Keep INVESTING Simple and Safe (KISS)
****Investment Philosophy, Strategy and various Valuation Methods****
The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.
By Jana Randow and Simon Kennedy | Updated Mar 10, 2016 10:19 AM EST
Imagine a bank that pays negative interest. Depositors are actually charged to keep their money in an account. Crazy as it sounds, several of Europe’s central banks have cut key interest rates below zero and kept them there for more than a year. Now Japan is trying it, too. For some, it’s a bid to reinvigorate an economy with other options exhausted. Others want to push foreigners to move their money somewhere else. Either way, it’s an unorthodox choice that has distorted financial markets and triggered warnings that the strategy could backfire. If negative interest rates work, however, they may mark the start of a new era for the world’s central banks.
The Situation
The Bank of Japan surprised markets by adopting negative interest rates in January, more than a year and a half after the European Central Bank became the first major institution of its kind to venture below zero. With other options to stimulate the economy limited, more policy makers are willing to test the technique. They acknowledge that sub-zero rates can crimp the ability of banks to make money or lead them to take additional risks in search of profit. The ECB cut rates again March 10, charging banks 0.4 percent to hold their cash overnight. At the same time, it offered a premium to banks that borrow in order to extend more loans. Sweden also has negative rates, Denmark is using them to protect its currency’s peg to the euro and last year Switzerland moved its deposit rate below zero for the first time since the 1970s. Janet Yellen, the U.S. Federal Reserve chair, said in November that a change in economic circumstances could put negative rates “on the table” in the U.S. Since central banks provide a benchmark for all borrowing costs, negative rates spread to a range of fixed-income securities. By February, more than $7 trillion of government bonds worldwide offered yields below zero. That means investors buying bonds and holding to maturity won’t get all their money back. While most banks have been reluctant to pass on negative rates for fear of losing customers, a few began to charge large depositors. Source: Bloomberg
The Background
Negative interest rates are an act of desperation, a signal that traditional policy options have proved ineffective and new limits need to be explored. They punish banks that hoard cash instead of extending loans to businesses or to weaker lenders. Rates below zero have never been used before in an economy as large as the euro area. While it’s still too early to tell if they will work, ECB President Mario Draghi said in January 2016 that there are “no limits” on what he will do to meet his mandate. Europe’s central bank chose to experiment with negative rates before turning to a bond-buying program like those used in the U.S. and Japan. Policy makers in both Europe and Japan are trying to prevent a slide back into deflation, or a spiral of falling prices that could derail the economic recovery. The euro zone is also grappling with a shortage of credit and unemployment is only slowly receding from its highest level since the currency bloc was formed in 1999. Source: European Central Bank
The Argument
In theory, interest rates below zero should reduce borrowing costs for companies and households, driving demand for loans. In practice, there’s a risk that the policy might do more harm than good. If banks make more customers pay to hold their money, cash may go under the mattress instead, robbing lenders of a crucial source of funding. But there’s mounting concern that when banks absorb the cost of negative rates themselves, that squeezes the profit margin between their lending and deposit rates, and might make them even less willing to lend. The Bank for International Settlements warned in a March 2016 report of “great uncertainty” if rates stay negative for a prolonged period. And if more and more central banks use negative rates as a stimulus tool, there’s concern the policy might ultimately lead to a currency war of competitive devaluations.
The Reference Shelf
A Bloomberg comic explains how negative interest rates aim to put money to work.
The Bank for International Settlements published a March 2016 report on negative rates.
An analysis of the impact of negative rates in 2015 from Sweden’s central bank.
Blog posts from Francesco Papadia, a former director general for market operations at the ECB, on whether the central bank should have negative rates, and a discussion about where rates could go.
A speech by Benoit Coeure, a member of the ECB Executive Board, on monetary policy and the challenges of the zero lower bound.
A Bloomberg News article outlining the pros and cons of a deposit rate of zero or below and a QuickTake on the ECB’s debate over quantitative easing.
