How To Invest in Individual Stocks Using EPF Money

Phillip Capital Management (PCM) is one such company licensed by Securities Commission and an approved Fund Manager for EPF. In order to invest your EPF money with Phillip Capital to buy individual stocks, you will need to first of all satisfy the criteria set by EPF as summarised in my previous article "Can You Invest In Individual Stocks Using EPF Money?"

Calculation example:

Procedure:

1. Fill up the application Form KWSP 9F (AHL) which you can download from EPF website or visit your nearest EPF office.
2. Download or obtain a copy of the latest EPF statement
3. In the Form, indicate the amount you are entitled to withdraw and submit it to PCM, together with a copy of your MyKad, and that's about all!
4. PCM will then submit the relevant documents to EPF for processing, which is expected to complete within 2 to 4 weeks.
   
5. Once completed, the funds will be transferred into your PCM trust account.
   
6. You may start to purchase any of your desirable stocks using PCM's online trading platform.

Upon disposing the stocks, the funds will be returned to the PCM trust account. Upon termination of account, the funds will be reverted back to your EPF Account 1.

Other noteworthy Terms & Conditions:
- upfront fee of 3% chargeable by PCM. Withdrawal from EPF is free of charge;
- annual management fee of 1.5% is chargeable by PCM;
- normal on-line trading brokerage & admin charges at about 0.55% of transaction amount is payable;
- minimum holding period is 1 year. Termination only upon one month's written notification thereafter;
- minimum investment is RM30k but can be broken down into trunks starting with RM10k, as long as the minimum amount is satisfied within one year;
- Stocks are only applicable for equity stocks, excluding warrants or any other preferential stocks

Do manage your risks before investing! Best to adopt defensive strategy as EPF money is not meant for excessive speculation!

The Inevitable...Postage Rate Hike

After much speculation, I just got the confirmed news that POS Malaysia will increase the tariff or postage rate effective from 1st July 2010! Frankly, I foresee the rate hike is a matter of time, given that the last hike was way back in 1992!

As per the information that I have gathered so far, the postage increase will affect domestic postage stamps for standard mail below 50gram, non-standard mail below 100 gram, periodicals, and PosDokumen.

Here's the quantum of increase....
- For standard mail weighing up to 20 gram - RM0.60 to 0.70 (from the present RM0.30 to RM0.40).
- For others in general, the quantum of increase is 75%.

The higher postal tariffs effectively paves way for POS Malaysia to raise employees’ salaries (which is currently reported to be below the average government servant’s salary) by 30%.

In addition, the higher earnings will also pave the way for the company to undertake it's aggressive transformation plan such as potential mergers & acquisitions, revamping operational efficiency and cost reduction exercise.

No wonder it's share price has also shot up the past few days...let's take a look. "Someone" obviously knew this is coming for sure!

Is US stock market on verge of another big rally?

Some experts say investors are starting to believe that the U.S. stock market is on the verge of another big rally.

The fact is, Dow Jones Industrial Index have just posted new high above 10,800 compared to previous high posted in January 2010.

US's National Association of Realtors reported a drop in homes sales last month that wasn't as steep as forecast.

However, the report on housing was typical of recent economic numbers that have been somewhat better than expected but still point to a weak economy.

For now, it appears the sales numbers aren't disrupting hopes that the economy can recover even if there is only a slow stabilizing in the housing market.

A month ago, investors shrugged off an 11.2% drop in sales of new homes.

The market's continuing advance has been welcome but analysts are divided over whether stocks have run too far or if they have more to gain because of improvements in the economy. The story on investors is that they are afraid of missing out on further gains, after seeing the Dow making new highs.

On the other hand, investors seem optimistic about the health of corporate earnings for the January to March quarter.

Also, unlike the developed nations, Asia (excluding Japan) is still growing and certainly is the place to be at least for the next couple of decades. So despite America's and Europe's problems, it's a mere fact that there are certainly plenty of light at the end of tunnel elsewhere! It's a certainty that American companies will follow suit where the money is.

However, the issue on sovereign debts of Dubai and Greece has still not gone away, despite plenty or reassurances from various party.

As always, there are two sides of the coin to look at. One can be optimist or pessimist. May be one more for being neutral? Whatever it is, I always believe in following the trend, and that's where the smart money is. Current trend obviously still point to the north (up trend), supported by relatively strong volumes, amidst intermittent signals of danger looms!

