Friday, 31 December 2010

Pearls of wisdom from the world's second richest man, Warren Buffett.

Pearls of wisdom from the world's second richest man, Warren Buffett.
The 80-year old billionaire said: 'Wall Street does a lot of good things and then it has this casino.' 

On shareholders:
"We much prefer owners who like our service and our menu and return year after year."
"For our part, we do not view Berkshire shareholders as faceless members of an ever-shifting crowd, but rather as co-adventurers who have entrusted their funds to us for what may well turn out to be the remainder of their lives."

On owning a small number of shares:
"Anyone owning such a number of securities... is following what I call the Noah School of Investing – two of everthing. Such investors should be piloting the ark."

On investing:
"I call investing the greatest business in the world because you never have to swing. All day you just wait for the pitch you like; then, when the fielders are asleep, you step up and hit it."

On debt:
"It's a very sad thing. You can have somebody whose aggregate performance is terrific, but if they have a weakness – maybe it's with alcohol, maybe it's susceptibility to taking a little easy money – it's the weak link that snaps you. And frequently, in the financial markets, the weak link is borrowed money."

On Coca-Cola:
"If you gave me $100bn and said take away the soft-drink leadership of Coca-Cola in the world, I'd give it back to you and say it can't be done." It owns the company that powers lights each morning for 3.8 million homes in Yorkshire, Northumberland and Lincolnshire – CE Electric. It is the biggest owner of Coca-Cola shares and this year spent $26bn (£17bn) buying a railway company headquartered in Fort Worth, Texas. Its market capitalisation is bigger than Google.

Portfolio Management For The Under-30 Crowd

by Jonas Elmerraji

Face it: as an individual under 30, you're not the average investor, and modeling your portfolio after that of your parents isn't always a good idea. In fact, doing so can cause you to miss out on some valuable learning opportunities and, in the long run, even cost you money. If you want to make the most of your money, every decision you make about your portfolio is as important as the last. In this article we look at the unique set of challenges involved in portfolio management for young investors and provide some advice to help you succeed.

Picking Stocks
Obviously, picking the right stocks is one of the most important aspects of investing intelligently. However, as a young investor, you have a lot less to worry about - namely retirement and wealth maintenance. Because preserving yournest egg needn't be your first priority (you have plenty of years ahead of you for that) you can take on a greater amount of riskthan your parents. (For more on this, seeThe Seasons Of An Investor's Life.)

High risk certainly has some negative connotations, especially when you're talking about your money. Nevertheless, there are a lot of advantages to dealing with riskier stocks. While higher risk investments do come with a greater chance of loss, they also come with a greater chance of gain. In other words, these stocks are subject to volatility. This is in contrast to more stable investments, such as those made in blue chip companies that generally have lower growth potential but also benefit from lower risk. (To learn more, see theGuide To Stock-Picking Strategies.)

There is a wide range of riskier investments in the stock market, including small companies with high growth potential or companies in the midst of a turnaround. Taking a chance on one of these companies can greatly improve the returns you can earn in the market. However, don't forget that high-risk stocks live up to their name, so you stand the chance of losing the money that you invested. If you do, it's all right - virtually every investor suffers losses from time to time - chalk it up to experience and try again. (To read more, see Venturing Into Early-Stage Growth Stocks.)

While higher risk investments have the potential for higher returns, there's a difference between a high-risk stock and a bad pick. Hopefully, you won't learn this the hard way. An important thing to remember in this case is that a high-risk investment doesn't necessarily refer to a penny stock. Investing in penny stocks as an inexperienced investor isn't just very risky, it's very ill advised. It's best to leave that to people who know what they're doing. (For further reading, check out Determining Risk And The Risk PyramidThe Lowdown On Penny Stocks and Catching A Lift On The Penny Express.)

Your portfolio isn't just for making money - at this stage in your life, it's also an educational tool. Believe it or not, a classroom isn't the best way to learn about the principles of investing. Learning by doing is often the most effective way to become a knowledgeable investor. When you make a decision about your portfolio, always think about what you're doing and look back on it when assessing your results. If you can make connections between your actions and your returns, you're more likely to replicate the good returns and avoid the bad ones. (For more insight, see Achieving Better Returns In Your Portfolio.)

Stepping into investing isn't easy. There's a learning curve involved in the stock market, and it's steeper for some than others. If you're having a hard time understanding the investing world, remember that it's not supposed to be easy - that's why the Wall Street wizards make the big bucks. There are resources around to help you, both online and in the real world. If something really has you stumped, ask your broker for help - it's part of his or her job to make sure that you understand what's happening to your money. (To read more, see Picking Your First Broker.)

Though it may take you a while to get the hang of it, there are advantages to being a young investor. This generation is probably more financially savvy than the ones that preceded it. Having witnessed huge economic changes and trends, not to mention all of the investing education resources now available (online, in books and magazines, on TV), today's young investors have a substantial edge over their predecessors.

