Short Term Trading vs Investing, What's the Difference?

[candy_chia]

A thought-provoking article shared by accord.

Still learning how to control the temptation to trade frequently, which derails my plan towards financial freedom.


“Much Success can be attributed to INACTIVITY.

MOST investors CANNOT Resist the Temptation to Constantly Buy and Sell.”Warren Buffett

Thanks Accord for sharing.

I concur with the Myth 7.

Taking Profit - Seven Myths about Stocks

With so many factors to consider and annual reports to pore through, it is often easy to get lost in financial ratios when attempting to identify undervalued stocks. Here are seven common stock market myths.

Myth 1: The lower the Price/Earnings ratio the better
The price/earnings ratio is a useful indicator which shows whether a stock is undervalued. However, it can be very misleading if earnings are boosted (or depressed) by one-off exceptional items. Such items may include foreign-currency gains/losses, adjustments to market fair-value, gains on disposal of assets and profits/losses from discontinued businesses.

Key takeaway: While a low P/E is generally desirable, to obtain a more accurate stock valuation, the P/E should be adjusted to exclude one-off and non-recurring items.

Myth 2: The lower the Price/NAV ratio the better

The price to net asset value (NAV) ratio is another indicator of whether a stock is undervalued, relative to the book value of the company’s net assets.

A high net asset value provides a buffer for the company against losses during bad times and is also a rough estimate of the breakup value of the company.


However, there are several caveats against over-depending on NAV to measure a company’s intrinsic value.

~~ Most importantly, book value reflects not actual market value, but the value of the assets as reflected in a company’s accounts.

These assets’ book value may well be higher than market value if a company bought assets in the past when asset prices had peaked. This explains why stock analysts sometimes speak of a company’s revaluated NAV (RNAV) which adjusts book value towards market value.

~~~ Occasionally, even after taking into account market value adjustment, a company still trades at a substantial discount to RNAV.

This often results when a company’s returns on investment (ROI) from capital expenditure is very low, contributing to low profits.

In more extreme cases, a low P/NAV coupled with a high P/E would suggest that a company is performing poorly in making good use of its assets to generate returns, or book value well exceeds market value.

Key takeaway: P/NAV should not feature too highly in investment decisions, unless the company is expected to dispose of some of its marketable assets and distribute a special dividend to shareholders.

Myth 3: A company with low gearing is in a stronger position than another with higher gearing

Net gearing (net debt to equity ratio) used to be a very good measure of the indebtedness of a company, but with the advent of off-balance sheet financing and alternative debt instruments, it is increasingly difficult to compare between two companies using net gearing.

In recent times, one of the most common ways used by companies to reduce debt is to issue convertible bonds. Convertible bonds are a form of liabilities until bond holders decide to exercise the right to convert them to shares. However, such bonds are not classified as borrowings and are thus not usually considered in the calculation of gearing.

Key takeaway: To compare between companies, it is more meaningful to use net gearing adjusted to take into account convertible bonds.

Myth 4: Dividend yield is a good criterion to select stocks for investments

Although the above generalization is true to some extent, companies’ dividends are not always paid out of operating cash flow.

Companies routinely make one-off dividends (via so-called “capital reduction exercises”) to return to shareholders accumulated surpluses for which the companies have no use for.

In other cases, companies may recommend dividends to be paid with the aim of maintaining share prices, even if they are unable to afford to do so and have to resort using debt to fund dividends. This is obviously not sustainable in the long run.

Key takeaway: Investors should avoid making investment decisions purely based on past dividends paid, but should check that such dividends are sustainable.

Myth 5: Companies which announce growing revenues and profits are doing well

It may sound counter-intuitive to dispute the above statement, but a company which announces large revenue and profit increases may not always be telling the whole truth. Press releases often have a way presenting news in a good light.

Some examples of ways in which companies side-step bad news via creatively written press releases include:

- Announcing aggregated revenues and profits from previous quarters in order to mask a worse than expected results (or loss) from a most recent quarter
- Downplaying the fact that profits were boosted by one-off adjustments
- Neglecting to mention that revenues and profits were boosted by the inclusion of newly-acquired subsidiaries for the first time
- Omitting to highlight earnings per share which may have declined as a result of dilutive share placements, even though total company profits increased
- Reporting a year-on-year increase in profits, but not drawing attention to the fact that profits may have declined drastically quarter-on-quarter

Key takeaway: Press releases on financial results should always be read with a healthy dose of skepticism. Reading financial statements would give a more complete picture of a company’s health.

Myth 6: Companies with 50% gross margins are doing better than those with 30% gross margins

The above statement is probably true some of the time, but gross margins can vary widely across industries and sectors.

A company, by virtue of the industry it is in, could be enjoying 50% gross margins, but may not making supernormal profits.

~~ High gross margins are common among companies whose revenues come from rental and chartering income, but such companies usually also face a high depreciation charge on their assets. Even within the same industry, such as offshore and marine, it is not uncommon for vessel owners to earn a 50% gross margin and vessel operators 20%, but for both to have very similar net margins.

Key takeaway: Gross margins are a useful measure to track a company’s performance over time. However, gross margin comparisons between companies are less meaningful, unless one is comparing two or more companies with very similar business models and customer mix.

Myth 7: It is always a good idea take profits when price has risen

"Taking profits regularly" is an often heard mantra, but it applies mainly to stock traders.

Unless a company’s fundamentals have changed, investors should not be concern about short term price fluctuations. It is also not realistic for an investor to expect to be able to accurately predict short term market movements.

In a period of growing economic activity, it is generally advisable to HOLD a stock and Ride the Wave.

By cashing out when a say 20% profit is achieved, an investor may miss out on MULTI-BAGGERS, stocks that double in price or more over the course of an economic boom.

Key takeaway: Investors should ride the wave and resist the temptation to sell out when a short term peak is reached. It is generally time to sell only when share prices have Retreated 20% or more from multi-year highs.

source: http://www.singwealth.com/portal/index. ... out-stocks

http://www.masteryourfinance.com/forum/ ... &start=390

[walkinepark]

To be honest, my mind is constantly "plagued" by this idiom: "A bird in the hand is worth two in the bush."

[candy_chia]

“Collective FEAR stimulates HERD Instinct, and tends to Produce Ferocity toward those who are Not Regarded as Members of the Herd.”
― Bertrand Russell


Investing Experts and the Herd Mentality

Buy low, sell high.

Any idiot off the street could repeat this phrase to you as if they had the secret recipe for investing success. Honestly, it’s good advice.

One of my favorite investing quotes, and one I try to base my investing strategy around comes from the great Warren Buffet. He famously said “Be greedy when others are fearful, and fearful when others are greedy.”

On the surface it seems like Buffett is saying the same thing a different way. But what I love about his quote is that it’s actually much deeper than simply buying low and selling high. His quote also illustrates why “buy low, sell high” is much easier said than done.

In the investing world, almost like no place else there is an amazing herd mentality.




~~ When things are going good, such as over the past month, all the talking heads will tell you how great of a time it is to buy!