Why do I say so? Well, simply the hot money (or better termed as liquidity) is still there, no matter what people say. The smart money has come to the realization that money has to be invested and parked somewhere (to counter inflationary stress), no matter fundamentally it's right or wrong!

However, the musical chair will stop one day of course....So until then, let the party moves on.

China Stocks To Rally In 2010?

Source of Article: Bloomberg

Chinese shares may rise as much as 35% next year as the yuan strengthens and earnings growth accelerates, according to Greenwoods Asset Management, manager of this year’s best-performing Chinese long-short equity fund.

According to Greenwood's Hong Kong office head Joseph Zeng, the gains by A shares denominated in yuan in Shanghai and Shenzhen will probably exceed a forecast increase of as much as 30% for mainland companies’ H shares traded in Hong Kong. Zeng's prediction is that China shares will extend gains as they have yet to enter a speculative “bubble”, and now trade at about 24 times estimated earnings, below the 10-year average of 35 times. In addition, China will probably yield to pressure from trading partners by allowing the yuan to appreciate by between 4% and 6% by end-2010, easing imbalances that worsened the global economic crisis.

The Shanghai Composite Index has jumped more than 8-% this year, as the government implemented a four trillion yuan stimulus package and allowed banks to lend beyond targets to support an expansionary monetary policy.

However, the US$1.3 trillion credit boom and a revival in the property market have triggered warnings about possible asset bubbles by officials and investors. Zeng on the other hand believes that overall property market isn’t in bubble territory yet either, because the “big gains” in prices were mainly confined to major cities.

According to Zeng, Greenwoods’ US$174 million Golden China Fund has 30% of its portfolio in A shares. The fund favours companies whose A shares are trading at lower valuations than their H shares. It also likes companies with “compelling valuations” in industries that are under-represented in Hong Kong, including Hundsun Electronics Co, which develops software for financial companies.

The Golden China Fund, which invests in A shares, H shares and American depositary receipts of Chinese companies, rose 137% year to date as of Oct 31, the best return among Chinese long-short equity funds, according to data from Bloomberg and the company. It also has the highest total return over one year, three years and five years among 37 peers tracked by Bloomberg.

The Worst Is Over? Listen To What the Two Richest Men Have To Say

Capitalism is still alive and well, say the world's two richest men, despite lingering shocks from the longest, deepest recession since the Great Depression.

During a live interview in an auditorium filled with nearly 1,000 people at a CNBC-sponsored event at Columbia University in New York, Warren Buffett, the CEO of Berkshire Hathaway, and Microsoft founder Bill Gates fielded questions from Columbia Business School students on the recession and investing.

Most notably, Warren Buffett said that the financial crisis is behind us, and the bottom has come in stocks, therefore do not pass on something that's attractive today!

Both Buffett and Gates also agreed that although mistakes were made, the fundamentals of the American system and a marketplace-driven system where American invest in education and innovation, coupled with a great long term infrastructure, will continue and augurs well for the future of U.S."

To watch the video of Warren and Gates interview, click this link.

For the full article, visit Yahoo News

For Buffett's latest view on investment, click this link.

How To Invest In Gold?

Arguably, gold is the only investment asset class in the world that is widely perceived to be the safe investment haven. Many investors will therefore choose to invest in this precious metal as part of their wealth preservation and creation strategy.

During last two years, when all the asset classes have failed to perform, gold is the only investment asset that has remained outperformed. As such, Gold is also widely believed to be the best hedge against the U.S. dollar and inflation. When U.S. Dollar falls, demand for gold is set to increase as investors sought to preserve their wealth. In addition, gold has a very low correlation with other asset classes like equity and debt thereby it's a very good asset to diversify for the overall portfolio.

The most direct way of investing in gold is to purchase the physical gold bullion directly from financial institutions or dealer. You can then choose to safe keep the gold yourself or the safer alternative is to keep them in a secured vault owned by third party such as banks.

Instead of holding physical gold bullion, there are a number of other forms of investment in gold without the need to hold physical stock. In Malaysia, both Maybank and Public Bank offer the convenience of gold investment account with a passbook, whereby every trade is done through the account without the involvement of physical stock. Transactions are highly liquid as the buying and selling are based on the bank's prevailing quoted buying and selling prices.

Other means of gold investment (without physical delivery) include Gold Exchange Traded Funds (ETFs), unit trusts (mutual funds) and also the choice of investing directly in gold mining companies.

