Published: 2010/01/05
UMW Holdings Bhd, a Malaysian assembler of Toyota cars, was upgraded to “outperform” from “neutral” at CIMB Investment Bank Bhd which sees auto sales gradually recovering in the country.
Its share price forecast was raised to RM8.10 from RM7.25, the research house said in a report today. -- Bloomberg
Tuesday, 5 January 2010
InsiderAsia model portfolio
InsiderAsia model portfolio
Written by InsiderAsia
Monday, 04 January 2010 00:00
Our basket of 18 stocks fared extremely well last week, surging 3.2% for the week compared with the FBM KLCI's 0.7% rise. Including our large cash reserves (for which no interest is imputed), the total portfolio value increased by 2.4% to RM524,875.
Our model portfolio's total value and returns represent a significant achievement compared with our initial capital of just RM160,000. We started the model portfolio on March 3, 2003.
Our total profits are very substantial at RM364,875. Of this amount, RM223,866 has already been realised from earlier sales.
Since its inception, our model portfolio has registered a hefty return of 228% compared with our capital of RM160,000. By comparison, the FBM KLCI was up by 96.8% over the same period, even though it has been less representative of the broader market's performance. Plus, our portfolio holds a significant amount of non-interest yielding cash at all times for prudence sake.
We currently have surplus cash of RM127,815 for future investments, and the portfolio's equity weighting currently stands at 76%, which we are comfortable with.
Last week, we had 14 gaining stocks and four losing ones.
HELP International Corp was the week's biggest gainer, rising 11.6% to RM1.92 after reporting a sterling set of final results for FY Oct 2009 that saw net profit rise 31% to a record RM15.5 million despite the recession last year. This continues its double-digit growth trend underscores the education company's resilience and strong branding.
Other major gainers for the week include Muhibbah (up 7%), Faber Group (up 5.2%), Notion VTec (up 5%), Dijaya and Selangor PROPERTIES [] (both up 4.8%). The week's losers were marginal, led by 3A Resources (down 2.6%) and MyEG (down 1.1%)
We are keeping our portfolio unchanged.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
http://www.theedgemalaysia.com/business-news/156667-insiderasia-model-portfolio.html
Written by InsiderAsia
Monday, 04 January 2010 00:00
From March 2003 to January 2010 ( a period of 6.75 years), this portfolio has returned a CAGR of 19.2%.
Portfolio review
Our basket of 18 stocks fared extremely well last week, surging 3.2% for the week compared with the FBM KLCI's 0.7% rise. Including our large cash reserves (for which no interest is imputed), the total portfolio value increased by 2.4% to RM524,875.
Our model portfolio's total value and returns represent a significant achievement compared with our initial capital of just RM160,000. We started the model portfolio on March 3, 2003.
Our total profits are very substantial at RM364,875. Of this amount, RM223,866 has already been realised from earlier sales.
Since its inception, our model portfolio has registered a hefty return of 228% compared with our capital of RM160,000. By comparison, the FBM KLCI was up by 96.8% over the same period, even though it has been less representative of the broader market's performance. Plus, our portfolio holds a significant amount of non-interest yielding cash at all times for prudence sake.
We currently have surplus cash of RM127,815 for future investments, and the portfolio's equity weighting currently stands at 76%, which we are comfortable with.
Last week, we had 14 gaining stocks and four losing ones.
HELP International Corp was the week's biggest gainer, rising 11.6% to RM1.92 after reporting a sterling set of final results for FY Oct 2009 that saw net profit rise 31% to a record RM15.5 million despite the recession last year. This continues its double-digit growth trend underscores the education company's resilience and strong branding.
Other major gainers for the week include Muhibbah (up 7%), Faber Group (up 5.2%), Notion VTec (up 5%), Dijaya and Selangor PROPERTIES [] (both up 4.8%). The week's losers were marginal, led by 3A Resources (down 2.6%) and MyEG (down 1.1%)
We are keeping our portfolio unchanged.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
http://www.theedgemalaysia.com/business-news/156667-insiderasia-model-portfolio.html
Cash flow is what matters, not earnings.
Cash flow is the true measure of a company's financial performance, not reported earnings per share.
http://spreadsheets.google.com/pub?key=tN-V5a_7mURGCfW1tcwuQPw&output=html
http://spreadsheets.google.com/pub?key=tufSQpXxzs0bnXVndLmEitA&output=html
At the end of the day, cash flow is what matters, not earnings.
For a host of reasons, accounting-based earnings per share can be made to say just about whatever a company's management wants them to, but cash flow is much harder to fiddle with.
The statement of cash flows can yield a ton of insight into the true health of a business, and you can spot a lot of blowups before they happen by simply watching the trend of operating cash flow relative to earnings. One hint: If operating cash flows stagnate or shrink even as earnings grow, it's likely that something is rotten.
