The KLCI shot up quickly from around 1250 at the start of the new year 2010 to peak around 1300. This was a rise of about 4% in less than a month. Except for those were already invested last year riding the market on the uptrend, those who invested in January would have seen their gains evaporated very quickly at the beginning of February.
Dow Jones dropped 2% yesterday. The world markets are expected to react similarly today.
Knowing one's risk tolerance is important.
Day traders will be absent today. Momentum traders who are out of the market will probably stay sideline today. Those still in the trade will have to make decisions when to terminate their trades based on their own established criterias related to current events. What of the long term trades (long term buy and hold investors)? That depends on their risk management and risk tolerance profile.
Links:
What Main Street investors did during and after the recent bear market
The buy-and-hold strategy
http://myinvestingnotes.blogspot.com/2010/02/buy-and-hold-strategy.html
Friday 5 February 2010
KLSE Market PE is around 20. Where will the KLCI be heading?
KLSE Composite Index
Market Valuation
28.1.10
PE Ratio 20.50
DY 2.53
P/B 2.23
KLCI 1264.51
Thursday 4 February 2010
What Main Street investors did during and after the recent bear market
Main Street investors change their strategies
Glenn Salka of Fair Lawn, N.J., who near the 2009 market bottom said he was putting 100% of his free cash into "safe stuff," is still doing that. Why? "Fear. Risk. Take your pick," he says.
Lok Patel, Dubuque, Iowa: "Too many people invest on emotions rather than just investing in stable companies that consistently post profits and pay dividends."
Wendy Hunt, Cincinnati: "We are taking risks again. We've moved out of the really conservative securities to a large extent and are back with more blue chips than ever."
By Adam Shell, USA TODAY
NEW YORK — Near the stock market low last spring, with his losses nearing $200,000, Martin Blank, 67, a Florida retiree with four decades of investing experience, sold most of his stocks.
He liquidated 75% of his stock funds. He hasn't put that cash back in the market. And doesn't plan to.
That emotion-driven decision, made with his wife, Linda, nixed any chance of profiting from the 63% rally that began shortly after selling out in a state of anxiety.
But Blank has no regrets: "I have no desire to attempt to make back what I lost."
Since stocks stopped plunging in March, professional money managers and traders on Wall Street have piled back into the stock market, benefiting from the sharpest rebound in history. But, like Blank, many Main Street investors have yet to regain their stomach for the risky, uncertain and highly volatile world of stocks — leading Andre Weisbrod, CEO of Staar Financial Advisors, to note in a recent report that many buy-and-hold investors have unwittingly switched to a "buy-and-fold" strategy.
Individual investors who once embraced risk-taking have adopted a more defensive investing posture, preferring capital preservation over appreciation. Many are trimming the percentage of stocks they own and boosting holdings of safer investments, such as certificates of deposit and money market funds.
Harry Nieman, 73, a retiree from Pittsburgh, who lost 25% of his $2 million portfolio in the 2008-09 downdraft, just nibbles on individual stocks now, while stashing most of his cash in CDs and high-yielding online bank accounts. David Moran, 62, kept nearly 100% of his money in stocks during and after the 2000 tech-stock bust but sold a lot of shares before the March 2009 low. "I could never be 100% invested in stocks again," the Wayland, Mass., technical writer says.
Similarly, Glenn Salka, a 57-year-old insurance professional from Fair Lawn, N.J., who near the 2009 market bottom told USA TODAY he was putting 100% of his free cash into "safe stuff," is still employing the same conservative strategy. Asked why, Salka said, "Fear. Risk. Take your pick."
Market turbulence caused by signs that China is clamping down on credit to slow its economy, bank bashing by the White House, concerns over debt problems in some European countries and the recent pullback has investors on edge. A two-day rally this week left stocks down 1.1% in 2010.
Following the money trail highlights the shift toward defense. Since the start of 2008, when the worst financial crisis since the Great Depression began shredding paper wealth into confetti, stock funds have suffered outflows totaling $232 billion, Investment Company Institute statistics show. In contrast, fixed-income bond mutual funds have enjoyed inflows of $431 billion.
The love affair with bonds could end badly, says Brian Belski, chief investment strategist at Oppenheimer. In the 2000s, bonds outperformed stocks by a record 7.7 percentage points, on average, annually. The only other times bonds outpaced stocks for a full decade were the 1930s and 1970s. In both cases, stocks rebounded in the following decades, topping bonds by an average 10 percentage points a year.
"Due to the shock and awe of the past 10 years, most people went to the safest assets they could find," says Belski, who thinks now is a good time to move out of bonds into stocks.
Some analysts insist the growing reliance on lower-risk strategies is more than a temporary reaction to the financial tumult that has shaken investor confidence. They believe it's a lasting, long-term change. They warn that individual investors won't return to their old pattern of funneling the bulk of free cash flow into stocks.
The last time investors were hit by major back-to-back stock bear markets was 1968-70 and 1973-74. Back then, they lowered their stock holdings as a percentage of assets from a peak of 35% to 15%. They did not come back to the market in a big way until the 1982 bull market, Bank of America Merrill Lynch research shows.
David Rosenberg, chief investment strategist at Gluskin Sheff, cites an aging population and two severe bear markets in the past decade as reasons individual investors are shifting their money into more stable investments.
"It makes perfect sense," he says. "The median Baby Boomer is 52 and is naturally shifting toward capital preservation."
Adds Bob Cohen, a financial planner at Financial Strategies & Wealth Management, "Investors still want to make money, but they're more aware of risks."
After the bear
Interviews with close to two dozen individual investors offer a more balanced portrait of how they have adapted their investment strategies after the worst meltdown since the 1930s.
Three types of investors have emerged from the bear market rubble.
•Buy-and-folders. There are many investors, including those nearing retirement, who just want out of the stock market to reduce anxiety, protect assets they still have and embark on a more risk-averse path. While this group won't necessarily stay out of the market forever, they are unlikely to make huge bets on stocks.
Martin Blank fits the profile. Asked why he won't ever again bet big on stocks, he said, "I have a basic distrust of the system."
Nieman, the 73-year-old Pittsburgh native and ex-banker, admits that he's much more "timid" when it comes to stocks. A big reason relates to his age. "I'm more cautious, more vulnerable," he says. "I am more concerned about preserving my capital. Everyone once believed that investing in stocks can make you a millionaire. But the past few years, we have seen that you can lose everything."
Aging demographics are playing a key role in the shift to more income-oriented portfolios, Citigroup research shows. Citing data from the Census Bureau, Citi notes that only 14% of people 65 or older are willing to take "substantial" or "above-average" risk in an effort to reap bigger investment gains, compared with 33% of people 40 to 64.
•Buy-and-holders. While staying fully invested is painful as losses mount when stocks plunge, it pays off when the inevitable rebound unfolds.
Lok Patel, 67, an engineer at John Deere, didn't sell any stock during the market's 57% plunge. He's glad he didn't. "The market came back," he says. Even though Patel, from Dubuque, Iowa, says he was shaken by the scary market volatility, he stuck to basic investment principles, such as spreading his money around many different types of assets, investing only in good companies and funneling a set amount of money each month into stocks, a strategy called dollar-cost averaging.
"Too many people invest on emotions rather than just investing in stable companies that consistently post profits and pay dividends," Patel says, adding that stocks remain one of the few places investors can get a decent return these days.
Donna Bischoff, 59, a self-described "slow and steady" investor from New Orleans, has regained all but 0.2% of losses she suffered in the downturn — thanks to building a diversified portfolio, avoiding speculative stocks and sticking with her buy-and-hold strategy in bad times.
"I got burned in the '90s owning single stocks, and that taught me a lesson about diversification," Bischoff says, adding that she is gradually reducing her stock exposure to better reflect her lower risk tolerance as she nears 60.
•Double-downers. There is an old saying on Wall Street that the best time to buy stocks is when there's blood in the streets.
That's what Paul Davis, 48, did last spring when the Dow looked like it would tumble to zero.
In April 2009, three months after losing his job — and just a month after the market low when fear and panic remained high — Davis invested 90% of a $100,000 401(k) rollover in stocks. It paid off. The $100,000 is now worth $126,000.
Why did Davis take the risk? He had success in the past buying when fear was palpable.
"Some of the best investments I ever made were made after the 9/11 terror attacks," he said.
Michael Hartnett, chief global equity strategist at BofA Merrill Lynch, backed the strategy in a recent report. "Long-term investors should always buy 'humiliation' and sell 'hubris,' " he wrote. Stocks are now the "humiliated" asset class.
Margaret Schaefer, 70, a retired educator from Dearborn, Mich., did just that. Near the March 2009 low, she bought a basket of the most hated stocks: financials. She also bought General Motors when the automaker's future was in question. She tripled her money on both.
"CDs and money markets were paying under 2%," says Schaefer. "I was willing to take the risk."
And while the nearly 7% tumble off the recent high was a reminder that stocks can still go down in a hurry, an analysis of how stocks perform after a recession suggests that another 20% bear market decline is unlikely. Going back to 1928, the S&P 500 fell 10% or more six to 18 months after a recession in 10 of 13 cases (77% odds). But the index suffered only a 20%-plus drop five times (38%), says Ned Davis Research.
Says Ruff, "I missed the opportunity to buy at the bottom last year, and I don't need to be overly aggressive right now. But I'll start increasing my stock holdings at around a 10% correction." Ruff had 70% of his money in stocks pre-slump, vs. 56% now.
If another brutal bear market can be ruled out, that's good news for Wendy Hunt, a 37-year-old married mom from Cincinnati. Hunt who turned ultra-defensive in March, says she is back in the stock market.
"We are taking risks again," she says. "We've moved out of the really conservative securities to a large extent and are back with more blue chips than ever."
Carmine Grigoli, chief investment strategist at Mizuho Securities USA, says that is a bullish sign. He expects more individual investors to come back to stocks and resume their normal investment patterns once it becomes clear the improvement in the economy and financial markets is here to stay.
"The more distant the memory of the financial crisis, the less frightening it becomes," he says.
http://www.usatoday.com/money/markets/2010-02-03-realinvestors03_CV_N.htm
Glenn Salka of Fair Lawn, N.J., who near the 2009 market bottom said he was putting 100% of his free cash into "safe stuff," is still doing that. Why? "Fear. Risk. Take your pick," he says.
Lok Patel, Dubuque, Iowa: "Too many people invest on emotions rather than just investing in stable companies that consistently post profits and pay dividends."
Wendy Hunt, Cincinnati: "We are taking risks again. We've moved out of the really conservative securities to a large extent and are back with more blue chips than ever."
By Adam Shell, USA TODAY
NEW YORK — Near the stock market low last spring, with his losses nearing $200,000, Martin Blank, 67, a Florida retiree with four decades of investing experience, sold most of his stocks.
He liquidated 75% of his stock funds. He hasn't put that cash back in the market. And doesn't plan to.
That emotion-driven decision, made with his wife, Linda, nixed any chance of profiting from the 63% rally that began shortly after selling out in a state of anxiety.
But Blank has no regrets: "I have no desire to attempt to make back what I lost."
Since stocks stopped plunging in March, professional money managers and traders on Wall Street have piled back into the stock market, benefiting from the sharpest rebound in history. But, like Blank, many Main Street investors have yet to regain their stomach for the risky, uncertain and highly volatile world of stocks — leading Andre Weisbrod, CEO of Staar Financial Advisors, to note in a recent report that many buy-and-hold investors have unwittingly switched to a "buy-and-fold" strategy.
Individual investors who once embraced risk-taking have adopted a more defensive investing posture, preferring capital preservation over appreciation. Many are trimming the percentage of stocks they own and boosting holdings of safer investments, such as certificates of deposit and money market funds.
Harry Nieman, 73, a retiree from Pittsburgh, who lost 25% of his $2 million portfolio in the 2008-09 downdraft, just nibbles on individual stocks now, while stashing most of his cash in CDs and high-yielding online bank accounts. David Moran, 62, kept nearly 100% of his money in stocks during and after the 2000 tech-stock bust but sold a lot of shares before the March 2009 low. "I could never be 100% invested in stocks again," the Wayland, Mass., technical writer says.
