Invest Watcher

Everything Gold Is New Again

2011-04-03T02:32:00.000-07:00

By Shayne McGuire
Newsweek, New York
Wednesday, December 29, 2010

http://www.newsweek.com/2010/12/29/everything-gold-is-new-again.html

In stormy times, investors look for something solid to hang onto—something like gold. The World Bank president himself, Robert Zoellick, suggested in November that the world’s economies could use the old reliable metal to help stabilize their currencies. For these and many other reasons, professional gold-fund manager Shayne McGuire argues that gold has nowhere to go but up. The following essay is adapted from McGuire’s latest book, Hard Money: Taking Gold to a Higher Investment Level.

Gold used to be regarded as an investment for losers—for the crazies forever expecting the financial apocalypse. To the great economist John Maynard Keynes, it was a “barbarous relic” of a primeval economic past. Many people have abandoned that lousy stereotype, now that the debt-driven bubbles in stocks and real estate have burst. Following the collapse of the world’s largest bank, the Royal Bank of Scotland, and the largest insurer, the American Insurance Group, among many other notable institutions now owned and directed by Western governments, people have come to understand the need for time-proven financial insurance that can insulate their wealth from government and financial firms. And there’s only one viable and liquid investment that enables a person to pull his or her wealth out of the financial system: gold.

Buying gold has been the best method for shorting the government. Betting against government—that is, on a sudden, sharp rise in inflation—has strong odds in the midst of surging government deficits. Hyperinflation is fortunately a rare event, and it is unlikely to emerge at present. But consider that all 30 documented cases of hyperinflation—that is, a situation where prices rise by at least 50 percent per month—have been caused by deficits that got out of control. Hyperinflation invariably emerges in a deflationary environment of weak economic activity, such as the one that now threatens the United States, European nations, and Japan. It can erupt when the public grows wary of the money being printed in growing quantities by monetary authorities, which are forced to buy—to “monetize,” in the financial vernacular—a surging supply of government bonds that the markets no longer all want to buy.

Every currency in history has eventually fallen against gold—most dramatically in times like these, times of surging liabilities and an increasing inability to meet them. Gold is the only credible currency whose quantity cannot be expanded at will to meet the spending needs of governments in distress. By its very nature it remains scarce and rises in value as the supply of paper money grows. And I think it’s safe to say that following the most dramatic credit crisis since the Great Depression—one that is continuing to produce ripple effects, like events in Greece that are broadening into Europe itself—we are likely to see historic investment shifts that will provide great opportunities.

One major beneficiary will be gold. I strongly believe that present financial conditions are about to transform the investment strategies of the world’s largest investment funds in a way that will cause gold to surge substantially higher.

To understand why, consider present asset allocation at some of the world’s largest investment funds. Pension funds, like the one I work for, have a significant effect on the world’s markets, since they collectively manage $24 trillion. But gold plays a negligible role in their asset allocations. Teacher Retirement System of Texas, whose GBI Gold Fund I manage, probably holds a larger percentage of assets in gold than any other large ($10 billion and higher) pension fund in the world, but our holdings in the precious metal are modest in comparison with any major type of asset like stocks and bonds. And so it is with other pension funds. Since commodities typically represent around 3 percent of a typical fund’s total assets, and the precious metal makes up less than 5 percent of commodity allocation, that makes gold only 0.15 percent of a fund’s total assets. Add in the value of gold-mining stocks and precious-metals exchange-traded funds (maybe another 0.15 percent of total assets, at most), and a typical pension fund holds less than a third of 1 percent in gold—that is to say, virtually nothing.

This is remarkable considering the tremendous diversification benefits the metal can provide for an investment portfolio. Over the past decade, stocks were down 24 percent while gold rose 280 percent, a fact that would have benefited any fund with a significant gold investment. Gold was beating stocks even during the 2002–07 stock-market rally. But most financial professionals today have never considered gold seriously as a major investment. Since it performed so poorly during the equities and bonds boom of the 1980s and 1990s—when most financial leaders today were moving up the ladder—many nurse a lingering sense that gold will never make sense as an investment.

But suddenly the financial industry is being forced to think long and hard about gold. Surging public debt in many of the world’s largest economies may be about to push the global government-bond market into a period of significant turmoil. If some part of the world’s $30 trillion in sovereign debt could be dumped by the world’s pension funds, insurance companies, banks, and individual investors, then where will that money flow to? Stocks? Real estate? Since pension funds already have high exposure to stocks and other assets like real estate and private equity, it seems reasonable to expect that some fraction of that capital—perhaps as much as $500 billion or more—could eventually flow into a time-tested real asset: gold. Most funds would practically be starting from zero, considering the low percentage of total assets the metal represents today.

