Sunday, 28 February 2010

More Often Than Not, the Insiders Get It Right

More Often Than Not, the Insiders Get It Right

Published: February 27, 2010

CORPORATE insiders are sending fairly positive signals about the market.

When stocks began to fall in mid-January, insiders cut back on sales of their companies’ shares and increased their purchases, according to David Coleman, editor of the Vickers Weekly Insider Report.

That adds up to at least a “neutral” stance, he wrote to clients, and implies that the recent decline won’t turn into a full-blown bear market.

But, as a market indicator, how reliable are the sell-and-buy decisions of insiders like corporate officers, directors and big shareholders?

While these insiders have a long history of correctly anticipating the market’s direction, they haven’t done all that well in the last few years. As a group, insiders failed to recognize the top of the bull market in October 2007, and didn’t anticipate the depth of the decline that followed.

After these missteps, have insiders’ trades outlived their usefulness as a basis for market timing?

Probably not, says H. Nejat Seyhun, a finance professor at the Stephen M. Ross School of Business at the University of Michigan, who has studied the behavior of corporate insiders for many years. In an interview, Professor Seyhun said that insiders were not infallible, and that their recent failures were hardly their first misreading of the market’s direction.

But since 1975, the earliest year he has studied, insiders have been correct far more often than they’ve been wrong, and this is still likely to be the case, he said.

And there is no evidence, he added, that insiders have lost their ability to tell when their own companies’ stocks are undervalued. In the late 1970s and early ’80s, for example, he found that the average stock bought by an insider outperformed the overall market by three percentage points in the 50 days after the purchase.

For the most recent 10-year period in his sample, through 2008, the comparable 50-day advantage for the insiders was 3.3 percentage points. That’s striking because it includes the bulk of the 2007-9 bear market.

Given the variability of the year-by-year results, Professor Seyhun cautions that it’s not clear whether insider purchases are more profitable today than they were 30 years ago. But, he argues, his results show that insiders by no means are losing their touch.

Though the professor’s analysis extends only through 2008, data collected by the Vickers Weekly Insider Report show that even though the insiders missed the bear market, they can nevertheless take credit for anticipating the market rebound that began a year ago. Leading up to the market’s low in March 2009, for example, insiders as a group behaved more bullishly than they had in more than a decade.

Consider an indicator that Vickers calculates each week, representing the ratio of the number of shares that insiders sold over the previous eight weeks to the number they bought. That ratio dropped to as low as 0.45 to 1 in the weeks just before the bear market ended. That was the ratio’s lowest level since December 1990, at the beginning of the great ’90s bull market.

The more recent low, of course, was followed by a 10-month rally in which the Standard & Poor’s 500-stock index gained some 70 percent.

By November, in contrast, this sell-to-buy ratio had risen as high as 5.21 to 1, according to Vickers, more than double its long-term average of around 2.5 to 1. That signaled to Mr. Coleman that the market was vulnerable to a decline — and, indeed, the market did start to fall in mid-January. At its lowest point, the S.& P. 500 was down nearly 9 percent from the mid-January high.

But in recent weeks, insiders have been cutting back on sales and increasing their purchases. As a result, the sell-to-buy ratio has fallen back to 3.52 to 1, according to Vickers.

Though that is still higher than the long-term average, the trend suggests to Mr. Coleman that the recent downturn is likely to be “only a near-term correction.” He said that his firm was “increasingly optimistic about the future performance of the overall markets.”

Had the sell-to-buy ratio increased in the wake of the market’s pullback, Professor Seyhun added, we would have had reason for worry. It would have meant that insiders had no confidence that their shares would be recovering anytime soon, he said.

“Fortunately, and at least for now,” he said, “insiders are not exhibiting such eagerness” to sell.

Mark Hulbert is editor of The Hulbert Financial Digest, a service of MarketWatch. E-mail:

You don't have to be a genius to make money in the market

With four sons about to enter college, Ellis Traub lost everything.  Today, he's a widely respected author, spokesman for the NAIC, and CEO of Investware.  Learn how you can avoid the same mistakes he did - and save your pocketbook a lot of trouble.

Part 1:A Walk: Ellis' Story
• Part 2:You Can Do It
• Part 3: Buy from a Sucker
• Part 4: Reader Questions

The Five Rules for Successful Stock Investing

The Five Rules for Successful Stock Investing: Morningstar’s Guide to Building Wealth and Winning in the Market

02.28.2010 · Posted in Stock Market

Product Description
The Five Rules for Successful Stock Investing

“By resisting both the popular tendency to use gimmicks that oversimplify securities analysis and the academic tendency to use jargon that obfuscates common sense, Pat Dorsey has written a substantial and useful book. His methodology is sound, his examples clear, and his approach timeless.”

–Christopher C. Davis Portfolio Manager and Chairman, Davis Advisors

Over the years, people from around the world have turned to Morningstar for strong, independent, and reliable advice. The Five Rules for Successful Stock Investing provides the kind of savvy financial guidance only a company like Morningstar could offer. Based on the philosophy that “investing should be fun, but not a game,” this comprehensive guide will put even the most cautious investors back on the right track by helping them pick the right stocks, find great companies, and understand the driving forces behind different industries–without paying too much for their investments.

Written by Morningstar’s Director of Stock Analysis, Pat Dorsey, The Five Rules for Successful Stock Investing includes unparalleled stock research and investment strategies covering a wide range of stock-related topics. Investors will profit from such tips as:
* How to dig into a financial statement and find hidden gold . . . and deception
* How to find great companies that will create shareholder wealth
* How to analyze every corner of the market, from banks to health care

Informative and highly accessible, The Five Rules for Successful Stock Investing should be required reading for anyone looking for the right investment opportunities in today’s ever-changing market.
  • ISBN13: 9780471686170

Never Get Started Investing – 5 Tips To Ignore Your Financial Future

Never Get Started Investing – 5 Tips To Ignore Your Financial Future
February 27th, 2010 | Author: admin

Try to be Warren Buffet(Pick Individual Stocks)

Warren Buffet can do it so darnit you can too. NOT! To do it profitably, stock picking requires that you understand complex accounting. You have to be able to pore through long corporate financial statements, analyze what you see and then decide whether the company is worth its current stock price. Sounds easy right?

There is no reason to do this. There are so many exchange-trade-funds(ETFs) and index mutual funds to choose from that allow you to avoid this complextiy. A single ETF alone can provide you with exposure to an entire sector, country, region of the world, or even a commodity or foreign currency. Why waste time trying to decipher boring financial statements. Yuck!

Listen to the Media

Go ahead,.. just try to factor in every single thing you hear or read about the economy, interest rates, or some company’s fancy new product into your portfolio. You are guaranteed to earn yourself a trip to the local looney bin. Investing doesn’t have to be complicated. Stay focused on the big picture. Choose a mix of asset classes that is right for your age and desired level of risk. Next, implement it using low cost index ETFs or index mutual funds.

Follow Stock Tips

That hot stock tip from your buddy at work. That unknown pennystock your cousin told you is going to triple in a few weeks. All aboard! You’re going to be rich soon, right? WRONG! There are many places on the web to get objective research on ETFs and mutual fund options. Try Morningstar or Yahoo! Finance, just to name a few. Avoid message boards, forums, and tips from friends and family like the plague. it’s a recipe for hurt feelings and portfolio pain.

