Stock market ‘bubble’ to end, Morgan Stanley says
Tags: Credit bubble | Global stock market rally | James Paulsen | JPMorgan Chase & Co | Latin American markets | Mark Mobius | Morgan Stanley | MSCI Emerging Market Index | MSCI World Index | Ruchir Sharma | Templeton Asset Management Ltd | Wells Capital Management
Written by Bloomberg
Friday, 30 October 2009 11:14
MUMBAI: The global stock market rally, which resembles the bull run between 2003 and 2007, will end as government spending slows after so-called easy money boosted asset prices, according to Morgan Stanley.
“Such echo rallies are never as big as the original one and we will see it fading away,” Ruchir Sharma, 35, who oversees US$25 billion (RM85.75 billion) in emerging-market stocks at Morgan Stanley, said in an interview. “The rally will end as the effects of the stimulus begin to fade and the credit bubble caused by easy money disappears.”
The MSCI Emerging Market Index, which tracks shares in developing markets, has surged 60% this year, set for its biggest annual advance since 1993, as governments poured in US$2 trillion and central banks cut interest rates to near zero to kick-start their economies.
Last year, the measure dropped 54%, its worst run in the gauge’s 20-year history.
A new rally globally needs to be driven by new industry groups, he added, while the current advance is led by the same sectors, such as commodities, as the ones in the bull market that ended in 2007. That’s not a good sign, he said.
The emerging-market index lost 1.7% to 901.41 as of 12.26pm in Mumbai, a six-week low, after the Standard & Poor’s 500 Index lost 2% to 1,042.63 on Wednesday, the steepest drop since Oct 1.
Sharma, the New York-based head of emerging markets, said he expects the S&P 500 to trade in a “long-term” range of 800 to 1,200 in the next couple of years.
Markets globally dropped last year following the biggest financial crisis since the 1930s as the bankruptcy of Lehman Brothers Holdings Inc and writedowns from subprime debt caused a seizure in lending.
Only 31% of respondents to a poll of investors and analysts who are Bloomberg subscribers in the US, Europe and Asia see investment opportunities, down from 35% in the previous survey in July. Almost 40% in the latest quarterly survey, the Bloomberg Global Poll, say they are still hunkering down.
US investors are even more cautious, with more than 50% saying they are in a defensive crouch.
“The doubt and the pessimism just won’t go away,” said James Paulsen, who helps oversee US$375 billion as chief investment strategist at Wells Capital Management in Minneapolis. “They’re still so shell-shocked by what they went through despite the improvement in the market and the economy.”
Sharma predicted in May 2006 that emerging markets will post further gains. The index for developing nations has risen 20% since then, compared with a 16% drop in the MSCI World Index.
The commodity-producing nations will be the hardest hit when the current rally ends, Sharma said. The Latin American markets of Brazil and Chile are the most expensive, he said, and Morgan Stanley is also underweight on Taiwan, Malaysia, Israel and Russia.
Commodity prices are rising even as economic fundamentals are deteriorating, he added, a sign that the rally may be fizzling.
“Commodities are at the centre of this echo bubble,” he said, adding that they are “in substantially overvalued territory, way above fundamentals”.
Inventories of oil, copper, aluminum have risen over the past few months even though demand hasn’t picked up, Sharma said, adding that the price of oil is inversely correlated to the US dollar. Increasing buying of commodities as a hedge against the decline in the US dollar has resulted in the commodity rally, he said.
“The greatest degree of irrationality is in commodities,” Sharma said. Morgan Stanley owns a lower percentage of commodity stocks, including metals, materials, energy and industrials, compared with the benchmark index. It holds a higher percentage of financial and consumer stocks including automobiles, retailers and beer companies.
Some brokerages are predicting further gains in equities. The emerging markets benchmark stock index may retest its “life high” by next year, helped by economic growth and gains in credit markets, according to JPMorgan Chase & Co.
The optimism is shared by Mark Mobius, who oversees about US$25 billion as executive chairman of Templeton Asset Management Ltd. The investor said this month he expects developing nations’ shares to surpass previous records, predicting a continued rally with “corrections along the way”.
Emerging markets make up all 10 of the world’s best-performing markets, according to data compiled by Bloomberg. Russia’s dollar-denominated RTS Index has been the world’s best-performer this year after climbing 117%.
Morgan Stanley is overweight on India, Indonesia, Poland, Czech Republic, Turkey and Thailand, as it’s betting on economies that are driven by domestic demand. — Bloomberg
This article appeared in The Edge Financial Daily, October 30, 2009.
Tuesday, 3 November 2009
Nestle 3Q net profit dips 8.9% to RM79.7m
Nestle 3Q net profit dips 8.9% to RM79.7m
Tags: consumer spending | earnings | MILO | Nestle
Written by Joseph Chin
Thursday, 29 October 2009 17:58
KUALA LUMPUR: NESTLE (M) BHD []'s net profit declined 8.9% to RM79.76 million in its third quarter ended Sept 30 from RM87.54 million a year ago on weaker consumer spending in Malaysia.
It said on Thursday, Oct 29 that revenue slipped 7.8% to RM886.81 million from RM961.82 million. Earnings per share were 34.01 sen compared with 37.33 sen.
"The world economic downturn and uncertain recovery is having a dampening effect on consumer spending in Malaysia. From an export perspective, the quarter saw a reduction in selling prices due to lower commodity costs as well as a shift in demand with higher export sales of Non Dairy Creamer partially offsetting lower sales of milk powders to the Middle East," it said.
Nestle said the domestic market recovery was below its expectations, as the weaker economic conditions saw consumers becoming very cautious in their spending. This translated into lower product consumption affecting the group's domestic sales.
"The price reductions for Milo and milk products ranging between 7% and 12% in February have also contributed to the lower turnover," it added, but this was cushioned by efficiency gains and cost savings, and lower commodity prices.
For the nine-months ended Sept 30, net profit was marginally higher at RM265.57 million versus RM263.61 million. Revenue was RM2.79 billion, down 3.8% from RM2.9 billion.
Tags: consumer spending | earnings | MILO | Nestle
Written by Joseph Chin
Thursday, 29 October 2009 17:58
KUALA LUMPUR: NESTLE (M) BHD []'s net profit declined 8.9% to RM79.76 million in its third quarter ended Sept 30 from RM87.54 million a year ago on weaker consumer spending in Malaysia.
It said on Thursday, Oct 29 that revenue slipped 7.8% to RM886.81 million from RM961.82 million. Earnings per share were 34.01 sen compared with 37.33 sen.
"The world economic downturn and uncertain recovery is having a dampening effect on consumer spending in Malaysia. From an export perspective, the quarter saw a reduction in selling prices due to lower commodity costs as well as a shift in demand with higher export sales of Non Dairy Creamer partially offsetting lower sales of milk powders to the Middle East," it said.
Nestle said the domestic market recovery was below its expectations, as the weaker economic conditions saw consumers becoming very cautious in their spending. This translated into lower product consumption affecting the group's domestic sales.
"The price reductions for Milo and milk products ranging between 7% and 12% in February have also contributed to the lower turnover," it added, but this was cushioned by efficiency gains and cost savings, and lower commodity prices.
For the nine-months ended Sept 30, net profit was marginally higher at RM265.57 million versus RM263.61 million. Revenue was RM2.79 billion, down 3.8% from RM2.9 billion.
KAF records RM6.6m in net profit
KAF records RM6.6m in net profit
Tags: KAF-Seagroatt & Campbell Bhd
Written by Lam Jian Wyn
Thursday, 29 October 2009 00:19
KUALA LUMPUR: KAF-SEAGROATT & CAMPBELL BHD [] returned to profitability with a net profit of RM6.55 million in its first quarter (1Q) ended Aug 31, 2009, from a loss of RM4.71 million a year earlier.
The brokerage and investment holding company posted a revenue of RM10.1 million, up 87.7% from RM5.38 million a year earlier, while earnings per unit stood at 5.46 sen per share from a loss of 3.93 sen a year earlier.
Profit before tax for the current quarter stood at RM8.23 million, 39.3% lower compared to the profit-before tax of RM13.57 million in the preceding quarter. This is mainly due to the higher writeback in allowance for the diminution in the value of equity investment made in the preceding quarter coupled with lower interest income for the current interim period, according to notes accompanying the result announced yesterday.
