OIL

As you all know, oil prices have been falling like crazy from the heights of US$147 during april to US$34 this month. But, what is the bottom line? When will the bottom price surface up? No one knows. So, I believe that historical prices come into play. Throughout history, oil prices have gone up and down like a roller coaster. So, how do you know when to buy it? Why buy oil when there are so many other investments? What are the opportunity costs in buying oil?

I personally look at oil as there is a huge speculative element in it. Moreover, during the last economic boom, there shows a very strong direct correlation between the bull market and the prices of oil. Why prices of oil increase during strong economic growth? This is because of emerging countries like India and China needing these energy resources to feed this phenomenal growth. Coupled with this rise in demand, there is also a fundamental fall in supply of oil reserves. Thus, the soaring demand(during a bull market) and ever fall in supply is bound to rocket the prices of oil up to new heights.

So, when do you buy it in order not to be caught on the wrong side of the roller coaster? I will show you a graph to illustrate the historical prices. However, the graph is not really updated but it still pretty much serves as a powerful reference. (The graph is on top. I tried to shift it down but I don't know why it refuses to come down.)

As you can see, the historical average is around the range of $US 30. WHAT!!!SO LOW??That is the reaction of most people if they have been hearing about the prices of oil. Yup, that is actually the historical average of oil prices. So, with the prices of oil now so close to the historical average, I feel that one must actually seize the opportunity, so that he/she will not miss it when the oil prices rocket up again.

So, what is the exit strategy if you have bought it? My exit strategy would be to sell according to the general p/e of the stock market around the world.(which is around the range of 18-20) Because, I feel that the next boom in oil prices will be due to the surging demand by the economic growth, particularly by countries like India and China.

However, there is one note to caution about making oil as part of your investment portfolio. This approach is a little speculative, so it really not advisable to allocate a huge portion of wealth to it. Who knows? Someday, explorers might disover huge oil reserves that can last the world to 2100(currently, experts believe that oil will run out by 2030, maybe even faster). So, maybe you can allocate just 10-20% to this approach.

Personally, I am a value investor-which means I buy low and sell high. With the low prices of so many companies and commodities lying around, how can one not resist?

INVESTMENT vs TRADING

Today, I am going to discuss about the crucial differences between these 2 arts in the stock market.
Often people would confuse themselves between these 2 arts. One would often believe that they are investing when they are in fact trading.

One of the difference is the time horizon. When you invest, the time horizon is between 5 years to forever. 'Wa, So long ah!!!!!', that would be the reaction of most people. As I mentioned in my earlier post, investing is just like poker. It is often just waiting for that crucial moment, the point where you can commit a large amount with a very high percentage of winning(that is my style, but some other players believe in playign the bluffing way, which I feel that the downside is way too much than the upside). So, if you cannot even wait for a few minutes for the right combinations in poker, you might as well forget about investing as the time horizon is up to few years!!!!!!!!!!!!!!

Another difference is the way how people allocate their money(notice the word allocate instead of the word invest) when the market moves. Typically, traders' movement is in sync with the stock market movement. They believe in newton's first law-objects in motion will stay in motion.
I am not saying that this approach is wrong or whatsoever. I believe that you should practise at least 2 years before you should try it out. Trading is often said to be a zero sum game which means that 1 player will win when 1 player lose. However, I feel that you got another opponent-which is the commissions fees that you have to pay everytime you make a trade. Which means that technically, the % of you winning is < 50%. On the other hand, when you invest, one MUST NOT follow newton's first law. Instead, one should follow buffett's laws.

Buffet's first law-Invest when market goes down.(be greedy when people are fearful), be fearful when people gets greedy.(notice that I never say sell when it goes up, yes you can sell but you can also hold on to it. I will discuss about it in the future)

Buffett's second law-Returns decrease as motions increase(By the way Issac newton is a dreadful investor. He lost around 3 million dollars in present money in a very bad speculation(NOT INVESTING). Once, he said he can calculate the motions of stars but not the madness of people.

Yup, so these are the differences. Please feel free to comment.

To sum off the whole post, I am not interested in being just temporarily right.(which means earning money from uncalculated risks). Instead, I am interested in being correct for the long term which I absolutely believe that it lies in value investing. A method tried and proven for the past century.

