Thursday, April 23, 2009

Right Time to Re-Enter Market

Sharing a thought...

Received several sms from some UT investors of mine enquiring whether now is the right time to invest, particularly since the index has been showing green these couple of weeks. What's your opinion? What advice to give?

Being their consultant, of course I have to give them a is still low, it is still cheap to go in, never time the market, invest for the long term and UT is not for speculators.

It really puzzles me why people would only invest when the market goes up or getting expensive compared to the reverse? Is it because it is comforting to invest when the bull comes charging and the investor is able to see "instant paper profit" with fewer units compared to seeing "paper loss" and more units purchased for the same amount?

For example (we will ignore the service charge for easy calculation) if the current market price is $0.25/unit @ $1,000, an investor is able to get 4,000 units compared 7,143 units when the price is $0.14/unit. An extra 3,143 units for the same $1,000!

We will use several assumptions here.....

Assuming investor A invested once only ie $1,000 @ $0.25/unit, in order to realise profit he has to wait for the market price to be more than $0.25/unit - a slow and long wait.

If investor A continue to invest when the market drops:-

$,1000 @ $0.25, units bought is 4,000, average cost per unit is $0.25/unit
$1,000 @ $0.14, units bought is 7,143 units

Total units in hand 11,143 units, Total Cost Spent $2,000

Average cost per unit is $0.18/unit ie total amount invested / total units bought => $2,000 / 11,143units

In the second scenario, the investor only has to wait for the market to be at $0.18/unit or more to realise profit compared to the first scenario whereby the investor only invested once @ $0.25/unit.

Being a smart investor, which is more rasional the first or second scenario? The second scenario is also termed as practising 'dollar cost average' which was explicitly explained in my previous blog.

So, right time to enter? Buy when it's cheap and sell when it's high - is the normal quote but who knows how high is high and low is low? Save regularly especially when the market is so cheap and let the professional fund manager do their work in selecting the good and quality shares to put into the basket of your chosen fund.

I always believe that investment is referring to the future. How much confidence do we have in the country's future - politically or economically, etc? If we are to flip the newspapers or watch the news on tv, we will note that government all over the world are working hard to pull their economy from the black hole either through fiscal or monetary policies or even change their country's investment policy to attract foreigners or encourage domestic consumption or boost economic activities. Financial institutions are also working hand in hand with the government to oil the economy engine. So how much faith do you have of the future? If you are unsure, my advice is not to invest as you might not be able to sleep well and end up having panda eyes! Otherwise, what is stopping you?

Thursday, February 19, 2009

How to Make Money From Unit Trust?

Sharing a thought...

It strikes me as strange that those who claimed to be"investors" particularly those long term investors are shying away from the current low price equity market. Why "investors" and not investor? Well, to me, a genuine investor is a long term opportunist who takes the view of long term to realise profit from their investment venture. They will continue to invest especially in the current all time low priced equity market as they know that eventually the market will correct itself. This group of opportunist will invest more especially when the equity market is cheap and will reduce their investment when the market is bullish. However, as they are unsure how low or high the market could go, they invest on a regular basis and are very cautious during peak period or rather when "investors" are entering the market at a feverish speed. A smart investor would have slowed their activities when this group of followers / "investors" continue to invest heavily. I believe Warren Buffet belongs to the former group as he has this infamous quote "Be greedy when the market is fearful and fearful when the market is greedy".

Investment is viewed as a medium to long term instrument and never as a short term tool to make money. Those who entered the market with the hope that they would realised profit within a short period of time (less than 3 years) should call themselves as high risk taker/gambler/follower but never as an investor. A gambler is a person who is taking the risks, either a calculative or a blind risk to earn profit within a short period of time. An impatient lot who gets burnt frequently unless lady luck is by his side.

There are several ways money could be made from Unit Trust if the investor is willing to wait for at least 3 years. Is it a long waiting period? Only you would know.

First, if an investor entered the market at 25sen/unit and the market price shot up to 30sen, of course profit has been made and this is called capital appreciation. Please note, we will ignore service charge in the illustration here to ease explanation. Good to get in touch with your consultant if you are unsure however, you will note that nowadays, all transactions are very transparent as detailed description of the costs involved is clearly stated on the transaction slip. The cost price to use as your benchmark is the price per unit plus service charge.

The greater the disparity in the price the greater the profit margin. On the average, most funds / equities have declined between 30 - 50% from their high value of the bull run season of 2007! So, to those who are investing during the current equity sales period, they are actually buying at 30 - 50% discount and if translated loosely, the potential for them to earn is equally the same once the bull starts seeing red again! Therefore, since the current market price is so cheap, the percentage of loss has been gravely (no pun intended) reduce!

