Correction: CNBC Explains

Published: Friday, 5 Aug 2011 

By: Mark Koba
Senior Editor

A correction may sound like it means something is getting 'fixed' on Wall Street, but actually it's a word used to describe both a trigger for financial losses, as well as buying opportunites for investors.

Timothy A. Clary | AFP | Getty Images A concerned trader on the floor of the New York Stock Exchange.

So what is a correction? How does one come about? What does it mean for the stock market? CNBC explains.

What is a correction?

A correction is a decline or downward movement of a stock, or a bond, or a commodity or market index.

The amount of the decline is at least 10 percent and a true correction exceeds that amount.

In short, corrections are price declines that stop an upward trend.

Why do corrections happen?

Stocks, bonds, commodities, and everything else traded on the markets never move in a straight line, either up or down. At some point their value will change—for better or worse.

When stock or bond prices go up, it may seem like there's no end to how high they can go. When this happens, stocks or bonds become 'overbought.' That means some investors will try to buy into the rise of stock prices with the hope of making profits before a downward trend begins.

But as they do buy in, the investors who bought earlier—helping to push the stock or bond price up—will consider selling when they think the price is near a peak. Investors might base their thinking on an earnings report for a certain stock that shows flat profits, or a belief that a certain industry will face trouble. Any kind of 'bad' news can trigger a sell-off.

And sometimes, investors will simply take profits as the market heats up. In either case, the selling pressure drives prices down.

How long do corrections last?

Corrections generally last two months or less. They usually end when the price of a stock or a bond 'bottoms out'—for example, some will point to a stock reaching a 52-week low—and investors start buying again.

How is a correction different from a bear market or "capitulation"?

A correction is shorter in length and generally less damaging to investors than a bear market. A bear market happens when equity prices keep falling and investors keep selling into a downturn of 20 percent or more for the overall market.

The difference between a capitulation and correction is simply that a capitulation is more severe. A capitulation  , is said to occur when investors try to get out of the stock market as quickly as possible. It's also described as panic selling. Capitulation usually is based on investor fears that stock prices will plunge even further than the current low levels.

Bottoms—or the lowest price for a stock or market index—are formed more quickly in corrections than in capitulations.

Is a correction good for the market?

Many investors and analysts look at corrections as a necessary 'evil' to cool off an overheated stock or bond market. This is to prevent a huge sell-off or 'bubble burst,' as what happened with Internet stocks in 2000-2001.

It's believed that corrections adjust stock prices to their actual value or "support levels," and so, are not overpriced or inflated.

Many short-term investors look at corrections as a buying opportunity when the stock or the overall market has reached a bottom or the lowest price level. Their buying helps push the price back up and stops the correction.

What is an example of a correction?

Corrections are fairly common. We can look at the S&P Index to see one.

As the chart below shows, the S&P 500 closed at 1,363.61 on April 29, 2011, its highest level since June 5, 2008.

On Thursday, Aug. 4, 2011, at 11:26 a.m. ET, the S&P 500 hit a low of 1,225.95, entering “correction” mode, defined by a drop of 10 percent or more.

© 2011 CNBC.com

http://www.cnbc.com/id/44033215/Correction_CNBC_Explains

Capitulation: CNBC Explains

By: Mark Koba

Published: Thursday, 4 Aug 2011

Senior Editor

Traditionally, the word capitulation describes a surrender between fighting armies. What is capitulation when it's used on Wall Street? What does it signify? We explain.

cnbc.com

What is capitulation?

In simple terms, capitulation is when investors try to get out of the stock market as quickly as possible and look for less risky investments. It's also described as panic selling. It's usually based on investor fears that stock prices will fall further than they have.

Capitulation is usually signaled by a decline in the markets of at least 10% in one day.

In getting out of the market, investors give up any previous gains in stock price. That means they take a financial loss, just to get out of stocks. The thinking is: take a smaller loss now rather than a bigger one later.

Real capitulation involves extremely high volume—or high numbers of traded shares—and sharp declines in stock prices.

Why do investors capitulate?

Suppose a stock starts dropping in price. There are two choices. Investors stick it out and hope the stock begins to appreciate—or they can take the loss by selling the stock.

If the majority of investors decide to wait it out, then the stock price will probably remain stable. But if the majority of investors decide to capitulate and give up on a stock, they start selling and that starts a sharp decline in a stock's price.

Are there any benefits from capitulation?

