Ghost Fleet

Source: Dailymail

I was complaining to senior for not updating my news feeds recently and *plod* he delivered me this super worrisome news. Worrisome in an ironical way though. I left that industry a year ago when every analyst was saying their accounts will continue to be black, where everybody else financial statements are dangerously going to be coloured red. I left that industry known for its high bonus because I was seeking freedom.

So logically I should not be worried for them... but reading this line...

Thus the labours of today's Korean shipbuilders merely represent the completion of contracts ordered in the fat years of 2006 and 2007. Those ships will now sail out into a global economy that no longer wants them.

I really don't wish such a situation to happen though. The world is already in such a mess. 1 year after Lehman Brother's collapse is the topic of the Financial world (and practically everybody's world) these days. Maybe it really is a see-saw world out there... When I am down and you are up.... I guess I can only hope for the best...

p/s: Dailymail has an interesting feature. When I copied the text, it help me append a footer e.g.
'So far the shipyards are continuing to work, but the problems will start to emerge next year and certainly in 2011, because that is when the current orders will have been delivered. There have hardly been any new orders in the past year. In 2011, the shipyards will simply run out of ships to build.'

Read more: http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-ghost-fleet-recession.html#ixzz0REB8UmS7

Cool feature! (And I digress as usual... )

Buying and Selling "Monkeys"?

Source: Email

If you have difficulty understanding the current world financial situation, the following should help...

Once upon a time in a village in India , a man announced to the villagers that he would buy monkeys for $10.

The villagers seeing there were many monkeys around, went out to the forest and started catching them. The man bought thousands at $10, but, as the supply started to diminish, the villagers stopped their efforts. The man further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer rate increased to $25 and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now act as buyer, on his behalf.

In the absence of the man, the assistant told the villagers: ' Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when he returns from the city, you can sell them back to him for $50. '

The villagers squeezed together their savings and bought all the monkeys.

Then they never saw the man or his assistant again, only monkeys everywhere! Welcome to WALL STREET.

Bflygal's comments: May sound like a joke.. but there is some element of truth in it still...

Sighz XX has been showing me some articles and I find what some people said crappy. Stuff about unable to change car, cut down on spending, how pathetic they are now in the financial sector when out there in the world, people has lost their entire savings, their hard earned money. Actually all money earned are from blood and sweat, whichever industry you are in. So please, please don't beguile the innocent. And please, please don't be tempted by greed.

Behavioural Finance

Source : My paper (31st Aug 2007)

Behavioural finance is a science that studies how people’s psyches and behaviours affect the way they invest. In this article, Professor Frank Ashe mentioned that investors tend to panic and over-react when they see market slows down. This result to sell-offs and markets tumble further.

Medulla Oblongata which is linked to our emotional and basic instincts is used to make these impulse decisions. Prof Ashe advised that investors should use the Neocortex layer of the brain as it controls our complex, rational thinking. This will enable investors to make long term decisions.

Prof Ashe listed the 3 major mistakes investors commonly committed:
1. Over-confidence
This is correlated to age and gender. Based on statistics, single females investing tend to make 1.1% more than males and the risk faced is much lower. (Expected but such phenomenon is not really true for all as nowadays females like fast cars too i.e. risks, and I know of males who are low risk takers.)

He advised investors to listen to the different ponts of views and be ready to make changes all the time. He also has an interesting solution for the single guy - to get married and ask their wife to invest for them. Haha I doubt it will work though because most females would not even invest much haha.

2. Following herding instincts
“Monkey see, monkey do”. So you just keep following what people say and buy. This is risky because the actual performance of the stock is not accurately reflected due to the high buy volume.

Prof Ashe advised that different people have different pockets and different needs. Thus do not discuss too much with your counterparts on what stocks to buy. Most importantly, exercise self-control and think rationally.

3. Limited Rationality
If you keep thinking only one direction, you might accidentally turn on your auto pilot mode. An auto pilot mode example is when you head home but realise you have no memory of what has happened on the road because of your fatigue.

A test was done on this auto pilot syndrome. A group of people who are trying to lose weight were split into 2 teams. Team A needs to remember 5 numbers while Team B needs to remember 10 numbers. Both teams had to pass through a long corridor to give the list of numbers to the person at the other end. Along the corridor is a box of sweets. The results show that the Team B is more likely to take the sweets than Team A because they have used more memory to remember the extra 5 numbers, and ended up taking the sweets on their auto-pilot mode.

This is also the reason why supermarkets like to put sweets and chocolates and cigarettes near the cashiers because shoppers tend to be tired by then and might pick up these items out of natural instinct. Gosh, and I always thought it is because these were sellable items or items identified based on Market Basket Analysis.

Prof Ashe advised that one should plan investments in the mornings on weekends as the mind is rested and fresh. And do not make short term investments.