~~~ In 2009 at the height of the recession it was all doom and gloom. Analysts and pundits were more likely to tell you that the S&P had a better chance of hitting 0 than it did 1500.

“So what?” You might be asking. “The economy was terrible in 2009 and things are really looking good today, its common sense!”

1) Following the herd mentality is one of the most common reasons individual investors fail.



===> They jump in the market full throttle when everything is sunshine and rainbows like this past month, and

=====> they Sell off or Sit on the Sidelines petrified with FEAR when true OPPORTUNITY is staring them in the face.

2) Just last week Reuters wrote how “Investors pour a record $55 billion into US stock funds in January.” If investors were really trying to “buy low and sell high” would they really be going all-in on stocks when they’re at five-year highs? Doesn’t sound like good timing to me…

My point in all this is not to say that stocks are a bad investment right now, the market could well keep rising for another 2 years from this point. The point I want to drive home is that it’s of the utmost importance to block out all the noise and opinion where your investments are concerned.

3) Pundits and “experts” have a long history of being wrong.

21 of 35 ESPN “experts” picked the 49ers to win the Super Bowl. A certain political “expert” predicted a landslide win for Mitt Romney in the past election, and how can we forget all those ratings agencies that held AAA credit ratings on Lehman Brothers and AIG just weeks before their collapse.

Visit any online brokerage site to research an investment and you’ll find something similar to the picture at the left. Ratings and opinions from multiple sources which in theory are designed to help you make better investment decisions.

From my experience it’s extremely rare to find anything rated below a “hold”. The few times I’ve seen sell ratings on stocks is when the stock price had already suffered a dramatic drop. The ratings to the left are actually from MasterCard (NYSE:MA), which is currently trading just below its all-time highs.

4) If you had followed Warren Buffett’s advice you would have bucked the trend and put your money to work when things were looking bleak.




If you relied on the media and analysts to tell you when to get back into the market, chances are you missed out on some great returns over the past couple of years. In other words, you were the “others”.

The past recession was one of the worst ever. They said the world was ending. Yet here we are, standing safely on the other side. Know that no matter what, there will be more recessions, panics and bubbles in the future. How we react to them is entirely up to us.

