The Next Big Crash - Are You Prepared?

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copy and pasted from motley fool newsletter

Dear Foolish readers,
David Kuo - Director, Motley Fool SingaporeIf you thought that Ben Bernanke was going to exit quietly from the global stage, then you could not have been more mistaken. The Federal Reserve chief's parting gift to the world was to set in motion the winding down of America's monetary easing activities.

He started it. So it is only right that he ends it too.

After pumping what has amounted to several trillion dollars into global economies, Bernanke has said that enough is enough. He believes that there is now sufficient money sloshing around the world to start driving economic growth in the US.

And he is probably right.

Signs of life

Consumer spending in the US is growing and a rise in exports would suggest that the world's largest economy is starting to put the worst of the 2008 recession behind it. Employment in the US is gradually improving, though more needs to be done, and America's housing market is showing signs of life.

America is growing again, albeit in fits and spurts. However, not everyone is delighted with the Federal Reserve's decision to taper. India's central bank governor, Raghuram Raja, has blamed the US and other western nations for the financial tremors that have shaken emerging markets.

From Russia to South Africa, and from Argentina to Turkey, emerging markets have been noticeably rattled by the withdrawal of easy money. This has caused the Russian rouble to drop to its lowest level for five years. In Turkey, the central bank has had to double interest rate in an attempt to prop up its fragile currency.

Global markets appear to be in panic mode and investors are left wondering how they should act.

Should I stay or should I go?

Some have bailed out. Some are hanging on in the hope that the market rout might be short-lived. However, the smart investor will be looking for buying opportunities.

The question we should be asking ourselves right now is whether we believe that the world economy will be better and stronger in five years' time.

If you believe it could be, then the correct response to the market turmoil is to focus on companies that can capitalise on growth in the US. We might also want to look for businesses that could exploit the nascent recovery in Europe.

Additionally, there are many firms that could take advantage of China's biggest policy shift for two decades - a move from international demand to more sustainable and controllable growth based on domestic consumption. And lest we forget, Japan is waking up from twenty years of deep sleep.

A 30-second guide

Legendary investor Peter Lynch once said that that if you spend more than 13 minutes analysing economic and market forecasts, then you have just wasted 10 minutes. So here is a potted guide to what is happening in the world. It should take no more than 30 seconds to summarise.

Together, the economies of the US, the Eurozone, China and Japan account for almost 60% of the world's economic output. And if the global economy can grow at around 3%, it would imply that the size of the world economy could double from around $70 trillion today to around $140 trillion by 2038.

Over the next 24 years, as the global economy doubles in size, there will be many winners and there will undoubtedly be some losers too.

Our job as a private investor is to identify winning stocks from the vast pool of shares available to us. You can't do that properly if you are constantly distracted by worries about political and economic events and the gyration of global stock market indices on an hour-by-hour and minute-by-minute basis.

Investing secret

Within the Straits Times Index, there are no fewer than 27 companies that generate revenues and profits outside of Singapore. These include Global Logistic Properties, which derives most of its revenue from China and Japan and Sembcorp Industries, which does as much business outside of Singapore as it does within.

Others that include SingTel and ComfortDelGro have been increasing their global exposure to diversify their geographic risk.

The upshot is that market turmoil should not be seen as a threat to your wealth. Instead, it should be viewed as a golden opportunity to start bolstering your long-term returns.

The secret to investing, which is really not a secret at all, is to buy when prices are low. That rarely happens when everything is going swimmingly. It inevitably occurs when the world is wallowing in worry, which is precisely what it is doing now.

Foolish best

David Kuo
David Kuo
Director, Motley Fool Singapore
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Sorry to pop your bubble guys but shouldn't we as value investors focus more on the underlying value of the business and buy them up when an acceptable margin of safety presents itself rather than trying to time the market ?
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(05-02-2014, 05:23 PM)InvestArk Wrote: Sorry to pop your bubble guys but shouldn't we as value investors focus more on the underlying value of the business and buy them up when an acceptable margin of safety presents itself rather than trying to time the market ?

what do you define as a acceptable margin of safety?

i think whether we like it or not, value investors end up "timing" the market, in terms of trying to buy "low" (low p/e, low p/b, net-nets) and sell high (huge p/e, crazy p/b, etc).

i think they don't set out to catch the top or buy in the bottom per se but buy low and sell high ends up being the way it works.
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"when" inevitable refers to timing.

