Ten Timeless Tips For Wealth Creation(6)

Time has shown that these principles will work with little risk and great returns,

so long as you don't freak out on every day's stock market ups and downs.

And, best of all, you'll have a unique and invaluable dividend every day of your life - the 'sleep at night' factor:

because your investments are carefully and systematically deployed for the long term in a well-diversified manner,

you can live your life focusing on other issues,

knowing that your investment account is doing it's job:

growing safely and providing for your dreams.

By Mitch Mueller

Ten Timeless Tips For Wealth Creation(5)

Don't spend your investment earnings


Why learn the hard way by losing your hard-earned dollars making the same old common investing mistakes.

It's much better to learn from the experience of thousands of investing professionals over the last 100+ years.

Here are the top ten timeless investing tips


5)Don't spend your investment earnings;

Instead, reinvest them in your investment portfolio.

As your investment portfolio throws off earnings and profits, do not make withdrawls for a new boat or remodel.

Instead, reinvest the money in the investment account.

This way you have the magic of 'compound interest' working in your favor -

your annual investment earnings will grow ever higher because the underlying investment capital at work is growing.



By Mitch Mueller

Ten Timeless Tips For Wealth Creation(4)

Save regularly from your earnings.

Why learn the hard way by losing your hard-earned dollars making the same old common investing mistakes.

It's much better to learn from the experience of thousands of investing professionals over the last 100+ years.

Here are the top ten timeless investing tips

4.Save regularly from your earnings.

Set aside 10% or more of every pay check automatically every month (a good idea is to set up an automatic deduction to your savings account).

Then regularly take these savings and move them to your investment account and buy regular amounts of stock (see Dollar Cost Averaging) below.

By Mitch Mueller

Ten Timeless Tips For Wealth Creation(3)

Be patient and be consistent.


Why learn the hard way by losing your hard-earned dollars making the same old common investing mistakes.

It's much better to learn from the experience of thousands of investing professionals over the last 100+ years.

Here are the top ten timeless investing tips



3. Be patient and be consistent.


Don't chase today's fad (or worse yet, yesterday's fad).

Research your options, choose carefully, put your money at work, and then be patient.

If you chose investments that should perform over the long term, then be confident in your strategy and be patient,

and don't panic sell when the market turns south for a few months.



By Mitch Mueller

Ten Timeless Tips For Wealth Creation(2)

Diversify.


Why learn the hard way by losing your hard-earned dollars making the same old common investing mistakes.

It's much better to learn from the experience of thousands of investing professionals over the last 100+ years.

Here are the top ten timeless investing tips


2. Diversify.

Don't put all your eggs in one basket.

You don't need to invest in 100 different stocks or vehicles, but neither should you be overly concentrated in just 5.

Financial statistics show that by having at least 20-25 separate investments, none being more than 5-7% of your total position,

you have significant diversification without the hassles or costs of managing 100's of investments.

Today another key aspect of diversification is to be sure to invest in global stocks as well as U.S. stocks.



By Mitch Mueller

Ten Timeless Tips For Wealth Creation(1)

Invest for the long term.

Why learn the hard way by losing your hard-earned dollars making the same old common investing mistakes.

It's much better to learn from the experience of thousands of investing professionals over the last 100+ years.

Here are the top ten timeless investing tips

1. Invest for the long term.

If you are looking for quick winnings all you're going to do is lose money, sooner or later

(don't be fooled if you're making money while the market is rising, that's easy, the key is are you making money over the long term even across inevitable market downturns).

By investing for the long term you are picking investments that have a proven ability to appreciate over the next 5-10 years,

and if there is a 6 month or even 18 month down turn, you still have a good investment and time is on your side.


By Mitch Mueller

The Four Levels Of Wealth(6)

Fourth Level Wealth - Financial Abundance


The fourth level of wealth would be attained when you have enough passive income to sustain your desired lifestyle without working indefinitely.

The amount of time that you take to achieve financial abundance from financial freedom depends how the gap between your current lifestyle from your desired lifestyle.

As you can see, to achieve higher level of financial wealth,

it is very important to save a portion of your income and channel it into generating passive income.



By Mike Wang

The Four Levels Of Wealth(5)

Third Level Wealth - Financial Freedom


The third level of wealth would be achieving financial freedom.

This means that you can sustain your current lifestyle without working again.

You have accumulated enough passive income to sustain your current lifestyle indefinitely.



By Mike Wang

The Four Levels Of Wealth(4)

Second Level Wealth - Additional Passive Income


The second level wealth will be achieved when you accumulate passive income to sustain your most basic expenses.

This means that you can choose not to work and yet have enough money to pay off your mortgage, daily food and transport allowance and interest for all your loans and your insurance premiums.

Any income that you gained from working will be channeled entirely into investment.



By Mike Wang

The Four Levels Of Wealth(3)

First Level Wealth - Financial Stability(3)


If you have not achieved financial stability, you would need to do the following:


3. Book an appointment with a financial advisor to have a consultation on what kind of life insurance policy is more suitable for you.

This is to cover you and your family in the event that you cannot continue working due to disabilities or any other unfortunate events.

The Four Levels Of Wealth(2)

First Level Wealth - Financial Stability(2)


If you have not achieved financial stability, you would need to do the following:


1. You must aim to clear off your outstanding debts to minimize on the negative cash assets that are taking a cut off your monthly salary.


2. Save at least 10-20% of your monthly income.

This is on top of any mandatory saving plans such as CPF or 401K.

You should save up at least 3 months equivalent of your monthly salary before thinking about investing your savings.

This is to make sure that you have sufficient cashflow to handle emergencies.



By Mike Wang

The Four Levels Of Wealth(1)

First Level Wealth - Financial Stability

The first level wealth is known as financial stability.

Financial stability is achieve when he have to accumulate enough liquid assets to cover your current expenses for a minimum of six months.

You should have also bought life and hospitalisation insurance to protect you and your family lifestyle should you be permanently disabled or passed away suddenly.

Spend at least 5 minutes to compute your current level of wealth to find out how long you can sustain your current lifestyle without working.

This is calculated by taking your total liquid assets divided by your monthly expenses less your current passive income.

By Mike Wang

Nine Steps For Creating Wealth(8)

9) Take Time Off

While pursuing goals, one should give oneself some rest.

Take time off and relax at some good place with friends and family.

Rest and rejuvenation are necessary for moving ahead.

Good Luck.

By Alfaf Sahibzada

Nine Steps For Creating Wealth(7)

8) Don’t be discouraged


It is very likely that while pursuing goals, there will be hard times, failures and setbacks.

This is but natural.

One should be prepared for the same.

Setbacks have to be there.

There can be no smooth sailing.

One should be calm, alert and patient.

Failures should not deter one to deviate from one’s goals.

No difficulty is insurmountable in the way to wealth.



By Alfaf Sahibzada

Nine Steps For Creating Wealth(6)

6) Monitor your progress


One should keep a record of all the transactions and constantly monitor goals.

One should identify shortfalls if any and take immediate steps to rectify the same.


7) Take Advice


One should be flexible to take advice of experts in the matter of financial or wealth management,

to understand different financial matters and if necessary, change the strategy.

If a strategy is not working, it is better to educate oneself and to modify the same.

However, one should always remain focused.



By Alfaf Sahibzada

Nine Steps For Creating Wealth(5)

5) Announce your goals


One should make one’s goals public and not to keep them secret.

Take help of your friends and family members in this respect.

It may be desirable to involve family members also in achieving goals.



By Alfaf Sahibzada

Nine Steps For Creating Wealth(4)

4) Repeat Your Goals


One should keep a note of one’s goals.

