The FTSE 100 rallied back above 5,200 as investors took heart at strong US corporate results and encouraging economic news from China and a weak dollar pushed gold to a fresh record high.
Published: 3:42PM BST 14 Oct 2009
FTSE 100
London's index of leading shares rose 1.7pc to 5241 as investors ploughed back into the market, lifted by positive results from US bank JP Morgan and chipmaker Intel.
The dollar slumped to a fresh 14-month low against other major currencies as investors' appetite for risk increased, sending gold to another record high of $1,072 an ounce.
Oil prices rose above $75 a barrel in New York for the first time in a year.
Miners surged in London after China said its slump in exports eased in September, offering a further sign that global trade is improving. Kazakhmys, up 8.4pc to £12.78, was the leading riser in the blue chip index.
Rio Tinto (up 4pc) fuelled this view after it raised full-year production targets on the back of continued strong demand from Chinese steelmakers.
Barclays , Royal of Scotland and Lloyds Banking Group got a boost from a sevenfold rise in third-quarter profits to $3.6bn at JP Morgan.
The bank's bumper profits and a better-than-expected 5pc fall in Intel's third-quarter profits to $1.9bn pushed Wall Street back toward 10,000. America's blue chip index was up nearly 1pc at 9954 in early trading.
http://www.telegraph.co.uk/finance/markets/6327173/FTSE-100-back-above-5200-as-gold-hits-new-record-high.html
Wednesday, 14 October 2009
Time for rate increases is approaching
Near-zero policy interest rates are powerful. If the claims of financial economists are to be believed, they are holding up economic activity and bank balance sheets. But their magic isn’t only beneficial. They also distort behaviour in dangerous ways.
By Edward Hadas, Breakingviews.com
Published: 1:13PM BST 14 Oct 2009
The US Federal Reserve, still the world leader in central banking, has kept its overnight policy rate at 0pc-0.25pc for 10 months and is in no hurry to change. Ultra-low rates will be needed for an “extended period”, says Donald Kohn, the Fed’s vice chairman.
Most central bankers don’t think zero is actually low enough to deal with weak economic activity, high unemployment, low confidence and a still fragile banking system. In the standard calculation, current conditions are so dire that people and companies should be paid to spend money. But zero rates are better than nothing, so to speak. Central banks are at least not doing anything to impede lending.
That’s the theory. But with the financial system still in post-traumatic shock, it’s not certain that the ultra-low policy rates are getting through the banks and into the real economy. Business lending remains weak.
Even if the aggressively low rates are helping activity, the gains come with losses. The financial infrastructure is being undermined. Central bankers think almost entirely about the incentive to borrow, but non-zero rates also create an incentive to save. When the policy rate is zero, so is the incentive. A prolonged period of nearly free official money makes it hard to recreate a much needed culture of savings in the US and UK.
Also, whether or not the transmission from policy rate to real economy is working well, financial markets seem to respond all too strongly. Commodity prices have risen sharply and the dollar and pound – the currencies of the central banks most committed to ultra-cheap money – are dropping.
Ultra-low rates were justified, despite the risks, when GDP and trade were in freefall and banks were gasping for support. But conditions are now more stable. The risks are starting to outweigh the rewards. Central bankers should put rate increases back on the agenda.
http://www.telegraph.co.uk/finance/breakingviewscom/6325982/Time-for-rate-increases-is-approaching.html
By Edward Hadas, Breakingviews.com
Published: 1:13PM BST 14 Oct 2009
The US Federal Reserve, still the world leader in central banking, has kept its overnight policy rate at 0pc-0.25pc for 10 months and is in no hurry to change. Ultra-low rates will be needed for an “extended period”, says Donald Kohn, the Fed’s vice chairman.
Most central bankers don’t think zero is actually low enough to deal with weak economic activity, high unemployment, low confidence and a still fragile banking system. In the standard calculation, current conditions are so dire that people and companies should be paid to spend money. But zero rates are better than nothing, so to speak. Central banks are at least not doing anything to impede lending.
That’s the theory. But with the financial system still in post-traumatic shock, it’s not certain that the ultra-low policy rates are getting through the banks and into the real economy. Business lending remains weak.