5) When the next one comes along

~~ will you buy into the doom and gloom, selling on the way down.Only to buy back in once the recovery is in full swing?

~~~ Or will you keep your long-term focus, and realize that short-term turbulence creates the opportunity for great long-term gains?



Enjoy the current bull market, but remember to

===> stick to your Asset Allocation and stay Focused on Long-Term Goals. You Shouldn’t stick All your Cash into the market now any more than you should have taken it all out in 2009.

Are you able to stray from the herd and invest when times are tough?
Do you find yourself being swayed by analysts ratings when looking to invest?
What are some of your favorite investing quotes or mantras?

http://thefirstmillionisthehardest.net/ ... mentality/

[candy_chia]

Look at Market Fluctuations as your Friend rather than your enemy;

Profit from Folly rather than participate in it.
Warren Buffett



How to Earn a 1,000% Return in 10 years
By Ser Jing Chong - April 5, 2013

In mutual fund legend Peter Lynch’s parlance, a 10-Bagger is a stock that has gone UP in price by 10 times.

It is one of the most elusive yet satisfying kinds of stock an investor can hope to find.

Is a 10-bagger possible here, in our humble Singapore stock market, where the Straits Times Index (SGX: ^STI) has climbed about 160% in the past 10 years?


Let’s consider these four stocks and take a guess at their returns (inclusive of dividends) since Jan 2003:

1) Infrastructure engineering and geospatial imaging company, Boustead Singapore (SGX: F9D) - outstanding return of 2780%

2) Instant beverage manufacturer, Super Group (SGX: S10) - growth of 1820%

3) Conglomerate holding company, Jardine Strategic Holdings (SGX: J37) - 1550% return

4) Another conglomerate holding company, Jardine Matheson Holdings (SGX: J36). - 1117% gain

Incidentally, Jardine Matheson and Jardine Strategic belong to the complex and sprawling mega-conglomerate Jardine Matheson Group, which also have holdings in retailer Dairy Farm International, and hotelier Mandarin Oriental.


These are the returns an investor would have gotten if he or she had invested in them in Jan 2003 and stored them under the mattress.

Don’t forget that during the intervening 10 years, the Global Financial Crisis of 2007/2009 and the more recent Eurozone debt debacle happened. But, these financial disasters could not harm those stock returns.

So what’s the secret you might ask?

It might astound you, but it’s as simple as buying them and holding them. That’s right – you invest in a company’s shares and Do NOTHING, besides Periodically Checking up on the Business’ Fundamentals.



If a business’s fundamentals remain sound even when the markets are falling steeply, as it did in 2008 and 2009, then the best thing to do would be to hold on tight to its shares.

For example, investors who sold Super Group’s shares when it fell from $1.14 on May 2008 to around $0.330 on March 2009 would have missed out on the eventual 1060% gain from the trough to its current price of around $3.85.

If you have picked a good business to invest in, then invest in it and WAIT.

The key to market beating long-term returns isn’t clairvoyant foresight or trading in and out of shares furiously – it is to simply Buy and HOLD.

http://www.fool.sg/2013/04/how-to-earn- ... -10-years/

[bulltick]

If individual investors buy a stock based on FA & TA indicators (eg. MA crossover) with hope of getting a multibagger by sticking to buy & hold irregardless of general market condition and price action of that individual stock, then likely a number of them may get equal or more stucked stocks during their stocks collecting process. There are few multibaggers in the stock market in the past 1 year eg. Blumont, Asiason, ISDN, Ezion,etc. Except for maybe Ezion which is widely covered by analysts, I am wondering how many FA growth investors buy into these multibaggers based on their fundamental analysis....

[candy_chia]

"In investing, what is Comfortable is Rarely Profitable." - Robert Arnott

At times, you will have to step out of your comfort zone to realize significant gains.

Know the boundaries of your comfort zone and practice stepping out of it in small doses.

As much as you need to know the market, You need to KNOW YOURSELF too.

~~ Can you handle staying in when everyone else is jumping ship?

~~~ Or getting out during the biggest rally of the century?

There's no room for pride in this kind of self-analysis. The best investment strategy can turn into the worst if you don't have the stomach to see it through.

http://www.investopedia.com/financial-e ... -time.aspx

Beware of making these money mistakes
The Straits Times, Published on Apr 07, 2013


The top regret for many people is not saving enough money for their retirement, a recent survey of financial mistakes conducted in the United States showed.

"The biggest thing we found from almost all age brackets is folks are not saving enough for retirement," says Mr Scott Thoma, investment strategist for Edward Jones, according to a Fox Business report.

Here are ways to get finances back on track, Fox Business says.

Mistake No.1: Not tracking spending

Thirty-five per cent of survey respondents in the 18-to-34-year-old bracket cited not paying enough attention to their spending as their biggest money mistake.

Most people view each purchase in isolation as they go throughout their day, says Mr Thoma, not realising their purchases are adding up to a hefty tab.

To help get a better picture of your spending habits and identify any unnecessary spending, track every purchase for two weeks.

"If you were saving an extra US$100 a month, that could mean an extra US$100,000 for retirement," says Mr Thoma. "It's as simple as a cup of coffee a day."

Mistake No. 2: Carrying too much debt

While there are acceptable debts like a mortgage or car payment, many consumers are overspending on credit cards and carrying a balance and end up paying a lot more than they owe with high interest rates.

