How To Get Clients Being A Freelance Designer

This might be the most important post i have written until now. Assuming you meet the minimum requirements to be able to work as a freelance designer via internet: you must know English, have a Paypal account, a quality online portfolio … What can we do to get a job?

As i said many times the promotion of your services is the key in this business, do not think that because you are very good people will come from now to ask you to work for them. IT'S THE BIGGEST MISTAKE YOU CAN MAKE.

This is the idea:

  1. Get the maximum possible people to visit our website.
  2. Have a good relationship with search engines.
  3. Trafic oriented to possible clients.
  4. Reusing clients: newsletter.
  5. Local publicity.
  6. Getting a good representative.
  7. Contacting companies directly.

1.- Get the maximum possible people to visit our website.

Why? Silly question, is not it? It's obvious that while more people visit our website the bigger the chances to get clients. ERROR !!!!

Let me give a little suspense … an example: SOSFactory a couple of months ago had 4000 visits per month, not long ago i got a link with a lot of traffic and now it has more than 25000, you would say the number of clients has grown? … Well no, it's still the same. But the consumed bandwidth did grow, maybe soon i'll have to upgrade my hosting plan, which means investing more money. The idea is that until until a certain point, the quality of the traffic is more important than quantity.

The question in your head might be, then why do we want them to visit our website? Simple, if it has more visits it will increase the number of people talking about you, more people will link to your website (as long as you offer quality content) and this way you will get a better position in search engines (Google, Yahoo , Msn).

Example: we do mascots design, imagine i'm a visitor and when i see them i like them. If you have a website, in the links section you would put something like this: " mascot design " (it's a link to "SOSFactory" with some keywords: mascots design). If a lot of people do the same, Google will understand my website is about "mascot design", and that is an important website for those search terms, this way Google will put my website in the first results while searching "mascot design". This traffic is very important … depending on the search term there will be more or less competitors to appear in the first results.

How to get links:

  1. Get people to put links of your site offering free, original and funny content (tutorials, articles, games …)
  2. Putting yourself the links to your website (forums, blogs, directories, social networks …). Always with respect, eh? no SPAM.
  3. Ask your clients for links. It's voluntary, if it accepts, great.
  4. Exchanging them with other webmasters. It's heavy and barely has an effect.
  5. Buying massive links. As far as i know, it does not work well, it can even be bad for your business.

What you should never do:

  1. Using Flash, if you do, use it just a little … no complete Flash websites.
  2. Forget about welcome pages or pop-ups. 50% of your visitors will leave before 30 seconds … so you have to go directly to the point.
  3. Try that your website is not to heavy in graphics, the more text the better.
  4. Design your website below 1024x768px resolution.
  5. Never design just for one browser. It has to look good at least in Internet Explorer and Firefox.

2.- Have a good relationship with search engines

In english it's called SEO (search engine optimization), mainly for Google. There are thousands of forums, manuals and blogs dedicated to this so we will explain only the basics.

Appart from making us important thanks to links from other websites, we can also make Google understand better what's our site about, with this we increase chances of appearing in the first search results.

How can we accomplish this? Well, mainly with HTML code and our website strucure (and also the links we were talking about in the previous point):

Page title: It's about putting your keywords in the title; If you take a look at the source code of this page (in IExplorer: View> Source Code), you will see at the beginning something like this:

<title> Work for freelance designers – SOSFACTORY </ title>

Meta Tags: the same for Meta Tags:

<meta name = keywords content = "mascot design, logo design, illustration, web design, graphic design, freelance designer, comics, character design, logo, web">

This tells the search engine what is your site about, so we have to put the keywords you want Google to search for your site. The more important ones are the ones that describe and keywords.

Titles "": the search engine recognizes with these tags relevant frases in the text of the website. We also have to put our keywords here.

Bold and Italics "" and "": we have to repeat the keywords in the content of the site putting them in bold and italics.

Density of the keywords in the text: we have to repeat our keywords in the content of our website.

Images: Google prefers text, but we can also optimize images. Mainly putting the keywords in the tag "Alt" and in the name of the file (example: my-keyword.jpg).

Website structure:

  1. From your website, Google will follow links to the rest of the pages inside the site, so it's good to have a sitemap to make it easier … if Google does not find the page is like if it does not exist.
  2. Name your titles as the keywords (example: my-website.com/my-keyword.html)
  3. Name the folders of your site as the keywords (example: my-website.com/my-keyword/my-keyword.html)
  4. Do not put your pages in a thousand folders, maximum 3 levels.
  5. Use your keywords to link between the pages inyour site.
  6. External links: link from your texts to pages with similar content to yours (not competitors, of course)

3.- Trafic oriented to possible clients

At first, until you have traffic from search engines (which usually take a while) or you are not very well known, this will be your mail resources source. It's simply about promotion in those sites where there are potencial clients.

