Charting Part 1

I have been getting feedback that the blog looks more like a "cut and paste blog". Okay, time to get some technical charts up and running le. Ehhhhh, where should i start?

Lets get to my Red Alert list;

1- Capitaland (C31.SI)
2- SingTel (Z74.SI)
3- OCBC Bank (O39.SI)

I will start the ball rolling for Capitaland first.

For some reason, due to the sub-prime crisis in U.S, many funds are oversold and undervalue given the fact that Singapore will be in their prime for the next few years(or more), i believed this is a good time to enter (with caution of course) as i am bullish about the future on Singapore.

Therefore, base on what i have seen for the past week for sg funds, selling is more than buying.

In Singapore, most of us are kai-su, but almost all are kai-si! (which at some point i belongs to both of the 2 categories as well)


Historical Trend for Capitaland

52 Weeks Trend

Interesting point to take note will be the dip during August which cross over the support line (close at 6.40), and then rebound. If we look at the recent dip dated Nov 19th (close at 6.5), i believe it will jump on a rebound again, to be safe i would enter at 6.7-6.9

This is my first time doing charting, i hope i am right by applying from what i have learned from my investment class.

US Recession? Hang on...

Recession Watch

Recession talk has picked up. In order for that to occur, consumer spending has to slow dramatically from its recent trend. This article looks at the GDP components and the outlook for consumer spending, and concludes that the key variable is payroll growth.

The GDP Components

Total nominal GDP in the third quarter was $13.927 trillion.

The components break down as follows:

**Consumer spending 70.3%

Business investment (including structures) 10.7%

Residential construction 4.5%

Government spending 19.5%

The totals do not add to 100% because net exports and inventories also impact GDP. In the third quarter, net exports added a whopping 0.93% to the annualized change in GDP, while the change in inventories added .35%.

Recessions and Component Trends

Recession is typically defined as two straight quarters of a decline in real GDP.

The component data show that, for a recession to develop, consumer spending has to decline.

Residential construction is not going to cause a recession. It comprises only 4.5% of GDP. It has already fallen about 25% from its peak over the past seven quarters, and has not yet caused anything close to a recession. The rate of decline may lessen in 2008.

Government spending, almost 20% of GDP, is also not going to cause a recession. Not much comment is necessary here other than to note that it has risen at about a 2.4% real annual rate in 2007 following about a 2.6% gain in 2006. It will rise in 2008.

The outlook for business investment is hard to assess but it also is not going to cause a recession by itself. It has risen at about a 7.0% annual rate in 2007 after rising at a 5.3% rate in 2006. Spending on nonresidential structures has been very strong and could soon decline. However, indications from most technology firms are that spending on equipment and software remains reasonably strong.

There are concerns that business investment might turn negative if business lending becomes restricted. There is no evidence yet, however, that a credit crunch is developing as a result of the write-down of assets by financial firms. Data on commercial and industrial (C&I) loans are released every Friday via the Fed's H.8 report. These loans have continued higher through last week and were up in October and September. Business investment will be sluggish next year but won't cause a recession.

Overall, growth in net exports and government spending could net out weakness in residential construction and business investment in 2008.

Which brings us back to consumer spending.

Consumer Spending Considerations

Over the past ten quarters consumer spending has risen at the following real annualized rates, from the second quarter of 2005 through the third quarter of 2007:

3.5%, 4.1%, 1.2%, 4.4%, 2.4%, 2.8%, 3.9%, 3.7%, 1.4%, and 3.0%.

That's pretty stable. Of course, there is a concern that consumer spending will slow in coming quarters due to weakness in home prices.

It is doubtful this will happen.

In a Big Picture column last year we noted that Fed Vice Chairman Ferguson cited studies that suggest a 10% decline in home prices over a period of two years will cut about 0.25% off GDP each year through the wealth impact on consumer spending. That sounds about right to us.

Existing home prices are down 4.2% over the past year and were down for a number of months before that. Yet, there has been little perceivable impact on consumer spending to date, as reflected in the numbers above.

There is a very good chance that home prices decline another 5% in the year ahead, and possibly continue lower into 2009. That would only serve to dampen consumer spending. In itself it won't lead to declines.

Far more important to the outlook for consumer spending is employment. If payrolls are rising, and wages are rising, consumer spending power increases. The American consumer spends almost 100% of income, and there is no reason to expect that to change.

