Am I wired to allocate capital?

We have a local Quant Student!

2011-01-06T01:00:00.003+08:00

Thanks to LP for introducing Student's blog. Do check out Process Driven Trading, he really put a lot of effort into it. :)

Want to know more about Quants? I watched this video sometime ago which is very interesting.

Year End Portfolio 2010

2011-01-01T21:50:00.004+08:00

Happy New Year Everyone! Hope that you guys had a wonderful 2010! :D

I have been busy with a lot of other stuffs except blogging haha... If you are lucky, you might be able to catch me chatting in LP's blog.

Made a grave error in overstating the returns for Kingsmen and above is the edited 2009 portfolio. Taking into account of this error, which I only managed to detect it today! I have severely underperformed the STI ETF in 2009 by 18.7%! However, I usually perform better in bear markets than in bull markets.

Recall the performance yardstick.

Yardstick

Like most things we do everyday, we should have a yardstick to measure performance. I hope to do better in bear markets than in bull markets as I'm looking for companies with good future prospects at depressed market prices. I would be happy if my portfolio can outperform the STI ETF by 10% each year. For example the STI ETF this year gained 22.1%, I would do well if I can achieve >32.1% gain in portfolio for the year. I also consider in a year whereby my portfolio is down 20% and the STI ETF down 30% to be a better year.

The STI ETF ended the year 12.5% higher including dividends than where it ended in 2009. Dividends received was $0.06 or 2% at $2.97, 2008 market close. I outperformed the market by 28.9% which makes the score, 3 for me and Mr Market 1. :)

Is this luck or skill? Only time will tell. I've stayed with Mr Market for one cycle (bull-bear-bull) for the past 4 years. I guess to convincingly say that one is good, one should at least go through 3 cycles of the boom and bust. How long is one cycle? Nobody knows, it varies and is not exact science. Read uncle88's blog, quite funny haha...

Regards,
Cheng BSM (B.StockMkt, SG)

Ps: This title is made up and has no value whatsoever. Lol!

Year End Portfolio 2009

2010-01-11T01:30:00.005+08:00

Dear all, sorry for the delay in my portfolio update and the lack of posts. Have been very busy in school. 2009 is a good year, I have gained more knowledge, became much wiser and met many more valuable friends! I am forever grateful to them. :)

This year I did not perform as well as I would loved to. The STI ETF gained 66.3% including dividends while my portfolio only gained 58.8% this year, underperformed the STI ETF by 7.5%. To recall, my goal is to beat the STI ETF by 10% every year. Annualised return was 28.3% and hopefully I can improve further.

Cashed out $10k to give some to Mom and went for a holiday to reward myself. Still have around $4k which I would transfer into my trading account.

I will post the lessons learn't in 2009 at a later date.

Always keep an open mind, doesn't matter if it's TA or FA. Sometimes both will work and sometimes both doesn't work. Depends on how you use it. LOL!

Wishing everyone a happy tiger year! (And Yes! It's my year again, haha...) :D

Probability & The Bet (My Answer)

2009-06-12T22:16:00.003+08:00

Here is my answer, there are no right or wrong answers. My answer is steered towards how I would make this intelligent bet with Mr Market(The Stranger).

1) A stranger walked up to me and say that he has a fair coin in his hand. Which means that the probability of flipping the coin to get either heads or tails is 50%. The stranger said that he will flip the coin 20 times and wants me to guess what is the result of the 20th flip. There were no tricks involved during flipping, no foul play seen.

After the 19th flip, the result was 19 heads and 0 tail. He asked me to guess the result of the next flip. What is the probability of getting either heads or tails on the 20th flip?

What is your answer and your reasoning?

Mr Market walked up to me and said that he has a fair coin. Imagine the process of flipping up to the 19th flip. After 5 flips, 5 Heads. I thought to myself, the odds of 5 Heads in a row is around 3%(0.5^5) since there is an equal chance of getting heads or tails. After 10 flips, 10 Heads(something must be wrong, my alertness increases). After the 19th flip, 19 Heads and 0 Tail(he must be kidding me!). Either this coin is biased(Mr Market lied to me that this coin is fair) or the odds of this probability happening is very rare! We live in not a perfect world, people lie, cheat, steal etc. The market is a brutal place.

My opinion would be that this coin is biased, more weight is placed at the side of tails so it always lands on tails and show heads on top. Since it is a biased coin, 99%(what if Mr Market do magic trick?) the next flip would be Heads.

Let us go back to purely numbers and data that this is indeed a fair coin(Mr Market is not lying). The flip is independent and probability is non-accumulative or you can say that there is no conditional probability attached. The next flip either heads or tails is 50%, is correct. Doesn't matter if it is 10 Heads in a row or 1 Billion heads in a row.

If you said that the probability of Tails occurring at the 20th flip is very high(eg. >50%). You are wrong. Past data of the flip cannot predict accurately the outcome of the next flip. It just shows you that a rare event just happened, which is consecutive 19 Heads in a row.

If you think carefully, there are a lot of lessons that we could apply in the market.

2) The bet. The stranger said that if you want to bet, every $1 bet will give returns of 200%. If you lose, you lose all. Your R/R is 1:2. How many % of capital would you bet on this 20th flip to get optimal R/R returns, based on your probability answer given above?

I would use Kelly's formula(odds/edge) to bet. It is used to determine the optimal size of a series of bet when the odds are in your favor, in the long run. You are right no matter which case you choose because you do not know whether Mr Market is lying or not. Assuming 10k capital.

Case 1(not lying): 50% Head, 50% Tails, R/R 1:2

Your Odds:
(0.5 x 2) + (0.5 x -1) = 0.5

Odds/Edge:
0.5 / 2(divide by max win) = 25%

Bet 2.5K either heads or tails is the same.

Case 2(lying): 99% Head, 1% Tails, R/R 1:2

(0.99 x 2) + (0.01 x -1) = 1.97

1.97 / 2 = 98.5%

Bet 9.85K on heads.

However if I were to bet, I don't want to put 9.85k. I'm a conservative guy and don't want to risk almost all the money(call me a turtle gambler).

I bet on Heads by combining both scenarios adjusting probability to 100%:

(0.25 x 2) + (0.25 x -1) + (0.495 x 2) + (0.005 x -1) = 1.235

1.235 / 2 = 61.75%

Since I'm a turtle gambler and a value investor, with a 50% margin of safety, I would bet 3K(30%) of capital on Heads.

Kelly's formula also shows you how much confidence you have in the bet. In this case, my confidence level is 61.75%. If you think that the coin is fair, your confidence level would be 25%. In the stock market, most would bet if their confidence level is more than 70-80%. So if you said that you don't want to bet, you are right too. Like I said, there are no right or wrong answers, only bet with money that you can afford to lose.

Probability & The Bet

2009-06-05T15:05:00.005+08:00

Came up with this very lame question because I'm very bored haha... Posted it in Huatopedia forums and decided to post this Quiz/Question for my readers too! Hopefully we can learn from each other. If you could spend some time to think this through, you will learn something in the process. Good Luck!

1) A stranger walked up to me and say that he have a fair coin in his hand. Which means that the probability of flipping the coin to get either heads or tails is 50%. The stranger said that he will flip the coin 20 times and wants me to guess what is the result of the 20th flip. There were no tricks involved during flipping, no foul play seen.

After the 19th flip, the result was 19 heads and 0 tail. He asked me to guess the result of the next flip. What is the probability of getting either heads or tails on the 20th flip?

What is your answer and your reasoning?

2) The bet. The stranger said that if you want to bet, every $1 bet will give returns of 200%. If you lose, you lose all. Your R/R is 1:2. How many % of capital would you bet on this 20th flip to get optimal R/R returns, based on your probability answer given above?

Ps: R/R is Risk/Reward.

I will give my opinion in the next posting. =D

Edit: Spotted the mistake. The rest are correct. $1 bet will reward you $2, so total you will have $3. Sorry for the mistake.

Update about myself

2009-05-16T13:07:00.003+08:00

This week has been a hectic week. School work is starting to pile up with lots of materials to read. There have been some problems in school, which I feel is insignificant and not worth mentioning.

I have been monitoring the markets more and reading economic data extensively to get a general feel of the market, this has caused me to have insufficient sleep for the past 1 month. Made a few good buys and sells which I will not reveal now. Wait for end of the year to see my new portfolio allocation. :)

I have realised that there are so many things to do in life and I need to refocus. All these experiences costs money and the 2.5K salary that I'm going to bring home in the future is not going to get me anywhere. Anyway, I'm not in this profession for the money. I need to find ways to earn more, so that I can afford to spend more. I reiterate the word "afford" again, a prudent investor needs to spend within his means.

The compounding effect of money is simply too powerful to ignore. Having a capital of 100k and compounding it at 20% per year can be easily an average person's annual salary. If I can compound it 20% consistently for 5 years, I would have easily 248K. To the average person, it is a significant amount. To the one who has made it, it is just merely numbers.

I have stopped trading forex on paper months ago because there is not enough time to monitor while I'm in school. However I still believe that over time, I will be profitable. If anyone wants to pick up trading, forex is the way to go. Tough, brutal, challenging and it takes lots of discipline to control emotions. I don't like the idea of having rollover fees if I were to keep my trade the next day. Pitting your skills against the market is tough enough and yet as a retail trader, one has to pit their skills against the brokerage too. There are many wide swings and false breakouts to lookout for.

I need to refocus on what is important to me. Over the years, I've narrowed down and filtered out those that are not and kept those that are very important to me. I'm glad that time has made me realise this.

