Knowing Know

"The world does not pay for what a person knows, but it pays for what a person does with what he knows."

By Laurence Lee

2008 : A Year of Destruction

Use Smarty

"When you hire people that are smarter than you are, you prove you are smarter than they are."

By R. H. Grant

Debt is the worst poverty

"Some people use one half their ingenuity to get into debt, and the other half to avoid paying it."

By George D. Prentice, The editor of the Louisville Journal

Madness of Crowds

The psychology of speculation is a veritable theater of the absurd. Although the castle-in-the-air theory can well explain such speculative binges, outguessing the reactions of a fickle crowd is a most dangerous game. Unsustainable prices may persist for years, but eventually they reverse themselves.

Act I - The Tulip-Bulb Craze

1. In the early 17th century, tulip became a popular but expensive item in Dutch gardens. Many flowers succumbed to a nonfatal virus known as mosaic. It was this mosaic that helped to trigger the wild speculation in tulip bulbs. The virus caused the tulip petals to develop contrasting colored stripes or “flames”. The Dutch valued highly these infected bulbs, called bizarres. In a short time, popular taste dictated that the more bizarre a bulb, the greater the cost of owning it.
2. Slowly, tulipmania set in. At first, bulb merchants simply tried to predict the most popular variegated style for the coming year. Then they would buy an extra large stockpile to anticipate a rise in rice. Tulip bulb prices began to rise wildly. The more expensive the bulbs became, the more people viewed them as smart investments.
3. People who said the prices could not possibly go higher watched with chagrin as their friends and relatives made enormous profits. The temptation to join them was hard to resist; few Dutchmen did. In the last years of the tulip spree, which lasted approximately from 1634 to early 1637, people started to barter their personal belongings, such as land, jewels, and furniture, to obtain the bulbs that would make them even wealthier. Bulb prices reached astronomical levels.
4. The tulip bulb prices during January of 1637 increased 20 fold. But they declined more than that in February. Apparently, as happens in all speculative crazes, prices eventually got so high that some people decided they would be prudent and sell their bulbs. Soon others followed suit. Like a snowball rolling downhill, bulb deflation grew at an increasingly rapid pace, and in no time at all panic reigned.

Act II - The South Sea Bubble

1. The South Sea Company had been formed in 1711 to restore faith in the government’s ability to meet its obligations. The company took on a government IOU ( I owe you: debt) of almost 10 million pounds. As a reward, it was given a monopoly over all trade to the South Seas. The public believed immense riches were to be made in such trade, and regarded the stock with distinct favor.
2. In 1720, the directors decided to capitalize on their reputation by offering to fund the entire national debt, amounting to 31 million pounds. This was boldness indeed, and the public loved it. When a bill to that was introduced in Parliament, the stock promptly rose from ￡130 to ￡300.
3. On April 12, 1720, five days after the bill became law, the South Sea Company sold a new issue of stock at ￡300. The issue could be bought on the installment plan - ￡60 down and the rest in eight easy payments. Even the king could not resist; he subscribed for stock totaling ￡100,000. Fights broke out among other investors surging to buy. The price had to go up. It advanced to ￡340 within a few days. The ease the public appetite, the company announced another new issue – this one at ￡400. But the public was ravenous. Within a month the stock was ￡550, and it was still rising. Eventually, the price rose to ￡1,000.
4. Not even the South See was capable of handling the demands of all the fools who wanted to be parted from their money. Investors looked for the next South Sea. As the days passed, new financing proposals ranged from ingenious to absurd. Like bubbles, they popped quickly. The public, it seemed, would buy anything.
5. In the “greater fool” theory, most investors considered their actions the height of rationality as, at least for a while; they could sell their shares at a premium in the “after market”, that is, the trading market in the shares after their initial issue.
6. Realizing that the price of the shares in the market bore no relationship to the real prospects of the company, directors and officers of the South Sea sold out in the summer. The news leaked and the stock fell. Soon the price of the shares collapsed and panic reigned. Big losers in the South Sea Bubble included Isaac Newton, who exclaimed, “I can calculate the motions of heavenly bodies, but no the madness of people.”

Act III - Wall street lays an egg

1. From early March 1928 through early September 1929, the market’s percentage increase equaled that of the entire period from 1923 through early 1928.
2. Price manipulation by “investment pools”: The pool manager accumulated a large block of stock through inconspicuous buying over a period of weeks. Next he tried to enlist the stock’s specialist on the exchange floor as an ally. Through “wash-sales” (buy-sell-buy-sell between manager’s allies), the manager created the impression that something big was afoot. Now, tip-sheet writers and market commentators under the control of the pool manager would tell of exciting developments in the offing. The pool manager also tried to ensure that the flow of news from the company’s management was increasingly favorable – assuming the company management was involved in the operation. The combination of tape activity and managed news would bring the public in. once the public came in, the free-for-all started and it was time discreetly to “pull the plug”. Because the public was doing the buying, the pool did the selling. The pool manager began feeding stock into the market, first slowly and then in larger and larger blocks before the public could collect its senses. At the end of the roller-coaster ride the pool members had netted large profits and the public was left holding the suddenly deflated stock.
3. On September 3, 1929, the market averages reached a peak that was not to be surpassed for a quarter of a century. The “endless chain of prosperity” was soon to break. On Oct 24 (“Black Thursday”), the market volume reached almost 13 million shares. Prices sometimes fell $5 and $10 on each trade. Tuesday, Oct 29, 1929, was among the most catastrophic days in the history of the NYSE. More than 16.4 million shares were traded on that day. Prices fell almost perpendicularly.
4. History teaches us that very sharp increases in stock prices are seldom followed by a gradual return to relative price stability.
5. It is not hard to make money in the market. What is hard to avoid is the alluring temptation to throw your money away on short, get-rich-quick speculative binges.

Pouring Money in the Pool

This is the first blog we create for Investment & Education purpose. It will focus on Fundamental and Technical Analysis using Value Investing style. We are a believer of Warren Buffet, Benjamin Graham and Mr. Market. We do believe in Effective Business Model, Global Economy and Enterprenuership. Our Blog will have 8 different columns covered from Economy, Investing and Business as shown below:

1. Stock Picker of The Month - Pick undervalued but excellent companies that under radar to analyze thier current and future stand points.
2. Innovative Company and Tech - Hip and Inspiration companies that change our life plus some cool gadgets around the globe.
3. Commodity Insight - Talk about global commodity market: Oil, Gas, Gold, Metal
4. Business and Economy - Update situation in the business world and share interesting topics with readers.
5. Global Meltdown & Recession - Article about the Crisis in each era; 1900-Present.
6. Spartan Portfolio - An update and deep details in our flagship fund deliver monthly.
7. Educated Yourself - Column about Investing, Finance Terminology, Fundamental and Technical Analysis, Asset Allocation Theory.
8. Quotes of the Week - Excellent quotes from famous financial guru.

At the moment, we have a diversify and well-balanced investment portfolio called "Spartan Fund." Starting capital we recieved from our investment partners. As we realized, global economy now are all in bad shape; it's just some expectation which generate an upside momentum on Wall Street but Main street is still unstable.

Hopefully, everything will get back on track at the start of 2010. Since the ending of 2008, we invest in several sectors including transportation, mining, consumer staples and manufacturing. We concentrated on a new U.S. Government Policy and undervalued stocks; however some on distress stocks which have an opportunity to recover.

Source of Fund: Investment Partner Group 1

Starting Capital: USD 11,600

Mr. WW $10,250

Mr. PL $1,350

Round 999,999

"Bulls make money. Bears make money. Pigs get slaughtered."

By Anonymous