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Inphyy Corner
10 years 6 months ago #18335
by inphyy
Replied by inphyy on topic Inphyy Corner
99% of Long-Term Investing Is Doing Nothing; the Other 1% Will Change Your Life
By Motley Fool Staff - December 23, 2013
French military leader Napoleon’s definition of a military genius was, “The man who can do the average thing when all those around him are going crazy.” It’s the same in investing.
Building wealth over a lifetime doesn’t require a lifetime of superior skill. It requires pretty mediocre skills – basic arithmetic and a grasp of investing fundamentals – practiced consistently throughout your entire lifetime, especially during times of mania and panic.
Most financial advice is about today — what should I do now, what stocks look good now. But the vast majority of the time, today isn’t that important. It’s just buying and waiting. Most of what matters as a long-term investor is how you behave during the 1% of the time everyone else is losing their cool.
To demonstrate this idea, let’s use Yale economist Robert Shiller’s market data for American stocks going back to 1900. We’ll be looking at three hypothetical investors: Each has saved $1 a month, every month, since 1990.
The first is Betty. She doesn’t know anything about investing, so she dollar-cost averages, investing $1 in the S&P 500 (an American market index) every month, rain or shine.
Sue, a CNBC addict, invests $1 a month into the S&P, but tries to protect her wealth by saving cash when the American economy is in recession, deploying her built-up hoard back into the market only after the country’s economy officially exits a recession.
Bill, a unit trust manager whose only incentive is to look right in the short run, invests $1 a month, but stops investing in stocks six months after a recession begins in the US, and only puts his money back into the market six months after a recession ends.
After 113 years of investing, who’s won? Boring Betty takes it by a mile:
What’s really fascinating about these numbers is that of the 1,353 months since 1900, only 321 of them have been altered for Sue and Bill, because that’s the number of months the US economy has been in recession.
If you dig further into the numbers, you’ll see that a much smaller percentage of months make up the bulk of the difference in returns. Ten percent of months explains two-thirds of the difference between dollar-cost averaging and sitting out during recessions. Five percent explains more than half.
According to analyst Eddy Elfenbein, over the last 20 years, the 24 best days accounted for the entire gain in the S&P 500. “The other 99.5% of the time has been a net loss.”
That’s not just an American phenomenon. In a similar study done by Fool Singapore writer Chong Ser Jing, missing the 10 best days over the past 21 years since May 1992 in Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI), would have turned an annual gain of 3.48% into only 0.12%. In other words, missing the 10 best days out of more than 5,000 trading-days in the Straits Times Index resulted in close-to-zero returns.
Coming back to the American market, every one of its top days took place during periods of sheer terror. Of the 20 best market days of all time, 17 were during the Great Depression, one was a few days after the crash of 1987, and two were during the depths of the 2008 financial crisis. Missing these days devastated investors’ long-term returns.
And most investors who missed them were those who sold out, or stopped buying, after stocks crashed and everyone around them were busy panicking. Those who try to avoid losses consistently end up missing even larger gains. That’s why Boring Betty, who is average all of the time, ends up above average overall.
A pilot once described his job as “hours and hours of boredom punctuated by moments of sheer terror.” Thing is, investing can be thought of as the same way. Your success as an investor will be determined by how you respond to punctuated moments of terror, not the years and years spent on cruise control.
Courtesy of The Motley Fool
By Motley Fool Staff - December 23, 2013
French military leader Napoleon’s definition of a military genius was, “The man who can do the average thing when all those around him are going crazy.” It’s the same in investing.
Building wealth over a lifetime doesn’t require a lifetime of superior skill. It requires pretty mediocre skills – basic arithmetic and a grasp of investing fundamentals – practiced consistently throughout your entire lifetime, especially during times of mania and panic.
Most financial advice is about today — what should I do now, what stocks look good now. But the vast majority of the time, today isn’t that important. It’s just buying and waiting. Most of what matters as a long-term investor is how you behave during the 1% of the time everyone else is losing their cool.
To demonstrate this idea, let’s use Yale economist Robert Shiller’s market data for American stocks going back to 1900. We’ll be looking at three hypothetical investors: Each has saved $1 a month, every month, since 1990.
The first is Betty. She doesn’t know anything about investing, so she dollar-cost averages, investing $1 in the S&P 500 (an American market index) every month, rain or shine.
Sue, a CNBC addict, invests $1 a month into the S&P, but tries to protect her wealth by saving cash when the American economy is in recession, deploying her built-up hoard back into the market only after the country’s economy officially exits a recession.
Bill, a unit trust manager whose only incentive is to look right in the short run, invests $1 a month, but stops investing in stocks six months after a recession begins in the US, and only puts his money back into the market six months after a recession ends.
After 113 years of investing, who’s won? Boring Betty takes it by a mile:
What’s really fascinating about these numbers is that of the 1,353 months since 1900, only 321 of them have been altered for Sue and Bill, because that’s the number of months the US economy has been in recession.
