Friday, January 22, 2016

Understanding higher high, higher low and lower high, lower low

There is always a saying "a trend is your friend" ..
And this in trading is particularly true... When a price goes up, it is because it had some sort of a momentum be it coming from news, from purely psychological or emotional of the common public... It tend to push a price towards a direction and this can be up or down...

There are many ways to look at trend and many different set of gurus will teach you different ways and the more expensive you joined a course, the more complicated technique the guru will teach you. This is to ensure that you have the perception that what you learn is worth what you pay.

After years of monitoring and investing in the market and many different types of techniques that I follow. I find that the easiest method is the most reliable method and that is the topic that we are discussing today - the higher high, higher low and lower high, lower low.

Above is the real time chart taken for forex USD:JPY pair. If you just by looking at the chart itself, you will say that it is trending upward. Of course, a more reliable method to look at it is that the price when moving up and down, it tends to create a price that goes has a price point that is higher than the previous high and a price point where the low of the price is higher than the previous low.

We call this higher high and higher low. When this is formed, we called this an uptrend. 
The opposite is true for downtrend when the price is creating a lower high and a lower low price point.

Although I mentioned here that it is a rather reliable method to look into trend or forming of new trend, it can always failed due to many reason. The best is to look at the higher high, higher low (or lower high lower low) to determine the first trend follow if you want to couple it with the moving average trend line.

You must also keep in mind if the particular asset type that you're following does have a tendency of not following the norm. This means there do have stocks that don't run like normal way.

Monday, February 02, 2015

Should investors diversify with gold?

Putting all your eggs in one basket is a very dangerous thing to do. This is why it’s important to diversify by spreading your assets in all kinds of investments.

Having a well-diversified portfolio not only secures your assets when markets go sour but it also shows your future partners the kind of intellect you have when it comes to investing. Diversification doesn't necessarily mean investing in different kinds of stocks.

It means investing in different kinds of investments such as mutual funds, bonds, commodities, etc. Gold is a favorite diversification asset by investors particularly because it doesn't move along with other securities.

When the U.S. dollar is down, gold is almost always up and vice versa. When the market is bad, you’ll see investors running for gold. This is exactly what happened in the 2008 financial crisis. Right after the most recent economic slump, gold prices steadily increased and peaked at around $1,800 in 2011. Gold sustained its high prices when the The Fed’s quantitative easing was still active, since high government spending also affects a country’s economy seriously. Anything that can put fear into the hearts of investors keeps gold prices high.

Talks of Europe’s Quantitative Easing are currently lending support to gold’s price increase. If you decide to get exposure from gold, there are several ways to do so. First is by buying the physical metal from brokers. This is the most direct and effective way to own gold but is only available for those who have serious amounts of cash.

Apart from paying gold’s actual price, investors would need to shoulder fees like storage costs and taxes. Speaking of taxes, there are different rates in each country. In France, for example, tax rates are currently deterring gold sales. BullionVault reports that since January 2014, the tax on sales of gold investments in the country rose from 8% to 10.5%. So if you’re living in a country with high tax rates on gold purchases, you may want to buy gold from brokers on-line. If physical gold is expensive for you, you may invest in gold-backed ETFs that are sold 1/10 of the metal’s spot price.

Tuesday, February 11, 2014

Understand Parabolic Growth In Investing

When I talked about parabolic growth, it means a company share price grow exponentially on one direction towards the up trend.

In normal circumstances, there isn't a company or even an asset that will grow exponential non stop. Do not get me wrong, there are many good companies that shows consistent growth but in order to be sustainable the company will need to grow within a reasonable rate.

Let's looks at what parabolic chart looks like in stock market.

The above chart shows a parabolic style where the growth line had bee almost towards up north pointing to 90 degree. If during this time, you are being advices by anyone to invest in this stocks you need to be extra careful and proper risk management process needed to be in place.

Parabolic chart can be very dangerous just as now fast it grow upward, the downtrend will also follow through fairly quickly same as the example above. The company might be financially sound but the growth rate can no longer cope with the actual expansion it needed and soon the price will fall back to the company fair value or even lower due to fear of collapse. There are many cases or examples of companies showing a parabolic chart and soon crash. If you are a short seller and you have seen a good opportunity there in a parabolic chart, you maybe able to short sell and make a profit but bear in mind that no one can predict when uptrend will end because it maybe able to continue for quite sometime before it collapse.

