The Home of Life and Money

The power of exports

2010-10-19T14:42:00.000+08:00

So the markets keep rising – despite data that suggest otherwise. A looming mortgage crisis in the US seems to have done little to dampen the appetite investors seem to have currently.

Many of you might be surprised to know that shipping is responsible for upward of 90% of global trade making it a key indicator of the global economy. It is this point that brings me to an interesting story I heard the other day from someone who recently spent some time aboard a freighter. This freighter had a route which basically was a round trip between China and the US. On spending some time with the captain a few interesting pieces of information came out. The captain explained that about 12 months prior to the global meltdown capacity started to fall – quite drastically on some cases – as if signifying something big on the horizon....well we all know what happened next. Significantly he said that capacity was now running at almost 100%.

What I found most interesting about the story was the contents of the cargo being shipped. The captain said that for every full container shipped from China, three came back empty from the US. Containers from China contained electronics, textiles and pretty much everything else you can thing of whereas containers from the US contained mostly frozen food to processed in China only to then be sent back to the US as finished goods. Any strong economy aims to find a balance between domestic consumption and exports – if this story is any reflection then the US economy is relying only on domestic consumption for growth (personally I think this is a reality – the stimulus was designed to make people spend) and on the other side China which relies mostly on exports to stimulate growth (something they have acknowledged and trying to remedy). Importantly it shows where the power of manufacturing currently lies and also the demand for Chinese exports.

Let’s take Apple as an example. A few days ago Apple announced a 67% and 70% increase in profit and revenue respectively far surpassing Wall Street’s expectations. But who really benefits from Apple’s continuing surge? Well, aside from shareholders it is places like China where Apple’s products are manufactured. As apple sells more and more products so China manufactures more. So while American consumers splash out on new gadgets (mostly through debt) China reaps the rewards of its manufacturing base (without creating debt).

It is a stark reminder of the shift in the global landscape – the West has poured billions into lagging economies (through debt) and facing the gruelling task of cutting spending. Emerging markets have used exports to bounce back from recession and while not a long term solution it seems to be working. This year alone over $500 billion has poured into emerging market mutual funds.

Market fundamentals: Have things actually changed?

2010-10-03T15:27:00.001+08:00

The last couple of weeks have been an interesting ride – markets up one day and down the next. Surprisingly a good few days in the middle of the month lead the Dow and S&P500 to their best performances since the 1930s. Of course, the big talk of the last few weeks has been gold – everyone is talking about it and how high it will go. September saw gold price reach new records and settle above $1,300 for the first time ever. While choppy and unpredictable September proved a decent month for investors.

Gold’s incredible run (31% in the last 12 months alone) has coincided with increasing uncertainty in world markets. Debt worries are back on the map in Europe and for each piece of good news out of the US a bad piece follows shortly after. In Japan a strong currency continues to hamper exports as many of Japan’s largest companies slash earnings forecasts. The feeling, while not dire, is that something is about to happen, teetering on the edge of an unseen ledge – all signs point to another correction as very little seems to have changed since this all started back in 2008.

The biggest concern seems to be debt. The developed world has built growth based on debt – consumers, companies and governments have spent other people’s money to fund basically everything. In the US consumer debt is a whopping $11.7 trillion (that is 12 zeros) -an incredible $3,500 per person. In Europe countries such as Spain, Portugal, Greece and Ireland are so indebted that the mind boggles. Take the later only a few short years ago, Ireland was a darling of the world economy today. Now it is a country on the verge of bankruptcy. Ireland’s largest bank, Anglo Irish is being kept afloat by the Irish Government to the tune of almost 35 billion Euros. To put this figure in perspective the annual tax take for the whole of Ireland is about this figure – where does the government find this sort of money...yes more debt.

With everything hanging over the world economy it’s amazing any growth is possible yet here we are. Personally I think it shows more and more how little market movements have to actual reality. I have a friend who was recently in Thailand for a holiday – a country which has shown fairly amazing growth this year despite a crippling month long protest. He was told by various Thais that things were not great - tourists were not around and in one case a shop owner had sold nothing all month, hotels were half full and taxis were queuing up in hope of a single fare for the day. Yet here we are told things could not be better – the market almost opposite to what is happening on the ground.

It makes for interesting reading and I can’t help but think something is around the corner and current market growth is lulling investors into a false sense of security. One thing many investors are guilty of is holding on too long and only selling when the market is down. If you have made some profit the last few months think about cashing it in a putting some of the returns in the bank – something which is not going to give much return but the security of not losing anything. The uncertainty of the times requires a sensible mindset.

Hey I might be wrong and things will continue to go up and if so I will happily eat my words but experience has told us markets can not continually go up. The fact that little has fundamentally changed in the last two years makes me feel it will happen sooner rather than later.

For investor I suggest a cautious approach – there is nothing wrong with having a portion of your portfolio in the bank especially if you have made some profit recently. It is better to be slightly up than the risk of being a long way down – just read the news the risk is there the question you need to ask is, is it worth it? An investment in an S&P500 tracker fund would have netted you 7% last month why not protect that profit?

2010-09-14T15:27:00.002+08:00

The last two years has seen a dramatic shift in investment strategy – money has poured out of equity market in developed countries and into to those of emerging markets (as well as bonds and other alternate instruments). According to new research $203 billion has been pulled out of developed market equity funds since August of 2008 – of that some $83 billion has gone into emerging market equity funds. The financial crisis has created a new world of sorts.

Almost 2 years ago, to the day Lehman Brothers filed for bankruptcy triggering the global financial crisis which still hangs over most of the world’s markets. Yet unlike previous credit crises the bounce back has been slow and somewhat troubling. Two years ago the Dow was at trading at 11,421.99 points, as of Monday it was trading at 10,544.13 – some 900 points lower. In comparison, two years after the 1987 crisis the Dow was almost 20% above the level it had been prior to ‘Black Monday’ (the largest one day percentage drop in history). The current crisis has not only spooked investors it has shown up significant weakness in the economies of many markets - namely unsustainable debt levels and low growth prospects.

In an effort to chase returns and protect themselves against battered economies investor’s have ploughed their money into bonds, gold and emerging markets. The last two years have seen the price of gold rocket up 64% and bond markets outperform equity markets but quite some distance. Emerging markets, once seen as a high risk investment, have benefited from lower debt levels and stronger growth prospects and are now seen as the key driver in global economic growth.

Financial stocks, often seen as a key market driver have suffered more than most. This group is the worst performing in the S&P 500 over the last two years with an average loss of 31% compared to 12% for the S&P 500 as a whole. Changing regulation has impacted on the bottom line and while many banks have returned to profit many would argue it has come on the back of massive government stimulus packages.
It is likely the clouds will remain for sometime as the economic recovery of the US, in particular, remain muted. This is not to say there are no returns out there – in fact there are good returns for investors willing to look outside the traditional box. While the S&P and FTSE are down over the past two years, markets in Brazil, China, Thailand and India are all up.

sources; Wall Street Journal

A personal experience

2010-09-10T09:00:00.001+08:00

One of the cardinal sins of investing is buying high and selling low – we have all done it it’s almost human nature – things start to go up we begin to take notice and when we decide to finally buying in and jump on the bandwagon things inevitably go flat or down. For a while things seem good and more and more people start to jump on the wagon – however by now it is starting to get quite full with little room left for others. It is about this point the big guys – who got there first – decide they have been along for the ride long enough and it’s time to get off (with large profits no doubt). Momentum begins to slow and as more people hop off so the bandwagon starts again – until a time when people start to hope back on again. Markets run in cycles – take the below graph of the S&P 500 – notice a recurring pattern? Up periods are followed by down periods but the next upward period seems to always reach a higher level than the previous upward mark (although it puts the current recession in perspective).

I too have made the mistake of buying high – after 2001 and 2002 things picked up quite nicely and markets were showing good numbers. There was a fund I had been watching for a while and one day I decided it was time to invest which I did. At first things went very well and it continued to grow nicely – so much so that I decided to put a little bit more in – as with most mutual funds you buy units and if the fund performs well the unit cost more - no matter the fund was skyrocketing right? Bearing in mind this fund was a New Zealand based one things started to go wrong first New Zealand experience a collapse of the finance company sector and then sure enough the credit crisis of 2008 came along and most of the world’s markets imploded. So I was left with units that were now worth less than half of what I paid for them – which looking back had been at close to the highest price. What to do?

Well as we saw most people sold – cutting their losses and getting out regardless of how much they lost – of course for the average investor this usually involved selling at the absolute bottom due in most part to the fact that everyone else was selling and the doom and gloom being reported everywhere. I decided to no sell and hang on – despite my human nature telling me otherwise (the whole sinking ship scenario) – relying on my knowledge that things bounce back and often stronger than before. As 2008 progressed numbers got worse and at one point it was only worth about a quarter of what I paid. At this point I was more amazed than anything – there was no doubt it was a good fund and it had a super track record – yet this recession had just wiped the value off. I hung in there as most others started to sell and sure enough 2009 come along and it tide turned and things started to go up. At one point I decided to sell a small portion of my units – but it was the right decision at the time. Now 2010 has come along and things have turned again and the fund has been up and down the last few months. At this stage I will continue to hold on.

The point is at what point is enough, enough? Some funds never come back and continue to track downwards until they are no more leaving those investors who stayed with virtually nothing. On the other end of the scale most recessions lead to strong numbers for a period of time where most not only recoup losses but end up making profits. There are always going to be winners and losers – if we were all winners then the market wouldn’t work – but common sense should prevail and if you can you need to try and take the emotion out of investing. If you know it’s a good fund or stock then don’t sell (unless other circumstances dictate) because chances are it will come back.

Remember it is only a loss once you make the sale. Following the heard does not necessarily make you are winner. So I will hang in with this fund as I did my research and I know it is a good fund with good holdings – a good track record does count for something.

Company focus: McDonalds

2010-09-09T15:42:00.002+08:00

With all the incessant bad news we hear on a daily if not hourly basis it is always nice to find stories of success in the investment world - a follow up to my post on Blackberry showing the risks involved with doing business across borders and in Blackberry’s case the current struggles it faces.

Regardless of where you live in the world McDonalds is a brand that most have heard of – whether it be the Big Mac or Ronald McDonald the burger restaurant has had a massive worldwide impact – the company is located in 119 countries with over 31,000 restaurants and serves and astonishing 47 million customers per day. In the last decade McDonalds has undergone a massive revamp of the brand – from the menu to the addition of cafe style options and wi-fi. The obesity epidemic saw McDonalds offer menu option considered more healthy and appealing to a wider range of consumers. The revamp has proved an incredibly success driving an increase in customer visits and sales resulting a share price that has gone up almost 147% over the last 10 years and an 18% increase in market share in the US. It is one of the few US companies that has shown growth during the current recession.

Arguably McDonalds has proved more successful overseas than in the US. In Europe, where the recession has been as intense (if not more) as the US, 41% of all sales now come from the region (up from 33% in 2000) – in fact France is home to the most profitable McDonalds in the world. France also has the distinction as being one of McDonald’s fastest growing regions. Over the last 15 years McDonald’s overseas revenues have steadily increased – today they are responsible for 65% of overall earnings. While it has been a later entrance in the developing world McDonalds is making quick headway. From my perspective there seems to be a McDonalds on every corner here in KL – and they are always full.

One reason McDonalds has always been a great stock is the fact it owns almost half the land and 70% of the buildings its franchises sit on. It makes McDonalds one of the world’s largest rental agencies – even if sales fall McDonalds has a steady stream of rent it collects from its franchises.

So while the criticisms remain over McDonalds and obesity the company has adapted to the changing environment with remarkable success. You only have to take a look at arch rival Burger King to understand how successful McDonalds has been.
As McDonalds continues to expand (aided by a strong balance sheet) shareholders are likely to continue to reap the rewards.

source www.money.cnn.com

Annuity rates hit record low

2010-09-03T09:00:00.000+08:00

I was reading with interest an article in the UK’s Daily Mail (don’t hold that against me) regarding pension annuity rates and the record low they hit this week. It got me thinking how important these things are when it comes to retirement and how it can dictate your income regardless of how much your pension pot is.

For those who have never heard the term before an annuity is something people would buy which offers a regular and stable income during retirement – in essence an annuity company (usually insurers) will buy your pension pot and then offer you a rate of return for the reminder of your life. Annuity rates are set by the companies and are based, somewhat crudely on how well their investments perform and how long the average pensioner lives. With the recent financial crisis annuity rates have been falling and it is bad news for those approaching retirement.

Current annuity rates in the UK give a pensioner only about half the income today that pensioners got in 1995 – in the last year annuity rates for men and women have fallen 6.3% and 5.6% respectively. Worryingly annuity companies are saying it could get worse as investment returns suffer and people live longer.

For many their pension is the one thing they have for retirement so falling annuity rates can be disastrous. For those close to retirement all you can do is shop around for the best rate – do your research as it is an important decision as the rate you lock in now is that rate you have for life. For those who are still a way from retirement then take this as a sign that you need to do more in retirement than relying on your one work scheme – start a private plan one that you can monitor and grow slowly over the years. Not only will you be diversifying your portfolio but also you income streams for when you retire. For some the annuity rate will not provide enough income and they will likely have to continue working well into retirement. Give yourself the best chance at a good retirement and plan ahead.

One thing I will add is there are many pension holders in the UK who have left permanently or are planning to. A solution to the annuity issue is a QROPS transfer - no annuity is required give you more flexible income options. The changes to the way final salary schemes are adjusted annually has added to the problems surrounding pension schemes in the UK. At the moment it is difficult to not at least consider taking your pension away from the UK and locking it in a trust and gaining control over how it is invested. Currently most people have no control and the performance and ultimately livelihood is based on the decisions someone else makes.

Picking the right investments

2010-09-02T09:00:00.000+08:00

Last week I spoke about stocks vs funds and which to choose as part of your investment portfolio. Of course once you have made the decision on what route you are going to take then comes the even big decision – what stocks/funds to buy?
So if you have your crystal ball now would be a good time to take it out and gaze into for guidance.....the point is no one or nothing will be able to tell you where you will make a guaranteed return but you can do certain things which can help you make good educated choices which give you the best chance at a solid return.

For the average investor I would almost always recommend a portfolio made up of funds – they are run by professional managers who buy and sell stocks for a living, giving you the time to focus on what you do for a living. They are also well diversified across a range of stocks often upward of 100. Of course if some is keen on having individual stocks I would suggest only a small percentage – almost like a gambling fund which allows you to have a crack at things yourself.

The first step is to think about what you want to achieve – how long you want to invest for and what sort of return you are expecting each year. Coupled with this you need to consider how much risk you are willing to take. But how do you decide what is too much risk? Well think of it like this you have you money sitting in the bank earning very little (maybe 1% or less in some places) this is no risk but you earn very little in the way of a return (technically you could be losing depending on factors such as inflation) on the other hand you could be invested in a company that heavily involved in a new technology that has massive market potential but has not yet been adopted by the market (say new computer software). There is very little chance of losing your money when it is in the bank however most new businesses/technologies fail. You need to think about where you fit on this scale – think of it as a continuum from 1 (no risk) to 10 (high risk). Remember you don’t want to go to sleep at night worrying about your money so take this into account when deciding on your risk tolerance.

So you now have a starting platform you know your expectations, goals and attitude to risk – what next? You need to create a portfolio which is balanced both geographically and asset wise – here I would recommend seeing an advisor and get them to recommend a series of funds which, if you like you can then check them out yourself – one thing you will learn is there are many funds operating in the same sector and there is no harm in comparing to ensure you pick the right one. Professional advice will, at least, narrow down the options for you. It is the same reasoning here for picking funds over individual stocks, an advisor will have spent the time researching what funds are best for a given sector and how to build a portfolio where risk and return is managed for the investor.

Remember just because you live in a certain country does not mean you have to select funds that only invest in your country – look at other areas like China or India, Australia or Latin America – all have shown strong growth over the last two years and really every portfolio should have some exposure to these markets.

If you do the right leg work you can create a portfolio that should be a winner long term and as I always tell people – why not have your cake and eat it.

Double Dip: Will it happen?

2010-08-31T09:00:00.000+08:00

The size and scope of the US economy reflects its global importance and the old adage ‘If the US sneezes the world catches a cold’. While a number of countries post good growth figures, the global economy seems hamstrung by the continued weak US recovery. Talk of a double dip recession is still at the forefront of many economists thinking and is manifesting itself with fall markets both in the US and around the world.

A double dip recession occurs when a country reports two consecutive quarters of negative growth. Economist will point to numbers which confirm their own opinions on a whether a double dip will happen or not – in reality this only serves to create more uncertainty in the market particularly for the average investor who is looking for guidance to help them with their decisions. The video below gives a nice simple take on the factors for and against a double dip recession.

Double Dip Video

Personally I don’t think the US will see a double deep recession, I think the Fed have too much invested in ensuring it doesn’t happen – Ben Bernanke has already the Fed will do everything to ensure a return to growth. I see it more as a slow down as investors continued to be spooked by pretty much everything. The thing is there are a lot of good performing companies out there and many of them are problem entering the point where some will see them as a bargain. Again it comes down to having a balanced portfolio with a good mixture of asset classes and above all to try and remain positive and know that investing is about time in the market not timing the market. History has shown that recessions often lead to periods of exceptionally growth – think 2009 compared to 2008 as the most recent example.

Ask yourself what you want to achieve from you investment portfolio and what sort of risk you feel comfortable with. Seek advice and build a portfolio which achieves a risk-reward balance that suits you. Remember investing is not just about chucking large amounts in the market and hoping for the best.

The pitfalls of International Business: Blackberry

2010-08-30T09:00:00.000+08:00

The pitfalls of doing business in other countries can be large and deep and there have been many examples of failed or embarrassing market entries for multi-national companies – here are some examples of what can happen when things get ‘lost in translation’:

Pepsi's "Come alive with the Pepsi Generation" translated into "Pepsi brings your ancestors back from the grave", in Chinese.

When Mitsubishi launched its Pajero 4WD in Spain they had the shock of a lifetime. As they were promoting Pajero they forgot to take into account the word “Pajero” means “jerk” in Spanish.

Electrolux had to take their slogan down which read “Nothing sucks like Electrolux.”
When Ford tried selling its car “Pinto” in Brazil it was a huge failure. The reason - the word “Pinto” is a slang for small penis in Brazil.

Parker pens slogan “Avoid Embarassment – use Quink,” when translated into Spanish came out as “Avoid pregnancy – use Quink.”

General Motors tried marketing their popular Chevrolet Nova in several Spanish speaking countries. "No Va" means "It Doesn't Go".

Colgate introduced a toothpaste in France called Cue, the name of a notorious porno magazine.

While there are many examples of slightly light hearted translation issues there are serious risks when taking a business into a foreign market. A successful business in one country does not guarantee success in another where differences of culture, language, political persuasion and religion can hinder a successful release.

Blackberry phones have become hugely popular in the last few years as a mobile office of sorts. Users can browse the internet and send emails just as if they were sitting at their desk. The inspired design has lead the Blackberry to become one of the most popular smart phones used by over 40 million people worldwide. Research In Motion (RIM), the company responsible for the Blackberry, has become one of the darlings of the tech world. In 2009 Fortune magazine named it the fastest growing company in the world – between July 2006 and July 2009 the share price rose by over 600%. But the perils of doing business overseas have started to bite and RIM is facing an increasingly difficult regulatory landscape.

One of the hallmarks of the Blackberry is the encryption and security the system has and therefore confidentiality – a process that is starting to ruffle the feathers of some countries concerned that they cannot monitor what is being sent. Earlier in the year the UAE banned Blackberry services due to concerns over security and RIM failure to meet the county’s telecommunications regulations, Saudi Arabia threatened a similar fate which was averted at the last minute. While only smaller markets the issue gained world attention and highlighted the issues many Western companies face operating in foreign markets. Last week India issued the same ultimatum to RIM – allow us to monitor intercept messages or we will shut down the network by the end of the month. The Indian government is increasingly concerned the device is being used by terrorists who may be planning attacks. India has around 1 million Blackberry users and is the fastest growing telecoms market – a shutdown could prove a disaster for the firm.

