With so much hype about the Singapore property market, I will like to share with my readers on what to look out for in buying a property. I will like to add a logical dimension when one decides to sign the dotted line.
Why is property investment an attractive proposition?
Singapore is an attractive place for foreigners to buy property for investment. One key reason is that there is currently no capital gain tax (CGT)*. However, Singapore used to have CGT on gains which individuals made from selling properties within three years of purchase in 1996 as a measure to curb speculation in the property market then. The government lifted the rule in 2001.
Another reason that adds to the attractiveness of Singapore is the political stability and legal protection a buyer would enjoy when he purchases a property here.
From wikipedia: "CGT is a tax charged on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property. Not all countries implement a capital gains tax and most have different rates of taxation for individuals and corporations."
In general, people are also drawn to property purchase as they could have passive income through rental. In addition, they could also leave behind the property as a legacy to their children.
In terms of the amount of money to fork out, it is typically around 20% of the purchase price for the downpayment. Buyers will have to take a loan from financial institution to finance up to 80% of the purchase price with effect from 17 Feb 2010 as the government limits the LTV ratio to 80% (i.e. Loan-to-value from 90% to 80%). They would need to cough out more if the bank decides to offer a lesser loan. As a rule of thumb, a buyer should ensure that his debt-to-service ratio (DSR) is 35% or lower.
Showing posts with label Investment. Show all posts
Showing posts with label Investment. Show all posts
Wednesday, March 28, 2012
Saturday, March 27, 2010
Stock Market in 2010
A couple of weeks ago, I have attended a seminar on the stock market. This blog is to share with my readers, the insights which I have gleaned from the seminar with my two-cents' worth. A disclaimer here, the below represents only my personal opinion and it does not constitute any investment proposition. I hope that by sharing, we will all be more knowledgable and financially savvy.
As the world economy recovers from the Great Recession and the governments around will be reining in the money that is pumped into the system. For the governments, they will want to stock market to continue to go up as they have a stake in it. However, with so much money floating around, inflationary pressure is also building up. The tip here is not to "buy and hold" but to buy and sell when you make money.
In terms of IPOs, this year could see a bumper listing. Most people like to buy IPOs because these are "fresh" companies to be publicly listed. They would have met the stringent criteria set up by the authorities. As with the rest of the shares, if you were to buy, sell when you make profit as the market is expected to be volatile this year.
With inflationary risk going up, gold prices - traditionally, a hedge against inflation though not so in the long run - are also heading north. Though, gold prices are currently at historical high, when compared against Singapore currency, gold prices are not that high. The reason being, Singapore currency is getting stronger. So there is a likelihood that gold prices will continue to rise.
Besides gold prices, there are other tangible commodities which would also experience upward price pressures. These are crude oil, liquid gas and agriculture. However, governments are likely to try to keep these prices low as the prices of these commodities will go into the computation of CPI which mean higher inflation.
As the world economy recovers from the Great Recession and the governments around will be reining in the money that is pumped into the system. For the governments, they will want to stock market to continue to go up as they have a stake in it. However, with so much money floating around, inflationary pressure is also building up. The tip here is not to "buy and hold" but to buy and sell when you make money.
In terms of IPOs, this year could see a bumper listing. Most people like to buy IPOs because these are "fresh" companies to be publicly listed. They would have met the stringent criteria set up by the authorities. As with the rest of the shares, if you were to buy, sell when you make profit as the market is expected to be volatile this year.
With inflationary risk going up, gold prices - traditionally, a hedge against inflation though not so in the long run - are also heading north. Though, gold prices are currently at historical high, when compared against Singapore currency, gold prices are not that high. The reason being, Singapore currency is getting stronger. So there is a likelihood that gold prices will continue to rise.
Besides gold prices, there are other tangible commodities which would also experience upward price pressures. These are crude oil, liquid gas and agriculture. However, governments are likely to try to keep these prices low as the prices of these commodities will go into the computation of CPI which mean higher inflation.
Saturday, November 8, 2008
Market Downturn – Talk by CIMB 21 Oct 08
The talk was about the current market downturn. In gist, it talked about the history leading to the current crisis and what was ahead for investors. The speaker was Mr Victor Lye, Founder & Head of WMG – Wealth Management of CIMB.
Why US Hegemony?
In order to understand the current crisis, there was a need to why the US dollar is the global currency, the reasons behind US hegemony. History has it that US being not so adversely affected by World War II, emerged stronger economically compared to other world countries and hence, called the shots.
In an attempt to rebuild the international economic system even as World War II ravaged, the Allied nations assembled in a small town, Bretton Woods, New Hampshire, United States. The meeting resulted in the signing of the Bretton Woods Agreement in July 1944. It was essentially a fixed exchange system whereby US dollar was pegged to gold – at US35 per oz, and all other currencies tied to US dollar. Hence, US dollar became the de facto “international” currency.
