Whatever strategy or strategies you use, the most critical thing in investing is to take a good map with you on your journey and stick to it no matter what. There will be all sorts of distractions along the road to your investment goals. You'll come upon supposed shortcuts that promise to get you where you're going twice as fast. You'll see and hear from all sorts of people who are telling you that they've found a better way to go than the road you're on. Sometimes, you'll even think that your map must be wrong, and that it has you headed in the opposite direction of where you want to go.
But remember, the people who gave you directions - the gurus upon whom some of the strategies are based - are expert mapmakers. They know how to get where you want to go because they've been there before - unlike most of the people who will be telling you to take those shortcuts or alternate routes.
With the map, you have what you need to avoid the obstacles and bad advice along the way, and to do what it takes to beat the market. Remember, while being a good investor is hard, it doesn't have to be complicated. The greatest difficult isn't in the details of stock-picking or portfolio management; you don't have to be a rocket scientist to produce nice returns. No, the hard part will be clearing those psychological and emotional barriers we reviewed, so that you stick to your road map no matter what happens.
If you stick to your roadmap, you should be quite happy with where you end up.
Thursday, 23 July 2009
Investing Principle 6: Stick to the Strategy - Not the Stocks
If a stock no longer meets the fundamental criteria that led you to buy it, don't feel obligated to hold on to it.
You're a long-term investor if you stick to a strategy for the long haul - not because you blindly hold on to individual stocks for long periods.
You're a long-term investor if you stick to a strategy for the long haul - not because you blindly hold on to individual stocks for long periods.
Investing Principle 5: Don't Limit Yourself
Studies show that "style-box" investing can limit your gains by about 300 basis points per year.
Using "strategy-based investing" allows you to pick the best values in the market at any given time, regardless of market cap or growth-value designations.
Using "strategy-based investing" allows you to pick the best values in the market at any given time, regardless of market cap or growth-value designations.
Investing Principle 4: Diversify, but Don't Own the Market
Diversification is good - to a point. Maintain a focussed portfolio that includes enough stocks to limit stock-specific risk, but don't hold so many that you end up simply mirroring the market's returns.
In a rigid fundamental-based investing system, portfolios as small as 10 stocks can significantly beat the market over the long haul.
While you don't need to hold stocks in every sector or industry, set guidelines to make sure you maintain at least some diversification across those areas within your portfolio.
In a rigid fundamental-based investing system, portfolios as small as 10 stocks can significantly beat the market over the long haul.
While you don't need to hold stocks in every sector or industry, set guidelines to make sure you maintain at least some diversification across those areas within your portfolio.
Investing Principle 3: Stay Disciplined Over the Long Haul
It is essential to stick to your strategy for the long term. Even the best strategies have down periods, and it can sometimes take over a year to reap the benefits of a good method. If you try to time your use of a strategy, you'll likely miss out on some big gains.
Expectations shape reactions: be prepared for short-term 10 to 20% downturns that are inevitable in the stock market - and the less frequent but also inevitable 35 to 50% downturns you'll occasionally experience. You can't predict when they will happen, so you just have to roll with them if you want to reap the market's long-term benefits.
Give the Internet a rest. Checking your portfolio every day, let alone every 10 minutes, can make you want to jump in and out of the market, which hurts your long-term performance.
Expectations shape reactions: be prepared for short-term 10 to 20% downturns that are inevitable in the stock market - and the less frequent but also inevitable 35 to 50% downturns you'll occasionally experience. You can't predict when they will happen, so you just have to roll with them if you want to reap the market's long-term benefits.
Give the Internet a rest. Checking your portfolio every day, let alone every 10 minutes, can make you want to jump in and out of the market, which hurts your long-term performance.
Investing Principle 2: Stick to the Numbers
Human emotions cloud decision-making, hampering human beings' forecasting abilities.
Using proven, quantitative strategies allows you to make buy and sell decisions solely on the numbers - a stock's fundamentals - helping to remove emotion from the process.
It is best to stick firmly to strategies that are backed up by long, proven track records.
Using proven, quantitative strategies allows you to make buy and sell decisions solely on the numbers - a stock's fundamentals - helping to remove emotion from the process.
It is best to stick firmly to strategies that are backed up by long, proven track records.
Investing Principle 1: Combining Strategies
Because of compounding, downside volatility costs you money.
If you are looking to smooth out returns, pick stocks with lower degrees of correlation (those that perform differently in the same type of market conditions).