Tags: KAF-Seagroatt & Campbell Bhd
Written by Lam Jian Wyn
Thursday, 29 October 2009 00:19
KUALA LUMPUR: KAF-SEAGROATT & CAMPBELL BHD [] returned to profitability with a net profit of RM6.55 million in its first quarter (1Q) ended Aug 31, 2009, from a loss of RM4.71 million a year earlier.
The brokerage and investment holding company posted a revenue of RM10.1 million, up 87.7% from RM5.38 million a year earlier, while earnings per unit stood at 5.46 sen per share from a loss of 3.93 sen a year earlier.
Profit before tax for the current quarter stood at RM8.23 million, 39.3% lower compared to the profit-before tax of RM13.57 million in the preceding quarter. This is mainly due to the higher writeback in allowance for the diminution in the value of equity investment made in the preceding quarter coupled with lower interest income for the current interim period, according to notes accompanying the result announced yesterday.
RHB ups Hai-O earnings forecasts, target price
RHB ups Hai-O earnings forecasts, target price
Tags: Brokers Call | Hai-O Enterprise Bhd | MLM | RHB Research
Written by Financial Daily
Wednesday, 28 October 2009 10:45
RHB Research yesterday raised its fair value for HAI-O ENTERPRISE BHD [] to RM8.80 from RM6.80 after revising upwards its earnings forecasts to take into account the recent stronger-than-expected membership growth at the latter’s multi-level marketing (MLM) division.
“Since June 2009, Hai-O’s MLM division recruitment of new members has increased to an average of 4,000 to 5,000 a month (versus 3,000 to 4,000 in 1HCY09), representing an average increase of 29%,” RHB said in a note.
RHB, which has an outperform call on Hai-O, revised its FY2010-2012 forecasts for the company by between 4% and 26% after increasing projections for new members per month.
The increase in new members was mainly attributed to the success of Hai-O’s advertising activities such as celebrity endorsement and TV commercials for its water filter product (BioAura).
The research house also applied a higher price-earnings ratio (PER) multiple of nine times CY10 earnings (from eight times CY10 earnings previously), “to reflect increased investor participation in mid-cap stocks, lower risk premium and improved market sentiment”.
The PER multiple is still at a 38% discount to its target market capitalisation of 14.5 times PER for the consumer sector, to account for Hai-O’s smaller market capitalisation as well as lower liquidity, RHB added.
It also noted that sales from Hai-O’s recently launched health supplements and anti-aging skincare range have picked up despite initial mediocre sales performance.
“Nevertheless, Hai-O’s star product remains its water filter, which is still gaining popularity especially amongst the bumiputera community. While no figures were provided, management guided that average revenue/distributor continues to grow year-on-year. We forecast average revenue/distributor to increase by an unchanged 5%, 3% and 1% for FY2010-2012,” RHB said.
RHB has yet to input any contributions from Indonesia, where Hai-O had begun initial recruitment activities, having obtained a licence from the Association of MLM in Indonesia in August 2009.
“Recall that Hai-O only invested a total of US$480,000 (RM1.7 million) for its Indonesia venture, which is a minimal amount for the vast potential growth in the Indonesian market.
Management targets a conservative 5,000 to 10,000 new members in FY2010, and projects a minimum one year to break even,” RHB added.
Risks to RHB’s recommendation include the termination of supply agreements from its suppliers in China, stronger-than-expected strengthening of the greenback as well as weaker-than-expected increase in consumer spending.
Hai-O rose 12 sen to close at its intra-day high of RM7.20 yesterday on a volume of 121,400 shares.
This article appeared in The Edge Financial Daily, October 28, 2009.
http://www.theedgemalaysia.com/business-news/152305-rhb-ups-hai-o-earnings-forecasts-target-price.html
Tags: Brokers Call | Hai-O Enterprise Bhd | MLM | RHB Research
Written by Financial Daily
Wednesday, 28 October 2009 10:45
RHB Research yesterday raised its fair value for HAI-O ENTERPRISE BHD [] to RM8.80 from RM6.80 after revising upwards its earnings forecasts to take into account the recent stronger-than-expected membership growth at the latter’s multi-level marketing (MLM) division.
“Since June 2009, Hai-O’s MLM division recruitment of new members has increased to an average of 4,000 to 5,000 a month (versus 3,000 to 4,000 in 1HCY09), representing an average increase of 29%,” RHB said in a note.
RHB, which has an outperform call on Hai-O, revised its FY2010-2012 forecasts for the company by between 4% and 26% after increasing projections for new members per month.
The increase in new members was mainly attributed to the success of Hai-O’s advertising activities such as celebrity endorsement and TV commercials for its water filter product (BioAura).
The research house also applied a higher price-earnings ratio (PER) multiple of nine times CY10 earnings (from eight times CY10 earnings previously), “to reflect increased investor participation in mid-cap stocks, lower risk premium and improved market sentiment”.
The PER multiple is still at a 38% discount to its target market capitalisation of 14.5 times PER for the consumer sector, to account for Hai-O’s smaller market capitalisation as well as lower liquidity, RHB added.
It also noted that sales from Hai-O’s recently launched health supplements and anti-aging skincare range have picked up despite initial mediocre sales performance.
“Nevertheless, Hai-O’s star product remains its water filter, which is still gaining popularity especially amongst the bumiputera community. While no figures were provided, management guided that average revenue/distributor continues to grow year-on-year. We forecast average revenue/distributor to increase by an unchanged 5%, 3% and 1% for FY2010-2012,” RHB said.
RHB has yet to input any contributions from Indonesia, where Hai-O had begun initial recruitment activities, having obtained a licence from the Association of MLM in Indonesia in August 2009.
“Recall that Hai-O only invested a total of US$480,000 (RM1.7 million) for its Indonesia venture, which is a minimal amount for the vast potential growth in the Indonesian market.
Management targets a conservative 5,000 to 10,000 new members in FY2010, and projects a minimum one year to break even,” RHB added.
Risks to RHB’s recommendation include the termination of supply agreements from its suppliers in China, stronger-than-expected strengthening of the greenback as well as weaker-than-expected increase in consumer spending.
Hai-O rose 12 sen to close at its intra-day high of RM7.20 yesterday on a volume of 121,400 shares.
This article appeared in The Edge Financial Daily, October 28, 2009.
http://www.theedgemalaysia.com/business-news/152305-rhb-ups-hai-o-earnings-forecasts-target-price.html
Caveat Emptor — Be a wary investor
Caveat Emptor — Be a wary investor
Written by Mushida Muhammad
Monday, 02 November 2009 10:53
In the high stake game of making money in the stock market, getting emotional is not an option. It is true that investors should focus on fundamentals, be patient and exercise good judgment; but alas, they are only human.
In the exuberance of a bull run or the trepidation of a bear, oftentimes there exist tendencies to inflate or deflate stocks above or below their intrinsic values disproportionately before investors realise that their optimism or pessimism was not entirely justified.
The danger lies when emotions overcome rational judgment, giving way to greed and fear. Excessive greed leads to a superfluous rise in share prices, creating a bubble which eventually sows the seeds for future panic.
Time and again, history has shown that panic often leads to a crash. In the past 10 years, greed and fear had culminated in three major financial crises; the Asian Financial Crisis, the Tech Bubble and — most recently — the Subprime Crisis.
In all cases, markets were experiencing unprecedented outperformance prior to the crash. Driven by greed, many believed that they could ride the high waves without repercussions. What lesson can be learned from this?
For one, investors tend to have a short term memory, often falling prey to the “herd mentality”. The temptation of making a killing often prompts them to take extremely high risks and disregard fundamentals for fear of missing the boat if they did.
Going back to basics. Regardless whether the objective is for the long- or short-term, investment practices should be based on fundamentals and good business judgment. Warren Buffett’s foundation has always been centralised on the principle of fundamental business analysis — a good investor should identify good businesses, purchase them at fair prices and hold them for the long term.
Success lies not in price behaviour but rather on an investor’s ability to apply sound judgment and make the distinction between market price and intrinsic value.
At a time when markets are insecure and unstable, information is key. Investors must understand the company’s business.
Thus, the onus lies with the investor to be discerning. Information is best found in financial statements, as they provide an up-to-date snapshot view of the company’s financial health and growth potential.
Some industries are inherently better for investment than others due to their intrinsic qualities. Health-care, consumer, PLANTATION [] are a few sectors that generally provide better investment opportunities due to the inelasticity in demand.
