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 reply....market 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?

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.

The Basics of Unit Trusts

Sharing a thought...

I feel it is timely to remind the general investors especially the Unit Trust investors how UT works.

Currently the equity market is very low (as a matter of fact is so...cheap as its PE is 9x compared to 7 years average of 16x! In layman term, it requires at least 9 years to recoup your profit compared to 16 years for the same amount of investment).

The low market sentiment has affected the prices of the stock market as prices of shares are determined by Supply and Demand. Should the demand of a particular share is lesser than the supply (as we are experiencing now) the price of the share drops irregardless of whether the company is fundamentally strong or otherwise as right now human emotions are running gamut instead of the practical approach of staying focused on personal objectives for the long term. Sigh....

Those who are able to analyse a particular company's account will look at the company's income PROJECTIONS, FUTURE development/marketing plan, the current management team, the POTENTIAL of the product/services or even industry,etc to determine the feasibility of investing in the company. You will note a smart investor will look for the company's potential as investment involves putting money into a company's potential/future not its histocal performance (no doubt it does have some impact). Because it requires a professional to undertake the analysis task which some viewed as tedious, most "investors" follow hearsay or whatever free advice readily available from friends, neighbours, colleagues, etc who may or may not be qualified to dispense such advice. This, somehow, further aggravates the current poor market performance or rather as the saying goes "follow the herd" mentality prevails.

As you will note, monitoring the market's performance requires much time which many working professionals do not have due to their work commitment. Furthermore, investment requires capital and good counters are quite expensive. A majority of investors are small time investors due to their capital limitation. Those with high risk appetite used to contra their purchases or even take loan to invest! No doubt in the short term they may benefit but in the long run with wrong timing, some investors may get hurt, badly as occured in 1997/8.

Those who are able to invest directly into the equity market must be able to withstand the low periods which may take a while to correct. In other words, the investor's holding power must be strong enough to weather the storm. Investing in the Bursa Saham limits an investor to the local market which poses greater risks as the market may be affected by political and economic policy which directly affects the local industry, people's sentiment,foreign investors, etc. Moreover, to diversify the investment portfolio into various local industries require huge capital outlay which many people are unable to do so.

Due to the limitations from direct investment, UT is an alternative investment tool to address its weaknesses.

A UT company pools money resource from the investing public. It consists a pool of fund managers who are qualified professionals responsible for analysing and recommending the purchase of shares of companies that they believe are under valued, has income or capital appreciation potential, growth potential or even economic sector/industry that has potential to grow. Based on their recommendation, they will pick or dispose shares of companies in order to meet their fund's objectives using their investors' money. Most fund managers' decisions are collective decisions which benefits the investors.

A particular UT fund is liken to a basketful of shares. In a fund, it may consist between 50 - 80 shares from various sectors or even countries. The advantage being that the risk exposure is much lower due to the diversified nature of the fund. I have been asked numerous times whether a fund's value or NAV could be equal to "0" . What do you think? For the NAV to be "0" it would require ALL the 50 - 80 shares to be "0". Is it possible? NAV which is the Net Asset Value of the fund represents the value of the shares in the basket/fund. Its value co-relates to the average value of the shares in a fund.

Furthermore, the accounting works, shares log, distribution computation, administrative matters relating to the shares purchased/held for a particular fund are placed with a trustee company which is not a member of the UT company eg Amanah Raya, etc. A trustee company also ensures that the UT Company complies with the objective of a particular fund which is clearly stated in the fund's prospectus. A copy of the prospectus is also filed with the Securities Commission to ensure compliance.

Unit trust involves sales of shares by unit to the public. One lot of share is equal to about 700 - 1000 units. Sales in unit enable the investing public to participate in the equity market as it is cheaper compared to direct investment in the share market.

Since it is affordable, UT investors are able to do a regular savings/investment in their chosen fund/s. The advantage of doing a regular investment/savings is that they are able to lower their average investment cost thus enable them to realise their profit / break-even point faster. This is useful especially during volatile market condition. You could read this in my previous blog on Dollar Cost Average.

As UT funds are managed by the fund managers, this allows their investors from having to monitor their investments and enable them to concentrate on their own profession/work. It is similar to outsourcing your investment to the fund manager.