Only for those buyers ready to swoop in.  After capitulation selling, common wisdom has it that there are great bargains to be had in the stock market. Why? Because everyone who wants to get out of a stock, for any reason, has sold it. The price should then, theoretically, reverse or bounce off the lowest price of the stock.

In other words, some investors believe that capitulation is the sign of a bottom and a chance to get stocks at a cheaper price than before the capitulation took place.

Is capitulation a way to gauge the markets?

Not at all. Capitulation is very difficult to forecast and use as a way to buy or sell stocks. There is no magical price at which capitulation takes place. Certainly during the trading day, stock prices and volumes are monitored and some measurement is used to determine if a capitulation is taking place and will remain so at the end of the day.

But most often, investors and market watchers look back to determine when the markets actually capitulated and see how far stocks have fallen in price for that one day of trading.

When have there been capitulations?

The stock market crash of 1929 that helped lead to the Great Depression, is a capitulation. In fact, it had more than one day of it.

On Oct. 24, 1929—what's known as Black Thursday—share prices on the New York Stock Exchange collapsed. A then-record number of 12.9 million shares was traded.

But more was to follow. Oct. 28, the first "Black Monday," more investors decided to get out of the market, and the slide continued with a record loss in the Dow for the day of 38 points, or 13 percent.

The next day, "Black Tuesday," Oct. 29, 1929, about 16 million shares were traded, and the Dow lost an additional 30 points.

More recently, there was a massive sell off or panic selling of stocks  on Oct. 10, 2008, in what can be considered a capitulation. Not only U.S. stocks, but global markets had major declines of 10 percent or more on one day.

Investors flooded exchanges with sell orders, dragging all benchmarks sharply lower. It's believed fears of a global recession and the U.S. housing slump sparked the sell-off.

© 2011 CNBC.com

http://www.cnbc.com/id/44022035/Capitulation_CNBC_Explains

CANSLIM (CANVLIM) - Growth Investing

Investing Heroes

Forget buy low and sell high, says William O'Neil

Noreen Rasbach

Published Thursday, Feb. 18, 2010 6:07AM EST

Last updated Thursday, Feb. 18, 2010 7:39AM EST

Globe Investor will be running profiles of prominent investors and exploring their investing strategies in its Investing Heroes series. We started with an interview with Stephen Jarislowskylast week. This week's article profiles William J. O'Neil.

Investment guru William J. O’Neil’s resume is an impressive read – at 30, he was the youngest person ever to have a seat on the New York Stock Exchange; his How to Make Money in Stocks is a growth-investing classic, selling more than a million copies; he founded the U.S. brokerage firm William O’Neil + Co., and he also started the business newspaper Investor’s Business Daily.

Those successes are largely based on a stock-picking system he designed that identifies stocks that are likely to rise in price and have a high potential for profits, although he gave his system a name -- CANSLIM -- that sounds more like a new diet than a guide to investment success.

Last week, the American Association of Individual Investors named CANSLIM the top-performing investment strategy from 1998 to 2009, which included the recent financial crisis. The non-profit group tracked more than 50 investing methods over 12 years to see how they would fare. CANSLIM returns over the 12 years showed a total gain of 2,763 per cent – compared with the S&P 500’s 14.9-per-cent increase. That averages out to about 35.3 per cent a year.

The system is anything but simple, but Mr. O’Neil said in a statement after the AAII results were announced that “it is possible to invest successfully if you are willing to study hard and learn from history.”

Learn to Time the Market

Hard work is key (there is a great deal of quantitative analysis involved in picking stocks using this system) – and so, too, is accepting some of Mr. O’Neil’s most controversial advice. For example, forget the adage buy low and sell high (it’s “completely wrong,” he writes) and stop looking for bargains. 
“What seems too high in price and risky to the majority usually goes higher and what seems low and cheap usually goes lower.”

Another contentious point he makes is that individual investors can and should learn to time the market – in fact, the M in CANSLIM is predicated on it.

Mr. O’Neil’s first rule for investors has nothing to do with buying stocks. He says that investors must know when to sell and cut their losses.

Investors, he writes in his second book 24 Essential Lessons for Investment Success, “find it gut-wrenching and hard to admit” they were wrong when a stock loses money, but they must overcome that emotion and sell anyway – an essential move if a stock has lost between 7 and 8 per cent from your purchase price.