Lastly, he said there are two types of bias:
1. Confirmation bias
Keeps believing in certain trend e.g. a bullish market and refuse to do anything until it is clear that it is not a bullish market.
2. Representative/availability bias
The stocks you trust most is most probably the stock you last saw because you only believed the latest things you seen are the most accurate.

InvestFair 2007

Links:
Tradingsuccess
SIStation
Tmtdimension
T3bsystem
Trackthetrend

That day was a lazy Sunday where I couldn’t decide if I should go back to work half-day or not (for fun haha). In the end the weather decided for me as it drizzle in the morning. When I finally moved my butt out of the house, I was late for the talk “Year-End Outlook and Perspective Beyond”. Hmm I think it would have been a good talk especially since it is super crowded in that room. Actually out of the 3.5 talks I went, 3 were super crowded. And the crowd composites of youngsters (err maybe younger than me or my age?) to elderly who I believed are long time players. Then there were people whom might not understand English but came to see still. Some reminds me of my mum haha... Actually a lot of trading information, I learnt from my mum too. Just that I am a low risk taker so I prefer to be more careful before I really venture into this area.

The first talk was on “So You Want To Get Rich? The Path To Consistent Profitability” by Ray Barros. He is a fund manager and an educator and his public speaking is excellent. Haha. I may not like public speaking and may have forgotten most of the pointers I learnt but I still like to observe people giving speeches. He has all the elements of trying to engage the audience and keeping them awake. Maybe I was standing that’s why I’m awake bah.

He mentioned that to succeed you need 60% of winning psychology and 30% of effective money management and 10% of a plan with the edge. And all 3 elements must exist for the formula to work.

He has an interesting formula:
Expected Return Per Trade
(AVG$Win x WinRate)–(AVG$Loss x Loss Rate)
where
AVG$WIN = $won/Total # Winning Trades
Win Rate = # Winning Trades/Total # Trades
AVG$Loss = $lost/Total # Losing Trades
Loss Rate = # Losing Trades/Total # Trades

Based on the formula, I think the win rate and loss rate is quite crucial. Did not really get the idea but I remember he said that even if someone gives you a money making formula that is 99% efficient, you might still lose a lot because of the 1% if the formula is negative. Sighz I think I need to digest further.

He asked us to think about some sports professional e.g. Tiger Wood and an amount of money where we will feel heart pain if we lose it. Using that amount as a bet to try to beat Tiger Wood in a game of golf, he asked how many of us will take on that bet. Then he asked why we hesitated when we have already done that while speculating stocks. We were playing a game with those big players already. The market is a profitability game and that in this one game/trade, you have as much chance to win the big players. However if you prolong the game further, then your probability of winning will start to diminish. Thought provoking!

He mention something about RSI trend identification which I am totally lost about although by the end of the day, I realised he and Keane Lee both focus a lot on trend
• UPTREND: If the RSI fluctuates between 80 (75) and 40 (35)
• DOWNTREND: If the RSI fluctuates between 60 (65) and (25) 20 we have a downtrend.
• SW: If the RSI fluctuates between 80 (75) & 20 (25)

By the way, his slides can be obtained here.

The second talk I went was on “Trade Smarter with CFDs” by Geoffrey Sawyer from CMC Markets Singapore P/L. Halfway through, I thought maybe CFD is not for me as it is on short-term investments and left. Hmm kinda regret now because I might change my mind and learn more about CFD. Still thinking..

The third talk was given by Lorraine Tan regarding “Regional Market Outlook”. She mentioned that 4th quarter should be better than the 3rd quarter. However they are still waiting for news like Taiwan banks and Japan banks which have not disclose what their impact is with regards to the USA event.

The last talk was also an engaging talk titled “How To Create A Consistent Money-Making System in the Singapore Stock Market” by Keane Lee. What I like in this talk is his belief that Technology should be harnessed for this area too. He has a system called T3B where he has his own formula to help him track the trend. There are many ways to speculate stocks
1. Fundamental Traders who trade stocks even before they are released
2. Indicators
3. Trend followers

He had also mentioned that contra players never have a good ending in the long run. Haha. He is actually quite a humorous speaker especially his intonation. Anyway he said that Singapore stocks are not meant for long term investment generally and one should hold it for at most 4++ months only. Gosh, I wonder how many people will react to that statement. Imagine my colleagues, SIA employees, Keppel etc. They will say they keep their shares till now and are finally seeing the huge profit. But he believed that with that long wait, he would have earn more by compounding.

He had also advised that one must always try to lock profit by cutting loss or taking profit. Most people are quick to buy but not quick to sell. And by using online trading, one would actually save a lot of time. What I like about his idea is that if (a big IF in my case) you predict the trend correctly, you can actually plan to buy/sell the night before. Then in the daytime, you do not need to monitor the stocks at all which is exactly what he does. He never checks stocks in the daytime because he feels that will disrupt his emotions and one should never speculate the market with emotion as it would react too violently.