Getting Started
Eventually, you'll have to take the big step - actually buying a position in a company. When you finally make that investment, spend plenty of time thinking about what you're doing - don't just wing it. Think about a reasonable target price (this becomes easier to judge with experience) and understand what impact your investment budgethas on your ability to make money. If you anticipate 10% returns, but spread your positions too thin, the return you'll need just to get past commissions could be close to or more than 10%. It's a pretty lousy feeling to pick a good performer but not make any money on it because you didn't think about what the investment would cost you in terms of commissions and fees. Therefore, depending on how much money you have to invest, you might be in a better position to sink your entire investment budget into one stock than you would be to spread it thinly across several stocks. (For more insight, see Start Investing With Only $1,000.)

When you have a stock that's performing the way you want it to, one of the hardest things to do can be getting out. Selling a booming stock seems counterintuitive. After all, if it's still going up, why would you sell? When (and if) you reach that sought-after target price, it's time to reevaluate whether you should sell the stock. If the target price makes sense, it makes sense to sell. Group mentalities might suggest that holding on a little longer could bring another $0.20 per share, but invest with your mind, not with your gut - if a price is artificially inflated, it's a lot more likely to fall hard. Trust your analysis. (For more insight, see Having A Plan: The Basis Of Success.)

It's pretty unscientific to decide how well you're doing without developing some sort of criteria for success. If you decide that you want overall gains of 15%, it makes a lot of sense to sit down and evaluate exactly how well you did. If you fell short of your goals, ask yourself why. Did you make a mistake in picking your stocks? Did the market behave unexpectedly? Were your targeted gains unrealistic? If you don't go over your trades individually and as a whole, it's quite possible to have a skewed idea of just how well you're doing.

Being a young investor has its own set of challenges. If you think of your investment decisions as learning opportunities, even losses can be considered investments in your financial education. In the beginning, learning how to make money is more important than actually making it. So, to put a financial twist on an old saying, teach yourself to fish for the right stocks and you'll feed your bank account forever. 

by Jonas Elmerraji

What Is Your Risk Tolerance?

It is conventional wisdom that a younger investor can take more risk than an older investor thanks to a longer time horizon. While this may be true in general, there are many other considerations that come into play. Just because you are 65 doesn't mean you should shift your investment portfolio to conservative investments. Growing life expectancies and advancing medical science mean that today's 65-year-old investor may still have a time horizon of more than 20 years.

So, how does an individual investor determine his or her risk tolerance? Let's take a look.

Read on here.

Thursday, 30 December 2010

Glove lovely growth: Rubber glove exports are due to grow 23 per cent to RM8.8 billion this year

By Ooi Tee Ching

Published: 2010/12/30

Malaysia is set to post record rubber glove exports for the eighth straight year in 2010, driven by higher global demand for medical gloves.

Rubber glove exports are due to grow 23 per cent to RM8.8 billion this year, said The Malaysian Rubber Glove Manufacturers Association (Margma).

For the last 15 years, Malaysia has been the world's top supplier of rubber gloves. Last year, the country exported close to 100 billion pieces of rubber gloves to more than 180 countries.

This volume makes up two-thirds of the global market for rubber gloves. Healthcare products like medical gloves continue to see strong demand despite the current lacklustre global economic growth.

"Rubber gloves, be they natural rubber or synthetic, are a necessity in the healthcare and food-handling sectors," Margma president Lee Kim Meow said in a recent interview.

"We expect further growth on the back of rising healthcare awareness in emerging markets, especially in China, India and the Latin American countries," he said.

This is because emerging markets currently spend less on healthcare compared with developed nations like the US, Europe and Japan.

Despite the strong headwinds buffeting the industry, Lee is optimistic that next year's global glove exports from Malaysia will expand by 10 per cent to 108 billion pieces.

Latex cost, which used to be 55 per cent of the total production cost, has swollen to more than 65 per cent since the sudden spike in natural rubber prices over the last three months.

Currently, the average rubber glove selling price is at US$32 per 1,000 pieces, about 23 per cent higher than a year ago.

Lee said Margma members are likely to keep raising rubber glove prices in tandem with the rising latex prices and the weakening US dollar.

Natural rubber latex prices have risen by 65 per cent from an average of RM6 a kg from a year ago. Yesterday, it closed at RM9.89 a kg.

The US dollar, currently trading at RM3.09, has also weakened against the ringgit by 10 per cent compared with RM3.45 about 10 months ago.

Costly natural rubber latex have prompted many glovemakers to produce less natural rubber gloves and more of the synthetic variant.

This trend bodes well with Kuala Lumpur Kepong Bhd (KLK) as it seeks to tighten its grip on the world’s supply of nitrile latex, which is mainly used to make synthetic gloves.

KLK, which holds 19 per cent of Yule Catto & Co plc, supports the UK firm’s buy of Germany’s PolymerLatex Group for e443 million (RM1.8 billion). Chemical maker Yule Catto, listed on the London Stock Exchange, is the owner of the Synthomer Group’s polymers business.

