Get Rich Slow and Steady

Many investors hate the idea of getting rich slowly in the stock market. I know this to be true because it happened to me when I just started out investing seriously in 1990. Everyone I knew in the market wanted to get rich quickly so why should I be the fool and opt to get rich slowly? Back then, the stock market was booming and many millionaires were made every month.

Unfortunately, the good times did not last very long and the stock market broke in 1997. Stocks fell like a stone, the decline sharply accelerated by the financial storm that engulfed the country.

When I began to turn my financial life around, it dawned to me that trying to get rich quickly was NOT the right strategy to employ investing in the stock market. This was because the “get rich quickly” mentality caused me to do irrational things that would ultimately lead me to lose a lot of money in the stock market.

Important Reasons For Getting Rich Slowly In The Stock Market.

1) In The Long Term, Stocks Produce Good Returns

They may fluctuate in the short term, and make us emotional about investing, sometimes they may even decline by 30%-50% in a single year, but historically, they yield an average annual investment return of 10%.

2) Eliminating Emotions When Investing In The Stock Market

Emotions (greed and fear) can do a lot of damage to your portfolio if you are on the wrong side of the trade. It can cause you to hold on to a stock that is dropping much longer than you should and sell away a rising stock much earlier than you should.

In short, emotions can be a very destructive force when you attempt to get rich quickly in the stock market. But when you decide to get rich slowly, emotional investing lose much of its destructive power over you because you are looking at a 10 year, 20 year even 30 year horizon.

3) Treating Stock Investing Like A Business

When you decide to get rich slowly, you are treating stock investing like a business. Does a business owner aim to make millions overnight, a few weeks or a few months? Definitely not! Only a gambler has such ideas.

A business owner invest for the long-term; making money slowly and steadily. People who enjoy success in the stock market say that is how stock investing should be operated, much like a real business!

4) Less Market Risk

When you decide to get rich slowly rather than quickly, you tend to reduce your market risk. You also have more time to look for a stock, plan your trade and conduct proper analysis and evaluation. All this actions will help towards reducing your market risk – risk of picking a bad stock, risking of making a bad trade, etc.

How To Get Rich Slowly In The Stock Market?

1) Keep To Investing, Not Trading

Keeping to investing, instead of trading, is one sure way to get rich slowly and steady in the stock market.

When I began to turn my financial life around, it occurred to me that trying to trade and time the market and hoping to get rich quickly was NOT the right strategy to apply in the stock market. The only sure way of winning is by investing long term and to get rich slowly.

2) Buy Fundamental Good Stocks, Keep For The Long-Term

Buy fundamental good stocks that you want to keep for 10 years, 20 years or even 30 years in horizon. If you cannot keep the stock for such a long period, forget about buying it. You will probably NOT benefit from holding the stock because however good the business, they will need a long time to grow and prosper.

3) Practice Dollar Cost Averaging Strategy

No one can predict where the market is going at any given time, so why even try? Putting ALL your money in an investment all at once – thinking it will only go up – can be a very risky idea.

By buying a fixed dollar amount on a regular schedule, your focus is on accumulating assets on a regular basis, instead of trying to time the market.

With dollar cost averaging, you take a lot of the emotions out of investing because where the market goes in the short-term is far less important to you, as long as you stick to a regular investment plan.

Conclusion

The get rich slowly investing strategy is a strategy that is ideal for investors with a lower risk tolerance and someone who has a long-term investment horizon. This strategy also makes the most sense when used over a long period time with investments that are volatile and unpredictable in nature, such as stocks, Exchange Traded Funds or mutual funds.

How To Spot A Stock Pump And Dump Scam

As I have said in a previous article on stock pump and dump, legitimately promoting stocks is accepted, ethical, and if done right, profitable for everyone – investors and owners alike.

However, an evil cousin of legitimate promoting is a stock pump and dump.

Designed to be little more than a short-term artificial boost to the share price of a stock, stock pump and dump generally last only as long as it takes for those who financed the pump to sell their shares on their unsuspecting fellow investors.

10 ways to tell the difference between a legitimate promotion of a stock and a stock pump and dump …

1) Looking at the source of the stock promotion. Legitimate promoters always show their true identity whereas a stock pumper does not because he doesn’t want to be caught. If you’re reading the articles or updates from a nameless author – chances are, it’s a sleazy stock pumper.

2) If the updates and notices on the stock contains as many “potential” facts as hard facts about the company – chances are high, it’s a stock pump.

3) If the stock touted as hot stock is a small capitalized stock or penny stock – chances are, it’s a stock being pumped again.

4) It’s often the case, if a stock promoted have poor financials, and the books show they have little cash, low net worth and bleeding (carrying large losses) – chances are high, it’s a pumping scam.

5) If you’re being promised hundreds to thousands of percent gains on the stock if you invest in the stock, – or better yet, you are asked to double down when the stock drop – high chances are, it’s a stock pumping scam.

6) If the stock (out of the blue!) become the subject of promotions via articles, e-mails and internet sites touting it as a “strong buy” that “could make a fortune” for early investors – chances are, it’s a stock pump.

