Investment Strategies 02 (Jun 10 - Jun 13)

[winston]

Dear All,

I have moved the various discussions on investing in properties into the "Singapore - Residential Properties & HDB" thread.

Take care,
Winston

[winston]

The Five-Step Formula for Successful Investing by Dr. Mark Skousen

If you want sound, classic investment advice, you've come to right place.

The lessons you're about to learn are timeless and straightforward... but sadly, hardly ever followed.

What's more, the financial crisis has actually substantiated this man's classic formula for successful investing.

The formula I'm talking about comes from Burt Malkiel, finance professor at Princeton and author of the classic, A Random Walk Down Wall Street. You may recall that Alexander Green recapped his FreedomFest debate with Malkiel right here on July 12.

As host of the annual FreedomFest event in Las Vegas, I'd invited Malkiel to participate in two sessions. One was at a luncheon, with his excellent speech, entitled: "My 40 Years Walk Down Wall Street: Timeless Lessons."

Malkiel's other speech was entitled, "Can You Beat the Market?" This was what Alex talked about in his column here a few weeks ago. And with good reason - as Malkiel's five rules illustrate...

Five Simple Steps to Beat the Market

Here's Burt Malkiel's five-step market-beating formula:

There's No Need to Time the Market: Plain and simple, buying and selling in the short run doesn't work over the long term. We talk about this frequently in Investment U. In order to make market timing work, you have to be right most of the time when you buy and sell. The vast majority of investors can't do that consistently. And besides, you don't need to time the market to be successful.

Use Dollar-Cost Averaging: Malkiel showed that dollar-cost averaging actually does better in a volatile market (like now) than in a steadily rising one. He cited an example: If you invested $1,000 a year for five years, you'd have $6,167 in a volatile (bear-bull) market versus only $5,915 in a steadily rising market.

Rebalance Your Portfolio Annually: Malkiel found that from January 1996 until December 2009, annual rebalancing between a stock and bond index provided lower volatility and higher returns. The best strategy is to sell your portfolio's big winners and buy its biggest losers once a year.

Diversify, Diversify, Diversify: It sounds obvious, but diversification is crucial. Malkiel argues that simple diversification increases your returns with less risk (volatility). He uses the following extremely conservative portfolio: 50% bond fund, 25% stock index fund and 25% international stock index fund.

Cost Matters: The vast majority of actively managed accounts underperform the market indexes over the long run, especially because they cost more to run. So use non-actively managed index funds by the cheapest fund company - Vanguard.
Turn $100,000 into $250,000 in 10 Years

Putting all the parts of Malkiel's formula together - index funds, dollar-cost averaging, rebalancing and diversification - he revealed the following chart to illustrate how a conservative investor would fare during the "lost decade" (2000-2010) when the stock market fell.

So let's say you started with a $100,000 portfolio in January 2000.

You allocate your assets in the following way: 50% in a bond index, 25% in a U.S. stock index and 25% in an international stock index.

If you added $1,000 per month over the 10 years, you'd have invested a total of $220,000. With annual rebalancing and diversifying, you'd have a portfolio valued at $250,000 in 10 years.

Thus, by dollar cost averaging, rebalancing and diversifying, you're ahead of the game in the "lost decade" when the overall stock market declined.

Now imagine how much better you'd do if you added an emerging markets index fund and gold to your portfolio. That's exactly what Alex does in his Gone Fishin' Portfolio.


Source: Investment U

[millionairemind]

Five Simple Steps to Beat the Market

Here's Burt Malkiel's five-step market-beating formula:

There's No Need to Time the Market: Plain and simple, buying and selling in the short run doesn't work over the long term. We talk about this frequently in Investment U. In order to make market timing work, you have to be right most of the time when you buy and sell. The vast majority of investors can't do that consistently. And besides, you don't need to time the market to be successful.

Use Dollar-Cost Averaging: Malkiel showed that dollar-cost averaging actually does better in a volatile market (like now) than in a steadily rising one. He cited an example: If you invested $1,000 a year for five years, you'd have $6,167 in a volatile (bear-bull) market versus only $5,915 in a steadily rising market.