To get out from under that debt, Mr Thoma advises tracking spending and creating a budget that includes paying down debt - starting with the credit cards with the highest interest rate.

"If you are paying 18 per cent on a credit card, that's the first place that needs to be addressed because your are not earning an 18 per cent return on an investment," he explains.

Mistake No. 3: Bad investments

Everyone likes to THINK they are Savvy Investors, but most of us are too emotionally involved to be effective investors.

Mr Thoma says: "Whenever the market is up, they feel good, and whenever risk rises, they want to get out."

He advises people to avoid reacting to every market gyration.

"You can't let the outside environment dictate every single change you make," he says.

[candy_chia]

PLAY OF THE WEEK
Penny stock run wavers on trading curbs
Trading volumes plunge as brokerages place limits on small-cap share exposure
By Goh Eng Yeow Senior correspondent
The Straits Times, Published on Mar 23, 2013


DEBT-LADEN Cyprus might have grabbed the headlines this week, but the big news for many traders were the steps taken by brokerages to slam the brakes on penny stock trading.

UOB Kay Hian, for one, has put caps on a client's exposure to the small-cap sector.

An investor, allowed to trade up to $150,000 worth of shares, will be capped at $50,000 for each penny stock.

That rises to $100,000 for a single small-cap share if the investor has a higher overall trading limit.

For good measure, it even threw in a four-page memo on its website naming the affected stocks.

Not surprisingly, trading volumes have tumbled sharply as traders react to news of the brokerage trading curbs.



~~ Just three weeks ago, overall daily market volumes soared to a record high of 12.2 billion shares.

~~~~ By Monday, the trading curbs had sent daily volumes tumbling to just 3.05 billion before improving to 5.5 billion shares yesterday.

You can't blame brokerage bosses for getting nervous and taking steps to protect themselves from any collateral fallout if the penny stock bull run screeches to a halt.

Penny stocks have been rallying hard, pushing the FTSE ST Catalist Index - which tracks 109 small-cap stocks on the junior board - up a startling 31 per cent since November.

What makes these shares so attractive is that they cost a few cents apiece, making them affordable to traders who like a quick bet.

But they mostly feature loss-making shell companies whose only attraction is to become takeover targets for ambitious businessmen planning to reverse their operations into them.

There is another reason to explain the sudden burst of interest in penny stock activity - the so-called contra trading system that exists only in Singapore and Malaysia.

Unlike other markets where an investor has to come up with cash upfront before he can buy any shares, a trader here has up to three days to pay for his stock purchase.

During this period, if the stock price goes up, he can sell the shares, offsetting his sale against his purchase, and collect a profit without ever having to come up with any cash to make payments.

Such an arrangement means that brokerages are indirectly financing the liquidity-driven penny stock rally.

So as stocks go up, they get correspondingly more worried about the potential losses that may ensue if there is a big market correction.

It does not help when some of these favourites subsequently dived in prices.

(1) One example is Myanmar play WE Holdings, which plunged from 18.2 cents to 6.8 cents in just one week, purportedly on completion of a stock placement.

(2) Then there was Rowsley, which had appeared unperturbed by the turmoil afflicting other penny stocks, until it suddenly plummeted by 17.5 per cent to 40 cents a week ago.

This was said to be due to the curbs slapped on it by a big brokerage during trading hours.

Some traders have complained about the arbitrary manner in which brokerages have imposed trading restrictions on penny stocks, arguing that such moves are material and should have been regulated by the Singapore Exchange.

But then again, there would have been no need to impose any curbs if there had been any fundamentals supporting their run-up in the first place.

engyeow@sph.com.sg

[candy_chia]

Creative risk taking is essential to success in any goal where the stakes are high.

Thoughtless risks are Destructive, of course,

but perhaps even more wasteful is thoughtless caution which prompts inaction and promotes failure to seize opportunity.

- Gary Ryan Blair



Exercise caution when investing
Alternative investments in assets such as gold and wine gaining popularity, but best to be sceptical
By Jonathan Kwok
The Straits Times, Published on Apr 14, 2013

Several years ago, a pal of mine dragged me to a meeting at an office near Raffles Place that could have been a game-changer - at least that's what the guys in suits told me.

It was a multi-level marketing presentation, as slick as the name suggests, with eager sales associates milling around, desperate to make me a bundle.

All very simple: I just had to put in about $1,300 and sell similar plans to my friends and relatives. My cash was supposed to be buying me some health products, but the plan was touted from start to finish as a money-spinning scheme.

I was tempted but being a bit low on savings at the time - just after my national service - meant I had to decline.

There were persistent phone calls for a few weeks after that - including from my friend who I realised had invested earlier - before they finally gave up.

Plenty of others were - and are - less reticent, which is why such alternative investments have become increasingly popular in recent years.

High inflation, low interest rates and pricey stocks and property mean the thrill is gone for more traditional investment classes.

There seems to be no limit to the imagination regarding the actual assets being touted.

~~ For those bullish on real estate, we have programmes that pool money from investors to buy land or property either locally or overseas.

