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Friday, November 28, 2008

The internet is the market of tomorrow

I was blogging about Adsense and all in this blog...
Idle Page

It was at this point that I realize the internet is the market of tomorrow. At the moment, most people look at internet business in the form of freelance writing and other etc. But in the near future, I believe with almost everyone having the access to internet themselves, the market will be big enough to attract people into channelling their business strategies into the cyber world.
At the moment, only big company like Amazon and E-bay that is gaining popularity. However even in Malaysia we have Mudah and some other lelong online market. Although we must take into consideration the fact that some of these companies are not reliable but with strengthening markets in the internet, big companies will start to consider the internet as their main play ground.
Some of the rough ideas that I could give you is this:

  • The tuition place has been crowded with students and hence more and more parents are concern about the reliability of the tuition centres. There are a few tuition centres operating through the internet even at this point although I believe that it is not quite reliable at the moment. However, further improvement will make these companies a big force in the years to come. In recent days, more parents will opt for private tuition, but with the high demand of livelihood, private tutor that could be very costly might not be the best option and hence, internet could be the solution.
  • Talking about mobile phones, laptops, and other accessories, you will soon find that the internet are flooded with such items on sale. And in fact, at times you could be getting it at a cheaper rate. Let us not forget that the internet alone generate more than billions of traffics. Assuming only 1% of those as your customers, you will be soon be on the way to join the millionaire society.
  • Boutique? Can it be done? I understand that most teenage girls are already turning into the net as their shopping mall. One of a friend of mine has open a boutique in Kuala Lumpur is quick to realize that through the internet, the business in fact has a better turn out of profit. Especially with the fact that rental are now super expensive and really, business needs to be extremely good to rake in profit and hence, the internet plays a major role in such business options.
  • Comic books, manga, movies?/ what about starting a Cinema online? Almost impossible?
    Think again....of course, the concept of cinema has the advantage as it has big screen and wonderful sound system. But take a bigger picture. Look at the changes that globalisation has brought to this world. Now, some couples will have to live miles apart just because of their work responsibilities. For examples, business run in China need to be look after by someone who has a wife in Malaysia. Here is when all these come in. People need that concept to keep them connected to one another in a wonderful way. Something like Sykpe but better than that because you get to be watching a movie together in a Cinema...but the difference is that it's in the internet.
  • Think bigger and you will soon find out that virtual life has been one of the HITS lately and trust me, it is only a matter of time that more business opportunities will occur even in this game itself.
If you can't even imagine how much impact the internet will bring to the next generation, then you have better start to observe and learn more about the cyber world.
This is the FUTURE.

If you can see this, then you're half ahead of the rest and that's when Money easily follow after you.

Tuesday, November 18, 2008

Petrol Tax for Net Oil Exporter

When I was reading the news on theStar online (www.thestar.com.my), I got a bit shocked. The Malaysian government not only not giving petrol subsidy for Malaysian, but now starting to earn revenue from the current petrol price at RM2.00 (source). While shocked, I was not surprised. Well, it does not take a rocket scientist to figure out that we are actually paying the government when the crude oil price was below USD60 per barrel. As mention by my previous post that we did actually pay the petrol tax .....source, it seems that now it's OFFICIAL that we, Malaysian, born in a nation producing oil will have to pay petrol tax. Well, previously they do not want to admit it, but at least this time they admit they are actually getting return by reducing the petrol price 15 cents to RM2.00 and they can still earn some money out of it. I will need to search for more details to confirm that we will be the 1st net oil producer to impose tax on petrol. Until now, I can see that majority net oil producer cum exporter will give subsidy to the petrol. Not sure we have again becoming the 1st - you know la....our government wants us to become no 1 in a lot of thing, be it good or bad.


