Warren Buffett’s Holdings Outperforming In Q4

With the release of Berkshire Hathaway’s holdings as of the end of the third quarter yesterday, we can take a look at how these holdings have been doing so far this quarter.  As shown at the bottom of the table, Buffett’s Berkshire holdings are currently up 8.61% since the start of October, while the S&P 500 is up 4.41%. 

Buffett’s top holding with a value of more than $11 billion, Coca-Cola (KO), is even outperforming the S&P 500 so far this quarter (5.66% to 4.41%).  Unsurprisingly, Buffett’s position in Burlington Northern (BNI) has done the best so far this quarter with a gain of 22.87%.  Buying one of your biggest positions at a nice premium is one way to boost returns!

Other big winners for Buffett this quarter have been AXP (+20.59%), COP (+18.7%), MCO (15.91%), IR (19.99%), NLC (18.2%), NSC (19.28%), and UNH (15.06%).  Ten of his 41 holdings are down so far this quarter, with USG down the most at -15.13%.

Source: Bespoken Research

Managing Trading Risk: Learning How to Lose

A while back, a trader told me he was doubling his money each year in the market and asked if I wanted to invest funds with him. He offered a verified track record of his results. I immediately declined. My rule is that, over time, a trader will always draw down at least half of his or her targeted return rate. Anyone who guns for 100% returns annually will surely, at some point, experience a 50% drawdown. That’s not for me.

Risk and reward are always proportional. Those who understood that did not invest with Madoff.

A trader told me that he made a sizable six figures in a day of trading. Later, he wrote to me in a tizzy because he had lost six figures. Another one of my rules is that you should always trade small enough to comfortably weather five consecutive stop outs. If you trade enough, that series of losers *will* occur. Risk 10% of your capital in your trades and it’s Russian roulette: eventually you’ll come to that chamber that has the bullet of five consecutive losses.

If 20% of my capital is the maximum that I can countenance losing over time, I am going to trade smaller when I draw down 5%, smaller still when down 10%, and smaller yet when down 15%. As I’m trading worse, I’m risking less. I make it more difficult to hit my 20% threshold because I’m putting less capital at risk during drawdown periods.

Conversely, by risking a fixed fraction of my capital when making money, I naturally achieve greater risk/reward as I am trading well.

I know from experience that, at some point over time, I will draw down 10 times what I’m willing to risk on a single trade. If I risk one percent of my capital in a trade, I’d better be prepared to endure a 10% drawdown in capital at some point in the future. If I risk 5% of my capital in each trade, I’ll eventually lose at least half of my money. Probability and psychology guarantee slumps; wise traders plan for them.

So much of trading success is knowing how to lose.

Posted by Brett Steenbarger

Top Books on Investment Bubbles and Stock Distributions

Below is my list of the top books that chat about stock distributions and rare events.  I also included some market history and bubbles lists too for comparison.  

Stock Distributions

• Why Stock Markets Crash: Critical Events in Complex Financial Systems - Didier Sornette
  
• The Misbehavior of Markets by Benoit Mandelbrot
• Fooled by Randomness and The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb
• Finding Alpha – by Eric Falkenstein
• Market Volatility – Robert Shiller
• Optimal Portfolio Modeling – Philip McDonnell
• Fractal Market Analysis - Edgar Peters
• More Than You Know: Finding Financial Wisdom in Unconventional Places - Michael Mauboussin
• The Failure of Risk Management: Why It’s Broken and How to Fix It – Douglas Hubbard

—————————————————————————————————————————————————————————–

Market Bubbles

• Manias, Panics, and Crashes by Charles Kindleberger
• Extraordinary Popular Delusions and the Madness of Crowds by Charles MacKay
• The Prize: The Epic Quest for Oil, Money, & Power by Daniel Yergin
• The First Tycoon: The Epic Life of Cornelius Vanderbilt by TJ Stiles
• Irrational Exuberance – by Robert Shiller

—————————————————————————————————————————————————————————–

History of Markets

• Triumph of the Optimists: 101 Years of Global Investment Returns by Elroy Dimson, Paul Marsh, and Mike Staunton
• Stocks for the Long Run by Jeremy Siegel
• Reminiscences of a Stock Operator by Edwin LeFèvre
• When Genius Failed by Roger Lowenstein
• Capital Ideas, Capital Ideas Evolving, and Against the Gods by Peter Bernstein
• Ibbotson Yearbook by Ibbotson Associates
• The CRB Commodity Yearbook by Commodity Research Bureau
• The Essays of Warren Buffett by Warren E. Buffett and Lawrence A. Cunningham
• Fortune’s Formula by William Poundstone
• The Myth of the Rational Market - Justin Fox

Online Trading – MACD Divergence

Understanding how to interpret a MACD divergence can be very helpful for you in trading. Do you know what does a MACD Divergence means? Just that the current price trend is running out of steam. It soon may reverse direction. However, price reversal may not happen right away. But a MACD Divergence is a powerful hint. The market is changing direction. It is easy to spot MACD crossovers and dramatic rises. Not so a MACD divergence. Spotting a MACD divergence will only come after practice.

