Sunday 17 December 2017

Buffett writes about lessons learned (mistakes) in his first twenty five years of investing.

In 1989, Buffett writes about lessons learned (mistakes) in his first twenty five years of investing.


BUFFETT SHIFTED FROM CLASSIC VALUE METRICS TO CONSIDER GROWTH (FUTURE PROSPECTS) AS PART OF VALUE.

On the investment in Berkshire itself, he says, “Though I knew its business – textile manufacturing – to be unpromising, I was enticed to buy because the prices looked cheap. 

Stock purchased of that kind had proved reasonably rewarding in my early years, though by the time Berkshire came along in 1965, I was becoming aware that the strategy was not ideal.” 

This lesson is instructive to Buffett’s increasing realization not to limit his view on valuation to “classic value metrics” but to consider growth (future prospects) as part of value. 



FOCUS ON QUALITY OR STRUCTURAL ADVANTAGES THAT CREATE INTRINSIC VALUE OVER TIME.

He continues with an instructive focus on quality or structural advantages that create intrinsic value over time, “Unless you are liquidator, that kind of approach to buying businesses is foolish. 

First, the original “bargain” price probably will not turn out to be a steal after all. 

In a difficult business, no sooner is one problem solved than another surfaces – never is there just one cockroach in the kitchen. 

Second, any initial advantage you secure will be quickly eroded by the low return that the business earns. 

For example, if you buy a business for $8m that can be sold or liquidated for $10m and promptly take either course, you can realize a high return.

But the investment will disappoint if the business is sold for $10m in ten years and in the interim has annually earned and distributed only a percentage on cost.

Time is the friend of the wonderful business, the enemy of the mediocre.” 



IT IS FAR BETTER TO BUY A WONDERFUL COMPANY AT A FAIR PRICE THAN A FAIR COMPANY AT A WONDERFUL PRICE

One last illustration of Buffett’s evolution, “I could give you other personal examples of “bargain purchase” folly but I am sure you get the picture: it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price. 

Charlie (Munger) understood this early; I was a slow learner.

But now, when buying companies or common stocks, we look for first-class businesses accompanied by first class managements.” 


http://www.firstavenue.co.za/sites/default/files/downloads/the_evolution_of_valuation_22112011.pdf

The Future of Common Stocks

Thursday 14 December 2017

The FIVE KEY DECISIONS every investor needs to make

The 5 key decisions every investor needs to make:

1. The Do-It-Yourself Decision
Do-It-Yourself
Retail Brokers
Independent, Fee-Only Advisors
How to Select an Independent, Fee-Only Advisor
Investment Philosophy
Personal Connection and Trust


2. The Asset Allocation Decision
The Impact of Volatility on Returns
Risk and Return are Related
The Asset Allocation Decision
Cash, Bonds and Stocks
Small vs. Large Companies
Value vs. Growth Companies
Your Emotional Tolerance to Risk
Your Age


3. The Diversification Decision
Positively correlated, uncorrelated or negatively correlated.
Domestic or International Stocks
Domestic or International Bonds
Portfolio Risk and Return


4. The Active versus Passive Decision
Active Investing
Passive Investing
Cash Drag, Consistency, Costs Matter


5. The Rebalancing Decision
Rebalancing = Buy Low and Sell High, minus your emotions
Rebalancing Methods
The Benefits of Rebalancing
Rebalanced Annually
Never Rebalanced


Everyone who takes the time to address these five investment decisions can have a successful investment experience.

The elegant truth of economics is that the return on capital is exactly equal to the cost of capital.

Wealth is created when natural resources, labour, intellectual capital and financial capital combine to produce economic growth.

As an investor, you are entitled to a share of that economic growth when your financial assets are invested in and used by the global economy.


So, how can you best capture your share?

The most effective way is to deploy your capital throughout the public fixed income and equity markets ### in a broadly diversified manner designed to capture a global capital market rate of return.

With the proper time horizon and discipline you can reach your financial goals and outperform most investors with less risk.