Secondly, generally though not compulsory, Unit Trust company declares distributions by the end of a particular fund's financial year end. It has been said that during distribution, the investor is given what actually belongs to them and therefore it makes no difference to them. Or in layman term, the distribution is given from the left pocket to the right pocket. This however is not true. I used to have the same thinking too until I became a part of the consultant team - in other words, I learnt. No doubt the company pays the investors using their existing fund's value but if you are to look closely, what the company did was to LOCK IN the profit for you. What they did was to reduce the price of the fund on the day of the financial year end and convert the "price difference" into units (at no cost) which increased the number of units held by you. The good news is that the distribution payment is dependent on the number of units held by you! Therefore, the greater the balance of units held the greater the payout would be. I need to reiterate that one of the objectives of investing in unit trust is to accummulate units and is NOT dependent on its pricing unlike buying shares. Imagined, if the company does not lock in the profit for us , the price plunged and no extra units in our account?

Thirdly, as the units held increased due to continuous investment or distribution, the average cost per unit of the fund will further reduced. This scenario further translate to greater profit to the inverstor as their cost is reduced. The impact is greater especially during lowly priced fund period as the units purchased would be more compared for the same amount paid during peak period. Please refer to my previous write up on Dollar Cost Average.

Investing through Unit Trust is very easy and affordable. Easy as it is managed by a team of professional and competent Fund Managers and monitored by your Consultant. Affordable as the minimum investment amount for initial investment is only RM1k whereas top up minimum value is only RM100. That is why at times, I called it as a savings tool due to the flexibility it provides to its savers as they could save as and whenever they have the extra cash or afford to do so. No commitment unless the savers have their own long term financial goal that they want to achieve.

Choice of the fund company is also important. Look at the company's background, track record, fund managers, fund's objective, etc. No doubt there are so many funds and companies that offer such services, as an investor it is our responsibility to do some homework ourselves to choose wisely. However, if still undecided, you could choose several funds from several fund companies. Try to diversify the choice of funds to minimise your risks. Am sure, after several years, you would know which fund or fund company that is able to meet your investment objectives.

So, those who belongs to the "investor" category, it is wise to relook at your investment objective and financial goals once again. If gambling is not your cuppa tea, it is good to take a long term view and start planning on investing for long term purpose. As today's price has never been this ridiculously low, plan on investing on a regular and affordable basis and spread it out over a long period of time and wait. Never, I repeat, dump all your money at once into the equity market. Rather,take the gradual and consistent investment approach. Since you are already in the market, there is no point bemoaning the paper loss that you are experiencing now as they are just paper loss. Take a practical approach and look at the abundance of opportunities available for investment for the long period. I am very sure, you will see the profit in the not too long future compared to cashing out now and suffering loss and cursing this wise investment tool which many people are still unsure of. However, do bear in mind, all investments come with risks but the risks is greatly reduced as you take the long term approach. Be a smart investor and just wait.

Monday, February 9, 2009

Uncertain Economic Condition

Sharing a thought...

It has been awhile since I've last penned my thoughts here. Am having writer's mental block. He, he...

It has been more than a year since the world's equity market plunged following many negative news, with the greatest impact being the financial turmoil in the States. Despite the assurances from many economists that Asian countries may be spared from the States' problem, as we could see, ever since the cat has been let out, many countries' economy has been going downhill as the grativity pull seems to be holding strong drawing many companies and economies into the black hole of recession.

How long would the current economic situation persists? A normal question that seems to be playing in everyone's mind or lips. Fears were felt worldwide as more and more companies' 2008 financials were released. It seems like someone has left the Red Sea of company's financial performance gate unlatched. The latest being Nissan company.

However, I am optimistic a solution/s to address this economic situation would be found soon as leaders all over the world are trying their best to resolve their own countries' economic crisis. No country leader would want to see deteriorating economic performance in their backyard as it would inadvertently affects its citizens' livelihood in terms of employment, crime rate, etc, etc. We as part of a country's citizen should stay optimistic, strive to work harder to increase productivity, volunteer to take on more tasks in the company as headcounts are being reduced to ensure that the company is able to survive this crisis, be more tolerant with each other as stress increased due to the increased work pressure, etc.

In this crisis too, there are ample opportunities. One being the reduction in the interest rates which is good news to those who have commitments eg housing or car loans as their monthly repayment has been reduced. This also provides opportunity for those who wish to purchase new property, expand their business etc as cost of lending has been reduced, etc.

The government's effort to ease the corporate's overhead eg reducing the electricity tariff is applauded. This move has enabled manufacturing companies that were badly hit to better manage their cashflow. Furthermore, it was said that the Malaysian Government may provide another stimulus plan which is to be announced on 10 March aka mini budget. Let us hope that the various plans announced by the Government would take effect immediately to resuscitate the economy and its people.

