Property : Body Corp fee

To those deciding to invest in apartments, it is best to look at the body corporation fees before purchasing. It can come to thousands of dollars which can cause some financial distress to the investors.

Strategy : How to be rich

The easiest way to be rich is Income > Expenditure. This applies to everyone from those who are earning $1 million a year to those earning $1,000 a year. So remember that if you are not following this formula,
you are not in a sustainable position.

It may sound easy but you have to learn how to control temptation and save up a small nest egg for unexpected events.

2012

Looks like it is going to be a rough year ahead. So sit back and enjoy the ride. It would be a good time to revise your position in any risky assets.

Mindset : Giving

Sometimes it is a real test of how good you are when you are able to give others who are never going to return the favor. Being able to do so make you a true giver.

Exploitation : Internet

It looks like with the new ".xxx" format for the internet, colleges and all the big businesses are forced to buy up their company's name to ensure that it is not associated with pornographic material. How good a business model it is for the creators for they will have massive sales.

Winning attitude : Tackle the problem

Remember that when in a sticky situation, tackle the problem and not the people. With that in mind, you can align your goals with others and work together to achieve it.

Business idea : Hire a loser

A guy has came up with an idea of selling himself as a "loser" whom you can hire. It is a rather interesting concept as it helps others if you are willing to make a fool out of yourself.

I must say that he is a rather intelligent person to be able to sell and execute successfully as it is an art to make yourself look dumb as you probably would need to study facial expressions, body language and many other things.

For those who are willing to let go of your ego and make a fool of yourself, here is to a few extra bucks in your pocket.

High concentration market : Telecommunications

Telecommunication companies around the world has high concentration in many countries. For instance, Australia you have Telstra. This gives them the power to set their own prices above the rest.

However, we are fortunate that globalization has made all industries more competitive and even the monopolies have to make themselves more competitive.

For instance, with Vodafone trying to build a strong network system in Australia, it is forcing Telstra to improve and better themselves.

Terminology : Economic rent

Economic rent is the payment for goods and services beyond an amount needed to bring the required factors of productions into a production process and sustain supply.

This is what causes people who does a clerk job earn a speck of the gargantuan fees paid to actors like Charlie Sheen (1.25 million per episode of Two and a Half Men before he got fired).

So we should strive to get that economic rent shouldn't we?

Mindset : Passion

If you really want to succeed, take some time off and think about this for a moment - what is it you would do without the need for money when doing it.

When you have the answer, go follow it for you will never wake up dreading it and be very successful. Sometimes it makes it a more meaningful life as your  ideas might be ahead of time and you just won't make money out of it in this era. However, you must remember that you will save on medical expenses and other miscellaneous expense related to doing a dreaded job.

Australian apparel brands and the international market

It seems that the Australian apparel brands are slowly dying off due to competition from the international market. Well, it makes perfect economical sense as the international brands has much more to offer. From the economies of scale to the best quality inputs used to produce the goods.

The Australian apparel brands still do not price themselves more competitively and expect to stay in business. Looks like much needs to be changed in order for the Australian brands to survive.

Mindset : Risk and attitude to life

There has been a study that shows that people who fair well with risk are, not surprisingly, those who have a competitive, winning attitude. Those who likes to win, does not like to lose money as well, hence they pay close attention to situation to scenarios where there is a high probability of losing.

This paired with the ability to rebound from failures will definitely bring financial success. I believe it also bring success in other parts of life.

Buffettology : Europe uncertain

The Sage of Omaha has voiced his concern about Europe's short term economy. He does not have the confidence that Europe has to ability to resolve their crisis at the moment. However, he believe Europe is "not going away" and would be stronger in 10 years.

This shows that another great analyst has given a gloomy perspective on Europe for now. Another recession in the first quarter of next year is probable. 

Secret for success : Don Don

There is a chain of Don Don shops in the city, which are very successful. It focuses on japanese food and gives good value for what you pay.

In my opinion, I believe they are successful because of the following points:

1) Entrepreneurs who knows where to source the best products at good prices

2) Passing on the good price to the consumers while still making some profit

3) Timely delivery of the food (it takes them less than 1 minute to get the food out to consumers)

4) Strategically placed in places that could bring high traffic

If anyone would like to emulate their success, follow the points above and do your own research and take the big move to get into it.

Market has bottomed?

Sandler O'Neill's Harte says that the market has bottomed. It truly shows how much of a marketer he is. Firstly, the DJI being in the 12,000s mark makes it being near historical highs. Secondly with so much uncertainty with the world economy, it is hard to even predict the markets reaction.

However, for a marketer like him to succeed, he needs to sell his ideas and sell it fast. I would only take to his word when his specific investment has risen more than 10% during the next quarter and stay that way for another quarter, that way he is not selling and covering with other people's money, making money for himself.

Wealth gap between young and old

A data collected via a census states that the typical person aged 65 in America is 47 times more wealthy than a typical 35 year old.

That is a rather shocking figure. It could mean that the younger generation are not as prudent as the older ones. However, it might not be a bad thing for they probably have a better overall quality of life by spending more on luxury goods living not much left for savings.

