Author: admin

“Wen lambo?” or “Wen moon” are just some of the phrases that is quite common in the crypto world. It is a way to ask crypto investors on when they are going to get rich with their crypto investment. The misspelling looks cool in a way, but investment is actually serious business.

Crypto investment is considered to be a very high risk investment with a very high potential return, the question is do you really want to invest your hard-earned money into it?

Fancy yourself a return of 16,000% per year? It is possible with crypto investment, in fact there were two cryptos that managed to achieve this staggering return on crypto investment in 2021.

Imagine putting in RM100 in 1st January 2021, your crypto investment would be worth RM16,365 by 31st December 2021. Now imagine investing RM1,000, by the end of the year the crypto investment in The Sandbox will be worth RM163,653.

Sounds too good to be true, right? But that is what happened last year.

99.99% Loss In 2 Days

On 9th May 2022, the whole world was shocked when Luna comes crashing down – losing 99.99% percent of its value in just 48 hours. Who would have thought that Luna was once a top 10 cryptocurrency in terms of market capitalisation, would be brought down to its knees in a way that was unimaginable.

Well, that’s crypto for you. You can make big money, and you can also lose it all. We managed to talk to a few financial planners for their advise on crypto investment.

“I won’t advise my clients to invest into crypto investment unless they are higher risk investor and I see they are matured enough for this type of investment. Normally even if they are, we would work out a small portion of their assets or net worth to be invested in alternative investments, which is not more than 10%,” says Ng Ka Hoe, Founder of J Advisory, a personal finance academy.

Before You Start Investing In Crypto

According to Ka Hoe, he would ensure that his clients understand the following before embarking on their crypto investment:

• What are the alternative investments’ underlying assets?
• What are the risk involved?
• Have they invested into traditional investments such as property, stocks and unit trusts? If they haven’t, why not?

It is important not only for the financial planner to understand what makes their client’s emotional ticks, but it is more important for the client
themselves to know and understand their own emotions, as it is truly the investor’s emotions that makes or breaks their investment.

Don’t Go All In With Crypto

Essentially, crypto assets are assets that are non-income generating but more for the crypto investment objective for capital gain. While it is undeniable that crypto currency has helped make many new millionaires, for this wealth to be sustained into the future, one may want to explore how this new wealth can be protected or kept, so that even if the value of the asset class reverses its course, this person will not be knocked back to the ‘pre-crypto’ life.

“Of course, it is perfectly fine if we remain having 100% of our wealth be invested in crypto assets. However, that will also mean we tie our future
financial health and possibility in life to a single asset class,” opines Kevin Neoh, a licensed financial planner and NextGen Money Coach.

Don’t Invest In Crypto

Meanwhile there are also opinions on the other side of the fence that warns against investing in crypto.

“Ask yourself when it comes to crypto, are you investing, trading, speculating or gambling?” says John Chan, CEO of YES Financial, a financial advisory firm.

Apparently, we ourselves are confused with the terms. Trading or investing in crypto may incur a significant level of risk, even worse if you are using an unregulated or an unlicensed platform.

Conventionally, when a person is betting on horse racing, they will tell you all sorts of stories and logic with regards to horse riding. When a person is speculating on crypto, they may tell you all kinds of fintech and futuristic tech stories about blockchain or even the recent hot topic of Metaverse and NFTs to push up prices.

In conventional gambling, there are licensed casino and the underground operators. Why do some governments grant casino a license? The most common reasons are due to profit making, demand and the need to safeguard public interest through monitoring and control.

The Myth Behind Decentralisation

Everyone wants to have freedom, and nobody likes to be controlled. Some level of freedom is good but it would be a disaster if there is absolute freedom.

Imagine that you are living in a place with no government in power What would be the scenario?

“When there is no effective government, there are bound to be warlords or mafias controlling the area. Is it a safe place to stay then?” mentions John.

Instead, there would be chaos all over as everyone will be fighting for power.

Scarcity, Really?

Bitcoin is called Digital Gold as there is a maximum supply of 21 million Bitcoins. This means that Bitcoin has a unique feature of scarcity. This is
where people seem to illustrate the scarcity of Bitcoin to Gold, as there is a limited supply of Gold available on our planet.

However, gold exist and play its role in civilization since ancient times as precious metal, jewelleries, commodity, storage of value, medium of transfer, barter trade, technology components, currencies etc. It is kept by government and central banks as reserves.