Learn how to combine strategies to limit risk or enhance returns.
To maximise returns, give more weight to those strategies with the best historical track records.
If you are looking to smooth out returns, pick stocks with lower degrees of correlation (those that perform differently in the same type of market conditions).
Learn how to combine strategies to limit risk or enhance returns.
To maximise returns, give more weight to those strategies with the best historical track records.
How can investment returns be improved?
How to improve on my returns on my investing?
Always keep cash for emergency use. Also, always have cash for opportunistic investing. This is not a problem for those who have constant stream of cash incomes. For others, keeping cash:stock in the ratio of 25:75, gives a return quite close to those who are 100% invested into stocks.
Next, would be selecting the right stocks. Using my QVM method, we aim to select stocks that will give us good sustainable returns for a long time. We should aim for a return of 15% per year, if possible, and always going for high probability events that give high returns at low risks. Returns can also be sought from badly beaten down stocks (undervalued stocks) that will give great returns when they are repriced at fair values.
Maintain a concentrated portfolio. Bet big on those stocks you have conviction in. Do not over-diversify. The company specific risks are fully diversified when you have 6 stocks in your portfolio. An additional stock added to the portfolio after the sixth may lead to lower returns without the benefit of reducing further the risks. The market risks cannot be diversified, but can be partially managed through asset allocation.
It is important to manage the portfolio actively. This also incorporates asset allocation. There will be time when the market is bubbly, when one may need to pare down exposure to stocks, though, never completely. There will be times, when one's exposure to stock will be relatively high, especially at the end of a severe and prolonged bear market.
Always monitor the business of the stocks in the portfolio in your readings of the papers, business magazines, etc. Track their business performance every quarter through their regular financial releases.
Two active strategies are employed to improve on the returns of our portfolio. Firstly, the defensive strategy. This is to prevent harm to our portfolio. This occurs when the fundamentals of the business of the stock have deteriorated, sometimes suddenly, for various reasons. Another reason maybe "creative" accounting. In these situations, sell the related stocks quickly. Do not hesistate. Speed in selling is important in reducing severe damage to your portfolio, by limiting the losses.
The next is termed offensive strategy. Of 5 stocks one invest into, expect 1 to perform exceptionally well, 3 to be fairly well and 1 to do "not so well or badly". You have time to apply this strategy leisurely. There is no urgency as like the situation previously described.
Review and rebalance your portfolio at regular intervals. Perhaps, once per month or even less frequent than this. You may wish to sell or trim the stocks where the prices are too high, reducing the upside potential and increasing the downside risk. You may also wish to sell or trim those stocks where the potential for upside gain is assessed to be low. (Remember you aim for 15% return on an annual basis.) The cash derived from their disposals should be re-deployed into those stocks which have a higher potential for gain.
Sounds simple, but trust me, active investing and active management of portfolio are both challenging and take effort. However, the returns can be good for those employing a disciplined investing philosophy and strategy.
Always keep cash for emergency use. Also, always have cash for opportunistic investing. This is not a problem for those who have constant stream of cash incomes. For others, keeping cash:stock in the ratio of 25:75, gives a return quite close to those who are 100% invested into stocks.
Next, would be selecting the right stocks. Using my QVM method, we aim to select stocks that will give us good sustainable returns for a long time. We should aim for a return of 15% per year, if possible, and always going for high probability events that give high returns at low risks. Returns can also be sought from badly beaten down stocks (undervalued stocks) that will give great returns when they are repriced at fair values.
Maintain a concentrated portfolio. Bet big on those stocks you have conviction in. Do not over-diversify. The company specific risks are fully diversified when you have 6 stocks in your portfolio. An additional stock added to the portfolio after the sixth may lead to lower returns without the benefit of reducing further the risks. The market risks cannot be diversified, but can be partially managed through asset allocation.
It is important to manage the portfolio actively. This also incorporates asset allocation. There will be time when the market is bubbly, when one may need to pare down exposure to stocks, though, never completely. There will be times, when one's exposure to stock will be relatively high, especially at the end of a severe and prolonged bear market.
Always monitor the business of the stocks in the portfolio in your readings of the papers, business magazines, etc. Track their business performance every quarter through their regular financial releases.
