Subjective probabilities are an unavoidable part of business decision making.
You often have to make an opinion on strategic issues facing your business. For example, you may be setting the five-year plan for your business. You would have to assess all the factors which could have a big impact of the industry in which you operate in.
The situation is very complex. Your partners have different views and may not reach agreement. On top of that, other industry leaders are making their views and this may have an impact.
All these complexity doesn't prevent you and your partner from forming a view - maybe nothing more than an instinct or a hunch - as to what is going to happen. Perhaps, you both agree that it is "quite likely" that a certain factor will impact the industry in the next two years. Since this is of strategic significance to the business, you will need to accomodate this in the planning.
As you and your partner put your thoughts down on paper, what exactly does "quite likely" mean? You may think it means "almost certain", while your partner considers it means "fifty-fifty". In other words, you think "quite likely" equals a probability of (say) around 95%, while your partner assumes it denotes a probability of around 50%.
How can these two views be brought closer together. Perhaps, they could use a probability that is objectively knowable - such as the throw of a dice - for comparison. Do you think that such and such a factor is more or less likely to occur than throwing a six? If less, the probability is lower than 1 in 6 (0.166). If more, the probability is higher. By discussing the issue in these terms, you and your partner can move closer to a picture of probability that you both share - and one that you can communicate with some degree of confidence. You can both use this information to help pin down this probability - combined with your own opinions, experience and intuition.
Let's assume you and your partner agree on a probability of 75% that a certain factor will impact on the business within the next two years. It is important to note that just because two people have agreed a figure, the probability hasn't become any less subjective. Using numbers adds clarity and precision but does not necessary indicate accuracy. In your written report, you and your partner will need to explain the facts and reasoning behind your probability calculations, and stress the fact that the probability remains subjective even though it has been expressed numerically. (You might use a range, such as '70-80%')
Some decision makers may regard this as pointless - how can that help you make a decision? If you can't know probability objectively, why waste time trying to quantify it? The answer is that it doesn't help you make the decision, but it does focus attention on the objective basis (if any) for assessments of probability. It forces you to bring your information, reasoning and judgements into the open, so that others can see them.
In the above example, you and your partner are forced to reach a shared understanding of probability so that you can communicate it and also, to others in your report. While this doesn't necessarily makes it easier for you to make strategic decisions, it does mean that whatever decsion you take will be based on the facts that are available - or draw attention to the need for more facts. Expressing probability numerically is also likely to focus everyone's minds on the urgency of the issue, rather than letting them adopt whatever interpretation of "quite likely" suits their own values and priorities.
Another benefit is the potential for sensitivity analysis: to assess how the impact of a particular risk changes with respect to changes in probability of a particular factor. Bigger changes mean higher sensitivity.
Friday 20 November 2009
Thursday 19 November 2009
To measure risk we have to use probability
To manage risk, we have to be able to measure it, and to measure risk we have to use probability. Probability is the quantitative language of risk and uncertainty.
The probability of an outcome is a number expressing the likelihood of it actually happening. It can be a number between 0 and 1, where 0 indicates an impossible outcome and 1 a certain one, or it can be expressed as a percentage (a number between 0 and 100).
In some situations, probability is objective and factual. For example, the probability of calling the toss of a coin correctly is 0.5 or 50%. However, tossing a coin is a very simple event. It is easy to use past experience and real-world knowledge to assess the probability of a 'heads' or 'tails' outcome.
As situations become more complex, it becomes progressively more difficult to be objective about probabilities; they become more subjective. Business situations are extremely complex, and therefore the probabilities involved are highly subjective.
Because the decisions we make in business are so important, it is vital to try and pin down the probabilities involved, even though it may be impossible to achieve complete objectivity. The more precision we can bring to the situation, the firmer the foundation on which we make a decision. To move towards precision, we need to look at subjective probabilities.
The probability of an outcome is a number expressing the likelihood of it actually happening. It can be a number between 0 and 1, where 0 indicates an impossible outcome and 1 a certain one, or it can be expressed as a percentage (a number between 0 and 100).
In some situations, probability is objective and factual. For example, the probability of calling the toss of a coin correctly is 0.5 or 50%. However, tossing a coin is a very simple event. It is easy to use past experience and real-world knowledge to assess the probability of a 'heads' or 'tails' outcome.
As situations become more complex, it becomes progressively more difficult to be objective about probabilities; they become more subjective. Business situations are extremely complex, and therefore the probabilities involved are highly subjective.
Because the decisions we make in business are so important, it is vital to try and pin down the probabilities involved, even though it may be impossible to achieve complete objectivity. The more precision we can bring to the situation, the firmer the foundation on which we make a decision. To move towards precision, we need to look at subjective probabilities.
Wednesday 18 November 2009
Premature fiscal exit would hurt Malaysia, says World Bank
Wednesday November 18 2009.Related Articles
Premature fiscal exit would hurt Malaysia, says World Bank
KUALA LUMPUR, Nov 18 — The World Bank warned today that Malaysia should not exit its fiscal pump priming as it could choke off the country's economic recovery.
However, the bank also cautioned that extending fiscal support for too long "may hamper the credibility of medium-term fiscal consolidation, reduce room for future stimulus, increase the risk of asset price bubbles and constrain the private sector once demand picks up," the World Bank said in a country report on Malaysia.
Malaysia is expected to rack up a budget deficit of 7.4 per cent of gross domestic product this year, its biggest in over 20 years, in part due to two fiscal stimulus packages worth a total of RM67 billion.
The extra spending was aimed at offsetting a slump in global demand that has hit Asia's third-most export dependent economy hard.
The government expects the Southeast Asian country's economy to shrink 3 per cent this year and to grow by 3 per cent next year, although the World Bank was more optimistic.
"With East Asia leading the recovery and advanced economies showing progressive improvement, the Malaysian economy is projected to grow at 4.1 per cent in 2010, following a contraction of 2.3 per cent in 2009," the World Bank said. — Reuters
Premature fiscal exit would hurt Malaysia, says World Bank
KUALA LUMPUR, Nov 18 — The World Bank warned today that Malaysia should not exit its fiscal pump priming as it could choke off the country's economic recovery.
However, the bank also cautioned that extending fiscal support for too long "may hamper the credibility of medium-term fiscal consolidation, reduce room for future stimulus, increase the risk of asset price bubbles and constrain the private sector once demand picks up," the World Bank said in a country report on Malaysia.
Malaysia is expected to rack up a budget deficit of 7.4 per cent of gross domestic product this year, its biggest in over 20 years, in part due to two fiscal stimulus packages worth a total of RM67 billion.
The extra spending was aimed at offsetting a slump in global demand that has hit Asia's third-most export dependent economy hard.
The government expects the Southeast Asian country's economy to shrink 3 per cent this year and to grow by 3 per cent next year, although the World Bank was more optimistic.
"With East Asia leading the recovery and advanced economies showing progressive improvement, the Malaysian economy is projected to grow at 4.1 per cent in 2010, following a contraction of 2.3 per cent in 2009," the World Bank said. — Reuters
Malaysian economy at the cross-road
The Malaysian Insider
Wednesday November 18 2009.
Malaysia has lost edge as low-cost producer, says World Bank
KUALA LUMPUR, Nov 18 — Malaysia risks missing its goal of becoming a high-income nation as it has lost its edge as a low-cost producer and lacks the investment to compete in more advanced industries, the World Bank warned today.
In its first country report on Malaysia, the Washington-based body also said that as a trade-dependent country, Malaysia should not unwind its RM67 billion in economic stimulus as that could choke off a nascent recovery.
“The economy seems to be caught in a middle-income trap - unable to remain competitive as a high-volume, low-cost producer, yet unable to move up the value chain and achieve rapid growth by breaking into fast growing markets for knowledge and innovation-based products and services,” it said.
Private investment in Malaysia, which famously spurned advice and cash from the International Monetary Fund in 1998, is below that of virtually every other Asian country and has fallen dramatically since the Asian financial crisis.
According to World Bank data, private investment in Malaysia fell to 12 per cent of gross domestic product in 2008 compared with 30 per cent prior to the Asian crisis.
The government that has ruled this country for 52 years has announced a series of economic reforms aimed at winning back foreign investment that increasingly finds a home in neighbouring Thailand and Indonesia.
However, portfolio and direct investment flows have been negative since the second quarter of 2008 and there have been few signs that investment has picked up in response to the government measures.
The World Bank noted that while Malaysia has a high proportion of high tech exports it served as a low-skilled assembler of imported parts “rather than a creator of technological and product innovations”.
One major limitation on moving up the economic value chain is Malaysia’s education system, which churns out tens of thousands of graduates who are ill-equipped for the kind of high-value work such as biotechnology that the government has identified as growth areas.
Education in Malaysia has become mired in a deep political row as the government recently switched to Malay language instruction for math and science from English, a move critics said was designed to appease its ethnic Malay voter base.
While private investment has plummeted, the government’s spending has risen sharply. Malaysia expects to rack up its biggest budget deficit in 20 years at 7.4 per cent of gross domestic product this year.
The government expects the economy to shrink 3 per cent this year and to grow by 3 per cent next year, although the World Bank was more optimistic.
“With East Asia leading the recovery and advanced economies showing progressive improvement, the Malaysian economy is projected to grow at 4.1 per cent in 2010, following a contraction of 2.3 per cent in 2009,” it said.
The bank was, however, less optimistic on the government’s plans to slash the budget deficit in 2010 to 5.6 per cent of GDP, forecasting that it would be 6.4 per cent of GDP. - Reuters
Wednesday November 18 2009.
Malaysia has lost edge as low-cost producer, says World Bank
KUALA LUMPUR, Nov 18 — Malaysia risks missing its goal of becoming a high-income nation as it has lost its edge as a low-cost producer and lacks the investment to compete in more advanced industries, the World Bank warned today.
In its first country report on Malaysia, the Washington-based body also said that as a trade-dependent country, Malaysia should not unwind its RM67 billion in economic stimulus as that could choke off a nascent recovery.
“The economy seems to be caught in a middle-income trap - unable to remain competitive as a high-volume, low-cost producer, yet unable to move up the value chain and achieve rapid growth by breaking into fast growing markets for knowledge and innovation-based products and services,” it said.
Private investment in Malaysia, which famously spurned advice and cash from the International Monetary Fund in 1998, is below that of virtually every other Asian country and has fallen dramatically since the Asian financial crisis.
According to World Bank data, private investment in Malaysia fell to 12 per cent of gross domestic product in 2008 compared with 30 per cent prior to the Asian crisis.
The government that has ruled this country for 52 years has announced a series of economic reforms aimed at winning back foreign investment that increasingly finds a home in neighbouring Thailand and Indonesia.
However, portfolio and direct investment flows have been negative since the second quarter of 2008 and there have been few signs that investment has picked up in response to the government measures.
The World Bank noted that while Malaysia has a high proportion of high tech exports it served as a low-skilled assembler of imported parts “rather than a creator of technological and product innovations”.
One major limitation on moving up the economic value chain is Malaysia’s education system, which churns out tens of thousands of graduates who are ill-equipped for the kind of high-value work such as biotechnology that the government has identified as growth areas.
Education in Malaysia has become mired in a deep political row as the government recently switched to Malay language instruction for math and science from English, a move critics said was designed to appease its ethnic Malay voter base.
While private investment has plummeted, the government’s spending has risen sharply. Malaysia expects to rack up its biggest budget deficit in 20 years at 7.4 per cent of gross domestic product this year.
The government expects the economy to shrink 3 per cent this year and to grow by 3 per cent next year, although the World Bank was more optimistic.
“With East Asia leading the recovery and advanced economies showing progressive improvement, the Malaysian economy is projected to grow at 4.1 per cent in 2010, following a contraction of 2.3 per cent in 2009,” it said.
The bank was, however, less optimistic on the government’s plans to slash the budget deficit in 2010 to 5.6 per cent of GDP, forecasting that it would be 6.4 per cent of GDP. - Reuters
Are you an Intelligent Investor?
Do you know how to minimize the odds of suffering irreversible losses?
Do you know how to maximize the odds of achieving sustainable gains?
Do you know how to control self-defeating behaviour that keeps most from reaching their full potential in investing?
Do you know that intelligent investing does not refer to IQ but rather to being patient, disciplined and eager to learn, and able to harness your emotions and think for yourself?
Do you know that high IQ and higher education are not enought to make an investor intelligent?
Do you know that being an intelligent investor is more a matter of 'character' than 'brain'?
Do you know the investment techniques, the adoption and execution of an investment policy suitable for laymen (yourself)?
Do you know the investment principles and investors' attitudes maybe of greater importance in investing than the technique of analyzing securities?
Do you know that there is limited usefulness in reading a book on 'how to make a million', as there are no sure and easy paths to riches on the stock market here and anywhere else?
Do you know of any single person who has consistently or lastingly made money by 'following (timing) the market'?
Do you know how to guide yourself from the areas of possible substantial error and to develop policies with which you will be comfortable?
Do you know the investor's chief problem -- and even his worst enemy -- is likely to be himself?
Do you know the importance of psychology of investors and the field of behavioural finance in guiding investing?
Do you know how to measure or quantify value of business or stock?
Do you know having the habit of relating what is paid to what is being offered is an invaluable trait in investment?
Do you know that for 99 issues out of 100, you could say that at some price they are cheap enough to buy and at other price they would be so dear that they should be sold?
Do you know that the art of investment has one characteristic that is not generally appreciated; that a creditable, if unspectacular, result can be achieved by the lay investor with a minimum of effort and capability?
Do you know that to improve on this above easily attainable standard requires much application and more than a trace of wisdom?
Do you know that if you merely try to bring just a little extra knowledge and cleverness to bear upon your investment program, instead of realizing a little better than normal results, you may well find that you have done worse?
