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  Quotations - Invest  
[Quote No.29670] Need Area: Money > Invest
"When considering the asset allocation of your investment portfolio your equity/bond mix measures your trade-off between eating well and sleeping well." - Seymour@imagi-natives.com

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[Quote No.29673] Need Area: Money > Invest
"...our experience from the past is that they [companies] will use their profits to lobby and use their political power to try to deregulate, get rid of the restrictions, increase their opportunities until the next abuse happens and this is part of what I call the political and economic cycle. In the financial sector they use the money they have to try to loosen regulations until the problems become so bad that they go through another regulatory cycle." - Joseph Stiglitz
Nobel prize winning economist and former chief economist of the World Bank. Quoted in 'The Business Spectator', 2nd October, 2008.
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[Quote No.29675] Need Area: Money > Invest
"For long-term value investors, who like to buy low [in bear markets] and sell high [in boom markets] rather than short-term momentum investors who like to buy high and sell higher, the phrase 'grin and bear it' takes on a whole new meaning!" - Seymour@imagi-natives.com

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[Quote No.29676] Need Area: Money > Invest
"[Three rules for value share investing in a crisis] 1-You need cash combined with courage in a crisis. 2-Don’t invest in things you don’t understand. 3-Don’t catch a falling knife until you have a handle on the risk." - Warren Buffett
Highly successful value investor, Chairman of Berkshire Hathaway and one of the richest men in the world.
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[Quote No.29677] Need Area: Money > Invest
"So what should businesses do [in a credit crisis and/or recession]? First...look hard at your operation. What effect will tight credit have on your operation and on the operations of your customers and suppliers? Be realistic. Second, if it's going to be tough for you, start taking steps to make sure you have the money to see this through. It might involve going to see your bank. It will help if you have a long-term relationship with that banker. To survive, you may need to sell assets or even business divisions. If that’s the case, do so quickly because there is going to be a fall in many types of assets. And naturally, because many businesses will not be expanding, look hard at your costs. What can you trim to get through this period without destroying your base operation? There will be some enterprises that will prosper in this climate. You may be one of them, in which case make sure you have the money to fund the growth. Consumers will keep spending and picking how they will move will be very rewarding." - Robert Gottliebsen
Highly respected Australian financial journalist. Quote from 'The Business Spectator', 4th October, 2008.
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[Quote No.29680] Need Area: Money > Invest
"Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices." - Warren Buffett
Highly successful value investor, Chairman of Berkshire Hathaway and one of the richest men in the world.
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[Quote No.29682] Need Area: Money > Invest
"[Bull] Markets climb a wall of worry." - Wall Street proverb

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[Quote No.29696] Need Area: Money > Invest
"In a real recession, there always comes a point at which many people are not confident of recovery, and that affects their behaviour. It is not unknown for lenders to be sufficiently lacking in confidence that they are reluctant to take on the risk of new borrowers. That would feed back to the economy, deepening the decline and slowing the recovery." - Glenn Stevens
Australian Reserve Bank governor
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[Quote No.29697] Need Area: Money > Invest
"Finance Definition - advance/decline [A/D] ratio: A ratio that is commonly used to determine the strength of a stock market. The ratio is the number of stocks whose price rose compared with the number of stocks whose price fell. The more rising stocks, the more bullish the market; the more stocks declining, the less bullish the market. While there are no hard and fast rules being aware of this as well as relative sector strength and the economic/share market cycle can help determine whether the changes to the general market index should be believed or not depending on whether they are supported by this indicator, in a similar way that volume can be used to support or deny any change in the price of an individual stock. For example at the top of a market cycle the general market index may be rising but the advance/decline ratio is falling saying that while some stocks are rising strongly many others are falling, suggesting that the smart money is expecting the market to drop and is selling to the less knowledgeable investors." - Seymour@imagi-natives.com

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[Quote No.29698] Need Area: Money > Invest
"SECTOR ROTATION: Relative strength [that is the difference in performance between the various sectors representing the different types of businesses in the share market] is the most important indicator for stock selection and timing. Relative Strength rotates sequentially from one industry to the next, depending on each sector’s sensitivity to underlying fundamental cyclic economic forces and the stage of the economic cycle, according to Sam Stovall [who wrote a book about it called, ‘Standard and Poor’s Sector Investing’. According to extensive long-term research detailed in this book]... ECONOMIC EXPANSIONS [bull markets] last about 51 months on average. The expansion can be divided into thirds of 17 months each, representing early, middle and late stages of the economic expansion. In the FIRST STAGE OF ECONOMIC EXPANSION, inflation is low and falling, interest rates are low, and the yield curve is steep (that is, short-term interest rates are well below long-term interest rates). Industrial Production has been low and falling but begins to turn upward. Transportation industries (Air Freight, Airlines, Railroads, Truckers) are the first to rebound. Later in this early stage of economic expansion, relative strength shifts to Technology. In the SECOND, MIDDLE STAGE of economic expansion, inflation bottoms out and short-term interest rates begin to rise moderately. Industrial Production is rising sharply. Relative strength shifts to Service industries then, later, into Capital Goods. The Capital Goods sector includes Aerospace, Containers, Electrical Equipment, Engineering and Construction, Machinery, Manufacturing, Office Equipment and Supplies, Trucks and Parts, and Waste Management. In the LATE STAGES of economic expansion, inflation rises, prompting Fed tightening [Federal Reserve monetary policy]. Interest rates rise. Consumer Expectations and Industrial Production top out. Relative strength shifts first into Basic Materials industries then later into Energy. Raw materials and assets in the ground have long been considered to be inflation hedges. Basic Materials include Agricultural Products, Aluminium, Chemicals, Containers and Paper Packaging, Gold and Precious Metals, Mining, Iron and Steel, Metals and Paper and Forest Products. ECONOMIC CONTRACTIONS [bear markets - sometimes including recessions, where GDP falls for two consecutive quarters] are much shorter, lasting only about 12 months on average. The contraction can be divided into two equal halves of 6 months each, representing early and late stages of the economic contraction. In the EARLY STAGE OF ECONOMIC CONTRACTION, inflation rates begin to stabilize, interest rates top out, and Industrial Production and Consumer Expectations are falling. Even when the economy is relatively poor, people still want to consume Consumer Staples, which are basic necessities, produced by industries such as Tobacco, Drugs, Food, Beverages, Broadcasting, Distributors (Food and Health), Personal Care, Restaurants, Retail Drug Stores, Retail Food Chains, Services and Speciality Printing. So, relative strength shifts to these Consumer Staples, which are relatively insensitive to economic cycles and, therefore, are considered safe. In the LATE STAGES of economic contraction, inflation rates and interest rates both are moving lower. Industrial Production and Consumer Expectations have already been declining but eventually begin to slow their rate of descent. As the late stage economic contraction unfolds, relative strength shifts first to the still relatively safe Utilities (Electric and Natural Gas). Later, as interest rates come down, relative strength rotates to Financials (Banks, Consumer Finance, Insurance, Brokers, Savings and Loan). Finally, relative strength shifts to Consumer Cyclicals as investors begin to anticipate that the worst of the economic contraction may be coming to a conclusion. The Consumer Cyclical Sector includes Automobile Manufacturers, Auto Parts and Equipment, Building Materials, Distributors of Durable Goods, Footwear, Gambling (Lottery and Pari-mutuel), Hardware and Tools, Homebuilding, Household Furnishings and Appliances, Leisure-Time Products, Lodging (Hotels), Photography/Imaging, Publishing, Newspapers, Retail, Services (Advertising and Marketing), Services (Commercial and Consumer), Textiles (Apparel), and Textiles (Home Furnishings)." - Robert W. Colby
From ‘The Encyclopedia of Technical Market Indicators’
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[Quote No.29699] Need Area: Money > Invest
"As the old saying goes, what the wise man does in the beginning [investing in a bear market because of good fundamentals and low price], fools do in the end [investing in a bull market because seen others make a profit and doesn't want to miss out, even though now the business fundamentals are strained and the price is high, and, although he doesn't know it, set to fall. Most intelligent money managers know that the market is approaching a cliff but they keep going anyway.] It's like Cinderella at the ball. You know that at midnight everything's going to turn back into pumpkins and mice. But you look around and say, 'one more dance' and so does everyone else. The party does get to be more fun - and besides, there are no clocks on the wall. And then suddenly the clock strikes twelve, and everything turns back to pumpkins and mice. [and the share market crashes!]" - Warren Buffett
Highly successful value investor, Chairman of Berkshire Hathaway and one of the richest men in the world.
