1. YTM Measure: This is ONE/SINGLE/SAME discount rate, that you use, to discount ALL future cashflows from a Bond, such that the result equals its current Market Price. And because you are using ONE/SINGLE/SAME discount rate for all its cashflows, it gives rise to the assumption that you are going to hold the bond till maturity and you will re-invest any cash that you get from it in between, at that same interest rate (discount rate / YTM).

2. SPOT RATE Measure: That is, you apply ” DIFFERENT “ Discount Rates for your periodic cashflows from your bond, such that after all discounting your result is same as the current Market Price of that Bond.

Now, after knowing the 2 Measures, the 2 Spreads are derived from these 2 Measures.

1. Nominal Spread: (based on YTM measure) It is the difference between your Bond’s YTM with a Treasury Bond’s YTM of the same maturity.

2. Z-Spread: (based on Spot Rate Measure) It is a constant number, that you add to various Treasury Spot Rates, to use in discounting your various cashflows from your Bond to get to its Market Price.

Basically, both these spreads are trying to measure Risks associated with that Bond as compared to a Treasury (risk free) bond.

Hope this helps.

You see that two small orange icons in top right corner of my blog. Those are Feeds .. RSS to be precise. RSS stands for (Rich Site Summary).

Oky So what is an RSS Feed?

I see “RSS”, “XML”, and “Atom” out there, but I don’t know how I might use these links when I find them.

Technically — > RSS (Rich Site Summary) is a format for delivering regularly changing web content. Many news-related sites, weblogs and other online publishers syndicate their content as an RSS Feed to whoever wants it.

Non Technically —-> Feeds are a way for websites large and small to distribute their content well beyond just visitors using browsers. Feeds permitsubscription to regular updates, delivered automatically via a web portal, news reader, or in some cases good old email. Feeds also make it possible for site content to be packaged into “widgets,” “gadgets,” mobile devices, and other bite-sized technologies that make it possible to display blogs, podcasts, and major news/sports/weather/whatever headlines just about anywhere.

Links labeled “XML” or “RSS” or “Atom” are ways of saying that you can find out about updates to              that site without having to visit the site in your web browser.These icons represent content in any                format – text, audio or video – to which you can subscribe and read/watch/listen using a feed reader.

This feature is referred to as “syndication” or “aggregation”. Sometimes it’s just called subscribing. And          these days, instead of one of these words, lots of sites will use a little orange button. The standard one            looks like this:  It’s also common to see buttons that say “RSS” or “XML”, which looks like this: 

Who Publishes Feeds?

Anyone that publishes on the web can publish a feed. Blogs (or weblogs) were one of the first types of sites to offer feeds, Besides this Most of the biggest names on the web offer content feeds including major newspapers and news websites  like USATODAY.com, BBC News Headlines, ABCNews, hobbyist sites, and even stores like CNET, Yahoo!,Amazon.com (including a podcast!).

How do I read feeds?

Just like when you want to watch a video clip or listen to music on the web, you need a “player” of some kind to subscribe to feeds. Good news: Most of these tools are free, and there are many to choose from, so you can find the one that best suits you.

The “player” for a feed is called a feed reader. This tool lets you subscribe to any feeds you want, checks automatically to see when they’re updated, and then displays the updates for you as they arrive.

Feed readers can run on your computer or you can sign up to use a feed-reader that runs on the web. If you use one of the web-based readers, you can access your feeds from anywhere you go, just by signing into the website that manages your feeds. If you use a feed reading program that installs on your computer, your feeds can be stored for you even if you’re not connected to the Internet.

A typical interface for a feed reader will display your feeds and the number of new (unread) entries within each of those feeds. You can also organize your feeds into categories and even clip and save your favorite entries (with certain applications).

What Feed Reader Should I Use?

Here’s a list some of the most popular tools

On the web: If you don’t want to have to install a program, many people choose My Yahoo!, Google Personalized Homepage, My MSN, or My AOL to read feeds right within the home page that their browser starts in. Other providers of web-based feed readers include Rojo. Bloglines, Attensa Online, or NewsGator Online. All of the web-based services are free.

