How To Build A Fortune In The Stock Market

How To Build A Fortune In The Stock Market: 5 Questions Every Investor Needs To Ask Of Their Investment Strategy

Posted in stock market
May 08

Every investor’s investment strategy should adequately address the following five questions:


(1) What specific stocks will I buy?
(2) When should I buy these stocks?
(3) How should I buy these stocks?
(4) When should I sell these stocks?
(5) How should I sell these stocks?

In addition, the answers for questions #2, #3, #4, and #5 should vary depending upon the different components of an individual’s stock portfolio. If the answers for questions #2 , #3. #4, and #5 exhibit no variance, then the risk profile for all stocks in the portfolio will be the same, an undesirable trait.

There is a very good reason why people that try to mimic the portfolios of very wealthy successful investors never can achieve nearly the same success as the investors they mimic. The reason is that they can only answer one piece of the above 5-part investment puzzle- the question of what to buy. In fact, I could open up my portfolio to investment novices, show them all the stocks I own now, and out of 1,000 novices, all of them would have an extremely difficult time duplicating my future returns. In fact, it’s entirely plausible that investors would lose significant amounts of money on the very same stocks that would produce my largest gains.

Why?

Again, understanding a complete investment system will determine portfolio returns, not just knowing what to buy.

Why Most Investment Firms’ Strategies Fail to Adequately Address the 5 Questions

The evolution of job titles for investment professionals from broker to financial consultant to financial advisor is ironic, because the original title, for the great majority of employees in this industry, is by far the most accurate. Most financial consultants are nothing more than brokers that broker the money you give to them. They serve as middlemen between you and the money managers hired by the firm, and are so interchangeable with one another that a retail investor’s portfolio returns are not likely to vary significantly from one consultant to another at the same firm.

Back when I worked as a “broker” at a Wall Street firm, I remember hearing a story about a very successful (meaning high-income earner) financial consultant that bought nothing but exchange traded funds (ETFs) for his clients. His rational for doing so was four-fold.

(1) Mutual fund expenses were too high (true);
(2) Expenses on ETFs were low (true);
(3) The overwhelming majority of money managers can’t beat the performance of the major domestic indexes (true); and
(4) Therefore, ETFs were the best way to invest for his client (false).

Global investment firms never train their brokers how to be superior stock pickers. They train them how to be superior salespeople. So in concluding that allocating entire portfolios solely to ETFs was the absolute best possible strategy for his clients, this particular consultant’s logic was erroneous. The consultant drew this conclusion solely based upon his foundation of investment knowledge, one primarily filled with investment sales strategies. In fact, though I was never able confirm this, I heard many anecdotal stories that this particular financial consultant was able to outperform the vast majority of financial consultants at the firm with his “I will only buy ETFs” strategy.

Though I wouldn’t be surprised if this were true, the fact that this particular consultant was able to gather so many clients based on such a faulty strategy was a remarkable statement about the average investor’s knowledge of how to build wealth. To me, as unknowledgeable as financial consultants are about proper wealth building strategies (given their constant diet of investment sales strategies), this proves that the average retail investor, even those with millions of investable assets, are far less knowledgeable.

In conclusion, every retail investor should thus utilize the 5 questions of building wealth to determine if his or her investment strategy is faulty or strong. With any strong investment strategy, all 5 questions will be relevant. Own a faulty investment strategy and most likely, one or more of the 5 questions will be irrelevant. And the faultiness of the strategy no doubt will be manifested in weak returns. To illustrate how the 5 questions of building wealth will “out” any poor investment strategy, let’s take a look at a couple of examples. Let’s start with two different portfolios, one primarily built around ETFs; the other primarily built around Mutual Funds.

(1)What Specific Stocks Should I Buy?

Neither the Mutual Fund or ETF strategy can answer this question, so you don’t even need to ask the final four questions to know that neither of these strategies will help you build wealth.

How about a portfolio that consists of all individual Chinese stocks? This portfolio passes question #1, the question of what specific stocks to buy. Next, if we drill down to see how this portfolio was constructed, the portfolio manager’s answers to questions #2 and #3 – “When were these stocks bought and why?” and “How were these stocks bought and why?” – will reveal whether or not the portfolio was indeed constructed solidly.

Finally the portfolio manager’s answers to questions #4 and #5 – “How will these stocks be sold and why?” and “When will these stocks be sold and why?” will reveal if strategies are in place to lock in profits or minimize potential losses. However, remember the earlier point I made in this article: “the answers for questions #2, #3, #4, and #5 should vary depending upon the different components of an individual’s stock portfolio.” Most likely for a portfolio built on stocks that trade in a frothy, emerging market, there will be little variance in the answers for questions #2, #3, #4 and #5. This lack of variance again would expose the weakness of this investment strategy.