The effect of suddenly moving a substantial amount of investment money into precious metals was best described in a telephone conversation I had with an industry expert: he said it would be like shoving an elephant into a mailbox. At $1,300 an ounce, all the gold in the world—all the jewelry, coins, bars, molars, and church art—is worth an estimated $6.5 trillion. But the vast majority of global gold, like the ring on my finger, is not freely traded. In fact, perhaps only 5 percent of all physical gold actually trades each year, which would make the investment gold market around $320 billion. The mining industry produced around 2,500 metric tons of gold in 2009, worth around $80 billion at the average price for the year. A little over half of every year’s gold production is used for jewelry and industry, so less than $40 billion was available to the global investment community. That’s equivalent to about 20 days of trading in shares of Google—a single stock on the American market.

With these numbers, a large shift of funds into gold would cause it to rise sharply and fast. If it rose from the minuscule part it represents in the world’s largest portfolios today to just 1 or 2 percent of global assets under management, the price increase would be substantial. A rise to $10,000 an ounce is not out of the question. It wouldn’t be the first time gold has risen in such a way: The price of gold jumped 23-fold in the nine years ending in 1980. And at that time there was no question about the solvency of the U.S. government nor about the health of the banking system.

Buying gold—that is, speculating that a rock will rise in value—is a somewhat unsettling proposition for a 21st-century investor. But we’ve been here before. Many times throughout history, governments across the world have driven their countries to the brink of ruin in the name of “saving the economy” by printing money to cover climbing public expenditures. In times like these, decisions regarding what percentage of wealth to hold in stocks versus bonds should be considered alongside the questions “How much money do I want to have in the financial system itself?” and “Am I adequately protected from government errors that could harm my wealth?”

Today’s situation is singularly dire, but it won’t last. Gold will never outperform stocks and bonds over the long run, because it does not grow or produce a cash flow. But in light of the challenges facing most other investment classes at present, investors should think carefully about gold. There are no reliable models to determine if it is “overvalued.” What if the world’s investors decided to transfer 3 to 5 percent of wealth out of cash and into hard money? Considering that only 0.6 percent of global financial assets is currently held in the metal, such a movement could push gold prices into the tens of thousands of dollars per ounce. But if we reached that point, would it finally mean that gold had become insanely expensive—or simply that the world had less faith in the printed paper debentures of profligate governments? Which currency is more trustworthy? Which one is the real money?

McGuire is the head of global research and manages the $500 million GBI Gold Fund for Teacher Retirement System of Texas, one of the world’s largest pension funds.

Solution for the sovereign debt crisis - Tax the rich

2011-04-01T10:12:00.000-07:00

Extracted from Version 2.0: A kinder brand of capitalism
by Teh Hooi Ling

Published March 26-27 2011 on The Business Times Weekend

Are the rich of the world so rich that combined they would actually have enough stashed away to help solve their country's debts?According to Forbes list of world's billionaires, there are 1,210 billionaires in the world now. Their combined wealth , is about US$4.5 trillion. That's more than the GDP of Brazil, India, Indonesia and Thailand combined.

The United States has the most number of billionaires, at 412. It is followed by China and Russia - ironically two countries which used to subscribe to the Marxist philosophy but have since made some drastic ideological changes. China has 115 billionaires and Russia has 101. But the billionaires in Russia are far richer than those in China. Their combined wealth is US$433 billion, compared with China's US$230 billion.

India's billionaires (with combined wealth of US$247 billion), meanwhile can fund nearly two years of the country's estimated budget deficit of US$131 billion last year. The billionaires in the US can help trim their government's net debt by 16 per cent, Brazil's by 18 per cent and Mexico by 31 per cent.

Meanwhile, Hong Kong's 36 billionaires have wealth amounting to a staggering 70 per cent of their economy's GDP last year.

Currencies are not the problem

2011-03-13T09:01:00.000-07:00

Published March 11, 2011 on The Business Times

By RAGHURAM GRAJAN

Professor of finance at the Booth School of Business at the University of Chicago and the author of 'Fault Lines: How Hidden Fractures Still Threaten the World Economy'.

LAST November, the US Federal Reserve embarked on a second round of a type of monetary stimulus known as quantitative easing. The central bank declared that it would buy US$600 billion in long-term Treasury bonds in an attempt to push down long-term interest rates. Immediately after the move, the rest of the world accused the United States of deliberately attempting to depreciate the US dollar.

However, Washington was not alone in apparently trying to influence its currency's value. China has continued to hold the yuan relatively stable against the US dollar, even though many economists believe that the fair value of the Chinese currency is considerably higher.

Last September, Japan intervened in the exchange markets to prevent the yen from rising too quickly, and many emerging-market countries have used a mix of similar interventions and capital controls to keep their own currencies from appreciating.

Intervention is a zero-sum game: For one country's currency to depreciate, some other countries' currencies must appreciate. Are the same type of senseless beggar-thy-neighbour currency depreciations as those of the 1930s, when many countries tried to depreciate in a race to the bottom, just around the corner?

Thankfully, probably not. Today's jockeying over exchange rates has several important differences from that of the Great Depression years. Most countries today are not trying to gain a short-term advantage through currency actions; instead, they are following domestic economic policy strategies that have allowed them to grow easily in the past. For developed countries such as the US, this has meant an emphasis on consumption; strategies in China and other emerging markets, meanwhile, have emphasised exports.

