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Saturday, 30 June 2007

He Was In Step With Stocks

This is an article about Nicolas Darvas....who sort of defied most proponents of fundamental analysis.... :)

Are you tired of doing fundamental analysis...and realise the results are not worth the effort?

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By Paul Katzeff


Nicolas Darvas was a renaissance man.

Literate as well as athletic, he was good at a wide range of activities.

He trained to be an economist at the University of Budapest.

He earned a living at occupations as disparate as creating crossword puzzles and sportswriting.

He played championship pingpong. He toured Europe and the U.S. as one of the world's highest paid ballroom dancers, book publisher Lyle Stuart noted in the preface of one of Darvas' works.
Darvas' most enduring feat was conquering Wall Street -- in his spare time. Still dancing full time, he parlayed a $3,000 bet on a speculative Canadian mining stock into a series of investments that culminated in a $2.25 million portfolio.

That success earned him a profile in Time magazine.

His 1960 book "How I Made $2,000,000 in The Stock Market" was a best-seller. It still pops up on reading lists for investors.

Darvas' book is notable for its skepticism about Wall Street's conventional wisdom.

He wrote in a later book titled "Wall Street: The Other Las Vegas": "Wall Street is nothing more than a huge gambling casino, bristling with dealers, croupiers and touts on one side and winners and suckers on the other. ... I had been a winner and was determined to stay one."

He stayed one through his discovery of a strategy based on patterns formed by stock share prices. It was a strategy that involved no recommendations from analysts or brokers, no hot tips, no financial stories.

Box Theory

The crux of his strategy was price and volume data.

Darvas (1920-77) developed what he called his box theory. As some stocks climb, their share prices stay within a range. Some break through the bottom of that range -- or box -- and are less likely to rally much soon. Others rise and set up a new, higher box.

As soon as a stock climbed to start a higher box, Darvas liked to buy.

Gradually, Darvas realized institutional support from big money on Wall Street helped keep top-performing stocks from falling out of their boxes.

What Darvas' strategy boiled down to was capitalizing on winning stocks' price gains.

That approach would be familiar to investors who use IBD's CAN SLIM technique and know the importance of charting stock patterns.

But his strategy was not nearly as comprehensive as CAN SLIM.

Darvas arrived at his technique through a mix of circumstance and trial and error.

Born in Hungary, he studied to be an economist at the University of Budapest. With the outbreak of World War II in 1939, he grew fearful of Nazis and communists vying for control of his country.

At age 23 with a forged visa and a little money, he fled to Turkey. Teaming with his half-sister Julia, they became one of the most popular professional dance duos in Europe and, later, the U.S.

In 1951 he came to the U.S. He trained diligently eight hours a day to hone his hoofer skills.
During downtime, he applied his dogged determination to learn about stocks. Soon he had read some 200 books on investing.

His first stock was offered to him in 1952 by two Toronto nightclub owners. The impresarios said they would pay him for a dancing engagement with 6,000 shares of Brilund, a Canadian mining firm. The stock then was worth 50 cents a share.

Darvas didn't take the Toronto gig. But to show goodwill, he bought their Brilund stock for $3,000.

He forgot about the stock until months later. He glanced at the stock's price in the paper. "I shot upright in my chair," he wrote in "How I Made." "My 50-cent Brilund stock was quoted at $1.90. I sold it at once and made a profit of close to $8,000."

Through a Canadian broker, Darvas bought 1,000 shares of a gold mining firm at $2.90. The following weeks it slid to $2.41. He sold.

Still, he began to buy a series of Canadian mining stocks. He acted on hunches, rumors, news about oil strikes. After seven months, he had lost about $3,000.

He tried to wean advice from advisory newsletters. He switched to a broker in New York. He tried more newsletters.

He plumbed the over-the-counter market for investments. When that didn't work, he switched to the Big Board. His hunt for winning stocks resembled hopscotch. He spotted companies with top earnings. He jumped to stocks paying big dividends. He leapt to industry leaders.

One was steel maker Jones & Laughlin. He raised money to buy shares by mortgaging his home and borrowing against an insurance policy. He asked the Latin Quarter nightclub in New York for an advance against his long-term contract.

He spent $52,652.30 for 1,000 shares.

But the stock dropped. He lost more than $9,000. "I was crushed, finished, destroyed," he wrote.

Depressed and facing bankruptcy, Darvas still spent hours daily studying newspaper stock tables. He spotted Texas Gulf Producing. He knew nothing about the company. All he saw was that its shares kept rising.

He bought 1,000 shares at 371/4. He watched it rise for five weeks. He sold at 431/4.

"The stock that saved me from disaster was one about which I knew nothing," he wrote. "I picked it for one reason only -- it seemed to be rising."

Darvas battled to learn from his mistakes with his usual persistence. He was resolute about not clinging to what he once thought should work -- but obviously did not.

After strenuous dance performances each night, he poured over stock tables. Now he ignored all of the factors he once thought were essential -- everything from newsletters to fundamentals.

"Clutching at a straw, I decided to make an extensive study of individual stock movements," he wrote. "How do they act? What are the characteristics of their behavior? Is there any pattern in their fluctuations?"

He read more books. He inspected charts. He noticed that as stocks moved up, they traded within a range. Leading stocks moved up again, trading in a higher range. He called each range the stock's box.

When a stock pulls back within a box -- but not falling out of it -- that is often a sign it is about to vault into a higher box.

Set To Spring

"Before a dancer leaps into the air he goes into a crouch to set himself for the spring," Darvas wrote.

Once Darvas spotted a stock ready to make its move, he could tell his broker to buy at a certain price.

He did all this no matter where he was. In New York, he studied stock prices at a favorite table in the popular Oak Bar of the Plaza Hotel. Abroad, he stopped at U.S. embassies to read newspaper stock tables.

Darvas had detractors. Dubious about the box theory, New York's attorney general in 1960 called Darvas' book fraudulent advice, but later settled out of court, according to the Boston Globe.

Other critics said Darvas was simply a shrewd stock picker who benefited from price momentum.

Darvas urged investors not to chase shortcuts. He wrote: "I have discovered no loss-free Nirvana. ... My method obviously wouldn't work for everyone. It worked for me. And, by studying what I did, I hope you find this book helpful and profitable for you."

Investor's Corner: Always Cut Losses Short -- No Exceptions

Alan R. Elliott
You can't hear it often enough: Sell any stock that drops 7% to 8% below your purchase price -- no ifs, ands, or buts.

It's tempting to believe that a stock, particularly one with strong fundamentals, will recover. Sometimes they do; sometimes they don't. But the rule book says sell.

Stocks that fall tend to keep falling. It only takes a 9% gain to recover from an 8% loss. But if you let the stock fall further, it could crush your portfolio, and your confidence. After all, you'd need to double your money just to get back to square one on a 50% loser.

On the same day that China's Shanghai exchange crumbled 8% in a single session in February, bulk container maker Greif showed the value of cutting losses short.

Things looked good when Greif broke out of a seven-week, cup-with-handle base on Feb. 20. Volume was strong as shares spiked 6% above a 59.12 buy point 16oint 1).

But five days later, the Shanghai market sold off, dragging U.S. indexes along with it. Greif, with its fortunes tightly linked to China's export trade, dropped 8% in one session (point 2), leaving it 4% below its ideal buy point.

That kind of sharp drop in big volume so soon after a breakout is a bearish sign. But the stock hadn't triggered the 7% to 8% sell rule yet, so you could've held it.

Greif climbed for two days, offering a little false hope. But it then fell 9% below the buy point 14 two sessions (point 3). Time to sell.

Also in February, Tesco was riding a handle on a 23-week base with a 21.67 buy point.
Cutting losses short on Greif and funneling your money into Tesco would've produced strong results. The stock broke out above its buy point 13arch 1, banking a 56% gain by May 18.

At the same time, Gulfmark Offshore had settled just below a buy point 15f 41 on a 12-week, cup-shaped base, following a quick, one-day spike on Feb. 26. A Greif alumnus who bought Gulfmark as it broke out above that buy point 14 March 9 would've banked a 15% profit by May 3.

Also at the same time, Bolt Technology broke out of a 10-week cup-shaped base Feb. 26. The seismic data specialist pulled back with the Shanghai downturn. It then rebounded from its 50-day moving average, breaking out past a 26.05 buy point 13arch 8. By May 7 the stock was up 76%. The cost of staying with Greif for that same period? An additional 6% loss.

