Stock Market Sense

MALAYSIA

Share prices rallied at the very last minute of trading today, with the main index hitting a new high of 1,447.04, mostly supported by plantation counters.

Sime Darby, RHB Capital and MISC were the leading heavyweights that pushed the Kuala Lumpur Composite Index (KLCI) 9.22 points or 0.64 per cent higher than yesterday’s closing of 1,437.82.

The local bourse, which was in the red during the morning session as a knee-jerk reaction to the murder of former Pakistani Prime Minister Benazir Bhutto yesterday, managed to return to the black.

US Market

U.S stock markets had another rocky week. They fell sharply following the Fed's decision on interest rates (many investors wanted a bigger cut), but rallied after a plan to boost liquidity was announced. Global markets have had a tumultuous year, which started with multi-billion dollar buy-outs and ends with multi-billion dollar write-downs.

What Is the Danger of Buying on Margin?

One way to purchase stocks is to buy them on margin. Buying stocks on margin allows investors to pay for a fraction of the stock (usually around 50%, but it cannot go beyond this), and then borrow the rest from their broker. Also referred to as leveraging, buying stocks on margin can result in a large return when the stock goes up.Buying on margin allows you to purchase more stocks by using the assets you already have as collateral for the loan, and it also lets you to react quickly to new investment opportunities because you have the added money in your account.

However, like anything, there are risks associated with buying stocks on margin.

What Is the Danger of Buying Stocks on Margin?
Buying stocks on margin can be a risky venture and result in financial straits if you're not careful. In fact, buying stocks on margin is actually the only way in the stock market that an investor can lose more than he actually put in. Some of the dangers of buying stocks on margin include:

It's not for the novice. On the surface and if done properly, buying on margin can almost double your buying power. However, it requires a great deal of knowledge as little rules and fees can add up, leaving the investor in the hole. In addition, your margin account must stay within a certain percentage, and if it drops below that you only have a few days to replenish the account. Not all stocks are marginable, and purchasing stocks on margin can get you into trouble if you're not careful or if you don't know what you're doing.

You could end up owing more than your initial investment. If the stock goes up and you make a profit, great. But if it falls below 75% of its original value, the broker will issue what is referred to as a margin call since the investor must have at least 35-55% equity in his account at all times. A margin call mean the investor much put more money into the account. If he can't do this, however, he'll have to sell the stock, pay the broker the amount owed, which might even be more once commissions are figured in.

It requires a good deal of knowledge about marginable stocks. Let's say an investor has a margin account with $5,000 in it, giving him $10,000 buying power, as he is allowed to borrow up to 50%. The investor decides to purchase stock with his margin account that is worth $6,000. However, he does so without realizing the stocks purchased were not marginable, so he is $1,000 in debt (because his stocks don't qualify, he is not allowed to use his margin account). If this is the case, the investor will get a Fed call from his broker, telling him he has three days to put enough money to cover it into his account.

Buying on margin is similar to using a credit card. Often, when buying things on credit, people spend recklessly because they forget, either subconsciously or not, that they eventually have to pay that back, with interest. Buying on margin is similar. If you don't make money, you'll have to pay it back, plus taxes and brokerage commissions.

Buying on margin comes with a number of risks, and it's best to carefully research each one and discuss with your broker whether buying on margin is right for you.

How to Analyze Stocks

• Company and Industry Overview

Find out something about the company’s business and its industry.
It may be in a business or market sector that you favor or that you want to avoid. For instance, the home building industry usually prospers when interest rates drop and suffers in a rising interest rate environment. So your take on the future direction of interest rates would influence how you view homebuilders.

• Market Capitalization

Market capitalization defines a company’s total value (share price multiplied by number of shares). The biggest firms are designated large-caps, and progressively smaller firms are termed mid-caps, small-caps, and micro-caps. There is no good or bad market capitalization, but each size has its own pluses and minuses in terms of potential risks and rewards. Generally, larger companies are considered safer, and smaller firms offer more growth potential. However, even these generalities vary with current market conditions. You may decide that a particular company size range best suits your needs or, conversely, that you’re open to all possibilities. Whatever you conclude, eliminate candidates in this step that don’t fit your requirements.

• Valuation Ratios

Valuation ratios such as price to earnings (P/E) or price to sales (P/S) define how market participants view your candidate’s earnings growth prospects. High valuations reflect in-favor stocks, that is, those seen having strong growth prospects, and thus appeal to growth investors. Conversely, value players look for stocks with low valuation ratios, indicating that most market players (growth investors) view them as losers. Any given candidate will fit into either the growth or value categories, but not both. The valuation ratios give you a quick read as to whether you have a value or growth candidate on your hands.

• Trading Volume

Trading volume is the average number of shares traded daily.
Low trading volume stocks spell trouble because they’re subject to price manipulation and mutual funds can’t buy them. Here’s where you’ll toss these bad ideas.

• Float

Corporate insiders such as key executives and board members are restricted as to when and how often they can buy and sell their company’s shares. So insider owned shares are not considered available for trading. The float is the number of outstanding shares not owned by insiders, and thus available for daily trading.Acceptable float values depend on your investing style. Large firms typically have floats running from a few hundred million shares into the billions. However some investors seek out firms with much smaller floats, typically below 25 million shares. Since the float represents the supply of shares available for trading, these small floats mean that the share price could take off like a rocket if the company hits the news and the demand for shares overwhelms the available supply.