7) If the company issued press releases after press releases announcing new projects and new deals generously sprinkled with hype words like “huge”, “immense” and “superior” – chances are, someone is looking to pump the shares.

8) Tiny, never-before-heard-from companies making enormous claims; they tout new breakthrough technology products they say will, for example, earn them hundred of millions or cure an illness – chances are, the people inside are looking to pump the shares.

9) If someone announce he is purchasing a large portion of the company’s stock at a purchase price way above the net worth of the company – chances are high, the people are involved in a stock pump.

10) It’s just not normal for daily trading volume in a stock to go from zero one day to hundreds of thousands or even millions the next day – high chances are, it’s a stock pump. It’s often a RED FLAG as the stock pumpers are trading among themselves and setting aggressive price movements to create the appearance of substance and great things about the stock.

Conclusion

You may has seen a stock pump and dump underway the last couple of months in the local stock market for any number of small and mid cap companies. The whole reason behind a stock pump and dump is for the stock pumpers to profit.

Many unsuspecting stock investors have fallen prey to the stock pump and dump scams and lost money. And unfortunately, it is getting more difficult to spot a stock pump and dump from a legitimate promotion as the stock pumpers gets more sophisticated and cleverer over time.

The only way to avoid all these misfortunes is by learning to become a smarter and wiser stock investor. In this way, you will know how to avoid scams such as the stock pump and dump in the stock market.

The Business of Stock Investing

One of the biggest mistakes people made when they first started investing was not treating stock investing like a business. Instead they look at the stock market as a place where quick sum of money are made in a short time. In short, the stock market to them is a casino.
Others, just as gullible followed the advice of the broker, their friends, or speculative articles they pick up in money magazines. These people truly did not have a clue what investing was truly all about. 

But as years passed and they either lost money or made very little then they realized that they had to get serious. Most of those people who succeeded decided early on to treat stock investing like a business.

So what is treating stock investing like a business you ask? For one, it means not having the fixation about the short-term stock prices. Instead people who treat stock investing like a business focus on how the stock is doing in the long-term. Is the company having more sales, increasing profits and paying more dividends? Because they know if the stock is doing well the share price will rise. 

How To Treat Stock Investing Like A Business

If you agree with me and like the idea, here are 7 tips you can use to turn the corner in your stock investing by treating stocks as if it was a real business.

1) A Business Plan

In every business you start with a business plan. A business plan will guide you as to what you want to do in the business. Do you want to invest or trade in the stock market? What products (stocks) you want to purchase and sell later? How much capital do you want to employ? How much risk do you want to take? These are some important questions to ask and decide in a business plan. A business plan will help you save lots of time and money in the running of the business.

2) The Products

Every successful business always have good products. The products are good enough to attract a steady stream of buyers everyday of their life cycle. What are good products in the stock market? They are the fundamental strong big companies with high cash flows listed in the stock market. The bad products are all the penny and speculative stocks who continuously lose money or at best making insignificant profits. But the insiders make them appealing by coming out with wild juicy stories. Do you want a good product in your business or remain forever an individual playing inside a casino? The choice is yours.

3) Steady Cash Flow

Every business who are around owe their existence to their cash flows the business generates. In the stock market, things are the same. There must be steady cash flows to continue. What stocks can give you steady cash flows? The only source of steady cash flows in the stock market are dividend stocks. They continue to pay steady streams of cash flow in the form of dividends no matter the share prices are flat or down. As a business owner, you should have a big portion of capital into stocks paying a dividend.

4) Review The Inventories

A good businessman will always review his list of inventories. Inventories that are not performing get sold off quickly and new stocks added to the list. The same will happen in the stock investing business. A review to analyse what the performing and non-performing stocks and selling off bad stocks and finding new ones to add to the list.

5) Keep Costs Low

A wonderful business tend to be also a low cost producer. They use technology to keep their overheads low and increase the cost of sales (profit margin) of their products. The easy step to lower your cost is to reduce trading. Increasing your trading does not guarantee a profit on the stock but what is guaranteed is for each trade you make you have to pay a cost in the form of a commission to the broker.

Another way to lower costs will be to signup for online trading. Online trading is very user friendly today and can lower your commission costs between 30%-50%. So, keep business costs lower by reducing trading and using online trading as much as possible.

6) There Must Be A Profit

In order for the business to be viable there must be a profit. That means that you could no longer take losses like an individual. An individual does not account for his losses. It meant that you have to look for ways to reduce your risks. It meant that you could no longer speculate as your heart desire in the stock market. As a business owner, you realize that taking massive losses, huge risks and excessive speculation could ruin your business for good. And a good move will be to practice an investing method called value investing.

7) Ongoing Learning

Ongoing learning is all about staying ahead of the curve and beating up the competitors. In the stock market, ongoing learning means taking time and forking out money to attend seminars, reading materials and socializing around with more experienced and knowledgeable people to improve your stock investing. Of course, you should only seek out knowledge and skills that can add value to the business, AND not market rumours and tips.

Conclusion

In order to be consistently successful you need to take a completely different approach to stock investing. The first step is always to learn what made you lose in the stock market. When you start asking yourself this question and act on this later, you will begin to turn the corner in your investing.