The average monthly increase in nonfarm payrolls this year has been 125,000 a month. That is equivalent to a 1.1% annual rate of increase. The past three months the gains have averaged 118,000. The trend is steady.

Furthermore, there is no indication that businesses are about to engage in large scale layoffs or alter hiring trends. Past recessions have been preceded by large jumps in the number of new claims for unemployment benefits. This is shown in the chart below.















Just prior to the 1990/1991 recession, and prior to the 2001 recession, claims jumped to over 450,000 per week. Claims have been steady so far through the turmoil of 2007. This suggests that payrolls will continue to increase at about 100,000 per month or more.

If payrolls continue to rise at a 1% annual rate, and wages continue with their recent trend of 4% annualized gains, then total consumer spending power will rise at 5%. After adjusting for inflation, that is only about a 2% rate of increase (even taking into account higher gas prices), but it is positive nonetheless.

So long as payrolls are not declining, consumer spending will continue to increase.

Conclusions from the Data

Government spending at a 3% real annual rate, coupled with strong export growth, will boost annualized GDP by about 1% each quarter. Residential construction and business investment weakness may offset those gains.

For GDP growth to turn negative for two straight quarters, however, consumer spending has to go negative.

This won't happen because of weak home prices or foreclosures on low income subprime borrowers (who will continue to spend even if they lose their homes). It will only happen if payrolls decline. And before that happens, there will be indications from sharply rising claims for unemployment benefits.

It is therefore not surprising that a survey of top economists by the Wall Street Journal showed expectations of about 1.5% real annualized growth for GDP for the fourth quarter and about 2% for early 2008. It is also not surprising that the Fed has a similar forecast

That is the way the numbers add up.

What it All Means

Forecasts of recession are largely based on expectations that the severe housing slump will slam consumer spending or that the write-offs at financial firms will lead to a cutback in credit availability that will reduce business investment.

The first of those we discount because the two-year old housing slump hasn't slowed the consumer down yet, and won't. There is no sign of the second, but we will be watching C&I loans closely for signs of any credit crunch. Even if business investment does slow, however, it still represents less than 11% of GDP.

The key, as always, will be consumer spending. And as long as wages keep rising near a 4% annual rate, and payrolls keep rising, the consumer will keep spending.

The economic outlook is unquestionably poor. The Fed forecasts sluggish growth for quite some time. But the forecasts of recession still require assumptions of a large change in the current trends that are not yet evident.

The Credit Crisis: Chicken Little or a Game of Chicken?

By Rachel Barnard, Ph.D.

If the sky isn't falling on financial stocks, it certainly looks that way. Every day there are new reports of companies being exposed to losses in mortgages, subprime credit, or CDOs. Banks are taking charges that run into the billions of dollars. There is no doubt that market conditions are deteriorating rapidly and financials are taking it on the chin.

Fear now dominates the marketplace. Financial-services stocks have fallen by 15% over the past three months, as measured by the S&P Financial Services Index. Investors are running for the hills--or at least for safer havens including cash and gold.Yet at Morningstar, our analysts are recommending an unprecedented number of financial-services stocks, even names that have been badly beaten up such as Countrywide Financial (CFC), PMI Group (PMI), and Citigroup (C). What can we be thinking?

To sum things up, we base our recommendations on numbers and not emotion. We also model how much stress a company can bear before cracking.

To date, paper losses and non-cash charges abound, but the actual cash impact of the credit crisis has been fairly minimal. There is a lot of room yet before the financial industry reaches a breaking point. Could a catastrophic financial crisis be looming? It's always a possibility. But the data we've seen so far suggest that it's a remote one--and hence not something we'd want to base our recommendations on. Our approach has been to model in the worst mortgage-related losses in recorded history (a scenario that isn't even close to fruition yet) but stop short of predicting a financial collapse. We feel this represents the most likely scenario. And though we may have some very bearish assumptions built into our valuations, they are bullish compared with what prevails on Wall Street. So we have been advising investors, as Warren Buffett says, to be greedy when others are fearful.

But investing in times like these is not for the faint of heart. The decline in financial stocks could be nothing more than a Chicken Little rumor that the sky is falling when in fact, the financial markets are built to handle the stress of an occasional credit crisis. Or it could be a real game of chicken, with the health of the U.S. financial system riding on the hope that rational investors don't blink first.

The Rule of 72

Compound interest has the power to turn seemingly small amounts into large fortunes if given enough time and the right rate of return.

