How Sensitive in Growth in Emerging Markets to a US Slowdown

First seen on 'The Big Picture'

How Sensitive is Growth in Emerging Markets to a US Slowdown? - .PDF file (Deutsche Bank Global Economic Perspectives)

"...increasing exchange rate flexibility will tend to increase the sensitivity of EM economies to foreign developments. And financial market linkages, particularly co-movements across equity markets are becoming increasingly important.

Equity market capitalization relative to GDP in many EMs now rivals and in several cases exceeds that in industrial countries. Hence, the vulnerability of EMs to a US slowdown may be intensified via financial linkages, including both increasing flexibility of exchange rates (a possible appreciation of EM currencies against the dollar) and perhaps even more so via stock market linkages should the US market turn down significantly."

In other words if the US goes down, EM markets go down because of the transmission of shock through the stock exchange markets and forex markets.

hot blog alert: stockinsight.blogspot.com

I was googling for articles written up concerning PetroChina's 1trillion dollar market valuation (Can you say, "Bubble"?) when I came across this blog. Its pretty interesting.

The perspective is relatively free from financial jargon. Blogger was in China and wrote about his experiences in the Red Hot Economy of the Century. So you get an idea of the kind of consumer experience one can expect in that country.

Real Option Valuation Spreadsheet

URL: http://pages.stern.nyu.edu/~adamodar/

For all you MBAs, MScs, CFAs, finance undergrads/postgrads, whatever, I bring to you, the sourcebook, the panacea for all your valuation pains - Damodaran Online!

Checks its outs, yo, all your excel spreadsheets preconfigured with the formula so that all you've gotta do now is plug accounting numbers to relevant cells, do a bit of messing about with the numbers and voila! numbers for you to plug into that term report.

Damodaran is the man!

(Apologies for the slang; I don't quite know what came over me.)

Expectations Investing - (Sorta like Trading on Fundamentals, except with a fancier name)

URL - http://www.expectationsinvesting.com

Kinda excited about reading this book actually.

From the site:

1. A revolutionary yet common-sense investment approach that reads the market's current expectations and provides the tools to anticipate future expectations.
2. A clearly written book on expectations investing written by valuation experts Alfred Rappaport—author of Creating Shareholder Value—and Michael J. Mauboussin—Chief Investment Strategist at Legg Mason Capital Management-and published by Harvard Business School Press.
3. A web site that serves as a resource for those wishing to learn more about Expectations Investing—and how to apply its powerful analytical tools.

Alright, I'm sold.

Everything 'Subprime Crisis'

Got a term paper to write on an international financial crisis? Need a quick background on CDOs and the US Subprime Crisis but don't have time to read? Curious as to the spillover effects of a crisis in other markets?

Over the past 10 years or so, banks have been securitizing their debt obligations. What that means is that they've reduced their on-balance obligations and moved it off-balance sheet. These obligations are contingent liabilities. Basically, the banks lend only their reputations and names but the ultimate lender isn't them since they're just the middleman who brokered the deal. The bulk of all that risk is the person who bought that unit of securitized asset. The problem is that some banks have been writing cheques or using these debt assets as capital. In times of crisis, these kinds of securities are largely insolvent. To make things worse, we're not entirely sure who bought what and used what type of asset to back up those purchases.

In an earlier interview dated 31 July 2007, Satyajit Das replies to Stephen Long's comment:

STEPHEN LONG: The counter-argument is that that means that the risk is diversified, the risk has been spread so far and wide that the fallout won't be so bad.

SATYAJIT DAS: That ironically is what the central bankers have believed. It should be said that investment bankers and many pundits have been telling central banks that's the case. In fact, my view is exactly the opposite.

What has happened is that banks have essentially sold the risk out of one part of the bank to these investors, but there's other parts of the bank which have then used the securities which reference these underlying risks, and what they've done is lent money against that.

And the irony is the risk is now concentrated among very, very few banks, 'cause the people who do this, it's an activity called prime broking, are very, very few banks, less than ten.

