Stock Market Psychology

Recently, the stock market has been dorminating the headlines. My friend just sent me this picture which I thought was funny, at the same time thought provoking. Am I like that? Which stage am I at now? To see a clearer picture, click on the link here.

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The Best Investment now for You

I just picked this up from digg. Cool!!!

Just to add on, if you bought $1000 worth of Lehman Brothers Share, you would have nothing now.

Drink beer, and recycle!

Elizaberth Warren – The Coming Collapse of the Middle Class

This is a pretty long video. But it did give me a perspective on whats going on to the American Society today. A video that I would recommend to spend an hour of your time watching.

The lecture compares two families – Parents with 2 kids in the 1970s vs Parents with 2 kids in the 2000s.

In the 1970s, most families have only one working parent, but now most families have 2 working parents. Hence, household income increased from ~$40K to ~$65K (all numbers are inflation adjusted). Common sense would tell us that today’s family will be wealthier than the same family a generation ago – more savings, no debt. But, contrary to common sense, this is not the case. The average household in America today is actually spending more than they are earning. – no savings, loads of debt!

I was not surprised when I heard the above from her, as people today are consuming so much more on goods and services than a generation ago – Zara shirts, Levis Jeans, LV Bags, Nike shoes, Classy Restaurants, Organic Food, iPhone, Movies, Wii, etc. But what really shocked me is this:

We are now actually spending less (inflation adjusted money) in clothing, food & appliances compared to the 1970s. Below are some statistics provided in her presentation:

  • Clothing – 32% less
  • Food – 18% less
  • Appliances – 52% less
  • Car – 24% less

So where did all the extra income go?

  • Housing Mortgage – 76% more
  • Health Insurance – 74% more
  • Cars- 52% more
  • Taxes – 25% more

Elizaberth concludes that, the median family today is actually spending less on the “luxurious stuff” than a generation ago. And the Middle Class today is in debt today, largely due to spending more on the “necessity stuffs” like Home, Car, Health Insurance, etc.

So, with a weakened (or collapsing) Middle Class, what are the implications?

  • Less support from the Middle Class to the Low Class Earners
  • Possible shift from Big Bulk Middle Class America to a 2 Class society
  • Threatens the stability of American Society 

I would also like to add that, in todays 2 household income families, where both parents are working, parents spend less time with the family. And this could lead to social problems like Juvenile delinquency.

So, if you are a median income earner, would you rather live in the 1970s era or the 2000s era? 

And if we are politicians today, how do we fix this? 

Employees fighting a losing war against Inflation?

Inflation has been a hot topic recently. It has affected many businesses and more recently the end user – you and me.

To sustain business, business owners (Employers)

1 Fight to keep a competitive price. This can be achieved by “Lean”-ing their operations, eg: Reducing Operating Cost, change design and material, outsourcing, retrench, etc.

2 Differentiate their products. This can be achieved in different areas like quality, reliability, customization, after-sales services, innovation, etc.

3 Passing on the extra cost to their customers, whom later will pass on to their customers, so on… If the first 2 options failed, usually this final option will be used.

So how does an employee fight inflation?

1 Keep “Operating cost as low as possible

Is that possible? Live further away from work places. Eg: Punggol? Reduce cost of entertainment, Eg: Less movies, Less Fine Dining, etc. I find it very difficult for an employee to cut its “Operation Cost”, especially on necessities like Housing, Transportation & Food. Cutting cost at the expense of Standard of Living is also not very popular as Lifestyle is especially difficult to change when it comes to Lowering of Standard of Living. 

2 Passing on the extra cost to its customers

Is that possible? Very often businesses can increase the price of its products and services as this is completely under the owner’s control. What about an employee? Unfortunately, an employee does not have the right to increase the “price” of the service he/she offers. Employees can re-negotiate the for a new contract, but in reality, Employers tend to give pay raises only when he has the budget to do so, or the employee is providing services that can bring in extra revenue. Then again, employers only pay their employees enough to keep them working. Inflation is out of the equation. 

3 Differentiating our products 

I notice many of my peers (Engineers & Engineering Undergrads) are “re-inventing their services” to bring in more “Revenue” by switching to higher dollar valued services like jobs in the banks etc. Of course, here we do not take into account of the “Cost” which can include intangible items.

But what I want to conclude is, are employees fighting a losing “war” against inflation?

When fighting against Inflation, Employer can pass on their cost to customers. Employees cannot, as we are the end user. Fog eg: A Designer’s operating costs are all end-user items: Housing, Food, Entertainment, etc. But the services they provide needs to be sold to the Marketing & Sales Department, which in turn is sold to Contractor X which in turn packages it and sells it as a HP printer to the end user – You and Me.

