Investment wisdom

"Due diligence and streetwiseness are

the only two ways to prevent being

cheated. Regulation is to prevent

systematic failure and no amount 

of regulation can prevent fraud."

- An investment manager

Opportunity Fund

Today's newspaper writes about having spare cash for investment opportunity. Below i captured key pointers & thoughts for myself..

1. Against conventional wisdom that tells us to be 100% invested, we should instead have spare cash for investment when there's an opportunity as well as selling our shares when the time is right - staying invested may not be the right thing to do.

2. During a downturn, all stocks will go down.. some to below their intrinsic value. That's when opportunity aplenty.

3. Create an Opportunity Fund or Investment Fund. Set aside 10 - 30% of your total finance for this.

4. Diversify. Never put all your eggs in one basket.

5. Learn risk management. Know your risk appetite. Spread out between high and low risk investment.

6. Be patient. Investment is not staring at the computer screen watching the stock value goes up and down. It's for mid and longer term..

7. Imagine if you are 100% invested now you wont have any spare cash to invest anymore..

Investment approaches

Method 1:
Lump-sum investing.

• How - Buy when stock at its lowest; Sell when its highest
  
• Pro - higher returns
• Con - higher risk; timing the market

Method 2:
Dollar-cost averaging.

• How - Invest same amount of money on a regular basis
• Pro - spread risk
  
• Con - averaging returns

Method 3:
Value-averaging.

• How - Investing more when market is low and less when market is high; on the basis of a fixed amount of value portfolio u wish to attain. For example, u wish to maintain a value of $1000 each month. Some months market is low, say your portfolio value down by $250, u will invest $1,250 to purchase more stock to maintain $1,000. While some months market is high, say your portfolio value is up $400, u will only need to invest $600 more for that month.
• Pro - more market sensitive and sensible in investment approach
• Con - cant think of any now.. perhaps doesn't provide the highest returns
  

Summary: For good net results, i believe value-averaging make a lot of sense.

disclaimer: author isn't giving any professional advise. just storing info he gotten from some other smarter author.

IPO Investing - pts to note

extracted from The Sunday Times today..

1. Prospectus. Do checkout the sections on management experience and risks & prospects. Shld have a good grasp of the business as well as understand the valuations of the investments.

2. Financial Ratios. Numbers are important! Look out for share price to earnings ratio, share price versus net asset value per share, dividend policy, gross and net profit margins, returns on equity, and the debt to equity ratio as well as the average growth in sales and profits.

3. Usage of IPO proceeds. Aviod IPOs where large portion of the proceeds is used to clear debts! Red alert if 80% of funds raised used to repay debts.

4. Market sentiment. Business environment at the pt of listing may be contracting or expanding. And that has an impact to the IPO price. History shows that expanding economy perform better..

5. Earning track record. Be wary of firms going IPO after posting a record performance in sales and profits. Pre-IPO accounts were usually presented in best possible light to attract investors. Ask yrself if the financials sustainable in the longer term. One rule of thumb, is to average out the past three-year record to estimate the longer-term profitability.

6. Pricing. Most IPOs priced themselves 7 to 10 times their earnings per share. The lower this ratios, the better the value the share price offers in terms of profits generated. For example, if it's 16, it;s considered expensive.

7. Strategy: Buy and hold or stag? Stagging means selling on the first day of trading. U dont do tat unless u are not confident about the firm.. Meaning dont stag.. Investing really mean buying something that's worth their keeps and selling them later at a much better or expected price.