Gold ETFs are open-ended mutual funds that are passively managed and they mirror the return of spot price of gold. Gold ETFs are listed and traded on stock exchanges just like stocks. As such, the cost of trading Gold ETFs is lower compared to mutual fund type of investment. Gold ETFs provide returns, which before expenses, closely correspond to the returns provided by physical gold. Each unit is approximately equal to the price of 1 gram.

Some of the most popular regional gold ETFs and mutual funds include:
- DWS Invest Gold and Precious metals Equities (listed in Singapore)
- United Gold & General Fund (listed in Singapore)
- DWS Noor Precious Metals Securities A USD (listed in Singapore)
- SPDR Gold Trust ETF (listed in U.S., Hong Kong, Singapore and Japan)

Here you are some of the gold investment vehicles available for your consideration, should you decide to get hold of one of the world's most highly sought after precious metal!

It's All About Liquidity

What happens when you have lots of money in the bank? Quite rightfully, the tendency is to either spend it or invest it wisely. In a macro scale and global financial terms, we call this liquidity.

Back in 2006 and 2007, global financial markets were flushed with liquidity, aided by the sub-zero interest Yen-carry trades. After all, funds were cheap and it was not surprising that investors took the risk to invest in assets with higher returns with lower cost of funds. However, many investors were caught badly burned as the global financial markets collapsed in the wake of the collapse of Lehman Brothers, followed by the massive loss of liquidity.

When funds dried up and there was a massive loss of confidence, investors naturally become risk averse. Markets continue to fall until the first quarter of 2009 amidst this phenomena.

Since March 2009, the outlook has changed drastically, due to massive pump priming by countries around the world and the huge injection of funds by the U.S. Government to bailout troubled financial institutions. Quantitative easing (printing of money) by countries such as U.S. and U.K. has certainly contributed massively to the availability of funds as well.

As a result, global financial markets are now flushed with liquidity. Whether this is artificially created or not is subject to your own interpretation though.

With U.S. economy showing signs of recovery, the U.S. Government has to decide whether it's time to gradually withdraw the stimulus plan. Indeed, this is what comes out of yesterday's FOMC meeting, however, with no specific timeline mentioned yet. Federal Reserve is not likely to do so until U.S. unemployment rate starts tapering off. Bear in mind that with all the talk about U.S. recovery, the unemployment rate is still hanging high at almost 10%!

With liquidity being the major driving factor, any move that could potentially dampen liquidity prematurely may spark another round of fear within the financial sector.

On the other hand, i believe the bull party is ain't over until there is a dramatic change in liquidity. As such, I am quite prepared to hold on to my positions until there is a clear sign of otherwise emerged.

Unlock The Equity Cross Road....

The word goes that when the U.S. sneezes, the rest of the world catches a cold. The above scenario is still pretty much valid, given how the financial troubles in U.S. had led to the global economic meltdown for the rest of the world! So despite all the speculation about the potential decoupling of world's economy from the U.S., it is simply not true as globalization has increasingly turned the world flat and like it or not, Americans are still the biggest spenders in the world, mopping up many products and services the rest of the world has to offer!

However, China has gradually and surely increased its role in the world's economy, given its huge domestic market (served by 1.4 billion people) and the enormous pace of growth averaging 8 to 10%. In time to come, it will not be exaggerating to say that if China sneezes, the world will likely catch a cold too!

Global stock markets have recovered strongly, against the odds, for the past 6 months. Major doubt is now being raised as whether the optimisms have run ahead of fundamentals or it's a mere speculation? The answer, I'm afraid, is highly subjective. Bear in mind that equity market is always forward looking, which essentially means that as an investor, we simply cannot wait until the event unfolds! Yes, it's a calculated risk that we all will have to take.

Recent data seem to have pointed to a sustainable recovery. However, whether one views it as a V, W, U or S shaped type of recovery is again highly subjective! Tan Teng Boo of iCapital Fund Management seems to believe we are at the beginning of another bull run and there will be a V-shaped recovery! However, most other analysts or financial gurus tend to take a more conservative view. Taking a long term view with China and likely India to spearhead future's economic growth, it is likely that we should have seen the worst for now provided U.S. do not spring more surprises or open up another can of worm!

Right now as we speak, global markets seem to be reaching a cross road where the next direction should be. It is understandable that investors are feeling nervy, having witness a dramatic bull rally for the past 6 months. An overheated bull will tend to follow with meaningful short term bear correction. Only then will the bull have an opportunity to recharge.

Mark Mobious, the well-known founder of Templeton Asset Management and investment guru, stated about a month ago that markets could decline between 20% to 30% following the recovery.