The agreement eventually broke down in 1973 mainly due to the divergence between the focus of the US monetary and that for the agreement. For the agreement to work, US central bank, Federal Reserve will need to monitor the growth of the US money stock with respect to its gold stock. On the other hand, the Federal Reserve was more into managing the US domestic economy – after all, this was their home ground. US consumers were great spenders, using not just their own money but also someone else’s money – borrowed. Other countries were too happy to lend US by buying US Government bonds – IOU by the US government. So much money floating around that there was not enough gold to guarantee the gold convertibility of US dollars at US$35 per oz. gold. The Bretton Woods Agreement eventually gave way to a mix of floated and managed float exchange systems adopted by different countries today.
What Caused the Credit Crisis?
With this background, the speaker argued that much of the current crisis was due to the many years of unbridled spending by the US consumers since Bretton Woods’ time. The housing bubble that pricked was the final straw that broke the camel’s back. Of course, as the crisis continues to unfold, we now also know that another major reason is the lack of financial oversight by the Federal Reserve.
Will US Hegemony Continue?
Before the financial tsunami came in full force, there were many talks about the decoupling theory. The verdict is now out. When US sneezes, the rest of the world will catch a cough. US is still one of the largest economies in the world, if not the largest. When US consumers tighten their belts, export sector of the rest of the world tightens too. With the rest of the world buying so many of US assets, we just cannot sit back and watch US fall. So things have fallen apart and the Federal Reserve alone cannot hold. Outgoing US President, George Bush has called for the world’s great economic powers to gather in early November to discuss on new strategies to tackle the current situation. Perhaps, this will mark a new era of International Monetary System.
What Should Investor Do?
The speaker ended his talk by saying that while the emerging economies will be affected, they were still a force to be reckoned with. In the case of Asia, most have learnt the lessons from the 1997 Asian Financial Crisis well. Asian banks have sufficient deposits to fund new lending. Hence Asian economies, while will not be unscathed, will emerge stronger when the credit crisis stabilizes. If you could stomach the volatilities investing in these economies could reap good results. However, do not jump onto the bandwagon just yet. Wait for the outcome of the meeting in Nov. And also to invest in money that you do not need and have a time horizon of at least 3-5 years.
My Take of the Talk
After the heavy downpour, rainbow will come and hopefully, there is a pot of gold at the end of the rainbow. As the recent DBS High Notes and Lehman Minibond show that this may not be always the case. So only invest with money you can afford to lose and level up your investing knowledge.
A good outcome from this event will probably be various Government agencies coming together to provide a more focused approach to bring up the financial literacy of Singaporeans. Right now, though we have MoneySense, I cannot but feel that the outreach is limited and from I have read, there seems to be a lack of continuity in the topics that it rolled out. Of course, it takes two hands to clap. This crisis will serve as a wake-up call to investors to do their homework before investing their hard-earned money.
Why US Hegemony?
In order to understand the current crisis, there was a need to why the US dollar is the global currency, the reasons behind US hegemony. History has it that US being not so adversely affected by World War II, emerged stronger economically compared to other world countries and hence, called the shots.
In an attempt to rebuild the international economic system even as World War II ravaged, the Allied nations assembled in a small town, Bretton Woods, New Hampshire, United States. The meeting resulted in the signing of the Bretton Woods Agreement in July 1944. It was essentially a fixed exchange system whereby US dollar was pegged to gold – at US35 per oz, and all other currencies tied to US dollar. Hence, US dollar became the de facto “international” currency.
The agreement eventually broke down in 1973 mainly due to the divergence between the focus of the US monetary and that for the agreement. For the agreement to work, US central bank, Federal Reserve will need to monitor the growth of the US money stock with respect to its gold stock. On the other hand, the Federal Reserve was more into managing the US domestic economy – after all, this was their home ground. US consumers were great spenders, using not just their own money but also someone else’s money – borrowed. Other countries were too happy to lend US by buying US Government bonds – IOU by the US government. So much money floating around that there was not enough gold to guarantee the gold convertibility of US dollars at US$35 per oz. gold. The Bretton Woods Agreement eventually gave way to a mix of floated and managed float exchange systems adopted by different countries today.
What Caused the Credit Crisis?
With this background, the speaker argued that much of the current crisis was due to the many years of unbridled spending by the US consumers since Bretton Woods’ time. The housing bubble that pricked was the final straw that broke the camel’s back. Of course, as the crisis continues to unfold, we now also know that another major reason is the lack of financial oversight by the Federal Reserve.
Will US Hegemony Continue?
