How to grow rich stealing super cash

How to grow rich stealing super cash
August 2, 2010

I propose a new push to educate industrious individuals looking at money-making opportunities in the $1.3 trillion Australian superannuation industry. I'm writing, of course, about organised criminals.

Given the rich range of opportunities available to rip-off superannuation money, I think it only fair the Australian Securities and Investments Commission provide a level playing field for the ne'er-do-wells by fully disclosing the loopholes.

Through a program of financial education, the commission can give these individuals what they want and indeed deserve from the current settings - a free ride with your superannuation cash.

As a handy guide for the commission, I propose any education program cover the following areas:

FINANCIAL SERVICES LICENCES

Criminal background? Dodgy past? Ownership of a financial services licensee is no problem.

How so? The commission does not apply a good-fame-and-character test to the owner of a company granted a financial services licence, but applies it to the directors.

BusinessDay exposed just such a situation this year when it reported on Jeffrey Revell-Reade who owned OzGroup, involved in managing super worth $600 million. Revell-Reade had been repeatedly named in relation to international penny stock scams.

All a person with a dubious past need do is own a company, appoint relatively clean-skin directors with some financial experience, and away you go - a financial services licence to play with.

Incidentally, even if the owner directly controls the financial services licensee, the commission doesn't say boo publicly. For example, companies controlled by a Hong Kong businessman Jack Flader, a central figure in the disappearance of $123 million in Trio Capital money, appointed two new directors to his financial planning business in June. The commission said this was not a problem.

PRODUCT DISCLOSURE STATEMENTS

If you are of a certain inclination you definitely do not want to tell investors exactly what you plan to do with their money.

Fortunately, the commission has, in my view, a track record of letting through misleading material that can be used to garner funds.

In the case of Trio Capital, the product disclosure statements for Astarra Strategic were revealed to be meaningless to the point of laughable.

In evidence to a liquidator's examination, the 24 years of investment experience referred to in Astarra Strategic's disclosure statement consisted of Shawn Richard, who described his qualifications as an office boy, and his less talented companion, Eugene Liu.

And away you go, harvesting $123 million in investments sent to an overseas company without another word.

Astarra is not an isolated case. I am aware of another product disclosure statement out there that does not name the investment manager.

Where is the money going? Who is placing it? The investor doesn't know. Neither does the commission. Pretty handy, hey?

CONFLICTS OF INTEREST

Fortunately for the criminally-minded, there are few legal obligations that effectively pick up conflicts of interest for those running superannuation funds.

Those patient enough can winkle their way into controlling all three elements within a superannuation fund: the administrator, the trustee and the investment manager.

In Trio Capital, all three became owned by the same enterprise, so the cash could be directed offshore without question.

Interestingly, large investment managers, such as AMP and Westpac, use exactly the same system.

Current practice means Bear Stearns could have set up in Australia in 2007 the You Beaut All You Can Eat CDO Superannuation Fund.

So this isn't just an education program for criminals; big corporations that act irresponsibly can get a leg up with this particular loophole.

FINANCIAL PLANNERS

Of course, your criminal enterprise needs a distribution network. And who better than a group of salespeople handsomely rewarded for selling your product?

Current settings allow all kinds of secret commissions to financial planning networks.

With Trio Capital, an $840,000 secret commission was paid by the investment manager to the Wollongong financial planner Tarrants that it happily called a "marketing allowance". These kinds of payments are due to be banned under the Bowen reforms. Fortunately for crims, there are still opportunities to use financial planners for their own ends. This rests in the ease with which planners and entire businesses can become "authorised representatives" of a financial services licensee.

The commission has no say about these "authorised representatives".

It does not check their credentials in any way. Instead it relies on financial services licensees to check the competence and integrity of their authorised reps.

Ahem. See point one.

BREAK THE LAW

Put a bit of spit and polish on the curriculum vitae. Even tell a few lies in your Australian Financial Services Licence application; the commission doesn't appear to look too hard.

