Think & Create

Its funny how life is. My investment knowledge is ZERO. Don’t know much about money except its hard to come by. I am learning though, slowly but surely.

Last year, by chance, my wife and I met a young, quiet, self-employed mutual fund investment guy. He’s very young compared to my wife and I but he’s out there, self employed, working for CIMB Wealth Advisors. Over the years, mainly influenced by my parents, I have developed a keen sense of awareness for scams, especially those that involved my retirement savings. So when the Malaysian government allowed people to withdraw a portion of their retirement savings and invest, at their own risk, into units trusts (or mutual funds), I was the first to say NO – my money stays with the government. Last years dividends or returns was 4.5%.

Hmm…

Then comes this guy who said that whatever money that was taken out of my retirement fund, EPF, would, after the investment, go back into my EPF. So there was no chance for a third party to steal my money. What changed my perception about this young man was his calmness – he wasn’t the type that hypes up everything. He comes from a poor family, so he knows the value of money. So, I decided to invest.

And was I in for a shock.

In total, as of today, my wife and I have made a total of 5 withdrawals from our Account 1 (EPF savings is broken up into 2 accounts, Account I and Account 2. The money in Account 2 can be withdrawn for education and home purchasing. Account I has always been secured until recently when the government allowed 10% of Account I to be withdrawn every 3 months for investment purposes.)

When we first made our withdrawal in mid 2008, the market was going down. At our second withdrawal, the market was still going down. So we did accumulate quite a number of unit trust units while averaging down our purchasing price.

Last week, 1 year since our investment, my wife and I, each, had a 14% return on our investment. Much better than the 4.5% the government handed up this year. My only qualm to our young investment partner was why did he take out our investment from the mutual fund market when the market is going up – I could still make some money.

He reminded me that one year ago, we sat down and laid our goals – we wanted a 10% return on our investment. And this 10% was after deducting CIMB’s management fees of 1.5%. So when the time came, he took out our money. I had reached my goal. My investment garnered a 14% return. The young man gently reminded me not to be greedy as most people would have kept their money in the market and then cry in anguish when the market unexpectedly turns for the worst. I had reached me goal, he reminded me.

I had a choice of putting it back into my EPF, and then withdrawing it later when the market falls – but that would incur a further 1.5% management fees. So the alternative would be to park it into a Money Market fund for now.

Now I sit and wait for the market to drop. Then I move my funds from the Money Market back to some good, old unit trusts.

Thanks Kim.

kennethg Investment cimb wealth advisors, epf, Investment, malaysia, mone market fund, retirement, savings

By Ted Peroulakis

Conventional buy-and-hold stock investing is not working in today’s market. Trading E-Minis is a great alternative, because you can take full advantage of the market’s volatility. 

You can easily make money in a market that is going up or down. You can, for example, make a bundle if you go “long” or buy an E-Mini contract and the market goes up. And if you go “short” or sell an E-Mini contract, you can just as easily make money when the market goes down. This adds an entirely new dimension of opportunity for investors.

An E-Mini is an electronically traded futures contract on the Chicago Mercantile Exchange (CME) that represents a smaller version of a standard futures contract. E-Mini contracts are available on the S&P 500, Nasdaq 100, S&P MidCap 400, and Russell 2000 indices. One example: The E-Mini S&P 500 futures contract is one-fifth the size of the standard S&P 500 futures contract.

E-Minis have a low margin requirement, which makes trading them easy and affordable. You can get started for as little as $500 per contract. And because standard stock and index options currently have high premiums due to market volatility, your leverage and profit potential is higher with E-Minis.

E-Minis allow investors with small amounts of risk capital to participate in the Dow and S&P 500 at a fraction of the cost of purchasing the actual stocks outright. You would have to pay thousands of dollars in commissions alone to buy all the stocks in the S&P 500, for example. But by buying an E-Mini S&P 500 futures contract, you can participate in all those stocks for a commission of less than $10!