Striking a balance between risk and reward is crucial, for the amount of risk taken ought to be proportionate with the anticipated reward. Assuming too much risk for too little reward gives way to bad investment.
More importantly, investors must have a stop-loss strategy to prevent escalating losses. Many a time investors make the mistake of holding on to losing stocks in the hope that it will turn around — but in reality, these stocks seldom do.
For those with a long term investment horizon, high and stable dividend income may be an important factor, as are return on equity, business sustainability, cash flow management. Corporate governance and management best practice are critical factors.
If a company reports annual growth and profits that seems “too good to be true”, it most probably is too good to be true.
Finding good stocks to invest in is difficult enough; therefore, investors should hold on to them for the long haul. Companies with a competitive edge have the tendency to increase in value over time. Eventually, the market would acknowledge the underlying value and push the price upwards.
So, when is the best time to sell? The answer is often as difficult as deciding when to buy. Depending on investor’s risk tolerance, if the stock proves to be too volatile for the nerves, it is best to sell and replace with another that lets you sleep at night.
Furthermore, social, environmental and ethical practices of many companies are now becoming a concern and investors may dispose of those that are in conflict with their social, religious or moral beliefs.
At times, the decision to sell is due to the company itself. A change in the company’s fundamentals or business plan may warrant a re-assessment on whether it is able to continue to meet the investor’s investment requirements.
There is no doubt that the stock market offers the best opportunity for higher returns in the long run. The risk is that it could dramatically erode investor’s net worth in the short-term should the down market last longer than expected. Nonetheless, it offers great opportunities.
Investors ought to rely on their judgment and not be influenced by the market. Knowing the company, finding its winning qualities and knowing when the right time to sell should aid the investor in obtaining success.
Attaching emotional value, however, is not. So be a wise investor; do not get sentimental. Have an investment objective and take the time to study before putting in your hard-earned money. Caveat emptor; be a wary investor.
Mushida Muhammad is the senior portfolio manager of the equity department, Kumpulan Wang Persaraan (Diperbadankan) (KWAP).
This article appeared in The Edge Financial Daily, November 2, 2009.
Written by Mushida Muhammad
Monday, 02 November 2009 10:53
In the high stake game of making money in the stock market, getting emotional is not an option. It is true that investors should focus on fundamentals, be patient and exercise good judgment; but alas, they are only human.
In the exuberance of a bull run or the trepidation of a bear, oftentimes there exist tendencies to inflate or deflate stocks above or below their intrinsic values disproportionately before investors realise that their optimism or pessimism was not entirely justified.
The danger lies when emotions overcome rational judgment, giving way to greed and fear. Excessive greed leads to a superfluous rise in share prices, creating a bubble which eventually sows the seeds for future panic.
Time and again, history has shown that panic often leads to a crash. In the past 10 years, greed and fear had culminated in three major financial crises; the Asian Financial Crisis, the Tech Bubble and — most recently — the Subprime Crisis.
In all cases, markets were experiencing unprecedented outperformance prior to the crash. Driven by greed, many believed that they could ride the high waves without repercussions. What lesson can be learned from this?
For one, investors tend to have a short term memory, often falling prey to the “herd mentality”. The temptation of making a killing often prompts them to take extremely high risks and disregard fundamentals for fear of missing the boat if they did.
Going back to basics. Regardless whether the objective is for the long- or short-term, investment practices should be based on fundamentals and good business judgment. Warren Buffett’s foundation has always been centralised on the principle of fundamental business analysis — a good investor should identify good businesses, purchase them at fair prices and hold them for the long term.
Success lies not in price behaviour but rather on an investor’s ability to apply sound judgment and make the distinction between market price and intrinsic value.
At a time when markets are insecure and unstable, information is key. Investors must understand the company’s business.
Thus, the onus lies with the investor to be discerning. Information is best found in financial statements, as they provide an up-to-date snapshot view of the company’s financial health and growth potential.
Some industries are inherently better for investment than others due to their intrinsic qualities. Health-care, consumer, PLANTATION [] are a few sectors that generally provide better investment opportunities due to the inelasticity in demand.
Striking a balance between risk and reward is crucial, for the amount of risk taken ought to be proportionate with the anticipated reward. Assuming too much risk for too little reward gives way to bad investment.
More importantly, investors must have a stop-loss strategy to prevent escalating losses. Many a time investors make the mistake of holding on to losing stocks in the hope that it will turn around — but in reality, these stocks seldom do.
For those with a long term investment horizon, high and stable dividend income may be an important factor, as are return on equity, business sustainability, cash flow management. Corporate governance and management best practice are critical factors.
If a company reports annual growth and profits that seems “too good to be true”, it most probably is too good to be true.
Finding good stocks to invest in is difficult enough; therefore, investors should hold on to them for the long haul. Companies with a competitive edge have the tendency to increase in value over time. Eventually, the market would acknowledge the underlying value and push the price upwards.
So, when is the best time to sell? The answer is often as difficult as deciding when to buy. Depending on investor’s risk tolerance, if the stock proves to be too volatile for the nerves, it is best to sell and replace with another that lets you sleep at night.
Furthermore, social, environmental and ethical practices of many companies are now becoming a concern and investors may dispose of those that are in conflict with their social, religious or moral beliefs.
At times, the decision to sell is due to the company itself. A change in the company’s fundamentals or business plan may warrant a re-assessment on whether it is able to continue to meet the investor’s investment requirements.
There is no doubt that the stock market offers the best opportunity for higher returns in the long run. The risk is that it could dramatically erode investor’s net worth in the short-term should the down market last longer than expected. Nonetheless, it offers great opportunities.
Investors ought to rely on their judgment and not be influenced by the market. Knowing the company, finding its winning qualities and knowing when the right time to sell should aid the investor in obtaining success.
Attaching emotional value, however, is not. So be a wise investor; do not get sentimental. Have an investment objective and take the time to study before putting in your hard-earned money. Caveat emptor; be a wary investor.
Mushida Muhammad is the senior portfolio manager of the equity department, Kumpulan Wang Persaraan (Diperbadankan) (KWAP).
This article appeared in The Edge Financial Daily, November 2, 2009.
Don’t be greedy, Eldon advises retail investors
Don’t be greedy, Eldon advises retail investors
Tags: Bank Negara Malaysia | Bubble | David Eldon | DJIA | FBM KLCI | FIDE | Free economy | Global stock market rally | Greedy | Hang Seng Index | HSBC | Noble Group Ltd | regulators | Straits Times Index | Taiex | Take profit | Western economies
Written by Ellina Badri
Monday, 02 November 2009 11:40
KUALA LUMPUR: With the global stock market rally appearing to lose steam given a lack of fresh leads and a rally “fatigue”, investors are again forced to decide on their next course of action.
For one, a well-known former banker who has been in the corporate world for the past four decades, David Eldon, tells investors, particularly individuals, that it may be time to stop being greedy and to take profit when reasonable gains have been made.
“Don’t try to squeeze the last dollar of profit. Take profit when you’ve made a decent percentage,” he told The Edge Financial Daily in an interview.
Several markets, including the local bourse, reached their year’s highs in October, driven by optimism of a global recovery but have since retreated as key data signals to investors that they could be getting ahead of themselves.
The FBM KLCI reached its 52-week high of 1,270.44 points on Oct 21, while Taiwan’s Taiex rose to 7,811.92 points a day earlier. Singapore’s Straits Times Index rose to 2,739.55 points on Oct 15, while Hong Kong’s Hang Seng Index reached its year’s high of 22,620 points on Oct 23.
Eldon, a Scot who had been chairman, chief executive officer and executive director of the Hongkong and Shanghai Banking Corp (HSBC), and Malaysia CEO of the Saudi British Bank, believes the global recovery is currently unsustainable.
Indeed, markets faltered in the last week of October, after the US reported weak company earnings and an unexpected fall in September housing data.
The Dow Jones Industrial Average (DJIA), which rose to its 52-week high of 10,119.4 on Oct 21, after breaching the 10,000-point level for the first time in a year, failed to maintain its momentum amid the release of weak data.
Indeed, US markets suffered a pre-Halloween scare last Friday with the DJIA tumbling 249.85 points or 2.51% to 9,712.73.
“There is still some correction to come. It may be more selective, but there is a downturn to come, and let’s just hope people in Asia are wise to it.
“The problem in Asia, and perhaps other parts of the world, is that people are reluctant to take a profit if the stock market is still going up. Because they want to reach the top of the market — that doesn’t happen in reality,” Eldon said.