Taken together, these strategies have led to significant trade imbalances around the world, even before the recent crisis. Sustained trade imbalances, in turn, seem to lead to financial and political instability, making them quite dangerous in the long run. However, unless the domestic policy strategies change dramatically, these imbalances will likely persist.

Global economic stability, therefore, is not dependent on some grand agreement among countries - if you allow your currency to appreciate, I will rein in my fiscal deficit - which unfortunately seems to be the focus of recent economic summits. Instead, stability will emerge when governments move to more sustainable domestic policy agendas, which are typically in their long-term interest.

The role of multilateral bodies, such as the Group of 20 and the International Monetary Fund, should therefore be not to coordinate policies among countries but to insert the international dimension into each country's domestic policy debate on reforms. It should also be to set reasonable rules of the game on financial regulation, cross-border capital flows, and international bailouts.

Multilateral bodies conduct neither of these functions adequately today. But the silver lining in an otherwise dark cloud is that the rethinking prompted by the Great Recession is already altering policy agendas in some key countries. Given all this, with more effort and some luck, the global economy will not repeat the tragic history of the early 20th century.

Easing ain't easy

A country's exchange rate affects the international price of its goods. By keeping its currency undervalued (economists debate how easy, in fact, this is to do), a country can expand its market share and production by essentially stealing demand from other states. Exchange-rate manipulation can be particularly attractive in a recession, when preserving jobs is politically important. Governments often view this sort of direct manipulation as a particularly unfair form of competition.

Accusations of such unfairness are now being levelled against the Fed. Usually, when a central bank cuts interest rates, the country's currency weakens as capital leaves for more attractive shores. However, lower interest rates also tend to increase domestic demand, as households and firms spend more. In the end, monetary easing does not simply take demand from other countries; it also creates demand overall.

Monetary easing, of which quantitative easing is just an extreme form, is therefore typically viewed as a perfectly legitimate economic policy. But the circumstances under which the Fed embarked on the second round of quantitative easing (the first round was the buying of long-term Treasury bonds and asset-backed securities starting in late 2008) made the move questionable.

With short-term US interest rates already near zero, and with large firms able to borrow at very low rates, it was unlikely that corporate investment was being held back because firms thought interest rates were too high. Similarly, households were cautious about spending not because they thought interest rates were too high but because their balance sheets were in disarray.

Quantitative easing, other countries alleged, would make US dollar bonds unattractive, because long-term bond yields would fall below what investors wanted given their expectations of higher inflation. This, in turn, would cause capital to flee the US, lower the value of the dollar and expand US exports at the expense of other countries.

After Fed chairman Ben Bernanke announced that he would undertake quantitative easing, US long-term interest rates dropped and the dollar weakened. But worries about sovereign debt in the eurozone economies soon led the dollar to rebound. And better news about the US economy, as well as worries about the US' long-term fiscal health, led to a sharp increase in US interest rates.

In the end, quantitative easing may have had neither the effect the Fed predicted nor the one its critics feared.

Nevertheless, the recent debates over currency valuation revealed deeper concerns. The rest of the world worries that policy in the US, with its two-year electoral cycle, is excessively focused on short-term growth and employment. US politicians neglect the damage their policies do to the rest of the world and, in the long run, to the US itself.

US holds a long rope

Unlike other countries, whose wayward policies are quickly disciplined by financial markets, the US is given a long rope because investors value its deep and liquid financial markets - what in the 1960s Valery Giscard d'Estaing, then the French minister of finance, described as an 'exorbitant privilege'.

On the other side, the US worries that too many countries have become dependent on it to buy their exports and have relied too much on purchasing US financial assets, such as government and corporate bonds, to keep their currencies stable. Although such asset purchases provide the financing the US needs to fund its imports, they also prevent it from exporting and reducing its trade deficit - in other words, they encourage US consumption rather than production.

The exorbitant privilege may instead be an extraordinary disadvantage.

The symbiotic relationship between the US and the rest of the world creates very real dangers. US monetary policy is imitated around the world, which means that when the Fed cuts interest rates, it puts downward pressure on rates everywhere, because no country wants its currency to appreciate strongly against the US dollar. Although the Fed does not recognise it, it sets monetary policy not just for the US but also for the world. And what is appropriate for a US economy that is recovering slowly from a recession may be overly aggressive for emerging markets that are near full employment, creating inflation and asset bubbles in those economies.

Over the medium term, if the US embraces its role as spender too readily, as it seems to have done in the recent past, it risks jeopardising its creditworthiness - not even the US can borrow forever to fund spending. If the rest of the world suddenly becomes reluctant to fund US spending, the adjustment will be painful, and not just in the US.