Also read:
Using Yield-based measures to value stocks: Say Yes to Yield
http://myinvestingnotes.blogspot.com/2010/01/using-yield-based-measures-to-value.html
http://spreadsheets.google.com/pub?key=tN-V5a_7mURGCfW1tcwuQPw&output=html
http://spreadsheets.google.com/pub?key=tufSQpXxzs0bnXVndLmEitA&output=html
At the end of the day, cash flow is what matters, not earnings.
For a host of reasons, accounting-based earnings per share can be made to say just about whatever a company's management wants them to, but cash flow is much harder to fiddle with.
The statement of cash flows can yield a ton of insight into the true health of a business, and you can spot a lot of blowups before they happen by simply watching the trend of operating cash flow relative to earnings. One hint: If operating cash flows stagnate or shrink even as earnings grow, it's likely that something is rotten.
Also read:
Using Yield-based measures to value stocks: Say Yes to Yield
http://myinvestingnotes.blogspot.com/2010/01/using-yield-based-measures-to-value.html
Monday, 4 January 2010
Never forget that buying a stock is a major purchase and should be treated like one
You wouldn't buy and sell your car, your refrigerator, or your DVD player 50 times a year.
Investing should be a long-term commitment because short-term trading means that you're playing a loser's game.
The costs really begin to add up - both the taxes, the brokerage costs, and the spread - and create an almost insurmontable hurdle to good performance.
The amount you rack up in commissions and other expenses is money that can't compound for you next year.
Investing should be a long-term commitment because short-term trading means that you're playing a loser's game.
The costs really begin to add up - both the taxes, the brokerage costs, and the spread - and create an almost insurmontable hurdle to good performance.
The amount you rack up in commissions and other expenses is money that can't compound for you next year.
Sunday, 3 January 2010
Conservative valuation is a crucial part of the investment process.
The key thing to remember for now is simply that if you don't use discipline and conservatism in figuring out the prices you're willing to pay for stocks, you'll regret it eventually. Valuation is a crucial part of the investment process.
One simple way to get a feel for a stock's valuation is to look at its historical price/earnings ratio (P/E) - a measure of how much you're paying for every dollar of the firm's earnings - over the past 10 years or more. If a stock is currently selling at a P/E ratio of 30 and its range over the past 10 years has been between 15 and 33, you're obviously buying in at the high end of historical norms.
To justify paying today's price, you have to be plenty confident that the company's outlook is better today than it was over the past 10 years. Occasionally, this is the case, but most of the time when a company's valuation is significantly higher now than in the past, watch out. The market is probably overestimating growth prospects, and you'll likely be left with a stock that underperforms the market over the coming years.
One simple way to get a feel for a stock's valuation is to look at its historical price/earnings ratio (P/E) - a measure of how much you're paying for every dollar of the firm's earnings - over the past 10 years or more. If a stock is currently selling at a P/E ratio of 30 and its range over the past 10 years has been between 15 and 33, you're obviously buying in at the high end of historical norms.
To justify paying today's price, you have to be plenty confident that the company's outlook is better today than it was over the past 10 years. Occasionally, this is the case, but most of the time when a company's valuation is significantly higher now than in the past, watch out. The market is probably overestimating growth prospects, and you'll likely be left with a stock that underperforms the market over the coming years.
Patience
The future is an uncertain place, after all, and if you wait long enough, most stocks will sell at a decent discount to their fair value at one time or another.
Stick to your philosophy and valuation discipline. Be patient.
Stick to your philosophy and valuation discipline. Be patient.
Stick to a valuation discipline: For every Wal-Mart, there's a Woolworth's
"If you don't buy today, you might miss the boat forever on the stock."
Sticking to a valuation discipline is tough for many people because they're worried that if they don't buy today, they might miss the boat forever on the stock.
That's certainly a possibility - but it is also a possibility that the company will hit a financial speed bump and send the shares tumbling. The future is an uncertain place, after all, and if you wait long enough, most stocks will sell at a decent discount to their fair value at one time or another.
As for the few that jsut keep going straight up year after year - well, let's just say that NOT MAKING money is a lot less painful than LOSING money you already have. For every Wal-Mart, there's a Woolworth's,
A great company can be a lousy investment. Always incorporate a margin of safety.
The difference between the market's price and our estimate of value is the margin of safety.
The goal of any investor should be to buy stocks for less than they're really worth.
Unfortunately, it is easy for estimates of stock's value to be too optimistic - the future has a nasty way of turning out worse than expected. We can compensate for this all-too-human tendency by buying stocks only when they're trading for substantially less than our estimate of what they're worth (margin of safety).