Similarly, Glenn Salka, a 57-year-old insurance professional from Fair Lawn, N.J., who near the 2009 market bottom told USA TODAY he was putting 100% of his free cash into "safe stuff," is still employing the same conservative strategy. Asked why, Salka said, "Fear. Risk. Take your pick."
Market turbulence caused by signs that China is clamping down on credit to slow its economy, bank bashing by the White House, concerns over debt problems in some European countries and the recent pullback has investors on edge. A two-day rally this week left stocks down 1.1% in 2010.
Following the money trail highlights the shift toward defense. Since the start of 2008, when the worst financial crisis since the Great Depression began shredding paper wealth into confetti, stock funds have suffered outflows totaling $232 billion, Investment Company Institute statistics show. In contrast, fixed-income bond mutual funds have enjoyed inflows of $431 billion.
The love affair with bonds could end badly, says Brian Belski, chief investment strategist at Oppenheimer. In the 2000s, bonds outperformed stocks by a record 7.7 percentage points, on average, annually. The only other times bonds outpaced stocks for a full decade were the 1930s and 1970s. In both cases, stocks rebounded in the following decades, topping bonds by an average 10 percentage points a year.
"Due to the shock and awe of the past 10 years, most people went to the safest assets they could find," says Belski, who thinks now is a good time to move out of bonds into stocks.
Some analysts insist the growing reliance on lower-risk strategies is more than a temporary reaction to the financial tumult that has shaken investor confidence. They believe it's a lasting, long-term change. They warn that individual investors won't return to their old pattern of funneling the bulk of free cash flow into stocks.
The last time investors were hit by major back-to-back stock bear markets was 1968-70 and 1973-74. Back then, they lowered their stock holdings as a percentage of assets from a peak of 35% to 15%. They did not come back to the market in a big way until the 1982 bull market, Bank of America Merrill Lynch research shows.
Less demand for stocks, analysts say, could steal some of the cash ammunition the stock market needs to move higher.
David Rosenberg, chief investment strategist at Gluskin Sheff, cites an aging population and two severe bear markets in the past decade as reasons individual investors are shifting their money into more stable investments.
"It makes perfect sense," he says. "The median Baby Boomer is 52 and is naturally shifting toward capital preservation."
Adds Bob Cohen, a financial planner at Financial Strategies & Wealth Management, "Investors still want to make money, but they're more aware of risks."
After the bear
Interviews with close to two dozen individual investors offer a more balanced portrait of how they have adapted their investment strategies after the worst meltdown since the 1930s.
- The first is the buy-and-folder, or investors who sold near the bottom and have either stayed out of the stock market or gotten back in gingerly.
- The second is the old-fashioned buy-and-hold investor, those who stayed the course. They rode the market all the way down and still made automatic monthly investments to their 401(k)s, enabling them to participate in the rebound.
- The third is the so-called double-down investor. These more aggressive types had the courage to buy stocks near the market low. They were rewarded handsomely as stocks shot up off of depressed levels.
Snapshots of each type:
•Buy-and-folders. There are many investors, including those nearing retirement, who just want out of the stock market to reduce anxiety, protect assets they still have and embark on a more risk-averse path. While this group won't necessarily stay out of the market forever, they are unlikely to make huge bets on stocks.
Martin Blank fits the profile. Asked why he won't ever again bet big on stocks, he said, "I have a basic distrust of the system."
Nieman, the 73-year-old Pittsburgh native and ex-banker, admits that he's much more "timid" when it comes to stocks. A big reason relates to his age. "I'm more cautious, more vulnerable," he says. "I am more concerned about preserving my capital. Everyone once believed that investing in stocks can make you a millionaire. But the past few years, we have seen that you can lose everything."
•Buy-and-holders. While staying fully invested is painful as losses mount when stocks plunge, it pays off when the inevitable rebound unfolds.
Lok Patel, 67, an engineer at John Deere, didn't sell any stock during the market's 57% plunge. He's glad he didn't. "The market came back," he says. Even though Patel, from Dubuque, Iowa, says he was shaken by the scary market volatility, he stuck to basic investment principles, such as spreading his money around many different types of assets, investing only in good companies and funneling a set amount of money each month into stocks, a strategy called dollar-cost averaging.
"Too many people invest on emotions rather than just investing in stable companies that consistently post profits and pay dividends," Patel says, adding that stocks remain one of the few places investors can get a decent return these days.
Donna Bischoff, 59, a self-described "slow and steady" investor from New Orleans, has regained all but 0.2% of losses she suffered in the downturn — thanks to building a diversified portfolio, avoiding speculative stocks and sticking with her buy-and-hold strategy in bad times.
"I got burned in the '90s owning single stocks, and that taught me a lesson about diversification," Bischoff says, adding that she is gradually reducing her stock exposure to better reflect her lower risk tolerance as she nears 60.
•Double-downers. There is an old saying on Wall Street that the best time to buy stocks is when there's blood in the streets.
That's what Paul Davis, 48, did last spring when the Dow looked like it would tumble to zero.
In April 2009, three months after losing his job — and just a month after the market low when fear and panic remained high — Davis invested 90% of a $100,000 401(k) rollover in stocks. It paid off. The $100,000 is now worth $126,000.
Why did Davis take the risk? He had success in the past buying when fear was palpable.
Michael Hartnett, chief global equity strategist at BofA Merrill Lynch, backed the strategy in a recent report. "Long-term investors should always buy 'humiliation' and sell 'hubris,' " he wrote. Stocks are now the "humiliated" asset class.
Margaret Schaefer, 70, a retired educator from Dearborn, Mich., did just that. Near the March 2009 low, she bought a basket of the most hated stocks: financials. She also bought General Motors when the automaker's future was in question. She tripled her money on both.
"CDs and money markets were paying under 2%," says Schaefer. "I was willing to take the risk."
And while the nearly 7% tumble off the recent high was a reminder that stocks can still go down in a hurry, an analysis of how stocks perform after a recession suggests that another 20% bear market decline is unlikely. Going back to 1928, the S&P 500 fell 10% or more six to 18 months after a recession in 10 of 13 cases (77% odds). But the index suffered only a 20%-plus drop five times (38%), says Ned Davis Research.
A correction, or a drop of 10%, is what Bart Ruff, 45, of Lederach, Pa., says is his buy signal.
Says Ruff, "I missed the opportunity to buy at the bottom last year, and I don't need to be overly aggressive right now. But I'll start increasing my stock holdings at around a 10% correction." Ruff had 70% of his money in stocks pre-slump, vs. 56% now.
If another brutal bear market can be ruled out, that's good news for Wendy Hunt, a 37-year-old married mom from Cincinnati. Hunt who turned ultra-defensive in March, says she is back in the stock market.
"We are taking risks again," she says. "We've moved out of the really conservative securities to a large extent and are back with more blue chips than ever."
Carmine Grigoli, chief investment strategist at Mizuho Securities USA, says that is a bullish sign. He expects more individual investors to come back to stocks and resume their normal investment patterns once it becomes clear the improvement in the economy and financial markets is here to stay.
"The more distant the memory of the financial crisis, the less frightening it becomes," he says.
http://www.usatoday.com/money/markets/2010-02-03-realinvestors03_CV_N.htm
The buy-and-hold strategy
The buy-and-hold strategy
Jonathan Chevreau, Financial Post Published: Friday, April 17, 2009
Indeed, when it seemed the market had hit new lows last November, CNBC aired a feature declaring the "death of buy-and-hold," with pundits claiming only suckers hung on through thick and thin. And value-oriented fund company AIC Limited, which still uses the slogan "buy, hold and prosper," has suffered from such derogatory variants as "buy, hold and perspire" or "buy and fold."
But rumours of the death of buy-and-hold may be premature.
The Investment Reporter, a well-regarded newsletter founded in 1941, recently concluded buy-and-hold portfolios do better over the long and short run, citing an academic study (by Lakonishok, Schleifer and Vishny) that looked at returns of actively managed pension funds over six years. It found that, on average, buy-and-hold portfolios beat actively managed portfolios by 0.78% a year, not factoring in taxes, management fees or high cash positions.
A buy-and-hold approach
Dan Richards, president of Strategic Imperatives, says investors have swung from buy-and-hold to frequent trading but either extreme is a "prescription for disaster." He says academic research from Terrence Odean and Brad Barber shows frequent trading hurts investment returns. The two American business professors wrote a seminal article in 1999 called Online Investors: Do the slow die first?
Vancouver financial advisor Clay Gillespie believes buy-and-hold works for various forms of managed money, such as mutual funds, wrap accounts and other fee-based investment management solutions, although it may not always work with stocks. "An individual company may go out of business and thus have a return of zero." With a particular stock, it may be necessary to sell when
Mutual fund companies encourage buy-and-hold, often levying short-term trading penalties on those who trade in and out too often. Typically, fund unitholders buy high and sell low when they switch too often. "It is this multi-percentage point drag that buy-and-hold investors are trying to avoid," says Norm Rothery, chief investment strategist for Dan Hallett & Associates.
Joe Canavan, chairman of Assante Wealth Management, believes fund investors can successfully build portfolios that include both fund managers who use a buy-and-hold approach as well as managers who use a frequent-trading approach. The danger is in trying to do only one or the other, then changing your horses midstream.
That is more likely to result in being "whipsawed," Mr. Canavan says, incurring losses with one strategy, then abandoning that for the opposite approach just as the tide was about to turn.
In his Canadian Capitalist blog, Ottawa-based Ram Balakrishnan advises to "keep faith in buy-and-hold." He reassures readers it's "hard to maintain equanimity in the face of such a steep decline as right now. But what other strategy is there other than buy-and-hold, where almost everyone can have a good shot at reasonable returns? I don't think there is one."
Unlike most advisors, Robert Cable, Toronto-based head of ScotiaMcLeod's Cable Group, is a strong believer in "seasonal" market timing, also called a "sell in May and go away" strategy. While investors may want to emulate Warren Buffett and buy and hold forever, in practice "nobody does it," he says. He recalls asking 300 advisors at a Florida conference how many of their clients had bought and held the same portfolio a decade or more. The only hand that went up represented a client who was literally in a coma following an accident and whose account could not be traded.
"Anyone who goes into investing with the intent of buying and holding virtually always succumbs to outside pressures to abandon the strategy. My guess is when we have nobody believing in buy-and-hold again, we will again be ready for one big bull market to take off," says Mr. Cable.
Markham-based advisor Robert Smith says buy-and-hold works, but not in isolation. Investors need
"If the investor follows all these requirements, buy-and-hold will not fail them," Mr. Smith says.
Read more: http://www.financialpost.com/story.html?id=1507182#ixzz0eYEmvC9K
The Financial Post is now on Facebook. Join our fan community today.
http://www.financialpost.com/story.html?id=1507182
Comment: My personal experience of 20 years, buy and hold is safe for selected stocks.
Jonathan Chevreau, Financial Post Published: Friday, April 17, 2009
Among the many casualties of the great bear market of 2008-09 may be the buy-and-hold strategy or the Warren Buffett approach of buying good businesses and waiting patiently for the market's perception of their value to catch up.
Indeed, when it seemed the market had hit new lows last November, CNBC aired a feature declaring the "death of buy-and-hold," with pundits claiming only suckers hung on through thick and thin. And value-oriented fund company AIC Limited, which still uses the slogan "buy, hold and prosper," has suffered from such derogatory variants as "buy, hold and perspire" or "buy and fold."
But rumours of the death of buy-and-hold may be premature.
The Investment Reporter, a well-regarded newsletter founded in 1941, recently concluded buy-and-hold portfolios do better over the long and short run, citing an academic study (by Lakonishok, Schleifer and Vishny) that looked at returns of actively managed pension funds over six years. It found that, on average, buy-and-hold portfolios beat actively managed portfolios by 0.78% a year, not factoring in taxes, management fees or high cash positions.
