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Profit From The Panic
Profit From The Panic
Profit From The Panic
When the markets see red, the greatest investors see opportunity.
Many of them like Warren Buffett are BUYING up stock, instead of
selling it like most people. They have done it before in past financial
crises, making their billions. Now they are doing it AGAIN.
Profit
• Why most people lose money in the stock market and learn how
to win big like the minority
• Why the stock market will eventually recover and how to position
yourself for the next bull run in Asia and the US
Adam Khoo
Conrad Alvin Lim
Ryan Huang
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ALSO BY ADAM KHOO
Secrets of Building
Multi-Million Dollar Businesses
Moneycentral.com
ThinkorSwim.com
Google.com
Shareinvestor.com
Finance.yahoo.com
Prophet.net
DISCLAIMER
This book contains the ideas and opinions of the author. It is not a
recommendation to purchase or sell any of the securities, businesses
or investment discussed herein. The author and publisher are not
stockbrokers, broker dealers, or registered investment advisors. We
do not recommend any particular stock, investment or securities of
any kind. If particular stock and investments are mentioned, they
are mentioned only for illustrative and educational purposes.
Although we have made the best efforts to provide the most accurate
and up to date information, no warranty or guarantee is given
regarding the accuracy, reliability, veracity or completeness of the
information provided herein. The author and publisher disclaim any
responsibility for any liability, loss or risk, which may arise as a
consequence, directly or indirectly, from the use and application of
any of the ideas, strategies or techniques in this book.
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Published by Adam Khoo Learning
Technologies Group Pte Ltd
10 Hoe Chiang Road
#01-01 Keppel Towers
Singapore 089315
This book is sold subject to the condition that it shall not, by way of
trade or otherwise, be lent, re-sold, hired out or otherwise circulated
without the publisher’s prior consent in any form of binding or cover
other than that in which it is published and without a similar condition
including this condition being imposed on the subsequent purchaser.
ISBN: 978-981-08-2087-9
Cover, Design & Layout by: Seven Gallery Design & Consultant
Edited By: Betty L. Khoo
Project Coordinator: Chris Shia
Printed in Singapore
ACKNOWLEDGEMENTS
BY ADAM KHOO
who have tirelessly spent all their weekends and late nights working
to build the companies at an incredible rate. Especially to my dear
friends Dolly Lee, Ivy Lim, Afdoli Rahmat, Serene Quek, Siva, Andrew
Ling, Katherine Sia, Rossana Chen, JD Lee, Desmond Eng, Natalie
Lim, Leonard Goh, Terence Yao, Irish Ng, Wandy, Fred Tan, Dr. Peter
Yan, Dr. Cheah Yin Mee, Queenie Lim, Pete Tan, Joycelina Fadjar,
Yunike Wanti, Sherly Junita, Henry Aw Yong and Lawerence akalawoo.
ACKNOWLEDGEMENTS
BY CONRAD ALVIN LIM
Thanks to the staff and crew, past and present, at AKLTG who busted
their asses to make sure that my every need was met; Angela, Aaron,
Daniel, Erlyn, Fiona, Jaqueline, Joyce, Min Jin, Niken, Pearlyn, Si Lin,
Sheena, Sherly, Webster, Wei Zhong, Yan, Yunike, my slave drivers
Andrew, Katherine, Queenie, Wandy and the indefatigable
Terence Yao. Also to my watchful guardians Rossana, Ramesh, Stuart
and Patrick.
And for every trader who passed through my doors … you have
made a difference in my life.
Special mentions for my good friends and the people who never let
me settle for anything less than the best; Alvin, Bernard, Ingvill, Jack,
Kiat Haw, Li Min, Melvyn, Ruben, Zand and my three pillars of strength,
Alicia Tan, Lawrence ‘Akalawoo’ Chua and Henry AYTL, without
whom, the Pattern Trader would be nothing.
The first is my very good friend and constant travel buddy in life’s
journey, Adam Khoo. Since helping me find myself last year, Adam
has been a motivating force, a driver and leading example for
everything and anything I have achieved thus far. The sharing, caring
and verbal fencing we have been through over the last year has
brought our friendship to another level and I know there are more
great things to come from this partnership. We have learned from
each other, stretched each other and leaned on each other to
grow from strength to strength. Adam still continues to surprise me.
determination and fighting spirit went one level up when she showed
the willingness to change in order to make me change. As Adam
always advocated, “For things to change, I must change first.” I
owe Lucy more than my life and my love, for better or for worse.
ACKNOWLEDGEMENTS
BY RYAN HUANG
Completing this project in less than 30 days was only made possible
thanks to the great efforts from my two co-authors, Adam Khoo and
Conrad Alvin Lim.