Even if the aggressively low rates are helping activity, the gains come with losses. The financial infrastructure is being undermined. Central bankers think almost entirely about the incentive to borrow, but non-zero rates also create an incentive to save. When the policy rate is zero, so is the incentive. A prolonged period of nearly free official money makes it hard to recreate a much needed culture of savings in the US and UK.
Also, whether or not the transmission from policy rate to real economy is working well, financial markets seem to respond all too strongly. Commodity prices have risen sharply and the dollar and pound – the currencies of the central banks most committed to ultra-cheap money – are dropping.
Ultra-low rates were justified, despite the risks, when GDP and trade were in freefall and banks were gasping for support. But conditions are now more stable. The risks are starting to outweigh the rewards. Central bankers should put rate increases back on the agenda.
http://www.telegraph.co.uk/finance/breakingviewscom/6325982/Time-for-rate-increases-is-approaching.html
"Four Bad Bears" comparison.
Bear Turns to Bull?
October 13, 2009 updated each market day
The S&P 500 closed the day 58.6% above the March 9th low, which is 31.4% below the peak in October 2007.
http://dshort.com/articles/2009/bear-turns-to-bull.html
A Rising Tide Lifts All Boats
When the economy is doing well, most companies do well as a result. This is the reasoning behind this old adage. If you ignore rising tides in economies, industries, and sectors, you could miss out on big profits. Missing out on these types of profits can hurt you because trend following is one of the easiest and most reliable investing strategies (as long as you're not the last one that follows).
If you see trends forming early on in any market, and invest in that market, you can make a very nice profit. The important part again, is to do your homework to identify the most credible trends and take advantage of them before anyone else. The earlier you get in on an upward trend, the better off you'll be.
But also be aware of the other adage: "the financial genius in a rising market."
If you see trends forming early on in any market, and invest in that market, you can make a very nice profit. The important part again, is to do your homework to identify the most credible trends and take advantage of them before anyone else. The earlier you get in on an upward trend, the better off you'll be.
But also be aware of the other adage: "the financial genius in a rising market."
What is the most important question for a stockmarket investor?
What is the most important question for a stockmarket investor?
Whether the market is undervalued or overvalued? No!
Whether interest rates will go up or down? No!
Whether a particular company is undervalued or overvalued? No!
Whether you should buy ABC or XYZ? No!
Whether Joe Bloggs, the famous analyst, says it is a great buy? No!
Tempting as it is to look for answers to these, we will soon see that they are misleading.
Yet, there are whole office buildings full of people pumping out answers to these questions. From their side they are not trying to mislead you. They are just trying to supply answers to these questions because people keep asking them and are willing to pay large amounts of money for the answers.
Even if they could be answered, the answers will not help you reach your financial goals. Why? Because they are the wrong questions.
Warren Buffett said that he has no idea what the market is going to do and whether it is undervalued or overvalued, whatever that may mean. What is more, he is not interested in knowing.
The same applies to interest rates. Buffett once said, "If the Federal Reserve Chairman Alan Greenspan were to whisper to me what his monetary policy was going to be over the next two years, it wouldn't change one thing I do."
There is only one question. Underneath it all, there is only one question. What is my profit rate or percentage return going to be?
The core activity of an investor is to estimate with confidence the percentage return over a specified holding period when buying stock in a company. And you want to be able to do this based on reliable numbers and information.
http://myinvestingnotes.blogspot.com/2009/08/hidden-desire-of-investors.html
Whether the market is undervalued or overvalued? No!
Whether interest rates will go up or down? No!
Whether a particular company is undervalued or overvalued? No!
Whether you should buy ABC or XYZ? No!
Whether Joe Bloggs, the famous analyst, says it is a great buy? No!
Tempting as it is to look for answers to these, we will soon see that they are misleading.
Yet, there are whole office buildings full of people pumping out answers to these questions. From their side they are not trying to mislead you. They are just trying to supply answers to these questions because people keep asking them and are willing to pay large amounts of money for the answers.
Even if they could be answered, the answers will not help you reach your financial goals. Why? Because they are the wrong questions.
Warren Buffett said that he has no idea what the market is going to do and whether it is undervalued or overvalued, whatever that may mean. What is more, he is not interested in knowing.