For example:
There is no question that Coke had a solid competitive position in the late 1990s, and we can make a strong argument that it still does. But those who paid 50x earnings for Coke's shares have had a tough time seeing a decent return on their investment because they ignored a critical part of the stock-picking process: having a margin of safety.
Not only was Coke's stock expensive, but even if you thought Coke was worth 50x earnings, it didn't make sense to pay full price - after all, the assumptions that led you to think Coke was worth such a high price might have been too optimistic. Better to have incorporated a margin of safety by paying, for example, only 40x earnings in case things went awry.
The goal of any investor should be to buy stocks for less than they're really worth.
Unfortunately, it is easy for estimates of stock's value to be too optimistic - the future has a nasty way of turning out worse than expected. We can compensate for this all-too-human tendency by buying stocks only when they're trading for substantially less than our estimate of what they're worth (margin of safety).
For example:
There is no question that Coke had a solid competitive position in the late 1990s, and we can make a strong argument that it still does. But those who paid 50x earnings for Coke's shares have had a tough time seeing a decent return on their investment because they ignored a critical part of the stock-picking process: having a margin of safety.
Not only was Coke's stock expensive, but even if you thought Coke was worth 50x earnings, it didn't make sense to pay full price - after all, the assumptions that led you to think Coke was worth such a high price might have been too optimistic. Better to have incorporated a margin of safety by paying, for example, only 40x earnings in case things went awry.
Always include a margin of safety into your purchase price
Always include a margin of safety into the price you're willing to pay for a stock.
If you later realize you overestimated the company's prospects, you'll have a built-in cushion that will mitigate your investment losses.
The size of your margin of safety should be larger for shakier firms with uncertain futures and smaller for solid firms with reasonably predictabvle earnings.
For example:
If you later realize you overestimated the company's prospects, you'll have a built-in cushion that will mitigate your investment losses.
The size of your margin of safety should be larger for shakier firms with uncertain futures and smaller for solid firms with reasonably predictabvle earnings.
For example:
- a 20% margin of safety would be appropriate for a stable firm such as Wal-Mart, but
- you would want a substantially larger one for a firm such as Abercrombie & Fitch, which is driven by the whims of teen fashion.
"A great company may not be a great investment."
You can't just go out and pay whatever the market is asking for the stock because the market might be demanding too high a price. And if the price you pay is too high, your investment returns will likely be disappointing.
"Buffett says the same thing every year."
That's the whole point of having an investment philosophy and sticking to it.
If you do your homework, stay patient, and insulate yourself from popular opinion, you're likely to do well.
It's when you get frustrated, move outside your circle of competence, and start deviating from your personal investment philosophy that you're likely to get into trouble.
If you do your homework, stay patient, and insulate yourself from popular opinion, you're likely to do well.
It's when you get frustrated, move outside your circle of competence, and start deviating from your personal investment philosophy that you're likely to get into trouble.
When you SHOULD NOT sell
By themselves, share-price movements convey no useful information, especially becasue prices can move in all sorts of directions in the short term for completely unfathomable reasons. The long-run performance of stocks is largely based on the EXPECTED FUTURE CASH FLOWS of the companies attached to them - it has very little to do with what the stocmk did over the past week or month.
The Stock Has Dropped
Always keep in mind that it does't matter what a stock has done since you bought it. There's nothing you can do to change the past, and the market cares not one whit whether you have made or lost money on the stock. Other market participants - the folks setting the price of the stock - are looking to the future, and that's exactly what you should do when you're deciding to sell a stock.
The Stock Has Skyrocketed
Again, it matters little how those stocks have done in the past - what's important is how you expect the company to do in the future. There's not a PRIORI reason for stocks that are up substantially to drop, just as there's no reason for stocks that have tanked to "have to come back eventually." Most of us would be better investors if we could just block out all those graphs of past stock performance because they convey no useful information about the future.
So when should you sell?
Here are the five questions you should run through whenever you think about selling a stock, and you'll be in good shape.
Did you make a mistake?
Have the fundamental deteriorated?
Has the stock risen too far above its intrinsic value?
Is there something better you can do with the money?
Do you have too much money in one stock?
The Stock Has Dropped
Always keep in mind that it does't matter what a stock has done since you bought it. There's nothing you can do to change the past, and the market cares not one whit whether you have made or lost money on the stock. Other market participants - the folks setting the price of the stock - are looking to the future, and that's exactly what you should do when you're deciding to sell a stock.
The Stock Has Skyrocketed
Again, it matters little how those stocks have done in the past - what's important is how you expect the company to do in the future. There's not a PRIORI reason for stocks that are up substantially to drop, just as there's no reason for stocks that have tanked to "have to come back eventually." Most of us would be better investors if we could just block out all those graphs of past stock performance because they convey no useful information about the future.
So when should you sell?
Here are the five questions you should run through whenever you think about selling a stock, and you'll be in good shape.