Forums:

In forums there are two things to keep in mind: firstly being seen in job offers subforums, usually those are low budget jobs but they can help you build a good portfolio; on the other hand, you also need to be seen in the rest of the boards, where you might meet the best clients, help people and you will get good contacts.

Webhostingtalk.com: it's a forum dedicated to the hosting business (and other things), there are people with a lot of money and thousands of domains … which means they need lots of designs. It's free and in english. If you are starting, this is a good place to make a good portfolio, with some time you can get to clients with a higher level in this same forum.

Sitepoint.com: basically the same as the previous one.

Paid websites for freelance designers:

Getafreelancer.com: it's the tipical website where people post projects and you as a designer bid to get the job, everything's in there, decent jobs and garbage. The website is in english and it's pretty ugly and it goes for a% of the income.

Scriptlance.com: It's more focused to programmers, but there are also jobs for designers. It works like the previous one,% of the sales, but the website has a much better design, it's in english.

Elance: design jobs does not have a big budget, but there is a lot of work, if you are quick you can make a lot of money. They have a complicated system though, it's in english and very expensive, so it's more like an investment … if you are starting maybe you wont be able to afford this.

Art Communities:

It's the most risky way to search for a job, it's where 'bad' people come searching for young ones to use them. Remember to ask for a payment in advance … ALWAYS !!. The best thing is that you can find partners, and also inspiration and have a good time.

Deviantart: it's the art community with Capital Letters. The jobs board is not very serious, but the rest of the site is amazing, it has a great content and a good design … website.

GFX artist: there are two kinds of job offers, the low budget clients and "projects" in the bad sense of the word, and job offers for businesses that require reclamation in the country of the offer. This is a bit more elite community, you need to host images in your server or pay for a suscription. We could say it's for more expert people.

Digital Webbing: if you are crazy enough to live from comics this is one of the best sites. I would never recommend to owe only to comics, as a fond is great, it helps to grow as an artist … it's not good as a business, unless you are a painter, and a well known one.

4.- Reusing clients: newsletter

Newsletters or subscriptions are a good marketing instrument, although it's also a double-edged weapon.

We are able to remind an old customer we are still available to do any job he wants … but you have to be careful, or it can be classified as SPAM. I guess there's no need to say that to be hired again you have to do a good work, as a freelance designer, reputation is very important

5. Local publicity

It's always useful to invest some money in printed material like posters, flyers, business cards … and leave them in stores related with computers. I do not think i need to say to put the URL of your portfolio in everything you print.

The inconvinient is that you might have to invest much more time in meetings with your clients.

The advantage is that you do not have the brutal competition that exists on the internet, particularly asian companies.

6.- Getting a good representative

Another option to be seen is hiring a representative, it will do all the promotion work for you in exchange of a% of the sales. Agents that are worth it are very requested, so if you do not have a good portfolio they wont work with you … maybe even if you have it.

Folioart.co.uk: they have artists with renown as Gez Fry or Jason Brooks, but others are mediocre.

Centralillustration.com: hey search for a bit more alternative artists.

Mendolaart.com: the artists of all styles, some of them are good, and some others are not.

glasshousegraphics.com: representative mostly for comic artists. There lots of people, so they do not pay you much attention but you can try.

7.- Contacting the companies directly

Job websites:

This websites have job offers to work in a company, sometimes they also ask for freelance designers, but it's rare. Requirements are demanding, and you will have to go to live to the place the company is located. You will need a Curriculum and a presentation letter.

Coroflot.com: lots of job offers, particularly in United States. They have improved the site laately, now it looks like an artists social network.

Malakye.com: job offers exclusively for sport trademarks: Billabong, Rip Curl, Adio … Who does not want to work for trademarks like this? They have a very interesting newsletter where they give a lot of advices at the time to prepare your Curriculum.

Gamedev.net: job offers for the videogames sector.

Yellow pages: for spain, i guess that in the rest of the countries they might have similar services. If you want to see the hell in life, i advise you to work in Spain as a designer, thousands of job offers with ridiculous dishes asking for requirements not even 5 people could have together 🙂

Big companies offers:

The most direct road between two points in the straight line. Many companies offer jobs in their own website … it's just a matter of searching in the corporative sections, and being very good doing what you do.