Singapore trade minister warns banks market risky

Dear all,

A timely news article for all to consider...look out for the words in bold and feel free to give me your comments.

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By Jan Dahinten
REUTERS


SINGAPORE – Singapore's trade minister warned banks on Friday to be extra vigilant in the current environment of ample liquidity and bullish markets to spot economic and financial risks and be prepared to handle shocks.

“It is important for banks not to become complacent. As banks pursue the many opportunities that lie ahead, we must not let our guard down,” Trade and Industry Minister Lim Hng Kiang said, according to the text of a dinner speech to bankers.

“Banks must not be lulled into a false sense of security by the external environment's bullishness and resilience to shocks so far. We must not allow ourselves to get overconfident with our knowledge and analyses of the risks out there.”

Lim, who is also the deputy chairman of the Monetary Authority of Singapore, Singapore's central bank, warned that risks may deviate from expectations.

Citing a central bank survey of risk managers and traders, he said that most industry players believed that asset prices were frothy and that a big shock could happen, possibly before the end of next year.

“Nevertheless, the financial system has been resilient so far. Have we learnt our lessons from past crises and are now better prepared? Or are we just plain lucky? Whichever the answer, we should remain vigilant.”

Lim said that respondents to the survey spoke of hedge funds and private equity in the same breath as “highly leveraged,” “covenant-lite structures” with “large speculative positions.”

“Respondents expressed concern about the systemic risks such providers posed and their default risk in a severe market correction,” he said.

Bear Stearns (BSC.N), the fifth-largest U.S. investment bank, saw two funds it manages melt down after rising U.S. subprime mortgage defaults earlier this year depressed prices of securities named collateralized debt obligations. CDOs, essentially repackaged portfolios of subprime home loans, were among the funds' main investments.

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Friday, 29 June 2007

5 Vital Tips About Stock Market Research

by Roger Overanout

When you first consider investing in the stock market it can seem to be a very intimidating prospect, one of the most important things that you have to do is research into the stocks you're considering investing in.

The following five vital tips about stock market will help you.

1. The saying "knowledge is power" is exceptionally true when it comes to being successful at stock market investing, it is vital to find out as much as possible about the company you are considering investing in and developing an understanding of the factors that affect the profitability of that company, here are two freely available resources where you can obtain this important information.

(a) The financial press, by studying newspapers such as the Wall Street Journal or if you come from the UK, or want to invest in UK Stocks, the Financial Times, you will be able to keep up-to-date on all the latest information that might affect the stocks you are considering. Also these newspapers provide quality in depth news about politics and economic trends etc that could well affect the profitability of the stocks you are considering.

(b) The Internet, almost everything you could hope to find about any company and its stock is available somewhere on the World Wide Web, learn how to use Google, Yahoo and the other search engines, visit the website of the company whose stock you intend to purchase it will provide you with a wealth of information, probably including company balance sheets, trading statements and anticipated developments in the company.

2. There is so much information available today, but you must make sure that you review everything in detail, not all information will be accurate so make sure that you consider everything carefully. It can all be a little overpowering, but take the time to check everything out, read the small print, if you have any worries or concerns about a particular stock dig deeper until you have all the information you need to make an informed decision. Remember there is always another stock market investment available, if in doubt choose another company stock.

3. Consider external factors, is this the right time of the year to be investing in this company, are there seasonal considerations, the best time to invest in a retail company's stock may not be just after Christmas. One of the biggest external factors to take into consideration today is the price of oil, if the oil price goes up how will it affect the company you are considering.

4. Do not be too anxious to get into the market, when you are considering purchasing a company's stock timing can be an important consideration, also bear in mind the timescale you will be holding the stock for, is a short-term speculative punt or a longer term investment over several years.

5. Having bought your stock you will have to keep a careful eye on it, check the company's reports for any major changes in the boardroom or the companies strategy consider how changing world affairs may affect your holding and if necessary act quickly to protect any gains you may have made or reduce any losses.

If you follow the above five vital tips about stock market research you will be well on your way to developing a profitable stock portfolio and long-term financial security.

Wednesday, 27 June 2007

The Greatest Crash in Stock & Property Market is coming

ok...finish reading the article on my previous post? Now read this one :) and see what conclusion you derive for yourself....

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By Dennis Ng

Recent plunge in China stock market and Dow didn’t trigger any effect on Asian Stock Markets, in my opinion, this is a sign of market going crazy. Even recent plunge in China market, DOW and other global markets also didn't react as well.

This is a global bull run driven by liquidity......however, when things turn around, it will be a BIG, BIG Crash becos much of the liquidity is attributed to Leverage by Hedge Funds, Private Equity, Yen Carry Trade etc, etc.... when liquidity tide turns and risk premium increases.....the crash would be like an avalanche....

The Crash would occur in both Global Stock Markets and Global Property Markets....remember the global stock market crash in year 2000 to 2002 was buffered by rise of global property markets.....so if BOTH Stock and Property markets crash, it will not be a pretty sight.

When the crash does come, it might be worse than 1928's Great Depression.

yes, in my opinion, STI index surpassing 4,000 points is a foregone conclusion.

However, I also think there'll be a crash in global stock markets and global property markets sometime in future, possibly end year 2008 or year 2009, after Beijing Olympics and U.S. Elections.

What will be the trigger for the Crash? It can be anything.

the thing with Global Liquidity as I mentioned, it can vanish overnight as well, when everyone rush for the exit, it is when the crash would occur. What cause everyone to rush for the exit door....I really don't know.

Prime Minister Lee said that even if China Stock Market crash, its impact on the world is expected to be limited.

In my opinion, actually if and when China Stock Market crashes say, from 5,000 points (now about 4,200 points) to 2,000 points, it might still create a domino effect. Why?

Imagine if by then majority of people in China are risking alot of their money in the stock market and even borrowing to "Play" in the market, when a crash comes, many households will go into financial ruin....it might then lead to a fall in consumption, and if and when the China's economy slows down (it need not even go into a recession) from the current Official 10% growth rate (unofficial REAL growth rate I guess is 20% instead) to say, 5% growth rate, it would be sufficient to create a demand shock to the rest of the world.

Do NOT underestimate the IMPACT of a DOMINO effect.

As I mentioned, my personal opinion is that when the next crash comes, it will be the WORST in Human History, as it would be the BIGGEST Crash in Both Global Stock Markets and Global Property Markets.....

why it will be the WORST in history is becos of the HUGE expansion in Deriviatives and LEVERAGE in the past 5 years......and the Massive Growth in things such as Collaterised Debt Obligaitons, Hedge Funds, Private Equity Fund etc....

Please note that yes, if this CRASH occurs, Singapore will NOT be spared. Singapore is like a small "sampan" in a big ocean. However, in my opinion, Singapore will be one of the Few SAFE Havens in the whole world becos Singapore is one of the rare few countries in the world whereby we are financially strong, each S$ issued is somewhat backed by foreign reserves we have.

Furthermore, Singapore is a Global Financial Centre, whereby even in a crisis, there'll still be Wealth parked in Singapore due to the many advantages that Singapore has.

We will not know the exact timing of the next Crash. My guess is end year 2008 or year 2009, LBWOES's guess is much earlier than that.

Importantly, we must ask ourselves how are we prepared for this Crash, how are we positioning ourselves to not only survive the Crash but be one of the Few that will actually increase our wealth massively in the coming Crash.

Each Crash is a MAJOR Transfer and Re-allocation of Wealth. The IMPORTANT question is whether you will receive wealth or you will suffer loss.

====================================

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-
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Has the bull market run its course?

Hello all,

Below is a news article about every investor's concern now....has the bull slowed down?

Be sure to catch the next article on my next blog post, after you finish reading this article.

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By Katie Benner, Fortune reporter

(Fortune Magazine) -- Oh, what a glorious first half it was for the stock markets this year! Share prices shrugged off recession warnings, they brushed off the subprime loan meltdown, and they scoffed at the Shanghai stock scare. By June 4 the S&P 500 index was up 9.4 percent for the year.

Then came the market equivalent of kryptonite - inflation! rising bond yields! - and the markets staggered before regaining form. As the second half of the year begins, stockholders are skittish, so we decided the time was right to consult Wall Street's top sages and pose the question on every investor's mind: Has the bull market run its course?