On your computer: If you want a feed reading program that runs on your own computer, there are a few options. Anyone using the Mozilla Firefoxweb browser has support for feeds built-in, and Microsoft Windows users have support for feeds in Internet Explorer 7. Apple Macintosh users can also use the built-in support for feeds in the Safari web browser.

If you want a separate program to read feeds a variety of RSS Readers are available for different platforms. Some popular feed readers include Amphetadesk (Windows, Linux, Mac), FeedReader (Windows), and NewsGator (Windows – integrates with Outlook).If you’re on a Macintosh running OS X, the most popular feed reader is NetNewsWire, which can also connect to the web-based services.

Subscribing to Feeds

Once you’ve got a tool to read feeds, you’ll want to find some feeds worth reading. Many of the tools listed above provide some built-in feeds to get you started. Then, as you visit other sites on the web, you can keep your eyes open for links that say XML or RSS or Syndication, or for that orange button up above, and add the feeds you find interesting.

Publishing a Feed

If you’re taken by the convenience and power of being able to deliver information regularly right to the screens of anyone who’s interested, you might want to publish your own feed. The good news is, it’s surprisingly easy.

If you have a website, blog, audio/video content, or even photos, you can offer a feed of your content as an option. If you are using a popular blogging platform or publishing tool like TypePad, WordPress, or Blogger, you likely publish a feed automatically. Even other non-blogging sites like social photo-sharing service Flickr offer feeds of content you produce that others can retrieve. There are also tools on the market that can help transform traditional web content into the right format for distribution.

Why is This a Good Thing?

Technology evolution in online publishing has made it really easy to not only publish regular updates to web-based content, but also keep track of a large number of your favorite websites or blogs, without having to remember to check each site manually or clutter your email inbox. You can now streamline your online experience by subscribing to specific content feeds and aggregating this information in one place to be read when you’re ready.

• Consumer Bottom Line: Subscribing to feeds makes it possible to review a large amount of online content in a very short time.
• Publisher Bottom Line: Feeds permit instant distribution of content and the ability to make it “subscribable.”
• Advertiser Bottom Line: Advertising in feeds overcomes many of the shortcomings that traditional marketing channels encounter including spam filters, delayed distribution, search engine rankings, and general inbox noise.

There are many ways to do this

1> You can you can purchase a plan at a web hosting provider for a few bucks a month.   OR

2>You can set it up on your home computer for free.

I dont intend to spend any money on this blog as of now , n moreover it will be fun to setup your own web server.

The cool thing about blogs (and many other web apps, like wikis) is that they don’t actually have to live online.

Lets look at how to set up weblog on your Windows PC using , WordPress in 7 Steps

Step 1: Install WAMP

1 . WAMP is an open source, simple installation package that bundles together Apache, MySQL, and PHP into one tight little Windows package. You can download WAMP here. Go ahead and accept the defaults unless you have a good reason to do otherwise and you know what you’re doing. Once you’ve finished, direct your browser the http://localhost/ and, if everything went smoothly, you should see the WAMP welcome page above.

Step 2: Change your MySQL password and create a new database

To add a password to your MySQL database. You can do this by clicking on the “PHPmyadmin” link on the WAMP homepage under Tools or by going to http://localhost/phpmyadmin/. To change your password, click on the “Privileges” link, then click the edit privileges icon for the user called, “root” (there should be no other users. If for some reason there are and you didn’t put them there, go ahead and delete them. On the “Edit Privileges” page, go to the “Change password” box, then change and save the password.

To continue using PHPmyadmin, we need to update your password in the config file. Open C:\wamp\phpmyadmin\config.inc.php in your favorite text editor (or just Notepad) and change:

$cfg['Servers'][$i]['password'] = ”;

to

$cfg['Servers'][$i]['password'] = ‘yournewpassword’;

Replacing yournewpassword with the password you just created with PHPmyadmin.

Step 3: Create a new database

Go back tohttp://localhost/phpmyadmin/ and enter a name for your database. It can be called whatever you want, but I kept things simple and called mine, “wordpress”. Hit the Create button and that’s all. Simple, huh?

