A newbie in the Market since Jul 2008

I have been watching a newbie in this Big Bear market and she is making monthly average of $xxx and that is more than just kopi money I think. She does not have complex TA and FA homework to do. She just have big pain threshold, and buys the big Blues on dip, and collects profit on the way up.





中国有句成语，叫做“八仙过海，各显其能”，

China has an idiom, the named “the eight immortals crossing the sea, each obviously its energy”,


She is indeed one of them. Using simple magic and successfully cross the Mara River. Cheers!

Fundamental Analysis - working very hardwork on it?

Guess-the-balls test

Hal Spacejock delivers a shipment of antiques, breaking several pieces in the process. His robot, Clunk, skillfully reassembles the broken furniture, and the grateful customer gives them a jar of ancient marbles.

This jar is 60cm (2 feet) high, with a diameter of 36cm (approx 14 inches). It is completely filled with marbles, each of which is 2.5cm (1 inch) in diameter.

Using that information... how many balls does Clunk have

If you use fundamental analysis, can you really work the number of balls (i.e. intrinsic value)? You work very hard, calculating this and that and try to work out the reasonable number and you think that this is the intrinsic value as you trust that it is completely filled with marbles.

But, you will never know what the Management has hidden inside the marbles? could be anything hidden to give you the impression it is completely filled.

Working very hard work on fundamental analysis may not actually pay off; unlike working very hard work on your job, your boss may recognise your effort and reward you.

Fundamental analysis is more towards Hygiene Factor, doing more of it may not really improve much but you can't ignore it either. E.g you need to brush your teeth 1-3 times a day for good oral hygiene, but brushing your teeth 4-10 times a day doesn't really help to improve much on your oral hygiene but it may be actually harmful to your gum. You definitely need to do some fundamental analysis but may not be wise to spend hours of hard work in digging out details. You will never know what was hidden inside the marbles.

Back to Guess-the-balls test, you do rough calculation and guess the number of balls, and you look at other players giving their numbers, and based on statistics and you may make some adjustment and you then bet your number. How? Lots of easier now?

The stock market is weird.

One buys, another one sells, someone waits and all three think that they are smart.

One analyst calls for buy, another analyst calls for sell, and both think that they are smart.

When support/resistance level is near, the brokers tell 50% of their clients to sell, the other 50% to buy, and 50% of their clients think that their brokers are smart.

Since all are smart, where do the Greater Fools come from? The stock market is weird?

Eight immortals crossing the sea, each obviously its energy

中国有句成语，叫做“八仙过海，各显其能”，

China has an idiom, the named “the eight immortals crossing the sea, each obviously its energy”,

No different from investing/trading, do whatever it takes for you to train and attain your magical skills to become any one of the 8 immortals, each obviously has its energy to cross the river.

Wife's secret investment and her hubby's biz

The young bride approached her awaiting husband on their wedding night and demanded $10 for their first love-making encounter. In his highly aroused state, he readily agreed. This scenario was repeated each time they made love for the next 30 years, him thinking it was a cute way for her to buy new clothes, etc.

Arriving home around noon one day, she found her husband in a very drunken state. Over the next few minutes she heard of the ravages of financial ruin caused by corporate down sizing and it's effects on a 50 year old executive.

Calmly, she handed him a bank book showing deposits and interest for 30 years totaling nearly million dollars. Pointing across the parking lot she gestured toward the local bank while handing him stock certificates worth nearly million dollars and informing him that he was the largest stockholder in the bank. She told him that for 30 years she had charged him each time they had sex, and this was the result of her investments.

By now he was distraught and beating his head against the side of the car. She asked him why the disappointment at such good news and he replied, "If I had known what you were doing, I would have given you all of my business!"

Management Letter to Staff

Posted by Kevin Scully


Here is the letter - enjoy

Dear Employees:

Due to the current financial situation caused by the slowdown in the economy, Management has decided to implement a scheme to put workers of 40 years and above on early retirement. This scheme will be known as RAPE (Retire Aged People Early).

Persons selected to be RAPED can apply to management to be considered for SHAFT scheme (Special Help After Forced Termination).

Persons who have been RAPED and SHAFTED will be reviewed under the SCREW program (Scheme Covering Retired-Early Workers).