Eldon tells retail investors not to wait to squeeze out the last ringgit from their stock purchases. They should sell when they’ve chalked up a decent percentage. Photo by Chu Juck Seng
He was in Kuala Lumpur last week to give a talk to directors of financial institutions, as part of the financial institutions directors’ education (FIDE) programme, which is jointly offered by Bank Negara Malaysia and Malaysia Deposit Insurance Corp. (See page 8 for Eldon’s luncheon talk entitled Over-regulation and Other BS.)
Among other positions, Eldon is a senior adviser at PricewaterhouseCoopers Hong Kong, chairman of the Dubai International Financial Centre Authority and Singapore-listed Noble Group Ltd, a commodities trading company.
Eldon said stock markets were something he felt strongly about, as institutional investors often led the market’s rise or fall, leaving retail investors to pick up the pieces.
“When institutional investors enter the market, this becomes a bit of a self-fulfilling prophecy because once you start buying into equities, they start to rise. Then retail investors come in, because they see the market rising, and continue to go in as it keeps rising.
“Once things start to turn, for example if company results don’t come out as good as anticipated, or interest rates start to rise, and people can now put money in banks instead of stocks, institutional investors are the first to leave the market.
“Their money comes out in big chunks, so the market starts to fall. Who’s left holding the baby? Retail investors,” Eldon said.
Meanwhile, he said with more problems in the Western economies yet to surface, “there may very well be another downturn coming”, though it would not be as severe as the one just past.
Challenges for regulators
On the role of regulators in helping to stem crises, Eldon said it would be difficult for them to restrict businesses in a free economy.
“For example, do you tell Goldman Sachs there is a limit to the business they can do, and the authorities will regulate and that’s the end of the story? Do the good people of Goldman go off and start off their own company and do exactly what they were doing there, or should they be regulated in the same way?
“Where do you draw the line? This is one of the problems of doing business in a free economy. The moment you start putting restrictions, the economy has much less freedom in it,” he said.
Eldon also said while this might not be desirable, it was a fact that had to be accepted as such was the nature of the world economy.
But ultimately, he said, public opinion could have a big influence in how markets would be regulated.
On whether increased competition could help markets avoid the excesses seen in recent times, such as via the demerger of big banks, he said while this could happen, its implementation would depend on the willingness of the market to carry it out.
Asked what action could be taken once a bubble is perceived, he said this was not possible as people often thought situations differ from one crisis to another.
“History will tell you that we don’t seem to remember anything. If there was something that we could have done, we surely would have done it.
“But people say, it’s different this time. That was how the bubble was created the last time. And it very rarely is that different,” he said.
He also said if there were a way to “prick the bubble”, the question then arose of who would do it, adding it would be a major challenge for the world’s regulators to make a concerted effort to manage global economic and financial problems.
“It requires a lot of resolve from world leaders to actually say to themselves, we are going to effectively say to the world, this is what you’re going to have to put up with. For example, with the euro, because it is managed from a centre, monetary policy may suit Germany but not Spain, or benefit Ireland, but not other members.
“If you try to translate all of that into doing something for the globe, I think it will be extremely difficult to do,” he said.
Where Asia stands
During his talk at the FIDE programme, Eldon said one main reason why the Asian financial services industry had been shielded from the West’s financial crisis was the lack of sophisticated financial products here.
Despite this, however, he said the industry here had succeeded in growing and would continue to do so, albeit in a more controlled manner.
“That gives it a good future. You have two choices, either really let the brakes off, or you do it in a gradual way. You can take it step-by-step, and China is particularly good at this. If we continue that sort of policy, it’s fairly basic, and it may not be terribly exciting, but it’ll save you from getting into huge problems,” he said.
This article appeared in The Edge Financial Daily, November 2, 2009.
Tags: Bank Negara Malaysia | Bubble | David Eldon | DJIA | FBM KLCI | FIDE | Free economy | Global stock market rally | Greedy | Hang Seng Index | HSBC | Noble Group Ltd | regulators | Straits Times Index | Taiex | Take profit | Western economies
Written by Ellina Badri
Monday, 02 November 2009 11:40
KUALA LUMPUR: With the global stock market rally appearing to lose steam given a lack of fresh leads and a rally “fatigue”, investors are again forced to decide on their next course of action.
For one, a well-known former banker who has been in the corporate world for the past four decades, David Eldon, tells investors, particularly individuals, that it may be time to stop being greedy and to take profit when reasonable gains have been made.
“Don’t try to squeeze the last dollar of profit. Take profit when you’ve made a decent percentage,” he told The Edge Financial Daily in an interview.
Several markets, including the local bourse, reached their year’s highs in October, driven by optimism of a global recovery but have since retreated as key data signals to investors that they could be getting ahead of themselves.
The FBM KLCI reached its 52-week high of 1,270.44 points on Oct 21, while Taiwan’s Taiex rose to 7,811.92 points a day earlier. Singapore’s Straits Times Index rose to 2,739.55 points on Oct 15, while Hong Kong’s Hang Seng Index reached its year’s high of 22,620 points on Oct 23.
Eldon, a Scot who had been chairman, chief executive officer and executive director of the Hongkong and Shanghai Banking Corp (HSBC), and Malaysia CEO of the Saudi British Bank, believes the global recovery is currently unsustainable.
Indeed, markets faltered in the last week of October, after the US reported weak company earnings and an unexpected fall in September housing data.
The Dow Jones Industrial Average (DJIA), which rose to its 52-week high of 10,119.4 on Oct 21, after breaching the 10,000-point level for the first time in a year, failed to maintain its momentum amid the release of weak data.
Indeed, US markets suffered a pre-Halloween scare last Friday with the DJIA tumbling 249.85 points or 2.51% to 9,712.73.
“There is still some correction to come. It may be more selective, but there is a downturn to come, and let’s just hope people in Asia are wise to it.
“The problem in Asia, and perhaps other parts of the world, is that people are reluctant to take a profit if the stock market is still going up. Because they want to reach the top of the market — that doesn’t happen in reality,” Eldon said.
Eldon tells retail investors not to wait to squeeze out the last ringgit from their stock purchases. They should sell when they’ve chalked up a decent percentage. Photo by Chu Juck Seng
He was in Kuala Lumpur last week to give a talk to directors of financial institutions, as part of the financial institutions directors’ education (FIDE) programme, which is jointly offered by Bank Negara Malaysia and Malaysia Deposit Insurance Corp. (See page 8 for Eldon’s luncheon talk entitled Over-regulation and Other BS.)
Among other positions, Eldon is a senior adviser at PricewaterhouseCoopers Hong Kong, chairman of the Dubai International Financial Centre Authority and Singapore-listed Noble Group Ltd, a commodities trading company.
Eldon said stock markets were something he felt strongly about, as institutional investors often led the market’s rise or fall, leaving retail investors to pick up the pieces.
“When institutional investors enter the market, this becomes a bit of a self-fulfilling prophecy because once you start buying into equities, they start to rise. Then retail investors come in, because they see the market rising, and continue to go in as it keeps rising.
“Once things start to turn, for example if company results don’t come out as good as anticipated, or interest rates start to rise, and people can now put money in banks instead of stocks, institutional investors are the first to leave the market.
“Their money comes out in big chunks, so the market starts to fall. Who’s left holding the baby? Retail investors,” Eldon said.
Meanwhile, he said with more problems in the Western economies yet to surface, “there may very well be another downturn coming”, though it would not be as severe as the one just past.
Challenges for regulators
On the role of regulators in helping to stem crises, Eldon said it would be difficult for them to restrict businesses in a free economy.
“For example, do you tell Goldman Sachs there is a limit to the business they can do, and the authorities will regulate and that’s the end of the story? Do the good people of Goldman go off and start off their own company and do exactly what they were doing there, or should they be regulated in the same way?
“Where do you draw the line? This is one of the problems of doing business in a free economy. The moment you start putting restrictions, the economy has much less freedom in it,” he said.
Eldon also said while this might not be desirable, it was a fact that had to be accepted as such was the nature of the world economy.
But ultimately, he said, public opinion could have a big influence in how markets would be regulated.
On whether increased competition could help markets avoid the excesses seen in recent times, such as via the demerger of big banks, he said while this could happen, its implementation would depend on the willingness of the market to carry it out.
Asked what action could be taken once a bubble is perceived, he said this was not possible as people often thought situations differ from one crisis to another.