Two active strategies are employed to improve on the returns of our portfolio. Firstly, the defensive strategy. This is to prevent harm to our portfolio. This occurs when the fundamentals of the business of the stock have deteriorated, sometimes suddenly, for various reasons. Another reason maybe "creative" accounting. In these situations, sell the related stocks quickly. Do not hesistate. Speed in selling is important in reducing severe damage to your portfolio, by limiting the losses.
The next is termed offensive strategy. Of 5 stocks one invest into, expect 1 to perform exceptionally well, 3 to be fairly well and 1 to do "not so well or badly". You have time to apply this strategy leisurely. There is no urgency as like the situation previously described.
Review and rebalance your portfolio at regular intervals. Perhaps, once per month or even less frequent than this. You may wish to sell or trim the stocks where the prices are too high, reducing the upside potential and increasing the downside risk. You may also wish to sell or trim those stocks where the potential for upside gain is assessed to be low. (Remember you aim for 15% return on an annual basis.) The cash derived from their disposals should be re-deployed into those stocks which have a higher potential for gain.
Sounds simple, but trust me, active investing and active management of portfolio are both challenging and take effort. However, the returns can be good for those employing a disciplined investing philosophy and strategy.
Risk comes from misjudgement of a company's prospects, not price volatility
Academics define risk as price volatility, and to counter that risk, they recommend holding a diversified portfolio.
But to value investors, like Warren Buffett, risk is the intrinsic value risk of a business, not the price behaviour of its stock. And intrinsic value risk, he says, comes from misjudgement of a company's prospects. He has extreme confidence in his ability to pick fundamentally strong companies which are trading at prices below their intrinsic value, and thus favours placing big bets on these companies.
You should have the courage and conviction to put at least 10 percent of your net worth into each investment you make, he says. "We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort level he must feel with its economic characteristics before buying into it," he explains.
Ptui
MCA: Dr M’s remarks not helping racial unity
PETALING JAYA: Tun Dr Mahathir Moha-mad’s claim that the Chinese are the masters in the country will not help foster racial harmony, said the MCA.
Thursday July 23, 2009
http://thestar.com.my/news/story.asp?file=/2009/7/23/nation/4375350&sec=nation
PETALING JAYA: Tun Dr Mahathir Moha-mad’s claim that the Chinese are the masters in the country will not help foster racial harmony, said the MCA.
Thursday July 23, 2009
http://thestar.com.my/news/story.asp?file=/2009/7/23/nation/4375350&sec=nation
Wednesday, 22 July 2009
iCap Portfolios of 2008 and 2009
http://spreadsheets.google.com/pub?key=tC9bD59Bg2AKPA3Bgfyo8qA&output=html
There are 17 stocks in iCap Portfolio for the financial year ended 31 May 2009. This is the same number of stocks as for the previous financial year ended 31 May 2008.
iCap sold:
- AirAsia,
- Axiata and
- VADS.
2 new stocks were included in the present portfolio at the cost of $ 42.95 million, namely,
- Astro (31% gain), and,
- KLKepong (30.16% gain).
During the last financial year, iCap added more shares at the cost of $ 6.1 million, in 4 pre-existing stocks:
- Boustead (average cost of newly bought shares 3.64, giving 8.17% gain)
- Parkson (average cost of newly bought shares 4.84, giving 13.62% gain)
- PohKong (average cost of newly bought shares 0.36, giving 6.73% gain)
- HaiO (HaiO shares are probably from share dividends).
iCap NAV fell from $1.95 per share on 31 May 2008 to RM 1.77 per share by 31 May 2009 or a loss of 9%. The KLCI declined 18% in the same period.
Tuesday, 21 July 2009
How best to allocate your funds?
To a certain extent, that depends on your risk appetite, which in turn hinges on your individual circumstances.
A risk-averse investor may hold more cash, and a risk-tolerant investor vice-versa.
Allocation will also depend on market conditions.
Equity risk premium can be a good guiding principle for asset allocation decisions, i.e., when to hold cash and when to hold stocks if you are looking at just 2 asset classes.
Even if you have high tolerance for risks, it would be foolish to allocate 80% of your portfolio to equities during a stockmarket bubble.
And even, if the market was "normal" when you allocated your assets, prices will move, leaving you holding more of one asset class than you desire. In which case, you might want to rebalance your portfolio.
Stocks, bonds or cash? How much you hold of each asset class - or asset allocation - is the most important decision in an investment process. Studies have shown that about 95% of variations in returns on portfolios are explained by asset allocation decisions. Only about 5% are due to other causes, such as security selection.
