Monday, May 31, 2010

Properties Investment

Some friends of mine are talking about properties recently. It is not my cup of tea to talk about it. All I know is the price is keep on going up and up these few years. The double terrace house in Klang Valley area are fetching at the price between 400k to half millions. I am perplexed with the trend. Obviously, the price is not running concurrent with the raise of my salary. But, almost every single property launch by the developer is selling like hot cakes. I wonder where the hell is the demand coming from. Could it be a buble ? I do not know. My friends said it is not. They said as long as the demand is still there, it is not a buble. I just can't find a answer to this question : " Isn't it the demand which blow the bubble ? ". Would the price keep on going up for the " luxury " properties ( I consider 400k price tag  house as luxury house ). Here are my understanding why the properties price would go north :

1) Liquidity. As long as the interest is low, they would be demands out there. Low interest, easy housing scheme, easy loan and etc. An monthly income of 6k nowadays could afford a half million properties.
2) Anticipation of high inflation in future. People are hedging the inflation with properties.
3) Easier policy for foreign investor.
4) Rising population.
5) Rising of payroll or monthly income.

Yes, no doubt, the luxury house is still rising. Maybe it is the trend.Yes, the demand is still there, otherwise, the price tag won't go up. I am just perturbed by the demand. I can't see any of the above mentioned reasons become a catalyst  to drive the price higher. My reason being :


1) Liquidity. I don't think Bank Negara would keep the interest low. It is time to increase the interest rate to avoid the run away inflation in future.
2) Anticipation of higher inflation. Hmm I am no comment on this because it is very subjective. With the rising interest rate, inflation might be kept contained. But we all knows that the official inflation rate and the " real inflation" is totally 2 different stories.
3) Easier policy for foreigner investor. The property gain tax  is back even though it is not as high as before. If I am not mistaken, the minimum buying price of house has been raised to RM500k. Correct me on this if I am wrong.
4) Rising population. I just don't think Malaysia population is huge enough to propel the demand. It is not like Indonesia or Thailand.
5) Rising of payroll or monthly income. I can't see it base on my personal income. Maybe it is just me. My circle of friends doesn't enjoy the raise as well.

The worst I heard and read is that Kuala Lumpur properties price still have room to grow should one compare the price to the regional market like in Jakarta, Bangkok or Singapore. I can't see the the links here. After all, the same thing have been said for years, the property price in KLCC or KL is no way close to Singapore's. It is the same thing like the KLian average payroll would increase because the difference between the  KL and Singapore is too far. I just do not buy that. A household income of RM 6 k for a property at the price tag of RM500k ? I just could not believe that would last. I am out of the game anyway. Can't afford it. Leverage is not my game as well. 

I am not sure it is a bubble or not. My friend said it is not. Some said even though it is a bubble, the price won't drop much when it bursts. For the record, in 1997 crisis, the average house price drop 39%. Of course we can't expect another 1997. But, he is quite accurate most of the time. I hope he is right this time. As for me, it is not my game.

 “It’s mercy, compassion, and forgiveness I lack—not rationality.” 
                                          ~ The Bride ( Kill Bill Vol. 1 ( 2003 ) )

Tuesday, May 25, 2010

Fear Management

If someone is telling you that he never encounter fear while he is full gear into the market, he is probably " talk cock". I just don't buy that kind of story. I am always "chicken", which I consider a plus points rather than a disadvantage.
Fear is always a sword that cut 2 ways depend on how you look at it. As long as you are in the game, that is the element you should not ignore. After all , it is one of the element which helping us hitting home run. Fear could lead one losses to their pant down or one could reap the benefit out of others' fear. After all, this is a zero sum game.

1. Know what are you doing.  If you do not know what are doing, then you deserve to be scared. It is okey to be scared. After all, we are human. Recognize your action. If you are trading on some counter admit it. If you are speculating some stocks admit that you are. If you are value picker, then tell yourself you are. Once we recognize what are we doing, we should be able to take action once the situation turns sour against. Once we are prepared, we would not be caught off guarded.

2. Keep some cash when during the good time. By how much ? That is up to personel risk appetite. Always remember, ther eis no clock on the wall which would tell you when would it strike 12.00 midnight and the party is over.

