Buffett on Banks: CNBC Interview

CNBC's Becky Quick interviewed Warren Buffett yesterday.

Interview With Warren Buffett: CNBC Transcript

Earlier in the interview, Buffett said that:

"I think the stock market generally is the best place to have money..."

Then he added:

"...there's no question that worldwide there is some slowing down going on."

He also made the following comments about Wells Fargo (WFC), U.S. Bancorp (USB), and banking in general:

"In the last week, I bought some Wells Fargo."

Then he later said...

"But we only have 430-something million shares, so I didn't feel we had enough."

Here's his explanation why banks won't be as profitable (and basically shouldn't be if you want a safe and sound financial system) as they were (or at least seemed to be) going forward.

"The profitability of banking is a function of two items. Return on assets and assets to equity.

And return on assets is not going to go up particularly. USB has done the very best on that. They're at about 1.7 percent. Wells is between 1.4 and 1.5 percent. But most banks are lower. Now, if you have 20 times leverage and you're getting 1.5 percent on assets, you're making 30 percent on equity.

And that was not lost on people a few years back. And they pushed balance sheets, and they're still pushing them in Europe. But they've cut back on that here. So they will not be having the leverage in the banking system. It'll be even more restricted among the bigger banks as part of the new rules, and you won't be able to earn more on assets than before, and so with less leverage in the same return on assets, you will have a lower return on equity. Banks were —banks were earning 25 percent on tangible equity not so many years ago. And really, that's kind of a crazy number. You know, for a basic semi-commodity business, you really don't want to allow that."

Yet it was allowed. Then we all had the great misfortune to see what happens when huge leverage is combined with the use of other people's money guaranteed, explicitly or not, by the government and a lack of sensible oversight. More from Buffett:

"...people got to push and push it and push it, and then the government says, 'Listen, we got a vested interest in this. You're using our credit, in effect, and if you want to play, you're only going to have 10-to-1, or some number like that.' So the returns on banks have come down. It's still a good business."

A well run bank can still be a good businesses. He added that"...Wells is very well run. And it's a good business."

A bank with 10x leverage* that can generate 1.4 or 1.5 percent return on assets (ROA) naturally has a mid-teens return on equity (ROE).

That math is simple but I think it is fair to say investing in most banks is far from easy to do. A bank that has mid-teens ROE bought near book value should**, in the long run, produce something like mid-teens returns for shareholders.

Should, that is, if (and it's a big IF) the bank can keep itself from getting into trouble down the road (unstable funding sources, insufficient liquidity, unwise investments/trades, dumb lending practices, foolish use of derivatives, etc.) that ends up wiping out all or part of the bank's per share value for common shareholders.

With leveraged institutions, an awful lot value can be destroyed in a very short amount of time (as we saw not all that long ago).

One of the weaknesses of some banks is that they lack the core earnings capacity of a Wells Fargo or U.S. Bancorp.

Wells Fargo's ROE in the most recent quarter was 13.4 percent.

U.S. Bancorp's ROE in the most recent quarter was 16.5 percent.

Whether they'll earn those kind of returns over the long haul can't really be known but it does provide some indication of relative capacity to earn.

In contrast, with similar leverage, some other banks seem likely to, post-financial crisis, have persistent below double-digit ROE (this starts with having inherently inferior ROA then not being able amplify with leverage as much). To me, that's generally an insufficient return for what are still, even if less so than before the financial crisis, by their nature rather leveraged institutions.

The problem isn't just that the returns are subpar considering the risks.

The problem is more that banks with lower returns have less capacity to absorb credit and other losses (lower pre-tax pre-provision earnings for every dollar of assets).

Once the next inevitable economic downturn or financial crisis occurs, those banks generating lower returns, all else equal, are likely the less durable institutions (from a common shareholder perspective that is). It takes less stress to begin weakening their balance sheet and more easily results in the need to raise capital (or worse). Since stressed financial institutions usually have to raise capital when the share price is quite cheap, it usually ends up being materially dilutive, and very expensive, for existing shareholders to say the least.