Did you make a mistake?
Have the fundamental deteriorated?
Has the stock risen too far above its intrinsic value?
Is there something better you can do with the money?
Do you have too much money in one stock?
A reasonable strategy: Selling fairly valued stock to purchase one that is very undervalued
Is there something better you can do with the money?
As an investor, you should ALWAYS be seeking to allocate your money to the assets that are likely to generate the HIGHEST RETURN RELATIVE TO THEIR RISK.
There is no shame in selling a somewhat undervalued investment - even one on which you've lost money - to free up funds to buy a stock with BETTER PROSPECTS.
Here is what one investor did.
In early 2003, he noticed that Home Depot was looking awfully cheap. The stock had been sliding for almost three years, and he thought it was worth about 50% more than the market price at the time. He didn't have much cash in his account, so he had to sell something if he wanted to buy Home Depot. After reviewing the stocks he owned, he sold some shares of Citigroup, even though they were trading for about 15% less than what he paid for them. Why? Because his initial assessment of Citigroup's value had been too optimistic, and he didn't think the shares were much of a bargain any more. So, he sold a fairly valued stock to purchase one that he thought was very undervalued.
What about his small loss on the Citi stock? That was water under the bridge and couldn't be changed. What mattered was that he had the opportunity to move funds from an investment with a very modest expected return to one with a fairly high expected return - and that was a solid reason to sell.
As an investor, you should ALWAYS be seeking to allocate your money to the assets that are likely to generate the HIGHEST RETURN RELATIVE TO THEIR RISK.
There is no shame in selling a somewhat undervalued investment - even one on which you've lost money - to free up funds to buy a stock with BETTER PROSPECTS.
Here is what one investor did.
In early 2003, he noticed that Home Depot was looking awfully cheap. The stock had been sliding for almost three years, and he thought it was worth about 50% more than the market price at the time. He didn't have much cash in his account, so he had to sell something if he wanted to buy Home Depot. After reviewing the stocks he owned, he sold some shares of Citigroup, even though they were trading for about 15% less than what he paid for them. Why? Because his initial assessment of Citigroup's value had been too optimistic, and he didn't think the shares were much of a bargain any more. So, he sold a fairly valued stock to purchase one that he thought was very undervalued.
What about his small loss on the Citi stock? That was water under the bridge and couldn't be changed. What mattered was that he had the opportunity to move funds from an investment with a very modest expected return to one with a fairly high expected return - and that was a solid reason to sell.
ALWAYS pay careful attention to valuation. NEVER ignore valuation.
The only reason you should EVER BUY a stock is that you think the business is worth more than it's selling for - not because you think a greater fool will pay more for the shares a few months down the road.
The best way to MITIGATE YOUR INVESTING RISK is to pay careful attention to valuation. If the market's expectations are low, there's a much greater chance that the company you purchase will exceed them.
Buying a stock on the expectation of POSITIVE NEWS FLOW or STRONG RELATIVE STRENGTH is asking for trouble.
This one came back to haunt many people over the past few years. Although it's certainly possible that another investor will pay you 50 times earnings down the road for the company you just bought for 30 times earnings, that's a VERY RISK BET to make. Sure, you could have made a ton of money in CMGI or Yahoo! during the Internet bubble, but ONLY IF YOU HAD GOTTEN OUT IN TIME. Can you honestly say to yourself that you would have?
The best way to MITIGATE YOUR INVESTING RISK is to pay careful attention to valuation. If the market's expectations are low, there's a much greater chance that the company you purchase will exceed them.
Buying a stock on the expectation of POSITIVE NEWS FLOW or STRONG RELATIVE STRENGTH is asking for trouble.
This one came back to haunt many people over the past few years. Although it's certainly possible that another investor will pay you 50 times earnings down the road for the company you just bought for 30 times earnings, that's a VERY RISK BET to make. Sure, you could have made a ton of money in CMGI or Yahoo! during the Internet bubble, but ONLY IF YOU HAD GOTTEN OUT IN TIME. Can you honestly say to yourself that you would have?
Saturday, 2 January 2010
Using Yield-based measures to value stocks: Say Yes to Yield
Say Yes to Yield
1. Earnings yield
Earnings yield
= Earnings/Price
The nice thing about yields , as opposed to P/Es, is that we can compare them with alternative investments, such as bonds, to see what kind of a return we can expect from each investment. (The difference is that earnings generally grow over time, whereas bond payments are fixed.)
For example:
In late-2003:
Risk-free return from 10-year treasury bond: 4.5%
Earnings yield of Stock with P/E of 20 = 5% (This is a bit better than treasuries, but not much considering the additional risk taken.)
Earnings yield of stock with P/E of 12 = 1/12 = 8.3% (This is much better than the treasury bond. The investor might be induced to take the additional risk.)