“Gold is a natural resources and is not created by human beings. Unlike cryptocurrencies that are created by humans and there are now more than
19,000 cryptocurrencies in existence,” shares John.

Ask yourself, is ‘scarcity’ real then?

Crypto As Legal Tender?

According to BIS Annual Economic Report 2018, for cryptocurrencies with decentralised trust model such as Bitcoin, each user needs to download and verify the history of all transactions ever made. This has the effect of slowing down transaction processing time, making it not scalable to facilitate day-to-day retail payments.

Compared to major international cards networks which is able to process 2,000 to 3,500 transactions per second, Bitcoin is only able to process 3.3 transactions per second.

“Most cryptocurrencies are not likely to be used as payment instruments primarily because they do not exhibit the universal characteristic of money. Not to mention the price volatility, vulnerability to cyber attack, lack of scalability, not a good store of value, payment method and medium of exchange,” John emphasized.

As of March 2022, 87 countries are exploring the issuing of Central Bank Digital Currency (CBDC), according to the Atlantic Council. While CBDC may
adopt blockchain or Distributed Ledger Technology (DLT), CBDC differs from normal crypto as CBDC is legal tender and is backed by a claim on the central bank. Unlike cryptos that are not legal tender and have no intrinsic value.

Bank Negara Financial Sector Blueprint 2022-2026 stated that they are looking into CBDC through multiyear exploration, starting with Phase One via Project Dunbar.

Asset Allocation Is Important

At the end of the day, there is no one investment that suits everyone. It will be best if you diversify your investments into several asset classes, such as stocks, properties, unit trusts, robo-advisors, fixed deposits, bonds etc.

There should be a mixture of low risk investments with low returns, some in medium risk investments with medium returns, and some in high risk
investments with high returns such as crypto investment. Because you never know with crypto, you can go big but you can also go home with nothing.

Think about it. When are times ever ‘easy’? At the time of writing, we face inflation, COVID-19, wars, trade tensions, the ups and downs in interest
rates, currency exchange rates, and commodity prices.

On top of all that, there is the ever-evolving political, economic, and social instability around
the world. It only makes sense to say that ‘uncertainties’ is a certainty in present times.

So, is it still relevant to be investing in uncertain times?

Well, it depends. Some may react by not investing altogether. But that approach is likened to an ostrich burying its head in sand. It is impractical. Today, the awareness to invest has largely increased among the general public.

However, investors may lack a plan to navigate their investments through the stormy seas of the markets today.

Here, I have observed two different approaches to navigating the market and investing in uncertain times. They resulted from having a different mindset towards investing.

Read: 5 Investing Mistakes to Avoid During a Downturn

Let me explain:

Approach 1: Market Predictions

This refers to investors who believe that wealth is about having more money. To them, if they invest in an investment, be it stocks, properties, ETFs, cryptos, so on and so forth, and its price had appreciated, they will consider it to be a good investment.

If its price had fallen, it would be deemed as a failure. Thus, it is common for them to measure investment success based on the following:

Price Goes Up = Good Investment

Price Comes Down = Bad Investment

Hence, they tend to invest during good times, as prices of investments tend to rise in line with heightening optimism. Also, they would avoid investing in uncertain times due to falling investment prices. Some would sell off investments as they have a pessimistic outlook on the future.

In extreme cases, this could lead to manias and panics in the investment markets. Basically, their guiding principle is to buy in good times, sell in bad times.

So, how do they know where the market is heading in the future?

Well, the answer is to try predict the markets. Many would speculate. Some will be checking on the macros and technicalities if they are more sophisticated.

Generally speaking, they are always trying to find the ‘best time’ to invest or to dispose of their investments. To me, that is trading or speculating.

If you are in this group, you will always be anticipating if today or tomorrow may be a ‘better time’ to invest. Even after you have invested, you would always want to find out when would be the ‘best time’ for you to sell off your investments.

That is not my approach when it comes to investing in uncertain times.

Read: Are High-Risk Investments Suitable For Me?

Approach 2: Income Productivity

Unlike the aforementioned approach, this group of investors believe that wealth is about owning assets that are income-productive. Thus, the measure of investment success would be based on the income productivity of the assets.

The more income they produce over time, the more successful the investment.

Income Rises Over Time = Good Investment

Income Falls Over Time = Bad Investment

For this group of investors, they are focused on the assets’ fundamental quality. They want to know if the asset can generate more income in good and bad times.

To them, it does not matter if the stock market, the economy, the Ringgit and the interest rates are going up or down. What matters is this: Is the asset in consideration profitable and sustainable in all economic conditions, particularly in tough times?