Read the interview transcript.

URL: http://www.abc.net.au/worldtoday/content/2007/s1992847.htm

Also, Australian Broadcasting Corporation's 'Four Corners' program has good coverage as well as insight on this topic.

Watch the interview with Satyajit Das. Its a good exposure on an important finance topic about the transfer of risk exposure off the balance sheet - to be bought piece meal by investors who want exposure to this kind of risk.

URL: http://abc.net.au/4corners/content/2007/20070917_subprime/interviews.htm

Here's the teaser -

Video On Demand: "Mortgage Meltdown"

Last month an unfamiliar expression appeared in the Australia media. A "subprime mortgage crisis" was unfolding in the United States. Homeowners across America were defaulting on loan payments and economists warned of major financial fallout occurring anywhere from Paris to Beijing to Melbourne. But why should a foreclosure in Cleveland affect a hedge fund in Sydney?

As Four Corners reports, Australia, along with the rest of the world is at risk of a virulent economic virus thanks to financial globalisation where everything is interconnected through a sophisticated form of pass the parcel. And even more alarmingly, no-one knows just how bad it might get.

In "Mortgage Meltdown" Paul Barry reports on the fallout from the US subprime mortgage crisis and asks what impact it will have on Australia.

Calculating Cost of Equity for EM countries

Again from Adrian Buckley's Multinational Finance pp 481.

Cost of Equity = Comparable Domestic Return + Country Risk Premium

Country Risk Premium = Default Spread for EM Country X (Std Dev. for EM equity market/ Std Dev. for EM government bonds.)

Default Spread = EM government bonds yields - Comparable Domestic government bonds.

This is the spread between the emerging market government bond yields and a comparable domestic bond i.e. US Treasury Bond.

Cost of Equity for Emerging Markets

The following was sourced from Adrian Buckley's Multinational Finance, ch 24, pp 481 "International Investment: what discount rate?"

24.10 - Emerging Markets

[preceding this section was a discussion on the choice between an arbitrary extra risk premium when calculating discount rates for projects in EM countries and the International CAPM.]

Hooke(1998), for example, reckons that the cost of equity capital for emerging markets can be conceptualized as being equal to a comparable domestic return plus a foreign risk premium ranging between 5 percent and 15 percent.

Thus he recommends target returns for low-risk emerging markets, for example, Poland, the Czech Republic and Chile, at 18-20 per cent.

For medium-risk markets, such as Brazil, India, Indonesia and Mexico, Thailand and Turkey, he reports a recommended return of 20-25 per cent.

And for high risk countries, his cost of equity is between 25 and 30 per cent. Into this group, he categorizes China, Peru and Russia.

25 - 30 per cent Cost of Equity is a very large number to plug into your bog-standard Weighted Average Cost of Capital calculations. Unless you've got lots of debt in your capital structure, a 25 - 30% cost of equity, will discount your future cash flows by a lot. For investors, this means that Chinese and Russian stocks should trade at lower prices, given the risk they bear.

DIY Investing or Seek Financial Advisory

I am off the age when peers are starting jobs, earning a decent salary, pursuing their dreams and basically holding a job. Last nite I had dinner with friends who were keen on investing.

Some had the view of doing it alone. Others believed that having a Financial Advisor helps because the advisor acts like a confidante and helps to hold in check speculative urges.

The awkward truths

Financial Planners in Singapore earn a Basic and a Commission based on a stream of future payments from the financial services that you purchase such as Insurance and Funds. That is true.

It is true that they make more money if they have more clients.

It is also true that they'll make more money if they sell more of a certain type of product.

So what?

Your job is to optimize your investment opportunities. In secure long term investment, your biggest enemy is yourself because:

1. You make all the final decisions. Therefore you determine the outcome. (You and the sum of your stupidity and irrational fears.)