• Cash Flow

Where reported earnings reflect myriad accounting decisions, cash flow is the amount of cash that actually flowed into, or out of, a company’s bank accounts as a result of its operations. Consequently, cash flow is the best measure of profits. Except for the fastest growers, viable growth candidates should be reporting positive cash flow. Here’s where growth investors should eliminate cash burners from consideration. On the other hand, viable value candidates may very well be reporting negative cash flow resulting from the problems that caused their fall from grace.

• Historical Sales and Earnings Growth

Whether you’re seeking out-of-favor value prospects or hot growth can chapter didates, your best prospects are firms with a long history of solid long-term sales and earnings growth. In this step, you’ll dispose of stocks that don’t meet this basic requirement.

• Check the Buzz.

There’s no point wasting time researching a stock if the company’s main product has just been rendered obsolete by the competition. At this point, get up to speed on the buzz surrounding your candidate. Negative buzz is bad news for growth stocks, and you should disqualify such growth candidates. It’s a different story for value prospects, however. The negative buzz is part and parcel of the market’s disenchantment with the stock, and is contributing to making it a value candidate. You will eliminate many of your bad ideas during the quick pre qualify check, most in less than five minutes once you get the hang of it. Take your survivors on to the detailed analysis.

Steps to become a millionaire

Invest like crazy

Don't delay. The quicker you get a jump on putting money aside, the easier it will be to stuff a seven-figure cushion. If you start at age 25, for example, investing $286 per month will get you $1 million by age 65, assuming you earn 8% annually.

Invest automatically, either through your employer's retirement plan or by setting up a regular deposit to a mutual fund or broker. You'll never miss the money, and you'll avoid two big mistakes: buying too much when stock prices are high and not buying at all when prices fall.

Watch for fund fees. The more you pay, the tougher it is to earn an above-average return. The typical hedge fund, for example, takes 20% of any gains, a huge hurdle to overcome. A better bet: no-load mutual funds with expense ratios of 1% or less. If you trade individual stocks, watch those commissions.

Keep it simple. Be wary of get-rich-quick schemes or sales pitches for complex investments, such as oil-and-gas partnerships, that trade on the millionaire cachet to lure investors into buying high-fee products they don't understand. Most millionaire households accumulate their wealth over the long term by sticking to a regular investing plan in a balanced portfolio.

Individual Stocks versus Mutual Funds

del.icio.us Tags: Stock Market

A mutual fund is a diverse holding of stocks that are managed on behalf of the investors that buy into the fund. A mutual fund allows an investor to take advantage of a diversified portfolio without having to invest a large sum of money.

What is the advantage of a diversified portfolio? It offers protection against rapid market losses of any one particular stock. If a portfolio is spread across 20 stocks, if any one of those stocks quickly loses value the effect is less than if the portfolio consisted of that one stock by itself.

When investing it is always a good idea to diversify. The problem for small investors is that they often don’t have the funds to buy a variety of stocks. Mutual funds allow small investors to benefit from diversification with a small amount of money.

Besides stocks, mutual funds can be made up of a variety of holdings including bonds and money market instruments. A mutual fund is actually a company and investors that buy into a fund are buying shares of that company. Shares in a mutual fund are bought directly from the fund itself or brokers acting on behalf of the fund. Shares can be redeemed by selling them back to the fund.

Some funds are managed by investment professionals who decide which securities to include in the fund. Non-managed funds are also available. They are usually based on an index such as the Dow Jones Industrial Average. The fund simply duplicates the holdings of the index it is based on so that if the Dow Jones (for example) rises by 5% the mutual fund based on that index also rises by the same amount. Non-managed funds often perform very well – sometimes better than managed funds.

There are downsides to mutual funds. There are usually fees that must be paid no matter how the fund performs, and the individual investor has no say in which securities can be included in the fund. Also, the actual value of a mutual fund share is not known with the same precision as stocks on the stock market.

Mutual funds are often a better choice for the small investor than either stocks or bonds. They offer the diversity that provides cushion against sudden stock market movements and usually provide a greater return than bonds. Of course, mutual funds can also lose value, especially in the short term, so short term investors may be better off with bonds which offer a set rate of return.

There are three main types of mutual funds: money market funds, bond funds and stock funds. Money market funds offer the lowest risk – they consist solely of high quality investments such as those issued by the US government and blue chip corporations. Money market funds have rarely lost money, but they pay a low rate of return.

Bond funds aim to produce higher yields than money market funds and therefore carry a correspondingly higher risk. All the risks that are associated with bonds – company bankruptcy, falling interest rates – also apply to bond funds.

Stock funds usually have the greatest potential for profitable investment but also carry the greatest risk. The risk is more for short-term holders of mutual funds – stocks have traditionally outperformed other investment instruments in the long run.

There are different types of stock funds including ‘growth funds’ that attempt to maximize capital gain and ‘income funds’ that concentrate on stocks that pay regular dividends.

Mutual funds are an ideal investment for those with limited funds or investment experience. Choosing the right fund is a decision on how much risk you are willing to take against your expected return on your investment.