Before the financial tsunami came in full force, there were many talks about the decoupling theory. The verdict is now out. When US sneezes, the rest of the world will catch a cough. US is still one of the largest economies in the world, if not the largest. When US consumers tighten their belts, export sector of the rest of the world tightens too. With the rest of the world buying so many of US assets, we just cannot sit back and watch US fall. So things have fallen apart and the Federal Reserve alone cannot hold. Outgoing US President, George Bush has called for the world’s great economic powers to gather in early November to discuss on new strategies to tackle the current situation. Perhaps, this will mark a new era of International Monetary System.
What Should Investor Do?
The speaker ended his talk by saying that while the emerging economies will be affected, they were still a force to be reckoned with. In the case of Asia, most have learnt the lessons from the 1997 Asian Financial Crisis well. Asian banks have sufficient deposits to fund new lending. Hence Asian economies, while will not be unscathed, will emerge stronger when the credit crisis stabilizes. If you could stomach the volatilities investing in these economies could reap good results. However, do not jump onto the bandwagon just yet. Wait for the outcome of the meeting in Nov. And also to invest in money that you do not need and have a time horizon of at least 3-5 years.
My Take of the Talk
After the heavy downpour, rainbow will come and hopefully, there is a pot of gold at the end of the rainbow. As the recent DBS High Notes and Lehman Minibond show that this may not be always the case. So only invest with money you can afford to lose and level up your investing knowledge.
A good outcome from this event will probably be various Government agencies coming together to provide a more focused approach to bring up the financial literacy of Singaporeans. Right now, though we have MoneySense, I cannot but feel that the outreach is limited and from I have read, there seems to be a lack of continuity in the topics that it rolled out. Of course, it takes two hands to clap. This crisis will serve as a wake-up call to investors to do their homework before investing their hard-earned money.
Thursday, October 30, 2008
DBS High Notes and Lehman Minibonds
This blog is a condensed version of what that has been published in the Straits Times where financial experts were consulted.
Think of hamper when you think of structured financial product. Like hamper, the structured financial product constitutes of many goods – in this case, equities, bonds and other financial derivatives.
Type of Structure Products
There are a few categories, namely capital-guaranteed, capital-protected and not capital-guaranteed or protected. Capital-guaranteed products are those with a “guarantor”. So if the issuer folds, the note holder looks for the guarantor. In the case of capital-protected, it refers to the structure of the product. In order to “protect” the product, typically, the issuer will invest the bulk, say 85% in bonds and the balance 15% in higher risk equities.
DBS High Notes and Lehman Minibonds fall under the third category “non-capital protected”.
The Terms and Conditions
Table below compares the two structured products.
To understand the risk, we need to first understand what a credit event is. In the most simplistic term, credit event refers to the event whereby a company fails.
Basically, the buyer of DBSS High Notes Series 5 is betting that all the 8 reference entities (see “Make-up” row in the table above) will not go belly up. That is to say, the more reference entities, the riskier the product. Unfortunately, Lehman did go under and this triggered a credit event. In the case of Lehman Minibond, the 6 reference entities are still standing but not Lehman – the issuer. Hence, investors get their fingers burnt.
Think of hamper when you think of structured financial product. Like hamper, the structured financial product constitutes of many goods – in this case, equities, bonds and other financial derivatives.
Type of Structure Products
There are a few categories, namely capital-guaranteed, capital-protected and not capital-guaranteed or protected. Capital-guaranteed products are those with a “guarantor”. So if the issuer folds, the note holder looks for the guarantor. In the case of capital-protected, it refers to the structure of the product. In order to “protect” the product, typically, the issuer will invest the bulk, say 85% in bonds and the balance 15% in higher risk equities.
DBS High Notes and Lehman Minibonds fall under the third category “non-capital protected”.
The Terms and Conditions
Table below compares the two structured products.
To understand the risk, we need to first understand what a credit event is. In the most simplistic term, credit event refers to the event whereby a company fails.
Basically, the buyer of DBSS High Notes Series 5 is betting that all the 8 reference entities (see “Make-up” row in the table above) will not go belly up. That is to say, the more reference entities, the riskier the product. Unfortunately, Lehman did go under and this triggered a credit event. In the case of Lehman Minibond, the 6 reference entities are still standing but not Lehman – the issuer. Hence, investors get their fingers burnt.
Sunday, October 19, 2008
I Have Completed Stock-Take of My Investments To-date
Investment guru, I am not. In fact, I was quite a moron when it comes to investing matters. I was just plain lucky not having enough cash to buy into the Minibond and the DBS High Notes.
Like most retail investors, I did buy into some structured deposit which I was quite ignorant about. I have also dabbled a bit into stocks but they really quite minimal. With a 9-5 job and a family to take charge of, I have little time to monitor the market, let alone be prolific in it. So I have relied on recommendations from friends and/or relationship managers for my investment decisions. Especially the latter, afterall, they are the experts or supposedly so.
