With the current financial turmoil going on in most part of the world, the sign of recession is a no doubt but some countries still denies the fact although their economy is adversely affected. Malaysia's economy for instance truly mirrors the impact of the Dow Jones Industrial Average index on the following trading day. It can't be denied that until the US put an end to the financial turmoil, the economy in other parts of the world shouldn't be better off. Some measures have been taken such as the $700billion bail-out plan and the Federal Reserves cutting interest rates doesn't seem enough to save the economy. All the investors who are optimist turn pessimist in times like this. But does it mean you can't make money in times like this?

According to Warren Buffett, the richest man in the world, " Be greedy when everyone is fearful and be fearful when everyone is greedy" indicates that in times like this there are lots of counters out there which are insanely undervalued which is one of the recipe for his wealth accumulation-buying undervalued stocks ie. Value Investing.

In Malaysia, there are also a lot of good fundamental counters are being undervalued, for example, KNM Berhad, oil & gas equipment company got sold down until 39 sen showed high selling pressure of investors and the most active stock counter in the KLSE. However, with assurance from the group's Managing Director, Lee Swee Eng, the share price rebound to 60-68 sen. Besides, there are still a lot of counters out there are undervalued.

To strenghten the economy in Malaysia, the government will inject RM5 billion(borrowed from EPF) into Valuecap Sdn Bhd, the government investment agency, doubling the investment from the initial RM5 billion to RM10billion to buy undervalued stocks in the local bourse.

A brief introduction on Value Cap Sdn. Bhd... Established in 2002, Valuecap is a fund management company which was created to invest specifically in the Malaysia equities market. Owned jointly by Khazanah, PNB and KWAP, Valuecap’s key mandate is to undertake investments in equities listed on Bursa Malaysia on a portfolio basis, based on superior fundamental investment research.

The government has left it to Value Cap Sdn. Bhd. to decide how to distribute the funds. Analysts believe the funds will be used to invest in index-linked stocks. OSK highlighted 11 potential targets on the Kuala Lumpur Composite Index (KLCI) that Valuecap may go for — MISC, Petronas Gas, DiGi, British American Tobacco, Petronas Dagangan, MAS, Sime Darby, Maybank, IOI, AMMB and MMC. As it stands, however, funds like Valuecap will never reveal what stocks it invests in. It is obliged to make the information public only if its investments in a company exceed the five per cent threshold.

However, there are rumours that the government is bailing out political-linked crony companies in crucial times like this.

For those of you out there, you may be asking am i trading in the US stock market(NYSE) since i keep emphasizing on it? My answer is Yes & No.

Yes-I am trading with a demo account(Investopedia) and made some profits(so called) using fundamental and technical analysis. I stopped because i want to pay more attention in my fund raising plan(as below) and would enter the NYSE as soon as i raise enough funds.

No-I was unable to penetrate the US market due to insufficient funds which i am raising now by trading in the Malaysia market(KLSE) which is quite a challenge since it restricts short-selling.

So let me talk about a brief introduction of the KLSE...
The KLSE was introduced after the famous Open Outcry System ended back in 19 Sept 1989 and has been operating till now. The KLSE consists of 3 boards->First/Main Board, Second Board & MESDAQ which totals about 1400++ companies(it's far too little compare to the US). The KLSE also restricts short-selling due to its benchmark stock index plunged 52 percent during the Asian financial crisis in 1997. Mahathir bin Mohamad, prime minister at the time also blamed speculators for the drop in Malaysia's stocks and currency. The KLSE trades two sessions from Mon-Fri (9am to 12.30pm & 2.30pm to 5pm).

The structure of KLSE is as follows:
KLSE->Bursa Malaysia(listed in KLSE)->Securities Commission(SC) which reports directly to the Minister of Finance which indirectly means our Prime Minister. To some, this flow may seem to be some kind of nonsense as how can a listed company in their own stock exchange become the regulator of their own stock exchange? I wonder...

*-> means reports to

To participate in the KLSE, you must open a Central Depositry Account(CDS) which can be done with a number of registered brokers available in Malaysia. This account allows the bearer to deposit money into it and receive money such as dividends, profits from sale of shares and so on. Upon approval, the broker shall grant a trading account(includes a trust a/c) with a credit limit to the bearer. From then, you can always deposit money into the trust account. It is to be noted that the law governs that if you deposit money with the broker, the broker must pay interest to the account holder. No 3rd part shall be allowed to use one's account and any transaction take place requires the authorization of the account holder.