Bottom line: Start trading E-Minis if you’re looking for an exciting, highly versatile, efficient, and economical way to capitalize on the daily swings in the stock market.

kennethg Investment, Stock Market Chicago Mercantile Exchange, cme, contract, e-mini, e-minis, eminis, futures, nasdaq, russel 2000, s&P

Step 1: Research the property. Get its size, amenities, how much is owned against it and what it is the opening bid.

Step 2: Compare the sales prices of similar properties in the area so that you have a good idea of what the property is worth. Compare sales of properties with the same number of bedrooms, bathrooms and square footage.

Step 3: Get financing. Typically, homes at auctions require a 5-10% deposit or one thousand down and the balance of the deposit within a week or your lose your one thousand. Check on the financing terms and conditions.

Step 4: Know your price limit. Auctions work on creating an atmosphere of agitation and excitedness. Don’t get swept up in the moment. Know how much you are willing to spend and stick to it.

Step 5: Be prepared to walk away. Don’t feel as if you have to buy something. if the deal isnt right for you, then its not a deal.

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By Brian Tracy

The Law of Investing – investigate before you invest. This is one of the most important of all the laws of money. You should spend at least as much time studying a particular investment as you do earning the money to put into that particular investment.

Check Every Detail
Never let yourself be rushed into parting with money. You have worked too hard to earn it and taken too long to accumulate it. Investigate every aspect of the investment well before you make any commitment. Ask for full and complete disclosure of every detail. Demand honest, accurate and adequate information on any investment of any kind. If you have any doubt or misgivings at all, you will probably be better off keeping your money in the bank or in a money market investment account than you would be speculating or taking the risk of losing it.

Money is Easy to Lose
The first corollary of the Law of Investing is: “The only thing easy about money is losing it.” It is hard to make money in a competitive market but losing it is one of the easiest things you can ever do. A Japanese proverb says, “Making money is like digging with a nail, while losing money is like pouring water on the sand.”

The Best Rule of All
The second corollary of this law comes from the self-made billionaire, Marvin Davis, who was asked about his rules for making money in an interview in Forbes Magazine.

He said that he has one simple rule and it is, “Don’t lose money.” He said that if there is a possibility that you will lose your money, don’t part with it in the first place. This principal is so important that you should write it down and put it where you can see it. Read it and reread it over and over.

Time Equals Money
Think of your money as if it were a piece of your life. You have to exchange a certain number of hours, weeks and even years of your time in order to generate a certain amount of money for savings or investment. That time is irreplaceable. It is a part of your precious life that is gone forever. If all you do is hold on to the money, rather than losing it, that alone can assure that you achieve financial security. Don’t lose money.

Be Smart About Investing
The third corollary of the Law of Investing says: “If you think you can afford to lose a little, you’re going to end up losing a lot.”

There is something about the attitude of a person who feels that he has enough money that he can afford to risk losing a little. You remember the old saying, “A fool and his money are soon parted.” There’s another saying, “When a man with experience meets a man with money, the man with the money is going to end up with the experience and the man with the experience is going to end up with the money.” Always ask yourself what would happen if you lost one hundred percent of your money in a prospective investment. Could you handle that? If you could not, don’t make the investment in the first place.

Action Exercises
Here are two things you can do to apply this law immediately:

First, think back over the various financial mistakes you have made in your life. What did they have in common? What can you learn from them? Accurate diagnosis is half the cure.

Second, invest only in things that you fully understand and believe in. Take investment advice only from people who are financially successful from taking their own advice. Play it safe. It’s better to hold onto your money rather than to take a chance of losing it, along with all the time it took you to earn it.

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Trading is about probabilities, not certainties. A Trading Plan establishes a series of steps that ensure a higher probability of success.

The Plan will set certain guidelines for:
What stocks to buy
When to buy
When to sell

The Structure of Your Trading Plan
A Strong Market:
Before deciding what to buy, first establish if the market is in a positive phase. If the KL Composite Market has been negative over recent weeks (or longer), it is not a good time to enter the market. If the majority of stocks are going down or sideways, the probability of you buying a share that is going to rise in the immediate future is slim.

