The Continuing Drought

Before I vent out my frustration again about this season, I've read this from Piers, an Arsenal fan himself, whose weekly articles are great to read.



Piers Morgan - Time to join the big spenders, Wenger, or it will be time to say goodbye

Since the shocking, embarrassing, disgraceful capitulation of Arsenal's season at Wigan last weekend, I've been feeling so dangerously enraged that I didn't want to write about my team at all today - for fear I'd say something reckless and over-emotional again.

But having recently demanded that Rafa Benitez be fired (Liverpool should just get Roy Hodgson - he'd cost half the money, spend a tenth of the cash, play better football and desist from the incessant whining that 'Bizzo' persists in) and Sir Alex Ferguson stand aside for Jose Mourinho before it's too late (after Inter's sensational demolition of Barcelona, I'd say United have about two weeks to get him now before Real Madrid pounce), it would be journalistically remiss and cowardly of me to now avoid the yawning problems in my own manager's backyard.

Arsene Wenger is now facing the biggest crossroads in his Arsenal career, of that I am certain.

Five years without a trophy of any kind is simply too long for a 'Big Club' and everyone at the Emirates knows it, including Wenger himself, because he's not a stupid man. In fact, he's probably the smartest manager the Premier League has seen.

Year after year since he unceremoniously - and, in my opinion, way too speedily - dismantled the Invincibles team of 2004, we've heard the same excuses: the team's in 'transition', the young players are 'maturing', glory is 'very close now'. Yet here we are, half a decade after the youth experiment began and we've ended up with nothing again. Not a sausage. Not even a Carling bloody Cup.

Eighteen months ago, I suggested in this column that Wenger should stand down, sparking an unprecedented furore from Arsenal fans. It was like a devout Catholic calling for the Pope to stand down, you just don't do it. And anyway, Wenger deserved more patience than I'd given him until that point. But are we really any nearer a winning team now?

Part of me says that with a fullstrength team, we are. That inopportune injuries to key players like Robin van Persie, Andrey Arshavin, Cesc Fabregas, Alex Song and Theo Walcott kept us from fulfilling our potential this season. But another part of me isn't so sure.

I watched us getting hammered by Chelsea, Manchester United and Barcelona, with pretty strong sides out. Not just beaten, but thrashed.

Real men against boys stuff. And all this after a January transfer window when Wenger bought nobody apart from Sol Campbell. I've been saying for two years, like most Arsenal fans, that we needed a new goalkeeper, striker, and midfield hard-man. Wenger ignored us all, persisting with the hapless Manuel Almunia in goal, relying solely on the keen but naive Nicklas Bendtner up front throughout van Persie's lengthy absence, picking weak links like Denilson in the middle, and the clunk-footed dinosaur Mikael Silvestre at the back.

Either he did this because all the Arsenal boardroom chatter of £30 million to spend was nonsense. Or he did this because he's obstinate and believed he didn't need to.

One thing's for sure, though. This cannot go on. Something has to give. Are Arsenal's board misleading fans about the funds available, in which case they must now say so?

Or do we have the money and, if so, the board must now order Wenger to spend it this summer and spend it big. Because the reality is that to get the right players in the current market, he has to.

I'd break the bank for Fernando Torres and Steven Gerrard. Both will want the Champions League football that Liverpool can't offer them and both would be magnificently complementary partners for Van Persie and Fabregas. And in goal, I would go for Shay Given, consistently the safest pair of hands in the country.

It's time Wenger stopped priding himself on being Mr Prudence and played the game that all his biggest rivals are playing. Otherwise this great man, who has achieved so many amazing things in his 13 years at Arsenal, will reach the end of his contract in 2011 with six consecutive years of failure on the second half of his scorecard. And if that happens, I believe he will either walk away or he'll be asked to.

Article originally from Daily Mail

~deyao~

The Percentage Game

Person 1: Any tips on stocks?


Person 2:How about Rio Tinto.


Person 1:How much is it?


Person 2:About 80 dollars.


Person 1:80 dollars? That's too expensive.

The questions is...how can Person 1 tell it is expensive? Well, if Person 1 didn't know much about the stock, he/she is most probably wrong.

That example above is probably one of the most frequent situations I have encountered. There's this theory that large and 'expensive' stocks are priced at high absolute amounts. To a certain extent it is true most of the larger companies today have share prices that are well above $10 (In America or Australia). But in terms of value, what does that absolute share price tell us?

