The 5 Most Dangerous Places to Get Investing Advice
By Hans Wagner
November 16, 2010 1
Where do you get your stock investing ideas? Inspiration can come from many places, and while some resources make a lot of sense, others are a sure path to financial ruin. Here is my list of the five most dangerous places to get your investing advice.
1) Internet Message Boards
If you're currently turning to an online message board for investing advice, stop right now. The people posting on these web forums are notorious for making over-the-top predictions with little, if any, rationale supporting their claims.
The majority of posts can be broken down into a few categories: baseless claims, bragging, spam, and name-calling.
But the biggest problem with online investing message boards is the rampant manipulation. Some users post comments to purposefully manipulate the trading activity in their favor. For many companies, especially those lightly traded, it might be possible for the right comments to move the stock price in one direction or the other.
There are even cases where executives of companies use the message boards to influence the price of a stock by making inappropriate comments. Papers filed by the FTC revealed that for several years Whole Foods Market (NASDAQ: WFMI) CEO John Mackey posted highly opinionated comments under the pseudonym "Rahodeb" on a Yahoo! Finance message board.
Investors who make buy and sell decisions based on the message boards are playing a dangerous game.
2) Penny Stock Spammers
Right up there with the internet message boards are those annoying emails claiming that some new discovery (still widely unknown to the media) is about to send this $1.00 stock soaring into the stratosphere, quickly making millionaires out of anyone who buys shares.
That'd be fine, except for there's never very much information to substantiate the claim. But these emails are still going around, so someone must be taking the bait.
3) Hot Stock Tips
These aren't quite as bad as the penny stock spam emails, but that's not really saying a lot. These messages, usually filled with exciting language and testimonials from other investors, claim to have some inside information that, once disclosed, will make the stock double in price. According to the "researchers," only a crazy person would turn down such a sure-fire offer.
But the reality is if they did have inside information then someone has broken the law by disclosing it. Yet just like the penny stock spam, these hot tips don't ever seem to stop finding their ways into people's inboxes and mailboxes. While hot stock tips might be interesting, do yourself a favor and carry out the necessary research before making a commitment.
4) The Inexperienced Advisor Making a Commission on Their Sales
Would you take the advice of someone who was just beginning to understand stocks and the stock market? Can a newly minted broker address all of your questions in a thorough and complete manner? I know each broker must start somewhere, just be careful of the newbie who is selling what the firm is pushing.
Any time you rely on a broker's advice (regardless of their experience), remember to ask yourself if their suggestions are really right for your portfolio. This is especially true if the broker receives a commission each time he or she makes a sale. In Little White Lies from Your Broker, Dave Sterman urges investors to be wary whenever a broker is pushing a stock. "...Sometimes, a firm decides that its traders hold too much of a certain stock. And guess who has been told to help get rid of those shares? The broker." [Even the most well-intentioned brokers don't always deliver the straight scoop. Read Little White Lies from Your Broker to find out if your broker is watching your back.]
If you want to use a broker or advisor, be sure their interests align with yours. Many quality advisors do a commendable job. Most of them structure their compensation around your success, whether it is a straight fee or based on performance.
5) Financial News Networks
Don't get me wrong, I like CNBC and Bloomberg. They provide a quality product that includes views from each side of an investing issue. Many of their guests are very successful investors who deserve attention.
The problem arises whenever they recommend a stock -- many investors enter orders immediately. In some cases, you can see the price jump up on the ticker at the bottom of the TV. With millions of viewers, any comment on a stock can move the market.
Just because a noted investment advisor thinks a particular company has potential to appreciate, does not mean it is right for you. The traders buying the stock do not understand the fundamentals nor do they have a good entry or exit strategy.
Jim Cramer's Mad Money show is a good example. Jim features several stocks during his show. In each case, he exhorts his listeners to do their homework and not to buy immediately. Yet you can see the price leap up as many followers try to get in on each stock he commends.
The Bottom Line
Consider where your investing advice comes from. Is it from a reliable source? One with a proven track record of accomplishment? Does it fit with your personal view of the market? If you can answer "yes" to each question, AND you've already done your own homework, pat yourself on the back -- you've managed to navigate through the muddy waters of dangerous investing advice.
