One can see why investors are lapping up Japanese stocks, while they remain leery on Middle East. There has been encouraging words about Japan’s recovery from none other than Warren Buffett:

It will take some time to rebuild, but it will not change the economic future of Japan…Frequently, something out of the blue like this, an extraordinary event, really creates a buying opportunity. I have seen that happen in the United States, I have seen that happen around the world. I don’t think Japan will be an exception.

Natural disasters are not predictable, but human responses to them are, when a stable government is at the helm. And Japan is not the third largest economy for nothing. I agree with the investors that Japan’s massive rebuilding effort will spur rapid economic growth.

By contrast, although geopolitical turmoil in the Middle East could have been predicted, the outcome remains unknown, especially if it leads to regime change as in Egypt. No one knows how the new government would function. So it makes investing sense to tweak your foreign holding, at least for short term.

Things are different in the Internet-era globalized economy today, and rarely there had been so many international incidents occurring in such rapid succession.

In a matter of weeks, Egypt overturned its 32-yr old regime, which in turn fueled civil unrest in Bahrain, Yemen, Libya, Syria and even Saudi Arabia. Then came the devastating double punch of earthquake and tsunami in Japan. And before the dust settled there, USA and its NATO allies began bombing Libya.

Considering Japan’s status as the world’s third largest economy, and America’s dependence on Middle East’s oil supply, little wonder US market feels the strain of such global uncertainty, especially when the economy is on a slow rebound from one of the worst recessions in history. And this may continue for a while, as this CNN Money article muses.

Today’s article on Apple looked into its market valuation based on the high Price/Sales ratio, which drives its unique pattern of fast growth immediately after launching a new product, followed by a period of normalcy until the next new product comes along.

The author questions the sustainability of such growth for long, considering that new products are often only upgrades of the original:

Bear in mind that for several years now, Apple’s growth has really come from what are essentially line extensions on just one product, the initial iPhone. With all due respect to Steve Jobs as an innovator, how many more times can he mount the big stage, tap icons and re-size pictures by flicking his finger while preaching world domination, before it becomes white noise? Ultimately, how many more 50%-plus sales growth rates are in Apple’s future?

I am not too concerned about Apple’s product line though. A company whose growth bounces between spectacular and normal is doing fine in my book. But, one issue that may have a serious bearing on Apple’s management in the near future, relates to Steve Jobs’ health concerns, and speculations about a possible CEO succession.

Uncertainties arising from CEO change is the topic of the other article on Google, which discusses co-founder Larry Page replacing Eric Schmidt as Google CEO in the next two weeks. The author talks about Page’s lack of PR skills that may seriously affect Google’s ongoing love affair with its investors:

I think he and Google investors are in for a rude awakening.  The next 6 months are bound to be bumpy for him as he figures out what’s required from a CEO. For that reason, I wouldn’t touch the stock until at least October.

Read the Forbes articles on Apple and Google.

Step 1. Time: There is really no shortcut to getting rich. The sooner you begin saving and investing (steps # 2 and 3 below), the faster you get there. If you cannot begin soon enough, retire late – the idea is to give your money enough time to grow.

Step 2. Save: Money does not grow out of a vacuum. You need to start somewhere, and the more you save – by cutting spending, or increasing income, or both – the better.

Step 3. Invest: Locking away your money in a vault will lose its purchasing power to inflation over time. Putting it in a low-interest bank account is not enough either. You should have a smart investment plan, so the interest you earn outpaces inflation.

This just restates one of the most basic formulas of investing, as shown here. “S” is the money you have today, which comes from your saving (step #2). “I” is the annual interest your investing earns you (step #3), which must exceed inflation that typically averages 2.3%. “T” is the time in years (step #1). Raising any one of these three, preferably all of them together, will get you that first million dollars quicker.

Read the CNN Money article here.

A major reason for this disparity is that many European countries put a much higher fuel tax burden on the motorists, including the so-called “value-added tax” (or VAT). For example, while federal and state taxes make up only about 11% of the gas price in USA, in France and UK this tax accounts for about 70%.

I decided to look up the current gas prices in some of the major countries around the world, and here is the list.

After seeing some of the entries in this list, I feel lucky to be driving in America!

How does an economist define a recession? According to Wikipedia a recession happens when a decline in the country’s GDP (gross domestic product), or negative real economic growth, continues for two or more consecutive quarters.