Remember, do not focus on what you cannot control. You cannot predict the occurrence of an event like the mortgage crisis, the sovereign debt crisis or an oil spill in the Gulf of Mexico.

You can control your costs, diversify properly, establish the right asset allocation, and maintain the discipline to stay the course.

Going forward, when you see the investment predictions on the cover of the latest financial periodical, watch the talking heads make their forecasts on TV, and listen to your friends and neighbours boast about their latest great investment scheme, you will understand that they are speculating instead of investing.

You know a better way and you have the answer.




Appendix:

###
Fixed Income Asset Classes
Cash Equivalents
Short-Term U.S. Government Bonds
Short-Term Municipal Bonds
High-Quality, Short-Term Corporate Bonds
High-Quality, Short-Term Global Bonds

Equity Asset Classes
U.S. Large Stocks
U.S. Large Value Stocks
U.S. Small Stocks
U.S. Small Value Stocks
International Large Stocks
International Large Value Stocks
International Small Stocks
International Small Value Stocks
Emerging Markets Stocks (Large, Small and Value)
Real Estate Stocks (Domestic and International)



The 5 key decisions every investor needs to make:

1. The Do-It-Yourself Decision
[Should you try to invest on your own or seek help from an investment professional? And if so, which type of advisor is best?]

2. The Asset Allocation Decision
[How should you allocate your investments among stocks (equities), bonds (fixed income), and cash (money market funds)?]

3. The Diversification Decision
[Which specific asset within these broad categories should you include in your portfolio, and in what proportions?]

4. The Active versus Passive Decision
[Should you favour an actively managed approach to investing that seeks to outsmart the market, or a more passive approach that delivers market-like returns?]

5. The Rebalancing Decision
[When should you sell certain assets in your portfolio and when should you buy more?]


Each of these decisions has a significant impact on your overall investment experience.

Whether you know it or not, every day you are making these decisions.

Even if you decide to just stay the course and do nothing with your investment portfolio, you are inherently answering all of these five questions.

By learning how to make five informed investment decisions that capture the essence of investing you will never again be afraid of financial markets or uncertain about what to do with your money.

You will no longer be a speculator .. you will be an investor.



Reference:
The Investment Answer
Daniel C. Goldie & Gordon S. Murray

Wednesday 13 December 2017

How did Keynes perform as an investor? (Audio)

https://blogs.cfainstitute.org/investor/2015/06/30/how-did-keynes-perform-as-an-investor/



John Wasik says:

Excellent piece, but I should note that in researching my book “Keynes’s Way to Wealth,” I discovered that the great economist’s investing skills evolved over time and were enhanced by his notable failures in 1920, 1929 and 1937 when he was nearly wrecked by downturns. Fortunately, Keynes recovered brilliantly and kept investing at the bottom of some of the worst declines in the 20th Century and died perhaps the wealthiest economist ever. Along the way, he pioneered some of the basic principles of value investing. His notion of “animal spirits” is also the cornerstone of behavioral economics and a solid guidepost for anyone trying to outguess the market and rely solely upon metrics like p/e ratios. Sadly, though, he’s rarely given credit for being ahead of his time, although this recent research sheds some new light on his investing acumen.




Power Point Presentation of
The Investment Wisdom of John Maynard Keynes (1883 - 1946)
https://www.cfasociety.org/westmichigan/Past%20Event%20Presentations/Jeff%20Pantages%20-%206.19.2013.pdf



John Wasik wrote an excellent book titled Keynes's Way to Wealth.

Here are some related comments on John Maynard Keyne's investing prowess.

