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Thursday, February 28, 2013

US teenager crafts early detection tool for pancreatic cancer

Feb 28 2013,

Jack Andraka catapulted from being a typical US teenager unaware of the pancreas to one with a cheap way to detect cancer in the organ before it turns deadly.

"Through the Internet, anything is possible," Andraka said while telling the story of his screening breakthrough at a prestigious TED Conference in Southern California yesterday.

"There is so much more to it than posting duck-face pictures of yourself online," he continued, sucking in his cheeks and pushing out his lips to playfully underscore his point.

"If a 15-year-old who didn't know what a pancreas was could figure out a way to detect pancreatic cancer, imagine what you could do."

Andraka, who turned 16 in January, recounted how three years ago he began scouring the Internet for information about pancreatic cancer after it killed a cherished family friend.

He told of being shocked to learn that the cancer was typically found too late to save people. On top of that, the test used to screen for the illness was 60 years old, he said.

"That is older than my dad," Andraka quipped. "More important, it is expensive, inaccurate, and your doctor would have to be ridiculously suspicious that you had the cancer to give you this test."

He figured what was needed was a test that was inexpensive, fast, simple and sensitive.

"Undeterred due to my teenage optimism, I went online to a teenager's two best friends: Google and Wikipedia," Andraka said.

What he found was there were thousands of proteins that could be detected in the blood of people with pancreatic cancer, and he hunted for one that could serve as an early flag for the illness.

"Finally, on the 4,000th try when I am losing my sanity, I found the protein," Andraka said.

The revelation came in what he described as an unlikely place, a high school biology class he referred to as an "absolute stifler of innovation."

"I was sneakily reading this nanotubes article under my desk while we were supposed to be paying attention to antibodies," Andraka recalled.

"Suddenly it hit me that I could combine what I was reading with what I was supposed to be thinking about."

He described a recipe for making paper sensors to detect the protein – mesothelin – in blood that is “about as simple as making chocolate chip cookies, which I love.”

The test costs three cents, takes minutes, and appears to be 100 percent accurate, according to his TED Talk.

Andraka said he sent out 200 requests to scientists for lab space to continue his work, only to be rejected by all but Johns Hopkins University where he was fiercely grilled before being taken in.

He commenced to fix holes he discovered in his “once brilliant procedure” and went on to be awarded the 2012 Intel International Science and Engineering Fair grand prize.

Andraka described his approach as having the potential to be tailored to screen for other forms of cancer as well as heart disease or HIV/AIDS.

He told of currently working on “something the size of a cube of sugar” that could “look through your skin” and study blood or signs of almost any disease. The cost? An estimated five dollars

Sunday, February 24, 2013

A portfolio that lets you sleep at night

Published on Feb 24, 2013
By Teh Hooi Ling

'Bullet-proof portfolio' can withstand market ups & downs, preserve purchasing power

In 1999, American investment analyst and politician Harry Browne published a book called Fail-Safe Investing: Lifelong Financial Security In 30 Minutes.

The book outlines "17 simple rules of financial safety". The chapter for Rule No. 11 is called "Build a Bullet-Proof Portfolio for Protection". In that chapter, the author makes a case for a diversified investment portfolio of stocks, bonds, cash and gold to ensure financial safety.

According to the author, this type of portfolio has the goal of assuring "that you are financially safe, no matter what the future brings", including economic prosperity, inflation, recession or deflation.

This, the book says, is because some portion of the portfolio will perform favourably during each of those economic cycles. The book calls this type of investment portfolio a "permanent portfolio" and advocates it be re-balanced once a year so that the 25 per cent allocation is precisely maintained for each asset class.

According to Mr Browne, a permanent portfolio should be safe, simple and stable.

A fund manager friend mentioned this concept to me recently. He seemed pretty convinced of the robustness of such a portfolio.

"It would reduce a lot of the volatility associated with stocks, and yet still give investors good compounded returns over the years," he said.

That statement piqued my curiosity. How exactly would such a portfolio perform in Singapore in the past 10 years or so?

So I set out to do the research. Here's what I did.

I downloaded the year-end numbers for the Straits Times Index (STI), the price for gold, the 10-year government bonds, and one-year interbank rates.

The gold price is converted to Singapore dollars.

The starting year was 2003 - there was not much data available before that.

I started with $1 million in December 2003. I allocated a quarter of that $1 million, or $250,000, to each of the four asset classes - Singapore blue- chip stocks, gold, Singapore 10-year government bonds, and cash.

I looked at the prices of the stocks, gold and government bonds at the end of 2004. The STI climbed 15 per cent. The government bonds did not fare too badly, rising by 12 per cent. Gold did not move much that year. Cash, meanwhile, grew as it earned interest, coupons from the government bonds, as well as dividends from the stocks.

I assumed dividend yield of 3 per cent in most years, 4 per cent in 2008, and 2 per cent in the more exuberant years. Interest from cash is calculated using the one-year interbank rates.

By the end of 2004, the overall portfolio had grown to $1.09 million. Because it appreciated the most, stocks' proportion in the portfolio had risen to 26.5 per cent.

Government bonds made up another 25.7 per cent. Cash remained at about 25 per cent, while gold's share in the portfolio fell to 23 per cent.

According to the strategy, one is supposed to rebalance the portfolio back to 25 per cent for each asset class every year.

So I trimmed the stock holdings by $16,500 and government bonds by $7,000, and added $20,500 to gold and $3,000 to cash.

Each asset class now has $272,500, or one-fourth of the overall portfolio of $1.09 million. This portfolio was held for one year, and at the end of 2005, I rebalanced it again.

No transaction costs are taken into account for this exercise. If this process is repeated every year until the end of last year, what kind of returns would the portfolio have generated?

From the first chart, you can see that there was only one year when the portfolio went down. That was in 2008, when stock prices plunged by half.

But because of the rebalancing requirement, I ended up selling gold and government bonds and redeployed a large portion of cash back to equities. The following year, the stock market surged by 64 per cent and the portfolio more than made up for all its losses the previous year.

Overall, between 2003 and 2012, the strategy grew that initial $1 million to $2.04 million. That is a compounded annual return of 8 per cent a year. Few mutual funds actually managed this kind of return!

To be sure, there are caveats. The years from 2003 to 2012 were not typical years. During that time, we saw the supposedly once-in-80-years financial storm.

To get the markets back up, governments flooded the world with money. As a result, confidence in paper money was eroded and people sought refuge in gold.

Gold prices shot up from US$417 per ounce at end-2003 to US$1,665 at the end of last year. Meanwhile, in some of those years, Singapore government bonds were sought-after for their safety.

