Recessions & Crashes: Memories & Lessons

[kennynah]

thanks MM/Aspellian...now i know what this "edge" mag is...san mei mei used to refer to this magazine...i thought it was some makeup/fashion stuff.... thanks fellas !!!

bro asp : that's a nice image of someone i duno...

802 : many have fond names for anal-ysts...

[winston]

Lessons Learned
The crisis has made wealthy investors more cautious
Kate Watson
Apr 12, 2010

Despite evidence last year that equity volatility was falling, credit spreads narrowing and higher-risk assets booming, high-net-worth investors (HNWIs) remained cautious. They have learnt hard lessons about risk and return over the past 12 months, according to Enid Yip, chief executive for Asia at Sarasin Rabo Investment Management.

"Investors are looking more closely at counterparty risk, concentration risk - diversifying their holdings, both by instrument and region - and more active currency planning to deal with potential currency risk/appreciation across Asia," she says.

A greater appreciation of the many facets of risk is one of several effects the global financial crisis has had on HNWIs. Their newfound prudence is reflected in a yearning to better understand investment products, a requirement for greater transparency in what they are being offered and a search for simpler products, such as equities and bonds.

As a gauge of this simpler approach, investment activity at the beginning of last year resumed on the back of simple equity and fixed-income investments, according to Michael Benz, head of products and services at UBS Wealth Management, Asia Pacific. But with what seemed like a recovery under way, clients moved into more diversified products and there was a noticeable appetite for simple structured products, such as equity linked notes.

"But in general, the risk appetite is smaller than it was prior to the financial crisis, and investment behaviour has also changed," Benz says. "Clients expect more professional advice, a proper view on the investment, then the most appropriate products. The advisory process now has to happen in a better-structured investment framework with the client in control."

This cautious approach was vindicated by an end to the bounce-back in the first half of last year, signalled by the sharp rebound in the Chicago Board Options Exchange Volatility Index (VIX) in October to levels not seen since the first quarter.

As a result, HNWIs are continuing to take a more back-to-basics approach towards their portfolios, only slowly reinvesting the cash holdings they built up at the start of the year.

One key indicator of this swing towards safer assets is the amount invested in exchange-traded funds (ETFs) globally. ETFs are passive products typically used by investors to track markets rather than outperform them.

According to Strategic Insight Simfund Global, from January 1 to June 30 last year ETFs globally recorded inflows of US$49 billion compared with US$5.3 billion flowing into active funds. This means that investors are investing more in passive funds than in active funds and confirms the trend seen in 2008 when ETFs recorded inflows of US$270.4 billion, compared with US$122.6 billion flowing into active funds.

"It emphasises the success of passive products in the past years," says Marco Montanari, head of db x-trackers ETFs in Asia for Deutsche Bank. "This is huge, especially when you consider that ETFs assets under management are much smaller than active funds - about 4 per cent of total assets managed by active funds.

"Retail and institutional investors are leaving money markets and cash products to take higher risks in terms of asset class exposure, but they are doing it increasingly through passive products like ETFs."

This guarded approach has also been seen among HSBC (SEHK: 0005, announcements, news) Personal Financial Services clients - those with between HK$1 million and US$3 million in assets. Direct investments in bonds issued by familiar companies, both global and local, and bond funds are proving popular investments. Last year, bond funds accounted for close to 50 per cent of fund sales for the top-selling funds compared to 2008, when equity funds accounted for the majority, according to Bruno Lee, HSBC's head of wealth management for Asia-Pacific.

With high-yield bond indices such as the JP Morgan Global High Yield Bond Index and HSBC Asian Bond Index showing a stronger performance last year of 59 per cent and 25 per cent, respectively, it is not hard to understand why some HNWIs have been looking to bond funds for yield.

But since bond prices rose significantly last year, reflecting investors' expectations of improving economies, investors should take a much more cautious and realistic view of potential performance in bonds or bond funds this year, Lee says.

History suggests that such defensive portfolio positioning may well reverse rapidly as the yield on nominal assets falls back to more average single-digit returns and the appeal of real assets continues to outshine, a fact that is acknowledged by many wealth managers. According to Sarasin's Yip, for example, there is now a gradual but determined shift from cash- and bond-related assets into core equity and real estate holdings.

"These are designed to protect against real 'inflation-based risk' rather than nominal capital risk," she says. "In Hong Kong, we are already seeing certain economic factors combine to drive the property market substantially higher."

Marc Saffon, managing director and head of financial engineering for Asia- Pacific at Societe Generale in Hong Kong, also noted a growing appetite for more yielding products and diversified exposure as the level of yield on cash bonds had continued to decline dramatically since the beginning of the year.

