Friday, August 17, 2007
Friday, July 13, 2007
Despite the fact that "more money equals to more happiness" is very true to a certain extent, sadly to say this is not always the case.
look at the chart here. This is the M2 figure in Malaysia. M2 is one of the measurement used to quantify how much liquidity we have in the system. The chart below shows that the system is basically flushed with liquidity.
there are just so much foreign interests in our local market, both bond and equity. But is this the sole cause for the rallies in our local markets? Might be, it might not. But hey, is our market overvalued now?
guess it has been a old story that everyone been mentioning every now and then. One of my friend once told me that " not everything will follow the law of gravity. It doesn't mean what goes up must come down". Ya right. guess the difference is the timing / investment horizon.
for the time being, like what our friend Clovis said, just close your eye and enjoy the ride. But of course, all good things will come to an end. When the day comes, well. Hope that we don't get burnt that much.
For me, when there's a huge negative news flow through the market, it will cause a contagion effect and domino effects will kick in.
For clovis, 1) reversal of yen carry trade 2) The "collapse" of china and 3) deepening of US sub prime woes...
till then, happy investing. ;)
Monday, July 9, 2007
Monday, July 2, 2007
attached herewith a chart showing KLCI index as at 29 June 2007. gosh, what are those red and green bar? this is what we called the "Candle stick chart". Well, basically, the green bar depict an "up" day (i.e. closing price is higher than opening price) and red is the opposite. Go to google, type in candlestick chart and read up more interesting features of candlestick charting. Trust me, it's worth it.
From the chart above, it shows that KLCI was having 4 consecutive "down" (Red) days. Painful it is. But does the chart tell you any other stories?
The art of reading financial charts is called "Technical Analysis". There are millions of books out there teaching investors how to read the chart, so they can predict the future movement of the prices. Sounds strange, isn't it? i mean, isn't that sounds like "fortune telling"?
well, as a matter of fact, it is kinda similar. Put it this way, once my "Sifu" told me that reading the chart or charting is some form of natural born talent. The same chart can be presented to two different people, and they might see different things altogether. But of course, if you read more about technical charting, you will see that in general, the future movement of prices do follow certain trends...
but why so? well, that's because market is made up of People. You and Me. and where there are people, there's EMOTION. like it or not, when it comes to investing, investors tend to be a little bit....okok, very at times, emotional. Thus alot of tools have been developed for chartist or us to discover the general trend.
For instance, one of the common tool used is Bollinger Band. Bollinger band is represented by the shaded blue area surrounding the green & red candle sticks on the upper chart. Basically, the higher the volatility in the market, the bands get wider, and vice versa. If the band has contracted, it might signify a massive jump in volatility to follow suit. From the chart above, it seems like KLCI's band is contracting, but not quite there yet...
One of my favourite tool is called RSI. Relative strength index, or more commonly known as RSI, is shown at the chart right at the bottom. Basically, what it tells is that if the line is above 70, it means that it's "overbought", i.e., time to sell. If the line falls below 30, it's "oversold", what does that mean? Time to Buy it is! simple isn't it?
From the chart, it shows that the KLCI is currently at the neutral level, which is at 50. Pretty much, it does not telling much story. But once you see it moves, it might give you some indication of "to buy or to sell"
But these are not magical tools, they merely provide you with some direction, but not absolute definite-will-happen direction or prediction. Most investors claimed that they are chartists, but few got them right. Also, one thing we should bear in mind is that technical analysis will only works well if the underlying market is very liquid. I.e. the trading of the cross currencies such as USD-EUR and USD-JPY.
Nonetheless, it's fun to learn and put this techniques into application. will share more of my thoughts for days to come.
Let's play a game now, just drop me some comments and say where will the KLCI be on 6th July based on the chart shown? i say 1370. ;)
Thursday, June 14, 2007
Vertical axis – payoff
Horizontal axis – share price
WHAT ON EARTH IS THAT?!
That ladies and gentlemen, is what we call a payoff diagram. Remember it well.
In case you’re wondering what Long, Short, Call and Put means….well…..(phew, this is gonna be a long day)
Here are some useful terminologies :
Long – to buy
Short – to sell
Call – a contract whereby the buyer has the option but not the obligation to purchase the underlying asset at the contracted price (exercise price) anytime before the expiry of the contract (American Option).
Put – a contract whereby the buyer has the option but not the obligation to sell the underlying asset at the contracted price anytime before the expiry of the contract.
Expiry – maturity of the contract
Exercise price – the contracted price that is agreed between the buyer and seller.
Underlying asset - It can be anything from, company shares, to commodities, and to even the weather!