Not just yet. At least, that's the consensus of the strategists we interviewed. The market will inevitably slump, they say, but that's unlikely to happen in the second half of 2007. "Don't panic," says Wayne Lin, an investment strategy analyst at Legg Mason. "There doesn't seem to be much out there to cause the market to tank in the next couple of quarters."

It's easy to see why investors are nervous. Six years of ultra-low interest rates have been a tonic for corporations, private-equity funds, consumers and, well, pretty much everybody other than income investors. Companies have lavished buybacks on their shareholders, and stocks have been propelled by a burgeoning wave of mergers and acquisitions. So couldn't a rise in borrowing costs bring the party to a halt?

Surprisingly, Lin argues that rising rates and yields on longer-term Treasury bonds are healthy signs. "Rates have been so low for so long, in part because there was a lot of worry that the U.S. economy would tank and that the Federal Reserve would have to cut interest rates [to stimulate growth]," he says.

Yes, rates have risen, but only modestly (to 5.1 percent for the ten-year bond as of mid-June). And the crucial point, according to experts, is that they're not about to soar. The Fed isn't likely to jack up rates substantially this year, say six strategists interviewed by Fortune.

(Heck, it seems as if only minutes ago everybody was expecting a cut.) And even if bond yields float higher, the strategists say, there's still plenty of room before there is real hurt put on the stock market. "We need to go to a 6 percent yield on the ten-year note to present an initial obstacle [to share prices]," says Quincy Krosby, chief investment strategist at the Hartford.

The surging rates and fears of inflation are blinding investors to the fact that the change is occurring for a happy reason: Economic growth is picking up. That could boost corporate profits and support stock prices. "People will buy equities in anticipation of production. They're a leading indicator of growth," says David Malpass, chief global economist at Bear Stearns. "Many stocks have been held back by overstated concerns about a slowdown in the U.S."

The combination of economic growth and relatively stable interest rates should ensure that two stalwart trends of recent years - buybacks and buyouts - roll on a while longer. Moreover, international markets remain strong. Finally, there's one nonfundamental factor that could help stocks, says Michael Metz, chief investment strategist at Oppenheimer.

"Alternatives to equities are not all that attractive. Real interest rates are below historical norms, and they're heading higher, and that makes bonds relatively unattractive. The residential real estate market is no longer an option and commercial real estate is way overpriced." It all adds up to a bull market for stocks - at least for a little while longer.

Many investors remember how rising interest rates increased the cost of capital and killed the private-equity boom of the 1980s. But the return of normal interest rates now doesn't mean a halt to borrowing. "

We won't continue to have this level of liquidity, but it takes a long time for these things to reverse," says Legg Mason's Lin. "It would take a real shock, like Enron, for corporate bond yields to rise high enough to put a stop to borrowing activity." Liz Ann Sonders, chief investment strategist at Charles Schwab, agrees. "There is still plenty of liquidity in terms of a strong money supply, relatively low inflation and generous lending conditions."

Investors can capitalize in several ways. Merger mania will probably benefit small companies, as it has over the past few years. The handful of megadeals get all the press, but the vast majority of the 300 acquisitions announced since the beginning of 2007 were smaller companies, says Sam Dedio, a portfolio manager at Julius Baer. Smaller fish are easier for the larger fish to swallow and easier for private equity to sell or take public again.

Regional banks could be one category ripe for consolidation, says Dedio, and he thinks Colonial BancGroup (CNB, $25) could be an enticing takeover candidate. It's a good-credit-quality lender based in Alabama and Florida that should benefit from demographic growth.

"Every day 1,000 people move to Florida, and the baby-boomers will only accelerate this trend," says Dedio. "As mortgage demand slows, it's positioned to benefit from the migration of retirees to the region. It also has great management." The stock trades at a price/earnings ratio (for the next 12 months) of 13, compared with 18 for the S&P, and the company just bought back stock.

Oil companies may find themselves on the block because they generate gobs of cash but are finding fewer reserves and investment opportunities. "This is where the great excitement will be, and we'll see enormous appreciation for exploration companies," says Oppenheimer's Metz. He suggests Canadian exploration company EnCana, which trades at 15 times forward earnings and has a strong balance sheet.

A desire to get a piece of biotech's fast growth could also fuel deals in the pharmaceutical industry. "There are more relationships with biotech companies now, and large companies are streamlining and cutting costs," says the Hartford's Krosby. Her company's funds have been buying Schering-Plough , despite the fact that it trades at a relatively pricey 20 times earnings.

"It's a turnaround story," says Krosby, "and their deal-making and licensing agreements have been attractive." The company has been minting money on Vytorin, a cholesterol-lowering drug it sells with Merck, and the two are planning a new cholesterol medication. Schering also has enough cash on the balance sheet that Krosby believes it could buy stock or make an acquisition.

In recent years money managers have been beating the drum for international investing - from hot emerging markets to long established economies - because growth overseas has trounced growth in the U.S. With the recent interest rate hike at the European Central Bank that took rates in most of Europe to a six-year high, it looks as if central bankers in the region believe the trend isn't about to abate.

Rate strategists say the Bank of England and the Bank of Japan should also pump up their benchmark lending rates by the end of the year, creating a case for economic optimism beyond the EU. "The real spurt of growth over the next year will come from outside the U.S., so you want to own companies that will participate," says Metz.

One way to play that trend is to buy big-cap U.S. names that have exposure to overseas markets or to exports. "If risk comes back into the market, which we think it will eventually, you want the total return you get from good-quality large-cap stocks that give a dividend and share appreciation," says Krosby. She says large diversified banks can benefit from the growth of retail and investment banking around the world.

One stock she thinks is worth a look is Citigroup. Thanks to a series of debacles and missteps, it's trading at just 11 times forward earnings, and it's under pressure to take drastic measures such as jettisoning CEO Chuck Prince or even breaking itself up. "We'll see more measures to push up the stock price, and it pays a good dividend while you wait for it to deliver in terms of share price," says Krosby.

Boom times around the globe have created demand for roads, rails, airports and homes that will continue as nations from Brazil to Vietnam evolve into developed economies. Metz says the trend should benefit Caterpillar long term. The maker of bulldozers has a P/E of 13 and more than a decade of steadily increasing dividends (the stock currently yields 1.8 percent).

As globalization means that ever more goods and people will move between nations, Dedio is betting on an explosion in shipping and travel. One stock that could benefit in his view: Boeing. The company has been gaining market share on rival Airbus, and its planes are sold out for the next couple of years.

"Its earnings are already set to stair-step upward," Dedio says. Despite that, it's trading at a below-market P/E of 16. That makes Boeing a stock primed for takeoff, and it's a reminder that, even if the skies aren't completely clear, the real turbulence is still a ways off.

Jon Birger contributed to this article.



Monday, 25 June 2007

Seven Money Mistakes to Avoid

by Nicole Bullock and Janet Paskin

We all make financial mistakes, and they add up.

Consider: From 1986 to 2005, the Standard & Poor's 500 returned 12% annually, but thanks to overzealous trading, the average investor in stock mutual funds made just 4%, according to Dalbar, a Boston-based financial-services research firm. Homeowners pay high insurance premiums to keep deductibles low, but only 7% report claims each year. And 74% of Americans overpaid their taxes in 2005 -- essentially giving the government an interest-free loan.

Why? A developing discipline known as behavioral economics seeks to answer that question, but it boils down to this: Academic research tells us that emotions and experiences can distort our financial decisions. While our mistakes are rarely the result of a single mental error, our feelings can make us fumble. Below, seven big financial mistakes and the psychology behind them.

1. Saving with the right hand and spending with the left
DIAGNOSIS: Mental accounting
SYMPTOMS: Keeping a savings account that pays 5% interest while paying Visa 15%; thinking a tax refund equals mad money; obsessing over the price of a new car, but failing to monitor the weekly grocery bill.

Another way to think of "mental accounting" is separating money into buckets, each with a different purpose. It's not always a mistake -- it is the premise behind budgeting, for example -- but looking at your finances in parts without seeing the whole picture can hide costs and charges you could otherwise avoid. Consider a $5,000 tax refund. Woo-hoo! Right? Wrong. If you put your overpayments in a high-interest savings account throughout the year, you would net about $135 in interest instead of giving an interest-free loan to Uncle Sam.