As a matter of fact, China's Shanghai market has corrected (or crashed?) about 20% the last couple of weeks, driven by fear of Chinese Government's plan to tighten the domestic credit market. Tightening credit at a time when China's export and unemployment are still weak does not seem to make sense. However, it is also a concern that excessive liquidity could lead to excessive speculation and unproductive output. As such, the latest measure is meant to ensure that credit resources are diverted to productive investments, which will strengthen real economic activities rather than continue to create bubbles in the stock market and the real estate.

To me, it's good to take a pause and re-assess the status quo, rather than taking the gung-ho approach. The faster one climbs, the harder one falls....

Perhaps, it's also a good time to re-assess your portfolio too. Some spring cleaning will always prove to be timely indeed in due course.

Is Margin Trading Right For You?

Leverage your money. That's what many of us have often been told or practising. However, not all forms of leveraging is good. For example, not repaying fully your credit card bills and servicing high amount of interests is not a good way of leveraging. To sum it up, you need to weigh the cost and benefits of such leveraging and the associated risk before jumping into it. If the cost outweighs the benefits and comes with high risk, such form of leveraging is obviously not for us!

In equity trading, there are generally two forms of account, being cash account and margin account. Cash account simply means you pay cash up front, before purchasing shares. In countries where settlement period (T+x day) is allowed, full settlement has to be made upon the maturity of the settlement period. Margin account, on the other hand, allows an investor to purchase more shares than his cash deposit allows, normally two times the amount. For example, supposed you have $10,000 in cash deposit, you are allowed to purchase up to $20,000 worth of shares. The other $10,000 is like a form of borrowing from you broker or securities firm, in which they will charge you interest (for the amount of borrowing) based on prescribed interest rates calculated on a daily basis.

Effectively, this is a form of leveraging. Question is, is this a good form of leveraging? Let's explore the advantages and the inherent risks.

Quite clearly, margin trading allows you to trade more than what you have, and therefore, allows you to make more money if your share price projection turns out to be correct. However, the same holds true (i.e., more losses) if the share price goes against your direction!

Here's the added risk when the direction of the share price goes against you. When the amount of shareholding falls below a certain predetermined amount (by the broker or securities firm), the broker is entitled to issue a margin call. What a margin call simply means is that you will need to top up the shortfall immediately or latest by the next business day.

For example, supposed you have cash deposit of $10,000 and you have bought shares worth $20,000. Let's say share prices have gone down by $6,000 and you now have $14,000 remaining. Your net cash position now is %$4,000 ($10k - $6k loss). Assuming margin requirement is 30%. you will need to maintain a minimum of $4,200 ($14k * 30%). In this case, there will be a margin call given your net cash position runs below the safety margin.

Failure to top up within the set timeline will render the broker disposing your shares. Worst of all, it can be done without your knowledge!

To further add salt to the wound, your losses could be blown out of proportion as you continue to top up your margin but the market further deteriorates against your expectation!

You need to be also aware that the amount borrowed incurs interest on a daily basis. As such, it is an added cost of investment. As such, there are holding costs should you decide to hold on to a stock.

In conclusion, my advice is do not trade margin account unless you absolutely understood the kind of risk that you are dealing with and is prepared to take on such risk without major adverse consequences. Personally, I do not and will never trade with a margin facility. Simply, it's way beyond my tolerance of risks!

How To Invest In Overseas Equity Market?

For those who would like to diversify their portfolio investments beyond the local shore, this article sets to explore the ways to do so. Just to emphasize, I am articulating on direct or active investment instead of passive investment such as investing in unit trusts.

Thanks to globalisation and increased investors' appetite for better investment returns, many Malaysians have started investing offshore (In part this is also due to the fact that Malaysia stock market is no longer favoured by foreigners and is lagging far behind stockmarkets in Hong Kong, China or even Singapore in both performance and liquidity).

If you are interested in investing in multiple key global markets, the one that instantly comes to my mind is Interactive Brokers (IB). IB offers a very comprehensive list of financial markets to invest in, ranging from North America (U.S, Canada, Mexico) to Europe and Asia Pacific (Australia, Hong Kong, India and Japan) region. The products offered are also wide ranging, from equity to forex, derivatives, bonds, ETFs, CFDs and so on.

IB's brokerage rate is also one of the lowest available. For instance, to trade in U.S. stocks, the brokerage charge is only US$0.50 per lot (of 100 shares) with a minimum $1 brokerage per order!