Synthomer’s unit in Malaysia runs a 130,000-tonne-per-year nitrile plant in Kluang, Johor. On the other hand, PolymerLatex operates a 100,000-tonne-a-year plant in Pasir Gudang, Johor.

When asked to comment on KLK and Yule Catto’s decision, Lee replied: “We welcome the move. Our members look forward to see how Yule Catto can offer a wider variety of feedstock to work with.

“We’re actually not short of nitrile latex suppliers,” he said, adding that Bangkok Synthetics Co Ltd is planning to put up a 110,000-tonne a year plant at Rayong province in southern Thailand.

The plant is scheduled to supply nitrile latex to rubber glove makers in Thailand, Malaysia and Indonesia by the third quarter of 2012.

Read more: G-lovely growth

FTSE Bursa Malaysia KLCI closed for the year at 1,518.91

52wk Range:1,072.69 - 1,531.99

Interesting graphs of FTSE Bursa Malaysia KLCI over different periods.  Do you have a strategy to protect your downside and to profit from the upside, from the volatility of the stock market?

Warren Buffett lamented that many business schools are teaching the wrong stuff to their students.  He is of the opinion that basically to be a good investor, you need to be taught two topics in great detail.

Firstly, you need to have a very thorough understanding of how to value various assets.  Secondly, you need to understand the behaviour of the stock market, so that you can take advantage of it and not fall folly to it.

This year has been another very rewarding year for my investing.  My portfolio has shown good returns.  A worrying point now is that in my portfolio of stocks, twenty-two stocks have huge gains and two stocks have small losses.  The two small losses were in stocks bought in 2007 and they constitute a very small proportion of the overall portfolio.  It wasn't a surprise that most of my stocks would be showing gains, especially those that have been in the portfolio for a very long time and bought at regular intervals (dollar cost averaging).  However, when almost ALL the stocks bought in recent years showed gains from their cost prices, one has to be apprehensive of the stock market.

Many geniuses are born in a bull market, so the saying goes.  Therefore, one may assume that either one is a genius (don't be fooled) or perhaps the market is too gregarious and optimistically overpricing most stocks (one can be easily and unknowingly fooled by this too).

Perhaps, with the New Year approaching, a re-look at my portfolio with view to re-balancing is not inappropriate.

Happy New Year to all.

Staying within your Circle of Competence

Here are some excerpts on "The Meaning of Focus" from a good blog.

"Personally I feel that there is no reason for me to divert my time on something I am not familiar with, while I am confident to survive and be one in the 5% group, and not in the 95% herd. I know that many investors/traders like foreign market, but for me, it is the same as far as gains are concerned, but the costs of trading in foreign market will be much higher. The learning process will be longer as it will involve also exchange rates."

"Focus simply means that I would not adopt a shotgun approach hoping that if I am wrong in 4 stocks, I can be right in right in 6 to make a gain. I would rather take the strategy to aim accurately to shoot at the target. In this respect, the rational analysis concept will surely help."

"Personally I am not afraid of sharks and market manipulators, as their activities can be shown in the volume and price actions, and this skill I have been learning for two months, and now I think I know how to spot the sharks to follow their tails. As for fraud and accounting irregularities, I will have no way to know, but a thorough fundamental analysis including looking at the management team, the Board board, the shareholders and financial data abnormalities will lesson this risk, but this is the risk that I cannot control. But should fraud and accounting irregularities detected, the chart will quickly tell me to exit with lower loss. Therefore knowing technical analysis would likely reduce any loss due to the resulting share price decline due to accounting fraud. That is why I have turned to a technician from a fundamentalist."

Read more here ...

Tuesday, 28 December 2010

The majority of market participants are speculators not investors.

The Internet and cable networks are full on a daily basis of these types of market calls. In order to be correct, a market prognosticator needs to be correct not only about short and medium-term economic fundamentals but also about market participants’ mass psychology. Can anybody do this on a consistent basis?

The world pays attention because the majority of market participants are speculators not investors. What’s the difference? If you’re a speculator you’re focused on trying to figure out what the price of a given security is going to do in the short term.

If you’re an investor, you’re focused on doing deep fundamental research and finding a situation where the value you receive in making the investment is greater than the cash you invest. Moreover, the payoff more than compensates you for the risk that you are taking. An investor generally has no idea when the market will recognize the under-appreciated value in his investment. He doesn’t overly fret about this because the timing – absent a clear catalyst – is generally not known.

The problem with this thinking is that the evidence shows that the real wealth has been generated by true investors.

Sunday, 26 December 2010

Merry Christmas

Taking stock of global opportunities in 2011

By Andrew Tanzer
Saturday, December 25, 2010; 11:32 PM

To understand the investing outlook for 2011, let's look back. Despite emerging from a long and brutal recession, the economy mustered only an anemic expansion in 2010. The most notable manifestation of the tepid recovery was a high jobless rate that scarcely budged all year. And yet, over the past year (through Nov. 5), the U.S. stock market managed to post an impressive 17.3 percent return.

