Still Sizzling

Who would have thunk it!

The US has had a catastrophic RE melt-down, many of it's largest companies have gone bankrupt, most of it's large banks were insolvent and required tax-payer money to stay open. Meanwhile the US's largest trading partner, Canada, is having a rip-roaring RE boom!

That is not how most bears thought the script would be written.

And I have to admit the market is still a rocking and a rolling. I spoke to a Realtor tonight who just wrote a no-subjects, full price offer on a Burnaby house that had been listed 3 days and there were several other full-price offers presented at the same time.

This smells like the panic of 2007 all over again.

We know how that ended, in a blood-bath. Will this too?

It is crazy how an asset can go from must-buy-at-any-price-panic to no-bid and back again in one year!

Basically inventory for July has been flat, going out within a 1-2% of where it came in, as have prices. I am going to be watching the next couple of months carefully to see whether this buying frenzy continues. If so, the bears will have to do some serious hibernation until after the Olympics.

All assets are now linked. RE, gold, oil, stocks and even bonds. They have all been on fire since March 2009 without the even slightest correction. I expect late Summer and early Fall to bring a larger correction in all assets.

If it doesn't then I for one will have to consider whether the economic rebound is stronger than I expected.

1Malaysia Fund

50% for Malay

30% for Chinese

15% for Indian ...

Huh ? What is ONE Malaysia again ?

Sorry for the lack of posts folks

There is not much to say.

It's hot and the heat has been affecting the rational part of many buyer's minds.

I see sales which have sat there for months, suddenly going for at or near the listing price, as multiple buyers chase it up, worried that if they don't buy now the Kingdom of Heaven will be barred to them for ever!

In any case the last two days I have seen more listings and less sales. Lets see if this is a trend. I will tell you if it continues.

As Robert Prechter said:

The news at turning points is too strong for people to act contrary to it...fundamentals so intensely support the continuation of a trend, just when it is ready to reverse.

Tick Size Weightage, should it be lower or higher ?

Unlike MOTS which is pretty much factual, tick size effect on the other hand has many disputable intrepretations.

Tick size is the smallest gap one investment vehicle can move its price to. For example, RM 1.01 with a tick size of RM 0.01 can make its next smallest movement to either RM 1.00 or RM 1.02. It can NEVER be RM 1.005 nor RM 1.015 for example.

Tick size is usually defined within a range of price. For example, from RM 1.00 to RM 9.99, the tick size is RM 0.01.

Tick size weightage is the tick size over the price. For example, RM 0.01 over RM 1 is 1%.

Because the tick size is definied with a range of price, the tick size weightage will differ from one price to another. For example, RM 0.01 over RM 2 is only 0.5% in relation to 1% for the RM1 example.

Some people treats tick size as an investment cost. Because if you buy and sell immediately, the buy sell spread is usually 1 tick size away (only apply to liquid investment vehicles). So you will always be selling one stick size lower than your buying price. For example, if you have just buy a share price at RM 1.01 and you want to sell it immediately, the highest buyer price would most probably be at RM 1.00, hence you may lost an additional1% of your investment by selling immediately.

For this reason some people prefer smaller tick size. The smaller it is, the lowest cost it is.

Some other people want to sell stocks to make profit as soon as possible, ie. in one tick away. However, there are always some cost associate to investment. For example in stock investment, there are brokerage fee, stamp duty and clearing fee. Assume it is 1.68% excluding the tick size effect following this example. If you sell at next up tick size which would earn you 1%, minusing the cost you still lost 0.68%.

In this scenario, one would want the tick size to be bigger than its transaction cost. In above example, the tick size should be more than 1.68%. That way, one could earn money with just one tick away - Fast and Furious !

So as you may see, sometimes we want to tick size to be as small as possible, some other times we want the tick size to be larger than our transactional cost.

Some may have spotted the problematic argument above that if tick size is bigger than transactional cost, no doubt one can 'earn' when the tick goes up, but he will lose 'MORE' when the tick goes down. Hence he is taking a big risk to expect a small reward. Although that is true, but in order to earn money the 'fastest' way, you will need this big tick size. In other words, its a risk you will have to take if you want fast profit.

Therefore, people who want bigger tick size are usually speculators. Their aims are to earn money quick. Even in a falling market, it is still possible for speculator to earn from small up trend at a particular time.

On the other hand, people who want smaller tick size are usually longer term investor. They usually have a target price and such a target is usually quite many ticks away. Hence, the size of ONE tick doest NOT bother them that much. Except that if the tick size is small, they can earn more in long run by paying lower cost.

So Long Term Investors

wants smaller tick size

while

Speculators wants bigger tick size

Do you like smaller or bigger tick size ?

KLSE New Tick Size Impact

this is a follow up post ...

This is the current tick size in KLSE. It means if you buy a stock at RM 0.900 the next up price is 0.905 and the next down price is 0.895. Like wise, if you buy a stock at RM 1.01, the next prices are RM 1.00 and RM 1.02

If we plot a graph across a range of prices, we can observe that the tick size may imply a different percentage to each price, also known as having different weightage.

For example, if we buy at RM 1.00, the tick size is RM 0.01, so the weightage is 1%. If we buy at RM 2.00, the tick size is the same but the weightage is 0.5% <== ( 0.01 / 2 * 100 )

Y axis : tick size weightage

X asix : stock price

From above chart, we can see that the tick size effect is broadly cap at 1% except when the prices are lower than RM 0.50. So buying stocks at RM1, RM5, RM10 and RM 25 have similar effect, percentage wise.

Below is the latest tick size starting from 3 Aug 2009.

And this is the associated graph.

When you put both graph together, the current / old tick size vs the future / new ones, you get below graphs ...