Same goes for property price, gold price or the recently famous bitcoins where the pice soar and drop within a short span of period.

Conclusion: Parabolic chart means a exponential growth in value resulting in a almost 90% upward chart which usually does not sustain for long.

Buying First Property As Investment: The Courage to Decide

I was 26 years old when I purchased my first property for investment. I knew back then that I always wanted to purchase a property but the only thing that held me back was the courage to do so.

You will understand when you plan on purchasing your property, can be one of the biggest commitment of your life and many questions popped into your mind.

"What if I bought it too expensive?"
"What if I can make money and can't sell the property?"
"What if there are new development nearby where can be a better buy?

Too many "What If" statement during the decision making.
I was earning less than MYR5000 and the property cost MYR495,000. It is a very huge commitment for me.

When looking at the selling price, a lot of people would have back off because they would think that they couldn't afford. I used to do the same until my friend who is a property agent convinced me to just view the unit telling me in every way that it will be a good buy.

I went on and view the unit with my girlfriend (now wife). Firstly I was impressed by the surrounding of the condominium, we saw many foreigners in and out of the condominium proofing the fact that there are many expat staying in there. The whole compound of the condominium is one of the largest compared to all the newly develop condominium, there is walking distance to a lot of shops, restaurants, banks and even a soon to launch shopping mall.

There are offices behind the condominium within walking distance to support the demand of the condominium. I like what I see but there are also things that I don't like.

- the unit comes with only 1 car park
- the condominium is considered old in the area with more than 12 years old
- the unit although comes with fully furnish but are all very old furnisher which may need to change soon

Rather than focusing on the positive side of the property, I focused a lot on the negative things that I saw and I can't made up my mind.

Thanks to my mom who encouraged me to proceed with the purchase and I did - of course with a lot of fear and doubt that time.

Now the property is selling 31% higher than my purchase price not to mentioned comes with tenant occupied for the last 3 years with rental higher than 5.5% per year. It is not something amazing but it definitely a worthwhile purchase to gain confident.

There are things I learned after purchasing the first property for my investment journey. It is not the knowledge that plays the most important part in the process but the courage. Courage from your friends and family and courage from yourself. Logic does play a small part but once you made up your mind to purchase the first property, the next one comes easier... And knowledge comes next to make sure you don't fall into purchases that will make you regret.

Have you buy your first property?

Investment Advertisement - Trust Them Or Not

This post is mainly to show you investors or traders out there on how companies tricked you into believing that investment is that easy.

Let's look at this photo above, it is an advertisement embedded into either an email or a website. It shows you that their proprietary system is having a signal that ask their member to buy at a very low price and sell at a very high price. 

There is always a similarities in these advertisement. Some of them are: 

-They show you return that is impossible to ignore

-They always shows historical price (remember, anyone can show historical price, you just search for a stock and tell people that you bought at the low of the chart and sell at the high of the chart before it crashes)

-They do not disclose what they do and what economical facts supporting what they say

- They tell you things you can already know if you search the web yourself

What they normally would not tell you are that these return might not be real and they have no position in them, they will also not tell you that out of maybe 50 signals they gave you there are 49 who bring huge losses but they will only advertise the one that shows return. They will not tell you that you may need huge capital and can have the ability to suffer huge losses.

Do not falls into such tricks. If there is such big return, these companies wouldn't even be setup in the first place, they will use it proprietary and make money using their system. 

Friday, January 10, 2014

Do Not Compare Yourself With Peers

Many people at any age will have a tendency to compare. This is true especially in the South-east Asia countries like Malaysia and Singapore. Probably this is one of the values (a negative one) passed down from us through our parents, through the education systems.

Since young we like to compare our academic result, we do not just got ranking within our own class but also ranking comparing the whole schools. We got average mark, best subject mark, best activities, etc

When we grow up we like to compare our salary, compare our success and because success if define differently with each individual you're actually comparing something that the other guy do not think is a great deal.