Chasing Bulls

MORE disciplined behavior among US investors has perked up returns accruing to individuals, a US study has found. But long term returns remain meager when seen against a simple buy-and-hold strategy on the S&P 500 index. The annual study by US research company Dalbar, the 'Quantitative Analysis of Investor Behavior delves into mutual fund flows to produce a picture of investor behavior. It covers 20 years of real investor returns for equity, fixed income and asset allocation funds between 1987 and 2007.

Dalbar sets out to make some points on investor behavior that are worth taking to heart here in Singapore as well. Foremost is that timing the market does not work.

Over one year, the average equity fund investor enjoyed a return of 14.7 per cent compared to the S&P 500's 15.8 per cent, and beat inflation of 2 per cent by a wide margin. Over three and five-year periods, the average investor actually beat the S&P500. Dalbar attributes this relative success to longer retention or holding periods.

But over 20 years, the average individual return was only 4.3 per cent, against the 11.8 per cent return on the S&P using a buy-and-hold strategy. The long term inflation rate is 3 per cent.

Returns for investors in bonds and other fixed-income securities were worse. While the individual beat the long term government bond index over one year - 2 per cent against the index's 1.2 per cent - the 20-year return was dismal. The individual's return was only 1.7 per cent against the index's 8.6 per cent.

As for asset allocation or balanced funds, the individual's return paled against the equity-only S&P500. Dalbar, however, says such funds encourage longer holding periods which translates into 'investors making more money'.

Dalbar says: 'Whether the mutual fund industry is enjoying rapid expansion in times of economic boom, or is being battered by the bears, the key findings uncovered in (the) first study from 1994 remains true: Investor return is far more dependent on investor behaviour than fund performance. Mutual fund investors who hold their investments are more successful than those who time the market.'

In Singapore, fund flows are tracked by research company Lipper on a quarterly basis. CPF also gives a snapshot of investors' profits and losses on an aggregate basis. But it is difficult to glean individual holding periods from the data, and returns are typically reported on the basis that a fund is held for the relevant period.

Dalbar says: 'While mathematically useful, there are virtually no investors that exhibit this behavior, making published returns applicable to no one ... Investors are motivated by greed and fear and not by sound investment practice.' Tracking the dollars going into and out of a given month, compared to market performance, proves the correlation, it says. As markets rise, cash flows swell. As markets fall, cash flows deflate.

The data posits two broad types of investors. One is the 'average' investor, which assumes that a $10,000 investment is made in a pattern similar to average investor behavior. This is inferred from fund sales, redemptions and exchanges as provided by the US-based Investment Company Institute. There is also the 'systematic' investor where a $10,000 investment is evenly distributed across each month.

Of guesses and gains

The 'guess right' ratio reflects the frequency with which investors make a short term gain. A point is awarded for every month that an investor sees net inflows and the S&P 500 rises the following month. A point is also scored when there is a net outflow and the market declines the following month.

The 'guess right' ratio is strongest in rising markets (1992, 1995, 1996-97, 2003-2006). But the most mistakes are made during downturns. 'These mistakes occur because investors are driven by the fear that markets will not recover ... If you don't know when to get out, it is better to stay in,' it says. The overall 'guess right' ratio over 20 years is 61 per cent.

Comparing 'average' behavior to systematic investing, Dalbar found that $10,000 invested systematically using dollar-cost averaging yielded 40 per cent greater returns. 'It is clear from this analysis that behavior drives the returns that investors actually receive. Good investment behaviors compensate for major nonperformance,' it says.

It tested this by comparing a systematic approach with just 75 per cent of S&P 500's return against the 'average' behavior: the disciplined approach still outperformed.

Loss aversion - people's tendency to prefer avoiding loss than making a gain - is the greatest influence on behavior, says Dalbar. This is the main cause of loss among mutual fund investors. 'The imprudent response to risk is very often based on the fear of catastrophic loss.'

Concern about risk is greatest in three instances - when an investment decision is required; after a loss and after news of a loss by others. These events present the best opportunities for risk education, says Dalbar. 'Risk education must first correct the fear of catastrophic loss by providing anchors to establish risk as being relative, and then include explanations of how risk is controlled ... The biggest risk is getting out before the upturn.'

The average holding period among equity investors is 4.3 years. This has been so from 2002 to 2006. Before that the holding period ranged from 1.7 years in the late 1980s to about three years between 1992 and 1996. Retention is critical, says Dalbar, as one cannot benefit if one is not in the market. 'While it is highly profitable to avoid market downturns, very few investors do so successfully ... After all, the market moved up 60 per cent of the time and down only 40 per cent for each month of the last 20 years.'

How investors find reasons to buy - or sell

IT'S always interesting to see how investors are always able to find a reason to buy or sell in earnest when it suits them. If you like, it all depends on whether you prefer to view the glass as being half empty or half full. The determining factor? Momentum. If prices rise for no apparent good reason, the tendency is for market players to convince themselves that they have either missed something or that their previous assumptions were wrong.