Rebalance Your Portfolio Annually: Malkiel found that from January 1996 until December 2009, annual rebalancing between a stock and bond index provided lower volatility and higher returns. The best strategy is to sell your portfolio's big winners and buy its biggest losers once a year.

Diversify, Diversify, Diversify: It sounds obvious, but diversification is crucial. Malkiel argues that simple diversification increases your returns with less risk (volatility). He uses the following extremely conservative portfolio: 50% bond fund, 25% stock index fund and 25% international stock index fund.

Cost Matters: The vast majority of actively managed accounts underperform the market indexes over the long run, especially because they cost more to run. So use non-actively managed index funds by the cheapest fund company - Vanguard.
Turn $100,000 into $250,000 in 10 Years

Putting all the parts of Malkiel's formula together - index funds, dollar-cost averaging, rebalancing and diversification - he revealed the following chart to illustrate how a conservative investor would fare during the "lost decade" (2000-2010) when the stock market fell.

Now that BUY AND HOLD and all the crap about random walk are back in vogue.. I think mkt maybe turning ...

[winston]

No, I dont think "Buy & Hold" and "Efficient Market" is in vogue yet ...

[winston]

Trading Strategies – Why Barbell Investing is the New Normal
Why barbell investing should replace pyramid investing
July 26, 2010 | By Michael Murphy

The way you have been told to structure your portfolio and manage your risk is wrong. You were told to think of your portfolio as a pyramid. At the base are low-risk, low-return assets like bonds, preferably governments. Then a smaller layer of blue chip, dividend paying stocks, or an index fund or global equities fund in the middle.

Almost at the top of the pyramid are small-cap stocks, development-stage biotech, junior gold miners and the like. At the very top, the tiniest point, are options. Many financial advisers will tell you to ignore both of these two top layers.

But there are two big problems with their advice. The first is that it’s very hard to control your absolute risk this way. Sure, you can control your relative risk by shifting some money at the margin back and forth, such as from bonds to stocks. But then along comes a black swan event like 2008 and your retirement portfolio gets killed anyway. The second problem is that the pyramid isn’t likely to generate enough returns to make up for those losses and give you a comfortable retirement.

To put it another way, an investor goes from $500,000 in their retirement plans in 2007 down to $150,000 at the present time. Compounded at 5% a year (a typical “pyramid” return rate), it will take 26 years to get back up to $500,000. That’s a long time to wait just to be made whole. Worse still is that the remaining $150,000 could as easily turn into $50,000 over the next 26 years if the market has another black swan fit.

So if using pyramid advice to manage your portfolio going forward can’t get you to where you want to be, why do it?

Be a Barbell Investor, Not A Dumbbell Investor

Your only defense is to view your portfolio as a barbell. On one end should be extremely safe investments that will give you a fighting chance against inflation, deflation or whatever comes — with very little risk of blowing up. That might be 80% to 95% of your whole portfolio, depending on where you are in your investment life cycle. So one end of your portfolio has very low or no risk, with high yields.

At the other end should be high-risk investments that will pay off huge if they work out. Not too many of them, with not much money invested in each one. And nothing in the middle. That’s right, no index funds, no blue-chip mutual funds, no junk bond funds, no diversified funds…nothing.

You’ll know the risk in the safe end of your portfolio is very, very low. You’ll know the risk in the other end of your portfolio is very, very high. You’ll control your overall risk by moving a little money from one end of the barbell to the other, because when you don’t own anything in the middle, it only takes a small shift between the two ends of the barbell to make a big difference in your overall risk.

On balance, most investors will wind up with a medium-risk portfolio. But unlike the other guy’s collection of mutual funds, blue-chip stocks and ETFs, you will actually know how much risk you are taking, and where. That is about 90% of the battle for investment survival.


What Goes In The Safe Investments?

Cash in the form of U.S. dollars in Citigroup (NYSE: C) is not a safe investment. U.S. 30-year bonds are not a safe investment. They would both be hurt badly by high inflation. You have to “stress test” your portfolio under a wide variety of possible scenarios, including the extreme possibilities of hyperinflation or Great Depression deflation. The world’s current economic systems are still fragile, if not unstable, and probably will be for the next few years. So the likelihood of another black swan event is higher than usual.

