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Tuesday, January 4, 2011

Growth Strategy for 2011 and beyond

Happy new year to readers in the year 2011!

Year 2010 was a rather good year for me in terms of networth growth (nearly doubled). It was a year where I was super busy, but monetary and spiritually rewarding. Why I said it is spiritually rewarding is because I believe it is my calling now to assist and help students do well in their studies, through active teaching and through books.

Year 2011 and beyond is indeed more exciting than ever before. This post is not going to be about any new year resolutions, because I have already set myself in place with Goal 2013.

Apart from Goal 2013, this is my view of the economy and market in concise form:


1) Asset prices continue to rise.
2) Markets continue to rally.
3) Precious metals and commodities may continue uptrend.
4) While I believe it will rally, eventually, there will be a very very great crash. Just when. My estimate is 2018 based on a ten-year cycle.

The first reason is the apparent bearishness of many in the market. To me, a bullish/bearish appearance in stock prices does not indicate a bullish/bearish emotion of investors in the market nowadays. The main reason is because of institutions and liquidity, as explained in the second and third reasons below. Yet, many bullish/bearish indicators are usually dependent on price movements. Is that really accurate when currencies are depreciating at such a fast rate? IMHO, there are a huge number out there with bearish views of the market. Not based on prices, but based on observations and my interactions with people, and by putting myself in their shoes. To me, many have been "financially awakened", have read many financial blogs and financial books, and hence are more aware and cautious of playing the market unlike before. The recent bear is still fresh, and naturally, fears will linger about an impending top. I try to be contrarian and call for another mega rally with a time frame of 6 years.

The second reason is because of the presence of high liquidity in a world that is more financially awakened than before. Is it not scarier than before that more and more people, especially the younger ones (like me), are talking about the concepts of financial freedom? While there are indeed still people who do not bother, I believe there's a rise in the numbers who do bother. Hence, I believe more and more people will buy more and more assets (including paper assets like stocks), leading to a buying fervour that will grow and grow.


The third reason is that with printing of currencies by so many countries, the value of currencies are dropping. So what if a government owes lots of debts; when desperate, one only need to "print" more cash to return the creditors. Furthermore, quantitative easing provides even more low interest cash to institutions to borrow and buy assets worldwide. Who cares about currencies and debts anymore. It's a never ending cycle:

use spare cash buy assets <==> borrow cash to improve liquidity and position for more purchases

And how to get the extra cash to lend? Just print more. Eventually, printing of currencies can help buy up more and more assets till currency gets worthless. Quite a gloomy eventual outlook on currencies, but a mega bullish outlook on asset prices.


But eventually, all good things must come to an end. All parties must end. Will the world greatest economy allow their reserve currency status be removed? I don't think so. That will be the time when these borrowers sell everything at a large profit and return the cash, solving the problem of debt of the country. A conspiracy theory I believe in. When it will end is up to anyone's guess.



The stock market is like a sheep farm. The institutions borrows the cash to feed to the sheeps in these sheep farm, and slowly fatten them up over a period of time. We see this as a bull market, where everyone is buying. Everyone is earning money and everyone is happy.

When the sheeps are ripe for harvest, it's time for the slaughter to lock in the profits. Institutions will start a mega selldown to lock in their profits. TA practitioners will see supports being broken, and start selling at the same time, further fuelling the selldowns. This is what we see as a bear market.

Eventually, most of the sheeps are all slaughtered. It's time to grow and fatten a new batch of sheeps. This is what we see as market recovery. And yet with all these financial manipulations, no value is created. I'm just a small sheep in this farm, but I believe the fattening process will continue, and hence I'm staying vested.



This is why my growth strategy for 2011 and beyond, apart from remaining vested in the market, includes growing my own asset, which is a business, one which aims to value create instead of competing. One which aims to assist instead of destroy. And for myself, I have identified to be in the business of creating educational materials to help students score. This, would be my main thrust and growth strategy through year 2011.

19 comments:

  1. good strategy. on market cycles, i think cycles are more compressed now (i.e. shorter), and now is the time for me to sell slowly rather than accumulate more.

