http://spreadsheets.google.com/pub?key=tOphBEM5Tqd30vvXdwxAc6g&output=html
5 stocks are fairly valued; 1 is undervalued and another is overvalued. None of the stock is very overvalued.
The market has turned volatile.
However, the market is certainly not in a bubble.
Wednesday, 10 February 2010
New Investing Idea: The Rational Investing Model is the alternative to the Buy-and-Hold Investing Model
The core Buy-and-Hold claim is that changing one's stock allocation in response to big price changes is not necessary for long-term investing success.
The Rational Investing Model encourages investors to take price (valuations) into consideration when setting their stock allocations.
History of Buy-and-Hold approach
Buy-and-hold approach is when investors maintain the same stock allocation at all times, irrespective of the market valuation.
Most middle-class workers have long had a fear of investing in stocks because of the big losses associated with this asset class at times of stock crashes. The promise of a scientific, long-term approach held great appeal. Few middle-class workers studied Buy-and-Hold to the extent needed to understand where the ideas came from or why they were supposed to work. But most quickly grasped the essential point being promoted -- this was responsible investing. Buy-and-Hold became popular because it was viewed as being a rejection of the Get Rich Quick thinking that had given much investment commentary a bad name.
Why Buy-and-Hold can never work.
It's easy today to explain why Buy-and-Hold can never work. The root idea is preposterous (but not obviously so to those who have not yet seen through it -- there are many smart and good people who possess a strong confidence in the concept). For Buy-and-Hold to work, valuations would have to have zero effect on long-term returns. Stocks would have to be the only asset class on the face of Planet Earth of which it could be said that the price paid for the asset has no effect on the value proposition provided. This cannot be. Price must matter. And if price matters, investors should not be going with the same stock allocation at times when valuations are insanely high as they do when stocks are fairly priced or low priced. Buy-and-Hold defies common sense.
The science of investing
The science of investing showed that short-term forecasting does not work and that a long-term focus is needed. The science appeared at the time to suggest that a Buy-and-Hold strategy (sticking to the same stock allocation at all times) makes sense.
The science did not prove that Buy-and-Hold works. The Greatest Mistake in the History of Personal Finance took place when the academics jumped to the hasty conclusion that the fact that short-term timing does not work necessarily leads to a conclusion that Buy-and-Hold is the only rational strategy.
But Shiller's 1981 research (confirmed by a mountain of research done since then) shows that overvaluation is a meaningful concept. Shiller showed that stocks offer better long-term returns starting from times of fair or low prices than they do starting from times of insanely high prices. Even many Buy-and-Hold advocates acknowledge today that valuations matter. William Bernstein says that valuations affect long-term returns as a matter of "mathematical certainty."
The market must ultimately be efficient, as the academics responsible for the Buy-and-Hold concept claimed. Yet the academic research of the past three decades shows conclusively that the market is not immediately efficient. What, then, is the full reality?
The full reality appears to be that the market is gradually efficient, not immediately efficient. It is investor emotions that determine market prices in the short term. But it is economic realities that determine stock prices in the long term (after the completion of 10 years of market gyrations or so). If the stock price rises too much higher than the price justified by the economic realities, opportunities open up for competing businesses to obtain the same assets on the cheap (relative to the market price assigned to them) and thereby to create a new business with the same profit potential as the overvalued one and thereby to pull the value assigned to it by the stock market down to reasonable levels. The market does indeed insure that stocks are priced properly. But it does not do this in an instant. The process can drag out for 10 years or even a bit longer.
What really works: successful long-term investing requires long-term market timing
The strategic implications are earth-shaking. It turns out that we have been telling millions of middle-class investors precisely the opposite of what really works in stock investing. Since the market sets the price improperly in the short term and properly in the long term, successful long-term investing requires market timing (not the discredited approach of short-term timing, but long-term timing, which the historical data shows has always worked). The key to long-term success is to disdain the idea of sticking with the same stock allocation but instead always to be certain to adjust one's stock allocation as required by changes in the valuations assigned to the broad market indexes (only one allocation change every 10 years is required on average but it is essential that long-term investors make this change -- Buy-and-Hold never works in the long run because it argues that this change is not necessary or even that it is a good idea not to make the allocation change).
Discarding the Buy-and-Hold Era and adopting the Rational Investing Era
There is one step required before the transition from the Buy-and-Hold Era to the Rational Investing Era (The Rational Investing Model is the alternative to the Buy-and-Hold Investing Model -- it is described in some depth in articles and podcasts available at the http://www.passionsaving.com/ site) can begin in earnest. We need to persuade the many experts who advocated Buy-and-Hold to acknowledge the mistake and to thereby launch a national debate on what really works in stock investing. As of today, an institutional interest in preserving the status quo and avoiding the need to acknowledge mistakes has worsened the economic crisis and threatened to bring on a Second Great Depression.
We need a national debate on what works in stock investing. Buy-and-Hold advocates should of course be part of that debate. Buy-and-Hold advocates are smart and good people and have developed many rich insights despite the mistake they made about the core Buy-and-Hold claim (that changing one's stock allocation in response to big price changes is not necessary for long-term investing success). But we need a debate in which Buy-and-Hold advocates drop the pose of perfect understanding that has kept us from exploring new insights for so many years now. We need to see an openness to new investing ideas if our economic and political systems are to survive today's crisis. We need to rebuild optimism for the future by partaking in a fresh start in our effort to discover how stock investing works, We need to put aside those of the old rules that no longer work and replace them with better-informed new rules that do.
The Implication of moving from the Buy-and-Hold Investing Model to the Rational Investing Model
Many have lost sight of the point of investing analysis -- to help middle-class people finance their retirements. All this needs to change if our way of life is to survive the inevitable collapse of the Buy-and-Hold Model.
Our hope lies in coming to see the move from the Buy-and-Hold Investing Model to the Rational Investing Model (the Rational Model says that investors must consider price when setting their stock allocations) not as an investing question or an economics question but as a political question. We have a long tradition in this country of free speech. Free speech is permitted in our discussions of baseball and novels and nutrition and fashions. It should be permitted in discussions of the flaws of the Buy-and-Hold Model as well.
Summary
Buy-and-Hold can never work. But many of the insights developed by the smart and good people who brought us the Buy-and-Hold Model can do wonderful things to help millions when incorporated into a model that does work -- the Rational Investing Model, a model that encourages investors to take valuations into consideration when setting their stock allocations.
http://knol.google.com/k/why-buy-and-hold-investing-can-never-work#
http://arichlife.passionsaving.com/
The Rational Investing Model encourages investors to take price (valuations) into consideration when setting their stock allocations.
History of Buy-and-Hold approach
Buy-and-hold approach is when investors maintain the same stock allocation at all times, irrespective of the market valuation.
Most middle-class workers have long had a fear of investing in stocks because of the big losses associated with this asset class at times of stock crashes. The promise of a scientific, long-term approach held great appeal. Few middle-class workers studied Buy-and-Hold to the extent needed to understand where the ideas came from or why they were supposed to work. But most quickly grasped the essential point being promoted -- this was responsible investing. Buy-and-Hold became popular because it was viewed as being a rejection of the Get Rich Quick thinking that had given much investment commentary a bad name.
Why Buy-and-Hold can never work.
It's easy today to explain why Buy-and-Hold can never work. The root idea is preposterous (but not obviously so to those who have not yet seen through it -- there are many smart and good people who possess a strong confidence in the concept). For Buy-and-Hold to work, valuations would have to have zero effect on long-term returns. Stocks would have to be the only asset class on the face of Planet Earth of which it could be said that the price paid for the asset has no effect on the value proposition provided. This cannot be. Price must matter. And if price matters, investors should not be going with the same stock allocation at times when valuations are insanely high as they do when stocks are fairly priced or low priced. Buy-and-Hold defies common sense.
The science of investing
The science of investing showed that short-term forecasting does not work and that a long-term focus is needed. The science appeared at the time to suggest that a Buy-and-Hold strategy (sticking to the same stock allocation at all times) makes sense.
The science did not prove that Buy-and-Hold works. The Greatest Mistake in the History of Personal Finance took place when the academics jumped to the hasty conclusion that the fact that short-term timing does not work necessarily leads to a conclusion that Buy-and-Hold is the only rational strategy.
But Shiller's 1981 research (confirmed by a mountain of research done since then) shows that overvaluation is a meaningful concept. Shiller showed that stocks offer better long-term returns starting from times of fair or low prices than they do starting from times of insanely high prices. Even many Buy-and-Hold advocates acknowledge today that valuations matter. William Bernstein says that valuations affect long-term returns as a matter of "mathematical certainty."
The market must ultimately be efficient, as the academics responsible for the Buy-and-Hold concept claimed. Yet the academic research of the past three decades shows conclusively that the market is not immediately efficient. What, then, is the full reality?
The full reality appears to be that the market is gradually efficient, not immediately efficient. It is investor emotions that determine market prices in the short term. But it is economic realities that determine stock prices in the long term (after the completion of 10 years of market gyrations or so). If the stock price rises too much higher than the price justified by the economic realities, opportunities open up for competing businesses to obtain the same assets on the cheap (relative to the market price assigned to them) and thereby to create a new business with the same profit potential as the overvalued one and thereby to pull the value assigned to it by the stock market down to reasonable levels. The market does indeed insure that stocks are priced properly. But it does not do this in an instant. The process can drag out for 10 years or even a bit longer.
What really works: successful long-term investing requires long-term market timing
The strategic implications are earth-shaking. It turns out that we have been telling millions of middle-class investors precisely the opposite of what really works in stock investing. Since the market sets the price improperly in the short term and properly in the long term, successful long-term investing requires market timing (not the discredited approach of short-term timing, but long-term timing, which the historical data shows has always worked). The key to long-term success is to disdain the idea of sticking with the same stock allocation but instead always to be certain to adjust one's stock allocation as required by changes in the valuations assigned to the broad market indexes (only one allocation change every 10 years is required on average but it is essential that long-term investors make this change -- Buy-and-Hold never works in the long run because it argues that this change is not necessary or even that it is a good idea not to make the allocation change).
Discarding the Buy-and-Hold Era and adopting the Rational Investing Era
There is one step required before the transition from the Buy-and-Hold Era to the Rational Investing Era (The Rational Investing Model is the alternative to the Buy-and-Hold Investing Model -- it is described in some depth in articles and podcasts available at the http://www.passionsaving.com/ site) can begin in earnest. We need to persuade the many experts who advocated Buy-and-Hold to acknowledge the mistake and to thereby launch a national debate on what really works in stock investing. As of today, an institutional interest in preserving the status quo and avoiding the need to acknowledge mistakes has worsened the economic crisis and threatened to bring on a Second Great Depression.
We need a national debate on what works in stock investing. Buy-and-Hold advocates should of course be part of that debate. Buy-and-Hold advocates are smart and good people and have developed many rich insights despite the mistake they made about the core Buy-and-Hold claim (that changing one's stock allocation in response to big price changes is not necessary for long-term investing success). But we need a debate in which Buy-and-Hold advocates drop the pose of perfect understanding that has kept us from exploring new insights for so many years now. We need to see an openness to new investing ideas if our economic and political systems are to survive today's crisis. We need to rebuild optimism for the future by partaking in a fresh start in our effort to discover how stock investing works, We need to put aside those of the old rules that no longer work and replace them with better-informed new rules that do.
The Implication of moving from the Buy-and-Hold Investing Model to the Rational Investing Model
Many have lost sight of the point of investing analysis -- to help middle-class people finance their retirements. All this needs to change if our way of life is to survive the inevitable collapse of the Buy-and-Hold Model.
Our hope lies in coming to see the move from the Buy-and-Hold Investing Model to the Rational Investing Model (the Rational Model says that investors must consider price when setting their stock allocations) not as an investing question or an economics question but as a political question. We have a long tradition in this country of free speech. Free speech is permitted in our discussions of baseball and novels and nutrition and fashions. It should be permitted in discussions of the flaws of the Buy-and-Hold Model as well.
Summary
Buy-and-Hold can never work. But many of the insights developed by the smart and good people who brought us the Buy-and-Hold Model can do wonderful things to help millions when incorporated into a model that does work -- the Rational Investing Model, a model that encourages investors to take valuations into consideration when setting their stock allocations.
http://knol.google.com/k/why-buy-and-hold-investing-can-never-work#
http://arichlife.passionsaving.com/
Market Timing Based On Long Term Views Does Work: Just know the valuation level you are starting from
Stock Market Strategy: Market Timing Based On Long Term Views
Short-term timing does not work because stock prices are determined by investor emotions in the short term.