When 1 does not equal 1

I am very sure many people know this but there are through my experiences who still make the same statement which is most certainly not true. One example. Exxon Mobil today trades at $68 and Chevron trades at $82. Two companies which are in the same industry practically doing the same thing. Which stock is better valued? Many people will jump right into Chevron, well because it is "cheaper". Is Chevron better valued? The answer is you cannot make any conclusion at this point. Why? The share price itself tells you NOTHING! It is preposterous how people make conclusions from the share price itself.

First of all, Exxon is a larger firm than Chevron. This means if the share price does indicate the size of the firm, it is BY CHANCE. Secondly, which firm is more profitable? Does the share price tell you anything about this, absolutely not! Before I move on to my next point. What if I told you Exxon Mobil makes $1bil a year in net income? Does this tell you anything? Again the answer is NO.

Why not, isn't $1bil a LOT of money?Yes it is, but to Exxon, is that amount good? The answer is you need a COMPARABLE amount. Comparing to earnings of the last few years is a good start, but comparing it's rate of return to market/industrial estimates is what really matters (This will be discussed later).

Alright, the real story is Exxon is TWICE as huge as Chevron in market value, has a higher profit margin than Chevron. And also, Exxon made $19bil last year. So did you get fooled by the previous $1bil earnings? It does sound really good but it means nothing unless you make a meaningful comparison. Exxon is LARGER and is MORE PROFITABLE but yet it's share price is lower. A well-informed investor would know Exxon has a superior finances but it is not the only factor on choosing a stock.Lesson, the share price amount tells you NOTHING.

Hypothetical example (which is unlikely to happen in reality unless for a very good reason). Chevron has 2 bil outstanding shares and trades at $82. Let's say the firm does a stock split of 2 for 1. This means for every 1 share held, the shareholder will now own 2 shares. It will actually be called a bonus issue in reality but the "bonus" is free shares in numerical terms but not free money. This means Chevron now has 4bil number of shares outstanding which is double the amount. What will the new price be? Theoretically, the price will be halved to $41 because assuming the firm's value did not change overnight, the price of its shares should not be different. But due to the split (which does not affect a firm's value), 2 shares will equal to the value of 1 share before the split, thus being priced at $41.

Now after the split, Chevron is "cheaper" compared to Exxon in absolute share price. If you still haven't understood the fundamentals, you would have thought what a wonderful opportunity it is to buy Chevron because it has gone down in price by 50%. If you read the few paragraphs before this, you would have known $41 for 1 share now is NO DIFFERENT to $82 for 1 share before the split. This means in the world of finance terms $41 EQUALS $82. The value of each share before and after the split are the same although they are priced differently. From now on, when you look at share prices, just remember they mean NOTHING when compared in absolute terms.

Percentage Matters

Percentage allows us to make meaningful comparisons. You can own a huge company, but if it does not make money, no one wants to buy a stake in your company. We live in a percentage game. Percentage returns matters a lot more than absolute returns. Whether Chevron is priced at $82 or $41, if the share price falls/rises by a certain percentage, that is what matters. Whether the movement was $1 or $10, the percentage change is what you should be looking for. From the previous example above, had you used a percentage return for let's say return on assets. You would have known a $1bil profit for Exxon is actually a terrible return. $1bil sounds good but it's not.

So if you were interested in buying into a managed fund, what are the relevant questions for you to ask? Plain simple, what are the returns you would expect as a percentage of your your investment. If the fund has not been outperforming the market itself and it has high exposure to equities, that is probably a negative sign. As you can see I've created another question, what are the returns relative to the market? That is probably one of the most important questions.

I have not been particularly good when assessing fundamentals of companies. But just a few ratios that are important. Return on Capital, Dividend Yield, Operating Margin and Historical Earnings. These ratios will allow you to make meaningful comparisons when assessing a company's financial. On the technical investing side I am even less knowledgeable actually. But what technical analysis does is it goes beyond the fundamentals to assess a company. Analyst usually plots graph of historical prices and compares it to market's return, volume and other indexes to spot trends to determine target prices, resistance level or to time the market's trend. I'm not going through these techniques as I don't know much for now. Maybe in the future.

The main point is knowing what the share price means and ways to actually determine share price value.

Rio Tinto, Exxon Mobil and Chevron does not make you rich. It is the knowledge about Rio Tinto, Exxon Mobil and Chevron that makes you rich.