An ECB research paper on non-standard monetary policy and a Bank of England study of negative rates.
3 Keys to a Winning Method to Consistently Profit in the Stock Market
Written by Adam Khoo
If you were to randomly buy stocks just because you got a “hot tip” or a “gut feel”, your chances of being profitable will be 50% at best. Since a stock either goes up or down, you only have a 50/50 chance of being right.
Of course, with some luck, you could still make money. However, money that is made from a lucky streak never ever lasts. Eventually, luck will run out and you will end up losing everything and much more. This is why people who gamble at casinos or try their luck at the stock market will end up losing everything.
But when you have a method that gives you an edge over the market, you can confidently be right 70% – 80% of the time. (You can never be right 100% of the time because many factors in the world of investing that are out of our control – e.g. a sudden economic crisis can cause stock prices to fall temporarily.)
A winning method of investing should consist of 3 key components:
Knowing…
What to buy
When to buy
When to sell
Let us go through all three in detail.
#1 What to Buy
When you buy a share of stock, you are actually buying a share of a public listed company. You become a part owner (albeit a very small one) of a business.
We only want to invest in shares of very good businesses. Using fundamental analysis, we need to learn how to study the financial reports of companies to determine which are the most profitable and valuable ones.
There are many factors that make a company’s stock a good investment. Let me highlight two important ones:
Consistently increasing sales revenue and net income
Positive long-term growth rate
I only invest in companies that have a track record of consistently increasing sales revenue and net income, together with positive future growth potential. When a company has these fundamental qualities, its share price will have a greater potential to rise over time.
Similarly, I avoid buying stocks of companies with inconsistent or declining sales revenue and net income. Stocks of companies that have weak revenue and net income growth usually have flat of declining stock prices.
Of course, there are many more financial data and ratios we can look at to determine that it is a great company. I also look at stuff like:
Insider activity
Return on equity
Statement of cash flows
Debt-equity ratio
Current ratio
Gross and net margins
Working capital versus revenue growth
Cash conversion cycle
It is essential to do enough research on the right company’s stock to buy. They have to meet all the critical fundamental criteria!
#2 When to Buy
It is not good enough to know which companies’ stocks to buy. You need to also know exactly WHEN to make your investment. I know many people who invest in great stocks.
So, WHEN is it a good time to invest? Well, you should only buy a stock when its price is below its intrinsic value. This means that the stock is selling at a price below what it is actually worth.
I use an intrinsic value calculator to determine the true value of a stock, based on the company’s cash flow from operations, growth rate, total debt and cash holdings. The intrinsic value of a stock will also give you an indication of where the share price can potentially reach in the short term.
For example, I made an investment in Google (GOOG) on Jan 2012, a stock that has delivered consistent growth in revenue and net income. Although it seemed pricey at $575, it was actually way below its intrinsic value of $1,065. The intrinsic value of GOOG gave me the confidence that I could potentially double my investment when GOOG reaches its true value.
Besides analyzing a stock’s intrinsic value, it is also very important to only buy a stock when its price is on an uptrend. Never buy a stock when the price is on a downtrend, no matter how good the stock is or how cheap the price may seem. When a stock’s price is on a downtrend, you never know how low it can go before it starts to recover. A cheap stock may become even cheaper in the short term.
An uptrend is characterized by a series of stock prices making higherhigh points and higherlow points. On an uptrend, stock prices still go up and down. However, every time prices go down, they move up even higher subsequently.
Chart: Think or Swim – Prophet Charts®
When a stock is on an uptrend, it means that investors are getting more optimistic about it. This causes upward price momentum that drives the stock higher and higher. This will keep happening until a major news development changes the trend. It definitely makes sense to only buy a stock when it is on an uptrend because the probability is that it will keep going higher. This is why there is an old Wall Street saying, “the trend is your friend”.
#3 When to Sell
Knowing when to sell your investment is the most important part of your strategy. Many investors lose money or fail to maximize their profits despite knowing WHAT to buy and WHEN to BUY. This is because they failed to know WHEN to SELL.