Ignore Your 401(k) Match

Who needs free money for retirement anyway? It’s so far away. You’re young, and you’d rather spend the money on a new sports car, a leather jacket, and some hot threads for the cllub. That is oh so stupid! If you employer offers matching contributions in your 401(k) plan, get it! Make whatever the minimum contribution is to get those matching funds. It’s literally free money. No one in their right mind should say no to that.

Don’t Have a Strategy

Why have a strategy? Investing is easy, just buy-and-hold forever and you’ll be okay, right? Nope. What will you do one day when you open your account statement to find that half(or more) of your nest egg is gone. Everyone has an buying strategy. Very few people have an exit strategy. You need to have an exit strategy so that you don’t get crushed during bear markets. Having a robust trend-following strategy and the discipline to stick with it will help you keep your emotions in check. You’ll be well on your way to becoming a successful investor.

Tips On How To Buy Stocks That Should Double And More!

Tips On How To Buy Stocks That Should Double And More!

Do you think you’re prepared to buy stocks, but you are uncertain where to start?

Nowadays it is less difficult to buy stocks that will double, triple, or more! Nevertheless, the potential for loss are still there. If you wish to buy stocks with no chance, you’ll have to continue step-by-step, and plan your investments before taking the dive.

Discover ways to pick and buy stocks without getting caught into dangerous schemes and invest in winning stocks. Here are a few no- risk tips on how to proceed.

Determine a secure strategy before you start buying stocks:

• Choose what stock you need to invest in by researching the market completely. Read stock market newspapers carefully, such as the Wall Street Journal, or browse through financial marketplace sites.

• Keep up with customer trends. If you are going to buy stocks, you will need to follow corporations and firms that are likely to influence the stock market.

• Evaluate the marketplace before buying stocks to choose winning stock picks. It’s not that difficult to find out the rate at which your stock is anticipated to mature. The trouble lies in determining whether the stock will really grow. To do this, you must find the industry’s rate of growth. Next, find out if the company you want to buy stocks from can grow up at the same rate.

• Only buy stocks from industrial sectors you’ve thoroughly investigated.

• When buying stocks, it is better to acquire low and sell high in order to invest. Prevent buying high to try and speculate, by selling higher.

How to define winning stock picks:

Getting stocks has become much easier now, as you have more choices than before. You are able to choose to buy stocks as a small investor with easy study. The thing is right now there is simply too much to pick from!

Before you purchase stocks, stop, watch and understand. In no way believe in virtually any advice until you’re certain it will work. Never allow your feelings overcome your own judgment when you’re buying stocks.

Singapore’s Wilmar says Q4 net profit up 18pc

SINGAPORE, Feb 28 – Wilmar International, the World's largest palm oil producer, reported on Sunday a better-than-expected 18 per cent rise in fourth quarter net profit as a global economic recovery drove commodities prices higher.

The company, which has a presence in 20 countries across Southeast Asia, China, India, Europe and Africa, said it would continue to seek attractive investment opportunities to support future growth.

Wilmar posted a net profit of $442 million, up from $373.6 million a year earlier, ahead analysts forecasts of $333.5 million.

The quarterly results took the full year net profit to $1.88 billion, higher than ThomsonReuters I/B/E/S estimates of $1.65 billion. – Reuters

Friday, 26 February 2010

People all over the world lost huge amounts of money in the stock exchange business.

Stock Market Strategy

What do you know about the stock market business? Do you find yourself accounted enough with the information related to the stock market to start gambling? In the case, you are, we might only give you our congratulations and wish good luck and nice profit there. However, if you find it would be important for you to account yourself with some interesting facts related the stock market business we might be helpful for you. Any way, we consider it is significant to understand the fact that disproves some unauthentic information. People all over the world are talking about the great risk that we are under when we involve our assets into the stock market gambling. There were gossips that people all over the world lost huge amounts of money in the stock exchange business. It means that the people who have heard this resist involve money at the stock market. To be honest, the great deal of potential investors keeps their assets in the bank account thinking that it is the most safety place for them. Moreover, we would not dispute as for the fact that the stock market business is the risky one. Nevertheless, you should remember the fact that your bank account would never bring as much money as the stock market might do. Any way, you should also be well accounted with the information that the lost as well as wins at the stock market gambling depends on the proper organization the speculations. What might you do for it? The only thing that depends on you is to make the proper investment. In the other words, you should observe and discover all possible information that characterizes the stock exchange you are going to deal with. Whatever, you think it would be of great value for you to account yourself with the portfolio of the definite stock market. The portfolio of the stock exchange, you are going to deal with as the any other portfolio, includes all needed information that might be helpful for you to make the final decision. Nevertheless, there are the plenty of additional particularities of the stock market, which are common for the every single stock exchange. We are talking about the stability, dividends, visibility and the international exposure of the definite stock exchange. However, you might take into consideration the fact that relate the education and experience of brokers that are gambling at the very stock exchange before you would invest your money in it. Frankly speaking, the brokers are the person directly responsible for the profit and benefit of the stock market. The only broker might deal with the speculations at the stock exchange and make you win or lose additional funds.

The beauty of the stock market is that it can be used for various purposes. Even the people who are involved into retirement investing use the investing into the stock market to be a great investment tool.

So, people who are without any jokes interested in getting income with the stock market – please check out the latest stock market news.

Strategy during crisis investment: Revisiting the recent 2008 bear market

Although we may not know where the bear bottom is, buying in a down market may still lead to losing money. This is definitely true. As long as the purchase is not at market bottom, it may still result in losses for the time being. This is likely to be a short-term loss but compensated by a probable long-term gain. Even if we cannot time the market perfectly, we are definitely better off to “buy low and sell high” then to “buy high and sell low”.

Prices fell but value intact

Presently stock prices have fallen sharply. 
  • Banks are trading at 1x book value, 
  • property stocks sold at 50% discount from net asset value, 
  • utility stocks trading at single-digit price-earnings ratio providing an earnings yield of more than 10% net of tax and 
  • there are many good stocks trading at dividend yield of 2x bank interest rates. 


Warren Buffett, the second richest man in the world who makes his fortune from stock investment, is busy buying undervalued companies. He sees the value and he also sees prices detaching away from the intrinsic values. He said: “I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turn up.”  


Catching a falling knife

Some may argue that buying now is like catching a falling knife. If you are not careful, you may be hurt and suffer more losses from falling stock prices. There is no doubt that we may incur short-term losses as long as we do not buy at the bottom. On the other hand, who can determine where and when is the bottom. As long as there are still unknown events or hidden problems, an apparent bottom now may not be the eventual bottom. Since we do not have all the information in the market, it is almost impossible to guess where the bottom will be.


In most cases, we only realise the bottom after it is over and by that time stock prices are running high with much improved market confidence. Market bottom could be there only for a short period. In most cases, market did not stay at the bottom waiting for investors. It will just move on.


Since market moves ahead of the economy by about six months, the market bottoms out when the economy is still gloomy, news are still negative, analysts are still calling underweights and most investors are staying at the sidelines. 


Handling something we know is definitely much easier than dealing with the unknown risks, something which hits from behind without warning. When we invest during a crisis we actually go in with our eyes open. We know it is definitely risky but we also know it could also be very profitable. If we can handle the risk, the risk-reward trade-off will be very rewarding.


Emphasise strategies

What we need is to buy near the bottom, not right at the bottom. Investors’ frequent question now is when to buy, that is where is the bottom? Perhaps it is more intelligent to ask how much to buy now since nobody will be able to guess where is the market bottom.


Staggered buying is preferred over bullet purchase which is taking the risk of timing the market bottom. In staggered buying, a pre-determined amount will be set aside for investment over time, say in 10 equal portions.