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[Quote No.29700] Need Area: Money > Invest
"The [share market] forecast may be properly gloomy from time to time. But there is modest [small] long-term risk for investors if that gloom is already priced into markets. The most risky time is when only perfection is priced into markets." - Abby Joseph Cohen
Respected share investor and commentator
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[Quote No.29702] Need Area: Money > Invest
"In speculation [in both bull and bear markets], as in most other things, one individual derives confidence from another. Such a one purchases or sells, not because he has any really accurate information as to the state of demand and supply, but because someone else has done so before him. [This is not the wise way to invest for success.]" - John Ramsay McCulloch
19th century economist
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[Quote No.29703] Need Area: Money > Invest
"When the media and all the analysts follow one sector [of the share market], that sector is, by definition, no longer inexpensive." - Marc Faber
Noted value share investor
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[Quote No.29704] Need Area: Money > Invest
"Gamblers [including share investors] have to know when not to bet, as well as when to bet." - Marc Faber
Noted value share investor
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[Quote No.29705] Need Area: Money > Invest
"I have said on many occasions that stock markets exist only to make money managers [and investors] humble." - David Fisher
Noted share market money manager
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[Quote No.29706] Need Area: Money > Invest
"I have always said a great portfolio manager [and share market investor] would be one-third mathematician, one-third economist and one-third horse trader - and it's the horse trading [buying low and selling high] that gets into human nature and game-playing." - Bill Gross
Founder of Pacific Investment Management Co (PIMCO), which became the largest fixed-interest fund manager in the world.
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[Quote No.29707] Need Area: Money > Invest
"When you hear that banks are tightening credit standards, for example at the end of a credit cycle, this means that lenders will demand either lower loan-to-value ratios and/or permit lower leverage rates (that is, lower mortgage/income ratios)." - Seymour@imagi-natives.com

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[Quote No.29711] Need Area: Money > Invest
"...equities [shares] never do well in a recession!" - Gerald Minack
Chief Equity Strategist for Morgan Stanley
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[Quote No.29717] Need Area: Money > Invest
"[When inflation is high the markets often try to find purchasing-power safety in gold. In 2008 with the credit crisis, due to years of poor quality lending and the subsequent sub-prime loan securitisation and collateral revaluations, the market tried to find safety from the global financial banking meltdown and the looming European, U.S. and Asian recessions by buying U.S. Treasury bonds.] Just the other day, the Financial Times reports: 'A virtual funding freeze... has affected even top-rated companies such as General Electric... and AT&T.' It's a dangerous time. The fear out there is extreme. [Banks don't even want to lend to eachother let alone companies or individuals as they can't be confident of repayment or the value of collateral.] That explains why the yield on one-month [U.S.] Treasury bills fell to zero [as demand for them and therefore their prices skyrocketed] at one point during the recent panic. Investors just wanted safety. They didn't care about yield. They wanted a place to put their money where they can be sure they will get it back. [Return OF capital rather than return ON capital!] 'Hence, the rush to [U.S.] Treasury securities. On the last day of the quarter, the 10-year note hit 3.83%. If you bought the 30-year T-bond a year ago - which most people thought was a dumb bet - you would have netted a 16% return one year later, as rates fell and your bond price rose. Not bad, huh? 'This rush for safety is also rallying the U.S. dollar. Despite all its flaws and all that it's been through, when people are scared, they want the old greenback. Cash. Commodities, meanwhile, have sold off something fierce. [on the view that the global economy will see a major slowdown, including China, as demand from the rest of the world for its manufactured exports falls.] 'Until the wave of bank failures and credit scares dies down, I don't think we'll see these trends reverse anytime really soon. What we have is a sharp countertrend in a long-term inflationary and commodity bull market. [that developed from the view that China's export-linked domestic growth would drive the global economy.]" - Bill Bonner
Financial author and founder of Agora Publishing. Quote from 'The Daily Reckoning', 7th October, 2008.
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[Quote No.29720] Need Area: Money > Invest
"People have to be aware of points of view that are different than their own so they can test their own thesis. [and avoid the dangers of 'group think' and herd mentality.]" - Deborah Weir
President of Wealth Strategies, a financial consulting firm in Greenwich, and past president of the Stamford Chartered Financial Analyst Society.
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[Quote No.29721] Need Area: Money > Invest
"I am negative [about the share market and the economy] when negative is warranted. It's better to be forewarned than to be caught off guard. [This is what a conscientious advisor does! He cares more about his client's financial welfare than his own immediate reimbursement, knowing that in the long run the client will stick with him and bring others and his business will grow and everybody will win. The worst advisors either don't understand the economic future to be able to give competent advice or they put their own immediate financial needs above their clients. They should have their financial licences revoked and face the full force of the law.]" - Peter Schiff
President of Euro Pacific Capital, a brokerage firm that specializes in trading non-U.S. equities.
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[Quote No.29722] Need Area: Money > Invest
"[Value investing is about deeply understanding the fundamentals of the businesses, a country's economic growth, long-term trends and the business cycle as opposed to the most common type of investing, based around what the price of shares have been doing lately, called momentum] Investing [which] is often about anticipating the anticipations of others." - Maynard Keynes
Famous economist and successful value investor.
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[Quote No.29723] Need Area: Money > Invest
"[Here's an example of what can happen in a banking credit and trust crisis, as the share market drops.] The yield on three-month Treasury bills, considered a super-safe investment, plunged to 0.39% from 0.84% on Friday [by doubling in price]. At one point early Monday, the yield went negative — meaning investors were willing to pay the government a premium to stash their money in a super-safe short-term IOU. Similarly, the spread between three-month bank-to-bank lending prices in Europe, known as LIBOR, and the three-month T-bill widened sharply. The spread was almost 3.5 percentage points, up almost a half percentage point since Friday. Under normal market conditions the spread is two-tenths of a percentage point. The wide spread shows banks are reluctant to lend to each other without being rewarded for the risk with higher interest rates. 'There is still a lot of stress in credit markets,' says Hornbarger [Bill Hornbarger, fixed-income strategist at AG Edwards]. 'Investors want to hold the safest things they can until we get through this period.' " - Adam Shell, Jeffrey Stinson and Paul Wiseman
From 'USA TODAY', September 29, 2008.