In fact, the entire CANSLIM system is predicated on taking the emotion out of investing and letting history be your guide.

Here’s a brief description of how it works:

C and A are for earnings

Current and annual. Mr. O’Neil writes that the stocks you pick should show a major percentage increase in current quarterly earnings per share – using the most recently reported quarter – when compared to same quarter in the previous year.

The reason for this, he says, is that historically, stocks that begin to soar show a 70-per-cent increase in current earnings before those major advances.

As for annual earnings, Mr. O’Neil believes that annual share-profit growth should be at least 25 per cent for you to consider buying a stock, that next year’s consensus estimate should indicate even higher growth -- and that the stock should have grown significantly in each of the past three years.

N is for new

There should be something new in the industry – a new product or service or management. Something that can propel it forward.

S is short for supply and demand

Really, he should have used a V for volume, but CANVLIM wouldn’t have the same ring to it. Mr. O’Neil believes you should track the volume of a stock to see whether people are buying or selling it. Also, the larger the number of shares outstanding, the harder it is to budge the stock – to get a really large price increase.

L is leaders and laggards

Pick stocks of companies that lead their industry, not so much in size but in quarterly and annual profit growth and a product that is gaining market share.

I stands for institutions

How is the stock perceived by mutual funds or pension plans? Mr. O’Neil’s rule of thumb is that a stock should be in the portfolio of at least 10 institutions, and some of these should be organizations will better-than-average performances.

M is for market direction

Three quarters of stocks follow the market’s trend, so it’s important to know which way it’s headed. His book How to Make Money in Stocks outlines how to time the market using, among other things, daily price and value charts of the key market indexes.

Although CANSLIM is a detailed, somewhat complicated system, like all growth investing it places an emphasis on using earnings as a metric.

“Growth investors do not tend to focus on asset values, they focus primarily on earnings growth potential – future earnings per share,” says Prof. Eric Kirzner, a finance professor at the University of Toronto’s Rotman School of Management. “And companies whose rate of return on new investment exceeds their cost of capital.”

By comparison, value investors concentrate on asset values and on price versus value. “If you look at a good value-investor portfolio, it often has very few, if any technology companies, because technology companies tend to be future-earnings focused and not brick and mortar-type companies.”

More on value investing: These fund managers bought, held, prospered Value investor guru's strategy still works Value investing thrives after market meltdown Graham's strategy still stands tall Fund lessons from Bill Miller

Prof. Kirzner also says that growth stocks are often characterized by high price-to-earnings, high price-to-book and high price-to-sales metrics, all of which are the value investor’s nightmare.

“Value investors are absolute – the most important criteria is, are you buying the stock at a bargain?” he says.

Howard Lindzon, a Canadian-born entrepreneur who runs the web company StockTwits and manages a hedge fund, is a self-described “big fan” of Mr. O’Neil’s. Mr. Lindzon, who is a growth investor, says How to Make Money in Stocks “was one of the first books recommended to me” and he was tremendously influenced by it. He also is an avid reader of Investor’s Business Daily, which “helps me to focus in on trends and what stocks I want to own.”

His own system for choosing stocks is more of a hybrid, he says, but adds, “I definitely try to own companies that would qualify for CANSLIM.”

http://www.theglobeandmail.com/globe-investor/investor-education/forget-buy-low-and-sell-high-says-william-oneil/article1471282/page1/

http://www.theglobeandmail.com/globe-investor/investor-education/forget-buy-low-and-sell-high-says-william-oneil/article1471282/print/

Capitulation

What Does Capitulation Mean?
When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into less risky investments. True capitulation involves extremely high volume and sharp declines. It usually is indicated by panic selling.

The term is a derived from a military term which refers to surrender.


Investopedia explains Capitulation
After capitulation selling, it is thought that there are great bargains to be had. The belief is that everyone who wants to get out of a stock, for any reason (including forced selling due to margin calls), has sold. The price should then, theoretically, reverse or bounce off the lows. In other words, some investors believe that true capitulation is the sign of a bottom.


Read more: http://www.investopedia.com/terms/c/capitulation.asp#ixzz1ZsUZ26of

Warren Buffett's Bear Market Maneuvers

Warren Buffett's Bear Market Maneuvers

Posted: Jul 12, 2009

Dan Barufaldi

In times of economic decline, many investors ask themselves, "What strategies does the Oracle of Omaha employ to keep Berkshire Hathaway on target?" The answer is that the esteemed Warren Buffett, the most successful known investor of all time, rarely changes his long-term value investment strategy and regards down markets as an opportunity to buy good companies at reasonable prices. In this article, we will cover the Buffett investment philosophy and stock-selection criteria with specific emphasis on their application in a down market and a slowing economy.