What you are looking for is when the price action and MACD do not agree. For example, if the price is making a series of higher highs and MACD is making a series of lower lows, something is wrong between the two.

Most probably the traders are getting nervous and slowly fading out of their trades. MACD divergence is seen as a sign that fewer and fewer traders are in the trend. No one is trading against the trend and yet fewer and fewer traders are in the trend.

The only traders in the trend are nervous. They are likely to exit their trade at the first sign of trouble. So if MACD is diverging from the bullish trend. As soon as the bears muster up enough guts to short, the bulls will exit and the bears will take over.

There are two powerful keys in locating times when MACD divergence is likely to represent a reversal in price. This is exactly why MACD is so powerful. It takes time to setup but when it works, it often works well.

MACD divergence can be powerful when the price is at the double tops or double bottoms. You are making your trading plan based on the bounce or breakout of the support and resistance. At this point you spot MACD divergence. This is known as Exhaustion Pullback.

You should trade now based on rejection reversal. This is a sign that the price action is running out of steam. This indicates that there are not enough committed traders to break the support and resistance (S&R).

MACD is also used as an overbought/ oversold indicator or oscillator. Suppose you see that it has reached its overbought/ oversold range. The price action is turning normal. This is a signal that you should avoid trading at this time.

Dont think that the currency pair is overbought and everyone is buying. However, when the price reaches its extreme, you will see price exhaust and the MACD line drop back into normal zone. Dont confuse the overbought/ oversold MACD zones as trade opportunities.

It is also important to note that divergence can not only be found on the MACD line and the signal line, it can also be found on the histogram. These two situations along with your other technical indicators can provide excellent trading opportunities.

MACD on eBridge Trader

Source: Ahmad Hassam

ASX200 Stock and CFD Report 3-09-09

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The SFE Futures down 17 overnight. BHP and RIO in ADR form overnight, BHP up 0.43% and RIO down 0.93%. BHP was down 1.74% and RIO down 0.82% in the UK. BHP closed at the equivalent of 3648c, down16c on last night’s close. Metals mixed on the LME Copper down 0.45%, Nickel down 0.97%, Zinc down 1.37% and Aluminium up 0.06%, Lead up 1.75% Oil price unchanged at $68.05. Gold price up strongly $22.00 to $979. Largest interday gains in 5 months. Bonds up - 10 year yield at 3.295% down from 3.375%. A$ up 83.39c versus 82.65c yesterday morning. CRB Commodities index up 0.26% VIX Volatility Index down 0.86% to 28.90

August FOMC minutes said the Fed still concerned about pace of economic recovery and continued challenges for the banking sector. Headline July factory orders just under consensus forecasts. Factory orders for July showed their sharpest increase since June 2008 by rising 1.3%, but that was still short of the 2.2% consensus increase that had been expected. The ADP Employment Change Report for August showed that 298,000 private jobs were lost last month. This was disappointing as economists were expecting 250,000 job losses. Unit labor costs for the 2Q were down 5.9%, which was slightly steeper than what had been expected. 2Q productivity spiked 6.6% in its biggest percentage increase since 2003. Market expectations were for an increase in productivity of 6.4%

The market is down 6. The SFE Futures were down 17 this morning. The Trade Balance has come in worse than expected. Now stands at $1.56bn compared to the $850m

expected.

The Basics of Forex Fundamental & Technical Analysis to Help You Succeed

The scrutiny, political arena, economics, asset markets is the function of Fundamental analysis when it is used to measures one countries currency against another countries currency. The Fundamental analysis uses the pressure of government policies and this drives the demand and supply up to the demands of an economy. In respect of this, no single idea, or set of ideas, influences the Forex fundamental analysis.

All the same, fundamental analysis, virtually all of them at any rate, apply macroeconomic indices including prime rates of interest, economics, inflation, unemployment variations. If you think about it, the part of Forex fundamental factors that are involved in the shaping of currency movements.

Let’s consider the economic indicators. The reports are issued by private or governments with details of a country’s performance economically. The indices on the economics are issued annually, every quarter or even every month and are intermeshed around particular economic information. 2 basic factors are rates of interest and trade internationally. Additional factors are consumer durables orders, Consumer pricing Index (CPI), Purchasing Managers Index (PMI) and Producer Price Index (PPI).

