Insurance - Human Asset and Liability - Part 2

Posted by Tan Kin Lian in his blog:

I met many senior insurance managers at an Asean Insurance Conference in Vientiane, Laos. One participant, who is a CEO, told me that he advised his friends and family members to buy Term insurance for the insurance cover. He advised them to avoid insurance products as investments, as they get a poor return.He wished that it was possible for his company to sell better value products, but after providing for the high commission to the agents, this was not possible. He was not able to develop a new sales channel to replace the agents.

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http://createwealth8888.blogspot.com/2009/10/insurance-human-asset-and-liability.html

You can view Term Insurance as a hedge against your Human Asset and bear in mind that Insurance as a financial investment product doesn't really provide the expected returns; and it is often too late to realize it.

Is Investing In Real-world Business Safer Than Stocks?

After this shocking market crash in 2008, some investors may think that investing in the stock market is far too risky, and they are not sure how to deal with this uncertainty of market shocks going forward?

They may be thinking that they may be better off in investing in real-world business producing real assets in the areas that they are familiar with or interested in; and getting their investment returns from the real-world business.

Let me share my thinking because I too have been thinking about it in my earlier days for many moons.

Unless you have the entrepreneurship spirit in your blood and you need to fulfill your dream and reach the Self-actualization stage in Maslow's hierarchy of needs. I said: "GO FOR YOUR DREAM!"

But, it is just about investment returns from pure financial reasons, then you are taking more risks than expected.

Investing in stock market is likely to be exposed to two risks - market risk and stock risk and these risks can be mitigated through proper portfolio risk management and control.

You just need to acquire the relevant knowledge and skills to manage your risks.

One clear advantage in investing in the stock market if you treat it seriously as your business entity is that there is virtually zero fixed cost overhead.

But, investing in the real-world business, there is fixed and variable costs overhead, and in bad times your fixed costs overhead is going to kill you earlier than expected.

In running a real-world business, there are just too many risks to manage and control, and list out some of common risks associated with running a business:

1. Operation Execution Risk

2. Sales Risks

3. Pricing Risks - under-pricing or over-pricing

3. Supplier Risk

4. Customer Risk

5. Cashflow Risk

6. Refinancing Risk

7. Competitors Risk

8. Market Risk

9. Staff Risk

10. Fraud Risk

So do you still see investing in stocks is far riskier than investing in the real-world business?

I said again, unless you have the entrepreneurship spirit in your blood and you need to fulfill your dream and reach the Self-actualization stage in Maslow's hierarchy of needs. Then I said: "GO FOR YOUR DREAM!"

Insurance - Human Asset and Liability

For the sake of this discussion, let us put aside all the human emotions and love that impress upon on the insurance matters, and take a look at Insurance as a hedging tool against Human Asset and Liability in the Human Life Cycle - Balance Sheet from a financial perspective.

So what is hedging?

Hedging means reducing or controlling risk.

Insurance as a hedge against Human Asset and Liability?

The moment when we were conceived in our mother's womb; a human liability was created in our parent's Human Financial Balance Sheet; but, it was still a very, very small liability.

When we were born, this human liability became very real and will continue to grow each day till the day when we start working full time as human asset and generate Income. When we start to generate income, the Liability in our parent's human financial balance sheet begins to decrease.

Slowly, we start to increase our human liability in our own human finanical balance sheet when we start a family and create more human liability. (gosh, now I understand why some couples decide to have no or 1 child as they want nice looking balance sheet with less human liability)

So as parent, do we see our child as Human Asset or Human Liability in our Human Financial Balance Sheet.

If we only see the child as Human Liability then we may use Insurance to hedge against this human liability and doesn't want to over-hedge to cover the financial aspect of a human asset when actually there is none.

What we probably need is a Liability Insurance - comprehensive Medical Shield? This is the basic hedge against human liability. We may have limited financial resources to hedge against all possible risks.

When we start working full time and generate income, then we will need to hedge against the new Human Asset and Human Liability as well.

The scope of insurance as hedge is now extended to cover the Human Asset. Again, we have limited financial resources to spend on the hedging expenses (insurance premiums) to hedge against human asset and liability. We have to hedge wisely.

We have to sit down to evaluate what is the percentage of this human asset to be hedged? To hedge 100% of the human asset is probably is too costly. Each of us have to determine how much to hedge according to our future earning power and living expenses.

When we fully retire, we once again turn back from a Human Asset to Human Liability and the hedging need change to somewhat like a child.

Like any hedging, it is far difficult to hedge correctly, and we also don't want to under-hedge if we can afford it. Finally, it is how much can you afford to hedge that counts in the entire Human Life Cycle - Balance sheet.

What Does Money Mean To You?

"Money is better than poverty, if only for financial reasons." - Woody Allen

"Money is human happiness in the abstract." - Arthur Schopenauer

"You aren't wealthy until you have something money can't buy." - Garth Brooks

"Lack of money is the root of all evil." - George Bernard Shaw

"Money is not an end in itself, but it's sometimes the most effective way to help us realize our dreams." - Donald Trump

"Money is NOT the most important thing in life; however, money can affect the most important things in life." - Merry Riana

By ALBERT LAM:

MONEY cannot buy love but it can buy happiness. The topic of money is one of the most important in our lives. Preoccupation with this subject is universal, since it is of concern to nearly all humans. Even the Bible expounds at great length about our attitude towards money and our responsibility towards its proper stewardship. The main cause of divorces around the world has been shown to be argument and struggles over money. I have also seen people who have gone from riches to rags, and from rags to riches.

Ironically, money has no bearing on the degree of joy, as joy is a reflection of contentment. Money, however, does have a significant impact on happiness because one can buy temporal happiness with money. Just think of a man who becomes happy when he gets his hands on the latest fast car or gadget, or a woman who can't stop smiling, with the coveted 'it' bag of the season on her arm

By CreateWealth8888:

Now, I am spending 80% of my time to make 80% of the money and 20% of the money is made from Money itself.

I am learning very hard to acquire the knowledge and skills to spend only 20% of my time to make 20% of the money and 80% of the money is made from Money itself then only can I say that I am truly enjoying the rest of my life. Cheers!

Two Books That Change My Views

I learnt from Napoleon that every idea is concieved in the mind, and the idea in the mind can be actualized through the definiteness of purpose, persistence, and a burning desire to reach that goal.

