This May has seen one of the most spectacular run-ups in the stock market amidst an economic crisis. Most Asia markets have seen almost a 50% gain since March. From a low of 1600 in March, The Straits Timex increased to 2400 points in May. The Bull run is cooling off now in June after investors start feeling that they are not getting much fresh data to support a quick market recovery. Before we look out for any silver lining in the clouds and try to jump the gun again, let us take a backseat a little and recall slightly on the past few crises.
In 1999, the world was faced with an eminent danger of a huge collapse from what was known as the Y2K bug or Millennium bug. To combat this bug within a short timeline, then Fed chairman Alan Greenspan released huge credit line to allow corporates to tackle the problem. When the world ticked its way past 12 midnight into Year 2000, nothing of the worst anticipated happened. The world then turned its attention to the excess pool of liquid cash amongst banks and investors. This coincided with the internet craze in that era, which brought about a dotcom boom. The world started blowing a huge bubble which finally burst in 2001. Gullible investors were blindly led to invest into any internet startups which had even out-of-the-world ideas.
US went into recession after the dotcom bust in 2001. Then the 911 incident caused a double whammy to the world economy. Amid the recession, Alan Greenspan introduced stimulating measures like cutting the credit interest rates on several occasions to near zero percent. When the US economy past its bottom in year 2002, investors started to get restless again. At about 1% rate from banks, it bored most investors who were looking at much better returns. The US economy enjoyed its boom from 2003 to 2007. So much money was earned during this period that many types investment products were born, including investing into US housing market. The US started blowing a new bubble when investors started investing into toxic sub-prime products. Banks around the world was enticed into this lucrative market which eventually blew and brought about one of the history's worst financial crises today.
The uncanny resemblance of creating these 2 giant bubbles makes me wonder if the current recession in the US is nuturing another new possible bubble of the future. Although recent news are reporting data that shows evidence of "green shoots", many spendings around the world are still artificially created with government stimulus packages or government printing more money to buy up bonds, like what the Bank of England is doing.
The several events described look like a chicken-and-egg situation. If governments or authorities do not do anything, we are destined to stay for a long and dreadful downturn. Even if we jolly well know it is a new bubble being blown, we are going to pack off the idea that it will not blow up until at least a few years away. It is still better than being stuck in the mud, isn't it?
Perhaps, we have to just accept this is how the world economy works; a new bubble is being blown each time the economy goes bust. You could well say that the world is like a reality TV show actor, and the producer is the rich economies, who creates the storyline to stimulate viewership. Everything is artificial.
Nonetheless, who cares. As long as you earn real money, that is real. But the artificial economy poses many traps. Keep your guard each time when your asset grows. Bursting bubbles are usually easy to spot. The problem is people are always blinded by greed and they never seem to learn their lessons, as seen from previous events.
Friday, June 26, 2009
Thursday, June 25, 2009
Singapore Entrepreneur - The Spirit of Innovation
When I started my company 8 years ago, we had nothing to sell. We literally gave customers a blank sheet of paper and let them fill their requirements and we wrote programs conforming to every single bit of them. While we were small, we were always willing to customise our applications and systems to suit customers' requirements. From such customised applications, we started modifiying them into our own versions and slowly built up our products over the years. The key to our success today is our spirit of innovation that is kept alive. As products matures with the company, we always leave a space for innovation and customisation. We have never rejected a customer just because we do not have the product. Instead, we listen to their needs and assess the feasibility. We always invest in the customer for future scability. Also, innovation on products can also help in building other verticals of industry.
Sunday, June 21, 2009
Singapore Entrepreneur - What's My Strategy?
My simple strategy has so far been giving me good returns since the stock market crashed in Oct 2008.
Before the crisis, I had been practising value investment, the sort of strategy that Warren Buffett, the greatest investor, has been practising in his life time. I used to look for undervalued counters by doing financial analyses of the companies. Usually they were small caps. During the 4 years of rally from 2004 through 2007, the values of the counters I bought trebled or quadrupled which brought me a lot of paper gain. However, being a "value" investor, I decided to hold them for a long term. But the stock market crashed dragged all my counters beyond the cliff and their values plummeted like free fall. To add salt to the injury, many of the counters I held were S-shares which have been in the bad light from a series of accounting scandals.
