PUBLIC LECTURE by Dr Jomo Kwame Sundaram

Details of the lecture are as follows:

Title: When will we ever learn? Has Malaysia learnt the correct lessons from past crises?
Date: Wednesday, 16 December 2009
Time: 7.30pm
Venue: Hotel Singgahsana, Persiaran Barat, off Jalan Sultan, 46760 Petaling Jaya (next to Taman Jaya LRT Station)
Admission: FREE

The Topic
The world is still struggling to emerge from the longest and deepest financial crisis in six decades. For every piece of optimistic news about recovery there are stories of setbacks and worsening downturns. Asia has been here before. A decade ago, the Asian financial crisis swept across the region. It not only prompted some rethinking of how to 'manage' financial crises but also stimulated some serious rethinking about the character of the development model in Asia. Lessons were learnt and new policy and institutional frameworks were put into place. But the severity of the current crisis begs a question: did politicians and policymakers really learn the right lessons from ten years ago? This is the burning question that is addressed in Jomo's important public talk.

The Speaker
Jomo is one of the world's leading thinkers on questions of development -- not just development economics but also the policy commitments and institutional frameworks for international cooperation that are necessary to deliver both reform and sustainability. From his position at the United Nations he is able to shape debates and influence their outcomes. At the same time, he remains profoundly committed to building longstanding solutions to the most pressing problems that face the world today - environmental degradation and climate change, financial disorder and continuing uneven development. Come and listen to him offer important reflections on what has gone wrong and what might be done to advance a progressive agenda.

Book Fair at Danga City Mall

There will be a book sharing session at the following book fair:

• Venue: Danga City Mall Johor Bahru
• Date: 28-11-2009
• Time: 5:30pm - 6:30pm
• As usual, I'll be sharing with my readers some usefull investment tips. So see you there!
  

How Happy Are You?


If I were to ask you a question: How happy are you? To answer this question, you will start to look around your friends and neighbours what they have in order to judge how happy you are with what you have. This is known as "anchoring" which means we like to make decisions based on some reference points. To illustrate this concept further, there was an experiment done by a famous behavioural economist, Dan Aeriel based on an actual ad from the Economist.


There were three offers in the ad: an Internet-only subscription for $59, a print-only subscription for $125, and a combined print and Internet subscription, also for $125. When Dan gave these options to a group of students, 16% chose the internet-only subscription, none took the print-only subscription, and 84% opted for the combined subscription. Sounds reasonable ? But in his second round of experiment, he took out option 2 since no one selected it and offer the Internet-only and combined subscription options to another group of students. The results? 68% of students selected the Internet-only option and only 32% chose the combined offer.


What is wrong here? Nothing wrong, its just marketing gimmicks to take advantage of people's emotional weakness that often use the wrong things for comparisons. The above example showed that when given the price of print-only subscription is the same as the combined subscription, the latter looks like a great deal!

In stocks, we like to compare the historical prices when we make decisions. For example, we did not buy a stock at RM5 because we originally looked into it and did not buy at RM3. Buying at RM5 will make you regret more as you were making the comparisons.

With investment, we have to be rational and objective. We should try to put the past prices behind and focus on the current value and future prospects of the stock that we are buying. If we keep thinking about the lows that we've missed in March this year, we may be ended missing the whole boat altogether.

Happy investing,

Pauline Yong

What If Jeremy Grantham is Right?

Jeremy Grantham, president of investment management firm GMO LLC, has been getting a lot of press lately.

At the market's top, he warned of an impending bear market. At the bottom in March, he forecast a historic rally. Today, he says the market is 25% overvalued. Should you be worried? Perhaps not.

Let's start with Grantham's track record. He's made a couple of good calls lately. But does he get it right all the time? Of course not. No one does.

But even if he's right, it wouldn't necessarily be negative. It all depends on your time horizon.

Here's why...

How Long-Term Investors Can Benefit From A Bear Market

If you own stocks on margin, call options, or LEAP options, a market downturn could be devastating. A 50% decline in the value of a fully margined account would erase your equity. Your options could expire worthless.
Who benefits from a bear market? The obvious answer is short sellers and put options buyers.
But others benefit, too. Primarily long-term investors.

A new study by T. Rowe Price shows that those who began systematically investing in equities in severe bear markets made out "significantly better" than investors who began in bull markets.

Take 1929, for example, the year that kicked off the Great Depression...

From 1929 to 1938 - one of the worst 10-year periods in history - the S&P 500 returned minus 0.9% annually.

Yet if you began investing $500 a month in 1929 and kept it up for 30 years, your total return was 960%.

If you did the same thing starting in 1970 - the start of one of the other worst decades in market history - you'd have fared even better: up 1,753%.

These investors did more than twice as well as those who invested the same way at the beginning of the go-go 1980s and 1990s.

What can we take from this?

The Buffett Approach

Bear markets are no friend of short-term traders with an optimistic bent. But they're the great ally of long-term investors.

Warren Buffett put it this way in one of Berkshire Hathaway's annual reports:
"A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you're going to buy a car from time to time, but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.

