Greek crisis: Q&A

Greek crisis: Q&A
As EU leaders meet in Brussels today to find a solution to Greece's debt crisis, here's an explanation of the problems facing them.


Published: 7:34AM GMT 11 Feb 2010

Q How much scope does the European Union have to help Greece?

A It's complicated. The EU is bound by its own treaty, which has no clear procedure for bailing out a eurozone economy. The EU should be able to come up with a legal justification but the process could be time-consuming and complex and none of the potential options will be popular with member states not in crisis. It may need to use a variety of available options.

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Q Can't the EU just lend Greece the money it needs?

A Things are not that easy. EU law says the union "shall not be liable for or assume the commitments of central governments" unless in the joint execution of a specific project. Attention has turned to Article 122 of the EU treaty which lets the EU help a member state threatened by "exceptional circumstances beyond its control". Greece's poor fiscal record makes it difficult to argue this case, but blaming international speculators could provide cover for such a move.

Other routes could include defining aid as coming from individual member states or for EU governments to buy Greek bonds and justify this action by telling taxpayers the purchase is an investment, not a bail-out.

Q What are the other options available to the EU?

A Greece is waiting on €18.1bn (£16bn) of structural funds earmarked under the 2007-2013 EU budget. The European Commission could decide to pay these funds early, as it did with €7bn for central and eastern European members last year.
The European Investment Bank, which is owned by EU governments, could borrow money in the market relatively cheaply to buy Greek bonds, though this option would probably need agreement from EU finance ministers. The EU might also issue common bonds with Greece taking a share of the proceeds, lowering its borrowing costs. However, the idea of EU common bonds has received little support in the past.

Q Isn't this what the International Monetary Fund is for?

A The IMF is already advising Greece on how to handle its fiscal crisis but requesting IMF financial support for Greece would be unpopular among other European states and a huge embarrassment to the EU.

IMF assistance could come in the form of precautionary funding, possibly including EU support, for Greece to tap if necessary to soothe market nerves. The IMF might also make available its Flexible Credit Line, which was set up for emerging markets to tap during the crisis. However, Greece's poor record would probably bar it from using this fund, which is intended for economies with strong fundamentals facing short-term problems.

The EU is more likely to ask the IMF to monitor and report on Greece's performance against its promises to provide reassurance for investors.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7207492/Greek-crisis-QandA.html

Tasek proposes 63c cash distribution for every share

Tasek proposes 63c cash distribution for every share

Written by Joseph Chin
Tuesday, 09 February 2010 19:13

KUALA LUMPUR: TASEK CORPORATION BHD [] has proposed to distribute 63 sen cash for every share held after it announced its earnings of RM16.24 million for the fourth quarter ended Dec 31, 2009.

It said on Tuesday, Feb 9 that net profit fell 22.7% from RM21.02 million a year while revenue declined 14.7% from RM143.25 million to RM122.07 million. Earnings per share were 8.75 sen versus 11.35 sen.

It proposed a final gross dividend of 10 sen per share, special gross dividend of 20 sen per shares and capital repayment of 33 sen cash.

Under the proposed capital repayment, the par value of the shares and preference shares would be reduced from RM1 to 67 sen per share.

"Subsequent to the proposed capital repayment, the resultant shares in Tasek of 67 sen each will be consolidated into RM1 per Tasek share on the basis of 1.49 shares of 67 sen each in Tasek into one share of RM1 each in Tasek," it said.

Tasek said the proposals were consistent with the objectives of Tasek's capital management framework which includes returning cash in excess of Tasek's requirement to shareholders to reflect the continuous effort of Tasek to achieve an efficient capital structure and to reward its shareholders for their continuous support of Tasek.

The decision was made after taking into consideration Tasek's level of cash, business prospects, projected levels of capital expenditure and other investment plans and current and expected obligations.

"Tasek believes that this is an opportune time to implement the proposals in tandem with its increased balance sheet strength and operational improvements," it said.

On the financial performance, it said the lower earnings were due to lower sales volume resulting from the contraction in demand for local cement and ready-mix concrete.

The group had not equity accounted its associates' results following the company's intention to dispose of the company's equity investment in the associates arising from a proposal from an existing shareholder to buy the said equity investment.

http://www.theedgemalaysia.com/business-news/159435-tasek-proposes-63c-cash-distribution-for-every-share.html

Ekuinas targets IRR of 12%

Ekuinas targets IRR of 12%

Written by The Edge Financial Daily
Tuesday, 09 February 2010 12:29
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KUALA LUMPUR: Ekuiti Nasional Bhd (Ekuinas) has set a minimum target financial return of 12% in internal rate of return (IRR) on its investment portfolio and targets to achieve 20% IRR.

