股市心理學

進出時猶豫不決，擔心買高賣低；在多頭市場時，無法克制追漲的誘惑；面對空頭，又耐不住恐懼殺到最低，你一定經歷過同樣的掙扎，並屢屢懊悔自己讓情緒毀了原本的精心研究。

情緒才是主角；投資，就是控制情緒的遊戲。但投資專家、經濟學家、心理學家都無奈地承認，這個領域是他們對股市認知的「失去的一環」。

超越技術分析與基本分析,「失去的一環」，指出人類各種投資心態，要追溯到孩童時期與父母的關係，並教你破解這些暗藏的心結，提出適合你的投資組合。


起步心理學
有時候萬事起頭難，難到許多人從未踏出第一步。這實在是憾事一件，因為投資股票長期而言是致富的最佳途徑，也能使你的財務比想像中更有保障，簡言之，它能讓你的美夢成真。

這些報酬都在引頸企盼你的到來，我也擔保你絕對能獲得這些報酬，但你必須在踏出第一步時覺得毫無所懼。

有許多強力的心理因素會阻礙一般人起步，其中最強烈的應屬罪惡感，這也許與試圖超越父母或兄弟、社會地位提升或在眾人皆貧之際累積財富有關。如果財富是繼承而來，罪惡感可能來自不應擁有非辛苦所得之財的觀念，或因為遺產來自你不喜歡甚至討厭的親戚。

恐懼是另一個障礙─害怕犯錯，尤其是害怕「傾家蕩產」的感覺。
但對投資裹足不前，最常見的理由卻很單純。大多數人不太了解投資，他們為此不安也不滿，因為從來沒有人告訴他們，日後將需要這方面知識。結果可能就是因循苟且，難以克服。

十年前，我有一位律師客戶就是無法起步，爽約數個月後終於現身與我見面。聽從我的建議後，如今這位客戶的身價是當年的十倍，年度化投資報酬率（annualized return）高達24％。

不相信投資能夠創造奇蹟的人，對於上述投資報酬可能會大吃一驚。投資界有個「72法則」（Rule of 72），一筆固定金額的資金依照固定的複利投資，以72除以這個固定的複利，就是這筆資金翻一倍的時間。若以上述客戶為例，三年後他的資金就是起步時的兩倍，因為72除以24等於3。

這位客戶最近向我坦承：「當初見面時，你一定認為我是老土，對於開始投資坐立難安。」他不了解的是，恐懼及躊躇不前絕對是正常反應。

筆者像對其他客戶一樣對他說，金錢具有高度的象徵價值，因此焦慮的情緒是百分之百的自然。金錢除了是交換的媒介外，潛意識上也具備愛、權力、自尊、羞恥及安全等參考價值。雖然每個人的參考價值不同，但這些價值都很強烈。

金錢引發的情緒，會掩蓋住一個令許多潛在投資人意外的事實─開始投資無異於開始從事其他新活動。投資新手覺得「事關鈔票，我得先深入了解」。其實，學習投資就像其他新事物，例如學習游泳，初學時誰是游泳冠軍呢？方法就是循序漸進，不要扭曲投資的單純平凡，別再把投資當成異常的事看待。
如果你是一位猶豫不決的投資人，你可能有恨不得馬上學會所有投資技巧的感覺。事實上，學習固然有助於缺乏自信的你，但過猶不及。如果你想要讀盡天下所有的投資建議，再整合為一，你的下場就像鐵達尼號，自已也痛苦不堪。

筆者建議客戶開始投資時，僅以小量資金且保守地操作，並按部就班地進行。因為從筆者的教導及建議的閱讀資料中，他們了解目前的投資風險不大，他們會逐漸累積投資知識。假以時日，他們終會放棄成為專家後才開始投資的矛盾想法。

這種由心理層面切入的作法，可降低焦慮、帶來報酬並強化動機。我也要求你像我的客戶一樣，承諾至少留在市場三年（這是一個市場週期的平均時間）。當然，希望你留在市場的時間遠超過三年。

投資世界中，很少朋友能像你自已的經驗那麼派得上用場，也很少投資顧問能像時間那麼睿智及全知。時間是致富的重點關鍵，此點一再提及，但大部分人不了解的是，時間也是心理上獲得安全感的關鍵。時間會消弭市場波動，也使你成為理財贏家，它甚至消弭情緒上可能的起伏，降低它們對成功的殺傷力。 我設計的起步課程是以你的安全感為首要考量，因此應該易學好懂。

「起步」課程 筆者第一次會晤客戶時，會與他們一起擬定一套理財計畫，分析目前及未來能夠掌握的資源，並設定長程目標，這也是所有優秀的投資顧問的作法。客戶開始投資前，我得確定他們備有閒置資金，緊急時能夠支應三到六個月的生活所需。我會徵詢他們投保壽險的額度是否足夠。我也會確定他們已經定期參與所有的稅負優惠投資方案，公司的401（K）方案，公司提供的認股權投資方案、個人退休帳戶（IRA），如為自僱型就業者，則是自僱個人帳戶（SEP），我也會考慮社會安全制度可能提供他們的福利及可能繼承的遺產。 討論這些基本動作時，我會觀察客戶是否不安，適時安撫他們，因為作為心理醫生，我知道起步之初，讓投資人無所顧忌很重要，在我們討論第一個投資選擇時，經常會出現猶豫不決的行徑，這是一種「退縮」的心理。

如果你覺得自已趨於保守，記住針對猶豫不決型投資人的基本課程，就是要協助你克服因循拖延的毛病，這種課程讓所有事物變得非常簡單且不出錯，不過你仍然有選擇。以下是若干你能夠採取的方法。
首先，決定起步時是投資共同基金或個別股票，但請記住，對於投資人心理而言，兩者各有所長。你可能知道，共同基金購買股票，你擁有這些股票一定的比例。買共同基金就是買專業管理、立即分散投資及不必自已記帳，讓你獲得情緒上的安全感。投資個別股票，你能掌握全盤，操作績效可能優於（或低於）投資基金。由於股票比基金更能表現「自我」，你能從認同自已的投資標的中獲得更大的滿足感。因此，你必須決定哪種方式讓你比較自在─藉助他人有經驗的雙手，或挑戰自已的能力。 筆者發現，大部分客戶都感覺投資共同基金比較自在，因為初入投資世界時，基金比較不會引發焦慮。本章將專注於基金，尤其是股票型基金，筆者將在下章討論如何建立個別股票的投資組合。
各式各樣的原則對投資人的心理都有幫助，以下是建立一個共同基金投資組合的若干原則：如果你能夠投資的金額低於一萬美元．原則：先買進單一基金。逐步買進某一基金，最好只買一種基金，直到投資總金額累積到1萬美元至2.5萬美元。如果你的所得在3萬美元到5萬美元之間，大概需要三年時間（每個月或每幾個月投資一次）才能達成你的目標。 只投資一種基金並累積至一定金額的限制，是基於一項重要的心理原則。看著自已的資金在一個地方逐漸成長會讓你更滿足，且在一定金額時（通常約在1萬美元到1.5萬美元之間）你會非常高興自已的成果。 筆者以前任職的醫院中，有一位技術人員每月固定投資一個共同基金，已經四年。他起步時也很猶豫不決，他告訴我「他的家族從來不從事投資」。在筆者的鼓勵下，他終於起步，第四年的1月份，他投資的共同基金已有1萬美元。當年年底（當年股市表現極佳）基金淨值成長39％，這位技術人員的資產躍升為1.4萬美元。對他而言，這是「情緒回報」（emotional payoff）的時刻，接下來好幾週他都嘴角帶笑，每次與我在大廳擦身而過，他更情不自禁地 喃喃自語「帥呆了」。
或許，我的同事如果投資三檔表現強勢的股票，資產也能累積到1.4萬美元，但情緒上的感受會不同，因為心理上，單一一筆資金似乎比分成數筆再加總後的資金，感覺要多。
數年來，筆者一直在研究醫生的投資習慣。一位醫生告訴我，如果他將所有資金都投入一個基金（麥哲倫基金），他會「覺得」績效比分散在數個不同的基金高，縱使後者也讓他賺錢。 對於投資新手尤其如此，盡可能達到最大的滿足點，因為滿足感會鼓勵你繼續投資。看著自已的鈔票穩扎穩打地成長，達到並超越「情緒回報」點，就會常帶給你滿足感。

「情緒回報」點很重要，因為大部分投資人都以正面態度展望未來─「如果基金資產目前為1.4萬美元，一到兩年內可能成長到2萬美元」。由於時間是投資成功的關鍵，你的情緒愈早連上一個時間架構，就愈能致富。 定期投資一檔基金，投資總金額達到2.5萬美元時，就該另起爐灶，買進另一個基金。當第二個基金的投資總額也逐漸累積到2.5萬美元時，再買第三個基金。每個基金都累積投資金額2.5萬美元後，彼此之間的資金可以流通。

有關分散持股：對筆者而言，重要的是建立一個金額大，且能讓你獲利的基金，不必一開始就為了分散持股建立多個基金。分散持股的原則雖然重要，但其重要性已被誇大。縱使你只有一檔共同基金，別忘了共同基金本身就已經分散持股。 將所有的雞蛋都放在同一個籃子，並且目不轉睛地看著它─馬克吐溫之語，包如契（Bernard　Baruch）經常引述的建言。如果你能夠投資的金額為五萬美元

原則：立刻投資一半在共同基金，翌年再投資其餘一半。投資2.5萬美元在一檔共同基金，另外2.5萬美元則投入一年期美國公債。翌年賣掉公債，將所得的2.5萬美元投入另一檔共同基金。如果你能夠投資的金額為十萬美元

原則：立刻投資一半在共同基金，未來兩年內投資剩下的一半。將5萬美元分別買進兩檔基金，買進2.5萬美元的一年期美國公債，另外2.5萬美元則買進兩年期美國公債。翌年賣掉一年期美國公債，轉進第三個基金。第三年再賣掉兩年期公債，並將所得分散投入三個基金，或買進第四個基金。 逐步將資金投入證券市場，如果你的資金相當龐大，則分數年為之。 此舉的心理原因是，不致一次將所有資金投入空頭市場。最令新手感到氣餒的，莫過於投資計畫啟動之初，就遭受相當的損失。投資人可能擋不住焦慮及恐懼的感覺，終致放棄整個計畫。 此處也有一心理原則：從市場上賺來的錢雖然感覺很棒，似乎永遠不如賠掉的錢值錢。若以情緒的觀點計算，所賠的錢價值相當於所賺的錢的兩倍。

巴菲特（Warren Buffett）是當代最偉大的投資人之一，他認為投資成功有兩大法則，第一條是「永遠不要虧損」，第二條是「永遠不要忘記第一條法則」。 筆者認為巴菲特所指的「虧損」是，嚴重到會危及資本創造的虧損，因為由較小資本重新建立持股，比較困難。
以下舉例說明。如果讓你選擇，你願意將100美元以複利存入一個5％年利率的儲蓄帳戶，還是投入一個第一年上漲50％、翌年下跌50％、第三年再上漲50％的基金，你很可能選擇共同基金。事實上，儲蓄帳戶是較佳的選擇，因為三年後淨值將為115.76美元，共同基金則只有112.50美元，問題就出在第二年嚴重虧損。 如果你能審慎投資，並因此免於嚴重虧損，幾乎確定能夠創造相當的財富。接下來的章節，筆者將告訴你如何做到。同時，你必須遵循最重要的投資原則：那就是起步。如何選擇基金 起步時選擇一個強調價值，而非注重成長的基金。退而求其次，筆者會選擇價值與成長並重的基金（筆者將在下一章討論不同的投資作風）。

上述建議是筆者個人意見。受到葛拉漢的影響，我認為價值型投資是最成功的。價值型投資人包括巴菲特、莫格（CharleyMunger）、坦伯頓及蘇洛斯（Walter Schloss）等人，他們成功的紀錄可證明價值投資的優點，筆者也發現價值型投資最適合自已的心理面，因為我一想到能夠以25美分買進一美元的東西就興奮無比，此外，我也願意等候兩到三年才歡欣收成。

由於你會先買進一檔基金一段時間，就得選擇一個紀錄輝煌的基金，才有安全感。以下是幾個考慮因素： ．以往績效。從《晨星共同基金》或《富比世雜誌》找出績效最佳的基金，或由《富比世雜誌》夏季季末一期中的基金榮譽榜，找出長期績效不錯的基金。筆者較喜歡《富比世雜誌》的排名，因為其中也計入基金在空頭市場的表現，《晨星》是每兩周發行一次的市場通訊，詳細評估共同基金並排名。五顆星代表最高評等，一顆星代表最低。

理想上, 你應該選擇空頭市場仍有A等、多頭市場仍有B等的基金。為什麼不都是A等呢？因為符合這種標準的基金不多，更重要的原因是，多頭市場中A、B甚至C等的基金，差別其實不大。你真正需要的是最能在空頭市場中保護資本的基金。因此空頭市場才需要A等基金。 觀察一個基金五年到十年的績效，拿它和標準普爾公司500種股價指數（S&P500）或適當的指數相比。假設一個基金績效表現最佳的一年是1986年，當年成長34％，高於一個多頭市場的平均值；1987年表現最差，衰退14％，低於一個空頭市場的平均值。這種基金就是頗佳的選擇。 評估基金永遠要考慮它的長期績效，而非起伏較大的半年或過去一年。質疑長期績效正確性的文獻很多，但目前還沒有其他方法可提供你情緒上更大的安全感，尤其是你才剛起步。

管理的持續性。確定創造優良績效的基金經理人，仍在管理這檔基金。

起伏是否太大。假設你找到一個績效不錯的基金，但某一段時間的績效大幅衰退39％，最近卻未再下降。這檔基金可能在你決定進場時回檔，正如我先前所說，你希望在情緒上及財務上都能避免一進場就受挫。