A Strong Sector:
Having waited until the market is in a growth phase, determine if there are any sectors showing strong growth in the past few weeks. These are the sectors that have stocks performing well and are increasing in price.

Examine stocks in these strong sectors and determine those that are on an uptrend, meaning the price of the stock has been steadily going up for at least 3 months.

These stocks will qualify as having potential for ongoing growth as they are generating positive market sentiment. If they have adequate liquidity on top of that, you could add any of these to your portfolio knowing that you could exit quickly at any point in time.

Exit Strategy:
Having selected shares to include in your portfolio you must then have an Exit Strategy in the event that these shares show signs of reversing. Simply set an Early Exit price to ensure that the stocks you buy never generate losses.

This is a simple description of a Trading Plan. It holds the basics for selecting stocks that have a good probability of increasing in price and risk management to protect your capital. These three ingredients are the key to success in stock trading.

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Look at the column called Lots Done in your market report. This is the amount of stocks that were traded on the day. If you multiply this by the price of the stock, you can see how much money actually changed hands on that day. If this amount is high, then the stock is very liquid, meaning it is easy to buy and more importantly, easy to sell. The last thing you want once you’ve bought a stock is to be stuck with it because you can’t find a buyer.

For example, if a company has traded 100,000 stocks today and the closing price was RM2.42, we can estimate that RM242,000 worth of that stock changed hands today.

For example:
Innovics’ last price was RM 0.30 and Lots Done were 1000. This means that an average of RM 3,000 worth of stock changed hands today. In other words, Innovics is only trading an average of RM3,000 of shares each day.

Now, you own RM10,000 worth of Innovonics and you want to sell. If you enter your sell order on the market, you will inject 3 days worth of turnover onto the market. There will not be enough buyers for you to immediately sell the stock at your chosen exit price.

To ensure you invest in liquid shares, only trade stocks that show a daily turnover of at least ten times what you are planning to invest. If you are investing RM10,000 in a stock, look for an average daily turnover minimum of RM 100,000.

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The Malaysian stock market is one of the strongest and sometimes most dynamic markets in the world.

While the market has always recovered from falls, the same cannot be said for individual companies. Even during a booming market, some companies can suffer significant losses.

Trade only on an uptrend and sell the poor performers, this will make it impossible to experience a large loss. This is the secret to outperforming the market and achieving a consistently superior return.

Undertake some research on the Bursa Malaysia or in a local investment paper. List three shares that have showed decreased performance recently and three shares that have showed increased performance recently.

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Trends are the cornerstone of trading. If a share price is rising, we can make money by buying that share. If the share price is falling, we need to look for other opportunities. It does not make sense to buy a falling share. Our aim is always simple – find a share in an uptrend and take a large chunk from the middle of the trend.

Overall Market Strength
It is important to look at how the overall market is doing. This can be gauged by looking at the top 500 shares, otherwise known as All Ordinaries. If All Ordinaries go up, it is because stocks in the top 500 have risen and the market is in an uptrend.

There are over 1000 companies listed on the Bursa Malaysia that you can invest in. To examine each one individually would take a great deal of time. Instead, you trade with the trend and find the strong sectors in the market.

Strength of an Industry Sector
What is a Sector?
A sector is a group of companies involved in the same industry. For example, mining companies are grouped together in the Materials sector while banking companies are in the Finance sector. Entire sectors are generally affected by economic conditions so entire sectors tend to trend in the same directions. Trends do not have hard and fast rules, individual stocks within these sectors will perform at different levels.

Strength of Shares in a Sector
Although the general rule of novice investors is to buy on an uptrend, there are people who buy during a downtrend as a strategy. This is a process of buying more shares as the price falls, so the average cost of the share is reduced with every purchase. This kind of bargain hunting is a riskier strategy, as the stock price may never recover. The second downside is that the price may fall and then stabilize, meaning the investor may have to wait for a while before recovering losses or making a profit. In this scenario, capital that could be used for profitable trading would be lying idle.

