A penny saved can grow into a dollar through the power of compound interest.
Monday, 13 August 2012
"Go for the jugular"
When the opportunity presents itself, buy enough to make a real difference to your wealth. Don't buy piddling amounts. "Go for the jugular."
There are times when the stock markets are selling at a steep discount. At such times, Buffett says he feels like an oversexed guy in a whorehouse, and his main complaint is that he doesn't have ENOUGH money to buy ALL the bargains he can see. At other times, when he sees a stock he really likes (like Coke), he'll simply buy as much as he can.
"Too much of a good thing can be wonderful." - Mae West
There are times when the stock markets are selling at a steep discount. At such times, Buffett says he feels like an oversexed guy in a whorehouse, and his main complaint is that he doesn't have ENOUGH money to buy ALL the bargains he can see. At other times, when he sees a stock he really likes (like Coke), he'll simply buy as much as he can.
"Too much of a good thing can be wonderful." - Mae West
It is unwise to spread one's funds over too many different securities.
It is unwise to spread one's funds over too many different securities. Time and energy are required to keep abreast of the forces that may change the value of a security. While one can know all there is to know about a few issues, one cannot possibly know all one needs to know about a great many issues.
Diversification - or concentration - of an investment portfolio directly correlates with the amount of time and energy put into making the selections. The more diversification, the less time for each decision.
"Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing." - Warren Buffett
Diversification - or concentration - of an investment portfolio directly correlates with the amount of time and energy put into making the selections. The more diversification, the less time for each decision.
"Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing." - Warren Buffett
Diversification and fear of risk
Fear of risk is a legitimate fear - it is the fear of losing money.
Master investors don't fear risk, because they passionately and actively avoid it. Fear results from uncertainty about the outcome, and a master investor only makes an investment when he has strong reasons to believe he'll achieve the result he wants.
Those who follow the conventional advice to diversify simply don't understand the nature of risk, and they don't believe it is possible to avoid risk AND make money at the same time.
While diversification is certainly a method for minimizing risk, it has one unfortunate side-effect: it also minimizes profit.
Master investors don't fear risk, because they passionately and actively avoid it. Fear results from uncertainty about the outcome, and a master investor only makes an investment when he has strong reasons to believe he'll achieve the result he wants.
Those who follow the conventional advice to diversify simply don't understand the nature of risk, and they don't believe it is possible to avoid risk AND make money at the same time.
While diversification is certainly a method for minimizing risk, it has one unfortunate side-effect: it also minimizes profit.
Saturday, 11 August 2012
Quality first, Price second
Philip Fisher: Quality first, Price second
Fisher formulated a clear and sensible investing strategy (which I'll get to in a second), wrote one of the best investment books of all time, Common Stocks and Uncommon Profits, and made a good deal of money for himself and his clients.
His son wrote that Phil's best advice was
-to "always think long term,"
-to "buy what you understand," and
-to own "not too many stocks."
Charles Munger, who is Buffett's partner, praised Fisher at the 1993 annual meeting of their company, Berkshire Hathaway Inc. (BRK/A): "Phil Fisher believed in concentrating in about 10 good investments and was happy with a limited number. That is very much in our playbook. And he believed in knowing a lot about the things he did invest in. And that's in our playbook, too. And the reason why it's in our playbook is that to some extent, we learned it from him."
In addition to the warning against over-diversification — or what Peter Lynch, the great Fidelity Magellan fund manager, calls "de-worse-ification" — the book makes three important points:
(1) First, don't worry too much about price. (Quality first, Price second)
- "Even in these earlier times [he's talking here about 1913], finding the really outstanding companies and staying with them through all the fluctuations of a gyrating market proved far more profitable to far more people than did the more colorful practice of trying to buy them cheap and sell them dear."
- In fretting about whether a stock is cheap or expensive, many investors miss out on owning great companies. My own rule is: quality first, price second.
(2) Second, Fisher says that investors must ask, "Does the company have a management of unquestionable integrity?"
(3) Finally, Fisher offered the best advice ever on selling stocks. "It is only occasionally," he wrote, "that there is any reason for selling at all."
