Asian shares tumble as US-China trade war renews uncertainty

TOKYO – Asian shares tumbled Monday after the latest escalation in the U.S.-China trade war renewed uncertainties about global economies, as well as questions over what President Donald Trump might say next.

Japan’s benchmark Nikkei 225 started plummeting as soon as trading began and stood at 20,234.87 in the morning session, down 2.3%.

Australia’s S&P/ASX 200 slipped 1.5% to 6,427.20. South Korea’s Kospi lost 1.7% to 1,916.14.

Hong Kong’s Hang Seng dropped 3.3% to 25,309.37, while the Shanghai Composite was down 1.2% at 2,862.87.


Stephen Innes, managing partner at Valour Markets in Singapore, compared the difficulty of assessing the volatile market situation to reading tea leaves.

“Nobody understands where the president is coming from,” he said, adding that the best thing Trump can do for market stability is to “keep quiet.”


“The problem that we’re faced right now is that we are making a lot of assumptions ahead of the economic realities.”

The market is now dominated by fears of a portending U.S. recession, although the American economy is actually holding up, and much of the U.S. economy is made up of consumption, Innes said. If interest rates come down, he added, consumer spending is likely to go up, working as a buffer for the economy.

“What the market’s really waiting for is for them to drop interest rates,” Innes said. “Right now, we are still sitting on that uncertainty.”

The Dow Jones Industrial Average plunged more than 600 points Friday after the latest escalation in the trade war between the U.S. and China rattled investors. The broad sell-off sent the S&P 500 to its fourth straight weekly loss.

The tumbling began after Trump responded angrily on Twitter following China’s announcement of new tariffs on $75 billion in U.S. goods. In one of his tweets he “hereby ordered” U.S. companies with operations in China to consider moving them to other countries — including the U.S.


Trump also said he’d respond directly to the tariffs — and after the market closed he delivered, announcing that the U.S. would increase existing tariffs on $250 billion in Chinese goods to 30% from 25%, and that new tariffs on another $300 billion of imports would be 15% instead of 10%. Those announcements are likely to influence stock markets in Asia when trading opens there Monday.

The ongoing trade dispute between Washington and Beijing, and especially its unpredictability, is certain to have damaging effects on Asia. The unpredictability affects the real decisions central banks make on fiscal policy and companies make on their strategies and investments, setting off ripples of uncertainty.

Zhu Huani of Mizuho Bank in Singapore said what he called Trump’s “tariff tantrum” was setting off “the sense that tariffs could continue to rise,” with the “the unpredictability of timing and extent of these trade actions risk accentuating the paralysis of business decisions and big-ticket business spending.”

The S&P 500 fell 75.84 points, or 2.6%, to 2,847.11. The index is now down 4.5% for the month. It’s still up 13.6% for the year. The Dow lost 623.34 points, or 2.4%, to 25,628.90. The average briefly dropped 745 points. The Dow has had five declines of 2% or more this year, with three of them coming this month. The Nasdaq gave up 239.62 points, or 3%, to 7,751.77. The Russell 2000 index of smaller company stocks skidded 46.52 points, or 3.1%, to 1,459.49.

Trump also said Friday morning that he was “ordering” UPS, Federal Express and Amazon to block any deliveries from China of the powerful opioid drug fentanyl. The stocks of all three companies fell as traders tried to assess the possible implications.

The price of benchmark crude fell 71 cents to $53.46 a barrel. It sank $1.18, or 2.1% to settle at $54.17 a barrel Friday, as traders worried that the latest escalation in the trade battle could sap global demand for energy. Brent crude oil, the international standard, fell 63 cents to $58.71 a barrel.

The dollar fell to 105.24 Japanese yen from 106.65 yen Friday. The euro strengthened to $1.1145 from $1.1057. /gsg

source: business.inquirer.net

Fear on Wall Street of an Economic Slowdown

U.S. stocks fell broadly in midday trading Wednesday as central banks around the world cut interest rates and increased fears that global growth is being crimped by the U.S.-China trade war.

Every major U.S. index fell and put stocks back on a course for losses after briefly breaking a six-day losing streak on Tuesday. The losses eased as the day progressed, though investors remained in a defensive mode and headed for relatively safe holdings.

Bond prices spiked again, sending the yield on the 10-year Treasury down to 1.64% from 1.74% late Tuesday, a large move.