This article is sourced from Foreign Affairs, a publication of the US Council of Foreign Affairs. This is the first in a series drawn from a longer article in the March/April edition

Book: Naked Economics: Undressing the Dismal Science

2010-10-16T07:17:00.000-07:00

I have been reading several books to understand more about the macroeconomics, which is necessary to maneuver in complex financial market today. I would say this book is one of the best in explaining the various ideas and issues on economics. The author did a great job making economics study accessible to all; he did away the complicated math calculations and diagrams, explaining the economics concepts and tools with simple example.

If you ever wondering and would like to find out the answers for these questions below, this is the book for you.

Why Bill Gates is the richest man but not others?
How much is the paper money we holding worth?
How governments and central banks fighting the recession?
How you will be impacted financially when the central bank raise or reduce the interest rates?

Confirmation Bias

2010-05-21T10:09:00.000-07:00

Psychology plays a major part in the trading success. Among all, greed and fear are the main determinants in the success or failure of a trade. I would cover these factors details in my future post. Another hurdle is the confirmation bias, the tendency of people to seek evidence in confirming an already held opinion.

For example, you came across an Internet news that a new oilfield is discovered by Company A, that would bring a significant profit to the company. This news attracted your attention, and you went on to google all related news, and think that the shares of Company A will rise. Worried that you would miss this boat, you quickly logged into your Internet broker and made the purchases. Without analyzing the company properly, in term of their financial and technical trend, you might make a wrong entry and suffer loss. This usually happens in amateur traders.

Book: John Paulson's Greatest Trade

2010-05-18T08:32:00.000-07:00

Few weeks ago, the financial titan, Goldman Sachs was charged with fraud by the US Securities and Exchange Commission (SEC) in the structuring and marketing of a debt product against the benefit of the investors. The SEC alleged that Goldman Sachs did not tell investors the vital information about the collateralised debt obligation (CDO) that they were marketing.

The vital information was about a major hedge fund, Paulson & Co have been involved in choosing the securities that would be part of the portfolio, and taking a short position against the CDO in a bet that its value would fall. Through these trades and betting against these subprime mortgages, Paulson & Co have enjoyed the profit of close to 40 billions.

The book, The Greatest Trade Ever came in just in time that provides the reader the detailed insight on how John Paulson, the founder of Paulson & Co transforms his fund, which initial specialize in mergers & acquisitions deals to one of the biggest hedge fund in the world. The book also mentioned briefly how this subprime crises brought down Bear Stearn and Lehman Brothers, which caused financial meltdown around the world. Not only on John Paulson, this book also described how other bearish investors made great earnings after realised early the collapse of the housing market.

Defend against market downturn

2010-05-07T07:06:00.001-07:00

Average investors usually use buy low and sell high in the market to earn the profit. However, in sudden market downtrend, they normally hold on their positions and suffer the paper loss.

Recent crisis in Euro zone has spread around the market worldwide; rumour about the sudden dried-up of liquidity in Euro zone and trading system glitch have triggered massive sell off in Wall Street. We might now heading for short term correction.

Under this scenario, how do we defend ourself against the downturn? Shorting the market seems as good choice, but it might be too sophisticated for average investors, and high risk as well. Another choice is to go for inverse ETFs.

ProShares and Direxion offer a range of inverse ETFs, allowing the investors to hedge against the downturns, or seek profit when markets decline. The funds also provides the investors with even more exposure through the leverage. Under current situation, betting against financial sector seems like a good choice, allowing investors profit when financial sector index declines, and vice versa. Look up for ProShares Short ETFs and Direxion Bear Funds.

For more information, please visit for more information:

http://www.proshares.com/

http://www.direxionfunds.com/products.html

Why demonise the credit default swaps?

2010-05-06T09:50:00.000-07:00

I came across this interesting article about widely discussed financial tool - Credit Default Swaps, CDS few weeks ago in The Business Times, so would like to share with you about this financial tool.

By Luigi Zingales

Professor of entrepreneurship and finance at University of Chicago Graduate School of Business, and co-author, with Raghuram G Rajan, of 'Saving Capitalism from the Capitalists'

[CHICAGO] The lawsuit filed by the US Securities and Exchange Commission (SEC) against Goldman Sachs Group for securities fraud, charging the bank with misrepresenting the way a collateralised debt obligations (CDO) had been formed, has revived public disgust at credit default swaps (CDS), the instrument used to bet against these CDOs.

Before the 2008 financial crisis, CDSs were an esoteric product, known only to a restricted number of sophisticated investors and specialised academics. Today, they are a household name, synonymous with unruly speculation, boundless greed, and ultimately, systemic instability.

Indeed, CDSs are blamed as one of the main causes of the financial crisis. The legality of Goldman Sachs' behaviour will be determined by a court of law, but CDSs' odious reputation is jeopardising the survival of this instrument in the court of public opinion.

Riding the populist wave, several politicians have proposed a ban on CDSs. The recent Greek crisis has further, galvanished the anti-CDS camp. After all, isn't it the fault of the CDS market's avaricious speculators that Greece was on the verge of default and that Greek public employees have had to endure deep wage cuts?