Going forward, will gold prices continue to rise? They will, if the finances of the world's big countries remain in a shambles and their governments continue to print money as a way to cope.

Advocates argue that this strategy would allow investors to safeguard their investments during changing economic conditions.

Critics, however, question its ability to outperform stock market indices in an environment of rising interest rates, which could take place in the future.

Obviously, a portfolio with 25 per cent allocation to cash cannot outperform equities in a bull market. But it will in a downturn.

The beauty of this is that it forces the investors to buy the market when it is down, ensuring that they don't miss out when the recovery comes around.

Overall, I think such a portfolio will be robust enough to withstand the markets' ups and downs, and at the same time, has the capability to preserve the investor's purchasing power.

On top of that, investors should be able to sleep rather more soundly at night with such a portfolio.

This will be the last Money Wise article from me. Readers can still find my articles in the Weekend Business Times. Here's wishing everyone a great year ahead.

The writer is editor of Executive Money, a weekly section in The Business Times. Her column is also available in BTInvest (, a free personal finance and investment site of The Business Times covering five main categories: Personal Finance, Wealth, Markets, Insurance and Property. Go to BTInvest for expert views on the latest market developments and tips on how to better manage your dollars and cents.

No need to be rich to be financially independent

Published on Feb 24, 2013
By Goh Eng Yeow

But you do have to be debt-free and have an investment portfolio that gives you a steady income

Just what does it take to have financial independence?

After writing for years on investments, I found myself confronting this age-old question as I made my usual rounds of reunion with friends and relatives during the recent Chinese New Year holidays and heard how their lives are panning out.

A number of my friends stopped working in their late 40s and early 50s, and chose instead to live on their savings and investments.

One has become a full-time investor, using the knowledge he gained from years of reading balance sheets to grill the boards at companies' annual general meetings. Another has turned to religion, spending much of her time studying Buddhist scriptures when she is not overseas visiting holy sites.

Among them, none is rich by any stretch of the imagination. Some live in private condominiums and others in Housing Board flats. Their incomes - from having worked in banks and multinational corporations - are probably far less than what others of their age are earning, yet they get along in life just fine.

Going by their examples, achieving financial independence is not the same as getting rich.

I know many wealthy people who worry about money all the time. They want to make more money but they are fearful, at the same time, that they may lose all of it and become paupers.

Then there are friends who are high fliers in investment banks and international law firms, and should be the envy of us all. But some of them seem troubled by the sky-high mortgages and car loans they have taken to finance lavish lifestyles, and they have to constantly rely on the next pay cheque to keep themselves financially afloat.

Hence, financial independence is not about achieving a certain level of wealth. Rather, it should be measured in terms of obtaining freedom from financial worries, and freedom to make lifestyle choices.

One other trait stands out: the ability to give back.

For those of my friends who now have time on their hands, nothing gives them more happiness than doing charitable work - tending to the elderly and less fortunate. Some even do it full-time.

So what are the keys to achieving financial independence?

Being debt-free is important. There is no way to be financially independent if you have to worry about the next mortgage or car loan payment.

You also have to ask yourself how much income you need in order to be free to choose between working and not working.

Then there is the question of how to build an investment portfolio which gives you a worry-free and steady stream of that income you need.

Now, that last item is one I have touched on regularly over the years as I discussed various investment strategies, such as buying low-beta and sin stocks, and watching where smart investors are placing their bets.

But I find that the best approach, by far, is to start saving when you are young, and invest wisely while you have youth on your side; in fact as soon as you start working.

One way to inculcate a regular saving habit is to open a Supplementary Retirement Scheme (SRS) account with one of the three local banks and make a contribution to it every year.

This is a voluntary savings programme launched by the Government over a decade ago which complements the Central Provident Fund by offering tax breaks as an incentive to save - and one which more savers are taking advantage of.

The impact of compounding returns in the SRS account over the years can be immense, if the SRS monies are used to buy stocks such as OCBC Bank's and United Overseas Bank's scrip dividend as an alternative to cash dividend, or a low-cost fund such as the Straits Times Index exchange-traded fund.

It was one of the ways I succeeded in doubling the money I have put into my SRS account over the past 11 years.

And it is never too late to start saving, although the sum put aside will have to be far bigger.

There is another observation worth highlighting: Despite achieving financial independence, many of my friends chose to stay gainfully employed.

A few actually quit their jobs, only to find themselves so bored that they went back to work. It was, after all, impossible to spend all their time every day trying to rejig their investment portfolios.

Going from a full-time job to no job may seem like an idyllic goal to achieve with financial freedom. But it is also important to plan what you want to do and how you will make use of the hours of the day meaningfully.

No worries

Financial independence is not about achieving a certain level of wealth. Rather, it should be measured in terms of obtaining freedom from financial worries and freedom to make lifestyle choices.

4 Steps To Building A Profitable Portfolio

February 24 2013

 In today's financial marketplace, a well-maintained portfolio is vital to any investor's success. As an individual investor, you need to know how to determine an asset allocation that best conforms to your personal investment goals and strategies. In other words, your portfolio should meet your future needs for capital and give you peace of mind. Investors can construct portfolios aligned to their goals and investment strategies by following a systematic approach. Here we go over some essential steps for taking such an approach.

Step 1: Determining the Appropriate Asset Allocation for You
Ascertaining your individual financial situation and investment goals is the first task in constructing a portfolio. Important items to consider are age, how much time you have to grow your investments, as well as amount of capital to invest and future capital needs. A single college graduate just beginning his or her career and a 55-year-old married person expecting to help pay for a child's college education and plans to retire soon will have very different investment strategies.

A second factor to take into account is your personality and risk tolerance. Are you the kind of person who is willing to risk some money for the possibility of greater returns? Everyone would like to reap high returns year after year, but if you are unable to sleep at night when your investments take a short-term drop, chances are the high returns from those kinds of assets are not worth the stress.

As you can see, clarifying your current situation and your future needs for capital, as well as your risk tolerance, will determine how your investments should be allocated among different asset classes. The possibility of greater returns comes at the expense of greater risk of losses (a principle known as the risk/return tradeoff) - you don't want to eliminate risk so much as optimize it for your unique condition and style. For example, the young person who won't have to depend on his or her investments for income can afford to take greater risks in the quest for high returns. On the other hand, the person nearing retirement needs to focus on protecting his or her assets and drawing income from these assets in a tax-efficient manner.

Conservative Vs. Aggressive Investors

Generally, the more risk you can bear, the more aggressive your portfolio will be, devoting a larger portion to equities and less to bonds and other fixed-income securities. Conversely, the less risk that's appropriate, the more conservative your portfolio will be. Here are two examples: one suitable for a conservative investor and another for the moderately aggressive investor.

