Citigroup reduced its rating on Singapore palm oil firm Wilmar International Ltd to hold from buy and cut its target price to S$5.30 from S$6.10.
Wilmar shares were down 1 percent at S$4.97. The shares are flat so far this year, underperforming a 14 percent rise in the broader market. Citigroup reduced its rating from buy and cut its target price to $5.30 from $6.10. This was because margin trends were weak at both its oilseeds and palm merchanizing - both due to heightened volatility,
"While market normalization will help Wilmar's margins recover in these two segments in 2012 fiscal year, the pace of recovery this year will be muted as Wilmar did not record sharply reduced inventory and receivables in the second half of 2011, Citi said in a report.
And it was further felt that the expansion plans at Indonesia may be slow and that might invite more potential competitors to set up facilities.
Meanwhile: Otto Marine falls after rights issue
Shares of Singapore's Otto Marine Ltd declined as much as 11.1 percent after the offshore marine firm proposed a rights issue to raise around S$75.6 million ($60 million). Otto Marine shares were down 9 percent at S$0.131 on volume of 13.7 million shares, 3.3 times the average full-day volume traded over the past 30 days.
The stock was among the top five traded shares by volume.
Showing posts with label Create wealth through stocks. Show all posts
Showing posts with label Create wealth through stocks. Show all posts
Wednesday, March 28, 2012
Sunday, March 25, 2012
Stock lingo....
I often wonder..Before one purchases a stock, does one use data to drive one's decision?
I mean..Have you ever looked at a company's report, before you decide to buy this stock or that? Or do you read the comments somewhere in the internet about a certain stock before you make a decision? Is the fundamental analysis section of a stock's information important? And after all this, only to find yourself lost?
Finding the information to what you need is a critical first step to buying a stock. And I am going to refer you to a great site on this:
SEE: 5 Must-Have Metrics For Value Investors
ROI - Return on Investment
This is simply the money a company has made, or lost, on an investment. If an individual investor were to invest $1,000 into McDonald's stock and five years later sold it for $2,000, they had a 100% return on investment or ROI. The return is divided by the cost of the investment to produce the ROI.
Caveat: The problem with this is, it's easy to manipulate. Although the calculation is easy, what a company chooses to include in the costs of the investment may change. Did they include all costs in the calculation or selected costs? Before relying on the ROI, understand how it was calculated .
Earnings Per Share (EPS)
EPS is a measure of a company's profit. Take the profit, subtract the dividends and divide that number by the number of shares outstanding. Although EPS will tell the investor how much money the company is earning per share, it doesn't provide the expense information. If one company made $10 per share and another made $12 per share, the second company's earnings are more impressive only if they spent the same or less money to generate the income. The advise is to always Use EPS in conjunction with other metrics like return on equity.
Price to Earnings Ratio
The Price to Earnings Ratio (P/E ratio) compares a company's current price to its per-share earnings. The P/E ratio is calculated by dividing the price per share by the earnings per share. This metric is one of the best ways to gauge the value of the stock.If you were planning to purchase a new television, you would probably compare the features and price of multiple televisions. You would expect to pay more for more features.
When a stock has a higher P/E ratio than other similar companies, investors may regard the stock as overvalued, unless the company has larger growth prospects or something else that makes the high P/E worth the money. Remember that the actual price of a stock doesn't provide an indication of value. A higher priced stock could be less valuable when the P/E is examined.
The P/E ratio is important because it provides a measuring stick to compare valuations across companies. A stock with a lower P/E ratio costs less per share for the same level of financial performance than one with a higher P/E. What that essentially means is that low P/E is the way to go. But one place where the P/E ratio isn't as valuable is when you're comparing companies across different industries. While it's completely reasonable to see a telecom stock with a P/E in the low tens, a P/E closer to 40 isn't out of the line for a high-tech stock. As long as you're comparing apples to apples, though, the P/E ratio can give you an excellent glimpse at a stock's valuation.
Price to Book P/B Ratio
This is an equally good indication of what investors are willing to shell out for each dollar of a company's assets. The P/B ratio divides a stock's share price by its net assets, less any intangibles such as goodwill. Taking out intangibles is an important element of the price-to-book ratio. It means that the P/B ratio indicates what investors are paying for real-world tangible assets, not the harder-to-value intangibles. As such, the P/B is a relatively conservative metric.That's not to say that the P/B ratio isn't without its limitations; for companies that have significant intangibles, the price-to-book ratio can be misleadingly high. For most stocks, however, shooting for a P/B of 1.5 or less is a good path to solid value. (See Digging Into Book Value to learn how book value per share is normally calculated.)
Return on Equity
Return on equity (ROE) measures a corporation's profitability. It reveals how efficient a company is at generating profits. To calculate the ROE, divide profit by the amount of equity or total amount of money invested in the company. If company A had profits of $2 million but had received $1 million of equity, they would be considered more efficient than company B who also made $2 million but had $1.5 million in equity. Company A is operating more efficiently because they are able to make more money with less investment. This ROE should always be used in conjunction with other metrics to evaluate the health and earnings power of a company.
The Debt To Equity Ratio
Knowing how a company finances its assets is essential for any investor – especially if you're on the prowl for the next big value stock. That's where the debt/equity ratio comes in. As with the P/E ratio, this ratio, which indicates what proportion of financing a company has received from debt (like loans or bonds) and equity (like the issuance of shares of stock), can vary from industry to industry.
CAGR Compound Annual Growth Rate (CAGR), measures the annual growth rate of an investment. Since some years may see large gains while other years may return a loss.