No matter how great a stock is, it will not go up forever. Nothing great lasts forever. If you fall too much in love with a stock and fail to sell it when it reverses to a downtrend, all your profits could be wiped out!
Winning investors strictly follow their sell rules without compromise. They understand that if they do not sell at the right time, mistakes can turn into huge losses and potential winning investments can turn into losing ones.
Two investors who buy the same stock at the same time can get very different results depending on WHEN they sell.
You should hit the sell button when…
The stock price reverses to a downtrend
This is to protect the profits we have made. A downtrend is characterized by a series of stock prices making lower high points and lower low points. On a downtrend, stock prices still go up and down. However, every time prices go up, they move down even lower subsequently.
Chart: ChartNexus
When a stock is on a downtrend, it means that investors are getting more and more pessimistic. This causes downward price momentum that drives the stock lower and lower.
The stock price falls 5% – 8% below your purchase price
This is known as your stop loss price. It is an important strategy to limit your losses when you are wrong. I always use an automated stop loss order for this. Remember that no matter how great your strategy is, you can never be right 100% of the time. A stop-loss ensures that losses are limited in those instances when the stock price does not move up as expected.
If you consistently follow these three keys, WHAT to buy, WHEN to buy and WHEN to sell, you will be able to achieve a high probability of success in the stock market.
Borrowing from your broker to buy a security (stock, bond or futures contract) is referred to as buying on margin.
You use the security or other securities in your portfolio as collateral.
When you borrow to buy on margin, you pay margin interest rates set by the broker. This is usually a fairly high rate, though not as high as a credit card.
Why do investors buy on margin?
Margin buyers are trying to buy larger positions than they can afford out of pocket in order to get more exposure - leverage - from their investments.
To buy on margin, you must set up a margin account with your broker.
This involves depositing a certain amount and signing several forms indicating you understand the terms and conditions.
This can be done online with online brokers.
Not all securities are marginable. Some low-price or risky stocks do not qualify for margin buying.
Buying on Margin
When you buy a security on margin, you must have enough collateral to make the purchase.
A margin requirement of 50% for stocks is required in the US, set by the Federal Reserve.
That means you must have at least 50% of the entire purchase available in your account as cash or equity. This is to prohibit you from borrowing too much.
This 50% requirement only applies to the initial purchase. After that, rules set by your broker apply.
Margin Call
There is a minimum maintainance requirement below which your equity portion will trigger a sale or a request for more equity (cash) to be whole. This is a margin call.
A typical minimum maintainance requirement is 35%, meaning that once your equity falls below 35% of the entire stock position, you get the call.
For example, if you buy 1000 shares of a $1 stock for $1000, you can borrow $500 of the $1000. If the stock drops below the point where the equity portion of the investment is 35%, you will trigger the call.
What is that price when you get a margin call?
The formula is: Borrowed Amount / (1 - Maintainance Requirement).
If the maintainance requirement is 0.35 and you borrowed $500, the formula would give you the total securities value to match 35%, in this case $500/(0.65), or $769.23.
That means that if your $1 stock goes down to 76.9 sen, you will get a margin call.
Margin positions are evaluated each night for sufficient equity.
The calculation of margin sufficiency is more complex with multiple securities in an account.
The above example applies to stocks; the initial and maintainance margin requirements are differnt for commodities.
What you should know about buying on margin?
Margin can add power to your investment portfolio.
Like any other borrowings, it can be DANGEROUS, and should be treated accordingly.
Margin interest rates, while moderately high, can be lower than some other forms of short-term borrowing, so it might make sense to use margin to get some cash from your investment account for certain purposes.
On a larger scale, when stock margin borrowing levels increase in aggregate, it is a sign that too many people are speculating on stocks and that a bubble might be forming, leading to a bust later on.