A person may be RAPED once, SHAFTED twice and SCREWED as many times as Management deems appropriate. Persons who have been RAPED could get AIDS (Additional Income for Dependants & Spouse) or HERPES (Half Earnings for Retired Personnel Early Severance).

Obviously persons who have AIDS or HERPES will not be SHAFTED or SCREWED any further by Management.

Persons who are not RAPED and are staying on will receive as much SHIT (Special High Intensity Training) as possible. Management has always prided itself on the amount of SHIT it gives employees. Should you feel you do not receive enough SHIT, please bring this to the attention of your Supervisor, who has been trained to give you all the SHIT you can handle.

Sincerely,

Management

PS: Due to recent budget cuts and the rising cost of electricity, gas and oil, as well as current market conditions, the Light at the End of the Tunnel has been turned off.

STI vs DOW Recovery from the low on Mar 09

Hmm.. STI is more UP!

Greatest Bear - any parallel? Are u betting it? Zooming in..

Next 2 weeks might be the turning point, will DOW be plunging like in 1931?



You like this to happen ..........






Or you want this ....

Wise Words Series - Part 3

Wise Words Series - Part 2 Do you want to read Part 2 first?

Stock Market - What is the nature of this beast?

Stock Market is one of those Complex adaptive systems

Complex adaptive systems are special cases of complex systems. They are complex in that they are diverse and made up of multiple interconnected elements and adaptive in that they have the capacity to change and learn from experience. Simply, it means the Stock Market has a mind of its own.



Stock picking is part science, part art, part luck, part intuition, and always uncertain - "not precisely knowing." (Who say it? Forgotten)


I will discuss the meaning:

Is stock picking an art or a science?

If stock picking is purely a science, then you are better off putting your money into SG bonds. Everything can be done through program trading. Microsoft will stop developing Operating System software and put all its resources to build the world most intelligent, most powerful, fastest trading system, and winning tons and tons of money from forex, commodities, and stocks. However, to be successful, to have that edge, not only you do need the science of stock picking, but you also need to develop the mental edge and the art of stock picking, which hardly any computerised trading systems can consistently do that.

The art of stock picking is the reason that one person can make money with a given system and another person cannot. It is implementing your own strategies, your trading system or methodology to suit your purpose, your risks, your account size, your personality and your time frame. Otherwise, why would great chartists and analysts still working as paid employees by selling reports and give advices?

If stock picking was purely a science, then Isaac Newton could not have lost a fortune during his time.

Do you ever wonder why great Gurus after developing successful Trading System, and in their later years do little trading (showcase??), but switch to teaching, providing market/stocks views and commentaries for a fee instead of quietly and faithfully using their Trading System to make tons of money for themselves and reserve their Trading System for their family members and their future generations.

No, it is not purely science of stock picking, but the art of convincing people that there is a sure way to make money from their trading system. The Gurus know the truth is that there is a risk free and fail-safe way to make even more money for themselves by selling Magic Stones to believers and worshippers.

What is intuition?

Intuition is the apparent ability to acquire knowledge without inference or the use of reason. “The word ‘intuition’ comes from the Latin word 'intueri', which is often roughly translated as meaning ‘to look inside’ or ‘to contemplate’." Intuition provides us with beliefs that we cannot necessarily justify.

When you develop your feel and intuition for the markets, you build your confidence. By doing that, you trust yourself more and you do not feel the urge to follow others including the gurus and naysayers. You are comfortable with your own conclusion even if it goes against the norm and even against the charts and analyst reports. You feel comfortable with the outcome even if it is unfavourable.

Knowing the difference between intuition and emotions is something that will come with experience. If you are making a trading decision and you find that your heart is beating fast or you have regretted after making the decision when the events turn unfavourable, you are probably making an emotional rather than an intuitive decision.

It is luck that you bought when someone happened to be there desperately selling to you and sold when someone eagerly wanting to buy. It is luck or bad luck that the stock suddenly caught your attention out of thousand of them out there.

Remember, stock market is an complex adaptive system and it is always uncertain and not precisely knowing when exactly the market will turn.

If market is certain and precisely knowing, then there will be no traders as nobody can really make money from the market, and there is no reason to trade!