What’s safe in this environment is a small number of deep-value and/or high-yield securities of global multinationals, a few trust and royalty companies that pay out 90% of their income, and a small number of mispriced corporate bonds.


What Goes In The “Pay Off Huge” Investments?

The idea here is to take a lot of risk with a small amount of money on an improbable event that, if it does occur, will make you a large amount of money. For example, you could buy far out of the money two-year puts on the euro, betting that the euro zone will break up over the next two years as Spain, Italy, Belgium and Ireland follow Greece down the tubes. Or you could buy far out of the money calls on hyperinflation by using silver or gold.

Using options, you could short the S&P 500 and go long gold, or short the 30-year U.S. Treasury bond, and stay short as long as Larry Summers and Ben Bernanke have a government job.

My favorite places for the “pay off huge” portion of a portfolio are development-stage biotech and medtech companies, underfollowed (often completely unfollowed) technology stocks, and junior gold miners. The stocks I recommend usually are so depressed, sometimes by naked short-selling, that I’m not likely to lose any money. My risk is more that nothing happens for a long time.

Investors damaged by the various bear markets over the last decade need to get to very safe ground with most of their assets. Nobody knows what’s coming next. But those same investors need to deploy a small amount of money into a few potentially very high return situations if they are to have any hope of recovering their losses and moving on to acquire enough assets to hit their targeted needs. That’s the barbell strategy, and it is the best way I see to control your risk while getting to your objective.

http://www.investorplace.com/news-opini ... ormal.html

[winston]

Which of These Four Investing Styles is Right for You? by Marc Lichtenfeld


What's your investing style?

Are you a value investor - grouped in with heavyweights like Warren Buffett and John Templeton?

Or do you prefer a growth investing model - alongside guys like Peter Lynch and William O'Neil?

Supporters of each approach are as vocal about their theories as the bulls and bears are about theirs.

Each side can point to statistics that prove their view is the correct one. Toss in contrarians, believers in GARP (Growth At a Reasonable Price - more on this in a moment) and various other methods of investing and it becomes a dizzying cacophony that leaves an investor wondering which approach is best.

So let's weigh up the pros and cons of these four styles...

Value Versus Growth: A 10-Year Breakdown

No matter what investing method you use, you're going to see periods where your approach outperforms or underperforms the market, or just bounces along at the same pace.

For example, over the past 10 years, the MSCI US Prime Market Value Index has posted a compound annual return of 2.97%, comfortably beating the MSCI US Prime Market Growth Index, which lost 4.33%.

Over the past three and five-year periods, however, growth outperformed value. And over the past year, value stocks are edging out growth, but by less than 1%.

Let's dig deeper...

Four Investing Styles: Which One is Right for You?

Breaking down each of the four approaches...

~ Value Investing: It's hard to argue with the success of Warren Buffett, John Templeton and Martin Whitman - famous value investors who've made fortunes for themselves and for their clients.

Value investors look for companies trading at less than their intrinsic value. They tend to like companies with low price-to-earnings, price-to-sales and price-to-book ratios. You often find that value stocks boast high dividend yields because their share prices have fallen.

When I first got involved in the markets, I was a value investor. It taught me to be patient, as it tends to take time for the market to realize the full worth of value stocks. However, that patience is usually rewarded, as the gains can be significant once the stocks become fully valued (or overvalued).

As my career evolved, though, I shifted more towards growth stocks...

~ Growth Investing: Growth investors aren't as concerned with P/E ratios or other valuation metrics as much as they are with a company's growth prospects.

Growth stocks tend to be smaller and are a bit riskier because if the projected growth doesn't materialize, the stock can get punished. Of course, growth stocks like Apple (Nasdaq: AAPL) can seemingly rise forever if they continue to hit or exceed growth projections - something my colleague Alexander Green discussed here a couple of weeks ago.

~ GARP (Growth At a Reasonable Price): This is a blend of value and growth. GARP investors want growth, but will only pay what they consider a reasonable price.

As a result, perhaps the most important valuation metric is the Price/Earnings to Growth ratio (PEG).

