Saturday, 31 October 2009
From the Hebrew, God’s perspective, God is not the creator of truth, but Truth itself. One’s knowledge of Truth is only from God’s inspiration. Just like a radio, one cannot receive anything if there is no signal from God. Compared to Absolute Truth itself, human knowledge of truth is relative and limited.
The first place I landed in the U. S. was Boston. I could see churches with pinnacle roofs everywhere, more numerous than banks and rice stores in China. In fact, from the east coast to the west, from small towns to cities, one could easily see that most of the buildings were churches. Churches, and only churches, seemed to be the center of America. On Sundays, people on the streets were either going to church or coming back from church.
Americans are not nerds. There must be some reason for the large number of churches and Christian bookstores. The reason is there is a big difference between the market-oriented economy with church and the one without it.
The main goal of a market-oriented economy is to help people get ahead. A market-oriented economy does not take money from investors, but it cannot be responsible for those who choose to lie and harm others in the process. The existence of the market-oriented economy is dangerous because it can be tempting to some to lie and desire to do harm to others for the purpose of profiting by any and all means. This is the trend in China right now. Many Chinese think the market-oriented economy equals making money, and making money always justifies the means.
However, a market-oriented economy with church is different. Are you pursuing honesty? If so, you would know that a product of faith is honesty.
We cannot be sure of individual motive, but most businessmen who regularly attend church practice business with integrity. It is easier for those who have a respect for morality and desire to obey biblical principles than for those who do not. Why is this so? Max Webster, in his book, Ethics and Capitalism, has explained that even though the goal is to accumulate wealth, Christians pursue wealth not for their own benefit but for “God’s Glory” and for an eternal reward. A wealth ethic means that the object of making money is in agreement with its means. To gain wealth through lies or unethical methods is to disobey God and brings damnation upon oneself. Christians have understood the right way to become wealthy and in the process have become men and women of character and noble thinking. From this point of view, the market-oriented economy is most effective when it is combined with market ethics, just like good horses with good saddles.
From a human perspective, the most successful business model in the market-oriented economy is one combined with church. The largest and sweetest fruit becomes the end product only when we do business in the market-oriented economy in an honest manner and not at the expense of others.
The other big difference between a market-oriented economy with church and one without is that the former abides by a set of common rules. Those who share the same faith have a tendency to trust each other. I found a paper which illustrates this on religion and economics in NBER which had done many case studies in over 100 countries. One discovery made was that in the religious countries the unwritten rules were much more common than in the non-religious countries. Law is the strongest support that churches offer behind the market rules. The fact that the market-oriented economy with church is more open has been proven by that NBER paper. The reason is that under God, the core spirit of equality and great love bring people openness, forgiveness and respect.
Whether there is a church or not can influence the outcome of history. Before the beginning Word, all we need to do is to choose. For example, to choose to believe in God is one response, but to choose not to believe in God is another response. To choose to believe in God and follow him enthusiastically is one response, and to choose to believe in God but not to follow him is the other response. How one views the development of life, the world, country and business affects many things. There is a story to explain what we have discussed above, told by one of my business friends.
During World War II, Japanese fighter pilots were able to fly their planes higher, faster and better than the American ones, but the Japanese were still beaten by the Americans. Of course, there are many reasons for this, but one important reason is often overlooked. Americans valued life more than the Japanese. The Japanese Air Force believed in “bushido” (the warrior spirit) where pilots would sacrifice their lives for their country. The Americans, under a Judeo-Christian influence, felt that life was very valuable and fragile. As the first-string Japanese pilots continued to die for the honor of the emperor of Japan, the American forces used their best pilots as instructors. While the Japanese focused on flight speed and height and encouraged pilots to fight to the death, the Americans spent large amounts of money to build heavy, slow but thick planes so that those planes could protect the pilots’ lives. As a result, the American pilots kept their lives, but the Japanese pilots were gradually defeated, allowing the Americans to win the war.
Another important impact widens the balance between the rich and poor. Max says it is more difficult for a rich man to enter heaven than for an elephant to go through the eye of a needle. Those who show off their wealth use their money improperly and that is not pleasing to God. For a sincere rich Christian, it is another case. His faith tells him that gaining wealth should only be for God’s glory. He is accountable to God and must use the money wisely. Remaining humble is what earns God’s praises. Therefore, in the U.S., we see wealthy people who have donated ten percent of their property to the church and have shared their money with other believers. We see those who are at the top of the wealth list and are also at the top of the donation list. The relationship between the poor and the rich is not incompatible.
Looking back, there was an old Chinese man who swung his hand and said China allowed a few people to gain wealth first. However, how did those few people use their money? First, they renovated their ancestors’ tombs, which was a typical event in the 1980s. Secondly, they entered into sexual relationships with other women which is still happening today. Thirdly, some of them built homes the size of the White House. Fourthly, we see some of this nouveau riche traveling all over the world with their money. However, we know God is not pleased by any of these ungodly behaviors. Without God’s restraint, all these phenomena would occur quite often. Such indulgence and lust inevitably cause others’ wrath and God’s punishment. What should we do about it? In my opinion, we all need to spend our time reading the Bible.
From Boston to Indiana, wandering throughout the grand land of North America, listening to the profound ringing of church bells, I could not help thinking of an old poem written by a passionate poet many years ago. It goes as follows:
Fear God’s power
Also fear thunder in the sky
Only with a fearful heart, can one be saved. Only with faith, can the market-oriented economy retain its soul.
This author, Ph.D. is a professor of Economics at Beijing Science and Technology University. He is also Executive Director of Cypress Leadership Institute. He and his wife have two children and live in Beijing.
Used with permission from Esquire magazine.
Capitalism without under the guidance of faith and fear of the everlasting after-life punishment will finally become EVIL as there is nothing to stop it to become one.
Menopause can be a rollercoaster ride for many women - up one day, down the next! You may find your children more annoying than usual or you might fall apart if your coffee's not prepared the right way. Television shows can seem particularly heart wrenching and co-workers especially frustrating. Sometimes the slightest thing will make you fly off the handle, into a fit of rage! Though you may feel out of control, you actually are experiencing one of the most common symptoms of menopause mood swings.