Corporate.disney.go.com: i'm sure this ones seem familiar.

Pixar.com/companyinfo/jobs: if you have the lever to get in here, what are you doing reading this?

Mattel.com: if you like toys, working here is the best.

Blizzard.com/jobopp/: starcraft, world of warcraft, warcraft … who does not know this people?

Marvel.com/company: for the comic artists.

This kind of posts are 'heavy' and not many people read them … i'm conscious it's been made only for a few people, the ones who really want to live off design and are ready to work hard.

If what you want is a magical formula to sell logos for 10,000 US $, you are in the wrong site … if i knew that i would not be writing this article 🙂

Garden Design Will Give You a Fantastic Garden

In our time constrained lives asking someone to design, build and plant your garden may seem like an extravagance, but it is an investment that can considerably increase the value of your home, releasing you to enjoy other things. Ultimately it ensures you have a garden in which you spend more time relaxing, playing with the children or just pottering around.

It is hard for a client to know how much it might cost but think about the way you would when buying a new kitchen or a car. A new garden is an investment that creates an outdoor space in which you will want to spend time and can also appreciate through your window.

If you choose to work with a garden designer it is important for the designer to understand what you want and need, this might be an extensive list or the bare bones such as patio and planting beds.

Working to an agreed list of requirements for a garden I design gardens incorporating not only these but also taking into consideration other factors such as the period and materials of the house; the way the garden faces, soil type and of course your budget. There would be little point in designing a garden with a series of waterfalls if it cannot be achieved within budget!

I am constantly reading books and magazines to ensure I am up to date with the latest garden trends and products, for instance, new ecologically sound or recycled products that can be used to great effect. The plant world has its own fashions and nowhere can this be best demonstrated than at Chelsea Flower Show, again the new species developed can be woven into your planting plan.

Having a garden designed for you is ultimately about using your garden designers’ knowledge to fulfil your wishes and produce a garden which you can be proud of, in which you will love spending time and that is a visual expression of who you are.

Why Should You Hire the Services of a Professional Logo Design Company?

Nowadays, there are many ways you can go about getting your website logo design created. There are hundreds of companies that offer logo designing services but, you must be able to tell the difference between a professional logo design company and an amateur freelancer. Most of the time businesses just search for the most affordable service without knowing the huge difference between an average designer and a good designer service. There are many reasons you should hire the services of a professional designing company, as can be learnt here.

Remember that your website logo sketch acts as the identity of your business and it is used in order to promote your company to your audience. So, it is most important that you take the sketch seriously and get it designed from a professional designing company. An amateur, freelancing or cheap designing service simply means that your business image is also going to look cheap and unprofessional. A professional company would have all the tools, applications and the expertise required to create the most effective logo for your company.

A company that is not a professional logo design service is going to compromise on a multitude of factors so as to save costs. And, the result is going to be a cheaper design. For example, many freelancers and cheap companies use clipart, where the professional ones use exclusively original images. You can expect a professional designing company to use only Pantone colors that produce the best colors and the best printing results as well. This technology is used by printing and designing companies so as to produce precisely the same color used on the software.

When designing your website logo sketch, professional companies keep an eye on color psychology. For example, certain colors are more effective for the promotion and representation of certain types of products. And, some colors are a clear turn-off for customers. It is the job of a professional designer to know what colors are going to work for a given type of business , and he / she would know how to get the maximum impact for your business.

The unique thing about a professional logo design is that it should look the same whether it is printed on a 10 meter tall signpost or as a 1 cm logo on a stationery. Expect a professional designing company to create a logo for you that can be used in different formats, with JPG, TIFF and PNG being the most widely used formats.

However, it is also important that the logo be received in the EPS vector format as well. A vector file can be resized to any size without the logo losing its quality. So, the logo can be resized to create a large banner and it is not going to get stretched and look blurred. However, that is something which is not possible in the case of other types of files. Therefore, it is most important that you get your website logo design created only from a professional designer.

Are you trying to find a professional logo design company to handle your logo designing job. Make sure to visit the website given here to find the right website logo design firm.

Planning Kitchen Cabinet Refacing

When property owners decide to upgrade the appearance of the house, several start in the kitchen. New cabinets are a major expenditure and could conveniently take in your budget. Kitchen cabinet refacing is a cost effective option to remodelling the whole cooking area. Residence enhancements are expensive, so why spend more than is necessary? If the frameworks of your cabinetry are in good shape, refacing is a feasible service.

