Warren Buffet reminds investors how to behave now
Times are tough. During these chaotic times, the principals of proper portfolio management are crucial:
1. Don't sell into fear
2. Rebalance your portfolio to buy equity
3. Continue dollar cost averaging
4. Inject cash if you have it
Warren Buffet affirmed this very powerfully in the New York Times last week. Nobody explains it better:
Buy America. I Am.
By Warren E. Buffett
The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
So ... I've been buying American stocks. This is my personal account I'm talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
Why?
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation's many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can't predict the short-term movements of the stock market. I haven't the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor's best friend. It lets you buy a slice of America 's future at a marked-down price.
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
Today people who hold cash equivalents feel comfortable. They shouldn't. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky's advice: "I skate to where the puck is going to be, not to where it has been."
I don't like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I'll follow the lead of a restaurant that opened in an empty bank building and then advertised: "Put your mouth where your money was." Today my money and my mouth both say equities.
Source: Warren Buffet, "Buy America. I Am.", New York Times, 17th October
Tuesday, November 11, 2008
Saturday, October 18, 2008
Friday, September 26, 2008
MELABUR MELALUI EPF - PANDUAN KEPADA AHLI KELAYAKAN PELABURAN DI BAWAH PENGELUARAN PELABURAN AHLI
1.0 PENGENALAN
Mulai 1 November 2007, KWSP telah melaksanakan beberapa pembaharuan dalam SKIM KWSP secara berperingkat di bawah inisiatif strategik 'Bukan Hanya Simpanan' seperti mana yang diperuntukkan di bawah Akta KWSP 1991 (pindaan 2007). Ini termasuklah inisiatif untuk memperkenalkan Simpanan Asas bagi menentukan amaun yang layak dilaburkan oleh ahli daripada Akaun 1 di bawah Pengeluaran Pelaburan Ahli (PPA)
2.0 DEFINISI SIMPANAN ASAS
Simpanan Asas ialah satu jumlah simpanan dalam Akaun 1 yang ditetapkan mengikut umur bagi membolehkan ahli memperoleh simpanan sekurang-kurangnya RM120,000 pada umur 55 tahun. Ahli boleh melaburkan simpanan dalam Akaun 1 yang melebihi simpanan asas dalam produk dan menerusi insititusi pelaburan yang diluluskan oleh Menteri Kewangan.
3.0 SYARAT-SYARAT YANG DITETAPKAN
3.1 Mulai 1 Februari 2008 , ahli boleh melaburkan simpanan di bawah PPA tidak melebihi 20% daripada jumlah simpanan yang melebihi Simpanan Asas dalam Akaun 1.
3.2 Pelaburan ini boleh dibuat setiap 3 bulan sekali dan jumlah minimum pelaburan ialah RM1,000.00.
3.3 Jumlah Simpanan Asas dan contoh pengiraan adalah seperti di LAMPIRAN.
3.4 Syarat-syarat am prosedur di bawah Pengeluaran Pelaburan Ahli yang lain masih kekal dan tidak berubah.
Contoh pengiraan
Mulai 1 November 2007, KWSP telah melaksanakan beberapa pembaharuan dalam SKIM KWSP secara berperingkat di bawah inisiatif strategik 'Bukan Hanya Simpanan' seperti mana yang diperuntukkan di bawah Akta KWSP 1991 (pindaan 2007). Ini termasuklah inisiatif untuk memperkenalkan Simpanan Asas bagi menentukan amaun yang layak dilaburkan oleh ahli daripada Akaun 1 di bawah Pengeluaran Pelaburan Ahli (PPA)
2.0 DEFINISI SIMPANAN ASAS
Simpanan Asas ialah satu jumlah simpanan dalam Akaun 1 yang ditetapkan mengikut umur bagi membolehkan ahli memperoleh simpanan sekurang-kurangnya RM120,000 pada umur 55 tahun. Ahli boleh melaburkan simpanan dalam Akaun 1 yang melebihi simpanan asas dalam produk dan menerusi insititusi pelaburan yang diluluskan oleh Menteri Kewangan.
3.0 SYARAT-SYARAT YANG DITETAPKAN
3.1 Mulai 1 Februari 2008 , ahli boleh melaburkan simpanan di bawah PPA tidak melebihi 20% daripada jumlah simpanan yang melebihi Simpanan Asas dalam Akaun 1.
3.2 Pelaburan ini boleh dibuat setiap 3 bulan sekali dan jumlah minimum pelaburan ialah RM1,000.00.
3.3 Jumlah Simpanan Asas dan contoh pengiraan adalah seperti di LAMPIRAN.
3.4 Syarat-syarat am prosedur di bawah Pengeluaran Pelaburan Ahli yang lain masih kekal dan tidak berubah.
Contoh pengiraan
Selamat Hari Raya AidilFitri
Dear Valued Clients and Prospects,
Dikesempatan ini kami ingin mengucapkan Selamat Hari Raya AidilFitri Maaf Zahir dan Batin.
Salam tulus ikhlas dari kami sekeluarga....
Salleh
Rabita
Alyaa Zahirah
Best Regards,
Rabita Yusoff
"Help your loved ones to start investing/saving early and wisely"
Dikesempatan ini kami ingin mengucapkan Selamat Hari Raya AidilFitri Maaf Zahir dan Batin.
