Finding Opportunities In The Current Financial Crisis

A flurry of activities continues in the financial sector, with the US financial index tanking about 14% over the past two weeks (in USD terms, as at 17 September). We saw the US government placing Freddie Mac and Fannie Mae under conservatorship, Lehman Brothers (Lehman) filing for bankruptcy, Merrill Lynch (Merrill) being bought over by Bank of America (BoA) and the near collapse of American International Group (AIG). What can investors possibly make out of the recent financial turmoil? Can any opportunities be found amidst this crisis?

The article reviews the happenings over the past two weeks and provides an update on the price to book (PB) ratio of these financials.

8 September

US Government takes over Fannie Mae and Freddie Mac

Increased mortgage defaults threatened the solvency of these two institutions as Fannie Mae and Freddie Mac were operating with capital ratios (capital divided by risk adjusted assets) that were much lower than the banks. The US government decided to intervene with a four-part plan Continue reading »

Investing in Tough Times

With the turmoil in investment markets over the course of 2008, many investors will be asking “when will it all end?” of “when will we see the return to more stable markets?”

Back in November 2007, the Australian All Ordinaries Index peaked at 6873 points. At the time of writing this article, it is at 5091 points, almost the lowest point in the current cycle. Many headlines will be screaming out the news that the share-market has “crashed” or “plummeted” by 26% since last November! Very emotive sentiments.

If you had invested in the All Ordinaries Index back in November 2007 and sold your investment now, Continue reading »

Seven Handy Rules for Investing

Investing successfully in the share market requires patience, clear goals, a long-term view and sound financial advice. When markets are volatile, it can be easy to forget the basics and make hasty decisions you may regret later.

This article aims to give you a better understanding of how share markets work, help you put the current market volatility into perspective and make sound decisions about your investments.

Rule 1 – Diversify your portfolio

Through diversification you can spread tour investments so that they do not always move in the same way at the same time.  This means that while one investment might be losing value, it could be counter-balanced by another that is gaining.

There are a number of different ways you can diversify your portfolio:

• Asset classes – the main asset classes are: cash, fixed interest property and shares.

• Market Sector – you could spread shares across different industries: resources, banking, industrial, agricultural, pharmaceuticals, leisure – various industries perform differently under the same conditions.

• Fund managers – different fund managers have different investment styles that can produce different results during various cycles of the market.

• Geographic – by investing in different countries around the world you can take advantage of the varying economic conditions.

Rule 2 – Appreciate the value of compounding

Compounding can be the investor’s best friend.  Simply put, Continue reading »

Secrets of Successful Investing

With all the turmoil in investment markets over recent months many investors will be asking if they have done the right thing by investing in shares, property or managed funds.  Let’s consider two fundamentals of investing.

Understand Investment Cycles:

Investment markets move in cycles.  They go up, they go down, and they may run flat for a period of time.  But if we look at the long-term performance of investment markets, they have historically trended up.

The secret to successful investing is to adopt a “counter-cyclical” approach. Continue reading »

Understanding Market Volatility

Many people believe investing is about “timing the market” – getting in before prices rise, enjoying the ride up and then getting out before prices fall.

Yet anticipating these market moves can be extremely difficult because no two market cycles are the same.  Investors’ emotions make successful market timing even harder. While logic suggests the best time to buy is when asset prices are cheap or falling, many investors tend to buy when prices are rising and sell when they are falling.  The emotions of fear and greed can lead us to buy and sell at exactly the wrong times.

A lot of long-term research suggests that market timing is difficult, even for professionals. This is why using a financial planner often leads to better investment returns.  It’s not just that expert advice helps you pick better investments; it’s that it stops you chopping and changing. As an investor, you must allow time for rises and falls of the market to take their course.  The main message from investment experts is that it is better to buy and hold rather than trying to time the market. As the cliché says “it’s time in; not timing that counts.

Source: Macquarie