Thailand has taken quite abit of beating in this correction. Its been going down day after day. However, the performance of aberdeen thailand fund has been good vs its peers as well as the index. Good fund in a bull mkt, good fund for the bear?
Thursday, June 15, 2006
A good fund in making?
I guess alot of people are 'infatuated' with all funds being Aberdeen, most notably Aberdeen Pacific Equity. They would like people to think that they have a value approach in the way they formulate their fund.
Thailand has taken quite abit of beating in this correction. Its been going down day after day. However, the performance of aberdeen thailand fund has been good vs its peers as well as the index. Good fund in a bull mkt, good fund for the bear?
Thailand has taken quite abit of beating in this correction. Its been going down day after day. However, the performance of aberdeen thailand fund has been good vs its peers as well as the index. Good fund in a bull mkt, good fund for the bear?
The Perfect Value Investor
by James Montier
Occasionally when I present on the seven sins of fund management, someone at the end (obviously a valiant soul who has managed to stay awake) will ask me how I would structure an investment process. In the spirit of good politicians everywhere, I am going to save my answer to that question for another weekly. However, I recently read a paper along similar lines that I thought was worth sharing. Louis Lowenstein of Columbia University examined 10 value managers selected by Bob Goldfarb, CEO of Sequoia Fund. Lowenstein asked him to select ten dyed-in-the-wool value investors who all followed the essential edicts of Graham and Dodd; obligingly, Goldfarb selected the list below. To this list we have added a second Tweedy Browne fund, Tweedy Browne Global Value.
This may not be the most scientific of approaches, but nonetheless should allow us to draw out some of the characteristic behaviors of some of the best value investors. We have updated and extended Lowenstein's work.
The table below shows the funds and some of their key characteristics.
Contrary to the proclamations of classical finance, these investors tend to run highly concentrated portfolios. No portfolio diversification for these guys. Tracking error has little or no meaning to this group of investors.
Across these funds, on average, nearly 40% of the assets are in the top ten holdings. Across a wide universe of funds, the top ten holdings account for only around 10% of assets. The average number of stocks held is around 35 (and this is raised by the presence of three international funds, it would be closer to 20 for the domestic-only funds). In contrast, the average US domestic mutual fund holds around 160 stocks!
This seems to reflect a different philosophy on two counts. Firstly, these value managers seem to need a reason to invest - not investing is their default, so in order to actually go out and buy a stock, these investors need to be convinced of the merits. Presumably in accordance with Graham and Dodd's guiding principles, this is represented by a margin of safety. As Graham wrote, "The margin of safety is the central concept of investment. A true margin of safety is one that can be demonstrated by figures, by persuasive reasoning and by reference to a body of actual experience".
Secondly, the average fund management outfit appears to be run either by the risk management department or the marketing department. I've come across several examples of this in the last few years. One client was relaying to me the joys of his risk managers telling him that he had to deploy more risk, because he was under his risk budget! Of course, when markets fall, those very same risk managers with their trailing correlation and volatility will be the first in line to tell you to sell your positions. Risk managers are the financial equivalent of those who give out umbrellas on dry days, but snatch them back as soon as it starts to rain.
Another informed me that they were setting up a commodity fund. Why? Because the marketing department said there was an appetite for such a product. Does this not strike anyone as vaguely (and perhaps alarmingly) like the TMT bubble?
The result of these bizarre dynamics is that the average fund manager is more worried about tracking error and benchmark risk, than about finding the best investment for his clients. So their default is likely to be ownership. Hence they need a good reason not to invest in a stock. The fiduciary responsibility to the client is forced to take a backseat. Perhaps investment managers should take an equivalent of the Hippocratic Oath to do no harm.
As is often the case, Maynard Keynes sided with the value investors. He wrote:
To suppose that safety-first consists in having a small gamble in a large number of different companies where I have no information to reach a good judgement, as compared with a substantial stake in a company where one's information is adequate, strikes me as a travesty of investment policy.
Letter to F.C. Scott, February 6, 1942 (The collected writings of John Maynard Keynes).
This was a view shared by Loeb in his classic, The Battle for Investment Survival. He opined, "Diversification is an admission of not knowing what to do, and an effort to strike an average".
It should be noted that concentrated portfolios are not, in and of themselves, a deliberate choice on the part of these funds, but rather stem from their investment discipline. There simply aren't that many good value opportunities to be found. The Brandes Institute published a paper in late 2004 exploring the use of concentrated portfolios. They concluded, "In aggregate, and across peer groups, we find that concentrated portfolios, in and of themselves, do not provide improved returns, nor do they provide improved volatility-adjusted returns". This emphasizes the fact that the concentration amongst our group of value investors is the result of a process rather than a deliberate decision in its own right.
A graphic illustration of this point can be seen by examining the performance of a basket of stocks that Fortune assembled in the year 2000. The basket was labeled "10 stocks to last the decade - here's a buy-and-forget portfolio". The aim of the stocks was to allow you to "retire when ready", according to Lowenstein. The list of companies is shown below. Only one of these stocks had a PE of less then 50x!
The performance of this basket is shown in the chart below. At least Fortune got one thing right - it was a portfolio to forget! It is still down around 40% from the time at which Fortune suggested its purchase. A prime example of what Ben Graham would have described as a permanent loss of capital.
The investors in our value group focus themselves upon business risk - will profit margins shrink? Are there risks on the balance sheet? - rather than market risk (stock volatility), which these investors seem to treat with the scorn it deserves. They know that the market as a whole is best characterized as suffering bipolar disorder (the proper name for manic depression). As Ben Graham wrote:
One of your partners, named Mr. Market, is very obliging, indeed. Everyday he tells you what he thinks your interest is worth and furthermore offers either to buy you out or sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or fears run away with him, and the value he proposes seems to you a little short of silly.
The investors in this group seem to be aware of the need to focus on a few key items of information, rather than attempting to try and overload themselves with noise. Lowenstein quotes Marty Whitman of the Third Avenue Value Fund as saying, "the fund doesn't have superior information; ?the trick' is to use publicly available information in a superior manner". To this end, these funds don't employ legions of analysts wasting time forecasting next quarter's EPS; instead, they spend their time trying to understand the valuation and associated risks.
Their willingness to hold cash is clearly visible from a cursory glance at the table on page 2. Currently they hold around 11% cash, nearly 3x the level held in the average US mutual fund. The average hides a wide range of current cash levels. For instance, FPA Capital is holding nearly 39% cash whilst Legg Mason Value holds a mere 1.1% cash.
Most of the traits displayed stem from the underlying philosophy of the funds in question. The generalized willingness to hold cash is the result of lack of investment opportunities. In his year-end letter to shareholders of 2003, Seth Klarman wrote that his large cash position was the "result of a bottom-up [and failed] search for bargains". The guiding principle amongst our group of value gurus is, to borrow Buffett's expression, "holding cash is uncomfortable, but not as uncomfortable as doing something stupid".
I have often remarked that inherent within a value approach is the acceptance of long time horizons. You never know when a stock will reflect a sensible value. A good example was provided by the UK market in early 2003. The dividend yield on the UK market was higher than the 10-year government bond yield, suggesting that dividends were expected to decline on a decade view. This struck me as just plain wrong. A plethora of valuation work showed the UK to be unambiguously cheap (for details see Global Equity Strategy, 30 January 2003). The presence of forced sellers was making the UK market a bargain.