The main goal of a conservative portfolio is to protect its value. The allocation shown above would yield current income from the bonds, and would also provide some long-term capital growth potential from the investment in high-quality equities.

A moderately aggressive portfolio satisfies an average risk tolerance, attracting those willing to accept more risk in their portfolios in order to achieve a balance of capital growth and income.

Step 2: Achieving the Portfolio Designed in Step 1
Once you've determined the right asset allocation, you simply need to divide your capital between the appropriate asset classes. On a basic level, this is not difficult: equities are equities, and bonds are bonds.

But you can further break down the different asset classes into subclasses, which also have different risks and potential returns. For example, an investor might divide the equity portion between different sectors and market caps, and between domestic and foreign stock. The bond portion might be allocated between those that are short term and long term, government versus corporate debt and so forth.

There are several ways you can go about choosing the assets and securities to fulfill your asset allocation strategy (remember to analyze the quality and potential of each investment you buy - not all bonds and stocks are the same): •Stock Picking - Choose stocks that satisfy the level of risk you want to carry in the equity portion of your portfolio - sector, market cap and stock type are factors to consider. Analyze the companies using stock screeners to shortlist potential picks, than carry out more in-depth analyses on each potential purchase to determine its opportunities and risks going forward. This is the most work-intensive means of adding securities to your portfolio, and requires you to regularly monitor price changes in your holdings and stay current on company and industry news.

•Bond Picking - When choosing bonds, there are several factors to consider including the coupon, maturity, the bond type and rating, as well as the general interest rate environment.

•Mutual Funds - Mutual funds are available for a wide range of asset classes and allow you to hold stocks and bonds that are professionally researched and picked by fund managers. Of course, fund managers charge a fee for their services, which will detract from your returns. Index funds present another choice; they tend to have lower fees because they mirror an established index and are thus passively managed.

•Exchange-Traded Funds (ETFs) - If you prefer not to invest with mutual funds, ETFs can be a viable alternative. You can basically think of ETFs as mutual funds that trade like stocks. ETFs are similar to mutual funds in that they represent a large basket of stocks - usually grouped by sector, capitalization, country and the like - except that they are not actively managed, but instead track a chosen index or other basket of stocks. Because they are passively managed, ETFs offer cost savings over mutual funds while providing diversification. ETFs also cover a wide range of asset classes and can be a useful tool for rounding out your portfolio.

Step 3: Reassessing Portfolio Weightings
Once you have an established portfolio, you need to analyze and rebalance it periodically because market movements may cause your initial weightings to change. To assess your portfolio's actual asset allocation, quantitatively categorize the investments and determine their values' proportion to the whole.

The other factors that are likely to change over time are your current financial situation, future needs and risk tolerance. If these things change, you may need to adjust your portfolio accordingly. If your risk tolerance has dropped, you may need to reduce the amount of equities held. Or perhaps you're now ready to take on greater risk and your asset allocation requires that a small proportion of your assets be held in riskier small-cap stocks.

Essentially, to rebalance, you need to determine which of your positions are overweighted and underweighted. For example, say you are holding 30% of your current assets in small-cap equities, while your asset allocation suggests you should only have 15% of your assets in that class.
Rebalancing involves determining how much of this position you need to reduce and allocate to other classes.

Step 4: Rebalancing Strategically
Once you have determined which securities you need to reduce and by how much, decide which underweighted securities you will buy with the proceeds from selling the overweighted securities. To choose your securities, use the approaches discussed in Step 2.

When selling assets to rebalance your portfolio, take a moment to consider the tax implications of readjusting your portfolio. Perhaps your investment in growth stocks has appreciated strongly over the past year, but if you were to sell all of your equity positions to rebalance your portfolio, you may incur significant capital gains taxes. In this case, it might be more beneficial to simply not contribute any new funds to that asset class in the future while continuing to contribute to other asset classes. This will reduce your growth stocks' weighting in your portfolio over time without incurring capital gains taxes.

At the same time, always consider the outlook of your securities. If you suspect that those same overweighted growth stocks are ominously ready to fall, you may want to sell in spite of the tax implications. Analyst opinions and research reports can be useful tools to help gauge the outlook for your holdings. And tax-loss selling is a strategy you can apply to reduce tax implications.
Remember the Importance of Diversification.

Throughout the entire portfolio construction process, it is vital that you remember to maintain your diversification above all else. It is not enough simply to own securities from each asset class; you must also diversify within each class. Ensure that your holdings within a given asset class are spread across an array of subclasses and industry sectors.

As we mentioned, investors can achieve excellent diversification by using mutual funds and ETFs. These investment vehicles allow individual investors to obtain the economies of scale that large fund managers enjoy, which the average person would not be able to produce with a small amount of money.

The Bottom Line
Overall, a well-diversified portfolio is your best bet for consistent long-term growth of your investments. It protects your assets from the risks of large declines and structural changes in the economy over time. Monitor the diversification of your portfolio, making adjustments when necessary, and you will greatly increase your chances of long-term financial success.

Monday, February 18, 2013

Stock investing: Don't confuse a great company with a great investment

 18 Feb 2013 19:10

Efficient market theory and the multitude of (highly) paid analysts would appear to make individual stock picking a "losers game". However, there is an alternate view, that provides small investors - willing to do their homework - an advantage.

Individual Investors:

1. Mutual funds are not serving best interests of investors

As mutual fund fees are paid as a percentage of assets under management (AUM), the overriding drive amongst fund managers is for asset size. This leads to increased marketing as also push to bring out new niche funds. Both negatively impact consumers via higher expenses and increased volatility.

2. Bias in analyst industry: Most analyst only cover one industry.

As an investor, you do not need to restrict yourself to any one industry, but choose those offering highest potential returns, across industries.

3. Diversification only addresses a part of total risk - it does not address market risk (risk of the total market going up or down).

- Beyond 6 or 8 stocks (in different industries), overall market risk is not eliminated by merely adding more stocks. In a practical sense, fund managers add stocks more driven by fund size and legal considerations, than merely stock considerations or diversification.

Individual investors are not similarly constrained and can limit to few optimal picks.

Investment 101:

When you buy a company's stock - in effect you are buying its cash flows based on future profits. The key to investing is not how much a company/ industry will impact society or how much it will grow - but its ability to make sustainable profits.

- Avoid the mistake of confusing a great company with a great investment - the two can be very different.

Investment Philosophy:

1. Rule #1: Never lose money. Rule #2: Never forget Rule #1.

Look down, not up. If you don't lose money, most of the other alternatives look good.