If that’s the case, then short term timing and trading the market would not work because there is no way to outguess an entirely emotional process. All the intelligence in the world gives you no edge in trying to anticipate emotional choices.
This leads us to the explanation that long-term timing DOES work. The market MUST set prices properly in the long term. If prices can be wildly wrong in the short term but must be roughly right in the long term, it should be possible to know in advance which way prices are headed (in the long term only, not in the short term) just by knowing the valuation level you are starting from.
Researchers have checked the historical data. This explanation, unlike the EMT-based one, stands up to scrutiny. The same data that taught us that short-term timing never works also teaches us that long-term timing always works. Thus — it turns out that just about everything that the experts have told us about investing in the stock market over the past 30 years is wrong. Oh, my.
I believe that long-term timing works. If you change your stock allocation in response to big changes in prices, you can earn dramatically higher returns while taking on dramatically less risk. Do this throughout your investing lifetime and you can retire five years sooner than you previously thought possible.
The old model for understanding how stock investing works is in the process of collapsing. The new model for understanding how stock investing works is in the process of being built. As investors, we live in exciting times!
http://thesmarterwallet.com/2010/stock-market-strategy-market-timing-long-term/
http://knol.google.com/k/why-buy-and-hold-investing-can-never-work#
Short-term timing does not work because stock prices are determined by investor emotions in the short term.
If that’s the case, then short term timing and trading the market would not work because there is no way to outguess an entirely emotional process. All the intelligence in the world gives you no edge in trying to anticipate emotional choices.
This leads us to the explanation that long-term timing DOES work. The market MUST set prices properly in the long term. If prices can be wildly wrong in the short term but must be roughly right in the long term, it should be possible to know in advance which way prices are headed (in the long term only, not in the short term) just by knowing the valuation level you are starting from.
Researchers have checked the historical data. This explanation, unlike the EMT-based one, stands up to scrutiny. The same data that taught us that short-term timing never works also teaches us that long-term timing always works. Thus — it turns out that just about everything that the experts have told us about investing in the stock market over the past 30 years is wrong. Oh, my.
I believe that long-term timing works. If you change your stock allocation in response to big changes in prices, you can earn dramatically higher returns while taking on dramatically less risk. Do this throughout your investing lifetime and you can retire five years sooner than you previously thought possible.
The old model for understanding how stock investing works is in the process of collapsing. The new model for understanding how stock investing works is in the process of being built. As investors, we live in exciting times!
http://thesmarterwallet.com/2010/stock-market-strategy-market-timing-long-term/
http://knol.google.com/k/why-buy-and-hold-investing-can-never-work#
Protection During a Stock Market Correction? Advice to Survive a Bear Market Crash
Protection During a Stock Market Correction?
Advice to Survive a Bear Market Crash
Feb 9, 2010 Kurtis Hemmerling
When stock market prices correct, or even go into a bear market, how can one hedge against it?
The stock market has three basic cycles: bull, bear, and consolidation.
Bull Markets Precede a Stock Market Correction
The stock market is driven by growth. Companies are aggressively fighting for the same piece of investment dollar. Large double or even triple digit growth attracts long term investors who want to build for the future. At this stage the market climbs – often rapidly.
The Market Corrects or Consolidates
If the stock market continued to push upwards, the price of the average share would far exceed any reasonable valuation. That is why the market must correct itself and deflate. A fall of up to ten percent is considered a correction only.
The Exchange Crashes and Turns Bear
If the growth bubble is too large, or if sentiment is particularly sour based on economic events, the stock market may fall in excess of ten percent. At this point it is dubbed a ‘bear market’. The prices are in a severe downturn where negative sentiment rules the trading patterns.
Really, the stock market is a pattern of growth, bubble, burst. And then it starts all over again.
Read more at Suite101: Protection During a Stock Market Correction?: Advice to Survive a Bear Market Crash
http://investment.suite101.com/article.cfm/protection-during-a-stock-market-correction#ixzz0f6KrMI8d
Advice to Survive a Bear Market Crash
Feb 9, 2010 Kurtis Hemmerling
When stock market prices correct, or even go into a bear market, how can one hedge against it?
The stock market has three basic cycles: bull, bear, and consolidation.
Bull Markets Precede a Stock Market Correction
The stock market is driven by growth. Companies are aggressively fighting for the same piece of investment dollar. Large double or even triple digit growth attracts long term investors who want to build for the future. At this stage the market climbs – often rapidly.
The Market Corrects or Consolidates
If the stock market continued to push upwards, the price of the average share would far exceed any reasonable valuation. That is why the market must correct itself and deflate. A fall of up to ten percent is considered a correction only.
The Exchange Crashes and Turns Bear
If the growth bubble is too large, or if sentiment is particularly sour based on economic events, the stock market may fall in excess of ten percent. At this point it is dubbed a ‘bear market’. The prices are in a severe downturn where negative sentiment rules the trading patterns.
Really, the stock market is a pattern of growth, bubble, burst. And then it starts all over again.
Read more at Suite101: Protection During a Stock Market Correction?: Advice to Survive a Bear Market Crash
http://investment.suite101.com/article.cfm/protection-during-a-stock-market-correction#ixzz0f6KrMI8d
The Man who Quantifies Everything
I know this man. He measures everything. He knows the length of his feet. He knows the height of the tree. He knows his heart rate. He knows how long it will take to complete his walk. He never stops measuring. He frames his world on measurements. He performs very well in his work and life.
Well, in investing, to be successful you should do likewise. An investor should measure or quantify his investments through careful analysis.
Benjamin Graham: " Additionally , we hope to implant in the reader a tendency to measure or quantify. For 99 issues out of 100, we could say that at some price they are cheap enough to buy and at some other price they would be so dear that they shoudl be sold. The habit of relating what is paid to what is being offered is an invaluable trait in investment..."
Well, in investing, to be successful you should do likewise. An investor should measure or quantify his investments through careful analysis.
Benjamin Graham: " Additionally , we hope to implant in the reader a tendency to measure or quantify. For 99 issues out of 100, we could say that at some price they are cheap enough to buy and at some other price they would be so dear that they shoudl be sold. The habit of relating what is paid to what is being offered is an invaluable trait in investment..."
There is ALWAYS a Speculative Component of Stock Investment. There is no sure thing.
There is no sure thing. There is always risk in stock market investing.
Risks are inherent in buying stocks and the investors should have a clear idea of these risks when buying.
These risks are inseparable from the opportunities of profit that they offer. Both of these must be allowed for in the investor's calcuations.
Investors should be aware of this speculative component of investing. This should be distinguished from stock speculation explained below.
It is the investor's task to keep this speculative component of investing within minor limits and to be prepared financially and psychologically for adverse results that may be of short or long durations. There is no way around this market effect.
Speculative Component of Stock Investment vs Stock Speculation
There is always a speculative component of investing when you buy and hold.
However, this speculative component of investing should be distinguished from stock speculation.
Benjamin Graham, in his texbook, Security Analysis, attempted a precise formulation to distinguish the difference between investment and speculation.
"An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."
This is what he wrote on speculation.
"An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."
This is what he wrote on speculation.
- Some speculation is necessary and unavoidable, for in many common stock situations, there are substantial possibilities for both profit and loss, and the risks therein must be assumed by someone.
- There is intelligent speculation as there is intelligent investing.
- There are also many ways in which speculation may be unintelligent:
- speculating when you think you are investing;
- speculating seriously instead of as a pastime, when you lack proper knowledge and skill for it; and
- risking more money in speculation than you can afford to lose.
- Every nonprofessional who operates on margin (investing with money borrowed from your broker with your shares as collateral) should recognize that he is ipso facto speculating.
- And everyone who buys a so-called "hot" stock is either speculating or gambling.
Benjamin Graham recognised that speculation can be a lot of fun while you are ahead of the game. He advised those who want to try their luck at it, to put aside a portion -- the smaller the better -- of your money in a separate fund for this purpose.
- Never add more money to this account just because the market has gone up and profits are rolling. (That's the time to think of taking money out of your speculative fund.)
- Never mingle your speculative and investment operations in the same account, nor in any part of your thinking.
Tuesday, 9 February 2010
The safest period to invest is actually during a bear market.
When Katrina caused the big flood in New Orleans, it was an unexpected event. Many residents were caught unprepared and suffered hardship. Humans are resilient and they have since bounced back.
What lessons learned from Katrina can also be applicable in stock investing. The stock market is volatile. For every 5 years of investing, do expect to encounter 1 year of bear market. Therefore, the prudent investor is prepared to meet the bear and hope to profit from it too.
The safest period to invest is actually during a bear market. The most 'dangerous period' to invest is actually at the height of a bull market. Yet, human beings are not wired to take advantage of this simple fact. We are wired to react with fear to threats and to react with greed to wanton rewards. A falling market is perceived as a threat by many investors. Yes, their portfolio prices have been decimated. Those who are focussed purely on prices of their stocks, with little or no reference to their underlying intrinsic values, would tend to feel threatened and make an inappropriate irrational decision(s) harming their portfolio.
The best time to prepare for a bear is actually 'to be prepared at all times'. How can this risk be minimized or managed?
Therefore the strategies to minimize risks and irreversible losses should be in placed at all times during your investing career. When these are in place, the investors can be expected to be rationale and not react irrationally to the fear or greed generated by a bear or bull market respectively. Also, be aware of similar emotional responses to severe drop in prices or bubble in individual stock too. Those who are prepared rarely need to employ stop loss strategies, though, the stop loss should and can be usefully employed by those investors to minimize potential irreversible losses.
There is no substitute to experiencing the ups and downs of the market acquired over many years and to managing your stock picking, your risk and your portfolio to minimize the risks and to maximise the returns at these various times. For those wishing to invest and benefit from the stock market, there is also no substitute but to acquire the necessary education. Warren Buffett alluded that this need not be too complicating. You basically require knowledge in how to value a business or stock and to understand the working of the stock market so that you can take advantage of its price volatilities.
Investing is not without risks but these risks can be minimized and managed. Among the various strategies, value investing is the safest from my assessment. Of course, many have also employed other strategies and benefited from these too.
What lessons learned from Katrina can also be applicable in stock investing. The stock market is volatile. For every 5 years of investing, do expect to encounter 1 year of bear market. Therefore, the prudent investor is prepared to meet the bear and hope to profit from it too.
The safest period to invest is actually during a bear market. The most 'dangerous period' to invest is actually at the height of a bull market. Yet, human beings are not wired to take advantage of this simple fact. We are wired to react with fear to threats and to react with greed to wanton rewards. A falling market is perceived as a threat by many investors. Yes, their portfolio prices have been decimated. Those who are focussed purely on prices of their stocks, with little or no reference to their underlying intrinsic values, would tend to feel threatened and make an inappropriate irrational decision(s) harming their portfolio.
The best time to prepare for a bear is actually 'to be prepared at all times'. How can this risk be minimized or managed?
- Well, for a start, invest only in very good, high quality stocks. This have been written about on many occasions. Good companies are companies with growing revenues, growing earnings, little debts, increasing dividends and successful track record over many years (5 to 10 years).
- Also, ensure that the management is of the highest quality and integrity. These are managers who have the interest of the business owners (shareholders) at heart. They are managing the companies efficiently, increasing the revenues and containing their costs. The profit margins of these companies are steady or increasing.
- Another way to contain risk is to buy when the price is offered to you at a bargain or at a fair price. This concept of buying with a margin of safety is very easy, provided one has the patience. The market always comes around and there will be times when the market (Mr. Market) is offering good quality companies at very good bargain prices. Ensure that you always have a list of companies in your surveillance and when this offer arises (often it is a small window of opportunity to buy at this price), be confident in your analysis and buy BIG. Buy very big indeed. This buying would have locked in your gains at the time of purchase, as you will be purchasing with a margin of safety and with a discount to the intrinsic value. This action will also ensures that your return will be above the normal of that returned by the whole market.
- Avoiding silly mistakes is another way to minimize risk and loss. Avoid buying overpriced stocks - this also means that you will need to know valuation and to know to control your emotions. Some investors are carried away during the bull market due to overconfidence. They abandoned their caution and may not spend the time to carefully analyse the quality, management and value of the stocks they are buying. They are so involved in the market observing the prices and trading the prices without realizing that their risk management might not be appropriate when the bear market appears.
- How much you allocate to equity in your asset allocation at various phases of the stock market is also important. Periodic rebalancing of your portfolio between cash, bonds and equities also minimizes your risk.