Ref: Show Me the Money by Teh Hooi Ling
A risk-averse investor may hold more cash, and a risk-tolerant investor vice-versa.
Allocation will also depend on market conditions.
Equity risk premium can be a good guiding principle for asset allocation decisions, i.e., when to hold cash and when to hold stocks if you are looking at just 2 asset classes.
Even if you have high tolerance for risks, it would be foolish to allocate 80% of your portfolio to equities during a stockmarket bubble.
And even, if the market was "normal" when you allocated your assets, prices will move, leaving you holding more of one asset class than you desire. In which case, you might want to rebalance your portfolio.
Stocks, bonds or cash? How much you hold of each asset class - or asset allocation - is the most important decision in an investment process. Studies have shown that about 95% of variations in returns on portfolios are explained by asset allocation decisions. Only about 5% are due to other causes, such as security selection.
Ref: Show Me the Money by Teh Hooi Ling
When is the market over-valued?
The stock market moves in a cycle - from extreme optimism to extreme pessimism. How can you tell when stocks are under or over-valued vis-a-vis bonds or cash? Taking advantage of perceived over or under-valuation of securities in different asset classes can yield spectacular results.
Equity risk premium:
> 3.5%, market is undervalued
< 0.6%, market is overvalued.
0.6% to 3.5%, market is fairly valued.
Equity risk premium is the compensation investors require for holding stocks.
When the economic outlook is bad, or in the aftermath of a catastrophe, the equity risk premium will be high because fear grips investors and they can only be enticed to hold "risky" stocks if the promised returns are good.
Conversely, in good times everyone become over-confident of the continued good performance of stocks and will demand very little compensation to hold them.
Equity risk premium
= earnings yield (1/market PE) - the risk free rate.
Market PE ratios were obtained from Thomson Financial Datastream.
One-year deposit rates were taken as risk-free rates.
Ref: Show Me the Money by Teh Hooi Ling
Equity risk premium:
> 3.5%, market is undervalued
< 0.6%, market is overvalued.
0.6% to 3.5%, market is fairly valued.
Equity risk premium is the compensation investors require for holding stocks.
When the economic outlook is bad, or in the aftermath of a catastrophe, the equity risk premium will be high because fear grips investors and they can only be enticed to hold "risky" stocks if the promised returns are good.
Conversely, in good times everyone become over-confident of the continued good performance of stocks and will demand very little compensation to hold them.
Equity risk premium
= earnings yield (1/market PE) - the risk free rate.
Market PE ratios were obtained from Thomson Financial Datastream.
One-year deposit rates were taken as risk-free rates.
Ref: Show Me the Money by Teh Hooi Ling
My investment horizon is 10 or 20 years
Those with investment horizons of 10 or 20 years should be ever ready to embrace out-of-favour asset classes.
Time and again, the market has handsomely rewarded those willing to bear equity risk in uncertain times. Extreme pessimism - which leads to swings from the equilibrium - compresses a proverbial spring that will eventually bounce back into equilibrium. The more share price falls, the more return it promises a prospective buyer.
Stocks - short of the company going bankrupt - will very often produce their promised returns eventually; it is the timing that will elude us. So for those with time on their side, they have nothing to lose. In short, having an explicit investment plan supports discipline and helps ensure that an investor is not swayed by panic or overconfidence.
If one is investing for financial independence 20 or 30 years down the road, opportunities that came with Sept 11's after-shocks, the Asian financial crisis, or the recent Lehman crash, are not to be missed.
Ref: Show Me the Money by Teh Hooi Ling
Time and again, the market has handsomely rewarded those willing to bear equity risk in uncertain times. Extreme pessimism - which leads to swings from the equilibrium - compresses a proverbial spring that will eventually bounce back into equilibrium. The more share price falls, the more return it promises a prospective buyer.
Stocks - short of the company going bankrupt - will very often produce their promised returns eventually; it is the timing that will elude us. So for those with time on their side, they have nothing to lose. In short, having an explicit investment plan supports discipline and helps ensure that an investor is not swayed by panic or overconfidence.
If one is investing for financial independence 20 or 30 years down the road, opportunities that came with Sept 11's after-shocks, the Asian financial crisis, or the recent Lehman crash, are not to be missed.