- Large losses are very difficult to recover from, and must be avoided. While a 10 per cent loss, will require a 11 per cent gain to recover, a 50 per cent loss, requires a 100 per cent gain to recover (and a 75 per cent loss - a 300 per cent gain!).

2. Risk is not the same as volatility - higher risk does not mean higher reward.

- The standard beta definition (price volatility of a particular stock relative to the market as a whole) - measures risk in a erroneous way - equating volatility with risk. A measure of relative short term volatility vs. longer term potential for loss.

- As investors, one is not concerned with volatility, per se, but the possibility of losing money (or not achieving a satisfactory return). A stock that has fallen from $30 to $10 is considered more risky than one that has fallen from $12 to $10, even though the latter is available at a greater discount (and the expectation of reward maybe greater!).

- Sometimes risk and reward are correlated in a positive fashion e.g. - a higher payout for undertaking a risky venture. The exact opposite is true with value investing. The greater the potential for reward, the less risk there is.

3. Understand the difference between price and value.

- "Price is what you pay. Value is what you get." The basic concept is that an asset has an underlying value or "intrinsic value" that is separate from its price. A business is valuable whether you intend to sell it or not because it generates cash flows.

4. In the short run, the market is a voting machine, but in the long run, it is a weighing machine

- In the short run, prices can differ widely from value, but in the long run, price and value tend to converge. You don't need to concern yourself with market psychology, price charts, or anything else not related to the intrinsic value of the company.

5. Make sure that you have a margin of safety

- Stock Market Returns are a combination of (i.) investment returns (Earnings growth + Dividends), and (ii.) speculative returns (changes in P/E ratio).

- As impossible to know future P/E ratio - valuation is critical. Return is dependent on the Price you buy at. Buying at lower PE lowers risk by allowing for a "margin of error" as well as opportunity to benefit from growth.

Investment Strategy:

1. Look at stocks as a business. In buying a stock, you are buying future cash flows. Focus on return on capital. As markets are very competitive, and predicting future, very difficult, focus on businesses that posses a long term advantage. An economic moat.

- Moats not based on (i.) Products, (ii) Market share, (iii.) Execution, or (iv.) Management but, (i) Intangible Assets (brand, patents, regulatory licenses), (ii) High switching costs, (iii) Network economics, and (iv.) Cost advantages (location, process or scale).

- Do not fall in love with product, but where model allows long term pricing power or cost advantage. Key financials include (i.) Free Cash Flow, and (ii.) Return on Capital.

2. Determine the true value of a business and buy stocks in these companies when they go on sale. Valuation may not be a pre-requisite for successful investing, but it does help make more informed decisions

- Dozens of valuation models but only two approaches: intrinsic and relative. Intrinsic valuation, based on expected cash flows and associated risk. Relative valuation based on market pricing of similar assets. While purists on both sides - no reason to choose one over the other, as can use both. Invest in stocks that are under valued on both intrinsic and relative basis.

- Basic difference in intrinsic and relative valuations, is based on different views on market efficiency (or in-efficiency). Intrinsic valuation assumes, markets make short term mistakes, that can occur across sectors or entire market, but correct longer term. Relative valuation assumes, that while markets make mistakes on individual stocks, they are correct on average.

- To make money based on undervalued intrinsic value - market will have to corrects its valuation. And that may not happen soon. So a long term approach is a pre requisite to using intrinsic valuation.

3. Have a margin of safety.

- A margin of safety exists when the purchase price of an investment is lower than intrinsic value. Not only does this provide strong protection against downside risk, but also provides a good chance at earning high returns.

- Look at discount of 25 per cent - 50 per cent, depending on width and depth of economic moat.

- Use a market's fluctuations to your advantage. However, good companies are not always available at a discount. You must be, do your home-work, and have the courage to take a stance that's different from the crowd.

4. Make a profit by selling your business at above their intrinsic value. Hardest part of investing is knowing when to sell.

- Constantly monitor the companies you own, rather than the stocks you own.

- Sell not on stock price, but on values of company - (i.) initial assumptions wrong, (ii) company dynamics changed, (iii) better investment opportunities arise, or (ii) stock too large a percent of holding.

Rohit has 22+ years of consumer banking experience across India, Indonesia, Singapore, Malaysia, Mexico and Turkey. He has a personal web portal ( and may be contacted at  The opinions expressed here are solely his own.

Thursday, February 14, 2013

Merlin Diamonds CEO eyes bigger stake in Innopac

Published February 14, 2013

Joseph Gutnick intends to continue buying firm's shares

By maria mala yogalingam

MERLIN Diamonds chairman and CEO Joseph Gutnick is looking to buy more shares in Innopac Holdings, even after recently boosting his stake.

He had increased his stake in the Singapore Exchange (SGX) mainboard-listed investment holding and management company to 10.31 per cent from 6.87 per cent on Feb 6. Following his initial purchase of 200 million shares at a price of $0.20 each on Feb 5, Mr Gutnick acquired another 100 million shares at $0.20 each in Innopac the next day.

This came after Innopac announced on Jan 31 that it was making a takeover bid for Merlin Diamonds, a diamond mining and exploration company listed on the Australian Securities Exchange (ASX).

"I've been looking for shares and it became available. I like the company and it may take over the company that I'm involved in. So I thought it'd be appropriate that I buy shares in Innopac," Mr Gutnick said in an interview with The Business Times. "If the right amount of shares become available at the right time, yes, I intend to continue to buy shares in Innopac. It just depends on various circumstances and I'll just decide at the moment," added the Melbourne-based mining investor.

Sunday, February 10, 2013

Wise investors let compounding work its magic

10 February 2013
By Teh Hooi Ling

I stumbled onto one of the Dow Theory Letters which was put up on my friend's website recently. It's entitled Rich Man, Poor Man.

That letter was about a few of the things an investor who is serious about making money should be aware of. The first is compounding. Now, I thought I knew all there is to know about compounding. Essentially, it is how your money will grow over time if you keep reinvesting your gains and allow them to grow as well. But the example given blew my mind away.

Here's the example:

Say there are two people - A and B. A starts saving at age 19. She saves $2,000 every year from age 19 until 25. Then she stops. In other words, she only puts $14,000 into her portfolio.

Person B, meanwhile, starts saving at age 26. And he is very disciplined. From age 26 until 65, he puts $2,000 yearly into his savings. By age 65, he has contributed $80,000 to his portfolio.

Now, let's assume A and B are able to generate 10 per cent on their savings and portfolios every year. At age 65, whose portfolio would be larger?

One would think B, yes? But here's the surprising thing. The difference in the portfolio size is quite negligible at age 65. By then, A's portfolio would be worth $944,641 and B's portfolio would be at $973,704. This, despite A only putting in $14,000 over seven years, while B has contributed $80,000 over 40 years!

