Tuesday, May 24, 2011

Valuable Advice from Jim Rogers

The following is an extract from the recent interview by Investment U with Jim Rogers. He shared with us his valuable experience in trading, which I think is the best advice for any value investor!

Jim Rogers: I would say one lesson we all need to learn is that after you’ve had a great success, you really should be very worried. Let’s say you sell and say you’ve made 10 times on your money. You should be extremely worried. You should close the curtains, not read, look at the TV, or anything because that’s when you’re full of hubris, arrogance, confidence. You think, “God, this is something easy,” and you’re desperate to jump around to something new. You should do your very best to avoid making another play until you’ve calmed down a lot. Just wait. It’s a very dangerous time for any investor.

Likewise, if you take a huge loss and there’s a big panic and things are dumped on your head because you’re overextended or wrong for whatever reason, calm down, don’t say, “I’m never gonna invest in stocks again or commodities or whatever.” That’s the time you really should be willing to invest again if you can gather together some capital money. The investments can be terribly emotional. You have to figure out a way to control your emotions and deal with your emotions if you’re going to survive in these markets.

My advice is that, most of the time, most investors should do nothing. They should look out the window or go to the beach. You should wait until you see money lying in the corner and all you have to do is go over and pick it up. That’s how most investors should invest. The problem is we all think we need to jump around all the time and be jumping in and out and that’s not good.

We think we have to have investments. No, we don’t. If I said you could only have 25 investments in your whole lifetime or if there was some way to limit you to 25, you would be extremely careful. You wouldn’t be jumping around doing all sorts of strange things. Patience is what most investors need to learn. You don’t have to be doing things all the time. Most of the time the best thing is to do nothing. You just sit with what you have as an investment and let it ride or sit and wait until you see someone sitting in the corner.

Most of the time – unless you’re a short-term trader and great at it. I’ve known some spectacular short-term traders. But for most investors, unless you’re one of those guys, then you should just do nothing. Do nothing. If you’re an investor, do nothing except re-examine what you have, and if you’re not investing, just continue to look until you find something.

Happy investing,
Pauline Yong

Monday, May 23, 2011

CFN's MBA Guide: Surviving First Year

Everybody needs a plan, so they say. Getting into a top business school (and earning membership into the Consortium) is an achievement. But it's a starting point for what's to come. Many Consortium students and other MBAs will acknowledge the starting point leads to an opening of flood gates. 

Business school starts in early September, in most cases. Students are bombarded with tasks, responsibilities, cases, assignments and meetings by the second day.  Many alumni admit later they knew b-school would be a challenge; they just never knew that the workload would be so overwhelming so soon. And there is the worrisome, looming task to get a summer job, even if the summer is nine months away.  Recruiting season, year after year, starts right before school and requires significant amounts of time and attention.

That's where the Consortium Finance Network's annual first-year guide can help.  For the third year in a row, CFN will distribute its guide for first-year MBAs in finance. It offers advice, guidance, and wisdom based on those who've been there before (students) or those who've been on the other side of the hiring process (alumni, recruiters, business leaders). The guide helps first-year students develop a game plan to manage the delicate, careful process of being an outstanding, diligent student, while looking for that meaningful summer internship.

The guide is based on input from alumni and recent students and is culled from commentary from the CFN Linkedin and blog sites. 

Summer is seldom a time to ease up for prospective business students. Many go away for a celebratory vacation or a respite between job and school. But a summer before b-school can also be filled with (Take your pick) pre-matriculation programs, boot camps sponsored by some institutions, orientation programs (including that of the Consortium), and other activities.  Many take advantage of these programs to ensure they get off to a blazing start once school starts and to absorb tidbits and tools that could make a difference later.

The guide offers advice on the summer before school:  How to develop a game plan to make the most of the first year and how to plan to get the internship.

The guide summarizes opportunities in finance, the short- and long-term outlook in primary segments. It tries to assist first-years who wrestle with gnawing career decisions. Should they pursue investment-, corporate- or private-banking? Are there opportunities beyond the popular b-school pursuits (community banking, non-profit activities, operations and technology)? Should they explore their passions, or should they purse opportunities based on their technical strengths or where openings will be when they graduate?

Mentors are crucial in helping students attain desirable positions in finance.  The guide discusses how to make the most of mentor relationships, how to develop long-lasting, rich relationships, or how to approach mentors who have little time or attention span.

