Finance Kampung - Providing investing and trading knowledge for the kampung way.

Tips to life from a Stock Trader

TraderTan — Sat, 21 Mar 2009 00:29:34 -0700

I just borrowed this book, Jesse Livermore: World's Greatest Stock Trader - By Richard Smitten, from the library yesterday. Basically Jesse Livermore is known as the world's most famous stock trader, having made millions, lost it, and made it again. He's also the inspired character in the book 'Reminiscences of a Stock Operator' which is one of the compulsory read books if you ever want to do trading in an Investment Bank.

Basically the book starts with the idea that there are four simple themes to learn from the life of a Stock Trader.

1) Human nature never changes. Therefore, the stock market never changes. Only the faces, the pockets, the suckers and the manipulators, the wars, the disasters, and the technologies change. The market itself never changes. How can it? Human nature never changes, and human nature runs the market - not reason, not economics, and certainly not logic. It is our human emotions that drive the market, as they do most other things on this planet.

2) The achievement of material goals and career ambitions does not equal the achievement of happiness in life. there is no correlation between success and happiness. There is no automatic balance between worldly success and emotional fulfillment.

3) It is our will that allows each of us to accomplish our goals, not our intellect. Talent is not enough. Luck is not enough. Only the will to suffer hard work and incredible persistence leads to the attainment of the impossible. There are no shortcuts; there is no easy way. Especially, as you'll find out, in the stock market.

4) It is the individual, not the group, that has led to the great discoveries of humanity. The great ideas, the great fortunes, and the giant steps forward in technology, politics, and medicine have all come from individuals, not groups.

Can we really learn and assimilate such life information from a simple book on stocks trading?

A simple lesson on economics, capitalism, taxes, the government, and you!

TraderTan — Sat, 21 Mar 2009 00:26:04 -0700

Let's put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100.

If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh $7.
The eighth $12.
The ninth $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do.

The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20."

So, now dinner for the ten only cost $80. The group still wanted to pay their bill the way we pay our taxes.

So, the first four men were unaffected. They would still eat for free. But what about the other six, the paying customers? How could they divvy up the $20 windfall so that everyone would get his 'fair share'?

The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being 'PAID' to eat their meal.

So, the restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now paid $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the men began to compare their savings.

"I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man "but he got $10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than me!"

"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only $2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!" The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important.

They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore. There are lots of good restaurants in Europe and the Caribbean.

David R. Kamerschen, Ph.D
Distinguished Professor of Economics
536 Brooks Hall
University of Georgia

Singapore's tax structure is also pretty similar. If you earn about $2.5k and below, you don't pay any tax at all. But of course, consumption taxes (like GST and ERP) are a different ball game altogether. Then again, its pretty fair to pay for something when you consume. The only thing is, how much? (And everybody's gonna say, "as little as possible")

The Economic Meltdown Song

TraderTan — Tue, 23 Sep 2008 03:31:49 -0700

Myths and Facts of ETFs (Exchange Traded Funds)

TraderTan — Fri, 14 Mar 2008 21:03:14 -0700

In the earlier article on the benefits of ETFs, we talked about why ETFs can be a better option compared to unit trusts. Now, we look into the ETFs available on the Singapore stock market. It's amazing that there exists instruments which can be potentially useful, yet few have heard of it, or even use it.

Myth 1: ETFs do not yield dividends

Fact: There are SGX-listed ETFs that pay dividends to investors. ETF fund managers determine if dividends arising are better utilised re-invested or distributed as income to investors.

ETFs	Dividends in 2007	Dividends in 2006
ABF Singapore Bond Index Fund	SGD 0.01 per share	SGD 0.015 per share
CIMB FTSE ASEAN 40 ETF	Dividends are re-invested and distributed at the fund manager's discretion	N.A - Listed on 21 Sep 06
iShares MSCI India ETF	Nil	Nil
Lyxor ETF China Enterprise (HSCEI)	USD 0.09 per unit	N.A - Listed on 19 Oct 06
Lyxor ETF Commodities CRB	Nil	N.A - Listed on 18 Jan 07
Lyxor ETF Hong Kong (HSI)	USD 0.04 per unit	N.A - Listed on 1 Mar 07
Lyxor ETF Japan (Topix®)	USD 0.007 per unit	N.A - Listed on 30 Aug 07
Lyxor ETF MSCI AC Asia-Pacific Ex-Japan	USD 0.09 per unit	N.A - Listed on 19 Oct 06
Lyxor ETF MSCI Korea	Dividends are re-invested and distributed at the fund manager's discretion	N.A - Listed on 7 Dec 06
Lyxor ETF MSCI Taiwan	Dividends are re-invested and distributed at the fund manager's discretion	N.A - Listed on 1 Mar 07
streetTRACKS® Gold Shares	Nil	Nil
streetTRACKS® (STI) Fund	SGD 1.00 per unit	SGD 0.73 per unit

