Strength Your Weakness

"Concentrate your strengths against your competitor's relative weaknesses."

By Bruce Henderson, The founder of the Boston Consulting Group (BCG)

Rational or Irrational

"Human are irrational, markets are made up of humans so Markets are irrational"

By Unknown Investor

Root of Evil

"Money is the fruit of evil, as often as the root of it."

By Henry Fielding, An English novelist and dramatist known for his rich earthy humour

The Conclusion of The Crisis

By September 7, 2008 – The Treasury committed to invest as much as $200 billion in preferred stock and extend credit through 2009 to keep the GSEs solvent and operating. The combined of two giant Government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac losses of $14.9 billion and market concerns about their ability to raise capital and debt threatened to disrupt the U.S. housing financial market. The two GSEs have outstanding more than $5 trillion in mortgage-backed securities and debt; the debt alone is $1.6 trillion. The conservatorship action has been described as "one of the most sweeping government interventions in private financial markets in decades".

S&P 500 Index from 2000-2008

LIBOR Time Frame

By September 15, 2008 – the 158 year-old Lehman Brothers holding company filed for bankruptcy with intent to liquidate its assets, leaving its financially sound subsidiaries operational and outside of the bankruptcy filing after the Federal Reserve Bank declined to participate in creating a financial support facility for Lehman Brothers. At the same day; The 94 year-old Merrill Lynch accepted a purchase offer by Bank of America for approximately US$ 50 billion, a big drop from a year-earlier market valuation of about US$ 100 billion. A credit rating downgrade of the large insurer American International Group (AIG) led to a September 16, 2008 rescue agreement with the Federal Reserve Bank for $85 billion dollar secured loan facility, in exchange for a warrant for 79.9% of the equity of AIG.

Why Fed help AIG not Lehman Brothers? Because AIG is in much scarier situation than Lehman; AIG has asset of $1 trillion, more than 70 million customers and intimate back-and-forth dealing with many of the world’s biggest and most important financial firms – Fed have no choice but to intervene.

On September 16 – the Reserve Primary Fund, a large money market mutual fund, lowered its share price below $1 because of exposure to Lehman debt securities. This resulted in demands from investors to return their funds as the financial crisis mounted. By the morning of September 18, money market sell orders from institutional investors totaled of $0.5 trillion, out of a total market capitalization of $4 trillion, but a $105 billion liquidity injection from the Federal Reserve averted an immediate collapse.

On September 19 – the U.S. Treasury offered temporary insurance (similar to FDIC insurance of bank accounts) to money market funds. Toward the end of the week, short selling of financial stocks was suspended by the Financial Services Authority in the United Kingdom and by the Securities and Exchange Commission in the United States. Similar measures were taken by authorities in other countries. Some restoration of market confidence occurred with the publicity surrounding efforts of the Treasury and the Securities Exchange Commission.

Emergency Economic Stabilization Act of 2008 – At the same day, Consultations between the Secretary of the Treasury, the Chairman of the Federal Reserve, and the Chairman of the U.S. Securities and Exchange Commission, Congressional leaders and the President of the United States moved forward plans to advance a comprehensive solution to the problems created by illiquid mortgage-backed securities. At the close of the week the Secretary of the Treasury and President Bush announced a proposal for the federal government to buy up to $700 billion of illiquid mortgage backed securities with the intent to increase the liquidity of the secondary mortgage markets and reduce potential losses encountered by financial institutions owning the securities. The draft proposal of the plan was received favorably by investors in the stock market.

On September 21 – Although Goldman Sachs and Morgan Stanley are only two giant U.S. investment banks not to collapse like Lehman, Bear Stearns or Merrill Lynch, their stock also down by 70%. The two remaining investment banks, Goldman Sachs and Morgan Stanley, with the approval of the Federal Reserve, converted to bank holding companies, a status subject to more regulation, but with readier access to capital. On Thursday evening Washington Mutual, the nation's largest savings and loan, was seized by the Federal Deposit Insurance Corporation (FDIC) and most of its assets transferred to JPMorgan Chase. Wachovia, one of the 4th largest US banks, was to be acquired by Citigroup and Wells Fargo.

Stock Market Crash in 1929 - The Black Monday

Panic, Chaos and Depression - As the history parallels, the real cause of the U.S. depression (after stock market crashed in 1929) wasn’t the stock-market crash but a contraction of credit due to an epidemic of bank failures. The bail-out will eventually pass but the world may still be heading for a severe downturn since emerging market like Brazil, Russia, India and China seem relatively close to U.S. economy. The death cycle also spread through Japan, Europe and Asian regions. The U.S. government is doing what it can to avoid 2nd depression. Although Bailout may be just a short-term fix, a short-term fix is better than no fix.

The Bail-out – the Fed step in and roll out bailout plan; however some credit market already seized up, including auction-rate securities. On September 29, the first attempt in congress vote for bailout plan failed after the vote being held in the House of Representatives, 205 for the plan, 228 against. Meanwhile US stock markets suffered steep declines 7 straight days. Death spiral last until October 13, 2008 before the Fed successfully pass $700 billion bailout plan. The United States Senate's version of the $700 billion bailout plan modified to expand bank deposit guarantees to $250,000 and to include $100 billion in tax breaks for businesses and alternative energy.

Doldrums Rhythm – How long could this recession last? In the past, whenever markets have faltered, American shoppers have come to rescue, spreading around prodigious amount of cash so that businesses can grow and hire again. Consumer spending accounts for 3/4 of the $14 trillion U.S. economy. But not this time, since their homes are still falling in value; stock market volatility has set everyone on edge; no cash-out refinancing; credit from other sources will soon dry up and personal debt 100% of annual GDP.