CFN's guide addresses student concerns as they proceed during the school year. What should students worry about during the first weeks of school? How can they manage the time between adjusting to the pressing demands of school and planning for internships?  How can they arrange information interviews with alumni and mentors from out of town? Or how can they polish the resume', the elevator pitch, and the first-round interview? How can they prepare now for haunting technical interviews that come in January?

Handling dozens of b-school responsibilities with no spare time is already a chore, but students are also expected to keep up with topics in finance beyond the text and classroom:  the latest deal, the latest finance or economic trend, the latest regulatory proposal, the latest series of finance books that chonicled or analyzed the financial crisis, the latest movement in silver, gold, or oil prices, or the latest expectations about inflation.  The guide provides advice on how to keep up when there are midterms and class presentations to worry about.

Once students have learned how to manage time, take advantage of the wealth of offerings in seminars, activities, and speakers on campus, develop relationships with alumni and mentors, and perform well in coursework, the guide helps students get ready for summer internships.  Successful internships, as MBAs know, lead to full-time job offers in August before the second year.

Diversity, leadership and networking are important topics in schools and in financial institutions.  The guide reviews some of the latest discussion, including sharing lists of the best financial insitutions in diversity and the best in grooming leaders for the future and trends in diversity among senior ranks since the financial crisis.

The CFN guide will be distributed electronically to Consortium students who have indicated an interest in finance. It can be sent to others upon request.

Tracy Williams

Monday, May 16, 2011

Glencore IPO

For people who are thinking of diversifying into the London Stock Exchange (LSE), perhaps you can take a look at this IPO – Glencore International.

Glencore is a Swiss-based company, one of the world's largest suppliers of commodities and raw materials, founded in 1974, over the years, it has expanded its operation into: metals, minerals, crude oil, oil products, coal, natural gas and agricultural products to international customers in the automotive, power generation, steel production and food processing industries.

How big is this company? It’s about US$50billion - $60billion in valuation, 80% held by private equity firms and state funds including Singapore GIC, China, Korea, Abu Dhabi and Kuwait state funds (CNBC). 20% will be open to the public and will be listed in both London and Hong Kong stock exchanges on the 24th May 2011.

This stock is very “hot”! It’s 4 times oversubscribed and every one is talking about it since we are in a commodity bull. However, I have to warn investors here that commodities are very volatile and its not suitable for investors with low risk appetite.


Happy investing,

Pauline Yong

Don't Worry Be Happy

Many people are saying the stock market is very high, can we buy now? I'm still bullish about the market, and I'll buy in only when the prices retarace. So my advice is you already identified the stock that you want to buy, the next thing is to rely on the technical indicator to accummulate the stock when it is oversold. As simple as that! Good Luck!


Friday, May 13, 2011

Why I Like Tech Stocks

Warren Buffett never like tech stocks, he thinks that the valuation of these companies are too difficult to understand! Although Warren Buffett is my idol, but I’m afraid I’ve to disagree with him this time!

As we are entering to the 21st century – the information technology era, I see enormous potential in technology companies. I strongly think that every investor SHOULD and MUST have at least one tech stock in his or her portfolio!

A tech stock could be referring to companies providing the hardware like Dell, Acer, Apple, Sony, Nokia; it could also be software companies like Microsoft, Google, Cisco; or it could be the infrastructure supporting companies like American Tower Corp, Rackspace Hosting and so on.

There are tremendous opportunities in these stocks as technology and computers are part of our lives. Just take a look at the subscription rate of the Malaysian mobile phones, it’s a wopping 106% of our population with about 30million subscribers (slightly more than our 26m population).

Another example, iphone4 has sold more than 4 million since its launch last year. The mobile phone industry is experiencing phenomenal growth, but it is also very competitive.

How to select the best tech stock? Well, just look around what are the favourite mobile phones people are using. As simple as that! Hence, Apple and Google are analyst favourite. But these stocks are too expensive! I agree! So now I’m looking at the following stocks (I’m not recommending, because I’m in no position to recommend stocks, but I can share with you some trading ideas).

Sony (SNE)
Sony is going to launch its S1 and S2 tabs very soon. You may check it out at the following link: http://mobilerival.com/sony-s1-and-s2-tabs-appear-on-video
Appearance wise, I think it can top Apple I pad. Performance wise, its definitely more superior than i-pad because its Android based. For your information, Android has 35% of the smart phone market share as compared to Apple’s IOS 25%. If you think Sony tab is going to be a hit this Autumn, you might want to accumulating the stock now. Currently the stock is trading at PE 30, low debt equity ratio at 0.25, and price to cashflow is 4.45, free cashflow US$6.5billion.