Myth 2: ETF fund managers try to beat the index

Fact: ETF fund managers aim to track the underlying index as closely as possible and not to beat it. As such, the management fees are much lower than the 1-2% charged by mutual funds/unit trusts.

ETFs	Management Fees (per annum)
ABF Singapore Bond Index Fund	0.20%
CIMB FTSE ASEAN40 ETF	0.65%
iShares MSCI India ETF	0.99%
Lyxor ETF China Enterprise (HSCEI)	0.65%
Lyxor ETF Commodities CRB	0.65%
Lyxor ETF Hong Kong (HSI)	0.65%
Lyxor ETF Japan (Topix®)	0.50%
Lyxor ETF MSCI AC Asia-Pacific Ex-Japan	0.65%
Lyxor ETF MSCI Korea	0.65%
Lyxor ETF MSCI Taiwan	0.65%
streetTRACKS® Gold Shares	0.40%
streetTRACKS® (STI) Fund	0.30%

Myth 3: There is no liquidity in the ETF market

Fact: For every ETF, SGX appoints a market maker to provide buy/sell prices.

ETFs	Market Maker
ABF Singapore Bond Index Fund	OCBC Securities and DBS Vickers Securities Pte Ltd
CIMB FTSE ASEAN 40 ETF	Citigroup Global Markets Singapore Securities Pte Ltd
iShares MSCI India ETF	Citigroup Global Markets Singapore Securities Pte Ltd
Lyxor ETF China Enterprise (HSCEI)	Societe Generale Group
Lyxor ETF Commodities CRB
Lyxor ETF Hong Kong (HSI)
Lyxor ETF Japan (Topix®)
Lyxor ETF MSCI AC Asia-Pacific Ex-Japan
Lyxor ETF MSCI Korea
Lyxor ETF MSCI Taiwan
streetTRACKS® Gold Shares	Citigroup Global Markets Singapore Securities Pte Ltd
streetTRACKS® (STI) Fund	Credit Suisse Securities

Reasons to invest in ETFs

Reason 1: Index ETFs maintain relevant exposure in the country or market

A country's key index, like the Straits Times Index (STI) for Singapore and Dow Jones for US, aims to reflect the economic composition and market structure of the economy. Over time, index providers adjust the indices to maintain this relevance. Existing ETF holders get to enjoy this adjustment without additional effort or cost. Index ETF holders will always be appropriately diversified.

Reason 2: Quality of index stocks is continually reviewed by index providers

Component stocks are regularly reviewed for suitability by the index provider. Only stocks that influence market movements and are actively traded will remain in the index.

Reason 3: ETFs incur low fees and charges

Unlike mutual funds/unit trusts, investors only pay brokerage commissions and Exchange charges during the sale and purchase of ETFs. In addition to the low management fees, there are no performance fees.

Singapore FTSE Component Indicies now available on Yahoo!

TraderTan — Wed, 12 Mar 2008 04:31:35 -0700

Not too long ago, Singapore swapped out the STI with a new FTSE ST Index. The only problem with that was that the old sub indicies, such as transport, commerce, property, etc were also swapped out. And on top of that, some pricing disagreements between the providers and the users came about, resulting in a lack of public information regarding the FTSE index.

As a result, people relied on free websites to get their current ST index number. None of the brokerage platform provided the ST index real time.

However, good news have arrived! The FTSE ST Index, as well as all their sub-indicies is now available!

Go view the FTSE ST Index and their sub indicies on yahoo!

All the sub indicies charts are also available on Finance Kampung.