~~~ Then there are schemes for gold trading,
~~~ wine investment and
~~~~ even animal farms overseas.

====> These of course add to the multi-level marketing and timeshare schemes that have been here for years.

They tend to share two common factors - promises of handsome financial gains and charismatic leaders capable of convincing the most sceptical of investors that they will very likely make big money.

Several alternative investments may indeed be able to live up to their promises of generating cash for investors.

But I have grown very wary of such programmes and am glad I did not participate in the scheme being flogged to me those years back, even though there is a chance I could have made money from it.

I now go as far as to stay well clear of seminars if I know they will be used to promote alternative investments.

After all, the Consumers Association of Singapore last month raised the red flag over the high-pressure selling tactics of timeshare companies.

Alternative investments also often hit the headlines for the wrong reasons.

Recently, The Gold Guarantee's chief executive apparently disappeared, leaving investors in the gold trading company deeply concerned that they would lose all their money.

The warning signs for alternative investments are plain to see. For one thing, most schemes are NOT Regulated by the Monetary Authority of Singapore (MAS), so there is little recourse for investors.

But the authority has warned the public to "exercise great care and vigilance" before committing themselves to such unregulated schemes.

The Commercial Affairs Department - Singapore's white-collar crimes unit - has the power to investigate if any fraud is uncovered. But by that time it is usually too late for investors to recover their money.

Programmes that invest overseas may be covered by laws in those countries - but these may not be well-established or understood by investors here.

This is unlike the more traditional investment classes.

1) A company's shares listed on the Singapore Exchange are subject to the Securities and Futures Act, which is administered by MAS. Breaching the Act attracts fines and even a jail term.

2) There is also a well-established legal framework to protect property buyers here.

3) For small-time investors, the stock market may offer a decent option. Valuations may have risen, but there are plenty of blue-chip companies with long operating histories that should provide some level of comfort.

4) Exchange-traded funds offer an even better alternative, allowing investors to buy into a portfolio of stocks so the impact is limited if one or two stocks collapse.

Of course, the market has its own dangers. Thousands of investors in so-called S-chips are in limbo after governance and accounting scandals at some of these China companies listed here.

At the end of the day, investors would do well to diversify their assets, since all investments come with risks.

They should also remember that investments that promise high rewards almost always come with high risks. This is an age-old nugget of wisdom followed by fund managers and investment experts all around the world. I will be very sceptical of any investment scheme which claims that this principle does not apply to it.

jonkwok@sph.com.sg

[candy_chia]

Don’t Fall Into This Investing Trap
By Ser Jing Chong - April 4, 2013


When we try to look for value in the stock market, a low Price-to-Earnings (PE) multiple would likely be an important requisite.

The idea is that by investing in a stock with a low PE, poor future expectations about the business’s performance have been baked in by the market and any modest but pleasant surprises can move the stock price upwards.

In David Dreman’s book Contrarian Investment Strategies: The Psychological Edge, he cited his own study of US stock market returns from 1970-2010. In the study, stocks were divided into quintiles based on PE and the annual returns for stocks in the lowest quintile averaged 15.2% for four decades, handily beating the market’s return of 11.6%.

Other investors like James Montier have also conducted studies based on low PE stocks and found that over time, a basket of such stocks generated market-beating returns.

So, a low-PE strategy does seem to pay off well. But, as it is with all investing strategies, there are risks involved. A low PE share can sometimes turn out to be a value trap.

===> Value Traps are shares that Appear Cheap on an outward basis (usually by some measure of value, such as PE) but whose underlying Business is fraught with Difficulties which Might Never be Overcome.

How can we avoid value traps? The best way to do so would be to ensure the company can survive financially.

Benjamin Graham was the father of value investing and he liked to buy his stocks cheap but he was ALWAYS Wary of debt.

Let’s consider a company like Pacific Andes Resources Development (SGX: P11), which operates fishing vessels and then sells its harvest. Its shares currently trade at $0.138 with a PE of 4.9, way below the Straits Times Index’s (SGX: ^STI) PE of 13.2.

In the company’s first quarter of financial year 2013, it had an interest cover of only 2.6 (earnings before interest & tax (EBIT) of HK$362.1m, and interest expense of HK$141.0m), which is low.

Furthermore, the company carries HK$9.95b worth of debt and only HK$306.3m in cash on its balance sheet, putting the company in a dicey financial position. If there are any adverse changes to the company’s business, it will have trouble servicing its debt-interest payments and face severe difficulties in debt repayment. In a situation like this, a low PE share might well turn out to be a value trap.

