By John W. Schoen Senior Producer
msnbc.com
updated 5/21/2007 2:12:02 PM ET 2007-05-21T18:12:02
COMMENTARY

This week, Sara in Beirut has found a flourishing site for a new business — but

she's looking to get started on a shoestring. And S.T. — a second grader in Oklahoma — is curious about investing in pricey stocks.

I am planning for my own profitable small business. The region will be a flourishing village. The characteristics of this village are:

  • It has three schools, one hospital, three pharmacies.
  • It is developing rapidly.
  • It has a central location near a city, populated in summer more than in winter.
  • It is calm, quiet and beautiful.
  • Expenses such as renting and wages are cheap.
  • People are mostly middle class in addition to some rich people from nearby villages.
  • It has a promising future due to its increasing development.

My plan is to open a business that needs low capital. What kind of project do you advise me to implement?
— Sara, Beirut, Lebanon

This kind of “top-down” analysis is very useful: you need to know if the conditions are right to support your business. But, since there are many different businesses you could choose from, you need to ask yourself a few other questions first.

The most important question is: what do you bring to the business? What are your skills? What do you like to do (because until your business gets on its feet you’re probably going to be spending every waking hour doing it)? What other businesses do you have experience with or knowledge of?

Once you narrow down the list, do some homework about your new business. Some people, for example, love the idea of owning a restaurant — even though they’ve never worked in one. It turns out that running a restaurant is extremely hard work. Before you get started, you might want to work in one for awhile, ask a lot of questions and watch how it all works. You may be surprised to find that it’s not a very profitable way to make a living. Does that matter? Do you care more about making money — or owning a business that lets you do something you love to do?

Restaurants are also an example of a business that is risky — the failure rate is pretty high. Are you a risk taker? Are you prepared to try something, invest a year or more of time and hard work — and not succeed? Many small business owners fail a few times before they get it right.

Once you’ve picked a business — keep doing your homework. Is there a market for your product or service? Are there competitors out there? Are they thriving and well established or are they vulnerable to competition from people like you? Do you like the idea of competing against other businesses? Or is the market for your product or service growing so fast there’s room for than one company?

As for the question of capital, one way to approach funding is to find a business that “scales” well — something you can start on your own and then build up. You can start a catering business out of your kitchen and then, as you get more customers, hire more people or get a larger space to work from. If you're selling a product, you can set up shop on the Internet for very little money and then find more distributors as you grow. But the chances are you’ll reach a point where you’ll need to borrow money to get you through a tough patch or pay up front costs to expand. Once you have an idea of your business plan, you may want to find a banker who can review it and let you know what your options are for borrowing money if you need to. You may want to open a line of credit — a kind of standby loan — that you can draw on if you need to. So that’s one more thing to add to your list.

There’s no “right” or “wrong“ business — but there are businesses that are right or wrong for you. Unfortunately, you’re the only one who can figure out the answer to that question.

What is the most expensive stock price right now? What company is it and how much is it per share? (I'm a second grader trying to understand the market.)
— S.T.,Oklahoma

Second grade is a great time to start trying to understand the market; by the time you begin working full time and saving and investing, you’ll have seen what happens through a number of market ups and downs. At the moment, for example, the stock market seems to have forgotten it’s supposed to go down as well as up. Stock prices can — and do — go up for extended periods like the one we’re in now. But they don’t keep going up forever.

You can't buy stocks until you're legally an adult, which is 21 in most states (in some states you can get started at 18). But you can learn a lot about buying and selling stocks by "fantasy trading" — picking stocks and then watching what happens to them without spending real money. There are Web sites that let you set up fantasy accounts, some schools use them to teach students about investing. So you might see if any of your friends are also interested in investing and then ask you teacher if your school can get set up on a fantasy stock site.

Now, as for the most expensive stock, per share: it's called Berkshire Hathaway, a holding company that owns a lot of other companies — everything from insurance companies to Fruit of the Loom, which makes underwear.

At the close of trading Friday, one share of Berkshire Hathaway sold for $108,351, after falling $249 that day. That sounds like a lot of money to lose on one share of stock, but on a percentage basis, it’s not very much (less than 1 percent).

The high price of a stock doesn’t necessarily mean it’s a better company. The main reason the price of Berkshire Hathaway is so high is that the company’s CEO, Warren Buffett, doesn’t believe in “splitting” the stock.

Most companies like to keep the price of their stock affordable. So if it gets higher than a few hundred dollars, they give the shareholders, say, two shares for every share they’ve got. At the same time, the price of each share is cut in half, so more people can afford to buy it.  Here’s an example: If you had 100 shares of stock in a company that was selling for $200, after a two-for-one split, you’d have 200 shares selling for $100 each. More shares; same amount of money.

On measure of how much a company is worth is the total value of all the stock. You just multiply the stock price by the number of all the shares that have been issued by the company. By that measure, the most valuable company is ExxonMobil. It has 5.6 billion shares — each of which is worth about $83 at this writing. So the total value (also called “market capitalization”) is more than $470 billion.

There are a number of things that make a company’s stock go up or down in the short-term (usually good or bad news). Over the long term, one of the biggest single factors that makes a stock go up or down is the company’s profits. And while growing profits often pushes a stock’s price higher, a lot depends on whether investors think those profits will keep growing in the future.
 

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