Alternative Investments : Gold?

Gold seems to be the investment on everyone's lips these days.

A financial guru's opinion was that it is a safe haven and given the uncertainty of the times we are in, it has much upside and will hit USD 2,000. (Today's price is USD 1371.00)

My take? It may be worth a bet but if you think about it - What do we actually use gold for? Jewellery? Dowry in places like India?

The answer is Gold isn't that useful and doesn't create value or generate income (unless you sell it).

The recent meteoric rise of it was due to the recent financial crisis as people fled to safety and also the pumping of monies from the western economies to save their economies caused a oversupply of cash and commodities/metals to generally rise.

As such, I think you are better off investing off in something that actually is useful such as copper which is required for the wiring and building key infrastructures in developing nations such as India, Indochina and China or even Lithium! Yes, Lithium. With the rise of use of electronics such as tablets, smartphones and even, electric cars, there is a genuine demand for lithium which is a key component to the batteries of such goods! Read more here for an interview with a manager of a ETF for Lithium : http://seekingalpha.com/article/236071-powered-by-lithium-bruno-del-ama?source=feed

If the economy recovers, you not hedge against inflation (which is why many people flee to gold) but you have more upside if the economy recovers.

I think we are in for better times rather than worse as after the bust in 2008, chances are we are going into a boom.

However, if you're still interested in Gold, you have to be aware on how you would want to invest in it. Shares of companies mining it? Actual physical gold bullion? Gold coins?

I shall find the elaborate the ways to invest in Gold generally and also in Malaysia in another post. Watch this space!

EDIT: Another reason why not to invest it gold - Its average returns just beats inflation - the stock market is best off - http://seekingalpha.com/article/241959-gold-is-overvalued-fundamentals-say-bubble?source=TheMotleyFool

"Gold, over the whole of the 20th century, rose from $20.67/oz in 1900 to about $300/oz in 2000. That’s a fifteen-fold increase in 100 years. However, if you sold a few years earlier or later you could have gotten $400/oz, so allowing the benefit of the doubt let's call it a twenty-fold appreciation over 100 years. That is equal to about 3% compounded annually which, coincidentally, was almost exactly the average rate of inflation for the century. So if you bought gold in 1900, you only broke even after inflation 100 years later. Your ounce of gold still bought you a suit of clothes."

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Risky Move - Contra Trading

No, No.. Cool game but we're talking about Contra Trading larr....

Contra? You mean that uber awesome tv game we used to play as kids!

I'm afraid not! I am referring to how I made a contra sell the last few days.

Let me explain:

Contra trading is when you purchase and sell stocks by not putting the actual money down. Online brokers give you 3 days from the day you purchased it (known as T+3) to put the money down for the purchase (including brokerage fees).

If not, they will force sell it on (T+4) for you and charge you for any losses made. But the upside is if it did go up within those 4 days, you profit.

What happened for me was I have been eyeing Masterskill Education Sdn Bhd (Ticker: MESB - http://www.bloomberg.com/apps/quote?ticker=MASEG:MK). It has been a stock I already have a small holding of it and have been eyeing since it had dropped to an all-time low of RM 2.03 since its IPO debut last year or RM3.80. I was thinking of increasing my holdings believing in Education and how undervalued it is to its peers (HELP and SEGI) but also took into account the concern over PTPTN loans funding its students were in trouble.

So, I bought 6 additional lots at RM2.12 on Monday for long term holdings but for research purposes I thought I would let it force-sell to see what will happen given it rocketed up to RM2.40+ the next few days.

Eventually, Friday (T+4) came and I got a call around 9am from CIMBiTrade inquiring whether had I paid for the stocks and they would force-sell it by noon if I don't force-sell it myself.

I did do so and sold them at RM 2.44 to make a quick tidy but small profit of RM 100+ (yes, force-selling does incur brokerage charges)

Ok, the reason why I relate all this to you is to give a very real example but NOT to say yes you WILL make money contra trading. Most contra traders actually lose money!

By saying I will buy at RM2.12, I have to pay within 3 days. If I don't, up or down, I pay for brokerage fees and any losses! Noone can really tell if a stock will go up in 3-4 days. While MEGB was deeply undervalued, it could have plunged further or what is stopping a plunging stock from plunging further (think: winding up, fraud, etc)

If you're banking on some news like say a takeover, some takeovers don't happen for whatever reason, the price plunges, and you're stuck with a stock with a loss!

Let's go through all the risks involved:

1) If the stock plunges, you have to pay for all the losses not made back by the broker's force sell.

2) If the stock is suspended (it can happen) or suddenly for whatever reason de-listed, you can't sell, you still owe the bank RM X which you have promised to pay legally. This may incur high interest rates until you can pay it off on top of the losses/profits made later from the sale.