However, as with all bargains, they can repay you in one of two ways. Firstly, prices could correct. Secondly, they could just generate a high return via paying out high dividends for a long period of time. You never know which path will be taken. Hence the need for long time horizons.
Our selection of value managers all display long horizons. The average stock-holding period amongst these funds is over five years. The maximum is 17 years, the shortest 3 years. All compare favorably with the mutual fund industry's average stock-holding period of just 1 year (according to Morningstar).
This is supported by the chart below showing that average holding period for stocks on the NYSE. Back in the 1950s/1960s, investors used to do exactly that: invest. The average holding period was 7-8 years. However, today it appears as if everyone has become a speculator, with an average holding period of just 11 months.
When I present these findings, investors often dismiss the picture as yet further evidence of the way in which hedge funds have altered the investment landscape. However, the Morningstar data above, and the data from John Bogle below, show that long-only fund managers are just as much to blame for the time horizon shrinkage as the hedge funds. This may be because they feel the need to compete with the hedge funds but, regardless, they are certainly complicit in the shift from investment to speculation.
As Munger and Buffett have noted on many occasions, "If the job has been correctly done when a common stock is purchased, the time to sell it is - almost never".
Nearly all of the funds in our list have witnessed periods of negative returns, and/or underperformance relative to a benchmark (although note Trait I on the disregard for such items). Many of them saw large redemptions during the TMT bubble, but were prepared to stick to their tried and tested approach to investing. Lowenstein cites Eveillard (manager of the First Eagle Global Fund) as saying, "I would rather lose half my shareholders than lose half my shareholders' money".
Despite the very impressive performance data contained in the table on page 2, many of the funds examined have underperformed the index in as many as seven years out of the last ten! Absolute losses are relatively rare, with only 2 or 3 years seeing negative returns in the last 10.
In a paper published by Tweedy Browne, they report a study that showed for a group of value investors with excellent long-term track records, that underperforming an index some 30-40% of the time was perfectly normal. This fits well with our previous study of underperformance using an artificial universe of skilled fund managers who, despite having an information ratio of 0.5, saw 70% of their numbers witness 3 or more years of consecutive underperformance (see Global Equity Strategy, 7 June 2005).
Occasionally when I present on the seven sins of fund management, someone at the end (obviously a valiant soul who has managed to stay awake) will ask me how I would structure an investment process. In the spirit of good politicians everywhere, I am going to save my answer to that question for another weekly. However, I recently read a paper along similar lines that I thought was worth sharing. Louis Lowenstein of Columbia University examined 10 value managers selected by Bob Goldfarb, CEO of Sequoia Fund. Lowenstein asked him to select ten dyed-in-the-wool value investors who all followed the essential edicts of Graham and Dodd; obligingly, Goldfarb selected the list below. To this list we have added a second Tweedy Browne fund, Tweedy Browne Global Value.
This may not be the most scientific of approaches, but nonetheless should allow us to draw out some of the characteristic behaviors of some of the best value investors. We have updated and extended Lowenstein's work.
The table below shows the funds and some of their key characteristics.
Trait I: High concentration in portfolios
Contrary to the proclamations of classical finance, these investors tend to run highly concentrated portfolios. No portfolio diversification for these guys. Tracking error has little or no meaning to this group of investors.
Across these funds, on average, nearly 40% of the assets are in the top ten holdings. Across a wide universe of funds, the top ten holdings account for only around 10% of assets. The average number of stocks held is around 35 (and this is raised by the presence of three international funds, it would be closer to 20 for the domestic-only funds). In contrast, the average US domestic mutual fund holds around 160 stocks!
This seems to reflect a different philosophy on two counts. Firstly, these value managers seem to need a reason to invest - not investing is their default, so in order to actually go out and buy a stock, these investors need to be convinced of the merits. Presumably in accordance with Graham and Dodd's guiding principles, this is represented by a margin of safety. As Graham wrote, "The margin of safety is the central concept of investment. A true margin of safety is one that can be demonstrated by figures, by persuasive reasoning and by reference to a body of actual experience".
Secondly, the average fund management outfit appears to be run either by the risk management department or the marketing department. I've come across several examples of this in the last few years. One client was relaying to me the joys of his risk managers telling him that he had to deploy more risk, because he was under his risk budget! Of course, when markets fall, those very same risk managers with their trailing correlation and volatility will be the first in line to tell you to sell your positions. Risk managers are the financial equivalent of those who give out umbrellas on dry days, but snatch them back as soon as it starts to rain.
Another informed me that they were setting up a commodity fund. Why? Because the marketing department said there was an appetite for such a product. Does this not strike anyone as vaguely (and perhaps alarmingly) like the TMT bubble?
The result of these bizarre dynamics is that the average fund manager is more worried about tracking error and benchmark risk, than about finding the best investment for his clients. So their default is likely to be ownership. Hence they need a good reason not to invest in a stock. The fiduciary responsibility to the client is forced to take a backseat. Perhaps investment managers should take an equivalent of the Hippocratic Oath to do no harm.
As is often the case, Maynard Keynes sided with the value investors. He wrote:
To suppose that safety-first consists in having a small gamble in a large number of different companies where I have no information to reach a good judgement, as compared with a substantial stake in a company where one's information is adequate, strikes me as a travesty of investment policy.
Letter to F.C. Scott, February 6, 1942 (The collected writings of John Maynard Keynes).
This was a view shared by Loeb in his classic, The Battle for Investment Survival. He opined, "Diversification is an admission of not knowing what to do, and an effort to strike an average".
It should be noted that concentrated portfolios are not, in and of themselves, a deliberate choice on the part of these funds, but rather stem from their investment discipline. There simply aren't that many good value opportunities to be found. The Brandes Institute published a paper in late 2004 exploring the use of concentrated portfolios. They concluded, "In aggregate, and across peer groups, we find that concentrated portfolios, in and of themselves, do not provide improved returns, nor do they provide improved volatility-adjusted returns". This emphasizes the fact that the concentration amongst our group of value investors is the result of a process rather than a deliberate decision in its own right.
A graphic illustration of this point can be seen by examining the performance of a basket of stocks that Fortune assembled in the year 2000. The basket was labeled "10 stocks to last the decade - here's a buy-and-forget portfolio". The aim of the stocks was to allow you to "retire when ready", according to Lowenstein. The list of companies is shown below. Only one of these stocks had a PE of less then 50x!
The performance of this basket is shown in the chart below. At least Fortune got one thing right - it was a portfolio to forget! It is still down around 40% from the time at which Fortune suggested its purchase. A prime example of what Ben Graham would have described as a permanent loss of capital.
The investors in our value group focus themselves upon business risk - will profit margins shrink? Are there risks on the balance sheet? - rather than market risk (stock volatility), which these investors seem to treat with the scorn it deserves. They know that the market as a whole is best characterized as suffering bipolar disorder (the proper name for manic depression). As Ben Graham wrote:
One of your partners, named Mr. Market, is very obliging, indeed. Everyday he tells you what he thinks your interest is worth and furthermore offers either to buy you out or sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or fears run away with him, and the value he proposes seems to you a little short of silly.