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[Quote No.29724] Need Area: Money > Invest
"[Here's an example of the type of media coverage that you get when share markets bust and the economy is poor and in or heading into a recession. It is also a great time to start thinking about investing. You can carefully buy great companies at distressed prices because when times can't get any worse, they must get better! It does however take courage. The very worst time to invest is when every thing is great because then you pay too much, just before the Halcyon days end. Because when things can't get any better, they don't!] The good times rolled on for so long that lots have been caught with massive personal debts. Getting straight means disposing of assets at a knock-down price and adopting an undreamed of frugality. Takings at Sydney's Star City casino are down by a quarter, waiters at swank cafés complain tips are drying up, the Sydney Theatre Company is in deficit because the only dramas many want to watch are those screened for free on the monitors at the Australian Stock Exchange. Stocks at three-year lows have prompted the grey-haired to reassess their plans for retirement. Some, watching their savings dwindle, have jumped back in the workforce. Others plan to stay in jobs for as long as they can. Meg Lee, head of a pensioners' lobby group, is urging people to postpone full-time gardening. 'I'm certainly not trying to be a scaremonger, but it's a wise move to try and get income from wages,' she said. What might be a personal disappointment - the dream of many Australians was to retire at 55 - will be a boon to the battered economy. The unemployment rate, about to lift from a 30-year low of 4 per cent, is helping push up wage demands [inflation expectations] and crimp business expansion plans. It's long been government policy to persuade the well-off to delay retirement. The economy is growing at just a quarter of the rate of a year ago. Official predictions for the year are a slowing to 2.7 per cent from 3.5 per cent and unofficial estimates are that growth next year will be below 1 per cent. Glenn Stevens, governor of [the Reserve Bank] the central bank, is hopeful that more people are cutting up their credit cards and vowing to live within their means. 'It's possible that we are witnessing the early part of a new phase where the household spending and borrowing dynamic is different from the past decade and a half,' he said. Morgan Stanley analyst Gerard Minack reckons household spending could contract next year [2009] as Australians rejig their finances to accord with slow growth, or no growth at all. Retailers say cheap cuts of meat and cheap bottles of wine are what sells these days. Public transport is also in high demand. Car sales, not surprisingly, were down 12 per cent in the three months to June." - Sid Astbury
From the news article 'Boom to gloom as Australians join the real world' (News Feature), Oct 7, 2008.
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[Quote No.29729] Need Area: Money > Invest
"As a financial adviser, it’s simply not possible to give a blanket answer to anyone on what mix of assets [often called asset allocation that] they should have in their super fund without knowing more about the person. Advisers use certain tools, including risk profile questionnaires, to try to help them understand a client’s tolerance to risk. Even basic risk profiles can be a reasonable indicator of the sort of how individuals would cope with different types of market risk. That said ... there is a general philosophy or 'rule' that says that you should subtract your age from 100 and this is the percentage of your assets that should be in growth-based investments (shares and property). That is, a 30-year-old should have 70% of his investments in shares and property. Using this equation, a 60-year-old should have 40% of their money in growth assets and a 65-year-old should have 35% of their investments in growth assets, while the remainder of 65% should be in income-based investments (cash and fixed interest). I’m certainly not the only adviser who believes this is too conservative and that this 'rule' was written decades ago when people weren’t living as long as they do now. The rule probably needs a bit of an update. I believe the starting mark should be 110, or possibly even 120. Using 120 would mean that a 30-year-old should have 90% of their investments in growth assets and a 60-year-old should still have 60% of their assets in growth investments. Why? Because even at age 60, the average life expectancy now is 79 for men and 84 for women. A 60-year-old male can expect to live about another 19 years and a 60-year-old woman can expect to live for 24 years. The average investment cycle is about seven to 10 years. The 'rule of 100' is very general and not specific enough to cover anyone’s situation." - Bruce Brammall
a senior financial adviser with Stantins Financial Services.
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[Quote No.29730] Need Area: Money > Invest
"[During the current 2008 credit crunch] Many central banks have attempted to make a distinction between their liquidity support operations [for example the daily amount available to banks and the types of collateral accepted], which are designed to address the credit problems; and interest rate policy [or the cost of money], which is directed at targeting growth and inflation. [These two areas form the basis for central bank monetary policy and then the individual banks make their own determination of their credit standards - for example the loan to value ratio and the loan to income ratios they set, as well as the cost they charge their customers for loans and pay for deposits.]" - Lucinda Chan
Division director, Macquarie Private Wealth.
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[Quote No.29731] Need Area: Money > Invest
"In its twice-yearly World Economic Outlook... the IMF [International Monetary Fund] tried to figure out how much further housing prices may need to fall and what the economic consequences might be. They looked at housing price increases from 1997 to the end of 2007, and calculated how much of the gains in each country could not explained by fundamental factors such growth in per capita disposable income, working-age population, credit and equity prices, and interest rates. The difference between the price gains and fundamental factors, which IMF researchers called the 'house price gap', gives an indication of the potential for prices to correct. Ireland had far and away the biggest house price gap at about 30 per cent, following by Britain, Australia, Norway, France, Sweden and Spain. The United States, which triggered the financial crisis when its housing market went bust, came in at 15th with a gap of around 7 per cent, although that was partly because house prices had already fallen sharply. Historically, when house prices fall while the economy is weakening and credit conditions tightening, the economic consequences are significant, the researchers said. Looking at data going back to 1960, they found that recessions associated with house price busts and credit crunches were longer and deeper than other downturns. 'The duration of a recession is more than one quarter longer in the case of a housing bust, total output loss during the recession is somewhat higher, and the unemployment rate increases notably more and for longer in recessions with housing busts,' they wrote." - Reuters
Published in 'The Business Spectator', 9th Oct 2008.
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[Quote No.29732] Need Area: Money > Invest
"After the [Australia's central bank, the] Reserve Bank’s shock decision to cut official rates by 100 basis points earlier this week [to counteract the current credit crisis], it is self-evidently concerned about the state of the economy and financial system. The degree of concern about the system is reflected in today’s decision to allow deposit-taking institutions to use their mortgage and asset-backed securities to access RBA-sponsored liquidity. In announcing the decision, the Reserve Bank noted that conditions in global markets had deteriorated significantly in recent weeks, with flow-on effects to domestic markets. On Tuesday, when revealing the rate cut, it said financing was likely to be difficult around the world for some time ahead and that this would affect Australia. Until today banks could use residential mortgage-backed [RMBS - residential mortgage backed securities] and asset-backed securities [ABCP - asset-backed commercial paper] as collateral for repurchase agreements [repos] to access short term liquidity – but only if they were securities originated and securitised by someone other than themselves. There were two problems with that arrangement. One was that a bank wanting to use residential mortgaged-backed securities (RMBS) to access liquidity had to trust the quality of a third party’s mortgages and, to the extent there was credit support for the securities, take on counterparty risk. The other was that the liquidity was very short term. The effective closure of markets for securitised debt – there has been only a handful of relatively small and quite expensive domestic issues since the crisis began – means the banks and other institutions haven’t been able to turn their mortgages into cash. Overnight money hasn’t been a major issue for the local banks, given that the RBA has been pumping liquidity into the system in response to every fresh spike in the crisis offshore. With inter-bank markets periodically freezing, however, the threat of a liquidity 'event' has been real, even for banks as robust as the Australian majors. The RBA has responded to that threat by dropping the condition that prevented institutions from using their own securities as collateral for repo transactions with the central bank. It will also offer six-month and 12-month repos each day in its market operations. The banks have been busily securitising mortgages on their own balance sheets and now hold a stock of about $60 billion of self-securitised assets. Now those packages of assets will be able to be used to gain access to emergency liquidity on a term basis. Given the volatility of global markets and sporadic closure of access to liquidity caused by banks’ mistrust of their peers, the RBA’s decision to relax the conditions around use of the RMBS and extend the windows of liquidity is sensible and prudent. Our banks may be very sound relative to their peers – or indeed in absolute terms – but they are as vulnerable to a protracted period of illiquidity in markets as any institution. The RBA has demonstrated throughout the past year that it is ready, willing and able to do what it takes to ensure the system continues to function." - Stephen Bartholomeusz
Published in 'The Business Spectator', 8 Oct 2008.
