Should I invest or pay my credit card debt?

Should I invest or pay my credit card debt?

By Sunshine Santiago
Do you suddenly find yourself having extra cash after a few months’ worth of saving? And now, your next question is: should I invest this extra money or should I just use it to pay my credit card debt?
Some financial advisors will tell you to just continue paying the minimum charge for your credit card. That way, you can save your extra money for your retirement or for a big event or a big purchase that you are planning. On the other hand, some finance experts think that it is better if you just pay off your credit card debt first that way you have less to worry about. Below are some points to consider in making the decision:

1.      Do you have money set aside for your emergency fund?

Making an investment and completing your credit card payments requires extra cash that you will not use for your daily expenses.  But other than this, ask yourself if you have already set aside an emergency fund you can turn to for accidents, illnesses, house and gadget repairs, and other miscellaneous fees.  If your answer is no, then try saving up money that is enough to tide you over for three to six months. Make saving a habit so that you have enough saved for an emergency fund. When you have set aside an emergency fund, then it’s the only time that you can start to plan on any investments.

2.      Consider debt payments as investments.

Debt payments you make usually decrease the amount of loan payments you have to make in the future. Therefore, it enables you to have more money when your debt is completely settled. You may compare credit card debt payments to a bond or a certificate of deposit (CD) which can provide you with fixed rate cash at certain dates in the future.

3.      Decide on which debt you want to prioritise and stick to that plan.

Unpaid high interest rates can lead to credit card problems. Most financial advisors will probably tell you to choose to pay debts that have higher interest rates first before you consider getting other investments.  Similarly, you can also weigh out the return rates of the investment you’re planning to make against the interest rate of not paying your credit card debts on time.  You should be able to figure out the importance of setting the high interest debts you currently have.  Alternatively, you can also opt to settle small debts first so that you will have cash later on that you can use to pay for your bigger debts. Whatever you decide, choose what you think is easier and more convenient for you to do.

4.      Include taxes in your computation.

In deciding whether to invest or to pay off debts, you don’t need to just compare and compute the interest rates of a potential investment project against the interest rates of the debt you will be incurring.  Don’t forget to include tax in your computations and try to ask help from a reliable finance person when you want to know whether your payments will be tax-deductible and whether the interest rate you will gain on your investment is taxable. By considering the tax implications, you will have a clearer picture on the returns of your investment as opposed to paying off all your credit card settlements.
As a conclusion, it is advisable to completely settle your high interest credit card debt and learn about proper debt management and saving before you think about investing your extra cash on other projects. You will be able to focus more on investing when you have peace of mind that comes from being debt-free from your credit card obligations.

Sunshine writes  for CompareHero.my, the most comprehensive financial comparison service in Malaysia.  Compare credit cards, broadband plan, and others at a competitive price.


The Pros & Cons of Share Buybacks

More often than not, Share buybacks are looked upon as a positive catalyst that the company thinks that the prices are undervalued at current levels and they are confident in the prospects further ahead. 

Furthermore, Share Buybacks reduce the company's outstanding shares so that the EPS (earnings per share) are accelerated with the "pie" being shared among lesser people. This enhances the assurance for investors to invest in the company; fuelling the increase of the stock price advancement.

However, there is always two sides to a story and there are downsides too. Let's examine some of the potential benefits and pitfalls of a stock buyback:

Benefits of Stock Buybacks

  • Increased Shareholder Value - There are many ways to value a profitable company but the most common measurement is Earnings Per Share (EPS). If earnings are flat but the number of outstanding shares decreases. . Voila! . . A magical increase in period-to-period EPS will result.
  • Increased Float - As the number of outstanding shares decreases, the shares remaining represent a larger percentage of the float. If demand increases and there is less supply, then fuel is added to a potential upward movement in the price of a stock.
  • Excess Cash - Companies usually buy back their stock with excess cash. If a company has excess cash, then at a minimum you can bank that it doesn't have a cash flow problem. More importantly, it signals that executives feel that cash re-invested in the corporation will get a better return than alternative investments.
  • Price Support - Companies with buyback programs in place use market weakness to buy back shares more aggressively during market pull-backs. This lends support to the price of the stock and ultimately provides security for long-term investors during rough times.
Potential Pitfalls

  • Manipulation of Earnings - Above, we described how a buyback improves the earnings per share number. Companies which have flat growth can possibly manipulate the EPS and appear to beat consensus estimates that were based on a larger number of outstanding shares.
  • Execution of BuybackThere is a difference between announcing a buyback and actually purchasing the stock. Unfortunately, there are cases where buyback announcements are made but not implemented entirely. It may initially boost the price of a stock, but this phenomenon (when it occurs) is usually short lived.
  • High Stock Prices - Re-purchasing shares at all-time high prices are highly risky and doesn't make a whole lot of sense unless there is something in the works that will add substantially to earnings. A classic example is AIG: It bought back shares at prices close to $1,500 during 2004-2007, only to see its stock fall to under $35 before the end of 2008.

Stock buyback programs can be really positive for stockholders if done at the right price and shows a wise use of excess cash when there are no alternatives for better capital allocation. Just keep a watch out of potential hazards like management seeking to cover up weak ratios or poorly managed employee stock option plans.

In my next post, I shall write about 3 well-known companies (Osim, Ho Bee, Sakae) which have performed consistent share buybacks and how their share prices have risen consequently.

Hope you like my post and can do me a favour by "Like"-ing my facebook page at www.facebook.com/kissinvesting. Thanks & HUAT AH!


A nice interview - words of wisdom

The Magic Words Every Trader Says Over and Over

Stansberry & Associates: Brian, you claim "five magic words" are the secret to getting rich in the markets and through investments. You claim every rich investor or trader says these words over and over. Can you share those magic words?