And there you have it. Put in place the above steps and grab the money.

There is a lot of superannuation money. It has attracted a lot of interest of the wrong sort.

By rights the commission should be acting to fix these problems.

But until that time, the crims are free to use all the pointers outlined above.

In fact, they already have.

Source: The Sydney Morning Herald

http://www.brisbanetimes.com.au/business/how-to-grow-rich-stealing-super-cash-20100801-111ir.html

Historical Investment Data of iCap (6.6.2010)

Historical Investment Data of  iCap (6.6.2010)
http://spreadsheets.google.com/pub?key=tabklggxjRBwWBjk9zbdimg&output=html

A quick look at Berkshire Hathaway (18.5.2010)

5 Years Chart


1 Year Chart


A quick look at Berkshire Hathaway (18.5.2010)
http://spreadsheets.google.com/pub?key=t9N2GnBsVP0AVw8rAIxfDsw&output=html


Berkshire Hathaway vs 5108.KL

5 Years Chart


1 Year Chart

A few investing rules that will help you avoid financial frauds

"Those who cannot remember the past are condemned to repeat it."  
American philosopher George Santayana

To save you from financial ruin, here are a few investing rules that will help you avoid financial frauds:

1.  Do not invest in arcane schemes with promoters who will not explain the investments clearly.  Make sure you understand exactly where the investment costs and returns will come from and at what risk.

2.  Beware the "quick buck" or getting "something for nothing."  Promises of "too good to be true" returns are just that.

3.  Always do reference checking before investing.  Charlatans spend much time, money and effort in trying to appear legitimate.  Beware.  Do not be fooled.

Unfortunately, just following these three rules doesn't guarantee you will never be fleeced.  So do not 'put all your eggs in one basket.'  That way, even if you are duped, not everything is lost.  Diversify your investments.

Now, Mr Tan Teng Boo has so many things to sell you other than his newsletter.

Tan Teng Boo’s i Capital Global Fund & i Capital International Value Fund Review (And An Update to ICAP)

Apr 29th, 2010 by AhYap

A few years ago, Tan Teng Boo had only one thing to sell you, his newsletter.

Later he launched his first public fund known as theiCapital.biz Berhad (ICAP) listed in KLSE which I did a long review long long time ago. [iCAP review]

But last few years, he subsequently launched 2 other funds to sell to you, namely the iCapital Global Fund and theiCapital International Value Fund.

Due the the iCapital Global Fund big minimum investment requirement (USD200k!), many are kept out of the boat and so he launched his “International” fund in Australia later that requires only AUD20,000 minimum, so more people can join the “global investing” boat.

Now, Mr Tan has so many things to sell you other than his newsletter.

Some of these stuffs are good stuffs to buy, some are …

Read more:  at Ah Yap's Blog


Related:

A reputation build over 30 years can be destroyed in 5 minutes.

Investment Policies (Based on Benjamin Graham)

Quote: 'Profit from the information and inefficiencies of the market'

iCap Financial report for Q3 ending 28.2.2010

In the third quarter, iCap invested in a new un-named security and also made further investments in Suria Capital Holdings Bhd.

Subsequent to 28th February, 2010, iCap raised its cash holdings by selling all its stakes in KLK, LionDiv, PohKong, Swee Joo and Astro.

Reasons given:  Astro was sold as it was perceived to have limited upside; the other counters were sold due to concern a trade war between US and China would break out, with severe consequences for the global economy should it happen.

Let us make some wild guess.  It is an estimate that iCap probably raised a total of about $48 million cash from the sales of the above counters.  Adding this amount to its cash balance of $34.9 at the end of Q3 2010, meant that iCap's  has cash of about $83 million to invest.  As on 22.4.2010, iCap's NAV per share was $2.16 giving it a market capitalisation of $302.4 million, therefore the cash:equity ratio was probably 27%:73%.