The currency interest rates are fundamentally an economical function of all countries. When a nation interest rates ascend, unremarkably, the currency of that nation will fortify against another. Nonetheless, mounting rates of interest, for stock exchanges is sad news. It’s a truth a lot of investors remove investments from a country where the rates are going up.

An important factor, of course, is the International Trade. The balance of trade indicates the difference between exports and imports. A deficit might be an economic catastrophe for a countries currency and its government. A deficit could come at a time a country is importing more than exporting and means more currency is exiting than is entering that country. All thought, a deficit may not be a bad thing and only damaging when the deficit being larger than expectations in the market and will start unfavorable price movements.

A great deviation from forex technical drives past fundamental and is practised only to price action and forex technical analysis comprises of an diversity of forex technical disciplines. All one utilised to find the market direction. Technical analysis correlates the motions and consequences of prevailing markets and currency outlooks are short-run. Data acquired on a trading day determines the interest in the markets and informs forex traders of a bull market. The Forex technical analysis checks movement trends and brings about far-flung “trend is your friend” a phrase amongst Forex traders. The linchpin for maintaining a effective profit level is the selling and buying at the correct time and acknowledging when it is safe to enter or exit a position.

The basic principals of Forex technical is support an resistance which are the guiding points for a chart to depict recurring ups and down pressure. The low point is the support level an while the level of resistance is a high point in the pattern. During the resistance levels, buying and selling is the strategy by the veteran trader.

History frequently repeats itself and generally in the circumstance of price movements is a maxim of the technical analysis. The repetitive nature of price movements is oftentimes granted to the Forex marke psychology. Traders have a response to related inputs of the market in special periods of time. The technical analysis applies formulas to break down Forex movements within the market and translates the trends too.

In spite of this, numerous graphs have been and still are used nowadays and they still are considered genuinely relevant as they represent the price movement patterns often repeated. This should give you an approximation of the Fundamental and Technical Analysis and should be good for you once you are willing to commence your calling as an investor. Remember – never invest any money you have got or can’t risk to throw down the drain.

Source: John Eather

Country GDP Growth

Below we highlight 2009 estimated GDP growth for 21 countries.  As shown, only China and India are expected to actually grow in 2009, while the other countries are expected to contract.  China’s 2009 GDP growth estimate is at 7.66%, while India’s is at 4%.  The US is closer to the top of the list than the bottom with an estimate of -2.49%.  It ranks only behind Canada among other G-7 countries.  Japan and Germany are expected to see the biggest contraction in GDP in 2009 at -6.61% and -6.06% respectively.  The UK is at -3.74%, Russia is at -2.77%, and France is at -2.75%. 

Source: Bespoken Research

Trading Lessons From Ted Williams

The sports greats have much to teach us about success in any performance domain, including trading. Here are three things we can learn from baseball legend Ted Williams:

 1) Believe in Yourself – Williams broke into the major leagues with a brash confidence that turned off many people. When he was sent to the minor leagues, he informed the Red Sox’s starting outfielders that he would be back and would make more money than the three of them put together. We live up to our deepest image of ourselves; Williams experienced himself as a great talent long before the world recognized his hitting genius.

 2) Work Hard, Work Smart – Williams treated hitting as a science and learned his batting average for pitches placed in any given part of the strike zone. That enabled him to wait for good pitches and play to his strengths. How similar that is to trading, where the successful trader waits for the trades that provide an objective edge. “Proper thinking is 50% of effective hitting,” Williams asserted, emphasizing the importance of doing homework to learn the ins and outs of each opposing pitcher. 

3) Seek Success, Don’t Just Avoid Failure – In 1941, Williams went into the final game of the season with a batting average of .3996. His coach knew it would be rounded to .400 and offered to bench Williams to preserve his average. Williams insisted on playing, went 6 for 8 in a doubleheader, and finished the year with a historic .406 average. Recently I worked with a trader who was up by a very solid five figures late in the session. He saw an idea at the end of the day, put on size, and meaningfully added to his day. He was driven by a desire for success, not just an avoidance of loss.

So many of the qualities I see in great traders are exemplified by Williams. Great things happen when confidence leads to skill building, which leads to greater confidence.

Source: Brett Steenbarge

Million Dollar Traders – TV Show

If you have missed any of the Million Dollar Traders (SBS TV Show) episodes you maybe able to find some episodes online.

http://video.google.com/videosearch?q=Million%20Dollar%20Traders

About

Million Dollar Traders – Make me a trader

Eight ordinary people are given a million dollars, a fortnight of intensive training and two months to run their own hedge fund. Can they make a killing?

The experiment reveals the inner workings of a City trading floor. The money is supplied by hedge fund manager Lex van Dam: he wants to see if ordinary people can beat the professionals, and he expects a return on his investment too. Yet no-one foresees the financial crisis that lies ahead.

