I started covering my shorts since last week, gradually taking profit of between 10 - 20%. Now I have 2 short positions and 5 long positions. On hindsight, I may have been too eager to see the rebound and was not patient enough to let my winners run. Nevertheless, markets have been heavily oversold and a short term rebound is imminent. Beyond that, it's very murky.
Marc Faber said that there is a 100% chance of a global recession in 4Q2012 or latest 1Q2013. That means stocks may have seen the highs for 2012 and any rebound will be an opportunity to exit rather than to buy more.
http://marcfaberblog.blogspot.fr/2012/05/100-percent-odds-of-global-recession.html
I tend to think that a recession may occur sometime in 2Q or 3Q2013. After the US Presidential election is over, the budget will be tightened. It will take two consecutive quarters of declining GDP growth before a recession is recognised. That's called a technical recession. Two consecutive YOY drops in US GDP may occur as early as 3Q2013 as well. This means that stocks may peak in 4Q2012 or 1Q2013. In any case, the ISM numbers in the US, PMI in China, India, Brazil and Russia are still rising. So this correction may not be as bad as in Aug 2011.
I went to London to look for some properties. Took the Eurostar from Paris to London. The mood in London is remarkably better than Paris'. In Paris, you can smell urine on the streets, in the metro stations, sometimes on the streets. The buildings in the inner city are very old, and looked like their are in dire need of a whitewash. They are all of the same height, which is the brainchild of Houseman. However, it also prevents regeneration of slums. Imagine a home dweller or a counsel flat living in prime property (near Champs-Elysee or Notre Dame) who refuses to move out. If it's a counsel flat, only the government can move them out. If it's privately owned, no developer can purchase the project and build higher, so that the city centre is more densely built. As a result, Paris is spreads out sideways. You cannot see spanking new residential and commercial buildings in the city centre. If you're an architect and aspire to design the most beautiful modern building, you have to head to London where they are building the Shard, the Gherkin etc.
France has very high corporate, personal and estate duty taxes. As a result, it drives the wealthiest and smartest away from the country, to Singapore, London and the US. If you're hardworking, intelligent and good at making money, why contribute 30 - 50% of your hard labour to the state, only to see it get paid out in unemployment benefits? So investments into France is very little because corporate taxes are too high. If you cannot attract investments and talent, employment opportunities will be poor. perversely, it attracts the poor, those who have little relevant skills into the country. You can see many people from third world countries who are wandering the streets, obviously on unemployment benefits. There are brilliant people from third world countries but France will fail to hold on to them.
It is a great pity that France is stagnant because they had huge advantages in terms of culinary skills (it has stagnated though). It used to produce very good cars, construct the most beautiful buildings etc. More later about London...
Wednesday 30 May 2012
Thursday 10 May 2012
10 Commandments of Investments
It's been a tiring business trip. I took the 7 am flight out, reached the city at 10am, got whisked away to an office in the afternoon. In the evening, I gave a seminar to around 50 - 100 people about real estate and other investments. The response was thunderous I guess. I received plenty of compliments.
I came back today in the afternoon. On the way back, a stewardess chatted with me about her career in flying, and her previous career in DBS. She told me it was much easier for her as a stewardess on short haul flights, which allows her to start work at 5am but be home to look after her kids by noon. In banking, she'd be working from 7 am till 7 pm, 5 and half days a week. I agreed with her totally because so far, my life is mostly work and no life. So much for work-life-balance. I wonder what's the meaning of life if we all work so hard to run the rat race, make a decent living and then retire at 65, only to find that you're too old to do the things you wanted to do, and your health is no longer there. For that reason, I aspire to be financially free and not be reliant on others to determine my fate at an early age.
I ran across an article about the 10 commandments of investing which I wish to share with you.