2. Playing it too safe

DIAGNOSIS: Loss aversion
SYMPTOMS: Quick to sell winning stocks but slow to sell losing ones; putting too much cash in money-market funds and not enough in stocks; reluctance to trade away what you already have, even for something more valuable.

No one likes losing money -- a truism that economists call "loss aversion." Because we can avoid only losses that we recognize, we tend to focus on immediate costs, while ignoring more subtle costs and even savings. For example, we should recognize that getting a $4 discount is worth as much as avoiding a $4 surcharge. But most of us would rather avoid that surcharge. By being "loss averse," investors open the door to a more insidious cost, the toll that inflation will take on their savings.

3. Looking into a cloudy crystal ball

DIAGNOSIS: Misunderstanding risk
SYMPTOMS: Putting too much of your savings in your company's stock; having very low insurance deductibles; thinking small-cap stocks will rise forever.

More than two-thirds of adult Americans have life insurance. The bad news is that many are neglecting a bigger risk. People between 35 and 64 years old are six times more likely to be injured badly enough to miss an extended amount of work than they are to die. So why do fewer than a third of us have disability coverage? That error reflects what economists and psychologists sometimes call "the availability bias," a mental shortcut we use to gauge risk. It all adds up to what University of Chicago researcher Cass Sunstein calls probability neglect. "We tend to ask what's the worst -- or best -- that could happen," he says. "Instead, we should be asking, 'What's likely to happen?'"

4. Living in the moment

DIAGNOSIS: Procrastination
SYMPTOMS: Failing to enroll in a 401(k) plan; not coming up with a monthly budget; waiting until the last minute to make your IRA contribution.

The propensity to procrastinate, behavioral economists say, is one reason nearly half of employees don't participate in their 401(k) plan or contribute enough to get the full company match -- essentially turning down free money. "There is a tendency to value immediate costs and immediate rewards much more than delayed costs and delayed rewards," says David Laibson, an economics professor at Harvard. To be fair, some households can't afford to give up any of the paycheck to savings, even if the company will automatically pony up too. Laibson, however, studied employees who could contribute to 401(k) plans, get the match and still have access to the money in short order. About half still weren't contributing enough to get the full match, and of that half, most weren't enrolled at all.

5. Throwing good money after bad

DIAGNOSIS: Sunk-cost effect
SYMPTOMS: Hanging on to a lagging mutual fund because you paid an upfront sales charge; making repairs that cost more than your car is worth; making decisions about how to spend time or money based on how much time and money you've already spent.

The upfront money we spend to make an investment -- the "sunk cost" -- colors the way we see its prospects for the future. Mutual fund sales charges are sunk costs. Of course, you hope your investment pays off and the fund outperforms. But when it comes to reevaluating -- whether to sell the mutual fund -- a "rational" economic perspective tells us the sunk costs shouldn't matter. They're gone. We'd be better off making the decision by weighing future gains and losses.

6. Letting your ego get in the way

DIAGNOSIS: Overconfidence
SYMPTOMS: Frequent trading; concentrating picks among a handful of "surefire winners"; thinking you're an above-average driver.

Studies show that we often tend to overestimate our abilities. Of course, confidence and optimism aren't necessarily bad. But in the stock market, overconfidence leads people to believe that they can beat the market when, more often than not, they can't. The consequences are high-risk investments, overtrading and under-diversification, all of which chip away at long-term returns. In their study "Trading Is Hazardous to Your Wealth," University of California professors Brad Barber and Terrance Odean found that individual investors who trade actively trailed the overall market by 3.7 percentage points a year. Odean says that while many people believe they can identify winners, they not only miss the mark but also rack up a lot of commissions and other trading costs.

7. Following the crowd

DIAGNOSIS: Herding
SYMPTOMS: Buying ethanol stocks because everyone says they're the next big thing; dumping your stock fund after a steep market decline; taking stock tips from family and friends.

Nearly two decades after the stock market crash of 1987, the debate continues about what really caused a 23% plunge in the Dow Jones Industrial Average and massive drops in stock markets around the world. Theories range from cascading electronic trades to a windstorm in London. Behavioral economists, however, see investors acting like lemmings. The sellers couldn't resist the pull of the crowd even though it was pushing them in precisely the wrong direction.

Thursday, 21 June 2007

Why the recent rise in rates won't derail the stock rally



Hi all....

Another timely finance article below.....:)

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By Alexandra Twin, CNNMoney.com senior writer


First it was a selloff in Chinese markets. Then it was subprime. And now it's the runup in Treasury bond yields that's become Wall Street's latest bogeyman.

Funny how these issues seem to send stocks tumbling right around the time that the major gauges have just made new highs.

That was the case last week, when worries about an overheating global economy sent the benchmark 10-year Treasury yield - which impacts mortgage rates and other consumer loans - to a 5-year high above 5.3 percent. Stocks tanked in response, with the major gauges sinking some 3 percent over three sessions on worries about the impact of rising rates.

But the slump also came right after the Dow industrials, the S&P 500 and the Russell 2000 small-cap index all closed at record highs. The tech-fueled Nasdaq composite had hit a 6-year high. All that during the seasonally weakest part of the year, the May through October period.

That's not to say that rising rates won't have a broad and possibly negative impact on the economy and a wide swath of investments, including real estate as well as stocks.

But the impact on the U.S. stock market - at least in the near term - is shaping up to be milder than some investors had feared just a week ago, thanks to positives like upbeat earnings and the ongoing flow of funds into the market from buyout deals and stock buyback plans.

The stock market is supposed to react quickly to big events, like the rise in bond yields. But lately, the knee-jerk reactions haven't changed the market's direction beyond the short term. That could certainly be the case again.

"The excuse for selling was as much that we were overbought as it was interest rates and inflation," said Art Hogan, chief market analyst at Jefferies & Co. "More than anything else, the market needed to blow off steam, and it was similar to what happened in February."

On Feb. 20th, the Dow ended at a record high, and the S&P 500 and Nasdaq composite ended at 6-year highs as investors continued to welcome solid corporate earnings, corporate stock buybacks and a plethora of deal news.

But then came rumblings that global growth was going to slow. Former Federal Reserve Chairman Alan Greenspan said the U.S. economy was at risk of slipping into recession by the end of the year. And stocks started to fall.

A week later, on Feb. 27th, a 9 percent tumble in stocks in Shanghai sparked a global selloff on worries that economic growth worldwide was going to tank. Adding to the jitters: the idea that the U.S. economy was going to suffer doubly from a subprime mortgage fallout as well as slowing world growth.

The Dow plunged 416 points - its biggest point loss in 5-1/2 years - on worries that the bull market was over.

Stocks at home and abroad did weaken on and off over the next two weeks, but then the concerns were tempered, investors refocused on the positives and stocks began climbing, setting the stage for a powerful three-month rally that took the market to record highs - until the recent rate rise sparked another pullback.

So here's a look at some of the worries that caused the recent selloff and the silver linings that could limit their impact on U.S. stocks later in the year.

Worry: Yields are rising, energy prices are still high and the Fed will boost its key short-term rate later this year in a bid to ward off inflation, hurting stocks.

But: While Treasury yields may rise further, recent inflation reports, including Friday's consumer price numbers, point to moderate pricing pressure, and indicate the rise in energy prices does not seem to be driving up core inflation. Despite the strong labor market, wage growth has been modest, and wages are the biggest driver of inflation. So many Fed watchers think the central bank is on hold for the rest of the year.

"The runup in yields was more of a repricing on bets that the Fed isn't going to ease, indicative of a stronger growth environment," said Joshua Shapiro, chief economist at Maria Fiorini Ramirez Inc. "We think the runup is overdone and that the Fed is not going to raise rates."

Worry: Yields spiked because the economy is overheating, another possible spark for higher inflation.

But: If rates are rising because the economy is strong, that's a positive for stocks, considering that first-quarter economic growth at a 0.6 percent rate was the slowest in 5 years. A stronger economy, paired with moderate pricing pressure, would help reaccelerate corporate profit growth, which would then make stock prices more attractive due to the stronger growth, said John Davidson, president and CEO at PartnerRe Asset Management.

Worry: The rise in rates marks an end to an era of cheap capital, which is going to cut off the private equity boom and pull the rug out of stock buybacks, which have helped fuel the stock rally.