Trait II: They don't need to know everything, and don't get caught in the noise
The investors in this group seem to be aware of the need to focus on a few key items of information, rather than attempting to try and overload themselves with noise. Lowenstein quotes Marty Whitman of the Third Avenue Value Fund as saying, "the fund doesn't have superior information; ?the trick' is to use publicly available information in a superior manner". To this end, these funds don't employ legions of analysts wasting time forecasting next quarter's EPS; instead, they spend their time trying to understand the valuation and associated risks.
Trait III: A willingness to hold cash
Their willingness to hold cash is clearly visible from a cursory glance at the table on page 2. Currently they hold around 11% cash, nearly 3x the level held in the average US mutual fund. The average hides a wide range of current cash levels. For instance, FPA Capital is holding nearly 39% cash whilst Legg Mason Value holds a mere 1.1% cash.
Most of the traits displayed stem from the underlying philosophy of the funds in question. The generalized willingness to hold cash is the result of lack of investment opportunities. In his year-end letter to shareholders of 2003, Seth Klarman wrote that his large cash position was the "result of a bottom-up [and failed] search for bargains". The guiding principle amongst our group of value gurus is, to borrow Buffett's expression, "holding cash is uncomfortable, but not as uncomfortable as doing something stupid".
Trait IV: Long time horizons
I have often remarked that inherent within a value approach is the acceptance of long time horizons. You never know when a stock will reflect a sensible value. A good example was provided by the UK market in early 2003. The dividend yield on the UK market was higher than the 10-year government bond yield, suggesting that dividends were expected to decline on a decade view. This struck me as just plain wrong. A plethora of valuation work showed the UK to be unambiguously cheap (for details see Global Equity Strategy, 30 January 2003). The presence of forced sellers was making the UK market a bargain.
However, as with all bargains, they can repay you in one of two ways. Firstly, prices could correct. Secondly, they could just generate a high return via paying out high dividends for a long period of time. You never know which path will be taken. Hence the need for long time horizons.
Our selection of value managers all display long horizons. The average stock-holding period amongst these funds is over five years. The maximum is 17 years, the shortest 3 years. All compare favorably with the mutual fund industry's average stock-holding period of just 1 year (according to Morningstar).
This is supported by the chart below showing that average holding period for stocks on the NYSE. Back in the 1950s/1960s, investors used to do exactly that: invest. The average holding period was 7-8 years. However, today it appears as if everyone has become a speculator, with an average holding period of just 11 months.
When I present these findings, investors often dismiss the picture as yet further evidence of the way in which hedge funds have altered the investment landscape. However, the Morningstar data above, and the data from John Bogle below, show that long-only fund managers are just as much to blame for the time horizon shrinkage as the hedge funds. This may be because they feel the need to compete with the hedge funds but, regardless, they are certainly complicit in the shift from investment to speculation.
As Munger and Buffett have noted on many occasions, "If the job has been correctly done when a common stock is purchased, the time to sell it is - almost never".
Trait V: An acceptance of bad years
Nearly all of the funds in our list have witnessed periods of negative returns, and/or underperformance relative to a benchmark (although note Trait I on the disregard for such items). Many of them saw large redemptions during the TMT bubble, but were prepared to stick to their tried and tested approach to investing. Lowenstein cites Eveillard (manager of the First Eagle Global Fund) as saying, "I would rather lose half my shareholders than lose half my shareholders' money".
Despite the very impressive performance data contained in the table on page 2, many of the funds examined have underperformed the index in as many as seven years out of the last ten! Absolute losses are relatively rare, with only 2 or 3 years seeing negative returns in the last 10.
In a paper published by Tweedy Browne, they report a study that showed for a group of value investors with excellent long-term track records, that underperforming an index some 30-40% of the time was perfectly normal. This fits well with our previous study of underperformance using an artificial universe of skilled fund managers who, despite having an information ratio of 0.5, saw 70% of their numbers witness 3 or more years of consecutive underperformance (see Global Equity Strategy, 7 June 2005).
Wednesday, June 14, 2006
Bear Mkt Protectors?
It has been said that stocks that provide high yields tend to be good bear mkt protectors.
What started out as 2 equally weighted portfolios suffered drastic falls during this period.
The first table shows 9 REITs listed on the singapore stock exchange. the returns to date for this 900k portfolio is -6.95%
The second table show 9 high yielding stocks picked out by DBS vickers. the returns to date for this 900k portfolio is -11.24%
It remains to be seen whether the return will stay that way. we still have yet to include the average div yields into the returns. If the returns, stayed this way for the rest of the year, on an average 5% div yield for REITs, the negative returns would be reduce to -1.95%.
Will keep everyone up to date.
What started out as 2 equally weighted portfolios suffered drastic falls during this period.
The first table shows 9 REITs listed on the singapore stock exchange. the returns to date for this 900k portfolio is -6.95%
The second table show 9 high yielding stocks picked out by DBS vickers. the returns to date for this 900k portfolio is -11.24%
It remains to be seen whether the return will stay that way. we still have yet to include the average div yields into the returns. If the returns, stayed this way for the rest of the year, on an average 5% div yield for REITs, the negative returns would be reduce to -1.95%.
Will keep everyone up to date.
Saturday, June 10, 2006
Time for bargain hunting
From Kelive thailand
The Thai stock market has now fallen 14% from its 2006 peak of 785.38 on May 9 to close yesterday at a fresh six-month low. We believe the steep and rapid sell-off offers great bargain-hunting opportunities for both value investors and short-term traders.
Clearly, there is still a lot of negative news around. Stock markets around the world have fallen sharply over the last month due to concerns that the global economy is facing a slowdown in economic growth at a time of rising interest rates. Nonetheless, we believe investors in the Thai market have greatly over-reacted to these concerns, driving share prices to levels not seen since the political turbulence last December.
While a correction in global equity markets was not a surprise after a strong rally in the first four months of the year, it now appears that investors are throwing in the towel and getting out no matter what the price. The MSCI's broadest index of shares outside Japan is down more than 6% this week as of yesterday and is now down 16% since its all-time high on May 8. Such capitulation is usually a sign that markets are close to bottoming out even though there are a lack of positive catalysts.
The slide in global equity markets over the past month was initially triggered by concerns that the Federal Reserve will have to raise the US federal funds rates by another 25 bps at its next meeting on June 28-29. US interest rate futures have priced in around an 80% chance of the Fed raising rates to 5.25% from 5%. Yesterday the European Central Bank raised interest rates by 25 bps to 2.75% and indicated that it would gradually raise rates again to head off inflation.
We don't believe that the Bank of Thailand necessarily needs to follow suit and further raise rates given that commercial banks, already faced with sufficient liquidity and slowing loan demand won't likely follow the BOT's lead anyway. The resulting currency weakness may lead to short-term selling of Thai shares, but the net result - a weakening currency would be good for the overall economy.
Our chief point is that Thai shares are relatively cheap and long-term corporate prospects are still quite positive. We feel quite comfortable recommending investors to buy some of the companies heavily sold down by foreign investors over the last month
The Thai stock market has now fallen 14% from its 2006 peak of 785.38 on May 9 to close yesterday at a fresh six-month low. We believe the steep and rapid sell-off offers great bargain-hunting opportunities for both value investors and short-term traders.