“History will tell you that we don’t seem to remember anything. If there was something that we could have done, we surely would have done it.
“But people say, it’s different this time. That was how the bubble was created the last time. And it very rarely is that different,” he said.
He also said if there were a way to “prick the bubble”, the question then arose of who would do it, adding it would be a major challenge for the world’s regulators to make a concerted effort to manage global economic and financial problems.
“It requires a lot of resolve from world leaders to actually say to themselves, we are going to effectively say to the world, this is what you’re going to have to put up with. For example, with the euro, because it is managed from a centre, monetary policy may suit Germany but not Spain, or benefit Ireland, but not other members.
“If you try to translate all of that into doing something for the globe, I think it will be extremely difficult to do,” he said.
Where Asia stands
During his talk at the FIDE programme, Eldon said one main reason why the Asian financial services industry had been shielded from the West’s financial crisis was the lack of sophisticated financial products here.
Despite this, however, he said the industry here had succeeded in growing and would continue to do so, albeit in a more controlled manner.
“That gives it a good future. You have two choices, either really let the brakes off, or you do it in a gradual way. You can take it step-by-step, and China is particularly good at this. If we continue that sort of policy, it’s fairly basic, and it may not be terribly exciting, but it’ll save you from getting into huge problems,” he said.
This article appeared in The Edge Financial Daily, November 2, 2009.
Malaysia has lost its way, says Ku Li
Malaysia has lost its way, says Ku Li
Tengku Razaleigh says many Malaysians are losing faith in their future despite the evidence of material progress. — File pic
KUALA LUMPUR, Nov 2 — Tengku Razaleigh Hamzah has urged the country to shed “crude nationalism” and come to terms with the reality that many Malaysians are losing faith in their future despite the evidence of material progress.
The veteran Umno man told the British Graduates Association at a dinner here last night that it was a fact that those Malaysians who “can stay away and settle overseas do so with the encouragement of their parents”.
“Their parents tell them to remain where they are, there is nothing for them here. The illusion of nostalgia does not explain why parents fight to send their children to private and international schools rather than the national schools they themselves went to.
“The very same politicians who recite nationalist slogans about our national schools and turn the curriculum into an ideological hammer send their own children to international schools here or in Australia and Britain.
“They know better than anyone else the shape our schools are in. It is no illusion that people do not have the faith in our judiciary and police that they once had,” said Tengku Razaleigh.
The former Finance Minister pointed out that the country inherited at independence a functional country with independent institutions.
These included “the Westminster model of parliamentary democracy, civil law grounded in a Constitution, a capable and independent civil service, including an excellent teaching service, armed forces and police, good schools, sophisticated trade practices and markets, financial markets”.
While he pointed out that the challenges of nation building were serious, but the country “faced them with an independent judiciary, a professional civil service and a well-defined set of relationships between a federal government and our individually sovereign states.”
Indeed we were able to face these challenges because these institutions functioned well.
“Institutionally, we had a good start as a nation. Why is it important to recall this?
“For one it makes sense of the feeling among many Malaysians and international friends who have observed Malaysia over a longer period that Malaysia has seen better days. There is a feeling of wasted promise, of having lost our way, or declined beyond the point of no return.”
He said that such a feeling was too pervasive to be put down to the nostalgia of always finding the good old days best.
Malaysians, Tengku Razaleigh contends, are losing faith in their future despite the evidence of material progress.
“We have lots of infrastructure. Lots of malls and highways. Especially toll highways. It is not for want of physical infrastructure, dubious as some of it is, that we feel we languish. It is a sense that we are losing the institutional infrastructure of civilised society.”
He said that if Malaysians felt a sense of loss, or tell their children not to come home from overseas, or are making plans to emigrate, it was not because they did not love the country, or were ungrateful for tarred roads and bridges.
“It is because they feel the erosion of the institutional infrastructure of our society. Institutional intangibles such as the rule of law, accountability and transparency are the basis of a people’s confidence in their society.”
He said it was time to shed the “crude nationalism” which refuses to acknowledge things “not invented here”.
He pointed out that Malaysia had a good start because it had inherited from the British a system of laws, rights and conventions that had been refined over several hundred years.
Malaysia, he said, also inherited the English language, and with that a strong set of links to the English-speaking world.
“There should be a rethinking of our attitude to the English language. By now it is also a Malaysian language. It would be sheer hypocrisy to deny its value and centrality to us as Malaysians.
“Do we continue to deny in political rhetoric what we practice in reality, or do we grasp the situation and come up with better policies for the teaching and adoption of the language?”
He urged Malaysians to reconnect with Britain as it is today instead of recycling stale colonial era stereotypes.
New Chinese stock exchange opens with a surge
New Chinese stock exchange opens with a surge
China’s GEM has been likened to a “VIP table on top of a big casino”. — Reuters pic
SHANGHAI, Nov 2 — The highly anticipated opening of China’s new Nasdaq-style stock exchange last Friday is already being seen as a watershed moment for the country’s capital markets, providing new opportunities for Chinese investors and an alternative source of financing for upstart companies.
Investors went on a wild buying spree during the first day of trading Friday on the Growth Enterprise Market, or GEM, sending the shares of some companies soaring as much as 210 per cent.
“This is potentially a major game changer in China’s high-tech industry,” said Yu Zhou, a professor at Vassar College in Poughkeepsie, NY “For about 10 years, the biggest problem for China’s innovative companies was finance. You know it is very hard for them to get loans from state-owned banks.”
The buying was so feverish that regulators, trying to calm the market, temporarily suspended trading in the shares of all 28 newly listed companies at different points on Friday, and analysts warned about the risks posed by excessive speculation and inflated stock prices.
Stocks on the GEM opened sharply lower today, with many shares down 10 per cent.
Still, the first batch of companies listed on the GEM — including film producers, software makers and pharmaceutical companies — raised about US$2 billion (RM6.8 billion) in their initial public offerings, far more than the companies had hoped.
By the end of trading Friday, the combined market value of the newly listed companies was more than US$20 billion, creating fortunes for the founders and investors in those companies.
China is already the world’s biggest market for initial public offerings, and its resurgent economy is flush with capital and investors with a big appetite for risk.
But trading experts have long complained that this country’s market system is seriously flawed, partly because of a misallocation of capital.
State-run banks lend primarily to state-owned companies, which tend to be inefficient. Listings on the Shanghai and Shenzhen stock exchanges are dominated by government enterprises. Young private Chinese companies generally list their shares overseas, in Hong Kong or on the Nasdaq or New York Stock Exchange, because there are few opportunities for stock listings inside the country.
But the government hopes to change that with the creation of the GEM, which is based in the southern boomtown of Shenzhen. The government is seeking to create a more efficient capital market system, one that would steer investment capital to small and midsize private enterprises — companies that can help reshape the economy through technology and innovation, rather than low-price exports.
Although the GEM, which is also known here as ChiNext, is tiny when compared with the Shanghai and Hong Kong stock exchanges, regulators hope it will eventually compete with Nasdaq and entice more Chinese companies to list with GEM.
The GEM is also expected to give a boost to China’s venture capital and private equity markets, which have been hampered by a system that until now has not provided wealthy investors with what industry insiders call an exit strategy, or a way to eventually cash out of their investments in small companies through a domestic stock market.
There are big hurdles to creating a stock exchange similar to Nasdaq, which includes companies like Microsoft, Intel and Google. For instance, volatile stock prices and high valuations could hurt the new bourse’s credibility with entrepreneurs and investors.
Chinese investors are known to speculate, favouring momentum buying and selling rather than the underlying fundamentals of a company, analysts say. Indeed, the casino-like nature of the Shanghai and existing Shenzhen exchanges, combined with government intervention, have added to the volatility of the Chinese markets.
Analysts warn that the GEM could also be prone to similar speculative frenzies.
Andy Xie, an economist who formerly worked at Morgan Stanley, is already calling the GEM a “VIP table on top of a big casino.”
Chang Chun, an expert on financial markets at the China Europe International Business School in Shanghai, said that China needed a market to serve start-ups, but “the issue is the maturity of Chinese investors.”
Before trading opened Friday, he said, regulators created rules to guard against excessive volatility and even warned investors that they would crack down on aggressive speculation. Still, Friday’s opening — with 28 companies beginning to trade at once — was marked by wild price swings.
One cause of concern was the huge valuations of the first batch of stocks listed Friday.
