How To Manage Investment Volatility

When the market is on a bull run, as it was in the earlier part of the year, or during the first half of 2007, investors tend to neglect risks. However recent events (triggered by US subprime and financial meltdown) demonstrated that investing in stock markets isn't for the faint of heart. A case in point is that for the past few months, wild swings of daily stock market indexes by few percentage points were common. How does one manage his or her portfolio in such volatility? For some, unloading all their stocks and keep all their CASH safely in the bank may sound the safest option. Others may switch part or entire portfolio to other safer instruments such as gold or commodities, or cash instruments.
Getting It Right From The Start
While timing everything right seems impossible, there are better ways to manage one's portfolio. Essentially, getting it right at the start is important. One will worry less if one's portfolio is structured right to start off with, that is, maintain an asset allocation strategy based on one's personal risk profile at the very first place. With asset allocation, diversify one's portfolio is the key, in order to reduce over dependence of a specific asset class, that is.

Diversify

One such method is to consider various instruments that have low correlation to one another. For example, while directly investing in individual stocks has good direct exposure, consider investing in unit trusts or ETFs, where typically the funds will be invested in a basket of stocks instead of one individual stock. In principal, stocks tend to be a lot more volatile than equity unit trusts for the reason that funds tend to be more diversified because they are invested in multiple stocks.
Other low correlation asset classes include bonds, commodities (gold, metals) and real estate properties. Gold is a perfect case in point, where prices have escalated by around 50% from 2007 to-date due to sky rocketing crude oil prices and perception of safe-heaven characteristic.

Adopt Mid to Long Term Horizon

The longer the time horizon is, the more volatility one can tolerate as one has more time to recover from short term volatility. Putting a mid to long term strategy in place will certainly allow an investor to take into consideration factors that will affect one's portfolio, such as market cycles, political stability and economic swings.

Stay Objective

While i agree that investing in general should be taken with a long term perspective, it is not a hard and fast rule as it is also important to stay objective and be alert to potential major changes in business or economic environment from both local and global perspective. For example, while investing in China equity at one point (prior to 2007) may be a great idea tapping into the explosive growth of Chinese companies, an investor should consider unloading some or all of the funds invested to else where when Chinese stocks were trading at lofty and unrealistic valuations. Another example is when subprime issues first surfaced, it is wise to find out from the brokers or agents immediately where their property trust funds were invested. It is wise to liquidate such investments when the stakes are high!

Invest Regularly

Invest regularly is also a good way to manage periodic market volatility. For many this could be in the form of monthly investment, directly from their monthly income or retirement fund savings. In essence one will continue to invest a particular sum of money regardless of whether the market rises or falls. This method is also commonly termed as Dollar Cost Averaging.
One may choose to invest more regularly during the bull market and less regularly during the bear market. However, again there is really no hard and fast rule, it all depends on each individual's risk profile and preference.

By PS Thoo

How To Magnify And Multiply Your Wealth

Let me give you an example. Let's compare a doctor and Madonna. Now who creates more value? Who creates more value per person? I would say a doctor because a doctor can save your life, a heart specialist. Madonna can only make you feel good about yourself by listening to music. But why does Madonna make, a million times more than a heart specialist?
Why? Because Madonna has this thing called scalability or leverage.

Now, let's talk about magnification.
For a doctor, he spends 3 hours on a patient but he can only save one patient. But for Madonna, in those 3 hours of singing in a concert, 5,000 people hear her songs so her value is magnified.
For myself, when I was starting out my mobile disco business, how did I magnify myself? By running disco parties so by playing that one song, I reach out to 200 of my friends magnifying my value versus just selling stationery. That is how you magnify your value.
Right now, for the training sessions I conduct, one training session is about a hundred to 200 people so our value is magnified

The next thing is multiplication. How can you do something once and you're paid again and again and again over and over again? Back to the Madonna example, Madonna may spend 3 hours to record an audio CD and she just has to spend that 3 hours
But every time the CD is sold, she's paid again and again and again and again for the next 20 years. But for the doctor who spends those 3 hours on the heart patient, he only gets paid once. So that's where you must learn how to create incomes such that it multiplies. And I would say that there are a couple of ways.

The first way is to leverage on intellectual property. Your intellectual asset, Coming up with an idea, a patent, an invention, you can license it to someone and each time that product is sold, you get paid again and again and again. Let me give you an example here. There was this gentleman that came up with this idea. It all started with a problem. He bought a bunch of batteries. And he was frustrated because he didn't know whether the battery was flat or was because his tape recorder didn't work.
So what he did was he took a metal device to put it at the ends of the battery, to test the energy of the battery. And he found that he the batteries still had energy. And he said, wouldn't it be cool if every single battery that was sold came with this battery tester? It was not a difficult invention. It was a matter of putting these 2 diodes together to measure the electricity. So he approached, Duracell and said, you know guys, I got this fantastic invention. It's a small piece of metal that allows people to test the power of the battery when they buy and use the battery.

And you know what? I am not going to sell you this invention. I am going to rent it to you. If you use my invention, just pay me 3 cents for every battery you sell. Now 3 cents may not be worth a lot but imagine if Duracell sells millions of batteries a year worldwide. And this guy gets 3 cents for every battery. This guy gets millions of dollars a year in royalties again and again and again. What could be your idea? If lets say you are a fantastic cook, you're a fantastic chef, could you come up with an idea for a recipe and for example, license that idea to a food manufacturer who sells frozen food in the supermarket and get paid a royalty or a license every time? Like Sarah Lee for example, everytime you buy her cake, she gets paid a percentage of that.

These examples illustrate the power of scalability, leverage, magnification and multiplication. How can you apply it for yourself? Think about it, the rewards can be potentially huge.

By Adam Khoo