~deyao~

Conspiracy of the Rich

I came across this video and it probably gave the best unbiased explanation of the causes of the financial crisis apart from Robert's. The conspiracy is as clear as true and it is happening right at this moment. The US Congress is talking about a financial reform but the painful truth is you just can't rely on anything that has got to to do with politicians. It's up to you to educate yourself and not lose money to "scams" and "lies" of the govt.

Visit msnbc.com for breaking news, world news, and news about the economy

~deyao~

Is China all good?

China has been by far the fastest growing country in the world. A GDP of 8% during the financial crisis was just admirable. Everyone says it's the next big thing (well it already is), it will lead the world economy, it will overtake US one day? Well, I definitely won't doubt it may all happen. But when it comes to China we hear stories about its lack of transparency, pollution, human rights problem and it's absolute desire for growth at all cost. Will these problems catch up on them in the future? I came across this article which gives a brief highlight on the less rosier side of China.

The China Bubble - Greg Hoffman

Edward Chancellor, a member of the asset allocation team for Boston-based GMO and, interestingly, the author of a recent Financial Times piece on Australian property, is a financial historian and bubble expert.

His 1999 book, Devil Take the Hindmost: A History of Financial Speculation, examined past speculative manias. Perhaps you've read articles comparing the tech boom and 1990s' bull market to tulipmania in 1630s' Holland.

The difference is that Chancellor was making that comparison before the tech bubble burst, some years before Alan Greenspan claimed it was futile trying to predict bubbles at all.

Chancellor's timing may have been fortuitous. To accurately predict something once might mean little. To repeat the feat perhaps means something more.

His next major piece - Crunch time for credit: An enquiry into the state of the credit system in the United States and Great Britain - included this prescient paragraph:

''The growth of credit has created an illusory prosperity while producing profound imbalances in the British and American economies...When credit ceases to grow, the weakened state of these economies will become apparent.''

That report was written in 2005, years before the credit bubble burst. Chalk two up to Chancellor.

Third time lucky?

He's now turned his attention to China, a fertile ground for his fertile mind. Released last week on the GMO website, China's Red Flags is split into two parts.

Crisis checklist

Section one identifies speculative manias and financial crises, offering a checklist for those trying to identify bubbles in advance of their bursting. Chancellor offers 10 criteria for what he calls ''great investment debacles'' over the past 300 years (the report explains each in far more detail);
1. A compelling growth story;
2. A blind faith in the competence of authorities;
3. A general increase in investment;
4. A surge in corruption;
5. Strong growth in money supply;
6. Fixed currency regimes, often producing inappropriately low interest rates;
7. Rampant credit growth;
8. Moral hazard;
9. Precarious financial structures;
10. Rapidly rising property prices;

Although all these criteria need not be present in order for a bubble to be present, you can see where Chancellor's heading: not-so-subtly steering readers towards his own conclusion. In section two he takes each factor and applies it to the case of China.

Ponzi scheme

His conclusion is alarming; The very factors that have allowed China to grow so rapidly over the past few years despite the global slowdown - an investment boom, a credit boom, massive increases in money supply, moral hazard and risky lending practices - are all factors that investors and the mainstream press feel they can safely ignore because China is growing so rapidly.

After the past few years, we should all understand the potential negative implications of such major imbalances. But there seems to be general agreement that a ``build it and they will come'' approach is warranted in China because it keeps growing rapidly. There's a Ponzi-like element to the circularity.

Chancellor is concerned that China's high GDP growth is no longer a function of impressive natural growth. Instead, growth is being engineered to achieve high GDP numbers. It's producing a system that's unsustainable and prone to collapse.