But the real key to success is to treating stock investing seriously like a real business. Most of those people who succeeded decided early on to treat stock investing like a business. Benjamin Graham, the father of investing, used to say that “Stock Investing is most prudent when it is most business-like”. As stock investors, we need to see stock investing just like we are investing in a business. Then we are surely to do well in the stock market.

How watching Football can Teach Us about Stock Market Investing

Most stock market professionals knows the stock market is actually a loser’s game. But amateurs have no idea at all.

How to Win at Football & Stock Market

The main problem with amateurs is that they like to focus on attacking play in the stock market. They love to play offensive all the time. Often they do this by chasing after stocks that have already run up a lot. In most cases, they will end up losing money because the time they start to chase could probably be the exact moment the stock operators decide to sell.

By focusing on winning and going on the offense, the amateurs end up making silly mistakes and getting themselves caught by the market pros. Its' just like football - Go watch a professional football team playing against an amateur football team and you will know what I am talking about. 

Most times, the professional football players will wait for the amateurs players to make silly mistakes and they capitalize on theses mistakes to score a goal! What the professionals knows the amateurs do not is that the winner of the game is the one that makes the fewest mistakes.

So if you want to win the stock market game, you will have to stop playing the offensive position all the time. Instead switch to defence position. Keep the ball in play by not chasing after stocks. Instead, look for stocks that have not moved much. Buy and hold them until the stock start to rally. Then sell it off. Allow your opponent (who surely is another amateur) to make all the mistakes. He will.

Another offense position people take is buying a stock already at a high price and hoping to sell the stock at even higher prices. A few times they might succeed but most times they will end up losing money. Instead of buying stocks at expensive valuations, you should be waiting for stocks bargains during a stock market correction or look around for undervalued stocks. That’s how to win in the stock market!

A third attacking play is jumping from one stock to another stock. Sometimes it could be after making a small profit or incurring a small loss, other cases after the stock did not move as anticipated. It is another type of silly mistakes that will cost you in the stock market. That’s not the way to win the stock market game. I could go on … but ah ha… I see you already got the picture.

Conclusion

Never forget the stock market is a loser's game. It is a place where the winner is the one who makes the fewest mistakes, not someone who can hit more winners. 

Don’t be like the majority who focus on attacking but they end up with losses instead. In the stock market you need to play conservatively, stay defensive, let other people make the silly mistakes and capitalize on their errors. That is the secret formula to success in the stock market!

Is Emotional Investing Making You Lose In The Stock Market ?

Some things fit perfectly together. Strawberry jam and butter. Batman and Robin. Red and white. Individually they have value but when they come together, they create something extraordinary.

The same cannot be said for emotions and investing. Like oil and water, they simply don’t mix. There is no place for emotional investing in the stock market world if you want to have success.

My Emotional Investing Experience.

I started investing seriously in 1990, during the start of the bull run of the 1990s that saw the stock market soar to record highs. During those times, a stock could go up $1 or more in a day and there were plenty of stocks doing that everyday.

People were going crazy investing in the stock market. Everyone were involved; from clerks, housewives, salesman to taxi drivers, because they did not want to miss the bull run. It was a crazy period for the stock market.

This was the investing world that greeted me in my mid-20s. It seemed like everyone was getting rich overnight. Many investors were becoming millionaires. The short-term trend was the keyword of the day. Get in and get out as quickly and as often as possible to become rich.

As you know, in 1997 the market finally broke. Stocks fell like a stone, the decline sharply accelerated by the financial crisis that engulfed the country.

Lessons On Emotional Investing.

Going back to these past years revealed to me that I had to find a way to keep emotion out of my investing life. This is because the emotional investing cause me to do irrational things that I will regret later and make me lose money in the stock market.

Here are a few key lessons I learned during those years:

Never Fall In Love with Your Investments.

Investments should not be a love affair. Yet that is what happens – people fell in love and got married with their investments. We fall in love with that one special stock and ended up being blinded by that love when the stock turn south. We think that as long as we love the stock it will love us in return. It just do not work that way when it comes to investing.

Dreaming is Dangerous In The Stock Market.

We always trick ourselves into thinking the trend is going to stay that way a long time. I would always think about “how much I could make” should the stock continue to climb. Dreaming about what might happen kept me from making a wise decision.

I was up more than $5,000 on a penny stock in 2011 which would have been a gazillion percent return on what I had initially invested. The way the stock had been trending it seemed the only direction was up. In my mind, clearing $10,000 was certainly doable. So I sat on it instead of selling and realizing that big return.

To my dismay, the stock started trending downward the next few days. My return began to decrease but because I was dreaming I fooled myself into thinking it would eventually turn around. It never did and I ended up with less than half of the gains I’d been dreaming about.

Never Make a Trade Based On Something You Hear In The Media.

The news media specializes in charging up your emotions. Call me cynical but I think emotional investing is part of their agenda. It drives people to tune in to hear what they have to say.

So the media reported some groundbreaking news on a stock …..and within 10 minutes I had made a trade, hoping to profit on an upside movement in the stock. That upside never materialized. And of course I lost money on the stock.

Quit The Short-Term Thinking.