Step 4: Download and extract WordPress

Go ahead and grab the latest WordPress package here. Unzip the package and extract all of its contents to C:\wamp\www. You can either keep the files in the folder called wordpress, in which case your blog’s URL will be localhost/wordpress/, or you can rename the folder if you’d prefer something like localhost/blog. If you want your root directory to bring up your blog, you can just extract all of the files inside the wordpress folder directly to the C:\wamp\www folder.

Step 5: Configure WordPress

Now we need to tell WordPress about your MySQL database. Assuming you installed WordPress in the default wordpress folder, open C:\wamp\www\wordpress\wp-config-sample.php in a text editor and add your database name, your database username (root), and your new password to the top of the file. (You won’t need to change the DB name if you called it wordpress, but you should replace username with root and password with the password you created in step 2. After you’ve edited the settings, save the file as wp-config.php.

Step 6: Install WordPress

Just go tohttp://localhost/wordpress/wp-admin/install.php (unless you put WordPress in a different folder in step 4). Continue through the dead-simple, two-step installation, until you’ve completed the installation. WordPress will have generated a new username and password that you’ll use to log in to your weblog’s Admin page. By default, the username is ‘admin’, and the password is a randomly generated string. Copy/write it down.

Step 7: You’re done. Configure and post to your blog

go to http://localhost/wordpress/wp-login.php and log in with the username and password WordPress created during the install (you did remember to write it down, right?). The first thing I’d do is change the admin password to something more memorable. To do that, log in and click on the Users tab, where you can add your personal info and change your password. Easy-peasy.

Congratulations, you’ve got your own, personal, locally hosted blog.Now that you’ve got WordPress installed on your local computer, you’ve got a lot of options. If you want to make your blog accessible to the outside world,you need to assign a domain name to your home web server like yourname.com – for an easy-to-remember, bookmarkable, professional web address.

Keep in mind that you wouldn’t be able to run a heavily trafficked blog from your home computer, but if it’s just a personal blog for friends and family, hosting it yourself is definitely an option.

How to assign a domain name to your webserver?

A dynamic DNS service is a constantly updated database of IP addresses and domain names. DynDNS.com is one provider of this service. For free, you can get one of the available DynDNS domain names plus a custom subdomain (like xyz.getmyip.net), or for a small fee you can register your own domain (like ashishjagani.com) and have it resolve to your home computer web server with DynDNS.

• Register for a free account at DynDNS. Agree to the site’s terms, and use a legitimate email address to complete registration. Once in awhile, DynDNS will email you at that address asking you to confirm that it continue your service.
• Log into your new account. Go to the “My Services” area on the left side. Under “Host Level Services” click “Add Host Services.” There, click “Add Dynamic DNS Host.” DynDNS will autofill your IP address (if you’re doing this from your home computer). Choose a domain and type in a custom subdomain, which can be anything from ajfundaes.myblog.org or ashish.is-a-geek.com or aj.dyndns.org.
• Now that your computer is registered with DynDNS, each time your computer’s IP address changes, it has to let DynDNS know. This can be done either with free updater client software or through your router. If your computer is connected directly to the Internet, download the DynDNS updater client for Mac or Windows here. Install and enter your DynDNS information so that your computer can update DynDNS’s database regularly

You’re done. Give your new domain a spin!

Type your new domain name by entering it in your web browser’s address bar. It should resolve to your home server. From here you can publicize or bookmark your server’s new domain name no matter how often your IP address changes.

Is Wave the next Twitter? Nope. Is it the next Facebook? Nope. Is it going to replace Instant Messengers? Possibly, in some circumstances, but not any time soon.

I believe this is partly Google’s fault: they released Wave to geeks and hackers and social media folks first. But Wave is not a geek/hacker tool, or a social media tool, it’s a corporate tool that solves work problems (more on that later). On the other hand, they never claimed it would be a Facebook replacement or a Twitter killer. Google calls wave an “online tool for real-time communication and collaboration”. The way Google should have advertised Wave is: “it solves the problems with email”.