My focus now would be school work, trading/investments and the occasional drinks with my best pals. Life just keeps getting better. :D

Anyway

2009-03-26T22:45:00.003+08:00

Was at a hospital attachment and found this meaningful quote. Found online that it is a quote from Mother Theresa edited from Kent Keith's quote. Pardon my lousy photo taking skills, I will upload it anyway. =D

Forex 16/03/09 to 20/03/09

2009-03-20T18:54:00.004+08:00

Japan bank holiday today and currencies didn't move much, decided to close for the week. It is always better to under-trade than over-trade. Two of the trades did not move how I imagined it to be, the price action was acting weird, so I closed out the positions. The other trade was a big bang, holding it for 3 days.

Total No. of Trades = 3
Accuracy = 2/3= 66.7%
Win-Loss ($) = 44.12-0.06= 44.06
Average Win ($) = 22.06
Average Loss ($) = 0.06
Max Win($) = 43.62
Max Loss($) = 0.06
Pips = 442
Capital left(Using $500 fake money, $) = 483.87

Thinking back, computing performance is much easier with just a few trades. Why make my life so difficult trading so many positions? =D

Walking in the dark and found light

2009-03-14T00:09:00.006+08:00

The past 2 weeks of trading forex was an eye opener. I was walking in the dark and now found light again. Here are some of the lessons.

1) There is no perfect system, if you are looking for the "holy grail", there is none. You might find answers when you look into the mirror.

2) Price action is king, indicators are just guides, does not mean that they are not useful. Train your naked eye to look at price actions, you dont need a trend line to tell you where the trend is.

3) Patience, patience, patience- Yes! A trader needs lots of patience, he needs to wait for the big move, the signal, when most factors/probabilities are with him.

4) Trading doesnt mean more activity. When it gets too exciting, you are walking on the wrong path. It should be boring and dull. Trading more is actually bad.

5) Anything less than H4 chart is just noise. Know how to differentiate between signals and noise.

6) Let your profits ride, cut your losses fast. Money management is crucial, you can lose 7 out of 10 times and still make money.

7) Look out for sharks in support/resistance levels, round numbers like 100 or 500, psychological levels like Dow 7000 level. Sharks will trigger your stop loss at these levels, making false break outs or break downs. When they have cleared the amateurs out, they will continue on their buying or selling where there is less competition.

8) Be the predator and not the prey.

9) Keep a ear of news on the ground. When looking at retracements, is it a normal reaction or an abnormal one?

10) Do not trade when crucial news is going to be released. Wait for the release and see how it goes before you take the position.

Forex 02/03/09 - 06/03/09 (Still walking in the dark like last week)

Total No. of Trades = 20
Accuracy = 5/20= 25%
Win-Loss ($) = 2.61/45.62= -43.01
Average Win ($) = 0.52
Average Loss ($) = 3.04
Max Win($) = 1.4
Max Loss($) = 13.82
Pips = -351

Here is where I found enlightenment. Learning how to fish with dream's help. Many thanks.
http://triple-screentrading.blogspot.com/

And here, Feb2865 the pro trader. http://www.forexfactory.com/showthread.php?t=54528

Forex 09/03/09 - 13/03/09 (After I learnt the lessons from above. Still need to cut down on the number of trades)
Total No. of Trades = 14
Accuracy = 9/14= 64.3%
Win-Loss ($) = 17.86-12.04= 5.82
Average Win ($) = 1.98
Average Loss ($) = 2.41
Max Win($) = 8.85
Max Loss($) = 4.40
Pips = 74
Capital left(Using $500 fake money, $) = 439.81

Forex 23/02/08 to 27/02/08

2009-03-02T13:10:00.002+08:00

The week was very volatile. Some of the currency pairs were trading at weekly or monthly resistance and support lines. This is one thing which I must take note and incorporate into the system. Another issue that breeds the lousy performance is my risk management skill. Many times I was in 50-100 pips profits and then it turned it's back on me. I need to take profits when I can and maybe trade 2 lots and cash out on one and let it run.

Here are the week's result.

Total No. of Trades = 121
Accuracy = 43/121=35.5%
Win/Loss ($) = 135.92/158.92= 0.86
Average Win ($) = 3.16
Average Loss ($) = 2.04
Max Win($) = 15.27
Max Loss($) = 5.2
Pips = -259
Gains/Losses ($) = -23
Capital left(Using $500 fake money, $) = 477

Harvest of reverse pips!

2009-02-25T02:40:00.004+08:00

Today is a great harvest of reverse 205 pips from the genius. Don't worry this is not the last! :DLesson 1: Stick to the system's top down approach of looking at 4hr chart first then to 30min chart and 5min chart. If 30min chart is in a reverse trend of 4hr, enter with 30min chart.

Lesson 2: Do not anticipate the trend, let it happen first and give you the buy signal before you enter.

Lesson 3: Do not be competent, stick strictly to the system.

Lesson 4: When you missed the entry and the price had spiked, do not enter but wait for the next entry.

Total No. of Trades = 39
Accuracy = 30.7%
Win/Loss ($)= 28.69/52.75=0.54
Average Win ($)= 2.39
Average Loss ($) = 1.95
Max Win($)= 7.18
Max Loss($)= 6.92

Forex Trade 23/02/09

2009-02-23T18:39:00.006+08:00

Here are my results for today using the system if I were to trade for real. 1 lot equals to $5 used margin. Total 25 trades, 15 wins 10 losses. Made 519 pips which totals $57.56 demo money for today. Will try out the system for a month or 2 and see if I'm consistent. This good result might not happen again.

Let us look at biggest mistake first EUR/USD 25 pips loss. At the 4hr chart the red circle shows a classic uptrend that went out of steam. I coloured the red box because it is there initially. Confirmed downtrend.
EUR/USD 30min chart also confirms downtrend.

Once we confirm that the 4hr and 30min chart is in downtrend, we enter using the 5min chart at the red arrow where it breaks and forms a LL. Stop loss is at the green line where the wave pivots. So when it forms another HL and LL(downtrend), I shifted my stop loss to the blue line which I should not because it is too narrow. The end result is obvious and I missed the wave downwards, it pays to be patient. I committed the same mistakes for the other losses too with a too narrow stop loss for HL to form in downtrend and LH to form in an uptrend. Only 1 or 2 trades were stopped out which shows that my opinon at that time is wrong.
Now let us look at the biggest gain, GBP/JPY 145pips win. After 4hr and 30min uptrend is confirmed, I look at the 5min chart for entry. The green line B indicates a buy signal when it breaks the HH. The wave at the HL(red line 1) is the stop limit. As it forms a HL and breaks another HH, I shift my stop loss to red line 2. At the price reverse between red line 3 &4, I noticed that the JPY pairs are reversing at the same time, that is when I took the profits. When the candle hits another HH again, I entered at higher B(green line). Placing stop limits at each HL and HH formed as shown in red line 4,5,6. Sold off at the top when I felt that the price action is not right and is toppish again.
Total No. of Trades = 25
Accuracy = 60%
Win/Loss ($)= 72.79/15.23=4.78
Average Win ($)= 4.85
Average Loss ($) = 1.52
Max Win($)= 15.27
Max Loss($)= 2.50

Forex Trade EUR/USD 20/02/09

2009-02-21T12:02:00.010+08:00

Recently I've been learning how to trade forex. Here is my newbie experience using demo account with the 5min wave analysis from Brian8182. This is a play account, from today onwards I will trade as if I'm trading with real money, with money I can afford to lose and not punt money like the trades shown below.

The top are the most recent trades, let me start from the top for easy referencing.

1) EUR/USD 4hr chart: Look for trend Higher-Highs and Higher-Lows of candle. A very clear uptrend here breakout at 1.2758. I could have entered earlier at 1.2646 as it confirms the uptrend, missed that wave. As long as it is an uptrend and not ranging, we then proceed to look at 30min chart, don't have to look for breakout of the wave.

EUR/USD 30min chart: Confirms uptrend at 1.2758 breakout. Could have entered earlier when it breakout at 1.2653.

EUR/USD 5min chart: Enter trade on next HH of candle wave. Could have done better as mentioned earlier, look at the previous run up. Took profits too early at 1.2822, 30pips. Should let the profits run until there is a clear sign of wave reversal then take profits.

I still have not grasp the concept yet, as you can see my thoughts are not very clear. Still learning. I missed out on the earlier entry and entry at 1.2653 is the correct one. Cut loss should be at the previous wave valley at the base line of chart.

2009 Resolutions

2009-01-04T23:03:00.003+08:00

New year and new beginning, I would like to be a little bit more serious and stop fooling around haha...

1) Achieve at least a B or B+ for all my modules. (Would be great to get all As, that would be my goal in mind, but I'm happy with a B.)

2) At least 3 hrs of quality reading a day. 2 hrs allocated to school work and 1 hr to finance books. (Definitely would want to spend more hrs reading. Warren Buffett reads at least 5-8 hrs a day. Not that I dont read, I'm a binge reader of everything online like politics, business news, world affairs etc. I hope to spend more time on books and less on other distractions.)

3) Finish reading Security Analysis. (Finally that 1 hr came to good use.)

4) Exercise at least 2 times a week. (I want abs!)

5) Sleep early and wake up early. (Sleep before 12am if there is school tmr. 1am if there is no school. Wake up at 9am. This rule wont apply if there are special occasions like partying. :P)

6) Plan out a daily timetable. (I'm a carefree lazy person, this is to help me organise and be discipline.)

7) Would like to meet more friends. (Half my life revolves around them haha...)

8) Investment goals. (Needless to say, read my previous postings for more info.)

9) Get a gf? (Everyone keeps telling me this. How do you actually "get" 1? Can buy with cash? Need lots of love right? Haha...*joking*.)

10) Last and most important, I wish everyone around me to be happy. (I am happy if you are, it means a lot to me. One of my reasons for living a happier life.)

