First Lesson in Investment (and the hardest one for me to practice..)

PATIENCE..!! Provided you picked the right stock, Good things DO come to those who wait.

I am doing fine..BUT..

I could have done better!! I made few mistakes, and the worst one lately was with MOL.AX.

I still manage to get out with around 90% profit, but it went up much-much more than that!

Today, my best performer is AWC.AX

I love Alcoa, and I'm keeping Alumina

Friday 14

Another green day today, with with IPL.AX and MOL.AX (again) running high.

I sold MGX.AX from one of my husband's account this morning at $1.185. I bought them a while back for $0.88. MGX reported its result yesterday. Revenue and profit was down as expected. I will look again to enter if the price dip sometime in the future. A great little company, just I thought that it has gone a long way from $0.20 just a year ago.

I sold a THIRD of MOL.AX at $1.87!!! I'm getting a bit jittery, and I thought it's wise to take profit, although I had a feeling that the price appreciation will still going to continue until the news of offtake agreement (this is my deduction, anyway, so don't take it seriously). I am still happy to hold the rest (2/3 of my original holding). Bought them in not long ago for $0.36. Praise be to GOD!!!

Industrea Ltd (IDL.AX)

Industrea is another little runner in my portfolio. Bought at $0.145 and top up at $0.185, IDL is currently trading at $0.43. I have been in and out IDL since 1996, and it's been good for me.

Short term strategy is to wait and enjoy the run until they reporting the result, which is sometime next week (I've got to check the exact date again...)

Moly Mines Ltd (MOL.AX)

Holly Molly..!!!

MOL.AX is one of my best buy. Bought them at $0.36 just a few months ago (mid May 2009), Moly is now sitting at $1.43. Things seem to be coming for the next few weeks, still wondering what they are. I hope I won't misjudge the movement, and that whatever is coming is going to put a rocket to the flying machine.

In the short term, well.. just enjoy the ride!!

From the goss:

Moly Mines Ltd., seeking to build a A$604 million ($511 million) molybdenum mine in Australia, is in talks with Chinese groups for iron ore sales accords from an adjoining deposit amid surging demand.

“We are getting a knock on the door from a Chinese party about once a week now,” Derek Fisher, managing director of the Perth-based company, said today by phone from Kalgoorlie, Western Australia. “We are getting a fair amount of attention particularly from the smaller to intermediate mills.”

Aug. 4 (Bloomberg)

The miner is seeking to sign an off-take agreement to secure sales from its Spinifex Ridge iron ore project, which is expected to begin production in early 2010.

Under such a deal a buyer agrees to purchase output from a particular project at predetermined prices and conditions over a number of years. (Reuter)

Learning and learning

There are so many things to study! I have come to realise that I know very little (or close to nothing) about trading and investing as a professional should have. To be fair, I am not a professional (yet), just an amateur trying to invest and trade better.

With three kids, husband and home to care for, I don't have as much a time nor concentration when it comes to study or reading (non fictional) books. I haven't finished my Benjamin Graham's book, the Intelligent Investor, that I started to read a while ago.

In the meantime, I picked another book which I found very interesting. The book is called 'Trading for a Living' by Dr Alexander Elder. I found this book easy to read and understand. The book gives a good coverage on the psychological aspect on stock trading.

Spudding

In a drilling report of an oil company, we often come accross a term called 'spud', as in this statement:

"Well 1 spudded on June 200X"

What does it mean?

In petroleum/oil industry:

• "spudding" means the very start of drilling on a new well.
• "Spudding in", or to "spud" a well, means to inniciate drilling operations.

Bluescope steel

I think it was a mistake to sell Bluescope Steel (BSL). I sold too early, but then again I was stopped out of my trailing stop. I wonder how to avoid this thing to happen.

Australia

Some recent data from Australian economy :

• Consumer spending UP - thanks to the cash handout
• Interest rate very LOW
• House Price UP - thanks to the government first home buyer grant
• House buiding DOWN - a lot; more than 12% for May period.
• Job Vacancies DOWN
• Unemployement UP

New Year!