There are no changes for stock prices below RM 3.00

However, all stock prices at and above RM 3.00 have significantly changes ! In short, starting on RM 3 onward, the tick size weightage is moving toward Zero as the stock price increases. With an exception at RM10+.

This brings to 2 recommendations when the new tick size is implemented;

1. Long term investors can now accumulate expensive stocks with much cheaper cost, especially those between RM 3 and RM 10.

2. The only speculatable ground is now reduced to below RM 0.50 arena only.

In short, this is great for both long term investors and speculators. Generally more expensive stocks ( above RM 3 ) are running business at larger scale. Reducing speculation on these businesses and attracting more long term investors generally allow them to grow steadily and improve health on the play ground.

However Malaysia shares buyers don't really know much about Minimum Optimized Trading Size and Tick Size Weightage anyway. Most do NOT trade strategically. Hence we will most probably NOT see any BIG change in trading habits especially for retail investors.

On the other hands, fund managers are not that ignorant on this aspect. If the mutual fund you are holding also invest mostly into RM3 to RM10 stocks, like those capital growth fund. The average fund's transactional cost could save as much as 75% simply by doing nothing after 3 Aug.

Take RM10 stock for example, one tick size changes from RM0.10 to RM 0.02, that is a 80% discount!

Although this saving is actually a strategical cost saving, not a real and direct cost saving. But nevertheless this will still leave a positive impact on a fund's portfolio. So theoritically, your mutual fund should start giving you better return after 3 Aug. Fund managers who choose not to report about this cost saving in their next annual report, are fund managers you should consider challenging on their transparency, honesty and their true interest with your money.

I can finally buy more BAT ... :)

update EPF nominees when any one of them dies

I haven't confirmed this with EPF yet but drom my past 15 years of experience dealing with them, I am not surprise if this is true. Please exercise caution with this info and take good care of your EPF savings.

Info Sharing.

If ONE (1) of our Nominee in the EPF Nominees list deceased, automatically the whole arrangement (EPF Nominees list) is VOID. Meaning if, you only put in One (1) name & unfortunately he/she dies before you – automatically EPF will channel your EPF money to trustee of AMANAH RAYA upon your death. Thou if, you DO have few names in the EPF Nominees list still - the whole arrangement is VOID & none of the individual balance name in the EPF Nominees list will get their potion & automatically EPF will channel your EPF money to trustee of AMANAH RAYA upon your death. Piece of advice - if any of the your Nominee in the EPF Nominees list decease, please do immediately approach the nearest EPF counter & present the Death Certificate of the individual & re-instate you NEW / LATEST Nominee in the EPF Nominees list + NEW / LATEST percentage. If, you & the other party (maybe spouse) involved in the same misfortune (accident / illness) that caused death to both yourself / spouse please, please, please alert your siblings / relatives / parents to immediately approach the nearest EPF counter & share the information within 3 days to AVOID all EPF money to be surrender to trustee of AMANAH RAYA. Upon surrender to trustee of AMANAH RAYA, your children will have to battle the money thru 3 channels; Majlis Agama Pejabat Tanah Mahkamah The normal period via above 3 channels usually takes 2-3 years (except if you have inside/tip top connection) at Amanah Raya.

Week-end round up...

A Tale of Two Markets..

I think we have a tale of two markets. The first is the Fraser Valley and outskirts of Vancouver. While they bounced back from the near catastrophe of last fall, it was a fairly modest rebound.

On the other hand we have had a much more robust rebound in Vancouver proper, especially the previously red hot areas, which are now glowing again.

The question is whether the weakness from the outside will work it's way in or the heat expand out.

Regular readers may remember us charting the progression of the first major drop..it started with rising inventory in Surrey and Langley and surrounding areas, then MOI started rising and finally prices fell. In due course this spread to Vancouver itself.

We will keep our beady eyes out to see which way it goes. Inventory has started to inch up a tiny bit. However it is still too soon to call it a trend.

It's All About the Economy Stupid

Mark Carney has called the end of the recession. Well he actually said it would probably end in a few months. The stock-market obviously agrees since world indices are about 40-50% higher than their Armageddon lows of March 09. I am not so sure.

Lets crunch the numbers. We were literally in free-fall late 2008 and early 2009. The GDP in Canada was dropping at an annual rate of 3.7 in the last quarter of 2008 and 5.4% in the first quarter of 2009, and will probably be down 3.4% in the second quarter. These are Major Depression numbers.

So I for one am glad that they pulled everything they had out of the bag and dropped rates down to almost zero to prevent food riots and mass unemployment (yes it was possible).

However I do not have ANY confidence in the predictive abilities of the BOC..Fed..etc. We in the blogosphere have been saying for years that the mountain of debt built on bubbling assets was a recipe for disaster. Furthermore deregulation eg the crazy trading of US brokers and insurance companies or the sale of garbage-backed paper to Canadian investors was unsustainable.

Our regulators and policy makers, who mostly come from the investment industry, assured us that all was well.

"We are insiders, trust us, we know how it works."

Late 2008 they all looked like deer-in-headlights and ripped the cover off the tax-payers' cheque-book and threw as much money as they could at the collapsing assets to put a cushion underneath them.

If they were so bad at predicting the arrival of the biggest financial cataclysm of the last 70 years, should we trust them now?

I expect rather tepid growth for some time. Even though we have are no longer in imminent collapse, we still have de-leveraging and over-capacity to deal with. We also have a lack of any drivers taht I can see for a new leg-up.

Commercial RE

Last week-end I drove around Vancouver and saw lots of commercial real estate in trouble. Shops and offices down-town vacant and strip malls with empty stores. The situation is the same in many industrial parks where businesses are leaving or down-sizing.