The traders were selected in spring 2008, before the US credit crisis gathered pace. The successful candidates were chosen, trained and dispatched to their specially created trading room in the heart of the Square Mile. Among them are an environmentalist, a soldier, a boxing promoter, an entrepreneur, a retired IT consultant, a vet, a student and a shopkeeper.

As the novices learn the dark art of trading stocks and shares, the financial markets start to buckle. Making money takes second place to basic survival as the brutal realities of global economics take their toll on the traders. How do they cope? Will they secure themselves a bonus, or walk away with nothing?

StoneBridge Snapshot – Lihir Gold Limited (LGL)

StoneBridge Snapshot – Lihir Gold Limited (LGL $2.88) – Ballarat to be written down by US$250-350M

• LGL has announced that it will write down the value of the Ballarat project by US$250-350M.
• The write down is attributable to the long-term production guidance for the project being lowered to 80-100kozpa.
• Production for CY09 has also been downgraded from ~50koz to 20koz.
• The downgrade of Ballarat’s long-term production is disappointing but is largely immaterial to our investment case for LGL.
• LGL offers excellent exposure to gold prices through its 100% owned Lihir Gold mine in PNG, which boasts 21.7Moz in reserve and 36.3Moz in resource.
• With the inevitable downgrade of Ballarat now a reality we believe the market will begin to focus on the production growth at Lihir and the excellent exploration potential of the company’s large tenement holding in Côte d’Ivoire.
• We are upgrading our recommendation on LGL from Hold to BUY and set a price target of $3.30/share.

View Full Report

Stonebridge Research: Commonwealth Property Office Fund (CPA)

Stonebridge Research: Commonwealth Property Office Fund (CPA) $0.80 – Update

KEY POINTS 

CPA operates under a simple trust structure with exposure to an Australian based portfolio of 27 prime grade office properties valued at approx. $3.6bn at 31 December 08.

100% of the groups operating earnings are derived by rent from the investment property portfolio. 60% of portfolio is leased to Govt/Blue Chip tenants of whom 50% have A grade or higher credit ratings. The portfolio WALE is 4.7yrs and occupancy at 31 March 09 was reported at 98.9% which slightly improved from 98.7% at December 08.

In Q309 CPA raised $205M at $0.80/unit via an insto placement and unit purchase plan. In addition, 13 assets were revalued which saw another $170M in property value written off and the portfolio avg. cap rate expand 30pts from 7.0% to 7.3%. CPA’s peak portfolio cap rate was 6.3% in Dec 07. NTA reduced from $1.41/unit to $1.24/unit.

Post raising and writedowns CPA’s covenant gearing (Total Liabilities/Total Assets) was 33% v 40% covenant limit which provides a buffer for a further 20% fall in values to breach assuming no income growth. To arrive at breach levels asset values would have to have fallen 35% from their peak which is at the more dramatic end of value declines in historical context.

Despite office fundamentals likely to be tested in the near term we are comfortable with CPA’s earnings position with only 13% of portfolio income up for renewal out until June 2011.

Valuation metrics are attractive with CPA trading at a 35% discount to the post raising NTA of $1.24/unit and on an implied cap rate of ~ 9.4% v 7.3% book.  If equity is valued based on a portfolio implied cap of 8.3%, a value of $0.91/unit is derived.

Management has guided toward a 4.2c DPU for the H209 and we estimate FY10 DPU 7.7c/unit or forward yield of 9.6%.

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Traders Tip

Recently one of my mentees asked me a simple question – “How do you remain so calm during the trading day especially when there is so much money on the line?”

My first instinct to reply was to tell her that I never trade beyond my limits (mental or financial), but there is much more to it than that. For me, trading requires a sense of both calm and confidence that takes time and serious effort to acquire and maintain.

I discovered some time ago that one of the most simplest ways to remain calm and in control is to practice basic breathing exercises throughout the trading day. Years ago when I was back in law school and extremely stressed out over the final exams, a dear friend taught me several techniques that I still use every day. Others, like Dr. Weil, have said they’ve seen simple breathing exercises significantly improve people’s lives and I have seen the same for everyone I’ve recommended this to as well.

To help get you started, Dr. Weil has provided instructions on three breathing exercises that I highly recommend you try out for a period of time. In fact, at least three times every day I engage in the following exercise which Dr. Weil provides these instructions:

The 4-7-8 Exercise

This exercise is utterly simple, takes almost no time, requires no equipment and can be done anywhere. Although you can do the exercise in any position, sit with your back straight while learning the exercise. Place the tip of your tongue against the ridge of tissue just behind your upper front teeth, and keep it there through the entire exercise. You will be exhaling through your mouth around your tongue; try pursing your lips slightly if this seems awkward.