UT allows individuals, especially those who does not have the time nor knowledge, to participate in the equity market thru a third party. To me, it is the stepping stone for young investors who does not want to miss out on the investment opportunity whilst they are equipping themselves with its knowledge or chasing their dream profession or etc, etc. The advantage of investing for a long period of time is the benefit of compounded return. It would be good to check with your UT Consultant who would be able to advise you on this powerful benefit.

Saving using UT is very flexible as a person is able to invest or save according to his affordability and objective. It is always advisable to invest using the extra money that you have no plan to use within 3 years. Please be reminded that UT investment requires you to look at a period no lesser than 3 years. The duration depends on your objective and the amount that you are currently saving to achieve your goal. Please discuss with your UT Consultant to come out with a proper saving/investment plan.

UT caters to the various risk profiles of its investors. There are basically 3 types of funds ie equity, balance and bond/money market. Besides, a particular equity or balance fund does not mean that 100% of the investors' money are into equity as a certain percentage of it will be kept in the money market, treasury bills, bonds which generates income and provides liquidity to the fund managers or its investors. This feature also addresses the investors' concern on the possibility of the NAV being "0". Furthermore, a UT investor is able to switch from one fund to another in order to diversify/balance his portfolio, to lock in his profit, to reduce his risks in a volatile market, to cater to investor's risk appetite, investment strategy, etc.

The distributions earned from UT are paid according to the number of units held by the investors and is devoid of any service charge. Therefore, each time a distribution is declared and is being reinvested, the average cost per unit is lowered thus creating greater possibility of hitting break even point at an earlier date. This also explains the reason why as a responsible UT Consultant we usually advise our customers to top up their investment despite the market going downhill as the low price enables them to acquire greater number of units which lowers their average cost. It is a norm for the market to correct itself eventually. When? No one knows but if we are to refer to history, the market always comes back.

"Never time the market" is another piece of advice that you will usually hear from us. Well...I am glad to let you know that Warren Buffet is a firm believer of this adage too. No one knows when will the market hit rock bottom or hit sky high rate but being a long term investor, we should not be swayed by what is happening around us.

Always looks towards the future and potential of a company / country. To be successful in the investment world, hold on to your objective and act smartly. Be rational and devoid of emotions. As Warrent Buffet said, "Be Fearful When Others Are Greedy and Be Greedy When Others Are Fearful".

In summary, UT investment
(1) is managed by a pool of professionals
(2) is held in trust by a trustee company
(3) is affordable
(4) is well diversified whether in industry/sector or country or asset allocation
(5) caters to the needs of its investors according to their risk profile
(6) is flexible
(7) enable investors to enjoy Dollar Cost Average
(8) is for mid to long term investment period
(9) is suitable for young investors who may or may not have the time or knowledge to invest.

Dollar Cost Average

Sharing a thought...

What is Dollar Cost Average (DCA)?

It's a benefit whereby investors who do regular fix amount of investment will enjoy. Very suitable in a market that is uncertain/volatile. The key word is regular investment and fix amount.

Let's say an investor invests $1,000-00 regularly in today's equity market scenario, whereby the price is going downhill (assuming no service charge incur).

To read the data below, pls follow its header's colour with the data below (sorry, cud not prepare a proper table in this page, so has to be creative here) ;)

Mkt Prc Units Ttl Units Total DCA Investment
Sen/unit Bought Collected Cost (Total Cost/Total Units) Value
------------ ----------------- ------- --------- -----------
0.25 4,000 4,000 1,000 0.25 $,1000-00
0.22 4,545 8,545 2,000 0.234 $1,999.53
0.21 4,761 13,306 3,000 0.225 $2,993.85
0.19 5,263 18,569 4,000 0.215 $3,992.34
0.20 5,000 23,569 5,000 0.212 $4,996.63
0.17 5,882 29,451 6,000 0.204 $6,008.00 (began to make profit)
0.18 5,556 35,007 7,000 0.200 $7,001.40
0.16 6,250 41,257 8,000 0.194 $8,003.86
0.17 5,882 47,139 9,000 0.191 $9,003.55
0.18 5,556 52,695 10,000 0.190 $10,012.05
0.20 5,000 57,695 11,000 0.191 $11,019.75
0.21 4,761 62,457 12,000 0.192 $11,991.74
0.23 4,348 66,805 13,000 0.195 $13,026.98
0.25 4,000 70,805 14,000 0.198 $14,019.39
0.26 3,846 74,651 15,000 0.201 $15,004.85

It's an investor's objective to BUY LOW and SELL HIGH (that's how profits are being made). In mutual fund, another objective an investor has is to ACCUMMULATE UNITS.