Ref: Show Me the Money by Teh Hooi Ling
Bursa Malaysia Aims for 40 Listings a Year, CEO Yusli Says
Bursa Malaysia Aims for 40 Listings a Year, CEO Yusli Says
By Chan Tien Hin
July 21 (Bloomberg) -- Bursa Malaysia Bhd., operator of the nation’s exchange, said it aims to attract as many as 40 new listings a year as the easing of investment rules in the country helps draw foreign investors.
Bursa attracted 23 listings last year and 26 in 2007, down from 40 three years ago, according to its Web site. Only one sold shares for the first time in the first half, it added.
“Over the next six months, if we get the same number as last year, that will be good,” Yusli Yusoff, Bursa’s chief executive officer, said in an interview in Kuala Lumpur. “I don’t see why we can’t continue the momentum, I’ve always said that in any year, we should be looking at 30 to 40 companies.”
Malaysian Prime Minister Najib Razak last month eased investment rules governing initial public offerings and takeovers, scrapping the need for overseas companies and publicly traded Malaysian businesses to set aside 30 percent of their equity to local ethnic Malay investors.
Najib, who took office in April, is overhauling the Southeast Asian nation’s financial markets to attract investors and revive an economy that’s facing its first contraction in a decade. The benchmark FTSE Bursa Malaysia KLCI has risen 30 percent this year, lagging behind regional markets.
The measure’s gap with Southeast Asian indexes may widen. Macquarie Group Ltd. said in a report today that investors should “take profit” in Malaysian stocks as “liquidity and earnings upgrades are showing signs of fatigue.”
‘Big Ones’
Bursa said more than 20 companies are already in the “pipeline” for initial share sales, including a handful of businesses from China, with more expected following the easing of investment rules.
“We expect companies who previously may not have wanted to come to the market because of this condition to now come forward,” Yusli said today. “I want some big ones this year.”
The bourse said discussions with Southeast Asia’s stock exchanges to develop an electronic trading link connecting five markets in the next two to three years are at a “fairly advanced stage.”
Southeast Asia’s stock exchanges signed a preliminary agreement on Feb. 23 to develop a trading link to boost competitiveness and lure more overseas funds into the region.
To contact the reporter on this story: Chan Tien Hin in Kuala Lumpur at thchan@bloomberg.net
Last Updated: July 20, 2009 23:12 EDT
By Chan Tien Hin
July 21 (Bloomberg) -- Bursa Malaysia Bhd., operator of the nation’s exchange, said it aims to attract as many as 40 new listings a year as the easing of investment rules in the country helps draw foreign investors.
Bursa attracted 23 listings last year and 26 in 2007, down from 40 three years ago, according to its Web site. Only one sold shares for the first time in the first half, it added.
“Over the next six months, if we get the same number as last year, that will be good,” Yusli Yusoff, Bursa’s chief executive officer, said in an interview in Kuala Lumpur. “I don’t see why we can’t continue the momentum, I’ve always said that in any year, we should be looking at 30 to 40 companies.”
Malaysian Prime Minister Najib Razak last month eased investment rules governing initial public offerings and takeovers, scrapping the need for overseas companies and publicly traded Malaysian businesses to set aside 30 percent of their equity to local ethnic Malay investors.
Najib, who took office in April, is overhauling the Southeast Asian nation’s financial markets to attract investors and revive an economy that’s facing its first contraction in a decade. The benchmark FTSE Bursa Malaysia KLCI has risen 30 percent this year, lagging behind regional markets.
The measure’s gap with Southeast Asian indexes may widen. Macquarie Group Ltd. said in a report today that investors should “take profit” in Malaysian stocks as “liquidity and earnings upgrades are showing signs of fatigue.”
‘Big Ones’
Bursa said more than 20 companies are already in the “pipeline” for initial share sales, including a handful of businesses from China, with more expected following the easing of investment rules.
“We expect companies who previously may not have wanted to come to the market because of this condition to now come forward,” Yusli said today. “I want some big ones this year.”
The bourse said discussions with Southeast Asia’s stock exchanges to develop an electronic trading link connecting five markets in the next two to three years are at a “fairly advanced stage.”
Southeast Asia’s stock exchanges signed a preliminary agreement on Feb. 23 to develop a trading link to boost competitiveness and lure more overseas funds into the region.
To contact the reporter on this story: Chan Tien Hin in Kuala Lumpur at thchan@bloomberg.net
Last Updated: July 20, 2009 23:12 EDT
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