資產規模。基金規模愈大，成長就愈慢，基金經理人的績效也愈難超越其他基金。目標應該是資產低於10億美元的基金。

稅負考量。如果你不依靠股利收入過日子，由稅負因素考慮，你最好買進能夠提供資本利得的基金。了解一檔基金的投資報酬中，股利及資本利得的比重各為多少。了解一檔基金持有一檔股票的平均時間，週轉率低代表成本及稅負都較輕。

財務槓桿。向銀行及金融機構融資的資產不得高於基金總資產的10％，否則對你而言，這檔基金就太過投機。

通常沒有其他費用。若其他條件相同，最好選擇沒有其他費用的基金。但記住：投資世界中，少有公平的事情。部分需要佣金或其他費用的基金，投資報酬較高。如果你準備至少在市場停留三年，支付費用可能不見得是很負面的因素。
（第二篇性格與投資組合，你會發現需要管理費的基金，對部分投資人反而具有正面的心理價值。） 如果你的投資金額很大，一次投資2.5萬美元，三年內投資7.5萬美元，你就可議定管理費，並可藉此學得投資人的自信。年齡與選擇基金 你的「資產配置」，投資組合中股票、債券及現金的比重，視你的目標、年齡及對年齡的感覺而定。以下原則適用於包括個股及債券的投資組合，也適用於投資基金，目前暫以基金為主要考量。

20歲到30歲的投資人儲蓄的主要目的，是買房子、子女教育費用及其他開支，因此得找出一檔評等最佳的股票型基金。你所選擇的基金應該反映你本身理財的積極程度及對風險的容忍程度。依你的年齡，數種心理因素可吸收因積極理財帶來的風險。例如，時間是投資最大的伙伴，目前站在你這邊，如果某一年投資績效不佳，你知道終會扳回，且你處於升遷速度最快的年齡層，收入可能繼續成長。比起年紀較大且收入固定的人而言，你較容易度過投資虧損。
從45歲左右到50歲，你的心理趨於謹慎。你希望確保退休後的生活，時間不多，且事業更上一層樓的機會也不多了。穩定成長可能是你想追求的目標，因此包含股票及債券的平衡型基金是較佳的選擇。

退休時，應該由你已經累積的財富及你的財務安全感，決定資產配置。如果你的資金足夠維持生活水準（你若希望每年仍有4萬美元的收入，就需要100萬美元的財富，如果是10萬美元，就需要250萬美元）。而且希望資本成長，就考慮股票型基金。必要時，你能動用原有資本。較富有的退休人士，心理上也感覺較能花錢，但情緒上仍需保守。如果想加強自已的安全感，就可考慮平衡型基金或債券基金。 決定資產配置時，大部分退休人士心理上都會受到父母及祖父母壽命的影響。長壽的家族通常較保守，因為他們需要用錢的時間較長，不過，這也不是什麼值得難過的狀況。 「

無憂無懼」的學習
無論投資之初是購買共同基金或股票，或兩者皆是，你百分之百會想要先好好讀點資料，但累積資訊只會製造、而非減輕焦慮。 有時候新手覺得非要「惡補」一些以往不知道的事情，可是一旦這麼做，很快會補過頭。補過頭的危險在於，它會澆熄你的投資慾望，就像進場就賠錢一樣。因此，筆者建議客戶放輕鬆，遵循一套「篩選及去蕪」（Sifting and Skimming）的作法。

你要做的是篩選各種投資書籍，選出數種對你最有價值的書；大致瀏覽你已經選擇的，並逐漸精讀，你覺得喜歡，就要確定自已閱讀後沒有壓力，再繼續下去。 有些理財書籍保證有超人一等的報酬或能夠迅速致富，千萬別上當。對筆者而言，葛拉漢的《智慧投資人》是最好的入門書，要投資一定得先讀此書。這本書深具價值，筆者每年必定重讀一次。

「第二本最具價值」的理財書籍是費雪（Philip Fisher）的《普通股票及非常獲利》（Common Stocks and Uncommon Profits）。葛拉漢及費雪的書都是簡短明瞭，看熟後自然能熟悉投資程序。 其他有用的書還包括英格爾（Louis Engel）的《如何購買股票》（How to Buy Stocks），林區（Peter Lynch）的《選股戰略》（One Up on Wall Street）、奎恩（Jane Bryant Quinn）的《善用自已的錢》（Making the Most of Your Money）及齊威格（Martin Zweig）的《贏得華爾街》（Winning on Wall Street）。 進一步的功課就得每天過濾《華爾街日報》（Wall Street Journal）或《投資人商務日報》（Investor's Business Daily）或兩者選一，就像看其他報紙一樣，找出你有興趣的報導。幾乎所有人都覺得，《華爾街日報》頭版中人情趣味的報導相當迷人。嘗試閱讀《華爾街耳語》（Heard on the Street）這個專欄（同版也有股票、債券及基金的每日行情），它讓你了解華爾街的思考方式，在你努力成為真正投資人的同時，它也讓你在心理上成為投資人。

無論你選擇那一份報紙，你最後都會發現自已愈讀愈多，若否，也無所謂。縱使只是瀏覽，也要培養固定閱讀金融刊物的習慣，對你的投資自尊會產生意想不到的奇蹟。

巴菲特創辦的波克夏哈薩威公司，是一家超級成功的控股公司，他在股東年度報告提出相當實際的建言，也是有趣的瀏覽目標。事實上，這可能是最好的投資「書籍」，寫信到Berkshire　Hathaway 1440 Kiewit Plaza, Omaha,NE 68131函索，即可取得這份年度報告。

成人推廣教育課程也能提供許多資訊，如果你能藉助同學的支持（他們也是投資新手）鼓勵自已起步，這種課程也具有心理效益。不過，如果你與他人比較，認定旁人比你懂得多，並以此作為拒絕起步的藉口，這種課程就弊大於利。

提醒你，如果你決定上課，註冊前確定指導講師的素質。與證券公司或金融公司有關係的人，也許更在乎爭取客戶，而非提供客觀的建言。別再猶豫 發現自已起步時猶豫不決，可能有數種疑慮造成心理障礙。

這些障礙都不難理解，它們一直都是「常理」（commonwise），但它們仍然會誤導我們，所以要設法調整──敝開心懷。

有人認為得等到「正確時機」再進場。這四個字，比其他字眼帶給投資新手更多的困擾。 新客戶經常會問，「約翰，你難道無法告訴我正確的進場時機嗎？」聽到這種問題時，我知道它代表兩種意義。財務上，此人要求我預測市場的底部，在最有利的時機進場投資。但心理層面上，這個人所問的是，「你能否保護我免於受傷？」，投資人能夠感受到的所有疑慮都展露無遺。
等待「正確時機」是想避免恐懼、風險及虧損等問題，但這些都是投資過程中很自然的一部分。這些問題根本無法避免，但擁有一定的知識，即可減輕這些問題帶來的壓力，經由時間及耐心的考驗，你會成為一位理財贏家。這種知識正是在你經歷低潮時的強力消毒劑。

實務上，進場投資根本沒有所謂的「正確時機」，因為無法抓住市場的脈動。絕對沒有人能夠知道底部何在，一昧等候而不進場，失去賺錢良機的可能性，遠高於進場但虧損。

筆者1995年7月時預測這波多頭市場可能接近頭部，當然我不確定，因為無人能夠預測市場。假設我當時建議新客戶暫時不進場，他們就賺不到翌年超過20％的漲幅。如果只是等待時機，你可能永遠留在場外，更可能永遠活在後悔的陰影下。 另外一個不願開始投資的理由是，他們認為，比起「專家」，自己吃虧太多。但許多投資人不了解的是，特定情形下，散戶投資人反而能夠占到便宜。

想想看：專業投資人（共同基金經理人及法人）短期內績效壓力極大，否則就得走路。
華爾街每天都有謠言，基金經理人被迫隨著群眾起舞；他們無法承擔置身事外的風險。如果你自行選股，你就不需要在意短期績效，也就不必盲從群眾。

專業經理人唯一的優勢是，投資是他們全天候的工作，這當然不完全正確，因為他們得花費很多時間管理基金，例如會晤客戶、行銷工作及記帳。有時候，專業人士的消息管道也較多，但如今電子媒體風行，這個優勢也不如以往重要。
市場顯得古怪難測，是許多投資人猶豫不決的原因。市場絕對不是一個穩定的地方，但實際上它比你想像的更容易預測，因為兩大心理法則能夠讓你與它平起平坐。牢記它們，你就占了風。

盈餘預期法則（the law of unexpected results）
著名基金經理人及《富比士雜誌》專欄作家杜瑞曼（David　Dreman）發現這條法則。筆者稱它為「盈餘預期法則」，根據我一項未公開的研究顯示，這條法則也適用於投資以外的多種預期心理。
心理上，市場對看好的股票會預期較高，也就是當前的熱門股，通常本益比較高，不看好的股票，市場預期較低，也就是冷門股的本益比較低。

高本益比的股票，如果盈餘若「略高」於預期，股價幾乎不漲，因為市場預期心理是盈餘會「遠高」於預估值。如果盈餘與預期相同，甚至低於預期，股價會下跌，因為市場極度失望。

另一方面，低本益比的股票，盈餘如果與預估相同，甚至高於預估，股價漲幅會高於大盤，因為市場心理預期盈餘不會這麼好。如果盈餘低於預估，股價也很少下跌，因為市場心理已經預期盈餘不佳。

這條法則幫助你預測盈餘報告公布時，市場可能的反應，讓你占得先機。它也鼓勵你在開始投資時買進冷門股（低本益比），因為它們若上漲，你就賺得比較多，萬一下跌，你的損失也較少。

「盈餘預期法則」也支持價值型投資，因為它告訴你上檔空間仍大且下檔風險小的投資標的。縱使你不是價值型投資人，這條法則也讓你洞悉市場行為。 重大新聞法則（the law of extreme news） 重大新聞發布時，市場反應激烈，若是利多消息，股價上揚，利空則下跌，且市場對利空消息的反應比利多消息強。財務分析師尼德荷夫（Victor Niederhoffer）研究1950年到1966年的報紙標題，發現消息愈重大，市場波動愈大。他也發現，利空消息發布後數日內股價會反彈，利多消息曝光後數日內股價會回檔。這條法則幫助你該如何反應，你常常能把利空消息（尤其是政治或經濟新聞）視為買進機會。

最後，如果股市是賭場，也是一個好賭場，因為勝出的機率對你有利。從歷史觀察，股市上漲的頻率是下跌的兩倍，報酬一直相當可觀。自本世紀以來，S&P500（在紐約證券交易所掛牌上市的500家主要股票）平均年投資報酬率為9.5％，相對於公司債的7.0％及國庫券的3.3％，使得股票成為累積財富的最佳工具（不動產例外，後者1933年到1986年投資報酬率極佳）。

市場似乎波動很大，但投資與賭博是最沒有關係的兩件事。不像賭博，投資需要作功課、判斷、耐心及長期經營的決心，最棒的是，它的收穫頗豐。

如果你願意打造自已的財務遠景，如果你希望為自已及所愛的人做最佳的打算，情緒上你已經就定位，邁向成功的投資，且目標剩下不到一半的距離。只要開始走上這條穩扎穩打的投資之路，長期下來必能帶給你應得的財富。

以占卦來追求世俗利益

「孫子兵法」中有說「廟算」的重要性，亦即將帥戰前的預備及推算等工作。因此，事情的成敗，很多時事前的客觀因素已說了十中七八。

只有迷信平庸之仕才將自身前程交給占卦師; 「求神問卦」亦暗示自身信心不大，並無充足事前準備。雖說投資涉及多項因素，有人更說其中涉及「科學」及「藝術」，或是一類「哲學」。

有兩點可以肯定:
1) 投資是十分個人化，沒有一套方法或天書能適合每一個人，更無法適合於不同時代。
2) 因此，每一個人要按自身能力、心理質素、喜好、背景、經驗等因素「付出時間及學習」。依靠一本「大路占卦書」來決定投資策略，實算是「兒戲」。
3) 很多明智的投資決定是始自「觀察」，而「觀察入微」亦是智者所為。

Will 3,300 hold?

- We had forecasted in our 28 Nov report that the rebound will wane out as it approached the 3,650 level, which has unfolded as per our forecast.

- The STI has failed to deliver a sustainable rally over the last 3 months since it rebounded off the 3,300 level in Mid-Nov 07. It tested this support level once in Mid-Dec 07 and is again approaching the 3,300 mark.

- As the decline over the last 2 trading days was made on the back of rising volume, we could see a little more downside from here, which would take the STI to our immediate support at 3,300.

- Elliot wave counts suggest the current down wave is segmented into 5 smaller waves. Currently, this puts the STI at the tail end of the current down wave (Wave V), which would take the index below our support level at 3,300 and we could witness the STI slips toward our 2nd support around 2,900 - 3,000.

- But should the 3,300 support level hold up strongly, we could be in store for a strong rebound that would take the STI towards the 1st resistance level at 3,650. However, it would face minor resistance at where the moving averages have converged around 3,500 - 3,550.

STI & Laggard blue chip stocks

Two of the key support levels for the STI that are quoted in the market place are the 3300 level and the 3000 level. We had highlighted the 3000 level as the worst case downside support level in our 2008 strategy report, stating that it represented 7 year mean price to book valuations.

Yet, the way, we see it, there is very little in charts that suggests that the index could head down to the 3000 level in the near term. The low volatility in banking stocks is one of the reasons why we believe that a near term low is in the making.