For RIM it is a double edged sword – by complying with the demands it faces a backlash of its greatest selling point – confidentiality – a major reason for it popularity with business professionals. On the other hand by not complying it risk having its service shut off. RIM’s biggest growth markets are places like India, Indonesia and China – the latter two have already expressed reservations over RIM encryption.

The issues have not gone done well with shareholders with the share price down some 21% since the start of the month and down almost 31% since the start of the year. Trying times for a successful company and the next few months will see how they come out of it. Political issues can be the most difficult to navigate.

Emerging vs developed: Where are the returns?

2010-08-27T10:30:00.003+08:00

I wrote a little while ago about emerging markets vs developed ones and how emerging markets (China, India, Brazil) have become a major growth engine for the world market. Now while investors get excited about the potential returns from these places it is worth noting the risk involved. Consider the following:

Dow Jones (principal US index)
2008 -29%
2009 18.66%
2010 -4.28%

FTSE 100 (principal UK index)
2008 -28.14%
2009 18.66%
2010 -4.28%

SHCOMP (China)
2008 -66.04
2009 79.98%
2010 -19.13

SENSEX (India)
2008 -51.86%
2009 75.38%
2010 4.66%

IBOV (Brazil)
2008 -34.07%
2009 70.43%
2010 -3.8%

The first thing to notice is the size of the figures for China, India and Brazil both up and down. This is the first key question you need to ask yourself – are you ok with volatility or sieve changes in performance? In 2008 the SHCOMP (Shanghai Composite Exchange) fell 66% but rose almost 80% in 2009 – this year it is down almost 14%.

The second thing you will notice is the poor recovery of both the UK and US economies. In 2009 China, Brazil and India all wiped out the losses of 2008 (and then some) while both the US and UK exchanges did not. Both are also down in 2010 thus far.

Emerging markets have been boosted by exports and the growing richness of their citizens – all three are major manufacturing bases, have significant resources and a somewhat stable political environment. Over the last couple of decades money has poured in to these lower cost countries. This has translated into incredible growth. Most developed nations have had little to no growth over the last few years. I’ll leave you with this graph (below) – certainly paints a picture.

source: www.money.cnn.com

The blue line is the Dow Jones, the green is the Shanghai Composite.

Yes, invested right you will get returns from developed economies but it is increasingly difficult to justify not having any exposure to the likes of China, Brazil and India

Stocks vs funds - which to choose?

2010-08-25T13:10:00.002+08:00

A common question I get asked is why should I buy and unit trust when I could own individual stocks and therefore avoid charges that fund managers have.

The stocks vs unit trust argument is a big one and has been going on ever since the first unit trusts appeared in the US during the 1920s. The answer is quite simply personal preference and how you would like your investments to be treated but let’s take a closer look;

Time
How much time do you have? Owning individual stocks will cost you in terms of time – not only in selecting which stocks to buy (this could involve researching a company) but then monitoring them, sometimes on a daily basis, to ensure you know when to buy or sell. Generally speaking a unit trust will require less time on your part as a professional fund manager will make all the decisions for you.

Cost
When you buy or sell stocks there is a fee and in order to keep that fee as low as possible it will require more investment. Added to this would be a somewhat diversified portfolio of stocks which would add the initial amount required. Unit trusts will be available with relatively small upfront investments – maybe less than $1,000. This $1,000 will give you access to a large range of stocks. In addition, with many unit trusts, you can top up your investment with small amounts of capital.

Expertise
We all want to believe we are financial gurus but most of us are not. Unit trusts are managed by professional stock pickers whose job it is to pick the right ones to ensure growth – they spend many more hours watching the markets and making calls then you ever could.

Holdings
Most investors would only be able to hold a few individual stocks – both time and money restrictions come into play here. Most unit trusts have holdings upward of 100 giving you a diversified portfolio managed on your behalf with the aim of outperforming the market. The old adage of eggs and baskets is apt here and the recent financial turmoil has showed how important diversification is. Having your fortunes tied to a few individual companies may be too much to bear for most investors. Remember unit trusts are managed by people who live and breathe the stock market on a daily basis.

Flexibility
Owning your own stocks gives you total flexibility over your investments – the ability to buy and sell rests on your shoulders. Having a unit trust will cut this freedom as the fund manager will make these decisions.

Conclusion
If you are willing to devote the necessary time and effort then stocks can be considered – this includes researching the companies (which does not mean watching the news) and monitoring their performance regularly. Unit trust are for those who don’t have the time, have limited capital and like the idea of a diversified portfolio (this includes those who a more risk adverse because having a handful of stocks will make some people stay awake at night).

There are many good performing unit trusts which offer then investor a good solid return year in and year out. You have to ask yourself what you want out of investing and what you are willing to put in – stocks have underperformed in recent times particularly in places like the US, Europe and Japan – unit trusts can be based anywhere in the world and can give you access to markets which have produced much better figures (China, Brazil, India).

Remember the decision to buy a stock needs to come from you – if you are using someone else’s judgement then you are not making a rational decision – a unit trust would be a better bet in this case.

There is a great website called Morningstar which tracks the performance of 1000s of unit trusts around the world - have a look and see what is there.

Malaysia one year on...

2010-08-24T12:23:00.002+08:00

Wow time does fly and it is hard to believe I have been in Malaysia for the best part of a year now and almost 18 months since I left the fair shores of New Zealand.

So how are things one year on? Well still interesting and still learning but so much has happened and so much has been learnt it’s hard to compare now to then.
When you live somewhere it’s the little things that count and in KL it’s the little things that can make or break you. Let me give you a few examples:

1. Taxis – this can be one of the single most irritating parts of KL where haggling and getting lost are common place. One thing I learnt pretty quickly was learning the way to places (as you often need to direct the driver or make sure he goes the right way and not the roundabout way) and learning the best place to catch taxis (KLCC is haggling central but take a short monorail somewhere less central and metered taxis are more common).

2. Service – this is one thing that is taking me ages to get use to. Go in to a shop and a sales person is on you in an instance, often following you around the store as you look – the whole ‘just looking’ is lost to many of them. Or going to a restaurant or bar and being mauled as soon as you enter or just merely look interested.

3. Punctuality – Malaysians are a relaxed people and never seem to be in hurry to do anything so when someone says I’ll be there at 10 it’s best to allow a couple of hours for the arrival.

4. Driving – most rules seem optional say red lights, indicating or yellow no parking lines. Scooters are worse and weave in and out of traffic like stunt drivers. Coming from NZ the driving and roads seem the most daunting of all.

5. Crowds – again coming from NZ this was one of the biggest shocks – KL holds more people than all of NZ combined and it shows. With the constant heat malls are a haven and after 12 it’s shoulder to shoulder every day.
Of course these things give KL its charm and character and the longer we stay the more charm we discover, such as amazing food, old shopping areas, markets and new people.

If you manage the small things and have ways to unwind then you can reduce the shock value of a new place and also start to enjoy it faster – accepting the fact that there are going to be things that irritate you.

Of course being in a big city has its advantages and there are some big events coming up in KL which I would never see back home.

So a work in progress – yes – but much more content and settled then a year ago!

China becomes Number Two!

2010-08-17T16:51:00.002+08:00

Weak performance continues to undermine the Japanese economy, it seems to be in a infinite cycle of slow growth and stagflation (where prices drop). While attempts have been made to reform the Japanese system it certainly hasn’t been enough to arrest the slide, this despite Japan remaining one of the largest export nations.
On the other hand China, Japan’s close neighbour has gone from strength to strength with an annual average of 10%+ growth over the past 30 years. Today China stands as the world’s largest exporter, automobile buyer and steel producer in addition to being the second largest importer. China’s growth has giving it a voracious appetite for resources, machinery and products from every corner of the world. Many countries no find China as their top trading partner, including Japan.

Second quarter results, released recently have confirmed what many already thought – China is know the world’s second largest economy surpassing Japan (which has been second since 1968). While China has surpassed Japan before this will likely mark the first time it will not slip back behind in the following quarter – most expect 2010 to end with China above Japan. China is expecting growth of 10%, compared to Japan of between 2% and 3%.

The changing appears more symbolic than anything as China’s figures are somewhat misleading. Remember this is a country with more than 1.3 billion people, compared to Japan’s 127 million – China’s average income is many rungs lower underscoring the distributing of wealth in the country. For everything China is there is a long way to go.

While China has experienced rapid growth and huge inflows of money the question remains what will happen when the growth stops – an economy can not grow like this forever and eventually they will morph into a so called developed nation where wages are high and growth rates tend to be less pronounced. China is walking a tight rope between market freedom and undemocratic governance – the two are bound to clash head on sooner or later.

Supply and demand: Wheat

2010-08-12T16:07:00.004+08:00

If there is one sector inextricably linked to nature it is agriculture, of course I am stating the obvious really but it makes for an interesting, if worrying investment for many people.

Take wheat as an example. Wheat is second only to rice in terms of human consumption and is a mainstay to the global economy, because of its use in many common food products price fluctuations can cause substantial damage to people who rely on for income as well as a source of nutrition.

Over the last few weeks wheat has skyrocketed in price as concerns grow over drought conditions in Russia, when of the largest wheat growing regions in the world. So why the price increase? It all can be explained by simple demand and supply – for any product there is a level of demand and a level of supply. If demand is more than supply then the price goes up – think a sold out concert or sports event because there are more people wanting to go then actual tickets on sale people are able to offload tickets as much higher than face value. The opposite is true to where you have too much of something and not enough demand from buyers – think the bargain bin where things are sold below face value.

But back to wheat and Russia, Russia accounts for almost 10% of wheat production globally but like all crops requires water to grow. Drought in Russia is causing serious concerns for global supplies therefore forcing the price up – good for investors and farmers not so good for consumers who may see prices for almost everything go up....including beer! However as prices rise other farmers may decide to plant more wheat to cash in on the price rise, this in turn would stabilize supply and probably bring the price back down. The problem here, as with all agricultural investing, is nature and our difficulty in predicting it. While most forecasters are saying rain is very unlikely you just never know – so let us say additional crops are planted and then miraculously it rains in Russia and the wheat crops are saved leaving you with a huge over supply and a rapid drop in the price of wheat. Good for us as consumers, not so good for us as investors. Weather aside long term does look better for wheat due to a growing movement to convert wheat farms into corn for biofuels.

The moral of this story is the intrinsic risks with investing in this sector, while we know price can in some part be manipulated for most sectors – agriculture has the additional risk of playing with nature something that can’t be manipulated...yet. Unseasonable weather can cause both and over supply and a shortage of supply. It can make for a volatile investment. I’ll leave you with this between September 2009 and January 2010 wheat prices went up 14%, between January and May they went down 9% and since then they have gone up 44%.

The new frontier

2010-08-10T16:05:00.003+08:00

Apologies for the long delay since my last post – I only hope you can forgive me (all two of you).

For the last few years talk has centred around how well emerging markets (generally considered to be the BRIC economies of Brazil, Russia, India and China) have performed and how well they rebounded after the 2008 financial crisis – while developed nations continue to struggle with debt and slow growth prospects, emerging economies continue to steam ahead giving investors in some cases spectacular returns.

Five year returns (%)

S&P 500 (US) -8.22%
FTSE 100 (UK) -1.50%
IBOV (Brazil) 114.86%
SHCOMP (China) 125.25%
SENSEX (India) 110.99%

But while signs are still point towards good growth in these regions there is growing movement towards the ‘new’ emerging markets and so called frontier markets. In 2005 Goldman Sachs came up with the N-11 (Bangladesh, Egypt, Indonesia, Iran, Philippines, Mexico, Nigeria, Pakistan, South Korea, Turkey and Vietnam) as the next wave of emerging markets that exhibited BRIC (also coined by Goldmans’) like qualities. In addition, in an effort to further diversify, investors are looking beyond even these markets – countries including Sri Lanka, Ivory Coast, Ukraine and other sub Saharan African countries.

Annualised returns (%) 2001-2010 (September-June 2010)

N-11 22%
BRIC 20%
S&P 500 2%

Year to date 2010

MSCI Frontier Markets 2.4%
S&P 500 -1.2%
MSCI Emerging 0.2%

As with any new opportunity investors have to tread carefully and weigh up the risks. While some of these countries have enjoyed explosive growth they tend also to be extremely volatile, fraught with political and currency risk and tend to be relatively small and illiquid making it difficult for investors to exit. As when BRICs started to gain attention it is for investors who are prepared to hang on for the long haul and prepared to ride the inevitable ups and downs.

It can add a wee splash of diversity to a portfolio but not for the faint hearted. You never know, the next China could be one of these new frontier economies.

Lessons from the Dow Jones

2010-07-21T15:13:00.004+08:00

2008 was a bad year for investors with most, if not all markets down – the S&P 500 was down 33.99%, FTSE 100 down 28.14% and the Nikkei 225 down 39.70. 2009 saw most markets rebound with the S&P 500, FTSE 100 and Nikkei 225 up 19.67%, 18.66% and 19.04% respectively.

Today I want to look at the Dow Jones in delve inside the figures a little further. In 2008 the Dow fell 29.42% and rose 15.42% in 2009 (similar to most markets). The Dow Jones we hear about on the news in on the papers is made up of 30 large publically traded American companies. It is one of the most closely monitored share indexes globally.

The overall performance of the index (or any index for that matter) is based on that of its component parts. The performance of the components do not necessarily follow that of the index which goes some way to proving that there is more risk in buying individual shares as opposed to a fund which tracks the indexes overall performance. Let us take a look at some numbers;

• In 2008 2 companies out of the 30 represented in the Dow showed positive figures – McDonalds and Wal-Mart. In 2009 9 companies showed negative performance – including both McDonalds and Wal-Mart aswell as Exxon, GE, Kraft, Pzifer, Proctor and Gamble, Verizon and AT&T.

• In 2008 11 companies performed worse that the overall performance of the Dow – including Amex (-60.66%), Bank of America (-64.04%), Microsoft (-40.87%) and Alcoa (-65.27%). Only 9 performed better by 10 percentage points or more – including Exxon (-11.34%), Johnson & Johnson (-7.88%) and IBM (-13.61%).

• In 2009 16 companies performed better than the overall performance of the Dow – including 3M (39.67%), JP Morgan (32.92%), Disney (34.82%) and HP (39.93%). 3 companies registered performance of 40% or over – Amex (109.62%), Microsoft (49.93%) and IBM (49.82%).

• 6 companies had negative performance in both 2008 and 2009 – AT&T, Exxon, Kraft, Pzifer, Proctor and Gamble and Verizon.

While any negative performance is difficult to stomach it would have taken a brave investor (we are talking about the average investor here) to hold on to shares such as Amex during 2008 when it dropped by over 60% not knowing that 2009 would show incredible figures. Having a tracker fund would have seen you lose a comparatively modest 29%. This is diversification – not being tied to the performance of any one company’s fortunes. In essence your money is invested across 30 large, profitable companies. In 2008 your performance was helped by companies that did not perform as badly as others and the ones that actually had positive numbers. In 2009 you showed a healthy return despite the fact many showed negative or very low positive figures.

A diversified portfolio can handle the non performance of a stock or fund as there are other opportunities for growth. In 2009 9 companies in the Dow had negative performance yet the overall index was up over 15%. Imagine if the bulk of your assets were in one or two of those companies?

source of data CNN money

Are you comfortable with falling markets

2010-07-16T12:14:00.002+08:00

'If you have trouble imagining a 20% loss in the stock market, you shouldn't be in stocks'.
John (Jack) Bogle

'Only buy something that you'd be perfectly happy to hold if the market shut down for ten years'.
Warren Buffett

Turbulent times creates much uncertainty in the minds of investors – often the fortunes of the market are less about the raw numbers and more about the psychology of the investment community. If one investor decides to buy or sell others usually jump on the bandwagon if only because others are doing it.

We are in rather turbulent times at the moment with markets going up and down almost on a daily basis – the S&P500 was down 5.58% in June but is already up 6.25% this month. Markets generally move in cycles, they go up for a few years and then down for one or two what is often called a correction. If you look at the performance of the S&P500 since 1975 you will see this pattern quite obviously. Since 1975 (click here for the data) there have been 8 losing years – 1977, 1981, 1990, 1994, 2000, 2001, 2002 and 2008 – if you take out the early 2000s (we all know what happened there) there are always at least 3 years of growth in between negative periods.

Now to the quotes at the top of the page, I think they are excellent pieces of advices from two of the most well known investors in the world. Investing is more about the long term, particular for the average investor and while it is hard to stomach falls in the market it is important to understand that for the most part markets grow of the long term. You need to be comfortable with your investment portfolio and you need to be aware of your risk tolerance. As Jack Bogle says of your eyes pop out at the thought of a 20% drop in the markets (which does happen) then you may need to rethink how your portfolio is allocated – with less in higher risk assets and more in ones that offer and more consistent if lower return.

It is no good just placing your money in the market if you have not thought about the likely consequences, ones that may see you buying when high and then selling when low (which happens all too often) – doing that right amount of profiling will help you and your advisor make the right decision on where you money is best served while allowing you to sleep comfortably at night.

Sow you seeds and water them regularly

2010-07-13T12:47:00.004+08:00

It is the week for analogies I have decided and I thought I would share another one with you, this time about another one of my pets......retirement. Regular readers will know I bleat on about the importance of retirement saving quite often – but today I thought I would try and put an interesting spin on it.

It is not uncommon for people to grow their own food and live a self-sustaining life, before the advent of the modern economy this is how people lived. Every year you plant new seeds or to put it a different way you work a job. Throughout the year these seeds grow into what you consume on a daily basis or the wage you earn from working your job. Simply enough – you work you earn a salary. The more you work the more you earn.

When growing food you are susceptible to natural events such as droughts and floods both of which can destroy your entire crop, but also things such as infertile soil or insects/animals eating your crops. To guard against such things you can use fences, traps or fertilizers to ensure maximum growth potential. Alternatively you could set aside small amounts from each crop to allow for times when you are unable to grow or something unexpected happens and your crop is wiped out. Because you set aside some reserves you will never go hungry.

So how does this apply to retirement? Well you take a job which comes with its own risks such as poor performance and company downsizing combined with changes in your own circumstances may see you without a job and therefore without an income (or without the ability to sow more seed). You can rely on family or government help which may or may not be able to sustain your lifestyle or you could insure yourself against loss of income (which can be costly). Alternatively you can set aside small amounts of your salary on a regular basis for just such an occasion. Retirement occurs when you can no longer work or your soil has reached a point where it can no longer grow seed – because you have set aside small amounts from the very beginning you don’t have to worry about going hungry and living a substandard lifestyle. Of course if you have not done this you will have to stay out in the field longer sowing seed just to make ends meet.

Small sacrifices now pay big dividends later. I’ll leave you with this – let us say you are 30 and enjoy a good salary and lifestyle and you wish to retire at 60. If you start small and put away $100 per week you would have amassed close to $400,000 (assuming a modest 6% growth) by the age of 60. No doubt as you start to earn more you will be able to put more aside increasing that figure further. You might say you can afford $100, start lower and work your way up you would be surprised at how quickly you adapt to the changes. Think of it this way you sow a few seeds which take half a life time to grow - all you have to do as add a little water on a regular basis.....but you must do this for many years to ensure you seeds continue to grow.

A balanced diet of foods and funds

2010-07-12T16:36:00.002+08:00

We are always told to eat a balanced diet one that offers good nutritional value, full of fresh foods and none or little of the processed variety. The same can be said for your investment portfolio – a nice balanced portfolio will provide you with the healthiest returns on the long run.

With food there is often talk of calories and limiting your calorie intake however I want to look at it from a different angle. Take a Big Mac for example, arguably the most famous burger on the planet yet it offers little in the way of nutritional value – it is high in fat (45% of the recommended daily intake), cholesterol and sodium (43% of the recommended daily intake). Add in the drink and fries and you’re looking at over 70% of your recommended fat intake in one meal. But enough of that, what is my point? Well if you had a diet that consisted of only Big Macs it would eventually start to affect your health. The same analogy can be used for investing – if you pick one fund/asset there is much greater risk to the health of your portfolio. Imagine if the fund/asset you invested in collapsed and you lost all or the bulk of your money. Back in New Zealand in 2007/8 a number of finance companies went into receivership owing investors hundreds of millions of dollars. Many of these invested had fixed interest term deposits which they thought were safe investments that offered a solid return. As a result many ploughed their life savings into this one company. Some of these companies have yet to return a single cent of the original investment.

