Sunday, 29 April 2012

How Checklists Can Help Investors

April 12 2012 

It is easy to drown in the flood of information available in the financial markets. There's always one more report to read, one more press release to peruse or one more chart to interpret. In such an environment, it's easy to get pulled off course; information intended to help you, can actually make it difficult to maintain a consistent investment process.

Unfortunately, the market rewards disciplined investing and often quickly punishes emotional, distracted or disorganized approaches. What's more, it's easy to forget discipline when things are going especially well or especially bad. And then there's just human nature – humans are fallible creatures and even the best find it difficult to remember or replicate what worked three or four years ago.

SEE: Stock-Picking Strategies 

Accordingly, investors should seek out ways to stay disciplined and methodical when it comes to researching new ideas, maintaining an existing portfolio and exiting positions. One of the best ways to achieve this is the use of checklists. Just as airline and military pilots have used checklists for decades to eliminate avoidable accidents and produce better results, so too can investors use checklists to develop better and more consistent investment behaviors
The Advantages of ChecklistsWords like "disciplined" and "methodical" are going to show up a few times in this article, and for good reason. A methodical and disciplined approach means that investors are considering the full range of the possibilities and risks, practicing careful due diligence and performing the detailed research that often accompanies long-term investment success. To that end, step-by-step checklists help foster, support and reinforce that step-by-step approach.

Checklists also help investors avoid lazy mistakes or short-cuts. Many investors, particularly value investors, claim that there is a wealth of information in the details and footnotes of filings like 10-Ks. That's true, but the fact remains that investors often forget to go through every step and read all of that material. They certainly may mean well, and they may even think they have done it, but it's all too easy to forget in a hectic and busy time. In other words, a checklist ensures than an investor always does what he or she intends to do. 

Checklists are also advantageous in that they leave a decision-making trail that can be modified and corrected with time. If an investment didn't work out, the investor can often see what went wrong and that may point to a necessary change in the process. Perhaps that investor ignored large insider sales or perhaps the investor failed to investigate what new products were coming out from rivals. Whatever the case may be, it can be a new item to add to the list. Just as airlines are constantly updating pilot checklists on the basis of experience (good and bad), so too should investors.
On the flip side, investors may also learn that they are being too strict or demanding; investors who see too many stocks succeed outside of their standards may need to revisit and revise those standards. If an investor can identify what works in the market, they can compare the qualities and characteristics of those stocks to the standards demanded by their checklists and see if they match appropriately.

Emotions are often the enemy of successful investors, and checklists can help sap the emotion from investment decisions. If nothing else, the methodical process of going through a checklist introduces a bit of tedium to offset those emotions and can allow a cooler head to prevail. The routine and ritual of going through a checklist can help preserve gains or avoid chasing bad ideas by not allowing investors to get carried away with momentum or hot stories.

The Disadvantages of ChecklistsWhile checklists are useful tools and this is a pro-checklist article, fairness demands that some of the downsides and disadvantages of checklists be presented as well.

For starters, checklists can feed a "paralysis by analysis" - the idea that there's always just one more piece of information to find before an investment decision can be made. This is especially true in cases where checklists have become too long or too thorough over time.
Checklists may also provide a false sense of security. Checklists are a consummate example of "garbage in, garbage out" and if investors build checklists on the basis of trivial or incorrect views of the market, the resulting investment performance will be lacking.

Lastly, checklists can be emotionally painful. It can ding the ego or pride to realize that you cannot do it all and need to rely on refreshers. Likewise, some investors love the rush that comes with investing on whim and emotion, and checklists can feel like straightjackets. Moreover, checklists eliminate some of the excuses that investors may like to use to explain losses – a consistent and methodical approach doesn't really allow for investors blaming "shorts," hedge funds or other fictional evil-doers for their losses.

Steps to Build a More Useful ChecklistAs there are so many different valid investment strategies out there, it is beyond the scope of a single article to offer the range of appropriate checklist permutations. Instead, there are some more general philosophies and approaches that can help investors create usable checklists for their own particular approach.

Above all, it is important to identify the key steps in the process and the key opportunities for a serious error. A fundamentals-based value investor, for instance, has to consider those financial footnotes, but likely has little reason to worry about chart patterns. Relying on technical analysis, though, may have to include a number of confirming or contradictory signals before coming to a final decision on a stock, while not worrying much (if at all) about the details of the company's off-balance sheet financing.