Salam tulus ikhlas dari kami sekeluarga....
Salleh
Rabita
Alyaa Zahirah
Best Regards,
Rabita Yusoff
"Help your loved ones to start investing/saving early and wisely"
Thursday, September 25, 2008
Dollar Cost Averaging - A Technique that Drastically Reduces Market Risk - By Joshua Kennon, About.com
Dollar cost averaging is a technique designed to reduce market risk through the systematic purchase of securities at predetermined intervals and set amounts. Many successful investors already practice without realizing it. Many others could save themselves a lot of time, effort and money by beginning a plan. In this article, you will learn the three steps to beginning a dollar cost averaging plan, look at concrete examples of how it can lower an investor’s cost basis, and discover how it reduces risk.
Dollar Cost Averaging: What is It?
Instead of investing assets in a lump sum, the investor works his way into a position by slowly buying smaller amounts over a longer period of time. This spreads the cost basis out over several years, providing insulation against changes in market price.
Setting Up Your Own Dollar Cost Averaging Plan
In order to begin a dollar cost averaging plan, you must do three things:
1. Decide exactly how much money you can invest each month. Make certain that you are financially capable of keeping the amount consistent; otherwise the plan will not be as effective.
2. Select an investment (index funds are particularly appropriate, but we will get to that in a moment) that you want to hold for the long term, preferably five to ten years or longer.
3. At regular intervals (weekly, monthly or quarterly works best), invest that money into the security you’ve chosen. If your broker offers it, set up an automatic withdrawal plan so the process becomes automated.
An Example of a Dollar Cost Averaging Plan
You have $15,000 you want to invest in Sprint FON common stock. The date is January 1, 2000. You have two options: you can invest the money as a lump sum now, walk away and forget about it, or you can set up a dollar cost averaging plan and ease your way into the stock. You opt for the latter and decide to invest $1,250 each quarter for three years. (See chart for math of dollar cost averaging plan.)
Had you invested your $15,000 in January 2000, you would have purchased 264.46 shares at $56.72 each. When the stock closed for the year in December of 2002 at $13.69, your holdings would only be worth $3,620!
Had you dollar cost averaged into the stock over the past three years, however, you would own 746.21 shares; at the closing price, this gives your holdings a market value of $10,216. Although still a loss, Sprint FON stock must only go up to $20.10 for you to break even, not $56.72, which would have been required without the dollar cost averaging.
To go a step further, without dollar cost averaging you would break even at $56.72. With dollar cost averaging, you would have turned a profit of $27,326 when the stock hit that price thanks to your lower cost basis ($56.72 sell price - $20.10 average cost basis = $36.62 profit x 746.21 shares = $27,326 total profit.)
Combining the Power of Dollar Cost Averaging with the Diversification of a Mutual Fund
Index funds are passively managed mutual funds that are designed to mimic the returns of benchmarks such as the S&P 500, the Dow Jones Industrial Average, etc. An investor that puts money into a fund designed to mimic the Wilshire 5000, for example, is literally going to own a fractional interest in every one of the five thousand stocks that make up that index. This instant diversification comes with the added bonus. Traditionally, management fees of passive funds are less than one-tenth those of their actively managed counterparts. Over the course of a decade, for example, this can add up to tens of thousands of dollars the investor would have paid in fees to the mutual fund company that, instead, are accruing to his or her benefit.
The dollar cost averaging component reduces market risk, while the index fund investment reduces company-specific risk. This combination can be among the best investment options for individuals looking to build up their long term wealth by having a portion of their portfolio in equities.
Table 1: Sprint FON with Dollar Cost Averaging Plan
Source: http://beginnersinvest.about.com/cs/newinvestors/a/041901a.htm
Dollar Cost Averaging: What is It?
Instead of investing assets in a lump sum, the investor works his way into a position by slowly buying smaller amounts over a longer period of time. This spreads the cost basis out over several years, providing insulation against changes in market price.
Setting Up Your Own Dollar Cost Averaging Plan
In order to begin a dollar cost averaging plan, you must do three things:
1. Decide exactly how much money you can invest each month. Make certain that you are financially capable of keeping the amount consistent; otherwise the plan will not be as effective.
2. Select an investment (index funds are particularly appropriate, but we will get to that in a moment) that you want to hold for the long term, preferably five to ten years or longer.
3. At regular intervals (weekly, monthly or quarterly works best), invest that money into the security you’ve chosen. If your broker offers it, set up an automatic withdrawal plan so the process becomes automated.
An Example of a Dollar Cost Averaging Plan
You have $15,000 you want to invest in Sprint FON common stock. The date is January 1, 2000. You have two options: you can invest the money as a lump sum now, walk away and forget about it, or you can set up a dollar cost averaging plan and ease your way into the stock. You opt for the latter and decide to invest $1,250 each quarter for three years. (See chart for math of dollar cost averaging plan.)
Had you invested your $15,000 in January 2000, you would have purchased 264.46 shares at $56.72 each. When the stock closed for the year in December of 2002 at $13.69, your holdings would only be worth $3,620!