Metro Vancouver's office vacancy is up from 5.7% late 2008 to 7.4% mid-2009. Which businesses suddenly start soaking up this excess? I would guess that we will be up HIGHER by the end of the year lease renewals will be at lower rates.

My proof - I rent my business space and my home - and for the first time - neither increased their rents but were just happy to have me stay.

So I think we have a modest rebound, and then folks realise that the recovery is going to be slow and job-less and that in the meantime, governments are going to have to provide for more people with less revenue. I suspect that will come in the next few months and will be looking to the stock-market and bonds for clues that the investment community is moving from the euphoria of non-collapse to a realization that this is no ordinary recession. BTW if Mark Carney is right that would make it a very short recession of about a year or so.

From 'end-of-the-world' to short recession - I don't buy it.

Low rates and oil and cheaper stuff

We have had a huge fiscal stimulus. Interest rates are lower, oil is less than half what it was a year ago, and many things like cars and furniture are being sold with 0% interest rates.

So those with secure jobs have been using their newly acquired disposable income to buy a house or move up.

I would have thought the effect of this huge boost would have ended by now, and the reality of a fragile job market and on-going recession would have pulled the carpet from under the rebound in housing. However I underestimated the effect. It went on longer and stronger than I thought. It happened across the country, with some cities reaching new price highs.

Thankfully that hasn't happened in Vancouver (yet!) and frankly speaking I doubt it will, but will be watching the numbers heading into fall very carefully.

Malaysia KLSE Bursa REDUCE TICK SIZE

Tick size is the smallest movement allowed of a stock price in a share market. By having smaller tick size, the cost of trading reduced. It was hinted before Tick Size is the most critical information and yet many stock investors ignored it. It is especially important for speculators, which most investors are today.

It was mentioned before, the cost of buying stocks in Malaysia can actually be as high as 2.31% as opposed to what most thought off as less than 1%

One article which never got published due to lack of participation actually said that RM 3 stocks are the worst stocks to speculate in and sub Rinngit stocks are the best choices, investment strategy wise. But there are really not many good choices in sub Ringgit arena.

I haven't run my numbers on this yet but intuitively I think ...

With this tick size reduction, the cost of trading becomes lower, bigger companies become more tradable and fund managers should get immediate HUGE savings so investors should expect higher return even if they don't invest in stocks directly.

This is one of the BEST announcements I have ever witness from our beloved Malaysia ...

I will run some numbers to quantify this change and come back here to share exactly how much will change and what we can do about it. Both for stock investors and mutual fund buyers.

Table 1: Current and New Tick Sizes on Bursa Malaysia

Securities Price	Current Tick Size	New Tick Size
Below RM1.00	0.5 sen(1/2 sen)	0.5 sen (1/2 sen)
RM1.00 to RM2.99	1 sen	1 sen
RM3.00 to RM4.99	2 sen
RM5.00 to RM9.99	5 sen
RM10.00 to RM24.99	10 sen	2 sen
RM25.00 to RM99.98	25 sen
RM100.00 and above	50 sen	10 sen

full info

RM92 S Dali's talk on Career in Financial Markets

Dali is one of the few bloggers who talks deep in finance market, mainly on stock investment topics. His blog is branded as always have a beautiful girl at the very front, hence some haters called him "ham sap lou". I was once very tempted to follow his path but soon realize his methods are not really a repeatable success but merely good opionions.

I don't know him personally other than just his blog reader. My varies attempt to get in touch only ends with despairation. I guess I am indeed a much "lower level" person that he doesn't want to waste his time on.

Finance is a big complicated topic, Personal Finance on the other hand is really simple where the dumpest guy on the world can easily get 'everything' he wants. The 2 topics are hugely different.

Anyway, the reason I blog about Dali now is that he is organizing a talk. Suposingly an interesting one. He has many followers and fans including international fund managers. I personally pay close attention to all the stocks he has his eyes on. Although almost everytime my analysis diagree with his choices but it just mean that his choices are not suitable for passive stock investors. But then again, active investors who take more risk can earn so much more especially when done right, ie. like his followers ?

Anyway, to sum all up. I still think it is a good thing he is sharing his thoughts in public speaking. I am sure a lot of people already know this event. But just in case you don't know Dali yet, here is a chance. Especially if you are interested to invest in stocks more than just Personal Finance, ie. to make it an Active Income or a lot of incomes. I think this talk may be good for you.

I was planning to go but the RM92 put me off. My feeling is that he has planned this talk for the students. Looking through his topics, there is only one that I am interested in "things not taught in bussiness classes". All others may just end with a neither nor conclusion.

If you are going, please help me ask this question,

"The fact that you quit as a fund manager,

does that mean you couldn't cope with the work

or is the environment limiting you from exercising your investment strategies?"

If any of you did go, please do comment here.

Date: 22nd August 2009, Saturday
Time: 10am-1pm
Venue: Sime Darby Convention Center, Bukit Kiara, Sri Hartamas
Price: RM 92 pp
RM 80 pp when purchasing 4 or more tickets

Tickets sold by Ticketcharge: 03-2241-9999

http://www.ticketcharge.com.my/index.htm

Enquiry: 012-3239192


(click on image to enlarge)





Do you aim to be:
- a Fund Manager
- an Equity Analyst
- a Forex Trader
- a Private Equity player
- an Investment Banker
- a Corporate Finance executive
- an equity Dealer
- a Bond Trader
- a Hedge Fund analyst

The talk is by S Dali of Investing Scents weekly business column in The Star. He is an ex fund manager and head of research, for local and foreign investment houses, having worked in Sydney, HK, Tokyo, Singapore and KL.