This, in essence, is Chancellor's argument:
- Investors are adopting an uncritical attitude to China's growth forecasts;
- Because of the way local officials are incentivised, it's likely that migration of the population from country to city is much further along than the official numbers suggest. So when you hear of another 350 million internal migrants arriving in cities by 2025, many of them are actually already there;
- Hence, future productivity growth will be much more reliant on efficiency gains than urbanisation. China's record in this area isn't at all strong;
- Beijing imposes GDP growth targets on local governments. Thus, ``GDP growth is no longer the outcome of an economic process, it has become the object''. `When the allocation of resources, whether at the corporate or national level, becomes all about ``making the numbers'' then poor outcomes are to be expected';
- In 2009, Chinese fixed asset investment contributed 90% of total economic growth (an incredible statistic and a natural consequence of the previous point);
- Significant overinvestment is present in many areas. For example, capital spending in the cement industry increased by two-thirds despite capacity utilisation running at an estimated 78%;
- The efficiency of investment (incremental GDP growth for each additional unit of investment) is trending downwards towards wasteful levels;
- Interest rates have been kept way too low for decades, sparking economic growth but also imbalances and bubbles;
- China's enormous foreign exchange reserves are not necessarily a plus. As Michael Pettis pointed out recently, only two countries have previously accumulated such large foreign reserves relative to global GDP - the United States in 1929 and Japan in 1989. Oh dear;
- The Chinese stockmarket is in bubble territory. Last October, a new Nasdaq-style exchange opened in Shenzhen with 28 new listings. The minimum price rise (the laggard of the 28) rose 76% on the first day. Price/earnings ratios averaged 150;
- The residential property market also appears to be in a bubble. In Beijing, the house price to income ratio has climbed to more than 15 times, versus 9 times in Tokyo in 1990;

I've heard dozens of arguments on this matter. About half of them completely brushes of the bubble theory. Dr Doom Marc Faber predicts a high chance of an economic collapse for China this year. The fact the prices especially real estate has gone through the roof and the presence of dangerous lending practices could cause disaster. The lesson here is not about correctly predicting whether China takes a fall, but not to be completely certain about the future of China. Aussies take note.

~deyao~

TV Theme Medley

I actually had a post planned out for this month but really haven't got the time. We'll see on on the Good Friday weekend. Here's a video my sis showed me. Thought it was quite amazing. Hope you enjoy it if you haven't seen it before. Have a nice day! It's the same person in the video btw.



~deyao~

Starting with a Plan

Typing this on my new keyboard, yay it feels good! Based on the past few months, I posted only once every month and I think it could be like that for awhile, well at least there's still something. Just an update on uni, I am boarding an "aircraft" this semester and it's going full swing for 5 weeks, transits for a week and goes full throttle again for the next 8 weeks. I hope I will survive. But anyway, despite the coming up busy-ness, I'll try my best to keep this blog updated. It has changed to a completely different blog in the past year because things have changed for me and this is what is happening for me.

It's already coming to the end of February, so have you planned for the year yet? Well it depends on what are you planning for. For instance, if its work, you barely need to do anymore planning after spending majority of your productive time there every weekday and sometimes on weekends. If you're studying like me, it's all about doing the usual tutes and assignment and then going through test and exams. It still requires planning, but for the coming few weeks at least. I used to do new year resolutions way back many years but not anymore. But at this critical stage of life for me, I'd probably need to put a lot more importance on certain matters.

It's another personal finance topic today and it focuses on making your wishes come true. It's about making a plan. If you're about to start in the job market, making plans now would do you good. Ok, I'll keep it simple. It's all about improving your financial well-being, nothing else. Are you doing anything to improve your financial well-being? It doesn't matter what financial position you're at now, it's about continuously improving that position. One of the best ways is to create a financial goal. I've mentioned this before.
A financial goal can be "I want to a have a million dollars in 15 years", "I want to pay off my house in 5 years", "I want to retire at the age of 40" or "I want to double my returns every 5 years". Well, there are many other goals in life we would want to achieve other than being wealthy and it is equally important you have a plan to try to achieve them.

So think of a financial goal, time frame can be anywhere from 1 to 10 years. Well every goal definitely involves reaching a certain amount. I suggest you understand compounding interest and annuity to set your targets. Learn about different instruments that will help you achieve a better return than the cash rate, at least.

Turning a person who doesn't really understand money into an investor takes a lot of brainwashing. Good brainwashing of course! The fact that many people in this world today have the wrong perception about money or don't understand how money really works is hurting their finances. A few perceptions that you should get rid off.

Wrong Quote 1)Debt is Bad (Again Rich Dad gave me the idea)
There's probably very little positives you can take when looking at stacks of bills that are due in a month, every month. But there's good debt and bad debt you should learn to differentiate. Bad debt are debts that continuously drain resources from you, just like credit card debt and mortgage of a house you live in. Those are liabilities that you have to cut down or eliminate. And then there's good debt. Debt that makes you money. As in my previous post, debt is leverage. You can buy something with less of your own money. Most commonly, we are always referring to the famous example of real estate. The fine distinction of investing in real estate is its steady cash flows. Having sufficient and steady cash flows will give you enough money every month to repay your loan and assessments. And that is how debt does you good. It's still a liability in the balance sheet, but when you net off the amount with the cash flows into the current assets, you see the benefits.