Many writers and people refer to the market as Mr. Market and as He.
No! Market is not a Man.
It is more likely to be a Woman during her Menopause. She is Mdm Market.
She presents a formidable challenge with a rollercoast ride mood swing without obvious symptoms. When you got hit hard by her then only you know why? She swings her mood pretty fast.
Women, if you are approaching mid 40s, do encourage your hubby and kids to read up more on http://www.epigee.org/menopause/mood_swings.html and how I understand my madam?
Market players must also understand that Mdm Market is always in her Menopause and never end. OMG!
Friday, 30 October 2009
I don't think this type of company is any good. Shareholders provide capital to the company and expect the Management and Board to efficiently deploy their capital into businesses to generate better returns for the shareholders and not to save their money in the banks on their behalf.
It is prudent for the company to hoard surplus cash to cushion the company during bad times. But, if the company has been habitually hoarding cash even in pretty good times, it telling us that Management is clueless on how to better deploy the excess capital and the company may have no real growth prospects and can only hoard cash in the banks. Or the company is deemed weak by the Capital markets and the Management knows that they have difficulties to tap into the Capital markets or to raise Equities from the potential investors so they have no choices but to hoard excess capital as cash cushions.
Strong companies with real growth prospects have no problems to tap into the Capital markets or raise Equities from the potential investors to build up cash reserve for strong balance sheet during bad times or to grow the company. The Management of strong companies with real growth prospects will never see the need to hoard excess capital as cash cushions.
So what have you been thinking if your company is helping you to save excess money in the bank? Still a good company? Hmm...
When a business is started it may run for some time as a private organization. It might be a partnership, a proprietorship, or even incorporated. There are many large and small privately owned organizations in the world today. Sometimes the founders and owners of these organizations want to raise capital for expansion of their business. They would then go to a venture capitalist for an investment. Later on an Initial Public Offering (IPO) could be made in a stock market. In essence, shares of ownership in the company are being offered to the general public.
Why do people buy shares in organizations? Again, the easy answer would be to say "to make money", but that still isn't true. The primary answer is that you buy shares in a company as a way to provide your capital (money you have) for that company to use in pursuit of its objectives. You might buy shares in a hospital because you support their values of taking care of the sick. You might buy shares in a beer distillery because you enjoy their products. Now, in return for providing your money you would like some return. That might be a dividend, a payment for every share you own, let's say $.25. It's like getting interest on a loan. Or, maybe the stock appreciates in value because of underlying inflation in the economy (everything is worth more so your company and its assets are worth more too) or because the management of the company is doing well. For example, sales of beer might be so good that income is higher than expenses and there is a profit being saved or reinvested in the company.
Now it is true that people buy shares in an organization with the hope that they can sell those shares and make a profit. They might care nothing about what the organization does, what business it is in, and how it relates to its community. People who day-trade stocks would fall into this category. They buy now and sell a few minutes to a few hours later. They never expect to actually hold onto stock or become part of the company. This activity is possible given the way stock markets work, and nowadays is easy because of the Internet. But it is not why stock markets were created. The underlying reason for a stock market is to provide a place for you as an individual to invest in organizations and to divest (or sell) that investment should you change your mind.
A common misconception about the stock market is that a rise in the market, let's say of 5%, has "created wealth". This is in the newspapers and on TV all the time. When the stock market drops 5%, analysts will say that there has been a "loss of wealth". It just isn't true. To make this example more particular, analysts love looking at Bill Gates' wealth. They take the number of shares that he owns in Microsoft, and it's a large number because he co-founded the company, and multiply that number by that day's price of Microsoft stock. The answer is in the billions of dollars. Now let's say that Microsoft stock goes up $2 a share. Does that mean that Bill is that much wealthier? No it doesn't ... because Bill isn't selling! Bill Gates started Microsoft in order to provide programming for micro-computers, not to make money on the stock. Yes, it's nice to make money, and it's nice that Microsoft stock has risen, but I don't think that's the fundamental and underlying reason he and Paul Allen started the business. Or when Microsoft stock goes down $2 a share, Bill hasn't lost money either. Think of your house. Let's say it's worth $200,000 today and next year you read in the newspaper that in your neighborhood houses are worth on average $230,000. You haven't made $30,000. You still want to live in your house don't you? Yes you do, just like Bill Gates doesn't sell his shares in Microsoft because they went up $2. He still wants to own his company, to work for it, to make a difference in the world of microcomputers. You could make the $30,000 on your house if you sold, but then you'd need to buy another house and you would have the transaction costs to think about -- realtor fees, lawyer fees, and moving expenses. Two years from now house prices have dropped back to $200,000. Did you lose $30,000? No you didn't. It was all on paper! You're still in your house. Nothing has changed. It's the same with the stock market. It goes up and down but the only losses and gains are from the people who actually bought and sold. And that, compared to the total value of stock, like the total value of houses in a neighborhood, isn't a lot.
Now you would think that the price of a stock would rise when the company was doing well, when they were "making money", when income was greater than expenses. But this isn't always true. Take any one of the many dot com companies formed around the year 2000. Hardly any had more resources flowing in from sales than they had flowing out. The logic of that time, and it is still true in a few cases today, was that there was an Internet land rush going on and companies had to get out there and stake out their claims. If you wanted to claim the .com market for, let's say, selling toys over the web, then you had to spend a lot of money to buy programming staff and equipment to get your .com site up and running. You weren't expected to actually make more money than you spent. And stock prices rose as people who wanted to buy some of that .com stock bid up the price. The price rose not because of underlying fundamentals (the product or service was worth more than it cost to provide). Of course, many of these companies had a burn rate (how fast they went through money) that was so high that they spent all of their venture capital investments before they had any significant revenue stream to speak of. But they didn't actually go bankrupt until the dot com crash hit and it became difficult or impossible to get the next round of funding. The venture capitalists and the stock market simply stopped the flow of money into the organization. People who bought into the .coms were betting that there would be lots of potential in the future. The dot com crash came when it became more clear how hard it would be to realize that potential -- that the costs of doing business on the web are so high that it isn't easy to bring in more revenue than you spend.