Brian Hunt: Sure… The five magic words – and this works with real estate investing, small business investing, blue-chip stock investing, or even short-term trading – are: "How much can I lose?"

The rich, successful investor is always focused on how he can lose money on a deal, a stock, or an option position. He is always focused on risk. Once he has the risk taken care of, he can move on to the fun stuff… making money.

Almost everyone who is new to the markets or new to making investments is 100% about making money… the upside. They're always thinking about the big gains they'll make in the next Big Tech stock or currency trade or their uncle's new restaurant business.

They don't give a thought to how much they can lose if things don't work out as planned… if the best-case scenario doesn't play out. And the best-case scenario usually doesn't play out. Since the novice investor never plans for this situation, he gets killed.

I've found, through years of investing and trading my own money – and through years of hanging out with very successful businesspeople and great investors – that when presented with an idea, the great investor or trader reflexively asks early in the discussion, "How much can I lose?"

Like I say, this can be a real estate deal, a small business investment, a quick trade, a stock position, or a commodity investment. The concern is always, "How much can I lose? What happens if the best-case scenario doesn't pan out?"

S&A: It's along the lines of Warren Buffett's famous rules of successful investment. Rule one: Never lose money. Rule two: Never forget rule one.

Hunt: Right. Buffett is probably the greatest business analyst to ever live… the greatest capital allocator to ever live. He's worth over $50 billion because of his ability to analyze investments.

When they ask the old man his secret, he doesn't talk about the intricacies of balance sheets or cash flow analysis. The first thing he recommends to folks who want to make money in the market is to not lose money in the market. He's obsessed with finding out how much he could potentially lose on a stake. Once he's satisfied with that, he looks at what the upside is.

So Buffett is your great investor. Now take Paul Tudor Jones, an incredible trader with a net worth in the billions. His interview in the trading bible Market Wizards is the most important thing any new trader can read. His interview is filled with how he's obsessed with not losing money… with playing defense.

Tudor's famous quote is the trader's version of Buffett's investment quote. Tudor says the most important rule of trading is playing great defense, not offense.

If a new investor or trader taped Buffett's quote in a place he'd see it every day… and if he read Tudor Jones' interview once per month… and if he reflexively asks himself, "How much can I lose?" before investing a penny in anything, he'd be worlds ahead of most people out there. He'd set himself up for a lifetime of wealth.

S&A: OK, that covers the theory. How can we put "how much can I lose" into everyday practice?

Hunt: Well, if you're putting money into a startup business, a speculative stock, an option position, or anything else that is on the riskier end of the spectrum, the answer to "how much can I lose?" is usually, "Every last dollar."

While speculative situations can be tremendous wealth-generators, they're best played with small amounts of your overall portfolio. Or if you're a conservative investor, not played at all. Let's say you're buying a speculative gold-mining stock or a speculative tech company with just one potential "big hit" product.

With speculative positions, there is always the possibility that your money could evaporate. This is where the concept of position sizing comes into play. In a speculative situation, you're going to want to put just 0.5% or just 1% of your overall portfolio into that idea. That way, if the situation works out badly, you only lose a little bit of money. You certainly don't want to put 5% or 10% of your portfolio into a speculative position. That's way too big.

S&A: How about advice for conservative investors?

Hunt: I think conservative investors should stick to Warren Buffett-type investments… owning incredible companies with great brand names, like Johnson & Johnson or Coca-Cola. These are the safest, most stable companies in the world.

When you buy companies like this at cheap prices, when they are out of favor for some reason, it's very hard to lose money on them. They are such incredible profit generators that their share prices eventually rise and rise.

My friend and colleague Dan Ferris, who writes our Extreme Valueadvisory, provides advice on how and when to buy these dominant companies better than anyone in the business. He knows exactly what they are worth… and he watches them like a hawk to find the right buy-points for his readers.

If a conservative investor can buy a super world-dominating company like Johnson & Johnson or Coca-Cola or Intel for less than eight or 10 times its annual cash flow, it's very hard to lose money in them. Eight to 10 times cash flow is often a hard floor for share prices of elite businesses. They don't go down past that.

S&A: How about the concept of "replacement cost"? Do you think that's important in the quest to not lose money?

Hunt: A while back, I had lunch with a successful professional real-estate investor who raved about some of the values he found on the east coast of Florida.

The market was wrecked there. There are a lot of sellers who needed to dump right then and ask questions later… So he's found tons of properties that are selling for less than the cost it would take to build the structures if they weren't there in the first place. He's bought properties for less than that rock-bottom value… for less than replacement cost.

Since he is focusing on not losing money… and buying below replacement cost… it's going to be easy for him to make money on his properties. Mind you, he's not raving about price-appreciation potential. His eyes lit up because his downside was so well-protected.

That's the mindset the new investor needs to cultivate. He needs to realize the time to start raving is when he's found a situation where it's going to be difficult for him to lose a lot of money. The upside will take care of itself.

S&A: How about commodities? I know you like to trade commodity stocks.

Hunt: Oh, I love to trade commodity-related stocks… copper producers, oil-service companies, uranium, gold, silver, agriculture. They boom and bust like crazy. And you can make money both ways. I like to say they are "well behaved."

The key to not losing money – which leads to making terrific money – in commodity stocks is to focus your buying interest in commodities that have been blown out… that are down 60% or 80% from their high. Find commodities that have suffered brutal bear markets. The longer the bear market, the better. This is the time that the risk has been wrung out of them.

Every commodity has what's called a "production cost." This is how much it costs to produce a given unit of that commodity. It's similar to the concept of "replacement cost."

After a big bear market in a commodity, you'll often find it trading for below its replacement cost. Sentiment toward the asset will be so bad that nobody wants it. So producers get out of the business… and demand for that commodity increases because it is so cheap. This sows the seeds of a big bull market.