Refacing saves time as well as loan. The project can be completed in less than half the time had to totally remove as well as replace all your closets. You won’t have to cope with a wrecked kitchen area for long. For the most parts, the work can be completed in a week or less. Home owners with carpentry skills can do the work themselves, yet expert installation is recommended for everyone else.

Perfect Preparation

When you are having cabinets changed, it’s a good time making adjustments to your cooking area. Create a total style for the space. Take into consideration components you have actually wished to include in your kitchen. This is the perfect time to eliminate a cabinet and add a dishwashing machine. Cooking area islands are often added as part of a refacing job. Your new island can be ordered to match your cupboards.

Take into consideration adding some attractive aspects to the area, such as elegant trim or wood frames. For a complete room remodeling, painting and furnishings refinishing tasks can be done at the same time. To prevent paint splatters on your new cabinets, total all paint before starting your refacing task.

This is a great time to change devices in the kitchen. If you have actually always wanted an integrated in microwave, it can conveniently be installed throughout the enhancement procedure. Countertops are frequently replaced when cupboards are refaced. Choose counters and also home appliances to match the appearance of the area you are aiming to produce. If you require a brand-new sink, now is the time to have it set up.

Kitchen Cabinet Refacing: The Process

One of the most important step in the process is to choose a reliable business for the task. Request recommendations as well as get in touch with individuals. Inspect to make sure the company has the essential licenses and also insurance coverage for the work they will be doing.

Many companies provide complimentary price quotes. A developer will certainly visit your house and measure the kitchen area. You will be shown options for cupboard doors as well as cabinets. The developer will certainly ask concerns to determine just what you desire as well as make recommendations. A selection of products as well as colors is available to match your home as well as provide you the appearance you want.

When you have actually consented to the price quote, the business will purchase the doors and also drawers for your cooking area. When the materials arrive, installment can be carried out in a few days. Your life isn’t disrupted for nearly as long as a total elimination of existing cabinets.

The doors and drawers are gotten rid of from the frameworks. The sides as well as parts of the structure that show up around the doors will certainly be refaced making use of the same materials as the new doors. At this moment, the frames are checked to ensure they are level and any kind of worn parts are changed. For instance, the glides on that particular cabinet that sticks will certainly be replaced with brand-new glides.

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The brand-new doors as well as cabinet fronts are mounted. New pivots will be positioned on all closet doors. You could pick brand-new hardware, door as well as cabinet manages. This offers the space a custom-made and also finished appearance. You might choose to match the equipment to the surface of sinks or taps.

Products Utilized in Refacing

Many people want to match the new closets to existing furniture. Three raw materials are used in refacing: wood, veneers and also laminates. Wood, specifically customized qualities, is the most pricey. If the price is too high, you will certainly find laminates on the marketplace that have the appearance of expensive wood at a much lower cost.

If you dislike your cooking area set, you may choose something various and change the table. This can be done at the time of the remodel, or at a later time. Simply choose exactly what you will ultimately wish to make certain your new cupboards will certainly collaborate with the decoration of your residence, currently and also in the future. If you want to alter your decor often, think about a neutral tone for cabinets that will certainly function well with a number of furniture designs and colors.

One of the most usual products used in refacing include, Custom timber, Furniture quality timber, like maple or oak, Veneers as well as Laminates.

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How To Get Free Sailboat Plans

As a keen sailor, I spend a lot of time looking at sailboat plans and designs on the Internet. And, because I always have an eye on costs, I'm always interested in offers of free sailboat plans. If you're after free plans then, like me, I'm afraid you're going to be disappointed with what's on offer. But there is a way, and here, I'm going to tell you how I got the best free sailboat plans I could have wished for.

Free plans are useless
The vast majority, in fact, I'd go as far as saying all, free boat plans on the Internet are useless. They often miss out critical details. (Whether it's deliberate, in order to force you into buying the complete plan or just due to sloppy attention to detail, it's hard to say) or they are old designs that are so old that they're totally unsuitable for modern use. Some of them are simply scanned copies of old blueprints that are barely visible in many cases. Free sailboat plans? Forget it. There's a much better way to get the design you want for virtually nothing.

It's not rocket science
So what is this magic method? Well, it's simple. You design it yourself. I can hear you now. 'I can not design it myself !, I've never designed anything!' Well that's what I thought at first too. But I can tell you, It's a whole lot easier than it sounds and a whole lot cheaper than hiring a professional designer too. The fact is, you're planning to build a sailboat, not an ocean liner or an aircraft carrier. It's not that complicated. If you have an ounce of common sense and have done a bit of sailing so you know what's important in a boat, then you can do it.