Is it not true, that the really big fortunes from common stocks have been garnered by those who made a substantial commitment in the early years of a company in whose future they had great confidence and who held their original shares unwaveringly while they increased 10-fold or 100-fold or more in value?
The answer is "Yes."
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BENJAMIN GRAHAM'S 113 WISE WORDS The true investor scarcely ever is forced to sell his shares, and at all times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgement."
----------------- PHILIP FISHER'S WISE WORDS "The refusal to sell at a loss, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process.
More money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous."
(Common Stocks and Uncommon Profits)
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Chapter 20 - “Margin of Safety” as the Central Concept of Investment
A single quote by Graham on page 516 struck me:
Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.
Basically, Graham is saying that most stock investors lose money because they invest in companies that seem good at a particular point in time, but are lacking the fundamentals of a long-lasting stable company.
This seems obvious on the surface, but it’s actually a great argument for thinking more carefully about your individual stock investments. If most of your losses come from buying companies that seem healthy but really aren’t, isn’t that a profound argument for carefully studying any company you might invest in?
The longer you stay in the market, the more likely you are to see your investment do what it should.
The range of returns narrows when we hold our investments for a longer period of time.
Even the most volatile asset class, that is, stocks, becomes relatively stable when you take the long view.
If you have a reasonable time horizon, you have an excellent chance of high average returns over many years.
That translates into a comfortable portfolio with plenty of cushioning along the way.
What if you are approaching retirement or you are already in retirement?
How can you get the returns you want while minimizing the volatility you don't want?
Road trips are a great way that Malaysians can tour our beloved nation. Plus with the weakening of the Ringgit, we will definitely feel the pinch if we were to travel overseas. Driving around some of our scenic local spots is certainly more cost-friendly than flying half way across the world and also cures a sense of wanderlust.
Here are 7 must-have Malaysian road trips for thrifty travellers who do not want to skimp on the experience. Each destination is known for their food, culture, sights and sounds, which are impossible to list here, but you’re welcome—because with this list, you now have a place to start!
1. Kuala Lumpur – Kampar – Ipoh – Taiping
Some assortment of food from Medan Selera Kampar (Image Credit: Kampungboycitygal)
Kampar is a quiet town known for its rich tin reserves. The food that are a must-try while making your stopover here is the famous Kampar Chee Cheong Fun from Restaurant Wing Lok Yuen, and the economical array of food from Medan Selera Kampar.
You can also spend some time to visit the place which houses the history of Kampar and that is none other than Kinta Tin Mining Museum. Best of all, a trip to the museum is free of charge and also provides visitors with a colourful background about tin mining.
After that stop in Kampar, you can drive on ahead to Ipoh where the famous Canning Garden Chee Cheong Fun resides at Ipoh Central Cafe. Some of the other must-try meals at Ipoh are the nasi lemak from Medan Selera Stadium Ipoh, and Nasi Vanggey from Restaurant Nasi Vanggey. If it’s a hot sunny day, you will definitely need to try the ais kepal, a yummy flavoured ball of ice at Bits and Bobs in Kong Heng Square.
The mysterious and alluring Kellie’s Castle (Image Credit: www.danceoftheclouds.blogspot.com)
Kellie’s Castle and Gua Tempurung also make great stops, be it for photo ops or to test your adrenaline.
Next in Taiping, you should try a bowl of cendol from Ansari Famous Cendol and special rice noodles in Restaurant Kakak.
End your night with some up-close encounters! (Image Credit: Gaya Travel Magazine)
Taiping is also known as a place that’s suited for families, especially with the Taiping Lake Gardens being located here. There is also the Taiping Night Safari which provides educational value and fun whilst mingling with wildlife. Perfect way to end the day.
Distance travelled: Approx. 205km.
2. Kuala Lumpur – Bukit Tinggi – Fraser’s Hill
Bukit Tinggi’s architectural design makes an amazing backdrop for photos (Image Credit: http://blog.malaysia-asia.my)
If you want a road trip that travels up to higher altitudes, then this is the one for you. First stop is Bukit Tinggi, where Colmar Tropicale is located. Colmar Tropicale is a French styled area with several hotels, restaurants and shops. The backdrop of the French village makes a beautiful backdrop for photos. There is also a Japanese village with a botanic garden and a rabbit park.