The main and minor goals should be written on a piece of paper and read every day morning and evening.

Keep them hanging on a wall where you can see them all the time.





By Alfaf Sahibzada

Nine Steps For Creating Wealth(3)

3) Divide Main Goal


In order to achieve the main goal, one will have to pass through a number of small milestones.

Main goal should be dismembered into mini goals.

If one has set a goal of making $1 million, it will be difficult to achieve it in one go.

It is better to divide it in smaller steps.


If you start with one dollar, it will be easy to double it.

Similarly doubling of $2 to $4, $4 to $8, $8 to $16 etc. will not be hard as compared to making $1 million at a time.

Starting with one dollar, it may be take around 20 steps to reach the target of $1 million.

In this case the main goal will have 20 mini goals.

It is easy to accomplish a mini goal at a time.



By Alfaf Sahibzada

Nine Steps For Creating Wealth(2)

2) Form A Strategy


The next step is to make a strategy in achieving financial goals.

If goals are realistic, then it should be easy to build a plan to achieve the same.

One can start saving regularly in a planned way, do extra work or find alternative ways of generating income.

The main thing is that one has to be consistent.


One needs to be clear about the objectives of one’s goals.

One should know the reasons for setting of goals.


For example, some people want to achieve goals

a)for recognition,

b)for helping others, or

c)for attaining a certain life style,

d)for retirement,

e)for luxury etc.


Understanding these reasons will keep one motivated.



By Alfaf Sahibzada

Nine Steps For Creating Wealth(1)

1) Goal Setting

Setting of financial goals in obviously the first step in building wealth.

It is important that one should is specific in goal setting.

For example one should fix a specific amount if one wants to invest, save or provide for retirement.

Equally important is the time period for setting goals.

One should assign a specific time period with each specific goal say 2, 3 or 5 years.

Goals should be set in a way that they are realistic and within the means of an individual or one may get discouraged.



By Alfaf Sahibzada

How To Trade Stocks Without Emotions(25)

Strength:


1) Spotting the right stock and getting in at the right price.


2) Spotting the right sector and moving out of dead stocks.

3) Timing small, volatile stocks correctly.


4) Speculating on small stocks.

To correctly apply technical analysis on small stocks from the right sector.

Although taking small profits has been a perennial problem.



Two most important rules

1) Never keep a losing day trade.

2) Buy only the breakout or when a strong stock dips more than 10 %.



By Jay Deb

How To Trade Stocks Without Emotions(24)

Weakness :

1) Inability to sit over the stock that is in the money.

Sometime the rule to not to let a profit go into loss conflicts with this.

But I should always keep the stock when it is reasonably above my buying price.

2) Not sticking with the original plan.

3) Inability to pick market bottoms and sell tops.

4) Going for stocks that has lagged.

Avoid the laggards.

By Jay Deb

How To Trade Stocks Without Emotions(23)

Memorable lines from Reminiscences of a stock operator :

A trader should have hope and fear.

He should fear that the loss will become bigger and hope that the profit will increase.

Derive conclusion from facts.

Do not try to fit facts into your hopes.

When I lost money it never bothered me because I always thought that I learned something.

Knowing something is one thing and acting on it is another.


By Jay Deb

How To Trade Stocks Without Emotions(22)

The lesson from this year has been to be in the right sector.

The hot sector can do well even in a choppy market and it is not so difficult to identify that sector.

It has been difficult to sticking to the plan and carrying it out.

Last one month has been devastating for me having lost about 10k.

Last years lesson was not to overtrade which is among few of the things that I successfully achieved.


By Jay Deb

How To Trade Stocks Without Emotions(21)

It has been a problem not to follow my own hunch and not sticking to my original plan.

How many times I heard "make a strategy and stick to it".

In mid summer all chip stocks were hitting new highs and INTC was trading at 55 (high 71).

I knew instinctively that INTC will hit at least 71. I didn't get into it.

INTC hit 87 in couple of months.

Similarly I failed to pick AMAT on a previous chip rally.



By Jay Deb

How To Trade Stocks Without Emotions(20)

It has been a problem to act on beliefs.

When (10/1999) DOW and SP500 were trailing I knew NASDAQ Had to fall.

I did not act on this hunch.

I should have shorted BMCS which warned and went down.

Instead I bought 500 JBL simply because it hit a new 52-week high and broke out on a three month chart.

I didn't see it had a resistance there on the longer chart.

The decision to buy JBL took less than 5 seconds.

I didn't follow it and didn't even know which sector it was in.


I bought LU when I was holding HWP in loss.

I lacked confidence.

I has a hunch on NT but I never traded NT b4.

I was probably afraid of trading NT because of unfamiliarity.



By Jay Deb

How To Trade Stocks Without Emotions(19)

Rules and mistakes:


11) Last one month (11/99) it has happened couple of times that I sold one and then sold all other stock holdings on impulse.

This has to be avoided.

The original plan on each stock has to be stuck to.


12) Take action based on what is likely to happen rather than what has happened before.



By Jay Deb

How To Trade Stocks Without Emotions(18)

Rules and mistakes:


10) There has been times when I knew that such and such thing will happen.

Recent example was QCOM.

It had resistance at 230 then after earning it touched 250.

Clear breakout.

I instinctively knew the stock will go to 300.

But I didn't even think of buying it. The stock hit 300 in a week.

When I know something I should act on it.

When these breakouts happened I felt I should have bought earlier, buying now is useless.

How wrong it is.

When to buy ?

Breakout breakout breakout.


By Jay Deb

How To Trade Stocks Without Emotions(17)

Rules and mistakes:


9) Never put a limit sell order.

I can remember only the sell of NSOL where I sold at high price.

In all other cases the price always went up beyond the price where I sold.

However putting a limit order to buy after a breakout has been generally successful.

On two occasions (DAL & AXP) I put a limit buy order overnight but next day there were some bad news (broker downgrade).

I got a fill and the stock kept going down.



By Jay Deb

How To Trade Stocks Without Emotions(16)

Rules and mistakes:


8b) If a good stock from a good sector hits new high but unable to breakout then the market might be in a corrective mood.

So far I have experienced three such times. PCLN in Aug hit new high to 94.

I bought it then PCLN went to 60 due to market correction.

When market came back it broke out and hit 160 but I sold it for a miniscule profit. When the stock comes back vigorously simply keep the stock.

The same happened with SUNW and I took a profit of $250 when the stock came back.

Now in Oct. history repeated itself with JBL.

Bought at $56.

This time however I sold at 49 and JBL is now at 62.

After loosing money only I am realizing what has been happening.

During such time take the money off or go short.

As for shorting do it only when market is weak and the sector is out of favor.

During such time it is good enough to be just out of market.



By Jay Deb

How To Trade Stocks Without Emotions(15)

Rules and mistakes:


8) Look for a clear breakout.

Don't jump on it just because it hit a new high.

If it is new high keep watching it.

It may be worthwhile to put some money on it if it goes down due to market correction.

Observation has been that in a strong market they breakout and in a weak market they just make a new high and then go down.

Buying breakout only is the best thing.



By Jay Deb

How To Trade Stocks Without Emotions(14)

Rules and mistakes:


5) Spend some time before starting a trade.

It is never too late to enter a trade.

Spending time will eliminate emotional factors and facts will take precedence.


6) Trade with logic and facts.

Eliminate hope and emotion.



By Jay Deb

How To Trade Stocks Without Emotions(13)

Rules and mistakes:


4) Another problem was to sit tight on a stock that is in money.

Previously one stock went up then came down and I lost money and that instills fear that this one also will go down.