But: Higher rates will have an impact on the buyout boom, but are unlikely to stop the train just yet, or the stock rally.

"At some point the liquidity dries up, a deal goes bad, private equity become sellers instead of buyers, but for now it can keep going," said James Awad, president at Awad Asset Management.

Worry: Yields are going to keep rising aggressively, making bonds more appealing to nervous investors than stocks.

But: No less than PIMCO bond guru Bill Gross has said Treasurys are in a bear market, suggesting rates are set to rise further. But since topping out at 5.32 percent, the yield on the 10-year note has backed off and stood Friday at about 5.19 percent. Market watchers say any subsequent rise in yields won't be at the frenzied pace of last week's runup.

Additionally, while higher bond yields make Treasurys more attractive, they don't really become a competitive threat to stocks until they exceed 6 percent, according to J. Bryant Evans, portfolio manager at Cozad Asset Management.

"At that points, some investors who look for high yields in equities are going to sell stocks to buy bonds," Evans said.

Worry: At 4-1/2 years old, the bull is getting feeble and the rise in bond yields could be the straw that breaks the animal's back.

But: The new challenges are likely to make things more choppy on Wall Street, but rather than expecting a major selloff - a drop of 5 to 10 percent or so -investors would be better off looking for some sector rotation.

"I think we'll start to see performance rotation and that will keep us in a trading range for a while," said Lincoln Anderson, chief economist and chief investment officer at LPL Financial Services.

Traditional defensive stocks that tend to do well when rates are rising are bound to benefit, such as healthcare, food and beverage stocks, aerospace and defense and others, while higher energy and commodity prices should benefit those stocks.


Your Cash is Trash, and So Are Most of Your Investments

Very insightful article below...enjoy :)

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By Doug Casey, Editor, International Speculator

Almost everyone, probably including yourself, gets held back by inertia at one time or another. It can happen with anything, including investments.

Inertia weighs on an investor, trapping him in a state of paralysis and freezing his portfolio, almost forcing him to hold on to whatever he already owns – for no better reason than that he already owns it. He hopes that every one of his old shoes will go up, even if the reason for the purchase is long forgotten or the environment in which the investment might have prospered has vanished. People who substitute hope for cold-blooded analysis almost inevitably wind up losing money.

So, for the sake of argument, let’s look at where you might best put your money for the rest of the year 2007. To keep things simple, let’s assume you start by liquidating all the cats and dogs populating your portfolio, so that you have just a pile of cash. No, let’s not phrase it that way… because then you’re going to start wondering which of the securities you own really are cats and dogs. You might get bogged down. And then inertia will creep back in, and you’ll throw your hands up and do nothing. So let’s assume you sell everything, in true going-out-of-business style.

Now, what’s the smartest place to put that money? Let’s look at the alternatives.

Bonds? A disastrous sucker bet. Bonds, at the moment, are a triple threat to your capital. First, you have a huge risk with interest rates, which are still near historic lows; as they go up, the market value of your bonds drops proportionately. Second, no matter which of the fiat currencies you choose, you have a big currency risk; while the US dollar is on the fast train to zero, virtually every other currency in the world is being inflated along with it and is heading toward eventual oblivion. Third, you have credit risk; General Motors isn’t the only large company whose bonds may go into default.

Stocks? The general market is yielding less than 2% in dividends, less than 1/3 of what you typically see at major market bottoms. And selling for more than 18 times earnings—more than 25% higher than its norm. Worse, for those who might be buyers, the bull market of the century started in 1982 and, in inflation-adjusted terms, ended in 2000. You might not want to hear it, but stocks are almost certainly early into a bear market that could last another 5 or 10 years. By all traditional measures, chances are much better that stocks will drop 50% from here than gain 50%.

Cash? You could always just stay in T-bills. But they currently yield only 5%, before taxes. And inflation (notwithstanding the highly imaginary official figures) is probably running around 6% and likely to head higher.

Real Estate? At the present, at least in the U.S., this is probably the worst choice of all. The speculative boom crested last year, and the market, burdened by an immense amount of debt and overleveraged speculation, is likely to head down for years to come. Of course, there are places in the world, two of our favorites being Argentina and Uruguay, where there isn’t much of a mortgage market, so the properties aren’t overleveraged and values are still available. But unless you are looking to pick up cheap land in undeveloped, exotic countries that have avoided the credit-driven bubble, real estate should be last on your list of investments.

Mutual funds? Any mutual fund you’re likely to pick is just a way of buying one of the investments we’ve already dismissed. And paying all those fees and expenses that come with a mutual fund just makes the bet that much worse.

So What Should You Do?

Since 2001, we’ve been in a natural resources bull market. If you were one of the few who positioned yourself in gold, silver or pretty much any of the metals or energy commodities – either directly or through the shares in smaller resource companies, which is the preferred vehicle we have been recommending to subscribers of our International Speculator -- you’ve already made the easy money.

At least to us, before the bull market kicked off, the opportunity in the sector seemed obvious, with many resource companies selling for less than the cash they had in the bank. Few people even knew the sector existed, and most of them thought it was a dead duck after the 20-year-long bear market it had suffered since 1980.

The easy-money stage of the resource bull ended in 2003, at which time we entered the second stage, where the market climbs a “wall of worry.” In even the most formidable of bull markets, this phase comes with inevitable corrections and scary downdrafts. Per its moniker, with each short-term setback in price, investors who were shrewd enough to get positioned early on into the long bull market fret that they might be wrong. Some are shaken out, but the smart ones buy even more on the dips.

But now, in my opinion, we are about to enter the third, and most important, stage of the classic bull market: the mania stage. This will resemble the tail-end of the Internet stock bull market. It’s hard to predict exactly what catalyst will set it off, but it will very likely be rising expectations for inflation. Fear will drive the foreigners who hold about $6 trillion to sell the greenback, and they’ll be joined by savvy Americans. Some will buy other paper currencies, like the euro or the yen. But those units are just backed by U.S. dollars themselves, so they really aren’t much in the way of an escape pod. Inevitably, much of the money now sloshing through the world will try to get into gold. While no one can say with certainty, I expect the metal to hit $1,000 within the next 12 months and go much, much higher by the end of the decade.

Is this an unreasonable prediction? No.

Most casual investors mistakenly look at gold and think it’s been a leader in this bull market when, in actual fact, it’s a laggard compared to the industrial metals that have been bidden up to extraordinary highs by soaring demand from China, India and other emerging markets.

To give you just a few examples, in the last five years, copper has been up 330%, nickel 560%, uranium 1,150%, zinc up 460%, molybdenum up 450%, and even lowly lead, the most basic of base metals, is up 425%. By comparison, gold is up only 100%.

That will change, however, because although gold has many and growing industrial uses, it’s main use is as money. It will dawn on the herd that the world is drowning in a flood of increasingly worthless paper currency, and they’re going to stampede toward the high ground of gold.

The metal isn’t just going through the roof. It’s going to the moon.


Gold Good, Gold Shares Better

When gold really starts to move, the mining exploration stocks are going to howl. That’s because gold exploration stocks are not just highly leveraged plays on the price of gold. They are capable of providing you with triple-digit gains based on exploration success alone.

Case in point, the last mining share boom from 1993-96, which occurred at the tail-end of gold’s 20-year bear market and carried hundreds of stocks with it, was driven entirely by a handful of discoveries. Since gold prices turned up, starting in 2001, a lot of money has been spent on exploration, and that work will inevitably lead to major discoveries and market excitement. Several of the companies we follow in our International Speculator are already drilling into what look to be monster deposits. Confirmation of a major discovery could well ignite a mania in the market.

While most other investments, such as bonds, industrial stocks, real estate and broad mutual funds are likely to be serious losers over the coming years, the bull market in gold and gold exploration stocks has still barely entered the public’s consciousness. Although the easy money has been made, the big money is waiting to be picked up.

Nothing in the investing world is ever a sure thing, but today the exploration stocks look to be as close as it gets. As for the inevitable corrections during this “wall of worry” phase, remember that the time to be timid is when everyone else is bold, and the time to be bold is when everyone else is timid. Sell-offs in the gold and gold mining sector are, to our way of thinking, gift-wrapped opportunities to buy.

Doug Casey is chairman of Casey Research, LLC., one of the nation’s oldest and most respected organizations dedicated to providing independent investors with unbiased research on opportunities to earn extraordinary profits by being just ahead of the crowd.