The first commandment is, "Learn, know and Understand YOURSELF"
http://sg.finance.yahoo.com/photos/the-ten-commandments-of-investing-slideshow/investment-steps-photo-1336460311.html
Many clients tell me that their risk profile is very high. They wish to have the highest possible returns, something like 50 - 60% per year. But they forget that the higher the return, the higher the risk. No adviser is able to totally avoid losses. In fact 80% of advisers will not be able to time the market such that your investments achieve better than benchmark, buy-and-hold returns. But when I ask "what losses you are willing to bear in a year", the answer is drastically different. Most clients cannot tolerate more than 10 - 15% losses in a year. Often, it is the wrong analysis of risk profile that causes clients' to dispute the performance of the advisers.
I also realise that it is better to be more conservative when dealing with clients' money than with my own. This is because clients care more about absolute returns than beating the benchmark. In a bear market, they don't care if you have lost 30% and the benchmark lost 50%. A loss is a loss to clients. Similarly, they also don't care during a bull run that the benchmark achieved 50% and you achieved only 30%. Most clients want stable returns.
Also, there's a syndrome that is predominant in all client-adviser relationships: clients often attribute good performance to themselves but blame the advisers when things go awry.
So to me, it's best to play it safer, not safe. If the client is rated "aggressive", I'd rather notch it down to a "moderate" portfolio.
Fourth commandment: "Find an Adviser"
Research about him. Trust, but verify. Once you trust, let go.
http://sg.finance.yahoo.com/photos/the-ten-commandments-of-investing-slideshow/investment-steps-photo-1336460251.html
Generally, you should find an adviser that is
1. Responsive: it is important, because if you have a sudden change of needs or want orders to be executed, you rely on such a person.
2. VERY EXPERIENCED (read: have gone through many cycles, which usually means over 35 years old), There is no substitute for experience. I lost a lot of money when I started investing at 25. It took me many years to earn back the losses but I've learned many hard lessons about investing since. If your adviser is young, no matter how well educated she is, or worse, she doesn't invest herself, whatever she knows about investing is just theory. Every situation is different and it requires a very mature, emotionally stable person to give proper guidance and make the right decisions.
3. Reads a lot about investments, and preferably is a Chartered Financial Analyst or a Master / Degree in Finance. Experience to me comes first. If an adviser made a lot of money himself, and has a method that's tried and tested, then a CFA or Academic qualifications is unimportant. Still, I'd prefer to be advised by someone with some formal education to show for. The reason is that very few advisers who are already great investors will be willing to be your financial planner. They'd probably be retired by now, running their own hedge fund or be working in a hedge fund house making $300k - $3m per year.
4. Track record is very important because it gives the client some historical performance of the adviser. It is important to segregate the performance of an adviser during bear markets, bull markets and over a 5 year period. This is important because different advisers have different styles. Some are downright reckless and their investments tend to be flying high in bull markets but crash out during bear markets. Some are just cash hoarders, or conservative bond investors regardless of the scenarios. A 5-year track record that often comprises a bull and bear market is a gauge of the adviser over the longer term and in any scenario.
I came back today in the afternoon. On the way back, a stewardess chatted with me about her career in flying, and her previous career in DBS. She told me it was much easier for her as a stewardess on short haul flights, which allows her to start work at 5am but be home to look after her kids by noon. In banking, she'd be working from 7 am till 7 pm, 5 and half days a week. I agreed with her totally because so far, my life is mostly work and no life. So much for work-life-balance. I wonder what's the meaning of life if we all work so hard to run the rat race, make a decent living and then retire at 65, only to find that you're too old to do the things you wanted to do, and your health is no longer there. For that reason, I aspire to be financially free and not be reliant on others to determine my fate at an early age.
I ran across an article about the 10 commandments of investing which I wish to share with you.
The first commandment is, "Learn, know and Understand YOURSELF"
http://sg.finance.yahoo.com/photos/the-ten-commandments-of-investing-slideshow/investment-steps-photo-1336460311.html
Many clients tell me that their risk profile is very high. They wish to have the highest possible returns, something like 50 - 60% per year. But they forget that the higher the return, the higher the risk. No adviser is able to totally avoid losses. In fact 80% of advisers will not be able to time the market such that your investments achieve better than benchmark, buy-and-hold returns. But when I ask "what losses you are willing to bear in a year", the answer is drastically different. Most clients cannot tolerate more than 10 - 15% losses in a year. Often, it is the wrong analysis of risk profile that causes clients' to dispute the performance of the advisers.