Moving upwards to Fraser’s Hill, there will be more nature-based activities such as archery and horse-riding in The Paddock. There are also several trails to explore by foot, like the Bishop Trail, Hemmant Trail, and Jeriau Waterfall.
Distance travelled: Approx. 144km
3. Alor Setar – George Town – Batu Ferringhi
Scrumptious Char Kuey Teow at various locations (Image Credit: VKeong)
Penang is popular for their famous hawker food. Remember to sample some char kuey teow(notable ones are in Khoon Hiang Cafe, Lorong Selamat, Mei Le Hwa, and Kimberley Street), Penang cendol (famous ones are in Lebuh Keng Kwee, and Macalister Lane), and asam laksafrom Air Itam Market Food Court.
Other local favourites are the apom manis at Kedai Kopi New Cathay, nasi kandar at Nasi Kandar Beratur (yes, many people do queue here for their food), and pasembur, a Malaysian-Indian salad like a rojak that can be found at Hussain Pasembur and Gerai No. 9 at Gurney Drive.
For a walk through history, you can visit the Camera Museum in George Town. And for those who are more adventurous, there’s Escape Adventureplay, an outdoor adventure park that has various physical challenges of different difficulties to suit everyone.
Take a look at some local craft while chomping on street food (Image Credit: Timeout.com)
To enjoy the sea breeze and ocean views, next stop would be Batu Ferringhi. Here you can take a stroll by the beach or through the night market which is popular for street food. Everyone here typically speaks in Hokkien, so if you’re about to order something, just remember the key word, “kam sia” which stands for thank you, and it would bring you a long way.
Malacca is perhaps one of the most historically intact locations in Malaysia and this is why tourists flock to this history-rich place. You can also opt to put your swim suit on and head over to the A’ Famosa Water Theme Park, it is after all the cheaper option in comparison to other water parks such as Sunway Lagoon.
The queue for the Klebang Coconut Shake is long but it’s so worth it (Image Credit: Go Melaka)
Malaccans would be the first to recommend their mouthwatering delicacies inclusive of the seafood from the Portuguese Settlement Malacca restaurant and the Klebang Coconut Shake. Other meals to sample would be the wide array of food from Jonker 88, and cheese naan from Pak Putra Tandoori and Naan Restaurant.
A place for family fun! (Image Credit: Malaysia Travel)
Johor Bahru is an ideal location for travellers who are looking to enjoy some theme park adventure such as Legoland, Hello Kitty Land, Little Big Club and Angry Birds Activity Park. Instead of spending the money to travel to overseas attractions such as Disneyland, these local attractions are good alternatives.
Those who prefer to take a more scenic route can opt to tour around the heritage district which comes to life with its rustic old shop houses. On the other hand, The Hutan Bandar Recreational Park and Pulai Waterfall will be a treat to nature lovers.
The famous signature paper wrapped chicken attracts both locals and tourists (Image Credit: Miss Tam Chiak)
Some of the must-try food while at JB is the signature paper wrapped chicken at Restaurant Teck Sing and the sup tulang at Restaurant ZZ Sup Tulang. Both these places won’t break the bank but they will certainly pack a punch of flavour.
Distance travelled: 293 km.
5. Kuala Lumpur – Sekinchan – Kuala Selangor
Be here in time for sunrise or sunset for some amazing shots (Image Credit: Sekinchan.org)
Mention scenic paddy fields and Sekinchan would probably pop into Malaysians’ minds. Many have dropped by Sekinchan to host their bridal shoots and there is a good reason for that. Vast open spaces dotted with bright green paddy makes for a photoshoot one would definitely remember.