Although just a rough guide, the 5 questions should provide you a quick way to establish the intelligence and strength of your current investment strategy.

J.S. Kim is the founder and managing director of SmartKnowledgeU

http://stock-market.amoblog.com/how-to-build-a-fortune-in-the-stock-market-5-questions-every-investor-needs-to-ask-of-their-investment-strategy.html

Comparative analysis of Glove companies (9.5.2010)

Comparative analysis of Glove companies (9.5.2010)
http://spreadsheets.google.com/pub?key=thG2gqUrXjSrcpL3LAlPbRg&output=html

The whole sector has been re-priced since last year.  The average PE for the sector is around 15.

Topglove trades at a slight premium.  It is debt free and has net cash.  It should continue to generate a lot of free cash flows in years to come.

Hartalega has done extremely well.  It enjoys the biggest profit margin amongst the glove companies.  This is due to its use of automation to increase productivity.  It has overtaken the other more established companies and ranks 3rd in the earnings table.

Latexx has made a remarkable turnaround.  It has good earnings and should continue to grow.  Due to its smaller size, its growth is anticipated to be the fastest amongst all the glove companies.

Supermax is the most indebted of all the glove companies.  Given the better glove business environment, perhaps, its management may surprise the investors in the next year or two.  Meantime, its not as attractive as the above three companies in term of fundamentals.

Kossan has been disappointing.  Kossan continues to carry a lot of debt despite having been a long player in the market when many other players have benefited from the strong revenue and margin growths to pare down their borrowings.  Its profit margin is below the average of the industry.

Adventa gets good press.  However, when comparing its fundamentals with its peers, it is not such an attractive stock.  Its dividend payout is the highest in the industry compared to the industry average of nearer 20%.  Moreover, its PE is the highest among the glove companies, but this does not appear to reflect its growth potential.

Rubberex is a disappointment and stood up quite apart from the fast moving players in this industry.

There are also significant risks in this industry, best summarised here:


Solid earnings growth as supplanted by 

• capacity expansion, and
• positive newsflow

should lead to further expansion in PE multiples.

Key risks include

• a sudden surge in latex price,
• energy input costs or
• an unfavourable ringgit/US$ foregin exchange rate movement.

A quick look at Latexx (8.5.2010)

A quick look at Latexx (8.5.2010)
http://spreadsheets.google.com/pub?key=tMGIE1j8l7f8e27I8inQUig&output=html

A quick look at Kossan (8.5.2010)

A quick look at Kossan (8.5.2010)
http://spreadsheets.google.com/pub?key=ttaoTf7WwIlRuWyNhWEz7xg&output=html

A quick look at Adventa (8.5.2010)

A quick look at Adventa (8.5.2010)
http://spreadsheets.google.com/pub?key=tpg78jjich_9vs6GZN8r5KA&output=html

A quick look at Hartalega (8.5.2010)

A quick look at Hartalega (8.5.2010)
http://spreadsheets.google.com/pub?key=tT2IXHGPpvc86Obf9tr25aQ&output=html

A quick look at Top Glove (8.5.2010)

A quick look at Top Glove (8.5.2010)
http://spreadsheets.google.com/pub?key=tZlHVEhyDcVlmKxE5_V4reQ&output=html

A quick look at CSC Steel (7.5.2010)

A quick look at CSC Steel (7.5.2010)
http://spreadsheets.google.com/pub?key=tdSgsmFJYX6roa6GAAjnlBg&output=html

A quick look at Pintaras Jaya (7.5.2010)

A quick look at Pintaras Jaya (7.5.2010)
http://spreadsheets.google.com/pub?key=tuEWCudGrYd-gYKpjeFknvg&output=html

A quick look at Guinness (7.5.2010)

A quick look at Guinness (7.5.2010)
http://spreadsheets.google.com/pub?key=tP_TV-Arxg9uwwrvWyZ_kvw&output=html


Guinness Anchor 3Q net profit up 42.5% to RM46.5m
Written by Surin Murugiah
Friday, 07 May 2010


KUALA LUMPUR: GUINNESS ANCHOR BHD []'s net profit for the third quarter ended March 31, 2010 rose 42.5% to RM46.46 million from RM32.6 million a year earlier, on the back of a 17.8% increase in revenue to RM370.82 million.

Earnings per share rose to 15.38 sen from 10.79 sen a year ago.