That's the magic of compounding. The earlier you allow it to start, the greater the benefits. And you will really see its benefits from the seventh or eighth year onwards.

Here's what the Dow Theory says about compounding. "Compounding is the royal road to riches. Compounding is the safe road, the sure road, and fortunately, anybody can do it.

"To compound successfully you need the following: perseverance in order to keep you firmly on the savings path. You need intelligence in order to understand what you are doing and why. And you need a knowledge of the mathematics tables in order to comprehend the amazing rewards that will come to you if you faithfully follow the compounding road.

"And, of course, you need time, time to allow the power of compounding to work for you. Remember, compounding only works through time."

There are a couple of other rules as well. The second rule from the letter is: Don't lose money. This is Mr Warren Buffett's No.1 rule in investing. His No.2 rule is: Don't forget rule No.1.

For you to achieve your financial goals, you must not lose big money. If you are confident that the underlying business of the company you have invested in is still sound, then don't sell in a crisis. That's when you will suffer big losses. If anything, you should put more money in.

Here's another set of mathematics. Say you have invested $10,000 in a stock that was trading at $1 each. So you have 10,000 shares. It plunged by 50 per cent to 50 cents, and your portfolio is now worth $5,000. For you to recoup all your capital, the stock has to climb 100 per cent from the 50 cent level.

But if at 50 cents, you put another $10,000 into the stock, you'd be able to purchase 20,000 shares. Now you have a total of 30,000 shares. With 30,000 shares, you only need the stock to climb by 33 per cent - from 50 cents to 67 cents for you to recoup all your investment. Beyond that, it's profit.

A word of caution is appropriate here. This strategy should only be used for a stock whose underlying business remains strong, one that you believe will bounce back. Its share price has slumped because it is merely going through a bad patch or it is affected by bad market sentiment.

For stocks which have no hopes of recovery, such a strategy is equivalent to throwing good money after bad. And that is not a wise move.

The third set of maths has to do with probability. You should only put your money in investments which have a high probability of giving you a decent return. You wouldn't want to put a lot of money into something that has a one in a million chance of winning, even if the winning sum is huge. Mr Buffett's strategy is to bet big on high probability events.

And finally, certainty is not necessarily good. What is an investment? Investing is forgoing consumption now in order to have the ability to consume more at a later date. In other words, your investments must give you a return that beats the inflation rate.

"Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period," said Mr Buffett in his letter to shareholders last year.

On the other hand, a non-fluctuating asset can be laden with risk. Currency-based instruments such as money-market funds, bonds and bank deposits were once thought of as "safe". But over the past century, these instruments have destroyed the purchasing power of investors in many countries, even as these holders continued to receive timely payments of interest and principal.

In the US, for example, the dollar has fallen a staggering 86 per cent in value since 1965. It takes no less than US$7 today to buy what US$1 did at that time, noted Mr Buffett.

High interest rates, of course, can compensate purchasers for the inflation risk they face with currency-based investments - and indeed, rates in the early 1980s did that job nicely. "Current rates, however, do not come close to offsetting the purchasing-power risk that investors assume," he said. "Right now bonds should come with a warning label."

In short, successful investing is about making your money grow faster than inflation, minimising your losses and allowing compounding to work its magic.


Wednesday, February 6, 2013

Three investment plays for 2013

Teh Hooi Ling

DOMESTIC consumption, infrastructure plays in the transport and oil and gas sectors, and yield stocks are three investment themes that will remain attractive in the Singapore market in 2013, according to Manulife Asset Management.

"Low unemployment and strong household balance sheet will add to the resilience of domestic consumption and is positive for the consumer sector," said Amy Low, Manulife Asset Management's head of equities. But in the Singapore market, companies in this sector are quite small, and their performance may not be captured in the Straits Times Index.

Ms Low cited operators of supermarkets as an example of a business that will ride the rising consumer trend. Meanwhile, increased infrastructure spending in transport and in oil and gas industries will benefit companies in the sector. Crane operator Tat Hong is one candidate.

And finally, yield stocks are still favoured given the low interest rate environment. "Despite slowing growth, many companies are generating strong cash flows and paying out healthy dividends, for example, the telco sector," said Ms Low at a luncheon briefing for the media. There is still value to be had in mid-sized retail real estate investment trusts (Reits) as well as some industrial Reits.

According to Ms Low, the Singapore market was trading at 14 times earnings and 1.4 times its book value as at end-December 2012. "Valuations are fair and we are trading at close to long-term average mean."

Despite improving economic outlook, Ms Low doesn't expect significant expansion of market valuation or earnings as we had seen in 2007.

"The easy money has been made," she said. "Any upside from a top-down perspective would be very moderate."

But the positive factors are: We are at the tail end of downward earnings revisions, and liquidity is buoyant.

Looking ahead, it will be about picking the right stocks.

In her 17 years in the industry, Ms Low has gone through the Asian financial crisis, the bust, the 9/11 terrorist attacks, the Sars outbreak and the most recent global financial crisis. Here are a few things that she observed:

One, cycles are getting shorter. So companies need to constantly revisit their strategies. As such, the quality of management and the ability of the company to change is important.

Two, companies which have access to financing in times of crisis, those with focused strategies, will be able to deliver.

Three, even in a bad patch, some companies can still do well by unlocking the value in the assets they own. Ms Low's approach is to focus on bottom-up stock-picking, and try to pick stocks that can deliver value across cycles.

Her colleague, senior portfolio manager for Indian equities, Rana Gupta, meanwhile, is positive on Indian equities in the medium term. The bias is towards domestic rate-sensitive sectors such as banks and real estate, he said.

This is premised on continued policy reforms which will be structurally positive for the economy; a favourable domestic rate cycle; supportive global liquidity, and lower-than-mean valuation in the past 10 years.

At the company level, he expects earnings per share downgrades to be behind us. Looking ahead, sales growth could bounce back with moderate economic recovery.

Meanwhile, the longer-term trends in India include: the diffusion of the central government's power to regional parties, resulting in more diversified and balanced growth across the country; growing urbanisation in rural India; and increased export opportunities for IT services companies, pharmaceuticals and light industrials if the rupee continues to weaken against the yuan.

Manulife Asset Management has US$13 billion in assets under management for Asian equities. It has a team of over 85 equity professionals located on the ground in ten territories across Asia.

Echoes of ’07 as markets flirt with risk

Anthony Rowley

THE Washington-based Institute of International Finance (IIF) yesterday issued an unusually blunt warning that global financial markets could again be in danger of "underpricing risk" in a manner reminiscent of the run-up to the global financial crisis that began in 2007.

