What You Should Learn from Your First Investment (based on Warren Buffett's actions)

The late American professor Randy Pausch talked about parents sending their children to learn sports in his book, The Last Lecture. Pausch says that most parents rarely send their children to learn sports such as football, swimming or soccer in order to learn about the intricacies of the sport. Instead, he believes that parents want their children to learn far more important lessons such as teamwork, perseverance, sportsmanship, the value of hard work, and an ability to deal with adversity.

All these are indirectly taught when a child learns to push harder they feels like quitting. The best thing, says Pausch, is that children don’t realise that they are learning these lessons until well into the process. Really good coaches are those that can make the children learn something that they intend to teach.

Indirect lessons are also there with in the sport of investing. The investing newbie, of any age, represents the child in this arena. Smart parents and smart newbies will pick the right coach to inspire, not just the selection of what to buy, but also their attitudes and approach to buying and selling their assets.

If your personal investing coach is Warren Buffett, the lessons are clearly seen in everything he says and does. Buffett walks the talk. For example, Buffett expounds the benefits of value investing and because of this conviction; Berkshire Hathaway was holding US$31 billion in cash back in 2003 when he was not able to find attractive stocks or bonds to buy.

Lately, Buffett has been shopping. He acquired a US$5 billion stake in Goldman Sachs Group Inc and US$3 billion in General Electric Co during the current economic turmoil. This lesson of value investing, practiced and preached, by the world-famous investor inspires everyone, new or seasoned, in the often brutal world of investing.

Buffett’s indirect lessons are just as beneficial and perhaps, more inspiring. Most of these, found in interviews and in his annual letter to shareholders of Berkshire Hathaway, set the right context for investments and can be extended to the way we choose to live.

Live Life as Simple As You Are

One indirect lesson that has proven to be true in the current economic turmoil is about living within your needs or as Buffett puts it “live life as simple as you are”. He still lives in the 3-bedroom house in Omaha that he bought 50 years ago (Buffett has other properties and his choice to live in this one despite his wealth says something). Many that have met Warren Buffett personally say that they are more impressed with his humanity than his stock wizardry. If this indirect lesson had been widely taught and learnt, the subprime mortgage crisis is unlikely to be as severe as it is.

Invest for Reasons That Are Bigger Than the Glitter of Wealth

Buffett’s action also speaks volumes about the underlying objective of making profit by investing. In 2006, he gave away more than 85% of his fortune to five charitable foundations with the bulk going to the Bill and Melinda Gates Foundation, which is driven to finding cures for diseases that plague impoverished nations. This donation was the single largest charitable gift in the US history of philanthropy. Buffett’s indirect lesson is not just about giving back to society. Here, he shows that it is possible, even advantageous, to become extremely rich without focusing solely on the glitter of wealth.

Throughout the years, Buffett has managed to avoid the temptation of buying companies to make a quick buck. During the dot-com bubble, Buffett avoided investing in technology companies, saying that he did not understand their business model. The results are obvious. Buffett was right and those that doubted his sanity or logic lost their money.

Buy to Hold Forever

Another indirect lesson that should be learnt by all, especially those making their first investment is about holding for the long-term. Buffett’s holding period is said to be “forever”. The Coca-Cola Co is an example of a key holding of Berkshire Hathaway, one that he may well hold ‘forever’. Here, holding forever means buying a company and its prospects that you believe in. This is holding when the stock falls (perhaps even buying more) without a change to its fundamentals or the reasons that compelled the purchase in the first place. A falling investment due to external circumstance does not make it a bad buy. With this view, newcomers and seasoned investors can reduce their emotional distress when markets fall.

Granted, it is easier to learn indirect lessons with experiences such as in organised sports. These three are just here to prodded investors to think a little harder about the reasons why they want to invest and in the way they chose to live life.

source : http://www.fundsupermart.com.my/main/research/viewHTML.tpl?articleNo=139

Harga Unit Jatuh? Adakah Pelabur Kerugian?

Seringkali saya diajukan oleh pertanyaan seperti di atas oleh para pelabur saya dan juga bakal pelabur. Ini adalah soalan lazim yang sering diajukan oleh mereka kerana sebagai manusia normal, adalah lumrah untuk kita mengambil sikap berhati-hati untuk setiap risiko yang bakal diambil.

Di dalam pelaburan unit trust / amanah saham, wang yang kita laburkan akan ditukar kepada bentuk unit.
Sebagai contoh (dengan mengabaikan service charge), pelabur yang melabur sebanyak RM1, 000 pada harga RM0.25 seunit akan mendapat 4000 unit.

Unit ini adalah berbentuk tetap. Apa yang berubah hanyalah pada harga unit. Harga unit ini akan berubah-ubah setiap hari bursa saham diniagakan, iaitu pada hari bekerja. Apabila harga unit berubah, nilai semasa juga akan berubah. Namun begitu, jika pelabur tidak menjual unit yang dimilikinya, pelabur tidak akan menerima apa-apa kesan daripada kenaikan atau penurunan harga unit tersebut.