One common method of staggered investment is dollar cost averaging, an investment scheme made in equal portions periodically, either by a small amount monthly or larger amount quarterly. There are also several variations of staggered investment.


Anyway, staggered purchase is a preferred method to avoid the anxiety of market timing and the mixed feeling of fear of further downside and worry of missing the market rebound. As long as the market is undervalued, the strategy of staggered investment ensures that investors are in and are benefiting from the undervalued market.    

A check-list to evaluate your selling of stocks.

Why are you considering a sale?

Relating Price of Stock to its Earnings and Earnings Growth Rate

Here is an interesting way to think about your stock.  What do you think will be the price of Company A next year or 5 years from now? 

The obvious answer is no one knows.

However, one can in general, agree that if Company A grows its earnings, this will be reflected in a higher price of its stock.  Therefore to answer the question objectively, one would need to know exactly what will be company A's earnings for next year and in 5 years time.  As this is impossible, one can only guess or have a good 'hunch' about its future earnings.  Accordingly, there will always a speculative element in your estimates of future earnings when you invest in a stock.

Nevertheless, price of a stock is intimately linked to earnings.  When the company increases its earnings, this will be reflected in its share price also increasing.  However, short term volatility in price can be large and the price correlation with the earnings likewise volatile over the short term.  It is important for long term investors to know that the correlation between price and earnings over the long term is indeed very strong.  This relationship is to be exploited by the intelligent investors.

Therefore, when asked if the share price of Company A will double in 5 years from today, assuming that its present price is fair price, an appropriate answer might be be, definitely yes, IF it can double its earnings in 5 years.

For earnings to double in 5 years, the EARNINGS GROWTH RATE should be about 15% per year over these 5 years.  The company growing its earnings at lower than 15% per year is less likely to double its share price in 5 years from its fair price.  (Its share price may double at lower earnings growth rate if it started off severely undervalued.)   For example, a company with earnings growing at 7% per year is anticipated to see its share price doubled in 10 years.

On the other hand, a company growing its earnings at greater than 15% per year sustainably, will see its share price doubling in 5 years.  However, a company growing at high growth rates carries with it certain risks related to this fast growth.   Another paradox of a high earnings growth company is that its share price tends to be high due to popularity of the company amongst investors.  Therefore, though it may be a great company, it may not be a great investment if bought at very high price.

For those aiming for high returns in their investing, focusing on the quality of earnings and earnings growth (besides other business characteristics, risks and fundamentals) of a company, is important.  Is the company able to grow its business and earnings sustainably over many years?

Thursday, 25 February 2010

Malaysia's Maxis 2009 profit misses estimate

Thu Feb 25, 2010 5:19pm

* Q4 net profit 503 mln rgt vs 668 mln rgt Nomura estimate

* FY net profit 1.6 bln rgt vs 2.4 bln rgt consensus estimate

* Says optimistic about Malaysian telecoms market

* Shares end up 0.6 pct at 5.52 ringgit ahead of results

KUALA LUMPUR, Feb 25 (Reuters) - Malaysia's leading mobile phone service provider Maxis Berhad (MXSC.KL: Quote, Profile, Research) reported lower quarterly profits on Thursday, hit by higher finance charges and expenses related to its listing last November.

Maxis, which debuted on the stock exchange as Southeast Asia's biggest initial public offering last year, said it is optimistic about growth in the telecommunications market after adding 556,000 new subscriptions in the fourth quarter.

"Despite the entry of a number of new players in the market, and maintaining a large subscription base, the company recorded another year of over 50 percent EBITDA margin," said Sandip Das, Maxis' chief executive officer. Maxis reported October-December net profit of 503 million ringgit ($147.8 million) against 615 million ringgit in the third quarter.

Analysts generally do not provide quarterly earnings forecasts for Malaysian companies, but Nomura put its estimate for Maxis' fourth-quarter net profit at 668 million ringgit.

The company made a net profit of 1.6 billion ringgit for the full year, missing the 2.4 billion ringgit consensus estimate of 19 analysts tracked by Thomson Reuters StarMine.

Maxis is valued at 41.2 billion ringgit ($12.1 billion), making it the biggest mobile provider by market capitalisation in Malaysia, the second most developed mobile market in Southeast Asia after Singapore.

It competes with smaller rivals like Axiata (AXIA.KL: Quote, Profile, Research) and DiGi (DSOM.KL: Quote, Profile, Research) and controls 40 percent of the local mobile phone market.

Axiata, Malaysia's No.2 mobile telecoms provider, posted better-than-expected 2009 net profit on Wednesday but said competition was heating up in its key markets. [nSGE61M079]

Eleven out of 21 analysts tracked by Thomson Reuters I/B/E/S have "hold" ratings on Maxis, with six calling it a "buy" or "strong buy", two rating it a "sell" and two others rating it an "underperform".

Shares of Maxis were up 3 percent so far this year, outperforming the 0.3 percent gain in the broader market index .

($1=3.403 Malaysian Ringgit)

(Reporting by Julie Goh; Editing by Soo Ai Peng)

Stock Valuation Model – 3 Simple Techniques to Value Stock

Stock valuation models are methods to value stocks. Everybody knows the stock price but only few understand how much it worth and the other investors do not even care. The reason can be due to different strategies, do not know how to value stock or just do not care how much it worth as long as the price increase the next day. If you are one of the intelligent investors, consider these valuation models in your next purchase.

Discounted Cash Flow (DCF)
This is probably the most common model that you ever heard when it comes to stock valuation. However, I found it a bit tough to do it. Simply because the discounted cash flow model have to consider revenue growth and the escalated cost at the same time, which can be too difficult to estimate and forecast as an outside investor.

Nevertheless, you can use this method in valuing stock by projecting future cash flow; from the sales and costs, and discount back to current value with Weighted Average Cost of Capital (WACC).

Dividend Discount Model (DD)
This model suits best for income investors. The idea is to project future dividend distribution based on the average historical dividend payout ratio and discount it back to present value. Although this is the simplest among all, it works best for high dividend yield stocks.

Nonetheless, the stocks must have very strong business performances that can guarantee the dividend payments 10 years down the road. And normally, penny stocks cannot be evaluated this way.

Earnings Growth Model (EG)
This is my favourite method as it is very practical and easy to do. Initially, I project its future earnings using constant or variable growth rate. Either constant or variable growth rate is depends on the expectation of its business performance within that period. Often than not, I normally use the historical business performance as a baseline provided its fundamental value remain intact. Then, I discount the future earnings with the expected return on investment (ROI).

I found this model as highly valuable since the stock price is easily reflected by its earnings. For example, the stock price will reflect its earnings and earnings growth. Assuming the P/E is the same throughout the year, you can expect the stock price to increase the same rate as the company’s growth rate.

So, before buying anymore shares in the future, put some efforts to value the stock. You can reduce the risk of losing money significantly if you buy the stock at much cheaper price than its intrinsic value.

Lessons Learned From Investing Genius Peter Lynch

Lessons Learned From Investing Genius Peter Lynch

by: Wade Slome February 24, 2010

Those readers who have frequented my Investing Caffeine site are familiar with the numerous profiles on professional investors of both current and prior periods (See Profiles). Many of the individuals described have a tremendous track record of success, while others have a tremendous ability of making outrageous forecasts. I have covered both. Regardless, much can be learned from the successes and failures by mirroring the behavior of the greats, not much different than modeling your golf swing after Tiger Woods (O.K., since Tiger is out of favor right now, let’s say Phil Mickelson). My investment swing borrows techniques and tips from many great investors, but Peter Lynch (ex-Fidelity fund manager), probably more than any icon, has had the most influence on my investing philosophy and career as any investor. His breadth of knowledge and versatility across styles has allowed him to compile a record that few, if any, could match – outside perhaps the great Warren Buffett.