Read: The Intelligent Investor by Benjamin Graham
Do you know how to maximize the odds of achieving sustainable gains?
Do you know how to control self-defeating behaviour that keeps most from reaching their full potential in investing?
Do you know that intelligent investing does not refer to IQ but rather to being patient, disciplined and eager to learn, and able to harness your emotions and think for yourself?
Do you know that high IQ and higher education are not enought to make an investor intelligent?
Do you know that being an intelligent investor is more a matter of 'character' than 'brain'?
Do you know the investment techniques, the adoption and execution of an investment policy suitable for laymen (yourself)?
Do you know the investment principles and investors' attitudes maybe of greater importance in investing than the technique of analyzing securities?
Do you know that there is limited usefulness in reading a book on 'how to make a million', as there are no sure and easy paths to riches on the stock market here and anywhere else?
Do you know of any single person who has consistently or lastingly made money by 'following (timing) the market'?
Do you know how to guide yourself from the areas of possible substantial error and to develop policies with which you will be comfortable?
Do you know the investor's chief problem -- and even his worst enemy -- is likely to be himself?
Do you know the importance of psychology of investors and the field of behavioural finance in guiding investing?
Do you know how to measure or quantify value of business or stock?
Do you know having the habit of relating what is paid to what is being offered is an invaluable trait in investment?
Do you know that for 99 issues out of 100, you could say that at some price they are cheap enough to buy and at other price they would be so dear that they should be sold?
Do you know that the art of investment has one characteristic that is not generally appreciated; that a creditable, if unspectacular, result can be achieved by the lay investor with a minimum of effort and capability?
Do you know that to improve on this above easily attainable standard requires much application and more than a trace of wisdom?
Do you know that if you merely try to bring just a little extra knowledge and cleverness to bear upon your investment program, instead of realizing a little better than normal results, you may well find that you have done worse?
Read: The Intelligent Investor by Benjamin Graham
Tuesday 17 November 2009
Kuala Lumpur one of the worst-performing markets, in relative terms
Question marks make investors shy away from KL market
Tags: Andrew F Freris | Annual bond conference | economic recovery | Expensive valuations | FBM KLCI | Fiscal spending packages | GDP | Iskandar Malaysia | Local equity market | monetary policy | Mutted earnings revisions | RAM Holdings Bhd | stimulus packages
Written by Ellina Badri
Monday, 16 November 2009 11:36
KUALA LUMPUR: Expensive valuations, muted earnings revisions and uncertainty on the private sector’s role in driving the economy have made the local equity market unattractive relative to other regional markets, BNP Paribas Private Bank Hong Kong senior investment strategist for Asia, Andrew F Freris said.
“There is a mixture of good and some areas where investors may still have a question mark. By no means, I am not unhappy by what I’ve seen but in terms of relatives, that’s actually why some investors might prefer other markets.
“These are the reasons that have made Kuala Lumpur one of the worst-performing markets, in relative terms, because it has gone up less than other Asian markets,” Freris told The Edge Financial Daily on the sidelines of RAM Holdings Bhd’s annual bond conference here last week.
The FBM KLCI has gained 44.96% from the start of the year up to last Friday’s close. Singapore’s Straits Times Index has risen 54.82%, Hong Kong’s Hang Seng Index has gained 56.76%, and China’s Shanghai and Shenzhen indices have risen 75.07% and 108.31%, respectively. The Jakarta Composite Index has surged 79.05%.
Nonetheless, Freris said due to the government’s two stimulus packages and the liberalisation of the financial system and capital markets, things here were changing rather quickly.
He also highlighted the government’s initiatives in Iskandar Malaysia, Johor, saying the progress and effects of that project were “major”.
“Malaysia has got a strong , structurally supportive fiscal environment and monetary policy that stay cautious, but I imagine the reason the market is not performing much more strongly is the question mark about how long the government will continue to lead and when the private sector will start taking over,” he added.
Freris
On the outlook of the Malaysian market and economy, he said the FBM KLCI could continue rising until the market saw two consecutive quarters of gross domestic product (GDP) growth, which would then impact earnings and in turn signal an interest rate hike.
He said sectors likely to benefit from the economic recovery included CONSTRUCTION [] and infrastructure, mainly due to the initiatives set out in the government’s RM67 billion fiscal spending packages.
Monetary policy here was likely to remain supportive of growth and the overnight policy rate would not be raised “anytime soon”, he said.
“Second quarter GDP was also better than the first, and we reckon 3Q09 will be pretty supportive,” he added.
Meanwhile, on the performance of global stock markets going forward, he said BNP Paribas was still very cautious, adding while there still may be room for markets to make gains, the G3 markets, especially the American market, remained very “jumpy”.
Hence, the bank also remained cautious about the Asian markets, although it was positive on China and South Korea, he said.
“As a whole, we’re very cautious and conservative. We’re quite boring, really. We’re not telling our clients to dive into equities, but neither are we telling them to stay away,” he said.
He also said the bank was neutral on India, adding the Singapore, Malaysia and Hong Kong markets were not included in its investment universe.
“Equity investment is fairly globalised, equity allocation takes place across and within markets, so it is no surprise if the S&P 500 index in the US goes up, the KL market will also go up.
“As long as there is quite a degree of jumpiness in the US market, because of the uncertainty of the extent and sustainability of a recovery, that will be reflected back in KL,” he added.
This article appeared in The Edge Financial Daily, November 16, 2009.
Tags: Andrew F Freris | Annual bond conference | economic recovery | Expensive valuations | FBM KLCI | Fiscal spending packages | GDP | Iskandar Malaysia | Local equity market | monetary policy | Mutted earnings revisions | RAM Holdings Bhd | stimulus packages
Written by Ellina Badri
Monday, 16 November 2009 11:36
KUALA LUMPUR: Expensive valuations, muted earnings revisions and uncertainty on the private sector’s role in driving the economy have made the local equity market unattractive relative to other regional markets, BNP Paribas Private Bank Hong Kong senior investment strategist for Asia, Andrew F Freris said.
“There is a mixture of good and some areas where investors may still have a question mark. By no means, I am not unhappy by what I’ve seen but in terms of relatives, that’s actually why some investors might prefer other markets.
“These are the reasons that have made Kuala Lumpur one of the worst-performing markets, in relative terms, because it has gone up less than other Asian markets,” Freris told The Edge Financial Daily on the sidelines of RAM Holdings Bhd’s annual bond conference here last week.
The FBM KLCI has gained 44.96% from the start of the year up to last Friday’s close. Singapore’s Straits Times Index has risen 54.82%, Hong Kong’s Hang Seng Index has gained 56.76%, and China’s Shanghai and Shenzhen indices have risen 75.07% and 108.31%, respectively. The Jakarta Composite Index has surged 79.05%.
Nonetheless, Freris said due to the government’s two stimulus packages and the liberalisation of the financial system and capital markets, things here were changing rather quickly.
He also highlighted the government’s initiatives in Iskandar Malaysia, Johor, saying the progress and effects of that project were “major”.
“Malaysia has got a strong , structurally supportive fiscal environment and monetary policy that stay cautious, but I imagine the reason the market is not performing much more strongly is the question mark about how long the government will continue to lead and when the private sector will start taking over,” he added.
Freris
On the outlook of the Malaysian market and economy, he said the FBM KLCI could continue rising until the market saw two consecutive quarters of gross domestic product (GDP) growth, which would then impact earnings and in turn signal an interest rate hike.
He said sectors likely to benefit from the economic recovery included CONSTRUCTION [] and infrastructure, mainly due to the initiatives set out in the government’s RM67 billion fiscal spending packages.
Monetary policy here was likely to remain supportive of growth and the overnight policy rate would not be raised “anytime soon”, he said.
“Second quarter GDP was also better than the first, and we reckon 3Q09 will be pretty supportive,” he added.
Meanwhile, on the performance of global stock markets going forward, he said BNP Paribas was still very cautious, adding while there still may be room for markets to make gains, the G3 markets, especially the American market, remained very “jumpy”.
Hence, the bank also remained cautious about the Asian markets, although it was positive on China and South Korea, he said.
“As a whole, we’re very cautious and conservative. We’re quite boring, really. We’re not telling our clients to dive into equities, but neither are we telling them to stay away,” he said.
He also said the bank was neutral on India, adding the Singapore, Malaysia and Hong Kong markets were not included in its investment universe.
“Equity investment is fairly globalised, equity allocation takes place across and within markets, so it is no surprise if the S&P 500 index in the US goes up, the KL market will also go up.
“As long as there is quite a degree of jumpiness in the US market, because of the uncertainty of the extent and sustainability of a recovery, that will be reflected back in KL,” he added.
This article appeared in The Edge Financial Daily, November 16, 2009.
United Plantations 3Q net profit up 3%
United Plantations 3Q net profit up 3%
Tags: United Plantations
Written by Chong Jin Hun
Monday, 16 November 2009 18:14
KUALA LUMPUR: United PLANTATION []s Bhd's net profit rose 2.7% to RM92.37 million in the third quarter (3Q) ended Sept 2009, from RM89.95 million a year earlier, although revenue fell as palm oil production declined amid less demand and lower prices for the commodity.
In a statement to Bursa Malaysia today, the company said it also registered lower profit margins for its refinery operations, and RM10.2 milllion worth of provisions for impairment. United Plantations 3Q revenue dropped 25.6% to RM223.71 million from RM300.77 million.
Cumulative nine-month net profit fell 10.5 % to RM213.18 million from RM238.31 million while revenue was down 20 % to RM618.8 million from RM773.83 million.
Looking ahead, United Plantations said its palm oil output was expected to be lower this year compared with last year's record production. As such, its financial performance for the current financial year ending Dec 31, is anticipated to be lower compared to the year before.
The company is proposing an interim dividend of 20% per share less 25% tax or 15 sen net per share for the year ending Dec 31.
Tags: United Plantations
Written by Chong Jin Hun
Monday, 16 November 2009 18:14
KUALA LUMPUR: United PLANTATION []s Bhd's net profit rose 2.7% to RM92.37 million in the third quarter (3Q) ended Sept 2009, from RM89.95 million a year earlier, although revenue fell as palm oil production declined amid less demand and lower prices for the commodity.
In a statement to Bursa Malaysia today, the company said it also registered lower profit margins for its refinery operations, and RM10.2 milllion worth of provisions for impairment. United Plantations 3Q revenue dropped 25.6% to RM223.71 million from RM300.77 million.
Cumulative nine-month net profit fell 10.5 % to RM213.18 million from RM238.31 million while revenue was down 20 % to RM618.8 million from RM773.83 million.
Looking ahead, United Plantations said its palm oil output was expected to be lower this year compared with last year's record production. As such, its financial performance for the current financial year ending Dec 31, is anticipated to be lower compared to the year before.
The company is proposing an interim dividend of 20% per share less 25% tax or 15 sen net per share for the year ending Dec 31.
Largest prime property owner in KLCC
Largest prime property owner in KLCC
Tags: Brokers Call | HLG Research | KLCC Property Bhd
Written by Financial Daily
Monday, 16 November 2009 11:09
KLCC Property Bhd
(Nov 13, RM3.29)
Hold at RM3.39: We recently visited KLCC Property (KLCCP) and initiate coverage with a hold as its share price is in line with our RNAV-derived (revised net asset value) price target of RM3.16. Earnings catalyst will come from Lot C and Lot D1 developments, but these will be long-dated, and earnings from the hotel segment are expected to be flat until 2013.
We like KLCCP for its earnings stability and visibility. While geographical concentration is high with 88% of net lettable area (NLA) situated within the KLCC area, rental income base is diversified. Over the last three years, KLCCP’s investment PROPERTIES [] have on average enjoyed capital appreciation of 22% per year, which in turn translates to scope for rental revisions. KLCCP also has a 75% stake in 5-star hotel Mandarin Oriental KL.
KLCCP’s prime assets provide a strong tenants base; blue-chip tenants include Petroliam Nasional Bhd (Petronas), ExxonMobil, Tanjong City Centre Property Management Sdn Bhd, Parkson, Isetan and Cold Storage. These quality tenants are expected to be prompt in payments and maintain a long-term presence in their current locations, while rental revision agreements will ensure sustained growth in rental income.
KLCCP’s investment properties have varying rental rates, with the iconic Petronas Twin Towers fetching the highest rental rates for office space (fixed at RM9.50 psf under the head lease agreement with Petronas). Rental revisions typically occur every three years, allowing sustainable income growth over the long term.
Crucially, KLCCP has been able to secure long-dated lease agreements with key tenants such as Petronas (15 years), Isetan (24 years), ExxonMobil (12 years) and Tanjong Group (15 years). Also, Menara ExxonMobil’s rental rate was previously below the market rate at RM5.25psf but has now been revised to RM7.45psf.
KLCCP enjoys not only stability of rental income, but also upside from capital appreciation of its properties. With more than 100 acres of land and 5.8 million sq ft of NLA in the super-prime KLCC area, KLCCP is well-poised to benefit from rising commercial property valuations and rentals in the heart of KL.
RCULS (redeemable convertible unsecured loan stock), however, is a complicated issue for the company and minority shareholders. KLCCP has issued RM714 million of RCULS to KLCCH, which if converted could lead to a heavy 38% earnings per share dilution. The conversion would also likely trigger a general offer which it wishes to avoid. Full conversion is mandatory on the 10th anniversary in 2014/2015. However, the RCULS provides cheap source of financing for KLCCP (1% interest per annum). Management has until 2014 to come up with a solution that balances the interests of the various parties involved. — HLG Research, Nov 13
This article appeared in The Edge Financial Daily, November 16, 2009.