A beautiful idea
And this is how you do it. You buy yourself a specialized boat design software package and have a play with it for a few hours. You'll soon get the hang of it and like me you'll be producing your own designs the same day. The beauty of this approach is that you get the hull shape that you want, not something that everyone else is using or that some other anonymous designer has drawn up.

Then, and this is how you get your plans for free, you can sell designs to other members of your club and recoup what you paid for the software. I bought my software last year (it was under fifty dollars) and within a few months I'd sold a dinghy design to a guy in my club ($ 25) and a speedboat hull design to a neighbor ($ 30).

Boat plan addict!
This boat design thing is addictive and I'm already working on some ideas for a 28 foot sailboat for the whole family. So my recommendation is to forget about about free sailboat plans and get stuck into what for me has proven to be absorbing and fascinating extension to my love for sailing.

The Importance of Design and Marketing in the Investment Business – Part 1

Marketing and finance are the cornerstones of a successful business. You may protest and say that, first, you need a good product, but there are countless examples of products that were successful, solely, from marketing, like the pet rock, in the 1970's. Moreover, marketing is not only the collaborator of finance but is also finance's coconspirator. Indeed, marketing is more important to the financial industry than finance, itself, something that people outside of the financial industry fail to grasp.

Perception is more important that reality, for what we perceive is real to us. In that regard, from the very bottom of the financial system, money and banks, there is a need to shape perception. Paper money was developed by Italian goldsmiths, in the Middle Ages (actually, China experimented with it as early as circa 900 AD, but the experiment failed). As gold was, then, the major medium of exchange, people would sometimes need a place for safekeeping, and the goldsmiths kept it for them, in their vaults. In return, gold receipts were issued, and those became accepted as legal tender. Moreover, those same Italian goldsmiths became the first banks and the precursors of modern banking, so-called fractional reserve banking. They discovered that, as keepers of gold and issuers of gold received, they always had more gold in their vaults than was needed to redeem receipts to those looking to make withdrawals. Given that, they mad loans by writing more receipts for more gold than they have in their losses, and that is the essence of modern fractional reserve banking.

In modern banks, most of the money that is deposited is in demand accounts, from which money can be withdrawn at any time. Demand accounts and other restricted savings accounts are on the liability side of the banks' balance sheets. Then, banks make loans by making book entries into accounts for people borrowing money, and money is created, in the system. Moreover, there is a mismatch in the maturity structure of the assets and liabilities, in that deposit can be withdrawn, almost anytime, while loans, the assets, usually have longer-term maturities. In order to keep this house of cards from crashing down, confidence must be engendered in the depositors, which is tantamount to shaping perception, which is what marketing is. When people lose confidence in a bank, and panic causes a so-called run on the bank, where all or a large number of the depositors, all at once, demand that the bank return their money, it can result in bank failure because no fractional-reserve bank could fill all of its deposits' requests, at once, since, in the normal course of the fractional reserve banking business, banks do not keep a reserve equal to one hundred percent of deposits.

Design also enters the picture, in finance, even at this basic level of banks. Banks offer a safe place to keep your excess cash and to get it out on demand. What actually underlies most banking products are put and call options of one sort or another. For example, you can get the convenience of checking with no interest: you pay for the right of on demand withdrawal with a payment order, checks, by giving up interest. You may be able to get interest on checking by maintaining a minimum balance: by giving up some rights to demand money. For a bit more inconvenience of having to physically withdraw funds, you get a little interest on passbook savings. You have traded the right to payment order banking for a small amount of interest. In both cases, you have, effectively, purchased an option, in the language of finance, to "call" away the funds from the bank, and the cost of the call option manifests itself as lower or no interest. You can receive more interest by promoting to keep the funds invested for a longer time. So, you give up your right to call away the funds at the beginning of the transaction, but you can repurchase the right, in the future, at a hefty price. This is all financial package design. Marketable CD's (certificates of deposit) take the design one step further, assuring the bank that the CD can not be handed in for early redemption, which can be done with a penalty for a nonmarketable CD. Instead, the original buyer has the option of early liquidation by selling it in the financial markets to another investor. These designs offer higher interest or re-salability, in order to induce people to agree to lock up funds for a longer period of time. On the other hand, on the asset side of banking, collateralized loans are the combination of a plain loan with an option to the lending institution to call away the assets from the borrower; alternatively, an option to the borrower to "put" (transfer ownership or sell) the assets to the bank. The effective packaging of loan with option, in that case, results in a lower interest rate. In a loan with an early payment option the borrower, effectively, sold debt to the bank and purchased a call option on the debt, thus, increasing his cost. A loan commitment from a bank to a potential borrower is an option to put debt to the bank at a specified interest rate. Interest rate quotes, themselves, have an element of deign: quotes are usually given as annual percentage returns (APR's), even though they may be compounded more than once years, instead of being given as the actual effective annual returns that result from multiple compounding .