Therefore the strategies to minimize risks and irreversible losses should be in placed at all times during your investing career. When these are in place, the investors can be expected to be rationale and not react irrationally to the fear or greed generated by a bear or bull market respectively. Also, be aware of similar emotional responses to severe drop in prices or bubble in individual stock too. Those who are prepared rarely need to employ stop loss strategies, though, the stop loss should and can be usefully employed by those investors to minimize potential irreversible losses.
There is no substitute to experiencing the ups and downs of the market acquired over many years and to managing your stock picking, your risk and your portfolio to minimize the risks and to maximise the returns at these various times. For those wishing to invest and benefit from the stock market, there is also no substitute but to acquire the necessary education. Warren Buffett alluded that this need not be too complicating. You basically require knowledge in how to value a business or stock and to understand the working of the stock market so that you can take advantage of its price volatilities.
Investing is not without risks but these risks can be minimized and managed. Among the various strategies, value investing is the safest from my assessment. Of course, many have also employed other strategies and benefited from these too.
Good time to get higher quality stocks at reasonable prices.
When it comes to buying value stock picks there are some things to be aware of. Now is the time to take advantage of getting higher quality stocks at reasonable prices.
http://www.howmuchyouwill.com/stocks-picks-in-value-stocks
http://www.howmuchyouwill.com/stocks-picks-in-value-stocks
How to remain rationale in a falling market?
Dow closed below the 10,000 mark.
Today, the KLSE is also sold down.
How to remain rationale in a falling market?
This is dependent on the investors' investment objectives, time horizon and risk tolerance.
In investing, the consequences should always dominate over the probabilities of an event occurring in their decision making.
How low and how long the market will stay low is not predictable. The market may even swings upwards soon catching everyone by surprise. Who knows? Who cares?
There will be those who will need to get out of the market for various reasons. The two strategies available to them to prevent large irreversible losses are to cut loss (when the losses are small) and/or to re-balance their portfolio.
However, for those who have been prudent value investors, it is an opportune time to review the stocks in their portfolio in the present market. They may find the falling market presenting better opportunities and rewards instead. The key is in understanding the difference between price and value.
To minimise the negative impacts of market timing on their returns, those who are buying into stocks may wish to take note of the following strategies: lump sum investing, dollar cost averaging and phasing in their investments. Another good strategy to keep in mind, is selling their fairly valued stocks to reinvest into deeply undervalued stocks.
Above all else, it is important to remain rationale. This may be easy at present when the market has corrected a few percentage points. Trust me, it will be harder (but definitely more rewarding) when the market is down by 20% to 50%, and especially so when the market is down over a prolonged period. In other words, when there is "blood flowing on the street." It is in these times, when the prudent investors should avoid the temptation of following the herd, but to stay true to their investment philosophy and strategy, to guide them through the ups and the downs of the market, over their long investing time horizons.
Today, the KLSE is also sold down.
How to remain rationale in a falling market?
This is dependent on the investors' investment objectives, time horizon and risk tolerance.
In investing, the consequences should always dominate over the probabilities of an event occurring in their decision making.
How low and how long the market will stay low is not predictable. The market may even swings upwards soon catching everyone by surprise. Who knows? Who cares?
There will be those who will need to get out of the market for various reasons. The two strategies available to them to prevent large irreversible losses are to cut loss (when the losses are small) and/or to re-balance their portfolio.
However, for those who have been prudent value investors, it is an opportune time to review the stocks in their portfolio in the present market. They may find the falling market presenting better opportunities and rewards instead. The key is in understanding the difference between price and value.
To minimise the negative impacts of market timing on their returns, those who are buying into stocks may wish to take note of the following strategies: lump sum investing, dollar cost averaging and phasing in their investments. Another good strategy to keep in mind, is selling their fairly valued stocks to reinvest into deeply undervalued stocks.
Above all else, it is important to remain rationale. This may be easy at present when the market has corrected a few percentage points. Trust me, it will be harder (but definitely more rewarding) when the market is down by 20% to 50%, and especially so when the market is down over a prolonged period. In other words, when there is "blood flowing on the street." It is in these times, when the prudent investors should avoid the temptation of following the herd, but to stay true to their investment philosophy and strategy, to guide them through the ups and the downs of the market, over their long investing time horizons.
Monday, 8 February 2010
Money as debt
http://financialindependent.blogspot.com/2010/01/understand-money-as-debt-concept.html
http://video.google.com/videoplay?docid=-2550156453790090544&hl=en#
Money as debt (47 minute video)
Our Monetary System is NOT Sustainable?
In previous example, you will notice that majority of the money that we have today in this economy is created by loan or debt. Therefore in other words, the money supply to this economy is equal to the total amount of loan principal. However, when you pay back to bank, you're paying not only the principal but the interest of the loan.
Money Supply = Loan Principal
Money Owed = Loan Principal + Loan Interest
The total of money circulate in this economy is approximately equal to the total of loan principal. So now you need to pay the extra loan interest to the bank, where do you get the money from? There are only 2 possibilities:
Not everyone will not able to pay back the loan together with interest
To avoid that from happening, bank will supply more money to the economy by creating more loans
In order to sustain this monetary system, more debts needs to be created to make sure the system have enough money supply to pay back the loan interest. The funny thing is when more debts are created, more debt interests are created too. Thus, more money you owe. This is the exponential thing and are fixing the things or making it worse? Will this continue forever or will it collapse one day?
http://video.google.com/videoplay?docid=-2550156453790090544&hl=en#
Money as debt (47 minute video)
Our Monetary System is NOT Sustainable?
In previous example, you will notice that majority of the money that we have today in this economy is created by loan or debt. Therefore in other words, the money supply to this economy is equal to the total amount of loan principal. However, when you pay back to bank, you're paying not only the principal but the interest of the loan.
Money Supply = Loan Principal
Money Owed = Loan Principal + Loan Interest
The total of money circulate in this economy is approximately equal to the total of loan principal. So now you need to pay the extra loan interest to the bank, where do you get the money from? There are only 2 possibilities:
Not everyone will not able to pay back the loan together with interest
To avoid that from happening, bank will supply more money to the economy by creating more loans
In order to sustain this monetary system, more debts needs to be created to make sure the system have enough money supply to pay back the loan interest. The funny thing is when more debts are created, more debt interests are created too. Thus, more money you owe. This is the exponential thing and are fixing the things or making it worse? Will this continue forever or will it collapse one day?
This is a tale of greed. And dishonesty. And hypocrisy.
Warren Buffett looks for the following qualities in his managers: integrity, intelligence and energy. Without integrity, he feared an energetic intelligent manager will work to the disadvantage of the business owners.
Sunday, July 14, 2002 in the Statesman (Kolkata) East India's most important newspaper
Dishonesty, Greed and Hypocrisy in Corporate America
by Huck Gutman
This is a tale of greed. And dishonesty. And hypocrisy.
These are hard times for Wall Street, the American economy, and President George W. Bush. As the conservative and pro-business major publication Fortune reports, ongoing revelations of corporate wrongdoing and accounting scandals have "created a crisis of investor confidence the likes of which hasn't been seen since the Great Depression."
The current spate of bad news began with Enron, the largest corporate bankruptcy in American history. Enron executives, propelled by greed, were not satisfied with immense salaries: they set up all sorts of spin-off partnerships to enrich themselves at the expense of stockholders and the corporation's bottom line. In a little more than a decade Enron soared from obscurity to become the nation's seventh largest company, with over 20,000 employees in forty countries. But its dishonesty about profits, and its off-the-books energy deals, abetted by fiscal accounting that was erroneous, misleading, and downright dishonest, eventually caused an implosion of gigantic proportions.
On December 28, 2000, Enron stock sold at over $84 a share. Eleven months later, to the day, Enron shares plummeted to less than a dollar in the heaviest trading volume in a corporation ever recorded by a major stock exchange. The investors in the company - many of them Enron employees - rushed to get out of the stock before it became totally worthless. Two months later Enron stock was delisted by the New York Stock Exchange, and today its stock is just that, worthless. The federal Justice Department is in the midst of a criminal investigation of the energy-trading company, but the damage to shareholders and pensioners is done.
Enron was just the beginning, as example after example of corporate greed and accounting malfeasance has come to light. Every one of the corporations I shall discuss is - or was - among America's largest companies.
The regional telephone company Qwest provides basic telephone service to fourteen states, has revenues of over $18 billion a year and handles 240 million phone calls and 600 million e-mails each day. The fourth largest U.S. telephone company, it is under investigation for criminal corporate practices. The Securities and Exchange Commission (SEC) is currently examining its accounting procedures. These indications of likely fiscal impropriety have caused its stock to crash from its high of $67 two years ago to just under $2, a drop of 97 percent.
Tyco International is one of the world's largest conglomerates, operating in over 80 countries with revenues of $36 billion. In recent months, huge questions surfaced about the way in which the corporation accounted for the multiple acquisitions that transformed it from a small company into a corporate behemoth. Its CEO, Dennis Kozlowski, was forced to resign, and shortly afterwards was arraigned on charges of tax evasion. Tyco, which sold at $60 a share six months ago, in the wake of the financial irregularities in its booking of acquisitions, is now worth just over $10 a share.
Compared to Adelphia Communications Corp., one of America's largest cable television providers, Tyco has performed well on the stock market. Six months ago the respected journal Business Week reported Adelphia's value at between $9.5 billion and $11.8 billion. Since then, Adelphia has entered bankruptcy following disclosures that its finances were in disarray, in large measure because it had made $2.3 billion in off-balance sheet loans to partnerships run by family of John Rigas, the CEO of Adelphia. Its bankruptcy is the fifth largest such filing since 1980. Adelphia's shares sold for $42 dollars a year ago, but had dropped to $.70 a month and a half ago, when all trading in its shares was halted.
Global Crossing, which had a major role in the development of fiber optic cable networks, is under investigation by the SEC for fraudulent accounting. The corporation, it appears, arranged 'deals' in which no goods or services were exchanged, but which nonetheless made it appear that profit was being generated. These purely paper transactions inflated the company's revenue substantially. Global Crossing also filed for bankruptcy. Its share price was over $60 two and a half years ago. Each share is worth $.06 today, a drop of 99.9 percent.
American stock markets - and world markets - have been shaken by the demise of WorldCom. Its balance sheet lists assets of $103 billion, and net income for the calendar year ending March 31 of over $1 billion. Yet it has been revealed that fraudulent accounting hid $3.8 billion in losses, and it is rumored that additional losses may be forthcoming. What this huge telecommunications company did was record daily costs as capital expenditures, a dishonest procedure which allowed it to erase an enormous operating loss and record a sizeable but illusory profit. Three years ago WorldCom stock traded at $64. Today it trades at $.20, a drop of well over 99 percent. It has defaulted on $4.25 billion of its debts to this point, and future defaults are certainly possible.
There are likely more revelations of corporate malfeasance and dishonesty to come. For instance, others in the energy business along with Enron -- Dynegy, El Paso Corp., CMS Energy, Williams, and Halliburton - are currently under scrutiny for the manner in which they have made trades and accounted for revenues and expenses.
Halliburton is particularly interesting, since it points to corporate corruption on a different level. Not that its accounting irregularities are larger than those of WorldCom or Enron, for they are not. But the scandal at Halliburton has a great deal, a great deal, to do with the capacity of the current political administration in Washington to clean up that sewer of greed and dishonesty which, it so unhappily appears, is characteristic of many corporate boardrooms.
Halliburton is a major provider of engineering services, particularly to the energy sector. A current SEC investigation is investigating Halliburton's accounting practices on cost overruns on construction jobs. The former CEO of Halliburton, who was in charge when those accounting practices were introduced, is Dick Cheney, currently Vice President of the United States. A recently filed suit alleges that Mr. Cheney conspired, along with others at Halliburton, to file false financial statements and thereby mislead investors. The suit claims Halliburton's deceptive accounting procedures led to overstatements of revenue amounting to as much as $445 million in a three-year period during Mr. Cheney's tenure as CEO.
On July 25, 2000, the day after Mr. Bush selected Mr. Cheney as his Vice Presidential running mate, Halliburton stock sold at $42. Today it sells at $13.
Arthur Anderson LLP, formerly one of the "Big Five" international accounting firms, is today in disarray and probable dissolution. It was convicted of obstruction of justice for destroying Enron-related documents. It was also the accounting firm for WorldCom, Qwest, and Halliburton. In 1996 Mr. Cheney made a promotional videotape for Anderson. "One of the things I like that they do for us is that, in effect, I get good advice, if you will, from their people based upon how we're doing business and how we're operating, over and above," Mr. Cheney said, "just sort of the normal by-the-books audit arrangement."