The Buffett Investment Philosophy
Buffett has a set of definitive assumptions about what constitutes a "good investment". These focus on the quality of the business rather than the short-term or near-future share price or market moves. He takes a long-term, large scale, business value-based investment approach that concentrates on good fundamentals and intrinsic business value, rather than the share price.

Buffett looks for businesses with "a durable competitive advantage." What he means by this is that the company has a market position, market share, branding or other long-lasting edge over its competitors that either prevents easy access by competitors or controls a scarce raw-material source.

Buffett employs a selective contrarian investment strategy: using his investment criteria to identify and select good companies, he can then make large investments (millions of shares) when the market and the share price are depressed and when other investors may be selling.

In addition, he assumes the following points to be true:

• The global economy is complex and unpredictable.
• The economy and the stock market do not move in sync.
• The market discount mechanism moves instantly to incorporate news into the share price.
• The returns of long-term equities cannot be matched anywhere else.

Buffett Investment Activity

Berkshire Hathaway investment industries over the years have included:

• Insurance
• Soft drinks
• Private jet aircraft
• Chocolates
• Shoes
• Jewelry
• Publishing
• Furniture
• Steel
• Energy
• Home building

The industries listed above vary widely, so what are the common criteria used to separate the good investments from the bad?

Buffett Investment Criteria

Berkshire Hathaway relies on an extensive research-and-analysis team that goes through reams of data to guide their investment decisions. While all the details of the specific techniques used are not made public, the following 10 requirements are all common among Berkshire Hathaway investments:

• The candidate company has to be in a good and growing economy or industry.
• It must enjoy a consumer monopoly or have a loyalty-commanding brand.
• It cannot be vulnerable to competition from anyone with abundant resources.
• Its earnings have to be on an upward trend with good and consistent profit margins.
• The company must enjoy a low debt/equity ratio or a high earnings/debt ratio.
• It must have high and consistent returns on invested capital.
• The company must have a history of retaining earnings for growth.
• It cannot have high maintenance costs of operations, high capital expenditure or investment cash flow.
• The company must demonstrate a history of reinvesting earnings in good business opportunities, and its management needs a good track record of profiting from these investments.
• The company must be free to adjust prices for inflation.

The Buffett Investment Strategy

Buffett makes concentrated purchases. In a downturn, he buys millions of shares of solid businesses at reasonable prices. Buffett does not buy tech shares because he doesn't understand their business or industry; during the dotcom boom, he avoided investing in tech companies because he felt they hadn't been around long enough to provide sufficient performance history for his purposes.

And even in a bear market, although Buffett had billions of dollars in cash to make investments, in his 2009 letter to Berkshire Hathaway shareholders, he declared that cash held beyond the bottom would be eroded by inflation in the recovery.

Buffett deals only with large companies because he needs to make massive investments to garner the returns required to post excellent results for the huge size to which his company, Berkshire Hathaway, has grown.

Buffett's selective contrarian style in a bear market includes making some large investments in blue chip stocks when their stock price is very low. And Buffett might get an even better deal than the average investor: His ability to supply billions of dollars in cash infusion investments earns him special conditions and opportunities not available to others. His investments often are in a class of secured stock with its dividends assured and future stock warrants available at below-market prices.

Conclusion

Buffett's strategy for coping with a down market is to approach it as an opportunity to buy good companies at reasonable prices. Buffett has developed an investment model that has worked for him and the Berkshire Hathaway shareholders over a long period of time. His investment strategy is long term and selective, incorporating a stringent set of requirements prior to an investment decision being made. Buffett also benefits from a huge cash "war chest" that can be used to buy millions of shares at a time, providing an ever-ready opportunity to earn huge returns.

For further reading, see Think Like Warren Buffett and Warren Buffett's Best Buys.
by Dan Barufaldi
Dan Barufaldi is an independent consultant associated with the management consulting and global business development firm, Globe Lynx Group, located in Lewiston, NY. He has a bachelor's degree in economics from Cornell University. Previous positions include president and CEO of Colonial Printing Ink Corporation, general manager of the Decorative Products Division of Johnson-Matthey, Inc., director of sales and marketing of the U.S. Colorants Division of CIBA-Geigy Corporation. He has also worked extensively in international business in China, the U.K., Western Europe, Canada, Sweden, Argentina and Chile. Barufaldi has authored business articles and columns in four newspapers and several Chamber of Commerce publications.