The alert by the influential body, whose members include the world's leading banks and other financial institutions, comes at a time when stock and property markets are surging on the back of a sea of global liquidity, and could send a tremor through global markets.

It also comes as fresh concerns emerge in parts of the eurozone - Spain and Italy especially - over whether the financial crisis there has been laid to rest or may be ready to re-emerge.

Abundant liquidity created by central banks' monetary easing strategies - with Japan now joining the US and the eurozone in this regard - has "changed investor sentiment away from 'risk-off' to 'risk-on' mode", the IIF noted in its latest monthly Capital Markets Monitor.

January data reports "confirm the rebalancing of fund flows away from safe haven assets (US Treasuries, Bunds, UK Gilts etc) to riskier assets including equities and high-yield bonds", said the IIF.

"This has raised the question of whether credit risk is being underpriced again, as in the period prior to the 2007-2009 financial crisis," the institute said, using unusually pointed language.

Former undersecretary of the US Treasury for international affairs Tim Adams took over as managing director of the IIF at the beginning of this month and some are likely to see the warnings as reflecting official concern over the possible replay of a financial crisis.

Mr Adams, who was managing director of the Lindsey Group after leaving the government, succeeded Charles Dallara as IIF managing director.

Mr Adams noted at the time that he was appointed that the IIF "has developed a key role in many areas of global finance, and I am confident is poised to expand that role over the coming years as we face a period of unprecedented change".

The question of whether financial risk is again being underpriced "is particularly applicable in the case of the euro area where economic divergence between stronger core members and those on the periphery appears to be persisting, or widening in some instances", the IIF said.

The euro extended losses yesterday as political uncertainty in Italy and Spain prompted traders to take profit on the currency's strong gains so far this year, after it hit a 14-month high last week.

Italian and Spanish government bonds and stocks suffered a sell-off on Monday amid growing political uncertainty in the two countries that poured cold water on optimism that Europe is slowly healing from its debt crisis.

Spanish Prime Minister Mariano Rajoy faced calls to resign over a corruption scandal, while in Italy, the growing popularity of former premier Silvio Berlusconi was a worry for investors in the run-up to elections this month, Reuters reported.

"Perceived declines in tail risks and plentiful liquidity, with more resolute asset purchase programmes on the way from Japan, have noticeably changed investor sentiment and behaviour away from risk-off to risk-on mode," the IIF observed in its report.

"Since economic divergence has been among the root causes of tensions within the euro area, its persistence despite improvements in current account and unit labour costs raises the question as to when the euro area sovereign debt crisis can be regarded as over".

Global corporate bond issuance reached a record US$409.5 billion in January, after an unprecedented level of issuance of almost US$4 trillion in 2012, the IIF noted.

"Spread compression and near-zero policy rates in key countries mean that yields on many credit instruments have declined sharply. In particular, yields on USD and EUR corporate high-yield and sub-CCC bonds have fallen to multi-year lows recently."

Gold investors find no guarantee in their assets

 Straits Times
06 Feb 2013
Magdalen Ng

 INVESTORS who took physical possession of gold they bought at The Gold Guarantee - now the subject of a police probe - are in a fix.

Many face difficulties in offloading the precious metal as pawnshops such as Maxi-Cash and ValueMax are refusing to buy any gold associated with the embattled gold trading firm.

They fear that the gold bars may be seized by the Commercial Affairs Department (CAD) during investigations.

Maxi-Cash's senior brand manager Magdalene Eng said: "The police are investigating and we wouldn't know what the results are, better not to touch it (the gold) for now. It is quite a big risk to take."

The Gold Guarantee stopped making payments to investors about a month ago, and its founder Lee Song Teck has been uncontactable. Under the scheme it offered, investors bought gold at a premium and got monthly payments. Some took possession of the gold, while others left it with the firm.

The Straits Times understands that United Overseas Bank (UOB) has bought gold back from some of the investors, even though the bank is not obliged to do so since the gold was not purchased directly from UOB.

A UOB spokesman said: "If the customer does not have proof of purchase but the seal from UOB remains intact, the bank may decide to buy back the gold bar at a discounted price. The bank will assess each transaction on a case-by-case basis."

The indicative retail gold price at UOB yesterday was $66.65 per gram or $66,610 per kilobar, significantly lower than what most of The Gold Guarantee customers paid.

A retiree who wanted to be known only as Ms C. Lim - as some family members were unaware she had invested in The Gold Guarantee - said she bought a 1kg bar last year for nearly $90,000.

"I have no idea what I should do. If I sell, I will lose a substantial amount of money, but if I don't, what am I going to do with the gold?" she said in Mandarin.

As of yesterday, ValueMax was not accepting The Gold Guarantee gold bars, but operations director Yeah Lee Ching said there will be a new directive to allow for buybacks.

She said: "It will be on a case-by- case basis, and those who want to sell have to show that they have good title to the gold bar."

The CAD has confirmed on its website that it is investigating the gold trading firm, focusing on its business practices and whether any criminal offences have been committed.

On whether the customers are entitled to sell their gold as yet, a spokesman said in a e-mail response: "It is inappropriate to comment as police investigations are ongoing."

A lawyer who declined to be named said that whether customers can sell their gold depends on their contract. For example, if it explicitly states that they can sell the gold back only to The Gold Guarantee, then it is unlikely that they can sell to a third party.

However, he said that customers may want to seek legal advice before selling, because the sale may affect any claim that they might have against the gold trading company, and that the CAD does have the power to seize any gold that has been sold.

"Whether they do so depends on whether the seizure would further their investigation," he said.

Monday, February 4, 2013

What might derail the market’s rise?

R Sivanithy

ONE question that stock market players must be asking themselves is: When will the party end? Or rather, perhaps, what might cause the party to end?

The most obvious answer, of course, is that all the money printing fails to work, leading to rampant inflation and forcing interest rates upwards. This was what happened in early 1994 when an inflation-wary US Federal Reserve unexpectedly raised its federal funds rate, derailing what was then a happily charging bull market that had, at that point, run non-stop for about five months.

The Fed of today, however, is a different beast altogether. Having contributed to the Great Financial Crisis of 2008 by falling asleep at the regulatory wheel for most of the 10 years leading up to Lehman Brothers' collapse, the US central bank is now bending over backwards to try and redeem itself. So investors needn't worry - interest rates aren't going to rise anytime soon and if anything, the Fed probably isn't done with its money printing yet.

Still, as last week's news of a surprising 2012 fourth-quarter GDP contraction of the US economy shows, things are by no means rosy. Investment firm Neuberger Berman, in a report last week titled "What's Ahead for US Growth", said that the GDP drop appears to validate the opinions expressed in a recent Wall Street Journal poll which found that about 60 per cent of the public continues to think that the country is headed down the wrong track.