My Investment Journey Until Now
When I first started work and managed to accumulate some money, I did my research at the point of purchase to ensure that the company stock was rock-solid. Later, I realised that monitoring was such a chore, I have decided to buy unit trust. Just pay the experts for them to work for you. Afterall, I will still get to pocket the profits after commission is deducted. In no time, I became a stock/unit trust "collector".
I knew that this was not the way to go. Hence, I went for financial courses to brush up my very lacking skills. Magazines and books on investing made it to my reading list staple.
In a sense, the global financial meltdown coupled with the Minibond and DBS High Notes Series that accelerated this process. Never before have I been bombarded with so many news articles written with the layman in mind.
As I pored through the news, one thing stood out loud and clear "the importance of being self-reliance". If a more than a century old bank like Lehman Brothers could go belly up and the experts also go wrong with their bets, I will need to do more monitoring. Afterall, it's my hard-earned money.
So, monitoring I aspire. For the past few weeks, I have digging through my un-filed documents (oh, my goodness) to take stock of the investments I have made thus far. I have even created an Excel template to key in the investment and work out the average yield for my investments made.
For the first time in my life, I see for myself the haphazard investments I have made. Now, I have a faint understanding of what the experts say about asset allocation and the talk about re-balancing your portfolio.
I shall continue to work on my investment knowledge and pen it down in my blog. Like most people, I would want my money to work hard for me.
Like most retail investors, I did buy into some structured deposit which I was quite ignorant about. I have also dabbled a bit into stocks but they really quite minimal. With a 9-5 job and a family to take charge of, I have little time to monitor the market, let alone be prolific in it. So I have relied on recommendations from friends and/or relationship managers for my investment decisions. Especially the latter, afterall, they are the experts or supposedly so.
My Investment Journey Until Now
When I first started work and managed to accumulate some money, I did my research at the point of purchase to ensure that the company stock was rock-solid. Later, I realised that monitoring was such a chore, I have decided to buy unit trust. Just pay the experts for them to work for you. Afterall, I will still get to pocket the profits after commission is deducted. In no time, I became a stock/unit trust "collector".
I knew that this was not the way to go. Hence, I went for financial courses to brush up my very lacking skills. Magazines and books on investing made it to my reading list staple.
In a sense, the global financial meltdown coupled with the Minibond and DBS High Notes Series that accelerated this process. Never before have I been bombarded with so many news articles written with the layman in mind.
As I pored through the news, one thing stood out loud and clear "the importance of being self-reliance". If a more than a century old bank like Lehman Brothers could go belly up and the experts also go wrong with their bets, I will need to do more monitoring. Afterall, it's my hard-earned money.
So, monitoring I aspire. For the past few weeks, I have digging through my un-filed documents (oh, my goodness) to take stock of the investments I have made thus far. I have even created an Excel template to key in the investment and work out the average yield for my investments made.
For the first time in my life, I see for myself the haphazard investments I have made. Now, I have a faint understanding of what the experts say about asset allocation and the talk about re-balancing your portfolio.
I shall continue to work on my investment knowledge and pen it down in my blog. Like most people, I would want my money to work hard for me.
Tuesday, October 14, 2008
A Brief History of Stock Crashes, Part 2
Let's move on to the 4 stock crashes in recent history.
4. The Asian Financial Crisis in 1997
The road to recovery was slow and painful, hit further by subsequent economic shocks. Perhaps one of the stock crashes most felt by Singaporeans as many saw their home prices turned south - previously almost unheard of.
Affecting largely Asian countries, the crisis was due to excessive speculative attacks to Asian currencies, particularly the Thai baht. The contagion spread swiftly and Asian economies went into recession.
Smartened by this crisis, Asia's banks are now fortified with huge reserves and are more able to face the current downturn.
5. The Dot.com Bust and 9/11 in 2001
Recovery took a short 2 years for this crash, with the market up and running again in 2003. This time round, those badly hit were the Western countries, especially US and the European Union.
What caused the crash was irrational exuberance towards the new on-line market. Here, a small history from the Great Depression repeated itself with stock prices of on-line businesses rocketed sky high. The bubble was pricked as newly listed start-ups folded one by one.
To investors, this re-inforces the importance of buying a stock for what it is - "its fundamentals", not what it will be - "with hope that some suckers will buy the stock for a yet higher price".
6. Sars and the Iraq War in 2003
Remembered the days when having a fever sent a chill down the spine of those on the road? These days not many people remembered the slight blip on the stock chart with fairly rapid recovery, but more of the days of quarantine during the SARS epidemic. However, in 2003, dark skies enveloped Asian economies which were just finding their feet after the 1997 Asian Financial Crisis. The breakout of the Iraq War added further gloom to the sky line.