By focusing on income productivity, this group of investors would tend to invest differently from the market predictors. Normally, in good times when asset prices are rising, this group of investors would have difficulty in finding income productive assets that are offered at attractive valuation.

Thus, they invest less in good times. This would be different in tough times when asset prices are falling. In this situation, this group of investors will have an easier time acquiring such assets at discounted prices. So, they invest more in bad times.

Therefore: “The answer lies in your belief system when it comes to investing in uncertain times.”

Buy Less / Don’t Buy = Good Times

Buy More = Bad Times

If you are in this group, you would have less tendency to do market predictions. Instead, your focus is on the asset’s fundamental qualities and its valuation, which makes predicting market movements irrelevant.

So, should you be investing in uncertain times?

The answer lies in your belief system when it comes to investing. As for myself, my interest is in the accumulation of fundamentally strong stocks, if they are offered at attractive valuations. This is because I believe wealth is about the income productivity of my assets and thus I had invested accordingly.

If your beliefs on wealth are different from mine, you would invest differently. Ultimately, it is up to you to be navigating the market and be smart when it comes to investing in uncertain times.

Read: 9 Reasons Why You Should Invest For Dividend Yields

About the Author

Ian Tai, Financial Content Machine. Dividend Investor. Produced 200+ Financial Articles featured in KCLau.com in Malaysia. Co-Founded DividendVault.com, an online membership site that empowers retail investors to build a stock portfolio that pays rising dividends year after year in Malaysia and Singapore.

The stock market is hugely popular, not only in Malaysia but the entire world. During the Movement Control Order (MCO) back in 2020, retail investors made a huge splash in Bursa Malaysia, and most investors made quite a handsome profit.

Let’s look at the two ways which you can earn in Malaysia share investment.

1. Capital Gain

Capital gain is the increase in a capital asset’s value and is realized when the asset is sold. It is the profit that you get when the selling price of the stock exceeds its purchase price. It is the difference between the selling price (higher) and purchase price (lower) of the stock.

For example:

Stock ABC price = RM1 per unit
Buy 10 lot (100 unit) = RM1 x 100 units
Purchase price = RM1,000

One month later

Stock ABC price = RM1.10 per unit
Selling price = RM1,100
Profit/Capital gain = RM100 or 10%

The above shows an example of how a capital gain of 10% is being made. ABC price went up by RM0.10, and was then sold at RM1.10.

*Note, the profit does not take into consideration costs such as brokerage charges, stamp duty and clearing fees. The net profit should be less after deducting these fees

Read: What Causes Bursa Malaysia Prices To Go Up And Down?

2. Dividend

The second way to earn in Malaysia share investment is through dividend. A dividend is the distribution of a company’s earnings to its shareholders and is determined by the company’s board of directors.

When a company generates a profit and accumulates retained earnings, those earnings can be either reinvested in the business or paid out to shareholders as a dividend. Dividends are often distributed quarterly and may be paid out as cash or in the form of reinvestment in additional stock.

If the company is not making good profit, or even making a loss, then we shouldn’t expect any dividends from the company. In fact, we don’t invest in these companies that do not have good fundamentals.

Malaysia Share Investment: Capital Gain VS Dividend?

The stock market is suitable for all kinds of investors. There are those who are in for the short term, perhaps capital gain is more suitable. But do keep in mind that if a stock price can go up so fast, it can go down even faster.

Whereas dividend stocks are more suitable for those who are in it for the long term. By investing in good and strong fundamental companies, you should be able to get a steady stream of dividends.

But that shouldn’t stop you from looking for stocks that can give you both capital gain and dividend right?

Make sure you also read:

• 4 Mistakes People Make In Stock Investing
• 5 Investing Lessons from Warren Buffett’s Letters

In a world overflowing with mindless narratives and political polarisation, separating the signal from the noise in the markets can be challenging for anyone. The markets so far this year reminded us all that stock markets are risky. Even SPAC activity has not been this bad for the past five years.

Surely no one can correctly guess where market is heading, where uncertainties are the one thing that is certain.

Never mind that rising inflation is eating away our purchasing power as poor consumers. Oh, for all the coffee lovers out there, coffee, already noticeably imbued with the bitter taste of inflation, is likely to get even costlier, as farmers in world-leading coffee exporters face the fallout of
extreme weather.

Here’s why you shouldn’t be placing too much importance on where market is heading.