3) You may have no control on how much to sell (but in my case, I did because the bank gave me until lunch time to force sell it myself.. I am not sure how often this is the case)

4) Brokerage fees will kill you in the wrong run! Day trading or Contra trading - You will incur lots of brokerage fees! Take my example - you would think 600*(2.44-2.12) = RM 192 profit! Nope - Brokerage fees (including stamp duty) was 56.67 - So I only made RM 135.33 (30% of my profit loss because of brokerage). In the long run, you will have more misses than hits (especially learning this risky play) and you will feel the impact of brokerage fees.

The only benefit I can think of is:

1) No model required to pay down the cost of the shares but see downside no 2)! Ie: Leverage

The biggest assumption running here is everything goes well between your purchase and the trade of your stock.

To end, again I do not endorse this move and I did so with MEGB because a) it was a stock I was willing to hold for long term and b) decided to try this for this blog's research. In the long run, brokerage fees will kill you.

If there are any contra traders reading this, please share any tips or correct me if I have made a mistake somewhere.

While researching for this post, I came across this link:

http://guanyu9.blogspot.com/2010/03/brokers-fight-for-right-to-contra-trade.html - read the comments - contra trading takes up 50% of the trading volume in Singapore and your comment practice among brokers apparently.

Full Disclosure : Joe does own shares in MEGB and will not trade for the next 3 days in MEGB.

My Investment Philosophy - Warren Buffet

I would like to share my investment philosophy and aims which are pretty simple.

I am primarily a long term value investor yet I am willing to diversify my portfolio with some risky plays and some income plays. My modest aim is to have annual returns of 15-20% on my stock investments. I calculate that I would need roughly 4-5 years to double my money at those returns.

How am I going to do it?

If there's one philosophy I'm trying to stick to, it's Warren Buffet's investment philosophy. Afterall, he is arguably one of the best investors around, yes? He has beaten the market (the Standard & Poor/S&P) by more than 300% from 1977 to 2010 to have returns of 27.5% versusthe S&P's meagre 8.9%! (http://www.cnbc.com/id/40864548)

How many can consistently give returns of 27.5%! Warren's the man!

As such, I admire not only his ability, discipline and patience and there are only things some of us can strive for.

The key take-away principles from his philosophy for me are:

1) Be fearful when others are greedy, and be greedy when others are fearful. That's how you get rich according to the 'Sage of Omaha' (as he also is known as)

2) Buying stocks are like buying pieces of a business. You're actually buying into the business and into it future success.

2) Always keep in your circle of competency - Ie: Businesses YOU understand and instruments you understand. He stayed away from the 2002 internet stocks bust because these were businesses not only did he not understand but the numbers did not add up!

3) Have a safety Margin. You can never be sure that your valuation of a great business is correct. So always purchase stocks which are lower than your valuation in case you are overestimating its future sucess!

4) Be patient. Economies go through booms and busts. See 1)!

What about you guys? What investment ideas/philosophy do you guys subscribe to?

Tip on Saving Money No. 1- Bookxcess

Love books? Audio books? Know someone who loves books and you need to get him/her a gift?

Check out: http://www.bookxcess.com/ and the actual shop in in Amcorp Mall, PJ if you don't know about this great place, already!

Sign up for membership and they even give a discount of 5% on purchases above RM50, 10% for purchases over RM150 and above + updates on the latest books. Membership is free - Spend RM 100 and above and you get membership for 3 years.

It sells hardcovers, bestselllers, audio-books and much more at unbelievable prices. I once got a hardcover book for less than RM20.00.

Do note that the condition of the books may not be perfect but hey, at these prices, you'll do anything!

Full Disclosure : If you're wondering, no, I'm not getting paid to post this but this is just a great place to great deals on books. The selection may be lacking but they do get some bestsellers in and good self-help books in!

Stock Comment : Activision Blizzard (ATVI)- Hell, yeah!

There must not be a guy reading this who does not know Starcraft, WoW, Diablo, Warcraft RTS - All games produced by Blizzard which merged with Activision a few years ago. Activision are equally as famous for games such as Guitar Hero and Call of Duty (CoD).

So, it must be pretty natural for any guy to buy stocks of their favourite game maker, right? - ATVI (Activision Blizzard)

But sentiment alone is not enough! Let us have the numbers.

2.8 billion is cash! No debt! The business has generate 1.1 billion in free cashflow in 2009! That shows a fundamentally strong stock.

It has recently bought back a billion of its shares in 2009 and paid out a dividends of 1.4%. With that much money around, it has a few options: Pay a dividend, buy up its own shares, acquire a new company or plough it back into other products/R&D.