Clearly, there is still a lot of negative news around. Stock markets around the world have fallen sharply over the last month due to concerns that the global economy is facing a slowdown in economic growth at a time of rising interest rates. Nonetheless, we believe investors in the Thai market have greatly over-reacted to these concerns, driving share prices to levels not seen since the political turbulence last December.
While a correction in global equity markets was not a surprise after a strong rally in the first four months of the year, it now appears that investors are throwing in the towel and getting out no matter what the price. The MSCI's broadest index of shares outside Japan is down more than 6% this week as of yesterday and is now down 16% since its all-time high on May 8. Such capitulation is usually a sign that markets are close to bottoming out even though there are a lack of positive catalysts.
The slide in global equity markets over the past month was initially triggered by concerns that the Federal Reserve will have to raise the US federal funds rates by another 25 bps at its next meeting on June 28-29. US interest rate futures have priced in around an 80% chance of the Fed raising rates to 5.25% from 5%. Yesterday the European Central Bank raised interest rates by 25 bps to 2.75% and indicated that it would gradually raise rates again to head off inflation.
We don't believe that the Bank of Thailand necessarily needs to follow suit and further raise rates given that commercial banks, already faced with sufficient liquidity and slowing loan demand won't likely follow the BOT's lead anyway. The resulting currency weakness may lead to short-term selling of Thai shares, but the net result - a weakening currency would be good for the overall economy.
Our chief point is that Thai shares are relatively cheap and long-term corporate prospects are still quite positive. We feel quite comfortable recommending investors to buy some of the companies heavily sold down by foreign investors over the last month
Sunday, June 04, 2006
Bond ladder
The latest bond yields taken from FSM website is posted below.
Many have talked about forming a bond ladder using sgs bonds. I think its a easily executable idea iwht FSM platform. I personally have not tried that before.
forming a 10 year bond ladder will yield 3.12%. this way, if it is a rising interest rate environment, you can invest the bond maturing in the last year at a higher interest rate. in a secular enviroment where interest rate is rising to 12%, your opportunity cost is reduced.
Many have talked about forming a bond ladder using sgs bonds. I think its a easily executable idea iwht FSM platform. I personally have not tried that before.
forming a 10 year bond ladder will yield 3.12%. this way, if it is a rising interest rate environment, you can invest the bond maturing in the last year at a higher interest rate. in a secular enviroment where interest rate is rising to 12%, your opportunity cost is reduced.
Electrotech
Electrotech went up on friday by almost 6%.
Technically, ADX looks to turn. My noobish eyes sees divergence in the RSI. Initiate position with a cut loss at 47.
Technically, ADX looks to turn. My noobish eyes sees divergence in the RSI. Initiate position with a cut loss at 47.
Tuesday, May 30, 2006
Update on AEI , ELEC and Electrotech
since the last update the three stocks have fallen quite abit. At current prices they look more and more worth it, especially Electrotech.
Saturday, May 27, 2006
Gold: Good Entry Point Here?
Seeking Alpha: Entry pt for exposure to gold?
So a couple of days later it appears to have held. Well that is nice but what is next? The trend line I have pointed to in both charts seems to have some relevance. If so, it makes sense to think it can be relevant a little while longer.
If you are looking for a quick trade I don’t have much to offer. If you buy into the idea of gold as portfolio diversifier and you don’t have any exposure, I think this may be a good point to enter.
So a couple of days later it appears to have held. Well that is nice but what is next? The trend line I have pointed to in both charts seems to have some relevance. If so, it makes sense to think it can be relevant a little while longer.
If you are looking for a quick trade I don’t have much to offer. If you buy into the idea of gold as portfolio diversifier and you don’t have any exposure, I think this may be a good point to enter.
Fund Articles From Wilfred
Latest Articles on 6 Jul 2006
06 July 2006 - Franklin Templeton- Global Economic Perspective
Latest Articles on 30 Jun 2006
26 June 2006 - Aberdeen- Global Weekly update
26 June 2006 - Aberdeen- Emerging Mkts Weekly update
26 June 2006 - Aberdeen- Asian Mkts Weekly update
26 June 2006 - Schroder- Asian Bond update
26 June 2006 - All files this week zipped up
More from wilfred
19 June 2006 - Aberdeen- Asian Weekly update
19 June 2006 - Aberdeen- Global Investment Outlook
19 May 2006 - DWS - DWS Asian Small Mid Cap Presentation
19 June 2006 - Henderson - Asia-Pacific Property Equities fund
19 May 2006 - Henderson - European Property Equities fund
19 June 2006 - iFAST Financial PTE LTD - Monthly Morning Meeting on june 2006
12 June 2006 - Schroder - Asian bond update
I just recieved some pdf files from wilfred. Would like to share it with everyone.
19 May 2006 - Schroders - Russia Update: Increase Benchmark Weighting
27 May 2006 - Schroders - A Change in our US Interest Rate View
27 May 2006 - Henderson Global Investors - Why Technology
10 May 2006 - Aberdeen - India Update
10 May 2006 - Aberdeen - China HongKong Update
10 May 2006 - Aberdeen - Singapore Update
8 May 2006 - Aberdeen - Emerging Markets Weekly
8 May 2006 - Aberdeen - Asian Weekly
5 May 2006 - First State - First State Global Resources Fund Update
5 May 2006 - Henderson - Henderson Asia Pacific Property Equities Fund Final Brochure (12 pages)(1.5mb)
5 May 2006 - Henderson - Henderson Asia Pacific Property Equities Fund Placemat
5 May 2006 - Prudential - Prudential Asset Management is consumer's choice for most trusted brand
06 July 2006 - Franklin Templeton- Global Economic Perspective
Latest Articles on 30 Jun 2006
26 June 2006 - Aberdeen- Global Weekly update
26 June 2006 - Aberdeen- Emerging Mkts Weekly update
26 June 2006 - Aberdeen- Asian Mkts Weekly update
26 June 2006 - Schroder- Asian Bond update
26 June 2006 - All files this week zipped up
More from wilfred
19 June 2006 - Aberdeen- Asian Weekly update
19 June 2006 - Aberdeen- Global Investment Outlook
19 May 2006 - DWS - DWS Asian Small Mid Cap Presentation
19 June 2006 - Henderson - Asia-Pacific Property Equities fund
19 May 2006 - Henderson - European Property Equities fund
19 June 2006 - iFAST Financial PTE LTD - Monthly Morning Meeting on june 2006
12 June 2006 - Schroder - Asian bond update
I just recieved some pdf files from wilfred. Would like to share it with everyone.
19 May 2006 - Schroders - Russia Update: Increase Benchmark Weighting
27 May 2006 - Schroders - A Change in our US Interest Rate View
27 May 2006 - Henderson Global Investors - Why Technology
10 May 2006 - Aberdeen - India Update
10 May 2006 - Aberdeen - China HongKong Update
10 May 2006 - Aberdeen - Singapore Update
8 May 2006 - Aberdeen - Emerging Markets Weekly
8 May 2006 - Aberdeen - Asian Weekly
5 May 2006 - First State - First State Global Resources Fund Update
5 May 2006 - Henderson - Henderson Asia Pacific Property Equities Fund Final Brochure (12 pages)(1.5mb)
5 May 2006 - Henderson - Henderson Asia Pacific Property Equities Fund Placemat
5 May 2006 - Prudential - Prudential Asset Management is consumer's choice for most trusted brand
Sunday, May 21, 2006
SPX STI HUI
STI looking to hold 2450. a break below could be bad.