Yes, but what are those occasions? They come down to this: Sell if a company hasdeteriorated in some important way. And I don't mean price!
Fisher's view, instead, is to look to the business — the company itself, not the stock.
"When companies deteriorate, they usually do so for one of two reasons:
- Either there has been a deterioration of management, or
- the company no longer has the prospect of increasing the markets for its product in the way it formerly did."
A stock-price decline can be a key signal: "Pay attention! Something may be wrong!" But the decline alone would not prompt me to sell. Nor would a rise in price.
Time to sell? If you did, you missed another doubling.
"How long should you hold a stock? As long as the good things that attracted you to the company are still there."
Fisher formulated a clear and sensible investing strategy (which I'll get to in a second), wrote one of the best investment books of all time, Common Stocks and Uncommon Profits, and made a good deal of money for himself and his clients.
His son wrote that Phil's best advice was
-to "always think long term,"
-to "buy what you understand," and
-to own "not too many stocks."
Charles Munger, who is Buffett's partner, praised Fisher at the 1993 annual meeting of their company, Berkshire Hathaway Inc. (BRK/A): "Phil Fisher believed in concentrating in about 10 good investments and was happy with a limited number. That is very much in our playbook. And he believed in knowing a lot about the things he did invest in. And that's in our playbook, too. And the reason why it's in our playbook is that to some extent, we learned it from him."
In addition to the warning against over-diversification — or what Peter Lynch, the great Fidelity Magellan fund manager, calls "de-worse-ification" — the book makes three important points:
(1) First, don't worry too much about price. (Quality first, Price second)
- "Even in these earlier times [he's talking here about 1913], finding the really outstanding companies and staying with them through all the fluctuations of a gyrating market proved far more profitable to far more people than did the more colorful practice of trying to buy them cheap and sell them dear."
- In fretting about whether a stock is cheap or expensive, many investors miss out on owning great companies. My own rule is: quality first, price second.
(2) Second, Fisher says that investors must ask, "Does the company have a management of unquestionable integrity?"
(3) Finally, Fisher offered the best advice ever on selling stocks. "It is only occasionally," he wrote, "that there is any reason for selling at all."
Yes, but what are those occasions? They come down to this: Sell if a company hasdeteriorated in some important way. And I don't mean price!
Fisher's view, instead, is to look to the business — the company itself, not the stock.
"When companies deteriorate, they usually do so for one of two reasons:
- Either there has been a deterioration of management, or
- the company no longer has the prospect of increasing the markets for its product in the way it formerly did."
A stock-price decline can be a key signal: "Pay attention! Something may be wrong!" But the decline alone would not prompt me to sell. Nor would a rise in price.
Time to sell? If you did, you missed another doubling.
"How long should you hold a stock? As long as the good things that attracted you to the company are still there."
Should You Support Your Adult Child?
|
March 21, 2010
Personally, I think that it is fine to support my adult child and he is welcome to stay at home within certain conditions or parameters. One of the ground rules I would insist upon is that my adult child helps with the household chores and if he is working, he should contribute towards the household expenses as well. One day, I would expect him to move out and build a family of his own. However, I would not kick him out of the house when family support is still needed. Money concerns One of the main concerns when an adult child lives with the parents is on money matters. I would not want to jeopardize my own financial future to support my adult child continuously. Your adult child has to understand that you are not going to sponsor his leisure pursuits or other hobbies while staying with you. You are not his banker unless he is committed to repaying the money. I would love to help my adult child once in awhile (if I can afford it) but it will be my decision whether to do so or not. Educate him quickly! Your adult child needs to be taught to live within his means, start to build a nest egg as soon as possible and not to fall victim to money traps like credit cards. An important priority is finding a source of income (not the parents) like getting a good paying job or jobs (it does not hurt to work hard especially when you are still young). It is imperative that your child loves his work and finds it fulfilling. Teach him how to budget and to pay his bills on time. If he has trouble paying his bills, do not rush in immediately to bail him out. He has to figure out how to solve his money problems with your advice and guidance. In short, the goal is getting your adult child to be independent and take control of his own life. You would not want him still dependent on you especially during your retirement period, right? |
http://www.investlah.com/forum/index.php/topic,7271.0.html
Warren Buffett's approach is reasonable, give them enough to be
comfortable but not so much as to end up as useless human trash.