Announcement date: 23.4.2010
http://announcements.bursamalaysia.com/EDMS/edmsweb.nsf/ba387758ae37412b482568a300466fb6/b77de936b272c7944825770e00399821/$FILE/3rd%20Q

Also read:

When to Sell? 

TAN TENG BOO: Top fund manager expects 30-40% gain next year

TAN TENG BOO: Top fund manager expects 30-40% gain next year

Written by Leong Chan Teik
Thursday, 12 November 2009

IF YOU have not heard of Tan Teng Boo before, you will find that he quickly shines through in an article in the current edition of The Edge newsweekly.

He is 55, and a Malaysian fund manager. His iCapital Global Fund has gained 64% this year as at end-September, resoundingly beating most global equity funds and the 22.5% return achieved by the MSCI World Index.

He has three funds operating in three countries investing in 42 countries.

My search on Google found a May 2009 article in the Malaysian newspaper, The Star, which quoted him saying (this may take your breath away!):

“I’m pretty damn good at what I do. I would say I am one of the top five fund managers in the world. It is a pity that people don’t really recognise that.”

Among the top 5? If true, we should pay close attention to what he says ......

Some highlights of The Edge’s article are summarized below. For the full-blown story, which we can't reproduce anyway, please go buy the magazine today (only $3.80).

* A bull market really? 

Mr Tan has no time for doubters who think the market could fall again on a double-dip recession.

“People are still seeing the rebound as a bear-market rally. In my view, it’s definitely a bull market. In fact, it’s a good old-fashioned bull rally and certainly a V-shaped recovery,” he said.

* Explain! 

Mr Tan said economic growth and corporate earnings are recovering and will become ‘self-enforcing’. He believes that global stocks could jump 30-40% next year.

And, of course, there’s China’s economic growth which will support a long market boom.

* What stocks are you betting on? 

He said his fund owns UK supermarket chain Tesco, UK engine manufacturer Rolls Royce, and German car maker Porsche.

As for Chinese companies, it owns shares in bank group Bank of East Asia, cigarette paper packaging firm Shanghai Asia Holdings and Beijing Capital Land. These are examples.

For his recently launched Australia-registered iCaptial International Value Fund, he has added Australia-listed Mermaid Marine, a diversified marine services provider, and Singapore-listed Mermaid Maritime,a drilling and sub-engineering service provider operating in the oil and gas industry.

”Mermaid Marine currently operates a fleet of oil supply vessels in the northern part of Western Australia, where Chevron has discovered the Gorgon oil fields. It is a huge project.”

Mermaid Maritime was bought at S$0.70 a share. The company was incorporated in Thailand and was listed on the Singapore bourse in 2007.

Its operations are mainly in Southeast Asia, including Thailand and Malaysia.

* How are you rewarded? 

His answer is surprising. According to the article, he does not pay himself a salary or take a director’s fee from the funds he manages. He lives on the investment gains generated by his personal investment portfolio.


http://www.nextinsight.net/content/view/1686/60/


Related:
Riding on the Coattail of Tan Teng Boo

Tan Teng Boo on investing in the Australian market

http://in.bgvip.tv/play.php?vid=27081931

icap NAV 11.3.2010

9.7.2009:
NAV per share RM 1.87
Share price RM 1.80
Discount to its NAV 3.7%

3.3.2010:
NAV per share RM 2.08
Share price RM 1.72
Discount to its NAV 17.3%

18.3.2010:
NAV per share RM 2.13
Share price MR 1.84
Discount to NAV 13.6%

icapital.biz is 'unpopular' and 'unloved' during this bull run!

Since the above icap posting on 3.3.2010, its NAV has risen by 5 sen and its market price has risen by 12 sen, narrowing the discount of its market price to NAV by 3.7%, from 17.3% to 13.6%.

icapital.biz is 'unpopular' and 'unloved' during this bull run!

29.7.2009:  NAV per share of icapital.biz was RM1.87; icapital.biz share price was around RM1.80.


3.3.2010:  NAV per share of icapital.biz was RM2.08; icapital.biz share price closed at RM1.72.  This price was a 17.3% discount to its NAV.