A short-term strategy charges up the emotion whereas a longer-term strategy dampens the emotion. Thinking 10, 20 or 30 years down the road helps put the mind at ease during any given crisis. You will end up making rational, wiser and more profitable investing decisions.

The Benefits Of Mastering Your Emotions.

If you can keep your emotions in check many good things will happen that will vastly improve your ability to succeed at investing.

You will have courage to invest when the market is in pain.

When was the best time span to invest in the market during the last decade? In the course of those periods when the market dropped sharply during 9/11 in 2001 or crashed in 2008.

Everyone was panicking during those months and shortly thereafter. Emotions and emotional investing make you do that. So investors sold, just “to get out” at any cost for fear of losing everything.

Those who kept their emotions in check and put money into the market during those bleak times are sitting on a gold mine of returns today as the local market now sits at over 1,800.

Keep you from cashing out when times are good.

The stock market have been making new all-time highs these few years. Analysts are beginning to warn about the next 20-30% drop in stocks. “Sell now” they say, “and wait for a reversal to purchase stocks at lower prices.”

This once again promotes emotions (fear) and should be dismissed by the long-term investor. The market being at an all-time high really should not bother me. The risk is actually losing out on the continued upward movement in stock prices. If prices do fall, with my emotions in check I will continue to invest when times are bad.

Keep you from making silly mistakes.

One of my greatest wishes is to have those early years of investing back. I would have done things differently. I recalled I routinely let emotional investing (greed and fear) get the best of me. When things were going well, I felt unstoppable. When things were going poorly I’d feel like a failure.

And during the high and low states of emotional investing, I made some terrible investment decisions.

Conclusion

My message for you today is to keep emotions out of your investing life. Forget emotional investing. I’m not saying it will be an easy task. When the market was in free fall I was as nervous as the next guy. But I kept my emotions in check and continued investing like normal. Mastering your emotions and reducing emotional investing as much as possible is the key to big time success. If not, you will end up making terrible mistakes and losing out the big returns.

Saudi Arabia's Dangerous Game

“If I reduce, what happens to my market share? The price will go up, and the Russians, the Brazilians, U.S. shale oil producers will take my share.”

That quote is from Saudi Oil Minister Ali Al-Naimi. And it's the official justification for why Saudi Arabia won't cut its oil production to be more in line with current demand.

Heck, Saudi Arabia has been cutting deals with China and others to sell its oil at below market prices!

That will certainly help the country get market share. It will also keep the pressure on prices.

The Saudi decision to keep pumping even though the global market is oversupplied by as much as 2 million barrels a day will cost it around $39 billion. Bloomberg reports that's what the Saudi budget deficit will be this year.

Last year, the Saudi budget deficit was around $12 billion, even though oil prices were high.

Of course, when you have $732 billion in reserves like the Saudis do, a little deficit spending is no big deal — especially when the payout down the road will be so huge...

To the Victor Go the Spoils

Market share isn't the only thing going on here. Companies routinely lower prices in order to take market share and crush weaker competitors. And once you have a controlling market share, you can run prices back up and make out like a bandit...

This is what the Saudis are doing right now: They have driven oil prices lower, they are taking market share, and there will be higher prices down the road.

Saudi Arabia won't even have to lift a finger to get oil prices higher — the market will take care of that for it. The Saudis will be able to sit back and rake in the cash.

Big changes in oil supply cannot happen quickly, especially in countries where oil supply is controlled by independent companies, like here in the United States.

Imagine the U.S. government issuing orders that U.S. oil production must be cut by 1 million barrels a day. That wouldn't happen because, for the most part, we let the market forces of supply and demand dictate how much oil companies produce.

But U.S. oil companies have a special problem: debt. They've taken on $550 billion in debt (bonds and loans) since 2010. They have to keep pumping in order to meet debt obligations. CreditSights says default rates on energy junk bonds will double this year.

Small U.S. oil companies (Goodrich Petroleum and Lightstream Resources, for instance) are starting to sell off assets in the Bakken, Eagle Ford, and other oil hot spots.

Companies will also spend less on new production. And that's where the problems will begin...

A Dangerous Game

Continental Resources (NYSE: CLR), the biggest Bakken producer, has cut its 2015 CAPEX spending plans in half, from $5.1 billion to $2.7 billion.

Crescent Point (NYSE: CPG), Canada's third-largest producer, cut its spending plans by 28%.

ConocoPhillips (NYSE: COP) is cutting spending by 20%.

U.S. oil company CAPEX spending will likely be down over 30% in 2015, with onshore drilling activity down 40%. Globally, oil sector spending will be down 10% to 15%. And as much as $150 billion in new oil projects will sit idle.

Now, here's the thing: It takes time to develop new oil fields. And in the meantime, existing oil fields are in decline.

In 15 years, half of current oil production will be completely depleted. That means over the next 15 years, the world has to develop around 50 million barrels of oil a day just to maintain current production numbers.

It's going to be hard to support that development if oil companies are cutting spending.

It took the U.S. six years to add 5 million barrels a day in oil production.

Global oil production, meanwhile, hasn't really grown much in 10 years. What growth there has been is easily attributable to U.S. shale production...