Checklists must also be brief. These are reminders and guides, not how-to manuals. Anything beyond a single page is likely to be too unwieldy to be practical, and investors are well-advised to create separate lists for separate tasks (like buying, evaluating current holdings and selling).

Last and not least, checklists need to be consistently evaluated and revised. When something goes wrong, identify the cause and evaluate the checklist to see if it needs revision. When something goes right, the same rules apply. Not all mistakes are preventable, but it is important to identify those that are and make sure they do not reoccur.

The Bottom LineChecklists are tools, not panaceas. If an investor can identify the aspects of an investment that indicate a possibility to outperform the market, it behooves them to make sure that they carefully evaluate every potential investment for those aspects and stay away from investments that do not have them. There is nothing sexy about checklists and most investors will find them to be tedious at first. As time goes on, though, and potential mistakes are avoided in lieu of real winners, diligent checklist-users are likely to find that this is a relatively simple and cheap means of boosting returns. 

Read more:

4 Steps To Creating A Better Investment Strategy

August 16 2010 

It is no secret that behind every successful investment manager there is a written, measurable and repeatable investment strategy. However, many investors jump from one trade to another, putting little effort into creating and measuring their overall strategies.

Read on to learn four questions that, when answered, will help you create a better investment strategy. The following questions will help you create an investment strategy that is written, measurable and backed by your own strong beliefs. This will lead to more consistent investment performance and help you mitigate emotional investment decisions. Most importantly, it will help you avoid a scattered portfolio of individual investments that, when looked at as a whole, have no overall theme or objective.

  • Can you write down your investment strategy as a process?To quote the late Dr. W. Edwards Deming, a world famous author and management quality consultant, "If you can't describe what you are doing as a process, you don't know what you are doing." Like anything that requires a disciplined process, it is important to write down your investment strategy. Doing this will help you articulate it. Once your strategy is written, you should look over it to make sure that it matches your long-term investment objectives. Writing down your strategy gives you something to revert back to in times of chaos, which will help you avoid making emotional investment decisions. It also gives you something to review and change if you notice flaws, or your investment objectives change. If you are a professional investor, having a written strategy will help clients better understand your investment process. This can increase trust, mitigate client inquiries and increase client retention.
  • Does your investment strategy contain a belief about why investments become over or undervalued? If so, how do you exploit that?This question could relate to whether or not you believe that investment markets are efficient. Ask yourself, "What makes me smarter than the market? What is my competitive advantage?" You may have special industry knowledge or subscribe to special research that few other investors have. Or, you may have beliefs about exploiting certain market anomalies, like buying stocks with low price-to-book ratios. Once you have decided what your competitive advantage is, you must decide how you can profitably execute a long-term trading plan to exploit it.
    Your trading plan should include rules for both buying and selling investments. Also, keep in mind that your competitive advantage can eventually lose its profitability simply by other investors implementing the same strategy. On the other hand, you may believe that investment markets are completely efficient, meaning that no investor has a consistent competitive advantage. In this case, it is best to focus your strategy on minimizing taxes and transaction costs by investing in passive indexes. (To read more on market efficiency and market anomalies, see What Is Market Efficiency?, and Making Sense Of Market Anomalies.)
  • Will your investment strategy perform well in every market environment? If not, when will it perform the worst?There is an old saying on Wall Street, "The market can remain irrational longer than you can remain solvent." Good investment managers know where their investment performance comes from, and can explain their strategy's strengths and weaknesses. As market trends and economic themes change, many great investment strategies will have periods of great performance followed by periods of lagging performance. Having a good understanding of your strategy's weaknesses is crucial to maintaining your confidence and investing with conviction, even if your strategy is temporarily out of vogue. It can also help you find strategies that may complement your own. A popular example of this would be mixing both value and growth investing strategies.
  • Do you have a system in place for measuring the effectiveness of your investment strategy?It is difficult to improve or fully understand something that you do not measure. For this reason, you should have benchmark to measure the effectiveness of your investment strategy. Your benchmark should match your investment objective, which in turn, should match your investment strategy.