This Simbol(Yin-Yang) represents the ancient Chinese understanding of how things work. The outer circle represents "everything", while the black and white shapes within the circle represent the interaction of two energies, called "yin" (black) and "yang" (white), which cause everything to happen. They are not completely black or white, just as things in life are not completely black or white, and they cannot exist without each other.

The energy, "yin" (black) is what was discussed: the outcome of stock picking is always uncertain and not precisely knowing.

So we need to balance up with the other energy, the "yang" (white).

Coming next ...Where is the kopi-O ah?

Paying off your housing loan earlier???

Singapore News // Weekend, April 25, 2009

... mature residents with tertiary qualifications were the most vulnerable group last year, “with above-average risk of retrenchment and below-average re-employment”, the report said..

---------------------------

Surviving through several recessions, what I saw is the same story, different people, different Year XXXX. In past recessions, I have seen or heard of mature colleagues being let go and the reasons are pretty obvious regardless of whatever shit reasons coming out of the management's mouth (the ones above you)

As an employee, if you do not progress well up the corporate ladder every few other years, you will be perceived as dead wood and becoming too "expensive" to retain when recession hit the company, and you will become a cost cutting item to be removed.


As you grow older, you are becoming a depreciating asset so beware and take note. Get your Plan B ready as soon as possible.

Now, back to the question: Do you want to pay off your housing loan earlier? I remembered some debates among bloggers and over media.

Heard the wise words:

In each action we must look beyond the action at our past, present, and future state, and at others whom it affects, and see the relations of all those things. And then we shall be very cautious. - Blaise Pascal

A man is not a man; until there is a house that he may call his castle. A woman is not a woman; until she has a place she may call her home. And neither a man nor a woman can say anything about their house, until they are the masters of it, and own it outright and unencumbered - Albert Ying


Expect the Unimaginable. The book offers some erudite advice on living with deep unpredictability. The Good: Argues persuasively that people need to admit that life is deeply unpredictable.

Be sure that you understand what is your opportunity cost for not paying off your housing loan earlier as you think can get better return off your investment.

Every investment by nature is risky; but, most investors are over-confident that they will not lose their capital.

Every drinkers think that they can control and don't get drunk; but, we see drunkards frequently at drinking sessions.

Every speedsters think they can control their cars; but, some crashed very badly and some perished.

We are smarter than the broke; but, the broke could be the someones who were seen drinking finest wine and dining at 4-5 stars restaurants before they became broken.

and blah blah ....

With a fully paid home, you are definitely better prepared to face the future recessions when you are approaching the mature employee status and become the most vulnerable group “with above-average risk of retrenchment and below-average re-employment".

Remember the wise words from Pascal and Albert, these words are spoken not without good reasons.

A week in the Battle of Bull and Bear at Hua San

One week of battling at the Mountain Hua San ...









The Bear could have succeeded in pushing the Bull over the cliff and sending him down into the Hell of 1938 and that where the Hell of Panic Sellers will break lose and go crazy!!!

However, the Bull pushed back and now it is standing at the edge of cliff. For the next week battle, the bull is still in great danger of falling off the cliff.

How about sending this chio bo to support the Bull with a bottle 1.8L of Red Bull?


Put up your hand if you support!

Wise Words Series - Part 2

Wise Words Series - Part 1 <------- Read Part 1 first? "We become what we behold. We shape our tools and then our tools shape us." Larry Williams

Who is Larry Williams?

We become what we behold

You are a Value Investor? So you love eating eggs, don't you?



Value Investor can be thought of a Chicken Farmer. Rearing chicken for their eggs (collect dividends) instead of selling them for their meat.

You are a Trader? So you love shooting or archery?

Then you become a two-face Hunter. You either join the bull to hunt the bear or you join the bear to hunt the bull. But, at times, the bull or bear chases you until you drop your pants.







You are

OR


How is your portfolio doing?

Have you been building your wealth or depleting your wealth since you begin your journey into the world of investing/trading?

If you have been building your wealth successfully, then you already have good tools, and probably you may just need to once a while re-sharpen your tools.


If you have been depleting your wealth instead of building them, you may need to rethink what are you beholding? Your tools may not be right, quickly re-educate yourself to equip yourself with a new set of tools.


Insanity: doing the same thing over and over again and expecting different results.
Albert Einstein, (attributed)
US (German-born) physicist (1879 - 1955)



We shape our tools and then our tools shape us.