I also realise that it is better to be more conservative when dealing with clients' money than with my own. This is because clients care more about absolute returns than beating the benchmark. In a bear market, they don't care if you have lost 30% and the benchmark lost 50%. A loss is a loss to clients. Similarly, they also don't care during a bull run that the benchmark achieved 50% and you achieved only 30%. Most clients want stable returns.
Also, there's a syndrome that is predominant in all client-adviser relationships: clients often attribute good performance to themselves but blame the advisers when things go awry.
So to me, it's best to play it safer, not safe. If the client is rated "aggressive", I'd rather notch it down to a "moderate" portfolio.
Fourth commandment: "Find an Adviser"
Research about him. Trust, but verify. Once you trust, let go.
http://sg.finance.yahoo.com/photos/the-ten-commandments-of-investing-slideshow/investment-steps-photo-1336460251.html
Generally, you should find an adviser that is
1. Responsive: it is important, because if you have a sudden change of needs or want orders to be executed, you rely on such a person.
2. VERY EXPERIENCED (read: have gone through many cycles, which usually means over 35 years old), There is no substitute for experience. I lost a lot of money when I started investing at 25. It took me many years to earn back the losses but I've learned many hard lessons about investing since. If your adviser is young, no matter how well educated she is, or worse, she doesn't invest herself, whatever she knows about investing is just theory. Every situation is different and it requires a very mature, emotionally stable person to give proper guidance and make the right decisions.
3. Reads a lot about investments, and preferably is a Chartered Financial Analyst or a Master / Degree in Finance. Experience to me comes first. If an adviser made a lot of money himself, and has a method that's tried and tested, then a CFA or Academic qualifications is unimportant. Still, I'd prefer to be advised by someone with some formal education to show for. The reason is that very few advisers who are already great investors will be willing to be your financial planner. They'd probably be retired by now, running their own hedge fund or be working in a hedge fund house making $300k - $3m per year.
4. Track record is very important because it gives the client some historical performance of the adviser. It is important to segregate the performance of an adviser during bear markets, bull markets and over a 5 year period. This is important because different advisers have different styles. Some are downright reckless and their investments tend to be flying high in bull markets but crash out during bear markets. Some are just cash hoarders, or conservative bond investors regardless of the scenarios. A 5-year track record that often comprises a bull and bear market is a gauge of the adviser over the longer term and in any scenario.
Commandment 5: Resolve conflict of adviser versus fund house versus you:
Cheap is not necessarily good. Many clients in Asia want free advise. But nothing is free in this world and what you perceive you as free could end up costing you your fortune. It's like the medical profession. Doctors in Singapore sometimes prescribe too many drugs because a lot of their income comes from the medicine they sell you. The pharmaceutical companies love to sponsor doctors on trips abroad for pushing the medicine on you. The best thing about doctors is that they can also slap on you consultation fees. I've often been prescribed antibiotics for flu. In NZ, doctors don't sell you medicine. You have to get it from a pharmacy. So all you are charged is a consultation fee and it doesn't come cheap at all. I find that a more honest system. In NZ, if you have a flu, the doctor will just send you home to rest, which is all you need.
Advisers in Europe and the US charge a advisory fee based on the AUM. You can choose to invest with the adviser or you can choose to buy from the internet portal. In Asia, many clients are not as sophisticated. They like to listen for free and then bargain the transparent fees of the products. When they are sold a product that has no stated upfront fee, they assume that it's free when it could actually the most expensive financial product you'd ever invest.
The financial industry and clients need to move towards fee-based advice fast. Because conflict of interests occur when advise is given free. Have you ever attended free investment talks? They always advertise such talks as free, but in the end, the quality of the talk is either found wanting or the speakers end up wanting to sell you some expensive courses or products.
Please wisen up.