The returns of a bank should be considered in the context of their ability to withstand potentially severe economic and systemic stress. Like any investment, buying common shares of a bank requires a  margin of safety. Yet, with a weaker bank, simply adjusting the estimated intrinsic value lower by some percentage or buying with a bigger margin of safety to arrive at an appropriate price to pay is usually not enough. Eventually, it's more a go/no go decision. There's a threshold where it's just better to avoid the common stock of weaker banks altogether no matter how cheap they may seem.

A higher quality bank, though selling at a seemingly more expensive share price, may be intrinsically well worth the additional multiple of earnings or book value that must be paid.
(Only up to a point, of course. Margin of safety is still all-important.)

The bottom line is reduced earnings capacity relative to assets can significantly increase the risk of permanent capital loss for the common shareholders of a financial institution. Like any commodity/semi-commodity business, it's better to own the one's that will still be profitable in tougher environments when their weaker competitors are struggling to do so. The stronger banks are not just less likely to destroy intrinsic value during periods of economic stress (when credit losses are at their highest). The one's in a position of strength should also be able to make strategic moves that actually increase intrinsic value while weaker competitors are in retreat.

So it's not just that Wells or U.S. Bancorp generate higher returns, it's that they should be able to do so at less risk. It's their relative and absolute capacity to absorb losses from loans/ investments/ trades that go sour (and other liabilities that may arise). Ultimately, they earn superior returns (via various fees, gains, interest income) on their deposits (generally lower cost stable funding) than many competitors.

To a certain, but limited, extent those comfortable reading financial statements should be able to figure out if a bank has an advantage in this regard. Yet, annual/quarterly reports and other filings is unlikely to tell the whole story. Unfortunately, investing in any bank requires a subjective judgment (some might say a leap of faith) about the quality of management and the culture of the institution. In other words, there's no way that all the possible troubles a bank may get into will be obvious just from reading SEC filings. That's true of any enterprise but, considering the leverage involved, misbehavior or stupidity has the potential to be much more expensive for a bank shareholder.

Wells and U.S. Bancorp may not be as complex as some other large banks, but they are still hardly simple to analyze.***

Later in the interview, Buffett added this on the European banks:

"The European banks still are leveraged to an extraordinary extent... But they aren't earning 1.5 percent on deposits either."

Some European banks not only still have too much leverage but also don't earn nearly as much on their deposits (and some have funding that's of lesser quality). So they are not just riskier investments because of the excessive leverage. They are also riskier because their inherently inferior earnings provides them with less ability to absorb losses before the balance sheet, and eventually per share intrinsic value, takes a hit.

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Budget 2013: Becoming the Next Greece

Consistently persistent fiscal deficit is the best description I have for long time ruling coalition government. Fiscal deficit happens when a government's total expenditures exceed the revenue that it has collected (this excludes money from borrowings). An accumulation of yearly fiscal deficits is our national debt. Fiscal deficit is not always a bad thing. However, persistent deficits even during times of economic growth shows a major lack in spending discipline. When the economy is doing well, a balanced budget strives for a surplus so in times of recession a government can meet its debt obligations. This is the exact opposite in Malaysia, the persistent fiscal deficits are adding more and more to our total national debt further burdening future generations with ballooning national debt.

Practically when drafting a national budget, the most likely number the government looks at is the country's economic growth via Gross Domestic Product (GDP) which is how much recognized goods and services a country can produce in a given year. When GDP grows, revenue is expected to go as more tax is collected and other revenues go up as well. There is an increasing risk of a double dip global recession and slower economic growth projected for 2013/2014 due to sapping demand from Eurozone, India and China. Given the path we are currently on (as you will see below later), higher deficits will happen. Worse come if we do enter into a recession, we will definitely see record level deficits and national debt levels. By the time, as the government cannot fulfill it's debt obligations through any mathematically possible resolution, we will be the "Greece of Asia".

It is worth to highlight that the country has been running fiscal deficits for the last 14 years since the financial crisis of 1999 and is expected to continue unless we cut unnecessary spending. Where do we spend our money then?

Operating expenditure has now hit a high of 80% of our national budget allocation leaving a highly disproportionate % left for development spending. The reason of increase spending under the "operating" tab can be attributed to reckless handouts/promises of bonuses. What are the implications of such irresponsible spending?