Bill Gates - If you born poor it is not your mistake, But you die poor, it's your mistake.

I have a burning desire to become wealthy as I was once poor living in a 1-room rental flat in Toa Payoh and some time went to school with no pocket money. I am not joking.

However, Napoleon shows me how to become successful, but he never tell me where?

Then came this book - Rich Dad Poor Dad by Robert Kiyosaki & Sharon L. Lechter

Read? Work For Money. Forget it

The biggest lesson learnt:

"The trouble with the rat race is that, even if you win, you're still a rat." - Lily Tomlin

I want to get OUT OF RAT RACE!

I can say that "Think and Grow Rich" by Napoleon puts me onto an airplane and "Rich Dad Poor Dad" by Robert parachutes me down into the Stock Market and the rest is War and hopefully soon the War is over and I will enjoy the Peace.

Horse, Cow, and Pig

COW:

The life of a cow is hard. A cow has to pull burden, get milked; and the only thing the owner gives it is grass to eat. The cow is milked until dry and then sent for slaughter and sold as Beef in the market.

HORSE:

A horse like the cow also work hard in its life . A horse is trained to become champion race-horse. It lives in a stable, given horse-shoe to wear and fed with good quality horse food. A champion horse is well loved by the owner when it wins many horse races. Some day, when the champion horse falls, it will be put to sleep unlike the cow who is sent for slaughter. The horse meat is sent to feed the Tigers and Lions in the zoo and it is not sold in the market.

PIG:

The life of pig is never hard. The Chinese love to eat roasted piglets. If piglet can survive without becoming roasted piglet, it will live a good life. Pig does not need to work hard. It eats and sleeps till the day it is sent for slaughter and its meat sold as pork in the market.

Look around in the office and observe for yourself how many people are working like Horses and Cows. Can you find those cows working hard day in and day out and are being milked by their bosses (over-worked) and given grass to eat (poor bonuses). Once they become old during bad times or recession, or whenever the bosses want to improve their bottom line. These cows will be slaughtered (retrenched/cut pay/cut bonuses)

Bosses love Horses as they work hard and bring lots of goodness to the bottom line. However, some day, these older champion horses will be replaced by the younger Horses and soon transform into Cows. That is the sad truth about most of the Horses. However, there will be a few true bred of Champion Horses that will be galloping till they retire.

Where are the Pigs? The pigs know that no matter how hard they work, and in bad times they too like the cows will be slaughtered; so the pigs work smart to look some time like a cow and other time like a horse and confuse the bosses while waiting for slaughter and eating some grass.

The only difference between the pigs and the cows is that the pigs know that their days are numbered while cows are still thinking that they are horses and well loved by their bosses. They only realize too late when the butchers arrive.

My advice is to work hard and be the true bred of Champion Horse. Happy Galloping!

Portfolio Management - Stop Losses?

http://createwealth8888.blogspot.com/2009/10/portfolio-management-price-volatilty.html

What is Stop Loss?

Setting a stop-loss for x% below the price you paid for the stock will limit your loss to x%. This strategy allows investors to determine their loss limit in advance, preventing emotional decision-making.

What are the Guru's recommendation of Stop Loss?

Alexander Elder strongly believes in (the 2% and 6% rules).

William O'Neil: Whenever a stock is bought, a tight stop loss of 7-8% is set below the purchase price. No matter what the reason for the decline, each stock should be sold without hesitation if it drops down to or below this limit.

Many traders and active investors follow closely the classic text book and Guru's advice and follow strict stop loss strategy. But, unfortunately I am a DUMMY and I don't use STOP LOSS.

I do CUT LOSS. But, CUT LOSS is different from STOP LOSS. STOP LOSS means when price of your stock that you have purchased falls and hits your STOP Loss level, you sell it.

I do cut losses to recover capital and redeploy the recovered capital to other stocks, but it is not related to the falling stock price. I don't need to win back in the same manner that I have lost.

One day in 2008, a guy came to this cbox and said: "Bro, do you have stop loss and you are holding a losing position for too long!"

I replied: "Bro, I don't use stop loss"

I don't believe when the price of a stock falls after purchase means it is approaching towards STOP LOSS. Why must it be so? Because the text books say so or the Gurus say so.

A medical doctor who is very passionate in trading said:

I don't use stops. Here is why?

I agreed with this doctor and I am so happy that I am not the ONLY FOOL who don't follow Guru's advice on stop loss.

Why I don't use STOP LOSS too? My reasons.

Digest this and fully UNDERSTAND what the Doctor is prescribing:

"What I learned was that I needed to learn how to manage my own risk without using stops. Using stops is asking an external tool (the stop itself) to manage your risk. You always have to pay to have someone else or something else manage your risk, and the flip side of that is that you get paid for managing your own risk.

This is the concept behind mortgage pricing. Fixed 30 year mortgages cost more because the institution is managing the risks involved with interest rate fluctuations. In contrast, for a 1 year variable loan, you as the borrower carry that risk, and you pay less for your money over the long term for doing that.

Anyway, I am digressing. In terms of the market, you need to learn how to carry your own risk. I do this in my own account by making sure that my position sizing is relatively small amount based on the variability of the stock relative to my account size."

 Like the Doctor, instead of using STOP LOSS to manage risks, I manage risks from different perspectives. I have trained myself very hard to look at Portfolio and not at stock. A few falling stocks may not impose a big risk to me. There are few important things to note:

1. I don't use any Leverages
2. I am using cash that are not needed for next 5-7 years.
3. I have enough emergency fund
4. I will only hold on to falling blue chips that Temasek or White Knights are likely to come to rescue

Many days later in 2008 after that guy who has asked: "Bro, do you have stop loss and you are holding a losing position for too long!"

Another woman (she is now known as SuperMum) came and asked at another cbox asked: "Do anyone use stop loss?"


Please help yourself to read the rest of the posts related to Portfolio Management.

http://createwealth8888.blogspot.com/search/label/Education%20-%20Trading%20-%20Portfolio%20Management

So do you want to join the fellowship? Let me know. LOL.I told her the reasons why I don't use. OMG, she became a disciple of NO STOP LOSS strategy. But, before you also get excited and want to join the FELLOWSHIP OF NO STOP LOSSES.

Stupid! Son. It meant to be SOLD!