Related:
http://malaysiafinance.blogspot.com/2012/08/let-man-be-man-he-is.html
Warren Buffett's approach is reasonable, give them enough to be
comfortable but not so much as to end up as useless human trash.
Related:
Let The Man Be The Man He Is
http://malaysiafinance.blogspot.com/2012/08/let-man-be-man-he-is.html
Friday, 10 August 2012
Avoiding Stocks Is a Big Mistake: Vanguard Founder
By Lee Brodie | CNBC – Mon, Aug 6, 2012
If you don't have money in the stock market (^GSPC) and you hope to retire someday, the founder of The Vanguard Group says you're making a big mistake.
John 'Jack' Bogle tells us if you're investing for the long-term don't get spooked by events of late. "Knight Capital is meaningless for anyone in the market for the long haul," he says. "In fact, you're probably in a mutual fund and you can pat yourself on the back for being smart."
In other words, for most individual investors the risk from Knight Capital is non-existent because most individuals hold a basket of stocks and the diversity of the basket hedges out the single stock risk.
And he takes issue with commentary from Bill Gross who believes "the cult of equity is dying."
"Like a once bright green aspen turning to subtle shades of yellow then red in the Colorado fall, investors' impressions of 'stocks for the long run' or any run have mellowed as well," Gross says.
The analogy of stock investing to autumn may be poetic, but it's not accurate and never will be, according to Bogle. "Equities offer higher risk and will therefore always generate higher reward," he argues. Therefore, "The cult of equity is never going to be over."
And he takes issue with commentary from Bill Gross who believes "the cult of equity is dying."
"Like a once bright green aspen turning to subtle shades of yellow then red in the Colorado fall, investors' impressions of 'stocks for the long run' or any run have mellowed as well," Gross says.
The analogy of stock investing to autumn may be poetic, but it's not accurate and never will be, according to Bogle. "Equities offer higher risk and will therefore always generate higher reward," he argues. Therefore, "The cult of equity is never going to be over."
Bogle goes on to remind us that in 1979 BusinessWeek made the same argument.
The article came out right before the beginning of one of the greatest bull markets of the 20thcentury, Bogle insists. "It's always a question of balance but anyone who is out of stocks right now is making a big mistake.
The article came out right before the beginning of one of the greatest bull markets of the 20thcentury, Bogle insists. "It's always a question of balance but anyone who is out of stocks right now is making a big mistake.
Thursday, 9 August 2012
Buy and Hold: Still Alive and Well
By Morgan Housel
August 7, 2012
Meet Bill. He invested $10,000 in an S&P 500 (INDEX: ^GSPC ) index fund 10 years ago and checked his account balance for the first time yesterday morning. He's elated to see his investment is now worth $19,590 after all dividends were reinvested.
Bill knows a thing or two about market history. He knows that, historically, he earned a good return -- 7% a year, or close to average. He remembers that during that decade we endured two wars, a housing bubble, a collapse of the financial system, the worst recession since the Great Depression, 10% unemployment, a near shutdown of the government, a downgrade of U.S. debt, and Justin Bieber. Through it all, he managed to nearly double his money without lifting a finger.
"Buy and hold works wonders," he thinks to himself.
But then he starts reading market news. Almost without exception, he finds that commentators have declared buy and hold dead, using the last decade as proof.
Buy and Hold Is Dead (Again) is the title of one popular book. "Holding an index or mutual fund for decades will not work for today's investor as spikes in volatility and risk can quickly wipe out any gains," one article warns.
"The only way to make money in the equity market is to be nimble, and that means adopting a strategy that is not buy and hold," he reads. "Buy & hold is a relic of a bygone era when the economy was stable and consistent growth was the norm," another analyst laments.
"What are these people talking about?" Bill wonders. He spent the decade visiting his kids, taking trips to the beach, reading good books, and enjoying life -- and managed to double his money all the while. These professionals, it seems, spent the decade poring over financial news, trading obsessively, stressing themselves relentlessly, and they're bitter about the market.