Yields are at their lowest level in nearly three years. That benchmark yield has retreated from its recent high of 3.23% last November as expectations of economic growth have steadily faded.


“The Treasury market is trading much higher this morning as investors continue to seek a safer haven, completely unsure as to what may happen next,” Kevin Giddis, head of fixed income capital markets at Raymond James wrote in a report.

Banks sustained some of the worst losses. Lower bond yields mean lower interest rates on mortgages and other kinds of loans, which mean lower profits for banks. JPMorgan Chase fell 3.1% and Bank of America fell 3.3%.

The dimming expectations for global growth also send the price of crude oil sharply lower. Benchmark U.S. crude plunged 4.5% at $51.20 a barrel. That helped pull energy sector stocks lower. Occidental Petroleum gave up 3.3%.

Big technology stocks, longtime investor favorites, also posted hefty losses. IBM lost 1.8%.

Safe-play stocks, including consumer staples and utilities, held up far better than the rest of the market.

The S&P 500 index fell 0.5% as of 11:12 a.m. Eastern time. The Dow Jones Industrial Average fell 238 points, or 0.9%, to 25,790. It was down as much as 589 earlier.

The Nasdaq fell 0.1%

China on Monday allowed its currency, the yuan, to weaken against the U.S. dollar in response to U.S. threats to add more tariffs to Chinese goods.

China stabilized the yuan on Tuesday and that helped lift U.S. stocks a day after they endured their worst day of the year. The volatile trading has already put a dent in the major indexes yearly gains. The S&P 500 is down 3.8% for August.

Central banks in New Zealand, India, and Thailand cut key interest rates on Wednesday and investors around the world fear that the escalating trade war between the U.S. and China will severely damage global growth.

After the surprise interest-rate cuts, bond yields sank around the world as investors scrambled for safety. They also poured into gold, which jumped to its highest price in more than six years.

“There is almost a paranoia amongst central bankers to avoid any potential financial hiccups that might hurt the real economy and cause a slowdown,” Jefferies strategist Sean Darby wrote in a report.

U.S. stocks have been on a wild ride since Jan. 22, 2018, when Trump first imposed tariffs on solar products and washing machines to help U.S. manufacturers, but they’re virtually back to where they started.

The S&P 500 closed at 2,832.97 that day and has since been down as much as 17% and up as much as 7%, with moves often driven by waxing and waning worries about the trade war. On Wednesday morning, the S&P 500 sat at 2,862.45, up 1% from that early 2018 starting point.

Since Trump tweeted in March 2018 that “trade wars are good, and easy to win” after raising tariffs on steel and aluminum, the S&P 500 is up 6.3%, though that gain has nearly halved in the last couple weeks as worries about the trade war have surged.

A key gauge of fear in the marketplace surged 6.2%. The VIX index, which measures how much traders are paying to protect themselves from swings in the S&P 500, was still below where it was at the start of the year when recession fears were surging, but it’s close to its highest level of the year.

European and Asian indexes were mixed.

Disney fell 5.1% after disappointing investors with a sharp third-quarter profit plunge that fell far short of Wall Street forecasts.

The entertainment company said underperformance from its Fox movie and TV studio helped weigh down the fiscal third-quarter financial results. It bought Fox’s entertainment business in March for $71 billion.

Match Group shares jumped 25.2% after the operator of Tinder, OkCupid and other dating sights beat Wall Street’s second-quarter earnings forecasts. The company reported a surge in Tinder subscribers and raised its revenue forecast for the year.

Drugstore operator CVS Health rose 6% after swinging to a second-quarter profit and handily beating Wall Street forecasts. The company attributed part of the gains to health insurer Aetna, which it bought for $69 billion in November.

source: usa.inquirer.net

Asian shares mostly lower as investors look to G-20 meeting

TOKYO – Asian shares were mostly lower Wednesday as investors awaited developments on the trade friction between the U.S. and China at the Group of 20 meeting of major economies in Japan later in the week.

Japan’s benchmark Nikkei 225 slipped 0.5% to 21,088.32 in early trading, while Australia’s S&P/ASX 200 inched down nearly 0.1% to 6,652.20. South Korea’s Kospi stood virtually unchanged but a tad lower at 2,121.24.

Hong Kong’s Hang Seng edged up 0.1% to 28,214.56, while the Shanghai Composite inched up less than 0.1% at  2,982.65.