If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the hamburgers they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices."

This makes perfect sense for young investors, but how about those approaching retirement?

What to Do If You're An Older Investor

They might welcome this development, too. A man or woman in good health retiring at 65 today faces the very real prospect of spending nearly three decades in retirement. In short, you need growth as well as income.

And retirees?
For them, it's a different story.
Retirees stand to lose the most. The closer you are to cheating the actuarial table, the less your portfolio should be invested in stocks.

But for everyone else, Grantham's prediction - if true - could well be a blessing in disguise. Even if it almost never feels like it.

Good investing,
Alexander Green

Chief Investment Strategist

Double Dip Economy

Recently many economists have warned that the global economy may suffer a double dip economy in the near future. There are reasons for their worry. Firstly, governments around the world have been pumping billions of dollars into their economies for fear that their economies will undergo a prolonged recession like the 1929 "Great Depression". The aggressive fiscal stimulus policies have been doing the wonders of a speedy V-shaped recovery for most of the economies in the world, especially the Asian countires.

Secondly, the "Fear and Greed" factor in human's emotion has started to build bubbles in the stock markets and property markets around the world. Since the subprime crisis, Singapore STI up 77%, Hong Kong HSI up 65%, Indonesia JKSE up 100%, Bursa Malaysia up 50%. And property market in Singapore also see sales volume reaching its pre-crisis level. Its 2Q 2009 almost doubled 1Q 2009’s level to reach an eight-quarter high of 4,714 units. A year ago, "fear" has caused many investors to dumped their shares at cheap sale, now "greed" has taken over control and everyone is in for a quick profit.

Third is the threat of the commodity prices. With speedy recovery in the Asian economies, the demand for commodities is rising. Most likely we are going to see another round of cost push inflation, like the one in 2007.

And finally, the interest rates. With rising oil prices and overheated economy, very soon we will see rates hikes which will drag down the stock markets and the property markets. And when all these happen, we'll see a "W" formation for our GDP which is also known as the "double dip" economy.

As an investor, we do not need to feel fearful about this situation. We should treat it as part of the economic cycle, there are bounds to be ups and downs. The important lesson here is cash management: (1) Do not invest with borrowed money and (2) Do not invest all your funds at one time. Space out your investment, if its a down market, you're practicing lower cost averaging; if its an uptrend, you're averaging up. And remember to take profits when you're happy with your gains.

Consumer Confidence Index

Warren Buffett said:"Be fearful when others are greedy; and to be greedy only when others are fearful." We know the idiom very well but how many of us know how to apply this classic idiom in the stock market?

There are many indicators that track the market sentiment such as the GDP, unemployment rate, volatility index, put-call ratio and so on. Today I want to talk about one particular indicator which I think is a good representation of the sentiment of the economy as well as the stock markets - The Consumer Confidence Index (CCI).

Consumer Confidence Index is an American indicator but it definitely affects the rest of the world. From the CCI we can tell whether the public sentiment is bullish or bearish. This is important because we want to know when the majority people are greedy and when they are fearful. Here's a look at the current CCI, as at August 2009 the CCI stood at 54.1, while the base year was 1985 with 100 index. The dip we saw in the chart above was registered in February this year at 25.3, which is its 42-year low in the American history.

In order to know how low or high is this figure, let's take a look at another chart, the past trend. We can see from the chart below that the average was 102.9 which almost double the current August'09 CCI.

The virtue of the Consumer Confidence Index is that it gives you a big picture of the economy. And if you see that the index dip to the historical low level like the one in February, you should be smiling instead of feeling fearful.

Hence, if you were to ask me whether I'm buying into the stock market, my answer is 'Yes"!

Trading Strategy - Dogs of the Dow

Dogs of the Dow Strategy

How this works is very simple. All you need to do is to rank the FTSE Bursa Malaysia top 30 largest companies according to (1) PE ratio from lowest to highest; and (2) Dividend yield from the highest to lowest. The aim is to select those companies with the highest dividend yield and lowest PE ratio. Here's the top 5 stocks for the lowest PE and the highest DY as at 28th August 2009.

Top 5 PE Stocks
Hong Leong Bank 9.60
RHB Capital 9.65
Berjaya Sports Toto 13.00
YTL Corp 13.14
AMMB Holdings 13.26

Top 5 Dividend Yield Stocks
Digi.com 8.51
Telekom Malaysia 8.33
Malayan Banking 7.99
Berjaya Sports Toto 6.76
UMW Holdings 6.00

Hence the best stock from this strategy is BToto as it appears twice on the lists. (For more info on BToto please visit this website: http://www.pg8.net/viewtopic.php?f=4&t=119&start=10 )

Different people will need to establish their own trading strategy according to their lifestyles, investment knowledge, debt obligation, and risk preferences. The above strategy is suitable for busy individuals who do not have much time to monitor their portfolio and yet they want a low risk portfolio with longer term perspective.

Bookfest 2009 @ KLCC

Despite the H1N1, the event yesterday was a successful one. The audience was very responsive and we had a great time. Here are some pictures to share!

