Having their net worth trashed in this recession. McAfee anti-viral founder blew through $100 Million in bad RE investments. I will post a link at the bottom.
But here's what got me..he sold his waterfront stunning Hawaii estate at auction and only got $1.5 Million for it. It is stupendously beautiful. The sort of place I could happily go and live until I draw my last breath.
http://www.auctioncompanyofamerica.com/pdf/217_G-870web.pdf
What would you get in Vancouver for $1.5 Million??
Anyone want to post some choice comparisons to show just HOW over-priced Vancouver is.
Here is the article:
http://finance.yahoo.com/banking-budgeting/article/107575/rise-of-the-super-rich-hits-a-sobering-wall.html
Saturday, August 29, 2009
Thursday, August 27, 2009
I'm back
A few things from my trip. There are large parts of this Province that are still in a real estate doldrums. They are areas which actually make things, or dig them out of the ground and are feeling the pinch of the economic slump. Places like Campbell River which just lost it's Mill.
Meanwhile in Victoria, everyone seems to be wondering how much further the Provincial Government will have to cut to make up for the drop off in revenue. I suspect soon the Federal Government will also start worrying about the deficit, and put on hold further plans to spend our way to prosperity.
The banks are making good profits, especially The Royal, though they have all increased their future loan loss provisions, which is prudent considering 60% more Canadians have fallen behind on their mortgages compared with a year ago.
These two facts just don't add up. Home prices are up to new highs in many parts of the country, and yet 60% more people have fallen behind on their mortgages.
That's what happens when a financial crisis hits our biggest trading partner, drags our interest rates down while we are still robust and then the crisis seeps across the border later. It means our assets get that final push of adrenaline from the low interest rates, until the reality of the economic slump brings them back down to reality.
BTW- the banks are making money from the yield curve. What could better than paying people almost nothing on their GICs or deposit accounts and lending it out at 4%-8%. Those are near the highest margins in history. I remember when banks would pay 5- 6% on deposits and lend it out to consumers at 8-10%.
They are netting 2-3% more now and can leverage that up.
BTW the TD CEO just sold $24 Million in stock options (13% of his holdings).
Meanwhile in Victoria, everyone seems to be wondering how much further the Provincial Government will have to cut to make up for the drop off in revenue. I suspect soon the Federal Government will also start worrying about the deficit, and put on hold further plans to spend our way to prosperity.
The banks are making good profits, especially The Royal, though they have all increased their future loan loss provisions, which is prudent considering 60% more Canadians have fallen behind on their mortgages compared with a year ago.
These two facts just don't add up. Home prices are up to new highs in many parts of the country, and yet 60% more people have fallen behind on their mortgages.
That's what happens when a financial crisis hits our biggest trading partner, drags our interest rates down while we are still robust and then the crisis seeps across the border later. It means our assets get that final push of adrenaline from the low interest rates, until the reality of the economic slump brings them back down to reality.
BTW- the banks are making money from the yield curve. What could better than paying people almost nothing on their GICs or deposit accounts and lending it out at 4%-8%. Those are near the highest margins in history. I remember when banks would pay 5- 6% on deposits and lend it out to consumers at 8-10%.
They are netting 2-3% more now and can leverage that up.
BTW the TD CEO just sold $24 Million in stock options (13% of his holdings).
Wednesday, August 26, 2009
Insure for what ? or against what ?
General insurance is more straight forward, you are insuring your car, house, home content etc. But in life insurance, what does insuring your life mean ? What are you actually insuring for or against ?
- Death - end of life
- Disability - partially or completely unable to live a standard live
- High medical fee
- Accidents
- Income
Death is not a problem actually. Everyone got to go eventually. If anyone is still fear of death then its just becuase his personal growth hasn't reached a mature level yet. But then again, NOT everyone must be mature. Living a whole life like a dump kid is still a life, no different than the smartest ass in the world. Either way, they should and acquire solid personal finance despite the differences.
Death is not a problem, but dying too early or too late is. If you live a purposeless life then dying early may be fine for you. But almost suddenly you will realize you do have purpose afterall at the very moment before you pass on and its too late for you to do any thing about it.
"Sorry Mum I am gone, I meant to say I love you. Here is your ticket to Dubai ..."
Dying too late is only a problem when you are incapable of substaining your life but yet you are alive. This usually occurs in 2 major scenarios; financially drain and health problems. So you use up your money, cann't buy any more Starbuick and you sit outside desperately don't know what else to do. Or you have been in coma for 15 years but your body is still going, lying there doing nothing yet doctor doesn't want to certify you dead. Else with a wealthy and healthy being, no one would complain about dying too late ...