On Wall Street, discouraging economic data and cautionary remarks from the head of the Federal Reserve weighed on the market.

The sell-off marked the third straight loss for the market and the biggest drop this month for the Dow Jones Industrial Average and the S&P 500 index, which hit an all-time high only last week.

In an early afternoon speech, Fed Chairman Jerome Powell noted that the economic outlook has become cloudier since early May amid uncertainty over trade and global growth.

Earlier Tuesday, reports showed a decline in consumer confidence and more weakness in the housing market.

The S&P 500 index fell 27.97 points, or 1%, to 2,917.38.

The Dow dropped 179.32 points, or 0.7%, to 26,548.22. The Nasdaq composite, which is heavily weighted with technology stocks, slid 120.98 points, or 1.5%, to 7,884.72.

The Russell 2000 index of smaller company stocks gave up 9.05 points, or 0.6%, to 1,521.04.

Trade policy remains the biggest source of uncertainty looming over the market. Investors are worried about the trade dispute between the U.S. and China and its potential impact on global economic growth and corporate profits.

Presidents Donald Trump and Xi Jinping will meet this week at the G-20. The world’s two largest economies spent much of the current quarter escalating their trade war and giving global markets jitters over prospects for economic growth.

“To a large extent, any further deterioration in trade relations is expected to guide expectations here so the focus remains up ahead with the G-20,” said Jingyi Pan, market strategist at IG in Singapore.

ENERGY:

Benchmark crude oil rose $1.05 to $58.88 a barrel. It fell 7 cents to settle at $57.83 a barrel Tuesday. Brent crude oil, the international standard, rose 73 cents to $65.01 a barrel.

CURRENCIES:

The dollar rose slightly to 107.46 Japanese yen from 107.03 yen on Tuesday. The euro weakened to $1.1357 from $1.1381. /gsg

source: business.inquirer.net

Global stocks mostly fall on oil price slump

NEW YORK, United States — Global stocks mostly tumbled on Wednesday, with the energy sector taking a beating as worries about excess supply and ineffectual Opec policy hit oil prices.

Crude prices slid further after diving more than two percent on Tuesday on increasing fears that moves by Opec won’t be sufficient to prevent another supply glut due in part to rising shale output in the United States.

“Cheap oil is taking its toll on the global equity markets,” noted analyst Ipek Ozkardeskaya at trading firm London Capital Group.

Equity markets fell in Frankfurt, London, Paris and Tokyo. Leading US indices were mostly down, with the Dow and S&P 500 bruised by the oil rout, but the Nasdaq finished higher.

Aside from the drag of petroleum equities, whose profits are directly hit by lower commodity prices, the pullback in oil prices is a source of unease for the broader market because of worries that inadequate demand signifies slowing economic activity.

“The last two trading sessions have been a reminder of late 2015 and the beginning of 2016, when the collapse in the oil price sparked fears about global growth,” said analyst David Madden at CMC Markets.

“Investors are worried a depressed oil price could bring about a period of prolonged low inflation, which would have negative implications for growth.”

Worries about Opec

US oil prices ended at their lowest level since August on growing worries that Middle Eastern members of the Organization of the Petroleum Exporting Countries “will not be able to cooperate and work together,” said John Kilduff of Again Capital.

The pullback comes amid rising tensions between Opec kingpin Saudi Arabia and fellow members Iran and Qatar.

Contributing to the weakness was a mixed US petroleum supply report that showed lower overall commercial inventories, but higher US production and “lackluster” gasoline demand, said Kilduff.

Greg Priddy, an analyst at risk consultancy Eurasia Group, said the cartel is also stuck in a difficult cycle in which higher prices create incentives for producers in the US and other markets to raise production, putting renewed pressure on prices.

Petroleum-linked equities fell across global bourses, with France’s Total, Japan’s Inpex and US company Chevron all lower.

The London and Frankfurt stock markets ended the day down 0.3 percent, while Paris shed 0.4 percent in value.

But the tech-rich Nasdaq was a standout, finishing up a solid 0.7 percent after pharmaceutical and biotech shares advanced on expectations that President Donald Trump’s moves to crack down on runaway drug prices will not be as aggressive as feared.

Shanghai also bucked the trend to end up 0.5 percent after the US-based MSCI finally approved Chinese mainland-listed stocks, or A-shares, for inclusion in its emerging markets index. CBB

source: business.inquirer.net

Global stock markets mixed as oil price rally fizzles

SEOUL, South Korea — Global stock markets were mixed on Wednesday as investors awaited more policy details from U.S. president-elect Donald Trump. Oil prices retreated, snapping an overnight rally.