-- John C. Bogle, founder, The Vanguard Group, author, The Clash of the Cultures: Investment vs. Speculation (from the foreword)
As you follow Keynes from his early years with the Bloomsbury Group, through two world wars and the Great Depression Keynes's theories and practices come to life by way of the historic and personal events that shaped them. Like today's investors, Keynes faced markets roiled by panic, inflation, deflation, widespread unemployment, and war-and he developed a core set of principles to prosper in every climate. With the individual investor in mind, this straightforward guide makes it easy for investors at all levels to implement the action-oriented strategies presented in each of the 10 chapters and start investing like Keynes today by:
  • Buying and holding quality stocks
  • Ignoring short-term news
  • Building diversified portfolios
  • Trading contrary to market momentum
  • Getting the most out of dividend stocks
Using the eloquent insight of a seasoned investment writer, author John F. Wasik digs down into what investments Keynes owned, how he bought and sold them, how his theories guided his investments, and vice versa. He illustrates why Keynes's ideas, insights, and portfolio strategies have withstood the test of time, and how they will continue to produce financial gains for dedicated investors. In a nutshell, Wasik delivers a pragmatic guide to the style of portfolio management practiced by such Keynes followers as Benjamin Graham, Warren Buffett, and Charles Munger.
The smart money gets richer in all types of weather, and so can you by following Keynes's Way to Wealth.
"Intelligent investing ultimately depends on having an intelligent theory of the economy. This story of Keynes's life as an investor illustrates this beautifully."
--ROBERT SHILLER, professor of Economics, Yale University; New York Times columnist; and author of Finance and the Good Society
"The great economist John Maynard Keynes speculated and lost big-time. Out of the ashes, he evolved some great long-term investment strategies that will work for every prudent investor. While picking up tips, you'll also find that this book is a great read."
--JANE BRYANT QUINN, author of Making the Most of Your Money NOW
"I'd always heard Keynes was a talented investor but never knew any of the details. John Wasik's excellent book uncovers that story and reveals Keynes's considerable investing skills. If you enjoy studying great investors, add this book to your list."
--JOE MANSUETO, founder and CEO, Morningstar, Inc.
"With the possible exception of Mark Twain, no one surpasses John Maynard Keynes as a source of pithy financial wisdom and sayings. Keynes's Way to Wealth mines the reasoning and investment experiences behind his quotability, abounty that will simultaneously edify, entertain, and augment your bottom line."
--WILLIAM J. BERNSTEIN, author and principal

Tuesday 12 December 2017

Price is always an approximation; any precision is an illusion.

Price is a number that is often a delusion and nearly always a distraction.

The price attached to a stock or other financial asset changes in a frantic hum, often several thousand times a day, causing corrosive intellectual damage.

It may have little relation to VALUE, although it is more interesting and keeps most of the financial media quite busy.

The continual flux and spurious precision of price will cast an illusion of certainty, fooling many investors into thinking that the exact worth of a stock is knowable at any given moment.

That tricks investors into believing that even tiny changes in price can have great significance when, in fact, the constant twitching of stock prices is nothing but statistical noise.

Under the illusion of certainty created by PRICE, investors forget that VALUE is approximate and that it barely changes on even a monthly time scale.

Investors who fixate constantly on price will always end up trading too much and overreacting to other people's mood swings; only those who focus on ascertaining value will achieve superior returns in the long run.



Example:

If asked what your house is worth, would you respond, "$237,432.17?"  Of course not.

You know perfectly well that nobody, including you, knows what your house is worth to the nearest thousand dollars, let alone to the nearest penny or fraction of a penny. 

Instead, you would say, "Between $200,000 and $250,000 maybe."



With stocks and other financial assets, price is also an approximation; any precision is an illusion.

Price/Earning Ratio or P/E Ratio

This is a company's stock price divided by its earnings per share over the previous twelve months.

Because earnings can be manipulated in many ways and because past earnings are a poor guide to future profits, a P/E ratio is an imprecise and often misleading guide to what the company is worth.

A "normalised" P/E ratio averages several years's worth of earnings to arrive at a somewhat more reliable number.

A "forward" P/E relies on analysts' expectations of earnings in the coming year to arrive at a nonsensical number.

