to operate exclusively for charitable, religious, literary, educational or similar types of purposes.

Treasury Shares
Shares of stock which were issued and later acquired or bought back by the corporation.
Underwriter
A company that purchases shares of a corporation and arranges for sale of the shares to the general public.

Voluntary Dissolution
Action taken by shareholders, incorporators or initial directors to dissolve a corporation. Or action taken by members or organizers to dissolve an LLC. The process is completed by filing Articles of Dissolution with the Secretary of State.

Voting Rights
Rights of shareholders to vote their shares pursuant to provisions of state statutes, the articles of incorporation and the bylaws.

Withdrawal
The statutory procedure whereby a foreign corporation or foreign LLC obtains he consent of a state to terminate its authority to transact business there.

Rich Man, Poor Man
By Richard Russell

Making money entails a lot more than predicting which way the stock or bond markets are heading or trying to figure which stock or fund will double over the next few years. For the great majority of investors, making money requires a plan, self-discipline, and desire. I say "for the great majority of people," because if you're a Steven Spielberg or a Bill Gates you don't have to know about the Dow or the markets or about yields or price/earnings ratios. You're a phenomenon in your own field, and you're going to make big money as a by-product of your talent and ability. But this kind of genius is rare.

For the average investor, you and me, we're not geniuses so we have to have a financial plan. In view of this, I offer below a few rules and a few thoughts on investing that we must be aware of if we are serious about making money.

I. The Power of Compounding

Rule 1: Compounding. One of the most important lessons for living in the modern world is that to survive you've got to have money. But to live (survive) happily, you must have love, health (mental and physical), freedom, intellectual stimulation -- and money. When I taught my kids about money, the first thing I taught them was the use of the "money bible." What's the money bible? Simple, it's a volume of the compounding interest tables.

Compounding is the royal road to riches. Compounding is the safe road, the sure road, and fortunately anybody can do it. To compound successfully you need the following: perseverance in order to keep you firmly on the savings path. You need intelligence in order to understand what you are doing and why. You need knowledge of the mathematical tables in order to comprehend the amazing rewards that will come to you if you faithfully follow the compounding road. And, of course, you need time, time to allow the power of compounding to work for you. Remember, compounding only works through time.

But there are two catches in the compounding process. The first is obvious -- compounding may involve sacrifice (you can't spend it and still save it). Second, compounding is boring -- b-o-r-i-n-g. Or I should say it's boring until (after seven or eight years) the money starts to pour in. Then, believe me, compounding becomes very interesting. In fact, it becomes downright fascinating!

In order to emphasize the power of compounding, I am including the following extraordinary study, courtesy of Market Logic, of Ft. Lauderdale, FL 33306.

In this study we assume that investor B opens an IRA at age 19. For seven consecutive periods he puts $2,000 into his IRA at an average growth rate of 10% (7% interest plus growth). After seven years this fellow makes NO MORE contributions -- he's finished.

A second investor, A, makes no contributions until age 26 (this is the age when investor B was finished with his contributions). Then A continues faithfully to contribute $2,000 every year until he's 65 (at the same theoretical 10% rate).

Now study the incredible results. B, who made his contributions earlier and who made only seven contributions, ends up with MORE money than A, who made 40 contributions but at a LATER TIME. The difference in the two is that B had seven more early years of compounding than A. Those seven early years were worth more than all of A's 33 additional contributions.

This is a study that I suggest you show to your kids. It's a study I've lived by, and I can tell you, "It works." You can work your compounding with muni-bonds, with a good money market fund, with T-bills, or say with five-year T-notes.

Rule 2: Don't Lose Money. This may sound naive, but believe me it isn't. If you want to be wealthy, you must not lose money; or I should say, you must not lose BIG money. Absurd rule, silly rule? Maybe, but MOST PEOPLE LOSE MONEY in disastrous investments, gambling, rotten business deals, greed, poor timing. Yes, after almost five decades of investing and talking to investors, I can tell you that most people definitely DO lose money, lose big-time -- in the stock market, in options and futures, in real estate, in bad loans, in mindless gambling, and in their own businesses.

Rule 3: Rich Man, Poor Man. In the investment world the wealthy investor has one major advantage over the little guy, the stock market amateur, and the neophyte trader. The advantage that the wealthy investor enjoys is that HE DOESN'T NEED THE MARKETS. I can't begin to tell you what a difference that makes, both in one's mental attitude and in the way one actually handles one's money.