"Hi Nurse, I may not be able to speak but here is your salary for massaging me, thanks !"
Disability is hard word to agree upon in common sense but in this industry, a person is considered disable when he couldn't perform the tasks majority of the people can. This is further percisely identified as losing 2 limbs (Total Permanent Disability) or diagnosed of Cancer (Critical Illness) etc. Your family and you may need some helps when you are 'disable'.
"Kids, I can no longer serve you ... here is your last sum of ..."
Ironically the more we know about our body (more civilized), the harder it is for us to fix it. More complicated systems are invented to cure more complex illness. Cost has gone up so high that the poor sick people wish they could share some medical fee with the healthy ones. Hence insurance is the best bet to the solution. If you are sick, wouldn't it be nice someone else is paying your bill ?
"Doctor, please hospitalized me or else I couldn't pay you ..."
Part of the deal to be human is that we don't know all. Things may happen very sudden and out of our expectation some times. The last thing we want is for a car accident to ruin our life totally. So just in case ... it wouldn't hurt as bad if there are some financial helps ...
"I lost my limbs, but at least I have 3 years to pick up new way of life without too much financial worry."
Some may have noticed that insurance is all about money. If you cann't transform what you need into numbers/money, then perhaps insurance cann't help. Then how about insuring the money itself ? Sure you can! Remember insurance is an example of business that is only limited by human's creativity, which is unlimited. So if you are ill and cann't go do labour for 3 weeks, your insurance could have paid you daily allowances.
There you go, these are the general area of coverage of personal life insurance ;
- Death - end of life
- Disability - (Totally Permanent Disable or Critically ill)
- High medical fee
- Accidents
- Income
Sunday, August 23, 2009
Insurance, WHO is it for ?
If you don't have a specific goal, you probably don't need insurance. Would you buy car insurance if you don't have a car ? Would you buy house insurance if you don't have any property ? Will you buy mortgage insurance if you don't serve any loan ? Likewise, you should have a clear goal when you commit into any life insurance plans.
Generally there are two big categories; you are planning for other people or you are planning for yourself.
Insurance For Them
If I die earlier than I thought, I would want to make sure my parent, spouse and kids not to worry too much about immediate living expenses.If I suffer from heart attack, I don't want my spouse to use up all his money to cure me.If I am ill and cann't work for a long time, I want to make sure my kids still get paid for their pocket money.
Insurance For Me
If I lost my kidney, I don't want to use my own money for cures.If I am hospitalized, I want to live in good care private room but I want other people to pay for that.
Generally you can lump some reasons together to buy an insurance but it should sperate these 2 categories. If one of your insurances is for you yourself AND also your family, most often you will use up the amount and still leave nothing to your family.
Typical under-insured cases occur in disability and illness. When you are diable or critically ill, should you use the insurance money to cure for yourself or should the money be left for your loved ones ? If you care about your family, most of the time they will use the money on you instead. Like wise, may be a simple small cure can be done with your condition but all of your family members want to keep the money with themselves. Either way, you should be very clear and seperate your insurance plans for others or for youself.
This is especially important in overlapping coverages like accidents, followed by permanent disability and critical illness.
Death pay out is pretty for other people while medical plans are pretty much for ourselves.
Thursday, August 20, 2009
Sorry folks nothing to say and I am heading off on Holiday
Enjoy the next week and lets see what late summer and fall bring for us bears. So far I feel like we have been caught in a bear trap and the jaws are getting tighter.
Do we bite the bullet cut the leg (and an arm) off and jump in or do we wait and hope sanity returns.
Do we bite the bullet cut the leg (and an arm) off and jump in or do we wait and hope sanity returns.
Size does matter in mutual fund selection
It was mentioned before that when choosing which mutual fund to invest in, it is more important to choose the fund manager rather than the funds. However, most of the times the fund manager is not a single person. In most established mutual fund businesses, the fund manager itself is a team of people. Although sometimes there may be a single person making all the investment decisions but as time goes, business expands, number of funds to manage increase and that person will eventually need to delegate, either to a system or other people.
So how to analyse the fund manager then? Well, in that case the fund manager is actually the company, so we analyse the company itself.
Investment is a money game. You use money to earn more money. If you have the right strategy and little money, you would probably make some money. But if you have a lot of money to start with, you probably make so much more when your investment decision is right. Earning 100% from $1 gives you $2, but earning 100% from $100 gives you $200. The earn ratio is the same, but it is a huge difference between $1 and $100 ...