Had you dollar cost averaged into the stock over the past three years, however, you would own 746.21 shares; at the closing price, this gives your holdings a market value of $10,216. Although still a loss, Sprint FON stock must only go up to $20.10 for you to break even, not $56.72, which would have been required without the dollar cost averaging.
To go a step further, without dollar cost averaging you would break even at $56.72. With dollar cost averaging, you would have turned a profit of $27,326 when the stock hit that price thanks to your lower cost basis ($56.72 sell price - $20.10 average cost basis = $36.62 profit x 746.21 shares = $27,326 total profit.)
Combining the Power of Dollar Cost Averaging with the Diversification of a Mutual Fund
Index funds are passively managed mutual funds that are designed to mimic the returns of benchmarks such as the S&P 500, the Dow Jones Industrial Average, etc. An investor that puts money into a fund designed to mimic the Wilshire 5000, for example, is literally going to own a fractional interest in every one of the five thousand stocks that make up that index. This instant diversification comes with the added bonus. Traditionally, management fees of passive funds are less than one-tenth those of their actively managed counterparts. Over the course of a decade, for example, this can add up to tens of thousands of dollars the investor would have paid in fees to the mutual fund company that, instead, are accruing to his or her benefit.
The dollar cost averaging component reduces market risk, while the index fund investment reduces company-specific risk. This combination can be among the best investment options for individuals looking to build up their long term wealth by having a portion of their portfolio in equities.
Table 1: Sprint FON with Dollar Cost Averaging Plan
Source: http://beginnersinvest.about.com/cs/newinvestors/a/041901a.htm
Market Commentary for the week ended 19 September 2008
STOCKMARKET COMMENTARY
The sell-down of global and regional markets following the U.S. financial crisis caused the KLCI to fall below 1,000 points for the first time in two years on Thursday. However, buying of index stocks helped the KLCI to close at 1,025.7 points and register a decline of 1.8% for the week.
Average daily trading volume increased to 0.4 billion units from 0.3 billion units over the week while average trading value rose to RM1 billion from RM0.8 billion in the preceding week.
On Wall Street, the Dow fell to a 34-month low of 10,459 points on Wednesday following the solvency crisis of major U.S. financial institutions. However, share prices recovered on Thursday and Friday after the U.S. government unveiled plans to spend up to US$700 billion to buy troubled mortgage-related assets. The Dow closed 0.3% lower at 11,388 points for the week. The Nasdaq was 0.6% higher at 2,274 points over the week.
At the Federal Open Market Committee (FOMC) meeting on 16th September 2008, the Federal Reserve kept the Federal funds rate unchanged at 2% and expressed its concerns over slower economic growth and elevated inflationary expectations. Lower energy prices helped the U.S. inflation rate to ease to 5.4% in August from 5.6% in July while the core inflation rate was sustained at 2.5% over the same period. U.S. housing starts contracted by 6.2% month-on-month to a 17-year low of 895,000 units in August after a decline of 12.4% in July.
After easing to a 7-month low of US$91.15/brl on Tuesday, crude oil prices rebounded to register a weekly gain of 3.3% at US$104.55/brl on concerns over supply disruptions in the Gulf of Mexico.
On the local front, the Ringgit strengthened marginally by 0.2% against the U.S. dollar to close at RM3.342 for the week. On a year-to-date basis, the Ringgit depreciated by 3.6% against the greenback.
Looking ahead, the local market is anticipated to continue moving in tandem with overseas markets over the near term. Investors will continue to monitor the outlook for commodity prices, economic growth and interest rates.
At the KLCI’s closing level of 1,025.70 points on 19th September 2008, the local stock market is valued at a P/E of 12.3x on 2008 earnings which is at a discount of 27% to its 8-year average of 16.9x. The market is also supported by a gross dividend yield of 5.8% which compares favourably to Ringgit fixed deposit rates for tenures of less than one year.
REGIONAL STOCKMARKET COMMENTARY
For the week ended 19th September, the Hang Seng China Enterprise Index (HSCEI) fell below 9,000 points on Thursday in tandem with global equity markets. However, the Chinese government’s plans to remove the stamp duty on stock purchases coupled with the purchase of stakes in China’s three largest banks helped the HSCEI to rebound and recoup its earlier losses.
South-East Asian markets closed on a cautious note despite the rebound in share prices later in the week. The Thai market fell by 4.5% while the Philippines market closed 6.9% lower for the week.
The People’s Bank of China reduced the one-year base lending rate for the first time in 6 years by 27 basis points to 7.2% and lowered the reserve requirement ratio by 100 basis points to 16.5% for small and medium-sized banks on 15th September to encourage credit growth and reduce tight monetary conditions.
Singapore’s retail sales growth rebounded strongly to a 13-month high of 11.8% in July after declining by 3.4% in June on higher consumer spending on vehicles and gasoline. Singapore’s non-oil domestic exports declined further by 13.8% in August after contracting by 5.8% in July due to lower electronics and pharmaceutical exports.
The near term outlook for regional equity markets will continue to depend on the trend in oil prices, the interest rate cycle in each respective market and the outlook for U.S. economic growth, interest rates and developments in the U.S. sub-prime mortgage market. However, following the retracement in regional share prices in recent weeks, the valuations of several regional markets are now below their historical averages.
http://www.publicmutual.com.my/article.aspx?id=6731
The sell-down of global and regional markets following the U.S. financial crisis caused the KLCI to fall below 1,000 points for the first time in two years on Thursday. However, buying of index stocks helped the KLCI to close at 1,025.7 points and register a decline of 1.8% for the week.