However, the firm cited three reasons to be less bearish - the US private sector is in the final stages of deleveraging, and unlike Japan which dragged its feet and therefore suffered from deflation, the US government acted swiftly with its unconventional bond-buying measures, and not least, unlike Japan, US banks cleaned up their balance sheets faster.

US newspaper Barron's, however, asked a pertinent question in its Jan 31 Up And Down Wall Street titled "As Stocks Near Records, Why Does the Fed Act as if Times Are Bad?"

In a nutshell, writer Randall W Forsyth's view is that monetary policy pumps up asset prices more than jobs, obscuring reality about the economy. We tend to agree.

"It might be argued that the disparity between the real economy and the Dow's seemingly inevitable march to 14,000 and beyond its record close of 14,164.53 on Oct 9, 2007 ... can largely be explained by the Fed's monetary policy," wrote Mr Forsyth.

"Money for nothing, and lots of it, provides the wherewithal to bid up asset prices - for those who can take advantage of it. For everybody else, it means higher costs for necessities but not income gains; in other words, a lower standard of living."

Incidentally, the Dow on Friday closed above 14,000, a whisker away (just over one per cent away) from an all-time high. Perhaps not surprisingly, the advance has been led mainly by the banks, the recipients of most of the Fed's "money for nothing".

If US growth really is 50-50, then what about China? In its Feb 1 China Macro Watch, Bank of America-Merrill Lynch (BoA-ML) said that feedback from its global marketing in the past two months suggests that even the die-hard perpetual China bears are believing in a soft landing now.

"Investors are no longer interested in verifying China's green shoots. Instead, they are asking how sustainable the current recovery is and when macro indicators will once again turn negative on the markets as they are considering when to take profit," said the bank.

"In this regard, we have a concise answer. In 2012, macro environment was anemic to asset prices in the first half but turned increasingly supportive in the second half. In 2013, we expect exactly the opposite. Macro environment could remain supportive of asset prices in H1, but will likely turn less supportive or even negative in H2 as GDP/IP/earnings growth slows and inflation rises.''

So if BoA-ML's guess is correct, play the market for the next couple of months but get out before June because China's economic data for the second half will likely be poor.

Sound advice - unless, of course, it all unravels earlier and the US economic numbers start a sustained downturn that even more frantic money printing can't reverse.

Reits hold allure but beware potential risks

Goh Eng Yeow

INVESTORS have been getting next to nothing on their investments if they have held cash over the past five years, so it is not surprising to find that real estate investment trusts (Reits) are coming into their own.

Reits are now among the hottest financial assets to have for risk-averse but yield-hungry investors, thanks to their returns of 5 per cent to 6 per cent.

That easily beats the offerings from banks, where interest rates have been driven down by central bankers around the world printing tons of new money.

Reits are "closed-end" funds which operate in a similar manner to unit trusts. But unlike unit trusts, which raise funds to invest in shares, Reits specialise in income-generating real estate assets such as shopping malls, offices, industrial buildings, warehouses or even hospitals.

A Reit gives an investor exposure to a basket of investment properties which are leased out, producing rental income that gets distributed back to investors as dividends or distributions.

The biggest attraction is the tax-efficient structure. Reits do not pay income tax at the corporate level, while individual investors are also exempt from paying any taxes on the dividend income received, although corporate investors are not.

Reits can also offer high yields because they have to pay out at least 90 per cent of their income as dividends in order to qualify for the tax breaks.

Since January last year, the FTSE ST Reit Index, which tracks 24 Reits, has risen by 41 per cent, outperforming the benchmark Straits Times Index, itself no slacker with a gain of 24.2 per cent.

Small wonder then that in the post-global financial crisis world, Reits have become the perfect corporate structure for companies that have steady income-generating businesses but lack sexy growth stories to go with them.

All a company has to do is admit that it does not have the opportunity to invest for growth, offer to pay out at least 90 per cent of its taxable income as dividend, and it can produce a Reit out of almost any of its businesses.

After all, as some Reit fans will point out, even a company like fast-food giant McDonald's can be turned into a Reit, since it is nothing but a landlord that rents out space to franchisees that happen to run restaurants. McDonald's sits on US$23 billion (S$28.5 billion) in properties and generates a steady income which makes yield-hungry investors salivate.

So it is not surprising that the most successful listings in Singapore in recent years have been Reits.

Indeed, the hottest initial public offering (IPO) hopeful being touted around in the Singapore market at the moment is the proposed massive US$1.5 billion flotation by the Temasek-linked Mapletree Group of its commercial properties in China and Hong Kong.

And why not? Besides offering investors a steady income - some are eyeing a yield of 5 per cent to 6 per cent - there is even a sexy story to sell: The Reit can grow its business as China's rapidly expanding consumer market demands bigger and better malls.

Mapletree's previous three Reit offerings have produced astounding returns: Mapletree Logistics Trust is up 73 per cent since its debut in 2005, Mapletree Industrial Trust has risen 52 per cent since going public in October 2010 and Mapletree Commercial Trust is up 42 per cent following its IPO about two years ago.

But there is a snag. As Reits pay out most of their income, they rely on bank borrowings to finance their growth through the purchase of more shopping malls, commercial buildings, factories or hospitals.

With the credit crunch that accompanied the global financial crisis in 2008, the inability to refinance bank loans was a very real risk for some Reits and nearly caused them to collapse.

Five years is a long time for interest rates to stay at abnormally low levels, and it is only a matter of time before the world's central banks start to shrink their bloated balance sheets.

So after the heady gains made by the Reits last year, some research houses have advised investors to go easy on them. Maybank Kim Eng's Mr Ong Kian Lin, for example, believes 2013 will be a year of consolidation, as yields for Reits are depressed by a further 0.3 to 0.4 percentage point.

"We also see limited opportunities for further positive rental revisions, as rentals face downward pressure in 2013, following looming supply and softening of business sentiments," he said.

In case there is a credit crunch as central banks pull the plug on the massive liquidity now flooding the financial system, it may be advisable to stick to Reits with strong corporate parents with the financial means to bolster their balance sheets.

Diversified versus focused approach to investing

04 Feb 2013 09:45

In one, you spread out your bets, in the other, you go with what you know well.

In the last few weeks, I talked about finding value in the market and ways to identify market under- and over-valuation.

Finding discrepancy between the value of a company and the price that its stock is trading at in the market is only part of the analysis. You have to build a portfolio that takes advantage of the opportunities.

If you find value in a basket of stocks, but they all happen to be, say, in the real estate business, do you put all your money in stocks from just that one sector? Or, in another extreme scenario, do you put all your money into just one stock?