Topics covered:
- the right degrees for the right careers
- ranked universities vs local universities vs second tier foreign universities
- specific subjects and majors
- is CFA the passport to success
- are you suited for the financial markets or do you just want to get rich quick
- getting through the front door, reworking your resume
- indirect passages to sound financial markets' careers
- what if your degree consisted of poor grades
- critical success factors to have for viable financial markets career
- remuneration scale for financial markets
- command of English, essential or unnecessary
- things financial markets employers look for
- is financial markets for you
- things they don't teach at business classes

Why does a Perfect Trading turn South ?

I was truly inspired by an article posted by Champdog that explain how trading can create values ie. 1 + 1 >= 3. The story goes like this;

At first the Farmer can make 4 meats in 4 hours and 16 potatoes in another 4 hours. The Rancher can make 24 meats and 48 potatoes like wise.

Then when they started trading, Farmer concentrates on making 32 potatoes in 8 hours while Rancher makes 18 meats in 6 hours and 12 potatoes in the rest of 2 hours. Farmer gives Rancher 15 potatoes, Rancher give Farmer 5 meats.

After trading, Farmer has 5 meats and 17 potatoes vs previously 4 and 16. Now Farmer has more ! Rancher has 13 meats and 27 potatoes, Rancher has even more than Farmer's more!

If this is confusing, please read the full article here.

Well, indeed it was how trading world could have started. It is indeed perfect for both parties as well. Then why do we have so much problem today ? What has happened since then ? Let's continue the story ...

Farmer uses 4 hours to make 4 meats, so Farmer is making 1 meat per hour. Like wise, Farmer's proficiency on making 1 potatoe is 1/4 hour

Rancher on the other hand use 1/3 hour to make 1 meat and 1/6 hour to make 1 potato.

So when Farmer gives 15 potatoes to the Rancher, the Farmer is giving away 4 1/4 ... 3 3/4 hours of his work away. Rancher on the other hand is exchanging it with 1 2/3 hours = 5 meats.

Things are still ok up to this point. Rancher out performs Farmer in all angles, Rancher makes more items relatively and due to his talent, he can use less time to make more things. Farmer gets more anyway during the trade, Farmer shouldn't complain neither. As long as they are mutually respective, this is still an honor deal.

Now, what happen when we assign value into effort ? As in salary paying as per hours worked, as per over time payment etc. Lets say 1 hour is equivalent to $1. And to be fair, both of Farmer and the Rancher are valued the same.

During the exchange, Farmer is giving away $4.25 ... $3.75 of his potatoes while Rancher is giving away $1.33 of meats. Rancher is buying $4.25 ... $3.75 with $1.33

Remember Farmer takes 1 hour to make 1 meat ? So Farmer's meat is $1. Rancher's meat is $0.33. Since both of them are working together, they will determine the market price of meat should be the average between the 2 ie. (1 + 0.33) / 2 = $0.665 = meat's market price.

Like wise potatoe's average market price is $0.21

What does the Farmer have after the trades ? 5 meats and 17 potatoes, equivalent to $6.87

Rancher has 13 meats and 27 potatoes or a market value of $14.315

Farmer started with $8 and ends with a market value less than $8.

Rancher also started with $8 but ends with a market value more than $8.

This Capitalism. This is why the Rich gets Richer and the Poor gest Poorer.

Remember what the Rancher said? "Its Magic!" ( in the original post )

Topics review 2009 July

There has been a mutual fund series going on recently, a lot of new readers start to have the miss conception that this is a mutual fund blog. So lets just do a quick snapshot of some other topics in here ...

The whole Personal Finance concept is this

Finance Planning is NOT all about Money

The REAL finance freedom is NOT to have any Money ?

Passive Income is when you get 100x return from your effort

Do you listen to the Poor or the Rich ? The Thief or the Priest ?

The mother of Technical Analysis is Gambling

Pay your Investment Link policy monthly, not yearly

Use fundamental to pick what to invest, Technical Analysis to find the timing

Buying Car is One of the WORST thing you do to your personal finance

Car Loan Rate is 1.9x House Loan rate

Normal Average guy CAN retire early with FREEDOM

What Goverment promotes may NOT be whats good for you

Location, Location, Location on estate investment is one of the BIGGEST lies

Get Out Of Debt - with a positive ending

Get a Car for FREE

a longer insurance series may follow soon after this mutual fund series ending in a few more articles.

How to passively choose a mutual fund

Soon after this site claims that mutual fund is one of the PASSIVE personal finance tools, it turns around and shows a past performance analysis where some of the best performed funds are choosen base on their prvious good returns. Looking at those numbers and charts, it doesn't seem PASSIVE at all !

What is going on ? What is the Right way to decide which fund to buy the passive way ?

The FIRST mutual fund article on this site had already mentioned the answer actually,

Choose Fund Manager,

Not the Fund !

Despite many justification of the high fee on mutual fund (general, vs stock fee), one must admit that Its FREE to save money in Fix Deposit and buying shares in stock market is cheaper. Mutual fund could be the MOST expensive personal finance vehicle.

So what are you paying for ? Why do you want to pay 5-6% UP FRONT in order to earn more money ?

Are you sure you want to pay the extra fee just because they did good in the past ?

Do you pay more just because you agree with the investment objective of the fund ?

How about just because a certain fund has some of the stocks you want to buy anyway ?

The agent is your friend, she did a great sale talk ?

Lets see what happen when you pay extra in other scenarios;

Sometimes I like to shop in a particular grocery store more than another even if some items are slightly more expensive. That is because the store owner is really friendly and knowledgable. He can answer most of my questions and I really don't mind letting him earn the extra cents.