The same applies to interest rates. Buffett once said, "If the Federal Reserve Chairman Alan Greenspan were to whisper to me what his monetary policy was going to be over the next two years, it wouldn't change one thing I do."
There is only one question. Underneath it all, there is only one question. What is my profit rate or percentage return going to be?
The core activity of an investor is to estimate with confidence the percentage return over a specified holding period when buying stock in a company. And you want to be able to do this based on reliable numbers and information.
http://myinvestingnotes.blogspot.com/2009/08/hidden-desire-of-investors.html
Multi-baggers
"The majority of the multi-baggers owe their stellar returns to the market “re-rating”, rather than an impressive expansion in their earnings."
The above statement is probably true for the short term. However, over the long term, multi-baggers are the result of their long term earnings growth.
The above statement is probably true for the short term. However, over the long term, multi-baggers are the result of their long term earnings growth.
Investing for the long haul: Sell the losers, let the winners run.
This is the time people should review their holdings, keep the stocks with the best potential, sell the losers (not those with the depressed prices but those whose revenues and earnings aren't capable of growing adequately), and buy others with better potential while they're selling cheap.
Sell the losers, let the winners run. But you shouldn't jump into any "hot stock" without knowing what you're doing.
Read also:
The Ultimate Hold-versus-Sell Test
http://myinvestingnotes.blogspot.com/2009/09/ultimate-test.html
Let Your Winners Run, Cut Your Losers
When you invest, it is easy to sell your successful investments and keep your failing ones. This is what comes intuitively to most investors but can end up costing you a lot of potential profits. By selling your winners too early, you could miss out on huge gains. By keeping your losers too long, you could realize many losses. This isn't always true, but it makes mathematical sense; if you keep your money in losing investments instead of winning ones, you'll more likely end up losing money.
If you have an investment that has been performing consistently well, there is no good reason to sell it. As the adage states, it is important to let your winners run. By selling too early, you could miss out on a lot more than holding onto a losing investment for too long. When holding onto a losing investment too long, you can only lose the money you initially spent. If you sell too early, you could lose many times the amount of money you initially spent. By letting your winners run, and cutting your losers, you can do much better than doing the opposite. As with all investments, it is still important to do your homework.
Sell the losers, let the winners run. But you shouldn't jump into any "hot stock" without knowing what you're doing.
Read also:
The Ultimate Hold-versus-Sell Test
http://myinvestingnotes.blogspot.com/2009/09/ultimate-test.html
Let Your Winners Run, Cut Your Losers
When you invest, it is easy to sell your successful investments and keep your failing ones. This is what comes intuitively to most investors but can end up costing you a lot of potential profits. By selling your winners too early, you could miss out on huge gains. By keeping your losers too long, you could realize many losses. This isn't always true, but it makes mathematical sense; if you keep your money in losing investments instead of winning ones, you'll more likely end up losing money.
If you have an investment that has been performing consistently well, there is no good reason to sell it. As the adage states, it is important to let your winners run. By selling too early, you could miss out on a lot more than holding onto a losing investment for too long. When holding onto a losing investment too long, you can only lose the money you initially spent. If you sell too early, you could lose many times the amount of money you initially spent. By letting your winners run, and cutting your losers, you can do much better than doing the opposite. As with all investments, it is still important to do your homework.
Be an intelligent investor through financial education
In day to day conversations, one can easily gauge that the MAJORITY of "investors" in the market are not intelligent. An intelligent investor is as defined by Benjamin Graham in his book, The Intelligent Investor.
How can these investors acquire the financial education to guide them through the stock market investment minefields? How can they acquire the investing philosophy and strategy to help them over many years (or decades) of their investing lifespan? Above all to ensure that they do not lose their money in the stock market while seeking for a reasonable return.
Inevitably, this will involve acquiring a set of RELEVANT knowledge through their reading, their interactions with the other investors, their interactions with investment professionals and the market. From personal experience, there is a huge core knowledge that has to be acquired. This is probably too overwhelming for many potential investors.
Therefore, though it is good to attend an hour's presentation on investment here and there, or even pay a small sum for a half day session on investment talk, this is not going to transform one into a intelligent investor. At best, these are introductory sessions to highlight areas of investments where you may wish to explore further. How much knowledge can be acquired in a half day presentation that you cannot acquire from a good book? At worst, you are "convinced" that you know investing when in fact the small amount of new knowledge you acquire is in fact very detrimental to your long term investing.