Inflation erodes away bank savings

TraderTan — Mon, 10 Mar 2008 04:48:39 -0700

From Singapore Business Times. Published March 10, 2008

Banks cut fixed deposit rates; but cautious investors stay liquid in face of market volatility

(SINGAPORE) Cash-rich Singaporeans averse to risky alternatives are in an unhappy spot of having their savings eroded by inflation.

Not only is inflation clearly on the rise - it hit a 26-year high of 6.6 per cent in January - banks are further cutting their already miserable deposit rates.

Last week, DBS Bank slashed its fixed deposit (FD) rate again to 0.9 per cent for a 12-month deposit of $1 million. The latest revision is less than half of the 2.02 per cent it offered on Jan 2.

And OCBC Bank's 12-month FD rate has been lowered to 1.2 per cent from 1.4-1.8 per cent last year. This is for amounts between $500,000 and $1 million.

Despite the paltry returns on deposits, those with spare cash appear to have few choices beyond the safe haven of banks. In January - the latest month for which data is available - savings and demand deposits jumped 24 per cent to $143.1 billion, swelled by high bonuses paid out after a robust year.

But fixed deposit growth slowed for the 10th straight month. It was up 7.6 per cent to $171.4 billion, versus an average of 18 per cent in 2007.

'The trend in the past seven years is that when interest rates rise, people take money from savings and current accounts and place it in FDs,' said Standard Chartered's general manager of wealth management Dennis Khoo. 'When interest rates fall, the reverse happens. Now, when the gap is no longer large, there is no incentive. So people forget to shift to FDs.'

Typical interest rates for savings and demand deposit accounts are 0.3 per cent.

Interestingly, bankers said that generally, people with excess cash don't seem to be using it to pay down loans such as mortgages.

'We review our interest rates regularly and have recently adjusted them downwards in line with the market,' said Fabian Lum, OCBC Bank's vice-president for group wealth management (deposits). 'We have not seen significant withdrawals of fixed deposits by our customers or changes to how they make use of such products.'

Some observers reckoned that money is left in savings and demand deposits accounts while people mull the choices of higher returns elsewhere.

'With global interest rates likely to dip further, some investors prefer to stay liquid,' said Winston Teo, United Overseas Bank's head of deposits, investments and insurance. 'That said, in a climate of stock market volatility, there will be opportunities and it may be a good time to pick up some bargains as some equity valuations have fallen to attractive levels.'

Bankers said that customers are asking about higher-yield products, though caution seems to be the order of the day.

Some of the more gung ho are venturing into foreign currency products.

Helen Neo, Maybank's head of consumer banking, said that the bank is seeing greater investment in structured deposits that are principal protected and also offer higher returns. 'We are also seeing growth in foreign currency time deposits,' she said.

Stanchart's Mr Khoo said that since August last year, the bank has sold more than $400 million of deposit-type products, principal protected and capital guaranteed.

As for Stanchart's dual currency product, sales have grown three to five times since September last year, he said

Personally, I feel the bond/fixed income market is pretty uncertain too, especially since Singapore denominated bonds aren't having high enough interest rates to shout about. If it is up to me, I would look at ETFs or equity that tends to be uncorrelated, or negatively correlated to the broad market. Some instruments that I am looking at, Gold ETF, emerging markets (such as the BRIC countries - Brazil, Russia, India, China) ETF, foreign currency fixed deposits (like the NZ deposits which are offering way higher than Singapore deposits. The risk would be currency exchange loss though.), private equity funds (though those tend to be available to people with liquid capital of above S$250k), and REITs that are well supported with dividend yields as well as growth strategy.

Where would you invest your money in?

What Benefits Do ETFs Offer to Investors?

TraderTan — Sun, 09 Mar 2008 03:36:49 -0700

What seems to confuse most investors about Exchange-Traded Funds, or ETFs, is that they seem to be funds - but aren't. Investors like unit trusts and funds, because they spread risk by diversifying investments. However, most do not like the management and operating expenses associated with actively managed mutual funds which typically can range from 2-5% for the sales charge, as well as a 1-2% annual management fee. That is why index funds (designed to track the major indexes such as the STI, Dow Jones, S&P and even Gold price) have become so popular - they may not be actively managed but their returns are in-line with the benchmarks they were designed to mirror. Similarly, ETFs are not actively managed but they are designed to mirror other indexes and offer a number of significant advantages to investors.