Once there was a man who was retrenched from his Sales job and collected some retrenchment benefits and desperately went out to the street to look for a job. Days after days, he couldn't find any jobs.

One day, he came upon a stall and saw some people buying cans of sardine and he stood there for a while watching the stall. He thought for a while and thought about that business of selling cans of sardine was not bad.

He quickly approached the stall owner and offered to buy over his stall. The stall owner was an old man who had been waiting to retire and happily agreed to sell his stall.

The next day, the man began his business of selling cans of sardine. His business grew better each day and soon the distributor had difficulty in supplying enough cans of sardine to meet his sales. He also earned plenty of money and decided to build a factory and to produce his own cans of sardine.

Next, he began to expand his business and soon his cans of sardine were sold everywhere. His cans of sardine became very famous. He became very rich.

One day, his son came upon a stall selling his father's brand of sardine. The boy had been very curious and had been wondering why so many people were buying his father's sardine and his father had never brought home any cans of sardine. So he decided to buy a can of sardine and to try it.

When he opened the can of sardine he was shocked to see that sardine was not looking good. He thought for a while and maybe the sardine didn't look good, but might taste wonderful so he took a piece of sardine and tasted it. He almost fainted. The sardine tasted horrible. He was very disappointed and waited for for his father to come home and to tell him off.

When his father came home the boy was quick to tell his father that his cans of sardine looked so bad and taste so horrible.

His father yelled at his son: "Stupid! Son. It meant to be SOLD"

Do you understand the moral of the story? It is same for STOCK.

Learning to Overcome Jealousy and Live Your Own Life

By Trevor Johnson


When learning to overcome jealousy it is important to understand the root cause of the emotion. Believe it or not, not everyone reacts to a friend's new found love or great success in business with a secret anger or emotional grudge. It is not necessary to feel jealous over the accomplishments of others, and there is a reason that you do.

You need to consider whether the specific cause of your jealousy is something that you sincerely desire for your own life or not.

If your jealous moments center on things that you really do want for your life or only occur around a certain issue or object, then the root cause is likely fear that you will never have it for yourself.

It is not that you don't want these good things for others, but you want it for yourself so badly it is hard to escape the panic that it will never be your own reality.

On the other hand, if these feelings arise from a variety of things and most of them are things that you do not necessarily desire for yourself, then the root cause could be a general unhappiness with the life that you are living.

You don't sincerely want the fiance and new home that your best friend has just secured, but because you are so unfulfilled in your current life situation their happiness makes you envious.

Once you identify the root cause of the envy it is time to take action. If you are really afraid something isn't going to happen for you, write out some goals and an action plan to make it happen. Throw yourself full force into achieving that dream since it obviously is very important to you.

If the issue is a general dissatisfaction with your life it's time to analyze what will make you happy and go after it!

Learning to overcome jealousy has nothing to do with other people, and everything to do with you. It can be a life changing situation that finally frees you to go after what you want in life.Don't live through others, but through your own ambitions. Know the concept of enough

Sending Your Kid To Overseas University Education

Many years back, one of ex-colleague told me that she was very disturbed by her elder son's comment (She has two sons) when she planned to down grade from her fully paid 5-room HDB flat to 3-room to fund her younger son for his US University education.

Her elder son's comment: "Why do we have to suffer when Di Di never study hard and fool around during his school days and not good enough to enter local University and you have to spend the family's money to send him overseas at great expenses" (I roughly recall something like this)

Out of parental love, she sent her younger son to US.

So sending kids to overseas university education for an average wage earner could mean forget about your own retirement and be prepared to slog till the last days.

Capital Protected Investment?

If some one sells you a Capital Protected Investment product, you better walk away quickly.

Capital Protected may mean that fellow takes 100% of your capital and likely to invest in Zero-coupon bond.

Zero-coupon bond is sold at a deep discount and redeem it a full face value when it matures and then uses the discount to speculate in high risk investment products. If high risk investment returns some gain and that fellow may share some of the gain with you.

See what happen -

I win, You win some. I didn't win, You didn't lose your capital. Good deal????

It is so easy to create your own Capital Protected investment product and why don't you DIY?

Guarantee Return On Investment?

Any investment by nature carries risks and return on investment can never be guarantee and if anyone promise you certain amount of Guarantee Return on your Investment; it is likely to come from part of your invested Capital.

Don't EVER believe it. It is just taking back some of your own money.

Open Mind, Close Mind, Open Door, Close Door

“When one door closes, another opens; but we often look so long and so regretfully upon the closed door that we do not see the one which has opened for us.” - Alexander Graham Bell

Somehow, what Alexander said can be quite true in Investing and Trading.

We must always keep an Open Mind and watch out for Open Doors and quickly move in and stay there till it is time to Close Door. Remember when one door closes, another opens.

In the Market, there will be some open doors that are ready to welcome us.

Don't keep a Close Mind, and thinking when one door closes, there will no open door.

Australia's central bank raised its key cash rate by 25 basis points to 3.25 percent

Australia's central bank raised its key cash rate by 25 basis points to 3.25 percent on Tuesday, saying it was prudent to gradually take back policy accommodation since the worst danger for the economy had passed.

Soon, Fed Rate will follow to rise and then DOW to follow too?

Magic Of Compounding - Cowsense

A Picture is worth a Thousand words.

The Best Secret in Investment and Trading – Compound Interest

Newbie To The Job Market?

When newbies with no relevant skills, no experience and little knowledge come to the Job Market, will they expect to be rewarded with peanuts or banana or nothing?

They know that they have to learn and work hard to gain the relevant skills, knowledge and experience for that job before they expect to be rewarded with banana.

But, when the newbies come to the Stock Market with no relevant skills, no experience and little knowledge and still expect to be rewarded with bunches of banana by the Stock Market.

Expectation from the Stock Market can be so weird!

The Best Secret in Investment and Trading – Compound Interest

A Picture is worth a Thousand words.

Read more on? The Best Secret in Investment and Trading – Compound Interest

Olam - Got it back @ $2.39

Bought back Olam at $2.39

Last sold @ $2.62, $2.41, and $2.40 so I have managed to pocket the differences and continue the commodity race with Temasek. Ha Ha.

Story Of The Tortoise and The Hare

Slow and Steady won the race! The Tortoise won.