    Two common types of investment benchmarks are relative and absolute benchmarks. An example of a relative benchmark would be a passive market index, like the S&P 500 Index or the Barclays Aggregate Bond Index. An example of an absolute benchmark would be a target return, such as 6% annually. Although it can be a time consuming process, it is important to consider the amount of risk you are taking relative to your investment benchmark. You can do this by recording the volatility of your portfolio's returns, and comparing it to the volatility of your benchmark's returns over of periods of time. More sophisticated measures of returns that adjust for risk are the Treynor Ratio and the Sharpe Ratio. (For more on risk adjusted returns please read, Understanding Volatility Measurements and Measure Your Portfolio's Performance.)

ConclusionSun Tzu, an ancient Chinese military general and strategist, once said, "Tactics without strategy is the noise before defeat". Sun Tzu knew that having a well thought out strategy before you go into battle is crucial to winning. Good money managers have a clear understanding of why investments are over and undervalued, and know what drives their investment performance. If you are going to battle against them everyday in investment markets, shouldn't you? Great trades may win battles, but a well-thought-out investment strategy wins wars.

Read more:

Credit ratings cut on cards for Malaysia

Credit ratings cut on cards for Malaysia
Malaysia Sun
Saturday 28th April, 2012  
Malaysia faces a credit ratings cut over concerns about its high national debt.
Malaysia faces a credit ratings cut over concerns about its high national debt.

Standard Poor's and Moody's have said there is a possibility that the credit rating could be downgraded if the debt is not lowered.

While Malaysia's central bank has said the national debt is manageable given Malaysia's improved economic credentials, there have been suggestions the debt has been created by current government politicians who have spent large amounts of government money to gain support ahead of the nearing general election.

The Malaysian national debt currently stands at 54 per cent of its gross domestic product.

Bersih: Punca Berlaku Kemalangan

Saturday, 28 April 2012



                                                               Notes  RM’000
Shareholders’ funds as at 31 October 2011        213,423
Property, Plant & Equipment impairment       1    (98,005)
Goodwill impairment                                     2    (36,730)
Receivables impairment                                3  (110,754)
Cash reduction                                             4      (6,442)
Inventory reduction                                      5      (5,232)
Payables adjustments                                   6    (25,302)
Increased borrowings                                   7    (14,212)
Others                                                         8         (407)
Shareholders’ funds as at 29 February 2012      (83,661)


1. Impairment to fair value, after taking into consideration additional depreciation since 31 October 2011, write down of assets that should have been expensed to profit & loss as opposed to being capitalized, movements in acquisitions and disposals, write-offs of assets that cannot be physically identified, write backs of assets that were not previously taken up, and possibly adjustments to assets that may have been suspected to be capitalized above fair market value arising partly from the preliminary forensic investigation.

 2. In view of the net liabilities position of the Group, goodwill is impaired in totality. 

 3. Adjustments have been made for movements in the ordinary course of business between 31 October 2011 and 29 February 2012, and which may relate to the losses incurred during the said period, provisions for doubtful debts and suspected financial irregularities arising from the preliminary findings of the forensic investigation.

4. Adjustments have been made for movements in the ordinary course of business between 31 October 2011 and 29 February 2012, and which may relate to the losses incurred during the said period, and after reconciling for transactions relating to suspected financial irregularities arising from the preliminary findings of the forensic investigation.

5. Adjustments have been made for movements in the ordinary course of business between 31 October 2011 and 29 February 2012, and which may relate to the losses incurred during the said period, and for obsolete inventories and inventories that cannot be physically identified. 

 6. Adjustments have been made for movements in the ordinary course of business between 31 October 2011 and 29 February 2012, and which may relate to the losses incurred during the said period, and for provisions relating to suspected financial irregularities arising from the preliminary findings of the forensic investigation.

7. Increased borrowings can be related to additional net borrowings of the Group between 31 October 2011 and 29 February 2012. Certain facilities, such as bonds, were paid off, whilst additional borrowings were drawn down, in particular bankers acceptances, during the period.

8. Others, relate to the write-off of investment in KPF Quality Foods Sdn Bhd, and increased deferred taxation provisions. The basis of arriving at the 29 February 2012 position is set out in the notes to the financial position.

Friday, 27 April 2012

Nestle Malaysia: The Highest Price per Share Stock in Bursa Malaysia today. Well done.