KEEPING SCORE: European markets started on a weaker note with Britain’s FTSE 100 down 0.1 percent to 6,783.36. Germany’s DAX lost 0.2 percent to 10,710.68 while France’s CAC 40 was nearly flat at 4,535.83. Futures augured a tepid start on Wall Street with Dow futures down 0.1 percent and S&P futures also dipping 0.1 percent.

ASIA’S DAY: Asian markets finished mostly higher. Japan’s Nikkei jumped 1.1 percent to 17,862.21 and South Korea’s Kospi gained 0.6 percent to 1,979.65. Hong Kong’s Hang Seng index closed 0.2 percent lower at 22,280.53, while China’s Shanghai Composite Index edged 0.1 percent lower to 3,205.06. Australia’s S&P/ASX was nearly unchanged at 5,327.70, while benchmarks in Taiwan and Southeast Asia were mixed.

ANALYST’S TAKE: “International markets showed signs of pausing to wait on evidence of policy specifics before extending moves in the direction of the ‘Trump themes’ of fiscal stimulus and inflation,” Ric Spooner, chief market analyst at CMC Markets, said in a daily commentary.

OIL: Oil prices rallied overnight on hopes that OPEC members would agree to lower output when they meet later this month. They wavered between gains and losses before turning lower again. Benchmark U.S. crude fell 41 cents to $45.40 per barrel in electronic trading on the New York Mercantile Exchange. The contract closed up $2.49, or 5.7 percent, to $45.81 per barrel on Tuesday. Brent crude, used to price international oils, lost 28 cents to $46.67 a barrel in London.

CURRENCIES: The dollar strengthened to 109.46 yen from 108.94 yen while the euro fell slightly to $1.0724 from $1.0731. TVJ

source: business.inquirer.net

How To Overcome Your Fear Of Investing In The Stock Market

This post is relevant for the following people:

* Who distrust the stock market.

* Who know they should take more risk but don’t because they’ve been burned before.

* Who don’t know much about the markets.

* Who are falling behind financially every day the bull market rages on.

* Who have the majority of their assets in cash, CDs, money market and checking accounts. (See CD Investment Alternatives)

* Who want a potentially higher rate of growth on their net worth.

* Who have grown a sizable financial nut and absolutely hate losing money.

* Who have a gambling tendency.

I’ve been investing in the stock markets since 1995 when Charles Schwab had a nascent online brokerage company. My father showed me his account one trading day and I was immediately hooked by all the green and red from various stock movements.

19 years isn’t a particularly long investment resume, but I did spend 13 years in the equities department of two major investment banks. Instead of buying and holding, I was neck deep into the sales and analysis of public companies. I’d meet with senior management, travel overseas to conferences, and visit company factories to kick the tires and make recommendations.

I remember traveling 26 hours to Anhui Province, China one year. My client and I landed at 2am, got to the hotel at 3am, visited the production facilities of Anhui Conch Cement (914 HK) at 9am for two hours and then caught a 2pm flight to Hong Kong to meet five more companies. The whole process of trying to fully understand companies before making an investment was exhausting, but necessary when other people’s money is at stake. Now compare how much research the average stock investor does before buying. Kind of scary.

The stock markets can be absolutely brutal to your net worth if you are not properly diversified. If you planned to retire in 2008-2010 you were absolutely crushed if most of your investments were in stocks. Everything has rebounded five years later, but that means you lost five years of financial freedom with a whole bunch of worrying while you worked through the recovery.

FEAR OF LOSING MONEY IN THE STOCK MARKET

 

When you’ve been as involved with the stock markets as I have, you see a lot of ugly. From the Asian Contagion in 1997, to the Russian Ruble crisis in 1998, to the dotcom bubble in 2000, the SARs scare in 2003, and the banking collapse in 2008, you can’t help but be a little wary of putting a majority of your net worth in stocks. Furthermore, you get to know how IPOs are sold, how hedge funds trade, how research analysts make recommendations, and how professional money managers invest their money. Nothing is exactly what it seems. If the investing public knew everything behind the scenes, I fear pandemonium would break out.