A recent study and survey about recession around the globe, the IMF says that the combination of housing bust, stock market bust and credit contraction could extend economic recession up to 3 years, compared with less than 1 year for typical recession. Some economists predicted that U.S. economy will have short recovery after recession. From Wall Street to Main Street, expect 12 – 18 months prolong period for all the pain will come to Main street (Our daily life) – banks will cut back on their lending to household and businesses; mortgages and car loans will become harder to get; that’s turn to stifle consumer spending and crimp investment in companies, leading to production cut and job losses. In its latest economy outlook, published on October 8, 2008; the IMF predicted that the U.S. economy will grow just 0.1% next year.

Mr. Bull or Mother Bear

What’s Next – Sooner or later, the hundreds of billions or trillions of dollars that Fed and other central banks are throwing into the markets will stabilize things. Housing prices will stop falling because no financial trend continues forever. We can’t tell when but we better to stay in market as it still in accumulation phase so we won’t miss next bull market as economic start to recover again. As old say that “no one can’t time market”; It’s a smart way to stay in market as it still have a lot of opportunity to buy first-rate companies when they dip on negative news such as an earnings miss. Some very solid industrial companies are paying decent dividends and still look cheap. Smart investors always make money when others panic.

Read More Think A Lot

"90% of the people in the stock market, professionals and amateurs alike, simply haven't done enough homework."

By William J. O'neil, An American entrepreneur, stockbroker and writer, who founded the business newspaper Investor's Business Daily

SPARTAN Criteria

These 20-Points Fundamental Criteria will screen you value-oriented companies with Low Debt, High Expected Return at Reasonable price or Undervalued. The most score stocks expect to be superior investment opportunity in long run.

1. Current Price Less than its Book Value
2. Dividend Yield > 4.5 %
3. Dividend Yield > 7.5 %
4. P/B Less than Industry Average P/B
5. P/B Less than 1
6. P/B Less than 1.6 (S&P Average)
7. P/E Less than Industry Average P/E
8. P/E Less than 7
9. P/E Less than 14 (S&P Average)
10. P/F Less than Industry Average P/F
11. D/E Less than Industry Average D/E
12. D/E Less than 50%
13. D/E Less than 10%
14. ROE > Industry Average ROE
15. ROE > 20%
16. Profit Margin > Industry Average Profit Margin
17. Profit Margin > 20%
18. Next Year Growth Rate > 20%
19. Long term Growth Rate > 20%
20. Earning Growth Last 5 Years > 20%

We need stock with financially-sound balance sheet with good earning. Always, Screen stocks with good fundamental ratio and buy when a technical chart show a momentum because sometimes stock has excellent fundamental but the rest of the world just don't see the same way as you.

Rebalancing the Way to Succeed

It's a essential to rebalance your portfolio every 6 months or at least once a year because some of your asset may be overvalued and some may be undervalued. In the other words, Rebalancing your portfolio will force you to sell high (overpriced assets) and buy low (underpriced assets) automatically.

You can use a risk-management or time-management approach depend on your style. If your portfolio have low-cost commission; you might consider to rebalance often as your asset allocation change. For instance, if your portfolio mix of 75/25 in stock and bond whenever stock portion eat up your portfolio more than 75%, you need to sell some of those stock and buy some bond to bring back to 72/25 ratio.

ThE SPARTAN FUND by Vikran

Superb Performance Accuracy Rapidity Totally Anticipation

This fund is built to provide a medium/long-term investment strategy (1-3 years) by picking good companies with strong balance sheets because we don't know when a bull market will come back again.

We need to be Trend Follower Investor.

We will focus our concentration on value stocks on small and medium companies with market cap less than 1 Billion US and avoid volatility stocks like GOOG, AAPL and RIMM. If so; What criteria should we consider ?

Let's me explain some more in details. We will consider on both fundamental and technical approach as below:

Fundamental Criteria (Which stocks to Buy)

1. Focus on Alternative energy, Biotech, Finance, Technology and Basic material sector because Obama administrator will support it. Moreover, beating-up tech stocks should come back quickly in middle bull. Also, Financial companies should recovery fast on late bear. Of course, Basic material such as steel, aluminum or lead will gain their ground when economy improve.
2. Concentrate on Small-Medium Cap stocks with Market Cap less than 1 billion except Large Cap stocks, allow up to 10 billion.
3. Price not too expensive (below 20$) since we have a limited capital.
4. Strong balance sheet, low debt unless it’s a normal part of the business (debt/equity less than 40%).
5. Strong free cash flow (FCF) after dividends and capital expenditures.
6. Companies have High barriers to entry or Doubling their earning in 5 years.
7. Undervalued when compare with its industry peers; look at P/E, P/S, P/B and PEG. For example, P/E and P/B is lower than competitors in same industry.

Technical Analysis (When to Buy)

1. Followed market trend. If overall market is Uptrend, Stock should make Higher High & Higher Low; conversely Lower High & Lower Low in Downtrend.
2. Major Pivot points both Support & Resistance are important.
3. If we need to look at a channel, its channel must be formed at least 3 months.
4. Fibonacci level at 38.2% and 61.8% are critical level. If Uptrend, draw from lowest to highest. If Downtrend, draw from highest to lowest.

Think Rich

"In this world it is not what we take up, but what we give up, that makes us rich."

By Henry Ward Beecher, A prominent, Congregationalist clergyman, social reformer, abolitionist, and speaker in the mid to late 19th century