When you make a mistake losing all your money, you are dome. But if you have more money, you can apply money management so that you have some reserve funds to try again, especially to cover your previous mistakes. So more money gives you more number of investment trials.
As mention before, the higher amount usually also implies lower fee in most investments. You can buy stocks with $100 but your cost can be as high as 8-10%. But if each of your transaction is above MOTS : Minimum Optimized Trading Size ie. $20,000 then your fee is lower than 1%.
So Size Does Matter and the primitif requirment for a fund manager to perform is to have a large sum of capital.
In order to keep mutual fund as a passive investment tool ie. simplest decision making, we can simply pick the largest mutual fund company to invest in. In Malaysia, its has been deadly simple in this aspect, Public Mutual is not the obvious choice but the only choice when size is concern, too bad.
According to Liper Fund, as of 22 June 2009 these are a total of 68 millions of unit trusts managed in Malaysia. The fund sizes managed by various Malaysia Unit Trust Management Companies are as followed;
28 millions Public Mutual8 millions AmInvestment and CIMB3 millions OSK-UOB, Prudential2 millions HLG, Hwang-DBS1 millions ING, Pacific, MAAKL
So the truth of using mutual fund as the highest return passive personal finance tool is as simple as buying Public Mutual every month automatcially using a Standing Instruction ie. apply the DCA - Dollar Cost Averaging technique. This recommendation has been true for the past 10-20 years and most likely to be continue correct for the next 5 years.
To further show the confidence on this recommendation, anyone who has had a Public Mutual fund with DCA applied. If you are still NOT happy after 3-5 years, contact me for a potential total buy out of all your investment units.
It will take a while for 8 millions to catch up with 28 millions. However, not impossible. If you have been watching all the mutual fund companies growth for the past 10 years like I have, the growth of OSK and Prudential are really significant.
If for whatever reason Public Mutual is NOT an option for you, the other choices following this same argument would be CIMB from the banking industry and Prudential from the insurance industry. While CIMB's size stands side to side with AmInvestment but Prudential is way ahead of other insurance oriented mutual fund companies.
How about which funds to buy ? Well, following this same argument, we should buy the largest fund size funds. And that usually means NOT the NEW funds. Most of the older funds have bigger fund sizes. Believe it or not, some of the recommendations based on performance here are actually some of the oldest funds too.
Monday, August 17, 2009
Secure Future Income
Insurance can be a long term commitment so it could be very costly to commit into one without having a clear goal in mind. Each of the insurance you own should have a meaningful purpose, else you may not get back what you have sacrificed for. One of the purposes for buying insurance is Income Replacement.
As straight forward as it may sound, there is NO standard way of calculating how much is needed. Below shows one example ...
You are 25 years old and earning $2,000 now. If you want to secure that income up to age 55, that is 30 more years to come. Linear sum would be 2,000 x 12 x 30 = $720,000. If you also think you can get an average of 5% increment every year, then your total future income is about $1.6 millions.
If these numbers seem big to you, then perhaps your personal finance consultant or even yourself have been misleading yourself in your needs assessment. Calculation above isn't exactly rocket science.
If you have set a 10% budget or $200 per month, then what you are looking for is to buy $300 insured value with your $1. ( $720,000 / $ 200 / 12 months = $300 ). This pretty much mean your only choice is Group Term Insurance. Within the same budget, other types of insurances may only provide an insured amount of $100,000. Which is less than 14% of your $720,000 needs.
The simple and straight forward part of insurance consideration is just that, you should get a Group Term Insurance for this purpose. However, should you still not satisfy with that ... you may analyse further ... into the no-that-simple or the fun part
Your income replacement needs is actually reducing as the years go by. For example, 10 years later, you would have already earned some of your income and your needs from age 35 to age 55 is only 20 years or $480,000, no longer $720,000. Likewise, when you reach age 45, your need will reduce by another one third. According to this, a Reducing Term Assurance may be suitable too ... which is also very cost effective.
If $720,000 is still not an affordable sum, you may need to re-assess your needs ... before simply limiting it.
Why do you want to secure your future income? Is it because you worry about your parent's living expenses ? If yes, how much do they really need ? If it is NOT $2,000 a month then perhaps you should secure your parent's future living expenses and not really the whole of your income.