The bad experience triggered me to tweak the strategy of my investment. Instead of brooding over the huge loss of investment from an unprecedented turn of the market, I thought to myself: If the market crash can cause many riches to rags, it is also an opportunity to turn rags to riches.
When the market bottomed out in Oct 2008, it provided a golden opportunity for me to do some financial analysis of various counters. I turned to blue chips and large cap stocks during then, since I got burnt by penny stocks previously. Many of them were offered at unbelievable bargain prices, some under their net asset prices. I started grabbing some counters. This time, I only focused on a couple of blue chip stocks. But because nobody had any idea where the bottom was, I was also afraid. Hence, I held lightly to the stocks. Each time the counters rose slightly, I sold them off for a small profit. The market turmoil created wild see-saw movement which allowed me to buy low and sell at profit each time for several months.
This strategy should only be applied if you have hard cash to standby in case you get stuck should the market turn really sour for a second time. My "long term" strategy is still in place because at each price I buy, I know it is still under-value compared with during good times. And I have to believe that market will eventually recover one day. On the other hand, since the market has been very sentimental, any gains will easily erode on any negative news in a market doldrums. So, I combine with some technical analysis of the counters and sell them off when there is some profit.
Each investor has his own style of investment. By my descriptions, I do not recommend any contra trading and my advice is to trade within your means. Institutional investors, hedge funds and other mutual funds dictate 90% of the share market and small retail investors like us cannot possibly outwit these people as they employ tons of brilliant brains to analyse stocks. So whatever strategy you adopt, do your sums carefully.
Before the crisis, I had been practising value investment, the sort of strategy that Warren Buffett, the greatest investor, has been practising in his life time. I used to look for undervalued counters by doing financial analyses of the companies. Usually they were small caps. During the 4 years of rally from 2004 through 2007, the values of the counters I bought trebled or quadrupled which brought me a lot of paper gain. However, being a "value" investor, I decided to hold them for a long term. But the stock market crashed dragged all my counters beyond the cliff and their values plummeted like free fall. To add salt to the injury, many of the counters I held were S-shares which have been in the bad light from a series of accounting scandals.
The bad experience triggered me to tweak the strategy of my investment. Instead of brooding over the huge loss of investment from an unprecedented turn of the market, I thought to myself: If the market crash can cause many riches to rags, it is also an opportunity to turn rags to riches.
When the market bottomed out in Oct 2008, it provided a golden opportunity for me to do some financial analysis of various counters. I turned to blue chips and large cap stocks during then, since I got burnt by penny stocks previously. Many of them were offered at unbelievable bargain prices, some under their net asset prices. I started grabbing some counters. This time, I only focused on a couple of blue chip stocks. But because nobody had any idea where the bottom was, I was also afraid. Hence, I held lightly to the stocks. Each time the counters rose slightly, I sold them off for a small profit. The market turmoil created wild see-saw movement which allowed me to buy low and sell at profit each time for several months.
This strategy should only be applied if you have hard cash to standby in case you get stuck should the market turn really sour for a second time. My "long term" strategy is still in place because at each price I buy, I know it is still under-value compared with during good times. And I have to believe that market will eventually recover one day. On the other hand, since the market has been very sentimental, any gains will easily erode on any negative news in a market doldrums. So, I combine with some technical analysis of the counters and sell them off when there is some profit.
Each investor has his own style of investment. By my descriptions, I do not recommend any contra trading and my advice is to trade within your means. Institutional investors, hedge funds and other mutual funds dictate 90% of the share market and small retail investors like us cannot possibly outwit these people as they employ tons of brilliant brains to analyse stocks. So whatever strategy you adopt, do your sums carefully.
