Met up with a friend yesterday to discuss about business stuff. Essentially an MLM / network marketing model.
I personally have been to many MLM talks. And frankly, the first MLM talk that I went to spurred my interest in fiance.
The thing I like about MLM is the education behind the system. They always educate the 'downlines' about financial planning, encourage them to read widely on financial stuff, plan their financials early and to have passive income .Hence the need to work in MLMs to create this passive income. Such companies include Amway, Sunshine empire ( scam company) etc.
However, most of the time they do not teach their downlines how to do business. The system of how your earnings is generated is important. However I believe how to go about doing this business is more important. Recruiting people to be you down line is one way, however in my opinion, for such a business to succeed, the products that they are selling have to be good. Or at least comparative to those presently on the market. I.e. the ability to sell the products is very important. Without sales, there will be no commission, and hence no income.
Therefore, every time I think of a business plan, I will always feel that the point where the money is transacted is crucial. You can have a wonderful business plan, but if there is no one to buy your products/services, it is a lousy business plan. Great care and effort has to be made on this part of the business plan.
We also talked about many other stuff that are related to investment and finance. And I suddenly realized that by setting up this blog, I myself have learned a lot. Though this blog is only around for few months, I have learned much due to the need to read widely to do my posts.
Finally, I hope that everyone who comes to this blog learn a little a day. Remember, every little bit counts! =)
Personally after looking at so many reports and their respective analysis. I feel that buying soft commodities might still be the best investment for next year. Some possible soft commodities include Soya bean, rice..etc.
These are some reason why i think so :
China/India's population is still growing, hence there will be more demand for this.
Supply of these soft commodities will be reduced as farmers will not be able to get loans from banks to buy fertilizers to increase their yield.
With more demand and less supply, price can only go up.
AND!..personally I feel that soft commodities is not as widely covered in the news as other stuff like oil/stocks/properties. Hence there is room for the price to run up. ( Because the best stuff to buy is not when the price has stared to go up, but rather before the price starts to go up)
Next, if you are interested, oil seems to be a good buy too. Downside risk is low also, as the price now is really low. However if the economy does not recover, the demand for the oil will still remain low and hence you will not get as much returns. But if you could also make a short term lost, if the economy gets worst.
Following, stocks seem to be quite a good buy. However practise dollar cost averaging over the next year. I personally will start buying in slowly after march, and on dips. Buy using TA to try to catch the uptrend, but if I fail to get the uptrend as I actually intend to keep these stocks for long term.
Finally property. In Singapore, it might not be a good time yet. Approximately 44% of homes bought last year will TOP in 2009. If people who bought homes last year, and are not able to pay, most probably they will have to sell these homes at a lost.
If I were to select good companies to buy here is what I will look out for
Big market capitalization
Price/Cash Value
Price/NAV
Div yield
However it is still important to look at the financial sheet before buying the share as these ratios could be good due to alteration of the financial reports.
Looks like we are expecting the USD to SGD to weaken over the next year.
Here is how it is expected to happen :
US will be deleveraging itself ( which is happening at the moment)
People will sell off their assets and pay back the loans used to buy the assets
Since the loans were in USD, the people have to buy USD
This cause a shortage in USD in the forex market, causing the USD to appreciate/rise at the moment
However, since Japan is also deleveraging itself, but at a slower rate, people will sell off their USD for Yen as the 'Yen carry trade**' was widely used in the past.
This in turn will provide the supply of USD in the currency market and cause the USD to depreciate/drop
On the other hand, as of Oct 2008, Singapore has shifted to a zero appreciate of its SGD
So with respect to USD and SGD, the USD is expected to weaken
There is actually quite a few companies that are trading below their net cash per share.
SO in theory this could happen:
Own the company by buying all the stocks in the company for say $1
Sell off all the assets and get the cash
This amount ( the net cash) is higher than $1, so..say $2
You pocket the $1
However this does not happen, because the big boss in the company will not sell all their shares to you.
Hence you can start looking into this companies for long term investment, as it does not make sense for the company to trade below its net cash for a long time. ( That is provided the company does not start losing all its money over the next few years.)
