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Commentary: 2011 The Year Ahead

Vacation time is over and the markets have returned to the business of pricing capital and determining through supply and demand what the value of companies are to the 'market'. Various valuation methods can be used to identify a company's 'value' and as market participants work out whether the company is undervalued or overvalued, we will see this 'difference of opinion' reflected in the share prices of these companies.

So what's your point?

As we come into 2011, we continue to be faced with the economic unknown of whether we have truly emerged from the Global Financial Crisis with blue skies ahead, as austerity measures start to bite causing social unrest, asset prices remain deflated stagnating the U.S. property market verses too much money inflating property prices in Asia beyond the reach of home buyers, rising commodity prices fuel inflation and public concern on food security, and with a market that has the ability to easily take us to extreme index highs or lows in an instance. 2011 is fraught with dangers at every corner.

QE2 in the U.S., multiple European sovereign debt issuance's, and money that has been kept on the sidelines by institutional investors is leading to a flood of money into emerging markets, property and other assets, exposing the rest of the globe to the risks faced by these countries if they fail to reposition their economies to be economically sustainable. Remember, we live in a fiat money world where money is backed by the legal word of the issuer as a form of exchange that will be honored.

What do you 'value'? If you do not know what you value, then you better find out fast. A flood of water is flowing and you need to know where you are anchored, what you are anchored to and where the high ground is for refuge from these waters.

Firstly, make sure you value the people and relationships around you. Look after yourself mentally, emotionally and physically. You can't fight a battle if you are not fit and generally in a good frame of mind.

Secondly, value what you have. Be content with the car, house and stuff you presently have. Have goals, share it with others and spend up big if you make a lot of money, but this market is going to require you to focus and be on point. Don't let stuff distract you or make you do stupid things. 

Thirdly, value and respect your financial boundaries and be financially sound yourself. Use leverage wisely and reduce all forms of debt especially consumer debt and student loans. Put a sound plan in place to reduce debt and work at it. Combine debt to lower affordable rates and take advantage of refinancing clauses whenever you can.

Fourthly, value and practice financial planning. You don't have to go down to the minute detail in your plan or in tracking your performance. I ditched Quicken/MS Money and related software because it took too much time in tracking what really was unnecessary detail for me. I use a simple spreadsheet to keep track of cash balances and broad categories of expenses only, and a simple balance sheet to track net worth. I work towards keeping a diversified portfolio of stocks, bonds, income earning investments and property which I update monthly. Then I have my trading portfolio.

Lastly, don't value money more than it is worth. It is only as good as the word of the government that backs it, and do you really trust the government? :) Ask the poor people of Zimbabwe who are suffering hyperinflation and whose government even had to issue a $1 trillion dollar note in 2008 to keep up but had to finally abandon its currency.

We spend hours evaluating companies, economic data, and trading the markets and 2011 will provide plenty of opportunities to do just that in the days ahead. Today's opportunity is to take stock, check the foundation and the fence line, and if all checks out, to go into battle.

The only easy day was yesterday...