Tags: Brokers Call | HLG Research | KLCC Property Bhd
Written by Financial Daily
Monday, 16 November 2009 11:09
KLCC Property Bhd
(Nov 13, RM3.29)
Hold at RM3.39: We recently visited KLCC Property (KLCCP) and initiate coverage with a hold as its share price is in line with our RNAV-derived (revised net asset value) price target of RM3.16. Earnings catalyst will come from Lot C and Lot D1 developments, but these will be long-dated, and earnings from the hotel segment are expected to be flat until 2013.
We like KLCCP for its earnings stability and visibility. While geographical concentration is high with 88% of net lettable area (NLA) situated within the KLCC area, rental income base is diversified. Over the last three years, KLCCP’s investment PROPERTIES [] have on average enjoyed capital appreciation of 22% per year, which in turn translates to scope for rental revisions. KLCCP also has a 75% stake in 5-star hotel Mandarin Oriental KL.
KLCCP’s prime assets provide a strong tenants base; blue-chip tenants include Petroliam Nasional Bhd (Petronas), ExxonMobil, Tanjong City Centre Property Management Sdn Bhd, Parkson, Isetan and Cold Storage. These quality tenants are expected to be prompt in payments and maintain a long-term presence in their current locations, while rental revision agreements will ensure sustained growth in rental income.
KLCCP’s investment properties have varying rental rates, with the iconic Petronas Twin Towers fetching the highest rental rates for office space (fixed at RM9.50 psf under the head lease agreement with Petronas). Rental revisions typically occur every three years, allowing sustainable income growth over the long term.
Crucially, KLCCP has been able to secure long-dated lease agreements with key tenants such as Petronas (15 years), Isetan (24 years), ExxonMobil (12 years) and Tanjong Group (15 years). Also, Menara ExxonMobil’s rental rate was previously below the market rate at RM5.25psf but has now been revised to RM7.45psf.
KLCCP enjoys not only stability of rental income, but also upside from capital appreciation of its properties. With more than 100 acres of land and 5.8 million sq ft of NLA in the super-prime KLCC area, KLCCP is well-poised to benefit from rising commercial property valuations and rentals in the heart of KL.
RCULS (redeemable convertible unsecured loan stock), however, is a complicated issue for the company and minority shareholders. KLCCP has issued RM714 million of RCULS to KLCCH, which if converted could lead to a heavy 38% earnings per share dilution. The conversion would also likely trigger a general offer which it wishes to avoid. Full conversion is mandatory on the 10th anniversary in 2014/2015. However, the RCULS provides cheap source of financing for KLCCP (1% interest per annum). Management has until 2014 to come up with a solution that balances the interests of the various parties involved. — HLG Research, Nov 13
This article appeared in The Edge Financial Daily, November 16, 2009.
A steadier ride for UMW in 3Q
A steadier ride for UMW in 3Q
Tags: Brokers Call | UMW Holdings (M) Bhd | UOB Kay Hian research
Written by Financial Daily
Tuesday, 17 November 2009 11:02
UMW Holdings (M) Bhd
(Nov 16, RM6.32)
Hold at RM6.30: We expect UMW to post sequentially stronger 3Q09 results, with core pre-tax profit rising by over 10% quarter-on-quarter (q-o-q), lifted by the gradual recovery of auto sales volumes.
We expect to see continued improvement in the overall total industry volume (TIV) as consumer sentiment and spending gradually recover after the steep contractions experienced in Jan-Apr 2009.
Toyota’s unit sales rose 8.9% q-o-q in 3Q09 to just over 22,000 units with a recovery in sales of the Vios and Altis models (although Toyota’s overall 3Q09 sales were still down 15.5% year-on-year).
Year to date, sales are down 24.8% y-o-y after an exceptionally strong 2008.
UMW’s 38%-owned associate Perodua’s upcoming entry into the multi-purpose vehicle (MPV) segment on Nov 23 should mildly lift its contributions to UMW’s bottom line. Perodua commands a 31% market share of the overall auto industry and accounted for just under 5% of UMW’s pre-tax profit in 2008.
Priced at RM56,000 to RM64,000 for a 1.5-litre engine, the MPV marks Perodua’s entry into the fast-growing segment, which already accounts for almost 12% of TIV, year to date.
Perodua’s entry into the MPV segment will also mitigate market share losses experienced by Toyota’s models in the segment following the launch of Proton’s Exora in April 2009.
We expect 22%-owned associate WSP Holdings Ltd to also post a better 2H09 as improving prospects of the oil equipment industry in China should mitigate any weakness in the North American OCTG (oil country tubular goods) market.
2010 should be a recovery year with group earnings to recover by 34%, driven particularly by the auto and oil and gas (O&G) division, with the latter’s growth driven by sales and margin recovery at WSP, full impact contribution from 34%-owned Zhongyou BSS (China).
The positive impact of the US dollar’s weakness against the ringgit will begin filtering through to UMW’s bottom line starting 4Q09.
To recap, we estimate that every 1% depreciation of the US dollar theoretically raises net income by 2% (taking into consideration savings from dollar-denominated costs at UMW-Toyota, translation gains from US dollar debt, offset by some dollar-denominated earnings from the O&G division and associate companies).
However, associate Perodua will be hurt by the strengthening yen (which is up around 10% versus the ringgit since this year’s lows). We estimate that every 1% rise in the yen rate would cause a 0.7% decline in UMW’s earnings.
While we are optimistic about the group’s prospects across all divisions, we do not see much near-term upside to valuation, which is already at 14 times 2010F price earnings (PE). This is at par with the peak valuations reached in 2007 when oil prices were at record highs.
We maintain hold and sum-of-the-parts valuation of RM6.56. A good entry price would be at the RM6 level. Meanwhile, the potential listing of the O&G division, which may materialise only in 2H10, is neutral to the stock unless crude oil prices spike significantly higher. — UOB Kay Hian Research, Nov 16
This article appeared in The Edge Financial Daily, November 17, 2009.
Tags: Brokers Call | UMW Holdings (M) Bhd | UOB Kay Hian research
Written by Financial Daily
Tuesday, 17 November 2009 11:02
UMW Holdings (M) Bhd
(Nov 16, RM6.32)
Hold at RM6.30: We expect UMW to post sequentially stronger 3Q09 results, with core pre-tax profit rising by over 10% quarter-on-quarter (q-o-q), lifted by the gradual recovery of auto sales volumes.
We expect to see continued improvement in the overall total industry volume (TIV) as consumer sentiment and spending gradually recover after the steep contractions experienced in Jan-Apr 2009.
Toyota’s unit sales rose 8.9% q-o-q in 3Q09 to just over 22,000 units with a recovery in sales of the Vios and Altis models (although Toyota’s overall 3Q09 sales were still down 15.5% year-on-year).
Year to date, sales are down 24.8% y-o-y after an exceptionally strong 2008.
UMW’s 38%-owned associate Perodua’s upcoming entry into the multi-purpose vehicle (MPV) segment on Nov 23 should mildly lift its contributions to UMW’s bottom line. Perodua commands a 31% market share of the overall auto industry and accounted for just under 5% of UMW’s pre-tax profit in 2008.
Priced at RM56,000 to RM64,000 for a 1.5-litre engine, the MPV marks Perodua’s entry into the fast-growing segment, which already accounts for almost 12% of TIV, year to date.
Perodua’s entry into the MPV segment will also mitigate market share losses experienced by Toyota’s models in the segment following the launch of Proton’s Exora in April 2009.
We expect 22%-owned associate WSP Holdings Ltd to also post a better 2H09 as improving prospects of the oil equipment industry in China should mitigate any weakness in the North American OCTG (oil country tubular goods) market.
2010 should be a recovery year with group earnings to recover by 34%, driven particularly by the auto and oil and gas (O&G) division, with the latter’s growth driven by sales and margin recovery at WSP, full impact contribution from 34%-owned Zhongyou BSS (China).
The positive impact of the US dollar’s weakness against the ringgit will begin filtering through to UMW’s bottom line starting 4Q09.
To recap, we estimate that every 1% depreciation of the US dollar theoretically raises net income by 2% (taking into consideration savings from dollar-denominated costs at UMW-Toyota, translation gains from US dollar debt, offset by some dollar-denominated earnings from the O&G division and associate companies).
However, associate Perodua will be hurt by the strengthening yen (which is up around 10% versus the ringgit since this year’s lows). We estimate that every 1% rise in the yen rate would cause a 0.7% decline in UMW’s earnings.
While we are optimistic about the group’s prospects across all divisions, we do not see much near-term upside to valuation, which is already at 14 times 2010F price earnings (PE). This is at par with the peak valuations reached in 2007 when oil prices were at record highs.
We maintain hold and sum-of-the-parts valuation of RM6.56. A good entry price would be at the RM6 level. Meanwhile, the potential listing of the O&G division, which may materialise only in 2H10, is neutral to the stock unless crude oil prices spike significantly higher. — UOB Kay Hian Research, Nov 16
This article appeared in The Edge Financial Daily, November 17, 2009.
Stocks Pickers Vs Index Funds: The Debate Rages On
Stocks Pickers Vs Index Funds: The Debate Rages On
Published: Wednesday, 28 Oct 2009 | 11:19 AM ET Text Size
By: Chris Taylor,
Special to CNBC.com
In the investing world, the rivalry is akin to the Capulets and the Montagues. In one corner, active stockpickers and their belief in talented fund managers who can outperform the market; in the other, passive investors who prefer less-risky portfolios of low-cost broad market indices.
It’s a question that will be debated forever on trading-room floors and investor chat rooms, but what investors want to know: Who has the best approach for right now, after a quick post-collapse runup that has the Dow Jones Industrial Average breaking the magical 10,000 level?
The answer might be different than you expect. Conventional wisdom holds that active management performs best in a declining market, when stockpickers can sidestep the dogs like a Lehman Brothers or an AIG [AIG 35.75 -0.64 (-1.76%) ]. But here’s a secret: It’s a total myth.
“Everyone believes that active investors do well in bad markets,” says Srikant Dash, global head of research and design for S&P Index Services. “But when we looked at the bad markets of 2002 and 2008, we showed conclusively that it’s not true.”
What Dash found in his SPIVA scorecard that compares active and passive investing: Then—and over any five-year time horizon you’d care to mention—about two-thirds of fund managers underperform the stock market. In other words, over the long term, plain-vanilla index funds clobber many of the best minds in the business.
Complete Stock Market Coverage
For right now, though, there’s some evidence that active investors could be coming into their moment. After all, the Dow was up an eye-popping 15 percent last quarter, as investors regained their confidence and money rushed back in from the sidelines. That’s the Dow’s best performance since 1998, rebounding smartly from a low of around 6,500.
If one assumes that such a rapid ascent won’t be replicated in the near-term, and that we can expect a relatively flat, range-bound market in coming months, then broad indices won’t be going anywhere. Active managers, on the other hand, could thrive with their more judicious stockpicking.
Just ask George Athanassakos. The chair of the Ben Graham Centre for Value Investing in London, Ontario, Athanassakos ran a study comparing a stockpicking approach to the performance of market indexes. He discovered that in straight bull markets, when a rising tide lifted all boats, his value-oriented stock selections were almost exactly aligned with the broader market.
But in flat or zig-zag markets, his active style destroyed the indices, beating them by almost 50 percent. If that’s the kind of market we’re entering, then active investors should take heart.
“When the market goes up, then everyone is doing well,” says Athanassakos, a finance professor and author of the book "Equity Valuation." “It’s hard to buy low and sell high when there’s a straight line up. So active management becomes especially important when the market moves within a band.”
Moreover, it’s usually in the aftermath of a big market move, like the one we’ve just experienced, that you discover a few glaring market inefficiencies.
“When prices have all moved in one direction, there’s more opportunity for mispricing to emerge,” says Josh Peters, an equities analyst with Chicago-based research firm Morningstar.
And a continued bull run looks unlikely, Peters suggests, since underlying fundamentals like corporate revenues and abysmal employment figures mean the economy’s not out of the woods yet.
If that’s the case—that the general market takes a breather, and some relative values begin to stick out—then where should stockpickers place their bets? Active investors would do well to focus on yields, Peters advises.
After all, if stock prices remain range-bound, then it’s dividend payouts that will largely be determining your returns. High-yielding, blue-chip firms tend to be resilient, without a huge downside, because investors are attracted to the stability and income they provide.
Sector Watch Performance
They’ve also been lagging the broader market recently, as the hottest stars have been previously left-for-dead firms like MGM. That discrepancy makes for some juicy values. Some of Peters’ picks: Johnson & Johnson [JNJ 62.19 0.76 (+1.24%) ], Abbott Labs [ABT 53.63 0.68 (+1.28%) ], and Altria [MO 19.34 0.08 (+0.42%) ], all overlooked giants that continue to throw off cash.
“They’re not trading at unreasonable valuations, those stocks don’t need a quick V-shaped recovery,' he says. "And you don’t need a whole lot to go right for those investments to work.”
© 2009 CNBC.com
http://www.cnbc.com/id/33289460
Published: Wednesday, 28 Oct 2009 | 11:19 AM ET Text Size
By: Chris Taylor,
Special to CNBC.com
In the investing world, the rivalry is akin to the Capulets and the Montagues. In one corner, active stockpickers and their belief in talented fund managers who can outperform the market; in the other, passive investors who prefer less-risky portfolios of low-cost broad market indices.
It’s a question that will be debated forever on trading-room floors and investor chat rooms, but what investors want to know: Who has the best approach for right now, after a quick post-collapse runup that has the Dow Jones Industrial Average breaking the magical 10,000 level?
The answer might be different than you expect. Conventional wisdom holds that active management performs best in a declining market, when stockpickers can sidestep the dogs like a Lehman Brothers or an AIG [AIG 35.75 -0.64 (-1.76%) ]. But here’s a secret: It’s a total myth.