Consider that Lynch’s Magellan fund averaged +29% per year from 1977 – 1990 (almost doubling the return of the S&P 500 index for that period). In 1977, the obscure Magellan Fund started with about $20 million, and by Lynch's retirement the fund grew to approximately $14 billion. Cynics believed that Magellan was too big to adequately perform at $1 billion, $2B, $3B, $5B and then $10B, but Lynch ultimately silenced the critics. Despite the fund’s gargantuan size, over the final five years of Lynch’s tenure, Magellan outperformed 99.5% of all other funds, according to Barron’s. How did Magellan investors fare in the period under Lynch’s watch? A $10,000 investment initiated when he took the helm would have grown to roughly $280,00 by the day he retired. Not too shabby.


Lynch graduated from Boston College in 1965 and earned a Master of Business Administration from the Wharton School of the University of Pennsylvania in 1968. Like the previously mentioned Warren Buffett, Peter Lynch shared his knowledge with the investing masses through his writings, including his two seminal books One Up on Wall Street and Beating the Street. Subsequently, Lynch authored Learn to Earn, a book targeted at younger, novice investors. Regardless, the ideas and lessons from his writings, including contributing author to Worth magazine, are still transferrable to investors across a broad spectrum of skill levels, even today.

The Lessons of Lynch

Although Lynch has left enough financially rich content to write a full-blown textbook, I will limit the meat of this article to lessons and quotations coming directly from the horse’s mouth. Here is a selective list of gems Lynch has shared with investors over the years:

Buy within Your Comfort Zone: Lynch simply urges investors to “Buy what you know.” In similar fashion to Warren Buffett, who stuck to investing in stocks within his “circle of competence,” Lynch focused on investments he understood or on industries he felt he had an edge over others. Perhaps if investors would have heeded this advice, the leveraged, toxic derivative debacle occurring over previous years could have been avoided.

Do Your Homework: Building the conviction to ride through equity market volatility requires rigorous homework. Lynch adds,

A company does not tell you to buy it, there is always something to worry about. There are always respected investors that say you are wrong. You have to know the story better than they do, and have faith in what you know.

Price Follows Earnings: Investing is often unnecessarily made complicated. Lynch fundamentally believes stock prices will follow the long-term trajectory of earnings growth. He makes the point that

People may bet on hourly wiggles of the market, but it’s the earnings that waggle the wiggle long term.

In a publically attended group meeting, Michael Dell, CEO of Dell Inc. (DELL), asked Peter Lynch about the direction of Dell’s future stock price. Lynch’s answer:

If your earnings are higher in 5 years, your stock will be higher.

Maybe Dell’s price decline over the last five years can be attributed to its earnings decline over the same period? It’s no surprise that Hewlett-Packard’s (HPQ) dramatic stock price outperformance (relative to Dell) has something to do with the more than doubling of HP’s earnings over the same time frame.

Valuation & Price Declines:

People concentrate too much on the P (Price), but the E (Earnings) really makes the difference.

In a nutshell, Lynch believes valuation metrics play an important role, but long-term earnings growth will have a larger impact on future stock price appreciation.

Two Key Stock Questions: 1) “Is the stock still attractively priced relative to earnings?” and 2) “What is happening in the company to make the earnings go up?” Improving fundamentals at an attractive price are key components to Lynch’s investing strategy.

Lynch on Buffett: Lynch was given an opportunity to write the foreword in Buffett’s biography, The Warren Buffett Way. Lynch did not believe in “pulling out flowers and watering the weeds,” or in other words, selling winners and buying losers. In highlighting this weed-flower concept, Lynch said this about Buffett:

He purchased over $1 billion of Coca-Cola (KO) in 1988 and 1989 after the stock had risen over fivefold the prior six years and over five-hundredfold the previous sixty years. He made four times his money in three years and plans to make a lot more the next five, ten, and twenty years with Coke.

Hammering home the idea that a few good stocks a decade can make an investment career, Lynch had this to say about Buffett:

Warren states that twelve investments decisions in his forty year career have made all the difference.

You Don’t Need Perfect Batting Average: In order to significantly outperform the market, investors need not generate near perfect results. According to Lynch,

If you’re terrific in this business, you’re right six times out of 10 – I’ve had stocks go from $11 to 7 cents (American Intl Airways).

Here is one recipe Lynch shares with others on how to beat the market:

All you have to do really is find the best hundred stocks in the S&P 500 and find another few hundred outside the S&P 500 to beat the market.

The Critical Element of Patience: With the explosion of information, expansion of the internet age, and the reduction of trading costs has come the itchy trading finger. This hasty investment principle runs contrary to Lynch’s core beliefs. Here’s what he had to say regarding the importance of a steady investment hand:

*“In my investing career, the best gains usually have come in the third or fourth year, not in the third or fourth week or the third or fourth month.”

*“Whatever method you use to pick stocks or stock mutual funds, your ultimate success or failure will depend on your ability to ignore the worries of the world long enough to allow your investments to succeed.”

*“Often, there is no correlation between the success of a company’s operations and the success of its stock over a few months or even a few years. In the long term, there is a 100% correlation between the success of a company and the success of its stock. It pays to be patient, and to own successful companies.”

*“The key to making money in stocks is not to get scared out of them.”

Bear Market Beliefs:

I’m always more depressed by an overpriced market in which many stocks are hitting new highs every day than by a beaten-down market in a recession,

says Lynch. The media responds in exactly the opposite manner – bear markets lead to an inundation of headlines driven by panic-based fear. Lynch shares a similar sentiment to Warren Buffett when it comes to holding a glass half full view in bear markets.

Market Worries: Is worrying about market concerns worth the stress? Not according to Lynch. His belief:

I’ve always said if you spend 13 minutes a year on economics, you’ve wasted 10 minutes.

Just this last March, Lynch used history to drive home his views:

We’ve had 11 recessions since World War II and we’ve had a perfect score — 11 recoveries. There are a lot of natural cushions in the economy now that weren’t there in the 1930s. They keep things from getting out of control. We have the Federal Deposit Insurance Corporation [which insures bank deposits]. We have social security. We have pensions. We have two-person, working families. We have unemployment payments. And we have a Federal Reserve with a brain.

Thoughts on Cyclicals: Lynch divided his portfolio into several buckets, and cyclical stocks occupied one of the buckets.

Cyclicals are like blackjack: stay in the game too long and it’s bound to take all your profit,

Lynch emphasized.

Selling Discipline: The rationale behind Lynch’s selling discipline is straightforward – here are some of his thoughts on the subject:

*“When the fundamentals change, sell your mistakes.”

*“Write down why you own a stock and sell it if the reason isn’t true anymore.”

*“Sell a stock because the company’s fundamentals deteriorate, not because the sky is falling.”

Distilling the genius of an investing legend like Peter Lynch down to a single article is not only a grueling challenge, but it also cannot bring complete justice to the vast accomplishments of this incredible investment legend. Nonetheless, his record should be meticulously studied in hopes of adding jewels of investment knowledge to the repertoires of all investors. If delving into the head of this investing mastermind can provide access to even a fraction of his vast knowledge pool, then we can all benefit by adding a slice of greatness to our investment portfolios.