But, in real life, the Hare will never rest in the race, and slow and steady Tortoise will never win.

Nest Egg For Children's University Education

thesundaytimes, Oct 4, 2009, invest

There is a table showing Cost of tertiary studies at a glance (source: Alpha Financial Advisers)

Singapore: 4 yrs, with Honours at $71K (including living expenses and for non-medical degree courses)

A degree course currently at NUS:

$71K for 4 yrs:

• about $32K-34K is payable to tuition fee and other fees
• left with $37K for living expenses - about $708 per month (This figure is close to my own estimation of living expenses)
• 
  

At SMU, it will cost more

• about $40K is payable to tuition fee and other fees
• living expenses at SMU will be much higher than $708 per month and they need to dress up nicely.

10 years' time: $100K
15 years' time: $120K
20 years' time: $142K

Have you started planning for your kids' Uni fund? How?

http://createwealth8888.blogspot.com/2009/05/insurance-enhanced-endowment-policy.html

Portfolio Management - Price Volatilty

http://createwealth8888.blogspot.com/2009/10/portfolio-management-market-forecast.html

Knowledge born from actual experience is the answer to why one profits; lack of it is the reason one loses - Gerald M. Loeb

George Soros earned his reputation and a lot of financial rewards by understanding risk and return has his views on volatility, risks, and returns. He said that asset classes and stocks that have the lowest short-term volatility also generate lowest long-term returns.

Short-term Price Volatility May Not Be Risk To Some.

If you are investing with high leverages, then short-term price volatility that goes against you will pose significant risks.

If you are trading with time decay, also short-term price volatility that goes against you will pose significant risks.

If you have strong holding power, why do you see short-term price volatility as a risk?

Learn to love short-term price volatility.

Volatility is your friend and it provides you opportunities to compound your gains in the market.

To obtain truly significant returns you must allow for volatility in short-term pricing of your portfolio and allows you to actively manage your Portfolio mix - continuous reallocation of different stocks and cash level.

Did you smile or frown last Friday when STI was down -1.99%?

PortFolio Management - Market Forecast and Re-investment Risk

http://createwealth8888.blogspot.com/2009/10/portfolio-management-portfolio-risk.html

http://createwealth8888.blogspot.com/2009/09/stock-market-is-war-part-3.html

Depending on your market forecast, you may want to adjust the portfolio concentration levels.

There are times to hold fewer positions and times to expand the portfolio.

But, if you are wrong on your Market Forecast, you will be exposed to Re-investment Risk.

There will be RISKS - either Investment or Re-investment Risks. Which risk are you comfortable with?

Portfolio Management - Portfolio Risk

http://createwealth8888.blogspot.com/2009/10/portfolio-management-passive-income.html

Portfolio Risk is composed of the following risks:

• Systematic Risk or Market Risk
• Non-Systematic Risk or Non-market Risk

Market Risk refers to the risk common to all stocks and the risk cannot be diversified in the same market e.g. Singapore stock market

Non-Market Risk is the risk associated with the stock of that particular company. Non-systematic risk can be diversified away by holding greater number of stocks in the portfolio.

In Joel Greenblatt's brilliant book, You Can Be a Stock Market Genius, he provides the following statistics by owning the following number of stocks:

• 2 stocks eliminates 46% of non-market risk of just owning one stock
• 4 stocks eliminates 72% of the risk
• 8 stocks eliminates 81% of the risk
• 16 stocks eliminates 93% of the risk
• 32 stocks eliminates 96% of the risk
• 500 stocks eliminates 99% of the risk

Have you done a good job in your Portfolio management to mitigate the Non-Market Risk?

Market Is War - Erupted in 2 Oct 09

Sun Tzu said:

Much computation brings triumph.

Little computation brings defeat.
How much more so with no computation.

"The general who wins the battle makes many calculations in his temple before the battle is fought."

Sun Tzu said:

Those who understand
these fundamentals will win.

Those who don't will be defeated.

During this weekends, you make many calculations on positioning, money and risk management and understand which stocks are fundamentally sound.

Watch out ONLY for tired horses and avoid sick horses. After enough rest, tired horses will be up and running while sick horses can be lying there for a long time.

Portfolio Management - Passive Income

Don't forget dividends as passive income in your Portfolio Management.

Some companies pay quarterly, some semi, and others full year dividend. If you have a good spread of quarterly, semi and full year dividends as income passive in your Portfolio like mine.

It will help to ease your dependencies for active income from trading and may also help to prevent you from over trading.

Some time the market just don't allow you to take up new positions, and if you know that you have some passive income coming in for that month; you may decide to stay at the sideline to watch the market and review your trading plan.

Cambridge - Got in @ $0.445

Add more CIT for passive income as it pays quarterly dividend.

This is part of Portfolio management strategy to include a stream of passive income in addition to active income from trading.

Personal Inflation Rate and Market Inflation Rate

http://createwealth8888.blogspot.com/2008/09/singapore-past-inflation-rate.html

Your personal inflation rate may not be the same as the market inflation rate. Your spending habit will determine your personal inflation rate and can be higher or lower than the market inflation rate.

When we retire; we should learn how to adjust our spending habits so that our personal inflation rate will be lower than the market inflation rate. With a lower personal inflation rate, it will be much easier to generate lower returns on investment to provide sustainable retirement income.

Concept of OPM (Other People Money)

A guy called KK loves to use OPM - using rental income paid by tenants to cover his property.


On second thought, I agree with him, and actually I have been this concept of OPM without knowing it - Pillow Stocks Strategy.


Pillow Stocks Strategy is zero-cost to me i.e. no capital outlay from me. It is OPM in the market to generate further returns if any.


Similarly, for business owners doing IPO - They are also using the concept of OPM when the business owners recover part or all their capital and continue the game with OPM.


The only difference is that my OPM concept is without leverage. Cheers!

Read? Payback period

Portfolio Recovery so far?

Have to be extra careful and not to get caught in Oct 09; otherwise, another round of painful recovery.

As on 30 Sep 09, I have achieved 39.06% of 2009 Goal (In 2003, I set bullish and progressive goals from 2003 to 2011. Phew!).

Going forward, I believe that from 2009 to 2011, those bullish goals set at 2003 may be extremely difficult to achieve; but, nevertheless, I shall not change them, but will still work towards getting at least 50-70% of the Goals. Cheers!