Six Tips for Success Right Out of College

Hi all...

The article below is extremely useful for fresh grads going into their first job. I have personally realised and used some of these tips myself (years before such an article was written) and yes, I have benefited tremendously in my career. I wouldn't have been where I am now, if not for the things I did since my first day of work in my first job :)

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by Jim Citrin

Job opportunities abound across all sectors for the graduating class of 2007. According to Job Outlook 2007, employers plan to hire 17.4 percent more new college graduates this year than from the class of 2006, the fourth straight year of double-digit growth according to the National Association of Colleges and Employers.

Many of the approximately 3 million students graduating from U.S. colleges this year will enter the workforce for the very first time. They'll have to adapt to new cultures, expectations, and schedules.

And while success will no longer be about getting good grades in class, they shouldn't fool themselves -- they'll still be graded every day. In the workplace, however, "grades" are far more subjective and ill-defined than in school.

Advice from the Top

If you're starting a new job fresh from school, Christie Hefner, chairman and CEO of Playboy Enterprises, has some sage advice. (Full disclosure: The company I work for, Spencer Stuart, has done client work for Playboy Enterprises.)

"A key to success in your new job is recognizing that it's no longer about your individual achievement, but the success of the team, the organization," says Hefner. "You should start out by listening -- a lot. Make the effort to understand the culture and learn the history and strategy of the organization.

"Make an effort to meet people, to make friends, to learn what other people need and value," she continues. "That includes your boss, your department, your colleagues, and the company. If you make them look good, you'll look good."

To build on Hefner's counsel, here are six guidelines to help launch your career with real momentum:

1. Maintain a positive attitude.

This seems obvious, but attitude is the single most important asset you'll bring to the early days of your job. It's also something over which you have complete control.

Be upbeat and optimistic. Be the kind of person who creates rather than saps energy from other people. Be proactive and take initiative.

Don't wait to be asked how your project is going -- make an appointment with your boss or go see the project manager to share your progress and check to see if you're on track. Listen attentively and ask good questions. Above all, don't be a know-it-all.

2. Work hard.

There's no escaping the fact that hard work on a consistent basis is a foundational requirement for success. High-level performance only comes with experience acquired through hard work and practice.

A deep body of evidence supports this contention; the top performers in any field, from business to science to sports to music, work harder than others. So as you start your career, get into the office early and stay late.

The most successful people don't just work harder, though -- they also work smarter. It's not just the number of hours you put in at the office that counts, it's what you do with those hours. Don't work hard just to build a reputation. Do it to get a higher caliber of work done, and to train in and practice the central skills that are required for achievement in your job.

You'll need to make an effort to avoid becoming a one-dimensional workaholic, however. It takes self-discipline to work hard in your job and still find the time to tend to your personal life and family obligations, and keep yourself in good physical shape. But long-term success demands it.

Taking advantage of the technology and mobile communications in your workplace will help. Handle the emails, reading, and writing you don't have time for in the office at home, either early in the morning or at night.

3. Deliver on your commitments.

Become known as someone who can be counted on to successfully complete projects on time and with high quality. This is just as important for small tasks as it is for major projects.

Don't be disappointed if your first job is narrowly defined, and some of your early assignments seem menial. They aren't -- they're opportunities to demonstrate that you can meet your commitments, and when you do, you'll earn trust and confidence.

You'll be surprised at how quickly larger and more significant assignments come your way when you develop a reputation for delivering on commitments.

4. Perform completed staff work.

"Completed staff work" is a concept that means going beyond a basic work assignment to understand why something is needed, how it will be used, and what form it will take once it's completed. This helps avoid delaying a project with incomplete, piecemeal solutions.

For instance, if a sales manager asks you for an analysis of a target client, applying the doctrine of completed staff work results in a finished product that can be shared throughout the department, passed along to upper management, or used directly with the client. Set this as the standard for all your work.

5. Focus on the success of others.

I've written about this principle consistently in my column, but it can't be stated often enough. It's a fail-safe success strategy to make others around you successful, and you'll be successful as a natural result.

Why is this true? The most talented people will want to work with you. You'll become in-demand for the most important projects by the most senior people, and you'll build a network of supporters across the organization who'll be invested in your success. Develop this habit from day one of your career.

But how, you might ask, can I help others be successful if I'm brand new in the job myself? Look for ways to be helpful. Be proactive. Be willing to take on extra or unpopular work. Stay focused on the goals of your boss, your team, and your company, and make their goals your goals.

6. Be a technology mentor.

Today's college graduates have a huge advantage over anyone born before 1980. If you've grown up with digital technology as a normal and integral part of your life, you have the opportunity to bring the tech-phobic senior members of your office into the modern era.

Teach them how to use Facebook, how to upload a video to YouTube, how to organize digital photos on Flickr, how to create a profile on MySpace, or even how to watch reruns of "Gilligan's Island" on TV Links. Even relatively standard activities like creating PowerPoint presentations can benefit from your know-how as a member of the class of 2007.

Wednesday, 20 June 2007

Behavioral Finance—Benefiting from Irrational Investors

Author:Julia Hanna

How "sleepy" or "awake" are you when it comes to your stock portfolio? If you're like most people, you probably don't spend a great deal of time monitoring your investments. So when another company uses stock to acquire a firm in which you hold a stake, what do you do with the new shares you suddenly own of a company that you never intended to buy in the first place?

Logic suggests that you would be likely to sell those shares. But research by Associate Professor Malcolm Baker, Professor Joshua Coval, and Harvard University professor Jeremy C. Stein shows that 80 percent of individual investors and 30 percent of institutional investors appear to be more inertial than logical. They take the default option, passively accepting the shares offered as consideration in stock mergers and acquisitions.

In "Corporate Financing Decisions When Investors Take the Path of Least Resistance," a paper forthcoming in the Journal of Financial Economics, the authors argue that this sort of passive behavior can have a significant effect on how companies make strategic financing decisions.

It all fits under the heading of behavioral finance, the focus of Baker's research and the title of a second-year course he teaches at HBS.

"At the foundation of finance is the idea that investors and managers act rationally, so that capital market prices reflect fundamentals and managers respond to incentives in predictable ways," he says. "But investors don't act like computers in financial models. Behavioral finance replaces these idealized decision makers with real and imperfect people who have social, cognitive, and emotional biases. My work focuses on how the resulting inefficiencies in the capital markets can create opportunities for investment managers and firms."

"Investor irrationality is something that people tend to focus on when they think about investing in capital markets," he continues, "but there are also implications for corporate finance." For example, when investors hold onto stock they've received in an acquisition—taking the path of least resistance—it keeps those shares off the open market and makes the price relatively higher than it would have been otherwise.

"Normally, when a company sells its own stock in a follow-on offering, the price falls, in part because you're putting more supply on the market for a given level of demand," Baker says. "In the context of a merger, the acquiring company is often issuing shares to someone like me, who passively accepts them. The bottom line is that there's less of a negative impact on their stock price."

The payoff

As a result, the acquirer has a cheaper source of equity financing when pursuing growth opportunities, Baker explains, using the example of a hypothetical company with a fixed strategy that involves acquiring another company—the target—and building a new factory. If the target and the factory each cost $100, and debt can only be used to finance one of the two transactions, how should the remaining $100 of equity be issued?

"I could borrow $100 to buy the target company, then issue new stock in a follow-on offering to raise enough money to build the factory," says Baker. "Or I could borrow $100 to build the factory and acquire the target with stock. If shareholders in the target are inertial—and our evidence suggests they are—it is more cost-effective to raise equity in the context of a merger, and borrow money to build the factory."

Baker points out that this is just one example of a market inefficiency that has consequences for corporate financial management.

"Once you establish the view that investor behavior is not fully rational, and that it has an effect on stock prices, there is a wide range of corporate finance implications," he says. "How does a company determine its capital structure? What sort of dividend policy might it undertake? How do market inefficiencies change how a company markets securities, or communicates with shareholders?"

It pays to analyze the typical patterns in investor psychology and respond accordingly, Baker says. Institutional money managers, for example, can find an edge in exploiting the stock price patterns created by irrational investor behavior; and companies can look for similar opportunities to reduce their cost of capital. Individuals, of course, should examine their own biases and attempt to improve their investment decisions.