In the language of the new behavioral finance, we refer to such packaging and design as framing. Framing has to do with how something is presented. For example, a doctor could tell you that you need an operation but that 10 percent of the people who have the operation die. That is one way to frame it, but it, surely, does not sound very reassuring. However, if the doctor says, instead, that 90 percent of the people who have the operation survive, it sounds much more appealing. A fund manager might say that your portfolio outperformed the market, rather than saying that the market lost 20 percent, while your portfolio lost only 15 percent. Research shows that framing has an inordinate effect on the decision process. The end result is that people are easily fooled, and the finance industry is aware of these facts.

At the next level of the financial industry, stock and bond brokerage houses, marketing and design play an even larger role than at banks. First of all, brokers are just salesmen. Although they may call you and tell you about a hot tip, most of them have no real financial training, and their job is to generate buy and sell orders from customers, which give the firm riskless commission dollars. The same is true for institutional salesmen, but at least they are called salesmen. What might surprise you is that even the analysts at securities firms are, normally, in the institutional sales department, and many of them do no real analysis. A number of them just hug the benchmarks created by consensus of other analysts of the same stocks that they cover. Summaries of analysts estimates are compiled by several services and most analysts do not want to go out on a limit and get too far away from the consensus. It is a matter of safety in numbers. In the end, their job is to write research reports, to give oral reports, and to talk to clients, in order to generate commission dollars. I speak of these things, not from what I have read, but from experience: my first job on Wall Street was as an analyst, and I am familiar with what most analysts do. In the end, much effort, many people, and an abundance of job titles are dedicated to marketing and sales, in the securities industry.

Although stocks and bonds are not the only investments marketed by brokerage houses, it will be instructive to take time to look at the design elements that go into these basic securities. Corporations, their investment bankers, and lawyers continuously engage in design of securities, in a number of ways, some minority and some not so subtle. First, the price per share is considered, by most companies, to be an important design feature of a stock. The reason for that is that normal lots of stock, traded on exchanges, in the US (it may vary for other countries), are multiple of 100 shares. Thus, if a stock is priced in the market at, for example, $ 25, the smallest normal lot will cost $ 2,500. If the stock price were, instead, $ 500, the price per 100-share lot would be $ 50,000, which is a large amount of money for the average person to put into one stock investment. As a result, companies will do share spits when the price increases above a certain level, in order to make one-lot purchases available to a wider investing audience: it is pure design. Another feature that companies may look to design is dividends. Retirees, for example, gravitate towards high dividend yield stocks, and some companies may design their disputes, in order to attract retirees, who are also more likely to hold on to their investments and to align theiroting with management. People, in the middle of their lives, are more apt to buy shares of stock of companies that they believe will have potential for capital appreciation, which are usually also companies that retain and reinvest their salaries and pay little or no dividends. In financial theory, this is known as the clientele effect, and companies are aware of it. Moreover, companies are also aware that investors take signals, rightly or wrongly, from changes in dividends, and they are careful, even, at longer term planning of divide dividends and the growth, thereof.

Bonds, too, have taken on new design features, over the years. From plain old bonds, we have gone to convertible bonds, which are convertible, under certain circumstances, during specified periods, and at a given price, into shares of common stock. Other features that have been designed into bonds are callability and putability, allowing the company to refund early or the holder to ask for refund early, respectively. The latest design feature is infinite life, making perpetual bonds that have a quality of stock, which is also, theoretically, infinite, in life, but which have tax status of debt. The various design features are meant to attract a certain class of buyers and are usually also combined with interest rate differentials from ordinary bonds. These designs can be looked at as packages of ordinary no-frills bonds with put and call options on either the debt or the company's equity, in the case of convertibles.

It will be useful, at this point in the discussion, to introduce the concepts of replication or financial engineering. Replication looks at a security design, in terms of other basic securities. It is, really, just a more pretentious name for the concept of framing. Indeed, in our discussion of loan and deposit designs for banks, we were, basically, discussion replication, which can also be described as packaging without the mention of packaging: implicit packaging. It all began when Black and Sholes were looking for a means of coming up with a formula to value put and call options on American stocks.