Oh ya he use Metastock but he pluck in his own formulas to do the trend forecasting for him. When he ran that program, it reminds me of my Neural Network doing its classification. Interesting!

Anyway I took this picture for fun... I was bored and wanted to make my blog more "colourful" instead of being too wordy...

Annuity

Source: Wo Bao 21st Aug 2007
Author: Mr. Tan Kin Lian

Other Link: Insurance Supermart

After the National Day Rally, I think this might be one of the most talked topics, maybe most searched topic? (Not sure)

The day before, my dad had mentioned that our PM wants to buying annuities compulsory for all. Suddenly I have an image of a parental figure forcing me to start saving since young for the rainy days. Sometimes I really wonder are Singaporeans a spendthrift lot that do not think much about their future or is our government worrying excessively. Until today, I have no answer for it. I guess it is good that our government will help us think and help protect us. But being too over-protective is not giving us a chance to take responsibility of our own life. I fear the day where Singaporeans when meet any adversity will say, it is ok, the Government has already planned for me.

Anyway back to the main topic – annuity. Annuities are products where beneficiaries pay a premium and get monthly payouts for the rest of their lives. It is not a very well known product and only a few will buy it because its payout is lesser than what CPF can give. The stark difference is it will pay you until you are deceased whereas CPF is only for a stated period.

What if the annuitant dies young? It depends on the capital protection and the type of protection entitled. In some cases, the annuity payment continues to be paid to the annuitant’s beneficiary for a number of years. In other cases, the balance of the capital is refunded.

Whether it is capital protected or not, the interest is definitely kept in the fund. In a way, this is a fair arrangement because this money is used to finance the monthly incomes of the annuitant who had live longer.

The most important question is how much do I get from my capital sum? It depends on your age and gender, commencement date and the type of annuity. Woman generally receives a lower monthly payment compared to the male counterparts and the older you are, the higher the monthly payment will be.

Overall, I think it is quite an okay product to consider. But currently, it seems like only NTUC and Great Eastern offers annuity packages. Hmm..

Investing

Link :
Investfair
rediffNEWS

For someone who usually doesn’t care much about investing, I admit that this week I have learnt quite a few things about what companies does to their shares.

I had to attend a briefing on Friday regarding the company giving out bonus shares. And my colleagues started explaining things like we should exercise all the shares that we can (although I have none to begin with) and that the share prices will drop soon once bonus shares are given out. I ended up doing a research on bonus shares today.

Bonus share is supposedly free share of stock given to current shareholders in a company. Thus people believed that this is a good thing because you are getting more shares at no extra cost and it is taken as a sign of good health of the company.

But is it really a good thing? A bonus issue adds on the total number of shares in the market. This is a dilution in equity. Quoting my company’s example, imagine we are getting 5 lots initially. With a bonus issue of 5:2, we will be getting 7 lots. Based on the formula:
Earnings Per Share (EPS) = Net Profit / Number of Shares

The earnings of the company will have to be divided by a larger number of shares. And since the profit is constant, the EPS can only go down. Thus in theory, the stock price will decrease proportionately to the number of new shares.

However there is still a bright side one can hope for.
1. As the stock is more liquid currently, with an increased amount of shares it is easier to buy and sell shares
2. It is a signal that the company is confident to increase its profits and distribute dividends on all these shares in the future.

Anyway with the implementation of bonus shares, the company plans to adjust those shares that cannot be exercised for the moment. Interestingly, they had mentioned giving us more share allocations and reducing the price. But when I discussed it with my parents, they told me it should be an either/or option because no company will adjust both the share allocations and the pricing. Hearing their logic, I have to admit maybe it really is an either/or option. Guess I will know the answer in one to two month’s time.

Coincidentally, my mum was asking me to check another company on its consolidation of shares. Another term for it is a reverse stock split where it reduces the number of outstanding shares without any modification of the Company’s capital. My mum told me that certain companies will consolidate its shares to reduce the number of shares available in the market. This will help reduce the volatility of the share price. And to most people, consolidation is a bad news. If the company had planned that for every 10 shares registered in the name of each shareholder to be consolidated to constitute 1 consolidated new share, then if I have 30 lots, I will end up having 3 new shares. In other words, the value per share increases although there is no assurance or obligation that the post-consolidation share price will be increased to the same rate as the consolidation ratio. Whether the share price will increase significantly is unknown thus usually people will sell their shares.

Another problem it will cause is the odd lot problem as if you own 3 lots i.e. 3000 shares, you will now end up getting 300 shares which is what people termed as odd lots. Odd lot is problematic to those who do his/her own trading. In addition, the company might round down to the nearest whole consolidated share and any fractions might be disregarded. I guess one cannot blame them from being so “ruthless”.

While surfing, I saw that there is an InvestFair next weekend. Hmm maybe I will pop by to increase my understanding of investing.