As this chart shows you, without the increase in U.S. production, global oil production would have gone into decline three years ago. And this is why I say the Saudis are devious bastards: By refusing to cut production and forcing a collapse in pricing, they are forcing oil companies to stop developing new oil fields.

In other words, they are setting up the conditions for a perpetually under-supplied oil market. 

That, in turn, will cause a massive spike in prices, like what we saw in 2008.

Right now, the world is oversupplied by 1 to 2 million barrels of oil. Interestingly enough, about a year ago, both the EIA and the IMF thought demand was going to rise that much by now. It hasn't, and it's largely because Europe's economy is a disaster and China has slowed more than expected.

In fact, global oil demand has been pretty steady since 2012, moving within a 2 million-barrel-a-day band...

Eventually, the global economy will improve, and oil demand will increase. The Saudis know that when this happens, oil prices will launch.

I expect they are happy to run budget deficits as long as it takes — because the payoff for them will be huge.

Until next time,

Briton Ryle

Source: All information, images are credited to http://www.wealthdaily.com/articles/saudi-arabias-dangerous-game/5556

This is Not a Tamil Movie!

I love Tamil movies. Tamil movies always portrait how the bad guys ultimately gets their asses kicked by the good guys in the end. The moral of the story is good always triumphs over evil. The good guys, after suffering badly in the beginning, turn the tables on the bad guys and at the end of the Tamil movie, he goes home a hero.

Consider the case of Asia BioEnergy Technologies Berhad or stock name AsiaBio. The stock became very hot for a month. News?? On 28/1/2015, the company announced that they will be purchasing two shipping firms. Then, the selling started. See chart below.

AsiaBio 6 months share chart

So, Up or Down?

The big whale is selling ...selling on news! The stock dived. The pattern look very familiar ...remember TMS, Focus, etc ... Intermittently there will be some small rebound along the way ... the reason is why skin the sheep once when you can skin the animal a couple more times for profits??

The Bottom?

Who knows where the REAL bottom is? Perhaps, the level could be at where the share price was before the stock pump and dump game started. My guess? Long term ...7-8 cents. (My 2 cents worth of opinion!)  ... Look at the 5 year AsiaBio chart below.

AsiaBio 5 year share chart

People who bought after the announcement are suffering now. They have to hold on and pray the story will end well. The good guys will win in the end, right? Hmm ...

This is not a Tamil movie!  

Will Collapse in Oil Price Cause a Stock Market Crash?

The Black Monday stock market crash of 19 October 1987 was the largest one-day percentage decline in the Dow Jones Industrial Average. The crash was a genuinely perplexing event. To informed observers it seemed to have little basis in economic fundamentals. There were various “hand-waving” theories, including that the introduction of automated trading on the Dow had injected instability into the market. However, at the time, Black Monday appeared to come out of nowhere.

Perspective

In an analysis published in 2009, Tom Therramus pointed out that Black Monday fell into a broader pattern in which nearly every stock market crash and recession of the preceding 50 years had occurred shortly after a large and abrupt change in the price of oil. In the case of the 1987 Dow crash, it was foreshadowed by a tumble in oil price that ensued in the wake of disputes within OPEC, which had come to a head in the previous year.

During the mid-1980s Saudi Arabia grew increasingly frustrated with cheating on agreed oil production quotas by other members of OPEC. In 1986 the Saudis gave up honouring their own quota commitments to the cartel and the price of oil plummeted.

Current falls

Between July 2014 and January 2015 the price of oil plunged over 55%. One of the steepest legs of this decline was a 10% drop that occurred on Black Friday 28 November following a meeting of OPEC. The ostensible reason for this fall was that the Saudis had refused to agree to production decreases being pushed by some OPEC members, instead choosing to let the market play out for the time being.

Analysis

Given this article’s brash headline and its tenor so far you might be led to believe that we foresee a large fall in stock prices in the next year or the year after. Perhaps the 2014 Black Friday plummet in oil prices could spark a Black Monday-like stock market crash in 2015?

This is the fourth in a series of related articles written for Oil-Price.net (2009, 2011 and 2013). The last of these written in late 2013 had the prescient title “Oil Price Volatility on the Way”. In this series, the theory is developed that since the year 2000 we have seen the emergence of an oscillatory pattern in oil price volatility. Moreover, it has been suggested that the mechanism driving this oscillation is a teetering imbalance between oil supply and demand that was set in motion when global production reached a plateau in the mid-2000s.

Methodology

One of the tools used to identify this oscillating signal is a mathematical technique called fast Fourier transformation. This algorithm indicates that since the year 2000 oil prices have adopted a cycle in which volatility spikes tend to occur every 32 to 34 months. As shown on the figure, the last of these crescendos in price variance happened in 2011 and before that there were surges in volatility in 2008/9 and 2005/6.

Further analysis of the figure is that the 2014 Black Friday “crash” in oil price is occurring “as near as dammit” on cue within this cycle. Thus, the current drop in oil prices provides the fourth confirmation that a long-term oscillation in oil price volatility has been established.