In a word, no. Far from being the spawn of the devil, CDSs are a useful financial instrument that can improve not only financial stability but also the way that companies and countries are run. Banning them will do more harm than good. Any attempt in that direction is detrimental because it would divert attention from the useful goal of disciplining the CDS market to make it more transparent, stable and efficient.

One key advantage (if not the key advantage) of capitalism over central planning is the information conveyed by market prices. When demand for potatoes at the current price exceeds supply, the prise of potatoes rises, signalling scarcity. Individual farmers do not need any bureaucratic directive to decide whether to plant more potatoes: An increase in prices creates an incentive to plant more potatoes; a decrease in prices is a signal that they should plant less.

The same is true with stock prices. An increase in the stock prices of steel manufacturers suggests an increase in the demand for steel, which induces entrepreneurs to start more steel plants and investor to provide them with the money. Conversely, a decrease in the stock price of steel manufacturers leads entrepreneurs to liquidate existing plants and dissuades investors from committing more resources to the sector.

Unfortunately, sometimes prices fail to perform this signalling function properly, as the dot-com and housing bubbles in recent years showed. During the dot-com bubble, prices signalled huge demand in the Internet sector. For this reason, hundreds of millions of dollars were wasted in advertising improbable companies on TV and building network capacity beyond any foreseeable need. During the housing bubble, prices signalled a severe scarcity of houses. So, billions of dollars were poured into new developments in remote locations where nobody wants to live.

Given the large misallocation of resources in such cases, it is vital to understand why prices failed to provide an accurate signal to investors. Why did the United States, with the most developed financial market in the world, experience two major bubbles in less than a decade? An expansive monetary policy is partly to blame, but the real problem is an institutional setting that favours bullish sentiment.

Pension funds, mutual funds and investment banks are all long in the stock market. Shorting a stock is difficult and risky: It is difficult because borrowing stocks is hard to do, and it is risky because shorting has limited upside but infinite downside. In other words, the traditional securities available to investors make it easier to bet in favour of a company than against it, causing prices to be affected more by irrational exuberance than by panics.

In this respect, CDSs are unique. Because they function as insurance on borrowers' ability to meet their obligations, they make it easier to express a negative opinion on a company or a security. To express a negative view via the CDS market, investor do not need to locate securities to borrow (a prerequisite for shorting), and they risk only a limited premium, while they have the opportunity to gain many times of that.

It was the CDS market that allowed the negative - and correct - view of the housing market held by John Paulson and others finally to be embedded into market prices. They made the bubble burst. While painful for the rest of society, this is healthy. The longer a bubble lasts, the more damage it causes.

The same reasoning applies to the Greek crisis. The CDSs on Greece provide a useful signal of the country's compromised financial situation. It is thanks to the spike in the CDS market that the Greek government tightened its budget and improved its fiscal position. Medical tests, too, often bring bad news, but abolishing medical testing does not solve problems, it only hides them, making them worse.

The reason that politicians and corporate managers alike hate CDSs is precisely because CDS rates are so useful and so prompt in exposing their mistakes. Nobody likes to be found wrong. For this reason, politicians and powerful businessmen often cajole the press, the credit-rating agencies, and even the analysts to portray their actions in a positive light. As the main source of negative information that is not sensitive to power, the CDS market is feared, and politicians want to eliminate it.

Of course, the CDS market is not perfect. In fact, it is not really an organised market, but only an informal virtual exchange. The existing rules are designed not to make it transparent or resilient, but to make it more profitable for large institutions such as Goldman Sachs and JPMorgan. So intervention is needed to formalise the CDS market and force appropriate collateralisation, so that no government has to step in to rescue any counterparty.

But regulating the CDS market does not mean banning it. To do so would only sow the seeds of the next bubble.

Great guide on Technical Analysis

2010-05-04T06:54:00.000-07:00

I came across this site while I was searching in-depth explanation on MACD (Moving Average Convergence/Divergence. I went through briefly on some of the pages; the explanation and illustration are really great, even better than some of the technical analysis books. For those who interested to dive deep into technical analysis, this site will be a great start:

StockCharts.com - ChartSchool

http://stockcharts.com/school/doku.php?id=chart_school

Once you have mastered this, this will be half way to the trading success, the other half is to master your trading psychology.. :)

Happy Learning !!!

High Frequency Trading

2010-05-03T07:52:00.000-07:00

Last weekend, I was searching the software development positions at the website eFinanceCareers.com. I realized that there are big demands in the low latency, high frequency development specialists. Out of curiousity, I did a search for software development in this area. From my understanding, this is about developing a trading system that require the knowledge in communication protocols like TCP, UDP and RPC.

Then I found this interesting article about how the hedge funds and big investments banks gained their trading profit through this high speed trading system. The picture below taken from The New York Times, explaining how these traders gained the profit.

For those who interested, go to this link and read the details:

http://www.nytimes.com/2009/07/24/business/24trading.html?_r=1

Fundamental & Technical Analysis: Why both are needed??