Managing director Charles Ireland said on Friday, May 7 the sales and profit increase was partly due to the later timing of the Chinese New Year celebrations, a traditional driver of sales of the malt liquor market.

Ireland said GAB's third quarter performance had further extended its position as Malaysia's market leader in the MLM, adding that as of end of FY09 ended June 30, GAB recorded eight successive years of volume, revenue and profit growth.

"I am happy to report that GAB is on track to meet our targeted full year results for FY10 ending June 2010," he said.

http://www.theedgemalaysia.com/business-news/165628-guinness-anchor-3q-net-profit-up-425-to-rm465m.html

OSK expects 50 Jewels to shine

OSK expects 50 Jewels to shine
By Goh Thean Eu
Published: 2010/05/07

OSK Research Sdn Bhd, a unit of OSK Investment Bank Bhd, expects companies that made it to its top 50 Malaysian small-cap list, dubbed "50 Jewels", to register between 5 per cent and 15 per cent growth in earnings this year, driven by their strong fundamentals, as well as a recovery in the economy.

The research house also expects companies in the Top 10 list, which are made up of the 10 best small- cap companies from the 50 Jewels, to post between 8 per cent and 15 per cent earnings growth.

This year, 19 new companies have made it to the 50 Jewels list, including Notion Vtec, Zhulian, Sunway Group, EP Manufacturing, Glomac, AEON Credit and Southern Steel.

"In this edition, we continue to feature 50 of Bursa Malaysia's top small-cap companies, but unlike the previous editions, we have raised the market capitalisation threshold to RM1.5 billion from RM1 billion.


"This is to maintain coverage depth and breadth and to ensure that the better small-cap companies are represented," said OSK Research head Chris Eng in a media briefing in Kuala Lumpur yesterday.

Companies which made it to the 50 Jewels list in 2009 have performed commendably, with 32 of them having posted absolute returns of 50 to 375 per cent, outperforming the benchmark index.

Its top-10 picks for 2009 also posted absolute share price returns of 52 to 347 per cent. Mudajaya, its top construction pick for 2009, rallied 347 per cent.

Meanwhile, the research house expects the local stock market to continue to be volatile over the next three months, mainly due to one of the following factors -

• global bull factor, 
• global bear factor, 
• local bull factor and
• local bear factor.  :-))

"We expect things to stabilise sometime in the third quarter, and then the company's fundamentals and economic fundamentals will drive the market," explained Eng.

In its recent research report, OSK Research targeted the benchmark FTSE Bursa Malaysia KL Composite Index to hit 1,465 points by year-end. It also placed a fair value of 1,580 points on the index in 2011.

Read more: OSK expects 50 Jewels to shine 

Speculative Excesses Drove Huge U.S. Market Rout

Speculative Excesses Drove Huge U.S. Market Rout: NuWave
By REUTERS
Published: May 6, 2010


Filed at 7:11 p.m. ET

NEW YORK (Reuters) - Thursday's sharp sell-off in U.S. stocks was sparked by nothing more than too many traders betting on energy, equity and metals markets going higher that then popped in a cascade of stop-loss selling, a hedge fund manager said.

A proprietary index that NuWave Investment Management LLC uses to gauge risk about 10 days ago posted its highest reading ever -- greater even than fall of 2008, said Troy Buckner, managing principal and co-founder at the Morristown, New Jersey-based hedge fund.

NuWave pared its exposure to only 40 percent of normal levels, mildly counter to the risk trade in general, he said.

"We were expecting a significant correction to most of the markets," Buckner said. "While we wouldn't claim to know the day, we recognize that periods like this generate our worst-risk profiles historically."

A wave of selling on Thursday knocked U.S. stocks down as much as 9 percent, pushed the euro to an almost 14 month-low and gold prices climbed to close to record highs.

NuWave gave a presentation about tail risk at Morgan Stanley in late April to an audience of about 120 investors. The presentation outlined the hedge fund's concerns that markets were leaning too heavily in one direction.

Buckner said while traders and others will point to any number of triggers or catalysts, such as Greece's debt woes or a fat thumb, as causing Thursday's rout, which included the Dow's biggest intraday point drop ever, he disagreed.

"I'll be surprised if that's the case. There's heavy pressure and uniformly excess positioning on the speculative side across multiple sectors, including equities as probably the worst," said Buckner, who also cited metals and energy.

After hitting lows produced by the worst financial crisis in 70 years, stocks jumped about 80 percent, copper prices nearly tripled and crude oil rose 250 percent driven by direction bets placed by speculators, Buckner said.