Read more: http://www.investopedia.com/articles/stocks/09/buffett-bear-market-strategies.asp#ixzz1Zmyvd1zK

What can you do if you believe your financial adviser or broker has pushed you into a bad investment?

Hallandale woman says she lost nest egg to bad investment advice

Fraud attorney says to take precautions when investing

By Donna Gehrke-White, Sun Sentinel

4:46 p.m. EDT, October 1, 2011

Robin Pittman of Hallandale Beach thought she was investing for a comfortable retirement. But the broker who promised her a ticket to her Golden Years instead gave her a setback she hasn't recovered from: He advised her to invest in a high-risk stock of a small company and she lost her money — more than $100,000.

Now Pittman finds herself with a penniless Roth IRA. "When it first happened I was in shock," said Pittman, 60, an administrative assistant at a construction company. "I would wake up at night" petrified over losing her nest egg.

Pittman's case spotlights an issue confronting many South Florida investors these days: What can you do if you believe your financial adviser or broker has pushed you into a bad investment?

As Pittman discovered, a little-known Washington-based group — the Financial Industry Regulation Authority — has created an arbitration program for investors to file claims against investment firms. The nonprofit industry group also serves as a watchdog, similar to the Bar Association for lawyers.

Pittman recently filed an arbitration claim with FINRA and hopes it will lead to her recouping at least part of her savings. She is asking her broker's former firm to pay her back the money she lost in her Roth IRA and another investment. Plus, she says, she is owed legal fees and $48,426 in interest.

FINRA spokeswoman Michelle Ong said the agency offers a first line of defense for individual investors as the nation's largest independent regulator of U.S. securities firms. FINRA created the online BrokerCheck at finra.org where investors can research any FINRA-registered broker or brokerage firm. It also has established rules for the nation's brokerages.

"It should be the first resource investors turn to when choosing whether to do business or continue to do business with a particular broker or brokerage firm," she said.

The federal Securities Exchange Commission and state agencies, such as the Florida Office of Financial Regulation, also oversee the financial industry. Investors can check with the state office to see whether brokers are registered to work in Florida.

But some in the financial industry question whether regulatory oversight is sufficient and if FINRA can effectively watch over brokerages. A few brokers can take advantage of investors without getting in trouble with the regulatory agency, said South Florida investment adviser Frank Armstrong. "As long as you don't break their [FINRA] little rules, you can create a whole lot of havoc," he said.

Those rules forbid brokers from "churning" stocks to make commissions, selling or buying investments without the client's authorization and requiring brokers to recommend only "suitable" stock for investors.

Former Miami federal prosecutor Andres Rivero said FINRA can be slow to act. But "it has a good record" of helping investors, said Rivero, who is now in private practice in Coral Gables.

Pittman said she is grateful for FINRA's arbitration system: It gives her a chance to get back her nest egg. "It took me forever to save it," said Pittman, who made $28,000 a year when she invested with broker Ted Bakurin of Parkland.

The single mom of two grown children accuses New Jersey-based Garden State Securities Inc. of not properly supervising Bakurin who she says invested her money in an unsuitable stock that should never have been used for retirement savings. She blames Bakurin for recommending the high-risk penny stock that earned him a big commission, according to her claim. It was not even traded on an exchange.

Bakurin denied any wrongdoing in a telephone interview. "Not everything is as it seems," he said. Bakurin said he did make money for Pittman in an annuities account. He declined to talk further about the annuities account.

Garden State Securities could not be reached despite several calls and an e-mail from the Sun Sentinel. The firm has not yet responded to the arbitration claim Pittman has filed.

Pittman's attorney, Mark Tepper, said Bakurin's investment recommendation to Pittman violates FINRA rules concerning disclosures about risky investments.

FINRA suspended and fined Bakurin $20,000 last year in another case "for selling customers unsuitable securities without disclosing the risks," agency records show. His broker's license was revoked last year after he didn't pay the fine, according to FINRA records. Two other cases filed against Bakurin are pending before FINRA's arbitration board, the agency's records show.

Bakurin said the FINRA license revocation and fine gives a distorted view of his work. "I know what my past looks like,'' Bakurin said.