This could potentially also be a problem as it further states that the median younger households has a net worth of only $3,662. Could this be a sign of a repeat in history?

7-Eleven day

For those who do not know about it, every year on the 7th of November, you could get a free slurpee. How does it work?

You just walk into any 7-Eleven store and say "happy 7-Eleven day". I believe it should be that phrase but might be mistaken. =)

For today, it has ended for it is past 11pm.

Oligopoly : Coles and Woolworths (Australia)

An oligopoly is a market where a small number of sellers dominate.

In Australia, it is clear that the supermarkets are an oligopolistic market. Coles and Woolworths clearly control a huge market share of the Australian market.

Another factor that further confirms this is that when Coles or Woolworths decreases their prices or have promotions, the other will follow suit. This is because with the higher price, it is bound to lose some market share to the competitor.

A recent scenario is where Woolworths offers a 10 cents off petrol prices per litre whenever you shop over a certain amount at Woolworths and spend at an affiliated petrol station. Soon after Coles follow suit.

Quotes : Steve Jobs

You can't connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something - your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.

Iphone 4S

Apparently the 4S with its biggest feature "siri" the voice recognition tool does not recognise chinese.

So it looks like Apple must improve their game to capture the world's most populous nation or face a loss of market share to any competitor that takes on the challenge to better them.

Qantas

It looks like the CEO of Qantas is someone who has a vision. Even though there is a disruption in services for a few days, it is a small price to pay for the survival of the firm. He is making the company globally competitive to be able to survive long term.

Melbourne Cup

The race that stops the nation is a big day for all Australians. It is a holiday for all, a betting holiday to be more precise. Many Australians bet on the horses in hopes to get a good payout.

Besides that, the retail industry does prosper as well because people go out and dress to the nines to impress during the races, even if they are going for a house party.

What caught my attention was how close the first and second horses were (Dunedan and Red Cadeaux). Perhaps this race has caused some hearts to stop. 

AustralianSuper and lost super

Recently saw an ad by AustralianSuper talking about lost super and how it is the best super. Does knowing how to find your lost super translate to a good investment? Seems that they have lost the link somewhere along the line.

Mindset : Perseverance

In finance, as anything in life, it is a life long learning process. Everyone is bound to have ups and downs. To make it better, you have to have the willingness to learn and persevere.

CNBC Million Dollar Portfolio Challenge

For those that do not know, CNBC runs a portfolio challenge. It is a yearly challenge with prizes like a Maserati up for grabs. Starting off with USD1million, you are supposed to build your portfolio to be the highest value in the challenge.

However, this year, the challenge has been suspended because of cheating. Technical glitches has allowed some contestants to catapult their way to the top of the leader board. After the 30th of October, this Sunday, all contestants will restart with the opening balances reset.

May the best punter win.

Credit risk

Credit risk in my company is the risk that the customer will not be able to repay the debts they incurred from the telecommunication service.

Sooner, some of those customers, thinking they can get away with it, become fraudulent. It is a small percentage of bad customers that incurs millions of dollars in their name and use it for financial and property gains.

Illegality

In my new role, I am supposed to deter people from fraudulently applying for mobile phones with fake identities and running away with the phone.

It seems that there are people who go out of their way to beat systems and make a profit out of it. However, once caught, it might be the end of the road for them.

Looks like the benefits outweighs the risk to them.

Occupy Melbourne

It is funny how Occupy Melbourne does not have any ideas of what changes they want but to just join in for the Occupy Wall Street. I do not understand their rational behind camping out for the few days they were at Melbourne Square.

Social enterprise

Social enterprise is an upcoming thing in the world today. For instance, here in Melbourne, you have got The Big Issue which sells magazines to authorised vendors for AUD2.50 and the vendors sell it for AUD5 and keep the profit.

I believe it helps the needy as well as the owner of the Big Issue. Helping others help yourself? Sure is a good way to start. Let's hope the profits are used to further improve the conditions of the needy.

Idea : Photography

In today's world, with DSLRs getting more affordable, it helps people have a few extra dollars out of their passion.

How to do it? Firstly, you would need to get the camera and the relevant gears. It is always good to do online research and speak to people who are already using it.

Then it is time to put your skills to use. Practice a lot and learn new things.

Finally, the hardest part being marketing your skills. Remember to create a portfolio and go for courses that gives the certificate, if necessary.

Then you are ready to charge a few hundred per session or even thousands if you make it big.

Roller coaster ride

Looks like it is going to be another roller coaster ride down while the gifted bankers still line their pockets with the riches of others.

If in doubt, do not invest.

The coffee hole

Have you ever wondered how much your coffee expenditure can cost you in the long run? I believe it is a case of starting small finishing big.

At $3 a coffee, a cup a day would cost you over $1,000 over a year. Just something to think about.

Gold hitting $10,000?

There are some people that are speculating that gold could hit the $10,000 mark. Is it really possible for it to rise about 6 times its current levels?

I believe the world would be in chaos before that happens if it happens too quick (rising in the span of a few years).