Its chief executive officer Datuk Abdul Rahman Ahmad said on Tuesday, Feb 9 the investments would be in six areas -- 

• education, 
• oil and gas, 
• healthcare, 
• services, 
• retail and leisure, 
• fast moving consumer goods, including food and beverage.

He said Ekuinas' objective equitable Bumiputra economic participation within the Malaysian economy, which shall measured by four dimensions -- enhancing equity ownership, growing a pool of qualified management, increasing employments and creating value for Bumiputra supply chain partners.

"It is critical that Ekuinas be commercially driven as we strongly believe only with viable and profitable investments can Ekuinas achieve its social objectives sustainably," he said.

Abdul Rahman said in terms of direct investment, Ekuinas shall seek buy-out transactions with an investment size of at least RM30 million and a meaningful stake of no less than 20% to enable Ekuinas to be an active shareholder that derives value creation.

http://www.theedgemalaysia.com/business-news/159403-ekuinas-to-reveal-1st-direct-investment-by-end-feb.html

Maybank 2Q net profit up 35.3% to RM993.5m

Maybank 2Q net profit up 35.3% to RM993.5m
Written by Yong Yen Nie
Tuesday, 09 February 2010 18:35
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KUALA LUMPUR: MALAYAN BANKING BHD [] posted a strong second quarter net profit of RM993.50 million, up 35.3% from the RM734.56 million a year ago on improved loan volume and it declared an interim dividend of 11 sen per share.

Revenue was marginally lower by 1.22% at RM4.67 billion from RM4.73 billion a year ago. Earnings per share were 14.04 sen compared with 13.35 sen, the bank said in a statement issued on Tuesday, Feb 9.

According to its financial statements, the higher earnings were due to

• higher non-interest income (RM1.22 billion vs RM832.18 million a year ago), 
• lower allowances for losses on loans, advances and financing (RM243.55 million vs RM321.1 million) and 
• lower impairment losses on securities, net (RM9.83 million vs RM22.56 million).

For the six months, Maybank's net profit rose 43.5pct to a record of RM1.88 billion underpinned by higher revenue of RM9.23 billion from RM8.46 billion a year earlier.

Commenting on the half year financial results, Maybank president and chief executive officer Datuk Seri Abdul Wahid Omar said the banking group was especially pleased with the performance seen at its international operations, particularly Singapore and Indonesia.

"We have set our sights for more dynamic growth in the years ahead and are confident of exceeding our key targets set for the year," he said.

http://www.theedgemalaysia.com/business-news/159434-flash-maybank-2q-net-profit-up-353-to-rm9935m.html

Guinness Anchor 2Q net profit up 26.4% at RM43.82m

Guinness Anchor 2Q net profit up 26.4% at RM43.82m


Written by Joseph Chin
Tuesday, 09 February 2010 18:22
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KUALA LUMPUR: GUINNESS ANCHOR BHD []'s second quarter net profit rose 26.4% to RM43.82 million from RM34.67 million a year ago and it expects a better year ahead for its brands.

It said on Tuesday, Feb 9 revenue rose 15.1% to RM378.13 million from RM328.52 million. Earnings per share were 14.5 sen versus 11.48 sen. It declared an interim dividend of 10 sen per share.

For the first half, net profit was RM70.56 million, down 14% from RM82 million in the previous corresponding period. Revenue was also lower at RM679.1 million versus RM694.32 million.

http://www.theedgemalaysia.com/business-news/159433-guinness-anchor-2q-net-profit-up-264-at-rm4382m.html

F&N 1Q net profit up 53% to RM77m

F&N 1Q net profit up 53% to RM77m

Written by Joseph Chin
Tuesday, 09 February 2010 18:08
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KUALA LUMPUR: Fraser & Neave Holdings Bhd posted net profit of RM77.74 million in the first quarter ended Dec 31, 2009 underpinned by its soft drinks division and dairies division.

It said on Tuesday, Feb 9 that operating profit surpassed RM100 million for the first time. Operating profit rose 37% to RM106 million from RM73.84 million while revenue rose 6% to RM992 million from RM940.39 million. Earnings per share were 21.8 sen versus 14.3 sen.

Chief executive officer Tan Ang Meng said: "The admirable results were driven by both the soft drinks and dairies divisions which performed well ahead of our internal targets. Despite the absence of a festive season during 1Q, the soft drinks division registered record volume while revenue improved 12%, with 100PLUS and Coca-Cola chalking up double-digit growth of 17% and 11% respectively.”