3. Do not be too pessimistic all the time. Ohhhhh Roubini... Ever wander why he is always on CNBC or Blooerberg ? Probably, because people want to listen to bad news when things turns sour. Do you think CNBC or Bloomberg would want someone tell you it is not the time to panic ? Who doesn't want to listen to Dr. Doom to scream : " It is time to panic now.... not tomorrow but now ..... ". To avoid that, best way is to do not switch on the TV or internet which is kind of impossible nowadays. So, better way is keep your mind open about their view. Dr. Doom might be right about the sub prime crisis in 2006. But he was deadly wrong to call the stock to drop further in March 2009 which DOW and S & P 500 propel a strong rally after March 2009 low. The same apply if event turns the other way around.

4. Just buy the company that you understand well like WB do. Just forget about the rest.

5. Remember you are always alone to be a contrarian . Do you a favor by telling  telling yourself that most of the time only contrarian makes money.

6. Do not ever try to margin if you do not want fear to engulf you in critical time.

7. Don't assume anyone's opinion (including mine) is truth of a predestined outcome. In other word don't assume that because something might happen it will. These are merely opinions to consume. Consume it with balance prespective. Invest on the assumption that anything may occur and you might avoid becoming overly pessimistic or overly optimistic. And remember; conditions change and you must be flexible as the world morphs.Bear that in mind we, should be able to avoid be too fearful or too dreadful.

8. Tell yourself it is not the end of the world.Read more constructive view from the guru Mark Faber, Mobius, Ah Jim Koko, Jeremy Grathman. Google it you will surely find their words. During war time, who should be fearfull ? The citizen, for they are the vulnerable ones. Be a soldier. Prepared yourself with the rifle and bullet. ( Knowledge + Cash ). Then you won't be so scared.

9. Always remember, your a supposed to capitalize on others fool's fear. It is your own fear make you lose money.

10. Do not be idiotically brave. There is a thin fine line to define a foolish brave and a smart gutsy investment. Of course by definition as long as you make big money that is a smart investment lah. Who cares how you make it. Who cares if it is by pure luck. A carefully calculated risk investment should be term as smart investment. If it doesn't turn out making money, then it is too bad. But I still think that is the way we should head. No matter how careful and how good you are, we still can't guarantee it is going to make money right brader ... If that happens, then no luck looor. You can't strike TOTO every single weeks anyway :).  

P/S : If someone out there saying that they are not afraid at all all this while please drop me a few lines. I will like to learn from you.

" Every man... every man has to go through hell to reach paradise "

                                                  ~ Max Cady ( Cape Fear ( 1991))

P/S : This is a lazy and lousy post. Happy reading.

Friday, May 21, 2010

Why Fall In Love

First of all, in order for us to fall in love, we need to have a " romantic atmosphere " . Second, the candidate must be attractive. Only then, we would try to approach the candidate. And of course, after a few dates and a better understanding of her/his background,  we would feel whether or not she/it is Ms Right / Mr. Right. At at last, we fall madly in love with them.

1. Romantic Atmosphere : Have been following glove industry for years. Have been a follower of  Top Glove. Bought it and sold it before " migrating " all the fund to NYSE and HKSE market in 2008. What a year !!! Have been looking at this industry as a whole. The demand has been increasing year after year. The demand is from all over the world. Previous reports from several local analyst used to say the demand was going to slow years ago. I admit I did listen to them and never really get into the band wagon. Kan ni nah... Now, Why should I listen to the so call " analysts blowing water talk" but not listening to the top man in the industry.  Top Glove CEO and Hartalega CEO have been singing the same tune about the demand. According to the captain, the demand will still increase for next year. They are still in the middle of their capacity expansion plan. Why Should I listen to a passengers ( The Analysts ) who may not understand the industry well enough, but not listening to the Captain. I believe it is a capacity game, the more you increase your capacity, the more the revenue would be. It is kind of straight forward thingy. The "atmosphere" is good enough to fall in love with.

