Different types of Alternative Investments

As i browsed through the financial readings for the night, I saw this particular watch that is selling for an astonishing price I can ever imagine.

Guess the Price?

Its selling in The Hour Glass for S$150,700! I can only use one word to describe - disbelief. S$150k can buy me a car straight or used as downpayment for a condo or something... And what if you drop it on the floor accidentally? Ouch!

Then again, it spurred my thoughts to head another way - Alternative Investments.

Types of Alternative Investments

Offhand, I can name just a few like Gold, Wine, Watches, Collectible Coins etc... Wanting to know more, i did a search and i realize basically; An alternative investment is any investment other than the three traditional asset classes: stocks, bonds and cash!

So practically many other things like fine art, private equity or real estate are considered alternative investments too! 

Let's take a look at some of the popular ones most investors will pursue (considering hedge funds, private equity are only limited to accredited investors with S$1million or more):

Coins

The collectible coins are valued, not for their weight in precious metals, but because of their scarcity. Popular collectible coins include Morgan dollars, Walking Liberty half dollars and certain Buffalo Nickels. 

Many factors influence how valuable a particular coin can be such as:

1) condition, 

2) which mint mark it carries and 

3) the year of issue. 

Mint condition coins are always more valuable than coins that are heavily worn. Certain years of coins had fewer mintings, making them more rare and valuable [source: Coin World]. For example, some 1918/7-D Buffalo Nickels could be worth as much as $285,000 because the coins were printed with overdates when then 1917 die was impressed with a 1918 hub.

In the coin market, the rarest coins tend to provide huge returns (upwards of 100 percent of their value in a year), while more marginally rare coins provide only modest returns (sometimes as low as 0 percent in a given year). With any investment coins, find a dealer with a good reputation and inspect the coins carefully before making a purchase, as there are always forgeries circulating.

Commodities

There are tons of commodities traded in the futures markets including resources like crops and livestock, fossil fuels such as oil and coal, and precious metals like copper and gold. Nevertheless, the most 2 common commodities people keep a tab on are Oil and Gold prices. 

Do you still remember the financial crisis from the U.S. sub-prime era? During the period, everyone was worried of the hefty debt levels in the U.S. and sought safety in gold; thus Gold sky-rocketed in the aftermath and investors who bought into it early would have seen impressive returns. On the other hand, economies across the globe aren't doing well, and leading to a drag on the oil prices.

There are various ways to buy into commodities (you don't have to buy the actual stuff and store in your house!). One is to buy into commodity futures through a broker which involves leverage or stocks/companies that are into the mining or supply of the relevant commodities. 

Lastly, if you wish to seek diversification, you can also go for exchange traded funds (ETFs) where you can purchase several different commodities at one go, rather than focusing on one. ETFs can eliminate some of the uncertainty from choosing which commodities might rise and fall at a given moment too.

Real Estate/Property

Historically, real estate has been a very popular alternative investment especially in Singapore as people view it as a form of retirement scheme. History has proven itself as many rich people in Singapore do that due to the rise in property prices in the past few decades. 

Buying rental property can usually provide steady, reliable income if you find the right tenants. What's better than having someone else pay for your housing loan and to own a house debt-free at the end of it? This is a way to beat inflation and to take advantage of leverage in the best form, provided that the "ingredients" are well in place.

In contrast, if you are afraid of the hassle of owning a physical property, you can always turn to real estate investment trusts (REITs). They offer a more hands-off, low-risk method of investing in real estate. 

An REIT is a group that invests in various real estate properties, and receives preferential tax treatment from the government in exchange for paying most of its income to shareholders. Investors can purchase shares of REITs on public exchanges, making them one of the more liquid alternative investments. Another upside is that, like stocks, shares in REITs pay out regular dividends.

Bottom-Line

Historically, many of these alternative investments have been more popular among high-net-worth individuals and institutional investors. That's because many alternative investments require larger initial investments than stocks or bonds and are usually less liquid. 