I wished for a new year with a new hope, but today the ASX had a new year with a rout! I am still wondering why the big drop, while around the world weren't doing too bad today.

Is Australia going to experience the 'US and Europe economy experience' soon? Today's local economic data does not look pretty. In the year to May, building approvals fell by 22.4 per cent. What will it mean to the housing price?

Asciano

I made a few trades this morning. This includes sold Bluescope (BSL.AX) and bought Asciano (AIO.AX). I am not sure if selling BSL is the best idea, but it has already hit my trailing stop, so I better sell it without ifs or buts. It would be nicer to sell BSL four days ago when the price was a lot higher, but at $2.48 I still made a small profit.

Asciano has just emerged from trading halt this morning, down approximately 30% on the back of capital raising. Will see if it's a good idea to buy now in a couple of months. I just read an article from The Australian this morning. It was actually dated yesterday, http://www.theaustralian.news.com.au/story/0,25197,25641593-5013408,00.html.

The article mentioned that if retail investors are not buying up deeply discounted deals for well run assets like asciano, then they should hand over their money to someone else to manage.

Asciano is a rail and port company, and it's stock was priced at $10.65 a share when spun off from Toll two years ago, and it is now raising nearly twice its existing market capitalisation at a deeply discounted price of $1.10 a share.I am in at $1.29

Deep Yellow Limited (DYL.AX)

I am currently sitting on 344% profit on DYL. By far, it is one of the most profitable investments in my short investing career. I made a mistake a while ago for selling 25% of my holding, but then, I make mistake loads of times, so big deal (as long as I don't repeat it again, which I am trying hard to!)

I am still not sure what happened out there, but I bet they have a big gigantic of resource in the ground (Namibia). Dr Pretorius has been stationed there for some reason. Wondering if it will be a Paladin in the future. Untill then, I'll hold.

What to do?

The last couple of weeks saw my holding increased by at least 11%. Sweet (unrealised) profit. Especially when you spent those days holidaying with your family. Back from holidays, I have been thinking what to do with them. So far I haven't done anything, but my fingers are close to the sell trigger. It could be a long continuous rally, but what if it's not?

I have three share trading accounts from different brokers, so at this moment, I decided to use one of them as my short term trading account and use the other two as my long-term hold. We'll see how it goes.

Bluescope Steel

I bought a small parcell of BSL.AX this morning at $2.26 per share.  I did a bit of research on BSL, and actually the outlook forward seems to be a little bleak (or so said the researchers and brokers). I'll give it a go, anyway, with a stop loss planned at 15% underneath purchase price.

Last Week of April

Over all, this week is a quite good week. I did make a few mistakes, however, when I sold few stocks prematurely. It was a good gain, nonetheless, but I could have let it stay for more profit.

I misjudge a few things this weeks, and I suppose it's a good lesson to take.

DYL, I sold a quarter of my holding at 0.23. I thought it was a good price, as I bought them at 0.099. So it was like 150% profit, but then the share price went up to 0.31!

GIR, I sold out at 0.55 (bought them at 0.365), but the next day, it went up to 0.60.

PNA, I set my buying price at 0.29, but when it down to 0.29, I was a bit unsure and thinking that I could get it cheaper tommorrow. It never looked back since then, and now is sitting at 0.34.

MOL, same story as PNA

SDL, I had a chance to buy it on offer at 0.08, but did not take it. It went up to 0.11 on the next three days.

Lessons:

1. Cut the loss, but let the profit go as much as it could.
2. Stick with your trading plan, as nobody knows what's in store in the morrow.

Never Catch a Falling Knife

And never try to catch a rocket!

While the knives don't seem to fall badly this time around, the other challenge is to try to not too anxious and panic if you think you missed the boats, or rockets in this case.