.  
Also read: Closed-ended funds: Why a discount, anyway?

Year to Date iCap Stock Performance

For the whole year of 2009, iCap share price was traded at a discount to its NAV.

The index linked stocks have outperformed iCap and most of the non-index linked stocks in KLSE for this year.

CHEAH CHENG HYE, 'Warren Buffett of the East'

December 21, 2009
CHEAH CHENG HYE, 'Warren Buffett of the East'

• “We are far from infallible. I’ve done a study of our decision-making process going back to 1993 and found that one third of the time, we made mistakes. One third were good moves and one third were neutral.”

• But in equity investing, it is stellar performance if you make lots of money on the decisions that turned out fine and lost not too much on those that went sour.

• In terms of client categories, about 82 per cent of all the assets under management came from institutions such as insurance companies, banks and conglomerates.

• The sparkling performance numbers: Value Partners has delivered a 16 per cent per annum compounded gain to its clients since 1993 when it was founded.

• In the last 10 years, including the disastrous 2008, the gain was 20.3 per cent a year compounded.

• On a yearly basis, Value Partners Classic Fund has made money in 12 out of the last 16 years of its existence.

• Last year was one of those four terrible years. The fund lost 47.9 per cent net – and that’s after selling down some stocks ahead of the crisis turning full blown.

• Last year aside, why is that intense analysis of reams of financial statements, lots of visits to companies and interviews with management can still lead an investor like Value Partners to make wrong conclusions about some stocks?

• In Mr Cheah’s words: corporate governance.  “If you isolate the mistakes of Value Partners, the single largest reason we find is our poor judgment of management’s integrity and quality. We thought the guy was honest but he turned out to be a crook.”

• He agreed to a suggestion that there’s randomness in the market, adding: “Yes, and the bad guys also come up with new ways to fool you!”

• The corporate governance challenge is not absent but is far less pressing when it comes to investing in China companies listed in Hong Kong. “It is a well regulated market. People have learnt the hard way that it makes no sense to ‘play a fool’ with Hong Kong regulators, as they will come down hard on you,” said Mr Cheah.

• “The average investor should only put a proportion of his money into equities. I believe that the potential risk-versus-opportunity situation today does not encourage an all-equity approach,” said Mr Cheah.

• “For myself, I would want to have a spread of money in cash, tangible assets like gold, and equities spread across different classes and geographic regions. No one can predict with any certainty what the world will be like two to three years from now.”

• I believe it should be in China-related stocks. I look at the map of the world and I’m unable to find any other major equity market that excites me or fills me with hope. This is a market I know very well: I have devoted 20 years of my life to it.”

• And among the important things that he is sure of, it is that the renminbi is going to resume its rise.

• In the longer-term, China has to reinvent is economy from being export-dependent to being underpinned by domestic demand. The country’s policy direction is pushing China banks to lend out more money, which could sow the seeds of bad loans in two or three years from now, according to Mr Cheah.

• “In the last couple of years, we have done about 2,000 company visits a year – excluding phone calls. We have done this in good and bad times. We have 18 full-time professionals, whose average age is in the early 30s. As far as I know, we do more company visits than any China team in the world.”

• Value Partners deems itself to be a value investor seeking stocks with low price-earnings ratios and high dividend yields of at least five per cent. Whichever industry it finds such stocks, it will buy them.

• “We don’t limit our stock picks to any industry. Our job is to buy the 3Rs – the right business run by the right people and selling at the right price. At the moment we are finding the 3Rs in a broad spectrum of businesses across China.”

• “As a former journalist, I had an advantage over people who were purely financial people. I learnt to put events in a historical, political and social context. Many people with CFAs or MBAs are narrow in that they tend to interpret reality through quantitative and statistical analysis.”

• If there’s one area he hasn’t quite succeeded in, it’s learning Mandarin. “My Mandarin is no good. I have a vocabulary of probably only 2,000 words. I took tuition but have seldom stayed more four or six months in any particular class before dropping out.