Friday April 27, 2012

Nestle Malaysia plans major capex investment


Managing director Peter R. Vogt said the company planned quite a sizeable investment to expand its manufacturing facility in Shah Alam.
“At the moment our engineering department is working on which production lines should be added and what is the exact size of investment needed,” he told reporters after the company's AGM yesterday.
Last year, Nestle Malaysia bought a piece of land adjacent to the company's plant in Shah Alam from British American Tobacco (M) Bhd (BAT) for RM36mil cash.
As for this year's capex, Vogt said it would spend about RM180mil, where a large portion of it would be for the upgrading of equipment.
“We are running 80% to 90% of capacity utilisation in many areas of our production thus we need to upgrade a lot of basic equipment,” he said.
Asked if Nestle was planning to increase the prices of its products, Vogt said the company had no plan to do so for the time being but was closely monitoring the price movements of commodities.
“We are buying forward or hedging certain commodities to minimise the impact of cost spike. We also are continuing with our Nestle Continuous Excellence initiatives, where every year we find new ways to save on cost.
“The objective of all these is to maintain the current price as long as we can,” he said.
Some of Nestle Malaysia's main raw materials used in its products are coffee, cocoa powder and milk solids.
On new product launches, Vogt said Nestle had strategised to have fewer but good quality product launches that would have long and strong marketability.
“The best example is our newest product Nescafe Dolce Gusto Espressomachine where we are planning to expand on its variety of beverages.
“Another good example is Milo, which is still strong in the market even after 40 to 50 years,” he said.
Asked whether Nestle Malaysia would market Pfizer's baby food products soon following the recent announcement that Nestle SA was acquiring Pfizer's infant nutrition division, Vogt said the transaction would need necessary regulatory approvals that would take six to 12 months.
“It's too early to say now how we are going to integrate this new development into Nestle Malaysia,” he said.
Despite the many uncertainties that could dampen global economic growth and further drive volatility in commodity costs, Nestle Malaysia on Wednesday announced a good set of financial results.
Its net profit for its first quarter ended March 31 was up 7.5% to RM158.1mil from the same quarter last year.
Turnover for the quarter stood at RM1.16bil, which reflected an 8.5% increase from a year ago.
The growth was driven by both domestic and export sales.
Vogt noted that Nestle Malaysia, which celebrated its 100th anniversary in Malaysia this year, had achieved the highest level rating in the 2011 Creating Shared Value (CSV) report, which accompanied the group's corporate and financial reports.
“The report was externally verified by Bureau Veritas Certification for an A+rating in accordance with Global Reporting Initiative 3.0 standards for the food Processing sector,” he said.

Thursday, 26 April 2012

How to do a stock research & analysis.

Opto Circuits India Ltd - Stock Research & Analysis
(15 Dec 2008)


Opto Circuits is a small company in Medical Electronics industry with focus in the niche areas of invasive (coronary stents) and non-invasive (sensors, patient monitors) segments. Prior to '2002 Opto's Revenues were less than Rs. 50 Cr. Today Revenues stand at Rs.468 Cr, with exports accounting for more than 95% of Revenues. Opto Circuits is based in Bangalore India and operates out of offices established in USA, Europe, South-East Asia, Latin America and the Middle East and boasts of a strong international distribution network present in over 70 countries.

The Numbers speak for themselves. Net profit margins are healthy (over 28%), great return on equity (~ 40%, unmatched in the Medical Electronics industry), and solid return on invested capital ratios (over 45%). Financial health has been steadily improving over the years with comfortable financial leverage (1.34) and Debt to equity (0.31), with solid Current & Quick ratios. However, Opto Circuits still has a long way to go before it can show loads of excess cash on its books, due to its aggressive business expansion. Free Cash Flow as a percentage of sales is ~6 percent. It has consistently increased Dividends per share and has a unique track record of rewarding shareholders with bonus shares every year, for the 7th straight year! Opto Circuits seems to enjoy an above-average Economic Moat and fares very well when compared to its peers in this Peer Comparison snapshot.