If you dig further into the numbers, you’ll see that a much smaller percentage of months make up the bulk of the difference in returns. Ten percent of months explains two-thirds of the difference between dollar-cost averaging and sitting out during recessions. Five percent explains more than half.
According to analyst Eddy Elfenbein, over the last 20 years, the 24 best days accounted for the entire gain in the S&P 500. “The other 99.5% of the time has been a net loss.”
That’s not just an American phenomenon. In a similar study done by Fool Singapore writer Chong Ser Jing, missing the 10 best days over the past 21 years since May 1992 in Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI), would have turned an annual gain of 3.48% into only 0.12%. In other words, missing the 10 best days out of more than 5,000 trading-days in the Straits Times Index resulted in close-to-zero returns.
Coming back to the American market, every one of its top days took place during periods of sheer terror. Of the 20 best market days of all time, 17 were during the Great Depression, one was a few days after the crash of 1987, and two were during the depths of the 2008 financial crisis. Missing these days devastated investors’ long-term returns.
And most investors who missed them were those who sold out, or stopped buying, after stocks crashed and everyone around them were busy panicking. Those who try to avoid losses consistently end up missing even larger gains. That’s why Boring Betty, who is average all of the time, ends up above average overall.
A pilot once described his job as “hours and hours of boredom punctuated by moments of sheer terror.” Thing is, investing can be thought of as the same way. Your success as an investor will be determined by how you respond to punctuated moments of terror, not the years and years spent on cruise control.
Courtesy of The Motley Fool
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10 years 6 months ago #18352
by inphyy
Hong Kong (HKEX) market will be closed for trading on 25-26 December 2013 due to Christmas Day.
Replied by inphyy on topic Inphyy Corner
Hong Kong (HKEX) market will be closed for trading on 25-26 December 2013 due to Christmas Day.
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10 years 6 months ago #18355
by inphyy
Replied by inphyy on topic Inphyy Corner
Is This Year’s Plunge in Gold Prices Just the Beginning?
By Motley Fool Staff - December 26, 2013
Coming into 2013, investors in gold had enjoyed 12 straight years of gains, giving them high expectations for the future of the yellow metal. Yet the price of gold in 2013 plunged by more than 25%, losing US$475 per ounce and remaining just barely above the US$1,200 mark in recent times.
In hindsight, it’s important to understand what precipitated the big decline in the price of gold in 2013 and to figure out what investors can learn from their mistaken optimism.
What caused gold prices to decline in 2013?
In looking at what happened to the price of gold in 2013, it’s easy to forget that the gold market had actually been setting the stage for a substantial pullback for several years. Gold hit all-time record highs around US$1,900 per ounce in August 2011 before a substantial correction throughout the remainder of the year.
Subsequent moves higher in 2012 fell short of that US$1,900 high-water mark, leaving those who use various technical-analysis methods somewhat nervous about the yellow metal’s prospects entering the year.
But the real problems for gold became evident to mainstream investors in April, when gold prices plunged US$200 in a two-day span to their lowest levels in two years. With the banking crisis in Cyprus going on at the time, gold investors feared that the island nation’s central bank would have to liquidate its gold reserves in order to shore up its financial system. That change in sentiment reversed the conventional thinking that central-bank purchases would continue to support the price of gold through 2013.
From there, further gold-price declines stemmed from increasing worries about an imminent shift in the US Federal Reserve’s monetary policy.
For years, one of the underpinnings of the bull-market move in gold had been the Federal Reserve’s aggressive moves to keep interest rates low. Yet in June, the Federal Reserve first signalled that it would consider pulling back on its latest round of quantitative easing, and even the possibility of such a move sent gold still lower, touching the US$1,200 level.
An investor exodus?
After the initial drop in prices, two things happened.
One was that gold miners’ shares got hit even harder, as the decline in the price of gold had an even more dramatic impact on their profit margins. Many small producers suddenly found themselves unprofitable, and even major players such as Newmont Mining and Goldcorp (both listed on the New York Stock Exchange in the USA) took big hits.
Specifically, the fall in gold prices led to major decisions to mothball even some of the most promising gold exploration projects. Barrick Gold, another NYSE-listed gold miner, decided to suspend its exploration at its Pascua-Lama site in Chile, threatening not only its own profits but also those of publicly-listed silver-streamer Silver Wheaton, which had taken a stake in the potential silver production from the mine.
In other cases, loss of economic viability made decisions from other producers to suspend exploration efforts easier to make but more painful for shareholders.
Second, investors started pulling out of once-popular ways to play the gold market. SPDR Gold Shares (SGX: O87), an exchange traded fund that allows investors to buy shares that aim to track the price of gold, saw a dramatic drop in the number of shares outstanding.