7. The Credit Crisis in 2008
The credit crisis erupted more than a year ago due to the US subprime mortgage issue. It rapidly morphed into a financial Armagaddon due to today's very connected financial market. As many US and Europe investment banks, with even household name insurer AIG marred by the toxic subprime mortgage, fear and panic overwhelmed the global bourses.
Today, many stock bourses rallied finally. However, investors will need more confirmation that things are fine before treading gingerly into the market again. The road to recovery is nowhere in sight yet.
History has shown that while stock crashes are almost overnight, recovery is slow.
Lessons for Us
- Always invest with money you do not need.
- Buy a stock for what it is, not what it will be.
- While many analysts are recommending that it may be time to bottom fish, do your homework.
- No one can predict the market movement, the Great Depression lasted 12 years, the current crisis is only more than 1 year. Anything can happen, have a cut-loss mechanism and admit your mistakes early.
For me, the current crisis provided me with a lot more information about the financial market. I remembered how my heart sank when the value of my badly-beaten unit trusts fell more than 50% during the 1997 Asian Financial Crisis. But it crawled to register an annual return of more than 10% last Dec before this credit crunch set in.
With more information, I am less disturbed as I pored through the financial reports.
Another reason is that I do not have all my eggs in one basket. But, I will have to adopt a more conservative approach when I am closer to my retirement age. For now, I know that time is still on my side.
4. The Asian Financial Crisis in 1997
The road to recovery was slow and painful, hit further by subsequent economic shocks. Perhaps one of the stock crashes most felt by Singaporeans as many saw their home prices turned south - previously almost unheard of.
Affecting largely Asian countries, the crisis was due to excessive speculative attacks to Asian currencies, particularly the Thai baht. The contagion spread swiftly and Asian economies went into recession.
Smartened by this crisis, Asia's banks are now fortified with huge reserves and are more able to face the current downturn.
5. The Dot.com Bust and 9/11 in 2001
Recovery took a short 2 years for this crash, with the market up and running again in 2003. This time round, those badly hit were the Western countries, especially US and the European Union.
What caused the crash was irrational exuberance towards the new on-line market. Here, a small history from the Great Depression repeated itself with stock prices of on-line businesses rocketed sky high. The bubble was pricked as newly listed start-ups folded one by one.
To investors, this re-inforces the importance of buying a stock for what it is - "its fundamentals", not what it will be - "with hope that some suckers will buy the stock for a yet higher price".
6. Sars and the Iraq War in 2003
Remembered the days when having a fever sent a chill down the spine of those on the road? These days not many people remembered the slight blip on the stock chart with fairly rapid recovery, but more of the days of quarantine during the SARS epidemic. However, in 2003, dark skies enveloped Asian economies which were just finding their feet after the 1997 Asian Financial Crisis. The breakout of the Iraq War added further gloom to the sky line.
7. The Credit Crisis in 2008
The credit crisis erupted more than a year ago due to the US subprime mortgage issue. It rapidly morphed into a financial Armagaddon due to today's very connected financial market. As many US and Europe investment banks, with even household name insurer AIG marred by the toxic subprime mortgage, fear and panic overwhelmed the global bourses.
Today, many stock bourses rallied finally. However, investors will need more confirmation that things are fine before treading gingerly into the market again. The road to recovery is nowhere in sight yet.
History has shown that while stock crashes are almost overnight, recovery is slow.
Lessons for Us
- Always invest with money you do not need.
- Buy a stock for what it is, not what it will be.
- While many analysts are recommending that it may be time to bottom fish, do your homework.
- No one can predict the market movement, the Great Depression lasted 12 years, the current crisis is only more than 1 year. Anything can happen, have a cut-loss mechanism and admit your mistakes early.
For me, the current crisis provided me with a lot more information about the financial market. I remembered how my heart sank when the value of my badly-beaten unit trusts fell more than 50% during the 1997 Asian Financial Crisis. But it crawled to register an annual return of more than 10% last Dec before this credit crunch set in.
With more information, I am less disturbed as I pored through the financial reports.
Another reason is that I do not have all my eggs in one basket. But, I will have to adopt a more conservative approach when I am closer to my retirement age. For now, I know that time is still on my side.
A Brief History of Stock Market Crashes, Part 1
The financial malaise triggered by the credit crunch erupted more than 1 year ago in the US, was earlier largely confined to the US and Europe. In Singapore, perhaps it is the near-collapse of AIG that brings home the fact that no one will be spared from the financial carnage. The recent weeks' plummeting of shares in the global bourses have also put spotlight onto the financial world - where many are attracted by the possibility of money snowballing. However, the focus now is the rapidly diminishing value of the money.