2010-05-02T01:30:00.000-07:00

Very often we heard traders/investors mentioned about these two terms: FA and TA, which stand for Fundamental Analysis and Technical Analysis respectively. These analysis have opposite viewpoint on the topic of market efficiency.

For me, the starting point for new traders/investors should be fundamental analysis. A correct analysis of the factors influencing supply and demand helps establish the overall trend in a market. However, these factors may take a long time to exert their influence, so we should also use the technical analysis to help forecast future price action.

Technical analysis is a huge discipline and needs some efforts to excel it. A basic understanding on support/resistance, moving average, MACD, RSI and candlesticks patterns will give you brief idea the price action of a share, which improve the chances of profit. Technical analysis can be used to establish both the entry and exit levels for a trade, whether setting a limit to take a profit or choosing a stop to cut a loss.

An understanding of technical analysis is definitely a requirement for a trader, which often buy in at support and sell their holding when it reaches resistance price level. Without establishing this understanding, rushing into the market and make a purchase is simply considered as gambling in the stock market.

In contrary, the medium/long term investor might think understanding of technical analysis is no necessary, as they will just buy and hold for some period of time, current price action is not in their interest. The technical analysis will help to increase the chances of investment success; Without that, you might buy in at resistance level, and incur huge paper loss after that.

Lastly, as this analysis is based on the historical price level, it could not foresee any certain unexpected events. Besides that, based on same historical price action, different people will deduce different conclusion, so technical analysis is much like of an art appreciation rather than a scientific analysis.

Free copy of A Guide to Technical & Fundamental Analysis

2010-02-07T06:58:00.000-08:00

I came across this free goodies on YourTradingEdge magazine, Jan/Feb 2010 issue (www.YTEmagazine.com). A advertisement from MF Global is published at the back page of this page.

Visit the MF Global website: www.mfglobal.com.au/professionalseries, and register to get a free copy of A Guide to Technical and Fundamental Analysis.

It is brief, but completed with necessary information for those who are new to investing to get start with.

Three types of Investors in this volatile market

2009-09-02T07:27:00.000-07:00

Few weeks ago, I came across an interesting article in The Business Times Weekend, which using a poker analogy to summaries the groups of investors perform the best and worst in these crises. Here are the extract of the article:

Strong Hands
They are not only emotionally strong enough to avoid selling into panic, but they are also have deep-enough pockets to avoid doing so for financial reasons. In fact, they are those who can actually profit by buying at cheap prices near the market bottom.
Weak Hands
They are those never harboured any illusions about being able to hold on. They "fold immediately and therefore suffer limited losses."Momentum investors, for example, fall into this category, because they constantly shift their portfolios away from securities that have lost the most money. Sometimes, they can turn up getting profit during this severe crisis because they may have shifted their portfolio to profit from the crisis.
Strongest Weak Hands
These investors are those that fall in between the above two groups, and usually end up losing the most money. These investors initially think they have a strong hand, and hold on for a while as their losses become more severe. Eventually, they discover that they aren't as strong as they initially thought - emotionally, financially or both. They are then forced to sell at or near the bottom.

US market vs S'pore market

2009-09-01T07:25:00.000-07:00

In Singapore, with the help of various brokerages, we are able accessing to various countries market. Generally, US market and Singapore market are the most investors and traders here going for. For me, I would prefer to invest/trade in US market over the Singapore market.

Below are some points explaining my preference:

US is currently still the dominated financial market in the world, with huge transactions volume going on everyday. To investor/trader, it means that you can easily buy/sell your share easily.
As the dominated financial market, everyone in the world is watching the market. Hence, you can easily find the latest information, analyst's reports and comments on the Internet.
Besides equities market, there are also other financial vehicles, eg. bond, futures, options to diversify your investment or hedge against your losses.
Unlike Singapore market where shares are selling in lots (1000 shares), shares in US market are selling in single share, which means that if the current price of Share A is US$75, you only need to pay this amount plus the transaction fees to own this share. So, to a investor who just starting to invest, you are not necessary to have few 10k to own a quality share in US market.
Lastly, as US stock market only starts at the night time of Singapore, observing the US stock market will not affect my work in the day time. Unlike those trading in Singapore market, they tend to keep observing the Singapore stock market while working.

However, one of the major risk of investing/trading US market is the currency risk.

Roadmap to Financial Freedom [3]

2009-06-23T09:26:00.000-07:00

Part Three of the article..

Source: New Sunday Times, May 3, 2009
Author: Yap Ming Hui, Managing Director of Whitman Independent Advisors Sdn Bhd

A roadmap to financial freedom frees you from money-related worries so that you can enjoy the other important things in your life. Thus a roadmap to financial freedom helps you to live a balanced life. You have the confidence that your personal finances are in order because you have managed to define how much money is enough for you and you know you will eventually have enough.