5 Mistakes Most People Make When Investing in the Stock Market
By Joe R S
Many people, when they step back and really look at the performance of their investments, will find that their broker is making more money than they are. They will be making trades left and right, feeling like Masters of the Universe, but when it comes down to it a lower return is being made than the return from a money market account. Sometimes, they are making even less. The vast majority of people, mutual fund managers included, would do far better just putting their money in an index fund and forgetting they owned it.
Yet some people do far better than the index funds. Not just a few people, but a lot of people. Despite what some professors at the business schools write in their papers, despite all of the studies that show that the majority of fund managers cannot beat index funds for returns, there are many people who do outperform the index funds and the managed funds.
What is their secret? Do they have an uncanny ability to predict the fluctuations of the market? Do they have contacts that provide them with knowledge that allows them to buy or sell ahead of the crowd? Do they have some sixth sense that allows them to determine which stocks will outperform? Maybe some do have some of these advantages, but the vast majority are just investing differently. They are avoiding some of the common mistakes most investors make.
With some changes to your investing style, you too can improve your performance and make the market beating returns. You can become what I refer to as a "Serious Investor," rather than someone who is just trading stocks for entertainment. In Las Vegas the person who is serious about making money from gambling will be the guy who buys the casino. If you'd like to get up from the table and move upstairs where the odds are in your favor, you'll need to change your strategy from that of a trader to that of an investor.
Here are five mistakes that most people make when they are investing in the stock market:
1) Trading based on price. Many people will buy a stock just because it has dropped in price from where it once was. Others may buy a stock simply because it has increased rapidly in price. Some may sell a stock shortly after buying in because the share price drops a bit, thinking that there must be something wrong with the purchase. Good investors use market fluctuations to get better prices when they buy and sell, but never let the price that the market is offering dictate their decisions.
2) Selling winners too soon. Many people sell shares when they gain a percentage above what they paid for the shares. Often stocks that are doing well keep doing well. If one sells stocks when they have moved up a percentage, one will miss out on some big gains.
3) Holding onto losers, waiting to get back to even. This mistake, combined with mistake #2, results in a portfolio full of losers. The notion that one does not suffer a loss until one sells is nonsense. If you would not buy the stock today, you sell, use the loss to offset taxes on gains and some ordinary income, and move the funds into something with a brighter future.
4) Buying based on hype. The broadcasters at CBNC, the analyst interviewed by the Wall Street Journal, and that guy named hotdude252 on the Yahoo message boards does not have some great insight that no one else knows about. Even if they did, everyone else watching that broadcast or reading that message board will be buying or selling that stock too, so by the time you put your order in the price will have already adjusted itself to account for whatever news or commentary is out there. Make your decisions based on analysis of company earnings and prospects, not based on what some nameless poster says.
5) Buying too little. This is probably the most common mistake of all. Many people do some great analysis, make good judgements about future trends and pick some great stocks, but then only buy 100 shares or so. When the stock doubles, they may make only a few thousand dollars in a hundred thousand dollar account. While you certainly shouldn't put more in a single stock than you can afford to lose (because bad things can happen to single stocks very rapidly), make sure that you are putting enough into each position to make a difference when you are right.
Avoid these common mistakes, use a disciplined approach, and keep putting away money regularly into investments and you'll see your assets grow.
The author of this article is also the author of the Small Investor Blog, http://smallivy.wordpress.com. For more information about stock investing, stock picking, hedging, investment strategies, and growing wealth please visit.
KUALA LUMPUR: Tan Sri Vincent Tan’s Berjaya Sports Toto Bhd (BST) plans to spin off Sports Toto Malaysia Sdn Bhd (STM) into a business trust, with the intentions of listing the said trust on the Singapore stock exchange in a deal valued at more than RM6 billion.
The plan comes just days after Business Times reported that the billionaire was planning to relist MOL Global Group by as early as next year.
The tycoon had taken MOL Group, which owns Friendster, private five years ago.