Commandment 7. Invest in the best fund houses and schemes:
It's true that only 40% of funds actually beat benchmarks. If you invest with a reputable bank or adviser with a good due diligence team, you can actually increase your odds to 70% of chance that you'd beat the benchmarks with the funds you invest. The problem is most Independent Financial Advisers (IFAs) are very lean firms. The advisers take the most of the commissions, leaving the firm with insufficient resources to hire a big enough due diligence team. This could ultimately cost investors valuable returns.
For banks, the problem is more of the agency problem stated in commandment 5.
All institutions suffer the same problem for commandment 4. Due to a lack of investment advisory talent, the advisers are not experienced or knowledgeable enough. If you invest with an IFA, you have to be very selective with the adviser because many may not have the investment knowledge or experience. Many evolved from the insurance industry. That is not to say that you cannot find good advisers in IFA firms.
In banks, the advisers are even younger, unless you are a private banking client. But you have the luxury of asking to be advised by more experienced specialists or advisers. They tend to have CFAs, Masters in Finance. The relationship manager will help you with the servicing of account (application of mortgages, transaction of trades, credit card applications, risk profiling etc.), so a different set of attributes is important, such as promptness, accuracy, being pleasant, being patient. It is often very difficult to find an adviser who is a guru and have the attributes of a good relationship manager. If you're lucky enough to be a high net worth individual (i.e. over 750k of net assets), it's better to be served by a team rather than by one adviser.
The financial industry in Singapore will evolve slowly, for the better. But in the meantime, clients should ask more questions, verify the facts, read the fine prints, and detect any conflict of interest situations that could cause your adviser to not give you the best advice.
Sunday 6 May 2012
Sell In May and Go Away... Does It Work This Time
I've alerted some friends that the time to get back into stocks may be now. But not every market is moving up. For some, the correction is likely to last for some time more. The Sell In May and Go Away myth may not be a myth after all. Let's run through the list:
Commodity / mining stocks: The AUDUSD has been down since late Feb 2012 and on average, when my indicator showed that a correction is imminent, the downturn lasts for 150 days, that is 5 months! However, whenever the technical indicators show a correction, the period can last for ast short as 45 (Jun 08 to Aug 08 when there a sell down followed by a dead cat bounce just before Lehman Brothers collapsed), to as long as for 217 days (Mar 11 to Oct 11, the Euro crisis). It's still heading down due to the very weak China data and I suspect mining stocks will have at least a month to two to go before it recovers. The "Sell in May and Go Away" saying works in this case. We are in bear territory for commodities and if you're in profit, you should sell. However, if you are in losses, you should stay because the OECD Leading Indicators are turning up.
High Yield Credit Spreads: High Yield bonds went negative in late March and it looked as if it may recover soon. However, I mentioned in my earlier posts to wait for a confirmation because we rather act later not sooner. It is still in negative territory so I'd rather wait for a longer period. It could be in June before I act. Again the Sell in May and Go Away saying may have worked for this round. Interestingly, credit spreads have tightened again recently and I wonder if the spreads precedes stocks. The HY blended spreads tightened from 458 bps to 431 bps, around 5%.
S&P500: US stocks have generally just entered into a correction territory in early April and I suspect the correction may last a little longer.
Asia ex Japan: Interestingly, MSCI Asia ex Japan and Emerging Markets continued to stay positive. Probably because they have not recovered as much as S&P500 in the last rebound. But after last Friday night's sell down, it may have also entered into a correction.
It remains to be seen if stock markets will repeat what happened in 2010 and 2011, i.e. stocks corrected deeply in May before rebounding in the second half. In the last 2 years, some kind of quantitative action from the Fed and ECB rescued stock markets. It is entirely possible that stocks will once again be rescued by a QE especially when the US inflation expectation is dropping to 2.22%. Once it falls below 2%, believe me, the word, "QE" will be bandied about by the Fed. Once it drops to 1.6% QE3 will occur.
Every time technical indicators turn south, the average correction is around 5.5%. So far, the MSCI World has corrected by around 2.1% and I dare say if this is just an "average" correction, it is around 1/3 of the way through. However, nothing is average in life. When it rains, it pours. It has fallen by 19.5% between Sep 08 and Jan 09. It has also been wrong as the MSCI World rose by 5.3% between Feb and Apr 07.