Now imagine you had a Big Mac but only very rarely (we are all guilty of some fast food sometimes) but your diet was made up of fruit, vegetables, some meat, cereals, bread – in essence a balanced diet which goes along way to keeping you in good health – combined with regular doctors visits of course. So we all know the benefits of fruit and vegetables and we have seen over many years of data confirming this. But how is this relevant to investing? We are always told the past performance/historical data is no indication of the future, yes true but it gives you an idea on how good/bad a fund is. So let’s take one of the most well-known funds Fidelity’s Magellan Fund launched in 1963 it has gone through multiple boom-bust cycles and has an annualised return of 16.31%. In only 4 of the 47 years of trading has it underperformed its benchmark (the S&P500). So not a bad track record yet there will still be ups and downs despite it being an overall positive returner. Just like if you only ate bananas eventually you would have a nutritional imbalance (despite them being so good for you) – you need a varied diet just like you need a diversified investment portfolio. So you look around for foods/funds that give you what a banana does not – so something with calcium, vitamins, iron, magnesium, etc - funds that offer good returns even when equity markets are down so called alternate strategies for example Man Investments flagship fund which has annualised returns of 16.6% since its inception in 1996 but more importantly positive returns in 2000, 2001 and 2008 when equity markets took large dives.

Add in a few more pieces and your portfolio puzzle starts to take shape – one that performs in all market conditions and will weather non-performance of one particular component. A good portfolio is one which provides you with a good range of investment opportunities and one which is not heavily weighted in any one asset. The last thing to add is regular checkups. By going to the doctor regularly you can keep on top of your health the same can be said of your portfolio – regular checkups by your financial advisor well ensure you are ‘eating’ the right funds given your investment profile.

I leave you this – is there anyone who has ever lived a healthy life eating only one type of food – be it bananas or Big Macs? So why would you let your portfolio consume only one type of investment asset?

Problems pile up for pension holders

2010-07-09T17:19:00.005+08:00

It seems every day there is bad news coming out for UK pensioners. One day it’s those enrolled in private schemes, the next it’s those enrolled in public sector schemes. For those in the public sector this is the first time they have really seen their pension come under scrutiny for the simple fact that they are not affordable. Simply put these pensions are paid for by tax revenue, people pay in tax with the hope of being paid a pension when they retire – some would say a giant Ponzi scheme. For private sector workers pension problems have become all too familiar. Most companies no longer run final salary schemes and those that do are so far in deficit that closure is only around the corner – just look at British Airways or British Telecom for confirmation. Most new members now join defined contribution schemes which are based solely on what the member has contributed.

The UK is not the only country facing massive pension deficits. It is worldwide problem, particularly in developed countries where populations are aging and tax revenues are falling – in these countries final salary schemes are again the culprits. In essence a final salary scheme requires the bulk of the funding to come from the particularly company or government who is running the scheme. Members do pay a contribution but as the statistic suggest this amount is not enough to cover what the pension will be worth therefore requiring the employee to contribute the shortfall. As more and more people retire more and more money is needed for these pension schemes – the result is scheme underfunded and in some cases receivership (just ask Readers Digest UK).

But not all is doom and gloom, for some there is a solution. I have talked about this before but it seems even more per tenant now with the challenges facing pension schemes. To refresh your memories a few years back the EU passed new rules allowing pensions to be freely transferrable by the member who no longer lives or plans to leave the particularly country where the pension is – for example in the UK this is known as QROPS. A QROPS is simply a recognised (by the UK government) scheme to which a UK pension holder can transfer his or her pension. Whilst there are many advantages to considering such a transfer, three are of significant importance;

1. Tax free growth and income – most recognised scheme operate in jurisdictions with little or no income tax. For some this could save up to 50% of their pension entitlement. There are also significant inheritance tax benefits

2. Most schemes will give the spouse of a member 50% of the pension entitlement on death. A QROPS transfer ensures the member’s family enjoys 100% of the pension entitlements

3. Maybe most importantly a QROPS transfer takes the member’s pension out of the UK and places it securely in trust
The word is other EU countries will be adopting similar schemes within the next 12 months.

If you left the UK or plan to leave, have you thought about your pension and whether it is under risk by being left in the UK. For some their pension is a significant amount – losing it could very well affect retirement plans.

A visit to QROPSworld will give you some additional information

Does diversification work?

2010-07-08T16:33:00.005+08:00

Last week I looked at some performance during quarter two of this year, a real mixed bag to sum it up. One thing investors always get told is to diversify diversify diversify! So I want go into too much detail of the reasons why this is such an important concept, particularly for the average investor who does not have the opportunity to manage their portfolio on a full time basis.

In essence diversifying protects you capital from any major downward swings in a particular asset class or geographic region. Simple put if you had 100% of your assets in BP shares then you would find that your portfolio is worth roughly 50% less today than three months ago. If you had only 5% of your portfolio in BP shares then your portfolio would only be down slightly.

Remember diversification can be across asset classes (bonds, equities, property, alternate) and/or geography (Asia, Latin America, North America, Europe, Africa, Middle East, etc). 2010 has been a tough year with most gains from 2009 being given up. I want to give a simplistic example of how diversification can work to your advantage.

At the beginning of 2010 you invest $100,000 into the market

1. you decide to buy shares in HSBC one of the world’s largest banks. The performance of your portfolio will therefore depend entirely on HSBC’s fortunes. As of July 7 HSBC shares are down around 20% making the value of your portfolio $80,000.

2. you decide to put it all into a fund which tracks the performance of the FTSE 100. This sort of investment is quite popular and offers a degree of diversification by investing into 100 companies across the UK as opposed to selection one. As of July 7 the FTSE 100 is down 7.35% making the value of your portfolio $92,650. Slightly better but still showing a loss.

3. You decide to spread your $100,000 across a variety of assets and geographical regions.

a. 20% goes to a fund which tracks the price of gold up 6%
b. 20% goes to a fund which tracks the S&P500 down 4.92%
c. 20% goes to a fund which tracks the Hang Seng (Chinese index) down 7.83%
d. 20% goes to a managed futures fund up 3%
e. 20% goes to a fund which investment grade bonds up 3.77%

As of July 7 this portfolio is up 0.02% basically keep your portfolio’s value intact.
But what about the other side of it does diversifying cause you to ‘miss out’ on profits? Let’s have a look. Say you invested 12 months ago when good growth was occurring.

1. HSBC’s hare price is up 22% over the late 12 months. Your portfolio = $122,000
2. The FTSE100 is up 21% over the last 12 months. Your portfolio = $121,000
3. Your diversified portfolio
a. Gold is up 32%
b. S&P500 is up 20%
c. Hang Seng (China) is up 12%
d. Managed Futures fund is down 1.6%
e. Bond fund is up 5%

Total portfolio is up 13.5% with a value of $113,500

Whilst our diversified portfolio has not performed at the same level over the past 12 months, it has still had good growth. Most importantly it will offer more protection against downside risk.

Note these are all actual performance figures

How did quarter two 2010 fare?

2010-07-02T18:02:00.003+08:00

We are now six months into 2010 and while quarter one showed some reasonable results with markets at least rising during the quarter. Quarter two have seen the wheels somewhat fall off with waves of bad news flooding the market knocking the wind out investor’s sails. What started with Greece spread to other European countries ending with the toughest UK budget since the War. In between times we have seen the Euro plunge, a massive oil spill in the Gulf of Mexico, a US recovery that gets more fragile by the day and a global economy which has seen many markets slide in the last few weeks. In quarter one the S&P500 rose around 3% (not so great but a rise none the less), quarter two so the index slide 12%. The FTSE100 showed similar movement but slide slightly more in quarter two. One of the big talking points has been the slide of the Euro which continued in quarter two down roughly another 10%. On a brighter note the market has reacted well to Britain’s emergency budget pushing up the value of the Sterling.

At the end of last quarter I looked at the YTD performance of a selection of funds diversified across markets and asset classes. I would like to do the same again for quarter two summarising my analysis into a few key points (performance is based on the period 1 April to 30 June);

• As already mentioned equity markets took a bit of a hit in quarter two and as a result many of the equity funds that were the top performers in quarter one have dropped out of the top 10. In fact of the top 10 performing funds (of my selection) only two are an equity funds – surprisingly one out of Thailand.

• Bond markets have somewhat stabilised showing some reasonable numbers – last quarter we saw a number of low risk funds performing badly and down near the bottom of my selection. Quarter two has shown better performance from these lower risk funds. Of the top 10 performing funds four are bond funds.

• Alternative assets have performed much better in quarter two. No surprise really given the performance of gold – the top performing fund for the quarter is indeed a gold fund, followed by a equity based fund specialising in gold mining. Rounding out the top three is a precious metal fund which includes gold, silver and platinum.

• Not surprisingly European funds have shown some of the worst results for the quarter.

What quarter two should demonstrate to you is the need for a diversified portfolio, if you had all you money in equities quarter two would have brought on bouts of cold sweats, just like quarter one would have done of you were heavily invested in alternative strategies. Having a diversified portfolio means when some funds are down other will be performing and keep everything afloat. While you may not get the massive growth you will not get the large loses either (you will also sleep much better). Another plus is the buying opportunities that now exist – the profits made from other funds can be used to buy cheap units for funds that are undervalued and will no doubt rise again in the future.

The idea of diversification is important and I will come back to it next week where we can discuss it in a little more detail.

Until then enjoy your weekend and don’t let the markets get you down too much. Remember they are cyclical and there will always be ups and downs. If you plan smart you can reduce the impact of downturns.

Piles and piles of debts

2010-06-30T16:24:00.002+08:00

Last week we got details of the emergency budget put out by the new coalition government in Britain. For many it made for rather painful reading and an insight to the dire state of British finances. For British citizens it means many years of spending cuts and tax increases and for some (notably public sector workers) a real risk of unemployment and the loss of valuable pensions schemes. For the rest of the world it is a wake up call – too much debt is not good. Almost every developed nation is straining under massive debt obligations – the question is will others follow Britain’s lead and start trimming their budgets on order to cut unmanageable debt levels. Europe as a whole is under the spotlight with the likes of Greece, Portugal, Spain, Italy and Ireland under the most pressure.

As a society we are in debt, in many cases up to our eyeballs. Of the top 20 debtor nations all are developed (probably not too surprising) but some of the figures are eye popping. When it comes to external debt (debt held by anyone – be it private or public – outside of the country) Britain and Ireland rank 1 and 2 respectively with figures of 425% (Britain) and 1,312% (Ireland) as a percentage of GDP. Greece, Spain, Italy and Portugal are all in the top 20 as is the US at a rather modest 96.5%.

Delving a little deeper you can see things are very far from rosy in Britain. Government debt is close to 70% of GDP and a budget deficit at 13% of GDP (i.e. they are spending much more than they are taking in). More mind boggling is the fact that only a few years ago the budget deficit was between 2% and 3%. These sorts of debt levels run the risk of Britain losing its curvetted AAA credit rating – an event which would seriously jeopardise an already fragile recovery as it would make borrowing more expensive.

The government has made it a priority to reduce the deficit and while it will do no one any favours now it will hopefully strengthen the economy long term. However such drastic cuts can dampen growth and create unemployment which in turn would reduce consumer spending and so on. It is not an easy job managing an economy but given the challenges facing the world today reducing debt is a good start. If the ripples caused by Greece’s debt problems were to happen to a larger economy (Greece’s economy is only 16% as big as Britain’s), ripples would face turn into waves.
Markets are currently quite volatile and have given back alot of the gains from last year. Investors are wary of the recovery and are looking to world leaders to show progress and co-operation. Markets will recover, there is no doubt and if you are smart and take the right advice there are plenty of good buying opportunities out there for good funds.

Can BP learn from Exxon Valdez?

2010-06-23T13:25:00.003+08:00

Before Deepwater Horizon (i.e. the BP disaster) there was Exxon-Valdez. In 1989 the oil tanker Exxon Valdez struck a reef in Prince William Sound, Alaska causing, until recently, arguably the worst environmental disaster in US history. In terms of oil spilt estimates range from 10.8 million gallons up to 30 million gallons (or enough oil to fill up almost two million cars!) – this compares with between 73 million and 126 million gallons for the BP spill. So what effect did Valdez have on Exxon? And can be BP take anything from this?

The key difference between the two disasters is the amount of oil. There was always a worst case scenario for Exxon. The maximum amount of oil spilt was directly related to how much oil was stored in the tanker. Exxon could therefore price the cost of the spill, knowing exactly what the worst possible outcome could be. For BP the oil is still gushing and there is no timeframe on when it will stop – according to estimates there is still thousands of barrels spilling out each day. The uncertainty of the cleanup cost is one of the reasons for BP massive share price fall.

Share price
In 1989 Exxon’s share price was hovering around the $11 mark, during the weeks of the spill it steadily feel to a low of $10.44 – a mere 7% decline. By year end though the shares had recovered posting a 7% increase over where they were prior to the accident. Contrast this to BP – since the explosion on April 20 BP’s shares are in freefall so far the price has plummeted over 50%. Today Exxon (although now merged with Mobil) is the largest company in the world. It also reaps the largest profits.

Government response
Considering the size of the Valdez incident the lasting impact has been minimal. New legislation was introduced however, oil tankers still use the Prince William Sound and no additional safety requirements such as double hulling were introduced. As an industry things chugged along pretty much as per normal. For BP the government response seems to have been much more vocal and could have ramifications for the whole industry. Despite the others distancing themselves from BP, it has put offshore drilling under the spotlight. Obama has made it clear he wants to reduce oil dependence and it would be no surprise if the Administration uses this as a way of pushing the alternate energy agenda.

BP may have also suffered because they are not an American company, the US-British cultural differences have certainly been on show here.

Final cost
Exxon’s clean up costs were estimated at $2 billion aswell as court applied costs of $5 billion (a figure still with the courts). As previously mentioned the costs for BP are likely to be significantly more due in most part to inability to estimate how much has been spilt and when the oil will stop gushing. So far BP has put aside $20 billion to cover costs, they have had three ratings downgrades and a potential investor revolt due to a postponing of this year’s dividend payment.
Should you buy BP stocks? Well I highly doubt the company is going anyway and it has the financial assets to pay for the disaster, its reputation will take the longest to repair if at all. Investors are starting to look at BP shares as a good buy yet there still represent somewhat of a risk given the uncertainty surrounding the final cost of the spill.

Interestingly the 1990 Gulf war caused an oil spill many times larger than both Valdez and Deepwater horizon. Some estimate upwards of 300 million gallons.

Balancing inflation with deflation

2010-06-16T16:34:00.002+08:00

People often talk of inflation and the dangers it can bring to an economy. In essence inflation is a process by where the prices of goods and services increase in price over a period of time. A process which leads to a drop in the purchasing power of consumers i.e. the same amount of money buys less of a particular good or service due to inflation. In a perfect world, wages would increase at the same level therefore having little impact on the real value of money.

When things are going well and people are earning well and spending lots as a result inflationary pressures exist. Excess spending causes price hikes which in turn can create demand for wage increases. As wages go up, so do prices as employers pass on costs to consumers – a vicious cycle. The problem can be compounded when people refuse to keep money in a bank account for fear it will be worth less when the take it out due to price increases. This is a rare result of quite excessive inflation. Extreme examples of hyper inflation include many European countries after World War One and Two, most notably Germany. Zimbabwe is a recent example of extreme or hyper inflation – in 2008 inflation was so bad that prices double every 24 hours. Many economists have argued the recent stimulus packages have paved the way for high inflation as many governments simply printed new money therefore increasing the money supply and the money available to spend.

The opposite, but equally as dangerous is deflation where prices of goods and services fall in real terms. Deflation is often associated with a reduction in the money supply, say if a percentage of the population decides to horde their money and not spend anything the prices of goods will tend to fall. If prices continue to fall employers look at others ways to make up the difference which can lead to unemployment and a drop in production.

However while it all sounds so bad, one must be aware that inflation and deflation have positive components. It is usually a signal that things need to be adjusted – for example if interest rates are low people are happy to borrow to fund their spending sprees, inflation is usually a signal that the economy is heating up and the supply of money is becoming too large. By increasing interest rates spending can be curtailed somewhat as the cost of borrowing increases and therefore reduce the money supply. The opposite is true with deflation – generally speaking interest rates are high and people cannot afford to borrow and therefore they don’t spend. By reducing interest rates and injection money into the economy the hope is to reinvigorate consumers and get them spending again. Once they start spending jobs should theoretically be created.

Again it shows how interconnected the economic system is.....something we say almost everywhere in nature. Removing one thing from the food chain has effects all the way up and down the chain. The same can be said for our human systems. Injecting or removing money from the system effects the system as a whole.

The faltering sterling

2010-06-15T18:15:00.002+08:00

I remember when I first went to the UK, almost 10 years ago and how horrified I was when I converted my hard-earned New Zealand dollars (which included 70 hour working weeks at one point) to the British pound. My rate was a mind boggling 28p for every $1.....basically four to one. I returned last year for a much more gratifying two-and-a-half to one figure. Today I was pocking around on my internet banking where I noticed the rate was now two to one. Is this the slow decline of the once mighty British pound?

Being from the Commonwealth you often look at Britain with a certain sense of awe – the heart of the empire with many centuries of history and at one point the most powerful nation on the planet. Yet since the end of World War Two Britain has steadily lost ground to countries such as Japan, China and Germany. Now Britain is facing some of its biggest challenges since the way with massive spending cuts proposed to ease the burden of a debt that is at levels higher than most developed nations. The financial crisis hit British banks harder than most with RBS, HBOS and TBS Lloyds all receiving massive government bailouts.

David Cameron, Britain’s new prime minister has said cuts will be felt by all Britons for decades to come. Since 2008 there has been talk of changing the ‘system’ to make sure nothing like this happens again yet change often equals pain which in turn makes people wonder why should they have to go through such pain. As one person commented in reference to my post on BP, why should people expect governments to bail them out when things go bad and having BP fail will tell other companies (and investors) they should be careful with the way they operate and there is no backstop for bad decisions. The same could be said for the banks, why should the tax payer subsidise bad decisions – what incentive is there for banks knowing that if things go wrong the government will help us out. The questions remains has anyone learnt?

June 22 is the day Britons will find out what is being cut and it will be interesting to see the reaction and see whether the Conservative/Lib Dem coalition can bring the UK out of the quagmire.

To bring this 360 degrees, it is now cheaper to have a night out in London than Auckland.....hmmmm how the tables have turned.

The effects of BP's oil spill disaster

2010-06-10T12:14:00.001+08:00

BP’s oil saga seems to be dragging on and on with a likely, permanent resolution only to be found once relief wells have been completed. The oil spill has affected many groups of people including;

1. Gulf residents

These are the people the media has focused the most. Tourism is a big part of most people lives here and a number of peoples incomes have and will be affected by the spill. Add to this those who are involved in the fisheries industry and oil and gas itself. For many Gulf Coast states oil and gas is the largest industry, in Louisiana oil and gas accounts for 17% of all jobs. One third of US oil comes from offshore production, 80% of which comes from the Gulf. While this disaster has affected many people from all walks of life, damage to the oil and gas industry will have much greater lasting effects for the Gulf States. If you remember only a couple of months before the spill, President Obama had proposed to open up vast areas of the US, including the Gulf for offshore drilling. The question is how to balance the concerns of residents in affected areas with the desire to create jobs, capital inflow and a wish to reduce dependence on oil importing.

2. BP shareholders

A group of people many in the Gulf probably couldn’t care less about. But I want to focus more on BP in the UK and how vital its performance is for many pension holders. BP’s share price has gone down more than 50% since the oil spill, in essence reducing the value of the company by half. In the UK some estimate that for every £6 invested by UK pension plans £1 goes to BP. BP has long been seen as a stable stock which provides regular and robust dividends. The drastic share price drop has not only put in jeopardy this dividend but entire pension pots for many millions of UK pension holders. For those nearing retirement this could be very serious as many are saying the bottom price has not been hit yet. For many they will be unaware their pension is tied to BP’s fortunes.