• For his part, Mr Cheah said that unlike most people who sought to make as much money as possible, he “had always come from the opposite angle - that you must be passionate about what you do and be very good in it. The money will come naturally.”

http://mystockfolio.blogspot.com/2009/12/cheah-cheng-hye-warren-buffett-of-east.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MyMalaysiaStockfolio+%28My+Malaysia+Stockfolio%29

"Warren Buffett" of Malaysia

http://spreadsheets.google.com/pub?key=tkb0enVog-PjOHzgbMUXi_w&output=html


The returns from iCap's winning transactions were truly fantastic. 

Are we looking at a budding "Warren Buffett" equivalent?

Wonder the 'cow' will jump over the moon?

iCap completed transactions - The Winners

http://spreadsheets.google.com/pub?key=tvUBvGFsmHcpydgvtogKM9Q&output=html

Analysing the Winners:

Total = 140 transactions

Holding Periods

less than 1 year
64 transactions
Holding Period Return less than 15% = 14
Holding Period Return more than 15% = 50

exceeding 1 year
29 transactions
CAGR less than 15% = 5
CAGR more than 15% = 24

exceeding 2 year
17 transactions
CAGR less than 15% = 8
CAGR more than 15% = 9

exceeding 3 year
5 transactions
CAGR less than 15% = 3
CAGR more than 15% = 2

exceeding 4 year
8 transactions
CAGR less than 15% = 8
CAGR more than 15% = 0

exceeding 5 year
3 transactions
CAGR less than 15% = 1
CAGR more than 15% = 2

exceeding 6 year
3 transactions
CAGR less than 15% = 3
CAGR more than 15% = 0

exceeding 7 year
4 transactions
CAGR less than 15% = 4
CAGR more than 15% = 0

exceeding 8 year
3 transactions
CAGR less than 15% = 3
CAGR more than 15% = 0

exceeding 9 year
2 transactions
CAGR less than 15% = 2
CAGR more than 15% = 0

exceeding 10 year
0 transactions
CAGR less than 15% = 0
CAGR more than 15% = 0

exceeding 11 year
2 transactions
CAGR less than 15% = 0
CAGR more than 15% = 2

Findings:

Of the 140 transactions:

• 51 (36%) have a return (HPR or CAGR) of less than 15% and
• an amazing 89 (64%) have a return (HPR or CAGR) of more than 15%

Of those transactions giving more than 15% HPR or CAGR, 93% ( 83/89) were stocks held for less than 3 years:

• 50 of the stocks were held for less than 1 year
• 24 of the stocks were held for more than 1 year but less than 2 years
• 9 stock were held for more than 2 years but less than 3 years.

Take Home Message:

1.  Of 4 stocks selected, 3 were winners and 1 was a loser.

 2.  Of the 3 winners:

• 1 gives a CAGR of less than 15% and
• an amazing 2 give a CAGR of greater than 15%.

 3.  Of 4 stocks selected:

• 1 faltered,
• 1 did fairly alright and
• 2 did exceptionally well.

Completed Transactions of iCap (1989 to 9.7.2009)

http://spreadsheets.google.com/pub?key=tQvTWgP7osgpwBxXVtVyy_g&output=html

There were 192 completed transactions over the period 1989 to 9th July, 2009.

There were 140 winners (73%) and 52 losers (27%). 
The ratio of winners to losers is 2.7 to 1.

Therefore, we can infer that for every 4 stocks picked by iCap (also known as ttb), 3 will be winners and 1 will be a loser.  :- ))  or  :- ((


Of these 192 transactions:
80 (42%) were sold within the 12 months holding period.
112 (58%) were sold after a holding period of more than 12 months.

Of the 140 winners:
64 (46%) were sold within the 12 months holding period.
76 (54%) were sold after a holding period of more than 12 months. 

Of the 52 losers:
16 (31%) were sold within the 12 months holding period.
36 (69%) were sold after a holding period of more than 12 months.