2. The Candidate ( Hartalega ) : No point to say how good looking the candidate here with all the details figure. Google it, we should be about to find the figure or number in detail. After all, we should do some homework and not just listening only. Debt = Not an issue at all. ROE = 40%. Impressive. Net margin of 25% very good. Free Cash Flow  = 0.15  OK. Most important part = Look like the cash in the peggy bank is going to increase substantially in the coming quarters. PE < 10, ( at current price of 7.7 with the annualized earning of 0.80 per share ). Earning looks like going to increase in the coming quarters as well. Capacity is still in the progress of expansion. Management sounds like eating what are they cooking. ( Check the lastet Burasa Anoucement. The captain is keep on increasing his holding ). The management is keep on figuring out ways to cut down the cost. Sound like a recession prove industry. The demand is inelastic in nature. Don't look at the PB ratio. It means nothing. It you have to look into it, look at the positive side.  The ROA is high. Candidate sound pretty gorgeous at current PE. I am not surprise should there be a change of apprisal and revert the PE to 15. Is there a chance ? I believe there is. 

3. The back ground. Hmmmm this part is kind of long to brag about. I want to keep this post short. Want to know the candidate background or performance history go HERE.  I posted the link before. Just repeat it here.

Can't find a reason I should not fall in love with it. Eat my own cooking. Long big time.


"He won't come after me. He won't. I can't explain it. He would consider that...rude."
- CLARICE STARLING~  The Silence of The Lambs ( 1991 )

         

Wednesday, May 19, 2010

Risk Part III ( Last Part )

Maximizing the profit and minimizing the risk. " Cakap " is always easier than do. I would be wrong on this but no one should stop trying until he gets to his goal. Instead of talking about the said issue, I think it is better for me to share some of my experiences.

1. Year 2007 to early 2008. Come out with this crazy idea of concentrating investing. Putting all eggs into a basket and really watch it carefully. Make a killing in by buying into Maybulk. BDI was soaring from 4000++ to 12000++ point. Maybulk
Come to think of it, it is better to list down what do I think about it.

1. Diversification doesn't really mean  risk reducing. It is better to be vigilant about the companies that you bought than diversified into too many companies and lost your track about the companies development. If you are US market, I believe you may agree with me  that buying Berkshire is safer than buying several companies. After all, Berkshire's holding companies are doing all kind of business, and it is kind of " diversified" in a way. To put it another way, it is safer to buy only Public Bank than buying several banks like RHB Bank + Alliance Bank + Hong Leong Bank + Bank Utama combines. Get what I mean. If you ask me how many companies should one hold, I would say it is much depend of the capital. There is no point of  buying into 10 companies with a capital of  20k. The bigger the capital the more the companies one could hold. They are people said for capital > 100k, a single counter should not represent > 15% of the total capital. I am  a more adventurous type. I am more to concentrating to 5-6 counters   and watch it with a eagle eyes. Experience told me that I just couldn't make a killing if the portfolio is too much diversified. This issue have been told so many times. I myself get bored with it until I personally experience it. Try it, see whether you would come to the same conclusion or not. 

2. Market always fluctuates. Always keep some cash in hand. Ha ha ha .. I have never been able to do that. I just can't help it.  Still learn how to control it emotionally. Controling the behavior is vital. Human being is emotional. I know I am the extreme type. Either all in or all out. Still in the path of learning. Believe me or not, you would feel more comfortable if you have some cash in hand. Always remember market always goes down much much faster than it goes up. Do not compare the maximum gain you have during the good time with the current situation. There is no such thing as if I wait a bit longer, I will get to the level during the good time. You just can't have it all, admit it and move forward.

3. Always review your portfolio and adjust to it accordingly. Never mind what the analyst said. They are not better than you anyway. And I don't see how are they better than you besides they have the advantage of having a degree in finance or something. Do your homework and trust yourself. When the market crushes, build up your confidence. Don't put your balls in the fridge, go to the front line and and get your gut to buy. If you are too chicken, your probably miss out the last year long rally.

4. Investing in Bursa Malaysia or whatever market you are in is like playing a zero sum game. Your gains is some one else losses. Hence, it is very disadvantage if you do not have some " account skill " as your defense. Going to the battle field with a pant and beach sandal is definitely disadvantage to the one going with a riffle on the shoulder kawan ..... Like it or not you have to study it....