If your ultimate goal in mutual fund is to earn more money passively without understanding the whole mechanism, then what you are really buying is your belief that the fund manager can do well with your money.

Choose Fund Manager,

Not the Fund !

The fund itself is pretty much a fix element, the objective is hard cast on stone. Past performance tells a lot but is really irrelevant to the future but future income is what you really care about. The environment could repeat itself or it may change. Either way, there is only one element that we can hope for to address all future unknown issues - the Fund Manager.

If the objective of a fund is met, its because the Fund Manager did a good job. If the good past performance continue, its because the fund manager is keeping it. If the bad past performance turns good in future, it is because the fund manager improves.

Without the trust on the Fund Manager, all other aspects carry less or almost no weight at all.

So that is it! Find out who the Fund Manager is, ask for a lunch date or read their reports to determine if this is the type of guys or companies you would trust your money with.

After you have found a fund manager you can rely on, just look through all the fund objectives and pick one that you understand most or have the highest hope for.

Watch this...

Brian Ripley in particular is worth watching, since he talks about the Vancouver market. "The banks have started pricing in the risk that the Government doesn't want to."


http://watch.bnn.ca/headline/july-2009/headline-july-20-2009/#clip195520

Into hibernation we go...

OK bears, I think we need to go into hibernation for a while. Nothing I see in the numbers is bearish so far, so there is no point dissecting every little twist and turn in the market.

When the market turns down again, it will be obvious. Now is not that time.

The market needs a jolt to send it back down, like it had from the events of last fall.

What will that event be?

1) Rising interest rates. Possible, but I would be surprised if we go much higher. Inflation is fairly tame at the present. In fact we just had negative yoy rates, down 0.3% from last June. The drop was caused by gas prices dropping. Without the gas price drop we would be up over 2%. I don't think the economy can withstand higher rates.

2) The Provincial Government slipping further into deficit and having to slash spending, just as the big projects..bridges, Olympics-related, Canada line come to an end.

3) The World economy having escaped financial Armageddon, just sinks into a very severe recession, hitting commodities and bringing fear back into the minds of asset buyers.

I think 2) and 3) are more likely. Despite the fact that we have unprecedented rate cutting and stimulus packages around the world, we are sinking deeper into recession daily with rising unemployment and lower government tax receipts. The governments which were blowing the horn of stimulus, will soon be panicking about the burgeoning deficits, and will be looking to make cuts.

So I don't think we need to look at every statistic hoping for signs of a change. When it comes, it will be unmistakable. Until then I am going to enjoy the summer, and wait for the jolt.

Why so many hates & loves with mutual fund ?

When the series of mutual fund articles were initiated, a lot of contradictions are raised. Some are intended and some are not. Here are a list of them in respond to Mutual Fund is the Highest return Passive finance tool, Don't Buy Low Sell High in mutual fund ?

1. Fund managers are incompetent
2. The only people who gest Rich are those agents, not the investors!
3. mutual fund fee 5-6% are terribly HIGH!
4. mutual fund returns are LOW!
5. mutual fund is NOT a PASSIVE investment, you may as well buy stocks!
6. Buy Low Sell High is applicable in mutual fund, why should I keep the fund knowing the price will drop?
7. Mutual fund cannot be compared with FD, their risks are different!

It is no surprise why many will hate mutual fund as well as some loving it. Lets revise the wealth pyramid again.

Fix Deposit / Bond are generally acceptable as a worry free saving while stock investment is generally understood as risk is involved. Guess what, Mutual Fund sits in between them and actually is the only personal finance vehicle that transition from one to another. So by its nature, there will always be some confusion and conflicts in mutual fund. What FD people likes about mutual fund is usually what derivative investor hates about, what a stock investor likes about mutual fund is usually something a FD guy would not agree.

At one end, mutual fund is like a FD, on another end its like a stock investment but actually it is Neither of them. So you cann't compare mutual fund with FD and yet you could, like wise with stock investment.

There will be some articles addressing some of the concerns raised above, but below are the short answers.

1. If you look at the world's best investors of all time, in average they out perform the market by 6.46%. This includes Warren Buffet, Benjamin etc. Most of the fund managers may not be as good as the Gurus, but their past historical performance is not that far apart.
   
   Most people who curse at fund manager's competency are due to their unrealistic expectation. Some ofcourse is due to their own unhappy experience. Either ways, generally fund managers' performance is at par but definitely has room to improve.
   
   
2. Let's face some factual figures. The most a mutual fund business can squeeze out of the investors are the 5-6% no matter how they distribute among their agency force. Insurance can be up to 40% while MLM structure usually allocate more than 55% in similar distribution.
   
   So if one is worry his agent gets richer just because he invest, mutual fund is probably NOT the first and major concern relatively.
   
   
3. The 5-6% High Fee is VALID but may not be as bad as it was described. For example, a comparable stock investment with 0.7% fee could have an effective rate of 2.31% vs the mutual fund's 5.5%. So buying one mutual fund is as if buying 2 stock counters.
   
   
4. See 1). Get the expectation right. No one becomes rich because they buy mutual fund. But when done right, many retire wealtheir than they initially thought of.
   
   
5. Yes, mutual fund CAN BE an active invesment like in 6). But MalPF preaches not to use it that way, one should use mutual fund the PASSIVE ways.
   
   
6. If you know the timing of a market trend, mutual fund and dollar cost averaging concepts is NOT something for you. Buying a stock can give you exercise your timing concept with lower fee. This is an example of how to.
   
   Are you sure you are not an agent earning commission when you encourage people to speculate using mutual fund ? Are you sure there is no conflict of interest with your clients portfolio ?
   