Di dalam setiap pelaburan, ada risiko yang perlu kita hadapi. Tetapi bagaimana kita menghadapi risiko itu adalah yang penting. Begitu juga dengan pelaburan unit trust / amanah saham. Tetapi risiko pelaburan di dalam unit trust / amanah saham ini adalah kurang jika dibandingkan dengan melabur terus ke pasaran saham. Kejatuhan harga unit trust / amanah saham ini pula tidak terlalu mendadak seperti di pasaran saham semasa kerana harga bagi sesebuah dana unit trust adalah harga purata bagi berpuluh-puluh harga saham. Jadi, harga bagi setiap dana tidak akan turun mendadak pada sesuatu masa. Ini kerana, walaupun ada saham yang turun harganya, ada juga saham yang harganya sedang naik.

Atas sebab inilah, saya sarankan kepada pelabur supaya jangan terpengaruh dengan spekulasi-spekulasi dan Insyallah, anda tidak akan kehilangan wang pelaburan anda jika anda kekal kepada objektif pelaburan anda; iaitu untuk jangka panjang.

Dollar Cost Averaging Method - Again!

The Regular Savings Plan (RSP) utilizes the dollar cost averaging (DCA) concept of investing which is the practice of investing a fixed amount of money regularly regardless of market conditions. In the case of RSP, the investments take place monthly. This article helps investor understand the benefits of DCA and what considerations that an investor has to make in executing a dollar cost averaging plan.

Benefits of Dollar Cost Averaging

For many investors, market timing of buying low and selling high is almost an impossible task especially when fear and greed typically lead investors to do the opposite of buying high and selling low. The main benefit of DCA is that it takes the guesswork and emotion out of investing. By investing a fixed amount on a monthly basis, RSP ensures that you accumulate more units when prices are low but lesser when prices of units are high. A lot of stress is avoided as the investor does not have to decide whether the fund is expensive or not and whether the market condition is suitable to invest. Table 1 shows a hypothetical example of how more units are acquired when prices are low and vice versa assuming that an investor invests $100 every month. Chart 1 is the graphical presentation.

Table 1

	Investment amount (RM)	*Price (RM)	Units Acquired
Jan	100	1.00	100.00
Feb	100	1.14	87.72
Mar	100	0.90	111.11
Apr	100	1.03	97.09
May	100	0.95	105.26
Jun	100	0.89	112.36
Jul	100	1.08	92.59
Aug	100	1.19	84.03
Sep	100	0.85	117.65
Oct	100	0.98	102.04
Nov	100	1.17	85.47
Dec	100	0.83	120.48

* Prices are randomly generated

Source: iFAST Compilations

Chart 1 : Graphical Representation of Table 1

Many investors procrastinate in investing, preferring to accumulate a large sum of money before deciding where to invest. The temptation of spending the sum meant for investments could also derail longer-term financial goals. By deducting a fixed sum of money from the bank account and placing them into funds, RSP also instills discipline in investing. This helps investors steadily move towards their financial goals. Moreover, with investors now starting young, many may not have the luxury of investing a large lump sum. RSP becomes a practical method of "invest-as-you-earn".

Lump sum investing would be better for investors with long investment horizon

DCA is a strategy that works well in a market environment that is volatile, experiencing both upswings and downswings but ends at a level that is close to the initial level. However, historical data shows that most stock markets do exhibit an uptrend over the long term. This means that for investors who have a large sum of money to start their investments with and coupled with a long term investment horizon, they would be better off investing the money right away (refer to " Long-Term Investing Works").

Although lump sum investing works better than DCA assuming that stock markets continue their long-term uptrend, investors are often paralyzed with fear in times of heightened volatility such that they put off investing. These investors can consider DCA in such times to start their investments. By breaking the lump sum into smaller parts, investors can view it as a chance to average down their costs when markets move down. On the other hand, if the markets move up subsequently, investors would have already invested part of their money. The main benefit of DCA in times of heightened volatility is that it helps investors overcome the fear of investing in turbulent markets.

Now that we have explained the benefits of DCA, the following steps would help the investor execute the method of DCA through RSP.

Actions to take for RSP

• Decide on the monthly amount that can be sustainable over the investment horizon

• Select the funds to invest into, making sure that portfolio is diversified.

• Rebalance your funds at least annually to ensure that your portfolio remains diversified

• Wait for your investments to reap rewards.

Source : http://www.fundsupermart.com.my/main/research/viewHTML.tpl?articleNo=118

Opportunities In Crisis

MOST in the investment fraternity agree that with the huge dip in all markets, it’s time to go shopping for stocks. Selling at this point would be a poor strategy.