• Exhale completely through your mouth, making a whoosh sound.
• Close your mouth and inhale quietly through your nose to a mental count of four.
• Hold your breath for a count of seven.
• Exhale completely through your mouth, making a whoosh sound to a count of eight.
• This is one breath. Now inhale again and repeat the cycle three more times for a total of four breaths.

Note that you always inhale quietly through your nose and exhale audibly through your mouth. The tip of your tongue stays in position the whole time. Exhalation takes twice as long as inhalation. The absolute time you spend on each phase is not important; the ratio of 4:7:8 is important. If you have trouble holding your breath, speed the exercise up but keep to the ratio of 4:7:8 for the three phases. With practice you can slow it all down and get used to inhaling and exhaling more and more deeply.

This exercise is a natural tranquilizer for the nervous system. Unlike tranquilizing drugs, which are often effective when you first take them but then lose their power over time, this exercise is subtle when you first try it but gains in power with repetition and practice. Do it at least twice a day. You cannot do it too frequently. Do not do more than four breaths at one time for the first month of practice. Later, if you wish, you can extend it to eight breaths. If you feel a little lightheaded when you first breathe this way, do not be concerned; it will pass.

Once you develop this technique by practicing it every day, it will be a very useful tool that you will always have with you. Use it whenever anything upsetting happens – before you react. Use it whenever you are aware of internal tension. Use it to help you fall asleep. This exercise cannot be recommended too highly. Everyone can benefit from it. – Dr. Weil

Do yourself a favor and do this three times every day for the next three months. (I do it 5 minutes before the opening bell, again around lunchtime, and after the closing bell). To achieve the most benefit, it takes several months of practice and, if you do this, you’ll see big improvements in your overall levels of stress, your blood pressure will go down, and ultimately your trading and investing decisions will see significant improvement. In fact, this very well may be the most important piece of advice I share with you this year!

Remember, all things must be in harmony for you to achieve the level of success you desire. Taking care of your body is a component of this that few traders fully understand and appreciate and these simple breathing exercises will be of tremendous help.

Source: Kirk

Interesting facts about Warren Buffett

Interesting aspects of Warren Buffett’s life

1. He bought his first share of stock at age 11 and he now regrets that he started too late!
2. He bought a small farm at age 14 with savings from delivering newspapers.
3. He still lives in the same, small 3-bedroom house in midtown Omaha that he bought after he got married 50 years ago. He says that he has everything he needs in that house. His house does not have a wall or a fence.
4. He drives his own car everywhere and does not have a driver or security people around him.
5. He never travels by private jet, although he owns the world’s largest private jet company.
6. His company, Berkshire Hathaway, owns 63 companies. He writes only one letter each year to the CEOs of these companies, giving them goals for the year. He never holds meetings or calls them on a regular basis. He has given his CEO’s only two rules.
   Rule number 1: Do not lose any of your shareholder’s money.
   Rule number 2: Do not forget rule number 1.
7. He does not socialize with the high society crowd. His pastime after he gets home is to make himself some popcorn and watch television.
8. Bill Gates, the world’s richest man, met him for the first time only 5 years ago. Bill Gates did not think he had anything in common with Warren Buffet. So, he had scheduled his meeting only for half hour. But when Gates met him, the meeting lasted for ten hours and Bill Gates became a devotee of Warren Buffet.
9. Warren Buffet does not carry a cell phone, nor has a computer on his desk.

Warren Buffett’s advice to young people

Stay away from credit cards and invest in yourself and remember:

1. Money doesn’t create man, but it is the man who created money.
2. Live your life as simple as you are.
3. Don’t do what others say. Just listen to them, but do what makes you feel good.
4. Don’t go on brand name. Wear those things in which you feel comfortable.
5. Don’t waste your money on unnecessary things. Spend on those who really are in need.
6. After all, it’s your life. Why give others the chance to rule your life?

Million Dollar Traders – TV Series on SBS (TONIGHT) Tuesday Nights 7.30pm

Eight ordinary people are given a million dollars, a fortnight of intensive training and two months to run their own hedge fund.

Can they make a killing?

The money is supplied by hedge fund manager Lex van Dam: he wants to see if ordinary people can beat the professionals, and he expects a return on his investment too. Yet no-one foresees the financial crisis that lies ahead. The traders were selected in spring 2008, before the US credit crisis gathered pace. Among the traders are an environmentalist, a soldier, a boxing promoter, an entrepreneur, a retired IT consultant, a vet, a student and a shopkeeper. As the novices learn the dark art of trading stocks and shares, the financial markets start to buckle.

Making money takes second place to basic survival as the brutal realities of global economics take their toll on the traders. How do they cope? Will they secure themselves a bonus, or walk away with nothing? This week, the eight novice city traders struggle to ride the storm as stock markets around the world go haywire. Some of them take big risks, and others lose their nerve in spectacular fashion.