5. Low PE or Low PB ration doesn't guarantee lower risk. Read the previous entries if you don't get what I mean. But  I personally prefer low PE counter, not because of lower risk per se, but it is more to better chance to hit jackpot with lower PE counter. I did brag about it. HERE is the reasoning. NTA give you no meaning if the asset could not generate free cash-flow and make little earning. There is no point of having a 100 million asset which produce 5 millon cash annually.

6. Know yourself. If you can't take it emotionally, then go for the very conservative way or always keep some cash. A 35% cash would make you sleep very well. A another crisis of 2008 would create sleepless nights. Believe me, if I would prefer a sound sleep to go through another crisis like 2008.

7. Only during crisis time, you would find big bargain. If there is a " true good to be true"  during normal time, you better get your ass to dig what is going on with the company. If you are pretty comforatble with your commitment with the associated risk, get your gut to buy in stages.

8. I am more to value investing than technical analysis. What I can say is value investor  make big money most of the time in comparison to technical analysis. Ever heard of Techinical Analyst become a Billionaire ? Furthermore, technical analysis kind of susah for me. Reading chart is not my cup of kopi man....

9. Understanding management is paramount. Value could make you rich, but growth will make you a fortune. Only good management could take you higher. Good management could grow the companies bad one sucks the companies for personal  gains. There are a lot in Bursa Malaysia. Good one privatized it lah....  then repackage and sell it back to public later. Really good one .. walap it and keep it to themselves. Normally a family controlled company won't get you much as a minority share holder.  How to get to know good management ? It is through what they did not what they talked. Talk is cheap, like what am I doing now here...

10. I am actually struggling to come to the point no 10. You probably won't get what am I trying to say here. But what the heck, I have to come to a conclusion for these Back To Future series.... I want to close this topic... it has been too long .... I will leave with a video clip here by Li Lu..... This video probably worth much more than you pay to attend a seminar on investing.... It is an hour ++ video.... Go ahead.


" Young Doc: No wonder this circuit failed. It says "Made in Japan".
Marty McFly: What do you mean, Doc? All the best stuff is made in Japan.
Young Doc: Unbelievable."  ~ Back To The Future III ( 1990)

Monday, May 17, 2010

Risk Part II

So I was " kopitiaming" about the " Quality " element. Again that was very subjective. Could I say low P/E and low P/B a good quality stock ? Well, some agree with that. I don't. A good quality company should be about to general enough cash flow which is sustainable for dividend payment and future expansion. A good quality company doesn't need to raise capital in the debt market for its expansion. Or at the very least a good quality company should be able to produce better yield that the fixed deposit. A good quality stock should be able to retain its earning which would translate into its stock price. That is kind of WB dollar to dollar rule which could be translated into the saying goes " a dollar made is a dollar plus into the stock price".

There must be a reason explains why certain good quality counter are priced at a premium to its pier. Look at Public Bank. It command a much higher P/B ration to its pier. Look at Top Glove, its share  priced are always quoted at the higher premium to its pier. ( Check their P/E ration and P/B then you would see ). So, we know there is a premium which we need to pay for good quality stock. The question is how much are you willing to pay ? That is very subjective as well. It is like how much are you going to pay for certain risk that you are going to inherit. Lower risk, higher premium, very straight forward. Since how much is the premium is very subjective, ( most of the time it is the market force that decides the premium ), it is rather difficult to discuss it here. So let's drop the premium issue out. Everyone has their own set of measurement to gauge the premium.

How do we determine the quality ? It could be forward looking or it could be backward  looking. It is easier for backward looking, for you wee need is a set of understanding for how good a company is performing.  Of course a company performance would be reflected in its financial report. So, like it or not, we have to have a sense of accounting knowledge. Is " accounting thingy " so important that we have to...... Come on, no soldier goes go battlefield without a rifle.   It is kind of ironic if you are investing your hard earn money without the basic accounting knowledge. It is like going to battlefield with only your pants and beach sandal. Getting a copy of " Account for Dummies " will do the trick.. If you don't agree with me, you better stop reading this blog for it is just wasting your time. The so call " backward looking " is nothing much special but base on, beside the the more common, P/E ratio, NTA, current ratio, etc there are much more information which could be dug out in the financial report. The profit margin, the debt, the ROE, The ROA, the receivable to detect the financial shenanigan, the business review by the boards, the ESOS, the right issue, the business forecast of the boards, etc are all the elements which could be judged and reviewed from time to time to determine its quality. The good thing about backward looking is, one doesn't need to guess but purely base on one's company track record to make a investment decision. The forward looking is the much more challenging and tricky part.