Trading Performance Review

Peter Drucker once said, “What gets measured, gets managed.”

Since 1 Nov 08 that I have given up the fast exciting active contra trading (or gambling) after three successive months of contra losses:
(Total net losses in 2008: $160K
 Jan:$76K, Aug:$68K, Sep:$18K, Oct:$31K) for a slow moving position trading, how am I doing now?


1. ROC from 3.8% to 34.3% (I don't use stop loss so no negative ROC)

2. Holding Days from 1 to 329 days (some of those sins committed in 2008 and cleaned up)

3. Average ROC: 11.9%

4. Average Holding Days: 59.7 days

Next performance review at end Dec 09.

Kep Corp: Got @ $7.98

So itchy hand! Why the sell down?

Find Your Perfect Pitch

Knowing others is intelligence; knowing yourself is true wisdom. Mastering others is strength; mastering yourself is true power. - Tao Te Ching

There is always great debate on TA, FA, TA combined FA, speculation or gambling and none can convince the other.


Do whatever method it takes for you to double your Investing Capital in 5-7 years? If after 5-7 years and you are unable to double your Investing Capital, then you are seriously not doing it right and you may need to seek to know Others.

Let me know if you taking up this challenge.

Gambling?

I think the only big difference in Gambling vs Speculation or Investing if you are ONLY allowed to either WIN or LOSE per transaction and you don't have the option to HOLD if the position goes against you. That is definitely GAMBLING.

E.g.

Contra Trading can be considered as Gambling if some one has no resources to fully pay up for the transaction and the only option is either WIN or LOSE.


Read on for more ...


http://createwealth8888.blogspot.com/2009/09/gambling-investment-speculation.html

ToTo - The fastest way to become Millionaire

http://createwealth8888.blogspot.com/2009/09/gambling-investment-speculation.html

Who want to become a Millionaire? Take part in the TV program or buy ToTo.

Buy ToTo whenever it hits Jackpot prize of more than $3M. Mid-Autumn and Hong Bao draw is a must buy.

Last Friday, three millionaires were born but too bad it was not me. Ha Ha!

Gambling - investment - speculation

A comparison can be done as above:

From: Behavioral finance FAQ / Glossary (Gamble)

Read on ...

http://createwealth8888.blogspot.com/2009/01/speculation-vs-investment.html

Olam - Is consolidation over?

Protecting Our Portfolio From The Next Bear

Super Mum asked: "My concern now is to preserve my capital in case of the prolong 'bear' and become 20-30% losses. Any view on how to preserve capital?"


I think she was actually asking: "How to protect my Portfolio from the next Bear?" I believe many investors may be thinking about it too.

Market Truism: Every Bear market is followed by a Bull Market, and every Bull market is followed by the Next Bear market.

You want to ride up your portfolio with the Bull to maximize your gains and protect your portfolio from the next Bear; unless you want to leverage on the Bear to further extend your gains on the way down.

To protect your Portfolio, you may have to train yourself to look at Portfolio (i.e. Stocks and Cash available for investing) , and not just the stocks.

You need to fully understand Market Risks and Market Uncertainty, and learn to mitigate risks and to live with market uncertainty.


In portfolio management, the important thing is for you to use your knowledge and skills to forecast the general market direction; and manage your portfolio according to your plan and your personal investment goals.


http://createwealth8888.blogspot.com/2009/09/stock-market-is-war-part-3.html


So, think about what market is likely to be in 1-3 months in advance, but also know that you could be deadly wrong in your own forecast.


Higher Returns. Higher Risks. Higher Risks mean losses can be very Real.

So what are the risks?

Understanding Stock Market Risks - Updated

What is Risk?

Someone defines Risk in an abstract term:


Risk = (Probability of an Event occurring) x (Impact of the Event)

So from the simple definition above, if we are to protect our portfolio from the next bear, we have to mitigate RISKS.

We want to reduce the Probability of Event Occurring to lowest that we can really control.

One way is to diversify our portfolio with a blend of non-correlated or negatively correlated stocks so the probability of all the counters severely beaten down at the same time will be the lowest.


For example, banks and property counters are correlated, and those stocks that have Mother-Daughter relationship e.g. Keppel Corp and Keppel Land, Semb Corp and SML, etc


In another word, we need an Army of Air, Sea, and Land forces in our portfolio and also to ensure enough Reservists for mobilisation.

Read? http://createwealth8888.blogspot.com/2009/09/stock-market-is-war-part-2.html

Diversification is the key to mitigate risks as not all stocks will fall with the same magnitude and some may even recover faster in the Bear market.

So are your current portfolio blends with non-correlated or negatively correlated stocks?


Next, we want to reduce the Impact of the Event by limiting the risk exposure of any counter to 5% of our capital and any sector to 10%.


If Lehman Brothers, 158-year investment bank, who had survived two World Wars but gone in this Bear. If one man called Nick Leeson could brought down Barings Bank, the oldest merchant bank in London . So it is best to assume that there is another Nick Leeson hiding somewhere and another one company may be facing the similar fate of the Lehman Brothers.

Finally, we want to manage the ratio of Cash and Stocks according to our market forecast and allocation plan.

Again, always remember that we could be deadly wrong in our own forecast, so be flexible and keep reviewing our strategies; but stay focus on our Personal Investment Goals and the reasons why we come to invest in the Stock Market.

Read? http://createwealth8888.blogspot.com/2009/09/your-personal-investment-goals.html

Your Personal Investment Goals

What do you want from the Stock Market?

• Preserve your Wealth and fight against Inflation
• Build up your Wealth for future Retirement fund
• Generate monthly income

1. Preserve your wealth and fight against Inflation

Stay invested in those blue chips that are known to give at least 5% dividend yield and re-invest your all dividends back into the Market. You are most likely to achieve this goal as Stock Market by nature is upward bias over long run.

2. Build up Wealth for future Retirement fund

You have much bigger challenges ahead, not only you have to keep far ahead of inflation, preserve capital, and protect profits. You need to apply the principle of compounding to grow at the fastest rate.

Your timing of market transactions in the possible shortest time that count.

A lots of hard works and guts are waiting ahead for you. and do you have the discipline and energy to fight the Bears and to ride with the Bulls and still be able to stay focused in achieving your goal. You are the Market Warrior!