This rule allows the investor to quickly and efficiently answer two questions:

1. How long will it take me to double my money if I earn X%?
   
2. What return must I earn if I wish to double my money in X years?
   

Using the Rule of 72 When the Rate of Return is Known. an investor that knows he can earn 12% on his money may ask the question, “how long will it take to double my money at this rate of return?”.

Using our handy Rule of 72, this is a snap to calculate! Simply divide the magic number (72) by the investor’s rate of return (12). The answer (6) is the number of years it would take to double the investment.

Using the Rule of 72 When the Number of Years is KnownThe Rule of 72 can also be used backwards.

An investor that wanted to double his money in a certain number of years could use the rule to discover the rate of return he would have to earn to achieve his goal. A businessman that wanted to double his money in four years, for example, would divide 72 by four. The result (18%) is the after-tax compound annual rate of return he would have to earn to meet his goal on time.

Practical Examples of the Rule of 72 in Action

Q: John Q. Investor needs to double his money in seven years to reach his financial goals. What rate of return must he earn to do this successfully?

A: John would take 72 divided by 7; the answer, 10.2857%, is the amount he will need to earn on an after-tax basis to successful reach his goal.

Q: Susan Q. Investor is earning a 9% after-tax return on her investments. How long will it take her to double her money?

A: To calculate the number of years necessary to double her money using the Rule of 72, Susan would divide 72 by 9; the answer, 8, is the number of years it will take for her investment to double after taxes.

Haix got to work tomorrow, good nite!

How to Think About Share Price

If you had $1,000 to invest and were given the choice between buying 100 shares of company ABC at $10 per share, or 5 shares of company XYZ at $125, which would you choose? Many investors would go for the one hundred shares of ABC because the share price is lower. "The $10 stock looks cheap," they argue, "the $125 per share price for the other stock is too risky and rich for my taste."

If you agree with this reasoning, you're in for a shock. The truth is, you don't have enough information to determine which stock should be purchased based on share price alone. You may find, after careful analysis, the $125 stock is cheaper than the $10 stock! How?

Let's take a closer look.

Share Price and Stock Splits - The Coca-Cola Example

Every share of stock in your portfolio represents a fractional ownership in a business. In 2001, Coca-Cola earned $3.696 billion in profit. The soft drink giant had approximately 2.5 billion shares outstanding. This means that each of those shares represents ownership of 1/2,500,000,000 of the business (or 0.0000000004%) and entitles you to $1.48 of the profits ($3.696 profit divided by 2.5 billion shares = $1.48 per share). Assume that the company's stock trades at $50 per share and Coca-Cola's board of directors thinks that is a bit too pricey for average investors. As a result, they announce a stock split. If Coke announced a 2-1 stock split, the company would double the amount of shares outstanding (in this case the number of shares would increase to 5 billion from 2.5 billion). The company would issue one share for each share an investor already owned, cutting the share price in half (e.g., if you had 100 shares at $50 in your portfolio on Monday, after the split, you would have 200 shares at $25 each). Each of the shares is now only worth 1/5,000,000,000 of the company, or 0.0000000002%. Due to the fact that each share now represents half of the ownership it did before the split, it is only entitled to half the profits, or $0.74.

The investor must ask himself which is better - paying $50 for $1.48 in earnings, or paying $25 for $0.74 in earnings? Neither! In the end, the investor comes out exactly the same. The transaction is akin to a man with a $100 bill asking for two $50's. Although it now looks like he has more money, his economic reality hasn't changed. This, incidentally, should prove it is pointless to wait for a stock split before buying shares of a company.

Share Price Relative to Value

This all serves to make one very important point: share price by itself means nothing. It is share price in relation to earnings and net assets that determines if a stock is over or undervalued. Going back to the question I posed at the beginning of this article, assume the following:

Company ABC is trading at $10 per share and has EPS of $0.15.

Company XYZ is trading at $125 per share and has EPS of $35.

The ABC stock is trading at a price to earnings ratio (p/e ratio) of 67 ($10 per share divided by $0.15 EPS = 66.67). The XYZ stock, on the other hand, is trading at a p/e of 3.57 ($125 per share divided by $35 EPS = 3.57 p/e).

In other words, you are paying $66.67 for every $1 in earnings from company ABC, while company XYZ is offering you the same $1 in earnings for only $3.57. All else being equal, the higher multiple is unjustified unless company ABC is expanding rapidly.

