Emotion-action cycle

This is a graphical summary of my observation during the past 6 months of the stock markets.

It first started with the "optimism" phase, where valuations are good and fundamentals are solid, and stocks analysts/ brokers have more "buy" than "sell" calls. Back in 1979, Warren Buffett wrote in a Forbes Article: "You pay a very high price in the stock market for a cheery consensus."

It then graduated into "greed" phase, where people exhibit the irrational exuberance syndrome (even domestic helpers are buying stocks) . In China, people buy stocks with nice stock code numbers (8,88, 118 etc).

The day of reckoning - the sell-down begun. Most markets lost a good 20% (from market top) on average. People began telling people "more (subprime) losses are coming" and "it's going to get worse". Fund managers now use "it depends...." more often than usual. This is the "fear" phase.

Are we in the "pessimism" phase? I think, not yet. But I can recall and relate the "SARS days" to that degree of "pessimism" phase, there was then we thought it was the end of the world, and we could die just by catching SARS virus from an infected person.

I also noticed that a fair number of insiders (CEO, directors, institutional investors etc) do sell out during the "greed" phase and buy in their own company stocks during the "fear" phase.

I will try to post some evidence and examples of such insiders' actions against market's emotional phase, if I can get hold of the data for analysis.

And lastly, what's in-between "greed vs fear"/ "optimism vs pessimism" / "insiders' buy-in vs insiders' sell out" phase? I call it the "boring" range, or fair value phase. I think we are in one now.

Try out new ways.....upd24Feb08

Date Start: 1Jan2008 (re-based)
NAV = $4807.46 as of date 24Feb2008
Returns annualized = -23.3%
Returns to-date (since 1Jan2008) = -3.85%

Quotes (010-2008)

"None of the secrets of success will work unless you do."

- Stanley R. Fishman
St. Joseph, Missouri, USA

Inflation in SG

With inflation worries being reported more frequently nowadays (in US, UK, SG etc), I decided to find out more about the inflation stats here in SG.

Stats taken from Singstat.gov.sg

As usual, I have no wish to reinvent any wheel whatsoever. So here are the necessary parts:-

1) Long-term inflation since 1961 til 2007 is about 2.61%;
2) A sum of $100 would have been eroded to worth of $26.97 by end 2007 over 46 years;

3) A sum of $100 would be worth $327.86 by end 2007 by growing on par with inflation over 46 years;

4) The $100 is worth 12 times the value it was 46 years ago, if grown on par with inflation versus "keeping under the pillow";

Try out new ways.....upd9Feb08

I decided to increase the seed money from an initial $1000 to $5000, as I felt it was a better amount to (1) do dollar-cost averaging; (2) do active allocation.

For ease of calculating, the date of reference will be re-based to 1Jan2008 instead of 17Dec2007.

Date Start: 1Jan2008 (re-based)
NAV = $4736.51 as of date 9Feb2008
Returns annualized = -39.8%
Returns to-date (since 1Jan2008) = -5.27%

Happy New Year !!

Quotes (009-2008)

“Invest in inflation. It's the only thing going up.”

----- Will Rogers (American entertainer, famous for his pithy and homespun humour, 1879-1935)

Figuring S$1.0 million (backward and forward)

In a recent AC Nielsen survey, it was discovered that majority of the Singaporeans in the survey "feel they need over S$1MM to retire comfortably". To add on, I feel that the 'S$1MM' should not include the value of the primary housing (i.e for most Singaporeans, it is their HDB flat) that one owns, as it is an illiquid investment and cannot be monetized readily.

Indeed, I did my own sums and have the same conclusion as well. There are many ways and methods, such as setting up your own business, savings, investing and so on to achieve this retirement sum. Nonetheless, it is good to know the figures as a guide first of all.

Here is a table that shows the relation between $1.0 million and the % (returns or inflation %) over the number of years (10-30 years).For example, if an investor is confident and comfortable with achieving 7%-8% returns year after year, and he or she has 20 years' time frame, the net investible amount he or she needs to have at the beginning of the next 20 years is about S$200k-S$250k (reading directly from chart above- marked yellow color).

On the contrary, if a person has $1.0 million now and keeps his or her money (under the pillow) without investing, then inflation will 'chew' away the principal sum slowly. For example, assuming inflation is 3% per annum, the $1.0 million sum will be worth only slight more than $400k in 30 years' time. (Refer to chart above- marked red color)

“Invest in inflation. It's the only thing going up.”
-----Will Rogers (American entertainer, famous for his pithy and homespun humour, 1879-1935)