2. You spend a lot more time thinking about investment opportunities rather than worrying about possible dangers.

3. You get emotional and irrational when you hear others are doing better than you in Fund/Stock/Investment Idea XYZ. You switch between funds and incur huge transaction costs when ideally you should park your money and let time do its thing.

Therefore Financial planners:

1. Offer you advise and counsel and can help you get up to speed on financial issues sooner.

2. They've got the tools to help you come up with an investment plan in a rational, logical manner which can act as a framework for future planning. (Its nothing more than an Excel spreadsheet based on Annuity calculations that you can download from the Net, but seriously, do you have the time and inclination to study the assumptions and work through the model and figure out why exactly Money has a Time Value and how that affects your returns?)

3. By going through a financial planner in an investment plan, you avoid OVERTRADING which increases the transaction cost of your investments.

Financial planners' advisory role dampens irrational desires to trade when you don't really have to.

After saying all that, if you still want to do it your own way you can start here: fundsupermart.com

Alternatively, you can drop me an email and I'll help you get in touch with a couple of friends who are dead keen on maximizing your wealth without sacrificing your sleep.

Donc.

Paybacks' a bitch: We haven't heard the last of the Subprime Mortgage Crisis.

"The semiannual meetings of the world’s top finance and banking officials are predictable in one sense: Europeans and Americans often use them to lecture leaders of poor countries about the need to modernize their capital markets, promote transparency and adhere to sound investment standards.

What a difference a subprime mortgage crisis can make. Now developing countries are lecturing the West."

Tables Turned: Poor Countries Wag Fingers at Rich Ones - New York Times (21 October 2007)

Remember the Asian Financial Crisis of '97 when Thailand, Korea and Indonesia were bailed out by IMF and got an earful from Developed Countries as to how to run their economies?

Well, now, its America's turn with no end in sight for the subprime mortgage crisis.

"Collateralized debt obligations — made up of bonds backed by thousands of subprime home loans — are starting to shut off cash payments to investors in lower-rated bonds as credit-rating agencies downgrade the securities they own, according to analysts and industry executives."

Mortgage Security Bondholders Facing a Cut-back in Interest Payments - New York Times, (22 October 2007)

Bondholders who hold CDO bonds may face the possibility of having their coupons not paid.

"With such a re-evaluation, owners of collateralized debt obligations — investment banks, hedge funds, insurance companies and public pension funds — may be forced to write down mortgage investments beyond the billions they have already written off."

Oooohh kkkkaaayyy... *gulp*

One would think that a re-rating would be sufficient to sort out the entire problem but CDOs are a tangled barrel of worms. Its like having a pie made up of good and bad apples. The bad ones taint the whole lot.

Here's an insight into how complex the whole thing can be:

"A re-evaluation of payments by trustees who oversee the debt obligations is part of a long, complex chain reaction that is caused by the surge in mortgage delinquencies and home foreclosures. As more homeowners fall behind on payments and lose their homes, the pressure builds on large pools of mortgages that issue bonds to investors. Many of the riskiest of those mortgage bonds have been bought by the C.D.O.’s, which issue bonds of their own.

On Friday, Standard & Poor’s lowered the ratings on $22 billion in bonds backed by mortgages made to people with weak credit in 2006, citing the continued deterioration in the housing market. Another credit rater, Moody’s Investors Service, lowered a similarly large group of bonds earlier in the month.It is unclear exactly how many bonds will be affected and how quickly. Investment banks issued some $486 billion in debt obligations linked to mortgages in 2006 and the first half of 2007.

A majority of the bonds have high credit ratings, and the trustees of the debt obligations typically shut off lower-rated bonds first to accelerate payments to investors holding higher-rated debt.When ratings on the bonds directly backed by mortgages are lowered, it forces the trustees to discount the value of their holdings in a calculation performed once a month. Some C.D.O.’s also hold bonds issued by other debt obligations, so it can take months for ratings downgrades to work their way through the system."

Okay, so when will we see a bottom?

