Portfolio Update May 2008

Cumulative Return since 2007 : -8%

Dividend/Coupon/Interest received for 2009 : $33,222

P/S : For taking advantage of possible inflation and USD Downtrend, I have started taking positions in physical Gold. Gold should be well supported as China have also been increasing their gold reserves in their National Reserve. It will not be a long-term position and I intend to dispose of Gold if the bubble pops.

For the possible economic recovery, commodities will be on the rise and I have maintain position in my commodity funds and increase allocation to AUD, the commodity currency. I have converted more AUD dollars to be placed in 3mths FD at 3.24%. I have also increase allocation to Energy-related equities. Again, China have been actively increasing their activities on purchasing commodities/energy related companies & products and prices should be well-supported.

Finally, the recent equity rally have continued unabated and I will be looking to buy on dips as before. Though I will be maintaining my Cash Position and instead will be shifting out of equity funds and replacing them with direct equities that will be paying me dividends.

David Fuller : Phases of Bear Turn Bull

David Fuller (Fullermoney): Substantiating bullish bias for equities “I have described conditions as being more bullish than bearish for a number of months. However such claims need to be substantiated by technical (market) evidence, which is best monitored every day.

“I will review the process, discussed at length in Fullermoney, in what can be a template for subscribers, not only for today’s environment but also the transition from every other bear to bull market in future:

“Climactic capitulation - Bear markets usually end in climactic fashion, which is the phase of greatest capitulation and despondency. This is what happened late last October and also in November.

“Base building - The most persistent capitulation stage marks the beginning of the end for the bear market, which by definition, must also be the beginning of the new bull market, although all one may see for some months will be ranging, including some new lows by indices for less fundamentally attractive markets, but also rising lows by indices for the next bull market’s leaders.

“Reversion to the mean - If the bear really is ending or over, you will see the evidence accumulate in several ways, which are different from the redistribution bear market rallies which occur on the way down. Mean reversion (we use the 200-day moving average to measure this because it is a widely followed medium to somewhat longer-term trend smoothing device) will become evident due to a combination of different developments.

“Uptrends are established - Indices will be breaking up out of their ranging bases, with the best performers establishing step sequence uptrends, one above the other. These will eventually break above the 200-day MAs, which will eventually turn upwards sometime later. The rising MA becomes a potential support level during minor mean reversions throughout the duration of the new uptrend.

“Summary - Perspective is gained by monitoring many indices, as there will inevitably be leaders and laggards. This is Fullermoney’s commonality approach. For instance, if stock market indices are mostly ranging but downward breaks are no longer being maintained, in contrast to some rallies which are being extended, one does not need to be a genius to deduce that demand (buying pressure) is beginning to exceed supply (selling pressure).

“The performance of upside leaders when looking for evidence of market bottoms and recovery potential is much more important than focussing on laggards, because we are looking for a transition from bear, which includes all stock market indices in its latter stages, to bull in which case markets will break away from the prior downtrend one by one over time.”

Source: David Fuller, Fullermoney, May 18, 2009.

FT : Declining Libor

Financial Times: Declining Libor “As a barometer of the financial crisis, it’s been hard to beat Libor, the London interbank offered rate for borrowing short-term funds in the banking system.

“On Wednesday, dollar Libor for the benchmark three-month sector set at 0.71625 per cent, extending its run of declines for 36 straight days. A comparison of Libor with the Fed funds rate shows that the gap between these two rates is at its lowest level since February 2008. Traders forecast further improvement on Thursday. The mood is a world away from the stressful peaks of Bear Stearns’ rescue last March and the failure of Lehman Brothers in September when Libor took a rocket ship to the moon.

“Further evidence that the banking system is stabilising is seen by activity in financial commercial paper. Lending for three months is back above that of the one-month sector for the first time since late January when the Federal Reserve’s support temporarily boosted 90-day paper. Quantitative easing and the smooth completion of the stress tests for banks has eased tension. That has helped nurture the recovery in risky assets.

“For the banking system, however, there are still signs of dislocation. Swap spreads, the difference between government bond yields and money market rates and a measure of bank credit quality, remain some way from looking normal. Liquidity also remains questionable as banks seek stronger balance sheets and raise capital to pay back government support.