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  2. Hi Anonymous,
    If you agree with JW, you should keep some assets as stocks, because fiat money may become 'worthless'.
    If enough elitists think so, we the commoners do not have a choice.
    Fiat money will be worthless.
    On the other hand, you are correct to want to sell slowly as the market cycle seems to getting more and more toppish.
    Me?
    I will have to find a balance or maybe not.

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  3. Hi,

    my take is, fiat money can become worthless if this continues on. But eventually, the party may stop.

    A liquidity driven rally can only continue it's ascent when liquidity prevails.

    When the liquidity starts to dry out (perhaps quantitative restricting 1?), the music stops....


    The best way to clear debts is to make the debts worthless.


    The next cycle crash would be a major one because of the actions taken now.

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  4. Hi JW,

    "The best way to clear debt is to make the debts worthless".

    Wow!
    It's a very brilliant idea.
    That's what the Russian GOVT did not long ago.
    And the US Govt had to bail out their financial markets (Longterm Hedge Fund designed by at least 2 Nobel Prize winners, went Kaput.)

    As for you and me, I don't think we can do this without dire consequences to ourselves & family.
    Ha! Ha!
    But many shady & heart-less businessmen use this tactic to get rich.
    They are bankrupt in name only.
    Well, that's life.
    And may they be tortured by guilt to the end of their earthly lives.

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  5. Hi Temperament,

    Yup, that's part of what Robert Kiyosaki meant when he said corporations are designed to protect the rich. The business/corporation which has it's own legal identity can go bankrupt being laden with debts, but it does not affect the assets of the owner.

    I believe a number of S-chips did this at SGX.

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  6. "The best way to clear debt is to make the debts worthless".

    I strongly disagree with this. To make the debts worthless, you have to print your way out of it. This causes inflation.

    A great many empires tried it. They spent too much and they tried to print their way out, but it has never ever worked. Not once! It destroys the value of the currency, and destroys people's lives.

    A nation operates no differently from an individual. When one is in debt, one has to work harder and spend less. But what do we see nations doing today? They borrow more and spend more. This is classis Keynesianism.

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  7. Hi Silvernjin,

    don't you realise that to pre-empt the inflation that could occur, funds (I believe that are from US) have been aggressively buying equities and etc?

    I believe the US is also holding a large reserve of oil and gold, so inflation could in a way, benefit them.


    Currencies is something rather new, so I don't really buy that a great many empires tried it.


    For an individual in debt, he/she would have to work harder and spend less, but for a nation in debt, they merely need to print more to repay the debt.

    Say you have $10, you borrow $10 at 5% interest. Then you print $10.50 and return the lender. Hey presto, you get $20, a 100% increase. Your lender gains 5%. Let's say inflation grows at 20%. You gain, your lender lost.

    ReplyDelete
  8. Hi,
    Hey, for Russia GOVT they just said all their bonds were worthless.
    As simple as simple Simon said.
    Read what happened to US Long-term-Hedge Fund because of the Russian Govt defaulted on their bonds.
    But all Govts. still do business with Russian Govt.
    I doubt as individual, you can do the same as the Russian Govt.

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  9. Hi JW,

    Currencies are not new. In the past, empires use gold and silver coins. To pay for wars, they insert base metals into the coins, giving the illusion that there are more wealth around. this was how they debased their currencies. This ultimately lead to hyperinflation. This has been around in the past 2 millenium of recorded hyperinflations.

    Inflation is merely a transfer of wealth from the working class to those who creates/prints and get the money first. It is like adding water to a glass of orange juice. Volume increases but the real orange content is the same. It does not increase the overall wealth of the nation, it just merely redistributes wealth.

    Creating money out of thin air to settle debts have been tried by politicians. None has worked in the long run. In the short run it may give the illusion that it is working, but it is not.

    If printing money is the way to wealth, it would have been discovered eons ago.

    The US may have lots of gold, but a rise in gold price does not benefit them. Gold just sits there and do nothing. Instead, it is the USD losing value, which causes gold priced in terms of USD to rise. If you trace the purchasing power of gold, it remains remarkably stable throughout history. 1 oz of gold today can still buy u a complete set of suit,shoes,ties,pants as 1 oz of gold hundreds of years ago.