Or are you just planning to maintain your life style? If yes, then you most probably do not need to pay income tax and EPF with your insurance payout. Hence that may comes up to about 15% saving. So intead of $720,000 you just need $612,000 for this purpose. Like wise, what exactly is the life style you are trying to keep ? Are any part of your current income form another part of saving ? Is that saving a part of the lifestyle you want to keep ? If not, then you may further reduce the sum of this need.
If whatever amount you come up with after re-analysing your need is still HIGH, then perhaps 30 years is too long a plan for you. You may want to secure your next 10 years income first. So to secure your income up to age 35, its only $240,000. With the clear concise mind that your age 35 to 55 is NOT secured. You better work something out before you are age 35 ...
Lastly, don't be confused by the dualism. Insurance can be an option but securing your future income does NOT necessary have to have insurance. ie. its not the only way.
The whole idea of you securing the income is that you are assuming the income needs to be secured when you stop working. In another words, your current income is an active income. You work you get paid, you stop payment stops. If future continous income is important to you, why don't you start by focusing on getting passive income instead ? That way, no matter if you are here or there, income keeps coming and you don't need to pay extra to secure any of it ...
don't forget Personal Finance is NOT all about money, sometimes it just takes a little bit of creativity ...
Saturday, August 15, 2009
No Claim Bonus in Hospital and Surgical insurance ?
NCB or No Claim Bonus has been a common term in car insurance. If you never make any claims from your car insurance, your next year's premium is likely to be deducted up to 55%*. $2,000 vs $900 is a huge difference. This is to encourage people to dirve safely and not the other way around ie. drive like Formula 1 on the street since I can get a new car anyway should anythings happened ...
On 2004, Dutch goverment started to introduce the similar NCB on health insurance. They did that so that their people would not abuse the insurance payout and therefore the insurance companies would not use that as an excuse to increase premium until a rediculous high level.
On 2005, Prudential quickly adopted that strategy.
As for Malaysian who has been keeping an eye on health insurnace / hospital and surgical plan / medical plan, most have realized that Prudential Malaysia has also introduced NCB on their health insurance. Typically it says you get back RM 500 every year if you didn't make any claim. PruHealth can only be a rider within one of the investment link products by Prudential ie. NOT a standalone plan.
Lets review this new growth ....
Introducing NCB in health insurance in general is a great move. Basically the whole idea is to encourage you to take good care of your health. You should eat right, move right and live right. Having a handsome health insurance is NOT an excuse to simply commit sins to your health.
Every time when a new great idea is introduced to the market, it is usually not mature. It will take a while before the idea can cover all concerns and all areas. This NCB on health insurance is no exception. The key difference shouldn't be too hard to be noticed. NCB on car insurance may starts with 20%* and then grows every year until it reaches the maximum deduction. PruHealth is only constantly deducting RM 500 every no-claim-year. So unless PruHealth can increase its deduction on 2nd year onward, it will still fail to capture its insured royalty.
All this while, life insurance and general insurance (ie. car) have been managed seperately. Life insurance systems are totally incapable of calculating subsequent years deduction like MRTA or car's NCB. Hence, either Prudential is incapable of coming up with a system that is exactly the same as car's NCB mechanism or they purposely leave it as the room for improvement when competition starts to come.
Either way, it means it sounds great to the insured but it is NOT as good as it should yet. In other words, it will only gets better in time to come.
What does this NCB on health insurance mean to the prospects ? Well, its actually nothing new. Health insurance plans have been paying insured yearly money for whatever reasons or excuses they can come up with. This is especially obvious in lady's insurances. You are paid RM 200 to RM 2,000 yearly so that you can do your medical check up, cover your normal clinic visits etc. So this RM 500 payout to you is just another form of pay-back from your higher premium.
This is why the whole idea is currently built inside an investment link plans. Once you have an investment link plan for more than 5 years, it is most likely the investment return itself can cover all the other 'costs'. But should they do NOT, you are still liable to top up to the plan so that your coverage stays the same. As in the worst case scenario is that you have to add RM 500 to your premium so that you can get paid RM 500 by year end if you didn't claim. Ofcourse this may exagerate but this is just to illustrate the idea.
Should you consider this plan ? Well ....
The new NCB is just a annual pay back, so if you never have any insurance plans that pay you back and if this premium is not too high, you may try this. Its a nice feeling that someone is paying you some money every year. But if you are one of those who believe whatever they pay you is from your own pocket anyway, then you probably shouldn't join this plan for this reason.