A buy-and-hold approach
- minimizes commissions and tax events and, naturally,
- lowers the chances of mistiming the market.
Dan Richards, president of Strategic Imperatives, says investors have swung from buy-and-hold to frequent trading but either extreme is a "prescription for disaster." He says academic research from Terrence Odean and Brad Barber shows frequent trading hurts investment returns. The two American business professors wrote a seminal article in 1999 called Online Investors: Do the slow die first?
Vancouver financial advisor Clay Gillespie believes buy-and-hold works for various forms of managed money, such as mutual funds, wrap accounts and other fee-based investment management solutions, although it may not always work with stocks. "An individual company may go out of business and thus have a return of zero." With a particular stock, it may be necessary to sell when
- there are changes in one's personal situation, retirement, for example, and
- it's advisable to reduce volatility.
- Portfolio rebalancing may also require some tweaks in the buy-and-hold approach.
Mutual fund companies encourage buy-and-hold, often levying short-term trading penalties on those who trade in and out too often. Typically, fund unitholders buy high and sell low when they switch too often. "It is this multi-percentage point drag that buy-and-hold investors are trying to avoid," says Norm Rothery, chief investment strategist for Dan Hallett & Associates.
Joe Canavan, chairman of Assante Wealth Management, believes fund investors can successfully build portfolios that include both fund managers who use a buy-and-hold approach as well as managers who use a frequent-trading approach. The danger is in trying to do only one or the other, then changing your horses midstream.
That is more likely to result in being "whipsawed," Mr. Canavan says, incurring losses with one strategy, then abandoning that for the opposite approach just as the tide was about to turn.
In his Canadian Capitalist blog, Ottawa-based Ram Balakrishnan advises to "keep faith in buy-and-hold." He reassures readers it's "hard to maintain equanimity in the face of such a steep decline as right now. But what other strategy is there other than buy-and-hold, where almost everyone can have a good shot at reasonable returns? I don't think there is one."
Unlike most advisors, Robert Cable, Toronto-based head of ScotiaMcLeod's Cable Group, is a strong believer in "seasonal" market timing, also called a "sell in May and go away" strategy. While investors may want to emulate Warren Buffett and buy and hold forever, in practice "nobody does it," he says. He recalls asking 300 advisors at a Florida conference how many of their clients had bought and held the same portfolio a decade or more. The only hand that went up represented a client who was literally in a coma following an accident and whose account could not be traded.
"Anyone who goes into investing with the intent of buying and holding virtually always succumbs to outside pressures to abandon the strategy. My guess is when we have nobody believing in buy-and-hold again, we will again be ready for one big bull market to take off," says Mr. Cable.
Markham-based advisor Robert Smith says buy-and-hold works, but not in isolation. Investors need
- proper asset allocation geared to their risk tolerance,
- portfolios must be well-diversified and
- investments can't have been purchased at bubble-like prices.
- They also need to buy during the tough times to bring down their average costs, he says.
"If the investor follows all these requirements, buy-and-hold will not fail them," Mr. Smith says.
Read more: http://www.financialpost.com/story.html?id=1507182#ixzz0eYEmvC9K
The Financial Post is now on Facebook. Join our fan community today.
http://www.financialpost.com/story.html?id=1507182
Comment: My personal experience of 20 years, buy and hold is safe for selected stocks.
You need a 100% gain to erase a 50% loss; averaging down will help you recover faster
You need a 100% gain to erase a 50% loss
Averaging down will help you recover faster
Jonathan Chevreau, Financial Post Published: Wednesday, September 16, 2009
After recoveries of 45% or more in major stock markets since the Crash of 2008, investors may well wonder how it is they're still not back to even.
There are two reasons.
In the current edition of Graham Value Stocks, Norman Rothery notes the bellwether S&P500 index fell 57.7% peak to trough in the bear market, not counting dividends. It has since surged 53.1% from its lows but it still must rise another 54.4% to regain that former high. Thus, it would have to move 136.4% from the bottom reached after the original 57.7% loss, a result Rothery concedes may shock those unfamiliar with "the tyranny of losses."
The math is more understandable in absolute dollars. If you invest $100 at a top and lose 57.7%, you have just $42.30 at the bottom. But any gains you enjoy subsequently are coming off a lower base. Thus, even a 100% gain of $42.30 brings you only up to $84.60 -- still $15.40 less than the $100 you started with. To get back to $100, you'd need a 136.4% gain.
This is the ruthless arithmetic that has investors 100% in stocks -- or worse, leveraged so they were more than 100% in stocks -- licking their wounds in bear markets. However, B.C.-based financial planner Fred Kirby says ruthless arithmetic can be made to work to investors' benefit if dividends are reinvested during declines. This dramatically cuts the number of years needed to recover from losses.
Opportunistic buying can be combined with rebalancing of portfolios to maintain a normal ratio of stocks to bonds. Thus, after the 1929 crash, investors who reinvested dividends and regularly rebalanced recovered in seven years, compared to 22 years for all-stock investors who did not adopt this dual strategy.
Vancouver-based financial planner and author Diane Mc-Curdy says younger investors who dollar-cost averaged into the market early in 2009 have already done very well. Older investors should be conservative and adhere to the rule of thumb that fixed-income exposure should equal their age: so a 40-year old would be 60% stocks to 40% bonds.
The more you had in equities during the crash and the more those equities were in risky segments of the market, the worse the arithmetic of loss. Here, the accompanying chart adapted from Rothery's newsletter is instructive.
In peak-to-trough terms -- with the trough in March 2009 -- the hardest-hit market was the MSCI Emerging Markets index, which fell 67.4%. By early September, it was still 36.8% below its highs, despite the fact emerging markets bounced back 93.8% from their lows. They still must rise a further 58.1% to get back to their former highs. If you're in an emerging markets mutual fund or exchange-traded fund, you're still under water. Of course, if you were prescient enough to buy more at the bottom, you've almost doubled your money on that portion of your bottom-fishing adventure.
A glance at your portfolio may reveal that if you did do what the fund companies urged and "went global" some years back, you're probably still hurting most in funds that track the MSCI EAFE Index: Europe, Australia and the Far East. While the EAFE index didn't fall quite as hard as emerging markets -- it fell a nasty 63.5% -- at this point it still has "the largest hill to climb," Rothery says. EAFE markets are still 39.1% below their peak and have retraced only 66.9%, leaving almost as much again -- 64.2% -- before unitholders feel whole again.
Even the TSX composite still must rise 39.4% to get back to its former highs: something most people realize intuitively since the TSX passed 15,000 before the crash and is now just above 11,000.
Tomorrow, we'll look at what recourses investors may have to recoup losses.
jchevreau@nationalpost.com
Read more: http://www.financialpost.com/story.html?id=1998122#ixzz0eY9tf2po
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http://www.financialpost.com/story.html?id=1998122
Averaging down will help you recover faster
Jonathan Chevreau, Financial Post Published: Wednesday, September 16, 2009
After recoveries of 45% or more in major stock markets since the Crash of 2008, investors may well wonder how it is they're still not back to even.
Getty Images
After recoveries of 45% or more in major stock markets since the Crash of 2008, investors may well wonder how it is they're still not back to even.
After recoveries of 45% or more in major stock markets since the Crash of 2008, investors may well wonder how it is they're still not back to even.
There are two reasons.
- One, broad markets are still below the highs reached before the crash.
- Two, the arithmetic of loss means a 50% loss followed by a 50% rise does not mean you're back to even.
In the current edition of Graham Value Stocks, Norman Rothery notes the bellwether S&P500 index fell 57.7% peak to trough in the bear market, not counting dividends. It has since surged 53.1% from its lows but it still must rise another 54.4% to regain that former high. Thus, it would have to move 136.4% from the bottom reached after the original 57.7% loss, a result Rothery concedes may shock those unfamiliar with "the tyranny of losses."
The math is more understandable in absolute dollars. If you invest $100 at a top and lose 57.7%, you have just $42.30 at the bottom. But any gains you enjoy subsequently are coming off a lower base. Thus, even a 100% gain of $42.30 brings you only up to $84.60 -- still $15.40 less than the $100 you started with. To get back to $100, you'd need a 136.4% gain.
This is the ruthless arithmetic that has investors 100% in stocks -- or worse, leveraged so they were more than 100% in stocks -- licking their wounds in bear markets. However, B.C.-based financial planner Fred Kirby says ruthless arithmetic can be made to work to investors' benefit if dividends are reinvested during declines. This dramatically cuts the number of years needed to recover from losses.
Opportunistic buying can be combined with rebalancing of portfolios to maintain a normal ratio of stocks to bonds. Thus, after the 1929 crash, investors who reinvested dividends and regularly rebalanced recovered in seven years, compared to 22 years for all-stock investors who did not adopt this dual strategy.
Vancouver-based financial planner and author Diane Mc-Curdy says younger investors who dollar-cost averaged into the market early in 2009 have already done very well. Older investors should be conservative and adhere to the rule of thumb that fixed-income exposure should equal their age: so a 40-year old would be 60% stocks to 40% bonds.
The more you had in equities during the crash and the more those equities were in risky segments of the market, the worse the arithmetic of loss. Here, the accompanying chart adapted from Rothery's newsletter is instructive.
In peak-to-trough terms -- with the trough in March 2009 -- the hardest-hit market was the MSCI Emerging Markets index, which fell 67.4%. By early September, it was still 36.8% below its highs, despite the fact emerging markets bounced back 93.8% from their lows. They still must rise a further 58.1% to get back to their former highs. If you're in an emerging markets mutual fund or exchange-traded fund, you're still under water. Of course, if you were prescient enough to buy more at the bottom, you've almost doubled your money on that portion of your bottom-fishing adventure.
A glance at your portfolio may reveal that if you did do what the fund companies urged and "went global" some years back, you're probably still hurting most in funds that track the MSCI EAFE Index: Europe, Australia and the Far East. While the EAFE index didn't fall quite as hard as emerging markets -- it fell a nasty 63.5% -- at this point it still has "the largest hill to climb," Rothery says. EAFE markets are still 39.1% below their peak and have retraced only 66.9%, leaving almost as much again -- 64.2% -- before unitholders feel whole again.
Even the TSX composite still must rise 39.4% to get back to its former highs: something most people realize intuitively since the TSX passed 15,000 before the crash and is now just above 11,000.
Tomorrow, we'll look at what recourses investors may have to recoup losses.
jchevreau@nationalpost.com
Read more: http://www.financialpost.com/story.html?id=1998122#ixzz0eY9tf2po
The Financial Post is now on Facebook. Join our fan community today.
http://www.financialpost.com/story.html?id=1998122
Graham's time-tested strategy for defensive investors beat the market again this year.
8 Graham Stocks for 2010
Graham's time-tested strategy for defensive investors beat the market again this year. But that shouldn't come as a big surprise because it's bested the market, often by a wide margin, in eight of the last nine years.
You can check out the yearly performance of the Graham stocks, the S&P500 (as tracked by the SPY exchange-traded fund), and the percentage point difference between the two in Table 1. If you had bought equal dollar amounts of each year's Graham stocks in your RRSP and then replaced them with the new crop of stocks in each subsequent year, you would have gained 480% (or 22% annually) over the full period. On the other hand, the unfortunate index investor who bought and held the S&P500 ETF (NYSE:SPY) would have lost 11% over the same time. That even includes quarterly dividends reinvested annually. As you might imagine, I've been very pleased with the performance of my take on Graham's defensive strategy.
Graham first described his method for defensive investors in The Intelligent Investor. Graham, the dean of value investing, passed away in 1976 but an updated edition of The Intelligent Investor (ISBN 0060555661), with new commentary from veteran columnist Jason Zweig, was published in 2003. The original text is presented in its entirety and Zweig's commentary is thoughtfully separated into copious footnotes at the end of each chapter. If you don't already have a copy of The Intelligent Investor then this is the version to get. Serious Graham buffs will also want to check out the sixth edition of Securities Analysis (ISBN 0071592539) which includes commentary from some of today's famous value investors. But, clocking in at 700 pages, it's not for dilettantes.