Average daily trading volume increased to 0.4 billion units from 0.3 billion units over the week while average trading value rose to RM1 billion from RM0.8 billion in the preceding week.
On Wall Street, the Dow fell to a 34-month low of 10,459 points on Wednesday following the solvency crisis of major U.S. financial institutions. However, share prices recovered on Thursday and Friday after the U.S. government unveiled plans to spend up to US$700 billion to buy troubled mortgage-related assets. The Dow closed 0.3% lower at 11,388 points for the week. The Nasdaq was 0.6% higher at 2,274 points over the week.
At the Federal Open Market Committee (FOMC) meeting on 16th September 2008, the Federal Reserve kept the Federal funds rate unchanged at 2% and expressed its concerns over slower economic growth and elevated inflationary expectations. Lower energy prices helped the U.S. inflation rate to ease to 5.4% in August from 5.6% in July while the core inflation rate was sustained at 2.5% over the same period. U.S. housing starts contracted by 6.2% month-on-month to a 17-year low of 895,000 units in August after a decline of 12.4% in July.
After easing to a 7-month low of US$91.15/brl on Tuesday, crude oil prices rebounded to register a weekly gain of 3.3% at US$104.55/brl on concerns over supply disruptions in the Gulf of Mexico.
On the local front, the Ringgit strengthened marginally by 0.2% against the U.S. dollar to close at RM3.342 for the week. On a year-to-date basis, the Ringgit depreciated by 3.6% against the greenback.
Looking ahead, the local market is anticipated to continue moving in tandem with overseas markets over the near term. Investors will continue to monitor the outlook for commodity prices, economic growth and interest rates.
At the KLCI’s closing level of 1,025.70 points on 19th September 2008, the local stock market is valued at a P/E of 12.3x on 2008 earnings which is at a discount of 27% to its 8-year average of 16.9x. The market is also supported by a gross dividend yield of 5.8% which compares favourably to Ringgit fixed deposit rates for tenures of less than one year.
REGIONAL STOCKMARKET COMMENTARY
For the week ended 19th September, the Hang Seng China Enterprise Index (HSCEI) fell below 9,000 points on Thursday in tandem with global equity markets. However, the Chinese government’s plans to remove the stamp duty on stock purchases coupled with the purchase of stakes in China’s three largest banks helped the HSCEI to rebound and recoup its earlier losses.
South-East Asian markets closed on a cautious note despite the rebound in share prices later in the week. The Thai market fell by 4.5% while the Philippines market closed 6.9% lower for the week.
The People’s Bank of China reduced the one-year base lending rate for the first time in 6 years by 27 basis points to 7.2% and lowered the reserve requirement ratio by 100 basis points to 16.5% for small and medium-sized banks on 15th September to encourage credit growth and reduce tight monetary conditions.
Singapore’s retail sales growth rebounded strongly to a 13-month high of 11.8% in July after declining by 3.4% in June on higher consumer spending on vehicles and gasoline. Singapore’s non-oil domestic exports declined further by 13.8% in August after contracting by 5.8% in July due to lower electronics and pharmaceutical exports.
The near term outlook for regional equity markets will continue to depend on the trend in oil prices, the interest rate cycle in each respective market and the outlook for U.S. economic growth, interest rates and developments in the U.S. sub-prime mortgage market. However, following the retracement in regional share prices in recent weeks, the valuations of several regional markets are now below their historical averages.
http://www.publicmutual.com.my/article.aspx?id=6731
KLCI - 20080925
Market Commentary
25 September 2008
The local bourse closed 2.22 points or 0.22% higher at 1028.40 points after rebounding on news of the revised petrol price and last minute profit-taking activities on selected heavyweights. Top leaders were MISC (+15 sen to RM8.45), BCHB (+15 sen to RM8.00) and Tenaga (+10 sen to RM7.00). Top laggards were DIGI (-50 sen to RM22.10), IOI Corp (-6 sen to RM 4.50) and Telekom (-10 sen to RM3.22). Market breadth remained positive with 335 advancers outpacing 205 decliners. However, volume increased to 450m shares worth RM0.73b from Tuesday's 336m shares worth RM0.73b.
Source: JF Apex Securities Bhd
Wednesday, September 24, 2008
The Star - Wednesday September 24, 2008 - Are you ready for this downcycle?
The five phases of stock market cycles and where we are now
AS a result of the recent financial crisis in companies like Fannie Mae and Freddie Mac, Lehman Brothers as well as AIG, investors have been wondering whether there will be more companies affected by this crisis.
George Soros, in his book published in the early 2008 titled The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means, said that “ .... the current crisis is not merely the bursting of the housing bubble. It is bigger than the periodic financial crises we have experienced in our lifetime.”
According to him, we should expect the current situation to get worse before it can get better.
Hence, investors need to prepare themselves for this downturn. Even though nobody will know exactly when the market will recover again, we must be ready when the market moves.
In order to do that, we need to understand stock market cycles and where we are now.