Was reading though some reports from different brokerage firms. Personally, even though I think it will be safer to buy starting from around May next year. We can start looking out for blue chips. Personally I have greater confidence in large market capitalization companies that are Singapore based.
I will also look out for stocks that have high dividen yields, as these stocks are in genereal more defensive in nature, their stock prices should drop as much, if the economy suddenly turns bad.
Here are some companies that I feel are worth considering with their respective projected dividends
Indices of a stock market is a basket of stock that is chosen to represent the general stock market. They are usually chosen based on their market capitalization ( how big the company is), how important the company ( such as banks, telecoms etc.) and other factors.
Here is some values of the major world indices.
As you can see, Singapore has dropped one of the most in the world! So technical speaking, if you have faith in the Singapore economy , you should start investing in it. Because it will most likely bounce back, and gives the highest gain. This can be done by either buying straight into the stocks, or buying Singapore ETF ( exchange traded funds) which tracks the Singapore Index directly.
Once again there is another auction. The things up for auction includes rolex watches, other branded stuff and jewellery.
I personally think, those with a good eye should take a look at the auctions, and you might be able to find a good deal..and thus treat it as in investment.
Remember my post previously on rolling $$ over credit cards. The problem with that was that we are usually not able to draw cash from one credit card and use it to pay for the other credit card.
However, it is actually possible to so called 'change' your debt from one company to another. And in the process reduce your monthly 2% interest to a one time admin fee ( from 1.5-6.5%) for 6-24months. I.e. you pay less for interest by shifting your debt around, then letting one particular credit card company charge you interest.
Here are the rates. * Gotten from The Sunday Times on 14 Dec 2008
After the gathering on Sunday, I learned something really useful from one of the people who turned up. That is shorting in the market.
Shorting in very real in the market. And there are ways to find out whether there are genuine sellers in the market, or are they people who are simply shorting the market to make a quick buck.
Here are a few ways
Big sell down in price, but no substantial shareholders are doing the selling
Shorting facilities stop allowing people to short. For example CFDs stop the shorting of a particular stock
Anyone who has any more ideas? feel free to comment!
Investors worried that FED is printing too much money to do the bail outs, hence weaking the US currency
Vicious downward spiral. Cause by drop in property prices hence bank lending, followed by consumption, business and equity assets looping back to property prices again.
Market outlook for following months to be sideways with high chance of going down
Possible write down of USD 7.5 trillion from various sources, like the CDOs which are causing the banks to go bankrupt.
Even though in the end we only had 4 people at the session. I would say its a successful one. It is really not the number of people at the session, but rather the content/scope/depth of the discussion.
Topics that we talk about include
Risks in trading
Simple style of trading
Ways the stock market is being manipulated
Technical analysis opinions
Commodities trend
Currency trends
Property trends
World economic trends
And many many more...
For me, its my first time having this sort of discussion. Though I have only met these people for the first time, we are still able to chat as though we know each other for quite some time already. It is really surprising how easy it is for people of common interests to get engross in talking about something that there are so interested in, although they are from different age groups.
Once again I thank them for coming all the way down to NTU on a rainy Sunday afternoon.
I haven really come up with a good solid plan for Sunday's meeting. This is because I am not actually 'running' the meeting. But rather, I feel that I am facilitating the meeting of people with common interest.
Hope the topics that I choose will appeal to the people who are coming.
If any one has any good suggestions for stuff to discuss about besides the one I listed, feel free to comment. Thanks!
Yup, there is another jewellery auction for any one who would like to buy cheap jewellery. I was actually thinking, if you are really good at valuating jewellery..you might actually be able to go the auction to get a really good deal and sell the items that you win to pawn shops of cash converters? It seems possible.
Also, yesterday's newspaper talks about some auctions giving really good deals like brand new Nokia handphones at $70. Only downside is that it was stolen and was recovered by the police.
Anyway..here are the details for the auction
Venue: Hilton Hotel Singapore, Vista Room, Level 3, 581 Orchard Road, Singapore Date : 14th Dec 2008 (Sunday) Time: Viewing at 11am, auction at 1pm
When you reach 55, a Minimum Sum will need to be set aside. The Minimum Sum is currently $106,000. This sum will gradually increase to $120,000 (in 2003 dollars, i.e it will be further adjusted according to inflation) by 2013. The excess can then be withdrawn in one lump sum.