Foolish Bottom Line

Value investing legend Walter Schloss has been quoted as saying he ‘doesn’t like debt because it can really get a company into trouble. I prefer to buy basic businesses with strong balance sheets’. While trawling the market for low-PE bargains, it pays to also keep an eye out for debt-laden balance sheet –lest you find yourself falling into a value trap.

http://www.fool.sg/2013/04/dont-fall-in ... ocs0070001

PTB ~0.5 looks attractive. Debt-Equity 0.2 looks good.

But, it is Value Trap for investor?

http://www.masteryourfinance.com/forum/ ... 8&start=60

[candy_chia]

Why So Many People Have A Bear Market Mindset In A Bull Market
Apr 24, 2013 7:20 PM

Market analysts and pundits, like politicians, have never been so polarized. And much like politicians and their more vocal followers, the different factions -- bulls versus bears-- are not always so nice to each other. Rather than "go there", let's look at the potential misconceptions as to why so many are so dissatisfied in the face of such a strong uptrend in U. S. blue chip stocks.

When we compare the potential for growth in the economy now to previous decades it is clear that to expect 1980's growth now would be unreasonable.

Credit cards alone makes this so. In the early 80's the growth of consumer credit was just getting starting.

By the beginning of the new century it was fair to say consumer credit had become saturated.

The 80's and 90's saw explosive growth for many reasons, and what is obvious now is it would be unreasonable to expect that type of economic growth to have continued.

"I need another warm body Jimmy...and make sure this one has most of her teeth". It was 1986 and I was waiting for the manager who had just hired me at a prestigious Wall Street brokerage firm to take me down to the trading floor, where I would start my new position. My manager had just shouted his request to the hiring manager while balancing an unlit cigar expertly between his teeth. "Come on kid", the cigar nodded as I followed him out the large beveled glass doors, "We only have one rule around here", he continued", if you want a bonus ya' gotta' show up on time. I don't care if you're hung over or still drunk, just show up on time".

I was starting a job where I worked 6 hours per day, and made more money than my father, who was an accountant, or any other father on the block where I had grown up. Life was good.

When I look back at that experience compared to how kids have it today, there is obviously no comparing that economy to now.

Back then companies enjoyed the American mark-up.

Goods were bought overseas in local currencies - dimes on the dollar -- shipped to America - energy prices were laughably low -- and marked up 200%, and this was even before the retail mark-up.

American companies had a thick layer of middle managers, many of which did little in the way of work, yet all had nice suburban houses with big back yards and two cars in the garage, and nobody worried about how they would put their kids through college.

The brokerage firm where I worked routinely charged clients $100 commission, per contract, plus consulting fees --a far cry from today's $2.99 rates. And for as long as I worked there I never figured out exactly what The Cigar did, other than walk around shaking people' s hands and slapping them on the back, but I knew he was paid well.

I understand why so many market observers don't buy into the current bull market in stocks on the grounds this economy is a far cry from decades past. This particularly makes sense if you think the 1980's and 90's were normal.

If you believe economic growth under Reagan and Clinton was normal then you would most definitely be disappointed with today's economy.

In today's economy profit margins are thinner, and overseas competition much tougher, and you darn well better have more going on than a pulse and most of your teeth to get a good job.

If you think that the economy in the 1980's and 1990's was the norm no wonder you are in the bear camp now.



If you happened to work for a company in the right place at the right time back then and confused that with being good, you are more than likely out of sorts in today's economic climate.

"I actually thought I was a great salesperson when I was in my twenties", is how one old friend put it. "the sales skirt and high heels were inconsequential".

Premise #1 the "new normal" in economic growth is far different than the "old normal", i.e.: you cannot compare now to then.

But Premise #1 still leaves the question of how or why we are seeing comparable stock market growth today to earlier decades?

Regardless of thinner profit margins and overseas competition people still consume, and those people with jobs still save and invest, which means money going into the economy on a regular basis and money going into stocks on a regular basis.

And let's not forget the cumulative amount of savings and investments from those previous decades that is now faced with the choice of no interest income because rates are so low. Regardless of age or risk tolerance you either take zero interest or diversify a portion into growth or blue-chip stocks. And there is another sizable factor. Those executives and managers that still hold good jobs work a lot harder and a lot smarter than their forbearers. All this means a bid in the stock market.

Much of the divisiveness today among market analysts and pundits on a base level is aimed at central bankers.

The republican presidential nominee in 2012 Mitt Romney, who enjoyed great success as a business man in previous decades, went so far as to say he would replace Ben Bernanke as Fed Chairman if elected, leaving the impression that he believed the country's economic doldrums were the fault of the Federal Reserve and other government policies.

The logic of saying a Fed Chairman is not doing a good job in hard times only holds up if one believes that the Fed is/was responsible for fostering the good times.