If only I kept my SUNW shares I would have 46k profit on it now.

This has been the biggest problem with me followed by #1.

A little bit patience goes a long way.

Lack of patience and taking small profits.




By Jay Deb

How To Trade Stocks Without Emotions(12)

Rules and mistakes:


2) Buy strong stocks when they are down.

Do not buy them when they have some negative news or the sector has some problem.

Don't buy when the breakout is in doubt.


3) If good part of portfolio is down don't keep another losing position.

Such situation might be because the market is not healthy.

Also don't get into a stock without following it even if it is a new high or breakout.



By Jay Deb

How To Trade Stocks Without Emotions(11)

Rules and mistakes:

1) If day trading, close the trade same day unless it is strongly on plus side.

All the major losses for this year has come from keeping a day trade in loss.

I lost about $25000 from day trading AMZN and NSOL and keeping them.

Another big loss was on day trading RCNC of $8000.

Now I am having a loss of $10000 from HWP.

I initially wanted to day trade on it. Then I changed my mind and kept it.

There was a rumor of bad news on HWP and I ignored that.

A stock with bad news can go down any length.

Same about a stock with sector trouble.

As of now I have about $33000 loss this year from day trading and a net profit of a mere $25000.

Best is to avoid day trading all together.

By Jay Deb

How To Trade Stocks Without Emotions(10)

Don't sell a stock to buy at a lower price

8) When a stock is bought and it just goes no where, hold it for at least two weeks.

New moves usually take place within two weeks.


9) Do not sell all positions same day, particularly when in doubt.

Buys need to be spread out.

More stocks to be bought as the price goes up.

Similarly selling also has to be gradual.

I have lost potential gains by selling all my positions the same day.


10) Don't sell a stock to buy at a lower price.


11) Don't put more than 25% on any stock to begin with.

More money can be added later.




By Jay Deb

How To Trade Stocks Without Emotions(9)

Have patience before selling a profiting stock

Here are the rules I have followed over years. Read on and these might help you as well.


5) Day trade only when market seem to be on a strong bullish course.

Keep the day trade only when it is strongly on the upside.

Best thing is not to day trade and save time for better things.


6) Use the knowledge.

Use the hunches.

Do not sell the hunch stock easily.


7) Never, never use a limit order to sell.

Have patience before selling a profiting stock. If the logical stop is close to market price then put the stop.


By Jay Deb

How To Trade Stocks Without Emotions(8)

Here are the rules I have followed over years. Read on and these might help you as well.


4) When dealing with speculative stocks always start with 10% or less of your money and put more money as the stock goes higher.

Putting too much money on such stocks makes it difficult to take loss at the technically right prices

(selling at right price means a huge loss when a lot of those shares are bought and also it becomes difficult to simply hold those stocks in such a situation).

If the share goes down then holding upto down 25% is not illogical as long as the position is small.


By Jay Deb

How To Trade Stocks Without Emotions(7)

Here are the rules I have followed over years. Read on and these might help you as well.


2) If a good stock from a good sector hits new high but unable to breakout then the market might be in a corrective mood.


3) Always, always avoid buying cheap stocks.

That includes a stock that is near the support level during a good market.

Avoid stocks under $20 and definitely penny stocks.



By Jay Deb

How To Trade Stocks Without Emotions(6)

When in doubt stay out.


Here are the rules I have followed over years. Read on and these might help you as well.

1) Buy strong stock from a good sector when they clearly breakout.

The clear breakout will weed out a weak market.

Double sure the breakout on a closing basis.

The only other times to buy it will be when it is down 15% (25 to 30% for a speculative stock) or it closes positively after a long down turn.

By long I mean couple of weeks.

Spend time on it before buying, when in doubt stay out.




By Jay Deb

How To Trade Stocks Without Emotions(5)

Stick to rule


I have made similar mistakes many times.

I buy this stock, it goes down.

Then comes back up.

As soon as the stock crosses my buying price I sell it and feel great that I made money on that trade.

In next few days the stock goes up another five percent.

I feel like an idiot. I buy another stock, this one goes up 2 bucks and I hold onto it.

Next day it falls three dollars.

Now guess how I feel.

How to avoid this kind of problem?

Set up rules for yourself and stick to those rule.



By Jay Deb

How To Trade Stocks Without Emotions(4)

Emotion comes into play


You forget the ego and dump the stock.

You made a good decision.

Next year you see this stock crossing your price.

You feel down a bit?

You should not.

This where the emotion comes into play.

Based on the situation a year back it was a good decision to take that loss,

so you made a good decision but you don't feel good right now.



By Jay Deb

How To Trade Stocks Without Emotions(3)

The key to successful trading is cutting losses.

It has been said many many times that the key to successful trading is cutting losses.

If you are a reasonably informed person you will have many profit making trades.

But a time comes when you buy a stock, it goes down a little.

You are hoping that it will come back up.

But it dosn't keeps going down to 25%.

Then you thinking I should have sold it at 10% but now that it has come down so much let me hold a little longer.

Very soon the stock's value is half of what you paid.



By Jay Deb

How To Trade Stocks Without Emotions(2)

Enemy to successful stock trading is your own emotions


The biggest enemy to successful stock trading is your own emotions.

You read a lot of books then try stock trading.

You loose some or gain some money depending which cycle of of the market you entered.

After going through a couple bull and bear market cycle you become a kind of pro.

That is if you have any interest, energy and most importantly some money left to trade.



By Jay Deb

How To Trade Stocks Without Emotions(1)

I am a software engineer by profession.

But my real passion is following the stock market and trading stocks and options.

I record couple of hours of CNBC every day and watch it in the night while working out.

I have been trading stock for more than ten years.

I am no great stock trader but I have been making money consistently over the years.



By Jay Deb

The Dollar Crisis Will Soon Trigger a Global Investment Crisis(7)

So can stock markets APPEAR healthy and thus respond with bullish action in spite of everything I've mentioned?

Yes, and for irrationally long periods of time.

I still think that the state of the U.S. economy dictates some days of very bad triple-digit losses for the DOW in the future, and reality dictates they should come soon.

The only question that remains is, “How long can the Feds forestall this from happening?”

If they get their way, they won't happen for a while, but if reality wins out, they may be coming soon.

And if they don't happen soon? Does it mean the underlying economy is healthy?

Far from it. Stay tuned!

By J.S Kim

The Dollar Crisis Will Soon Trigger a Global Investment Crisis(6)

By the way, it has been said that money expansion should occur at approximately the same rate as inflation.

Given that the U.S. Federal Reserve targets inflation at 2% -3% a year,

then in 17 years, money supply outside the U.S. should have grown from $600 billion to about $913 billion.

Somewhere along the line, the Feds happened to grow money supply by $5,087,000,000,000 too much

(perhaps, if you are a dollar holder, you know understand why today, your U.S. dollar seems to buy you nothing, whether in London, Montreal, Paris, or Singapore).



By J.S Kim

The Dollar Crisis Will Soon Trigger a Global Investment Crisis(5)

However, I won’t give the Feds too much credit for being aboveboard because

I always laugh when I hear Bernanke speak of “fighting inflation” being one of his top priorities.

How does tinkering with the CPI to lower the true inflation numbers achieve this

(to be fair, the greatest changes in the formula used to calculate the CPI happened under Greenspan’s watch during the Clinton Administration)?

How does slashing interest rates by 0.50% so and making dollars cheaper to borrow (which will eventually expand money supply), achieve this?

Especially since the U.S. dollar supply outside the U.S. has increased from $600 billion in 1990 to over $6 trillion today?