With every disaster there are those directly and indirectly affected. Those indirectly normally total many times the number of those directed. Its goes to show how interconnected today’s world is – a UK based company having problems in the US is affecting the livelihood of many people not just in the US but the UK and other parts of the world. Don’t forget BP’s almost 100,000 employees many of whom work outside of the US.

New Zealand rocks!

2010-05-19T11:00:00.005+08:00

I am sorry to all of you and I have not forgotten about any of you.....Wow what a last few weeks - I think a lifetime worth of events have happened in this time. From market crashes to Thai blockades taking an unsavoury turn.

All this while I have been back in New Zealand for a holiday and a catch up with friends and family. The first thing I noticed was how small Auckland feels, compared to KL and how far removed you feel from world events here. Yes the Euro is plunging and yes Afghanistan seems to be bad right now but, it all seems are world away in New Zealand, which is both great and bad at the same time. Sometimes I believe we Kiwis take our standard if living for granted and for me it took living somewhere else to realise it. We should be very proud for what we have created all the way down here.

I must say it is a lovely change of pace and I can feel the batteries recharging nicely.

Well where to start in recent events, the Euro Zone is probably a good start. So tomorrow I will post my thoughts and predictions.

Till then, see ya as we would say down here.

Below my home city, funnily enough it took me leaving to KL to fall back in love with it. I am now a very proud Aucklander and think it is the most wonderful city in the world. All of you should come visit!

Tips to avoid Boiler Room Scams

2010-05-03T14:57:00.002+08:00

I wonder if any of you have seen the movie ‘Boiler Room’ – It came out a few years ago and told the story of a young college drop-out who starts work at a brokerage selling non-existent and little known stocks to members of the public. A boiler room is an operation which uses high-pressure sales tactics to sell stocks to clients who are cold called. More often than not these stocks are in non-existent firms or firms that list on exchanges which do not need to be registered with any authority. In many cases the brokers will artificially inflate prices to show stock returns.

I know a number of people who have been caught up by these scams, you receive a call from someone who is extremely persuasive, telling you that there is this great company poised to do something huge and they are offering you the chance to be involved before everyone else (and basically you would be stupid if you passed up this opportunity. Often they tell you they are calling from exotic parts of the world giving the impression of wealth and success. Overall they are so good to the point that they convince thousands of people every year to part with their money.
Here are some tips (not just for boiler rooms, but financial advice in general) if you get cold-called;

1. Ask for more information
Who is the company whose stock is on offer? Who is the brokerage you are calling from (ask for contact details, address, etc), Are you regulated by the Securities Commission, if so can I have the number? Generally they will not provide answers for these questions.

2. Ask to meet the broker at their office
Chances are there is no office, just one large space full of telephones and telemarketers. Often they will claim to be in an exotic location, whereas in reality they merely have a serviced office and a phone that redirects.

3. Do your own research
Brokers that trade stocks need to be registered by a country’s financial services authority, a quick search on the internet will show you if the company is legitimate or not. Often the websites will list those they are known to be trading without registration. Look into the company whose stocks are on offer, often there will be a website set up but there will be little detail. What you are looking for is company accounts, investment statements and names of Board members and executives.

4. NEVER agree to anything over the phone, particularly the parting of money
This is probably the only step required anyone who you have never meet or talked to before that is telling you to buy this stock now and that it is your lucky day is telling you something that is too good to be true. No matter how convincing you should just say NO.

Remember they are extremely convincing and will often have good reasons to not answer your questions or to meet you.

Financial advice is about a relationship, a long term one which benefits both parties. Good, consistent return is what any average investor should be after. Someone who tells you they can make you 40% is either lying or choosing to omit the 70% loss they made the year before. By building a relationship, which involves meeting with your broker regularly (at their office) you will see that you money is handled with care using a strategy that you are aware of.

Can you balance the UK budget deficit

2010-04-27T13:00:00.003+08:00

With all the talk of debt and deficits, I stumbled across a fantastic programme yesterday on the Financial Times website. With the UK election only a few days away, FT have added a programme which gives you the opportunity to balance the budget. You get to decide which party you want to be or, as I did, no party at all. From there you decide which departments you would like to ring fence (i.e. funding that will not be cut) and then where you are to make cuts in order to reduce the budget deficit.

It is a rather disheartening activity and certainly does not make you envy the incoming Government. Lets be honest no one wants to cut spending for schools and hospitals, the elderly or the young however without some cuts the the debt will get worse and worse causing massive problems down the line. Just look at Greece - it has no money to pay for anything, it can not even service it's debts.

Cuts need to be made, where would you make cuts and how would you tell people this. Would love you all to have a play with this and let me know your thoughts. It is an interesting exercise in how governments work and approach budgets.

Do you envy Labour or the Tories now?

Click here to enter

The media and elections

2010-04-26T10:40:00.007+08:00

With the UK election just 10 days away it got me thinking about the role of the media. We all know (hopefully) that each media outlet backs one of the major parties over the rest. We live in a world with 24 hour news channels and multiple newspapers and magazines all vying for our attention - for the average person, who works hard and has little time to read party policy the media is an important source of information. So does what you read or watch affect how you vote in an election (assuming you were an undecided to start with). After last Thursday's second leaders' debate I browsed the websites of the top selling newspapers in the UK for their take on proceedings. Here are the headlines on the homepage of each paper's website. Click on the paper to go to their homepage and see for yourself how each paper covers the election (I think the Sun employs more headline writers than actual journalists).

THE SUN

Cam’s the man...Tory leader toasts TV debate victory

the lies and fall of a PM

Clegg nuked over Trident....Leb dem leader in defence shambles

DAILY MAIL

‘Comeback kid Cameron counter attacks in bid to slow Clegg bandwagon

MIRROR

David Cameron flops again in 2nd round’

GUARDIAN

Election debate: Clegg survives the storm

DAILY STAR

David Cameron bursts Nick Clegg’s bubble

INDEPENDENT

Cameron & Brown get tough, but Clegg stands firm

TELEGRAPH

Cameron fights back in second leaders’ debate

TIMES

Cameron nicks it in second televised debate

All have a slightly different spin on the same debate, The Sun (Britain's most read newspaper) seems the blatantly biased showing it's support for the Tories quite openly but more importantly is disdain for Gordon Brown (if you saw the debate you would realise how overblown those headlines are). So I ask you this would these headlines affect how some would vote in the election? And if so does that mean politics is more about how the media portray you than actual policy and political success. I remember being in the UK last year and laughing every time I saw Gordon Brown on the front page. I never saw one of him smiling or looking relaxed, they were always such horrible photos.

like this one

or this one...

On a more serious note, this is an important election for the UK. The recovery is very fragile at the moment with growth coming it at a disappointing 0.2% for the last quarter. In addition unemployment is increasing (8%), debt is spiralling (almost out of control) and Britain is fast losing is mantle as a major global player. Britain's banks suffered worse than most during the recession and anger of bailouts is probably stronger there than anywhere else. The incoming Prime Minister will have a lot of work to do, on top of that are continued arguments of Britain's role in Europe. Strangely enough despite Britain's reluctance to be part of the EU, they are often the first to tie the line on new EU rules.

The next few weeks will show the world whether Britain still has a role to play, however the likelihood of a hung parliament will not help the situation.

Blue chip stocks vs the rest

2010-04-23T12:20:00.004+08:00

A while ago I featured ‘The basics of investing’ which looked at and explained the 5 major asset classes when it comes to investing. One of those classes was equites (or shares/stocks).

Investors make returns on shares two ways – firstly through a dividend (or yield) and secondly by selling the shares at a price higher than what they were brought for. Today I want to look at what current yields are for well known companies and the return an investor would get should they continue to hold these shares.
I want to compare yields from the Dow Jones (the market often reported in and made up mostly of ‘blue chip’ stocks) and the NASDEQ index (also a well-known index more known for tech stocks than ‘blue chips’)

Dow Jones 30 Top 5 Yields year end 2009

AT&T 5.85%
Verzion 5.73%
DuPont 4.87%
Kraft 4.27%
Merck 4.16%

NASDAQ 100 Top 5 Yields year end 2009

Microchip Tech 4.46%
Garmin 4.00%
Paychex 3.93%
Maxim Intergrated 3.89%
Autom Data Proc 3.02%

Those listed on the NASDEQ tend to be technology companies. Generally, profits tend to be re-invested into these company to facilitate growth and further R&D. Therefore you would expect a lower dividend from these companies and the NASDEQ in general. The Dow is made up of ‘blue chips’ – companies that have established revenue streams, profits, market share and ones considered to pay consistent dividends regardless of market conditions. You would therefore expect these stocks to pay a higher and more regular dividend than those quoted on the NASDEQ. You will see that over the past few years the top 5 yielders on the Dow have paid in excess of 4% (some years the top yielder has been 10%).

Blue chips stability is also reflected in the share price with large fluctuations considered abnormal. For tech companies however this is different – with wild fluctuations common. For example Google debuted on the NASEQ in 2004 for $85 per share, at its height the share price was above $700 making shareholders a lot of money. Google does not pay a dividend currently. On the other hand AT & T’s share price has held between roughly $23 and $44 over the last 5 years. AT & T pays a regular dividend.

As an investor this is what you need to way up is the opportunity for big returns on a company which has yet to prove itself or one that has which offers regular return albeit lower than what you could make elsewhere. Blue-chips are considered all weather stocks meaning they can provide a solid return under most circumstances.

P.S. the term blue chips was coined as a comparison to casinos, where the blue chips are the most valuable

Passport to the Universe

2010-04-15T13:33:00.003+08:00

A busy week all around, of course you would know that though as I haven't updated for a whole week! Yes I know, you have missed me dearly.

We have had friends staying the last few days, although not under the best of circumstances. They have been travelling through Malaysia and Thailand and whilst in Langkawi had there bags stolen with the money, credit cards and passports inside. Not much fun at all, I have also had the experience I haven't a bag and wallet stolen while travelling and I can tell you it is not much fun having to deal with it in a place your not familiar with.

On a more positive note we Debs and I decided to do our own touristy thing last weekend, we had not really done anything of the sort since we started working so we though we would make a day of it. We decided on heading to Lake Gardens in the city and more specifically the Planetarium. The park itself is wonderful, full over lush forest and beautiful walkways. Its is also full of things to do from the Bird and Butterfly Parks, to museums and gardens.

The Planetarium itself was rather enjoyable. They had a miniature version of Stonehenge (I can now cross that off my list) and enough sun dials to last a life time. We went to a movie showing in the actually planetarium and had a bit of a chuckle when it started with "Hi I'm Tom Hanks..." Of course the show was brilliant as we zoomed through the universe at large. I tell you what it makes you feel rather small to think there are millions of galaxies in the universe and that most of the universe is just space between all these galaxies. I recommend going if you get the chance. It is called Passport to the Universe and it is produced by the American Natural History Museum.

Am I a country or a company?

2010-04-07T16:16:00.008+08:00

I have decided to continue in the vein of yesterday’s post, so on that note I dub this ‘Big Company Week’. Yesterday I wrote about the market capitalisation of the 12 biggest companies in the US compared with the number of shares available to purchase. I have always found market cap figures to be slightly speculative given how share price tends to be a somewhat emotional measure. Take what I said about Google, the share price and market cap are high for a relatively new company with a large proportion of revenue coming from one source. One has to question whether the share price reflects more the ‘coolness’ of Google rather than its business acumen (not to say that Google has not been a massive success story). Today I am going to take a look the top 12 companies world-wide by revenue. Think of revenue as the company version of GDP:

1. Royal Dutch Shell (UK/Holland) $458 billion
2. Exxon Mobil (US) $442 billion
3. Walmart (US) $405 billion
4. BP (UK) $367 billion
5. Chevron (US) $263 billion
6. Total (France) $234 billion
7. Conoco-Phillips (US) $230 billion
8. ING Group $226 billion
9. Sinopec (China) $207 billion
10. Toyota (Japan) $204 billion
11. Japan Post (Japan) $198 billion
12. GE (US) $183 billion

Some might impressive numbers, go oil it seems- the top 7 are all big oil apart from little old Wal-Mart (who interestingly employs over two million people- imagine that Christmas Party). Now let’s compare these figures to some GDP figures for a selection of countries:

1. EU $16 trillion
2. USA $14 trillion
3. Japan $5 trillion
20. Belgium $461 billion
21. Poland $423 billion
22. Sweden $397 billion
26. Taiwan $357 billion
37. Ireland $227 billion
39. Israel $215 billion
40. Malaysia $207 billion
45. Singapore $163 billion
54. New Zealand $109 billion
72. Luxembourg $46 billion

So the EU is now one country- helps them get one of the US no doubt. Joking aside, Shell would fit nicely in between Belgium and Poland, with Exxon not too far behind, making them the 21st and 22nd largest countries on the planet by revenue. Sounds a little scary, well how about this little gem- the top 26 companies by revenue would all be in the top 50 countries. While not an exact comparison, it does give you an idea of the size of some of these multi-national corporations. And if you thought the oil companies were going somewhere think again, in 2007 Exxon Mobil made the largest profit in history- a staggering $40.7 billion. Interestingly for Shell and Exxon, their revenues are bigger than all the major oil exporters, the only exception being Russia. One of Exxon’s more famous investors is none other than Warren Buffet himself.

The final interesting stat; Shell generates $458 billion in revenue from its 102,000 employees. That’s $4.5 million each!

How many shares do the world's biggest companies have?

2010-04-06T14:21:00.008+08:00

Have you ever wondered just how many shares are available to buy for some of the world’s largest and well known companies? Well the numbers are so large as almost to become meaningless to you or I, but it does make for interesting reading.
Here are the top 12 largest companies in the US but market capitalisation (a value derived from multiplying the number of shares by the current price of each share):

1. Exxon Mobil $320 billion
2. Microsoft $255 billion
3. Apple $213 billion
4. Wal-Mart $208 billion
5. GE $195 billion
6. Proctor and Gamble $184 billion
7. Johnson & Johnson $181 billion
8. JP Morgan and Chase $179 billion
9. IBM $166 billion
10. Wells Fargo $162 billion
11. Chevron $154 billion
12. AT&T $154 billion

What is interesting is when you look at the number of shares available for each of these companies, the ranking changes remarkably:

1. GE 10.5 billion
2. Microsoft 8.77 billion
3. AT&T 6 billion
4. Wells Fargo 5.1 billion
5. Exxon Mobil 4.7 billion
6. JP Morgan and Chase 4 billion
7. Wal-Mart 3.8 billion
8. Proctor and Gamble 2.9 billion
9. Johnson & Johnson 2.7 billion
10. Chevron 2 billion
11. IBM 1.3 billion
12. Apple 906 million

Apple currently has the 3rd highest market cap in the US yet has the lowest number of shares available to investors (in reality it would rank lower far lower than 12). Apple’s share price is at a premium at the moment (around $240 per share) as the company has become the world’s ‘it’ company with a string of popular gadgets. Interestingly Google share price is over $500, with an all-time high of over $700- it has only 317 million shares on offer. Is this price too high for the average investor?

GE has a market cap roughly 60% of that of Exxon Mobil, yet has twice as many shares on offer.

Wells Fargo was hit hard by financial crisis of 2008, but not as hard a GM- the company which topped the market cap lists for decades is now worth poultry $700 million- its share price is a little of $1 per share, down from the highs of $87 back in 1999.

Companies often do what is known as a share split, where they increase the number of shares to current shareholder without affecting the market value, for example a 2-for-one split. This also has the effect of halving the share price. Microsoft has done this many times which is where the story comes from of 10 cent shares when it first listed.

The question you need to ask yourself is can a company with a very high share price sustain that sort of value. Take Google its market cap is over $130 billion yet its revenue is only $23 billion and dependent on web advertising for the bulk of it. Compare this with the more established Coca-Cola which has a similar market cap but revenue of $31 billion. Blue chip investments often provide a more steady return over time, just ask Warren Buffett.

Rain rain go away

2010-04-02T16:55:00.004+08:00

So we are suppose to have left the rainy season behind in Malaysia, yet it seems to be raining even more at the moment, as I write now it is rainy so hard I can no longer see the shark fin! Is this global warming.....I’ll let others have that debate. In interesting side note drivers tend not to adjust their driving when it rains I have never seen as many accidents as I see here in KL when it rains.

Things are chugging along nicely, Debs has started a new job as a writer for Cleo magazine (her dream job) and things are starting to pick up at my end too. The markets are starting to normalise somewhat and while people are still being cautious (and rightly so) we are seeing investor start to return. While there are still clouds over some sectors, others are full steam ahead and providing some good growth opportunities for investors. Personally, I still favour a soft entrance into the market through the likes of a regular premium plan as opposed to large lump sum investments. Dollar cost averaging is an excellent way to ride out downturns but still take advantages of upswings. In a lot of ways you could view them as all weather investment vehicles. It also gives people, with smaller capital outlays, the some access as those with significant capital. Of course regular readers will already know how much I like savings plans.

Things have been hectic to the point that we have not had the chance to get out of KL for a while. I am heading back to New Zealand for three weeks in May to catch up with friends and family which will be nice, by the time I get there I would have been away a year. Funnily enough the thing I am looking forward to the most is some cooler weather and the chance to wear a jumper for the first time in a while. If there is one thing you can rely on here it’s a taxi...just kidding it’s the fact that it is going to be hot and humid.

Overall I think we are both starting to enjoy KL more, we are much more settled in our jobs and have meet some really nice people, there are certainly things that can get on your nerves and in a lot of ways the country is still reasonably undeveloped but progress is being made which is always a start. KL serves as a great base for the rest of Asia and I look forward to exploring it over the next wee while.
For those of you who celebrate it, Happy Easter and don’t eat too much chocolate...

P.S. This is the shark fin in case you have no idea what I mean

The mountain of Mergers and Acquisitions

2010-03-30T16:44:00.003+08:00

Mergers and Acquisitions are a common part of business in today’s market. The increased need for economies of scale and the cost of starting a new business in a new market have made M&A even more attractive- what’s better than buying a business that is already successful in a market you are interested in. However M&As are not always a successful as the number crunchers want you to believe:-

Daimler brought Chrysler for US$40 billion in 1998, almost immediately there were problems- from culture clashes to litigation. All told the merger was a financial disaster resulting in big losses, when Daimler decided to move on in 2007 Chrysler was sold for a mere US$6 billion.

We all know the brands- Quaker Oats and Snapple, in 1994 Quaker brought Snapple for $1.7 billion, yet 3 years it was sold for just $300 million. What makes this one of the worst acquisitions is that only 3 years after Quaker sold Snapple, it’s was sold by its new owners for $1.35 billion.

When Barbie and co (Mattel) felt they needed a unit that dealt with interactive technologies they shelled out $3.6 billion for Learning Co makers of such products as Carmen Sandiego and Reader Rabbit. Unfortunately it didn’t work and just 16 months later Mattel unloaded Learning Co for just $430 million. The debacle proved too much for investor who forced CEO Jill Barad from her job.

The granddaddy of them all has to be the merger of AOL and Time Warner. At the height of the dot com boom Time Warner, the old-school media conglomerate merged with the darling of the dot com boom AOL. What followed was a disaster of epic proportions- just one year later the bubble burst and AOL started is long decline to obscurity. At its height AOL had 25 million subscribers and a value of $240 billion, now it’s a minor player in an ever increasing market. Time Warner has since dumped the name from its title and recently spun the company off. The deal is believed to have cost Time Warner and its shareholders $164 billion.

Two businesses that are successful in their own sectors do not necessarily mean they will continue their success under the same umbrella. Success is often based on the company culture and management styles the things they often clash when a merger is made. On paper mergers often make sense- reduced cost structure, more market leverage, shared knowledge and potentially greater profits for investors. If you are an investor in a company that is merger or looking to invest into a newly merged company try and look past the numbers and the enthusiasm of the executives. Take AOL for example, they had refused to embrace high speed internet technology which would cost them down the road. Try and look to the future rather than what the companies have already done. Chrysler may have once been a great car marker but today it’s a shell of what it once was- Daimler brought into the history without looking at the trends which showed a bumpy road ahead.