To fill in some of the gaps, let us begin with the concept of another financial product: forward contracts. Forward contracts, called futures, if they are exchange-traded, were the first so-called derivative. A derivative contract or product is one whose price depends on the price of other undering objects. In order to hedge risk of price changes, in various commodities, including but not limited to, grain, metals, contracts, and stock markets, forward contracts were originated in the OTC (over the counter) markets, which just means between individuals, rather than through a formal trading exchange. In that regard, if you are a farmer who has planned corn, you know when it will be ready for harvest, you know how much you should have, but you do not have buyers, and the price may vary between the time that you plant and harvest. Therefore, you might search out potential buyers, like corn millers, who are also looking to lock in future supplies for their mills. You enter into a contract for future delivery of a certain amount of corn at a specified price at a certain future date, a forward contract for the purchase and sale of corn, and both parties have eliminated price risk. However, the contract is inflexible: both parties have eliminated risk, but neither can benefit, if the spot price turns out to be very different than the contract price when the future arrives.

The valuation of a forward contract is fairly straightforward: it is a matter of framing. The buyer of the forward could buy the underlying commodity, now, but he sacrifices the opportunity of putting his money into riskless investment and earning interest during the intervening period. Thus, the seller of the contract will be satisfied, if he gets the current spot price plus the interest that the buyer can earn by keeping his money until the contract must be fulfilled. Reframed, long a forward contract is equivalent to short the future value of the spot price, based in the current riskless interest rate. In order to further convince you that this is, indeed, the proper frame for pricing a forward contract, consider a position of long the physical commodity and short a forward contract, symbolically, C – F, where C is the commodity, and F is the forward contract, the negative sign denoting short. Since this is, now a totally risky position, it should earn a riskless rate of return, or C – F = M, where M denotes a riskless money market investment with term to maturity equal to the time to delivery on the forward. Rearranging the symbolic equation, we get: F = C – M, which is equivalent to another frame: a leveraged position in the commodity, in which one borrows, unrealistically, the whole cost of the long commodity position. Also, in this manner, we have illuminated the previously obscured frame that shows that a forward contract is simply a package of a one hundred percent leveraged long commodity position. Alternately, we could say that we can replicate a forward contract by buying a long position and fully leveraging it.

As the financial markets noticed a need, they designed a new product, options, in response to the inflexibility of forward contracts. As mentioned, in the previous paragraph, forward contracts take away all of the risk but leave no possibility to benefit, if prices move in a direction that would offer added benefit. For example, the farmer sells his wheat forward, in order to avoid the possibility that wheat prices will fall before he can harvest his wheat. However, he may feel stupid, if the price actually rise, substantively, over the intervening period. Thus, from the OTC markets there are aros a new product: options. Options are flexible contracts, and in making a flexible contract, the concept of forward had to be split into a duality: puts and calls. A call option is an option to buy a certain undering object at a specified price at a certain future date, but there is no obligation to exercise that right. In that regard, if you buy a $ 50-strike-price call option on ABC stock, and the price moves above the strike price, you will exercise the option, buy the stock at $ 50, sell it in the market, and make a profit . On the other hand, if the price ends up below the strike price at expiration of the contract, you will not exercise, and you will only lose the money that you paid, initially, for the option. So, you can benefit, if the price increases, but you lose only a little, if the price drops: you have limited downside risk and unlimited upside potential. Put options give the buyer the right but not the obligation to sell the undering object at a specified price by a certain date. Accordingly, you will buy a put to protect yourself or to benefit from a drop in prices, but, if the price goes up, you will only lose the price paid for the contract. In addition, given the dual nature of options, one needs to hedge a position in the undering by using both. In terms of an abstract symbolic equation, for options on stock, S, the equation for a hedged position is: S – C + P = M, or: long stock, short call, and long put will give you a riskless money market return , M.

As we have described, in some of our prior discussions, there are a number of financial products, designed by banks and corporations, which are simply obscurely packaged packages of more common products and options. When Black and Sholes came up with their options valuation formula, in the mid-1970's, they did two things. First, assuming, unrealistically, that financial objects represent fair games and are governed by normal distributions, which came from John Von Neumann's rational-based economic theories, they, with the aid of the physics department at MIT, developed a mathematical formula for option valuation . However, it was the other thing that they did, which is much more important: they framed options in terms of the under financial financial instrument and riskless return. That was the beginning of financial engineering, which is better described as frame-obscured financial product design. In the longer run, their mathematical formula has proven to have big problems, especially after the 1987 market crash, which could only have occurred once in several billion years, if financial objects were really governed by normal distributions. Their use of frames to describe objects, in terms of other objects, has led to the explosion in the development of frame-obscured financial products over the past few decades, which has also been liable for our current financial crisis.