One of the key strengths in Prudential is investment link products, so if you believe Prudential can make the right investments and subsequently maintain your portfolio well, then despite NCB on PruHealth or not, you can leave part of your life plan to them. On the other hand, if you have been a successful investors yourself, you probably would not choose this option. ( Just a sharing, most people who think they can do better than the industry usually ended up DID NOT ).
There is also a 'life stle' part on PruHealth which pretty much is a cross marketing tool, so that shouldn't affect your decision too much unless you want to rely on Prudential to assit on your future life style ... ( not a bad option if you never thought of such thing anyway )
* 55% may not be the maximum No Claim Bonus for cars, expert in this area please comment, thanks !
Friday, August 14, 2009
Up-date
There is no sign of a slow-down in our housing market so far. Maybe it is the last rush to buy before school starts. However the numbers are far from bearish, with 100% sales/list or higher the last few days in many areas.
To look at Vancouver RE you would think the world was in the midst of a rip-roaring boom not a near depression.
If I had to guesstimate it, I would say prices are flat but clearly not dropping with this level of activity.
The right shoulder mentioned in the chart below may take some time to play out, but if we see prices move up higher, then the comparison with the bubble graph, or a head and shoulders top will lose validity.
Anonymous said...
What 'event' would cause the second part of that graph to play out?
It seems inconceivable that we are just on the edge of another major drop, but anything is possible
There are many things. Putting aside the black swan events which of course cannot be predicted, there are some likely suspects out there:
1) A slow down in China. We have increasing correllation with the Chinese economy (HK, China, Taiwan and you can add Korea). Not only do we have significant numbers off-shore buyers from these countries but their demand also detemines the price for many of our commodities.
China's rebound has been quick and impressive. It took a huge infusion of stimulus and orders from the government to the banks to lend or else..but it worked to stop the Free-fall and produce some domestic demand which will have to tide China over until the rest of the world recovers. However their recovery and need for commodities is still very fragile and I could see a weakening in demand later this year or early next.
China is truly an economic miracle, but the juiciest rewards may have been restricted to those with the best contacts. The fruit doesn't fall too far from the tree according to this report:
http://tinyurl.com/njcpn7
Any renewed weakness will not be well received by the rank-and-file, and could cause some social problems.
2) Interest rates. We have seen interest tick up slowly from the lows a few months ago. If we start to show some economic strength, ironically the rates will move higher and start to impede that very growth. Am I predicting that..no. It is just something to watch.
3) The Swine flu bears watching. Hopefully it will not make a big come back and restrict travel, spending etc and add to deflationary pressures.
4) A double dip recession. We are seeing some stabilisation in the US and elsewhere. However this is happening from a very low base. Unemployment sits at 9.7%, a rate that is almost unheard of in the US. If you add in the number of workers who are employed, but working on reduced hours, it would push the rate up a few more %.
Were we NOT to stabilise here, we would be looking at a full scale depression.
I think the recovery will be tepid at best and then there is a very good chance that we stagnate or start to sink again. However I do not have a good feel for the time-line, whether it would be in the next year or even longer that this happens.
I am sure you guys can think of lots more reasons too. Lets see if this pressure cooker buying keeps going or we settle to a more balanced market (and dare I say even a bear market again) once fall comes.
To look at Vancouver RE you would think the world was in the midst of a rip-roaring boom not a near depression.
If I had to guesstimate it, I would say prices are flat but clearly not dropping with this level of activity.
The right shoulder mentioned in the chart below may take some time to play out, but if we see prices move up higher, then the comparison with the bubble graph, or a head and shoulders top will lose validity.
Anonymous said...
What 'event' would cause the second part of that graph to play out?
It seems inconceivable that we are just on the edge of another major drop, but anything is possible
There are many things. Putting aside the black swan events which of course cannot be predicted, there are some likely suspects out there:
1) A slow down in China. We have increasing correllation with the Chinese economy (HK, China, Taiwan and you can add Korea). Not only do we have significant numbers off-shore buyers from these countries but their demand also detemines the price for many of our commodities.
China's rebound has been quick and impressive. It took a huge infusion of stimulus and orders from the government to the banks to lend or else..but it worked to stop the Free-fall and produce some domestic demand which will have to tide China over until the rest of the world recovers. However their recovery and need for commodities is still very fragile and I could see a weakening in demand later this year or early next.
China is truly an economic miracle, but the juiciest rewards may have been restricted to those with the best contacts. The fruit doesn't fall too far from the tree according to this report:
http://tinyurl.com/njcpn7
Any renewed weakness will not be well received by the rank-and-file, and could cause some social problems.