The same pattern - a stagnant economy but a decent stock performance - may repeat in 2011. The economy should grow by little more than 2.5 percent, and the jobless rate could even tick up to 10 percent. But stocks could still return 7 to 10 percent over the next year, in line with corporate earnings growth and the market's current dividend yield of 1.9 percent. The Dow Jones industrial average should finish 2011 above 12,000.

How to explain the apparent disconnect between the muddle-through economy and the perky stock market? A number of factors contributed. Interest rates are already at rock-bottom levels, and the Federal Reserve Board says it plans to buy $600 billion in Treasuries by the middle of 2011 to keep rates low. The balance sheets of U.S. companies, unlike those of our government and households, are in excellent shape. Profits should continue to rise moderately in 2011 and match or exceed the record level, set in 2006. With Standard & Poor's 500-stock index selling at 13 times projected 2011 earnings, stocks do not appear to be excessively valued, especially relative to bonds and cash.

Don't forget that the S&P 500 companies earn 40 percent of profits abroad, where growth is higher than at home. David Bianco, chief stock strategist of Bank of America Merrill Lynch, calculates that profit margins of U.S. companies are far higher overseas. Bianco says four sectors in the S&P index - technology, energy, materials and industrials - are generating more than half their profits abroad.

Profit increases in 2010 at global companies such as Boeing, Caterpillar and Coca-Cola were powered by buoyant growth in developing countries - economies that Merrill Lynch projects will generate no less than 75 percent of the world's economic growth in 2011.

Risks to watch

Also in 2011, the shift in control of Congress, which will be split between a Republican House and a Democratic Senate, will likely produce political gridlock. Some observers think that could be good for stocks because Congress won't be able to enact laws that could harm business. It could be a negative if lawmakers are unable to address a financial emergency.

We'd be remiss if we didn't outline some of the risks and lingering structural weaknesses in the economy. Recognizing risks as they come to the fore may help you make midcourse corrections in 2011 and beyond.

Volatility should remain high in 2011 because of contradictory signals from an economy that is expanding in fits and starts. Even Federal Reserve Chairman Ben Bernanke frets about an "unusually uncertain" environment. He and most Fed governors think inflation is too low and clearly seek to engineer higher price increases through ultra-loose monetary policy. Because the Fed's gambit is untested, there is a risk that the inflation genie will escape the bottle.

Government monetary and budget policies are helping to drive the dollar lower, which aids U.S. corporate profits. The trouble is that many other governments are also cheapening their currencies to juice exports and job growth. There is a chance this race to the currency bottom, which is a form of protectionism, could degenerate into a trade war.

Bond outlook

After years of delivering stunning gains, bonds may be a less-comfortable resting place for your money in 2011. During 2009 and 2010, individual investors poured more than $600 billion into bond funds. But a rise in long-term interest rates - a distinct possibility in 2011 - could result in losses for many bondholders.

Surveying the risks stemming from currency wars, and from rising inflation, interest rates and the sluggish domestic economy, one analyst concludes that investors would be wise to embrace global investing.

"A lot of U.S. investors need to make a paradigm shift in 2011," says Dean Junkans, chief investment officer for Wells Fargo Private Bank. "Think of yourself as a global investor living in the U.S. rather than as a U.S. investor with some global exposure."

In his portfolios, Junkans says, he's increased foreign exposure "permanently" by 50 percent over the past four years.

Any pessimism about prospects for the economy stems largely from that familiar trinity of linked problems - housing, banking and busted household balance sheets - which will dog us for a few more years.

Gauging opportunity

So where do you invest if growth remains sluggish in 2011? One idea is to look for companies that can expand revenues much faster than the overall rate of economic growth, such as Apple and Marvell Technology, a maker of microprocessors and storage devices. Or look for multinational corporations that can tap into much stronger growth abroad, especially in vibrant developing nations.

What makes blue-chip companies especially intriguing is that they appear to be attractively priced relative to the market and to their own past levels of value. Moreover, many of these companies come with sturdy balance sheets - which provide a measure of safety in an uncertain economic environment - and proven, consistent business models.

One sweet spot in the market is blue chips with direct or indirect exposure to emerging markets. For instance, says Channing Smith, co-manager of Capital Advisors Growth Fund, companies such as Procter & Gamble, Pepsi, IBM and ExxonMobil.

Michael Keller, co-manager of BBH Core Select Fund, likes multinationals that sell products that consumers in emerging markets buy on a regular basis, such as Nestle, the Swiss food giant, with its powerful global brands and distribution capabilities, and Baxter, which he thinks will benefit from a sharper focus on health care and hygiene in developing nations.

Sometimes you can find companies that can grow faster than the economy at home and ride brisker economic growth abroad. Jim Tierney, chief investment officer of money manager W.P. Stewart, sees such possibility in Polo Ralph Lauren and MasterCard. Ralph Lauren is expanding globally - with new stores in Chile, Korea and Malaysia - and extending its product line into watches, jewelry and sunglasses. MasterCard benefits from the growing use of credit cards all over the world.