Because Graham's rules for defensive investors are extraordinarily strict, I use a more moderate version. My Graham-inspired rules are shown in Table 2. For example, I require some dividend growth over the last five years whereas Graham demanded a twenty-year record of uninterrupted dividend payments. Similarly, I focus on five years worth of earnings growth instead of ten years largely because the five-year figures are provided by many free internet stock screeners.
Even with my less-stringent version of Graham's rules, very few U.S. stocks usually pass the test. Indeed, the list peaked at 10 stocks in 2002, bottomed out at 2 stocks in 2003, and contained only 4 candidates last year. This year, the list is back up near its highs and contains 8 stocks. While that's a relatively high number of stocks, the list is tiny compared to the thousands of stocks which trade each day. As a result, even my version of Graham's approach remains quite strict.
The current crop of Graham stocks is shown in Table 3. Before diving in, you should always examine any stock in great detail and remember that ten stocks can not be said to form a well-diversified portfolio. Do your own due diligence and be on the look out for problems that might not be reflected in a company's latest numbers. Study news stories, press releases, and regulatory filings.
If you'd like more information on Graham stocks, I publish the Graham Value Stocks letter which covers several Graham-inspired strategies and highlights value stocks in both the U.S. and Canada. Just send me an email, and I'll be happy to provide an online sample.
Remember that value stocks can be psychologically difficult to hold and some stocks will disappoint. While Graham's Defensive method has avoided running into any serious trouble so far, it can't be expected to outperform all of the time. Indeed, significant periods of underperformance are likely. I'm particularly concerned that you might dive right in based on past performance alone. Don't. Be sure to focus at least as much on what can go wrong as on what might go right.
http://www.ndir.com/SI/articles/1109.shtml
Graham's time-tested strategy for defensive investors beat the market again this year. But that shouldn't come as a big surprise because it's bested the market, often by a wide margin, in eight of the last nine years.
You can check out the yearly performance of the Graham stocks, the S&P500 (as tracked by the SPY exchange-traded fund), and the percentage point difference between the two in Table 1. If you had bought equal dollar amounts of each year's Graham stocks in your RRSP and then replaced them with the new crop of stocks in each subsequent year, you would have gained 480% (or 22% annually) over the full period. On the other hand, the unfortunate index investor who bought and held the S&P500 ETF (NYSE:SPY) would have lost 11% over the same time. That even includes quarterly dividends reinvested annually. As you might imagine, I've been very pleased with the performance of my take on Graham's defensive strategy.
| TABLE 1: PERFORMANCE OF PAST GRAHAM STOCKS | |||
| Year | Graham | S&P500 | +/- |
| 2000 - 2001 | 20.4% | -22.2% | 42.6 |
| 2001 - 2002 | 28.2% | -15.1% | 43.3 |
| 2002 - 2003 | 56.8% | 16.5% | 40.3 |
| 2003 - 2004 | 32.2% | 9.4% | 22.8 |
| 2004 - 2005 | 46.6% | 12.8% | 33.8 |
| 2005 - 2006 | -3.8% | 10.7% | -14.5 |
| 2006 - 2007 | 34.4% | 16.1% | 18.3 |
| 2007 - 2008 | -6.5% | -22.1% | 15.6 |
| 2008 - 2009 | 2.2% | -6.2% | 8.4 |
| Total Gain | 479.5% | -10.8% | 490.3 |
| Annualized | 22.0% | -1.3% | 23.3 |
Graham first described his method for defensive investors in The Intelligent Investor. Graham, the dean of value investing, passed away in 1976 but an updated edition of The Intelligent Investor (ISBN 0060555661), with new commentary from veteran columnist Jason Zweig, was published in 2003. The original text is presented in its entirety and Zweig's commentary is thoughtfully separated into copious footnotes at the end of each chapter. If you don't already have a copy of The Intelligent Investor then this is the version to get. Serious Graham buffs will also want to check out the sixth edition of Securities Analysis (ISBN 0071592539) which includes commentary from some of today's famous value investors. But, clocking in at 700 pages, it's not for dilettantes.
Because Graham's rules for defensive investors are extraordinarily strict, I use a more moderate version. My Graham-inspired rules are shown in Table 2. For example, I require some dividend growth over the last five years whereas Graham demanded a twenty-year record of uninterrupted dividend payments. Similarly, I focus on five years worth of earnings growth instead of ten years largely because the five-year figures are provided by many free internet stock screeners.
| TABLE 2: GRAHAM-INSPIRED RULES |
| 1. P/E Ratio less than 15 2. P/Book Ratio less than 1.5 3. Book Value more than 0.01 4. Current Ratio more than 2 5. Annual EPS Growth (5-Yr Avg) more than 3% 6. 5-Year Dividend Growth more than 0% 7. 5-Year P/E Low more than 0.01 8. 1-Year Revenue more than $400 Million |
The current crop of Graham stocks is shown in Table 3. Before diving in, you should always examine any stock in great detail and remember that ten stocks can not be said to form a well-diversified portfolio. Do your own due diligence and be on the look out for problems that might not be reflected in a company's latest numbers. Study news stories, press releases, and regulatory filings.
If you'd like more information on Graham stocks, I publish the Graham Value Stocks letter which covers several Graham-inspired strategies and highlights value stocks in both the U.S. and Canada. Just send me an email, and I'll be happy to provide an online sample.
Remember that value stocks can be psychologically difficult to hold and some stocks will disappoint. While Graham's Defensive method has avoided running into any serious trouble so far, it can't be expected to outperform all of the time. Indeed, significant periods of underperformance are likely. I'm particularly concerned that you might dive right in based on past performance alone. Don't. Be sure to focus at least as much on what can go wrong as on what might go right.
| Table 3: U.S. stocks that pass Graham-inspired rules | ||||||||
| Company | Price | P/E | P/B | EPS Growth | Current Ratio | D/E | Revenue ($M) | Dividend Growth |
| A.D.M. (ADM) | $29.72 | 11.2 | 1.41 | 28.1% | 2.2 | 0.61 | 69,207 | 14.9% |
| Baldor (BEZ) | $28.55 | 14.9 | 1.47 | 32.0% | 2.7 | 1.36 | 1,767 | 5.1% |
| Cash America (CSH) | $31.83 | 12.7 | 1.49 | 29.8% | 5.1 | 0.69 | 1,052 | 16.6% |
| Overseas Shipholding (OSG) | $41.33 | 5.9 | 0.59 | 21.2% | 4.1 | 0.72 | 1,473 | 18.2% |
| Reliance Steel (RS) | $41.97 | 13.4 | 1.26 | 70.0% | 3.5 | 0.52 | 7,517 | 27.2% |
| Skywest (SKYW) | $17.16 | 11.7 | 0.73 | 11.1% | 3.0 | 1.39 | 3,049 | 10.2% |
| Spartan Motors (SPAR) | $5.47 | 6.1 | 0.99 | 57.3% | 2.8 | 0.15 | 624 | 2.4% |
| Tidewater (TDW) | $46.11 | 6.5 | 1.05 | 57.7% | 3.1 | 0.13 | 1,377 | 10.8% |
| Source: msn.com, October 8, 2009 | ||||||||
http://www.ndir.com/SI/articles/1109.shtml
Are stocks cheap? What’s next for stocks?
2010 will be better than 2009 – or will it?
The overwhelming consent is certainly that the worst is over. Early in January, optimism had reached levels not seen in years, even decades. How can optimism be measured?
Investors Intelligence tracks the recommendation of different market advisors. In early January, 53.4% of all advisors were bullish. 30.7% of advisors were longer term bullish, but believe a short-term correction is likely. All together, 84.1% of advisors expected higher prices. Even the October 2007 market highs did not elicit such a positive response.
How about retail investors? According to the American Association of Individual Investors (AAII), investors are only keeping 18% of their money in cash. This is the lowest level since April 2000.
It is important to connect the dots when talking about investor sentiment. The last extreme reading of market advisors occurred on October 15th, 2007, within less than a week of the all-time market top. Thereafter, the broad stock market fell (NYSEArca: VTI) 55%. Real Estate (NYSEArca: IYR) and financials led the charge lower.
The last time investors felt comfortable enough to keep only 18% of their money in safe cash was in the very early stages of the tech-crash. Within a year, the Technology Select Sector SPDRs (NYSEArca: XLK) and Nasdaq (Nasdaq: QQQQ) had lost more than half of their money.
No doubt, the optimism surrounding this year's earnings announcement (at least initially) was decisively bearish to the astute investor. In the past, when earnings season was greeted by extreme optimism, the S&P 500 was 2 - 3 times more likely to go down than up. The maximum performance to the downside trumped the upside by more than 2x.
Optimism means lower prices
On January 15, 2010, two trading days before the closing highs were reached, the ETF Profit Strategy Newsletter made the bold statement: “Bullish sentiment has reached a level where it is suffocating nearly all bearish currents and undertones. The natural reaction would be, and has been by most, to conform to the trend, join the crowded trade and turn bullish. Historically, such extreme optimism leads to market declines. Even though the up-trend has lasted longer than expected, we believe that every day that brings higher prices presents a better opportunity for the bears”
Slowly but surely, euphoria is starting to be replaced by skepticism. If major corporations make little or no profit, how do you put a price tag on their stock? Where is their fair value?
The Standard and Poor's P/E ratio for the S&P 500, based on actually reported earnings, is 84.30. This means it would take any S&P constituent an average of 84.3 years to repay the money it borrowed from investors. This does not include interest. How willing would you be to offer a business loan payable over 84.3 years at no interest?
Of course, the P/E ratio falls if you compare the current price with expected earnings. But as we've learned above, Wall Street has a tendency to go with the flow when it comes to earnings. The flow right now is not up.
In March, when things looked bad, Wall Street expected things to get worse. A few weeks ago, when things looked good (after a 70% rally), Wall Street expected things to get better. With earnings disappointing, but still expected to rise another 23%, analysts might once again be forced to revise their forecast – after the fact.
What’s next for stocks?
Different valuation metrics are the markets built in temperature gauge. When things heat up, the market is forced to cool down - this means lower prices.
Historically, the market is 'healthy' with a P/E ratio around 15. Based on actual earnings (P/E of 84.3) the market is overvalued by more than five times. Using a more 'conservative' methodology, the S&P 500 (NYSEArca: SPY) on a normalized Shiller P/E basis, is overvalued by close to 30%.
All major market bottoms over the past 100 years had one thing in common;
A look at the Dow Jones measured in gold shows just how overvalued stocks denominated in U.S. dollars (aka Dow Jones) have become. Indicative of their implications, we've dubbed the composite indicators consisting of P/E ratios, dividend yields, the Gold-Dow, and mutual fund cash levels as the 'Four Horsemen.'
The ETF Profit Strategy Newsletter contains details of the 'Four Horsemen,' plotting stock market prices and each indicator individually against historic market bottoms, along with a short, mid and long-term forecast that includes the target range for the ultimate market bottom.
http://www.etfguide.com/research/260/8/Earnings-How-Will-They-Affect-The-Market?/
The overwhelming consent is certainly that the worst is over. Early in January, optimism had reached levels not seen in years, even decades. How can optimism be measured?
Investors Intelligence tracks the recommendation of different market advisors. In early January, 53.4% of all advisors were bullish. 30.7% of advisors were longer term bullish, but believe a short-term correction is likely. All together, 84.1% of advisors expected higher prices. Even the October 2007 market highs did not elicit such a positive response.
How about retail investors? According to the American Association of Individual Investors (AAII), investors are only keeping 18% of their money in cash. This is the lowest level since April 2000.
It is important to connect the dots when talking about investor sentiment. The last extreme reading of market advisors occurred on October 15th, 2007, within less than a week of the all-time market top. Thereafter, the broad stock market fell (NYSEArca: VTI) 55%. Real Estate (NYSEArca: IYR) and financials led the charge lower.