Look at the 10 year US inflation breakeven expectations. Everytime it falls near 1.6% QE occurs. Deflation is a bigger devil to central bankers than inflation. Same goes for Australia. The CPI YOY fell to 1.6% and the RBA slashed 50 bps to the surprise of investors. The Eurozone is in a stickier situation as its inflatio is at 2.6%. It will be a while before the ECB can act decisively.
So hang on tight. Don't do anything, or if you have already shorted some markets, good on you. I'm shorting gold, and mining stocks. I'm long Asia ex Japan and emerging market stocks in a small manner.
Commodity / mining stocks: The AUDUSD has been down since late Feb 2012 and on average, when my indicator showed that a correction is imminent, the downturn lasts for 150 days, that is 5 months! However, whenever the technical indicators show a correction, the period can last for ast short as 45 (Jun 08 to Aug 08 when there a sell down followed by a dead cat bounce just before Lehman Brothers collapsed), to as long as for 217 days (Mar 11 to Oct 11, the Euro crisis). It's still heading down due to the very weak China data and I suspect mining stocks will have at least a month to two to go before it recovers. The "Sell in May and Go Away" saying works in this case. We are in bear territory for commodities and if you're in profit, you should sell. However, if you are in losses, you should stay because the OECD Leading Indicators are turning up.
High Yield Credit Spreads: High Yield bonds went negative in late March and it looked as if it may recover soon. However, I mentioned in my earlier posts to wait for a confirmation because we rather act later not sooner. It is still in negative territory so I'd rather wait for a longer period. It could be in June before I act. Again the Sell in May and Go Away saying may have worked for this round. Interestingly, credit spreads have tightened again recently and I wonder if the spreads precedes stocks. The HY blended spreads tightened from 458 bps to 431 bps, around 5%.
S&P500: US stocks have generally just entered into a correction territory in early April and I suspect the correction may last a little longer.
Asia ex Japan: Interestingly, MSCI Asia ex Japan and Emerging Markets continued to stay positive. Probably because they have not recovered as much as S&P500 in the last rebound. But after last Friday night's sell down, it may have also entered into a correction.
It remains to be seen if stock markets will repeat what happened in 2010 and 2011, i.e. stocks corrected deeply in May before rebounding in the second half. In the last 2 years, some kind of quantitative action from the Fed and ECB rescued stock markets. It is entirely possible that stocks will once again be rescued by a QE especially when the US inflation expectation is dropping to 2.22%. Once it falls below 2%, believe me, the word, "QE" will be bandied about by the Fed. Once it drops to 1.6% QE3 will occur.
Every time technical indicators turn south, the average correction is around 5.5%. So far, the MSCI World has corrected by around 2.1% and I dare say if this is just an "average" correction, it is around 1/3 of the way through. However, nothing is average in life. When it rains, it pours. It has fallen by 19.5% between Sep 08 and Jan 09. It has also been wrong as the MSCI World rose by 5.3% between Feb and Apr 07.
Look at the 10 year US inflation breakeven expectations. Everytime it falls near 1.6% QE occurs. Deflation is a bigger devil to central bankers than inflation. Same goes for Australia. The CPI YOY fell to 1.6% and the RBA slashed 50 bps to the surprise of investors. The Eurozone is in a stickier situation as its inflatio is at 2.6%. It will be a while before the ECB can act decisively.
So hang on tight. Don't do anything, or if you have already shorted some markets, good on you. I'm shorting gold, and mining stocks. I'm long Asia ex Japan and emerging market stocks in a small manner.
Friday 4 May 2012
Cancer Took Emma Yong's Life
http://sg.entertainment.yahoo.com/blogs/singapore-showbiz/actress-emma-yong-passes-away-36-175311010.html
http://sg.entertainment.yahoo.com/blogs/singapore-showbiz/remembering-emma-yong-111300824.html
It's a very sad piece of news when a young lady at the prime of her life dies prematurely. I used to think that cancer only strikes the elderly, when we've lived beyond our "natural" life span. But it is occuring at a much earlier age.