"Multiple sectors were exposed to these excesses," he said. "By our measurement these are greater speculative imbalances than even the fall of 2008."

NuWave has a special perspective on the market as it holds long-short and market-neutral positions, and as a commodity trading advisor, operates managed futures, Buckner said.

"From our perspective I think it's not surprising to us that there are massive corrections in store, and from today's action we didn't sense there was anything other than a cascade of speculative positions triggering stop losses."

(Reporting by Herbert Lash)

http://www.nytimes.com/reuters/2010/05/06/business/business-us-markets-rout-nuwave.html?_r=1&src=busln

Panic sends Dow to worst ever drop

Panic sends Dow to worst ever drop
MARINE LAOUCHEZ
May 7, 2010 - 8:49AM
AFP

Panic selling swept US markets on Thursday as the Dow Jones plunged a record of almost 1000 points before recouping more than half those losses.

It was unclear whether the sudden sell-off, the Dow's biggest ever intra-day drop, was the result of fears over the Greek debt crisis, a mistaken trade or technical error.

The crash began shortly before 2.25pm local time, when in a white-knuckle 20 minutes America's top 30 firms saw their share prices dive 998.5 points, almost nine per cent, wiping out billions in market value.

The drop eclipsed even the crashes seen when markets reopened after September 11, 2001 and in the wake of the Lehman Brothers collapse.

The Dow later recovered, closing nearly four per cent down, but spooked traders were left wondering whether a technical glitch had caused the blue-chip index to erode three months of solid gains.

Rumours swirled that a Citigroup trader had mistakenly sold 16 billion rather than 16 million stocks in Procter and Gamble shares, forcing the Dow down.

Shares in the consumer goods giant lost more than seven US dollars, falling in a similar pattern to the Dow, trading at a low of 55 US dollars a share.

"At this point, we have no evidence that Citi was involved in any erroneous transaction," said company spokesman Stephen Cohen.

A spokesperson for the New York Stock Exchange said the cause was still not known.

"We don't know, right now we're looking into it," said Christian Braakman, "it's all speculation."

But after three days in which stocks have suffered triple-digit intra-day losses because of concern about Greece's debt crisis, it was clear that the sell-off was real for some investors.

At the close, the Dow had recovered to 10,520.32, down 347.80 (3.20 per cent), while the Nasdaq was down 82.65 points (3.44 per cent) at 2,319.64. The Standard & Poors 500 Index was down 37.72 points (3.24 per cent) to 1,128.15.

Images of rioting as the Greek parliament passed unpopular austerity measures did little to ease market panic.

The parliament approved billions of euros of spending cuts pledged in exchange for a 110 billion euros ($A155 billion) EU-IMF bailout just one day after three bank workers died in a firebomb attack during a huge protest.

On Thursday, police charged to scatter hundreds of youths at the tail-end of a new protest outside parliament that drew more than 10,000 people.

In Lisbon, European Central Bank chief Jean-Claude Trichet battled to reassure financial markets that Greece's debt crisis would not end in default, but could not prevent the euro from falling to a 14-month low against the dollar.

Pleas for patience from the White House also had little impact.

The White House said that reforms in Greece were "important" but would take time and that the US Treasury was monitoring the situation.

"The president has heard regularly from his economic team," said White House spokesman Robert Gibbs, adding that President Barack Obama's top economic officials were closely communicating with their European counterparts.

© 2010 AFP

http://news.smh.com.au/breaking-news-business/panic-sends-dow-to-worst-ever-drop-20100507-uhgu.html

Volatilities in other markets when the DOW plunged almost 1000 points

Offshore overnight

In one of the most dizzying half-hours in stock market history, the Dow Jones industrial average plunged almost 1000 points amid worries about European debt.

The Dow managed to recover two-thirds of its losses before the end of Thursday's Wall Street session, but all major indices closed sharply lower on a day that recalled the market turmoil of the 2008 financial crisis.

There were reports that a technical glitch hastened the selling.

Even so emotions ran high, with traders concerned that Greece's economic problems will hurt other European countries and ultimately, the US recovery.

Only 173 stocks rose on the New York Stock Exchange while 3002 fell.

Volume came to an extremely heavy 2.57 billion shares.

When markets settled, the Dow Jones Industrial Average had fallen 347.80 points, or 3.20 per cent, to 10,520.32 points.

The Standard & Poor's 500 index closed down 37.72 points, or 3.24 per cent, at 1128.15 points.

The Nasdaq composite closed down 82.65 points, or 3.44 per cent, at 2319.64 points.

European stock markets lost ground on Thursday as remarks on the Greek crisis by the head of the European Central Bank failed to reassure anxious investors.