Hope that I can meet all those targets. God bless and good health people! :D

Year End Portfolio 2008

2009-01-01T00:33:00.006+08:00

2008 is a tough year for all investors. Experts have mentioned that this financial crisis is more severe than the great depression of 1927. I don't know how long the bear will last, but I'm sure the market will rise again. Nothing is new in market cycles, the boom and bust, top and bottom. History repeats itself because greed, fear, hope and ignorance will always be there in the emotions of the market.

It's a fruitful year for me and a great learning experience to ride this bear market. I've grown wiser and hopefully my capital allocation skills have improved. Made many investor friends this year. They are all very successful in their own ways and I wish them well and a prosperous new year in the years ahead. They have taught me a lot and have given me great insights in personal finance and how to enjoy life. I would like to thank them personally. (pappy, dream, san jie, uncle88, kk, superfriends I've met this year and online friends...etc etc the list can go on and on :P) You can chat with us at pappy's blog, it's getting crowded haha...

I'm happy with the past performance as I've met my target of beating the STI ETF benchmark by 10% for 2 consecutive years. However past performance is not a good indicator of future performance. I feel that I'm quite lucky and would like to be lucky again. Only time will tell, after 5 years if I've not met my target, would be better off investing in the STI ETF itself.

Cheers and Happy New Year to all readers! :D

Buffett's 3 Rules for Investing in a Crisis

2008-10-11T14:04:00.003+08:00

1. "Cash combined with courage in a crisis is priceless"

2. "Don't invest in things you don't understand"

3. "Don't try to catch a falling knife until you have a handle on the risk"

http://www.cnbc.com/id/26963156

Warren Buffett on Life

2008-09-14T14:42:00.001+08:00

My all time favourite video. After 2.40min is his topic on life.

Unlocking Value Investing

2008-09-10T00:08:00.011+08:00

When someone tells you that they are value investors, what first comes to mind? "Buy and Hold" strategy, invest for the long term, it is futile to time the market, buy on value at a margin of safety and invest in your circle of competence. Is that all? So easy? That is what I thought at first. OK, besides those difficult to understand FA analysis and valuation of companies, I shall touch on the general concepts of value investing that most value investors have not noticed.

"Buy and Hold"

Warren Buffett popularised this strategy and practices it more than often because he had an eye for scouting what I called "super companies" like Wal-Mart, Coca Cola, GEICO. They had superior earnings growth year after year for many years in the past(or now? I haven't looked at their income statement). They had ROE>20%, EPS growth per year and quarterly of >25%. Superb growth companies. Looks like C=current quarterly EPS and A=annual earnings increases, from the "CAN SLIM" method popularised by William O'Neil. They always look for companies with exceptional growth.

What most value investors did not notice is that Warren Buffett do not buy-and-hold forever for every company he bought. He sells off companies that he thinks is over-valued like PetroChina or mistakes like Dexter Shoe and US Air. Although there were no losses but very little gains as capital was not properly allocated. He did not allow his portfolio to tank 50% in value and more or even average down on them. Warren Buffett soon realises his mistake and did not chase good money after bad companies. In fact, he averaged up on Wal-Mart when prices kept soaring over the years with earnings.

If you had read his letters to partners, the Buffett Partnership performed better in a bear market than in a bull market using the Dow as yardstick. In fact, his portfolio has never recorded losses in a bear market. I believe he took some profits when signs of the bear is clear.

On investing long term

Benjamin Graham said "In the short run, the market is a voting machine but in the long run it is a weighing machine."

Value investors never realise that in the short run the market is always correct. Never try to beat the market because the market is bigger than you. It is like trying to out debate with millions of people and you will lose badly. If you think Citi was cheap when it is trading at $30 and 2 months before it was $50, you are so wrong. The market does not think this way and prices continue to tank until $20. At $30, I believe most investors know that prices will definitely go down further and why would someone buy at $30 knowing that it would fall further?

I used to think that it is futile to "time" the market. However by saying that, I am telling myself that I do not understand market psychology which is a very important characteristic in investing. By timing the market I do not mean by the exact buy and sell point of the stock. It is more of demand and supply. Take Koda for instance, I know it has very good management, stock selling at below NAV. However I would not buy it now because demand for their products are decreasing due to the slow down in global economies. Most value investors fail to revalue their companies realising that the bear is coming and sell them when they think it is overvalued.

By failing to do so the value investor did not realise that earnings would slow down or turn negative in a bear market, hurting overall performance of the company in the long term. If in the next 10 years the company can collect 100M of free cashflow, adding 3 years of bear market, they might have 60M at the end of 10 years. That is why prices go down from the high valuation in the previous bull market. Things would have been so different if we are in a bull market now right? It is not very difficult to tell from a bull and bear. Nevertheless nobody can predict the extact top of the bull or the bottom of the bear. We just have to be patient and analyse the market and companies carefully. Warren Buffett also did not rush to buy companies immediately few weeks after the sub-prime crisis. He knows the market very well.

Ps: Have been reading on "Can Slim" and TA stuffs. Some of the concepts makes sense to me and might have influenced my thoughts on value investing. I find that I understand value investing a lot better now. =D On 2nd thoughts, buying SBSTransit might be a mistake.

Kingsmen spreadsheet

2008-09-03T22:45:00.006+08:00

The figures in spreadsheet are more detailed, finally thought of a way to post it here. Did not analyse a lot on balance sheet cause Kingsmen have very low debts. ROA for this company is not very important as they depend on their designers to work on their contracts. In other words, their people are their assets which is why companies in this industry have very low margins. They pay a lot to keep their good designers.

Kingsmen Creatives

2008-09-02T14:57:00.034+08:00

Introduction:

Kingsmen has 4 business segments: 1) Exhibitions and Museums, 2) Interiors, 3) Research & Design, 4) Integrated marketing communications. The main drivers of the company are 1 and 2. Over the years Kingsmen has found a niche in high-end retail shop designs, with Interior Designs outpacing Exhibitions. In my opinion they are the leaders of Interior Design in Asia and the Middle East.

Customer base:

Close to 80% are repeat customers with brand names such as Apple, Burberry, Chanel, DBS, Esprit, FJ Ben, Gap, Gucci, John Little, Marks & Spencer, Nokia, Nuance Watsons, Omega, Polo Ralph Lauren, Robinsons, Standard Chartered Bank, Tag Heuer, Tiffany, Tommy Hilfiger, Wing Tai, Aldo, BMW etc.

Competitors:

One of their main competitors are Pico Far East Holdings(listed in HK) which specialises in Exhibition and event marketing services. Although Pico's NAV is approximately 4 times larger than Kingsmen, in terms of revenue from 2H07 and 1H08, Kingsmen's revenue only lacks behind Pico's by approximately 20%. Pico has slightly higher margins by 1%. Kingsmen is securing more contracts and catching up with Pico. The other is Cityneon whom only has a small share in the market.

Note: Exchange rate S$1 : HK$5.45

Income statement: (values are in '000 unless stated otherwise)

............2003.....2004......2005.....2006.....2007......1H08.....F2008
Revenue..53,477..63,261...76,74...108,945...146,131....77,74..194,350
NP.........1,579.....1,580....2,364....4,684.....10,243....5,750...13,605
NP.margin..3%.......2.5%.....3.1%......4.3%.......7%........7.4%.......7%
EPS(cents)..1.78....1.41......2.17.....4.88.......7.87.......2.85........7
EPS.growth.........-20.8%....53.9%...124.9%....61.3%...............-11.1%

Increasing revenue tells us that this is a growing industry, at the same time their expansion strategies to regional areas are doing well. According to my predictions for F2008, EPS growth might drop due to more outstanding shares issued from acquisition of subsidiary and associates. Usually 2H of results would be better because it will contribute approximately 60% of total revenue for the year. That is how I come out with F2008 prediction as usually there will be more demand for designs from retail stores due to the coming holiday season.

DCF valuation:

.......................2003.....2004.....2005.....2006.....2007....F2008
Net.income........1,579....1,580....2,364.....4,684...10,243...13,605
+Depreciation.....440.......544.......795.......1,137....1,703....2,538
+Amortisation.................................................121.......167
-Capital.exp......610......490.......1,422.....1,172.......866.....1,500
FCF................1,409...1,634.....1,737.....4,649.....11,201...14,810
FCF.growth..................16%.......6.3%....167.6%....141%.....32.2%

Using Warren Buffett's owner's earnings or free cash flow(FCF). Capital expenditure does not include investment into subsidiaries, but only expenditure necessary to keep the company running. Since Kingsmen's core assets are it's people, the costs have been deducted from income statement.

.......................F2008....F2009....F2010...F2011.....F2012
FCF................14,810....19,253....24,066...28,879...33,211
FCF.growth.........32.3%.....30%.......25%........20%.......15%
PV.using.DF.4%.....14,240...17,800....21,395...24,686...27,297

I used a conservative estimate of 30% FCF growth in F2009 and decreasing FCF growth by 5% for the next 3 years to calculate DCF for 5 years. However bearing unforeseen circumstances, I can safetly say that FCF growth will increase in 2009 and 2010, by how much, I do not know.
Discounting factor(DF) of 4% to calculate present value(PV) is the risk-free interest rate for Singapore government securities(SGS) in the long run. (rounded off from 3.5% of 20yrs SGS)

There is increasing revenue growth in China and the rest of Asia. Revenues will increase significantly from the 2 IRs and new malls in Orchard Road. Some say that we cannot bang on the idea of IR, however look at the many retail stores that are going to be setup there, Kingsmen will definitely have a share of it from their customer base. The demand for interior design would be high.