2. Cash return
Cash return
= Free Cash Flow/Enterprise Value
= FCF/(Market capitalization + long term debt – cash)
However the best yield-based valuation measure is a relatively little-known metric called cash return. In many ways, it’s actually a more useful tool than the P/E.
To calculate a cash return, divide free cash flow (FCF) by enterprise value. (Enterprise value is simply a stock’s market capitalization plus its long-term debt minus its cash.)
The goal of the cash return is to measure how efficiently the business is using its capital – both equity and debt – to generate free cash flow.
Essentially, cash return tells you how much free cash flow a company generates as a percentage of how much it would cost an investor to buy the whole company, including the debt burden. An investor buying the whole company would not only need to buy all the shares at market value, but also would be taking on the burden of any debt (net of cash) the company has.
An example of how to use cash return to find reasonably valued investments:
Company A’s
In late 2003,
Market cap = $9.8 billion
Long-term debt = $495 million
Cash in balance sheet = $172 million
Enterprise value = $9,800 + $495 - $172 = $10,100 million or $10.1 billion.
Review its FCF over the past decade
In 2003, FCF = about $600 million
Therefore,
Cash return of Company A = $600/$10,100 = 5.9%
In late 2003:
Yield of 10-year treasuries = 4.5%
Yield on corporate bonds = 4.9% (This is higher but still relatively paltry.)
Cash return of Company A = 5.9% (Looks pretty good. Moreover, this FCF is likely to grow over time, whereas those bond payments are fixed. Thus, Company A starts to look like a pretty solid value.)
Cash return is a great first step to finding cash cows trading at reasonable prices, but don’t use cash return for financials or foreign stocks.
• Cash flow isn’t terribly meaningful for banks and other firms that earn money via their balance sheets.
• A foreign stock that looks cheap based on its cash return may simply be defining cash flow more liberally, as the definitions of cash flow can vary widely in other countries.
----
Free Cashflow to Capital
FCF/Capital
=FCF/ Total Capital Employed
= FCF/TOCE
= FCF / (Total shareholders equity + Debt)
The Stock Performance Guide published by Dynaquest Sdn. Bhd. gives data on Free Cashflow (FCF) to Capital. FCF is the amount of nett cashflow left after paying for re-investment in fixed and current assets. FCF measures the ability of a firm to pay out dividend.
FCF/Capital compares the FCF of a firm with the total capital employed (defined as total shareholders equity & debt). The higher is this ratio, the more efficiently is the firm using its capital.
Cash cows are those companies with FCF/Capital of > 10%.
FCF/Capital is not the same as Cash Return discussed above.
1. Earnings yield
Earnings yield
= Earnings/Price
The nice thing about yields , as opposed to P/Es, is that we can compare them with alternative investments, such as bonds, to see what kind of a return we can expect from each investment. (The difference is that earnings generally grow over time, whereas bond payments are fixed.)
For example:
In late-2003:
Risk-free return from 10-year treasury bond: 4.5%
Earnings yield of Stock with P/E of 20 = 5% (This is a bit better than treasuries, but not much considering the additional risk taken.)
Earnings yield of stock with P/E of 12 = 1/12 = 8.3% (This is much better than the treasury bond. The investor might be induced to take the additional risk.)
2. Cash return
Cash return
= Free Cash Flow/Enterprise Value
= FCF/(Market capitalization + long term debt – cash)
However the best yield-based valuation measure is a relatively little-known metric called cash return. In many ways, it’s actually a more useful tool than the P/E.
To calculate a cash return, divide free cash flow (FCF) by enterprise value. (Enterprise value is simply a stock’s market capitalization plus its long-term debt minus its cash.)
The goal of the cash return is to measure how efficiently the business is using its capital – both equity and debt – to generate free cash flow.
Essentially, cash return tells you how much free cash flow a company generates as a percentage of how much it would cost an investor to buy the whole company, including the debt burden. An investor buying the whole company would not only need to buy all the shares at market value, but also would be taking on the burden of any debt (net of cash) the company has.
An example of how to use cash return to find reasonably valued investments:
Company A’s
In late 2003,
Market cap = $9.8 billion
Long-term debt = $495 million
Cash in balance sheet = $172 million
Enterprise value = $9,800 + $495 - $172 = $10,100 million or $10.1 billion.
Review its FCF over the past decade
In 2003, FCF = about $600 million
Therefore,
Cash return of Company A = $600/$10,100 = 5.9%
In late 2003:
Yield of 10-year treasuries = 4.5%
Yield on corporate bonds = 4.9% (This is higher but still relatively paltry.)
Cash return of Company A = 5.9% (Looks pretty good. Moreover, this FCF is likely to grow over time, whereas those bond payments are fixed. Thus, Company A starts to look like a pretty solid value.)