Additionally, some of the stocks in the sector are trading near previous lows on low volume. The STI has so far corrected marginally below 3300, yet there is no major sign of panic and the index's performance thus far is encouraging. Even, if the index breaks below the 3300 level, we think there will be secondary supports.

Watch out also for a marginal decline in the HSI towards 26600. If HSI registers a marginal decline and rebounds, then the odds are that an important low could have formed for both the STI and the HSI.

All said, we still maintain the view, that the present decline is a buying opportunity and we highlight some of the laggard index stocks.

1. Capitaland- Stock at $5.95 is trading at a 1 year low and off by 30% from May 2007 high of $8.50. Support at $5.70-5.80

2. City Dev- Another laggard. 2007, high was $17.90. At $12.56, stock has declined by 30%. Support at $12.20-12.20.

3. SGX- 2007 high was $17.20. Prior lows in 3Q07 and 4Q07 were in the $12.00-12.10 range. Stock has declined by 29% at present $12.10 level. Support is at current levels. If the $12.00-12.10 range breaks stock could head towards $11.60.

4. SembCorp Marine- Stock had fallen to a low of $3.82 from a high of $5.70. At current level of $4.23, the stock is showing positive relative strength to the STI over a 5 week period. Support level is at $4.14. Resistance is at $4.52

5.DBS- Peak in 2007 was at $25.00. From that level, it had corrected towards $18.70-19.00, 4 times. This represents an important floor. Stock is currently at $20.13. Volatility has been relatively lower as opposed to 3Q07 and 4Q07.
Recommend accumulating between $19.60-20.00

6. CapitaCommTrust - The stock reached a high at $3.32 in 2007 and since then it has corrected to a low of $2.11. Current price stands at $2.14. DPU for FYO8 is projected at $0.097. This provides a yield of 4.5% as at current $2.14. Next support level is stands at $1.95-2.00 range. Our fundamental price target is at $3.04.

7. CapitaMall Trust- Stock had fallen from a high of $4.32 in June 2007 to a low of $2.96 in August. At present the stock stands at $3.18 and is consolidating between $3.10-3.52. At $3.18, the stock offers a yield of 4.5% based on consensus DPU of $0.146.

8.SIA- Stock has fallen from a high of $20.00 to a recent low of $16.30. This represents an 18.5% decline. At present $16.70, the stock is trading at 1.3x historical P/B ratio. Support is at $15.80-16.00.

Are Market Trends Effectively Random?

Sun Tzu is an honorific title bestowed upon Sūn Wǔ. Tzu, who lived from 544 to 496 BC, authored The Art of War, an immensely influential ancient Chinese book on military strategy. The book, composed of thirteen chapters, each devoted to one aspect of military warfare, has long been considered one of the definitive works on military strategies. It has also had a huge influence on business tactics. Investors can also benefit from its wisdom. They can particular benefit from the insight provided by one its most often cited phrases: “Every battle is won before it is ever fought.”

On July 19, 2007, the S&P 500 Index closed at 1553. By August 15, it had fallen to 1407, a drop of almost 10 percent in less than a month. The drop was fueled by a flight-to-quality, or what might be called a flight-to-liquidity. Headlines from the financial media reported huge losses in hedge funds as investors fled all risky assets, the kind of assets hedge funds often buy.

The media (and not just the financial media) also commented about how this was an unprecedented event. The following statement is a good example. It was made by Matthew Rothman, global head of quantitative equity strategies for Lehman Holdings Inc. and a University of Chicago Ph.D. After three days of huge losses for equities all around the globe Rothman stated: “Wednesday is the type of day people will remember in quant-land for a very long time. Events that models only predicted would happen once in 10,000 years happened every day for three days.”(Wall Street Journal, “One ‘Quant’ Sees Shakeout For the Ages—’10,000 Years,’ August 11-12, 2007.)

Lehman’s models (as well as the models of many other hedge funds) may have made such a forecast, but all that proved was that the models were wrong. These events have occurred in the past, and they have done so with a fair amount of frequency. In fact, we had a very similar crisis in the summer of 1998, just ten years earlier.

The hedge fund Long-Term Capital Management [LTCM] was founded in 1994 by John Meriwether (former vice-chairman and head of bond trading at Salomon Brothers). Myron Scholes and Robert Merton who shared the 1997 Nobel Memorial Prize in Economics sat on its board. LTCM had early successes producing annualized returns of over 40 percent in its first years. Then, in 1998, it lost $4.6 billion in less than four months and became the most popular example of the risk that exists in the hedge fund industry. In early 2000, the fund folded. LTCM, failed because its models told them the same thing that Rothman’s model had told him. As Spanish philosopher Santayana warned: “Those that cannot remember the past are doomed to repeat it.”

The Historical Evidence
Professor Eugene Fama (the thesis advisor to LTCM’s Myron Scholes at the University of Chicago) studied the historical distribution of stock returns. Here is what Fama found: “If the population of price changes is strictly normal, on the average for any stock…an observation that is more than five standard deviations from the mean should be observed about once every 7,000 years. In fact such observations seem to occur about once every three or four years.” (Roger Lowenstein, When Genius Failed, Random House (1st edition, September 2000), p.71.) That is a long way from once every 10,000 years.

Consider also the following:
• From 1926–2006, twenty-three out of the eighty-one years produced negative returns. In nine of those years the losses were greater than 10 percent. In five of the years the losses exceeded 20 percent. In two of the years the losses exceeded 30 percent. And in one year the loss exceeded 40 percent.
• During the same period, out of 324 quarters, there were twenty-seven in which losses exceeded 10 percent. There were also seven quarters when losses exceeded 20 percent. And there were two quarters when losses exceeded 30 percent.
What the data is telling us is that stocks are risky assets. And the risks show up fairly frequently. The data also tells us that severe losses are fairly common. In fact, the risk of severe losses is why stocks have provided higher returns historically than have bonds. On average, investors are risk averse. To entice them to take the risks of equity investing, stocks must be priced to provide high expected returns. And it is not a question of if the risks will show up. The only questions (to which no one has the answers) are when the risks will show up, how sharp the declines will be and when they will end.

The Anatomy of a “Crisis”
Some bear markets are caused by specific events such as what occurred on September 11, 2001 or the oil crisis of 1973. These are random events that cannot be forecasted. But others follow a fairly consistent pattern that goes as follows. When economic times are good investors become more willing to take risks. Prices begin to rise. The longer the times remain good, the more confident investors become, and the more risk they become willing to take. Eventually stocks may even become “priced for perfection.” Eventually the risks do show up. Losses appear, credit tightens, margin calls have to be met, and a flight-to-quality ensues. We might say that “the tipping point” was reached. Prices don’t just fall, they often collapse as a vicious cycle develops as selling begets more selling. Some investors are forced to sell to meet margin calls and others simply panic.

When Risks Show Up
It is important to note that during bear markets all risky assets have a strong tendency to become highly correlated. Thus, while global diversification across equity asset classes with low correlation is the prudent strategy because it reduces risk over the long term, during crises this benefit “takes a holiday.” The only safe haven during such periods is fixed income investments of the highest quality (for example, Treasuries, government agency securities). Riskier fixed income assets such as junk bonds and emerging market bonds also suffer from flights-to-quality and liquidity. This is why the prudent strategy is to limit fixed income holdings to securities of the highest credit quality.

It is also important to note that the risks of hedge funds, which supposedly offer the benefit of low correlation, tend to rise during crises. The reason is that many hedge funds attempt to achieve high returns by investing in risky and illiquid assets. Thus, just when you need them to provide their so-called hedge, instead what happens is the risk appears. This is exactly what happened in the summer of 1998, with an encore performance in the summer of 2007. This is just one of the many reasons why investors should avoid hedge funds. (There are many others including their failure to deliver on their “promise” of greater risk-adjusted returns.)

These crises also show the why investors should avoid strategies that employ leverage. Leverage works well until risk shows up. Then the use of leverage often leads to the inability to wait out a bear market because margin calls must be met. Leverage has been the factor leading to the demise of many investment strategies. The perfect example is LTCM. It went belly up despite the fact that many of its trades proved to be correct if only it could have held on to its positions. Unfortunately, margin calls had to be met and LTCM was forced to liquidate. Let’s now turn to the issue of whether investors can successfully avoid the inevitable periods of sharp losses by timing the market?

Timing the Market
The evidence on efforts to successfully time the market is compelling. For example, one study of one hundred large pension funds and their experience with market timing found that while they all had engaged in at least some market timing, not a single one had improved its rate of return as a result.

Let’s look at some evidence on why market timers get such poor results. Keep in mind that when you try to time the market you have to be right not just once, but twice. You have to sell at the right time and you also have to get back in at the right time. We saw earlier that of the out of 324 quarters from 1926 through 2006 there were twenty-seven in which losses exceeded 10 percent. Out of those twenty-seven quarters, sixteen were followed by quarters when the S&P 500 Index rose at least 5 percent. There was also seven quarters when it rose at least 10 percent, four when it rose at least 20 percent, three when it rose at least 30 percent and two when it rose at least 80 percent. Yes, 80 percent. Thus, following quarters when the market fell at least 10 percent, the next quarter it rose at least 5 percent almost 60 percent of the time.

There were also three other quarters when the market rose, though less than 5 percent. Thus, over 70 percent of the time after experiencing a quarter of a sharp decline, the market actually rose. Evidence such as this is why legendary investor Peter Lynch stated: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”(Worth, September 1995). And Warren Buffet’s favorite time frame for holding a stock is forever.

If bear markets cannot be anticipated, what is the prudent strategy?

The Winner’s Game
Napoleon, perhaps history’s greatest general stated: “Most battles are won or lost [in the preparation stage] long before the first shot is fired.” For investors the battle is also won in the planning stage. Successful investors know both that bear markets will happen and that they cannot be predicted with a high degree of accuracy. Thus, they build bear markets into their plans. They begin by determining their ability, willingness, and need to take risk. They make sure that their asset allocation does not cause them to take so much risk that when a bear market inevitably shows up they might sell in a panic. They also make sure that they don’t take so much risk that they lose sleep when emotions caused by bear markets run high.
Summary

Life is just too short for individuals to spend time worrying about their portfolio. If investors make sure that they don’t take too much risk, they will be able to rebalance (buy more of the very investments that have performed the worst) in the face of large losses. Some investors let emotions drive their decisions and they end up buying high and selling low. On the other hand, prudent investors who stay disciplined and rebalance, buying low and selling high, clearly adhere to a superior strategy.

Stocks are risky investments, no matter the time horizon. Smart investors recognize that. They also know that they cannot predict when the bear [market] will emerge from its hibernation or how large the losses will be. They know that just as battles are won in the planning stage, the winning investment strategy is to have a well-developed investment plan in the form of an investment policy statement. However, they also know that having such a plan is only a necessary condition for investment success. The sufficient condition is that they must have the discipline to stick to the plan.

Successful investors know that they must act like a postage stamp. The postage stamp does only one thing, but it does it exceedingly well. It adheres to its package until it reaches its destination. To be successful, investors must have the discipline to avoid having their well-developed plan end up in the trash heap of emotions.

In closing, the next time the emotions caused by a bear market tempt you to sell you should consider the following statement from Stephen Gould. Gould, who died in May 2002, was professor of zoology and geology at Harvard University. He said, “Probably more intellectual energy has been invested in discovering (and exploiting) trends in the stock market than in any other subject—for the obvious reason that stakes are so high, as measured in the currency of our culture.
The fact that no one has ever come close to finding a consistent way to beat the system — despite intense efforts by some of the smartest people in the world — probably indicates that such causal trends do not exist, and that sequences are effectively random.”

Is 1970's-style stagflation returning?

Inflation is rising and the economy is decelerating, but those problems don’t add up to that nasty combination of stagnant growth and out-of-control price increases. Yet.

Stagflation is coming. Lock up your portfolio. We could be on our way to a replay of the 1970s.
That’s the worry among an increasing number of investors as we head into 2008. It’s certainly possible for the year ahead, but it’s unlikely. In this column, I’ll look at what would have to go wrong for stagflation to return and how to position a portfolio if you think stagflation is more of a danger than I do.

The ’70s have a lot to answer for:
"Airport," "Airport 1975," "Airport ‘77" and "Airport ‘79."
The Village People and "YMCA."
The breakup of the Beatles.
President Jimmy Carter and the killer rabbit.
Sonny Bono’s bell bottoms.

And stagflation, that lethal brew of stagnant growth and high inflation.
In the United States, headline inflation started off the decade at 5.5% in 1970, peaked at 12.2% in 1974 and again at 13.3% in 1979, and didn’t drop below 4% until 1982. For the ’70s as a whole, inflation averaged 7.4% annually. In comparison, inflation in the 1960s averaged 2.5% annually.

Real economic growth tumbled. Subtracting for inflation, the economy grew by just 3.27% on average from 1970 to 1979, quite a drop from the 4.44% average annual growth in real gross domestic product recorded from 1960 to 1969. And in two years during the 1970s, after subtracting for inflation, the economy actually declined in size — by 0.5% in 1974 and 0.2% in 1975.

As you might expect, the 1970s weren’t a great time for investors. The Standard & Poor’s 500 Index ($INX) returned a compound annual 5.9% from 1970 to 1979. With inflation running at an annual 7.4%, an investor in the stock market was losing ground every year to inflation. Bond investors had it even worse: The compound annual return on a long-term U.S. Treasury bond for the decade was just 4.8%, 2.6 percentage points lower than the inflation rate.

So you can understand why the prospect of stagflation in 2008 would send shivers up investors’ spines. How likely is that scenario? Let me break down stagflation into its two parts, the "stag" and the "flation." I’ll deal with "flation" first.

The ‘flation’ part of the equation
Is high inflation coming back? Yes.

