Equity Heading South? Is It Time for Gold to Shine Again?

In my previous post on "Predicting The Next Market Crash Using Shiller P/E Ratio", I advocated that we should start diversifying into other non equity investments. This is not to say that we should totally exit the Equity Market! Instead we should look for other alternatives to allocate our savings/investments. By that, I'm referring specifically to investing into Gold.

Why Gold?

a) Comparing Percentage (%) Gain of Gold Price vs KLSE Index
Let's us take a look at the performance of gold price in comparison with the the Kuala Lumpur Stock Exchange Index from 1st Jan 2014 to 6th May 2014.

Gold Price Gain
Price on 1st Jan 2014 - 1202.30 USD/oz
Price on 6th May 2014 - 1308.60 USD/oz
% Gain : 8.84%

KLSE Index Gain
Price on 2nd Jan 2014 - 1852.95 points
Price on 6th May 2014 - 1860.43 points
% Gain : 0.40%

Over the past 5 months, Gold has steadily albeit quietly making gains that have outperformed the returns of the rather volatile KLSE. However, some might question the use of KLSE Index to compare with gold.

To make a more relevant comparison, let us compare the performance of Gold against the percentage returns of the top 5 highest returning Unit Trust Fund from 1st Jan 2014 till 6th May 2014.

b) Comparing Percentage (%) Gain of Gold Price vs Top 5 Highest Returning Equity Malaysia Top Performing Unit Trust

Gold Price Gain
Price on 1st Jan 2014 - 1202.30 USD/oz
Price on 6th May 2014 - 1308.60 USD/oz
% Gain : 8.84%

Top 5 Highest Returning Equity Malaysia Top Performing Unit Trust

Kenanga Growth Opportunities Fund is the highest ranked fund according to YTD at +11.47%. The other two funds that outperformed Gold returns are Libra DividendEXTRA Fund at +9.07% and Kenanga Syariah Growth Opportunities Fund at +9.00%.

Despite having three (3) Equity Malaysia funds outperforming Gold, funds ranked from 4th onward have all under performed. The vast majority of equity malaysia funds that have under performed clearly indicate that gold is a wise choice of investment if you're looking for diversification.

How Do I Invest In Gold?

I've written about investing in gold some time ago and you can read the full article HERE.

Apart from investing directly into physical or paper gold as suggested in my article, investors can also consider investing into Gold/Precious Metal Mutual Funds. 

Why invest into Gold/Precious Metal Mutual Funds?

The family of Gold/Precious Metal funds are making a comeback after shedding more then 40% last year (2013). The unit price of these funds are at the all time low, attracting investors to invest into these funds instead of gold as an alternate investment.

While gold price has appreciated by 8.84%, top performing precious metal fund such as RHB-OSK Gold And General Fund has achieved an outstanding 12.19% return over the same period!

What's My Take?
While I may not whether Gold is on the path of recovery or not, we all know that Gold (be it physical, paper or mutual fund) has been the safe haven for investors whenever the equity market turns bearish. The signs might not yet be pointing directly to a major stock crash and it might take a few more years for it to happen.

Never the less, I see no harm in having a portion of our investment being placed into Gold as a form of passive investment. For me, having a 8.84% return over 5 months for Gold certainly beats placing your money in a fixed deposit account or even ASB.

Cheers and Happy Investing!

Related Reads:

• Unit Trust Portfolio Diversification
• The Basics of Gold Investing and Finding the Best Bargain!

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3. Like to find out more about investing in RHB-OSK Gold And General Fund conveniently as well as saving on sales charge? Drop me an email at shanesee03@gmail.com

Predicting The Next Market Crash Using Shiller P/E Ratio

An interesting topic to blog about when it come to searching different kinds of indicator to predict the next market crash. Well in this post, I intend to introduce another famous indicator used by many analysts...

What is Shiller P/E Ratio?

The Shiller P/E was invented by Prof. Robert Shiller of Yale University to measure the market's valuation.

How Shiller P/E Ratio is Calculated?

Why use Shiller P/E Ratio instead of normal P/E Ratio?

The Shiller P/E Ratio is deemed a more accurate indicator as it eliminates fluctuation of the ratio caused by the variation of profit margins during business cycles. 

Read more about P/E Ratio as an indicator HERE.

Why Normal P/E Ratio is an inaccurate indicator?

• During economic expansions, companies have high profit margins and earnings. The P/E ratio then becomes artificially low due to higher earnings. 
• During recessions, profit margins are low and earnings are low. Then the regular P/E ratio becomes higher

Case Study : 2008 Financial Crisis

The above graphical illustration contains the historical price of the S&P 500, values of Shiller P/E and values of Regular P/E from the 1st of June 2004 to 28th of April 2014.

Predicting the Peak and Impending Crash of 2008

At the peak of S&P 500 on Oct 8, 2007 as indicated by the red vertical line, the Shiller P/E value of 26.70 at that time was 61.8% above the its historical mean of 16.5. This was a clear indication that the market is at a boiling point. 

On the other hand, the Regular P/E value of 19.0 during the same period (which was close to the historical mean of 15.8) provided no clear signs that a crash was imminent. 

Predicting the Bottom and Recovery of 2008 Financial Crisis

Looking at the black vertical line in the above illustration, you can see that at the lowest point of the S&P 500, the Shiller P/E also indicate a value of 13.3 or -19.4% below the historical mean. The Shiller P/E clearly indicate that it was the right time for investors to return to the stock market. 

What's about present day? 

• As of 28th April 2014, the Shiller P/E is at 25.10
• Or 52.12% above the Average Mean of 16.5
• Updated daily Shiller P/E can be found HERE

Is this a sign that the Stock Market is about to crash?

In my personal opinion, the above average Shiller P/E value serves as an early warning for investors investing in the equity market. Despite the high Shiller P/E value, I'm believe that the market is not about to crash just yet as other indicators are not pointing to that direction.

Never the less, all equity investors should start monitoring the major indicators closely as decide what's best for their investment. Perhaps it is a good time to take profit and diversifying your gains into other investment opportunities which are non-equity related?

Find out what other indicators to help you predict the next crash:

1. Predicting Signs of An Approaching Bear Market

Cheers and Happy Investing!

If you like reading this post, it would do me a great favor by:
1. Sharing this post on your Facebook!
2. Like my Facebook Page

3. Like to find out more about Investing passively and taking control of your own investment? Drop me an email at shanesee03@gmail.com

Private Retirement Scheme (PRS) Fund Performance as of 31st March 2014

Check out these PRS Funds performance from three Fund Houses (CIMB, Hwang and RHB). Source provided by Phillip Mutual Berhad.

Click to Enlarge

If you like to know more about PRS, feel free to check out these articles:

1. Private Retirement Scheme (PRS), What's In Store For Investors? - Part 1

2. Private Retirement Scheme (PRS), What Is The Expected Performance? - Part 2

3. Private Retirement Scheme (PRS), Enjoying The Benefits of Tax Relief - Part 3

Also feel free to drop me an email at shanesee03@gmail.com if you have inquiries on PRS, Unit Trust Investing and/or Financial Planning!

Cheers and Happy Investing!