Stock market cycles can be divided into five phases €“ expansion, settlement, contraction, crisis and recovery.
During expansion, the overall stock market sentiment will be bullish with higher stock market volume and prices.
In every market rally, there is always a main theme. For example, the bull market in 2007 was mainly attributed to positive sentiment in the plantation sector.
During this period, we should buy stocks in the sectors that benefit from the rally. If your portfolio owned a lot of plantation stocks last year, you would benefit from the overall market rally last year. Hence, we should pick stocks that follow the market theme.
Then it will enter into settlement for some profit-taking activities. If the overall market sentiment remains bullish, it will resume its uptrend.
The bullish trend will reach a period where reality can no longer sustain the exaggerated expectations. Then the market will enter into contraction where long-term investors get very uncomfortable with the market situation.
In this period, we should sell poor fundamental stocks as well as stocks in sectors which will be seriously affected in a downtrending market.
There are still some short-term traders who may enter the market at this stage as they believe it may rebound later.
However, when the market drops further, it will enter into crisis where long-term investors as well as short-term traders are selling stocks.
Our market is currently in this phase where long-term investors as well as short-term traders are not willing to commit themselves. This is given the unsettling of the US financial crisis in companies like Lehman Brothers and AIG.
Despite the US government’s plan to rescue banks, not many analysts or fund managers are convinced that we have seen the worst.
Soros applied the theory of reflexivity to explain the current crisis.
According to him, the market participants’ misjudgements and misconceptions affect the stock market prices.
He said that later, these biased perceptions would affect both prices and the fundamentals that those prices are supposed to reflect.
When a market drops in prices, it creates fear. As a result of this fear factor, prices will drop further and later cause panic selling as the fundamentals will also be affected by lower prices. Then it will turn the investors’ perception into reality.
Soros called this a two-way reflexivity connection between perception and reality, which can give rise to initially self-reinforcing but later self-defeating.
Hence, in every stock market cycle, regardless of any stock market, while it may take a long time to reach its peak, when it drops, the drop will accelerate and be followed by panic selling.
At present, most investors will be eager to know when our market will enter into the recovery phase where the market will start to recover. It will be a mammoth job to predict the market bottom.
Nevertheless, we should consider buying some stocks whenever the market experiences panic selling like the recent global market crash on the fallout of Lehman Brothers and AIG.
According to Lauren C. Templeton and Scott Phillips in their book on Investing the Templeton Way, investors need to buy stocks whenever the market experiences panic selling.
They that we should take advantage of problems that are exaggerated in the minds of sellers because of the sellers’ near-term focus.
Even though they agree that buying into crisis may affect your portfolio performance, you will gain in the long term.
However, you need to make sure that you have enough cash to average down your purchases.
Ooi Kok Hwa is an investment adviser licensed by Securities Commission and managing partner of MRR Consulting.
Latest Financial Meltdown, NYSE, NASDAQ and other business news, pictures, videos, audios and charts from the AP-Wire
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http://www.nasdaq.com/
Hong Kong Stock Exchange
Japan's Tokyo Stock Exchange
AS a result of the recent financial crisis in companies like Fannie Mae and Freddie Mac, Lehman Brothers as well as AIG, investors have been wondering whether there will be more companies affected by this crisis.
George Soros, in his book published in the early 2008 titled The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means, said that “ .... the current crisis is not merely the bursting of the housing bubble. It is bigger than the periodic financial crises we have experienced in our lifetime.”
According to him, we should expect the current situation to get worse before it can get better.
Hence, investors need to prepare themselves for this downturn. Even though nobody will know exactly when the market will recover again, we must be ready when the market moves.
In order to do that, we need to understand stock market cycles and where we are now.
Stock market cycles can be divided into five phases €“ expansion, settlement, contraction, crisis and recovery.
During expansion, the overall stock market sentiment will be bullish with higher stock market volume and prices.
In every market rally, there is always a main theme. For example, the bull market in 2007 was mainly attributed to positive sentiment in the plantation sector.
During this period, we should buy stocks in the sectors that benefit from the rally. If your portfolio owned a lot of plantation stocks last year, you would benefit from the overall market rally last year. Hence, we should pick stocks that follow the market theme.
Then it will enter into settlement for some profit-taking activities. If the overall market sentiment remains bullish, it will resume its uptrend.
The bullish trend will reach a period where reality can no longer sustain the exaggerated expectations. Then the market will enter into contraction where long-term investors get very uncomfortable with the market situation.
In this period, we should sell poor fundamental stocks as well as stocks in sectors which will be seriously affected in a downtrending market.
There are still some short-term traders who may enter the market at this stage as they believe it may rebound later.
However, when the market drops further, it will enter into crisis where long-term investors as well as short-term traders are selling stocks.
Our market is currently in this phase where long-term investors as well as short-term traders are not willing to commit themselves. This is given the unsettling of the US financial crisis in companies like Lehman Brothers and AIG.
Despite the US government’s plan to rescue banks, not many analysts or fund managers are convinced that we have seen the worst.
Soros applied the theory of reflexivity to explain the current crisis.
According to him, the market participants’ misjudgements and misconceptions affect the stock market prices.
He said that later, these biased perceptions would affect both prices and the fundamentals that those prices are supposed to reflect.