   
7. As mentioned above, the top part of mutual fund ie. equity fund cannot be compared with FD but the lower part of mutual fund ie. capital guarantee fund, money market fund etc. CAN.

Do you hate or do you love mutual fund ?

OCBC uses Mortgage Lending Rate instead of BLR

Its not new actually, CIMB has been using Base Finance Rate instead of Base Lending Rate (BLR) as well. OCBC starts to use MLR as in Mortgage Lending Rate (MLR) instead of BLR.

The concepts put forward is really interesting. BLR consists of cost consideration of the whole banking industry and operations. While MLR is calculated for mortgage related costs only. Hence MLR is usually lower than BLR.

But if you really put the numbers together, you may realize its just another looks-good but pratically almost everything stays the same. For example, the typical BLR in the market now is 5.5% and the common offer is BLR - 2.2% so

BLR 5.5% - 2.2% = 3.3%

While MLR is lower at 4.7%, their offer is MLR - 1.3%

MLR 4.7% - 1.3% = 3.4%

Doesn't look like there is a whole lot of difference isn't it ? Not to mention the lowest BLR at 5.25% and the best offer of BLR - 2.3%

OCBC folks or anyone more well verse in housing loans please do leave comment if this is not entirely true.

How Malaysian would die ?

Out of the 24 million people in Malaysia, this is the list of how we would most probably be dying ...

#1 30% chance you would die of Cardiovascular diseases ie. Heart problems. or 35,700 people

#2 16.7% you may die of cancer Malignant neoplasms ( 19,900 people )

#3 11.7% Infectious and parasitic diseases ( including Tuberculosis (lung?) 2.85% and AIDS 1.8% )

#4 6% Respiratory infections, mostly lower infections rather than upper

#5 5.5% Accidents

In short, either your Heart or Lung will fail you. Then may be your cell will mutate and lastly if you have Health on your side, then you may be crashed on a road accident.

Full data below, data dated 2002, report 2004

Travelling : 2nd biggest personal finance killer ?

Its undoubtly that Buying Car is the Biggest Personal Finance killer in Malaysia, there is even a rule of thumb to help all to realize that car loan rate is 1.9X higher than house loan rate. So when you get a car loan at 3.X%, you are actually paying an equivalent of 6.X% of house loan.

The 2nd personal finance killer, however, is NOT as hard cast in stone as the 1st. Travelling basically involves paying a sum of money before and during the trip. Then it usually ends with no financial return and a tired body.

The biggest return of Travelling is qualitative like gaining experience, widen the horizon, refresh the mind etc. None is easily quantifiable into financial return. So valuing a trip is slightly different than just analysing numbers.

If you have something in mind BEFORE travelling and FOCUS on what you REALLY need during the trip, then it should be relatively safe to say you have GAINed what you pay for. Such a travelling desires are usually very personal. For example, "I want to rest", "get out of current environment", "see Dubai with my own eyes", "take some pictures", "see someone", "look for something" etc.

If you have such clear consense, then you should focus on that during the trip. For example, if all you want is to get away. Then all the hinderance of flight delay, annoying tour guide shouldn't matter. On the other hand, if your purpose is to see something, then you may want to study a bit more on the weather, culture, latest political situation or any other factors that can increase the chances of you seeing what you want to see.

Unfortunately, quite a lot of people travel for the sake of travelling. The number 1 thing that comes to their minds when planning a trip is 3 days 2 nights or 4 days 3 nights etc. Without even considering if those travel time would allow them to enjoy the way they expected.

Some others may carry unrealistic expectation, want to be treated like a King, want to do 'Everything', want to know ALL about a place during a trip etc. In some cases, watching Discovery and National Geography channels are much better suited instead of travelling in person.

On another angle, if you know what you want in a trip and you planned ahead including saving for it. Then its a worth while travel. On the other hand, if the trip is un-organized and ad-hoc, you would most probably ends with a bad investment, both financially and your time.

Travelling is an expense that is paid once and usually quite a sum; And you will NOT get anything back in return (financially and meterial wise). If you still don't handle your own expectation or any qualitative return in values ... basically you are just wasting all your hard earn money.

Getting Rich is NOT part of Personal Finance

One of the hottest topics in personal finance is to get rich, and usually to get rich fast! Its human nature that we pay attention to what other pay attention to. Some love to follow blindly on get rich fast scheme, some make big money out of it and some others hate it. Either ways, get rich fast scheme is part of our lives now.

The only thing MalPF asked everyone to do is to setup an automated saving system. On the other hand a hot sexy attractive person asked you to follow the 'method' and you shall be RICH. There is no doubt which choice is more appealing to make; a dull saving idea vs an exciting venture.

The fact is that no matter how rich you become, it has NOTHING to do with your personal finance. Getting Rich is to increase Income substancially. And Income is a Pre-requisite of Personal Finance but NOT a part in it. This understanding may not bring much difference to most but for some who spend their whole life pursuing richness, it may just be a live and dead switch; As showcase in Why the Rich suicide.

There is nothing wrong with wanting to get rich. It is even OK to get rich FAST! After all, in income generation, the key factors are creativity and innovations, where no rules apply except your own. But if you think getting rich will solve all the other problems, then the problem starts to root in you. All effort put into getting rich is ONLY to increase income. Without a system on how to use it and retain it at a personal level, you haven't achieve your optimum yet.

Getting Rich itself may carry this deadly inherited problem, however Getting Rich has a superb by product - Positive Attitude and Self Confidence. Even after a long haul journey and ended with no success, people who focus on these by products rather than the money itself, will always stay happy and content. Which eventually give them energy to do the whole cycle again. Until they get what they want. These by products, however, do not exsit in get rich FAST.