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[Quote No.29733] Need Area: Money > Invest
"[Falling] Sharemarkets usually bottom a couple months after official interest rates start coming down. [which creates more demand for loans and therefore spending and company profits and prospects.]" - Alan Kohler
Highly respected Australian financial journalist.
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[Quote No.29736] Need Area: Money > Invest
"Retired couples [in Australia] need to spend $A50,086 a year to enjoy a 'comfortable' standard of retirement. This is according to the Association of Superannuation Funds of Australia (ASFA)/Westpac Retirement Standard as of the end of June 2008, while the annual cost of a 'modest' retirement standard for couples is now at $A27,151 a year. ASFA noted that the cost of transportation, health and clothing all rose significantly during the June 2008 quarter. The cost of funding a comfortable standard of retirement has risen 11.9 per cent over the last four years, while the cost of funding a modest standard of retirement has increased by 13.1 per cent." - Unknown
Abstracted from 'Independent Financial Adviser', 9th Oct 2008.
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[Quote No.29737] Need Area: Money > Invest
"Companies don't like to cut dividends - it raises a red flag about their balance sheet. But with money so tight [due to the 2008 credit crisis], firms are doing what they gotta do. [to rebuild their lost equity, from their price drops and lower asset valuations, and thereby bring down their unhealthy debt to equity ratios.] Howard Silverblatt is senior index analyst at Standard & Poor's. He says companies are holding the line on dividends or slashing them altogether. They want to have cash on hand, just in case they can't get it anywhere else. [as the credit crisis means that they can't easily or cheaply borrow it and with falling share prices they can't easily raise more equity.] Howard Silverblatt: In all this year, within the S & P 500 just to begin with, over $24 billion in dividend reductions. This is unheard of, and from companies that were basically considered blue chips. Dividend suspensions hurt investors, especially retirees, who may depend on the checks for income. If you're not getting that cash each quarter, you may have to sell part of your stock. But if a firm's cut its dividend, chances are its stock price will be lower too." - Janet Babin
Financial journalist for marketplace.publicradio.org
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[Quote No.29740] Need Area: Money > Invest
"[People interested in developing a defensive, yield-rich share portfolio may be interested in the following criteria that is used as a six monthly screen for the Australian Investing Times Defensive Share Portfolio - IT DSP. Screen from the ASX - Australian Stock Exchange's - top 200 companies, excluding listed property trusts, which are also called Real Estate Investment Trusts -REITS for buying and selling. Note if any single holding is either half of the average holding size it should be bought till doubled or, if double the average holding size it should be sold down to half.] Buy a new share if: Gross Dividend Yield > 7.5%, Return on Equity [ROE] > 10.00%, Dividend Cover [Times] > 1.25, Debt Level [Debt/(Debt+Equity)] < 35%, Sell an existing share if: Gross Dividend Yield < 4.70%, Return on Equity [ROE] < 8.00%, Dividend Cover [Times] < 1.1, Debt Level [Debt/(Debt+Equity)] > 45%" - Angelo Veschetti
Published in 'The Investing Times' September 2008.
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[Quote No.29741] Need Area: Money > Invest
"... in order to be a successful investor, you must distance yourself from the so-called 'herd mentality' [what everyone else is thinking and doing] and make decisions based on fundamental investment factors. The typical behaviour of the 'herd' is linked to the investor psychology cycle... 1-CONTEMPT: Contempt is generally the point at which a bull [rising] market begins, i.e. when the market is low and investors are swearing off shares. 2-CAUTION: As the market begins to show signs of recovery the majority of investors remain cautious but prudent [value] investors begin to see the possibility of profits. [This is sometimes called 'climbing the wall of worry'] 3-CONFIDENCE: As stock prices continue to rise feelings of mistrust are forgotten and confidence is increased. Most investors start re-entering the market at this stage. 4-ENTHUSIASM: Prudent [value] investors are in the process of taking profits as they realise the bull market may be coming to an end. 5-GREED AND CONVICTION: Enthusiasm is followed by greed which is generally the point at which IPO's [Initial Public Offerings] begin flooding the market [even more than previously as business owners and investment owners rush to sell out at prices beyond the companies' true values to unsuspecting and inexperienced but optimistic investors. Prudent value investors by studying the business fundamentals, long-term trends and the business cycle, know that shares are overpriced and that this is the beginning of a falling bear market.] 6-DISMISSAL: Investors show a lack of interest as the market declines [believing it will only be temporary, which is reinforced by inexperienced brokers and advisors, who talk about the great 'value' and opportunity these prices present. Prudent value investors are now completely out of the market and may even be shorting shares]. 7-DENIAL: This is the point at which investors begin telling themselves that the market cannot fall any further. 8-FEAR, PANIC AND CONTEMPT: Worries begin to take hold as fear and panic follow. Investors scorn the market and begin swearing off stocks again. [At this time prudent value investors who sold short at the top of the market now cover these shorts and prepare to go long again when the market stops falling and an attitude of caution returns. While waiting for this they may put their money into safe government bonds to further profit as the prices of these rise as interest rates fall in the government's attempt to stimulate the economy's growth again.]... the point at which financial risk [of future loss] is at its peak, contrary to popular belief, is at the enthusiasm and greed and conviction stages of the [investor psychology, share market, business and economic] cycle, whilst the point of maximum financial opportunity [for future gain] is during the contempt stage. [Judging this is difficult and to avoid buying before the market has stopped falling, it is often better to wait for the next stage in the investor psychology cycle, namely caution.]" - Drew Meredith
Published in 'The Investing Times', September 2008.