We shall see whether SPX can hold 1230. I believe a break below that may herald the start of a down trend. but seriously, i think it has more to climb.
Finally, the hui looks the most scary prospect. Will it retest the lows of 250-260 or is this a pullback to move up to a higher high? We will find that out next week.
We shall see whether SPX can hold 1230. I believe a break below that may herald the start of a down trend. but seriously, i think it has more to climb.
Finally, the hui looks the most scary prospect. Will it retest the lows of 250-260 or is this a pullback to move up to a higher high? We will find that out next week.
Part 4 : Performance of Emerging Market Equity Funds vs ETFs
Wilfred has written his own research on emerging market fund not long ago. I urge anyone who wants to select an emerging market fund to take alook at this article.
Unit Trusts and Exchange Traded Funds Part 4 : Performance of Emerging Market Equity Funds vs ETFs
Unit Trusts and Exchange Traded Funds Part 4 : Performance of Emerging Market Equity Funds vs ETFs
The Problem With VWO
One wonders why the trading volume of Vipers are so low compare to iShares. The article below might give us some clue.
The Problem With Vanguard VIPERs ETFs
I must admit that I recently became excited about the waxing competition in the ETF manufacturing business, writes Herb Morgan, President and Chief Investment Officer of Efficient Market Advisors, LLC. Barclays still has the lion’s share of the market for sure, but Vanguard has recently caught my eye. After all, Vanguard has a reputation for doing things right: low fees, honesty, and generally serving as a watchdog in a historically slick industry. But from what I can tell, it looks like the good guys are trying to pull one over on us this time.
As a money manager, I am constantly looking at data trying to find statistical relevance for asset classes which could justify their inclusion in my managed portfolios. While looking at Emerging Markets (which did not make the portfolio) I came across some information on the Vanguard VIPERs that surprised me. Vanguard decided to make their ETFs a share class of their existing open end index funds.
Why would they do this rather than file for a new fund?
The open end Vanguard Emerging Markets Stock Index Fund (VEIEX), with about $4.5 billion in assets, has unrealized capital gains of $4.41 per share on a $16.91 share price. This equates to an untapped capital gain of $1.2 billion dollars. Along comes the new share class Vanguard Emerging Markets VIPERs (VWO) which have raised just under $200 million in assets. Guess what? Anybody buying Vanguard ETFs may be buying a tax liability they had not planned on. The end result is a redistribution of not-yet-realized tax liability from open end fund holders to ETF holders. This may be one reason the Vanguard ETF’s have not seen as much success as some of the other players.
To be fair, index funds have a long tradition of having positive cash inflows into the funds, which serves to dilute capital gains to the remaining investors. Turnover is also very low, which means they probably won’t voluntarily expose investors to these gains. However, Vanguard has no control over flows into and out of their funds and anything can and does happen from time to time. If VEIEX were to experience significant net redemptions, the fund would be forced to sell securities and realize capital gains. ETF investors would get their share of these gains along with the traditional open end fund shareholders. What’s more, these gains would accrete to the remaining shareholders at the end of the year. While not highly likely, if the open end fund experiences substantial redemptions the remaining shareholders could well be stuck with a liability even greater than the $4.41 per share.
ETFs have multiple advantages over open end funds, one of which is the tax advantage gained by the funds unique creation and redemption process. Vanguard should have left well enough alone and stuck with the traditional ETF format.
Herb Morgan is President and Chief Investment Officer of Efficient Market Advisors, LLC, a Registered Investment Advisor located in San Diego, California.Prior to founding EMA Mr. Morgan was Sr. Vice President of Advisory Services for LPL Financial, the nation’s largest independent broker dealer where he was responsible for the firms $25 Billion dollar investment advisory business. Mr. Morgan spent time as a Senior Vice President with Pilgrim Funds (Now ING), and Dreyfus Funds. He also held positions with J&W Seligman and Dean Witter Reynolds. (Now Morgan Stanley) Mr. Morgan is one of the nation’s premier experts in the investment and brokerage industry. He can be reached at herb [at] efficient-portfolios.com.
The Problem With Vanguard VIPERs ETFs
I must admit that I recently became excited about the waxing competition in the ETF manufacturing business, writes Herb Morgan, President and Chief Investment Officer of Efficient Market Advisors, LLC. Barclays still has the lion’s share of the market for sure, but Vanguard has recently caught my eye. After all, Vanguard has a reputation for doing things right: low fees, honesty, and generally serving as a watchdog in a historically slick industry. But from what I can tell, it looks like the good guys are trying to pull one over on us this time.
As a money manager, I am constantly looking at data trying to find statistical relevance for asset classes which could justify their inclusion in my managed portfolios. While looking at Emerging Markets (which did not make the portfolio) I came across some information on the Vanguard VIPERs that surprised me. Vanguard decided to make their ETFs a share class of their existing open end index funds.
Why would they do this rather than file for a new fund?
The open end Vanguard Emerging Markets Stock Index Fund (VEIEX), with about $4.5 billion in assets, has unrealized capital gains of $4.41 per share on a $16.91 share price. This equates to an untapped capital gain of $1.2 billion dollars. Along comes the new share class Vanguard Emerging Markets VIPERs (VWO) which have raised just under $200 million in assets. Guess what? Anybody buying Vanguard ETFs may be buying a tax liability they had not planned on. The end result is a redistribution of not-yet-realized tax liability from open end fund holders to ETF holders. This may be one reason the Vanguard ETF’s have not seen as much success as some of the other players.
To be fair, index funds have a long tradition of having positive cash inflows into the funds, which serves to dilute capital gains to the remaining investors. Turnover is also very low, which means they probably won’t voluntarily expose investors to these gains. However, Vanguard has no control over flows into and out of their funds and anything can and does happen from time to time. If VEIEX were to experience significant net redemptions, the fund would be forced to sell securities and realize capital gains. ETF investors would get their share of these gains along with the traditional open end fund shareholders. What’s more, these gains would accrete to the remaining shareholders at the end of the year. While not highly likely, if the open end fund experiences substantial redemptions the remaining shareholders could well be stuck with a liability even greater than the $4.41 per share.
ETFs have multiple advantages over open end funds, one of which is the tax advantage gained by the funds unique creation and redemption process. Vanguard should have left well enough alone and stuck with the traditional ETF format.
Herb Morgan is President and Chief Investment Officer of Efficient Market Advisors, LLC, a Registered Investment Advisor located in San Diego, California.Prior to founding EMA Mr. Morgan was Sr. Vice President of Advisory Services for LPL Financial, the nation’s largest independent broker dealer where he was responsible for the firms $25 Billion dollar investment advisory business. Mr. Morgan spent time as a Senior Vice President with Pilgrim Funds (Now ING), and Dreyfus Funds. He also held positions with J&W Seligman and Dean Witter Reynolds. (Now Morgan Stanley) Mr. Morgan is one of the nation’s premier experts in the investment and brokerage industry. He can be reached at herb [at] efficient-portfolios.com.