"We see a growing appetite for risky investments in equities, with the ratio of equities in a typical individual portfolio increasing over the past three to six months," he says.

"The underlying assets are mainly local, as usual, plus some US equities.

"We also see a growing appetite for diversification in the commodities space, mainly gold and oil, and some plays on emerging countries' currencies, like the Korean won, Brazilian real and Indonesian rupiah."

http://www.scmp.com/portal/site/SCMP/me ... =Magazines

[winston]

TOL:-

1) During the AFC, my friend's mum made a killing in the shares of DBS. This is her reasoning:-
She wanted to put some money into a fixed deposit at DBS. However, the interest rate was quite low. She was not too happy with DBS as she felt that DBS was making too much money by offering such low interest rates.

At the same time, she had noticed that the share price of DBS has dropped a lot. So she bought their shares because she felt that DBS was making too much money by offering such low interest rates ..


2) During the Financial Crisis about 2 years ago, another friend also made a killing in the share market. He's not too investment savvy either. He does not care about the latest investment news and does not really know what's happening in the markets.

However, he can "feel" that everyone was panicking and can see that the shares of the banks were very low. He put all of his severance into the shares of the various banks and made a killing...

So do you want to be lucky or smart ?

I'm starting to realize that some not-so-investment savvy people are making a lot of money in the markets. They only surface after the market has crashed, buy only the blue chips, sit on them and sell after it has run up a lot....

[kennynah]

as long as I'm still employed..what recession? hahaha

[-dol-]

TOL:-
I'm starting to realize that some not-so-investment savvy people are making a lot of money in the markets. They only surface after the market has crashed, buy only the blue chips, sit on them and sell after it has run up a lot....

I would give some of them credit for it. They may not know the minute details but some have gone through the school of hard knocks and their "feel" for whatever ventures they go into can be quite uncanny. Some of these very successful ventures will never pass the fundamentals test but can yield extraodinary returns if the timing is right.

There are many ways to make and lose money - it's the quality of execution rather than the method that counts in the end.

[kennynah]

those who know how to make serious money....don't usually go around telling people how they achieve that... it's their trade secret...

as for me...i have no such secret...that's why you see me... making my usual din here...

[winston]

Avoiding the Biggest Mistake Investors Make By Dr. Steve Sjuggerud
Wednesday, July 28, 2010


True Wealth subscribers pocketed triple-digit profits… in a stock that did nothing.

How did they do it? I'll show you in just a minute. But it comes down to this:

Each of us is our own worst enemy – particularly when it comes to making money in the markets. We're either too greedy and we hang on too long, sometimes watching a big winner turn into a big loser… or we're too fearful and we sell once we see a tiny profit, completely missing out on a big winner.

Fortunately, there are a few simple "tricks" we can learn to prevent us from hurting ourselves. I'll share two tricks we use in my True Wealth newsletter and show you how they led to a triple-digit profit in a flat stock.

To avoid the big mistakes, we do two things in True Wealth:

1) We sell half our position once we're up 100%, letting the rest of the position "run."
2) We use a 25% "trailing stop."

These two rules force us to avoid two of the biggest mistakes investors make.

These two big mistakes are:-
1) taking profits too early and
2) letting a small loss become a big loss.
Our rules keep us in the money.

A good example of this in action is a True Wealth trade we made in shares of PetroChina. In April 2007, when we entered the trade, PetroChina traded around $113 per share. Today, PetroChina trades around $115. So in over three years, the stock has basically done nothing.

But here's how we traded it in True Wealth…

The stock soared soon after we bought it. Shares made it all the way up to over $250. We simply followed our rules. We sold half once we were up 100%. Then, the stock fell 25% (hitting our trailing stop). We sold the rest.

My readers made a fortune in PetroChina – a dead-money stock over the last three years – by following these two simple rules to keep us in the money.

A great trade consists of a great buy and a great sell.

So tell me… what is your exit strategy for the investments you own? You don't have one? You're not alone… Most investors have no exit plan. But if you don't have a plan for when you'll sell, chances are great you'll make an emotional decision… and sell at exactly the wrong time.

Don't make that mistake.

Last night, I had dinner with my friend Dr. Richard Smith. Richard earned his PhD in math. More importantly for you, Richard developed a website that makes it incredibly easy for you to follow a rational exit plan.

You enter your stock symbol, the date you bought your stock, and the percentage trailing stop. TradeStops automatically adjusts your trailing stops for you. Even better, it will send you an e-mail or a text message when your stock hits its trailing stop.