It is BEST if a person has a solid personal finance while she is pursuing the Rich. Each of the success and failure add values to her personal finance. The journey to become Rich and stay Rich is usually the most steady for this kind of people.

However, the good thing is, you don't have to have personal finance before acquiring your Richness. You just need it right before you lose your Richness. Acquiring personal finance while you are Rich is, honestly, faster and easier. The only contradiction is if you have acquired rich without personal finance in mind, it is most likely you wouldn't emphasize on it while you are enjoying your rich.

Bears anxious, bulls victorious and a poll

Poll first. I am trying to work out how many readers I have. Google analytics may double count some folks who use different computers to access the site, therefore please take a millisecond to click ONCE on the poll to the right.

Now to the bubble graph I posted the graph a week or so ago:

http://fishyre.blogspot.com/2009/07/bubble-graphs.html

In the post I said that most bubbles follow this pattern though there are of course variations in shape and duration as the authorities try their best to keep the bubble inflated, having completely ignored it while it was being pumped up (and even taking credit for it).

I did mention that the bubble doesn't have to resolve this way but could plateau or run up again. In fact I have to admit that I do not recall any bubbles that have NOT burst in this manner. From railroads at the turn of the 20th century to the stock-market bubbles, gold, oil...every crazy run-up seems to follow this path.

For it not to follow this graph would suggest:

1) We are not in a bubble but are just moving up to fair market value

2) We still have more inflation to go in the bubble.

Clearly Vancouver RE was way underpricing on an international basis about 15 years ago. As we have moved up the ranks of the most expensive cities the same cannot be said now.

Could the bubble have further to go? Possibly. As I mentioned in one of my comments the dramatic drop in interest rates came as a result of the catastrophe that was unfolding in the US, and before the full effects were felt here. We therefore had the bounce in RE all across the country. However the effects are now being felt here with rising unemployment and bankruptcies.

If we do not get a bounce in the worldwide economy soon, we will feel it full brunt.

Our governments have already fired their bullets of low rates, increased spending and tax cuts. We have nothing left to throw at the fire.

Policy makers around the world, are doing what they have done best for years, try and prevent the cleansing action of a recession - which BTW punishes speculation and over-capacity- and by doing so have built up the mother-of-all-purges.

So I would not bank on the bull resuming, but of course I cannot completely rule it out.

In fact if you look at the graph, the time of maximum anxiety for bears is during the peaks of the bubble. Like Spring 2008 when bears where getting completely despondent, watching a US RE market melting down and ours hitting new highs.

There was a brief sense of relief and vindication from Summer 2008 to Winter 2009 and now the anxiety is back up to fever pitch as prices have stabilised and moved up. That is to be expected. This graph could chart human emotions, as much as the price of an asset.

Most bubbles end with a quick drop, a bounce and then a long drawn out downward path. We will know if that is our fate in a few months.

Good Housing Report - and it's from a bank!

The Royal Bank's Robert Hogue has put out a good report on Housing in Canada.

Most of it we have been saying on the blogs.

1) Sales and prices are up since March due to the unprecedented drop in interest rates improving affordability.
2) The best of the rates are probably behind us.
3) So from now the state of the economy and incomes will be the drivers.

BC specific: after the sharpest drops since 1991, it has rebounded and he sees a floor under prices from lower construction and listings.

The RBC affordability measure dropped for Vancouver dropped from a staggering 80-90% of household income to own a SFH to 70% or so. Still remarkably high. He notes the rebound DESPITE a soft economy and surging unemployment.

Here is the whole report : http://www.rbc.com/economics/market/pdf/house.pdf
............................................................................

I agree with most of it. The drop in interest rates has had an incredible affect on affordability. It was like a price drop of 20-30% -except not quite. The asset you are buying is still over-priced even if the carrying costs are lower. Would you buy a car for 20% more than it is worth, just because the financing costs were low?

Nevertheless it has led to a major bounce. Now what? Well as he says now we have to wait and see what happens to the economy. The floor he mentions can easily be broken if the economy starts to wilt.

In fact I would say that after the Olympics, if the world economy does not rebound quickly, the price of housing will be the least of our worries as our unemployment continues to surge, and we have to deal with the Olympic cost over-runs and resultant cuts in spending.

I don't see any driver for improving the employment situation anytime soon and am concerned about another surge post Olympics.

Hat tip to Larry Yatter for posting the report.

Finding Best Rates FD, BLR, House and Car Loan etc

Have you noticed there is a little orange box to the top right corner of this site ?

It shows some of the best rates available in Malaysia including highest Fix Deposit, lowest Base Lending Rate, good offers on house and car loans etc.

However, it is usually updated only twice a month. So if you are hoping to get the latest info real time or you just don't want to rely on this site or the widget, you probably want to search for the info yourself. Here is how ...

Go to malpf.com, on the top middle part of the page, next to the Search button, there is a little "c" ...

Click on that will bring you to BankInfo web site, from there you can compare all kinds of rates in Malaysia. Below is a How To Video.

NextView seminar that may have 70% matches to MalPF ?

NextView has been quite aggresive conducting seminars and trainings. The reason they can attract my attention out of thousands other promotional materials is that NextView's flyer usually catch on some of the key points. The last I talked about them is when they said, "How to Pick the Right Value Stock" with a follow up post on "Why Experts are ALWAYS wrong!"

There are a lot of things on the flyer but below is what caught my attention:

First it implies there are 2 steps of analysis, primary and secondary.

The Primary analysis includes Drawing Lines, Japanese Candlesticks, Some signals are more reliable than others (they will show you 2 most reliable ones, they said), concepts on real time charts ie. x-axis or duration/time is important etc. ...