The calculation is a little complicated but you can calculate it here .
Any successful investor will tell you that focusing on certain fundamental metrics is the path to cashing in gains. That's why you need to keep your eye on the metrics that matter. As a value investor, you already know that when it comes to a company's health, the fundamentals are king. Fundamentals, which include a company's financial and operational data, are preferred by some of the most successful investors in history, including the likes of George Soros and Warren Buffett.
Good luck and Happy Investing!
Source: Investopedia
I mean..Have you ever looked at a company's report, before you decide to buy this stock or that? Or do you read the comments somewhere in the internet about a certain stock before you make a decision? Is the fundamental analysis section of a stock's information important? And after all this, only to find yourself lost?
Finding the information to what you need is a critical first step to buying a stock. And I am going to refer you to a great site on this:
SEE: 5 Must-Have Metrics For Value Investors
ROI - Return on Investment
This is simply the money a company has made, or lost, on an investment. If an individual investor were to invest $1,000 into McDonald's stock and five years later sold it for $2,000, they had a 100% return on investment or ROI. The return is divided by the cost of the investment to produce the ROI.
Caveat: The problem with this is, it's easy to manipulate. Although the calculation is easy, what a company chooses to include in the costs of the investment may change. Did they include all costs in the calculation or selected costs? Before relying on the ROI, understand how it was calculated .
Earnings Per Share (EPS)
EPS is a measure of a company's profit. Take the profit, subtract the dividends and divide that number by the number of shares outstanding. Although EPS will tell the investor how much money the company is earning per share, it doesn't provide the expense information. If one company made $10 per share and another made $12 per share, the second company's earnings are more impressive only if they spent the same or less money to generate the income. The advise is to always Use EPS in conjunction with other metrics like return on equity.
Price to Earnings Ratio
The Price to Earnings Ratio (P/E ratio) compares a company's current price to its per-share earnings. The P/E ratio is calculated by dividing the price per share by the earnings per share. This metric is one of the best ways to gauge the value of the stock.If you were planning to purchase a new television, you would probably compare the features and price of multiple televisions. You would expect to pay more for more features.
When a stock has a higher P/E ratio than other similar companies, investors may regard the stock as overvalued, unless the company has larger growth prospects or something else that makes the high P/E worth the money. Remember that the actual price of a stock doesn't provide an indication of value. A higher priced stock could be less valuable when the P/E is examined.
The P/E ratio is important because it provides a measuring stick to compare valuations across companies. A stock with a lower P/E ratio costs less per share for the same level of financial performance than one with a higher P/E. What that essentially means is that low P/E is the way to go. But one place where the P/E ratio isn't as valuable is when you're comparing companies across different industries. While it's completely reasonable to see a telecom stock with a P/E in the low tens, a P/E closer to 40 isn't out of the line for a high-tech stock. As long as you're comparing apples to apples, though, the P/E ratio can give you an excellent glimpse at a stock's valuation.
Price to Book P/B Ratio
This is an equally good indication of what investors are willing to shell out for each dollar of a company's assets. The P/B ratio divides a stock's share price by its net assets, less any intangibles such as goodwill. Taking out intangibles is an important element of the price-to-book ratio. It means that the P/B ratio indicates what investors are paying for real-world tangible assets, not the harder-to-value intangibles. As such, the P/B is a relatively conservative metric.That's not to say that the P/B ratio isn't without its limitations; for companies that have significant intangibles, the price-to-book ratio can be misleadingly high. For most stocks, however, shooting for a P/B of 1.5 or less is a good path to solid value. (See Digging Into Book Value to learn how book value per share is normally calculated.)
Return on Equity
Return on equity (ROE) measures a corporation's profitability. It reveals how efficient a company is at generating profits. To calculate the ROE, divide profit by the amount of equity or total amount of money invested in the company. If company A had profits of $2 million but had received $1 million of equity, they would be considered more efficient than company B who also made $2 million but had $1.5 million in equity. Company A is operating more efficiently because they are able to make more money with less investment. This ROE should always be used in conjunction with other metrics to evaluate the health and earnings power of a company.
The Debt To Equity Ratio
Knowing how a company finances its assets is essential for any investor – especially if you're on the prowl for the next big value stock. That's where the debt/equity ratio comes in. As with the P/E ratio, this ratio, which indicates what proportion of financing a company has received from debt (like loans or bonds) and equity (like the issuance of shares of stock), can vary from industry to industry.
CAGR Compound Annual Growth Rate (CAGR), measures the annual growth rate of an investment. Since some years may see large gains while other years may return a loss.
The calculation is a little complicated but you can calculate it here .
Any successful investor will tell you that focusing on certain fundamental metrics is the path to cashing in gains. That's why you need to keep your eye on the metrics that matter. As a value investor, you already know that when it comes to a company's health, the fundamentals are king. Fundamentals, which include a company's financial and operational data, are preferred by some of the most successful investors in history, including the likes of George Soros and Warren Buffett.
Good luck and Happy Investing!
Source: Investopedia
Sunday, June 14, 2009
How to change from one trading house to another..
Under CDP, there are more than 26 clearing members (trading house). One can basically buy, sell shares there. If there is a need to change trading house, a phone-call will usually do.
Here are a few of the more popular Trading Houses and their web-sites:
CIMB-GK http://www.cimb.com.sg/
DBS Vickers http://www.dbsvickers.com.sg/
Kim Eng Sec http://www.ketrade.com.sg/
Lim & Tan http://www.limtan.com.sg/
OCBC http://www.iocbc.com.sg/
UOB Kay http://www.uobkayhian.com.sg/
Sunday, March 16, 2008
Buy Directly into the Future of Energy and Metals?