You can then focus on the important things that I call non-financial wealth, like your physical wealth, your spiritual wealth, your family wealth, your mental wealth and social wealth. Without the confidence that comes from knowing that your personal finances are in order and on track, there is always a sense of guilt when you spend time on activities that don’t contribute directly to your financial well-being.

For example, you want to spend more time on community service, so you squeeze time from your hectic schedule for this. However, while performing your community service, you may feel a sense of disquiet that there is some outstanding matter about your personal finances that you have not dealt with. Then you may doubt that you are doing the right thing at the right time.

Thus, if you are not sure that your personal finances are in order, you will not be able to focus on non-financial wealth. Usually, you only enjoy this free feeling when you have actually achieved your financial freedom with millions in the bank, as most of my multi-millionaire clients have testified. However, you don’t have to wait until then to have this free feeling. By acting on your optimum roadmap to financial freedom, you can enjoy the same free feeling.

Roadmap to Financial Freedom [2]

2009-06-23T08:23:00.000-07:00

Part Two of the article..

Source: New Sunday Times, May 3, 2009
Author: Yap Ming Hui, Managing Director of Whitman Independent Advisors Sdn Bhd

A roadmap to financial freedom gives the feeling of financial freedom today. The reality is that financial freedom can’t be achieved overnight. However, do we need to achieve financial freedom first to feel peace of mind?

If you are living your life feeling insecure and uncertain about the attainment of financial freedom, then you are treating financial freedom as a destination. You will only feel happy and peaceful when you attain the reality of financial freedom.

But a roadmap to financial freedom can help you achieve peace of mind today. For when you have optimum roadmap to financial freedom, you will know that you are on track to financial freedom – as long as you manage your money according to key performance indicators.

Therefore, you know in your heart that financial freedom is not a dream but something you can achieve. In the meantime, you can live your life feeling secure and comfortable that your financial freedom as journey, not a destination.

You can start to experience the feeling of financial freedom while you are on your journey. You don’t have to wait until you become a millionaire to feel the peace of financial freedom.

At the end of day, aren’t we all just looking for that sense of peace?

Roadmap to Financial Freedom [1]

2009-06-23T08:00:00.000-07:00

I came across this meaningful article about financial freedom some times back, and decided to share it here. It shows the important of having roadmap to financial freedom in our personal life. This article was published in the Malaysia newspaper, New Sunday Times under "Your Money" section. As it is quite lengthy, so I organize it into three parts.

Source: New Sunday Times, May 3, 2009
Author: Yap Ming Hui, Managing Director of Whitman Independent Advisors Sdn Bhd

A roadmap to financial freedom lets you enjoy clarity of mind and control of your personal finances. As a result, you become the master of your money. Without such a roadmap, you are in the dark as far as personal financial management is concerned. You are always trapped by your money problems.

You worry that you overspend. You worry that you under-save. You worry that your investment return is too low. You are not sure if you can provide for your children’s tertiary education. You are not sure if your wife can stop working to take care of the family full time. You are not sure if you start your own business or even change jobs to increase your income. And you are not sure when you can retire. You have so many questions about money in your life with no certain and clear answers. In short, your life is always troubled by money worries and concerns.
Without clarity, you end up making a lot of life-shaping decision based on money as the top priority. You look for jobs that give you the highest return, not the job that suits your strengths. You look for investments that give you the highest return, not the investment that fits your risk profile and time horizon. Money, or more money is always the major consideration in your life and it drives your decision-making. In that case, you are not the master of your money – the money is the master of you and your life.

I have a friend, Chris, who has been done very well in business and has prospered all these years. Lately, Chris has been hurting for a house close to his parents’ home. He wants to live nearby so that he can take care of them and they can keep an eye on his children. One day, I asked him how the house-hunting was going.

“The owner of a house two doors away from my parents’ home want RM250,000,” he replied. “He bought the house 10 years ago for RM190,000.”
“Are you taking up the offer?” I asked. Guess what was his answer?
“I think that the price is rather expensive. I will buy only if it’s RM220,000. I believe that the price will drop further if the economy worsens. In the meantime, I can invest money in the stock market to generate more return,” he said.

This is one of many examples of making life decisions where money is the priority. In the first place, Chris is doing well financially. Second, he is not buying the property as an investment. He is buying the property to be near his parents’ home so that he can better care for them.

However, because of the habit of making money control in all his decision-making, Chris can’t help but confuse himself in this matter. His mind is dominated and influenced by the urge for more money. In addition, the house is not that expensive. It has appreciated only 24 per cent over the last 10 years. That’s annualized growth of around 2.8 percent. Yet, through habit, Chris can’t help but put financial gain at the centre of his decision-making. Instead of thinking whether the house was suitable for his purpose, he jumped straight into money consideration.

This is one example of what I mean by letting our money run out lives. A roadmap to financial freedom can help you put your money into its proper context, which is to support and serve your life. A roadmap to financial freedom serves to remind you that money is only a means to attain the end. It is never, and should never be, the end of your life. From there, you can command how you will make your money work to support the good life you want and not the other way round.