American Options & European Options – most options are categorized into these 2 forms. Basically an American Option allows the option buyer to exercise his right anytime between the initiation of the contract to the expiry of the contract. On the other hand, European Options will only allow the option buyer to exercise his rights at the option contract expiry date.
So what exactly do I mean when I say, “I just did a transaction whereby I long an American call on 1000 Rolls Royce shares at an exercise price of 6 dollars expiring in August’07”?
Well, it means that I just bought the right to purchase 1000 Rolls Royce shares for the price of 6 dollars anytime from now till the expiry of the contract, which is in August 2007.
Here’s another Example:
“I just short an European call on 1000 Royal Bank of Scotland shares at an exercise price of 5 dollars expiring in September ‘07”
What does all this mumbo jumbo mean?
As a seller of a call option, I am now obligated to sell to the call option buyer, 1000 Royal Bank of Scotland shares at 5 dollars at the expiry date of the contract in September’07, IF he decides to exercise his rights (note – option is only exercisable on expiry because its an European option)
Now, I’m pretty sure all this is pretty confusing especially to those new to options. So I’ll leave it here for now and allow you lot to reflect on all these new terminologies.
In my next entry, I shall be explaining the payoff diagram.
And after that, we shall explore the trading strategy which I mentioned in my first entry.
(Coming up next – Options 102)
Wednesday, June 13, 2007
So while the stock market basks in celebration in the longest economic boom the world has ever experienced, I shall present to you an alternative form of investment – Options. It would seem illogical for anyone at this current point of time, to be interested in this derivative form of investment, considering the Bull Run in the stock market. So why bother introducing it? The reason, plain and simple…..an extra bit of information never hurts anyone. (or was it the other way around?)
Contrary to the belief by many that Options are limited to institutional and sophisticated investors like hedge funds, Options are actually very much accessible even to an average individual. Theoretically, no amount of capital is required to start-off your options trading (save for the margin requirements).
Now, for benefit of those who haven’t got the slightest clue what I’m talking about thus far, and to those who have heard of options, but need a refresher course, I shall go through the basics options in the first part of my blog entry. And once that is out of way, I shall share with you a trading strategy that is utilized by many, that has the ‘potential’ of generating consistent return over a long period of time.
And to make things a little bit more interesting. I shall be using actual prices from the market to show you how this strategy is carried out. And you shall be the judge on the feasibility of this trading strategy.
(Coming up next – Options 101)
Tuesday, June 12, 2007
Blogging is nothing new, nor it is something extraordinary. Yet, the impact it is making to this world is fabulous.
That leads to the talk of "globalisation".
The world hasn't changed its size, yet what we observe is that the distance between you and me, has become shorter. No matter where you are, as long as there's phone line and internet access, we are not that far apart after all.
"globalisation" makes things easier, it also leads to the disruption of the natural law of economics. there used to be an era when things got expensive, demands will fall and thus price will fall. Yet, in today's context, this seems to be abit obsolete. The emergence of the oriental dragon and the south asian mammoth have created a world with new economic rules. What suppose to be going up continue to stay low, and what suppose to be coming down, continue to be up and rising. What has gone wrong?
This should be exciting because this is a brand new era that we're observing. 200 years down the road, our great great grand children will be referring to this era as the "globalizing era" or perhaps some other more fascinating terms. This is similar to the time when the europeans learnt about sailing and start doing world trades. Now, we're doing world manufacturing, world marketing and of course, a global trades.
so, what happen when it comes to creativity? In today's context, it's hard to survive if we still follow the traditional way in doing things. Why would you be writing articles for local newspaper by paying 30cents postage fees while you can choose to post a blog on line / write an article for online magazine for zero costs and with unlimited exposure? now even you and i can be a columnist on line, even you and i can do business with merely zero cost by starting a e-business. Therefore with abit of creativity, we can spot the next opportunity in this ever-changing world and make a fortune out of it.
we're observing the globalizing trend in the world that we're living in today, yet the fortunate thing is that it has just begun and might take a century or more to complete the progress. The utopia of globalization is when we're only using one currency in trading, where the oriental dragon is the only one manufacturing, the south asian mammoth is answering all your phone enquiries, the pisa leaning tower and eiffels are making the food for the world & etc etc. so before everything converges, there are opportunities for us to exploit this arbitrage. This mean that you can do something with lower price, and sell it to other continents at a higher price, thus, reap the margins and help globalizing.
when it comes to creativity, it is time for us to spot what our competitive edge is, and be able to fully utilise it, before the G-Day arrived.
Happy reading and will be back for more.