3. Generate Monthly Income to put foods on the table.

You are a professional trader. You know your stuff. Congratulations!

Business Leverages And Personal Leverages.

Are business leverages very dangerous and disastrous to the business owners and management? 


I don't think so. The fallout from failed business leverages will cause companies to go bankrupt and are limited to the shareholders' fund.  The impact to the  company is  Management and Staff  are to find new job elsewhere.


But, fallout from failed Personal Leverages may go beyond your personal bankruptcy and may cause severe financial and psychological damages beyond yourself and can be extended to your family and your next-of-kins. 

So beware! Leverage is a double-edged sword! And don't always think that you are so smart in using OPM (Other People Money). 


You can ask around. How many people will believe that they could be striked by Lightning? 

Yet, when you read the newspapers, cases of people struck by lightning is not that uncommon hor.

Stock Market Is War - Part 3

Read? Stock Market Is War - Part 2

As an active investor you may want to forecast the general direction of the Market and plan on how to allocate your Portfolio - more stocks or more cash to avoid been heavily caught by the Bear or missing the Bull and failing to capture most of the gains.

You are responsible for your own Market Forecast and plan accordingly, and there is no right or wrong way to do it. It is for you to decide and do your own money management - more stocks or more cash?

Bringing Your Portfolio Back to Even

by Douglas Rice
Thursday, September 24, 2009

Even the recent gains in the stock market haven't made a dent in many portfolios, leaving many investors wishing for the good old days of 2007. After all, it's only natural to want to get back to a point of profitability.

Most investors have muttered to themselves at one point or another: "I just want to get back to even." This is a poor strategy as it mandates a return to the past in the same strategy that got you to the bottom. If it's just one stock, a shock could lead to a rebound, but if it's the entire sector trying to regain past glory, it's likely that the strategy that took you down will not be a good strategy to get you back to even.

The Numbers

Many investors make an assumption about the amount of return that they need to get back to even. They might quickly do the math in their heads, and that can lead to major mistakes. For example, the common assumption that an equal percentage gain will offset the same percentage loss shows a significant shortfall.

For example, if a portfolio falls 50%, then gains back 50%, the portfolio isn't back to even; when $100 falls 50%, it equals $50, and a 50% increase in $50 is $75. So, while the portfolio went up and down the same percentage amount, the result is a 25% loss.

From a 50% loss, the math to get back to even requires a 100% return. This is not exactly what most people think or what they want to hear. If this is spread out over several years and eventually the portfolio gets back to even, the opportunity cost is tremendous as the time value of money has been lost, never to be recovered.

Remember, it takes at least twice as much return to get back that initial loss.

Economy Matters

Even though stocks have a mind of their own, the overall economy still matters. Sure, stocks can race ahead of booms and collapse in front of recessions, but the economic conditions are still the bedrock for the overall situation. Currently, we may be moving out of a recession, but no one is predicting stellar growth.

If we look at that in context of getting back to even, then stellar growth is paramount to getting back to market highs. Until we boom again, there isn't any fundamental reason to push stocks prices back to their previous lofty levels.

One other concern is inflation. While not typical, there is an economic condition where inflation rises but stock prices don't. In that case, not only will the portfolio not get back to even on a nominal basis, but on an inflation-adjusted basis the portfolio will be still be losing ground even when stocks rise.

For example, if a portfolio rises 5% and inflation hits 6%, then the gains are welcome, but the purchasing power of those gains shows a loss. If this continues for any length of time, getting back to even on an inflation-adjusted basis could prove to be very difficult.

Vary Your Investing Techniques

If this wasn't enough, there is one more big piece of bad news: The is no guarantee that a portfolio will ever get back to even. Those that invested in boom firms may have invested in the horse and buggy just before cars became the norm.

For example, the dotcom boom-bust took the Nasdaq index up to over twice as high as it is now, and that was almost years ago.

So, the strategy of holding on and thinking it will come back wouldn't have worked very well in that index, not to mention with a portfolio of dot-com stocks. And there is no reason for that index, or those stocks, to get back to all time highs any time soon.

We find another example if we look to Japan's boom and bust; the Nikkei was at 40,000 in 1990 and today, more than 20 years later, it's less than a quarter of that. Does anyone really think the Nikkei is going back to 40,000 anytime soon? Buy and hold in that market has provided nothing but misery over two decades. When will we go back to the froth of the mid-2000s? No one really knows, but it's possible it's not anytime soon.

Summary

If you are thinking that you just want to get back to even, then make sure you understand how much return you are going to need, consider how robust the economy is going to have to be to get that return, and then update your investment choices in the portfolio to reflect the new situation. It's important to avoid blindly thinking that the same strategy that took you down will take you back up.

Stock Market Is War - Part 2

Read? Stock Market Is War - Part 1

In modern war, being a General is not enough, you need to be the Commander-In-Chief of three forces - Air, Sea, and Land.

Is your Portfolio also consists of Air, Sea, and Land - diversified forces of power so that you can endure attack from the Market from any corner and still survive without badly damage.

Not all stocks will be hit with the same degree of destruction, and surprisingly, some of them may even rise in a down market - this is known as Sector Rotation in play.

When you have Holding Power, it can only help you to prevent panic selling and exit market with big losses. But, Holding Power may not necessary enable you to recover back to the previous level of fall.

Just like your three forces - Air, Sea, and Land are all engaged at the battlefield; they are fully exhausted, and really unable to push forward anymore. You as the Commander-In-Chief will then need to activate your Reservists - your fresh reserve force to help you to push forward and to recover lost battleground.

So to really recover from your losses besides your Holding Power, you will still need fresh Firing Power - your Reservists.

So have you been keeping your Reservists ever ready when the needs arise?

Noble and Olam

Noble and Olam are my favourite mistresses of 2009 if you have been reading this blog. With the strong hand of CIC in Noble and Temasek in Olam. Noble and Olam have become golden pillows that are best to nimble at them ONLY to stuff more feathers.

Hard lessons learnt for destroying past pillows in 2008 due to GREED. Know What Is Enough and control GREED!

Got to work harder to look out for next pillow...

Stock Market Is War - Part 1

If Stock Market is War so are you aware of The Art Of War?

Sun Tzu: The Art of War

The Oldest Military Treatise in the World!

The Priciples of Warfare: Calculations!