Despite all the carnage, if you had just held on to a major index fund like the S&P 500, you would have come out OK since we’re close to record highs today. Your money could have been invested elsewhere to provide greater returns since we had a lost decade between 2000-2010, but in the end everything always seems to turn out fine. It’s just hard not to feel scared when everything is going the wrong way.

When I started planning for my job exit in 2011, I knew that I had to figure out a way to get over my fear of investing in stocks because I needed higher returns to make up for my lost income. At the same time, I didn’t want to lose my shirt in the markets either. The short term solution was investing in index based structured notes which provided downside protection and full upside participation in exchange for not paying a dividend and a five year lockup.

To quantify, I’m about 50% less risk averse to investing in stocks now than just a couple years ago. Part of the reason has to do with the bull market which makes everybody dangerously feel like a genius. The larger part is because I’ve done a lot of reflection and have come up with a way to manage my risk and let go of things which I cannot control.

Several things we should realize before investing in equities (stocks):

* You never truly understand your risk tolerance until you actually have money on the line. I had a fun conversation with a friend who told me, “To not worry about losing money, just don’t worry about losing money.” Thanks for nothing. He said he had no problems losing 30% of his investments in one year, which would equal about $300,000. I then asked him whether he had ever lost $300,000 before and he said no. I have, and it’s not fun.




* It’s practically impossible to outperform the stock markets over the long run. As a result, it’s best to just buy market index funds or ETFs and save yourself time and grief. ETFs such as SPY, VTI, SDY, VIG, EEM are some popular ones.

* The main thing you should be thinking about is exposure and the proper asset allocation since you can’t outperform the stock markets in the long run.

* Sometimes you will get lucky and hold on long enough to make a fortune. There’s alway going to be the next Google, Tesla, Apple, Yelp, etc. You just have to spend time fortune hunting. Money making opportunities are everywhere.

* Even if you find the amazing opportunity, greed or fear will take over letting you make suboptimal trades. I made 60% on BIDU after publishing “Should I Invest In Chinese Stocks?” within six months. But if I held on until now, I would be up 100%. I feared a pullback that never came.

* The joke on the street is that everything becomes a long term investment once you start losing money. Holding on to your market index fund for as long as possible is the best advice for 95% of the people out there. And even the 5% of you who are investment professionals know that all this trading in and out is unsustainable.

* The saying, “It’s just paper losses” is bullshit. If you are losing money on paper, you are losing money in real life because you can only sell the investment for what it’s currently worth.

* The big boys do have more insight than we do. Wall St. sees both sides of the trade when making markets. Hedge fund manager Carl Icahn can eat dinner with Apple’s CEO to learn his vision first hand. Carl can also buy a billion dollars worth of stock and tweet to the public the very next day what he’s done to gain 8%. The solution is to simply invest along with the big boys. Buy Berkshire Hathaway stock or invest in your favorite manager’s fund if you seek an edge.

BUILDING YOUR EQUITY INVESTING FRAMEWORK

 

The best way to reduce your fear of investing is to construct three separate investment portfolios. If you’re incapable of constructing three separate investment portfolios, then divide your main portfolio into three parts. The latter strategy is less efficient due to the likely co-mingling of funds.

1) The Passive Index Portfolio (70% of total equities, aka “Dumb Money”). This portfolio should be your main portfolio which you count on to be there for you in retirement. For most, it’s your 401(k) or IRA in the United States. Build index fund positions with automatic contributions from your paychecks. You should certainly rebalance the portfolio at least a couple times a year to make sure your allocation of stocks and bonds is aligned with your outlook. However, treat the Passive index portfolio as “dumb money” for the most part and just let things ride. Your job is to continue contributing to this portfolio like clock work through thick and thin. (Read How Often Should I Rebalance My Portfolio?)

2) The Actively Managed Portfolio (20% of total equities, aka “Smart Money”). The actively managed portfolio is where you get to play big shot fund manager. Here’s your chance to discover your investing prowess or lack thereof. We’ll certainly get lucky here and there, but I’m pretty sure most of us will underperform the S&P 500 over time. After a while of spending all those hours researching stocks and funds and sweating pullbacks, most will gradually realize their time could be better spent doing something else. As a result, there’s a natural trend for our actively managed portfolios to turn into a passive index portfolio over time. (Read How To Better Manage Your 401(k) For Retirement Success)

3) The Punt Portfolio (10% of total equities, aka “Unicorn Money”). The reason why it’s better to have a completely separate Punt Portfolio is our tendency to steal cash reserved for our passive or actively managed portfolios. You’ll also be able to calculate your returns much easier. The Punt portfolio is where you actively pick stocks and go for broke. You go all in on JC Penney (JCP) at $5.5 hoping for a turnaround instead of a bankruptcy. You buy SINA stock down 20% in a couple weeks due to fears of Chinese ADR delisting due to accounting issues. You buy NFLX at nosebleed levels because House Of Cards season 2 is going to be a massive hit. Your punt portfolio throws all risk management out the window. I have no problems dumping 50% of my entire Punt Portfolio into one stock.