Last June, for example, when the US Federal Reserve raised its short-term interest rates for the 17th consecutive time in the current cycle by 25 basis points to 5.25 per cent, analysts confidently declared that it was the end of the tightening cycle and that the next move would be a cut, perhaps coming as early as the end of 2006. As a result, stocks soared, ending a steep, two-month long down-cycle that had been triggered by interest-rate fears.

In January this year, when oil crossed US$60 per barrel and US Q4 GDP growth of 3.4 per cent surprised on the upside and stocks fell, the tone changed because everyone suddenly expected the Fed to keep rates steady at its March meeting. Noticeably silent were the experts who had a few months earlier urged their clients to buy because rates were to be cut.

In March, people rushed to buy stocks because it was claimed that the minutes of the Fed's meeting hinted at an impending rate cut and the language supposedly demonstrated a move away from a hawkish stance. The US Treasury market duly priced in a 50 basis-point cut before year- end and stocks hit all-time highs.

As pointed out in this column on April 6 ('What exactly did the Fed say?') the markets got it wrong. The language used by the Fed was nowhere as accommodating as experts would have everyone believe and if anything, suggested that core inflation was still a concern and that rates might have to be raised or at least be kept steady for the rest of the year.

Following the conclusion of last week's Federal Open Market Committee (FOMC) meeting, this view has now been proven true. The Fed did not lower rates and Wall Street is now convinced that there will be no loosening for the rest of the year. Oil is close to US$70 a barrel (a 10-month high), the 10-year Treasury yield is above 5 per cent but perhaps worst of all, the US economy is stalling - last week's Q1 GDP figure showed the slowest expansion in four years. Stagflation, anyone?

Still, as stated earlier, it's always possible to find reasons to buy (or sell) depending on prevailing momentum. To see this, look no further than the penny sector, where syndicates and manipulators - no doubt with the aid of major shareholders - have managed to generate considerable momentum in 'junk' stocks, thus inducing retail punters to find reasons to buy.

A popular inducement to buy has been the laggard theme, the idea being that if something - a stock or a country - hasn't risen as much as others, then it has to eventually become attractive, hopefully sooner rather than later.

Today's market is replete with the laggard argument - Citigroup's 'sell Singapore, buy Taiwan' last week for example, was founded on the argument that Taiwan has lagged everybody else. Second line activity is founded primarily on laggard reasoning - if a sector leader for example, has been ramped up to a particular level, then analysts use that lofty valuation to justify recommending a buy on others in that sector.

The upshot of all this is that currently, the market wants to continue to find reasons to keep buying, though it knows at the back of its collective mind that it might be prudent to take a little money off the table considering - other reasons aside - that the third quarter is traditionally a quiet period. Still, much depends on the prevailing momentum and, of course, how convincing the laggard argument proves to be.

Why Day Trading?

"Because it's there!" What has come to be known as day trading is new, and many are lured by it. Of course, day trading is as old as the first market, but it has generally been the preserve of professionals. Now one finds traders of all degrees of experience at innumerable trading houses hunched over computers, buying and selling in seconds or minutes, hundreds of trades a day.

Uncountable trading rooms in cyberspace connect thousands of traders all over the world, responding instantly to "calls" made by head traders to buy or sell. And in countless chatrooms, this or that stock is touted or rumored into buying or selling frenzies by traders acting on this information alone.

Four factors converging in the last few years of the twentieth century have made this possible:

   1. The computer
   2. The Internet
   3. Discount brokerage fees
   4. and an unprecedented Bull Market

These, combined with the ever-present lust for quick fortune, have produced a new market dynamic:

A massive degree of public participation in short-term trading.

Volatility in some markets is obviously a direct result of day trading activity. Whether this amounts to more than day traders buying and selling to one another is not yet clear. What is clear is that trading is not investing. If trading is "take the money and run," investing is "plant the money and let it grow." Trading is always short term in its orientation, whether for 6 seconds, 6 hours, or 6 days. Investment is always intended to be long term.

Trading aspires to the growth of capital; investment to growth in ownership. The wealth of a trader is measured in units of currency; that of an investor in units of equity. The trader always seeks cash in pocket; the investor certificates of ownership (shares). Investment is long term because it generally takes a long time to accumulate a sizable degree of ownership.

Unless an investment goes sour (e.g., a company fails), there is often no incentive to divest — even when there are large "profits" in the value of an investor's position. The trader, however, seeks something quite different. The trader seeks gains now. The trader in effect attempts to reduce the time element to near zero. While a 15 percent return in a year's time would be considered satisfying to the investor, the trader wants this in a day!

Why invest in stock market

Investing is making your money work for you by getting your money to generate more money.  Investing in stocks has consistently proven to be one of the most profitable forms of investment available.

The benefits include:

•  Immediate Buy/Sell so you can sell part of your investment any time.
  
•  Very low transaction cost.
  
•  The freedom to work at your own place, at your pace in your own time.
  
•  Easy monitoring — log in to the market from anywhere in the world.
  
•  Being able to maximize returns whilst spreading your risk.
  
•  A predictable form of investment if you know what you're doing.
  
•  Putting you in control and freeing you of fund management fees.
  
•  Considerable tax advantages.
  

Things to watch out for:

• The market can be a volatile place.
  
• You must acquire knowledge of what you are doing.
  
• You must monitor your investments.
  