With the many reports on the financial news, let's us first take a look at the brief history of stock market crashes. Since the Great Depression in 1929 till the current crisis of confidence, there are a total 7 stock market crashes.
For this post, I will list down the first 3 stock crashes and their lessons for us.
1. The Great Depression in 1929
This was the stock crash that took the longest to recover - 12 years. Ironically, it was the advent of World War II (WWII) with increase Government spending that pulled the economy up.
The main reason for the crash was due to speculative play at the stock exchange. Many were willing to pay a high price for stocks as they believed that someone would pay an even higher price for it. As the stock prices were not supported by economic or company fundamentals, they eventually succumbed when things turned sour.
Black Thursday came on Oct 24, 1929 after one month of volatile trade. Prices plunged by 40% from Sept 1 to Oct 31, 1929. Over a 3 years period up to Jul, 1932, the correction was 90% downwards. In 1933, the gloom in the Wall Street filtered down to the Main Street and the world went into global depression for 12 years.
The Great Depression is now the benchmark of how far the economy can fall. It is definitely not a pleasant experience for us to re-live that experience.
2. The Oil Shock in 1973
Recovery time for this stock crash at 9 years was the second longest. Politics between the oil-rich countries and US was the main reason for the crash. Unhappy with US, oil producers raised oil prices by 4x and stopped oil shipment to US and their allies in Western Europe and Japan. This outward show of displeasure led to a strong surge in oil prices feeding into other parts of the economy.
Inflation ensued and the then-impending recession was exacerberated. It was during this period that the world experienced "stagflation" - stagnating wages with high inflation .
The short-lived stabilisation in oil prices in late-1970s was quickly overtaken by sharp spikes oil prices with the break-out of war between Iraq and Iran. Light at the end of the tunnel was only visible come 1981.
Today, this era is often used as a reminder of how oil price peaks could impact the world economy. Much progress has also been made in the search of alternative energy to reduce our heavy reliance on oil to power the economy.
3. Black Monday in 1987
This stock crash held the record with the fastest of 1 year because the world economy was healthy. The cause of the crash was due to computer glitches.
On 19 Oct 1987, a group of investors moved en masse out of stocks. This triggered the computer automation to cut traders' losses with the issue of large number of sell orders. Driven by fear, many more investors dumped stocks, causing the stock prices to dive further.
Dow Jones Industral Average plunged 22.6%. This was the biggest percentage drop in history - wiping out US$500 bil (S$742 bil) in a single day.
This episode shows the volatility of the stock market with panic over-ruling rationality. However, it also shows that if the fundamental is strong, the market will rebound in no time. Hence, the saying in the stock market that the brave will be rewarded.
End of Part 1
That's all for this post. In many analyst reports, there are a lot of congruences drawn with the Great Depression. Yet at the same time, many believe that the 1997 Asian Financial Crisis (that's stock crash number 4) has strengthened the banks' position in Asian and they are more able to weather this storm. Nonetheless, the knock-on effects from the slowdown in US, Europe and Japan, are undeniable. And it's official - based on advance estimate for 3Q08, Singapore has entered into its first technical recession since 2001.
I will be continuing on the next four stock crashes in my next post. Do look out for it.
With the many reports on the financial news, let's us first take a look at the brief history of stock market crashes. Since the Great Depression in 1929 till the current crisis of confidence, there are a total 7 stock market crashes.
For this post, I will list down the first 3 stock crashes and their lessons for us.
1. The Great Depression in 1929
This was the stock crash that took the longest to recover - 12 years. Ironically, it was the advent of World War II (WWII) with increase Government spending that pulled the economy up.
The main reason for the crash was due to speculative play at the stock exchange. Many were willing to pay a high price for stocks as they believed that someone would pay an even higher price for it. As the stock prices were not supported by economic or company fundamentals, they eventually succumbed when things turned sour.
Black Thursday came on Oct 24, 1929 after one month of volatile trade. Prices plunged by 40% from Sept 1 to Oct 31, 1929. Over a 3 years period up to Jul, 1932, the correction was 90% downwards. In 1933, the gloom in the Wall Street filtered down to the Main Street and the world went into global depression for 12 years.
The Great Depression is now the benchmark of how far the economy can fall. It is definitely not a pleasant experience for us to re-live that experience.
2. The Oil Shock in 1973
Recovery time for this stock crash at 9 years was the second longest. Politics between the oil-rich countries and US was the main reason for the crash. Unhappy with US, oil producers raised oil prices by 4x and stopped oil shipment to US and their allies in Western Europe and Japan. This outward show of displeasure led to a strong surge in oil prices feeding into other parts of the economy.
Inflation ensued and the then-impending recession was exacerberated. It was during this period that the world experienced "stagflation" - stagnating wages with high inflation .