Sun-tzu said:

Warfare is a great matter to a nation;it is the ground of death and of life; it is the way of survival and of destruction,and must be examined.

Therefore, go through it by means of five factors;compare them by means of calculation,and determine their statuses:

One, Way, two, Heaven, three, Ground, four, General, five, Law.

1. The Way is what causes the people to have the same thinking as their superiors; they may be given death, or they may be given life, but there is no fear of danger and betrayal.

2. Heaven is dark and light, cold and hot, and the seasonal constraints.

3. Ground is high and low, far and near, obstructed and easy, wide and narrow, and dangerous and safe.

4. General is wisdom, credibility, benevolence, courage, and discipline.

5. Law is organization, the chain of command, logistics, and the control of expenses.

All these five no general has not heard;one who knows them is victorious,one who does not know them is not victorious.

Therefore, compare them by means of calculation, and determine their statuses.

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When you come to invest or trade in the Stock Market, you are the General and so are you aware of The Art Of War?
There are two books available in NLB:

• Sun Tzu on Investing by Curtis J Montgomery
• The 36 Strategies of the Chinese for Financial Traders
  by Daryl Guppy

Will We See A STI Butterfly Today?

STI hit 13-month high @ 2,685.63 on Tuesday closing!

Active Investing, Passive Investing, and Active Monitoring

Investopedia explains Active Investing

Active investing is highly involved. Unlike passive investors, who invest in a stock when they believe in its potential for long-term appreciation, active investors will typically look at the price movements of their stocks many times a day. Typically, active investors are seeking short-term profits.

What Does Active Investing Mean?

An investment strategy involving ongoing buying and selling actions by the investor. Active investors purchase investments and continuously monitor their activity in order to exploit profitable conditions.

What Does Passive Investing Mean?

An investment strategy involving limited ongoing buying and selling actions. Passive investors will purchase investments with the intention of long-term appreciation and limited maintenance.

Investopedia explains Passive Investing

Also known as a buy-and-hold or couch potato strategy, passive investing requires good initial research, patience and a well diversified portfolio. Unlike active investors, passive investors buy a security and typically don't actively attempt to profit from short-term price fluctuations. Passive investors instead rely on their belief that in the long term the investment will be profitable.

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Some Value Investors think that by active monitoring of their portfolio made them Active Investors when actually they are not.

Can They Comfortably Afford Them?

Very often we hear some people saying these:

1) When they are sick; they need private medical care.

2) When their child is sick; they need paediatrician.

3) When their wife is pregnant; they need car.


Are these real needs? Can they comfortably afford them?

Trust me, some 22 years have passed, I happily went through without them. Maybe you need them badly, I don't know.

Noble - CIC as new Investor.

SEOUL/SINGAPORE - The Noble Group said on Tuesday it had agreed to place 573 million shares for a total of approximately US$850 million to China Investment Corporation ('CIC'), at a price of S$2.1137 per share

The Story Of The Duck

Imagine that there were 100 people participating in a guessing game of only 3 probabilities. The richest and smartest amongst them played the banker, the rest of the 99 were just players.

The 99 players had to board a huge machine that the banker had control over. The players had to guess which direction the banker would move the machine -- either UP, DOWN, or STILL. To make the guessing easier for the players, the banker gave them one hint, and the rest was up to them.

Each of the players had only to pay $50 to join the game for a grand prize of $1,000 each if they guessed correctly. After analysing and weighing the odds, they were all convinced it was a pretty good deal. The hint went this: "There is a duck in the middle of a pond floating peacefully. An alligator is coming silently from behind it. How do you think the duck would react?" said the banker. The players were laughing inside their hearts, thinking: What a straightforward hint! Everyone was busy writing down their answers on pieces of paper provided to them earlier. "OK! Time's up. Please raise your answers so that I can see them clearly," instructed the banker. They all displayed their answers joyfully -- 80 of them chose UP, 15 of them chose STILL and only 4 chose DOWN.

The banker looked at their answers and gathered that in order to win, he had to move the machine down, so that 95 of them would lose, and only 4 would win. And so he moved the machine DOWN. The 80 of them who chose UP became furious because they found the answer ridiculous. They stood up voicing their objections: "Even the stupidest duck would fly for its life!" The other 15 joined the opposition: "Weren't you trying to fool us with a plastic duck? Why would a duck dive into the water knowing very well it would never out swim an alligator?" The banker answered smilingly: "I quite agree with all of your theories and analyses, but unfortunately, the duck was at the moment unaware of the approaching alligator, and so happened to dive into the water to catch its meal: A fish."

Moral of the Story:

The market's predator have learned, understand and now know very clearly the habits and weakness of their ever-naive. They are just like a fisherman who knows exactly where he can find his fish, the various baits he should use for different type of fish and the best time to fish by observing the tides to ensure a fruitful trip full of catch. No matter how many times he goes back to the same place with the same bait, the same load of fish fall into his net.

CreateWealth8888:

The Market Makers play the role of the Bankers and especially true for markets such as covered warrants and retail forex.

The market sharks are also waiting at major technical charting points, turning points or levels and they have all the resources and expertise to know the charts better than anyone here and we are so naive to think that we can beat the market sharks at their game. So just open your eyes wide and understand why sometime market moves unexpectedly in the opposite direction - The Sharks are in Action!

Investing in Stock Market As Your Business Or Your Pension Fund

Do you invest in stock market as your "Business" or "Pension Fund"?

Most Value Investors are likely to treat investing in stock market as "Pension Fund". The objective of a Pension Fund is long term investment, and hopefully with regular dividend income , re-investing dividend income, and capital appreciation for future draw down.

But, if you treat investing in stock market as "Business" as I do. The approach to investing is completely different. As a "Business" owner, you have to actively manage Revenue, Stock Inventories and Cash flow.

You have to set average monthly Revenue target to ensure that you can meet the Yearly Revenue target.

Sometime to meet the average monthly Revenue target, you have to trim the inventory level by doing a clearance sale on stocks for lesser realized profit than expected.

You may have to maintain sufficient inventories to meet your short, mid and long term business goals or even change the mix of inventories by disposing slow moving stocks that are not going anywhere or stock up with more exciting stocks.

You are very active on cash flow management to ensure that you have sufficient purchasing power to pick up your inventories when discounted assets are available for sales in the market.