“The dairies division also put up a strong performance with revenue increased by eight per cent. Both Malaysia and Thailand domestic sales registered encouraging volume growth. Improved trade channel management in Malaysia and significant progress in exports to the Indochina market also contributed to the better performance.”

He said the glass division revenue contracted 11% due to lower sales volume in Thailand and China. However Malaysia and Vietnam operations continued to register positive growth.

On the outlook for the coming financial year, Tan said, "Economic recovery in the core markets of Malaysia and Thailand is expected to translate into stronger consumer demand for F&N products. However prices of key raw materials such as milk powder, sugar and aluminium have increased sharply and could negatively impact profit margins.”

http://www.theedgemalaysia.com/business-news/159430-fan-1q-net-profit-up-53-to-rm77m.html

Will you run out of money?

The Basics
Will you run out of money?

This may come as a shock: The amount you can spend in retirement each year, without running out of money, is far less than most people think -- no more than 3% to 4% of your savings a year.

By Liz Pulliam Weston

It's no secret that most Americans aren't saving enough for retirement. What's less discussed is the yawning chasm between what most workers think they'll need and the amount of money actually needed to produce an income that will last 30 or more years.

Consider these findings from a recent retirement confidence survey by the Employee Benefit Research Institute:

* 84% of workers say they're confident they'll have enough money to cover basic expenses in retirement, and 75% believe they'll be able to manage their money well enough not to outlive their funds.
* But less than one-third of those surveyed had actually tried to calculate how much they'll need. Only 26% of younger workers and 33% of those aged 40-59 had tried to do the math.
* Only 23% of those aged 40 to 59, and 17% of those over 60, said they have saved $100,000 or more for retirement, while 13% of those aged 40 to 59, and 11% of those over 60, say they have saved nothing at all for retirement.

The crux of the problem is that the amount of money you can spend each year without running out of money is far less than most people think: no more than 3% to 4% a year.

Financial planners call this the "sustainable rate of withdrawal." And what it means to you and me is that we'll need a nest egg of at least $1 million to get just $40,000 in annual income.

A field fraught with uncertainty

Before you despair and cash out your retirement funds, however, it's important to know that these calculations assume you want to be nearly 100% certain of having enough money to last your lifetime. It's possible to take a higher percentage of income and still not run out, but you'll need to either
1) die quickly or
2) be a little bit lucky with your investments.

The table below shows the maximum withdrawal rate over various time periods and confidence levels.

Retirement withdrawal rates
Payout Period 10 Yrs 20 Yrs 30 Yrs 40 Yrs
100% Safe      8.84% 5.16% 4.26% 4.08%
98% Safe        9.00% 5.32% 4.40% 4.12%
95% Safe        9.27% 5.51% 4.52% 4.25%
90% Safe        9.78% 5.70% 4.71% 4.56%

Source: Retire Early

While they provide an interesting illustration, the numbers in the table are way too precise. The more you know about retirement income calculations, the more you'll realize how fraught with uncertainty the whole field is.

Until the mid-1990s, calculating sustainable withdrawal rates was pretty much a guessing game. Many planners simply picked a figure somewhere below the expected rate of return on a portfolio. If the planner figured the client would earn an 11% average annual return -- about the norm for a stock portfolio -- he would subtract a 3% or so inflation rate and allow an 8% annual withdrawal rate, or perhaps slightly less if he were a conservative type.

That seemed a little too off-the-cuff for Bill Bengen, a financial planner in El Cajon, Calif. Bengen knew that there was no such thing as an "average" market, and suspected that withdrawal rates that seemed reasonable when based on averages would turn out to be too high when faced with real market conditions.

Bengen's research, using model portfolios and subjecting them to historic market conditions, proved his suspicions to be correct.

Run out of money in 20 years?

Depending on the portfolio's mix of stocks and bonds, Bengen found that even a 5% withdrawal rate -- adjusted each subsequent year for the inflation rate -- could cause someone to run out of money in 20 years. A 3% withdrawal rate from a balanced portfolio almost never did. His influential findings were published in a four-part series for the Journal of Financial Planning starting in 1994.

(Bengen also found that having a portfolio that was too heavily weighted in bonds was worse than one that went overboard with stocks. Bengen helped reinforce the idea that even risk-averse retirees should have at least 50% of their money in stocks in order to get enough long-term growth to overcome inflation and other portfolio-killers.)

Mutual fund giant T. Rowe Price later added to our understanding of sustainable withdrawal rates. T. Rowe demonstrated that too-high withdrawal rates early in retirement -- especially in bad markets -- could cause a retiree to run out of money decades too soon.