Wednesday, June 17, 2009
Singapore Entrepreneur - Start of Correction?
With the recent correction of the stock market brings about many speculations if we are finally bursting the bubble of the bear rally. Some analysts are commenting that this is a healthy correction in view that many counters have ramped over value since the May rally. This may bring an awakening call to some pundits who have been wanting to make a killing in the stock market. June's performance should see a flater curve as most investors have already fully valued the market since May. The momentum of the rally is unlikely to last as there is no new data to support any recovery of the world economy. On the other hand, it does not mean you can't dip your hands into the market during this period. For me, the last stock market crash in Oct 2008 had in fact brought me a small fortune from a simple and effective method of buying. Ever since then, I have adopted this strategy for as long as the economy is still seeing no sign of turnaround.
Monday, June 1, 2009
Singapore Entrepreneur - Is The Worst Over?
We are experiencing the greatest financial crisis ever in our lifetime. But recent several indications seem to suggest that we are out of the woods; stocks around the world have been rallying furiously, COE for cars have suddenly spiked indicating higher demand, and crowds have been snapping up newly launched private homes. So, is the worst over?
When the credit crisis unfolded in October 2008, Lehman Brothers, one of America's biggest lenders, was the first victim. Its collapse alone rippled through many big banks around the world which amassed losses more than US$1.6 Trillion. Following that, we saw big names like AIG, Merill Lynch and UBS at the brinks of collapse and needed desperate government fundings. Stocks around the globe saw their biggest plunge in 6 years. Even non-banking bigwigs like General Motors, Ford and Chrysler all went into deep financial difficulties. Iceland was the first country to declare bankrupt and had to be bailed out by IMF. Following all this mayhem, all sectors were affected with most 2008 annual reports revealing either losses or sharp drop in profit.
We have seen the worst unfolding before us. Whatever should happen has already happened. General Motors has just officially declared bankrupt after failed attempts in appealing for cash injection into the company. It beats me how many more job losses will follow after this. However, the market seems to shrug off these news and continue its rally. Even the H1N1 scare is not putting investors off. So effectively, we have come to a ground zero and whatever is going to happen, it won't be worse than what has happened. There may be more meaning to the term "Financial Tsunami". Tsunami are big waves that sweep everything on shore to destruction. The incident is momentary but the aftermath is catastrophic. It takes painful years to rebuild houses, for people to go back to their normal lives and overcome the grief over the loss of their love ones. You can liken this analogy to the financial tsunami. The collapse of the financial system in the US caused a tsunami to the global economy which all happened in one go. So you can actually take comfort that the worst is actually over and now we are on a long road to recover and we do not expect any more bad news.
On the other different camp of thought, you may want to consider that Obama's US$787B stimulus package is actually taking an effect to cushion the crisis. Governments around the world, including Singapore's have their own stimulus plans. So, in fact, whatever we are seeing today are just artificial. When people feel that things are not appearing as bad as they seem, they start coming back. The recent stock market rally may be a good indication that people are having a false sense of hope and are picking up bargain counters. Pessimists are saying this is a clear bear rally which has no ground to sustain. There are no good news in the US to report that could suggest the rally. It is just that news are not as bad as expected.
So how do you explain for private home sales being snapped up like in the heydays we saw in 2007? If you look at Asia during this crisis, it actually withstood much better compared to the Asian Financial crisis back in 1997. The banking system was beefed up ever since. It is also said that many people actually earned a lot of money during the heydays from 2004 to 2007. This gives them very much buffer to cushion themselves from the current crisis. Such people are out there today hunting for bargains like houses and cars. Private home prices saw their plunge up to 30% from its peak less than 2 years ago. The deferred payment scheme may have caused this aftermath effect. HDB home prices are closing in on mass market private condominiums which see many HDB folks grabbing the chance to upgrade. As a result, we see a spike in demand on mass market homes. But most are one-time buyers as they cannot afford more houses like other investors. So the demand may be unlikely to sustain. Once this batch of buyers are settled with their new homes, there will be left with no one out there to buy anymore.