The former central banker and President of the Peterson Institute for International Economics Adam Posen, made an apropos observation in comparing previous good times to current not so good times, "…we ended up in a world where things went very well, and a large part of it was due to luck…and central bankers took credit for things going very well, and insisted that this was due to their marvelous monetary policy".

Posen's comment hint at what a lot of people do not realize, and the few that do are too polite to say. That the Fed chief before Bernanke, the legendary Alan Greenspan, for all his reputation, and measured, thoughtful cadence did us all a disservice by letting us believe that the incredible growth the U.S. saw throughout the 1990's and into the 2000's had a good bit to do with the Fed's tutelage. What if central bankers were no different than so many others during the previous expansions, just people in the right place at the right time? And if they were, and are not due so much of the credit for good times, than it stands to reason we should not hold them as responsible for tough times.

Posen's observation leads to premise #2: We cannot hold central bankers solely responsible for the performance of the economy.

At some point private businesses must make money the old fashioned way, which means borrowing money and taking the risk of investing it in viable businesses that can produce modest near-term returns. The Fed does not grow the economy; business owners and managers taking risks grow the economy; and not the type of risks that cost Chase $8 billion dollars in trading losses.

We all might have been better off had we realized sooner that it's up to businesses to play more of a leadership role, and that central bankers had no choice but to buy their treasury's debt to keep rates on lock down so that individuals and businesses could refinance debt to free up cash flow.

Had that been the case we may also have realized that there are companies out there, who even in hard times, or should I say particularly during hard times that are deserving of investment.

Wait a second…maybe that's why the stock price of so many blue-chip companies has increased so much over the last couple of years?

Jay Norris is the author of The Secret to Trading: Risk Tolerance Threshold Theory. To see Jay highlight trade set-ups and signals in live markets on the London / U.S. overlap go to Live Market Analysis

http://seekingalpha.com/instablog/16424 ... ull-market

[candy_chia]

THE MIDAS GOLDEN TOUCH

It’s very common for us to not know what we TRULY Want out of work and life.

Like in the hamster wheel, we’re Constantly in Pursuit of Goals that we consider as ‘Gold’.

Sometimes, it’s good to see and consider things from a different point of view. This is where stories or parables come in handy to ilustrate and hit home a point, when direct telling is ineffective.



This is the well-known story of Midas that has been widely incorporated as a figure of speech in our daily conversations.

We use the term ‘the Midas touch’ or ‘the golden touch’ to describe someone who can miraculously turn anything into something of great value.

Have you ever wonder what is the original story behind it?

http://coaching-journey.com/2013/04/coa ... den-touch/

Sharings at valuebuddies forum:

by musicwhiz, 11 May 20113
During every BULL MARKET, there will be a group of people who mistake a bull market for brains; and therefore feel that they have the Midas Touch - literally everything you touch turns to gold, stuff you buy goes up 20%-30% within a few months (or even weeks).



This breeds a new batch of "geniuses" who probably feel that doing research and focusing on margin of safety is simply a waste of time. As other forumers have correctly observed, new investors who are minting it at the moment either have no concept of risk/reward, or are blissfully ignoring it and indulging in the moment.

===> As prudent investors, we should always Watch our DOWNSIDE and ensure we do NOT Overpay for Investments.

by KopiKat, 11 May 20113

In times like now, it's kind of sad to see FA "failing" as many listco with poor fundamentals seemingly defying the laws of gravity as prices shoot for the sky.

... But, it's times like these that are the most dangerous as it makes many THINK Money is EASY to be Made in Stocks - anyhow whack, the MORE you Put in, the more you'll Make, to heck with fundamentals.


A last word of caution here (don't want to be called a party-pooper) for those newly minted gurus.

===> Just make sure you're playing (you probably think it's investing) with Money you Can AFFORD to LOSE.



The party is NOT gonna Last Forever.



Is it possible for Cinderella to leave the ball before MN when she's so busy enjoy herself? Worst still, she Can't even See any Physical Clock...

A thought provoking transcript of the talk of by Dr Richard Teo:

Dr. Richard Teo, who is a 40-year-old Millionaire and Cosmetic surgeon with a stage-4 lung cancer but selflessly came to share with the D1 class his life experience on 19-Jan-2012.



Since young, I am a typical product of today's society. Relatively successful product that society requires.. From young, I came from a below average family.