The last time investors felt comfortable enough to keep only 18% of their money in safe cash was in the very early stages of the tech-crash. Within a year, the Technology Select Sector SPDRs (NYSEArca: XLK) and Nasdaq (Nasdaq: QQQQ) had lost more than half of their money.
No doubt, the optimism surrounding this year's earnings announcement (at least initially) was decisively bearish to the astute investor. In the past, when earnings season was greeted by extreme optimism, the S&P 500 was 2 - 3 times more likely to go down than up. The maximum performance to the downside trumped the upside by more than 2x.
Optimism means lower prices
On January 15, 2010, two trading days before the closing highs were reached, the ETF Profit Strategy Newsletter made the bold statement: “Bullish sentiment has reached a level where it is suffocating nearly all bearish currents and undertones. The natural reaction would be, and has been by most, to conform to the trend, join the crowded trade and turn bullish. Historically, such extreme optimism leads to market declines. Even though the up-trend has lasted longer than expected, we believe that every day that brings higher prices presents a better opportunity for the bears”
Slowly but surely, euphoria is starting to be replaced by skepticism. If major corporations make little or no profit, how do you put a price tag on their stock? Where is their fair value?
Are stocks cheap?
The Standard and Poor's P/E ratio for the S&P 500, based on actually reported earnings, is 84.30. This means it would take any S&P constituent an average of 84.3 years to repay the money it borrowed from investors. This does not include interest. How willing would you be to offer a business loan payable over 84.3 years at no interest?
Of course, the P/E ratio falls if you compare the current price with expected earnings. But as we've learned above, Wall Street has a tendency to go with the flow when it comes to earnings. The flow right now is not up.
In March, when things looked bad, Wall Street expected things to get worse. A few weeks ago, when things looked good (after a 70% rally), Wall Street expected things to get better. With earnings disappointing, but still expected to rise another 23%, analysts might once again be forced to revise their forecast – after the fact.
What’s next for stocks?
Different valuation metrics are the markets built in temperature gauge. When things heat up, the market is forced to cool down - this means lower prices.
Historically, the market is 'healthy' with a P/E ratio around 15. Based on actual earnings (P/E of 84.3) the market is overvalued by more than five times. Using a more 'conservative' methodology, the S&P 500 (NYSEArca: SPY) on a normalized Shiller P/E basis, is overvalued by close to 30%.
P/E ratios are not the only valuation metric, however. Dividend yields and the Dow measured in real money - gold (NYSEArca: GLD) are others.
All major market bottoms over the past 100 years had one thing in common;
- LOW P/E ratios and
- HIGH dividend yields.
A look at the Dow Jones measured in gold shows just how overvalued stocks denominated in U.S. dollars (aka Dow Jones) have become. Indicative of their implications, we've dubbed the composite indicators consisting of P/E ratios, dividend yields, the Gold-Dow, and mutual fund cash levels as the 'Four Horsemen.'
The ETF Profit Strategy Newsletter contains details of the 'Four Horsemen,' plotting stock market prices and each indicator individually against historic market bottoms, along with a short, mid and long-term forecast that includes the target range for the ultimate market bottom.
http://www.etfguide.com/research/260/8/Earnings-How-Will-They-Affect-The-Market?/
Reviewing the Basics of Investing in Equities for the Young and Old Investors
Reviewing the basics of investing in equities
Importance of Financial Education
The risk involved in equities
Equities carry the highest risk. Why, then, invest in equities?
Inflation: your ultimate enemy
Inflation is your ultimate enemy. Your other enemy: IMPATIENCE
Listed and Unlisted companies.
The stock market provides a market for setting prices based on supply and demand
Costs of a standard equity transaction
Two important strategies to help you avoid large losses: STOP LOSSES and REBALANCING
Two techniques for Getting your timing right: 'dollar cost averaging' and 'phasing in' your investments
Good strategies for buying in and for preventing big losses
Five important don'ts when you want to buy shares
Valuing stocks and bonds video
What would Warren Buffett do? You have to be in it (the market) to win it
Wednesday 3 February 2010
What would Warren Buffett do? You have to be in it (the market) to win it
What would Warren Buffett do?
Barbara Drury
February 3, 2010
Barbara Drury gives some expert advice on selecting safe shares for the long haul with Warren Buffett’s help.
One lesson from the financial crisis of 2008 is that
If you've been hovering on the sidelines wanting to start a share portfolio but are not sure how to select safe stocks for the long haul, then one source of inspiration is the world's most successful long-term investor, Warren Buffett. Faced with a volatile and uncertain market outlook, what would Warren do?
To answer that question, Money did the next best thing and spoke to five experts whose job it is to select market-beating long-term share investments.
The chief executive at Lincoln, Elio D'Amato, says the thing that sets Buffett apart is that
Value investor Roger Montgomery aims to replicate Buffett's methods of stock valuation and selection.
"The first thing you should do is dismiss conventional notions of blue-chip stocks," Montgomery says.
Montgomery says the term "blue chip" is commonly used to describe large companies, such as Foster's, that Buffett wouldn't go near because they don't produce high returns on equity.
Return on equity measures how much profit a company generates with the funds shareholders have invested. In other words, big is not necessarily best.
COMPETITIVE ADVANTAGE
Montgomery says investors should do what Buffett does and buy companies
The developer of the Conscious Investor stock-picking software, which is based on Buffett's rules, John Price, agrees.
"For medium- to long-term value, we need to look for companies that have a clear competitive advantage, stable growth in sales and earnings and not too much debt," Price says. "Then let management grow the business for you. Over time, the sharemarket will recognise the growing value of the business [and the share price will rise].
"Successful companies need something about them, such as a brand name or patents and licences, that will hold them in good stead. The strength of this economic moat gives such stocks more of a flavour of bonds where returns are guaranteed."
After crunching the numbers, Price selects Billabong, with its large collection of lifestyle brand names; bionic ear developer Cochlear, with its range of valuable patents and licences; ARB, for the proven reliability of its four-wheel-drive accessories and other products; Fleetwood, which supplies homes for retirees and the resources industry; and Wridgways, which has a trusted name in removals locally and overseas.
Price says all five stocks are reasonably priced with businesses poised to grow. While paying a fair price is important, even for the best-run companies, he argues that the price you pay for shares becomes less important if you take a long-term view.
This is because prices can be volatile in the short-term, as the market overreacts to positive and negative news, but over the long term prices tend to reflect the companies' intrinsic value.
"If earnings double over the next five years then the share price will double too," Price says.
But that doesn't mean you should pay any price for a great company.
GROWTH PROSPECTS
"You need to pay below intrinsic value to give yourself a margin of safety and only buy businesses whose intrinsic value is rising over time," Montgomery says. "That doesn't happen often but be quick to buy when it does."
That said, three of his picks - JB Hi-Fi, blood plasma group CSL and Cochlear - are no longer trading at a discount but he expects their intrinsic value to increase solidly in the next few years.
Shares in salary-packaging specialist McMillan Shakespeare have been marked down in recent weeks due to speculation about the impact on the group of the Henry Tax Review. This could present a buying opportunity for long-term investors. With its market domination, strong cash flow, high return on equity and no debt to speak of, Montgomery says its market value will rise in the next few years.
Montgomery says the classic example of entrenched competitive advantage is Australia's big four banks. They can and do increase their fees and charges, secure in the knowledge that few customers will walk because changing accounts and direct debits is so much hassle.
Montgomery says Commonwealth Bank stands out thanks to its opportunistic purchase of BankWest. By comparison, some of its competitors raised so much equity during the crisis that they diluted their returns. Commonwealth has a forecast return on equity of about 22 per cent this financial year, compared with 11 per cent to 13 per cent for Westpac, NAB and ANZ.
Montgomery is also a long-time fan of JB Hi-Fi, which has entrenched its position as the cheapest provider of electronics to its insatiable target market of young adults.
"Its gross profit margin is declining because it cuts prices to knock out the competition but its net profit margin keeps going up because it runs the business on the smell of an oily rag," Montgomery says. "It's what's called a profit loop."
JB Hi-Fi's success has also made it a preferred tenant at Westfield shopping centres, reinforcing the virtuous cycle. Montgomery says Woolworths and The Reject Shop follow a similar model and all three have little or no debt and the strong cash flow necessary to pay down debt quickly.
D'Amato also likes "category killers" and plumps for Woolworths, CSL and Coca-Cola Amatil.
Like Woolworths in retail, CSL has firmly established itself as a leader in biopharmaceuticals, a sector with excellent long-term growth prospects. And Coca-Cola dominates the Australian market for beverages by keeping pace with changing consumer preferences. It has added water, juice and food to its carbonated products and is expanding into Asia to ensure future growth.
DIVERSIFICATION
Like Buffett, listed investment company Argo Investments is a good example of patience paying off. But whereas Buffett buys whole companies he likes and holds on to them for the long haul, Argo aims to buy shares in a diverse portfolio of well-managed companies that offer safe, steady long-term growth.
Argo has been investing in Australian listed companies since 1946. Over the past 20 years, it has achieved compound growth of 12.4 per cent a year compared with the 9.7 per cent return from the All Ordinaries Accumulation Index (which measures capital growth plus dividends).
"We aim to buy good stocks and hold them permanently but sometimes there is reason to sell; companies get taken over, for instance, and then you need to buy something else," Argo's managing director, Rob Patterson, says. He says the important thing for investors who want to pick their own stocks (rather than buy shares in a listed investment company or units in a managed fund) is to diversify shareholdings across different market sectors.
"No one knows what the future holds so if you want to pick stocks you need at least 10 to cover your bases," he says.
Lachlan Partners' chief investment officer, Paul Saliba, also aims to deliver a diversified long-term share portfolio for clients not necessarily shooting for the stars but who want good, solid growth with income. But that doesn't necessarily mean set and forget.
Saliba says the group's core portfolio includes defensive stocks such as Woolworths, delivering the goods year after year, and Westpac, which he regards as the most low-risk, well-managed bank. But the core portfolio also includes medium-term tilts towards sectors with the potential to beat the overall market.
For example, BHP-Billiton is riding a wave of strong demand from China and emerging nations, booming commodity prices and the prospect of a further boost in demand as the global economy recovers. BHP is now trading at a price-earning ratio of 19.5 times forecast 2010 earnings, which Saliba regards as fair value considering the high level of growth expected in the years ahead.
Similarly, Saliba thinks Fairfax, publisher of The Sydney Morning Herald and The Age, is well placed to benefit from the improving economy and an increase in job ads.
"Fairfax has underperformed the broader market in recent times but the cyclical nature of the stock makes it a good candidate to hold through the first few years of the economic cycle," he says.
Brambles is another cyclical stock that has been punished by a market concerned about its Chep pallet business in the US.
Saliba says the company has made efforts to address problems with the business and is well placed to profit from the upswing in the global economy as retail sales and the movement of goods increases and drives demand for pallets.
"We recommend good-quality stocks, including some that offer a flavour of the times, that provide opportunity and security at the same time," Saliba says.
COMPANY RESULTS
Long-term investors should not dismiss small companies in their search for safety or they will miss out on the next Google, Microsoft or Berkshire Hathaway, the investment company Buffett founded more than 40 years ago.
Small, well-managed companies with products and services that are in demand have a higher growth profile than larger companies. The trick is to assess the sustainability of the company's earnings with a steely eye and avoid being carried away by hype about blue sky and new paradigms.
"If you pick a quality, diversified portfolio with a spread of companies across different industries and sizes, it boosts your chances of long-term success," D'Amato says.
At the smaller end of the market, he selects IT outsourcing firm ASG Group and Austin Engineering. Austin services the mining and resources industry with operations in Australia, South America and the Middle East.
"For conservative investors, waiting for companies to report before committing your cash is a reasonable strategy," D'Amato says. Not only do companies release their financial results but directors often comment on trading conditions and the outlook for the year ahead.