Outstanding shares as of June'08: 194,183
Market Capitalisation at $0.43: 83,499
DCF for next 5 years= 14,240 + 17,800 + 21,395 + 24,686 + 27,297 = 105,418
Cash on hand and at bank= 25,417
Valuation: 105,418 + 25,417= 130,835
Discount: 36.2%

I used cash on hand and at bank instead of using NAV at 38,393 to be more conservative in DCF valuation. Like Warren Buffett said "it is better to be generally correct than precisely wrong". For others, 30% FCF growth may be too optimistic. Another thing I like about Kingsmen is they have very low debts, I got nothing much to comment on their balance sheet.

PER valuation:

Let us look into PER valuation. Average EPS growth for the 5 years is 40%. To be conservative, I will use my estimated EPS of 7cents. 20% growth in F2009 and F2010, 15% growth in F2011 and 10% growth in F2012.

EPS valuation: $0.07 x 1.2 x 1.2 x 1.15 x 1.1= $0.128
Average PER: 7 to 8
Price per share: $0.9 to $1.02
Margin of safety 40%: $0.54 to $0.61

Conclusion:

In general, business prospects look very good for the next 3 years. Kingsmen over the years have built up their brand, increased their moat, increased their market share and are known for their quality designs and efficiency in delivering their product. It is not an easy business as it requires capable management to run, however they are in an easy industry as there are very few competitors thus far. Barriers to entry is huge as multi-million contracts are usually offered to big design companies like Kingsmen, Pico or Cityneon.

Some points to note, that director's remuneration and fees are approximately 16% of gross margin and gross margin is around 25-30% of revenues. So if we know how much revenues they are going to earn, we can easily predict net profits.

So which method of valuation would you prefer? I would prefer DCF.

Please feel free to comment and critique. Thanks!

Ps: Took me quite some time to figure out how to load the excell spreadsheet into Blogger, in the end I gave up. If you would like more detailed figures on Kingsmen, feel free to ask from me.

Lesson from history: The market shall rise again

2008-07-20T20:20:00.005+08:00

A very very good read from Next Insight.

An article contributed from Chris Tan, CEO of Providend.

Teaches you a short history about the stock market. Professional managers may not be always right. Lastly, ignore the noise.

Short quotes from Chris Tan:

"Greed will keep us buying even though prices are at a ridiculous high and will prompt us to sell in panic when we realize how ridiculous we have been."

"Investment professionals always say: 'This time is different'. I disagree. I say there is nothing new under the sun."

"The Internet bubble has clearly shown that professionals are not always right. In fact, they could many times be wrong. How could fund managers, investment advisers, wealth managers, so called experts not know that those Internet stocks were selling at a ridiculous price?"

Click on this link to read.

Mid-Year Portfolio 2008

2008-06-30T17:17:00.007+08:00

Performance of STI ETF (16.5% loss for 1H08)

Mid-Yr 2008 closing price (30th June): $3.030
Dividends: $0.06
2007 closing price (31st Dec): $3.699 (adjusted for 1 to 10 stock split on 10th Jan'08)

Performance of Chan Partnership: (11% loss for 1H08) (37% overall gain)

Sold ChinaACorp: $2,455.93(initial capital-trading fee) -$1,168.82(47.6% loss)= $1,287.11

Comment: Sold off the speculative stock ChinaACorp. Risks are high so I dare not put in a large amount. Speculating will never happen again. Never! See what it has done to me. HAHA!

1) SBSTransit (4.9% loss)

Bought: $6,900 (capital injection)
Value at 30th Jun'08: $6,510- $46.31(trading fee) +$97.50(dividends)= $6,561.19

Review: SBSTransit have dropped to their 52weeks low due to high oil prices. A blue chip stock trading at 13-14 PER, cheap in my opinion. Public transport pie may actually grow bigger as drivers find fuel price increase and ownership of car hard to cope. Foresee revenue increase as they will raise prices again in the near future. It is not easy to satisfy both shareholders and commuters.

2) Kingsmen (120.9% gain)

Bought: $6,000
Value at 30th Jun'08: $12,300 -$45.62(trading fee) +$1000(total dividends)= $13,254.38

Review: Business fundamentals still intact. Looking forward to listing in Mainboard. Stock definitely undervalued at $0.41. The discount to fair value might help to increase number of shareholders despite the 2 to 3 stock split. Having at least 1000 shareholders is one of the requirements to go to Mainboard. Fair value of Kingsmen $0.60. Foresee more contracts coming from IR.

Total value at 31st Dec'07: $16,810.31+ $6,900= $23,710.31(adjusted for capital injection to compare against 2 different periods)

Total value at 30th Jun'08: $21,102.68

Overall gain: $21,102.68/$15,400(total injected capital)=1.37=37%

Summary

In the first half of the year STI ETF loss 16.5% in value and the Chan Partnership loss 11% in value. I beat the market by 5.5%. Not impressive because my goal is to beat the market by 10% every year. Read my earlier portfolio post on yardstick. However, I am not bogged down by short term results.

Low returns are attributed to weak market sentiments due to high oil prices, inflation and US sub-prime issues. An opportunity for value investors to buy cheap.

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." Warren Buffett

"Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it." Warren Buffett

An update of myself

2008-05-18T23:25:00.003+08:00

I have to apologise for the lack of updates to dear readers who have benefited from reading this blog (although it is not much, these are just the basic foundations of value investing). Busy with school work was the primary reason and laziness being the secondary reason. I've actually cut down on a lot of activities and allocate more time to school. Most of my brain cells are now directed towards Anatomy and Physiology. I'm studying Physiotherapy at NYP if you are wondering. It is a 3yrs Diploma and 1yr Degree overseas course. Currently Universities in Singapore don't have this course. Yep! I'm climbing towards the plan that I set up for myself. Graduate with a degree and set up a healthcare business. With the accumulated profits, I can further invest in businesses.

Recent portfolio changes and updates

I will be doing a mid-year review of my portfolio at the end of June. My mom has decided to invest her savings with me and it will be officially called The Chan Partnership. I've sold off my losses in ChinaACorp. A loss of ~$1400, about 10% of my previous portfolio not including injected funds from Mom. This will be my last and final attempt on speculation and deeply regreted it. With the extra funds, I bought SBSTransit giving close to 7% annual dividends at 13X PER. Although crude oil prices will continue to rise but I foresee that the public transport pie will get bigger in Singapore. Margins will be offset by growing commuters as more people realise the high cost of maintaining a car in Singapore. It is not a fantastic investment but it is a safe one with an adequate margin of safety. Mom, your son will be extra careful with your hard earned money! d:D

Kingsmen continues to do well and I'm positive about their business prospect with more IR projects coming in. Much more emphasis is also placed on the designs of retail outlets to attract more customers. I think Warren Buffett said this before 'a business that helps other businesses make more money is a great business'.

The focus now is not really on the sub-prime issue but on inflation which affects everyone globally. It is increasingly challenging for value investors to deal with inflation as we need to adjust our calculations on the value of businesses accordingly. Time may actually be our foe if the price of the business remains stagnant for years even though we know the value of the business should be worth a lot more. Inflation eats into our profits as buying power of money decreases.

Conversations

2008-04-10T17:55:00.003+08:00

Dear All,

This is an unusual conversation... interesting and very true..

This is an excellent conversation between 'God' and
> > an unknown ' - 'Me'. I don't know as to who has been
> > the composer of such an interesting and captivating
> > conversation ; but has he/she has definitely put in
> > good amount of thought into crafting the same. *
> >
> > Those who don't believe in God, may also find it
> > worth reading once. Enjoy and Think ! *
> >
> >
> > God: Hello. Did you call me?
> > Me: Called you? No.. Who is this?
> >
> > God: This is GOD. I heard your prayers. So I thought
> > I will chat.
> > Me: I do pray. Just makes me feel good. I am
> > actually busy now. I am in
> > the midst of something.
> >
> > God: What are you busy at? Ants are busy too.
> > Me: Don't know. But I can't find free time. Life has
> > become hectic. It's rush hour all the time.
> >
> > God: Sure. Activity gets you busy. But productivity
> > gets you results. Activity consumes time.
> > Productivity frees it.
> > Me: I understand. But I still can't figure out. By
> > the way, I was not expecting YOU to buzz me on
> > instant messaging chat.
> >
> > God: Well I wanted to resolve your fight for time,
> > by giving you some. In this net era, I wanted to
> > reach you through the medium you
> > are comfortable with.
> > Me: Tell me, why has life become complicated now?
> >
> > God: Stop analyzing life. Just live it. Analysis is
> > what makes it complicated.
> > Me: why are we then constantly unhappy?
> >
> > God: Your today is the tomorrow that you worried
> > about yesterday. You are worrying because you are
> > analyzing. Worrying has become your habit.
> > That's why you are not happy.
> > Me: But how can we not worry when there is so much
> > uncertainty?
> >
> > God: Uncertainty is inevitable, but worrying is
> > optional.
> > Me: But then, there is so much pain due to
> > uncertainty.
> >
> > God: Pain is inevitable, but suffering is optional.
> > Me: If suffering is optional, why do good people
> > always suffer?
> >
> > God: Diamond cannot be polished without friction.
> > Gold cannot be purified without fire. Good people go
> > through trials, but don't suffer. With that
> > experience their life become better not bitter.
> > Me: You mean to say such experience is useful?
> >
> > God: Yes. In every term, Experience is a hard
> > teacher. She gives the test first and the lessons
> > afterwards.
> > Me: But still, why should we go through such tests?
> > Why can't we be free from problems?
> >
> > God: Problems are Purposeful Roadblocks Offering
> > Beneficial Lessons (to) Enhance Mental Strength.
> > Inner strength comes from struggle and
> > endurance, not when you are free from problems.
> >
> > Me: Frankly in the midst of so many problems, we
> > don't know where we are heading..
> >
> > God: If you look outside you will not know where you
> > are heading. Look inside. Looking outside, you
> > dream. Looking inside, you awaken. Eyes
> > provide sight. Heart provides insight.
> >
> > Me: Sometimes not succeeding fast seems to hurt more
> > than moving in the right direction.. What should I
> > do?
> >
> > God: Success is a measure as decided by others.
> > Satisfaction is a measure as decided by you. Knowing
> > the road ahead is more satisfying than knowing you
> > road ahead. You work with the compass. Let others
> > work with the clock.
> > Me: In tough times, how do you stay motivated?
> >
> > God: Always look at how far you have come rather
> > than how far you have to go. Always count your
> > blessing, not what you are missing.
> > Me: What surprises you about people?
> >
> > God: When they suffer they ask, 'why me?' When they
> > prosper, they never ask 'Why me'. Everyone wishes to
> > have truth on their side, but few want to be on the
> > side of the truth.
> > Me: Sometimes I ask, who am I, why am I here. I
> > can't get the answer.
> >
> > God: Seek not to find who you are, but to determine
> > who you want to be. Stop looking for a purpose as to
> > why you are here. Create it. Life is not
> > merely a process of discovery but a process of
> > co-creation. You are my co-creator.
> > Me: How can I get the best out of life?
> >
> > God: Face your past without regret. Handle your
> > present with confidence. Prepare for the future
> > without fear.
> > Me: One last question. Sometimes I feel my prayers
> > are not answered.
> >
> > God: There are no unanswered prayers. At times the
> > answer is NO.
> > Me: Thank you for this wonderful chat.
> >
> > God: Well. Keep the faith and drop the fear.. Don't
> > believe your doubts and doubt your beliefs. Life is
> > a mystery to solve not a problem to resolve.
> > Trust me. Life is wonderful if you know how to live.
> > 'Life is not measured by the number of breaths we
> > take but by the moments that took our breath away!