If you have a crystal ball, forward looking is not a problem for you. The thing is the crystal ball that I bought at " pasar malam" doesn't tell me the future. It is more like a guessing game. WB is extremely good at it. Of course no one will get it 100% correct. That is why WB goes " " I will rather roughly right than precisely wrong". ( Another famous quote about how the guru views about " the risk".). If you ask me how to forward looking, I could only tell you it is by experience. Read more financial report, read business section not entertainment or sports, observe the surroundings, even a trip to Mid-Valley could give one some ideas. At least one could have a feeling what is the consumer favorite product in town. But for me, nothing is more important than reading the guru opinions.  Opinions given by gurus  like WB, Jeremy Grathman, Geroge Soros, Mark Faber, Jim Roger, Kent Hebner, Mark Mobius  should be in your reading list for they are the ones who always give good foresight. Most of the analysts gives us craps. Analysis by local investment banks or brokers are bed time readings at best. People who follow Mollah shall know what I mean.

I think I have been talking like I am an expert. The fact is I am not. It is just my 2 cents and I am not good in putting it into words. Will be bragging about how and what did I do I try to minimize the risk and maximize the return. Adios...

" Dr. Emmett Brown: Then tell me, "Future Boy", who's President in the United States in 1985?
Marty McFly: Rona
ld Reagan.
Dr. Emmett Brown: Ronald Reagan? The actor? "  ~ ( Back To The Future II ( 1989 ) )

Thursday, May 13, 2010

Risk Part I

Define risk. This is what I have got from Wiki :

" RISK : Financial risk is normally any risk associated with any form of financing. Risk is probability of unfavorable condition; in financial sector it is the probability of actual return being less than expected return. There will be uncertainty in every business; the level of uncertainty present is called risk. "

For the ones who study finance or econ, I am sure they are familiar with the term risk. I am not a financial planer nor I do I have a degree in econ or finance. I don't even study " Perdaganan " when I was in Form 5. But, generally what do I understand about finaicial risk could be summed up as explained above. Of course we could catagorize the risk into more specifically such as interest rate risk, default risk, liquilidy risk, solvency risk and so on. But that is not the issue here. Since we care talking about investing, just let us lump it into more general term as investing risk ( just call it risk from here on ).

Everyone is scared  to lose big. And I personally treat the risk of not making $$ as investing risk as well. There is no point to feel lucky for not losing money comparing to the one who loses. So, not making a profit should be a function of of risk as long as you are in the market. Even though that is the least "lost" we are going to encounter, it is still a risk. And I have heard zillions of time about " paper loss" .... wtf, a lost is a lost there is not such thing as paper lost. Back to the risk that I am talking about.

So basically, for me, investing shall be a thing of managing risk than managing profit. Of course the best thing is the combination of minimizing the risk and maximizing the profit at the same time. The quote " the higher the risk, the higher its return " should be viewed as extremely dangerous and flaw statement. It leads people blindly.  After all, our objective is to get the maximum return at the lowest risk possible, isn't it ? So what is this shit about " the greater the risk the higher the return" which is totally contradic to our investment objective ? That is beside the point anyway. The point is how to reduce the risk that we presume.

Everyone of us has own own set of risk measurement. Your risk could be different from mine. I am only referring to mine. The risk that you are going to burden is non of my concern. I am not going to get a single sen poorer if you lose your money, nor do I get a single sen richer if you strike big. To put it another way, there is no way I could manage your risk. You have to eat your own cooking just like me. You buy it, that is the risk that you are going to take.