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[Quote No.29744] Need Area: Money > Invest
"The charm of history [especially investing] and its enigmatic lesson consist in the fact that, from age to age, nothing changes and yet everything is completely different. [The essentials of investing success remain while the details change!] " - Aldous Huxley

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[Quote No.29745] Need Area: Money > Invest
"The spectacular [7%] collapse of Wall Street in the last hour of trading [October, 2008 sometimes appropriately called Droptober] shows that the world’s hedge fund industry is in a state of near panic and is being hit by mass redemptions. And the removal of the ban on short selling [in the U.S.A.] yesterday has allowed them to suddenly and dramatically increase their short positions, with major effect. Of course it is not just hedge funds dumping stocks. Long only investors are also slicing their profit forecasts for a long and deep US recession, and adjusting prices accordingly. But the hedge funds are the marginal pricers in this market and a run on redemptions is underway that is producing dramatic volatility in a range of assets, including commodities, equities and foreign exchange. Global hedge funds had their worst month for a decade in September – down 6.2 per cent according to the Hennessy Group’s flagship hedge fund index. They were especially hurt by the ban of short selling that was introduced by the SEC half way through the month following the collapse of Lehman Brothers. It was lifted on Wednesday at midnight, allowing a wave of short selling to hit the market last night. The funds kept their powder dry through most of the session, waiting to see the whites of long-only buyers’ eyes, and then hit them hard in the last hour. A bad month is just a bad month: the big problem is the global rush to cash. Banks are hoarding the cash they are getting from central banks and investment funds and high net worth investors are trying to build up cash to prepare for the bargains of a lifetime. Hedge funds are an obvious target but most have restrictions on redemptions. Some are quarterly, some once a year. Many funds can also put a cap on redemptions if things threaten to get out of hand. Hedge funds are already building cash reserves to prepare for their annual redemption day, without having a clue what they might be asked to cough up. And the investors in those hedge funds don’t know what their fellow investors are going to do either. Will the other partners in a fund redeem, so that I’m left holding scorched earth? As a sidelight it’s worth noting that there will be a big cash transfer tomorrow when more than $US400 billion worth of Lehman Brothers and Washington Mutual credit default swaps have to pay out. There will be winners and losers out of this, but it could be a cathartic event for the stockmarket. In some ways hedge funds are like banks: they get equity from investment funds and individuals looking to either spice up or stabilise their returns (depending on the hedge fund’s strategy and marketing offer) and then gear that equity up with short-term debt. Hedge funds generally try to match the liquidity on both sides of their balance sheet by putting restrictions on redemptions [usually quarterly] and trading in highly liquid markets, but the problem is that markets have suddenly seized up and are no longer liquid, banks now want their debt back and the redemption dates do eventually roll around. Will there be any hedge funds at all in a year’s time? I’m sure there will continue be hedge funds of some sort, but they’ll be smaller, they’ll have different, more conservative, trading strategies and many will be owned by someone else. In the 1930s Floyd Odlum famously became very rich by buying 22 investment funds at prices well below the value of the securities they owned. The funds in those days, by the way, were very similar to today’s hedge funds. They flourished during the late 1920s stockmarket bubble trading with borrowed money, paying their managers big performance bonuses, putting restrictions on redemptions and keeping their trading strategies secret. The debacle of redemptions, collapse and forced selling in 1930 led to years of Congressional investigations and, eventually, to the Investment Company Act of 1940, which restricted their behaviour and ability to borrow. In essence they became mutual funds. In the 1990s they emerged phoenix-like from the fossilised ashes of the 1920s and when the internet bubble burst, they just looked for other things to play with. In doing so the hedge funds helped foster the greatest boom in financial innovation the world has ever known. The collapse of the hedge fund Long Term Capital Management in 1998 turned out to be a mere blip, the one-off explosions of some Nobel-prize smarty-pants who got caught. The fact that it was bailed out in a Fed-inspired rescue arguably led to a flowering of moral hazard and helped underpin a big expansion of risk. From then on the rapidly growing hedge funds demanded, and got, the most incredible variety of derivatives with which they were able to narrow their bets to the tiniest slivers of risk in a particular security. As the 2000s decade progressed, they traded credit default swaps and collateralised debt obligations based on the blossoming subprime mortgages that the ratings agencies were prepared to stamp AAA for some reason (but, hey, who are we to argue with Moody’s?). The advent of more sophisticated stock lending, and the willingness of long-only funds to do it for a few basis points, allowed an explosion of short selling, which in turn allowed a big expansion in trading and arbitrage strategies. As in the 1920s, the hedge funds kept their strategies to themselves and were able to persuade their fund clients that they were each doing something different, that the geniuses in each fund had discovered the secret of eternal absolute return and that all you had to do was sip from their cup for your performance to be magically reinvigorated. Unfortunately it turns out they were all doing the same thing in the same securities, like a massive school of herring below the surface of the ocean." - Alan Kohler
Highly respected Australian financial journalist. Published in the 'Business Spectator', 10 Oct 2008.
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[Quote No.29749] Need Area: Money > Invest
"The business cycle is the recurring prosperity and depression seen over economic history. Before the modern age of advanced industrialism the prosperity could be accounted for by events such as good weather yielding bountiful crops or the spoils of war from a military victory. Likewise, depression could be accounted for by harsh weather resulting in poor crops or from a military defeat. In each case the causes were fairly evident. The modern business cycle, however, needs a more sophisticated explanation as it is a more complex phenomenon. Marxists believed that business cycles were the inevitable collapsing of capitalism, but this theory can be discarded since capitalism has not collapsed though socialism has. Keynesians account for the business cycle by an appropriate level of spending (prosperity) or underspending (depression) but have been baffled by the simultaneous occurrence of both inflation and depression--a condition their theory treats as being as likely as a square circle. The Friedmanite monetarists appropriately look to the money supply as the causal factor in the business cycle though they fail to realize the ill effects of their favored policy of a slow but steady increase in that money supply. (Friedmanites also fail to consider the ethical aspects of such artificial increases in the money supply which create involuntary transfers of wealth.) The correct Austrian theory of the business cycle also focuses on the money supply as the causal factor, but does recognize the intervention in the economy that an artificial increase in money and credit in fact is. Basically, the Austrian theory recognizes that there is some voluntarily chosen ratio of consumption to saving by the total of individuals comprising the economy. When an artificial increase in the money supply through the banks occurs, this increases the available money in savings and depresses the interest rate, thereby encouraging an artificial increase in spending which is highly sensitive to the interest rate--capital spending. This run-up in the capital goods industry is the boom, and the subsequent depression results when consumers reestablish their consumption to saving ratio--thus revealing that the capital goods boom was indeed artificial. The only way to prevent the depression is to pump another dose of new money into the system to maintain the higher savings ratio, but eventually this must end or there will be a runaway inflation. The artificial increase in the money supply therefore is a government subsidy--through monetary policy--to the capital goods industry. Naturally the subsidy stimulates production in the capital goods industry. Once that subsidy is removed by consumers reestablishing their preferred saving ratio, there is a crash in the capital goods industry. The Austrians, in contrast to all other schools of thought, do not regard the depression as bad news, for it is the necessary correction to put production back in line with consumers' preferences. This view regards the preceding inflation as the ill setting the stage for the needed correction. Two analogies follow to clarify this theory: Everyone understands that a drug addict will need higher and higher doses of his drug to get the same kick. This is comparable to the growth in the money supply causing a capital goods industry boom. The addict has the choice of increasing his doses of his drug until it kills him or of going cold turkey and suffering the withdrawal pains. The withdrawal pains are similar to the economy's depression adjustment. Second analogy: If a person ingests poison into his system he will need to rid himself of that poison, say through vomiting. It's obvious that the unpleasant vomiting is the necessary cure for the evil of the poison ingestion. In this analogy the poison is the inflation and the vomiting the depression. From the Austrian perspective the cure for the business cycle is a laissez-faire policy for the money supply, letting the money supply be determined by the free choice of individuals in the market. The alternative to this Austrian policy is government involvement in money and banking which inevitably results in special interest pressure to increase the money supply to the benefit of those first receiving the new money--the banking system itself." - Jim Cox
Associate Professor of Economics and Political Science at the Gwinnett Campus of Georgia Perimeter College in Lawrenceville, Georgia. He has taught the Principles of Economics courses since 1979. From his excellent book, 'The Concise Guide To Economics'. Please note this book and the above quote has a libertarian, Austrian economics perspective.