But to get back to covering your downside in commodities, focus on markets that have suffered a terrible selloff or bear market. In these situations, the answer to "how much can I lose?" is often, "Not much… It's already selling at rock-bottom levels."

You can certainly make money in commodities that have been trending higher for a long time, but the sure way to not lose money is to focus on the commodities that have absolutely been blown out.

Gold and gold stocks were a classic case of this in 2001. Gold and gold stocks were such bad investments for so long that everyone who bought in the 1980s or '90s had sold their holdings in disgust. They finally got so cheap and hated that they couldn't go any lower. Then they skyrocketed.

S&A: Good advice… Any parting shots?

Hunt: When you start out in this game, you're as bad as you're going to get. So take supertrader Bruce Kovner's advice and "undertrade."

Make really small bets to get the hang of things… to get the hang of handling your emotions. If you have $10,000 to get started, set aside $7,000 and trade with $3,000 for the first six or 12 months.

But even after going through a training period like this, it's tough to learn not to lose money unless you actually feel the pain of losing a lot of money. It took me touching several very hot stoves and suffering several big losses early on in my career before I learned this.

If I am a skilled trader and investor nowadays, it is only because I have made every boneheaded mistake you can think of and learned not to repeat it. I've learned that you can make great money in the market simply by not making stupid mistakes… by playing great defense.

S&A: Winning by not losing. It works for Buffett and Paul Tudor Jones… So it's probably worth focusing on. Thanks for your time.

Hunt: My pleasure.


How Small Caps can present a GREAT deal of Opportunity

Found this article from Investopedia... Worth a read... its quite interesting..
Sometimes, buying stock in small capitalization companies - those with market caps of between $300 million and $2 billion - is more profitable than buying shares in large caps. In fact, according to Ibbotson Associates, an investment-consulting firm that also tracks long-term market data, small caps have increased in value by an average of more than 12% per year between 1927 and 2007. Meanwhile, large caps have increased just over 10% during that same time period.
This performance advantage is no coincidence. In fact, small caps have several advantages that large caps simply can't match. Read on as we cover how small caps can produce big gains and how you can pick a winner.

Temporary Valuation Disconnect
Small caps may outperform larger companies over time, but the operative words here are "over time." That's because smaller companies, primarily because of their lack of visibility within the investment community, often experience a disconnect between their stock prices and their fundamentals. This discrepancy between price and fundamentals presents a tremendous opportunity that small cap investors can take advantage of.

Thin Market
Small caps tend to be thinly traded, and while this is a characteristic that can slice both ways, it often presents a huge opportunity for shrewd investors. As the company grows its revenues and earnings over time and the public becomes more aware of its existence and future growth prospects, demand for the stock inevitably perks up. And when a large number of investors start to clamor over a very limited amount of stock, this gives small cap stocks the potential to rise quite rapidly.

Lack of Analyst Coverage
According to First Call, on Jan. 8, 2007, UBS Securities raised its rating on IBM from "neutral" to "buy." The stock edged up $1.17 on the news, or about 1%. But that move was nothing compared to what happened on Sept. 6, 2005, when Brean Murray upgraded Wilson's Leather from "accumulate" to "strong buy." The day the report went out the shares moved up roughly 4%, and within a week they rose almost 12%!

Why the discrepancy between reactions?

It's simple. At the time of the IBM upgrade, about 25 different analysts were covering the stock. This meant that there was a great deal of information already in the public domain, and it would take a major news announcement or an unusually bullish report or group of reports to move the stock substantially. However, at the time, only about five different brokerage firms had disseminated research on Wilsons. As such, the investment community was more apt to react in a positive manner.

Institutional Sponsorship
With regard to the benefits of institutional ownership, a terrific example can be found in a small cap called Labor Ready, which changed its name to TrueBlue Inc. (NYSE:TBI) in 2007. Back in late 1997, the temporary employment provider was trading in the mid-single digits. However, its then Chief Executive Glen Welstad went on several road shows where he met with a number of institutions, which warmed to the stock almost immediately.

The result of Welstad's aggressive public relations campaign was nothing short of amazing. Within a year's time, a number of big-name funds got involved in the stock and the shares skyrocketed into the $25 range.

A small cap company's lack of institutional sponsorship can present a huge opportunity, particularly for investors who get in early.

Eric Schmidt, who headed up Novell and later moved on to Google, once said in a conference call that big companies were like aircraft carriers or cruise ships, "they take a long time to change direction."

In many ways, this is a perfect analogy. In fact, it can take years for a larger company to bring a new product to market because of the committees that need to review its practicality (before its introduction), the legal vetting it must receive and the work that goes into its marketing and promotion. Small companies, on the other hand, have less bureaucracy and a genuine need to push products to market just to survive.

Take, for example, a small-cap restaurant business that has operations dispersed throughout the United States. Over time, this type of company would be able to refurbish its locations and make menu changes many times within a period of weeks or months. However, similar changes would be impossible for a restaurant giant like McDonald's (NYSE:MCD), which had more than 30,000 restaurants in 2007 - not to mention a bulky senior management staff with a reputation for moving at glacial speed.

The ability to be nimble enables a small company to seize opportunities (enter new markets, release new products, etc.) in a much more efficient way than its large cap counterparts. This allows it to grow sales and earnings at a 20 or 30% rate, whereas most corporate behemoths tend to experience mere single-digit growth.

While larger companies can and do merge with or acquire other large companies, it doesn't happen very often. On the other hand, smaller companies always seem to have a target on their backs.

That's why, as of 2007 companies such as Isle of Capri Casinos, a casino operator in the Southeast, or Ameristar Casinos, a casino operator in the Midwest tend to do so well even during tough economic times. The ongoing possibility that they will be bought out by larger players acts as a perpetual catalyst for the stock.