“Everyone believes that active investors do well in bad markets,” says Srikant Dash, global head of research and design for S&P Index Services. “But when we looked at the bad markets of 2002 and 2008, we showed conclusively that it’s not true.”
What Dash found in his SPIVA scorecard that compares active and passive investing: Then—and over any five-year time horizon you’d care to mention—about two-thirds of fund managers underperform the stock market. In other words, over the long term, plain-vanilla index funds clobber many of the best minds in the business.
Complete Stock Market Coverage
For right now, though, there’s some evidence that active investors could be coming into their moment. After all, the Dow was up an eye-popping 15 percent last quarter, as investors regained their confidence and money rushed back in from the sidelines. That’s the Dow’s best performance since 1998, rebounding smartly from a low of around 6,500.
If one assumes that such a rapid ascent won’t be replicated in the near-term, and that we can expect a relatively flat, range-bound market in coming months, then broad indices won’t be going anywhere. Active managers, on the other hand, could thrive with their more judicious stockpicking.
Just ask George Athanassakos. The chair of the Ben Graham Centre for Value Investing in London, Ontario, Athanassakos ran a study comparing a stockpicking approach to the performance of market indexes. He discovered that in straight bull markets, when a rising tide lifted all boats, his value-oriented stock selections were almost exactly aligned with the broader market.
But in flat or zig-zag markets, his active style destroyed the indices, beating them by almost 50 percent. If that’s the kind of market we’re entering, then active investors should take heart.
“When the market goes up, then everyone is doing well,” says Athanassakos, a finance professor and author of the book "Equity Valuation." “It’s hard to buy low and sell high when there’s a straight line up. So active management becomes especially important when the market moves within a band.”
Moreover, it’s usually in the aftermath of a big market move, like the one we’ve just experienced, that you discover a few glaring market inefficiencies.
“When prices have all moved in one direction, there’s more opportunity for mispricing to emerge,” says Josh Peters, an equities analyst with Chicago-based research firm Morningstar.
And a continued bull run looks unlikely, Peters suggests, since underlying fundamentals like corporate revenues and abysmal employment figures mean the economy’s not out of the woods yet.
If that’s the case—that the general market takes a breather, and some relative values begin to stick out—then where should stockpickers place their bets? Active investors would do well to focus on yields, Peters advises.
After all, if stock prices remain range-bound, then it’s dividend payouts that will largely be determining your returns. High-yielding, blue-chip firms tend to be resilient, without a huge downside, because investors are attracted to the stability and income they provide.
Sector Watch Performance
They’ve also been lagging the broader market recently, as the hottest stars have been previously left-for-dead firms like MGM. That discrepancy makes for some juicy values. Some of Peters’ picks: Johnson & Johnson [JNJ 62.19 0.76 (+1.24%) ], Abbott Labs [ABT 53.63 0.68 (+1.28%) ], and Altria [MO 19.34 0.08 (+0.42%) ], all overlooked giants that continue to throw off cash.
“They’re not trading at unreasonable valuations, those stocks don’t need a quick V-shaped recovery,' he says. "And you don’t need a whole lot to go right for those investments to work.”
© 2009 CNBC.com
http://www.cnbc.com/id/33289460
Stocks Overvalued, Recession Will Return: Meredith Whitney
Stocks Overvalued, Recession Will Return: Meredith Whitney
Published: Monday, 16 Nov 2009 | 4:51 PM ET
By: CNBC.com
Stocks are overvalued and the US economy is likely to fall back into a recession next year, well-known analyst Meredith Whitney told CNBC.
"I haven't been this bearish in a year," she said in a live interview. "I look at the board and every single stock from Tiffany to Bank of America to Caterpillar is up. But there is no fundamental rooting as to why these names are up—particularly in the consumer space."
In a wide-ranging interview, Whitney, CEO of the Meredith Whitney Advisory Group, also said:
She was disappointed that Fed Chairman Ben Bernanke didn't spell out how the Federal Reserve planned to exit "the biggest Fed program to date, which is the mortgage-backed purchase program." In a speech earlier Thursday, Bernanke said the central bank was watching the dollar's decline but is likely to keep interest rates low.
The US consumer was going through the biggest credit contraction ever—even bigger than that during the Great Depression. "That credit contraction is accelerating," she said. "There's nowhere to hide at this point."
The banking sector is not adequately capitalized and will need to raise more capital in the coming year.
The residential real estate market is likely to worsen and remains a much bigger threat than the commercial property market. The government's mortgage modification program won't result in any major improvement in homeowners' ability to stay above water, she added.
"I don't know what's going on in the market right now because it makes no sense to me," she said.
"The scariest thing about the Fed's program is that the money on the sidelines isn't going to support that asset class," she added. "So the trillion dollars of Fannie (Mae), Freddie (Mac) and mortgage-backed securities that the Fed is holding—there's no substitute buyer there."
© 2009 CNBC.com
Published: Monday, 16 Nov 2009 | 4:51 PM ET
By: CNBC.com
Stocks are overvalued and the US economy is likely to fall back into a recession next year, well-known analyst Meredith Whitney told CNBC.
"I haven't been this bearish in a year," she said in a live interview. "I look at the board and every single stock from Tiffany to Bank of America to Caterpillar is up. But there is no fundamental rooting as to why these names are up—particularly in the consumer space."
In a wide-ranging interview, Whitney, CEO of the Meredith Whitney Advisory Group, also said:
She was disappointed that Fed Chairman Ben Bernanke didn't spell out how the Federal Reserve planned to exit "the biggest Fed program to date, which is the mortgage-backed purchase program." In a speech earlier Thursday, Bernanke said the central bank was watching the dollar's decline but is likely to keep interest rates low.
The US consumer was going through the biggest credit contraction ever—even bigger than that during the Great Depression. "That credit contraction is accelerating," she said. "There's nowhere to hide at this point."
The banking sector is not adequately capitalized and will need to raise more capital in the coming year.
The residential real estate market is likely to worsen and remains a much bigger threat than the commercial property market. The government's mortgage modification program won't result in any major improvement in homeowners' ability to stay above water, she added.
"I don't know what's going on in the market right now because it makes no sense to me," she said.
"The scariest thing about the Fed's program is that the money on the sidelines isn't going to support that asset class," she added. "So the trillion dollars of Fannie (Mae), Freddie (Mac) and mortgage-backed securities that the Fed is holding—there's no substitute buyer there."
© 2009 CNBC.com
Retail Investors Can Take A Worldly Approach To the Dollar
Retail Investors Can Take A Worldly Approach To the Dollar
Published: Wednesday, 28 Oct 2009 | 11:41 AM ET Text Size
By: Chris Taylor,
Special to CNBC.com
If you’re getting a little queasy about the sagging U.S. dollars in your savings account, join the club.
With deficits high and interest rates low, one potential outcome is high inflation, which would eat away at the value of the greenback.
Now it seems banks are sharing the unease: They’re putting almost two-thirds of their new cash into the euro and the Japanese yen, according to Barclay’s Capital. Compare that to a decade ago, when it was the U.S. dollar that garnered two-thirds of that cash. Global reserve currency? Not so much.
So what’s an investor to do about the shakiness of the dollar? Enter currency exchange-traded funds (ETFs), which let even casual investors put a little foreign spice in their cash holdings. There are now a total of 35 on the market, covering everything from the Indian rupee to the Brazilian real.
Other People's Money
“What currency ETFs provide are democratization,” says Bradley Kay, an ETF analyst with research firm Morningstar. “Previously foreign currencies were largely inaccessible to individuals, because of things like minimum investments. ETFs have opened that all up.”
Complete Currency Coverage
In fact they now hold more than $4.5 billion in assets, up $500 million in the third quarter of this year alone. The first currency ETF only opened at the end of 2005. Whereas currency trading used to be the province of institutions and private banks catering to the ultra-wealthy, any investor can now bet heavily on, say, the Chinese yuan or the Swedish krona.
But that doesn’t mean you should put your life savings into foreign currencies, just because you can. When it might make the most sense for investors: If you have significant cash holdings, and want to hedge some of it against a potential fall of the greenback. With the U.S. government massively increasing its balance sheet, a spike in inflation in the next few years is a distinct possibility, which would eat away at the value of the dollar.
In a worst-case scenario there could be a loss of faith among major debt-holders like China and Korea, who could decide to shift their central bank reserves to other currencies.
It’s not so far-fetched: The dollar’s already slid to a 14-month low, partly thanks to such worries.
“If you’re concerned about the dollar, by all means hold some of your cash in another currency,” says Morningstar’s Kay. “Or if you’re going to have major expenses abroad—like a big family trip, or you’re relocating to work in another country—you can fix those costs now, for the $8 cost of a brokerage fee.”
Currencies, however, should not be a core, long-term holding for investors.
“They belong in the trading-risk end of a portfolio,” says Joe Trevisani, chief market analyst for Saddle River, N.J.-based FX Solutions. “They’re not investments in the classic buy-and-hold sense.” Instead, speculative plays should be—as FX Solutions’ own disclaimer says—“conducted with risk capital you can afford to lose."
Remember that big, bad currencies banks have been the undoing of major funds and banks over the years. Do Barings Bank and Nick Leeson ring a bell?
Rules Of The Road
A few caveats about currency investing. Remember that you’re buying cash, not asset-backed vehicles like stocks, bonds or real estate. As such, it’s a zero-sum game—other currencies have to fall, in order for your investment to rise—and appreciation potential is limited.
And if it’s the U.S. dollar you’re worried about, you can reduce your exposure in other ways, such as buying stock in large multinational firms or broad international-equity funds, particularly small-caps, which are very tied to local currencies.
For solid long-term bets, consider baskets of currencies to reduce your risk, suggests Morningstar’s Kay. Make a single bet like the Mexican peso, and you’re taking your chances.
But buy a broad ETF, and you spread your risk appropriately. Consider the PowerShares DB US Dollar Bearish [UDN 28.63 0.13 (+0.46%) ], a basket of developed-market currencies dominated by the euro, or WisdomTree Dreyfus Emerging Currency [CEW 22.40 0.105 (+0.47%) ], a geographically-diversified collection of currencies in emerging-market economies.
For investors looking for a more direct play, there are a number of online trading platforms. GAIN Capital's Forex.com, GFTForex.com, CMS Forex, for example, allow investors to open trading accounts. Minimum investments and other requirements vary, but one thing is always the same. Currency markets trade around the clock and are very liquid, so price swings can be fast and furious.
Of course, the dollar’s slide isn’t guaranteed, since a double-dip world recession, or another international crisis—political or financial—could see investors flooding back to the relative safety of the greenback.
“But it’s primarily the dollar’s weakness that is driving currency markets now,” says FX Solutions’ Trevisani. “This will continue until the Fed makes clear its intention to begin raising rates—and I don’t think that’s likely until the second half of 2010.”
© 2009 CNBC.com
http://www.cnbc.com/id/33289478
Published: Wednesday, 28 Oct 2009 | 11:41 AM ET Text Size
By: Chris Taylor,
Special to CNBC.com
If you’re getting a little queasy about the sagging U.S. dollars in your savings account, join the club.
With deficits high and interest rates low, one potential outcome is high inflation, which would eat away at the value of the greenback.
Now it seems banks are sharing the unease: They’re putting almost two-thirds of their new cash into the euro and the Japanese yen, according to Barclay’s Capital. Compare that to a decade ago, when it was the U.S. dollar that garnered two-thirds of that cash. Global reserve currency? Not so much.
So what’s an investor to do about the shakiness of the dollar? Enter currency exchange-traded funds (ETFs), which let even casual investors put a little foreign spice in their cash holdings. There are now a total of 35 on the market, covering everything from the Indian rupee to the Brazilian real.
Other People's Money
“What currency ETFs provide are democratization,” says Bradley Kay, an ETF analyst with research firm Morningstar. “Previously foreign currencies were largely inaccessible to individuals, because of things like minimum investments. ETFs have opened that all up.”
Complete Currency Coverage
In fact they now hold more than $4.5 billion in assets, up $500 million in the third quarter of this year alone. The first currency ETF only opened at the end of 2005. Whereas currency trading used to be the province of institutions and private banks catering to the ultra-wealthy, any investor can now bet heavily on, say, the Chinese yuan or the Swedish krona.
But that doesn’t mean you should put your life savings into foreign currencies, just because you can. When it might make the most sense for investors: If you have significant cash holdings, and want to hedge some of it against a potential fall of the greenback. With the U.S. government massively increasing its balance sheet, a spike in inflation in the next few years is a distinct possibility, which would eat away at the value of the dollar.
In a worst-case scenario there could be a loss of faith among major debt-holders like China and Korea, who could decide to shift their central bank reserves to other currencies.
It’s not so far-fetched: The dollar’s already slid to a 14-month low, partly thanks to such worries.
“If you’re concerned about the dollar, by all means hold some of your cash in another currency,” says Morningstar’s Kay. “Or if you’re going to have major expenses abroad—like a big family trip, or you’re relocating to work in another country—you can fix those costs now, for the $8 cost of a brokerage fee.”
Currencies, however, should not be a core, long-term holding for investors.
“They belong in the trading-risk end of a portfolio,” says Joe Trevisani, chief market analyst for Saddle River, N.J.-based FX Solutions. “They’re not investments in the classic buy-and-hold sense.” Instead, speculative plays should be—as FX Solutions’ own disclaimer says—“conducted with risk capital you can afford to lose."
Remember that big, bad currencies banks have been the undoing of major funds and banks over the years. Do Barings Bank and Nick Leeson ring a bell?
Rules Of The Road
A few caveats about currency investing. Remember that you’re buying cash, not asset-backed vehicles like stocks, bonds or real estate. As such, it’s a zero-sum game—other currencies have to fall, in order for your investment to rise—and appreciation potential is limited.