ECB head Jean-Claude Trichet ruled out a Greek debt default and insisted that the problems besetting Greece were different from those faced by Spain and Portugal.

The London FTSE 100 closed down 80.94 points, or 1.52 per cent at 5260.99 points.

The German DAX 30 closed down 50.19 points, or 0.84 per cent, at 5908.26 points.

The French CAC 40 index closed down 79.92 points, or 2.20 per cent, at 3,556.11 points.

Commodities

Oil prices dropped to levels not seen since February on Thursday, as the stock market posted huge losses.

The benchmark crude oil for June delivery contract fell $US2.86 to settle at $US77.11 a barrel on the New York Mercantile Exchange.

Oil hit $US73.71 on February 16 and has lost almost $US10 a barrel since Monday.

Crude was lower at noon and the price slide picked up speed as the stock market tumbled and Investors flew to safer havens in gold and bonds.

Europe's debt problems got much of the blame for the drop in stocks and commodities. The ongoing crisis also has undermined the euro and strengthened the US dollar.

Commodities priced in US dollars, such as oil, become more expensive for investors holding euros as the US dollar rises.

In London, Brent crude gave up $US2.78 to settle at $US79.83 on the ICE futures exchange.

Gold for June delivery rose $US22.30 to settle at $US1197.30 an ounce on the Comex division of the New York Mercantile Exchange.

Silver for July delivery fell 1.9 US cents to settle at $US17.515 per fine ounce.

Copper for July delivery settled down 3.45 US cents at $US3.1170 per pound.

AAP, with Chris Zappone BusinessDay

http://www.smh.com.au/business/markets/stocks-set-to-plunge-after-us-freefall-20100507-uhc0.html

US stocks plummet, then recover some losses

US stocks plummet, then recover some losses
May 7, 2010 - 6:56AM

US stocks plunged 9 per cent in the last two hours of trading overnight before clawing back some of the losses as the escalating debt crisis in Europe stoked fears a new credit crunch was in the making.

The Dow suffered its biggest ever intraday point drop, which may have been caused by an erroneous trade entered by a person at a big Wall Street bank, multiple market sources said.

Indexes recovered some of their losses heading into the close but equities had erased much of their gains for the year to end down just over 3 percent, the biggest fall since April 2009.

"We did not know what a stock was worth today, and that is a serious problem," said Joe Saluzzi of Themis Trading in New Jersey.

Traders around the world were shaken from their beds and told to start trading amid the plunge as investors sought to stem losses in the rapid market sell-off.

Declining stocks outnumbered advancers on the New York Stock Exchange by more than 17 to 1. Volume soared to it highest level this year by far.

Nasdaq said it was investigating potentially erroneous transactions involving multiple securities executed between 2.40pm and 3pm New York time.

Investors had been on edge throughout the trading day after the European Central Bank did not discuss the outright purchase of European sovereign debt as some had hoped they would to calm markets, but gave verbal support instead to Greece's savings plan, disappointing some investors.

The Dow Jones industrial average dropped 347.80 points, or 3.20 per cent, to 10,520.32. The Standard & Poor's 500 Index fell 37.75 points, or 3.24 per cent, to 1128.15. The Nasdaq Composite Index lost 82.65 points, or 3.44 per cent, to 2319.64.

The sell-off was broad and deep with all 10 of the S&P 500 sectors falling 2 to 4 per cent. The financial sector was the worst hit with a fall of 4.1 per cent.

Selling hit some big cap stocks. Bank of America was the biggest percentage loser on the Dow, falling 7.1 per cent to $US16.28. All 30 component of the Dow closed lower.

An index known as Wall Street's fear gauge, the CBOE Volatility Index closed up more than 30 per cent at its highest close since May 2009. It had earlier risen as much as 50 per cent.

The mounting fears about a spreading debt crisis in Europe curbed the appetite for risk and put a report of weak US retail sales into sharper relief. Most top retail chains reported worse-than-expected same-store sales for April, sparking concerns about consumer spending, the main engine of the US economy.

That hit shares including warehouse club Costco Wholesale Corp, which fell 3.9 per cent to $US58.03, and apparel maker Gap Inc, which lost 7.2 per cent at $US22.91.

The head of the ECB, Jean-Claude Trichet, said on Thursday that Spain and Portugal were not in the same boat as Greece, but the risk premium that investors demand to hold Portuguese and Spanish government bonds flared to record highs.

Reuters


http://www.smh.com.au/business/markets/us-stocks-plummet-then-recover-some-losses-20100507-uh8l.html