When a market drops in prices, it creates fear. As a result of this fear factor, prices will drop further and later cause panic selling as the fundamentals will also be affected by lower prices. Then it will turn the investors’ perception into reality.
Soros called this a two-way reflexivity connection between perception and reality, which can give rise to initially self-reinforcing but later self-defeating.
Hence, in every stock market cycle, regardless of any stock market, while it may take a long time to reach its peak, when it drops, the drop will accelerate and be followed by panic selling.
At present, most investors will be eager to know when our market will enter into the recovery phase where the market will start to recover. It will be a mammoth job to predict the market bottom.
Nevertheless, we should consider buying some stocks whenever the market experiences panic selling like the recent global market crash on the fallout of Lehman Brothers and AIG.
According to Lauren C. Templeton and Scott Phillips in their book on Investing the Templeton Way, investors need to buy stocks whenever the market experiences panic selling.
They that we should take advantage of problems that are exaggerated in the minds of sellers because of the sellers’ near-term focus.
Even though they agree that buying into crisis may affect your portfolio performance, you will gain in the long term.
However, you need to make sure that you have enough cash to average down your purchases.
Ooi Kok Hwa is an investment adviser licensed by Securities Commission and managing partner of MRR Consulting.
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The Sun Tuesday September 9 2008 - Share your utmost reasons why unit trust is your preferred investment choice.
A1: Lee Tze Yan, Puchong
I believe we should always allocate our income so that we will not overspend on unnecessary things. Therefore, it is necessary to allocate an amount for monthly expenses, savings and also investments. By doing so, we automatically commit to a regular investment plan without having to fork out a lump sum of money at one go.
Investing in unit trust funds is a much safer option compared to buying stocks. This is due to the diversified nature of its investment allocation into local, foreign stocks, other asset classes and various investment instruments which can provide investors with a more acceptable investment returns based on the risk reward factor.
Another reason why I prefer unit trust funds is because when funds perform well, I can enjoy additional gains in the form of income distributions. Also, there is potentialto benefit from unit trust funds as compared to a conventional savings account or fixed deposit due to its ability to invest in other unique financial instruments which translate to higher returns.
A2: Michele Lian Fu-Ching, KL
My approach to savings and unit trust investments is a methodical one: I deducted a fixed amount of money from my salary for my monthly expenses, and the rest is divided almost equally between savings and investment in unit trust funds. I track my spending regularly by writing down how much I spend, and on what, so I know where my money goes. This has mad it easy for me to work out monthly budget. Also, by sticking to a budget, I make sure that I spend no more than 35% of my monthly salary, which means that I get to save and/or invest most of what I make.
As for my unit trust investments, I take the cost averaging approach by having the bank deduct a fixed amount each month, so will not be tempted to make hasty decisions when the market dips or shoots through the roof. Now, with the market on a downward trend, I am buying more units than usual, which means I may end up with potentially significant gains when the market recovers. Because I am planning to invest my money over a period of 10 to 20 years, I am confident in the potential success of my investments. In addition, I spread my unit trust investments over a range of funds that invest in different types of assets so that I do not put all my eggs in one basket.
I also ensure that I have at least 12 months’ worth of expenses in an emergency saving account in the event that I have to stop working, or am not able to, temporarily. To boost my savings, I simply work more. Through my freelance work, I get paid at least an additional RM100 a month, which I use to grow my emergency fund or investments further.
I believe we should always allocate our income so that we will not overspend on unnecessary things. Therefore, it is necessary to allocate an amount for monthly expenses, savings and also investments. By doing so, we automatically commit to a regular investment plan without having to fork out a lump sum of money at one go.
Investing in unit trust funds is a much safer option compared to buying stocks. This is due to the diversified nature of its investment allocation into local, foreign stocks, other asset classes and various investment instruments which can provide investors with a more acceptable investment returns based on the risk reward factor.
Another reason why I prefer unit trust funds is because when funds perform well, I can enjoy additional gains in the form of income distributions. Also, there is potentialto benefit from unit trust funds as compared to a conventional savings account or fixed deposit due to its ability to invest in other unique financial instruments which translate to higher returns.
A2: Michele Lian Fu-Ching, KL
My approach to savings and unit trust investments is a methodical one: I deducted a fixed amount of money from my salary for my monthly expenses, and the rest is divided almost equally between savings and investment in unit trust funds. I track my spending regularly by writing down how much I spend, and on what, so I know where my money goes. This has mad it easy for me to work out monthly budget. Also, by sticking to a budget, I make sure that I spend no more than 35% of my monthly salary, which means that I get to save and/or invest most of what I make.
As for my unit trust investments, I take the cost averaging approach by having the bank deduct a fixed amount each month, so will not be tempted to make hasty decisions when the market dips or shoots through the roof. Now, with the market on a downward trend, I am buying more units than usual, which means I may end up with potentially significant gains when the market recovers. Because I am planning to invest my money over a period of 10 to 20 years, I am confident in the potential success of my investments. In addition, I spread my unit trust investments over a range of funds that invest in different types of assets so that I do not put all my eggs in one basket.
I also ensure that I have at least 12 months’ worth of expenses in an emergency saving account in the event that I have to stop working, or am not able to, temporarily. To boost my savings, I simply work more. Through my freelance work, I get paid at least an additional RM100 a month, which I use to grow my emergency fund or investments further.