Stock Market Strategy For Big Profits

Stock Market Strategy For Big Profits

by Gary E Kerkow

Article Source: - Stock Market Strategy For Big Profits

Buying the best growth stocks at the right time certainly can make you decent money in the stock market. If you want to make really big profits, adding to a winning position at the right time can achieve this for you.

First, if you have any losing stocks, sell them. This will give you extra cash to buy more shares of your best stocks at a proper strategic point.

Its always wise to only make new stock purchases or add shares to winning stocks when the general market direction is in a confirmed uptrend. This is because approximately 75% of all stocks follow the current general market direction.

Big institutional stock market participants such as mutual funds, pension funds and banks like to add shares to their winning stocks when they retreat back to their 50 day moving average line. This is usually done after the stock makes a solid price advance,then retreats to the 50 day line. You can use this same strategy with your best winning stocks. Just make sure your stock bounces off the 50 day line and starts advancing again. You don't want your stock to break below the 50 day line, especially on heavy volume.

Always remember to implement good money management when trading or investing. Cut your losses short and let your profits ride. That is the golden rule of trading. I suggest to never let your stock go down more than 10% from your original buying point. If you bought a stock at 40 dollars per share, you should set a stop loss at 36 dollars to protect your trading capital. You can always move the stop higher as the price of your stock advances.

Stock Market Investing Will Be Made More Uncomplicated, By Making Use Of These Tips

Stock Market Investing Will Be Made More Uncomplicated, By Making Use Of These Tips
February 24th, 2010 by Tom Kearney

There is certainly a state of flux in the present day stock markets but that is no reason why you should not learn more about stock market investing. The good news is that there are many useful tips available that will help you understand how to invest your money profitably in the best stocks.

At the very outset, it must be emphasized that success in stock market investing only comes to those who plan their activities before investing their money.
  • In fact, it is also safe and wise to distribute your investments and 
  • in addition you will need to also make regular investments plus 
  • you should invest with a long term plan in mind.

It is also important that you invest without hesitating because then you can take advantage of the benefits of compounding which will also begin sooner.
  • Time is the magic wand that has to be waived as only it can help transform cents into dollars. 
  • At the same time, you must also learn to avoid futures and derivatives.

The third important tip is that do not try leveraging as you will find it
  • hard to predict future trends in the short term and so 
  • it is better to buy into a market rather than invest your money on certain stocks.

Now, when it comes to picking individual stocks you need to choose stocks that are a mirror of the much broader indexes and at the same time you need to ensure that you do not purchase single or even handful of stock exposures. It is always safer to spread your risk across different market segments so that even if a particular stock fails, you will have other stocks that can help cover the losses.

Before purchasing stocks,
  • you need to look at how well a company is earning and 
  • base your buying decision on this factor, instead of on the current stock prices. 
  • These stock prices often give wrong impressions and will not reflect the true nature of a company’s welfare.

In addition, when some of your stocks turn out to be duds, you must not hesitate in selling them off as soon as is possible.
  • If you have erred in buying stocks, then you should admit this and get rid of the duds and in this way cut your losses.

When buying stocks, you need to also ensure that you buy into value and not into momentum.
  • Also, be sure that you base your buying of stock decisions according to what your head says, and not what your heart is telling you.
  • It also means that when your brain tells you to buy a stock, you should buy the stock and not make the mistake of purchasing stocks based on emotions. 
  • Buying into large company stocks is always prudent as the chances of earning profits in the long run are higher as compared to other stocks.
  •  Therefore, you should buy into large stocks while avoiding purchasing penny stocks which are hard to evaluate and so are best left alone.

Quality is king

Quality is king, says Oak Value's Coats

While last year's recovery lifted low-quality stocks, this year's market will reward companies with strong balance sheets

By Jeff Benjamin
February 24, 2010

Stock picking in the current market requires a renewed focus on corporate economics and balance sheets, said Larry Coats, manager of the Oak Value Fund (OAKVX).

“After a low-quality recovery last year, now quality matters, and it's time for serious stock selection,” he said.

Mr. Coats has been part of the fund's management team since it was launched in 1993 by Oak Value Capital Management Inc.

As a portfolio manager, he describes himself as an “opportunistic buyer of advantaged businesses.” The strategy goes beyond the “implicit biases” of a traditional value investing approach, he said.

“By concentrating on price-to-earnings and price-to-book ratios, money managers are spending all their time looking at the cheapest stocks, but they're missing some valuable opportunities,” he said. “When we look at all the companies in the S&P 500, we start by looking at the businesses themselves, not the valuations.”

The highly concentrated portfolio of just 27 names has an average operating profit margin of 25%, which is about 10 percentage points higher than the S&P 500.

The fund's 30% average return on equity is almost double that of the index.

Mr. Coats said by focusing on a company's balance sheet, he has been able to build a portfolio of truly profitable businesses that aren't hampered by excess leverage.

The fund, which has a four-star rating from Morningstar Inc. and has $76 million in assets, is categorized as large-cap blend.

Mr. Coats admitted that the strategy could fit into a few different boxes.

“Some people would argue that what we’re doing is [growth at a reasonable price], but in our mind, it’s value with a quality bias, or growth with a pricing discipline” he said. “Our discipline is blend, and our portfolio is built with a growth bent.”

The strategy got high marks from Morningstar analyst Greg Wolper for the way it beat its benchmark during both the 2008 market decline and the rebound last year. The fund gained 33% last year, while the S&P 500 returned 26%. And during the meltdown of 2008, the fund lost 33%, while the index fell by 38%.

The average annual turnover of around 37% is reflective of a strategy that is based on an extremely deliberate research process. “We identify the best companies from the index, follow them, research them and then wait for the right time to buy them,” Mr. Coats said.

One stock added to the portfolio late last year is Intuit Inc. (INTU), a company best known for its TurboTax software. But Mr. Coats said the stock price was pushed down by investor concerns that an economic slowdown would hurt Intuit's broader software sales to smaller businesses.

“The stock got cheap because people were concerned about a slowdown in new business starts,” he said.

Through Tuesday's market close, Intuit shares were up 3.7% this year, which compares with a 1.8% decline by the S&P 500 over the same period.

Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit .

Wednesday, 24 February 2010

Buying Bargain Stocks (The tenet of Value Investing)

The activities the enterprising investor in the stock market may be classified under 4 areas:

1. Buying in low markets and selling in high markets (Beware that this is Market timing)
2. Buying carefully chosen "growth stocks" (Learn the Paradox of Growth Stocks)
3. Buying bargain stocks (The tenet of value investing)
4. Buying into "special situations" (Only a few will benefit)

From Chapter VI of the Intelligent Investor, to obtain better than average investment results over a long pull, the investor requires a policy of selection or operation that have 2 characteristics:

* it must meet objective or rational tests of underlying soundness (that should prove both conservative and promising); and
* it must be different from the policy followed by most investors or speculators.

Three investment approaches meet these criteria. They differ rather widely from one another, and each may require a different type of knowledge and temperament on the part of those who apply it.

1. Bargain in the Relatively Unpopular Large Company
- concentrating on the larger companies that are going through a period of unpopularity.  Their cheapness are evidently the reflection of relative unpopularity with investors or traders.

2. Purchase of Bargain Issues
- a bargain issue is one which, on the basis of facts established by analysis, appears to be worth considerably more than it is selling for. To make a point, an assumption maybe that an issue is not a true "bargain" unless the indicated value is at least 50% more than the price. This may occur during two circumstances:

* (a) currently disappointing results, and
* (b) protracted neglect or unpopularity.