Right quote: Accumulating debt is fine as long as it is good debt.

2)"The only way I can be richer is getting a pay rise".
This quote is also very common among the working class, highly depending on their pay rise to be improve their financial position. Well I've written about this before. It is simply is too risky to depend on your paycheck anymore. And the increase in wage rates are barely fighting off inflation. The solution is to generate income from other sources. Rich Dad's Cash Flow Quadrant is probably the best book for this. For a mere USD $10, it's dirt cheap to learn about generating alternate forms of income while still keeping your job.

Right quote: I need to generate at least 2 forms of income.

3)"I can't afford it"
Changing the way we say things can also improve our actions. The choice of words we pick is also highly important. Negative statements like "I can't afford it" needs to go and be replaced with more positive and optimistic one like "How can I afford it?". So ask yourself this question when you think of making an investment. Actually all the other quotes are the quotes to avoid.

4)Investing is risky.
Well, I've had many times come across people telling me this when I recommended them investing. And many of them are still unconvinced, maybe one day they will be. I've written on many occasions that investing is like a skill. Robert says its similar to flying a plane. You can't fly a plane no matter how many books you read about it. And you don't fly and land like a pro in your first few attempts. The secret is out, all you have to do is educate yourself and do it. High risk, higher returns? Let me give you something better. When you educate yourself financially, you can earn higher returns and you can lower your risk.

Right quote: Investing is not risky, being uneducated is. (Quoted from just about every book written by Robert)

5)Leave money matters to the experts.
In a world whereby there are so many people desperate to make more money and totally motivated by money, how on earth could you hand over your money to someone? If you haven't learnt your lesson, read about Bernard Madoff and Allen Stanford. See how people have their fortunes wiped out by so called "accidents" and "bad judgments". The fact is people who work in the finance field may not be as smart as you think they are, obviously I don't mean to offend anyone (even myself), but there are also really good ones. The truth is, despite being in the finance field, not all of them can give you good advice. People are profit-oriented, why would they want the best for you, generally. Whether you're a doctor, lawyer, architect, engineer or a student. If you are willing to invest in your financial education, you can outperform at least half the people who claim to be experts. Don't rely on anyone! Take over your finances NOW! So if its even possible, please brainwash yourself.
With planning, many things can happen. If if you don't achieve the 1 million dollars in 15 years, maybe you might take 17. But that would be better than not planning at all. Everything starts small. From the first budget you did or the first cash flow statement you prepared. It's definitely hard to imagine a few thousand dollars becoming a few hundred thousand dollars. But with a well thought of and realistic plan, those fortunes you have dreamed about might not be that far away.

Right quote; This is my money and I should take control over it.

"Knowledge and composure are two important aspects of a good investor. Being a good investor not only improves your financial well-being, it also improves you as a human being"~deyao

A Very Important Term

It took me a few weeks to really understand what this word meant. I knew the definition of it in terms of accounting but I never knew this word was that powerful until recently. Robert Kiyosaki no doubt has done me one of the biggest favours I could ever ask for. The fact that I am lucky to be able to connect with his books also gave me the word I am about to talk about today. He mentioned it is the biggest distinction between the rich and poor. Everyone of you know this word but it has brought greater meaning to me in the last few weeks. The word is LEVERAGE. Originating from the word lever, which allows you to gain an 'advantage'. Scientifically we use the lever concept to help us do something by using less resources. In accounting/finance terms, leverage is associated with borrowings which allows us to pay for something using less of our own money. And in other context, leverage is something you gain advantage from and gives bargaining power. Robert gave the simplest definition to understand, "doing more with less".

First of all, the concept of leverage I will discuss about today is not about persuading you to borrow money or taking a margin loan. And I promise you I am not about to introduce you some leveraged product to invest in. What I am focusing on is more of why you need leverage and the importance of it. Let me give you the simplest examples to understand the concept of leverage I am trying to talk about. Two people work eight hours a day, but one earns more than the other. Why? One of them has more leverage. Another example, two students study for 20 hours prior to the exam. One does better than the other. Why? Leverage. In investing, two people buy the same shares at the same time at the same price, one makes a higher profit/loss. Why? Leverage. I hope you haven't got sick of the word yet. In short, people can gain leverage in the easiest known ways, doing more and working harder than the others. All of us have 24 hours in a day, the people who are at the top spend those 24 hours better than anyone else. Now you know why your boss works less hours than you but gets maybe a few times your pay, your boss has leverage!!