What’s the problem with email, anyway?

To most geeks, the main problem with email is spam. They don’t have a problem with online collaboration – they use Google Docs, Etherpad, Skitch, screen sharing tools, or any number of collaborative whiteboard applications. So the main problems for geeks are that they’re signed up to so many services that they get inundated with notifications, monthly newsletters, automated messages, and shreds of spam that manage to get through GMail’s spam filters. But when they want to collaborate on a document or picture, they can find the tools they need, most of the time.

But then again, most geeks don’t do all that much document-based collaboration, by email or otherwise. Programming doesn’t require a whole lot of collaboration, beyond that provided by source control tools and bug tracking system. Being Robert Scoble probably doesn’t require you to spend days working on a specification document for some finicky aspect of project X, or at least not very often, and he’s probably not the one collating everyone’s suggested changes and resubmitting the document for further review.

In your average corporate environment, though, this happens all the time. People work on documents, presentations, etc. They have lengthy discussions over email. Pieces of work bounce back and forth across one or multiple organisations for weeks before they’re finalised. People are brought on to the conversation late in the day. Attachments get lost. Inboxes fill up and emails bounce. It’s a major pain.

So what are the problems with email in a corporate environment, and what does Wave do to address them?

Problem 1: Collaborating on a piece of text

It’s hard to use email like you would use, say, Etherpad – to collaborate on a document that later needs to be sent out. Most such collaborations end up being done either via a Word document with change tracking, or, when they’re more ad-hoc, via a long thread of email with corrections coming in from every direction. It’s a nightmare to keep track of and collate all that feedback. Even giving the feedback is difficult sometimes: you have to quote the context and make sure your change is clearly outlined.

Google Wave resolves that by effectively integrating Etherpad’s features into the email client. Putting an email to an important client together, with feedback from the team, becomes a breeze.

Problem 2: Adding new people to the conversation

With a typical email thread, you can forward the whole thread to a new participant, or add them into the next reply, but they’ll only get a garbled, over-indented mess, in reverse chronological order. If you’ve ever been added late into an email thread that had already been going on for a week and involved two dozen replies, you know what I mean.

Google Wave solves that by giving exactly the same view to everyone, regardless of when they’ve been added.

Problem 3: Keeping added people added

Many times, when you add new people into a conversation, they get dropped again later, when someone replies to all from an earlier email that didn’t include the new participants. Sometimes it takes a while before you realise that key people have been dropped out of the conversation. That costs time and hassle both for the people who were dropped and those who weren’t.

Wave solves that by making “dropping people” an explicit action, rather than something you can do by mistake.

Problem 4: Attaching files

Most large companies have an email storage problem, so they limit the size of people’s mailboxes. Because of that, it’s not uncommon to see “Inbox full” bounces when sending large documents around. Not only that, but sending documents is iffy at best. The SMTP protocol doesn’t seem to be all that good at sending large files.

Now, to be fair, Wave will probably suffer from the same limitations as any HTTP upload applications – but that’s still a whole lot better than your average email. Sending emails over 10MB usually fails. Attaching a 10MB file to a Wave is no problem at all.

Problem 5: Lost attachments

When you reply to an email with an attachment, the attachment is dropped. This is a good thing with email, because it stops a single email thread from unnecessarily clogging up both the mail server storage and its bandwidth. Since the whole email is transmitted down the wire when you click “send”, this kind of limitation is unavoidable.

What this means, however, is that if you bring new people into a conversation, by adding them as recipients or by forwarding them the latest mail in the conversation, they won’t get any of the attachments. Not only that, but if you’re looking for that first attachment, and the conversation has been going on for weeks (and, like everyone else, you receive upwards of 50 relevant emails a day), finding that attachment can be quite difficult. If there were multiple attachments throughout the life of the discussion, gathering them all to send them to a new participant is exponentially more tedious.

With Wave’s model, however, the attachments stay there, where you put them. They’re only sent down the wire, from you to the email server, once. You never need to re-forward an attachment to someone. When you add new people to the conversation, they get access to all the attachments right away.