Thursday, 29 October 2009
Sometime, I am quite puzzle why some dividend yield play retail investors don't really think of blue chips as dividend yield play stocks for passive income. When Market crashes in big time, it is a great opportunity to load up blue chips for dividend yield.
It is possible to collect good dividends for blue chips at distress time. You can definitely sleep better with blue chips as dividend yield play than those so-called under-valued stocks.
See what I am getting for passive income from the dividend yield Blue Chips:
Blue Chip Dividend Yield Per Annum
Kep Corp 12.3%
Semb Corp 10.6%
So if the Market really crashes in BIG Way and in Big Time. Load up blue chips as dividend yield play. Why not?
Wednesday, 28 October 2009
If there are neglected under-valued stocks and are not uncovered by the big institutions’ pool of full time and well qualified analysts. Shouldn't these full time paid analysts be fired and replaced?
These institutions are definitely well connected and better informed than retail investors and have vast resources, time and energy to do whatever they can to make themselves rich. These institutions exist in the Market for the PURPOSE to make money for their shareholders and their clients; especially institutions like Private Equity funds and Corporate Raiders. They are always prowling the Market for blood.
There are RECENT reasons why the stocks are trading in low volume and fail to attract institution buyers; but, future can change. I am suspecting these retail buyers have good crystal balls at home. Let me know if you know somebody have it. Just kidding.
YES, FUTURE CAN CHANGE! So be contrarians and buy neglected stocks for potential multi-baggers. Cheers!
Tuesday, 27 October 2009
There is saying that Market is never short of money-smart and invest-wise investors, and how come got such under-valued stocks lying around and yet few investors are rushing in to buy? So weird?
This is an interesting thread discussing on returns. Is Dividend Yield on Total Capital of 8% per annum possible?
My Average Dividend Yield on Total Capital ( Invested + free cash not invested yet) = 7.3% per annum
So it is important to accumulate good dividend yield stocks when the stock market crashed or heavily corrected if you like to collect dividends as passive income.
Monday, 26 October 2009
Steps to Financial Independence or Freedom...
By Herbert Harris
1. The Earning Principle
All wealth is created in the mind. The earning principle covers the exchange of value required to create sufficient income to meet your needs.
2. The Spending Principle
The Spending principle covers the manner in which you spend, circulate, or otherwise dispose of your money.
3. The Saving Principle
The saving principle covers the accumulation of surplus - the difference between your income and expenses - from your income
4. The Investing Principle
The investing principle covers the allocation of surplus to increase your wealth and income.
Put it simply:
Spend less than you earn. Save what you do not spend. Invest a portion of what you save to help you to generate more.
Ask yourself the money question, "What is the best use of my money right now, in terms of my goals, vision and purpose?"
How to create wealth?
There are three basic ways to create wealth:
1. Wages and salaries
2. Income from a business
3. Income from investments
1. Wages and salaries
Unless you are self-employed; otherwise, the day will come when your bosses will ask you to retire.
2. Income from a business
3. Income from investments
If you have skills, knowledge and experience in investing, you will be able to generate income from investments long after you have retired or asked to retire.
Sunday, 25 October 2009
Someday, the financial crisis will end and companies will get back to the routine business of raising capital to grow. Will they make smart choices about borrowing? Or will they fall back into habits experts have long seen as self-defeating?
To many laymen, debt is a dirty word, and plenty of companies have indeed been dragged under by shouldering too much. But academics and other experts have long believed the opposite is true: Many companies take on too little debt, failing to fully exploit benefits like the tax deductions on interest payments.
Now, a new study by three Wharton faculty members shows that companies are not, in fact, foolishly leaving tax deductions on the table. The findings, based on data compiled from thousands of firms between 1980 and 1994, should be especially valuable to outsiders -- such as lenders, analysts, institutional investors and shareholders -- trying to judge the wisdom of a firm's use of debt.
Previous studies have shown that many non-financial firms "are too conservative in their debt policies, meaning that they could increase their debt levels to reap substantial tax benefits without significantly increasing the risk to their financial health," said Wayne R. Guay, an accounting professor at Wharton and co-author of the paper, titled "Improved Estimates of Marginal Tax Rates: Implications for the Under-Leverage Puzzle." His co-authors are Wharton accounting professors Jennifer Blouin and John E. Core.
"Our paper shows that previous research substantially overstates the tax benefits that some firms could achieve by increasing their debt levels," Guay said. "Our results also suggest that most corporations appear to adopt debt policies that efficiently trade off the tax benefits [of debt] with the risks to financial health."
Companies have various ways to raise money, but the most prominent are borrowing through the issue of corporate bonds or raising equity by selling new shares of stock. By selling new shares, a company avoids taking on a debt that must be repaid with interest. But increasing the number of shares dilutes the value of those already in circulation, so shareholders often oppose this approach. Debt does not dilute shareholder value, but payments to debt holders can become a fatal burden if revenues fall short.
A Taxing Decision
Often, the company's choice comes down to federal tax issues: Interest on debt payments is tax deductible, while dividends paid to shareholders are not. For a company with no debt, the final dollar of earnings might shrink to only 65 cents once the corporate tax is paid. But if the company has a healthy dose of interest deductions from debt, that dollar may still be worth a dollar after tax time.
"The company is going to make decisions based on tax implications," Guay noted. If they make a given decision, "they want to know what is the present value of tax that they would have to pay on an extra dollar of profit, or an extra million dollars of profit."
For decades, the academic literature and marketplace have clung to a belief that many companies fail to take full advantage of debt, which, in addition to tax deductions, can increase profits by enlarging a company's bets. Investing a dollar at a 10% return produces a 10-cent profit. By borrowing an additional dollar and paying 5% interest on the loan, the profit can be boosted to 15 cents, up 50%. This process was behind the leveraged buy-out craze of the 1980s. Today, private equity firms use the same logic, Guay said.