U MUST PASS THIS TEST BEFORE YOU START ANY FORM OF INVESTING!!!!

What is the test that u must pass to be able to invest? It is actually the poker test. It means that you must be able to win in texas hold them poker over a long term period before you can start any form of investing. To be frank, I have only came across this 'VICE' a month ago . Why?? What is the link between these 2 form of skills? I will try to explain it for the rest of this post.

Firstly, in both type of skills, you must not grieve on lost opportunites, but rather grieve on the ones that you have actually committed mistakes that can be prevented. For eg. the dot com bubble, trying to form a str8 on the last card to be revealed when the probability is only a mere 4/52.

For this paragraph, I shall emphasise on the straight in the poker. Straight in poker is like an investment bubble. It often offers a huge carrot for the person who places a bet. However, one would often find himself disappointed as there is often no carrot. This can be actually prevented when you weigh in the odds and probabilities. Yes, you can try your luck but take note of the amount that you must commit during the showdown. If the pot is big and what you need to commit is small, you can certainly go for it. This is similar to investing where you can actually set aside a small amount of money to spectulate and for arbitrage.

Secondly, in poker people will often raise their bets to confuse you, however it is often your own analysis and judgement that matters. This is a really important point as most people will have a view on how your money should be used.

Thirdly, I often prefer colour than str8 in poker as the odds are higher if you got the right cards and it is a certainly better hand than a normal straight.

While you invest for the long term, take your mind away from the ticker symbols and the market price. Find a hobby instead, which is playing poker, fixing jigsaw for me.(trying to play bridge because my idol-buffett is a fan of the card game). These hobbies can actually train your patience.

INTRODUCTION

Hi to all! I'm a 20 year old Singaporean chinese male who is very interested in investing.(I have actually devoted 2 years of my life to this skill). Through this blog, I actually hoped to find more like minded people in my age group who share the same phililosophies as me. I'm actually not really good with the animation type of stuff, so don't expect any fanciful stuff in this blog. It will actually be just a simple platform for everyone to share their thoughts. Also, pardon my poor command of the language as I don't get stellar grades for English throughout my school life,

By the way, when I mention investing, most people will just think it is risky. Especially, after so much stuff that has been going on lately. For eg, the fall of large investment banks and large insurance comapnies such as the lehmen brother, bear sterns and the AIG(the one that sponsor manchester united when they can't even sponsor themselves). Surely, we as non professionals can't out-perform the 'PROFESSIONALS' from the various investment banks. I am actually not proven yet, so I can't really say if i can beat the market whatsover, however I actually believe that most people can outperform the professionals!!! HOW??, that must be the question that most people would ask. Actually, u can do that by simply investing in INDEX FUNDS-funds that just practically track the index such as STRAITS TIME index, FXI(china) , snp 500(america) DJA(american). A startling statistics shows that only 25% of the pofessionals can only outperform the market. Yup, that is the truth. The advantage of investing in these type of funds rather than the normal typical mutual funds is the management fees. For normal mutual funds(unit trusts), a person usually need to pay 3-5% of what he invested, whereas buying normal ETFs would only require you to pay 0.25% of the management fees. Most people would think that 3-5% is nothing at all, BUT it is actually very crucial. I find it laughable when those people in the banks recommending unit trusts that say 3-5% is nothing. Even warren buffett's idol, teacher-benjamin graham can only outperform the market by 2.5% throughout the 40 years that he invested. Mind you, outperforming the market by 2.5% a year will make you a very rich man. IMAGINE COMPOUNDING your money at a rate of 12.5% per year for 40 years(a dollar will be transformed into 111 dollars)!!!! It will make a hell of a difference!!!

However, I need to warn everyone that you MUST not invest when the market is euphoric and crazy which is the period when the market p/e is more than 20. If not, you will suffer irreversible losses!!!! Best time of investing is when market is down which is the period when bad news flashes everwhere-p/e of market will be around 10 for this period)-this will only occur once in every 5 years or even more. So, PLLLLLLEASE don't let this golden opportunity pass

For the later posts, I will just discuss about my philosophies and I will not into great length describing the basic jargons.(such as p/e all these stuff)