By J.S Kim

The Dollar Crisis Will Soon Trigger a Global Investment Crisis(4)

So in essence, this time around, I can't blame the feds, but only the talking heads that parade as experts for fooling the masses.

The words Bernanke used were not “solve” the tighter credit conditions, not “turn around” the tighter credit conditions, but “try to forestall” them.

He admitted as much that slashing interest rates were nothing but a mere band-aid solution to a much deeper problem.


The signs are everywhere,

i) from skyrocketing gold prices,

ii) from silver prices that will most likely explode soon past the $15 an ounce territory and maybe even approach $20 an ounce in 2008,

iii) from a rapidly deflating dollar (despite its current rebound which can not possibly be anything more than a short-term bounce),

iv) to the presence of inverted yield curves this year when 3-month U.S. T-notes yielded greater interest rates than 10-yr U.S. T-bonds

(by the way, an inverted yield curve has only happened 7 times since 1960, and 6 of them preceded recessions).





By J.S Kim

The Dollar Crisis Will Soon Trigger a Global Investment Crisis(3)

Likewise, current U.S. Fed Reserve Chairman Ben Bernanke explained his deep 0.50% rate cut on September 18th with the following statement:

“We took the action to try to get out ahead of the situation and try to forestall (emphasis mine) potential effects of tighter credit conditions on the broader economy.

The resulting global financial losses have far exceeded even the most pessimistic estimates of the credit losses on these loans.”

Yet all the permabulls applauded the rate cut as the end to all the subprime credit woes with massive triple-digit rallies in the DJIA.

In fact, think about how many times in just the past couple of weeks that you've read headlines stating that the subprime credit fiasco has bottomed out?



By J.S Kim

The Dollar Crisis Will Soon Trigger a Global Investment Crisis(2)

Years before he would spend more than two decades as the Chairman of the Federal Reserve,

Alan Greenspan stated, “This is the shabby secret of the welfare statists' tirades against gold.

Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process.

It stands as a protector of property rights.

If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.”

At least Greenspan told us the Fed Reserve's plan before they executed it and

explained why they would manufacture a bear market in gold for 21 years.


By J.S Kim

The Dollar Crisis Will Soon Trigger a Global Investment Crisis(1)

I view the vast majority of government released economic reports as nothing but

i) manufactured,

ii) cooked reports designed to generate whatever confidence governments need from their citizens

iii) to hide instabilities in the economy and

iv) to keep stock markets growing (aka. to serve the political agenda).


In the U.S., the reported numbers about inflation, housing starts,

and so forth are so distorted and distant from reality that they are virtually meaningless.


I've always said the same about the statements made by the most powerful Central Bank in the world, the U.S. Federal Reserve.

Yet at times, their Chairmen have been exceedingly honest in their comments, though the masses seem to ignore them.




By J.S Kim

High Risk, Moderate Risk and Low Risk Investments(4)

High Risk Investments

High risk investments are those investments that if you are lucky can return huge yields,

however the downturn is that they can be extremely volatile and in many cases instead of getting rich off your investment, you find yourself losing some or all of it.

High risk investments include penny stocks, international stocks, some types of Forex trades, etc.

The sky is the limit for returns, but many high risk investments-

if considered a winner should return yields that range from 10% to 30%++.



By Connie Barker

High Risk, Moderate Risk and Low Risk Investments(3)

Moderate Risk Investments

Moderate risk investments are perfect for those that are interested in investing for the long term and would like to earn moderate yields.

Moderate risk investments are usually certain kinds of stocks, bonds and mutual funds that pay handsomely over the long term.

While generally riskier than saving money in a bank, for those that are looking to invest for the long term, historically speaking you will grow your money quite nicely.

Moderate risk investments usually use the power of compound interest and time to create a nest egg from 10 to 40 years with regular savings.

For instance, saving 1K per year at an interest rate of 10% for 30 years can return close to 200K.

Moderate risk investments usually return yields of 5% to 12%.



By Connie Barker

High Risk, Moderate Risk and Low Risk Investments(2)

Low Risk Investments

While low risk investments are usually very low key and rarely are extremely glitzy or publicized,

they do offer conservative investors a way to save money for the short or long term without the risk involved that you find in other forms of investing.

Low risk investments usually pay the lowest yields, but are far less volatile than many other types of investments.

Low risk investments include money market funds, certificate of deposits and some types of bonds.

Low risk investments are perfect for those that want to make sure there money remains safe and secure.

While low risk investments don’t offer high returns, they do offer stability and security for those that can’t afford to lose money or would just like to avoid as much risk as possible.

Expect low risk investments to pay out yields of 1% to 5% annually.



By Connie Barker

High Risk, Moderate Risk and Low Risk Investments(1)

For those looking to invest, you should know that many investments can be categorized as being

i) high risk,

ii) moderate risk and

iii) low risk.


Investing is not difficult, but you should always put lots of thought and planning into it.

It is also extremely important to educate yourself about the many different investments available to you so you can find those that fit best with your specific situation and lifestyle.

Here are some tips regarding the three categories of investing.


By Connie Barker

Manage Your Money(7)

Hope is not enough.

Unfortunately, too many people are under false illusions about how this money will be the answer for a secure retirement.

Hope is not enough.

You have to be proactive and seek out people who can help you.

But be careful whom you take advice from and what the motivation is behind their “selling” you their ideas or financial products.

Educating yourself on how to make the most of your hard-earned money so you can create wealth should be a priority.

After all, if you are not interested in securing your financial future, who is?

If you take control of your personal affairs, you will have peace of mind and can look forward to a secure future.



By Tessie Setiabudi

Manage Your Money(6)

Be proactive

Organizing your financial future should be top priority.

If you do nothing because it is too much effort, well, think about this.

What would happen if you lose your job or have an accident and receive no income for six months?

How would you and your family survive financially?

Do you have your insurance policies in order?

Where will you be in the next five years?

Maybe retired and on a pension?

Or, perhaps, you have a retirement fund you hope will be enough to live on?



By Tessie Setiabudi

Manage Your Money(5)

Here are several tips to get you started:


9. If you have a proactive accountant or financial advisor, ask him or her what you can do to make the most and take action.

10. Review all your insurance policies to ensure you have adequate cover and are getting the best value for your dollar.

11. Record your income and expanses on a spreadsheet to gain a picture of where your money really goes.


By Tessie Setiabudi

Manage Your Money(4)

Here are several tips to get you started:

5. Make a note in your diary when you need to remember to do things.

6. Check your bank accounts weekly via the ATM or the Internet to keep tabs on your money.

7. Allocate a particular day and time each week to review your personal affairs.


8. Get educated –

i) attend seminars,

ii) read books and

iii) listen to information on wealth creation.

Having knowledge about wealth will make it easier to make decisions and take action.



By Tessie Setiabudi

Manage Your Money(3)

Here are several tips to get you started:


1. Set up a filing system to store your paper work.

2. File your papers in categories: Bank, car, children, home, medical, insurance, investment, tax, utilities and so on.

3. Organise direct debits for regular bills.

4. Read, sort and take action on your snail mail and e-mail daily. This will avoid a big build-up.



By Tessie Setiabudi

Manage Your Money(2)

Put things in order.


Most people have no systems for handling this most important area.

The household paperwork is disorganized, piled up in a corner of the house somewhere.

They have no idea how they spend their money and often have no plans for their financial future.

If you do not organize your personal life you will not have the time and will not know how.

Do it now.


By Tessie Setiabudi

Manage Your Money(1)

Do you care about your financial condition?

You have worked so hard for it.

It will be a waste if you do not take care of your financial future.