But let’s end on a positive note- not all mergers a bad news. Take Pepsi and Frito-Lay who merged in 1965 to form PepsiCo. Today the company has revenues of over $40 billion per year, with 185,000 employees. Maybe the fact that it was done in the 60’s has something to do with the merger’s success.

For all you cynics out there....

2010-03-26T13:28:00.003+08:00

Maybe it's funny because in a lot of way its true. One thing is for sure- there is always a vested interest somewhere.

Enjoy a lovely Friday and happy weekend!

The state of play 2010

2010-03-24T14:22:00.003+08:00

We are nearing the end of the first quarter of 2010, giving us a good chance to look at performance thus far. I have selected a range of funds which I have analysed and studied. These funds are an across the board selection, ranging from high risk to low risk and include:-

• Emerging and developed equity funds

• Bond funds

• Property funds

• Alternative funds- including gold and managed futures

Emerging Markets still lead the way

Of the top 10 funds (year-to-date figures), five of them are emerging market equity funds, with a further fund including a portion of emerging market assets. Looking a little deeper we find Asia still showing the best returns- in fact top of the pile is Thailand, although given the current political crisis it may be one risk level to many for some.

An interesting point to make is the performance of developed market equity funds, in particular Japan. Most of these funds fell by 40%+ in 2008 yet did not show the rebound many funds achieved in 2009 (particularly emerging market funds where some funds had performance over 100%), as a result there are two Japanese funds inside the top 10 for this quarter. As to whether this makes Japan an attractive investment destination I am unsure as some of these gains may have been the result of strengthen currency.

Overall I think it is still safe to assume that emerging markets offer the greatest growth potential and have come out of the recession much stronger than developed nations. Concerns over debt levels in the UK, Europe and US will do little to change this anytime soon. What is important to note is that there are many attractive developing regions outside of China for an investor.

Gold’s growth has slowed

2009 was a great year for gold pushing well past the $1,000 an ounce barrier, climbing to record highs of over $1,200 an ounce. So far 2010 has been less than spectacular; infact year to date the price of gold has decreased, if only slightly. This pattern is normal service for gold, which historically has been a stable asset that retains its value rather than providing huge growth. Gold has remained steady, well above $1,000 per ounce and all indications are it will go up before it will go down and therefore should be considered as part of your portfolio. There are also funds which offer silver and platinum which have shown better results compared to a gold only fund.

Elsewhere in alternatives, managed futures continues to disappoint. 2009 was a bad year especially when compared with equities in 2009, with many funds falling by upward of 15%. 2010 has not started much better but recent news is encouraging and many expect a much better time this year. Managed futures are always something to consider because of their low correlation with equities (see my previous post on alternatives assets).

Low risk, low performance

In a strange sense of irony low risk funds have shown the worst performance year to date. Of the bottom 10 funds in my selection, seven are low risk funds (mainly bond funds), worst still the performance of each is down over 5%. Funnily enough, after speaking with several people low risks funds have always produced the most problems.
Given the range of options out there, literally tens of thousands of funds it is always best to seek financial advice on where your money should go. However there is nothing to stop you doing your own research and getting your advisor to explain why he/she has chosen a particular fund.

I will periodically update my observations from this selection of funds, in the meantime if you have any questions or comments about a particular area or fund, fire them my way.

Saving when you can't even pay your rent

2010-03-22T16:18:00.005+08:00

Wow, another week down and we are almost into April...how fast does time go by.

I had a question about saving last week for those who might not earn so much and feel they do not have enough money to save in the first place. In reality most people do not earn bucket loads of money and often feel that, once bills and other expenses are taking into account, they have little or nothing left over at the end of each month. Just remember, initially it’s not so much about the amount you are saving but the fact that you are saving and getting into a habit of putting aside a little each month.

Below is a very rough budget from what I would call the average person. Bear in mind that this is a very generally example and really only to show that most people don't have much left over at the end of each month:-

Wages (after tax)
$2,500
Rent/mortgage
$1,000
Food and entertainment
$1,000
Bills (phone, internet, power, etc)
$150
Debt (loans, credit cards)
$150

As I said this is a very rough breakdown, the point is that most people often feel they do not have enough to meet their expenses let alone put some money aside for the future (which to some may some along way off). Here are some things which you can do:

• Setting up an automatic payment, into a separate savings account each week. Remember any saving is good- even $20 per week. You will soon find that you spending habits will adjust to the new amount you have each week. As you go on and your income increases so to the amount you are able to put aside each week

• On this example I have listed a credit card (most people have them, infact many have more than one) being repaid at the minimum amount- by paying this off faster you will save yourself hundreds in interest. If you can’t afford to save the next best thing is to pay off debt as fast as possible. Remember credit card companies are not in the habit of being generous

• Sacrifice one coffee, a beer and a meal out each week and save this money instead. You would be surprised at what you can save doing this. The average Starbucks coffee costs US$3, the average beer costs US$3 and a meal out can cost as much as US$25 (not including drinks). Over a year you would save over US$1,600 by avoiding each of these expenses, once per week

• You don’t need a specialised savings vehicle to start saving. A bank account works just fine. When I started my first job I open a separate savings account, it had very low fees and offer an okay rate of interest

Personally I think everyone can save, whether it be $5 a week or $500 the key is to remember that saving, aswell as giving you a head start to retirement promotes good spending habits which we could all use. I’ll leave you with this to illustrate how even a little saving can grow into a nice wee cash mountain.
Someone saving $20 per week growing at 4% per year;

2 years $2,169
5 years $5,765
10 years $12,804

P.S. This is without changing the $20 weekly contribution at all during this time.

Oh nothing wrong with using this either, you would be surprised what you can save with all those loose coins

The floor is open

2010-03-16T17:22:00.004+08:00

I thought this week I would open the floor to topics from you the reader, Unfortunately (of fortunately depending on your point of view) I will be out of KL for the rest of the week and most likely unable to write anything until next week. So I thought you could throw me some topics and I could comment on them over the next week or so.

So.....

What's on your mind?

P.S. This is my 50th post....celebrations all round

Does Toyota deserve to be in a ethical fund?

2010-03-12T16:46:00.004+08:00

Yesterday’s piece actually got me thinking a little deeper about ethical funds (and yes I can hear your groans....), mainly to do with what ethical actually means- take the example of a few funds I have been looking at. Components of these funds include names like Honda, Samsung, Dell and Toyota. While I understand these companies are becoming more 'eco-friendly’ with new product ranges, at a guess I would see it makes up a fraction of their operating revenues. Therefore is it fair to call your fund an ethical fund when you invest into companies that many so called ‘non ethical’ funds do not.

To take this point further, companies like Toyota and Honda make a majority of their money from selling cars that use vast amounts of oil- a sector almost always off limits for an ethical fund. In the UK, a recent study into the holdings for 58 Social Responsible Funds (SRIs) found that only 1 (yes 1) had more than 50% of its holdings in environmental stocks.

While I don’t wish to knock ethical funds, the term seems to be thrown around loosely which is a shame because they are some genuine ones out there that invest, legitimately in clean energy or waste reduction companies- of course this may explain the move towards the name Social Responsible as opposed to ethical.

If you are interested in ethical funds for reasons other than making money, make sure you get a idea of the types of companies it invests in.

What are your thoughts in this, does it really matter if less than 50% is invested in environmental stocks because 50% is better than 0%. Let me know, I think it is an interesting discussion point.

A wee note on performance for the UK, F&C's flagship ethical fund has returned 666% over the last 25 years, while Anthony Bolton's unethical Special Situations fund has returned almost 4,000%

What of ethics and investing

2010-03-11T16:17:00.002+08:00

The last few years has seen a growing acknowledgement of the environmental issues facing the world, with governments trying desperately to agree on ways they can reduce the human impact of globally warming, protect waterways from pollution, save endangered species and many many more challenging issues.

But has this new found environmentalism changed the way investors invest their money? Has all the media coverage made investors choose ethical funds over more traditional one? And what of performance, do ethical funds stack up with the competition?
Ethical funds have been around for a long time, in the UK the first funds come out over 25 years ago and have seen growing popularity ever since, yet today they make up only 1% of the total investment pool, despite being sold as a way to make money and be socially responsible. For years the debate has been raging as to whether ethical funds can match the performance of non-ethical funds and whether they should form part of an investor’s portfolio.

Statistics show us that the last couple of years have been tough ones for ethical funds, for the 12 months ending 1 July 2009 ethical funds fell by an average of 16.74% (only 3 out of the 60 funds gave positive performance) and 14.2% the previous 12 months- this compares with non-ethical fund performance of -12.3% and -8.31%. What this highlights is the volatile nature of ethical funds, while most funds were done in 2008 ethical funds fared much worse, due in part negative screening- a process of refusing to invest in certain areas on moral grounds. Ethical funds will boycott firms involved in tobacco, arms, oil, alcohol, gambling and pesticides amongst others- sectors often considered the best during market downturns. By avoiding these sectors ethical funds restrict the scope of their investment options, often ethical funds will target small to medium sized businesses which tend to suffer more when markets are falling.

Historically speaking investors in ethical funds have been less concerned with performance, happy on the fact their money is being used for good, however the volatile performance and lack of options has put many mainstream investors off. In addition they have been so-called ethical funds that have turned out to be investing in the very companies they say are off limits. While over time some have shown good performance (even bettering non-ethical funds), ethical funds tend to rank in the lower quartiles when looking at category analysis.

I suspect that until ethical funds start to produce good, consistent returns they will remain outside of the average investor’s portfolio. However this does not mean they should be consider as there is something to be said for a fund that makes money as well as helping the environment.

What do your neighbours spend money on?

2010-03-08T17:31:00.005+08:00

Something slight different today, but no less interesting I stumbled across an interesting article looking at spend habits of consumers around the world. While the article is from 2008, it gives some interesting insight into spending habits of consumers from different countries. Here are some of the more interesting observations (in my opinion)

• Americans spend more than anybody on every category looked at (Clothing, Electronics, Alcohol and Tobacco, Household goods and Recreation), including almost $900 billion on recreational activities (almost $3,000 per person)

• Japan spends as much on clothing and footwear as it does on alcohol and tobacco (almost $80 billion on each)

• Despite a population of roughly 60 million Brits spend approximately the on alcohol than Spain and Italy combined (105 million)- a total of almost $60 billion a year

• Greeks spend 13 times more on clothing and footwear than electronics

• The general consensus is that Japanese love electronics, well Russia, Britain, Germany and France all spend more on electronics than Japan- despite smaller populations

• Britain’s consumers spend close to $3,500 each on recreational activities, more than any other country combined with one of the highest per capita spending on alcohol and tobacco

• Unsurprisingly developed countries spend much more on everything than developing nations, in fact the US probably spends more than every developing country combined

To view the article click here, have a look and what people are spending their hard earned (or not in some cases) money on.

Given recent economic turmoil I have no doubt this figures have changed particularly in developed countries- I have no doubt the figures for developing countries are accelerated at a much faster rate, there are new malls, bars, apartment blocks and commercial buildings popping up everywhere in KL if that is any indication. Consumer spending is a good indication of where the economy is and there have been encouraging signs out of the US of increased spending.

Note: somewhat concerning is the amount the US spends on defence. In 2008 it accounted for 48% of the global spend on defence or $711 billion (6 times as much as was spent on electronics by US consumers)

Back to basics Part 4

2010-03-06T15:07:00.002+08:00

Firstly my apologies for the delay in posts, it has been an interesting week, somewhat stressful but all part of living in a foreign country. Yesterday was spent in Melaka working, a shame as Melaka is such a wonderful place to walk around.

Last week we started talking about investment classes, so far we have looked at Cash, Bonds, Property and Equities. Today we will look at the final asset class of alternative strategies- put simply this class is a non-traditional one that invests in assets that are not one of the aforementioned and historically, assets that have a tangible (gold, art, wine, etc). Today alternative assets are becoming an increasingly popular asset class, due to their ability to diversify and, in some cases, their low correlation with equity markets.

Because of the scope of this class I want to focus on a couple of areas only, ones that, as an average investor, you would have ready access too. Firstly, as we have already mentioned, alternative assets include things like gold, silver, art, wine, food and antiques amongst others. These are tangible assets and something that you can physically take hold of (either yourself or the fund that you invest through). I have talked about gold alot on this blog so I want go into it now, only to say that these sorts of assets (particularly gold) should form part of your portfolio, in difficult times people often turn back to things that can touch and can therefore offer a portfolio a degree of stability. For the average investor there are a number of funds you can choose from which forgoes the need for you to go out and buy the asset yourself. As of writing gold is still comfortably north of $1,100 an ounce with many picking it to continue its trajectory upward.

Over the last 30 years, investments into Managed Futures have become larger and larger, known as an alternative strategy investment Managed Futures are the second part of what I want to discuss today. Simply managed futures invest into a variety of financial instruments (including currency, interest rates, bonds, equities, commodities and credit) through short and long term futures contracts (a future is a contract to buy or sell a specified product in the future at a price set in the present). Managed Futures try to latch on to trends created in these markets using sophisticated computer software, removing the human element from the process. Managed Futures are a good choice for any portfolio as they have little correlation with markets and are designed to perform regardless of where markets are. In 2008 when markets were down 60% or more, managed futures were up over 20%- in addition the top managed futures funds have year on year performance of 17%+.

This concludes our look at investment classes, if you have any questions about any of the classes or anything specific within one of the asset classes let me know.

Pictorial Journey of Malaysia

2010-03-01T12:18:00.005+08:00

A break from our look at the Basics of Investing. I hope you enjoy.

Batu Caves in Kuala Lumpur- a Hindu shrine built into a series of caves in the hillside. It is over 200 steps to the top.

These little guys are everywhere, we have even had a few come into our house looking for food.

Around two hours from KL is the city of Melaka, one of the oldest cities in Malaysia. It has Dutch, Portugese, British and Chinese heritage. This is taken from a bridge overlooking the river. The city is an amazing place to walk around full of lovely food and shopping.

This is from Sapi Island, located off the coast of Kota Kinabalu (capital of Sabah, East Malaysia). KK is one of my most favourite places in Malaysia.

One of the residents of Sapi Island...he must have been hungry at one point he was eating suncream!

My first live tennis match, a WTA event here in KL. This is Elena Dementieva, who is number 7 in the world. She lost the final to another Russian.

Bako National Park in Sarawak, one of Malaysia's best known national parks and home to the rare Proboscis Monkey. A walk of 6 hours got us to this amazing, secluded beach.

Back to basics Part 3

2010-02-26T13:46:00.004+08:00

Here we are with Part 3 of our look at the basics of investing. We have talking about asset classes and so far this has covered cash, bonds and property- today I will look at equities. I would start by saying I could write a novel about this asset class (as many people have!), but I will keep it short and focus on the absolute basics.

Click here for Part 1 (cash and bonds) and Part 2 (property)

Equities

What are equities? In short it is ownership of a corporation, to most equities are better known as stocks or shares, by purchasing shares/stocks in a particularly company, the investor enjoys an ownership interest in that company and therefore a claim on the company’s assets and profits (usually through a dividend payment). Unlike a bond, shares do not receive a regular coupon return and rank below all others in payment priority for this reason they are considered much riskier than a bond.

While bond holders enjoy a regular rate of return, shareholders historically, have enjoy a far greater rate of return. When companies perform well, shareholders will enjoy a much healthy return compared to bond holder who will continue to receive the same rate of return as issued. For example of a 10 year period ending in 1998 the S&P 500 enjoyed returns of over 350% however, for the 10 year period ending 2008 the S&P 500 returned -26.5%. This highlights the risk of investing in shares, some years you will enjoy significant growth, but an investor will also need to understand that some years will produce negative returns. What we saw in 2008 were markets falling by an average of 40% and then in 2009 growing by as much as 100% in some cases. Enough to make your hair fall out.

One way of reducing risk in equities is to invest via a unit trust, as an individual you buy individual stocks in individual companies. A unit trust invests across a number of companies (sometimes as many as 100), the theory being that if several companies are performing badly, others who are performing well will help balance the fund’s performance. For the average investor a unit trust makes much more sense as you gain exposure to a number of companies and the fund is managed on your behalf (in my opinion share trading is for sophisticated or full time investors). Generally speaking there are two types of equity funds to consider. Firstly, tracker funds which invest into an index and therefore all the companies that make up that index (for example the Dow Jones, FTSE 100 or S&P 500)- performance will mimic the index with which it is tracking. Secondly, is a fund which picks certain companies out of an index or indexes- in this instance the fund is trying to outperform the particularly index where the equities have come from (the vice versa also happens here too and as a result these funds are considered more risky).

In summary equities should always form part of your portfolio. While they are considered riskier than other asset classes, historically equities have enjoyed the best returns for investors. However, because of their risk and volatile nature a portfolio should not consist solely of equities. There are thousands of equity funds available (not to mention all the individual companies out there), each with varying degrees of performance. Seeking the right advice is an important step in finding the right funds for your taste.

Well that’s it for equities, if you have any questions or comments please let me know. We have one asset class remaining- Alternative- which we will discuss next week. Enjoy a relaxing weekend.

Note: Above is a graph for the rolling 10 year performance of the S&P 500 since 1960. Overall some pretty good returns, but would you be able to ride out the years with little or no growth?

Back to basics Part 2

2010-02-24T13:31:00.006+08:00

Yesterday I started talking about investment basics, with the view of making it a glossary of sorts that would help the ‘average’ investor make sense of the investment world.

To recap we started with asset classes- Cash, Bonds, Property, Equities, and Alternative. Yesterday was Cash and Bonds, today I will look at property. Click here to see yesterday’s entry ‘Back to basics Part 1’.

Property

how many of these do you have on your street?

Investment property is property held for rental income or potential capital gains. In other words it is property held as part of a portfolio (if the owner lives in the property it would be classed as non-investment property although there may still be a capital gain if the property is sold). Generally speaking the average investor would purchase a property with a view of renting it out.

As an investment class property is considered riskier than both Cash and Bonds, however an investor can expect to earn a far greater return from a property. As mentioned return comes in two forms- either as rental income (usually based on factors such as property value and location- for example you may rent a $100,000 house for $100 a week- a 5.2% return per annum) and/or as a capital gain when the property is sold (for example you buy a house for $100,000 and 10 years later sell it for $150,000- a 50% return).

The risks with property can be great including the following;

• Inability to rent property, leaving it dormant and generating no income (or a loss when you take into account costs such as bills, maintenance, etc)
• On selling the property you make little or no gain (in some cases a loss)
• Capital outlay for areas such as renovations, council rates, or faults

In addition things like location of the property (both short and long term) and how it is made (materials, workmanship) amongst others add to the risks of buying a property, bearing in mind also that a property can be a costly initial investment.
As an alternative there are property funds which act like unit trusts, where money is pooled together by a fund manager and invested in property related assets. Recently these funds have produced terrible results and should be consider high risk options.

I should note here that I am talking about an investment property, one which is not lived on by its owner. While a number of people consider the home they live their most important investment there is increasing discussion as to whether people place to much importance on owner a home and therefore scarficing other forms of investment and diversification, however this is best discussed in a post own its own at a later date.

Tomorrow we will look at equities, again I encourage any comments and discussion on what I have written (for or against).

Until then enjoy your day and whatever it may bring!

Back to basics Part 1

2010-02-22T17:32:00.005+08:00

Starting this week I thought it would be a good time to go back to the basics of investing and look at things like asset classes and investment terms- a glossary of sorts.