It's also much easier for a large company, which probably has pretty deep pockets, to buy a small company that's already up and running than it is for the larger company to start a comparable operation from scratch.

The fact that smaller companies often have a target on their backs and that larger companies are often willing to pay a premium to acquire them makes small caps all the more attractive.

The Bottom Line
Small caps aren't necessarily a panacea for all portfolios, but they do have operational advantages that their larger cap counterparts do not. Factors such as being thinly traded or not having many analysts cover the stock may act as a double-edged sword but, for the astute investor, these factors can actually present a great deal of opportunity.

Personal Opinion
Small caps are without a doubt attractive when it can score you home run returns of 50 - 100% in a short period! Nevertheless, they come with risks as well.
The best way to play small caps is during a stock recovery phase as their % returns will exceed their blue chips counterparts easily. 
On the other hand, when it is recession time or during periods of uncertainty, REITs and blue chips which offer stable dividend yields can be your best buddy.


Reasons for DUKANG DISTILLERS Explosive Breakout 18/4/2013

At 5pm+ during work; I tuned in to the SGX website to take a glance at the stocks and one stock caught my attention right away!

Why did DUKANG DISTILLERS rise up 16%+ suddenly out of the blue?!?

I did a research immediately when i reached home... and found out the details below:

Obviously there is someone out trying to manipulate the Stock [Dukang Distillers]... I observed two important things...
  1. Numerous 1,000 shares (1 lot) being purchased throughout the early periods [no one in the right mind will keep buying 1 lot at such close periods of time as the commission just doesn't make sense]
  2. Huge volume of "ASK"/Intent to Purchase of more than $100,000 at stakes indicates interest by rich investors or financial institutions.

What does that mean? It means the "big fishes" are keeping the prices afloat @ half a bid ($0.005 more) and it will generate positive signals to big traders/retail investors out there to join in the party!


Dukang has fallen tremendously over the past years to a low of $0.20+ last year but has picked up and reached $0.35+ recently. A positive pattern [ascending triangle] is established and surpassed through to the upside. 

A short-term target price would be $0.46. However, I believe there might be a pull-back after a 16% rise in one day. An entry after some pull back can prove to be $_$.


Imminent Downturn coming? Stock Market Outlook 17/4/2013

Many people i have asked are scared of chasing the uptrend as they think that it is unsustainable... so what are the charts showing then? Without further ado, let's zoom right to the charts:

i found this on the CNBC. [http://www.cnbc.com/id/100646957] It says a scary pattern maybe coming.. A Head and Shoulders which will lead to a much potential decline.

The STI has been unable to break through the upper bollinger band and has consolidated among the bands. This pattern is similar to what is shown in the 2nd picture where the upcoming trend is Downwards.


While i still believe in the Bull Run (Uptrend) in the Long Run, it's time for a healthy correction as stocks do not go up all the way at one go! I have liquidated all my holdings and preparing my "money chest" to load up on stocks with high growth potential going forward.

On the other hand, value investors who are holding on to their stocks for the long run can dollar-cost average down (a.k.a. buying more as prices go down). 

Lastly, keep in touch with me on facebook as i will be revealing the appropriate Entry time when the time is ripe. 


How to save on income tax in Singapore

It's the season to file your income tax again (1 Mar to 18 Apr 2013)! Right now, the Government has made it even easier for us to submit the income tax with the No-filing service; means your income tax is submitted automatically!

You can seek additional help from the tips if you are unsure of certain stuff or even visit their e-learning guide.

Usually, the fields will already be pre-filled by IRAS based on the info it receives from the relevant organisations such as CPF and our companies if they are in auto-inclusion inside the program. Thus, if you have no changes in income/relief claims; you are relieved of the extra work to login to the portal & submit your tax.

However.... many people i know are ignorant about the tax reliefs they can claim to reduce their tax significantly! Right now, lets take a look on some ways you can SAVE TAX & GET RICH.

(i) Parent Relief/Grandparent Relief: Many people tend to miss out on these. and they give huge tax reliefs seen below:

  YA2009 and before From YA 2010 onwards
Type of relief
Staying with parentsNot staying with parentsStaying with parents Not staying with parents 
Parent relief$5,000$3,500$7,000$4,500
Handicapped parent relief$8,000$6,500$11,000$8,000
And its not just YOUR Parents! You can do it for your parents, grandparents, parents-in-law or grandparents-in-law! Just make sure nobody else in the family are claiming under the same parent's name :)

(ii) Life Insurance Relief: Many people do buy insurance in many forms so prevent from letting your premiums paid go to waste! There is a limit though, you cannot claim this if your CPF contributions exceed $5,000 annually... what a waste!

(iii) Course Fees Relief: If you are constantly upgrading yourself in relation to your career; you can also claim for the tax relief for this. Examples may include: ACCA, CFA, CPA etc..

(iv) SRS/CPF Top-Up: I found a very good link showing you how you can kinda allocate your cash to your SRS/CPF and use them to claim tax reliefs. The benefits are that you can earn interest on the accounts, use the funds inside to invest after a certain min. sum & lastly, claim your tax reliefs!
But do take note that your funds will be locked in for a long time so don't jump in without doing your homework!

On a side note, other types of Personal Reliefs are usually included automatically. No point in handing out tax revenue to the government when you can claim claim claim it all! All the best in filing your income tax!


Why rowsley and other penny stocks fall

Its scary to see rowsley drop 20+% in one day when its one of the popular stock of the period..

What exactly happened? Trading curb.

According to the business times:
SOME six weeks ago, this column warned of the strong likelihood that with the fever in penny stock punting threatening to boil over dangerously, local broking houses faced with rising credit risks or over-exposure to a huge speculative bubble would surely act to protect themselves by imposing trading curbs on many of the stocks.