But this is easier said than done. Much of this so-called irrational behavior is adaptive. Baker notes that our biases come from the innate, quick, and mostly unconscious decisions that enable us to function effectively in our day-to-day lives.

"Our perceptual shortcuts are often out of place in modern capital markets," Baker says, "but we wouldn't be able to drive to work without them."

About the author

Julia Hanna is associate editor of the HBS Alumni Bulletin.

Friday, 15 June 2007

How to Avoid Ponzi Schemes ..... Do you think Swisscash is a scam?

By Mark Nestmann

At least once a week, I receive a call from someone who's invested in a Ponzi Scheme, lost everything they invested, and is now asking for help. Less often, I receive a call from someone who's invested in an arrangement promising fantastically high returns, and wants assistance protecting the proceeds.

In the former case, my standard answer is to contact a private investigator, although in most cases, nothing can be done to recover the money. In the latter case, my standard answer is to contact me once the money is in the bank. I have yet to receive a single call back.

These experiences led me to investigate the life of Charles Ponzi, and I recently began reading a biography of the famous Boston swindler. Beginning in 1920, Ponzi offered investors in an "international postal coupon scheme" a 50% return on their money in 45 days, or a doubling of their money in 90 days. Within months of unveiling the scheme, investors were lining up to give Ponzi money. But when the Boston Post ran a series of articles casting doubt on the legitimacy of Ponzi's scheme, it collapsed, and investors lost millions.

Ponzi was able to create the illusion of success by paying off early investors with funds raised from later ones. His was a classic pyramid scheme, and, so famous did it become that the term "Ponzi Scheme" is now used to describe any such fraudulent arrangement.

The lure of easy money is irresistible to many investors, which is why Ponzi Schemes persist. And they're especially prevalent offshore. Just last week, one of the key participants in one of the biggest offshore frauds I've examined in my career, the now-defunct "First International Bank of Grenada," was sentenced for his role in defrauding 4,000 investors out of more than US$200 million. Investors were promised annual returns of up to 300% and told their money was fully insured. Alas, the scheme was bogus, along with the insurance company.

So, how can you avoid Ponzi Schemes? Here are a few suggestions:

  • Conduct due diligence and don't rely strictly on appearances. In Ponzi's case, even a cursory check of his credentials would have revealed that he had been imprisoned for forgery and had no experience in managing investments.
  • Obtain independent advice. Have a qualified professional review any strategy suggested by an offshore promoter. In Ponzi's case, The Boston Globe investigation revealed that the total number of international postal reply coupons circulating was only a tiny percentage of the amount necessary to support Ponzi's claims.
  • Turn your back on "guaranteed" profits if they seem unrealistic. Ponzi guaranteed investors 100% every 90 days. While returns of this magnitude are occasionally achievable, they can never be guaranteed.
  • Don't rely on secrecy. Many offshore Ponzi Schemes promise that information about your "profits" will never be shared with the IRS. That may be true, but even if it is, this promise is an invitation to blackmail. The promoter knows that since you've broken the law, you are unlikely to make a claim in court for the return of your assets if they disappear.
  • If it seems too good to be true—it probably isn't true. Understanding this is the most important precaution of all. Unrealistic profits, unrealistic promises or a vague feeling that you're being "led on" are all indications that whatever deal you're being "pitched" is best avoided.
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Enjoy reading! You not only get paid to read emails...but also get paid to receive such priceless advice!

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I believe most of our members are in their 20s and 30s. If you are one of them, this secret is going to turn you into a Millionaire. If you are in your 40s and 50s, you may be a little too late to benefit from this secret, unless you are already prepared.

Here's the secret:

The economy works in a predictable cycle. Let's start from the end of a depression. When the market revives from a depression, stock prices will be the first thing that climbs up. Then, all kinds of interest rates will increase. This is followed by a drop in unemployment rate and companies posting good annual report. Stock prices begin to skyrocket and everyone starts to talk about how much they make in stocks. Those who have earned enough from the stock market will start to pump their money into properties. Property hype begins. Property prices shoot up. Interest rates continue to increase. Salaries increase. Economy is now in a boom.

During economic boom, more money is channeled into properties. Property prices continue to rise. Stock prices begin to stagnate due to lack of fund. Interest rate and rental rise to an all-time-high, businesses manage to survive because consumers' spending is still high. Consumers' spending is high because of good salaries, good bonus and good earning from stocks.

Usually when this happens, some bad news will set in and the market crashes. Stock prices fall sharply. Money in the market suddenly dries up because everyone withdraw their money out of fear. Economy begins to slow down. Rental falls, property prices begin to fall. Everyone starts to tighten their spending, resulting in poor business for every company. Business is bad, unemployment increases. The economy is now in a depression.

During economic depression, businesses with poor business model or poor products will be phased out. Interest rate starts to drop to help businesses to survive. The market begins its correction process. After the correction, the economy cycle repeats. Stock market will be the first indication, followed by interest rate, and finally property.

The rich understands this economic cycle. Unlike the poor, the rich will start to park their cash in the stock market towards the end of the depression. The rich will wait patiently for 1, 2 or 3 years. They are not bothered by the daily fluctuation in stock prices. When stock market revive, they easily make 200-300% return. The next thing they watch out for is the property prices. When property prices begin to show its first quarter increase, they will sell off some of their shares and grab a few properties. In another 1 or 2 years, their properties appreciate in value and they easily make a few millions. When the economy reaches its peak, they will sell off some of their properties, keep some to earn rental income and park the rest of their money in fix deposit, survive through the depression (which can last for about 5 years!) and wait for the next cycle!

Guess what the poor will be doing? They do the exact opposite. When the market is good, they got their pay rise and bonuses. They feel rich and start to think of some investment. Usually, they will turn to a bank and listen to those unit trust managers who show them all kinds of track record about the superb performance of their unit trusts. The poor will then put their hard earned cash into those unit trusts and become a victim of the next economy depression.

I hope you know where your economy is at right now. In Singapore, property hype has just began. Property prices are increasing at astonishing rate and it's getting harder to find good investment. Economic boom may continue for another 1-2 years (that's my guess), but the days of getting 100% return in stock market is gone. Property investment is still viable, but 100-200% return is not likely. For those who have just started work, this round of economic boom is not for you. You should use the next 5-7 years to accumulate your cash and get ready for the next boom.

Remember, history repeats itself. You don't have to be a swami guru to predict the future.

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Sunday, 10 June 2007

Oh my gosh! Another Internet / Online Supposedly "Legitimate" Scam in Singapore Revealed and Disclosed!!! Buyebarrel !!

This time...with more devastating effects! Could Swisscash be the next?!

Below is a news article link to one of Singapore's Mandarin Newspaper.

http://www.zaobao.com/sp/sp070610_524.html

本地不少人将钱投入名为Buyebarrel的美国快速致富投资网站,结果在网站突然关闭后血本无归。网站声称利用所收取的款项进行石油与外汇投资。设局者会先给投资者利息,让他们尝到甜头,然后向其他人宣传。实际上,这点甜头是来自投资者的钱,并非投资利润。

  只要投入1000美元(约1500新元),100天内可获近两倍回报,但你所投入的钱,也可能随时化为乌有。这样的投资,你会冒险尝试吗?

  如果你的答案是“会”,那请三思而后行,否则你很有可能成为网络投资骗局的下一个受害者。

  ……

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For those who don't understand Mandarin, please feel free to do an internet search on Buyebarrel and I think you can get lots of information on it also.

Online Investors...remember to use your brain!! Buyers beware!! Out of the all these internet money making opportunities, I still prefer internet marketing which is a true business on its own and not some ponzi scheme.

Below are those that I have been embarking on and received sustainable monthly cash:-

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- Email Cash Pro - Mainly builds wealth through minimal effort input and join at absolutely zero cost!

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Saturday, 9 June 2007

Agloco Supporters! Use your brain! [I still think it's not a scam though :)]

Below is an interesting article about Agloco from someone who bothered to do some analysis and thinking....

For me...I was initially not comfortable with it because I am not comfortable with downloading the software and have it sit on my computer collecting data....

now more reasons for me not to regret not joining and promoting it...like what my other friends have been doing...

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What Everyone Ought to Know About Agloco


Agloco is a pay to surf MLM scheme that exploded onto the interwebs late last year. It is backed by the same team as AllAdvantage which crashed and burned in the bubble years. Check out this article from Business 2.0 on AllAdvantage (pdf).