Sure, it is easy to get emotional especially if you are stuck in losses, given the significant negative returns across most asset classes in the first
half of the year and can no longer think rationally. On top of recession and inflation concerns, investors also had to deal with a deteriorating geopolitical environment.

Will there be another war somewhere? Who cares!

Where Market Is Heading?

As most of my long-term suffering readers know, I am a big advocate of alternative investments or absolute return strategies. Alternative investments have long been used as a tool in portfolio construction by large institutions, pensions, and endowments.

In recent years, many qualified individual investors have increased exposure to alternative investments to boost returns, generate income, and achieve long-term financial goals. Tech-enabled business models make it possible to serve customers on the lower end of the wealth spectrum.

One of the most attractive aspects of alternative investments is that they typically have a low correlation with equity and bond markets. When used as a complement to traditional investments, alternative investments are a valuable piece of a long-term investment portfolio.

Financial players of all sizes are aggressively pursuing product innovations to survive the competition. My strategic partnerships with trusted managers allow me to move fast with innovation.

Alternative Investments Are Important

From another perspective, alternative investment managers make the capital markets work better and more efficient which gives a meaning as to where the market is heading is not really important. They make them more liquid.

The local financial services industry was a simpler place more than 20 years ago and most investors were happily invested in plain vanilla equity and bond funds back then.

Indeed, one of the primary attractions of alternative investments for me when I began dealing with them in 1995 was that I knew the benefits of traditional diversification are overstated. Let me stress clearly that I am not against local investments. I am an enthusiastic local stock market
investor.

Shifting to another gear, many people assume that if somebody is really wealthy, he or she does not really have to worry about anything. In harsh reality, when you have more money, you have more problems or concerns. One of the concerns is the ability to preserve capital in the long-term.

Most people do not become wealthy by being irresponsible with their hard-earned money. Most of them worry about the downside risk which could affect their portfolio value especially during extreme market conditions. A proven alternative investments help investors to preserve their wealth while achieving growth over the long-term.

Many people mistakenly believe that alternative investments are all about making leveraged bets and getting big returns. In my line of work, some investors are looking to increase the amount of income in their asset allocation. The level of passive income varies greatly based on their wealth. A high income driven strategy is also a solid defence against rising inflation.

But Beware Of Scams

Where market is heading won’t mean a thing if you can’t differentiate financial scams.

Nobody likes to work and everybody loves high and guaranteed returns. If anyone knows how to produce extremely high returns all the time, he or she would already run a properly regulated investment vehicle and the money will find them. Please tell me something that I do not know because I am an “idiot”.

When you have more money, you will likely be the target of some unscrupulous people trying to sell something to you without having your best interests in mind. They can be anyone like your neighbors, relatives, colleagues and even your financial advisors. For these “greedy” sales people, while money cannot buy real happiness, there never seems to be quite enough.

I work with successful alternative investment managers or traders who are rational, analytical, able to control emotions, and performance oriented. They must have an edge and employ good money management by having rigid risk control rules.

I am always cautious about the specific investment ideas in my public articles due to internal compliance, but I will share with you in broad strokes about some of them in this limited space. It is a sample of different opportunities in the world of alternative investments especially for sophisticated investors and family offices, while some of you are still looking for a crash.

I talked about them in detail in a zoom meeting with investors not long ago. Grab that filtered water (cheaper than coffee) and be ready.

Stable Income Is Better Than Losing Money

Regular income despite not giving a damn about where market is heading? An alternative fixed income bond which is also available in the Islamic shariah version offers a solid infrastructure to mitigate the risk and pays a fixed coupon per month, paid quarterly in arrears to the investors. The generous income stream from the profits allow investors to support the lifestyle they desire.

Available in major currencies, the profits are generated from contract arbitrage trading. Contract arbitrage is the simultaneous purchase and sale of an asset to profit from the price differential between a seller and a buyer. The difference in price generates the profit.

Moving to another idea is an alternative global multi strategy fund which invests in global digital assets. The fund has performed very well at a much lesser volatility so far this year, given the sharp sell-offs in cryptocurrencies that hurt some of the high profile players with poor risk management and overleveraged.

Those crypto geniuses who blew up their trades knew what they were doing right?

Consider Digital Assets Too

The emerging digital assets industry has experienced a rollercoaster ride in recent years, with a lack of transparency and significant volatility discouraging some genuine investors from investing. Where the market is heading is not important, as the fund provides a simple, efficient solution for sophisticated investors to gain exposure to the digital assets space with low volatility and minimal exposure to systemic market risk.