Rgds

Security Analysis Part 2: Analysis of Financial Statements

2008-02-29T19:19:00.003+08:00

Chapter 9: Analysis of the Income Statement- General Procedure

This chapter onwards assumes that the reader knows how to read financial statements.

The broad study of corporate income accounts may be classified under three headings:

1) Accounting aspect: "What are the true earnings for the period studied?"

2) Business aspect: "What indications does the earnings record carry as to the future earning power of the company?"

3) Security valuation aspect: "What elements in the earnings exhibit must be taken into account, and what standards followed, in endeavoring to arrive at a reasonable valuation of the shares?"

In order to arrive at the indicated earning power for the period studied, the analyst should follow a standard procedure consisting of 5 steps:

1. He will eliminate nonrecurrent items from a single-year analysis. But he will include most of them in a long-term analysis.

2. He will exclude deductions or credits arising from the use of contingency and other arbitrary reserves.

3. He will endeavor to place the depreciation (or amortization) allowance and the inventory valuation on a basis suitable for comparative study.

4. He will adjust the earnings for the operations of subsidiaries and affiliates to the extent they are not shown.

5. As a check, he will endeavor to reconcile the allowance for income tax with the reported earnings.

Nonrecurrent Items

Nonrecurrent profits or losses are those which arise for reasons outside the regular course of the business. The entries are of 2 main types. In one case the item relates entirely to events taking place in past years, such as the following:

1. Payments of back taxes or tax refunds, not previously provided for, and interest thereon (this may be accompanied by adjustments in depreciation reserves).

2. Results of litigation or other claims (eg. renegotiation, damage suits, public-utility rate controversies) relating to prior years.

The accounting treatment of these entries will vary. It is customary to place them directly in the surplus account, but they sometimes appear in the income statement, especially if they are of minor consequence.

The other type of special transaction has its origin in the year covered by the report but is nonetheless of an exceptional character which sets it off from the ordinary operations. The following are examples of this category:

3. Profit or loss on the sale of fixed assets- or of investments, for a noninvestment company.

4. Adjustments of investments to market value, for a noninvestment company; or write-down of nonmarketable investments.

5. Write-downs or recoveries of foreign assets.

6. Proceeds of life-insurance policies collected.

7. Charge-offs in connection with bond retirements and new financing.

Except for refinancing costs, which are almost invariably charged against surplus, the treatment of these nonrecurring items in annual reports varies widely.

3 suggested rules for the treatment of nonrecurrent items in the income account:

1. Small items should be accepted as reported. For convenience we may define "small" as affecting the net result by less than 10% in the aggregate.

2. When a large item is excluded, a corresponding adjustment must be allowed for the income tax.

3. Most nonrecurrent items excluded from the single year's analysis must nevertheless be included in a statement of long-term or average results.

Chapter 8: Classification of Securities

2008-02-29T18:34:00.004+08:00

Securities are customarily divided into the two main groups of bonds and stocks, with the latter subdivided into preferred stocks and common stocks. The first and basic division recognises and conforms to the fundamental legal distinction between the creditor's position and the partner's position. The bondholder has a fixed and prior claim for principle and interest; the stockholder assumes the major risks and shares in the profits of ownership. It follows that a higher degree of safety should inhere in bonds as a class, while greater opportunity of speculative gain- to offset the greater hazard- is to be found in the field of stocks.

Classification

1) Securities of the fixed-income and stable-value type: A high-grade bond or preferred stock

2) Senior securities of the fluctuating-value type
A. Well-protected issues with profit possibilities: A high-grade convertible bond
B. Inadequately protected issues: A lower-grade bond or preferred stock

3) Common stock type: A common stock

Chapter 7: Quantitative & Qualitative Factors in Security Analysis. The Margin-Of-Safety Concept

2008-02-27T15:01:00.004+08:00

After the analyst has learned what information he can get and where to find it, he faces the harder question of what to make of it. Analysing a security involves an analysis of the business.

Quantitative might be called the company's statistical exhibit. Included in it would be all the useful items in the income account and balance sheet, together with such additional specific data as may be provided with respect to production and unit prices, costs, capacity, unfilled orders,etc. These various items may be subclassified under 1) capitalisation, 2) earnings & dividends, 3) assets & liabilities, and 4) operating statistics.

The qualitative factors, on the other hand, deal with such matters as the nature of the business; the relative position of the individual company in the industry; its physical, geographical, and operating characteristics; the character of the management; and, finally, the outlook for the unit, for the industry, and for business in general.

Qualitative Factors (these factors are important, but also difficult to deal with intelligently)

Nature and Prospects of the Business. Industry Analysis. It is an established canon of investment in common stocks that one should first select the most promising industry or industries and then picking out the best companies in those industries. Many statistics are compiled and studied, the trade papers are read with care, and interviews are sought with well-informed people in each industry.

The Factor of Management. Picking a company with a good management is considered by many to be even more important than picking a company in a promising industry. The most convincing proof of capable management lies in a superior comparative record over a period of time. (which brings us back to quantitative data)

The Trend of Future Earnings. Financial theory sometimes sought to estimate future earnings by projecting the past trend into the future, and it has then used this projection as a basis for valuing the business. But while a trend shown in the past is a fact, a "future trend" is only an assumption.

Security Analysis and the Future. The kind of security analysis we regard as a most rewarding principle is concerned primarily with values which are supported by the facts and not those which depend largely upon expectations. In this respect the analyst's approach is diametrically opposed to that of a speculator, meaning thereby one whose success turns upon his ability to predict or guess future developments. Needless to say, the analyst must take possible future changes into account, but his primary aim is not so much to profit from them as to guard against them. Broadly speaking, he views the business future as a hazard which his conclusion must encounter rather than as the source of his vindication.

Margin of Safety as the Basic Quantitative Factor

Offsets to the Hazards of the Future. Place prime emphasis upon the presence of a large margin of safety for the security, which should be able to absorb whatever adverse developments are reasonably likely to occur. In such cases, he will be prepared to see unsatisfactory earnings for the issue during depression periods, but he will expect that (1) the company's financial strength will carry it unharmed through such a setback, and (2) its average earnings will be enough to justify fully the bond or stock purchase he is recommending.

Chapter 6: Nature & Sources of the Analyst's Information

2008-02-25T14:40:00.005+08:00

All the information regarding this chapter is based on US rules and regulations by the US Securities and Exchange Commission (SEC). Hence, it is a bit challenging for me to interpret the information into Singapore's context. However, I shall give the information for the part on US and then Singapore as accurate as possible with my current knowledge. Older and more experienced investors please correct me for any mistakes I made. Thank you!

Most of the corporate data used by the security analyst will have come originally from 2 parallel sources. The first is material filled with a regulatory body- most often the SEC. For Singapore, its the Singapore Stock Exchange (SGX) and the Monetary Authority of Singapore (MAS). The second is information sent by the company to the stockholders or the press. Nearly all this information is reproduced or condensed by the financial services, as it becomes available. For many analytical purposes it is sufficient to take the material, at second hand, from the various manuals, supplements or "daily sheets". But for a full-scale analysis the practitioner will generally find it advisable to consult the original sources, to make sure that nothing of importance is overlooked.

3 Types of Material available for analysis

1) The Basic Registration Statement (Prospectus): This statement provides a detailed description of the company's business and properties and will often serve as a starting point for detailed analysis. When companies are applying for Initial Public Offerings (IPOs) they will give out a prospectus. Can be found in the companies' or SGX website.

2) The Annual Report: It is here that the dualism between voluntary and required data is most manifest. Listed securities must file with the SEC a form (10-K for most companies) which contains a balance sheet, income account and cash flow statement in prescribed detail, and which also adds material that may be needed to bring the registration statement up to date. For Singapore listed securities, go to SGX website and look in announcements for financial statements.

3) Interim Figures: Quarterly net income figures. It was originally the accepted view that companies with a pronounced seasonal bias in their results should not publish interim figures, on the ground that these could be misleading. One method of overcoming the objection to seasonally unstable interim figures is by publication of successive 12 month totals at quarterly intervals.