The country is built up around amassing more and more debts. The country's national debt (domestic debt + foreign debt) is just short of its self-imposed ceiling of 55%. There is no political will to dismantle our humongous bureaucracy, a stage of over-governance. Yet we have someone in parliament playing the role of "Santa Claus" year after year. Now you will ask me, who funds the government then? We can't just print money like the United States so the Malaysian government funds these yearly deficits by borrowing, welcome to Malaysian Govt Securities (MGS). People often refer them as Malaysian bonds.

As much as RM120 billion is official invested in MGS by the EPF, this comes from their latest 2011 Annual Report. EPF also lends money under loans/bonds to others. It is surprising to see that the category "Others" is deemed as "SOCSO, nominee and trustee companies, co-operative societies, foreign holders and other entities" from our National Economic report. EPF on loans/bonds == Others? Let's assume yes, and give a 10% error tolerance which makes up to 50% of our national debt is owed to the EPF!! The investment size of EPF is RM469 billion as of year 2011. Effectively this means our government has already spent ~50% of all your savings in the EPF. If say I take just the MGS figures, it's still a staggering 25.5%!. One very big egg in a basket. 

Let me paint a bleaker picture. The EU central bank back in 2011 agreed to extend financial aid to the Govt of Greece on the condition they adopt massive austerity measures and that the lenders take a haircut of 50% of all outstanding loans. After all, they continually lent to a borrower that absolutely shows NO commitment whatsoever to cut expenses in order to service their debts. Just imagine if the EPF was in the same situation and asked to take a 50% haircut of their debts from the Malaysian Govt. You will only have 70% of your retirement money back (factoring the exposure % of EPF as EPF invests 30% of money into equities as well)!!!

It's no use digging deeper or reading line by line of Budget 2013 transcripts. It the same thing all over again for the past 14 years. How much public money has been lost through corruption? How much of it has been used to subsidise big corporations instead of the people? How much of it has been used to pay for ‘commission’ for big business deals involving the government? We may never know how much, but we do know that it is one hell of an amount, it's now well over RM500 billion! Malaysia is so fucking rich to this extent that the C4 has not exploded. But how much longer can we take this? There's a timer to every bomb.

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Sector Watch: Spotlight on Defensive Strategy

About four and a half years ago, Folio Investing launched an equity (e.g. stock) portfolio that focused on reducing the impact of market volatility.  So-called defensive stocks are those which tend to be fairly insensitive to the mood of the market as a whole.  Conventional wisdom suggests that demand for band-aids, electricity and paper does not go up when the market is exuberant, but neither does it collapse when the market swoons.  The conventional wisdom also suggests that these stocks will tend to under-perform the broader market during rallies and, over the long-term, that a portfolio of these stocks will deliver modest returns.  Our research suggested, however, that it was possible to create a portfolio of defensive stocks that would provide returns to keep up with rallies in the broader market, while still substantially reducing the impact of market volatility.  Folio Investing launched theDefensive Strategy Folio that incorporated this research on February 28, 2008.

Performance

From February 28, 2008 through September 5, 2012, the Defensive Strategy Folio has provided an annualized return of 6.28% vs. 2.72% per year for the S&P 500 (including dividends).  The Defensive Strategy Folio has performed well over a 4.5-year period during which the S&P 500 has struggled.  This is what we expect for a defensive strategy.  What is truly notable, however, is that the Defensive Strategy Folio has kept up with the robust rally in the S&P 500 over the past three years as well.  The chart below shows the total return for an investment in the S&P 500, assuming dividends are reinvested, from August 31, 2009 through August 30, 2012.  Over the period, the S&P 500 has returned a cumulative 46.7% (annualized return of 13.6% per year).  Over the same three-year period, the Defensive Strategy Folio has slightly out-performed the S&P 500 with a total return of 48.3% and has done so with less volatility.  As the chart below illustrates, the Defensive Strategy Folio has followed the broad rally but has not swung up or down as much as the S&P 500 during short-term rallies and drops.  The chart of the Defensive Strategy performance is for funded performance for an account maintained at Folio Investing.