Vincent Tan indirectly owns some 53 per cent of BST, whose wholly owned subsidiary STM is regarded as the jewel in the crown of the Sports Toto family.
STM is the largest number forecast operator in the Malaysia both in terms of number of outlets and product offering.
The company, which is the sole licensed lotto operator in Malaysia, generates RM3.27 billion in sales yearly.
BST shares were suspended yesterday pending the announcement.
BST was last traded at RM4.25 a share, giving it a market capitalisation of RM5.74 billion.
The deal unveiled yesterday, however, valued BST higher, as the trust might have a so-called indicative valuation of RM5.9 billion to RM6.5 billion based on its cash flow, the company said in a statement to the stock exchange.
In a nutshell, BST will divest STM to STMTrust for RM6 billion, which will be done by issuing trust units and a promisory note.
Under the deal, STM-Trust will issue 4.43 billion trust units at S$0.50 (RM1.24) a unit, while some RM527.4 million will be settled via the issuance of a promissory note, also by STMTrust.
The initial public offering will involve a up to one billion STM-Trust units in total, representing about 20.46 per cent of the STM-Trust.
This will be done via an offer for sale of up to 540 million trust units by Berjaya Sports Toto and issuance of 460 million new units by STM-Trust.
The money raised by STM-Trust via the issuing of new units will be used to settle the RM527.4 million promissory note, and to defray expenses of the issue and for working capital.
"The board is of the opinion that shareholders will benefit in terms of better valuation in the long term. STM-Trust will focus on gaming activities, where it can leverage on its core expertise and experience.
This singular objective should enhance transparency for investment managers and research analysts to track the performance of the business," said Berjaya Sports Toto chief executive officer Datuk Robin Tan Yeong Ching.
He added that shareholders could expect to receive special cash dividends from net proceeds to be raised from the exercise.
"Post-IPO, Berjaya Sports Toto will retain an almost 80 per cent economic interest in STM via STM-Trust. The board may consider distributing the majority or all of the units to shareholders of Berjaya Sports Toto as and when it is able to do so legally so that shareholders can benefit directly from the distributions and growth of STM-Trust."
The proposal will require approvals of the Malaysian regulators, including the Finance Ministry and Bank Negara Malaysia, Singapore authorities and Berjaya Sports Toto shareholders and others.
Maybank Investment Bank (Malaysia) and Maybank Kim Eng Corporate Finance (Singapore) have been retained as adviser to BST and issue manager and adviser for the IPO, respectively.
Proton is the price we pay for brainless patriotism
by Koon Yew Yin
The founding of Proton National Bhd in 1983 was a big expensive mistake to begin with. Billions of ringgit from taxpayers have been lost in the process.
The haemorrhage could not be stanched until only recently when Khazanah Nasional Berhad sold off its 43 percent stake in Proton to DRB-Hicom a few months ago. Malaysians have been wondering – is this finally an end to the unhappy saga of the government’s foray into the production of a so-called ‘national car’ or will the burden on taxpayers and car owners be continued in other new ways?
A revisit of this white elephant project is necessary to generate a larger public discourse especially amongst taxpayers who should be more concerned as to where all the tax money they’ve been paying has gone to.
One simplistic assumption which appears to have been made by the initiator of the national car project Dr Mahathir Mohamad is that an industry that is growing yearly should be profitable. It is not. In fact, industry data shows that the total profits of all the car companies over the last decades amount to only a modest return, and that only for the fittest in the industry The British experience
Consider the case of British Leyland, a vehicle-manufacturing company formed in the United Kingdom in 1968. It was partly nationalised in 1975 with the government creating a new holding company. The company incorporated much of the British- owned motor vehicle industry, and held 40% of the UK car market.
Despite containing profitable marques such as Jaguar, Rover and Land Rover, as well as the best-selling Mini, British Leyland had a troubled history. In 1986 it was renamed as the Rover Group, later to become MG Rover Group, which went into administration in 2005. This ended mass car production by British-owned manufacturers.
Today, many British car marques have transferred their ownership to foreign companies. For example MG and the Austin, Morris and Wolseley marques have all become part of China’s SAIC Motor Corporation Ltd.