And if it’s the U.S. dollar you’re worried about, you can reduce your exposure in other ways, such as buying stock in large multinational firms or broad international-equity funds, particularly small-caps, which are very tied to local currencies.
For solid long-term bets, consider baskets of currencies to reduce your risk, suggests Morningstar’s Kay. Make a single bet like the Mexican peso, and you’re taking your chances.
But buy a broad ETF, and you spread your risk appropriately. Consider the PowerShares DB US Dollar Bearish [UDN 28.63 0.13 (+0.46%) ], a basket of developed-market currencies dominated by the euro, or WisdomTree Dreyfus Emerging Currency [CEW 22.40 0.105 (+0.47%) ], a geographically-diversified collection of currencies in emerging-market economies.
For investors looking for a more direct play, there are a number of online trading platforms. GAIN Capital's Forex.com, GFTForex.com, CMS Forex, for example, allow investors to open trading accounts. Minimum investments and other requirements vary, but one thing is always the same. Currency markets trade around the clock and are very liquid, so price swings can be fast and furious.
Of course, the dollar’s slide isn’t guaranteed, since a double-dip world recession, or another international crisis—political or financial—could see investors flooding back to the relative safety of the greenback.
“But it’s primarily the dollar’s weakness that is driving currency markets now,” says FX Solutions’ Trevisani. “This will continue until the Fed makes clear its intention to begin raising rates—and I don’t think that’s likely until the second half of 2010.”
© 2009 CNBC.com
http://www.cnbc.com/id/33289478
Monday 16 November 2009
What determines the share price changes?
Some of the stocks have gained hugely and some have not moved upwards significantly. A few actually went lower in price.
What determines these share price changes?
Changes in these 3 areas influence the share prices of these stocks the last few months (from March 2009). Let me, based on my rule of thumb assessment, post these below.
Observations:
The market cycle has turned upwards since March 2009. The impact of the market cycle on individual stock prices is not uniform.
The individual stock price is driven mostly, upwards or downwards, by the changes in its underlying business fundamentals.
Though certain sectors may have a negative outlook, some individual stocks within these sectors perform well due to their good business fundamentals.
What determines these share price changes?
Changes in these 3 areas influence the share prices of these stocks the last few months (from March 2009). Let me, based on my rule of thumb assessment, post these below.
HaiO
Business fundamental change +++
Sector change +/-
Market cycle change ++
Market cycle change ++
PBB
Business fundamental change +
Sector change +
Market cycle change ++
HLB
Business fundamental change +
Sector change +
Market cycle change ++
Tong Herr
Business fundamental change ---
Sector change --
Market cycle change ++
LionDiv
Business fundamental change ---
Sector change --
Market cycle change ++
Maybulk
Business fundamental change --
Sector change --
Market cycle change ++
Coastal
Business fundamental change +++
Sector change --
Market cycle change ++
KNM
Business fundamental change -
Sector change -
Market cycle change ++
Nestle
Business fundamental change +
Sector change +/-
Market cycle change ++
Dutch Lady
Business fundamental change +
Sector change +/-
Market cycle change ++
PPB
Business fundamental change ++
Sector change +/-
Market cycle change ++
Top Glove
Business fundamental change +++
Sector change ++
Market cycle change ++
Latexx
Business fundamental change +++
Sector change ++
Market cycle change ++
KLK
Business fundamental change +
Sector change +/-
Market cycle change ++
PetDag
Business fundamental change +
Sector change +/-
Market cycle change ++
Parkson
Business fundamental change +
Sector change +/-
Market cycle change ++
UMW
Business fundamental change +/-
Sector change +/-
Market cycle change ++
Observations:
The market cycle has turned upwards since March 2009. The impact of the market cycle on individual stock prices is not uniform.
The individual stock price is driven mostly, upwards or downwards, by the changes in its underlying business fundamentals.
Though certain sectors may have a negative outlook, some individual stocks within these sectors perform well due to their good business fundamentals.
Sunday 15 November 2009
Fundamentally10 Years Later, a Much Less Expensive Dow 10,000
Fundamentally10 Years Later, a Much Less Expensive Dow 10,000
By PAUL J. LIM
Published: November 14, 2009
INVESTORS may take some comfort now that the Dow Jones industrial average is back above 10,000 after slipping to around 9,700 at the end of October.
But the return to 10,000 also serves as a bitter reminder that stocks have gone virtually nowhere, on balance, for more than a decade. It was in March 1999 that the Dow first climbed above 10,000, before soaring as high as 14,164 two years ago and plummeting as low as 6,547 this past March.
Of course, the Dow gauges only stocks in the United States, and a fairly narrow band of the market at that. And while domestic shares have appeared to run in circles for more than a decade, many global stock markets have prospered.
Look a bit deeper, though, and you’ll find that there have been some changes in the domestic market, too, in the last 10 years — and largely for the better. Some of them, however, are hard to see at first glance.
For example, a majority of sectors have actually posted positive returns since the end of 1999 — in some cases sizable gains. On average, including dividends, energy stocks have returned nearly 150 percent, shares of consumer staples companies (like Procter & Gamble and others that sell necessities) have gained nearly 65 percent and utility stocks have risen nearly 50 percent.
“That’s hardly what I would call a lost decade,” said James W. Paulsen, chief investment strategist at Wells Capital Management in Minneapolis.
Market valuations are another consideration. By almost every measure, stocks are far cheaper at Dow 10,000 today than at Dow 10,000 in March 1999.
Back then, the price-to-earnings ratio for domestic stocks stood at a very high 41.4. That’s based on 10-year average earnings, a conservative measure that smoothes out short-term swings in corporate profits. Since then, using the same measure, the market’s P/E has fallen to 18.9. While that’s not necessarily a screaming bargain — the market’s long-term average is closer to 16 — stocks are trading at a discount of more than 50 percent to their 1999 prices.
“The reality is that stocks are like any other asset,” said Robert D. Arnott, chairman of Research Affiliates, an investment consulting firm in Newport Beach, Calif. “If you buy them cheap, there’s a good chance you’ll be happy very quickly. But if you buy them at expensive prices, you’ll have to wait a long, long time to get rewarded. That’s what investors have learned in the past decade.”
Perhaps the most important change is the one that has occurred in many portfolios. Investors are generally more diversified today than they were a decade ago — and that has helped many households make money in an equity market that has been in neutral over all.
Consider that in 1999, four economically sensitive sectors — technology, financial services, telecommunications and consumer discretionary stocks (which include automakers) — made up nearly two-thirds of the overall market.
Those four areas also happened to be the four worst-performing groups over the last 10 years. Since the end of 1999, tech and telecom shares have lost nearly 8 percent, annualized, according to Standard & Poor’s. Financial shares, meanwhile, have fallen almost 3 percent a year, on average, and consumer discretionary stocks are down nearly 2 percent, annualized, S.& P. says.
Today, these four sectors make up less than half of the market.
At the same time, weightings have grown modestly in traditionally defensive areas of the market like health care, consumer staples and utilities. In fact, those three sectors now make up nearly a third of the S.& P. 500-stock index, up from less than 19 percent in 1999.
DIVERSIFICATION goes well beyond just sectors. Back in the late ’90s, investors held about $1 in foreign stocks for every $8 held in domestic equities — not counting their own company’s stock — within their 401(k) retirement accounts. That isn’t terribly surprising, in that the domestic stock market back then was routinely delivering 20-percent-plus annual returns.
Today, that ratio of foreign stocks to domestic shares stands at 1 to 3.
Why is that important?
In a decade when domestic stocks ended up going nowhere, foreign shares actually gained a decent amount of ground. In fact, the Vanguard Total International Stock Index fund, a diversified index portfolio that serves as a proxy for all overseas equities, returned more than 4 percent, annualized, from March 1999 through October this year. And the Vanguard Emerging Markets Stock Index fund, which invests in companies based in developing economies abroad, fared even better, climbing more than 12 percent, annualized, during this stretch.
If you diversified with, say, 75 percent domestic stocks and 25 percent foreign shares, your overall equity portfolio would have grown slightly — by more than 1 percent, annualized, since March 1999.
What’s more, foreign assets are now more important in global portfolios. In the last 10 years, emerging markets have gone from 4 percent of the world’s market capitalization to 26 percent, said Sam Stovall, chief investment strategist at S.& P.
Despite the Dow’s lackluster performance, Mr. Stovall added, “You can’t say that things haven’t changed.”
Paul J. Lim is a senior editor at Money magazine. E-mail: fund@nytimes.com.
http://www.nytimes.com/2009/11/15/business/economy/15fund.html?_r=1&ref=business
By PAUL J. LIM
Published: November 14, 2009
INVESTORS may take some comfort now that the Dow Jones industrial average is back above 10,000 after slipping to around 9,700 at the end of October.
But the return to 10,000 also serves as a bitter reminder that stocks have gone virtually nowhere, on balance, for more than a decade. It was in March 1999 that the Dow first climbed above 10,000, before soaring as high as 14,164 two years ago and plummeting as low as 6,547 this past March.
Of course, the Dow gauges only stocks in the United States, and a fairly narrow band of the market at that. And while domestic shares have appeared to run in circles for more than a decade, many global stock markets have prospered.
Look a bit deeper, though, and you’ll find that there have been some changes in the domestic market, too, in the last 10 years — and largely for the better. Some of them, however, are hard to see at first glance.
For example, a majority of sectors have actually posted positive returns since the end of 1999 — in some cases sizable gains. On average, including dividends, energy stocks have returned nearly 150 percent, shares of consumer staples companies (like Procter & Gamble and others that sell necessities) have gained nearly 65 percent and utility stocks have risen nearly 50 percent.
“That’s hardly what I would call a lost decade,” said James W. Paulsen, chief investment strategist at Wells Capital Management in Minneapolis.
Market valuations are another consideration. By almost every measure, stocks are far cheaper at Dow 10,000 today than at Dow 10,000 in March 1999.
Back then, the price-to-earnings ratio for domestic stocks stood at a very high 41.4. That’s based on 10-year average earnings, a conservative measure that smoothes out short-term swings in corporate profits. Since then, using the same measure, the market’s P/E has fallen to 18.9. While that’s not necessarily a screaming bargain — the market’s long-term average is closer to 16 — stocks are trading at a discount of more than 50 percent to their 1999 prices.
“The reality is that stocks are like any other asset,” said Robert D. Arnott, chairman of Research Affiliates, an investment consulting firm in Newport Beach, Calif. “If you buy them cheap, there’s a good chance you’ll be happy very quickly. But if you buy them at expensive prices, you’ll have to wait a long, long time to get rewarded. That’s what investors have learned in the past decade.”
Perhaps the most important change is the one that has occurred in many portfolios. Investors are generally more diversified today than they were a decade ago — and that has helped many households make money in an equity market that has been in neutral over all.
Consider that in 1999, four economically sensitive sectors — technology, financial services, telecommunications and consumer discretionary stocks (which include automakers) — made up nearly two-thirds of the overall market.
Those four areas also happened to be the four worst-performing groups over the last 10 years. Since the end of 1999, tech and telecom shares have lost nearly 8 percent, annualized, according to Standard & Poor’s. Financial shares, meanwhile, have fallen almost 3 percent a year, on average, and consumer discretionary stocks are down nearly 2 percent, annualized, S.& P. says.
Today, these four sectors make up less than half of the market.
At the same time, weightings have grown modestly in traditionally defensive areas of the market like health care, consumer staples and utilities. In fact, those three sectors now make up nearly a third of the S.& P. 500-stock index, up from less than 19 percent in 1999.
DIVERSIFICATION goes well beyond just sectors. Back in the late ’90s, investors held about $1 in foreign stocks for every $8 held in domestic equities — not counting their own company’s stock — within their 401(k) retirement accounts. That isn’t terribly surprising, in that the domestic stock market back then was routinely delivering 20-percent-plus annual returns.
Today, that ratio of foreign stocks to domestic shares stands at 1 to 3.
Why is that important?
In a decade when domestic stocks ended up going nowhere, foreign shares actually gained a decent amount of ground. In fact, the Vanguard Total International Stock Index fund, a diversified index portfolio that serves as a proxy for all overseas equities, returned more than 4 percent, annualized, from March 1999 through October this year. And the Vanguard Emerging Markets Stock Index fund, which invests in companies based in developing economies abroad, fared even better, climbing more than 12 percent, annualized, during this stretch.
If you diversified with, say, 75 percent domestic stocks and 25 percent foreign shares, your overall equity portfolio would have grown slightly — by more than 1 percent, annualized, since March 1999.
What’s more, foreign assets are now more important in global portfolios. In the last 10 years, emerging markets have gone from 4 percent of the world’s market capitalization to 26 percent, said Sam Stovall, chief investment strategist at S.& P.
Despite the Dow’s lackluster performance, Mr. Stovall added, “You can’t say that things haven’t changed.”
Paul J. Lim is a senior editor at Money magazine. E-mail: fund@nytimes.com.
http://www.nytimes.com/2009/11/15/business/economy/15fund.html?_r=1&ref=business
The Dangers of Market Timing
By Ken Little, About.com
Market timing may be the two most dangerous words in investing, especially when practiced by beginners.
Market timing is the strategy of attempting to predict future price movements through use of various fundamental and technical analysis tools.
The real benefit of knowing what is going to happen is that your return from buying a stock before it takes off is obviously better than if you have to buy the stock on its way up.
Buy Low, Sell High
Market timers are the ultimate “buy low and sell high” traders. Day traders, who move in and out of positions in minutes or hours, are the extreme market timers. They look for small profits by the dozens each day by capitalizing on swings in a stock’s price.