Problem 6: Multiple conversation branches

Email conversations are, basically, flat. If you try to have multiple branches of conversation in email you end up with a sordid mess. You might do that a few times in your life, but you quickly learn not to. But flattening everything has its own share of problems – every email ends up containing replies to several other emails. It becomes very difficult to track what was replied to and what wasn’t. And it’s hard to collate all the suggestions effectively.

Google Wave resolves this by allowing clear, obvious threading. Yes, if you use a lot of threading in an instant messaging context, it will be hard to manage. But within the typical email collaboration context, it will keep things a lot more clean and tidy than not having threading.

Problem 7: Small corrections

With email, if your only comment on someone’s email is to fix a dozen typos, you still have to do almost as much work as if you were making substantial changes to their proposed text. You need to quote the context, highlight which bit you corrected, and then rely on the other person applying your changes back to the original document (which they often forget to do — after all, it’s just a few typos).

With Wave, no such problem – you can just edit the original text and make those changes. If the person who submitted that document wants to review your changes, they can play them back.

Problem 8: Email to IM to Email

Instant Messaging is a powerful, useful technology that has proven its worth. But it’s not very well integrated with email. If you rely on your inbox to keep track of conversations, there’s still this gaping black hole of IM which is tracked somewhere else (if at all). GTalk tried to resolve that by storing IM conversations in your inbox – and that was a good step.

What Google Wave does, however, is much bolder: it recognises the fact that a lot of IM conversations, in corporate environments, begin with an email exchange that’s just getting too rapid. When you send more than 3 emails to the same person in one minute, it usually makes sense to either pick up the phone or IM them. With Google Wave, this doesn’t need to be a conscious decision: if you’re replying quickly, Wave smoothly turns into an IM-like platform. When your replies get slower again, it, once again smoothly, turns into an email-like platform.

This means that the whole conversation, whether email-like or IM-like, is tracked and searchable in the same place, and visible to all those who are invited to the conversation.

Conclusion

I believe that people who don’t see what Google Wave is for are simply looking at it from the wrong angle. Wave is not a social tool. It’s not Twitter, it’s not GTalk, it’s not Facebook. It was never designed to appeal to the crowds of geeks who are currently trying it out.

Wave is built for the corporate environment. It’s a tool for getting work done. And as far as those go, it’s an excellent tool, even at this very early stage.

It will probably take years before Wave fully penetrates large corporations and replaces the email systems everyone is used to. But it solves so many thorny problems with email that it might well manage to do so, where so many other tentative “email fixes” have failed.

In the meantime, we should stop judging it as a social tool and start looking at how we can use it for real work. Invite your colleagues to it, and get working.

Investing in mutual funds

• Investors send cash to the fund company,
• Fund Company uses that cash to purchase securities and in turn issue additional shares of the fund.
• When investors wish to redeem their mutual fund shares, the shares are returned to the mutual fund company in exchange for cash.

The creation of an ETF, however, does not involve cash.

The process

• Begins when a prospective ETF manager (known as a sponsor) files a plan with the SEC to create an ETF.
• The plan is then approved by SEC
• The sponsor forms an agreement with an authorized participant, generally a market maker, specialist or large institutional investor, who is empowered to create or redeem ETF shares. (In some cases, the authorized participant and the sponsor are the same).

• The authorized participant borrows shares of stock, often from a pension fund, and places those shares in a trust, and uses them to form creation units of the ETF.

Creation units are bundles of stock varying from 10,000 to 600,000 shares, but 50,000 shares is what’s commonly designated as one creation unit of a given ETF.

• The trust provides shares of the ETF – which are legal claims on the shares held in the trust (the ETFs represent tiny slivers of the creation units) – to the authorized participant.

Because this transaction is an in-kind trade – that is, securities are traded for securities (the authorized participant provides shares of stock to the trust and the trust in turn provides ETF shares to the authorized participant) and no cash changes hands - there are no tax implications.