The past few weeks, has witnesed some resource stocks prices soared. Copper price rebound, nice lead from overseas, etc.  They have caused a big jump in some resources stocks, but then the price eased again, to an oversold terrritory. Now if we bought in the high, as we scare of missing out, we will be in trouble. 

Tide is Turning?

Of all the shares I bought recently, only a couple of them that is currently below my purchase prices. Of course this doesn't count of my old holding, although it seems that they have also started to creep back up; baby step.

I am putting a buy order of 18000 pcs, still has not filled, on MOL.ASX (Moly Mines), a couple days ago. Moly Mines is a resource company that is focused on development of base metals projects including the world class Spinifex Ridge Molybdenum Project.

Biggest Mistake

In the latest Your Trading Edge magazine there is an interview with Dan Zanger, possibly one of the best traders in the last 10 years.  Dan is known to turn $10,000 into $ 42 million.

He was asked what are the biggest mistakes traders make ?

" Believing in a stock is number one. Never believe in a stock."

I Reckon...

RUL.AX is the best kept secret in town.. 

Great Co.

No Seller.

Big Dividend.

Have a look!

BPT Half Yearly Report

We picked up a smallish parcel of BPT yesterday at $0.735. I was a bit nervous this morning when it went straight down to $0.71 before they announced their half year report. I think it's not a bad result. To summarize:

BEACH PETROLEUM MORE THAN DOUBLES FIRST HALF PROFIT CONFIRMING UNDERLYING EARNINGS STRENGTH --

• Beach's net profit after tax jumped 117% to a record $127.5 million from $58.8 million in the previous corresponding opening half. 
  
• By excluding the gains from commodity hedging and write-off adjustments from the latest first half profit, the strength of Beach's normalised profit is further highlighted – up 142% to $52 million compared with the previous corresponding period. 
  
• The profit hike was achieved with further strong growth in total revenue, up 41% from $340 million to a record $480 million, while higher oil and gas sales of 5.5 million barrels of oil equivalent (mmboe) and surging oil and gas production of 5.0 mmboe were also first half records for Beach. 
  
• The Company's shareholders registered on 31 March 2009 will be paid a steady interim dividend of 0.75 cents per share by late April 2009.

BPT is sitting at 0.765 at the time I write this.

Half Year Results

All goods.. Including RUL, REX, BPT, AWE, IBA, IDL.

Technically, RUL looks very strong at this moment.

Tassal Group (TGR), I am not sure what is happening there.  The last 10 transactions today only trades either 1 or 2 shares in quantity, and pulling the share price down misserably:

Tassal Group Limited (TGR)
Date	Time	Price ($)	Quantity	Value ($)	Conditions
24-02-2009	12:10 PM	$1.885	2	$3.770
24-02-2009	12:08 PM	$1.870	1	$1.870
24-02-2009	12:03 PM	$1.970	1	$1.970
24-02-2009	12:03 PM	$1.975	2	$3.950
24-02-2009	12:00 PM	$1.980	2	$3.960
24-02-2009	11:57 AM	$1.980	2	$3.960
24-02-2009	11:55 AM	$1.980	2	$3.960
24-02-2009	11:39 AM	$1.980	1	$1.980
24-02-2009	11:39 AM	$1.985	1	$1.985
24-02-2009	11:38 AM	$1.990	1	$1.990

TGR is now on preopen...

And it's a good result - with a 4 cents dividend.

Crikey, they're manipulating the price before my eyes, and I can not do anything..:(

Anyway, I hope it will be a good day today afterall 

IDL- What's the Catch?

A while ago, I would falling over myself to get in. 

Consider this statistics:

IDL is trading at 1.5 Price Earning (P/E) Ratio

15% Dividend.

Sure it is creeping forward, but I just can't understand the masive sellers under 10 cents.

Update on Half Year Results to 31 December 2008

• First half Adjusted net profit after tax* $24.65 million – up 106% on prior comparative period.
  