Arthur Anderson was also the accountant for a small corporation named for Harken Energy. Therein lies a tale. Fifteen years ago, when George W. Bush was a businessman faced with fiscal failure, Harken Energy bought Spectrum 7, a small company of which Bush was then CEO. Since Spectrum 7 was unprofitable and saddled with debt, the deal brought Harken little gain but the CEO's connections to his father - who happened to be the President of the United States.
Later, although not before our tale is concluded, Harken itself would turn into a company with troubles of its own. But while it appeared healthy, Harken extended generous stock options to the son of President George H. W. Bush. Then the fancy accounting began. Paul Krugman has reported in the New York Times that it involved creating a dummy entity to serve as paper front to then purchase "some of the firm's assets at unrealistically high prices, creating a phantom profit that inflates the stock price, allowing the executives to cash in their stock."
Here is Krugman's description of what happened at Harken Energy, a description which has subsequently been reported all over the nation. "A group of insiders, using money borrowed from Harken itself, paid an exorbitant price for a Harken subsidiary, Aloha Petroleum. That created a $10 million phantom profit, which hid three-quarters of the company's losses in 1989."
Once Harken's stock price was inflated by means of this maneuver - significantly, Arthur Anderson was the accounting firm, and Mr. Bush was on Harken's audit committee - Mr. Bush was able to sell his shares at a large profit shortly before the price of Harken stock dropped substantially. To be specific, on June 22, 1990, Mr. Bush, a director of Harken, sold 212,140 shares for $4 a share, for a total of $848,000. Two months later, on August 20, Harken announced a loss of $23.2 million; on that day its share price dropped 20 percent to $2.375. It closed the year at $1 a share.
There's more to the story. As Wall Street tries to cope with a crisis of confidence involving the fiscal probity of corporations, President Bush has in the past several days recommended that corporations eliminate loans to top executives and corporate insiders. Yet back in the days when he was involved with Harken Energy, the corporation allowed him to borrow heavily from the company's coffers, and then erased his personal liability for that loan. The Bush loan was the exact sort of corporate benefit that helped sink Adelphia and WorldCom, whose CEO, Bernard J. Ebbers, received a $408 million, low-interest loan from the company. But that was then, and this is now . . .
It might seem that things could not get dirtier, yet they can. To add to the chronicle of greed and dishonesty just cited, there is the matter of hypocrisy. The hypocrisy is of signal importance to the developing world, which serves as the major victim of that hypocrisy.
The International Monetary Fund (IMF) functions as a sort of global economic policeman, requiring of countries that seek loans that they get their fiscal house in order as a precondition to economic assistance. One of the chief demands of the IMF is transparency.
In 1999 the IMF formulated its 'Code of Good Practices on Transparency in Monetary and Financial Policies.' This code calls for "good transparency practices for the formulation and reporting of monetary and financial policies." Time and again the IMF has insisted that developing nations adhere to principles of transparency, largely at the behest of the United States and the European nations.
The United States, it appears, has felt itself under no such compunction to compel transparency in its own internal fiscal affairs. Recent revelations have revealed that dishonesty and obfuscation run rampant in many American boardrooms, including boardrooms in which the President and Vice President have played prominent roles.
This is in large part why the American stock market is in free fall. Nobel laureate Joseph Stiglitz, former chief economist of the World Bank and a major critic of the IMF, has built his reputation on explaining the importance of the economics of information. As he says, "For markets to work, for the appropriate signals for efficient resource allocation to be provided, investors must have as much information as possible. Investors need assurance that information received adequately reflects the economic situation of a firm."
But such assurance has not been forthcoming in the United States. Instead, corporations have cooked their books, hiding their debt and artificially inflating profit. They have even - as in the case of WorldCom - falsified EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), the major measure of earnings flow, previously deemed beyond manipulation. Individual investors, pension funds, mutual shares funds, all are demanding honesty and openness in corporate accounting. They want transparency.
But a great number of corporate executives do not want changes that would compel transparency and severely penalize those who circumvent the honest reporting of financial data. They want to be able to report profits, whether their corporation actually has generated them or not, so their tenure remains secure. They want their corporations to loan them money. They want huge bundles of stock options without accounting for those options as a corporate expense. They want to manipulate stock prices, so that they can reap windfall profits from these options.
The powerful accounting lobby does not want to see changes either, since the majority of their revenue comes from consulting, not accounting. They love doing what Vice President Cheney called, in terms cited earlier, giving advice "over and above the normal by-the-books audit arrangement." That, after all, is where their largest profits lie.
President Bush and Vice President Cheney, ever mindful of campaign contributions from rich and powerful corporate executives, ever mindful of their circle of friends the wheelers and dealers and "captains of industry," ever mindful of their own past practices, are themselves in no hurry to see significant changes made.
None of this will stop the President, or the accountants, or the CEOs of multinational corporations, from demanding that developing nations adhere rigidly to the highest standards of accountability and transparency. The IMF will continue to do their bidding.
One could call it greed. Or dishonesty. Or hypocrisy.
Whatever it is, it is the current condition of the executive suites of government and business in America.
Huck Gutman is a columnist for the Statesman, Kolkata. He teaches at the University of Vermont and is the author, with Congressman Bernie Sanders, of Outsider in the House {Verso].
http://www.commondreams.org/views02/0712-02.htm
Sunday, July 14, 2002 in the Statesman (Kolkata) East India's most important newspaper
Dishonesty, Greed and Hypocrisy in Corporate America
by Huck Gutman
This is a tale of greed. And dishonesty. And hypocrisy.
These are hard times for Wall Street, the American economy, and President George W. Bush. As the conservative and pro-business major publication Fortune reports, ongoing revelations of corporate wrongdoing and accounting scandals have "created a crisis of investor confidence the likes of which hasn't been seen since the Great Depression."
The current spate of bad news began with Enron, the largest corporate bankruptcy in American history. Enron executives, propelled by greed, were not satisfied with immense salaries: they set up all sorts of spin-off partnerships to enrich themselves at the expense of stockholders and the corporation's bottom line. In a little more than a decade Enron soared from obscurity to become the nation's seventh largest company, with over 20,000 employees in forty countries. But its dishonesty about profits, and its off-the-books energy deals, abetted by fiscal accounting that was erroneous, misleading, and downright dishonest, eventually caused an implosion of gigantic proportions.
On December 28, 2000, Enron stock sold at over $84 a share. Eleven months later, to the day, Enron shares plummeted to less than a dollar in the heaviest trading volume in a corporation ever recorded by a major stock exchange. The investors in the company - many of them Enron employees - rushed to get out of the stock before it became totally worthless. Two months later Enron stock was delisted by the New York Stock Exchange, and today its stock is just that, worthless. The federal Justice Department is in the midst of a criminal investigation of the energy-trading company, but the damage to shareholders and pensioners is done.
Enron was just the beginning, as example after example of corporate greed and accounting malfeasance has come to light. Every one of the corporations I shall discuss is - or was - among America's largest companies.
The regional telephone company Qwest provides basic telephone service to fourteen states, has revenues of over $18 billion a year and handles 240 million phone calls and 600 million e-mails each day. The fourth largest U.S. telephone company, it is under investigation for criminal corporate practices. The Securities and Exchange Commission (SEC) is currently examining its accounting procedures. These indications of likely fiscal impropriety have caused its stock to crash from its high of $67 two years ago to just under $2, a drop of 97 percent.
Tyco International is one of the world's largest conglomerates, operating in over 80 countries with revenues of $36 billion. In recent months, huge questions surfaced about the way in which the corporation accounted for the multiple acquisitions that transformed it from a small company into a corporate behemoth. Its CEO, Dennis Kozlowski, was forced to resign, and shortly afterwards was arraigned on charges of tax evasion. Tyco, which sold at $60 a share six months ago, in the wake of the financial irregularities in its booking of acquisitions, is now worth just over $10 a share.
Compared to Adelphia Communications Corp., one of America's largest cable television providers, Tyco has performed well on the stock market. Six months ago the respected journal Business Week reported Adelphia's value at between $9.5 billion and $11.8 billion. Since then, Adelphia has entered bankruptcy following disclosures that its finances were in disarray, in large measure because it had made $2.3 billion in off-balance sheet loans to partnerships run by family of John Rigas, the CEO of Adelphia. Its bankruptcy is the fifth largest such filing since 1980. Adelphia's shares sold for $42 dollars a year ago, but had dropped to $.70 a month and a half ago, when all trading in its shares was halted.
Global Crossing, which had a major role in the development of fiber optic cable networks, is under investigation by the SEC for fraudulent accounting. The corporation, it appears, arranged 'deals' in which no goods or services were exchanged, but which nonetheless made it appear that profit was being generated. These purely paper transactions inflated the company's revenue substantially. Global Crossing also filed for bankruptcy. Its share price was over $60 two and a half years ago. Each share is worth $.06 today, a drop of 99.9 percent.
American stock markets - and world markets - have been shaken by the demise of WorldCom. Its balance sheet lists assets of $103 billion, and net income for the calendar year ending March 31 of over $1 billion. Yet it has been revealed that fraudulent accounting hid $3.8 billion in losses, and it is rumored that additional losses may be forthcoming. What this huge telecommunications company did was record daily costs as capital expenditures, a dishonest procedure which allowed it to erase an enormous operating loss and record a sizeable but illusory profit. Three years ago WorldCom stock traded at $64. Today it trades at $.20, a drop of well over 99 percent. It has defaulted on $4.25 billion of its debts to this point, and future defaults are certainly possible.
There are likely more revelations of corporate malfeasance and dishonesty to come. For instance, others in the energy business along with Enron -- Dynegy, El Paso Corp., CMS Energy, Williams, and Halliburton - are currently under scrutiny for the manner in which they have made trades and accounted for revenues and expenses.
Halliburton is particularly interesting, since it points to corporate corruption on a different level. Not that its accounting irregularities are larger than those of WorldCom or Enron, for they are not. But the scandal at Halliburton has a great deal, a great deal, to do with the capacity of the current political administration in Washington to clean up that sewer of greed and dishonesty which, it so unhappily appears, is characteristic of many corporate boardrooms.
Halliburton is a major provider of engineering services, particularly to the energy sector. A current SEC investigation is investigating Halliburton's accounting practices on cost overruns on construction jobs. The former CEO of Halliburton, who was in charge when those accounting practices were introduced, is Dick Cheney, currently Vice President of the United States. A recently filed suit alleges that Mr. Cheney conspired, along with others at Halliburton, to file false financial statements and thereby mislead investors. The suit claims Halliburton's deceptive accounting procedures led to overstatements of revenue amounting to as much as $445 million in a three-year period during Mr. Cheney's tenure as CEO.
On July 25, 2000, the day after Mr. Bush selected Mr. Cheney as his Vice Presidential running mate, Halliburton stock sold at $42. Today it sells at $13.
Arthur Anderson LLP, formerly one of the "Big Five" international accounting firms, is today in disarray and probable dissolution. It was convicted of obstruction of justice for destroying Enron-related documents. It was also the accounting firm for WorldCom, Qwest, and Halliburton. In 1996 Mr. Cheney made a promotional videotape for Anderson. "One of the things I like that they do for us is that, in effect, I get good advice, if you will, from their people based upon how we're doing business and how we're operating, over and above," Mr. Cheney said, "just sort of the normal by-the-books audit arrangement."
Arthur Anderson was also the accountant for a small corporation named for Harken Energy. Therein lies a tale. Fifteen years ago, when George W. Bush was a businessman faced with fiscal failure, Harken Energy bought Spectrum 7, a small company of which Bush was then CEO. Since Spectrum 7 was unprofitable and saddled with debt, the deal brought Harken little gain but the CEO's connections to his father - who happened to be the President of the United States.
Later, although not before our tale is concluded, Harken itself would turn into a company with troubles of its own. But while it appeared healthy, Harken extended generous stock options to the son of President George H. W. Bush. Then the fancy accounting began. Paul Krugman has reported in the New York Times that it involved creating a dummy entity to serve as paper front to then purchase "some of the firm's assets at unrealistically high prices, creating a phantom profit that inflates the stock price, allowing the executives to cash in their stock."
Here is Krugman's description of what happened at Harken Energy, a description which has subsequently been reported all over the nation. "A group of insiders, using money borrowed from Harken itself, paid an exorbitant price for a Harken subsidiary, Aloha Petroleum. That created a $10 million phantom profit, which hid three-quarters of the company's losses in 1989."
