New method of investment in the stock market

By Star Online: Business
26th Jan 2013

MALAYSIA'S warrants specialist Alan Voon has come up with his first book, Trading The China Market with American Depository Receipts. A coup indeed, as the book is also published under the Wiley Trading Series which typically features only authors who are heavyweight hedge fund managers.

While Voon's expertise lies in warrants, he is now writing on a new instrument American Depository Receipts (ADRs), an instrument which he says will enable us to make some “free lunch” money in the stock market which is not entirely efficient.

6 buys, 7 sells for the coming 2013 recession

By MarketWatch
16 November 2012

SAN LUIS OBISPO, Calif. (MarketWatch) — The global economic crisis will not end till 2016 or later, warns IMF Chief Economist Olivier Blanchard.

It will take “at least a decade from the beginning of the crisis for the world economy to get back to decent shape,” Blanchard said in a recent interview in Europe, according to a Reuters report.

“It’s not yet a lost decade,” Blanchard said, “but it will surely take at least a decade from the beginning of the crisis for the world economy to get back to decent shape.”

No matter what, you can forget about a 2013 quick fix for America’s fiscal-cliff disaster. Won’t happen.

Individual investors are destroying their wealth - 7 sins that individual investors commit

From Market Watch
By Howard Gold
20 October 2012

NEW YORK (MarketWatch) — OK, individual investors, do me a favor: go to the mirror and take a good, long look.

Now tell me honestly that you really know what you’re doing with your money.

Not too many of you left? I thought not.

Two huge bear markets, a housing depression, a financial crisis, and sudden market blowups from the flash crash to the Facebomb have sent investors fleeing in terror from stocks, which seemed to offer the promise of easy riches in the 1990s.

But I also suspect many people have realized that investing — or at least active investing — just isn’t for them.

That wouldn’t be surprising, given the findings of a 2011 study by two leading academic experts on individual investors’ behavior.

Brad Barber of UC Davis and his colleague Terrance Odean of Berkeley examined nearly the entire body of research on how individuals invest, covering more than 40 studies.

This is much more than the usual “review of the literature”; it’s a painful catalogue of how individual investors make every mistake in the book and wind up either losing money or badly trailing no-brainer index funds.

Among the various sins that investors commit — and which cost them dearly — are:

•Trading too much, incurring big fees that more than wipe out their gains

•Selling winners while clinging to losers

•Focusing too much on individual stocks and not diversifying their portfolios enough

•Falling for stocks that get extensive media coverage or are trading near their highs

•Engaging in thrill-seeking behavior that confuses investing with speculation or gambling

•Trading or investing in financial instruments they don’t understand

•And, finally, despite all of the above, believing in their own superior investing ability

#Self-reflection: Those highlighted are some of my traits currently, should make improvement on.

10 lessons from the market crash of 1987

From Market Watch
By Wallace Witkowski
19 October 2012

SAN FRANCISCO (MarketWatch) — Twenty-five years ago, on Oct. 19,1987, the Dow Jones Industrial Average plunged almost 23%, its largest one-day percentage-point drop ever. While the crash didn’t usher in another Great Depression, it did introduce investors to a new era of stock-market volatility.

Even though market controls, such as circuit breakers introduced after the “flash crash” of May 6, 2010, are designed to avoid another crash like Black Monday, markets are still susceptible to severe and prolonged downturns.

U.S. stock prices are close to the record highs achieved five years ago, before the housing and financial crises decimated them. The Dow is near its all-time high of 14,164.53. Similarly, the Standard & Poor’s 500-stock Index is approaching its all-time high of 1,565.15. The ascent to a potentially new peak, however, is coming up against a potential bout of volatility that’s expected with the November elections and the economy’s “fiscal cliff” of government spending cuts and tax hikes in January.

With that in mind, MarketWatch polled several money managers who witnessed Black Monday about lessons from 1987 that are relevant to investors today.

Get set to buy stocks after a market crash

By MarketWatch
18 October 2012

SAN FRANCISCO (MarketWatch) — Wall Street has never been a market for old men — but when the going gets tough, the graying veterans get the 3 a.m. call for help.

Today’s stock-market gurus were 25 years younger on Oct. 19, 1987, when they learned a painful lesson in the throes of a full-blown investor panic. The Dow Jones Industrial Average lost almost a quarter of its value that day — its worst single-session percentage drop ever. “Black Monday” conjured fears of that other October crash almost 60 years earlier, which ushered in the Great Depression. 

In fact, the day after Black Monday was a terrific time to buy stocks.

A $10,000 stake in the 30 Dow stocks on Oct. 20, 1987 would be worth more than $137,000 now, according to investment researcher Morningstar Inc. That’s an 11% annualized return, including dividends, and even factoring in shareholders’ “lost decade” between 2000 and 2010.

But buying at points of maximum pessimism takes steel nerves most investors don’t have. Few of us could readily follow Baron Nathan Rothschild’s famous dictum to “buy when there’s blood in the streets — even if it’s your own.” Fear and doubt, in our own lives or caroming off of global, large-scale events, are powerful and limiting emotions.