"A major strategic objective of private equity firms is to buy under-leveraged companies and then leverage them up to gain the tax advantages," he noted. But this view may be mistaken. "With our research, what we feel comfortable saying is that the tax benefits of debt have been grossly overestimated in many cases."
Previous research exaggerated the benefits of debt because it underestimated the volatility of cash flows and earnings, according to Guay. He and his fellow researchers zeroed in on that factor, he added, noting that a company's borrowing issues are similar to a homeowner's. The home buyer who pays cash makes 10% if the home's value rises 10%, and loses 10% if the value falls by that amount. But if the homeowner puts only 10% down and borrows the rest, a 10% gain in price means a 100% gain in equity, and a 10% decline means a 100% loss.
"The leverage adds variance and volatility to any investment," Guay said.
Previous studies have assessed volatility by looking at historical data. But they generally measured ups and downs in dollars, because tax issues, such as progressive tax rates, are determined by thresholds measured in actual earnings rather than percentage returns. This approach to volatility can distort the picture, since a given dollar amount is less and less significant as a company grows over the decades, Guay said. He and his colleagues got a different view by, essentially, looking at volatility in percentage terms, showing that companies with lots of leverage were more volatile.
In years when income is low, the tax benefits from interest payments are smaller since the company's tax rate will be lower. But even if the company loses money, the interest-rate deductions have value, since they deepen losses that can be carried forward and used to reduce taxable income in subsequent years. Better understanding of the volatility of future earnings makes it easier to see how well a future tax deduction will pay off.
Guay's co-author Blouin cited the example of a start-up firm that has lots of debt and little or no revenue, meaning there is no taxable income. "They are generating interest deductions that don't do them any good today," she said. Previous research has underestimated the probability the firm will have losses in the future, she added. That makes the interest deduction carried forward seem more valuable than it may actually be, because it overstates the taxable income that the deduction can be used to reduce.
"Taxable income is subject to the winds of commerce, so there are all sorts of fluctuations that can happen," Blouin noted. For a clearer view of this, she and her colleagues grouped similar firms together in their analysis.
Like individual tax rates, corporate tax rates are on a progressive scale, with the rate rising as income goes up. Interest deductions have the most value when they reduce the income subject to the highest tax rate the firm pays. If the deduction is so big as to cut income to a level taxed at a lower rate, the deduction has less value. A deduction applied against income taxed at 35%, for example, would save the company 35 cents on every dollar of income, while a deduction against income in the 25% bracket would save just 25 cents.
The researchers identified the point at which the deduction started to lose value -- the "kink." They found that the firms they studied typically had just the right amount of debt to get the most out of their interest-rate deductions, while previous research that did not look as closely at income volatility had shown firms needed to more than double their debt loads to maximize their interest deductions.
"On average, firms are right where they ought to be," Blouin said.
But to the rest of us charts are the best way to judge the emotions and psychology in the market as stock prices are primarily driven by investors' sentiment. Stock prices move because of what the Big Boys (Market Sharks) are currently feeling and thinking, and not just because of the fundamental numbers that have been released to the market.
The stock market is never a level playing field and will never be. The Sharks will always be more connected, better informed, and mostly likely jump in ahead on the rest of us. When they act, stock prices move, and the movement can be so drastic that leave you with your mouth open wide. But these Sharks will leave behind their footprints on a stock chart when they move and for you to study how other sharks will move.
Price and Volume Action
Basically by watching the chart for price and volume action, we may have ideas of what the Sharks are doing. When a stock price moves on a big surge in the volume and it is telling us that a lot of investors have suddenly become interested or disinterested and desperately want to get in or get out. And if you happen to be holding the same stock that is experiencing drastic price movement; it is sooner or later you will be either smiling or weeping.
You don't diversify fixed deposits. Why? Because they are virtually risk free!
You diversify to mitigate risks. When there is no or very low risk, there is no need to diversify. So, understanding what are your risks is the key to how you should diversify to mitigate your risks. It can be very personal, and what works for others may not be suitable for you.
The Investment Risk Pyramid
First, you have to clearly understand the Investment Risk Pyramid
This is a general concept related to risk and reward. When you take risk, you expect reward. In theory the higher the risk, the more you should receive for holding the investment, and the lower the risk, the less you should receive. But, some time in the financial world, it may not be actually true, investors were told that Lehman Brothers Minibonds are low risk but ended up with huge losses instead of returns.
So depending on your risk tolerance and see how you should adopt your investment strategy in the Risk Arrow from conservative to very aggressive.
It is only after you understand what are your risks, then you can determine your diversification strategies.
I know what are my money risks. I use 4 different bank accounts (baskets) to mentally and physically separate them to diversify and mitigate those risks. Each bank account serves its own purpose to meet a specific money objective and its risk profile.
So do I sound silly and look stupid?
Saturday, 24 October 2009
The day I have decided to use No Stop loss strategies, I have more or less divorced the technical indicators. Bearish Divergence? So what? I am not selling yet.
You can learn from everyone, but keep in mind not to mimic someone else, you have to gather bits and pieces of other people's investment strategies, methods and system and then develop something that is comfortable for yourself and the most important it must fit your Account Size. If your account size is only $100-200K, you shouldn't go and try to mimic the investment strategies of someone who has millions. It may not be suitable for you.
You have to develop your own investment strategies that is suitable for your account size, and hopefully, over time you review and refine your investment strategies so that they will remain effective in the ever-changing market environment.
See the comment from Gohsip:
Gohsip: Uncle8888: 'If you look at my charts posted with those technical indicators, they are just there to confuse people. LOL.' You damn funny la!
I am Funny meh? What is right about these technical indicators?