• Once the authorized participant receives the ETF shares, the shares are then sold to the public on the open market just like shares of stock.
• When ETF shares are bought and sold on the open market, the underlying securities that were borrowed to form the creation units remain in the trust account.
• The creation units are not impacted by the transactions that take place on the market when ETF shares are bought and sold.
• The trust generally has little activity beyond paying dividends from the stock held in the trust to the ETF owners and providing administrative oversight

ETF Redemptions
When investors want to sell their ETF holdings, they can do so by one of two methods.

1. To sell the shares on the open market. Generally the option chosen by most individual investors.
2. To gather enough shares of the ETF to form a creation unit

-       Exchange the creation unit for the underlying securities.

-       This option is generally only available to institutional investors due to the large number of shares required to form a creation unit.

-       When these investors redeem

-       The creation unit is destroyed and the securities are turned over to the redeemer.

-        The beauty of this option is in its tax implications for the portfolio.

• When mutual fund investors redeem shares from a fund, all shareholders in the fund are affected by tax burden because to redeem the shares, the mutual fund may have to sell the securities it holds, realizing the capital gain, which is subject to tax.
• ETFs minimize this scenario by paying large redemptions with shares of stock.
• When the redeemer sells the shares of stock on the open market, any gain or loss incurred has no impact on the ETF. In this manner, investors with smaller portfolios are protected from the tax implications of trades made by investors with large portfolios.

Assume an ETF is made up of only two underlying securities:

• Security A, which is worth $1 per share
• Security B, which is also worth $1 per share

In this example, most investors would expect one share of the ETF to trade at $2.00 per share (the equivalent worth of Security A and Security B). While this is a reasonable expectation, it is not always the case. It is possible for the ETF to trade at $2.02 per share or $1.98 per share or some other value.

If the ETF is trading at $2.02, investors buying shares of the ETF are paying more for the shares than the underlying securities are worth. This would seem to be a dangerous scenario for the average investor, but in reality, it isn’t a major problem because of arbitrage trading.

How arbitrage sets the ETF back into equilibrium.

• The trading price of an ETF is established at the close of business each day, just like any other mutual fund.
• ETF sponsors also announce the value of the underlying shares on a daily basis. When the price of the ETF deviates from the value of the underlying shares, the arbitragers spring into action.
• If the underlying securities are trading at a lower price than the ETF shares, arbitragers buy the underlying securities, redeem them for creation units, and then sell the ETF shares on the open market for a profit.
• If underlying securities are trading at higher values than the ETF shares, arbitragers buy ETF shares on the open market, form creations units, redeem the creation units in order to get the underlying securities, and then sell the securities on the open market for a profit.
• The actions of the arbitragers set the supply and demand of the ETFs back into equilibrium to match the value of the underlying shares.

courtesy Daniel Tenner @ http://danieltenner.com/

It seems like a fool-proof plan: start up with a close friend. You’ll get along (obviously), and you’ll get to share the exciting, fantastic, scary experience of starting up with someone you care about. It’s not a bad idea, but there are a few caveats that you should be aware of before you proceed¹.

When I started my first company with one of my closest friends, I expected things would go very well between us. We understood each other in ways that would take years to build up (and did take 10 years). We knew each other, and we knew we could rely on each other. We were prepared to have many surprises along the way — starting a business is always going to be a scary adventure.

What we weren’t prepared for was that the main problem would come from us and the dynamic between us.

What happened, in brief

I’m not going to go into all the details of what exactly went wrong, for a number of reasons (among them, it would be a one-sided account and inherently unfair on my friend and first cofounder). The long and short of it is, we had different expectations about the business. I left my safe, comfortable corporate job to work on it, so I needed it to succeed, or else I would find myself back in the corporate world. By contrast, my friend had already started several companies and was comfortably well off, so he didn’t have the same expectations and requirements.

It turned out we have a different definition of “the business isn’t working out”. For me, it was working out if it was making enough money to cover my expenses. For my friend, it wasn’t working out unless it was making enough money to also add to his existing wealth and thus justify the time and effort which he poured into it. Both those views were correct, but because we knewthat we understood each other, we didn’t realise that our views were different until that difference had grown into a huge misunderstanding.