"Most mortgage securities have not yet had significant losses, which are only recorded when homes are foreclosed and sold. Up to two years can pass between a borrower’s falling behind on payments and an auction. Each mortgage security has a reservoir of excess cash to draw upon to pay bondholders when borrowers do not make monthly payments.

“As far as the security is concerned, it’s only once the property is effectively sold that a loss is recorded,” said Nicholas Weill, chief credit officer at Moody’s. “The process of foreclosure is a long process. It doesn’t just happen overnight.”

So there'll be at least 2 years of unfavourable investment conditions in the US.

So what are the banks doing to contain the problem?

"Problems with these investments has led big banks including Citigroup, Bank of America and JPMorgan Chase to develop a $75 billion rescue fund that could be used to buy risky mortgage securities and other assets from them, a move intended to ease pressure on an important part of the credit markets."

A US$75 billion dollar fund to increase liquidity in the trade of CDOs by Citigroup, Bank of America, JPMorgan Chase. Would it be enough though?

What I did on the 20th anniversary of the Wall Street Crash of 1987

I stayed away from reading any market related news. I read popsugar.com , slashdot.org and boingboing.net instead. Later, I chatted with my girlfriend and had a cup of coffee. I napped for half an hour. Woke up and thought, this isn't too bad. I took the time to reconsider my investment behaviour and reconsider my options.

I stopped trading a few months ago because I blew up my trading account during the sub-prime crisis. The spillover from that event propagated through the financial system and made a couple of my warrants positions finish worthless.

I had bet big on the warrants of Singaporean banks and Capitaland, largest real estate group on the island. Given the fundamentals, I thought they were safe bets. I was wrong.

When the crisis hit, the stocks wouldn't climb to reflect stronger earnings results due to all the negativity in the US market and prices remained depressed. I had committed funds too early in an attempt to average out the losses but by the time the market had bottomed out, I had invested too much money into each bet to make them good candidates for the ride up again.

Looking back I think I began trading in warrants because I was bored. From my lecture notes, I figure I am what Larry Harris, author of 'Trading & Exchanges' describes as a Utilitarian/ Gambler/ Futile Trader.

I'll admit it. I regret placing those bets. I regret them because I compromised on my ideals. That I won't chase the stock. That I won't play the market's game. That I won't be fooled by my schooling.

The more you know, the more you think you have an edge over everybody else in the trading game. The truth is that I am a nobody with little new information and the cost of gathering every little scrap of information just to make a few trades is too expensive for my taste.

Fund managers can trade because they get paid to do it. Brokers trade because they get paid to do it. They need to be on top of the news, they need to be on the lookout for investment opportunities. Its their job.

I don't have to. I have a life. Its Mine. I have only one life and to waste it all scouring the Net for information, prowling the Forums for a sensing on market sentiments - its just too much.

So on the 20th anniversary of the Wall Street Crash of 1987, I'm relinquishing my dreams of becoming an Active Trader and surrendering myself to the way of the Informed Investor.

Energy demand 'til 2030 projections

Above: International Energy Agency energy demand projections from BBC News report, "World risks 'dirty' energy future" (link here) dated 7 November 2006.

They mention pursuing nuclear option. (Not a bad idea considering how much of it is left untapped and that it produces heck of a lot of energy. But the Greens won't like it though cos of the risk of radioactive contamination, not giving 'green' energy sources a chance, etc. But Australia and South Africa's got a lot to gain from an interest in yellow cake uranium mining.)

They mention growth in the use of biofuel as a transport fuel (Ethanol? Biodiesel?).

From the article:

The report also projected that biofuels were set to play an increasing role in road transport, providing up to 7% of the total consumption in 2030.

But here's the interesting bit:

But the WEO warned that the growing demand for food would limit the potential of the plant-derived fuel produced using current technologies.

So if there's expectations of increased demand for grains for food purposes and as an alternative energy source, where do you think the price of grains would go?

If grain prices are going up, which companies will benefit? I can think of one: Noble Group, listed on the Singapore Stock Exchange. How about agricultural themed stocks? Or countries with significant infrastructure in palm oil and grains?