In whichever camp of thought you are in, it is always wise to consider carefully before you jump onto the bandwagon. You may miss the boat if the market continues to rally, but at least you do not fall into a trap if all turn out to be a false rally. I have learnt my lessons. I'd rather watch from the sidelines if I have missed the boat. With money on hand, I still feel safer. There is always another time to invest again. However, if you are currently sitting on some gain from the recent rally, you must know when to exit. Warren Buffett had this saying: "You should be scared when everyone else is greedy. And you should be greedy when everyone is scared".
When the credit crisis unfolded in October 2008, Lehman Brothers, one of America's biggest lenders, was the first victim. Its collapse alone rippled through many big banks around the world which amassed losses more than US$1.6 Trillion. Following that, we saw big names like AIG, Merill Lynch and UBS at the brinks of collapse and needed desperate government fundings. Stocks around the globe saw their biggest plunge in 6 years. Even non-banking bigwigs like General Motors, Ford and Chrysler all went into deep financial difficulties. Iceland was the first country to declare bankrupt and had to be bailed out by IMF. Following all this mayhem, all sectors were affected with most 2008 annual reports revealing either losses or sharp drop in profit.
We have seen the worst unfolding before us. Whatever should happen has already happened. General Motors has just officially declared bankrupt after failed attempts in appealing for cash injection into the company. It beats me how many more job losses will follow after this. However, the market seems to shrug off these news and continue its rally. Even the H1N1 scare is not putting investors off. So effectively, we have come to a ground zero and whatever is going to happen, it won't be worse than what has happened. There may be more meaning to the term "Financial Tsunami". Tsunami are big waves that sweep everything on shore to destruction. The incident is momentary but the aftermath is catastrophic. It takes painful years to rebuild houses, for people to go back to their normal lives and overcome the grief over the loss of their love ones. You can liken this analogy to the financial tsunami. The collapse of the financial system in the US caused a tsunami to the global economy which all happened in one go. So you can actually take comfort that the worst is actually over and now we are on a long road to recover and we do not expect any more bad news.
On the other different camp of thought, you may want to consider that Obama's US$787B stimulus package is actually taking an effect to cushion the crisis. Governments around the world, including Singapore's have their own stimulus plans. So, in fact, whatever we are seeing today are just artificial. When people feel that things are not appearing as bad as they seem, they start coming back. The recent stock market rally may be a good indication that people are having a false sense of hope and are picking up bargain counters. Pessimists are saying this is a clear bear rally which has no ground to sustain. There are no good news in the US to report that could suggest the rally. It is just that news are not as bad as expected.
So how do you explain for private home sales being snapped up like in the heydays we saw in 2007? If you look at Asia during this crisis, it actually withstood much better compared to the Asian Financial crisis back in 1997. The banking system was beefed up ever since. It is also said that many people actually earned a lot of money during the heydays from 2004 to 2007. This gives them very much buffer to cushion themselves from the current crisis. Such people are out there today hunting for bargains like houses and cars. Private home prices saw their plunge up to 30% from its peak less than 2 years ago. The deferred payment scheme may have caused this aftermath effect. HDB home prices are closing in on mass market private condominiums which see many HDB folks grabbing the chance to upgrade. As a result, we see a spike in demand on mass market homes. But most are one-time buyers as they cannot afford more houses like other investors. So the demand may be unlikely to sustain. Once this batch of buyers are settled with their new homes, there will be left with no one out there to buy anymore.
In whichever camp of thought you are in, it is always wise to consider carefully before you jump onto the bandwagon. You may miss the boat if the market continues to rally, but at least you do not fall into a trap if all turn out to be a false rally. I have learnt my lessons. I'd rather watch from the sidelines if I have missed the boat. With money on hand, I still feel safer. There is always another time to invest again. However, if you are currently sitting on some gain from the recent rally, you must know when to exit. Warren Buffett had this saying: "You should be scared when everyone else is greedy. And you should be greedy when everyone is scared".
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