I hope you have gained a different dimension to word by now. So what does this mean for you? What can you do? As always I am just trying to open up people's minds just a bit more so they can benefit from it. I would be happy if anyone could actually understand what I've written. It make complete sense to me but it may not to the next person.

This is partially an investing topic, but before I proceed, I would like give you the answer to this question. What is a person's biggest leverage ? Well, there's no doubt about this answer, it is your mind/brain. Your brain can do wonders if you really explore and it is truly your biggest leverage. I am not talking about being smart or stupid, it is the way you position yourself and your nature of approach. I've always believed that with the right attitude and approach, there's really so much a person can do. I am not going to discuss what type of attitudes are right or wrong, but just keep in mind every time when you're doing something, make sure you give yourself the opportunity to make it. Your mind is practically the thing that makes EVERYTHING work, it has to start from there. Any hint of success comes from that very first thought in the mind.

Gaining Leverage
There are many ways to gain leverage, it may come from obtaining a new skill, new knowledge or anything that can enhance your return on something. For example,if you are a builder, if you are able to build both commercial and residential buildings, then you got leverage as most other builders may only do one. In terms of knowledge, some people take two degrees or further on postgrad studies for the same reason. Gaining leverage in terms of being more employable.Financially, there are hundreds of ways to make more money. You can start an online business, do a part-time job, work on weekends or you can make some investments in various instruments. Referring to my to my last post, I mentioned about generating other forms of income. Considering the working environment and the commitments people have today, it is really hard to do a second job or work on a part-time business. For example in a developing country like in Malaysia, working till late night and on weekends are common sights. At the end of the month, if you receive a good pay cheque, it compensates, but what if that pay cheque is insufficient and you simply do not have time anything else?

One of the important characteristics about investing is it gives you leverage. You AND your money are working at the same time! And that is doing more with less. The part whereby I feel investing is very attractive is because it doesn't take you much time and it is extremely convenient. With the internet and a phone, it is more than enough to do some investments.

Stages of Investing

At the beginning, we know very little or almost nothing about making investments. One of the best source of information is the business section of the newspapers. That will tell you a lot about economic news and corporate happenings. Even if you find it hard to understand at least read some of it. And when you come across similar news or terms, there's when you start to take more notice and understand. The internet has also ample of financial news available.

At the same time, I would recommend some personal finance or investing books which will tell two very important things. One will tell you why to invest and how to go about it. The investing books will tell you a lot about history and trends. I believe history is one of the most important part of an investor's guide. This is simply because number one, history tends to repeat itself. And number two, making sure you don't make the exact same mistakes that have been made before. For people who don't take note on history, they will make unnecessary errors and would waste some time making corrections. If you take note of history right from after the Great Depression at least, you would have seen a lot of trends through numerous economic and market cycles. And that will probably save you from making the most common errors. It's sort of a fast track.

The starting I would say is the most tedious part, learning everything from zero and having the difficulty of trying to understand something very different. And as I said many times, once you cross that starting part, your opportunities are endless. You could choose to "specialise" in certain classes of investments or you could try and do a few at the same time. Once you built your foundations, this is the time where you can see the benefits of investing in terms of your time.

The maintenance stage, is the time whereby you spend about 15 minutes catching up on news and movements everyday. That's just about how much time you need a day. And maybe once a month, spending about a few hours evaluating your portfolio and probably learning from a new book.

Will I Lose Money?
In investing, losing money is similar to making mistakes. To be brutally honest, making mistakes is the best education you will ever receive. Yes, you may read as much as you can about things to avoid doing, but the truth is you can never avoid making mistakes . But the biggest consolation is that it will be the one step along the way to succeeding. Donald Trump lost a lot of his fortune before recovering and making it even bigger. Robert Kiyosaki failed a FEW times before actually succeeding in his business. And even the great Warren Buffett made some silly errors along the way like selling too early or buying on spiraling prices (ConocoPhillips). Making mistakes and building from it is an evident success story for all.

Something You Should Know
I learnt this recently I do agree with the writer. There's a misconception in people when their share prices fall they haven't incurred a loss until they SELL it. For people who believe this statement I advise you remove this misconception immediately. Here's why.