3. Bargains in Secondary Stocks
- a secondary company is one that is not a leader in a fairly important industry. Due to pronounced preference for industry leaders and a corresponding lack of interest most of the time in the ordinary company of secondary importance, meant the latter group have usually sold at much lower prices in relation to earnings and assets than have the former. It has meant further that in many instances the price has fallen so low as to establish the issue in the bargain class.

Market timing/charting is ungrounded folly - Benjamin Graham

The activities of the enterprising investor in the stock market may be classified under 4 areas:

1. Buying in low markets and selling in high markets (Beware that this is Market timing)
2. Buying carefully chosen "growth stocks" (Learn the Paradox of Growth Stocks)
3. Buying bargain stocks (The tenet of value investing)
4. Buying into "special situations" (Only a few will benefit)

Buying in low markets and selling in high markets (Beware that this is Market timing)

From first inspection of a market chart covering its periodic fluctuations, buying low and selling high appeared both simple and feasible.

However, this market's action studied over many years has not lent itself to predictability by any mathematical means.

The fluctuations that have taken place, often considerable in extent, would have required a special talent or "feel" for trading to take advantage of them.  Operations based on such 'skills' are better excluded.

Benjamin Graham:  ..."market timing / charting" is ungrounded folly and is to be avoided by any intelligent investor.

Top unit trust companies recognised

Top unit trust companies recognised

Written by Joy Lee
Wednesday, 24 February 2010 00:00
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KUALA LUMPUR: Top-performing unit trust funds in the country were acknowledged at The Edge-Lipper-StarMine Awards 2010, held here yesterday.

Public Mutual Bhd maintained its winning streak as the biggest winner for the seventh consecutive year, sweeping 10 out of the 29 awards, including the most prestigious Best Overall Group award.

AmInvestment Services Bhd retained its award for the Best Bond Fund Group and Pacific Mutual Fund Bhd took home the Best Equity Fund Group and the Best Mixed Assets Fund Group awards.

In addition, the year's top brokers and analysts were honoured in The Edge-StarMine Malaysia Brokers Rankings and The Edge-StarMine Malaysia Analyst Awards.

Kim Eng Research Sdn Bhd was ranked top for earnings estimates in the mid- and small-cap stocks category as well as the FTSE Bursa Malaysia 30 Index category.

Norziana Mohd Inon of CIMB Investment Bank Bhd took home the award for Malaysia's top analyst. Annuar Aziz of Credit Suisse Securities (Malaysia) Sdn Bhd and Ahmad Maghur Usman of OSK Research Sdn Bhd came in second and third respectively.

Zarinah (centre, front row), Ho (5th from left), Soo (4th from left), Yusli (3rd from left) and Lee (2nd from left) with winners of the Edge-Lipper Fund Awards. Photo by Mohd Izwan Mohd Nazam

The event was graced by Tan Sri Zarinah Anwar, chairman of Securities Commission, as guest of honour. Also present were Bursa Malaysia CEO Datuk Yusli Mohd Yusuf, The Edge Malaysia editor-in-chief Ho Kay Tat, Thomson Reuters Malaysia senior company officer Simon Soo Hu and the Federation of Investment Managers Malaysia's Lee Siew Hoong.

The winners of the awards are determined based on the Lipper Leader ratings for consistent return, a risk-adjusted investment performance return measure developed by Lipper.

A total of 25 classification awards covering 13 eligible fund categories and four group awards were given out this year, including Islamic funds that topped their respective Lipper classifications.

SC to amend unit trust fund guidelines

SC to amend unit trust fund guidelines

Written by Joy Lee
Wednesday, 24 February 2010 00:03
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KUALA LUMPUR: The Securities Commission (SC) will be amending the guidelines on unit trust funds to meet the varying needs of investors, its chairman Tan Sri Zarinah Anwar said.

"The industry is developing and we have to innovate. We have to find new ways and better ways of doing things. Investors need more choices. So the idea behind the amendments is to allow greater flexibility in terms of offering choices to investors to meet their needs," she said.

Speaking to reporters after The Edge-Lipper-StarMine Awards 2010 here yesterday, she said the amendments were being worked on and would be published as soon as they were ready.

The SC is open to suggestions on new fee structure, says Zarinah.

Zarinah said the amendments would include offerings in multiple currencies.

"We are encouraging unit trust funds to be distributed overseas, and it will facilitate investment by foreign investors, for example, who may find it difficult to cope with exchange rate vagaries," she said.

The amendments would also facilitate a multi-class structure for unit trust funds whereby a single unit trust fund will be able to offer multiple classes of units over a single investment pool, with each class of units having different features such as the fees and charges imposed and the currency in which it is denominated.

Investors are becoming more aware of the effects of fees on their long-term returns and Zarinah believes that the market is ready for new fee configurations that more appropriately match service levels, resource capacity, quality and performance. "The SC is open to such propositions," she said.

In her keynote address, she noted that the unit trust industry had done extremely well with total funds hitting 541 with a total net asset value (NAV) of RM191.7 billion as at the end last year from 43 funds with total NAV of RM28.1 billion in 1993. The NAV makes up 19.18% of the capitalisation of Malaysia's stock market.

The industry continued to contribute significantly to the development of Malaysia's capital market by helping build the demand side and played an important role in channelling capital into the real economy, she added.

However, she said the challenge moving forward was to sustain this performance and to develop the depth and breadth of the industry.

To this end, Zarinah said SC had come up with two initiatives to provide confidence to investors that their investments would receive an appropriate level of protection and oversight as well as a facilitative regulatory framework for unit trust funds to operate in.

The industry must also continue working towards expanding the range of products and markets, she said. Malaysia has a competitive advantage as an Islamic capital market hub and currently, there are 144 syariah-compliant unit trust funds.

"As part of our efforts to facilitate market expansion for the industry, we had, as a start, inked the Mutual Recognition Agreement with the Dubai Financial Services Authority and another, more recently, with the Hong Kong SFC to enable cross-border distribution of Islamic funds on a bilateral basis.

"Our unit trust intermediaries have become one of the best in the region and are well-positioned to play a significant role in the regional arena. The industry must now rise to the challenge of broadening our connectivity with other markets and to increase its competitiveness on an international level, taking advantage of the facilitative regulatory framework that has been established," she said.

She noted that the unit trust industry must also increase its efforts to broaden distribution channels and reach both domestically and internationally.

Relying solely on traditional channels and existing distribution structures and approaches was not a sustainable solution, she said, as excellence in distribution capabilities is key to any industry that seeks to be internationally competitive.

"It would be worthwhile for the industry to also critically examine whether there is a need to focus on size to benefit from economies of scale given that close to half of the unit trust funds we have today have NAVs of RM50 million and below. The industry will have to compete for a share of investors' wallet and will benefit from finding better ways of doing things and passing on the cost savings to investors," she said.

3A's net profit up 85% in 4Q

3A's net profit up 85% in 4Q

Written by The Edge Financial Daily
Tuesday, 23 February 2010 23:34

KUALA LUMPUR: THREE-A RESOURCES BHD [] (3A) saw its net profit rise 85.1% in the fourth quarter (4Q) ended Dec 31, 2009 to RM4.52 million from RM2.44 million a year earlier due to better demand for its products in the food and beverage manufacturing industry and higher margins, the group said in its results announcement to Bursa Malaysia today.