How did your finances shape up at the end of the tax year?

Are you in a better financial position now than 12 months ago?

Have your assets increased in value?

Are you earning more money?

If you answered “Yes” to these questions, that is great.

If you answered “No”,

then perhaps it is time to take stock of where you are now financially and look at how you can enhance your current situation.



By Tessie Setiabudi

The Subprime Mortgage Scandal - What Really Happened (4)

It may be that enough evidence is in now in to suggest that with few exceptions,

bonuses for management that exceed a small fraction of their wage are an irresistible encouragement to fraud,

particularly if the crimes first originate outside that company and give the illusion of allowing theft without ultimate responsibility.

It isn't possible to plug every mousehole, that is, to remove every possible fraudulent scheme;

so dangling huge carrots in front of executives that most will only be able to reach if they tell themselves and their bosses a few convenient (but eventually very costly) lies is a very bad idea -

unless you've just gotten your management degree and want to improve your lifestyle, of course.

The take home lesson for investors, institutional or individual, is to find out the bonus structure before you buy stock in a firm.

If it is high enough to heavily reward theft or fraud, invest elsewhere.

The Subprime Mortgage Scandal - What Really Happened (3)

In support of this view, many of the biggest losers were hedge funds, and note this quote :

"...the top 25 hedge fund managers combined appear to have earned more than all 500 S&P 500 CEOs combined (both realized and estimated)."

(originally from Steve Kaplan and Joshua Rauh)

Who can doubt that bonuses for short-term "performance" were a big part of those "earnings?"

The Subprime Mortgage Scandal - What Really Happened (2)

What's most interesting is the parallel between the functionaries who ultimately stuck their investment firms with these loans and

the similar functionaries in accounting and stock-sales firms who fully cooperated with Enron frauds with similarly disastrous results (See the film "The Smartest Guys in the Room.")


Again and again, decade after decade, now; the big money seems to be in making "Dutch Book" between the interests of large financial institutions,

and that of their higher-level managerial staff, who turn out to be very willing to betray the long-term interests of their employers.

Bonus structures focused on the short-term obviously exacerbate those differences (conflicts of interest!),

which are already extremely problematic for ordinary stockholders.


By Russell Johnston

The Subprime Mortgage Scandal - What Really Happened(1)

As in the wake of Enron, there's now a lot of discussion about the collapsing subprime mortgage market as we all try to determine just what went wrong and who (if anybody) defrauded who, when.

First, there was a change in the law that allowed loans to be treated (and traded) far more freely, as if they were securities.

Unfortunately, the ultimate purchasers of the loans (such as hedge funds) didn't stop to analyse how the legal changes in the resale market had suddenly removed any incentive for the initial "lenders" (who were now really more like scouts than investors) to vet homebuyers.

Largely, although not exclusively, the large investment institutions who were hurt when the music stop "fooled themselves."

Or rather their hirelings profited (in the short term at least) from self-deception or a lack of "fiduciary curiosity",

to coin a term - while the firms who paid these bozos their bonuses lost an far bigger pile of money.

By Russell Johnston

How to Value Shares(7)

None of these tools is perfect

None of these tools is perfect as a valuation device,

but they are definitely superior to just carrying out judgement by speculating.

When there is any doubt, moderation should be employed in the choice of the right

i) P/E ratio,

ii) dividend yield, or

iii) net asset value.

It is also advisable to find out the reasons behind the magnitudes of the figures you deal with.

By David Opoku

How to Value Shares (6)

Net asset value


The shares or units of organizations such as mutual funds and investment companies are valued using ‘net asset value’.

This is obtained by subtracting the total liabilities of the firm from its total assets.

For instance, if the total assets of the mutual fund is £100 million, and its liabilities, sum up to £10 million,

then the net asset value is £100 million minus £10 million, which gives £90 million.

The value of each unit or share is then arrived at by dividing the net asset value by the units or shares outstanding.

In this example, if there are 2 million units outstanding,

the ‘per unit net asset value’ is £90 million divided by 2 million which is £45 per unit.

Net asset value as well as per share/unit net asset values are revised daily and published in newspapers.



By David Opoku

How to Value Shares (5)

P/E ratio (2)


Since there is a lot of variation in the dividends paid by companies over the years,

it can be argued that P/E ratios do not provide very accurate pay-back information.


It does, however, provide a fairly accurate view of the growth potential of the share.

It portrays the extent to which the market is optimistic about the stock, and its expectation of the share’s future growth.

A P/E ratio of 1 means the share is seen with a lot pessimism, whereas a figure of 20 means the share is looked at favourably by investors.

Recent research has, nevertheless, shown that shares with low P/E ratios outperform those with high ones.

It is perhaps wise to take the middle road, and avoid shares with very low or extremely high P/E ratios.



By David Opoku

How to Value Shares (4)

P/E ratio

P/E ratio is a very important ratio for valuing the performance of a share.

It is arrived at by dividing the current market price by the earnings per share.

For example, if the current market price of a company is £30 and the earnings per share is £5 per share,

then the P/E ratio is £30 divided by £5 which is 6.

Note that no percentage or unit is attached to the figure.

P/E ratio provides two lots of information, primarily.

It does give the investor a rough idea of the pay-back period for the amount of money invested in each share.

In the example above, for instance,

a P/E ratio of 6 informs the investor that it will take 6 years of receiving returns of £5 per share per year, to recoup the £30 used in buying one share.



By David Opoku

How to Value Shares (3)

Dividend yield (2)

Traditionally, investors prefer companies with high dividend yields to those with lower ones.


A high dividend yield implies that the share is under-priced, and that

future dividends will not be higher than previous ones.


A low dividend yield, on the contrary, means the share is over-priced

and future dividends might be higher.



By David Opoku

How to Value Shares (2)

Dividend yield

Dividend yield gives an indication of the investor’s return for holding the share.

It is obtained by dividing dividend per share by the current market price of the share.

Dividend per share is the total dividend paid in the most recent twelve months divided by the total outstanding shares.

Dividend yield is expressed as a percentage.

Let’s assume, for example, the dividend paid by company ‘A’ in the most recent twelve months total £4 million and there are 4 million shares outstanding.

Let’s say the current market price of the company is £20.

The dividend per share is £4million/4 million, which is £1 per share.

The dividend yield will thus be given by (£1 divided by £20) times 100, which is 5%.

This figure 5% means that the investor can expect to earn a return of 5p for every pound he invests in the share.



By David Opoku

How to Value Shares (1)

The equity market is fairly capricious and can lead to losses.

With care and due judgment in valuing shares, however,

substantial profits can be made over and above what can be achieved with relatively less risky securities such as bonds, gilts and bank deposits.

i) `Dividend yield’,

ii) `price earnings (P/E) ratio’ and

iii)‘net asset value’ are the three main tools used in valuing stocks (shares).



By David Opoku

Building The Foundation For Wealth(5)

Before you take on another investment, think about the wealth you can build with the money that currently goes to debt.

Once you have mastered your debt, all that money can go toward investments, savings,

and living expenses that far outstretch what you are able to experience now.

The only aggressive investment strategy that has absolutely zero risk is debt investment.

You cannot lose and the gains are always tremendous compared to any other form of investing.

Live your retirement years free of financial stress, relaxed and enjoying life due to automatic income streams you create through the powerful investments you can afford AFTER investing in your debt.


By C.C. Collins

Building The Foundation For Wealth(4)

Today you should sit down and find the monthly expenses that truly don't mean as much to you as building wealth does.

See how you can eliminate some of your spending to invest in your debt in order to maximize your cash flow faster, giving yourself a raise!