Once Harken's stock price was inflated by means of this maneuver - significantly, Arthur Anderson was the accounting firm, and Mr. Bush was on Harken's audit committee - Mr. Bush was able to sell his shares at a large profit shortly before the price of Harken stock dropped substantially. To be specific, on June 22, 1990, Mr. Bush, a director of Harken, sold 212,140 shares for $4 a share, for a total of $848,000. Two months later, on August 20, Harken announced a loss of $23.2 million; on that day its share price dropped 20 percent to $2.375. It closed the year at $1 a share.
There's more to the story. As Wall Street tries to cope with a crisis of confidence involving the fiscal probity of corporations, President Bush has in the past several days recommended that corporations eliminate loans to top executives and corporate insiders. Yet back in the days when he was involved with Harken Energy, the corporation allowed him to borrow heavily from the company's coffers, and then erased his personal liability for that loan. The Bush loan was the exact sort of corporate benefit that helped sink Adelphia and WorldCom, whose CEO, Bernard J. Ebbers, received a $408 million, low-interest loan from the company. But that was then, and this is now . . .
It might seem that things could not get dirtier, yet they can. To add to the chronicle of greed and dishonesty just cited, there is the matter of hypocrisy. The hypocrisy is of signal importance to the developing world, which serves as the major victim of that hypocrisy.
The International Monetary Fund (IMF) functions as a sort of global economic policeman, requiring of countries that seek loans that they get their fiscal house in order as a precondition to economic assistance. One of the chief demands of the IMF is transparency.
In 1999 the IMF formulated its 'Code of Good Practices on Transparency in Monetary and Financial Policies.' This code calls for "good transparency practices for the formulation and reporting of monetary and financial policies." Time and again the IMF has insisted that developing nations adhere to principles of transparency, largely at the behest of the United States and the European nations.
The United States, it appears, has felt itself under no such compunction to compel transparency in its own internal fiscal affairs. Recent revelations have revealed that dishonesty and obfuscation run rampant in many American boardrooms, including boardrooms in which the President and Vice President have played prominent roles.
This is in large part why the American stock market is in free fall. Nobel laureate Joseph Stiglitz, former chief economist of the World Bank and a major critic of the IMF, has built his reputation on explaining the importance of the economics of information. As he says, "For markets to work, for the appropriate signals for efficient resource allocation to be provided, investors must have as much information as possible. Investors need assurance that information received adequately reflects the economic situation of a firm."
But such assurance has not been forthcoming in the United States. Instead, corporations have cooked their books, hiding their debt and artificially inflating profit. They have even - as in the case of WorldCom - falsified EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), the major measure of earnings flow, previously deemed beyond manipulation. Individual investors, pension funds, mutual shares funds, all are demanding honesty and openness in corporate accounting. They want transparency.
But a great number of corporate executives do not want changes that would compel transparency and severely penalize those who circumvent the honest reporting of financial data. They want to be able to report profits, whether their corporation actually has generated them or not, so their tenure remains secure. They want their corporations to loan them money. They want huge bundles of stock options without accounting for those options as a corporate expense. They want to manipulate stock prices, so that they can reap windfall profits from these options.
The powerful accounting lobby does not want to see changes either, since the majority of their revenue comes from consulting, not accounting. They love doing what Vice President Cheney called, in terms cited earlier, giving advice "over and above the normal by-the-books audit arrangement." That, after all, is where their largest profits lie.
President Bush and Vice President Cheney, ever mindful of campaign contributions from rich and powerful corporate executives, ever mindful of their circle of friends the wheelers and dealers and "captains of industry," ever mindful of their own past practices, are themselves in no hurry to see significant changes made.
None of this will stop the President, or the accountants, or the CEOs of multinational corporations, from demanding that developing nations adhere rigidly to the highest standards of accountability and transparency. The IMF will continue to do their bidding.
One could call it greed. Or dishonesty. Or hypocrisy.
Whatever it is, it is the current condition of the executive suites of government and business in America.
Huck Gutman is a columnist for the Statesman, Kolkata. He teaches at the University of Vermont and is the author, with Congressman Bernie Sanders, of Outsider in the House {Verso].
http://www.commondreams.org/views02/0712-02.htm
Sunday, 7 February 2010
How To Invest In The Australian Stock Market
How To Invest In The Australian Stock Market
by Michele Perdue
The heart of the stock market system in Australia is the Sydney Stock Exchange. The exchange lets investors both foreign and domestic supply the regional companies with the funds that are needed in order to expand the economy of Australia. You can be among the investors that deal with the yop-performing companies in the Australian market in just a few simple steps.
Your first step is to hire a broker that is registered with the Australian Stock Exchange; this stockbroker will be able to help you fill out the agreement forms, set up your international account for the trades and give you valuable advice on the changes and trends before you begin to invest.
Investment clubs are popular because they let the investors share the learning experience of how the stock exchanges work; you should gather some friends and fellow investors in an investment club to follow the Australian stock market together. When your club meets you should discuss your individual portfolios as well as observe the rising stocks.
In order to counteract the riskier investments it is advisable to purchase some futures in the Australian stock exchange. The people who invest in the futures will sell their shares back at a predetermined time with the price established before any transactions are made. Using this investment too you can have longer range stocks mixed in with the day trading.
One of the rapidly expanding industries in which to invest is the biotechnology industry. Take advantage of the rapid expansion of the biotechnology industry by investing in some of the hundreds of publicly owned and traded biotech firms that are accessible to the foreign investors. These are the ideal stocks if your intent is to invest over a long term in an industry that is gradually growing.
There are other things to consider and more investing options, Andrew Baxter who is an expert investor and hedge fund manager can offer you some great insights about investing in the Australian Share Market.
http://www.howtoinvesttoday.com/2009/10/02/how-to-invest-in-the-australian-stock-market/
by Michele Perdue
The heart of the stock market system in Australia is the Sydney Stock Exchange. The exchange lets investors both foreign and domestic supply the regional companies with the funds that are needed in order to expand the economy of Australia. You can be among the investors that deal with the yop-performing companies in the Australian market in just a few simple steps.
Your first step is to hire a broker that is registered with the Australian Stock Exchange; this stockbroker will be able to help you fill out the agreement forms, set up your international account for the trades and give you valuable advice on the changes and trends before you begin to invest.
Investment clubs are popular because they let the investors share the learning experience of how the stock exchanges work; you should gather some friends and fellow investors in an investment club to follow the Australian stock market together. When your club meets you should discuss your individual portfolios as well as observe the rising stocks.
In order to counteract the riskier investments it is advisable to purchase some futures in the Australian stock exchange. The people who invest in the futures will sell their shares back at a predetermined time with the price established before any transactions are made. Using this investment too you can have longer range stocks mixed in with the day trading.
One of the rapidly expanding industries in which to invest is the biotechnology industry. Take advantage of the rapid expansion of the biotechnology industry by investing in some of the hundreds of publicly owned and traded biotech firms that are accessible to the foreign investors. These are the ideal stocks if your intent is to invest over a long term in an industry that is gradually growing.
There are other things to consider and more investing options, Andrew Baxter who is an expert investor and hedge fund manager can offer you some great insights about investing in the Australian Share Market.
http://www.howtoinvesttoday.com/2009/10/02/how-to-invest-in-the-australian-stock-market/
Investing Tips For The Beginner
Investing Tips For The Beginner
by Micheal Jones
There are few general rules to remember and follow if you are starting to invest your money in the stock market. The first and most important thing to remember is that you will be contending with the ups and downs. You should not freak out when your stock takes a down0-turn and then immediately react by pulling out your money; that is actually the quickest and most effect way of losing you money.
People watch their stocks go down a bit, get scared and decide they need to abandon ship before they sink any farther. When that happens, they usually notice it going back up and then immediately regret the decision.
It won?t always be the case, but it?s a very good thing to remember as it very typically happens that way. If a stock goes down, then it will eventually come back up. The cases where this will not work is in the case of a company scandal where the company CEO?s are involved in embezzlement; this is the only reason you should sell right away after a downward turn.
The nature of the beast is that the stocks will fluctuate, and some fluctuations may be scary. If you?ve done your homework and you are not just investing on a whim or a gut feeling, then have confidence in your research. Investing is all about knowing the stocks you are investing in and knowing what things can affect them.
Here?s a great example: say you?ve hear some news about a new tax that will affect a clothing company and you know that this will adversely affect their bottom line, with this information you know that it would be a safe bet to steer clear of all textile companies as the new tax will surely be affecting them as well. Simply paying attention is all you need to be successful in the stock market.
Check out this great video; it has a number of questions and answers from an expert who can give you the low-down on investing.
About the Author:
If you wish to learn the best information on investing today you need to check out this free video right now!
http://www.howtoinvesttoday.com/2009/09/23/investing-tips-for-the-beginner/
by Micheal Jones
There are few general rules to remember and follow if you are starting to invest your money in the stock market. The first and most important thing to remember is that you will be contending with the ups and downs. You should not freak out when your stock takes a down0-turn and then immediately react by pulling out your money; that is actually the quickest and most effect way of losing you money.
People watch their stocks go down a bit, get scared and decide they need to abandon ship before they sink any farther. When that happens, they usually notice it going back up and then immediately regret the decision.
It won?t always be the case, but it?s a very good thing to remember as it very typically happens that way. If a stock goes down, then it will eventually come back up. The cases where this will not work is in the case of a company scandal where the company CEO?s are involved in embezzlement; this is the only reason you should sell right away after a downward turn.
The nature of the beast is that the stocks will fluctuate, and some fluctuations may be scary. If you?ve done your homework and you are not just investing on a whim or a gut feeling, then have confidence in your research. Investing is all about knowing the stocks you are investing in and knowing what things can affect them.
Here?s a great example: say you?ve hear some news about a new tax that will affect a clothing company and you know that this will adversely affect their bottom line, with this information you know that it would be a safe bet to steer clear of all textile companies as the new tax will surely be affecting them as well. Simply paying attention is all you need to be successful in the stock market.
Check out this great video; it has a number of questions and answers from an expert who can give you the low-down on investing.
About the Author:
If you wish to learn the best information on investing today you need to check out this free video right now!
http://www.howtoinvesttoday.com/2009/09/23/investing-tips-for-the-beginner/
How to Deal with Success in Investing
How to Deal with Success in Investing
The following factual story is from a US University experiment to understand the psychology of success. There has subsequently been many repeats of this experiment by different people in different locations.
The experiment asked people (experiment subjects) to guess the outcome of tossing a coin and measured how many times they guessed correctly and incorrectly.
The experiment involved tossing the coin 500 times and the law of probability says that you would guess right around 250 times or 50% of the time. This outcome is the same no matter how high or how low your IQ is, no matter where you went to school or how much you have studied the art of coin tossing. Just about everyone understands this and knows it.
However, within the 500 tosses you will have a good chance of stringing together a number of tosses in a row that you will guess correctly. This is where the psychology of success comes into effect. The experiment asked it’s subjects how they felt about their performance in tossing the coin and guessing the correct outcome at various times during the experiment.
What they found was that when people were having successful runs – four or five or six correct guesses in a row – that they believed that they themselves were responsible for this success. Reasons ranged from, I am getting better at this, to I am now concentrating harder and that is improving my performance.
Remember that all these people taking part in the experiment know that the outcome of a guess is based on a 50% probability outcome. Yet these same rational and normal people believe that when they guess a few coin tosses in a row correctly that it is due to their own talent and ability. The psychology of the brain is a scary thing.
This same effect occurs with people investing in the stock market all the time – and this is especially the case with people new to investing and trading. The investor or trader begins to believe, after a winning trade or two that they have some super “talent” for picking stocks and shares. They begin to believe that they have some natural talent that makes them better than the average trader.
The way to manage chance success in your trading/investing is to not become over confident and forget your risk management strategies. Enjoy your success but don’t forget the risks. If you do not manage the risk of future trades properly or take on too many trades and over-extend yourself then you may leave yourself volunerable to the Market Slap. The stock market has a habit of slapping down traders who become over confident and take on too much risk with a large loss.
The lesson to be learnt here is that every trade or investment involves risk and that every trader needs to manage the risk in every trade. This means not getting carried away with your successes and protecting your capital every step of the way. Beware the Market Slap!
http://www.howtoinvesttoday.com/2009/10/25/how-to-deal-with-success-in-investing/
The following factual story is from a US University experiment to understand the psychology of success. There has subsequently been many repeats of this experiment by different people in different locations.