The short-lived stabilisation in oil prices in late-1970s was quickly overtaken by sharp spikes oil prices with the break-out of war between Iraq and Iran. Light at the end of the tunnel was only visible come 1981.
Today, this era is often used as a reminder of how oil price peaks could impact the world economy. Much progress has also been made in the search of alternative energy to reduce our heavy reliance on oil to power the economy.
3. Black Monday in 1987
This stock crash held the record with the fastest of 1 year because the world economy was healthy. The cause of the crash was due to computer glitches.
On 19 Oct 1987, a group of investors moved en masse out of stocks. This triggered the computer automation to cut traders' losses with the issue of large number of sell orders. Driven by fear, many more investors dumped stocks, causing the stock prices to dive further.
Dow Jones Industral Average plunged 22.6%. This was the biggest percentage drop in history - wiping out US$500 bil (S$742 bil) in a single day.
This episode shows the volatility of the stock market with panic over-ruling rationality. However, it also shows that if the fundamental is strong, the market will rebound in no time. Hence, the saying in the stock market that the brave will be rewarded.
End of Part 1
That's all for this post. In many analyst reports, there are a lot of congruences drawn with the Great Depression. Yet at the same time, many believe that the 1997 Asian Financial Crisis (that's stock crash number 4) has strengthened the banks' position in Asian and they are more able to weather this storm. Nonetheless, the knock-on effects from the slowdown in US, Europe and Japan, are undeniable. And it's official - based on advance estimate for 3Q08, Singapore has entered into its first technical recession since 2001.
I will be continuing on the next four stock crashes in my next post. Do look out for it.
Saturday, September 6, 2008
Investment Thoughts
A few months ago, I started harbouring renewed thoughts about going into investment. There have been so talk about people making their millions in the stock exchange. The belief is that the bourse is a quick way to make money. But for so many years, I am deterred into entering the market except for some supposedly lucky wins - at some IPOs, which I have had only a miserable two - one still above water and one under amidst the current bloodletting in the financial bourses worldwide.
Then I am challenged by some books which I have read - does high return necessarily mean high risk. A case in point here is the world's greatest investor, Warren Buffett. He has two rules when it come to investing. Rule 1 "Never lose money". Rule 2 "Never forget Rule 1". But yet, he has amassed an astonishing amount of money from the stock exchange.
So I reason that the stock exchange is not necessarily a rowdy place if you know what you are doing, and begin to do some serious research. This post is to share my findings with many of friends who are also interested to venture in this area.
Step 1: Have an Investing Plan
You need to know what you are doing! For many of friends who are in the family stage - like me, this is a long stage and there will be changes made to the family's asset allocation over time. First, set your objectives - 1. to invest for retirement income,2. to provide for children's education; and 3. to clear off any remaining home loan.
Your target here is to try to settle most of your housing loan. After meeting the minimum $20,000 cap in your CPF-OA and CPF-SA account, you may want to consider investing your CPF in a combination of unit trusts and blue-chip with good dividend yields.
Financial Alliance advised that a typical investment portfolio for the family stage could be 30% in unit trust, 20% in stocks, 20% in savings and fixed deposit and 30% in alternative investments (which could include local or foreign property that can generate rental income or foreign currency-denominated savings account.) The unit trust allocation, a moderate-risk portfolio could be allocating 25% in Singapore Bond, 25% in Global Bond, 20% in US Equity, 15% in Europe Equity and 15% in Asian Equity. [Suggestion from Financial Alliance is used as an illustration only. Readers are advised to do own research and make their call accordingly.]
Step 2: Build up Your Financial Resources - Tangibles and Intangibles
For most of my friends who are gainfully employed, my advice is to continue to be so and add more value to your current job. That's one sure way to increase your tangible resources available for investing.
At the same time, do build up your intangibles. For one, upgrade your skills. If you are interested to trade, learn about how to do so.
For me, I have just added the Money Section - especially the part on Bull and Bear Run in the Straits Times in my daily reading ritual. To date, I am seeing good progress in knowledge of how the bourse work. It is also a good starting place before venturing out to read periodicals about stock market as well as investment books. Among the materials which I have read thus far, I will like to share with you, some really good ideas and principles.
One idea which I have got was from Timothy Vick - the author of "Wall Street on Sale". The key lesson which I learnt from Vick is that the stock market operates very differently from our normal departmental store. A case in point is if there is a sale at a department store offering a store-wide discount of say 50%, there will be long queues forming at the cashiers' aisles. Interestingly, in the financial world, it does not work this way, investors or should I say, speculators are all the more eager to buy at sky-high prices and sell at rock-bottomed prices. This is largely a manifestation of fear and greed in the financial bourses.
