Saturday, October 4, 2008

2008 Recession ?

Quite a handful friends complain to me that I keep talking about fundamentals while the market crashes like he!! and they are in deep sh!t.  They even curse me as a NATO ( No Action, Talk Only ) and they wouldn't give up until I give them "Real" guidelines what they should do NOW.

I ignored them for quite a long time and the reason is that it violates with the purpose of my sharing - you NEED to know the fundamentals before you go on with the fancy stuff.  (You don't have to do all the fundamental stuff, but you NEED TO KNOW them )  But then again, the fact is that they were already IN and it would be unfair for me to continue ignoring them.  It will be very hard to discuss about current situation without speculating the future  .... but I will try.

You have heard about Buy Low Sell High and may have get bored with it.  So if I say that again, it may not catch your attention.  So let me try this then ... this is Exactly what you should DO !

Low ?  Buy !   High ?  Sell !

Like wise, it also follows with ...

Lower ?  Buy More !  Lowest ? Don't Buy All ...

Higher ?  Don't Sell yet .. 
Highest ?  Sell a bit ...  
Too High !?  Take a break ...

If I share with you that I withdraw all my investments back in March, you may curse me even more.  ( But when I did that you laughed at me, remember ? )  Anyway, I decided not to say too much and let someone famous speak indeed.  Dr. Lim is a famous X Malaysia politician who happen to earn some money from stock markets too ...

Ok, if you are patient enough to read till here, here goes ...

1.  Access each investment and ask yourself, 
"Is this the kind of business I want to do myself, in long run ?"
2.  If not, cut them lose.  If yes then calculate their Future Worth in future.  
( How much will this business earn if it goes according to my plan, its already my own business remember ? )
3.  Backdate the Future Worth from #2 to Today's Price assuming a growth rate.
4.  Compare that price to actual price today, add a safety margin to determine sell, keep or buy.

Too much ?  In that case, try these then ...

1.  If you need money now, sell them.
2.  If you don't need money now, keep them.
3.  Either way, find more money to prepare to go in again

Ok ok, lastly what I would do for myself ...

Its not bottom yet.  The fundamental flaw for today's problem ( USA mainly ) is 'creating something from nothing'.  Unfortunately this time it fails to hold real substance in our world before the finance creation become self-substain.  Hence, what was 'created' $2 (loan amount) is now only $1 (property value).  Read for Sub Prime issue.  Then chain reaction follows through.

The way I look at this is ... no financial institutes are having problem.  Its just that NO ONE WANTS TO TAKE UP THE RESPONSIBILITY.  When one of your business ideas fail, and IF your company structure is setup 'Correctly', Bankrupcy is one of the methods to end the failed business.

Goverment taking money out to 'support' market is just a smoke screen, it will NOT help substain the market AT ALL.  The good way to end this recession ( if this is one ) is to close down all those BIG institutes who played with fire before.  Acquisitions are fine too but may have bigger monopoly in future.  What I hope to see is a New Generation of Banking should surface out during this crisis.  Some small business start some 'make sense' banking facilities and slowly take over the old tranditional banking pratices.  If none of this happen, I doubt if it is bottom.

Having said that, I don't wait for bottom neither.  I started keeping my fund in liquidity and eyeing on the best vehicle I should get on now.  Since my fund is limited, I can only go in 1 or 2.

Don't get me wrong, I am not perfect neither.  ALL my USA stocks are affected.  My decisions are to keep them as they were never within my radar anyway.  The reason they were affected is also because they were not within my radar.

For those who got burn, think of if this way.  When your investment value drops from $2 to $1, you lost 50%.  But when your investment goes back from $1 to $2, you earn 200% !!

All you need to do, in order to enjoy above scenario, is to put in the same amount of investment money when it was $2, as in now when it is $1.

Like wise, $2 to $0.50 is 75% lost and the reverse is 400% gain.

============= added 20081006 00:56

Just read from Tun Mahathir's blog that he agrees too ..
3. The failures are all due to playing with money, selling mortgages, selling papers and all kinds of financial dealings which have been invented by the finance houses in order to make huge sums of money out of nothing. Currency trading is one of them.


** OUT OF TRACK 思 想 出 軌 ** said...

1) another excellent post!!
=buy more? or stop loss?
even higher->
=buy again?
3) good edition of dr. lim's video :))
4) FV is too subjective = NATO
WHEN and HOW are always the biggest mysteries... :(((((

Mt. said...

1. thkx
2. stop loss and 'buy again' are an arbitrary strategies for speculation. with fundamentals right, you don't need those.
3. this is the type of things I get sued/jail in future :)
4. How is not a mystery. 'When' is. However, with the Right Hows, you don't have to know When ... but of course if one is interested to pursue to know the mystery, its fine too

** OUT OF TRACK 思 想 出 軌 ** said...

2) why i dont need those? when it becomes lower, buy more or stop loss - what to determine what to do? lust? greed? candle stick?

Mt. said...

a candle with aroma may do just the trick ....

ok ok ... before the post, here is the summary ( no fun lah like this )

there is only one important number in fundamental stock investment, how much does the stock worth now ? If the price is lower than its worth now, I buy with a margin protector.

ideally i never sell a stock, because if I own a piece of good biz, I would love to own it forever ( Warren Buffet too ). So I only sell stocks when I need the money.

so the price flutuation doesn't really matter. the company performance is. because when the performance changes, its worth changes.

Mt. said...

found some other good blogs about this topic ..

** OUT OF TRACK 思 想 出 軌 ** said...

On average there are cases of overshoot, can we really relay on the price that we/you "pre-set/determined"?

Take an example on the property that we WANT (so much) to sell right now, the valuation from bank (average) is not the negotiation price we can get from our potential buyers so we are such a dumber to keep dreaming on our big goal to come back to MY for good :)) What do you think :)

Mt. said...

i think if one stay positive with what he wants to do he can always and eventually do it. like wise, if he always think it cannot be done then its almost guarantee not done at the end.

AIA BERHAD said...

We should learn from Warren Buffett. When people are greedy, I am panic. When people are panic, I am greedy. I think what he said is a timeless principle in investing...