The Federal Reserve and the European Central Bank, the two most important inflation fighters in the world, are worried that inflation is too high. Headline inflation, the number the European Central Bank watches, was 3.1% in November in Europe, way above the bank’s 2% limit. In the United States, headline inflation was 4.3% in November.

The Fed’s preferred measure of core inflation — headline inflation minus any increases in volatile food and energy prices — was a lower 2.3%. (Energy prices were up 21% in the month, so leaving them out of the inflation calculation helped.) But even that was above the Fed’s comfort zone.

For the "flation" part of stagflation to set in, those rates have to go higher and create the expectation that inflation is headed out of control.

Unfortunately, higher inflation is coming from every direction you care to look. Normally, the Federal Reserve and the European Central Bank would move to stomp out inflation by raising interest rates. Now, thanks to a weakening U.S. economy and turmoil in the debt markets, the Fed is lowering interest rates instead, and both banks are flooding the financial markets with short-term cash.

China, Russia and other emerging-market economies determined to keep their currencies from gaining against the dollar are creating money to buy dollars, inflating their own currencies, and that money is fueling booms in stock and real-estate markets. Inflation hit 6.9% in China in November, for example. And these countries are exporting some of their inflation in the form of higher prices for developed-world customers such as Wal-Mart Stores.

Demand from these fast-growing economies for raw materials is driving up the price of coal, iron ore, corn, wheat, oil — just about every commodity you can name. A falling U.S. dollar is driving up the cost of everything the country imports, from oil to children’s toys.

Normally, the Federal Reserve could count on a slowing economy to take a bit of wind out of inflation’s sails. But many of the current causes of inflation aren’t linked to the U.S. economy. We could get inflation and slower growth — the definition of stagflation.

Singapore Market

This report was compiled by analyst Narjeeb Jarhom for AMFraser Securities.

SINGAPORE MARKET
Market rallies likely to be short-lived in the run-up to the earnings reporting season from month-end till February with STI (3460 at noon today) capped at 3550-3600 and support around 3300-3350.

After seeing unsustainable rallies for most of the 4th quarter, investor psychology is now more acceptable of a downward trending or sideways drifting market in the coming few weeks. Unless of course hedge and sovereign fund managers make a beeline for equities in the next few days to reverse the downbeat sentiments and bring back the bullish spirits.But even then, many investors and traders are likely to capitalise on rallies to trim positions and to cut losses.

Fund managers too are unlikely to go all out to lift the new STI being launched next week to the 3600 resistance area let alone the 3800-3900 peaks of early October anytime soon, certainly not in this quarter where confidence remains shaky amid the unsettling US housing sector and the fast slowing US economy.
With the Singapore economy having slowed down to a 6% annual growth rate in 4q07 year-on-year from 9% in 3q07, corporate earnings growth could have also started to slow last quarter. Chances of a quick pick up in earnings growth this current quarter are not good and this will impact stock prices which will be influenced by institutional perception of earnings potential in 2008.

The 4q and full year 2007 reports may begin to be discounted before they kick in at end-January but the extent of market falls are still hard to quantify depending on liquidity flows in a weak market and Fed’s moves on interest rates at its Jan 29-30 FOMC meeting.Nevertheless, US and local stocks are not expected to plunge to the 25500-27000 support on the Dow Jones and the STI to below the current 3300 support but if they do the Fed may have to be more aggressive in its rate cuts perhaps by 50bp to 3.75%.That possibility hinges on 4q07 US GDP growth especially if it falls below 1%.
A rally may develop ahead of the FOMC meeting in anticipation of a bold Fed funds rate cut in which case we may see the Dow back to its 35000-37000 resistance and the STI to 3550-3600.What happens after the FOMC meeting is more critical to evaluate even at this early stage especially if investors rightly or wrongly perceive that the series of rate cuts has not had much positive impact on US economy and earnings growth.

This could set the stage for a more volatile February and thus investors’ continued cautious approach is called for.We advise cautious buying of blue chips in the leading sectors ie banks, properties, off shore conglomerates and telecoms on rocky market days for traders with a 3-5 weeks’ view and close monitoring of market conditions to see any major shift of investor sentiment for the worse taking place.

Traders should be satisfied with a 5 to 10% trading gains and avoid getting trapped by buying aggressively during rallies as there are still no definitive signs that the closer gaps between correction phases seen in the second half of 2007 are about to end now.We have seen the STI plunging nearly 20% in July-August and again by 15% in November.

After a short 2 week really at end-Nov into early Dec from 3306 to 3622, the index again fell this time by 9% back to 3300 on Dec 18.Although it has recovered to nearly 3500 (3491 on Dec 27 and 3482 on Dec 31) it is only up 16.6% yoy, not a particularly spectacular performance for a year that saw new monthly peaks on the STI for 8 out of 12 months with a 31% year to date gain at the highest point of 3906 on Oct 10 against 2986 at end-2006.The near record trading range of about 1000 points from lows of 2932/2962 in early March and mid-August to 3906 has the unfavourable effect of increasing volatility on the downside.

The worst was in August from the mid-July 3689 high to an intra-day low of 2962 on Aug 17, down 19.7%:Just short of the above 20% mark which conventional wisdom suggests to signal the start of a bear market.Having ended 2007 at 3482, a 20% fall would take the STI to 2787, which is not conceivable at this stage but market players are used to 10-15% corrections and the strategy of buying during sharp downturns is likely to continue this year.A 10% fall to around 3150 is also hard to accept at this stage ahead of the month-end FOMC meeting, the earnings season, Chinese New Year festivities and the mid-February Budget speech where the government is likely to introduce measures to stem the rising cost of living and perhaps other market friendly moves in the unlikely event of a deteriorating external and local corporate environment.

Thus days of market falls in the next few weeks towards 3300-3350 should offer good trading chances barring a sharp Wall Street correction as the market can expect at least a short-lived run-up spanning 2-3 weeks in late January into February.It is still not advisable to chase prices that have run up too fast to the 3600 level.

Traders should wait for the next buying opportunity that should emerge again not long after the Budget speech which notoriously in the past had seen some sharp reversals not long after the statement.Last year about 2 weeks after the Budget, the STI peaked at 3316 on Feb 26 and in a sudden one-week plunge, it landed at 2932 on March 5, down 11.6%. Although it is too early to gauge 2q08 performance, it is quite possible that the STI could reach a major bottom for the year during this periodwhich may well again be below 3000. It may repeat last year’s double bottom behaviour again this year but the timing may differ.

Last year it was at 2932 in March and 2962 in August. If the STI could plunge from nearly 3700 to briefly below 3000, it is best that traders brace themselves for another break of 3000 perhaps as early as late Feb-early March or sometime in second quarter.

The 3650-3700 which houses the then mid-July record high is likely to be a strong resistance, which may not be tested until the second half. But even then only if the US escapes a recession and the Singapore economy does not slow down to the low end of the official 4.5-6.5% growth rate for 2008, which will unfavourably impact earnings growth to single digit range from current forecasts of 12 to 15-16%.On a technical note, the long term STI uptrend is still intact even if it revisits the 3000 psychological level.
The critical support at 2006 high of 2666, which is close to the long-standing 2583 high in 2000 however must not be tested as it could spark a new bear market. The behaviour of the monthly MACD and RSI however are also not that inspiring.Nevertheless, a bear market scenario is unlikely to emerge in next few months but investors should not ignore vital signs of a worsening US economic situation this year as any deep recession there could lead to an easy break of STI 3000 notwithstanding the Asian growth story.

Investors should bear in mind of the still close correlation of the local market to that of Wall Street.
With the STI among the lowest regional indices’ year-on year gainers, up 16% in line with the Dow’s modest 6% gain compared to over 40% for the Hang Seng Index and the 25-35% by other Asian ex-Japan markets, excluding China and India which remain in a class of heir own.
Already we have seen the local economy slowing down sharply in 4q07 in line with the weak US economy.

Top picks for the year

THERE are dark clouds on the horizon and things will probably get bumpy this year, but financial experts remain bullish about Asian stock markets.
IPP Financial Advisers investment director Albert Lam said: 'We believe the foundation of the bull market remains intact... We expect market volatility to continue to dominate in the first half of the year. Liquidity will flow into the market again once the volatility picture clears up towards the second half.'
The clouds have become obvious to most observers by now: a possible economic slowdown in the United States, a weak greenback, high oil prices and continued US sub-prime problems that could affect global credit markets.
That last factor is highly significant as banks and securities firms across the world have announced more than US$40 billion (S$57.4 billion) in losses from write-downs related to US sub-prime or highly risky home loans, said Mr Vasu Menon, OCBC Bank's vice-president of group wealth management.
Looking back at 2007
EMERGING markets such as India and China took top spots last year, with returns of 54.9 per cent and 48 per cent respectively.
And despite a turbulent second half, Singapore's Straits Times Index (STI) rose by 16.6 per cent.
Online unit trust distributor Fundsupermart research manager Mah Ching Cheng said global equities have enjoyed strong returns over the past three years. The MSCI Asia Pacific ex-Japan Index has risen 102.5 per cent over that period, while the MSCI World Equity Index went up 36.6 per cent from Dec 30, 2003 to Dec 21 last year.
Hot investment themes in 2008
Asian equities
AMONG equity markets, Asia continues to be favoured by financial experts as the region is likely to outperform in terms of growth.
After all, more than half of the world's population lives in the region, said Mr Lam.
'Per capita incomes that continue to improve in emerging countries, coupled with younger and better-trained workforces, have contributed to the region's consumption ability,' he said.
According to International Monetary Fund (IMF) forecasts, developing Asian economies are expected to grow 8.8 per cent this year, against 2.2 per cent for developed markets.
Fundsupermart has picked Thailand as its favourite Asia ex-Japan market. It cites the improvement in Thailand's expected economic growth, with consumer confidence and spending tipped to pick up once the political situation stabilises following last month's elections.
Emerging markets
FOR Ms Mah, what she likes is the healthy earnings growth for emerging market equities, of which about half are in developing Asia.
She is also bullish about equities in India and China, even though they shot up last year. This is because the two are still among the world's fastest-growing economies and their intra-Asia exports should continue to rise steadily. This could provide support for their equity markets, added Ms Mah.
Mr Lam also likes emerging markets. Their rapid growth has boosted their stock markets and resulted in greater liquidity.
'With better liquidity, demand for these securities will also increase. Key industries have been privatised and/or deregulated,' he said. 'Given this, and appropriate fiscal and monetary policies, emerging markets are tipped to continue their robust growth.'
Technology sector
ALL things tech seem to offer considerable potential. Ms Mah notes that the sector's earnings growth this year is expected to hit the high teens.
The US Semiconductor Industry Association expects worldwide chip sales to post an annual growth rate of 7.7 per cent over the next two years. Sales are expected to hit US$276.9 billion this year, compared with projected sales of US$257.1 billion for last year.
The association said a broader range of consumer products and the emergence of large new consumer markets in Asia, Eastern Europe and South America would be the principal drivers of industry growth in the years ahead.
Commodities
OCBC's Mr Menon is keen on commodities, especially oil and precious metals such as gold, which stand to benefit from supply shortfalls and healthy demand.
Singapore stocks
FOLLOWING the sell-down in recent months, the Singapore market appears 'cheap', said Mr Terence Wong, the head of research for retail at DMG & Partners Securities.
He expects the STI to trade up to 3,903 points this year. It closed at 3,437.79 points on Friday.
His top 10 picks for the year: Armstrong Industrial Corp, ASL Marine, China Farm Equipment, China Sports International, Courage Marine Group, Frasers Centrepoint Trust, Suntec Reit, Synear Food Holdings, Tiong Woon Corp and Venture Corp.
Investors can expect volatility to persist over the short term, said Ms Carmen Lee, the head of OCBC Investment Research.
Her top sector picks include oil and gas, banks and defensive stocks with high dividend payouts and strong historical earnings track records.
Oil prices are expected to remain high due to strong demand from China and India, said Ms Lee, which should boost oil, offshore, marine, engineering, shipyard and steel stocks.
The prime beneficiaries are likely to be Keppel Corp, SembCorp Marine (SembMarine), Cosco Corp and Ezra Holdings.
Keppel Corp's order book came to $13.3 billion in November while SembMarine's came to $7.9 billion in October.
Banks still look good, thanks to robust loans growth and a steady stream of fee revenues.
Though they were not spared in the sub-prime bloodletting, Mr Chris Firth, the chief executive of wealth management firm dollarDEX, said bank stocks will at some point make a strong recovery.
Ms Lee also believes that China's rising affluence will continue to support consumer demand. Infrastructure facilities will also be in demand due to the Olympics this year and the Asian Games in 2010.
China stocks listed in Singapore rose by 44 per cent last year, and the momentum looks set to hold as their valuations are lower than those of their China-based peers.
In its latest strategy report, OCBC Investment Research picked 12 stocks that it expects to rise by an average of 33.3 per cent over the next six to 12 months. They include Cacola Furniture International, China Sports International, DBS Group Holdings and United Overseas Bank.
Potential risks in 2008
FINANCIAL experts point to two dangers: a potential US slowdown and an overheated China market.
Ms Mah said US equity markets are likely to remain sensitive to the negative news coming out of the finance sector, particularly major write-downs related to US sub-prime woes.
'Asian economies that are heavily reliant on import demand from the US would be affected by slower demand for their exports,' she said. 'Economies that are large producers of electronic goods would be the most affected if the US economy undergoes a sharp slowdown.'
This means South Korea, Taiwan, Hong Kong and Singapore might be the most vulnerable.
Also, the growth of these four Asian tigers is expected to slow to 4.4 per cent this year from 4.9 per cent last year, according to the IMF.
However, domestic spending and a positive business environment are expected to continue driving the Asian growth engines.
As for the China market, Ms Mah fears that a strong correction in China's bourses could have a contagion effect on all Asian bourses.
Last year, Chinese equities enjoyed a strong rally, driven by both domestic and foreign investors.

