My brain has been shot for some time now, out of character, temporary insanity. I don't know what the fuck I'm doing. Nothing to talk about... I seem to have reached a point in my investments where I can't really do anything except sit and wait for the seeds to bear fruit... Maybe I can try to solicit money from people for investing, I'm not sure how successful I would be on that, maybe I'm just not convincing enough... I remember reading somewhere that stated that there is something like RM364billion in the banks deposits, it boggles my mind why anyone would put so much cash into something that is giving 3% interest annually, when they can easily get a 8% steady dividend yield in a real estate investment trust, especially in this sort of climate, where the prices of some of the REIT's are still low, it's not unlikely that the REIT will have capital appreciation of 30~40% in several years. If the cash isn't going to be put to use, why not put it into a REIT where you have exposure to properties that provide a dividend yield that is more than double that of the banks interest rates, after all even if the stock gyrates up and down, the underlying assets in the REIT has a steady value, because your technically just buying a share of a property with tenants, more ever REIT's are required to pay up a high % of their income to their shareholders, if you had bought it at the correct price, it's not unreasonable to expect a yield of 8~10% per year...
Ahh.. since I've already started on REIT's I might as well explain what it is... REIT or real estate investment trusts are companies that are listed on the KLCI, or the Kuala Lumpur Composite Index, their business is in real estate. Real Estate can consist of retail/shopping malls(HEKTAR), offices(UOAREIT), industrial properties(ATRIUM), hospitals(ALAQAR), or a combination of several, or it might just be a growth/income fund like (TWRREIT). How it works is that a professional property manager will be hired in order to manage the REIT, and their duty is to rent/lease out the properties under them to tenants, these tenants can be Multinational Corporations(MNC's) or local companies, depending on the type of properties that is being handled under them, for example a REIT like HEKTAR, which handles shopping malls will have dozens or hundreds of individual contracts with the tenants that are operating inside their shopping mall, whereas reits like ATRIUM, who operate buildings or factories might have one or two big companies leasing one factory. These tenants will pay rent to the REIT. This rent that is being received by the tenants is the REITS income.
REITS are expected to distribute whatever they earn to their shareholders, generally this number is 90~95% of whatever their earning, and I know this for a fact, since I've gone through basically every single REIT in the stockmarket, the only time they don't distribute is maybe during their IPO. What they distribute to shareholders is taxed 10% by the government.
The key to buying REIT's is to buy them while they are low, if their making RM0.10 per share and u buy them at RM2.00, when they give out the dividend your getting less than 5%, however if the REIT is making RM0.10 and you buy it at 80 cents, your yield will be 8%, not only are you getting a higher yield, but in the long run, if you had bought it at a low price, the chances of capital appreciation is pretty good. So not only will you be getting a nice 8% every year, but after 5 years you might come back and find that the REIT you bought for 80 cents is now worth 1.20. That's about a 90% profit, 40% from interest, 50% capital appreciation. It's quite likely to happen, because a lot of the times(like now) these REITS are selling in the stockmarket for less than what they would have sold for if they were sold in the property market. EG: 1 share of the REIT has a net asset value of RM 1.05, but for some reason it's being sold for RM0.75 in the stockmarket.
The average yield for REITs in the market right now is about 8%, but some of them have gotten quite expensive compared to their previous prices, although their yields are still in the 8% range...
Wednesday, September 23, 2009
Saturday, September 5, 2009
Post + 1
I haven't been posting that often recently, I actually forgot I had a blog. What do I have to write...
The stock market is a funny thing, many people, particularly those who study finance, will try to imply to you that the stock market is efficient. If it comes down 50% and then increases 100% in a year these people will come up with all sorts of excuses of why it went down 50% and then went up 100%, inflation, recession, economy is bad, economy has recovered. Their reasons are usually wrong.Inflation does cause an increase in profit when supply exceeds demand and prices rise, the market will subsequently rise. The economy does become bad, and the profit made by certain businesses do fall. But that does not mean that when inflation goes up the stock market will go up indefinitely.
If you say that inflation is the reason why the stock market has risen, the first thing you should ask is how many percentage of inflation have we had compared to the percentage increase in the stockmarket. If inflation for the last 3 year is 4% each year, then it stands to reason that the stockmarket would have also risen at around 4% each year as well. That's a very simple calculation, and it's probably wrong, but what I'm trying to say here is that if you want to claim that the growth in the stockmarket is because of inflation, you need to see how many percent the stockmarket has rised compared to inflation. The problem here is that most people who say inflation is the reason why the stockmarket has risen have no idea what the inflation % is, much less the increase in the stockmarket.