The wealthy investor doesn't need the markets, because he already has all the income he needs. He has money coming in via bonds, T-bills, money-market funds, stocks, and real estate. In other words, the wealthy investor never feels pressured to "make money" in the market.

The wealthy investor tends to be an expert on values. When bonds are cheap and bond yields are irresistibly high, he buys bonds. When stocks are on the bargain table and stock yields are attractive, he buys stocks. When real estate is a great value, he buys real estate. When great art or fine jewelry or gold is on the "giveaway" table, he buys art or diamonds or gold. In other words, the wealthy investor puts his money where the great values are.

And if no outstanding values are available, the wealthy investors waits. He can afford to wait. He has money coming in daily, weekly, monthly. The wealthy investor knows what he is looking for, and he doesn't mind waiting months or even years for his next investment (they call that patience).

But what about the little guy? This fellow always feels pressured to "make money." And in return he's always pressuring the market to "do something" for him. But sadly, the market isn't interested. When the little guy isn't buying stocks offering 1% or 2% yields, he's off to Las Vegas or Atlantic City trying to beat the house at roulette. Or he's spending 20 bucks a week on lottery tickets, or he's "investing" in some crackpot scheme that his neighbor told him about (in strictest confidence, of course).

And because the little guy is trying to force the market to do something for him, he's a guaranteed loser. The little guy doesn't understand values, so he constantly overpays. He doesn't comprehend the power of compounding, and he doesn't understand money. He's never heard the adage, "He who understands interest, earns it. He who doesn't understand interest, pays it." The little guy is the typical American, and he's deeply in debt.

The little guy is in hock up to his ears. As a result, he's always sweating -- sweating to make payments on his house, his refrigerator, his car, or his lawn mower. He's impatient, and he feels perpetually put upon. He tells himself that he has to make money -- fast. And he dreams of those "big, juicy mega-bucks." In the end, the little guy wastes his money in the market, or he loses his money gambling, or he dribbles it away on senseless schemes. In short, this "money-nerd" spends his life dashing up the financial down escalator.

But here's the ironic part of it. If, from the beginning, the little guy had adopted a strict policy of never spending more than he made, if he had taken his extra savings and compounded it in intelligent, income-producing securities, then in due time he'd have money coming in daily, weekly, monthly, just like the rich man. The little guy would have become a financial winner, instead of a pathetic loser.

Rule 4: Values. The only time the average investor should stray outside the basic compounding system is when a given market offers outstanding value. I judge an investment to be a great value when it offers (a) safety, (b) an attractive return, and (c) a good chance of appreciating in price. At all other times, the compounding route is safer and probably a lot more profitable, at least in the long run.

II. Time

TIME: Here's something they won't tell you at your local brokerage office or in the "How to Beat the Market" books. All investing and speculation is basically an exercise in attempting to beat time.

"Russell, what are you talking about?"

Just what I said -- when you try to pick the winning stock or when you try to sell out near the top of a bull market or when you try in-and-out trading, you may not realize it but what you're doing is trying to beat time.

Time is the single most valuable asset you can ever have in your investment arsenal. The problem is that none of us has enough of it.

But let's indulge in a bit of fantasy. Let's say you have 200 years to live, 200 years in which to invest. Here's what you could do. You could buy $20,000 worth of municipal bonds yielding, say, 5.5%.

At 5.5% money doubles in 13 years. So here's your plan: each time your money doubles you add another $10,000. So at the end of 13 years you have $40,000 plus the $10,000 you've added, meaning that at the end of 13 years you have $50,000.

At the end of the next 13 years you have $100,000, you add $10,000, and then you have $110,000. You reinvest it all in 5.5% munis, and at the end of the next 13 years you have $220,000 and you add $10,000, making it $230,000.

At the end of the next 13 years you have $460,000 and you add $10,000, making it $470,000.

In 200 years there are 15.3 doubles. You do the math. By the end of the 200th year you wouldn't know what to do with all your money. It would be coming out of your ears. And all with minimum risk.

So with enough time, you would be rich -- guaranteed. You wouldn't have to waste any time picking the right stock or the right group or the right mutual fund. You would just compound your way to riches, using your greatest asset: time.

There's only one problem: in the real world you're not going to live 200 years. But if you start young enough or if you start your kids early, you or they might have anywhere from 30 to 60 years of time ahead of you.

Because most people have run out of time, they spend endless hours and nervous energy trying to beat time, which, by the way, is really what investing is all about. Pick a stock that advances from 3 to 100, and if you've put enough money in that stock you'll have beaten time. Or join a company that gives you a million options, and your option moves up from 3 to 25 and again you've beaten time.