Buffett says “people are already feeling the effect” of recession, and how true he is! If you do regular chores, like buying grocery or gas for your car, you know this is mighty tough time we are going through. But well, if there is one thing we learned from economic history, tough times never last.

What about the content? Is it any good for the $4.97 I paid, or, (if you are not lucky to get the bargain) the $19.95 jacket price? According to the author Daniel Solin, this is the smartest book you’ll ever read because “it is simple. It is understandable”. And simple is good.

Between Chapter 1 and 35, the author talks about the follies of active (or what he calls “hyperactive”) investing as opposed to passive investing, where you buy and hold a diversified mix of index funds that track the entire financial market. There are interesting nuggets of facts and wisdom here and there. For example, between 1985 and 2004, the average annual return of all actively managed funds was a mere 3.7%, whereas the S&P 500 Index returned a whopping 13.2%.

None of this is new to an experienced investor, who is already well versed in the differences between index investing and stock picking. But this is where the story-telling skill of the author becomes important, because no matter how obvious the bottom line is, sometimes we all need hammering the point home (particularly when violent market swings cause even the most seasoned investor to make stupid mistakes).

The book gets interesting from Chapter 36, where the author starts talking specifics, beginning with his 4-step advice: 1) decide on asset allocation (proportion of stock and bond funds in your portfolio) based on your risk tolerance, 2) open account with one or more prominent fund families (Vanguard, Fidelity, T. Rowe Price) to set the ball rolling, 3) choose specific stock and bond funds offered by these fund families to build your portfolio, and 4) rebalance twice a year to reset the proportion back to the original asset allocation.

In short, the author does the following:

1. First, he presents four different asset allocation types, with increasing degrees of risk (and return): low risk, medium-low risk, medium-high risk, and high risk. Your choice of asset allocation depends on your risk tolerance (that in turn depends on your age and other circumstances).
2. Next, he builds the portfolio for each asset type using three kinds of index funds – total US stock index fund (that tracks the broad US stock market), international stock index fund (tracks major international market indexes), and total US bond index fund (tracks broad US bond market) – drawn from each of the three fund families.
3. He wraps up by suggesting you rebalance your portfolio twice a year (opinions vary on this – I rebalance once a year), to reset your portfolio composition back to the original asset mix.

These specific advices will hand-hold a first-time investor through the process of setting up a well diversified portfolio that is guaranteed to achieve at least the market return. And, “over the long term, simply achieving market returns will beat 95% of all professionally managed investment portfolios”. To a newbie investor, this alone should be worth paying $19.95 for this book. If you are a pro, search the bargain shelves of your favorite book store – you may get lucky too.

Rather, what I really like is the style of writing, which separates the winner from the also-ran. Investing is as complex a subject as any branch of modern science (probably more so, because investing also involves human psychology and behavior, a topic not well understood yet). But the author must still get the message across to the layperson as well as the intellectual, because money management knows no hierarchy.

Striking this delicate balance between presenting hard concepts and facts, and explaining them in a way ordinary people can understand and follow, is what makes a good, even great, investing book. There are many ways to tell a story, but the one who does it best gets my vote (or in this case, my money).

The problem is, when you visit the “investing and personal finance” aisle in a book store, you are immediately swamped with books of all sizes and colors (a search for “investing” on Amazon throws up over 163,000 entries). It is hard to figure out if the book you just forked $29.95 for is really worth it.

What I do is reverse the order – I figure it out first, and then buy. I go visit the local public library (my favorite spot in town, next to my home and the chinese buffet nearby), which has pretty much every book on investing under the sun. If I like a book that I read from here, I buy a copy for myself.

The only time I break this read-first-buy-next rule is when I come across an investing book that sells for under $5 in the “bargain price” section of the book store. As long as it has all pages intact (and there are at least 200 of them, so I can be sure I am not paying $5 for a newsletter!) and does not look overused, the book is a good bet for me, even if I never heard of it before. I still flip through a few pages to make sure this is not a total dummy. So far, I haven’t regretted a single purchase I made this way.

I would just have it all in a very low-cost index fund from a reputable firm, maybe Vanguard. Unless I bought during a strong bull market, I would feel confident that I would outperform…and I could just go back and get on with my work.