Revenue rose 71.54% to RM55.2 million compared to RM32.18 million a year earlier while profit before taxation is significantly higher at RM6.5 million compared to RM234,000 a year ago. The group attributed the improvement to higher turnover and better product margin.

Basic earnings per share (EPS) were 1.32 sen from 0.79 sen previously. No dividend was declared for the quarter under review.

On a sequential basis, the group's turnover of RM55.2 million was 22.3% higher than RM45.1 million recorded in the immediate preceding quarter. However, the profit before taxation for the current quarter of RM6.5 million is lower by 8% than that recorded in the immediate preceding quarter of RM7.06 million. The group attributed this to lower products margin recorded as the costs of raw materials rose in the quarter under review.

For the 12 months ended Dec 31, 2009, net profit was RM18.04 million, up 48.6% from RM12.14 million in FY08. Revenue increased 17.3% to RM178.58 million compared to RM152.25 million a year earlier while basic EPS was 5.7 sen compared with 3.9 sen previously.

The effective tax rate for FY09 was 23.9%, which is slightly lower than the statutory income tax rate of 25% as a result of utilisation of reinvestment allowance, the group explained.

As for its prospects, 3A said its products are expected to remain competitive.

"Despite the prevailing economic conditions, the directors anticipate that the group will achieve a satisfactory performance for financial year 2010," it said.

3A's share price has more than doubled to today's close of RM2.29 since its Oct 6, 2009 closing of 89.5 sen.

Some Singapore Property stocks, Genting, NOL, SPH, Wilmar

Feb 22: Property stocks, Genting, NOL, SPH

Written by The Edge
Monday, 22 February 2010 08:24

Last Friday, the Straits Times Index dropped 0.4% to 2,757.14.

Asian investors are likely to be wary ahead of the opening of Shanghai shares on Monday after a week-long holiday for the Lunar New Year, but last week’s gains on Wall Street could offset any negative sentiment.

The following companies may have unusual price changes in trading today. Prices are from Friday’s close.

Property stocks could be hit after the government imposed a new stamp duty on homes sold within one year of purchase and capped the maximum housing loan at 80% of the property value, measures aimed at cooling the property market.

CapitaLand (CAPL SP), Southeast Asia’s biggest developer, lost 0.5% to $3.90. City Developments (CIT SP), the island-nation’s second-biggest developer, dropped 1.5% to $10.82. Keppel Land (KPLD SP), the developer part-owned by Keppel Corp. (KEP SP), declined 1.8% to $3.37.

Palm-oil suppliers: Crude palm oil for May delivery dropped 0.2% in Kuala Lumpur on Feb. 19, taking losses in the past two days to 1.2%. Golden Agri-Resources (GGR SP), the world’s second-biggest palm oil producer, slid 0.9% to 54.5 cents. Wilmar International (WIL SP), the world’s biggest palm oil trader, gained 1.3% to $6.39.

Genting Singapore Plc. (GENS SP): The owner of Singapore’s first casino said its net loss doubled to $277.6 million last year from $124.8 million in 2008 as gambling revenue in London declined and staff costs increased. Genting fell 1.1% to 94 cents.

Neptune Orient Lines (NOL SP): Southeast Asia’s biggest container carrier said its APL unit will raise rates on intra-Asian routes from March 1. NOL slipped 0.6% to $1.66.

Singapore Press Holdings (SPRM.SI) announced early today it was setting up a $1 billion multi-currency notes programme and will sell at least $300 million of five bonds via lead manager OCBC (OCBC.SI).

Bulk carriers: The Baltic Dry Index, which measures the cost of shipping commodities, gained 0.4% in London on Feb. 19, extending a four-day rally to 5.8%. Cosco Corp. Singapore (COS SP), a China-based shipbuilder that also operates bulk carriers, was unchanged at $1.27. STX Pan Ocean Co. (STX SP), South Korea’s biggest bulk carrier, dropped 1.3% to $13.80.

Price and the Valuation of Shares

Price and the Valuation of Shares

When you participate in the market you are one of three things: a trader, an investor or a loser.

Everyone can find out the price of shares by looking at the live ticker on your stock trading charts. But the price of shares aren’t set in stone. Stock prices are always in a state of flux, moving up and down at the mercy of the constant pull and push of supply and demand between buyers and sellers.  

How about the valuation of shares?
The value of shares depends on who is looking at the stock. It’s all about perspective: where there is a buyer, there is always a seller and a trade is made when an agreement in price is completed.
  • The seller may have other reasons, but let’s assume they see the stock has exhausted its upward trend, and they are selling to realise their profit:
  • while the buyer sees potential value in an increasing stock price.

What method do you use to assess the value of shares?
The market doesn’t employ a valuation method at all – it moves at the whim of the market. Does the share price fluctuations ever make sense to you?
  • How can the share price of Commonwealth Bank more than halve from $62 to $24 then jump 140 percent from $24 to $58 in January? 
  • Did the real company value fall and then jump that much in a month? How can that happen?

When you participate in the market you are one of three things: a trader, an investor or a loser
There is always going to be a mismatch between the price and the valuation of the shares. And when you participate in the market you are one of three things: a trader, an investor or a loser.
  • A share trader jumps into the trade (either long or short) to take advantage of this mismatch of price and the value of the company on the stockmarket (or they could be executing their trading system based on other factors). 
  • A stockmarket investor buys into a position, optimally when the company is valued cheaply, and waits in the long term for the value to surface. 
  • A loser simply doesn’t know who they are and are probably jumping into the markets because of a hot tip.

So understand that as there will always be a mismatch in the share price and the valuation of shares.  The important part to remember is to know
  • if you are in the markets as a trader (where a skill set of trading with discipline complete with trading rules is required) or
  • if you are participating in the market as a share investor who must keep track of the share valuation.

How can you determine what a small company (or corporation) is worth?

How can you determine what a small company (or corporation) is worth?

When considering purchase of a company, there are many approaches:

1) Discount cash flow method. Work out all the projected free cash flows of the company and then do a dcf on it. The key is not in doing up the model – the key is in your assumptions (as in all models);

2) Multiples – look for a listed company in a similar industry and use a EBITDA multiple to find out an approx value. Check yahoo finance – it is rather good for info finding;

3) Asset valuation method – not as accurate as the above but add up all the assets of the company. Note that the sum may be worth more than each piece if all is functioning together well;

4) Replacement value – check out the market values of all the assets and value that.

5) Net Asset Value – Assets minus liabilities for a really general ballpark figure.

I generally use 1 & 2.
3-5 are just very general guides.


3 Responses

1. jason77734 Says:
February 23rd, 2010 at 3:16 pm

no clue
References :

2. northfulton39 Says:
February 23rd, 2010 at 3:36 pm

Two approaches.

1. Value all the assets of the company and pay fair value less any liabilities (loans that will need to be paid off); business owns inventory, a building and some vans valued at $350K but has a bank note of $100K, you buy it all for $250K.

2. Look at the financial statements and calculate Earnings before interest, taxes, depreciation and amortization (EBITDA); price should be anywhere from 3-6X that annual number depending on size of the company, industry and growth projections. If a company generates 100K in EBITDA, price could be anywhere from 300K to 600K.
References :

3. The Professional Says:
February 23rd, 2010 at 4:19 pm

Many approaches:

1) Discount cash flow method. Work out all the projected free cash flows of the company and then do a dcf on it. The key is not in doing up the model – the key is in your assumptions (as in all models);

2) Multiples – look for a listed company in a similar industry and use a EBITDA multiple to find out an approx value. Check yahoo finance – it is rather good for info finding;

3) Asset valuation method – not as accurate as the above but add up all the assets of the company. Note that the sum may be worth more than each piece if all is functioning together well;

4) replacement value – check out the market values of all the assets and value that.