Need for income changes

Assuming consistent returns wasn't the only blunder planners made. More financial advisers now realize that spending patterns in retirement may not be constant, either. Instead of needing a steady income throughout, income needs might spike, decline or take a U-shape.

For example, many retirees might need more money in the early years as they travel, indulge expensive hobbies or share their largesse with their children. At least half continue to save money in the early years, as well.

In the middle years, retirees may need less income as their wanderlust is sated and their health declines somewhat, leaving them less interested in leaving home. Spending might soar again in the last years, thanks to long-term care needs.

The longer you live, the more money you'll need

Then, of course, there are all the uncertainties of life expectancy. Once many planners figured their clients would die by age 85. Today, planning until age 95 or 100 -- or even later -- is becoming more common. Of course, the longer you live and spend in retirement, the more money you'll need.

Finally, there's the issue of expected returns. Obviously, no one can predict what the Dow will do next, and our historical context for guessing is pretty short -- the modern market is less than 100 years old, after all.

With all the unknowns, there's simply no way to say definitely how much you'll need to save or how long that money will last you. That doesn't mean you're helpless, however:

* Don't fail to plan. You can -- and should -- use retirement calculators like those included in Quicken or Money to give you a rough idea of how much you may need. People who have a plan for investing, and who stick to it, will be better off than those who leave their retirements to fate.
* Don't underestimate the importance of guaranteed income. Pensions and Social Security can reduce, perhaps significantly, how much you may need to save. Although traditional pensions are getting rarer and Social Security benefits may get trimmed, these sources will still exist for many workers. Others may be able to guarantee an income stream by using some of their retirement funds to buy an immediate annuity.
* Don't despair. I've previously mentioned Ralph Warner's excellent Nolo Press book, "Get a Life: You don't need $1 million to retire well." Even if you can't save enough, you can help ensure a happy retirement by tending your health, your family, your relationships and your hobbies. Warner's research shows these factors are at least as important as money in determining how content you'll be in retirement.


Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.

http://moneycentral.msn.com/content/Retirementandwills/Retireinstyle/P34815.asp

http://socialize.morningstar.com/NewSocialize/forums/p/167544/167544.aspx#PageIndex=1 

There is no one way to pick stocks. Every stock strategy is a 'best guess' of how to invest.

Stock Picking 101

The Marketer's Manifesto

It’s time for fund managers to “return to their natural stock-picking tendencies,” said Citigroup chief global equity strategist Robert Buckland. “Just when the bear market (and subsequent rebound) has bullied us all into being very macro is the time when a good contrarian should be moving micro.” Over the last few years, the financial advisory business has been playing it close to the vest to protect as much of their clients’ investments as possible. They’re hesitant to move away from safe options because everyone is fearful of market fluctuations these days. However, some analysts say it’s precisely this strategy that’s holding us back. Stock picking is slowly but surely coming back into favor again, offering higher yields and better deals for people who know when to get in and when to get out.

Investors who are interested in stock picking have many different places to learn financial secrets, tips and trends. According to Forbes Magazine, some of these personal financial advisor “hot spots” include

ClearStation (www.clearstation.etrade.com), 
MSN Money (www.moneycentral.com/investor), 
Marketocracy (www.marketocracy.com), 
Reuters Investor (www.reuters.com/investing), 
MarketHistory (www.markethistory.com), 
Morningstar (www.morningstar.com), 
Sector Updates (www.sectorupdates.com), 
Stock Fetcher (www.stockfetcher.com), 
Stock Selector (www.stockselector.com), 
ValuEngine (www.valuengine.com) and 
Wall Street Transcript (www.twst.com). 

Over time, the consumers who watch market activity will begin to develop a fundamental understanding of the markets.

There are many different types of stock picking strategies. Some of the most common include

Fundamental Analysis, 
Qualitative Analysis, 
Value Investing, 
Growth Investing, 
GARP Investing, 
Income Investing, 
CAN SLIM, 
 Dogs of the Dow and 
Technical Analysis.

While there is limited space to delve deeply into these complex strategies here, more information can be found at Investopedia (www.investopedia.com/university/stockpicking/stockpicking1.asp). Even when consumers learn financial investment techniques, there is no guarantee, however. According to Investopedia: “The bottom line is that there is no one way to pick stocks. Better to think of every stock strategy as nothing more than an application of a theory; a ‘best guess’ of how to invest.”

Stock picking can be done by individuals or by professionals. Top financial advisors work to assist clients in selecting a winning stock portfolio. While these individuals are undoubtedly more experienced in watching economic market fluctuations, they are still human and ultimately fallible. One should not simply entrust an enormous sum of money with a financial advisor, without looking over the periodic statements and watching the DOW/NASDAQ activity. All investing is a gamble, so expectations should be clear when getting started. Perhaps the best advice is still “don’t put all of your eggs in one basket!”