Richard also has a higher-end version of TradeStops (called TradeStops Complete) that lets you do all kinds of alerts with custom exits… For example, if you want to exit when a price target is hit, you can do that. If you want to exit when you're up 100%, or when the stock crosses below a moving average… it's all possible.

The biggest mistakes individual investors make are 1) taking a profit too early and 2) letting a small loss become a big one.

Both of these problems happen when you don't have an exit strategy.

Waiting to sell half until you're up 100% is a great way to let your winners ride. And trailing stops are an incredibly effective exit strategy for limiting your losses.


Source: Daily Wealth

[winston]

Another Recession? Let the "Psychic" Stock Market Tell You... by Marc Lichtenfeld


Last weekend, I hosted a poker game with some friends. During one hand, I made a series of bets, which caused my opponent to think hard.

One of the other players coached him: "He's trying to tell you a story with the way he's betting. The question is, do you believe what he's telling you?" My opponent believed me and folded. Good thing for him, too, as I had a full house!

Like a good poker player, the stock market is also telling us a story. The difference, however, is that the market is usually believable!

But here's what many investors don't understand: the market tells us the story of what will happen, not what has happened.

For example, my father is constantly asking me why the market was up or down on a certain day. Perhaps your family and friends do, too. But they're missing the point.

Sure, the market sometimes responds to data or news. But it doesn't usually react to the news. The news often reacts to the market.

Why? I'll show you...

What Comes First... Market Behavior or News?

The point about the "market behavior in relation to news" equation resonated with me when I listened to a fascinating speech by Elliott Wave Theory expert, Bob Prechter.

In this instance, though, Prechter didn't discuss Elliott Wave. Instead, he showed the correlation between all kinds of data and events that took place after important moves in the market.

Take wars, for example. They tend to break out when the market is bad - something that makes sense when you think about it. When the market is down, people feel poorer and are more irritable. It's easier to get them to support a war. Plus, elected officials want to distract the public from their economic woes.

There is a precedent for this theory...

I attended Prechter's talk in the spring of 2001, as the market was in the middle of the dotcom collapse. In March 2003, the United States invaded Iraq. At that point, the market was down 45% from the highs of March 2000. I can't help but wonder if that war would have ever been fought if we were still in a bull market.

Bulls, Bears and Birth Rates

Bear markets also spark decreases in birth rates.

Again, it makes sense that when people are less comfortable financially, they put off new financial burdens like a child. Not to mention, financial stress makes people less amorous.

The opposite is true of bull markets. During and shortly after bull markets, the birth rate usually rises.

I was reminded of Prechter's talk last week when news came out that the U.S. birth rate was the lowest in history.

In 2007, for example - the top of a four-year bull market - there were 14.3 babies per 1,000 of the population. That year, more babies were born in the United States than in any other year in America's history.

But in 2009, the figure dropped to 13.5 babies born per 1,000 people. The marriage rate also decreased from 7.3 per 1,000 in 2007 to 6.8 in 2009.

Look Forward, Not Back

The fact that the stock market is a forward-looking mechanism makes me less concerned about every piece of economic news that the pundits use to justify their "next Great Depression" or "Big Bubble" theories.

Take 2008, for example. As the market plunged on the back of the financial crisis and several huge corporate meltdowns, it indicated that a nasty recession was on the way. In addition, it perhaps predicted an election victory for Obama, as he was perceived as anti-business.

But a funny thing happened. In 2009, the market rallied hard. The upward move in stocks suggested that the economy was no longer falling off a cliff. Yes, things were still tough, but the panic that many felt in late 2008 was no longer justified.

So what story is the market trying to tell us today - and how do we interpret the data?

Are You Asking the Right Question?

Currently trading around 1,050, the S&P 500 is down 16.1% from its late April high. So does it signal that a double-dip recession is headed our way?

If the index slips much further, I believe it does. However, if it can hold its current level and work its way higher, better days may be ahead.

The bottom line here is that the market predicts the country's future economic direction, rather than news moving the market.

So the next time stocks head in a certain direction, don't ask, "What happened to make the market move?" Instead ask, "What is the market telling me is going to happen?"


Source: Investment U

[helios]

thanks MM/Aspellian...now i know what this "edge" mag is...san mei mei used to refer to this magazine...i thought it was some makeup/fashion stuff.... thanks fellas !!!

bro asp : that's a nice image of someone i duno...

802 : many have fond names for anal-ysts...

Ken ge,

I decided not to subscribe the magz this year.

Pointless. Maybe i've outgrown it ... ...

[iam802]

"No more Edge..."