Patterson says Argo has not bought any stocks this year and declines to offer picks but confirms he is watching the current reporting season for opportunities.
The market tends to punish companies if their results are disappointing. If the selling is overdone and the price of otherwise solid companies is marked down too far, then this presents a potential bargain.
Patterson singles out Worley Parsons, a provider of engineering services to the resources sector. Worley downgraded its earnings guidance on January 13 and its price dropped from just above $30 to below $24. "It was harshly treated by the market but it's on our list to consider," Patterson says.
STOCKS FOR STAYERS
Roger Montgomery
Value Investor
JB Hi-Fi
CSL
Cochlear
Commonwealth Bank
McMillan Shakespeare
John Price
Conscious Investor
Billabong
Cochlear
ARB
Fleetwood
Wridgways
Elio D’Amato
Lincoln
Woolworths
CSL
Coca-Cola Amatil
ASG Group
Austen Engineering
Paul Saliba
Lachlan Partners
BHP-Billiton
Westpac
Woolworths
Fairfax
Brambles
This story was found at: http://www.smh.com.au/articles/2010/02/02/1264876022180.html
Barbara Drury
February 3, 2010
One lesson from the financial crisis of 2008 is that
- there's no such thing as a guaranteed return from shares.
- it's that you have to be in it to win it.
If you've been hovering on the sidelines wanting to start a share portfolio but are not sure how to select safe stocks for the long haul, then one source of inspiration is the world's most successful long-term investor, Warren Buffett. Faced with a volatile and uncertain market outlook, what would Warren do?
To answer that question, Money did the next best thing and spoke to five experts whose job it is to select market-beating long-term share investments.
The chief executive at Lincoln, Elio D'Amato, says the thing that sets Buffett apart is that
- he looks for great businesses that will be around tomorrow,
- with sources of revenue that will provide profits for the long term and
- management that can deliver.
Value investor Roger Montgomery aims to replicate Buffett's methods of stock valuation and selection.
"The first thing you should do is dismiss conventional notions of blue-chip stocks," Montgomery says.
Montgomery says the term "blue chip" is commonly used to describe large companies, such as Foster's, that Buffett wouldn't go near because they don't produce high returns on equity.
Return on equity measures how much profit a company generates with the funds shareholders have invested. In other words, big is not necessarily best.
COMPETITIVE ADVANTAGE
Montgomery says investors should do what Buffett does and buy companies
- with little or no debt and
- high rates of return on equity
- driven by a sustainable competitive advantage that
- allows them to charge more without affecting sales adversely.
The developer of the Conscious Investor stock-picking software, which is based on Buffett's rules, John Price, agrees.
"For medium- to long-term value, we need to look for companies that have a clear competitive advantage, stable growth in sales and earnings and not too much debt," Price says. "Then let management grow the business for you. Over time, the sharemarket will recognise the growing value of the business [and the share price will rise].
"Successful companies need something about them, such as a brand name or patents and licences, that will hold them in good stead. The strength of this economic moat gives such stocks more of a flavour of bonds where returns are guaranteed."
After crunching the numbers, Price selects Billabong, with its large collection of lifestyle brand names; bionic ear developer Cochlear, with its range of valuable patents and licences; ARB, for the proven reliability of its four-wheel-drive accessories and other products; Fleetwood, which supplies homes for retirees and the resources industry; and Wridgways, which has a trusted name in removals locally and overseas.
Price says all five stocks are reasonably priced with businesses poised to grow. While paying a fair price is important, even for the best-run companies, he argues that the price you pay for shares becomes less important if you take a long-term view.
This is because prices can be volatile in the short-term, as the market overreacts to positive and negative news, but over the long term prices tend to reflect the companies' intrinsic value.
"If earnings double over the next five years then the share price will double too," Price says.
But that doesn't mean you should pay any price for a great company.
GROWTH PROSPECTS
"You need to pay below intrinsic value to give yourself a margin of safety and only buy businesses whose intrinsic value is rising over time," Montgomery says. "That doesn't happen often but be quick to buy when it does."
That said, three of his picks - JB Hi-Fi, blood plasma group CSL and Cochlear - are no longer trading at a discount but he expects their intrinsic value to increase solidly in the next few years.
Shares in salary-packaging specialist McMillan Shakespeare have been marked down in recent weeks due to speculation about the impact on the group of the Henry Tax Review. This could present a buying opportunity for long-term investors. With its market domination, strong cash flow, high return on equity and no debt to speak of, Montgomery says its market value will rise in the next few years.
Montgomery says the classic example of entrenched competitive advantage is Australia's big four banks. They can and do increase their fees and charges, secure in the knowledge that few customers will walk because changing accounts and direct debits is so much hassle.
Montgomery says Commonwealth Bank stands out thanks to its opportunistic purchase of BankWest. By comparison, some of its competitors raised so much equity during the crisis that they diluted their returns. Commonwealth has a forecast return on equity of about 22 per cent this financial year, compared with 11 per cent to 13 per cent for Westpac, NAB and ANZ.
Montgomery is also a long-time fan of JB Hi-Fi, which has entrenched its position as the cheapest provider of electronics to its insatiable target market of young adults.
"Its gross profit margin is declining because it cuts prices to knock out the competition but its net profit margin keeps going up because it runs the business on the smell of an oily rag," Montgomery says. "It's what's called a profit loop."
JB Hi-Fi's success has also made it a preferred tenant at Westfield shopping centres, reinforcing the virtuous cycle. Montgomery says Woolworths and The Reject Shop follow a similar model and all three have little or no debt and the strong cash flow necessary to pay down debt quickly.
D'Amato also likes "category killers" and plumps for Woolworths, CSL and Coca-Cola Amatil.
Like Woolworths in retail, CSL has firmly established itself as a leader in biopharmaceuticals, a sector with excellent long-term growth prospects. And Coca-Cola dominates the Australian market for beverages by keeping pace with changing consumer preferences. It has added water, juice and food to its carbonated products and is expanding into Asia to ensure future growth.
DIVERSIFICATION
Like Buffett, listed investment company Argo Investments is a good example of patience paying off. But whereas Buffett buys whole companies he likes and holds on to them for the long haul, Argo aims to buy shares in a diverse portfolio of well-managed companies that offer safe, steady long-term growth.
Argo has been investing in Australian listed companies since 1946. Over the past 20 years, it has achieved compound growth of 12.4 per cent a year compared with the 9.7 per cent return from the All Ordinaries Accumulation Index (which measures capital growth plus dividends).
"We aim to buy good stocks and hold them permanently but sometimes there is reason to sell; companies get taken over, for instance, and then you need to buy something else," Argo's managing director, Rob Patterson, says. He says the important thing for investors who want to pick their own stocks (rather than buy shares in a listed investment company or units in a managed fund) is to diversify shareholdings across different market sectors.
"No one knows what the future holds so if you want to pick stocks you need at least 10 to cover your bases," he says.
Lachlan Partners' chief investment officer, Paul Saliba, also aims to deliver a diversified long-term share portfolio for clients not necessarily shooting for the stars but who want good, solid growth with income. But that doesn't necessarily mean set and forget.
Saliba says the group's core portfolio includes defensive stocks such as Woolworths, delivering the goods year after year, and Westpac, which he regards as the most low-risk, well-managed bank. But the core portfolio also includes medium-term tilts towards sectors with the potential to beat the overall market.
For example, BHP-Billiton is riding a wave of strong demand from China and emerging nations, booming commodity prices and the prospect of a further boost in demand as the global economy recovers. BHP is now trading at a price-earning ratio of 19.5 times forecast 2010 earnings, which Saliba regards as fair value considering the high level of growth expected in the years ahead.
Similarly, Saliba thinks Fairfax, publisher of The Sydney Morning Herald and The Age, is well placed to benefit from the improving economy and an increase in job ads.
"Fairfax has underperformed the broader market in recent times but the cyclical nature of the stock makes it a good candidate to hold through the first few years of the economic cycle," he says.
Brambles is another cyclical stock that has been punished by a market concerned about its Chep pallet business in the US.
Saliba says the company has made efforts to address problems with the business and is well placed to profit from the upswing in the global economy as retail sales and the movement of goods increases and drives demand for pallets.
"We recommend good-quality stocks, including some that offer a flavour of the times, that provide opportunity and security at the same time," Saliba says.
COMPANY RESULTS
Long-term investors should not dismiss small companies in their search for safety or they will miss out on the next Google, Microsoft or Berkshire Hathaway, the investment company Buffett founded more than 40 years ago.
Small, well-managed companies with products and services that are in demand have a higher growth profile than larger companies. The trick is to assess the sustainability of the company's earnings with a steely eye and avoid being carried away by hype about blue sky and new paradigms.
"If you pick a quality, diversified portfolio with a spread of companies across different industries and sizes, it boosts your chances of long-term success," D'Amato says.
At the smaller end of the market, he selects IT outsourcing firm ASG Group and Austin Engineering. Austin services the mining and resources industry with operations in Australia, South America and the Middle East.
Listed companies have begun reporting their results for the six months to December, making this an opportune time to put together a list of stocks to keep an eye on.
"For conservative investors, waiting for companies to report before committing your cash is a reasonable strategy," D'Amato says. Not only do companies release their financial results but directors often comment on trading conditions and the outlook for the year ahead.
Patterson says Argo has not bought any stocks this year and declines to offer picks but confirms he is watching the current reporting season for opportunities.
The market tends to punish companies if their results are disappointing. If the selling is overdone and the price of otherwise solid companies is marked down too far, then this presents a potential bargain.
Patterson singles out Worley Parsons, a provider of engineering services to the resources sector. Worley downgraded its earnings guidance on January 13 and its price dropped from just above $30 to below $24. "It was harshly treated by the market but it's on our list to consider," Patterson says.
STOCKS FOR STAYERS
Roger Montgomery
Value Investor
JB Hi-Fi
CSL
Cochlear
Commonwealth Bank
McMillan Shakespeare
John Price
Conscious Investor
Billabong
Cochlear
ARB
Fleetwood
Wridgways
Elio D’Amato
Lincoln
Woolworths
CSL
Coca-Cola Amatil
ASG Group
Austen Engineering
Paul Saliba
Lachlan Partners
BHP-Billiton
Westpac
Woolworths
Fairfax
Brambles
This story was found at: http://www.smh.com.au/articles/2010/02/02/1264876022180.html
Valuing stocks and bonds video
http://www.cosmolearning.com/video-lectures/valuing-stocks-and-bonds-7388/
40 minutes video lecturing on valuing stocks and bonds.
40 minutes video lecturing on valuing stocks and bonds.
Stock Market Strategy: "One-day trade, Swing trade or Long-term trade"
Stock Market Strategy
Stock market is a risky place to make a profit.
Who are these players generating all this trade -speculating or investing - in the stock market?
There are many types of trades in the stock market. However, essentially the three most popular of them are:
It is common to think that the swing trade has a time horizon between the one-day trade and the long-time trade. The time horizon of a swing trade is dependent on the event(s) influencing the player to terminate the trade.
The more astute would notice that all these types are characterized by a single factor (risk tolerance profile) of the players: their ability to hold onto their position in the stock market for various investing time frames.
The beauty of the stock market is that it can be used for various purposes by different investors.
http://www.assetinvesting.com/?p=4473
Stock market is a risky place to make a profit.
Who are these players generating all this trade -speculating or investing - in the stock market?
There are many types of trades in the stock market. However, essentially the three most popular of them are:
1. One-day trade
2. Swing trade
3. Long-time trade.
It is common to think that the swing trade has a time horizon between the one-day trade and the long-time trade. The time horizon of a swing trade is dependent on the event(s) influencing the player to terminate the trade.
The more astute would notice that all these types are characterized by a single factor (risk tolerance profile) of the players: their ability to hold onto their position in the stock market for various investing time frames.