To View part 1.

http://www.sbs.com.au/blogarticle/109701/Million-Dollar-Traders-3-part-series/blog/Documentaries-SBS

Reality/Real-Life/Fly-on-the-Wall

Total Trader June Update

Contents

• June update video including the launch of WebTrader & MobileTrader, new functions on the platform, current market updates and more.
• WebTrader & MobileTrader Launch
• New Features
• Follow Total Trader on Twitter
• Suggestions & Feedback

June Update Video

WebTrader & MobileTrader Launch

We have now released WebTrader and MobileTrader.

Existing clients can log in WebTrader and MobileTrader using the log in details you use to log in into the platform. Please find the web addresses below:

WebTrader – web.totaltrader.com.au
MobileTrader – mobile.totaltrader.com.au

Click here for a free 30 day trial of WebTrader or MobileTrader

New Features

We have expanded the range of exchanges we cover to now include Hong Kong Futures (Hang Seng Index, Mini Hang Seng Index, Hang Seng China Enterprise Index), Canadian Stocks and Canadian CFDs.

Additionally we now offer related orders (If Done & OCO) for DMA CFDs, Stocks and Futures. Previously these orders types were only available for Non-DMA CFDs and Forex.

Follow Total Trader on Twitter

Total Trader is now on Twitter – http://twitter.com/TotalTrader. We post up to the minute news, information and tips.

Suggestions & Feedback

We welcome client feedback to improve our services. If you have any suggestions of how we can improve or comments about what you like about our service, we would like to here from you. Please email info@totaltrader.com.au

Stonebridge Research: ING Office Fund (IOF)

Stonebridge Research: ING Office Fund (IOF) $0.61 – Still value here

KEY POINTS:

IOF operates under a simple trust structure collecting income from blue chip office properties spread across Australia (55%), Europe (20%) and the US (25%). At 31 December 08 IOF’s property interests were valued at approx. $3.5bn with Aus Govt & blue chip tenants accounting for 64% of income. Occupancy sat at 96% and the WALE 4.9yrs.

The average portfolio cap rate was 6.8% at 31 December 08, falling from 6.3% at 30 June 08 (7% asset value decline in total) and 5.8% at the peak in December 07.

IOF raised $414M @ $0.80/unit in Dec 08 to reduce its gearing levels however has not traded above this price since over concerns that the groups proximity to debt covenant limits and downward pressure on valuations would lead to a covenant breach and further equity raising.

In response to this issue, management has stated it would pursue an asset sale rather than equity raising strategy with progress made today on announcement of the sale of 412 St Kilda Rd, Melbourne for $42M (6.7% discount to 31 Dec 08 book) and that terms had also been agreed for the disposal of a further assts to the value of $115m.

Whilst an asset sale strategy is a more appealing course of action in terms of dilution to address the covenant issue, this may be a drawn out process with transactions still scarce. As such the recent improvement in the unit price (from $0.36/unit to $0.62/unit in the last month) may make an equity raising more palatable than before to put the covenant issue to rest.

Valuation metrics around IOF remain attractive despite the recent share price strength and at $0.62/unit trades on an implied cap of 10.5% v 6.8% book and 50% discount to our estimate of the December 08 adjusted NTA of 1.23/unit (post $42M asset disposal).

Whilst we believe asset values have further to correct, even if cap rates are assumed to expand to 8.05%, our revised NTA estimate is still $0.94/unit (33% discount at current pricing). Furthermore if we incorporate an equity raise of $400M @ $0.50/unit on top of this asset value decline our NTA estimate falls to $0.83/unit (25% discount) implying that significant dilution has already been incorporated into the unit price.

We estimate FY10 EPS of 7.5c/unit (P/E 8.2x), incorporating a reduction in occupancy to 94% and DPU of 5.9c/unit (9.5% yield) assuming maintenance capex is funded moving forward from operating cashflow and no further equity raised.

IOF’s FY10 ICR is estimated to be ~3.2x v 2.0x covenant limit.

View Full Report

StoneBridge Research – OZ Minerals Limited

StoneBridge Snapshot – OZ Minerals Limited (OZL $0.87) – Prominent Hill site visit review

• OZL hosted a site visit to its Prominent Hill mine in South Australia on 3 June 2009.
• The site visit confirmed our view that Prominent Hill is a world class asset with excellent near mine and regional exploration upside.
• OZL has successfully commissioned the asset and aside from some stability issues in the upper parts of the pit wall the ramp up to full production has been completed without any major issues.
• There is still some uncertainty as to the outcome of the Minmetals transaction ahead of the shareholder vote on the 11 June 2009.
• We expect that the Minmetals transaction will be approved, although there has been some media speculation of an alternative proposal which would see the current OZL structure remain intact.
• Our $0.85/share valuation for OZL is assumes the Minmetals transaction is approved by shareholders, hence includes only Prominent Hill, OZL’s listed investments and around $500-600M in cash that the company should hold post the Minmetals transaction and the sale of the Martabe Gold project.
• The stock is trading in line with our valuation and given the level of uncertainty that remains ahead of the shareholder vote on 11 June 2009 we have downgraded our recommendation from Buy to HOLD.