This core divergence of views could have been resolved easily if we’d known about it and discussed it ahead of time, but we didn’t know about it, so it festered and turned into dozens of other misunderstandings, so that by the time it finally became clear what our main divergence was, much of the damage was already done and it was entangled in a huge mass of emotional misunderstandings².

This almost cost us our friendship. We got through this thanks to the help and mediation of another very good friend, who helped us to communicate to each other how we felt, so that we could move forward together rather than against each other.

I’m glad to say the mediation worked, and we’re still friends (perhaps even stronger than before). Nevertheless, I learned some important lessons from this.

1. Make your agreements explicit

The first lesson is to keep agreements explicit. It’s not enough to think that your friend understands what you think: make sure he does by discussing it openly with him. As my mediating friend phrased it, “unspoken promises” have a tendency to turn into broken promises (which are always hard to swallow). Avoid unspoken promises.

Here’s an example of a really bad thing to keep implicit: “We’ll only call it quits if the business is bankrupt and can’t raise any more money.” The promise here is that we’ll keep going until the very end. This may seem obvious to one party in the business, but it may not be so to the other. One partner could, for instance, feel that the time to call it quits is when the business has 3 months of cash flow left. Another may feel that it’s worth going deep into credit card debt territory before giving up.

Don’t make this mistake: keep those agreements explicit.

2. Detail your agreements

Once you make some agreements explicit, it should become clear that you need further discussion to figure out exactly what your explicit agreement is. Don’t be afraid to do this. It’s not “too early to discuss this”.

Here’s an explicit agreement that’s not detailed enough: “We want the business to make a lot of money”. Really? How much are you happy with? 10’000 pounds a month? A million? What is the definition of success? It’s almost certain that you and your business partner have different views as to what “a lot of money” is. Being on the same page about what you expect out of your business will ensure that you don’t pull in different directions when things are going well. Think of how mortifying it would be to find out that your partner wants to pull the plug when you think that the business is successful.

3. Don’t be afraid of discussing the bad stuff

There are a number of subjects which seem almost embarrassing to discuss when things are going well. For example, “What if one of us decides to pull out?” Your first reaction to this topic might be “What? We’re barely getting started, and already we’re talking about what happens if one of us pulls out?”

The reality is that people’s life circumstances change through time. They get married, or decide to leave the country, or get engrossed in a different pursuit, etc. Many things can get in between a founder and his start-up. Similarly, many things can go very wrong with a start-up. When those things do go wrong, or when one of the founders decides to pull out, is not the time to discuss these things. You need to discuss them with a clear head when no one is thinking of pulling out and the business looks healthy and hopeful.

When you discuss your start-up’s future, do not be afraid to talk about the disaster scenarios. Also, when you negotiate what will happen if a partner quits, don’t be so sure that it won’t be you.

4. Write things down

There are two reasons to write things down: first, people’s memories of conversations are faulty. Writing things down also ensures that there is no disagreement, later, about what was decided. You don’t need a long document for this — even just one or two pages describing your agreement is enough to avoid later misunderstandings.

The second reason is that people may think they have reached an agreement when in reality they never agreed about the details. Once you put something in writing, you give it a certain air of finality that teases out those last remaining disagreement. Basically, putting an agreement in writing is like putting a new piece of functionality in code. Until it exists in that form, it’s just vapour.

Halfway through my misunderstanding with my friend, we thought we’d figured out a way forward. I wasn’t sure that we were both thinking the same thing, so I made the effort to put it in writing, in the form of a business plan. When my friend read it, and understood more clearly what I meant, he recanted, and the agreement fell through. It’s a good thing that it fell through, because it would likely have resulted in even more problems later on if we’d gone through with it based on our flawed understanding of each other.

5. Don’t make it work at all costs

Yes, I know this is your friend that you’re starting up with, and this is your great opportunity to start your own business. However, if, in those discussions, you find that there’s an intractable disagreement, don’t fall into the trap of thinking that the most important thing is to smooth things over and start the business.