Pittman's arbitration filing claims Bakurin recommended she fund her entire Roth IRA account in 2006 with stock from a small Vero Beach company named Multi-Link Telecommunications. Her claim alleges he did not tell Pittman, as required, about the dangers of buying low-priced shares of small companies: These "penny stocks" may trade infrequently and may be hard to accurately price.

Pittman ended up buying 211,400 shares in four transactions in 17 days from late April to mid-May. All the stocks sold for an average of 47.6 cents per share. Just two months later the investment tanked.

In July 2006, Multi-Link Telecommunications and its stock were merged with a Georgia-based pharmaceutical company, Auriga Laboratories, according to her arbitration papers. "Those merged shares eventually became worthless," her claim added. Pittman lost "irreplaceable savings."

Bakurin told Pittman "not to worry — she would get her initial investment back," according to her FINRA claim.

Pittman is still waiting for that to happen.

Read more here:
http://www.sun-sentinel.com/business/fl-investment-fraud-finra-20110930,0,5845457.story

5 "New" Rules for Safe Investing

1. Buy and Hold
History has repeatedly proved the market's ability to recover. The markets came back after the bear market of 2000-2002. They came back after the bear market of 1990, and the crash of 1987. The markets even came back after the Great Depression, just as they have after every market downturn in history, regardless of its severity.

Assuming you have a solid portfolio, waiting for recovery can be well worth your time. A down market may even present an excellent opportunity to add holdings to your positions, and accelerate your recovery through dollar-cost averaging Read: 5 "New" Rules For Safe Investing

Read more: http://www.investopedia.com/slide-show/5-new-rules/buy-and-hold.aspx#ixzz1ZC8MiDKw


2. Know Your Risk Appetite
The aftermath of a recession is a good time to re-evaluate your appetite for risk. Ask yourself this: When the markets crashed, did you buy, hold or sell your stocks and lock in losses? Your behavior says more about your tolerance for risk than any "advice" you received from that risk quiz you took when you enrolled in your 401(k) plan at work.

Once you're over the shock of the market decline, it's time to assess the damage, take at look what you have left, and figure out how long you will need to continue investing to achieve your goals. Is it time to take on more risk to make up for lost ground? Or should you rethink your goals? Read: 5 "New" Rules For Safe Investing

Read more: http://www.investopedia.com/slide-show/5-new-rules/risk-appetite.aspx#ixzz1ZC8qhVwu

3. Diversify
Diversification is dead … or is it? While markets generally moved in one direction, they didn't all make moves of similar magnitude. So, while a diversified portfolio may not have staved off losses altogether, it could have helped reduce the damage.

Holding a bit of cash, a few certificates of deposit or a fixed annuity along with equities can help take the traditional strategic asset allocation diversification models a step further.
Read: 5 "New" Rules For Safe Investing

Read more: http://www.investopedia.com/slide-show/5-new-rules/diversify.aspx#ixzz1ZC921poy

4. Know When to Sell
Indefinite growth is not a realistic expectation, yet investors often expect rising stocks to gain forever. Putting a price on the upside and the downside can provide solid guidelines for getting out while the getting is good. Similarly, if a company or an industry appears to be headed for trouble, it may be time to take your gains off of the table. There's no harm in walking away when you are ahead of the game. Read: 5 "New" Rules For Safe Investing

Read more: http://www.investopedia.com/slide-show/5-new-rules/know-when-to-sell.aspx#ixzz1ZC9IVW7b

5. Use Caution When Using Leverage
As the banks learned, making massive financial bets with money you don't have, buying and selling complex investments that you don't fully understand and making loans to people who can't afford to repay them are bad ideas.

On the other hand, leverage isn't all bad if it's used to maximize returns, while avoiding potentially catastrophic losses. This is where options come into the picture. If used wisely as a hedging strategy and not as speculation, options can provide protection. Read: 5 "New" Rules For Safe Investing

Read more: http://www.investopedia.com/slide-show/5-new-rules/leverage.aspx#ixzz1ZC9XvuWx

Everything Old Is New Again
In hindsight, not one of these concepts is new. They just make a lot more sense now that they've been put in a real-world context.