Iphone 4S

Even after Steve Jobs' passing, his products are selling like hot-cross buns. It seems that he has created a legacy that would last long after his passing

The gap of skills

In this age where there is an emphasis on UNIVERSITY education, it seems that there is a real problem in the world's biggest economy, America.

There are 14 million people unemployed, which equates to slightly over 9% of unemployment. So what has happened?

There an article recently that pointed out that education is flawed. With such high importance placed on university education, people forget that there are other expertise jobs out there that really do not require a bachelor's degree. Professions like plumbing and many other trades skills require a different type of education.

Also the emphasis on the theoretical aspects have been overdone causing companies not wanting to hire the 3.2 million job vacancies (US jobs) due to the lack of skills.

This problem, if rectified, would bring benefits to society as a whole.

Westpac Bank's Ad

Today, I saw a Westpac Bank Ad that states "women has on average half of men's super". I think this statement is a good way to instill the fear of losing out to men onto women.

This ad is a manipulation of numbers because as you can see from the top 10 richest Australians, there is only 1 woman at the top. And this has already skewed the data by a mile.

We also have to take into account the maternity leave and housewives out there (assuming they include the non-working people as well).

My conclusion, don't get fooled so easily by the bankers' claims and do your own analysis.

RM400,000 First Home Loan limit

Is this a wise move by the government? Raising the limits from RM220,000 to RM400,000 would be quite a big jump, however, if implemented correctly, it would benefit the rakyat.

Let's hope the politicians can make sense of the budget and create an opportunity for the rakyat to benefit.

CBA and its 100th year anniversary

CBA, also know as the Commonwealth Bank of Australia, is celebrating its 100th year anniversary by giving away $100 to its  first 10,000 customers that meet their requirements. Those who feel that they will qualify should go in and grab the free cash.

Australian dollar - health of global economy

The Australian dollar is considered the barometer of the health of the global economy. Why is this currency given such a title?

This is because Australia's biggest economical sector is mining. And this is the raw minerals used in constructions and development. When economies of the world slows with their developments and constructions the raw minerals have no more demand causing their prices to drop. Ultimately it would affect the Australian dollar as people do not buy the minerals no more.

Double dip - another recession

What is the probability of not having a recession?

To just confine it to a very simple model, I'd say there is only a 25% chance the recession won't happen. How do I come to this conclusion?

We just have to see the 2 biggest problems - US and EU. And using a 50:50 model for each problem - 50% chance they will resolve their issues and 50% chance they won't, the probability of success for both is 50% times 50% which brings us to only 25%.

That is the worry.

Volatility

For those who are investing, my advice is that you do your research and profit or learn from it. Because it seems that the volatility of the markets are highest since the 2008-2009 recession.

I am using the VIX to gauge the volatility. VIX is the symbol for the Chicago Board Options Exchange Market Volatility Index. It measures the implied volatility of the S&P 500 index options.

To buy a house or to buy a business? (risk)

Some people might wonder which is a better investment: house or business.

I guess the thing to ask yourself it the level of risk you are willing to take, the amount of time you are willing to spend and the knowledge you already possess.

In terms of risk, for the people who are risk averse, it is better to get a house in general as you are bound to get a decent return in most investments held in the long run. For the person who are more of a risk taker, it would be better to get a business as you have some control of how much you can potentially earn.

The act of rebalancing

For everyone who is investing, you will have a risk tolerance. So remember to rebalance your portfolio to ensure that it fits for risk tolerance.

For instance, you are quite risk averse and love to have 70% in bonds as they are the safest asset but with small returns. You also have 30% in equities.

After investing for 5 years, your percentage might have changed to 50% bonds and 50% equities as you have got a bigger growth in your equities investment. So you should then rebalance by taking out a portion of your equities and put it into bonds to balance it back to the 70:30 ratio.

However, it is good to note that your risk tolerance might have changed and you want to keep the ratio you have.

Australian finance job market

As I am currently seeking to get a job in the finance market, I have got some insights that the hiring for the finance jobs here would be better mid-October as it is during the time when most banks allocate their employment budget for the year.

I am looking forward to that.

Obama's job creation plan

After reading about the proposal for job creation with a policy, I think that it seems unsustainable.

Just going back to basics, it seems like giving a man fish rather than teaching him how to fish.

Hypothetical statement

If America is to head into a lost decade like Japan did in the 1990s, I believe it America would be in a worse state than Japan as the rate of savings is not like Japan. Americans would spend more than they can create ultimately transferring the wealth out.

Point of view

People chase high salaries in order to get rich, however, does it really make one rich? It is not the high salaries that would make you rich, it is the savings that does the trick.

For example, some child celebrities end up spending all their new found wealth on drugs and other vices and end up penniless, while you have some exceptional cases where a floor cleaner saving 2 dollars a week and investing it end up donating a few million dollars at the end of her life.

So don't fall into the trap of single-mindedly chasing high salaries without thinking of a saving and investing plan.

China's economy

I recently got back from China. It was a real eye opener as I noticed that the local tourists consist of about 80% of the total market (just an observation and not an actual figure). This goes to show that China is improving the quality of living for its citizens at an exceptional rate.