Buy directly into the future of energy, metals ?
FOR THE RISK-TAKING INVESTOR
IF YOU are a relatively sophisticated investor aged 21 or over, you can open a derivatives trading account at most major brokerages such as Phillip Securities or DBS Vickers Securities.
This will allow you to trade futures contracts on exchanges worldwide - from Bursa Malaysia's ringgit-denominated crude palm oil futures contract (FCPO) to metals contracts on the Chicago Board of Trade (CBOT) and the New York Mercantile Exchange (Nymex).
A futures contract represents a financial obligation to buy a certain quantity of a physical commodity at a preset date and price. Most brokerages will let you deposit your funds in Singapore dollars or any other major currency.
You can trade on futures exchanges and over-the- counter foreign exchanges on a margin basis, which means you can leverage so as to trade contracts with a larger nominal value. The margin is set to cover the price risk of the portfolio for a specified period.
There are three categories: energy and metal futures, which generally mean 'hard' commodities, and agriculture futures, for 'soft' commodities.
Energy
OIL is now trading at about US$110 per barrel and could soar to higher levels. But investors need to be well-versed in the price dynamics of the many varieties of oil contracts from light sweet crude to brent, which are traded on Nymex and the Intercontinental Exchange (ICE).
Metals
THE star performer last year was copper. Shortages due to inefficient excavation of old mines pushed up the price to over 360 per cent of the 2003 level. Some investors buy the stocks of big miners such as Freeport McMoRan and Southern Copper, but to do this, you need to open overseas trading accounts via your local broker.
Copper plays into the popular investment theme of 'What China Is Buying'. China's rapid infrastructure development has made it the world's largest consumer of many metals, but you zoom in on the ones it needs to import.
Zinc is abundant in China, while copper is found mainly in South America and tin in Indonesia.
For aluminium, China used to rely on its own production, but it is likely to become a net importer this year.
Said Standard Chartered commodity analyst Judy Zhu: 'The government clamped down on production a few years ago, so this may support global prices.'
Many investors are going for gold because the weakening greenback has pushed prices above US$1,000 an ounce currently. But they might still have further to go. Analysts have predicted that prices could range between US$700 and US$1,500 a troy ounce over the next three years.
Also, gold is more easily accessible investment-wise than some other metals. You can buy or sell physical gold such as gold bars, or gold certificates from banks such as the Canadian Bank of Nova Scotia and United Overseas Bank (UOB), but this attracts GST of 7 per cent.
Singapore investors can use monies in their Central Provident Fund Investment Scheme-Ordinary Account (CPFIS-OA), but the sum cannot exceed the available Gold Limit, which is 10 per cent of the total CPFIS-OA funds.
One thing to note is the high investment outlay for gold. A one-kilobar certificate can cost over $36,000. For sophisticated investors who want exposure to a variety of hard and soft commodities, ABN Amro is preparing to launch a call warrant that tracks the RICI Enhanced Global Index, an index designed by the bank and veteran investor Jim Rogers.
It will be based on the RICI, a commodity index developed by Mr Rogers in 1998 that covers 37 commodities and has generated returns of more than 500 per cent since July 1998.
Called zero strike participation certificates, or zero certs, the warrants have an exercise price of zero. If the index goes up by $1, the issue also gains $1, which makes it easier to track the performance of the index and calculate capital gains.
Each zero cert has an initial price of about $1; the minimum investment is about $1,000.
Soft commodities
THIS is a growing investment theme because consumers in China and India are wolfing down more food as standards of living rise. For instance, estimates put the wheat consumption of these two countries at as much as 39 per cent of the world's total supply.
In addition, with the 'green' movement, legislation in some places such as California has pushed farmers to grow corn not for food but to make ethanol-based energy products.
But beware the extreme volatility in the prices of soft commodities, including coffee, palm oil and rice, which spoil easily. Palm oil producers, for instance, who have a huge harvest might have to dump it on the market within a few weeks before it rots.
A savvy farmer might hedge his crop by selling futures contracts to lock in the price at which he will sell the palm oil. This hedging activity, combined with natural harvest cycles and unpredictable weather, can generate extreme swings in prices.
Corn prices have slid a little this year, but they were about 57 per cent higher than levels in 2003 and they could test new highs if demand for ethanol-based energy sources continues to soar.
Malaysian crude palm oil futures have gained more than 25 per cent this year, propelled by surging European demand, a flood of investments in commodity markets and Indonesia's plans to hike export taxes.
Unconventional plays
SOME off-the-beaten-track investments with upside potential include uranium and palladium.
Some experts say uranium prices are likely to go 'nuclear' in a few years as traditional sources of energy such as oil and coal run out and 'cleaner' sources such as uranium trump more expensive ones such as ethanol-based energy.
There are indications that global demand for uranium might surge in a few years. As of the middle of last year, there were 30 nuclear plants under construction globally, while another 70 had been planned and 150 more proposed. Meanwhile, supply from uranium mines and decommissioned nuclear weapons is limited.
Palladium recently made a popular debut as the new 'platinum' in jewellery, especially in the China market because it is cheaper for jewellery buyers to use while providing immense profit margins for manufacturers.
Consumption by the jewellery industry has more than tripled over the past two years, rising to 1.13 million ounces a year.