Cash return is a great first step to finding cash cows trading at reasonable prices, but don’t use cash return for financials or foreign stocks.
• Cash flow isn’t terribly meaningful for banks and other firms that earn money via their balance sheets.
• A foreign stock that looks cheap based on its cash return may simply be defining cash flow more liberally, as the definitions of cash flow can vary widely in other countries.
----
Free Cashflow to Capital
FCF/Capital
=FCF/ Total Capital Employed
= FCF/TOCE
= FCF / (Total shareholders equity + Debt)
The Stock Performance Guide published by Dynaquest Sdn. Bhd. gives data on Free Cashflow (FCF) to Capital. FCF is the amount of nett cashflow left after paying for re-investment in fixed and current assets. FCF measures the ability of a firm to pay out dividend.
FCF/Capital compares the FCF of a firm with the total capital employed (defined as total shareholders equity & debt). The higher is this ratio, the more efficiently is the firm using its capital.
Cash cows are those companies with FCF/Capital of > 10%.
FCF/Capital is not the same as Cash Return discussed above.
Stock Market Operators: Do they exist?
I believe that most of us have heard of stock market operators. They are known by many different names and they are constantly the blame for our financial losses. In some parts of the world, they are known as sharks, syndicates, big bosses, speculators, liars, cheaters or stock market manipulators. Some of us cheer their existence and their operations while some cursed them as if they are the culprits to our financial ruins. Are they our friends or foes? As the famous saying goes, know thy foes and you will have the upper hand in battle. In this post, I will challenge and dare you to swim with the sharks and eat from the crumbs of their feeds and not to be their feed. Here I would like to bring out some of my personal thoughts on this question that most newbie has.
Ok, here is the short answer. Yes, you are right. They existed and their operations are hidden from most people especially the newbie in these financial markets. I believe if we know them and how they operate, we could actually move along with them. In fact, the whole purpose of technical analysis is to determine the balance of demand and supply and the stock market operators are some of the powerful and rich individuals or groups with much buying and selling power. If we are able to track their movement, we will be able to profit from their operations. However, if we are ignorant of their existence, we could be their next meal.
Basic facts of stock market operators are listed below for your reference.
They work individually or in a group.
They rely on the market trends to help them in their mission.
The general publics are their big customers.
They together work with the public listed company owners or insiders.
They have a main mission objective to accomplish.
The bulk of their operation revolved around the accumulation and the distribution of stocks from / to the general publics.
They are rich and powerful figures but they are also humans that have emotions like all of us.
They have extensive credit facilities and lower transaction costs than the retail investors.
They do make mistakes like any one of us. Their mistake costs millions in dollars.
Market news, stock market analyst, corporate announcements, word of mouth advertising, price bidding and order queues are some of their tricks and tools that they used to achieve their main objective.
They don?t try to pick the bottom or the top like most retail investors do. Again, some of them try to do this and it costs them much sorrow and dismay.
They do attempt to manipulate the chart to trick the chartist whether you like it or not.
They are both the buyer and seller in the queue order at any given time.
They are not doing charity work. They existed to make your money. It is important to understand them well as they are big volume buyers and sellers. They can tilt the balance of demand and supply. Understanding the above traits of stock market operators will help to clear some of the myths that we have of them. Remember, they are humans like us. Some of the above points deserved to be elaborated further to bring out the secrets of trading methodologies that we will employ in our technical analysis.
Primary market trends are very important to their success and failures. If they judge wrongly on this, they could go bust easily as the power of leveraging will work against them. Remember this, they cannot fight against the trends and they don?t have the strength to do so. Don?t ever think that they can swim against the tides.
If their mission objective is to acquire stocks, they might push down the prices to cause temporary market panics to squeeze out the stocks out from the speculators and investors and this is especially true in certain countries where short-selling is not allowed. The success of this technique will depends on what sort of people that are holding the stocks. This will get rid of the intraday and short term traders. However, they will try to maintain the prices around a certain range as to keep the sellers motivated. Usually the public listed company owners and insider will work in tandem to collect the shares from the general public. After they exhausted the fearful speculators and investors, they will then turn their eyes to the stronger speculators and investors by pushing up the prices higher to catch their interests.
If their mission is to distribute stocks, they will push up the stock prices to catch the attention of speculators and investors. They will work with market analyst to create beautiful pictures of the company prospects. They will work with the public listed company owners and insiders to create scarcity of stocks. At this moment of time, they will also announce all the good news while pushing up the stock prices. They will queue up as buyers and sellers in the order queue. They will buy their own stocks to create volume to entice the crowd to follow. As they bid up and down the prices, stocks were distributed without the awareness of the general public.