The beauty of the stock market is that it can be used for various purposes by different investors.
http://www.assetinvesting.com/?p=4473
The Best Strategy For Trading On Stock Market
The Best Strategy For Trading On Stock Market
By: Wall Street Window
Tuesday, February 02, 2010 11:59 AM
I've been a successful stock trader for over a decade now and thanks to the Internet my reputation has spread. I have a free email investment letter with over 50,000 subscribers in it and get questions from them all of the time.
Well any strategy has got to incorporate some risk management principles and a real plan when it comes to making trading decisions.
They just turn on the TV and buy when some hot news comes out or read a story in a magazine and get in what looks like a hot stock.
But when you make money like this it is just look and odds are you are going to end up losing money. Even if your stock goes up you won't know what to do with it.
So first of all you need a good strategy when it comes to picking out stocks and making trades. Personally I've looked over decades of market data to figure out what chart patterns appear the most consistently before a stock goes up and then looked at the fundamentals that these stocks seem to have the most in common.
I call this combination the Two Fold Formula. I look for stocks that have both
One of my favorite indicators to do this is the PEG ratio. Unlike the P/E ratio, which just looks at one years worth of earnings the PEG ratio takes the price of a stock and compares it to its projected earning growth for the next five years.
This can give you a great list of the 50 hottest stocks to keep an eye on.
After that l look for a specific chart pattern and technical condition that I've also found to be common to the biggest winners.
To me this is the best strategy for making money in the stock market and I spell it all out for you free in my Two Fold Formula guide. You can get it when you join my free email list.
I believe in providing maximum value for people on my list. This is not a list of pitches and hype, but real information that will make you money in the stock market.
http://www.istockanalyst.com/article/viewarticle/articleid/3829746
By: Wall Street Window
Tuesday, February 02, 2010 11:59 AM
I've been a successful stock trader for over a decade now and thanks to the Internet my reputation has spread. I have a free email investment letter with over 50,000 subscribers in it and get questions from them all of the time.
Probably the most common question I get is what is the best strategy for trading on the stock market?
Well any strategy has got to incorporate some risk management principles and a real plan when it comes to making trading decisions.
Most people don't do this though.
They just turn on the TV and buy when some hot news comes out or read a story in a magazine and get in what looks like a hot stock.
But when you make money like this it is just look and odds are you are going to end up losing money. Even if your stock goes up you won't know what to do with it.
So first of all you need a good strategy when it comes to picking out stocks and making trades. Personally I've looked over decades of market data to figure out what chart patterns appear the most consistently before a stock goes up and then looked at the fundamentals that these stocks seem to have the most in common.
I call this combination the Two Fold Formula. I look for stocks that have both
- a low valuation and
- high earnings growth.
One of my favorite indicators to do this is the PEG ratio. Unlike the P/E ratio, which just looks at one years worth of earnings the PEG ratio takes the price of a stock and compares it to its projected earning growth for the next five years.
So by using the PEG ratio you can make buy decisions based upon the price you are paying for earnings growth.
This can give you a great list of the 50 hottest stocks to keep an eye on.
After that l look for a specific chart pattern and technical condition that I've also found to be common to the biggest winners.
To me this is the best strategy for making money in the stock market and I spell it all out for you free in my Two Fold Formula guide. You can get it when you join my free email list.
I believe in providing maximum value for people on my list. This is not a list of pitches and hype, but real information that will make you money in the stock market.
http://www.istockanalyst.com/article/viewarticle/articleid/3829746
Thailand Encourages Forex Outflows
* FEBRUARY 2, 2010, 11:58 A.M. ET
Thailand Encourages Forex Outflows
By ROBERT FLINT
Thailand has come full circle in its efforts to constrain the baht's appreciation, now encouraging currency outflows after placing short-lived controls on capital inflows a few years ago.
The change in rules had been announced last week, with details revealed Monday in Bangkok. The main points include easing limits on investment and lending abroad as well as looser regulation of corporate management of foreign-exchange risk.
Moreover, regional currencies often serve as a proxy for the yuan, since China's exchange system doesn't allow investors to take positions--and thereby make direct bets--on the yuan.
Thailand has been resisting pressure on the baht from one direction or the other for more than a decade. In the opening round of the Asian financial crisis in the late 1990s, speculation against the baht forced the Thai government to abandon a fixed-rate regime and float its currency. The dollar peaked around THB56 in January 1998, from precrisis levels roughly seven years earlier at THB25.
As the Thai economy recovered, the baht regained a lot of ground on the greenback. Hot money began flowing into the country to take advantage of a booming local stock market, which in turn fed further appreciation of the local currency.
The announcement of controls had a disastrous effect on the Thai stock market, with equity prices plunging close to 15% in their largest-ever one-day loss. The government immediately scaled back on the controls to cease penalizing foreign investors in Thai equities. All controls were gradually relaxed and finally abolished by a newly elected civilian government in March 2008.
The controls on inflows had only a limited effect on the baht. By the time they ended, the dollar was around THB32. Since then, it has fluctuated between THB32 and THB35 and most recently traded just above THB33.
But with the baht once again threatening to push higher, the Thai government chose to encourage outflows rather than restrict inflows. The big question is whether the latest revision to the rules will be more successful than previous attempts that have included repeated intervention in the dollar's favor by the Bank of Thailand.
"Other countries in the region, like China and South Korea, have also tried encouraging investment outflows to remove some of the upward pressure on the currency," Marc Chandler, global head of foreign exchange at Brown Brothers Harriman, said in a note.
"It is not clear that the measures in those countries have had much impact on outflows or the respective currencies," Mr. Chandler said.
There wasn't much immediate effect on the baht Monday, with the greenback down slightly to THB33.160 from THB33.179 late Friday, in line with declines against other currencies.
Some analysts doubt that Thai companies have enough money to invest abroad on a scale that would have an impact on the baht's exchange rate. In fact, there may be nothing the Thai government can do to guide its currency in the direction it deems best. The baht may remain a prisoner of movements in the yuan and dollar, whatever strategy Thai authorities choose.
Write to Robert Flint at robert.flint@dowjones.com
http://online.wsj.com/article/SB10001424052748704022804575041090733252952.html?mod=WSJ_Markets_section_Currencies
Thailand Encourages Forex Outflows
By ROBERT FLINT
Thailand has come full circle in its efforts to constrain the baht's appreciation, now encouraging currency outflows after placing short-lived controls on capital inflows a few years ago.
The change in rules had been announced last week, with details revealed Monday in Bangkok. The main points include easing limits on investment and lending abroad as well as looser regulation of corporate management of foreign-exchange risk.
It's another chapter in the struggle by regional Asian currencies to maintain an independent course in the shadow of the Chinese yuan. As long as China keeps the yuan stable against the dollar, its smaller neighbors can't let their currencies appreciate too much so as not to diminish the competitiveness of their exports.
Moreover, regional currencies often serve as a proxy for the yuan, since China's exchange system doesn't allow investors to take positions--and thereby make direct bets--on the yuan.
Thailand has been resisting pressure on the baht from one direction or the other for more than a decade. In the opening round of the Asian financial crisis in the late 1990s, speculation against the baht forced the Thai government to abandon a fixed-rate regime and float its currency. The dollar peaked around THB56 in January 1998, from precrisis levels roughly seven years earlier at THB25.
As the Thai economy recovered, the baht regained a lot of ground on the greenback. Hot money began flowing into the country to take advantage of a booming local stock market, which in turn fed further appreciation of the local currency.
By December 2006, the dollar had reached a nine-year low versus the baht and threatened to dip below THB35 if left unchecked. In response, the military-appointed government of the time imposed capital controls to hinder the inflow of short-term speculative funds.
The announcement of controls had a disastrous effect on the Thai stock market, with equity prices plunging close to 15% in their largest-ever one-day loss. The government immediately scaled back on the controls to cease penalizing foreign investors in Thai equities. All controls were gradually relaxed and finally abolished by a newly elected civilian government in March 2008.
The controls on inflows had only a limited effect on the baht. By the time they ended, the dollar was around THB32. Since then, it has fluctuated between THB32 and THB35 and most recently traded just above THB33.
But with the baht once again threatening to push higher, the Thai government chose to encourage outflows rather than restrict inflows. The big question is whether the latest revision to the rules will be more successful than previous attempts that have included repeated intervention in the dollar's favor by the Bank of Thailand.
"Other countries in the region, like China and South Korea, have also tried encouraging investment outflows to remove some of the upward pressure on the currency," Marc Chandler, global head of foreign exchange at Brown Brothers Harriman, said in a note.
"It is not clear that the measures in those countries have had much impact on outflows or the respective currencies," Mr. Chandler said.
There wasn't much immediate effect on the baht Monday, with the greenback down slightly to THB33.160 from THB33.179 late Friday, in line with declines against other currencies.
Some analysts doubt that Thai companies have enough money to invest abroad on a scale that would have an impact on the baht's exchange rate. In fact, there may be nothing the Thai government can do to guide its currency in the direction it deems best. The baht may remain a prisoner of movements in the yuan and dollar, whatever strategy Thai authorities choose.
Write to Robert Flint at robert.flint@dowjones.com
http://online.wsj.com/article/SB10001424052748704022804575041090733252952.html?mod=WSJ_Markets_section_Currencies
Good strategies for buying in and for preventing big losses
Strategies for buying in:
Strategies for preventing big losses:
Dollar cost averaging and phasing in strategies are useful for those who wish to reduce the risks associated with market timing.
Regardless of the buying in strategies (lump sum, dollar cost averaging or phasing in), acquisitions should only be done when the stock is available at bargain price or fair price, and certainly never when it is overpriced.
Stop-loss maybe unnecessary for some or many investors if the other risk management ideas are followed.
Value investors with a long term investing time horizon rarely need to use stop loss strategy. In fact, the drop in price offers an opportunity for the value investor to reduce his cost per share. This is safe provided he has not made a mistake in his initial assessment of the quality, value and management (QVM) of the stock.
Rebalancing at regular or fixed intervals can be usefully employed to bring his equity portion to a previously determined set proportion of his asset allocations in his portfolio. This is particularly useful for those who are unable to take big risks (big losses: real or missed profit losses) during the bear or bull markets.
Though theoretically attractive, to be able to profit through rebalancing, near the peak of the bull or near the depth of the bear market, assumes one has the ability to predict (time) the market consistently. This is of course not possible.
Always keep in perspective the 3 personal factors that are very important in your investing: time horizon, risk tolerance and investing objectives.
- Lump sum investing
- Dollar cost averaging
- Phasing in
Strategies for preventing big losses:
- Stop loss strategy
- Rebalancing
Dollar cost averaging and phasing in strategies are useful for those who wish to reduce the risks associated with market timing.
Regardless of the buying in strategies (lump sum, dollar cost averaging or phasing in), acquisitions should only be done when the stock is available at bargain price or fair price, and certainly never when it is overpriced.
Stop-loss maybe unnecessary for some or many investors if the other risk management ideas are followed.
Value investors with a long term investing time horizon rarely need to use stop loss strategy. In fact, the drop in price offers an opportunity for the value investor to reduce his cost per share. This is safe provided he has not made a mistake in his initial assessment of the quality, value and management (QVM) of the stock.
Rebalancing at regular or fixed intervals can be usefully employed to bring his equity portion to a previously determined set proportion of his asset allocations in his portfolio. This is particularly useful for those who are unable to take big risks (big losses: real or missed profit losses) during the bear or bull markets.
Though theoretically attractive, to be able to profit through rebalancing, near the peak of the bull or near the depth of the bear market, assumes one has the ability to predict (time) the market consistently. This is of course not possible.
Always keep in perspective the 3 personal factors that are very important in your investing: time horizon, risk tolerance and investing objectives.
Is 1Malaysia for real?
Why are the facts twisted? And with such insensitivities. Are there more of such people in the PM's office?. A consolation, PM Najib acted swiftly to demand Nasir's resignation.
http://www.themalaysianinsider.com/index.php/malaysia/51779-racism-hinders-najibs-1-malaysia
Tuesday 2 February 2010
How an investor picks "good" businesses to invest
Buy Good Companies
This investor invests in "good' businesses. What are "good" businesses?