Application for an account can be done easily through the web (online). Even Agreements can be digitally "signed" online! The only manual work which you need to provide them is a copy of your Passport and a signed copy of certain local Authority Form such as W-8BEN in the case of trading in U.S. For added convenience, you may fax them a copy of these documents or simply scan and email a copy to them.

One word of caution though, the trading software for IB is not that user friendly. So it may take some time for you to get used to it. However, step-by-step guides are readily available from their website. All you need to do is to run the videos.

For those who are interested in trading in the U.S. market only, my preferred broker is ThinkorSwim (ToS). Brokerage rate is higher at $1.50 per lot or fixed at $9.95 per trade (whichever is lower and subject to a maximum of 50 lots for fixed rate) but the trading software is much more user friendly and feature packed. Among them include the ability to display multiple chart patterns all in one screen.

The beauty about these online brokers is that you can also do virtual trading, that is, trade without real money! This will give you a sense of better confidence before starting real trades, and is ideal for beginners who would like to get familiarise with the trading platform and/or test certain trading strategies.

To start real trading, you will need to deposit funds first into the trading account. In other words, there is no more T+x day type of settlement. All trades are cash up front but you may choose to trade with a margin facility.

Funds can be easily transferred from your local banking account to the U.S. designated account using wired transfer or more commonly known as Telegraphic Transfer (TT) in Malaysia. You will need to bear the TT charges (charged by both local and foreign banks) as you do the transfer. Just inform the broker about the transfer and they will notify you once the amount is successfully banked in. Normally, this should happen within the same business day.

Trading platform is much more sophisticated compared to our local markets as you can literally set your trading criteria (e.g., entry price, stop loss and profit target) and walk away without ever watching the screen again! You can even set orders such as market order, stop order with or without limit and OCO (One Cancel Other) orders. Once you learn how to do it, trading is very easy and a peace of mind in case you are busy at work or go to sleep!

Other than signing up with online brokers, the other viable option is to trade via your local investment bankers or stock brokers. A number of local Investment brokers have for the past couple of years rollout offshore trading in order to cater for this increased interests. Among the Investment Brokers offering this service include CIMB, OSK, Kenanga, Maybank and RHB Investment Bank.

However, do take note that this type of trading is not done online. The arrangement is between yourself and your local broker. Orders can be instructed by you and your broker will forward the trade instruction with their respective counterpart in the particular country of trade. Exchange rate is determined by the broker on the day of trade. There is no standard brokerage rates apply so you will need to verify with your preferred broker before trading. There will also be some signing of paperwork required before you want to start trading offshore.

Generally, this type of 3rd party or indirect trading will be more costly than online trading. It will probably be fine if you do not intend to trade offshore frequently and do not have the time or patience to learn a new trading platform. Also bear in mind that there will be a delayed trading execution given the offline mode of instruction and involvement of 3rd party.

Malaysia Stockmarket - Upcoming Changes You Need To Know

If you are an investor of equity stocks in Malaysia's stock market, you should be aware of the following impending changes taking place soon. First and foremost, on 6th July 2009, Bursa Malaysia will change the market’s primary benchmark index from the 100-stock Kuala Lumpur Composite Index (KLCI) to the FTSE-Bursa Malaysia KLCI which comprises just 30 stocks. 73 stocks will thus fall out of the new benchmark index while three new stocks will be added.

The transition will be seamless, i.e., the new FBM KLCI will start off with an index value equal to the closing value of the current KLCI on 3 July 2009.
















Secondly, the main board and second board of Bursa Malaysia will be merged and be known as the "Main Market" while the Mesdaq market will be transformed into a sponsor-driven market known as "ACE Market" from 3rd August 2009.

The requirement for listing on the Main Market will also be eased with companies needing only an aggregate after-tax profit of RM20 million over three to five years with at least RM6million in after-tax profit in the latest financial year. This compares with current requirements to have aggregate post-tax profit of RM30 million with at least RM8 million in the latest financial year.

The Mesdaq market, which was reserved for technology companies, will be transformed into an alternative market open to companies of all sizes and from economic sectors.

All equity-based proposals, such as share placements, rights offerings and restricted share issuances will no longer require the SC's approval.

In order to attract both local and foreign companies to list in Bursa Malaysia, the Securities Commission is also relaxing rules on secondary listings of foreign corporations, effective 3rd August 2009. The relaxed rules include foreign companies no longer need to have at least RM1.0 billion in market capitalization with RM60 million in after-tax profit in the latest financial year for a secondary listing.