I believe that this write-up will increase our trading knowledge and make us a wiser trader. I will continue to write of how we can profit from their operation in future posts whenever I managed to get my time organized.
http://stockmarket.tailou.com/viewtopic.php?f=23&t=3807&p=26266
Ok, here is the short answer. Yes, you are right. They existed and their operations are hidden from most people especially the newbie in these financial markets. I believe if we know them and how they operate, we could actually move along with them. In fact, the whole purpose of technical analysis is to determine the balance of demand and supply and the stock market operators are some of the powerful and rich individuals or groups with much buying and selling power. If we are able to track their movement, we will be able to profit from their operations. However, if we are ignorant of their existence, we could be their next meal.
Basic facts of stock market operators are listed below for your reference.
They work individually or in a group.
They rely on the market trends to help them in their mission.
The general publics are their big customers.
They together work with the public listed company owners or insiders.
They have a main mission objective to accomplish.
The bulk of their operation revolved around the accumulation and the distribution of stocks from / to the general publics.
They are rich and powerful figures but they are also humans that have emotions like all of us.
They have extensive credit facilities and lower transaction costs than the retail investors.
They do make mistakes like any one of us. Their mistake costs millions in dollars.
Market news, stock market analyst, corporate announcements, word of mouth advertising, price bidding and order queues are some of their tricks and tools that they used to achieve their main objective.
They don?t try to pick the bottom or the top like most retail investors do. Again, some of them try to do this and it costs them much sorrow and dismay.
They do attempt to manipulate the chart to trick the chartist whether you like it or not.
They are both the buyer and seller in the queue order at any given time.
They are not doing charity work. They existed to make your money. It is important to understand them well as they are big volume buyers and sellers. They can tilt the balance of demand and supply. Understanding the above traits of stock market operators will help to clear some of the myths that we have of them. Remember, they are humans like us. Some of the above points deserved to be elaborated further to bring out the secrets of trading methodologies that we will employ in our technical analysis.
Primary market trends are very important to their success and failures. If they judge wrongly on this, they could go bust easily as the power of leveraging will work against them. Remember this, they cannot fight against the trends and they don?t have the strength to do so. Don?t ever think that they can swim against the tides.
If their mission objective is to acquire stocks, they might push down the prices to cause temporary market panics to squeeze out the stocks out from the speculators and investors and this is especially true in certain countries where short-selling is not allowed. The success of this technique will depends on what sort of people that are holding the stocks. This will get rid of the intraday and short term traders. However, they will try to maintain the prices around a certain range as to keep the sellers motivated. Usually the public listed company owners and insider will work in tandem to collect the shares from the general public. After they exhausted the fearful speculators and investors, they will then turn their eyes to the stronger speculators and investors by pushing up the prices higher to catch their interests.
If their mission is to distribute stocks, they will push up the stock prices to catch the attention of speculators and investors. They will work with market analyst to create beautiful pictures of the company prospects. They will work with the public listed company owners and insiders to create scarcity of stocks. At this moment of time, they will also announce all the good news while pushing up the stock prices. They will queue up as buyers and sellers in the order queue. They will buy their own stocks to create volume to entice the crowd to follow. As they bid up and down the prices, stocks were distributed without the awareness of the general public.
I believe that this write-up will increase our trading knowledge and make us a wiser trader. I will continue to write of how we can profit from their operation in future posts whenever I managed to get my time organized.
http://stockmarket.tailou.com/viewtopic.php?f=23&t=3807&p=26266
Friday, 1 January 2010
Trying to Time the Market
Market timing is one of the all-time great myths of investing. There is no strategy that consistently tells you when to be in the market and when to be out of it, and anyone who says otherwise usually has a market-timing service to sell you.
Here is an interesting study in the February 2001 issue of Financial Analysts Journal, which looked at the difference between buy-and-hold and market-timing strategies from 1926 through 1999 using a very elegant method.
About 1/3 of the possible monthly market-timing combinations beat the buy-and-hold strategy. You may be thinking, "I have a 1 in 3 chance of beating the market if I try to time it. I'll take those odds!"
But, consider these three issues:
That is pretty powerful evidence that market timing is not a viable strategy because running a mutual fund is a very profitable business - if someone had figured out a way to reliably time the market, you can bet your life they'd have started a fund to do so.
Ref: The Five Rules for Successful Stock Investing by Pat Dorsey
Here is an interesting study in the February 2001 issue of Financial Analysts Journal, which looked at the difference between buy-and-hold and market-timing strategies from 1926 through 1999 using a very elegant method.
- The authors essentially mapped all of the possible market-timing variations between 1926 and 1999 with different switching frequencies.
- They assumed that for any given month, an investor could be either in T-bills or in stocks and then calculated the returns that would have resulted from all of hte possible combinations of those switches. (There are 2^12 - or 4,096 - possible combinations between two assets over 12 months.)