There is always light at the end of the dark tunnel and I sincerely hope the light could be found fast.

Sunday, January 25, 2009

Happy Chinese Niu Year

Wishing a very Happy Chinese Niu (Ox) Year to all my business associates and customers. Would like to thank my customers for their support and confidence in me. Here's wishing you great health, wealth and prosperity in the Ox Year.

As for my business associates, I would like to wish them smooth road during their journey in building their dreams! Continue to believe in your dreams and never let others belittle or tell you that your dream is impossible. All things are possible as long as we believe, we focus and we work on our dreams!

Remember, if the road that you travel on does not take you to your desired destination, choose a different road or create a new road. Who knows, you may like whatever is waiting for you at the end of the road.

Happy 2009!

Saturday, January 3, 2009

Goodbye 2008, Hello 2009!

Sharing a thought...

So much have had happened in 2008, starting with our surprising March 8 election, historic CPO and fuel price till the election of the first black US President. But one economic situation that will be mentioned in years to come is the financial turmoil caused by the US and European's financial failures that leads to the world's deflation and subsequent recession. Similar to what the Asian had faced in 1997/98 but worst, it was even termed as greater than the 1930 Depression. The situation, some said, will be further felt till the second half of 2009....hope it recovers from that point onwards, earlier if possible. So, for those who wishes to continue picking up best buys in the equity market, you may have another half a year to do so. Do so on a gradual basis to ensure you have sufficient fund - to take advantage of ringgit cost average. The market will improve eventually, so be patient.

In any case, 2008 to me was an interesting year as it was full of excitement besides challenging. Firstly because it was the first time in my career that I was not shielded by a company in a comfortable job but faced the many challenges any business owners would have faced during this trying time.

I remembered when I first started working in 1985/86 in a resort whilst waiting for one of my major examinations result. I had never understood or knew about recession or whatever economic situation the country was in except that when I had tendered my resignation in order to pursue my studies, my manager advised me against it. I recalled him asking me why was I resigning when there was high unemployment out there (at that time). However, since I was young and have no commitment except to pursue my studies, I bid him adious.

In 1997/98, when the economy once again was south bound, I was still ignorant about it as at that time I was employed by one of the major banks in the country. Still safe from the head on impact of the economy because being an employee, my income was assured. So, when recessions came, so what? I was not affected.

2006 was the year that I started to be enterprising aggressively on part time basis and turned full time by end of 2007. Coincidently that was when the economy was heading southward on free gear with the full exposure of the financial woes in the west and more in 2008 with the latest being the Madoff Ponzi case.

Now, with recession back (hopefully for a short visit only)..... I fully comprehend and even feel an employer's or business owner's concern and headache as businesses are being tested on their stability especially on their cashflow strength. By the way, did you noticed that the economy is cyclical nearly every decade?

Continuous onslaught of challenges especially on dwindling sales due to lower demand from cautious consumers requires companies to further tighten their spending belt which seems to have a vicious cycle on the economy. Lower demand leads to lower production which requires company to slower their productions or clear inventories and thereafter reduce their manpower when the situation lengthens as overheads have to be lowered to ensure the company's survival, etc, etc.

Companies with strong cashflow is able to endure the slow economic condition longer than those with tight cashflow. Instead of retrenching staff, some companies resorted to reducing the working hours of their employees as done by SIA.

However, there are some companies eg AirAsia that is expanding their routes aggressively. Therefore, it is not necessarily that all companies will reduce their activities during this slow period, depending on their strategy and strength.

The positive side of the situation, from my perspective, is that it forces me, a young entrepreneur to be more creative and think of ways to survive this trying times. Besides, the situation has also taught me a number of things that I had never thought of whilst under employed.

One of the lessons is to have adequate cash in hand if one does not have fixed income. Secondly, to internalise in me what Warren Buffet had always advocated to the investors, "Be fearful when others are greedy, and greedy when others are fearful". What he has advocated is very true. Thirdly, to handle money with more care especially during good times as one has to be prepared for the rainy season. Fourthly, to create more channels of income to ensure that one's income is continous eventhough one of the pipes is dry. Fifth, to be more aware of our surrounding especially our country's economic situation and the major economies eg US and China/Hong Kong.

I do look forward to year 2009 as I have full of hope for this year and expect the economy to improve as I believe that the joint efforts by the head of countries to correct the situation and further improve on their financial legislation/supervision would bear fruit (keeping my fingers crossed that there is no other "worms" waiting to spring any more surprises on us).

In any case, the lessons that I have learnt in 2008 were very invaluable and I strongly believe I become a better and effective investor and advisor due to the 2007/08 financial turmoil. Expensive lessons but worth every sen.

So, good bye 2008 and thank you for the experience! Welcome 2009 and let's see what we could learn from you!
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