Bill knows why they're bitter. They didn't double their money. They likely lost money. Most traders do -- a fact he's well aware of. The only people who think buy and hold is dead, he realizes, are those frustrated with their inability to follow it.
Bill is fictitious, but the numbers and analyst quotes here are real.
Going back to the late 19th century, the average subsequent 10-year market return from any given month is about 9% a year (including dividends). If you rank the periods, the time from August 2002 to August 2012 sits near the middle of the pack. What we've experienced over the last decade has been pretty normal, in other words. This goes against the thousands of colorful buy-and-hold eulogies written in the last few years, but it has the added benefit of being accurate.
And even it understates reality. The S&P 500 is weighted toward the market cap of its components, a quirk that skewed it toward some of the most overvalued companies in the last decade. An equal-weight index -- one that holds every company in equal amounts and provides a better view of how companies actually performed -- returned more than 140% during the decade.
Why have so many declared buy and hold dead? I think it's all about two points.
First, if Bill started investing just two years earlier, his returns through today would be dismal. 2000 was the peak of the dot-com bubble; 2002 was the depth of its aftershock recession. Bill started investing when stocks were cheap, setting him up for good returns today. The majority of today's investors, who likely began investing during the insane late '90s, have fared far worse.
But that doesn't prove buy and hold is dead. It just proves that the deluded interpretation of it -- that you can buy stocks any time at any price and still do well -- is wrong. But it was always wrong. It just became easy to forget during the '90s bubble. For as long as people have been investing it's been true that if you pay too much for an asset, you won't do well in the long run. If you buy the S&P 500 at 30 or 40 times earnings, as people did in the late '90s, you're going to fail. If you do like Bill and wait until it's closer to its historic average of 15-20 times earnings (or even better, lower), you'll do all right. Nothing about the last decade has changed that. The '90s, not the 2000s, were the fluke.
Second, most people know that buy and hold means holding for a long time, like 10 or even 20 years ("Our favorite holding period is forever," says Warren Buffett.) But, in an odd mental twist, they use volatility measured in months or even weeks to reason that it doesn't work.
The market suffered all kinds of schizophrenic turns over the last decade. Since 2002, there have been 401 days of the Dow Jones (INDEX: ^DJI ) rising or falling more than 1.5%, and 83 days of it going up or down more than 3%. These can be emotionally devastating for investors following daily market news, watching their wealth surge and crash before their eyes.
But Bill didn't even know about them. He was too busy enjoying his sanity at the beach. He knew he was investing for the long haul, and that he bought at a decent price. Why should he care what stocks do on a daily, monthly, or even yearly basis? While others tumbled through manias and panics, Bill's blissful ignorance was one of his greatest advantages -- as it is for most buy-and-hold investors.
Naysayers of buy-and-hold investing lose track of this to an almost comical degree. The "flash crash" of 2010 sent stocks plunging for 18 minutes before rebounding. Last week'ssnafu by market-maker Knight Capital caused a handful of companies to log some funny quotes for half an hour. These events should be utterly meaningless to long-term investors. Yet the number citing them as proof that buy and hold no longer works is astounding.
Jason Zweig of The Wall Street Journal quoted an investor last week dismayed with the Knight Capital fiasco. "You could buy and hold a company for 15 years and then have everything you've built up disappear in five minutes," he said. The same fear was echoed two years earlier during the Flash Crash.
Folks, accept some frank advice: If you measure your portfolio in five-minute intervals, you shouldn't be investing. If you think business value is "lost" by a few misquoted trades, you shouldn't be investing. Value is created when a business earns profit, allocates it wisely to its owners, and compounds year after year. An errant stock trade doesn't make a company less valuable any more than misplacing your birth certificate for 18 minutes makes you less alive.
"There's no such thing as a widows-and-orphans stock anymore," Zweig's investor complains.
Sure there is. Ask Bill.
Also read:
*****Long term investing based on Buy and Hold works for Selected Stocks
Buy and hold until fundamentals change is safe for selected stocks.