In order to encourage private equity activities and corporate mergers and acquisitions, SC will also allow the listing of shell companies that have no operations but have intentions to merge with or acquire operating companies or businesses with their IPO proceeds. However, a shell company seeking a listing must raise a minimum of RM150 million through its IPO and must complete an acquisition within 36 months of listing.

Sell In May and Go Away?

There is this old adage "Sell in May and go away" for Wall Street. Fact or myth? In essence, this is a belief that the period from November to April inclusive has significantly stronger growth on average than the other months from May to October.

Quite simply, the facts seem to indicate otherwise.

The chart below shows the percentage of time the market rises from May 1 through September 1 over various time frames. Over each time frame covered, the market has a positive return at least 60% of the time. Since 1929, there have been 30 years where the Dow went up more than 5% between May 1st and September 1st, while there have only been 14 years where the index declined by more than 5%. There have been 14 years where the index went up more than 10% versus only 8 occurrences of double digit declines.

Moreover, the fact that Wall Street has been in a free fall mood since the 4th quarter of 2007, it's high time for a decent bear rally, given that the latest economic data in U.S. seem to point to a gradual recovery and possibly an indication that the worst is over. The to-be released bank stress test will further give a clear indication of the health of U.S. banking industry.

As a matter of fact, the Dow has recovered by about 31% as of yesterday since March 2009.

Signs of Recovery?

Malaysia Central Bank has left the key interest rates unchanged at 2.0% and emphasized that the present monetary policy measures were sufficient to provide support to the domestic demand, despite exports are widely expected to contract drastically in both first and second quarter of this year.

With the status quo unchecked, it could well suggest that Malaysia's economy and business prospects may well recover in the second half of 2009.

That likely explains why the local stock market has had a rally of 19% within the past one and a half months. Investors are clearly anticipating the worst is over and a major recovery will take place.

The Age of Buy and Hold Is Over?

Based on various feedback, this is a mixed view. Some say the age of "buy and hold" stocks and/or equity related investments is simply over, simply due to the fact that economy and business are cyclical in nature. For instance, many stocks (even the bluest of blue chips) effectively wiped out the entire gains made during the last 10 years in just one year of global economic crisis last year!

On the other hand, others say that adopting the "buy and hold" strategy is the best strategy to investing as it is not possible to time the market in terms of peaks and troughs.

Personally for me, the "buy and hold" strategy will not work at turbulent times like this as every single company 's market share will be severely affected by sentiment. Instead of "buy and hold", the likely apprroach during such time in fact is "dump first, think later"! The objective of course, is capital preservation.

However, the strategy of "buy and hold" may make sense during market bull rally. For instance, US market went through a 5 year up trend from 1995 to 1999, followed by from Year 2003 to 2007. Notice that market went through a 3 year correction from year 2000 to year 2002. Assuming the stock price performance is correlated to the index, it would be wise to take some profit during initial market downtrend instead of waiting out for the unknown.

Year 2007 to date performance is a classic example where things really turn nasty! For those who hold on to their investments, chances are the entire gain built up over the last 10 years or so may be wiped off completely! Is it worth while to continue with the gung ho approach then?

So the question is how do you tell the market is undergoing bullish trend or bearish trend then?

Answer lies with Technical Analysis. As technical chartists often say, the charts do not lie! Mind you, technical charts are no crystal ball! They serve the purpose of serving a strategic or tactical guide, based on market "psychology" which will be reflected in the chart. As one say, the Trend is your Friend! Do not fight against the trend when it comes to trading or Investing! Tonnes of hard earned gains accumulated over the years could well be wiped off in an instant!

At the end of day, trade or invest with the trend rather than fighting it. One may not be able to time the market perfectly but at the minimum invest with proper risk management in place is the key to long term success.

Similarly, one needs to know when to cash out when the trend changes. No point be the hero. After all, IT'S YOUR MONEY!

How To Predict Stock Market Movement Using Currency

Most traders use technical analysis to make a prediction the likely movement of stock market. For most layman, learning up technical analysis takes time and a fair amount of patience and technical interest. For most, they simply give up.

There is one other way of making advance predictions of stock market movement, and based on my observation, the correlation between the two is a pretty good one.

Take currency versus US Dollar comparison. When US Dollar gains strength against other currency, stock market will likely go down. On the contrary, the exact opposite movement (market rises) happens when US Dollar depreciates against other currency.

Take the following two examples (USD vs Ringgit and USD vs Singapore Dollar) to study the correlation:



Do you see the opposite trend being formed? It may not be the most perfect correlation but generally, it holds true.