• Impairment on Customer Contract, $17.18 million, recognised in first half reflecting previously announced termination of Handlebar Hill contract.
  
• Reported Net Profit $3.7 million (2007: $9.5 million), inclusive of non-cash amortisation and impairment charges.
• Confirms Adjusted NPAT* guidance range for FY2009 of $42 - $47 million.

In the course of finalising the audit review of half-year results to 31 December 2008, Industrea Limited has become aware that the half-year result is likely to be materially different from the prior comparative period.

Full disclosure and commentary on the half-year result will be released in due course however, in accordance with the continuous disclosure requirements of Listing Rule 3.1, the company is providing this market update.

Industrea is expecting to report an adjusted net profit after tax* for the half of $24.65 million, up 106% on the prior comparative period. The increase in adjusted net profit after tax* reflects improved financial results across Industrea’s businesses and the inclusion of trading results from the Huddy’s Mining Services business for the full period (2 months trading in the prior comparative period).

Reported net profit after tax for the period, of $3.7 million, is inclusive of a non-cash impairment charge on customer contract intangible assets, of $17.18 million. The impairment has arisen from the termination of the Handlebar Hill Open Cut contract, advised to the market on 14 January 2009 and, in consultation with the company’s auditors, is expected to be recognised in the first half results.

The first half result is in line with directors expectations and the company reaffirms its full year guidance for FY2009 of adjusted net profit after tax* in a range of $42 - $47 million.

* Net profit after tax prior to non-cash accounting adjustments to recognise the amortisation and impairment of customer contract intangible assets and the equity component of convertible bonds.

What Next??

Some more news on OZ asset sale:

The battle for control of the struggling OZ Minerals is about to heat up.

Chinese group, Minmetals has made an agreed $2.6 billion offer at 82.5 cents a share, but investors are not taking it seriously, keeping the OZ share price well under the offer price. OZ shares traded at 66.5 cents late this morning.

Tomorrow, Oz Minerals will try and up the price by revealing several deals designed to get the Minmetals offer higher.

The offer allows for a higher price if OZ manages to sell assets before the deal is done. Some assets such as Avebury in Tasmania, a nickel mine and the Martabe gold project in Indonesia, have been on the market. Now some buyers have appeared, but not for all.

They will feature in tomorrow's announcement, according to a source who writes: "Oz Minerals will announce on Friday the sale of two assets which will result in slight increase to current Minmetals takeover offer price: the Martabe gold project in Indonesia will be sold to Owen Hegarty-led consortium (Tiger) for $US 200 million."

"Evidence of reduced asset values in mining industry is the OZ nickel mine (on care and maintenance) at Avebury in Tasmania. The exclusive preferred bidder is (Hegarty associated) Range River Gold Ltd, as previously advised. The offer price of $US 80 million is a fraction of book value and as a consequence, the operation may be retained by Minmetals rather than sold."

"The Golden Grove mining operation in Western Australia will be sold to a consortium headed by Kerry Harminis, the former executive Chairman of Jubilee Mines Ltd, which was taken over by Xstrata at the top of the mining boom in late 2007. He wants to return to mining and is familiar with the project and has an affinity to the general area."

Thanks to Samizdat1 of Hot Copper

It's Just a Bad Management

I still can not get over it. It only took them less than a year to destroy a company.  Yes, I am talking about THEM on the Oz Mineral Board. For goodness sake, its 82.5 whole cents, and they called it as the best outcome, the same people who said that the company worth $4 only a few months earlier. 

The Deal is a Joke

Just on the news, another RIO style transaction. Another MGX, and PPX, PEM, MIS, GBG and who's next?.  

The deal is a joke..to say the least.

Luckily, I still have some time to sign the IMF lawsuit re: OZL.

OZ Minerals agrees to Chinese takeover

February 16, 2009 - 4:25PM

Debt-laden copper and gold producer OZ Minerals has recommended a $2.6 billion takeover offer from China Minmetals Non-ferrous Metals Company, in what would be the second major investment by a Chinese company in Australia within a week.