Inflation isn't a good barometer, if your trying to track the stockmarket growth your better off looking at the GDP, or the gross domestic product of a country. GDP is used to measure the size of the economy of a country. If your economy has risen by 15%, the stockmarket will likely rise with it as well, probably not exactly* 15%, but somewhere around there. This is fairly obvious, because the stockmarket is basically just a few thousands (around 1400 in Malaysia) of big companies in the country, companies which contribute to the economy, which is tracked by... GDP.
Having said that, when the stockmarket drops 50%, there is usually no single reason that can be pinpointed to the reason why it has dropped so significantly, generally it starts out with a valid reason, like the economy going into recession, when everything starts to fall, people panic and start selling, which leads to a bigger fall, the same thing happens when the market starts going up to unreasonably high levels, everybody starts to buy, every tom, dick and harry starts to enter into the market because his mother, brother, butcher and his dog has made money from the stockmarket. The market becomes very overvalued, and when the business cycle starts to kick in, or something big happens like the recent financial crisis and the economy comes off its high, people start selling, and then you have your massive drop in price, everybody panics and nobody wants to be the last guy holding the ball.
This is what it looks like on a 5 year graph of the klci...
I actually called the bull market when it was happening, I know quite a few people were talking about it, I remember telling them it was a bull market..... I wonder how much they lost in that period...
Take a look at the recovery, does it look like a mini bull market?
PS: KLCI changed their index to base off 30 largest stocks instead of the previous index following 100 stocks.
ahh what else to write... to be continued later.
The stock market is a funny thing, many people, particularly those who study finance, will try to imply to you that the stock market is efficient. If it comes down 50% and then increases 100% in a year these people will come up with all sorts of excuses of why it went down 50% and then went up 100%, inflation, recession, economy is bad, economy has recovered. Their reasons are usually wrong.Inflation does cause an increase in profit when supply exceeds demand and prices rise, the market will subsequently rise. The economy does become bad, and the profit made by certain businesses do fall. But that does not mean that when inflation goes up the stock market will go up indefinitely.
If you say that inflation is the reason why the stock market has risen, the first thing you should ask is how many percentage of inflation have we had compared to the percentage increase in the stockmarket. If inflation for the last 3 year is 4% each year, then it stands to reason that the stockmarket would have also risen at around 4% each year as well. That's a very simple calculation, and it's probably wrong, but what I'm trying to say here is that if you want to claim that the growth in the stockmarket is because of inflation, you need to see how many percent the stockmarket has rised compared to inflation. The problem here is that most people who say inflation is the reason why the stockmarket has risen have no idea what the inflation % is, much less the increase in the stockmarket.
Inflation isn't a good barometer, if your trying to track the stockmarket growth your better off looking at the GDP, or the gross domestic product of a country. GDP is used to measure the size of the economy of a country. If your economy has risen by 15%, the stockmarket will likely rise with it as well, probably not exactly* 15%, but somewhere around there. This is fairly obvious, because the stockmarket is basically just a few thousands (around 1400 in Malaysia) of big companies in the country, companies which contribute to the economy, which is tracked by... GDP.
Having said that, when the stockmarket drops 50%, there is usually no single reason that can be pinpointed to the reason why it has dropped so significantly, generally it starts out with a valid reason, like the economy going into recession, when everything starts to fall, people panic and start selling, which leads to a bigger fall, the same thing happens when the market starts going up to unreasonably high levels, everybody starts to buy, every tom, dick and harry starts to enter into the market because his mother, brother, butcher and his dog has made money from the stockmarket. The market becomes very overvalued, and when the business cycle starts to kick in, or something big happens like the recent financial crisis and the economy comes off its high, people start selling, and then you have your massive drop in price, everybody panics and nobody wants to be the last guy holding the ball.
This is what it looks like on a 5 year graph of the klci...
I actually called the bull market when it was happening, I know quite a few people were talking about it, I remember telling them it was a bull market..... I wonder how much they lost in that period...
Take a look at the recovery, does it look like a mini bull market?
PS: KLCI changed their index to base off 30 largest stocks instead of the previous index following 100 stocks.
ahh what else to write... to be continued later.
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