Sunday 10 December 2017

Bursa Market PE 10.12.2017

Date 10.12.2017
KLCI 1721.25
Market PE 16.5
Market DY 3.29%


DateMarket PEMarket DYKLCI
2.11.201717.13.10%1742.49
3.1.201417.13.20%1804.03
7.6.201316.23.47%1775.59
11.1.201316.63.17%1682.7
19.10.201217.72.90%1666.35
15.12.201115.13.42%1464.11
6.1.201117.23.00%1568.37
5.10.201017.55.70%1462.27
10.2.201018.83.03%1246.17
3.7.200910.23.71%


(Sorted by DY)
Company Mkt Cap (B) Last Price PE DY ROE EPS
SIMEPLT (5285) 35.976 5.29 0.00 0.00 0.00 0.00
SIMEPROP(5288) 8.705 1.28 0.00 0.00 0.00 0.00
IHH (5225) 46.304 5.62 56.03 0.53 3.7 0.10
GENTING (3182) 33.857 8.79 14.14 1.42 6.83 0.62
AXIATA (6888) 48.497 5.36 84.28 1.49 2.28 0.06
PPB (4065) 19.916 16.8 15.03 1.49 6.29 1.12
KLK (2445) 26.111 24.46 25.98 2.04 8.66 0.94
IOICORP (1961) 28.215 4.49 28.26 2.12 13.47 0.16
HLFG (1082) 19.232 16.76 12.21 2.27 9.21 1.37
RHBBANK(1066) 19.449 4.85 11.11 2.47 7.61 0.44
PCHEM (5183) 59.36 7.42 14.27 2.56 15.11 0.52
IJM (3336) 10.377 2.86 16.96 2.62 6.41 0.17
HLBANK (5819) 34.683 16 15.47 2.81 9.07 1.03
PETDAG (5681) 24.34 24.5 15.99 2.86 25.71 1.53
PBBANK (1295) 77.72 20.02 14.22 2.9 15.14 1.41
GENM (4715) 31.175 5.25 13.01 3.14 11.87 0.40
CIMB (1023) 54.984 5.96 12.88 3.36 8.72 0.46
MAXIS (6012) 46.395 5.94 21.71 3.37 31.09 0.27
TM (4863) 22.698 6.04 28.12 3.56 10.72 0.21
HAPSENG (3034) 23.652 9.5 22.19 3.68 17.41 0.43
PETGAS (6033) 31.66 16 17.88 3.88 14.38 0.89
TENAGA (5347) 87.936 15.52 12.74 3.93 12.07 1.22
WPRTS (5246) 12.106 3.55 20.33 3.94 28.86 0.17
MISC (3816) 31.782 7.12 13.01 4.21 6.71 0.55
AMBANK (1015) 12.449 4.13 9.51 4.26 8.04 0.43
DIGI (6947) 36.309 4.67 24.35 4.48 274 0.19
KLCC (5235SS) 14.027 7.77 15.95 4.59 6.85 0.49
ASTRO (6399) 14.182 2.72 19.32 4.6 110 0.14
MAYBANK(1155) 99.926 9.27 12.89 5.61 10.56 0.72
BAT (4162) 10.873 38.08 15.52 7.3 164.68 2.45
YTL (4677) 12.874 1.18 16.32 8.05 5.06 0.07
SIME (4197) 14.826 2.18 4.59 10.55 8.38 0.47

FBM KLCI’s valuation tells a ‘compelling’ story

KUALA LUMPUR: The FBM KLCI, which is one of the worst-performing markets in Asean despite seeing the most foreign inflow this year in the region, is now trading at a compelling valuation as its forward price-earnings ratio (PER) remains below both its five-year and 10-year averages, according to RHB Asset Management Sdn Bhd chief executive officer (CEO) Ho Seng Yee.

“In terms of valuation, the [FBM] KLCI is very undemanding now. Valuation is relatively compelling as we’re now below the average 10-year price-earnings ratio,” Ho told The Edge Financial Daily in an interview.

Bloomberg data shows that the forward PER for the FBM KLCI is at 15.33 times, while its five-year average and 10-year average PER are at 17 times and 16.5 times respectively.

Notwithstanding the FBM KLCI’s underperformance so far in the region, Ho said the outlook for Bursa Malaysia is very positive, though it hinges on a key aspect: the upcoming corporate earnings report card. But Ho is also upbeat about that.