The Minimum Sum may be used to purchase life annuity with participating insurance company, placed with a participating bank, or left into your Retirement Account (current interest rate: 4%). Monthly payments will be made from age 62 until the Minimum Sum is exhausted. With life annuity, your monthly payments will continue for life.
These are the very basics of your CPF account. More information, such as on housing schemes and the various types of investments you can make with your CPF savings, is available on the CPF website, www.cpf.gov.sg.
You may check your CPF statement and make transfers from your Ordinary Account to your Special Account simply by logging in on the CPF website. All you will need is a SingPass (apply online), which will be mailed to you within a week.
CPF contributions by yourself (20% of monthly wage) and your employee (14.5% of monthly wage)* are allocated into three accounts:
Ordinary (66.7% of contribution*, interest rate: 2.5%) – for insurance, investment, buying a home and education
Special (14.5% of contribution*, interest rate: 4%) – for investment in retirement-related products
Medisave (18.8% of contribution*, interest rate: 4%) – for hospitalization expenses and approved medical insurance
You may wish to transfer some of your money from the Ordinary account to the Special account in order to enjoy better interest rates.
*Rates are for those below the age of 50 who are employees in the private sector, Government non-pensionable employees, non-pensionable employees in statutory bodies and aided-schools, or Singapore Permanent Resident employees from their third year onwards. For others, see http://mycpf.cpf.gov.sg/Members/Gen-Info/Con-Rates/ContriRa.htm
Voluntary contributions beyond your monthly CPF deductions are also possible. You may also choose to contribute to your parents’, spouse’s or siblings’ CPF accounts. These contributions may grant you tax relief. However, do note that any transfer is irreversible, and should thus only be done if you are sure that you will not need the money for buying a home or your children’s education etc.
Dec might rally because fund mangers will try means of boosting their portfolio, as they need to close their accounts.
The rally could go into Jan, because of the Singapore bail out plan which is expected to be good and Obama's possible economic policies that he might implement when he goes into office on 20th Jan.
The US having to fund for all the bail out has 3 ways to raise cash
Increase tax, but this will not be good for consumer
Issue Treasury bills. But in this current credit crisis and the amount of money that is needed, this might not be a good idea
Printing more money. This will cause the currency to devalue. Hence if this happnes, its time to move out of USD based assets.
It seems like the yields of REITs now are crazily high..up to even 30%.
However we must consider how they calculate these value. It is done by taking the latest dividend in absolute dollars divided by the current share price.
So a stock that was $1 yielding a 5% dividend would be yielding 10% dividend if the stock price drops to 50cents.
Also, before plunging your money into these stocks, you must first do your research on these companies..as many factors will affect the future potential of these companies.
For example :
Where are the properties in the asset based? Their properties might not be all based in Singapore. Places like China will have a higher risk, as their government might have a sudden policy change, be it tax laws and such.
Their gearing. I.e how much debt to asset that they have. This is because in times like this when credit is difficult to get, they might get into trouble if they have too much debts.
I was observing the interest rates lately and find that Fixed deposit rates are dropping really quickly and normal saving rates are going up.
Banks like UOB has upped their basic savings rates and banks like HSBC has even made it more complicated by pegging it to the 1 month Singapore Interbank rates. Pegging it to the Interbank rates is a really smart idea. Not only do you make depositors happier, you reduce your risk greatly, as the banks will not ever have the chance of 'over giving' money to you, as the interbank rates are ever changing.
Also, while reading today's business times, I found out that currently, DBS bank has the lowest lending interest rates as compared to other banks. Its rate is 4.5% as compared to other banks which are around 5-6%. This shows that the Singapore government is really making an effort to make credit readily available to the Singapore companies at the risk of their own banks having profitability problems. This might/might not be a good thing. If these companies happen to default, DBS is going to have lots of write downs, and create a mini Singapore financial crisis. However if all goes well, DBS will come back really strong as compared to the other banks, when the overall market turns around. ( So if you really have confidence in Singapore companies in general, buying DBS shares will be a really really good investment for the long term)
This is a video by Phillip securities giving their views on the market for the market
Summary:
1) US T-bills yield rates down, together with bond prices down implies that credit market is not good ( people would rather put their cash in safe places then invest other places like the stock market)
2) Recommends to buy commodities like Soy Beans ( because China is increasingly consuming more of these. And Corn ( as harvest is expected to be slowly this year, leading to a shortage of supply)
3) Recommends to buy Singapore and China government bonds, as these 2 countries have lots of reserves and their currency are not expected to drop over too much over the next few years.