The reason I'm blogging about this here is because I want to stress out how short sighted the Malaysian government is. Again in one of my previous post regarding the petrol price hike, I already stressed out the hike in the world crude oil and wanted to see the face of those who increase the petrol price over Malaysia when the world crude oil price down. And as predicted, the government is blushing and is not keeping the promise to let the price float with additional RM0.30 subsidy. I would assume that if the next GE when BN falls, it is not because PR is better choice. It is because BN flip-flop policies and short-sightedness when drafting the Budget. Actually with the removal of subsidy, the current government only caused the people from my era suffers. And we must not forget, GE happens every 4-5 years and the upcoming GE will have a lot of voters from my era onwards and not everyone support a party. We will vote those we think that can help us, and not vote blindly like people from the previous generation. Not that I want to say that I'm good in predicting things, but at least at the moment 2 out of 2 things that I posted happened. Well, we will see in 4-5 years time.

Monday, November 17, 2008

Recession.....now Japan into recession as well

It seems that more and more countries are slipping into recession. Euro zone, Singapore and now Japan. Here's what I have from theStar online:-

Japan's economy slid into a recession for the first time since 2001, the government said Monday, as companies sharply cut back on spending in the third quarter amid the unfolding global financial crisis.

The world's second-largest economy contracted at an annual pace of 0.4 percent in the July-September period after a declining an annualized 3.7 percent in the second quarter.

That means Japan, along with the 15-nation euro-zone, is now technically in a recession, defined as two straight quarters of contraction.

The result was worse than expected. Economists surveyed by Kyodo News agency had predicted an annualized 0.1 percent rise in the third quarter.

Japan's Economy Minister Kaoru Yosano said following the data's release that "the economy is in a recessionary phase,'' according to Kyodo.

But the worst may be yet to come in the wake of the global financial crisis, especially with dramatic declines in demand from consumers overseas for Japan's autos and electronics gadgets.

Hurt also by a strengthening yen, a growing number of exporters big and small are slashing their profit, sales and spending projections for the full fiscal year through March.

Toyota Motor Corp., for example, has cut net profit full-year profit forecast to 550 billion yen ($5.5 billion) - about a third of last year's earnings.

Compared to the previous quarter, gross domestic product shrank 0.1 percent, the Cabinet Office said. Business investment - a main driver of Japan's six-year economic recovery since 2002 - dropped 1.7 percent from the previous quarter.

"As the global economy is expected to slow down for the time being, downward movements (in Japan) are expected to continue,'' Yosano said, according to Kyodo.

Since taking office in late September, Japanese Prime Minister Taro Aso has unveiled two economic stimulus packages in an effort to cushion the blow.

His latest 27 trillion-yen ($275.7 billion) proposal includes expanded credits for small businesses and a total 2 trillion yen ($20.4 billion) in cash disbursements to households.

At its last meeting, the Bank of Japan cut its key interest rate for the first time in more than seven years, lowering it to 0.3 percent, joining central banks around the world in trimming borrowing costs.

In its semiannual outlook report, the central bank slashed its projection for economic growth to just 0.1 percent for the year through March, compared with a 1.2 percent gain it projected in July.

It said both exports and domestic private demand have weakened.

The deteriorating conditions also recently led Masamichi Adachi, senior economist at JPMorgan Securities in Tokyo, to downgrade his outlook on the Japanese economy.

"We are now looking for a severe recession, similar to that during Japan's own financial market crisis in 1997 to 1998, and to the current US recession, in terms of depth of real GDP contraction,'' he said in a report.

Monday's data showed that net exports sapped 0.2 percentage point from growth, as the high cost of importing fuel eclipsed a slight increase in outbound shipments.

Imports rose 1.9 percent, while exports grew 0.7 percent.

Private consumption, which accounts for more than half of inflation-adjusted GDP, increased 0.3 percent from the previous quarter.

However, the rebound in consumer demand is unlikely to last, economists say. - AP

Monday, November 10, 2008

Buy Stocks or Hold Cash!!

I just read an article regarding the strategy to buy stocks or hold cash and I thought it might be suitable to post it over here.


OVER the past few weeks, as a result of the sharp plummet on the stock market, some investors regret not selling their stocks early as almost all of their stocks have been incurring huge losses.

However, the market recovery over the past few days caused some investors to again regret — not buying stocks when the stock market hit the bottom.

The decision to hold more cash or stocks is one of the most difficult decisions to make.