“The steady declines in three-month Libor have also reduced the Ted spread, which compares the bank lending rate with that of three-month Treasury bills. After surging to record levels, the much lower Ted spread is another good sign. But with bills only yielding 0.18 per cent, it’s clear there remains an aversion to lending money at the much higher unsecured rate of three-month Libor.”

Source: Michael Mackenzie, Financial Times, May 20, 2009.

Buy and MONITOR ACTIVELY

Don't Believe in Buy and Hold

The buy and hold devotees say you can't time the market, and if you aren't in all the time, you risk missing much of the gain. A Spanish research firm found that if you removed the 10 best days for the Dow Jones industrial average in the 1900-2008 years, two-thirds of the cumulative gains were lost. But if you missed the 10 worst days, it found, the actual gain on the Dow tripled. These results are in line with our earlier research and reflect the fact that stocks fall a lot faster than they rise.

We eschew the buy and hold strategy because of what's known in classical statistics as the gambler's ruin paradox. The odds may be in your favor in the long run--in this case, your stocks may provide great returns over, say, 10 years. But if you hit a streak of bad luck, your capital may be exhausted before that long run arrives.

Or more likely, a severe bear market will scare you out at the bottom. Many investors bail out then and don't reenter until the next bull market is well advanced. This explains why the returns of mutual fund investors lag well behind the performance of the funds in which they invest. A widespread retreat is what makes a good bottom, as we've noted in many past Insights. All those who can be shaken out are. They've reached the puke point at which they regurgitate their last equities and swear to never ingest any more.

Trailing Cut Loss is for everyone

If you were to invest $100,000 in 2004 and the next 4 years (end 2007), you achieve a gain of 25% annually with all money re-invested. How much would you made?
end of 2004 - $125k
end of 2005 - $156k
end of 2006 - $195k
end of 2007 - $244k

If in year 2008, you lose 60% of your gains, how much would you have made?
END OF 2008 - $97K left (a loss of $3k after holding for 5 years)

If instead of holding from 2004 to 2008, you get out of the market once there is a 25% decline from the highest point in your stocks since you purchase in 2004. How much would you have made?

Assuming in the year 2008, a 25% decline in your portfolio value is noted and you get out of all your equities.
End 2008 - $180k (a profit of $80k after holding for 5 years)

Food for thought. If you have the conviction to take profit off the table, wouldn't it have been better? You cannot time the market, but you can use your portfolio value to show you the way out.

*By the way, 25% is set because we do not want the violatility of the market to trigger your cut loss when the market is only experiencing a minor setback. Most bear markets decline is between 30% to 60%. So if it gets to 25%, you can be sure there must be something fundamentally wrong for a lot of stock holders to want to get out ahead of you. For traders, they might be more interested in cut loss level of 8% - 10% since they are actively trading the market instead of buying and holding for a market cycle.

Portfolio Update April 2009

Cumulative Return since Inception: -9.78%

Dividend/Coupon/Interest received YTD : $20,400

P/S: Despite the market run up, I have allocated more into equities for the month of April. Going forward, I expect to be putting more cash to work whenever a correction happens (like what is happening today).

Individual stocks are from Hong Kong, Singapore and Australia. ETFs are from US, Europe, Hong Kong and Australia.

The Global Financial Solution

In a small town on the South Coast of France, the holiday season is in full swing, but it is raining so there is not too much business taking place.

Everyone is heavily in debt.

Luckily, a rich Russian tourist arrives in the foyer of the small local hotel. He asks for a room and puts a Euro100 note on the reception counter, takes a key and goes to inspect the room located up the stairs on the third floor.

• The hotel owner takes the banknote in a hurry and rushes to his meat supplier to whom he owes E100.
• The butcher takes the money and races to his supplier to pay his debt.
• The wholesaler rushes to the farmer to pay E100 for pigs he purchased some time ago.
• The farmer triumphantly gives the E100 note to a local prostitute who gave him her services on credit.
• The prostitute quickly goes to the hotel, as she was owing the hotel for her hourly room used to entertain clients.

At that moment, the rich Russian comes down to reception and informs the hotel owner that the room is unsatisfactory and takes his E100 back and departs.

There was no profit or income. But everyone no longer has any debt and the small town’s people look optimistically towards their future.

Could this be the solution to the global financial crisis?

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Source: Unknown