Rich Man, Poor Man

Rich Man, Poor Man

RULE 3: RICH MAN, POOR MAN: In the investment world the wealthy investor has one major advantage over the little guy, the stock market amateur and the neophyte trader. The advantage that the wealthy investor enjoys is that HE DOESN'T NEED THE MARKETS. I can't begin to tell you what a difference that makes, both in one's mental attitude and in the way one actually handles one's money.

The wealthy investor doesn't need the markets, because he already has all the income he needs. He has money coming in via bonds, T-bills, money market funds, stocks and real estate. In other words, the wealthy investor never feels pressured to "make money" in the market.

The wealthy investor tends to be an expert on values. When bonds are cheap and bond yields are irresistibly high, he buys bonds. When stocks are on the bargain table and stock yields are attractive, he buys stocks. When real estate is a great value, he buys real estate. When great art or fine jewelry or gold is on the "give away" table, he buys art or diamonds or gold. In other words, the wealthy investor puts his money where the great values are.

And if no outstanding values are available, the wealthy investors waits. He can afford to wait. He has money coming in daily, weekly, monthly. The wealthy investor knows what he is looking for, and he doesn't mind waiting months or even years for his next investment (they call that patience).

But what about the little guy? This fellow always feels pressured to "make money." And in return he's always pressuring the market to "do something" for him. But sadly, the market isn't interested. When the little guy isn't buying stocks offering 1% or 2% yields, he's off to Las Vegas or Atlantic City trying to beat the house at roulette. Or he's spending 20 bucks a week on lottery tickets, or he's "investing" in some crackpot scheme that his neighbor told him about (in strictest confidence, of course).

Interesting Taiwanese Financial Programme

I watch a Taiwanese show on Cable last night and following is a recap :-
1) A head of institutional fund said stock market typically follow a pattern yearly :-
i) Feb-March - Consolidation
ii) Apr - May - Rally
iii) June - Increased Volume but sideway market
iv) July - Aug - Correction
v) Sept - Rally All the way till Jan.

2) They attribute the current Taiwan Market rally to the increase in MFG demand from China (mainly arising from demand for the China山寨products). However, some manufacturers have noted that orders for April till June have decreased significantly.

3) All are optimistic that the US Economy will survive this crisis but global growth will be driven by Asia from now on.

4) The Taiwan yield curve has turn positive and a contrarian indicator of investor risk appetite is the increase of insurance endowment that matures in a few years and pays pathetic interest spiked up sharply during Nov - Jan. The Contrarian means that most who want to leave the market have already left.. so from now on, it will be serious buyers ..

So, my conclusion is the same before I watch the programme, Buy When Dip or Buy when I spot undervalued stocks(according to my own estimation). Focus more on Bluechips for me.. and set aside a little for small caps.

Of Value and Cycles

I got this quote below from Howard Marks of OakTree Capital :-
"In my opinion, there are two key concepts that investors must master: Value and Cycles. For each asset you're considering, you must have a strongly held view of its intrinsic value. When its price is below that value, it's generally a buy. When it's price is higher, it's a sell. In a nutshell, that's value investing.

But values aren't fixed; they move in repsonse to changes in the economy. Thus, cyclical considerations influence an asset's current value. Value depends on earnings, for example, and earnings are shaped by the ecnomic cycle and the price being charged for liquidity"