Defensive Strategy Folio vs. S&P 500 (8/31/2009-8/31/2012)

There are a number of possible explanations for the substantial out-performance of the Defensive Strategy since it was launched in February of 2008.  Certainly, there is an element of chance.  This Folio was introduced shortly before one of the worse market crashes in history and defensive industries tend to thrive in these conditions.  Our research in 2007 suggested that the Defensive Strategy would out-perform in down markets but also would out-perform the S&P 500 across a range of market conditions.  The fact that the Defensive Strategy Folio has slightly out-paced the S&P 500 during its impressive three-year rally supports our conclusions.

Strategy Overview

The Defensive Strategy Folio is not simply a collection of stocks picked from defensive sectors.  A key part of our analysis was to combine securities in the Folio that provided effective risk offsets.  In other words, these stocks were selected both on the basis of their individual attributes, and on how well they worked together to mitigate risk.  This was accomplished using a sophisticated statistical analysis that accounts for the correlations and risk levels of each stock on a trailing historical basis and using forward-looking Monte Carlo simulations.

On an individual basis, the stocks that comprise the portfolio tend to have low Beta, a statistical measure of how much the returns on a stock are driven by the broader market.  Defensive stocks tend to have low Beta.  The current Beta for the entire Folio is 73% as compared to 100% for the S&P 500.  There is a growing body of research that finds that low-Beta stocks out-perform their higher-beta counterparts (which are often ‘growth’ stocks) over the long run.  This research supports our own findings, albeit on the basis of a different line of reasoning.

Commentary: The Case for the Defensive Strategy

There are a variety of reasons why the type of strategy used in this portfolio may be attractive in the future.  First, while the economy is recovering from a deep recession, the economic growth as we emerge may continue to be modest.  In addition, the overhang of consumer debt may substantially limit the rebound of discretionary consumer spending.  For these reasons, companies which provide necessary basic products and services are quite likely to out-perform relative to stocks of companies that sell discretionary products.  While this narrative is plausible, any type of economic forecast is fraught with uncertainty.  The Defensive Strategy Folio allows investors to participate in economic recovery and growth, as we can see by the performance over the past three years, as well as providing some protection from market volatility.

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The Cost of Complexity

In [Donald] Yacktman's view, businesses with both low capital intensity and low cyclicality (Coke: KO, Pepsi: PEP, and P&G: PG are the specifics mentioned) are likely to earn the highest returns.

The benefits owning shares in quality businesses long-term (especially if bought when occasionally selling at a fair or better than fair price) comes down to potential returns relative to risk.

Simple to understand? Certainly. Easy to implement as a core investing approach? A bit less so.  

The evidence to support the merits of owning shares in these kinds of businesses long-term isn't hard to find nor is it particularly complicated. A simple insight can sometimes trump details and complexity. When it occasionally does, use it. What's simple can beat the complex and, in fact, often does.

Yet simple isn't always better. It is just that what is used should be neither more simple nor more complicated than it need be.

It's possible, of course, to make things too simple.

Science views complexity as a cost. That additional complexity must be justified by the benefits. 

"In science complexity is considered a cost, which must be justified by a sufficiently rich set of new and (preferably) interesting predictions..." - From the book "Thinking, Fast and Slow" by Daniel Kahneman

Well, investors ought to view complexity in a similar way. 

Investing is always about getting the best possible returns, at the lowest possible risk, within one's own limits. Since it is already inherently enough of a challenge, there's no need to make it more so by adding unnecessary complexity. Don't use calculus when arithmetic will do the job. Save the more powerful tools for when they can actually add value (and especially avoid some of the worse-than-useless overly complex theories taught by modern finance).

Now, just because something is relatively simple doesn't mean lots of homework isn't necessary.

There absolutely is lots of hard work involved. 

The reason for and advantage of owning shares in some of the quality franchises -- superior returns at less risk if bought well -- is clearly not all that difficult to understand. Having enough discipline, patience, and the right temperament to stick with it is the tougher part. 

Well, that and maybe not becoming distracted by the various forms of investing alchemy cloaked in incomprehensible faux sophistication: 

"...most professionals and academicians talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising 'Take two aspirins'." - Warren Buffett in the 1987 Berkshire HathawayShareholder Letter

Quality stocks. Less drama. Little mystery. Effective. 