• You must learn the discipline to enter and exit the market on entry and exit signals.
  

Understanding the stock market

Raising Capital on the Stock Market

The Stock Market was created by companies wishing to raise capital for their business. When someone says they have a listed company they mean listed on Bursa Malaysia. All companies need cash to take advantage of growth opportunities. Many start-up companies however find themselves short of capital to fund expansion.  

One way to acquire this cash is to publicly float the company. This involves selling part of the company to private individual and institutional investors who are then able to freely exchange these stocks on an open market. Purchasing stocks in a company that is listed on the stock market is done through an Initial Public Offering or IPO.

Once an IPO has been issued, you can contact the company (phone, fax or email) for a copy of the Prospectus and complete the application to apply for an allocation of shares. Or you can wait until the company is floated and buy shares on the open market.  Besides Bursa Malaysia, stock brokers will also have information regarding Initial Public Offerings.

Companies that are already listed can also raise additional money on the stock market by offering existing stockholders the opportunity to buy more stocks in the company.  For example, a listed company wanting to raise additional capital might issue one new share at 5sen each for every three shares an existing investor owns.

When you buy shares, you are buying a share in that company and so you own a percentage of that company. When the company makes a profit, you share in that profit in the form of a dividend. Typically, the number of shares that have been issued multiplied by the share price gives us how much a company is worth.

The role of broker

To buy or sell shares on Bursa Malaysia, you need to use a registered broker who is a member of Bursa Malaysia.  You cannot deal directly with Bursa Malaysia as only brokers have direct access to the market.

• A broker acts as your agent—much like a real estate agent that sells your house.
  
• He/she earns a commission on the value of shares you trade – just like a real estate agent earns commission on buying and selling houses for people.
  
• A broker can also be involved in the listing of a new company by underwriting the float and marketing the float to their group of clients.
  

Getting stock price

The stock price is the market price of a stock. Using the Bursa Malaysia website you can view the price for any listed stock.

Getting A Price

It's good practice to explore the market news wherever you can find it. Many of the terms will be alien to you at this stage but familiarizing yourself is all part of the learning process.

There are many places you can find market news, for example:

1. The financial section of the daily newspapers
   
2. Bursa Malaysia Website. Click here for Market News
   
3. Your broker website may have an up-to-date list of stock prices
   
4. Your telephone company may be able to send you market updates via your mobile phone
   

It is best to explore your options and find services that best suit you.

Type Of Stock

What types of stocks are there?

Ordinary Stocks: When purchasing an ordinary stock, you own a share of the company. This entitles you to receive profits from the operations of the company in the form of dividends. At the annual general meeting (also referred to as an AGM), you have voting rights. Ordinary stocks are what you will start to trade in and most traders never venture beyond this.

There are, however, other types of securities and these are:

Preferential Stocks: A preference stock is different from an ordinary stock. Preference stockholders receive dividends before dividends on ordinary stocks are announced. If the company is wound up, preference stockholders rank above ordinary stockholders in the distribution of assets. Preference stocks can often have a fixed dividend rate.

Contributing Stocks: A contributing stock is one that is not fully paid for and requires the holder to make payments at a future date.

Bonus Issue: This is a free issue of stocks to the stockholders based on the number of stocks already owned.

Rights Issue: A rights issue can be granted to stockholders to buy stocks in the company, often below market price.

Derivatives: There are also securities you can trade on the market that derive their price from the parent stocks. There are two types – Options and Warrants – and these are collectively known as Derivatives.

Option: An option can best be described as a contract between two parties giving the taker (buyer) the right to buy or sell a parcel of stocks at a predetermined price on or before a predetermined date.

There are two parties involved in an options contract, the writer or seller and the taker or buyer. The writer writes the option and has the obligation of accepting or delivering the stocks. The takers have the right, but not the obligation, to buy or sell the stocks.

There are two types of options – Calls and Puts.

Call: A call option gives the buyer the option to buy stocks from the option writer.You are 'calling' stocks away from the owner.

Put: A put option gives the buyer the option to sell stocks to the option writer.You are 'putting' stocks to the writer.

There are many advantages of options trading, the least of which is leverage. An option can be bought and sold for a fraction of the stock price, giving an effective higher return (or loss) on investment for a stock price move.

Warrants: Warrants, like options, derive their price from the parent security. Warrants though are issued by banks and other financial institutions and are classified based on whether they have an investment or trading purpose.

Warrants may be issued over securities, a portfolio of securities, a stock price index, currency or commodities.

Buying and selling stocks

The thought of buying and selling stocks can seem daunting for a beginner but it is quite simple and will grow on you quite quickly once you have some practice. One essential thing to know is that you must go through a broker to buy and sell stocks, only a licensed broker can deal directly with the stock market.

Engaging A Broker
Aside from making the purchases, a broker can also advise you on your purchases. However, you should not depend on them for market knowledge, you must do your own research to succeed in the market.

Buying And Selling Online
Online brokers generally take less commission than other brokers, making online trading a more profitable alternative. Online trading does not come with expert advice but does normally come with live market updates so you can keep track of your purchases online and become an expert yourself.