To explain this, generally speaking it is a case of US Dollar demand is stronger during rising risk aversion (i.e., funds are risk averse to investing overseas and therefore more funds are repatriated to U.S.). On the other hand, US Dollar demand will be weakened when funds are more eager to invest overseas, thus outflow of funds from U.S.)

So if you would like to predict the day's market movement, study the currency strength versus US Dollar.

Options Trading For Beginners

Due to the current financial and economic crisis in U.S., I have started evaluating some stocks in the U.S. Before 2008, trading in U.S. stocks would certainly require deep pockets, particularly for myself due to my country's unfavourable exchange rates ($1 to RM3.5 on average). Never in my life could I imagine stocks in U.S. could one day be trading at such low prices! eg., financial giant like Citigroup trading below $1? GE trading below $6? There are many other examples, such as General Motors and AIG. Then of course, these stocks were trading at such low levels due to their own respective unprecedented crisis!

So I started putting some money into U.S. stocks and thankfully, i made some decent gains in a short period of time. Having a solid trading plan knowing when to enter and exit was the critical success factor. By the way, adopting buy and hold strategy no longer works these days in my opinion, due to the volatile nature of markets and frankly, no one knows for sure whether the markets have bottomed. So why take on the risk of hitting the unknown?

Precisely. But here's a problem. Investing in U.S. stocks means that I will still need to pump in a sizeable amount of money to trade (bearing in mind my unfavourable exchange rate)! There comes to my mind options trading which I had heard so many times before but have very little knowledge of. Options trading utilises the power of leveraging on stocks and is a very powerful form of derivative instrument. So powerful that even Mr. Warren Buffett is fearful of (as he recently criticised as one of the major cause of stock market crash).

As I recalled, I had contemplated to learn options trading in June last year but I dropped the notion because I was not ready then (Please refer to my archived post entitled "Do I Need Options"). Now I believe I am ready to explore this new frontier (new, at least for me...) and to uncover it's perceived power of leveraging and to unlock the myth of successful options trading.

Haven't attended numerous previews of Options Trading learning courses in the past and feedback from numerous ex-students and friends who ventured into options trading, I was certainly skeptical on which Options Trading trainer or course would actually deliver the goods. My attempted research through the internet was of little benefit too as no website content would reveal satisfactory practical knowledge on options trading. Finally, I had little choice but to take a calculated gamble by learning from a fee-based course.

Next I shall reveal which course I have selected and my ground up review.

Worst Ever Results For Berkshire: Warren Buffett

Berkshire Hathaway Inc. posted its worst results ever in 2008! Billionaire Warren Buffett said the economy “has fallen off a cliff” and that efforts to stimulate recovery may lead to inflation higher than the 1970s. Berkshire’s shares have lost almost half their value in the past year as the bear market dragged down financial assets and the recession put pressure on profit from the company’s more than 70 operating businesses. Berkshire’s fourth-quarter net income fell 96 percent to $117 million. Book value per share, slipped 9.6 percent for all of 2008, on the declining value of derivatives and the company’s stock portfolio.

He believes the bailouts of the banking system and “quasi-banks” such as AIG were necessary, even if everyone dislikes what’s been done to salvage the New York-based insurer. He favored insuring all bank deposits, and in response to a question about nationalizing lenders, Buffett said he doesn’t see any moral hazard in the U.S. seizing an institution when shareholders are already almost wiped out.

He also believes the root cause of the current crisis was that companies used too much leverage and “played games” such as creating special investment vehicles to keep producing earnings growth. The U.S. economy was not a "house of cards" over the past ten years, but mistakes were made when it came to borrowing money.

Other keynotes include the following:
- The American public is fearful, confused and changing their buying habits,
- The economy turnaround won't happen fast.
- Five years from now, the economy will be running fine. The strength of the American system will pull it through, just as it has many times in the past.
- Most banks are in "pretty good shape" and can "earn their way out" of the current problems given the low cost of funds. Banks, however, "need to get back to banking.";

- It is extremely important that the government make clear depositors won't lose their money if banks fail;

- Buffett wishes he had written the New York Times "Buy American" a few months later, but stands by the basic argument that one will do better over a ten-year period with stocks that one will with Treasuries. He said in the article he wasn't calling the bottom of the stock market, and he still isn't;

- Buffett says derivatives are not "evil" and to be avoided at all costs, but they are "dangerous" and should be used very carefully. He still expects to make money on the long-term "put option" equity derivative contracts Berkshire has written;

- Housing market could work through, or "sop up," its excess supply in as little as three years if new construction is reduced to a level below natural population growth;

- Mark-to-market accounting should be retained, but regulators shouldn't use it so much to require institutions to increase their reserves.