As investors sold off their ETF holdings, market specialists redeemed blocks of ETF shares in exchange for bullion, reducing the amount of gold that SPDR Gold Shares owned. Coming into 2013, the gold ETF had more than 43 million ounces of gold in its reserves, with a value of US$72 billion. Now, the ETF holds about 26 million ounces of gold, down 40% from its year-end 2012 levels, and the drop in gold prices has made that bullion worth just around US$31 billion.
All told, the SPDR Gold Shares ETF has lost 29% of its value since the start of 2013, a very painful result for local investors, especially considering how Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI), is down just 1.7% in the same time period.
What’s ahead for gold?
Looking to 2014, gold prices could easily remain under pressure for some time. With the Federal Reserve’s decision last week to start reducing its bond-buying activity, interest rates could continue to move higher in the coming months, putting more pressure on gold investors to liquidate their holdings in favor of income-producing assets.
If the moves in the price of gold in 2013 are any indication, sentiment has never been weaker, and whether that will produce a contrarian rally in 2014 or a continuation of the downward trend remains to be seen.
Courtesy of The Motley Fool
By Motley Fool Staff - December 26, 2013
Coming into 2013, investors in gold had enjoyed 12 straight years of gains, giving them high expectations for the future of the yellow metal. Yet the price of gold in 2013 plunged by more than 25%, losing US$475 per ounce and remaining just barely above the US$1,200 mark in recent times.
In hindsight, it’s important to understand what precipitated the big decline in the price of gold in 2013 and to figure out what investors can learn from their mistaken optimism.
What caused gold prices to decline in 2013?
In looking at what happened to the price of gold in 2013, it’s easy to forget that the gold market had actually been setting the stage for a substantial pullback for several years. Gold hit all-time record highs around US$1,900 per ounce in August 2011 before a substantial correction throughout the remainder of the year.
Subsequent moves higher in 2012 fell short of that US$1,900 high-water mark, leaving those who use various technical-analysis methods somewhat nervous about the yellow metal’s prospects entering the year.
But the real problems for gold became evident to mainstream investors in April, when gold prices plunged US$200 in a two-day span to their lowest levels in two years. With the banking crisis in Cyprus going on at the time, gold investors feared that the island nation’s central bank would have to liquidate its gold reserves in order to shore up its financial system. That change in sentiment reversed the conventional thinking that central-bank purchases would continue to support the price of gold through 2013.
From there, further gold-price declines stemmed from increasing worries about an imminent shift in the US Federal Reserve’s monetary policy.
For years, one of the underpinnings of the bull-market move in gold had been the Federal Reserve’s aggressive moves to keep interest rates low. Yet in June, the Federal Reserve first signalled that it would consider pulling back on its latest round of quantitative easing, and even the possibility of such a move sent gold still lower, touching the US$1,200 level.
An investor exodus?
After the initial drop in prices, two things happened.
One was that gold miners’ shares got hit even harder, as the decline in the price of gold had an even more dramatic impact on their profit margins. Many small producers suddenly found themselves unprofitable, and even major players such as Newmont Mining and Goldcorp (both listed on the New York Stock Exchange in the USA) took big hits.
Specifically, the fall in gold prices led to major decisions to mothball even some of the most promising gold exploration projects. Barrick Gold, another NYSE-listed gold miner, decided to suspend its exploration at its Pascua-Lama site in Chile, threatening not only its own profits but also those of publicly-listed silver-streamer Silver Wheaton, which had taken a stake in the potential silver production from the mine.
In other cases, loss of economic viability made decisions from other producers to suspend exploration efforts easier to make but more painful for shareholders.
Second, investors started pulling out of once-popular ways to play the gold market. SPDR Gold Shares (SGX: O87), an exchange traded fund that allows investors to buy shares that aim to track the price of gold, saw a dramatic drop in the number of shares outstanding.
As investors sold off their ETF holdings, market specialists redeemed blocks of ETF shares in exchange for bullion, reducing the amount of gold that SPDR Gold Shares owned. Coming into 2013, the gold ETF had more than 43 million ounces of gold in its reserves, with a value of US$72 billion. Now, the ETF holds about 26 million ounces of gold, down 40% from its year-end 2012 levels, and the drop in gold prices has made that bullion worth just around US$31 billion.
All told, the SPDR Gold Shares ETF has lost 29% of its value since the start of 2013, a very painful result for local investors, especially considering how Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI), is down just 1.7% in the same time period.
What’s ahead for gold?
Looking to 2014, gold prices could easily remain under pressure for some time. With the Federal Reserve’s decision last week to start reducing its bond-buying activity, interest rates could continue to move higher in the coming months, putting more pressure on gold investors to liquidate their holdings in favor of income-producing assets.
If the moves in the price of gold in 2013 are any indication, sentiment has never been weaker, and whether that will produce a contrarian rally in 2014 or a continuation of the downward trend remains to be seen.
Courtesy of The Motley Fool
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