The Chinese trading company is offering 82.5 cents for each share in OZ Minerals, which is seeking to refinance $1 billion of debt by February 27, with the proposed acquisition to be completed via a scheme of arrangement.

OZ Minerals said the offer is unanimously recommended by its board in the absence of a superior one. 

"The board has determined that Minmetals' cash proposal is in the best interests of OZ Minerals' shareholders and believes this is the best outcome for shareholders compared with any of the other options available to us,'' chairman Barry Cusack said in a statement.

Shares in OZ Minerals - which was formed through the merger of Oxiana and Zinifex last year - last traded at 55 cents before the company entered a voluntary suspension in December.

OZ Minerals has been pursuing asset sales and other cost-reduction measures including, job and production cuts and placing its Avebury nickel mine in Tasmania on care and maintenance.

The company said it would continue to pursue the sale of the Martabe gold and silver project in Indonesia and the Golden Grove polymetallic mine in Western Australia.

OZ Minerals said its outstanding debt facilities would be repaid by Minmetals upon completion of the transaction, which would solve its "present financial issues''.

"Minmetals has confirmed that it intends to continue to operate current OZ Minerals operations, which, in turn, will benefit employees and relevant local communities and also provide certainty to businesses beyond those operated by OZ Minerals,'' managing director Andrew Michelmore said in a statement on Monday.

The transaction is subject to regulatory approvals, completion of due diligence by Minmetals, OZ Minerals banking syndicate agreeing to extend the term of their debt arrangements and shareholder approval.

OZ Minerals said the company would continue to be domiciled in Australia with its staff retained.

"Minmetals will provide a robust platform for OZ Minerals to realise its growth potential when market conditions permit,'' Minmetals chairman Zhou Zhongshu said in a statement.

The proposal follows Rio Tinto's $US19.5 million ($30 million) deal with major shareholder and China's state-backed company Chinalco. 

BusinessDay, with AAP

Buy Orders

I have been trying to buy some more shares these days, but most of my buy orders have not been filled yet (except one or two). ASX seems to be picking up, for the short term at least. I put my buy orders on IBA, RUL, IDL, PNA, and BPT last week, with a very conservative bid price. I have been thinking that I might have to amend the bid price higher, but I am not sure

Industrea Ltd (2)

I came very close to exercise my stop loss on IDL yesterday. The share price went down close to 15%, on top of the dropped on the day before (when I bought on the dip). I do not wish to catch a falling knife (again!). Industrea today, however, announced that they secure a new contract worth US$9.5 M, including first South Africa sale.

So, despite the ASX big drop of 119 points, IDL was actually on the green by as much as 13%. Looks like I am going to hold Industrea shares  that I bought yesterday for a little longer.

Out of my three short termers, by the time I write this post, all of them are not too bad.  Girallia is so far unchanged, and Deep Yellow is up by 3%

Industrea Ltd

Managed to get some Industrea's shares today at $0.14 per share. The share price dropped as much as 30% from $0.195 today on the announcement that IDL lowers its NPAT guidance.  I intended to treat this purchase as a short time trade. Stop loss at 25% lower than purchase price.

From the news today:

Industrea lowers NPAT guidance

Marcus Berghouse

   

16/01/2009 12:00:00 AM.  

Industrea Limited (IDL) said the termination of its contract with Xstrata, combined with unseasonably high rainfall, had lowered expectations for FY09 revenue and NPAT. The company said NPAT would be between $42 million and $47 million, down from the $55 million to $60 million forecast last October.

The company said revenue would drop by 12% to between $290 million and $310 million.

On Wednesday, Industrea requested a trading halt indicating it had received notice from Xstrata plc's Mt Isa Mines that it was placing its Handlebar mine on care and maintenance and as such would be terminating its contract with Industrea for the provisioning of mining services. The company said the termination would be effective from 10 February 2009.