In 2009, the global economy fell into recession and international markets fell in lockstep. Diversification couldn't provide adequate downside protection. Once again, the "experts" proclaim that the old rules of investing have failed. "It's different this time," they say. Maybe … but don't bet on it. These tried and true principles of wealth creation have withstood the test of time.
Read: 5 "New" Rules For Safe Investing

Read more: http://www.investopedia.com/slide-show/5-new-rules/old-is-new.aspx#ixzz1ZC9pYbAD

Investing can (and should) be fun. It can be educational, informative and rewarding. By taking a disciplined approach and using diversification, buy-and-hold and dollar-cost-averaging strategies, you may find investing rewarding - even in the worst of times.

Read more: http://www.investopedia.com/slide-show/5-tips-for-diversifying-your-portfolio/conclusion.aspx#ixzz1ZCCNZVfl

SEPTEMBER 26, 2011, 10:12 AMMERGERS & ACQUISITIONS

Berkshire Hathaway to Buy Back Shares

BY DEALBOOK

Charles Dharapak/Associated PressWarren E. Buffett, chief of Berkshire Hathaway.

It looks as if Berkshire Hathaway’s “elephant gun” of $43 billion in cash will also be pointed at itself.

Warren E. Buffett’s company announced on Monday that its board had authorized the repurchase of the company’s class A and class B shares at premium of as much as 10 percent over the current book value.

The company did not disclose how big the buyback would be, but said the repurchases would not be made if they reduced Berkshire’s cash holdings below $20 billion.

The cash war chest was highlighted in February, when Mr. Buffett told investors he was on the hunt for acquisitions. “Our elephant gun has been reloaded, and my trigger finger is itchy,” he wrote.As of June 30, Berkshire had more than $43 billion in cash.

The use of cash for share buybacks is unusual for Berkshire, which has preferred to use it for acquisitions.

Berkshire Hathaway’s class A and class B shares.

In its 2000 annual letter, the company said “we will not repurchase shares unless we believe Berkshire stock is selling well below intrinsic value,conservatively calculated.”

Shares of Berkshire, however, have slumped this year. The class A shares are down 12.2 percent, while the class B shares are down nearly 10 percent.

Rehda finds hope in housing market outlook despite negatives

Tuesday September 27, 2011

Rehda finds hope in housing market outlook despite negatives
By FINTAN NG
fintan@thestar.com.my



KUALA LUMPUR: The Real Estate and Housing Developers' Association Malaysia (Rehda) is “cautiously optimistic” of the housing market outlook in the first half of next year despite a marked increase in building material and labour costs as well as a slowdown in economic activity.

A Rehda survey found that 41% of the developers who responded were optimistic of the first six months of 2012 compared with the second half of this year, where 48% said they were optimistic.

Most respondents in the survey said prices would likely rise by up to 20% in the second half of this year, with 47% of respondents planning to increase selling prices by at least 15%. The survey showed that launches in the period were equally split between strata-titled and landed properties.

Speakers at the Rehda update on the property market for the first half of the year said a number of factors, including government policies and the overall volatility of global capital markets, made developers cautious of the outlook.


Yam: ‘We appeal to the Government not to tinker too much with regulations concerning the industry as this will cause more uncertainty.’
The briefing also included the participation of RAM Holdings Bhd group chief economist Yeah Kim Leng, who gave an overall view of the global and local economies.

Rehda president Datuk Seri Michael Yam said the industry was concerned about how the local economy would be affected by external forces including the pressure on the sovereign debt ratings of Malaysia's developed market trading partners.

He said there were also concerns about the proposal to assess housing loans based on net income rather than gross income.

“We appeal to the Government not to tinker too much with regulations concerning the industry as this will cause more uncertainty,” Yam said.

Rehda KL chairman N.K. Tong said the more cautious outlook could be due to the timing as developers could not tell that far ahead how the property market would be performing.

“There's more uncertainty, so the respondents are not as optimistic compared with the second half of 2011, with the percentage of those who responded they were neutral on the outlook for the first half of 2012 rising to 39%,” he said.

Yam said that based on the survey findings, property launches of the second half of the year so far remained “business as usual” compared with the first half of the year where launches continued to be healthy with encouraging demand.

“Property prices have been rising partly due to the roll-out of Economic Transformation Programme projects,” he said, adding that the costs of building materials and labour continued to be major challenges for the industry.

Yam said although the 70% loan-to-value ratio for a third residential property purchase had had minimal impact, it was now taking from nine to 12 months to sell up to 70% of launched properties compared with before the imposition of the ruling.