AllAdvantage had a simple proposition: pay people a fixed hourly rate for the hours they spent browsing the internet with their software and use an MLM structure to attract new users. As you’d expect, this lead to legions of bots that pretended to surf. In contrast, Agloco uses a tortuously roundabout path to go from surfing to actual payment of money.

Still, most people mistakenly see Agloco as having a simple, linear model. Consider the following a public service announcement.If you’re a shrewd trader or investor or ever sat through an economics class (awake) you have no need to read further.

For the rest, let’s break it down:

[1] First, you have to download and install Agloco’s viewbar. This software (vaporware?) has yet to be released and every time a date is given, it makes a nice whooshing sound as it passes by. For the sake of this analysis, let’s assume it is actually released.

[2]So you surf the web while running the viewbar. But you don’t get a one-to-one proportionate credit for the actual hours you spend online. No matter how much longer you spend online, you’ll only get five measly hours accrued a month. And they “reserves the right to change these rates at any time for any country”.

[3]Next, these ‘Agloco hour units’ will accumulate. At some point, who-knows-when (if ever) they will be converted to something else. Note that they “reserves the right to change the [conversion] rates at any time”. So you can find yourself on shifting ground and get much less than what you thought you’d get.

Now, here’s the knee slapper: Agloco will convert these ‘hour units’ not into cash but into shares. But Agloco is a private company in start-up mode; has no public shares to distribute; is not profitable; hasn’t even released a product; and its founders failed the first time they tried this venture (what they lack in creativity, I suppose, they make up in persistence). Furthermore, according to SEC regulations, Agloco can not distribute unregistered shares to the public. While the ability of Agloco to produce and distribute value hinges on being able to going public, it’s ironic that the least amount of attention has been paid to this point.

From Agloco’s website:

“Remember, the company is 100% owned by the Members…”

No, it is not. It is a private company owned by a very few. I can cut them some slack for aggressive promotional copy but this is a bald faced lie.

[4]Assuming it does actually go public (I would really like to see an investment banker sit through a meeting with a straight face) Agloco will then have to use its shares as currency to pay its members – that was the original point, before all these twisty turns, remember? When it begins to do so, the proverbial shit will hit the fan.

we assume Agloco is successful, they will have to regularly pay their considerable and probably growing user base a massive amount of money. Which means selling a massive amount of shares on the market. Guess what will happen to the value of the shares when this unflagging selling takes place? Guess what will happen before the selling hits as smart traders position themselves ahead of the avalanche of sell orders?

[5]But wait, maybe I’m being too harsh here. Let us again give them the benefit of the doubt. Let’s assume that people don’t make a mad dash to cash in their shares… eventhough they’ve been slaving over a hot monitor for months. The next hurdle to the ‘members’ seeing money is for the firm to become profitable.

[6]The chances of this are very slim for obvious reasons. Even if they do become profitable, the founders will rightfully want to get a return on their risk capital before paying anyone else. Again, let’s assume not only that Agloco becomes profitable but that their board declares a cash dividend (as opposed to a sneaky stock dividend).

[7]Now here is the payoff that the ‘members’ had been waiting for. Assuming all the above, we finally get to the single mention of cash payment to users in Agloco’s website:

“As Agloco grows and the company generates positive cash flow , we will be distributing the excess cash to Members and shareholders of the company.”

At this improbable point, having jumped through hoop after hoop and assumed everything but the kitchen sink, the members are getting paid a pittance: dividend ‘cents’ on any ‘dollar’ shares owned. And that is assuming that in Agloco’s glorious ascent, hackers the world over haven’t unleashed massive ‘bots’ to mimic surfing and made it a victim of its own ’success’. Or that the SEC hasn’t nabbed the founders on charges of attempting to circumvent securities law by promising the public unregistered securities in return for membership.

If you are more jaded than I am, you may point out that at each node through this circuitous path, Agloco has built in several mechanisms to control the amount of ‘value’ they distribute – whether limits on hours, conversion rates of shares or cash, reserving the right to kick anyone out for any reason, etc. These built in ‘firewalls’ are there for the protection of the founders and the business but they can also be used quite easily to manipulate the user base to extract the most from them while reciprocating a minimum.

Having said all that, I don’t think Agloco’s a scam. It is a poorly conceived scheme that appeals to those who know very little about finance, share issuance and regulation. I really do wish Agloco would go public. How else would I get a chance to short it? :)

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I am glad to not waste my effort in promoting Agloco and concentrated my time and efforts on the below programmes which I have earned hard cash from:-

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Wednesday, 6 June 2007

Avoiding Common Stock Market Scams

Greetings!

Following on from my previous posting on internet scams revealed by Singapore newspaper...

Here's a more detailed description of stock market scams encountered by people and tips on how to avoid them...useful for those involved with the stock market :)

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by John Mussi


It seems that there are more and more scams and dishonest deals in the news every day... and it may appear that no one is safe. Many people put off making investments that could make a lot of money down the road because of the fear of stock market scams, but with a little bit of care and common sense they don't have to.

It's possible to easily avoid most stock market scams, if you take the time to do a little bit of research before making your investments and avoid the lure of "fast money."

Here are some basic tips that can help you to avoid stock market scams and keep your money safe and secure while enabling you to make the investments that you want to make.

Know the Source of Your Information

A common source of stock market scams comes from spam e-mail, often in the guise of unreleased information or secret stock tips. Even if the claims in the e-mails or communications were legitimate, it can be very dangerous to act on any "unreleased" or "secret" information. Insider trading, or trading made by those who know about financial news within a company before the public knows, is illegal, and using insider information as the basis for your stock trades can get you fined and possibly even earn you some jail time.

Even though most anonymous e-mail tips don't count as insider information, it can still be dangerous to act upon any information that you receive in this manner. If you want sound stock advice, hire a market analyst or read the financial sections of major newspapers or websites.

Research the Stocks You Want If you find a stock that seems interesting but you aren't sure if it's legitimate, take the time to do a little bit of research on both the company that issued the stock and the performance of the stock in the market. Most financial websites offer free stock tracking and performance histories, so take advantage of the information available to you and know what you might be getting yourself into. If you aren't able to find much information on a stock that seems like a great deal, remember the old adage that if something seems too good to be true then it probably is. When dealing with stocks that may not be legitimate, it's usually better to err on the side of caution.

Find a Broker You Can Trust Many people are afraid to invest in the stock market because they're afraid that they'll be scammed by a fraudulent stock broker. In order to avoid this, take a little bit of time to find a broker that you know that you can trust. Ask the advice of people who you know and trust, or failing that take some time and research brokerage firms in your area.

Another alternative is taking the time to look at online brokerages, finding those that have been reviewed positively by trusted financial and news websites.

Keep an Eye on Your Investments

One of the best ways to make sure that you don't fall victim to a stock scam is to make sure that you keep a tight watch over your investments. Periodically check the progress of your investments, making notes and inquiries about anything that doesn't seem right about your chosen stocks and bonds.

This will also help you to identify when it's time to buy more shares or sell the ones that you have, and can assist you in learning which stocks and bonds are worth the trouble and which aren't.

About the Author:
John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the www.directonlineloans.co.uk website.

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Be on your guard! With scams around...you can never be rich and happy!

For now, I have avoided the stock market in the mean time, at most dabbling in a few trades every now and then. I have instead put the best of my efforts into much research and due diligence for online profitable opportunities andI have derived my list of scam - free and also profitable internet activities as shown below:-

- The Rich Jerk - Builds knowledge in marketing leading to wealth

- The Ultimate Wealth Package - Builds knowledge in marketing leading to wealth
- Email Cash Pro - Mainly builds wealth through minimal effort input and join at absolutely zero cost!

- Survey Income System - Mainly builds wealth at your flexible timings (No more office hours for you!!)

-
Get Google Ads Free - Mainly builds specialist marketing knowledge

-
SaleHoo Wholesale Directory - Builds supplies for your trading business (Both online and offline)

Feel free to click on them to find out more and if you are interested can join them at a very low fee or free! Low cost and they build you a solid foundation for generating passive income for years to come….

The wealth I have built up from the above internet profitable opportunities has also allowed me to create a reserve for my future stock market activities when it is more favourable to enter the market by then.

Goldman Sachs Information, Comments, Opinions and Facts