- Then they compared the results of a buy-and-hold strategy with all of the possible market-timing strategies to see what percentage of the timing combinations produced a return greater than simply buying and holding.
About 1/3 of the possible monthly market-timing combinations beat the buy-and-hold strategy. You may be thinking, "I have a 1 in 3 chance of beating the market if I try to time it. I'll take those odds!"
But, consider these three issues:
- The result in the paper cited previously overstate the benefits of timing because they looked at each year as a discrete period - which means they ignore the benefits of compounding (as long as you assume that the market will generally rise over long periods of time, that is).
- Stock market returns are highly skewed - that is, the bulk of the returns (postive and negative) from any given year comes from relatively few days in that year. This means that the risk of NOT being in the market is high for anyone looking to build wealth over a long period of time.
- Morningstar has tracked thousand of funds over the past two decades. Not a single one of these has been able to CONSISTENTLY time the market. Sure, some funds have made the occasional great call, but none have posted any kind of superior track record by jumping frequently in and out of the market based on the signals generated by a quantitative model.
That is pretty powerful evidence that market timing is not a viable strategy because running a mutual fund is a very profitable business - if someone had figured out a way to reliably time the market, you can bet your life they'd have started a fund to do so.
Ref: The Five Rules for Successful Stock Investing by Pat Dorsey
Avoiding Mistakes is the Most Profitable Strategy of All
Learn the seven easily avoidable mistakes that many investors frequently make. If you steer clear of these, you will start out ahead of the pack. Resisting these temptations is the first step to reaching your financial goals:
1. Swinging for the fences
Don't try to shoot for big gains by finding the next Microsoft. Instead focus on finding solid companies with shares selling at low valuations.
2. Believing that it's different this time
Understanding the market 's history can help you avoid repeated pitfalls. If people try to convince you that "it really is different this time," ignore them.
3. Falling in love with products
Don't fall into the all-too-frequent trap of assuming that a great product translates into a high-quality company. Before you get swept away by exciting new technology or a nifty product, make sure you've checked out the company's business model.
4. Panicking when the market is down
Don't be afraid to use fear to your advantage. The best time to buy is when everyone else is running away from a given asset class.
5. Trying to time the market
Attempting to time the market is a fool's game. There's ample evidence that the market can't be timed.
6. Ignoring valuation
The best way to reduce your investment risk is to pay careful attention to valuation. Don't make the mistake of hoping that other investors will keep paying higher prices, even if you're buying shares in a great company.
7. Relying on earnings for the whole story
Cash flow is the true measure of a company's financial performance, not reported earnings per share.
1. Swinging for the fences
Don't try to shoot for big gains by finding the next Microsoft. Instead focus on finding solid companies with shares selling at low valuations.
2. Believing that it's different this time
Understanding the market 's history can help you avoid repeated pitfalls. If people try to convince you that "it really is different this time," ignore them.
3. Falling in love with products
Don't fall into the all-too-frequent trap of assuming that a great product translates into a high-quality company. Before you get swept away by exciting new technology or a nifty product, make sure you've checked out the company's business model.
4. Panicking when the market is down
Don't be afraid to use fear to your advantage. The best time to buy is when everyone else is running away from a given asset class.
5. Trying to time the market
Attempting to time the market is a fool's game. There's ample evidence that the market can't be timed.
6. Ignoring valuation
The best way to reduce your investment risk is to pay careful attention to valuation. Don't make the mistake of hoping that other investors will keep paying higher prices, even if you're buying shares in a great company.
7. Relying on earnings for the whole story
Cash flow is the true measure of a company's financial performance, not reported earnings per share.
FBM KLCI closes year up 45%
For the year, the FBM KLCI gained a total of 396 points or 45.2% after rising from 876.8 at the start of the year and ending at 1,272.8. At its lowest point, the index fell to 838 in March.
While the gains were slightly less than most regional bourses, it should be noted that the local stock market and domestic economy was also relatively more resilient during the crisis.
As a comparison, key market indices in China, India, Taiwan and Indonesia surged 78% to 87% for the year. Hong Kong was up 52%, South Korea rose 50% and Singapore was up 64%, but Japan lagged the region with only a 19% gain.
http://www.theedgemalaysia.com/business-news/156638-fbm-klci-closes-year-up-45-.html
While the gains were slightly less than most regional bourses, it should be noted that the local stock market and domestic economy was also relatively more resilient during the crisis.
As a comparison, key market indices in China, India, Taiwan and Indonesia surged 78% to 87% for the year. Hong Kong was up 52%, South Korea rose 50% and Singapore was up 64%, but Japan lagged the region with only a 19% gain.
http://www.theedgemalaysia.com/business-news/156638-fbm-klci-closes-year-up-45-.html
Subscribe to:
Comments (Atom)