If the government can keep doing the right things, China will undoubtedly overtake the US as the biggest economy in the world.

Gold purchases (Malaysia)

For those who wants to invest in gold in Malaysia, it is good to ask either Public Bank or Maybank. They have this services that allows you to buy direct from them.

This is only for the people who:
1) Knows the market
2) Believes you are getting it at a right price
3) Know when to sell

Book review: Freakanomics

Freakanomics by Steven Levitt is a good read as it make economics interesting by fusing it with pop culture.

It is a light read and would be good as a travel companion to your holiday places.

Pip

A pip is the smallest change in an exchange rate. Most currency pairs are quoted with 4 decimal points. For instance, today's AUDMYR is quoted as 3.1565. So it means that the pip for it is 0.0001 or 1/100 of a cent. Another name for it is a basis point.

Book review: Rogue Trader

Rogue Trader was written by Nick Leeson who is the main character in the book. It is sort of a exaggerated autobiography.

Nick Leeson was an employee at Barings Bank, London's oldest bank and he was a good employee indeed. So good that he went to Asia to head the banks trading division. However, when shit hits the fan, he used deceptive ways to cover his mistakes and keep digging his hole larger.

Finally it tells how he bankrupted Barings Bank single-handedly. It goes to show how a person's psychological aspect affect the actions taken and cause undesirable results.

I would recommend reading and making a self analysis of whether you would do the same once put in Nick's shoes.

Penny wise Pound foolish

Some times it is good to pay the extra to save your money. Do you think you have been in such a situation and regret not paying that little extra?

For instance, when renting a car, always buy the insurance for you might not know when it will be gold to have bought it. The extra few dollars a day can save you the hassle and worry.

Stock split and its misperception

A stock split is when a company decides to split its shares from a smaller number to a larger number. It does not dilute the share in any sense. For instance a split of 2 for 1 would mean that for every 1 share held, you will have 2 after the split. And if a share holder owns 1 share at $100, after the split it becomes 2 shares at $50.

It is wrongly perceived that the shareholder will gain because of many reasons such as the shareholder has more units of the share or since the price has been reduced, it is bound to keep rising again. These examples are definitely not the case because even though there is a split, the change in price of the share ultimately depends on the performance of the share and not a gimmick like this.

So please beware when your advisor tells you that the share is going to have a stock split, therefore buy buy buy. In that case, leave the advisor for he/she does not know what he/she is talking about

Ratio : P/E

Ratios are important in evaluating whether a stock is a good buy or not.

So what is the P/E ratio? It is the ratio of the price divided by the earnings. So you take your stock price (this can be obtained from the stock exchange price quote of the share) and divide it by the company's earnings for the year (this can be obtained from the financial statement - income statement to be precise). 

It is better to have a lower value as it means that the earnings is high relative to the price. This would mean that you have bought a winner. Also before buying, it is also good to buy a company that does not have an extremely high number like 100 as that would be mean that the company needs a hundred years of earnings to get to its own price.

However, bear in mind that P/E can be calculated differently. For instance, using a future forecast of earnings instead of current year earnings. Or there might be other problems. So it is good to calculate the P/E yourself using the share price and maybe an average of 3 years of previous earnings. It would give you a better reading of the P/E

Economies of Scale : Groupon

When anything is bought in bulk, the price is naturally cheaper. This is because the costs associated with the product is spread within the large quantity. 

This is what the website Groupon or Scoopon(Australia) has done. They have negotiated with any producer to sell their products through the groupon/scoopon website at a discount because there is quantity in the purchase. The only catch to these websites is if the minimum quantity is not purchased. Then the money would be returned to the consumers.

This is a great business idea as it is helping others get a cheaper price and getting a small cut out of it.

Easy money

Suncorp Bank in Australia is now giving out AUD50 for any new customers who opens and deposits AUD2,000 into any of their transaction accounts. It is really an easy 2.5% for a 6 week time frame they promised that the money be deposited into your account.

So to those in Australia, to take advantage of it you must meet these requirements:
1) Have a spare AUD2,000 you aren't going to use anytime soon or save up that money within a 4 month period.
2) Go and open the account and leave the money in the account for 6 weeks until the AUD50 is deposited. (It is for new customers only so if you are an existing customer, sorry for you)

That is all and you would have a some extra pocket. And if you really don't like them, I did not see any catch stating you have got to have the account with them for any minimum period of time, terminate the account.

Monetary Policy : Quantitative Easing

Quantitative easing is an unconventional monetary policy used by governments to stimulate the economy when they have run out of ideas of what to do. In the past, Japan has used it and after seeing the results, deemed it as an ineffective policy. However, today many governments are using the this policy to stimulate their economy. Does it make any sense? Perhap they have some additional policies to back it up.

Why would quantitative easing be bad for the economy? Firstly, we have understand that the policy is effectively printing money and adding it to the system. However, it is not a direct infusion of money to the system but by buying back financial assets from banks and other private sector businesses.