This has now occurred - over the past few days, at least one large broker is said to have slapped limits on trading on the entire penny sector. Precise details are not known but it is thought that clients' exposure to each non-marginable stock is now limited to $50-100,000 depending on trading limits, and $300,000 in total.

Whatever the specifics, the effect has been painful - segment leader Rowsley Holdings, for example, has crashed from 51 cents just over a week ago to 39.5 cents now - a loss of 23 per cent that is bound to hurt those caught at the top when volume was much larger than now. Similarly, many other low-priced issues like SingHaiyi and WE Holdings that had been speculatively ramped up in the recent penny push have also seen their shares tumble in recent days, either as a direct consequence of trading restrictions or because of sympathetic selling from curbs on other stocks.

The point stressed in that earlier column was that while it is fine for houses to look after their own interests, the announcement of trading curbs has to be better managed as it is a material, market-moving development that could in theory benefit parties who had advance knowledge of their introduction.

We wrote then: "Since trading curbs have the potential to influence sentiment and affect many stocks simultaneously, it would ... be a good idea to figure out how best to handle such announcements. They are, after all, as material as company announcements but are thus far unregulated."

As it stands now, houses are free to slap curbs on trading whenever they see fit, and the announcement of such measures often in the middle of trading tends to catch the market by surprise, leading to panic selling and widespread speculation as to what these curbs are and which stocks might be affected.

The market's frontline regulator, the Singapore Exchange (SGX), must therefore take the initiative and examine ways of levelling the playing field in such instances.

Possibly the best way to accomplish this is for houses contemplating curbs to be required to first inform SGX of their intention to introduce such measures. Once this is done, the information can be disseminated to the public only after trading has ended for that day either via SMS notification to clients or postings on SGX's and the broker's websites, or both.

Announcements have to be clear and concise, and must include details of exactly what measures are to be imposed and which stocks are involved. There should be no room for ambiguity, and at the same time, there should be an estimate of the duration for which the restrictions are to remain in place.

In short, the means of communicating curbs must ensure as far as possible that everyone receives notification at the same time and that no parties are in a position to profit unfairly from advance knowledge.

Own opinion:
Many people are unaware of the existence of such trading curbs and its is unfair to the retail investors...

I believe More can be done to regulate the broker houses.. Or give prior warning to prevent panic selling..


8 Laws of Investing from the Millionaire Next Door

Just read an interesting article from Yahoo which i bookmarked and would like to share with you all... This author makes me think of Dennis Ng and how he scrimped and saved and invested wisely to become a millionaire through simple means Anyone can do...

Here goes the story: In the year 2000, my personal life and financials were in the toilet. I was in my early thirties, my marriage was breaking up and I had to borrow against my meager 401(k) funds to settle with my ex. My net worth was right around zero. Since 2000, I've managed to increase my net worth around $1 million during one of the worst investment periods in recent memory. And no, I didn't get lucky with company stock options, win the lottery, receive an inheritance or even rob a bank. 

I'm one of those "millionaires next door" who you may have heard about. My wife and I have two kids, ordinary white collar careers and a shared financial philosophy that has enabled us to build wealth even during difficult economic times. 

We call these our "Eight Laws of Investing." 

 Live BELOW Your Means - With everyone under the sun sending you pre-approved credit cards and offering special financing on homes, cars, appliances and furniture, it's frighteningly easy to obtain a lifestyle that's richer than your actual income. At our house, we carry no credit card debt and make sure at least 20 percent of our net income is left over to save and invest. If that means we can't have that huge pool or we have to buy a Toyota instead of a 5-series BMW, so be it. 

 Keep a "Rainy Day Fund" - It's almost inevitable that at some point you'll face an income disruption, whether it's from an illness, corporate downsizing, divorce or other unforeseen event. Having a rainy day fund in a liquid asset (an interest-earning money market account is a good option) that covers six months of expenses will help you avoid a nightmare scenario of racking up credit card debt to pay the electric bill or incurring huge penalties by cashing in other investments like 401(k)s, IRAs or CDs. It may take awhile to build up this fund, but when you do, you'll definitely sleep better knowing it's there. 

3. Take Advantage of Your Company's 401(k) Match - Though less companies do it these days compared to a few years ago, a 401(k) match from your employer is literally free money you should take full advantage of. At a minimum, you should contribute at the company matching level (for example, if your company matches the first 3 percent contribution dollar for dollar, your minimum contribution should be 3 percent). The compounding impact of this "free money" over time can mean tens of thousands of extra dollars in your retirement fund. 

 Dollar Cost Averaging - Simply put, dollar-cost averaging means making measured investments consistently over time. This allows you to create a kind of built-in hedge in your portfolio so you have less exposure to short-term market fluctuations. And avoid "market timing" at all costs. You might get lucky a few times (especially during rising market periods), but in the long-term, no one's smarter than the market. 

 Diversify! - Remember the saying about all your eggs in one basket? A good investor probably came up with that! Diversifying your investments across domestic stocks, bonds and international stocks spreads out risk and stabilizes your portfolio. There are lots of great articles on investment websites about how you can diversify based on your age and risk tolerance, one of my favorites being The Coffeehouse Investor (and just so you know, I have no financial connection to the author or the site, it's just a great common sense approach to investing). 

6. Investing in Index funds - I love index funds. You get the benefit of diversification coupled with low-cost "passive" management. The most popular index funds carry investments that track to well-known market indices (e.g., an S&P 500 Index fund carries the stock of companies that make up the S&P 500), enabling you to instantly diversify across the spectrum of companies in a particular market or industry. And many index funds these days have initial investment requirements as low as $1,000. 

 Take a Long-Term View - Over the long-term (meaning many years, not weeks or months), a diversified, consistent and disciplined approach to investing in low-cost index funds can reap great rewards. You won't see quick results, but by following the guidelines described in this article, doing a bit of homework and living below your means, over time you can build a portfolio that will weather short-term storms in the market and build wealth and security for you and your family. 