I've lost my uncle whom I was very close to, to intestinal cancer around 10 years ago. He was around 60 years of age. I lost my aunt recently to lung cancer and she was only in her 50s. Both were from my mother's side. From my dad's side, I lost my youngest uncle to liver cancer just recently. He was a Hepatitis B carrier. My dad's elder sister has been diagnosed with 4th stage liver cancer recently.
It worries me that cancer is now the biggest killer. It appears to strike us at an ever earlier age. Several theories come to mind; the mobile phone usage, pressing a heated phone against our skull. The mobile phone in our pockets. The hormone infested meat that we consume. The insecticide coated fruits and vegetables we eat. The stressful lifestyle. The lack of sleep. The alcohol consumption. There are so many factors that causes cancer.
All these issues have made me think hard about the meaning of life. We grow up, and through our experience we grow wiser. But at the same time our health deteriorates while we grow older. Finally, all the experience and wisdom that we've accumulated just perishes with us when we die. Perhaps we should learn to be less uptight about things. Perhaps we need to learn to let go, learn to forgive and just be happy.
I think in life success comes on many different levels, monetary success is just one of them, there are many other ways to be successful in life. If you have a happy family and are a good father, this is also a measure of success, if you can help other people this is also a measure of success.
I think our society over rates monetary success and associates success with having a big house, having 3 cars, being able to go on holidays and live the good life when in fact, these are all relatively superficial symptoms of success. - in Investment Postcards
My advice to young people is that the degree is not important. If you have parents that can pay for your degree, then I would take one. If I had to borrow a lot of money, I’m not sure I would take one. I would try to work for someone who is successful and acquire knowledge from them.
Whatever you do, you should do with a lot of passion and heart and like what you do. If you like what you do, you will do a better job than if you are indifferent to what you do at your job. I think there are plenty of opportunities in every field.
http://sg.entertainment.yahoo.com/blogs/singapore-showbiz/remembering-emma-yong-111300824.html
It's a very sad piece of news when a young lady at the prime of her life dies prematurely. I used to think that cancer only strikes the elderly, when we've lived beyond our "natural" life span. But it is occuring at a much earlier age.
I've lost my uncle whom I was very close to, to intestinal cancer around 10 years ago. He was around 60 years of age. I lost my aunt recently to lung cancer and she was only in her 50s. Both were from my mother's side. From my dad's side, I lost my youngest uncle to liver cancer just recently. He was a Hepatitis B carrier. My dad's elder sister has been diagnosed with 4th stage liver cancer recently.
It worries me that cancer is now the biggest killer. It appears to strike us at an ever earlier age. Several theories come to mind; the mobile phone usage, pressing a heated phone against our skull. The mobile phone in our pockets. The hormone infested meat that we consume. The insecticide coated fruits and vegetables we eat. The stressful lifestyle. The lack of sleep. The alcohol consumption. There are so many factors that causes cancer.
All these issues have made me think hard about the meaning of life. We grow up, and through our experience we grow wiser. But at the same time our health deteriorates while we grow older. Finally, all the experience and wisdom that we've accumulated just perishes with us when we die. Perhaps we should learn to be less uptight about things. Perhaps we need to learn to let go, learn to forgive and just be happy.
I think in life success comes on many different levels, monetary success is just one of them, there are many other ways to be successful in life. If you have a happy family and are a good father, this is also a measure of success, if you can help other people this is also a measure of success.
I think our society over rates monetary success and associates success with having a big house, having 3 cars, being able to go on holidays and live the good life when in fact, these are all relatively superficial symptoms of success. - in Investment Postcards
My advice to young people is that the degree is not important. If you have parents that can pay for your degree, then I would take one. If I had to borrow a lot of money, I’m not sure I would take one. I would try to work for someone who is successful and acquire knowledge from them.
Whatever you do, you should do with a lot of passion and heart and like what you do. If you like what you do, you will do a better job than if you are indifferent to what you do at your job. I think there are plenty of opportunities in every field.
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