Figure 1 − Cyclical Oil Price Volatility

Causes

We have addressed previously how the fall in the price of oil originates from a power play by the Saudi Arabian elite and the US government. The Saudis want to squeeze out new production in the world as OPEC crumbles. Also, one of the major new streams of oil flooding the market comes from the American shale oil revolution.

Market analysis shows that the new price levels of oil are caused by the simple mechanism of supply and demand. Globally, the 2014 slower economic growth in Europe and China took capacity planners and market makers by surprise; the developed world’s drive to decrease carbon emissions is finally having an impact on the oil market through greater energy efficiency. Demand for oil declined unexpectedly in 2014.

An end to conflict and years of reconstruction brought major oil and gas suppliers in Libya, Algeria, Iran and Iraq back to the market in 2014. The rapid expansion of tar sands supplies from Canada and shale oil in the US squeezed suppliers such as Nigeria and Venezuela out of the US market. The world’s largest producers of oil — the US, Russia and Saudi Arabia — each had financial needs that prevented them from reducing production. Thus, there was no cut in production to match a fall in demand and the market became over supplied, causing a fall in prices.

Trends

The simplest explanation for the slump in oil prices is it falls in line with an established multi-year pattern that is being driven by supply and demand. The oil crash of 2014 was the most recent manifestation of a tidal ebb and flow in oil price volatility that has occurred every three years or so since at least the mid 2000s.


If one accepts that we are seeing the fourth confirmatory spike in a long-term pattern of oil price volatility, what is causing it and what can be expected next?

Projections

The mechanism of the oscillation is a natural occurrence, like the tides, which is anticipated to occur at the summit of a resource-depletion curve, such as at peak oil. Other mechanisms might include a direct role for human agency. Perhaps there are behind-the-scene players who have the means and persistence to rhythmically seesaw oil price over extended periods of time.

The simplest prognosis would be to anticipate that a fifth spike should occur sometime in 2017-2018. History teaches about the fall-out from surges in oil price variance — instability in various economic indices might be expected to occur in the next 6 to 12 months. When oil markets go crazy, in an upward or downward direction, bad things happen to the economy. The trajectories of changes that accompany volatility spikes, shown in the chart, indicate that sudden drops may be worse augurs than abrupt upticks in oil price.

Possible scenario

The mechanism by which a fall in the price of oil could trigger a collapse in the stock market lies in the financial devices used to fund oil exploration and exploitation throughout the world and particularly in the United States. Modern oil exploration is financed through a range of methods including issuance of shares to increase capital, and raising debt through bonds and bank loans.

A shale oil well operating through hydraulic fracturing can cost $9 million to get into production. When oil was hovering close to $100 per barrel, banks were more than willing to finance billions of dollars worth of oil exploration projects. As far as banks were concerned these loans were backed by tangible assets and considered low-risk. It was (almost) like printing money. A price of $80 per barrel was seen as a floor in the profitability of shale oil. This took an average break-even price of $70 per barrel, plus a $10 margin for financing costs.

Today with oil under $50, many producers lose $20 for every barrel produced and will likely default on these loans, as outlined in last month’s “Falling Oil Price Slows US Fracking” article. This loss will be passed to the banks that made the loans, as it happened with the housing sector in 2008.

A telltale sign of this is the recent 20% fall of high yield corporate bonds since this summer that follow very closely the fall in crude oil prices. Many investors are afraid of defaults in the high-yield market due to over-lending to the energy sector and are indiscriminately selling off “junk bonds”. The downside of this corporate bond selloff across the board is that less favourable financing options will be available for other sectors, which in turn will spread the slowdown to the rest of the economy.

Simple mathematics reduces a credit-worthy company to bankruptcy — for example a company with a market capitalization of $50 million owing $9 million suddenly becomes a bad risk when its total value dives to $10 million thanks to the sudden switch from profit to loss caused by the fall in the price of oil. A loss of profitability causes a loss of share value — pension funds and investment houses have seen billions wiped off the value of their investments in a matter of a few months. The knock on effect of loss of value then permeates to the banking and insurance sectors, causing the value of stock in those companies to fall.

Not all shale oil exploitation was financed by loans and bonds. Derivatives have played a part, too and many of the main players in the fracking business have their prices set in futures contracts all the way into 2016. The holders of these obligations to buy will be in serious trouble if the oil price does not turn around by mid-2015 when many of these contracts fall due. The major Wall Street banks hold a total of $3.9 trillion worth of commodities contract, the bulk of which are based on oil and were written when oil seemed to be destined to remain above $80 per barrel. If the price of oil stays below $80, America’s biggest financial institutions will have to beg — once again — the Fed (and the taxpayer) for help.

In addition to those companies that drill for oil and those that finance them, there is a large industrial sector supplying tools, chemicals and equipment to the oil industry and the value of shares in those companies will tank as oil production winds down. Major index component companies, such as GE and Halliburton will see a loss of business and an inability to cover investments and loans in their oil industry divisions. These financial shortfalls will affect dividend payments or force them to sell otherwise profitable divisions to cover their losses. When the value of index component companies falls, all index-linked investment funds fall into losses. Managers of these funds usually sell off profitable assets to meet their obligations. A sudden shortfall of cash caused by an unexpected fall in the oil price could then trigger a sell off on Wall Street in which case the price of all shares would drop under an urgent rush to sell.