Some companies have a policy of never splitting their shares, giving the share price the appearance of gross overvaluation to less-informed investors. The Washington Post, for example, has recently traded between $500 and $700 per share with EPS of over $22. Berkshire Hathaway has traded as high as $70,000 per share with EPS of over $2,000. Hence, Berkshire Hathaway, if it fell to $45,000 per share, may be a far better buy than Wal-Mart at $70 per share. Share price is entirely relative.

3 Stories of Steve Jobs

Does anybody knows the story of Steve Jobs?

Many people knew him because of Apple and Pixar Animation Studios but not many know what he have actually been through and all about his life. Below is a short clip of Steve Jobs and i truly believed this will be a very motivation talk thus prompt you to look at life differently.

Enjoy~

Great Investor?

Reading this won't make you great

Mark Sellers, founder of a Chicago-based hedge fund, argues that the best investors are born with particular psychological traits that others can never learn

WHAT makes someone a great investor? It's something you have to be born with, said Mark Sellers, founder and managing member of Sellers Capital LLC, a long/short equity hedge fund based in Chicago. Apparently, it's not about your IQ, the education you've had, the books you've read, or the experience you've accumulated. 'If it's experience, then all the great money managers would have their best years in their 60s and 70s and 80s, and we know that's not true,' he said in a speech to a class of Harvard MBA students.

Intelligence and learning are obviously necessary too, and are sources of competitive advantage for an investor, but there are structural assets some possess that cannot be copied or learnt by others. 'They have to do with psychology and psychology is hard wired into your brain. It's part of you. You can't do much to change it even if you read a lot of books on the subject,' said Mr Sellers. He said that there are seven traits great investors share that are true sources of advantage because they cannot be learned.

You are either born with them or you aren't.

The seven traits are:

One, the ability to buy stocks while others are panicking, and the ability to sell at a time when other investors are euphoric. 'Everyone thinks they can do this, but then when October 19, 1987, comes around and the market is crashing all around you, almost no one has the stomach to buy,' Mr Sellers said. 'When the year 1999 comes around and the market is going up almost every day, you can't bring yourself to sell, because if you do, you may fall behind your peers. 'The vast majority of the people who manage money have MBAs and high IQs and have read a lot of books.

By late 1999, all these people knew with great certainty that stocks were overvalued, and yet they couldn't bring themselves to take money off the table because of the 'institutional imperative', as Buffett calls it.'

Two, the great investor has to be obsessive about playing the game and wanting to win. 'These people don't just enjoy investing; they live it. They wake up in the morning and the first thing they think about, while they're still half asleep, is a stock they have been researching, or one of the stocks they are thinking about selling, or what the greatest risk to their portfolio is and how they're going to neutralise that risk. 'They often have a hard time with personal relationships because, though they may truly enjoy other people, they don't always give them much time. Their head is always in the clouds, dreaming about stocks.

Unfortunately, you can't learn to be obsessive about something. You either are, or you aren't. And if you aren't, you can't be the next Bruce Berkowitz.' (Berkowitz was a managing director of Smith Barney and set up his fund Fairholme Capital Management in 1999. Since inception, Fairholme Fund has returned 18.7 per cent annually on average.)

The third trait of a great investor is the willingness to learn from past mistakes. 'The thing that is so hard for people and what sets some investors apart is an intense desire to learn from their own mistakes so they can avoid repeating them. Most people would much rather just move on and ignore the dumb things they've done in the past. 'I believe the term for this is 'repression'. But if you ignore mistakes without fully analysing them, you will undoubtedly make a similar mistake later in your career. And in fact, even if you do analyse them it's tough to avoid repeating the same mistakes.'

A fourth trait is an inherent sense of risk based on common sense. 'Most people know the story of Long Term Capital Management, where a team of 60 or 70 PhDs with sophisticated risk models failed to realise what, in retrospect, seemed obvious: they were dramatically overleveraged. They never stepped back and said to themselves, 'Hey, even though the computer says this is OK, does it really make sense in real life?' 'The ability to do this is not as prevalent among human beings as you might think. I believe the greatest risk control is common sense, but people fall into the habit of sleeping well at night because the computer says they should. They ignore common sense, a mistake I see repeated over and over in the investment world.'