Capital Dynamics Asset Management managing director Tan Teng Boo says people are ignoring that oil prices are now so much lower than what it was in July. Come 2009, inflationary pressures will have eased tremendously, and this will primp markets for another run.

“Low oil prices will definitely help emerging markets, as it will also lower interest rates, hence boost consumer spending,”

“We are getting close to the bottom. If you are 100% in cash, then it’s time to invest. Even if you’re 50% cash, it’s time to start buying. We’re not there yet, but getting very close to where we should be long-term greedy. This is a once in a lifetime investment opportunity,” he says.

Standard & Poor’s Asia Equity Research Services director Alexander Chia sees the bottom happening within the next two quarters.

“Yes, for sure I see opportunities in times of crisis. With bad news being plastered everywhere, it is hard for the investor to maintain his perspective. Don’t let emotions take over.

“I don’t think people should be buying just yet, as investors are still selling into strength, but I believe the bottom is not far off,” Chia says. Chia opines that most funds are cashed up and waiting for that point of capitulation.

“Have your assets very liquid, so that when capitulation happens, you have the bullets to buy. For the time being, I see the market trading rangebound to lower,” he adds.

A fund manager says that if one follows the Buffet style of investing, (having a 3-5 year view), present times present exceptional opportunities.

“History has proven it. So if you have the money, it is a good time to start investing,” he says.

He adds that when there are declines in the major indices, investors will normally compare sectors and look at the more defensive sectors of the economy.

Says JP Morgan Securities head of broking Clement Chew: “In the short term, its unpredictable. But if you have to buy, some of the sectors to look at would include tobacco, power, telecoms, supermarkets and number forecasting operators. Look at companies that offer deep value with some sort of yield to support it,” he says.

Chew cautions that investing in commodities is still risky, as there is still a lot of unwinding in commodity trade going on.

Chew isn’t too bullish on properties either.

“The newsflow surrounding property stocks isn’t so good, and with lending being curtailed and credit shrinkage everywhere, this wouldn’t be such a good time. Regional property companies are trading at wider discounts to their revised net asset values. I don’t think you will see property stocks going up,” says Chew.

By TEE LIN SAY – The Star

Warren Buffet reminds investors how to behave now

Times are tough. During these chaotic times, the principals of proper portfolio management are crucial:

1. Don't sell into fear
2. Rebalance your portfolio to buy equity
3. Continue dollar cost averaging
4. Inject cash if you have it

Warren Buffet affirmed this very powerfully in the New York Times on 17th Oct. Nobody explains it better:

---

Buy America. I Am.

By Warren E. Buffett

The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I've been buying American stocks. This is my personal account I'm talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation's many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can't predict the short-term movements of the stock market. I haven't the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor's best friend. It lets you buy a slice of America's future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn't. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky's advice: "I skate to where the puck is going to be, not to where it has been."

I don't like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I'll follow the lead of a restaurant that opened in an empty bank building and then advertised: "Put your mouth where your money was." Today my money and my mouth both say equities.

Source: Warren Buffet, "Buy America. I Am.", New York Times, 17th October.

Public Mutual in Readers Digest's Trusted Brands 2008

ABOUT THIS SURVEY

Reader's Digest Asia Trusted Brands Survey (previously known as Reader’s Digest SuperBrands) was launched in 1999 and has been carried out annually for the past ten years.

The survey identifies which brands appeal most to affluent Asian consumers.

Achieving Trusted Brand status is a genuine recognition of consumers’ approval. The survey reflects consumers’ choice of their most trusted and favorite brands among the thousands available in the market.

The survey is carried out for Reader’s Digest by The Nielsen Company. Consumers are surveyed through questionnaires distributed in Reader’s Digest as well as through telephone interviews of randomly selected consumers in Hong Kong, India, Mainland China, Malaysia, the Philippines, Singapore, Taiwan, and Thailand.

GOLD AND PLATINUM TRUSTED BRAND AWARDS

Survey respondents are asked to name their most trusted brand in each of the product categories, and then to give each brand they name a rating, from 1 (low) to 5 (high), on six qualitative criteria: Trustworthiness, Credible Image, Quality, Value, Understanding of Customer Needs, and Innovation. Each brand then receives a mathematical score based on the number of respondents who named it, multiplied by the average rating on the six qualitative criteria.

Brands which score clearly above competitors receive a Gold Trusted Brand Award. Most Trusted Brand Award winners achieve Gold status.

Brands with scores more than three times that of their nearest competitor, or with a score at least double that of their nearest competitor and an average rating of at least 4 points (out of a possible 5) on the qualitative criteria, receive a Platinum Trusted Brand Award.

For more info, please visit Reader's Digest website.


http://www.rdasiatrustedbrands.com/2008/award/malaysia/index.html