Should energy loans start to default, we may be looking at a snowballing effect in the order of the 2008 banking crisis with a caveat: low oil prices do help reduce the cost of transportation and services and may be a blessing in disguise for the economy. However this plays out, our FFT analysis illustrates that volatility is on the cards. Fasten your seatbelts for a bumpy ride, and keep an eye open for opportunities. As Warren Buffett once said: “Be fearful when others are greedy and greedy when others are fearful.”

• ♦ • 

Source: http://oil-price.net/en/articles/will-collapse-in-oil-price-cause-stock-market-crash.php

The Dollar Cost Averaging Stocks Method

It is a sad fact that many people end up losing money in the stock market. Even market veterans who have been around for 10, 20 even 30 years could still be facing big losses. What are the causes of their failures? There are many reasons which contribute to this. For those who want to be successful, the only time tested method is the dollar cost averaging stocks method.

The Dollar Cost Averaging Stocks Method Explained

The dollar cost averaging method involves putting a fixed sum of money into the stock market slowly over a period of time. What the method does is to reduce the risk associated with market timing. Having to time the market is one major factor causing investors to lose in the stock market so with the dollar cost averaging method you tend to avoid having to make the crucial decision to time the purchases of stocks in the market.

Let’s say you have RM30K to invest and decide to pick a good stock named stock X priced at RM3 in the stock market now. Since the stock market is close to the all-time high, you are afraid of investing everything at one go of the share at RM3, so you look to lower your risk by spreading the purchase over some time, possibly purchasing 1,000 shares every month until the RM30K have been used up.

If the stock drop over the period, you could find that you actually reduce your cost of purchase of the stock. However, if the stock goes up instead, you will incur a higher purchasing cost of the stock.

Table below summarize the purchase of 1,000 shares over 10 months with capital of RM30K (and assuming the stock price mostly drop leading to lower cost of purchase) -

Month Purchase Price

1 3.00
2 2.99
3 2.95
4 3.00
5 3.01
6 3.03
7 2.98
8 2.92
9 2.93
10 2.96

Average cost = 2.977

Investors using the dollar cost averaging stocks method like this strategy because it is simple to understand and do not require special skills or high IQ – the method is a no-brainer as it just need someone to purchase a stock using a fixed sum of money at a fixed date until he is satisfied he has invested enough of the stock.

A recent variation of the dollar cost averaging stocks method require the investor to increase the number of shares bought if the share price drop or reduce the number of shares purchased if the stock goes up. It is called value averaging stocks method and is slightly more complex than the classical strategy but whichever the method used, the goal remains the same, which is to reduce the need to market timing and slowly invest into a stock over time.

Conclusion

The dollar cost averaging stocks method is a proven investing strategy practiced by institutional investors and veteran individual investors alike. The method reduces the risk of timing the stock market by slowly investing at a regular basis over a period of time. It is a perfect method for risk-adverse and the investor who like to invest stocks for the long term.

How a Stock Pump and Dump Really Works?

You may have seen a stock pump and dump underway the last couple of months in the Bursa Malaysia stock market for any number of small cap and medium cap companies.

The whole reason behind a stock pump and dump is for the stock pumpers to profit.

These pumpers – some persons, or some group, buys shares in a company.

They promote this stock to other investors.

The share price rises due to the other investors buying the stock and then pumpers unload their shares at a premium to other investors.

5 Steps In A Stock Pump and Dump

Step 1 – The Bait

This is the first step where the pumpers share the “good news” on a stock they bought earlier.

They spread the good news via personal emails lists, stock forums, money magazines, social media, words of mouth (via broker) or even go as far as getting the newspaper to write an article on this.

During The Bait stage, some popular sentences you always hear -

“The company is negotiating some hundreds of millions ringgit projects”

“The stock is undervalued and have huge upside potential”

“The stock is dirt cheap … you don’t want to miss out when the ‘good news” come out …. soon!”

“The stock is 20 cents with the target price (TP) of $1.20 …that’s a 500% gain!

Could this possibly be true?

Step 2 – The Rally

During this rally phase, the stock will start moving aggressively with the people who got the “good news” buying and pushing up the stock price and daily volumes 5 to 10 times higher than when the first “good news” posted as the bait was released.

And every day, for the next week, next two weeks, next month, you’ll see those same subject lines with the same calls to action: Buy, buy, buy…good news coming soon! Target price $1.50 …. jump in now!

And if you’ve already bought, the goal is to get you to buy more.

Step 3 – The Sell Off

The stock pumper generally refer to this as a “temporary profit taking.” In other words, they’re blaming a group of investors taking some profits who are driving down the stock prices.

However, the more likely culprit here is that all those pumpers who bought up million-plus share positions early on and are starting to dump their shares onto a very artificial market.

Unfortunately for the other hapless investors, most of those shares were sales executed by these pumpers as the stock plummeted below the price where most of them bought in.

Step 4 – The Rebound

Eventually, with enough work, enough spam, and enough new names pouring in thinking they are getting a bargain, the selling tide abates and the stock moves up again.

During The Rebound, popular sentences you always hear -

“The stock is a bargain at this price, buy now before it move again!”