Starting up with someone is almost like marrying them (temporarily), in a way. You’ll be talking to them almost everyday, and possibly even more than with your significant other. You’ll be working on a “baby” (your business) for many months. It’s a big commitment, basically, and much like any other kind of significant commitment, you shouldn’t go into it if you think there are major problems, because those problems will only get worse.

6. Don’t assume things will get better with time

It’s easy to rationalise away big problems by assuming that things will get better with time. In some cases, they will, but in a majority of cases, they won’t. What this means, for example, is that you shouldn’t assume that your inexplicably small share of the business will magically grow to 50% later on. This is even less likely to happen if the business is working well (if the business isn’t working out, chances are it doesn’t matter anyway).

Sample questions

This article wouldn’t be complete without a list of questions that you might go through and discuss with your cofounder. Use them as a guideline or as a checklist, as you please.

• What do we both mean by “the business is successful”?
• What do we both mean by “the business is not successful”?
• What happens if one of us needs to voluntarily pull out, for any reason?
• What happens if one of us cannot work on the business anymore, for involuntary reasons?
• What are the conditions under which we’d call the business a failure and pull the plug?
• What is plan B for each of us if we do pull the plug? Are we both prepared for that plan B?
• What do we expect of each other, both in terms of responsibilities and in terms of attitude and effort?
• What is and is not an expense? What is the maximum amount someone can spend on an expense without checking with the other? (from Sebastian Marshall)
• When and how will profits be distributed? How much will be reinvested? What will the reserves be? (from Sebastian Marshall)
• What happens if one partner needs cash and the other wants to reinvest it into growth/expansion? (from Sebastian Marshall)
• How will you handle it when (not if) the hours each partner is working are unbalanced? (from Sebastian Marshall)

This is not a final list by any means, but it should at least provide some starting points to make the implicit explicit. If you have other suggestions, please do add them in the comments below.

Conclusion

I don’t regret starting that business with my friend, but I do regret not clarifying those kinds of questions upfront. It would have saved me a lot of worry. If your business is struggling, you don’t need the additional pain of seeing your friendship unraveling under the stress of accumulated misunderstandings.

So, do yourself a favour, and set out to:

• Make your agreements explicit so that you don’t break implicit promises
• Detail your agreements so that your promises are clear
• Don’t be afraid of discussing negative scenarios, so that you don’t add the stress of misunderstanding to already bad situations
• Write things down so you’ll remember
• Don’t make things work at all costs, so that you don’t spend the next years living with a deal that’s not acceptable to you
• Don’t assume things will get better with time, so you’re not surprised when they don’t

I hope this helps others. Your comments below are much welcome. —-

The main difference between an Exchange Traded Fund (ETF) and an Index fund is that an ETF can be traded on a stock exchange like a stock. You can buy or sell it at your will, and even short it.

As opposed to this, an Index fund cannot be bought from a stock exchange and has to be directly purchased from the mutual fund sponsor. You will not be able to trade it as freely as an ETF.

The Costs

Apart from this one difference listed above, there are no concrete differences between an Index Fund and an ETF tracking the same index as far as the retail investor is concerned.

An ETF may have lower costs (like no entry or exit loads) than an index fund, but you pay a bid-ask spread every time you buy an ETF which is non-existent in an Index fund. So, it can’t be said that one is cheaper than the other.

As far as comparison in returns is concerned, it is not a fair comparison to match one against the other so you can’t really say which one is better.

Warren Buffet’s view

According to this news article Warren Buffet tends to favor low cost Index Funds over ETFs. His rationale is very interesting. He says that ETFs present a temptation for retail investors to buy and sell very frequently and incur trading costs.

Index funds have no such temptations and will turn out to be cheaper and more profitable in the long run. According to Buffet, “I have nothing against ETFs, but I really think an index fund that just charges a few basis points for management is pretty hard to beat. You put it away, you have nobody encouraging you to trade it next week or next month … your broker isn’t going to be on you.”

Conclusion

If you were thinking of buying an ETF or an Index fund, then in all probability, you do have a sector that you want to buy in or you may just want to but the S&P 500. In such a scenario, it is best to look at various schemes and find out the one with the lowest cost.