Some tools from Larry Williams:

1) Your strategies



Rule 1. It's all about survival.

No platitudes here, speculating is very dangerous business. It is not about winning or losing, it is about surviving the lows and the highs. If you don't survive, you can't win.

The first requirement of survival is that you must have a premise to speculate upon. Rumors, tips, full moons and feelings are not a premise. A premise suggests there is an underlying truth to what you are taking action upon. A short-term trader's premise may be different from a long-term player's but they both need to have proven logic and tools. Most investors and traders spend more time figuring out which laptop to buy than they do before plunking down tens of thousands of dollars on a snap decision, or one based upon totally fallacious reasoning.

There is some rhyme and reason to how, why and when markets move - not enough - but it is there. The problem is that there are more techniques that don't work, than there are techniques that do. I suggest you spend an immense and inordinate amount of time and effort learning these critical elements before entering the foray of financial frolics.

So, you have money management under control, have a valid system, approach or premise to act upon - you still need control of yourself.

8. I believe the trade I'm in right now will be a loser.

This is my most powerful belief and asset as a trader. Most would be wannabes are certain they will make a killing on their next trade. These folks have been to some 'Pump 'em up, plastic coat their lives' motivational meeting where they were told to think positive thoughts. They took lessons in affirming their future would be great. They believe their next trade will be a winner.

Not me! I believe at the bottom of my core it will be a loser. I ask you this question - who will have their stops in and take right action, me or the fellow pumped up on an irrational belief he's figured out the market? Who will plunge, the positive affirm er or me?

If you have not figured that one out - I'll tell you; I will succeed simply because I am under no delusion that I will win. Accordingly, my action will be that of an impeccable warrior. I will protect myself in all fashion, at all times - I will not become run away with hope and unreality.

9. Your fortune will come from your focus - focus on one market or one technique.

A jack of all trades will never become a winning trader. Why? Because a trader must zero in on the markets, paying attention to the details of trading without allowing his emotions to intervene.

A moment of distraction is costly in this business. Lack of attention may mean you don't take the trade you should, or neglect a trade that leads to great cost.

Focus, to me, means not only focusing on the task at hand but also narrowing your scope of trading to either one or two markets or to the specific approach of a trading technique.

Have you ever tried juggling? It's pretty hard to learn to keep three balls in the area at one time. Most people can learn to watch those 'details' after about 3 hours or practice. Add one ball, one more detail to the mess, and few, very few, people can make it as a juggler. It's precisely that difficult to keep your eyes on just one more 'chunk' of data.

Looks at the great athletes - they focus on one sport. Artists work on one primary business, musicians don't sing country western and Opera and become stars. The better your focus, in whatever you do, the greater your success will become.

10. When in doubt, or all else fails - go back to Rule One.





Focus your attention on what you can control (The Egg's yolk) rather than on what you cannot control (The Egg's white)

What you can control is your Strategy, your Money Management, your Emotion, your Risks and what stock you want? You can control to go with stocks that are linked to Temasek that are either too big or too strategic to fail, and Superman will walk out of Temasek Tower to rescue them.

You have control to click or not : http://createwealth8888.blogspot.com/2009/04/safety-net-in-market.html

So before clicking the BUY button, you have control over the stock, but once bought, you have surrendered your control of the stock to the Market and leave it to the market forces to work it out for you. However, if you are feeling so painful in seeing your falling stocks, and keep losing your sleep at night, then it is better for you cut it off; otherwise, take a break and go fishing.

2) Your Money Management




5. Money management is the creation of wealth.

Sure, you can make money as a trader or investor, have a good time, and get some great stories to tell. But, the extrapolation of profits will not come as much from your trading and investing skills as how you manage your money.

I'm probably best known for winning the Robbins World Cup Trading Championship, turning $10,000 into $1,100,000.00 in 12 months. That was real money, real trades, and real time performance. For years people have asked for my trades to figure out how I did it. I gladly oblige them, they will learn little there - what created the gargantuan gain was not great trading ability nearly as much as the very aggressive form of money management I used. The approach was to buy more contracts when I had more equity in my account, cut back when I had less. That's what made the cool million smackers - not some great trading skill. Ten years later my 16-year-old daughter won the same trading contest taking $10,000 to $110,000.00 (The second best performance in the 20-year history of the championship). Did she have any trading secret, any magical chart, line, and formula? No. She simply followed a decent system of trading, backed with a superior form of money management.