Some important information still not generally available

1. Explanation of important differences between the income reported and that on which income tax was computed.

2. Where last-in, first-out inventory ("LIFO") basis is used, the equivalent value on a first-in, first-out ("FIFO") basis.

3. The present insured or appraised value of the fixed assets.

The analyst would like to have the following material if he can get it:

a) Orders booked and unfilled orders
b) Productive capacity where relevant
c) Production in units where relevant
d) Division of products by principal classes or departments, in dollar amounts or in percentage of total.
e) Data on concentration of business with few customers, if it exists, and any significant dependence on exports.
f) Description of property owned, including types of buildings and combined floor area.

Supplementary Information

The security analyst uses a vast amount of economic statistics, which relate either to business as a whole or to a particular industry. Most of this material is found in the Department of Commerce. For Singapore it is the Ministry of Trade and Industry (MIT).

Trade Journals: Detailed information of the current and prospective state of the industry. eg. its history and problems or in some cases unofficial data relating to individual concerns.

Time To Look For Companies Selling At 50% Below Valuation

2008-01-22T12:37:00.001+08:00

Very massive panic selling this week. The Singapore stock market fell to a 52 week low. I think most companies now are selling close to valuation especially properties because sentiments were high last year.

I will be busy these few weeks applying for courses, ORD in 060208! Will also be looking out for companies selling at a huge discount. I have only one punch card this year and limited cash, cannot afford to make any mistakes. The stock must get me really excited, must be a leader in its own field and trading at 50% or more below my valuation. They must have very little debt and lots of cash in hand. Giving 4-5% dividends. Good future prospects not affected by US mortgage crisis. No losses in the previous 5 years of operation.

ChinaACorp taught me a valuable lesson. I still cannot control my emotions well. Greed climbed over my head. This is what I learnt, do not buy out of favor stocks when sentiments are high even though they are undervalued because when sentiments are low, the price will definitely drop even lower at an increasing rate. So far, I have lost 50% of my initial capital on ChinaACorp. Considering selling it at a loss, but not until I see their financial statements for 2007 first. All buy and sell decisions must be made according to valuation and not through gut feeling. Will sell it immediately if I find another stock that suits the above requirements.

Happy shorting!(sadistic remark haha)

Asia Stocks Sink Amid US Recession Fears

2008-01-21T18:33:00.001+08:00

Monday January 21, 6:08 am ET
By Carl Freire, Associated Press Writer

Asian Markets Plunge Amid Pessimism Over US Stimulus Plan; Nikkei Sheds 3.9 Percent

TOKYO (AP) -- Asian stock markets plunged Monday following declines on Wall Street last week amid investor pessimism over the U.S. government's stimulus plan to prevent a recession.

India's benchmark stock index was down a stunning 10.9 percent in afternoon trading, while Hong Kong's blue-chip Hang Seng index plummeted 5.5 percent, its biggest percentage drop since the Sept. 11, 2001, terror attacks.

Investors dumped shares because they were skeptical about an economic stimulus plan President George W. Bush announced Friday. The plan, which requires approval by Congress, calls for about $145 billion worth of tax relief to encourage consumer spending.

Concern about the U.S. economy, a major export market for Asian companies, has sent Asian markets sliding in 2008.

"It's another horrible day," said Francis Lun, a general manager at Fulbright Securities in Hong Kong. "Today it's because of disappointment that the U.S. stimulus (package) is too little, too late and investors feel it won't help the economy recover."

My Thoughts

STI fell 6.03%, worst decline ever seen since when I started investing last year.

The blue-chip Straits Times Index dived 187.10 points to 2,917.15, falling below the psychologically important 3,000-point level to a five-month low.

Would encouraging more consumer spending help to revive the economy?

I remembered clearly taking economics in my A levels class. GDP=C+I+G+(X-M). My teacher Mr Pillai(very good teacher) mentioned that C(consumption expenditure) constitutes a very large percentage of GDP in the US economy. Basically the US economy is stimulated by large consumer spending, so might Bush's policies work? Short term maybe, by generating more income for companies, but not long term. The policy might even increase more credit card debts and more write downs for banks! People might say "if can I default my mortgage payments, should I also stop paying my credit bills too?"

Solution?

The problem is a lot more complicated than we thought, so to find a solution is not that simple. Saving criticism for comments later, I would like to advise the Bush administration. They should hammer down hard on those who default mortgage payments. Make them sell their cars, houses and assets, anything that can exchange into cash. No house to live? Rent a room or build tent. Still can't pay? Extend their debt payments and impose laws to allocate a % of their income to pay back the debt. I feel that Bush is not focusing into the problem, which is the mortgage defaulters.

Chapter 5: Investment Policy

2008-01-19T19:01:00.001+08:00

There are 2 types of investment policy, for institutions and individuals. I will only focus on individual investment policies as most of us are individual investors.

There are 2 classes of security buyers, the defensive investor and the aggressive or enterprising investor.

Defensive investor

Defensive investors are those who should place their chief emphasis upon the avoidance of any serious mistakes or losses and their second emphasis upon freedom from effort, annoyance, and the necessity for making frequent investment decisions.

Their portfolio should be divided into 2 parts between a 75%-25% stocks and bonds or 25%-75% depending largely on the subjective feeling of the investor.

The defensive investor may properly do his common stock purchasing through the medium of investment-fund shares or diversify in a list of leading common stocks, purchased at a reasonable price level.

Enterprising investor

The distinguishing feature of individuals in this class is their willingness and ability to devote time and care to the selection of sound and attractive investments. The enterprising investor may take calculated risk at times if he is convinced that his chances of profit sufficiently outweigh the hazard of loss.

The enterprising investor need not be a full-fledged security analyst in his own right. He may depend on others for detailed analysis, and for ideas and advice as well. But the decisions will be his own, and in the last reckoning he must rely upon his own understanding and judgment. The first rule of intelligent action by the enterprising investor must be that he will never embark upon a security operation which he does not fully comprehend and which he cannot justify by reference to the results of his own study and experience.

The endeavor to make money in securities is a business undertaking, and it must be conducted in accordance with business principles.

An enterprising investor may follow the simple 2 part policy of the defensive investor with respect to some portion of his funds, and employ the remainder to more aggressive operations. There is no single pattern for the latter. He may endeavor to buy in low markets and sell in high markets, in accordance with the age-old principle of shrewd investment. He may try to select companies that have unusual prospects for long-term growth, making sure he is not paying too much in advance for these favorable possibilities. Or he may place his prime emphasis upon the purchase of "bargain issues" which are selling considerably below their true value, as measured by reasonably dependable techniques.

My conclusion

The individual investor should be both enterprising and defensive when investing. Defensive in not speculating and to avoid serious mistakes. Enterprising in investing in your own circle of competence and having a margin of safety in the purchase of common stocks. I believe that enterprising investors should be 100% in stocks and not diversify.

Formula-timing Plans

The investor automatically does some selling of common stocks when the market advances substantially, and some repurchasing or original purchasing when the market has a significant decline.

Dollar Averaging

An increasing amount of favorable attention in recent years has been directed toward the comparatively simple idea of placing the same amount of money in the same stock, or group of stocks, in successive months, quarters or years. In a period of wide fluctuations in stock prices, dollar averaging will show better results than the method of purchasing a fixed number of shares each year regardless of price.

The real implication of dollar averaging is that investors should be wary of putting more money in stocks at higher prices than they did at lower prices--which is a common failing --and that they should never let a lower price level scare them away from buying.

Asian Stock Markets Plunge

2008-01-16T17:14:00.001+08:00

Wednesday January 16, 1:52 am ET
By Dikky Sinn, Associated Press Writer

Asian Markets Plunge on Worries That US Is Sliding Into Recession; Hang Seng Down 4 Percent HONG KONG (AP) -- Asian stock markets plunged Wednesday on growing speculation the U.S. economy -- a vital export market -- is sliding into a recession that could lead to a global slowdown.

Investors dumped stocks after an overnight sell-off in U.S. markets and on news that Citigroup Inc. had lost nearly $10 billion in the fourth quarter as it wrote down bad mortgage assets. Weak U.S. retail sales figures also added to the gloom, sending the Dow Jones industrial average down 277 points, or 2.2 percent.

"The moves on Wall Street signal fears that the U.S. is going into recession," said Rommel Macapagal, chairman of Westlink Global Equities in Manila, Philippines, where the market sank 2.7 percent.

Such concerns are becoming widespread in Asia, he said. "We're all looking for new support levels."

In Hong Kong, the benchmark Hang Seng index was down 4 percent at 24,815.61 in afternoon trading, while Tokyo's Nikkei 225 index fell 3.35 percent to close at 13,504.51 points.

Markets in Australia, China, South Korea and New Zeland also fell sharply on worries about slower growth in the U.S. and around the world.

The United States economy, battered by problems in the housing and credit markets, is a major export market for Asian companies, and weaker demand from American consumers will likely hurt profits at some of the region's companies. The U.S. Commerce Department said Tuesday that retail sales fell in December, and it revised the November figure lower.

Investors saw more fallout from the subprime mortgage market when Citigroup said Tuesday it had written down $18.1 billion for bad mortgage assets.

"The fallout from the Citigroup result is significant, with many saying ... there is more bad news to come," said Trent Muller, an ABN Amro Morgan analyst in Sydney, Australia. "We will see a bit of panic selling with a lot of investors taking cash off the table today."

There is also a growing fear that the Federal Reserve hasn't done enough to keep the U.S. economy going. The central bank has lowered its key interest rate by a full percentage point to 4.25 percent since early August.

Now many investors and analysts believe the Fed will cut rates by a half-point at its Jan. 29-30 meeting.