If the Sharks like a particular stock and probably the buy decision has to be strongly supported by their analysts or backend research professionals, these Sharks will close their eyes, plug their nose, and just buy whatever being offer at market. When enough Sharks smell the blood in the Market, the stock price is going to drive in one way UP. Similarly, the reverse is true, when the Sharks dislike a particular stock and soon more Sharks will come to join in the frenzy, and everyone will be watching at the falling stock price with their mouth open wide.
After the frenzy actions are over, only then these technical indicators will come and show what the Sharks have been thinking?
Is there a better way to watch the movement of Sharks? How about Price and Volume Action in the Time & Sales transaction history? Can we see the Sharks coming?
Friday, 23 October 2009
Do you also do some forms of outsourcing at personal level e.g. getting tutors for your kids, maid, baby-sitter, part-time domestic helper, etc. These functions may be considered as non-core to you and your family.
How about your investment? Do you consider it as non-core too?
You may say: "No". But, think again, maybe you did?
Have you been investing in Unit Trust, ILP or even ETF?
You probably has outsourced your investment function. But, if you think that your investment is a core function in your life journey, probably you should plan to take it back and put it more effort and time into it. All core functions definitely require serious effort and time to get them done.
Thursday, 22 October 2009
It is about buying and selling some different types of financial product online and all done via cash settlement by the latest T+5. T is the day of transaction.
If you are interested in this business, let me know.
On 5:35 pm EDT, Tuesday October 20, 2009
Most investors are familiar with fundamental indicators such as the price-earnings ratio (P/E), book value, price-to-book (P/B) and the PEG ratio. Investors, who recognize the importance of cash generation, use the company's cash flow statements when analyzing its fundamentals. They recognize these statements offer a better representation of the company's operation. However, very few people look at how much free cash flow is available compared to the value of the company. Think of this as free cash flow yield, and a better indicator than the P/E ratio.
Free Cash Flow
Cash in the bank is what every company strives to achieve. Investors are interested in what cash the company has in its bank accounts, as these numbers show the truth of a company's performance. It is more difficult to hide financial misdeeds and management adjustments in the cash flow statement.
Cash flow is the measure of cash into and out of a company's bank accounts. Free cash flow, a subset of cash flow, is the amount of cash left over after the company has paid all its expenses and what was spent for capital expenditures (reinvested into the company). You can quickly calculate the free cash flow of a company from the cash flow statement. Start with the total from the cash generated from operations. Next, find the amount for capital expenditures in the cash flow from investing section. Then subtract the capital expenditures number from the total cash generated from operations to derive free cash flow.
When free cash flow is positive, it indicates the company is generating more cash than is used to run the company and reinvest to grow the business. A negative free cash flow number indicates the company is not able to generate sufficient cash to support the business. Many small businesses do not have positive free cash flow as they are investing heavily to rapidly grow their business.
Free cash flow is similar to earnings for a company without the more arbitrary adjustments made in the income statement. As a result, you can use free cash flow to help measure the performance of a company in a similar way to looking at the net income line. This raises the question, is there a similar measure to the price earnings ratio (P/E Ratio) for free cash flow? The P/E ratio measures how much annual net income is available per common share. The P/E ratio is widely published and used by investors to evaluate the value of a company. However, the cash flow statement is a better measure of the performance of a company than the income statement. Is there a comparable measurement tool to the P/E ratio that uses the cash flow statement?
Free Cash Flow Yield
We can use the free cash flow number and divide it by the value of the company as a more reliable indicator. Called the free cash flow yield, this gives investors another way to assess the value of a company that is comparable to the P/E ratio. Since this measure uses free cash flow, the free cash flow yield provides a better measure of a company's performance.
The most common way to calculate free cash flow yield is to use market capitalization as the divisor. Market capitalization is widely available, making it easy to determine. The formula is:
Free Cash Flow Yield = Free Cash Flow
Another way to calculate free cash flow yield is to use enterprise value as the divisor. To many, enterprise value is a more accurate measure of the value of a firm, as it includes the debt, value of preferred shares and minority interest, but minus cash and cash equivalents. The formula is:
Free Cash Flow Yield = Free Cash Flow
Both methods are valuable tools for investors. Use of market capitalization is comparable to the P/E ratio. Enterprise value provides a way to compare companies across different industries and companies with various capital structures. To make the comparison to the P/E ratio easier, some investors invert the free cash flow yield, creating a ratio of either market capitalization or enterprise value to free cash flow.
As an example, the table below shows the free cash flow yield for four large cap companies and their P/E ratios in the middle of 2009. Apple (Nasdaq:AAPL) sported a high trailing P/E ratio, thanks to the company's high growth expectations. General Electric (NYSE:GE) had a trailing P/E ratio that reflected a slower growth scenario. Comparing Apple's and GE's free cash flow yield using market capitalization indicated that GE offered more attractive potential at this time. The primary reason for this difference was the large amount of debt that GE carried on its books, primarily from its financial unit. Apple was essentially debt-free. When you substitute market capitalization with the enterprise value as the divisor, Apple becomes a better choice.
Comparing the four companies listed below indicates that Cisco is positioned to perform well with the highest free cash flow yield, based on enterprise value. Lastly, although Fluor had a low P/E ratio, it did look as attractive after taking into consideration its low FCF yield.
The Bottom Line
Free cash flow yield offers investors a better measure of a company's fundamental performance than the widely used P/E ratio. Investors who wish to employ the best fundamental indicator should add free cash flow yield to their repertoire of financial measures. Like any indicator, you should not depend on just one measure. However, it is appropriate to employ measures that give you a fair picture of the fundamental performance of the company you are considering. Free cash flow yield is one such measure.
But, I still prefer Dividend payout. I love companies that put money in my own pocket. I don't need Company to behave like a bank to help me to keep money there
Before you HIT the BUY button, you have absolute CONTROL over your money. You can choose:
1. Spend it,
2. Save it,
3. Invest it,
4. Lose it,
5. Give it.
But, once you HIT the BUY button, you surrender the CONTROL over to the Market. The Market will determine at its own will to make you happy or make you sad. You can only watch in horrow when the Market plunges!
