[Has the drama ended already?]

“America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves.” Abraham Lincoln

Just two days ago, US market went into a free fall. Analysts were screaming at the tops of their lungs saying the end is near, it is time to bail out and save yourselves! Dow Jones fell 635 points in a single day of trading. One of the worst day for many traders but may be one of the best days for investors. Some of the analysts commented that the Feds is running out of option, Ben Bernanke will lose all his hair in trying to find a viable solution to save the economy.

However, the market started off pretty bullishly today, DJIA registered a rise close to 200 points. So what changed over the past 2 days? Did the Feds found the magic pill for the economy in US? Economists speculated that the Feds will do the following to save US from going into another cycle of recession or worst depression: (Or is it just to save those speculators’ from losing everything in the market?)

1. 1)   The unveiling of QE3 (Qualitative Easing III)?
2. 2)   Maintain low rates or even cut the interest rates down from 0.25 to 0?
3. 3)   Maintain balance sheet at USD3 trillion?

Okay, looks like the Feds doesn’t have much option left to save the market from falling further but how much further will it go before equilibrium is achieved? Do you think that the economy is really in such a bad shape that there are financial institutions like Lehmann Brothers filing for chapter 13 or too big to fall type of companies waiting to be bailed out?

2008 had been a year which helped to trim off the fat on many companies which helped to make them much leaner and versatile. I believed that the economy will grow very sluggishly over the next few years but that does not warrant for a recession. However, I think we can just apply what Abraham Lincoln had said to the market, it doesn’t take any external force to destroy it, just some internal analyst and economist will do.

[Time of Kairos and Drama!]

"I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years." Warren Buffett

About a week ago, all the financial news was focused entirely on Italy and Spain (Eurozone) but thanks to the S&P’s downgrade, the whole world is catching the flu from this sneeze!

Although many have anticipated the credit downgrade on US’s credit rating, but who could have guessed that global market lost more than USD2 trillion within this short period of time? However, only during this time of chaos, fear and uncertainty will give birth to time of “Kairos” (in Greek). This message had been preached very recently in my church and I truly believed that this is true!

Every financial analyst on Wall Street is now trying to give their own version and opinion on why the market is crashing. Most of them were blaming the president for not being able to come up with a better resolution in trying to save US’s economy. Some were saying that US will never be able to pay back its debt [1]. Last but not the least, some were even blaming S&P’s for downgrading US’s credit rating! As an investor, what should we do? Get out of the market right now or do we take this time to evaluate our portfolio and grab a couple of stocks which we’ve been aiming at for a long time? What else can we do? There are some who suggest that we should transfer our funds into commodities like gold and oil or even bonds (Wait a minute, weren’t we afraid earlier that US might not be able to repay its debt? Could it be that those analysts know something that we don’t here?).

Before we try to solve this enigma on credit rating, I supposed it would be good that we spent some time and effort trying to understand it. This is what I’ve gotten from S&P on the definition of credit ratings.

Credit ratings are forward-looking opinions about credit risk. Standard & Poor’s credit ratings express the agency’s opinion about the ability and willingness of an issuer, such as a corporation or state or city government, to meet its financial obligations in full and on time [2].

So, in short it means that it is an opinion from S&P on the capability of a party (US government for our case) to repay its “debt” on time.

Okay, what about those AAA, AA+, and BBB represent?The general meaning of S&P’s credit rating opinions is summarized below [2].
‘AAA’—Extremely strong capacity to meet financial commitments. Highest Rating.
‘AA’—Very strong capacity to meet financial commitments.
‘A’—Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.

Looks like the downgrade to AA+ wasn’t too bad I guess. But why then the market is reacting so badly towards this downgrade? I’ve no idea, but I think I will stick to Warren Buffett

“As the richest nation in the world with a GDP of $48,000 per person, America should have no problem meeting that obligation (paying off their debt). And, of course, there's also the benefit of having a Federal Reserve that can print money. I can go out drinking all night, but if I've got a printing press, my debt is good," says Buffett [3].

My reaction would be almost the same, fetch a cup of tea and enjoy this financial drama!

[1] http://www.cnbc.com/id/44054257
[2] http://www.standardandpoors.com/ratings/definitions-and-faqs/en/us
[3] http://www.cnbc.com/id/44056326

[Stock Picking 101]

“Risk comes from not knowing what you’re doing” Warren Buffet

If we spent enough time drilling across investment books, we will come across 2 types of analysis techniques that investors use and apply in stock picking. There are known as fundamental and technical analysis.

What’s technical analysis? Well, the main theory behind technical analysis is “History repeats itself”. It is more like a crystal ball technique which stock pickers used to try and guess the market’s direction. As a novice investor, I was very open to this technique as well. Most of the books which are related to this technique will be based on the use of charts such as Japanese candlesticks and special indicators such as MACD (Moving Average Convergence-Divergence), %D, %K, moving average (10,50 or 200 days) and momentum. If you ask me how do I apply them today? I think they are quite useful when I try to access when is the best time to buy and sell. However, it doesn’t really help me in understanding or finding which stock should I buy or sell.