    I sincerely suggest that we explore Austrian Economics more. It is a true representation of economics, not the Keynesian type that we learn in schools.

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  10. Hi Silvernjin,

    inserting base metals into coins is not the same as printing more money. It is more analogous to counterfeiting, which has the same effect as what you mentioned. So analogy doesn't hold.


    The working class does not create or print money. Money is created by government, created by the people, and managed by the Central Bank. The wealth of a nation is increased, IMO, by value creation of the working class.



    "Creating money out of thin air to settle debts have been tried by politicians. None has worked in the long run. In the short run it may give the illusion that it is working, but it is not."
    --- Which is why I mentioned the party will have to stop sooner or later :)



    "The US may have lots of gold, but a rise in gold price does not benefit them. Gold just sits there and do nothing. Instead, it is the USD losing value, which causes gold priced in terms of USD to rise. If you trace the purchasing power of gold, it remains remarkably stable throughout history. 1 oz of gold today can still buy u a complete set of suit,shoes,ties,pants as 1 oz of gold hundreds of years ago."
    --- Agree. Well said. Thanks. :)



    "I sincerely suggest that we explore Austrian Economics more. It is a true representation of economics, not the Keynesian type that we learn in schools."
    --- I don't really know about Austrian Economics :(

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  11. Hi JW,

    Well, in the past they insert base metals into gold coins, so that they can have more coins around. It is analogous to creating more money out of thin air.

    Printing money is Legalized counterfeiting (it's still immoral and illegal IMO). The population cannot do it, but the government can get away with it.

    Money is a just representation of value, wealth does not increase with money supply. Wealth comes from real goods production.

    Looking at the debt levels of the US, and their budget numbers, and how fast they are running the printing machines, I think that a USD crash is imminent. Their budget is way worse than the European nations that the world is focusing on right now.

    Maybe these guys may be of interest to you. THey follow Austrian Economics:
    Peter Schiff (search "Peter Schiff was right" on youtube)
    Jim Rogers
    Ron Paul
    Tom Woods

    Ah well, I'm not here to preach, just trying to share. :)

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  12. Hello JW,

    From your comment on La Papillion's blog on thinking outside the box, I followed it to your blog. Very interesting!

    Congrats on having your own business at such a young age! Even more impressive is that you put creating value before money. You have your priorities right. Money will flow in naturally when we do right by our customers.

    Pursuit of money for money's sake is a bit... Reeks of copper smell!

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  13. Hi Silvernjin,

    Yup you are very right. A USD crash does seem imminent to me too, and that is one reason why I prefer to remain vested in equities. I believe in the inverse relationship between currency and equities :)


    I like your sharing. Don't worry, I don't think anyone will see it as preaching. It's all good constructive sharing, and I have yet to thank you for your kind sharing! Thanks! :)

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  14. Hi Man of Leisure,

    I don't have my own business yet, but I aim to have one before the end of 2011. In fact, I'm working towards this goal now :)

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  15. Hi JW,

    Thanks, I forgot to mention one more thing :D

    "Say you have $10, you borrow $10 at 5% interest. Then you print $10.50 and return the lender. Hey presto, you get $20, a 100% increase. Your lender gains 5%. Let's say inflation grows at 20%. You gain, your lender lost."

    I will say that you gain at the expense of everyone. It's not just the lender who lost, but also those people who were not involved in this transaction. the act of printing money causes inflation, so everyone loses their purchasing power (which is transferred to u the money printer)

    Anyway, have a great 2011 ahead! Good luck with your tuition (i'm a tutor too) :)

    Jin

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  16. Hi Silvernjin,

    you are absolutely right on purchasing power :)

    Have a nice 2011!

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  17. Just 1 comment, I'm pretty sure that the crash won't come as late as 2018, businesss/economic cycles are getting increasingly short, so my estimate is 2013-2014 or slightly earlier.

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  18. Hi Hubert,

    I still believe in the 10 year cycles. The 2001 to 2003 dip isn't really a crash in my opinion.

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  19. I have always favored value stocks over growth stocks. Simply because of the extra margain of safety that value investing gives you compared to growth stock investing Growth stock investing is all about future expectations. Value investing is about the current value of a stock. This does not mean that their are not any growth stocks that are not great investments.

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