 Let Yourself Splurge, Within Reason - Just because you're financially responsible doesn't mean you have to live like a monk who's taken a vow of poverty! As long as you stay on track, with your spending, saving and investing reflecting your long-term goals, it's okay to splurge on the occasional ski trip, tennis lesson or new gadget from Apple you simply must have. 

So there you have it, eight simple laws. Not exactly rocket science, is it? And it shouldn't be. With a sound long-term strategy and a consistent, disciplined approach to managing your money, building wealth can be achieved even during challenging times. 


Stock Quotes from Carl Icahn

Many people know about Warren Buffett and Geroge Soros but very few people know about Carl Icahn. I read the recent news about how Carl Icahn is ploughing in his company into Herballife and got interested to do a post on him...
A little background on him

Born:New York City, in 1936
  • Icahn & Company (securities firm)
  • Icahn Enterprises L.P. (NYSE:IEP)
  • Icahn Partners (hedge fund)
  • Controlling ownership positions in several major corporations
  • Carl C. Icahn Center for Science at Princeton University
Most Famous For:The "Icahn Lift." This is the Wall Street catchphrase that describes the upward bounce in a company's stock price that typically happens when Carl Icahn starts buying the stock of a company he believes is poorly managed.

Since the mid-1980s, Icahn has had titanic battles with multiple U. S. corporations resulting, most of the time, in significant capital gains for these companies' shareholders and, of course, making Icahn a multibillionaire, whom Forbes ranked as the 46th richest in the world in 2008.

Icahn is viewed either as one of history's most ruthless corporate raiders or as a positive force for increased shareholder activism, who seeks to correct the abuses of greedy and/or incompetent corporate management.
~From Investopedia~

Carl Icahn Stock Quotes

  • I look at companies as businesses, while Wall Street analysts look for quarterly earnings performance. I buy assets and potential productivity. Wall Street buys earnings, so they miss a lot of things that I see in certain situations.
  • I have always lived by my word, so to speak. I think that’s the way to be… The funny, ironic part is if you do that over the years, it really pays off tremendous dividends.
  • A lot of these companies are undervalued because of poor management. You can replace bad management, right. So that’s one big hidden value there.
  • I think I’m good at what I do. I think in the takeover business I would say I’m as good as anybody in this area… I have a good mind for this type of thinking. It’s like a chess game. I was always a good chess player.
  • What turns me one, is the excitement of it all. I really believe in what I’m doing. Don’t get me wrong. I like to win. But I love to rock boats that should be rocked. Sometimes I wonder why I keep doing it. I’ve got enough goddamn money.


S&P 500 & STI Index ETF Stock Market Outlook 21/2/2013

After the 1% decline yesterday, S&P 500 continued its downtrend for today... see chart below:

I believe a Correction is coming after the paltry daily gains chalked up since the start of 2013.
Based on the two green lines, I would set my Short-Sell profit target @ 1450 to 1460 and possible duration that it would take is probably 1 - 2 months.

Let's look at STI.

STI seemingly also breached through the support @ 3300 with HUGE volume (you can see from the highlighted blue circle).

It would be wise to avoid buying any stocks as the whole market sentiment is poor right now. I advise accumulation of battered stocks after the correction during May where the adage "Sell in May & go away" strikes again. :)


TradeHero Review - A Stock Market App

If there is any interesting local Finance App, it has to be TradeHero. So what is TradeHero?

TradeHero is a stock market simulation mobile app that draws real-time data from 14 stock exchanges, 45,000 global securities and 1,300 currency pairs. 
Users are credited with a $100,000 starting portfolio and can make trades to create their own virtual portfolio. 

The unique thing about this App is that it combines both social networking and trading & Good Traders can earn money from this!

If you are a good stock picker and generate high Return On Investment (ROI), players can follow you by paying US$1.99 per month. You will get to pocket half of this fee by giving people a glimpse of your trades. 

In contrast, if you are curious about the top traders' portfolio, you can pay US$1.99 to see their current trades and subsequently, you may try to mirror them in your real money account.

5 shortcuts at the bottom of the App:

1) Trade: The list shows all the popular stocks that you maybe interested in. If not, you can search for the stocks using the search bar.

2) Community

The app’s Leaderboards identify the top traders (known as ‘Heroes’) by their returns, and they are ranked by Exchange, Sector, Monthly or Quarterly returns, as well as overall returns.

The concept of how the company earn their keep is through the subscription of followers to the whole list of "heroes". Followers can subscribe, for a small monthly fee, to follow and receive trade feeds from their chosen Heroes via push notifications on their mobile device. These push notifications detail each Buy and Sell action of the Hero, as well as the experts' tips and personal insight into successful investment strategies.

 3) Bull icon:

Right in the middle lies the Logo of the App, where all the activity is captured like a summary page. Details like which Hero you are following, push notifications of Heroes' trades etc...

4) Positions:
Simply put, it shows your open positions & your previously closed positions. ROI is shown with every trade. You can click the ">" for more information like
  • P&L
  • Total Invested:
  • Opened (trade made)
  • Closed (trade ended)
  • Period (your holding period)

5) Heroes:

Lastly, your credit balance & the "Heroes" you are following are displayed.

Pros & Cons of the App

I have seen a very good review from bigfatpurse & realize that one major flaw with Tradehero (as with any other stimulation game) is that there is absence of demand and supply.

In real life, one has to sell in order for another to buy due to a fixed number of shares. It's a to-n-fro thingy. Whereas, in TradeHero, you can buy or sell any quantity you like. Moreover, transactions can also be completed any time, even after market hours. In other words, transaction is guaranteed without the need to consider demand and supply.