For me , the very basic idea of managing the risk is never lose your capital. It is just like the the old WB rules. 1st. Do not loose your money 2nd. Do not forget the 1st rule. Hence, it is pretty obvious that the old WB is actually managing the risk as well. Otherwise, his great teacher Ben Graham would not be coming out with the idea of Margin Of Safety. With that in mind, it leads to the understanding of under-valuation would command of bigger margin of safety ( which translate to less risky in other words). The idea that a bigger safety margin is better than a smaller one, that cheaper is better than more expensive, that more cash is better than less cash always hold true for obvious reason. However, undervaluation caused by neglect or prejudice may persist for an inconveniently long time. ( I treat waiting as risk for there would be opputurnity cost which we need to bear while waiting for a long time). I believe they are Ben Graham followers who plainly ignore the possible future development because they thought dealing with it is simply speculative. They are much preferred to stick to how much is your assets your in your piggy bank now. What much your assets yield today. The thing that really matters could be summed up as Keynes said below :

" It’s all quite irrational because they are prisoners of the future just like anybody else. However many assets you have in the corporation, including cash, can all be eroded long before you can get your hands on them. "

With the above mentioned quote in mind it is rather pointless to use low price -to-book ratio (P/B) as a yard stick in stock picking is weak approach. Look at Transmile. Should you picked it up with P/B ratio at 0.5 at the price of 0.90 a piece ( at this case mmargin of safety of 50% ), you jaw would be dropped to floor when you read the NTA = 0.08 in its financial report early this year. Exactly illustrated by Keynes stated above.

Jerymy Grantham put is nicely as followed :

"Low P/B ratios are, after all, the market’s way of saying “these are the assets in which I have the least trust.” It should not be surprising, therefore, that when you have a depression, or nearly have one, that more of these “cheap” companies go bust than is the case for the “expensive” Coca-Colas."

" To cut to the chase, P/B does not represent intrinsic value. Nor do P/E ratios or yields. To make this point I regularly pose a question to investment audiences: “I give you Coca-Cola at 1.2 times book or General Motors at 1.0 times book. Hands up, who wants General Motors?” No one ever puts up their hand, and I say, “Therefore, Q.E.D., P/B is not value.”

So, if we buy a stock which has surplus asset, a good yield or a great safety of margin, we are actually putting a bet on regression to the mean. In other words, we are betting that the current unpopularity of the stock ( due to irrational human behavior) would fade. Eventually, price would turn toward it mean. From their investor would profit from it.  Unfortunately, for many times the theory doesn't always hold true. Some of the Low P/E low P/B value stock vanished just like that during the 1998 crisis. Asked around the coffee shop, I believe, they are some " ah pek" to name you a new examples of them. In short P/E, P/B and Q.E.D as sated by Jeremy Grantham are not a function of Value. For me, it make things easier if we treat them as a function or factor of risk.

What do I mean by that ? Plainly, it means instead of treating low P/B or low P/E or low whatever it is as high value, it is more functional if it is treated as low risk. It is a stark contrast if you read the line carefully. High value sounds like it would make money for you for sure. But low risk carry the meaning of casing you loose you pant at the end. After all, low risk is still a risk. But low P/E or low P/B doesn't mean low risk per se. It is just generally accpeted as  Ben Graham followers  do. Higher Safety margin/ low risk base of low P/B or low P/E just lack the " Quality" which I would try to share (my opinion)  in next post. It takes me quite sometime to put my thought into words in this post. Kind of tiring actually. Happy Reading. :) Adio..
P/S : Saw this movie 2 times in a row at the same theatre same day with eldest sister in 1985. Thanks sis for the treat :)

" The way I see it, if you're gonna build a time machine into a car, why not do it with some style? "
                                ~ Dr. Emmett Brown ( Back To The Future ( 1985))

Friday, May 7, 2010

Beauty Contest

What a roller coaster ride if you were staring at the the screen early this morning. Seeing Dow plunge 1000 points  and up closing with 347 points down in less than 2 hours was really something. I had never seen something before, not even during the 2008 crisis. So, how would we position ourselves for the aftermath ? For the one who are fully committed in the market it is like a beauty contest. The only difference is one needs to choose the less ugly :). It took me quite sometime to make the huge decision. For me, in time of turmoil, choosing the less ugly would be the wise thing to do. It would be more mentally comfortable. I have enough with NYSE. Now is " Balik Kampung " to avoid the heavy storm out there. Of course, it has been sometime that I have 2 candidates which suite my profiles very well. Hartalega and Top Glove. Here are the links.

