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As an investor, very often we run into a situation whereby we do not fully understand certain economic concepts or economic indicators while reading the Business Section of the newspaper. These economic indicators are important source of information that provides investors with insight into the environment in which financial markets operate that may in turn have a significant impact on our stock market. For example, I read an article this morning, it said: “EU raised interest rate to boost the Euro”. Many investors only know the relationship between interest rate and stock market, but they do not know why interest rate will affect a country’s currency? While interest rate has an inverse relationship with the stock market; it has a direct relationship with the currency! This is because when a country raises its interest rate, it will attract short term “hot money” or short term capital into the country to take advantage of the higher interest rate. When this happens, it raises the deman...

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Recently, there are a few "unimaginable" events one after another unfolding before our eyes. The 2008-2009 global financial crisis, the recent Middle East wars and the Japanese “Black Swan” 9.0 earthquake. I call these events “unimaginable” not so much because they are illogical but rather because they fall outside the normal range of experience and prediction. The surprise, in other words, arises from a failure of human imagination. The Black Swan Theory was developed by Nassim Nichalas Taleb in 2007 where he described many historical events as black swans, be it scientific new discoveries, wars, financial crisis or natural disasters as black swan events. Examples of such events are: World War 1, internet development, 911 World Trade Centre terrorist attack, the subprime financial crisis and so on. According to Wikipedia, “ the Theory of Black Swan Events is a metaphor that encapsulates the concept that the event is a surprise (to the observer) and has a major impact. After ...

Last Friday Japan Earthquake was an unexpected event, and this will definitely cause panic selling on the next trading day which is on Monday. Usually for an unexpected event like this our Bursa Malaysia will undergo a period of correction. I'll usually wait for three weeks before I'll go into the market for bargain hunting. Always remember, the stock market will undergo a cycle but on the long run, it will be on an uptrend. So my advice is stay calm, let the market fall for 2-3 weeks, before you go in again. Unless there is another unexpected event happen, things will be different. But for now, that should be my strategy! Happy investing Pauline Yong

Everyone is talking about the oil price as this is the crucial factor that determine the direction of the stock market now. So I asked a group of audience recently at what price they think the oil price will create a panic selling for stock investors. I told them to think carefully before giving the answer as this is a good way to train their “psychic power” in predicting the direction of the market. Many say around US$100 – US$140 should create havoc selling. I asked them again: “So you think when the oil price is near the historical high of US$147, investors will get panic and cause the stock market crash?” In fact, in my personal view, the oil price should reach US$200 and beyond before investors get jittered. Then the audience grasp in disbelieve – too high! Let me explained further, according to the behavioural finance this phenomenon is known as the “anchoring effect” whereby people usually refer to one reference point and make judgment from there. When the oil price is near his...

Hi, I'll be organising Investment Talk Campus Tour with CIMB in March 2011. The details are as follows: Date: 8th March 2011 (Tue) Venue: HELP Institute University College Time: 10:30am - 12:30pm Date: 8th March 2011 (Tue) Venue: Sunway University College Time: 3:30pm - 5:00pm See you guys there! Happy investing, Pauline Yong