Beth Kaminski is the co-author of Curing Your Anxiety And Panic Attacks which detailed anxiety or panic attacks as well as tips on the various anxiety attack medication available at anxietydisordercure.com.


http://www.supermoneymaking.info/home-business-ideas/stock-picking-101-2/4787

Market PE of KLSE 10.2.2010

http://spreadsheets.google.com/pub?key=tqTRwLLBhkoRtg4BhuybqMA&output=html

10.2.2010

KLCI at 1246.17

Market PE of KLSE = 18.8

Market DY = 3.03%

Warren Buffett's Long-term timing of the market and the Rational Investing Model

I recently posted:

New Investing Idea: The Rational Investing Model is the alternative to the Buy-and-Hold Investing Model

and pleasantly received a reply from the author of the above article:

Rob Bennett said...

This is Rob Bennett, author of the Google Knol on "Why Buy-and-Hold Investing Can Never Work." Thanks for sharing some of the ideas set forth in the Knol with your readers, BullBear. If you or others have questions, I'm happy to help out to the extent that I am able. Rob

My comments:

Thanks Rob for allowing me to share your article in my blog.

Buy and hold strategy is safe for selected stocks.  Those using this strategy should be stock pickers; having only good quality companies in their portfolios and only buying them when their prices are obviously at bargain or fair prices.  Over the short term, the returns will be volatile, but over the long-term the returns on these investments will be predictably positive reflecting their fundamentals.

Though incorporating a long-term market timing based on valuation of the market may increase returns, like any market timing strategy, it may also impacts negatively on the returns too.

However, there are the very few periods when market timing can be usefully employed with a high degree of confidence and conviction.    Those with a good understanding of the valuation of the stock market can  employ this infrequently to their benefit when the valuations of the markets are obvious at the extremes.  Warren Buffett had done this on a few occasions in his very long investing lifetime.  In other periods (the majority of the time), buy and hold for the long term is safe and it works (my personal testimony), but for selected stocks only bought at bargain or fair prices. 

Investors would be impressed that Warren Buffett did make adjustments to his allocations to equities at certain periods during his long investing career.  These adjustments were based on valuations of the stocks and the market.  There were periods his exposure to equities were low when he felt the market was overpriced.  At one stage, he returned cash to all his investors as he could find no value in equities to justify continuing investing their money in stocks.  And there were the few occasions when Warren Buffett saw deep values in stocks and invested heavily, usually at the bottom of bear markets.  Yet, these were the times when other investors were most fearful.

What Warren Buffett did was essentially quite close to what Rob Bennett has written:

The Rational Investing Model encourages investors to take price (valuations) into consideration when setting their stock allocations.

Though we often hear only his "buy and hold forever" mantra, Warren Buffet has in fact been cleverly employing the equivalent of THE RATIONAL INVESTING MODEL, incorporating long-term market timing based on valuation of the market in his allocation of his money to stocks. 


The links below documented these actions by Warren Buffett:

*****Warren Buffett's commonsense approach to valuing the stock market

Buffett's success in gauging market conditions and profiting from them

Buffett: Keeping abreast of market conditions

*****Buffett's Shrinking Portfolio of the 1980s (1)

*****Buffett's shrinking portfolio of the 1980s (2)

Also read:

http://knol.google.com/k/why-buy-and-hold-investing-can-never-work#

http://www.getrichslowly.org/forum/viewtopic.php?f=2&t=4882
 
http://arichlife.passionsaving.com/2010/02/08/get-rich-slowly-forum-discusses-how-buy-and-hold-caused-the-economic-crisis/

http://www.retireearlyhomepage.com/bennett.html


and this:

A Better Approach to Investing from Rob Bennett of A Rich Life
I'd like to introduce you to a very solid approach to investing from Rob Bennett, author of A Rich Life. His investment approach has been given many names (the one I use for it is dynamic asset allocation). The principles are sound and over the long run, it will serve to reduce overall risk in your portfolio while providing more than adequate returns when compared to static or strategic asset allocation methods. To learn more, read on...
http://www.wealthuncomplicated.com/wealthuncomplicated/2009/05/a-better-approach-to-investing-from-rob-bennett.html

Portfolio Review

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.

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/

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#

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

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..."

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.

• 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:

1. speculating when you think you are investing;
2. speculating seriously instead of as a pastime, when you lack proper knowledge and skill for it; and
3. 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.

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?

• 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

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.

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?