I read the bible every morning. I'm not really religious, but it serves as a reminder to me for the rest of the day not to do anything wrong, that will harm others.
Not being knowledgeable or giving the wrong advice in my job is to me a big sin. I must try to be on top of everything, to calm down and have a clear mind.The correction of S&P500 that began mid last week was not a surprise. Here's why:
1. I've been harping about taking profit by end of May in this blog and to my clients.
2. I've sold half my European equity funds in May, also my First State Global Resources in June.
3. European indices actually began correcting in mid July, so there were signs of stresses in the markets already.
4. Valuations were slightly above average and there were no strong BUY signals anywhere except maybe for Chinese equities, Mining and Banks.
But I've made some interesting observations end of last week and I'll be calling clients directly about what to do.
The global recovery has not ended. Here is why:
1. IN the US it's just begun. Look at the unemployment rate falling to 6.2% from close to 10% in 2009. The real estate market is chuckling along.
2. In China, the second largest economy, it is steady. There is no recession, just a slowdown. The officials say it is 7.4%. Others suspect it is close to 4% judging from the electricity consumption growth. Perhaps the truth is in between. The Chinese economy is not going to crash. Sure, the corporates are over leveraged. There is a bubble in the property market in Tier 2 to 4 cities. But the households have very low debt. The banks are certainly in trouble with unreported NPLs but I think the could be bailed out by the Chinese government. Don't forget how cheap the HSCEI is. Dividend yields are record high and if you don't trust the audited profits or cash reported by listed companies in China, at least trust the record high dividends they pay out.
3. The largest economic bloc, the EU, is still in decline. The inflation rate is heading towards 0.5% from 0.7%. They could ease further. Unemployment in the Eurozone is still at around 11%. So for this huge bumbling economy, their recovery will be in 2015, not this year. So there's a lot to look forward to. Oh and be careful of their bank stocks. There could be more capital raising in future as bad loans are still unreported.
4. Japan, the 4th largest economy, is implementing its third arrow. It may not be successful. But at least you can be sure that Japan will pump prime their economy until it reaches 2% inflation target. By then, USDJPY could be 110 - 115, and the Nikkei could be 15% - 30% higher.
What will derail the global economy?
1. China. Unreported NPLs and shadow banking pulling out from leveraged firms may be the downfall. It could be in 2015, 16 or 17. I don't know when. Meanwhile, the stocks could rise.
2. Eurozone is marriage that can never work. Soon Germany will become sick and tired of bailing out the lazy peripheral economies that a few northern countries could break away.
3. Politics. Israel - Palestinian war. Unrest in Syria, Iraq, Lybia.... North Korea. Russia and their clash with the west. Anything could trigger a nuclear war.
4. Climate change. This will accelerate and many millions will lose their lives. It won't happen in the distant future. It will happen within 5 years. Unless mankind unite and adopt permanently lower birthrate and lower economic growth. It will taken around one to ten million deaths from wars over water, food and resources to wake up the rest. Will it be too late? I don't know.
Meanwhile I will share with you an interesting article from Michael Yardney. Take care!
Insights from the most successful investors
If you’re like me, you like reading motivational quotes. I’m particularly intrigued by those of successful investors.
Yahoo Finance recently ran a selection of these. Here they are…
George Soros: Good investing is boring
“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.”
Howard Marks: Investing is about more than selecting the asset
“Smart investing doesn’t consist of buying good assets, but of buying assets well. This is a very, very important distinction that very, very few people understand.”
Jack Bogle: Losses are a reality of the market
“If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.”
Bob Farrell: Don’t join the herd
“The public buys the most at the top and the least at the bottom.” And, “When all the experts and forecasts agree – something else is going to happen.”
Jeremy Grantham: Recognise your advantage over professionals
“By far the biggest problem for professionals in investing is dealing with career and business risk: protecting your own job as an agent.
The second curse of professional investing is over-management caused by the need to be seen to be busy, to be earning your keep.
The individual is far better-positioned to wait patiently for the right pitch while paying no regard to what others are doing, which is almost impossible for professionals.”
John Templeton: Don’t forget about taxes
“For all long-term investors, there is only one objective – maximum total real return after taxes.”
Barton Biggs: There are no relationships or equations that always work
“Quantitatively based solutions and asset allocation equations invariably fail as they are designed to capture what would have worked in the previous cycle whereas the next one remains a riddle wrapped in an enigma.”
Benjamin Graham: Beware of forecasts
“It is absurd to think that the general public can ever make money out of market forecasts.”
Philip Fisher: Know the value of your investments
“The stock market is filled with individuals who know the price of everything, but the value of nothing.”
Warren Buffett: Be greedy when others are fearful
“Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.”
Ken Fisher: Keep history in mind
“You can’t develop a portfolio strategy around endless possibilities. You wouldn’t even get out of bed if you considered everything that could possibly happen….. you can use history as one tool for shaping reasonable probabilities.
Then, you look at the world of economic, sentiment and political drivers to determine what’s most likely to happen—while always knowing you can be and will be wrong a lot.”
Charles Ellis: Invest for the long run
“The average long-term experience in investing is never surprising, but the short term experience is always surprising. We now know to focus not on rate of return, but on the informed management of risk”
Isaac Newton: Markets are irrational
“I can calculate the movement of stars, but not the madness of men.”
Mark Twain: We can learn from the past
“History does not repeat itself but it does rhyme.”
Yahoo Finance recently ran a selection of these. Here they are…
George Soros: Good investing is boring
“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.”
Howard Marks: Investing is about more than selecting the asset
“Smart investing doesn’t consist of buying good assets, but of buying assets well. This is a very, very important distinction that very, very few people understand.”
Jack Bogle: Losses are a reality of the market
“If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.”
Bob Farrell: Don’t join the herd
“The public buys the most at the top and the least at the bottom.” And, “When all the experts and forecasts agree – something else is going to happen.”
Jeremy Grantham: Recognise your advantage over professionals
“By far the biggest problem for professionals in investing is dealing with career and business risk: protecting your own job as an agent.
The second curse of professional investing is over-management caused by the need to be seen to be busy, to be earning your keep.
The individual is far better-positioned to wait patiently for the right pitch while paying no regard to what others are doing, which is almost impossible for professionals.”
John Templeton: Don’t forget about taxes
“For all long-term investors, there is only one objective – maximum total real return after taxes.”
Barton Biggs: There are no relationships or equations that always work
“Quantitatively based solutions and asset allocation equations invariably fail as they are designed to capture what would have worked in the previous cycle whereas the next one remains a riddle wrapped in an enigma.”
Benjamin Graham: Beware of forecasts
“It is absurd to think that the general public can ever make money out of market forecasts.”
Philip Fisher: Know the value of your investments
“The stock market is filled with individuals who know the price of everything, but the value of nothing.”
Warren Buffett: Be greedy when others are fearful
“Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.”
Ken Fisher: Keep history in mind
“You can’t develop a portfolio strategy around endless possibilities. You wouldn’t even get out of bed if you considered everything that could possibly happen….. you can use history as one tool for shaping reasonable probabilities.
Then, you look at the world of economic, sentiment and political drivers to determine what’s most likely to happen—while always knowing you can be and will be wrong a lot.”
Charles Ellis: Invest for the long run
“The average long-term experience in investing is never surprising, but the short term experience is always surprising. We now know to focus not on rate of return, but on the informed management of risk”
Isaac Newton: Markets are irrational
“I can calculate the movement of stars, but not the madness of men.”
Mark Twain: We can learn from the past
“History does not repeat itself but it does rhyme.”
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