Investors reacted poorly to the news with Industrea's shares coming out of trading halt down around 26% down.

Industrea said its other mining services contracts in the wider Mt Isa region, including those with Xstrata at the Blackstar and Ernest Henry mines, remained operative. The company noted that at Blackstar there were plans to increase production by 38%.

The mining services company said it was in negotiations with various partners to replace the lost contract.

CEO Robin Levison said that aside from the disappointment at losing the Handlebar contract, the other business units of the company continued to  perform in line with forecasts.

"While the termination of the Handlebar Hill contract was disappointing, Industrea remains in a strong financial position," he said.

"Industrea also continues to explore new avenues for growth across its diverse client base and geographical markets with particular emphasis on the Chinese market in order to meet the Chinese Government's long term goal of increasing coal production to satisfy increased energy requirements over the next decade," Mr Levison said.

http://www.livenews.com.au/Articles/2009/01/16/Industrea_lowers_NPAT_guidance

Trading Plan - Work in Progress

I started to re write my trading plan yesterday. It still a work in progress now, and to be modified continually. Readers may use it as a trading plan sample and post their comments on the plan.

MY TRADING PLAN

1. I understand that I cannot predict and control the markets. I will control myself by adhering strictly to my trading plan. 
2. The only factor to be taken into account during trading should be the facts and not any preconceived ideas no matter how well-founded, nor other people's opinions.
3. I will only trade on days when I am rested, relaxed and not distracted. I will stick to my trading plan, as it will help to prevent me from making trades that are poorly conceived and executed. I will not trade on days when I am feeling sick, tired or when I am distracted by other events in my life. 
4. My daily trading goal is to trade according to my plan. 
5. The instruments that I will trade are Australian Stocks listed on the ASX. 
   
6. I will start my trading at 09.00 and finish at 11.30 every trading day. 
   
7. I will ensure that of the 15 hours per week devoted to trading. 
   
8. Each day, I will ensure that yesterday’s trades are analysed and that my trading journal is updated.
   
9. I am a a risk averse trader and always seeking to minimise risk wherever possible. I will achieve this via diversification and risk management regime. 
   
10. My maximum exposure in the market will not exceed a combined total of 10% of my capital at any one time. 
    
11. My maximum exposure in any one sector will not exceed a combined total of 5% of my capital at any one time. 
    
12. For every trade I enter, I will decide in advance where to place my stop loss.  Full exit to be taken when stop loss is reached without exception
    
13. When my trading equity exceeds the amount I need to trade my strategies, I will withdraw the surplus and transfer it back to my bank account. 
    
14. I will utilise a trailing stop which I will position10% below the lower high in an uptrend or 10% points above a higher low in a downtrend. 
    
15. I will close my whole position immediately upon the price crossing the moving average. 
    
16. I will close half my position upon a 50% increase/decrease in volume compared with the previous price bar. 
    
17. In addition to recording all my trades, I check to confirm that all trades are executed in accordance with my plan. 
    
18. I will update my trading journal regularly with my thoughts about each trade and my conclusions about the day as a whole. 
    
19. If I break one of the rules detailed in my trading plan I will stop trading for a full day and focus on the reasons why there was a breach of discipline. 
    
20. After a winning trade I will guard against over confidence and ensure that my attitude remains consistent, and remind myself that executing the trade in accordance with my plan is more important than the outcome of the trade. 
    
21. After a losing trade I will examine the trade and learn what I can from it, check to ensure that I executed all aspects of the trade in accordance with my plan, and professionally unemotional with the loss.

Re-writting My Trading Plan

This week I will focus on re-writting my trading plan.  There are many things that I missed on my previous trading plan, and the fact that I haven't been very discipline on it, does not help either. This lack of discipline, has caused me a lot of unnecessary loss in profit. 