There are two schools of thoughts. One is the diversified approach, and the other, advocated by legendary investor Warren Buffett, is focus investing.

Theories in finance say that diversification allows the investor to eliminate indiosyncratic risks – or risks that are peculiar to a specific company. Say, Company A’s big customer suddenly declared bankruptcy. And Company A was owed a big chunk of money by that customer. Once the news broke, Company A’s stock price tanked. That’s an idiosyncratic risk.

The theory says that this risk can be minimised by having at least 30 stocks in the portfolio.

Besides risks that are specific to the individual company, there is also the sectoral risk. For example, if you had all your money in real estate stocks a few weeks ago when the Government announced the surprise cooling measures, your portfolio would have taken a big hit the following Monday.

On a broader level, there are country risk and currency risk. There is even an asset class risk.

Say you had all your money in stocks when the global financial crisis hit. No matter which market you were invested in, your portfolio would have suffered as stocks plummeted globally.

So the idea of diversification is to allow an investor to spread out one’s bets.

The hope is that not all asset classes, not all stocks, will move in tandem. In some periods, you may have SingTel outperforming; other times Fraser & Neave might surge ahead. Or you may have China racing ahead in the last few years while Japan may power ahead in a different period.

In contrast, the other school of thought is that you should bet big on high probability events.

How does one know if an event has a high probability of occurring? Well, by studying and understanding an investable situation inside out.

If, after the in-depth analysis, you are 100 per cent convinced that the market has absolutely mispriced that asset, then you should have the conviction to allocate a big portion of your portfolio to that asset, says Mr Buffett.

There is little risk if you know the industry, the business thoroughly, the argument goes. Of course, work in a big margin of safety as well – pay a significantly cheaper price than the fair value of the company.

According to Mr Buffett, buying a whole long list of stocks increases the chances that you will buy something that you don’t know enough about.

One local fund manager, Mr Teng Ngiek Lian, of Target Asset adopts the concentrated approach in building his portfolio.

His fund invests in only 35 stocks. Here’s what he told me back in 2008.

“By having a concentrated portfolio, you stay focused. It makes you very honest with yourself. If you make a mistake, it’s going to be very painful.

“You can’t be casual. If you want to put in one stock, you have to take one out. So you have to decide why you want the new one and give up the old one. We find this a very effective strategy.

“Normal investors just buy and buy. Like African tribal chiefs, they don’t know how many children they have. They don’t have to bring them up, so they don’t worry.”

To narrow the list to just 35 stocks, Target actively monitors about 150 to 200 stocks.

This is for comparison purpose.

How do you know a stock is good unless you’ve compared it with others, he said.

Mr Teng’s strategy seems to work well. Target Asset Management returned 17.6 per cent a year between 1996 and November 2010, net of fees.

Another fund manager, Mr Eric Kong of Aggregate Asset Management, however, holds a different view.

“Warren Buffett advocates the focus approach,” he said.

“But we find that when you bring your holding up to 5, 10, 20 per cent of your portfolio, you’ll make more behavioural mistakes. You start to get emotionally attached to the stock, you fall in love with the stock. That is dangerous because it can really affect your judgment.”

Also, Mr Buffett has a gift. He is able to read business very accurately. Not everyone has that kind of gift, Mr Kong noted.

Aggregate prefers a more conservative and boring approach.

“We concentrate on what’s currently on hand.”

Its strategy is to buy a big basket of stocks with low multiples of earnings and cash flows, low price-to-net tangible assets, and high dividend yields.

I explored this strategy a few weeks ago and the results have proved quite effective.

Personally, I’m more inclined towards the big basket of cheap stocks approach.

I wrote about randomness in my first few articles. I wouldn’t want any random event to wipe out, say, 10 or 15 per cent of my portfolio.

From Dragon’s roar to Snake’s bite?

Goh Eng Yeow

THERE is no better way to give the Dragon Year a rousing send-off as it enters its final trading week than the exuberance which has sent stock markets soaring everywhere.

As Chinese everywhere mark Li Chun - the first day of Spring on the solar calendar - today, there are signs of fresh shoots of economic growth, spurred on by a stronger United States jobs report, evidence of manufacturing growth in China and improving factory activity in Europe.

The resulting improved market sentiment propelled Wall Street above the 14,000 bulwark for the first time in over five years last Friday, as investors set aside lingering concerns about the US economic recovery.

In Singapore, the benchmark Straits Times Index ended 21.83 points higher at 3,291.14 last week, as it inched within striking distance of the post-global financial crisis high of 3,313.61 reached in November 2010.

Yet, even a few months ago, such bullish fervour would have been unthinkable. Investors had confined themselves to the sidelines, cowed by potentially calamitous events like a possible break-up in the euro zone or the US fiscal cliff.

But the wobble has since steadied, with the Vix Index - Wall Street's best gauge of fear tracking the volatility of the S&P 500 Index - falling to close to historic low levels.

And investors have been pouring huge sums into equities. Last week alone, financial data provider EPFR recorded US$18.8 billion (S$23 billion) of inflows into all equity funds. This was more than six times the US$3 billion inflow into bond funds.

Asia proves to be a strong magnet for equity investments, with funds investing in regional stocks attracting US$1.6 billion in inflow - marking the 21st week of inflow into Asia, according to Citigroup Investment Research strategist Markus Rosgen.

Yet, even as traders celebrate what has turned out to be an ebullient Dragon Year, the big question is how markets will fare in the Year of the Water Snake as it slides in on Sunday.

Analysts have been outdoing themselves in making bullish projections, smug in the conviction that as long as the US central bank continues to flood the financial system with fresh liquidity as it prints US$85 billion every month, the global stock market rally is safe.

But the fear at the back of many traders' minds is that the Year of the Water Snake may turn out to be a game of snakes and ladders, as share prices scale walls of worry, only to slither down in fear after that.

One worry is that the rally is not backed by fundamental growth in companies. Indeed, the most eye-catching recent corporate headlines were the mind-boggling write-offs made by financial giants such as Citigroup and Deutsche Bank and the savage axing of jobs by American Express.

Even big-picture market strategists are nervous about rotation out of bonds into equities.

In his report "Hello Great Rotation", Bank of America Merrill Lynch strategist Michael Hartnett warned: "The two major risk scenarios to an orderly Great Rotation are: a bond crash as in 1994; a risk shock as in 1987, driven by a currency war."

Fengshui expert Lynn Yap describes the forthcoming lunar year as "murky", thick with scandals and accounting fraud. "The Snake seldom smiles and therefore it is going to be a sad year with tears."

Her advice to those who find it rough-going: Go watch a movie or pray.