My three portfolios are at three different institutions so I can clearly see performance and not co-mingle any cash:

1) The Passive Index Portfolio is with Citibank Wealth Management where I methodically contribute 80% of my savings every month into an existing index fund holding or new structured note based on an index.

2) The Actively Managed Portfolio is with Fidelity where I can no longer contribute since it is a rollover IRA.

But I did start a SEP IRA through my business. The reality is my rollover IRA with Fidelity has been acting more like my Punt Portfolio recently, but I’ve decided to be more balanced with the way I invest.
3) The Punt Portfolio is with E*TRADE where I whip it around like a gambler.

PSYCHOLOGICAL ADVANTAGES OF SPLITTING UP YOUR PORTFOLIOS

A lot of investing is mental. It’s all about trying to hold on for as long as possible without getting wigged out by some correction. After you’ve accumulated a certain amount, your mindset shifts from growth to capital preservation.

1) More protected from disasters due to different investment strategies. It is unlikely that your three portfolios all have the same investment strategies. For example, you could be actively hedging with your Active or Punt portfolios because you feel the markets are overbought. Or you could have gone 100% Treasury bonds in your Passive portfolio, thereby protecting 70% of your overall investments from a downturn. Diversification saves investments during downturns.

2) You’ve got more hope. Even if you have false hope, creating multiple portfolios gives you a much stronger belief of long term survival. It’s like having multiple engines flying an airplane. If one engine goes down, you’ve still got a good chance of landing safely with the other two still functioning. If you’ve ever seen big cash game poker events on TV, you’ll see competing players ask each other if they’d like to “run it twice” or even more. Even though the odds are the same, there’s a tendency for those players who are more risk averse to ask. When you have more hope, chances are higher you’ll continue to methodically invest more money in equities.

3) You start accounting for worst case scenarios. The biggest fear I have for investors today is unbridled enthusiasm. According to one recent survey from consulting firm EBRI, 25% of people over the age of 50 had 80% of their holdings in equities and 30% had 50-80% of their holdings in equities. It’s as if we’ve forgotten about 2008-2009 already. The historical average equities allocation is 60% according to AAII Asset Institute, which also reports that the average is up to around 63% now. By running multiple portfolios based on passive and active investing methodologies, you naturally start to segment your risk by thinking about worst case scenarios for each portfolio. You then invest accordingly.

4) Easier to invest large sums of money. When you’ve only got $100,000 to invest in the stock market, it’s not that hard to buy 10, $10,000 positions to build your portfolio. But if you’ve managed to build a $1,000,000 portfolio, it gets a little more frightening to invest $100,000 in each stock or fund for example. Those who fear investing larger sums of money tend to be those who’ve managed to keep lifestyle inflation at bay. By splitting your $1,000,000 portfolio into $700,000, $200,000, and $100,000 portfolios, you trick yourself into making sure you’re investing in your recommended allocation in equities. Let’s say your recommended allocation is 80% equities, 20% bonds – it’s easier to invest $560,000, $160,000, and $80,000 in equities and $240,000, $40,000, and $20,000 in bonds in your three portfolios instead of $800,000 in equities and $200,000 in bonds just in one big portfolio. The results may be the same if you invest in the exact same securities, but the point is you’ll be much more inclined to execute your positions with smaller amounts of money. Besides, your investment strategies will be diversified going back to point #1.

5) Easier to assess risk and invest more clearly. If you’ve got one portfolio that is carved out with multiple investment strategies, it’s much harder to ascertain the overall portfolio’s risk composition and performance, especially if you are rebalancing often. By creating different portfolios, your analysis on risk and returns becomes much cleaner. An easy way to screen portfolios for appropriate risk, performance, and cost is through Personal Capital’s Investment Checkup tool. It’s located under the Investing tab on the top right of the homepage. Make sure to click the drop down arrow on the almost top right after you are in Investment Checkup to go through your individual portfolios one by one.