You think having more money is success and you as a working class adult having an average salary thinks that your formal classmates earns a lot because although he only graduate from high school and did not continue his studies, he helped his father doing some construction work and is now earning quite an amount and driving far better cars than you do. On the other hand, your formal classmate will think that he is stressing himself and he is envy about you having a stable work with stable income and stress free. You can go holiday with your loves one in which he had not been doing that for years since he started to work in the construction industry and he is also envy you can speaks better English than he does and during gathering he is afraid because he is not a university graduate.

You see, success has different meaning to different people and people must learn this from young or else they will always be chasing on something that they do not know at the end it will not be what they want and should be chasing.

Of course I am not saying that you must be happy with your life and you must settle down in your comfort zone and thinking that the money you earn is already the fair value for yourself. You must still challenge but challenging is different from comparing. You need to challenge yourself but not comparing with your peers.

You'll be happier person not to compare with your peers and when you start having your own little success by challenging yourself, many people actually think that you're successful.

Don't think earning money is just to compare with your peers. Earning money is to gives you a choice. A choice to do things you like and make your love one happy.

Do Not Compare Yourself With Peers but Instead Challenge Yourself.

Tuesday, December 17, 2013

Does Mutual Funds or Unit Trust Makes Money?

Everyday more and more "financial advisor" on the street wanted to sell you a fund. I am sure everyone of you are being sold one or another kind of funds. And these funds seller will always have the same claims.

- They give you the history performance of the funds showing how the funds perform over the span of 3 - 5 years
- They said that investing on your own need a lot of time and knowledge in which they have all the professionals to do it for you
- They claim that the fund is a fight of inflation and if you put your money in the bank you will see your money devalued
- It is easier for the funds to invest because they have a lot of funds and can diversified the risk compared to you investing alone with your little money

So the big question is do we trust them? Can an average person really trust a the fund manager to invest your money? 

The answer is yes and no. 

It is true that the fund can easily invest compare to an individual / retail investor and this is because they have larger funds. But this only happens when they really have larger funds. More often when a new fund (this also happen to older fund) is set up, they only have limited amount of fund because there are less investors investing in these fund. This resulted in a smaller group of investor sharing the fixed cost of the funds.

Cost Involved in a Funds
  1. There are many cost involved in setting up a fund. First there is a trustee fee that the fund needs to pay a bank who oversee their account (the account where they place all the invested money), the fee range from 0.5% to 0.8% or but it also have a minimum fee to pay. Imagine if the account is RM100,000 and 0.5% trustee fee is charged on the account and a minimum of RM2,000 is to be paid for the fee. 0.5% of RM100,000 will be RM500 but you need to pay RM2,000 because that is the minimum fee charged for managing your account. Now your trustee fee increase from 0.5% to 2% (RM2,000 out of RM100,000). 
  2. Secondly, a fund involved management fee in which these fees are paid to the fund managers for managing the funds on your behalf. These fees range from 1% to 2% of the funds. If you know that the fund manager is really capable to earn you a profit of 8% - 12% average and giving them 2% will be relatively small but please consider this. A fund manager does not just manage one fund. They manage multiple funds across in their company and by managing so many different funds it does not just make them lose focus but they are also charging the same 1% - 2% of all different funds they manage. Management fee is charged to you regardless of whether the fund is making a profit or making a loss. If the fund performance is 2% and the management fee is 2%, the fund manager successfully making a 2% profit out of your money without helping you to make any money at all. 
  3. Performance fee is another cost to you as a unit trust investor. Performance fee is charged when they make certain percentage of profit. Some funds charge you 20% out of all the profit they make. This will potentially reduce most of your profit generated from the funds.
Now that you understand the cost of a funds. Can you still make money out of investing in a fund? 
I can say it is still possible to make money out of unit trust or mutual fund but you need to know exactly what time is good to invest and learn to look at the details of the fund. 

Know About the Timing
If you invest during a peak of any market, then there is no room for the fund to grow further. Since most of the fund investors are those people who do not have the time to monitor, it is a difficult talk to check what happen to the fund. So what you can do is to monitor the market as a whole. A very minimum you need is to know whether it is a good market to invest or a bad market to invest.
A down trend market definitely is not a good market to invest as we have no idea how low the market can goes. However once it turn higher and higher after hitting the bottom then it is a good time for us to slowly place our money in these funds.

