Den of The Lion Investor

Following the legal lawsuit by Oilpods, Powder River and Brian Fox has now proceeded to file their defence. Details can be found in this document.

A lengthy lawsuit will only mean that it will take a longer time for investors with Oilpods to find out what is going to their investments.

Incidently, this case was also reported in today’s newspaper.

This incident highlights the risks of investing in unregulated alternative investments. You have to be mindful that you might not have a clear exit strategy with your investments should things go wrong.

If you ever plan to invest in such products, make sure it is extra money you can set aside for a long time. Above all, never commit too much of your investment capital into such schemes.

During the Invest Fair a couple of weeks ago, I had the opportunity to attend two talks by Ray Barros, a professional trader and fund manager.

It wasn’t the first time I had attended his talk, and it certainly won’t be the last. I had always enjoyed his sincere sharing of knowledge with no hype and sales pitch.

There are three elements to being a successful trader.

1) Psychology

This contributes 60% to the equation and part of it means creating an environment where you will consistently execute your plan.

2) Trading Plan

Unlike what most people think, the trading plan contributes only about 10% to the success of the trader. Trading the market is a probability game and a written plan with an edge helps put the probability in your favour. The plan helps to define both your entry and exit points.

3) Money Management

This forms the last 30% of trading. Good money management helps to maximize profitability while at the same time minimizes the risk of blowing your trading account.

In his first session at the Invest Fair, Ray Barros focused more on the second element - the trading plan.

The function of an trading plan is to help you identify an entry point when the probability is in your favour. It will define your zones, entry and initial stops, and risk management.

Identifying the trend is also important as the strategy for trading each trend is different.

• Sell rallies in a downtrend.
• Buy correction in an uptrend.
• Exercise patience in a sideways market. Trade only the top and bottom band. The middle band should be avoided. One way of calculating the band is to put the daily range and divide it by 8.

Ray then taught us a system for identifying trends using the relative strength index (RSI) as an indicator.

In an uptrend, the RSI should reach at least 75 and go no lower than 35.

In a downtrend, the RSI should go no higher than 65 and and should go down to at least 25.

The criteria for identifying a change from downtrend to uptrend:

1. Price break a significant high.
2. RSI goes to 75.
3. RSI doens’t go below 35 after that.

The criteria for identifying a change from uptrend to downtrend:

1. Price breaks a significant low.
2. RSI goes to 25.
3. RSI doesn’t go above 65 after that.

In an uptrend, the buy zone should be when the RSI is between 35 and 40.

In a downtrend, the sell zone should be when the RSI is between 60 and 65.

The next session by Ray Barros which was more on money management will be covered in another post.

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UOB yesterday announced the details of their preference shares offering. 10 million UOB preference shares will be opened to subsciption, with 2 million shares earmarked for the retail market.

UOB Preference Shares announcement
UOB Preference Shares FAQ
UOB Preference Shares Offer Information Statement

EAch share has an issue price of $100 and for the retail investors, the minimum subscription is 100 shares (or S$10,000). The shares will provide a fixed dividend of 5.05% p.a. payable semi-annually on 15 March and 15 September each year.

They may be redeemed by UOB on 15 September 2013, 15 September 2018, and thereafter on 15 March and 15 September each year.

The offering will open at 9am on 28 August 2008 and close at 12 noon on 12 September (subject to changes). The preference shares is expected to be listed on the SGX from 16 September 2008, tradable in board lots of 100 shares.

Subscription for the retail investors can be done via the ATMs of UOB, DBS (including POSB) and OCBC. If demand exceeds supply, balloting will be conducted.

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The JP Morgan Asia Confidence Notes is a structured product linked to the market indices of four Asian countries: Singapore, China, Hong Kong and Taiwan.

It offers a potential 7.2% p.a. coupon payout. The offer period is from 4 August 2008 to 29 August 2008 (noon) and the minimum subscription amount is $50,000.

Whenever you are thinking of buying any structured product, it is important to read the product prospectus to find out what are the risks involved. Click the link below for the prospectus.

JP Morgan Asia Confidence Series 3

How the notes work is that there is an initial strike and barrier level which is 100% of the inital index. The trigger level is defined as 50% of the initital index level.

A valuation date occurs every quarter. Coupons are payable every quarter.

A mandatory redemption event occurs when all four indices close above the barrier level. This can occur on one valuation date or on separate valuation dates.

For example, if Singapore and Taiwan close above their barrier levels on the first valuation date while China and Hong Kong close above their barrier levels on the second valuation date, the mandatory redemption will kick in.

If the mandatory redemption occurs, you will be paid a final coupon and your principal will be returned.

The (huge) downside of this product occurs if any of the four markets fall below their trigger levels on any of the valuation dates. If no mandatory event occurs before the maturity of the product, a formula is used to calculate how much money you will get back. Based on the formula, there is a high chance you will not get back any of your principal.

Since you will be paid the coupon for the whole duration (2.5 years) of the product, what you do get back is approximately 18% of your principal in the form of 10 quarterly coupon payements.

Some other risks to the investor include:

• Credit risk of JP Morgan
• Volatility of the index
• The notes are non-liquid
• Certain unknown factors might trigger an early redemption of the notes which will be priced at “fair market” value

The JP Morgan Asia Confidene Notes is distributed by HSBC and Standard Chartered Bank.

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Standard Chartered Bank is currently running a promotion on their eSaver account.

Topup your eSaver account by the end of this year and enjoy an additional 0.5% p.a. interest on your topup amount.

Here’s how it works.

If your account balance has:

• Less than $50k -  the prevailing rate of 0.5% p.a. + bonus rate of 0.5% p.a. (on your topup amount) = 1% p.a.
• $50k to $199,999 - 0.88% p.a. + 0.3% p.a. = 1.18% p.a.
• $200k upwards - 1.0% p.a. + 0.3% p.a. = 1.3% p.a.

Another promotion going on is that you will receive a $30 shopping voucher if you set up a giro instruction transferring $500 (every month) to your eSaver account from your account in another bank. The giro form has to be submitted by end of September this year.