BE IN IT TO WIN IT

 

If we keep most of our assets in cash or CDs, we are falling behind unless we’ve got outsized income. I strongly believe in the two parts offense (stocks and real estate), one part defense (CDs) to build financial wealth over the long run. Bull markets are a net negative for the middle class because the top 5% own more than 70% of all assets.

The ideal scenario for the average person is to experience another massive downturn, hold onto their job, and deploy all liquid assets into the markets to catch an inevitable recovery. But we know thanks to fear, this will never happen, so quit saying you hope for a meltdown to invest more in stocks and just stick to a regular contribution system.

Although stocks have shown to return roughly 8% a year over time, I’m always going to have a wary view of the stock markets because of my experience. It’s like the chef not wanting to eat too much of his own food because of all the unhealthy ingredients that went into making his dish. We just need to make hay when the sun is shining. Eventually a blizzard will come for us all, at which time our defensive shields start kicking in.

source: financialsamurai.com

11 Common Investment Mistakes To Avoid While Investing In Stocks

There is only one rule to be successful while investing in stocks and that is “to not lose money!” Despite the information overload these days, people still make mistakes investing in stocks and lose money. I am not an exception in this case as I too made all of the mistakes that I have listed below, at one time or another, while investing in stocks earlier in my investment life. I am sharing here those experiences so that somebody else could learn from my mistakes. So here are those 11 common investment mistakes to avoid while investing in stocks.

Borrowing to Invest in Stock Markets

 

We hear success stories about making easy money in the stock markets from our relatives, friends, stock broker etc. Often we fail to know that only success stories are propagandized and failure stories deliberately have been hidden from us! By the time we hear those success stories, we might have already invested our spare cash in some other assets like real estate, gold etc. Greed spares none! We become enthused. To get the seed money, we would either pledge those assets or would borrow new unsecured debt. To be successful in the stock market, we need to have a long-term view and some cash that doesn’t need to service debt, money that we do not need for at least the next five or ten years. If we borrow to invest, interest adds up monthly to our investment costs. So we will be investing under a compulsion to find more returns than what we pay out as interest. That drags down our chances of success. Ultimately we would end up making only our lender rich!

Investing in Startups and IPOs

 

In order to ascertain the investment worthiness and to arrive at a rational investment decision based on some conclusions, we should look for a business or a company that has at least withstood one economic cycle (business cycle). An economic cycle is usually 8 to 11 years long. Based on how the company or the business withstood tough times of an economic cycle, we make an assumption that it will withstand in the same manner at tough times down the lane in the next 5 or 10 years. Fragile companies and business ideas hardly survive an economic cycle and wither away in a matter of years. Eg., the Internet companies of the 1990s that went bust along with the dot com bubble. So any company without a history or track record is undoubtedly not investment worthy howsoever brilliant the business idea or marvelous the company is. To preserve our capital, it is better to go for OPOs (old public offering) at a discounted price than going for IPOs (initial public offering) or startups.

Heeding to Advices, Tips, and Stock Market Predictions

 

Investing heeding to the stock tips, advices, and stock market predictions is the next big mistake that most of us make. You get a ton of them; from your stock broker, on the Internet, in the dailies, magazines, TVs etc. Never rely on such stock market predictions to invest your money. Heeding to those stock tips outright, even if the information is from paid sources, will rip you off your money because those who make those predictions, those who propagate those tips and advices have their own underlying vested interests in making you buy or sell. You should be able to substantiate yourself the reasons why you invest in a stock or why you sell a stock. Else, you would end up making only your stock broker rich.

Investing in Actively Managed Funds and Through Money Managers

 

Most people spend maximum time and effort earning money but hardly any time managing and growing it. If you want to become rich, you should be able to manage your money on your own. You should learn how to invest rather than depending on an investment manager (portfolio manager). It is not rocket science. All of us are not born intelligent, we learn by reading and listening. Why not apply that here too? If you still cannot find time to research about individual companies, investing in an index fund regularly over time should fetch you average market performance. The results still should be far better than an actively managed fund run by the so called pundits who eat 2% a year of your funds as fees. If the fund managers have that secrets of making you rich, why not they themselves become rich using those secrets rather selling you the investment products? So have in mind that no one else could be a better money manager for your money rather than yourself. Find time and will to make it on your own. Do investments in the stock market on your own or you would end up making only your money manager rich.