The assumption here however, is that world economic growth continues. We hope that emerging markets continue their upward trend, with some occasional periods of volatility. Energy companies tend to be highly leveraged with a sizable fixed cost component which makes their net profits very sensitive to economic fundamentals. A downturn could have a material impact on their revenues considering their large capital outlay.

As of today, I'm bullish on energy themed stocks and funds.

Oil Prices: Huge Demand, Not Enough Supply; means Big Future Oil Prices!

This is so obvious its scary. In the next few years we can only expect higher oil prices because there's no new major oilfields left for easy extraction. Most of it is locked up in 'difficult' countries. The uncertainty in supply as well as the world's rapacious hunger for oil has created this huge jump in oil price expections.

Dr Michael Smith of energyfiles.com argues that not only are OPEC producers overstating their reserves, he also claims that the data is highly suspect. Link to page [here]; Link to PDF article [here]. In this 2 year old paper he claims that assumptions of future oil demand of 12omillion barrels a day is 'untenable'.

Quoting from article:

"Predictions that oil demand will increase to up to 120 million barrels per day by 2020 allied to automobile and airline traffic growing at extraordinary rates are futile and damaging to policy makers."

Even 95 million barrels are untenable, he writes.

The primary implication is that we're likely to see a switch to Gas (will require more infrastructure to be built) and alternative fuels as higher prices results in a substitution effect.

A couple of trading ideas:
I thought of buying Coal and other alternative energy companies in anticipation of an increase in demand for their services. The more immediate goal is figuring out which Oil & Gas co.s are likely takeover targets considering that its easier to buy a company and its proven petroleum reserves rather than look for the stuff itself.

Beware of China's overly optimistic economic growth projections!

Lester Thurow, MIT's professor of economics has written an article for the NYtimes warning analysts and investors to take the Chinese government's growth projections with a pinch of salt "A Chinese Century? Maybe it's the next one," - August 19, 2007 (link here)

Quote from article:

"Economic growth rates can be inferred from electricity consumption. In every country in the world, electricity use has generally grown faster than the G.D.P. Electricity is necessary for nearly all productive activities, and because of inefficiencies, consumption of electricity has generally outstripped economic growth. Rising energy costs have resulted in more efficient use of electricity, but especially in the developing world, economic growth has still generally lagged growth in electricity.

But if China’s official numbers are to be believed, there are provinces in China where the G.D.P. has been growing faster than energy use. That is unlikely, since the central government’s statistics also say that energy use per unit of G.D.P. is going up — not down, as claimed in provincial G.D.P. statistics.

Among the world’s 12 most rapidly growing economies over the last 10 years, the G.D.P. has grown only 45 percent as fast as electricity consumption. In the early 1970s, Japan was shutting down its electricity-guzzling aluminum industry. During this period, the G.D.P. grew 60 percent as fast as electricity consumption, the highest recorded level among industrialized nations.

Using those numbers as a guide, if we consider China’s actual electrical use, which is relatively easy to measure, and do a little math, we come up with this estimate: The G.D.P. in China has been growing somewhere between 4.5 percent (using the average for a rapidly growing country) to 6 percent a year (using the highest rate for Japan), not at the 10 percent rate claimed in official statistics."

Several lessons to be learnt here:
1. Whack 4.5% - 6% into calculating Terminal value growth projections of Chinese companies rather than 10% (or any higher Economic growth rate as a proxy for a company's growth!)

2. A method to figure out economic growth projections for a company in an emerging economy. Use Growth rates in Electric Consumption to estimate the economic growth rather than use the Government's stated economic growth rate.

An easy way of estimating single-stock beta

I submitted an earlier post about calculating Singapore Press Holding's beta using daily and monthly returns. I came up with some ridiculous beta figure.

I made a lot of mistakes in calculating the beta of a single stock against a larger market index and I'd like to post some corrections..