6. Big money does not make big bets.

You have probably read the stories of what I call the swashbuckler traders, like Jesse Livermore, John 'bet a millions' Gates, Niederhoffer, Frankie Joe and the like. They all ultimately made big bets and lost big time.

Smart money never bets big. Why should it? You can win big on small bets, see #5 above, but eventually if you bet big you will lose - and you will lose big.

It's like Russian Roulette. You may well spin the chamber holding the bullet many times and never lose. But spin it often enough and there can be only one result: death. If you make big bets you are destined to be a big loser. Plunging is a loser's game; it can only set you up for failure. I never bet big (I used to - been there and done that and trust me, it is no way to live). I bet a small per cent of my account, bankroll if you will. that way I have controlled loss. There can be no survival without damage control.

In each action we must look beyond the action at our past, present, and future state, and at others whom it affects, and see the relations of all those things. And then we shall be very cautious. - Blaise Pascal

Investing can be very risky by nature as you may lose some if not most of your invested capital. You may not be able to retrieve the cash without significant losses from the Market if you happen to need them in the future. We always espouse the importance of thinking long term if you're a stock market investor. But if "long term" means five or even 10 years to you, it might not be long enough. In this great recession, the Long Haul May Be Longer Than You Think.

So you have to plan wisely what is the amount that is REALLY available for you to invest, and still have enough money for future and emergency needs of your family.

Be sure that you understand what is your opportunity cost if not staying invested; otherwise, you might be leaving too much free money on the table and missing an opportunity to build your wealth with little effort on your part when the Bull decided to charge ahead. Keep your eyes wide open in the Market and you may have to figure out who the winners of the next bull market will be and don't miss out owning them.


3) Your Emotion control

2. Ultimately this is an emotional game - always has been, always will be.

Anytime money is involved - your money - blood boils, sweaty hands prevail, and mental processes are short circuited by illogical emotions. Just when most traders buy, they should have sold! Or, fear, a major emotion, scares them away from a great trade/investment. Or, their bet is way too big. The money management decision becomes an emotional one, not one of logic















3. Greed prevails - proving you are more motivated by greed than fear and understanding the difference.

The mere fact you are a speculator means you have less fear than a 'normal' person does. You are more motivated by making money. Other people are more motivated by not losing.

Greed is the trader's Achilles' heel. Greed will keep hopes alive, encourage you to hold on to losing trades and nail down winners too soon. Hope is your worst enemy because it causes you to dream of great profits, to enter an unreal world. Trust me, the world of speculating is very real, people lose all they have, marriages are broken up, families tossed asunder by either enormous gains or losses.

My approach to this is to not take any of it very seriously; the winnings may be fleeting, always pursued by the taxman, lawyers and nefarious investment schemes.

How you handle greed is different than I do, so I cannot give an absolute maxim here, but I can tell you this, you must get it in control or you will not survive.

4. Fear inhibits risk taking - just when you should take risk.

Fear causes you to not do what you should do. You frighten yourself out of trades that are winners in deference to trades that lose or go nowhere. Succinctly stated, greed causes you to do what we should not do, fear causes us to not do what we should do.

Fear, psychologists say, causes you to freeze up. Speculators act like a deer caught in the headlights of a car. They can see the car - a losing trade, coming at them - at 120 miles per hour - but they fail to take the action they should.

Worse yet, they take a pass on the winning trades. Why, I do not know. But I do know this: the more frightened I am of taking a trade the greater the probabilities are it will be a winning trade. Most investors scare themselves out of greatness.


Who is next???? Hmmm........aiyo. Care to buy me kopi-O to think?

Wise Words Series - Part 1

Trading appears deceptively easy. When a beginner wins, he feels brilliant and invincible. Then he takes wild risks and loses everything" - Dr. Alexander Elder, from the book "Trading for a Living"

"The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth." - Dr. Alexander Elder


Who is Dr Alexander Elder?

Then what should I do?

First thing first, hang my EGO at the door as I need to be humble in the Market, put in lots of effort to learn, and ever learning, control risks, practise money management, and formulate my own strategies to sustain and measure my investment success across multiple years, and over bull and bear market conditions.