Emerging Market ETFs as an exposure to emerging mkts
I have been speaking my mind in sgfunds that i have an intention to have an exposure to eastern europe through one of the three eastern europe fund under fsm. Howeverm i am quite put off by the high expense ratio. The expense ratio reaches 3.19%, which is not very ideal if you are to put this for 10 years.
I will be looking into this area. I am quite swayed into the idea of having an emerging mkt ETF rather than a unit trust. Some ideas for my thought process.
I will be looking into this area. I am quite swayed into the idea of having an emerging mkt ETF rather than a unit trust. Some ideas for my thought process.
- Do I really require an eastern europe fund?
- Cost over exposure?
- Unit Trust vs ETFs: Which is more practical and efficient?
- Performance of emerging mkt managers over indexes
- Vanguard Emerging Vipers (VWO) vs iShares MSCI Emerging Mkt
Saturday, May 20, 2006
AEI,Elec,Electrotech
This weekend we start off with a comparison between 3 manufacturers
AEI Corp - Engineering of aluminium extruded products
Electrotech - European mechatronics and engineering
Elec - Mass production of HDI,microvia backplanes, high-end servers and up to 36 layer PCB
all three has taken abit of a beating during the recent correction. This may have presented a wonderful opportunity to get in.
except for Electrotech, all of them have yields in excess of 6%. electrotech is no slouch either at 5.36%
Below shows some key figures:
Judging from the above, it would seem that though AEI and Electrotech do provide reasonable high yields, they do not have the same payout history and sustainability as Elec.
However, i am quite particular about the negative free cashflow of Elec. with that kind of capital expenditure we would expect them to cut back their dividend. however they did not. I'm still thinking whether its a good move to do that or not.
I am leaning more towards Electrotech. Their free cashflow yield looks more sustainable and they are building its cash holding better than the other 2. However, this is only a screen of their balance sheet, much work has to be done to investigate the outlook for these 3 companies.
AEI Corp - Engineering of aluminium extruded products
Electrotech - European mechatronics and engineering
Elec - Mass production of HDI,microvia backplanes, high-end servers and up to 36 layer PCB
all three has taken abit of a beating during the recent correction. This may have presented a wonderful opportunity to get in.
except for Electrotech, all of them have yields in excess of 6%. electrotech is no slouch either at 5.36%
Below shows some key figures:
Judging from the above, it would seem that though AEI and Electrotech do provide reasonable high yields, they do not have the same payout history and sustainability as Elec.
However, i am quite particular about the negative free cashflow of Elec. with that kind of capital expenditure we would expect them to cut back their dividend. however they did not. I'm still thinking whether its a good move to do that or not.
I am leaning more towards Electrotech. Their free cashflow yield looks more sustainable and they are building its cash holding better than the other 2. However, this is only a screen of their balance sheet, much work has to be done to investigate the outlook for these 3 companies.
Its time to do some yield screening
I was at sgfunds last night and got a few PMs as to whether i looked into these companies or not. Sad to say i was on course the whole week and couldnt find the time to do any actual work the whole week.
Some have mentioned some good stocks to have during this Great singapore sale. I look at it in 2 ways.
1) we have some pretty resilent second line counters.
2) we have some yielders who have dropped abit.
I must draw caution as to whether this is a good time to be vested in one of these. The best way to invest is to imagine that your capital can only buy one stock and which stock would it be.
I hope i can do some work today and find some really good ones.
Some have mentioned some good stocks to have during this Great singapore sale. I look at it in 2 ways.
1) we have some pretty resilent second line counters.
2) we have some yielders who have dropped abit.
I must draw caution as to whether this is a good time to be vested in one of these. The best way to invest is to imagine that your capital can only buy one stock and which stock would it be.
I hope i can do some work today and find some really good ones.
Friday, May 19, 2006
Rich Man Poor Man
It is not always that you read an article that touches some where close in the heart. I guess this article is one of them.
The article is written by Richard Russell. John Mauldin wrote a intro to this article:
What can one say about my friend Richard Russell without using a lot of superlatives? Richard has been writing and publishing the Dow Theory Letters since 1958, and never has he missed an issue! It is the longest newsletter service continuously published by one person in the investment business. Richard is now 80 years old, and writes an extremely popular daily e-letter, full of commentary on the markets and whatever interests him that day. He gets up at 3 am or so and starts his daily (massive) reading and finishes the letter just after the markets close. He is my business hero.
He was the first writer to recommend gold stocks in 1960. He called the top of the 1949-66 bull market, and called the bottom of the bear market in 1974 almost to the day, predicting a new bull market. (Think how tough it was to call for a bull market in late 1974, when things looked really miserable!) He was a bombardier in WWII, lived through the Depression, wars, and bull and bear markets. I would say that Russell is one of those true innate market geniuses that have simply forgotten more than most of us will ever know, except I am not certain he has forgotten anything. His daily letter is loaded with references and wisdom from the past and gives us a guide to the future. (You can learn more - and subscribe! - at www.dowtheoryletters.com .)
When I asked Richard to contribute an article, I wanted his wisdom more than his actual market theory, and that is what he has given us. You (and your kids!) should read this again and again! Richard lives in La Jolla with his wife Faye.
Rich Man, Poor Man
By Richard Russell
Making money entails a lot more than predicting which way the stock or bond markets are heading or trying to figure which stock or fund will double over the next few years. For the great majority of investors, making money requires a plan, self-discipline, and desire. I say "for the great majority of people," because if you're a Steven Spielberg or a Bill Gates you don't have to know about the Dow or the markets or about yields or price/earnings ratios. You're a phenomenon in your own field, and you're going to make big money as a by-product of your talent and ability. But this kind of genius is rare.
For the average investor, you and me, we're not geniuses so we have to have a financial plan. In view of this, I offer below a few rules and a few thoughts on investing that we must be aware of if we are serious about making money.
I. The Power of Compounding
Rule 1: Compounding. One of the most important lessons for living in the modern world is that to survive you've got to have money. But to live (survive) happily, you must have love, health (mental and physical), freedom, intellectual stimulation -- and money. When I taught my kids about money, the first thing I taught them was the use of the "money bible." What's the money bible? Simple, it's a volume of the compounding interest tables.
Compounding is the royal road to riches. Compounding is the safe road, the sure road, and fortunately anybody can do it. To compound successfully you need the following: perseverance in order to keep you firmly on the savings path. You need intelligence in order to understand what you are doing and why. You need knowledge of the mathematical tables in order to comprehend the amazing rewards that will come to you if you faithfully follow the compounding road. And, of course, you need time, time to allow the power of compounding to work for you. Remember, compounding only works through time.
But there are two catches in the compounding process. The first is obvious -- compounding may involve sacrifice (you can't spend it and still save it). Second, compounding is boring -- b-o-r-i-n-g. Or I should say it's boring until (after seven or eight years) the money starts to pour in. Then, believe me, compounding becomes very interesting. In fact, it becomes downright fascinating!
In order to emphasize the power of compounding, I am including the following extraordinary study, courtesy of Market Logic, of Ft. Lauderdale, FL 33306.
In this study we assume that investor B opens an IRA at age 19. For seven consecutive periods he puts $2,000 into his IRA at an average growth rate of 10% (7% interest plus growth). After seven years this fellow makes NO MORE contributions -- he's finished.