Think of them as the "two aspirins" of investing. 

I'm sure that many will still choose to own shares of the highest quality stocks primarily for "defensive" purposes. I doubt that changes anytime soon. Somehow, the thinking goes, they'll jump in and out while not having mistakes and frictional costs to subtract from total return. Sounds good in theory. I'm sure there are even some who can make that sort of thing work for them. There are likely even more who incorrectly think they can.

So, despite the evidence, investing in high quality businesses long-term remains an approach that's still not frequently employed.*
(I mentioned in the previous post that Jeremy Grantham has described these high quality businesses as the "one free lunch" in investing.)

It's a subject I've covered many times on this blog (okay...maybe too many times based upon the number of related posts I have listed below) because it just happens to have been and remains a cornerstone of investing for me.

Unfortunately, investors need more patience now compared to when valuations were quite attractive not too long ago (though at least it's not nearly as bad valuation-wise as it was a decade or so ago). Most of the best quality enterprises are rather fully valued right now.
(Over the shorter run -- less than five years -- anything can happen as far as relative performance goes. It's the longer time horizons -- more like twenty years or so -- that the "offensive" merits of high quality businesses become more obvious. A full business cycle or two. I realize that some, or maybe even many, market participants consider five years to be longer term these days.)

Still, it makes sense to embrace any simple, understandable, yet effective method of delivering above average risk-adjusted returns while generally avoiding the esoteric.**

Finally, the assessment of risk is necessarily imprecise and is certainly not measured by something like beta. Real risks does not lend itself to the all too popular quantitative methods. What can be measured, should be, but much of the important stuff can't be measured all that well. It requires a mixture of both quantitative and qualitative.

"You've got a complex system and it spews out a lot of wonderful numbers that enable you to measure some factors. But there are other factors that are terribly important, [yet] there's no precise numbering you can put to these factors. You know they're important, but you don't have the numbers. Well practically everybody (1) overweighs the stuff that can be numbered, because it yields to the statistical techniques they're taught in academia, and (2) doesn't mix in the hard-to-measure stuff that may be more important. That is a mistake I've tried all my life to avoid, and I have no regrets for having done that." - Charlie Munger in this speech at UC Santa Barbara

When it comes to managing risk (and many other things), it's often a mistake to allow the less important but easy to measure stuff to triumph over what's more meaningful if tougher to measure. 

Adam

Long positions in KO, PEP, and PG established at much lower than recent market prices. No intention to buy or sell shares near current valuations.

Related posts:
The Quality Enterprise: Part II - Aug 2012
The Quality Enterprise - Aug 2012
Consumer Staples: Long-term Performance, Part II - Dec 2011
Consumer Staples: Long-term Performance - Dec 2011
Grantham: What to Buy? - Aug 2011
Defensive Stocks Revisited - Mar 2011
KO and JNJ: Defensive Stocks? - Jan 2011
Altria Outperforms...Again - Oct 2010
Grantham on Quality Stocks Revisited - Jul 2010
Friends & Romans - May 2010
Grantham on Quality Stocks - Nov 2009
Best Performing Mutual Funds - 20 Years - May 2009
Staples vs Cyclicals - Apr 2009
Best and Worst Performing DJIA Stock - Apr 2009
Defensive Stocks? - Apr 2009

* To me, the shares of many of these businesses are not especially cheap these days even if they have been at times over the past few years. It's worth waiting for a good price then acting decisively when valuation is attractive. Since each is unique, the necessary homework to build some depth of knowledge and understanding can be done while waiting for the right price. These may be lower risk but they're certainly not no risk. Margin of safety still matters. There's no way around the preparation and patience required in investing. After figuring out what's attractive at a certain price lots of waiting is inevitably necessary.
** Some may become bored by the straightforwardness. A few may even choose more complicated, high risk journeys just to enhance the challenge. Long-term Capital Management (LTCM) comes to mind. Charlie Munger said it best in this 1998 speech:

"...the hedge fund known as 'Long-Term Capital Management' recently collapsed, through overconfidence in its highly leveraged methods, despite IQ's of its principals that must have averaged 160. Smart, hard-working people aren't exempted from professional disasters from overconfidence. Often, they just go aground in the more difficult voyages they choose, relying on their self-appraisals that they have superior talents and methods." - Charlie Munger's 1998 speech to the Foundation Financial Officers Group

Uncomplicated, understandable, yet effective ways to produce attractive risk-adjusted returns should be embraced. Sophisticated or esoteric methods, especially those involving leverage, should not. Best to be wary of overconfidence in any profession. It can get even the most talented into trouble.