My definition of Financial Freedom

2009-06-16T09:03:00.000-07:00

Is being financial freedom means that you have to reach the level of living like those billionaires; owning a island in Dubai, having few luxury or sports car, or able to travel around world? I don't think so and you don't have to. You can be an engineer now and achieve financial freedom in less than 15 or 20 years from now.

To me, financial freedom means you can enjoy your living, pursue your interest without having worried on the money issue. For example, you can go for a job that suits your interest and strengths, rather than the job that give you the highest pay. In this case, you can be the master of your life and your money, rather than letting the money to become the master of you and your life.

Here are my definition of financial freedom:

Debt-free: NO outstanding credit card bills, NO loans, NO mortgage and etc
Enough fund for emergency: Life is full of unexpectation, you must allocate some money for this purpose.
Good coverage for retirement: After almost half of century of work, it's time for relax and enjoy. So, you need to have good coverage for your comfortable retirement life.
Passive income for investment: Your investment must be able to provide you a continuous stream of income.
Option of not to work: You can choose not to work anytime if you wish to, without worried of meeting the monthly payment or expenses.

So, if you wish to attain financial freedom in 15 years from now, you must have a good planning as soon as possible, to let you have a clarity of mind and control of your personal finances.

Here are the two useful links I found during my information searching. Hopefully, these will enlighten you in your view of wealth and financial freedom:

The Starting Point....

2009-06-04T09:50:00.000-07:00

Some people think that going into stock market is very risky, so they rather keep their money in the bank. I would think investing in the stock market with an analogy of driving a car.

If you don't know how to drive, and yet you go into the car, start the engine and go, that's considered as a risky action. However, if you know how to drive, how to properly control the car, then driving a car won't be considered as a risky action. The more you know, the safer you are when you driving on the road. The same goes to the investment in stock market. Just like the investment guru, Warren Buffett said, "Risk comes from not knowing what you're doing".

So, getting up-to-date with the latest information in the financial market is very important to the investors. Knowing the latest news might not be enough; one of the most valuable skillset of the investors is to know the impact of the latest news. For me, I started off reading the online news from http://www.cnbc.com/, http://www.bloomberg.com/. These sites provides the latest news in the financial market around the world as well as some analysis of the current state of market. The sites also have live streaming video when the stock market is open.

Besides that, I also goes on to buy some magazines and newspapers. Here are the list of magazines and newspapers.

Magazines:

Smart Investor - Monthly
Pulses - Monthly
FundSuperMart - Quarterly
iFAST Insight - Quarterly

Newspapers:

The Business Times - Daily, except Saturday, Sunday
The Business Times Weekend - Weekly, available on Saturday
The EDGE - Weekly, available on Sunday

As you can see, magazines will not provide you the latest news of the market. But the magazines do offer a lot of personal investment guides and information, like "How to invest in GOLD?", introduction of various financial product, insights into corporation strategies, direction of the economy, interview of some experienced investors and traders, and etc.
As for start, I would recommend to begin visitting the websites frequently, take note of the news and comments from

Ben Bernanke - Chairman of US Federal Reserve
Alan Greenspan - Former Chairman of US Federal Reserve
Timothy Geithner - US Secretary of the Treasury
Paul Krugman - Nobel winner in Economic, 2008

Besides that, The Business Times Weekend and The Edge are the good starting point for new investors. You can also visit http://www.businesstimes.com.sg/ daily after 6pm to read the articles that published in the Print Edition (is free....) As for magazine, you can go for the FundSuperMart magazine.
Lastly, if you are really serious into investment (not speculation), this book is a must in your book collection. The book title is The Intelligent Investor, by Benjamin Graham, and collaborated with Warren Buffett. This book will introduce you "What do we mean by Investor ?"... The details of the book can be found in the link below:

http://www.amazon.com/Intelligent-Investor-Definitive-Investing-Practical/dp/0060555661/ref=sr_1_1?ie=UTF8&s=books&qid=1244137499&sr=8-1

Soul-searching of a Software Engineer

2009-05-02T01:01:00.000-07:00

I am a software engineer by training. I realised that in Singapore, you can't earn a good living as software engineer, like to those in banking and financial sector. A lot of senior engineers will eventually choose to go for management role, partly due to manager has a higher value than engineer. Unlike in US, you can easily find an engineer who has been in their technical field for 20, 30 years, and yet earning a good living. So, I am exploring ways to have some passive incomes, make the money work for me and provide me financial freedom much sooner. As I still have a strong passion in software development, I am not intended to switch my career path into other sectors. Hence, I chose to do some investments in stock market.

I started buying and reading a lot of books, magazines and online articles/news, wanted to understand more on financial market and economics. This financial crisis, the worst since Great Depression, provides me more chance to gain more knowledge in this field. Lots of incidents happened in financial market and economy that is unusual when our economy is in growth. So, having a good understanding in the incidents and their impacts are very valuable for my investments. Therefore, I created this blog to share some information and useful articles with my friends and viewers of this blog.