Let’s start with asset classes; despite the multitude of investment options out there, broadly speaking we can place each one in to one of five categories:

1. Cash
2. Fixed interest/Bonds
3. Property
4. Equities
5. Alternative

I will go through each one individually in more detail over the next few days starting at the top:

Cash

Is a low risk investment such as a bank account or a rolling deposit for no longer than 90 days. While cash investments are consider very low risk, the offer very low rates of return. For some people, cash investments provide a good vehicle to save money without too much risk. Cash is easily redeemable at anytime

Fixed Interest/Bond

In essence a Bond is an instrument used by governments or corporations to raise money. An investor will buy a bond for a term of at least 90 days (usually up to a maximum of 30 years), this bond will then pay an investor a rate of interest based (called a coupon rate) on the amount invested and on maturity the amount that was initially invested. Bonds offer the investor the security of a consistent, albeit low rate of return. Bond holders also rank above shareholders (they act as a creditor) and therefore afforded more protection should the issuer face financial distress.

It is important to note the there are low risk and high risk bonds and as such an investor needs to be careful. For example a bond offering from the USA or Germany would have a lower risk level than a bond offering from Afghanistan or Nigeria (and as a result would offer a much lower interest rate). Bonds are rated before being issued by credit rating agencies such as Standard and Poor’s and Moody’s (click here for an idea of what credit ratings mean).

A bond, held to maturity, will give the investor their initial capital back plus the regular interest payments. However, bonds can be bought and sold on various secondary markets around the world. Generally speaking, the lower the price of the bond (possibly due to excessive selling) the higher coupon rate. Therefore highly rated bonds tend to be priced higher in the secondary market and as a result offer the investor a lower coupon rate. If an investor chooses to sell their bond there will be risk involved as they may get back less then they put in.

Tomorrow I will have a look a property as an investment class. If there is anything that does not make sense please comment and I will endeavour to clarify any point further.

My favourite bond....what's your's (yes a bad joke I know).

Time for a smile, amid the gloom

2010-02-19T17:14:00.005+08:00

‘The next big nasty- US commercial property’, ‘Euro’s bungled bid for unity exposed by fine print amid Greek Debt drama’, ‘Healthy foods that aren’t so healthy after all’, ‘China anger at Dalai Lama visit’, ‘Military coup outs Niger leader’

These are just some of the headlines floating around it the moment, it’s enough to make you think the world is about it end...

With all the bad news coming in an seemingly endless stream, don’t you think sometimes it’s nice to just sit back in your chair and have a bit of a laugh, I don’t know if you have come across The Onion before- it is an American based media outlet the offers a satirical look at things that are currently topical. I think some of the articles are brilliant- this one I come across today made me smile and think for one moment....what would life be like without ‘money’ and yes in a lot of ways it is only a piece of paper with numbers and pictures on it....

I do recommend you read the article and have a look around the site too.

Also I recommend watching some of the winter Olympics, even if you’re not a sports fan there are some truly inspirational moments to experience.

We should all turn our TVs and computers off for one day and live blissfully unaware of the going ons around us...one day just for us doing whatever it is we want to do.

Hippie moment over......have a good weekend.

UK pension woes

2010-02-17T16:14:00.005+08:00

Last week I wrote about pensions and how QROPS was allowing holders of a UK pension to transfer it to a qualified scheme, should they have the intention of retiring abroad. On the whole it is a great way of unlocking and retaking control of your pension. Not only does it provide tax benefits, it also has significant inheritance benefits, namely the full ‘pot’ being transferable on death.

I wanted to look at something which I did not mention last week, namely the risk of losing your pension by leaving it in the UK. Consider some of these statistics;

• Just 23% of final salary pension schemes in the private sector are open to new members

• As of 2009, UK pension funds were over £240 billion in deficit

• In 2004 the UK Government set up the PPF to protect workers pension from companies that become insolvent or had insufficient cash to pay their members (private sector only). As of January 2010 the 7,400 member funds were £52 billion in deficit

• Under the PPF the maximum payout is £28,000 per year (regardless of what it was prior to entering the PPF). Members include MG Rover

• Some of the UK’s largest companies are under huge strain from massive pension commitments including (figures as of 2008);

o British Airways is over £3 billion in deficit (its total liability is £13.55 billion or 503% of market value)

o British Telecom is over £9 billion in deficit (its total liability is £34.67 billion of 200% of market value

o RBS is over £2 billion in deficit (its total liability is £27.75 billion or 275% of market value- this is up from around 60% a year earlier)

Not great reading for the members of pension schemes in the UK. The trouble is the situation may only get worse- firstly, there is an aging population meaning, the ratio of workers to retirees is falling. Secondly, some people argue that UK companies are having to spend more on erasing pension deficits and therefore less on keeping the companies competitive which may impact on future earnings and consequently pension deficits. A vicious circle.

If you worked in the UK and are planning on retiring outside of the UK you would be foolish to not consider a pension transfer, if only to negate the risk of losing the pension completely should your scheme wind up. Now is a great time to have a look as transfer values are high.

There are a number of options for a QROPS transfer and I would be happy to discuss them with you should you want to know more.

Well tonight I am off to dinner for Chinese New Year ‘Yee Sang’, my first taste of the celebration. Should be a lot of fun, I love new experiences and can’t wait to try some new food. Will try and take some pictures to share with everyone.

Challenges facing those in retirement

2010-02-12T15:06:00.003+08:00

Wow I don’t think I have ever seen KL so quiet. This is our first Chinese New Year in this part of the world. The whole place feels like a ghost town, rather refreshing actually.

Seeing as it’s a New year of sorts I thought I would revisit the idea of financial resolutions and how important it is to sit down and take a snap shot of your financial situation, despite the market situation (which I will talk more about shortly) it is never a bad time to do this.

The last few weeks I have had a number of people ask me about the state of the market, people are still a bit spooked and very reluctant to get involved in any part of it- retreating to what they know such as property (although the love affair with property is hurting many at the moment as bubbles burst everywhere). With what we read every day I can understands people’s fears and reluctance, however it does not change the fact that people should continue to save (in some form) for their eventual retirement. I can’t stress this point enough- retirement planning is a long term goal and sometimes markets will be up and sometimes they will be down, the important thing is that you are doing it and giving yourself the chance to have a comfortable post-work life.

To illustrate this I want to give you some stats from a recent released survey conducted by Aviva in the UK (they are the UK largest insurer)on those approaching retirement (55-64 years);

• One in four have a mortgage, with one fifth of those owing more than $75,000
• 40% are not saving into the likes of a bank account or alternate savings vehicle. This group has an average of only £8,600 is savings
• Only 18% had savings of more than $100,000
• Currently 1.4 million elderly people (over state pension age) are working
• The number of pensioners going into insolvency is up 44%, the fastest growing of any group

Interestingly enough, in 2006 Aviva released their global survey suggesting that 60% of people so not have enough savings for their retirement and 50% of pre-retirees believed they would have to continue to work into their twilight years.

I mentioned property earlier for a reason; historically people have seen their home as their retirement, preferring to put all the money into property and as a result sacrificing other forms of investment. With global property prices falling global many pre-retirees are now struggling to supplement their retirement income. The olds cliché of not putting your eggs in one basket is very apt here. While property is an important part of any portfolio, it should not be the only part. The problem is compounded further by those who still have large mortgages on their properties.
To come back to my original point, saving is a very important part of financial planning. Ask yourself if you need to upgrade the car or house or TV or would you be better served putting that money into a scheme which will help you when you are no longer able to work. Consider this, it costs say $20,000 for a new car, let us say you put that in to a plan for 10 years which pays, on average 8% per annum. That $20,000 would be worth over $ 43,000 in 10 years. Your car would be worth next to nothing.

And remember by drip feeding money into a savings vehicle you are not risking all your money at once. Have a look at my piece on dollar-cost-averaging for more on this.

Happy saving to all of you!

happy new year!!!

2010-02-10T13:00:00.001+08:00

Well this weekend is Chinese New Year, one of the biggest holidays of the year in this part of the world (certainly more than Christmas and...I guess the New Years i’m use to). I am actually looking forward to it, not only for the time a chance to recharge the batteries but also because the city of KL empties as everyone goes home or on holiday. The streets of KL will be mine!

Chinese New Year is the most important of the traditional Chinese holidays; it is a time where families clean the house thoroughly sweeping away the ill fortune of the previous year. Houses are decorated, food is consumed, present are exchanged and firecrackers are lit. He younger members of each family also receive red envelopes containing money.

The streets, malls and offices around KL are all decorated in red in anticipation of the main event. It is all rather beautiful and great to see close up, we are getting in the spirit of things by send cards to all our family and friends back in New Zealand. One thing Malaysia has is a lot of public holidays, but this is certainly one of the major ones. I hope to post some pictures of the coming days.

I wish everyone a happy Chinese New Year and safe travels for those who are not staying put. The year of the Tiger beacons and I hope it is a good one for all.

Mountains of debt

2010-02-09T15:27:00.005+08:00

The volatility in markets around the world over the last few days has been somewhat unsettling, up one day and diving the next, to me it shows the world is not yet out of recession and there are still tough times ahead. The biggest problem seems to be the weight of debt many countries now find themselves under- Greece is now in real danger of defaulting on its sovereign debt obligations with a debt to GDP ratio of 95% and deficit to GDP ratio of 13%, while eye popping figures Greece makes up only a small percentage of the global economy- of more concern is the US figure of 84% and the UK figure of 12.6%.

While Greece is hogging the headlines, the situation in the US is becoming a big concern. Unemployment is still rising, consumer spending is still low and of most concern current and projected debt levels. Obama’s recent budget projects a doubling of the national debt to $28 trillion by the 2020 (or twice the current GDP) this triggered Moody’s (the US bond rating agency) to warn of a credit downgrade from AAA to AA (which would hike borrowing costs). The last year has seen national governments borrow close to US$5 trillion on stimulus packages, a figure that is triple previous borrowings. The question remains over how the borrowing can be paid back...further borrowing? The danger is a debt hangover, bond holders will demand higher returns, potentially causing interest rates to rise which has the effect of increasing the cost of borrowing. Ultimately it may hamper the global recover as public and private institutions battle for credit.

This all seems like a time bomb waiting to go off, however as an investor you have to adjust your strategy and expectations to the situation. For example, most markets dropped 40-50% in 2008 yet there were a number of investments and investors who made money (even a modest rise of 3% is better than losing 40%). Alternative strategy investments like managed futures are negatively correlated to almost everything else and will often perform well in bad times.

Personally I would continue to recommend caution, remember a portfolio can be diversified depending on your risk tolerance, keeping some in cash and slowly drip feeding money back into the market will serve you well in turbulent times and while you may not make massive growth (like some who claim they will) you will not be taking exaggerated risks with your money. Someone who makes 20% year in year out will have years where they lose 40%. High returns equate to high volatility and high risk.

Written with the help of moneyweek.com and thestar.com

Trouble for Toyota

2010-02-08T14:32:00.002+08:00

I remember back in my university days (surprising long ago when I stop to think about it) we used Toyota as an example of a business that had succeeded on a global level- both as a seller and in particularly a manufacturer using systems that were the envy of all large multi-national manufacturers. The last few weeks have seen an unblemished run come to a screeching halt (ironically because their cars are having trouble slowing down!). Lets recap the main issues;

• January 21 Toyota announces a recall in the US for numerous models due to defective accelerator pedals that may stick. The recall then shifted to Europe and other parts of the world. 4.5 million cars are recalled

• Earlier in the month Toyota announced a problem with floor mats recalling 5.75 million cars globally

• Today Toyota announced it is

recalling its newest models of the popular Prius cars due to a defective breaking system. Total numbers are minor in comparison with only 311,000 of the new generation models sold

The timing for the recalls could not have come at a worse time for Toyota. The recalls are centred mainly in the US and Europe, two markets that have shown a slump in sales and consumer looking for more reliable and economical vehicles- this will do nothing help Toyotas image as exactly that. Since becoming the world’s largest car maker Toyota have struggled from crisis to crisis. Last year it reported a record lost and shelved expansion plans for the US, after mounting concerns over the quality of some of its models. This month car sales figures for the US showed Toyota sales dipping by 16%, while its largest rivals posted impressive results for January. Toyota has estimated the recalls have cost US$2 billion, of course this does not take into account lost sales going forward.

In a world of image conscious consumers this debacle has been a massive blow to Toyota. Personally I think it is merely a bump in the road, the overall image of Toyota is a good one and show me a car company that hasn’t recalled a car (I can think of several major ones of the top of my head). Toyota needs to keep its head down and do what it has done so well for the past few decades. Forget the ‘World largest carmaker’ tag and just make good cars. You cannot live on reputation forever, a good company will keep adapting to the changing landscape. I hope Toyota pull through because they have changed the industry with good quality, well priced cars (something the big US firms found out the hard way).

As a side note I do have to laugh at the US again, Congress has now stuck their nose in asking Toyota to provide some guarantees of safety, Ford and GM both have had large recalls in the past years- yet no Congressional inquiry. The cynical side of me wonders whether it has something to do with Toyota not being a US carmaker...hmmm

Do you have a UK pension?

2010-02-04T15:23:00.005+08:00

First of all apologies for the lack of updates over the past few days, no excuses I know but can I try anyway...

The past week has been a busy one (a poor excuse I know) and a very rewarding one at that. A number of people I come across have private or state pension schemes (whether from the UK, Australia or New Zealand) depending on the particulars of each scheme, the holder will receive an income from their 'pot' on retirement (the age may vary from country to country). With most pensions they are stuck in the country of origin regardless of whether you choose to retire their or not however, recent movements by the EU have been designed to free up pensions and allow pension holders to transfer them to qualifying schemes abroad (for those who have pensions in that part of the world).

The UK is the first of the member countries to enact the directive in what they call QROPS. Simply put anyone with a UK pension (private or state) and plans to retire abroad can potential transfer their pension into a QROPS scheme. Importantly, for some it is HMRC regulated.

A QROPS transfer can provide significant advantages for the holder, below are some of the key ones;

• Current UK tax law dictates a tax of up to 82% on the pension when the holder dies. A QROPS transfer can reduce this to 0%
• If a holder dies, the surviving spouse can receive only a maximum of 50% of the pension. This figure reduces to 0% once the surviving partner passes. A QROPS transfer places the pension in a trust leaving it to continue indefinitely to future generations
• Many UK private pension schemes are in deficit risking the pension of all holders. A QROPS transfer takes away the risk of the scheme defaulting and you losing your pension (have a look at this recent article about BA’s pension difficulties)
• The right QROPS transfer will allow the holder to receive tax free pension income
• A QROPS transfer allow the holder to invest the funds across tens-of-thousands of funds world wide
• Some UK works may have multiple pension schemes due to changes in employment. You are able to transfer multiple schemes into a single QROPS

There are many more potential benefits to a QROPS transfer and it is something that should be considered by everyone who worked on the UK but no longer lives there. Eventually all Euro zone members will come forward with their own schemes, providing the same options for pension holder that those in the UK enjoy. As of today some £500 million has been transferred using a QROPS.

The first step is to find out your transfer value; from there you can work out whether a QROPS is the right way to go. As always I would be happy to help out anyone who would like to know a bit more.

With any luck other countries may adopt similar approaches allowing all of us the opportunity to make our pensions transferable and more flexible.

Visit QROPSworld to find out a more - including a no obligation no cost pension enquiry

Dollar cost averaging

2010-01-27T13:37:00.006+08:00

Today I want to look at a simple strategy to help with the age old question on when to get into the market. It is known as ‘Dollar cost averaging’ and it takes the stress and in most cases the risk of trying to time the market.

Simply put dollar cost averaging is strategy where the investor contributes small amounts on a monthly basis regardless of the market conditions. As a result, investors will purchase units at varying prices each month, either higher or lower. The lower the unit price the more units and investor will purchase.

An investor contributes $1,000 each month to fund XYZ

Month Unit Price Units Purchased Cost
1 20 50 1,000
2 15 66.67 1,000
3 10 100 1,000
4 13 76.92 1,000
5 18 55.56 1,000
349.15 5,000
Average Unit Price 15.2

As you can see from the table above, by contributing $1,000 per month the investors has ended up purchasing 349.15 units at the end of the five month period. The average purchase price is $15.2 per unit giving the investor a total of $5,307.08 (15.2 x 349.15) or a profit of over $300. If the investor had purchased $5,000 worth of units in month one they would receive 250 units (5,000/20) and then sold these at the end of month five the amount received would be $4,500 (250 x 18) or a $500 loss.
This example shows the key benefit of dollar cost averaging by eliminating the issue of market timing. The result is return more determined by the overall trend of the unit price. Other benefits include;

 drip feeding a regular contributions reduces your overall risk to a particular fund or share
 taking a long term view of the market
 potential benefits from short term market declines as an investor is able to purchase more units

While not a fool proof strategy (I can tell you now nothing is!) it can work very well in a volatile market and can help take the emotion out of investing.

Euro Tales

2010-01-25T15:13:00.003+08:00

I had a comment from a read last week asking me about the Euro and my thoughts on currency in general. While I am not a Forex trader I think the Euro is an interesting currency and at an interesting stage of its cycle. So I share with you my thoughts on the Euro and currencies in general.

As we all know the Euro is the currency for the European Union and is currently in use by 16 of the 27 member states (known collectively as the European Monetary Union), currently the Euro is the second most traded currency globally second only to the US dollar. Here are some of my thoughts on the Euro and where it stands.
EMU members are at different stages of the economical cycle making monetary policy very difficult. What is good for France and Germany might not be good for Slovenia and Slovakia. Member countries have lost the ability to alter their monetary policy as it is now done centrally at the ECB.

The Euro is seen as a risk sensitive currency, meaning investor will stare clear of the Euro in difficult times. The last few days has shown this with the Dollar gaining on the Euro. Increasing global inflationary risk will see the dollar rise further.

Greece, Spain, Portugal and Ireland are facing massive debt problems which will put further pressure on the ECB to do something. Greece in particularly is looking at debt levels north of 130% of GDP
Without interest rate control, individual countries need to rely more on wage and price advantages leading to lower growth and higher unemployment across the entire region

Recent years have seen the Euro grow in strength against the Dollar and Sterling, however one could argue it was the inherent weakness in the economies of the US and the UK that contributed more to this than anything the EMU was doing. Europe has been dogged for years with low growth rates which has stopped it becoming the force it promised it would be. In reality most transactions still take place in US dollars and at times of uncertainty people will still turn back to the dollar as a safe haven. Europe faces many challenges, most notably crippling levels of debt brought on by low interest rates, which will certainly affect the Euro’s performance.

Personally I found currency quite a volatile, risky investment. I would not recommend it as a long term investment for this reason. I think it is more speculative with investors taking short term profits. Below is a graph which I hope helps demonstrate this; it is a 10 year graph of the Euro vs Sterling. For the most part you can see it hovered in the same band for most of the 10 year period. Yes you could have made profit during peaks and valleys but long term it would have done nothing and again since the Euro’s strengthen in 2008 it has not really shown any strong trends. Compare this to the 10 year performance of the S&P 500, which show steady growth after 2002 and before the latest down turn and seems to be heading that way again.

In the end a stable currency helps the global economy; recently North Korea devalued its currency which in essence halved the value of every person there, an extreme example of currency risk.

Euro vs Sterling 10 year performance

S & P 500 10 year performance

A spoonful of sugar...

2010-01-22T14:12:00.002+08:00

Last year I wrote a little about food and agriculture and state of the current market. Agriculture has always been an interesting asset class, my own experience and research has shown it as quite a volatile sector and has influences across the spectrum from natural forces to government intervention. Despite this the sector has produced some good results and recent activity suggests a surge in current prices.

Here in Malaysia, sugar is an important part of the economy- it seems to be in everything (including bread). While in the West sugar is not the commodity it used to be, it still plays an important role in emerging nations (particularly in Asia). This season has been particularly bad for sugar producer; El Nino has cut the production of sugar crops in India, Central America and in particularly Brazil which accounts for 60% of world exports. This has lead to a supply shortage and consequently a price hike (150% surge since Jan ’09). As emerging countries scramble for sugar supplies the issue has become a political one with governments intervening to control the prices and re-build stores.

This brings me to the point of agriculture as a sector, food is such a necessary part of life that it is effected, as already mentioned by a number of factors. Because of what it is, food is subject to weather and natural forces. A hurricane, drought, frost, flood, etc can have a massive effect on the crop that is produced therefore affecting supply and consequently price. If there is not enough of something (supply) people will be willing to pay more to have it (demand), a simply yet intriguing part of economics. The problem for agriculture is that more often than not governments will intervene in an effort to reduce the price (including relaxing import laws, subsidising the price, etc). Two competing forces which give agriculture its volatility of course one must also remember that the next season may produce a bumper crop given way to oversupply.