2) Interest rates. We have seen interest tick up slowly from the lows a few months ago. If we start to show some economic strength, ironically the rates will move higher and start to impede that very growth. Am I predicting that..no. It is just something to watch.
3) The Swine flu bears watching. Hopefully it will not make a big come back and restrict travel, spending etc and add to deflationary pressures.
4) A double dip recession. We are seeing some stabilisation in the US and elsewhere. However this is happening from a very low base. Unemployment sits at 9.7%, a rate that is almost unheard of in the US. If you add in the number of workers who are employed, but working on reduced hours, it would push the rate up a few more %.
Were we NOT to stabilise here, we would be looking at a full scale depression.
I think the recovery will be tepid at best and then there is a very good chance that we stagnate or start to sink again. However I do not have a good feel for the time-line, whether it would be in the next year or even longer that this happens.
I am sure you guys can think of lots more reasons too. Lets see if this pressure cooker buying keeps going or we settle to a more balanced market (and dare I say even a bear market again) once fall comes.
Sunday, August 9, 2009
Where does Insurance fit in MalPF ?
It was hinted before that insurance is originated from gambling but with a good deed instead of a bad one. It was started from greed wanting more money out of less money and eventually evolved into a need base statistical payout.
Despite its history or industry evilness, at personal level, one can use insurance to immediately secure his future asset. Especially when the unexpected and uncontrollable events happen. This is useful when you have a goal to achieve in life.
The summarized concept of insurance can be found here, basically it says buying insurance as protection is good ( this will work for most people ) and selling insurnace for income is even better ( this may only work for some people only).
However, in 21st century, insurance is NO longer JUST about protection. Today's insurance is ALL ABOUT portfolio. And A personally built portfolio is the solution to all your personal finance needs.
Insurance is the OLDEST and MAIN personal finance tool
that helps you manage your personal finance portfolio,
unlike others who are mainly focusing on specific products. This is further supported by industry practice where insurance agents do NOT usually promote Term Insurance.
So the reason insurance cann't even make it to the MeM wealth pyramid is because
insurance itself can be the whole pyramid itself,
NOT just a part of it.
By now you probably already know that it costs
. ZERO to save money in Fix Deposit,
. 1-2% to invest in stocks and
. 2-6% to buy mutual funds
In insurance, you are paying 10% to 40% for the services you obtained. After all, "profesionals" working in insurance companies are "looking after" your whole Portfolio, not just selling you a product like the other 3 mentioned above.
In short, if you are LAZY and has NO interest to learn about personal finance, then just buy some insurances. You do nothing else and just hope the insurance will take care of everything for you. Thats what they "should do" for what you paid for anyway.
So ? Is that it ! After going one big round after one whole year during this anniversary, all this blog is about is to ask people to buy insurance ? ( what a buster ! isn't it ? )
Well, the answer was already given. If you are Lazy and has NO interest to learn, then its a YES to you. Else keep reading and see if there are more to it.
Other related insurance topics:
Do you like or hate insurance ?
Tick Size has NO effect ?
I am actually caught by surprise that the KLSE new tick size article received quite valid challenges. When I first hinted tick size is important for speculators, almost no one bothered so I was assuming there are no stock investors readers. Basically the argument is that tick size does NOT really affect stock investment.
For example if we buy 200 units stock at RM45. Brokerage is 0.1%, Clearing fee 0.03% and stamp duty RM 1 for every RM 1,000. The total you pay would be RM 9,020.70
Below chart shows how much you earn when the price move up and down in the old tick size system. If the price goes down to RM 44.50 (2 steps down), you would get back RM 8,879.43 or a lost of 1.57%. On the other hand, you earn 0.64% when the price goes up to RM 45.50 (2 steps up).
Below is another chart showing how much you earn in the new tick size system. As you may see, you lose and earn the same as in the old tick size system, ie. lose 1.57% @ RM 44.50 and earn 0.64% @ RM 45.50. All the new tick size system does is to add more points in between.
So tick gap size doesn't really affect investor's return. It is TRUE as long as you are looking at it as a value investor.
It was mentioned before that some people like smaller tick size while some others like it bigger. So there will also be cases where tick size is NOT important, like wise there are also scenarios where tick size becomes critical.
Above analysis is assuming we don't know anything about the stock so each step price up is the same as down. However, in real life we invest into stock for a reason, sometimes we even have a target price. For example, we buy the stock at RM 45.00 with the expectation to sell at RM 45.50. So when situation goes our way (UP), the tick size doesn't really matter as shown above.