Meanwhile, Yeah said that despite the evidence of weaker forward economic indicators, the economy was facing a slowdown and not a recession.

“However, this is on a baseline assumption that there will be no synchronised slowdown in the developed economies. If only one or two regions face a slowdown then the local economy will be able to sustain growth at the lower end of the Government's 5%-6% target,” he said.

Yeah said there would likely be more volatile fluctuations in the commodities and capital markets. “It will be prudent to factor into corporate planning that growth in the developed economies will be slow in the next three to five years while Asian economies will still be growing although growth have been revised downwards,” he added.

Yeah said that while banks had not tightened sufficiently in lending, there were expectations that they would be more selective going forward. “A few indicators suggest that we're still relatively resilient in terms of consumption with non-residential loans still very strong,” he said.

Yeah said rising household debt levels remained a concern as it could expose households to further shocks and systemic problems.

Indonesia’s Stock Market Value to Lure Investors, Panin Says

Indonesia’s Stock Market Value to Lure Investors, Panin Says

By Berni Moestafa and Chan Tien Hin - Sep 12, 2011 6:12 PM GMT+0800

Indonesian stocks have become more attractive to overseas investors after the world’s fourth-most populous nation overtookMalaysia as Southeast Asia’s second- largest equities market by value, PT Panin Sekuritas said.

“Foreign investments into Indonesian stocks will likely increase as portfolios are weighted in line with the size of a nation’s stock market,” Winston Sual, who helps manage $991 million at Jakarta-based Panin Sekuritas, said in a Sept. 9 interview. The firm’s $407 million Panin Dana Maksima fund has climbed 40 percent in the past year, beating 35 rival funds, according to data compiled by Bloomberg.

The value of Indonesian equities surged 17 percent to $416 billion this year to Sept. 9, surpassing Malaysia’s $407 billion to become the ninth-biggest stock market in Asia. Singapore’s stock market is the biggest in Southeast Asia at $523 billion. The Jakarta Composite index (JCI) has risen 8 percent in 2011 through last week, compared with a 3.3 percent drop in the FTSE Bursa Malaysia KLCI Index.

Foreign investors stepped up buying of Indonesian shares as China and India increased demand for coal and palm oil, benefiting companies such as PT Bumi Resources and plantation owner PT Astra Agro Lestari. Rising incomes have also spurred domestic spending, lifting consumer companies including PT Astra International, the biggest automotive retailer.

“Indonesia’s economy is the largest in Asean and it is resilient because of strong domestic consumption,” Panin’s Sual said, referring to the Association of Southeast Asian Nations.

Faster Growth

The Indonesian economy, the largest in Southeast Asia, will likely expand 6.5 percent this year, the fastest pace since the 1998 Asian financial crisis, President Susilo Bambang Yudhoyono said Aug. 16. That compares with the Malaysian central bank’s estimate for growth of as much as 6 percent.

Indonesia’s stock index dropped 2.6 percent to close at 3,896.12 in Jakarta, its biggest drop since Aug. 19. The Kuala Lumpur benchmark index slid 1.6 percent to 1,446.26, compared with a 1.9 percent fall in the MSCI Emerging Markets Index.

Bank Indonesia kept its benchmark interest rate unchanged on Sept. 8 at 6.75 percent for a seventh month to help support domestic consumption, which accounts for about 56 percent of the economy.

People Factor

Indonesia’s population of 243 million ranks behind only those of China, India and the U.S. By contrast, Malaysia has about 28 million people and Singapore 4.7 million, U.S. Census Bureau data show.

“There will be more investments going into the stock market as people are looking for a growth story,” Lye Thim Loong, who helps manage about $770 million at Libra Invest Bhd. in Kuala Lumpur, said. “We have been very actively investing in Indonesia. You have the population to sustain a domestic consumption story.”

Overseas investors bought a net $1.7 billion of Indonesian shares this year through August, according to data compiled by Bloomberg. Foreign investors sold a net 500 million ringgit ($166 million) of Malaysian stocks this year through August, according to data from the Kuala Lumpur stock exchange and Credit Suisse Group AG.

To contact the reporter on this story: Berni Moestafa in Jakarta atbmoestafa@bloomberg.net; Chan Tien Hin in Kuala Lumpur at thchan@bloomberg.net


http://www.bloomberg.com/news/2011-09-12/indonesia-s-stock-market-value-to-lure-investors-panin-says-1-.html

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