Source: The Straits Times
FOR THE RISK-TAKING INVESTOR
IF YOU are a relatively sophisticated investor aged 21 or over, you can open a derivatives trading account at most major brokerages such as Phillip Securities or DBS Vickers Securities.
This will allow you to trade futures contracts on exchanges worldwide - from Bursa Malaysia's ringgit-denominated crude palm oil futures contract (FCPO) to metals contracts on the Chicago Board of Trade (CBOT) and the New York Mercantile Exchange (Nymex).
A futures contract represents a financial obligation to buy a certain quantity of a physical commodity at a preset date and price. Most brokerages will let you deposit your funds in Singapore dollars or any other major currency.
You can trade on futures exchanges and over-the- counter foreign exchanges on a margin basis, which means you can leverage so as to trade contracts with a larger nominal value. The margin is set to cover the price risk of the portfolio for a specified period.
There are three categories: energy and metal futures, which generally mean 'hard' commodities, and agriculture futures, for 'soft' commodities.
Energy
OIL is now trading at about US$110 per barrel and could soar to higher levels. But investors need to be well-versed in the price dynamics of the many varieties of oil contracts from light sweet crude to brent, which are traded on Nymex and the Intercontinental Exchange (ICE).
Metals
THE star performer last year was copper. Shortages due to inefficient excavation of old mines pushed up the price to over 360 per cent of the 2003 level. Some investors buy the stocks of big miners such as Freeport McMoRan and Southern Copper, but to do this, you need to open overseas trading accounts via your local broker.
Copper plays into the popular investment theme of 'What China Is Buying'. China's rapid infrastructure development has made it the world's largest consumer of many metals, but you zoom in on the ones it needs to import.
Zinc is abundant in China, while copper is found mainly in South America and tin in Indonesia.
For aluminium, China used to rely on its own production, but it is likely to become a net importer this year.
Said Standard Chartered commodity analyst Judy Zhu: 'The government clamped down on production a few years ago, so this may support global prices.'
Many investors are going for gold because the weakening greenback has pushed prices above US$1,000 an ounce currently. But they might still have further to go. Analysts have predicted that prices could range between US$700 and US$1,500 a troy ounce over the next three years.
Also, gold is more easily accessible investment-wise than some other metals. You can buy or sell physical gold such as gold bars, or gold certificates from banks such as the Canadian Bank of Nova Scotia and United Overseas Bank (UOB), but this attracts GST of 7 per cent.
Singapore investors can use monies in their Central Provident Fund Investment Scheme-Ordinary Account (CPFIS-OA), but the sum cannot exceed the available Gold Limit, which is 10 per cent of the total CPFIS-OA funds.
One thing to note is the high investment outlay for gold. A one-kilobar certificate can cost over $36,000. For sophisticated investors who want exposure to a variety of hard and soft commodities, ABN Amro is preparing to launch a call warrant that tracks the RICI Enhanced Global Index, an index designed by the bank and veteran investor Jim Rogers.
It will be based on the RICI, a commodity index developed by Mr Rogers in 1998 that covers 37 commodities and has generated returns of more than 500 per cent since July 1998.
Called zero strike participation certificates, or zero certs, the warrants have an exercise price of zero. If the index goes up by $1, the issue also gains $1, which makes it easier to track the performance of the index and calculate capital gains.
Each zero cert has an initial price of about $1; the minimum investment is about $1,000.
Soft commodities
THIS is a growing investment theme because consumers in China and India are wolfing down more food as standards of living rise. For instance, estimates put the wheat consumption of these two countries at as much as 39 per cent of the world's total supply.
In addition, with the 'green' movement, legislation in some places such as California has pushed farmers to grow corn not for food but to make ethanol-based energy products.
But beware the extreme volatility in the prices of soft commodities, including coffee, palm oil and rice, which spoil easily. Palm oil producers, for instance, who have a huge harvest might have to dump it on the market within a few weeks before it rots.
A savvy farmer might hedge his crop by selling futures contracts to lock in the price at which he will sell the palm oil. This hedging activity, combined with natural harvest cycles and unpredictable weather, can generate extreme swings in prices.
Corn prices have slid a little this year, but they were about 57 per cent higher than levels in 2003 and they could test new highs if demand for ethanol-based energy sources continues to soar.
Malaysian crude palm oil futures have gained more than 25 per cent this year, propelled by surging European demand, a flood of investments in commodity markets and Indonesia's plans to hike export taxes.
Unconventional plays
SOME off-the-beaten-track investments with upside potential include uranium and palladium.
Some experts say uranium prices are likely to go 'nuclear' in a few years as traditional sources of energy such as oil and coal run out and 'cleaner' sources such as uranium trump more expensive ones such as ethanol-based energy.
There are indications that global demand for uranium might surge in a few years. As of the middle of last year, there were 30 nuclear plants under construction globally, while another 70 had been planned and 150 more proposed. Meanwhile, supply from uranium mines and decommissioned nuclear weapons is limited.
Palladium recently made a popular debut as the new 'platinum' in jewellery, especially in the China market because it is cheaper for jewellery buyers to use while providing immense profit margins for manufacturers.
Consumption by the jewellery industry has more than tripled over the past two years, rising to 1.13 million ounces a year.
Source: The Straits Times
Should you jump into commodities?
'We are in a bull market for commodities that is likely to last beyond 2020. This is because supply and demand got terribly out of whack years ago. It will take many years to build new capacity by opening new mines or discovering new oil fields.' MR JIM ROGERS, speaking at a conference in Singapore recently
MR JIM ROGERS
March 16, 2008 : Should you jump into commodities?