Five, great investors have confidence in their own convictions and stick with them, even when facing criticism. 'Buffett never get into the dotcom mania, though he was being criticised publicly for ignoring technology stocks. He stuck to his guns when everyone else was abandoning the value investing ship and Barron's was publishing a picture of him on the cover with the headline 'What's Wrong, Warren?'. Of course, it worked out brilliantly for him and made Barron's look like a perfect contrary indicator.' Mr Sellers said that he is amazed at how little conviction most investors have in the stocks they buy. 'Instead of putting 20 per cent of their portfolio into a stock, as the Kelly Formula might say to do, they'll put 2 per cent into it. Mathematically, using the Kelly Formula, it can be shown that a 2 per cent position is the equivalent of betting on a stock which has only a 51 per cent chance of going up, and a 49 per cent chance of going down. Why would you waste your time even making that bet?' The Kelly Formula arose from the work of John Kelly at AT&T's Bell Labs in 1956. His original formulas dealt with the signal noise of long-distance telephone transmission. It was then adapted to calculate the optimal amount to bet on something in order to maximise the growth of one's money over the long term.

Six, it is important to have both sides of your brain working, not just the left side - the side that's good at maths and organisation. 'In business school, I met a lot of people who were incredibly smart. But those who were majoring in finance couldn't write worth a darn and had a hard time coming up with inventive ways to look at a problem,' said Mr Sellers. 'I was a little shocked at this. I later learned that some really smart people have only one side of their brains working, and that is enough to do very well in the world but not enough to be an entrepreneurial investor who thinks differently from the masses. 'On the other hand, if the right side of your brain is dominant, you probably loathe math and therefore you don't often find these people in the world of finance to begin with.' So finance people tend to be very left-brain oriented - and Mr Sellers said that that is a problem.

A great investor needs to have both sides turned on, he said. 'As an investor, you need to perform calculations and have a logical investment thesis. This is your left brain working. But you also need to be able to do things such as judging a management team from subtle cues they give off. 'You need to be able to step back and take a big picture view of certain situations rather than analysing them to death.

You need to have a sense of humour and humility and common sense. And most important, I believe you need to be a good writer.' He cited Warren Buffett as one of the best writers ever in the business world. 'It's not a coincidence that he's also one of the best investors of all time. If you can't write clearly, it is my opinion that you don't think very clearly,' Mr Sellers said.

And finally the most important, and rarest, trait of all: the ability to live through volatility without changing your investment thought process. This, said Mr Sellers, is almost impossible for most people to do; when the chips are down they have a terrible time not selling their stocks at a loss. They have a really hard time getting themselves to average down or to put any money into stocks at all when the market is going down. 'People don't like short-term pain even if it would result in better long-term results, he said.

Very few investors can handle the volatility required for high portfolio returns. They equate short-term volatility with risk. 'This is irrational; risk means that if you are wrong about a bet you make, you lose money. A swing up or down over a relatively short time period is not a loss and therefore not risk, unless you are prone to panicking at the bottom and locking in the loss.

'But most people just can't see it that way; their brains won't let them. Their panic instinct steps in and shuts down the normal brain function.' BT

My Investment Sin

Often i hear people saying whatever investment you make the first few trades or your first few investments will not make it and you will start losing money. I never believe them because i am very confident that i will not be like them.

Well, now time after time i have to eat back my own words. Why? Reason being i guess it has to do with my character so much so that this will reflect the way i make my investment decision. After so many cuts and bruises below are my conclusion;

1. Never allow a single trade or a single investment downfall to wipe you out. (Maximum 10-20% of your total capital)
2. Be Discipline
3. Do the opposite
4. Concept of patience
5. Buy low sell high

Okay, all of the above may sound craps to you am i right? To do so its really not that easy and it required several trials and errors (ie paying your school fees to the market) before you can get it right. I would like to highlight point 1 and 4 which is the key to success and the part which i really lack in and needs plenty reminder (perhaps this is the reason why i am writing a blog to remind myself over and over again)

Point 5 if you enter and exit a trade at the right time.

My Test - Microsoft Certified System Administrator

OK i know I'm late for my post which is due 17th November. I took my test this morning and score 900/1000 not bad for someone who study Testking. I still have 2 more papers to go and hopefully i can do so latest by December.

Well, feeling pretty lousy for the past 2-3 days, i keep blaming myself for being too emotional and make decision without ample time to think and go through. Perhaps getting things done in a fast and quick manner is not of a good thing?

I will further elaborate on my next post which i will call it My Investment Sin.

First Post

Dear Readers,

My blog will officially launch on the 17th November 2007! Please stay tune, meanwhile i will be taking my MCSA exam on this coming 15th November, wish me good luck.