“Our corporate earnings have been on a downtrend for the past three years, but has now stabilised. We believe corporate earnings have bottomed out and when earnings growth is reflected, the market will move up,” said Ho.

The positivity comes amid a stronger economic environment in Malaysia and globally. Ho noted that the country’s economic prospect has improved tremendously this year — its gross domestic product (GDP) growth gained at a commendable 5.7% in the first half of the year — while strong exports have helped to support the economy, partly thanks to the relatively cheap ringgit.

“The worst is pretty much over,” said Ho, as he recalled the collapse of the oil price in 2014 that resulted in the stock market, which was trading at around 1,900 points at the time, to slump. “The scenario has changed now,” Ho noted, and pointed out that the ringgit has stabilised and could strengthen further with the oil price steadying above the US$60 (RM251) per barrel level.

At the time of writing, the oil price was trading at US$64.08 per barrel, compared with the year-ago level of US$50 per barrel. Though it’s still far from the US$100 per barrel level seen before the collapse, Ho thinks it provides sufficient support to Malaysia’s economy to achieve the Budget 2018 objective, which is based on the assumption of the oil price being at US$52 per barrel.

On FBM KLCI’s underperformance this year compared with its regional peers, Ho said one of the reasons was due to the strong participation of institutional investors in the local bourse.

“One of the key things to note about our market is the presence of institutional players like KWAP (Kumpulan Wang Persaraan [Diperbadankan]), EPF (the Employees Provident Fund) and such. Their participation makes up about 50% of the market. In the past few months, when foreign investors bought in, they sold. That in itself may have kept the [FBM] KLCI from moving to a fantastically high level. Today, the index is only up about 6% to 7% [year to date],” he said.

On the positive side, he said the strong participation of local institutional investors gives good support to the market and helps stabilise it from volatility. Back in the 1990s, Ho said the Malaysian stock market comprised about 70% retail investors, who now only make up about 20% to 25% of the market.

“We’re changing into more of an institutional market, which will make it more stable and defensive,” he added.


Downside risks or buying opportunity?

Regardless of his positivity, with geopolitical risks rising around the world, Ho said caution remains the order of the day. “It probably will not hurt the Malaysian market directly, but it will affect the global market, which in turn will spill over here,” he said.

The global equities market have run and reached record highs recently, noted HSBC Global Asset Management Ltd director and senior equity product specialist Stephen Tong, who was also present in the interview.

“While there’s a concern on whether there will be a crash or not, you just have to remember that corporate earnings are strong and so the market can be supported at this kind of level. Geopolitical risk events, or any event for that matter, could cause investors to take profit and because the volatility is very low, a small event can cause this profit-taking to accelerate, and you will have a small correction. But when these corrections occur, it could be a buying opportunity for those with cash,” Tong said.

While geopolitical risks cannot be ignored, he said its impact on one’s investment can be contained by scenario planning. Besides that, economic indicators and the US Federal Reserve’s (Fed) policy are two other key risks to world shares.

“If there’s some weakness in the economic indicators, then the environment for corporate earnings would be soft. Another key risk is the Fed’s policy, if it raises rates too quickly,” he added.

Regardless, Tong is upbeat about global equities despite its recent runs, which he said was based on strong corporate earnings, which have pushed up subsequent earnings expectations.

“Corporate valuations are based on earnings. Corporate earnings are strong because of synchronised global recovery. Interest rates continue to remain low and the central banks’ normalisation is going to be very gradual, which is supportive of the economy and the market,” he added.

Against this bullish view, RHB is launching its RHB Global Real Estate Equity fund, a fund that feeds into HSBC’s Global Investment Funds — Global Real Estate Equity. Tong said the fund will invest in a portfolio of equities related to the real estate industry in developed markets.

The minimum initial investment is at least RM1,000 for the ringgit class or US$1,000 for the US dollar class. The fund targets the upper-middle class in Malaysia who wants exposure to the property sector in developed markets, said Ho. It is expected to generate an average return of about 6% over a long-term period, based on dividend yield, potential earnings growth and valuation.