The experiment asked people (experiment subjects) to guess the outcome of tossing a coin and measured how many times they guessed correctly and incorrectly.
The experiment involved tossing the coin 500 times and the law of probability says that you would guess right around 250 times or 50% of the time. This outcome is the same no matter how high or how low your IQ is, no matter where you went to school or how much you have studied the art of coin tossing. Just about everyone understands this and knows it.
However, within the 500 tosses you will have a good chance of stringing together a number of tosses in a row that you will guess correctly. This is where the psychology of success comes into effect. The experiment asked it’s subjects how they felt about their performance in tossing the coin and guessing the correct outcome at various times during the experiment.
What they found was that when people were having successful runs – four or five or six correct guesses in a row – that they believed that they themselves were responsible for this success. Reasons ranged from, I am getting better at this, to I am now concentrating harder and that is improving my performance.
Remember that all these people taking part in the experiment know that the outcome of a guess is based on a 50% probability outcome. Yet these same rational and normal people believe that when they guess a few coin tosses in a row correctly that it is due to their own talent and ability. The psychology of the brain is a scary thing.
This same effect occurs with people investing in the stock market all the time – and this is especially the case with people new to investing and trading. The investor or trader begins to believe, after a winning trade or two that they have some super “talent” for picking stocks and shares. They begin to believe that they have some natural talent that makes them better than the average trader.
The way to manage chance success in your trading/investing is to not become over confident and forget your risk management strategies. Enjoy your success but don’t forget the risks. If you do not manage the risk of future trades properly or take on too many trades and over-extend yourself then you may leave yourself volunerable to the Market Slap. The stock market has a habit of slapping down traders who become over confident and take on too much risk with a large loss.
The lesson to be learnt here is that every trade or investment involves risk and that every trader needs to manage the risk in every trade. This means not getting carried away with your successes and protecting your capital every step of the way. Beware the Market Slap!
http://www.howtoinvesttoday.com/2009/10/25/how-to-deal-with-success-in-investing/
How to Invest Today for your Financial Future: The Right Value Stocks
The Right Value Stocks
Buying value stocks is a good investment. The time is right to get stocks at reasonable prices. With the market making a comeback it’s a great time to invest in stock picks. Higher quality stocks can be purchased at standard company rates.
The time to strike is now as the iron is definitely hot! Okay, what is hot and what is not? The companies that are on an upward swing are smaller companies. This in itself does not imply that these would be the best stocks to invest in.
Normally the small companies are entrenched in debt. Also beware of the companies that represent huge problems of one kind or another. They usually are recognizable from having stocks that took a beating on the market.
Reading the right financial paper can provide insight into stocks and great strategies. One great tip is to invest in blue chips. Get them from a company that has no debt, and your investment will have the potential to skyrocket.
If you are not a risk taker it may be best to stick to buying value stocks which represent a lower risk. Stocks such as these are referenced as ‘Tortoise and Hare’ stocks. They consist of an accumulation of twenty five respectable companies each.
Old strategies are generally the best of course. Buy low and sell high! Take it one step farther and when a good company is having a lull, buy cheap and get rich. Sound investment choices are those of a food or medicinal quality.
Now is the best time to buy value stocks. With the market recuperating from the recent onslaught, price of stocks are very reasonable. Take your time, but not too much time. Assess all of your options before making a final choice.
For stock tips subscribe to our free newsletter at WallStreetWindow.com
http://www.howtoinvesttoday.com/2010/02/06/the-right-value-stocks/
Buying value stocks is a good investment. The time is right to get stocks at reasonable prices. With the market making a comeback it’s a great time to invest in stock picks. Higher quality stocks can be purchased at standard company rates.
The time to strike is now as the iron is definitely hot! Okay, what is hot and what is not? The companies that are on an upward swing are smaller companies. This in itself does not imply that these would be the best stocks to invest in.
Normally the small companies are entrenched in debt. Also beware of the companies that represent huge problems of one kind or another. They usually are recognizable from having stocks that took a beating on the market.
Reading the right financial paper can provide insight into stocks and great strategies. One great tip is to invest in blue chips. Get them from a company that has no debt, and your investment will have the potential to skyrocket.
If you are not a risk taker it may be best to stick to buying value stocks which represent a lower risk. Stocks such as these are referenced as ‘Tortoise and Hare’ stocks. They consist of an accumulation of twenty five respectable companies each.
Old strategies are generally the best of course. Buy low and sell high! Take it one step farther and when a good company is having a lull, buy cheap and get rich. Sound investment choices are those of a food or medicinal quality.
Now is the best time to buy value stocks. With the market recuperating from the recent onslaught, price of stocks are very reasonable. Take your time, but not too much time. Assess all of your options before making a final choice.
For stock tips subscribe to our free newsletter at WallStreetWindow.com
http://www.howtoinvesttoday.com/2010/02/06/the-right-value-stocks/
Succession Planning: The leader you like or the leader you need?
Succession Planning: The leader you like or the leader you need?
Published: 6/02/2010 at 12:00 AM
Newspaper section: Business
One major factor in determining an organisation's character, direction and future is the character of its leaders. This is why leading organisations worldwide attach considerable importance and investment into finding good leaders, leaders who can respond to expectations and to the organisational direction and changing circumstances to create success and sustainable growth.
How can organisations be confident that the leaders they choose will be well-suited for dealing with the organisation, its challenges and future? What characteristics and qualifications should the organisation leader have? And what parameters and characteristics should be used for this consideration?
For almost two years, an alliance of APM Group and Hogan (a leading global company specialising in personnel evaluation) has done research in this area. The goal is to find the qualifications of leaders who will be suitable successors, leaders who will best be able to face a continuously changing business future and best be able to handle the current and future competition and competitive environment.
We started by finding information on high-performance CEOs in America, Europe and Asia. Initially, we could not clearly identify common characteristics and qualifications. So we narrowed our focus to good performance in profit and expansion of business growth. Finally, we obtained information on 55 leading organisations with double profit expansion every year.
We also studied 94 leading organisations that have shown the best succession planning. We considered what characteristics and qualifications the successors of these organisations had by specifically emphasising the people undergoing succession planning. We studied how the 94 organisations prepared their people and what qualifications the people had.
Next, we compared the obtained information with the information from the first 55 organisations to find similarities and differences. We also considered 405 middle talent managers who have been under talent management plans for five consecutive years.
These are the information sources I studied to bring that important and useful information to further exchange with readers.
The leader you "like" and the "ideal" leader: I have worked closely with executives of many leading organisations over my 18 years as a consultant, and one question I always ask is whether they use old information when selecting people or in succession planning. It is an issue I want all executives to consider.
Currently, leading organisations use the current situation or future plans to prepare and select qualifications and characteristics for new successors. The past is not usually taken into consideration.
Finding new characteristics and qualifications for organisation leaders is very important. It is a significant factor that affects the organisation model, business operation, strategy and future of the organisation for more than 10 years. Therefore, selecting a new leader is delicate and must be seriously done in an in-depth manner.
The leader must be both a person you like and the ideal person for the position. Organisations have to ask themselves what information they use when they make succession plans, whether they consider previous guidelines or future expectations.
Today, organisations have a forward-focus: they look to tomorrow and not to yesterday. In the past, old methods and old qualifications might have been successful and suitable. There is nothing wrong with methods and qualifications that have been proven successful in the past. But today's e-world revolves faster: we have to closely watch trading and business operations - every second, it seems.
Currently, the rate of change is fast. There are a myriad more factors, situations, information sources and data. And there are requirements with which we must be more careful than in the past. So we have to be careful when we ask ourselves if the leader we intend to select is the person we like and is also ideal for the position.
Today, organisations are focusing their readiness on those areas they expect to increase or change in the future. And they need to ask themselves whether the leader they are looking to can deal with those things. While many organisations still adhere to old models that used to be successful in the past, they need to ask whether those methods can still be used now.
Some of the old methods can - should - be kept, but they need to be carefully considered in the light of expected future events and changes. In those areas where the older methods will not work, organisations need to consider new requirements both in-depth and widely, in order to select the most suitable and most ideal leader.
--------------------------------------------------------------------------------
Arinya Talerngsri is managing director at the APM Group, Thailand's leading Organisation & People Development Consultancy. Write her at arinyat@apm.co.th
http://www.bangkokpost.com/business/economics/32439/succession-planning-the-leader-you-like-or-the-leader-you-need
Published: 6/02/2010 at 12:00 AM
Newspaper section: Business
One major factor in determining an organisation's character, direction and future is the character of its leaders. This is why leading organisations worldwide attach considerable importance and investment into finding good leaders, leaders who can respond to expectations and to the organisational direction and changing circumstances to create success and sustainable growth.
How can organisations be confident that the leaders they choose will be well-suited for dealing with the organisation, its challenges and future? What characteristics and qualifications should the organisation leader have? And what parameters and characteristics should be used for this consideration?
For almost two years, an alliance of APM Group and Hogan (a leading global company specialising in personnel evaluation) has done research in this area. The goal is to find the qualifications of leaders who will be suitable successors, leaders who will best be able to face a continuously changing business future and best be able to handle the current and future competition and competitive environment.
We started by finding information on high-performance CEOs in America, Europe and Asia. Initially, we could not clearly identify common characteristics and qualifications. So we narrowed our focus to good performance in profit and expansion of business growth. Finally, we obtained information on 55 leading organisations with double profit expansion every year.
We also studied 94 leading organisations that have shown the best succession planning. We considered what characteristics and qualifications the successors of these organisations had by specifically emphasising the people undergoing succession planning. We studied how the 94 organisations prepared their people and what qualifications the people had.
Next, we compared the obtained information with the information from the first 55 organisations to find similarities and differences. We also considered 405 middle talent managers who have been under talent management plans for five consecutive years.
These are the information sources I studied to bring that important and useful information to further exchange with readers.
The leader you "like" and the "ideal" leader: I have worked closely with executives of many leading organisations over my 18 years as a consultant, and one question I always ask is whether they use old information when selecting people or in succession planning. It is an issue I want all executives to consider.
Currently, leading organisations use the current situation or future plans to prepare and select qualifications and characteristics for new successors. The past is not usually taken into consideration.
Finding new characteristics and qualifications for organisation leaders is very important. It is a significant factor that affects the organisation model, business operation, strategy and future of the organisation for more than 10 years. Therefore, selecting a new leader is delicate and must be seriously done in an in-depth manner.
The leader must be both a person you like and the ideal person for the position. Organisations have to ask themselves what information they use when they make succession plans, whether they consider previous guidelines or future expectations.
Today, organisations have a forward-focus: they look to tomorrow and not to yesterday. In the past, old methods and old qualifications might have been successful and suitable. There is nothing wrong with methods and qualifications that have been proven successful in the past. But today's e-world revolves faster: we have to closely watch trading and business operations - every second, it seems.
Currently, the rate of change is fast. There are a myriad more factors, situations, information sources and data. And there are requirements with which we must be more careful than in the past. So we have to be careful when we ask ourselves if the leader we intend to select is the person we like and is also ideal for the position.
Today, organisations are focusing their readiness on those areas they expect to increase or change in the future. And they need to ask themselves whether the leader they are looking to can deal with those things. While many organisations still adhere to old models that used to be successful in the past, they need to ask whether those methods can still be used now.
Some of the old methods can - should - be kept, but they need to be carefully considered in the light of expected future events and changes. In those areas where the older methods will not work, organisations need to consider new requirements both in-depth and widely, in order to select the most suitable and most ideal leader.
--------------------------------------------------------------------------------
Arinya Talerngsri is managing director at the APM Group, Thailand's leading Organisation & People Development Consultancy. Write her at arinyat@apm.co.th
http://www.bangkokpost.com/business/economics/32439/succession-planning-the-leader-you-like-or-the-leader-you-need
Change is a constant in living. To not change is not to live at all.
A good government gives support to all its people.
A good government facilitates the progress of all its people.
In Malaysia, the government gives little support to the significant minorities and other selected groups.
In fact the government hinders their progress.
The present policies limit their quest for better living and their contributions for a better society - socially, economically and politically.
Unless there is a significant change in the thinking and policies of the present elected government, continuing with the old thinking and policies is a recipe for disaster in the future for nation building.
Hopefully, changes will come and come quickly too.
You can either hope for a change in policies or a change in people ruling.
By the way, many are unclear what 1Malaysia is all about, especially regarding its objectives..
----
From the Star Newspaper
http://archives.thestar.com.my/last365days/default.aspx?query=the+brain+drain
Documents 1 to 10 of 74 matching the query "the brain drain"
1.