Coming from the most famous “stock picker” in the world, such drumrolling for index investing may come as a surprise to some. But as I said in this post, he has been advising this for many years, because with index funds you “would feel confident that (you) would outperform” and “get on with (your) work”.

An estimated 30,000+ strong crowd assembled in this meeting to hear from the Sage of Omaha in these troubling financial times. His main message was that it is impractical to expect an earning of 7 to 10% with publicly traded stocks today. Contrast that with past returns: between 1985 and 2004 a simple portfolio of S&P 500 Index fund would have earned 13.2%!.

You can read the meeting excerpt here and here.

Securing a WordPress-powered blog is one of the most pressing concerns of newbie and pro bloggers alike (several horror stories are doing rounds here). I have done my own research on this topic, and here put together a list of some of the popular suggestions and tips to secure your WordPress blog.

First thing you must do, before getting to the list, is carefully read Hardening WordPress. Needless to say, many of the suggestions below are already included there.

Now to the list:

1. Upgrade. This is the most important word in WordPress security. Because WordPress does not release bugfix patches, all fixes are incorporated in the next full version release (which causes frequent new releases, to stay current with the latest security issues). So, it is usually a good idea to download and install the most recent version as soon as it is released. You can even automate the process with automatic upgrade plugin.

Unfortunately, many WordPress users (including me) find it hard to keep up with such frequent upgrades, mainly because plugin authors do not always release compatible plugins fast enough, and such mismatch can break your otherwise smoothly running blog. (Matt Mullenweg has something to say about this though.)

Another thing is that after each major version release of the type 2.x.x—>2.y (like 2.3.3—>2.5), there is a spike in reporting new bugs, and the next “minor” release 2.y.x usually fixes them (like the latest 2.5.1). It is a good idea to wait for this bugfix version, instead of grabbing the version 2.y itself.

Do keep in mind, though, that while upgrading helps prevent future hacking of your blog, it can do little to cure an already hacked blog. So, you must take additional precautions.

2. Back up. This is the second-most important step in securing your blog. You must back up your entire blog, including databases and web site files, at least once a week. This will allow you to revert back to an older version if the blog is hacked. You will, though, lose the new posts and any site changes that you made since the last backup.

There are several options available for backing up your blog. Most blog hosting companies provide various backup services, and you should also take regular backups yourself and keep them on your local computer. For database backup, you can either use phpMyAdmin or database backup plugin. You can also use this plugin to back up both your database and web site files.

Besides upgrading and backing up, there are a number of little things you should do to further protect your blog:

3. Remove version string from “header.php”. From the admin panel, go to Presentation–>Theme Editor–>Header, and delete the generator line containing “<?php bloginfo(‘version’); ?>”. This will remove the WordPress version number from the page source file, and can delay a hacker from exploiting any known security loophole in this version.

If you want to be more cautious, you may also remove the generator line from “wp-includes/feed-*.php” files, so that the version number does more cautious not show on your WordPress feed either.

Even easier, use this plugin instead to do the job for you.

4. Change default “admin” username. This is an important point, and yes, you can do this without touching your database, as I have discussed in this post.

5. Copy .htaccess to /wp-admin directory. Use the FTP program of your hosting server’s file manager to copy the .htaccess file in your root directory to the /wp-admin directory. This sets the same access permission to your blog admin panel as your server login access, making sure that only the server owner/user can access this directory.

You can also use this plugin, which adds an extra layer of security by requiring a username and password (different from your blog username) to access the wp-admin directory.

6. Drop empty index.html file in /plugins directory. Create an empty “index.html” file in your text editor (make sure to set the file type to “All files”), and upload it to the wp-content/plugins directory. This will hide the content of this directory, and hence the plugins used by your blog, to any snooping outsider.

7. Check all links in your blog. One way to know if your blog has been hacked is to check all outbound links for any spam redirection. You can do this by searching for “http://” in the source file of every page in your blog, making sure there is no funny link lurking anywhere. Firefox makes this job easy with Tools–>Page Info–>Links.

8. Avoid sponsored themes. An easy way to get spam links in your blog is by installing an unknown 3rd party theme, instead of getting it from reliable sources (such as the WordPress theme repository). Advertisers often pay theme developers to add outbound links promoting their sites, which can have all sorts of bad effects on your blog. Matt wrote about it here.

I’ll add to this list if I come across any more security tip.