U.S. companies gain when they produce abroad or export goods and services to foreign consumers, factories or infrastructure projects. But companies can indirectly benefit from rising emerging-market economies. For example, Ed Maran, co-manager of Thornburg Value Fund, is high on U.S. Steel, a domestic producer, because the strength of developing nations boosts steel prices - and profits.

Urbanization, industrialization and rising living standards in the developing world will drive up commodity prices, says Evan Smith, co-manager of U.S. Global Investors Resources Fund.

Jordan Opportunity Fund's Jerry Jordan is bullish on agribusiness. As rural migrants flock to cities, and as incomes rise in countries such as China and India, diets change dramatically and demand for animal protein - which requires lots of grain to produce - surges. Jordan estimates that 500 million to 800 million more residents of lower-income countries are shopping in food stores and eating in restaurants than a decade ago. He holds tractor maker Deere, fertilizer producer Mosaic and iPath DJ-UBS Grains, an exchange-traded note that tracks the price of corn, soybeans and wheat.

- Kiplinger's Personal Finance

Integrax eyes more Indonesian ports

Published: 2010/12/25

Integrax Bhd, which already owns a port in Indonesia, plans to open two more ports there by 2020 to capitalise on the republic's rising demand for commodities and raw materials.

Integrax (9555) already holds 80 per cent of Jakarta stock exchange-listed PT Indoexchange Tbk, which operates a port and provides marine services in Java.

Integrax executive director and co-chief executive officer Harun Halim Rasip said the company may build new ports either in Sumatera, Java or Kalimantan.

"The ports could either be built on brownfield or greenfield areas. By 2020, we aim the three ports to have an equity value of US$150 million (RM465 million)," Harun told Business Times in an interview in Kuala Lumpur recently.

Business prospects are good because over 17,000 islands in the country need to be linked by ports, and in East Java alone, the population is above 40 million people.
"Indonesia offers good potential for the port industry as the country is mainly connected by seaborne logistics," said Harun.
Indonesia is also Southeast Asia's biggest economy with a population ten times larger than Malaysia. It is also a large exporter of palm oil, coal and other minerals.

"Indonesia is hastening a deregulation process that began almost two years ago to increase competitiveness and improve efficiencies in its port industry," he added.

Apart from port operations, Integrax also manages an industrial park.

The company owns 80 per cent of the Lekir Bulk Terminal and 50 per cent (minus one share) of the Lumut Maritime Terminal. Both are located near Lumut in Manjung, Perak. It also owns a port in the Philippines, which handles shipments like nickel.

With cash reserves of RM150 million, the company serve traders plying within the Southeast Asian region.

Read more: Integrax eyes more Indonesian ports

Strong Ringgit - Implications To Malaysia's Bond Market

April 27, 2010

The Ringgit Malaysia (RM) is one of Asia’s best performing currency,, appreciating by 7.0% year-to-date against the USD (As at 26 April 2010). In this article, we will take a look on the strong performance and its implications for investors.

Ringgit was the best performing Asian currency. On a year-to-date basis, ringgit gained 7.0% against USD as compared to other Asian currencies. There were several reasons that we believe were likely behind ringgit’s strength. These includes a better than expected GDP growth in the fourth quarter and most importantly, Bank Negara’s unexpected move in being the first central bank in Asia to raise interest rate.


  • Ringgit was the best performing Asian currency with a 7.0% gain y-t-d
  • Better-than-expected 4Q 09 GDP growth & rate hike contributed to strong performance
  • We expect ringgit to further appreciate on speculation of Yuan appreciation
  • Big Mac Index indicates ringgit is undervalued
  • Lesser bond issuance & higher demand for ringgit-denominated bond also help to support
  • Malaysian investors should hold ringgit-denominated bonds and avoid global bonds

Ringgit expected to stay on uptrend

The ringgit is expected to stay steady next week, supported by year-end window dressing activities, dealers said.

They said more companies were now exchanging foreign currencies for the local unit to balance their year-end accounts.

"Positive economic news in the country and the region will also attract more capital inflows that will support the local currency to trade higher," a dealer said.

He also said that a weaker dollar performance has also encouraged players to unload their dollar position.

The ringgit is expected to trade above the 3.00 level against the US dollar next week.

During the week, the ringgit was firmer backed by gains in other regional currencies as well as window-dressing activities.

On Friday-to-Friday basis, the local unit was higher at 3.0930/0980 from 3.1340/1370 last week.

Against the Singapore dollar, it was firmer at 2.3783/3827 compared with 2.3862/3905 last Friday. It was also steadier against the yen at 3.7306/7384 from 3.7314/7354 previously.

The ringgit appreciated against the British pound to 4.7781/7870 compared with 4.8947/9000 last week and strengthened against the euro to 4.0636/0708 from 4.1670/1716 previously. --Bernama

Read more: Ringgit expected to stay on uptrend

Review of 2010 and outlook for 2011

Australian market

Key points

 2010 has been somewhat disappointing for investors,
with continuing economic recovery but various macro
scares resulting in a constrained and volatile ride for
share markets and other related investments.