The average GEM-listed company has a price-to-earnings ratio of about 100 — meaning investors are paying about US$100 for every US$1 of 2008 earnings. By comparison, the Standard & Poor’s 500-stock index of big American companies trades at closer to 20 times earnings.
GEM stocks are also priced far above Shanghai stocks, which have long been considered inflated by United States standards.
Still, hundreds of Chinese companies are eagerly awaiting their turn to list on the GEM, and many analysts say the exchange will fill an important need: directing financing toward smaller start-ups that help rebalance economic growth. Zhou at Vassar said she had heard that there were over 1,000 companies in Beijing’s high-tech district alone that met the requirements to list shares on the GEM exchange.
Analysts say many more start-ups will be eager to list after seeing the riches made by the first group of companies to go public on the GEM.
For instance, Wang Zhongjun and his brother Wang Zhonglei are the founders of Beijing-based Huayi Brothers Media, one of the country’s leading film producers. Shares in their company jumped 148 per cent Friday, for a valuation of about US$1.7 billion. — NYT
China’s GEM has been likened to a “VIP table on top of a big casino”. — Reuters pic
SHANGHAI, Nov 2 — The highly anticipated opening of China’s new Nasdaq-style stock exchange last Friday is already being seen as a watershed moment for the country’s capital markets, providing new opportunities for Chinese investors and an alternative source of financing for upstart companies.
Investors went on a wild buying spree during the first day of trading Friday on the Growth Enterprise Market, or GEM, sending the shares of some companies soaring as much as 210 per cent.
“This is potentially a major game changer in China’s high-tech industry,” said Yu Zhou, a professor at Vassar College in Poughkeepsie, NY “For about 10 years, the biggest problem for China’s innovative companies was finance. You know it is very hard for them to get loans from state-owned banks.”
The buying was so feverish that regulators, trying to calm the market, temporarily suspended trading in the shares of all 28 newly listed companies at different points on Friday, and analysts warned about the risks posed by excessive speculation and inflated stock prices.
Stocks on the GEM opened sharply lower today, with many shares down 10 per cent.
Still, the first batch of companies listed on the GEM — including film producers, software makers and pharmaceutical companies — raised about US$2 billion (RM6.8 billion) in their initial public offerings, far more than the companies had hoped.
By the end of trading Friday, the combined market value of the newly listed companies was more than US$20 billion, creating fortunes for the founders and investors in those companies.
China is already the world’s biggest market for initial public offerings, and its resurgent economy is flush with capital and investors with a big appetite for risk.
But trading experts have long complained that this country’s market system is seriously flawed, partly because of a misallocation of capital.
State-run banks lend primarily to state-owned companies, which tend to be inefficient. Listings on the Shanghai and Shenzhen stock exchanges are dominated by government enterprises. Young private Chinese companies generally list their shares overseas, in Hong Kong or on the Nasdaq or New York Stock Exchange, because there are few opportunities for stock listings inside the country.
But the government hopes to change that with the creation of the GEM, which is based in the southern boomtown of Shenzhen. The government is seeking to create a more efficient capital market system, one that would steer investment capital to small and midsize private enterprises — companies that can help reshape the economy through technology and innovation, rather than low-price exports.
Although the GEM, which is also known here as ChiNext, is tiny when compared with the Shanghai and Hong Kong stock exchanges, regulators hope it will eventually compete with Nasdaq and entice more Chinese companies to list with GEM.
The GEM is also expected to give a boost to China’s venture capital and private equity markets, which have been hampered by a system that until now has not provided wealthy investors with what industry insiders call an exit strategy, or a way to eventually cash out of their investments in small companies through a domestic stock market.
There are big hurdles to creating a stock exchange similar to Nasdaq, which includes companies like Microsoft, Intel and Google. For instance, volatile stock prices and high valuations could hurt the new bourse’s credibility with entrepreneurs and investors.
Chinese investors are known to speculate, favouring momentum buying and selling rather than the underlying fundamentals of a company, analysts say. Indeed, the casino-like nature of the Shanghai and existing Shenzhen exchanges, combined with government intervention, have added to the volatility of the Chinese markets.
Analysts warn that the GEM could also be prone to similar speculative frenzies.
Andy Xie, an economist who formerly worked at Morgan Stanley, is already calling the GEM a “VIP table on top of a big casino.”
Chang Chun, an expert on financial markets at the China Europe International Business School in Shanghai, said that China needed a market to serve start-ups, but “the issue is the maturity of Chinese investors.”
Before trading opened Friday, he said, regulators created rules to guard against excessive volatility and even warned investors that they would crack down on aggressive speculation. Still, Friday’s opening — with 28 companies beginning to trade at once — was marked by wild price swings.
One cause of concern was the huge valuations of the first batch of stocks listed Friday.
The average GEM-listed company has a price-to-earnings ratio of about 100 — meaning investors are paying about US$100 for every US$1 of 2008 earnings. By comparison, the Standard & Poor’s 500-stock index of big American companies trades at closer to 20 times earnings.
GEM stocks are also priced far above Shanghai stocks, which have long been considered inflated by United States standards.
Still, hundreds of Chinese companies are eagerly awaiting their turn to list on the GEM, and many analysts say the exchange will fill an important need: directing financing toward smaller start-ups that help rebalance economic growth. Zhou at Vassar said she had heard that there were over 1,000 companies in Beijing’s high-tech district alone that met the requirements to list shares on the GEM exchange.
Analysts say many more start-ups will be eager to list after seeing the riches made by the first group of companies to go public on the GEM.
For instance, Wang Zhongjun and his brother Wang Zhonglei are the founders of Beijing-based Huayi Brothers Media, one of the country’s leading film producers. Shares in their company jumped 148 per cent Friday, for a valuation of about US$1.7 billion. — NYT
Wednesday, 28 October 2009
Sector Timing is a process of continuous upgrading your investment holdings to maximize portfolio returns.
A simple strategy for keeping your portfolio invested in the strongest sectors of the stock market at all times. The strategy behind the Sector Timing Report is a process of continuous upgrading your investment holdings to maximize portfolio returns. Our upgrading strategy works because as economic and market conditions change, new sector leaders rise to the top of our proprietary sector scoring system. We buy these top ranked sectors and hold them for as long as they outperform their sector peers. When a holding starts to drop in rankings we sell it and move on the the next hot sectors in the market. Rebalancing our holdings monthly keeps us in the latest leadership sectors at all times.
Market Timing: Taking advantage of the periodic bouts of market madness
The most important use of past information is to tell us when the market has moved too far out of line.
By looking at the chart, you would have noticed that the price rises of 1972 or 1981 or 1987 (or 1993 or 1996 or 2007) were excessive and could not possibly be sustained. If we were rational at that time, we should have liquidated our holding and got out of the market. (wishful thinking!! worth a serious look into!!!)
Similarly, in 1975 or 1976/1978 or 1986 (or 1998 or 2008), by looking at the chart, we could have seen that the market had become very undervalued and we should have increased our holding, even if it meant that we had to borrow money to do so. (shocking!!hmmm!!!)
For the rest of the time, we should buy individual shares as and when we believe they have become undervalued, keeping the chart in the background as a point of reference when we evaluate individual shares. So long as the market as a whole is not too far above the trend line, we can purchase shares which are undervalued according to our computation. Provided we are reasonably good in our valuation, the long-term improvement in the market should ensure that we make money over the long run. (very sound advice indeed)
At times, the market may fall below or even well below the level at which we have made our purchases. This should not worry us because we have based our purchases on good dividend yield and we do not need to sell. Furthermore, we can take the opportunity to buy more shares and average down the prices of our investments.
Occasionally, we may even stand to make a lot of money by selling out if our chart tells us that the market has gone mad, as it is prone to now and again.
We are therefore practising a very defensive strategy, only buying if the shares are undervalued and quickly selling to take advantage of the periodic bouts of market madness when they occur.
Ref: Stock Market Investment in Malaysia and Singapore by Neoh Soon Kean
By looking at the chart, you would have noticed that the price rises of 1972 or 1981 or 1987 (or 1993 or 1996 or 2007) were excessive and could not possibly be sustained. If we were rational at that time, we should have liquidated our holding and got out of the market. (wishful thinking!! worth a serious look into!!!)
Similarly, in 1975 or 1976/1978 or 1986 (or 1998 or 2008), by looking at the chart, we could have seen that the market had become very undervalued and we should have increased our holding, even if it meant that we had to borrow money to do so. (shocking!!hmmm!!!)