“The stock is technically oversold and ready to resume its rally!”

“I just bought 300 lots at this cheap price.Getting ready for the bounce.”

In the next couple of days, the price does indeed recover, maybe as much as double from its sell off lows.

Step 5 – The Demise

In this stage, the stock slowly drop and keep dropping for weeks and months till all the selling dry up.

There is no more “good news” or is usually the case, no news on the stock at all.

All the stock pumpers have left the stock and they are promoting a new hot stock to new investors.

All we know, based on the pumper’s subject line, was that any chance for more gains on the stock pretty much went up in smoke the moment they came out with a new stock pick.

Conclusion

Legitimately promoting stocks is accepted, ethical, and if done right, profitable for everyone – investors and owners alike.

However, an evil cousin of legitimate promoting is a stock pump and dump.

Designed to be little more than a short-term artificial boost to the share price of a stock, stock pump and dump generally last only as long as it takes for those who financed the pump to sell their shares on their unsuspecting fellow investors.

Don’t be fooled by these stock pump and dump scams in the stock market by learning how to spot these scams and invest wisely on stocks.

EPF - Keep or Take Out - Who Has The Better Argument ?

People are getting excited when they hear the news that the Employees Provident Fund Malaysia a.k.a. the EPF is announcing their dividend rate for 2014 next week. Will the rate be more than 2013 ? Everyone is keeping their fingers crossed. (Note: On February 8th, EPF announced a 6.75% dividend rate for 2014)

The EPF Track Record For 30 Years

The fund which have an asset size of RM586.7 billion (2013) is a huge success in the stock market as it can pay a much higher return rate than what you could get from a bank savings or fixed deposit account. Over the 30 years, the returns from Employees Provident Fund Malaysia have been as follows -

Year Returns

1983 -1987 ..8.5 %

1988 -1994 ..8

1995 ..7.5

1996 ..7.7

1997 -1998 ..6.7

1999 ..6.84

2000 ..6

2001 ..5

2002 ..4.25

2003 ..4.5

2004 ..4.75

2005 ..5

2006 ..5.15

2007 ..5.8

2008 ..4.5

2009 ..5.65

2010 ..5.8

2011 ..6

2012 ..6.15

2013 ..6.35

30 Year Average Returns = 5.5%

(Source : EPF website)

Keeping In EPF

A little known FACT the Employees Provident Fund Malaysia have unknown to many people is that it has never failed to pay good returns even during the worst stock market crashes : In the 1987 Wall Street stock market crash, 1998 Asian Financial Crisis and the recent 2008 US stock market crash, the fund still managed to pay 8.5%, 6.7% and 4.5% returns to their members.

Another little known SECRET is the EPF is a big player in the stock market, it is able to influence the KLCI Index besides trading shares much like a stock market syndicate. If you're thinking of punting/investing in the market with the EPF money, why not keep in the EPF and let them do the work for you? They are the expert, the proof ... see diagram above!

Take Out EPF

Of course, some people have good reasons to take out the EPF money such as if you need it for medical, paying off the balance of housing loan or other urgent purposes. But if you are thinking of spending it on some lavish lifestyle, it's wiser to be frugal. Or, if you think you can invest in something that pays more than 5.5% p.a. , with no risk like EPF, think hard before doing it.

Conclusion

There are only a few good & safe opportunities found in Malaysia to grow your savings to help you during old age. One of the very best around locally is the EPF. 

Think wisely. So try not to withdraw all the cash with the Employees Provident Fund Malaysia upon reaching the age of 55 but keep in the fund to let them grow the savings for you.

This Chart shows Why the Oil Bust will Last

by Wolf Richter • January 22, 2015

Soaring US crude oil inventories.

Crude oil inventories in the US (excluding the Strategic Petroleum Reserve) rose by 10.1 million barrels to 397.9 million barrels during the week ended January 16, the EIA reported on Thursday. Inventories have now reached 397.9 million barrels, the highest level for this time of year in “at least the last 80 years,” or as far as the EIA’s records go back.

This chart by the EIA shows that current inventory levels (blue line) have been on a terrific upward trajectory that defies the 5-year range and seasonal movements.

These ballooning crude oil stocks will exert further downward pressure on prices.

What I’m scratching my head about is what these speculators are thinking when they’re leasing tankers to fill them up with “cheap” crude, waiting for the price to rise. Leasing a tanker is not free, unlike borrowing money overnight. And there are plenty of other costs and risks involved – including already ballooning inventories. Who the heck is going to buy all this crude out of storage when production is soaring faster than demand?

But their thinking has gotten a lot of press recently which makes me think that they’re trying to lure others into that trade for reasons of their own.

But there is a bitter irony: The plunge in the price of oil is pushing desperate drillers, buckling under their debt, to maximize production from existing wells while slashing operating costs and capital expenditures. BHP Billiton, perhaps unwittingly, explains this irony: despite the oil glut, collapsed prices, layoffs, and shuttered facilities, US oil production is soaring and will continue to soar, at least for a while. 

Read the original article at http://wolfstreet.com/2015/01/22/this-chart-shows-why-the-oil-bust-will-last/