You have $1000 and you bought 1000 shares for $1. If the share price falls to $0.90, the value of your investment is $900. Have you made a loss? YES! The fact is whether you keep the stock or sell it for cash, your net worth is $900. If the share prices returns to $1 tomorrow, it's another case because that has hasn't happened. But what has already happened when your share price fell is that you've already made a loss. Please don't live in denial. So next time DO NOT be FOOLED about not making a loss by not selling.

So what does it mean? My biggest gift for you today. Only hold stocks that you think will give you the best return from this point of time. Let's say the price of your share fell, ONLY IF you feel when it recovers it will outperform the others should you KEEP it. If you feel you've made mistake, sell it and buy something better that could give you a better return from this point of time. Remember!! The moment your share price fell WAS the time you made a loss NOT the time you sold it.

Leverage is the ability to do more with less

~deyao~

Will The Bull Market Continue in 2010?

This is probably one of the most asked questions in the financial world today. Traders and investors are all so eager to find out whether the market will continue to sustain the incredible bull market since March 2009. Will it happen? I have a prediction. But you have a prediction, analyst in Wall Street have their predictions, big timers like George Soros, Jim Rogers all have their opinions. All these predictions combined can range from one side to the other, meaning no one is right for sure. But does it matter? I'll get to it a little later.

In this post, I am not fully writing about forecasting the financial markets or the economy in 2010. But as always, whenever I come up with something valuable to share I'll do it. I'm not sure how much more of these "educational" posts I can continue writing but with the world moving at a faster pace and in different directions more frequently than before, I'm pretty sure there's no end to learning. It's taken a few months of planning and compiling this topic in my head, trying to figure out how to summarise things so that it won't take much time and understanding to read. And for the ending, a short paragraph on the outlook for this year,

About 20 years ago, with job security, it was enough to provide people with comfortable lives. With a job, everything is taken care of. Flash forward to today, job security no longer gives you that comfort margin,it has shrunk significantly. In many cases your job/work is just enough for you to keep a minimum portion for savings and the rest for paying expenses, leaving you with almost nothing. Reason for this, wages has not kept up with inflation and the purchasing power of money has continued to tumble. In growing countries with negative real interest rates, placing money in money markets will cause people to continually lose out.Who are the ones least affected? The upper class. Here's why. Economics 101 taught us income distribution is determined by ownership of resources. The more resources you own, the richer you are. And because many people in the middle class lack any ownership in real estate, businesses or investments, they are unable to outpace inflation. The people in the upper class who own the majority of the resources are able to consistently keep ahead of inflation and in best scenarios PROFIT from it.

RELYING ON WAGES IS DANGEROUS
First of all, like I mentioned previously, a lot of what I have written is through reading and personal opinions. I don't expect anyone to believe me entirely.
I've just mentioned the huge enemy "inflation" that erodes the value of money. Now looking at the situation today, in terms of wages how many percent of the employees make the big bucks?I think I could relate to one of Rich Dad's lesson's ,the 90/10 rule. It says 90% of the money is owned by 10% of the people.I don't have the official figures, but I think it could be a very similar proportion if a number is put on the distribution of wages among the entire working class. What does this mean? In simple terms, all other factors constant, if you don't earn a high wage, you are financially at risk.

Now who earns to big bucks? Top management of course, directors, CEOs, outstanding individuals. Look at football for example, we are so envious of footballer's salaries as many of them earn at least $50k a week! We saw the best part of things on the front pages and we forgot to turn to the back pages. There are 20 clubs in the Premier League, let's say 15 clubs are able to pay those staggering wages and 5 clubs from the other 6 leagues in Europe can do the same. That makes a total of 45 clubs. If there are 20 players in a team, that makes 900 players in the world that could make those sort of money. How many people play football to make a living? If the 90/10 rule is true , there are 90000 people playing football for a job. But wait, all the people in South America, Africa and Asia only summing up to 90000 people? It is an underestimation. I think I won't be far off saying top 5% of the footballers make 90% of the money. This concept also applies in the corporate world, only the top few percent make the big bucks. Lesson of the day, it is a rat-race out there and you shouldn't put ALL your hope on making the big bucks.If you're in, congratulations, if you're out,it's time to do something about it.