The skyrocketing prices of commodities such as crude oil and gold have made this asset class a hot topic among investors. GRACE NG explores the trends in commodities investment and how you can incorporate it into your portfolio
FOR THE NEW INVESTOR
WITH commodity prices at historical highs, investors are wondering if the cycle has peaked.
Some call it a commodities bubble that will burst soon. Morgan Stanley economist Stephen Roach believes prices will tumble amid a United States recession and property market collapse.
Others warn that commodities trading is the riskiest way to invest your savings because of the wild gyrations in prices.
But 'bulls' such as veteran US investor Jim Rogers beg to differ.
Reasons for investing in commodities
THESE GOLDEN GRAINS REWARDED INVESTORS who spurned stocks and bonds for commodities last year with rich gains. Wheat prices surged to new highs on fears that supply would fall short.
Commodities have grown more alluring recently given skyrocketing commodity prices, rising inflation and plummeting stock and bond markets.
'We are in a bull market for commodities that is likely to last beyond 2020,' he said at a recent conference in Singapore. 'This is because supply and demand got terribly out of whack years ago. It will take many years to build new capacity by opening new mines or discovering new oil fields.'
In the meantime, prices will be pushed up as the available supply cannot satisfy the voracious appetites of emerging economies.
For the average retail investor, taking the middle-of-the-road approach is to assume that the fastest growth has already come and gone. So you should be more selective and pick commodities that are likely to enjoy a sustained plateau in prices, rather than those whose prices might spike temporarily and then flop over time.
Last year, more than US$40 billion (S$55.3 billion) was poured into assets that track commodity indexes, exchange-traded products and commodity structures, according to Barclays Capital data in January.
So how can an investor get his toes wet without drowning?
Commodity indexes
THESE act like stock indexes, tracking a group of commodities for benchmarking and investing purposes. They are constructed and managed by various financial institutions. Since mid-1998, the Goldman Sachs Commodity Index has seen returns of 265 per cent and the Dow Jones-AIG Commodity Index 234 per cent.
Exchange-traded funds
FOR investors, exchange-traded funds (ETFs) offer exposure to gold, silver, oil, individual commodity sectors and broad-based commodity futures indexes. Take the Singapore Exchange's Lyxor ETF Commodities CRB, which is based on the Reuters/Jefferies CRB Index. It is made up of a basket of 19 commodities that range from energy, industrial metals and agriculture to livestock. Since it was listed in January, its net asset value has risen from US$2.71 to over US$4.04.
Mutual funds
EMERGING market funds, in particular, allow you to participate in the commodities boom by tapping the growth of countries blessed with raw materials. These include South Africa, which has the world's largest gold reserves; Saudi Arabia, which boasts the largest oil reserves; and Cuba, a huge sugarcane producer.
Among the many options available are Schroder Investment Management's agriculture fund and alternative solutions commodity fund, the UOB United Global Emerging Markets Portfolio and Pimco's emerging markets bond fund.
Commodity-linked stocks
YOU can buy shares of Singapore-listed commodity traders and producers such as Indofood Agri, Golden Agri, Straits Asia Resources, First Resources and Wilmar. There are also commodity-related stocks such as those of oil-rig builder Keppel Corp.
Investors take on both corporate and equity market risks when they buy into these stocks. They typically have a higher correlation to equity markets than commodity markets.
MR JIM ROGERS
March 16, 2008 : Should you jump into commodities?
The skyrocketing prices of commodities such as crude oil and gold have made this asset class a hot topic among investors. GRACE NG explores the trends in commodities investment and how you can incorporate it into your portfolio
FOR THE NEW INVESTOR
WITH commodity prices at historical highs, investors are wondering if the cycle has peaked.
Some call it a commodities bubble that will burst soon. Morgan Stanley economist Stephen Roach believes prices will tumble amid a United States recession and property market collapse.
Others warn that commodities trading is the riskiest way to invest your savings because of the wild gyrations in prices.
But 'bulls' such as veteran US investor Jim Rogers beg to differ.
Reasons for investing in commodities
THESE GOLDEN GRAINS REWARDED INVESTORS who spurned stocks and bonds for commodities last year with rich gains. Wheat prices surged to new highs on fears that supply would fall short.
Commodities have grown more alluring recently given skyrocketing commodity prices, rising inflation and plummeting stock and bond markets.
'We are in a bull market for commodities that is likely to last beyond 2020,' he said at a recent conference in Singapore. 'This is because supply and demand got terribly out of whack years ago. It will take many years to build new capacity by opening new mines or discovering new oil fields.'
In the meantime, prices will be pushed up as the available supply cannot satisfy the voracious appetites of emerging economies.
For the average retail investor, taking the middle-of-the-road approach is to assume that the fastest growth has already come and gone. So you should be more selective and pick commodities that are likely to enjoy a sustained plateau in prices, rather than those whose prices might spike temporarily and then flop over time.
Last year, more than US$40 billion (S$55.3 billion) was poured into assets that track commodity indexes, exchange-traded products and commodity structures, according to Barclays Capital data in January.
So how can an investor get his toes wet without drowning?
Commodity indexes
THESE act like stock indexes, tracking a group of commodities for benchmarking and investing purposes. They are constructed and managed by various financial institutions. Since mid-1998, the Goldman Sachs Commodity Index has seen returns of 265 per cent and the Dow Jones-AIG Commodity Index 234 per cent.