The upside? It has Diablo 3 coming out (fingers crossed!). Recently the latest COD Black Ops broke record sales - http://www.joystiq.com/2010/11/11/call-of-duty-black-ops-day-one-sales/ And they are planning to release COD 4 this year. They have 2 more campaigns of Starcraft 2 to milk (Zerg and Protoss Campaign). Millions are still hooked to World of Warcraft (WoW) and many more possibly after the latest expansion - Cataclysm.

Also, ATVI is able to produce digital goods to sell like hot cakes - ie: Creating limited edition in game steeds for their WoW characters and subscribers are willing to pay more for them!

There is plenty to look forward to!

The downside? 1) Mobile gaming has turned the idea of gaming upside down. Can people actually afford the time to play 'serious games'.

2)Games like WoW can't go on forever! It's so time consuming and most MMORPG eventually die off. Guitar Hero has grown kinda stale?

3)The market does not seem to love ATVI at the moment or at the Gaming market at the moment. In fact, ATVI has been trading in the USD 10-13 range the past year!

4) It has a rep of coming out with its game late! (10 years+ for SC2!)

My take?But as the economy takes off and with more titles coming out, there must be more growth ahead for this fundamentally sound company! It will take sometime for the market to realise this but one can hope it will be one ride up.

This is one stock many of us young Malaysians can relate to (ie: within our circle of competency)

and try to make money from!

Full Disclosure : Yes, Joe does owns shares in Activision Blizzard.

Money Managing Tip No. 1 - Taxes: Start Saving Reciepts

With the New Year, so comes the New Tax Year! While the end of April is a distance away..

Remember to start saving your receipts/bills to prove the following tax reliefs in case you need to prove them:

1) RM1000 for books, journals, magazines

2) Rm 300 for sports equipment -no, sorry gym membership not included

3) RM 3000 for purchase of a personal computer (once every 5 years) - Some people have asked whether I-pads are valid claim and the answer seems from the Inland Revenue Board is that yes, there is an arguable case to claim it.. so put it in!)

Start filing away those receipts!

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Introduction & Mission Statement

Welcome to my pet project, a Malaysian Finance Blog!

Um, so what makes it different from others? Well, it's for everyone! Yes, even you, the Auntie frying your favourite Char Kuay Teow!

I would like to make share this financial journey of mine of everyone and anyone to jump on board with me to share whatever gems they have on managing your money.

My journey thus has been far:

After returning from studying abroad, I am currently employed in a Law Firm. In the meantime, I got together with a bunch of ex-uni mates to start an investment club to share investment ideas seeing how we were young and keen to increase the returns of our savings.

Fast forward one year later, and well.. to be honest, nothing much came out from it. But then I thought: Hey, why not reach out to more people and also put into action all these things I have read? Don't we all learn better when we try to share it out? I have always been a firm believer than the more willing we are to give, the more we will get in return.

So, I set out to come out with a Blog for Joes. Joes as in Everyone. Joe the Plumber, Joe Six Pack, and of course not to be gender discriminating (art 8 of our constitution) Jane Doe!

In fact, here's my Mission Statement:

MISSION STATEMENT

1) To Increase Financial Literacy - Funny isn't it how we spend 15+ years studying about everything except how to manage our money? Shouldn't Financial Literacy be as talked as much as say Math, English, History! With the numbers of people going bankrupt rising quickly with the ease of availability of credit, we should be educating our young on how to manage their finances/debt and spending.

2) Make Investment/Financial Literacy Interesting and Fun! -

3) A Forum to Exchange Ideas on Investments in Malaysia and Abroad.

4) Exchange ideas on everything to do with Managing your Money.Got a simple tip on saving money like say using pandan leaves for your car's air freshener share it! E-mail me! I will give all credit will be given where it's due!

Or where the best promotions/offers/deals, share it!Go for it- Email me again. Please, no Scams.

5) Full and Complete Disclosure. If I own shares or have something direct to gain from the advice/"tip" given, I will disclose completely and not trade in the aforementioned share the next 3 trading days. I do not endorse hyping up a share for one's gain.

So here, I go! Hope you continue to keep an eye on this blog!

I soon hope to be on Twitter/FB and get a RSS feed up ASAP!

Stay tuned!

Joe.

DISCLAIMER: This Blog is at best merely the opinion of one long term investor (who at times may be overdosed with caffeine!) who is intent on sharing what advice he has read/received but is not to be construed as financial advice/recommendation to buy/sell. Any action taken following the analysis, commentary, information from the posts is ultimately your responsibility. Please consult professional financial advice and do your own due diligence before making any investment decisions.