"The risks of a recession in the United States appear to have increased," said David Cohen, director of Asian forecasting at Action Economics in Singapore. "It's still clearly up in the air and that is reflected in the volatility that we see in the markets day-to-day. Every new headline can spook the market."

Japanese semiconductor stocks also fell after Intel Corp. shares plunged on concerns that the world's largest semiconductor maker is feeling the pinch of an ailing U.S. economy.

A surge in the yen, which hurts Japan's vital exporters, also depressed Tokyo stocks. The U.S. dollar fell to 106.02 yen, the lowest level in 2 1/2 years.

"The Tokyo market is very sensitive to the strong yen," said Tsuyoshi Nomaguchi, an analyst at Daiwa Securities Co. in Tokyo.

In China, the benchmark Shanghai Composite Index fell 2.6 percent to 5,302.64 by midday. China shares, which are mostly isolated from world trends due to regulatory controls, have gained about 1 percent since the beginning of the year, compared with losses in several other Asian markets.

But worries over the U.S. economic outlook and possible lending curbs by the central bank have hurt bank shares.

"The market is divided over the potential impact the U.S. subprime crisis may have on China's economy, and Hong Kong's weak performance gave some jittery investors the final push to sell," said Essence Securities analyst Zhu Haibin.

Associated Press Writer Hrvoje Hranjski in Manila, and AP Business Writers Yuri Kageyama in Tokyo, Elaine Kurtenbach in Shanghai and Thomas Hogue in Bangkok, Thailand, contributed to this report.

The FTSE ST Series Of Market Indices

2008-01-10T14:52:00.002+08:00

Singapore Press Holdings (SPH), Singapore Exchange (SGX) and FTSE Group have jointly developed a new Straits Times Index (STI) as the Singapore stock market's main benchmark and created a family of new FTSE ST indices that will complement the STI.

The aim of the collaboration is to create a comprehensive suite of indices that will better reflect the performance of various sectors of the Singapore stock market and meet the needs of both retail and institutional investors. The revamped STI and the new FTSE ST Index Series will stimulate development of index-related products to serve diverse market needs. This in turn offers investors wider investment choices and opportunities in the Singapore market. With the availability of more indices, more listed companies can expect to be included in an index and achieve higher visibility with international fund managers and investors.

The new set of FTSE ST indices, which comprises the new STI and 18 new FTSE ST indices, were launched on 10 January 2008.

STRAITS TIMES INDEX (STI)

The STI now comprises 30 blue-chip companies on the SGX Mainboard ranked by market capitalisation as at 31 August 2007, which have passed the selection citeria outlined below. The constituents of the revamped STI can be found here

In line with FTSE's international methodology, these companies have been included based on the following criteria:

• Free Float. The free float of a listed company must be greater than 15%. The definition of "free float" includes portfolio investments, nominee holdings and holdings by investment companies.

• Liquidity. A stock must trade with a median daily turnover value of at least 0.05% of the value of its free float-adjusted shares in issue for at least 10 out of the last 12 months.

FTSE ST INDEX SERIES

The STI will be complemented by a new family of FTSE ST indices that will consist of 5 benchmark and 13 industry indices, including a new theme index to represent China stocks listed in Singapore. The new indices, by tracking the different sectors of the Singapore market, will help investors make better-informed investment decisions. The new indices will adopt FTSE's international methodology and will be based on the International Classification Benchmark (ICB), the globally renowned classification system created by Dow Jones Indices and FTSE. The use of the ICB will facilitate cross-border analysis and comparisons.

The full list of indices can be found here

To qualify for inclusion in any index, except the FTSE ST Fledgling Index, the market capitalisation of a listed company must fall within the top 98% by full market capitalisation of all SGX Mainboard companies.

The FTSE ST Fledgling Index includes all the other qualifying companies comprising the last 2% by full market capitalisation. These stocks are not screened for stock liquidity.

Constituents for the family of FTSE ST indices can be found here

GROUND RULES

The constituents of the STI and the new FTSE ST Index Series are reviewed semi-annually in accordance with a set of publicly available Ground Rules which can be found here

An advisory committee comprising of market practitioners, and/or representatives from SPH, SGX and FTSE undertakes the reviews. The first review is scheduled for September 2008.

Real time FTSE ST indices price.

Chapter 4: Investment and Speculation

2008-01-09T13:03:00.002+08:00

General Connotations of the Term "Investment"

1) Putting or having money in a business. eg. A man "invests" $1000 in opening a grocery store.
Note, however, that it accepts rather than rejects the element of risk- the ordinary business investment is said to be made "at the risk of the business."

2) All securities(stocks, bonds, warrants, etc) are "investments".
No real distinction is made between investment and other types of financial operations such as speculation.

3) It is commonly thought that investment is good for everybody and at all times.
Such a distinction is generally taken for granted.

A Proposed Definition of Investment

An investment operation is one which, upon thorough analysis, promises safety of principle and a satisfactory return. Operations not meeting these requirements are speculative.

The "safety" sought in investment is not absolute or complete; the word means, rather, protection against loss under all normal or reasonably likely conditions or variations.

Eg. A safe bond is one which would suffer default only under exceptional and highly improbable circumstances. Similarly, a safe stock is one which holds every prospect of being worth the price paid except under quite unlikely contingencies. Where study and experience indicate that a chance of loss must be recognised and allowed for, we have a speculative situation.

Additional Criterion of Investment

An investment operation is one that can be justified on both qualitative and quantitative(price) grounds.

Many have the misconception that "blue chips" were safe investments. They may be good quality stocks, but the public unconsciously assume that no price would be too high for a good stock. Carried to its logical extreme, such an issue was equally "safe" after it had advanced to 50 as it had been at 2. The issue then becomes speculative without quantitative grounds or a margin of safety in price.

Types of Speculation

1) Intelligent speculation- the taking of a risk that appears justified after careful weighing of the pros and cons.

2) Unintelligent speculation- risk taking without adequate study of the situation

Margin-of-Safety concept

In the case of bond or preferred-stock investment this margin is usually represented by the excess of earning power over interest or dividend requirements, or of the value of enterprise above the senior claims against it.

In the case of a common stock it should be represented either by the excess of calculated intrinsic value over the price paid, or else by excess of expected earnings and dividends for a period of years above a normal interest return.

Portfolio 2007

2008-01-01T02:06:00.001+08:00

Straits Times Index(STI) closed at 3,482.30 higher for the year 2007, which is an increase of 16.63% excluding dividends.

The 10 year annualised return for the STI is approx. 8.93% taken from fundsupermart. The average investor who diversifies would also expect to get almost the same results like 9-10% p.a. over the long term.

The STI alone is not a good indicator of measuring performance because investors cannot buy the STI. Instead investors will have to buy streetTRACKS Straits Times Index Fund(an exchange traded fund-STI ETF) listed on 17th Apr'02 designed to track the performance of the STI. Its objective is to replicate as closely as possible, before expenses, the performance of the STI. To provide a fair computation of the performance of the STI ETF, we should use its NAV from 3rd Jan'03 $14.05 as a base. The closing price for STI ETF for the year is $36.99. Total dividends received for the last 5 years is $3.33. Hence the annualised return for STI ETF is 32.7% and 37.4% including dividends, excluding management fee of 0.3% p.a. Also take note that the STI ETF is approximately 1/100th of the STI.

Some may ask why the large discrepancy in the annualised return of the STI and STI ETF? The reason is that STI ETF is only set up 5 years ago and these 5 years are bullish years. Another reason is that the STI ETF closed at $36.99 which is $2.17 or 6.22% higher than the STI. Market sentiments are still bullish which contributes to the bidding up of prices higher than the STI. As such I should also provide the previous 5 years annualised return of the STI which is 19.47% excluding dividends. To conclude, the management of STI ETF did 13.23% excluding dividends better than the STI by trying to mimic its share holdings.

STI ETF vs investment funds that invest in the Singapore market

To prove that the STI and STI ETF are no pushover, let us look at some of the funds that invest in the Singapore market. On average some of the funds like Aberdeen Singapore Equity, Schroder Singapore Trust and UOB United Growth Fund managed an annualised return of 20-22% over the last 5 years. The funds managed to beat the STI by 1-2%, however if fund management fees between 1-2% p.a. were included, their performance were only average or maybe some below average. Needless to say comparing the funds with STI ETF. Only DBS Shenton Thrift managed to get close with 29.88% annual returns over 5 years and 2nd runner up would be Lion Capital Singapore Trust with 26.06% annual return over the last 5 years too. Hence none managed to beat the STI ETF which did no stock pickings but merely imitate the stock holdings of the STI. This further proves what Warren Buffett said that it is better to invest in index funds as only 1-2% of fund managers globally managed to beat the index. Index funds also charge much lower management fees than investment funds.

Note: Fund % figures were taken from fundsupermart between the date of 31st Dec'07-2nd Jan'08.

Yardstick

Like most things we do everyday, we should have a yardstick to measure performance. I hope to do better in bear markets than in bull markets as I'm looking for companies with good future prospects at depressed market prices. I would be happy if my portfolio can outperform the STI ETF by 10% each year. For example the STI ETF this year gained 22.1%, I would do well if I can achieve >32.1% gain in portfolio for the year. I also consider in a year whereby my portfolio is down 20% and the STI ETF down 30% to be a better year.

Stock holdings

1) Kingsmen (145.9% gain)
Bought: $6,000
Market value at 31st Dec'07: $14,400-$45.62(trading fee) +$400(dividends)=$14,754.38

Reason why I buy: Bought at low P/E, industry leader, foresee many contracts in IR and F1, improving earnings and unnoticed by the market.

2) ChinaACorp (17.8% loss)
Bought: $2,500
Market value at 31st Dec'07: $2,100-$44.07(trading fee)=$2,055.93

Reason why I buy: Purely speculative by listening to Dad saying some 'big shot' buying tonnes of it. Could not find its financial statements. Formerly Acma Ltd.