But despite that, there are some advantages to alternative investments. Read on to find out those advantages, and educate yourself before you dip your toes into those murky waters.

Small Changes = Huge Results

Saving a lot of money is like trying to run a marathon. If you dwell on how long the race is, you might not even get off the couch. But if, instead, you focus on putting one foot in front of the other and running one mile, and then two miles, and so on, suddenly a marathon doesn't seem quite as intimidating. Try to think about your finances in the same way.P

This post originally appeared on LearnVest. P

Minor changes that you make right now can have a major impact on your long-term financial security, according to Stephany Kirkpatrick, senior director of financial planning and aCertified Financial Planner at LearnVest Planning Services. Below, she shares eight quick and easy tips that can help you slowly and steadily stash away cash—and we profile real people who've put them to the test, much to the benefit of their bottom lines.P

Open a Separate Savings AccountP

Simply put, you want to keep your checking account and savings account at two different banks. Erica Zidel, 31, of Boston, Mass., who runs the babysitting startup SittingAround.com, says that this is the single best thing she's done to save money. "I kind of forget that I have the savings account, so I'm not tempted to dip into it," she says. "Since doing this five years ago, my savings have grown 400%."P

Kirkpatrick agrees that the out-of-sight/out-of-mind mentality is helpful—plus, it usually takes two to three days to access money from a separate savings account, so you probably can't spend it as impulsively.P

Set Up an Automated TransferP

It's easy to promise yourself that you're going to transfer a certain amount of money into savings each week or month, but following through takes an awful lot of time, energy and discipline. Take the process out of your own hands by either asking your company to regularly deposit a portion of your paycheck directly into your savings account (that's ideal, says Kirkpatrick, because you never even see the money) or asking your bank to regularly transfer a certain amount of money from your checking account to your savings account.P

"My husband and I set up an automatic transfer with our bank between our checking and savings accounts, " explains Kendal Perez, a 28-year-old marketing manager at Kinoli Incorporated in Fort Collins, Colo. "Each week, $50 is transferred, and we don't typically miss it. That has helped us build an emergency fund and cover costs like car insurance and vehicle registration." And do it frequently: "If you transfer from checking to savings, I recommend weekly transfers, because they keep your checking account more level. You won't feel a huge dip once a month," says Kirkpatrick.P

Bring Your Lunch to WorkP

Did you know that the average American who eats their lunch out during the week spends nearly $1,000 a year? Stuart L. Cantor, Ph.D., a 49-year-old pharmaceutical scientist in Mt. Airy, Md., used to be tempted to go to a Chinese or Indian restaurant with co-workers for lunch on occasion and drop $12 to $15 each time.P

"Now I bring my lunch to work every day. Either my wife and I will cook something or I'll microwave a frozen Indian dish that costs $1.99 for 14 ounces. I always eat something healthy and delicious, so I don't feel cheated," he says.P

"The key to making this habit stick is to make sure you're not taking an enjoyment factor out of your life," says Kirkpatrick. "Have one or two splurge days if you need to. Bringing your lunch 3 or 4 days a week is still better than none." Ask your co-workers if they want try this strategy too and eat with you, so you'll get the same sense of camaraderie that you would at a restaurant and they'll help hold you accountable.P

Just Add 1% P

Add 1% of your gross income to your retirement savings every six months. The idea is to keep doing this gradually until you reach the maximum amount that you're allowed to contribute. Maximums can change year to year. For traditional or Roth IRAs, for example, the current limit is $5,500 (and $6,500 for those 50 or older). For 401(k)s, it's $17,500 for those under age 50 and $23,000 for those age 50 or older. P

"1% is a good amount because it's a painless but significant step in the right direction. You can live without that small amount of money," says Kirkpatrick. If you are contributing, say, 2% right now, within about 4 years you'll slowly grow that amount to 10% without even feeling it by following this strategy.P