I was told by the media... and people around me that HAPPINESS is about Success. And that success is about being Wealthy. With this mind-set, I've always be extremely competitive, since I was young.




you have to decide

~~ whether you want to serve yourself,
~~~ whether YOU are Going to Make a DIFFERENCE in Somebody Else's Life.



===> Because TRUE HAPPINESS Doesn't Come from Serving Yourself. I thought it was but it didn't turn out that way.

http://www.youtube.com/watch?v=umLkfADe17s

http://www.masteryourfinance.com/forum/ ... &start=105

[candy_chia]

S'pore investors turn to riskier bonds
Persistently low interest rates are forcing buyers to look beyond investment-grade debt
The Straits Times, Published on May 12, 2013

Singapore's yield-starved investors are buying riskier bonds in a move that is allowing many smaller companies to issue debt for the first time, IFR reported.



Auric Pacific Group, best known as the owner of food courts offering cheap meals to Singapore's workers, is set to join a growing number of small and mid-cap companies hoping to appeal to fixed-income investors when it serves up its first offering from a $500 million debt programme.

While Auric's share price has doubled over the past 12 months, its market cap of $161 million makes it one of the smallest companies to try a bond sale. But it is far from the only issuer to spot an opportunity.

Persistently low interest rates in Singapore are forcing investors to look beyond investment-grade bonds, with at least five small and medium-sized enterprises completing local debuts since March.

The five-year benchmark government bond was yielding 0.49 per cent last Thursday, while consumer prices in March were up 3.5 per cent on the previous year.



~~ Oxley Holdings, a mid-cap property developer, provided the latest indication of that hunger for yield last Wednesday with a $150 million, 5.1 per cent bond that attracted orders of more than $1.7 billion.

~~~ Hong Fok, another developer, had already offered evidence of the trend. The issuer attracted orders in excess of$320 million for its $120 million, 4.75 per cent debut in March.

~~~~ Raffles Education, another small-cap, has come to market twice this year via an $80 million, 5.8 per cent deal in February and a $50 million, 5.9 per cent offering late last month.

Companies of Oxley's size have traditionally relied on Singapore's bank loan market, while the city's fixed-income investors have tended to prefer rated, investment-grade issues or companies with larger market capitalisations.

The rush of financings from these smaller companies, however, shows that dynamic is changing.

"In a sense, the loan desks are now competing with the debt capital markets desks for business from these small companies," said one loans banker.

Alongside Auric, companies including Tuan Sing Holdings, Nam Cheong and Tat Hong Holdings are gearing up for their first bond sales after setting up medium-term note programmes in the past few weeks. The biggest of those, crane leasing company Tat Hong, has a market cap of US$744 million (S$921 million).

The enthusiastic response to this year's high-yield deals shows that fixed-income buyers are moving down the credit curve in search of higher returns.

While that allows companies to improve their funding flexibility and access a wider investor base, it also raises the risks for the local fund managers and private bank clients who buy the debt.

Singapore bond buyers are more accustomed to studying the credit risk on large, frequent issuers such as the state-backed National University of Singapore, but many of those large-cap companies pre-funded much of their 2013 needs when borrowing rates plunged last year.

Moving down the credit curve comes with an obvious appeal. While Oxley paid 5.1 per cent on its bonds, NUS - one of the few investment-grade issuers in the Singapore dollar market this year - priced a five-year bond in January at a yield of 1.028 per cent.

Meanwhile, the yield on the five-year Singapore government benchmark hit a record low of 0.31 per cent in January and was still below 0.5 per cent last Wednesday. The 10-year benchmark dropped below 1.5 per cent for the first time last year and was at 1.47 per cent last Wednesday, close to last December's record low of 1.29 per cent.

Such low interest rates have made the bond market competitive even against cheap bank debt from Singapore's deposit-rich lenders.

Senior unsecured bonds also offer greater operational flexibility over bank loans, where smaller borrowers are often required to pledge assets as security or collateral against the debt.

"This allows SMEs to diversify not only their funding sources but also the structures of their debt portfolios," said one Singapore-based banker.

The added flexibility has a cost. Small companies pay a premium of some 50 to 100 basis points for the unsecured structures, although bankers argue the benefits of bullet repayments and flexibility outweigh the additional cost. A basis point is equal to 0.01 per cent.

Should interest rates remain near historic lows, Auric is unlikely to be the only one to find hungry investors queueing up for more.

Reuters

[chuajinyi]

Quote from Dennis " Poor people queue up to deposit money into the banks/ buy bonds and rich people keep borrowing money to get richer".
For graduates, it is important we take this valuable lesson and keep it with us.

The Rich are borrowing money... building up opportunity fund.

[ngtfook]

There is time for everything...

When the interest rate is equal /higher than the market return, people prefer to save the money into bank and earn interest while mitigate the risk. (see chart below. source: MAS)

Likewise for investing into bond. Why Bill Gross of Pimco buy bond? Why HNW people buys bond?

Rich people borrow money to get richer - true. The creditor (banks) will be happy to lend money to you if you are having consistent cash inflow (employement, etc) or have asset as an collateral. If you don't have both, how?

OPM (other people money) is double edges sword. One can inevst to stocks using leverage. If you win, your return will multiply; when you lose you may live in distress, bankrupt or even lose your life (Asean Financial Crisis - people commit suicide).

[chuajinyi]

Yes, it is true, always be mindful and not to rule by greed.
Everyone is responsible from his action and capacity.
Please excercise within your limits - invest the money that you can afford to lose.