Who is next?



"If I have seen further it is by standing on the shoulders of giants."
- Isaac Newton, letter to Robert Hooke, 1676

Who is Isaac Newton?


So I will keep searching for Giants, and then stood on their shoulders to see further.

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac's talents didn't extend to investing: He lost a bundle in the South Sea Bubble, explaining later, 'I can calculate the movement of the stars, but not the madness of men.' If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

~Warren Buffett




If genius like Newton cannot understand the madness of men in the Market, don't think I should waste my effort in trying to understand it. I have learnt to accept the madness of the men in the Market, accept the possible losses, and move on; but I don't want to land myself here in over-thinking. Don't think too much.

CPL - Weekly

Pretty ah!!! CPL is sitting on $6B cash!!! Will this one lead STI back to the days of glory. I betting on this horse for the property sector. Come on, my friends and name your horse. Properties, Banks and Commodities are the leaders in the last recovery. Cheers!!

Work for money? Forget it.

invest, thesundaytimes April 19,2009

Mr Aaron Sim, founder of Wealth Mentors ..

Q: How did you get interested in investing?
After reading the book Rich Dad Poor Dad by Robert Kiyosaki over one weekend in Oct 1999, I decided I no longer wanted to "work for money".

------------------------------------------------------------------------------
Createwealth8888:

Many years back, my female colleague told me about her hubby was so crazy about this book, reading it over and over again. She was damned pissed off. Out of sheer curiosity, I decided to check it out too. Oh my God, after reading the book Rich Dad Poor Dad, it changed me completely, I immediately realized that "work for money" may not be the best way going forward.


I believe many people have read this book. Not sure, how many people will believe it? You needn't believe in everything he said. He said this: "I am not your Dad!"


He is talking about wealth strategy. His wealth strategy on property may not be suitable for you. I too disagree and not going into Property as wealth building strategy (I have done my own research into ROC on Property, time and effort required. Being a lazy fisherman, I would rather click some buttons on Web Browser without ever leaving home to make some kopi money)


With this recession, many people in US following his wealth strategy of using property as wealth building could be cursing him now.


The critical learning point in Rich Dad Poor Dad that really strikes me is this one: Reduce the time and effort spent in "work for money".


As an Employee and Self-Employed: Make effort to reduce time spent in building wealth in these quadrants, and move into Investing and Business Owner quadrant as soon as possible.


Of course, the good thing about being Employee is that you aren't very much affected by Negative Cashflow, other than having worrying of job security once a while during recessions; but unlike those in the Investing and Business Owner quadrant, any wrong move may be destroying wealth instead of building wealth. The thought of it may really hold many people back and prevent them from going into these quadrants.

However, staying as an employee can be a false sense of job security too.

Read? false sense of financial security?

Being Self-employed mean that you are your own BOSS. But, you may or may not be better than employee, as you now may have more things to worry about. Employee is getting paid for conducting personal disposal task in the toilet, but not sure about self-employed, you are getting paid too?

Working in the corporate world is like climbing the Pyramid of Opportunity, as you move up this ladder, you are given more money, but come with more responsibilities and lesser opportunity to move up to the next level. There is only CEO post, and that few fellows below him/her may be eagerly waiting or plotting to grab his/her seat.

In investing, it is an Inverted Pyramid, you may start off with little opportunity or may even face negative equity if you get it wrong at first. But, when you are successful  in moving up the Inverted Pyramid of Investing, every successful move up the ladder will give you better opportunity.

For example, you have $50K capital and to make $5K from $50K capital, it requires you investing right to get the 10% ROC, certainly it is not an easy task. However, if you become better in your investing skills, and you manage to grow your account to $100K, then to make the same $5K out of a $100K account requires only 5% ROC, and definitely it is so much easier now.

So what you think? Do you get it???

Waiting for the bottom that never comes

For investors who are able to bear a certain amount of risk, it is still not too late to get back into the market. When measured against the anticipated broader recovery, current market levels are still cheap
By WONG SUI JAU
General manager
Fundsupermart.com

TIME TO RISE

While investors may be worried about jumping into a market that has already risen over 20 per cent, the question is where do you want to be when the recovery truly arrives?