Personally I see agriculture as more of a short term investment and therefore more towards the risky side of the spectrum. Given the rises seen recently in food you can see the potential profit that can be made and while I seem to be knocking the sector I think it is something that should be considered as part of a balanced portfolio

Side note: isn’t it bizarre that El Nino is being blamed in India for drought and in Brazil for rain. Mother Nature works in mysterious ways

2010-01-21T13:12:00.001+08:00

Tis the season to be…older! Christmas is gone and now we move on to birthdays. Debs is turning one year older this weekend, I want say how old for fear of my life.

Personally I’m not too bothered by birthdays and the number that is attached to them, I feel it’s important to just live life and enjoy it whatever your age, I am always reminded from a few years ago when I used to go to dance parties, one of the most popular revelers, who attended almost every party was a guy in his 70s wearing a pink shirt…brilliant. However I do sometimes think about age and how I’m getting older, things pop into my head such as sportspeople, singers, actors and the like who are now all younger than me. I think about the All Blacks back home, most of them are now younger than me! I only ever remember them being older than me.

But seriously happy birthday to Debs and anyone else who celebrates shortly.

Cadbury says no....then yes

2010-01-20T16:00:00.003+08:00

The world of business is a funny place and the recent news of Kraft foods buying Cadbury (the UK’s famous confectionary producer) has only enhanced this notion. Yesterday the Cadbury board accepted a £11.9 billion deal from Kraft Foods ending four months of public sparring over the company and its value. The deal is a cash plus stock offering meaning Cadbury shareholders will receive cash (500 pence per share) and 0.1874 of new Kraft shares for each Cadbury share.

What is most interesting about this deal is the hostility that has surrounded it. On more than one occasion the Cadbury board has dismissed the deal outright describing the management of Kraft as unworthy of investor confidence with an abysmal track record. Here are some quotes from Cadbury Chairman Roger Carr

“...no strategic, operational, managerial or financial reason” why the two companies should become one

An “unfocussed conglomerate” with “unappealing categories” and a “management that ‘under delivers’”

"They are offering some money but it's simply not enough for a company that has produced an outstanding set of results and is one of the UK's great iconic brands. ..If you want to own a company like that you have to pay a lot of money."

The statements are bullish and clear that Cadbury was unimpressed with Kraft and did not want to sell Cadbury to such company, the board went on to dismiss subsequent offers as “derisory.”

But then we hear that the board had indeed accepted a new offer (yes more money) and will recommend the deal to all shareholders, on the surface a complete surprise one week Roger Carr is saying one thing the next he is saying this;

“We believe the offer represents good value for Cadbury shareholders . . . and will now work with the Kraft Foods' management to ensure the continued success and growth of the business”

So what changed? I guess this means that Kraft is not that bad and their management must be above average, well the answer is simply MONEY! Despite the heart-felt pleas to not sell Cadbury it seems all the board wanted was more money and when Kraft provided it they jumped up asking ‘where shall we sign.’ To me it makes big business seem all the more hollow, yes a company’s primary role is to its shareholders but what happened to a company sticking up for what it believes in and where it has come from (Cadbury has remained independent and profitable for almost 200 years). We live in a world where money rules and globalization has given us big conglomerates with no identity and while some will win (namely Cadbury shareholders), others will lose (most likely the workers with reported job losses).

So when you hear a board dismissing an offer to buy, it is most likely a tool to make the prospective buyer offer more nothing more nothing less. Will the deal work, maybe but it is too soon to tell. History is littered with ties ups that have not worked- AOL and Time Warner is a good example. History also tells us the Trans-Atlantic ties up do even worse.

Have we learnt from 2008-9?

2010-01-15T13:58:00.003+08:00

It has always made me laugh when, after a night out and too many drinks, the next day someone will quite bluntly tell you that they will never drink again, yet the next week they are at it again and saying the same catchphrase the following day. In some ways this happens in the world of investing; we tell ourselves we will learn from past mistakes only to make them time and time again. Today I read an interesting article discussing this particularly point and I would like to give my own view on its content.

1. Stock markets are expensive
A recurring theme with investors seems to be the uncanny ability to buy high and sell low. In other words people see share values going up and realise they need to be in on the ‘game’ only to start buying as a turn takes place. When the stocks go down a panic sets in and the same people who brought high tend to then sell low. We have seen over recent months stock markets grow rapidly so one needs to ask how much more growth can then be before a correction occurs.

2. Signs of complacency
When people are making money they very quickly forget about what happened previously. It was only 12 months ago that markets plunged to record low levels. Have investors learnt?

3. Inflation risks.
Inflation has become a topic of conversation more recently- food and commodity prices are going up and as central banks print more and more money so the money in circulation increases causing inflation. Central banks are now going to have balance stimulating the economy with the risks of inflation. Inflation can undermine the performance of an investment vehicle.

Inflationary pressures stacked up with the massive burden of debt many developed countries are now faced with may put serve pressure on the value of money. In short you need to protect yourself against this and you need to think of alternative ways to grow your portfolio without going 100% back into stock markets. As we have discussed here before gold is just about the best way to do this and with its recent performance and market rumblings should form part of every portfolio. There are a number of funds which actually hold physical possession of gold. This is a good place to start.

New Years resolutions Part Three

2010-01-14T11:39:00.005+08:00

Recently I have written about the importance of defining your situation and goals before sitting down and planning an investment strategy. I want to take an overview of how you put a strategy into action. In general you can choose to either 'invest' yourself or use an advisor to assist you.

Investing yourself

The benefits of this approach come mainly down to one thing- simply you. You decide where to invest, how much, how long and manage it yourself. While this may seem great and allow you to avoid 'middle-man' costs, in the long run it may end up costing you more and not just in money.

Investing through an advisor

An advisor will do the leg work for you- find out about you, your goals and your risk levels and then develop and appropriate strategy (including where to invest, how much and how long). In addition an advisor should manage this portfolio in consultation with you. This is not the only advantage of an advisor. An advisor has it his disposal a number of platforms which can make the investment process easier and cost effective. Some of these platforms allow you to invest into every known, regulated fund worldwide, many of which are often only available to institutional investor and therefore not accessible to the average investor (in most cases a fund will require massive initial investments). In addition these platforms allow access to funds at a cost far below 'normal rates'. A typical platform product is known as a Portfolio Bond (each institution has its own adjective to describe this) and can be accessed for as little as US25,000.

In summary there are a multitude of options available for an investor, however the portfolio bond allows access to the global investment market through one simplified platform.

Malaysia Update

2010-01-11T12:31:00.004+08:00

Before things really start to ramp up for 2010, I thought it would be a good chance to talk a little about life in Malaysia and what it is like to live here.

Since arriving here we have gone from the extremes of loving the place to wanting to take the next plane back to New Zealand. While we have enjoyed our time here there are some things that have taken a long time to get use to (if you can ever get use to it!). Malaysia is a melting pot of culture and religion; made up of the Malays, Indians and Chinese and while things seem to work well, under the surface there are noticeable tensions that exist- mainly around where each of these three main ethnic groups fit in society. Similar to a number of countries in Asia, Malaysia is still finding its feet in terms of a truly Democratic state (one party dominates power). While this has created some stability it can has made some feel somewhat disenfranchised.

The country itself is beautiful with amazing wildlife and some of the oldest rainforests in the world. Where we live in KL, the city is nestled amongst beautiful lush rainforest, although the growing number of building projects has tarnished this slightly. Living here is very easy; most people speak English, the food is amazing and readily available (including decent Western if food if that’s your thing), the people are generally friendly and happy to help (even if they have no idea how) and living is relatively cheap compared to most Western countries.

KL itself is a bustling metropolis of big roads, tall buildings (built and not built), cars and masses of people. When I first arrived I was rather daunted by the roads here- motorways that go round in circles linking to other motorways that go in other circles. We live about 8km out of the city and love it, our trips into town keep reminding us of why we choose to live where we do (traffic jams, crowds, noise and everything else that comes with live in the centre of a city).

I am impressed every time I see these buildings

Working here different and takes some getting used to. The mentality of the worker (from the boss all the way down) is not something I or Debs was used to when we arrived. Debs in particular found it difficult adapting to the local work conditions.

Overall Malaysia is a great place to live but does take some time to settle in properly. Every day presents new challenges but overcoming them is part of the enjoyment of moving to a new country.

How many pallets would it take to store the US National Debt in $100 bills?

2010-01-07T14:37:00.005+08:00

While slightly light hearted, its is a little disturbing also. Bear in mind the following picture is of only $1 trillion and the US National Debt is now well north of $12 trillion.

Remember these pallets are double stacked, add 12 more of these and you get the idea....its a heck of a lot of money. Even saying the word 12 trillion conveys little of how big that figure is (12,000,000,000,000- it has twelve zeros) and yes that blur in the bottom left corner is a human being!

On a serious note, having so much debt can be dangerous take a look it for a personal perspective the more you spend on your credit card the more you have to pay back. If you then have to spend on some unexpected, big ticket items more and more of you income is being used to pay debt. At some point you are not going to generate enough income to pay back your creditors. What happens then?

While i'm sure the US is in no such position it does make you ask where do they get the money to pay for this massive stimulus packages. The US is not alone in this with a number of countries facing low growth rates but spiraling spending packages.

But enough doom and gloom, lets all smile that we now know what $1 trillion worth of $100 bills looks like...hello pointless trivia!

New Years resolutions Part Deux

2010-01-06T12:51:00.004+08:00

Last week/decade we talked about using the start of 2010 as a time to sit back, reflect and analyse your current financial situation- including all assets and liabilities, aswell as any investments currently in your portfolio. From this I wanted you to have a think about what you want to achieve from your investing i.e. your goals. This is the first step in defining your investment strategy, without goals you have nowhere to start and nowhere to aim for.

As you all know there are so many options at there in the world of investing- stocks, bonds, commodities, property all the way down to a simple bank account (or cash stuffed under a mattress). Any investment involves some type of risk; risk varies depending on what the investment is, for example a bank deposit would be perceived as low risk compared with an investment in the stock market of a developing country. Step number one is to ask yourself the following;

1. What are my investment goals?
2. What is my risk profile? (you can use google to search for questionnaires that can help you assess this)

You need to answer questions such as your investment time frame, your expectation of growth and how you would feel if your investments fell one year but went up the next (volatility). This will help you narrow down the potential options for investment and therefore your strategy. For example if you don’t like risk and are looking primarily for income you would more than likely ignore stocks and commodity based funds, focussing more on bond and cash funds.

It is important to do this sort of thinking yourself, I ask all my clients to do this so when we come to working out a strategy it is something that has been done together. An advisor is there to do the research and work around selecting investments for you however the client should be involved in defining what that strategy should be. This way you are involved with the process, making sure those goals you initially defined are being reached.

2010-01-05T14:17:00.004+08:00

2010 here we are! Do you find it's never as big a deal as people make it out to be? Not quite an anti climax.....but almost. Ah nothing like starting the new year with a touch of cynicism.

Well Christmas and New Years has come and gone, Both Deb's and my first in KL. I have already talked about Christmas here and how little build up there is and before you know it, it's come and gone. New Years is a little different and we ventured out to a dance party on the city. We managed, after much negotiation to get a taxi to a monorail station (and from there into KLCC), as always the towers looked amazing and was crowded with tourists and locals alike. After a couple of drinks and a wee dance we went to the towers to see in the new year and watch some fireworks. Unfortunately for us and many other we were on the wrong side of the towers and saw nothing. Despite that disappointment we enjoyed our night out. This where we were;

This concert was followed up two days later with one from the Basement Jaxx, although by the time they came on we were ready to leave. Both of us had come down with the flu (not swine...I hope!) and were already struggling for energy.

Now its back to work and everything that comes with that. I start 2010 with high hopes, 2009 was an interesting year and for me personally one that proved very challenging. Now as we settle in to our new life in KL, we can look forward to enjoying ourselves.

New Year's Resolutions

2009-12-28T13:05:00.004+08:00

Wow Christmas has come and gone like that (I swear I missed the whole thing!) and we approach the New Year in only a few days time. It is a little strange writing 2010 instead of 2009...at least we can move passed that horrible term the ‘naughties’.

Last week I wrote about some talking points for 2010, but more from a global perspective, i.e. the price of gold, etc. It is my job to be looking at these things, making sure i’m up with the latest news and views and passing that knowledge on to my clients so that together we can make some informed decisions about their portfolio. However it amazes me how inactive many people are when it comes to their own finances. They could be a financial controller for a major company yet their own investment portfolio is chaotic with no clear strategy (particular in retirement planning). Now i’m not one for resolutions but I ask you this, 2010 is coming and after the past year or so I urge you all to sit down (either by yourself or with your advisor) and think about the following things;

1. Where is my money and how much? Try and list everything down in an orderly fashion covering the major areas-assets (property, unit trust/mutual funds, bank accounts, shares, superannuation/pensions/saving plans), insurance (life, medical, etc) and liabilities (mortgages, loan, etc). This will give you an overall picture.
2. Retirement. When would you like to retire and how much of your current income would you need to do this (the typical figure is 50%).
3. What are your financial priorities? This could be a number of things but some examples are- retirement planning, savings, property buying, education fees for children, wealth preservation, etc. Try and rank these in order of importance to you.
4. Risk profile. Think about your attitude to risk and how much you are willing to take.

By doing this sort of analysis you can gain a picture of your finances as they are now giving you a great platform in which to build an investment strategy. I do this with all my clients (it takes 15-20 mins to list these things) and from here we go about creating a strategy that will hopefully get them where they want to be.
I am off to Melaka for a few days tomorrow (so much needed R and R, away from KL!) but will be back next week to talk a little about how to found the right strategy, including investment choices. This will allow you to look at your current strategy (and fund allocations) and decide whether it is working for you.
Happy New Year to all! If you have any questions send me an email.

2010 Talking Points

2009-12-21T15:40:00.004+08:00

What will 2010 hold for the world, as I gaze into my crystal ball I can't see much but here some things i've been thinking about:

1. What will the US dollar do? It has firmed more recently but has been trending downwards for some time. Will the Federal Reserve intervene to protect its value?

2. Will the price of gold continue to break records? We have seen increased volatility over the past couple of weeks but there seems no reason why price rises should stop. If so will silver and platinum follow suit?

3. Will the emergence of the BRIC countries continue? Growth in Asia is strong again boosted by increased consumer spending (coupled with strong growth in Russia and Brazil), recoveries in the developed nations has been somewhat slower. How will this affect relation between the developed and developing world (recently on show at Copenhagen).

4. Will debts levels become a major issue for some countries, potentially destabilising lending again?

5. Stock markets have risen substantial over the last six months, will this rise continue in 2010?

6. With all the talk on gold, not much has been said about the price of oil. As the world comes out of recession, will demand for oil increase therefore pushing the price back up? Increasing oil prices has the affect of pushing up prices for food and other commodities. Will this be a good year for these funds?

7. Have our banking friends (yeah right!) learnt any lessons from 2008 and 2009. Lending and liquidity are still major issues, in addition to significant government oversight. Will we see the same record profits and bonuses? With all the money floating around from government stimulus packages, we still need the banks to lend this money to keep the cycle flowing.

8. Talking about stimulus packages- is inflation going to be an issue in 2010?

I’m sure this list could be pages long, however the idea is to simply think about factors that may influence your investment success next year and then (with your advisor) make a decision about where you should be. A good investment plan is one that is tailored to your needs (risk profile, age, income, etc), but also one which takes market factors into account. For example many think the US dollar is going to continue to fall next year, therefore you should take this into account when investing and deciding on which currency to do this in (as always diversification is a good idea).

What do you think will be a big talking point next year?

Xmas...already!

2009-12-18T12:57:00.005+08:00

We are only a week away from Christmas, so two weeks away from the new year...WOW how fast has 2009 gone? I must say I have enjoyed the Christmas buildup (or lack of) in Malaysia. As a Muslim country Christmas is not a major event, it is celebrated but not to the level that we get in the West. It has been rather nice not being drowned by Christmas advertising and the commercialization that seems to be part of it now. Although Christmas seems like a good excuse for another public holiday here (we have had two already in December), I tell you what if you like four day weeks this is the place for you!

It certainly has been an interesting year for Debs and I, settling in KL not really knowing what to expect. We have had many difficult days where we just want to pack our bags and head back to New Zealand, however we are still here and starting to really enjoy ourselves. I am loving my job and the range of products, institutions and the like I get to deal with and Debs is slowly but surely finding her way and a job she enjoys.

I know I am a week early, but seeing as its a public holiday here shock horror) I will do my merry xmasing now and be back to business next week. Thanks to everyone who reads this blog, 2010 should be a great year and I hope you will all join me.

Tell all your friends about it!

China marches on

2009-12-16T15:55:00.003+08:00

Last week I spoke about the Copenhagen Summit and my hopes of the world’s political establishment reaching an agreement on carbon emissions. The general consensuses, amongst joe public, is developing countries are in no rush to do anything about climate change because, as they put it, it was the West who is responsible for most of the current carbon emission problems. However, things appear to be changing, with China asking the US to make more concession either equal or more than their own. Consider the following article I read in the Wall Street Journal; China is now becoming the key player in technologies that can reduce carbon emissions. The Government is investing billions of dollars in cleaner burning power plants and low emission manufacturing and export zones. China has also emerged as a key manufacturer of solar panels, accounting for both 30% of the market and 30% drop in solar-power prices globally (China can manufacture the panels at a much cheaper rate than anywhere else globally), with ambitious goals of making the price per watt comparable to traditional sources of electricity. In addition China is continuing to subsidize poor economies in their efforts to reduce their carbon footprints, a programme the West has been unable to agree upon.

China’s shadow grows bigger each year and its ability to adapt seems better than that of the West (partly because of the lack of democratic process involved in decision making and therefore little or no red tape), the inability of the US to come up with a concrete framework allows space for the likes of China to fill the gap as the world leader, potentially further eroding the West’s and in particularly the US’s influences in the developing world. This summit was shaping up to be all about the US vs China, China has made its green intentions clear. The US has not.

While China has a long way to go, it is after the world's biggest polluter, running many inefficient factories and power plants it is making the right signals.

Just as an aside on what I wrote last week about the BRIC economies, the attracting in investing ia a place like China is its ability to change and alter its business as the market changes. By investing money in green technologies it has the pole position in terms of benefiting from a green boom. Its manufacturing capability is unsurpassed and despite market conditions China is predicting 7%+ growth next year. Taking moral arguments at of the equation, China continues to be a fantastic investment opportunity.

BRICs and motar

2009-12-11T13:29:00.006+08:00

Well after the semi-rant regarding Copenhagen on Wednesday it might be time to get back to business. As we near the end of the year we start to get what the media love to call ‘the year in review’, fortunately (or unfortunately depending on your take) we are entering a new decade next year so we can also look forward to the ‘decade in review’. While I don’t intend to badger on about this it can sometimes be of use to have a look at what has happen over the last decade and the changes that have taken place. The following article (albeit brief) looks at one of the fundamental changes over the last decade, quite simply the shift from developed countries to developing countries. The countries, often labelled the ‘BRIC’ countries (Brazil, Russia, India and China) have enjoyed sustained growth over the past 10 years and are the ones who have exited the recent downturn not only the quickest but also the strongest. Meanwhile so called developed nations have reported stagnated growth rates and rising debts levels (more often than not to these energy rich BRIC nations). Within this century the likes of China and India will rival the US and Japan in terms of economic size and with this a potential shift from the west to the east and while past performance is not indication of future performance, this past decade has shown the potential of the BRIC countries. There are number of funds to select from in this region and when thinking of your portfolio, equities out of this region should be seriously considered.

To hammer the point (short term anyway). Recent data I have analysed from Generali for November shows the top 10 worst performing funds are based in developed markets, the top ten come from developing markets, aswell as gold and resource based funds.