Thanks also to my pals Kevin Lau and Vikas Kumra, who love talking
about their financial work, which perhaps spurred my interest in it.
(Guys, you need to find new conversation topics).
Last but not least, special appreciation for the support and comments
in the course of writing this book from Ng Baoying, Liang Kaixin,
Timothy Ouyang, Tyler Thia, and Gladys Ow.
Dedication:
For my parents Linda and George, who have given me everything
Over the last 15 years, he has trained over 355,000 students, teachers,
professionals, executives and business owners to tap their personal
power and achieve excellence in their various fields of endeavor.
Conrad runs his own Pattern Trader Tutorial (Wealth Academy Trader)
and advanced trading tutorials for short term traders and along with
Adam Khoo, he also trains at AKEG’s Wealth Academy and Wealth
Academy Investor programs. The demand for his Wealth programs
has moved beyond Singapore’s shores to Malaysia and Indonesia.
In support of the Wealth programs, Conrad created and runs the
Wealth Academy Investor Forum and The Pattern Trader Forum while
hosting The Pattern Trader Blog and The Pattern Trader Tools website.
TABLE OF CONTENTS
Acknowledgements iii
About the Authors vii
Chapter 1 01
The Creation of the Financial Meltdown
Chapter 2 15
Understanding How Markets Work
Chapter 3 41
Buying Markets & Sectors in Crisis Part 1
Chapter 4 63
Buying Markets & Sectors in Crisis Part 2
Chapter 5 95
Finding Great Value Stocks Amidst the Chaos, Part 1
Chapter 6 129
Finding Great Value Stocks Amidst the Chaos, Part 2
Chapter 7 145
Finding Market Bottoms & Tops Using Patterns
Chapter 8 171
Starting Your Journey as a Successful Investor
The Disaster or
Opportunity of a Lifetime?
“Let's recognize that this is a once-in-a-half-century,
probably once-in-a-century type of event”, said former
Federal Reserve Chairman Alan Greenspan.
Understanding
How Markets Work
1) Inflation
Inevitable rising costs of living will always see the prices
of goods & services going up. Subsequently the
revenue of companies will increase in tandem in dollar
terms. This will then likely be reflected in their stock
price (which contributes to the value of the Index,
which then rises in tandem too).
2) Growth in Demand
There will perpetually be more demand for goods
and services, partly thanks to a rising global population
and countries pushing for economic growth. This is
especially fuelled by developing countries like China,
India and other parts of Asia. As people buy more
hamburgers, more computers, and more drugs,
the revenues, profits, net worth of related companies
will go up – in tandem with their stock prices.
Remember that most of the companies that are
featured on Indices do not cater to just one market,
but to the rest of the world because they are Multi-
National Companies.
3) Structure of Index
The index only retains the very best companies. If any
of them does not do well, they are bumped off it and
replaced by a better-performing company. For
example on the Dow in October 2008, global
insurance firm AIG was removed and replaced by
2007 -45% - -
AVG 3 yrs
From Table 4 below, you can see that over the last
20 years, there were 12 winning years and eight losing
years for the Singapore stock market (STI). If you had
randomly invested in a 1-year period, you would stand
a 60% chance of gain and a 40% chance of loss.
From Table 5, you can see the STI divided over 5-year
periods. Out of four of the 5-year periods, two periods
ended with gains, one period broke even and one
period ended with losses. This means that if you were
to stay invested for at least five years, you would
have a 50%-75% chance of gain and a 25% chance
of a loss.
Table 5: 20 Years of Gains and Losses for Straits Times
Index (5-year periods)
Lessons from
Studying Stock Markets
So, what are the conclusions we can draw from
studying the behavior of stock markets over different
periods of time? Well, there are four main points:
#3) The Longer You Stay Invested, the Lower the Risk.
The trick is to just buy the MARKET INDEX like the S&P
500 Index, the Dow Jones Index or the Straits Times
Index. In the next chapter, you are going to learn how
to buy the markets through investment instruments
known as ETFs (Exchange Traded Funds).
The next thing they know, the market dips again just
after they have invested. This cycle keeps repeating
year after year and is what causes most people to
lose money in a stock market that actually keeps
going up over the long term.
You can get around all those charges and the rigidity
with an ETF. It offers the flexibility of a stock, since it is
listed on the stock exchange. This means unlike unit
trusts, you can buy and sell ETFs at any time. They
have very low management fees, ultimately meaning
higher returns for you.