View Full Report

Market tipped to hit 4500 by year end

Expectations the Australian share market can climb above the 4500-point level by the end of 2009 have been boosted by the bourse retracing back through 4000 to a seven-month high yesterday following economic data showing a recession was avoided in the March quarter.

However, market analysts warn that a market correction of up to 10 per cent could be prompted by weaker corporate earnings and poor offshore economic data.

The S&P/ASX200 has risen 7.9 per cent since January 1, and Wednesday’s close at 4017.2  was its strongest finish since November 10, 2008.

The benchmark index retreated 1.7 per cent this morning to around 3950 points, following a weak lead from Wall Street.

Bell Potter Securities senior client adviser Stuart Smith said the market had “most definitely” bottomed on March 6 when the S&P/ASX 200 hit 3145 points.

The S&P/ASX 200 is now up more than 25 per cent from its March low.

Zurich Australia’s director of investments Matthew Drennan forecast the  benchmark index will rise to between 4100 and 4200 points by December 31, while Platypus expects it to reach 4500 points by the end of the year.

Mr Smith says a 4170 point finish to the month of June is on the cards if bullish sentiment surrounding resources stocks translates into earnings upgrades by analysts.

Mr Drennan said negative economic news from the US, higher domestic unemployment and a fall-back in consumption spending could buffet the market over the next six months and prompt a correction.

“It (the downwards correction) may even be up to 10 per cent over the next three to six months on a trend of a few bad economic numbers in a row.”

Corporate earnings results due in the September quarter may pull another dark cloud over the market and as outlook comments were analysed, Platypus Asset Management chief investment officer Donald Williams said.

“If they come out and say things are still weak and it’s too hard to call how things will play out in the next six to 12 months, then maybe that will be the trigger for a correction.”

Source: http://business.smh.com.au/business/market-tipped-to-hit-4500-by-year-end-20090604-bw9z.html

Australia avoids technical recession

Australia has so far managed to avoid a technical recession. Real GDP expanded by 0.4% in Q1 2009 following a 0.6% contraction in Q4 2009. This was stronger than the market had been expecting (+0.2%), but in line with our forecast (+0.4%). The yearly rate of growth actually increased to 0.4% from 0.3%, the best outcome by far of all the advanced economies in Q1.

Trends were very mixed across sectors of the economy. On the expenditure side, business investment, dwelling investment and government investment were all down sharply. So while household spending rose solidly (0.6%) and is clearly responding to policy stimulus, with was not enough to keep domestic demand positive in Q1. The domestic economy contracted by 1.0% after being unchanged in Q4.

Instead, a very large contribution from net exports (2.2ppt) helped to keep growth on the positive side of the ledger. This in itself is not particularly encouraging as it was mostly driven by a collapse in imports (-7%), with consumption, capital and intermediate imports all down sharply, suggesting that firms were concerned about the economic outlook and unwilling to purchase capital equipment or replenish stock levels. A large cyclical bounce in rural export volumes also helped.

Production in the economy also experienced a large drop, with the production measure of GDP down -0.9%. This was the second negative quarter for production following a 0.6% contraction in Q4, highlighting the continuing fragility of the economy. Manufacturing output continued to bear the brunt of the downturn, falling another 3.3% this quarter (now down 9% from a year ago). This was spread across a range of manufacturing segments. Our other major exporters, agriculture and mining also saw their real output shrink in the quarter and property and business services and wholesale trade and transport also contracted. Stronger household spending managed to keep retail trade positive, but activity in hospitality and recreational services both fell in quarterly and annual terms.

State final demand fell in all states except SA in Q1 2009, but most managed to remain positive in annual growth terms. This was due in part to household final consumption expenditure, which was a strong 1.5% QoQ in SA, but ranged down to -0.2% QoQ in Qld (trend). Private fixed capital formation was negative in all states. Only Qld and ACT showed negative annual growth. The biggest states, NSW and Vic were flat or close to it in annual growth terms.

Comment

Today’s solid result suggests that fiscal and monetary policy stimulus has overall been effective in softening the Australian economic downturn. Unfortunately however, the composition of growth is not as reassuring. In particular, the fall in domestic demand highlights the fragility of the domestic economy. While the household sector is receiving support from policy measures, the business sector is showing all the hallmarks of contraction, with investment, production and inventories all falling.