Who is living on dividend & not working full time here?

I have been a retiree for 11 years living mainly on dividends. From my experience, one has to put at least 70% of your money on blue chips with regular dividend payout.
The other 30% for periodical thrills to punt on news and guts feeling when market is red hot. With regular payout comes capital appreciation. Look at the banking, oil, shipyard and property counters and you will appreciate what I am saying. Almost all retirees cannot afford to lose! So they have to go for the long haul on blue chips for regular income. If they can live on $2000 a month, $500,000 would suffice with annuity to supplement. Capital appreciation would also mean there will be future growth in their income. Just to share my experience with those considering to retire.
I started in the 1980 when there was no REITs. Therefore I keep my purchases to proven stocks mainly Hong Leong Fin, OCBC, DBS(sold too early), UOB(sold too early), SPC(sold recently), Capitaland(sold), Keppel Land and Keppel corp (both sold too early), F&N (sold recently), Sembawang (sold recently), SGX (sold too early). I do not own them all at the same time. During the 20 odd years, these are the stocks I bought and sold at one time or the other. I am more convinced to land with rock solid counters because of my unpleasant experience with Tat Lee Bank, Clob shares and CAO. Retirees should be reminded that making $2 with a dollar is not without risk. Unless you can afford to lose, please don't try.
Keep to those blue chips you are familiar with. Don't buy those you know vaguely or recommended by friends or "Gurus" unless you do a little reading up on these counters yourself. Otherwise, it will affect your confidence level when there is a market shakeup and cause you to take inappropriate action. Know your stocks well and also know the general trend of the market are the key ingredients of the game. However, no one is spared when there is meltdown no matter how cautious one is. It is only by degree how one is affected. The only consolation is that blue chips continue to provide you with regular dividends to live on and the hope of recovery when the cycle comes.

By: sbyeo



Thank you for sharing.... so....with $500,000, invest 70% ($350,000) with dividend return of 6% to 9% earn $21,000 to $27,000 per year.... not bad !

股民迟早要上的一课

每天的中国财经新闻都免不了中国股市的神话。
　　“再创新高”、“开户热潮”、“股市泡沫”等等已经成为词汇甘蔗渣，从新闻播报员的嘴里一次又一次地用各种语言重复唠叨。
　　光辉的中国股市，比熊熊燃烧的奥运圣火提前一年，为中国带来了全民的兴奋和辉煌的经济光环。
　　说起大陆股市的怪状，真是
1.“层出不穷”
2.“汗牛充栋”
3.“罄竹难书”

　　来搜集一下中国媒体的报道：
　　
童叟无欺篇
　　童：郑州一四岁小童，天天跟着妈妈到去炒股，每天买进卖出，确定了人生方向。他的“你长大了做什么”的作文，已经有了肯定的答案：万般皆下品，唯有炒股高。
　　叟：八十岁以上的老人也 1.蠢蠢欲动 2.老当亦壮 3.不甘人后，从沿海的上海、深圳，直到兰州、成都都处处可见七、八十岁的老人参与炒股大军。原本在家含饴弄孙的老人们，把棺材本都全力投入。“老黄忠”们在证券公司里杀个三进三出，赚到盆满钵满。
　　
白领学生篇
　　公司内：一般的大陆白领更是疯狂，每天早上打开电脑就是先来个网上交易，做工只是每月领干薪，不如炒股挣钱快。倒是上海老板头脑开明，眼见手下人人为炒股而分神，干脆决定上、下午各开放半个小时供员工作为炒股时间。炒股时间到，这家公司的办公室摇身一变就成了“股友俱乐部”；集体炒股高潮半个小时后，恢复工作，大家如同过了鸦片瘾，精神大振。
　　校园里：资深股票人深圳大学副教授马春辉最近就完成一份研究报告指出，该校学生中，大一就参与炒股者已达一成，大四生更是有高达80%已有投资股票与基金的经验，真是
1.青年才俊
2.后生可畏
3.言传身教。
　　
黄色产业篇
　　更精彩的还在后头，在投机风气正炽的深圳，近半年来，生意正火热的一些特种营业场所，不约而同都出现三陪女供不应求。中国时报说，不少干部探讨个中因素发现，竟都是股市惹的祸。因为股市行情火热，不少以往日进斗金的三陪女，眼看部分参与炒股的姐妹淘收入更丰，纷纷投入既不须陪酒，又不必看客户脸色，可以生活正常的炒股行列中。
　　就算没有以炒股替代三陪的皮肉生涯，仍在夜总会的三陪女上班时也是满嘴股票经，要不然就是频频向恩客们打听名牌；不少深圳、上海知名的夜总会到了半夜，摇身一变成为股市名牌交换站。
　　就在这股「唯股是图」的风气下，珠江三角洲庞大的三陪女部队，许多原本每个月都要汇回老家的资金，都暂时投入股票与基金投资；银行业也对这种罕见现象啧啧称奇。
　　
精神科发财
　　根据中国媒体报道，最近沿海城市里，股票交易厅人山人海，而医院精神科也人满为患；精神科医院开口问求诊者的开场白已经统一成：「你最近是不是作股票了？」。
　　现在，国家官员已经开口，说全民炒股是件好事情。
　　
全民炒股是好事情？开玩笑。
　　第一，中国的八亿农民还没有开炒，单单一亿城市人享受到股市带来的好处，这绝对不算是全民炒股。这个题目很大，我另外写。
　　第二，中国股市从没有经历过亚太金融风暴的大起大落。当97年全球的金融金融市场大崩盘，香港、新加坡、美国股民烧到手，自杀率飙升的时候，中国却因为人民币不能自由兑换而安然度过了金融风暴。
　　区域国家曾经用沉重的代价，才学会了小心控制房地产和股市的泡沫。但中国政府和中国股民却都没有在那次的大风暴中站在风口浪尖上。
　　
毛主席说：“要想知道梨子的滋味，只有亲口尝一尝”，实践是检验真理的唯一标准。老人家真是英明。
　　
中国要知道泡沫破灭的滋味，就得面对自己的泡沫，亲口尝一尝。
　　中国新股民要真正学习稳健投资的策略，就得亲口尝尝暴跌的滋味。对中国股民来说，这迟来的风险意识课，是迟早全民都要上的。
　　
再引用毛主席的话：“天要下雨，娘要嫁人，随他去吧。”

DMG Research Guide to Investment Ratings by Terence Wong

ALL FIGURED OUT - DREAM THEMES 2008
It has been volatile, but 2007 is proving to be yet another generous year for the stock market. With the Straits Times Index (STI) shooting up by over 120% from 2003-06, many thought 2007 would be the year the market takes a breather. But it stumped all critics by once again defying gravity. The STI surged to record highs and at one point, flirted with the 4,000 point mark – more than 3 times higher than this millennium’s trough in 2003. Despite the spike, valuations have remained reasonable all through, supported by strong corporate earnings and solid growth prospects. In fact, over the past 2 years, Singapore’s economy has been firing on practically all cylinders, growing at a pace of a developing nation.

Looking into 2008, the bright domestic economic drivers appear to be weighed down by the increasingly challenging external environment. The road ahead will be bumpy, with great uncertainty on where the market is heading. If you, like many investors out there, are seeking answers and direction, look no further. Our title says it all - we have 2008 all figured out! Read on to see tomorrow’s themes and how you can profit from it.

1
Executive Summary
Home Team fights on. We believe that the Singapore economy will expand 6% in 2008, driven by domestic growth and strength in regional economies. While growth in financial services and property are expected to taper off, the construction and offshore & marine sectors will more than compensate. Worries about US and China are warranted, but domestic drivers should be strong enough to fend them off.

Domestic defensives in face of uncertainty.
Home is where the heart is, and where the money can be made. As such, investors can consider hunting domestically for potential winners, especially those with solid yields.
Our home defensive favourites include Frasers Centrepoint Trust and Suntec Reit.

Oil’s unabated strength.
The Oil & Gas sector has been enjoying one of the best runs in decades. With oil prices expected to remain high in the near future, we see no disruption to the party in 2008. While we still like the big blues like Keppel Corp, we believe second-tier players ASL Marine, Tiong Woon Corp and Courage Marine will outperform the sector.

QDII booster for S-shares.
With QDII funds expected to flow through our shores, there will be support for some Chinabased companies, or S-shares. We favour companies riding on rising consumerism (Synear Food and China Sports International) and agriculture (China Farm Equipment) in China.
Tech may surprise, but not just yet. Technology, the whipping boy in the past few years, may turn out to be a dark horse. The industry is still looking shaky, with consumer confidence in the US just starting to dip and the US dollar continuing on its decline. But valuations are looking attractive, and if consumer confidence and the dollar were to turn around, there will be a re-rating of the sector and this will benefit the likes of Venture Corp and Armstrong Industrial Corp. This, however, will unlikely happen in the near term.

Evergreen themes.
In this paper, we have also identified 2 themes which will be around for years to come. Alternative energy stocks have seen more downs than ups, despite all the hype surrounding them. But like dotcom companies, there will be winners and investors will just have to fall back on basics to pick them. Sovereign wealth funds will be another important theme in the coming years as they flex their financial clout.

Market beaten down to attractive levels.
Following the sell-down in the recent months, the Singapore market is looking cheap. The STI is trading at 14x FY08 PER, which is at the lower end of its 10-year PER band. We believe that it has the ability to trade up to its 5-year average of 16x PER, implying a target of 3,903 for 2008.

2
Fundamentals - Little Red Dot’s Big Picture
The remaking of Singapore started with much fanfare in 2002 but a confluence of negative factors – SARS, recession and Iraq war – the following year took the shine away. The economy has flourished considerably since the darkest days and is seeing one of the most powerful runs in more than a decade, growing at a compounded annual growth rate (CAGR) of 7.8%.
Based on forecasts by the Monetary Authority of Singapore (MAS), Singapore is expected to revert to its medium-term potential of 4.5-6.5% in 2008. We believe that the Singapore economy should be able to hit the upper end of the estimate, driven by domestic growth and strength in regional economies.

It’s still going to be the domestic market.
First, the bad news. The external environment is looking shaky, with fears of a US subprime crisis-led contagion as well as escalating oil prices plaguing global markets. Closer to home, the key financial services and property-related transactions, which accounted for 28% of the GDP growth in the first half of 2007, will likely slow. But the good news is that domestic drivers like construction will more than make up for the slack.
Hard hats to power growth. The construction sector is expected to be the star performer once again in 2008. After entering the darkest of tunnels, the sun is finally shining on this sector. At its low point in 2004, contract size fell almost 60% to S$10b. But with the current building boom, construction contracts are expected to double to S$19-22b in 2007. In fact, manpower and resources are so stretched that the government is delaying some S$2b worth of public sector projects. Notable construction activities include the two integrated resorts (IR), Downtown and Circle MRT lines, numerous en-bloc projects, and the iconic Ion Orchard.
O&M continues to ride the crest. The offshore & marine sector, which has lost some lustre following the forex fiasco by SembCorp Marine and Labroy Marine, is still expected to grow impressively.

The two largest oil-rig builders – Keppel Corp and SembCorp Marine – continue to shine with strong combined order books of over S$17b running into 2011. It was barely a billion 5 years back.
Good house in a good neighbourhood. Singapore has often been described as a good house in a bad neighbourhood.
This may be a thing of the past, as restructuring in the past few years has strengthened our neighbours’ houses.
Malaysia, Thailand, Indonesia and the Philippines are all expected to grow, with improving consumer spending and numerous big-scale infrastructure projects. There will be demand for project financing, and given Singapore’s status as a project financing hub, it will be abuzz with activity. The surge in raw materials used for these infrastructure projects will most likely go through our ports, giving a boost to trade-related services.

3
Risks – Potential Party Poopers
No decoupling for now. There is a possibility that US may fall into a recession. If it were a mild downturn, the strength from Singapore’s domestic and regional drivers should be able to withstand the external pressures. However, if it were a deep and pronounced recession, it is tough to escape unscathed, given that US is still one of the most important trading partners.
Financial sector walking a thin line. The state of banks’ health is a concern. Given the huge write-offs that the big global banks will be making for the fourth quarter of 2007, the full year results that are slated to be released in the beginning of 2008 will not be pretty. And if the losses turn out to be bigger than expected, financial stocks will take a hit, which may then spread to the rest of the market.
China stepping on the brakes. China has made public its plans to intensify its policy tightening measures in 2008 to curb credit growth. China’s attempt to slow its red-hot economy may have an adverse effect on global markets. The Singapore stock market, with an increasing concentration of China-based companies, will not be spared.
More and more expensive in Singapore. Noodles, bread and eggs have all gone up. Transport, housing and electricity are also getting more expensive. The Singapore economy is currently at full employment, with an estimated 200,000 jobs created in 2007. As a result, the cost of new hires is likely to escalate. All these add up to inflationary pressures, that if left unchecked, will have a severe adverse impact on the economy. The Consumer Price index (CPI) looks tame so far, as it has not fully captured the extent of inflation. The full impact will be visible next year.

4
Valuation – Still a Steal?
2007 may go down in history as the most volatile year to date. For the first 11 months of 2007, there were 29 trading sessions which witnessed swings of 2% or more and 12 trading sessions which saw triple digit changes. The STI went up by as much as 30%, before giving up more than half its gains to end the year.
The swings in UOB-Sesdaq were even more pronounced. It was the best performing market globally in the first half of 2007, more than doubling between January to June, but has since slumped over 30% from the peak.