Life here is slow paced so pay a visit to the Fisherman’s Wharf. For meals, seafood is the delicacy to sample here and Cha Po Tion Restaurant is one of the more well known ones.
When one is at Kuala Selangor, fireflies are the experience not to be forgotten, and this can easily be done at Firefly Park Resort. Other than that, tourists can also visit Bukit Melawati to enjoy the view amidst a bunch of friendly monkeys.
Some of the must-try meals at Kuala Selangor are the famous Aroma Ikan Bakar and Cendol Bakar Kuala Selangor. It’s clear that grilled is the way to go at Kuala Selangor, but for those looking for a lighter meal, they can try sampling the seafood from Restaurant Makanan Laut Bagan.
Distance travelled: Approx. 68 km.
6. Sibu – Bintulu – Miri
Take a walk on the wild side (Image Credit: Malaysia Travel)
Bintulu is where nature comes to vivid life and locals have sites like Similajau National Park, Tanjung Batu Beach and Taman Tumbina, which are home to plenty of reptiles. Whilst in Bintulu, one must try out the belachan, a spicy shrimp paste and cincaluk (shrimp that has been fermented).
The reason shrimp seems to be a local staple here is because fishing is one of their main activities, which anglers at heart can participate in at fishing spots like Sungai Sebiew.
Gunung Mulu National Park is a park with limestone mountains and caves in the rainforest (Image Credit: Alan Cressler on Flickr)
Miri is where some of East Malaysia’s gems can be found. There’s a myriad of national parks to view from Gunung Mulu National Park and Niah National Park to the indescribable beauty that is Loagan Bunut National Park. For beach goers, there is also the Tusan Cliff Beach.
Whilst at Miri, don’t forget to sample the north Indian food at Khan’s Taj Restaurant, and thelalapan (raw vegetable dish) from Restaurant Muara Lalapan.
Distance travelled: Approx. 414 km
7. Kota Kinabalu – Kundasang – Ranau
This is right in Malaysia, not overseas! (Image Credit: Great Leap)
Kundasang is akin to Malaysia’s version of New Zealand. Cows graze in the fields against a blue sky backdrop and it tends to get rather chilly here as well, so it’s best to pack along a sweater.
At Desa Cattle Dairy Farm, dairy products such as yogurt and ice cream are their bestsellers. Alternatively, there are plenty of fresh vegetables and fruits being sold by the side of the highway by local farmers, for those looking to grab some road trip snacks.
A soak in the spring will sooth sore and aching muscles (Image Credit: Stefan Fussan on Flickr)
At Ranau, some of the things to do are to visit the UNESCO world heritage site of Kinabalu Park which is worth the hike for its spellbinding glimpse of Mount Kinabalu itself. Other attractions are the Poring Hot Spring and the Sungai Moroli Fish Massage at Kampung Luanti Baru.
For meals, some of Ranau’s best places to grab a bite are right at Sabah Tea Garden’s restaurant itself which serves meals specially prepared with tea, and that is an experience like no other!
Distance travelled: Approx. 129km
Travelling is one of life’s greatest pleasures and road trips are one way that we can kill two birds with one stone, for they are more cost effective and they also help friends and families bond together over the long hours spent on the road.
However, the most important aspect is always to prioritise safety on the road. The last thing you’d want for your road trip is a car that breaks down or that doesn’t have enough leg room (which is horrible if you’re travelling with a group of family or friends). So keep this in mind as you plan for your travels—you’ll need to have a vehicle that is safe, spacious, fuel-efficient, and high in performance. Plus it wouldn’t hurt to have one that looks stylish too.
The Honda City is a vehicle which gets points for being all of the above and is an ideal choice for road trip junkies. We all know that when it comes to road trips, other than food expenses, another hefty expense would be the cost of fuel. With the Honda City ECON mode, drivers can enjoy smooth driving with improved fuel efficiency. Now that’s a way to add more kilometres into your drive and lower the total expenditure.
After all, if you’re looking to go long distance, it is wise to choose a vehicle that can keep up with you.