Though there are Significant Risks going forward, Opto Circuits has lots of positives going for it. Over the last 7 years since FY2002, Opto Circuits Revenues have clocked a long term sales growth of over 45% while long term EPS growth has galloped at a handsome 60% plus. It has been working steadily grow its business through pursuing organic growth through investments in manufacturing capacities and penetrating into newer markets, supplemented by inorganic growth through judicious acquisitions. To its credit Opto circuits has managed acquisitions so far quite well, drawing synergies by leveraging distribution networks and lower-cost manufacturing bases. There is some evidence of Sustainable Growth over the medium term. We posed a few questions to Opto Circuits Management to be able to understand and assess its longer-term prospects and growth sustainability, better.

Opto's track record so far evidences early signs of being served by a Competent Management Team. The stock is promising and there's nothing wrong with investing in a young growth company like Opto Circuits, as long as you know what you are getting into. It has a long way to go before it qualifies to be among the Core holdings in anyone's Portfolio. It’s a long shot, though one that might just pay you back many times over. However, this is only half the story because even the best companies are poor investments if purchased at too high a price. We cover Opto Circuits' stock valuation in the other half story. 

Read more here:

Midsize Stocks - A Good Choice for Anyone's Nest Egg

It isn’t easy to find a stock that has the magic — an enticing financial elixir that combines stability with the promise of a decent rate of growth.

  • Large-company stocks are relatively stable but move too slowly for many investors. 
  • Small-company stocks’ value can rise quickly but could be seen as a gamble at a time in which investors aren’t exactly excited by the notion of taking on added risk. 
Say the experts: Find the middle. “The $2 billion to $7 billion market-cap range is really a sweet spot in the market,” says Don Easley, portfolio manager of the T. Rowe Price Diversified Mid-Cap Growth Fund.

“There are a lot of interesting companies in that area and there’s certainly a place for mid-caps in anyone’s portfolio.”

Stocks at these midsized companies aren’t called the“sweet spot”without reason. Indeed, the class of stocks that not too many years ago were classless — lumped in with large-cap stocks — has outperformed their larger and smaller peers. 

BetterInvesting uses annual revenue to determine a company’s category.

  • For instance, midsized companies have annual revenues between $500 million and $5 billion
  • Small companies have revenue below $500 million and 
  • large-company revenue weighs in at more than $5 billion.

The companies screened should satisfy the following conditions:

1.  Past performances

  • trailing-12-month revenues of between $500 million and $5 billion;
  • five-year sales and earnings growth of at least 12 percent.
2.  Projected future performances
  • forecasted five-year annual earnings and sales growth of 12 percent; and 
  • a projected annual total return for the next three to five years of at least 12 percent. 

Also, look for Financial Strength and Earnings Predictability. 

As with any stock screen,this is just a starting point for research; no investment recommendations are intended.

Also, make sure any company of interest looks suitable on a Stock Selection Guide using your own judgments.

The Genetics of Investing

Are you one of the better investors?  The answer might lie in your genes.
Investors frequently fall prey to a myriad of asset-damaging biases, such as engaging in excess trading, being inadequately diversified or thinking that recent success proves you’re a genius unconstrained by the normal rules of sound financial management.
A recent academic paper titled “Why Do Individuals Exhibit Investment Biases?” by finance professors Henrik Cronqvist and Stephan Siegel argues that around 50% of the variation of biases among people comes from their genes.  What this means is that if you try to explain why some people make certain kinds of financial mistakes, about half of your explanation should point to genetics and the other half to environmental differences.
A key implication of the authors’ analysis is that you can’t trust your intuition with regard to investments because your genes probably push you to make irrational choices.  When deciding how to invest, consequently, you should be open to going against what feels right in favor of following sound investment advice such as buy and hold, diversify and don’t mistake luck for financial acumen.
The really interesting implications of this genetic analysis, however, won’t kick in until a lot more people get their genes sequenced.  The cost of digitally transcribing someone’s DNA is exponentially dropping.  It’s reasonable to predict that within 10 years, most everyone in rich countries will for health reasons have their DNA analyzed; after all, if your genes make you susceptible to a certain kind of cancer, you really want to know this so that you can get yourself tested.  But once you know your DNA and understand the genes that cause specific biases, you could learn exactly what kind of investment problems your genes predispose you to.
Parents could use information gleaned from their children’s DNA to figure out what kind of financial lessons to give their offspring, and to in part determine which of their children should have power of attorney over them if they become medically incapable of making financial decisions.