 2011 is likely to see global growth continue, and this
combined with attractive valuations and easy money is
likely to underpin renewed acceleration in the recovery
in shares and other growth oriented investments.

 Key risks relate to the US housing market, sovereign
debt in advanced countries and emerging market
inflation. However, with shares cheap and so much
liquidity around its also possible that returns surprise on
the upside after the consolidation of 2010

Read more here ....

Record Earnings To Propel Record High Stock Market Levels

September 29, 2010

This publication shows our compilation of the earnings estimates for various markets and regions, as well as the earning trends for the next two years. Earnings are expected to hit record levels by 2011 or 2012 for most markets and regions.

Read more here ....

Ways to Profit from QE 2: EQUITY AND BOND STRATEGY

Key Points:

 The Fed announced an initial US$600 billion asset purchase
programme (QE2) which will be completed by the end of the
second quarter of 2011

 Double-dip recession is not the chief factor for QE2. The
Japanese history has told us QE2 aims at managing price

It is evident that the lack of credit creation mainly comes from
the demand side, that is, consumers’ unwillingness to borrow.
QE would be ineffective when there is an absence of borrowers
in an economy, as liquidity injected by the central banks cannot
be circulated in the banking system

 While the effect of QE2 is still controversial, one thing is sure:
markets are flushed with liquidity. Risky assets will benefit from
the programme as excess liquidity will flow into the asset

 We identify three main investment trends amidst the QE period:
1. Risk-free asset will also be yield-free asset; Financial
Institutions like pension funds and insurance companies which
rely on the regular fixed income to maintain its cash flow will be
battered; The low cost of borrowing would encourage investment
which is a key positive catalyst for the re-rating in valuation

For the bond market, we favour high-yield corporate bonds,
Asian and emerging sovereign (EM) bonds on the back of
attractive yields and potential capital gains from currency
appreciation. We also expect investment-grade corporate bonds
to outperform as they will likely be the targets of the Fed’s asset
purchase programme

For the equity market, the emerging markets are likely to be the
biggest winners, compared with the developed markets in the
QE2. We think the Technology sector, the China A- and H-share
markets as well as the Hong Kong market are high ROE players
that are set for more upside. For value plays, Russia, Europe
and the Technology sector look attractive. Lastly, investors
looking for attractive yields may consider Taiwan and Europe

Guan Chong banks on Batam plant to meet rising cocoa demand

Saturday December 25, 2010


JOHOR BARU: Cocoa-derived food ingredient processor Guan Chong Bhd is counting on its new processing plant in Batam, Indonesia, to meet strong demand from chocolate manufacturers globally.
Chief executive officer and managing director Brandon Tay Hoe Liansaid the companys plant in Pasir Gudang, Johor, had reached its maximum capacity of 80,000 tonnes yearly with no more room for expansion.
He said the RM80mil Batam plant on a 3.3ha site would start production in the first quarter of next year. Initially, it will be able to process 60,000 tonnes of cocoa beans that will be sourced from all over Indonesia.
Alan Tay How Sik (left) and Brandon Tay Hoe Lian with some of the company’s products.
The Batam plant will increase its annual capacity to 180,000 tonnes within the next three years, overtaking the Pasir Gudang plant, Tay toldStarBizWeek after Guan Chongs EGM recently.
At the EGM, shareholders approved the issuance of 80 million bonus shares on the basis of 1-for-3 at 25 sen each and 60 million five-year warrants on the basis of 1-for-4.
Tay said prior to the setting up of the Batam plant, 60% of the cocoa beans processed at the Pasir Gudang plant came from Indonesia. However, starting next year, the plant would process beans imported from Ghana, Ivory Coast, Papua New Guinea and Solomon Islands.
Tay said Guan Chong would be the first foreign company to set up a cocoa beans-processing plant in Indonesia. There are other similar plants owned by Indonesian companies in Java and Sumatra.
Executive director Alan Tay How Sik said by setting up a plant in Batam, the company would save on the 10% export tax imposed by the Indonesian government on cocoa beans and other costs, including freight charges, as the cocoa beans no longer needed to be sent to Johor.
He said the company also enjoyed pioneer tax status and incentives as the Batam plant was set up in a Free Trade Zone which offered good infrastructure.
How Sik said the demand for cocoa for dark chocolate was now on the uptrend following scientific findings that eating dark chocolate could help reduce cardiovascular disease.
Guan Chong is one of the top 10 cocoa ingredient makers in the world, producing cocoa-derived food ingredients such as liquor, butter, cake and powder under the Favorich brand.
For the nine months ended Sept 30, the companys revenue soared to RM836mil from RM425mil in the same period a year earlier while net profit jumped six-fold to RM57mil against RM8mil previously.

It is not a sin when you buy LOW

Use fundamental analysis to pick the good quality stocks.
Use technical analysis to buy into the stocks.

Technical analysis versus Fundamental Analysis
Malaysian Personal Finance

Saturday, 25 December 2010

Bursa Malaysia: Follow the 'smart money'

It is probably wise to follow the "smart money" in investment. When smart money buys, we buy. When smart money sells, we sell.  What is smart money? How do we know which is smart money? When do we know smart money has started buying? Also, how do we know that the smart money is really "smart"?