This would devalue the currency of the country. Because there is more supply than before and it will not add value, instead it will make every unit of currency less valuable, hence able to buy less than before. This will effectively be inflation and it would hit the consumers harder than before. This is because a lot of people have already lost value in the 2008 crash and are barely making ends meet, some even jobless.

The extra money will once again cause new bubbles (like the housing bubble) to be created. And the governments that use this policy would make it more expensive for them to borrow in the future as their currency is not as desirable as before.

So the big question is whether the biggest economy America would suffer the same consequence as Japan by using this policy?

Technical analysis : Head and shoulders and current affairs

This chart shows the Dow Jones Index March 2007 to July 2008. This is the time where the market peaked during its bull run and was on the decline. A pattern in the technical analysis is noticeable in there. As you can see mid-July 2007 and mid-December 2007 was the shoulders to the head. And somewhere in the middle of October it was the head. This pattern in technical analysis indicates that the market is going to drop and it did so.

However, I am bought by value investing and do not believe that past patterns are a projection of future prices, hence we should all just notice the pattern and take it in as part of a more wholesome analysis when investing.

In the current affairs today, there are mixed views of whether there would be a double dip in the economy as a whole. Some analyst like Richard Koo, who worked in the New York Federal Reserves during the time when Japan was trying to fix its budget deficit in the 1980s, states that the world governments are doing the exact mistakes done by Japan during that time. And others like J.P. Morgan's U.S. chief equities strategist states that there is only a one in three chance of another recession and even if it happens it would be for a short duration.

I believe that the recession would happen as there is still a lot of disagreements between some of the power houses, the way the market has bounced so much so quickly, some fatal mistakes like bailing big banks while letting others like the automotive industry fail and some other factors.

Book review: The Intelligent Investor"

I would highly recommend "The Intelligent Investor", by Benjamin Graham, as part of any investor's reading list. Benjamin Graham was one of Warren Buffett's major influence and he is rightly so for he has all the logical and proven methods for realizing the true value of a company.

This book entails how an investor should invest with his own fundamental analysis of the financial statements of the targeted company and psychological training. He termed his trading method as "value investing".

For any serious investor, it is a definite MUST.

And to those who don't have it yet, read this : http://chooyang.blogspot.com/2011/08/purchasing-book.html

Buffettology

Warren Buffett, the greatest investor of our generation should be in everyone's list of finance idols. Although the Oracle of Omaha is worth at least USD50 billion, he has pledged 99% of his net worth to philanthropic causes. He is also well known to have strong ethics - having owned many companies but only making the decision for mass layoffs once during his first years of investing. He also does his own tax returns every year. Buffettology is the teachings of this great finance mind.

He recently quoted "There is not comparison between fear and greed. Fear is instant, pervasive and intense. Greed is slower. Fear hits." and this is in relation to his classical rule "Be fearful when others are greedy, and be greedy when others are fearful".

There is two parts to this. Firstly his advice is to buy when others are selling. This is obviously after you have done your research such as reading the financial statements of the company and knowing their products are what is going to sell in the long run. And also all other considerations to take into account, which would take too long for me to explain in this reading. With that philosophy, you are getting your stocks at a bargain of what it is selling for.

The next is about your emotions when buying or selling. So when the market does not look so good, people will always panic and sell without rationalizing. This will definitely cause loses one way or another. For instance, you would be selling at a discount or you will be paying fees for selling and again for buying into it once the scare has subsided.

Hopefully these will get you thinking of what would you do when faced with both situations.

Basic interest calculator

I have created a basic interest calculator in excel to calculate. However, blogspot does not allow us to upload an excel file.

So, I have added it to a file-sharing site. You can download it and test it out.

http://www.box.net/shared/yfbdfrr11zrm7qr5r95l

Forex

Forex, short for the foreign exchange market or currency market, is the world's largest financial market trading the different currencies of the world. At a volume of USD4 trillion a day, it is massive as compared to the NYSE trading USD25billion a day.

Forex is usually traded in pairs. For instance, the United States of America's dollars and the Australian dollar. This would be quoted using its unique currency symbols as USD/AUD.

The most basic of trading the forex is having the long and short position when buying and just waiting for the price change to give you a gain in your trade. So what is a long position and short position? These are important terms because it gets used a lot in the forex.

Long position is a position in a pair in which the base currency is bought. It is beneficial when the price rises. And vice versa, a short position is a position in a pair in which the base currency is sold. The gain arises when the price falls.

Habits of highly ineffective people

People who are unable to grow wealth have many habits that put them in the situation they are in.

One of the habit I have identified is gambling. Gambling is putting money or something of financial value at risk on an event with an uncertain outcome. The primary goal of the gambler is to make a profit from the gamble. Usually a gamble takes little time to know the outcome of the gamble.

So why is gambling such a big problem. Firstly, the gambles pays out big sums to the winners. This huge sums are enough to cloud the average person's logical mind. However, the gambling operators fail to tell the gamblers the odds which are stacked against the gambler.

The next reason would be people being over-optimistic. People tend to exaggerate their abilities. The gambler would think he is better than the rest and can beat the operators at their game. However, there is only one infamous MIT Blackjack Team to date.