Bestsellers List

Dear readers,


Thank you for your support.

I Love Stocks and Fear & Greed are both on the bestsellers lists of the MPH and POPULAR respectively for the month of August.

I hope these two books enhance your investment profits greatly. Always remember this: Knowledge is power! Invest in your knowledge now and profits will come naturally to you.

Happy investing,

Pauline Yong

Are you a rational investor?

Do investors always behave rationally? To answer the question, let's ask ourselves the following questions:

1. Do you have an investment plan?
Before we trade we all know that we should keep an investment plan to guide us through the process of trading. We are suppose to write down our investment objectives, investment horizon, and the entry and exit criteria for stocks. But most of us skip this important step and plunge ourselves into the trading world.

2. Do you do your own research?
Again, we read plenty of investment books that tell us we should always do the necessary number crunching to judge whether a particular stock is worth buying. But in reality, when we are in the midst of trading, somehow we became inertia and acted boldly, thinking that we know more than others. Or sometimes we acted impatiently, thinking that if we spend the time to do the research, the price could have shot up and we would have missed the boat! Hence, we ended up not doing the necessary research simply because we didn't want to miss the boat!

3. Can you stay calm?
Can you stay as calm as "See no evil, hear no evil, speak no evil"? Sounds exagerated? Not at all. In fact, this is exactly a true rational investor should behave! Everyday we are bombarded with plenty of information. Imagine if everyone is telling you the oil price will go higher and remain high, would you really believe so? Or suddenly, everyone is talking about how bad the economy is and the current financial crisis is going to turn into another "Great Depression", will you sell your stocks now? If we do not have cool heads, we are bound to be swayed by emotions and ended up buying at the peak and selling at the bottom.

So, if you said "yes" to the above three questions, congratulations, you're on your way to successfull trading.

Happy investing,
Pauline Yong

Bookfest @ Malaysia 2009

Dear readers,

I'm pleased to announced that there'll be a golden opportunity for us to meet and exchange investment ideas in Kuala Lumpur (KL) on the 29th August (Saturday) 6pm - 7pm at KLCC Convention Centre Hall 5, The Reading Room.

I remember during last year's Bookfest @ Malaysia 2008 I shared with the audience some investment knowledge. Not only did they learn how to analyse shares with financial ratios, they also learn how to read stock charts. Some ideas was shared during the "Question and Answer" session at the end of the event.

For this year's Bookfest, I would like to introduce my new book: "Fear and Greed" to my readers. I believe this book is especially helpful to investors as very often investors are swayed by emotion by buying greedily during the euphoria market and sell panicly when everyone was selling. Sometimes we trade without realising that we actually put in too much of our emotion into trading which may ended wiping out our investments! All these will be shared with you from a person who has more than 15 years of trading experience and has done extensive research on this topic.

I hope my readers will feel my sincerity in sharing my investment knowledge because obviously I write books are not for profit or fame, it's to help more people to acquire the right investment knowledge and to trade more successfully for themselves.

Until then, see you at KLCC Hall 5.

Are we out of the woods yet?

Many economists have started to criticise the trillion dollar fiscal stimulus programs by the Obama administration. Hasn’t the American learned from the Subprime crisis when it all started during the 2001-2002 recession, the Americans cut rates and boosted public spending. This brought a bubble in the housing sector which causes serious consequences to the rest of the world.

Now, with the current recession, the Americans is going to pump in trillion of dollars to boost its GDP. And the consequences? More debt and bigger bubble!

The Americans are not alone. Most of the governments around the world are increasing on their fiscal budgets and bailing out troubled banks to help steer their economies out of the wood so as to gain popular votes from the people. “China is back in bubble land,” warned the Financial Times. According to Bill Bonner, in the first six months of this year, Chinese banks lent more than $1 trillion, or about four times the rate of 2007. This loosening of monetary policy by the Chinese Central Bank is bound to add more trouble to the world in the future.

Why? Because no one would like to bite the bullet and let the economy suffers like the 1929 Great Depression. So let’s face the consequences when the next bubble blows up!

Event Announcement

There will be an investment talk by PAULINE YONG followed by an autograph session at Bookfest Malaysia 2009 @ KLCC Convention Centre in August 2009. The details will be announced later.

New Book Release

• This book gives plenty of examples of investment mistakes, and analyses them from a Behavioural Finance perspective. Behavioural Finance is the study of the influence of psychology on the behaviour of investors and their subsequent effect on markets. It combines the discipline of psychology and economics to explain why and how people make irrational or illogical decisions when they make investment decisions. While Fear and Greed targets intermediate investors and professionals, beginners will benefit from this book tremendously through interesting examples and researchers’ experiments.
  
  You’ll learn how to:
  
• Master finance terminology and concepts
  
• Understand various mental biases in human
  
• Overcome your emotions while trading
  
• Invest like the investment gurus
  
• Think like the professional trader
  
• Profit in equity markets consistently

To purchase: http://www.mph.com.my/search/nsearch.cfm?do=detail&pcode=9834212437