Here are the full videos of Warren Buffett's interview with CNBC. It's quite a long interview but well worth the time listening.

US Economy has fallen off the cliff


Q&A


Fear Affects Everyone


Banks should go back to basics


Crooks & Investment Advice


Investment Regrets


Automotive Bailouts


Deals and Opportunities


Finding the right solution


Advice for Obama


The rich to subsidize the poor


Final Thoughts

How To Invest At A Point of Maximum Pessimism

Want to know how to invest at the point of maximum pessimism (given current stock market's doldrums)? Below is an experts' view on investing techniques at current market pessimism and where Malaysia stands from both economic and technical perspective.

The live interview was conducted by TheStar newspaper on 20th February 2009. This video may be a tad back-dated but the interviewees certainly gave a full-hearted and frank opinion on current business and market conditions, and sharing good ideas on investing for better future returns.

Here's the video. Enjoy.

Asia To Outperform The Rest of World

1997 was a year of crisis originated from the Far East. Then, the likes of emerging markets such as China and India had not quite come on stream... Ironically, Asia is again hit by financial crisis a decade later. This time albeit is originated from the west, namely U.S, followed by Europe.

Being predominantly export-led markets, Asian shares have been dragged down as a result by the global financial crisis that has seen foreign investors oozing to clear the fire exit. The outlook for this year is certainly bleak, no thanks to the over-dependence on exports. It remains to be seen how long this current crisis would unfold towards recovery. Asia perhaps stand a much better chance to withstand the current storm and outperform global shares in the mid to long term.

Here are my six reasons why.

1. Asian countries do not suffer from the consumer indebtedness and deleveraging that is now causing massive headaches in the western countries.
   
2. Asian financial system never became as dependent on credit markets and its banks are far less exposed to the toxic debt in U.S. and Europe;
3. Asian economies are generally buffered with high foreign exchange reserves, high savings rate and current account surpluses;
4. Asia's favourable demographics, being higher population growth with lower dependency ratio;
5. Asian equities are now trading on a similar valuation to global average. Thus, undervalued and attractive stocks are aplenty across the region.
   
6. Asia's long term growth prospects are still good, with both China and India leading the pack.
   

It's worthy to note that the above reference to the word Asia excludes Japan, which has had experienced stagnant growth for the past 2 decades.

Oh No, Another Accounting Scandal?

Oh no, here it is again, another massive accounting scandal and fraud, involving another top company. This time, is happening at the shores of one of the world's fastest growing emerging market, India. The latest fiasco involves India's fourth largest information technology company, Satyam (Computer Services), that is.

The chairman of India's fourth largest information technology companies admitted he concocted key financial results including a fictitious cash balance of more than $1 billion, a revelation that sent shock waves across corporate India and is likely to prompt investors to question the validity of corporate results as the once-hot economy slows.

B. Ramalinga Raju, is the founder and chairman of Satyam. In fact, the word "satyam" means truth in Sanskrit! Satyam has presence in over 66 countries and employs more than 53,000 global workforce. Together with the revelation, Raju has also tendered his resignation today. In his letter, he revealed overstating profits for the past several years, overstated the amount of debt owed to the company and understated its liabilities.


Raju said that Satyam had inflated its operating profit for the three months ended Sept. 30 to 6.49 billion rupees ($136 million) from 610 million rupees reported previously, while revenue was inflated to 27 billion rupees from 21.12 billion rupees. It had reported an operating margin of 24% which was actually 3%.

Raju also said Satyam's balance sheet as of Sept. 30 had a non-existent cash balance of 50.4 billion rupees; nonexistent accrued interest of 3.76 billion rupees; an understated liability of 12.3 billion rupees; and an overstated debtor position of 4.9 billion rupees compared with 26.51 billion rupees reflected in its books.

This has resulted in artificial cash and bank balances going up by 5.88 billion rupees in the second quarter alone.

Interesting to note that the auditor of Satyam Computer Services is no other than one of the big four Accounting Firm, PricewaterhouseCoopers (PwC). Questions point to whether PwC was involved in the accounting fraud. Remember the fate of Arthur Andersen with Enron?

Satyam's share price has plunged a staggering 78% in one day! On the other hand, India's Bombay Stock Exchange has plunged more than 7%.

For a copy of the content of the letter, please click here.