A second investor, A, makes no contributions until age 26 (this is the age when investor B was finished with his contributions). Then A continues faithfully to contribute $2,000 every year until he's 65 (at the same theoretical 10% rate).
Now study the incredible results. B, who made his contributions earlier and who made only seven contributions, ends up with MORE money than A, who made 40 contributions but at a LATER TIME. The difference in the two is that B had seven more early years of compounding than A. Those seven early years were worth more than all of A's 33 additional contributions.
This is a study that I suggest you show to your kids. It's a study I've lived by, and I can tell you, "It works." You can work your compounding with muni-bonds, with a good money market fund, with T-bills, or say with five-year T-notes.
Rule 2: Don't Lose Money. This may sound naive, but believe me it isn't. If you want to be wealthy, you must not lose money; or I should say, you must not lose BIG money. Absurd rule, silly rule? Maybe, but MOST PEOPLE LOSE MONEY in disastrous investments, gambling, rotten business deals, greed, poor timing. Yes, after almost five decades of investing and talking to investors, I can tell you that most people definitely DO lose money, lose big-time -- in the stock market, in options and futures, in real estate, in bad loans, in mindless gambling, and in their own businesses.
Rule 3: Rich Man, Poor Man. In the investment world the wealthy investor has one major advantage over the little guy, the stock market amateur, and the neophyte trader. The advantage that the wealthy investor enjoys is that HE DOESN'T NEED THE MARKETS. I can't begin to tell you what a difference that makes, both in one's mental attitude and in the way one actually handles one's money.
The wealthy investor doesn't need the markets, because he already has all the income he needs. He has money coming in via bonds, T-bills, money-market funds, stocks, and real estate. In other words, the wealthy investor never feels pressured to "make money" in the market.
The wealthy investor tends to be an expert on values. When bonds are cheap and bond yields are irresistibly high, he buys bonds. When stocks are on the bargain table and stock yields are attractive, he buys stocks. When real estate is a great value, he buys real estate. When great art or fine jewelry or gold is on the "giveaway" table, he buys art or diamonds or gold. In other words, the wealthy investor puts his money where the great values are.
And if no outstanding values are available, the wealthy investors waits. He can afford to wait. He has money coming in daily, weekly, monthly. The wealthy investor knows what he is looking for, and he doesn't mind waiting months or even years for his next investment (they call that patience).
But what about the little guy? This fellow always feels pressured to "make money." And in return he's always pressuring the market to "do something" for him. But sadly, the market isn't interested. When the little guy isn't buying stocks offering 1% or 2% yields, he's off to Las Vegas or Atlantic City trying to beat the house at roulette. Or he's spending 20 bucks a week on lottery tickets, or he's "investing" in some crackpot scheme that his neighbor told him about (in strictest confidence, of course).
And because the little guy is trying to force the market to do something for him, he's a guaranteed loser. The little guy doesn't understand values, so he constantly overpays. He doesn't comprehend the power of compounding, and he doesn't understand money. He's never heard the adage, "He who understands interest, earns it. He who doesn't understand interest, pays it." The little guy is the typical American, and he's deeply in debt.
The little guy is in hock up to his ears. As a result, he's always sweating -- sweating to make payments on his house, his refrigerator, his car, or his lawn mower. He's impatient, and he feels perpetually put upon. He tells himself that he has to make money -- fast. And he dreams of those "big, juicy mega-bucks." In the end, the little guy wastes his money in the market, or he loses his money gambling, or he dribbles it away on senseless schemes. In short, this "money-nerd" spends his life dashing up the financial down escalator.
But here's the ironic part of it. If, from the beginning, the little guy had adopted a strict policy of never spending more than he made, if he had taken his extra savings and compounded it in intelligent, income-producing securities, then in due time he'd have money coming in daily, weekly, monthly, just like the rich man. The little guy would have become a financial winner, instead of a pathetic loser.
Rule 4: Values. The only time the average investor should stray outside the basic compounding system is when a given market offers outstanding value. I judge an investment to be a great value when it offers (a) safety, (b) an attractive return, and (c) a good chance of appreciating in price. At all other times, the compounding route is safer and probably a lot more profitable, at least in the long run.
II. Time
TIME: Here's something they won't tell you at your local brokerage office or in the "How to Beat the Market" books. All investing and speculation is basically an exercise in attempting to beat time.
"Russell, what are you talking about?"
Just what I said -- when you try to pick the winning stock or when you try to sell out near the top of a bull market or when you try in-and-out trading, you may not realize it but what you're doing is trying to beat time.
Time is the single most valuable asset you can ever have in your investment arsenal. The problem is that none of us has enough of it.
But let's indulge in a bit of fantasy. Let's say you have 200 years to live, 200 years in which to invest. Here's what you could do. You could buy $20,000 worth of municipal bonds yielding, say, 5.5%.
At 5.5% money doubles in 13 years. So here's your plan: each time your money doubles you add another $10,000. So at the end of 13 years you have $40,000 plus the $10,000 you've added, meaning that at the end of 13 years you have $50,000.
At the end of the next 13 years you have $100,000, you add $10,000, and then you have $110,000. You reinvest it all in 5.5% munis, and at the end of the next 13 years you have $220,000 and you add $10,000, making it $230,000.
At the end of the next 13 years you have $460,000 and you add $10,000, making it $470,000.
In 200 years there are 15.3 doubles. You do the math. By the end of the 200th year you wouldn't know what to do with all your money. It would be coming out of your ears. And all with minimum risk.
So with enough time, you would be rich -- guaranteed. You wouldn't have to waste any time picking the right stock or the right group or the right mutual fund. You would just compound your way to riches, using your greatest asset: time.
There's only one problem: in the real world you're not going to live 200 years. But if you start young enough or if you start your kids early, you or they might have anywhere from 30 to 60 years of time ahead of you.
Because most people have run out of time, they spend endless hours and nervous energy trying to beat time, which, by the way, is really what investing is all about. Pick a stock that advances from 3 to 100, and if you've put enough money in that stock you'll have beaten time. Or join a company that gives you a million options, and your option moves up from 3 to 25 and again you've beaten time.
How about this real example of beating time. John Walter joined AT&T, but after nine short months he was out of a job. The complaint was that Walter "lacked intellectual leadership." Walter got $26 million for that little stint in a severance package. That's what you call really beating time. Of course, a few of us might have another word for it -- and for AT&T.
III. Hope
HOPE: It's human nature to be optimistic. It's human nature to hope. Furthermore, hope is a component of a healthy state of mind. Hope is the opposite of negativity. Negativity in life can lead to anger, disappointment, and depression. After all, if the world is a negative place, what's the point of living in it? To be negative is to be anti-life.
Ironically, it doesn't work that way in the stock market. In the stock market hope is a hindrence, not a help. Once you take a position in a stock, you obviously want that stock to advance. But if the stock you bought is a real value, and you bought it right, you should be content to sit with that stock in the knowledge that over time its value will out without your help, without your hoping.
So in the case of this stock, you have value on your side -- and all you need is patience. In the end, your patience will pay off with a higher price for your stock. Hope shouldn't play any part in this process. You don't need hope, because you bought the stock when it was a great value, and you bought it at the right time.
Any time you find yourself hoping in this business, the odds are that you are on the wrong path -- or that you did something stupid that should be corrected.