Most market timers operate on a longer time line, but may move in and out of a stock quickly if they perceive an opportunity.
There is some controversy about market timing. Many investors believe that over time you can’t successfully predict market movements. Market timing becomes more of a gamble in their opinion than a legitimate investing strategy.
Market Timers
Other investors argue that it is possible to spot situations where the market has over or under valued a stock. They use a variety of tools to help them predict when a stock is ready to break out of a trading range.
Unfortunately, stock prices do not always move for the most logical or easily predicable of reasons. An unexpected event can send a stock’s price up or down and you can’t predict those movements with charts.
The Internet stock bull market of the late 1990s was a good example of what happens when investors in the excitement of the moment, consciously or not, became market timers.
Next Big Thing
Every one had a hot tip about the next “big thing” and investors were jumping on stocks as they shot up. Unfortunately, most of these rockets came crashing down just as quickly and many investors held on way too long.
The disastrous result was an exact reversal of what they hoped. In the end, it was a case of “buying high and selling low.” You don’t need to know much about investing to know that’s not a successful strategy.
For most investors, the safer path is sticking to investing in solid, well-researched companies that fit their requirements for growth, earnings, income, and so on.
Conclusion
If you look for undervalued stocks, you may find one that is poised for moving up sharply given the right circumstances. This is a close to market timing as most investors should get.
http://stocks.about.com/od/investingstrategies/a/marktime100804.htm
By Ken Little, About.com
Market timing may be the two most dangerous words in investing, especially when practiced by beginners.
Market timing is the strategy of attempting to predict future price movements through use of various fundamental and technical analysis tools.
The real benefit of knowing what is going to happen is that your return from buying a stock before it takes off is obviously better than if you have to buy the stock on its way up.
Buy Low, Sell High
Market timers are the ultimate “buy low and sell high” traders. Day traders, who move in and out of positions in minutes or hours, are the extreme market timers. They look for small profits by the dozens each day by capitalizing on swings in a stock’s price.
Most market timers operate on a longer time line, but may move in and out of a stock quickly if they perceive an opportunity.
There is some controversy about market timing. Many investors believe that over time you can’t successfully predict market movements. Market timing becomes more of a gamble in their opinion than a legitimate investing strategy.
Market Timers
Other investors argue that it is possible to spot situations where the market has over or under valued a stock. They use a variety of tools to help them predict when a stock is ready to break out of a trading range.
Unfortunately, stock prices do not always move for the most logical or easily predicable of reasons. An unexpected event can send a stock’s price up or down and you can’t predict those movements with charts.
The Internet stock bull market of the late 1990s was a good example of what happens when investors in the excitement of the moment, consciously or not, became market timers.
Next Big Thing
Every one had a hot tip about the next “big thing” and investors were jumping on stocks as they shot up. Unfortunately, most of these rockets came crashing down just as quickly and many investors held on way too long.
The disastrous result was an exact reversal of what they hoped. In the end, it was a case of “buying high and selling low.” You don’t need to know much about investing to know that’s not a successful strategy.
For most investors, the safer path is sticking to investing in solid, well-researched companies that fit their requirements for growth, earnings, income, and so on.
Conclusion
If you look for undervalued stocks, you may find one that is poised for moving up sharply given the right circumstances. This is a close to market timing as most investors should get.
http://stocks.about.com/od/investingstrategies/a/marktime100804.htm
The Problem With Market Timing Print
Friday, 26th June 2009 (by J.D.)
This article is about Investing, Real-Life
I’m in the process of consolidating all of my investment accounts at Fidelity. This isn’t because I think Fidelity is “the best”, but because I think they’re good and they’re certainly convenient. There’s a Fidelity “investor center” not far from my home. (In other words: I’m not endorsing Fidelity; I’m merely following my own advice to pick a good option instead of spending forever looking for the best.)
As I gather my various accounts under one roof, I’m also trying to set investment goals and to implement an asset allocation based on these goals. As I do this, though, I’m struggling with some emotional stuff. I’ve found that it’s one thing to write about smart investing, but it’s another thing to actually do it.
I’ve just learned a real-life lesson about market timing, for example. In general, short-term market timing doesn’t work — especially for amateur investors. If I asked you to tell me whether the stock market (or an individual stock) will rise or fall next Monday, you’d only be guessing. Investors shouldn’t make decisions based on guesses. Or wishful thinking.
Let me give you an example. I recently decided to sell a large stake in an S&P 500 index fund. In order to get my asset allocation correct, I wanted to transfer the money to bonds. But when it actually came time to sell the mutual fund, I couldn’t pull the trigger.
“What if it goes up?” I kept thinking. The market has been climbing over the past few months, and the fund was up 35% since March. 35%!! That’s a pretty good increase, but I wanted more. “Maybe I should wait until the market goes up another three or four percent,” I thought.
I held the index fund for an extra day. Then two. Then three. Each day, the market went down — and my fund followed with it.
“Ouch,” I thought. “I should have sold!” My fund had dropped 5% from the day I first decided to make the move. ”I guess I’d better just sell. Now I’m losing money that I could have safely on the bond side of my portfolio.”
So I sold.
That was early this week. As soon as I sold, the the market began to rise again. Up half a percent on one day, and the next, and then two percent yesterday.
“Holy cats!” I thought. “It’s up three percent since I sold it. I should have held on!”
This, my friends, is the problem with market timing. You can’t know what the market is going to do from day-to-day. Over the long term, the stock market has returned an average of about 10% per year. But that’s the long term. Over shorter spans, the market is volatile. It swings up and down. Over a period of days, its movements are basically random, unpredictable.
I made the decision to sell on June 12th, but I didn’t pull the trigger until June 22nd. In those ten days, my fund lost over 5% of its value. Now, in the three days since I’ve sold the fund, it’s risen 3%. Obviously, I managed to just about nail a worst-case scenario.
Market timing doesn’t always yield such poor results. But, in general, you’re better off basing decisions on your long-term goals and the market’s broad performance instead of trying to guess what your stock or mutual fund will do tomorrow.
http://www.getrichslowly.org/blog/2009/06/26/the-problem-with-market-timing/
Friday, 26th June 2009 (by J.D.)
This article is about Investing, Real-Life
I’m in the process of consolidating all of my investment accounts at Fidelity. This isn’t because I think Fidelity is “the best”, but because I think they’re good and they’re certainly convenient. There’s a Fidelity “investor center” not far from my home. (In other words: I’m not endorsing Fidelity; I’m merely following my own advice to pick a good option instead of spending forever looking for the best.)
As I gather my various accounts under one roof, I’m also trying to set investment goals and to implement an asset allocation based on these goals. As I do this, though, I’m struggling with some emotional stuff. I’ve found that it’s one thing to write about smart investing, but it’s another thing to actually do it.
I’ve just learned a real-life lesson about market timing, for example. In general, short-term market timing doesn’t work — especially for amateur investors. If I asked you to tell me whether the stock market (or an individual stock) will rise or fall next Monday, you’d only be guessing. Investors shouldn’t make decisions based on guesses. Or wishful thinking.
Let me give you an example. I recently decided to sell a large stake in an S&P 500 index fund. In order to get my asset allocation correct, I wanted to transfer the money to bonds. But when it actually came time to sell the mutual fund, I couldn’t pull the trigger.
“What if it goes up?” I kept thinking. The market has been climbing over the past few months, and the fund was up 35% since March. 35%!! That’s a pretty good increase, but I wanted more. “Maybe I should wait until the market goes up another three or four percent,” I thought.
I held the index fund for an extra day. Then two. Then three. Each day, the market went down — and my fund followed with it.
“Ouch,” I thought. “I should have sold!” My fund had dropped 5% from the day I first decided to make the move. ”I guess I’d better just sell. Now I’m losing money that I could have safely on the bond side of my portfolio.”
So I sold.
That was early this week. As soon as I sold, the the market began to rise again. Up half a percent on one day, and the next, and then two percent yesterday.
“Holy cats!” I thought. “It’s up three percent since I sold it. I should have held on!”
This, my friends, is the problem with market timing. You can’t know what the market is going to do from day-to-day. Over the long term, the stock market has returned an average of about 10% per year. But that’s the long term. Over shorter spans, the market is volatile. It swings up and down. Over a period of days, its movements are basically random, unpredictable.
I made the decision to sell on June 12th, but I didn’t pull the trigger until June 22nd. In those ten days, my fund lost over 5% of its value. Now, in the three days since I’ve sold the fund, it’s risen 3%. Obviously, I managed to just about nail a worst-case scenario.
Market timing doesn’t always yield such poor results. But, in general, you’re better off basing decisions on your long-term goals and the market’s broad performance instead of trying to guess what your stock or mutual fund will do tomorrow.
http://www.getrichslowly.org/blog/2009/06/26/the-problem-with-market-timing/
Stock Market Prices and Buying Strategies
Stock Market Prices and Buying Strategies
Before you make a decision about the purchase of a particular stock you should do an extensive research and analysis of the company that issues the stock. During your preliminary study, however, the price of the selected stock may start to increase.
This increase may be caused by a major breakthrough in the industry or an announcement about the company, which makes the stock a hot deal. Additionally, even a small positive comment about the company may lead to the turning of traders' attention toward the particular stock.
Once the future increase in the price of the stock is sensed, traders may pile up to further drive the price up. The opposite process may be implemented for the purposes of decreasing the price of the stock.
Initially you have selected the stock so that you can participate in its growth. However, now that the price of the stock has started to increase, you are deprived of investment premise for executing the trade.
The good news that has increased the price of the company's stock has led to the mismatch between the actual value of the stock and the market price.
Nevertheless, if you still decide to make the trade you will no longer be an investor but a speculator. This is so since you haven't bought the stock because of its potential for growth. The stock's price was artificially inflated by speculation.
On the other hand, the opposite may happen, namely that the price of the selected stock falls. You can only benefit from this since you will be able to purchase the stock at a lower price. However, you should see whether the fall was not due to some inner company problem which may reflect in one way or another on your future returns.
If no problems can be found within the company, a stock with a falling price may represent a good long-term investment. However, you should not jump into the deal, but instead make all the necessary investigations so that you decrease the possibility of investment failure.
http://www.stock-market-investors.com/stock-strategies-and-systems/stock-market-prices-and-buying-strategies.html
Before you make a decision about the purchase of a particular stock you should do an extensive research and analysis of the company that issues the stock. During your preliminary study, however, the price of the selected stock may start to increase.
This increase may be caused by a major breakthrough in the industry or an announcement about the company, which makes the stock a hot deal. Additionally, even a small positive comment about the company may lead to the turning of traders' attention toward the particular stock.
Once the future increase in the price of the stock is sensed, traders may pile up to further drive the price up. The opposite process may be implemented for the purposes of decreasing the price of the stock.
Initially you have selected the stock so that you can participate in its growth. However, now that the price of the stock has started to increase, you are deprived of investment premise for executing the trade.
The good news that has increased the price of the company's stock has led to the mismatch between the actual value of the stock and the market price.
Nevertheless, if you still decide to make the trade you will no longer be an investor but a speculator. This is so since you haven't bought the stock because of its potential for growth. The stock's price was artificially inflated by speculation.
On the other hand, the opposite may happen, namely that the price of the selected stock falls. You can only benefit from this since you will be able to purchase the stock at a lower price. However, you should see whether the fall was not due to some inner company problem which may reflect in one way or another on your future returns.
If no problems can be found within the company, a stock with a falling price may represent a good long-term investment. However, you should not jump into the deal, but instead make all the necessary investigations so that you decrease the possibility of investment failure.
http://www.stock-market-investors.com/stock-strategies-and-systems/stock-market-prices-and-buying-strategies.html
Asset Allocation Basics
Asset allocation is the spreading of assets among different categories of investments, typically among stocks, bonds and cash. It provides protection against drastic market volatility and the corresponding fluctuations. When you allocate your assets you should have in mind different factors, the most important one being your risk tolerance.
Often believed to be one of the most important factors that may influence your chances of success in stock investing, many experts advise asset allocation to be practiced with the greatest caution.
When applying asset allocation you should concentrate on combining stocks, bonds and cash in different proportions. The process of asset allocation is the selection of the percentage by which each investment category will be present in your portfolio.
http://www.stock-market-investors.com/stock-investing-basics/asset-allocation-basics.html
Often believed to be one of the most important factors that may influence your chances of success in stock investing, many experts advise asset allocation to be practiced with the greatest caution.
When applying asset allocation you should concentrate on combining stocks, bonds and cash in different proportions. The process of asset allocation is the selection of the percentage by which each investment category will be present in your portfolio.
http://www.stock-market-investors.com/stock-investing-basics/asset-allocation-basics.html
Value Investing Basics (IV)
Value Investing Basics
Intrinsic Value Defined
Most of the current accounting standards fail to accurately reflect the value of intellectual property assets. As a result they are rarely reflected in the financial statements of companies.
Market value reflects tangible assets, whereas intrinsic value reflects intangible assets, such as trademarks, patents, brand, R&D (research and development) and many others. These intangible assets represent the driving force that pushes the future growth of the business.
The calculations surrounding intrinsic value are complicated. However, you can refer to the many sources that execute the estimations for you. Some of them are MorningStar.com or Reuters.com.
No matter which way you select to calculate the intrinsic value of a stock always leave some room for error. You can also check whether the source has made the required room for error.
Value investing requires you to practice the necessary patience and hold the stock over the long-term. With time your patience will be well rewarded.
http://www.stock-market-investors.com/stock-strategies-and-systems/value-investing-basics.html
Intrinsic Value Defined
Most of the current accounting standards fail to accurately reflect the value of intellectual property assets. As a result they are rarely reflected in the financial statements of companies.