So now we need to understand and apply fundamental analysis in picking which stock or company which has the potential to grow and generate passive returns for us. The most commonly used ratio is Price to Earnings ratio (PER) and NTA (Net tangible asset). PER indicates how expensive the stock we are purchasing today is and NTA will give you a general idea of how much the company is really worth.

What is PER?
Price of the stock / Earnings per share (EPS)
So for instance, if Public Bank Berhad (PBB) is trading at RM10 per share and the EPS is RM1, the PER is 10. So let’s say if PBB is giving out RM0.50 of dividend for every share, the dividend yield will be approximately at 5%. (There is a certain amount of tax imposed on dividend gain). So why did I say that it is used to gauge the expensiveness of the share?

Imagine this, if the price of PBB share is trading at RM20 but the EPS is still at RM1, it means that you are paying RM20 for RM1 of earnings or 5% instead of the initial 10%. Besides that, what happen to the dividend yield by this share? It will fall to 2.5% now instead of the initial 5%.

How then will we be able to identify good stocks? For that, we need to understand the Forward EPS. Where do we get this number? From the analyst! Is it really that simple? Too bad, no it isn’t but we can definitely get a general consensus when it comes to forward PER but it is really up to us as an investor to make the call whether if that Forward EPS is viable or not. They (the analyst) can simply pluck a number out of some future revenue growth and market estimation/consensus which may tell you that, for instance in this scenario, PBB’s EPS will turn up to be RM10 soon! So at RM20 per share, you are actually getting a real bargain for it. Do remember that, it is OUR MONEY that we are investing, not theirs. They will still get a good bonus from commission from trading regardless of whether we are earning or not.

What is NTA?
Simply means Nett Tangible Asset per share. It means the company’s total assets minus off all intangible assets and liabilities divided by the total number of stocks.

To me, if the P/NTA or Price over NTA is too high, it means we are paying too much for the stock as well. Why is this NTA important? Let’s say we are buying a plantation stock, KLK for instance. We would want to know how much palm oil estate this company has. Asset is important when it comes to leveraging, mergers and acquisition and privatisation. So far, I’ve seen 2 companies getting privatised and both of their offers weren’t too far from their respective NTA.
1. Titan Chemicals offer was RM2.35, NTA was RM2.46
2. Eng Technology offer was RM2.50, NTA was RM2.21

If bigger companies are also looking at NTA before generating their offers, shouldn’t we do the same? Being a little paranoid is good I guess to avoid losses in the future which cause more heartache.

So, what should we do, if we couldn’t find a stock that matches these 2 main ratios? My personal advice, patience is very important. Continue to focus on the market and build up your war fund through saving.

[The Oil Effect]

It has been an eventful month. Governments were toppled, some governments were in the process of being toppled, earthquakes, floods, oil price went over the USD100 mark and the list just goes on.

Source: http://www.oil-price.net/

Most of us can still recall what happened in 2008 when the price of crude oil went up to USD140/barrel. Yes, our government was forced to raise the petrol price by MYR0.70/litre (or was it more than that?). Then what happened right after the raise? Let's see what went down first, the amount of traffic in all major cities went down, noise and air pollution level went down, level of carbon dioxide and monoxide level went down too. But what went up? Everything else due to the rise in transportation cost. I still remember my contractor told me that I was very fortunate to have completed all my renovations before that happen. Else, she will have to revise or put in other words, raise the renovation bill by 20%-30%.
So now the big question is this going to be a déjà-vu or re-enactment of what has happened 3 years ago? I strongly feel that we as investors need to be very concerned about this. If the situation in Middle East gets worst, many economists and analysts believe that we will slide back into recession. The situation today is very delicate. The recovery is still at the infant stage with most of the developed nations recording 2-4% growth in GDP. Unemployment is still a major concern to many countries.

Country	April 2010	August 2010	December 2010
Germany	7.0%	6.7%	6.6%
Ireland	13.2%	13.7%	13.8%
Spain	19.8%	20.5%	20.2%
France	9.8%	9.7%	9.7%
Portugal	10.9%	11.1%	10.9%
UK	7.8%	7.7%	N/A
United States	9.8%	9.6%	9.4%
Japan	5.1%	5.1%	4.9%

Despite all the talks about Asia decoupling from the West, if they slide into recession, we will not escape unscathed. As an investor, we need to be aware and alert of this impeding storm. Although none of us hope that it will arrive at our shores but still we need to brace ourselves just in case it happens.

[$10 million in my hand, so what do I do now?]

Aside spending $1M on your luxury tours to all around the world, buying a speedboat and indulging yourself in caviar. Let's say all of us have $10M strictly for investment, what will we do with it?

Go get yourself a copy of "How to manage your own finance", "Invest in bonds/equities/FOREX, the failsafe way" or "Entrepreneurship 101"? Frankly speaking, what my advice is to put $9.99M into the bank and open a stock broking account with only $10k credit. Why so little? We can definitely afford to take bigger risk now with $10M in hand right? Let's put at least $1M into our stock account and start acquiring some good stocks! Well, chances are we will lose everything in a second.