Nokia (NOK)
Many people must be wondering: “Are you kidding me? This stock is losing its market share!” Yes I agree! But do you know that Nokia is going to launch new smart phones with Windows Phone 7? I’m sure for people who are using i-phone, don’t you wish that i-phone is Windows compatible? Precisely, we have been so comfortable using Windows for ages, if your smart phone is Windows compatible, won’t that make you work more efficiently? In my experience, I can’t use my i-pad for heavy duty work, i-pad or iphone for me is only for leisure purpose. So if my smart phone is Windows compatible I’m able to work smarter and more efficiently! FYI, if you intend to buy Nokia, its going to be a longer term perspective. Because Nokia’s new smart phone with Windows Phone 7 will only be launched in 2012. Currently the stock is trading at PE 10, with US$3billion free cashflow.

Happy investing,
Pauline Yong

Friday, May 6, 2011

Dimon's "State of the Industry"

Finance types everywhere are familiar with Warren Buffet's annual sermon to shareholders in the form of a letter in the annual report. It's seldom, if ever, a bogged-down analysis of company ratios and trends. More a colloquial finance lecture. Everybody knows the Buffet letter, an honest pontification on business, the economy and the financial system. Derivatives are, he once notably said, "weapons of mass destruction" (although Buffet's Berkshire Hathaway operating vehicle has used them adroitly from time to time).

This year, Buffet has other priorities and distractions. He has an internal crisis to manage. Top deputy David Sokol is under investigation for suspicious trading activity. Sokol reportedly bought an equity stake in a company before Berkshire announced it would purchase it. Buffet has publicly scolded Sokol, and Sokol, as expected, is no longer next in line to run Berkshile.

That thorny current issue undermines the message Buffet delivered from his shareholder-letter pulpit in 2011. Buffet's letter this year is, as always, his usual remarkable finance lecture--a mid-level MBA finance discussion, written in comfortable, flowing style. But you read it wondering about the ethics case that confronts the company right now.
JPMorgan CEO Dimon

That brings us to JPMorgan Chase CEO Jamie Dimon, who in recent years has stepped up to the plate to provide sharp insight from his Park Avenue pulpit.  His letter to shareholders, also colloquial and comfortable, often includes a frank diagnosis of the financial and banking system. It takes a four-prong approach during a period when much has gone wrong in the global financial system:  (a) What happened? (b) What went wrong? (c) How can it be fixed? and (d) Who's responsible for fixing it? (And oh, by the way, what do we do with those who were responsible for what went wrong?)

The 2011 letter, just distributed, follows the same course. As in previous years, the letter was eagerly awaited, widely anticipated. Analysts, shareholders, and market watchers wondered, "What would Jamie say this year?"-- in a year, not of turmoil, but one of mild recovery and impressive earnings among large financial institutions. Dimon, as usual, detects what's wrong and proposes a fix-it solution--whether you the reader, the politician or the stock analyst agree or not.

What did Dimon say in 2011?

Up front, he says he caved in and didn't like restoring the bank's high quarterly dividend. He says bluntly and does so on the broad finance stage, "(If) it were up to me personally, I would reinvest all capital into our company and not pay any dividend." But in deference to shareholders, he says, "(This) is not what most shareholders want." Shareholders will understand his sentiment and long-term view, but many wanted some upside after a few years of volatile stock performance.

In general, his message is upbeat, not like the financial death warnings he offered two or three years ago on the same pages.

On risk, he says:  "Five years ago, very few people seemed to worry about outsized risk, black swans and fat tails."  Five years ago, recall, it was 2006, when markets soared and deals of all kinds (leveraged deals, mergers and acquisitions and thinly documented financings) were getting done. After the crisis, he says, "Today, people see a black swan with a fat tail behind every rock." And he wonders if financial institutions might have been too strickened to take prudent levels of business risks today.

Dimon injects bits of humor. On work ethic, he states, "The American people have a great work ethic, from farmers and factory workers to engineers and businessmen." He adds, "Even bankers and CEOs."

Basell III and Dodd-Frank regulation are big issues at big banks these days. The behemoth banks aren't approaching financial reform with open arms and warm smiles. But they acknowledge the business of banking must be tweaked, and the effort to sustain returns on equity at certain levels will be an immense challenge.  Banks will need to divert some attention from normal business activity to implement changes and systems required under new regulation. They also operate with a veil of uncertainty. Many of the details of new regulation are still being written.