For your information, i'm using HongLeong Broking. The procedures is simple. Just print a form here(if you have a HongLeong savings account) and send it to them and within a week, you will receive a notice from them. The reason why i'm using this broker is because they provide me with online trading and offer low brokerage fee as quoted by them but that applies if you buy in big volume. For small volume traders, here's a breakdown of the calculation:

i)Brokerage fee=0.700% or min RM12
ii)Clearing fee=0.030%
iii)Stamp duty=RM1.00/RM1,000

I'm not sure whether they are the cheapest in town. Perhaps, do some comparison with the rest before choosing the right broker. For technical analysis, i would recommend ChartNexus as it is a free tool available online and provides a sufficient & thorough analysis on a particular stock(for amateurs, use ExpertTrader-you will need to pay for this service). I think that's all i can share. Those who want to know more can post a comment here or post a topic at the forum on the right->

The business cycle have 4 phases as explained in the graph below.

PEAK->RECESSION->TROUGH->RECOVERY

We should be aware that the US economy is going for a recession considering 2 main issues:

1. The crude oil has successfully hit $100 a barrel as per 2 January 2008
2. The subprime mortgage crisis leading to sharp rise in Home Foreclosures

The question is how do we make money in this recessionary market? You might be interested to pay attention to Ben Shalom Bernanke of the Federal Open Market Committee (FOMC) on the current fed funds rates(known as interest rates) as the stock market moves adversely with the interest rates ie, interest rates go down, stock market goes up=)

A simple definition of fed fund/interest rates-> the cost(interest to be paid) to borrow money from the bank ie, if the interest cost is low, companies tend to borrow from the bank to expand where the results is clearly reflected in the stock market.

A thorough research shown that the average recessionary period in the US economy will last for 10 months. Does it mean that we should halt ourselves from entering the US market for 10 months? The answer is definitely a no!

Why?

Let's take an example, say Coke. Is it everyone will stop buying Coke in the recessionary period. Not exactly right? Even McDonalds would have stop their operation without supply of Coke, am i right? You see, even though the economy is stagnant, some other stocks(normally people's needs industry) are not affected for example,

Biomedical Sciences & Healthcare
Chemicals
Clean Energy
Education Services
Electronics
Engineering & Environmental Services
Emerging Industries
Headquarters & Professional Services
Info communications & Media
Logistics
Precision Engineering
Transport Engineering

"When there's a will, there's always a way" Goodluck millionaires!

"The most powerful invention of men is compound interest"
-Albert Einstein

In this post, i'm going to introduce you to the world of compounding interest through the US stock market and how powerful this theory can change your life. According to Wikipedia, compound interest is the concept of adding accumulated interest back to the principal, so that interest is earned on interest from that moment on. The act of declaring interest to be principal is called compounding (i.e. interest is compounded). A loan, for example, may have its interest compounded every month: in this case, a loan with $1000 principal and 1% interest per month would have a balance of $1010 at the end of the first month. Credit card companies are great examples who practice compound interest and they sure do make tons of money annually.

Why compound interest?
As you can see, as the world's economy is growing, inflation do come into place and move along with the economy in an uptrend. For example, say a hamburger would cost as low as 15 cents in the past, now it's around $3.50-$4.00 and what makes you think that the price will remain unchanged in the future? Studies shown that inflation has historically raised prices by over 3.2% a year. This may seem insignificant but if you were to compound it in say, 22.5 years, this figure would have been doubled. So if your money is compounded less than 3.2% a year, i can assume you don't have plans for retirement!! Most of the graduates outside there might be thinking, "If i can save $1 million for my retirement fund, i will have no worries in my old age." This assumption is not wrong if you prefer to think more than twice to buy your daily needs in the future as the inflation rate will continue to rise to an unforeseeable end. Well, for those who can overtake the inflation rate of 3.2% a year, i congratulate you but don't be too arrogant, you may be overtaking by only a few percent. You can change that by investing in the US stock market and it will not only overtake the 3.2% by a few percent but way more, much more. The US stock market has an average annual compounded interest of 12.08% although there will be ups and downs fluctuations throughout the year.

You can start a small investment by contributing a reasonable percentage from your monthly salary and start growing your money from there as long as the money you invest will not affect you and your family or bring any difficulties in your life. What i mean is the surplus after taking into account your monthly expenses or a sum of money you won't be depending on during rainy days, got it?

Albert Einstein Rule 72
This rule provides you simple calculation on how long your money will double with the annual compounded interest provided, Albert Einstein came up with a rule of calculating it(known as Rule 72). For example, given annual compounded interest is 5%

The duration for your money to double = 72/5
= 14.4 years