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Ingens, Panaroma Activity 2 Show

KUALA LUMPUR: Shares of Ingenuity Solutions Bhd fell 25.7% in afternoon trade on Tuesday ahead of a press conference called by substantial shareholder Chin Boon Long to clear the air over the recent developments.

At 4.19pm, the share price of the ACE Market-listed company was down nine sen to 26 sen. There were 96.36 million shares done.

Ingenuity-WA fell 1.5 sen to nine sen with 39.92 million units transacted.

The FBM KLCI slipped 0.27 of a point to 1,653.63. Turnover was 1.14 billion shares valued at RM1.089bil. There were 238 gainers, 468 losers and 320 counters unchanged.

Ingenuity, a tech firm which made a net profit of RM3.2mil in its latest quarter, has attracted trading interest in recent days following events leading to the announcement of a possible takeover of Ingenuity.

In the latest development, Chin was quoted saying on Tuesday he would be addressing the media and stakeholders in his personal capacity. The press conference will be held Wednesday at 10.15am in Federal Hotel, Jalan Bukit Bintang, Kuala Lumpur.

He sent out an invite to the media and hopes to extend the invite to all shareholders of Ingenuity Solutions, 1 Utopia Bhd as well as other concerned stakeholders. Chin is also the managing director of 1 Utopia.

To recap, last Thursday, Ninetology Marketing Sdn Bhd, a relatively unknown technology firm with a paid-up capital of RM2, announced it had "ready funds" to take over Ingenuity.

Ninetology had offered to acquire a 39.44% stake in the company at 55 sen per share. If the deal goes through, this would trigger a mandatory general offer to acquire all the remaining shares Ninetology has not already owned in Ingenuity.

Ingenuity it had received an offer letter from Ninetology to purchase all of the shares held by Chin, Firstwide Success Sdn Bhd, Landasan Simfoni Sdn Bhd and Titanium Hallmark Sdn Bhd amounting to a total of 214,297,656 shares, representing 39.44% of the total equity interest of Ingenuity, at an offer price of 55 sen per share.

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LOL, Ingens is another clown in the Ace circus. Offer letter at 55 sen yet the counter dropped to the lowest price of the day today, 22.5 sen. Nobody believe the deal will go through I guess whatever the press conference tomorrow will say. Any chance for CONTRA trades tomolo ?

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Who is Right?

http://buzz.money.cnn.com/2012/08/23/stocks-funds-inflows-outflows/?iid=HP_River

Since beginning of this year, retail investors have been pulling money out from the stock markets while the stock markets continue to charge ahead.

The hedge fund managers are also holding a large chunk of cash though they are not in net short position. They are preparing to take advantage of market decline but their refusal to short stocks indicating the market can still rally ahead. Read the rest hereHedge funds are betting on disasters

It was reported recently on the internet that George Soros is holding 75% cash. Read here : George Soro fund maintains big cash position

When the markets (Dow Jones Industrial, S & P 500) were finally turning down after Dow did not make a new high but S & P 500 did, Mark Hulbert, a regular comentator of Market Watch, made  comments like rally was living on borrowed time. Read the rest here May-June correction was a failure

Is it true that the rally is living on borrowed time?

 Dow gained about 6% on the year-to-date basis. Let's look at the winners of Dow components that drive the gains.

• It is obvious that stocks that are beaten down badly last year like financial and housing sector are getting back a bit of justice.
• Industrial sector around the globe tanked but the US industrial sector looks pretty healthy as they are in expansion stage though the data is deteriorating rapidly.
• Safe haven stocks that paying good dividend yield like telecom, health care and consumer discretionary are the winners.
• Solid oil price is providing support for oil stocks.
• Technology is sending a mixed message, outside Apple, I think the sector is in trouble.