1. To calculate single stock beta use Microsoft Excel's '=slope('%change of stock returns', '% change of market returns')

2. The idea is that Excel's slope function measures the gradient of a curve. Here, the Y-axis is % change of stock returns and X-axis is the % change of market returns.

3. Beta is then defined as the 'change in Stock Returns' for a 1% change in Market Returns.

4. Note that you should compare like against like. Therefore, if you collect daily prices and then determine daily returns, plot it against the market indexes daily returns as well.

Reverse Engineering Earnings Yield to Get Beta Values & The Case for SPH as a defensive stock holding.

Over at 8percentpa.blogspot.com, Xtam did a feature on the Price-Earnings ratio. The inverse of the PER gives you the earnings yield. The earnings yield is also the shareholder's Expected Return. Once you know the Expected Return you can then reverse engineer the figure to determine Beta - which is a measure of the co.s stock return in relation to the broader stock market.

Here's a case study:

Above you'll see the 1-year price chart for Singapore Press Holdings.

According to POEMS Dataline, Singapore Press Holding's Historial P/E ratio is 16.7

The inverse of the P/E ratio gives you 6%. Therefore, E(R) = 6%

Let's say the risk free rate of return in Singapore which is based on the Singapore Treasury note of 3.25% p.a. and that over the past 12 months (from 8 June 2007 to 8 June 2006) the red-hot singapore stock exchange has delivered an astounding annual return of 49%. How did I get that figure? I took 8 June 2007 Index level of 3881 and divided it by 8 June 2006 Index level of 2338.

risk free rate = 3.25%
Market return = 49%

The CAPM model is E(r) = Risk-free Return + Beta (Market Return - Risk-free Return). Solve for Beta.

6% = 3.25% + Beta (49% - 3.25%)

SPH beta = 0.06

This means that a 1% rise in the stock market would lead to a 0.06% rise in SPH stock return.

Beta can also be calculated in the following fashion:

Beta = Corelation Factor X Std Dev (Market) X Std Dev (Stock)

If the Beta of 0.06 is correct, then just by plugging in a few numbers, you can get a rough idea of how little SPH stock moves with STI in the long run.

The question is: How reliable is this estimate of Beta?

Here's a chart of Singapore Press Holdings against Straits Times Index. The blue line ending with code T39.SI refers to SPH and STI of course refers to the Index:



If you look at the left column, it clearly states that the 1-year return for the STI is in the ballpark of 50% zone while that of the SPH is in the low 4-6%. If this is true, then the beta estimate is reasonably accurate.

Voila Instant Beta! No need to sign up with expensive data supplier!

Here's my thoughts:
According to the chart, against a bullish economic backdrop it appears that SPH hasn't really performed. Could it be that SPH is the perfect defensive stock?

Let's look at what SPH has to offer. An almost complete monopoly on a captive market in News and Media. Co-owner of MediaCorp. Owns Paragon Shopping Centre. Chaired by Dr Tony Tan himself.

Hmm, I'd say at present market value, SPH is affordable and a useful hedge agst a falling market. Its always useful to know where all your Defensive stocks are and to buy into them to protect your portfolio's core value. If you've got money idling in the CPF OA account and you need something to accumulate earnings in, try SPH.

Thanks for reading!

Declaration: I, the author of this blog (and many other blogs) do hereby declare that I have holdings of SPH Call Warrants in the hopes of capitalizing on increased market interest in SPH over the coming weeks. SPH investor relations recently annouced that they will be re-valuing their prime Orchard Road property - Paragon Shopping Centre and will be releasing their earnings report sometime towards the end of July (me thinks.) The author has every intent to put his money where his mouth is by shifting some of his hard earned cash into the underlying stock as soon as his warrants trade makes him enuff to think defensively, SIR!!!!

Trading on Expectations.

Firstly, an Expectation is the Average Payoff after taking into consideration the likelihood of a desirable outcome, payoff and the cost of invesment. You would do something if an expectation is positive. (i.e. a positive bet.)