 Looking to Time the Market


Another mistake that investors often make is trying to time the market. You either sit sucking the thumb expecting the market to fall more for you to start buying where as Mr. Market does the opposite or you end up selling too soon expecting the price to fall thereafter. Sometimes, people don’t sell at all even after the P/E having run into exorbitant numbers! I would sell my business if some potential buyer or if Mr. Market expresses interest to buy my business for an upfront payment of 40 or 50 years of profit. I buy and sell stocks as if I would buy or sell a business. Anytime is a good time to invest, as long as you are able to find a stock (business) that you believe is undervalued and you have the patience to sit tight. If the price falls below your purchase price, be greedy, try to buy more diverting all your cash flows! Time and markets wait for none. In the short term, the stock markets act like a voting machine where as in the long term, they act like a weighing machine. Only you need to identify when it is a voting machine and when it is a weighing machine.

Investing in a Company with Questionable Management Integrity

 

Investing in a company that has questionable management integrity is like giving your money to a thief for safekeeping. So the companies that care a damn about shareholder wealth maximization, minority shareholder interests, and labor interests are needed to be avoided to preserve your capital while investing in stocks. We have seen a lot of companies vanishing into air along with shareholder money. Honesty is a very expensive gift; don’t expect it from cheap people. If you are still compelled to invest in such companies, donate the money to charity rather than betting on thieves!

Buying into Turnaround Stories

 

Often you hear turnaround stories in the market but they may be the propaganda by those who are already trapped in the shares of those companies. These companies may end up without turning around at all. Transforming a multi-million or a multi-billion company is terribly difficult. Only exceptional people do it and failures are more common than success stories. So unless you have thorough evidence that the information is true to your satisfaction, investing in such turnaround stories will prove to be a blunder. Buy turnaround stories on proven results, not faith.

Investing in a Company That has no Competitive Advantage

 

Inflation adversely affects the purchasing power of consumers. If a company is finding it tough to pass on the rising costs to the consumers due to reasons like stiff competition, it is ought to wither away in due course. It is here where the competitive advantage of a company over the other companies in the same industry, a widening economic moat which the competitors are unable to break, comes to the advantage. Buying a company that has got no competitive advantage puts your capital at risk.

Investing in a Changing Technology Company

 

Technology is changing at a fast pace in today’s world. We are seeing personal computers and laptops giving way to tablets and smart phones. We saw phonograph records giving way to magnetic tape cassettes which in turn gave way to CDs and DVDs and now to pen drives. Same is with fat TVs to flat TVs, film photography to film-less photography. All these made a lot of companies go bust, belly up. Eg. The Gramophone Company, Kodak etc. Who knows what is in store for tomorrow? So why should we risk our money investing in an industry where the technology is constantly changing?

Investing in a Business Outside Your Circle of Competence

 

People get attracted to investing in glittery businesses that seem attractive from outside but fail to create wealth. For e.g., airline business. If you look at the airline stocks globally, they have little history of creating wealth for the shareholders. The net wealth creation in airline business since Orville Wright flew his first flight at Kittyhawk in 1903 has been next to zero. However, as I said earlier the glamour of the business keeps attracting new investors to set up airlines or to invest in existing airlines. It has evaporated capital over the past century like no other business but people still keep coming back to it and put fresh money in. So study the business model before investing in a company. Invest in a company that is within your circle of competence, invest in a simple business that you know the best rather than succumbing to the glitter and glamour surrounding a business.

Investing in a Debt Laden Company

 

Debt, especially huge, is a major concern both at an individual level as well as at a company level. It is like trying to run with your legs tied. If a company becomes solvent, creditors have utmost rights on the cash and assets of a company than the shareholders, though the money has the same value irrespective of whether it is brought in by the creditors or the shareholders! So investing in a heavily debt laden company is nothing but suicidal! Why should we want to risk our capital, hard saved money, investing in such a company?
Investment mistakes are abound and aplenty. Should you screen your stock pick for these common investing mistakes before you make an investment and buy it at half the price below its intrinsic value, undoubtedly you should be successful with your strategy investing in the stock markets. All these investment mistakes have made me prudent but with a cost. That doesn’t necessarily mean that you too should lose money to learn these lessons. Learn from the mistakes of others because you can’t live long enough to make them all yourselves!

source: mtherald.com