1. Hatalega

2. Top Glove

I have been a stubborn all this while. So, facts and sources told me months ago that I should  put some capital into these companies. But, " biasalah" .. US is too promising.... Who want " Siti Nurhaliza " if you could have " Angelina Julie" right ? ha ha ha... so now pay for it lah .... KNS lah... hahahhaa. What a day : ). Moral of the stories always keep certainly amount of bullets for the " elephant" to show up. Adios



" I am your number one fan. There is nothing to worry about. You are going to be just fine. I am your number one fan." ~ Annie Wilkes ( Misery (1990))

Wednesday, May 5, 2010

How Should We React Now ?

With the current debt crisis in Greece, they are many " experts" out there painting very grim picture ahead. I always have the feeling that the ones that scream at the top of their lung now are the ones who didn't hop into the band wagon when the market was down last March 2009. I never really left the market. Did I loose money or did I make money in the market. Yes I do for the both. I say this for I don't want to be accused I am bias of what do I think. Let us get to another perspective.
I would put 2 articles for your evening read :

1. By Daryl Montgomery

Current market action has all the earmarks of a global financial crisis. Stocks and commodities are selling off, money is flowing into safe haven treasuries and the U.S. dollar, and the VIX and TED spreads are up sharply. We've seen this before in 2008 and also during the Asian contagion in 1997.
As we all know by now, the problems started in Greece, a small economy that represents only 2% of the eurozone GDP. Greece had been lying about its budget deficit and true financial position for many years (and is certainly not the only country doing so). Even though it submitted obviously ridiculous financial numbers to the EU central HQ in Brussels, they were not officially questioned. Greece itself, like Bernie Madoff, finally confessed to the scam because it was falling apart. The EU, which has had more than six months to deal with the situation, consistently failed to take action. What was at first a minor problem has festered and grown into a problem gnawing away at the world financial system. The simple and obvious solution of using dollarization - letting Greece continue to use the euro, but removing it from the currency union (which it should never have been allowed to join in the first place) - was not even considered by EU authorities. Instead they have gone the bailout route and, because they have dragged their feet, the cost of the bailout has tripled in the last few weeks alone.
A small country with a currency problem causing major problems in the global financial system has a recent precedent in Asia in 1997. The Thai baht, which was pegged to the U.S. dollar, came under speculative attack in May of that year and the government was forced to drop the dollar peg and float the currency on July 2nd. The problems in Thailand, a relatively small economy, then spread throughout East and South Asia. They eventually washed up on the shore of the U.S., with an October 27th mini-crash in the stock market that dropped the Dow Jones Industrial Average 7% in one day. The selling may have been worse, but stock trading was halted early that day.
The euro has been seriously weakened in the last several months, falling from over 1.50 to the U.S dollar in December to under 1.28 this morning (key support is around 1.25). Problems in Greece are spreading to other parts of Europe, just as problems in Thailand spread to other parts of Asia. Indonesia and South Korea were seriously affected first and then Hong Kong, Malaysia and the Philippines suffered damage. Problems even spread to China, India, Taiwan, Singapore and Vietnam. Portugal, Spain and Ireland are the next dominoes to fall in the eurozone. Italy also has troubled finances, but its economy is too big to be bailed out. Bailing out Spain might also be problematic. There is one key difference between Asia in 1997 and the eurozone today. The Asian economies were strong and had been so for many years before the crisis hit, while the eurozone economies have been relatively weak for many years and have been mired in recession for the past two.

Major stock indices in Europe and North America were down around 2% to 3% yesterday. In the U.S. the Dow dropped 2.1%, the S&P 500 2.4%, Nasdaq 3.1% and the small cap Russell 2000 3.4%. Smaller markets in Europe were down 4% to 7%. Gold was down only slightly on the day, but oil was down over 6% at one point. The VIX, the volatility index, was up 27% during the day's trading and the TED spread, a measure of stability in the financial system, rose almost 9% (the higher the number, the less stability). U.S. treasuries rallied and the U.S. trade-weighted dollar not only rallied, but also had a significant breakout above the 82 range. If this all sounds familiar, it is because this is how the market frequently traded during the fall of 2008 during the height of the Credit Crisis.