Why Dr Mahathir failed to learn anything from the disastrous British car industry experience is something that completely escapes many Malaysians. Surely any good leader would have gotten his officers to do due diligence.
If they had done so, they would have found that the industry even with year-on-year rises in sales is not guaranteed to generate good returns to shareholders. Notwithstanding its long tradition of successful car manufacture and the country’s highly developed economy, the industry in the UK still failed to make profits.
The reason for this situation is because one of the forces that limit profitability is the intensity of rivalry between car companies from around the world. This leads to oversupply and pressure on prices, further exacerbated by a high degree of freedom for new competitors to enter the industry.
Unless there is an enormous internal market such as China’s or the United States, and we can take advantage of the economy of scale, small producers such as Malaysia are forever doomed to a minor placing, or bankruptcy, in the marketplace. Played out by Mitsubishi
As far as Proton is concerned, Mahathir’s mistake in ignoring the economic fundamentals of the industry was compounded by our lack of expertise or comparative advantage to produce cars. The anticipated technology transfer from Mitsubishi did not take place.
This should have been anticipated. Why should Mitsubishi transfer their know-how to Malaysia when it can control the pace of transfer to maximize its profits? In fact, the top management of Proton should ask Mitsubishi to open their books to see how much profit they have made from Proton since it began operation.
Mitsubishi knew that Proton could not do without them and they were quite happy to continue making money from Proton while the company here continued to bleed to death.
Equally important was the poor quality of management. Just before the privatization exercise, Proton had accumulated RM4 billion during Tengku Mahaleel Ariff’s tenure as chief executive officer but its cash reserves had dropped to RM600 million during his successor Mohammed Azlan Hashim’s stewardship, according to Mahathir.
To encourage people to buy Proton, the government increased the import duty for other cars and car parts. As a result, the consumers have suffered. For over 30 years we have had to pay higher prices for all cars including Proton. Even this has not been sufficient to save Proton which has been sold five times already.
Another question to ask is why few car manufacturers, until recently, seem to get into bankruptcy? If so, then prices can rise relative to cost and shareholders can get a fair return.
There are two main reasons. In some countries there is always the perennial optimism of managers and shareholders. In Malaysia, the reason is different. Here, our government has been changing rules and regulations to obstruct other cars from entering our market whilst providing special favours including an ever ready supply of financial assistance to keep Proton afloat.
The end result is that some Malaysians have ended up with more expensive cars of other brands whilst most Malaysians have had little choice but to buy Proton – a poor substitute.
This is the price we have to pay for brainless patriotism. Proton’s and our never-ending problems
Ours is a sorry saga which is a classic case study on how not to set up a car industry. As with the national airline, I propose that a special course on our experience with Proton be offered in the Institute of Tun Dr Mahathir Mohamad’s Thoughts.
What better way to honour the ex-premier than a post-graduate course on his pet project – the National Car – and inviting him to be a guest lecturer. I am sure he will have lots to share and many people to blame as to why the project has failed.
Earlier this year tycoon Syed Mokhtar Al-Bukhary was allowed to take full control of Proton. Since the sale, Proton’s problems have continued through its loss-making subsidiary, Lotus. In March, the conglomerate was forced to put in place a team of consultants to conduct an audit on the Lotus group of companies.
The need for this review was pertinent in light of the financial obligation of Lotus in the form of a £270 million (RM1.3 billion) syndicated loan taken at the end of 2010, for which Proton had given its corporate guarantee.
In March, Proton, in its third quarter results, noted that its subsidiary was in a technical breach of certain post-drawdown covenants on its long-term loan. For now, the loan amounting to RM1.01billion has been re-classified as a short-term loan as at Dec 31 until the receipt of approval for the extension of time.
Although the new owner of Proton undoubtedly has deep pockets (he is the 7th richest man in Malaysia) and owns a business empire that covers ports, the postal service, power, defence and financial services, besides automobiles, we can expect him to recoup his losses by raising the prices further on Proton thus burdening our car buyers, and by charging higher prices for the other goods and services that he is involved with.
In any way, the Malaysian consumer will continue to be suckered by the national car debacle.