At 3,357, the STI is trading at 15.2x 2007 and 13.7x 2008 PER, which is a tad cheaper compared to regional bourses.
This is on the lower end of its 5-year PER band – the STI traded as low as 10.5x to a high of 22.5x PER. From a price-tobook value (P/B) perspective, it is lower than its peers but higher than its historical average. Dividend yield of 4.1% remains one of the best in the region.

5
STI – A Closer Look
To value the STI, we have chosen to use the 5-year averages of STI’s PER and dividend yield. We believe P/B is not an accurate measure, considering that quite a few of the component stocks have either adopted an asset-light strategy (eg SGX and even property counters like CapitaLand) or chosen to effectively manage their capital (eg StarHub and M1) over the past few years. Moreover, services companies like Parkway and Hyflux – which trade at lofty P/Bs – have grown in importance. All these factors have led to the market trading above the historical P/B average, a pattern which will likely persist.
From a dividend yield perspective, if the STI reverts to its average of 3.5%, it will be fairly valued at 3,886. Assuming that the STI trades up to the average of its PER band, or 16x PER, our target for the STI is 3,903, giving the index an upside of 16% - not too far off from what is suggested by the “reversion to average yield” method.

DREAM THEMES 2008
Domestic Defensives - Home sweet home
Home is where the heart is, and where the money can be made. With our economy still strong and the external environment increasingly uncertain, investors can consider hunting domestically for potential winners.
Companies riding on the domestic reflation story will continue to benefit from a strong domestic economy. Banks have been hit particularly hard in recent months as a result of the US subprime crisis, but have stabilised in the last couple of weeks. Of the Big Three, UOB should be the biggest beneficiary of mortgage financing of residential projects due for completion in the next two years.
Margins are also expected to head north as the macro climate improves. In the near term, its share price may take a hit as global banks make massive write-offs relating to the subprime exposure, but such knee-jerks should present buying opportunities.
On the property front, we like the retail and commercial sub-sectors, and believe that REITs like Frasers Centrepoint Trust and Suntec REIT will outperform both the market and its peers.
Media giant SPH has a few positive drivers in 2008 – a robust publishing business, higher retail property income and earnings coming through from its Sky@Eleven project, which was sold out shortly after its launch earlier this year. One of the biggest draws of SPH is its attractive yields.
Notwithstanding the high oil prices, transport companies also offer a good shelter for investors should the weather turn nasty in the US. We like SMRT for its organic growth and cost efficiencies. Ridership on its trains is expected to grow a healthy 6% in 2008 on the back of Singapore’s strong economy, which has bolstered employment and discretionary travel (eg shopping on weekends). While growth of 6% may not seem to be impressive, it actually is so due to cost efficiencies. For example, in its 2QFY08 results, revenue inched up 5%, but net profit actually jumped 25%.

Our picks for this theme encompasses the major components of the economy – banks, properties, media and transport – sharing a common trait: mouth-watering dividend yields, which lends support in times of uncertainty.

7
Oil – Unrivalled stamina
“People seem almost more relaxed about US$100 than they were about US$60 or US$70 oil.” Daniel Yergin, Chairman of Cambridge Energy Research Association.
With raging demand from fast developing areas (particularly China), crude oil prices came close to US$100 per barrel in November 2007. A couple of years ago, most economists thought this psychological mark will send the global economy into a recession. In fact, high oil price, which is effectively a tax on consumers and businesses, crippled the US economy in 1970s and early 1980s.
However, the global economy has been expanding despite rising oil prices as we are far less dependent on oil in recent years compared to a decade ago due to energy efficiency. Moreover, the rise this time round was due to demand surge, rather than a supply crunch (as the case in the 1970s).
The jury’s still out on oil price trends, with forecasts ranging from US$70 to US$120 in 2008. However, one thing’s for sure – we will be living in an era of high oil prices and it will not revert to the US$24 per barrel 60-year average anytime soon.
Offshore & Marine industry will be a beneficiary of this rising tide. Order books running into billions of dollars are lockedin and run till 2011. The forex debacle at SembCorp Marine and Labroy Marine threw up some doubts on the industry’s internal controls and practices, but these cases seem to be the exception rather than the rule. We believe second-tier players like ASL Marine, Courage Marine and Tiong Woon Corp have the potential to outperform its industry peers in 2008.
ASL Marine is a fully integrated marine company with a strong focus in shipbuilding, shiprepair, shipchartering, and other marine related services, catering to customers mainly from Asia Pacific, South Asia, the Middle East, and Europe.
The strong demand for offshore oil and gas exploration activities is driving up orders for new support vessels. As a result, it is sitting on record ship building orders of S$670m. It is also riding on the back of booming infrastructure development in the Middle East.
Also benefiting from the Middle East is Tiong Woon, the crane provider which has grown both its onshore and offshore businesses. There is currently a global shortage of cranes and this has boosted the demand for the company’s cranes and haulage rates, which has been rising between 15-20% over the past 3 years.
Investors who are more prudent may want to consider Courage Marine, a dry bulk shipping company with dividend yield of close to 10%. Its fortunes have gone up in tandem with the Baltic Dry Index (BDI), which has trebled since a year ago with a big surge in demand for the transportation of commodities to the world’s fastest growing economies – China and India.

8
S-shares - QDII sweeps into Singapore
The Qualified Domestic Institutional Investor (QDII) scheme, which aims to liberalise Chinese investors’ investments abroad, will kick-off in 2008. This will boost the Singapore market, which has the highest concentration of China companies outside Greater China.
So far, 4 funds have been established, with mandates to invest in Hong Kong, US, Europe, Singapore and other emerging markets. Deutsche Bank’s joint venture Harvest Fund Management, for example, raised US$4b (S$6b) in October 2007 and will mainly invest in Hong Kong, Singapore and US-listed companies that derive at least 50% of their revenue from China. RMB1.5 trillion (S$300b) is estimated to flow through to overseas assets under the QDII
programme.
There are likely to be limits to the amount that each fund can place in a particular country, debunking any initial rumours that the bulk of the money will go into the Hong Kong market.
Given the sharp surge in Hong Kong, many would expect the market to be a lot more expensive compared to its Singapore peers. But not so, if we were to compare Singapore’s Prime Partners China Index with Hong Kong’s Hang Seng China Enterprise Index (HSCEI). On a forward PER basis, S-shares are only a touch cheaper than H-shares and based on current year earnings, S-shares appear to be more expensive. Locally, the best bargains are found in the lower market cap companies. For example, those with market capitalization of less than S$100m actually go for less than 10x prospective earnings.

However, QDII funds will likely seek the companies with larger market caps, ie those above S$1b. While the valuations appear rich compared to the Singapore market, it is inexpensive relative to their China-listed peers, which are commonly traded at twice the PER. As a group, the billion-dollar S-shares are trading at 34x FY07 and 22x FY08 PER.

9
Consumer stocks, which are riding on the back of a burgeoning middle class in China, will likely be big favourites. Among the big caps, we favour Synear Food Holdings, a quick freeze food products player with a national presence – one of the very few SGX-listed China company which can lay such a claim. As the exclusive frozen foods supplier to the upcoming Olympics, 2008 is set to be an exciting year for the company.
Also benefiting from the fervour and sentiments generated from Olympics is China Sports International. The company taps on the fast-growing domestic youth market in China, focusing on “value-for-money” products priced in the range of RMB150-250. With aggressive brand awareness programmes in the lower tiered cities, we expect earnings growth to be strong in the coming years.

10
Food – The New Oil
For years, food prices have been getting cheaper and cheaper. But 2007 has been a turning point, with just about every crop and poultry under the sun hitting record or near-record levels. The UN Food and Agricultural Organisation’s food price index jumped 37% in 2007 over the first three-quarters of the year. Like oil, food prices have been rising on the back of growing demand from global consumers. There are two key reasons behind this phenomenon, one which is likely to prevail. First, developing nations are getting hungrier (actually greedier). Back in 1985, the average Chinese consumed 20kg of meat, but has since more than doubled his appetite to 50kg in 2007, thanks to an increasingly affluent society. This results in a greater demand for grain, which is used to feed the chickens, pigs and cows that we eat. But the middle class in developing countries has been growing steadily over the years, so why are prices surging only in 2007? A more important reason is biodiesel, which soaks up a third of US’ corn harvest. More farm land has, as a result, been devoted to corn, sacrificing other important crops like wheat and soybean. This has led to the upward spiral of all crops to lofty heights.
Billions of consumers globally, who have grown accustomed to sliding food prices since, will feel a big pinch on every grocery trip. Farmers, however, will finally reap what they have been sowing all these years. In the US, farmers’ take is expected to be 50% higher compared to the previous year. Payouts may not be as rich in Asia, but the next few years look brighter than anytime in the past few decades. While some of the money will be spent on a much deserved holiday,
the bulk of the earnings will be ploughed back on their farms to improve efficiencies and yields. The importance of agriculture is underscored by the concessions and subsidies given to farmers in key agriculture countries. China is a case in point. While it is taking steps to curb the overall growth of loans, it is actually encouraging banks to lend more for agricultural development.
China XLX, which produces fertilizers in China, will be a likely beneficiary. China is the world’s largest consumer of fertilizers, and its consumption represents approximately 30% of global production. The company has arguably one of the best cost structures in the industry and will stand to win in the event of a deregulation in the industry, which will accelerate M&A opportunities.
However, on valuation grounds, our pick within this sector is China Farm Equipment, the top manufacturer of farm harvesters in Hunan province. With agriculture being a key sector, the Chinese government has spearheaded initiatives to raise the efficiency through mechanisation. Farmers are given subsidies by the government, which encourages them to invest in new modern equipment.

11
Technology – The Tortoise and the Horse
The technology sector has been underperforming the market since 2004. Many have placed their bets that 2007 was going to be a turnaround year, but the industry met with immensely testing challenges, including tepid demand growth and a free-falling US dollar. As a result, the SES Electronics Index fell 13% in 2007. However, this particular index is not the most accurate benchmark, as it is laden with stocks from the yesteryear, like GP Industries, IPC Corp, IDT Holdings, and Goldtron. In fact, the best performer among the 14 component stocks is an almost unknown company called Powermatic Data. Our own price-weighted index (we used a basket of 13 tech stocks that are more familiar to investors) suggests that the tech sector appreciated 8% in 2007, a better performance compared to the archaic SES Electronics Index but still pales in comparison to the STI.
With consumer confidence in the US slumping and the dollar digging deeper, tech industry’s fortunes appear to be even grimmer in 2008. But valuations have been beaten down to multi-year lows. Many of these stocks are trading at singledigit PERs, and this may result in more M&As (the tech industry accounted for more than half of 2007’s M&A transactions).
While we remain neutral on the sector, we recognize that a turn in consumer sentiments or US dollar may spark a rerating.
This may happen towards the later part of 2008. If so, the tech sector will be like the tortoise in Aesop’s Fables - slow at the start before catching up in the later part of the race.
We believe 2 stocks will do well in this ‘dark horse’ sector – electronics manufacturing services provider and tech bellwether Venture Corp as well as precision engineering specialist Armstrong Industrial.
Venture Corp, the largest tech manufacturer listed on SGX, is currently trading at just 10x prospective PER, which is as cheap as it gets. During the heady dotcom days, the one-time market darling was trading at close to 50x earnings. On top of slowing growth, investors have been worried about its collaterised debt obligations (CDO). However, from our understanding, its CDO holdings are not directly exposed to the US subprime market and are actually investment grade corporate bonds.
Foam and rubber specialist Armstrong Industrial Corp, on the other hand, is one of the fastest growing tech companies over the past 3 years, and has seen its share price more than double in 2007. We believe that there is still more room to run, driven by its focus on high margin rubber business. Despite the spurt in its share price, valuations are well-supported by its sound fundamentals.

12
Alternative Energy - Climaxing with the Climate
I just checked my carbon footprint on the internet and realized that I produce a whopping 16 tonnes of carbon dioxide a year, no thanks to the frequent business trips. That’s 30% higher than our national average of 12.2 tonnes and many times the global average of 4 tonnes. For the record, every being on the planet needs to bring it down to 2 tonnes to save the earth (good reason to tell my bosses that I need to fly less).
Indeed, climate is the talk of the town and hardly a day goes by without hearing about global warming, Kyoto protocol and carbon credits. It is set to get big in Singapore, and will be the talking point for years to come. However, there have been some initial glitches.
Getting burnt from solar. Solar may be the next big thing, but investors will have to exercise loads of caution when buying into such companies. Equation Corp, formerly known as HeShe Holdings, panned a US$150m deal to manufacture solar panels using thin film amorphous silicon technology. This comes barely a month after Rowsley called off its S$2.7b deal to acquire Perfect Field, a manufacturer of thin-film solar panels. It came with a profit guarantee of S$300m per year from FY2008-2010, no mean feat considering that the company eked out less than S$5m a year ago.
Carbon credits yet to take off. There has also been a lot of talk on carbon credits lately. ecoWise Holdings inked a deal to sell 95,000 carbon credits, or Certified Emission Requirements (CER) to Kansai Electric Power, Japan’s second-largest utility company, becoming the first SGX-listed player to sell carbon credits from a renewable energy project.
Commodities trader Noble Group has also established a carbon credit division which is reportedly the largest trader of CER, with a global market share of 15-20%. Oculus, previously a contact lens maker, has dropped initial plans to acquire China hydropower plants in favour of a reverse takeover with Aretae Pte Ltd, an environmental solutions company dealing with carbon credits.
Biofuels fired up. With oil prices hitting record levels, the demand outlook for biofuels have also picked up. This has resulted in palm oil – the world’s most consumed vegetable oil and the most economical – rising 55% in the first 11 months of 2007 to hit lifetime highs. This is a boon for feedstock providers, but a bane for the refiners. Plantation owners like Wilmar and Golden-Agri Resources were the darlings of the stock market, growing to become one of the largest companies on the SGX. On the flip side, companies like Advanced Holdings, which intended to produce biofuels, have pushed back plans indefinitely as a result of the rapidly rising feedstock prices.
As this report goes to print, SGX-listed Enviro-Hub Holdings announced that it will be building a S$50m plant to convert plastic waste into useable fuels and gases. Investors should be patient and wait for results before committing to companies with seemingly exciting new ideas. Climate-related companies will be a recurring theme in years to come, but investors will need to be selective and base their investments on fundamentals and valuations, rather than hope and
hype.