But, when you SELL your stock, you take back that CONTROL from the Market. You be proud and happy that you now have absolute CONTROL over your money. You should be happy.
What's Wrong With Selling A Stock?
Wednesday, 21 October 2009
The pilot fish congregates around sharks, rays, and sea turtles, where it eats ectoparasites on and leftovers around the host species.
If we want to survive along side with Sharks, we better watch the movement of the sharks.
If Sharks are buying, then we shouldn't be selling yet. When the sharks stop buying, probably it is a good time to take partial profits.
When the sharks are selling, then we shouldn't be buying yet. When the sharks stop selling, probably it is a good time to buy slowly.
These are my Pilot Fish indicators that I have been using, and I don't really follow any other technical indicators in buying or selling.
If you look at my charts posted with those technical indicators, they are just there to confuse people. LOL.
Greed and Fear are driving the market sentiment at all time and also the driving force behind the buying and selling decisions of almost all market players - Institutional mangers (BBs), Retail investors, traders and yourself except for those buy and forget.
Stock Market is one of those Complex adaptive systems
Complex adaptive systems are special cases of complex systems. They are complex in that they are diverse and made up of multiple interconnected elements and adaptive in that they have the capacity to change and learn from experience. Simply, it means the Stock Market has a mind of its own.
When the fear falls on the Market, it can become more fearful; and through self-learning and eventually breakdowns.
When the last batch of panic sellers are done, Greed will slowly creep back into the market, and soon every body will rush in to buy. Take a good look at the picture below:
Do you know why you buy and why you sell?
Tuesday, 20 October 2009
Here is DOW Worst 1-day % Declines:
19 Oct 1987, -508, -22.6%
28 Oct 1929, -41, -13.5%
18 Dec 1899, -8, -12.0%
29 Oct 1929, -230, -11.7%
05 Oct 1931, -10, -10.7%
29 Sep 2008, -777, -7.0%
When fear takes over it consumes investors, and everything looks so black and drops so fast. Fear can cause investors to painfully sell, take their losses and stay away from the market.
But, sooner or later, Greed slowly takes over when investors see others making money and want to get back in the game before the opportunities get away.
Greed is even more powerful than Fear in the market, and can cause the self feeding actions, the same investors who have sold earlier may become greedier and buy back even higher.
This self-feeding action of Greed can really push the bull market to the new high.
So are you more greedy now or more fearful? Ask yourself and those around you and let me know
You actually may need four bank accounts.
1 - For living expenses and GIRO
2 - For Emergency Fund (3 months in conjunction with FD period 6/12 months)
3 - For Investment and Trading
4 - Fixed Deposit (Mid Term Saving)
With the 4 bank accounts, you are absolutely clear on the money movement and transactions and also easier to maintain records tracking by downloading monthly statement from the banks.
Sunday, 18 October 2009
Investment Rewards come with Risks, Time and Effort.
If some one promises you return that are a few times better than the current Fixed Deposit rate without having you putting time and effort and little or no risks, and you happily believe there is such investment. Definitely, the Greed has overcome you.
It is just that simple. There is no such thing as little risk, little effort, little time spent and expect a high return over current Fixed Deposit rate.
"You cannot afford to wait for perfect conditions. Goal setting is often a matter of balancing timing against available resources. Opportunities are easily lost while waiting for perfect conditions." -Gary Ryan
"You can't time the Market!"
You guess who are the people shouting that? Likely, these people are the fund managers and then echo closely behind are the retail value investors.
There are good reasons for fund managers to discourage investors from market timing so that there is less churn in their fund and they are less pressurized to perform as dividend yield from the portfolio is able to adequately cover the fund's management fees and expenses.
But, I don't understand why retail value investors also shouting that? "You can't time the Market!"
Now back to LHS.
LHS = Current Value of All the Stocks in our Portfolio + Available Cash left for investing or trading.
This requires you to try to time the Market and try to optimize the allocation of stocks and available cash according to your own market forecast in the next few months.
The Truth is that we can NEVER time the market CORRECTLY and no one can; but, it doesn't mean that we can't spend time in the market and also to time the market to exit when it hits our own profit target.
The key is that we want to time the market to generate cash flow for our portfolio and not to correctly time the market. See the difference!
Sumiko asked: "The recession is over but I still feel the pinch. Could the stock market be my answer?"
CreateWeath8888 said: "Why not, stay invested in stock market, and one won't regret, but one must spend some time and effort to learn"
She said: "The biggest lesson has been how I must think of growing my money instead of letting it sit in a saving account."
I said: "Growing money in stock market is more likely to beat the return in one's saving account, but one must first spend less time in shopping and spend more time in learning how to invest, and same like taking up cooking lesson to learn how to bake a good cake"
Her colleagues who swear that property, not stocks, is the better way to go.
I think that is a common property market myth that return on property is better than stocks.
Most property investors are likely to over-state their returns and under-estimate their risks especially true for investors who are not Nett Worth positive after taking up the housing loans.
If the property investors become highly Nett Worth Negative after taking up the big housing loan, and then one must not forget that Leverage Is A Double Edged Sword - It can also kill.
This is the Symbolic Picture of Growing Money Tree in My Profile -
It helps me to visualize why am I actively Invest or Trade.
"What the mind can conceive and believe it can achieve" - Napoleon Hill
Common saying: Money Is Not Yours Until You Spend It. (or someone else will spend it for you)
And I said: Profit Is Not Yours Until You Realize It. (or Mr. Market may take it back unexpectedly)
Take a good look at the components of a Portfolio:
Mathematically, LHS (Left Hand Side) = RHS (Right Hand Side)
LHS = Current Value of All the Stocks in our Portfolio + Available Cash left for investing or trading.
RHS = Total Investing Capital + Realized P/L + Unrealized P/L
Our Job in Investing is to grow this Money Tree (Portfolio) as fast as possible and then pluck the Money Fruits and store it away safely in the House.
Look at the RHS of the equation.