For those who are interested in writing their trading plans, or rewrite them, I found a good article and trading plan sample at:  

http://www.trade2win.com/media/knowledge/tim-wilcox/T2W_Trading_Plan_Template_2005.pdf 

Portfolio Update

I saw a few big gains today on my battered holding.  PNA gained as much as 100% from the price befor the (trading) halt, CBH gained as much as 66% and SDL of 14%.  Few stocks made small gains and few others are falling. Apart from the gains, the whole thing still looks so misserable.

Post Note: 

Bought Giralia (GIR) on Thursday, 8 January 2009, at $0.365 per share. Technically, I think it looks ok. The share price line was crossing the 20 days moving average. At this moment GIR is trading bellow its cash back up. Good and sound management, and hopefully there will be a recovery on the iron ore price.  

Mark to Market Accounting

Mark to market (MTM) accounting has recently received a lot of attention. Current global financial crisis has put this set of technical accounting rule into the spotlight. Some argue that mark to market accounting rule has put banks and financial institutions on their feet and should be suspended immediately. Are their arguments valid?

Mark to Market accounting (MTM) or fair value accounting means that companies must value their assets on their balance sheets based on the latest market price.

MTM is great for financial institutions when markets are booming, but when the economy is in the midst of a severe downturn, the use of MTM will reinforce the downward cycle. It adds momentum to a destructive downside.

Banks and other financial institutions argued that MTM rules have contributed to current financial problems because they are required to value distressed assets at fire-sale prices. Current credit crisis left Banks and other financial institution loaded up with bad debt and mortgage related security that was valued to next to nothing in the market. As the assets value plummeted, trouble and bankruptcy arises. As a result, banks and financial institutions demanded a suspension of the MTM.

On the newer development of this issue, Accounting bodies in the US and Europe are changing a few MTM rules.

The International Accounting Standards Board (IASB) has confirmed a change to its rules allowing some assets to be reclassified and avoid be subject to a fair value calculation.

The changes allow some assets to be moved from 'held for sale' or trade, which means using a fair value calculation, to 'held for investment' which does not. Last year, Deutsche Bank took advantage of new accounting rules, and shifted the income statement into a profit instead of a loss.

In the US, after so much discussion and deliberation, recent report from the SEC suggested that mark to market has its merits in determining assets and said it was not to blame for the financial troubles or credit crunch that has hit banks and lenders.

Is MTM to blame for the credit crisis?

Among the supporters of MTM are accountants and investors. They firmly believe that the crisis is not happening because of the accounting issues.

Furthermore, they argue that MTM ensures a decent amount of transparency for investors, and it requires a close look at the risks in order to assess value. If institutions were accurately marking the books, they would have seen the problems they were experiencing months in advance and could have made the necessary adjustments. All MTM does is require companies to reveal more information about the reliability of their reported fair value.

Companies have been practicing MTM for decades, and nobody complained when banks and others were recording large profit. The difference under SFAS 157 is that public can see the extent to which the fair-value results of a company are based on estimates.

It is an irony that many of the companies that complained about the MTM have only adopted MTM recently, partly because of a provision that let them count the decline of their publicly traded debt as ‘profit’.

MTM is not perfect, of course. There is a flaw on the assumption that securities could always be sold and converted to cash, and the claim that the market value is arbitrary.

Despite the flaws, however, in my opinion, MTM is not to blame for the credit crisis. The flaws were exaggerated.

MTM is not the problem, it is the banks that made poor decision and lost credibility with investor. It is easier to blame accounting rule for the problems than to admit the mistakes that the banks made. Suspending the MTM and move back to the historical cost accounting would not solve the crisis.  If we are using historical cost accounting today, there are still few assets that aren’t marked to market such as goodwill and inventory (lower of cost or market method). All the housing, mortgage and mortgage related assets would also have to be written down accordingly, as the value has been plummeted too much. Not to mention the goodwill that has been tarnished.

As an investor myself, I believe that most investors are smart enough to understand that values do change overtime.  To be kept in the dark with the company’s financial condition, it’s a big no.