Take most of what you now have available per month and turn it toward the next debt –

raising the regular monthly payment by as much as you can while rewarding yourself with a little thing to note your accomplishment.


By C.C. Collins

Building The Foundation For Wealth(3)

Once that debt is paid off you can turn the payments you were making toward a larger debt,

sometimes doubling the rate at which you are able to pay off that bigger debt.

Combined, the return on your investment here is massive compared to regular stock investing!


Wealth building, in the beginning, is actually started with debt reduction and strict management.

A change in attitude about your debt, from “liability” to investment, is the first step in true wealth building.


By C.C. Collins

Building The Foundation For Wealth(2)

Discover how your employment circumstances affect your wealth building strategy and

have more of the things you want by identifying your biggest expense and managing it without having to make more money.

Most people take gains in their cash flow to mean they can spend more on things they don't need.

It is human to want to surround yourself with the things you want to match how you feel about your new income from investments or a raise at work.

But what happens here is that you lose future earning power and you rip out pieces of your wealth building foundation

because you are not putting new income to work by investing in your debt.



By C.C. Collins

Building The Foundation For Wealth(1)

You wouldn't build your home on anything less than a solid foundation.

Similarly, you can't build wealth and financial independence without first having sound foundational principles to build upon.

I have found that many people are working on wealth building strategies such as maximizing their 401K returns, aggressive stock trading, and real estate investing without such a foundation.

Most of my clients are coming from a “one step forward, two steps back” cycle of wealth building that gets them nowhere in the long run.

There are steps you can take to make sure that you are maximizing and protecting your gains at the same time.

Without these steps, you are destined to experience the gain-loss cycle which, in the end, is like spinning your wheels in the mud.


By C.C. Collins

12 Basic Stock Investing Rules (12)

No stress involved.

There are many important things you need to know to trade and invest successfully in the stock market or any other market.

12 of the most important things that I can share with you based on many years of trading experience are enumerated below.

12. The most successful investing methods should take most individuals no more than four or five hours per week and,

for the majority of us, only one or two hours per week with little to no stress involved.


By C.C. Collins

12 Basic Stock Investing Rules (11)

The worst thing an investor can do is take a large loss

There are many important things you need to know to trade and invest successfully in the stock market or any other market.

12 of the most important things that I can share with you based on many years of trading experience are enumerated below.


11. The worst thing an investor can do is take a large loss on their position or portfolio.

Market timing can help avert this much too common experience.

You can avoid making that huge mistake by avoiding buying things when they are high.

It should be obvious that you should only buy when stocks are low and only sell when stocks are high.

Since your starting point is critical in determining your total return,

if you buy low, your long term investment results are irrefutably better than someone that bought high.




By C.C. Collins

12 Basic Stock Investing Rules (10)

Never trust the advice of ......

There are many important things you need to know to trade and invest successfully in the stock market or any other market.

12 of the most important things that I can share with you based on many years of trading experience are enumerated below.


10. Never trust the advice and/or ideas of

i) trading software vendors,

ii) stock trading system sellers,

iii)market commentators,

iv) financial analysts,

v) brokers,

vi) newsletter publishers,

vii) trading authors, etc.,

unless they trade their own money and have traded successfully for years.

Note those that have traded successfully over very long periods of time are very few in number.

Keep in mind that Wall Street and other financial firms make money by selling you something - not instilling wisdom in you.

You should make your own trading decisions based on a rational analysis of all the facts.



By C.C. Collins

12 Basic Stock Investing Rules (9)

Technical and fundamental analysis


There are many important things you need to know to trade and invest successfully in the stock market or any other market.

12 of the most important things that I can share with you based on many years of trading experience are enumerated below.


9. Traditional technical and fundamental analysis alone may not enable you to consistently make money in the markets.

Successful market timing is possible but not with the tools of analysis that most people employ.

If you eliminate optimization, data mining, subjectivism, and other such statistical tricks and data manipulation, most trading ideas are losers.



By C.C. Collins

12 Basic Stock Investing Rules (8)

Efficient Market Hypothesis


There are many important things you need to know to trade and invest successfully in the stock market or any other market.

12 of the most important things that I can share with you based on many years of trading experience are enumerated below.


8. The Efficient Market Hypothesis is fallacious and is actually a derivative of the perfect competition model of capitalism.

The Efficient Market Hypothesis at root shares many of the same false premises as the perfect competition paradigm as described by a well known economist.

The perfect competition model is not based on anything that exists on this earth.

Consistently profitable professional traders simply have better information - and they act on it.

Most non-professionals trade strictly on emotion, and lose much more money than they earn.

The combination of superior information for some investors and

the usual panic as losses mount caused by buying high and selling low for others, creates inefficient markets.




By C.C. Collins

12 Basic Stock Investing Rules (7)

Let your profits run and cut your losses quickly

There are many important things you need to know to trade and invest successfully in the stock market or any other market.

12 of the most important things that I can share with you based on many years of trading experience are enumerated below.

7. You must let your profits run and cut your losses quickly if you are to have any chance of being successful.

Trading discipline is not a sufficient condition to make money in the markets, but it is a necessary condition.

If you do not practice highly disciplined trading, you will not make money over the long term.



By C.C. Collins

12 Basic Stock Investing Rules (6)

The trend is your friend

There are many important things you need to know to trade and invest successfully in the stock market or any other market.

12 of the most important things that I can share with you based on many years of trading experience are enumerated below.

6. The trend is your friend.

Since the trend is the basis of all profit, we need long term trends to make sizeable money.

The key is to know when to get aboard a trend and stick with it for a long period of time to maximize profits.

Contrary to the short term perspective of most investors today,

all the big money is made by catching large market moves -

not by day trading or short term stock investing.



By C.C. Collins

12 Basic Stock Investing Rules (5)

Stock markets generally move in advance


There are many important things you need to know to trade and invest successfully in the stock market or any other market.

12 of the most important things that I can share with you based on many years of trading experience are enumerated below.


5. Stock markets generally move in advance of news or supportive fundamentals - sometimes months in advance.

If you wait to invest until it is totally clear to you why a stock or a market is moving,

you have to assume that others have done the same thing and you may be too late.

You need to get positioned before the largest directional trend move takes place.

The market reaction to good or bad news in a bull market will be positive more often than not.

The market reaction to good or bad news in a bear market will be negative more often than not.



By C.C. Collins

12 Basic Stock Investing Rules (4)

only necessary to know that markets are moving

There are many important things you need to know to trade and invest successfully in the stock market or any other market.

12 of the most important things that I can share with you based on many years of trading experience are enumerated below.


4. If you are looking for "reasons" that stocks or markets make large directional moves, you will probably never know for certain.

Since we are dealing with perception of markets-not necessarily reality, you are wasting your time looking for the many reasons markets move.

A huge mistake most investors make is assuming that stock markets are rational or that they are capable of ascertaining why markets do anything.

To make a profit trading,

it is only necessary to know that markets are moving -

not why they are moving.

Stock market winners only care about direction and duration, while market losers are obsessed with the whys.



By C.C. Collins

12 Basic Stock Investing Rules (3)

"the trend always changes rule."


There are many important things you need to know to trade and invest successfully in the stock market or any other market.

12 of the most important things that I can share with you based on many years of trading experience are enumerated below.


3. Every market or stock that goes up will go down and most markets or stocks that have gone down, will go up.

The more extreme the move up or down, the more extreme the movement in the opposite direction once the trend changes.

This is also known as "the trend always changes rule."



By C.C. Collins

12 Basic Stock Investing Rules (2)

The stock market is always right


There are many important things you need to know to trade and invest successfully in the stock market or any other market.