Market value reflects tangible assets, whereas intrinsic value reflects intangible assets, such as trademarks, patents, brand, R&D (research and development) and many others. These intangible assets represent the driving force that pushes the future growth of the business.
The calculations surrounding intrinsic value are complicated. However, you can refer to the many sources that execute the estimations for you. Some of them are MorningStar.com or Reuters.com.
No matter which way you select to calculate the intrinsic value of a stock always leave some room for error. You can also check whether the source has made the required room for error.
Value investing requires you to practice the necessary patience and hold the stock over the long-term. With time your patience will be well rewarded.
http://www.stock-market-investors.com/stock-strategies-and-systems/value-investing-basics.html
Value Investing Basics
Value Investment Selection
In order to determine whether a stock is qualified as a value one, you should look for these basic criteria:
1.The Price to Earnings (P/E) Ratio
It should fall in the 10% of the lowest that is typical for the sector in which the company falls.
2.The Debt to Equity Ratio
It should not be greater than 1.
3.The PEG
It should not be greater than 1. This shows that the stock has been overlooked by the market and as a result its value is below its real one.
4.Earnings Growth
A record of consistent Earnings Growth should be provided over a long period of time. You should look for an earnings growth from 6% to 8% for a 7 to 10-year time period.
5.Stock Price
The price you pay for the stock should not exceed 70% of the intrinsic per share price of the stock.
6.The Price to Book ratio
It should not be greater than 1.
http://www.stock-market-investors.com/stock-strategies-and-systems/value-investing-basics.html
Value Investment Selection
In order to determine whether a stock is qualified as a value one, you should look for these basic criteria:
1.The Price to Earnings (P/E) Ratio
It should fall in the 10% of the lowest that is typical for the sector in which the company falls.
2.The Debt to Equity Ratio
It should not be greater than 1.
3.The PEG
It should not be greater than 1. This shows that the stock has been overlooked by the market and as a result its value is below its real one.
4.Earnings Growth
A record of consistent Earnings Growth should be provided over a long period of time. You should look for an earnings growth from 6% to 8% for a 7 to 10-year time period.
5.Stock Price
The price you pay for the stock should not exceed 70% of the intrinsic per share price of the stock.
6.The Price to Book ratio
It should not be greater than 1.
http://www.stock-market-investors.com/stock-strategies-and-systems/value-investing-basics.html
Value Investing Basics (II)
Value Investing Basics
Value investors have a long-term focus. They buy and hold stocks for long periods of time, waiting for the market to correct the price of the stock to match its real value.
Therefore, when considering a particular company the first thing that a value investor does is the examination of the business's fundamentals. If there is nothing wrong which can be attributed to the low price, then the stock is a perfect option for an investment. After the market corrects the price, the value investor is rewarded for his/her patience.
A decrease in the price of a stock may be an indication for a value investment candidate. However, sometimes the market is right when decreasing the price due to problems with the fundamentals of the business. Some of the reasons for the decline may be a fall in the earnings or revenues. Additionally, the industry may have experienced a change, which has affected the product line of the company.
http://www.stock-market-investors.com/stock-strategies-and-systems/value-investing-basics.html
Value investors have a long-term focus. They buy and hold stocks for long periods of time, waiting for the market to correct the price of the stock to match its real value.
Therefore, when considering a particular company the first thing that a value investor does is the examination of the business's fundamentals. If there is nothing wrong which can be attributed to the low price, then the stock is a perfect option for an investment. After the market corrects the price, the value investor is rewarded for his/her patience.
A decrease in the price of a stock may be an indication for a value investment candidate. However, sometimes the market is right when decreasing the price due to problems with the fundamentals of the business. Some of the reasons for the decline may be a fall in the earnings or revenues. Additionally, the industry may have experienced a change, which has affected the product line of the company.
http://www.stock-market-investors.com/stock-strategies-and-systems/value-investing-basics.html
Value Investing Basics (I)
Value Investing Basics
Most investors regard value investing as purchasing cheap or discounted stocks. However, this investing strategy is more than this.
Value investing refers to the purchase of stocks that have been overlooked by the market and as a result their price is below their real value. This means that the real value of a stock is not correctly reflected by the price at which it is traded.
If you are a value investor you should pay special attention to the business fundamentals. The latter should be on the top of your list of criteria and priorities. Only after this should the other influences be considered.
Business fundamentals that you should study include:
•Earnings growth
•Cash flow
•Dividends
•Book value
These should be of higher importance than the rest of the market conditions that may influence the price of the stock you have selected.
http://www.stock-market-investors.com/stock-strategies-and-systems/value-investing-basics.html
Most investors regard value investing as purchasing cheap or discounted stocks. However, this investing strategy is more than this.
Value investing refers to the purchase of stocks that have been overlooked by the market and as a result their price is below their real value. This means that the real value of a stock is not correctly reflected by the price at which it is traded.
If you are a value investor you should pay special attention to the business fundamentals. The latter should be on the top of your list of criteria and priorities. Only after this should the other influences be considered.
Business fundamentals that you should study include:
•Earnings growth
•Cash flow
•Dividends
•Book value
These should be of higher importance than the rest of the market conditions that may influence the price of the stock you have selected.
http://www.stock-market-investors.com/stock-strategies-and-systems/value-investing-basics.html
Stock Price Influences
Stock Price Influences
Stock prices are vulnerable to many market changes. However, there are three major influences that have an effect on the ups and downs of the prices. You should become familiar with these influences in order to be able to identify whether the change in the price gives you a signal to sell, buy or do nothing with a particular stock.
Business Fundamentals Change
The first influence is a change in the economic conditions in the market. If a particular company experiences a steady increase in its revenue and profits, then it represents an attractive investment to investors. As a result, you can expect that the price of the stock will increase as investors bid for its purchase.
The opposite is true if the particular company experiences a flat trend of its revenue and profits or even there is a decline it them. As a result, investors will show no interest in the stock and the price of the latter will fall.
If a company incurs debt or executes an acquisition its price will be again influenced. However, the effect of these will not be felt immediately.
The important thing to remember is that a change in the business leads to a change in the price of its stock. So, you should learn to notice the underlying business changes before they are reflected in the price of the stock.
Sector Change
Every company is part of a particular sector. Some sectors are influenced by different cycles, which in turn are reflected in the price. Therefore, being a smart investor requires you to be able to spot the cyclical changes that may influence the price of the stock.
The bad news is that if the whole sector experiences a major change, all companies are influenced no matter of their business fundamentals.
This means that no matter how well your stock may perform, if the whole sector sinks your stock will sink too. On the other hand, if you hold a badly performing stock, but the prices of the stocks are artificially inflated, the price of your stock will also increase.
Market Cycle Change
Generally, the market experiences different cycles. It goes up and down or stays flat.
As a result your stock will be influenced by these movements. It may move in accordance with the market or go against it. The latter is especially true about smaller companies, which often times don't follow the market trends. However, large-cap stocks generally move in accordance with the market up to a certain point and then get their own direction.
Stock Influences Application
By studying the changes in the business fundamentals you may get an idea on whether to purchase stocks of a growing company or sell such if the company is getting in a worse position.
Sector changes are most of the time a temporary events. Nevertheless, a major change may require you to reexamine the viability of your stocks. The time may have come to say goodbye to your stocks. You should make a careful analysis on the ability of the company to adapt to the changes that have occurred.
Changes in the market cycles may be beneficial to investors, because they may provide you with the opportunity to add new stocks to your holdings. Additionally, if the price is high enough being pushed by the market cycle, it may be time to sell it and use the proceeds to purchase additional stocks when the price is down again.
http://www.stock-market-investors.com/stock-investing-basics/stock-price-influences.html
Stock prices are vulnerable to many market changes. However, there are three major influences that have an effect on the ups and downs of the prices. You should become familiar with these influences in order to be able to identify whether the change in the price gives you a signal to sell, buy or do nothing with a particular stock.
Business Fundamentals Change
The first influence is a change in the economic conditions in the market. If a particular company experiences a steady increase in its revenue and profits, then it represents an attractive investment to investors. As a result, you can expect that the price of the stock will increase as investors bid for its purchase.
The opposite is true if the particular company experiences a flat trend of its revenue and profits or even there is a decline it them. As a result, investors will show no interest in the stock and the price of the latter will fall.
If a company incurs debt or executes an acquisition its price will be again influenced. However, the effect of these will not be felt immediately.
The important thing to remember is that a change in the business leads to a change in the price of its stock. So, you should learn to notice the underlying business changes before they are reflected in the price of the stock.
Sector Change
Every company is part of a particular sector. Some sectors are influenced by different cycles, which in turn are reflected in the price. Therefore, being a smart investor requires you to be able to spot the cyclical changes that may influence the price of the stock.
The bad news is that if the whole sector experiences a major change, all companies are influenced no matter of their business fundamentals.
This means that no matter how well your stock may perform, if the whole sector sinks your stock will sink too. On the other hand, if you hold a badly performing stock, but the prices of the stocks are artificially inflated, the price of your stock will also increase.
Market Cycle Change
Generally, the market experiences different cycles. It goes up and down or stays flat.
As a result your stock will be influenced by these movements. It may move in accordance with the market or go against it. The latter is especially true about smaller companies, which often times don't follow the market trends. However, large-cap stocks generally move in accordance with the market up to a certain point and then get their own direction.
Stock Influences Application
By studying the changes in the business fundamentals you may get an idea on whether to purchase stocks of a growing company or sell such if the company is getting in a worse position.
Sector changes are most of the time a temporary events. Nevertheless, a major change may require you to reexamine the viability of your stocks. The time may have come to say goodbye to your stocks. You should make a careful analysis on the ability of the company to adapt to the changes that have occurred.
Changes in the market cycles may be beneficial to investors, because they may provide you with the opportunity to add new stocks to your holdings. Additionally, if the price is high enough being pushed by the market cycle, it may be time to sell it and use the proceeds to purchase additional stocks when the price is down again.
http://www.stock-market-investors.com/stock-investing-basics/stock-price-influences.html
Has the Time for Selling Stocks Come?
Has the Time for Selling Stocks Come?
When your stock turns into a winning player you may become frustrated about whether it is time to sell it. Many financial advisors recommend the avoidance of selling a winning stock, whereas other specialists claim that selling is an inseparable part of the trading process.
Consider the following case. You have purchased a stock that has become winning. One of the alternative courses of action that you can undertake is to sell the stock and enjoy its profits. On the other hand, you can keep the stock and wait to see its future development.
However, you should consider the following steps regarding the second option. They are required in order not to lose the profits you have acquired.
1.Examine Company's Fundamentals
The first thing you should examine is the fundamentals of the company that has issued the stock. This is required in order to see whether the company has stable fundamentals. Failure in the latter may lead to a fall in the price of your winning stock.
Make a careful examination on such things as cash flow, debt, sales and etc. If there is a problem don't wait for the market to notice these problems and quickly sell the stock before the price has fallen and you have lost your profits.
2.Set a Target Price
When you purchase a stock it is a good idea to set a target price, which if reached triggers the selling of the stock. The target price of the stock may be both above and below the current level. This means that if the stock increases or decreases to a certain level you should sell it.
The setting of an upper limit is many times required for the purpose of insuring yourself against the potential inability of the stock to sustain a market price that is above a certain level. A bad event may trigger the fall in the price and as a result you may lose your profits.
Additionally, many investors know how much they want to get from a stock and establish the upper level. Once reached, they dump the stock.
3.Watch for Events Suggesting It Is Time for Selling
Many events can have a negative effect on the value of your winning stock. Thus, you should carefully consider them and whenever they occur you should embark on selling. Such events may include:
◦Too much attention from the media
Too much attention on the part of the media may lead to artificially inflated prices of the stock since many investors show interest. After the hype passes the price may start to fall and result in the loss of profits.
◦Slowed growth of the stock.
If you possess a growth stock, it is good to consider its selling after it has reached the point at which its growth speed has started to decrease. This is required because the market shows negative attitude toward growth stocks that are unable to sustain their growth.
◦Better investment opportunities
It may turn out that there are other stocks that provide better returns. The latter may present a lower level of risk as well. Thus, it is recommended that you consider the selling of your stock and purchasing one of these.
◦Decreased or Eliminated Dividends
At one point or another, the company issuing the stock may start to decrease the dividends it pays to shareholders. If they are also completely eliminated, then this may indicate that the company is undergoing some change or problem. This represents a good reason for selling the stock and avoiding losing your profits.
Many financial experts advise the selling of part of the stock. The rest is left to grow further. In this way you get part of your profits and let the rest generate further returns.
Finally, don't be too hasty and make frequent trades just because you have obtained some profits from a stock. The commission fees that you will have to pay for the frequent trades will eat up your profits. Thus, several winning trades per year are just enough to fill your account with profits.
http://www.stock-market-investors.com/stock-strategies-and-systems/has-the-time-for-selling-stocks-come.html
When your stock turns into a winning player you may become frustrated about whether it is time to sell it. Many financial advisors recommend the avoidance of selling a winning stock, whereas other specialists claim that selling is an inseparable part of the trading process.
Consider the following case. You have purchased a stock that has become winning. One of the alternative courses of action that you can undertake is to sell the stock and enjoy its profits. On the other hand, you can keep the stock and wait to see its future development.
However, you should consider the following steps regarding the second option. They are required in order not to lose the profits you have acquired.
1.Examine Company's Fundamentals
The first thing you should examine is the fundamentals of the company that has issued the stock. This is required in order to see whether the company has stable fundamentals. Failure in the latter may lead to a fall in the price of your winning stock.
Make a careful examination on such things as cash flow, debt, sales and etc. If there is a problem don't wait for the market to notice these problems and quickly sell the stock before the price has fallen and you have lost your profits.