The Malay dilemma
[BUSINESS 6-Feb-2010]
Malaysian Institute of Economic Research distinguished fellow Professor Datuk Dr Mohamed Ariff shares his thought on the issue of brain drain and the Malay dilemma.
2.
Stemming the tide and keeping our talent
[BUSINESS 6-Feb-2010]
Every now and then, we hear of friends and relatives leaving for greener pastures abroad. While we are happy that they are moving on, their leaving also leaves a lump in our throats. Last month, the issue of our people leaving was brought up again when about 300,000 left, double that of the previous year. Do we, as a n
3.
Our loss is another country’s gain
[BUSINESS 6-Feb-2010]
OVER the last decade, the Malaysian Government has been actively pursuing high-skilled professionals, such as researchers, scientists, doctors, engineers and information-technology experts, to work in the country.
4.
Doctor forced to transfer once again
[FOCUS 5-Feb-2010]
From PATIENT, Kuala Lumpur.
5.
Is there a lesson for M'sia from what happened in US last month?
[BUSINESS 1-Feb-2010]
At home, a divided Malaysia on racial and religious grounds is like a divided America on ideological grounds. Inspirational leadership will be required to bring together the various factions under an inclusive and liberal 1Malaysia concept that is not threatened by just a single word.
A good government facilitates the progress of all its people.
In Malaysia, the government gives little support to the significant minorities and other selected groups.
In fact the government hinders their progress.
The present policies limit their quest for better living and their contributions for a better society - socially, economically and politically.
Unless there is a significant change in the thinking and policies of the present elected government, continuing with the old thinking and policies is a recipe for disaster in the future for nation building.
Hopefully, changes will come and come quickly too.
You can either hope for a change in policies or a change in people ruling.
By the way, many are unclear what 1Malaysia is all about, especially regarding its objectives..
----
From the Star Newspaper
http://archives.thestar.com.my/last365days/default.aspx?query=the+brain+drain
Documents 1 to 10 of 74 matching the query "the brain drain"
1.
The Malay dilemma
[BUSINESS 6-Feb-2010]
Malaysian Institute of Economic Research distinguished fellow Professor Datuk Dr Mohamed Ariff shares his thought on the issue of brain drain and the Malay dilemma.
2.
Stemming the tide and keeping our talent
[BUSINESS 6-Feb-2010]
Every now and then, we hear of friends and relatives leaving for greener pastures abroad. While we are happy that they are moving on, their leaving also leaves a lump in our throats. Last month, the issue of our people leaving was brought up again when about 300,000 left, double that of the previous year. Do we, as a n
3.
Our loss is another country’s gain
[BUSINESS 6-Feb-2010]
OVER the last decade, the Malaysian Government has been actively pursuing high-skilled professionals, such as researchers, scientists, doctors, engineers and information-technology experts, to work in the country.
4.
Doctor forced to transfer once again
[FOCUS 5-Feb-2010]
From PATIENT, Kuala Lumpur.
5.
Is there a lesson for M'sia from what happened in US last month?
[BUSINESS 1-Feb-2010]
At home, a divided Malaysia on racial and religious grounds is like a divided America on ideological grounds. Inspirational leadership will be required to bring together the various factions under an inclusive and liberal 1Malaysia concept that is not threatened by just a single word.
Saturday, 6 February 2010
A Bear Reawakens After a Bullish Run
FUND TRACK JANUARY 27, 2010
A Bear Reawakens After a Bullish Run
GMO's Grantham Warns of a Stock Bubble
By JONATHAN BURTON
Jeremy Grantham, the investment guru who correctly predicted the 2009 market rally, now warns that a new bubble is forming.
Stocks are likely to move higher in coming months, but prices are expensive, and long-term investors should be mindful of a volatile mix that Federal Reserve policy and government actions are causing, according to Mr. Grantham, the frequently bearish chief investment strategist at Boston-based institutional money manager GMO.
GMO's chief investment strategist, Jeremy Grantham, has returned to his bearish bent, saying easy money is inflating stocks.
"Once again, the Fed is playing with fire," Mr. Grantham wrote in his latest quarterly letter to institutional clients.
The Fed's policy of low interest rates and easy money has boosted the economy but has stimulated Wall Street and stocks even more, Mr. Grantham says.
That is why, much to his dismay, he sees another large speculative wave forming.
"I was counting on the Fed and the Administration to begin to get the point that low rates held too long promote asset bubbles, which are extremely dangerous to the economy and the financial system," he writes.
"Now, however, the penny is dropping," he says, "and I realize the Fed is unwittingly willing to risk a third speculative phase, which is supremely dangerous this time because its arsenal now is almost empty."
At the same time, Mr. Grantham says, higher prices suggest a stock market that is increasingly stable and confident, encouraging investors to buy first and ask questions later, if at all.
The upside, at least in the short term, is that speculation will drive the stock market for the next several months, he believes. Accordingly, he says GMO's strategy will be to "very slowly" trim equity positions and to "swallow our distaste for parking the rest in unattractive fixed-income."
This next leg up will be unlike 2009's rally, when low-quality and riskier stocks fared best, Mr. Grantham says.
He expects a broader advance, "in which high-quality stocks should hold their own or even outperform."
But it will be a false rally, he finds. The Standard & Poor's 500-stock index is worth "850 or so; thus any advance from here will make it once again seriously overpriced." The S&P 500 closed Tuesday at 1092.17.
Mr. Grantham is frequently bearish, so it was uncharacteristic in March 2009 when he urged investors to buy stocks. His timing, at the bottom of the market, was correct, just as it was in late 2007, when he warned that stocks were precariously perched.
Going forward, Mr. Grantham predicts a "multiyear headwind" on the markets, during which investors will see "below-average profit margins" and price/earnings ratios in a period more akin to the bumpy 1970s than the bumper 1990s.
Over what Mr. Grantham calls the next "seven lean years," GMO forecasts large-cap U.S. stocks to deliver a real return (after inflation) of 1.3% annualized, while small-caps provide a 0.5% return.
The outlook is better for high-quality U.S. stocks, which have an expected yearly return of 6.8%.
"For the longer term, the outperformance of high quality U.S. blue chips compared with the rest of U.S. stocks is … nearly certain," Mr. Grantham says.
International stocks also fare reasonably well in GMO's model, up about 4.7% annualized over the seven-year period, while emerging markets come in with a 3.9% annualized gain.
"Going into this next decade, we start with the U.S. overpriced," Mr. Grantham cautions, "so do not be conned into believing that every bad decade is followed by a good one."
http://online.wsj.com/article/SB10001424052748704905604575027602834843606.html?mod=WSJ_Markets_LEFTTopNews
A Bear Reawakens After a Bullish Run
GMO's Grantham Warns of a Stock Bubble
By JONATHAN BURTON
Jeremy Grantham, the investment guru who correctly predicted the 2009 market rally, now warns that a new bubble is forming.
Stocks are likely to move higher in coming months, but prices are expensive, and long-term investors should be mindful of a volatile mix that Federal Reserve policy and government actions are causing, according to Mr. Grantham, the frequently bearish chief investment strategist at Boston-based institutional money manager GMO.
GMO's chief investment strategist, Jeremy Grantham, has returned to his bearish bent, saying easy money is inflating stocks.
"Once again, the Fed is playing with fire," Mr. Grantham wrote in his latest quarterly letter to institutional clients.
The Fed's policy of low interest rates and easy money has boosted the economy but has stimulated Wall Street and stocks even more, Mr. Grantham says.
That is why, much to his dismay, he sees another large speculative wave forming.
"I was counting on the Fed and the Administration to begin to get the point that low rates held too long promote asset bubbles, which are extremely dangerous to the economy and the financial system," he writes.
"Now, however, the penny is dropping," he says, "and I realize the Fed is unwittingly willing to risk a third speculative phase, which is supremely dangerous this time because its arsenal now is almost empty."
At the same time, Mr. Grantham says, higher prices suggest a stock market that is increasingly stable and confident, encouraging investors to buy first and ask questions later, if at all.
The upside, at least in the short term, is that speculation will drive the stock market for the next several months, he believes. Accordingly, he says GMO's strategy will be to "very slowly" trim equity positions and to "swallow our distaste for parking the rest in unattractive fixed-income."
This next leg up will be unlike 2009's rally, when low-quality and riskier stocks fared best, Mr. Grantham says.
He expects a broader advance, "in which high-quality stocks should hold their own or even outperform."
But it will be a false rally, he finds. The Standard & Poor's 500-stock index is worth "850 or so; thus any advance from here will make it once again seriously overpriced." The S&P 500 closed Tuesday at 1092.17.
Mr. Grantham is frequently bearish, so it was uncharacteristic in March 2009 when he urged investors to buy stocks. His timing, at the bottom of the market, was correct, just as it was in late 2007, when he warned that stocks were precariously perched.
Going forward, Mr. Grantham predicts a "multiyear headwind" on the markets, during which investors will see "below-average profit margins" and price/earnings ratios in a period more akin to the bumpy 1970s than the bumper 1990s.
Over what Mr. Grantham calls the next "seven lean years," GMO forecasts large-cap U.S. stocks to deliver a real return (after inflation) of 1.3% annualized, while small-caps provide a 0.5% return.
The outlook is better for high-quality U.S. stocks, which have an expected yearly return of 6.8%.
"For the longer term, the outperformance of high quality U.S. blue chips compared with the rest of U.S. stocks is … nearly certain," Mr. Grantham says.
International stocks also fare reasonably well in GMO's model, up about 4.7% annualized over the seven-year period, while emerging markets come in with a 3.9% annualized gain.
"Going into this next decade, we start with the U.S. overpriced," Mr. Grantham cautions, "so do not be conned into believing that every bad decade is followed by a good one."
http://online.wsj.com/article/SB10001424052748704905604575027602834843606.html?mod=WSJ_Markets_LEFTTopNews
How to pick the best stocks to invest
How to pick the best stocks to invest in Part 1 of 2
It takes the best stock market predictions to achieve top stock market results, but choosing the best stocks to invest in is not easy. One approach professional investors and traders use is the fundamental analysis of stocks, where others prefer the technical analysis of stock market trend.
The fundamental analysis of stocks is based on criteria like Earnings per share, Price/Earnings ratio, PEG Ratio, Return on equity and Return on assets.
Whether you are looking for the best penny stocks to buy or any other hot stocks to trade, you will find the following five out 10 fundamental key metrics very useful. They pinpoint the characteristics shared by the top performing stocks before they made huge trading profits in short term.
1. Earnings per share - EPS
Definition:
EPS is the ratio of the company's net income to its number of outstanding shares (all stocks held by investors and the company's insiders).
What it measures:
Earnings-per-share (EPS) serves as an indicator of a company's profitability.
Recommended value:
No less than 80.
Interpretation:
If a company has displayed good growth over the last five- or 10-year period, it is likely to continue doing so in the next five to 10 years.
Observation:
There are many ways to define "earnings" and "shares outstanding". That led to different type of EPS.
2. Price/Earnings Ratio - P/E Ratio
Definition:
Ratio of a company' share price to its earnings per share.
What it measures:
How much investors are willing to pay per dollar of earnings.
Recommended value:
The best stocks to invest in usually have higher P/E compared to the market or industry average.
Interpretation:
If a company has displayed good growth over the last five- or 10-year period, it is likely to continue doing so in the next five to 10 years.
Observation:
There are different types of P/E but the most used is the trailing P/E calculated with the EPS from last four quarters.
3. Price/Earnings To Growth ratio - PEG Ratio
Definition:
PEG Ratio is the price/earnings(P/E) ratio divided by the projected year-over-year earnings growth rate.
What it measures:
How cheap the stock is.
Recommended value:
Less than one (PEG < 1)
Interpretation:
The value of PEG ratio
-below one is an indication of possibly undervalued stock.
-equals one suggests the market is pricing the stock to fully reflect the stock's EPS growth.
-above one means the stock is possibly overvalued or the stock market expects future EPS growth to be greater than what is currently in the street consensus number.
Observation:
PEG ratio cannot be used in isolation.
4. Return on equity - ROE
Definition:
It is the ratio of the company’s 12 month net income to its shareholder equity (book value).
What it measures:
How profitable the company is.
Recommended value:
No Less than one 15%.
Interpretation:
High debt companies have higher return-on-equities(ROEs) than low debt companies.
Observation:
Relying on ROE has a downside. You will end up overweighting your portfolio with high-debt stocks if you go by return-on-equity(ROE) alone.
5. Return on assets - ROA
Definition:
It's the net income divided by total assets.