Although he buy shares with the expectation that he will one day sell them, he prefers to hold on to them for a number of years and rides the companies' performance.
If he will commit at least 5% of his assets to a company, he must be sure that it has a considerably more than a fair chance of working out.
Though he does not want to control the business, he sees himself as owner of a business and its surplus cash flow.
He expects to get his returns from the company's profitable operations as these become reflected in the price of its shares.
(This stance is considerably different from that of value investors who buy cheap stocks that have fallen below the reproduction cost of the assets and wait for the market to realise that it has overreacted.)
He looks for other signs that identify the kind of good businesses he covets.
High profit margins are a positive mark; these make the company's earnings less vulnerable to changes in the level of sales. They may also indicate that the company is operating within a franchise and is less susceptible to having its profits eroded by a new entrant.
He likes duopolies, because the two firms generally do not compete intensely with one another, and certainly not on price, so each is left with a high return on capital. Monopolies, by contrast, are always subject to government intervention, either to break them up or regulate their earnings. And even if governments do nothing, they are an invitation to new competitors to try to capture some of their very lucrative business, often by using a newer technology that allows the entrant to leapfrog the incumbent with lower prices or better products.
In making his long-term commitments, he wants to invest with smart management that has the shareholders' interests in mind. He has had generally bad experiences when he tried to influence managers to change direction, and he is not contentious enough by temperament to enjoy the struggle. It may be true that a company being run by superior executives has nowhere to go but down once those managers leave, and that buying the stock of a poorly run company at a deeply depressed price can position the investor for a profit once management improves. But that is a speculative bet; sometimes bad management stays in place for decades.
He expects to own his stock for 4 or 5 years. He doesn't want to wait on the chance that better management will show up, and he doesn't want to lead a shareholder revolt to make that happen. All he needs to know is that the current managers are healthy and young enough to keep the company on course for a few more years.
Buy Them Cheap
He normally holds shares in 10 or even fewer companies, on average he needs to put a lot of money into any one name. Because great situations are so difficult to find, he is prepared to buy 20% or more of any one company.
While there are around 1,500 or more companies large enough for him to own, his "good business" requirement probably shrinks that list by 80%, leaving him with no more than 300 possible candidates. But even within this restricted universe, he is brutally selective.
He is looking for "two-inch putts," by which he means investments that will provide him with a high rate of return while subjecting him to a low level of risk. There is only one way he can meet that goal. He has to spot companies that meet all his standards and are still available at a price that will provide him a high rate of return based on future earnings growth.
He is not attracted to turnaround companies or cyclicals, where a successful investment depends on timing. He does not believe in speculating that an underperforming company will be taken over, because most managements resist selling out. Opportunities to make this kind of investment arise irregularly, and then due to unpredictable circumstances. For example, a change in government regulations can be the vehicle. The newness of the issue, and the volume of shares available at one time kept them cheap, at least initially.
Sometimes a cloud settles over whole industries based on little more than questionable assumptions about the future. This provides him opportunities to buy good companies cheap.
Glenn Greenberg of the Chieftain Capital Management.
This investor invests in "good' businesses. What are "good" businesses?
- They are unchallenged by new entrants.
- They have growing earnings.
- They are not vulnerable to being technologically undermined.
- They can generate enough free cash flow on a regular basis to make the shareholders happy, either through dividends, share repurchase, or intelligent reinvestment.
Although he buy shares with the expectation that he will one day sell them, he prefers to hold on to them for a number of years and rides the companies' performance.
If he will commit at least 5% of his assets to a company, he must be sure that it has a considerably more than a fair chance of working out.
Though he does not want to control the business, he sees himself as owner of a business and its surplus cash flow.
He expects to get his returns from the company's profitable operations as these become reflected in the price of its shares.
(This stance is considerably different from that of value investors who buy cheap stocks that have fallen below the reproduction cost of the assets and wait for the market to realise that it has overreacted.)
He looks for other signs that identify the kind of good businesses he covets.
High profit margins are a positive mark; these make the company's earnings less vulnerable to changes in the level of sales. They may also indicate that the company is operating within a franchise and is less susceptible to having its profits eroded by a new entrant.
He likes duopolies, because the two firms generally do not compete intensely with one another, and certainly not on price, so each is left with a high return on capital. Monopolies, by contrast, are always subject to government intervention, either to break them up or regulate their earnings. And even if governments do nothing, they are an invitation to new competitors to try to capture some of their very lucrative business, often by using a newer technology that allows the entrant to leapfrog the incumbent with lower prices or better products.
In making his long-term commitments, he wants to invest with smart management that has the shareholders' interests in mind. He has had generally bad experiences when he tried to influence managers to change direction, and he is not contentious enough by temperament to enjoy the struggle. It may be true that a company being run by superior executives has nowhere to go but down once those managers leave, and that buying the stock of a poorly run company at a deeply depressed price can position the investor for a profit once management improves. But that is a speculative bet; sometimes bad management stays in place for decades.
He expects to own his stock for 4 or 5 years. He doesn't want to wait on the chance that better management will show up, and he doesn't want to lead a shareholder revolt to make that happen. All he needs to know is that the current managers are healthy and young enough to keep the company on course for a few more years.
Buy Them Cheap
He normally holds shares in 10 or even fewer companies, on average he needs to put a lot of money into any one name. Because great situations are so difficult to find, he is prepared to buy 20% or more of any one company.
While there are around 1,500 or more companies large enough for him to own, his "good business" requirement probably shrinks that list by 80%, leaving him with no more than 300 possible candidates. But even within this restricted universe, he is brutally selective.
He is looking for "two-inch putts," by which he means investments that will provide him with a high rate of return while subjecting him to a low level of risk. There is only one way he can meet that goal. He has to spot companies that meet all his standards and are still available at a price that will provide him a high rate of return based on future earnings growth.
He is not attracted to turnaround companies or cyclicals, where a successful investment depends on timing. He does not believe in speculating that an underperforming company will be taken over, because most managements resist selling out. Opportunities to make this kind of investment arise irregularly, and then due to unpredictable circumstances. For example, a change in government regulations can be the vehicle. The newness of the issue, and the volume of shares available at one time kept them cheap, at least initially.
Sometimes a cloud settles over whole industries based on little more than questionable assumptions about the future. This provides him opportunities to buy good companies cheap.
Glenn Greenberg of the Chieftain Capital Management.
How to Identify Stock Bull Market Tops
Many Symptoms occur When Bull Market is at Major Top .These are given below
1. Yearly High of Stock Index much higher than Previous year’s High
2. Now of Shares hitting new High as percentage of Total Shares Climbs new peak
3. Very Fast upsurge in Stock prices and indices
4. Near unanimous view of Experts that This is Start of biggest bull in History
5. General Magazines Which Do not Care About Stock Markets in Normal time, puts bull run in Cover Story
6.New Theories to justify high prices, in 2008 we had the Decoupling Stheory
7. A Sea of New Investors enter the Stock market with Dreams of instant Rich
8.Market Stops reacting to Good News
http://nse2rich.com/how-to-identify-stock-bull-market-tops-are-sensex-nifty-near-the-top/
So these were the Symptoms.
Are we at Top of 2010 now or is This Bull market still Alive?
Are We are Still Quite Far From Bull market top?
What will be your decision?
What are your actions: staying invested, rebalancing or divesting partially or divesting totally?
But then you will be timing the market, a dangerous strategy too!
1. Yearly High of Stock Index much higher than Previous year’s High
2. Now of Shares hitting new High as percentage of Total Shares Climbs new peak
3. Very Fast upsurge in Stock prices and indices
4. Near unanimous view of Experts that This is Start of biggest bull in History
5. General Magazines Which Do not Care About Stock Markets in Normal time, puts bull run in Cover Story
6.New Theories to justify high prices, in 2008 we had the Decoupling Stheory
7. A Sea of New Investors enter the Stock market with Dreams of instant Rich
8.Market Stops reacting to Good News
http://nse2rich.com/how-to-identify-stock-bull-market-tops-are-sensex-nifty-near-the-top/
So these were the Symptoms.
Are we at Top of 2010 now or is This Bull market still Alive?
Are We are Still Quite Far From Bull market top?
What will be your decision?
What are your actions: staying invested, rebalancing or divesting partially or divesting totally?
But then you will be timing the market, a dangerous strategy too!
The Simplest Stock Buy-Sell Decision Rules
http://stockmarket.globalthoughtz.com/index.php/stock-buy-sell-decision-rule/
People gain from stock market because stock market does not fully reflect a stock’s “real” value. After all, why would we all are doing stock market analysis if the stock prices were always correct? In financial jargon, this true value is known as the intrinsic value.
For example, let’s say that a company’s stock was trading at $40. After doing extensive homework on the company, you determine that it really is worth $50. In other words, you determine the intrinsic value of the firm to be $50. This is clearly relevant because an investor wants to buy stocks that are trading at prices significantly below their estimated intrinsic value.
The comparison between market price and intrinsic value helps to make decisions regarding the buying or selling of a particular share.
The following notes show the comparison, decision and reason:
1 Market price < Intrinsic value
e.g. $ 50 < $ 60
2 Market price > Intrinsic value
e.g. $ 40 > $ 30
3 Market price = Intrinsic value Correctly
e.g. $ 20 = $ 20 priced
1) You don’t know if your estimate of intrinsic value is correct; and
2) You don’t know how long it will take for the intrinsic value to be reflected in the marketplace.
People gain from stock market because stock market does not fully reflect a stock’s “real” value. After all, why would we all are doing stock market analysis if the stock prices were always correct? In financial jargon, this true value is known as the intrinsic value.
For example, let’s say that a company’s stock was trading at $40. After doing extensive homework on the company, you determine that it really is worth $50. In other words, you determine the intrinsic value of the firm to be $50. This is clearly relevant because an investor wants to buy stocks that are trading at prices significantly below their estimated intrinsic value.
The comparison between market price and intrinsic value helps to make decisions regarding the buying or selling of a particular share.
The following notes show the comparison, decision and reason:
1 Market price < Intrinsic value
e.g. $ 50 < $ 60
- Under- priced
- Buy
- Because the market price increases to meet the value and we can gain from the price rise.
2 Market price > Intrinsic value
e.g. $ 40 > $ 30
- Over- priced
- Sell
- Because the market price falls to meet its value and we can avoid the loss by selling the share now.
3 Market price = Intrinsic value Correctly
e.g. $ 20 = $ 20 priced
- No action
- Because it is correctly priced and the price is not expected to change.
- Therefore there is no profit likely to be made from buying or selling the share.
4 Market price almost equal to Intrinsic value
e.g. $ 40 is almost equal to $ 42- No action
- Because the difference in the value and price can not offset the transaction cost and we can incur losses.
The big unknowns are:
1) You don’t know if your estimate of intrinsic value is correct; and
2) You don’t know how long it will take for the intrinsic value to be reflected in the marketplace.
Mastering Your Craft at Stock Picking
The pattern of learning anything begins with theoretical understandings initially and practical understanding later. That is, general principles first, and then particular instances of those principles.
The 10,000-hour rule (i.e. one cannot master a subject or skill until he’s practiced it for at least 10,000 hours) is true.
To be good at picking stocks, a further 40,000 hours of studying it will certainly (all else equal) yield a better stock picker!
However, it would be better to attain 10,000 to 20,000 hours of study or practice in several, related fields.
http://prisonproxy.blogspot.com/2010/02/mastering-your-craft.html
The 10,000-hour rule (i.e. one cannot master a subject or skill until he’s practiced it for at least 10,000 hours) is true.
To be good at picking stocks, a further 40,000 hours of studying it will certainly (all else equal) yield a better stock picker!
However, it would be better to attain 10,000 to 20,000 hours of study or practice in several, related fields.
http://prisonproxy.blogspot.com/2010/02/mastering-your-craft.html
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