What is smart money?
Smart money is a fund that is supposed to be influential and has a strong impact on stock prices. It is supposed to be well informed and know exactly when and what to invest.

Its actions may also move prices. Because of its reputation as a market mover, it is able to attract many followers who also join in the purchases, causing stock prices to move further. If smart money can make money most of the time, then tracking the investments of smart money and following its footsteps can be a profitable strategy.

In this article, we will discuss several types of smart money, some of which are really "smart" but some may have limited impact on the market.

Accumulation by owners
Purchases by owners of listed companies are deemed to be influential. As owners, they are required to make disclosures to the exchange after each purchase, and their transactions are regularly monitored by the market players.

Owners are supposed to know what happens in their companies. They know the prospects of the company. The future direction of the company is literally in their hands. There are many plans that they have for the company, which may not have been brought to the board for consideration. In many instances, preliminary discussions on deals are engaged by the owners privately.

Many dealmakers prefer to talk to owners who can make immediate decision on a deal, as getting the board's approval is probably just a formality if the owners have already agreed to the deal.

On the other hand, if there are troubles ahead, owners are definitely the first to sense them. If the company is not doing well or if its earnings are not improving, it is unlikely that the owners will buy the stock. They will probably wait for a better time to buy. At least, this is the perception of investors.

Investors will also feel more confident to participate in the stock if the owners have the confidence to buy the stock. Even if the stock price does not go up after a series of purchases by the owners, there is no pressure for other shareholders to sell.
On the other hand, if the market comes to know that an owner has been disposing of his stock in the market regularly or in large quantities, they may become very uncomfortable and wonder what's going wrong. Is there something that the owner knows that the public is not aware of? As such, disposals by owners will have more impact than their purchases.

However, owners of listed companies may have multiple objectives and it could be difficult to read their minds.

First, the owners may own a big percentage of the company and what they are buying could just be a small fraction of what they own. They may just want to support the share price to instil confidence in the market.

Second, if the owners pledged their shares to banks (owners' shares under nominees are likely to be pledged), they may need to support the share price to prevent force-selling by banks if the share price falls below a certain level.

? Third, owners prefer to invest in their own shares. Even if their stock is undervalued, there is no guarantee that it will go up, as there could be other stocks that are more attractive to fund managers.

Lastly, owners may also give a false impression of their action, as they may buy smaller quantities under their names but at the same time sell larger amount using nominee names, which is not uncommon in this part of the world.

As such, following this type of "smart money" may not be very reliable. Therefore, we need to know the character of the owners and whether they are credible or not.

Purchases by the EPF
The Employees Provident Fund (EPF) is the largest local equity investor in our stock market. It was reported that the EPF accounted for as much as 50% of the total traded volume during certain periods. Since the EPF is a large player, its actions have far-reaching impact on prices of many stocks.

Since most of its investments exceed 5% of the stock's paid-up capital, the EPF make regular disclosures on their purchases and disposals.
Sometimes, investors are puzzled why the EPF trades regularly between buy and sell.

The presumably unclear direction of trades is because the provident fund also appoints external fund managers (EFMs) who have the full discretion to buy or sell. As such, sometimes the EPF could be buying a stock but their EFMs could be selling the same stock on the same day.

In certain cases, one EFM buys but another EFM could be selling at the same time or a few days later. Hence, the disclosure by the EPF is a combination of trades by its internal fund managers as well as that of EFMs.

Due to the difference in opinion between the EPF and its EFMs, there is no clear signal of the direction of this powerful domestic fund. The fund could be big, but they are not "united" and they are in fact competing with each other. This is also a way to generate liquidity in the market. As such, relying on the trades of this "smart money" for direction may not be very reliable.

Even if the fund is buying a particular stock persistently, we observe that the stock price may not seem to rise substantially. This may be linked to the way the orders are placed - that is, they tend to buy lower after a completed trade. This is different from the trading style of foreign fund managers, which we shall discuss later in this article.

Actions of local institutions
Although other local institutions are smaller in size than the the EPF, they could be more focused when it comes to buying a stock. Generally, purchases on big-cap stocks by local institutions may not have much impact on the stock price.

Since big-cap stocks are widely owned by most local funds, such as mutual funds, insurance companies and asset management companies, for every purchase to lift the stock price, there could be several funds waiting to sell to the buyer. Local institutions are competing with each other to achieve maximum returns as they have their own stakeholders to answer to.

As the market continues to rise, more and more local institutions are seeking investment opportunities in undiscovered stocks and unpolished gems. Research houses are competing with each other to identify growth stocks with good earnings prospects and "good story" to satisfy the appetite of local funds and entice them to buy.