Exchange-traded funds
FOR investors, exchange-traded funds (ETFs) offer exposure to gold, silver, oil, individual commodity sectors and broad-based commodity futures indexes. Take the Singapore Exchange's Lyxor ETF Commodities CRB, which is based on the Reuters/Jefferies CRB Index. It is made up of a basket of 19 commodities that range from energy, industrial metals and agriculture to livestock. Since it was listed in January, its net asset value has risen from US$2.71 to over US$4.04.
Mutual funds
EMERGING market funds, in particular, allow you to participate in the commodities boom by tapping the growth of countries blessed with raw materials. These include South Africa, which has the world's largest gold reserves; Saudi Arabia, which boasts the largest oil reserves; and Cuba, a huge sugarcane producer.
Among the many options available are Schroder Investment Management's agriculture fund and alternative solutions commodity fund, the UOB United Global Emerging Markets Portfolio and Pimco's emerging markets bond fund.
Commodity-linked stocks
YOU can buy shares of Singapore-listed commodity traders and producers such as Indofood Agri, Golden Agri, Straits Asia Resources, First Resources and Wilmar. There are also commodity-related stocks such as those of oil-rig builder Keppel Corp.
Investors take on both corporate and equity market risks when they buy into these stocks. They typically have a higher correlation to equity markets than commodity markets.
Sunday, February 3, 2008
Two Cents Worth: Don't trade Commodities Blindly
Feb 3, 2008
Two cents'worth : Don't trade commodities blindly - have a plan
By Kevin Kerr, AUTHOR
YOU don't know where you're going unless you have a plan to get there - I truly believe that.
So many new commodities traders jump into these markets with no real plan or objective, and often they wind up out of the market just as fast as they got in.
It's vital for every trader to have a well thought-out and concise trading plan in order to succeed. The short time it takes to sit down and write out a well thought-out trading plan pays for itself over and over again. I'm proof of that.
A trading plan should include your basis for trading that particular commodity in the first place. For example: I'm buying orange juice because I believe there'll be a hard freeze this winter and juice prices will go higher. It can be as simple as that.
But to back up my trade in orange juice, I would also investigate the crop condition and the overall global demand. Then I would turn to my technical charts and see where support and resistance are for the juice and how much open interest there is. If all of these things supported my trading decision, then I would proceed.
Futures are called 'futures' for a reason ....time! In futures and options we're always keeping an eye on Father Time, tick, tock, tick, tock. Options prices are strongly based on how much time value is left in a particular option. As that option comes closer to expiration, the time value decays daily, eroding the option's value. Both futures and options expire when their time runs out, so it's vital to pay close attention to time.
As traders, we need to decide whether we want a longer-term trade or a shorter-term trade. As I've said, I typically like to trade futures with at least three full months to expiration, because I want the trade to have time to develop.
On the longer-term trade, I go no more than 18 months, because any further out, the market becomes too illiquid. Examine each trade individually to figure out the merits of trading it longer term or shorter.
Say I believe that corn is in a long-term bull market as a result of ethanol demand, and even though (for the sake of argument) corn is abundant right now, in 18 months from now, it may not be so; so I would buy futures expiring 18 months from now, hoping for a big move upward.
Alternatively, if I thought that the Federal Reserve was planning to raise rates, I might sell gold short on a short-term basis, of say, three months. You get the idea.
Excerpted from Kevin Kerr's A Maniac Commodity Trader's Guide to Making A Fortune, published by John Wiley & Sons.
Two cents'worth : Don't trade commodities blindly - have a plan
By Kevin Kerr, AUTHOR
YOU don't know where you're going unless you have a plan to get there - I truly believe that.
So many new commodities traders jump into these markets with no real plan or objective, and often they wind up out of the market just as fast as they got in.
It's vital for every trader to have a well thought-out and concise trading plan in order to succeed. The short time it takes to sit down and write out a well thought-out trading plan pays for itself over and over again. I'm proof of that.
A trading plan should include your basis for trading that particular commodity in the first place. For example: I'm buying orange juice because I believe there'll be a hard freeze this winter and juice prices will go higher. It can be as simple as that.
But to back up my trade in orange juice, I would also investigate the crop condition and the overall global demand. Then I would turn to my technical charts and see where support and resistance are for the juice and how much open interest there is. If all of these things supported my trading decision, then I would proceed.
Futures are called 'futures' for a reason ....time! In futures and options we're always keeping an eye on Father Time, tick, tock, tick, tock. Options prices are strongly based on how much time value is left in a particular option. As that option comes closer to expiration, the time value decays daily, eroding the option's value. Both futures and options expire when their time runs out, so it's vital to pay close attention to time.
As traders, we need to decide whether we want a longer-term trade or a shorter-term trade. As I've said, I typically like to trade futures with at least three full months to expiration, because I want the trade to have time to develop.
On the longer-term trade, I go no more than 18 months, because any further out, the market becomes too illiquid. Examine each trade individually to figure out the merits of trading it longer term or shorter.
Say I believe that corn is in a long-term bull market as a result of ethanol demand, and even though (for the sake of argument) corn is abundant right now, in 18 months from now, it may not be so; so I would buy futures expiring 18 months from now, hoping for a big move upward.
Alternatively, if I thought that the Federal Reserve was planning to raise rates, I might sell gold short on a short-term basis, of say, three months. You get the idea.
Excerpted from Kevin Kerr's A Maniac Commodity Trader's Guide to Making A Fortune, published by John Wiley & Sons.