“Malaysia is not part of the investment universe in that fund. That means for Malaysian investors who focus on property stocks or own properties in Malaysia, this offers a diversification to exposure outside Malaysia,” Tong said.

He also said that given the low correlation between real estate’s return and other investment assets, it gives a good diversification alternative within one’s investment portfolio.

“Returns on real estate equity has been very similar to global equities, so it’s not giving up much of the return potential compared to investing in equity. It also offers a higher dividend yield relative to global equities, about 4% against 2.6% on average,” he said.

The companies it invests in are typically real estate investment trusts (REITs), and could involve those in operating in retail, residential, office, self-storage, industrial parks, logistics for e-commerce, healthcare facilities and others.


Hope in the retail space

On retail REITs, Tong disagreed with the perception that there are systemic problems plaguing the sector with the advance of e-commerce, saying instead that retail spaces that fail are due to specific problems at specific stores.

“There’s actually a silver lining to some of the stores’ closure seen in the US. If retail space is freed up, you can refurbish and relet the space to better tenants at a higher rate. While some think e-commerce is eating away traditional shops, we see customers like the retail experience such as eating out, going for movies, bowling and many more. It’s much more than just a singular shopping experience,” Tong said.

He highlighted that leading e-commerce player Amazon has bought into Whole Food, which reflects the continued importance of a brick-and-mortar presence.

In Malaysia’s retail space, however, RHB’s Ho agreed that there has been some declines in retail spending in shopping malls, but noted that an improved consumer sentiment, along with better economic environment and higher wages, could see the return of retail spending growth.

Billy Toh
The Edge Financial Daily
November 13, 2017 08:36 am +08

Wednesday 29 November 2017

MSCI GLOBAL SMALL CAP and GLOBAL STANDARD INDEXES November 30, 2017.



MSCI MALAYSIA INDEX

Additions
ECO WORLD INTERNATIONAL
GEORGE KENT
HENGYUAN REFINING CO
PETRON MALAYSIA


 Deletions
 CB INDUSTRIAL PRODUCT
JAYA TIASA HOLDINGS
JCY INTERNATIONAL
MEDIA PRIMA
PRESTARIANG
TROPICANA CORPORATION
TUNE PROTECT GROUP

https://www.msci.com/eqb/gimi/smallcap/MSCI_Nov17_SCPublicList.pdf




MSCI MALAYSIA INDEX

Additions
NESTLE (MALAYSIA)
PRESS METAL ALUMINIUM
SP SETIA

Deletions
None

https://www.msci.com/eqb/gimi/stdindex/MSCI_Nov17_STPublicList.pdf

https://www.msci.com/index-review

12 blue chips you wish you'd bought in 1998


Monday 27 November 2017

How to judge the Evaluate of Management?

how-to-judge-the-quality-of-management


https://blog.elearnmarkets.com/how-to-evaluate-management-of-a-company/

Intrinsic Value - A key to value investing




























































https://blog.elearnmarkets.com/how-to-calculate-intrinsic-value/








There is a bit of concern regarding the calculation of intrinsic value about its subjective nature despite the huge popularity. Different people come out with different intrinsic value for the same stock. Anyways the calculation of intrinsic value helps in determining the attractiveness of a stock.
Just like Warren Buffet said that he uses the following criteria to invest in stocks-
a. Business which he understands
b. Run by competent and able management.
c. With long-term focus
d. Attractively priced
He further adds
We usually can identify a small number of potential investments meeting requirements (1), (2) and (3), but (4) often prevents action.

However, many a time when a business passes all tests, it’s better to avoid the stock if the valuations are not attractive as compared to its intrinsic value.
Image result for buffett intrinsic value is the present value of all its future cash flows















Image result for buffett intrinsic value is the present value of all its future cash flows
Image result for buffett intrinsic value is the present value of all its future cash flows

Image result for buffett intrinsic value is the present value of all its future cash flows