Then only followed by second stage where Technical Indicators are used including Moving Average and MACD.

This is actually Not that significant unless you also agree with most of what MalPF has been preaching. This FREE seminar seems like having 70% matches with MalPF's teaching on technical analysis topics. So it is my impression that the speakers may be trying to share what goes behind Technical Analysis and how to make them useful. Not like others which are just asking you to follow them.

Seeing that it MAY bring values in some of your investment journey, I thought I would just share it out here. Its one of those events that I wouldn't mind to go.

The seminar is on this Saturday 11 July 9am-4:30pm in Menara Hap Seng, Kuala Lumpur which I will not be able to make it. So if any of you did attend and do not mind spending some time to share your experience, do submit your write up here, that way, others can find out more about this NextView if they have just pull yet another marketing tricks or have some meats afterall.

Bear in mind this is a FREE seminar, so naturally do expect tons of marketing talks. As long as there are some real juices in this preview, then it should be considered as PASS. We cann't expect EVERY and ALL things from a one day FREE seminar, can we ?

detail of the seminar here

Bubble Graphs

If you follow most bubbles you will see a graph that is similar to this one.

If course every bubble is different and the desperate measures to reinflate the bubble once it starts to deflate means that the shape and duration get distorted.

The Nasdaq graph from 1996 to 2004 follows this graph almost perfectly. You could put the two on top of each other and each blip and spike will be on both.

US real estate also followed this pattern.

Of course not ALL bubbles follow the graph, some will have prolonged plateaus, others will just collapse suddenly. However this pattern repeats itself sufficiently frequently to suggest it is a good proxy for human mass psychology.

In any case, I post this to show that we could very well be right where we should be. We had the first sudden drop, are in the midst (or near the end) of the rebound up...perhaps to be followed by the big drop.

Ironically we are so easy to predict that we have the exact emotions on the graph. Bulls are now jubilant and bears dejected, both are becoming convinced that we are heading for the highs again.

If we DO reach the highs again, then this graph is not valid and we are developing a different pattern. Let us see what happens over the next few months.

Technical Analysis is Rubbish !?

When Technical Analysis first get popular, people would make comments like "Fundamentals are Rubbish". Tons of seminars and training sessions were conducted. 30% of the students haven't even used a computer before, another 50% have NEVER trade in stock market.

Its been a while now, a small group of active traders start to make comments like Technical Analysis is Rubbish now. Usually the smarter traders may find out sooner reality is not exactly as taught in course. However, their smartness stops when they continue to fuss without finding ways to overcome TA, recycle and make use of the 'rubbish'.

Some of the comments also proves how ignorant we still are with regard to Technical Analysis, perhaps also explain why some fail to apply correctly to earn profit.

"If it works here, it should work there too."

"It should work in all conditions or NOT at all!"

Well, that is because most of us HAVE NOT truly understand the topic yet. Here is some reviews ...

First of all, Technial Analysis or short as TA, is a way trying to make senses out of some numbers without the help of any other qualitative information. The most primitif origin of TA is actually gambling. Or TA is basically the science of gambling.

As in any and all forms of gambling, the game is all about finding a win-lost ratio higher than 50%. Through out human history until now, there is no such thing as proven formula where the win ratio is more than 50%. At least not consistently for a period of time. This shouldn't be too hard to comprehend as ALL gamblings are created by man. Man made games like this to earn money as a business, if any game's win ratio is more than 50%, it is NOT a business that will earn.

Different TA techniques have different strength and reliability. It has to do with how the technique comes into existence at the first place. The originator may be expert on some specific topics, made some assumptions and therefore the technique they come up with may or may not apply to a particular specific market condition. Here are some of the reliable patterns used in candle sticks.

TA has parameters. By using different parameters, different signals will come out. At one instance, it may ask you to buy, on another it may give you a sell signal. Not only the parameters, even simple changes on the X-axis which usually show the duration information, may give opposite signals too. As described in this example

Lets look at 3 examples, Moving Average, MACD and Stochastic.

If you already know how to analyse trends without any tools by connecting the low and high points of a price chart, you are basically making the assumption that the price should come back up from the low points and the price may goes down after reaching the high points. This is called psychological barriers. Moving Average is exactly the same thing but it is drawing the trend systematically without any opinion. It does, however, has ONE parameter called period. Shorter period means higher sensitivity.

Because it is a psychological barrier, it works better when more people are using it. If you are the ONLY ONE using Moving Average then you are forming your own psychological barrier and that may not have much effect to the price movement. On the other hand, if most of the people share the same 'barriers' then chances are they may buy and sell at the same time, causing an effect on the price movement.

A good example is Moving Average 200 days. Almost the whole world is using it to determine if the start/end of bull/bear run has happened, as if it is a definition. This also explains the up swing since May.

The other 2 indicators are meant to track the big guys' movement. MACD signals when the big guys are slowly moving in or out of the market. Stochastic signals when there is an oversell or overbuy condition, ie. when the big guys start selling and causing others to sell too.

A whole book can be written on each indicator. But the key message here is, what do you do when you see such a signal ? Do you just buy and sell as the signal tells you to ? Do you agree that it is an oversell condition now ? Do you buy when the big guys start to move in or should you wait until it is also confirmed by psychological barrier break through ?

What parameters were you using on each indicator ? Are these parameters suitable for this market, this industry and this stock ? Have these parameters been proven in your investment condition ?

Answering above may or may not help you gain some advantages in your investment but understand true TA and apply them correctly definitely help you avoid mistakes caused by ignorance, worst still, without realizing it nor learn anything from it.

2 persons attend the same TA course but may bring out totally different result at the end, here is why.

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