And this leads to easy ROI by trading off the penny stocks which fluctuate by huge margins daily but not easily reflected in the real life market. Thus, some top scores in the Leaderboards may be subject to such scrutiny & followers may be in for a surprise.

I feel that they can still make some improvements to the app like 

  1. Raising the minimum stock price (to more than $0.20) so that penny stocks are out of the door. 
  2. Categorizing top traders not just by ROI; but inculcate investment strategies such as value investing, income/dividend investing which will attract even a larger crowd.
  3. Many a time, i wish to seek out opportunities from different markets but i am unfamiliar with them (e.g. Bursa Malaysia, Thailand, hong kong etc.). I hope that this App can bridge the information gap and allow users to see how other country's traders are doing in their portfolios as well. I think this can be called geographical segmentation? lol.
Nevertheless, it is still a relatively new concept in Singapore and i absolutely respect the team behind this app. All the best to TradeHero & Huat ah!


Warning! Warning! STI & Dow Jones on DownTrend!

As of today 02/07/2013, i have fully liquidated all my holdings i held from last year (Biosensors & China Minzhong).

The STI and Dow Jones was unable to breach through 3,300 and 15,000 respectively and has seen going downwards more on higher volume than going upwards... (meaning people are afraid and volume of selling > volume of buying)

From the RSI at the bottom, they are at overbought levels and now heading downwards (passing down 70% level). Besides that, valuations for a lot of stocks has become quite high (>15) recently and a healthy correction is required to take it further up.

Going forward, i will be staying out of the market or even short-selling it through CFDs until the market becomes more rosy for undervalued buys.

Nevertheless, with all the world economies stable and growing in the future, i believe we are in the midst of a BULL market for the next few years. Investing will help all of us get more returns than the "peanuts" from the Bank Savings Account. :D


Contrarian Trading with Common Sense

I read an interview where a trading expert shares his views about trading on the contrarian side. I find it rather enriching and actually sometimes it can turn into common sense when you think it simply.

I was advocating investing during the past year (as you can see from all my posts) when P/E ratios were really low for the taking and globally, the bad stuff is coming to the rock bottom and turning tides soon.

With the STI touching 3,300 today and Dow Jones breaking 14,000 level; it shows a spectacular bull run is on the way. However, some pull-back is necessary. After the recent steep rise, a consolidation followed by a decline in STI is closing in especially when the May effect takes control once again...

Nevertheless, let's enjoy the article below...

How to Enjoy a Lifetime of Trading Success
The Daily Crux: You've mentioned in the past that to enjoy a lifetime of trading success, you've got to be able to spot "extremes" in the market… that you must become a "connoisseur of extremes."

What do you mean by that?

Brian Hunt: By saying you should become a "connoisseur of extremes," I'm saying you should always be searching for situations where a market is in a drastically different state than normal.

By locating these extreme states – and then betting on conditions returning in the direction of normal – you can consistently make low-risk profits in any type of market.

It's important to realize that extremes can occur in any market – from stocks to commodities to real estate to bonds to currencies.

Extremes can be fundamental in nature… like how cheap or how expensive a stock market is. Another name for this is a "valuation" extreme. Extremes can also be price-action based… like how overbought or oversold a market is. That's a "technical" extreme. And extremes can show up in sentiment readings, like surveys that monitor investor pessimism and optimism.

Crux: Let's cover valuation extremes…

Hunt: Sure. A good example of a fundamental valuation extreme came in U.S. stocks in 1982. Back then, stocks became extremely cheap relative to their earnings power.

For U.S. stocks, the normal price-to-earnings multiple over the past hundred years or so is 16. In 1982, the economy and the stock market had been doing so poorly for so long, people simply gave up on stocks. Since nobody wanted to own stocks, they became extremely cheap. The price-to-earnings multiple fell to around 8.

It was one of the greatest times ever to buy U.S. stocks. The market rose 50% in just one year. It doubled by 1986. It rose more than 10-fold over the next 17 years.

Fast-forward about two decades and you find the opposite extreme. In 1999, optimism toward stocks was so high that the market reached a price-to-earnings ratio of 33. This was a ridiculous, extreme level of overvaluation.

Remember, the normal price-to-earnings ratio of the past 100 years is around 16. The extreme level of overvaluation made it a terrible time to buy stocks. The market crashed for several years after hitting that extreme.

When it comes to fundamentals, you need to study an asset's historical valuation and find out what's normal for that asset. When an asset gets very cheap relative to its historical valuation, you need to consider buying. When an asset gets extremely expensive relative to its historical valuation, you want to consider avoiding it… or even betting on it falling.

This goes for oil stocks, tech stocks, real estate, and lots of other assets.

Crux: OK… so people need to buy stocks when they get extremely cheap relative to their historical norm, and avoid them when they get extremely expensive relative to their historical norm. How about extremes that are "technical" in nature?

Hunt: Before we get into particulars, let's define the term to prevent confusion.

Technical analysis is the study of price action and trading volume. Many people think technical analysis is all about predicting the market, but it's not. It simply comes down to using price and volume data to gauge market action… and to help guide decisions. That's it.

There are dozens of technical indicators that measure a stock's oversold/overbought levels. One I've found useful is the "RSI," which stands for "relative strength index." The RSI is nothing magical or predictive. It's simply an objective way to gauge the overbought/oversold nature of a stock.

My colleague Jeff Clark is amazing at finding short-term technical extremes in the market. He uses an indicator called the "bullish percent index" to identify overbought/oversold extremes in broad market sectors. I'm sure Jeff will tell you there's nothing magical or predictive about the bullish percent index. Again, it's simply an objective way to gauge price action.

We are using these gauges to identify extremes in the market… then betting on the conditions being "relieved" in the other direction. When the pressure behind an extreme is released, the market tends to snap back like a rubber band stretched to its limit.