Three key take-aways from Vick:
1. Do not time the market and chase hot sector stocks. This is more gambling than investing.
2. Do not be overly reliance on forecasts of the economy or the stock market. As the forecast extends in time horizon, it is subject to more external variables that would influence a company's result. Likewise, extrapolating a company's recent growth rate into the future is fraught with dangers - this is one of the downside of using a discounted cash flow analysis except for the most stable fo comapnies.
3. As Mario Gabelli puts it "Buy what is, not what will be."
Next is the seven key elements of value investing from Warren Buffett:
1. View yourself as a business analyst
2. Don't be swayed by share price movements. Over time, price follows the company's growth.
3. Don't be a price taker in the stock market. Price and value aren't always the same.
4. The market doesn't always properly value businesses.
5. Wall Street is designed to sell you something and make you trade.
6. Successful investing is just old-fashioned financial statement analysis.
7. Being a value investor sets you apart from, but ahead of, the crowd.
Hope the above are useful to you. And yes, before you make your investment purchase do your homework studiously.
Then I am challenged by some books which I have read - does high return necessarily mean high risk. A case in point here is the world's greatest investor, Warren Buffett. He has two rules when it come to investing. Rule 1 "Never lose money". Rule 2 "Never forget Rule 1". But yet, he has amassed an astonishing amount of money from the stock exchange.
So I reason that the stock exchange is not necessarily a rowdy place if you know what you are doing, and begin to do some serious research. This post is to share my findings with many of friends who are also interested to venture in this area.
Step 1: Have an Investing Plan
You need to know what you are doing! For many of friends who are in the family stage - like me, this is a long stage and there will be changes made to the family's asset allocation over time. First, set your objectives - 1. to invest for retirement income,2. to provide for children's education; and 3. to clear off any remaining home loan.
Your target here is to try to settle most of your housing loan. After meeting the minimum $20,000 cap in your CPF-OA and CPF-SA account, you may want to consider investing your CPF in a combination of unit trusts and blue-chip with good dividend yields.
Financial Alliance advised that a typical investment portfolio for the family stage could be 30% in unit trust, 20% in stocks, 20% in savings and fixed deposit and 30% in alternative investments (which could include local or foreign property that can generate rental income or foreign currency-denominated savings account.) The unit trust allocation, a moderate-risk portfolio could be allocating 25% in Singapore Bond, 25% in Global Bond, 20% in US Equity, 15% in Europe Equity and 15% in Asian Equity. [Suggestion from Financial Alliance is used as an illustration only. Readers are advised to do own research and make their call accordingly.]
Step 2: Build up Your Financial Resources - Tangibles and Intangibles
For most of my friends who are gainfully employed, my advice is to continue to be so and add more value to your current job. That's one sure way to increase your tangible resources available for investing.
At the same time, do build up your intangibles. For one, upgrade your skills. If you are interested to trade, learn about how to do so.
For me, I have just added the Money Section - especially the part on Bull and Bear Run in the Straits Times in my daily reading ritual. To date, I am seeing good progress in knowledge of how the bourse work. It is also a good starting place before venturing out to read periodicals about stock market as well as investment books. Among the materials which I have read thus far, I will like to share with you, some really good ideas and principles.
One idea which I have got was from Timothy Vick - the author of "Wall Street on Sale". The key lesson which I learnt from Vick is that the stock market operates very differently from our normal departmental store. A case in point is if there is a sale at a department store offering a store-wide discount of say 50%, there will be long queues forming at the cashiers' aisles. Interestingly, in the financial world, it does not work this way, investors or should I say, speculators are all the more eager to buy at sky-high prices and sell at rock-bottomed prices. This is largely a manifestation of fear and greed in the financial bourses.
Three key take-aways from Vick:
1. Do not time the market and chase hot sector stocks. This is more gambling than investing.
2. Do not be overly reliance on forecasts of the economy or the stock market. As the forecast extends in time horizon, it is subject to more external variables that would influence a company's result. Likewise, extrapolating a company's recent growth rate into the future is fraught with dangers - this is one of the downside of using a discounted cash flow analysis except for the most stable fo comapnies.
3. As Mario Gabelli puts it "Buy what is, not what will be."
Next is the seven key elements of value investing from Warren Buffett:
1. View yourself as a business analyst
2. Don't be swayed by share price movements. Over time, price follows the company's growth.
3. Don't be a price taker in the stock market. Price and value aren't always the same.
4. The market doesn't always properly value businesses.
5. Wall Street is designed to sell you something and make you trade.
6. Successful investing is just old-fashioned financial statement analysis.
7. Being a value investor sets you apart from, but ahead of, the crowd.
Hope the above are useful to you. And yes, before you make your investment purchase do your homework studiously.
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