I found this data after I have done the donkey job of looking at gainers and losers of Dow components. The conclusions are pretty much the same. 

By sector breakdown, info tech is the largest piece of pie now. Market cap expanded by USD 1,785 b and Apple contributed to about USD 384 B or 21%. It is quite to safe to say that large gains were Apple driven and the question is can Apple continue to do the magic?

I would say consumer staple, discretionary and energy are getting very close to its valuation and in some cases over-valued, unless people would like to chase yield slightly above 5 to 10-yield of 1.7%.

That will leave us with financial and industrial sectors, can it be the next rally leader ? Some possibility on financial sector but I doubt industrial sector can.

Global financial markets are very interconnected nowadays. Mind you that some stock markets are very oversold in Europe and emerging markets especially China. A counter-rally in these markets will continue to provide positive reinforcement loop. Oversold counter rally markets will reinforce US market and in return US market will provide confidence to oversold markets to rally. Until either one is exhausted, tanking US market or exhausted counter rally loop is broken, trend trading will remain the best friend of brave and agile ones.

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How to Lose Money in the Stock Market

Instead of writing something positive like how to be a millionaire or how to be a successful investor I prefer to write about how to lose money in the stock market. After all, 99.9% of people are having IQ 150 and above, why write something that they are already good at -- smart and successful in the stock market. This post is not backed by research but by experiences that I heard throughout my life. I hope you can follow these simple tips if you want to lose money, shirt and underwear in the stock market. I will you pay you the difference if you don't lose money base on these tips.

Tip #1. This is my last job, babe. We are going to retire in Bahama tomorrow. Ignore whatever you heard okay, I will be just fine. Just wait for me at the port all right. Mr. Stock market, I am going ALL-IN with the rock solid advice from a few public listed directors info. They told me no one has heard about this tipsy. Market will be stunned with this corporate development announcement. Sure Gap-Up, Yes, 100% of my net worth on ONE stock. RM 500,000 just ONE stock. Warren Buffet is right, diversification is for birds. Simple. One stock. One shot. Hantam kuat kuat!

Tip #2. Be a smart ass. On the contrary of what you heard that retail investors are stupid and ignorant, as education level of general population are increasing, people are doing more research than you ever imagine. Find everything you can and read them - the WSJ, the Star, blogs(including this one), Fortune, Forbes. And don't forget to turn on Bloomberg and catch up with Creamer on CNBC. Read everything. Understanding everything.

Tip #3. Have a STOP-LOSS. Yeah you did that but how come??? It is your 9th times of hitting the stop-loss. Let's do the math. A $ 1,000,000 will reach 387,420.489 when you hit the 9th times of hitting stop-loss. It takes a genius to achieve this level of REVERSE-8-Wonder of the world. No worries, when you reach this level, call me at 1-800-STOP-LOSS. Understanding don't count. Only price. When you are wrong, stop-loss will be there to save you.

Tip #4.  Be a geek, speak only Greek. Don't bet on something is sure, it just too boring. Invest based on this secret formula.

Asset allocation = (Probability of sun will come out tomorrow)*Penny stocks*100% + (Probability of sun will not come tomorrow)*Fixed Deposit*100%

Tip #5. Break down your long term goal into actionable investment goal on T+3 basis. 20% return will translate into 0.083% business day. I am sure you are not that greedy, just buy and sell it for 0.25% gains on T+3. No matter how high is the stock market, all you need is 1.65% gain in 3 days, your gain is 0.25% after minus 1.4% broker and stamp fees. This is an easy peasy strategy. If a  3 year old kid can do it, you cannot do it meh? No balls-ah?. Sure you can-lar. Boleh-lar. Have a po-C-tip attitude.

Like I said, if you don't lose money based the above 5 tips that painfully gain by billions of investors and speculators, I will pay you the difference. Call me at 1-800-sure-lose-money-dot-Com. By the way, Time dot Com worth at least RM 5 based on 20% discount to its SOP on shareholding in Digi and fiber business.

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