According to a study by Gary P. Brinson, L. Randolph Hood and Gilbert L. Beebower in 1986, 95% of the variance of fund returns was the result of the asset allocation decision.

Hence, the right asset allocation between cash and stocks plays a very important role in determining the returns of a portfolio.

In this article, we will look into two key strategies in asset allocation, namely the constant mix (CM) and the constant proportion portfolio insurance (CPPI) strategy.

The key principle behind the CM strategy is to buy stocks when the market drops and sell them when the market recovers.

As for the CPPI strategy, it is the reverse, which is to sell when the market plunges and buy when it recovers.

We should continue selling stocks until the portfolio drops near our pre-set floor level. Once the market touches our floor level, we will hold all cash and no stocks.

Under normal market conditions, the CM strategy is an excellent tool for rebalancing our portfolio.

This strategy requires us to rebalance our portfolio based on a constant mix, where we set a constant ratio of stocks to total assets.

Assuming we have only two asset classes, namely stocks and cash, we will maintain the desired invested portion in our portfolio regardless of market conditions.

If we have a portfolio value of RM100,000 and intend to maintain a stocks to total asset ratio of 60%, we invest RM60,000 in stocks and hold RM40,000 cash.

If the overall market drops by 10%, our stocks will drop by RM6,000 (10% of RM60,000) to RM54,000. Now, our portfolio will be RM94,000 (RM54,000 + RM40,000 cash)

Our invested portion will drop to 57.5% (RM54,000 of stocks divided by our new portfolio value of RM94,000).

In order to maintain a 60% investment, we need to have an invested portion of RM56,400 (0.6 x RM94,000).

So we will use RM2,400 in cash to buy stocks (RM56,400 - RM54,000).

After this portfolio rebalancing, our new invested portions will be RM56,400 in stocks and RM37,600.in cash.

This will bring the invested portion back to 60% with the total portfolio value of RM94,000.

The CM strategy will cause us to buy more stocks when the market drops. We will be able to acquire a lot of quality stocks at cheap prices.

However, we will continue buying more stocks while the overall market continues to plunge.

During a bear market, we will see our portfolio shrink in value as our earlier purchase price may get cheaper.

Unfortunately, not many investors can tolerate a drop in their portfolio value.

The CPPI strategy is appropriate for use in either a super bull or a super bear market.

It is not suitable for use on normal market periods as we need to sell stocks when the market drops and buy when the market is on the way up.

We may end up buying at high prices and selling them at low.

Under the CPPI strategy, the portion of money in stocks is based on the formula that:

Money in stock = M x (TA - Floor) Where M = stock investment multiplier (proportion), TA = total assets held in the portfolio, Floor = the minimum allowable portfolio value (zero risk level) and TA - Floor = cushion or funds that can be put at risk.

Assuming we have a portfolio value of RM100,000, if we set our minimum allowable value (Floor) = RM70,000 and stock multiplier (M) = 2, we will invest RM60,000 in stocks [2 x (RM100,000 – RM70,000)].

If the overall market drops by 10%, our stocks will drop by RM6,000 (10% of RM60,000) to RM54,000. Our portfolio will be RM94,000 (RM54,000 + RM40,000 cash).

Our invested portion needs to be reduced to RM48,000 as 2 x (RM94,000 – RM70,000).

We need to dispose of RM6,000 worth of stocks (RM54,000 – RM48,000) and bring the cash level to RM46,000.

Following this portfolio rebalancing, the portion invested in stock is RM48,000 with cash of RM46,000.

The total portfolio value is RM94,000.

We will continue to sell stocks and hold more cash as the market drops.

We will stop investing in stocks when our total portfolio hits the floor level (TA – Floor= 0).

The strength of the CPPI strategy is that our lowest portfolio value at any point in time will be RM70,000 whereas the CM strategy may cause our portfolio value to drop much lower if the market crashes further.

In conclusion, the choice of strategy will depend on the overall economic outlook.

Unless we know our economy will not drop into recession, otherwise — based on our current situation, the CPPI strategy has the advantage of protecting our minimum portfolio value at the floor level.


Ooi Kok Hwa is an investment adviser licensed by Securities Commission and managing partner of MRR Consulting.