13
SWFs on the Prowl
In the past 2 years, it was the private equity funds that were making the noise in the market, snapping up company after company. In the coming years, it will be sovereign wealth funds (SWF) or state-owned funds like Temasek Holdings which will steal the limelight.
The top 10 SWFs hold between US$32b and US$875b. Collectively, the 48 SWFs from over 40 countries are estimated to have US$2.5-3 trillion worth of funds (already more than hedge funds’ US$1.6 trillion), and this is expected to balloon to US$12-15 trillion by 2015. Even states like Libya and Iran, not exactly the poster boys of international finance, are rumoured to be in the process of establishing sovereign funds. With the subprime crisis taking a tremendous toll on banks, these funds have snapped up significant stakes in venerable names like Citi, UBS,Morgan Stanley and Merrill Lynch.

Top Sovereign Funds
UAE ADIA 875
Singapore GIC 330
Saudi Arabia Various funds 300
Norway Government Pension Fund 300
China China Investment Corp 300
Singapore Temasek Holdings 100
Kuwait Kuwait Investment Authority 70
Australia Australian Future Fund 40
US (Alaska) Permanent Fund Corp 35
Russia Stabilisation Fund 32
Source: Economist

The world’s entire supply of shares and bonds stand at approximately US$55 trillion each. SWFs, with trillions on hand, are likely to go shopping for key assets. With fears that these funds will be making purchases for political reasons rather than economic ones (Middle East and China, in particular), Europe and the US are pushing for stronger regulations and greater transparency. This may push funds away from the West and into Asian assets. Singapore, renowned for its high level of corporate governance and transparency, is home to quality companies with solid balance sheets. These should be good enough for some of the oil money and dragon dollars to look our way.
Given that Southeast Asia is expected to grow in the next few years, SWF’s may seek blue-chip Singapore companies with an entrenched presence in the region. SingTel and DBS have already been invited to a “get-to-know-you” conference organized by Dubai International Capital, a US$12b private fund of Dubai’s ruler Sheikh Mohd Maktoum.

Who’s next?

14
Final Analysis
The mood heading into the New Year is more sombre than anytime in the last 5 years, no thanks to an ailing US economy, the prevailing subprime crisis, high commodity prices, and geopolitical uncertainties. However, we believe the market may have overreacted in the last 2 months of the year, and this has created buying opportunities. From our estimates, the STI has the ability to rise as much as 16% from the current 3,357 to hit 3,903 by the end of 2008. Driving the market will be the domestic defensives, offshore & marine sector as well as selected China-based companies.
Technology sector may turn out to be a sleeper hit towards the end of the year, assuming the US economy does not capitulate.
The tunnel ahead may be a little darker than before, but hopefully our strategy piece has shed some light and make investing a lot less daunting. For a more detailed analysis of key sectors and stocks, read on. Have a great investing year ahead!

ML S-Shares index - Jan-08

ML S-Shares index update
The objective of the ML S-shares index is to provide exposure to stocks likely to benefit from the growth in China’s economy in general and the money flow into Chinese companies listed on Singapore Exchange (S-shares) in particular.

QDII coming to town
We believe that when QDII fund managers look at S-shares, they will largely focus on S-shares that are reasonably sized and have sufficient trading liquidity.
There are also plans to require all newly launched funds to invest not more than 30% of assets in a single market to ensure proper risk diversification. This would lead new QDII funds to look beyond HK into Singapore as well as US and Europe.
We expect more QDII funds to be launched in the near future, which will further escalate interest in S-shares given their cheaper valuation compared to A-shares and HK-listed Chinese equities. These funds can invest in S-shares either directly or indirectly.
In view of the above, we believe S-shares should continue to be an attractive asset class to investors (including QDII funds) but investment should (and will likely) be in a selective and disciplined manner given the vast quality differences within the sector.


Composition of the ML S-shares index
Name - MarketWeight

COSCO 4.60%
Yangzijiang 4.60%
Yanlord Land Group Ltd 4.60%
China Hongxing Sports 4.60%
Synear Food Holdings 4.60%
China Energy Ltd 4.60%
China Aviation Oil Sing 4.60%
Ferrochina 4.60%
China Fishery Group Ltd 4.60%
Midas 4.60%
Fibrechem 4.60%
China Xlx Fertiliser Ltd 4.60%
China Milk Products 4.60%
Sino-Environment Tech 4.60%
Jiutian Chemical 4.60%
China Auto Electronics 4.60%
Sino Techfibre Limited 3.85%
Celestial Nutrifoods 3.74%
Capitaretail China Trust 3.33%
Asia Environment Hldgs 3.07%
Delong 2.96%
Pine Agritech 2.96%
Bio-Treat 2.27%
China Sport 2.21%
China Sky Chem 2.05%

Estimatged Date of Result Announcement

Singapore Press Hldgs Ltd 14-Jan-07
Singapore Exchange Limited 15-Jan-07
Innovalues Limited 29-Jan-07
Koda Ltd 30-Jan-07
SP Chemicals Ltd 5-Feb-07
ASL Marine Holdings Ltd 11-Feb-07
Aztech Systems Ltd 11-Feb-07
Inter-Roller Engineering Ltd 11-Feb-07
Singapore Food Industries Ltd 11-Feb-07
SNP Corporation Ltd 11-Feb-07
Eastern Asia Technology Ltd 28-Feb-07
Capitaretail China Trust 16-Jan-08
Singapore Petroleum Co Ltd 24-Jan-08
Keppel Land Limited 25-Jan-08
Multi-Chem Limited 25-Jan-08
Keppel Corporation Limited 30-Jan-08
SIA Engineering Co Ltd 5-Feb-08
Singapore Airlines Ltd 5-Feb-08
Singtel 5-Feb-08
China Milk Products Group Ltd 5-Feb-08
Capitamall Trust 11-Feb-08
Fraser And Neave, Limited 11-Feb-08
Surface Mount Tech (Hldgs) Ltd 11-Feb-08
Yaan Security Technology Ltd 11-Feb-08
Cosco Corporation (S) Ltd 12-Feb-08
Portek International Limited 12-Feb-08
Olam International Limited 13-Feb-08
Singapore Tech Engineering Ltd 13-Feb-08
Aqua-Terra Supply Co. Limited 13-Feb-08
KS Energy Services Limited 13-Feb-08
Capitaland Limited 14-Feb-08
Sembcorp Marine Ltd 14-Feb-08
Starhub Ltd 14-Feb-08
ECS Holdings Limited 14-Feb-08
DBS Group Holdings Ltd 15-Feb-08
Sembcorp Industries Ltd 15-Feb-08
Wilmar International Limited 15-Feb-08
Agva Corporation Limited 15-Feb-08
Petra Foods Limited 15-Feb-08
Asia Enterprises Holding Ltd 16-Feb-08
Genting Int'l Public Ltd Co 22-Feb-08
Noble Group Limited 22-Feb-08
Oversea-Chinese Banking Corp 22-Feb-08
Eucon Holding Limited 24-Feb-08
Neptune Orient Lines Limited 27-Feb-08
Thai Beverage Public Co Ltd 27-Feb-08
City Developments Limited 28-Feb-08
United Overseas Bank Ltd 28-Feb-08
Yanlord Land Group Limited 28-Feb-08
Telechoice International Ltd 28-Feb-08
Jardine Cycle & Carriage Ltd 29-Feb-08
Hongkong Land Holdings Limited 6-Mar-08
Jardine Strategic Hldgs Ltd 7-Mar-08

曾渊沧@股友通讯录 - 十二月份

各位朋友：

新年进步。2007 年是惊骇的一年。短短12 个月里，股市出现3 次大调整。第
一次调整与第二次调整，我都建议大家不要慌张。但是，去年十月份的通讯录，我第
一次警告大家：“不管你用什么衡量工具来衡量这个股市，我们都可以说现在的的确
确已进入泡沫时代，股价已经升得很高，是随时可以发生股灾的时候……。”
很不幸，海峡时报指数就是在2007 年十月升至最高点3906 点而开始大幅调
整，直今仍未恢复。

现在，中短期的关键是十月至今的调整出现了一个双底反弹之势，我们仍然得
耐心地观察这个反弹是否能突破3600 点。若然突破，可以再乐观一点。如果不能突
破，则得小心，看看会不会出现一浪低于一浪的走势。若是的话，就得准备大撤退，
大减持。

新加坡航空入股中国东方航空之事可以出现变数。以北京为基地的中国国际航
是东方航空的重要小股东，曾经公开反对这项入股。最近，国际航空的董事长李家祥
升了官，当上中国民航总局局长，管所有的航空公司。他若反对新航入股东航，则入
股之事会告吹。日前，国际航空母公司中航集团已公开说收购价太低，要求新航再出
高价，如果这宗收购不会成功，会打击新航及东航的股价。

展望2008 年，我倒也不悲观。本月底美国联邦储备局会再议息，相信会再减
息，减息有利减低美国次级贷款所带来的金融灾难。最坏的时刻可能是今年二月至三
月。当美国各大金融企业公布2007 年极差的业绩时，必然导致市场出现调整。但是，
那时候可能也是最佳时候趁低入市，特别是金融银行股。

去年房地产市道大丰收，但已开始放缓升势，销售速度也减慢，但相信今年房
价依然会上涨。因此也不必对房地产发展股太悲观。去年酒店股，工业股表现得不
错，今年应该可以继续看好。政府说今年的三大政策重点之一是陆路交通，因此，造
路建地铁的计划会推出基建材料，建筑公司股也可以看好。

大家可能也会担心中国的经济会放慢，宏观调控力度会加大。去年美国股市没
有在七、八月份的调整后创新高，道琼斯指数在14000 点阻力重重，而新加坡股市都
能在七、八月份的调整后再创新高，主要的力量来自中国。中国宣布港股直通车，使
到新加坡投资者憧憬有一日港股直通车会扩大至新加坡股直通车，还有QDII 也会扩大
至新加坡。后来，十一月初，中国总理温家宝亲自告诉大家为什么港股直通车会叫
停，股市也因此出现大调整。但是，我依然相信港股直通车只会延期，不会取消。时
间可能是2008 年或2009 年。因此，也不必急着卖光股票靠边站。

今年是北京奥运年，北京奥运会带动整个东亚、东南亚的旅游业，与旅游有关
的股也不宜看淡。

SBS

I like to look at SMRT and SBS as advertising media. That's the cash cow where Public Transport Council can not touch. For the latest quarter, revenue/profit from advertisement are 4.756m/3.08m and 7.441m/4.541m for SMRT and SBS respectively. The margin is sweet.

Note that all MRT stations are PRIME AREAS for retail rental, whereas bus interchanges and depots are not as good. I suppose that's the reason why SBS has not had a segment on Rental (5.8m revenue for whole of FY07). I believe too that the growth on rental will be significant given such a low base and the sweet margin (SMRT 2Q08: 9.822m/7.658m).

Bus fare is calculated using “CPI + X” formula and CPI basket has 22% weightage in "Transport and Communication". I am not sure how to prevent an inflation here (Read: Fare will continue to rise into the future). This should prevent loss-making for the Bus Operation for both companies.

End of the day, buy the Rental and Advertising businesses.


I will like to highlight that a up and rising star for SBS is the NEL line. This year onwards will be the re-rating of SBS whereby the trains are finally rolling in the profits. From FY04 operating loss of S$21m to S$5.7m YTDSept07 operating profits (FY07 could be as high as $7.5m). and remember there is a demographic/population shift to NEL. There are still plenty of empty land in NE Spore which are ideal for residential devt.

Other operating income (based on annual reports, at least half is of rental income), has increased from $9m(rental income of $5.8m) in FY06 to S$12m operating income in 9M07 (YTD Sept 07). Assuming half is rental; so 9M07's rental income is already more than prior year.


But I urged forumners to see this investment as mainly a dividend yield play (>8%) as a long term hedge against inflation. Capital appreciation is a bonus.

SBS-Transit

A fundamentally sound counter which gives >8% of dividend: SBS-Transit

It dropped from a high of $3.8 to $2.9+. Reason for drop is because of 3Q07 earnings dropped substantially as SBSTransit absorbed the 2% GST increase.

But from 1 Oct 07, the Public Transport Council approves a 1.8% bus fare "adjustment". So this will partially offset the impact of GST.

North East Line (NEL)
Reason for SBST hit a high of $3.8 is because of the turnaround of NEL. It is now quite a significant contribution to the bottomline. For those who use NEL line, you will noticed that its getting MORE and MORE crowded! a lot of new flats are being build at Buangkok area. More and more families (esp. young couples) are driven to Sengkang and even Punggol area because of the v high property prices. Therefore high probability that profits for NEL line will continue to go up.

More people may also take public transport with the increase in taxi fares and inflation.....

Rental Income
A point to note is that rental income for SBS transit is increasing as the redevelopments of bus interchanges (Toa Payoh, Sengkang and Ang Mo Kio) are bringing in income. There's further potential for this to increase. In a way, SBS-T is following SMRT in developing its premises to bring in more revenue.