12 of the most important things that I can share with you based on many years of trading experience are enumerated below.


2. The stock market is always right and

price is the only reality in trading.


If you want to make money in any market, you need to mirror what the market is doing.

If the market is going down and you are long, the market is right and you are wrong.

If the stock market is going up and you are short, the market is right and you are wrong.


Other things being equal,

the longer you stay right with the stock market, the more money you will make.

The longer you stay wrong with the stock market, the more money you will lose.



By C.C. Collins

12 Basic Stock Investing Rules

Buy low-sell high.

There are many important things you need to know to trade and invest successfully in the stock market or any other market.

12 of the most important things that I can share with you based on many years of trading experience are enumerated below

1. Buy low-sell high.

As simple as this concept appears to be, the vast majority of investors do the exact opposite.

Your ability to consistently buy low and sell high,

i) will determine the success, or

ii) failure, of your investments.

Your rate of return is determined 100% by when you enter the stock market.




By C.C. Collins

Invest in a Company That You Know Well (4)

Does the company deliver on its promises?


A public-listed company will need to state its business plan and projected growth, including its profit forecast.

You have to determine whether the company is delivering on these forecasts as promised.

If the company is not delivering,

you can ascertain the reasons for its underperformance by checking its prospectuses and annual reports.

Invest in a Company That You Know Well (3)

What does the company plan to do in the future?

Review the company’s business plan and check whether it plans to diversify its business to enhance shareholder value.

For example, a plantation company plans to increase its profit by acquiring more plantation lands.

If the company decides to undertake any corporate move,

you will need to assess whether it enhances the profit and improves the competitiveness of the company.

Invest in a Company That You Know Well (2)

Where are the profits coming from?

Most companies make profits from its businesses.

But there are companies that will make profit because of other reasons.

For example, a company may declare a profit because it has disposed of its assets.

In these circumstances, the profit may not be sustainable if it is not generated from its core business.

Read through the company’s accounting statements to determine its source of profitability and at the same time,

always check the debt level of the company.

Invest in a Company That You Know Well (1)

What does the company do?

How many of us would analyse a company thoroughly before buying its shares?

In fact, there are some investors may only the name of the company they have invested in and nothing more.

To be a serious investor, it is crucial for you to know as much as you can about the company that you intend to invest in.

What to look out for?

The followings are some of the questions need to be answered before you invest in a particular company:

What business is the company in?

For example,

the company may be involved in

i) plantation,

ii) construction or

iii) consumer products.

Do you understand the business, and is it viable and sustainable?

The more you understand about the business of the company, the better you will be able to monitor your investment.

Monitor your Investments (8)

Monitoring unit trusts (2)

You can request for information from your fund manager, such as:

i) Performance of relevant investment markets

ii) Level of volatility associated with return

iii) Rate of inflation

iv) Performance of other similar fund managers

v) Strategies employed over recent periods


Fund managers are reviewed on the services they provide, namely performance and reporting.

Have your expectations of returns been met?

Is the fund manager doing what is expected e.g. buying stocks in accordance with laid-out strategies and mandate?

You should also bear in mind that the investment outcome is subject to a large number of random factors and short-term performance data may not accurately assess the fund manager's investment skills.

Monitor your Investments (7)

Monitoring unit trusts (1)

For collective investment schemes such as unit trusts, you should monitor your fund manager in terms of

i) performance (relative to the objectives of the fund),

ii) strategy,

iii) reporting and

iv) portfolios.

You could benchmark your funds against similar funds.

Monitor your Investments (6)

Monitoring shares

You should also monitor the company whose shares you have bought by

tracking its

i) profitability,

ii) earnings growth,

iii) gearing and

iv)dividend payouts.


Read the

a) company's announcements,

b) shareholders' circulars,

c) annual and interim reports and


focus on

i) closing dates of rights,

ii) warrants,

iii) takeovers,

iv) earnings,

v) auditor's report and

vi) the directors' interest.

You should also attend the annual general meetings to find out how the company is managed and to gauge its business prospects.

Monitor your Investments (5)

Evaluating performance (2)


When measuring the performance of your asset, use the total return figure, and not the income return figure.

The income return refers only to the income derived from an investment.

In the case of shares, the income is represented by dividend payments;

with debt investments such as bonds, the income is in the form of interest payments.

The total return is the more accurate measure of performance because it also takes into account whether there is a gain (or loss) in the value of the investment over time.

For shares, total return is the sum of dividend income and the capital gain/loss (difference between the sale price and the cost price).

To get the percentage returns, divide the total return by the cost of investment and multiply by 100.

Monitor your Investments (4)

Evaluating performance (1)

Third, you should continuously monitor and evaluate the performance of your investments to find out how they are doing.

If they are faring well, you may want to pump in more money,

or take part of your profits and look for another vehicle.

If they are not, you may decide to sell.

How often the review should be depends on the size and time frame of your investments and whether you have chosen high-risk or low-risk assets.

Monitor your Investments (3)

Modifying your plans

Second, you should also review your portfolios for the reason that your own financial situation may have changed to necessitate restructuring your plan and goals.

Say, you may receive a windfall and now have a lot more funds to invest so you can aim for bigger goals.

Or you may have increased your net worth by buying a piece of property so that you have less funds for investing and have to adjust your plan.

Monitor your Investments (2)

Changing environment (2)

A company whose stock you are holding, could for instance, lose its competitive lead and make your investment risky.

i) Changing laws and regulations,

ii) turns and twists in the domestic and world economic environments (remember September 11, 2001 bombing of the World Trade Centre in the US?),

iii) changes in the capital markets and reversal of company fortunes can affect your investments.

As a consequence, your investments may need restructuring because they no longer jive with your financial plan and goals.

An investor who wants to succeed, needs to be proactive to these changes.

Monitor your Investments

Changing environment

The day you start investing is NOT the day you stop looking at your investment plan or doing your homework.

You still need to

i) read your financial papers and company reports,

ii) keep your eyes and ears open to news affecting your investments and

iii) generally be on top of what's going on with the companies behind your investments.

Why?

Because, first, we live in a dynamic world.

Nothing is static - which makes your financial plan, no matter how brilliantly conceived and properly implemented, susceptible to changes.

What Caused the Housing Bust (15)

Hedge funds have no solution


The real problem is that the long-dated liabilities (a 30-year mortgage) were matched not by reliable depositors, but by fly-by-night hedge funds, which were themselves highly leveraged and subject to redemptions.

That's why even as the top executives in these firms believed their mortgages were safe and sound, they can't get the funding they need to hold onto them through the crisis.

As Keynes predicted, the lives of every higher-leveraged financial institution is precarious: " The market can be irrational longer than you can remain solvent."

The hedge funds have no solution.

Redemptions will force them to sell.

They'll continue to pressure the market, resulting in huge losses.

Hundreds of funds will likely be liquidated.

Wall Street's investment firms, if they can find additional capital to meet margin calls, might weather the storm... depending on how far it spreads.

We saw a move in this direction this week when Goldman announced $3 billion in additional funding for its big hedge funds.


For most mortgage brokers, the party is over – goodnight.

Something like 90% of them will be out of business by the end of the year.



By Porter Stansberry

What Caused the Housing Bust (14)

Run on the bank


The market "locked up."

Nobody would buy mortgage bonds.

And everyone needed to sell.

Suddenly even Wall Street's biggest banks –

the very firms that created these mortgage securities –

were suffering huge losses, as the bonds kept getting marked down as hedge funds and

other leveraged speculators had to sell into a panicked market.