Unfortunately, hope is a money-loser in the investment business. This is counterintuitive but true. Hope will keep you riding a stock that is headed down. Hope will keep you from taking a small loss and, instead, allow that small loss to develop into a large loss.
In the stock market hope gets in the way of reality, hope gets in the way of common sense. One of the first rules in investing is "don't take the big loss." In order to do that, you've got to be willing to take a small loss.
If the stock market turns bearish, and you're staying put with your whole position, and you're HOPING that what you see is not really happening -- then welcome to poverty city. In this situation, all your hoping isn't going to save you or make you a penny. In fact, in this situation hope is the devil that bids you to sit -- while your portfolio of stocks goes down the drain.
In the investing business my suggestion is that you avoid hope. Forget the siren, hope; instead, embrace cold, clear reality.
IV. Acting
ACTING: A few days ago a young subscriber asked me, "Russell, you've been dealing with the markets since the late 1940s. This is a strange question, but what is the most important lesson you've learned in all that time?"
I didn't have to think too long. I told him, "The most important lesson I've learned comes from something Freud said. He said, 'Thinking is rehearsing.' What Freud meant was that thinking is no substitute for acting. In this world, in investing, in any field, there is no substitute for taking action."
This brings up another story which illustrates the same theme. J.P. Morgan was "Master of the Universe" back in the 1920s. One day a young man came up to Morgan and said, "Mr. Morgan, I'm sorry to bother you, but I own some stocks that have been acting poorly, and I'm very anxious about these stocks. In fact worrying about those stocks is starting to ruin my health. Yet, I still like the stocks. It's a terrible dilemma. What do you think I should do, sir?"
Without hesitating Morgan said, "Young man, sell to the sleeping point."
The lesson is the same. There's no substitute for acting. In the business of investing or the business of life, thinking is not going to do it for you. Thinking is just rehearsing. You must learn to act.
That's the single most important lesson that I've learned in this business.
Again, and I've written about this episode before, a very wealthy and successful investor once said to me, "Russell, do you know why stockbrokers never become rich in this business?"
I confessed that I didn't know. He explained, "They don't get rich because they never believe their own bullshit."
Again, it's the same lesson. If you want to make money (or get rich) in a bull market, thinking and talking isn't going to do it. You've got to buy stocks. Brokers never do that. Do you know one broker who has?
A painful lesson: Back in 1991 when we had a perfect opportunity, we could have ended Saddam Hussein's career, and we could have done it with ease. But those in command, for political reasons, didn't want to face the adverse publicity of taking additional US casualties. So we stopped short, and Saddam was home free. We were afraid to act. And now we're dealing with that failure to act with another and messier war.
In my own life many of the mistakes I've made have come because I forgot or ignored the "acting lesson." Thinking is rehearsing, and I was rehearsing instead of acting. Bad marriages, bad investments, lost opportunities, bad business decisions -- all made worse because we fail for any number of reasons to act.
The reasons to act are almost always better than the reasons you can think up not to act. If you, my dear readers, can understand the meaning of what is expressed in this one sentence, then believe me, you've learned a most valuable lesson. It's a lesson that has saved my life many times. And I mean literally, it's a lesson that has saved my life.
Thursday, May 18, 2006
My Yield Screen
I guess many of us would like to take this period of so called bear mkt to add some stocks that we cannot buy because of their valuation.
I would like to proceed with caution, knowing that many of what i have chosen in the past turned out to be lamers.
My screens for yield stocks has been naive at times. The yield stocks that i used to choose were stocks that give high dividend, but low promises of growth. That is normally what people expect from yield stocks, but as i come to realise, you can't really afford to have a full portfolio of stocks that pays out 100% of their dividends. By giving a full payout, growth might be compromised. The stocks that i should choose is a balanced between the 2.
Therefore i gather there are few things primarily that i should consider:
I will initiate my position:
I would like to proceed with caution, knowing that many of what i have chosen in the past turned out to be lamers.
My screens for yield stocks has been naive at times. The yield stocks that i used to choose were stocks that give high dividend, but low promises of growth. That is normally what people expect from yield stocks, but as i come to realise, you can't really afford to have a full portfolio of stocks that pays out 100% of their dividends. By giving a full payout, growth might be compromised. The stocks that i should choose is a balanced between the 2.
Therefore i gather there are few things primarily that i should consider:
- Economics of business/Branding
- Operating cash flow nature
- Cash position relative to total assets
- Debt outlook / Gearing
- Free Cashflow Yield / Conservative free cashflow yield
- Improving dividend
- Maintaining and improving profit margin
- ROE
- Interest coverage
- Dividend Payout ratio
- Past dividend history
- PE / NTA > share price
I will initiate my position:
- RSI < 30
- MCAD < 0
- After Ex Div
Tuesday, May 16, 2006
After the blood bath
Its been a bad day for singapore shares. I hope everyone is hanging in there. Its funny that there are at least 272 counters listed that aren't part of that bloodbath and somehow none of mine is part of it.
The worst hit were the big capped blue chips. Together they brought the index down 3 percent in the biggest one day decline in years.
I see quite alot of shouting over at SGFunds to take this opportunity to buy. I wonder how many of us are able to do that. Every one has an innate risk profile, one that you might not even know abt. Ask yourself if you are rolling in bed last night. If you are, it may mean that what you have do not match ur risk profile. It may be time to re-evaluate ur investments so that you can sleep better at night.
The worst hit were the big capped blue chips. Together they brought the index down 3 percent in the biggest one day decline in years.
I see quite alot of shouting over at SGFunds to take this opportunity to buy. I wonder how many of us are able to do that. Every one has an innate risk profile, one that you might not even know abt. Ask yourself if you are rolling in bed last night. If you are, it may mean that what you have do not match ur risk profile. It may be time to re-evaluate ur investments so that you can sleep better at night.
Sunday, May 14, 2006
Fixed Deposit Rates from Qotion.com
If anyone is too busy and cannot be bother to check up on the latest fixed deposit rates, Qotion.com has provided us with an excellent service. Just key in the amount and the system will show you each bank's and financial institution's competitive rates.
Other than fixed deposit rates, one can gather information on credit cards, savings rates and loans as well.
Posted below are the latest rates for fixed deposit below and above the 50K mark.
disclaimer: The rates listed below may not be the latest rates. It can only be used as a guide. Please check with ur respective banks regarding the latest rates and any tie ins.
3 Months
6 Months
12 Months
24 Months
Other than fixed deposit rates, one can gather information on credit cards, savings rates and loans as well.
Posted below are the latest rates for fixed deposit below and above the 50K mark.
disclaimer: The rates listed below may not be the latest rates. It can only be used as a guide. Please check with ur respective banks regarding the latest rates and any tie ins.
3 Months
6 Months
12 Months
24 Months
Thursday, May 04, 2006
Fixed deposits outlook
We have abt 14 consecutive rate hikes since the F starts raising rates. Interest rates in singapore has got to the point where it is starting to look "substantial". Thus, from today i will do my best to consolidate the best fixed deposit deals on the go here at Menzo.
P.S.: to a great colleague of mine: some of the hard work won't be found in banks or IFAs, its always those that are closer that will be much more dependable lol..
P.S.: to a great colleague of mine: some of the hard work won't be found in banks or IFAs, its always those that are closer that will be much more dependable lol..
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