Bursa Malaysia - Market Commentary - 24 September 2008
The local bourse closed -2.44 points or 0.24% lower at 1026.18 points on continuous concerns over higher crude oil prices and global credit mess. Top leaders were Sime Darby (+15 sen to RM6.50), KLK (+30 sen to RM9.85) and PPB Group (+20 sen to RM8.60) whilst top laggards were MISC (-20 sen to RM8.30), IOI Corp (-10 sen to RM4.56) and Tenaga (-10 sen to RM6.90). Market breadth remained negative with 319 decliners outpacing 218 advancers. However, volume declined to 336m share worth RM0.73b from Monday's 467m shares worth RM0.91b
Source: JF Apex Securities Bhd
Source: JF Apex Securities Bhd
Monday, September 22, 2008
Bursa Malaysia - Market Commentary - 22 September 2008
The local market opened on a firmer ground, at above 1,000 levels amid strong rebound on Wall Street. The KLCI jumps 34.04 points or 3.43% to settle at 1,025.7 levels, led by banking stocks on US government's plan to solve the credit crisis.
- Top leaders were Tenaga (+65 sen to RM6.90), TM International (+60 sen to RM6.55) and IOI Corp (+28 sen to RM4.34)
- Top laggards were DiGi (-50 sen to RM22.80), KLK (-15 sen to RM9.15) and Telekom (-4 sen to RM3.46).
- Market breadth was positive with 461 advancers outpacing 142 decliners.
- Volume increased to 587m shares worth RM1.26b from last Thursday's 563m shares valued at RM1.35b.
- CPO Dec delivery gained RM41.0/MT or 1.88% to RM2,226.0/MT.
Source: JF Apex Securities Bhd
Remain Calm Through Market Turbulence
In the wake of the turbulence of stock markets in recent months, unit trust investors may be tempted to either sell or buy. However, investors are advised to remain calm and practise dollar cost averaging with their long-term goals in view.
When regional and global markets succumbed to panic selling in August 2007 and more recently in January 2008, the severity and sharpness of the correction was large enough to make unit trust investors ask themselves whether they should redeem now to stem further losses or buy more units at currently low prices. In fact, if they practise dollar cost averaging, they need not concern themselves with these timing issues. Dollar cost averaging enables investors to automatically buy more units when prices fall and fewer units when prices rise.
It is especially during times of market volatility that individual investors should remain focused on their long-term investment goals and keep their emotions from influencing their investment decisions. A disciplined and methodical approach to investing is the key to long-term investment success.
Unit trust investors are advised to buy and hold their investments for the medium to long term. The buy-and-hold principle is based on the notion that a good investment will generate reasonably attractive returns over the medium to long term. This also means that investors are able to distinguish between daily movements in the market and the underlying long-term value of their investments. Professional fund managers buy and hold for the medium to long term as they are prepared to wait patiently over several years for their investments to reach their intrinsic or fair values. For the unit trust investor, the 'buy-and-hold' strategy can also be applied by holding on to a well-selected unit trust fund over a period of at least three years.
There are some investors who believe they can achieve superior returns by timing the purchase and redemption of equity funds to profit from the stockmarket's short-term movements. These investors are tempted to engage in timing the market especially in an environment where equity markets are volatile. Such investors who wish to make quick gains in the stock market by switching from one fund into another fund will often be disappointed. Market timing strategies that are often recommended by 'investment experts' have seldom been successful. This is because stock markets are inherently volatile and are impossible to predict with numerous factors, both domestic and foreign, affecting daily and weekly fluctuations in stock prices.
Investors who wish to take a more active approach with their investments by timing the market will expose themselves to many risks. In order to profit from the market's short-term trends, the investor has to correctly predict the market's trend and its turning points.
Without the appropriate skills to discern signals and time the entries and exits, the market timer may not only miss opportunities, but also potentially suffer the blow of rapid losses. Also with a higher frequency of fund switching, investors will have to incur increased transaction costs.
Investors who are concerned about market volatility are advised to practise dollar cost averaging as this strategy enables investors to focus on the long-term investment goal and not worry about the prevailing level of the market. Dollar cost averaging is simply investing a fixed amount of money in a financial asset (such as a unit trust fund) on a regular basis (monthly, quarterly, biannual) regardless of the market cycle. By investing a fixed amount on a regular basis, investors will buy more units when the market is lower and fewer units when the market is higher. This strategy will produce a lower average cost of investment than the average market price over any given period.
In addition, investors are also advised to rebalance their portfolios regularly at least once a year to ensure that their portfolio allocation reflects their investment objectives and risk profile. Thus if, as a result of an uptrend in stock prices, an investor's equity exposure has exceeded a level consistent with his risk tolerance, he can trim a portion of the equity funds and switch into bond or money market funds to rebalance the asset allocation accordingly. Maintaining a target asset allocation reduces the risk that the portfolio becomes too concentrated in a single asset class.
In conclusion, unit trust investors should always focus on achieving their medium to long-term investment goals. The practice of dollar cost averaging and regular portfolio rebalancing are effective tools that help investors remain focused on the long term horizon and prevent them from over-reacting to short-term movements of the stockmarket.