Dollar Cost Average is Total Cost divide with Total Units. It represents the ACTUAL COST of each unit on average basis of what the investor have on hand (total units).

Look at the first purchase of $1,000 at 25sen, total units was 4,000. Therefore cost of each unit is 25sen.

As the price goes down (25sen to 22sen), with the same investment amount ($1,000), the number of units the investor is able to buy increases (extra 545 units). Take note of the DCA value which also reduces (25sen to 234sen). This is made possible as the cost of each unit at the current low price (22sen) helps to reduce the cost of other units on hand (4,000 units originally at 25sen/unit ) thru additional units.

For an investor who decides to practice one time off investment ie to invest $1,000-00 only at 25sen, the investor would have to depend on the fund's price to increase above 25sen in order to make any profit or, to wait for any distribution/dividen to be declared in order to increase the number of units owned. It may take awhile in the current market condition. Furthermore, the dividen earned may not be significant as the principal is low ($1,000 only or 4,000 units). "Not enough power leh!"

By practising regular investment, investor is making sure his money works hard for him as he amass greater number of units at lower cost thus enable him to make profit faster and greater once the market improves as shown in green.

Investor is able to breakeven at 17sen compared to those who invest as a one time off at 25sen. Making profit even when the market price is low?! Yup! Makes sense to invest regularly right? Imagine when "free" additional units are given during distribution or as dividen. The DCA would be lowered further as no additinal cost incurred for the extra units! That is your bonus! Up goes your profit! :)

Invest for the future especially for your retirement as during our golden years our income stops but we still incur expenses in terms of food, lodging, holiday, higher medical cost, etc.

In addition, with the current equity market which is so.......... cheap and with higher......... inflation rate; this method of investment is one of the best way to ensure that our hard earned money's value is being protected otherwise inflation is quietly draining our money's purchasing power.........

Did you noticed you have to fork out extra money to get the same item? That is inflation my friend!

Investing in Uncertain Market

Sharing a thought...You don't have to believe what I've penned here....

These past weeks have been a tough week for the Malaysian and the world's stock market. The Malaysian market has reached its lowest level of 15 months surpassing the historical 10 Mar 08 index of 1157 point with PE ratio of 15x yesterday. We have seen the worst in the 80s and 90s but we don't think the CI would ever come to that level again as we are now fundamentally stronger in terms of corporate earnings, stringent listing ruling, good economic policies, etc.

There are various contributing factors to the current situation but the most glaring factor is the unstable local political situation. Technical forecaster expects KLCI to dip to as low as 1120. Remember, it is just a forecast only. If we are to examine Malaysian political scenario, it usually is amicable and our PM has actually announced his plan to do a proper hand over. However, human being human with emotions especially when it comes to investment, any hiccups is construed as TB. So, how to invest in this yo-yo and uncertain market situation?

Foremost, investors should ask themselves, what's their investment objective (besides the obvious reason of making profit). Is it for quick profit which is short term or is it to accummulate enough wealth so that investors are able to retire comfortably and overcome the silent purchasing power zapper ie INFLATION?

Everyone has been focusing on the equity market situation but neglect to pay attention to the effects of inflation on their current and future wealth which affects their cash buying power. The global's inflation rate has increased in tandem with the increased in the crude oil's price but the rate has never been adjusted when the oil price dipped. Various countries' government gave various figures on their country's inflation rate but their citizen knew the rate published is beyond truth.

Less than a decade ago, I recalled having to spend on average RM35-00 each time I refilled my car but today at RM60-00 it's hardly half tank full! What has happened here? Does that reflect a mere 2% increased in our CPI? They must be kidding!

The question everyone should ask is; "Is my money's purchasing power getting better or worst in face of the ever increasing inflation rate? If the latter, how do I ensure that my hard earned money is able to sustain my living past my retirement age?" or "How do I ensure that I maintain my standard of living during my retirement period? Would I need to adjust my lifestyle during my retirement to a level that is lower than the current lifestyle?"