When To Buy And Sell

One of the benefits of investing in the stock market is that you can do it after hours. Bursa Malaysia is open from 9am to 12.30pm, then again from 2.30pm to 5pm but you can do research and place orders outside these hours.

So, let's say you go to work all day and only have the evenings and weekends free. In the evenings you will review what happened to the market that day and decide how to trade the next day. If you miss a few nights during the week, you can do your analysis on the weekend.

There are two ways to place a buy or sell order:

At Market Orders
You can only make 'at market' orders during trading hours. If you do your research after trading hours then you would put an order through with your broker as soon as the market opens the next day. The purchase will then be made 'At Market' price, which may be different from the price you found during your research the night before.

At Limit Orders
The advantage of 'At Limit' orders is that you set the maximum price you will buy or the minimum price you will sell the share for. So, if you have done your research that evening and decided that the most you want to pay for the share is RM 1.20 then you place an 'At Limit' order for 100 shares at RM1.20. If your broker can get the shares for RM1.20 they will buy them for you. If not, they won't make the trade.

This practice is quite good if you want to control the amount you are investing. The other advantage of buying 'At Limit' is that you can place a buy/sell order outside market hours. Therefore, your share trading business needs do not interfere with your daytime job.

Ten-year cycle of market crashes?

In this article, we look at three stock market crashes from the recent market crash to those in 1987/8 and 1997/8 

Q: Are we in the 10-year stock market cycle, pending a big stock market crash? 

 The market crash in 2007 

The recent heavy sell-down on the bond and stock markets caught a lot of retail and institutional investors by surprise. What appeared to be a haven in investment like the bond market was still subject to panic selling from institutional investors.  We believe the crash in the bond market was mainly due to the withdrawal of some foreign funds. As a result of tight liquidity, unwinding of yen carry trade and potential high losses in some hedge funds, some foreign funds might have been forced to withdraw their investments from the Asia-Pacific market. 

The plummet in our stock market was mainly due to the fear of sharp drops in the US, Hong Kong, Singapore, South Korea and Japan markets.  Even though our banking institutions were not really affected by the US subprime issues, the international contagion and fear of more crashes, margin calls and panic selling from retailers caused heavy losses on Bursa Malaysia.   Nevertheless, the magnitude of our losses was far less than those in the regional markets. 

The market crash in 1987/8 

The market crash in October 1987 was partly attributed to strong market performance of most markets during the first nine months of the year. For example, the US market experienced more than 30% increase during the nine-month period.   However, from Oct 12 to 16, the Dow Index tumbled by 9.5%. On Black Monday of Oct 19, it plunged 22.6%, or 508 points, within a day. It was the largest single fall since 1929, in both absolute and percentage terms.  In Malaysia, the KL Composite Index (KLCI) tumbled by 12.4% on Black Monday. As a result of the overnight crash in US, the KLCI plunged another 15.7% the next trading day. 

The market crash in 1997/8 

The Asian stock market crash of 1997/98 began with a currency crisis in July in Thailand and quickly spread to neighbouring nations. One by one, overheated markets crashed in Thailand, Indonesia, Malaysia, the Philippines, Hong Kong, Singapore, Taiwan and South Korea. This was mostly due to the rapid industrialisation in these countries.  

The US market was affected by the turmoil in Asia. Its share prices began to collapse at the beginning of October 1997. On Oct 27, the Dow Index tumbled by 554 points, or 7.2%, within a day. However, it recovered by recording a rise of 337 points the next day. In Malaysia, the KLCI tumbled from 1,231 points in the beginning of 1997 to the low of 262 on Sept 1, 1998, representing a total percentage drop of 78.7%. 

Comparing the three market crashes, the KLCI suffered its biggest daily drop of 21.5% on Sept 8, 1998. The crashes in 1997/8 and 1987/8 were also far more severe than our recent market crash.  We are not too sure whether we have seen the worst of the crash in 2007. However, the sell-down has caused a big disruption in our uptrend momentum. It appears to be quite difficult for the KLCI to touch the recent peak of 1,392 again.  

Any market rebounds may prompt fund managers to continue offloading their equity exposure. Most of big losses in 1997/8 and 1987/8 happened in October.  As we can only know the actual exposure of the subprime issues for most of the US financial institutions when they report their third quarter results in early October, we are expecting some market volatility in that month. 

 Ooi Kok Hwa is a licensed investment adviser and managing partner of MRR Consulting. 

Increase memory

1. First, use a pencil or word processor (I prefer the latter because it's faster) to type, in complete sentences, any fact you think might appear on the test. Use short sentences because they're easier to remember.

2. Take your printed notes into a quiet room, shut the door, and eliminate all distractions.

3. Look at the first sentence in your notes and read it out loud. Then, close your eyes and say the sentence without looking at it.

4. Repeat the step above, this time with the first two sentences.

5. Next, try it with three sentences. Then four. Repeat until you have memorized every sentence in your notes.

Top 5 super-obvious, ways to immediately improve your life.

Reduce noise - We all have innumerable inboxes, interruptions, and distractions that are part of work and life — you can't change that. What you can do is get more hard-nosed about the elective diversions that you invite into your world. Cancel a subscription for a magazine you never read or sign off an annoying mailing list. Needles get easier to find when you aren't constantly adding new hay to the stack.