One problem that many investors have with mutual or index funds is that they tend to just sit in a portfolio - for years. There is nothing wrong with long-term investments but they cannot be used to take advantage of short-term movements in the market. For instance, record oil prices were set in 2005 due to Hurricane Katrina. If an investor were to want to take advantage of the expected upturn in crude prices via unit trusts, they would have to wait until the end of the business day when the net asset value (NAV) is calculated. Then, on the next business day, the investor could then buy shares in a unit trust with oil company holdings - and the value of that unit trust would remain the same until its value was calculated again that evening. Basically, the price could fall again before the investor even was able to sell - and then there would be penalties and possibly sales commissions to pay.

Unit trusts are not investments tools for those looking to speculate on short term price movements. However, what if a number of tech companies made a recent round of earnings reports and the news was all good - even better than expected? It would seem that any index mirroring the NASDAQ would probably do quite well in the next day or two - right? With an ETF that tracked the NASDAQ, an investor could buy shares early on and then sell them later for a profit - because ETFs trade like stocks.

ETFs are not indexes but they were created to mirror them while trading like stocks. Investors must pay commissions for all trades just like for stocks but the ETFs are designed to be as diversified as the original indexes that they mirror. This provides the investor with a lot more flexibility along with the added benefit of reduced risk thanks to diversification.

One of the big selling points for ETFs is that they are much cheaper than actively managed unit trusts and less expensive than index funds. Most investors love ETFs and their low expense ratios because it means they have more money to actually invest. One of the big complaints about unit trusts is that management, operating fees, and even commissions are all taken out before any shares are even purchased. Although these same fees may lower turnover, they also reduce the amount of capital actually used to invest.

Index funds are less expensive than unit trusts because they are not actively managed so there are no management fees to worry about. But, ETFs have even lower expense ratios than index funds, as the average expense ratio for an ETF is between 0.1-0.7%. There are, however, commissions with every ETF trade but even then, they are typically a lot lower than buying unit trusts. For example, a typical unit trust sales charge is about 2-5%, whereas purchasing a ETF would cost 0.2-0.5% in commissions.

Another of the major benefits of ETFs is their ability to help investors diversify their portfolio. Asset allocation is an important part of any investment strategy. No investor should put all of their "eggs in one basket" which is why most financial advisors recommend splitting portfolio assets between equities, bonds, cash, and real estate. Depending on the amount of risk an investor is willing to take; different proportions of money will be invested into each asset class. Younger investors tend to take more risks and may have a portfolio with 80% of assets devoted to equities and 20% to fixed-income bonds. As the investor progresses, more asset classes will be added to the portfolio and risks will be spread even further. ETFs allow investors the ability to quickly diversify their portfolio with minimal expense.

There are ETFs to cover every major index, asset class, and niche an investor can imagine. There are ETFs made up exclusively of specialty industries in the tech and energy sectors. Commodities such as gold and oil are also covered by ETFs. Investors can even add real estate investments to their portfolio buy purchasing a niche ETF in the REIT market. An entire portfolio of diversified investments can be created quickly and simply by using ETFs.

A list of ETFs in Singapore can be found at SGX's website. While the list is small compared to the western markets, it is definitely comprehensive, covering bond index, gold, commodities, dow jones, as well as many of the regional markets such as Hong Kong, India and Japan.

REITS Yield Table

TraderTan — Fri, 07 Mar 2008 08:24:04 -0800

The recent market downtrend has cause many stocks to reach a very attractive level. More so for investment trusts, such as the Real Estate Investment Trust (REITs) as well as the Shipping Trusts.

Below is a table of the prices and yields for the investment trusts available on the Singapore market.

Interestingly, the shipping trusts have the highest yield. One probable danger of investment trusts is when the leasee decides not to renew their lease, then the investment trusts might be stuck with assets that may require significant refurbishment in order to be leasable again.

Survey on investments

TraderTan — Thu, 28 Feb 2008 02:18:47 -0800

Please help me complete this short survey. Should not take more than 2 minutes of your time

Click here for the survey

[Youtube] Wall Street Meltdown Song

TraderTan — Wed, 13 Feb 2008 04:52:13 -0800

Just for laughs Have Fun!