Tips on staying calm in a market turmoil
Feb 3, 2008
Don't lose your head (or your shirt) in market turmoil
Lorna Tan looks at why investors panic and gives tips on how to stay cool amid the current turbulence
IN A few heart-stopping moments on Jan 22, marketing manager Henry Foo, 30, saw the value of his stock portfolio plunge from $100,000 to $82,100.
When he did an online check of his $150,000 unit trust portfolio, there was more bad news - it had dipped by about $10,000 in value.
He and many other Singapore investors have witnessed a large portion of their investment values wiped out in a matter of days.
The culprit, of course, is the United States sub-prime mortgage crisis where thousands of high-risk borrowers have defaulted on loans. This sparked global credit worries that cascaded through to equity markets.
As investors braced themselves for a battering, Asian stock markets took a beating on Jan 21, with Singapore suffering its worst one-day fall since Black Monday in October 1987, plunging by 6 per cent to 2,917.15 points.
Blue chips were not spared, with counters such as bourse operator Singapore Exchange crashing to $8.10 on Jan 22. Its price on Oct 8 was $17.20.
Fearing the worst, investors had to decide if they should hold their positions or cut their losses. Many regretted not cashing out when the market peaked in November.
Why investors panic
MOST people like to imagine they are rational and logical when it comes to serious matters such as investment - but human nature dictates otherwise.
The chief executive of ipac Wealth Management Asia, Mr Gary Harvey, says it is easy to understand how the ups and downs of the stock market create emotional responses.
'We fear that when markets go down, they will fall further and we will lose money. During a market decline, most investors sell their portfolio as they are motivated by a fear that the market will not recover,' he says.
IPP Financial Advisers investment director Albert Lam says investors usually panic for one or more of the following reasons:
A weak level of confidence in their investments as they did not do their research properly before buying them.
Overexposure to certain investments due to inappropriate asset allocation or not diversifying adequately.
The influences of market sentiment - such as fear and panic - instead of weighing up facts about the economy and investments.
Forced selling kicking in when shares hit margin calls. This would be an issue for investors who borrow money to buy these shares but do not have the cash to top up their loans.
'Shorting' of securities where investors sell shares they do not own as they believe the market will fall and they can later buy the shares at lower prices. However, if they are wrong and the market rises instead, they are forced to buy the shares at higher prices to cover their short positions.
Mr Lam says that investors should firstly ascertain whether there is a valid reason to sell quickly.
'If the reason is invalid and he had previously done his research appropriately and engaged the services of a competent financial planner to draw up his asset allocation, chances of him panicking would be reduced greatly.'
If the foundation for the investment decision is still intact, there is no valid reason to sell quickly - regardless of what is happening in the market.
How to stay calm
THIS tricky topic of dealing with market volatility was of vital interest to the 1,800 participants who attended an investment seminar organised by online unit trust distributor Fundsupermart recently.
Fundsupermart general manager and seminar speaker Wong Sui Jau has one important piece of advice: Remember that markets always recover.
'Markets cannot drop 5 to 10 per cent every day. Have faith that markets and economies are self-correcting, they won't go down forever,' he says.
In fact, Mr Lam advises that quite often, market selldowns present buying opportunities for the calm investor. This means that if there is an investment which you believe is fundamentally good, then you have an opportunity to buy in at a lower price.
Here are some tips on staying calm regardless of market conditions:
Diversification
Spreading your investment across many assets helps to eliminate some risk. This is because as we add more securities to a portfolio, the exposure to any particular source of risk becomes smaller.
This is why most financial experts typically recommend unit trusts as an investment tool as each fund comprises large numbers of securities across different asset classes such as bonds, property, resources and equity. Different classes get different weightages, depending on their prospects.
Keep investing
A speaker at the Fundsupermart seminar, Aberdeen Asset Management Asia's senior investment manager of Asian equities, Ms Flavia Cheong, says she believes in the advantages of investing consistently. In fact, she plans to be 'more aggressive' in her investing now that the markets are more volatile, and look for value buys.
Mr Harvey notes that the markets are difficult to predict and can move quickly. Also people generally lack a sensible framework for going into and out of the market - so fear and greed play out.
A case in point was the market selldown in the May to June period last year when the benchmark Straits Times Index (STI) slid by about 14.5 per cent, spooked by fears over interest rate hikes. However, the STI ended at 2,991 at year-end, up 12 per cent from the May to June period.
Says Mr Lam: 'There were some clients who liquidated their investments totally during the correction. Very few who did so know when to re-enter the market. For clients who decided to ride out the volatility, the value of their investments would have been higher by the end of the year.'
This shows that timing the market is difficult and dealing with market sentiment is tough.
Usually, investors reason that prices will fall further when markets look low, which prevents them from taking up buying opportunities. Most investors will re-enter the market only when prices move back up. But by then, they could have missed the best prices.
Says Mr Lam: 'Therefore, a more practical strategy is to stay invested if an investor thinks it is only a correction and not a change in trend.
'However, if he ascertains it is a change in trend from a bull to a bear market, he must review and re-strategise his portfolio to go defensive, such as having more fixed income assets.'
Maintain a long-term perspective
Research over many years has shown that equities rise over time and will outperform cash and bonds and give some protection against inflation.
By investing in and remaining invested in equities, investors can benefit from this trend, says Mr Harvey.
'To survive volatility and prosper during the inevitable recovery, a good investor should have a portfolio that has three strong elements - quality, value and diversity. And then, given a period of time, he would be able to reap better than average returns.'
Talk to your financial adviser
Speaking to your adviser during market volatility will help you avoid making potential mistakes resulting from emotions such as fear and greed.