Resistance to this type of trading is not new. One of the greatest traders of the last century, Jesse Livermore wrote, “Experience has proven to me that the real money made in speculating has been commitments in a stock showing a profit right from the start.”

By now you should understand that trading with the trend is critical to success. Also, our objective is never to buy at the bottom or sell at the top of a trend. We simply want to take a large chunk out of the middle. Let the trend be your friend.

kennethg Investment, Stock Market bursa malaysia, Stock

With any investment, be it stock trading, real estate or business, it is important that you understand what the risks are and how to minimise your exposure to these risks. This process is known as ‘Risk Management’.

The Three Elements Of Risk Management

1. Spread Your Risk: Don’t Put All Your Eggs In One Basket
Spreading you risk is as simple as not putting all your eggs in the one basket. This is called diversifying your portfolio.

Spread your capital so there is never more than 20% in a single stock.
The following table demonstrates the impact of investing too heavily in a single stock. If you make a loss shown in the left column, the right column shows the profit required on the next trade to break even.

Capital Recovery Table

Don’t however take this to extremes and over-diversify by investing in too many stocks at once. You cannot expect to outperform the market if your portfolio closely matches the market. A rule of thumb is to limit your portfolio to between 5 and 10stocks.

2. Plan Your Exit: What Is An Acceptable Risk?
Amateur traders buy a stock and their focus is to hope it increases in price. If it goes down, they continue to hold in the hope the price will recover. When a professional buys a stock they recognise that success is a probability, not a certainty. At the time of entering the trade they establish an Early Exit price. If the stock falls past this point the good investor will immediately exit and never run the risk of making a large loss.

Maintaining your capital is fundamental to successful trading. If you invest in a stock and make a large loss, then it is impossible to consistently profit from the stock market. Having incurred a large loss, you must now make a large profit just to break even. The key to successful trading is keeping your losses small.

3. Stop The Loss: Don’t Drive Without A Seatbelt
The second must sell signal is a Stop Loss. Just tracks the highest price reached by the share since purchase. If the share falls by more than 10% from this price, it is time to sell. We suggest 10% – you can change this depending on your trading style. Too small a percentage and it will get you out too early. Make the percentage too large and you give back too much of your profits before exiting. Start with a 10% fall and see what you feel comfortable with.

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Trading stocks should be treated as a business venture – it will require time, knowledge and money to succeed. Your Financial Plan represents your roadmap to success.

Decide Your Financial Objectives.
If you are a 60 year old looking for cash flow to fund your impending retirement, your priority would be to generate an income stream rather than large asset value growth.

If you are a 25 year old who wants to begin to invest, capital growth would be the priority, rather than income stream.

Your financial objectives will determine whether you trade liquid shares or not.

Decide Your Risk Level.
Decide on your risk level and the types of investments you can afford to make will be set. Remember, the higher the return you want to achieve, the higher the risk.

Low Risk Level
I am not very comfortable with risk and will invest in fixed interest/capital guaranteed securities (government bonds, bank term deposits).

Medium Risk Level
I can take on a moderate amount of risk (blue chip Industrial and Banking and Finance sector shares).

High Risk Level
I am comfortable with risk. I am seeking a high return and prepared to evaluate companies early in their growth phase (recently listed resource companies).

How Do You Fund Your Investments?
For most of us, we do not have immediate access to a large pool of ready savings. Using the equity you have in a property to fund your share portfolio is a common approach.

EPF savings is also an effective vehicle for providing funds for investing and the majority of Malaysians have access to these funds.

Most major banks and insurance groups offer margin loan facilities. This is where you start a portfolio with savings and then use this portfolio as security to borrow further funds to buy more shares.

In most instances, the problem is not acquiring funds to start a portfolio, it is having the knowledge to invest with confidence.

kennethg Investment, Stock Market Investment, Stock Market