Studies have shown that even though you gamble as a form recreation, it can still cause addiction. Even with consecutive losses, it reinforces the gambler to persist.

So it is good to identify it and get help if needed.

Mutual Funds

A friend of mine recently stated that she thinks the market is affordable, however she does not have money to invest in the equities market. This I believe is a problem easily solved with mutual funds.

Mutual fund is a professionally managed investment for a pool of investors by investing in many different types of investments. The investments can be equities, bonds and others. The investor buys a unit or share of the fund and gets a profit proportional to the amount the investor holds as compared to the whole fund.

It is good to start off investing in a mutual fund as there is diversification. It is good to read the fund's prospectus to understand what is purchased and whether it fits the objective desired by the investor. Also the investor should know the risks involved and whether the fund would suit the goals of the investor.

Next would be the fees involved in the funds (implicit and explicit - it is always good to ask the person selling the fund what the underlying costs are) and minimum buy in. The fees can be when buying the fund, administrative cost throughout the holding of the fund and when selling the fund.

Mutual funds (open-ended fund) can be redeemed at its net asset value (NAV). Hence it is similar to stocks in the sense that it is a market decided price.

Remember to shop around for the best suited fund and have fun with it.

Analysis of the AUD against the USD

The graph above is the movement of the Australian Dollar(AUD) against the US Dollar(USD) for a one year period. And there is some indicators there that shows that the next few days would see a drop in the AUD.

Also AUD having hit its historical high is bound to fall as the currency is not bound to continue rising forever. However, I believe the AUD is able to make a short lived comeback in the near future and then falling off after. There are many factors to take into consideration such as the interest rates of both countries, the economy of both countries and many more.

My advice is that if you have some spare AUD, invest it in some other currency as I believe the long term AUD seems bearish and the AUD is bound to fall further breaking the parity resistance and falling lower.

Purchasing book

Part of finance is getting things at the right price. And also it is good to increase your knowledge in finance by reading more books.

So I would highly recommend buying books from (http://www.bookdepository.com/) as they have honest prices with free shipping.

The multi billion dollars selling frenzy

As you all know, the financial markets has been tumbling in the past few days. Every major indices have shed a lot in the past 2 days.

It looks as though the markets are going to be very unpredictable in the next few months to come.

How should the lay person react to this situation?

It is good to know your position in the market at the current stage. If you are comfortable with the amount in the market and you will be happy to keep it and just get dividends, then by all means keep holding and don't let the market get the better of you. However, if you are short on cash and you are using the financial markets to make money, then it is a good time to think of your strategies and new ways of playing with the equities market. Look into things like shorts and futures as you are able to bet on the market going down.

And keep in mind that it is always a zero sum game. May the best investor get the better of the market.

Australia and the gumtree

In this era where everything is done online, there seems to be a lot of places where you can purchase items. One of the places Australians frequent to purchase some items, be it brand new or second hand, is gumtree.com.au.

I would only recommend this site to people who knows what they want to get and know the prices and knowledge of the product before browsing on the website.

There is a few things also to watch out for before you buy anything on the website. Here are the few things you can do to protect yourself from scams.

1) Don't give out personal details on the website. Try to get to meet the seller in person with the product
2) Do some research before buying the product and test the product before making the transaction
3) Don't go on impulse buy as it would increase the likelihood of getting scammed
4) Find alternative prices to bargain if you know it is above even the original price in stores

Hopefully it would make your shopping experience a little better

Risk

Risk is the probability of a loss from an activity. It is involved in your everyday life and also in your finances.

It is good to understand your risk threshold as it would help with your investment decisions.

To start off, it is good to ask yourself these questions to understand yourself better:

1. What is your age - the closer to retirement, it is better to have a good savings
2. What is your current employment situation - without work you need to have a savings that gives you enough returns to survive  
3. What is your net worth - with $10,000 it would be good to keep them in cash for it is liquid as compared to $1,000,000 where some should be invested to give you a better return
4. How much are you invested in equities - with a lot in equities, once again it is about liquidity and having some spare cash enough for a rainy day
5. How would you feel if your investments lose half its value today - some people have a higher risk threshold than others, where they can survive on only $5,000 in the bank while having $200,000 in equities. This person perhaps does not have a lot of other commitments such as a home mortgage and so on.

These are just a few questions of a lot more and it is good to understand your financial standing before investing.

3 main statements

The most important statements in fundamental analysis would be the 3 main statements, which are the income statement, balance sheet and statement of cash flows.

Income statement is the profitability over a period of time. It shows the revenue and expenses for that period.

Balance sheet is the financial position of a firm a a point in time. The balancing of the assets, liabilities and owners' equity is done on this financial statement. An important formula to use would be:

Assets - Liabilities = Owners' Equity

A comparison of two years is usually presented for analysis to be done.

Statement of cash flows, as the name states, is the cash inflow and cash outflow of a firm over a period of time. It can be divided into 3 types: operation, investing and financing. I would rate the statement of cash flows highly relevant as there is little element of doubt as compared to the other two as the cash is already banked in and is harder to be manipulated with.

It is good to master these 3 statements for your analysis of a company.