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[Quote No.29755] Need Area: Money > Invest
"[In a bear market as the economy slows sector rotation theory suggests that stock investors, and therefore sector performance and relative strength, will first hide in highly earnings stable health and consumer staples companies and cash. If things are very bad, inflation is high and/or the value of the currency starts to fall dramatically some will even go to U.S. denominated and therefore currency hedging gold coins and bars which they put in their safe deposit boxes and Government and U.S. Treasury bonds. Later in the falling market more people will invest in high dividend stocks as the cash interest rate falls making their yields comparatively more attractive. Here is an example of this ratonale:] The RBA [Reserve Bank of Australia - its central bank] surprised us all [last week] with 100 basis point rate cut... The 1% rate cut to 6% was a genuine positive surprise and actually another reason I think a trading bounce [within the bear market] is pending in Australian equities. Most forecasters now see Australian cash rates bottoming at 4.75%. That's great for the 33% of households with a mortgage, and good for leveraged Australian businesses, but remember the other 67% of households rely on income from deposit interest rates. I think as those depositors start to realise the peak of cash rates is well behind us they will start looking for other higher income generating assets. Welcome to the sharemarket. Fully franked equity dividend yield will become significantly more attractive than cash over the next 12 months [as the Reserve Bank lowers interest rates to stimulate the economy through looser monetary policy] and I expect to see asset allocation from cash to higher yielding equities over the next 12 months. A stock like Telstra [a large Australian telco, with a relatively high dividend yield] could benefit greatly from this effect, as could selected banks. However, I'd be extremely cautious buying anything offering a prospective yield more than 8%. I just don't believe those higher yields will prove to be accurate, or if they are you are taking an almighty risk with your capital to get them. Remember, high yield = high risk." - Charlie Aitken
Head of institutional dealing at Southern Cross Equities. Published on the financial website, the 'Eureka Report', 8th October, 2008.
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[Quote No.29756] Need Area: Money > Invest
"[In this severe bear market, with the fear of a global recession mounting and as a falling Australian exchange rate amplifies its US dollar price rise, investors are rushing the yellow metal, gold, as an inflation hedge.] Extra staff have been recruited, and a third shift added in the factory at the Perth Mint, Australia's most famous gold shop. The acceleration of gold production is to keep up with demand, producing what is perhaps the best Australian example of a worldwide stampede into the safety of the yellow metal. The Perth gold rush, which has seen big crowds gather daily in the Mint shop in central Hay Street, has been repeated around the world, with some London bullion and coin dealers reportedly running out of stock. Curiously, the same herd mentality does not yet appear to be reflected in the share prices of gold mining companies. Newcrest and Lihir, the two biggest gold stocks on the ASX, have been bouncing around; on Thursday they were among the top 10 movers with Newcrest up 15% and Lihir up 11.8%; today (October 9) Newcrest was off 3.5% at 25.77 and Lihir was down 2.5% at $4.13 (intra day). In defence of the miners, there was probably a smattering of selling induced by margin calls, which forced some traders to dump their best and most liquid stocks (no matter how good), and there might have been concern over Newcrest’s exposure to the falling copper price. Whatever the explanation it was a curious sight to watch the share prices of leading gold producers going down and the gold price going up, a point underlined by the performance of Gold Bullion Securities, an ASX-listed share offering direct exposure to a tenth of an ounce of gold. During today's session, Gold Bullion Securities, a gold-based exchange traded fund created by Gold Bullion Ltd and the industry-lobby group the World Gold Council, rose by 5.9% to $134.47 – exactly what they should have done. The difference between movement in the price of gold, and the price of gold company shares highlights the lack of trust in paper issued by companies … or governments. In times of extreme financial stress there is a flight to a universal currency, highlighting the role of gold as a legitimate, if not essential, part of all investment portfolios. This argument is even stronger in a recession as interest rates fall and investment risks rise. This is when gold’s ultimate value as an investment 'anchor' is at its best. In fact, a careful assessment of the movement in the price of physical gold, and the limited reaction in company share prices points to a conclusion that well-run, low-cost, gold mining company shares have become highly attractive investments, both to private investors and corporate predators. Australian gold mining companies in particular have become attractive thanks to their rising local profits, which are more a function of the falling Australian dollar than the gold price itself, as these calculations show. In US dollar terms, gold is still about 10% short of its all-time high of $US1011.25 an ounce set in the afternoon fix on the London Bullion Market on March 17. However, on that day the Australian dollar was valued by the Reserve Bank at US92.67¢, to produce an Australia gold price of 'just' $1091 an ounce. The latest exchange rate, of closer to US67¢, combined with a US dollar gold price of $US920, results in an Australian gold price of about $1373. What becomes even more interesting is to compare movement in the gold price with leading gold company share prices, using the top two, Newmont and Lihir, as the examples. Newcrest’s share price high for the past 12 months was $40.50, set on March 6, about the time the US dollar gold price was heading into record territory, and before production at the company’s Telfer mine in WA was affected by a cut in the supply of gas after an explosion at the Varanus Island gas processing centre. Since hitting that peak Newcrest shares have fallen by 35%. Looked at over a shorter time frame it could be argued that Newcrest shares are up, especially if the starting point is the $18.88 low set on September 12, in which case you could argue Newcrest is up 38%. A similar result is produced analysing Lihir. At its latest price of around $2.50, Lihir is down 44% on its 12 month high of $4.45, or up 48% on its September 11 low of $1.69. The key to looking at those share price movements is to compare them with the relative stability of the gold price, whether using US dollars or Australian dollars as your measuring tool. It’s when you do this that you discover that in a crisis gold fulfils its role as an investment anchor because: Gold is an asset that protects capital in a recession and offsets the inflationary effects of the excess liquidity currently being pumped into the world financial system. The scarcity factor is rising thanks to falling production and rising demand. Central banks have started buying gold again after being the major sellers in the 1990s. Over the past 12 months of financial turmoil, gold has been the only investment class to rise in value. Most share prices are down substantially. Once you accept the evidence that gold has a stabilising effect on an investment portfolio, the question becomes picking the best entry point. For most Australian investors that still means shares in gold mining companies, though there is a strong argument in support of physical exposure through ownership of gold bars, or premium quality traded gold products. Best mining company shares are: Newcrest, because of its annual production of about 1.8 million ounces, low cash cost per ounce of $261, a world-class resource base of 70.6 million ounces, a pipeline of new projects, and takeover appeal. Compared with most of its Australian peers, Newcrest is the Rolls-Royce of gold mining companies, which, at a market capitalisation of little more than $8 billion, will be lighting up the radar screens of the world’s biggest gold miners keen to expand production and resources. The leading North American gold miners Newmont and Barrick are considered most likely to mount an overdue takeover bid for Newcrest. Lihir plays second fiddle to Newcrest among the local gold stocks. Its excessive reliance on a single mine in the sometimes unstable (geologically and politically) country of Papua New Guinea cuts Lihir’s appeal. Annual gold production is about half that of Newcrest at 850,000 ounces, and production costs are higher, at about $400 an ounce. Lihir is diversifying via acquisition having acquired Ballarat Gold with its Victorian mine, and Equinox with mines in Africa. Lihir also has takeover appeal, but it operates in more difficult environments than Newcrest. Other gold stocks worth examining are Sino, which has strong exposure to the Chinese gold mining industry; Kingsgate, which has just won approval from the government of Thailand to expand its flagship Chatree mine; and Avoca, one of the only companies to recently start a new gold mine in Australia at Higginsville, south of Kalgoorlie. Best exposure to physical gold comes from: Owning the metal itself, safely deposited in a bank vault, and quietly anchoring your portfolio. Investing in an exchange traded fund, such as Gold Bullion Securities, which has gold lodged in London to back the paper issued. My own yellow brick road: Ten weeks ago I wrote about a personal gold experiment that started in November last year (see... buy it by the pocketful). After a few decades of writing about gold I decided to buy some of it, quickly discovering that walking down the street with two five-ounce bars in my pockets is a sobering experience. Next stop after visiting the Perth Mint was a bank vault. But, apart from the temporary alarm of having $9000 worth of gold in my pants there was the discovery when I wrote about it on July 28 that the gold had risen in value to $9800. Today, that same 10 ounces of gold is worth about $13,700, a rise of 52% in slightly less than a year which, in an investment climate where many asset classes have fallen by 50%. Much of the gold gain has come from the falling value of the Australian dollar, but in this market you take the wins in whatever way you can, which is why last week I decided to do it again, and added another 10 ounces of gold to the family pension fund. This time the single bar, purchased last Friday (October 3) cost $10,940.01, a day when the afternoon London gold fix was $US828 an ounce and the Reserve Bank exchange rate was US78.04¢ to produce an Australian gold price of $1060.99 – with the difference in that price and what I paid a function of timing and the Perth Mint’s costs. A week later my latest acquisition is worth roughly $13,700, thanks to the US gold price rising to around $US920, and the Australian dollar sinking to around US67¢ – with both of those numbers moving by the second. The key point about this little experiment, apart from bringing a smile to the face of Mrs Treadgold, is that the gold bars now constitute a rock-solid anchor in the family pension fund. The gold will rise and fall in value on a regular basis. But it is an asset in a class all of its own, and has been for thousands of years." - Tim Treadgold
Financial journalist specialising in resource stocks. Published on the 'Eureka Report' website, 10th October, 2008.