Write things down - Ever find a piece of paper in your office with seven digits on it? You know it's a phone number, but whose? Get ruthless about jotting down ephemeral information if you'll need to recall it later. Remember that your brain is a creative organ with limitless creative possibilities — but it makes a really crummy whiteboard.

Focus on action - My favorite productivity book, "Getting Things Done" highlights how anything you want to do in life eventually comes down to intentional physical activity — even if it's something as mundane as "take out trash" and "call Mom." Learn the habit of planning your world around action verbs rather than fuzzy nouns. "Implement Strategy" is not a task; it's a project. "Call Jim about strategy" is a very do-able "next action" that keeps the ball in motion.

Get out of your inbox - Many of us are habituated to living out of our email inbox, voicemail, and the other "in baskets" of our lives. Instead, try to set aside regular, periodic times when you trawl for the new content in your life — then get back to work! Inboxes are delivery systems, not workspaces. The real work is happening in your brain and practically every other place that's not an inbox. Stop allowing yourself to be brow-beaten by the latest, loudest, or most dramatic item that's landed in your world.

Get pickier - You are the sole person in your life who gets to decide where your time and attention can go.

Take that responsibility seriously by not wasting time on junk. You know in your heart what's really important to you — does the current direction of your time and attention reflect that? Is "kid hugging" time where it should be in proportion to "Blackberry checking" time? Be mindful at the highest level about where you focus your energy, and always strive not to squander it on undeserving activities.

Home-Based Business

I'm following up on your recent request for information about starting a home-based business. The Internet is creating a global economic revolution. Huge financial opportunities are being created by this revolution and you're in a position to get your share.

The Internet + multi-billion dollar markets + premiere products + global opportunity = potential for a large, profitable, worldwide Internet business with residual income for many years to come. What else could it mean for you?

•    The opportunity to build a business with your spouse or close friends.

•    Working from home, creating your schedule around family and personal interests.

•    Never having to worry about paying the bills and doing the things you want.

•    No "boss" to answer to (other than yourself!)

•    Financial opportunity that isn't limited by your education, experience, gender, religion, etc.

•    Freedom to work, play, travel, spend time with loved ones...whenever you want.

Digi deal

The much-talked-about sell down by parent company Telenor ASA of its stake in DiGi could be a win-win deal just biding its time. The attention on this development is also on the rise with the latest comment from the Minister of Energy, Water and Communications regarding the non-extension of Telenor's compliance with the foreign ownership regulations. In the face of corrections in the KLCI, market conditions are ideal for encouraging investment and for companies to take profit. It seems like the right time for DiGi to open its doors to a new party to enter into an equity partnership. "Even if any exchange is not effected at current prices, the final agreed price would still fetch a handsome profit," concurred MIDF research analyst Sharath Somasundaram. "And based on current sentiment, there is good reason to feel that the right buyer can afford the valuations to offer a strong price in return of owning a slice of a blue-chip company.Furthermore, the slew of de-listings have given rise to huge amounts of funds floating among cash-rich investors looking for the just the right target to inject their money into. As the only public listed telco in Malaysia, the odds are in DiGi's favour. Even if Telenor does not favour a direct sale of shares, other options are available such as a well-timed, new shares issue or a split. Selling a whole 11% - 12% slice to one investor could mean the new party wanting to 'lend' its creative direction into management, which may disrupt current smooth business flow," explained Sharath. Yet the stake can be pared into smaller pieces and made available to many minority investors.

Friday Market intervention

We have seen a brilliant market intervention by our Malaysia Government on Friday's second trading session. A massive selling down of share prices particularly aimed at KLCI component shares must be an institutional selling. Some funds must have joined the selling force as short selling. We don't want funds to get hurt but if you don't impose substantial losses upon the funds, their preying movement will not be halted. We have a very very very simple way to burn the funds that have joined this afternoon's selling down action : to burn the funds using T+3.

As Fund Managers are eligible to move share prices, to do short selling, hence Fund Managers are the only party that can profit from the falling of share price. But bad loans in banking sector may increase and spread if share price does fall over 80% within 2 weeks' time. We urge our Malaysia Government to halt the preying movement of funds by imposing losses upon them.

The massive sell down occurred in this Friday afternoon before 3:30 pm. Our Malaysia Government intervened the market from 3:15 pm. We see our Malaysia Government not only buy up the share prices, but also in huge volume. These shares SHOULD never be lent to any fund for a short while. Our Malaysia Government MUST not buy up any share price next week for no reason. This is utmost important, therefore we reiterate it in capital letter below :

OUR MALAYSIA GOVERNMENT MUST NOT BUY UP ANY SHARE PRICE NEXT WEEK FOR NO REASON.

On next Monday, those funds may expect our Government to buy up shares for them to sell down. If our Government does nothing instead, those funds may start another round of selling down the share price without a massive volume. Notice here, the selling down is NOT accompanied by massive volume. Then comes to Tuesday next week, we expect the trading volume may shrink and share price movement narrowed. Then comes to Wednesday, i.e. T+3, the final day to transact shares. Those funds that joined Friday's selling down movement may start their last selling down attempt. Our Government should prepare to intervene the market at Wednesday opening, with the intention only to retain the share prices. Those funds must buy up the shares around 11 am, we strongly suggest our Government to follow suit. Both our Government and those funds are chasing after the share price. This is a rebound that filled with blood !! The blood of those funds that joined the sell down on this Friday afternoon. Just keeping the share price at the place where it belongs without much push up movement. Those funds will face heavy losses if our Government makes little movement. The day after Wednesday i.e. Thursday is another T+3 for those funds for their action on Monday, another losses imposed upon those funds !!!!!!!!!