US Debt Ceiling

Debt is the obligation to repay a borrowing. Ceiling is the top most limit. When you put the two together it becomes to top limit for the US government's issuance of bonds.

What would the effect of raising the debt ceiling be on the world?

Minimum wage and employment

What is the effect if minimum wage on employment?

Once again this draws on the laws of supply and demand. So with a minimum wage, even though the equilibrium of the supply and demand of the labor force might be at a lower rate, the wages will be enforced causing the demand to be less than optimal.

For instance the minimum wage is $20 when the equilibrium is $15. The $5 difference will cause employers to be unwilling to hire as optimally as the market dictates but to cut back on employment leaving some people unemployed. That will cause the unemployment to be higher than it is without a minimum wage.

As a result, most countries with a minimum wage have a good social payment plan in order to support those without the good fortune to be having a job.

I really should be learning how to put up a graph to better explain the situation. 

Time Value of Money

The formula below is to calculate the future value out of your current savings being compounded annually.

FV= PV (1 + i )^N

There are more complex formulas where your interest is compounded month, daily and so on. However, if you use this formula, it will just underestimate your future value leaving you with an amount a bit larger than expected.

FV is the future value of your money

PV is the present value of your money

i is the interest rate

N is the number of years it is invested

This formula also can be used in many different scenarios such as calculating how much would your future payments be worth today and so on.

In future postings, I would be including some excel worksheets that allows you to calculate it straight off and giving more indepth examples.

Until next time.

Inflation and Australia

Today's papers has reported that inflation is predominant across the board of items in the CPI (Consumer Price Index). This would not be a good sign for the RBA as one of their main objective is to target inflation and keep it at a certain band. If I am not mistaken, it would be 2%-3%.

This might affect their next decision to raise interest  rates. It is to be seen whether the RBA believes that the rise in inflation is big enough to force a rise in interest rates to slow the growth of money supply.

However, there are some other factors to bear in mind before taking that step. For instance, would that rise in interest rates affect a huge percentage of population who are already finding it impossible to repay their mortgages.

Carry Trade

Carry Trade involves 2 steps:

1) Borrowing or selling a financial instrument at a low cost. Eg. taking an interest free loan from the government (In the case where the government wants to stimulate a particular market)

2) Lending or purchasing a financial instrument at a higher interest as compared to what you borrowed. Eg. a special long term fixed deposit which gives you a 15% interest.

This allows you to gain 15% (the difference of the spread between the interest gain and the cost of borrowing)

However, it is good to bear in mind that this is not a arbitrage strategy because if the market works against your investment, you are bound to lose money. This strategy needs stable investments and borrowings that does not fluctuate wildly.

Carry trade can be executed in a few markets such as interest rates, currency and many more.

Highest interest

The highest interest on average I have found for a savings account in Melbourne, Australia so far is from Bankwest. They are offering an introductory 6.15% for the savings account for twelve months on their TeleNet Savers account. This is much better than the 4% on average earned in your accounts in other banks. The TeleNet Saver does not have any restrictions on withdrawals. However, it has a maximum of AUD5million.

Also they have a Regular Saver that encourages a regular savings between AUD50-AUD500 per month that yields 7% per annum. However, there is no withdrawals or else you will lose your interest for that month. It requires you to plan to make the most out of the interest if not you might be better off with the TeleNet Saver.

The final benefit from Bankwest is their Hero Account which is the everyday transaction account that gives you 5% on your money in the account. This is quite unique in my opinion as there is no other transaction account that I have found that offers interest on your money except if it is the other way round where you owe them money. It allows you to withdraw from CBA and Bankwest without fee. However, remember that it requires a monthly minimum deposit of AUD2000.

The Hero Account has a comparison account called the Zero Account where, as it is pretty self explanatory, it has 0% interest. The benefit of this account is that you are able to withdraw from other major banks without a transaction fee.

PS Bankwest is owned by CBA.

Interest rates and the currency

Interest rates is a monetary policy used by the government to control the supply of money. It affects the value of the currency. When interest rates rises, the currency of a country generally appreciates.

What is the logical behind this argument?

When interest rates rises, people save more as there is more incentive to keep the money in the bank and grow their capital. This is in contrast to a low interest rate where people take the money out to invest else where because if you keep it in banks, you might still get interest but it might not be enough to keep up with inflation. Also when interest rate rises, loans are less as the loans become more expensive to repay.

Consequently, there would be less currency floating in the market. As a result, it would mean that the supply have decreased. This would naturally cause the value of the currency to increase. And this holds true vice versa.

So if you have an insider tip that the government is DEFINITELY going to drop interest rates, quickly buy another currency and wait for the interest rate to drop to make a quick killing.

Credit rating

There a a numerous credit rating agencies in the world. To name a few, there is Standard and Poor's and Moody's. The agencies assign a credit rating to the issuer of a debt obligation using their assessment on the issuer's credit worthiness, which is the ability to fulfill the obligation.

As a result of the recent market crash, even countries are now being downgraded. How is a country involved in these ratings you might ask. The government bonds issued are the debt obligations of the countries and some major economies, such as Italy, have recently been downgraded. There is also talks about the US given a downgrade.