However, sometimes it may go opposite with your plan. In old tick size, the next down step is RM 44.75, causing a lost of RM 91.34 in comparison to your initial planned 2 steps up profit of RM 57.47. In new tick size, it will go down in smaller steps ...
RM 44.98, causing a lost of RM 45.39 then
RM 44.96, lost RM 49.39
then lost of RM 53.38
and finally the 4th step down causing a lost of RM 57.38. Almost the same amount as the initially expected profit.
... then at 13th step down, a lost of RM 93.33, equivalent to old tick size 1 step down lost.
So if you cut lost in old tick size, you would have lost RM 91.34, that would be your total cost in this investment. The Win Lost ratio is 1 to 2.
In new tick size, you are given more choices. You could ignore the choices and cut lost after 13 steps down in which this smaller tick size will have no effect to you. You can also cut lost at the 4th step down if you want to set your win lost ratio at 1 to 1. Or in extreme case, you cut lost immediately when the price goes opposite and you think your initial assessment was wrong, your RM45.39 lost is almost half of RM 91.34 in old tick size.
In summary, the profit taking plan can remain the same in both bigger and smaller tick size systems. But cut lost strategy can be applied more dynamically in a smaller tick size system. Cutting lost can be viewed as cost. Hence in smaller tick size system, cost can be reduced ( by 50% in above example ). The actual cost saving factor would depend on your investment strategy, hence its not a DIRECT cost saving but a strategical one.
All these smaller steps have translated into more choices, and these choices allow you to apply investment strategy more dynamically. So far, most arguments are quantitative based. There are also qualitative or psychological effect. For example, in a smaller tick size environment, you are most likely get into the investment vehicle more often since you know you can get out of it easier and faster anyway when you were wrong. You may be less afraid and making more bold decisions, faster and more of them. You can learn faster with less tuition fee, which eventually improves one's decision making skill.
Full details of the data used ( best viewed with screen width > 800px )
Saturday, August 8, 2009
Ok bears make or break time...
I have posted the graph of price bubbles I often refer to on this blog. Below that is the REBGV Average price graph.The similarity in the shapes of these two charts is clearly obvious.
At each of the turning points, human nature being what it is, there is almost complete despair and capitulation by bears and bulls.
Last fall it was the bulls who were shell-shocked as 'nothing sold' and MOI reached 20+. Now we have bears in utter disbelief as sales have exploded and MOI is down to 3 months.
So now what?
Well if we are still on the bubble implosion script, then we can have prices hang around here for longer or start to drop, but NOT go up much more. Any significant rise which threatens to match or beat the recent bubble highs would make me seriously reconsider the bubble-bursting scenario.
This is it bears...
Wednesday, August 5, 2009
How much did you earn in 2008 ?
These are not company nor business income, how much did you personally earn in 2008 ?
Lim Kok Thay from Genting earned RM 114.95 millions in 2008. That is 9.58 millions a month. If he worked 30 days a month then he earned RM 319,305 a day.
Lim Kok Thay from Genting earned RM 114.95 millions in 2008. That is 9.58 millions a month. If he worked 30 days a month then he earned RM 319,305 a day.
Lee Shin Cheng came next earning RM 14.15 millions from IOI Corp and RM 8.6 millions from IOI Property
Tuesday, August 4, 2009
Being Fair to Realtors
OK I know that is a bit of an odd title for a RE bear. However I do have a lot of friends who sell real estate and one thing I have seen over the years is how unfair it can be for those representing the buyers, in a hot and a cold market.
Let me explain. Lets say you have a prospective buyer in a sellers market. You take your buyer around, send them info, give them advice and then get repeatedly out-bid and have to start all over again.
In a dropping market, things are even worse. Buyers want to see everything out there, they often get cold feet and pull offers or put impossible conditions with multiple 'escape' clauses in.
Then one day you find out your buyer went to an open house and cut a deal with the listing agent who was 'double-ending it' and poof, your client and the many hours you spent working with them disappears.
What I heard some Realtors doing is charging a $500 fee to at least cover their gas money. If the buyer completes the transaction through that realtor, they refund the money. However if they don't or change Realtors then they forfiet the money.
What do you folks think about that? Would you be willing to pay $500 to get better service.
I think it is a good idea. It removes the time wasters. In truth the listing realtor often does less work than the one representing the buyer. I see some Realtors with dozens of listings. There is no way they can be marketing each one. They market themselves and then listings come to them since they are known as the high priced condo realtor... or the waterfront realtor.
The Realtors with the buyers then have to show up and sell their inventory for them.