E(x) = p(x). payoff - cost of investment.

Found this insightful synopsis on the various types of expectations traders (investors?) form when they buy and sell commodities in Moosa, "International Finance: An Analytical Approach", 2nd Ed. Ch. 4 pp. 107

Moosa quotes Pilbeam's[1] research concerning expectation formation mechanisms:

Extrapolative expectations mean that the exchange rate is expected to rise if it rises in the current period, and vice versa. (If ER rise now, it will continue to rise in future.)

Adaptive expectations mean that if exchange rate rises in at least 2 of the last 3 periods, then it should be expected to rise in the coming period. (If ER rising for past 2 out of 3 periods, then it will continue to rise in future.)

Regressive expectations mean that the exchange rate is expected to rise if it falls in the current period, and vice versa. (If ER is falling now, then it will rise in future.)

Rational expectations mean that expectations is formed on the basis of all available information. If this information is reflected in the forward (i.e. type of derivative) spread, then a currency that sells at a premium should be expected to rise, and vice versa. (If Forward Spread indicates rise, then a currency that sells at a premium should rise in future.)

Heterogenous expectations occur when the trader follows the majority signal. (Monkey see, monkey do.)

Contrarian expectations occur when the trader follows the opposite of the majority signal. (Monkey see, monkey do opposite.)

So as an investor with an element of speculation in you, how do u form your expectations?

[1] K. Pilbeam, 'The Profitability of Trading in the Foreign Exchange Market: Chartists, Fundamentalists and Simpletons', Oxford Economic Papers, 47, 1995, pp. 437 - 52.

Books to read for Financial Statement Analysis

This may sound obvious but if you would like to learn how to perform Fundamental Analysis on a stock the best place to start would be to get your hands on a university approved textbook for any module teaching Financial Statement Analysis.

I am using Stephen H. Penman's "Financial Statement Analysis and Security Valuation".

The textbook I am using is clear and succint and the maths isn't too complex. Just a series of Present Value calculations. (Remember Arithmetic progressions and Geometric progressions in A. Maths? Yup. its along those lines!)

Forget about spending $20 - 30 on those skimpy 300 page paperbacks that tells you how to read and analyse financial stocks. They don't have the exercises and supplementary notes and in my opinion the detail necessary to help you gain any insight into what's going on in the financial statements.

You can get cheap copies of these textbooks on University noticeboards, especially towards the end of semester. I got mine for $50. Best value for money ever.

Everything Probability.

After months of searching high and low for a primer on Applied Probability (I like stuff with Gambling involved cos its immediately applicable!), I did a search for Spread Betting on Google and came across this site: bethelp.com

In their "Learn-to Win" segment I came across several links to Probability as applied to betting:
Mathpages - The Gambler's Ruin
Probabilistic Thinking
Probability Theory
Saliu - The Fund. Formula of Gambling
Saliu - Theory of Probability

Tikam-tikam trade.

Any form of activity dependent on the vageries of the market is a gamble because the outcomes are uncertain. Therefore its best to just go with your gut feel and hope that you have lady luck on your side!

Vested in:
5 lots Aqua-Terra Supply Co. @ $0.545 - Ship Chandler
3 lots HGMetal @ $0.415. - Metal Distributor
1 lot City Spring Infrastructure Trust IPO @ $0.89

Exciting times ahead!

Life is Random.

I have been doing a lot of thinking on trading.

The more I look, read and think about the market the more I believe that the market's actions are completely random. Its behaviour is unpredictable, and that no single reason predominates.

No matter how convincing the argument, the outcome of the choices we make is uncertain. Whether we use TA, FA or a combination of both to forecast the price movements of a warrant or stock, it is only a guess.

When we risk our hardearned money on a trade with an uncertain outcome, it is in fact a gamble.

Therefore more thought should be directed at generating good trading signals, determining the optimum amount of wager per trade and the risk undertaken for a winning trade.