Knowing the Fund Manager
Read more about the fund manager and company. A lot of time the fund shows a list of people who manage the fund in their fund fact sheet. But I personally know that in most cases the actual people that manages the fund are not on the fact sheet, they funds company just wanted to impress you by placing those people with a lot of experience in their fact sheet and there is no control at all because there is no governance over how they manage your funds. This is something that you have no control but still, look at their funds closely on performance during good market and bad market. 

It is still advisable to only treat unit trust and mutual funds as part of your investment basket and not your whole investment portfolio. A lot of investors will find that 90% of the funds in the market do not make any profit (if not losses) and even if they do make a profit they may not be able to give you a lot of return (unless you invest during a good timing).

Thursday, December 12, 2013

Understanding On Interest Rates and How It Impact Stock Market

A lot of people invest in stocks without giving much interest in interest rates. Same goes to me when I first started in the world of finance and economic. But don't worried, it's never too late to learn right? I know many people either the amateur or those who have many years investing experience left out this part. 

In this post, I wanted to give you a very brief introduction to interest rates and how it might impact on the market as well as your investment decision. 

Firstly, we need to understand what is interest rates. When you have your money place in a bank, the bank will gives you interest rate but this is not the interest rates we are talking about. 

The interest rates that many investment professionals or the medias referring to is the rate offered on overnight deposits by the central bank or any other banking institution. It is the rates that banks and other financial institution use to pay for borrowing and lending from one another. 

When a bank have access deposits, they can lend this money to another bank and thus the bank who borrowed will need to pay back the borrowed amount principle plus the interest rates. You can also look at it as the cost to the bank who borrow the money. 

Banks or any larger institution will always transfer money to each other, to foreign banks, to larger corporations on behalf of other clients or on their own accounts. 
At the end of the day, the bank will have surplus or deficit in the funds. The excess of money may be lend to or deposit with other bank in which will earn them on overnight rates. 

Now let's do a summary. 

1. Interest rates also known as overnight rates is controlled by central bank of a country. 

2. It is the rates that a bank either earn from their excess fund or pay if they need to borrow the fund. 

3. If a bank borrow from the other bank, the rates is considered a cost of borrowing to this bank. 

So.. How does all this brings impact to the market (money market, bond market, etc)

Lowering the rates means the bank now can borrow at a very low cost thus they will also lower the interest charged to the other retail or corporate borrowers. 

Imagine now you can buy a car or a real estate property at a very low cost (interest rates), it will encourage you to borrow thus if everyone borrow and put the money into real estate, stocks market, it will then create a short term boost to the economy. Companies now can borrow money to expand their business, graduates will be able to borrow to buy house or get married, etc. 

When people start to buy, demand will increase and this creating a inflationary effect to the market. Now supplier starts to sell at higher cost. There will also create a risk of an asset bubble when things go unreasonably expensive without any actual usage or demand to that particular asset. Think about a whole office building bought for the purpose of investment due to cheap borrowing cost but with less tenant or usage over the office building. 

Interest rates will also impact on bond market. Depending on the coupon rates of a bond, it will either increase or decrease in price on secondary market. But that maybe another chapter all together. 

So, central bank will always tend to use interest rates to balance off the economy as well as inflation. They want good economy growth by lowering down the rates but do not want the price to be too unreasonably high (inflation) so they will increase the rates. They call this monetary policy. 

So your take away in this chapter?

1. Interest rate will either increase or decrease cost of borrowing of borrowers. 

2. Lower interest rates means there will be a short term force or growth momentum to drives asset price up (real estate/ stock market) and the vise versa.

3. If you plan to invest into a market, do not go in when government increasing the rates. 

4.  All this are true only in a rational market but irrational will always tend to reverse certain theories. So keep an eye on irrational market (people are afraid to invest in stock market in 2008 with big institution declared bankrupt even through the interest rates is already low) 

Post your comments and ideas and let's make this a discussion subject.