I love what Robert Kiyosaki wrote in one of the investment books, you need 3Es to succeed in investment. Those 3Es are education, experience and excessive cash.

Why set the ceiling at $10k? This is the amount we are able to handle for first time investors. For seasoned investors, well the range can easily go beyond the $1M mark. $10k is really an amount we can handle comfortably. So start small then we set a realistic target to hit. After we are comfortable with $10k, we move on to a bigger portfolio of $50k which consist of 8-10 types of stocks from various sectors then move on slowly to the $100k, $250k, $500k and so on. Why do I say so? Well, it is easy to buy and sell a counter if you only plan to buy 1000 units. But the difficultly and method use to buy and sell 100,000 units of that particular counter might be very different. You need to learn dollar cost averaging up and down. Then you will be more selective with the counters you buy too. At first with $10k, you might want to invest in small cap companies which have very limited amount of liquidity. But with $1M, you might want to choose medium cap companies to avoid facing any liquidity issues.

So let's all learn how to kick start our investment by first accumulating $10k. Then we set a target what we want to achieve by middle or end of this year. It can be anything from $20k to $100k. Just set a number that we are comfortable with. Investment is a long journey with lots of ups and downs. I can still recall the first day I bought my Public Bank stock, although it wasn't really that much, maybe just $2.5k in value, it took me about 10 minutes to decide whether to commit that amount or not. Although I've spent so much time researching on that particular company and convinced myself that it is a really good counter, but at that moment, fear comes in. A lot of questions will flood your mind. Questions like, are you sure it is the right time to buy? Will it continue to go down? Is $2.5 too much or too little? What if it goes up the next hour? Then all of a sudden, I remembered what Warren Buffet said, "It is better to buy a good stock at a fair price rather than getting a fair stock at a good price!"

Back to the topic of the day, what should I do now?

1. Education: Invest heavily in our own financial IQ.
   
2. Experience: Go sign up with any brokerage firm and start small.
   
3. Excessive cash: Learn to save and side aside at least 10-20% of your income.
   

But with $10M, you can skip the last one and move along with 1 and 2. But remember, you need to act FAST because 10 years from now, with the current inflation rate, the $10M you have in the bank even if it is on FD might have shrink to less than half.

Blessed evening ;)

[Staying Focus]

"To create something exceptional, your mindset must be relentlessly focused on the smallest detail." Giorgio Armani



24 hours doesn't seem to be enough for any of us. Taking into account we need to sleep 6 hours and spending another 8-10 hours in the office. We will only be left with a mere 8 hours to do the things we love. So what's this blog all about?
Instead of spending time reading stuffs which doesn't benefit us much like entertainment and soccer news, why not spend some time on learning and sharing our investment knowledge? At least that is what I've intended to do for now.
Staying focus will be the main topic for today or this week depending on how much time I've to spare and to share. What's staying focus and what has it got to do with investing?
There are several areas I want to highlight here. One of it is from individual's perspective. Many of you might agree that with all the technological advancements and Wi-Fi availability, we tend to be distracted all the time either by SMS, MMS, latest celebrity news, soccer updates and the endless list just goes on. If we want to be successful in investing, we must stay focus on our goals. What we would like to achieve by end of this quarter, middle of this year and end of this year. It isn't just about the earnings we've gotten from equities, bonds and foreign exchange but how much we know and understand about this market. I always believed in beginner's luck. Many people might have started well in investment but complacency soon fall in and all of a sudden, they are in debt because everything turned red.
Staying focused means:

1. Maintain a lifestyle in which we always seek to be in tuned with the market.
2. Make the effort to learn more about the economy.
3. Continue to improve our investment strategy by constantly polishing our skills and knowledge.
4. Learn to be humble. Only with a humble spirit we are able to have a receiving spirit that's willing to hear, accept, admit and learn from others and our own mistakes.

From a corporation's perspective, staying focus is extremely important. Just look at what Steve Jobs did to Apple when he returned back. He immediately terminated a number of projects and steered Apple to focus only on delivering 4 types of computer (2 types of desktop and 2 types of laptop). Alan Mulally did the same thing as well when he was first hired from Boeing to Ford. He stayed focused on recreating Ford as a world class brand. Instead of trying to focus on creating Aston Martins, Jaguars, Land Rovers and all other types of vehicles, he decided that Ford should only concentrate on creating small, medium and large size cars and trucks that is the best in their class in terms of safety, quality, fuel efficiency and design. From my perspective, in order for a corporation to grow healthily, it cannot be too diversified. We must be able to identify what's their core business. Which sector are they really involved in? Is it oil and gas, technology, property management, food, agricultural products (palm oil/rubber)? If we are able to associate these companies with their respective sectors and if they have a strong balance sheet with good leadership in place, then the company is in very safe hands and if the time is right, it will definitely grow leaps and bounds.
In summary, staying focused for a company means:

1. >90% of their revenue/earnings were generated from a particular sector/industry.
2. Leaders in those areas.
3. Has a solid balance sheet. If it doesn't, does it mean that they've been using their cash or selling their asset to invest or expand their core business?