There are literally hundreds of technical indicators and chart patterns people use. While I have a handful of things that I know work, what works for me or you or someone else isn't as important as knowing the overarching goal: That you're using this stuff to spot extremes and trade them.

For example, I often trade short-term moves in blue-chip stocks, like Coke and McDonald's. These are elite businesses with tremendous competitive advantages and long histories of treating shareholders well.

But like any business, even stable blue chips go through rough patches. If they report a weak quarter or have a product recall, or any other of a dozen solvable problems, the market tends to overreact and sell the shares. The stock price will reach a state we can term "oversold." This is a condition where the stock has reached an extreme level of poor short-term price action.

It's around this time that I'll step in and trade the stock from the long side. World-class businesses have a way of rebounding from short-term setbacks. They tend to snap back from extremely oversold levels.

Crux: OK, when it comes to technical analysis, we're looking for extreme conditions that when relieved, produce "snap back" moves.

You mentioned extremes in sentiment. Let's cover that idea…

Hunt: Let's also define this term to prevent confusion. The study of market sentiment comes down to gauging the amount of pessimism or optimism toward a given asset. You can gauge the sentiment for just about any kind of asset… be it stocks, commodities, real estate, or currencies.

Gauging market sentiment is more an art than a science. There are lots of ways to gauge sentiment that cannot precisely be measured… and some that can.

Whatever gauges you use, the goal is the same: to find extreme levels of pessimism or optimism. You want to find situations where the majority of market participants are extremely bullish or bearish… and then bet against them. You want to go against the crowd.

When most folks can't stand the thought of owning a particular kind of investment, chances are good that it's cheap… and that it's due for at least a short-term rebound.

On the other hand, when everyone loves an asset – like when everyone loved stocks in 1999 – chances are good that the asset is expensive and due for at least a short-term drop.

A few informal sentiment gauges – the kind that can't be precisely measured – are magazine covers and cocktail party chatter.

If a mainstream publication like Newsweek or Time has an asset on its cover, chances are good that the asset is far too popular, far too expensive, and due for at least a short-term drop.

Magazine publishers have to write stories lots of people want to read. Plus, it's mostly journalists – not great investors – who write those stories. Mainstream magazines are just going to write about what's popular so they can sell lots of magazines. Back in 1999 and 2000, they always had stocks on their covers. It was a danger sign. In 2006, it was all about how to cash in on the real estate boom. That was a danger sign.

The idea behind studying cocktail-party chatter is similar. It's another way to get a feel for what the general public thinks about a given investment.

You can get a feel for this by talking to people at cocktail parties, family gatherings, holiday parties, and dinner parties. When lots of people are excited about a given asset and are buying as much as they can, it's a major warning sign. It's a sign the asset is too popular, too expensive, and due for a fall.

On the other hand, when most folks can't stand the thought of owning a given asset, chances are good that it's a good buy.

For example, back in 2003, I put a large portion of my net worth in gold. When I'd tell people that I owned a lot of gold, they'd look at me like I was crazy. You could say there was an extreme amount of disinterest in gold. Gold went on to rise many hundreds of percent.

Crux: What are some sentiment indicators that can be measured precisely?

Hunt: Money managers and investment newsletter writers are always being surveyed and monitored.

Just like most regular investors, the supposed professional investors get swept up in crowd-following behavior. You want to bet against extremes here as well.

Crux: It sounds like being a "connoisseur of extremes" is all about finding abnormal situations, and then betting on them becoming normal again.

Hunt: Exactly. It's important to note that being a "connoisseur of extremes" – and trading them – is about getting a powerful force of nature to work in your favor. That force is called "reversion to the mean."

"Reversion to the mean" is a broad term that is used to describe the tendency for things in extreme, or abnormal, states to return to more normal states. You see "reversion to the mean" all the time. You see it in academics, business, trading, and dozens of other areas.

For example, winning an NFL Super Bowl requires an extreme set of circumstances. A football team has to have a great coach… a great set of players… and they have to play extremely well for an extended period of time. The team's elite players have to avoid injury. And they have to beat a series of excellent teams at the end of the season.

It's really hard to get all the stars aligned and pull off a Super Bowl winning season. That's why Super Bowl winners tend not to win the championship the next year. They tend to "revert to the mean" and not win it.

To go back to the example of trading extremely oversold blue-chip stocks, if a blue-chip stock like Coca-Cola is sold heavily day after day for several weeks, chances are good that its trading action will "revert to the mean" and cease being so extreme. Chances are good that it will stop falling and start rising.

Crux: Understood. Any final thoughts?

Hunt: One last thing I think is important to note is that an extreme in valuation is often accompanied by extreme technical and sentiment readings.

That's why I believe studying and trading the market with "just" fundamentals or "just" technicals can be a limiting mindset. Consider what happened with offshore drilling stocks in mid-2010, just after the terrible Gulf of Mexico oil-well disaster.

After the disaster, investors dumped shares of offshore drilling stocks. They completely overreacted. It was like people believed we'd never be drilling for oil again. Sentiment toward the sector was terrible. Even companies with little business exposure to the Gulf of Mexico fell more than 30%.

This big decline left the whole sector in an extremely oversold state. It also made the stocks very cheap. Great drilling businesses were sold down to valuations of around five times earnings.

After the selloff, you had a sector that was extremely unpopular, extremely cheap, and extremely oversold from a technical standpoint. So I went long offshore drilling stocks and made big returns in a short amount of time.

The stocks enjoyed a sharp "snapback" rally. Again, this rally was preceded by "extreme" valuation, technical, and sentiment readings.

Crux: That's why it pays to look for extremes of all types.

Hunt: Yes, exactly.

Crux: Thanks for your time.

Hunt: My pleasure.