Total portfolio market value at 31st Dec'07: $16,810.31 (97.8% gain)

Past performance is not a good gauge for future performance.

Maybe, it's about time to flush out the newbies from the stock market?

2007-12-17T22:57:00.001+08:00

Read an interesting posting from Channel NewsAsia forums about this t opic. It's really amusing.

Bullish sentiment

Volatile market

Due to the US sub-prime mortgage crisis this year, the market turned bearish for a while. And then the Fed decided to cut interest rates to try to remedy the market causing investors to turn bullish for a moment. Thinking that it's all over? The media decided to add in some bad news and occasionally some good news to enlighten the market of their current situation(it stimulates their income as they sell more papers too!). This brings investors on a roller coaster ride. Weeee! Woooo! Ahhhh...............!

Bearish sentiment

Newbie

In terms of experience, I'm still a newbie as I have only started investing early this year with real cash. However, my investing mindset does not put me in a newbie position. I'm value orientated while most are in it for a quick profit. I've been eagerly reading up investment books for the past 2 years which taught me to invest for the long term and not speculate. I also learnt to analyse financial statements to make good investment decisions.

If you noticed, most decent company stocks especially small caps increased 1-2 times from the start of the year. Some stocks have even rose 6 times their initial price! No wonder those aunties, uncles and Ah Dis(young boy, like me) are bragging about their investment profits. It is easy to make money in a bull market as most stocks will rise(like how hot air rises) and not much skill is required. One can make some profit by throwing darts to pick stocks. However when you are in a bear market, its a different story. Newbies will panic when prices start to drop fast. One of the irrational things they do would be to follow the herd and sell at a loss. Worst still if they used leverage like contra or margin, their losses would be higher.

The bull climbs up the stairs of the building while the bear jumps out of the window.

As a value investor, if the fundamentals of the company does not change and the price is cheaper now, I would increase my positions.

Conclusion

It's time that newbies learn a lesson not to speculate and look for hot stock tips. They should do their own research before buying. In the long run, they would do reasonably well provided that they don't buy at rocket prices. Whether they can beat the market in the long run is another story.

Chapter 3: The Behaviour of the Security Markets

2007-12-16T13:36:00.001+08:00

The price to be paid or received for a security is an integral part of any complete analysis. We do not believe that short-run price movements--the day-to-day or month-to-month variations--are a valid or profitable concern. But the broader concept of business cycles should not be left out.

The relationship between Intrinsic Value and Market Price

The chart above traces various factors like speculation and valuation which contributes to the market price. Rather we should say that the market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion.

Undervalued Situations When The Market Appears High

When the general market is high there are always a number of individual issues that appear undervalued. One maybe tempted to buy these issues. But that is a time that calls for especial caution. Not only may the 'neglected issue' continue neglected for the remainder of the bull market, but when the downturn comes it is likely to decline in price along with the general market and to fully as great as an extent.

In a word, beware of 'bargains' when most stocks seem very high.

The Factor Of Marketability

The speculator or market trader has a real need for marketability because he may want to buy or sell in a few minutes' time. The typical investor has no similar requirement. It is better to sacrifice quick marketability to attract value rather than vice versa. For every point lost in the spread between bids and offers, the buyers of a true bargain issue may expect to gain perhaps 10 points in increased dividend returns plus ultimate improvement in selling price.

Much of the emphasis on marketability comes from the stock-brokerage business. Brokers are in business to earn commissions. It is easier for them to get orders in active than in inactive stocks. Hence, they are likely to overemphasize the popular and active issues in their work. This attitude tends to create something of a vicious cycle, since it makes active issues more active and inactive ones more inactive.

Summary

The security analyst should be concerned with those fluctuations in security prices which tend to create opportunities to buy at less than indicated value and to sell at more than such value.

Chapter 2: The Scope & Limitations of Security Analysis

2007-12-04T20:43:00.001+08:00

'Analysis' connotes the careful study of available facts with the attempt to draw conclusions therefrom based on established principles and sound logic. It is part of the scientific method. But in applying analysis to the field of securities we encounter the serious obstacle that investment is by nature not an exact science. Individual skill (art) and chance are important factors in determining success or failure. Nevertheless, analysis is not only useful but indispensable in the field of investment and possible in that of speculation.

Three functions of security analysis:

Descriptive function- Make adjustments in the financial figures to bring out the true operating results in the period covered, and particularly in order to place the data of a number of companies on a fairly comparable plane. Evaluation of favorable and unfavorable factors in the position of the issue compared with others in the same field, also projections of earning power on various assumptions as to future conditions.

Selective function- Pass judgment on the merits of securities.

1) Bonds and preferred stocks- Make sure that interest payments will be met in the future without difficulty or doubt through an ample margin of safety in the past to protect against possible adverse developments that lie ahead.

2) Common stock- Selecting those that will pay a good return or increase in price or both. There are 2 approaches. The older approach places its chief emphasis on anticipation of an increase in price of the stock in the longer term, whereby, the present market is by and large an appropriate reflection of the present situation of the stock. The newer approach attempts to value a common stock independently of its market price. If the 'intrinsic value' found is substantially above or below the current price, the analyst concludes that the issue should be bought or sold.

A general definition of intrinsic value would be 'that value which is justified by assets, earnings, dividends, definite prospects'. The most important single factor determining value is now held to be the indicated average future earning power. Intrinsic value would then be found by first estimating this earning power, and then multiplying that estimate by an appropriate 'capitalisation factor' or multiplier.

"Intrinsic value is an all-important concept that offers the only logical approach to evaluating the relative attractiveness of investments and businesses. Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life. The calculation of intrinsic value, though, is not so simple. As our definition suggests, intrinsic value is an estimate rather than a precise figure, and it is additionally an estimate that must be changed if interest rates move or forecasts of future cash flows are revised." --Warren Buffett

Critical function- Security analysis may be competent to express critical judgments, looking to the avoidance of mistakes, to the correction of abuses, and to the better protection of those owning bonds or stocks. Questions largely dependent upon the act of management include capitalisation setup, dividend and expansion policies, managerial competence and compensation, and even continuing or liquidating an unprofitable business.

Security Analysis Part 1: Survey and Approach

2007-11-30T19:30:00.001+08:00

Chapter 1: Introduction

To analyse securities creditably, one needs to understand security forms, corporate accounting, the basic elements that make for the success and failure of various kinds of businesses, the general workings of the economy and the characteristics of security markets.

One must be able to dig for facts, to evaluate them critically, and to apply his conclusions with good judgment and a fair amount of imagination.

One must be able to resist human nature itself sufficiently to mistrust his own feelings when they are part of mass psychology.

One must have courage commensurate with his own competence.

The array of securities

Civil obligations eg. Singapore government securities
-Government bonds and Treasury bills(T-bills)

Corporate Securities- Unlisted private companies

Preferred and Common Stocks

Economic background

The soundness of a security purchase is determined by future developments and not by past history or statistics.

But the future cannot be analysed; we can seek only to participate intelligently and to prepare for it prudently.

Past performance as a foundation- Long experience tells us that investment anticipations cannot be sound or dependable unless they are closely related to past performance.

5 matters that concern the investor

General price level- The long-term trend would be inflationary with rising oil prices and basic necessities . Common stocks are by no means an ideal protection or 'hedge' against inflation, but they do more for the investor on this point than either bonds or cash.

Interest rates- The price history of bonds is the reverse of the course of interest rates.

Business conditions and profits

Dividends- The pattern of corporate dividends follows closely with earnings. They also exert a prime influence on the status of individual common-stock issues.

Security prices- A promise of excellent gains when purchases are made in depressed markets and a warning of permanent loss if the investor buys when bullish sentiment is at its strongest.

Introducing: Security Analysis

2007-11-28T16:43:00.002+08:00

Decided to get more serious into investing and the analysis of financial statements, bought this book from Times bookstore at a freaking $125.20 inclusive of GST! Expensive yea? Didn't even bother to check prices from Kinokuniya or Borders for the best price. The plus minus $1 or $2 won't be significant as both the other major bookstores are further away considering transport costs.

This book will be a timeless advise as it features Benjamin Graham's years of hard work into security analysis. The authors had seen and survived the Great Depression as well as the political and financial instabilities of World War 2. Ben Graham is widely acknowledged to be the founder of value investing and is continuously practiced by famous investors like Warren Buffett. This is the reason why I bought this book, I wanted to know what Warren Buffett knows when he was young.

There are also limitations about reading an old classic investment book. All the examples are outdated except for the principles and technique of value investing after reading 100+ pages. Ben's old English way of explaining stuff also makes it difficult to understand.

I know that I would benefit a lot from this investment bible and decided to post lessons learnt on a weekly basis. I'm sure the $125.20 investment will pay off handsomely!

Wish me well in my investing journey! d:D

Dear Blog

2007-11-27T11:21:00.001+08:00

Hello Bloooooooog!!! This is my first blog, first blog post of my life! Do i sound very excited? The answer is NO. But maybe, maybe just a little. I usually don't blog or write diaries, but I'm inspired for some reason to store information about my analysis of companies and the learning process of securities.

I recently read an article about Warren Buffett that prompt me to blog. It mentioned that those who write well can process their thoughts clearly. By putting thoughts into words and words into thoughts, one can fully understand what you read or think. Yes, the reason I blog is because I want to write well, process my thoughts clearly and to speak well. In fact, Warren Buffett is considered as one of the best financial writers, so does his partner Charlie Munger. I admire the way they speak, full of wisdom, wit and humour.

The problem I have is that ideas are jumbled up in my brain cells and I need to find a way to organise it into mental models. I'm sure this blog can help me with that.

By now you should know what type of investor I am.

Cheers! d:P