Get prepared... With Education

After sharing an article regarding the US housing market situation, a friend replied with a one-liner thank you email. I shared near to a page of reply after that. Not sure if people are going to get sick of my reply if i do keep sharing of such long reply to a 1-liner thanks in future. lolz

Below is what i'd shared.

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There are a few good key issues to watch out for at this point in time:

1. US Housing Market. If the bubble really burst, get really for a mild recession to follow thereafter.

2. Middle East. The last Iraq war caused a longer than expected correction in May/Jun 06. As the war fueled the rise of the oil price ($77 at a high point), which affects corporate earnings, market corrected itself by devaluing in share prices. What if this is combined with S/N 1 above?

3. Yen Carry Trade. There are a lot, and I mean A LOT, of traders borrowed cheap money from Japan (then their interest rate is only 0.25%), and invest into other higher yield products or markets for the past few years. This fueled growth in quite a few markets, especially in Asia. Imagine if Japan increase their interest rate subsequently (which they intend to do so and has started doing it), these traders will has to unwind their earlier investments done using these cheap money. Wow! I cannot imagine how deep is the ocean if these are combined with S/N 1 & 2 above. How not to expect a Great Stock Market Sale!?!?


What this means to traders and investors are, in my opinion, as follows:

1. SHORT (http://www.investopedia.com/terms/s/shortselling.asp) the market if you can catch the crash coming.

2. If you missed the crash or do not know how to short, then wait for 6 months to a year for the southwards momemtum to subside. Then go shopping during this Great Stock Market Sale!


So what we can do now is:

1. Increase your financial education. As fast as you can, steepen your learning curve now. Albert Einstean once said, “Keep doing an the same action and expect a different result is insanity”. True enough, so far I have not come across an investor that makes it big” by being lazy. No, not meet one yet. Majority I know or have read had put in their hard work educating themselves before they see L.U.C.K. in their undertakings. So continue to be lazy by not putting effort to increase your financial literacy, and yet at the same time wish to be rich is what Albert called an Insane. Abrahim Lincoln once said, "If i have 6 hours to chop a tree, i will spend 4 hours sharpening the axe". So sharpen you axe now.

2. Save. Save as much as you can, as hard as you can, as crazy as you can. When the market crash, Cash is King. There is this saying, “Save when the Bull is running, Buy when the Bear is out”. Of course, this “Truth” is kind of going against our emotions of greed and fear. How can you possibly stand aside when the bull is running and every traders (or they call themselves investors, whatever) around you are making tonnes of money from the market? When the market crashed and the Bear is out, every traders (or they call themselves investors, whatever) avoid the market and keep their cash. Then you go on a buying spree and subject yourself to uneasy views from these traders, reading their mind that says, “This guy is siao one”. After 1 year of trading and investing, I am still trying to get a good handle over greed and fear. This takes practice. But the easiest thing we can do during this period of the bull is to Save and build our first pot of capital. It will come in handy when the Stock Market Sales comes. See alternative saving strategy (http://ongcherhowe.blogspot.com/2006/11/singapore-treasury-bills-as.html)

3. Patience. One of Warren Buffet’s key strength is patience. Not because of his old age and lack of energy. But I feel that he mind is just like a lion, lying low, observing his prey, and pounces only when the time is right. There must be a good reason (or reasons) for his success till today. I do like to think and believe that this virtue, Patience, is one of them.

While the biggest crash of this century may not come in 2007, 2008, wait untill the baby boomers start to retire and will be forced, by law in the US, to liquidate their investments. This group has invested for the past 40 over years and imagine the compounding effect of their investment by now. Their no.s goes by the million and increses every year thereafter. Get ready your ark. This coming wave is going to give us a very rough ride. (Tinker… The Great Depression is great. Define great as stock market losing 90% of their value over a year.) A good read on the coming depression can be found at my buddy's blog (http://ongcherhowe.blogspot.com/2006/11/part-i-great-depression-no-2-coming.html)


Happy Learning,
Leroy

“When I Stop Learning, I Stop Living”