The only way to stop Fund Managers to hurt us, to prey on retail investors is to impose losses upon them using Government power. Only then the Fund Managers will cool down and try to move the share prices from the level of 1180 to 1300.

Barisan National is planning a general election soon, if the Fund Managers movement cannot be halted, all of us will suffer. We never declare that we support Barisan National, but as we are all sitting on the same boat, we have no other alternatives but to propose useful suggestions that could consolidate the share market prices. We have many talented, sound and experienced local funds. Now if the Government does not make severe mistakes, the share market volatility can be cool down within a week's time.

This is the method HK Government used in battle the market speculators in August 1998. In August 1998, HK Government declared a change of T+5 to T+2 with effect immediately before they rescue the market. We don't have to alter any figure in T+3, simply that our Government does not make severe mistake in pushing up the share prices too early. Malaysia Government MUST act in the same direction with those funds when they are forced to buy up the share prices, and retain the share prices during their attempt to sell down the share prices.

Remember one very important truth : Don't buy up the share prices unless the funds are forced to do short covering.

SBL, Fund Manager, Share Price Movement

The following Q&A's are our own views; they are focus upon SBL, Fund Manager, Share Price Movement.

Q&A 01 : What are the synonyms of Stock Borrowing-and-Lending (SBL)?

Ans : SBL = Short Selling = Off-Market Trading.

Q&A 02 : Which party is legitimated to do SBL ?

Ans : Fund Managers are the only legitimate party to do SBL. In another words, Fund Managers can do the short selling; Fund Managers are the only players for Off-Market trading.

May be you would like to argue that Bursa Malaysia does not have Off-Market. Well a very close-to Off-Market status does exist or otherwise Bursa Malaysia cannot function without Off-Market.

Q&A 03 : How many parties are there in a share market ?

Ans : Two. They are Retail Traders and Fund Managers.

This is the most important question

Q&A 04 :Where did the shares go after retail traders bought in shares from the share market ?

Ans : The shares that retail trades bought in MUST go into the custodian account of Fund Managers. Retail Traders are funding Fund Managers to short sell the shares bought by retail traders to profit Fund Managers. This is the name of the game.

We believe most retail traders never realize that they are helping Fund Managers to prey on their share prices.

Q&A 05 : How many markets are in Bursa Malaysia for trading shares ?

Ans : Three. They are the Primary Market for trading IPO, Secondary Market for trading issued shares, and Off-Market for Fund Managers.

Q&A 06 : The structure of secondary market is designed for whom ?

Ans : The structure of secondary market is designed for Retail Traders only. As you can see, whenever there is a rise in share price, it means buying; whenever there is a fall in share price, it means selling. These are all from the stand-point of Retail Traders, not the Fund Managers.

Q&A 07 : Who is legitimated to move the share price ?

Ans : Fund Managers have the license to move share prices, but they have to report the movement to Bursa Malaysia and Security Commission (SC). Share price is just like the price tag of any other ordinary goods, only that share is tradable in share market alone. Large movement of share price is prohibited and requires explanation.

You may already know the answer of the above Q&A's. But if you don't, you are really a retail trader !!

Here is another important hierarchy of share trading information, where retail traders are always put themselves in the unfavorable situation of this information imbalance :

The most powerful decider for share price movement : Insiders;

The second most powerful decider foe share price movement : Fund Managers in Off-Market;

The third most powerful decider for share price movement : Technical Analysis.

Technical Analysis is considered more powerful in deciding share price movement than other analysis such as Fundamental Analysis simply because Technical Analysis is much more closer to revealing share price movement.

We like to use smaller values for Technical Analysis charts to increase its volatility. Even though Technical Analysis charts cannot reflect 100% of Fund Managers intentions, but Technical Analysis charts in CandleStick form can give you some hints at what price you should buy-in, where the Fund Managers have no more interest to sell down the share price.

Angin Yang sama kita Layari

Dear friends,

Pernah dengar tak istilah ini: "The same wind blows on all of us... it's how we set our sail" (Angin yang sama meniup kita semua... apa yang membezakan adalah bagaimana kita melayarinya)

Sekiranya anda memahami istilah ini, anda memahami istilah sebenar kejayaan. Apa yang membezakan mereka yang berjaya dan mereka yang tidak berjaya? Kesemuanya adalah keputusan pada diri sendiri.

1. Anda bertanggungjawab atas hidup anda sendiri dan anda tidak boleh mengubahkan diri anda selagi anda menerima tanggungjawab itu.

2. Anda juga bertanggungjawab dengan siapa atau apa yang mendekati minda anda. Mendekati orang yang salah atau kumpulan yang salah boleh berjangkit! Kadang kala ianya berat, tetapi ianya adalah tanggungjawab anda.