So how do you take the plunge after a plunge?

The old Masters of Wall Street: how well they understood — and still do. Market pros see the wisdom in Warren Buffett’s admonition, channeling his mentor Benjamin Graham, to “be greedy when others are fearful, and fearful when others are greedy.”

They realize, as the revered market analyst Bob Farrell noted in his famous “Market Rules to Remember,” that there’s money to be made given that “fear and greed are stronger than long-term resolve.” 

And they respect Jack Bogle, founder of the Vanguard Group and the patron saint of the individual investor, who has said time and again that “investors win and speculators lose.” 

After the market closed on Oct. 19, 1987, it was easy around lower Manhattan to recognize who worked on Wall Street: they looked ashen and shocked. Yet a few investors read the situation differently. The next morning they arrived at their offices with wallets open. 

Templeton was one of them. “Let’s find stocks to buy” was his reaction to the crash, recalled Martin Flanagan, now chief executive of mutual-fund firm Invesco Ltd. and then the chief operating officer of Templeton’s firm.

“Today you could see that was an obvious thing to do,” Flanagan recounted in an obituary of Templeton in July 2008. “At the time it was not obvious at all. To have that kind of conviction and leadership is absolutely unique.” 

Most of us, in contrast, would be inclined to sell on the cheap during downturns and hold tight when prices are expensive.

“In fearful times, people think that returns will be low and risk is high. In times of exuberance, people think that returns will be high and risk is low,” said Meir Statman, a finance professor at Santa Clara University in California.

Statman added: “First, understand this is a natural emotion. Second, find ways to counter it. You have to be a contrarian with your emotions. If your emotions say put it all in gold, you should have another voice — a voice of reason — saying if gold is so good, the price must be reflecting that.” 

Easier said than done. What in someone’s wiring allows them to override the instinct to run from danger, and to give up a seat at the table when everyone else is eager to play? Statman ventures that its helpful for investors to think like traders, who tend to see the big picture. They realize that one bad day in the market isn’t going to wipe them out, so they regroup and get back on the horse.“Losses are part of what you are going to experience,” Statman said. “It’s not the end of the world.”Behavioral studies show that people with such an attitude don’t have as much loss aversion — our strong preference to avoid losses even more than make a gain. “They know that not every decision is going to be a winning decision, but they ask themselves, What is a smart decision?” Statman said. “If they continue to make smart decisions, then luck is going to average out.”

Big scores after tumultuous events can also iron out a lot of misses.

“Opportunities to make fortunes usually come in times of greatest dislocation,” said Soo Chuen Tan, a managing member of investment firm Discerene Value Advisors in Stamford, Conn. “You can train yourself to look for dislocations and read all the material on value investing and see the returns one can get if one invests at points of maximum pessimism.

“But that only takes you part of the way,” Tan added. “An important element of value investing is psychological temperament. You either ‘get’ it in your gut, or you don’t. When you read a headline about Greece blowing up, do you think, ‘Where’s my cash and can I move it to a safer bank account?’ Or do you say ‘When’s the next plane out to Athens?’”

[Source]

Saft on wealth - Buffet and the rest of us

From The Edge Malaysia
Written by Reuters
27 Aug 2012

Aug 23 (Reuters): I don't know how to put this but ... Warren Buffett is awesome, and you and me, we almost certainly are not.

A new study aiming to get at the source of the legendary investor's outperformance demonstrates that his approach, which turned a dollar in 1976 into $1,500 today, is relatively simple: Use modest, cheap leverage to buy high-quality, cheap and safe shares.

Value Growth Investing

By KCLAU (kclau.com)
15 Aug 2012

A friend asked why I am still in the stock market when there are so much of uncertainties. Both the United States and Europe have so much of financial difficulties and unemployment, India’s Rupee is at historical low and China has lower GDP growth. Under such conditions, how can you still expect to make money from the stock market?

In fact, this is the best buying opportunity to pick up undervalued growth stocks when most fund managers and investors would reduce their holdings -be a contrarian investor.

Economic Moats: A Successful Company's Best Defense

By Investopedia
4 Oct 2009

Cash flow generation, debt-free balance sheets and a significant and sustainable competitive advantage in the marketplace are some of the reasons great companies stand out from the pack.

What is it that separates companies that thrive for decades from the ones that flounder for years?

The answer may lie in what is referred to as a company's economic moat, a phrase popularized by investing legend Warren Buffett. In this article, we'll introduce you to the concept and explain why it is so important to consider as a long-term investor.

Warren Buffett’s winning ways, 50 years on - Famed investor’s ‘Ground Rules’ from early 1960s hold true

By Market Watch
27 July 2012

SAN FRANCISCO (MarketWatch) — Warren Buffett doesn’t usually make market predictions, but in an early July letter to shareholders, the legendary investor offered insights to help them through a treacherous stretch for stocks.

“I think you can be quite sure that over the next ten years there are going to be a few years when the general market is plus 20% or 25%, a few when it is minus on the same order, and a majority when it is in between,” Buffett wrote. “I haven’t any notion as to the sequence in which these will occur, nor do I think it is of any great importance for the long-term investor.”