Climate change...my two cents

2009-12-09T16:22:00.004+08:00

The climate debate rages on and whatever side of the fence you sit on, it’s hard to ignore the changes that seem to be taking place. Storms seem more frequent and intense, droughts seem longer and harder and it’s raining in places where it has not done for generations (namely the Sahara). The world is warming up and like the human body, slight changes in temperature can have drastic effects all over the Earth’s surface. Whether or not humans are having an impact is a moot point, but don’t you think that reducing our emissions is a good idea regardless of its impact on the planet. I walk down the road and see litter everywhere, sea water that is brown coloured, tap water that must be boiled before its drunk and smog covered horizons slowly choking its inhabitants. Yes there may be some economic heartache but I know for a fact, if asked people would want to wake up in the morning to fresher air or be able to go to the local stream or river for a swim.

The Copenhagen Summit has just started and the world awaits some sort of agreement on reducing carbon emissions. The cynical part of me does not hold out much hope as each country has its own agenda and its own reasons to not want specific targets set (coupled with powerful lobby groups it is a difficult wall to climb). Last week I read a disturbing article indicating a bill going through the US congress banning organic farming! Really, I mean who does this benefit but the powerful fertilizer company who has been lobbying for it. The idealist part of me hopes everyone will put their differences aside and sit down human to human (as equals) and realise that we are all the same and have a vested interest (not just money) in maintaining the Earth, our home.

For those of us who have been told that when we invest it is about time in the market, long term commitment leads to long term gain. This is how these leaders should view this debate. Invest in the technology now, yes it may lead to some short term losses but in the long term we will all benefit (especially our kids). I always remember the story of a former mayor of my home city, Auckland; he spent almost the entire budget on an ambitious plan to modernise Auckland’s sewage system. While unpopular at the time he could see the long term benefits and while it’s not perfect it’s better than it could have been had he not had the vision.

Let us hope for the best out of the next two weeks but we can all do our bit too. Next time you clean your teeth turn the water off as you clean them or refuse a plastic bag next time you are at your shop. Imagine if everyone did just one thing...should we keep keep the Earth looking like this?

or like this

And on the lighter side...

2009-12-07T14:43:00.004+08:00

With all the recent doom and gloom about world markets, bank bailouts, increasing prices and falling pay its always nice to sit back and have a laugh at some of the more bizarre happenings in the finance world. I stumbled across a couple of articles on the weekend detailing just some of these events. So for the next few minutes forget about all the negativity and have a read of these and if you can smile and have a laugh, after all laughter is the best medicine and it can make you feel so much better about life.

Article One

Article Two

Up and up...

2009-12-03T11:31:00.001+08:00

Gold just keeps going up and up, everywhere I turn (website, newspaper, people) I hear about the price of gold and how its broken new records. Of course it’s easy to report a record being broken but as to where the price might go...well that’s a different kettle of fish. Gold is negatively correlated to the US dollar, as the Dollar moves down the price of gold seems to move up. Most of the world's trade is still done in US dollar and all countries hold large reserves in US dollars, recent talk has been about the demise of the Dollar which has seen many rush to gold as a safe haven and mutterings of going back to the gold standard. While it may be premature to talk about the end of the Dollar domination (I’m sure the US will do all it can to maintain its global economic supremacy), down the line it may be inevitable, still as I mentioned the world economy still runs on US dollars and despite some misgivings this still remains a fact and will do for some time yet. Meanwhile here is an article regarding an opinion on where gold may go

Every little bit helps

2009-12-01T13:17:00.002+08:00

An article I read recently reminded me of something that was happening back in New Zealand before I left- a ballooning of companies specialising is getting tax refunds for their clients. What a lot of people were unaware of was the massive amount of tax refunds that sit with the IRD and go unclaimed because people have moved address, changed jobs resulting in a new pay scale, amongst many other reasons (we all know the tax men are generally slow at repaying us but quick to hound us when we owe).

In tough economic times we all seem to tighten our belts, maybe cancelling a planed holiday or choosing to not upgrade the family car. Generally speaking these companies require only your name and your tax number, from here they can find out whether you are owed any money or not and they, from my experience they only take a fee if there is a refund (alot of them can also look at previous years not just last year). Take the article I read it stated that in the US last year there was US$123 million in unclaimed tax refunds, with an average size of almost US$1,200. These sorts of stats probably apply in most countries, you can imagine how nice it would feel to get some extra money in your pocket right before Christmas.

So if you think you have paid too much tax or are just curious why not do some research and see if you are one of the many owed refunds. I did one before I left New Zealand and was owed just under NZ$300. Remember every little bit counts and it’s always nice to get something back from the tax man.

Speaking of Christmas its already December (my brother's birthday today, best wishes to you), hopefully you will have a nice one and we can look forward to some stability in the global economy in 2010. Christmas time tends to be positive for the markets and we all hope history will be on our side this year.

Retirement and where to start

2009-11-28T11:04:00.004+08:00

A couple of weeks ago I started looking at this issue of retirement, looking at some figures demonstrating just how much you may need of your nest egg and how starting early will help immensely. Today I want to look at a plan of getting started on retirement savings.

I think the most important things is to be active and aware. Aware that you will need some form of retirement savings in the future and aware that a good percentage of these savings will need to come from you (government pensions seem to be becoming smaller and smaller). The second part is to be active in your planning and execution, while it is important to get the right advice you need to be active in a way that allows you to understand where the money is going and how much growth of your savings is progressing. I see a number of people who have started saving but have since forgotten who the plan is with, where the plan is investing and how much the plan is worth. By being aware and active in your retirement planing you will have more incentive to make sure its working for you.

Step 1: Do a budget and work out how much you can comfortably sit aside each month

Step 2: Seek advice. There are many different types of retirement plans on the market you need to find the one that best suits you which will depend on your age, risk profile and how much you wish to put away, amongst others. Good advice will assess all these and recommend the best way to proceed

Step 3: Keep track of its progress. This is important as plans as you want to make sure you money is working best for you, when your situation changes (say a new job) it may be a good time to reassess your plan

Step 4: Be flexible with your contributions, if you can put aside more then do this.

This is a very simplistic look at retirement savings, as I've said before the first step is simply thinking about the need for retirement, this will hopefully spur you into action. A simple google search may give you some ideas on where to start.

Remember we all want the chance to retirement on our own terms, so happy nest building!

Other strategies in a weak market

2009-11-25T14:23:00.000+08:00

With the hysteria that followed the stock crash in 2008, a lot of people retreated from the markets and in to the safety of bond and bank products, generally low paying but ‘safe’ investments. There they sat, or still sit earning an investor next to nothing (except charges in most cases). Many of these people are still uncertain about where to go next, markets seem to be recovering but the experience of the last year or so has lead a lot of causal (i.e. not professional) investors to become a little gun-shy. There is another strategy one can use before deciding to re-enter the market, one that is often overlooked, simply put its paying down your debt. This could be in the form of credit cards, personal/business loans or mortgages.

Look at it this way if you are earning 3% (probably less at the moment) in your bank account and you are paying 14% (compounding) on your credit card, technically you are losing money after each interest period....making 3% on your money but paying 14% on the balance of your card. This figure could balloon out on a mortgage (usually larger payments), even if the rate is half that of your card.

Look at it this way, the sooner you pay a debt off the sooner you are no longer pay someone else for something you already have. Every mortgage payment you make, you increase the equity in your property and reduce your commitment to the bank. Once a debt is paid, money you have earned is your and can then be used to invest with all the proceeds going to you. Even increasing your mortgage payment slightly each month can knocks thousands of dollars of interest off.

It is something to consider; is your money better sitting in the bank waiting for the right investment opportunity or is it better served paying down your debts which will benefit you in the long run. I have seen many examples of people getting in over there head with debt, to the point where everything they earn goes to service these debts. Manage your debts is arguable as important as managing your investments.

Feeding a growing population

2009-11-23T15:20:00.003+08:00

While everyone seems to be talking about gold and where it will go next (only last week did it break the $1,150 barrier for the first time) there are other sectors that, over the long term may see even more growth.

Take a look at this article in the Economist. The article discusses the future of agriculture and the part it will play in the next 50 years. Startling are the statistics on population, by 2050 the world’s population will be over 9 billion (it is currently sitting around 6 billion) and with each new baby born the need for food and water also increases. As we all know Earth’s resources are finite and in particular the land which is needed to grow food and the fresh water required to keep the land irrigated. Shortage in these resources aswell and the underinvestment in the sector (by governments) will put pressure on world prices (such as staples like wheat and corn). According to the UN over 1 billion people will go to bed tonight hungry (out of 6 billion that is a poor stat), if we are unable to feed these people now what will the situation be like in 2050 with all those extra bodies to feed. The graph I have placed at the top shows the explosive population over the last 100 years and projections up to 2050, while some governments are shunning agricultural markets (by increasing already high subsidies), the article, in my opinion correctly postulates a looming disaster should these markets be rejected.

The constant need for food will bolster trade as government s scramble to feed their ever growing populations. This may flow through to positive results for those invested in funds based in the agricultural sector. I ask you this would you prefer the world to run out of oil or run out of food? Probably neither but I would still rather eat than drive!

The 'Journey' so far

2009-11-20T12:37:00.002+08:00

As we head towards the end of the year and for myself and Debs our 8th month away it is a good chance to reflect on the year that has been. We have travelled to a number of new places and caught up with friends not seen in years. We also made the decision to stay in Malaysia, settling in KL in August of this year. Since then we have started working, found a lovely apartment and started the task of trying to settle in to a way of life neither of us have experienced before. We have had many ups and downs which I would like to share with you today.

The biggest challenge is being away from friends and the comforts of life as you know it, it’s like starting all over again. We are only now starting to mix with people and attend social engagements, coupled with trying to make our place feel homely (buying plants, putting up photos) is helping us settle in better. Work also has its ups and downs, for me it the challenges of the market downturn and the bad taste left in people’s mouths over past dealings with financial advisors. For Debs it is adjusting to working in a Malay style environment which is much different from working back in New Zealand.

Christmas will be hard as it my first time away from my family, but we have had a number of offers already which is fantastic. We know that if we work hard and maintain our desire we will be happy here in KL. It is an amazing place with a lot of potential and we both want to see that realised.

Can anyone invest in gold?

2009-11-18T14:19:00.001+08:00

The short answer is of course! A healthy portfolio invests in a wide variety of asset classes with exposure to different regions. It’s the old argument of not having all your eggs in one basket. For example if you had all your money with Enron as opposed to having a very small percentage in Enron under a diversified strategy (in essence it helps minimise the potential for big losses). As we have already mentioned gold (or precious metals) is seen by many as a safe haven during difficult economic conditions and will often hold its value while other asset class fall around it, therefore it is important to consider gold as a part of any portfolio. Below are a summary of the ways one might do this:

1. Physical gold investment
This can be through a range of avenues including gold bars, jewellery and coins (often called bullion coins they come in a variety of weights and are based on daily gold prices). Buying gold this way means you are in actual physical possession of the item and will need to store it.

2. Mining Stocks
You can purchase shares in a precious metal mining company. Shares are often more volatile than the price of gold itself. As a shareholder you will benefit from the profits of a company through dividend payments.

3. Gold or gold related funds
Unit trusts managed by professionals who pool the money of individual and institutional investments. The advantages of this type of investment are the initial outlay can be lower and the vehicle itself is diversified due to the buying nature of the fund (various stocks and precious metals in some cases).

These are the three main ways an investor can look at when thinking of a gold investment. Unit trusts have the advantages of being diversified and run by professional managers. There are a number of funds available including from managers such as Blackrock and Fidelity.

This post has been written with the aid of Moneyweek.com and the Star newspaper in Malaysia.

2009-11-16T13:41:00.003+08:00

Currently gold is breaking records as prices hit record highs regularly. Consider this article from Bloomberg. The US dollar continues to weaken and as we mentioned in the previous post, investors use gold as a safe haven to offset a weak dollar, combined with India’s recent purchase of 200 metric tonnes of gold (from the IMF) has helped pushed the price of gold well above US$1,100 per ounce. Some observers are now saying that US$1,300 per ounce is not out of the question with the way the Dollar is behaving.

I read a couple of interesting article recently giving opinions on where the price of gold may go in the future, you can read them here and here. Aside from the declining dollar there are other factors which can influence the price of gold such as inflation (we have seen a huge increase in money printing with various government stimulus packages) leading to a lowering of confidence in ‘paper money’, supply problems (such as difficulty with new gold extraction) creating an imbalance with demand for gold and increased demand from countries such as China to diversify their US dollar holdings. It all seems to add up to a continuing price increase for gold, however the questions remains how high will it go before a correction takes place. I leave you with this article, looking at gold from a slightly different perspective.

Gold This and Gold That

2009-11-13T18:00:00.002+08:00

It seems to be flavour of the month gold, so why is everyone talking about it. For centuries gold has been at the cornerstone of civilisation for its status as a sign of wealth and power and of its place as a near universal currency. Some perceive gold as a safe haven for uncertain economic times. Some consider it to be a more stable investment class than others and it can be effective in combating the effects of US dollar fluctuations (due to their negative correlation- i.e. if one goes up the other goes down). Because of these properties, these same people would say that all investors should consider, as part of a diversified portfolio, gold or gold related investments. Over the next few days we will look into gold and see what sort of investment it is, its risk profile and what the ‘experts’ think will happen with the price over the next 12 months.

More Rumblings on Retirement

2009-11-12T14:27:00.003+08:00

I don’t want to harp on too much about the need for retirement savings but I just want to quickly mention another article I read recently on investopedia.com- this time relating the US. A study there suggested that by 2030 there will be a shortfall of some $45 billion between the amount Americans need and the amount they will have in retirement. The article goes on to cover what I think is most interesting, that is how much will I need in retirement? Bear in mind all this is in US dollars but it suggests that if you want $1 million in retirement (or $60,000 a year), you will need to save at least $440 per month...for 35 years (assuming an 8% p.a. return). Obviously the shorter the time frame the more you will need to save each month. The key here is if you want to retire on your terms and enjoy the kind of lifestyle you want, you may need to think about this sooner rather than later. Of course it is very easy to say ‘Start saving now...or else!’ but there are so many things to consider, just remember anything you put away now will help just that little bit in the future.

Day trip to Singapore

2009-11-12T11:05:00.002+08:00

I find it amazing that you can hop in a bus and arrive in a different country inside a few hours (being from New Zealand the closet country is a 3 hour flight away, across ocean!). Today I took the bus from KL to Singapore and it was a rather enjoyable experience, the bus anyway- acres of leg room, private screen, free coffee/tea and a meal. Singapore itself is an interesting place, in the second half of last century it split from Malaysia and became its own country, since then it has developed fast becoming one of the ‘it’ cities in Asia. A stroll down Orchard Road will show you why, lined with shopping malls and high end hotels, it is a mecca for all status conscious individuals, like dairies back in Auckland, every corner has LV, Gucci or some other designer brand. It is quite a sight, each mall trying to outdo the other and entice shoppers in. The other thing about Singapore are the rules, while not necessarily enforced it has helped the city be amazingly clean and efficient; it is also quite a compact place making it easy to get around. By doing this it may have sacrificed some of its character and soul. To illustrate this, check out the pics below. We are in early November and this greeted me when I arrive on Orchard Road this afternoon, you tell me if it’s too much too soon (each mall had it own christmas design).

P.S. Christmas songs have begun too...

Musings of the Day

2009-11-10T14:19:00.007+08:00

The last 12 to 24 months have been tough for most investors; falling markets, falling property prices and volatile everything. Only now are people cautiously suggesting we may be seeing the light at the end of the tunnel. Most major indices are up (the S&P 500 year-to-date is up 21%) and in Australia the Reserve Bank has made two consecutive interest rate rises (now 5.25%). So what does this mean for you the investor? Well no one holds a crystal ball, but based on what is coming out of Reserve Banks worldwide we may have seen the end of what has arguably been the worst recession since the Depression in the 1930’s.

Despite all the doom and gloom there have been a number of funds and asset classes that have produced great returns despite the general market downturn. If you do the research and are willing to take a gamble or two (within reason) you will find that even in downturns you can still make positive returns.

Even as you read this there are a number of investment opportunities which experts argue are undervalued and expected to rise significantly over the next 6-12 months. If you have hummed and haad about making a new investment or topping up an existing one, now might be the right time to have another look. Remember if the price is low (and projected to rise) you are able to buy more of it with less money spent. For example:

I buy 100 units at $1 each, after 6 months those units fall to $0.50 each (or $50 for the 100). I decide to buy another $100 worth, giving me an additional 200 units (or 300 in total). After another 6 months the price of a unit moves up to $1.50, my 300 units are now worth $450 for a $200 investment. I benefit from the lower price as I was able to buy more units.

Why does everyone keep talking about Retirement!

2009-11-09T11:10:00.005+08:00

We may not want to believe, but we are all getting older and at some point we would like to stop/have to stop working and retire. Personally I would much prefer to do this on my terms, living the way I want to live. Lets face it we are (at least in the Western world) growing up in an aging population and there is no guarantee there will be any government assistance for you when it come to retire. Governments around the world are already increasing the ‘state retirement age’ (for some it is getting close to 70!). Recent studies out of the UK, by AXA suggest almost 65% of people intend to live off their government pension (currently less than £100 per week for a single pension) and 66% of people have no individual pension schemes. Considering the continuing price rises and aging population, can you afford to not think about saving for your eventual retirement? The earlier you start the less you need to contribute regularly and the more time you have to get use to this money coming out each month (if you decided to start a regular savings scheme. You may also be able to retire before the ‘state’ age allowing you to work less and do more of what you want to do.
So I ask you this:

• When would you like to retire?
• How much money will you need to enjoy your retirement?
• Have you thought or started to save for your retirement?

Over the coming days I will focus a little bit more on this issues, covering how you can save and the benefits of saving (not just for retirement). As always I invite your comments on what is becoming a major issue.

So why Malaysia?

2009-11-06T11:36:00.004+08:00

Good question and one we have often been asked since we arrived. As I said in my last blog my partner (Debs) was born in Malaysia (Miri to be exact) and after going to university and working the last few years back in New Zealand we decided it would be a great time for us to go overseas and work. And here we are. I myself have been travelling for the last few months, during the market downturn my job became redundant at the company I was working for in New Zealand and after working hard for the past five years I said to myself.....time for a long holiday and catch up with a number of friends who are now living in other parts of the world. So after two months in Europe I reunited with Debs and we set off on our Asian journey which took us to a number of destinations, finishing up here in KL, freshly motivated and ready to work. I have resumed where I left off back in New Zealand within the finance industry, more specifically as an investment broker/analyst. Debs has moved into agency life (long hours!) working as a PR associate out in PJ. It is strange, having spent so much time together over the past few months to only see each other at night and at weekends (so far anyway).

Dean

Welcome to Malaysia

2009-11-05T11:45:00.002+08:00

After arriving in Malaysia four months ago there is certainly a lot to reflect on. My first visit to the country, coupled with first visits to Thailand, Singapore and Cambodia, it has been an amazing time to explore new cultures and peoples. We settled in KL only two months ago and these two months have been interesting for both my partner and I. New jobs, new apartment, new friends and adjusting to new ways of life (compared with little old New Zealand). We have had our fair share of challenges (dodgy salesman, taxi drivers, etc) and highs (meeting new people), only now are we starting to feel settled enough to enjoy the road ahead. To me KL seems to be a city of great potential and we are both looking forward to exploring that potential- me as a Kiwi and my partner as a Malaysian citizen returning back after a number of years away. With my work I speak to a number of expats and they all rave about KL and Malaysia and while both of us are nervous and a little scared we know that success is here if we want to grab it.

I welcome you all to my first post and hope you are all well, wherever you may be reading this. I will be here to update you regularly on how we are getting on here and also commented on my real passion which is investment...topics ranging from retirement savings to investing in modern art. I hope you enjoy and feel free to comment wherever you wish.

Dean

About me

2009-01-10T10:18:00.000+08:00

I was born in Auckland, New Zealand and now live in Malaysia. After finishing school I live in the UK for one year before entering university. Once graduated I started in the Financial Services industry where I have been ever since. I love what I do and feel very privileged to do it.