THE LINE BETWEEN BEING POSITIVE AND REALISTIC
In life, you always have a draw a line at one point saying, that's the most I can do or that's the limit. This should not be confused as being negative. Continuing on the issue of making the big bucks. In reality, many of us work the hardest and do the best we can. We don't limit our success and should always try to do one better than before. We must always try to keep a positive attitude and that will get us very far. But even being positive in the real world also requires limits. There are things we must accept we can't do or have very small chance or succeeding. Again don't relate this to being negative or quitting because this is being realistic. We all have to accept the fact that not everyone is will get the big bucks in the future. I can always aim to become CEO one day but I have to accept the possibility it might not happen. That's being realistic. You can plan to study in Harvard from the age of 8 and there's a high chance it might not happen. In relation to wages, there's a possibility we might not get right up the pyramid or earn $200,000 a year.And if we lose our jobs, what happens? How do we pay the mortgage, bills and bring food to the table.Is there enough savings to even last you a few months?The idea I'm trying to bring here is all of us need a supplementary plan to help us generate other forms of income. The idea is basically is lowering the risk of depending on your monthly paycheck. Most of Robert Kiyosaki's books will help you on this.

CASH FLOW AND CAPITAL
If you have alternate forms of income, cash flow will be definitely be better and raising capital will be easier. I asked myself, if I needed money to buy a real estate, is there another way do go about other than a bank. In a business there are two most common ways of raising capital, debt or equity. If I as an individual is trying to avoid a lot of debt and is unable to issue equity, what other choices do I have? Assuming we are on our own, I simply haven't found a feasible way for financing other than debt. When you are in need of money to fund a lucrative investment you'll realise if your bank account does not have that amount, you got no way. Unless its a piece of real estate, the bank may be unwilling to lend you any money. This means you're on your own and you got to find a way of making more money. And I suggest is the need to build a base of assets producing cash flows as soon as possible. The positive cash flow will give you the more opportunity and freedom depending on the size of your base. The bigger picture, if your base grows to a certain level of size and is able to consistently generate stable cash flows, financial freedom is awaiting you. Definition of financial freedom? The ability of not requiring to work another day in your life. Well to reach financial freedom requires a lot of additional work and effort. And one more important factor, it requires time. How much of it depends on your performance. Some people take 15 , 20 years and even more. And in many cases, some take till retirement age. And this brings me back again to my brief mention of time value of money. The longer time the time you have, the higher the time value of money. Every day is time value, banks pay you interest on your deposits right on the exact date, if they were to accidently pay everyone 1 day earlier, they would have lost a lot of money. If you are 20 years old and haven't started investing, its not bad news, you've got a lot time ahead of you. But the fact is, you started at the age of 15, you money would have gained an additional 5 years of time value. Warren Buffett started at the age of 12 and he said he wished he started at 7.It might not seem a lot now, but when you reach a age maybe 10 years before retirement, that 5 years would be priceless.

Well, suddenly I've thought of something else to write on my next post. Robert uses this word to distinguish rich and the rest. It took me sometime to really understand what he meant. So I guess I'll leave it to the next post. Now for an outlook for this year.

Bull Market or Bear Market?
I've learned in the past that both market conditions are out of my control and so I've got to work with it. Knowing this factor, it means the rest is down to myself. For this year, if the bulls were to match the all time highs of 2007, it would require the same degree of push like in 2009. But my opinion, choppy recovery with the danger of inflation would test central banks in the world to raise interest rates. I won't doubt the Dow will push through 11,000 or even 12,000 by the end of the year. In between, I'm seeing a few periods of consolidation but an overall trend of an increase. Commodities and energy prices will have a positive year meaning inflation has caught up again. Danger of a bear market? A huge downtrend below 9000 is not likely and I believe the bulls have not done all the dashing yet. Authors Stephen Leeb and Donna Leeb's oil indicator suggest that if oil prices does not break $100/barrel, there is little danger of a bear market. In Australia, interest rates will continue to rise approximately near 5% which is considered neutral stance. A weakening Dollar will lend support to higher commodity prices and the All Ords will no doubt break 5500. In Malaysia, the gradual lifting of sugar and petrol subsidies will bring inflation to higher levels. The removal of subsidies which I believe will happen before 2014 will be excellent in the long run. I'm not sure how the govt. will decide how to award subsidies in the coming months but it is a move in the right direction. In the coming years GST will also contribute to additional cost to the people. But liberalisation also does a country well, AFTA (Asean Free Trade Area) will bring the cost of many goods down, softening the blow of inflation. We would even see cheaper cars in the coming years and this would be a wake up call to the inefficient portion of the country. The move to promote efficiency and liberalisation will definitely be a good move in the long run. So the final word, an upward trend but cautious growth.

~deyao~