The Death Of Buy & Hold Strategy
Wednesday, 8 August 2012
Indonesia Q2 GDP up 6.4pc
2012/08/07
JAKARTA: Indonesia's economic growth surprisingly picked up in the second quarter of this year, fuelled by easy credit and strong domestic demand, signalling Southeast Asia remains resilient to the global slowdown.
Most economists expect the central bank to keep interest rates on hold at a record low into next year to drive growth, although some have cautioned that tighter policy might be needed beyond that to dampen domestic demand that is causing a trade deficit.
Indonesia's statistics bureau said gross domestic product growth (GDP) last quarter was 6.4 per cent from a year earlier against 6.3 per cent in the first quarter, helped by domestic consumption and investment. GDP grew by 2.8 per cent on a quarterly basis, although the figures are not seasonally adjusted.
"The strong Q2 growth provides a cushion against the risk of further growth setbacks in the rest of the year," said Aninda Mitra, an economist at ANZ Bank in Singapore.
"But we still think policymakers will need to tighten policies to ensure that the strong growth does not destabilise the external financing gap, which could be rupiah negative and ultimately not good for inflation either."
Economists had forecast that annual growth in Southeast Asia's largest economy would ease to 6.1 per cent, citing shrinking exports.
Financial markets showed little reaction to the data, which showed that buoyant domestic demand, especially in transport, hotels and government consumption, kept growth on an even keel.
Thailand and Malaysia are also expected to post a pick up in growth in the second quarter versus the first quarter, economists have said.
After China, Indonesia's growth is also the highest among the world's leading emerging economies.
As demand from China and Europe fell in recent months, Indonesia has had consecutive trade deficits between April and June, weighing on the rupiah.
A burgeoning appetite for imports, from wheat for fast food to iPads and luxury cars, in a country that mostly exports raw commodities such as coal and crude palm oil, created a US$1.3 billion trade deficit in June - a deficit economists see continuing to the end of 2012 to keep pressure on the rupiah.
Expectations for slower growth meant economists had started to call for rate cuts this year. But most now see rates on hold into 2013 as Bank Indonesia will want to support annual growth towards President Susilo Bambang Yudhoyono's target of seven per cent by 2014. Reuters
Most economists expect the central bank to keep interest rates on hold at a record low into next year to drive growth, although some have cautioned that tighter policy might be needed beyond that to dampen domestic demand that is causing a trade deficit.
Indonesia's statistics bureau said gross domestic product growth (GDP) last quarter was 6.4 per cent from a year earlier against 6.3 per cent in the first quarter, helped by domestic consumption and investment. GDP grew by 2.8 per cent on a quarterly basis, although the figures are not seasonally adjusted.
"The strong Q2 growth provides a cushion against the risk of further growth setbacks in the rest of the year," said Aninda Mitra, an economist at ANZ Bank in Singapore.
"But we still think policymakers will need to tighten policies to ensure that the strong growth does not destabilise the external financing gap, which could be rupiah negative and ultimately not good for inflation either."
Economists had forecast that annual growth in Southeast Asia's largest economy would ease to 6.1 per cent, citing shrinking exports.
Financial markets showed little reaction to the data, which showed that buoyant domestic demand, especially in transport, hotels and government consumption, kept growth on an even keel.
Thailand and Malaysia are also expected to post a pick up in growth in the second quarter versus the first quarter, economists have said.
After China, Indonesia's growth is also the highest among the world's leading emerging economies.
As demand from China and Europe fell in recent months, Indonesia has had consecutive trade deficits between April and June, weighing on the rupiah.
A burgeoning appetite for imports, from wheat for fast food to iPads and luxury cars, in a country that mostly exports raw commodities such as coal and crude palm oil, created a US$1.3 billion trade deficit in June - a deficit economists see continuing to the end of 2012 to keep pressure on the rupiah.
Expectations for slower growth meant economists had started to call for rate cuts this year. But most now see rates on hold into 2013 as Bank Indonesia will want to support annual growth towards President Susilo Bambang Yudhoyono's target of seven per cent by 2014. Reuters
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