While the events in 1997 had their biggest impact in East and South Asia, echoes of the problem wound up impacting U.S. and other stock markets into 1998. The collapse of hedge fund Long-Term Capital caused a severe bear market, with the Nasdaq dropping around 30% in August of that year. Regional financial crises do not tend to get resolved quickly, and their impact can easily last for at least a couple of years and be felt halfway around the world. Events in the spring can cause market sell offs in the fall.
The current situation is much worse in 2010 though than it was in 1997. Bailouts and pumping liquidity into the global financial system (which lead to the tech bubble blow off in 1999 and early 2000) were used to deal with the problems in 1997. Governments and central banks have already used these tools to a massive extent in the last two years. If we are having another crisis, clearly they aren't working.


2. By Jeff Miller
There is some pretty simple advice for individual investors:
  1. Have a plan and stick to it. It should relate to your time frame and fundamental values.
  2. If you can't figure one out, get some help. You have a lot at stake.
  3. Turn off the TV!!
  4. If you are going to do your own research -- get beyond the "sound bite."
Every time there is a little selling in the market we see the same thing. Financial television and the leading media sources trot out people who want to seem smart -- as if they predicted yesterday's selling.
Some Interesting Slogans
There are a couple of popular slogans that currently have the ring of truth:
  • Fighting the last war
Generals are notorious for their tendency to "fight the last war" -- by using the strategies and tactics of the past to achieve victory in the present. Indeed, we all do this to some extent. Life's lessons are hard won, and we like to apply them -- even when they don't apply.
  • Never meeting a payroll
A term applied to opinionated pundits who lack specific experience or responsibility.
How to be a big-time pundit
This is a pretty simple formula.
  1. You start with one case, one country, one anecdote, or one problem. Keep it simple.
  2. You then apply the popular "cockroach theory." It is amazing how people will bite on a simple and stupid analogy (and risk their retirement accounts).
  3. You emphasize that the plural of "anecdote" is data. This relieves you of the need for any training, skill, or experience in analyzing data. You can just tell your story.
  4. You invoke --drumroll ---- A CHART. The chart is supposedly giving "multiple sell signals." No one asks what your track record has been. In fact, you have so many conflicting and non-specific forecasts that no one could possibly test your commentary. You pretend that your chart told you to sell yesterday.
  5. You breezily dismiss anyone taking an alternate viewpoint. They either "got it wrong before" or said one of the bad words (e.g. contained).
The Reality
Most of the blogging punditry has "never met a payroll" when it comes to public policy. They are full of opinions, but lack any experience. It is amazing what happens to ideology when one is confronted with actual accountability. This is why President Bush and Hank Paulson proposed TARP. Who would have thought this possible?
The reason is pretty simple.
Governments do not step back and allow disasters to occur. If you look at the many crises in history, they were all limited, contained, or resolved in one way or another -- at least for the last 70 years or so.
Despite these facts, the wrong-headed, inexperienced, and ideological pundits are completely convinced that each new story is another 2008. This is where the "fighting the last war" comes in. They lack experience in actual policymaking. This renders their commentary useless for prediction and irrelevant to those charged with actual decisions.
Investment Conclusion
Most of those getting big-time media are there to "explain" what happened yesterday. They get to "look smart" by offering tired bromides that make for good sound bites.
A real investor follows the Warren Buffett approach and looks for stocks on sale. I do not know if today will be the bottom tick, but I have a nice "buy list" for new investors. You should, too.


P/S : Definitely my favorite TV Series. :). It is pretty long, sorry.



“Now they show you how detergents take out bloodstains, a pretty violent image there. I think if you've got a T-shirt with a bloodstain all over it, maybe laundry isn't your biggest problem.Maybe you should get rid of the body before you do the wash.” ~ Jerry Sienfeld ( 1989-7998 )