===================

Price/Earnings to Growth ratio (PEG)

This is a way of calculating a stock's value while factoring in its earnings growth.

You do this by dividing the price-to-earnings ratio (P/E) by the stock's annual earnings per share growth rate.

By taking growth into account, the PEG ratio is widely considered a more accurate reflection of a stock's true value, rather than just the P/E ratio.

Using the PEG ratio is easy. A PEG of 1.0 means the market considers the stock to be fair value. A PEG under 1.0 means the stock is undervalued, while a PEG over 1.0 means the stock is overvalued.

==================

Typically, a GARP investor will insist on a PEG of 1.0 or less. That means the P/E ratio will be lower than the growth rate.


~ Contrarian: Investors who use this method need to have nerves of steel. They buy stocks that Wall Street and mainstream investors shun.

Contrarians need to be extra diligent in their research in order to find viable reasons to invest in unloved stocks. It could be that the companies in question are worth more than their market caps, due to factors like over-zealous sellers after bad news, or that Wall Street is just ignoring a company's potential.

Contrarians have to be able to not only go against the majority of investors, but also have patience to see their investment thesis realized.

David Dreman is one of the most famous contrarian investors, having written the bible of contrarian investing, Contrarian Investment Strategy: The Psychology of Stock Market Success, as well as two follow-ups. They're must-reads for any investor, but particularly those who consider themselves contrarians.

So which of these four investing approaches is right for you?

Invest with Style... Every Style

The answer should be all of them.

Just as you'd never load your portfolio with only technology stocks or only gold stocks, it shouldn't contain only value or growth stocks.

Remember that various approaches dip into and out of favor, just like various sectors and stocks.

So if picking value stocks is your thing, that's fine. Just be sure to add a good growth stock mutual fund or ETF to your portfolio to balance it out. That way you'll have exposure to what ever is working at that moment.


Source: Investment U

[winston]

"Successful investing is anticipating the anticipations of others."

John Maynard Keynes

[kennynah]

useless quotes....imo

[winston]

TOL:-

Economy - will be slow over the next two years.
Sentiment - is cautious but there's no fear yet
Liquidity - cash on sidelines will still flow into perceived good bargains or stocks with strong catalyst


Conclusion:-
1) Still safe to buy fundamentally strong stocks with strong catalysts
2) Avoid smaller caps; Focus on bigger companies that can go through a slow-down
3) Trading Market; Stock-picking important; Avoid Country ETFs

[winston]

Buy when Full Moon to New Moon ?
Sell when New Moon to Full Moon ?
( And it was the First Day yesterday. Sell ! )


A Lunar Cycle Strategy
By Joseph Meth on September 8, 2010

Alright, Lunies, your anticipation is about to be satisfied. Here are the stats for the Lunar Cycle phase completed today (click on table to enlarge):

The moon keeps racking up a good score. Both halves of this month’s cycle turned out to work and by a wide margin. During the Waxing to Full phase, the moon cooperated by taking a whopping 6.17% beating; during the Waning to New phase which just ended, the market climbed 4.47%.

Look at the Index a year ago …. about the same as where it is today. If you all you had done for the last 14 months was buy SSO (the double-long S&P etf) during each Waning phases and SDS (the double-short S&P etf) during each of the Waxing phases since June 22, 2009 (the actual beginning of this experiment), you could have wracked up about a 100% profit ((35.11+12.39) x 2).

The batting average for the past 12 months (24 hits) is still 17 out of 24 correct, or 70.8%. Since the start of of the experiment, correct hits are 21 out of 30, or 70.0%.

Even though the average change each period is small (less than 2%), if you were able to buy options at good prices instead on these securities your profits might have been even better. Since there’s now a reliable track record, I decided to play the game and bought some short-term, in the money call options on SDS as a hedge against my portfolio for the coming 15 days through the next Waxing period.

Just my luck, the market will decide to not cooperate and decide instead to show me who’s boss by busting through the neckline of that inverted head-and-shoulder formation. I can accept that kind of kick in the pants any day.

http://www.dailymarkets.com/stock/2010/ ... -strategy/