MANY investors are uncertain these days, and that includes lots of analysts too. We are not exactly seeing a lot of positive indicators that the economy has bottomed out, but stock markets all over the world have been rising as if the recovery was already here. In just one month, Asian stock markets have gone from extreme doom and gloom to a sense of realisation that we seem in be the middle of a bull market!

The Straits Times Index stood at 1,456 points just one month ago on March 9, 2009. As at April 13, it had risen to 1,876 points, a rise of some 28.8 per cent. Other Asian markets have been similarly strong. The MSCI Asia ex-Japan index has also risen by 29.7 per cent during the same time, so on the whole all, Asian markets have been particularly strong over the last one month. Globally, financial stocks have been some of the best performers over this period. At Fundsupermart.com, the best performing funds over the last one month (as at April 8, 2009, on a bid-to-bid basis) has an average performance of 46.7 per cent and were all funds invested in either regional or financial equities.

A correction in stock markets is normal and indeed would be healthy at this point, but for investors, it should be seen as an opportunity to get back into the market.

But what has changed? If you ask the economists, nothing has changed and things are still as bleak as one month ago. Most of the economists are busy coming up with dire predictions of how much the world's economies are all going to plunge this year. In Singapore, the Ministry of Trade and Finance has just lowered Singapore's GDP forecast (which was previously already at an abysmal -2 to -5 per cent this year) to -6 per cent to -9 per cent. The US economy is forecast to decline by up to -5 per cent in the 1st quarter of 2009. For the US market, based on consensus forecasts, earnings are estimated to fall 13 per cent in 2009. Earnings of nine Asian markets covered by us are forecast to fall 18.2 per cent for 2009.

Given this back drop, investors are very nervous and understandably confused. They are still reading mostly about doom and gloom in the media, with few positives coming from economists and companies. Yet, the market, seemingly with a mind of its own, has gone into a bull run (technically, a rise of over 20 per cent is considered a bull run market). Many investors are waiting in the sidelines for a fall back down to the levels reached one month ago so that they can buy back in again. They want a third leg of market collapse to follow this 'bear market rally'. That way, they get the chance to buy back in again.

My view is that it will not happen. Certainly, stock markets do not go up only in one straight line, and there will be corrections even within the strong uptrend we are seeing right now. However, in spite of that, I don't think we are going to see a so-called third collapse back to the STI level of 1,456 points that we saw one month ago due to three main reasons.

Firstly, the combined efforts of all the governments around the world are going to have some effect. These things take time, but eventually, all the billions of dollars in stimulus packages that have been declared will start to filter down to the broader economy. This is a massive amount of money. US put through a US$787 billion stimulus package in February, China announced its US$585 billion in November last year, and Japan announced a US$154 billion package recently. Together, these three countries alone are going to pour over US$1 trillion into the system. In the past, such major stimulus packages have created asset bubbles because of the influx of so much cash, and never in history has so much money been poured into the system by so many governments within such a short period of time. It is a matter of time before these stimulus packages trickle down to banks and financial companies (which was the sector that is in the epicentre of the crisis).

During a cyclical upturn, equities are traditionally one of the asset classes that will benefit greatly from this. This will be true this time round as well, because currently, interest rates are being kept low by most central banks around the world. The returns from staying in government bonds and in cash are simply too low. Hence, there is a huge amount of money waiting to re-enter stock markets.

Secondly, time is on our side. We are already in the month of April. The recession in the US would be close to one and a half years by now. Admittedly, the economic numbers for the first and even second quarter this year will likely remain very bleak. However, markets are forward looking, not backward looking. As we enter the months of June and July, markets will be looking at third quarter and fourth quarter 2009 earnings and economic forecasts. While the US economy continues to fall, there are small signs that the decline is slowing. If the fall in some of these economic indicators decelerate and there are clearer signs of an economic recovery in the second half of the year - in particular by the third or fourth quarter. Before the actual economic recovery happens, it would be very possible that stock markets, being traditionally a leading indicator, recover before then.

Thirdly, the financial sector, which is at the epicentre of the entire financial crisis and which has now morphed into a full-blown recession, is finally showing signs of recovery. CEOs of large US financial companies have come out to announce that they have been profitable in the first quarter. Once banks start to make money, they will start to lend again. The recovery of the financial sector is an important indicator, and one of the key ingredients to a sustainable recovery. As long as the banks are mired in sub-prime losses and continue to report massive losses each quarter, there cannot be any sustainable recovery. Now, we are finally seeing indications that the worst is over for the US financial sector. Any earnings surprises from US banks this current earnings season will only serve to reinforce this.