So what strategy can employees use to triumph against Inflation? Do we simply give in? Or is there no other way, than to change profession for more revenue (regardless of cost)? or transform to become an employer?

Before ending this post, I wanted to vent some of my frustrations against Inflation. This is what this post is about anyway. And it seems to be higher than the 7% inflation mentioned in the newspapers.

Housing: 16% increease

Half a year ago, I was renting a room in Tampines for S$430 a month. Now, I cannot get a room for less than S$500 in Tampines region.

Transportation: 45% increase

About half a year ago, before the Taxi Hikes, Taxi from Tampines to Town cost me ~S$22 at 8pm. Last week about 8pm, I paid ~$32.

Dining: 28% increase

A decent meal for 2 in a Restaurant on a Saturday night 1 year ago would cost me $30 – $40. Recently, at the same restaurant, this would cost me $40 – $50.

Breakfast: 25% increase

I eat “Dou Hua” at least 2 times a week for breakfast. The uncle at the Tampines stall has been selling me 80cents, till 2 weeks ago. It really shocked me. I am paying $1, or 25% more, for my bowl of “Dou Hua” today.

Cost of Financial Freedom

Achieving Financial Freedom, has been many people’s dream. But At What Cost?

I always know that I need to save money, invest money and make my money work harder for me. But do I know how much I need to save and invest? 

Here is a spreadsheet, to calculate the Cost of my Financial Freedom, in 6 Steps!

This spreadsheet takes into account of inflation and time value money, in an attempt to make this calculation as realistic as possible.

Download the Spreadsheet here, and Try it! And let me know your feedback.

The results simply blows me away. And I realized that Inflation does make Life Very Difficult! To live the kind of lifestyle that I envisioned and achieve Financial Freedom (Assets are able to create enough passive income to sustain my lifestyle) at the age of 40, I will need to start investing $4500 per month at a Return of Investment of 10% per annum, starting NOW till I am 40. For 35, that would be $8000 per month! These figures assume a constant Inflation of 3% per year. Without Inflation, those figures will be $2200 and $4400 respectively.

Well, and of course, that begs the question, is what I am working on now going to bring me anywhere near Financial Freedom?

And, if we are to make a drastic change to our career/lifes now, is it worth paying the cost of our financial Freedom?

Just some Fruit for Thought!

Recession! 50 – 60% market decline?

Recession!

Are there still people who believe that we are not going into a recession yet?

This video compiles the part of the sequence of events leading to our current US economic state. It is interestingly compiled in a movie format which has captured my attention for a while… until our “Lead Actor” appears. 

What strikes me?

1. David Tice:”We think that the market can decline 50-60%” over the next two years!” That was said on 8 April 2007.  That time, the Dow Index was 12,600 which later grew to 14,000 plus Octotober 07. Today the Dow is 11,971.19. If David is right, we have another 6000 more points to drop!!! *WOW* How can that be true?

2. Impressive “Gladiator-like” movie, until “Lead Actor” Ron Paul appears! and turned this nicely edited and informatic “movie” clip into a Political Campaign. Politics aside, I appreciate and believe in most of the content of this video. Love the editing.

3. Ron Paul: “If you don’t deal with the (crashing) dollar, there will not be any retirement for anybody. We are gonna have CHAOS!!!” Is he refering to civil unrest? revolutions? world war?

Schlumberger cutting jobs in North America

“Slum-ber-jay”, some pronounce it as “Sloom-burger”.

Schlumberger is the world’s leading oil field services company. In mid Oct 2007, SLB stocks were >$110. Today, it went as low as $72.30. A spokesman said on Tuesday that Schlumberger is cutting an unspecified number of North American employees due to slowing demand for oilfield services. Some speculate whether the cuts will affect other employees in the Houston area. How about the others around the world?

Recession in the US is inevitable! (Some Economist do not believe so though) What will happen when America’s demand for oil goes down?

Lets try speculating here. Oil prices will go down (temporary), SLB stocks will go down (temporary). Unless some technology replaces Oil (very unlikely), demand for oil in the world is unlikely to drop significantly and the drop in price is only temporary.

SLB stocks at $78, to me is a real bargain. Looking at its operations in Russia & the rest of the world as mentioned in The Stealth Oil Giant, Schlumberger is certainly set to continue to be a major force in the Oil Industry.  And in 5-6 years time when the US economy pick up from the recession, the $78 stock today is most likely gonna be worth significantly more than that.

What am I trying to say? Invest in SLB Stocks with a 5-6 year time horizon!

Why am I talking about it and doing nothing? Haha… it costs about US$78000 to own a lot of SLB stock. Does anyone know whether we could buy 0.1 or 0.05 lot instead?

From the above, you will find out that I am a rookie in trading stocks. Please do not trade stocks based on this post. I will not be responsibly for any gain/loses made. 😉