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[Quote No.29758] Need Area: Money > Invest
"Without continual growth and progress, such words as improvement, achievement, and success have no meaning. [But in difficult times, for example bear markets in share investing, it is also a form of success merely to survive and therefore to be in a position to profit from any upturn in conditions.]" - Benjamin Franklin

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[Quote No.29766] Need Area: Money > Invest
"[In share investing as well as martial arts and self-defence:] Do not move unless it is advantageous. Do not execute unless it is effective. Do not challenge unless it is critical." - Sun Tzu

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[Quote No.29767] Need Area: Money > Invest
"[In share investing, as well as martial arts and self-defence, in difficult times remember:] A good martial artist does not become tense, but ready." - Bruce Lee

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[Quote No.29768] Need Area: Money > Invest
"[In bear markets remember the following:] Just over seven years ago, I wrote my first published article for a former employer. I had started on September 5, 2001. The 9/11 terrorist attacks occurred the following week. Many people later told me the advice I gave that day was very powerful, and had helped them make sense of a confusing and even scary situation. Today, we are experiencing a different sort of devastation [with the 2008 stock market crash]... but with similar results in the financial markets. I believe the advice I gave in 2001 can serve all of us well today, in 2008. The first and most important thing to keep in mind is discipline. Both buying or selling that is done based on emotional reasons is likely to cost you. I know of no successful investor who has had long-term success without having discipline. Rather than encourage readers to buy or sell their investments based on the events of Tuesday, September 11 then - or the current economic freefall now - I encourage people to use discipline in their approach. Secondly, approach the markets with a clear mind. This is going to be difficult for all of us, but thinking clearly is an absolute must. Modifying your portfolio with a clouded mind puts you in a vulnerable state. The fact that there is this emotional susceptibility is going to create chaos on both sides of the financial markets. Do not let this emotion interfere with your thinking when it comes to financial matters. The third trait of successful investors that I find critical is flexibility. One should not approach any volatile situation without backup plans. You should be adaptable in your approach to the markets. Things are going to change rapidly and the sentiment is going to have wild swings. Do not become rigid in your approach. This may seem like hard advice to take, but now is not the time to panic. There is enough panic selling going on already. In fact, those that remain calm during this financial crisis will be the winners in the end." - Rick Pendergraft
Two-time winner of the 'Top Trader' award at Schaeffer's Investment Research.
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[Quote No.29769] Need Area: Money > Invest
"[In value investing] Exquisite Timing Isn't Part of the Deal: The market is going for 30 percent off [the October 2008 stock market crash]. Yet investors aren't buying. It's like that 48-inch LCD screen you've been dying to buy... someday. But why buy it now when you can probably buy it in December for an additional 5 to 10 percent off? Or why not wait for the post-December sale when you can buy it at an even steeper discount. Maybe you can do even better if you wait until March. Surely, stores will be desperate to clear out their old inventory by then. But wait too long and the item will either go up in price (stealthily upgraded while you waited) or disappear from the shelves. The lesson isn't that you shouldn't buy a particular item at a good price. It's that waiting for the perfect price or the perfect moment to buy it is a little bit like waiting for Godot. It'll never arrive. If you like a stock and it's really cheap, buy it. If you think a stock is going for 25 percent off its true value, for example, your gain will be 25 percent once its true value is recognized. Don't let a possible 5-15 percent detour down stop you." - Andrew M. Gordon
ETR Investment Director
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[Quote No.29771] Need Area: Money > Invest
"We will learn an enormous amount [from the 2008 stock market crash] in a very short time, quite a bit in the medium term and absolutely nothing in the long term. That would be the historical precedent. " - Jeremy Grantham
Chairman of the Board of value fund manager, Grantham Mayo Van Otterloo [GMO].
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[Quote No.29772] Need Area: Money > Invest
"[In a stock market crash, like the one we are having now, in 2008]...The great trap is to buy too soon and, in the big move, to sell too soon. I've been saying since '98-'99 that my next major-league error will be buying too soon -- but we will not buy quite yet. But when we do, I suspect it will be too soon again." - Jeremy Grantham
Chairman of the Board of value fund manager, Grantham Mayo Van Otterloo [GMO].
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[Quote No.29773] Need Area: Money > Invest
"[When facing a market crash it may be helpful to remember the 'Kübler-Ross grief cycle', which was developed to help people understand the emotions they were going through after a major loss like the death of a loved one:] The initial state before the cycle is received is stable, at least in terms of the subsequent reaction on hearing the bad news... And then, into the calm of this relative paradise, a bombshell bursts... * Shock stage: Initial paralysis at hearing the bad news. * Denial stage: Trying to avoid the inevitable. * Anger stage: Frustrated outpouring of bottled-up emotion. * Bargaining stage: Seeking in vain for a way out. * Depression stage: Final realization of the inevitable. * Testing stage: Seeking realistic solutions. * Acceptance stage: Finally finding the way forward. As people across the economy, in whatever role they are playing, get the bad news that the world is in a more disappointing state than they expected, it is only natural that they will react with grief. As explained by they framework above, this is usually experienced in distinct phases marked by one’s emotional response and mental reaction. Of course, this theoretical framework, like every framework, is limited and it likely does not apply to everyone, but I think it highlights the basic idea that people do not act rationally when they are faced with shocks to their world view. They - being human beings - react emotionally as well as rationally. That is why I have been trying to shift my focus to optimism as much as possible lately. Seeing the glass as half-full, or even one-quarter-full, makes it much easier to start thinking about ways to move forward. It helps to move to the next 'stage' in the above cycle, or more simply, it allows for one to think creatively about how to improve things rather than wallowing in the disappointment of the losses we face. I can promise you that there will be more bad news on the television and on the Internet tomorrow and for months to come. But there will also be good news. I hope that we can collectively deal with our losses and griefs in such a way that allows us to move forward more quickly than the alternative, and I think that starts by seeing the good in the world." - Paranoid Bull
Web-name for the investor and author of the above quote, found on the internet during the October, 2008, stock market crash.
