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

Risk versus Returns

The Dark Side Of Investing

Dec-5-2008

The Dark Side Of Investing

Debt Levels Alone Don’t Tell the Whole Story

By FLOYD NORRIS

Published: September 23, 2011

AS the world’s central bankers and finance ministers gather in Washington this weekend for the annual meetings of the International Monetary Fund and World Bank, government debt is at the top of the agenda. Some governments can no longer borrow money and others can do so only at relatively high interest rates. Reducing budget deficits has become a prime goal for nearly all countries.

Multimedia

Graphic

Why Some European Government Debt Seemed Deceptively Small

But looking only at government debt totals can provide a misleading picture of a country’s fiscal situation, as can be seen from the accompanying tables showing both government and private sector debt as a percentage of gross domestic product for eight members of the euro zone. The eight include the largest countries and those that have run into severe problems.

In 2007, before the credit crisis hit, an analysis of government debt would have shown that Ireland was by far the most fiscally conservative of the countries. Its net government debt — a figure that deducts government financial assets like gold and foreign exchange reserves from the money owed by the government — stood at just 11 percent of G.D.P.

By contrast, Germany appeared to be in the middle of the pack and Italy was among the most indebted of the group.

Yet Ireland was slated to become one of the first casualties of the credit crisis, and is now among the most heavily indebted. Germany is doing just fine. Italian debt has risen only slowly. The I.M.F. forecasts that Ireland’s debt-to-G.D.P. ratio will be greater than that of Italy by 2013.

It turned out that what mattered most in Ireland was private sector debt. As the charts show, debts of households and nonfinancial corporations then amounted to 241 percent of G.D.P., the highest of any country in the group.

“In Ireland, as in Spain, the government paid down debt while private sector grew,” said Rebecca Wilder, an economist and money manager whose blog at the Roubini Global Economics Web site highlighted the figures this week. She was referring to trends in the early 2000s, before the crisis hit.

Much of the Irish debt had been run up in connection with a real estate boom that turned to bust, destroying the balance sheets of banks. The government rescued the banks, and wound up broke. Spain has done better, but it, too, has been badly hurt by the results of a real estate bust.

The story was completely different in the Netherlands, which in 2007 ranked just behind Ireland in apparent fiscal responsibility. It also had high private sector debt, but most of those debts have not gone bad.

The differences highlight the fact that debt numbers alone tell little. For a country, the ability of the economy to generate growth and profit, and thus tax revenue, is more important. For the private sector, it matters greatly what the debt was used to finance. If it created valuable assets that will bring in future income, it may be good. Even if the borrowed money went to support consumption, it may still be fine if the borrowers have ample income to repay the debt.

That is one reason many euro zone countries are struggling even with harsh programs to slash government spending. With unemployment high and growth low — or nonexistent — it is not easy to find the money to reduce debts. And debt-to-G.D.P. ratios will rise when economies shrink, even if the government is not borrowing more money.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

http://www.nytimes.com/2011/09/24/business/debt-numbers-alone-tell-little-about-fiscal-stability.html?_r=1&ref=business

Think You Can Time the Market? (Conclusion)

Jul-6-2011

Think You Can Time the Market? (Conclusion)

Past performance is no guarantee of future results

On a recent episode of Matson Money Live, we discussed a very important segment of the difficulties of market timing and why it isn’t a right for any investor to try. We even dusted off some deleted scenes from the Navigating the Fog of Investing movie from Dr. Lyman Ott.


http://www.matsonmoneylive.com/?p=2923

Short-term volatility is to be expected, and doesn’t mean that your portfolio isn’t working. (video)

Aug-8-2011

An Important Message for Every Investor

Inevitably downward market volatility causes stress, anxiety and in some cases panic. My message today for investors is not to lose sight of your long-term goals and time horizon. Short-term volatility is to be expected, and doesn’t mean that your portfolio isn’t working. While it goes against all of our human instincts, this is the time to remain disciplined and rebalance. For those of you feeling distressed, confused, or anxious talk to your coach and get your questions answered. Your long-term peace of mind is on the line.

http://www.matsonmoneylive.com/index.php?paged=3

How Bad Is It?

Aug-26-2011

How Bad Is It?

After several weeks of severe market decline, we analyze how this downward volatility compares historically with other market drops.

Nobody Ever Calls It Market Timing! (video)

http://www.matsonmoneylive.com/index.php?paged=2

Aug-26-2011

Nobody Ever Calls It Market Timing!

The lure of market timing is strong, appealing to our instinctive nature to move toward that which helps our survival and away from painful market conditions.

(Episode 111, Part 3)

Your Portfolio Sucks (video)

http://www.matsonmoneylive.com/?p=3198

Your Portfolio Sucks

Based on the analysis of thousands of actual investor portfolios, we look at what actual investors are doing to sabotage their own portfolios.

(Episode 113, Part 2)

Investors should tread cautiously

Investors should tread cautiously
M Allirajan, TNN | Sep 23, 2011, 12.06AM IST

With the markets losing ground steadily, investors should buy equities at regular intervals. Safe havens such as fixed deposits and fixed maturity plans should be tapped only for the short-term. "People tend to be completely one-sided with asset allocation during such (turbulent) times," said Jayant Pai, vice president, Parag Parikh Financial Advisory Services. A one-sided approach, experts say, would spell trouble.

Take for instance gold as an asset class. Too many investors are chasing the metal because of economic uncertainty. The mad chase itself is pushing the prices up to record level, and a steep correction is imminent, said market watchers. "Investors should be cautious. They must not invest lump sum amounts in any asset class," says Anil Rego, CEO, Right Horizons, a wealth management firm.

In the case of bank FDs, investors should lock their money only for 3-6 months. "Choose short-term options and keep rolling them over. Don't lock your funds in three or five year instruments as equity markets would have turned for the better by that time," Pai said.

Fixed return products, such as non-convertible debentures issued by corporate houses, are more risky as in several cases they turn out to be mostly unsecured instruments. It is better to go for instruments issued by top-rated companies, said financial advisers.

While fixed maturity plans (FMPs) are attractive now, they would lose their sheen once the direct taxes code comes into effect, analysts said. Moreover, FMP returns, unlike bank FDs, are only indicative. The good old FDs may offer lower post-tax returns but offer an assured interest income besides ensuring safety of the principal amount.

Though investors would not lose money in debt mutual funds (MFs), they should also understand that products linked to NAV (net asset value) are not completely safe, say experts.

The biggest challenge is to make investors understand that they need to actually increase their overall exposure to equities during such turbulent market conditions, say advisers. "Investors should be buying more equity-related products as their proportion in the portfolio keeps coming down in a falling market," said Pai.

A systematic investment plan (SIP) in equity MFs spread over a year would work well, said Rego. Investors can also consider an SIP in income funds, he said. The bottom line is, don't go overboard on any asset class and follow the original asset allocation plan by making necessary adjustments.

http://timesofindia.indiatimes.com/business/india-business/Investors-should-tread-cautiously/articleshow/10083683.cms?prtpage=1