The creativity of finance can produce good and bad products. For example, it is observed that the spread between fixed and variable interest rates is higher for blue-chip borrowers than it is for poor credit risks. From this simple situation, which can be reframed as comparative advantage in the markets for debt, arouse the interest rate swap, a derivative product involving two assets, not just one. The poor credit person would prefer to borrow at a fixed rate since he is already having trouble with his finances. The better borrower might, for one reason or another, prefer a variable rate loan. In a swap, the poor credit risk borrows in the market where he has comparative advantage: the variable rate market. The better borrower borrowers in the fixed rate market, and they swap their interest rate payments on the same amount of principal with an adjustment for risk. The result is that, just like in international economic theory, the two split their comparative advantages, both end up converted to the markets that they prefer, and both pay lower interest than they would have on their own.

A major theme in the financial business over the last several decades has been, on the one hand, to make new frame-obscured packaged products, and, on the other hand, to bring their massive sales and marketing forces to bear on a growing investing public. People, in general, only became interested in investments, beyond bank accounts, beginning in the 1980's, first, after rampant inflation, in the late 1970's, showed them that bank accounts did little to inflate inflation, and, second, after competition, finally , reduced responsibilities to affordable levels, in the retail securities brokerage business. Thereafter, on-line order entry from personal computers, in the 1990's, bought even more self-styled investors into the fray. In addition, message boards and on-line "trading systems" allowed even more people to convince them that investing can be done by anyone. As a result of those things, a person did not even have to pick up the phone to call a broker for tips and orders. Instead, they could use trading systems, the bases of which they had no knowledge, and listened to people on message boards, even though they did not know of their credentials. Indeed, we have observed bubbles, in the US markets, in the late 1990's, and, in China, in the middle of the first decade of the new millennium, that, as far as we can see, were the results of this new mass -whispering, cereal-box-expert trading phenomenon. This new breed of wildcat investor, having no formal education in investment or experience in the profession of investing, is especially ravenous for and opens to newly designed investment events. In this new era of do-it-yourself investment by self-styled investors, the marketing departments of financial institutions are having a field day, and there has been an explosion of new financial products, over the last few decades.

Financial products can come from needs, as creative solutions to problems, or to take advantage of know preferences and other psychological factors. The product design that we will discuss may seem surprising: the money market account. Technically, money market accounts are mutual funds and because people are depositing, buying shares, and withdrawal, selling shares, all the time, the fund would have to be in continuous registration, according to the rules for such mutual funds, and issue and refund shares of the fund. However, the securities industry lobbied long and hard to get the government to agree to allow money market funds to have the appearance of demand accounts at banks, and, today, most of us would never even think that they were anything more, nor would we be aware of the battle that went on behind the scenes to make us think, in terms of this frame.

That brings us to the doorstep of our next example of design based on observed behavior of investors. A casebook example of security design based on this new breed of investor was the LYON designed by Merrill Lynch, in the 1980's. What led to the design of these securities was an observation by a member of the firm. The head of the money market department at Merrill noticed that many of the customers who had money market accounts used the earnings from those accounts to dabble in stock options. As a response to that knowledge, Merrill designed, LYONs, liquid yield option notes, which were zero-coupon, convertible, callable, and putable bonds. They were specifically designed to have the appearance of the safety of a money market account, while offering the upside potential of options. By the early 1990's, investors in LYONs had a rude awakening as interest rates fell, and the bonds were called by the issuer.

These small examples, not only show us the behind the scenes research that goes into design, but also point out how framing is used to focus investors on certain aspects of an investment, knowing that they will ignore others. The "second rule of people" that I teach to my protege and to my assistants is that people are not as smart as you think they are. They do not look at all of the facts or signals that should be obvious, and they do not connect all of the facts that they see. It is the essence of what is being discovered, in studies, in the in the new behavioral finance. We will take that up in part 2 of the article.

© 2009 Craig Mattoli, CEO, Red Hill Capital Corporation, Delaware, USA, owner, Leona Craig Art, Guangzhou, China: all worldwide rights reserved.