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[Quote No.29776] Need Area: Money > Invest
"It's important in life and in investing always to question yourself. Understand that you may be wrong, especially when you believe too firmly that you're right." - George Soros
Highly successful investor and self-made multi-billionaire.
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[Quote No.29779] Need Area: Money > Invest
"[Here is a very interesting article describing the growing credit crisis in October 2008, which started August 2007. First their were problems with sub-prime loans, Residential Backed Mortgage Securities -RBMS, Asset Backed Commercial Paper -ABCP, then prime loans, credit cards and auto loans, interbank-lending, credit default swaps -CDS and now letters of credit -LOC.] Just as the business world is dependent upon commercial paper as its life blood, the world of global trade depends on letters of credit (LOC). Without LOCs, the world of trade quickly freezes up. If you are a manufacturer of a product and want to sell to someone outside your borders, you typically require a letter of credit from the buyer before you load any cargo at a port. A letter of credit from a prime bank is considered to be proof of your ability to pay. It not only can be a source of ultimate payment, it can be a source of inventory financing while goods are in transit. And if you are a business which is buying a product, you do not want to release money until you know the product is on the way. There are buyer's and seller's agents who make sure these things happen seamlessly, and world commerce had grown because of it. Now [in October 2008 during this credit crisis and stock market crash] we are starting to get anecdotal evidence that this extremely vital market is also freezing up. If you think the problems stemming from a meltdown with the commercial paper markets are threatening to the world economy, they are small potatoes when compared to a seizure in the letter of credit markets. I had been thinking about this for a few weeks. Then an article posted on Naked Capitalist caught my eye. Quoting: -- 'At the end of the day, if every counterparty is bad then you don't have a market and you don't have an economy. I spoke to another friend of mine this afternoon, whose father has been in the shipping business forever. Pristine credit rating, rock solid balance sheet. He says if he takes his BNP Paribas letter of credit to Citi today for short term funding for his vessels, they won't give it to him. That means he can't ship goods, which means that within the next 2 weeks, physical shortages of commodities begin to show up. THE CENTRAL BANKS CAN'T LET THAT HAPPEN OR WE HAVE NO ECONOMY, LET ALONE A CREDIT SYSTEM.' -- And they quote the following story from The Financial Post of Canada: -- 'The credit crisis is spilling over into the grain industry as international buyers find themselves unable to come up with payment, forcing sellers to shoulder often substantial losses. Before cargoes can be loaded at port, buyers typically must produce proof they are good for the money. But more deals are falling through as sellers decide they don't trust the financial institution named in the buyer's letter of credit, analysts said. 'There are all kinds of stuff stacked up on docks right now that can't be shipped because people can't get letters of credit,' said Bill Gary, president of Commodity Information Systems in Oklahoma City. 'The problem is not demand, and it's not supply because we have plenty of supply. It's finding anyone who can come up with the credit to buy.' So far the problem is mostly being felt in U.S. and South American ports, but observers say it is only a matter of time before it hits Canada. 'We've got a nightmare in front of us and a lot of people are concerned it's going to get a lot worse,' said Anthony Temple, a grain marketing expert based in Vancouver. Access to credit is key to the survival of maritime trade and insiders now say the supply is being severely restricted. More than 90% of the world's trade by volume goes by ship. 'The credit crisis has made banks nervous and the last thing on their minds is making fresh loans,' Omar Nokta, an analyst at investment bank Dahlman Rose, said in an interview with Reuters. While shipping has always been a cyclical industry whose fortunes rise and fall with the global economy, analysts said the current crisis over the drying up of credit is something they have never seen before.' -- If banks are refusing to go into the LIBOR [London Inter-Bank Offered Rate] market and lend to each other, then why would they want to take a letter of credit either? At first, it will be a small trickle, which is how the commercial paper meltdown started. Then it will be a flood. The one good sector in the US is its export sector. Start slowing that down due to a lack of ability to ship or receive payments and see what happens to an already shrinking economy. If anyone wants to see how the credit crisis can affect Main Street, look no further. It is hard to overstate the problem and the potential for it to create a true economic meltdown. It must be dealt with, and soon." - John Mauldin
President of Millennium Wave Advisors, LLC (MWA).
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[Quote No.29780] Need Area: Money > Invest
"[Here is an article that shows what happens during a credit crisis, stock and real estate market crash:] Kevin Rudd [The Australian Prime Minister] did not use these words but the implication of his message was clear: Prepare for lower salaries/contract incomes and falling house prices, particularly at the top end. And over the weekend I had the chance to talk with ‘real people’, as distinct from those enmeshed in the share market. Even before Rudd delivered his warning there was deep apprehension developing among highly paid executives and those owning high risk businesses. Along with the bank credit crunch, this fear is affecting the upper end of the housing market and softening the middle and lower ends. Already top-end prices are down but it looks like there is more to come. The boom created enormous salary/contract income levels because up and coming executives and contractors who knew how to generate profits were worth their weight in gold. The politicians decided that salary levels should be published so the upward momentum spread like wild fire through the executive market. Now it's going to be much tougher to make the huge profits, so bonuses are going be reduced. And just as the publicity quickly spread about salary increases, so the tightening conditions will become rapidly known. We have just seen a series of land development businesses fall over on the Gold Coast. We are going to see a lot more of that around the country. Other boom inspired businesses will be affected, including the vast army of people preparing to thrust forward with mineral projects. There will be a lot of mothballing ahead because the money is not available and the current prices make many projects uneconomic. Watch out Perth. Generalisations are always dangerous but many of the high income people who prospered in this environment used their money four ways. Their high income enabled them to leverage against share portfolios and investment properties. They bought luxury holiday homes and they have invested in magnificent family dwellings. The 2007 superannuation $1 million one-off injection opportunity motivated a large number of people to increase their borrowing and plunge the money into self managed superannuation funds, which in turn put money into the share market close to the peak. Those superannuation funds now look very sick but the borrowing remains. Couples with two high-income earners have tended to take pragmatic approaches and have a chance to talk to each other. But, where there is one high-income earner in a couple it is a long time before the spouse is told of the problems. But the fall in the stock markets has made the sharing bad news much easier because it is no longer seen as personal failure. The horrible margin calls forced a substantial reduction in leveraged share portfolios. But there were some human tragedies. Many had borrowed, money to invest in their employer's company stock. Sometimes they could not sell because of insider rules and because it was seen as a sign of lack of faith. Executives sometimes rode down with the market, increasing their personal borrowing to fund the shares. Investment dwellings and holiday homes are now being placed on the market. That trend will accelerate. Values will fall because the buyers will smell blood and credit is much tighter. The family does not really want to down-size their family home because that affects the family living and having a for sale sign outside the house and prominent newspaper advertisements makes spouses very unhappy. It is also seen as a bad 'career move'. Real estate agents are planning all sorts of other ways to promote expensive houses including internet sites. How much will houses fall? In the aftermath of the 1987 share crash expensive houses fell by about 50 per cent. Some sales in Vaucluse are down by 25 per cent. A house in Toorak that was put on the market for $10 million has sold for $7.5 million. The market has well and truly cracked. In the middle and lower ends trends are harder to plot. In 1987 medium-priced dwellings fell between 10 and 20 per cent. But this time around the bank guarantees will help interest rates, which will limit the carnage unless income levels are really slashed. And remember some unique properties can attract buyers and be hardly affected." - Robert Gottliebsen
Highly regarded Australian financial journalist. Published in 'the Business Spectator', 13th October, 2008.
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