Track Your Spending for One Month P

Before you can spend less, you need to figure out exactly where your money goes. You might think you have a good idea, but many people are surprised by what they find.P

Hudson Valley, N.Y. writer Virginia Sole-Smith, 32, certainly was when she used a spreadsheet to track what she and her husband spent on groceries in May and June of this year. But the exercise helped her pinpoint areas where she could slash costs. "We were spending $75 a month on individual, 6-ounce Chobani yogurts at a fancy grocery store! Now we buy four-packs and 32-ounce tubs from Stop & Shop," she says. Tricks like this have enabled her to cut her yogurt bill nearly in half and spend 37% less on all her groceries.P

"Pay attention to recurring costs, like cable TV bills and gym memberships. Ask yourself if you're getting your money's worth," says Kirkpatrick. If you're not, it might be time to buy an HDTV antenna (a one-time fee) or pay for Hulu or Netflix (which are recurring fees but are less expensive than cable). Or you may want to watch free exercise videos on YouTube instead of taking gym classes.P

If your weak spot isn't a recurring cost, try putting yourself on a cash diet, says Kirkpatrick. For instance, if you can't enter a shoe store without purchasing three pairs, don't go in there with a debit or credit card—take only a certain amount of cash, so you can't go crazy.P

Use a Rewards Card WiselyP

"For the past 17 years, my husband and I and our five children have saved by charging everything on my Southwest Airlines card and paying off the balance in full each month. We rack up free miles so we can visit family in Raleigh and take vacations, like a trip to San Francisco, at much lower costs," says Andi Wrenn, a 46-year-old financial counselor in Arlington, Va."Over the past four years, we've earned anywhere from 3,000 to 12,000 miles per month." P

This tactic can be advantageous, Kirkpatrick agrees. "But only if you spend within your means and pay off the balance in full every month, so you have to stay disciplined," she advises.P

Set RemindersP

One big money drain can be forgetting to pay a bill—and then getting slapped with a late fee and/or having to pay interest on a credit card payment. This can be easily avoided by getting organized.P

"I started using a hard copy planner (and then a few years ago, I switched to using a Google digital calendar) to record reminders throughout the year for different money deadlines, such as paying monthly bills, contacting my tax professional, reviewing insurance policies, getting a credit report and more," says Ray Advani, 42, of Chicago, who founded the blogSquirrelers.com.P

"Over the past 10 years, this has saved me about $1,000 and prevents a lot of stress!" he adds. You can also schedule alerts via email or text. "Setting reminders is a helpful strategy for people who lead busy lives," says Kirkpatrick. "You can also ask vendors, like your cable company or electric company, if they can reset your payment due date. You might prefer to have all your due dates on the same day for convenience or it might help your cash flow to spread them out over the month."P

Move Your Savings to an Online BankP

"Consider putting your savings into an online bank, as opposed to a brick-and-mortar bank, because the interest rates tend to be higher, so your money will grow faster," says Kirkpatrick. For example, if your emergency fund sits in Citibank's savings account, it'll earn .01% interest. If it sits in Ally online bank's savings account, it'll earn .87% interest. And, as this story shows, even little differences can add up.

Bitcoin Boom Bust

Around a month ago, I wrote about the pros and cons of investing in Bitcoins - link here (yes, i am a Fool.sg contributor) :)

One of the key risks I talked about was about the overwhelming chances that it is can be used for fraud or manipulation - like a black market for money laundering.

True enough, just a month plus later, it is going down with one of the biggest exchange shutdown and its founder MIA. Here is the article...

One may wish to exercise caution when moving into such risky ventures; i remember hearing one celebrity buying almost 400K of Bitcoins back when i wrote the previous article. Hope he has cashed out his holdings! And you should too...!

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 Buyback - There 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.

Conclusion

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.

Acquisitions
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!

Thoughts

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.

Thoughts

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.