This is a trading/investing system that is practiced by one of our readers, Mr Yeo.
I would like to thank Mr Yeo for his contribution to the blog.
Here is how he does it (as quoted by him) :
Basically this is my strategy. It is very similar to the stock trader, Jesse Livermore. Livermore shorted the market when it crashed in 1929.
1. Decide what stocks. I have a first line list and a standby list. Those in standby list are
Keppeland, Sembcorp Marine, Wilmar. Unless they drop to near $1 where risk is much
less, I may not consider buying. All the stocks belong to a different class. You cannot
expect a BMW to be in same class as a Toyota.
2. Then work out how much capital you are putting in.
3. Allocate how many lots for each of the stocks you wish to buy. After my first buy,I
won't buy more of a stock as it go down but buy less.I prefer to buy more when
I see my stock going up and I am in paper profit. But I cannot keep averaging up
and I have to stop at a certain price. So that chart may help me in that. But right now I
just estimate for each stock waht is the range I wish to average up.
4. With margin, I prefer to be in borrowing phase when I am in paper profit.This is
important. That's why I average up. Thus now that I nimble here and there, I buy bit by
bit.
Just don't put all your lots at one price. But first entry should be at a reasonable low risk level. There is no meaning buying a stock at $1 and then you still want to nimble all the way down to if it goes to 20c.
I read an article recently which gives an addition perspective on the current financial crisis.
It started in the bull market in around 2003
Funds took in money from the common people
Using this money as collateral ( something like mortgage) , they went to the Japan banks to borrow even more money, up to 30 times for investment. This is becaue Japan has a very low interest rate for borrowing money.
Using this money they invested in many risky products
Now, the bear market
Started with HSBC writing off $10 billion of sub prime mortgage and the fall of companies like Lehman Bros etc.
This cause investors to lose confidence and pull out their cash from these funds.
Hence, because the funds have to pay back these people, they are selling their bad investments at a loss ( their losses is up to 30 times what they invested, because of the leveraging they used in the bull market)
And they are trying to minimize their leverage by trying to change their investment back to cash.
This process is then what we call deleveraging.
In the process, the funds have to return the $$ they borrowed from the Japan banks.
Hence they have to buy the Yen, in order to return Yen to the bank
This cause the Yen to strength significantly, which is what is happening at the moment.
If you have difficulty understanding the current world financial situation, the following should help...
Once upon a time in a village in India, a man announced to the villagers that he would buy monkeys for $10.
The villagers seeing there were many monkeys around, went out to the forest andstarted catching them.
The man bought thousands at $10, but, asthe supply started to diminish, the villagers stopped their efforts. The man further announced that he would now buy at $20. This renewed the efforts of thevillagers and they started catching monkeys again.
Soon the supply diminished even further and people started going back to their farms. The offer rate increased to $25 and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!
The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now act as buyer, on his behalf.
In the absence of the man, the assistant told the villagers: 'Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when he returns from the city, you can sell them back to him for $50.'
The villagers squeezed together their savings and bought all the monkeys.
Then they never saw the man or his assistant again, only monkeys everywhere! Welcome to WALL STREET.
The Singapore Government has came up with plans to help keep people employed and even those who are unemployed. This is because unemployment is expected to go up to 4.5% next year compared to the 2.2% this year.
Package includes
90% subsidy of training fees for blue collar workers and 80% subsidy of white collar workers ( This is to encourage companies to send their workers for training)
Paying $6/hr for workers that are sent for training and $6.80/hr for older workers with less than A lvl ( This means that companies do not have to sack workers, instead they can send them for training and 'pay' them using this fund. So, even though the workers get paid lesser, at least they still have a job and are learning useful skills in preparation of the market recovery)
Even for the jobless, they will pay $4/hr to low skilled people to attend training and up to $1000/mth to the higher skilled
All this is going to cost the government $600 million, and are being tapped from reserves that they have been saving up from the good years.