Various Kinds of
Exchange Traded Funds (ETFs)
There are hundreds of ETFs in the market that you can
choose from. The most popular ETFs are grouped into
the following broad categories;
b) iShares
iShares are one of the largest families of ETFs that are
managed by Barclays Global Investors. You can find
out more at www.ishares.com
c) HOLDRs
Holding Company Depository Receipts (HOLDRs are
another type of s marketed by Merrill Lynch. Unlike
other, can only be bought and sold in 100-share
increments. To find out more, visit www.holdrs.com
How is it priced?
Usually slightly above 1/1,000 of the STI level. For
example, if the STI is at 1,600 points, each share of the
STI ETF would be approximately $1.70.
How is it priced?
Approximately 1/10 of the S&P 500. For example, if
the S&P is at 1,000 points, each share of SPY would
be approximately US$100.
You can buy and sell the SPY (just like any other stock
listed in the US) through a Singapore broker. However,
using a Singapore broker, you will not be able to buy
it intraday and will have to pay hefty commission
charges. A much cheaper and more flexible
approach would be to open an online US brokerage
account to trade.
The FXI has fallen from its high of $70+ to where it now
stands at $26.41 (as at 2 December 2008). Again, it
is a great long-term investment opportunity if you
believe in the future growth prospects of China. Let’s
find out later when the best time to get in is.
The EEM has fallen from its high of $54 set in October
2007 to $22.05 (as of 2 December 2008).
At the same time, the earlier you start buying and the
longer you stay invested, the greater your money will
compound and grow. From studying past data, we
know that the US Market (S&P 500 Index) has achieved
an annual compounding return of 12.08% (with
dividends reinvested) over the long term.
Indicator #2:
Invest only when PE Ratios are Below 15-20.
Besides just reading financial news headlines, another
indicator of market tops and bottoms is to look at the
market’s Price-to-Earnings Ratio (PE Ratio).
PRICE
$2000
$100
$50
$20
TIME
$10
Point C
Investing in Sectors
Besides buying the index ETF that tracks the entire
market, you can achieve even better returns by
targeting specific sectors and industries within
the market.
• Financial
• Health Care
• Energy
• Technology
• Consumer Goods
• Consumer Services
• Materials
• Industrials
• Utilities
• Telecommunications
Automotive Tobacco
Home
Food & Construction Personal
Beverage Goods
Sector Rotation
Due to changes in interest rates and economic
activity, money flows into certain sectors and out of
others at different times
From the chart below, you can see that the most
undervalued sectors are the Energy Sector (Forward
PE of 6.6) and Industrials Sector (Forward PE of 9.8).
Look out for the first few sector ETFs that reverse the
downtrend into a new uptrend. These are the ones
you should invest in for the ride up. If you recall, a
reversal is confirmed when its price breaks above the
In this chapter, you are going find out how to pick out
the individual stocks that will be the first to take off
and outperform the market when it recovers.
BEARISH PHASE
Stock is
Undervalued (A) TIME
Present Year 1
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Profit From The Panic 121
From the 5-year price chart, you can see that UNH
share price has been on a downtrend since Jan 2008.
It has plunged from $64 to a low of $17+, settling at
$20.84 as of 14 Nov 2008.
You can see from the above that the company and
one of its directors have been aggressively been
buying back stock in the $6.00+ range.
2008 $506.178m
2007 $354.629m
2006 $227.205m
2005 $100.787m
2004 $189.0m
2003 $56.0m
2002 $79.0m
At the same time, never put all your money into one
sector/industry or even one country. For example, if
you had put all your money in US financial stocks only,
you might probably be trying to hang yourself right
now. If you had put some of your money into oil
stocks, commodity stocks and defensive stocks (i.e.
McDonald’s, PepsiCo), the profits you would have
made on these other companies would have reduced
or offset the losses on your financial stocks.
Line of Resistance
Lines of resistance are the opposite of those of support.
They ‘prevent’ prices from breaking above a specific
Market Cycles
and Self-fulfilling Prophecies
The market is a predominantly irrational place
filled with many investors who will believe anything
and everything. Therefore, it is not a surprise that
superstition and self-fulfilling prophecies prevail. That’s
actually not a bad thing if you realize how you can
leverage on knowing when and what will happen. It
can help you decide whether to profit take or hedge
your position.
GDP Down
(Contraction) Market goes down
you are right and how much you lose when you
are wrong’.
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When the markets see red, the greatest investors see opportunity.
Many of them like Warren Buffett are BUYING up stock, instead of
selling it like most people. They have done it before in past financial
crises, making their billions. Now they are doing it AGAIN.
Profit
• Why most people lose money in the stock market and learn how
to win big like the minority
• Why the stock market will eventually recover and how to position
yourself for the next bull run in Asia and the US