UMW advances following upgrade

Tuesday, 24 April 2012 15:59

KUALA LUMPUR (April 24): UMW HOLDINGS BHD [] shares advanced on Tuesday after Maybank Investment Bank Bhd Research upgraded the stock to a Buy from Hold and raised its target price to RM8.35 (from RM6.95).

“The disruption to the regional auto supply chain has abated while its O&G segment is at the cusp of a revival.

UMW now offers a recovery play angle with modest growth (3-year EPS CAGR of 20%) and undemanding valuations, supported by a decent dividend yield (6%),” it said.

Wednesday, 25 April 2012

Apple crushes Street targets, dispels iPhone fears

The company's logo is seen on the Apple store in Washington October 6, 2011.REUTERS/Yuri Gripas
The company's logo is seen on the Apple store in Washington October 6, 2011.
Credit: Reuters/Yuri Gripas

SAN FRANCISCO | Tue Apr 24, 2012 7:27pm EDT
(Reuters) - Apple Inc's quarterly results beat Wall Street estimates on stronger-than-expected demand for the iPhone, especially in the greater China region where sales jumped five-fold.
While iPad sales were a little lighter than expected, the overall results sent the stock up 7 percent, recouping some losses from the past two weeks that had stemmed from concerns about weakening sales growth for iPhones.
Apple sold 35.1 million iPhones - which accounts for about half its revenue - in the March quarter, outpacing the 30 million or so expected by Wall Street analysts.
Margins blew past forecasts - helped by lower-than-expected commodity costs - while a five-fold iPhone sales surge in China, Taiwan and Hong Kong bolstered revenue in the region to $7.9 billion.
Some investors had feared intensifying competition from Google Inc's Android phones - made by the likes of Motorola Mobility and Samsung Electronics - might pressure margins and eat into its market share.
"That shows they are able to maintain their pricing without compromising on growth," said Morningstar analyst Michael Holt.
"There are lower-priced alternatives from the Android world that are becoming more compelling. The concern was that Apple might sell more older models to be more competitive. That would have shown up in the gross margin. But aggregate gross margin and average revenue per device show that this hasn't happened."
Apple sold 11.8 million iPads, the latest version of which hit store shelves in mid-March. That compared with the average forecast of up to 13 million.
"There's no doubt looking in the last quarter and the Christmas season, Apple has executed very well. But you are starting to see the iPad ... reach some sort of saturation with the current product," said Patrick Becker, a principal at Becker Capital Management, which does not own Apple shares.
"These are the transitions you start to have without coming out with a brand new device. They have been extremely successful at bringing out new categories and it is new products that will drive up the stock price."
But it was Apple's flagship iPhone, which has helped revolutionize the smartphone industry, that hogged the spotlight on Tuesday.
"International iPhone sales were on fire," Apple Chief Financial Officer Peter Oppenheimer told Reuters in an interview, adding that sales of the smartphone in the Greater China region jumped five-fold from the previous year.
Responding to concerns that wireless carriers may reduce subsidies for the iPhone, thereby lowering Apple's profit margin, Chief Executive Tim Cook said the subsidies aren't large anyway, compared with what carriers can recoup from consumers over a 24-month contract period.
The so-called churn, or rate that customers switch from the iPhone to other models, is the lowest of any phone they sell, which has a "significant, direct financial benefit to the carrier," Cook added.
As for patent litigation battles with rivals, Cook said he preferred to settle if Apple could get a fair settlement. The company is fighting court battles with several Android phone makers, including Samsung, HTC Corp and Motorola in the United States and other countries.
Apple's strong results came after a 13 percent decline in its shares - long considered a must-have in most U.S. equity portfolios - over the past couple of weeks in unusually volatile trading, as investors fretted over potential competitive and pricing pressures.
Gross margins in the fiscal second quarter climbed to 47.4 percent from 41.4 percent a year earlier, surpassing Wall Street's average forecast of 42.8 percent.
The consumer electronics giant said its fiscal second-quarter revenue rose 59 percent to $39.2 billion, better than the average analyst estimate of $36.8 billion, according to Thomson Reuters I/B/E/S.
Net income rose to $11.6 billion, or $12.30 a share, from $6 billion, or $6.40 per share, a year earlier. That also outpaced Wall Street's target of $10.04 a share.
Apple's stock gained more than 7 percent to $601, from a close of $560.28 on Nasdaq. That is still far below its intraday high of $644 reached this month.
"When you have a strong rally in a stock it often sells off for no better reason than uncertainty. I think you're going to see the naysayers go away," said Michael Yoshikami, chief executive of Destination Wealth Management.