Ref:  http://icapital.biz/icapital2/other/completedtranx_en.pdf

Past Stock Selections in i Capital

Past Stock Selections in i Capital

Completed Transactions from 1989 to 9 Jul 2009
 
http://icapital.biz/icapital2/other/completedtranx_en.pdf
 
How to convert this pdf file into Microsoft Office Excel format to facilitate the calculation of the CAGR for each of the completed transactions?  TQ

What is the annual turnover of stocks in iCap?

In their continuing efforts to stay atop the best, many mutual funds engage in 50% to 100% or faster annual turnover (rather than buying and holding.)

Just wondering, what is the annual turnover of stocks in iCap? 

Is it surprising that iCap is trading at a discount?

During the last bull market, iCap traded at a high of $2.82.  There are many investors in the market with realised losses or who are still holding iCap shares at higher costs to its present price.

When selecting a closed-ended fund, investors must determine the reason the fund is trading at a discount and whether the discount is significant enought to be attractive. A discount may be justified by

•uncertainty,

•popularity or perceptions of the fund, and

•the underlying asset base.

Using closed-ended funds

iCap closed ended fund is structured for those investors who are seeking maximum portfolio gain and who are not interested in income. The dividends and the realised capital gains in iCap are reinvested to achieve the objective of maximising capital or portfolio gain. It is not hard to see that iCap closed ended funds should be considered a long-term investment.

Should iCap be trading at a premium? It is presently trading at a discount. Well, let not the manager of the fund pleads on this, let the investors decide. The manager should stay focus on just improving the quality of the fund's portfolio and returns.

If the economy does improve, the market is still very cheap at the present level.

Here are some articles of related interests:
Kinds of closed-ended funds
Closed-ended funds: 2 ways to make and 2 ways to lose money
Closed-ended funds: Why a discount, anyway?
Using closed-ended funds

iCap poses a challenge to active investors - Is it time for a re-think?

I started a new portfolio in October 2005. This coincided with the inception of iCap. closed ended fund.

Let us look at some data.

In Oct 2005:

KLCI was around 900

iCap NAV was $1.00 ($0.99 after deducting expenses)

23.7.2009 (after 45 months of investing = 3.75 years)

KLCI is around 1200, giving a cumulative total return of about 33% or a CAGR of 8%.

iCap NAV is $1.87, giving a cumulative total return of 86% or a CAGR of 18%. These are net of all expenses incurred by the fund. iCap in its latest report held 15.6% cash (41 m) with the rest invested in equity.

For the same period:

Savings in FD would have given a cumulative return of 15.84% at the generous annual interest rate of 4%.

My portfolio has a cumulative return of 45% or a CAGR of 10.4% for the same period.


Further observations:

At no period did the portfolio give a negative return, even during the recent severe bear market.

Of course, the return was very small at the depth of the severe bear market, threatening the loss of invested capital.

(However, as a long term investor, one can be comforted that the intrinsic value of the portfolio was definitely much higher than its market valuation.)

The time when the disparity between these two values of the portfolio was the biggest was also the best time to look for bargains. This called for courage and conviction on the part of the investor who has the capital to invest.

The cumulative total return of 45% for this portfolio, as of today, is made up of:
o dividend return of 12.2%,
o realised capital gain of 18.8% and
o unrealised capital gain of 13.9%.

Just like iCap, the calculations for this portfolio were based as if the investment was a lump sum at the start of the period (in reality, this was not the case), with dividends and realized capital gains reinvested. No cash was held in this portfolio, as this was the portion of my asset allocated to equity.

The Big Question.

Given the vastly superior performance of iCap closed ended fund, the question posed is: 'Should I continue to actively manage my own portfolio or should I turn into an even bigger investor into iCap fund?'

But then, this is a happy problem I can live with for a while yet.

Performance of iCap Closed Ended Fund (23.7.09)

http://spreadsheets.google.com/pub?key=tLGli-bysuYRLMUAtpdhnGg&output=html