It's a classic "run on the bank," except today the function of the traditional bank has been spread out among several institutions:

i) mortgage brokers,

ii) Wall Street security firms,

iii) hedge-fund investors, and

iv) banks.


By Porter Stansberry

What Caused the Housing Bust (13)

Liquidity fears began


With Wall Street wrapping together thousands of mortgages from different underwriters, it's likely that hundreds of financial institutions around the world have traces of bad subprime and Alt-A mortgage debt on their books.

Parts of these CDOs were rated AAA.

Almost any financial institution could own them – especially hedge funds.

Hedge fund investors quickly figured this out – and asked for their money back.

And so, in July, liquidity fears began to creep through the entire mortgage complex.

Not because the mortgages themselves were all bad or even because the mortgage securities were all bad –

but because all the market players knew a wave of selling, led by hedge funds, was on the way.

Nobody wants to be the first buyer when they know thousands of sellers are lined up behind them.



By Porter Stansberry

What Caused the Housing Bust (12)

Failure of the subprime-mortgage structure


The failure of the subprime-mortgage structure –

which started with higher-than-expected defaults,

led to hedge fund wipeouts, and then to mortgage broker bankruptcies –

might have been contained to only the subprime segment of the market.

But... the risk spread because of the financial engineering.



By Porter Stansberry

What Caused the Housing Bust (11)

Willing buyers disappeared

Very quickly the "liquidity" – the amount of willing buyers for these types of mortgage-backed securities – disappeared.

There are literally no bids for much of this paper.

That's why the subprime mortgage brokers – the Novastars and Fremonts – went out of business so quickly.

Not only did they take a huge hit paying off the early defaults of their 2005 and 2006 mortgages,

but the loans they held on their books were marked down,

with no buyers available and their creditors demanding greater margin cover on their lines of credit... poof...

The assets they owned were marked down, they couldn't be readily sold, and

they had no access to additional capital.


By Porter Stansberry

What Caused the Housing Bust (10)

Mortgage securities collapsed


Since Dillon Reed Capital, dozens of more funds have blown up as the "equity slice" in mortgage securities collapsed.

Remember, these equity tranches were supposed to be the "speed bumps" that protected the rest of the buyers.

With the safety net of the equity tranche removed, these huge securities will have to be downgraded by the rating agencies.

For example, on July 10, Moody's and Standard and Poor's downgraded $12 billion of subprime-backed securities.

On August 7, the same agencies warned that another $1 billion of "Alt-A" mortgage securities would also likely be downgraded.

Now... these downgrades and hedge-fund liquidations have hugely important consequences.

Why? Because as hedge funds have to liquidate, they must sell their RMBSs, CDOs, and ABSs.

This pushes prices for these securities down, which results in margin calls on other hedge funds that own the same troubled instruments.

That, in turn, pushes them to sell, too.


By Porter Stansberry

What Caused the Housing Bust (9)

The first sign of trouble


The first sign of trouble was an unexpectedly high default rate in subprime mortgages.

Beginning in early 2007, studies of 20-month-old subprime mortgages showed a default rate greater than 5%, much higher than expected.

According to Countrywide Mortgage, the default rates on the riskiest loans made in 2005 and 2006 are expected

to grow to as high as 20% – a new all-time record.


The big jump in subprime defaults led to the first hedge-fund blowups,

such as the May 2007 shutdown of Dillon Reed Capital Management,

which lost $150 million in subprime investments in the first quarter of 2007.




By Porter Stansberry

What Caused the Housing Bust (8)

Leverage, in reverse, is devastating.


The cycle kept going – more

a) mortgage securities, more

b) leverage, more

c) loans, more

d) housing –

until one day the marginal borrower blinked.

We'll never know whom or why... but somewhere out there, the "greater fool" failed to close on that next home or condo.

Beginning in about the summer of 2005, the momentum began to slow... and then slowly... imperceptibly... it began to shift.

All the things the cycle had going for it from 1995 to 2005 began to turn the other way.

Leverage, in reverse, is devastating.



By Porter Stansberry

What Caused the Housing Bust (7)

Continuing to borrow against their RMBS inventory

a) Insurance companies,

b) banks, and

c) brokers

were able to earn higher returns on assets by buying

i) RMBS,

ii) CDOs, or

iii) ABSs instead of Treasury bonds or AAA-rated corporate debt.

And because the collateral was considered AAA,

financial institutions of all stripes were able to increase the size of their balance sheets by continuing to borrow against their RMBS inventory.

This, in turn, supplied still more money to the mortgage market, which kept the mortgage brokers busy.

Remember all the TV ads to refinance your mortgage and the teaser rate loans?



By Porter Stansberry

What Caused the Housing Bust (6)

More layers of packaging

For a long time, this arrangement worked well for everyone.

Wall Street's banks made a fortune packaging these securities.

They even added more layers of packaging –

i) creating CDOs (collateralized debt obligation) and

ii) ABSs (asset-backed security) –

which are like mutual funds that hold RMBS.


Buyers of these securities did well, too.

Hedge funds made what looked like risk-free profits in the equity tranche for years and years.




By Porter Stansberry

What Caused the Housing Bust (5)

Rated AAA

After the equity tranche, typically one or two more risk levels offered higher yields at a lower-than-AAA rating.

After those few, thin slices, the vast majority of the RMBS –

usually 92% of the loan package – would be rated AAA.

With an AAA rating, banks, brokerage firms, and insurance companies could own these mortgages –

even the exotic mortgages with changing interest rates or no down payments.

With the magic of financial engineering and by ordering the perceived risk, financial firms from all over the world could fill their balance sheets with higher-yielding mortgage debt that would pass muster with the regulators charged with making sure they held only the safest assets in reserve.




By Porter Stansberry

What Caused the Housing Bust (4)

Equity slice

The "equity slice" was the riskiest part of the RMBS.

It was typically sold at a wide discount to the total value of the loans in this category, meaning that

if defaults were less than expected, the buyer of this part of the package could make a capital gain in addition to a very high yield.

Even if defaults were average, the buyer would still earn a nice yield.

Hedge funds loved this kind of security because the yield on it would cover the interest on the money the fund would borrow to buy it.

Hedge funds could make double-digit capital gains annually, cost-free and risk-free... or so they thought.

As long as home prices kept rising and interest rates kept falling, almost every RMBS was safe.

Even if a buyer got into trouble, he could still sell his home for more than he paid or find a way to restructure the debt.

On the way up, from 1995-2005, there were very few defaults.

Everyone made money, which attracted still more money into the market.

By Porter Stansberry

What Caused the Housing Bust (3)

RMBS securities were organized into risk levels


Wall Street's biggest banks (Goldman Sachs, Lehman Bros., Bear Stearns) would buy, say, $500 million worth of low-quality mortgages, underwritten by a mortgage broker, like NovaStar Financial.

The individual mortgages – thousands of them at a time – were organized by type and geographic location into a new security, called a residential mortgage-backed security (RMBS).

Unlike a regular bond, whose coupon is paid by a single corporation and organized by maturity date, RMBS securities were organized into risk levels, or "tranches."

Thousands of homeowners paid the interest and principal for each tranche.


Rating agencies (like Moody's) and other financial analysts, believed these large bundles of mortgages would be safer to own because

i) the obligation was spread among thousands of separate borrowers and

ii)organized into different risk categories that, in theory, would protect the buyers.

For example, the broker (like NovaStar) that originated the mortgages would be on the hook for any early defaults, which typically only occurred in fraudulently written mortgages.

After that risk padding, the next 3%-5% of the defaults would be taken out of the "equity slice" of the RMBS.



By Porter Stansberry