There is also the $2.3 billion loan and credit facilities to help out companies by making 'funds' more readily available to companies to help them tie over this time of financial uncertainly.
Finally, more 'goodies' are expected on Jan 22, when the government will announce the new budget.
Organizing a networking session to discuss the possibility of forming a trading team and any other possible business opportunities.
Date : 14th Dec 2008 (Sun) Time: 2pm Venue : Nanyang Technological University , Nanyang House
Directions to the place : 1) Take 179 from Boon Lay Interchange, and alight at the 3rd stop after entering NTU. ( The red triangle right in the center of the map)
2) Cross the roads, heading towards the hill, and climb the stairs leading up it.
If you are interested, do drop me an email at ntuchartist@hotmail.com
Looking the advertisement by OCBC, the first impression is a really high interest rates of 2.68%p.a. But upon looking closer, it is only effective for 10 DAYS!! and for the rest of the 10months it is 1%. Making it effective 1.05 p.a.% which is really really low!
So as you can see, always read the fine print! Even though it is common sense thing to do, I believe many people still overlook the fine print, especially if it is really wordy.
Remember that your money is at stake, and the bank will always use the fine print against you!
Sorry for the late video as I have been busy with school exams. Nonetheless this video gives good insights of stocks to look out for.
Summary
Swings are really big in the US market, 200billion lost in 15min
Fundamental Analysis does not work in such a market condition
However look out for US consumer stocks ( big names in terms of branding) as they are the 2nd cheapest in terms of valuation as compared to the financial sector. Almost an 80% drop in price, though their expected drop in EPS ( earnings per share) is expected to be only 20-25%
I got the idea from The Straits Times on Sat, 25 Oct 2008, pg A22
The idea is like this
You borrow gold from a bank at 2.5% interest ( used to be 0.25% before the credit crisis, and that is really low!)
Sell the gold for USD ( Gold is priced in the world market in terms of USD)
Take the USD and lend it out at the current 1 month USD short-term LIBOR interest rate 3.24% (as of 24 oct 08)
At the end of 1 month, you pocket the the extra interest of 3.24%-2.5%=0.74%
Change the USD back to gold
Return the gold back to the bank
At step 5, you may be worried that the gold gets more expensive. Hence you can actually buy a futures contract for gold.Meaning you actually fixed the price that you are going to change the USD back to gold before hand. Howeve you might need to pay a premium for this, but if the premium is lower that 0.74% as in the example, you will still make a profit. Risk free!
Things to take note for this to work!
Interest rate of borrowing gold from bank
Market price of selling gold for USD cash
Short term USD cash loan's interest rate
Future price of USD cash for gold
This as we can see, requires lots of conditions to occur in our favour in order to get the risk free profit. Also, lots of time need to be spent to monitor all the daily changes hence they are usually done by big fund companies which uses computers to monitor all these changes.
However if you happen to get lucky and come accross all the conditions, why not give it a try? It's really a risk free profit due to market inefficiency...if you don't make the profit, someones else will =)
A reader once request for some gambling tip some time ago..here it is!
I. Gambling:(i) It is zero-sum which means "positive returns to the middleman (i.e. casino) translate to negative returns to the player". For example, the return to "4-D, Small" is - 42.0 per cent. It means that in the long-run, you will average a loss of 42 per cent per wager. It also means that for every $100 that is bet, Singapore Pools keeps $42. It pays out $58 to players in winnings.
(ii) The column “How long to lose it all” tells how many hours, tickets or races it takes to lose 95 per cent of your initial capital at a normal rate of play. In the example for 4-D, Small, it is "6 tickets". It means that on average, a person will lose 95 per cent of their initial capital after playing 6 tickets.
(iii) The odds for the games assume perfect play such as knowing when to take another card in blackjack. For horse-racing, it assumes average skills.