Investor concerns about the use of leverage in the Bakrie Group

Deadline looms for Bakries covenant breach

Mon Apr 23, 2012 7:11pm EDT

By Prakash Chakravarti and Janeman Latul

(Reuters) - Indonesian group Bakrie has until Friday to resolve a covenant breach on a $437 million loan following a drop in the price of its London-listed coal miner Bumi Plc last week, sources familiar with the loan said on Monday.

The breach was the latest in a series of debt problems for Bakrie Group, one of Indonesia's largest conglomerates and which avoided a debt crisis last year by selling a stake in Bumi Plc to an Indonesian investor for $1 billion.

Credit Suisse sent a notice on behalf of lenders to the borrower following the covenant breach, after Bumi Plc shares - pledged as collateral against the borrowing - slid 3.8 percent over the course of last week, according to the sources, who declined to be identified because the matter was not public.

Bumi Plc declined to comment. A director at the Bakrie Group's Jakarta-listed coal miner Bumi Resources said he was not aware of any default notice.

Bumi Resources shares dropped 7.4 percent on Monday, while Bumi Plc shares were down a further 7.6 percent on the day by 1150 GMT.

The sources said the notice required Bakrie Group to bring back the collateral coverage on the loan to a level that would require depositing cash of around $100 million with lenders.

Failure to do so by the deadline of April 27 would constitute a default that could lead to lenders demanding prepayment of the full $437 million loan.

The Financial Times first reported on Saturday that creditors issued a default notice on the $437 million loan.

One of the sources told Reuters that Bakrie family arm Long Haul, which took a $247 million portion of the loan, could either top up the loan or pay it and then refinance it.

Either way, a majority of creditors were backing the Bakrie Group so a default requiring full prepayment was seen as unlikely, meaning this was unlikely to become a new crisis, the source said.

A director at Bakrie Group holding firm Bakrie & Bros , which took the other $190 million of the loan that does not require a top-up, said: "We are not in any default situation with our loan at the moment."

Shares in Bakrie & Bros were unchanged on Monday.

Even so, the new debt issue is likely to add to investor concerns about the use of leverage in the Bakrie Group and its subsidiary companies and corporate governance, both issues that have weighed on its stocks in the past year.

Bumi Plc's stock has fallen 43 percent so far this year.

Bumi Plc sought to draw a line under discord between its main stakeholders last month, announcing a board shake-up that saw new major shareholder Samin Tan installed as chairman and that left a role for co-founder Nat Rothschild.

Tuesday, 24 April 2012

Average Malaysian household disposable income by decile (in USD)

Inline image 1

Source: Euromonitor International 2011
Note: Deciles are calculated by ranking all of the households in a country by disposable income level, from the lowest to the highest earning. The ranking is then split into 10 equal sized groups of households. Decile 1 refers to the lowest earning 10%, while decile 10 refers to the highest earnings10% of household.

According to Euromonitor, Malaysia’s income distribution is highly unequal being one of the highest in Southeast Asia with purchasing power concentrated among the high income individuals. The disposable income of the richest 10% (as per graph below) grew faster than that of the poorest 10% of households at a CAGR of 6.5% vs 4.7% respectively. Euromonitor expects the disparity in absolute amount to widen by 36 times by 2015.