There is no substitute to hard work. You would need to acquire the necessary core financial and investment knowledge. You do not need very high power investment or financial knowledge. However, you do need to acquire some simple knowledge in the relevant important fields to guide your investing. Above all, you will also need to understand behavioural finance to guide your emotions.
By the way, with blogs springing up everywhere, you too have another avenue to observe investing by various individuals. Learn their good and bad habits. You will probably find some benefit reading this blog too.
Good luck in your investing.
http://myinvestingnotes.blogspot.com/2008/12/investment-philosophy-strategy-and.html
http://myinvestingnotes.blogspot.com/2009/09/investing-for-beginners.html
http://myinvestingnotes.blogspot.com/2009/08/learn-to-invest-in-10-steps.html
http://myinvestingnotes.blogspot.com/2009/08/8-signs-of-doomed-stock.html
How can these investors acquire the financial education to guide them through the stock market investment minefields? How can they acquire the investing philosophy and strategy to help them over many years (or decades) of their investing lifespan? Above all to ensure that they do not lose their money in the stock market while seeking for a reasonable return.
Inevitably, this will involve acquiring a set of RELEVANT knowledge through their reading, their interactions with the other investors, their interactions with investment professionals and the market. From personal experience, there is a huge core knowledge that has to be acquired. This is probably too overwhelming for many potential investors.
Therefore, though it is good to attend an hour's presentation on investment here and there, or even pay a small sum for a half day session on investment talk, this is not going to transform one into a intelligent investor. At best, these are introductory sessions to highlight areas of investments where you may wish to explore further. How much knowledge can be acquired in a half day presentation that you cannot acquire from a good book? At worst, you are "convinced" that you know investing when in fact the small amount of new knowledge you acquire is in fact very detrimental to your long term investing.
There is no substitute to hard work. You would need to acquire the necessary core financial and investment knowledge. You do not need very high power investment or financial knowledge. However, you do need to acquire some simple knowledge in the relevant important fields to guide your investing. Above all, you will also need to understand behavioural finance to guide your emotions.
By the way, with blogs springing up everywhere, you too have another avenue to observe investing by various individuals. Learn their good and bad habits. You will probably find some benefit reading this blog too.
Good luck in your investing.
http://myinvestingnotes.blogspot.com/2008/12/investment-philosophy-strategy-and.html
http://myinvestingnotes.blogspot.com/2009/09/investing-for-beginners.html
http://myinvestingnotes.blogspot.com/2009/08/learn-to-invest-in-10-steps.html
http://myinvestingnotes.blogspot.com/2009/08/8-signs-of-doomed-stock.html
Characteristics of ideal stock you plan to purchase
Some thoughts on Analysing Stocks
Ideally a stock you plan to purchase should have all of the following charateristics:
•A rising trend of earnings, dividends and book value per share.
•A balance sheet with less debt than other companies in its particular industry.
•A P/E ratio no higher than average.
•A dividend yield that suits your particular needs.
•A below-average dividend pay-out ratio.
•A history of earnings and dividends not pockmarked by erratic ups and downs.
•Companies whose ROE is 15 or better.
•A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.
Keep It Simple and Safe.
Also read:
8 signs of doomed stock
http://myinvestingnotes.blogspot.com/2009/08/8-signs-of-doomed-stock.html
Ideally a stock you plan to purchase should have all of the following charateristics:
•A rising trend of earnings, dividends and book value per share.
•A balance sheet with less debt than other companies in its particular industry.
•A P/E ratio no higher than average.
•A dividend yield that suits your particular needs.
•A below-average dividend pay-out ratio.
•A history of earnings and dividends not pockmarked by erratic ups and downs.
•Companies whose ROE is 15 or better.
•A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.
Keep It Simple and Safe.
Also read:
8 signs of doomed stock
http://myinvestingnotes.blogspot.com/2009/08/8-signs-of-doomed-stock.html
Tuesday, 13 October 2009
Buffett's focussed investing
According to Buffett, his results follow not from any master plan but from focussed investing - allocating capital by concentrating on businesses with outstanding economic characteristics and run by first-rate manager.