Source: http://www.publicmutual.com.my
When regional and global markets succumbed to panic selling in August 2007 and more recently in January 2008, the severity and sharpness of the correction was large enough to make unit trust investors ask themselves whether they should redeem now to stem further losses or buy more units at currently low prices. In fact, if they practise dollar cost averaging, they need not concern themselves with these timing issues. Dollar cost averaging enables investors to automatically buy more units when prices fall and fewer units when prices rise.
It is especially during times of market volatility that individual investors should remain focused on their long-term investment goals and keep their emotions from influencing their investment decisions. A disciplined and methodical approach to investing is the key to long-term investment success.
Unit trust investors are advised to buy and hold their investments for the medium to long term. The buy-and-hold principle is based on the notion that a good investment will generate reasonably attractive returns over the medium to long term. This also means that investors are able to distinguish between daily movements in the market and the underlying long-term value of their investments. Professional fund managers buy and hold for the medium to long term as they are prepared to wait patiently over several years for their investments to reach their intrinsic or fair values. For the unit trust investor, the 'buy-and-hold' strategy can also be applied by holding on to a well-selected unit trust fund over a period of at least three years.
There are some investors who believe they can achieve superior returns by timing the purchase and redemption of equity funds to profit from the stockmarket's short-term movements. These investors are tempted to engage in timing the market especially in an environment where equity markets are volatile. Such investors who wish to make quick gains in the stock market by switching from one fund into another fund will often be disappointed. Market timing strategies that are often recommended by 'investment experts' have seldom been successful. This is because stock markets are inherently volatile and are impossible to predict with numerous factors, both domestic and foreign, affecting daily and weekly fluctuations in stock prices.
Investors who wish to take a more active approach with their investments by timing the market will expose themselves to many risks. In order to profit from the market's short-term trends, the investor has to correctly predict the market's trend and its turning points.
Without the appropriate skills to discern signals and time the entries and exits, the market timer may not only miss opportunities, but also potentially suffer the blow of rapid losses. Also with a higher frequency of fund switching, investors will have to incur increased transaction costs.
Investors who are concerned about market volatility are advised to practise dollar cost averaging as this strategy enables investors to focus on the long-term investment goal and not worry about the prevailing level of the market. Dollar cost averaging is simply investing a fixed amount of money in a financial asset (such as a unit trust fund) on a regular basis (monthly, quarterly, biannual) regardless of the market cycle. By investing a fixed amount on a regular basis, investors will buy more units when the market is lower and fewer units when the market is higher. This strategy will produce a lower average cost of investment than the average market price over any given period.
In addition, investors are also advised to rebalance their portfolios regularly at least once a year to ensure that their portfolio allocation reflects their investment objectives and risk profile. Thus if, as a result of an uptrend in stock prices, an investor's equity exposure has exceeded a level consistent with his risk tolerance, he can trim a portion of the equity funds and switch into bond or money market funds to rebalance the asset allocation accordingly. Maintaining a target asset allocation reduces the risk that the portfolio becomes too concentrated in a single asset class.
In conclusion, unit trust investors should always focus on achieving their medium to long-term investment goals. The practice of dollar cost averaging and regular portfolio rebalancing are effective tools that help investors remain focused on the long term horizon and prevent them from over-reacting to short-term movements of the stockmarket.
Source: http://www.publicmutual.com.my
Why Choose Unit Trust?
With the proliferation of various types of investment products in recent years, people often look for a straight forward, professionally managed investment opportunity that caters for basic investment needs. The following are some of the reasons people invest in unit trusts:
Children's Education
Unit trust can help you cover the spiraling cost of education for your children or grandchildren. The sooner you start your plan, the lesser your burden will be. In this case, time can be your greatest ally. Go to Education Planning for more details.
Home Ownership
Unit trust can help you to pay off your mortgage earlier, purchase a bigger house or upgrade your existing house. As with any plan, start early. Many bricks build a castle. Go to Home Ownership Planning for more details.
Retirement
Growing old and retiring is inevitable. It is never too early to plan for retirement even though you have the comfort of the Employees' Provident Fund (EPF). You have the choice of retiring comfortably by planning a nest for your retirement home, orchard and the likes. Unit trust can help do the job. Go to Retirement Planning for more details.
Cash Reserves
The only certainty in life is the uncertainty or unexpected emergencies. Unit trust can help you to set aside some cash for rainy days.
Children's Education
Unit trust can help you cover the spiraling cost of education for your children or grandchildren. The sooner you start your plan, the lesser your burden will be. In this case, time can be your greatest ally. Go to Education Planning for more details.
Home Ownership
Unit trust can help you to pay off your mortgage earlier, purchase a bigger house or upgrade your existing house. As with any plan, start early. Many bricks build a castle. Go to Home Ownership Planning for more details.
Retirement
Growing old and retiring is inevitable. It is never too early to plan for retirement even though you have the comfort of the Employees' Provident Fund (EPF). You have the choice of retiring comfortably by planning a nest for your retirement home, orchard and the likes. Unit trust can help do the job. Go to Retirement Planning for more details.
Cash Reserves
The only certainty in life is the uncertainty or unexpected emergencies. Unit trust can help you to set aside some cash for rainy days.
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