Investment is a necessity to overcome inflation and create greater wealth. But the big question is what investment vehicle to choose? When is the right time?

Forget the bank's fixed deposit interest please! It exists only to enable us to place our money safely (from theft not inflation) for a short period of time and is not meant to generate revenue for individuals as its too low to overcome inflation rate, or even appropriate for corporate's excess cash as its taxable in Malaysia.

For those who are too busy working, lack of know-how, insufficient capital for bigger investment vehicle (equities, property, gold, commodities, etc) or is risk averse, isn't it better to appoint someone who is professional, dedicated, has mission to generate income and preserve investment capital for their customers, has no emotional attachment as they are able to cut losses or exit at certain profit margin?

Mutual Fund is not the only investment vehicle available but it addresses the problems mentioned above. The beauty of this vehicle is that it is a basket of well DIVERSIFIED shares, picked by professional fund managers.

The keys to successful investment using Mutual Fund especially in this uncertain equity condition are as follows:

(1) Do regular savings to take advantage of DCA
(2) Do not time the market as no one has the crystal ball
(3) Suitable for mid to long investment period
(4) Review your investment objectives regularly with your UT Consultant
(5) Rebalance your investment portfolio with your UT Consultant
(6) Be a responsible investor by knowing what you are investing
(7) Let the professional fund manager do their work by observing all of the above.

The current market is actually an OPPORTUNITY to enter as it is cheap and the risk is much, much lower for those who have never invest and good for those who are already in the market as they are able to get more units at lower cost thus reducing their average cost per unit which translate to higher profit opportunity. Continue to pick those low priced funds / equities and remember, market always comes back.

Be a responsible investor, invest only when you are ready. The final decision is yours. Only YOURS to make.

Hey, I am not bias but am also an investor like you. ;)

May the good force be with you!

Smart Investor

Smart investors are those who:

(1) do not follow the herd
(2) buy when price are low
(3) do regular investment to take advantage of Dollar Cost Average benefit
(4) are not involve in speculative investment but invest based on strong fundamentals
(5) look at long term

It's a fact :-)

Market ALWAYS comes back/rebounce.

Invest or Not to Invest

Sharing a thought...You Don't Have to Believe a Word that I Say

"Is it the right time to invest with the current volatile and uncertain market condition?" A very frequent question whenever I meet a new prospect. Worries clearly reflected in their eyes.

Being an investor myself, I knew the feelings......."Oh my God, market down again! Die lah, I am making losses now! When will the market improve? Ahhhhh!!!"

It is normal to feel as you do, as we are humans, an emotional one too. Therefore, your decisions to invest or not is also emotionally influenced. Agree? So, isn't it better to leave your investment matter to a third party ie fund manager to manage your investment instead? The investment vehicle that I am referring to is unit trust.

So back to the earlier question, should we invest in the current market?

I am of the opinion that it depends on the individual itself. If the investor has intention to invest for a period less than 3 years, then no. This is because no one knows how long it would take for the market to bounce back. Moreover, investing with such a short frame of time disallow any fund managers to do their work effectively thus posing higher risks to the investors themselves. On the other hand, investors that are coming in for long term is however encouraged to pick up the funds that are currently at huge discount. The current market situation is considered an extended MEGA SALES period for long term investors. Pick them up before the sales is over!

Another word of advice, do regular savings instead of a one time off investment. It is one of the ways to mitigate the risks of uncertainties and volatilities. The benefit is that when the fund's price is high, the units purchased would be lesser, however, when the price is low, at the same investment amount, the number of units purchased would be more. In the long term, the average cost per unit of the investment would be lesser than its current market price thus the investor would have made some profits already.

Another factor every individual should be aware in deciding whether they should start investing their hard earned money is whether they are willing to face the risks of inflation which is undermining the purchasing power of their cash.

A research was done by The Star newspaper last year stating that our money's purchasing power diminishes amidst rising inflation. It gave an illustration that the cost of 3 meals NOW costs us about $20-00 (minimally) and in 20 years time, with the assumption that the inflation rate is only 6% , the same meal would costs us a whopping $64! It goes further to illustrate that those who have $500,000 NOW has a purchasing value of only $145,000 in 20 years' time!

So tell me, could you afford not to invest or you would prefer to procrasinate? And miss the discount?!