F1 Again….This time in Kuala Lumpur (KL)

Renault team once again won in the tournament held in Kuala Lumpur. As I mentioned in the previous post, in the tournament, the race team equipped with the best accelerating engine would not necessary guarantee the triumph. To be a winner, you got to finish 56 laps with some curve turnings along the way. The race car equipped with the best accelerating engine such as McLaren team has an advantage when the circuit way is straight, but its advantage diminished when it comes to the curve turnings. Along the race, the car needs to stop by in the pit stop for some maintenance and fuel pumping and the moment is critical. Once the decision made is wrong, it would ruin the entire race. That’s why the driver is always communicate with the team of controller in order to decide the best moment to stop by at the pit.

In the investment world, there is no difference. To determine the success of the investment is not judged by one or few times success. After all, for such short moment, luck plays an important role. For example, when there was a technology boom time, chip manufacturers enjoyed a handsome return. It also applies to other commodity type companies such as Steel manufacturer where it enjoyed a handsome return during 2004. The problem of this commodity type companies is they lack of competitive advantage and its boom solely depend on the cycle of the industry. They would spend much for the capital expenditure (capex) to expand their production when there is a boom time. With the products with enjoyed no loyalty by the customers, the only consideration by the customers is PRICE. Capex by manufacturers during booming time will flooded market with excess supplies for the same products. As a teaching of economics, when the supply is more than demand, ultimately the price will drop. This will put the suppliers into dilemma – the excess products they produced no where to go since the demand is less than supply. Thus, it will initial a price war that is never ending and erode the margin of the suppliers. The cycle repeat again and again. Same scenario could be seen in the racing circuit, the car which leads during 10th, 21st, 32nd….lap does not mean it is the winner of the race. The winner only comes out after it completes the entire race, which is finish all 56 laps.

That is why whenever salesman approaching you and promoting his fund and shows you outstanding 3 months, 1 year, 3 years or even 5 years results of the fund does not guarantee that the outstanding results of the fund will be continue for next 10, 20, 30 or 40 years. After all, there are many ways to boast the results for short term but the tricks used will not long last. The character of hoping to grab short term profit or is patience enough to grab the long term profit is the character that distinguish between speculator and investor. Both are greedy – Investor is greed for long term while speculator is greed for short term. Which character are you belong to?

Technorati Tags: Formula 1, F1, Kuala Lumpur, Investment, capex, Renault, McLaren

Dow 36000, Oil $300, Gold $3000…..

There are too many con men out of field waiting for the innocent yet naïve people, to suck out their hard-earned money. No matter it is in the stock market, real estate, commodities market and so forth.

History always tells us something. People who deny history would eventually lose out all. In 1999, when the euphoria of the stock came to the climax, two men, James Glassman and Kevin Hassett wrote a book titled “Dow 36000”. They predicted that Dow Jones Industrial Index will reach at 36000 anytime soon and latest in year 2005. If you think this two gentlemen are an ordinary man, you are totally wrong. Glassman, an investing columnist for the Washington Post, and Hassett, a scholar at the American Enterprise Institute who used to be an economist at the Federal Reserve. Because of their background and title, many people fall into the prey that “they are intelligent people, what they say makes sense”. So, they pour their money into the stock market when the market was at its peak. The result, they lost US$8 trillion (YES! It’s US$8,000,000,000,000 !!!) With this amount, you can buy 3,200 Petronas Twin Tower in Kuala Lumpur, Malaysia. (used to be the world’s tallest building in the world)

Stepping into the beginning of 21st century, similar phenomenon will appear. From time to time, someone will come out and shout to you:” Oil will reach to $300 per barrel!”, “Gold will hit $3000 per ounce!”. When the euphoria shift to commodities market, you will notice that some magazines will announce “The Death of Equities” and someone will author the book titled “Dows 360”. When this moment arrives, grab as many as you can from the stock market. Of course, choose only “good” stock.

What is a bubble? You won't know about it until it's already happened...and then it's too late,,,