2.Set a Target Price
When you purchase a stock it is a good idea to set a target price, which if reached triggers the selling of the stock. The target price of the stock may be both above and below the current level. This means that if the stock increases or decreases to a certain level you should sell it.
The setting of an upper limit is many times required for the purpose of insuring yourself against the potential inability of the stock to sustain a market price that is above a certain level. A bad event may trigger the fall in the price and as a result you may lose your profits.
Additionally, many investors know how much they want to get from a stock and establish the upper level. Once reached, they dump the stock.
3.Watch for Events Suggesting It Is Time for Selling
Many events can have a negative effect on the value of your winning stock. Thus, you should carefully consider them and whenever they occur you should embark on selling. Such events may include:
◦Too much attention from the media
Too much attention on the part of the media may lead to artificially inflated prices of the stock since many investors show interest. After the hype passes the price may start to fall and result in the loss of profits.
◦Slowed growth of the stock.
If you possess a growth stock, it is good to consider its selling after it has reached the point at which its growth speed has started to decrease. This is required because the market shows negative attitude toward growth stocks that are unable to sustain their growth.
◦Better investment opportunities
It may turn out that there are other stocks that provide better returns. The latter may present a lower level of risk as well. Thus, it is recommended that you consider the selling of your stock and purchasing one of these.
◦Decreased or Eliminated Dividends
At one point or another, the company issuing the stock may start to decrease the dividends it pays to shareholders. If they are also completely eliminated, then this may indicate that the company is undergoing some change or problem. This represents a good reason for selling the stock and avoiding losing your profits.
Many financial experts advise the selling of part of the stock. The rest is left to grow further. In this way you get part of your profits and let the rest generate further returns.
Finally, don't be too hasty and make frequent trades just because you have obtained some profits from a stock. The commission fees that you will have to pay for the frequent trades will eat up your profits. Thus, several winning trades per year are just enough to fill your account with profits.
http://www.stock-market-investors.com/stock-strategies-and-systems/has-the-time-for-selling-stocks-come.html
Avoiding Bad Stock
Avoiding Bad Stock
Most investors often fall in the simple trap of believing someone who tells them that a particular stock represents the next winning bet. However, you should be very cautious when examining the possibility of investing in such a "promising" stock.
1. An example of a great looking stock is the one that looks absolutely healthy from the outside, but it is usually hollow and unprofitable in its core. Most investors that are attracted by these shiny stocks eventually find out that the companies that have issued them are not profitable and financially sustainable. These stocks are easily forgotten after a short period of time.
2. Another example of a bad stock is the one that is tied to the cycles of the business. This means that its price is very vulnerable to the changing cycles of the market. If you purchase the stock at a time when its price was high (due to high demand), you will soon end up with a worthless stock because of the changed cycle of the market.
3. Sometimes a stock may be really very profitable and a viable investment. However, you have entered the game too late at a point where the market has increased the price of the stock to a high level. No matter how good the stock may be if you buy high you will soon feel the losses.
Making the Right Investment Decision
In order to make a successful investment decision you should first of all select a company that has a reliable business. Additionally, the company should prove that it has good prospects for success in terms of growth.
Second, you should be able to find a price that coincides with the current state of the company and its future position. You should make a reasonable evaluation in order to avoid paying more than the company is really worth.
In order to determine the current and future value of the company's stock, you can refer to one or several of the many formulas for this purpose. However, you should not fully rely on them and try to develop your common sense feelings in order to pick the stocks that best meet your financial goals.
When you start the stock selection process take your time. Don't be too impatient and if a stock doesn't look very viable don't invest in it. There are plenty of other opportunities in which you can invest your hard-earned money. Analyze all the alternative investments and select the one that best meets your needs and goals.
Remember that you should try to avoid the described above bad stocks, which only look profitable but are financially hollow. Additionally, the best way not to lose your money is to invest reasonably and cautiously by analyzing every opportunity before jumping into it.
http://www.stock-market-investors.com/stock-market-advices-and-tips/avoiding-bad-stock.html
Most investors often fall in the simple trap of believing someone who tells them that a particular stock represents the next winning bet. However, you should be very cautious when examining the possibility of investing in such a "promising" stock.
1. An example of a great looking stock is the one that looks absolutely healthy from the outside, but it is usually hollow and unprofitable in its core. Most investors that are attracted by these shiny stocks eventually find out that the companies that have issued them are not profitable and financially sustainable. These stocks are easily forgotten after a short period of time.
2. Another example of a bad stock is the one that is tied to the cycles of the business. This means that its price is very vulnerable to the changing cycles of the market. If you purchase the stock at a time when its price was high (due to high demand), you will soon end up with a worthless stock because of the changed cycle of the market.
3. Sometimes a stock may be really very profitable and a viable investment. However, you have entered the game too late at a point where the market has increased the price of the stock to a high level. No matter how good the stock may be if you buy high you will soon feel the losses.
Making the Right Investment Decision
In order to make a successful investment decision you should first of all select a company that has a reliable business. Additionally, the company should prove that it has good prospects for success in terms of growth.
Second, you should be able to find a price that coincides with the current state of the company and its future position. You should make a reasonable evaluation in order to avoid paying more than the company is really worth.
In order to determine the current and future value of the company's stock, you can refer to one or several of the many formulas for this purpose. However, you should not fully rely on them and try to develop your common sense feelings in order to pick the stocks that best meet your financial goals.
When you start the stock selection process take your time. Don't be too impatient and if a stock doesn't look very viable don't invest in it. There are plenty of other opportunities in which you can invest your hard-earned money. Analyze all the alternative investments and select the one that best meets your needs and goals.
Remember that you should try to avoid the described above bad stocks, which only look profitable but are financially hollow. Additionally, the best way not to lose your money is to invest reasonably and cautiously by analyzing every opportunity before jumping into it.
http://www.stock-market-investors.com/stock-market-advices-and-tips/avoiding-bad-stock.html
****Bull and Bear Market Strategies - Damn Bloody Good Gems!
The stock market often falls under the conditions of the so called bull and bear markets. Intelligent investors are well familiar with the conditions of both and know exactly what to do.
Under a down market you have several options.
- One of them is to sell immediately in order to minimize your losses.
- Another option is to let the market work its way through the problem with no action from your side.
- A third option is to benefit from the stock decline and add some more to your portfolio. But, this should be done only if you don't perceive that there is something wrong with the company that has led to the stock decline.
- First of all, you can sell a part of the shares and use the money to repurchase the stock when its price falls again.
- Secondly, you can leave the market work its way through the imbalance with no action from your side.
- Thirdly, you can take advantage of the high prices and sell the stocks for a profit.
Never forget that it is important to base your decisions on knowledge not on feelings. This means that being educated about the company and the industry from which your stocks come from, the market conditions under which you operate will be of small importance to you.
http://www.stock-market-investors.com/stock-strategies-and-systems/bull-and-bear-market-strategies.html
Types of Stock Market Losses
Types of losses
Capital loss
Lost opportunity
Missed profit loss
Tips for Preventing and Dealing with Losses
•Evaluate the worthiness of a certain investment by measuring it against a US Treasury Note, which provides risk-free investment with relatively small returns. This will help you determine how much more the particular stock will bring you and whether the risk of sustaining losses is worth it.
•In order to avoid missed profit losses don't be too greedy and apply common sense when you see the price of your stock rising. Otherwise, you risk missing the high level and you will have to put up with a lower less beneficial one at best.
•Never console yourself that the losses you have sustained are just on paper and are not realized until you sell the stock. If you are convinced that the losing stocks still represent good long-term investment potentials, you should consider holding them disregarding the current lack of good performance. Otherwise, the paper losses will be turned into lost opportunity for each day you keep your stocks.
There is no person who likes losing money. However, you should accept the idea of losing some money from time to time. Additionally, whenever you notice that your stocks are losing their positions and their long-term prospects are not good, it may be better to sell them and move on to a better deal.
http://www.stock-market-investors.com/stock-investment-risk/types-of-stock-market-losses.html
Capital loss
Lost opportunity
Missed profit loss
Tips for Preventing and Dealing with Losses
•Evaluate the worthiness of a certain investment by measuring it against a US Treasury Note, which provides risk-free investment with relatively small returns. This will help you determine how much more the particular stock will bring you and whether the risk of sustaining losses is worth it.
•In order to avoid missed profit losses don't be too greedy and apply common sense when you see the price of your stock rising. Otherwise, you risk missing the high level and you will have to put up with a lower less beneficial one at best.
•Never console yourself that the losses you have sustained are just on paper and are not realized until you sell the stock. If you are convinced that the losing stocks still represent good long-term investment potentials, you should consider holding them disregarding the current lack of good performance. Otherwise, the paper losses will be turned into lost opportunity for each day you keep your stocks.
There is no person who likes losing money. However, you should accept the idea of losing some money from time to time. Additionally, whenever you notice that your stocks are losing their positions and their long-term prospects are not good, it may be better to sell them and move on to a better deal.
http://www.stock-market-investors.com/stock-investment-risk/types-of-stock-market-losses.html
Before You Buy Stocks
Before You Buy Stocks
No stock investment should be done without a thorough preliminary check on its potentials. This is required in order not to wake up in the next morning and wonder why you have put your money in this stock at all.
This is especially true when the question comes to long-term investing. It will never hurt you to make a close examination of the stocks you are about to purchase. If you don't do that your potential of losing money is highly increased.
In order to determine whether a certain company's stock is worth the investment you should consider the following criteria:
1.Company growth potential
What you should pay attention to is the growth in earnings and revenue. Additionally, the company growth should be sustained over longer periods of time.
In case the revenue lags behind with respect to earnings, you should dig deeper and try to find the reasons why this is so.
On the other hand, if the earnings are declining or keeping one and the same level while the revenue is increasing, it may mean that:
◦The company is launching a new product
◦The company is entering a new market
◦There are management inefficiencies
◦The company cannot compete efficiently in the current market
2.Company understanding
You should be well aware of the activities and purposes of the company and be possible to state them in simple words so that even a child can understand you.
You are not required to know the subtleties of the particular business, but you should educate yourself on its operations and functions. Additionally, don't direct your attention to companies with sophisticated business models. They don't guarantee you higher profits. The latter can be gained even from companies with less sophisticated business models that provide almost the same efficiency.
3.Cost of investment
Now that you have done the necessary research on the company and have gained a thorough understanding of its structure and operations, it is time to see how much the deal will cost you.
Before paying for the stock, check whether the stock is not currently at its "hot" state, which may mean paying a high price.
A good tactic may be to wait until the market suffers the negative consequences of some bad event and its prices are down. In such a way you gain the opportunity of enjoying higher profits later.
If the price of the stock is too low, but you cannot see anything wrong with the company don't hesitate and buy it.
On the other hand, you should always assume the chance that your analysis has some flaws. In such a case, it is better to abandon the research for the sake of saving your money and not risking losing them just because you have been impatient.
Final Piece of Advice
Apply as much patience as possible and observe the stock for a while. Make all the necessary checks and analysis before jumping into the deal. If the conditions have changed it may be better to abandon your research and stock and head for the next opportunity by learning from the mistakes you have committed.
http://www.stock-market-investors.com/stock-strategies-and-systems/before-you-buy-stocks.html
No stock investment should be done without a thorough preliminary check on its potentials. This is required in order not to wake up in the next morning and wonder why you have put your money in this stock at all.
This is especially true when the question comes to long-term investing. It will never hurt you to make a close examination of the stocks you are about to purchase. If you don't do that your potential of losing money is highly increased.
In order to determine whether a certain company's stock is worth the investment you should consider the following criteria:
1.Company growth potential
What you should pay attention to is the growth in earnings and revenue. Additionally, the company growth should be sustained over longer periods of time.
In case the revenue lags behind with respect to earnings, you should dig deeper and try to find the reasons why this is so.
On the other hand, if the earnings are declining or keeping one and the same level while the revenue is increasing, it may mean that:
◦The company is launching a new product
◦The company is entering a new market
◦There are management inefficiencies
◦The company cannot compete efficiently in the current market
2.Company understanding
You should be well aware of the activities and purposes of the company and be possible to state them in simple words so that even a child can understand you.
You are not required to know the subtleties of the particular business, but you should educate yourself on its operations and functions. Additionally, don't direct your attention to companies with sophisticated business models. They don't guarantee you higher profits. The latter can be gained even from companies with less sophisticated business models that provide almost the same efficiency.
3.Cost of investment
Now that you have done the necessary research on the company and have gained a thorough understanding of its structure and operations, it is time to see how much the deal will cost you.
Before paying for the stock, check whether the stock is not currently at its "hot" state, which may mean paying a high price.
A good tactic may be to wait until the market suffers the negative consequences of some bad event and its prices are down. In such a way you gain the opportunity of enjoying higher profits later.
If the price of the stock is too low, but you cannot see anything wrong with the company don't hesitate and buy it.
On the other hand, you should always assume the chance that your analysis has some flaws. In such a case, it is better to abandon the research for the sake of saving your money and not risking losing them just because you have been impatient.
Final Piece of Advice
Apply as much patience as possible and observe the stock for a while. Make all the necessary checks and analysis before jumping into the deal. If the conditions have changed it may be better to abandon your research and stock and head for the next opportunity by learning from the mistakes you have committed.
http://www.stock-market-investors.com/stock-strategies-and-systems/before-you-buy-stocks.html
When to Buy and Sell Stocks
Sound stock decisions should be made on the basis of thorough company knowledge, not just on the basis of the price of the stock. A rising price most of the times means that the time to sell the stock is nearing. On the other hand, a falling price may signal that the time to purchase stocks is coming.
http://www.stock-market-investors.com/stock-strategies-and-systems/when-to-buy-and-sell-stocks.html
http://www.stock-market-investors.com/stock-strategies-and-systems/when-to-buy-and-sell-stocks.html
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