RHS = Total Investing Capital + Realized P/L + UnRealized P/L
and understand what you have control to grow this Money Tree?
1. Total Investing Capital - You have control to add more Capital to grow it, but this is not the right reason to grow your money tree in this manner. You might as well put the money in the saving bank.
2. Realized P/L - You can periodically realize full or partial profit by selling some of the profitable positions in your portfolio holding.
and understand what you cannot have control over it?
3. Unrealized P/L - Market forces will control it and will eventually determine the health of your Money Tree.
Realized P/L is Cash flow
Cash flow is the bloodline of any company or business; and similarly, Realized P/L is the bloodline of your portfolio. Company needs healthy cash flow to grow and it is no different from your portfolio, it too needs healthy cash flow i.e. realized profit to grow.
When you realize your profit; the profit becomes money, and the money can be re-invested or can become your money if you choose to spend it.
You can re-invest your money to expand your portfolio by buying back more of the same counters when their share prices pullback or you can choose to diversify into other counters to mitigate stock risks.
UnRealized P/L is Not Within Your Control
Any UnRealized P/L is never yours yet and it is controlled and determined by Market forces and can be potentially damaging to your health of your Money Tree. However, any potential damage can be effectively mitigated by growing your Realized P/L in the way of the most money in the least time.Let take a good look at RHS of the Money Tree once again.
So you need to periodically SELL to grow the Nett Realized Profit and to grow your Money Tree.
You don't need 3 good reasons to sell. There is only 1 reason to sell. Selling is the KEY to growing your Money Tree. Fact or Fiction? You decide for yourself.
Saturday, 17 October 2009
Answer: By the time you realize that your investment is not doing well either he has retired or not around anymore.
7. Competitors Risk - This risk is so real and can happen sooner than expected.
That coffee shop next to Hougang MRT station has a number of good years until recently Hougang Mall built an extension building to it and guess what?
It houses a 24x7 KopiTiam Food court and if we buy food using KopiTiam Card, there is a 10% discount.
Both noodle stalls at the coffee shop and KopiTiam food court are selling Pak Choi Mee at $3 a bowl, but at KopiTiam food court after discount it is only $2.70; so it is cheaper and in air-con environment.
Not sure for how long can the noodle stall at the coffee shop survives with a new competitor selling it cheaper and in a better eating environment?
Fear works in much the same manner, and, when fear grips the market it eclipses future greed and exaggerates past greed.
Fierce competition to maintain or improve one's position in the workplace or social life.
This term presumably alludes to the rat's desperate struggle for survival. [Colloquial; first half of 1900s]
any exhausting, unremitting, and usually competitive activity or routine, esp. a pressured urban working life spent trying to get ahead with little time left for leisure, contemplation, etc.
a fierce struggle for success, especially in one's career or business
From Cambridge Advanced Learner's Dictionary:
a way of life in modern society, in which people compete with each other for power and money
a mad scramble or intense competitive struggle
So getting out of Rat Race is not the same as putting the mind into IDLE mode.
What does getting out of the Rat Race mean to you?
I believe that I am Out Of Rat Race if I have realized most of these:
- Financial Independence (coming soon)
- More Time to spend with Family & Friends (done)
- Spending Money on Friends, Family, Charity & myself (more to come)
- Time to do those Hobbies I've always Wanted to do (more to do)
- Fulfilling my childhood's Dream list (more to come)
- Treating bosses just like another employees of the company (done)
- Not looking forward for year end bonuses (done)
for some people it may even include:
- Becoming your own Boss
- Travel around the world
- Financial Freedom
What does getting out of the Rat Race mean to you?
However, when we start working, most of us may tend to follow the job market and take up whatever the job is offered by the job market and we may have forgotten our dreams and move on with our life just like the rest of our friends.
When we reach middle age or late 30's, then some may feel disappointed with their living conditions, their accumulated wealth, their job satisfaction, and start to wonder how come they get into this situation, and some may even blame everybody and including the government, and except themselves. But, on one side, they can't really get out of their corner as they have family to take care and some even have retired parents too. These people may have no choice but to bite their fingers and move on.
When we reach 60's, we usually will have nothing much to say because the time has arrived and only be thinking what if we could have dream differently at 30's, or 40's and pursue our dream and will our life story at the 60's be different.
If you are at your 30's and 40's and there is still time to fulfill your dreams and don't drop them yet.
My dream at 40's after tired of watching the Rat Race is to "Get Out of The Rat Race!". I will tell you again at the 60's.
"The trouble with the rat race is that, even if you win, you're still a rat." - Lily Tomlin
What did you dream?
Get yourself educated, and then you are in better position to educate your own children when they are old enough to decide to hedge their own Human Asset.
I was once not really educated in insurance matters, and bought those recommended policies because relationship and friendship that matter.
Thinking back it was not a financially right approach towards insurance, but now I have better knowledge to advise my kids insurance needs.
Once upon a time, there was a young man who wanted to be rich and successful. He climbed up the mountain near his village to ask the monk who had been meditating at the top of the mountain all his life. The young man thought that since the monk was a very wise man, the monk could definitely help him to find the secret of success.
The monk told the young man that actually there was a magical stone called the Touchstone, which could grant the wish of whoever made a wish while holding it. The monk also told the young man that the touchstone was on the beach just at the foot of the mountain. It laid there among thousands of other normal stones. And the young man could differentiate the touchstone from other stones by its temperature. The touchstone was warm, much warmer than the normal stones.
And so, the young man set his course to the beach. He found out that there was really thousands of stones by the beach. Believing that one of the stones was the touchstone, he began his search.
He picked up one stone, felt that it was cold, then threw it away to the sea. This way, he could make sure that he would not pick up the same stone twice.
Days and weeks passed and the young man had not given up hope yet. He still kept on picking up stones, one-by-one, and as long as it was cold, he would throw the stone into the sea.
One day, he picked up a stone that felt warmer than the other stones. But guess what did he did? Unfortunately, having gone the same motion of picking up and throwing away stones for months, he got used to throwing away any stone that he picked up. And so, unintentionally, he threw the touchstone into the sea.