So, what now for investors? My view is that we should not wait for a next 'bottom' that may not materialise. Time is on the side of people who are in long positions, not short. As more signs of the US economy bottoming appear, Asian markets will rise. It is a matter of time. Whether it is over the next six months or over the next one year, it will certainly arrive. And when it does, Asian markets, due to their strong fundamentals and their low valuations, will see a stronger upside by far compared to other regions. Asian markets are currently trading at a forward 2009 PE of 10.8 times and a 2010 forward PE of just 8.1 times (as at April 10, 2009).

So, while investors may be worried about jumping into a market that has already risen over 20 per cent, the question is where do you want to be when the economic recovery truly arrives? Would you want to still be in cash fully and bemoan that you did not have a chance to enter the market? Or would you already be fully invested by now, and just sitting back to see the recovery as it plays out? Everyone wants to buy in at the lowest price, but in practice, it is emotionally difficult. For instance, when the STI index was at 1,600 last October, or 1,450 one month ago, many investors were staying on the sidelines. A correction in stock markets is normal and indeed would be healthy at this point, but for investors, it should be seen as an opportunity to get back into the market. Whether the economic recovery comes within the next three months, or one year, it is just a matter of time. And in the meantime, markets will not wait for the all-clear signal to be given and would have risen much higher by then.

So, for investors who are able to bear a certain amount of risk, it is still not too late to get back into the market. When measured against the anticipated broader recovery, current market levels are still cheap (the ST Index is still 51 per cent lower from its all- time high of 3,831 points). Most importantly, maintain a well-diversified portfolio as you invest, and keep a clear head. For investors who are not comfortable with putting in all of their money at one go, splitting it up into several amounts, and committing it gradually over the next six months is a good strategy. This way, you would not be locked into just one entry price, and most importantly, will be able to use time to your advantage. In six months time, we would be even further down the path towards global economic recovery, and by then, even the current market levels would seem cheap.

The Fisherman and The Investment Banker

Anonymous, many versions of this story.

An American investment banker was having his holidays and decided to make a stopover at Singapore for a few days. He came upon a small jetty at Punggol Point, Singapore when he saw one fisherman lazily fishing with his 2 fishing rods. Besides him were fishes he has caught. (photo above)

The American complimented the fisherman on the quality of his fish and asked, "How long does it take to catch them?" The fisherman replied: "Only a little while."

The American then asked why didn't he stay out longer and catch more fish? The fisherman said he had enough to support his family's immediate needs. The American then asked, "But what do you do with the rest of your time?"

The fisherman said, "I sleep late, fish a little, play with my pets, look after my marine tank, help my wife with some chores, then I drink abit of kopi-O and spent the rest of time chatting at cbox with my superfriends, surfing the net and blogging articles, I have a full and busy life."

The American scoffed, "I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds, buy a bigger boat with the proceeds from the bigger boat you could buy several boats, eventually you would have a fleet of fishing boats.

Instead of selling your catch to a middleman you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing and distribution.

You would need to leave this ulu Punggol and move to a CityLight Condo at the City, and eventually a big landed property at Bukit Timah near your own office where you will run your expanding enterprise."

The fisherman asked, "But, how long will this all take?" To which the American replied, "15-25 years."

"But what then?" The American laughed and said that's the best part. "When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions."

"Millions ... Then what?" The American said, "Then you would retire. Then you would sleep late, fish a little, play with your pets, help your wife with some chores, stroll to the cyber cafe in the evenings where you could drink some Kopi-O and chatting with your friends."

The fisherman said, "Isn't that what I am doing right now?"

---------------------------------------------------------------------------------

"Then he said to them: 'Keep your eyes open and guard against every sort of covetousness, because even when a person has an abundance, his life does not result from the things he possesses'" - Jesus, the Christ, Luke 12:15
-----------------------------------------------------------------------------------

So how much is enough? However, the question becomes, once you’ve made so much money? Now what? or like what The fisherman said, "Isn't that what I am doing right now?"