Sustainability of dividends
This is mainly a dividend play stock (25-28.5 cents since 2004), therefore we need to be assured that dividends are to continue for years to come. Comfort Delgro owns 75% of SBST and is squeezing this cash cow for every cent possible to finance its overseas expansion... this is very evident whereby SBS-T paid 25 cents dividends in the last 3 years despite NEL bleeding badly.
Therefore SBS-T classify most of its dividend as "Special Dividend" (15 to 17cents) and this Special is usually paid out in 4Q-2007 together with final dividend.

But during this 3Q-2007, for the first time during this time of the year, a special dividend of 7 cents is declared.
This can mean 2 things, its either 7 cents is the ONLY Special dividend that is to be paid during the year, OR there's a shift of the bulk of Special dividends to FINAL dividend.
So there's 2 different perspective on the signalling effect of dividends. Its up to each to judge.

Dividend Yield
Assuming that dividend of 25 cents is given for the full year, at current price of 2.93, dividend yield is 8.5%.

How the capex will impact its valuation or its ability to pay dividends going forward ?

LAND TRANSPORT SECTOR - A Complex Issue

The Prime Minister Mr Lee listed land transport as one of 3 significant policy decisions in 2008 in his New Year Message.

He noted the following:
- Key focus is to improve our public transport so that more Singaporeans will take buses and trains, instead of driving cars.
- Singapore roads are getting more crowded and traffic jams worsening.
- While measures like building more rail lines are long-term in nature, improving bus services, making transfers more seamless and convenient, can and should be made more quickly.

PM Lee suggested the following solutions:
- Lowering the vehicle growth rate;
- Stepping up measures to manage demand for road space: enhance the ERP and extend its coverage so that driving costs significantly more; and
- Balancing the above with lower vehicle ownership taxes.

Comments
1. The PM’s New Year Message is a reminder the Land Transport Review, the first in 10 years, is not ready (it was to have been completed by end’07), underscoring the complexity of the undertaking (eg opposing views on whether there should be one or more public transport operators).

2. What is however clear is the need to lower vehicle growth rate - recall former PM Goh had allowed for a net 3% annual increase. And driving costs, especially ERP charges, will be significantly higher (charging 50 cents to a dollar on ECP since November does not seem to have made a difference).

3. Tan Chong (TCIL) is probably the “purest” car play on the local market, hence likely to be affected by lower COE availability. But TCIL is an unattractive stock in any case, having been recently rebuked by the HK Exchange for poor corporate governance.

4. Jardine C&C is today more a proxy for the Indonesian, than Singapore, car market (where
sales of Mercedes Benz, its lost lucrative marque, have slowed in recent years) while WBL has a
myraid other interests.

5. Comfort Delgro’s SBS Transit should, in our opinion, merge with SMRT. But this is likely fraught with political sensitivity (over fare increases), and may or may not become reality.
Good thing however is that they offer attractive yields. (Comfort Delgro paid 10.05 cents per share, net, for 12 months ended Jun’07, giving a yield of 5.5% at $1.83. SMRT’s yield is 4.5% at $1.68 based on 7.5 cents net for 12 months to Sept’07.)

6. We prefer SMRT.

Dividend Investing

I have a couple different portfolios. With my older one, I mostly use dividend investing. It’s a portfolio for the long-term. My newer one is for Magic Formula investing. We're using it for money we want to use in about 4 years. Since most people already know about the Magic Formula, I figured I'd write about dividend investing this time.

I got the dividend investing idea from Motley Fool. Originally from the "Dogs of the Dow" plan back around 2000. “Dogs of the Dow” is simple. Pick the 5 stocks from the Dow with the highest dividend yield and re-adjust once a year. It worked well in the late 90s. It’s had some rougher years lately.

However, I never really did the "Dogs of the Dow" once I discovered that there were companies out there who paid 12% dividends. I actually just started randomly investing in very high dividend stocks with minimal screening. Some examples were AHR, CARS (gone now), KMP, and HT.

That actually worked out fairly well for me at first. But I eventually realized that those are some pretty darn volatile stocks. Mostly REITs and Energy stocks. So I figured it was time to diversify. I started out by adding more large cap stocks. I actually picked several of the Dogs of the Dow. I added in MO, CAT, GE, C, and a few others. At this point, my goal was to get the portfolio to have a total dividend yield of 7% or higher. Ideally, the stocks would also grow some and I could get return about 15% per year.

The 7% has been pretty tough, especially lately. REITs have been hit pretty hard so the portfolio has had a dividend yield closer to 5%. However, until this year, the growth has been pretty steady so over the last 5-ish years, I've averaged about 12% return per year.

My latest dividend investing tactic was to take the good dividend stocks and screen for value and quality. I'm not a huge stats geek, so I just concentrated on 2 numbers, P/E, and PEG. Then to balance it out I used Morningstar to devise a quality score. If a stock had a Morningstar rating of A,A,A, I'd give it a 3. A,D,D would be a 1. D,D,D would be a 0. Then I could give that score some weighting and use it in a formula. My basic screening formula was something like (40-P/E) + (10-PEG) + (MS rating) + (Div*10) or something like that so I could rank stocks.That’s about it.

Lately, of course, my new money has been going into “Magic Formula” stocks. However, several of these have high dividends as well (CHKE, FDG, PCU). Some of those, I've also purchased in my dividend portfolio. Basically, these are the best of both worlds. Good enough for “Magic Formula” and good enough for Dividend investing. Those are definitely my favorites. If I could find enough, I’d only buy this kind of stock.

Here's some lists.

Favorite long-term dividend stocks: AHR, HT, MMP, O, NRGY

Favorite Magic Formula AND Dividend stocks: PCU, FDG, CHKE, GNI, PBT

Dividend stocks that flopped: IMH, NEW, RAS (however, RAS only flopped after making me over 100% in dividends).

Investing in Dividend Stocks… The Truth about Dividends and 4 Ideas That'll Surprise You

Sam Zell pays you big dividends…

As America's biggest office landlord, Zell paid out $700 million to shareholders of his company, Equity Office Properties, last year - that amounted to a 7% dividend. But should Zell have written $700 million in checks to shareholders? Or would we, as shareholders, have been better off if he had reinvested the earnings in his company (were that an option)?

The real questions are… Should we care about investing in dividend stocks? Should we favor companies that pay dividends over those that don't? Should companies pay dividends at all? And how much should a company pay?

I'll provide you with some answers to these questions… answers to help you better understand-and profit from-dividends. Let's start out with the traditional wisdom… and then finish with my take…

Dividend Investing Is the Holy Grail… To Academics, at Least

When I was in college studying finance, we were taught what the professors considered the "Holy Grail" in determining the proper value of a stock. It's called the "Dividend Discount Model." It wasn't until after I graduated and tried to apply it in the real world that I realized the professor's Holy Grail about investing in dividend stocks was actually completely worthless…

The basic idea of the professor's Holy Grail is that the current value of a stock is the value of all its future dividends, discounted back to the present. It's a nice theory. But it doesn't work… The theory whittles down to this formula: Dividend DIVIDED BY (required return on stock MINUS expected growth rate) EQUALS value.

When you try to apply this formula to a stock like Microsoft a few years ago, you can see where all the problems come in… The whole thing amounts to an enormous amount of guesswork - assumptions about growth rates, returns, and when they'll pay dividends, if ever. With a few bad guesses, you can easily come up with a negative value as the fair value for Microsoft's shares.

In short, using dividends to value stocks (as they teach in school) seems like a colossal waste of time.

Beyond Theory… Let's Look Into What's Really Happening with Dividend Investing

There are a few theories on investing in dividend stocks that I like. Let's consider them. There's…

1) The signaling hypothesis:
This is the idea that investors don't necessarily care about dividends in particular, but they do care about changes in a firm's dividend policy. Investors regard changes in dividends as signals of management's opinion of the company. If management raises the dividend, it's optimistic. The stock will react positively. If it cuts its dividend, the firm is in dire straits, and the stock might crater. So the change in dividend is a signal about the company's prospects.

2) The dividend irrelevance theory:
The dividend irrelevance theory is the idea that a company's dividend policy really has no effect on the value of the company. Instead of calling dividends the Holy Grail, this is the opposite idea…

It's the idea that a shareholder can simply create his own dividend policy if he wants… If a person has $100,000 and wants income of $5,000 a year from that portfolio, that person can simply sell $5,000 worth of stock. He doesn't have to receive it in dividend income. This theory says, "Who cares about dividends?"

3) The bird in the hand theory on dividend investing:
This theory says, "I do… I care about dividends and investing in dividend stocks." When a company pays me hard cash, I know that the company is really making money. It's not just telling me it's making money. In the post-Enron, post-WorldCom world, there's something to be said for cash in hand. This is the idea that investors value a cash payment in their hands over the hope of future profits.

4) The clientele effect:
This is an interesting theory… a company tends to attract a set of investors who like its dividend policy. So if a company wants a stable shareholder base, it could have a stable policy of paying out a good percentage of its earnings in dividends. But then the company risks a huge shareholder defection and a serious fall in share price if it cuts its dividend.

What I Think About Investing in Dividend Stocks…

I don't think that dividends are the right way to value stocks, despite what they teach in school. But I do think the four theories above are all true.

As for me personally, I do like a bird in the hand. Future profits are uncertain. In uncertain times, I like to get paid the cash. The big check hitting your account out of the blue is nice. Whether it's true or not, it feels less speculative…

In sum, I like investing in dividend stocks and receiving checks at regular intervals that dividends offer (particularly if there is no tax effect, like in a retirement account). But ultimately dividends shouldn't be the primary reason for an investment. The prospects for the potential investment are dramatically more important than the company's dividend policy.

Only when choosing between two nearly identical opportunities would I choose the one with the substantially higher dividend. That bird in the hand can tip the scales. But don't let it do much more than that…

The Power of Dividend Growth

Many investors think of dividend-paying companies as boring, low-return investment opportunities. Compared to high-flying small-cap companies, whose volatility can be pretty exciting, dividend-paying stocks are usually more mature and predictable. Though this may be dull for some, the combination of a consistent dividend with an increasing stock price can offer an earnings potential powerful enough to get excited about.

High Dividend Yield?
Understanding how to gauge dividend-paying companies can give us some insight into how dividends can pump up your return. A common perception is that a high dividend yield, indicating the dividend pays a fairly high percentage return on the stock price, is the most important measure; however, a yield that is considerably higher than that of other stocks in an industry may indicate not a good dividend but rather a depressed price (dividend yield = annual dividends per share/price per share). The suffering price, in turn, may signal a dividend cut or, worse, the elimination of the dividend.

The important indication of dividend power is not so much a high dividend yield but high company quality, which you can discover in its history of dividends increasing over time. If you are a long term investor, looking for such companies can be very rewarding.

Dividend Payout Ratio
The dividend payout ratio, the proportion of company earnings allocated to paying dividends, further demonstrates that the source of dividend profitability works in combination with company growth. Therefore, if a company keeps a dividend payout ratio constant, say at 4%, but the company grows, that 4% begins to represent a larger and larger amount. (For instance, 4% of $40, which is $1.60, is higher than 4% of $20, which is $0.80).

Let's demonstrate with an example:
Let's say you invest $1,000 into Joe’s Ice Cream company by buying 10 shares, each at $100 per share. It's a well-managed firm that has a P/E ratio of 10, and a payout ratio of 10%, which amounts to a dividend of $1 per share. That's decent, but nothing to write home about since you receive only a measly 1% of your investment as dividend.

However, because Joe is such a great manager, the company expands steadily, and after several years, the stock price is around $200. The payout ratio, however, has remained constant at 10%, and so has the P/E ratio (at 10); therefore, you are now receiving 10% of $20 in earnings, or $2 per share. As earnings increase, so does the dividend payment, even though the payout ratio remains constant. Since you paid $100 per share, your effective dividend yield is now 2%, up from the original 1%.

Now, fast forward a decade: Joe's Ice Cream Company enjoys great success as more and more North Americans gravitate to hot, sunny climates. The stock price keeps appreciating and now sits at $150 after splitting 2 for 1 three times. (If you are uncertain about share splits, check out Understanding Stock Splits.) This means your initial $1,000 investment in 10 shares has grown to 80 shares (20, then 40, and now 80 shares) worth a total of $12,000. If the payout ratio remains the same and we continue to assume a constant P/E of 10, you now receive 10% of earnings ($1,200) or $120, which is 12% of your initial investment! So, even though Joe's dividend payout ratio did not change, because he has grown his company the dividends alone rendered an excellent return--they drastically expanded the total return you got, along with the capital appreciation.

For decades, many investors have been using this dividend-focused strategy by buying shares in household names such as Coca-Cola, Johnson & Johnson, Kellogg, and General Electric. In the example above we showed how lucrative a static dividend payout can be; imagine the earning power of a company that grows so much as to increase its payout. In fact, this is what Johnson & Johnson did every year for 38 years (since 1966)! If you had bought the stock in the early 1970s, the dividend yield that you would have earned between then and now on your initial shares would’ve grown approximately 12% annually. By 2004, your earnings from dividends alone would have given a 48% annual return on your initial shares!

This chart of Johnson & Johnson’s adjusted share price, which accounts for both splits and dividends, visually demonstrates just how powerful an appreciating share price can be in conjunction with a steadily increasing dividend. The split adjusted share price for JNJ at the beginning of 1983 was $0.09; in mid-2004, the stock traded for a split adjusted price of around $55. Wow!

Conclusion
We'll be the first to admit this might not be the sexiest investment strategy out there. But over the long run, using time tested investment strategies with these "boring" companies will achieve returns that are anything but boring. For an in-depth introduction to different investment strategies, including the income investing strategy, check out the Guide to Stock Picking Strategies.