It's sad story, isn't it?
How is the moral of the story related to the stocks?
The stones at the beach are the stocks that we are actively trading (picking up and throwing back to the sea - buy and sell) in the market and the Touchstone is the the base stock to build up a potential Pillow Stock.
When do I recognize it is a base stock? It is warmer than the earlier buys. The buy price never look back after buying is telling me that it is much warmer than other buy prices and may have pick up a touchstone.
But, if you have the habits of picking up and throwing back the stones to the sea and you will never ever find the touchstone. Believe it or not!
Thursday, 15 October 2009
I am often asked, “What advice do you have for the average investor?” My reply is, “Don’t be average.”
Most of us know of the 80/20 rule. That rule is a good rule for averages. And in the world of money, the rule is 90/10. This means 90 percent of the people make 10 percent of the money and 10 percent of the people make 90 percent of the money.
This 90/10 rule holds true in almost anything financial. Take the game of golf, for example. Ten percent of the professional golfers make 90 percent of the money.
Not Good Enough
Years ago, I asked my rich dad, “What is the difference between a professional and an amateur?” His reply was, “Professionals know their best is not good enough. They always want to do better.”
He paused before continuing and said, “When someone says, ‘I’ll do my best’ or ‘I’ll give it my best shot’ or ‘I’ll try,’ they’ve already lost. Those are not words of a winner.”
In the world of ‘the best,’ your best is never good enough. If you’re going to be a winner in life, you have to constantly go beyond your best.
Most people are happy being average. Most are happy being faceless in a sea of faces. That’s why 10 percent always win 90 percent of the rewards. I get up every day, grateful for what I have accomplished, yet looking forward to doing better. I want do better than my (previous) best everyday. It’s not about the money anymore. I have enough money. I just love the game of making money.
Today I give most of my money away…but I will not give up the game of money. I play the game because the game is always better than me…and my best will never be good enough. I continue to work hard to become better at a game I love.
I once read a book on golf that said, “People say amateurs play for the love of the game and professionals play for money. That is not true. Amateurs are amateurs because they do not love the game enough.
When it is cold and rainy, a professional golfer will play. The amateur will not. When they are sick, the professional will play. The amateur stays in bed. When they are losing, the professional will practice harder and enter more tournaments. The amateur will quit and take up tennis.”
It matters little if the game is golf, tennis, or money. Ten percent of the people will always make 90 percent of the money. When the markets began crashing in 2007, the money did not disappear. Ninety percent of the money went to 10 percent of the investors.
A financial crisis is a great time for professional investors and a horrible time for average ones. If you’re going to invest, don’t be average. It’s time to turn pro… or take up tennis.
Wednesday, 14 October 2009
Tuesday, 13 October 2009
If stock prices fluctuate wide enough then you can apply the compound magic of stock transaction timing and make compounding gain out of many short term trades.
Is psychological barrier holding you back or lack of knowledge and skills?
Knowledge and skills can be acquired through learning and actual life experience.
If it is due to psychological barrier, then probably you may have to go up to Bukit Timah Hill every weekend to seek the inner strength to break through.
The most dollar in the least time
Let says some one told you that he has doubled his investing capital. That good. But, what if he told you that he took 10 years? Not bad. His yield is about 10% per year.
But, another person told you that he has doubled his investing capital in 2 years. That is really good. His yield is about 50% per year.
You see the difference. The most dollar in the least time. We should be measuring the investment yield in terms of profit per unit time over our entire investing life cycle.
To understand "The most dollar in the least time", you first need to understand:
The rule of 72 and long term returns
You might not have learnt this at school, but Einstein’s rule of 72 is one of most magical and simple formulas around. What this says is that to work out how long it takes to double the value of an investment, you simple divide the return into 72.
To estimate how long it would take to double you money on an investment just divide 72 by the percentage rate you are earning on your investment; and that's it.
For example, if you have a savings account with $500 deposited in it. The rate of interest is 4% per year. So the doubling point, the length of time it will take you to double your $500 to become $1,000 is: 72 divided by 4 = 18 years.
If the rate of interest were 6%, then the doubling point to be 72/6=12 years.
Well and good in theory, but we still have to get our hands dirty to do it.
Some Buy-and-Hold investors are probably thinking along this line - “You can’t have your cake and eat it too.” The cake is so nice and you can't bear to eat.
To have one's cake and eat it too is another popular figure of speech. Since the cake is so nice and you can't bear it to eat. Why don't you buy another same cake and eat it? Yes, you have the cake and eat it too. That is the thinking of Buy-and-Hold-Sell-and-Buy-Sell trading investors.
Stuffing more feathers. Cheers!
Round 6: ROC 10.2%, 8 days, B $2.39 S $2.65
Round 5: ROC 6.3%, 3 days, B $2.45 S $2.62 (Bought back higher)
Round 4: ROC 5.9%, 15 days, B $2.26 S $2.41
Round 3: ROC 9.6%, 8 days, B $2.18 S $2.40
Round 2: ROC 7.0%, 8 days, B $2.18 S $2.35 (Bought back higher)
Round 1: ROC 9.8%, 161 days, B $1.37 S $1.52
Graham's rule remains a good starting point even today. If time turns out to be your enemy instead of your friend, you will be very glad to have some of your money elsewhere.
How about doing it the CreateWealth8888 Way: Stocks and Available Cash for Investing?
I met many senior insurance managers at an Asean Insurance Conference in Vientiane, Laos. One participant, who is a CEO, told me that he advised his friends and family members to buy Term insurance for the insurance cover. He advised them to avoid insurance products as investments, as they get a poor return.He wished that it was possible for his company to sell better value products, but after providing for the high commission to the agents, this was not possible. He was not able to develop a new sales channel to replace the agents.
You can view Term Insurance as a hedge against your Human Asset and bear in mind that Insurance as a financial investment product doesn't really provide the expected returns; and it is often too late to realize it.