As a "Business" owner, your main objective is to keep expanding the business further and to achieve higher and higher revenues as possible and to ensure future business growth is achieved within your risks management to meet your final investment goals.

Be Far Better At Selling Than At Buying?

Samuel Johnson - "Between falsehood and useless truth there is little difference. As gold which he cannot spend will make no man rich, so knowledge which he cannot apply will make no man wise."

Knowing what is enough for us will help to set profit target and understanding that paper profit will make no one rich so we have to be far better at selling than at buying.

Realized profit is real money and can be used to buy more stocks when stocks pullback or buy more lower price stocks to achieve compounding effects.

When stocks are more volatile, it is even more important to learn the art of selling and to overcome seller's remorse and price volatility may actually help to provide us with good opportunity for buying and selling.

Understanding Prospect Theory

By Albert Phung

Traditionally, it is believed the net effect of the gains and losses involved with each choice are combined to present an overall evaluation of whether a choice is desirable. Academics tend to use "utility" to describe enjoyment and contend that we prefer instances that maximize our utility.

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However, research has found that we don't actually process information in such a rational way. In 1979, Kahneman and Tversky presented an idea called prospect theory, which contends that people value gains and losses differently, and, as such, will base decisions on perceived gains rather than perceived losses. Thus, if a person were given two equal choices, one expressed in terms of possible gains and the other in possible losses, people would choose the former - even when they achieve the same economic end result.

According to prospect theory, losses have more emotional impact than an equivalent amount of gains. For example, in a traditional way of thinking, the amount of utility gained from receiving $50 should be equal to a situation in which you gained $100 and then lost $50. In both situations, the end result is a net gain of $50.

However, despite the fact that you still end up with a $50 gain in either case, most people view a single gain of $50 more favorably than gaining $100 and then losing $50.

Evidence for Irrational Behavior

Kahneman and Tversky conducted a series of studies in which subjects answered questions that involved making judgments between two monetary decisions that involved prospective losses and gains. For example, the following questions were used in their study:

1. You have $1,000 and you must pick one of the following choices:
   Choice A: You have a 50% chance of gaining $1,000, and a 50% chance of gaining $0.
   Choice B: You have a 100% chance of gaining $500.
   
   
2. You have $2,000 and you must pick one of the following choices:
   Choice A: You have a 50% chance of losing $1,000, and 50% of losing $0.
   Choice B: You have a 100% chance of losing $500.
   
   

If the subjects had answered logically, they would pick either "A" or "B" in both situations. (People choosing "B" would be more risk adverse than those choosing "A"). However, the results of this study showed that an overwhelming majority of people chose "B" for question 1 and "A" for question 2. The implication is that people are willing to settle for a reasonable level of gains (even if they have a reasonable chance of earning more), but are willing to engage in risk-seeking behaviors where they can limit their losses. In other words, losses are weighted more heavily than an equivalent amount of gains.

It is this line of thinking that created the asymmetric value function:

This function is a representation of the difference in utility (amount of pain or joy) that is achieved as a result of a certain amount of gain or loss. It is key to note that not everyone would have a value function that looks exactly like this; this is the general trend. The most evident feature is how a loss creates a greater feeling of pain compared to the joy created by an equivalent gain. For example, the absolute joy felt in finding $50 is a lot less than the absolute pain caused by losing $50.

Consequently, when multiple gain/loss events happen, each event is valued separately and then combined to create a cumulative feeling. For example, according to the value function, if you find $50, but then lose it soon after, this would cause an overall effect of -40 units of utility (finding the $50 causes +10 points of utility (joy), but losing the $50 causes -50 points of utility (pain). To most of us, this makes sense: it is a fair bet that you'd be kicking yourself over losing the $50 that you just found.

Financial Relevance

The prospect theory can be used to explain quite a few illogical financial behaviors. For example, there are people who do not wish to put their money in the bank to earn interest or who refuse to work overtime because they don't want to pay more taxes. Although these people would benefit financially from the additional after-tax income, prospect theory suggests that the benefit (or utility gained) from the extra money is not enough to overcome the feelings of loss incurred by paying taxes.

Prospect theory also explains the occurrence of the disposition effect, which is the tendency for investors to hold on to losing stocks for too long and sell winning stocks too soon. The most logical course of action would be to hold on to winning stocks in order to further gains and to sell losing stocks in order to prevent escalating losses.

When it comes to selling winning stocks prematurely, consider Kahneman and Tversky's study in which people were willing to settle for a lower guaranteed gain of $500 compared to choosing a riskier option that either yields a gain of $1,000 or $0. This explains why investors realize the gains of winning stocks too soon: in each situation, both the subjects in the study and investors seek to cash in on the amount of gains that have already been guaranteed.

The flip side of the coin is investors that hold on to losing stocks for too long. Like the study's subjects, investors are willing to assume a higher level of risk in order to avoid the negative utility of a prospective loss. Unfortunately, many of the losing stocks never recover, and the losses incurred continued to mount, with often disastrous results.

Avoiding the Disposition Effect

It is possible to minimize the disposition effect by using a concept called hedonic framing to change your mental approach.

For example, in situations where you have a choice of thinking of something as one large gain or as a number of smaller gains (such as finding $100 versus finding a $50 bill from two places), thinking of the latter can maximize the amount of positive utility.

For situations where you have a choice of thinking of something as one large loss or as a number of smaller losses (losing $100 versus losing $50 twice), framing the situation as one large loss would create less negative utility because the marginal difference between the amount of pain from combining the losses would be less than the total amount of pain from many smaller losses.

For situations where you have a choice of thinking as something as one large gain with a smaller loss or a situation where you net the two to create a smaller gain ($100 and -$55, versus +$45), you would receive more positive utility from the sole smaller gain.

Finally, for situations where you have a choice of thinking as something as one large loss with a smaller gain or a situation where you have a smaller loss (-$100 and +$55, versus -$45), it would be best to try to frame the situation as separate gains and losses.

Trying these methods of framing your thoughts should make your experience more positive and if used properly, it can help you minimize the dispositional effect.

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CreateWealth8888:

Now, you understand how this Great Bear has impacted the retail investors behaviors and some may have become overly conservative and park excess cash in fixed deposits or money markets. To recover losses from the Bear Market, one has to be in the market to ride the Bull; or may be some are thinking of recovering losses through the property market.