Let me explain. Lets say you have a prospective buyer in a sellers market. You take your buyer around, send them info, give them advice and then get repeatedly out-bid and have to start all over again.
In a dropping market, things are even worse. Buyers want to see everything out there, they often get cold feet and pull offers or put impossible conditions with multiple 'escape' clauses in.
Then one day you find out your buyer went to an open house and cut a deal with the listing agent who was 'double-ending it' and poof, your client and the many hours you spent working with them disappears.
What I heard some Realtors doing is charging a $500 fee to at least cover their gas money. If the buyer completes the transaction through that realtor, they refund the money. However if they don't or change Realtors then they forfiet the money.
What do you folks think about that? Would you be willing to pay $500 to get better service.
I think it is a good idea. It removes the time wasters. In truth the listing realtor often does less work than the one representing the buyer. I see some Realtors with dozens of listings. There is no way they can be marketing each one. They market themselves and then listings come to them since they are known as the high priced condo realtor... or the waterfront realtor.
The Realtors with the buyers then have to show up and sell their inventory for them.
Saturday, August 1, 2009
Is Vancouver becoming unlive-able??
We have always been at the top of the most live-able cities in the world. The reasons are obvious.
However today I had a long chat with some long-term residents who believe we have moved towards a city that is becoming undone due to it's own success. Too crowded and too developed.
Lets look at this week-end. We have the Firemen and Police Games, Gay Pride Week-end, the Fireworks, Cruise ships and the usual mass of tourists plus a new arrival of Far-East home students which are subsiding many lower mainland mortgages.
The result is gridlock. It is hard to get into Stanley park, or cycle or walk around it. Driving to the supermarket is a mini expedition.
As if it wasn't bad enough having our week-days clogged with construction and filming, the week-ends have to be messed up to.
I know we should be grateful that all these activities (from tourism to filming to constant construction) bring the large number of jobs with them. Some of these jobs are even enough to pay for a reasonable life, if you didn't have to pay for housing.
It makes one wonder whether there is anyone at the helm of this, planning how our lives are being changed by the develop-at-any-cost mantra.
Where are the new down-town residents going to drive their cars, does it matter that our air quality is going down. What was the point of the Olympics? To get us on the map? Or to inconvenience locals, enrich developers and go into debt?
This week-end it was unbearably crowded everywhere I went, from Down-town to the beaches to the Grouse Grind. I am beginning to believe we do not have the land mass, or the infrastructure to become the huge world class city our Premier and the developers are trying to squeeze us into.
Are we the victims of our own success?
I am seriously starting to consider a move outside the lower mainland.
Meanwhile Larry Yatter is the first one out with the July numbers:
http://www.yattermatters.com/real-estate/vancouver-residential-average-july-09/
Lets pay particular attention to the first graph on his post and compare it to this one:
http://tinyurl.com/ntvgvj
However today I had a long chat with some long-term residents who believe we have moved towards a city that is becoming undone due to it's own success. Too crowded and too developed.
Lets look at this week-end. We have the Firemen and Police Games, Gay Pride Week-end, the Fireworks, Cruise ships and the usual mass of tourists plus a new arrival of Far-East home students which are subsiding many lower mainland mortgages.
The result is gridlock. It is hard to get into Stanley park, or cycle or walk around it. Driving to the supermarket is a mini expedition.
As if it wasn't bad enough having our week-days clogged with construction and filming, the week-ends have to be messed up to.
I know we should be grateful that all these activities (from tourism to filming to constant construction) bring the large number of jobs with them. Some of these jobs are even enough to pay for a reasonable life, if you didn't have to pay for housing.
It makes one wonder whether there is anyone at the helm of this, planning how our lives are being changed by the develop-at-any-cost mantra.
Where are the new down-town residents going to drive their cars, does it matter that our air quality is going down. What was the point of the Olympics? To get us on the map? Or to inconvenience locals, enrich developers and go into debt?
This week-end it was unbearably crowded everywhere I went, from Down-town to the beaches to the Grouse Grind. I am beginning to believe we do not have the land mass, or the infrastructure to become the huge world class city our Premier and the developers are trying to squeeze us into.
Are we the victims of our own success?
I am seriously starting to consider a move outside the lower mainland.
Meanwhile Larry Yatter is the first one out with the July numbers:
http://www.yattermatters.com/real-estate/vancouver-residential-average-july-09/
Lets pay particular attention to the first graph on his post and compare it to this one:
http://tinyurl.com/ntvgvj
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