Most of these stocks are the tightly held mid- to small-cap stocks, where the valuation is generally much cheaper than that of the big-cap stocks. If the "story" is compelling, more funds are likely to participate in the purchases. If there are also private placements from the owners or by the company, a stock may attract even more interest and can move quite fast.
A stock may be attractive from various angles, but if there is no liquidity, most funds are hesitant to participate due to the lack of liquidity to get out when the need arises. When funds started to buy a stock, the rise in the share price is likely to bring out some sellers, which will lead to improved liquidity. The subsequent improvement in liquidity will in turn attract even more funds to partake in the "game". If there are sufficient "followers" the stock price will continue to climb; otherwise, it may just fizzle out a short jerk.

As such, local institutions could be a useful "smart money" to follow if they start to have position in smaller cap stocks. A neglected stock may turn out to be a star performer if the stock has been successfully promoted. There are a number of such well-promoted stocks which have performed very well this year.

Share buyback 
In the case of share buyback schemes by certain listed companies, this provides yet another hint to investors that the management believes the stocks are undervalued. Although share buybacks may not be very popular among listed companies in Malaysia, there are a number of listed companies that buy back their own shares regularly. The impact on the stock price will depend on how aggressive the share buyback is conducted. The degree of "aggressiveness" depends on the percentage of shares being bought back and the proportion of the share buyback against the daily traded volume.

From our observation, share buybacks seldom have much impact on stock price. Such repurchase of own share will definitely reduce the free-float of the stock in the market, but moving the stock price to a higher level is another issue. Share buyback may clear off some of the weak holders and place the stock in a good position to run if other strong buyers emerge. But for the stock to attract strong buyers, it must deliver results and show growth potential.

Buying by insiders 
Insiders are those who hold key positions in a company or those who have access to information not known to the public. Insiders include directors of the company, company secretary, senior management, corporate lawyer, auditors, merchant bankers who handle important corporate information for the company.

Because key personnel have unfair advantage over the public, it is illegal to trade on insider information, which unfortunately is very difficult to prove. To reduce the incidence of insider trading, blackout periods for the trading of stock are imposed before the release of important announcements and these include the announcement of quarterly results, right/bonus/split issues and other material announcements, which may have a strong impact on the share price.

The purchases made by insiders are difficult to detect. A sudden share price movement of a stock is usually suspected to be related to insiders who may use nominees to avoid detection. The only way to detect possible insider trading is through technical charts, which may reveal such activities from price movement as well as changes in volume. Otherwise, it is difficult to identify this type of "smart money".

Syndicate buying
A syndicate is also another influential force, as it normally focuses on a handful of stocks. The objective of such a syndicate is to make money. They may act independently or with the help of the owners or top management. They may or may not play based on insider information. If there is a stock worth buying with the intention to sell at a higher level, they will be interested. Stocks selected by a syndicate could be purely because of cheap valuation or some impending news, which could be entirely conceptual.

Although syndicated play could be powerful, their movement is very secretive and hard to predict. As a syndicate is out there to make money, they will use all sorts of tactics to achieve their objectives. The tricks may include dissemination of untimely rumours just to lure in other punters to help them to stir the market. Unknowing speculators could be drawn in by their own greed.

Going along with a syndicate is a risky game, as they will not disclose their game plan. They can play one game on the surface but at the same time be selling quietly at the back.

Inflow of foreign funds
Perhaps the most influential smart money is foreign funds. Foreign funds come in droves, which is more powerful than if they act individually. The movement of foreign funds, or simply hot money, follows certain investment themes for investment purposes. Their investment duration is normally fairly long to achieve maximum profit. One of the factors driving the flow of foreign funds is the direction of the US dollar. When the US dollar weakens, this hot money will flow to emerging markets and to Asia, causing market here to rise (See charts).

There is a number of reasons why following the footsteps of foreign fund managers are more reliable:

? Purchases by foreign fund managers are more dynamic, as they normally push up the share price when buying. In this way, not only can they obtain the quantity of shares required, they can also record immediate price appreciation.

? The quantity allocated to each stock is normally larger, as foreign funds are normally bigger in size and hence have bigger allocations.

? Unlike local funds, which probably have two dozen or more stocks,
foreign funds normally select a handful of local stocks to invest.

The strategy of investing by following the "smart money" must be very selective, as many of them are either not very effective or not reliable. It is better to follow foreign funds, which are more powerful and less deceitful.

Source: The EdgeDaily
Written by Ang Kok Heng   
Monday, 20 December 2010 11:01
Ang has 20 years' experience in research and investment. He is currently the chief investment officer of Phillip Capital Management Sdn Bhd.

A Framework for Selling a Stock

A Framework for Selling a Stock
Written by Greg Speicher on October 28, 2010

Determining a good strategy for when to sell a stock is both important and difficult. In simple terms, your returns are going to come from two primary sources:

1) the reappraisal of an undervalued holding to its intrinsic value and
2) growth in intrinsic value.

Many investors sell their holdings if the price appreciates to fair value. Others, like Buffett, Russo, Greenberg, etc. hold their stocks for the long-term and look for gains from growth in intrinsic value.

Both of these approaches work and have generated a great deal of wealth.

Read more here....