Don't lose your head (or your shirt) in market turmoil
Lorna Tan looks at why investors panic and gives tips on how to stay cool amid the current turbulence
IN A few heart-stopping moments on Jan 22, marketing manager Henry Foo, 30, saw the value of his stock portfolio plunge from $100,000 to $82,100.
When he did an online check of his $150,000 unit trust portfolio, there was more bad news - it had dipped by about $10,000 in value.
He and many other Singapore investors have witnessed a large portion of their investment values wiped out in a matter of days.
The culprit, of course, is the United States sub-prime mortgage crisis where thousands of high-risk borrowers have defaulted on loans. This sparked global credit worries that cascaded through to equity markets.
As investors braced themselves for a battering, Asian stock markets took a beating on Jan 21, with Singapore suffering its worst one-day fall since Black Monday in October 1987, plunging by 6 per cent to 2,917.15 points.
Blue chips were not spared, with counters such as bourse operator Singapore Exchange crashing to $8.10 on Jan 22. Its price on Oct 8 was $17.20.
Fearing the worst, investors had to decide if they should hold their positions or cut their losses. Many regretted not cashing out when the market peaked in November.
Why investors panic
MOST people like to imagine they are rational and logical when it comes to serious matters such as investment - but human nature dictates otherwise.
The chief executive of ipac Wealth Management Asia, Mr Gary Harvey, says it is easy to understand how the ups and downs of the stock market create emotional responses.
'We fear that when markets go down, they will fall further and we will lose money. During a market decline, most investors sell their portfolio as they are motivated by a fear that the market will not recover,' he says.
IPP Financial Advisers investment director Albert Lam says investors usually panic for one or more of the following reasons:
A weak level of confidence in their investments as they did not do their research properly before buying them.
Overexposure to certain investments due to inappropriate asset allocation or not diversifying adequately.
The influences of market sentiment - such as fear and panic - instead of weighing up facts about the economy and investments.
Forced selling kicking in when shares hit margin calls. This would be an issue for investors who borrow money to buy these shares but do not have the cash to top up their loans.
'Shorting' of securities where investors sell shares they do not own as they believe the market will fall and they can later buy the shares at lower prices. However, if they are wrong and the market rises instead, they are forced to buy the shares at higher prices to cover their short positions.
Mr Lam says that investors should firstly ascertain whether there is a valid reason to sell quickly.
'If the reason is invalid and he had previously done his research appropriately and engaged the services of a competent financial planner to draw up his asset allocation, chances of him panicking would be reduced greatly.'
If the foundation for the investment decision is still intact, there is no valid reason to sell quickly - regardless of what is happening in the market.
How to stay calm
THIS tricky topic of dealing with market volatility was of vital interest to the 1,800 participants who attended an investment seminar organised by online unit trust distributor Fundsupermart recently.
Fundsupermart general manager and seminar speaker Wong Sui Jau has one important piece of advice: Remember that markets always recover.
'Markets cannot drop 5 to 10 per cent every day. Have faith that markets and economies are self-correcting, they won't go down forever,' he says.
In fact, Mr Lam advises that quite often, market selldowns present buying opportunities for the calm investor. This means that if there is an investment which you believe is fundamentally good, then you have an opportunity to buy in at a lower price.
Here are some tips on staying calm regardless of market conditions:
Diversification
Spreading your investment across many assets helps to eliminate some risk. This is because as we add more securities to a portfolio, the exposure to any particular source of risk becomes smaller.
This is why most financial experts typically recommend unit trusts as an investment tool as each fund comprises large numbers of securities across different asset classes such as bonds, property, resources and equity. Different classes get different weightages, depending on their prospects.
Keep investing
A speaker at the Fundsupermart seminar, Aberdeen Asset Management Asia's senior investment manager of Asian equities, Ms Flavia Cheong, says she believes in the advantages of investing consistently. In fact, she plans to be 'more aggressive' in her investing now that the markets are more volatile, and look for value buys.
Mr Harvey notes that the markets are difficult to predict and can move quickly. Also people generally lack a sensible framework for going into and out of the market - so fear and greed play out.
A case in point was the market selldown in the May to June period last year when the benchmark Straits Times Index (STI) slid by about 14.5 per cent, spooked by fears over interest rate hikes. However, the STI ended at 2,991 at year-end, up 12 per cent from the May to June period.
Says Mr Lam: 'There were some clients who liquidated their investments totally during the correction. Very few who did so know when to re-enter the market. For clients who decided to ride out the volatility, the value of their investments would have been higher by the end of the year.'
This shows that timing the market is difficult and dealing with market sentiment is tough.
Usually, investors reason that prices will fall further when markets look low, which prevents them from taking up buying opportunities. Most investors will re-enter the market only when prices move back up. But by then, they could have missed the best prices.
Says Mr Lam: 'Therefore, a more practical strategy is to stay invested if an investor thinks it is only a correction and not a change in trend.
'However, if he ascertains it is a change in trend from a bull to a bear market, he must review and re-strategise his portfolio to go defensive, such as having more fixed income assets.'
Maintain a long-term perspective
Research over many years has shown that equities rise over time and will outperform cash and bonds and give some protection against inflation.
By investing in and remaining invested in equities, investors can benefit from this trend, says Mr Harvey.
'To survive volatility and prosper during the inevitable recovery, a good investor should have a portfolio that has three strong elements - quality, value and diversity. And then, given a period of time, he would be able to reap better than average returns.'
Talk to your financial adviser
Speaking to your adviser during market volatility will help you avoid making potential mistakes resulting from emotions such as fear and greed.
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