It is the Business that Matters
Over the long haul, stock prices tend to track the value of the business. When firms do well, so do their shares, and when business suffers, the stock will as well. Always focus on the company's fundamental financial performance.
Analyst upgrades and chart patterns may be fine tools for traders who treat the stock market like a casino, but they're of little use to investors who truly want to build wealth in the stock market. You have to get your hands dirty and understand the businesses of the stocks you own if you hope to be a successful long-term investor.
P/S: Look at Hai-O to learn that price tracks the value of the company's business.
Analyst upgrades and chart patterns may be fine tools for traders who treat the stock market like a casino, but they're of little use to investors who truly want to build wealth in the stock market. You have to get your hands dirty and understand the businesses of the stocks you own if you hope to be a successful long-term investor.
P/S: Look at Hai-O to learn that price tracks the value of the company's business.
Great Opportunities to buy companies with durable competitive advantage
a) Correction or panic during a bull market:
Any company with a durable competitive advantage will eventually recover after a market correction or panic during a bull market.
b) Bubble-bursting situation:
But beware. In a bubble-bursting situation,during which stock prices trade in excess of 40 times earnings and then fall to single-digit PEs, it may take years for them to fully recover.
After the crash of 1997, it took until 2007 to match the 1990s bull market highs. There are still companies trading today at below their last decade high price. On the other hand, if you bought during the crash, as Warren Buffett often did, it didn't take you long to make a fortune.
Any company with a durable competitive advantage will eventually recover after a market correction or panic during a bull market.
b) Bubble-bursting situation:
But beware. In a bubble-bursting situation,during which stock prices trade in excess of 40 times earnings and then fall to single-digit PEs, it may take years for them to fully recover.
After the crash of 1997, it took until 2007 to match the 1990s bull market highs. There are still companies trading today at below their last decade high price. On the other hand, if you bought during the crash, as Warren Buffett often did, it didn't take you long to make a fortune.
Stock market creates buying opportunities
The bull/bear market cycle offers many buying opportunities for the selective contrarian investor.
The most important aspect of these buying opportunities is that they offer the investor the chance to buy into durable-competitive-advantage companies that have nothing wrong with them other than sinking stock prices.
The herd mentality of the shortsighted stock market creates buying opportunities.
The most important aspect of these buying opportunities is that they offer the investor the chance to buy into durable-competitive-advantage companies that have nothing wrong with them other than sinking stock prices.
The herd mentality of the shortsighted stock market creates buying opportunities.
One buys in a bear market and sells in a bubble.
One of the interesting differences between bubbles and bear markets is that in a bear market, there are plenty of bulls and bears. In a bubble, the few bears are drowned out by the loud and almost universal bullishness.
It is natural to like momentum and money, but if investors have no disciplines and no sense of bubbles, then they are headed not for the big money, but for quite the opposite.
With bear markets, one wants to use buy and sell disciplines and buy when prices and fundamentals would dictate that.
There are market bubbles once in a great while, perhaps once in a life-time, but individual stock bubbles are more common. All bubbles have some similarities that concern how perceptions, emotions, and a lack of accurate information combine to set an investor trap.
It is natural to like momentum and money, but if investors have no disciplines and no sense of bubbles, then they are headed not for the big money, but for quite the opposite.
With bear markets, one wants to use buy and sell disciplines and buy when prices and fundamentals would dictate that.
There are market bubbles once in a great while, perhaps once in a life-time, but individual stock bubbles are more common. All bubbles have some similarities that concern how perceptions, emotions, and a lack of accurate information combine to set an investor trap.
Beware of individual stock bubbles
With bubbles, there is an element of mystery. To cope with that, start with the first step, knowledge, and combine that with your disciplined buy and sell strategies, since in a bubble it is likely that the beliefs of the crowd cannot be supported by real knowledge.
Yet the entire crowd thought in this way about many companies because of incorrect and incomplete information. Emotions temporarily filled that void. A disciplined buy and sell strategy helps you control your emotion.
Yet the entire crowd thought in this way about many companies because of incorrect and incomplete information. Emotions temporarily filled that void. A disciplined buy and sell strategy helps you control your emotion.
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