A: When are you having lunch today?
B: 12:30pm.
C: When I am hungry.

Same question different answers. No one is more right than other. Smile
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(05-02-2014, 06:09 PM)godjira1 Wrote:
(05-02-2014, 05:23 PM)InvestArk Wrote: Sorry to pop your bubble guys but shouldn't we as value investors focus more on the underlying value of the business and buy them up when an acceptable margin of safety presents itself rather than trying to time the market ?

what do you define as a acceptable margin of safety?

i think whether we like it or not, value investors end up "timing" the market, in terms of trying to buy "low" (low p/e, low p/b, net-nets) and sell high (huge p/e, crazy p/b, etc).

i think they don't set out to catch the top or buy in the bottom per se but buy low and sell high ends up being the way it works.
Hi mate!
(Australian accent), What do you think i have been doing all these years?
Well said.
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
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After being in a few financial crisis, latest being in the 08/09 sub prime episode which is ignited by low rates and several other factors
Here are some views.

1. No low is too low. $0 is the lowest a stock can go during a real crisis. Average down during a crisis? Good luck.
2. We talking about a crash/crisis now? No kidding? We're far from it, Dow Jones is just a bit off its all time high.
3. We will never know what is going to cause the next crisis, we only know it will come, and it will go away.
4. There are more immediate warning signs about the current state of residential property prices in Singapore than of the U.S. debt.
Something bad will eventually happen to U.S. debt but it may take a long while, what is more immediate is falling property prices in sg.
5. It's interesting situation in U.S. as it's got some of the world's best companies and the government is now is in its worst state of financial
health, not sure what's going to happen next. Something will happen.
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Think many forumers has given good insights on timing. As much as we are value investors, timing is inevitable. Furthermore what is the difference between 0.6X and 0.5X book in terms of undervaluation? 20% price difference.

When we do an analysis, and if we change the date to 3 years ago, does it remain the same? If so, why not buy 3 years later? Besides fundamentals, there has to be catalysts for rerating on either the asset layer, business layer or the structure layer.
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
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(04-02-2014, 10:58 PM)wahkao Wrote: [Image: cBodJuj.jpg]

Are we at stage 13 now ? Big Grin
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(06-02-2014, 07:26 AM)specuvestor Wrote: When we do an analysis, and if we change the date to 3 years ago, does it remain the same? If so, why not buy 3 years later? Besides fundamentals, there has to be catalysts for rerating on either the asset layer, business layer or the structure layer.

Yes it makes sense. However, most of the time we only know on hindsight. There are stocks I bought in the past, at deeply discounted value but still remained deeply discounted years after. Catalysts are important and needed for a stock to revalue, something I now ask myself before I buy.
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(06-02-2014, 11:02 AM)Ben Wrote:
(06-02-2014, 07:26 AM)specuvestor Wrote: When we do an analysis, and if we change the date to 3 years ago, does it remain the same? If so, why not buy 3 years later? Besides fundamentals, there has to be catalysts for rerating on either the asset layer, business layer or the structure layer.

Yes it makes sense. However, most of the time we only know on hindsight. There are stocks I bought in the past, at deeply discounted value but still remained deeply discounted years after. Catalysts are important and needed for a stock to revalue, something I now ask myself before I buy.

Fundamentals are not on hindside. It takes effort to study the company but ANYONE with a basic accounting or business understanding can do it. That's why I have heavy worded comments on Eratat and Blumont, and some others.

Catalysts on the other hand is more real time. You need to know and understand the newsflows before it even becomes numbers. That separates finance people with accounting people. Investors are concern mostly about the future, but history is good guiding post.

That's why for people that don't have time or interest, I always suggest index funds. I wouldn't spend effort trying to figure out the medical profession either, or how to cut my hair. Active investing is not for everyone.
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
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