from KN

Monday, 23 April 2012

Standard bull markets typically have a shelf life of less than four years

This Bull Market Is Hard to Pin Down
Published: March 24, 2012

HISTORY says that standard bull markets typically have a shelf life of less than four years. So when the bull that sprang to life in March 2009 turned 3 this month, it understandably raised some concerns.
Chris Goodney/Bloomberg News
Depending on how you mark the calendar, Wall Street’s recent surge could be just a late charge in a bull market ready to run its course. Or it could be the start of something bigger for stock investors.
Yet some strategists on Wall Street mark the calendar differently. They contend that the bull market that began in 2009 actually ended last year, when the Standard & Poor’s 500-stock index hit a rough patch from late April to early October.
During that stretch, the S.& P. 500 lost 19.4 percent from peak to trough based on daily closing prices — just shy of the 20 percent threshold for a bear market. On Oct. 3, though, the index actually fell through that barrier for a brief moment during the trading day.
If that was indeed a bear, the thinking goes, then a new bull market must have been born on Oct. 3. And that would imply not only that stocks have more room to run, but also that sectors like technology, which are sensitive to shifts in the economic cycle, are likely to do well. Despite a slight downturn last week, they have been buoyant for months.
“From an official standpoint, in terms of what Standard & Poor’s will count this as, the bull market is entering its fourth year because the market didn’t officially decline by 20 percent based on closing values,” says Sam Stovall, chief equity strategist for S.& P. Capital IQ. “However, if someone asks, ‘What do you think will happen in terms of performance?’ I think the market will act as if we’re in the first year of a new bull.”
At the moment, it is. Historically, the first years of major rallies provide investors with the biggest boost, with the S.& P. 500 having posted gains of 38 percent, on average, in Year 1 of past bull markets since World War II. True to form, the rally that began on Oct. 3 has already pushed the index 27 percent higher in less than six months.
That surge isn’t the only evidence supporting the view that Wall Street is in a new bull market. Normally, shares of small companies — considered higher-risk but higher-returning assets than blue-chip stocks — tend to outperform the broad market at the start of a new rally. Shares of large, industry-leading companies, by contrast, usually catch fire only after bull markets mature.
Sure enough, small-company stocks have been performing even better than the S.& P. 500 over the last six months. For instance, the Nasdaq composite index, made up of younger and faster-growing companies than are found in the S.& P. 500, is already up more than 31 percent since Oct. 3, while the Russell 2000 index of small stocks has gained 36 percent.
At the same time, economically sensitive sectors like technology and consumer discretionary stocks have been outpacing the broad market since October, which is also typical of the first years of bull markets, Mr. Stovall notes.
He added that if this were the fourth year of an aging bull, defensive areas of the market — like health care, consumer staples and utilities stocks — would be leading the charge. Yet they haven’t been.
Jason Hsu, chief investment officer for the investment consulting firm Research Affiliates, says that even if investors are not convinced that this is the start of a new bull, market psychology is likely to keep pushing the markets higher for now.
“Research on short-term momentum in asset prices says that if you had a strong six months of steady asset appreciation, that tends to drive further price appreciation,” he said.
He added that many investors “did not participate in the fairly speculative, risk-asset rally that began in October.” So, given the occasional herd mentality on Wall Street, these investors could simply be waiting for an opening to jump in. As a result, Mr. Hsu says he thinks that the broad market could keep rallying in the short run, and that there could be continuing demand for riskier, economically sensitive stocks, especially on market dips, he said.
TO be sure, there are different types of bull markets — so-called cyclical bulls that tend to run alongside a single economic expansion, as well as so-called secular bull markets that may last for more than a decade, often containing shorter bull and bear cycles within them. The stock market’s epic run from 1982 to 1999, for instance, was the last big example of a secular bull.
“I don’t think we’ve begun a new secular bull,” says Mark D. Luschini, chief investment strategist at Janney Montgomery Scott. He points out that historically, secular bulls tend to start at price-to-earnings ratios in the single digits, as was the case in 1982. But based on valuations using 10-year average profits, the market’s P/E ratio is above 20.
Doug Ramsey, chief investment officer at the Leuthold Group, also says that while this may be a new bull market, it is what he calls a “noneconomic” rally.
In other words, this bull market — unlike the one that began in March 2009 — emerged after a bear market that did not coincide with an official recession.
What’s the significance of that? “Recessions are what clear the decks for a longer-lasting recovery and drive valuations down to truly low levels from which bigger gains can spring,” he said.
Mr. Ramsey’s research on noneconomic bull markets since World War II found that these rallies tend to be shorter-lived — the average one lasted just 31 months. And they tend to be more muted. While the typical noneconomic bull market returned less than 62 percent, cumulatively, the median bull market that emerged after recessions gained nearly 102 percent.
Of course, given that stocks have gained 27 percent so far in their current rally, that would still leave the market some ample room for gains.