We remain concerned that factors propping up growth this quarter cannot be sustained. There remain significant risks to household expenditure later in the year as unemployment rises and as stimulus from cash handouts and lower interest rates wears off.  Moreover, part of the acceleration in household consumption was driven by a fairly sharp fall in the household savings ratio.  This is of concern for household finances and consumer spending should unemployment continue to rise from here. Furthermore, national income will receive a large hit in Q2 from lower bulk commodity prices and the massive contribution from net export volumes will not be continued; another sharp fall in imports is unlikely, rural exports cannot continue to rebound at the same rapid pace, and there are significant downside risks to hard commodity exports, particularly if China ceases stockpiling bulk commodities. The recent appreciation in the Aussie dollar and higher term interest rates also present significant risks to the economic outlook. On the positive side, ambitious infrastructure plans should see government investment add to growth going forward, although this will not be enough to offset sharply lower business investment.

Today’s figures are stronger than policy makers had been expecting, and support the view that the RBA will be on hold in coming months. Focus will now shift towards more timely economic indicators and evidence that this rebound can be sustained. There remain substantial challenges ahead for the domestic economy, and the RBA has clearly signalled that it is poised to cut rates further if necessary. As such, we believe that the risks to policy rates later in the year remain to the downside.

Nuggets of Wisdom from Jesse Livermore, Greatest Trader Ever

In the early part of the 20th century, Jesse Livermore was the most successful (and most feared) stock trader on Wall Street. He called the stock market crash of 1907 and once made $3 million in a single day. In 1929, Livermore went short several stocks and made $100 million. He was blamed for the stock market crash that year, and solidified his nickname, “The Boy Plunger.” Livermore was also a successful commodities trader.I think the most valuable knowledge one can gain regarding trading and markets comes from studying market history, and studying the methods of successful traders of the past. Jesse Livermore and Richard Wyckoff are two of the most famous and successful traders of the first half of the 20th century. Many of the most successful traders of today have patterned their trading styles after those of the great traders of the past.

Here are some valuable nuggets I have gleaned from the book, “How to Trade Stocks,” by Jesse Livermore, with added material from Richard Smitten. It’s published by Traders Press and is available at Amazon.com. Most of the nuggets below are direct quotes from Livermore, himself.

 
“All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical (technical) formations and patterns recur on a constant basis.”

 
“The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor.”

 
” Don’t take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don’t be an impatient trader.”

 
“Livermore’s money made in speculation came from “commitments in a stock or commodity showing a profit right from the start.” Don’t hang on to a losing position for very long.”It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses. Let this thought be written indelibly upon your mind.”

 
“Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.”

 
“When a margin call reaches you, close your account. Never meet a margin call. You are on the wrong side of a market. Why send good money after bad? Keep that good money for another day.”

 
“Livermore coined what he called “Pivotal Points” in a market or a stock. Basically, they were: (1) Price levels at which the stock or market reversed course previously–in other words, previous major tops or bottoms; and (2) psychological price levels such as 50 or 100, 200, etc. He would buy a stock or commodity that saw a price breakout above the Pivotal Point, and sell a stock or commodity that saw a price breakout below a Pivotal Point.”

 
“Successful traders always follow the line of least resistance. Follow the trend. The trend is your friend.”

 
“A prudent speculator never argues with the tape. Markets are never wrong– opinions often are.”

 
“Few people succeed in the market because they have no patience. They have a strong desire to get rich quickly.”

 
“I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans — and human nature never changes.”

 
” When you make a trade, “you should have a clear target where to sell if the market moves against you. And you must obey your rules! Never sustain a loss of more than 10% of your capital. Losses are twice as expensive to make up. I always established a stop before making a trade.”

 
“I am fully aware that of the millions of people who speculate in the markets, few people spend full time involved in the art of speculation. Yet, as far as I’m concerned it is a full-time job — perhaps even more than a job. Perhaps it is a vocation, where many are called but few are singled out for success.”

 
“The big money is made by the sittin’ and the waitin’ — not the thinking. Wait until all the factors are in your favor before making the trade.”

An important point I want to make is that Jesse Livermore’s trading success came not because of any “inside” information or some huge store of knowledge he had about each and every stock or commodities market he traded. Livermore’s trading success was derived from his understanding of human behavior. He realized early on that markets and stocks can and do change — but people and their behaviors do not. Therein lay his formula for trading success. That formula for trading success has not changed since Livermore’s hey day in the stock and commodities markets almost a century ago. 

A final note: Jesse Livermore may have been called the greatest stock market trader of the 20th century, but his life was not in balance. He was a “workaholic” who paid too little attention to his family. Livermore put a gun to his head and pulled the trigger in 1940. You must have balance in your life to achieve lasting success at any endeavor. Trading markets is no exception.

Source: forexinterva