For the rest of the time, we should buy individual shares as and when we believe they have become undervalued, keeping the chart in the background as a point of reference when we evaluate individual shares. So long as the market as a whole is not too far above the trend line, we can purchase shares which are undervalued according to our computation. Provided we are reasonably good in our valuation, the long-term improvement in the market should ensure that we make money over the long run. (very sound advice indeed)
At times, the market may fall below or even well below the level at which we have made our purchases. This should not worry us because we have based our purchases on good dividend yield and we do not need to sell. Furthermore, we can take the opportunity to buy more shares and average down the prices of our investments.
Occasionally, we may even stand to make a lot of money by selling out if our chart tells us that the market has gone mad, as it is prone to now and again.
We are therefore practising a very defensive strategy, only buying if the shares are undervalued and quickly selling to take advantage of the periodic bouts of market madness when they occur.
Ref: Stock Market Investment in Malaysia and Singapore by Neoh Soon Kean
Market timing: The relative position of a share's price to its own intrinsic value is of greater importance.
The market's movements are not perfectly reflected in the movement of the individual share.
Market timing is more an art than a science.
- Even during the sharpest decline, some of the shares hold their value very well.
- During the bull run, some of the shares do not go anywhere.
- At the same time, some shares magnify the movements of the market by two or three times, while others (mainly blue chips) only partially reflect the market movements.
- Thus even if we get the market timing right, it is not possible to match exactly what is achieved by the market.
- The relative position of a share's price to its own intrinsic value is of equal if not of greater importance.
Market timing is more an art than a science.
- There are some people who are highly gifted and are able to make good market timing decisions. And yet precisely because market timing decisions only have to be made once every 5 years, it is critical that they are made in the correct way.
- One wrong decision can either leave one out of the market for several years (i.e. after missing the start of a new bull run) or suffer heavy losses (i.e. missing the start of a new bear run).
- There are few of us who can be like Warren Buffet who made two timing decisions in 15 years and both of them were nearly spot on.
- We can never hope to be like Warren Buffett but we can use records of past market movements to help our investment decision making.
Market Timing is difficult
Some of you may be tempted to think that it is easy to carry out market timing. They may think that all one has to do is to take an index chart and draw in the trend line, making purchases or sales whenever the market price gets too far from the trend.
There are, however, two enormous difficultites in trying to make market timing decisions based on past prices.
1. First, there is the problem of future changes in the companies' business and political environment.
2. Second, there is the problem of not knowing in advance how far will the market move above or below the trend.
There are, however, two enormous difficultites in trying to make market timing decisions based on past prices.
1. First, there is the problem of future changes in the companies' business and political environment.
- The world of business is never static. There will always be changes, some small and some large to the environment which the companies operate in.
- In order for the stock market to perform as well as it had done in the past, the country must continue to prosper and the political climate has to be stable. How can we be sure that the future growth trend will be the same as in the past?
- In order to be a good forecaster, one must have a very good knowledge of economics and political science. This is hardly a qualification that is within the reach of laymen. Even with such qualifications, forecasting can still be very difficult. Professional economists and moneymen can make collective forecasting errors very frequently.
2. Second, there is the problem of not knowing in advance how far will the market move above or below the trend.
- As we have seen from past records, the distance the market moved from the trend had been irregular and unpredictable.
- We can take the 1983, 1987, 1993, 1996 and 2007 booms as examples. Many professional market-watchers, did not anticipate correctly the heights to which the market went.
- Similarly, very few market-watchers anticipated the severe market declines of 1973, 1985, 1987, 1997, 2001 and 2008.
Find Your Financial Style -- and Avoid Its Pitfalls
Find Your Financial Style -- and Avoid Its Pitfalls
by Jonnelle Marte
Tuesday, October 27, 2009
provided by The Wall Street Journal
There are few relationships more complicated than the one we have with money.
Some of us are intimate with our finances, endlessly doing research and keeping track of every penny. Others are more distant; they have a general idea of where their money is going, but aren't sure if it's the right move or if it's enough. Then there are the emotional ones, those who cling to money at the wrong times and make impulsive decisions.
So, what kind of investor and saver are you?
Not sure? Ask yourself these questions: Do I consistently keep track of my spending? And do I do so weekly, monthly or annually? Do I feel that I'm OK financially as long as my checks don't bounce? Do I plan and save for big purchases or do I buy on a whim?
There also are online quizzes, such as J.P. Morgan Chase's "Financial Styles" found at ChaseFinancialStyle.com, that can help you determine your investing and saving profile.
Once you determine your style, you can use certain strategies and tools to reinforce the positive aspects of your approach -- and contain the negative ones.
Understanding your financial approach can help you figure out where your "strategy is most vulnerable to pitfalls or problems," says Hersh Shefrin, a professor of behavioral finance at Santa Clara University who helped J.P. Morgan Chase develop its quiz.
The Analytical Investor
You're a stickler for details and data. And while it's good to be thorough with your research, if taken to an extreme people can forget to take their personal situation and goals into account when making financial and investment decisions.
This type of investor can get hit with what some advisers call "analysis paralysis," where they have trouble making decisions because they can't help thinking there is always more research to be done.
"They're what I call 'see mores' -- they always want to see more," says Bryan Place, founder of Place Financial Advisors, a financial-planning firm in Manlius, N.Y. "Rather than overwhelming themselves and spending too much time digging through content," they should limit themselves to three or four reliable sources, he says.
If you have a tendency to delay acting on your financial goals, Mr. Place says, make a list of the pros and cons and give yourself a deadline to decide -- and stick to it.
While you may be great at budgeting, you might benefit from online expense-tracking tools offered by Mint.com or financial-planning software from Quicken (quicken.intuit.com) that can help you distance yourself from your day-to-day transactions to recognize spending and saving trends over time.
At Mint.com, you can build graphs that show how your spending, income, debt or net worth has changed over a specific period. You also can see changes in spending in certain categories, such as groceries.
The Big-Picture Investor
You know your bottom line, but you don't keep track of every transaction or plan every action or expense. While this approach can be less stressful if you're able to consistently save and meet your financial goals, it can leave you unsure about exactly where your money is going and where you can cut back.
To avoid falling into a set-it-and-forget-it routine and ending up with outdated and unsuccessful strategies for investing and saving, review your strategies at least once a year. For instance, the retirement-savings plan you started five years ago might not be on pace to fund the lifestyle you live today given the recession, so re-evaluate allocations at least once a year, says Carlo Panaccione, a financial planner in Redwood Shores, Calif.
Break down your expenses into two categories: "necessities," which would include mortgage payments, utility bills and food; and "lifestyle," optional costs such as cable television and gym memberships, says Larry Rosenthal, a financial planner near Washington, D.C. Tools at Mint.com and Quicken's software allow you keep track of spending in each category.
To monitor your spending, use a debit card or credit card instead of cash, says Mr. Place, and look at your accounts online at least once or twice a week. But make sure to pay off the credit-card balance each month.
Meanwhile, online calculators such as the one offered by Discover Financial Services, discoverbank.com/calculators.html, can help you devise a monthly plan for reaching a long-term savings goal.
The Emotional Investor
Emotional investors are reactionary, often making financial decisions based on what's happening at the moment and ignoring long-term needs and goals.
"They might look at it as 'Gee, my kid's education is really coming up soon, I have to focus on that and kind of put their retirement on the back burner," says Mr. Panaccione.
For such investors, he suggests creating two lists: one with short-term goals, such as a vacation or car purchase, and one with long-term goals, such as saving for retirement.
Then, set up savings or investing accounts for each goal -- one account for, say, the purchase of a house, one for retirement and another for college tuition. To ensure that each portion is funded consistently, set up automatic deposits to each account, says Mr. Rosenthal.
Matt Havens, partner at Global Vision Advisors, a financial-services firm in Hingham, Mass., suggests forcing yourself to plan for emergencies by building a cash reserve to cover at least six months of expenses. Having that safety net will help you avoid an impulsive move.