On this note, while on a capital raising roadshow in Europe, the fund was well received by some of the largest wealth managers and investment banks. All wealth managers and institutions have plans for adding digital assets or funds to their offering. It is inevitable that sophisticated investors realise that evolution in Blockchain-based applications provides strong growth potential for the foreseeable future.

No Loss, So No Worries On Where Market Is Heading

Taking the world by storm, here is another gem. A global macro strategy fund with no losing years since its inception has continued to provide consistent positive returns amid the volatile market conditions in 2022 so far. The fund aims for consistent absolute returns over a medium-to-long
term period, by leveraging on the fund’s proprietary technology and the manager’s alpha skills in both good and bad times.

The fund invests in equities, fixed income, commodity, forex and interest rates.

To wrap up this article, as an investor, you can prepare your portfolio for uncertainty. Much like preparing for a road trip where you cannot control the traffic on the road, and having to deal with rude drivers and potholes.

Instead of trying to control or fix the problem, you can control how you prepare and react to it. Where market is heading? I don’t care!

About the Author

YH Wong has over two decades of experience in the financial services industry. His clients include high net worth investors and boutique institutions such as family offices and investment partnerships in the region. He is currently a senior partner with Satori Consultancy Ltd, a financial services company regulated by the Mauritian Financial Services Commission. He can be reached at yhwong@satoriconsultancy.com.

The confusion between the correlation and causation is inevitable especially for those who are new in investment and trading. But one must understand the difference between correlation vs causation before opening any investment accounts. The financial analytics bible defines the correlation is a relationship between markets.

For instance, FBMKLCI and DJIA have a positive relationship. But without further statistical test, we cannot say which market is the leader and which market is the laggard. Both markets may share and react on the similar information which is the mediator. So there comes the need of another course of test called causality test. The causation, for example, explains the case when FBMKLCI causes DJIA to move.

The mathematics of assets correlation is simple and straightforward. The correlation test finds the degree of association between the price change of Asset A and Asset B. It is then measured by a statistical tool such as Pearson Correlation coefficient. The causality test on the other hand adopts the similar mathematical formulation but with a little adjustment on the equation parameterization.

Correlation VS Causation

The causality test focuses on finding the correlation of Asset A and Asset B with each other’s history. The most popular causality test used in the Bloomberg terminal is Granger causality test.

The knowledge on assets correlation and causation is crucial for investors as it helps the investors to differentiate and identify market movers. Some of the assets maybe well correlated but not necessarily a price determinant to each other. For instance, the most popular assumption in the agricultural commodity trading is the soybean oil futures traded in US Chicago Board of Trade (CBOT) is the leader for the Malaysian crude palm oil futures (FCPO) in Bursa Malaysia Derivatives (BMD).

A study by Li and Nguyen (2015) provide a crucial piece of evidence where they reveal that the CBOT soybean oil and BMD crude palm oil have a stable long run relationship, but the study discovered that there is bi-directional causality between both futures markets. It shows that the Malaysian crude palm oil price may influence the soybean oil price in the US and vice versa.

Futures Market

Another example, the causality test determines the functionality and reliability of futures market as a hedging avenue for the market players. The futures market is established to be a future price reference for its underlying cash market. The efficient futures market guarantees effective hedging strategy. Therefore, an efficient futures market must have two conditions to be fulfilled.

First, the correlation between the spot and futures must be at perfect positive at all times. Secondly, the futures price must be proven leading the spot price in the causality test. Lacking on any of these prerequisites may render the price risk transfer process from the hedger to speculator to be less efficient. To add further, the causality test helps the global investors in devising their international portfolios.

A good knowledge in cross markets causality will tell whether the bearish mode in the S&P500 tonight maybe spill over to Nikkei 500 in the next morning or not. This is why it is important to have the knowledge about correlation vs causation.

So, the next time you heard an impactful news on a geo-economic event, you can tell that if your portfolio will be impacting or impacted by the global sentiment. Hope you now have a better understanding of correlation vs causation.

About the Author

Dr. Ahmad Danial is a Certified Financial Technician (CFTe) and Senior Lecturer in Finance at Department of Economics and Financial Studies, UiTM Puncak Alam. He has over 10 years’ experience in the financial markets before hopping into the academia. His areas of expertise include financial contagion, trading in stocks and derivatives markets, price discovery, hedging strategy, Econophysics and technical analysis. He can be reached at danialzainudin@uitm.edu.my.