What it measures:
How profitable the company is in relation to its total assets.
Recommended value:
Return on assets above 20% and higher is better. Avoid company with Return on assets below 5%.
Interpretation:
The lower the debt, the higher the Return on assets. A rising Return on Assets usually foretells a rising stock price.
Observation:
The assets of the company are comprised of both debt and equity. The ROA is some time called ROI.
In Part 2, we will look at the stocks fundamentals like Relative price strength, Cash Flow, Financial leverage ratio, Consencus-earnings-forecast
----
How to pick the best stocks to buy Part 2 of 2
As noted in Part 1 of this two-part article, successful online stock investing is about picking the best stocks to buy. Some professional investors and traders use the fundamental analysis of stocks, other rely on technical analysis of the financial markets.
The fundamental analysis of stocks is based on criteria like Relative price strength, Cash Flow, Financial leverage ratio, Consencus-earnings-forecast.
Whether you are looking for best penny stocks to buy or any other hot stocks to trade, you will find very useful the following 5 out 10 most important fundamental factors shared by the top performing stocks before they made huge stock market profits in short term.
1. Relative Price Strength - RPS
Definition:
Relative price strength( RPS) is the ratio of the price performance of a stock by the price performance of an appropriate index for the same time period.
What it measures:
How stocks have performed compared to the overall market over a particular period.
Recommended value:
Relative price strength(RPS) with a value of at least 70.
Interpretation:
Stocks with relative strength above 70 tend to continue to outperform other stocks.
Observation:
Avoid stocks with 12 month relative strength below 50 or stocks which three-month relative price strength drops 20% from its 12-month relative strength.
2. Cash Flow
Definition:
Amount of money that move into or out of, a company’s bank accounts during the reporting period.
What it measures:
How viable is the company in short-term? What is its ability to pay bills.
Recommended value:
Any positive number is OK, but it’s best if the operating cash flow (i.e.: cash flow attributable to the company’s main business) exceeds the net income for the same period.
Interpretation:
Stock of companies with more cash flow has greater chance to rise more.
Observation:
Stock's price of companies with little cash to support their operations is likely to stagnate or fall.
3. Financial Leverage Ratio - F/L Ratio
Definition:
Financial leverage ratio = total assets divided by shareholders equity.
What it measures:
Level of Company’s debt. Is the company submerged in debt?
Recommended value:
F/L of one means no debt. F/L less than five( 5).
Interpretation:
The higher the F/L ratio, the more the debt.
Observation:
Avoid companies with leverage ratios above 5 which the average of S&P500 index. P.S: Banks and other financial organizations always carry high debt compared to firms in other industry.
4. Consensus Earnings Forecast - CEF
Definition:
Consensus earnings forecast is the average of analysts’ forecasts.
What it measures:
Consensus about the earnings estimated by analysts.
Recommended value:
Avoid stocks where the latest fiscal-year estimates are more than two cents below the 90-days-ago figures.
Interpretation:
The higher the F/L ratio, the more the debt.
Observation:
CEF changes move stock prices. So negative forecast trend warns of future forecast reduction, which will likely pressure the share price.
5. Institutional Ownership
Definition:
Institutional ownership is the percentage of share held by mutual funds, pension plans, banks, and other big holders. Institutional ownership for in-favor of the best stocks to buy is usually between 30% to 60% of shares outstanding, and rarely below 30%.
What it measures:
How many shares are owned by institutions.
Recommended value:
Choose stocks with more than 30% institutional ownership.
Interpretation:
A stock with small % held by institutions is out of favor with investment professionals. That means they don't see the potential of profit. Do not try to outguess the investment experts.
Observation:
Avoid stocks with less than 30% institutional ownership.
These fundamentals indicators should be used in addition to the five other metrics mentioned in the article How to pick the best stocks to invest in part 1 of 2.
http://www.stockonrise.com/stock-trading-information/53-world-stock-exchange/143-how-to-pick-the-best-stocks-to-invest-in-part-1-of-2.html
http://www.stockonrise.com/stock-trading-information/53-world-stock-exchange/145-how-to-pick-the-best-stocks-to-buy-part-2-of-2.html
It takes the best stock market predictions to achieve top stock market results, but choosing the best stocks to invest in is not easy. One approach professional investors and traders use is the fundamental analysis of stocks, where others prefer the technical analysis of stock market trend.
The fundamental analysis of stocks is based on criteria like Earnings per share, Price/Earnings ratio, PEG Ratio, Return on equity and Return on assets.
Whether you are looking for the best penny stocks to buy or any other hot stocks to trade, you will find the following five out 10 fundamental key metrics very useful. They pinpoint the characteristics shared by the top performing stocks before they made huge trading profits in short term.
1. Earnings per share - EPS
Definition:
EPS is the ratio of the company's net income to its number of outstanding shares (all stocks held by investors and the company's insiders).
What it measures:
Earnings-per-share (EPS) serves as an indicator of a company's profitability.
Recommended value:
No less than 80.
Interpretation:
If a company has displayed good growth over the last five- or 10-year period, it is likely to continue doing so in the next five to 10 years.
Observation:
There are many ways to define "earnings" and "shares outstanding". That led to different type of EPS.
2. Price/Earnings Ratio - P/E Ratio
Definition:
Ratio of a company' share price to its earnings per share.
What it measures:
How much investors are willing to pay per dollar of earnings.
Recommended value:
The best stocks to invest in usually have higher P/E compared to the market or industry average.
Interpretation:
If a company has displayed good growth over the last five- or 10-year period, it is likely to continue doing so in the next five to 10 years.
Observation:
There are different types of P/E but the most used is the trailing P/E calculated with the EPS from last four quarters.
3. Price/Earnings To Growth ratio - PEG Ratio
Definition:
PEG Ratio is the price/earnings(P/E) ratio divided by the projected year-over-year earnings growth rate.
What it measures:
How cheap the stock is.
Recommended value:
Less than one (PEG < 1)
Interpretation:
The value of PEG ratio
-below one is an indication of possibly undervalued stock.
-equals one suggests the market is pricing the stock to fully reflect the stock's EPS growth.
-above one means the stock is possibly overvalued or the stock market expects future EPS growth to be greater than what is currently in the street consensus number.
Observation:
PEG ratio cannot be used in isolation.
4. Return on equity - ROE
Definition:
It is the ratio of the company’s 12 month net income to its shareholder equity (book value).
What it measures:
How profitable the company is.
Recommended value:
No Less than one 15%.
Interpretation:
High debt companies have higher return-on-equities(ROEs) than low debt companies.
Observation:
Relying on ROE has a downside. You will end up overweighting your portfolio with high-debt stocks if you go by return-on-equity(ROE) alone.
5. Return on assets - ROA
Definition:
It's the net income divided by total assets.
What it measures:
How profitable the company is in relation to its total assets.
Recommended value:
Return on assets above 20% and higher is better. Avoid company with Return on assets below 5%.
Interpretation:
The lower the debt, the higher the Return on assets. A rising Return on Assets usually foretells a rising stock price.
Observation:
The assets of the company are comprised of both debt and equity. The ROA is some time called ROI.
In Part 2, we will look at the stocks fundamentals like Relative price strength, Cash Flow, Financial leverage ratio, Consencus-earnings-forecast
----
How to pick the best stocks to buy Part 2 of 2
As noted in Part 1 of this two-part article, successful online stock investing is about picking the best stocks to buy. Some professional investors and traders use the fundamental analysis of stocks, other rely on technical analysis of the financial markets.
The fundamental analysis of stocks is based on criteria like Relative price strength, Cash Flow, Financial leverage ratio, Consencus-earnings-forecast.
Whether you are looking for best penny stocks to buy or any other hot stocks to trade, you will find very useful the following 5 out 10 most important fundamental factors shared by the top performing stocks before they made huge stock market profits in short term.
1. Relative Price Strength - RPS
Definition:
Relative price strength( RPS) is the ratio of the price performance of a stock by the price performance of an appropriate index for the same time period.
What it measures:
How stocks have performed compared to the overall market over a particular period.
Recommended value:
Relative price strength(RPS) with a value of at least 70.
Interpretation:
Stocks with relative strength above 70 tend to continue to outperform other stocks.
Observation:
Avoid stocks with 12 month relative strength below 50 or stocks which three-month relative price strength drops 20% from its 12-month relative strength.
2. Cash Flow
Definition:
Amount of money that move into or out of, a company’s bank accounts during the reporting period.
What it measures:
How viable is the company in short-term? What is its ability to pay bills.
Recommended value:
Any positive number is OK, but it’s best if the operating cash flow (i.e.: cash flow attributable to the company’s main business) exceeds the net income for the same period.
Interpretation:
Stock of companies with more cash flow has greater chance to rise more.
Observation:
Stock's price of companies with little cash to support their operations is likely to stagnate or fall.
3. Financial Leverage Ratio - F/L Ratio
Definition:
Financial leverage ratio = total assets divided by shareholders equity.
What it measures:
Level of Company’s debt. Is the company submerged in debt?
Recommended value:
F/L of one means no debt. F/L less than five( 5).
Interpretation:
The higher the F/L ratio, the more the debt.
Observation:
Avoid companies with leverage ratios above 5 which the average of S&P500 index. P.S: Banks and other financial organizations always carry high debt compared to firms in other industry.
4. Consensus Earnings Forecast - CEF
Definition:
Consensus earnings forecast is the average of analysts’ forecasts.
What it measures:
Consensus about the earnings estimated by analysts.
Recommended value:
Avoid stocks where the latest fiscal-year estimates are more than two cents below the 90-days-ago figures.
Interpretation:
The higher the F/L ratio, the more the debt.
Observation:
CEF changes move stock prices. So negative forecast trend warns of future forecast reduction, which will likely pressure the share price.
5. Institutional Ownership
Definition:
Institutional ownership is the percentage of share held by mutual funds, pension plans, banks, and other big holders. Institutional ownership for in-favor of the best stocks to buy is usually between 30% to 60% of shares outstanding, and rarely below 30%.
What it measures:
How many shares are owned by institutions.
Recommended value:
Choose stocks with more than 30% institutional ownership.
Interpretation:
A stock with small % held by institutions is out of favor with investment professionals. That means they don't see the potential of profit. Do not try to outguess the investment experts.
Observation:
Avoid stocks with less than 30% institutional ownership.
These fundamentals indicators should be used in addition to the five other metrics mentioned in the article How to pick the best stocks to invest in part 1 of 2.
http://www.stockonrise.com/stock-trading-information/53-world-stock-exchange/143-how-to-pick-the-best-stocks-to-invest-in-part-1-of-2.html
http://www.stockonrise.com/stock-trading-information/53-world-stock-exchange/145-how-to-pick-the-best-stocks-to-buy-part-2-of-2.html
Investing decision: Focus on Cash Flows (FCF & Dividends) rather than Accruals (Earnings)
Investing Decisions
How much should you invest and what assets should you invest in?
Criterion: To maximise the returns to and wealth of the investors.
The value of the firm is increased by
An important characteristic of investing decision is how you approach this problem: You should focus on the cash flows instead of accruals.
- Expenses vs. Cash Outflows
- is cash outflow
- is not cash outflow
-Revenues vs Cash Inflows
- is cash inflow
Focus of cash flows: Free Cash Flows and Dividend
rather than
Focus on accruals: Earnings
The investing decisions by the firm typically have long term consequences to the firm over many years (3 years to 100 years).
When investing, the investors have a projection of what the future cash inflows and future cash outflows of the firms might be but the investors cannot be certain of these future cash flows.
Therefore, the investors also need to focus on the significant risks associated with this projections of future cash flows when making their investing decision..
How much should you invest and what assets should you invest in?
Criterion: To maximise the returns to and wealth of the investors.
The value of the firm is increased by
- cash flows generated by the firm which support the price of the stock or
- the dividend returned to the owners.
An important characteristic of investing decision is how you approach this problem: You should focus on the cash flows instead of accruals.
- Expenses vs. Cash Outflows
- Purchase of capital asset
- is cash outflow
- Recognition of depreciation expense
- is not cash outflow
-Revenues vs Cash Inflows
- Borrowing funds
- is cash inflow
Focus of cash flows: Free Cash Flows and Dividend
rather than
Focus on accruals: Earnings
The investing decisions by the firm typically have long term consequences to the firm over many years (3 years to 100 years).
When investing, the investors have a projection of what the future cash inflows and future cash outflows of the firms might be but the investors cannot be certain of these future cash flows.
Therefore, the investors also need to focus on the significant risks associated with this projections of future cash flows when making their investing decision..
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