How about this real example of beating time. John Walter joined AT&T, but after nine short months he was out of a job. The complaint was that Walter "lacked intellectual leadership." Walter got $26 million for that little stint in a severance package. That's what you call really beating time. Of course, a few of us might have another word for it -- and for AT&T.

III. Hope

HOPE: It's human nature to be optimistic. It's human nature to hope. Furthermore, hope is a component of a healthy state of mind. Hope is the opposite of negativity. Negativity in life can lead to anger, disappointment, and depression. After all, if the world is a negative place, what's the point of living in it? To be negative is to be anti-life.

Ironically, it doesn't work that way in the stock market. In the stock market hope is a hindrence, not a help. Once you take a position in a stock, you obviously want that stock to advance. But if the stock you bought is a real value, and you bought it right, you should be content to sit with that stock in the knowledge that over time its value will out without your help, without your hoping.

So in the case of this stock, you have value on your side -- and all you need is patience. In the end, your patience will pay off with a higher price for your stock. Hope shouldn't play any part in this process. You don't need hope, because you bought the stock when it was a great value, and you bought it at the right time.

Any time you find yourself hoping in this business, the odds are that you are on the wrong path -- or that you did something stupid that should be corrected.

Unfortunately, hope is a money-loser in the investment business. This is counterintuitive but true. Hope will keep you riding a stock that is headed down. Hope will keep you from taking a small loss and, instead, allow that small loss to develop into a large loss.

In the stock market hope gets in the way of reality, hope gets in the way of common sense. One of the first rules in investing is "don't take the big loss." In order to do that, you've got to be willing to take a small loss.

If the stock market turns bearish, and you're staying put with your whole position, and you're HOPING that what you see is not really happening -- then welcome to poverty city. In this situation, all your hoping isn't going to save you or make you a penny. In fact, in this situation hope is the devil that bids you to sit -- while your portfolio of stocks goes down the drain.

In the investing business my suggestion is that you avoid hope. Forget the siren, hope; instead, embrace cold, clear reality.

IV. Acting

ACTING: A few days ago a young subscriber asked me, "Russell, you've been dealing with the markets since the late 1940s. This is a strange question, but what is the most important lesson you've learned in all that time?"

I didn't have to think too long. I told him, "The most important lesson I've learned comes from something Freud said. He said, 'Thinking is rehearsing.' What Freud meant was that thinking is no substitute for acting. In this world, in investing, in any field, there is no substitute for taking action."

This brings up another story which illustrates the same theme. J.P. Morgan was "Master of the Universe" back in the 1920s. One day a young man came up to Morgan and said, "Mr. Morgan, I'm sorry to bother you, but I own some stocks that have been acting poorly, and I'm very anxious about these stocks. In fact worrying about those stocks is starting to ruin my health. Yet, I still like the stocks. It's a terrible dilemma. What do you think I should do, sir?"

Without hesitating Morgan said, "Young man, sell to the sleeping point."

The lesson is the same. There's no substitute for acting. In the business of investing or the business of life, thinking is not going to do it for you. Thinking is just rehearsing. You must learn to act.

That's the single most important lesson that I've learned in this business.

Again, and I've written about this episode before, a very wealthy and successful investor once said to me, "Russell, do you know why stockbrokers never become rich in this business?"

I confessed that I didn't know. He explained, "They don't get rich because they never believe their own bullshit."

Again, it's the same lesson. If you want to make money (or get rich) in a bull market, thinking and talking isn't going to do it. You've got to buy stocks. Brokers never do that. Do you know one broker who has?

A painful lesson: Back in 1991 when we had a perfect opportunity, we could have ended Saddam Hussein's career, and we could have done it with ease. But those in command, for political reasons, didn't want to face the adverse publicity of taking additional US casualties. So we stopped short, and Saddam was home free. We were afraid to act. And now we're dealing with that failure to act with another and messier war.

In my own life many of the mistakes I've made have come because I forgot or ignored the "acting lesson." Thinking is rehearsing, and I was rehearsing instead of acting. Bad marriages, bad investments, lost opportunities, bad business decisions -- all made worse because we fail for any number of reasons to act.

The reasons to act are almost always better than the reasons you can think up not to act. If you, my dear readers, can understand the meaning of what is expressed in this one sentence, then believe me, you've learned a most valuable lesson. It's a lesson that has saved my life many times. And I mean literally, it's a lesson that has saved my life.