What cause DOW to climb?

source: yahoo

Looking at the chart, DOW started a gradual climb from 1985-1995, a span of 10 years.

Then from 1995-2000, the climb was exponential and extremely spectacular.

Question is, how did we achieved such a steep climb?

1985-2000

Notable technology improvement during this period (source: http://inventors.about.com):

• Microsoft windows - started the advancement of computer usage
• Web Wide Web - started the advancement of information availability and dissemination

This period is noted as the golden age of information technology.

Possible Causes

1) It is likely that with better information availability, people starts to be able to track and follow companies and economy news, allowing them the ability to value companies better. As such, companies with cheap valuations were picked up, pushing the markets higher.

2) Effects/Results of the success of financial engineering. Stock markets are pretty much driven by the financial products made available.

3) Better awareness of Value Investing through the well known success of Warren Buffett.

Most importantly in my opinion, the demand for stocks increased (source: http://www.markpeterdavis.com/getventure/2009/03/a-timeline-of-financial-technical-innovation.html):

• 1886: 1M volume
• 1961: 4M volume
• 1992: 200M volume
• 2007: 5000M volume

Note: All these are hypothesis without concrete facts to back them up.

Is the current level sustainable?

Possible yes, as more countries become affluence and their citizens start trading shares (eg. China, India).

Will we have another exponential growth?

Possibly no at this moment. Unless we have new factors that would push demand up exponentially, it is not realistic to expect DOW to keep growing at the rate experiences in the 1995-2000 period.

BP PLC (ADR)

Last night I initiated a small position in BP (ADR).

Reasons:

1. Max loss estimated is $15B. Given that 1 ADR is equivalent to 6 shares, there are 3B outstanding shares. As such, every $1 loss in stock price = $3B loss in equity value of the company. A $15B damage should rationally be translated to $5 loss in share price. Since the accident happened on 22nd April, BP share had dropped from $59 to yesterday's $47, a loss of $12. This is over-reacting
2. This lost is likely to only pay out many years later, referencing Exxon's case: http://en.wikipedia.org/wiki/Exxon_Valdez_oil_spill
3. BP's PE ratio of 8 is the lowest in the industry
4. BP has positive free cash flow for the past 5 years (i did not look further than 5 years)
5. BP is unlikely to fail because of this $15B loss, which is about slightly less than 2009's PROFIT.
6. BP has high dividend yield of 6%
7. BP is trading at slight below book value

Views are my own. Please do your own due diligence before committing the investment =)

Portfolio Management

Key Objectives

• Achieve streams of cash flow
• Manage risk

Strategy

• Core portfolio + Opportunistic portfolio

Core portfolio should be as steady as possible, with the Opportunistic portfolio taking on higher risks to try for higher returns

• Core portfolio will have to cater to the following 4 situations, with the investment vehicles best suited for particular situation, and still able to satisfy the 2 objectives.

	Raising Growth	Falling Growth
Raising Inflation	Property (cash flow thru rental yield)	Inflation-linked bonds (cash flow thru coupon payment)
Falling Inflation	Equities (cash flow thru dividends)	Nominal bonds (cash flow thru coupon payment)

• Opportunistic portfolio can comprise of emerging market indices, small cap equities, etc

Routine for Retail Investor

Possible routine:

Daily
1) Review news on the companies in your portfolio. Look out for pricing moving news.
Tips: Use reuters to set up your portfolio and reuters will track the news for you.

2) Check on indices levels.

3) Check on trends (determine uptrend or downtrend)
http://sg.finance.yahoo.com/echarts?s=^STI#symbol=^sti;range=1y;compare=;indicator=sma+volume;charttype=candlestick;crosshair=on;ohlcvalues=1;logscale=off;source=;

http://sg.finance.yahoo.com/echarts?s=^GSPC#symbol=^gspc;range=1y;compare=;indicator=sma+volume;charttype=candlestick;crosshair=on;ohlcvalues=0;logscale=off;source=;

Side note: Check on Australia Dollars.


Weekly
1) Review the prices of the stocks in your portfolio to see if there is a need to rebalance.
Tips: Again, use reuters to check out the PE, PB, etc.

2) Check on the following references :

- Greed-Fear index to see if market is operating at extreme levels.
- Valuation of US Market (http://www.gurufocus.com/stock-market-valuations.php)


Monthly
1) Scan for possibe acquisitions
Tips: Use google finance stockscreener for US stocks. For Singapore stocks, poems has a stockscreener too.


Quarterly
1) Review the company quarterly reports

2) Review MTI Quarterly Composite Leading Index


Yearly
1) Review the company annual reports