And when it comes to investing, don't make drastic changes to your asset allocation. "A main weakness of this group is that they tend to buy high and sell low because of emotion and fear," says Bryan Hopkins, a financial planner in Anaheim Hills, Calif. It might help to sit down with a planner to create a long-term investment plan.
http://finance.yahoo.com/banking-budgeting/article/108022/find-your-financial-style-and-avoid-its-pitfalls;_ylt=Aue6pPmm7eT0U980IRHY3ha7YWsA;_ylu=X3oDMTFhYjhrOGtsBHBvcwMzBHNlYwNwZXJzb25hbEZpbmFuY2UEc2xrA3NtYXJ0d2F5c3Rvcw--?mod=oneclick
by Jonnelle Marte
Tuesday, October 27, 2009
provided by The Wall Street Journal
There are few relationships more complicated than the one we have with money.
Some of us are intimate with our finances, endlessly doing research and keeping track of every penny. Others are more distant; they have a general idea of where their money is going, but aren't sure if it's the right move or if it's enough. Then there are the emotional ones, those who cling to money at the wrong times and make impulsive decisions.
So, what kind of investor and saver are you?
Not sure? Ask yourself these questions: Do I consistently keep track of my spending? And do I do so weekly, monthly or annually? Do I feel that I'm OK financially as long as my checks don't bounce? Do I plan and save for big purchases or do I buy on a whim?
There also are online quizzes, such as J.P. Morgan Chase's "Financial Styles" found at ChaseFinancialStyle.com, that can help you determine your investing and saving profile.
Once you determine your style, you can use certain strategies and tools to reinforce the positive aspects of your approach -- and contain the negative ones.
Understanding your financial approach can help you figure out where your "strategy is most vulnerable to pitfalls or problems," says Hersh Shefrin, a professor of behavioral finance at Santa Clara University who helped J.P. Morgan Chase develop its quiz.
The Analytical Investor
You're a stickler for details and data. And while it's good to be thorough with your research, if taken to an extreme people can forget to take their personal situation and goals into account when making financial and investment decisions.
This type of investor can get hit with what some advisers call "analysis paralysis," where they have trouble making decisions because they can't help thinking there is always more research to be done.
"They're what I call 'see mores' -- they always want to see more," says Bryan Place, founder of Place Financial Advisors, a financial-planning firm in Manlius, N.Y. "Rather than overwhelming themselves and spending too much time digging through content," they should limit themselves to three or four reliable sources, he says.
If you have a tendency to delay acting on your financial goals, Mr. Place says, make a list of the pros and cons and give yourself a deadline to decide -- and stick to it.
While you may be great at budgeting, you might benefit from online expense-tracking tools offered by Mint.com or financial-planning software from Quicken (quicken.intuit.com) that can help you distance yourself from your day-to-day transactions to recognize spending and saving trends over time.
At Mint.com, you can build graphs that show how your spending, income, debt or net worth has changed over a specific period. You also can see changes in spending in certain categories, such as groceries.
The Big-Picture Investor
You know your bottom line, but you don't keep track of every transaction or plan every action or expense. While this approach can be less stressful if you're able to consistently save and meet your financial goals, it can leave you unsure about exactly where your money is going and where you can cut back.
To avoid falling into a set-it-and-forget-it routine and ending up with outdated and unsuccessful strategies for investing and saving, review your strategies at least once a year. For instance, the retirement-savings plan you started five years ago might not be on pace to fund the lifestyle you live today given the recession, so re-evaluate allocations at least once a year, says Carlo Panaccione, a financial planner in Redwood Shores, Calif.
Break down your expenses into two categories: "necessities," which would include mortgage payments, utility bills and food; and "lifestyle," optional costs such as cable television and gym memberships, says Larry Rosenthal, a financial planner near Washington, D.C. Tools at Mint.com and Quicken's software allow you keep track of spending in each category.
To monitor your spending, use a debit card or credit card instead of cash, says Mr. Place, and look at your accounts online at least once or twice a week. But make sure to pay off the credit-card balance each month.
Meanwhile, online calculators such as the one offered by Discover Financial Services, discoverbank.com/calculators.html, can help you devise a monthly plan for reaching a long-term savings goal.
The Emotional Investor
Emotional investors are reactionary, often making financial decisions based on what's happening at the moment and ignoring long-term needs and goals.
"They might look at it as 'Gee, my kid's education is really coming up soon, I have to focus on that and kind of put their retirement on the back burner," says Mr. Panaccione.
For such investors, he suggests creating two lists: one with short-term goals, such as a vacation or car purchase, and one with long-term goals, such as saving for retirement.
Then, set up savings or investing accounts for each goal -- one account for, say, the purchase of a house, one for retirement and another for college tuition. To ensure that each portion is funded consistently, set up automatic deposits to each account, says Mr. Rosenthal.
Matt Havens, partner at Global Vision Advisors, a financial-services firm in Hingham, Mass., suggests forcing yourself to plan for emergencies by building a cash reserve to cover at least six months of expenses. Having that safety net will help you avoid an impulsive move.
And when it comes to investing, don't make drastic changes to your asset allocation. "A main weakness of this group is that they tend to buy high and sell low because of emotion and fear," says Bryan Hopkins, a financial planner in Anaheim Hills, Calif. It might help to sit down with a planner to create a long-term investment plan.
http://finance.yahoo.com/banking-budgeting/article/108022/find-your-financial-style-and-avoid-its-pitfalls;_ylt=Aue6pPmm7eT0U980IRHY3ha7YWsA;_ylu=X3oDMTFhYjhrOGtsBHBvcwMzBHNlYwNwZXJzb25hbEZpbmFuY2UEc2xrA3NtYXJ0d2F5c3Rvcw--?mod=oneclick
Past Market Movements: Big Booms Are Irregular
Examination of Past Market Movements of Malaysia KLSE
What can we learn from the history of overall market movements in the Malaysia KLSE?
1. Generally Upward Trend
2. Trends Not Consistent
3. Irregular Price Patterns
4. Prices Can Be Very Volatile
5. Prices Move Volatile Upward
6. Big Booms Are Irregular
-----
6. Big Booms Are Irregular
It appears that the big booms take place somewhat irregularly.
There have been three in the last 18 years from 1970 to 1988; 1972/1973, 1980/1981 and 1986/1987.
Not only are they irregular but they are of short duration, one to two years appears to be the usual length.
This means that it is difficult to catch a big boom at its beginning.
If one goes in after the market has already moved up a great deal, there is a big risk that the market will crash shortly after.
What can we learn from the history of overall market movements in the Malaysia KLSE?
1. Generally Upward Trend
2. Trends Not Consistent
3. Irregular Price Patterns
4. Prices Can Be Very Volatile
5. Prices Move Volatile Upward
6. Big Booms Are Irregular
-----
6. Big Booms Are Irregular
It appears that the big booms take place somewhat irregularly.
There have been three in the last 18 years from 1970 to 1988; 1972/1973, 1980/1981 and 1986/1987.
Not only are they irregular but they are of short duration, one to two years appears to be the usual length.
This means that it is difficult to catch a big boom at its beginning.
If one goes in after the market has already moved up a great deal, there is a big risk that the market will crash shortly after.
Past Market Movements: Prices Move Volatile Upward
Examination of Past Market Movements of Malaysia KLSE
What can we learn from the history of overall market movements in the Malaysia KLSE?
1. Generally Upward Trend
2. Trends Not Consistent
3. Irregular Price Patterns
4. Prices Can Be Very Volatile
5. Prices Move Volatile Upward
6. Big Booms Are Irregular
----
5. Prices Move Volatile Upward
It appears that prices can move very much further from the trend line on the up side than on the downside.
Except for a short period at certain times in severe bear market or market crash, the prices do not move very far from the trend line on the down side.
But it can move a considerable distance on the up side.
It would appear also that there are more up years than down years. This means that the prices tend to build up slowly over several years and then fall much faster than they rise.
However, big upward movements tend to be followed by sharp downward movements. It is thus a lot safer to buy when the prices are below their intrinsic value than when they are high.
What can we learn from the history of overall market movements in the Malaysia KLSE?
1. Generally Upward Trend
2. Trends Not Consistent
3. Irregular Price Patterns
4. Prices Can Be Very Volatile
5. Prices Move Volatile Upward
6. Big Booms Are Irregular
----
5. Prices Move Volatile Upward
It appears that prices can move very much further from the trend line on the up side than on the downside.
Except for a short period at certain times in severe bear market or market crash, the prices do not move very far from the trend line on the down side.
But it can move a considerable distance on the up side.
It would appear also that there are more up years than down years. This means that the prices tend to build up slowly over several years and then fall much faster than they rise.
However, big upward movements tend to be followed by sharp downward movements. It is thus a lot safer to buy when the prices are below their intrinsic value than when they are high.
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