5) Net Asset Value – Assets minus liabilities for a really general ballpark figure.

I generally use 1 & 2.
3-5 are just very general guides.
References :

Tuesday, 23 February 2010

Price is what you pay, value is what you get.

Warren Buffett used the analogy of attending the university to explain the core difference between price and value.  The school fees is the price you paid for the education.  Value is what you get out of the education.

Those wishing to learn investing needs to read widely.  Invest in the many good investment books available, preferably those classics written by actual investors.

Regarding attending talks, I have some reservations.  It is unlikely that you will learn enough to develop a safe investing philosophy and strategy in a few hours, other than an introductory.

Here are some good videos on investing:

****Value Investing Conference (Videos)

****Warren Buffett MBA Talk on Investing and Stock Market Wisdom (Videos)

Saving and Investing - Videos

Introduction to Valuation - Videos

Saving and Investing are very important topics - Introduction Videos



Genting Singapore reports net loss of S$277.56m for FY2009

Genting Singapore reports net loss of S$277.56m for FY2009

Written by Joseph Chin
Friday, 19 February 2010 20:12
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KUALA LUMPUR: Genting Singapore plc posted net losses of S$277.56 million (RM 669 million) in the financial year ended Dec 31, 2009 versus S$124.80 million a year ago due to losses in derivative financial instruments, higher pre-operating expenses and lower contribution from its UK casino operations.

It told the Singapore Exchange today that consolidated revenue was S$491.2 million in FY2009 compared to S$630.7 million in 2008. The reduction is mainly due to a decrease of S$141.8 million in revenue from the group’s UK casino operations.

It added revenue from the UK casino operations were depressed by lower business volumes. The reduction was further exacerbated by the weakening of the sterling pound against the Singapore dollar.

Genting Singapore's loss before taxation increased from S$148.5 million in the previous financial year to S$265.7 million in the current financial year.

This was mainly due to:

a) Fair value loss on derivative financial instruments in the current financial year of S$108.3 million arising mainly from the valuation of the conversion option embedded in the group’s convertible bonds as compared to a fair value gain of S$37.2 million recognised in 2008;

b) Increase in pre-operating expenses incurred for the integrated resort in Singapore of S$103.4 million. The higher pre-operating costs is mainly in relation to staff costs incurred as the integrated resort begins to accelerate its recruitment, training, sales and marketing programs prior to its launch;

c) Lower interest income of S$3.8 million for the current financial year compared against S$13.2 million in 2008;

d) Share of losses from jointly controlled entities of S$8.9 million;

e) The estimated one-third share of after tax profits of the international betting division, which was disposed by the group in 2007. The group had on March 22, 2007 completed the disposal of its 50% interest in international betting operations for a cash consideration of S$3.3 million.

TM posts higher 4Q net profit

TM posts higher 4Q net profit

Written by Joseph Chin & Siti Sakinah Abdul Latif
Monday, 22 February 2010 18:17

KUALA LUMPUR: TELEKOM MALAYSIA BHD [] (TM) posted a net profit of RM170.25 million in the fourth quarter ended Dec 31, 2009 (4Q09) compared with RM164.81 million a year ago, despite lower revenue.

TM said today that for the current quarter, group revenue fell 9% to RM2.27 billion from RM2.49 billion a year ago, mainly due to lower revenue from the special project, MERS 999 (the unified emergency contact number system for the Malaysian Emergency Rescue Services). Earnings per share were 4.80 sen.

The company proposed a final gross dividend of 13 sen per share less tax at 25% (2008: a final gross dividend at 14.25 sen per share less tax at 25%) amounting to RM348 million subject to shareholders' approval in the next meeting. This is on top of the interim dividend of 10 sen amounting to RM357.7 million distributed in September last year.

"With the proposed total dividend payout of RM706 million, that brings our 12-month total return to shareholders to 38.5%, the highest among all fixed peers in the region," said CEO Datuk Zamzamzairani Mohd Isa at the briefing of the company's financial result today.

TM said excluding revenue from MERS 999, the current quarter revenue was only 1.5% lower as compared to the preceding year quarter.

Internet and multimedia revenue registered a 2.6% growth at RM402.0 million in 4Q09 from RM391.8 million recorded in 4Q08 due to growth in broadband customers (excluding Hotspot customers) to 1.43 million in 4Q09 from 1.28 million in 4Q08.

"Group profit after tax and minority interests (Patami) increased by 2.5% to RM170.2 million as compared to RM166.0 million (excluding the results of the demerged Axiata Group) in the corresponding quarter in 2008. This was mainly attributed to unrealised exchange gain on translation of foreign currency borrowings of RM47.3 million as compared to a loss of RM18.2 million in the same quarter in 2008," it said.

For FY09, group revenue dipped 0.8% to RM8.608 billion versus RM8.675 billion in FY08 mainly due to lower revenue from MERS 999 in the current financial year.

Excluding revenue from MERS 999, the current year revenue would have increased by 0.9% as compared to preceding financial year.

Operating profit before finance cost increased 46.0% to RM1.06 billion due to lower operating costs recorded in the current financial year and the absence of loss on disposal of equity investment.

For FY09, the voice segment contributed RM4 billion or 46.5% of total revenue, a decline from RM4.4 billion or 50.9% in FY08. Meanwhile, the non-voice segment is increasing its contribution to 53.5% in FY09 to RM4.6 billion from 49.1% or RM4.26 billion in FY08.

Asked on the decline of the voice segment to revenue, Zamzamzairani said that the situation is not unique, as all operators would face decline in the voice segment, adding that TM planned to offer bundle packages of data/Internet and voice to its customers for "value proposition".

"Besides fix-to-fix call, we also look at enhancing fix-to-mobile call," he added.

As for its non-voice segment, Zamzamzairani said TM would be working on upgrading its Internet service for higher speed, having more simplified bundling and enhancing its market strategy to make its service available to "as many people as possible".

"We also saw aggressive push by the mobile and WiMAX players who came onto the market with their products and services. Despite the fierce competition, TM continued to attract new customers and maintained leadership position in the broadband segment with 1.43 million customers as at the end of 2008," he added.

On the high-speed broadband (HSBB) project, Zamzamzairani said that TM has already achieved 152,000 premises, surpassing the target of 150,000 premises, adding that it is on track to commercially launch the retail service in four areas — Taman Tun Dr Ismail, Bangsar, Subang Jaya and Shah Alam — by the end of the first quarter this year.

He added that TM was looking at a total of 750,000 premises this year.

TM had spent RM516 million on the HSBB project in FY08 as the contract was signed in Sept 2008. In FY09, TM spent RM1.3 billion and expects to spend another RM2 billion for FY10.

To recap, the HSBB project is a private-public project worth RM11.3 billion, with the government pledging to finance a total of RM2.4 billion, targeting 1.3 million premises by end-2012 with network access speed from 10Mbps while for businesses, it can go up to 1Gbps.

As for the company's prospect, Zamzamzairani said TM's performance improvement programme (PIP) 2.0 would be continued to enhance customer experience.

Meanwhile, Bloomberg reported that TM is targeting revenue growth of 2% in FY10 and a further 3% in FY12. TM's stock rose to its 52-week high today, closing nine sen higher at RM3.35.