Dimon's message this year addresses regulation in depth. He isn't fighting it or arguing for repeal. He is resigned to banks adapting (and whispers that costs might be passed on to customers.) "A likely outcome of the new regulations is that products and their pricing will change," he writes. "Some products will go away, some will be redesigned and some will be repriced."

He devotes passages to the "unintended consequences" of regulation--that Government may have the right intent to propose and enact new legislation, yet the impact could lead to complex consequences--some good for the general public, some very bad for the institutions that must comply. "If a restaurant that sells burgers can't sell french fries (because of a new rule), it risks losing all of its customers."

Dimon relents:  "Like it or not, we will adjust...."

And like it or not, the relenting Dimon acceded to shareholders' requests that shareholders be entitled to much higher quarterly dividends.

Tracy Williams

Monday, May 2, 2011

Are People Rational?

Economists argue that people are rational. Rational people make decisions or judgement using reasoned thinking, based on facts, applying rules; and those decisions are consistent over time. How far is this true? Do you spend time in analysing mundane simple task such as what to eat, where to shop or what to wear? Very often we make these simple decisions based on intuition or “gut feeling”. But when it comes to investment or children’s education, we will spend more time to gather information, do some analysis and then make a decision. Hence, decision making is a complex process, involving both analysis and intuition: analysis involves computation and more “rational” thought, but is slower; intuition, by contrast, is much faster, less accurate, and relying on intuitions or “gut feeling”.

A study conducted in United Kingdom shows that people with autism related disorders are less likely to make irrational decisions, and are less influenced by gut instincts. This is because of the tiny brain tissue called “amygdala” which is involved in processing human emotions. And according to research, people with autism-related disorders have a different density of amygdale in their brains than others.

Further research done by a Nobel Prize winner, Professor Kahneman, the founder of behavioural finance found that this “amygdale” trigger the fear factor in our brain causing us to feel “risk”, which can gets in the way of successful investing.

What is amygdale?

Deep in the center of your brain, level with the top of your two ears, lie two small, almond-shaped knobs of tissue called the amygdala (ah-mig-dah-lah). When you confront a potential risk, you will trigger this hot button of the brain that acts as an alarm system – shooting signals up to the reflective brain like warning flares. Because the amygdale is so attuned to big changes, a sudden crash of the stock market tends to be more upsetting than longer, slower decline, even if it is greater in total.

On October 19th, 1987, the U.S. stock market plunged 23%, so sparking the amygdala and disrupting the behaviour of millions of people for years. Anyone who has ever been a teenager knows that peer pressure can make you do things as part of a group that you might never do on your own. When the fear factor strikes, people tend to follow the herd; not because you want to but because it hurts not to. Neuroscientist Gregory Berns says: “Social isolation activates some of the same areas in the brain that are triggered by physical pain”. Hence, being part of a large group of investors can make you feel safer and less painful.

Neuroscientists discovered that amygdala is responsible for our fear, emotional responses, and social behaviour. As a result, during the event of a stock market crash, our bio-instinct will tell us to be part of the larger community by following the crowd’s action.

In Professor Kahneman’s research, he got together a group of people whose brains had been damaged due to tumour removal or accident, and let them play a little game with the other group of normal people. Starting with $20, each one flipped a coin and called it: heads or tails. If the participant called it correctly, he won $2.50. If he called it incorrectly, he would lose only $1. If he was feeling unlucky, he could pass.

Given the odds of winning were tilted to participants favour, any player who wanted to maximise his or her returns would never pass. But the result showed that the “normal” group passed more than the “damaged head” group. Does that mean the best investors are mental defective? No, the conclusion was that emotions get in the way of successful investing. Emotions cause participants to react to “illogical” ways by refusing to bet, even when the odds were clearly in their favour. The un-emotional players, by contrast, did the “rational” thing more often and won more money.

However, another study published recently claims the opposite view. It says “adding emotions to decision-making process can enhance creativity, engagement and decision efficiency”. This is contrary to the popular belief that level headed people are more rational and make better decisions.

No matter whether we are cool headed or hot headed, rationality depends on how we see things and in whose perspective. If we apply our own reasoning to the event, we can come up with different results. I believe most people are rational in their own minds, even if we may think otherwise. Some investors would rather feel ‘safe’ than ‘risky’. Others enjoy playing for short term gains even though it costs them more time and money. Some do not even realise they have made the wrong decision simply because they have made the wrong assumptions or are given the wrong information.

By Pauline Yong
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