II. Derivatives:(i) Options, futures, warrants and structured warrants are the most common derivatives.
(ii) Derivatives are contracts and not assets. Because the contracts have limited lives, they are zero sum among all market participants. At any point in time, gains equal losses among all traders, before costs. Hence the name zero-sum. After costs, the sum of all trader returns is negative. This makes derivatives less like investing and more like gambling, which is also negative-sum.
(iii) It is not possible to estimate the size of the negative returns or "How long to lose it all" for two reasons: (a) trading costs (the numerator) vary for each type of derivative and (b) margin requirements (the denominator) vary from broker to broker.
III. Investing:(i) ILPs are “investment-linked products”. These are similar to unit trusts and sold by insurance companies. Both are called "funds". ETF’s are exchange-traded funds. They differ from other funds because they trade like stocks. In Singapore, they have much lower expenses than other funds.
(ii)Investment returns assume a diversified portfolio. Returns to stocks and small stock are from US data since 1926. Small stocks are defined as having a market capitalisation (price x no. of shares) under US$200 million.
(iii) Expected returns for funds (Unit Trusts and ILPs) are only 4.2 %. It is for various reasons -- (more than just high expense ratios).
Arbitrage is something that was introduced to me by a friend in the business faculty this year. I found the idea very intriguing as it provides an opportunity to get a risk free profit.
The idea behind this is to make use of market inefficiencies, and is usually applied in financial instruments such as bonds, stocks, derivatives, commodities , currencies etc.
A simple example would be:
Exchange rate in London are £5 = USD10 = ¥1000 and the exchange rates in Tokyo are ¥1000 = USD12 = £6
So with £5 in London, you change to ¥1000 and using this ¥1000, you go to Tokyo and change it back to £6. An instant profit of £1 !
This is 'triangle arbitrage'. Though this example is so simple that it does not occur, but it serves as in illustration of market inefficiencies where you can take the chance to make a risk free profit.
I shall give a few more actual examples that are happening in my future posts. It is good to know about this, because it is really a simple way to make a quick risk free profit. The most difficult part I feel, is to actually find such opportunities, as they are usual rare and do not last long.
This is a video by Phillip securities giving their views on China
Summary :
China heavily dependent on exports, hence with present economy slump, its economy will be affected
They have lifted the credit quota of banks in China and hence encourage banks to lend more. This is a better way to boost lending than decreasing interest rates.
Government trying to boost internal consumption in order to grow the economy
This is done so by lowering the housing prices and medical care, as currently these are very high, indirectly casuing their citizens to save more and spend less
What are credit swaps? ( This word has been mentioned quite a lot of times in this financial crisis)
Definition
Credit Default Swaps (CDS) is an insurance against a default of a bond. Where you can actually can own or not own that bond.
In short
It is something like paying an insurance premium to company A betting that company B will fall.
A scenario example will be : An investor like me pays company A $2 every year, because in the event company B fails, I will get $50. This premium drops when company B is supposedly reputable and reliable because it unlikely to fail.
However in the case of AIG ( company A) , because large reputable companies ( comapany B = Lehman Brothers etc.) fell, they had to pay these investors huge sums of money and hence was almost forced to bankruptcy.
Hope you all understand a little more about CDS now.. =)
General Motors and Circuit City in the US have filed for bankruptcy. Both are big companies in the US..and I do expect more to be coming, especially the non-financial companies. Its time the effect actually hit these companies.
I could see the bankruptcy of Circuit City coming as I was in the US at the start of the year for a school exchange program. The reason I went to visit Circuit City was because a US friend of mine was buying a new laptop. When I was visiting the shop ,I was shocked. Because :
The 1 storey building is huge, around 1/2 a soccer field, bigger than any Singapore electronics shop
The number of Plasma TVs, Home theater system is really crazy, imagine the amount of power it uses
BUT, there was less than 10 customers in the shop, and it was at around 7-8pm, essentially many many more staff than customers
Customer service was really bad. We spent like 1/2 hr waiting for the sales assistant to get the laptop from the storeroom. Worst still, we had to spend a full 15min waiting at the counter before the person actually attended to us. Considering the fact that there were MANY other staff personal around the counter, but just not behind the counter
Things in general are more expensive than eBay,amazon and other online shops. According to my friend, US consumers are shifting towards eShopping so its inevitable such shops will have to close down soon..