Is it time to panic? If the US gets downgraded, it would mean that the agencies, having done their assessments feel that the US might be unable to meet its debt obligations. It is quite a bad sign. Logically it should not affect the whole world but a major economy, there would be an impact on the other countries. 

To conclude, it is good to prepare for the worse where there might be a double dip but keep in mind that every economy is cyclical and there would be opportunities all along the way. Be a dilligent investor and the opportunities might be yours.

The Candlestick

The candlestick chart, a japanese invention, is a combination of the line-chart and the bar-chart. It is used to give the summary of how the financial instrument performed in a particular day. Technical analysis can be done using the candlestick.

The bar-chart being the body indicates the opening and closing prices of the financial instrument. In the classical case, it the body would either be black or white. Black indicating the opening price is the top of the bar and the closing price is the bottom of the bar. It means that the financial instrument closed lower. White indicating the opposite. That being the case, a person long in a financial instrument would want to have white bars. In modern times, the colors can be different, for instance red(closing lower) and green(closing higher).

The line-chart would indicate the highest point and lowest point in the trading day. It is a good indicator of how much the stock can fluctuate during the day.

Below is an example of a candlestick chart for practice. Do you notice which day the prices fluctuates alot?

Economics

Supply and Demand

Economics is a fundamental part to finance. It is as crucial as water is to living beings.

Supply is the amount of goods that is available to consumers and demand is the the ability to purchase a good at a given point in time. When suppliers and consumers go to the market play, these 2 powerful forces collide to get a market price for a good.

Today we will see the effect of oversupply and undersupply, keeping everything else constant.

When a good is oversupplied, it will cause the good to lose value, hence the suppliers will reduce the price to ensure everything gets sold. For instance, in the recent housing bubble in many parts of America, there was an oversupply of houses. This lead to the destruction of prices of the houses.

When a good is undersupplied, it will cause the good to gain in value. The suppliers will increase the price as there is limited supply of goods. It is the case where not everyone can get a slice of the cake. An example would be a recent case of flooding in Australia that destroyed majority of the banana plantations. It caused the prices of the bananas to hike about 3 times the normal rate.

If anyone is able to predict the economy and trade according to its strengths, that person would be a millionaire many times over.

To lose or not to lose

In the past decade, a few significant events happened that would definitely change the world today. I would be focusing on a couple. The first is the stock rally up until 2008. This is caused by the greed of people believing that there is a free meal everywhere. It made "investors" become over-optimistic. Then comes the crash. It is when everything started to unwind up until today where, even though experts say we are out of it, we are still feeling the effects in many areas of life.

There is 1 important factor to be emulated that can make you in a better position than most. We need alot of discipline and patience to make it work though. The factor to take into consideration is the preservation of capital. This means that we should not invest in anything that can guarantee high returns but also can make losses. We should invest in a financial instrument that can guarantee the preservation of capital invested even though the returns are lower than other financial instruments.

There is a psychological study that proved that the happiness derived from a 100% increase in wealth is at a much lower level than the sadness when you have 100% decrease in wealth. Hence, it would be more painful to lose money than make money through investments.

To ensure a good nights sleep, we should all do a bit of research and ask the right questions before investing to ensure our capital is preserved.

Analysis

Analysis in finance can be divided into 2 : technical analysis and fundamental analysis.

Technical analysis is the process of forecasting the direction of prices of a financial instrument through the study of past market data. Most of the time, this process would involve a graph containing huge amount of data.

Fundamental analysis is the process of analyzing financial statements and the major aspects of the business, such as its management team, to forecast the price. This uses historical as well as present data. It would definitely be more in-depth as compared to technical analysis.

Both methods has its pros and cons. The industry players also uses both methods with success.

For the average person, my advice would be to learn both up and put it to practice with a small amount of funds, which you are willing to lose, to ensure you find the method that would work for you. For those who are not capable of using any capital then you should play with some free accounts online using both methods and building your strategy.

Compounding Interest

Compounding interest is generating interest from previous interest. It is how your money generates quicker than you have expected in the long run.

For example, when you keep your money in the bank at 7% per annum, for a $100 savings, after the first year you would have $107. In the next year, the $107 would be at the same 7% bringing it to $114.49 and not $114. This would give you an additional $0.49. This may look small but in bigger sums it makes a difference. Also it would get larger as it continues to be compounded.

This is the basics of compounding interest and could work in your favor when saving for a long term goal.

10% Rule

To start off any finance deals, we would need to have money. Hence this first post is a method anyone can implement to get the small sum needed to start off with.

The 10% rule (cited "The richest man in Babylon")

The first step is to make yourself useful by offering your service to anyone who can pay you a salary.

Then, you need to save 10% of your salary every month before anything else. This step is vital because if you do not start off here, you might not have any left at the end of the month. You might give yourself excuses like "Oh I will just save next month, which is coming up soon" and the excuses will go on and on.

The best way to save the 10% these days is to open an online savings account linked to your normal bank account and have a automated transfer on the day of your salary payment.

Start saving today!